You are on page 1of 144

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so# t e cred"tor 3. As to e!!ected cred"tors o! t e se$$er0mort#a#or 9o"d contract

$ o% $&&

STUDY GUIDE OF THE SPECIAL COMMERCIAL LAWS Prof. Tristan A. Catindig


I. BULK SALES LAW Act 3952 (1932), as amended by RA 111 (1947)
1.1. Topics A. Purpose To prevent t e de!raud"n# o! cred"tors by t e secret sa$e or d"sposa$ or mort#a#e "n bu$% o! a$$ or substant"a$$y a$$ o! merc ant&s stoc% o! #oods "n bu$% '. Types o! (a$es "n 'u$% Sec. 2 1) Any sa$e, trans!er, mort#a#e or ass"#nment o! a stoc% o! #oods, )ares, merc and"se, prov"s"ons, or mater"a$s otherwise than in the ordinary course o! trade and t e re#u$ar prosecut"on o! t e bus"ness o! t e vendor, mort#a#or, trans!eror, or ass"#nor* or 2) sa$e, trans!er, mort#a#e or ass"#nment o! all, or substantially all, o the business or trade t ereto!ore conducted by t e vendor, mort#a#or, trans!eror, or ass"#nor, or 3) o! a$$, or substant"a$$y a$$, o! t e i!tures and e"uip#ent used "n and about t e bus"ness o! t e vendor, mort#a#or, trans!eror, or ass"#nor, s a$$ be deemed to be a sa$e and trans!er "n bu$%, "n contemp$at"on o! t "s Act+ ,. -ut"es o! Person (e$$"n# "n 'u$% Sec 3, 4, 5 and 9 1) -e$"ver a s)orn )r"tten statement o! t e names and addresses o! a$$ cred"tors to ) om t e vendor or mort#a#or may be "ndebted, "nd"cat"n# t e amount o! "ndebtedness due or o)"n#, or to become due or o)"n# ((ec. 3)* 2) To app$y t e proceeds o! t e sa$e or mort#a#e pro.rata to cred"tors ((ec. 4)* 3) At $east 1/ days be!ore sa$e0trans!er0e1ecut"on o! mort#a#e, ma%e deta"$ed "nventory and to preserve t e same s o)"n# t e 2uant"ty and, to t e e1tent poss"b$e, t e cost pr"ce to t e vendor, etc. o! eac art"c$e to be "nc$uded "n t e sa$e, etc. ((ec. 5)* 4) 3"ve not"ce to every cred"tor at $east 1/ days be!ore t e sa$e or trans!er ((ec. 5)* 5) Re#"strat"on o! t e documents "n 'ureau o! Trade Re#u$at"on and ,onsumer Protect"on ((ec. 9). -. 4 en 5a) not App$"cab$e 1) A$$ cred"tors #"ve )r"tten )a"ver ((ec. 2)* 2) 6ud"c"a$ sa$es ((ec. 7) 8. ,onse2uences o! non.comp$"ance )"t dut"es From San Beda reviewer 1. 'et)een t e part"es 2. 'et)een persons ot er t an 9a$"d contract 9a$"d contract

:. ;nterpretat"on o! (tatute T e $a) "s pena$ "n nature and "n dero#at"on o! t e r"# t to a$"enate property )"t out restr"ct"on. T us, "ts prov"s"ons must be str"ct$y construed a#a"nst t e (tate and $"bera$$y "n !avor o! t e accused. 1.$ %ase (a$e <! :oundry ( op =ot ,overed 'y '5( &E'&LE ( W')* S+U TU)* ,1-./0 T e ob>ect o! t e sa$e ? a !oundry s op ? "s not covered by t e prov"s"ons o! t e 'u$% sa$es $a). 4 at )as so$d )as t e s op "tse$!, to#et er )"t t e #ood)"$$ and cred"ts, e2u"pment, too$s and mac "nery t ereo! ("nc$ud"n# a -od#e truc%), ) "c are not t e stoc% o! merc and"se, #oods, )ares, prov"s"ons or mater"a$s "n bu$% re!erred to "n t e $a). A !oundry s op manu!actures "ron )or%s or processes or casts meta$s. ;t does not se$$ merc and"se.

II. *E)E1AL B')2E2 WA1E3'USE A%T Act 3793 (1931), as amended by RA 237 (1947)
$.1 Topics A. Purpose 1) re#u$ate t e bus"ness o! rece"v"n# commod"t"es !or stora#e* 2) to protect persons ) o may )ant to ava"$ o! t e serv"ces* 3) to encoura#e t e estab$"s ment o! more )are ouses. '. 'us"ness o! rece"v"n# commod"ty !or stora#e Sec. 2 1) t e )are ouseman "s ob$"#ated to return t e very same commod"ty de$"vered to "m or to pay "ts va$ue* 2) t e commod"ty de$"vered "s to be m"$$ed !or t e o)ner t ereo!* 3) t e commod"ty de$"vered "s comm"n#$ed )"t t e commod"ty be$on#"n# to ot er persons, and t e )are ouseman "s ob$"#ate to return commod"ty o! t e same %"nd or to pay "ts va$ue. ,. Re2u"rement o! 5"cense Sec. 3 To ac "eve t e purposes ment"oned above, any person ) o )ants to en#a#e "n t e bus"ness o! rece"v"n# commod"t"es !or stora#e "s re2u"red by t e Act to !"rst secure a $"cense t ere!ore !rom t e -T; -. -ut"es o! 'onded 4are ouseman 1) "nsure t e commod"ty rece"ved !or stora#e a#a"nst !"re ((ec. @)* 2) rece"ve !or stora#e any commod"ty o! t e %"nd customar"$y stored by "m "n t e )are ouse, so !ar as "s $"cense and t e capac"ty o! "s )are ouse )"$$ perm"t, )"t out ma%"n# any d"scr"m"nat"on bet)een t e persons des"r"n# to ava"$ t emse$ves o! )are ouse !ac"$"t"es ((ec. 7)* 3) %eep a comp$ete record o! a$$ commod"t"es rece"ved by "m, o! t e rece"pts "ssued t ere!ore, o! t e )"t dra)a$s, o! t e $"2u"dat"on, and o! a$ t e rece"pts returned to and cance$$ed by "m ((ec. 9)

COMLAW REVIEWER 2009 $.$ %ases Rece"pt o! Pa$ay !or A"$$"n#

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

2 o% $&&

prov"s"ons o! t e 'onded 4are ouse Act. Ender (8, 1 o! t e 4are ouse Rece"pts Act, one )ou$d #at er t e "mpress"on t at t e "ssuance o! a )are ouse rece"pt "n t e !orm prov"ded by "t "s mere$y perm"ss"ve and d"rectory and not ob$"#atory.

LI45'%' ( 2I1E%T'1 '6 %'44E1%E ,1-7.0 :A,T(+ Pet"t"oner and usband are o)ners o! a r"ce m"$$. T e "ssue )as ) et er o! not t e 3enera$ 'onded 4are ouse Act "s app$"cab$e to er bus"ness. Pet"t"oner ar#ues t at s"nce er bus"ness "s t e m"$$"n# o! pa$ay, t e de$"very t ereo! to er "s mere$y "nc"denta$ to suc bus"ness and does not const"tute stora#e )"t "n t e mean"n# o! t e statute. B85-+ T e 3enera$ 'onded 4are ouse Act "s app$"cab$e. (8, 2 "s too c$ear to perm"t o! any e1erc"se "n construct"on or semant"cs. ;t does not stop at t e bare use o! t e )ord Cstora#e,C but e1press$y prov"des t at any contract or transact"on ) ere"n t e pa$ay de$"vered "s to be m"$$ed !or and on account o! t e o)ner s a$$ be deemed "nc$uded "n t e bus"ness o! rece"v"n# r"ce !or stora#e !or t e purpose o! t e Act. ;n ot er )ords, "t "s enou# t at t e pa$ay "s de$"vered, even "! on$y to ave "t m"$$ed. T e ma"n "ntent"on o! t e $a)ma%er "s to #"ve protect"on to t e o)ner o! t e commod"ty a#a"nst poss"b$e abuses (and )e m"# t add ne#$"#ence) o! t e person to ) om t e p ys"ca$ contro$ o! "s propert"es "s de$"vered. *'+ALES ( *' TI')* ,1-.80 :A,T(+ Pr"or to t e "ssuance o! t e $"cense to 3o T"on# to operate as bonded )are ouseman, e ad on severa$ occas"ons rece"ved pa$ay !or depos"t !rom p$a"nt"!! 3onDa$es, tota$"n# 3@7 sac%s, !or ) "c e "ssued .A!ter e )as $"censed as bonded )are ouseman, 3o T"on# a#a"n rece"ved var"ous de$"ver"es o! pa$ay !rom p$a"nt"!!, tota$"n# 492 sac%s, !or ) "c e "ssued t e correspond"n# rece"pts, a$$ t e #rand tota$ o! 7@/ sac%s, va$ued at P7,@// at t e rate o! P1/ per sac%. <n or about Aarc 15, 1953, p$a"nt"!! demanded !rom 3o T"on# t e va$ue o! "s depos"ts "n t e amount o! P7,@//, but e )as to$d to return a!ter t)o days, ) "c e d"d, but 3o T"on# a#a"n to$d "m to come bac%. A !e) days $ater, t e )are ouse burned to t e #round. 4 en p$a"nt"!! !"$ed su"t co c$a"m "s $osses, 3o T"on# ar#ued t at t e !ormer&s c$a"m "s #overned by t e ,"v"$ ,ode and not by t e 'onded 4are ouse Act (Act =o. 3793, as amended by Repub$"c Act =o. 247), !or t e reason t at, as a$ready stated, ) at 3o T"on# "ssued to p$a"nt"!! )ere ord"nary rece"pts, not t e )are ouse rece"pts contemp$ated by t e 4are ouse Rece"pts 5a), and because t e depos"ts o! pa$ay o! p$a"nt"!! )ere #ratu"tous. B85-+ 'onded 4are ouse Act app$"cab$e. Act =o. 3793 as amended "s a spec"a$ $a) re#u$at"n# t e bus"ness o! rece"v"n# commod"t"es !or stora#e and de!"n"n# t e r"# ts and ob$"#at"ons o! a bonded )are ouseman and t ose transact"n# bus"ness )"t "m. ,onse2uent$y, any depos"t made )"t "m as a bonded )are ouseman must necessar"$y be #overned by t e prov"s"ons o! Act =o. 3793. T e %"nd or nature o! t e rece"pts "ssued by "m !or t e depos"ts "s not very mater"a$ muc $ess dec"s"ve. T ou# "t "s des"rab$e t at rece"pts "ssued by a bonded )are ouseman s ou$d con!orm to t e prov"s"ons o! t e 4are ouse Rece"pts 5a), sa"d prov"s"ons "n our op"n"on are not mandatory and "nd"spensab$e "n t e sense t at "! t ey !e$$ s ort o! t e re2u"rements o! t e 4are ouse Rece"pts Act, t en t e commod"t"es de$"vered !or stora#e become ord"nary depos"ts and )"$$ not be #overned by t e

III. WA1E3'USE 1E%EI&TS A%T Act 2137 (1912)


9.1 Topics A. Purpose To prescr"be t e r"# ts and dut"es o! a )are ouseman and to re#u$ate t e re$at"ons "p bet)een a )are ouseman and+ 1) t e depos"tor o! #oods* 2) o$der o! a )are ouse rece"pt !or t e #oods* 3) person $a)!u$$y ent"t$ed to t e possess"on o! t e #oods* or 4) ot er persons. '. <b$"#at"on to "ssue rece"pt Sec. 2 A )are ouseman "s re2u"red to "ssue a rece"pt !or t e commod"ty e rece"ves !or stora#e. =o !orm "s prescr"bed, but "t s ou$d at $east conta"n t e !o$$o)"n# "n!ormat"on+ 1. 5ocat"on o! t e )are ouse 2. -ate o! ;ssue 3. Rece"pt number 4. 5an#ua#e to "nd"cate "! t e rece"pt )ere ne#ot"ab$e or non. ne#ot"ab$e 5. Rate o! stora#e c ar#es @. -escr"pt"on o! #oods or pac%a#es conta"n"n# t em 7. ("#nature o! t e )are ouseman or "s a#ent5an#ua#e "nd"cat"n# "! t e )are ouseman "s an o)ner so$e$y or >o"nt$y )"t ot ers, o! t e #oods depos"ted and 7. (tatement o! advances made by t e )are ouseman !or ) "c e c$a"ms a $"en ,. -e#ree o! ,are Sec. 3 T at de#ree o! care ) "c a reasonab$y care!u$ man )ou$d e1erc"se "n re#ard to s"m"$ar #oods o! "s o)n. -. F"nds or Rece"pts ((ec. 4.7) 1) =on.ne#ot"ab$e rece"pt a. one ) "c states t at t e #oods rece"ved by t e )are ouseman )"$$ be de$"vered to t e depos"tor or to any ot er spec"!"ed person b. t e )ord Gnon.ne#ot"ab$eH s ou$d be p$aced p$a"n$y upon "ts !ace 2) =e#ot"ab$e rece"pt a. <ne ) "c states t at t e #oods rece"ved by t e )are ouseman )"$$ be de$"vered to t e bearer or to t e order o! any person named "n suc rece"pt. b. ,an not be converted to non.ne#ot"ab$e 8. <b$"#at"on to -e$"ver 3oods ((ec. 7.9) 1) -e$"ver to ) om ? upon demand a. Bo$der o! t e rece"pt !or t e #oods b. -epos"tor 2) T e demand s ou$d be accompan"ed by+ a. An o!!er to sat"s!y t e )are ouseman&s $"en b. An o!!er to surrender t e rece"pt "! "t "s ne#ot"ab$e

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

' o% $&&

c. A read"ness and )"$$"n#ness to s"#n an ac%no)$ed#ement, ) en t e #oods are de$"vered, t at t ey ave been de$"vered "! suc "s re2uested by t e )are ouseman. :. 5"ab"$"ty !or A"sde$"very or ,onvers"on ((ec. 1/, 17.17) 1) 4 ere a )are ouseman de$"vers t e #oods to one ) o "s not "n !act $a)!u$$y ent"t$ed to t e possess"on o! t em 2) Be )ou$d a$so be $"ab$e !or m"sde$"very even "! e de$"vers to a person o$d"n# a non.ne#ot"ab$e rece"pt or a ne#ot"ab$e rece"pt, as prov"ded "n (8, 9(b) or (c) o! t e Act, "! pr"or to suc de$"very e ad e"t er+ a. 'een re2uested, by or on be a$! o! t e person $a)!u$$y ent"t$ed to a r"# t o! property or possess"on "n t e #oods, not to ma%e suc de$"ver* or b. Bad "n!ormat"on t at t e de$"very about to be made )as to one not $a)!u$$y ent"t$ed to t e possess"on o! t e #oods. 3. R"# ts o! Bo$der o! Rece"pt ,over"n# 3oods vs. <)ner o! 3oods =ot be"n# a ne#ot"ab$e "nstrument (but a -ocument o! T"t$e), t e o$der o! t e rece"pt can on$y ac2u"re suc r"# ts 0t"t$e to t e #oods as t e person ne#ot"at"n# t e rece"pt ad. T us, as bet)een t e o)ner o! t e #ood, and a o$der o! t e rece"pt o! t e #ood ) "c )as apparent$y sto$en, t e !ormer as a better r"# t. B. 4 en ne#ot"ab$e rece"pt not re2u"red to be surrendered ((ec. 9, 14 and 1@) 1) 4are ouseman "s >ust"!"ed "n de$"ver"n# #oods to t e !o$$o)"n# persons ((ec. 9)+ a. t e person $a)!u$$y ent"t$ed to t e possess"on o! t e #oods, or "s a#ent* b. A person ) o "s e"t er "mse$! ent"t$ed to de$"very by t e terms o! a non.ne#ot"ab$e rece"pt "ssued !or t e #oods, or ) o as )r"tten aut or"ty !rom t e person so ent"t$ed e"t er "ndorsed upon t e rece"pt or )r"tten upon anot er paper* or c. A person "n possess"on o! a ne#ot"ab$e rece"pt by t e terms o! ) "c t e #oods are de$"verab$e to "m or order, or to bearer, or ) "c as been "ndorsed to "m or "n b$an% by t e person to ) om de$"very )as prom"sed by t e terms o! t e rece"pt or by "s med"ate or "mmed"ate "ndorser. 2) 4 ere a ne#ot"ab$e rece"pt as been $ost or destroyed ((ec. 14) a. A court o! competent >ur"sd"ct"on may order t e de$"very o! t e #oods upon+ ". sat"s!actory proo! o! suc $oss or destruct"on and "". upon t e #"v"n# o! a bond )"t su!!"c"ent suret"es to be approved by t e court to protect t e )are ouseman !rom any $"ab"$"ty or e1pense b. T e court may a$so "n "ts d"scret"on order t e payment o! t e )are ousemanIs reasonab$e costs and counse$ !ees. c. T e de$"very o! t e #oods under an order o! t e court as prov"ded "n t "s (8,, s a$$ not re$"eve t e )are ouseman !rom $"ab"$"ty to a person to ) om t e ne#ot"ab$e rece"pt as been or s a$$ be ne#ot"ated !or va$ue )"t out not"ce o! t e proceed"n#s or o! t e de$"very o! t e #oods. 3) 4are ouseman cannot set up t"t$e "n "mse$! ((ec. 1@) a. =o t"t$e or r"# t to t e possess"on o! t e #oods, on t e part o! t e )are ouseman s a$$ e1cuse t e )are ouseman !rom $"ab"$"ty !or re!us"n# to de$"ver t e #oods accord"n# to t e terms o! t e rece"pt. b. 8J8,8PT+ suc t"t$e or r"# t "s der"ved d"rect$y or "nd"rect$y !rom a trans!er made by t e depos"tor at t e t"me o! or subse2uent to t e depos"t !or stora#e, or !rom t e )are ousemanIs $"en, ;. ,omm"n#$"n# o! 3oods ((ec. 22.23)

1) A )are ouseman must %eep t e #oods o! a depos"tor separate !rom t e #oods o! ot er depos"tors, or !rom t e #oods o! t e same depos"tor !or ) "c a separate rece"pt as been "ssued. 2) Rat"ona$e+ perm"t t e "nspect"on and rede$"very o! t e #oods depos"ted at a$$ t"mes 3) 8J,8PT+ a. T e #oods are !un#"b$e, A=b. T e comm"n#$"n# "s aut or"Ded by a#reement or by custom. 6. <t er 5"ab"$"t"es o! 4are ouseman 1) :a"$ure to mar% a rece"pt "ntended to be non.ne#ot"ab$e as Gnon. ne#ot"ab$eH ((ec. 7) a. 'ecause t e o$der o! t e rece"pt may treat t e same as ne#ot"ab$e. 2) :a"$ure to ta%e up and cance$ a ne#ot"ab$e rece"pt ) en #oods are de$"vered ((ec. 11) a. T e )are ouseman s a$$ be $"ab$e !or !a"$ure to de$"ver t e #oods to any one ) o purc ases !or va$ue "n #ood !a"t ". 4<= suc purc aser ac2u"red t"t$e to t e rece"pt be!ore or a!ter t e de$"very o! t e #oods by t e )are ouseman. "". ( a$$ be #u"$ty o! a cr"me pun"s ab$e by !"ne or "mpr"sonment. b. 8J,8PT+ ". 3oods ave been $a)!u$$y so$d to sat"s!y a )are ouseman&s $"en. "". 3oods ave been $a)!u$$y so$d or d"sposed o! because o! t e"r per"s ab$e or aDardous nature. 3) :a"$ure to ta%e up and cance$ a ne#ot"ab$e rece"pt or to p$ace upon "t a statement o! ) at #oods ave been de$"vered, ) en #oods are part$y de$"vered ((ec. 12) a. (ame as K2. 4) :or a$tered rece"pts F"nd o! A$terat"on 4are ouseman&s 5"ab"$"ty ;mmater"a$ 5"ab$e accord"n# to t e terms o! t e rece"pts as or"#"na$$y "ssued Aut or"Ded 5"ab$e accord"n# to t e terms o! t e rece"pts as aut or"Ded Enaut or"Ded but )"t out 5"ab$e accord"n# to t e terms o! !raudu$ent "ntent t e rece"pts as t ey )ere be!ore t e a$terat"on Enaut or"Ded but )"t 5"ab$e accord"n# to t e terms o! !raudu$ent "ntent t e rece"pts as or"#"na$$y "ssued, even a#a"nst+ ") a purc aser o! t e rece"pt !or va$ue )"t not"ce o! t e a$terat"on* 2) to t e person ) o made t e a$terat"on and to any person ) o too% "t )"t not"ce o! t e a$terat"on. Bo)ever, "n t e $atter case, suc mater"a$ and !raudu$ent a$terat"on s a$$ e1cuse t e )are ouseman !rom any ot er $"ab"$"ty to t e sa"d persons. 5) :or non.e1"stence or m"sdescr"pt"on o! #oods ((ec. 2/) a. 5"ab$e !or dama#es to o$der o! a rece"pt "! at t"me o! "ts "ssue, #oods not yet e1"sted or by !a"$ure o! t e #oods to matc desc"pt"on b. 8J,8PT+ ". (tatement o! t e mar%s or $abe$s upon t em or upon t e pac%a#es conta"n"n# t em* "". (tatement t at t e #oods are o! a certa"n %"nd at t at t e pac%a#es conta"n"n# t e #oods conta"n #oods o! a certa"n %"nds or by )ords o! s"m"$ar "mport 8#+ Grece"ved bo1 said to contain...H and not Gbo1 conta"n"n#LH @) :or comm"n#$"n# #oods ((ec. 24)

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

& o% $&&

a. ( a$$ be $"ab$e severa$$y to eac depos"tor !or t e care and rede$"very o! t e depos"tor&s s are o! t e mass o! comm"n#$ed #oods to t e same e1tent and under t e same c"rcumstances as "! t e #oods ad been %ept separate 7) :or "ssu"n# rece"pts !or #oods not rece"ved ((ec. 5/) a. ( a$$ be #u"$ty o! a cr"me "! e "ssues a rece"pt !or #oods t at ave not actua$$y been rece"ved by "m or are not under "s actua$ contro$ at t e t"me o! t e "ssuance o! t e rece"pt 7) :or "ssu"n# rece"pts conta"n"n# !a$se statements ((ec. 51) a. ( a$$ be #u"$ty o! a cr"me "! e !raudu$ent$y "ssues a rece"pt !or #oods %no)"n# t at "t conta"ns any !a$se statement 9) :or "ssu"n# dup$"cate rece"pts not so mar%ed ((ec. 52) a. 3u"$ty o! cr"me "! "ssues a dup$"cate or add"t"ona$ ne#ot"ab$e rece"pt !or #oods %no)"n# t at a !ormer ne#ot"ab$e rece"pt !or t e same #oods or any part o! t em "s outstand"n# and uncance$$ed, )"t out p$a"n$y p$ac"n# upon t e !ace o! t e rece"pt t e )ord Gdup$"cateH b. 8J,8PT+ "n t e case o! a $ost or destroyed rece"pt a!ter proceed"n#s as prov"ded !or "n (ec. 14 1/) :or "ssu"n# rece"pts !or t e )are ouseman&s #oods ) "c do not state t at !act ((ec. 53) a. 3u"$ty o! a cr"me "! e "ssues a ne#ot"ab$e rece"pt !or oods depos"ted )"t or e$d by "m o! ) "c e %no)s t at e "s t e o)ner, so$e$y or >o"nt$y or "n common )"t ot ers, "! e !a"$s to state suc o)ners "p "n t e rece"pt 11) :or de$"very o! #oods )"t out obta"n"n# ne#ot"ab$e rece"pt (sec. 54) a. 3u"$ty o! a cr"me "! e de$"vers #ods our o! "s possess"on %no)"n# t at a ne#ot"ab$e rece"pt "s oustand"n# and cance$$ed b. 8J,8PT+ ". 3oods ave been $a)!u$$y so$d to sat"s!y a )are ouseman&s $"en. "". 3oods ave been $a)!u$$y so$d or d"sposed o! because o! t e"r per"s ab$e or aDardous nature. """. ;n t e case o! $ost or destroyed rece"pt a!ter proceed"n#s ((ec. 14) F. 4are ouseman&s 5"en ((ec. 27, 27, 29, and 31) 1) -e!"n"t"on a. A )are ouseman as a $"en on t e #oods depos"ted )"t "m or on t e proceeds t ereo! "n t e "s ands !or a$$ $a)!u$ c ar#es !or stora#e and preservat"on o! t e #oods, money advanced by "m "n re$at"on to suc #oods suc as t e e1penses o! transportat"on or $abor, etc. 2) A#a"nst ) at property a. A$$ #oods be$on#"n# to t e person $"ab$e !or t e c ar#es b. A$$ #oods be$on#"n# to ot ers depos"ted by t e person $"ab$e !or t e c ar#es ) o as been entrusted )"t t e possess"on o! t e #oods and cou$d ave va$"d$y p$ed#ed t e same 3) 5ose 5"en a. 4are ouseman may $ose $"en by+ ". surrender"n# t e possess"on o! t e #oods because "t "s possessory "n nature "". re!us"n# to de$"ver t e #oods ) en a demand "s made )"t ) "c e "s bound to comp$y 4) 8!!ect o! sa$e to sat"s!y $"en a. T e )are ouseman s a$$ not, a!ter t e sa$e, be $"ab$e !or !a"$ure to de$"ver t e #oods to t e depos"tor or o)ner o! t e #oods or to t e o$der o! t e rece"pt 9.$ %ase &)B ( 5U2*E BE)IT' %. SE, 51. ,1--70

:A,T(+ P=' !"$ed !or attac ment o! severa$ 2uedans o! su#ar "n t e possess"on o! =oa &s Ar% (u#ar re!"nery. T e su#ar )as secur"ty !or $oans o! P='&s c$"ents ) "c t ey !a"$ed to pay. =oa &s Ar% c$a"med t at t ey )ere t e o)ners o! t e su#ar. B85-+ 4 "$e t e P=' "s ent"t$ed to t e stoc%s o! su#ar as t e endorsee o! t e 2uedans, de$"very to "t s a$$ be e!!ected on$y upon payment o! t e stora#e !ees. ;mperat"ve "s t e r"# t o! t e )are ouseman to demand payment o! "s $"en at t "s >uncture, because, "n accordance )"t (8, 29 o! t e 4are ouse Rece"pts 5a), t e )are ouseman $oses "s $"en upon #oods by surrender"n# possess"on t ereo!. ;n ot er )ords, t e $"en may be $ost ) ere t e )are ouseman surrenders t e possess"on o! t e #oods )"t out re2u"r"n# payment o! "s $"en, because a )are ouseman&s $"en "s possessory "n nature. (8, 14. 5ost or destroyed rece"pts. M 4 ere a ne#ot"ab$e rece"pt as been $ost or destroyed, a court o! competent >ur"sd"ct"on may order t e de$"very o! t e #oods upon sat"s!actory proo! o! suc $oss or destruct"on and upon t e #"v"n# o! a bond )"t su!!"c"ent suret"es to be approved by t e court to protect t e )are ouseman !rom any $"ab"$"ty or e1pense, ) "c e or any person "n>ured by suc de$"very may "ncur by reason o! t e or"#"na$ rece"pt rema"n"n# outstand"n#. T e court may a$so "n "ts d"scret"on order t e payment o! t e )are ousemanIs reasonab$e costs and counse$ !ees. T e de$"very o! t e #oods under an order o! t e court as prov"ded "n t "s (8,, s a$$ not re$"eve t e )are ouseman !rom $"ab"$"ty to a person to ) om t e ne#ot"ab$e rece"pt as been or s a$$ be ne#ot"ated !or va$ue )"t out not"ce o! t e proceed"n#s or o! t e de$"very o! t e #oods. (8, 3@. 8!!ect o! sa$e. M A!ter #oods ave been $a)!u$$y so$d to sat"s!y a )are ousemanIs $"en, or ave been $a)!u$$y so$d or d"sposed o! because o! t e"r per"s ab$e or aDardous nature, t e )are ouseman s a$$ not t erea!ter be $"ab$e !or !a"$ure to de$"ver t e #oods to t e depos"tor or o)ner o! t e #oods or to a o$der o! t e rece"pt #"ven !or t e #oods ) en t ey )ere depos"ted, even "! suc rece"pt be ne#ot"ab$e.

I(. %3ATTEL 4'1T*A*E LAW Act 15/7 (19/@), "n re$at"on to Art"c$es 1474, 1475, 214/ and 214/ ,"v"$ ,ode
Act 1508 Sec. 3 , atte$ mort#a#e de!"ned. M A c atte$ mort#a#e "s a cond"t"ona$ sa$e o! persona$ property as secur"ty !or t e payment o! a debt, or t e per!ormance o! some ot er ob$"#at"on spec"!"ed t ere"n, t e cond"t"on be"n# t at t e sa$e s a$$ be vo"d upon t e se$$er pay"n# to t e purc aser a sum o! money or do"n# some ot er act named. ;! t e cond"t"on "s per!ormed accord"n# to "ts terms t e mort#a#e and sa$e "mmed"ate$y become vo"d, and t e mort#a#ee "s t ereby d"vested o! "s t"t$e. Sec 4 9a$"d"ty. M A c atte$ mort#a#e s a$$ not be va$"d a#a"nst any person e1cept t e mort#a#or, "s e1ecutors or adm"n"strators, un$ess t e possess"on o! t e property "s de$"vered to and reta"ned by t e mort#a#ee or un$ess t e mort#a#e "s recorded "n t e o!!"ce o! t e re#"ster o! deeds o! t e prov"nce "n ) "c t e mort#a#or res"des at t e t"me o! ma%"n# t e same, or, "! e res"des )"t out t e

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

( o% $&&

P "$"pp"ne ;s$ands, "n t e prov"nce "n ) "c t e property "s s"tuated+ Prov"ded, o)ever, T at "! t e property "s s"tuated "n a d"!!erent prov"nce !rom t at "n ) "c t e mort#a#or res"des, t e mort#a#e s a$$ be recorded "n t e o!!"ce o! t e re#"ster o! deeds o! bot t e prov"nce "n ) "c t e mort#a#or res"des and t at "n ) "c t e property "s s"tuated, and !or t e purposes o! t "s Act t e c"ty o! Aan"$a s a$$ be deemed to be a prov"nce. Sec 5 :orm. M A c atte$ mort#a#e s a$$ be deemed to be su!!"c"ent ) en made substant"a$$y "n accordance )"t t e !o$$o)"n# !orm, and s a$$ be s"#ned by t e person or persons e1ecut"n# t e same, "n t e presence o! t)o )"tnesses, ) o s a$$ s"#n t e mort#a#e as )"tnesses to t e e1ecut"on t ereo!, and eac mort#a#or and mort#a#ee, or, "n t e absence o! t e mort#a#ee, "s a#ent or attorney, s a$$ ma%e and subscr"be an a!!"dav"t "n substance as ere"na!ter set !ort , ) "c a!!"dav"t, s"#ned by t e part"es to t e mort#a#e as above stated, and t e cert"!"cate o! t e oat s"#ned by t e aut or"ty adm"n"ster"n# t e same, s a$$ be appended to suc mort#a#e and recorded t ere)"t . :<RA <: ,BATT85 A<RT3A38 A=- A::;-A9;T. CT "s mort#a#e made t "s NNNN day o! NNNNNN19NNNN by NNNNNNNNNNNNNNN, a res"dent o! t e mun"c"pa$"ty o! NNNNNNNNNNNNNN, Prov"nce o! NNNNNNNNNNNN, P "$"pp"ne ;s$ands mort#a#or, to NNNNNNNNNNNN, a res"dent o! t e mun"c"pa$"ty o! NNNNNNNNNNN, Prov"nce o! NNNNNNNNNNNNNN, P "$"pp"ne ;s$ands, mort#a#ee, )"tnesset + CT at t e sa"d mort#a#or ereby conveys and mort#a#es to t e sa"d mort#a#ee a$$ o! t e !o$$o)"n#.descr"bed persona$ property s"tuated "n t e mun"c"pa$"ty o! NNNNNNNNNNNNNN, Prov"nce o! NNNNNNNNNNNN and no) "n t e possess"on o! sa"d mort#a#or, to )"t+ (Bere "nsert spec"!"c descr"pt"on o! t e property mort#a#ed.) CT "s mort#a#e "s #"ven as secur"ty !or t e payment to t e sa"d NNNNNN, mort#a#ee, o! prom"ssory notes !or t e sum o! NNNNNNNNNNNN pesos, )"t (or )"t out, as t e case may be) "nterest t ereon at t e rate o! NNNNNNNNNNN per centum per annum, accord"n# to t e terms o! NNNNNNNNNN, certa"n prom"ssory notes, dated NNNNNNNNN, and "n t e )ords and !"#ures !o$$o)"n# ( ere "nsert copy o! t e note or notes secured). C(;! t e mort#a#e "s #"ven !or t e per!ormance o! some ot er ob$"#at"on as"de !rom t e payment o! prom"ssory notes, descr"be correct$y but conc"se$y t e ob$"#at"on to be per!ormed.) CT e cond"t"ons o! t "s ob$"#at"on are suc t at "! t e mort#a#or, "s e"rs, e1ecutors, or adm"n"strators s a$$ )e$$ and tru$y per!orm t e !u$$ ob$"#at"on (or ob$"#at"ons) above stated accord"n# to t e terms t ereo!, t en t "s ob$"#at"on s a$$ be nu$$ and vo"d. C81ecuted at t e mun"c"pa$"ty o! NNNNNNNNN, "n t e Prov"nce o! NNNNNNNN, t "s NNNNN day o! 19NNNNN NNNNNNNNNNNNNNNNNNNN (("#nature o! mort#a#or.) C;n t e presence o! CNNNNNNNNNNNNNNNNN

CNNNNNNNNNNNNNNNNN (T)o )"tnesses s"#n ere.) :<RA <: <ATB. C4e severa$$y s)ear t at t e !ore#o"n# mort#a#e "s made !or t e purpose o! secur"n# t e ob$"#at"on spec"!"ed "n t e cond"t"ons t ereo!, and !or no ot er purpose, and t at t e same "s a >ust and va$"d ob$"#at"on, and one not entered "nto !or t e purpose o! !raud.C :<RA <: ,8RT;:;,AT8 <: <ATB. CAt NNNNNNNNNNN, "n t e Prov"nce o! NNNNNNNNN, persona$$y appeared NNNNNNNNNNNN, t e part"es ) o s"#ned t e !ore#o"n# a!!"dav"t and made oat to t e trut t ereo! be!ore me. CNNNNNNNNNNNNNNNNNNNNNNNNNNNNNC (=otary pub$"c, >ust"ce o! t e peace, 1 or ot er o!!"cer, as t e case may be.) Sec 6 ,orporat"ons. M 4 en a corporat"on "s a party to suc mort#a#e t e a!!"dav"t re2u"red may be made and subscr"bed by a d"rector, trustee, cas "er, treasurer, or mana#er t ereo!, or by a person aut or"Ded on t e part o! suc corporat"on to ma%e or to rece"ve suc mort#a#e. 4 en a partners "p "s a party to t e mort#a#e t e a!!"dav"t may be made and subscr"bed by one member t ereo!. Sec 7 -escr"pt"ons o! property. M T e descr"pt"on o! t e mort#a#ed property s a$$ be suc as to enab$e t e part"es to t e mort#a#e, or any ot er person, a!ter reasonab$e "n2u"ry and "nvest"#at"on, to "dent"!y t e same. ;! t e property mort#a#ed be $ar#e catt$e,C as de!"ned by (8, one o! Act =umbered 8$even and !orty.seven, 2 and t e amendments t ereo!, t e descr"pt"on o! sa"d property "n t e mort#a#e s a$$ conta"n t e brands, c$ass, se1, a#e, %nots o! rad"ated a"r common$y %no)n as remo$"nos, or co)$"c%s, and ot er mar%s o! o)ners "p as descr"bed and set !ort "n t e cert"!"cate o! o)ners "p o! sa"d an"ma$ or an"ma$s, to#et er )"t t e number and p$ace o! "ssue o! suc cert"!"cates o! o)ners "p. ;! #ro)"n# crops be mort#a#ed t e mort#a#e may conta"n an a#reement st"pu$at"n# t at t e mort#a#or b"nds "mse$! proper$y to tend, care !or and protect t e crop ) "$e #ro)"n#, and !a"t !u$$y and )"t out de$ay to arvest t e same, and t at "n de!au$t o! t e per!ormance o! suc dut"es t e mort#a#e may enter upon t e prem"ses, ta%e a$$ t e necessary measures !or t e protect"on o! sa"d crop, and reta"n possess"on t ereo! and se$$ t e same, and !rom t e proceeds o! suc sa$e pay a$$ e1penses "ncurred "n car"n# !or, arvest"n#, and se$$"n# t e crop and t e amount o! t e "ndebtedness or ob$"#at"on secured by t e mort#a#e, and t e surp$us t ereo!, "! any s a$$ be pa"d to t e mort#a#or or t ose ent"t$ed to t e same. A c atte$ mort#a#e s a$$ be deemed to cover on$y t e property descr"bed t ere"n and not $"%e or subst"tuted property t erea!ter ac2u"red by t e mort#a#or and p$aced "n t e same depos"tory as t e property or"#"na$$y mort#a#ed, anyt "n# "n t e mort#a#e to t e contrary not)"t stand"n#. Sec. 8 :a"$ure o! mort#a#ee to d"sc ar#e t e mort#a#e. M ;! t e mort#a#ee, ass"#n, adm"n"strator, e1ecutor, or e"t er o! t em, a!ter per!ormance o! t e cond"t"on be!ore or a!ter t e breac t ereo!, or a!ter tender o! t e per!ormance o! t e cond"t"on, at or a!ter t e t"me !"1ed !or t e per!ormance, does not )"t "n ten days a!ter be"n# re2uested t ereto by any person ent"t$ed to redeem, d"sc ar#e t e

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

) o% $&&

mort#a#e "n t e manner prov"ded by $a), t e person ent"t$ed to redeem may recover o! t e person ) ose duty "t "s to d"sc ar#e t e same t)enty pesos !or "s ne#$ect and a$$ dama#es occas"oned t ereby "n an act"on "n any court av"n# >ur"sd"ct"on o! t e sub>ect. matter t ereo!. Sec. 13 4 en t e cond"t"on o! a c atte$ mort#a#e "s bro%en, a mort#a#or or person o$d"n# a subse2uent mort#a#e, or a subse2uent attac "n# cred"tor may redeem t e same by pay"n# or de$"ver"n# to t e mort#a#ee t e amount due on suc mort#a#e and t e reasonab$e costs and e1penses "ncurred by suc breac o! cond"t"on be!ore t e sa$e t ereo!. An attac "n# cred"tor ) o so redeems s a$$ be subro#ated to t e r"# ts o! t e mort#a#ee and ent"t$ed to !orec$ose t e mort#a#e "n t e same manner t at t e mort#a#ee cou$d !orec$ose "t by t e terms o! t "s Act. Sec. 14 (a$e o! property at pub$"c auct"on* <!!"cerIs return* :ees* -"spos"t"on o! proceeds. M T e mort#a#ee, "s e1ecutor, adm"n"strator, or ass"#n, may, a!ter t "rty days !rom t e t"me o! cond"t"on bro%en, cause t e mort#a#ed property, or any part t ereo!, to be so$d at pub$"c auct"on by a pub$"c o!!"cer at a pub$"c p$ace "n t e mun"c"pa$"ty ) ere t e mort#a#or res"des, or ) ere t e property "s s"tuated, prov"ded at $east ten daysI not"ce o! t e t"me, p$ace, and purpose o! suc sa$e as been posted at t)o or more pub$"c p$aces "n suc mun"c"pa$"ty, and t e mort#a#ee, "s e1ecutor, adm"n"strator, or ass"#n, s a$$ not"!y t e mort#a#or or person o$d"n# under "m and t e persons o$d"n# subse2uent mort#a#es o! t e t"me and p$ace o! sa$e, e"t er by not"ce "n )r"t"n# d"rected to "m or $e!t at "s abode, "! )"t "n t e mun"c"pa$"ty, or sent by ma"$ "! e does not res"de "n suc mun"c"pa$"ty, at $east ten days prev"ous to t e sa$e. T e o!!"cer ma%"n# t e sa$e s a$$, )"t "n t "rty days t erea!ter, ma%e "n )r"t"n# a return o! "s do"n#s and !"$e t e same "n t e o!!"ce o! t e re#"ster o! deeds ) ere t e mort#a#e "s recorded, and t e re#"ster o! deeds s a$$ record t e same. T e !ees o! t e o!!"cer !or se$$"n# t e property s a$$ be t e same as "n t e case o! sa$e on e1ecut"on as prov"ded "n Act =umbered <ne undred and n"nety, 4 and t e amendments t ereto, and t e !ees o! t e re#"ster o! deeds !or re#"ster"n# t e o!!"cerIs return s a$$ be ta1ed as a part o! t e costs o! sa$e, ) "c t e o!!"cer s a$$ pay to t e re#"ster o! deeds. T e return s a$$ part"cu$ar$y descr"be t e art"c$es so$d, and state t e amount rece"ved !or eac art"c$e, and s a$$ operate as a d"sc ar#e o! t e $"en t ereon created by t e mort#a#e. T e proceeds o! suc sa$e s a$$ be app$"ed to t e payment, !"rst, o! t e costs and e1penses o! %eep"n# and sa$e, and t en to t e payment o! t e demand or ob$"#at"on secured by suc mort#a#e, and t e res"due s a$$ be pa"d to persons o$d"n# subse2uent mort#a#es "n t e"r order, and t e ba$ance, a!ter pay"n# t e mort#a#es, s a$$ be pa"d to t e mort#a#or or person o$d"n# under "m on demand. ;! t e sa$e "nc$udes any C$ar#e catt$e,C a cert"!"cate o! trans!er as re2u"red by (8, s"1teen o! Act =umbered 8$even undred and !orty.seven 5 s a$$ be "ssued by t e treasurer o! t e mun"c"pa$"ty ) ere t e sa$e )as e$d to t e purc aser t ereo!. Art. 1484. ;n a contract o! sa$e o! persona$ property t e pr"ce o! ) "c "s payab$e "n "nsta$$ments, t e vendor may e1erc"se any o! t e !o$$o)"n# remed"es+ (1) 81act !u$!"$$ment o! t e ob$"#at"on, s ou$d t e vendee !a"$ to pay* (2) ,ance$ t e sa$e, s ou$d t e vendeeIs !a"$ure to pay cover t)o or more "nsta$$ments* (3) :orec$ose t e c atte$ mort#a#e on t e t "n# so$d, "! one as been const"tuted, s ou$d t e vendeeIs !a"$ure to pay cover t)o or

more "nsta$$ments. ;n t "s case, e s a$$ ave no !urt er act"on a#a"nst t e purc aser to recover any unpa"d ba$ance o! t e pr"ce. Any a#reement to t e contrary s a$$ be vo"d. (1454.A.a) Art. 1485. T e preced"n# art"c$e s a$$ be app$"ed to contracts purport"n# to be $eases o! persona$ property )"t opt"on to buy, ) en t e $essor as depr"ved t e $essee o! t e possess"on or en>oyment o! t e t "n#. (1454.A.a) Art. 2140. 'y a c atte$ mort#a#e, persona$ property "s recorded "n t e , atte$ Aort#a#e Re#"ster as a secur"ty !or t e per!ormance o! an ob$"#at"on. ;! t e movab$e, "nstead o! be"n# recorded, "s de$"vered to t e cred"tor or a t "rd person, t e contract "s a p$ed#e and not a c atte$ mort#a#e. (n) Art. 2141. T e prov"s"ons o! t "s ,ode on p$ed#e, "nso!ar as t ey are not "n con!$"ct )"t t e , atte$ Aort#a#e 5a) s a$$ be app$"cab$e to c atte$ mort#a#es. (n) /.1 Topics 8ssent"a$ Re2u"s"tes 1) T at "t be const"tuted to secure t e !u$!"$ment o! a pr"nc"pa$ ob$"#at"on* 2) T at t e mort#a#or be t e abso$ute o)ner o! t e t "n# mort#a#ed* 3) T at t e persons const"tut"n# t e mort#a#e ave t e !ree d"sposa$ o! t e"r property or, "n t e absence t ereo!, t at t ey be $e#a$$y aut or"Ded !or t e purpose* and 4) T at t e ob>ect be persona$ and movab$e property. :orma$ Re2u"rements 1) ("#ned by t e person e1ecut"n# t e same "n t e presence o! t)o )"tnesses* 2) Accompan"ed by an a!!"dav"t o! #ood !a"t and a cert"!"cate o! oat * 3) Aort#a#ed property must be descr"bed "n suc a manner as to enab$e anybody read"n# t e document, a!ter reasonab$e "n2u"ry and "nvest"#at"on, to be ab$e to "dent"!y t e same. Re#"strat"on+ 4 en And 4 ere When =o spec"!"c t"me "s prov"ded under t e $a). Bo)ever, suc re#"strat"on must be made+ 1) be!ore t e mort#a#or as comp$"ed )"t "s pr"nc"pa$ ob$"#at"on* and 2) no r"# t o! an "nnocent t "rd person "s pre>ud"ced. Where 1) 4 ere t e mort#a#or res"des "n t e P "$"pp"nes, "n "s p$ace o! res"dence* 2) 4 ere t e mort#a#or res"des abroad, "n t e p$ace ) ere t e property "s s"tuated* 3) 4 ere t e mort#a#or res"des "n a p$ace d"!!erent !rom ) ere t e property "s s"tuated, "n t e p$ace ) ere t e mort#a#or res"des and ) ere t e property "s s"tuated, e1cept ) ere t e amount o! t e mort#a#e "s more t an P p5/,/// "n ) "c case t e re#"strat"on o! t e mort#a#e "n t e prov"nce ) ere t e property "s s"tuated s a$$ be su!!"c"ent re#"strat"on. :or motor ve "c$es, t e c atte$ mort#a#e must a$so be re#"stered )"t t e 5and Transportat"on <!!"ce to b"nd t "rd persons. A!ter.Ac2u"red, :uture <r (ubst"tuted Property

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

* o% $&&

:uture or a!ter.ac2u"red property can be sub>ect o! a c atte$ mort#a#e "!+ 1) T e propert"es mort#a#ed are+ a. Per"s ab$e* or b. (ub>ect to "nev"tab$e )ear and tear* or c. ;ntended to be so$d or used but )"t t e understand"n# t at t ey )ou$d be rep$aced )"t s"m"$ar propert"es to be t erea!ter ac2u"red by t e mort#a#or 2) ;n t e case o! ot er propert"es, "! t e "nc$us"on o! suc !uture or a!ter.ac2u"red propert"es "s e1press$y st"pu$ated and a supp$ement to t e mort#a#e spec"!"ca$$y $"st"n# and descr"b"n# suc property "s e1ecuted and re#"stered "n t e c atte$ mort#a#e re#"ster. 5"%e or subst"tuted property cannot be deemed covered by a c atte$ mort#a#e, un$ess t e property "s descr"bed "n a supp$ement to t e mort#a#e. A!ter.;ncurred <b$"#at"on 4 "$e a p$ed#e, rea$ estate mort#a#e, or ant"c res"s may e1cept"ona$$y secure a!ter."ncurred ob$"#at"ons so $on# as t ese !uture debts are accurate$y descr"bed, a c atte$ mort#a#e, o)ever, can on$y cover ob$"#at"ons e1"st"n# at t e t"me t e mort#a#e "s const"tuted. A$t ou# a promise e1pressed "n a c atte$ mort#a#e to "nc$ude debts t at are yet to be contracted can be a b"nd"n# t at can be compe$$ed upon, t e secur"ty "tse$!, o)ever, does not come "nto e1"stence or ar"se unt"$ a!ter a c atte$ amend"n# t e o$d contract con!ormab$y )"t t e !orm prescr"bed by t e , atte$ Aort#a#e 5a). Re!usa$ on t e part o! t e borro)er to e1ecute t e a#reement so as to cover t e a!ter."ncurred ob$"#at"on can const"tute an act o! de!au$t on t e part o! t e borro)er o! t e !"nanc"n# a#reement ) ereon t e prom"se "s )r"tten but, o! course, t e remedy o! !orec$osure can on$y cover t e debts e1tant at t e t"me o! const"tut"on and dur"n# t e $"!e o! t e c atte$ mort#a#e sou# t to be !orec$osed. <ne o! t e re2u"s"tes o! a c atte$ mort#a#e "s t e e1ecut"on o! an a!!"dav"t o! #ood !a"t , ) "c re2u"res an oat t at t e mort#a#e "s !or t e purpose o! secur"n# t e ob$"#at"on spec"!"ed "n t e cond"t"ons t ereo!, and !or no ot er purpose, and t at t e same "s a >ust and va$"d ob$"#at"on, and one not entered "nto !or t e purpose o! !raud. T "s re2u"rement ma%es "t obv"ous t at t e debt re!erred to "n t e $a) "s a current, not an ob$"#at"on t at "s yet mere$y contemp$ated. (Acme ( oe v ,A) R"# t <! 6un"or Aort#a#ee Art. 13 A!ter a !"rst mort#a#e "s e1ecuted, t ere rema"ns "n t e mort#a#or a mere r"# t o! redempt"on and on$y t "s r"# t passes to t e second mort#a#ee by v"rtue o! t e second mort#a#e. :orec$osure Procedure Art 14* (, ,"rcu$ar =o. 7.2//2, -ated 6anuary 22, 2//2 1) 3/ days a!ter t e cond"t"on o! a c atte$ mort#a#e "s bro%en, t e mort#a#ee may cause t e mort#a#ed property or any part t ereo! to be so$d at pub$"c auct"on by a pub$"c o!!"cer at a pub$"c p$ace "n t e mun"c"pa$"ty ) ere t e mort#a#or res"des or ) ere t e property "s s"tuated. 2) T e app$"cat"on !or t e !orec$osure o! t e mort#a#e s ou$d be !"$ed )"t t e 81ecut"ve 6ud#e t rou# t e ,$er% o! ,ourt. 3) A!ter rece"pt o! t e app$"cat"on, t e ,$er% o! ,ourt s a$$, amon# ot er dut"es+

a. Ra!!$e t e app$"cat"on amon# t e ( er"!!s* and b. ,ause t e post"n# o! t e not"ce o! sa$e. 4) =ot"ce o! t e t"me, p$ace and purpose o! suc sa$e must be posted, at $east 1/ days be!ore t e date o! sa$e, at 2 or more pub$"c p$aces "n t e mun"c"pa$"ty ) ere t e mort#a#or res"des or ) ere t e property "s s"tuated. 5) T e mort#a#ee s a$$ not"!y t e mort#a#or and t e persons o$d"n# subse2uent mort#a#es o! t e t"me and p$ace o! sa$e, at $east 1/ days be!ore t e sa$e, e"t er by not"ce "n )r"t"n# d"rected to "m or $e!t at "s abode, "! )"t "n t e mun"c"pa$"ty, or sent by ma"$ "! e does not res"de "n suc mun"c"pa$"ty. @) T e o!!"cer ma%"n# t e sa$e s a$$, )"t "n 3/ days t erea!ter, ma%e "n )r"t"n# a return o! "s do"n#s and !"$e t e same "n t e o!!"ce o! t e re#"stry o! deeds ) ere t e mort#a#e "s recorded, and t e re#"stry o! deeds s a$$ record t e same. T e return s a$$ part"cu$ar$y descr"be t e art"c$es so$d and state t e amount rece"ved !or eac art"c$e. Redempt"on T ere "s no r"# t o! redempt"on "n , atte$ Aort#a#e. T ere "s on$y an 8OE;TP o! R8-8APT;<=. 1) Per"od )"t "n ) "c e2u"ty o! redempt"on may be e1erc"sed. :rom t e date t e cond"t"on o! t e , atte$ Aort#a#e "s bro%en but '8:<R8 t e !orec$osure sa$e o! t e co$$atera$ t ereo!. Q T e 3/.day per"od to !orec$ose a , atte$ Aort#a#e "s t e m"n"mum per"od a!ter v"o$at"on o! t e mort#a#e cond"t"on !or t e mort#a#e cred"tor to cause t e sa$e at pub$"c auct"on o! t e mort#a#ed c atte$ A=- "s a per"od o! #race !or t e mort#a#or to d"sc ar#e t e mort#a#e ob$"#at"on. 2) Amount to be pa"d. a. T e amount due on suc mort#a#e* and b. T e costs and e1penses "ncurred by suc breac o! cond"t"on be!ore t e sa$e t ereo!. 3) Persons ent"t$ed to redeem. a. Aort#a#or* b. A person o$d"n# a subse2uent mort#a#e* c. A subse2uent attac "n# cred"tor. ,$a"m :or -e!"c"ency* Ru$e And 81cept"on Rule: A c atte$ mort#a#ee may sue !or a de!"c"ency !o$$o)"n# !orec$osure. Exception: "n t e case o! persona$ property so$d "n "nsta$$ments ) ere t e c atte$ mort#a#or0vendee&s !a"$ure to pay covers 2 or more "nsta$$ments. /.$ %ases , atte$ Aort#a#e <n Bouse =ot '"nd"n# <n T "rd Persons =ot Part"es To ,ontract &IA)SA: ( 2A(I2 ,1-7/0 :A,T(+ ,onrado -av"d rece"ved a $oan !rom ,$aud"a 9da. -e Ey F"m. ;n order to secure t e $oan, e e1ecuted a c atte$ mort#a#e on a ouse. T e c atte$ mort#a#e )as re#"stered )"t t e Re#"ster o! -eeds. T e mort#a#ed ouse )as so$d to ,$aud"a at a pub$"c auct"on, ) "c ,$aud"a, "n turn, so$d to (a$vador P"ansay. Aean) "$e, Aarcos Aan#ubat !"$ed a comp$a"nt a#a"nst ,onrado !or co$$ect"on o! a $oan. Aarcos $ev"ed upon t e ouse t at )as "n possess"on o! (a$vador, and at t e same t"me, demanded payment o! renta$s !rom (a$vador.

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

+ o% $&&

;((E8+ 4<= t e c atte$ mort#a#e const"tuted "n !avour o! ,$aud"a "s va$"d B85-+ =<. ,$aud"a ad no r"# t to !orec$ose t e c atte$ mort#a#e const"tuted "n er !avor, because "t )as "n rea$"ty a mere contract o! an unsecured $oan. T ere!ore, t e contract o! sa$e bet)een ,$aud"a and (a$vador )as o! no e!!ect. Re#ard$ess o! t e va$"d"ty o! a contract const"tut"n# a c atte$ mort#a#e on a ouse, as bet)een t e part"es to sa"d contract, t e same cannot and does not b"nd t "rd persons, ) o are not part"es to t e a!orement"oned contract or t e"r pr"v"es. As a conse2uence, t e sa$e o! t e ouse "s nu$$ and vo"d "nso!ar "s Aarcos Aan#ubat "s concerned. , atte$ Aort#a#e <ver Bouse 'u"$t <n Anot er Person&s 5and TU4ALA2 ( (I(E)%I' ,1-;10 :A,T(+ Pet"t"oners e1ecuted a c atte$ mort#a#e "n !avor o! respondents over t e"r ouse, ) "c "s $ocated "n a $and t at "s be"n# rented by pet"t"oners !rom Aadr"#a$ R ,ompany, ;nc. T e mort#a#e )as re#"stered "n t e Re#"stry o! -eeds and )as e1ecuted to #uarantee a $oan. ("nce t e pet"t"oners de!au$ted on t e"r $oan, t e mort#a#e )as e1tra>ud"c"a$$y !orec$osed and t e ouse )as so$d to respondents at a pub$"c auct"on. Respondents commenced a c"v"$ case "n t e mun"c"pa$ court, ) "c dec"ded a#a"nst t e pet"t"oners and ordered t e $atter to vacate t e prem"ses and to pay rent unt"$ t e prem"ses "s comp$ete$y vacated. Pet"t"oners ar#ue t at t e c atte$ mort#a#e "s vo"d ab "n"t"o re$y"n# on t e !o$$o)"n# #rounds+ 1) T at t e"r s"#natures on t e c atte$ mort#a#e )as obta"ned t rou# !raud, dece"t or tr"c%ery* and 2) T at t e sub>ect matter o! t e c atte$ mort#a#e "s a ouse, and be"n# an "mmovab$e, "t can on$y be sub>ect o! a rea$ estate mort#a#e and not a c atte$ mort#a#e. ;((E8+ 4<= t e c atte$ mort#a#e "s va$"d B85-+ P8(. T at part"es to a deed o! c atte$ mort#a#e may a#ree to cons"der a ouse as persona$ property !or t e purposes o! sa"d contract "s #ood on$y "nso!ar as t e contract"n# part"es are concerned. T "s "s based part$y upon t e pr"nc"p$e o! estoppe$. ;n a case, t e (, e$d t at a mort#a#ed ouse bu"$t on a rented $and )as e$d to be a persona$ property, not on$y because t e deed o! mort#a#e cons"dered "t as suc , but a$so because "t d"d not !orm part o! t e $and, !or "t no) sett$ed t at an ob>ect p$aced on $and by one ) o ad on$y a temporary r"# t to t e same, does not become "mmob"$"Ded by attac ment. Bence, "! a ouse be$on#"n# to a person stands on a rented $and be$on#"n# to anot er person, "t may be mort#a#ed as a persona$ property as so st"pu$ated "n t e document o! mort#a#e. ;t s ou$d be noted, o)ever t at t e pr"nc"p$e "s pred"cated on statements by t e o)ner dec$ar"n# "s ouse to be a c atte$, a conduct t at may conce"vab$y estop "m !rom subse2uent$y c$a"m"n# ot er)"se. ;n t e case at bar, t e ouse on rented $and "s e1press$y des"#nated as c atte$ mort#a#e. A$t ou# t ere "s no spec"!"c

statement re!err"n# to t e sub>ect ouse as persona$ property, yet by ced"n#, se$$"n# or trans!err"n# a property by )ay o! c atte$ mort#a#e, pet"t"oners cou$d on$y ave meant to convey t e ouse as c atte$, or at $east, "ntended to treat t e same as suc , so t at t ey s ou$d not no) be a$$o)ed to ma%e an "ncons"stent stand by c$a"m"n# ot er)"se. Aoreover, t e sub>ect ouse stood on a rented $ot to ) "c pet"t"oners mere$y ad a temporary r"# t as $essee, and a$t ou# t "s cannot "n "tse$! determ"ne t e status o! t e property, "t does so ) en comb"ned )"t ot er !actors to susta"n t e "nterpretat"on t at t e part"es, part"cu$ar$y t e mort#a#ors, "ntended to treat t e ouse as persona$ty. :"na$$y, "t "s t e pet"t"oners t emse$ves, as debtor.mort#a#ors, ) o are attac%"n# t e va$"d"ty o! t e c atte$ mort#a#e. T e doctr"ne o! estoppe$s app$"ed to pet"t"oners. , atte$ Aort#a#e <ver Aac "nery 4AKATI LEASI)* ( WEA1E(E1 TE<TILE 4ILLS ,1-890 :A,T(+ ;n order to obta"n !"nanc"a$ accommodat"ons !rom pet"t"oner Aa%at" 5eas"n# and :"nance ,orp., pr"vate respondent 4earever Te1t"$e A"$$s, d"scounted and ass"#ned severa$ rece"vab$es )"t t e !ormer. To secure t e co$$ect"on o! t e rece"vab$es ass"#ned, pr"vate respondent e1ecuted a , atte$ Aort#a#e over certa"n ra) mater"a$s "nventory as )e$$ as a mac "nery. Epon pr"vate respondent&s de!au$t, pet"t"oner !"$ed a comp$a"nt to e!!ect t e se"Dure o! t e mac "nery. T e $o)er court "ssued a )r"t o! se"Dure and "n order to en!orce t e sa"d )r"t, t e s er"!! )ent to t e prem"ses and removed t e ma"n dr"ve motor o! t e sub>ect mac "nery. Pr"vate respondent 2uest"ons t e act o! t e s er"!! ar#u"n# t at t e dr"ve motor t e mac "nery "n su"t cannot be sub>ect o! a c atte$ mort#a#e because "t "s rea$ property pursuant to Art. 415 o! t e =e) o! ,"v"$ ,ode, t e same be"n# attac ed to t e #round by means o! bo$ts and t e on$y )ay to remove "t )ou$d be to dr"$$ out or destroy t e concrete !$oor. ;((E8+ 4<= t e mac "nery "n su"t "s rea$ or persona$ property B85-+ ;t "s persona$ property. As t e part"es to t e contract so a#ree and no "nnocent t "rd party )"$$ be pre>ud"ced t ereby, t ere "s abso$ute$y no reason ) y a mac "nery, ) "c "s movab$e "n "ts nature and becomes "mmob"$"Ded on$y by dest"nat"on or purpose, may not be $"%e)"se treated as suc . T "s "s because one ) o as so a#reed "s stopped !rom deny"n# t e e1"stence o! t e c atte$ mort#a#e. T e c aracter"Dat"on o! t e sub>ect mac "nery as c atte$ by t e pr"vate respondent "s "nd"cat"ve o! "ntent"on and "mpresses upon t e property t e c aracter as determ"ned by t e part"es. ;n ot er )ords, t e part"es to a contract may by a#reement treat as persona$ property t at ) "c by nature )ou$d be rea$ property, as $on# as no "nterest o! t "rd part"es )ou$d be pre>ud"ced t ereby. ;n add"t"on, records s o) t at no steps )ere ta%en to nu$$"!y t e mort#a#e and t at t e pr"vate respondent as bene!"ted !rom t e contract. 82u"ty d"ctates t at one s ou$d not bene!"t at t e e1pense

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

9 o% $&&

o! anot er. Pr"vate respondent cou$d not no) t ere!ore, be a$$o)ed to "mpu#n t e e!!"cacy o! t e c atte$ mort#a#e a!ter "t as bene!"ted t ere!rom. A!ter.Ac2u"red Property T'11ES ( LI45A& :A,T(+ 6ose '. Benson e1ecuted "n !avor o! t e respondents a c atte$ mort#a#e on "s dru# store "n order to secure a $oan. ;n t e "nstrument o! t e c atte$ mort#a#e, "t )as st"pu$ated t at t e mort#a#or )as aut or"Ded to se$$ t e #oods covered t ereby and to rep$ace t em )"t ot er #oods t erea!ter ac2u"red. Pet"t"oner attac%s t e va$"d"ty o! t e st"pu$at"on and "ns"sts t at a st"pu$at"on aut or"D"n# t e d"sposa$ and subst"tut"on o! t e c atte$s mort#a#ed does not operate to e1tend t e mort#a#e to a!ter. ac2u"red property, and t at suc st"pu$at"on "s "n contravent"on o! t e e1press prov"s"on o! t e $ast para#rap o! (8, 7 Act =o. 15/7. ;((E8+ 4<= t e c atte$ mort#a#e on t e a!ter.ac2u"red property "s va$"d B85-+ P8(. ;n t e "nterpretat"on and construct"on o! a statute, t e "ntent o! t e $a).ma%er s ou$d a$)ays be ascerta"ned and #"ven e!!ect. ;n enact"n# Act =o. 15/7, t e pr"mary a"m o! t e $a).ma%"n# body )as undoubted$y to promote bus"ness and trade and to #"ve "mpetus to t e econom"c deve$opment o! t e country. 'ear"n# t "s "n m"nd, "t cou$d not ave been t e "ntent"on o! t e P "$"pp"ne ,omm"ss"on to app$y t e prov"s"on o! (8, 7 to stores open to t e pub$"c !or reta"$ bus"ness, ) ere t e #oods are constant$y so$d and subst"tuted )"t ne) stoc%. A st"pu$at"on "n t e mort#a#e, e1tend"n# "ts scope and e!!ect to a!ter.ac2u"red property, "s va$"d and b"nd"n# ) ere t e a!ter. ac2u"red property "s "n rene)a$ o!, or "n subst"tut"on !or, #oods on and ) en t e mort#a#e )as e1ecuted, or "s purc ased )"t t e proceeds o! t e sa$e o! suc #oods. ;n ot er )ords, a mort#a#e may be made to "nc$ude !uture ac2u"s"t"ons o! #oods to be added to t e or"#"na$ stoc% mort#a#ed, but t e mort#a#e must e1press$y prov"de t at suc !uture ac2u"s"t"ons s a$$ be e$d as "nc$uded "n t e mort#a#e. ;n sum, t e court e$d+ 1) T at t e prov"s"on o! t e $ast para#rap o! (8, 7 o! Act =o. 15/7 "s not app$"cab$e to dru# stores, baDaars and a$$ ot er stores "n t e nature o! a revo$v"n# and !$oat"n# bus"ness* and 2) T at t e st"pu$at"on "n t e c atte$ mort#a#es "n 2uest"on, e1tend"n# t e"r e!!ect to a!ter.ac2u"red property, "s va$"d and b"nd"n#.

:A,T(+ Pet"t"oner , ua Pac, t e pres"dent and #enera$ mana#er o! co.pet"t"oner GAcme ( oe, Rubber R P$ast"c ,orporat"on,H e1ecuted !or and "n be a$! o! t e company, a c atte$ mort#a#e "n !avor o! pr"vate respondent Producers 'an%. T e mort#a#e stands as a secur"ty !or pet"t"oner&s corporate $oan o! P p3A. Bo)ever, a prov"s"on "n t e c atte$ mort#a#e a#reement states t at t e mort#a#e s a$$ a$so stand as a secur"ty !or t e payment o! subse2uent prom"ssory note or notes, e"t er as a rene)a$ or a ne) $oan. ;n due t"me, t e pet"t"oner pa"d t e P p3A $oan. (ubse2uent$y, o)ever, "t obta"ned add"t"ona$ !"nanc"a$ accommodat"ons !rom respondent and !a"$ed to sett$e t "s add"t"ona$ $oan. Respondent t en app$"ed !or an e1tra>ud"c"a$ !orec$osure o! t e c atte$ mort#a#e. T e pet"t"oner see%s to en>o"n t e !orec$osure. ;((E8+ 4<= a c$ause "n a c atte$ mort#a#e, ) "c e1tend "ts covera#e to ob$"#at"ons yet to be contracted or "ncurred, "s va$"d and e!!ect"ve B85-+ =<. 4 "$e a p$ed#e, rea$ estate mort#a#e, or ant"c res"s may e1cept"ona$$y secure a!ter."ncurred ob$"#at"ons so $on# as t ese !uture debts are accurate$y descr"bed, a c atte$ mort#a#e, o)ever, can on$y cover ob$"#at"ons e1"st"n# at t e t"me t e mort#a#e "s const"tuted. A$t ou# a promise e1pressed "n a c atte$ mort#a#e to "nc$ude debts t at are yet to be contracted can be a b"nd"n# t at can be compe$$ed upon, t e secur"ty "tse$!, o)ever, does not come "nto e1"stence or ar"se unt"$ a!ter a c atte$ amend"n# t e o$d contract con!ormab$y )"t t e !orm prescr"bed by t e , atte$ Aort#a#e 5a). Re!usa$ on t e part o! t e borro)er to e1ecute t e a#reement so as to cover t e a!ter."ncurred ob$"#at"on can const"tute an act o! de!au$t on t e part o! t e borro)er o! t e !"nanc"n# a#reement ) ereon t e prom"se "s )r"tten but, o! course, t e remedy o! !orec$osure can on$y cover t e debts e1tant at t e t"me o! const"tut"on and dur"n# t e $"!e o! t e c atte$ mort#a#e sou# t to be !orec$osed. <ne o! t e re2u"s"tes o! a c atte$ mort#a#e "s t e e1ecut"on o! an a!!"dav"t o! #ood !a"t , ) "c re2u"res an oat t at t e mort#a#e "s !or t e purpose o! secur"n# t e ob$"#at"on spec"!"ed "n t e cond"t"ons t ereo!, and !or no ot er purpose, and t at t e same "s a >ust and va$"d ob$"#at"on, and one not entered "nto !or t e purpose o! !raud. T "s re2u"rement ma%es "t obv"ous t at t e debt re!erred to "n t e $a) "s a current, not an ob$"#at"on t at "s yet mere$y contemp$ated. ;n t e c atte$ mort#a#e ere "nvo$ved, t e on$y ob$"#at"on spec"!"ed "n t e c atte$ mort#a#e contract )as t e P p3A $oan ) "c pet"t"oner corporat"on $ater !u$$y pa"d. 'y v"rtue o! (8, 3 o! t e , atte$ Aort#a#e 5a), t e payment o! t e ob$"#at"on automat"ca$$y rendered t e c atte$ mort#a#e vo"d or term"nated. 4"t t e !u$$ payment o! t e P p3A $oan, t ere )as no $on#er any c atte$ mort#a#e t at cou$d cover t e ne) $oans t at )ere conc$uded t erea!ter.

A!ter.;ncurred <b$"#at"on (pec"!"c Per!ormance A%4E S3'E ( %A ,1--70 S'UT3E1) 4'T'1S ( 4'S%'S' ,1-710

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$0 o% $&&

:A,T(+ Pr"vate respondent (out ern Aotors, ;nc. so$d to pet"t"oner An#e$ Aoscoso a , evro$et truc%. Epon ma%"n# a do)n payment, An#e$ e1ecuted a prom"ssory note and a c atte$ mort#a#e on t e truc%. Epon t e !a"$ure o! An#e$ to pay t e "nsta$$ments, (out ern Aotors !"$ed a comp$a"nt a#a"nst An#e$, to recover t e unpa"d ba$ance o! t e purc ase pr"ce. A )r"t o! attac ment )as "ssued by t e $o)er court and t e , evro$et truc% and a ouse and $ot be$on#"n# to An#e$ )ere attac ed by t e s er"!!. T e s er"!! t en so$d t e truc% at a pub$"c auct"on "n ) "c (out ern Aotors )as t e on$y b"dder. T e tr"a$ court t en condemned An#e$ to pay (out ern Aotors t e de!"c"ency. An#e$ 2uest"ons t "s order o! t e court and a$$e#ed t at t e attac ment caused to be $ev"ed on t e truc% and "ts "mmed"ate sa$e at pub$"c auct"on, )as tantamount to t e !orec$osure o! t e c atte$ mort#a#e on sa"d truc%. (out ern Aotors counters and c$a"ms t at "n !"$"n# t e comp$a"nt, "t c ose to e1act !u$!"$ment o! t e ob$"#at"on (spec"!"c per!ormance) and "s t us ent"t$ed to sue !or t e unpa"d ba$ance o! t e purc ase pr"ce. ;((E8+ 4<= t e de!"c"ency o! t e purc ase pr"ce can st"$$ be recovered B85-+ P8(. T e case "s #overned by Art. 1474 o! t e =e) ,"v"$ ,ode. ((88 Art. 1474, =,,) (out ern Aotors ad c osen t e !"rst remedy. T e comp$a"nt "s an ord"nary c"v"$ act"on !or recovery o! t e rema"n"n# unpa"d ba$ance d"e on t e prom"ssory note. T "s "s s o)n by t e !o$$o)"n# c"rcumstances+ 1) (out ern Aotors ad not adopted t e procedure or met ods out$"ned by (ec. 14 o! t e , atte$ Aort#a#e 5a) but t ose prescr"bed !or ord"nary c"v"$ act"ons 2) (out ern Aotors not on$y attac ed t e truc% but a$so t e ouse and $ot o! An#e$. =ot "n# un$a)!u$ or "rre#u$ar "n (out ern Aotors& act o! attac "n# t e mort#a#ed truc% "tse$!. As (out ern Aotors as c osen to e1act t e !u$!"$ment o! An#e$&s ob$"#at"on, t e !ormer may en!orce e1ecut"on o! t e >ud#ment rendered "n "ts !avor on t e persona$ and rea$ property o! t e $atter not e1empt !rom e1ecut"on su!!"c"ent to sat"s!y t e >ud#ment. Attac ment "s mere$y an "nc"dent to an ord"nary c"v"$ act"on. T ere!ore, t e mort#a#e cred"tor may recover >ud#ment on t e mort#a#e debt and cause an e1ecut"on on t e mort#a#ed property and may cause an attac ment to be "ssued and $ev"ed on suc property, upon be#"nn"n# "s c"v"$ act"on.

LE(: 3E14A)'S ( &A%I6I% %'44E1%IAL ,1-/10 :A,T(+ ;n add"t"on to a c atte$ mort#a#e on t e motor ve "c$es t at t ey bou# t, t e Bermanos a$so e1ecuted a mort#a#e on a res"dent"a$ $ot and ouse o! stron# mater"a$s. B85-+ T e (, e$d t at t e mort#a#e "s vo"d "nso!ar as "t "nc$uded t e ouse and $ot o! vendees. ;t sa"d t at t e vendor cannot be a$$o)ed to "ns"st on t e sa$e o! t e ouse and $ot o! t e vendees !or to do so )ou$d be e2u"va$ent to obta"n"n# a )r"t o! e1ecut"on a#a"nst t em concern"n# ot er propert"es ) "c are separate and d"st"nct !rom t ose ) "c are so$d on "nsta$$ment. T "s )ou$d be contrary to pub$"c po$"cy $"m"t"n# t e vendor&s r"# t to !orec$ose t e c atte$ mort#a#e on$y on t e t "n# so$d. $0 &arcel o land #ort=a=ed by third party %1U+ ( 6ILI&I)AS I)(EST4E)T ,1-780 :A,T(+ P$a"nt"!! Ruperto 3. ,ruD purc ased on "nsta$$ments, !rom :ar 8ast Aotor ,orporat"on, an ;suDu -"ese$ 'us, !or ) "c Ruperto e1ecuted a prom"ssory note and a c atte$ mort#a#e on t e same ve "c$e. As an add"t"ona$ secur"ty, :e$"c"dad 9da. -e Reyes, "n t e !orm o! a (8,<=- A<RT3A38, a parce$ o! $and and a bu"$d"n#. :ar 8ast Aotor ,orp. t en ass"#ned a$$ "ts r"# ts and "nterest "n t e -eeds o! , atte$ Aort#a#e and "n t e -eed o! Rea$ 8state Aort#a#e to :"$"p"nas ;nvestment and :"nance ,orp. Ruperto de!au$ted. :"$"p"nas too% steps to !orec$ose t e c atte$ mort#a#e, o)ever, t e ve "c$e ad been dama#ed "n an acc"dent. T "s "s t e reason ) y a!ter t e !orec$osure sa$e o! t e c atte$, t e proceeds )ere not su!!"c"ent to d"sc ar#e !u$$y "ndebtedness o! Ruperto. T ere!ore, :"$"p"nas prepared to !orec$ose t e rea$ estate mort#a#e on Ars. Reyes& $and by pay"n# t e mort#a#e "ndebtedness o! Ars. Reyes to -'P, re2uest"n# t e s er"!! to ta%e possess"on, and by post"n# not"ces o! sa$e. A$t ou# :"$"p"nas adm"ts t at t e remed"es "n Art. 1474 o! t e =e) ,"v"$ ,ode "s a$ternat"ve, "t c$a"ms t at ) at "s be"n# )"t e$d !rom t e vendor t ere"n "s on$y t e r"# t to recover Ga#a"nst t e purc aserH, and not a recourse to t e add"t"ona$ secur"ty put up, not by t e purc aser "mse$!, but by a t "rd person. ;((E8+ 4<= :"$"p"nas, ) "c as a$ready e1tra>ud"c"a$$y !orec$osed t e c atte$ mort#a#e e1ecuted by t e buyer, Ruperto, may a$so e1tra>ud"c"a$$y !orec$ose t e rea$ estate mort#a#e const"tuted by Ars. Reyes on er o)n $and, as add"t"ona$ secur"ty, !or t e payment o! t e ba$ance o! Ruperto&s ob$"#at"on, st"$$ rema"n"n# unpa"d B85-+ T e remed"es "n Art. 1474 o! t e =,, are a$ternat"ve, not cumu$at"ve, t at t e e1erc"se o! one )ou$d bar t e e1erc"se o! t e ot ers. T e reason !or t "s doctr"ne )as to remedy t e abuses comm"tted "n connect"on )"t t e !orec$osure o! c atte$ mort#a#es. To susta"n :"$"p"nas& ar#ument "s to over$oo% t e !act t at "! t e #uarantor s ou$d be compe$$ed to pay t e ba$ance o! t e purc ase pr"ce, t e #uarantor )"$$ "n turn be ent"t$ed to recover ) at s e as

=o Recourse A#a"nst Add"t"ona$ Aort#a#ed Property 10 1esidential house and lot

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$$ o% $&&

pa"d !rom t e debtor vendee* so u$t"mate$y, "t )"$$ be t e vendee ) o )"$$ be made to bear t e payment o! t e ba$ance o! t e pr"ce, desp"te t e ear$"er !orec$osure o! t e c atte$ mort#a#e #"ven by "m. T us, t e protect"on #"ven by Art. 1474 )ou$d be "nd"rect$y subverted, and pub$"c po$"cy overturned. =e"t er "s t ere va$"d"ty to :"$"p"nas& a$$e#at"on t at, s"nce t e $a) spea%s o! Gact"onH, t e restr"ct"on s ou$d be con!"ned on$y to t e br"n#"n# o! >ud"c"a$ su"ts or proceed"n#s "n court. T e )ord Gact"onH "s )"t out a de!"n"te or e1c$us"ve mean"n#. ,ons"der"n# t e purpose !or ) "c t e pro "b"t"on conta"ned "n Art. 1474 )as "ntended, t e )ord Gact"onH used t ere"n may be construed as re!err"n# to any >ud"c"a$ or e1tra>ud"c"a$ proceed"n# by v"rtue o! ) "c t e vendor may $a)!u$$y be enab$ed to e1act recovery o! t e supposed unsat"s!"ed ba$ance o! t e purc ase pr"ce !rom t e purc aser or "s pr"vy. ,erta"n$y, an e1tra>ud"c"a$ !orec$osure o! rea$ estate mort#a#e "s one suc proceed"n#. R"# t <! Recourse A#a"nst (e$$er0Ass"#nor 6ILI&I)AS I)(EST4E)T ( (ITU* ,1-7-0 :A,T(+ 6u$"an R. 9"tu# e1ecuted and de$"vered to (upreme (a$es R -eve$opment ,orp. a prom"ssory note, accompan"ed by a c atte$ mort#a#e to secure "s purc ase o! a 4.door consu$ sedan. T en, (upreme (a$es ne#ot"ated and ass"#ned a$$ "ts r"# ts, t"t$e, and "nterests to t e same to :"$"p"nas ;nvestment R :"nance ,orp., t e ass"#nment "nd"cat"n# t at "t "s with recourse a#a"nst (upreme (a$es. 6u$"an de!au$ted "n t e payment o! 4 "nsta$$ments due ) "c resu$ted "n t e ent"re ob$"#at"on becom"n# due and demandab$e. Pursuant to t "s, :"$"p"nas obta"ned a )r"t o! rep$ev"n but t "s became unnecessary as 6u$"an vo$untar"$y surrendered possess"on o! t e car. T e car )as so$d at a pub$"c auct"on but s"nce t e proceeds st"$$ $e!t a de!"c"ency, :"$"p"nas )ants to o$d (upreme (a$es $"ab$e. (upreme (a$es c$a"ms t at t e )"t .recourse prov"s"on "n t e ass"#nment "s v"o$at"ve o! t e Recto 5a), ) "c dec$ares nu$$ and vo"d any a#reement "n contravent"on t ereo!. ;((E8+ 4<= t e Recto 5a) "s app$"cab$e "n t e case at bar, ma%"n# t e )"t recourse prov"s"on conta"ned "n t e a#reement nu$$ and vo"d B85-+ =<. T e remedy present$y be"n# sou# t "s not a#a"nst t e buyer o! t e car but a#a"nst t e se$$er. Ender t e Recto 5a), ) at ,on#ress see%s to protect are on$y t e buyers on "nsta$$ment ) o more o!ten t an not ave been v"ct"m"Ded by se$$ers ) o, be!ore t e enactment o! t "s $a), succeeded "n un>ust$y enr"c "n# t emse$ves at t e e1pense o! t e buyers because as"de !rom recover"n# t e #oods so$d, upon de!au$t o! t e buyer "n t e payment o! t)o "nsta$ments, st"$$ reta"ned !or t emse$ves a$$ amounts a$ready pa"d, "n add"t"on, !urt ermore, to ot er dama#es, suc as attorney&s !ees, and costs. (ure$y, ,on#ress cou$d not ave "ntended to "mpa"r and muc $ess do a)ay )"t t e r"# t o! t e se$$er to ma%e commerc"a$ use o! "s cred"t a#a"nst t e buyer, prov"ded sa"d buyer "s not burdened beyond ) at t "s $a) a$$o)s. ;n t e case at bar, t e ass"#nment made by (upreme (a$es to :"$"p"nas o! t e prom"ssory note and mort#a#e o! 6u$"an 9"tu#

prec"se$y st"pu$ated t at :"$"p"nas ad a r"# t o! recourse a#a"nst t e se$$er s ou$d t e buyer !a"$ to pay. ("nce t e Recto 5a) "s not app$"cab$e "n t "s case, t e sa"d prov"s"on rema"ns va$"d. T e case "s remanded !or !urt er proceed"n#s. R"# t <! Enpa"d (e$$er Ender Art. 1474, ,"v"$ ,ode, A$ternat"ve =ot ,umu$at"ve S&'USES 1'SA1I' ( &%I LEASI)* A)2 6I)A)%E, I)%. ,$>>.0 :A,T(+ (pouses Rosar"o purc ased an ;suDu 8$! p"c% up ut"$"ty ve "c$e !rom ,ar Aerc ants, ;nc. covered by a Purc ase A#reement. ;n order to pay t e ba$ance o! t e purc ase pr"ce, t e spouses contracted a $oan )"t P,; 5eas"n# ) ere"n t ey e1ecuted a prom"ssory note "n !avor o! P,; 5eas"n# a#ree"n# t at "n case o! de!au$t, t e sum and "nterest s a$$ "mmed"ate$y become due and demandab$e. ;n add"t"on, t e spouses a$so e1ecuted a c atte$ mort#a#e "n !avor o! P,; 5eas"n# over t e ve "c$e. ("nce t e spouses !a"$ed to pay t e"r $oan, P,; 5eas"n# "nst"tuted a comp$a"nt t at $ed to t e "ssuance o! t e tr"a$ court o! a )r"t o! rep$ev"n, "n pursuance o! ) "c t e s er"!! se"Ded t e ve "c$e and turned over t e possess"on to P,; 5eas"n#. T e spouses ,ar Aerc ants ad ass"#ned to P,; 5eas"n# "ts r"# t to co$$ect t e ba$ance* ence, "t )as subro#ated to t e r"# ts o! ,ar Aerc ants sub>ect to t e $"m"tat"ons o! Art. 1474=,,. :urt ermore, t ey a$$e#e t at s"nce P,; 5eas"n# opted to !orec$ose t e c atte$ mort#a#e, "t )as estopped !rom co$$ect"n# t e unpa"d ba$ance o! t e purc ase pr"ce. ;((E8+ 4<= P,; 5eas"n# "s t e ass"#nee o! ,ar Aerc ant* 4<= Art. 1474 o! t e =,, "s app$"cab$e B85-+ =<. T ere "s no !actua$ bas"s on t e c$a"m t at ,ar Aerc ants ad ass"#ned "ts r"# ts to co$$ect t e ba$ance o! t e purc ase pr"ce to P,; 5eas"n#. ;n !act, ) at t e ev"dence s o)s "s t at t e spouses secured a $oan !rom P,; 5eas"n# and even e1ecuted a prom"ssory note and a c atte$ mort#a#e "n "ts !avor. Ender Art. 1@25 o! t e =,,, an ass"#nment o! cred"t, r"# t or act"on must appear "n a pub$"c document to b"nd t "rd persons. ("nce t ere "s no ev"dence t at ,ar Aerc ants e1ecuted suc a deed, Art 1474 o! t e =,, does not app$y "n t "s case. 8ven assum"n# t at Art 1474 "s app$"cab$e, P,; 5eas"n# "s not proscr"bed !rom su"n# t e spouses !or t e"r unpa"d ba$ance. T e !act "s t at P,; 5eas"n# d"d not !orec$ose t e c atte$ mort#a#e, but opted to sue t e spouses !or t e ba$ance o! t e"r account under t e prom"ssory note, )"t a p$ea !or )r"t o! rep$ev"n. 'y secur"n# a )r"t o! rep$ev"n, t e respondent d"d not t ereby !orec$ose t e c atte$ mort#a#e. ;! t ere as been no !orec$osure o! t e c atte$ mort#a#e or a !orec$osure sa$e, t en t e pro "b"t"on a#a"nst !urt er co$$ect"on o! t e ba$ance pr"ce does not app$y. A cred"tor "s not ob$"#ed to !orec$ose a c atte$ mort#a#e even "! t ere "s one* prec"se$y t e $a) says t at any o! t e remed"es may be e1erc"sed by t e se$$er. <n$y Actua$ (a$e <! Aort#a#ed , atte$ 'ars :orec$os"n# ,red"tor :rom Recover"n# Enpa"d 'a$ance

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$2 o% $&&

4A*)A 6I)A)%IAL SE1(I%ES *1'U&, I)%. ( %'LA1I)A ,$>>.0 :A,T(+ 8$"as ,o$ar"na bou# t on "nsta$$ment a (uDu%" Au$t"cab !rom Aa#na :"nanc"a$ (erv"ces 3roup, ;nc. ) ereby e e1ecuted an "nte#rated prom"ssory note and deed o! c atte$ mort#a#e over t e ve "c$e. ("nce ,o$ar"na !a"$ed to pay t e mont $y amort"Dat"on, Aa#na !"$ed a ,omp$a"nt !or :orec$osure o! , atte$ Aort#a#e )"t Rep$ev"n. :rom t e comp$a"nt, "t )"$$ s o) t at Aa#na ava"$ed "tse$! o! t e !"rst and t "rd remed"es under Art. 1474 o! t e =,,. A )r"t o! rep$ev"n )as "ssued by t e court and upon serv"ce o! t e same to ,o$ar"na, e vo$untar"$y surrendered possess"on o! t e ve "c$e to t e s er"!!, ) o "n turn, surrendered possess"on to Aa#na. ,o$ar"na po"nts to t e "ncons"stency o! t e remed"es or re$"e!s sou# t by t e Aa#na "n "ts ,omp$a"nt ) ere "t prayed !or t e custody o! t e c atte$ mort#a#e and at t e same t"me as%ed !or t e payment o! t e unpa"d ba$ance on t e motor ve "c$e. ;((E8+ 4<= Aa#na opted to !orec$ose t e c atte$ mort#a#e B85-+ P8(. A contract o! c atte$ mort#a#e "s "n t e nature o! a cond"t"ona$ sa$e o! persona$ property #"ven as a secur"ty !or t e payment o! a debt, or t e per!ormance o! some ot er ob$"#at"on spec"!"ed t ere"n, t e cond"t"on be"n# t at t e sa$e s a$$ be vo"d upon t e se$$er pay"n# to t e purc aser a sum o! money or do"n# some ot er act named. ;! t e cond"t"on "s per!ormed accord"n# to "ts terms, t e mort#a#e and sa$e "mmed"ate$y become vo"d, and t e mort#a#ee "s t ereby d"vested o! "s t"t$e. <n t e ot er and, "n case o! non payment, !orec$osure "s one o! t e remed"es ava"$ab$e to a mort#a#ee by ) "c e sub>ects t e mort#a#ed property to t e sat"s!act"on o! t e ob$"#at"on to secure t at !or ) "c t e mort#a#e )as #"ven. :orec$osure may be e!!ected e"t er >ud"c"a$$y or e1tra>ud"c"a$$y, t at "s, by ord"nary act"on or by !orec$osure under po)er o! sa$e conta"ned "n t e mort#a#e. 81tra>ud"c"a$ !orec$osure, as c osen by t e pet"t"oner, "s atta"ned by caus"n# t e mort#a#ed property to be se"Ded by t e s er"!!, as a#ent o! t e mort#a#ee, and ave "t so$d at pub$"c auct"on "n t e manner prescr"bed by (8, 14 o! Act =o. 15/7, or t e , atte$ Aort#a#e 5a). T "s ru$e #overns e1tra>ud"c"a$ !orec$osure o! c atte$ mort#a#e. ;n sum, s"nce t e pet"t"oner as unden"ab$y e$ected a remedy o! !orec$osure under Art"c$e 1474(3) o! t e ,"v"$ ,ode, "t "s bound by "ts e$ect"on and t us may not be a$$o)ed to c an#e ) at "t as opted !or. ;((E8+ 4<= t ere as been an actua$ !orec$osure o! t e sub>ect ve "c$e B85-+ =<. 4 ere t e mort#a#ee e$ects a remedy o! !orec$osure, t e $a) re2u"res t e actua$ !orec$osure o! t e mort#a#ed c atte$. ;t "s actua$ sa$e o! t e mort#a#ed c atte$ "n accordance )"t (ec. 14 o! Act =o. 15/7 t at )ou$d bar t e cred"tor () o c ooses to !orec$ose) !rom recover"n# any unpa"d ba$ance. And "t "s deemed t at t ere as been !orec$osure o! t e mort#a#e ) en a$$ t e proceed"n#s o! t e !orec$osure, "nc$ud"n# t e sa$e o! t e property at pub$"c auct"on, ave been accomp$"s ed.

'e t at as "t may, a$t ou# no actua$ !orec$osure as contemp$ated under t e $a) as ta%en p$ace "n t "s case, s"nce t e ve "c$e "s a$ready "n t e possess"on o! Aa#na and "t as pers"stent$y and cons"stent$y e$ected t e remedy o! !orec$osure, t e ,ourt o! Appea$s, t us, ru$ed correct$y "n d"rect"n# t e !orec$osure o! t e sa"d ve "c$e )"t out more. PD 1417 F rt!er Amendin" S#$ 198 %& '!e (evi)ed Admini)trative $ode A) Amended B* (e+ ,-ic Act .o). 116 And 2711, B* /ncrea)in" '!e Fee) $o--ecti,-e /n $onnection 0it! (e"i)tration %& $!atte- 1ort"a"e) 4B8R8A(, t ere as been an unprecedented "ncrease "n t e cost o! e2u"pment, mater"a$s and supp$"es used by t e 5and Re#"strat"on ,omm"ss"on* 4B8R8A(, "t "s "n consonance )"t sound !"sca$ po$"cy t at t e re#"strat"on !ees co$$ect"b$e by t e 5and Re#"strat"on ,omm"ss"on t rou# "ts re#"str"es o! deeds be ad>usted accord"n#$y. =<4, TB8R8:<R8, ;, :8R-;=A=- 8. AAR,<(, Pres"dent o! t e P "$"pp"nes, by v"rtue o! t e po)ers "n me vested by t e ,onst"tut"on, do ereby decree and order+ SE% 1. (8, 197 o! t e Rev"sed Adm"n"strat"ve ,ode, as amended by Repub$"c Act =os. 11@ and 2711, "s ereby !urt er amended to read as !o$$o)s+ C(ec. 197. Re#"strat"on o! c atte$ mort#a#es and !ees co$$ect"b$e "n connect"on t ere)"t . 8very re#"ster o! deeds s a$$ %eep a pr"mary entry boo% and a re#"strat"on boo% !or c atte$ mort#a#es* s a$$ cert"!y on eac mort#a#e !"$ed !or record, as )e$$ as on "ts dup$"cate, t e date, our, and m"nute ) en t e same )as by "m rece"ved* and s a$$ record "n suc boo%s any c atte$ mort#a#e, ass"#nment, or d"sc ar#e t ereo!, and any ot er "nstruments re$at"n# to a recorded mort#a#e, and a$$ suc "nstruments s a$$ be presented to "m "n dup$"cate t e or"#"na$ to be !"$ed and t e dup$"cate to be returned to t e person concerned. T e record"n# o! a mort#a#e s a$$ be e!!ected by ma%"n# an entry, ) "c s a$$ be #"ven a corre$at"ve number, sett"n# !ort t e names o! t e mort#a#es and t e mort#a#or, t e sum or ob$"#at"on #uaranteed, date o! t e "nstrument, name o! t e notary be!ore ) om "t )as s)orn to or ac%no)$ed#ed, and a note t at t e property mort#a#ed, as )e$$ as t e terms and cond"t"ons o! t e mort#a#e, "s ment"oned "n deta"$ "n t e "nstrument !"$ed, #"v"n# t e proper !"$e number t ereo!. T e record"n# o! ot er "nstruments re$at"n# to a recorded mort#a#e s a$$ be e!!ected by )ay o! annotat"ons on t e space prov"ded t ere!or "n t e re#"strat"on boo%, a!ter t e same s a$$ ave been entered "n t e pr"mary entry boo%. T e re#"ster o! deeds s a$$ a$so cert"!y t e o!!"cerIs return o! sa$e upon any mort#a#e, ma%"n# re!erence upon t e record o! suc o!!"cerIs return to t e vo$ume and pa#e o! t e record o! t e mort#a#e, and a re!erence o! suc return on t e record o! t e mort#a#e "tse$!, and #"ve a cert"!"ed copy t ereo!, ) en re2uested, upon payment o! t e $a)!u$ !ees !or suc copy* and cert"!y upon eac mort#a#e o!!"cerIs return o! sa$e or d"sc ar#e o! mort#a#e, and upon any ot er "nstrument re$at"n# to suc a recorded mort#a#e, bot on t e or"#"na$ and on t e dup$"cate, t e date, our and m"nute ) en t e same "s rece"ved !or record and record suc cert"!"cate )"t t e return "tse$! and %eep an a$p abet"ca$ "nde1 or mort#a#ors and mort#a#ees, ) "c record and "nde1 s a$$ be open to pub$"c "nspect"on. -u$y cert"!"ed cop"es o! suc records and o! !"$ed "nstruments s a$$ be rece"vab$e as ev"dence "n any court. T e re#"ster o! deeds s a$$ co$$ect t e !o$$o)"n# !ees !or serv"ces rendered by "m under t "s (8,+

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$' o% $&&

(a) :or entry or presentat"on o! any document "n t e pr"mary entry boo%, !"ve pesos. (upport"n# papers presented to#et er )"t t e pr"nc"pa$ document need not be c ar#ed any entry or presentat"on !ee un$ess t e party "n "nterest des"res t at t ey be $"%e)"se entered. (b) :or !"$"n# and record"n# eac c atte$ mort#a#e, "nc$ud"n# t e necessary cert"!"cates and a!!"dav"ts, t e !ees estab$"s ed "n t e !o$$o)"n# sc edu$e s a$$ be co$$ected+ C1. 4 en t e amount o! t e mort#a#e does not e1ceed s"1 t ousand pesos, seven pesos !or t e !"rst !"ve undred pesos or !ract"ona$ part t ereo!, and t ree pesos !or eac add"t"ona$ !"ve undred pesos or !ract"ona$ part t ereo!. C2. 4 en t e amount o! t e mort#a#e "s more t an s"1 t ousand pesos but does not e1ceed t "rty t ousand pesos, !orty.e"# t pesos !or t e "n"t"a$ amount not e1ceed"n# e"# t t ousand pesos, and e"# t pesos !or eac add"t"ona$ t)o t ousand pesos or !ract"ona$ part t ereo!. C3. 4 en t e amount o! t e mort#a#e "s more t an t "rty t ousand pesos but does not e1ceed one undred t ousand pesos, one undred !"!ty pesos !or "n"t"a$ amount not e1ceed"n# t "rty.!"ve t ousand pesos, and !ourteen pesos !or eac add"t"ona$ !"ve t ousand pesos or !ract"ona$ part t ereo!. C4. 4 en t e amount o! t e mort#a#e "s more t an one undred t ousand pesos but does not e1ceed !"ve undred t ousand pesos, t ree undred !"!ty.t)o pesos !or t e "n"t"a$ amount not e1ceed"n# one undred ten t ousand pesos and t)enty pesos !or eac add"t"ona$ ten t ousand pesos or !ract"ona$ part t ereo!. C5. 4 en t e amount o! t e mort#a#e "s more t an !"ve undred t ousand pesos, one t ousand one undred s"1ty.t)o pesos !or t e "n"t"a$ amount not e1ceed"n# !"ve undred t)enty t ousand pesos, and t "rty pesos !or eac add"t"ona$ t)enty t ousand pesos or !ract"ona$ part t ereo!+ Prov"ded, o)ever, T at re#"strat"on o! t e mort#a#e "n t e prov"nce ) ere t e property "s s"tuated s a$$ be su!!"c"ent re#"strat"on+ And prov"ded, !urt er, T at "! t e mort#a#e "s to be re#"stered "n more t an one c"ty or prov"nce, t e re#"ster o! deeds o! t e c"ty or prov"nce ) ere t e "nstrument "s !"rst presented !or re#"strat"on s a$$ co$$ect t e !u$$ amount o! t e !ees due "n accordance )"t t e sc edu$e prescr"bed above, and t e re#"ster o! deeds o! t e ot er c"ty or prov"nce ) ere t e same "nstrument "s a$so to be re#"stered s a$$ co$$ect on$y a sum e2u"va$ent to t)enty per centum o! t e amount o! !ees due and pa"d "n t e !"rst c"ty or prov"nce, but "n no case s a$$ t e !ees payab$e "n any re#"stry be $ess t an t e m"n"mum !"1ed "n t "s sc edu$e. C(c) :or record"n# eac "nstrument o! sa$e, conveyance, or trans!er o! t e property ) "c "s sub>ect o! a recorded mort#a#e, or o! t e ass"#nment o! mort#a#e cred"t, t e !ees estab$"s ed "n t e preced"n# sc edu$e s a$$ be co$$ected on t e bas"s o! ten per centum o! t e amount o! t e mort#a#e or unpa"d ba$ance t ereo!+ Prov"ded, T at t e $atter "s stated "n t e "nstrument. C(d) :or record"n# eac not"ce o! attac ment, "nc$ud"n# t e necessary "nde1 and annotat"ons, e"# t pesos. C(e) :or record"n# eac re$ease o! mort#a#e, "nc$ud"n# t e necessary "nde1 and re!erence, t e !ees estab$"s ed "n t e sc edu$e under para#rap (b) above s a$$ be co$$ected on t e bas"s o! !"ve per centum o! t e amount o! t e mort#a#e. C(!) :or record"n# eac re$ease o! attac ment, "nc$ud"n# t e proper annotat"ons, !"ve pesos. C(#) :or record"n# eac s er"!!Is return o! sa$e, "nc$ud"n# t e "nde1 and re!erence, seven pesos. C( ) :or record"n# a po)er o! attorney, appo"ntment o! >ud"c"a$ #uard"an, adm"n"strator, or trustee, or any ot er "nstrument "n ) "c a person "s #"ven po)er to act "n be a$! o! anot er "n connect"on )"t a mort#a#e, ten pesos.

C(") :or record"n# eac "nstrument or order re$at"n# to a recorded mort#a#e, "nc$ud"n# t e necessary "nde1 and re!erence, !or ) "c no spec"!"c !ee "s prov"ded above !"ve pesos. C(>) :or cert"!"ed cop"es o! records, suc !ees as are a$$o)ed by $a) !or cop"es %ept by t e re#"ster o! deeds. C(%) :or "ssu"n# a cert"!"cate re$at"ve to, or s o)"n# t e e1"stence or non.e1"stence o!, and entry "n t e re#"strat"on boo%, or a document on !"$e, !or eac suc cert"!"cate conta"n"n# not more t an t)o undred )ords, !"ve pesos* "! "t e1ceeds t at number, an add"t"ona$ !ee o! one peso s a$$ co$$ected !or every one undred )ords or !ract"ona$ part t ereo!, "n e1cess o! t e !"rst t)o undred )ords. C($) :or serv"ces rendered "n attend"n# to re2uests !or re!erences to, or researc es on any document on !"$e "n t e re#"stry, t ere s a$$ be co$$ected a !ee o! t)o pesos per document.C SE% $. T "s decree s a$$ ta%e e!!ect upon "ts approva$. -one "n t e ,"ty o! Aan"$a, t "s 9t day o! 6une, "n t e year o! <ur 5ord, n"neteen undred and seventy.e"# t

$irc -ar .o. 722002 'o3 A-- #4ec tive 5 d"e), $-er6) %& $o rt, S!eri&&) /n '!e %&&ice %& '!e $-er6 %& $o rt And Branc! S!eri&&) /n '!e (e"iona- 'ria- $o rt) S ,7ect3 8 ide-ine) For '!e #n&orcement %& S +reme $o rt (e)o- tion %& Decem,er 14, 1999 /n Admini)trative 1atter .o. 9921020520 9(e3 Proced re /n #4tra25 dicia- Forec-o) re %& 1ort"a"e:, A) Amended B* '!e (e)o- tion) Dated 5an ar* 30, 2001 And A " )t 7, 2001 T ese #u"de$"nes are "ssued pursuant to t e (upreme ,ourt 8n 'anc Reso$ut"on o! -ecember 14, 1999 "n Adm"n"strat"ve Aatter =o. 99.1/./5./, as amended by t e reso$ut"ons o! 6anuary 3/, 2//1 and Au#ust 7, 2//1, d"rect"n# t e <!!"ce o! t e ,ourt Adm"n"strator to prepare t e #u"de$"nes !or t e en!orcement o! A.A. =o. 99.1/./5./ on t e e1tra.>ud"c"a$ !orec$osure o! mort#a#es. (ec. 1. A$$ app$"cat"ons !or e1tra.>ud"c"a$ !orec$osure o! mort#a#e, ) et er under t e d"rect"on o! t e ( er"!! or a notary pub$"c pursuant to Art. =o. 3135, as amended, and Act 15/7, as amended, s a$$ be !"$ed )"t t e 81ecut"ve 6ud#e, t rou# t e ,$er% o! ,ourt, ) o "s a$so t e 81.<!!"c"o ( er"!! (A.A. =o. 99.1/. /5./, as amended, Aarc 1, 2//1). (ec. 2. Epon rece"pt o! t e app$"cat"on, t e ,$er% o! ,ourt s a$$+ a. 81am"ne t e same to ensure t at t e spec"a$ po)er o! attorney aut or"D"n# t e e1tra.>ud"c"a$ !orec$osure o! t e rea$ property "s e"t er "nserted "nto or attac ed to t e deed o! rea$ estate mort#a#e (Act =o. 3135, (ec. 1, as amended)* b. 3"ve a !"$e number to t e app$"cat"on and endorse t e date and t"me o! "ts !"$"n# and t erea!ter doc%et t e same, %eep"n#, "n t "s connect"on, separate doc%et boo%s !or e1tra.>ud"c"a$ !orec$osure sa$es conducted by t e ( er"!! and t ose conducted by notar"es pub$"c* c. :or t e conduct o! e1tra.>ud"c"a$ !orec$osure o! rea$ estate or c atte$ mort#a#e under t e d"rect"on o! t e s er"!!, co$$ect t e appropr"ate !"$"n# !ees and "ssues t e correspond"n# o!!"c"a$ rece"pt pursuant to t e !o$$o)"n# sc edu$e+ ;! t e amount o! t e "ndebtedness or t e mort#a#ee&s c$a"m "s+ (1) 5ess t an P5/,///.// LLLLLLL.. P275.// (2) P5/,///.// or more but $ess t an P1//,///.// LLLLLLLLLLL..... 4//.// (3) P1//,///.// or more but $ess t an P15/,///.// LLLLLLLLLLLL. 5//.// (4) P15/,///.// or more but $ess t an P2//,///.// LLLLLLLLLLLL. @5/.//

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$& o% $&&

(5) P2//,///.// or more but $ess t an P25/,///.// LLLLLLLLLLL.. 1,///.// (@) P25/,///.// or more but $ess t an P3//,///.// LLLLLLLLLL.L. 1,25/.// (7) P3//,///.// or more but $ess t an P4//,///.// LLLLLLLLLLL.. 1,5//.// (7) P4//,/// or more but $ess t an P5//,///.// LLLLLLLLLLL.. 1,75/.// (9) P5//,///.// or more but not more t an P1//,///,///.// LLLLLLLL..L. 2,///.// (1/) :or eac P1,///.// "n e1cess o! P1,///,///.//LLLLLLLLLLLL.. 1/.// ((8, 7 (c), Ru$e 141, Ru$es o! ,ourt, as amended by A.A. =o. //. 2./1.(,, :ebruary 1, 2///). ,ooperat"ves, t r"!t ban%s, and rura$ ban%s are not e1empt !rom t e payment o! !"$"n# !ees and ot er !ees under t ese #u"de$"nes (A.A. =o. 97.9.27/.RT,, (eptember 29, 1997* A.A. =o. 99.3.93.RT,, Apr"$ 2/, 1999* and A.A. =o. 92.9.4/7./). d. ;n case t e app$"cat"on "s !or t e e1tra.>ud"c"a$ !orec$osure o! mort#a#es o! rea$ estates and0or c atte$s "n d"!!erent $ocat"ons cover"n# one "ndebtedness, "ssue, apart !rom t e o!!"c"a$ rece"pt !or t e !ees, a cert"!"cate o! payment "nd"cat"n# t e amount o! "ndebtedness, t e !"$"n# !ees co$$ected, t e mort#a#es sou# t to be !orec$osed, t e rea$ estates and0or c atte$s mort#a#ed and t e"r respect"ve $ocat"ons, !or purposes o! av"n# t e app$"cat"on doc%eted )"t t e ,$er%s o! ,ourt "n t e p$aces ) ere t e ot er propert"es are $ocated and o! a$$o)"n# t e e1tra.>ud"c"a$ !orec$osure to proceed t ereat. (A.A. =o. 99.1/./5./, par. 2(e)). (ec. 3. T e app$"cat"on !or e1tra.>ud"c"a$ !orec$osure s a$$ be ra!!$ed under t e superv"s"on o! t e 81ecut"ve 6ud#e, )"t t e ass"stance o! t e ,$er% o! ,ourt and 81.<!"c"o ( er"!!, amon# a$$ ( er"!!s "nc$ud"n# t ose ass"#ned to t e <!!"ce o! t e ,$er% o! court and ( er"!!s ass"#ned "n t e branc es o! t e court. A ( er"!! to ) om t e case as been ra!!$ed s a$$ be e1c$uded "n t e succeed"n# ra!!$es and s a$$ part"c"pate a#a"n on$y a!ter a$$ ot er ( er"!!s s a$$ ave been ass"#ned a case by ra!!$e (Adm"n"strat"ve ,"rcu$ar =o. 3. 97, :eb. 5, 1997). (ec. 4. T e ( er"!! to ) om t e app$"cat"on !or e1tra.>ud"c"a$ !orec$osure o! mort#a#e )as ra!!$ed s a$$ do t e !o$$o)"n#+ a. Prepare a =ot"ce o! 81tra.>ud"c"a$ (a$e us"n# t e !o$$o)"n# !orm+ G=<T;,8 <: 8JTRA.6E-;,;A5 (A58H GEpon e1tra.>ud"c"a$ pet"t"on !or sa$e under Act 3135 0 15/7 !"$ed NNNNNNNNNNNNNNNNNN a#a"nst (name and address o! Aort#ator0s) to sat"s!y t e mort#a#e "ndebtedness ) "c as o! NNNNNNNNNNN amounts to P NNNNNNNNNNNNNNNNN, e1c$ud"n# pena$t"es, c ar#es, attorney&s !ees and e1penses o! !orec$osure, t e unders"#ned or "s du$y aut or"Ded deputy )"$$ se$$ at pub$"c auct"on on (date o! sa$e) NNNNNNNNNNNNNNN at 1/+// A.A. or soon t erea!ter at t e ma"n entrance o! t e NNNNNNNNNNN (p$ace o! sa$e) to t e "# est b"dder, !or cas or mana#er&s c ec% and "n P "$"pp"ne ,urrency, t e !o$$o)"n# property )"t a$$ "ts "mprovements, to )"t+ H(-escr"pt"on o! Property)H GA$$ sea$ed b"ds must be subm"tted to t e unders"#ned on t e above stated t"me and date.H ;/n t!e event t!e + ,-ic a ction )!o -d not ta6e +-ace on t!e )aid date, it )!a-- ,e !e-d on <<<<<<<<<<<<<<<, <<<<<<<<<<<<<<< wit!o t & rt!er notice.= NNNNNNNNNNNNNNNN (date) G(B8R;::H b. (1) ;n case o! !orec$osure o! rea$ estate mort#a#e, cause t e pub$"cat"on o! t e not"ce o! sa$e by post"n# "t !or not $ess t an t)enty (2/) days "n at $east t ree (3) pub$"c p$aces "n t e mun"c"pa$"ty or c"ty ) ere t e property "s s"tuated and "! suc

property "s )ort more t an !our undred (P4//.//) pesos, by av"n# suc not"ce pub$"s ed once a )ee% !or at $east t ree (3) consecut"ve )ee%s "n a ne)spaper o! #enera$ c"rcu$at"on "n t e mun"c"pa$"ty or c"ty ((ec. 3, Act =o. 3135, as amended). T e 81ecut"ve 6ud#e s a$$ des"#nate a re#u$ar )or%"n# day and de!"n"te t"me eac )ee% dur"n# ) "c sa"d not"ce s a$$ be d"str"buted persona$$y by "m !or pub$"cat"on to 2ua$"!"ed ne)spapers or per"od"ca$s as de!"ned "n (ec. 1 o! P.-. =o. 1/79, ) "c d"str"but"on s a$$ be e!!ected by ra!!$e (A.A. =o. /1.1./7.(,, <ct. 1@, 2//1). En$ess ot er)"se st"pu$ated by t e part"es to t e mort#a#e contract, t e debtor.mort#a#or need not be persona$$y served a copy o! t e not"ce o! t e e1tra.>ud"c"a$ !orec$osure. :or rea$ estate mort#a#es cover"n# $oans not e1ceed"n# P1//,///.//, e1c$us"ve o! "nterests due and unpa"d, #ranted by rura$ ban%s (RA =o. 7353, (ec. @) or t r"!t ban%s (RA =o. 79/@, (ec. 17),pub$"cat"on "n a ne)spaper s a$$ be d"spensed )"t , "t be"n# su!!"c"ent t at t e not"ces o! !orec$osure are posted !or a per"od o! s"1ty (@/) days "mmed"ate$y preced"n# t e pub$"c auct"on "n t e most consp"cuous areas o! t e mun"c"pa$ bu"$d"n#, t e mun"c"pa$ pub$"c mar%et, t e rura$ ban%, t e baran#ay a$$, and t e baran#ay pub$"c mar%et, "! any, ) ere t e $and mort#a#ed "s s"tuated. Proo! o! pub$"cat"on s a$$ be accomp$"s ed by an a!!"dav"t o! t e ( er"!! and s a$$ be attac ed to t e records o! t e case. (2) ;n case o! !orec$osure o! a c atte$ mort#a#e, post t e not"ce !or at $east ten (1/) days "n t)o (2) or more pub$"c p$aces "n t e mun"c"pa$"ty ) ere t e mort#a#or res"des or ) ere t e property "s s"tuated ((ec. 14, Act =o. 15/7, as amended). (ec. 5. ,onduct o! t e e1tra.>ud"c"a$ !orec$osure sa$e ? a. T e b"dd"n# s a$$ be made t rou# sea$ed b"ds ) "c must be subm"tted to t e ( er"!! ) o s a$$ conduct t e sa$e bet)een t e ours o! 9 a.m. and 4 p.m. o! t e date o! t e auct"on (Act 3135, (ec. 4). T e property mort#a#ed s a$$ be a)arded to t e party subm"tt"n# t e "# est b"d and, "n case o! a t"e, an open b"dd"n# s a$$ be conducted bet)een t e "# est b"dders. Payments o! t e )"nn"n# b"d s a$$ be made e"t er "n cas or "n mana#er&s c ec%, "n P "$"pp"ne currency, )"t "n !"ve (5) days !rom not"ce. b. T e sa$e must be made "n t e prov"nce "n ) "c t e rea$ property "s s"tuated and, "n case t e p$ace )"t "n t e sa"d prov"nce "n ) "c t e sa$e "s to be made "s t e sub>ect o! st"pu$at"on, suc sa$e s a$$ be made "n sa"d p$ace "n t e mun"c"pa$ bu"$d"n# o! t e mun"c"pa$"ty "n ) "c t e property or part t ereo! "s s"tuated (Act =o. 3135, as amended, (ec. 2)* "n case o! a c atte$ mort#a#e, t e sa$e s a$$ be made at a p$ace "n t e mun"c"pa$"ty ) ere t e mort#a#or res"des or ) ere t e property "s s"tuated ((ec. 14, Act =o. 15/7, as amended). (ec. @. A!ter t e sa$e, t e ,$er% o! ,ourts s a$$ co$$ect t e appropr"ate !ees pursuant to (ec. 9(1), Ru$e 141, as amended by A.A =o. //.2./1.(,, computed on t e bas"s o! t e amount actua$$y co$$ected by "m, ) "c !ee s a$$ not e1ceed P1//,///.// (A.A. =o. 99.1/./5./, Aarc 1, 2//1, 2SdT). T e amount pa"d s a$$ not be sub>ect to a re!und even "! t e !orec$osed property "s subse2uent$y redeemed. (ec. 7. ;n case o! !orec$osure under Act =o. 15/7, t e ( er"!! s a$$, )"t "n t "rty (3/) days !rom t e sa$e, prepare a return and !"$e t e same "n t e <!!"ce o! t e Re#"stry o! -eeds ) ere t e mort#a#e "s recorded. (ec. 7. T e ( er"!! or t e notary pub$"c ) o conducted t e sa$e s a$$ report t e name0s o! t e b"dder0s to t e ,$er% o! ,ourt. (ec. 9. Epon presentat"on o! t e appropr"ate rece"pts, t e ,$er% o! ,ourt s a$$ "ssue and s"#n t e ,ert"!"cate o! (a$e, sub>ect to t e approva$ o! t e 81ecut"ve 6ud#e or, "n t e $atter&s absence, t e 9"ce.81ecut"ve 6ud#e. Pr"or to t e "ssuance o! t e cert"!"cate o! (a$e, t e ,$er% o! court s a$$, "n e1tra.>ud"c"a$ !orec$osure conducted under t e d"rect"on o! t e s er"!!, co$$ect P3//.// as

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$( o% $&&

prov"ded "n (8, 2/(d), Ru$e 141, as amended, and "n e1tra.>ud"c"a$ !orec$osure sa$es conducted under t e d"rect"on o! a notary pub$"c, co$$ect t e appropr"ate !ees pursuant to Ru$e 141, U2/(e), ) "c amount s a$$ not e1ceed P1//,///.// (A"nute Res., A.A. =o. 99. 1/./5./, Au#ust 7, 2//1). (ec. 1/. A!ter t e ,ert"!"cate o! (a$e as been "ssued, t e ,$er% o! ,ourt s a$$ %eep t e comp$ete records !or a per"od o! one (1) year !rom t e date o! re#"strat"on o! t e cert"!"cate o! sa$e )"t t e Re#"ster o! -eeds, a!ter ) "c t e records s a$$ be arc "ved. =ot)"t stand"n# t e !ore#o"n#, >ur"d"ca$ persons ) ose property "s so$d pursuant to an e1tra.>ud"c"a$ !orec$osure s a$$ ave t e r"# t to redeem t e property unt"$, but not $ater t an, t e re#"strat"on o! t e cert"!"cate o! !orec$osure sa$e ) "c "n no case s a$$ be more t an t ree (3) mont s a!ter !orec$osure, ) "c ever "s ear$"er (R.A. 7791, (8, 47). ;n case t e property "s redeemed, t e ,$er% o! ,ourt s a$$ assess t e redempt"oner&s !ee as prov"ded "n (8, 7 (%), Ru$e 141, as amended. ;! t e property "s not redeemed, t e ,$er% o! ,ourt s a$$, as a re2u"s"te !or t e "ssuance o! t e !"na$ -eed o! (a$e, assess t e "# est b"dder t e amount o! P3//.// as prov"ded "n (8, 2/(d), Ru$e 141, as amended. (ec. 11. T ese #u"de$"nes s a$$ ta%e e!!ect on Apr"$ 22, 2//2. ;ssued t "s 22nd day o! 6anuary 2//2

Q T e sa$e must be made "n t e prov"nce ) ere t e property to be so$d "s s"tuated. (a$e outs"de t e prov"nce "s "$$e#a$. Q ;! t e mort#a#e deed speci ied a place "n t e mun"c"pa$"ty "n t e prov"nce ) ere t e sa$e )ou$d be made, suc sa$e s a$$ be made "n suc p$ace. Q ;! t e p$ace o! sa$e "n t e mun"c"pa$"ty )as not st"pu$ated, t e sa$e s a$$ be made "n t e #unicipal buildin= o! t e mun"c"pa$"ty "n ) "c t e property or part t ereo! "s s"tuated. Po)tin" (e> irement? P ,-ication (e> irement 1) =ot"ces o! t e sa$e s a$$ be posted or not less than $> days in at least 9 public places "n t e c"ty or mun"c"pa$"ty ) ere t e property "s s"tuated. 2) ;! property "s )ort more t an P4//, t e not"ce o! t e sa$e s a$$ a$so be published once a wee? or 9 consecuti@e wee?s in a newspaper o =eneral circulation "n t e c"ty or mun"c"pa$"ty. #@$#P'/%. to t!e re> irement o& new)+a+er + ,-ication even "! mort#a#ed property "s )ort more t an P4//+ Q :or rea$ estate mort#a#es cover"n# $oans not e1ceed"n# P1//,///, e1c$us"ve o! "nterests due and unpa"d, #ranted by rura$ or t r"!t ban%s, pub$"cat"on "n a ne)spaper s a$$ be d"spensed )"t , "t be"n# su!!"c"ent t at not"ces o! !orec$osure are posted !or a per"od o! @/ days "mmed"ate$y preced"n# t e pub$"c auct"on "n t e most consp"cuous areas at t e prem"ses o! t e rura$ ban% or t r"!t ban%, as t e case may be, and at t e mun"c"pa$ bu"$d"n#, mun"c"pa$ pub$"c mar%et, baran#ay a$$ and baran#ay pub$"c mar%et "! any or ) ere t e $and "s s"tuated An-e)) ot!erwi)e )ti+ -ated ,* t!e +artie) in t!e mort"a"e contract, t e debtor0mort#a#or need not be persona$$y served a copy o! t e not"ce o! e1tra>ud"c"a$ !orec$osure. =o persona$ not"ce "s re2u"red because an 86: "s an act"on in rem re2u"r"n# on$y t e pub$"cat"on o! t e not"ce o! t e sa$e to b"nd t e part"es "nterested. Q :a"$ure to post not"ce "s =<T per se a #round !or "nva$"dat"n# t e sa$e prov"ded t at t e not"ce t ereo! "s du$y pub$"s ed "n a ne)spaper o! #enera$ c"rcu$at"on. (-'P vs. A#u"rre) Q T e ob>ect o! t e not"ce "s to "n!orm t e pub$"c o! t e sa$e and to secure as many b"dders as poss"b$e to #et t e best pr"ce !or t e property. Q 1epublicationA Repub$"cat"on "n t e manner prescr"bed by Act 3135 "s necessary !or t e va$"d"ty o! a postponed 86: sa$e. T e absence o! suc repub$"cat"on "nva$"dates t e !orec$osure sa$e. $ond ct %& Sa-e 1) (a$e s a$$ be by pub$"c auct"on or b"dd"n# made t rou# sea$ed b"ds. 2) (ea$ed b"ds are subm"tted to t e ( er"!! ) o s a$$ conduct t e sa$e bet)een t e ours o! 9+// A.A. to 4+// P.A. o! t e date o! auct"on. T e sa$e s a$$ be under t e d"rect"on o!+ a. ( er"!! o! t e prov"nce* or b. Aun"c"pa$"ty or au1"$"ary mun"c"pa$ >ud#e o! t e mun"c"pa$"ty "n ) "c t e sa$e "s to be made* or c. =otary pub$"c o! t e sa"d mun"c"pa$"ty 3) Property s a$$ be a)arded to t e "# est b"dder, "n case o! a t"e, an open b"dd"n# s a$$ be conducted bet)een t e "# est b"dders. Q =o auct"on sa$e s a$$ be e$d un$ess t ere are at $east 2 part"c"pat"n# b"dders ("n case o! second sa$e, "! t ere "s on$y one b"dder, t e sa$e s a$$ proceed) 4) Payment o! t e )"nn"n# b"d s a$$ be made e"t er "n cas or "n mana#er&s c ec%, "n P "$"pp"ne currency, )"t "n 5 days !rom not"ce. Q ;nade2uacy o! t e pr"ce )ou$d not nu$$"!y t e sa$e un$ess t e pr"ce "s so "nade2uate as to s oc% t e consc"ence o! t e court. ;n

(. A) A%T T' 1E*ULATE T3E SALE '6 &1'&E1T: U)2E1 S&E%IAL &'WE1S I)SE1TE2 I) '1 A))E<E2 T' 1EAL ESTATE 4'1T*A*ES Act 3135, as amended by Act 4117 (1933), (ec @ RA 7353 (1992), (ec 17 RA 79/@ (1995), (ec 47 RA 7791 (2///)
..1 Topics Remed"es Ava"$ab$e To Aort#a#ee Epon -e!au$t <! Aort#a#or :orec$osure+ A remedy ava"$ab$e to t e mort#a#ee ) ere e sub>ects t e mort#a#ed property to t e sat"s!act"on o! t e ob$"#at"on to secure !or ) "c t e mort#a#e )as #"ven. ;t may be e!!ected e"t er >ud"c"a$$y or e1tra>ud"c"a$$y. Aut or"ty To :orec$ose Aort#a#e 81tra>ud"c"a$$y 1) T e on$y "nstance ) en an e1tra>ud"c"a$ !orec$osure may be e!!ected "s ) en a sa$e "s made and a (pec"a$ Po)er o! Attorney to e1tra>ud"c"a$$y !orec$ose "s "nserted or attac ed to t e Rea$ 8state Aort#a#e (R8A). 2) ;! t e R8A "s s"$ent as to t e manner o! !orec$os"n# t e mort#a#e, e1tra>ud"c"a$ !orec$osure may not be e!!ected and Ru$e @7 o! t e Ru$es o! ,ourt "n 6ud"c"a$ :orec$osure s a$$ app$y. Procedure 0!ere to &i-e Q App$"cat"on s ou$d be !"$ed )"t t e 81ecut"ve 6ud#e t rou# t e ,$er% o! ,ourt. Q A!ter t e rece"pt o! t e app$"cat"on, t e ,$er% o! ,ourt s a$$+ 1) e1am"ne t e same to ensure t at t e spec"a$ po)er "! attorney aut or"D"n# t e 86: o! t e rea$ property "s e"t er "nserted or attac ed to t e deed o! rea$ estate mort#a#e. 2) ra!!$e t e app$"cat"on amon# t e ( er"!!s 3) cause t e post"n# and 0or pub$"cat"on o! t e not"ce o! sa$e 0!ere to )e-> p$ace ) ere eac o! t e mort#a#ed property "s $ocated.

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$) o% $&&

!act t e property may be so$d !or $ess t an "ts :A9 because t e $esser t e pr"ce t e eas"er !or t e o)ner to e!!ect redempt"on. (9a$monte v ,A) Q ;! t e proceeds o! t e sa$e are "n e1cess o! t e amount c$a"med by t e mort#a#ee, t e e1cess s a$$ be turned over to t e mort#a#or. 5) ,red"tor may be barred !rom part"c"pat"n# "n t e b"dd"n#, on$y ;: so prov"ded "n t e mort#a#e deed. Bence, cred"tor or any o! "s representat"ves may part"c"pate absent any e1press prov"s"on "n t e mort#a#e or trust deed barr"n# "m. @) ,ert"!"cate o! sa$e "ssued by t e c$er% o! court must be approved by t e e1ecut"ve >ud#e or "n "s absence t e v"ce.e1ecut"ve >ud#e. =o cert"!"cate o! sa$e s a$$ be "ssued "n !avor o! t e "# est b"dder unt"$ a$$ !ees ave been pa"d Possess"on 'y Purc aser <! :orec$osed Property 1. D rin" redem+tion +eriod T e purc aser o! t e !orec$osed property "s not automat"ca$$y ent"t$ed to possess"on o! t e property. Be must !"$e an e1 parte app$"cat"on and #"ve a bond "n t e amount e2u"va$ent to t e use o! t e property !or a per"od o! 12 mont s. Epon approva$ o! t e bond, t e court s a$$ order t e "ssuance o! a )r"t o! possess"on. Bo)ever, a )r"t o! possess"on may be "ssued "n an 86: o! R8A, on$y "! t e debtor "s "n possess"on and no t "rd party as "ntervened. (P=' vs. ,A) 2. A&ter t!e -a+)e o& t!e redem+tion +eriod ,onso$"dat"on o! t e t"t$e becomes a matter o! r"# t on t e part o! t e purc aser and t e "ssuance o! a cert"!"cate o! sa$e "n "s !avor becomes m"n"ster"a$ upon t e Re#"stry o! -eeds. To obta"n possess"on, t e purc aser may e"t er as% !or a )r"t o! possess"on or br"n# an "ndependent act"on suc as a su"t o! e>ectment. Remedy <! -ebtor ;! :orec$osure =ot Proper T e debtor, "n t e proceed"n#s "n ) "c possess"on )as re2uested, but not $ater t an 3/ days a!ter t e purc aser )as #"ven possess"on, pet"t"on t e sa$e to be set as"de and t e )r"t o! possess"on cance$$ed, spec"!y"n# t e dama#es su!!ered by "m, because t e mort#a#e )as not v"o$ated or t e sa$e )as not made "n accordance )"t t e prov"s"ons ereo!, and t e court s a$$ ta%e co#n"Dance o! t "s pet"t"on "n accordance )"t t e summary procedure prov"ded "n (8, 112 o! Act 49@ (no) (8, 1/7 o! P1529) and "! "t !"nds t e comp$a"nt o! t e debtor >ust"!"ed, "t s a$$ d"spose "n "s !avor o! a$$ or part o! t e bond ) "c t e part"es may ave !urn"s ed by t e person ) o obta"ned t e possess"on. 8"t er o! t e part"es may appea$ !rom t e order o! t e >ud#e "n accordance )"t (8, 14 o! Act 49@ (no (8, 33 o! P- 1529), but t e order o! possess"on s a$$ cont"nue "n e!!ect dur"n# t e pendency o! t e appea$.

Period o& (edem+tion <ne year !rom t e date o! t e re#"strat"on o! cert"!"cate o! sa$e. SE% 7. ;n a$$ cases "n ) "c an e1tra>ud"c"a$ sa$e "s made under t e spec"a$ po)er ere"nbe!ore re!erred to, t e debtor, "s successors "n "nterest or any >ud"c"a$ cred"tor or >ud#ment cred"tor o! sa"d debtor, or any person av"n# a $"en on t e property subse2uent to t e mort#a#e or deed o! trust under ) "c t e property "s so$d, may redeem t e same at any ti#e within the ter# o one year ro# and a ter the date o the sale , and suc redempt"on s a$$ be #overned by t e prov"s"ons o! (8,s 29.31 and 35 o! t e Ru$es o! ,ourt. Date o& Sa-eA as been construed by t e (upreme ,ourt as t e date o! re#"strat"on o! t e s er"!!&s cert"!"cate o! !orec$osure sa$e "n t e o!!"ce o! t e Re#"ster o! -eeds concerned. 4 ere t e mort#a#ed property so$d to t "rd party by t e mort#a#or+ trans!ers on$y t e r"# t to redeem t e property and t e r"# t to possess, use and en>oy t e same dur"n# t e redempt"on per"od. 4 ere t e mort#a#ed property so$d to t "rd party by mort#a#ee a!ter t e !orec$osure+ t e mort#a#or may st"$$ redeem "t at t e amount o! t e pr"nc"pa$ ob$"#at"on p$us "nterest unt"$ t e t"me o! actua$ redempt"on and not o! t e purc ase pr"ce. (e> i)ite) For A Ba-id #4erci)e %& (i"!t %& (edem+tion 1) T e redempt"on must ave been made )"t "n a year !rom t e date o! re#"strat"on o! t e cert"!"cate o! sa$e. 2) Payment o! t e Purc ase pr"ce o! t e property p$us 1V "nterest per mont )"t t e ta1es, "! pa"d by t e purc aser and t e amount o! "s pr"or $"en, "! any computed !rom t e date o! t e re#"strat"on o! t e sa$e up to t e t"me o! redempt"on. 3) 4r"tten not"ce o! t e redempt"on must be served on t e o!!"cer ) o made t e sa$e and a dup$"cate !"$ed )"t t e proper Re#"stry o! -eeds. 4) T e redempt"on must be made be!ore t e sa$e "s con!"rmed by t e court. 5. Tender o! payment must be made !or t e !u$$ amount o! t e purc ase pr"ce, ot er)"se, to a$$o) payment by "nsta$ments )ou$d be to a$$o) t e e1tens"on o! t e redempt"on per"od. 2 Cind) o& (edem+tion 1) 82u"ty o! Redempt"on ? r"# t o! t e mort#a#or "n case o! a Budicial oreclosure to recover t e mort#a#ed property a!ter "s de!au$t "n t e per!ormance t e cond"t"ons o! t e mort#a#e but be!ore t e con!"rmat"on o! sa$e o! t e mort#a#ed property. 2) R"# t o! redempt"on ? r"# t o! t e mort#a#or "n case o! e!traBudicial oreclosure to redeem t e mort#a#ed property )"t "n a certa"n per"od a!ter "t )as so$d !or t e sat"s!act"on o! t e mort#a#e debt. T "s "s t e %"nd o! redempt"on contemp$ated "n A,T 3135. E"uity o 1ede#ption *o@ernin= Law 3overned by Ru$e @7 o! t e Ru$es o! ,ourt Applicability 1. "n >ud"c"a$ !orec$osure o! R8A* 2. "n 86: o! R8A "nvo$v"n# a ban% as a mort#a#ee and a >ur"d"ca$ person as a mort#a#or 1i=ht o 1ede#ption 3overned by (8, 29.31 o! Ru$e 39 1. "n >ud"c"a$ !orec$osure o! R8A "nvo$v"n# a ban% as a mort#a#ee, ) et er t e mort#a#or "s a natura$ or a >ur"d"ca$ person* 2. "n 86: o! R8A Bo)ever, no r"# t o! redempt"on e1"sts "! "t "nvo$ves a ban% as a

Redempt"on 0!o ma* redeem 1) t e debtor 2) "s successor "n "nterest 3) any >ud"c"a$ cred"tor av"n# an "nterest 4) any person av"n# a $"en on t e property subse2uent to t e mort#a#e under ) "c t e property "s so$d.

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$* o% $&&

mort#a#ee and a >ur"d"ca$ person as a mort#a#or. To who# con erred ,on!erred by $a) on$y to t e mort#a#or but ac2u"red by second mort#a#ee s"nce "s r"# t "s subord"nate to t e !"rst mort#a#ee. &eriod ,an be e1erc"sed )"t "n a per"od o! not $ess t an 9/ days nor more t an 12/ days !rom entry o! >ud#ment or even a!ter !orec$osure o! sa$e but pr"or to con!"rmat"on. When E!ercised ,an be e1erc"sed a!ter entry o! >ud#ment but be!ore !orec$osure sa$e and a!ter !orec$osure sa$e but pr"or to con!"rmat"on o! sa$e. 1ede#ption &rice Redempt"on pr"ce depends on t e >ud#ment o! t e court as to t e amount due to p$a"nt"!! upon mort#a#e debt )"t "nterest and c ar#es approved by t e court and costs. ,on!erred by $a) to t e mort#a#or, "s successors."n. "nterest or any >ud#ment cred"tor o! t e mort#a#or. ,an be e1erc"sed )"t "n 1 year !rom date o! re#"strat"on o! cert"!"cate o! sa$e.

4 ere a debt "s secured by a mort#a#e and t ere "s a de!au$t "n payment on t e part o! t e mort#a#or, t e mort#a#ee as a c o"ce o! one (1) o! t)o (2) remed"es, but e cannot ave bot . T e mort#a#ee may+ 1) !orec$osure t e mort#a#e* or 2) !"$e an ord"nary act"on to co$$ect t e debt. 4 en t e mort#a#ee c ooses t e !orec$osure o! t e mort#a#e as a remedy, e en!orces "s $"en by t e sa$e on !orec$osure o! t e mort#a#ed property. T e proceeds o! t e sa$e )"$$ be app$"ed to t e sat"s!act"on o! t e debt. 4"t t "s remedy, e as a pr"or $"en on t e property. ;n case o! a de!"c"ency, t e mort#a#ee as t e r"# t to c$a"m !or t e de!"c"ency resu$t"n# !rom t e pr"ce obta"ned "n t e sa$e o! t e rea$ property at pub$"c auct"on and t e outstand"n# ob$"#at"on at t e t"me o! t e !orec$osure proceed"n#s <n t e ot er and, "! t e mort#a#ee resorts to an act"on to co$$ect t e debt, e t ereby )a"ves "s mort#a#e $"en. Be )"$$ ave no more pr"or"ty over t e mort#a#ed property. ;! t e >ud#ment "n t e act"on to co$$ect "s !avorab$e to "m, and "t becomes !"na$ and e1ecutory, e can en!orce sa"d >ud#ment by e1ecut"on. Be can even $evy e1ecut"on on t e same mort#a#ed property, but e )"$$ not ave pr"or"ty over t e $atter and t ere may be ot er cred"tors ) o ave better $"en on t e propert"es o! t e mort#a#or. ,A5T8J subm"ts t at t e pr"nc"p$es enunc"ated "n t e Bachrach case are not app$"cab$e nor determ"nat"ve o! t e case at bar !or t e reason t at t e !actua$ c"rcumstances obta"ned "n t e sa"d case are tota$$y d"!!erent !rom t e "nstant case. ;n t e Bachrach case, t e p$a"nt"!! "nst"tuted an act"on to !orec$ose t e mort#a#e a!ter t e money >ud#ment "n "ts !avor rema"ned unsat"s!"ed ) ereas "n t e present case, ,A5T8J "n"t"a$$y !"$ed a comp$a"nt !or co$$ect"on o! t e debt and dur"n# t e pendency t ereo! !orec$osed e1tra>ud"c"a$$y t e mort#a#e. 4e d"sa#ree. A$t ou# t e !acts "n t e 'ac rac case and "n t e present case are not "dent"ca$, t ere "s s"m"$ar"ty "n t e !act t at t e p$a"nt"!!s "n t ese t)o cases ava"$ed o! bot remed"es a$t ou# t ey are ent"t$ed to a c o"ce o! on$y one. BA)K '6 A4E1I%A )T C SA ( A4E1I%A) 1EALT: %'1& ,1---0 Anent rea$ propert"es "n part"cu$ar, t e ,ourt as $a"d do)n t e ru$e t at a mort#a#e cred"tor may "nst"tute a#a"nst t e mort#a#e debtor e"t er a persona$ act"on !or debt or a rea$ act"on to !orec$ose t e mort#a#e. ;n our >ur"sd"ct"on, t e remed"es ava"$ab$e to t e mort#a#e cred"tor are deemed a$ternat"ve and not cumu$at"ve. =otab$y, an e$ect"on o! one remedy operates as a )a"ver o! t e ot er. :or t "s purpose, a remedy "s deemed c osen upon t e !"$"n# o! t e su"t !or co$$ect"on or upon t e !"$"n# o! t e comp$a"nt "n an act"on !or !orec$osure o! mort#a#e, pursuant to t e prov"s"on o! Ru$e @7 o! t e o! t e 1997 Ru$es o! ,"v"$ Procedure. As to e1tra>ud"c"a$ !orec$osure, suc remedy "s deemed e$ected by t e mort#a#e cred"tor upon !"$"n# o! t e pet"t"on not )"t any court o! >ust"ce but )"t t e <!!"ce o! t e ( er"!! o! t e prov"nce ) ere t e sa$e "s to be made, "n accordance )"t t e prov"s"ons o! Act =o. 3135, as amended by Act =o. 4117. ;n t e case at benc , pr"vate respondent AR, const"tuted rea$ estate mort#a#es over "ts propert"es as secur"ty !or t e debt o! t e pr"nc"pa$ debtors. 'y do"n# so, pr"vate respondent sub>ected "tse$! to t e $"ab"$"t"es o! a t "rd party mort#a#or. Ender t e $a), t "rd persons ) o are not part"es to a $oan may secure t e $atter by

,an be e1erc"sed <=5P a!ter t e !orec$osure sa$e.

Redempt"on pr"ce depends on t e purc ase pr"ce as !"1ed "n (ec 2@ Ru$e 39 R<, e1cept "n cases under (8, 77 o! t e 3enera$ 'an%"n# 5a), t e amount and t e "nterest to be pa"d by t e mort#a#or )"$$ be t e amount due and t e rate st"pu$ated "n t e mort#a#e $oan not t e purc ase pr"ce and $e#a$ "nterest under t e R<,.

..$ %ases Act"on :or :orec$osure <! Aort#a#e Prescr"bes A!ter 1/ Pears :rom T e T"me T e R"# t <! Act"on Accrued, ;.8. 4 en T e Aort#a#or -e!au$ts ;n T e Payment <! B"s <b$"#at"on %A)2' ( S&'USES 'LA+' ,$>>;0 8ven !rom a cursory read"n# o! t e appea$, "t "s "nde$"b$y c$ear t at t e tr"a$ court comm"tted an appa$$"n# b$under ) en "t ru$ed t at an act"on !or !orec$osure o! mort#a#e prescr"bes a!ter ten (1/) years !rom t e date o! t e mort#a#e contract. Ender Art"c$e 1142 o! t e ,"v"$ ,ode, a mort#a#e act"on prescr"bes a!ter ten (1/) years. 6ur"sprudence, o)ever, as c$ar"!"ed t "s ru$e by o$d"n# t at a mort#a#e act"on prescr"bes a!ter ten (1/) years !rom t e t"me t e r"# t o! act"on accrued, ) "c "s obv"ous$y not t e same as t e date o! t e mort#a#e contract. (tated d"!!erent$y, an act"on to en!orce a r"# t ar"s"n# !rom a mort#a#e s ou$d be en!orced )"t "n ten (1/) years !rom t e t"me t e r"# t o! act"on accrues* ot er)"se, "t )"$$ be barred by prescr"pt"on and t e mort#a#e cred"tor )"$$ $ose "s r"# ts under t e mort#a#e. T e r"# t o! act"on accrues ) en t e mort#a#or de!au$ts "n t e payment o! "s ob$"#at"on to t e mort#a#ee. Remed"es Ava"$ab$e To Aort#a#ee A$ternat"ve, =ot (uccess"ve <r ,umu$at"ve %ALTE< &3ILS @ IA% ,1-8-0

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$+ o% $&&

p$ed#"n# or mort#a#"n# t e"r o)n property. =ot)"t stand"n#, t ere "s no $e#a$ prov"s"on nor >ur"sprudence "n our >ur"sd"ct"on ) "c ma%es a t "rd person ) o secures t e !u$!"$$ment o! anot erIs ob$"#at"on by mort#a#"n# "s o)n property, to be so$"dar"$y bound )"t t e pr"nc"pa$ ob$"#or. T e s"#natory to t e pr"nc"pa$ contract . $oan . rema"ns to be pr"mar"$y bound. ;t "s on$y upon de!au$t o! t e $atter t at t e cred"tor may ave recourse on t e mort#a#ors by !orec$os"n# t e mort#a#ed propert"es "n $"eu o! an act"on !or t e recovery o! t e amount o! t e $oan. SUI%' 1ATTA) C BU1I I)TE1I'1S ( %A ,$>>70 T e remedy o! e1tra>ud"c"a$ !orec$osure "s deemed c osen not on t e day o! t e sa$e but on t e day o! t e !"$"n# o! a pet"t"on !or !orec$osure )"t t e o!!"ce o! t e Prov"nc"a$ , "e!. ("nce t e !"$"n# o! pet"t"on !or !orec$osure )as ear$"er t an t e !"$"n# o! act"on !or sum o! money, t e remedy o! !orec$osure )as c osen !"rst, even "! t e actua$ !orec$osure sa$e )as conducted a!ter t e !"$"n# o! act"on !or sum o! money. T e ru$e "s t at t e remed"es o! act"on !or sum o! money and !orec$osure are a$ternat"ve and not cumu$at"ve. Bence, t e act"on !or sum o! money by Aetroban% )as va$"d$y d"sm"ssed because "t a$ready !"$ed a pet"t"on !or !orec$osure be!ore "t !"$ed t e act"on. ;! "t ad !"$ed an act"on !or recovery o! de!"c"ency "nstead o! co$$ect"on o! sum o! money, "t )ou$d not ave been d"sm"ssed. ('ecause recovery o! de!"c"ency "s a$$o)ed !or Rea$ 8state Aort#a#e )"t "n 1/ years a!ter !orec$osure) Aort#a#e "nva$"d "! mort#a#or not t e property o)ner* doctr"ne o! mort#a#ee "n #ood !a"t not app$"cab$e E1E)A ( DUE11E1EKAU664A) ,$>>70 <ne o! t e essent"a$ re2u"s"tes o! a mort#a#e contract "s t at t e mort#a#or must be t e abso$ute o)ner o! t e t "n# mort#a#ed. A mort#a#e "s t us "nva$"d "! t e mort#a#or "s not t e property o)ner. ;n t "s case, t e tr"a$ court and t e ,A are one "n !"nd"n# t at based on t e ev"dence on record, t e o)ner o! t e property "s Fau!!man ) o )as not t e one ) o mort#a#ed t e same to 8rena. T e doctr"ne o! mort#a#ee "n #ood !a"t cannot app$y "n t "s case. T "s doctr"ne "s based on t e ru$e t at persons dea$"n# )"t propert"es covered by a T,T are not re2u"red to #o beyond ) at appears on t e !ace o! t e t"t$e. 'ut t "s "s on$y "n a s"tuat"on ) ere t e mort#a#or as a !raudu$ent or de!ect"ve t"t$e, but not ) en t e mort#a#or "s an "mpostor and a !or#er. ;n a !or#ed mort#a#e, as "n t "s case, t e doctr"ne o! mort#a#ee "n #ood !a"t cannot be app$"ed and )"$$ not bene!"t a mort#a#ee no matter o) $ar#e "s "s or er reservo"r o! #ood !a"t and d"$"#ence. (uc mort#a#e "s vo"d and cannot pre>ud"ce t e re#"stered o)ner ) ose s"#nature to t e deed "s !a$s"!"ed. 4 en t e "nstrument presented "s !or#ed, even "! accompan"ed by t e o)ner&s dup$"cate cert"!"cate o! t"t$e, t e re#"stered o)ner does not $ose "s t"t$e, and ne"t er does t e ass"#nee "n t e !or#ed deed ac2u"re any r"# t or t"t$e to t e property. An "nnocent purc aser !or va$ue "s one ) o purc ases a t"t$ed $and bay v"rtue o! a deed e1ecuted by t e re#"stered o)ner "mse$! not a !or#ed deed. =e)spaper o! 3enera$ ,"rcu$at"on &E1E+ ( &E1E+ ,$>>.0

To be ne)spaper o! #enera$ c"rcu$at"on, "t "s enou# t at "t "s pub$"s ed !or t e d"ssem"nat"on o! $oca$ ne)s and #enera$ "n!ormat"on* t at "t as a bona !"de subscr"pt"on $"st o! pay"n# subscr"bers and t at "t "s pub$"s ed at re#u$ar "nterva$s. T e ne)spaper must not a$so be devoted to t e "nterests or pub$"s ed !or t e enterta"nment o! a part"cu$ar c$ass, pro!ess"on, trade, ca$$"n#, race, or re$"#"ous denom"nat"on. T e ne)spaper need not ave t e $ar#est c"rcu$at"on as $on# as "t "s o! #enera$ c"rcu$at"on. ;n t "s case, t e <$on#apo =e)s )as t e on$y ne)spaper "n #enera$ c"rcu$at"on "n 'ataan at t e t"me t e not"ce o! auct"on )as pub$"s ed 4a"ver 'y Part"es <! Post"n# And Pub$"cat"on Re2u"rements 9o"d &)B ( )E&'4U%E)' &1'2U%TI')S, I)%. ,$>>$0 :A,T(+ Pet"t"oner P=' #ranted respondents a 4 A"$$"on Pesos cred"t $"ne to !"nance t e !"$m"n# o! t e mov"e GPac"!"c ,onnect"on.H T e $oan )as secured by mort#a#es on respondents& rea$ and persona$ propert"es, to )"t+ (1) t e Aa$u#ay property* (2) t e :orbes property* and (3) severa$ mot"on p"cture e2u"pments. T e cred"t $"ne )as $ater "ncreased to @ A"$$"on Pesos and !"na$$y to 7.5 A"$$"on Pesos. Respondents de!au$ted "n t e"r ob$"#at"on. Pet"t"oner sou# t !orec$osure o! t e mort#a#ed propert"es. T e auct"on sa$e )as re.sc edu$ed severa$ t"mes )"t out need o! repub$"cat"on o! t e not"ce o! sa$e, as st"pu$ated "n t e A#reement to Postpone (a$e, unt"$ !"na$$y, t e auct"on sa$e proceeded, )"t pet"t"oner as t e "# est b"dder "n t e amount o! P1/,432,77@.97. A##r"eved, respondents !"$ed a ,"v"$ ,ase )"t t e RT,, an act"on !or annu$ment o! !orec$osure sa$e and dama#es )"t "n>unct"on. Respondents contended t at t e !orec$osure sa$e "s nu$$ and vo"d because+ (1) t e ob$"#at"on "s yet to mature as t ere )ere ne#ot"at"ons !or an add"t"ona$ $oan amount* (2) lac? o publication* (3) t e purc ase pr"ce )as #ross$y "nade2uate and unconsc"onab$e* and (4) t e !orec$osure proceed"n#s )ere "n"t"ated by pet"t"oner "n bad !a"t . RT, ordered t e annu$ment and sett"n# as"de o! t e !orec$osure proceed"n#s and auct"on sa$e on the =round that there was lac? o publication o the notice o sale. Pet"t"oner appea$ed to t e ,A. ,A d"sm"ssed pet"t"oner&s appea$ )"t re#ard to t e :orbes Par% property as t e same )as a$ready t e sub>ect o! a -eed o! Reconveyance e1ecuted by pet"t"oner "n !avor o! respondents as )e$$ as a ,omprom"se A#reement dated bet)een t e same part"es. As to t e Aa$u#ay property, ,A a!!"rmed t e RT, dec"s"on. ;((E8+ 4<= t e part"es to t e mort#a#e can va$"d$y )a"ve t e post"n# and pub$"cat"on re2u"rements mandated by Act =o. 3135. B85- =<. Act. =o. 3135, as amended, #overn"n# e1tra>ud"c"a$ !orec$osure o! mort#a#es on rea$ property "s spec"!"c )"t re#ard to t e post"n# and pub$"cat"on re2u"rements o! t e not"ce o! sa$e, to )"t+ G(ec. 3. =ot"ce s a$$ be #"ven by post"n# not"ces o! t e sa$e !or not $ess t an t)enty days "n at $east t ree pub$"c p$aces o! t e mun"c"pa$"ty or c"ty ) ere t e property "s s"tuated, and "! suc property "s )ort more t an !our undred pesos, suc not"ce s a$$ a$so be pub$"s ed once a )ee% !or at $east t ree consecut"ve

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$9 o% $&&

)ee%s "n a ne)spaper o! #enera$ c"rcu$at"on "n t e mun"c"pa$"ty or c"ty.H <n t "s score, "t "s )e$$ sett$ed t at ) at Act =o. 3135 re2u"res "s+ (1) t e post"n# o! not"ces o! sa$e "n t ree pub$"c p$aces* and, (2) t e pub$"cat"on o! t e same "n a ne)spaper o! #enera$ c"rcu$at"on. :a"$ure to pub$"s t e not"ce o! sa$e const"tutes a >ur"sd"ct"ona$ de!ect, ) "c "nva$"dates t e sa$e. Pet"t"oner and respondents ave abso$ute$y no r"# t to )a"ve t e post"n# and pub$"cat"on re2u"rements o! Act =o. 3135. 4 "$e "t "s estab$"s ed t at r"# ts may be )a"ved, Art"c$e @ o! t e ,"v"$ ,ode e1p$"c"t$y prov"des t at suc )a"ver "s sub>ect to t e cond"t"on t at "t "s not contrary to $a), pub$"c order, pub$"c po$"cy, mora$s, or #ood customs, or pre>ud"c"a$ to a t "rd person )"t a r"# t reco#n"Ded by $a). T e pr"nc"pa$ ob>ect o! a not"ce o! sa$e "n a !orec$osure o! mort#a#e "s not so muc to not"!y t e mort#a#or as to "n!orm t e pub$"c #enera$$y o! t e nature and cond"t"on o! t e property to be so$d, and o! t e t"me, p$ace, and terms o! t e sa$e. =ot"ces are #"ven to secure b"dders and prevent a sacr"!"ce o! t e property. ,$ear$y, t e statutory re2u"rements o! post"n# and pub$"cat"on are mandated, not !or t e mort#a#or&s bene!"t, but !or t e pub$"c or t "rd persons. ;n !act, persona$ not"ce to t e mort#a#or "n e1tra>ud"c"a$ !orec$osure proceed"n#s "s not even necessary, un$ess st"pu$ated. As suc , "t "s "mbued )"t pub$"c po$"cy cons"derat"ons and any )a"ver t ereon )ou$d be "ncons"stent )"t t e "ntent and $etter o! Act =o. 3135. Aoreover, statutory prov"s"ons #overn"n# pub$"cat"on o! not"ce o! mort#a#e !orec$osure sa$es must be str"ct$y comp$"ed )"t and s$"# t dev"at"ons t ere!rom )"$$ "nva$"date t e not"ce and render t e sa$e at t e very $east vo"dab$e. T us, "n t e recent case o! -eve$opment 'an% o! t e P "$"pp"nes v. A#u"rre, t e !orec$osure sa$e e$d more t an t)o (2) mont s a!ter t e pub$"s ed date o! sa$e )as cons"dered vo"d !or $ac% o! repub$"cat"on. ("m"$ar$y, "n t e "nstant case, t e $ac% o! repub$"cat"on o! t e not"ce o! t e sub>ect !orec$osure sa$e renders "t vo"d.

As 6u$"eta !a"$ed to redeem t e propert"es )"t "n t e one year per"od !rom re#"strat"on o! sa$e, P=' conso$"dated "ts t"t$e on :ebruary 12, 1973. <n :ebruary 23 o! t e same year, "t conveyed t e propert"es to A$!redo <uano, t e brot er o! 6u$"eta, under a -eed o! Prom"se to (e$$ payab$e "n !"ve years. <n Aarc 27, 1973, 6u$"eta sent demand $etters to P=' and <uano, po"nt"n# out "rre#u$ar"t"es "n t e !orec$osure sa$e. <n Apr"$ 17, 1973, 6u$"eta !"$ed a comp$a"nt )"t t e RT, o! ,ebu !or t e nu$$"!"cat"on o! t e Aay 29, 1971 !orec$osure sa$e. <uano !"$ed a mot"on !or $eave to "ntervene, and !"$ed "s Ans)er "n ;ntervent"on to protect "s r"# ts over t e propert"es. 4 "$e t e case )as pend"n#, on :ebruary 25, 197@, P=' e1ecuted a -eed o! (a$e "n !avor o! <uano. T e Re#"ster o! -eeds o! Aandaue ,"ty accord"n#$y cance$$ed t e T,Ts "n P='&s name and "ssued "n $"eu t ereo! T,Ts "n t e name o! pet"t"oner over t e t)o parce$s o! $and. <n 6anuary 29, 199/, t e Re#"ona$ Tr"a$ ,ourt o! ,ebu rendered a dec"s"on "n !avor o! 6u$"eta, o$d"n# t at t e $ac% o! repub$"cat"on rendered t e !orec$osure sa$e vo"d. =ot sat"s!"ed, P=' and <uano brou# t t e case to t e ,A. ;n "ts dec"s"on, sa"d court a!!"rmed t e tr"a$ court&s ru$"n# on t e same #round t at t ere )as no comp$"ance )"t t e mandatory re2u"rements o! post"n# and pub$"cat"on o! not"ce o! sa$e. <uano !"$ed a mot"on !or recons"derat"on, ) "c )as den"ed !or $ac% o! mer"t by t e same court on Apr"$ 15, 1997. ;((E8+ 4<= re2u"rements o! Act =o. 3135 )ere comp$"ed )"t "n t e Aay 29, 1971 !orec$osure sa$e B85-+ =<. Act =o. 3135 (as amended by Act =o. 4117) (8, 3, ) "c prov"des+ (8,. 3. =ot"ce s a$$ be #"ven by post"n# not"ces o! t e sa$e !or not $ess t an t)enty (2/) days "n at $east t ree pub$"c p$aces o! t e mun"c"pa$"ty or c"ty ) ere t e property "s s"tuated, and "! suc property "s )ort more t an !our undred pesos, suc not"ce s a$$ a$so be pub$"s ed once a )ee% !or at $east t ree consecut"ve )ee%s "n a ne)spaper o! #enera$ c"rcu$at"on "n t e mun"c"pa$"ty o! c"ty. ;t "s a )e$$.sett$ed ru$e t at statutory prov"s"ons #overn"n# pub$"cat"on o! not"ce o! mort#a#e !orec$osure sa$es must be strictly co#plied with, and t at even s$"# t dev"at"ons t ere!rom )"$$ "nva$"date t e not"ce and render t e sa$e at $east vo"dab$e. :a"$ure to advert"se a mort#a#e !orec$osure sa$e "n comp$"ance )"t statutory re2u"rements const"tutes a >ur"sd"ct"ona$ de!ect "nva$"dat"n# t e sa$e. ,onse2uent$y, suc de!ect renders t e sa$e abso$ute$y vo"d and no t"t$e passes. <uano, o)ever, "ns"sts t at t ere )as substant"a$ comp$"ance )"t t e pub$"cat"on re2u"rement, cons"der"n# t at pr"or pub$"cat"on and post"n# o! t e not"ce o! t e !"rst date )ere made.

'UA)' ( %A ,$>>90 :A,T(+ 6u$"eta A. <uano obta"ned a $oan !rom t e P=' "n t e amount o! P1/4,27/.//. As secur"ty !or sa"d $oan, s e e1ecuted a rea$ estate mort#a#e over t)o parce$s o! $and. ( e de!au$ted on er ob$"#at"on. P=' !"$ed a pet"t"on !or e1tra>ud"c"a$ !orec$osure )"t t e ,"ty ( er"!! o! Aandaue ,"ty. T e s er"!! prepared a not"ce o! sa$e sett"n# t e date o! pub$"c auct"on o! t e t)o parce$s o! $and on -ecember 5, 197/ at 9+// a.m. to 4+// p.m. Be caused t e not"ce to be pub$"s ed "n t e ,ebu -a"$y T"mes, a ne)spaper o! #enera$ c"rcu$at"on "n Aandaue ,"ty, "n "ts "ssues o! =ovember 13, 2/ and 27, 197/. Be $"%e)"se posted cop"es t ereo! "n pub$"c p$aces "n Aandaue ,"ty and "n t e p$ace ) ere t e propert"es are $ocated. Bo)ever, t e sa$e as sc edu$ed and pub$"s ed d"d not ta%e p$ace as t e part"es, on !our separate dates, e1ecuted A#reements to Postpone (a$e (A#reements). T ese A#reements )ere addressed to t e s er"!!, re2uest"n# t e $atter to de!er t e auct"on sa$e to anot er date at t e same t"me and p$ace, G)"t out any !urt er repub$"cat"on o! t e =ot"ce.H ;n a$$ t e postponements, no ne) not"ce o! sa$e )as "ssued, nor )as t ere any repub$"cat"on or repost"n# o! not"ce !or t e resc edu$ed dates. :"na$$y, on Aay 29, 1971, t e s er"!! conducted t e auct"on sa$e, a)ard"n# t e t)o parce$s o! $and to P=', t e on$y b"dder. Be e1ecuted a ,ert"!"cate o! (a$e cert"!y"n# t e sa$e !or and "n cons"derat"on o! P195, 51/.5/.

;n Tambunting v. Court o !ppeals, )e e$d t at repub$"cat"on "n t e manner prescr"bed by Act =o. 3135 "s necessary !or t e va$"d"ty o! a postponed e1tra>ud"c"a$ !orec$osure sa$e. T us )e stated+

4 ere re2u"red by t e statute or by t e terms o! t e !orec$osure decree, pub$"c not"ce o! t e p$ace and t"me o! t e mort#a#e !orec$osure sa$e must be #"ven, a statute re2u"r"n# "t be"n# e$d app$"cab$e to subse2uent sa$es as )e$$ as to t e !"rst advert"sed sa$e o! t e property

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

20 o% $&&

<uano !urt er contends t at repub$"cat"on may be )a"ved vo$untar"$y by t e part"es.

date a#reed upon "n )r"t"n# by t e part"es. 4"t out suc a#reement, e may ad>ourn t e sa$e !rom day to day, "! "t becomes necessary to do so !or $ac% o! t"me to comp$ete t e sa$e on t e day !"1ed "n t e not"ce. -"st"nct"on s ou$d be made o! t e t ree d"!!erent %"nds o! sa$es under t e $a), name$y+ an ord"nary e1ecut"on sa$e (R<, Ru$e 39)

T "s ar#ument as no bas"s "n $a).

(ee P=' vs. =epomuceno T e pr"nc"pa$ ob>ect o! a not"ce o! sa$e "n a !orec$osure o! mort#a#e "s not so muc to not"!y t e mort#a#or as to "n!orm t e pub$"c #enera$$y o! t e nature and cond"t"on o! t e property to be so$d, and o! t e t"me, p$ace, and terms o! t e sa$e. =ot"ces are #"ven to secure b"dders and prevent a sacr"!"ce o! t e property. ,$ear$y, t e statutory re2u"rements o! post"n# and pub$"cat"on are mandated, not !or t e mort#a#or&s bene!"t, but !or t e pub$"c or t "rd persons. ;n !act, persona$ not"ce to t e mort#a#or "n e1tra>ud"c"a$ !orec$osure proceed"n#s "s not even necessary, un$ess st"pu$ated. As suc , "t "s "mbued )"t pub$"c po$"cy cons"derat"ons and any )a"ver t ereon )ou$d be "ncons"stent )"t t e "ntent and $etter o! Act =o. 3135. Pub$"cat"on, t ere!ore, "s re2u"red to #"ve t e !orec$osure sa$e a reasonab$y )"de pub$"c"ty suc t at t ose "nterested m"# t attend t e pub$"c sa$e. To a$$o) t e part"es to )a"ve t "s >ur"sd"ct"ona$ re2u"rement )ou$d resu$t "n convert"n# "nto a pr"vate sa$e ) at ou# t to be a public auct"on.

a >ud"c"a$ !orec$osure sa$e (R<, Ru$e @7) an e1tra>ud"c"a$ !orec$osure sa$e (Act 3135) A d"!!erent set o! $a) app$"es to eac c$ass o! sa$e ment"oned. T e c"ted prov"s"on "n t e Ru$es o! ,ourt ence does not app$y to an e1tra>ud"c"a$ !orec$osure sa$e. Aoreover, even assum"n# t at t e a!orec"ted prov"s"on app$"es, a$$ "t aut or"Des "s t e ad>ournment o! t e e1ecut"on sa$e by a#reement o! t e part"es. =o) ere does "t state t at repub$"cat"on and repost"n# o! not"ce !or t e postponed sa$e may be )a"ved. T us, "t cannot, by any means, sanct"on t e )a"ver "n t e case at bar. Pub$"cat"on <! =ot"ce <! :orec$osure (a$e Aore T an (u!!"c"ent ,omp$"ance 4"t T e Post"n# =ot"ce Re2u"rement <! T e 5a) 'LI+') ( %A,1--/0 4e ta%e >ud"c"a$ not"ce o! t e !act t at ne)spaper pub$"cat"ons ave more !ar.reac "n# e!!ects t an post"n# on bu$$et"n boards "n pub$"c p$aces. T ere "s a #reater probab"$"ty t at an announcement or not"ce pub$"s ed "n a ne)spaper o! #enera$ c"rcu$at"on, ) "c "s d"str"buted nat"on)"de, s a$$ ave a readers "p o! more peop$e t an t at posted "n a pub$"c bu$$et"n board, no matter o) strate#"c "ts $ocat"on may be, ) "c caters on$y to a $"m"ted !e). Bence, t e pub$"cat"on o! t e not"ce o! sa$e "n t e ne)spaper o! #enera$ c"rcu$at"on a$one "s more t an su!!"c"ent comp$"ance )"t t e not"ce. post"n# re2u"rement o! t e $a). 'y suc pub$"cat"on, a reasonab$y )"de pub$"c"ty ad been e!!ected suc t at t ose "nterested m"# t attend t e pub$"c sa$e, and t e purpose o! t e $a) ad been t ereby subserved. T e ob>ect o! a not"ce o! sa$e "s to "n!orm t e pub$"c o! t e nature and cond"t"on o! t e property to be so$d, and o! t e t"me, p$ace and terms o! t e sa$e. =ot"ces are #"ven !or t e purpose o! secur"n# b"dders and to prevent a sacr"!"ce o! t e property. ;! t ese ob>ects are atta"ned, "mmater"a$ errors and m"sta%es )"$$ not a!!ect t e su!!"c"ency o! t e not"ce* but "! m"sta%es or om"ss"ons occur "n t e not"ces o! sa$e, ) "c are ca$cu$ated to deter or m"s$ead b"dders, to deprec"ate t e va$ue o! t e property, or to prevent "t !rom br"n#"n# a !a"r pr"ce, suc m"sta%es or om"ss"ons )"$$ be !ata$ to t e va$"d"ty o! t e not"ce, and a$so to t e sa$e made pursuant t ereto. ;n t e "nstant case, t e a!oresa"d ob>ect"ve )as atta"ned s"nce t ere )as su!!"c"ent pub$"c"ty o! t e sa$e t rou# t e ne)spaper pub$"cat"on. T ere "s comp$ete$y no s o)"n# t at t e property )as so$d !or a pr"ce !ar be$o) "ts va$ue as to "ns"nuate any bad !a"t , nor )as t ere any s o)"n# or even an "nt"mat"on o! co$$us"on bet)een t e s er"!! ) o conducted t e sa$e and respondent ban%. T "s be"n# so, t e a$$e#ed non.comp$"ance )"t t e post"n# re2u"rement, even "! true, )"$$ not >ust"!y t e sett"n# as"de o! t e sa$e.

Aoreover, assum"n# arguendo t at t e )r"tten )a"vers are va$"d, )e !"nd not"ceab$e !$a)s t at )ou$d nevert e$ess "nva$"date t e !orec$osure proceed"n#s. "irst, t e A#reements, as )orded, on$y )a"ved G!urt er repub$"cat"on o! t e not"ce o! sa$e.H =ot "n# "n t e A#reements "nd"cates t at t e part"es $"%e)"se d"spensed )"t t e repost"n# o! t e not"ces o! sa$e. As t ere )as no repost"n# o! not"ce o! t e Aay 29, 1971 sa$e, t e !orec$osure !e$$ s ort o! t e re2u"rements o! Act =o. 3135. #econd, )e observe t at t e A#reements )ere e1ecuted and !"$ed )"t t e s er"!! severa$ days a!ter eac resc edu$ed date. T e !"rst a#reement )as t"me$y !"$ed, t)o days pr"or to t e or"#"na$$y sc edu$ed sa$e on -ecember 5, 197/. T e subse2uent a#reements, o)ever, )as e1ecuted and !"$ed severa$ days a!ter t e resc edu$ed sa$es. <n t e resc edu$ed dates, t ere!ore, no pub$"c sa$e occurred, nor )as t ere any re2uest to postpone !"$ed )"t t e s er"!!, e1cept !or t e !"rst one. ;n s ort, t e A#reements are c$ear$y de!ect"ve !or av"n# been be$ated$y e1ecuted and !"$ed )"t t e s er"!!. P=' "s at !au$t. ;t "s t e mort#a#ee ) o causes t e mort#a#ed property to be so$d, and t e date o! sa$e "s !"1ed upon "s "nstruct"on. P='&s "nact"on on t e sc edu$ed date o! sa$e and be$ated !"$"n# o! re2uests to postpone may be deemed as an abandonment o! t e pet"t"on to !orec$ose "t !"$ed )"t t e s er"!!. ,onse2uent$y, "ts r"# t to !orec$ose t e mort#a#e based on sa"d pet"t"on $apsed. <uano asserts t at Ru$e 39, (8, 24 o! t e Ru$es o! ,ourt, ) "c a$$o)s ad>ournment o! e1ecut"on sa$es by a#reement o! t e part"es s ou$d be app$"ed.

T e sa"d prov"s"on prov"des+ (ec. 24. !d$ournment o #ale ? 'y )r"tten consent o! debtor and cred"tor, t e o!!"cer may ad>ourn any sa$e upon e1ecut"on to any

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

2$ o% $&&

:orec$osure 9o"d ;! (a$e -oes =ot Ta%e P$ace <n T e -ate (pec"!"ed ;n Pub$"s ed =ot"ce 2B& ( A*UI11E ,$>>10 :a"$ure to post not"ce "s not per se a #round !or "nva$"dat"n# t e sa$e, prov"ded not"ce "s du$y pub$"s ed "n a ne)spaper o! #enera$ c"rcu$at"on. ;n <$"Don vs. ,A, t e ,ourt e$d t at ne)spaper ave more.!ar.reac "n# e!!ects t an post"n# on bu$$et"n boards "n pub$"c p$aces. 'ecause o! t e #reater probab"$"ty o! readers "p o! more peop$e and t at ne)spapers are d"str"buted nat"on)"de, t ere "s a reasonab$y )"de pub$"c"ty. T ose "nterested m"# t attend t e pub$"c sa$e. Pub$"cat"on "n t e ne)spaper o! #enera$ c"rcu$at"on a$one "s more t an su!!"c"ent comp$"ance )"t t e not"ce.post"n# re2u"rement o! t e $a). Bere, t e sa$e )as e$d more t an t)o mont s a!ter t e pub$"s ed date o! t e sa$e, render"n# t e sa$e vo"d. ;n %asantol Rural Ban&, 'nc. v. C! t e ,ourt stated t at !a"$ure to pub$"s t e not"ce o! auct"on sa$e as re2u"red by t e statute const"tutes a >ur"sd"ct"ona$ de!ect ) "c "nva$"dates t e sa$e. Aasanto$ s2uare$y app$"es. A$t ou# $ac% o! repub$"cat"on o! not"ce o! sa$e as not been ra"sed, (, may ru$e on t e re$evant "ssue o! -'P&s $ac% o! >ur"sd"ct"on to o$d t e !orec$osure sa$e. Repub$"cat"on <! =ot"ce <! (a$e 2B& ( %A ,$>>90 Post"n# re2u"rement )as comp$"ed )"t "n t "s case but not t e pub$"cat"on re2u"rement. -'P pub$"s ed t e not"ce o! auct"on sa$e sc edu$ed on 12 Au#ust 197@. Bo)ever, no auct"on sa$e too% p$ace on 12 Au#ust 197@ because -'P, at t e "nstance o! 8RB,, a#reed to postpone t e same to 11 (eptember 197@. T e ,ourt e$d recent$y "n <uano v. ,ourt o! Appea$s t at repub$"cat"on "n t e manner prescr"bed by Act =o. 3135 "s necessary !or t e va$"d"ty o! a postponed e1tra>ud"c"a$ !orec$osure sa$e. Anot er pub$"cat"on "s re2u"red "n case t e auct"on sa$e "s resc edu$ed, and t e absence o! suc repub$"cat"on "nva$"dates t e !orec$osure sa$e. T e ,ourt a$so ru$ed "n <uano t at t e part"es ave no r"# t to )a"ve t e pub$"cat"on re2u"rement "n Act =o. 3135. Pub$"cat"on, t ere!ore, "s re2u"red to #"ve t e !orec$osure sa$e a reasonab$y )"de pub$"c"ty suc t at t ose "nterested m"# t attend t e pub$"c sa$e. To a$$o) t e part"es to )a"ve t "s >ur"sd"ct"ona$ re2u"rement )ou$d resu$t "n convert"n# "nto a pr"vate sa$e ) at ou# t to be a pub$"c auct"on. :orec$osure <! Aort#a#e Ar"s"n# <ut <! A (ett$ement <! 8state =ot ,overed 'y Act 3135 &)B ( %A ,$>>10 4<= Act 3135 "s app$"cab$e "n t e caseW =<. 4<= P=' may st"$$ recover de!"c"ency !rom t e estateW =<. ("nce "t e$ected to e1tra.>ud"c"a$$y !orec$ose t e mort#a#e. T e case at bar "nvo$ves a !orec$osure o! mort#a#e ar"s"n# out o! a sett$ement o! estate, ) ere"n t e adm"n"strator mort#a#ed a property be$on#"n# to t e estate o! t e decedent, pursuant to an

aut or"ty #"ven by t e probate court. T e Ru$es o! ,ourt on (pec"a$ Proceed"n#s comes "nto p$ay dec"s"ve$y. (8, 7, Ru$e 7@ o! t e Ru$es o! ,ourt "s appropr"ate$y app$"cab$e to t e case at and and not Act 3135. ,ase $a) no) o$ds t at t "s ru$e #rants to t e mort#a#ee t ree d"st"nct, "ndependent and mutua$$y e1c$us"ve remed"es t at can be a$ternat"ve$y pursued by t e mort#a#ee cred"tor !or t e sat"s!act"on o! "s cred"t "n case t e mort#a#or d"es, amon# t em+ 1. To )a"ve t e mort#a#e and c$a"m t e ent"re debt !rom t e estate o! t e mort#a#or as an ord"nary c$a"m* 2. To !orec$ose t e mort#a#e >ud"c"a$$y and prove any de!"c"ency as an ord"nary c$a"m* and 3. To re$y on t e mort#a#e e1c$us"ve$y, !orec$os"n# t e same at any t"me be!ore "t "s barred by prescr"pt"on )"t out r"# t to !"$e a c$a"m !or de!"c"ency. T e p$a"n resu$t o! adopt"n# t e $ast mode o! !orec$osure, ) "c P=' d"d "n t "s case, "s t at t e cred"tor )a"ves "s r"# t to recover any de!"c"ency !rom t e estate.

;nade2uacy o! '"d Pr"ce (AL4')TE ( %A ,1---0 ;t "s )e$$.sett$ed t at ) en t ere "s r"# t to redeem, "nade2uacy o! pr"ce "s o! no moment !or t e reason t at t e >ud#ment debtor as a$)ays ad t e c ance to redeem and reac2u"re t e property. ;n !act, t e property may be so$d !or $ess o! "ts !a"r mar%et va$ue prec"se$y because t e $esser t e pr"ce, t e eas"er !or t e o)ner to e!!ect redempt"on. ;ssuance <! A 4r"t <! Possess"on SA4S') ( 1I(E1A ,$>>/0 T "s ,ourt as cons"stent$y e$d t at t e duty o! t e tr"a$ court to #rant a )r"t o! possess"on "s m"n"ster"a$. (uc )r"t "ssues as a matter o! course upon t e !"$"n# o! t e proper mot"on and t e approva$ o! t e correspond"n# bond. =o d"scret"on "s $e!t to t e tr"a$ court. Any 2uest"on re#ard"n# t e re#u$ar"ty and va$"d"ty o! t e sa$e, as )e$$ as t e conse2uent cance$$at"on o! t e )r"t, "s to be determ"ned "n a subse2uent proceed"n# as out$"ned "n (8, 7 o! Act 3135. (uc 2uest"on cannot be ra"sed to oppose t e "ssuance o! t e )r"t, s"nce t e proceed"n# "s e1 parte. T e recourse "s ava"$ab$e even be!ore t e e1p"rat"on o! t e redempt"on per"od prov"ded by $a) and t e Ru$es o! ,ourt. T e purc aser, ) o as a r"# t to possess"on t at e1tends a!ter t e e1p"rat"on o! t e redempt"on per"od, becomes t e abso$ute o)ner o! t e property ) en no redempt"on "s made. Bence, at any t"me !o$$o)"n# t e conso$"dat"on o! o)ners "p and t e "ssuance o! a ne) trans!er cert"!"cate o! t"t$e "n t e name o! t e purc aser, e or s e "s even more ent"t$ed to possess"on o! t e property. ;n suc a case, t e bond re2u"red under (8, 7 o! Act 3135 "s no $on#er necessary, s"nce possess"on becomes an abso$ute r"# t o! t e purc aser as t e con!"rmed o)ner. T "s ,ourt as $on# sett$ed t at a pend"n# act"on !or annu$ment o! mort#a#e or !orec$osure does not stay t e "ssuance o! a )r"t o!

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

22 o% $&&

possess"on. T ere!ore, t e content"on o! pet"t"oners t at t e RT, s ou$d ave conso$"dated ,"v"$ ,ase =o. /1.@219 )"t 5R ,ase =o. /1.2@97 and reso$ved t e annu$ment case pr"or to t e "ssuance o! t e 4r"t o! Possess"on "s unava"$"n#. 2B& ( S&'USES *ATAL ,$>>.0 4<= t e RT, va$"d$y d"sm"ssed t e pet"t"on !or )r"t o! possess"on on t e #round o! 5"t"s Pendent"a #"ven t at a comp$a"nt !or "n>unct"on )"t TR< )as pend"n#, "n ) "c act"on sou# t to dec$are t e sa$e to Torre!ranca as vo"d and to up o$d t e spouses& r"# t to pre.empt"on. =<. T e r"# ts asserted and t e re$"e!s sou# t by t e part"es "n bot cases are not "dent"ca$. T us, 5"t"s Pendent"a "s unava"$"n#. (ec 33, Ru$e 39 o! t e R<,+ "! no redempt"on be made )"t "n a year !rom t e date o! t e re#"strat"on o! t e cert"!"cate o! sa$e, t e purc aser "s ent"t$ed to a conveyance and possess"on o! t e property, Bere, no redempt"on )as made )"t "n a year !rom 6anuary 199@. (o "n Au#ust, 1997, more t an a year a!ter, -'P !"$ed a pet"t"on !or )r"t o! possess"on. T "s "s "n order. 4 ere, as ere, t e t"t$e "s conso$"dated "n t e name o! t e mort#a#ee, t e )r"t o! possess"on becomes a matter o! r"# t on t e part o! t e mort#a#ee, and a m"n"ster"a$ duty on t e part o! t e court to "ssue t e same. T e pendency o! a separate c"v"$ su"t 2uest"on"n# t e va$"d"ty o! t e sa$e o! t e mort#a#ed property cannot bar t e "ssuance o! t e )r"t o! possess"on. Post"n# <! 'ond =ot =ecessary ;! 4r"t <! Possess"on App$"ed :or A!ter <)ners "p Bas 9ested <n T e ,red"tor.Aort#a#ee 4ET1'&'LITA) BA)K A)2 T1UST %'4&A): ( S&'USES BA)%E ,$>>80 T e )r"t o! possess"on )as not "rre#u$ar desp"te t e !act t at pet"t"oner d"d not post a bond. T e post"n# o! a bond as a cond"t"on !or t e "ssuance o! t e )r"t o! possess"on becomes necessary on$y "! "t "s app$"ed !or )"t "n one year !rom t e re#"strat"on o! t e sa$e )"t t e re#"ster o! deeds, i.e., dur"n# t e redempt"on per"od "nasmuc as o)ners "p as not yet vested on t e cred"tor.mort#a#ee. A!ter t e one.year per"od, and no redempt"on )as made, t e mort#a#or $oses a$$ "nterest over "t. ;n t "s case, respondents )ere a$ready str"pped o! t e"r r"# ts over t e propert"es ) en t ey !a"$ed to redeem t e same )"t "n one year !rom Aay 3, 1999, t e date o! re#"strat"on o! t e sa$e. Bence, ) en pet"t"oner app$"ed !or t e )r"t a!ter t e e1p"rat"on o! t e redempt"on per"od t ere )as even more reason to "ssue t e )r"t. 81cept"on To T e Ru$e T at ;ssuance <! 4r"t <! Possess"on A"n"ster"a$ And Aay 'e -one Ex (arte %3I)A BA)KI)* %'1& ( S&'USES L'+A2A ,$>>80 T e e1cept"on prov"ded under (8, 33 o! Ru$e 39 o! t e Rev"sed Ru$es o! ,ourt (to t e #enera$ ru$e t at "ssuance o! a )r"t o! possess"on "s m"n"ster"a$ and may be done e1 parte) contemp$ates a s"tuat"on "n ) "c a t "rd party o$ds t e property by adverse t"t$e

or r"# t, suc as t at o! a co.o)ner, tenant or usu!ructuary. T e co.o)ner, a#r"cu$tura$ tenant, and usu!ructuary possess t e property "n t e"r o)n r"# t, and t ey are not mere$y t e successor or trans!eree o! t e r"# t o! possess"on o! anot er co.o)ner or t e o)ner o! t e property. T e spouses 5oDada cannot c$a"m t at t e"r r"# t o! possess"on over En"t =o. 4/2 "s ana$o#ous to any o! t ese. ;t "s true t at "n t e case present$y be!ore t "s ,ourt, PP3; e1ecuted "n !avor o! t e spouses 5oDada t e ,ontract to (e$$ cover"n# En"t =o. 4/2 be!ore "t const"tuted "n !avor o! ,', t e rea$ estate mort#a#es on 51 Pro>ect un"ts "nc$ud"n# En"t =o. 4/2. =onet e$ess, "t must be emp as"Ded t at ) at PP3; e1ecuted "n !avor o! t e spouses 5oDada )as a ,ontract to (e$$, a mere prom"se to se$$, ) "c , at t e moment o! "ts e1ecut"on, d"d not yet trans!er possess"on, muc $ess, t"t$e to En"t =o. 4/2 !rom PP3; to t e spouses 5oDada. 4 en PP3; const"tuted t e rea$ estate mort#a#e on En"t =o. 4/2 "n !avor o! ,', s"1 mont s $ater, possess"on o! and t"t$e to t e property st"$$ res"ded "n PP3;. And ) en PP3; subse2uent$y ceded possess"on o! En"t =o. 4/2, upon "ts comp$et"on, to t e spouses 5oDada, suc r"# t )as a$ready burdened by t e terms and cond"t"ons o! t e mort#a#e const"tuted t ereon. 'y mere$y stepp"n# "nto t e s oes o! PP3;, t e spouses 5oDada&s r"# t o! possess"on to En"t =o. 4/2 cannot be $ess or more t an PP3;&s. T e spouses 5oDada, av"n# succeeded PP3; "n t e possess"on o! En"t =o. 4/2, cannot be cons"dered a t "rd party o$d"n# t e sa"d property adverse$y to PP3;, t e de!au$t"n# debtor0mort#a#or. Resu$tant$y, t e #enera$ ru$e, and not t e e1cept"on, app$"es to t e "nstant Pet"t"on. ;t )as t e mandatory and m"n"ster"a$ duty o! t e Aa%at" ,"ty RT, to #rant t e ex parte pet"t"on o! ,', and order t e "ssuance o! a )r"t o! possess"on "n t e $atter&s !avor over En"t =o. 4/2. ;t )as $"%e)"se mandatory and m"n"ster"a$ !or t e ,$er% o! ,ourt to comp$y )"t t e Aa%at" ,"ty RT, order by "ssu"n# t e )r"t o! possess"on, and !or t e ( er"!! to "mp$ement t e )r"t by !"rst "ssu"n# a not"ce to vacate to t e occupants o! En"t =o. 4/2. =ature <! Redempt"on Per"od S&'USES LA)21IT' ( %A ,$>>.0 ;n 5aDo v. Repub$"c (urety R ;nsurance ,o., ;nc., t "s ,ourt as made "t c$ear t at "t "s on$y ) ere, by vo$untary a#reement o! t e part"es, cons"st"n# o! e1tens"ons o! t e redempt"on per"od, !o$$o)ed by comm"tment by t e debtor to pay t e redempt"on pr"ce at a !"1ed date, )"$$ t e concept o! $e#a$ redempt"on be converted "nto one o! convent"ona$ redempt"on. Bere, t ere "s no s o)"n# ) atsoever t at pet"t"oners a#reed to pay t e redempt"on pr"ce. <n t e contrary, t e"r act o! !"$"n# t e"r comp$a"nt to dec$are t e nu$$"ty o! t e !orec$osure sa$e "s "nd"cat"ve o! t e"r re!usa$ to pay t e redempt"on pr"ce on t e a$$e#ed dead$"ne set by t e usband. At t e very $east, "! t ey so be$"eved t at t e"r $oan ob$"#at"on )as on$y !or P1,///,///.//, pet"t"oners s ou$d ave made an o!!er to redeem )"t "n one (1) year !rom t e re#"strat"on o! t e s er"!!&s cert"!"cate o! sa$e, to#et er )"t a tender o! t e same amount. T "s, t ey never d"d. ;t must be remembered t at t e per"od o! redempt"on "s not a prescr"pt"ve per"od but a cond"t"on precedent prov"ded by $a) to restr"ct t e r"# t o! t e person e1erc"s"n# redempt"on. ,orrespond"n#$y, "! a person e1erc"s"n# t e r"# t o! redempt"on as o!!ered to redeem t e property )"t "n t e per"od !"1ed, e "s cons"dered to ave comp$"ed )"t t e cond"t"on precedent

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

2' o% $&&

prescr"bed by $a) and may t erea!ter br"n# an act"on to en!orce redempt"on. ;!, on t e ot er and, t e per"od "s a$$o)ed to $apse be!ore t e r"# t o! redempt"on "s e1erc"sed, t en t e act"on to en!orce redempt"on )"$$ not prosper, even "! t e act"on "s brou# t )"t "n t e ord"nary prescr"pt"ve per"od. Aoreover, t e per"od )"t "n ) "c to redeem t e property so$d at a s er"!!&s sa$e "s not suspended by t e "nst"tut"on o! an act"on to annu$ t e !orec$osure sa$e. ;t "s c$ear, t en, t at pet"t"oners ave $ost any r"# t or "nterest over t e sub>ect property pr"mar"$y because o! t e"r !a"$ure to redeem t e same "n t e manner and )"t "n t e per"od prescr"bed by $a). T e"r be$ated attempts to 2uest"on t e $e#a$"ty and va$"d"ty o! t e !orec$osure proceed"n#s and pub$"c auct"on must accord"n#$y !a"$. <ne Pear <! Per"od <! Redempt"on ,omputed :rom -ate <! Re#"strat"on <! ,ert"!"cate <! :orec$osure (a$e 1E:ES ( )'BLE5AS ,1-7;0 Redempt"on "s not t e concern mere$y o! t e auct"on.vendee and t e mort#a#or, but a$so o! t e $atter&s successors "n "nterest or any >ud"c"a$ cred"tor or >ud#ment cred"tor o! sa"d mort#a#or, or any person av"n# a $"en on t e property subse2uent to t e mort#a#e under ) "c t e property as been so$d. ;t "s prec"se$y !or t "s reason t at t e cert"!"cate o! sa$e s ou$d be re#"stered, !or on$y upon suc re#"strat"on may "t $e#a$$y be sa"d t at proper not"ce, t ou# construct"ve, as been served unto poss"b$e redempt"oners contemp$ated "n t e $a). ;t "s !or t "s reason t at t e date o! sa$e ment"oned "n (8, @ o! Act 3135 s ou$d be construed to mean t e date o! re#"strat"on o! t e cert"!"cate o! sa$e "n t e o!!"ce o! t e re#"ster o! deeds concerned. T e 5and Re#"strat"on ,omm"ss"oner )as r"# t "n order"n# t e Re#"ster o! -eeds o! R"Da$ to deny t e re#"strat"on o! t e -eed o! (a$e and t e A!!"dav"t o! ,onso$"dat"on o! <)ners "p, t e s"mu$taneous re#"strat"on o! ) "c documents )as sou# t by ere"n pet"t"oner even be!ore t e cert"!"cate o! sa$e "ssued by t e s er"!! )as re#"stered. 81tens"on <! 1.Pear Redempt"on Per"od LA+' ( 1E&UBLI% SU1ET: ,1-;>0 T e part"es ad abandoned ent"re$y t e concept o! $e#a$ redempt"on "n t "s case and converted "t "nto one o! convent"ona$ redempt"on, "n ) "c t e on$y #overn"n# !actor )as t e a#reement bet)een t em. T e p$a"nt"!!sI repeated re2uests !or t"me )"t "n ) "c to redeem, eac )"t a de!"n"te date o! e1p"rat"on, #enerated b"nd"n# contracts ) en approved by t e de!endant company. A contract, need$ess to say, as t e !orce o! $a) bet)een t e part"es. ;n any event, t e pr"nc"p$e o! estoppe$ )ou$d step "n to prevent t e p$a"nt"!!s !rom #o"n# bac% upon t e"r o)n acts and representat"ons to t e pre>ud"ce o! t e ot er party ) o re$"ed upon t em. T "s "s a pr"nc"p$e o! e2u"ty and natura$ >ust"ce, e1press$y adopted "n our ,"v"$ ,ode (Arts. 1431 et se2.) and art"cu$ated as one o! t e conc$us"ve presumpt"ons "n Ru$e 31, (ec. 3(a), o! our Ru$es o! ,ourt as !o$$o)s+ 4 enever a party as, by "s o)n dec$arat"on, act, or om"ss"on, "ntent"ona$$y and de$"berate$y $ed anot er to be$"eve a part"cu$ar t "n# true, and to act upon suc be$"e!, e cannot, "n any $"t"#at"on ar"s"n# out o! suc dec$arat"on, act, or om"ss"on, be perm"tted to !a$s"!y "t.

IBAA) 1U1AL BA)K ( %A ,1---0 4 en pet"t"oner rece"ved a copy o! t e ,ert"!"cate o! (a$e re#"stered "n t e <!!"ce o! t e Re#"ster o! -eeds o! 5"pa ,"ty, "t ad actua$ and construct"ve %no)$ed#e o! t e cert"!"cate and "ts contents. :or t)o years, "t d"d not ob>ect to t e t)o.year redempt"on per"od prov"ded "n t e cert"!"cate. T us, "t cou$d be sa"d t at pet"t"oner consented to t e t)o.year redempt"on per"od espec"a$$y s"nce "t ad t"me to ob>ect and d"d not. 4 en c"rcumstances "mp$y a duty to spea% on t e part o! t e person !or ) om an ob$"#at"on "s proposed, "s s"$ence can be construed as consent. 'y "ts s"$ence and "nact"on, pet"t"oner m"s$ed pr"vate respondents to be$"eve t at t ey ad t)o years )"t "n ) "c to redeem t e mort#a#e. A!ter t e $apse o! t)o years, pet"t"oner "s estopped !rom assert"n# t at t e per"od !or redempt"on )as on$y one year and t at t e per"od ad a$ready $apsed. T e doctr"ne "n 5aDo vs. Repub$"c (urety and ;nsurance ,o., ;nc. does not app$y "n t "s case. ;n t at case t e court e$d t at t e one year per"od o! redempt"on prov"ded "n Act =o. 3135 "s on$y d"rectory and can be e1tended by a#reement o! t e part"es. 'ut "t bears not"n# t at "n 5aDo t e part"es vo$untar"$y a#reed to e1tend t e redempt"on per"od. T us, t e concept o! $e#a$ redempt"on )as converted by t e part"es "n 5aDo "nto convent"ona$ redempt"on. T "s "s not so "n t e "nstant case. T ere )as no vo$untary a#reement. ;n !act, t e s er"!! un"$atera$$y and arb"trar"$y e1tended t e per"od o! redempt"on to t)o (2) years "n t e ,ert"!"cate o! (a$e. T e part"es )ere not even pr"vy to t e e1tens"on made by t e s er"!!. =onet e$ess, as above d"scussed, t e ban% cannot a!ter t e $apse o! t)o years "ns"st t at t e redempt"on per"od )as one year on$y. Add"t"ona$$y, t e ru$e on redempt"on "s $"bera$$y "nterpreted "n !avor o! t e or"#"na$ o)ner o! a property. T e !act a$one t at e "s a$$o)ed t e r"# t to redeem c$ear$y demonstrates t e so$"c"tousness o! t e $a) "n #"v"n# "m anot er opportun"ty, s ou$d "s !ortune "mprove, to recover "s $ost property. R"# t <! Redempt"on -"st"n#u"s ed :rom 82u"ty <! Redempt"on 3UE1TA ALBA 1ES'1T ( %A ,$>>>0 :rom t e var"ous dec"s"ons, reso$ut"ons and orders a 2uo "t can be #$eaned t at ) at pet"t"oner as been ad>ud#ed to ave )as on$y t e e2u"ty o! redempt"on over sub>ect propert"es. <n t e d"st"nct"on bet)een t e e2u"ty o! redempt"on and r"# t o! redempt"on, t e case o! 3re#or"o P. 5"mp"n vs. ;ntermed"ate Appe$$ate ,ourt,7 S1@@ (,RA 77.T comes to t e !ore+ T e e2u"ty o! redempt"on "s, to be sure, d"!!erent !rom and s ou$d not be con!used )"t t e r"# t o! redempt"on. T e r"# t o! redempt"on "n re$at"on to a mort#a#e . understood "n t e sense o! a prero#at"ve to re.ac2u"re mort#a#ed property a!ter re#"strat"on o! t e !orec$osure sa$e . e1"sts on$y "n t e case o! t e e1tra>ud"c"a$ !orec$osure o! t e mort#a#e. =o suc r"# t "s reco#n"Ded "n a >ud"c"a$ !orec$osure e1cept on$y ) ere t e mort#a#ee "s t e P "$"pp"ne =at"ona$ 'an% or a ban% or ban%"n# "nst"tut"on.

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

2& o% $&&

4 ere a mort#a#e "s !orec$osed e1tra>ud"c"a$$y, Act 3135 #rants to t e mort#a#or t e r"# t o! redempt"on )"t "n one (1) year !rom t e re#"strat"on o! t e s er"!!&s cert"!"cate o! !orec$osure sa$e. 4 ere t e !orec$osure "s >ud"c"a$$y e!!ected, o)ever, no e2u"va$ent r"# t o! redempt"on e1"sts. T e $a) dec$ares t at a >ud"c"a$ !orec$osure sa$e, X) en con!"rmed by an order o! t e court, 1 1 s a$$ operate to d"vest t e r"# ts o! a$$ t e part"es to t e act"on and to vest t e"r r"# ts "n t e purc aser, sub>ect to suc r"# ts o! redempt"on as may be a$$o)ed by $a).& (uc r"# ts e1cept"ona$$y Xa$$o)ed by $a)& (".e., even a!ter con!"rmat"on by an order o! t e court) are t ose #ranted by t e c arter o! t e P "$"pp"ne =at"ona$ 'an% (Acts =o. 2747 and 2937), and t e 3enera$ 'an%"n# Act (R.A. 337). T ese $a)s con!er on t e mort#a#or, "s successors "n "nterest or any >ud#ment cred"tor o! t e mort#a#or, t e r"# t to redeem t e property so$d on !orec$osure . a!ter con!"rmat"on by t e court o! t e !orec$osure sa$e . ) "c r"# t may be e1erc"sed )"t "n a per"od o! one (1) year, counted !rom t e date o! re#"strat"on o! t e cert"!"cate o! sa$e "n t e Re#"stry o! Property. 'ut, to repeat, no suc r"# t o! redempt"on e1"sts "n case o! >ud"c"a$ !orec$osure o! a mort#a#e "! t e mort#a#ee "s not t e P=' or a ban% or ban%"n# "nst"tut"on. ;n suc a case, t e !orec$osure sa$e, X) en con!"rmed by an order o! t e court. 1 1 s a$$ operate to d"vest t e r"# ts o! a$$ t e part"es to t e act"on and to vest t e"r r"# ts "n t e purc aser.& T ere t en e1"sts on$y ) at "s %no)n as t e e2u"ty o! redempt"on. T "s "s s"mp$y t e r"# t o! t e de!endant mort#a#or to e1t"n#u"s t e mort#a#e and reta"n o)ners "p o! t e property by pay"n# t e secured debt )"t "n t e 9/.day per"od a!ter t e >ud#ment becomes !"na$, "n accordance )"t Ru$e @7, or even a!ter t e !orec$osure sa$e but pr"or to "ts con!"rmat"on. T "s "s t e mort#a#or&s e2u"ty (not r"# t) o! redempt"on ) "c , as above stated, may be e1erc"sed by "m even beyond t e 9/.day per"od X!rom t e date o! serv"ce o! t e order,& and even a!ter t e !orec$osure sa$e "tse$!, prov"ded "t be be!ore t e order o! con!"rmat"on o! t e sa$e. A!ter suc order o! con!"rmat"on, no redempt"on can be e!!ected any $on#er. Redempt"on Pr"ce To 'e Pa"d 'y Accommodat"on Aort#a#ors BEL' ( &)B ,$>>10 8duardo 'e$o, ass"#nor o! t e pet"t"oners, "s an accommodat"on mort#a#or. Accommodat"on mort#a#ors as suc are not "n any )ay $"ab$e !or t e payment o! t e $oan or pr"nc"pa$ ob$"#at"on o! t e debtor0borro)er. T e $"ab"$"ty o! t e accommodat"on mort#a#or e1tends on$y up to t e $oan va$ue o! t e"r mort#a#ed property and not to t e ent"re $oan "tse$!. Bence, "t "s on$y >ust t at t ey be a$$o)ed to redeem t e"r mort#a#ed property by pay"n# on$y t e winnin= bid price plus interest at t e pub$"c auct"on sa$e )"t respect on$y to t e property be$on#"n# to t e accommodat"on mort#a#or. T e pr"nc"p$e o! "nd"v"s"b"$"ty o! mort#a#e contracts does not app$y to t e r"# t o! redempt"on o! an accommodat"on mort#a#or and er ass"#nees. ;nd"v"s"b"$"ty ar"ses on$y ) ere t ere "s a debt, t at "s, t ere "s a debtor.cred"tor re$at"ons "p. 'ut, t "s re$at"ons "p "s )ant"n# "n t e case at bar "n t e sense t at pet"t"oners are ass"#nees o! an accommodat"on mort#a#or and not o! a debtor. mort#a#or. Bence, "t "s !a"r and $o#"ca$ to a$$o) t e pet"t"oners to redeem on$y t e property be$on#"n# to t e"r ass"#nor, 8duardo 'e$o.

4"t respect to t e 4 parce$s o! $and be$on#"n# to 8s$abon (pouses, pet"t"oners be"n# tota$ stran#ers to sa"d $ots $ac% $e#a$ persona$"ty to redeem t e same. :a"r p$ay and >ust"ce demand t at respondent P='&s "nterest o! recover"n# "ts ent"re ban% c$a"m s ou$d not be at t e e1pense o! pet"t"oners, as ass"#nees o! 'e$o, ) o "s not "ndebted to "t. Preserv"n# T e R"# t <! Redempt"on 'eyond Redempt"on Per"od 3IE:IEL2 1EALT: ( %A ,$>>$0 4 at "s t e redempt"oner&s opt"on t ere!ore ) en t e redempt"on per"od "s about to e1p"re and t e redempt"on cannot ta%e p$ace on account o! d"sa#reement over t e redempt"on pr"ceW Accord"n# to >ur"sprudence, t e redempt"oner !aced )"t suc a prob$em may preserve "s r"# t o! redempt"on t rou# >ud"c"a$ act"on ) "c "n every case must be !"$ed )"t "n t e one.year per"od o! redempt"on. T e !"$"n# o! t e court act"on to en!orce redempt"on, be"n# e2u"va$ent to a !orma$ o!!er to redeem, )ou$d ave t e e!!ect o! preserv"n# "s redempt"ve r"# ts and C!reeD"n#C t e e1p"rat"on o! t e one.year per"od. T "s "s a !a"r "nterpretat"on prov"ded t e act"on "s !"$ed on t"me and "n #ood !a"t , t e redempt"on pr"ce "s !"na$$y determ"ned and pa"d )"t "n a reasonab$e t"me, and t e r"# ts o! t e part"es are respected. (tated ot er)"se, t e !ore#o"n# "nterpretat"on, as app$"ed to t e case at bar, as t ree cr"t"ca$ d"mens"ons+ (1) t"me$y redempt"on or redempt"on by e1p"rat"on date (or, as ) at appened "n t "s case, t e redempt"oner )as !orced to resort to >ud"c"a$ act"on to C!reeDeC t e e1p"rat"on o! t e redempt"on per"od)* (2) #ood !a"t as a$)ays, mean"n#, t e !"$"n# o! t e pr"vate respondent&s act"on on Au#ust 13, 1993 must ave been !or t e so$e purpose o! determ"n"n# t e redempt"on pr"ce and not to stretc t e redempt"ve per"od "nde!"n"te$y* and (3) once t e redempt"on pr"ce "s determ"ned )"t "n a reasonab$e t"me, t e redempt"oner must ma%e prompt payment "n !u$$. ;n t e "nstant case, t e respondents d"d not tender payment )"t "n t e per"od set by t e tr"a$ court. ;nstead, t ey as%ed !or a 45.day e1tens"on to tender payment. (uc 45.day e1tens"on !or payment must be den"ed. T e pendency o! t e r"# t o! redempt"on depresses t e mar%et va$ue o! t e $and unt"$ t e per"od e1p"res. Perm"tt"n# pr"vate respondent to !"$e a su"t !or redempt"on, )"t e"t er party unab$e to !oresee ) en !"na$ >ud#ment )"$$ come, renders mean"n#$ess t e per"od !"1ed by t e statute !or e!!ect"n# t e redempt"on. ;t ma%es t e redempt"ve per"od "nde!"n"te and cr"pp$es any e!!ort o! t e $ando)ner to rea$"De t e va$ue o! "s $and. ;n t e same )ay, t e buyer cannot "mmed"ate$y recover "s "nvestment. T us, un$ess and unt"$ t e redempt"on "s reso$ved )"t !"na$"ty, bot t e $ando)ner&s and buyer&s needs cannot be met. Pet"t"oner and pr"vate respondent ere"n )ere t us bas"ca$$y posed on s"m"$ar !oot"n# be!ore redempt"on. 'ut ) oever o! t em stands to be "rreparab$y "n>ured "n t e $on# run deserves t e ,ourt&s e2u"tab$e protect"on. ;n t e "nstant case, t e !act t at pr"vate respondent made a !orma$ o!!er to redeem be!ore t e e1p"rat"on o! t e per"od to redeem )as not s2uare$y at "ssue. T e !oca$ "ssue ere "s ) et er or not t e e1tens"on o! t e redempt"ve per"od by t e tr"a$ court )as )e$$ )"t "n

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so# T e Bo) (tate Po$"c"es Are To 'e Ac "eved

2( o% $&&

pr"vate respondent&s preserved r"# t to redeem. c"rcumstances c$ear$y s o) "t )as not.

T e opportun"ty to redeem t e sub>ect property )as never den"ed to pr"vate respondent. B"s t"me$y !orma$ o!!er t rou# >ud"c"a$ act"on to redeem )as $"%e)"se reco#n"Ded. 'ut t at "s ) ere "t ends. 4e cannot sanct"on and #rant every succeed"n# mot"on or pet"t"on . spec"a$$y "! !r"vo$ous or unreasonab$e . !"$ed by "m because t "s )ou$d man"!est$y and unreasonab$y de$ay t e !"na$ reso$ut"on o! o)ners "p o! t e sub>ect property. ;n t "s case, no de!"n"te tender o! payment )as made s"nce t ere "s no cons"#nat"on. ,ons"#nat"on s ou$d ave been made to s o) #ood !a"t and !"nanc"a$ capab"$"ty to redeem. :a"$ure to cons"#n )as do)nr"# t re!$ect"ve o! :ranc"sco&s "ncapab"$"ty to pay !rom t e very start ,ase :or 6ud"c"a$ Redempt"on =ot :"$ed ;n 3ood :a"t 'ut :or T e Purpose <! (tretc "n# T e Per"od <! Redempt"on ;nde!"n"te$y T'LE)TI)' ( %A ,$>>;0 T e #enera$ ru$e "n redempt"on "s t at "t "s not su!!"c"ent t at a person o!!er"n# to redeem s"mp$y man"!ests "s0 er des"re to do so. T e statement o! "ntent"on must be accompan"ed by an actua$ and s"mu$taneous tender o! payment. T "s const"tutes t e e1erc"se o! t e r"# t to repurc ase. 'ona !"de redempt"on necessar"$y "mp$"es a reasonab$e and va$"d tender o! t e ent"re purc ase pr"ce, ot er)"se t e ru$e on t e redempt"on per"od !"1ed by $a) can eas"$y be c"rcumvented. T e records s o) t at t e correct redempt"on pr"ce ad been determ"ned pr"or to t e !"$"n# o! t e comp$a"nt !or >ud"c"a$ redempt"on. Pet"t"oner ad been !urn"s ed updated (tatements o! Account spec"!y"n# t e redempt"on pr"ce even pr"or to t e conso$"dat"on o! t e t"t$e o! t e !orec$osed property "n t e ban%Is name. T e "nc$us"on o! $ate payment c ar#es, !orec$osure e1pense, attorneyIs !ees, $"2u"dated dama#es, !orec$osure !ee, and "nterests t ere"n )as pursuant to t e 5oan A#reement. ,ons"der"n# t at t e 5oan A#reement )as read and !ree$y ad ered to by pet"t"oner, t e st"pu$at"ons t ere"n are b"nd"n# on er. 'ased on t e !ore#o"n#, "t "s c$ear t at pet"t"oner d"d not !"$e t e "nstant case !or >ud"c"a$ redempt"on "n #ood !a"t . ;t )as not !"$ed !or t e purpose o! determ"n"n# t e correct redempt"on pr"ce but to stretc t e redempt"on per"od "nde!"n"te$y, ) "c "s not a$$o)ed by $a). X

SE% $ %reation o the Ban=?o Sentral. M T ere "s ereby estab$"s ed an "ndependent centra$ monetary aut or"ty, ) "c s a$$ be a body corporate %no)n as t e 'an#%o (entra$ n# P"$"p"nas, erea!ter re!erred to as t e 'an#%o (entra$. T e cap"ta$ o! t e 'an#%o (entra$ s a$$ be :"!ty b"$$"on pesos (P5/,///,///,///), to be !u$$y subscr"bed by t e 3overnment o! t e Repub$"c, erea!ter re!erred to as t e 3overnment, Ten b"$$"on pesos (P1/,///,///,///) o! ) "c s a$$ be !u$$y pa"d !or by t e 3overnment upon t e e!!ect"v"ty o! t "s Act and t e ba$ance to be pa"d !or )"t "n a per"od o! t)o (2) years !rom t e e!!ect"v"ty o! t "s Act "n suc manner and !orm as t e 3overnment, t rou# t e (ecretary o! :"nance and t e (ecretary o! 'ud#et and Aana#ement, may t erea!ter determ"ne. SE% 7. %o#position o the 4onetary Board. M T e po)ers and !unct"ons o! t e 'an#%o (entra$ s a$$ be e1erc"sed by t e 'an#%o (entra$ Aonetary 'oard, erea!ter re!erred to as t e Aonetary 'oard, composed o! seven (7) members appo"nted by t e Pres"dent o! t e P "$"pp"nes !or a term o! s"1 (@) years. T e seven (7) members are+ (a) t e 3overnor o! t e 'an#%o (entra$, ) o s a$$ be t e , a"rman o! t e Aonetary 'oard. T e 3overnor o! t e 'an#%o (entra$ s a$$ be ead o! a department and "s appo"ntment s a$$ be sub>ect to con!"rmat"on by t e ,omm"ss"on on Appo"ntments. 4 enever t e 3overnor "s unab$e to attend a meet"n# o! t e 'oard, e s a$$ des"#nate a -eputy 3overnor to act as "s a$ternate+ Prov"ded, T at "n suc event, t e Aonetary 'oard s a$$ des"#nate one o! "ts members as act"n# , a"rman* (b) a member o! t e ,ab"net to be des"#nated by t e Pres"dent o! t e P "$"pp"nes. 4 enever t e des"#nated ,ab"net Aember "s unab$e to attend a meet"n# o! t e 'oard, e s a$$ des"#nate an Endersecretary "n "s -epartment to attend as "s a$ternate* and (c) !"ve (5) members ) o s a$$ come !rom t e pr"vate sector, a$$ o! ) om s a$$ serve !u$$.t"me+ Prov"ded, o)ever, T at o! t e members !"rst appo"nted under t e prov"s"ons o! t "s sub(8,, t ree (3) s a$$ ave a term o! s"1 (@) years, and t e ot er t)o (2), t ree (3) years. =o member o! t e Aonetary 'oard may be reappo"nted more t an once. SE% -. 2is"uali ications. M ;n add"t"on to t e d"s2ua$"!"cat"ons "mposed by Repub$"c Act =o. @713, a member o! t e Aonetary 'oard "s d"s2ua$"!"ed !rom be"n# a d"rector, o!!"cer, emp$oyee, consu$tant, $a)yer, a#ent or stoc% o$der o! any ban%, 2uas".ban% or any ot er "nst"tut"on ) "c "s sub>ect to superv"s"on or e1am"nat"on by t e 'an#%o (entra$, "n ) "c case suc member s a$$ res"#n !rom, and d"vest "mse$! o! any and a$$ "nterests "n suc "nst"tut"on be!ore assumpt"on o! o!!"ce as member o! t e Aonetary 'oard. T e members o! t e Aonetary 'oard com"n# !rom t e pr"vate sector s a$$ not o$d any ot er pub$"c o!!"ce or pub$"c emp$oyment dur"n# t e"r tenure. =o person s a$$ be a member o! t e Aonetary 'oard "! e as been connected d"rect$y )"t any mu$t"$atera$ ban%"n# or !"nanc"a$ "nst"tut"on or as a substant"a$ "nterest "n any pr"vate ban% "n t e P "$"pp"nes, )"t "n one (1) year pr"or to "s appo"ntment* $"%e)"se, no member o! t e Aonetary 'oard s a$$ be emp$oyed "n any suc "nst"tut"on )"t "n t)o (2) years a!ter t e

(I. BA)*K' SE)T1AL )* &ILI&I)AS LAW RA 7@53


7.1 Topics (tate Po$"c"es SE% 1 2eclaration o &olicy. M T e (tate s a$$ ma"nta"n a centra$ monetary aut or"ty t at s a$$ !unct"on and operate as an "ndependent and accountab$e body corporate "n t e d"sc ar#e o! "ts mandated respons"b"$"t"es concern"n# money, ban%"n# and cred"t. ;n $"ne )"t t "s po$"cy, and cons"der"n# "ts un"2ue !unct"ons and respons"b"$"t"es, t e centra$ monetary aut or"ty estab$"s ed under t "s Act, ) "$e be"n# a #overnment.o)ned corporat"on, s a$$ en>oy !"sca$ and adm"n"strat"ve autonomy.

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

2) o% $&&

e1p"rat"on o! "s term e1cept ) en e serves as an o!!"c"a$ representat"ve o! t e P "$"pp"ne 3overnment to suc "nst"tut"on. SE% 11. 4eetin=s. M T e Aonetary 'oard s a$$ meet at $east once a )ee%. T e 'oard may be ca$$ed to a meet"n# by t e 3overnor o! t e 'an#%o (entra$ or by t)o (2) ot er members o! t e 'oard. T e presence o! !our (4) members s a$$ const"tute a 2uorum+ Prov"ded, T at "n a$$ cases t e 3overnor or "s du$y des"#nated a$ternate s a$$ be amon# t e !our (4). En$ess ot er)"se prov"ded "n t "s Act, a$$ dec"s"ons o! t e Aonetary 'oard s a$$ re2u"re t e concurrence o! at $east !our (4) members. T e 'an#%o (entra$ s a$$ ma"nta"n and preserve a comp$ete record o! t e proceed"n#s and de$"berat"ons o! t e Aonetary 'oard, "nc$ud"n# t e tapes and transcr"pts o! t e steno#rap "c notes, e"t er "n t e"r or"#"na$ !orm or "n m"cro!"$m. SE% 1.. E!ercise o Authority. M ;n t e e1erc"se o! "ts aut or"ty, t e Aonetary 'oard s a$$+ (a) "ssue ru$es and re#u$at"ons "t cons"ders necessary !or t e e!!ect"ve d"sc ar#e o! t e respons"b"$"t"es and e1erc"se o! t e po)ers vested upon t e Aonetary 'oard and t e 'an#%o (entra$. T e ru$es and re#u$at"ons "ssued s a$$ be reported to t e Pres"dent and t e ,on#ress )"t "n !"!teen (15) days !rom t e date o! t e"r "ssuance* (b) d"rect t e mana#ement, operat"ons, and adm"n"strat"on o! t e 'an#%o (entra$, reor#an"De "ts personne$, and "ssue suc ru$es and re#u$at"ons as "t may deem necessary or conven"ent !or t "s purpose. T e $e#a$ un"ts o! t e 'an#%o (entra$ s a$$ be under t e e1c$us"ve superv"s"on and contro$ o! t e Aonetary 'oard* (c) estab$"s a uman resource mana#ement system ) "c s a$$ #overn t e se$ect"on, "r"n#, appo"ntment, trans!er, promot"on, or d"sm"ssa$ o! a$$ personne$. (uc system s a$$ a"m to estab$"s pro!ess"ona$"sm and e1ce$$ence at a$$ $eve$s o! t e 'an#%o (entra$ "n accordance )"t sound pr"nc"p$es o! mana#ement. A compensat"on structure, based on >ob eva$uat"on stud"es and )a#e surveys an sub>ect to t e 'oardIs approva$, s a$$ be "nst"tuted as an "nte#ra$ component o! t e 'an#%o (entra$Is uman resource deve$opment pro#ram+ Prov"ded, T at t e Aonetary 'oard s a$ ma%e "ts o)n system con!orm as c$ose$y as poss"b$e )"t t e pr"nc"p$es prov"ded !or under Repub$"c Act =o. @757+ Prov"ded, o)ever, T at compensat"on and )a#e structure o! emp$oyees ) ose pos"t"ons !a$$ under sa$ary #rade 19 and be$o) s a$$ be "n accordance )"t t e rates prescr"bed under Repub$"c Act =o. @757. <n t e recommendat"on o! t e 3overnor, appo"nt, !"1 t e remunerat"ons and ot er emo$uments, and remove personne$ o! t e 'an#%o (entra$, sub>ect to pert"nent c"v"$ serv"ce $a)s+ Prov"ded, T at t e Aonetary 'oard s a$$ ave e1c$us"ve and !"na$ aut or"ty to promote, trans!er, ass"#n, or reass"#n personne$ o! t e 'an#%o (entra$ and t ese personne$ act"ons are deemed made "n t e "nterest o! t e serv"ce and not d"sc"p$"nary+ Prov"ded, !urt er, T at t e Aonetary 'oard may de$e#ate suc aut or"ty to t e 3overnor under suc #u"de$"nes as "t may determ"ne.

(d) adopt an annua$ bud#et !or and aut or"De suc e1pend"tures by t e 'an#%o (entra$ as are "n t e "nterest o! t e e!!ect"ve adm"n"strat"on and operat"ons o! (e) t e 'an#%o (entra$ "n accordance )"t app$"cab$e $a)s and re#u$at"ons* and (!) "ndemn"!y "ts members and ot er o!!"c"a$s o! t e 'an#%o (entra$, "nc$ud"n# personne$ o! t e departments per!orm"n# superv"s"on and e1am"nat"on !unct"ons a#a"nst a$$ costs and e1penses reasonab$y "ncurred by suc persons "n connect"on )"t any c"v"$ or cr"m"na$ act"on, su"t or proceed"n#s to ) "c e may be, or "s, made a party by reason o! t e per!ormance o! "s !unct"ons or dut"es, un$ess e "s !"na$$y ad>ud#ed "n suc act"on or proceed"n# to be $"ab$e !or ne#$"#ence or m"sconduct. ;n t e event o! a sett$ement or comprom"se, "ndemn"!"cat"on s a$$ be prov"ded on$y "n connect"on )"t suc matters covered by t e sett$ement as to ) "c t e 'an#%o (entra$ "s adv"sed by e1terna$ counse$ t at t e person to be "ndemn"!"ed d"d not comm"t any ne#$"#ence or m"sconduct. T e costs and e1penses "ncurred "n de!end"n# t e a!orement"oned act"on, su"t or proceed"n# may be pa"d by t e 'an#%o (entra$ "n advance o! t e !"na$ d"spos"t"on o! suc act"on, su"t or proceed"n# upon rece"pt o! an underta%"n# by or on be a$! o! t e member, o!!"cer, or emp$oyee to repay t e amount advanced s ou$d "t u$t"mate$y be determ"ned by t e Aonetary 'oard t at e "s not ent"t$ed to be "ndemn"!"ed as prov"ded "n t "s sub(8,. SE% 17. 1esponsibility. M Aembers o! t e Aonetary 'oard, o!!"c"a$s, e1am"ners, and emp$oyees o! t e 'an#%o (entra$ ) o )"$$!u$$y v"o$ate t "s Act or ) o are #u"$ty o! ne#$"#ence, abuses or acts o! ma$!easance or m"s!easance or !a"$ to e1erc"se e1traord"nary d"$"#ence "n t e per!ormance o! " dut"es s a$$ be e$d $"ab$e !or any $oss or "n>ury su!!ered by t e 'an#%o (entra$ or ot er ban%"n# "nst"tut"ons as a resu$t o! suc v"o$at"on, ne#$"#ence, abuse, ma$!easance, m"s!easance or !a"$ure to e1erc"se e1traord"nary d"$"#ence. ("m"$ar respons"b"$"ty s a$$ app$y to members, o!!"cers, and emp$oyees o! t e 'an#%o (entra$ !or+ (1) t e d"sc$osure o! any "n!ormat"on o! a con!"dent"a$ nature, or any "n!ormat"on on t e d"scuss"ons or reso$ut"ons o! t e Aonetary 'oard, or about t e con!"dent"a$ operat"ons o! t e 'an#%o (entra$, un$ess t e d"sc$osure "s "n connect"on )"t t e per!ormance o! o!!"c"a$ !unct"ons )"t t e 'an#%o (entra$, or "s )"t pr"or aut or"Dat"on o! t e Aonetary 'oard or t e 3overnor* or (2) t e use o! suc "n!ormat"on !or persona$ #a"n or to t e detr"ment o! t e 3overnment, t e 'an#%o (entra$ or t "rd part"es+ Prov"ded, o)ever, T at any data or "n!ormat"on re2u"red to be subm"tted to t e Pres"dent and0or t e ,on#ress, or to be pub$"s ed under t e prov"s"ons o! t "s Act s a$$ not be cons"dered con!"dent"a$. SE% 18. 1epresentation o the 4onetary Board and the Ban=?o Sentral. M T e 3overnor o! t e 'an#%o (entra$ s a$$ be t e pr"nc"pa$ representat"ve o! t e Aonetary 'oard and o! t e 'an#%o (entra$ and, "n suc capac"ty and "n accordance )"t t e "nstruct"ons o! t e Aonetary 'oard, e s a$$ be empo)ered to+ (a) represent t e Aonetary 'oard and t e 'an#%o (entra$ "n a$$ dea$"n#s )"t ot er o!!"ces, a#enc"es and "nstrumenta$"t"es o! t e 3overnment and a$$ ot er persons or ent"t"es, pub$"c or pr"vate, ) et er domest"c, !ore"#n or "nternat"ona$*

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

2* o% $&&

(b) s"#n contracts entered "nto by t e 'an#%o (entra$, notes and secur"t"es "ssued by t e 'an#%o (entra$, a$$ reports, ba$ance s eets, pro!"t and $oss statements, correspondence and ot er documents o! t e 'an#%o (entra$. T e s"#nature o! t e 3overnor may be "n !acs"m"$e ) enever appropr"ate* (c) represent t e 'an#%o (entra$, e"t er persona$$y or t rou# counse$, "nc$ud"n# pr"vate counse$, as may be aut or"Ded by t e Aonetary 'oard, "n any $e#a$ proceed"n#s, act"on or spec"a$"Ded $e#a$ stud"es* and (d) de$e#ate "s po)er to represent t e 'an#%o (entra$, as prov"ded "n sub(8,s (a), (b) and (c) o! t "s (8,, to ot er o!!"cers upon "s o)n respons"b"$"ty+ Prov"ded, o)ever, T at "n order to preserve t e "nte#r"ty and t e prest"#e o! "s o!!"ce, t e 3overnor o! t e 'an#%o (entra$ may c oose not to part"c"pate "n pre$"m"nary d"scuss"ons )"t any mu$t"$atera$ ban%"n# or !"nanc"a$ "nst"tut"on on any ne#ot"at"ons !or t e 3overnment )"t "n or outs"de t e P "$"pp"nes. -ur"n# t e ne#ot"at"ons, e may "nstead be represented by a permanent ne#ot"ator. SE% /;. Appoint#ent and &ersonnel. M T e , a"rman o! t e ,omm"ss"on on Aud"t s a$$ act as t e e1 o!!"c"o aud"tor o! t e 'an#%o (entra$ and, as suc , e "s empo)ered and aut or"Ded to appo"nt a representat"ve ) o s a$$ be t e aud"tor o! t e 'an#%o (entra$ and, "n accordance )"t $a), !"1 "s sa$ary, and to appo"nt and !"1 sa$ar"es and number o! personne$ to ass"st sa"d representat"ve "n "s )or%. T e sa$ar"es and ot er emo$uments s a$$ be pa"d by t e ,omm"ss"on. T e aud"tor o! t e 'an#%o (entra$ and personne$ under "m may be removed on$y by t e , a"rman o! t e ,omm"ss"on. T e representat"ve o! t e , a"rman o! t e ,omm"ss"on must be a cert"!"ed pub$"c accountant )"t at $east ten (1/) years e1per"ence as suc . =o re$at"ve o! any member o! t e Aonetary 'oard or t e , a"rman o! t e ,omm"ss"on )"t "n t e s"1t de#ree o! consan#u"n"ty or a!!"n"ty s a$$ be appo"nted suc representat"ve. Bo) T e '(P Band$es ;n -"stressW $on)ervator)!i+ 9(A 7653 S#$ 29 and (A 8971 S#$ 67: SE% $-. Appoint#ent o %onser@ator. M 4 enever, on t e bas"s o! a report subm"tted by t e appropr"ate superv"s"n# or e1am"n"n# department, t e Aonetary 'oard !"nds t at a ban% or a 2uas".ban% "s "n a state o! cont"nu"n# "nab"$"ty or un)"$$"n#ness to ma"nta"n a cond"t"on o! $"2u"d"ty deemed ade2uate to protect t e "nterest o! depos"tors and cred"tors, t e Aonetary 'oard may appo"nt a conservator )"t suc po)ers as t e Aonetary 'oard s a$$ deem necessary to ta%e c ar#e o! t e assets, $"ab"$"t"es, and t e mana#ement t ereo!, reor#an"De t e mana#ement, co$$ect a$$ mon"es and debts due sa"d "nst"tut"on, and e1erc"se a$$ po)ers necessary to restore "ts v"ab"$"ty. T e conservator s a$$ report and be respons"b$e to t e Aonetary 'oard and s a$$ ave t e po)er to overru$e or revo%e t e act"ons o! t e prev"ous mana#ement and board o! d"rectors o! t e ban% or 2uas".ban%. T e conservator s ou$d be competent and %no)$ed#eab$e "n ban% operat"ons and mana#ement. T e conservators "p s a$$ not e1ceed one (1) year.

T e conservator s a$$ rece"ve remunerat"on to be !"1ed by t e Aonetary 'oard "n an amount not to e1ceed t)o.t "rds (203) o! t e sa$ary o! t e pres"dent o! t e "nst"tut"on "n one (1) year, payab$e "n t)e$ve (12) e2ua$ mont $y payments+ Prov"ded, T at, "! at any t"me )"t "n one.year per"od, t e conservators "p "s term"nated on t e #round t at t e "nst"tut"on can operate on "ts o)n, t e conservator s a$$ rece"ve t e ba$ance o! t e remunerat"on ) "c e )ou$d ave rece"ved up to t e end o! t e year* but "! t e conservators "p "s term"nated on ot er #rounds, t e conservator s a$$ not be ent"t$ed to suc rema"n"n# ba$ance. T e Aonetary 'oard may appo"nt a conservator connected )"t t e 'an#%o (entra$, "n ) "c case e s a$$ not be ent"t$ed to rece"ve any remunerat"on or emo$ument !rom t e 'an#%o (entra$ dur"n# t e conservators "p. T e e1penses attendant to t e conservators "p s a$$ be borne by t e ban% or 2uas".ban% concerned. T e Aonetary 'oard s a$$ term"nate t e conservators "p ) en "t "s sat"s!"ed t at t e "nst"tut"on can cont"nue to operate on "ts o)n and t e conservators "p "s no $on#er necessary. T e conservators "p s a$$ $"%e)"se be term"nated s ou$d t e Aonetary 'oard, on t e bas"s o! t e report o! t e conservator or o! "ts o)n !"nd"n#s, determ"ne t at t e cont"nuance "n bus"ness o! t e "nst"tut"on )ou$d "nvo$ve probab$e $oss to "ts depos"tors or cred"tors, "n ) "c case t e prov"s"ons o! (8, 3/ s a$$ app$y. SE% 7;. %onser@atorship. M T e #rounds and procedures !or p$ac"n# a ban% under conservators "p, as )e$$ as, t e po)ers and dut"es o! t e conservator appo"nted !or t e ban% s a$$ be #overned by t e prov"s"ons o! (8, 29 and t e $ast t)o para#rap s o! (8, 3/ o! t e =e) ,entra$ 'an% Act+ Prov"ded, T at t "s (8, s a$$ a$so app$y to conservators "p proceed"n#s o! 2uas".ban%s. (n) $-o) re 9S#$ 30 and (.A. 8791 S#$) 53 D 56.4: SE% 9>. &roceedin=s in 1ecei@ership and Li"uidation. M 4 enever, upon report o! t e ead o! t e superv"s"n# or e1am"n"n# department, t e Aonetary 'oard !"nds t at a ban% or 2uas"ban%+ (a) "s unab$e to pay "ts $"ab"$"t"es as t ey become due "n t e ord"nary course o! bus"ness+ Prov"ded, T at t "s s a$$ not "nc$ude "nab"$"ty to pay caused by e1traord"nary demands "nduced by !"nanc"a$ pan"c "n t e ban%"n# commun"ty* (b) by t e 'an#%o (entra$, to meet "ts $"ab"$"t"es* or (c) cannot cont"nue "n bus"ness )"t out "nvo$v"n# probab$e $osses to "ts depos"tors or cred"tors* or (d) as )"$$!u$$y v"o$ated a cease and des"st order under (8, 37 t at as become !"na$, "nvo$v"n# acts or transact"ons ) "c amount to !raud or a d"ss"pat"on o! t e assets o! t e "nst"tut"on* "n ) "c cases, t e Aonetary 'oard may summar"$y and )"t out need !or pr"or ear"n# !orb"d t e "nst"tut"on !rom do"n# bus"ness "n t e P "$"pp"nes and des"#nate t e P "$"pp"ne -epos"t ;nsurance ,orporat"on as rece"ver o! t e ban%"n# "nst"tut"on. :or a 2uas".ban%, any person o! reco#n"Ded competence "n ban%"n# or !"nance may be des"#ned as rece"ver. T e rece"ver s a$$ "mmed"ate$y #at er and ta%e c ar#e o! a$$ t e assets and $"ab"$"t"es o! t e "nst"tut"on, adm"n"ster t e same !or t e bene!"t o! "ts cred"tors, and e1erc"se t e #enera$ po)ers o! a rece"ver under t e Rev"sed Ru$es o! ,ourt but s a$$ not, )"t t e e1cept"on o! adm"n"strat"ve e1pend"tures, pay or comm"t any act t at )"$$ "nvo$ve t e trans!er or d"spos"t"on o! any asset o! t e

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

2+ o% $&&

"nst"tut"on+ Prov"ded, T at t e rece"ver may depos"t or p$ace t e !unds o! t e "nst"tut"on "n nonspecu$at"ve "nvestments. T e rece"ver s a$$ determ"ne as soon as poss"b$e, but not $ater t an n"nety (9/) days !rom ta%e over, ) et er t e "nst"tut"on may be re ab"$"tated or ot er)"se p$aced "n suc a cond"t"on so t at "t may be perm"tted to resume bus"ness )"t sa!ety to "ts depos"tors and cred"tors and t e #enera$ pub$"c+ Prov"ded, T at any determ"nat"on !or t e resumpt"on o! bus"ness o! t e "nst"tut"on s a$$ be sub>ect to pr"or approva$ o! t e Aonetary 'oard. ;! t e rece"ver determ"nes t at t e "nst"tut"on cannot be re ab"$"tated or perm"tted to resume bus"ness "n accordance )"t t e ne1t preced"n# para#rap , t e Aonetary 'oard s a$$ not"!y "n )r"t"n# t e board o! d"rectors o! "ts !"nd"n#s and d"rect t e rece"ver to proceed )"t t e $"2u"dat"on o! t e "nst"tut"on. T e rece"ver s a$$+ 1. !"$e ex parte )"t t e proper re#"ona$ tr"a$ court, and )"t out re2u"rement o! pr"or not"ce or any ot er act"on, a pet"t"on !or ass"stance "n t e $"2u"dat"on o! t e "nst"tut"on pursuant to a $"2u"dat"on p$an adopted by t e P "$"pp"ne -epos"t ;nsurance ,orporat"on !or #enera$ app$"cat"on to a$$ c$osed ban%s. ;n case o! 2uas".ban%s, t e $"2u"dat"on p$an s a$$ be adopted by t e Aonetary 'oard. Epon ac2u"r"n# >ur"sd"ct"on, t e court s a$$, upon mot"on by t e rece"ver a!ter due not"ce, ad>ud"cate d"sputed c$a"ms a#a"nst t e "nst"tut"on, ass"st t e en!orcement o! "nd"v"dua$ $"ab"$"t"es o! t e stoc% o$ders, d"rectors and o!!"cers, and dec"de on ot er "ssues as may be mater"a$ to "mp$ement t e $"2u"dat"on p$an adopted. T e rece"ver s a$$ pay t e cost o! t e proceed"n#s !rom t e assets o! t e "nst"tut"on. 2. convert t e assets o! t e "nst"tut"ons to money, d"spose o! t e same to cred"tors and ot er part"es, !or t e purpose o! pay"n# t e debts o! suc "nst"tut"on "n accordance )"t t e ru$es on concurrence and pre!erence o! cred"t under t e ,"v"$ ,ode o! t e P "$"pp"nes and e may, "n t e name o! t e "nst"tut"on, and )"t t e ass"stance o! counse$ as e may reta"n, "nst"tute suc act"ons as may be necessary to co$$ect and recover accounts and assets o!, or de!end any act"on a#a"nst, t e "nst"tut"on. T e assets o! an "nst"tut"on under rece"vers "p or $"2u"dat"on s a$$ be deemed "n custodia legis "n t e ands o! t e rece"ver and s a$$, !rom t e moment t e "nst"tut"on )as p$aced under suc rece"vers "p or $"2u"dat"on, be e1empt !rom any order o! #arn"s ment, $evy, attac ment, or e1ecut"on. T e act"ons o! t e Aonetary 'oard ta%en under t "s (8, or under (8, 29 o! t "s Act s a$$ be !"na$ and e1ecutory, and may not be restra"ned or set as"de by t e court e1cept on pet"t"on !or certiorari on t e #round t at t e act"on ta%en )as "n e1cess o! >ur"sd"ct"on or )"t suc #rave abuse o! d"scret"on as to amount to $ac% or e1cess o! >ur"sd"ct"on. T e pet"t"on !or certiorari may on$y be !"$ed by t e stoc% o$ders o! record represent"n# t e ma>or"ty o! t e cap"ta$ stoc% )"t "n ten (1/) days !rom rece"pt by t e board o! d"rectors o! t e "nst"tut"on o! t e order d"rect"n# rece"vers "p, $"2u"dat"on or conservators "p. T e des"#nat"on o! a conservator under (8, 29 o! t "s Act or t e appo"ntment o! a rece"ver under t "s (8, s a$$ be vested e1c$us"ve$y )"t t e Aonetary 'oard. :urt ermore, t e des"#nat"on o! a conservator "s not a precond"t"on to t e des"#nat"on o! a rece"ver. SE% .9. 'ther Ban?in= Ser@ices. M ;n add"t"on to t e operat"ons spec"!"ca$$y aut or"Ded "n t "s Act, a ban% may per!orm t e !o$$o)"n# serv"ces+ 53.1. Rece"ve "n custody !unds, documents and va$uab$e ob>ects*

53.2. Act as !"nanc"a$ a#ent and buy and se$$, by order o! and !or t e account o! t e"r customers, s ares, ev"dences o! "ndebtedness and a$$ types o! secur"t"es* 53.3. Aa%e co$$ect"ons and payments !or t e account o! ot ers and per!orm suc ot er serv"ces !or t e"r customers as are not "ncompat"b$e )"t ban%"n# bus"ness* 53.4. Epon pr"or approva$ o! t e Aonetary 'oard, act as mana#"n# a#ent, adv"ser, consu$tant or adm"n"strator o! "nvestment mana#ement0adv"sory0consu$tancy accounts* and 53.5. Rent out sa!ety depos"t bo1es. T e ban% s a$$ per!orm t e serv"ces perm"tted under (ub(8,s 53.1, 53.2, 53.3 and 53.4 as depos"tary or as an a#ent. Accord"n#$y, "t s a$$ %eep t e !unds, secur"t"es and ot er e!!ects ) "c "t rece"ves du$y separate !rom t e ban%Is o)n assets and $"ab"$"t"es. T e Aonetary 'oard may re#u$ate t e operat"ons aut or"Ded by t "s (8, "n order to ensure t at suc operat"ons do not endan#er t e "nterests o! t e depos"tors and ot er cred"tors o! t e ban%. ;n case a ban% or 2uas".ban% not"!"es t e 'an#%o (entra$ or pub$"c$y announces a ban% o$"day, or "n any manner suspends t e payment o! "ts depos"t $"ab"$"t"es cont"nuous$y !or more t an t "rty (3/) days, t e Aonetary 'oard may summar"$y and )"t out need !or pr"or ear"n# c$ose suc ban%"n# "nst"tut"on and p$ace "t under rece"vers "p o! t e P "$"pp"ne -epos"t ;nsurance ,orporat"on. (72a) SE% .7. %onductin= Business in an Unsa e or Unsound 4anner. M ;n determ"n"n# ) et er a part"cu$ar act or om"ss"on, ) "c "s not ot er)"se pro "b"ted by any $a), ru$e or re#u$at"on a!!ect"n# ban%s, 2uas".ban%s or trust ent"t"es, may be deemed as conduct"n# bus"ness "n an unsa!e or unsound manner !or purposes o! t "s (8,, t e Aonetary 'oard s a$$ cons"der any o! t e !o$$o)"n# c"rcumstances+ 5@.4. T e act or om"ss"on "nvo$ves enter"n# "nto any contract or transact"on man"!est$y and #ross$y d"sadvanta#eous to t e ban%, 2uas".ban% or trust ent"ty, ) et er or not t e d"rector or o!!"cer pro!"ted or )"$$ pro!"t t ereby. 4 enever a ban%, 2uas".ban% or trust ent"ty pers"sts "n conduct"n# "ts bus"ness "n an unsa!e or unsound manner, t e Aonetary 'oard may, )"t out pre>ud"ce to t e adm"n"strat"ve sanct"ons prov"ded "n (8, 37 o! t e =e) ,entra$ 'an% Act, ta%e act"on under (8, 3/ o! t e same Act and0or "mmed"ate$y e1c$ude t e err"n# ban% !rom c$ear"n#, t e prov"s"ons o! $a) to t e contrary not)"t stand"n#. (n) (eceiver)!i+ 9 S#$ 30E and (.A. 8791 S#$) 69270: SE% 9>. &roceedin=s in 1ecei@ership and Li"uidation. M 4 enever, upon report o! t e ead o! t e superv"s"n# or e1am"n"n# department, t e Aonetary 'oard !"nds t at a ban% or 2uas"ban%+ (a) "s unab$e to pay "ts $"ab"$"t"es as t ey become due "n t e ord"nary course o! bus"ness+ Prov"ded, T at t "s s a$$ not "nc$ude "nab"$"ty to pay caused by e1traord"nary demands "nduced by !"nanc"a$ pan"c "n t e ban%"n# commun"ty* (b) by t e 'an#%o (entra$, to meet "ts $"ab"$"t"es* or (c) cannot cont"nue "n bus"ness )"t out "nvo$v"n# probab$e $osses to "ts depos"tors or cred"tors* or (d) as )"$$!u$$y v"o$ated a cease and des"st order under (8, 37 t at as become !"na$, "nvo$v"n# acts or transact"ons ) "c amount to !raud or a d"ss"pat"on o! t e assets o! t e "nst"tut"on* "n ) "c cases, t e Aonetary 'oard may summar"$y and )"t out need !or pr"or ear"n# !orb"d t e "nst"tut"on !rom do"n# bus"ness "n t e

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

29 o% $&&

P "$"pp"nes and des"#nate t e P "$"pp"ne -epos"t ;nsurance ,orporat"on as rece"ver o! t e ban%"n# "nst"tut"on. :or a 2uas".ban%, any person o! reco#n"Ded competence "n ban%"n# or !"nance may be des"#ned as rece"ver. T e rece"ver s a$$ "mmed"ate$y #at er and ta%e c ar#e o! a$$ t e assets and $"ab"$"t"es o! t e "nst"tut"on, adm"n"ster t e same !or t e bene!"t o! "ts cred"tors, and e1erc"se t e #enera$ po)ers o! a rece"ver under t e Rev"sed Ru$es o! ,ourt but s a$$ not, )"t t e e1cept"on o! adm"n"strat"ve e1pend"tures, pay or comm"t any act t at )"$$ "nvo$ve t e trans!er or d"spos"t"on o! any asset o! t e "nst"tut"on+ Prov"ded, T at t e rece"ver may depos"t or p$ace t e !unds o! t e "nst"tut"on "n nonspecu$at"ve "nvestments. T e rece"ver s a$$ determ"ne as soon as poss"b$e, but not $ater t an n"nety (9/) days !rom ta%e over, ) et er t e "nst"tut"on may be re ab"$"tated or ot er)"se p$aced "n suc a cond"t"on so t at "t may be perm"tted to resume bus"ness )"t sa!ety to "ts depos"tors and cred"tors and t e #enera$ pub$"c+ Prov"ded, T at any determ"nat"on !or t e resumpt"on o! bus"ness o! t e "nst"tut"on s a$$ be sub>ect to pr"or approva$ o! t e Aonetary 'oard. ;! t e rece"ver determ"nes t at t e "nst"tut"on cannot be re ab"$"tated or perm"tted to resume bus"ness "n accordance )"t t e ne1t preced"n# para#rap , t e Aonetary 'oard s a$$ not"!y "n )r"t"n# t e board o! d"rectors o! "ts !"nd"n#s and d"rect t e rece"ver to proceed )"t t e $"2u"dat"on o! t e "nst"tut"on. T e rece"ver s a$$+ 1. !"$e ex parte )"t t e proper re#"ona$ tr"a$ court, and )"t out re2u"rement o! pr"or not"ce or any ot er act"on, a pet"t"on !or ass"stance "n t e $"2u"dat"on o! t e "nst"tut"on pursuant to a $"2u"dat"on p$an adopted by t e P "$"pp"ne -epos"t ;nsurance ,orporat"on !or #enera$ app$"cat"on to a$$ c$osed ban%s. ;n case o! 2uas".ban%s, t e $"2u"dat"on p$an s a$$ be adopted by t e Aonetary 'oard. Epon ac2u"r"n# >ur"sd"ct"on, t e court s a$$, upon mot"on by t e rece"ver a!ter due not"ce, ad>ud"cate d"sputed c$a"ms a#a"nst t e "nst"tut"on, ass"st t e en!orcement o! "nd"v"dua$ $"ab"$"t"es o! t e stoc% o$ders, d"rectors and o!!"cers, and dec"de on ot er "ssues as may be mater"a$ to "mp$ement t e $"2u"dat"on p$an adopted. T e rece"ver s a$$ pay t e cost o! t e proceed"n#s !rom t e assets o! t e "nst"tut"on. 2. convert t e assets o! t e "nst"tut"ons to money, d"spose o! t e same to cred"tors and ot er part"es, !or t e purpose o! pay"n# t e debts o! suc "nst"tut"on "n accordance )"t t e ru$es on concurrence and pre!erence o! cred"t under t e ,"v"$ ,ode o! t e P "$"pp"nes and e may, "n t e name o! t e "nst"tut"on, and )"t t e ass"stance o! counse$ as e may reta"n, "nst"tute suc act"ons as may be necessary to co$$ect and recover accounts and assets o!, or de!end any act"on a#a"nst, t e "nst"tut"on. T e assets o! an "nst"tut"on under rece"vers "p or $"2u"dat"on s a$$ be deemed "n custodia legis "n t e ands o! t e rece"ver and s a$$, !rom t e moment t e "nst"tut"on )as p$aced under suc rece"vers "p or $"2u"dat"on, be e1empt !rom any order o! #arn"s ment, $evy, attac ment, or e1ecut"on. T e act"ons o! t e Aonetary 'oard ta%en under t "s (8, or under (8, 29 o! t "s Act s a$$ be !"na$ and e1ecutory, and may not be restra"ned or set as"de by t e court e1cept on pet"t"on !or certiorari on t e #round t at t e act"on ta%en )as "n e1cess o! >ur"sd"ct"on or )"t suc #rave abuse o! d"scret"on as to amount to $ac% or e1cess o! >ur"sd"ct"on. T e pet"t"on !or certiorari may on$y be !"$ed by t e

stoc% o$ders o! record represent"n# t e ma>or"ty o! t e cap"ta$ stoc% )"t "n ten (1/) days !rom rece"pt by t e board o! d"rectors o! t e "nst"tut"on o! t e order d"rect"n# rece"vers "p, $"2u"dat"on or conservators "p. T e des"#nat"on o! a conservator under (8, 29 o! t "s Act or t e appo"ntment o! a rece"ver under t "s (8, s a$$ be vested e1c$us"ve$y )"t t e Aonetary 'oard. :urt ermore, t e des"#nat"on o! a conservator "s not a precond"t"on to t e des"#nat"on o! a rece"ver. SE% 7-. 1ecei@ership and In@oluntary Li"uidation. M T e #rounds and procedures !or p$ac"n# a ban% under rece"vers "p or $"2u"dat"on, as )e$$ as t e po)ers and dut"es o! t e rece"ver or $"2u"dator appo"nted !or t e ban% s a$$ be #overned by t e prov"s"ons o! (8,s 3/, 31, 32, and 33 o! t e =e) ,entra$ 'an% Act+ Prov"ded, T at t e pet"t"oner or p$a"nt"!! !"$es )"t t e c$er% or >ud#e o! t e court "n ) "c t e act"on "s pend"n# a bond, e1ecuted "n !avor o! t e 'an#%o (entra$, "n an amount to be !"1ed by t e court. T "s (8, s a$$ a$so app$y to t e e1tent poss"b$e to t e rece"vers "p and $"2u"dat"on proceed"n#s o! 2uas".ban%s. (n) SE% ;>. &enalty or Transactions A ter a Ban? Beco#es Insol@ent. M Any d"rector or o!!"cer o! any ban% dec$ared "nso$vent or p$aced under rece"vers "p by t e Aonetary 'oard ) o re!uses to turn over t e ban%Is records and assets to t e des"#nated rece"vers, or ) o tampers )"t ban%s records, or ) o appropr"ates !or "mse$! or anot er party or destroys or causes t e m"sappropr"at"on and destruct"on o! t e ban%Is assets, or ) o rece"ves or perm"ts or causes to be rece"ved "n sa"d ban% any depos"t, co$$ect"on o! $oans and0or rece"vab$es, or ) o pays out or perm"ts or causes to be pa"d out any !unds o! sa"d ban%, or ) o trans!ers or perm"ts or causes to be trans!erred any secur"t"es or property o! sa"d ban% s a$$ be sub>ect to t e pena$ prov"s"ons o! t e =e) ,entra$ 'an% Act. (75a) Fi> idation 9S#$ 30E and (.A. 8791 S#$ 69: SE% 9>. &roceedin=s in 1ecei@ership and Li"uidation. M 4 enever, upon report o! t e ead o! t e superv"s"n# or e1am"n"n# department, t e Aonetary 'oard !"nds t at a ban% or 2uas"ban%+ (a) "s unab$e to pay "ts $"ab"$"t"es as t ey become due "n t e ord"nary course o! bus"ness+ Prov"ded, T at t "s s a$$ not "nc$ude "nab"$"ty to pay caused by e1traord"nary demands "nduced by !"nanc"a$ pan"c "n t e ban%"n# commun"ty* (b) by t e 'an#%o (entra$, to meet "ts $"ab"$"t"es* or (c) cannot cont"nue "n bus"ness )"t out "nvo$v"n# probab$e $osses to "ts depos"tors or cred"tors* or (d) as )"$$!u$$y v"o$ated a cease and des"st order under (8, 37 t at as become !"na$, "nvo$v"n# acts or transact"ons ) "c amount to !raud or a d"ss"pat"on o! t e assets o! t e "nst"tut"on* "n ) "c cases, t e Aonetary 'oard may summar"$y and )"t out need !or pr"or ear"n# !orb"d t e "nst"tut"on !rom do"n# bus"ness "n t e P "$"pp"nes and des"#nate t e P "$"pp"ne -epos"t ;nsurance ,orporat"on as rece"ver o! t e ban%"n# "nst"tut"on. :or a 2uas".ban%, any person o! reco#n"Ded competence "n ban%"n# or !"nance may be des"#ned as rece"ver. T e rece"ver s a$$ "mmed"ate$y #at er and ta%e c ar#e o! a$$ t e assets and $"ab"$"t"es o! t e "nst"tut"on, adm"n"ster t e same !or t e bene!"t o! "ts cred"tors, and e1erc"se t e #enera$ po)ers o! a

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

'0 o% $&&

rece"ver under t e Rev"sed Ru$es o! ,ourt but s a$$ not, )"t t e e1cept"on o! adm"n"strat"ve e1pend"tures, pay or comm"t any act t at )"$$ "nvo$ve t e trans!er or d"spos"t"on o! any asset o! t e "nst"tut"on+ Prov"ded, T at t e rece"ver may depos"t or p$ace t e !unds o! t e "nst"tut"on "n nonspecu$at"ve "nvestments. T e rece"ver s a$$ determ"ne as soon as poss"b$e, but not $ater t an n"nety (9/) days !rom ta%e over, ) et er t e "nst"tut"on may be re ab"$"tated or ot er)"se p$aced "n suc a cond"t"on so t at "t may be perm"tted to resume bus"ness )"t sa!ety to "ts depos"tors and cred"tors and t e #enera$ pub$"c+ Prov"ded, T at any determ"nat"on !or t e resumpt"on o! bus"ness o! t e "nst"tut"on s a$$ be sub>ect to pr"or approva$ o! t e Aonetary 'oard. ;! t e rece"ver determ"nes t at t e "nst"tut"on cannot be re ab"$"tated or perm"tted to resume bus"ness "n accordance )"t t e ne1t preced"n# para#rap , t e Aonetary 'oard s a$$ not"!y "n )r"t"n# t e board o! d"rectors o! "ts !"nd"n#s and d"rect t e rece"ver to proceed )"t t e $"2u"dat"on o! t e "nst"tut"on. T e rece"ver s a$$+ 1. !"$e ex parte )"t t e proper re#"ona$ tr"a$ court, and )"t out re2u"rement o! pr"or not"ce or any ot er act"on, a pet"t"on !or ass"stance "n t e $"2u"dat"on o! t e "nst"tut"on pursuant to a $"2u"dat"on p$an adopted by t e P "$"pp"ne -epos"t ;nsurance ,orporat"on !or #enera$ app$"cat"on to a$$ c$osed ban%s. ;n case o! 2uas".ban%s, t e $"2u"dat"on p$an s a$$ be adopted by t e Aonetary 'oard. Epon ac2u"r"n# >ur"sd"ct"on, t e court s a$$, upon mot"on by t e rece"ver a!ter due not"ce, ad>ud"cate d"sputed c$a"ms a#a"nst t e "nst"tut"on, ass"st t e en!orcement o! "nd"v"dua$ $"ab"$"t"es o! t e stoc% o$ders, d"rectors and o!!"cers, and dec"de on ot er "ssues as may be mater"a$ to "mp$ement t e $"2u"dat"on p$an adopted. T e rece"ver s a$$ pay t e cost o! t e proceed"n#s !rom t e assets o! t e "nst"tut"on. 2. convert t e assets o! t e "nst"tut"ons to money, d"spose o! t e same to cred"tors and ot er part"es, !or t e purpose o! pay"n# t e debts o! suc "nst"tut"on "n accordance )"t t e ru$es on concurrence and pre!erence o! cred"t under t e ,"v"$ ,ode o! t e P "$"pp"nes and e may, "n t e name o! t e "nst"tut"on, and )"t t e ass"stance o! counse$ as e may reta"n, "nst"tute suc act"ons as may be necessary to co$$ect and recover accounts and assets o!, or de!end any act"on a#a"nst, t e "nst"tut"on. T e assets o! an "nst"tut"on under rece"vers "p or $"2u"dat"on s a$$ be deemed "n custodia legis "n t e ands o! t e rece"ver and s a$$, !rom t e moment t e "nst"tut"on )as p$aced under suc rece"vers "p or $"2u"dat"on, be e1empt !rom any order o! #arn"s ment, $evy, attac ment, or e1ecut"on. T e act"ons o! t e Aonetary 'oard ta%en under t "s (8, or under (8, 29 o! t "s Act s a$$ be !"na$ and e1ecutory, and may not be restra"ned or set as"de by t e court e1cept on pet"t"on !or certiorari on t e #round t at t e act"on ta%en )as "n e1cess o! >ur"sd"ct"on or )"t suc #rave abuse o! d"scret"on as to amount to $ac% or e1cess o! >ur"sd"ct"on. T e pet"t"on !or certiorari may on$y be !"$ed by t e stoc% o$ders o! record represent"n# t e ma>or"ty o! t e cap"ta$ stoc% )"t "n ten (1/) days !rom rece"pt by t e board o! d"rectors o! t e "nst"tut"on o! t e order d"rect"n# rece"vers "p, $"2u"dat"on or conservators "p. T e des"#nat"on o! a conservator under (8, 29 o! t "s Act or t e appo"ntment o! a rece"ver under t "s (8, s a$$ be vested e1c$us"ve$y )"t t e Aonetary 'oard. :urt ermore, t e des"#nat"on o! a conservator "s not a precond"t"on to t e des"#nat"on o! a rece"ver. SE% 7-. 1ecei@ership and In@oluntary Li"uidation. M T e #rounds and procedures !or p$ac"n# a ban% under rece"vers "p or $"2u"dat"on, as )e$$ as t e po)ers and dut"es o! t e rece"ver or $"2u"dator appo"nted !or t e ban% s a$$ be #overned by t e

prov"s"ons o! (8,s 3/, 31, 32, and 33 o! t e =e) ,entra$ 'an% Act+ Prov"ded, T at t e pet"t"oner or p$a"nt"!! !"$es )"t t e c$er% or >ud#e o! t e court "n ) "c t e act"on "s pend"n# a bond, e1ecuted "n !avor o! t e 'an#%o (entra$, "n an amount to be !"1ed by t e court. T "s (8, s a$$ a$so app$y to t e e1tent poss"b$e to t e rece"vers "p and $"2u"dat"on proceed"n#s o! 2uas".ban%s. (n) Bo) T e '(P Band$es 81c an#e ,r"sesW SE% ;$. E#er=ency 1estrictions on E!chan=e 'perations. M ;n order to ac "eve t e pr"mary ob>ect"ve o! t e 'an#%o (entra$ as set !ort "n (8, 3 o! t "s Act, or protect t e "nternat"ona$ reserves o! t e 'an#%o (entra$ "n t e "mm"nence o!, or dur"n# an e1c an#e cr"s"s, or "n t"me o! nat"ona$ emer#ency and to #"ve t e Aonetary 'oard and t e 3overnment t"me "n ) "c to ta%e construct"ve measures to !oresta$$, combat, or overcome suc a cr"s"s or emer#ency, t e Aonetary 'oard, )"t t e concurrence o! at $east !"ve (5) o! "ts members and )"t t e approva$ o! t e Pres"dent o! t e P "$"pp"nes, may temporar"$y suspend or restr"ct sa$es o! e1c an#e by t e 'an#%o (entra$, and may sub>ect a$$ transact"ons "n #o$d and !ore"#n e1c an#e to $"cense by t e 'an#%o (entra$, and may re2u"re t at any !ore"#n e1c an#e t erea!ter obta"ned by any person res"d"n# or ent"ty operat"n# "n t e P "$"pp"nes be de$"vered to t e 'an#%o (entra$ or to any ban% or a#ent des"#nated by t e 'an#%o (entra$ !or t e purpose, at t e e!!ect"ve e1c an#e rate or rates+ Prov"ded, o)ever, T at !ore"#n currency depos"ts made under Repub$"c Act =o. @42@ s a$$ be e1empt !rom t ese re2u"rements. :unct"ons o! t e '(P SE% .>. E!clusi@e Issue &ower. M T e 'an#%o (entra$ s a$$ ave t e so$e po)er and aut or"ty to "ssue currency, )"t "n t e terr"tory o! t e P "$"pp"nes. =o ot er person or ent"ty, pub$"c or pr"vate, may put "nto c"rcu$at"on notes, co"ns or any ot er ob>ect or document ) "c , "n t e op"n"on o! t e Aonetary 'oard, m"# t c"rcu$ate as currency, nor reproduce or "m"tate t e !acs"m"$es o! 'an#%o (entra$ notes )"t out pr"or aut or"ty !rom t e 'an#%o (entra$. T e Aonetary 'oard may "ssue suc re#u$at"ons as "t may deem adv"sab$e "n order to prevent t e c"rcu$at"on o! !ore"#n currency or o! currency subst"tutes as )e$$ as to prevent t e reproduct"on o! !acs"m"$es o! 'an#%o (entra$ notes. T e 'an#%o (entra$ s a$$ ave t e aut or"ty to "nvest"#ate, ma%e arrests, conduct searc es and se"Dures "n accordance )"t $a), !or t e purpose o! ma"nta"n"n# t e "nte#r"ty o! t e currency. 9"o$at"on o! t "s prov"s"on or any re#u$at"on "ssued by t e 'an#%o (entra$ pursuant t ereto s a$$ const"tute an o!!ense pun"s ab$e by "mpr"sonment o! not $ess t an !"ve (5) years but not more t an ten(1/) years. ;n case t e Rev"sed Pena$ ,ode prov"des !or a #reater pena$ty, t en t at pena$ty s a$$ be "mposed. SE% .1. Liability or )otes and %oins. M =otes and co"ns "ssued by t e 'an#%o (entra$

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

'$ o% $&&

s a$$ be $"ab"$"t"es o! t e 'an#%o (entra$ and may be "ssued on$y a#a"nst, and "n amounts not e1ceed"n#, t e assets o! t e 'an#%o (entra$. (a"d notes and co"ns s a$$ be a !"rst and paramount $"en on a$$ assets o! t e 'an#%o (entra$. T e 'an#%o (entra$Is o$d"n#s o! "ts o)n notes and co"ns s a$$ not be cons"dered as part o! "ts currency "ssue and, accord"n#$y, s a$$ not !orm part o! t e assets or $"ab"$"t"es o! t e 'an#%o (entra$. SE% .$. Le=al Tender &ower. M A$$ notes and co"ns "ssued by t e 'an#%o (entra$ s a$$ be !u$$y #uaranteed by t e 3overnment o! t e Repub$"c o! t e P "$"pp"nes and s a$$ be $e#a$ tender "n t e P "$"pp"nes !or a$$ debts, bot pub$"c and pr"vate+ Prov"ded, o)ever, T at, un$ess ot er)"se !"1ed by t e Aonetary 'oard, co"ns s a$$ be $e#a$ tender "n amounts not e1ceed"n# :"!ty pesos (P5/.//) !or denom"nat"ons o! T)enty.!"ve centavos and above, and "n amounts not e1ceed"n# T)enty pesos (P2/.//) !or denom"nat"ons o! Ten centavos or $ess. SE% .9. %haracteristics o the %urrency. M T e Aonetary 'oard, )"t t e approva$ o! t e Pres"dent o! t e P "$"pp"nes, s a$$ prescr"be t e denom"nat"ons, d"mens"ons, des"#ns, "nscr"pt"ons and ot er c aracter"st"cs o! notes "ssued by t e 'an#%o (entra$+ Prov"ded, o)ever, T at sa"d notes s a$$ state t at t ey are $"ab"$"t"es o! t e 'an#%o (entra$ and are !u$$y #uaranteed by t e 3overnment o! t e Repub$"c o! t e P "$"pp"nes. (a"d notes s a$$ bear t e s"#natures, "n !acs"m"$e, o! t e Pres"dent o! t e P "$"pp"nes and o! t e 3overnor o! t e 'an#%o (entra$. ("m"$ar$y, t e Aonetary 'oard, )"t t e approva$ o! t e Pres"dent o! t e P "$"pp"nes, s a$$ prescr"be t e )e"# t, !"neness, des"#ns, denom"nat"ons and ot er c aracter"st"cs o! t e co"ns "ssued by t e 'an#%o (entra$. ;n t e m"nt"n# o! co"ns, t e Aonetary 'oard s a$$ #"ve !u$$ cons"derat"on to t e ava"$ab"$"ty o! su"tab$e meta$s and to t e"r re$at"ve pr"ces and cost o! m"nt"n#. SE% ./. &rintin= o )otes and 4inin= o %oins. M T e Aonetary 'oard s a$$ prescr"be t e amounts o! notes and co"ns to be pr"nted and m"nted, respect"ve$y, and t e cond"t"ons to ) "c t e pr"nt"n# o! notes and t e m"nt"n# o! co"ns s a$$ be sub>ect. T e Aonetary 'oard s a$$ ave t e aut or"ty to contract "nst"tut"ons, m"nts or !"rms !or suc operat"ons. A$$ e1penses "ncurred "n t e pr"nt"n# o! notes and t e m"nt"n# o! co"ns s a$$ be !or t e account o! t e 'an#%o (entra$. SE% ... Intercon@ertibility o %urrency. M T e 'an#%o (entra$ s a$$ e1c an#e, on demand and )"t out c ar#e, P "$"pp"ne currency o! any denom"nat"on !or P "$"pp"ne notes and co"ns o! any ot er denom"nat"on re2uested. ;! !or any reason t e 'an#%o (entra$ "s temporar"$y unab$e to prov"de notes or co"ns o! t e denom"nat"ons re2uested, "t s a$$ meet "ts ob$"#at"ons by de$"ver"n# notes

and co"ns o! t e denom"nat"ons ) "c most near$y appro1"mate t ose re2uested. SE% .7. 1eplace#ent o %urrency Un it or %irculation. M T e 'an#%o (entra$ s a$$ )"t dra) !rom c"rcu$at"on and s a$$ demonet"De a$$ notes and co"ns ) "c !or any reason ) atsoever are un!"t !or c"rcu$at"on and s a$$ rep$ace t em by ade2uate notes and co"ns+ Prov"ded, o)ever, T at t e 'an#%o (entra$ s a$$ not rep$ace notes and co"ns t e "dent"!"cat"on o! ) "c "s "mposs"b$e, co"ns ) "c s o) s"#ns o! !"$"n#, c$"pp"n# or per!orat"on, and notes ) "c ave $ost more t an t)o.!"!t s (205) o! t e"r sur!ace or a$$ o! t e s"#natures "nscr"bed t ereon. =otes and co"ns "n suc mut"$ated cond"t"ons s a$$ be )"t dra)n !rom c"rcu$at"on and demonet"Ded )"t out compensat"on to t e bearer. SE% .;. 1etire#ent o 'ld )otes and %oins. M T e 'an#%o (entra$ may ca$$ "n !or rep$acement notes o! any ser"es or denom"nat"on ) "c are more t an !"ve (5) years o$d and co"ns ) "c are more t an (1/) years o$d. =otes and co"ns ca$$ed "n !or rep$acement "n accordance )"t t "s prov"s"on s a$$ rema"n $e#a$ tender !or a per"od o! one (1) year !rom t e date o! ca$$. A!ter t "s per"od, t ey s a$$ cease to be $e#a$ tender but dur"n# t e !o$$o)"n# year, or !or suc $on#er per"od as t e Aonetary 'oard may determ"ne, t ey may be e1c an#ed at par and )"t out c ar#e "n t e 'an#%o (entra$ and by a#ents du$y aut or"Ded by t e 'an#%o (entra$ !or t "s purpose. A!ter t e e1p"rat"on o! t "s $atter per"od, t e notes and co"ns ) "c ave not been e1c an#ed s a$$ cease to be a $"ab"$"ty o! t e 'an#%o (entra$ and s a$$ be demonet"Ded. T e 'an#%o (entra$ s a$$ a$so demonet"De a$$ notes and co"ns ) "c ave been ca$$ed "n and rep$aced. B. 2E4A)2 2E&'SITS SE% .8. 2e inition. M :or purposes o! t "s Act, t e term Cdemand depos"tsC means a$$ t ose $"ab"$"t"es o! t e 'an#%o (entra$ and o! ot er ban%s ) "c are denom"nated "n P "$"pp"ne currency and are sub>ect to payment "n $e#a$ tender upon demand by t e presentat"on o! c ec%s. SE% .-. Issue o 2e#and 2eposits. M <n$y ban%s du$y aut or"Ded to do so may accept !unds or create $"ab"$"t"es payab$e "n pesos upon demand by t e presentat"on o! c ec%s, and suc operat"ons s a$$ be sub>ect to t e contro$ o! t e Aonetary 'oard "n accordance )"t t e po)ers #ranted "t )"t respect t ereto under t "s Act. SE% 7>. Le=al %haracter. M , ec%s represent"n# demand depos"ts do not ave $e#a$ tender po)er and t e"r acceptance "n t e payment o! debts, bot pub$"c and pr"vate, "s at t e opt"on o! t e cred"tor+ Prov"ded, o)ever, T at a c ec% ) "c as been c$eared and cred"ted to t e account o! t e

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

'2 o% $&&

cred"tor s a$$ be e2u"va$ent to a de$"very to t e cred"tor o! cas "n an amount e2ua$ to t e amount cred"ted to "s account. SE% 71. *uidin= &rinciple. M T e Aonetary 'oard s a$$ endeavor to contro$ any e1pans"on or contract"on "n monetary a##re#ates ) "c "s pre>ud"c"a$ to t e atta"nment or ma"ntenance o! pr"ce stab"$"ty. SE% 7$. &ower to 2e ine Ter#s. M :or purposes o! t "s art"c$e and o! t "s Act, t e Aonetary 'oard s a$$ !ormu$ate de!"n"t"ons o! monetary a##re#ates, cred"t and pr"ces and s a$$ ma%e pub$"c suc de!"n"t"ons and any c an#es t ereo!. SE% 79. Action When Abnor#al 4o@e#ents 'ccur in the 4onetary A==re=ates, %redit, or &rice Le@el. M 4 enever abnorma$ movements "n t e monetary a##re#ates, "n cred"t, or "n pr"ces endan#er t e stab"$"ty o! t e P "$"pp"ne economy or "mportant sectors t ereo!, t e Aonetary 'oard s a$$+ (a) ta%e suc remed"a$ measures as are appropr"ate and )"t "n t e po)ers #ranted to t e Aonetary 'oard and t e 'an#%o (entra$ under t e prov"s"ons o! t "s Act* and (b) subm"t to t e Pres"dent o! t e P "$"pp"nes and t e ,on#ress, and ma%e pub$"c, a deta"$ed report ) "c s a$$ "nc$ude, as a m"n"mum, a descr"pt"on and ana$ys"s o!+ (1) t e causes o! t e r"se or !a$$ o! t e monetary a##re#ates, o! cred"t or o! pr"ces* (2) t e e1tent to ) "c t e c an#es "n t e monetary a##re#ates, "n cred"t, or "n pr"ces ave been re!$ected "n c an#es "n t e $eve$ o! domest"c output, emp$oyment, )a#es and econom"c act"v"ty "n #enera$, and t e nature and s"#n"!"cance o! any suc c an#es* and (3) t e measures ) "c t e Aonetary 'oard as ta%en and t e ot er monetary, !"sca$ or adm"n"strat"ve measures ) "c "t recommends to be adopted. 4 enever t e monetary a##re#ates, or t e $eve$ o! cred"t, "ncreases or decreases by more t an!"!teen percent (15V), or t e cost o! $"v"n# "nde1 "ncreases by more t an ten percent (1/V), "n re$at"on to t e $eve$ e1"st"n# at t e end o! t e correspond"n# mont o! t e preced"n# year, or even t ou# any o! t ese 2uant"tat"ve #u"de$"nes ave not been reac ed ) en "n "ts >ud#ment t e c"rcumstances so )arrant, t e Aonetary 'oard s a$$ subm"t t e reports ment"oned "n t "s (8,, and s a$$ state t ere"n ) et er, "n t e op"n"on o! t e 'oard, sa"d c an#es "n t e monetary a##re#ates, cred"t or cost o! $"v"n# represent a t reat to t e stab"$"ty o! t e P "$"pp"ne economy or o! "mportant sectors t ereo!. T e Aonetary 'oard s a$$ cont"nue to subm"t per"od"c reports to t e Pres"dent o! t e P "$"pp"nes and to ,on#ress unt"$ "t cons"ders t at t e monetary, cred"t or pr"ce d"sturbances ave d"sappeared or ave been ade2uate$y contro$$ed. SE% 7/. International 4onetary StabiliFation. M T e 'an#%o (entra$ s a$$ e1erc"se "ts po)ers under t "s Act to preserve t e "nternat"ona$ va$ue o! t e peso and to ma"nta"n "ts convert"b"$"ty "nto ot er !ree$y convert"b$e currenc"es pr"mar"$y !or, a$t ou# not

necessar"$y $"m"ted to, current payments !or !ore"#n trade and "nv"s"b$es. SE% 7.. International 1eser@es. M ;n order to ma"nta"n t e "nternat"ona$ stab"$"ty and convert"b"$"ty o! t e P "$"pp"ne peso, t e 'an#%o (entra$ s a$$ ma"nta"n "nternat"ona$ reserves ade2uate to meet any !oreseeab$e net demands on t e 'an#%o (entra$ !or !ore"#n currenc"es. ;n >ud#"n# t e ade2uacy o! t e "nternat"ona$ reserves, t e Aonetary 'oard s a$$ be #u"ded by t e prospect"ve rece"pts and payments o! !ore"#n e1c an#e by t e P "$"pp"nes. T e 'oard s a$$ #"ve spec"a$ attent"on to t e vo$ume and matur"ty o! t e 'an#%o (entra$Is o)n $"ab"$"t"es "n !ore"#n currenc"es, to t e vo$ume and matur"ty o! t e !ore"#n e1c an#e assets and $"ab"$"t"es o! ot er ban%s operat"n# "n t e P "$"pp"nes and, "nso!ar as t ey are %no)n or can be est"mated, t e vo$ume and matur"ty o! t e !ore"#n e1c an#e assets and $"ab"$"t"es o! a$$ ot er persons and ent"t"es "n t e P "$"pp"nes. SE% 77. %o#position o the International 1eser@es. M T e "nternat"ona$ reserves o! t e 'an#%o (entra$ may "nc$ude but s a$$ not be $"m"ted to t e !o$$o)"n# assets+ (a) #o$d* and (b) assets "n !ore"#n currenc"es "n t e !orm o!+ documents and "nstruments customar"$y emp$oyed !or t e "nternat"ona$ trans!er o! !unds* demand and t"me depos"ts "n centra$ ban%s, treasur"es and commerc"a$ ban%s abroad* !ore"#n #overnment secur"t"es* and !ore"#n notes and co"ns. T e Aonetary 'oard s a$$ endeavor to o$d t e !ore"#n e1c an#e resources o! t e 'an#%o (entra$ "n !ree$y convert"b$e currenc"es* moreover, t e 'oard s a$$ #"ve part"cu$ar cons"derat"on to t e prospects o! cont"nued stren#t and convert"b"$"ty o! t e currenc"es "n ) "c t e reserve "s ma"nta"ned, as )e$$ as to t e ant"c"pated demands !or suc currenc"es. T e Aonetary 'oard s a$$ "ssue re#u$at"ons determ"n"n# t e ot er 2ua$"!"cat"ons ) "c !ore"#n e1c an#e assets must meet "n order to be "nc$uded "n t e "nternat"ona$ reserves o! t e 'an#%o (entra$. T e 'an#%o (entra$ s a$$ be !ree to convert any o! t e assets "n "ts "nternat"ona$ reserves "nto ot er assets as descr"bed "n sub(8,s (a) and (b) o! t "s (8,. SE% 81. *uidin= &rinciples. M T e red"scounts, d"scounts, $oans and advances ) "c t e 'an#%o (entra$ "s aut or"Ded to e1tend to ban%"n# "nst"tut"ons under t e prov"s"ons o! t e present art"c$e o! t "s Act s a$$ be used to "n!$uence t e vo$ume o! cred"t cons"stent )"t t e ob>ect"ve o! pr"ce stab"$"ty. SE% 8$. AuthoriFed Types o 'perations. M (ub>ect to t e pr"nc"p$e stated "n t e preced"n# (8, o! t "s Act, t e 'an#%o (entra$ may norma$$y and re#u$ar$y carry on t e !o$$o)"n# cred"t operat"ons )"t ban%"n# "nst"tut"ons operat"n# "n t e P "$"pp"nes+ (a) ,ommerc"a$ cred"ts. M T e 'an#%o (entra$ may red"scount, d"scount, buy and se$$ b"$$s,

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

'' o% $&&

acceptances, prom"ssory notes and ot er cred"t "nstruments )"t matur"t"es o! not more t an one undred e"# ty (17/) days !rom t e date o! t e"r red"scount, d"scount or ac2u"s"t"on by t e 'an#%o (entra$ and resu$t"n# !rom transact"ons re$ated to+ (1) t e "mportat"on, e1portat"on, purc ase or sa$e o! read"$y sa$eab$e #oods and products, or t e"r transportat"on )"t "n t e P "$"pp"nes* or (2) t e stor"n# o! non.per"s ab$e #oods and products ) "c are du$y "nsured and depos"ted, under cond"t"ons assur"n# t e"r preservat"on, "n aut or"Ded bonded )are ouses or "n ot er p$aces approved by t e Aonetary 'oard. (b) Product"on cred"ts. M T e 'an#%o (entra$ may red"scount, d"scount, buy and se$$ b"$$s, acceptances, prom"ssory notes and ot er cred"t "nstruments av"n# matur"t"es o! not more t an t ree undred s"1ty (3@/) days !rom t e date o! t e"r red"scount, d"scount or ac2u"s"t"on by t e 'an#%o (entra$ and resu$t"n# !rom transact"ons re$ated to t e product"on or process"n# o! a#r"cu$tura$, an"ma$, m"nera$, or "ndustr"a$ products. -ocuments or "nstruments ac2u"red "n accordance )"t t "s sub(8, s a$$ be secured by a p$ed#e o! t e respect"ve crops or products+ Prov"ded, o)ever, T at t e crops or products need not be p$ed#ed to secure t e documents "! t e or"#"na$ $oan #ranted by t e 'an#%o (entra$ "s secured by a $"en or mort#a#e on rea$ estate property seventy percent (7/V) o! t e appra"sed va$ue o! ) "c e2ua$s or e1ceeds t e amount o! t e $oan #ranted. (c) <t er cred"ts. M (pec"a$ cred"t "nstruments not ot er)"se red"scountab$e under t e "mmed"ate$y preced"n# sub(8,s (a) and (b) may be e$"#"b$e !or red"scount"n# "n accordance )"t ru$es and re#u$at"ons ) "c t e 'an#%o (entra$ s a$$ prescr"be. 4 enever necessary, t e 'an#%o (entra$ s a$$ prov"de !unds !rom non. "n!$at"onary sources+ Prov"ded, o)ever, T at t e Aonetary 'oard s a$$ prescr"be add"t"ona$ sa!e#uards !or d"sburs"n# t ese !unds. (d) Advances. M T e 'an#%o (entra$ may #rant advances a#a"nst t e !o$$o)"n# %"nds o! co$$atera$s !or !"1ed per"ods ) "c , )"t t e e1cept"on o! advances a#a"nst co$$atera$ named "n c$ause (4) o! t e present sub(8,, s a$$ not e1ceed one undred e"# ty (17/) days+ (1) #o$d co"ns or bu$$"on* (2) secur"t"es represent"n# ob$"#at"ons o! t e 'an#%o (entra$ or o! ot er domest"c "nst"tut"ons o! reco#n"Ded so$vency* (3) t e cred"t "nstruments to ) "c re!erence "s made "n sub(8, (a) o! t "s (8,* (4) t e cred"t "nstruments to ) "c re!erence "s made "n sub(8, (b) o! t "s (8,, !or per"ods ) "c s a$$ not e1ceed t ree undred s"1ty (3@/) days* (5) ut"$"Ded port"ons o! advances "n current amount covered by re#u$ar overdra!t a#reements re$ated to operat"ons "nc$uded under sub(8,s (a) and (b) o! t "s

(8,, and cert"!"ed as to amount and $"2u"d"ty by t e "nst"tut"on so$"c"t"n# t e advance* (@) ne#ot"ab$e treasury b"$$s, cert"!"cates o! "ndebtedness, notes and ot er ne#ot"ab$e ob$"#at"ons o! t e 3overnment matur"n# )"t "n t ree (3) years !rom t e date o! t e advance* and (7) ne#ot"ab$e bonds "ssued by t e 3overnment o! t e P "$"pp"nes, by P "$"pp"ne prov"nc"a$, c"ty or mun"c"pa$ #overnments, or by any P "$"pp"ne 3overnment "nstrumenta$"ty, and av"n# matur"t"es o! not more t an ten (1/) years !rom t e date o! advance. T e red"scounts, d"scounts, $oans and advances made "n accordance )"t t e prov"s"ons o! t "s (8, may not be rene)ed or e1tended un$ess e1traord"nary c"rcumstances !u$$y >ust"!y suc rene)a$ or e1tens"on. Advances made a#a"nst t e co$$atera$ named "n c$auses (@) and (7) o! sub(8, (d) o! t "s (8, may not e1ceed e"# ty percent (7/V) o! t e current mar%et va$ue o! t e co$$atera$. %. S&E%IAL %1E2IT '&E1ATI') SE% 89. Loans or Li"uidity &urposes. M T e 'an#%o (entra$ may e1tend $oans and advances to ban%"n# "nst"tut"ons !or a per"od o! not more t an seven (7) days )"t out any co$$atera$ !or t e purpose o! prov"d"n# $"2u"d"ty to t e ban%"n# system "n t"mes o! need. 2. E4E1*E)%: %1E2IT '&E1ATI') SE% 8/. E#er=ency Loans and Ad@ances. M ;n per"ods o! nat"ona$ and0or $oca$ emer#ency or o! "mm"nent !"nanc"a$ pan"c ) "c d"rect$y t reaten monetary and ban%"n# stab"$"ty, t e Aonetary 'oard may, by a vote o! at $east !"ve (5) o! "ts members, aut or"De t e 'an#%o (entra$ to #rant e1traord"nary $oans or advances to ban%"n# "nst"tut"ons secured by assets as de!"ned ereunder+ Prov"ded, T at ) "$e suc $oans or advances are outstand"n#, t e debtor "nst"tut"on s a$$ not, e1cept upon pr"or aut or"Dat"on by t e Aonetary 'oard, e1pand t e tota$ vo$ume o! "ts $oans or "nvestments. T e Aonetary 'oard may, at "ts d"scret"on, $"%e)"se aut or"De t e 'an#%o (entra$ to #rant emer#ency $oans or advances to ban%"n# "nst"tut"ons, even dur"n# norma$ per"ods, !or t e purpose o! ass"st"n# a ban% "n a precar"ous !"nanc"a$ cond"t"on or under ser"ous !"nanc"a$ pressures brou# t by un!oreseen events, or events ) "c , t ou# !oreseeab$e, cou$d not be prevented by t e ban% concerned+ Prov"ded, o)ever, T at t e Aonetary 'oard as ascerta"ned t at t e ban% "s not "nso$vent and as t e assets de!"ned ereunder to secure t e advances+ Prov"ded, !urt er, T at a concurrent vote o! at $east !"ve (5) members o! t e Aonetary 'oard "s obta"ned. T e amount o! any emer#ency $oan or advance s a$$ not e1ceed t e sum o! !"!ty percent (5/V) o! tota$ depos"ts and depos"t subst"tutes o! t e ban%"n# "nst"tut"on and s a$$ be d"sbursed "n t)o (2) or

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

'& o% $&&

more tranc es. T e amount o! t e !"rst tranc e s a$$ be $"m"ted to t)enty.!"ve percent (25V) o! t e tota$ depos"t and depos"t subst"tutes o! t e "nst"tut"on and s a$$ be secured by #overnment secur"t"es to t e e1tent o! t e"r app$"cab$e $oan va$ues and ot er unencumbered !"rst c$ass co$$atera$s ) "c t e Aonetary 'oard may approve+ Prov"ded, T at "! as determ"ned by t e Aonetary 'oard, t e c"rcumstances surround"n# t e emer#ency )arrant a $oan or advance #reater t an t e amount prov"ded ere"nabove, t e amount o! t e !"rst tranc e may e1ceed t)enty.!"ve percent (25V) o! t e ban%Is tota$ depos"t and depos"t subst"tutes "! t e same "s ade2uate$y secured by app$"cab$e $oan va$ues o! #overnment secur"t"es and unencumbered !"rst c$ass co$$atera$s approved by t e Aonetary 'oard, and t e pr"nc"pa$ stoc% o$ders o! t e "nst"tut"on !urn"s an acceptab$e underta%"n# to "ndemn"!y and o$d arm$ess !rom su"t a conservator ) ose appo"ntment t e Aonetary 'oard may !"nd necessary at any t"me. Pr"or to t e re$ease o! t e !"rst tranc e, t e ban%"n# "nst"tut"on s a$$ subm"t to t e 'an#%o (entra$ a reso$ut"on o! "ts board o! d"rectors aut or"D"n# t e 'an#%o (entra$ to eva$uate ot er assets o! t e ban%"n# "nst"tut"on cert"!"ed by "ts e1terna$ aud"tor to be #ood and ava"$ab$e !or co$$atera$ purposes s ou$d t e re$ease o! t e subse2uent tranc e be t erea!ter app$"ed !or. T e Aonetary 'oard may, by a vote o! at $east !"ve (5) o! "ts members, aut or"De t e re$ease o! a subse2uent tranc e on cond"t"on t at t e pr"nc"pa$ stoc% o$ders o! t e "nst"tut"on+ (a) !urn"s an acceptab$e underta%"n# to "ndemn"!y and o$d arm$ess !rom su"t a conservator ) ose appo"ntment t e Aonetary 'oard may !"nd necessary at any t"me* and (b) prov"de acceptab$e secur"ty ) "c , "n t e >ud#ment o! t e Aonetary 'oard, )ou$d be ade2uate to supp$ement, ) ere necessary, t e assets tendered by t e ban%"n# "nst"tut"on to co$$atera$"De t e subse2uent tranc e. ;n connect"on )"t t e e1erc"se o! t ese po)ers, t e pro "b"t"ons "n (8, 127 o! t "s Act s a$$ not app$y "nso!ar as "t re!ers to acceptance as co$$atera$ o! s ares and t e"r ac2u"s"t"on as a resu$t o! !orec$osure proceed"n#s, "nc$ud"n# t e e1erc"se o! vot"n# r"# ts perta"n"n# to sa"d s ares+ Prov"ded, o)ever, T at s ou$d t e 'an#%o (entra$ ac2u"re any o! t e s ares "t as accepted as co$$atera$ as a resu$t o! !orec$osure proceed"n#s, t e 'an#%o (entra$ s a$$ d"spose o! sa"d s ares by pub$"c b"dd"n# )"t "n one (1) year !rom t e date o! conso$"dat"on o! t"t$e by t e 'an#%o (entra$. 4 enever a !"nanc"a$ "nst"tut"on "ncurs an overdra!t "n "ts account )"t t e 'an#%o (entra$, t e same s a$$ be e$"m"nated )"t "n t e per"od prescr"bed "n (8, 1/2 o! t "s Act. E. %1E2IT TE14S SE% 8.. Interest and 1ediscount. M T e 'an#%o (entra$ s a$$ co$$ect "nterest and ot er

appropr"ate c ar#es on a$$ $oans and advances "t e1tends, t e c$osure, rece"vers "p or $"2u"dat"ons o! t e debtor."nst"tut"on not)"t stand"n#. T "s prov"s"on s a$$ app$y prospect"ve$y. T e Aonetary 'oard s a$$ !"1 t e "nterest and red"scount rates to be c ar#ed by t e 'an#%o (entra$ on "ts cred"t operat"ons "n accordance )"t t e c aracter and term o! t e operat"on, but a!ter due cons"derat"on as been #"ven to t e cred"t needs o! t e mar%et, t e compos"t"on o! t e 'an#%o (entra$Is port!o$"o, and t e #enera$ re2u"rements o! t e nat"ona$ monetary po$"cy. ;nterest and red"scount rates s a$$ be app$"ed to a$$ ban%s o! t e same cate#ory un"!orm$y and )"t out d"scr"m"nat"on. SE% 87. Endorse#ent. M T e documents red"scounted, d"scounted, bou# t or accepted as co$$atera$ by t e 'an#%o (entra$ "n t e course o! t e cred"t operat"ons aut or"Ded "n t "s art"c$e s a$$ bear t e endorsement o! t e "nst"tut"on !rom ) "c t ey are rece"ved. SE% 8;. 1epay#ent o %redits. M -ocuments red"scounted, d"scounted or accepted as co$$atera$ by t e 'an#%o (entra$ must be )"t dra)n by t e borro)"n# "nst"tut"on on t e dates o! t e"r matur"t"es, or upon $"2u"dat"on o! t e ob$"#at"ons ) "c t ey represent or to ) "c t ey re$ate ) enever sa"d ob$"#at"ons ave been $"2u"dated pr"or to t e"r dates o! matur"ty. 'an%s s a$$ ave t e r"# t at any t"me to )"t dra) any documents ) "c t ey ave presented to t e 'an#%o (entra$ as co$$atera$, upon payment "n !u$$ o! t e correspond"n# debt to t e 'an#%o (entra$, "nc$ud"n# "nterest c ar#es. SE% 88. 'ther re"uire#ents. M T e Aonetary 'oard may prescr"be, )"t "n t e #enera$ po)ers #ranted to "t under t "s Act, add"t"ona$ cond"t"ons ) "c borro)"n# "nst"tut"ons must sat"s!y "n order to ave access to t e cred"t o! t e 'an#%o (entra$. T ese cond"t"ons may re!er to t e rates o! "nterest c ar#ed by t e ban%s, to t e purposes !or ) "c t e"r $oans "n #enera$ are dest"ned, and to any ot er c$ear$y de!"nab$e aspect o! t e cred"t po$"cy o! t e ban%. SE% 8-. &ro@isional Ad@ances to the )ational *o@ern#ent. M T e 'an#%o (entra$ may ma%e d"rect prov"s"ona$ advances )"t or )"t out "nterest to t e =at"ona$ 3overnment to !"nance e1pend"tures aut or"Ded "n "ts annua$ appropr"at"on+ Prov"ded, T at sa"d advances s a$$ be repa"d be!ore t e end o! t ree (3) mont s e1tend"b$e by anot er t ree (3) mont s as t e Aonetary 'oard may a$$o) !o$$o)"n# t e date t e =at"ona$ 3overnment rece"ved suc prov"s"ona$ advances and s a$$ not, "n t e"r a##re#ate, e1ceed t)enty percent (2/V) o! t e avera#e annua$ "ncome o! t e borro)er !or t e $ast t ree (3) preced"n# !"sca$ years. SE% -/. 1eser@e 1e"uire#ents. M ;n order to contro$ t e vo$ume o! money created by

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

'( o% $&&

t e cred"t operat"ons o! t e ban%"n# system, a$$ ban%s operat"n# "n t e P "$"pp"nes s a$$ be re2u"red to ma"nta"n reserves a#a"nst t e"r depos"t $"ab"$"t"es+ Prov"ded, T at t e Aonetary 'oard may, at "ts d"scret"on, a$so re2u"re a$$ ban%s and0or 2uas".ban%s to ma"nta"n reserves a#a"nst !unds e$d "n trust and $"ab"$"t"es !or depos"t subst"tutes as de!"ned "n t "s Act. T e re2u"red reserves o! eac ban% s a$$ be proport"ona$ to t e vo$ume o! "ts depos"t $"ab"$"t"es and s a$$ ord"nar"$y ta%e t e !orm o! a depos"t "n t e 'an#%o (entra$. Reserve re2u"rements s a$$ be app$"ed to a$$ ban%s o! t e same cate#ory un"!orm$y and )"t out d"scr"m"nat"on. Reserves a#a"nst depos"t subst"tutes, "! "mposed, s a$$ be determ"ned "n t e same manner as prov"ded !or reserve re2u"rements a#a"nst re#u$ar ban% depos"ts, )"t respect to t e "mpos"t"on, "ncrease, and computat"on o! reserves. T e Aonetary 'oard may e1empt !rom reserve re2u"rements depos"ts and depos"t subst"tutes )"t rema"n"n# matur"t"es o! t)o (2) years or more, as )e$$ as "nterban% borro)"n#s. ("nce t e re2u"rement to ma"nta"n ban% reserves "s "mposed pr"mar"$y to contro$ t e vo$ume o! money, t e 'an#%o (entra$ s a$$ not pay "nterest on t e reserves ma"nta"ned )"t "t un$ess t e Aonetary 'oard dec"des ot er)"se as )arranted by c"rcumstances. SE% 1>$. Interban? Settle#ent. M T e 'an#%o (entra$ s a$$ estab$"s !ac"$"t"es !or "nterban% c$ear"n# under suc ru$es and re#u$at"ons as t e Aonetary 'oard may prescr"be+ Prov"ded, T at t e 'an#%o (entra$ may c ar#e adm"n"strat"ve and ot er !ees !or t e ma"ntenance o! suc !ac"$"t"es. T e depos"t reserves ma"nta"ned by t e ban%s "n t e 'an#%o (entra$ "n accordance )"t t e prov"s"ons o! (8, 94 o! t "s Act s a$$ serve as bas"s !or t e c$ear"n# o! c ec%s and t e sett$ement o! "nterban% ba$ances, sub>ect to suc ru$es and re#u$at"ons as t e Aonetary 'oard may "ssue )"t respect to suc operat"ons+ Prov"ded, T at any ban% ) "c "ncurs on overdra)"n# "n "ts depos"t account )"t t e 'an#%o (entra$ s a$$ !u$$y cover sa"d overdra!t, "nc$ud"n# "nterest t ereon at a rate e2u"va$ent to onetent o! one percent (101/ o! 1V) per day or t e preva"$"n# n"nety.one. day treasury b"$$ rate p$us t ree percenta#e po"nts, ) "c ever "s "# er, not $ater t an t e ne1t c$ear"n# day+ Prov"ded, !urt er, T at sett$ement o! c$ear"n# ba$ances s a$$ not be e!!ected !or any account ) "c cont"nues to be overdra)n !or !"ve (5) consecut"ve ban%"n# days unt"$ suc t"me as t e overdra)"n# "s !u$$y covered or ot er)"se converted "nto an emer#ency $oan or advance pursuant to t e prov"s"ons o! (8, 74 o! t "s Act+ Prov"ded, !"na$$y, T at t e appropr"ate c$ear"n# o!!"ce s a$$ be o!!"c"a$$y not"!"ed o! ban%s )"t overdra)n ba$ances. 'an%s )"t e1"st"n# overdra!ts )"t t e 'an#%o (entra$ as o! t e e!!ect"v"ty o! t "s Act s a$$, )"t "n suc per"od as may be prescr"bed by t e Aonetary 'oard, e"t er convert t e overdra!t "nto an

emer#ency $oan or advance )"t a p$an o! payment, or sett$e suc overdra!ts, and t at, upon !a"$ure to so comp$y ere)"t , t e 'an#%o (entra$ s a$$ ta%e suc act"on a#a"nst t e ban% as may be )arranted under t "s Act. SE% 1>9. E!e#ption ro# Attach#ent and 'ther &urposes. M -epos"ts ma"nta"ned by ban%s )"t t e 'an#%o (entra$ as part o! t e"r reserve re2u"rements s a$$ be e1empt !rom attac ment, #arn"s ments, or any ot er order or process o! any court, #overnment a#ency or any ot er adm"n"strat"ve body "ssued to sat"s!y t e c$a"m o! a party ot er t an t e 3overnment, or "ts po$"t"ca$ subd"v"s"ons or "nstrumenta$"t"es. SE% 11>. 2esi=nation o Ban=?o Sentral as Ban?er o the *o@ern#ent. M T e 'an#%o (entra$ s a$$ act as a ban%er o! t e 3overnment, "ts po$"t"ca$ subd"v"s"ons and "nstrumenta$"t"es. SE% 111. 1epresentation with the International 4onetary 6und. M T e 'an#%o (entra$ s a$$ represent t e 3overnment "n a$$ dea$"n#s, ne#ot"at"ons and transact"ons )"t t e ;nternat"ona$ Aonetary :und and s a$$ carry suc accounts as may resu$t !rom P "$"pp"ne members "p "n, or operat"ons )"t , sa"d :und. SE% 11$. 1epresentation with 'ther 6inancial Institutions. M T e 'an#%o (entra$ may be aut or"Ded by t e 3overnment to represent "t "n dea$"n#s, ne#ot"at"ons or transact"ons )"t t e ;nternat"ona$ 'an% !or Reconstruct"on and -eve$opment and )"t ot er !ore"#n or "nternat"ona$ !"nanc"a$ "nst"tut"ons or a#enc"es. T e Pres"dent may, o)ever, des"#nate any o! "s ot er !"nanc"a$ adv"sors to >o"nt$y represent t e 3overnment "n suc dea$"n#s, ne#ot"at"ons or transact"ons. SE% 119. ' icial 2eposits. M T e 'an#%o (entra$ s a$$ be t e o!!"c"a$ depos"tory o! t e 3overnment, "ts po$"t"ca$ subd"v"s"ons and "nstrumenta$"t"es as )e$$ as o! #overnment.o)ned or contro$$ed corporat"ons and, as a #enera$ po$"cy, t e"r cas ba$ances s ou$d be depos"ted )"t t e 'an#%o (entra$, )"t on$y m"n"mum )or%"n# ba$ances to be e$d by #overnment.o)ned ban%s and suc ot er ban%s "ncorporated "n t e P "$"pp"nes as t e Aonetary 'oard may des"#nate, sub>ect to suc ru$es and re#u$at"ons as t e 'oard may prescr"be+ Prov"ded, T at suc ban%s may o$d depos"ts o! t e po$"t"ca$ subd"v"s"ons and "nstrumenta$"t"es o! t e 3overnment beyond t e"r m"n"mum )or%"n# ba$ances ) enever suc subd"v"s"ons or "nstrumenta$"t"es ave outstand"n# $oans )"t sa"d ban%s. T e 'an#%o (entra$ may pay "nterest on depos"ts o! t e 3overnment or o! "ts po$"t"ca$ subd"v"s"ons and "nstrumenta$"t"es, as )e$$ as on depos"ts o! ban%s )"t t e 'an#%o (entra$. SE% 11/. 6iscal 'perations. M T e 'an#%o (entra$ s a$$ open a #enera$ cas account

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

') o% $&&

!or t e Treasurer o! t e P "$"pp"nes, "n ) "c t e $"2u"d !unds o! t e 3overnment s a$$ be depos"ted. Trans!ers o! !unds !rom t "s account to ot er accounts s a$$ be made on$y upon order o! t e Treasurer o! t e P "$"pp"nes. SE% 11.. 'ther Ban?s as A=ents o the Ban=?o Sentral. M ;n t e per!ormance o! "ts !unct"ons as !"sca$ a#ent, t e 'an#%o (entra$ may en#a#e t e serv"ces o! ot er #overnment.o)ned and contro$$ed ban%s and o! ot er domest"c ban%s !or operat"ons "n $oca$"t"es at ome or abroad "n ) "c t e 'an#%o (entra$ does not ave o!!"ces or a#enc"es ade2uate$y e2u"pped to per!orm sa"d operat"ons+ Prov"ded, o)ever, T at !or !"sca$ operat"ons "n !ore"#n countr"es, t e 'an#%o (entra$ may en#a#e t e serv"ces o! !ore"#n ban%"n# and !"nanc"a$ "nst"tut"ons. SE% 117. 1e#uneration or Ser@ices. M T e 'an#%o (entra$ may c ar#e e2u"tab$e rates, comm"ss"ons or !ees !or serv"ces ) "c "t renders to t e 3overnment, "ts po$"t"ca$ subd"v"s"ons and "nstrumenta$"t"es.

redempt"on o! t e pub$"c debt s a$$ a$so be e!!ected t rou# t e 'an#%o (entra$. B. BA)*K' SE)T1AL SU&&'1T '6 T3E *'(E1)4E)T SE%U1ITIES 4A1KET SE% 1$>. The Securities StabiliFation 6und. M T ere s a$$ be estab$"s ed a C(ecur"t"es (tab"$"Dat"on :undC ) "c s a$$ be adm"n"stered by t e 'an#%o (entra$ !or t e account o! t e 3overnment. T e operat"ons o! t e (ecur"t"es (tab"$"Dat"on :und s a$$ cons"st o! purc ases and sa$es, "n t e open mar%et, o! bonds and ot er ev"dences o! "ndebtedness "ssued or !u$$y #uaranteed by t e 3overnment. T e purpose o! t ese operat"ons s a$$ be to "ncrease t e $"2u"d"ty and stab"$"De t e va$ue o! sa"d secur"t"es "n order t ereby to promote "nvestment "n #overnment ob$"#at"ons. T e Aonetary 'oard s a$$ use t e resources o! t e :und to prevent, or moderate, s arp !$uctuat"ons "n t e 2uotat"ons o! sa"d #overnment ob$"#at"ons, but s a$$ not endeavor to a$ter movements o! t e mar%et resu$t"n# !rom bas"c c an#es "n t e pattern or $eve$ o! "nterest rates. T e Aonetary 'oard s a$$ "ssue suc re#u$at"ons as may be necessary to "mp$ement t e prov"s"ons o! t "s (8,. SE% 1$1. 1esources o the Securities StabiliFation 6und. M (ub>ect to (8, 132 o! t "s Act, t e resources o! t e (ecur"t"es (tab"$"Dat"on :und s a$$ come !rom t e ba$ance o! t e !und as e$d by t e ,entra$ 'an% under Repub$"c Act =o. 2@5 as o! t e e!!ect"ve date o! t "s Act. SE% 1$$. &ro its and Losses o the 6und. M T e (ecur"t"es (tab"$"Dat"on :und s a$$ reta"n net pro!"ts ) "c "t may ma%e on "ts operat"ons, re#ard$ess o! ) et er sa"d pro!"ts ar"se !rom cap"ta$ #a"ns or !rom "nterest earn"n#s. T e :und s a$$ correspond"n#$y bear any net $osses ) "c "t may "ncur. A1TI%LE III. 6U)%TI')S AS 6I)A)%IAL A2(IS'1 '6 T3E *'(E1)4E)T SE% 1$9. 6inancial Ad@ice on ' icial %redit 'perations. M 'e!ore underta%"n# any cred"t operat"on abroad, t e 3overnment, t rou# t e (ecretary o! :"nance, s a$$ re2uest t e op"n"on, "n )r"t"n#, o! t e Aonetary 'oard on t e monetary "mp$"cat"ons o! t e contemp$ated act"on. (uc op"n"ons must s"m"$ar$y be re2uested by a$$ po$"t"ca$ subd"v"s"ons and "nstrumenta$"t"es o! t e 3overnment be!ore any cred"t operat"on abroad "s underta%en by t em. T e op"n"on o! t e Aonetary 'oard s a$$ be based on t e #o$d and !ore"#n e1c an#e resources and ob$"#at"ons o! t e nat"on and on t e e!!ects o! t e proposed operat"on on t e ba$ance o! payments and on monetary a##re#ates. 4 enever t e 3overnment, or any o! "ts po$"t"ca$ subd"v"s"ons or "nstrumenta$"t"es, contemp$ates borro)"n# )"t "n t e P "$"pp"nes, t e pr"or op"n"on o! t e Aonetary 'oard s a$$ $"%e)"se be re2uested "n

A1TI%LE II. T3E 4A1KETI)* A)2 STABILI+ATI') '6 SE%U1ITIES 6'1 T3E A%%'U)T '6 T3E *'(E1)4E)T A. T3E ISSUE A)2 &LA%I)* '6 *'(E1)4E)T SE%U1ITIES SE% 11;. Issue o *o@ern#ent 'bli=ations. M T e "ssue o! secur"t"es represent"n# ob$"#at"ons o! t e 3overnment, "ts po$"t"ca$ subd"v"s"ons or "nstrumenta$"t"es, may be made t rou# t e 'an#%o (entra$, ) "c may act as a#ent o!, and !or t e account o!, t e 3overnment or "ts respect"ve subd"v"s"ons or "nstrumenta$"ty, as t e case may be+ Prov"ded, o)ever, T at t e 'an#%o (entra$ s a$$ not #uarantee t e p$acement o! sa"d secur"t"es, and s a$$ not subscr"be to t e"r "ssue e1cept to rep$ace "ts matur"n# o$d"n#s o! secur"t"es )"t t e same type as t e matur"n# secur"t"es. SE% 118. 4ethods o &lacin= *o@ern#ent Securities. M T e 'an#%o (entra$ may p$ace t e secur"t"es to ) "c t e preced"n# (8, re!ers t rou# d"rect sa$e to !"nanc"a$ "nst"tut"ons and t e pub$"c. T e 'an#%o (entra$ s a$$ not be a member o! any stoc% e1c an#e or synd"cate, but may "ntervene t ere"n !or t e so$e purpose o! re#u$at"n# t e"r operat"ons "n t e p$ac"n# o! #overnment secur"t"es. T e 3overnment, or "ts po$"t"ca$ subd"v"s"ons or "nstrumenta$"t"es, s a$$ re"mburse t e 'an#%o (entra$ !or t e e1penses "ncurred "n t e p$ac"n# o! t e a!oresa"d secur"t"es. SE% 11-. Ser@icin= and 1ede#ption o the &ublic 2ebt. M T e serv"c"n# and

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

'* o% $&&

order t at t e 'oard may render an op"n"on on t e probab$e e!!ects o! t e proposed operat"on on monetary a##re#ates, t e pr"ce $eve$, and t e ba$ance o! payments. SE% 1$/. 1epresentation on the )ational Econo#ic and 2e@elop#ent Authority. M ;n order to assure e!!ect"ve coord"nat"on bet)een t e econom"c, !"nanc"a$ and !"sca$ po$"c"es o! t e 3overnment and t e monetary, cred"t and e1c an#e po$"c"es o! t e 'an#%o (entra$, t e -eputy 3overnor des"#nated by t e 3overnor o! t e 'an#%o (entra$ s a$$ be an e1 o!!"c"o member o! t e =at"ona$ 8conom"c and -eve$opment Aut or"ty 'oard. Exclusive issue power SE% .>. E!clusi@e Issue &ower. M T e 'an#%o (entra$ s a$$ ave t e so$e po)er and aut or"ty to "ssue currency, )"t "n t e terr"tory o! t e P "$"pp"nes. =o ot er person or ent"ty, pub$"c or pr"vate, may put "nto c"rcu$at"on notes, co"ns or any ot er ob>ect or document ) "c , "n t e op"n"on o! t e Aonetary 'oard, m"# t c"rcu$ate as currency, nor reproduce or "m"tate t e !acs"m"$es o! 'an#%o (entra$ notes )"t out pr"or aut or"ty !rom t e 'an#%o (entra$. T e Aonetary 'oard may "ssue suc re#u$at"ons as "t may deem adv"sab$e "n order to prevent t e c"rcu$at"on o! !ore"#n currency or o! currency subst"tutes as )e$$ as to prevent t e reproduct"on o! !acs"m"$es o! 'an#%o (entra$ notes. T e 'an#%o (entra$ s a$$ ave t e aut or"ty to "nvest"#ate, ma%e arrests, conduct searc es and se"Dures "n accordance )"t $a), !or t e purpose o! ma"nta"n"n# t e "nte#r"ty o! t e currency. 9"o$at"on o! t "s prov"s"on or any re#u$at"on "ssued by t e 'an#%o (entra$ pursuant t ereto s a$$ const"tute an o!!ense pun"s ab$e by "mpr"sonment o! not $ess t an !"ve (5) years but not more t an ten (1/) years. ;n case t e Rev"sed Pena$ ,ode prov"des !or a #reater pena$ty, t en t at pena$ty s a$$ be "mposed. )iabilit* or notes and coins SE% .1. Liability or )otes and %oins. M =otes and co"ns "ssued by t e 'an#%o (entra$ s a$$ be $"ab"$"t"es o! t e 'an#%o (entra$ and may be "ssued on$y a#a"nst, and "n amounts not e1ceed"n#, t e assets o! t e 'an#%o (entra$. (a"d notes and co"ns s a$$ be a !"rst and paramount $"en on a$$ assets o! t e 'an#%o (entra$. T e 'an#%o (entra$Is o$d"n#s o! "ts o)n notes and co"ns s a$$ not be cons"dered as part o! "ts currency "ssue and, accord"n#$y, s a$$ not !orm part o! t e assets or $"ab"$"t"es o! t e 'an#%o (entra$. )egal Tender (ower

SE% .9. %haracteristics o the %urrency. M T e Aonetary 'oard, )"t t e approva$ o! t e Pres"dent o! t e P "$"pp"nes, s a$$ prescr"be t e denom"nat"ons, d"mens"ons, des"#ns, "nscr"pt"ons and ot er c aracter"st"cs o! notes "ssued by t e 'an#%o (entra$+ Prov"ded, o)ever, T at sa"d notes s a$$ state t at t ey are $"ab"$"t"es o! t e 'an#%o (entra$ and are !u$$y #uaranteed by t e 3overnment o! t e Repub$"c o! t e P "$"pp"nes. (a"d notes s a$$ bear t e s"#natures, "n !acs"m"$e, o! t e Pres"dent o! t e P "$"pp"nes and o! t e 3overnor o! t e 'an#%o (entra$. ("m"$ar$y, t e Aonetary 'oard, )"t t e approva$ o! t e Pres"dent o! t e P "$"pp"nes, s a$$ prescr"be t e )e"# t, !"neness, des"#ns, denom"nat"ons and ot er c aracter"st"cs o! t e co"ns "ssued by t e 'an#%o (entra$. ;n t e m"nt"n# o! co"ns, t e Aonetary 'oard s a$$ #"ve !u$$ cons"derat"on to t e ava"$ab"$"ty o! su"tab$e meta$s and to t e"r re$at"ve pr"ces and cost o! m"nt"n#.

'nstruments o action #etting o ban& reserve re+uirements SE% -/. 1eser@e 1e"uire#ents. M ;n order to contro$ t e vo$ume o! money created by t e cred"t operat"ons o! t e ban%"n# system, a$$ ban%s operat"n# "n t e P "$"pp"nes s a$$ be re2u"red to ma"nta"n reserves a#a"nst t e"r depos"t $"ab"$"t"es+ Prov"ded, T at t e Aonetary 'oard may, at "ts d"scret"on, a$so re2u"re a$$ ban%s and0or 2uas".ban%s to ma"nta"n reserves a#a"nst !unds e$d "n trust and $"ab"$"t"es !or depos"t subst"tutes as de!"ned "n t "s Act. T e re2u"red reserves o! eac ban% s a$$ be proport"ona$ to t e vo$ume o! "ts depos"t $"ab"$"t"es and s a$$ ord"nar"$y ta%e t e !orm o! a depos"t "n t e 'an#%o (entra$. Reserve re2u"rements s a$$ be app$"ed to a$$ ban%s o! t e same cate#ory un"!orm$y and )"t out d"scr"m"nat"on. Reserves a#a"nst depos"t subst"tutes, "! "mposed, s a$$ be determ"ned "n t e same manner as prov"ded !or reserve re2u"rements a#a"nst re#u$ar ban% depos"ts, )"t respect to t e "mpos"t"on, "ncrease, and computat"on o! reserves. T e Aonetary 'oard may e1empt !rom reserve re2u"rements depos"ts and depos"t subst"tutes )"t rema"n"n# matur"t"es o! t)o (2) years or more, as )e$$ as "nterban% borro)"n#s. ("nce t e re2u"rement to ma"nta"n ban% reserves "s "mposed pr"mar"$y to contro$ t e vo$ume o! money, t e 'an#%o (entra$ s a$$ not pay "nterest on t e reserves ma"nta"ned )"t "t un$ess t e Aonetary 'oard dec"des ot er)"se as )arranted by c"rcumstances.

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

'+ o% $&&

SE% -.. 2e inition o 2eposit Substitutes. M T e term Cdepos"t subst"tutesC "s de!"ned as an a$ternat"ve !orm o! obta"n"n# !unds !rom t e pub$"c, ot er t an depos"ts, t rou# t e "ssuance, endorsement, or acceptance o! debt "nstruments !or t e borro)erIs o)n account, !or t e purpose o! re$end"n# or purc as"n# o! rece"vab$es and ot er ob$"#at"ons. T ese "nstruments may "nc$ude, but need not be $"m"ted to, ban%ers acceptances, prom"ssory notes, part"c"pat"ons, cert"!"cates o! ass"#nment and s"m"$ar "nstruments )"t recourse, and repurc ase a#reements. T e Aonetary 'oard s a$$ determ"ne ) at spec"!"c "nstruments s a$$ be cons"dered as depos"t subst"tutes !or t e purposes o! (8, 94 o! t "s Act+ Prov"ded, o)ever, T at depos"t subst"tutes o! commerc"a$, "ndustr"a$ and ot er non.!"nanc"a$ compan"es !or t e $"m"ted purpose o! !"nanc"n# t e"r o)n needs or t e needs o! t e"r a#ents or dea$ers s a$$ not be covered by t e prov"s"ons o! (8, 94 o! t "s Act. SE% -7. 1e"uired 1eser@es A=ainst &eso 2eposits. M T e Aonetary 'oard may !"1 and, ) en "t deems necessary, a$ter t e m"n"mum reserve rat"os to peso depos"ts, as )e$$ as to depos"t subst"tutes, ) "c eac ban% and0or 2uas".ban% may ma"nta"n, and suc rat"o s a$$ be app$"ed un"!orm$y to a$$ ban%s o! t e same cate#ory as )e$$ as to 2uas".ban%s. SE% -;. 1e"uired 1eser@es A=ainst 6orei=n %urrency 2eposits. M T e Aonetary 'oard "s s"m"$ar$y aut or"Ded to prescr"be and mod"!y t e m"n"mum reserve rat"os app$"cab$e to depos"ts denom"nated "n !ore"#n currenc"es. SE% -8. 1eser@es A=ainst Unused Balances o '@erdra t Lines. M ;n order to !ac"$"tate 'an#%o (entra$ contro$ over t e vo$ume o! ban% cred"t, t e Aonetary 'oard may estab$"s m"n"mum reserve re2u"rements !or unused ba$ances o! overdra!t $"nes. T e po)ers o! t e Aonetary 'oard to prescr"be and mod"!y reserve re2u"rements a#a"nst unused ba$ances o! overdra!t $"nes s a$$ be t e same as "ts po)ers )"t respect to reserve re2u"rements a#a"nst demand depos"ts. SE% --. Increase in 1eser@e 1e"uire#ents. M 4 enever "n t e op"n"on o! t e Aonetary 'oard "t becomes necessary to "ncrease reserve re2u"rements a#a"nst e1"st"n# $"ab"$"t"es, t e "ncrease s a$$ be made "n a #radua$ manner and s a$$ not e1ceed !our percenta#e po"nts "n any t "rtyday per"od. 'an%s and ot er a!!ected !"nanc"a$ "nst"tut"ons s a$$ be not"!"ed reasonab$y "n advance o! t e date on ) "c suc "ncrease "s to become e!!ect"ve. SE% 1>>. %o#putation on 1eser@es. M T e reserve pos"t"on o! eac ban% or 2uas"ban% s a$$ be ca$cu$ated da"$y on t e bas"s o! t e amount, at t e c$ose o! bus"ness !or t e day, o! t e "nst"tut"onIs reserves and t e amount o! "ts $"ab"$"ty accounts a#a"nst ) "c reserves are re2u"red to be ma"nta"ned+ Prov"ded, T at )"t re!erence to o$"days or non. ban%"n# days, t e reserve pos"t"on as

ca$cu$ated at t e c$ose o! t e bus"ness day "mmed"ate$y preced"n# suc o$"days and non.ban%"n# days s a$$ app$y on suc days. :or t e purpose o! comput"n# t e reserve pos"t"on o! eac ban% or 2uas".ban%, "ts pr"nc"pa$ o!!"ce "n t e P "$"pp"nes and a$$ "ts branc es and a#enc"es $ocated t ere"n s a$$ be cons"dered as a s"n#$e un"t. SE% 1>1. 1eser@e 2e iciencies. M 4 enever t e reserve pos"t"on o! any ban% or 2uas"ban%, computed "n t e manner spec"!"ed "n t e preced"n# (8, o! t "s Act, "s be$o) t e re2u"red m"n"mum, t e ban% or 2uas".ban% s a$$ pay t e 'an#%o (entra$ one.tent o! one percent (101/ o! 1V) per day on t e amount o! t e de!"c"ency or t e preva"$"n# n"nety. one.day treasury b"$$ rate p$us t ree percenta#e po"nts, ) "c ever "s "# er+ Prov"ded, o)ever, T at ban%s and 2uas".ban%s s a$$ ord"nar"$y be perm"tted to o!!set any reserve de!"c"ency occurr"n# on one or more days o! t e )ee% )"t any e1cess reserves ) "c t ey may o$d on ot er days o! t e same )ee% and s a$$ be re2u"red to pay t e pena$ty on$y on t e avera#e da"$y de!"c"ency dur"n# t e )ee%. ;n cases o! abuse, t e Aonetary 'oard may deny any ban% or 2uas".ban% t e pr"v"$e#e o! o!!sett"n# reserve de!"c"enc"es "n t e a!oresa"d manner. ;! a ban% or 2uas".ban% c ron"ca$$y as a reserve de!"c"ency, t e Aonetary 'oard may $"m"t or pro "b"t t e ma%"n# o! ne) $oans or "nvestments by t e "nst"tut"on and may re2u"re t at part or a$$ o! t e net pro!"ts o! t e "nst"tut"on be ass"#ned to surp$us. T e Aonetary 'oard may mod"!y or set as"de t e reserve de!"c"ency pena$t"es prov"ded "n t "s (8,, !or part or t e ent"re per"od o! a str"%e or $oc%out a!!ect"n# a ban% or a 2uas".ban% as de!"ned "n t e 5abor ,ode, or o! a nat"ona$ emer#ency a!!ect"n# operat"ons o! ban%s or 2uas".ban%s. T e Aonetary 'oard may a$so mod"!y or set as"de reserved de!"c"ency pena$t"es !or re ab"$"tat"on pro#ram o! a ban%. SE% 1>$. Interban? Settle#ent. M T e 'an#%o (entra$ s a$$ estab$"s !ac"$"t"es !or "nterban% c$ear"n# under suc ru$es and re#u$at"ons as t e Aonetary 'oard may prescr"be+ Prov"ded, T at t e 'an#%o (entra$ may c ar#e adm"n"strat"ve and ot er !ees !or t e ma"ntenance o! suc !ac"$"t"es. T e depos"t reserves ma"nta"ned by t e ban%s "n t e 'an#%o (entra$ "n accordance )"t t e prov"s"ons o! (8, 94 o! t "s Act s a$$ serve as bas"s !or t e c$ear"n# o! c ec%s and t e sett$ement o! "nterban% ba$ances, sub>ect to suc ru$es and re#u$at"ons as t e Aonetary 'oard may "ssue )"t respect to suc operat"ons+ Prov"ded, T at any ban% ) "c "ncurs on overdra)"n# "n "ts depos"t account )"t t e 'an#%o (entra$ s a$$ !u$$y cover sa"d overdra!t, "nc$ud"n# "nterest t ereon at a rate e2u"va$ent to onetent

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

'9 o% $&&

o! one percent (101/ o! 1V) per day or t e preva"$"n# n"nety.one. day treasury b"$$ rate p$us t ree percenta#e po"nts, ) "c ever "s "# er, not $ater t an t e ne1t c$ear"n# day+ Prov"ded, !urt er, T at sett$ement o! c$ear"n# ba$ances s a$$ not be e!!ected !or any account ) "c cont"nues to be overdra)n !or !"ve (5) consecut"ve ban%"n# days unt"$ suc t"me as t e overdra)"n# "s !u$$y covered or ot er)"se converted "nto an emer#ency $oan or advance pursuant to t e prov"s"ons o! (8, 74 o! t "s Act+ Prov"ded, !"na$$y, T at t e appropr"ate c$ear"n# o!!"ce s a$$ be o!!"c"a$$y not"!"ed o! ban%s )"t overdra)n ba$ances. 'an%s )"t e1"st"n# overdra!ts )"t t e 'an#%o (entra$ as o! t e e!!ect"v"ty o! t "s Act s a$$, )"t "n suc per"od as may be prescr"bed by t e Aonetary 'oard, e"t er convert t e overdra!t "nto an emer#ency $oan or advance )"t a p$an o! payment, or sett$e suc overdra!ts, and t at, upon !a"$ure to so comp$y ere)"t , t e 'an#%o (entra$ s a$$ ta%e suc act"on a#a"nst t e ban% as may be )arranted under t "s Act. SE% 1>9. E!e#ption ro# Attach#ent and 'ther &urposes. M -epos"ts ma"nta"ned by ban%s )"t t e 'an#%o (entra$ as part o! t e"r reserve re2u"rements s a$$ be e1empt !rom attac ment, #arn"s ments, or any ot er order or process o! any court, #overnment a#ency or any ot er adm"n"strat"ve body "ssued to sat"s!y t e c$a"m o! a party ot er t an t e 3overnment, or "ts po$"t"ca$ subd"v"s"ons or "nstrumenta$"t"es. ,ontro$ o! ban% cred"t SE% 1>/. *uidin= &rinciple. M T e Aonetary 'oard s a$$ use t e po)ers #ranted to "t under t "s Act to ensure t at t e supp$y, ava"$ab"$"ty and cost o! money are "n accord )"t t e needs o! t e P "$"pp"ne economy and t at ban% cred"t "s not #ranted !or specu$at"ve purposes pre>ud"c"a$ to t e nat"ona$ "nterests. Re#u$at"ons on ban% operat"ons s a$$ be app$"ed to a$$ ban%s o! t e same cate#ory un"!orm$y and )"t out d"scr"m"nat"on. SE% 1>.. 4ar=in 1e"uire#ents A=ainst Letters o %redit. M T e Aonetary 'oard may at any t"me prescr"be m"n"mum cas mar#"ns !or t e open"n# o! $etters o! cred"t, and may re$ate t e s"De o! t e re2u"red mar#"n to t e nature o! t e transact"on to be !"nanced. SE% 1>7. 1e"uired Security A=ainst Ban? Loans. M ;n order to promote $"2u"d"ty and so$vency o! t e ban%"n# system, t e Aonetary 'oard may "ssue suc re#u$at"ons as "t may deem necessary )"t respect to t e ma1"mum perm"ss"b$e matur"t"es o! t e $oans and "nvestments ) "c t e ban%s may ma%e, and t e %"nd and amount o! secur"ty to be re2u"red a#a"nst t e var"ous types o! cred"t operat"ons o! t e ban%s. SE% 1>;. &ort olio %eilin=s. M 4 enever t e Aonetary 'oard cons"ders "t adv"sab$e to

prevent or c ec% an e1pans"on o! ban% cred"t, t e 'oard may p$ace an upper $"m"t on t e amount o! $oans and "nvestments ) "c t e ban%s may o$d, or may p$ace a $"m"t on t e rate o! "ncrease o! suc assets )"t "n spec"!"ed per"ods o! t"me. T e Aonetary 'oard may app$y suc $"m"ts to t e $oans and "nvestments o! eac ban% or to spec"!"c cate#or"es t ereo!. ;n no case s a$$ t e Aonetary 'oard estab$"s $"m"ts ) "c are be$o) t e va$ue o! t e $oans or "nvestments o! t e ban%s on t e date on ) "c t ey are not"!"ed o! suc restr"ct"ons. T e restr"ct"ons s a$$ be app$"ed to a$$ ban%s un"!orm$y and )"t out d"scr"m"nat"on. SE% 1>8. 4ini#u# %apital 1atios. M T e Aonetary 'oard may prescr"be m"n"mum rat"os ) "c t e cap"ta$ and surp$us o! t e ban%s must bear to t e vo$ume o! t e"r assets, or to spec"!"c cate#or"es t ereo!, and may a$ter sa"d rat"os ) enever "t deems necessary. SE% 9;. Loans and 'ther %redit Acco##odations A=ainst 1eal Estate. M 81cept as t e Aonetary 'oard may ot er)"se prescr"be, $oans and ot er cred"t accommodat"ons a#a"nst rea$ estate s a$$ not e1ceed seventy.!"ve percent (75V) o! t e appra"sed va$ue o! t e respect"ve rea$ estate secur"ty, p$us s"1ty percent (@/V) o! t e appra"sed va$ue o! t e "nsured "mprovements, and suc $oans may be made to t e o)ner o! t e rea$ estate or to "s ass"#nees. (77a) SE% 98. Loans and 'ther %redit Acco##odations on Security o %hattels and Intan=ible &roperties. M 81cept as t e Aonetary 'oard may ot er)"se prescr"be, $oans and ot er cred"t accommodat"ons on secur"ty o! c atte$s and "ntan#"b$e propert"es, suc as, but not $"m"ted to, patents, trademar%s, trade names, and copyr"# ts s a$$ not e1ceed seventy.!"ve percent (75V) o! t e appra"sed va$ue o! t e secur"ty, and suc $oans and ot er cred"t accommodat"ons may be made to t e t"t$e. o$der o! t e c atte$s and "ntan#"b$e propert"es or "s ass"#nees. (77a) SE% /9. Authority to &rescribe Ter#s and %onditions o Loans and 'ther %redit Acco##odations. M T e Aonetary 'oard may, s"m"$ar$y, "n accordance )"t t e aut or"ty #ranted to "t "n (8, 1/@ o! t e =e) ,entra$ 'an% Act, and ta%"n# "nto account t e re2u"rements o! t e economy !or t e e!!ect"ve ut"$"Dat"on o! $on#.term !unds, prescr"be t e matur"t"es, as )e$$ as re$ated terms and cond"t"ons !or var"ous types o! ban% $oans and ot er cred"t accommodat"ons. Any c an#e by t e 'oard "n t e ma1"mum matur"t"es s a$$ app$y on$y to $oans and ot er cred"t accommodat"ons made a!ter t e date o! suc act"on. T e Aonetary 'oard s a$$ re#u$ate t e "nterest "mposed on m"cro!"nance borro)ers by $end"n# "nvestors and s"m"$ar $enders, suc as, but not $"m"ted to, t e unconsc"onab$e rates o! "nterest co$$ected on sa$ary $oans and s"m"$ar cred"t accommodat"ons. (77a) %oral 'n luence

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

&0 o% $&&

SE% 78. 4eans o Action. M ;n order to ac "eve t e pr"mary ob>ect"ve o! pr"ce stab"$"ty, t e Aonetary 'oard s a$$ re$y on "ts mora$ "n!$uence and t e po)ers #ranted to "t under t "s Act !or t e mana#ement o! monetary a##re#ates. $AS#S3 ,o ,eed "or (rior -earing

1U1AL BA)K '6 BU3I @s. %A 3.R. =o. 5.@1@79 2/ 6une 1977 6actsA 'u " "s a rura$ ban% t at started "ts operat"ons on$y on 2@ -ec 1975 ;n 197/, an e1am"nat"on o! t e boo%s and a!!a"rs o! 'u " )as ordered conducted by t e Rura$ 'an%s and (av"n#s and 5oan Assoc"at"on (-R'(5A), ,entra$ 'an% o! t e P "$"pp"nes ) "c by $a), as c ar#e o! t e superv"s"on and e1am"nat"on o! rura$ ban%s and sav"n#s and $oan assoc"at"ons "n t e P "$"pp"nes 'u " re!used :"nanc"a$ ass"stance )as suspended -R'(5A (t rou# <dra) conducted a #enera$ e1am"nat"on o! 'u "&s a!!a"rs and operat"ons ;t !ound , amon# ot ers, mass"ve "rre#u$ar"t"es "n "ts operat"ons cons"st"n# o! $oans to un%no)n and !"ct"t"ous borro)ers T e money due "n !avor o! ,entra$ 'an% amounted to a$most P3A Prom"ssory notes ev"denc"n# t ese $oans )ere red"scounted by ,' !or cas 'u " became "nso$vent and pre>ud"ced "ts depos"tors and cred"tors <dra recommended t e p$ac"n# o! 'u " under rece"vers "p T e Aonetary 'oard p$aced 'u " under under rece"vers "p )"t <dra as t e rece"ver <dra aut or"Ded deput"ed to ta%e contro$, possess"on and c ar#e o! 'u " Rosar"o, mana#er o! 'u ", !"$ed a pet"t"on !or "n>unct"on a#a"nst <dra and t e deput"es ( e "s assa"$"n# t e act"on o! <dra "n recommend"n# rece"vers "p as a#a"nst t e Rura$ 'an%s Act and done )"t #ada$e> ,' Aonetary 'oard ordered t e $"2u"dat"on o! 'u " <(3 !"$ed a pet"t"on !or Ass"stance "n t e 5"2u"dat"on o! 'u " ,' !"$ed AT- on t e comp$a"nt subm"tted by Rosar"o Rece"vers "p "s no) moot and academ"c s"nce t e ban% "s a$ready "n $"2u"dat"on 6ud#e den"ed AT- and "ssued a TR< en>o"n"n# ,' !rom !urt er mana#"n# and adm"n"ster"n# 'u " and to de$"ver t e possess"on and contro$ t ereo! to 'u " under t e same cond"t"ons and )"t t e same !"nanc"a$ status as ) en t e same )as ta%en over, upon !"$"n# o! bond 'ond )as !"$ed, 6ud#e "ssued )r"t o! e1ecut"on )as made d"rect"n# t e s er"!! to "mp$ement court&s order ( er"!! )ent to t e prem"ses o! 'u " but t e vau$t )as $oc%ed and no "nventory )as made 'u " !"$ed pet"t"ons to+ :orce open ban% vau$t ($ater) order mana#er o! ,"ty Trust to a$$o) 'u " to )"t dra) rura$ ban% depos"ts <rder mana#er o! Aetroban% to re$ease depos"ts o! 'u " A$$ #ranted by court ()o) accommodat"n# courtL) ,', <dra et a$ !"$ed a pet"t"on !or cert"orar" and pro "b"t"on )"t ,A

,A "ssued a reso$ut"on restra"n"n# 6ud#e !rom en!orc"n# "s order 'u " d"d not comp$y )"t order o! ,A and !"$e AR. AR den"ed ,' et a$ !"$ed a mot"on )"t ,A to c"te 'u " "n contempt ,A #ave s o) cause order to 'u " and d"rected A"n"stry o! =at"ona$ -e!ense to cause t e return o! t e possess"on and mana#ement o! 'u " to ,' and <dra 'u " !"$ed ob>ect"on to bot A$$e#"n# t at t e propert"es )ere a$ready "n t e possess"on o! 'u " ) o "s t e $a)!u$ o)ner and t e return cou$d no $on#er be done ,A rendered "ts dec"s"on sett"n# as"de t e order o! $o)er court and d"sm"ss"n# t e pet"t"on o! 'u ". AR den"ed 'u " a#reed and prom"sed "n open court to restore and return to ,' t e possess"on and contro$ o! t e ban% )"t "n 3 days A!ter 3 days, mana#er o! t e ban% adamant$y re!used to surrender t e prem"ses Aana#er p$aced under arrest s"nce s e st"$$ re!used to obey t e ,A 'u " !"$ed pet"t"on !or rev"e) on cert"orar" )"t pre$"m"nary "n>unct"onana#er a$so !"$ed a pet"t"on !or t e "ssuance o! )r"t o! abeas corpus Aana#er re$eased IssueA 4<= Aonetary 'oard may p$ace 'u " under rece"vers "p )"t out pr"or not"ce 3eldA Pes 1atioA Re$evant prov"s"on+ (8, 29, Repub$"c Act =o. 2@5
(8,. 29. (roceedings upon insolvenc* . 4 enever, upon e1am"nat"on by t e ead o! t e appropr"ate superv"s"n# and e1am"n"n# department or "s e1am"ners or a#ents "nto t e cond"t"on o! any ban%"n# "nst"tut"on, "t s a$$ be d"sc$osed t at t e cond"t"on o! t e same "s one o! "nso$vency, or t at "ts cont"nuance "n bus"ness )ou$d "nvo$ve probab$e $oss to "ts depos"tors or cred"tors, "t s a$$ be t e duty o! t e department ead concerned !ort )"t , "n )r"t"n#, to "n!orm t e Aonetary 'oard o! t e !acts, and t e 'oard may, upon !"nd"n# t e statements o! t e department ead to be true, !orb"d t e "nst"tut"on to do bus"ness "n t e P "$"pp"nes and s a$$ des"#nate an o!!"c"a$ o! t e ,entra$ 'an%, or a person o! reco#n"Ded competence "n ban%"n#, as rece"ver to "mmed"ate$y ta%e c ar#e o! "ts assets and $"ab"$"t"es, as e1ped"t"ous$y as poss"b$e co$$ect and #at er a$$ t e assets and adm"n"ster t e same !or t e bene!"t o! "ts cred"tors, e1erc"s"n# a$$ t e po)ers necessary !or t ese purposes "nc$ud"n#, but not $"m"ted to, br"n#"n# su"ts and !orec$os"n# mort#a#es "n t e name o! t e ban%"n# "nst"tut"on. T e Aonetary 'oard s a$$ t ereupon determ"ne )"t "n s"1ty days ) et er t e "nst"tut"on may be reco#n"Ded or ot er)"se p$aced "n suc a cond"t"on so t at "t may be perm"tted to resume bus"ness )"t sa!ety to "ts depos"tors and cred"tors and t e #enera$ pub$"c and s a$$ prescr"be t e cond"t"ons under ) "c suc redempt"on o! bus"ness s a$$ ta%e p$ace as t e t"me !or !u$!"$$ment o! suc cond"t"ons. ;n suc case, t e e1penses and !ees "n t e co$$ect"on and adm"n"strat"on o! t e assets o! t e "nst"tut"on s a$$ be determ"ned by t e 'oard and s a$$ be pa"d to t e ,entra$ 'an% out o! t e assets o! suc ban%"n# "nst"tut"on. ;! t e Aonetary 'oard s a$$ determ"ne and con!"rm )"t "n t e sa"d per"od t at t e ban%"n# "nst"tut"on "s "nso$vent or cannot resume bus"ness )"t sa!ety to "ts depos"tors, cred"tors and t e #enera$ pub$"c, "t s a$$, "! t e pub$"c "nterest re2u"res, order "ts $"2u"dat"on, "nd"cate t e manner o! "ts $"2u"dat"on and approve a $"2u"dat"on p$an. T e ,entra$ 'an% s a$$, by t e (o$"c"tor 3enera$, !"$e a pet"t"on "n t e ,ourt o! :"rst ;nstance rec"t"n# t e proceed"n#s ) "c ave been ta%en and pray"n# t e ass"stance o! t e court "n t e $"2u"dat"on o! t e ban%"n# "nst"tut"on. T e ,ourt s a$$ ave >ur"sd"ct"on "n t e same proceed"n#s to ad>ud"cate d"sputed c$a"ms a#a"nst t e ban% and en!orce "nd"v"dua$ $"ab"$"t"es o! t e stoc% o$ders and do a$$ t at "s necessary to preserve t e assets o! t e ban%"n# "nst"tut"on and to "mp$ement t e $"2u"dat"on p$an approved by t e Aonetary 'oard. T e Aonetary 'oard s a$$ des"#nate an o!!"c"a$ o! t e ,entra$ 'an% or a person o! reco#n"Ded competence "n ban%"n#, as $"2u"dator ) o s a$$ ta%e over t e !unct"ons o! t e rece"ver prev"ous$y appo"nted by t e Aonetary 'oard under t "s (8,. T e $"2u"dator s a$$, )"t a$$ conven"ent speed, convert t e assets o! t e ban%"n# "nst"tut"on to money or se$$, ass"#n or ot er)"se d"spose o! t e same to cred"tors and ot er part"es !or t e purpose o! pay"n# t e debts o! suc ban% and e may, "n t e name o! t e ban%"n# "nst"tut"on, "nst"tute suc act"ons as may be necessary "n t e appropr"ate court to co$$ect and recover accounts and assets o! t e ban%"n# "nst"tut"on. T e prov"s"ons o! any $a) to t e contrary not)"t stand"n# t e act"ons o! t e Aonetary 'oard under t "s (8, and t e second para#rap o! (8, 34 o! t "s Act s a$$ be !"na$ and e1ecutory, and can be set as"de by t e court on$y "! t ere "s conv"nc"n# proo! t at t e act"on "s p$a"n$y arb"trary and made "n bad !a"t . =o restra"n"n# order or "n>unct"on s a$$ be "ssued by t e court en>o"n"n# t e ,entra$ 'an% !rom "mp$ement"n# "ts act"ons under t "s (8, and t e second para#rap o! (8, 34 o! t "s Act, un$ess t ere "s conv"nc"n# proo! t at t e act"on o! t e Aonetary 'oard "s p$a"n$y arb"trary and made "n bad !a"t and t e pet"t"oner or p$a"nt"!! !"$es )"t t e c$er% or >ud#e o! t e court "n ) "c t e act"on "s pend"n# a bond e1ecuted "n !avor o! t e ,entra$ 'an%, "n an amount to be !"1ed by t e court. T e restra"n"n# order or "n>unct"on s a$$ be re!used or, "! #ranted, s a$$ be d"sso$ved upon !"$"n# by t e ,entra$ 'an% o! a bond, ) "c s a$$ be "n t e !orm o! cas or ,entra$ 'an% cas "erIs c ec%, "n an amount t)"ce t e amount o! t e bond o! t e pet"t"oner, or p$a"nt"!! cond"t"oned t at "t )"$$ pay t e dama#es ) "c t e pet"t"oner or p$a"nt"!! may su!!er by t e re!usa$ or t e d"sso$ut"on o! t e "n>unct"on. T e prov"s"ons o! Ru$e 57 o! t e =e) Ru$es o! ,ourt "nso!ar as t ey are app$"cab$e and not "ncons"stent )"t t e prov"s"ons o! t "s (8, s a$$ #overn t e "ssuance and d"sso$ut"on o! t e restra"n"n# order or "n>unct"on contemp$ated "n t "s (8,.

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

&$ o% $&&

;nso$vency, under t "s Act, s a$$ be understood to mean t e "nab"$"ty o! a ban%"n# "nst"tut"on to pay "ts $"ab"$"t"es as t ey !a$$ due "n t e usua$ and ord"nary course o! bus"ness+ Prov"ded, o)ever, t at t "s s a$$ not "nc$ude t e "nab"$"ty to pay o! an ot er)"se non."nso$vent ban% caused by e1traord"nary demands "nduced by !"nanc"a$ pan"c common$y ev"denced by a run on t e ban%s "n t e ban%"n# commun"ty. T e appo"ntment o! a conservator under (8, 27.A o! t "s Act or t e appo"ntment o! rece"ver under t "s (8, s a$$ be vested e1c$us"ve$y )"t t e Aonetary 'oard, t e prov"s"on o! any $a), #enera$ or spec"a$, to t e contrary not)"t stand"n#.

<n$y one #round to set as"de+ conv"nc"n# proo! t at t e act"on "s p$a"n$y arb"trary and done )"t bad !a"t

,ature . )i+uidation (roceedings

T ere "s no re2u"rement ) et er e1press or "mp$"ed, t at a ear"n# be !"rst conducted be!ore a ban%"n# "nst"tut"on may be p$aced under rece"vers "p. ,ond"t"ons prere2u"s"te to t e act"on o! t e Aonetary 'oard to !orb"d t e "nst"tut"on to do bus"ness "n t e P "$"pp"nes and to appo"nt a rece"ver to "mmed"ate$y ta%e c ar#e o! t e ban%Is assets and $"ab"$"t"es. An e1am"nat"on made by t e e1am"n"n# department o! t e ,entra$ 'an%* Report by sa"d department to t e Aonetary 'oard* and (rima acie s o)"n# t at t e ban% "s "n a cond"t"on o! "nso$vency or so s"tuated t at "ts cont"nuance "n bus"ness )ou$d "nvo$ve probab$e $oss to "ts depos"tors or cred"tors. 4 enever "t s a$$ appear pr"ma !ac"e t at a ban%"n# "nst"tut"on "s "n Ca cond"t"on o! "nso$vencyC or so s"tuated Ct at "ts cont"nuance "n bus"ness )ou$d "nvo$ved probab$e $oss to "ts depos"tors or cred"tors,C t e Aonetary 'oard as aut or"ty+ To !orb"d t e "nst"tut"on to do bus"ness and appo"nt a rece"ver t ere!or* and To determ"ne, )"t "n @/ days, ) et er or not+ T e "nst"tut"on may be reor#an"Ded and re ab"$"tated to suc an e1tent as to be perm"tted to resume bus"ness )"t sa!ety to depos"tors, cred"tors and t e #enera$ pub$"c* or ;t "s "ndeed "nso$vent or cannot resume bus"ness )"t sa!ety to depos"tors, cred"tors and t e #enera$ pub$"c, and pub$"c "nterest re2u"res t at "t be $"2u"dated. ;! t e ban% can no $on#er resume bus"ness )"t sa!ety to depos"tors, cred"tors and t e pub$"c, etc., "ts $"2u"dat"on )"$$ be ordered and a $"2u"dator appo"nted by t e Aonetary 'oard. T e ,entra$ 'an% s a$$ t erea!ter !"$e a pet"t"on "n t e Re#"ona$ Tr"a$ ,ourt pray"n# !or t e ,ourtIs ass"stance "n t e $"2u"dat"on o! t e ban%. 'u " ar#ues t at t ere "s a$so t at const"tut"ona$ #uarantee t at no property s a$$ be ta%en )"t out due process o! $a) T e content"on "s )"t out mer"t. ;t as $on# been estab$"s ed and reco#n"Ded "n t "s >ur"sd"ct"on t at t e c$osure and $"2u"dat"on o! a ban% may be cons"dered as an e1erc"se o! po$"ce po)er. 81erc"se may, o)ever, be sub>ect to >ud"c"a$ "n2u"ry and cou$d be set as"de "! !ound to be capr"c"ous, d"scr"m"natory, ) "ms"ca$, arb"trary, un>ust or a den"a$ o! t e due process and e2ua$ protect"on c$auses o! t e ,onst"tut"on ,ourts may "nter!ere )"t t e ,entra$ 'an%Is e1erc"se o! d"scret"on "n determ"n"n# ) et er or not a d"stressed ban% s a$$ be supported or $"2u"dated. A ear"n# or an opportun"ty to be eard may be subse+uent to t e c$osure. <ne can >ust "ma#"ne t e d"re conse2uences o! a pr"or ear"n#+ ban% runs )ou$d be t e order o! t e day, resu$t"n# "n pan"c and yster"a. ;n t e process, !ortunes may be )"ped out, and d"s"$$us"onment )"$$ run t e #amut o! t e ent"re ban%"n# commun"ty. ,ourts may appo"nt rece"vers )"t out pr"or presentat"on o! ev"dence and so$e$y on t e bas"s o! t e averments o! t e p$ead"n#s. Ru$e 59 o! t e Rev"sed Ru$es o! ,ourt a$$o)s t e appo"ntment o! a rece"ver upon an e1 parte app$"cat"on. -ec"s"ons o! ,' re#ard"n# rece"vers "p, etc are !"na$ and e1ecutory

&A%I6I% BA)KI)* %'1&'1ATI') '1*A)I+ATI'), et al @s. %A 3.R. =o. 1/9373 2/ Aarc 1995

E4&L':EES

3eldA -"st"nct"on 'et)een an <rd"nary Act"on and a (pec"a$ Proceed"n#+ ;t )as necessary "n t "s case to c$ass"!y ) at )as !"$ed.. ) et er "t )as an ord"nary act"on or a spec"a$ proceed"n#Mbecause t e t)o ave d"!!erent per"ods !or appea$. Act"on "s t e act by ) "c one sues anot er "n a court o! >ust"ce !or t e en!orcement or protect"on o! a r"# t, or t e prevent"on or redress o! t e )ron#* ) "$e spec"a$ proceed"n# "s t e act by ) "c one see%s to estab$"s t e status or r"# t o! a party, or a part"cu$ar !act. A pet"t"on !or $"2u"dat"on o! an "nso$vent corporat"on "s a spec"a$ proceed"n#. ;t does not see% t e en!orcement or protect"on o! a r"# t nor t e prevent"on or redress o! a )ron# a#a"nst a party. ;t does not pray !or a!!"rmat"ve re$"e! !or an "n>ury ar"s"n# !rom a party&s )ron#!u$ act or om"ss"on nor state a cause o! act"on t at can be en!orced a#a"nst any person. T e pet"t"on on$y see%s a dec$arat"on o! t e corporat"on&s state o! "nso$vency and t e concom"tant r"# t o! cred"tors and t e order o! payment o! t e"r c$a"ms "n t e d"spos"t"on o! t e corpo&s assets. -"!!erent !rom an ;nterp$eader An ;nterp$eader "nvo$ves c$a"ms on a sub>ect matter a#a"nst a person ) o as no "nterest t ere"n. =ot t e case "n $"2u"dat"on proceed"n#s ) ere t e 5"2u"dator, as representat"ve o! t e corporat"on, ta%es c ar#e o! "ts assets and $"ab"$"t"es !or t e bene!"t o! t e cred"tors. Appea$ As "n sett$ement o! t e estate o! t e deceased, mu$t"p$e appea$s are a$$o)ed. T e severa$ c$a"ms o! t e cred"tors are separate ones and a dec"s"on or !"na$ order )"t respect to any c$a"m can be appea$ed. ;n spec"a$ proceed"n#s, un$"%e "n ord"nary act"ons, a record on appea$ must be !"$ed "n order !or t e appea$ to be per!ected. T "s "s because t e or"#"na$ record o! t e case must rema"n "n t e tr"a$ court ) ere ot er c$a"ms may st"$$ be pend"n# ;n t "s case o! corporate $"2u"dat"on, t ere )as !a"$ure to !"$e record on appea$. Bence, "t be"n# a spec"a$ proceed"n#, t e appea$ )as not per!ected. AUT3'1IT: '6 %')SE1(AT'1 T' 1E('KE %')T1A%TS 6I1ST &3ILI&&I)E I)TE1)ATI')AL BA)K @s. %A 3.R. =o. 115749 24 6anuary 199@ 6actsA T e de!endant Producer 'an% o! t e P "$"pp"nes ac2u"red s"1 parce$s o! $and )"t a tota$ area o! 1/1 ectares $ocated at -on 6ose, (ta. Rose, 5a#una. T e or"#"na$ p$a"nt"!!s, -emetr"o -emetr"a

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

&2 o% $&&

and 6ose <. 6ano$o, )anted to purc ase t e property and t us "n"t"ated ne#ot"at"ons !or t at purpose. ;n t e ear$y part o! Au#ust 1977 sa"d p$a"nt"!!s, upon t e su##est"on o! 'PA8 (prev"ous o)ner o! $ands ) o mort#a#ed "t to Producer 'an%) "nvestmentIs $e#a$ counse$, 6ose :a>ardo, met )"t de!endant Aercur"o R"vera, Aana#er o! t e Property Aana#ement -epartment o! t e de!endant ban%. A!ter t e meet"n#, p$a"nt"!! 6ano$o, !o$$o)"n# t e adv"ce o! de!endant R"vera, made a !orma$ purc ase o!!er to t e ban% t rou# a $etter. R"vera rep$"ed and made a counter o!!er o! P 5.5 A. 6ano$o amended "s o!!er to 4.25/ A. T ere )as no rep$y to 6ano$oIs $ast o!!er. 4 at too% p$ace )as a meet"n# on (eptember 27, 1977 bet)een t e p$a"nt"!!s and 5u"s ,o, t e (en"or 9"ce.Pres"dent o! de!endant ban%. R"vera as )e$$ as :a>ardo, t e 'PA8 $a)yer, attended t e meet"n#. 6ano$o )rote a#a"n say"n# t at t ey are accept"n# t e 5.5 o!!er. <n <ctober 12, 1977, t e conservator o! t e ban% () "c as been p$aced under conservators "p by t e ,entra$ 'an% s"nce 1974) )as rep$aced by an Act"n# ,onservator "n t e person o! de!endant 5eon"da T. 8ncarnac"on. R"vera )rote bac% to say t e proposa$ "s under cons"derat"on. 4 at t erea!ter transp"red )as a ser"es o! demands by t e p$a"nt"!!s !or comp$"ance by t e ban% )"t ) at p$a"nt"!! cons"dered as a per!ected contract o! sa$e, ) "c demands )ere "n one !orm or anot er re!used by t e ban%. As deta"$ed by t e tr"a$ court "n "ts dec"s"on, on =ovember 17, 1977, p$a"nt"!!s t rou# a $etter to de!endant R"vera (81 "b"t C3C) tendered payment o! t e amount o! P5.5 m"$$"on Cpursuant to (our) per!ected sa$e a#reement.C -e!endants re!used to rece"ve bot t e payment and t e $etter. P$a"nt"!!s demanded t e e1ecut"on by t e ban% o! t e documents on ) at )as cons"dered as a Cper!ected a#reement.C Bo)ever, no response came !rom t e Act"n# ,onservator. <n -ecember 14, 1977, 6ano$o and -emetr"a made a second tender o! payment t "s t"me t rou# t e Act"n# ,onservator, de!endant 8ncarnac"on. T e $etter conta"ned c ec%s and an ac%no)$ed#ment o! t e rece"pt o! payment. T e !ore#o"n# $etter dre) no response !or more t an !our mont s. T en, on Aay 3, 1977, p$a"nt"!!, t rou# counse$, made a !"na$ demand !or comp$"ance by t e ban% )"t "ts ob$"#at"ons under t e cons"dered per!ected contract o! sa$e. -e!endants t rou# Act"n# ,onservator 8ncarnac"on repud"ated t e aut or"ty o! de!endant R"vera and c$a"med t at "s dea$"n#s )"t t e p$a"nt"!!s, part"cu$ar$y "s counter.o!!er o! P5.5 A"$$"on are unaut or"Ded or "$$e#a$. P$a"nt"!!s !"$ed a su"t !or spec"!"c per!ormance )"t dama#es a#a"nst t e ban%, "ts Aana#er R"vers and Act"n# ,onservator 8ncarnac"on. ;n t e course o! t e proceed"n#s "n t e respondent ,ourt, ,ar$os 8>erc"to )as subst"tuted "n p$ace o! -emetr"a and 6ano$o, "n v"e) o! t e ass"#nment o! t e $attersI r"# ts. Issue1A 4<= t e ,ontract Per!ected 3eldA Pes 1atioA T ere "s no d"spute t at t e ob>ect o! t e transact"on "s t at property o)ned by t e de!endant ban% as ac2u"red assets cons"st"n# o! s"1 (@) parce$s o! $and. ;t "s $"%e)"se beyond cav"$ t at t e ban% "ntended to se$$ t e property. T e procedure "n t e sa$e o! ac2u"red assets as )e$$ as t e nature and scope o! t e aut or"ty o! R"vera on t e matter "s c$ear$y de$"neated "n t e test"mony o! R"vera "mse$!. T e p$a"nt"!!s, t ere!ore, at t at meet"n# o! Au#ust 1977 re#ard"n# t e"r purpose o! buy"n# t e property, dea$t )"t and ta$%ed to t e r"# t person. =ecessar"$y, "t be"n# "n erent "n "s aut or"ty, R"vera "s t e o!!"cer !rom ) om o!!"c"a$ "n!ormat"on re#ard"n# t e pr"ce, as determ"ned by t e ,omm"ttee and approved by t e ,onservator,

can be ad. And R"vera con!"rmed "s aut or"ty ) en e ta$%ed )"t t e p$a"nt"!! "n Au#ust 1977. 4 at transp"red a!ter t e meet"n# o! ear$y Au#ust 1977 are cons"stent )"t t e aut or"ty and t e dut"es o! R"vera and t e ban%Is "nterna$ procedure "n t e matter o! t e sa$e o! ban%Is assets. ,ons"der"n# an aspect o! t e o!!"c"a$ duty o! R"vera as some sort o! "ntermed"ary bet)een t e p$a"nt"!!s.buyers )"t t e"r proposed buy"n# pr"ce on one and, and t e ban% ,omm"ttee, t e ,onservator and u$t"mate$y t e ban% "tse$! )"t t e set pr"ce on t e ot er, and cons"der"n# !urt er t e d"scuss"on o! pr"ce at t e meet"n# o! Au#ust resu$t"n# "n a !orma$ o!!er o! P3.5 A"$$"on "n cas , t ere can be no ot er $o#"ca$ conc$us"on t an t at ) en, on (eptember 1, 1977, R"vera "n!ormed p$a"nt"!!s by $etter t at Ct e ban%Is counter.o!!er "s at P5.5 A"$$"on !or more t an 1/1 ectares on $ot bas"s,C suc counter.o!!er pr"ce ad been determ"ned by t e Past -ue ,omm"ttee and approved by t e ,onservator a!ter R"vera ad du$y presented p$a"nt"!!sI o!!er !or d"scuss"on by t e ,omm"ttee o! suc matters as or"#"na$ $oan o! borro)er, b"d pr"ce dur"n# !orec$osure, tota$ c$a"m o! t e ban%, and mar%et va$ue. Art"c$e 1317 o! t e ,"v"$ ,ode enumerates t e re2u"s"tes o! a va$"d and per!ected contract as !o$$o)s+ C(1) ,onsent o! t e contract"n# part"es* (2) <b>ect certa"n ) "c "s t e sub>ect matter o! t e contract* (3) ,ause o! t e ob$"#at"on ) "c "s estab$"s ed.C T ere "s no d"spute on re2u"s"te no. 2. T ere "s, o)ever, a d"spute on t e !"rst and t "rd re2u"s"tes. Pet"t"oners a$$e#e t at Ct ere "s no counter.o!!er made by t e 'an%, and any supposed counter.o!!er ) "c R"vera (or ,o) may ave made "s unaut or"Ded. ("nce t ere )as no counter.o!!er by t e 'an%, t ere )as not "n# !or 8>erc"to ("n subst"tut"on o! -emetr"a and 6ano$o) to accept.C :rom t e ev"dence !ound by respondent ,ourt, "t "s obv"ous t at pet"t"oner R"vera as apparent or "mp$"ed aut or"ty to act !or t e 'an% "n t e matter o! se$$"n# "ts ac2u"red assets. (ev"dence+ $etters, meet"n#s, etc) ;n t e very recent case o! 5"m%et%a" (ons A"$$"n#, ;nc. vs. ,ourt o! Appea$s, et. a$. 32, t e ,ourt, t rou# 6ust"ce 6ose A. R. Ae$o, a!!"rmed t e doctr"ne o! apparent aut or"ty as "t e$d t at t e apparent aut or"ty o! t e o!!"cer o! t e 'an% o! P.;. "n c ar#e o! ac2u"red assets "s borne out by s"m"$ar c"rcumstances surround"n# "s dea$"n#s )"t buyers. To be sure, pet"t"oners attempted to repud"ate R"veraIs apparent aut or"ty t rou# documents and test"mony ) "c see% to estab$"s R"veraIs actua$ aut or"ty. T ese p"eces o! ev"dence, o)ever, are "n erent$y )ea% as t ey cons"st o! R"veraIs se$!. serv"n# test"mony and var"ous "nter.o!!"ce memoranda t at purport to s o) "s $"m"ted actua$ aut or"ty, o! ) "c pr"vate respondent cannot be c ar#ed )"t %no)$ed#e. ;n any event, s"nce t e "ssue "s apparent aut or"ty, t e e1"stence o! ) "c "s borne out by t e respondent ,ourtIs !"nd"n#s, t e ev"dence o! actua$ aut or"ty "s "mmater"a$ "nso!ar as t e $"ab"$"ty o! a corporat"on "s concerned Pet"t"oners a$so a$$e#ed t at -emetr"aIs and 6ano$oIs P4.25 m"$$"on counter.o!!er "n t e $etter dated (eptember 17, 1977 e1t"n#u"s ed t e 'an%Is o!!er o! P5.5 m"$$"on 34 .T ey d"sputed t e respondent ,ourtIs !"nd"n# t at Ct ere )as a meet"n# o! m"nds ) en on 3/ (eptember 1977 -emetr"a and 6ano$o t rou# Anne1 C5C ($etter dated (eptember 3/, 1977) CacceptedC R"veraIs counter o!!er o! P5.5 m"$$"on under Anne1 C6C ($etter dated (eptember 17, 1977).H Bo)ever, t e above.c"ted aut or"t"es and precedents cannot app$y "n t e "nstant case because, as !ound by t e respondent ,ourt ) "c rev"e)ed t e test"mon"es on t "s po"nt, ) at )as CacceptedC by 6ano$o "n "s $etter dated (eptember 3/, 1977 )as t e 'an%Is o!!er o! P5.5 m"$$"on as con!"rmed and re"terated to -emetr"a and Atty. 6ose :a>ardo by R"vera and ,o dur"n# t e"r meet"n# on (eptember 27, 1977. =ote t at t e sa"d $etter o! (eptember 3/,

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

&' o% $&&

1977 be#"ns )"t C(p)ursuant to our d"scuss"on $ast 27 (eptember 1977 . . . 4e note t at t e 'an%Is repud"at"on, t rou# ,onservator 8ncarnac"on, o! R"veraIs aut or"ty and act"on, part"cu$ar$y t e $atterIs counter.o!!er o! P5.5 m"$$"on, as be"n# Cunaut or"Ded and "$$e#a$C came on$y on Aay 12, 1977 or more t an seven (7) mont s a!ter 6ano$oI acceptance. (uc de$ay, and t e absence o! any c"rcumstance ) "c m"# t ave >ust"!"ab$y prevented t e 'an% !rom act"n# ear$"er, c$ear$y c aracter"Des t e repud"at"on as not "n# more t an a $ast.m"nute attempt on t e 'an%Is part to #et out o! a b"nd"n# contractua$ ob$"#at"on. Issue$A ;s t e ,ontract 8n!orceab$eW 3eldA Pes 1atioA T e ban%Is $etter o! (eptember 1, 1977 (to#et er )"t t e ot er $etters "nc$ud"n# 6ano$o&s !"rst o!!er) on t e o!!"c"a$ pr"ce and t e p$a"nt"!!sI acceptance o! t e pr"ce on (eptember 3/, 1977, are not, "n t emse$ves, !orma$ contracts o! sa$e. T ey are o)ever c$ear embod"ments o! t e !act t at a contract o! sa$e )as per!ected bet)een t e part"es, suc contract be"n# b"nd"n# "n ) atever !orm "t may ave been entered "nto (case c"tat"ons om"tted). 'ut $et "t be assumed ar#uendo t at t e counter.o!!er dur"n# t e meet"n# on (eptember 27, 1977 d"d const"tute a Cne)C o!!er ) "c )as accepted by 6ano$o on (eptember 3/, 1977. (t"$$, t e statute o! !rauds )"$$ not app$y by reason o! t e !a"$ure o! pet"t"oners to ob>ect to ora$ test"mony prov"n# pet"t"oner 'an%Is counter.o!!er o! P5.5 m"$$"on. Bence, pet"t"oners by suc utter !a"$ure to ob>ect are deemed to ave )a"ved any de!ects o! t e contract under t e statute o! !rauds, pursuant to Art"c$e 14/5 o! t e ,"v"$ ,ode. Issue9A Aay t e ,onservator Revo%e t e Per!ected and 8n!orceab$e ,ontractW 3eldA =o 1atioA ;t "s not d"sputed t at t e pet"t"oner 'an% )as under a conservator p$aced by t e ,entra$ 'an% o! t e P "$"pp"nes dur"n# t e t"me t at t e ne#ot"at"on and per!ect"on o! t e contract o! sa$e too% p$ace. Pet"t"oners ener#et"ca$$y contended t at t e conservator as t e po)er to revo%e or overru$e act"ons o! t e mana#ement or t e board o! d"rectors o! a ban%, under (8, 27.A o! Repub$"c Act =o. 2@5 (ot er)"se %no)n as t e ,entra$ 'an% Act) as !o$$o)s+ 4 enever, on t e bas"s o! a report subm"tted by t e appropr"ate superv"s"n# or e1am"n"n# department, t e Aonetary 'oard !"nds t at a ban% or a non.ban% !"nanc"a$ "ntermed"ary per!orm"n# 2uas". ban%"n# !unct"ons "s "n a state o! cont"nu"n# "nab"$"ty or un)"$$"n#ness to ma"nta"n a state o! $"2u"d"ty deemed ade2uate to protect t e "nterest o! depos"tors and cred"tors, t e Aonetary 'oard may appo"nt a conservator to ta%e c ar#e o! t e assets, $"ab"$"t"es, and t e mana#ement o! t at "nst"tut"on, co$$ect a$$ mon"es and debts due sa"d "nst"tut"on and e1erc"se a$$ po)ers necessary to preserve t e assets o! t e "nst"tut"on, reor#an"De t e mana#ement t ereo!, and restore "ts v"ab"$"ty. Be s a$$ ave t e po)er to overru$e or revo%e t e act"ons o! t e prev"ous mana#ement and board o! d"rectors o! t e ban% or non.ban% !"nanc"a$ "ntermed"ary per!orm"n# 2uas".ban%"n# !unct"ons, any prov"s"on o! $a) to t e contrary not)"t stand"n#, and suc ot er po)ers as t e Aonetary 'oard s a$$ deem necessary. ;n t e !"rst p$ace, t "s "ssue o! t e ,onservatorIs a$$e#ed aut or"ty to revo%e or repud"ate t e per!ected contract o! sa$e )as ra"sed !or t e !"rst t"me "n t "s Pet"t"on as t "s )as not $"t"#ated "n t e tr"a$ court or ,A. ;t cannot be ra"sed !or t e !"rst t"me on appea$ ;n t e second p$ace, t ere "s abso$ute$y no ev"dence t at t e ,onservator, at t e t"me o! t e contract )as per!ected, actua$$y

repud"ated or overru$ed sa"d contract o! sa$e. T e 'an%Is act"n# conservator at t e t"me, Rodo$!o Romey, never ob>ected to t e sa$e o! t e property to -emetr"a and 6ano$o. 4 at pet"t"oners are rea$$y re!err"n# to "s t e $etter o! ,onservator 8ncarnac"on, ) o too% over !rom Romey a!ter t e sa$e )as per!ected on (eptember 3/, 1977 (Anne1 9, pet"t"on) ) "c un"$atera$$y repud"ated not t e contract but t e aut or"ty o! R"vera to ma%e a b"nd"n# o!!er and ) "c unar#uab$y came mont s a!ter t e per!ect"on o! t e contract. ;t den"ed t e counter o!!er. ;t sa"d t at on$y on$y t e 'oard o! -"rectors0,onservator may aut or"De t e sa$e o! any property o! t e corport"on0ban%.. ;n t e t "rd p$ace, ) "$e adm"tted$y, t e ,entra$ 'an% $a) #"ves vast and !ar.reac "n# po)ers to t e conservator o! a ban%, "t must be po"nted out t at suc po)ers must be re$ated to t e C(preservat"on o!) t e assets o! t e ban%, (t e reor#an"Dat"on o!) t e mana#ement t ereo! and (t e restorat"on o!) "ts v"ab"$"ty.C (uc po)ers, enormous and e1tens"ve as t ey are, cannot e1tend to t e post. !acto repud"at"on o! per!ected transact"ons, ot er)"se t ey )ou$d "n!r"n#e a#a"nst t e non."mpa"rment c$ause o! t e ,onst"tut"on. ;! t e $e#"s$ature "tse$! cannot revo%e an e1"st"n# va$"d contract, o) can "t de$e#ate suc non.e1"stent po)ers to t e conservator under (8, 27.A o! sa"d $a)W <bv"ous$y, t ere!ore, (8, 27.A mere$y #"ves t e conservator po)er to revo%e contracts t at are, under e1"st"n# $a), deemed to be de!ect"ve ".e., vo"d, vo"dab$e, unen!orceab$e or resc"ss"b$e. Bence, t e conservator mere$y ta%es t e p$ace o! a ban%Is board o! d"rectors. 4 at t e sa"d board cannot do suc as repud"at"n# a contract va$"d$y entered "nto under t e doctr"ne o! "mp$"ed aut or"ty t e conservator cannot do e"t er. ;ne$uctab$y, "s po)er "s not un"$atera$ and e cannot s"mp$y repud"ate va$"d ob$"#at"ons o! t e 'an%. B"s aut or"ty )ou$d be on$y to br"n# court act"ons to assa"$ suc contracts as e as a$ready done so "n t e "nstant case. A contrary understand"n# o! t e $a) )ou$d s"mp$y not be perm"tted by t e ,onst"tut"on. =e"t er by common sense. To ru$e ot er)"se )ou$d be to enab$e a !a"$"n# ban% to become so$vent, at t e e1pense o! t "rd part"es, by s"mp$y #ett"n# t e conservator to un"$atera$$y revo%e a$$ prev"ous dea$"n#s ) "c ad one )ay or anot er or come to be cons"dered un!avorab$e to t e 'an%, y"e$d"n# not "n# to per!ected contractua$ r"# ts nor vested "nterests o! t e t "rd part"es ) o ad dea$t )"t t e 'an%. ADD/'/%.AF 1A'#(/AF3 %I1%ULA1 )'. .9; Series o $>>7 Pursuant to (8, 52 o! Repub$"c Act =o. 7@53 and Aonetary 'oard Reso$ut"on =o. 7@2 dated @ 6u$y 2//@, t e ma1"mum amount o! co"ns to be cons"dered as $e#a$ tender "s ad>usted as !o$$o)s+ 1. <ne t ousand pesos (P1,///.//) !or denom"nat"ons o! 1. P"so, 5.P"so and 1/.P"so co"ns* and 2. <ne undred pesos (P1//.//) !or denom"nat"ons o! 1. sent"mo, 5.sent"mo, 1/.sent"mo, and 25.sent"mo co"ns. T "s ,"rcu$ar s a$$ ta%e e!!ect a!ter !"!teen (15) days !o$$o)"n# "ts pub$"cat"on "n t e <!!"c"a$ 3aDette or "n a ne)spaper o! #enera$ c"rcu$at"on.

(II. T3E *E)E1AL BA)KI)* LAW '6 $>>>


;.1 Topics State &olicy

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

&& o% $&&

%oncept o Inter#ediation 2istinction between ban?s and "uasiban?s SE% $. 2eclaration o &olicy. M T e (tate reco#n"Des t e v"ta$ ro$e o! ban%s "n prov"d"n# an env"ronment conduc"ve to t e susta"ned deve$opment o! t e nat"ona$ economy and t e !"duc"ary nature o! ban%"n# t at re2u"res "# standards o! "nte#r"ty and per!ormance. ;n !urt erance t ereo!, t e (tate s a$$ promote and ma"nta"n a stab$e and e!!"c"ent ban%"n# and !"nanc"a$ system t at "s #$oba$$y compet"t"ve, dynam"c and respons"ve to t e demands o! a deve$op"n# economy. (n) SE% /. Super@isory &owers. M T e operat"ons and act"v"t"es o! ban%s s a$$ be sub>ect to superv"s"on o! t e 'an#%o (entra$. C(uperv"s"onC s a$$ "nc$ude t e !o$$o)"n#+ 4.1. T e "ssuance o! ru$es o! conduct or t e estab$"s ment o! standards o! operat"on !or un"!orm app$"cat"on to a$$ "nst"tut"ons or !unct"ons covered, ta%"n# "nto cons"derat"on t e d"st"nct"ve c aracter o! t e operat"ons o! "nst"tut"ons and t e substant"ve s"m"$ar"t"es o! spec"!"c !unct"ons to ) "c suc ru$es, modes or standards are to be app$"ed* 4.2. T e conduct o! e1am"nat"on to determ"ne comp$"ance )"t $a)s and re#u$at"ons "! t e c"rcumstances so )arrant as determ"ned by t e Aonetary 'oard* 4.3. <versee"n# to ascerta"n t at $a)s and re#u$at"ons are comp$"ed )"t * 4.4. Re#u$ar "nvest"#at"on ) "c s a$$ not be o!tener t an once a year !rom t e $ast date o! e1am"nat"on to determ"ne ) et er an "nst"tut"on "s conduct"n# "ts bus"ness on a sa!e or sound bas"s+ Prov"ded, T at t e de!"c"enc"es0"rre#u$ar"t"es !ound by or d"scovered by an aud"t s a$$ be "mmed"ate$y addressed* 4.5. ;n2u"r"n# "nto t e so$vency and $"2u"d"ty o! t e "nst"tut"on (2.-)* or 4.@. 8n!orc"n# prompt correct"ve act"on. (n) T e 'an#%o (entra$ s a$$ a$so ave superv"s"on over t e operat"ons o! and e1erc"se re#u$atory po)ers over 2uas".ban%s, trust ent"t"es and ot er !"nanc"a$ "nst"tut"ons ) "c under spec"a$ $a)s are sub>ect to 'an#%o (entra$ superv"s"on. (2.,a) :or t e purposes o! t "s Act, C2uas".ban%sC s a$$ re!er to ent"t"es en#a#ed "n t e borro)"n# o! !unds t rou# t e "ssuance, endorsement or ass"#nment )"t recourse or acceptance o! depos"t subst"tutes as de!"ned "n (8, 95 o! Repub$"c Act =o. 7@53 ( erea!ter t e C=e) ,entra$ 'an% ActC) !or purposes o! re$end"n# or purc as"n# o! rece"vab$es and ot er ob$"#at"ons. (2.-a) Classi ication o ban&s 3.2. 'an%s s a$$ be c$ass"!"ed "nto+ (a) En"versa$ ban%s* (b) ,ommerc"a$ ban%s*

(c) T r"!t ban%s, composed o!+ (") (av"n#s and mort#a#e ban%s, ("") (toc% sav"n#s and $oan assoc"at"ons, and (""") Pr"vate deve$opment ban%s, as de!"ned "n Repub$"c Act =o. 79/@ ( erea!ter t e CT r"!t 'an%s ActC)* (d) Rura$ ban%s, as de!"ned "n Repub$"c Act =o. 7353 ( erea!ter t e CRura$ 'an%s ActC)* (e) ,ooperat"ve ban%s, as de!"ned "n Repub$"c Act =o. @937 ( erea!ter t e C,ooperat"ve ,odeC)* (!) ;s$am"c ban%s as de!"ned "n Repub$"c Act =o. @747, ot er)"se %no)n as t e C, arter o! A$ Amana ;s$am"c ;nvestment 'an% o! t e P "$"pp"nesC* and (#) <t er c$ass"!"cat"ons o! ban%s as determ"ned by t e Aonetary 'oard o! t e 'an#%o (entra$ n# P"$"p"nas. (@.Aa) SE% ;1. 'ther Ban?in= Laws. M T e or#an"Dat"on, o)ners "p and cap"ta$ re2u"rements, po)ers, superv"s"on and #enera$ conduct o! bus"ness o! t r"!t ban%s, rura$ ban%s and cooperat"ve ban%s s a$$ be #overned by t e prov"s"ons o! t e T r"!t 'an%s Act, t e Rura$ 'an%s Act, and t e ,ooperat"ve ,ode, respect"ve$y. T e or#an"Dat"on, o)ners "p and cap"ta$ re2u"rements, po)ers, superv"s"on and #enera$ conduct o! bus"ness o! ;s$am"c ban%s s a$$ be #overned by spec"a$ $a)s. T e prov"s"ons o! t "s Act, o)ever, "nso!ar as t ey are not "n con!$"ct )"t t e prov"s"ons o! t e T r"!t 'an%s Act, t e Rura$ 'an%s Act, and t e ,ooperat"ve ,ode s a$$ $"%e)"se app$y to t r"!t ban%s, rura$ ban%s, and cooperat"ve ban%s, respect"ve$y. Bo)ever, !or purposes o! prescr"b"n# t e m"n"mum rat"o ) "c t e net )ort o! a t r"!t ban% must bear to "ts tota$ r"s% assets, t e prov"s"ons o! (8, 33 o! t "s Act s a$$ #overn. (n) /istinction between universal ban&s and commercial ban&s SE% $9. &owers o a Uni@ersal Ban? . M A un"versa$ ban% s a$$ ave t e aut or"ty to e1erc"se, "n add"t"on to t e po)ers aut or"Ded !or a commerc"a$ ban% "n (8, 29, t e po)ers o! an "nvestment ouse as prov"ded "n e1"st"n# $a)s and t e po)er to "nvest "n non.a$$"ed enterpr"ses as prov"ded "n t "s Act. (21.') SE% $/. E"uity In@est#ents o a Uni@ersal Ban?. M A un"versa$ ban% may, sub>ect to t e cond"t"ons stated "n t e succeed"n# para#rap , "nvest "n t e e2u"t"es o! a$$"ed and non.a$$"ed enterpr"ses as may be determ"ned by t e Aonetary 'oard. A$$"ed enterpr"ses may e"t er be !"nanc"a$ or non.!"nanc"a$. 81cept as t e Aonetary 'oard may ot er)"se prescr"be+ 24.1. T e tota$ "nvestment "n e2u"t"es o! a$$"ed and non.a$$"ed enterpr"ses s a$$ not e1ceed !"!ty percent (5/V) o! t e net )ort o! t e ban%* and 24.2. T e e2u"ty "nvestment "n any one enterpr"se, ) et er a$$"ed or non.a$$"ed, s a$$ not e1ceed t)enty.!"ve percent (25V) o! t e net )ort o! t e ban%. As used "n t "s Act, Cnet )ort C s a$$ mean t e tota$ o! t e un"mpa"red pa"d."n cap"ta$ "nc$ud"n#

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

&( o% $&&

pa"d."n surp$us, reta"ned earn"n#s and und"v"ded pro!"t, net o! va$uat"on reserves and ot er ad>ustments as may be re2u"red by t e 'an#%o (entra$. T e ac2u"s"t"on o! suc e2u"ty or e2u"t"es "s sub>ect to t e pr"or approva$ o! t e Aonetary 'oard ) "c s a$$ promu$#ate appropr"ate #u"de$"nes to #overn suc "nvestments. (21.'a) SE% 9>. E"uity In@est#ents o a %o##ercial Ban?. M A commerc"a$ ban% may, sub>ect to t e cond"t"ons stated "n t e succeed"n# para#rap s, "nvest on$y "n t e e2u"t"es o! a$$"ed enterpr"ses as may be determ"ned by t e Aonetary 'oard. A$$"ed enterpr"ses may e"t er be !"nanc"a$ or non.!"nanc"a$. 81cept as t e Aonetary 'oard may ot er)"se prescr"be+ 3/.1. T e tota$ "nvestment "n e2u"t"es o! a$$"ed enterpr"ses s a$$ not e1ceed t "rty.!"ve percent (35V) o! t e net )ort o! t e ban%* and 3/.2. T e e2u"ty "nvestment "n any one enterpr"se s a$$ not e1ceed t)enty.!"ve percent (25V) o! t e net )ort o! t e ban%. T e ac2u"s"t"on o! suc e2u"ty or e2u"t"es "s sub>ect to t e pr"or approva$ o! t e Aonetary 'oard ) "c s a$$ promu$#ate appropr"ate #u"de$"nes to #overn suc "nvestments. (21A.a* 21.,a)

c aracter o! t e operat"ons o! "nst"tut"ons and t e substant"ve s"m"$ar"t"es o! spec"!"c !unct"ons to ) "c suc ru$es, modes or standards are to be app$"ed* 4.2. T e conduct o! e1am"nat"on to determ"ne comp$"ance )"t $a)s and re#u$at"ons "! t e c"rcumstances so )arrant as determ"ned by t e Aonetary 'oard* 4.3. <versee"n# to ascerta"n t at $a)s and re#u$at"ons are comp$"ed )"t * 4.4. Re#u$ar "nvest"#at"on ) "c s a$$ not be o!tener t an once a year !rom t e $ast date o! e1am"nat"on to determ"ne ) et er an "nst"tut"on "s conduct"n# "ts bus"ness on a sa!e or sound bas"s+ Prov"ded, T at t e de!"c"enc"es0"rre#u$ar"t"es !ound by or d"scovered by an aud"t s a$$ be "mmed"ate$y addressed* 4.5. ;n2u"r"n# "nto t e so$vency and $"2u"d"ty o! t e "nst"tut"on (2.-)* or 4.@. 8n!orc"n# prompt correct"ve act"on. (n) T e 'an#%o (entra$ s a$$ a$so ave superv"s"on over t e operat"ons o! and e1erc"se re#u$atory po)ers over 2uas".ban%s, trust ent"t"es and ot er !"nanc"a$ "nst"tut"ons ) "c under spec"a$ $a)s are sub>ect to 'an#%o (entra$ superv"s"on. (2.,a) :or t e purposes o! t "s Act, C2uas".ban%sC s a$$ re!er to ent"t"es en#a#ed "n t e borro)"n# o! !unds t rou# t e "ssuance, endorsement or ass"#nment )"t recourse or acceptance o! depos"t subst"tutes as de!"ned "n (8, 95 o! Repub$"c Act =o. 7@53 ( erea!ter t e C=e) ,entra$ 'an% ActC) !or purposes o! re$end"n# or purc as"n# o! rece"vab$es and ot er ob$"#at"ons. (2.-a) 1.A.;7.9 SE% $.. Super@ision and E!a#ination. M T e 'an#%o (entra$ s a$$ ave superv"s"on over, and conduct per"od"c or spec"a$ e1am"nat"ons o!, ban%"n# "nst"tut"ons and 2uas".ban%s, "nc$ud"n# t e"r subs"d"ar"es and a!!"$"ates en#a#ed "n a$$"ed act"v"t"es. :or purposes o! t "s (8,, a subs"d"ary means a corporat"on more t an !"!ty percent (5/V) o! t e vot"n# stoc% o! ) "c "s o)ned by a ban% or 2uas".ban% and an a!!"$"ate means a corporat"on t e vot"n# stoc% o! ) "c , to t e e1tent o! !"!ty percent (5/V) or $ess, "s o)ned by a ban% or 2uas".ban% or ) "c "s re$ated or $"n%ed to suc "nst"tut"on or "ntermed"ary t rou# common stoc% o$ders or suc ot er !actors as may be determ"ned by t e Aonetary 'oard. T e department eads and t e e1am"ners o! t e superv"s"n# and0or e1am"n"n# departments are ereby aut or"Ded to adm"n"ster oat s to any d"rector, o!!"cer, or emp$oyee o! any "nst"tut"on under t e"r respect"ve superv"s"on or sub>ect to t e"r e1am"nat"on and to compe$ t e presentat"on o! a$$ boo%s, documents, papers or records necessary "n t e"r >ud#ment to ascerta"n t e !acts re$at"ve to t e true cond"t"on o! any "nst"tut"on as )e$$ as t e boo%s and records o! persons and ent"t"es re$at"ve to or "n connect"on )"t t e operat"ons, act"v"t"es or transact"ons o! t e "nst"tut"on under e1am"nat"on, sub>ect to t e prov"s"on o! e1"st"n# $a)s protect"n# or sa!e#uard"n# t e secrecy or con!"dent"a$"ty o! ban% depos"ts

/istinction between universal ban&s or commercial ban&s and other ban&s SE% 99. Acceptance o 2e#and 2eposits. M A ban% ot er t an a un"versa$ or commerc"a$ ban% cannot accept or create demand depos"ts e1cept upon pr"or approva$ o!, and sub>ect to suc cond"t"ons and ru$es as may be prescr"bed by t e Aonetary 'oard. (72.Aa) /istinction between allied and non0allied enterprises SE% $9. &owers o a Uni@ersal Ban? . M A un"versa$ ban% s a$$ ave t e aut or"ty to e1erc"se, "n add"t"on to t e po)ers aut or"Ded !or a commerc"a$ ban% "n (8, 29, t e po)ers o! an "nvestment ouse as prov"ded "n e1"st"n# $a)s and t e po)er to "nvest "n non.a$$"ed enterpr"ses as prov"ded "n t "s Act. (21.') 'nstitutions sub$ect to B#( supervisor* and regulator* powers SE% /. Super@isory &owers. M T e operat"ons and act"v"t"es o! ban%s s a$$ be sub>ect to superv"s"on o! t e 'an#%o (entra$. C(uperv"s"onC s a$$ "nc$ude t e !o$$o)"n#+ 4.1. T e "ssuance o! ru$es o! conduct or t e estab$"s ment o! standards o! operat"on !or un"!orm app$"cat"on to a$$ "nst"tut"ons or !unct"ons covered, ta%"n# "nto cons"derat"on t e d"st"nct"ve

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so# #toc& corporation

&) o% $&&

as )e$$ as "nvestments o! pr"vate persons, natura$ or >ur"d"ca$, "n debt "nstruments "ssued by t e 3overnment. =o restra"n"n# order or "n>unct"on s a$$ be "ssued by t e court en>o"n"n# t e 'an#%o (entra$ !rom e1am"n"n# any "nst"tut"on sub>ect to superv"s"on or e1am"nat"on by t e 'an#%o (entra$, un$ess t ere "s conv"nc"n# proo! t at t e act"on o! t e 'an#%o (entra$ "s p$a"n$y arb"trary and made "n bad !a"t and t e pet"t"oner or p$a"nt"!! !"$es )"t t e c$er% or >ud#e o! t e court "n ) "c t e act"on "s pend"n# a bond e1ecuted "n !avor o! t e 'an#%o (entra$, "n an amount to be !"1ed by t e court. T e prov"s"ons o! Ru$e 57 o! t e =e) Ru$es o! ,ourt "nso!ar as t ey are app$"cab$e and not "ncons"stent )"t t e prov"s"ons o! t "s (8, s a$$ #overn t e "ssuance and d"sso$ut"on o! t e restra"n"n# order or "n>unct"on contemp$ated "n t "s (8,. !uthorit* to engage in ban&ing institutions SE% 7. Authority to En=a=e in Ban?in= and DuasiEBan?in= 6unctions. M =o person or ent"ty s a$$ en#a#e "n ban%"n# operat"ons or 2uas".ban%"n# !unct"ons )"t out aut or"ty !rom t e 'an#%o (entra$+ Prov"ded, o)ever, T at an ent"ty aut or"Ded by t e 'an#%o (entra$ to per!orm un"versa$ or commerc"a$ ban%"n# !unct"ons s a$$ $"%e)"se ave t e aut or"ty to en#a#e "n 2uas".ban%"n# !unct"ons. T e determ"nat"on o! ) et er a person or ent"ty "s per!orm"n# ban%"n# or 2uas".ban%"n# !unct"ons )"t out 'an#%o (entra$ aut or"ty s a$$ be dec"ded by t e Aonetary 'oard. To reso$ve suc "ssue, t e Aonetary 'oard may, t rou# t e appropr"ate superv"s"n# and e1am"n"n# department o! t e 'an#%o (entra$, e1am"ne, "nspect or "nvest"#ate t e boo%s and records o! suc person or ent"ty. Epon "ssuance o! t "s aut or"ty, suc person or ent"ty may commence to en#a#e "n ban%"n# operat"ons or 2uas".ban%"n# !unct"ons and s a$$ cont"nue to do so un$ess suc aut or"ty "s sooner surrendered, revo%ed, suspended or annu$$ed by t e 'an#%o (entra$ "n accordance )"t t "s Act or ot er spec"a$ $a)s. T e department ead and t e e1am"ners o! t e appropr"ate superv"s"n# and e1am"n"n# department are ereby aut or"Ded to adm"n"ster oat s to any suc person, emp$oyee, o!!"cer, or d"rector o! any suc ent"ty and to compe$ t e presentat"on or product"on o! suc boo%s, documents, papers or records t at are reasonab$y necessary to ascerta"n t e !acts re$at"ve to t e true !unct"ons and operat"ons o! suc person or ent"ty. :a"$ure or re!usa$ to comp$y )"t t e re2u"red presentat"on or product"on o! suc boo%s, documents, papers or records )"t "n a reasonab$e t"me s a$$ sub>ect t e persons respons"b$e t ere!ore to t e pena$ sanct"ons prov"ded under t e =e) ,entra$ 'an% Act. Persons or ent"t"es !ound to be per!orm"n# ban%"n# or 2uas". ban%"n# !unct"ons )"t out aut or"ty !rom t e 'an#%o (entra$ s a$$ be sub>ect to appropr"ate sanct"ons under t e =e) ,entra$ 'an% Act and ot er app$"cab$e $a)s. (4a)

SE% 8. 'r=aniFation. M T e Aonetary 'oard may aut or"De t e or#an"Dat"on o! a ban% or 2uas".ban% sub>ect to t e !o$$o)"n# cond"t"ons+ 7.1. T at t e ent"ty "s a stoc% corporat"on (7)* 7.2. T at "ts !unds are obta"ned !rom t e pub$"c, ) "c s a$$ mean t)enty (2/) or more persons (2.-a)* and 7.3. T at t e m"n"mum cap"ta$ re2u"rements prescr"bed by t e Aonetary 'oard !or eac cate#ory o! ban%s are sat"s!"ed. (n) =o ne) commerc"a$ ban% s a$$ be estab$"s ed )"t "n t ree (3) years !rom t e e!!ect"v"ty o! t "s Act. ;n t e e1erc"se o! t e aut or"ty #ranted ere"n, t e Aonetary 'oard s a$$ ta%e "nto cons"derat"on t e"r capab"$"ty "n terms o! t e"r !"nanc"a$ resources and tec n"ca$ e1pert"se and "nte#r"ty. T e ban% $"cens"n# process s a$$ "ncorporate an assessment o! t e ban%Is o)ners "p structure, d"rectors and sen"or mana#ement, "ts operat"n# p$an and "nterna$ contro$s as )e$$ as "ts pro>ected !"nanc"a$ cond"t"on and cap"ta$ base. ,ot a close corporation (ar value stoc& SE% -. Issuance o Stoc?s. M T e Aonetary 'oard may prescr"be ru$es and re#u$at"ons on t e types o! stoc% a ban% may "ssue, "nc$ud"n# t e terms t ereo! and r"# ts appurtenant t ereto to determ"ne comp$"ance )"t $a)s and re#u$at"ons #overn"n# cap"ta$ and e2u"ty structure o! ban%s+ Prov"ded, T at ban%s s a$$ "ssue par va$ue stoc%s on$y. .wnership o shares SE% 11. 6orei=n Stoc?holdin=s. M :ore"#n "nd"v"dua$s and non. ban% corporat"ons may o)n or contro$ up to !orty percent (4/V) o! t e vot"n# stoc% o! a domest"c ban%. T "s ru$e s a$$ app$y to :"$"p"nos and domest"c non.ban% corporat"ons. (12a* 12.Aa) T e percenta#e o! !ore"#n.o)ned vot"n# stoc%s "n a ban% s a$$ be determ"ned by t e c"t"Dens "p o! t e "nd"v"dua$ stoc% o$ders "n t at ban%. T e c"t"Dens "p o! t e corporat"on ) "c "s a stoc% o$der "n a ban% s a$$ !o$$o) t e c"t"Dens "p o! t e contro$$"n# stoc% o$ders o! t e corporat"on, "rrespect"ve o! t e p$ace o! "ncorporat"on. (n) %B Certi icate o authorit* (ower o a universal ban& SE% $9. &owers o a Uni@ersal Ban? . M A un"versa$ ban% s a$$ ave t e aut or"ty to e1erc"se, "n add"t"on to t e po)ers aut or"Ded !or a commerc"a$ ban% "n (8, 29, t e po)ers o! an "nvestment ouse as prov"ded "n e1"st"n# $a)s and t e po)er to "nvest "n non.a$$"ed enterpr"ses as prov"ded "n t "s Act. (21.')

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

&* o% $&&

SE% $/. E"uity In@est#ents o a Uni@ersal Ban?. M A un"versa$ ban% may, sub>ect to t e cond"t"ons stated "n t e succeed"n# para#rap , "nvest "n t e e2u"t"es o! a$$"ed and non.a$$"ed enterpr"ses as may be determ"ned by t e Aonetary 'oard. A$$"ed enterpr"ses may e"t er be !"nanc"a$ or non.!"nanc"a$. 81cept as t e Aonetary 'oard may ot er)"se prescr"be+ 24.1. T e tota$ "nvestment "n e2u"t"es o! a$$"ed and non.a$$"ed enterpr"ses s a$$ not e1ceed !"!ty percent (5/V) o! t e net )ort o! t e ban%* and 24.2. T e e2u"ty "nvestment "n any one enterpr"se, ) et er a$$"ed or non.a$$"ed, s a$$ not e1ceed t)enty.!"ve percent (25V) o! t e net )ort o! t e ban%. As used "n t "s Act, Cnet )ort C s a$$ mean t e tota$ o! t e un"mpa"red pa"d."n cap"ta$ "nc$ud"n# pa"d."n surp$us, reta"ned earn"n#s and und"v"ded pro!"t, net o! va$uat"on reserves and ot er ad>ustments as may be re2u"red by t e 'an#%o (entra$. T e ac2u"s"t"on o! suc e2u"ty or e2u"t"es "s sub>ect to t e pr"or approva$ o! t e Aonetary 'oard ) "c s a$$ promu$#ate appropr"ate #u"de$"nes to #overn suc "nvestments. (21.'a) SE% $.. E"uity In@est#ents o a Uni@ersal Ban? in 6inancial Allied Enterprises. M A un"versa$ ban% can o)n up to one undred percent (1//V) o! t e e2u"ty "n a t r"!t ban%, a rura$ ban% or a !"nanc"a$ a$$"ed enterpr"se. A pub$"c$y.$"sted un"versa$ or commerc"a$ ban% may o)n up to one undred percent (1//V) o! t e vot"n# stoc% o! on$y one ot er un"versa$ or commerc"a$ ban%. (21.'* 21.,a) SE% $7. E"uity In@est#ents o a Uni@ersal Ban? in )onE 6inancial Allied Enterprises. M A un"versa$ ban% may o)n up to one undred percent (1//V) o! t e e2u"ty "n a non.!"nanc"a$ a$$"ed enterpr"se. (21.'a) SE% $;. E"uity In@est#ents o a Uni@ersal Ban? in )onEAllied Enterprises. M T e e2u"ty "nvestment o! a un"versa$ ban%, or o! "ts ) o$$y or ma>or"ty. o)ned subs"d"ar"es, "n a s"n#$e nona$$"ed enterpr"se s a$$ not e1ceed t "rty.!"ve percent (35V) o! t e tota$ e2u"ty "n t at enterpr"se nor s a$$ "t e1ceed t "rty.!"ve percent (35V) o! t e vot"n# stoc% "n t at enterpr"se. (21.') SE% $8. E"uity In@est#ents in DuasiEBan?s. M To promote compet"t"ve cond"t"ons "n !"nanc"a$ mar%ets, t e Aonetary 'oard may !urt er $"m"t to !orty percent (4/V) e2u"ty "nvestments o! un"versa$ ban%s "n 2uas".ban%s. T "s ru$e s a$$ a$so app$y "n t e case o! commerc"a$ ban%s. (12.8) SE% $-. &owers o a %o##ercial Ban?. M A commerc"a$ ban% s a$$ ave, "n add"t"on to t e #enera$ po)ers "nc"dent to corporat"ons, a$$ suc po)ers as may be necessary to carry on t e bus"ness o! commerc"a$ ban%"n#, suc as accept"n# dra!ts and "ssu"n# $etters o! cred"t* d"scount"n# and

ne#ot"at"n# prom"ssory notes, dra!ts, b"$$s o! e1c an#e, and ot er ev"dences o! debt* accept"n# or creat"n# demand depos"ts* rece"v"n# ot er types o! depos"ts and depos"t subst"tutes* buy"n# and se$$"n# !ore"#n e1c an#e and #o$d or s"$ver bu$$"on* ac2u"r"n# mar%etab$e bonds and ot er debt secur"t"es* and e1tend"n# cred"t, sub>ect to suc ru$es as t e Aonetary 'oard may promu$#ate. T ese ru$es may "nc$ude t e determ"nat"on o! bonds and ot er debt secur"t"es e$"#"b$e !or "nvestment, t e matur"t"es and a##re#ate amount o! suc "nvestment. (21a) SE% .9. 'ther Ban?in= Ser@ices. M ;n add"t"on to t e operat"ons spec"!"ca$$y aut or"Ded "n t "s Act, a ban% may per!orm t e !o$$o)"n# serv"ces+ 53.1. Rece"ve "n custody !unds, documents and va$uab$e ob>ects* 53.2. Act as !"nanc"a$ a#ent and buy and se$$, by order o! and !or t e account o! t e"r customers, s ares, ev"dences o! "ndebtedness and a$$ types o! secur"t"es* 53.3. Aa%e co$$ect"ons and payments !or t e account o! ot ers and per!orm suc ot er serv"ces !or t e"r customers as are not "ncompat"b$e )"t ban%"n# bus"ness* 53.4. Epon pr"or approva$ o! t e Aonetary 'oard, act as mana#"n# a#ent, adv"ser, consu$tant or adm"n"strator o! "nvestment mana#ement0adv"sory0consu$tancy accounts* and 53.5. Rent out sa!ety depos"t bo1es. T e ban% s a$$ per!orm t e serv"ces perm"tted under (ub(8,s 53.1, 53.2, 53.3 and 53.4 as depos"tary or as an a#ent. Accord"n#$y, "t s a$$ %eep t e !unds, secur"t"es and ot er e!!ects ) "c "t rece"ves du$y separate !rom t e ban%Is o)n assets and $"ab"$"t"es. T e Aonetary 'oard may re#u$ate t e operat"ons aut or"Ded by t "s (8, "n order to ensure t at suc operat"ons do not endan#er t e "nterests o! t e depos"tors and ot er cred"tors o! t e ban%. ;n case a ban% or 2uas".ban% not"!"es t e 'an#%o (entra$ or pub$"c$y announces a ban% o$"day, or "n any manner suspends t e payment o! "ts depos"t $"ab"$"t"es cont"nuous$y !or more t an t "rty (3/) days, t e Aonetary 'oard may summar"$y and )"t out need !or pr"or ear"n# c$ose suc ban%"n# "nst"tut"on and p$ace "t under rece"vers "p o! t e P "$"pp"ne -epos"t ;nsurance ,orporat"on. (72a) (owers o a commercial ban& SE% $-. &owers o a %o##ercial Ban?. M A commerc"a$ ban% s a$$ ave, "n add"t"on to t e #enera$ po)ers "nc"dent to corporat"ons, a$$ suc po)ers as may be necessary to carry on t e bus"ness o! commerc"a$ ban%"n#, suc as accept"n# dra!ts and "ssu"n# $etters o! cred"t* d"scount"n# and ne#ot"at"n# prom"ssory notes, dra!ts, b"$$s o! e1c an#e, and ot er ev"dences o! debt* accept"n# or creat"n# demand depos"ts* rece"v"n# ot er types o! depos"ts and depos"t subst"tutes* buy"n# and se$$"n# !ore"#n e1c an#e and #o$d or s"$ver bu$$"on* ac2u"r"n# mar%etab$e bonds and ot er debt secur"t"es* and e1tend"n#

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

&+ o% $&&

cred"t, sub>ect to suc ru$es as t e Aonetary 'oard may promu$#ate. T ese ru$es may "nc$ude t e determ"nat"on o! bonds and ot er debt secur"t"es e$"#"b$e !or "nvestment, t e matur"t"es and a##re#ate amount o! suc "nvestment. (21a) SE% 9>. E"uity In@est#ents o a %o##ercial Ban?. M A commerc"a$ ban% may, sub>ect to t e cond"t"ons stated "n t e succeed"n# para#rap s, "nvest on$y "n t e e2u"t"es o! a$$"ed enterpr"ses as may be determ"ned by t e Aonetary 'oard. A$$"ed enterpr"ses may e"t er be !"nanc"a$ or non.!"nanc"a$. 81cept as t e Aonetary 'oard may ot er)"se prescr"be+ 3/.1. T e tota$ "nvestment "n e2u"t"es o! a$$"ed enterpr"ses s a$$ not e1ceed t "rty.!"ve percent (35V) o! t e net )ort o! t e ban%* and 3/.2. T e e2u"ty "nvestment "n any one enterpr"se s a$$ not e1ceed t)enty.!"ve percent (25V) o! t e net )ort o! t e ban%. T e ac2u"s"t"on o! suc e2u"ty or e2u"t"es "s sub>ect to t e pr"or approva$ o! t e Aonetary 'oard ) "c s a$$ promu$#ate appropr"ate #u"de$"nes to #overn suc "nvestments. (21A.a* 21.,a) SE% 91. E"uity In@est#ents o a %o##ercial Ban? in 6inancial Allied Enterprises. M A commerc"a$ ban% may o)n up to one undred percent (1//V) o! t e e2u"ty o! a t r"!t ban% or a rura$ ban%. 4 ere t e e2u"ty "nvestment o! a commerc"a$ ban% "s "n ot er !"nanc"a$ a$$"ed enterpr"ses, "nc$ud"n# anot er commerc"a$ ban%, suc "nvestment s a$$ rema"n a m"nor"ty o$d"n# "n t at enterpr"se. (21.Aa* 21.,a) SE% 9$. E"uity In@est#ents o a %o##ercial Ban? in )onE 6inancial Allied Enterprises. M A commerc"a$ ban% may o)n up to one undred percent (1//V) o! t e e2u"ty "n a non!"nanc"a$ a$$"ed enterpr"se. (21.Aa) SE% .9. 'ther Ban?in= Ser@ices. M ;n add"t"on to t e operat"ons spec"!"ca$$y aut or"Ded "n t "s Act, a ban% may per!orm t e !o$$o)"n# serv"ces+ 53.1. Rece"ve "n custody !unds, documents and va$uab$e ob>ects* 53.2. Act as !"nanc"a$ a#ent and buy and se$$, by order o! and !or t e account o! t e"r customers, s ares, ev"dences o! "ndebtedness and a$$ types o! secur"t"es* 53.3. Aa%e co$$ect"ons and payments !or t e account o! ot ers and per!orm suc ot er serv"ces !or t e"r customers as are not "ncompat"b$e )"t ban%"n# bus"ness* 53.4. Epon pr"or approva$ o! t e Aonetary 'oard, act as mana#"n# a#ent, adv"ser, consu$tant or adm"n"strator o! "nvestment mana#ement0adv"sory0consu$tancy accounts* and 53.5. Rent out sa!ety depos"t bo1es. T e ban% s a$$ per!orm t e serv"ces perm"tted under (ub(8,s 53.1, 53.2, 53.3 and 53.4 as depos"tary or as an a#ent. Accord"n#$y, "t s a$$ %eep t e !unds, secur"t"es and ot er e!!ects ) "c "t rece"ves du$y separate !rom t e ban%Is o)n assets and $"ab"$"t"es.

T e Aonetary 'oard may re#u$ate t e operat"ons aut or"Ded by t "s (8, "n order to ensure t at suc operat"ons do not endan#er t e "nterests o! t e depos"tors and ot er cred"tors o! t e ban%. ;n case a ban% or 2uas".ban% not"!"es t e 'an#%o (entra$ or pub$"c$y announces a ban% o$"day, or "n any manner suspends t e payment o! "ts depos"t $"ab"$"t"es cont"nuous$y !or more t an t "rty (3/) days, t e Aonetary 'oard may summar"$y and )"t out need !or pr"or ear"n# c$ose suc ban%"n# "nst"tut"on and p$ace "t under rece"vers "p o! t e P "$"pp"ne -epos"t ;nsurance ,orporat"on. (72a) !reas o supervision and regulation o ban&s Examination and investigation o ban&s SE% /. Super@isory &owers. M T e operat"ons and act"v"t"es o! ban%s s a$$ be sub>ect to superv"s"on o! t e 'an#%o (entra$. C(uperv"s"onC s a$$ "nc$ude t e !o$$o)"n#+ 4.1. T e "ssuance o! ru$es o! conduct or t e estab$"s ment o! standards o! operat"on !or un"!orm app$"cat"on to a$$ "nst"tut"ons or !unct"ons covered, ta%"n# "nto cons"derat"on t e d"st"nct"ve c aracter o! t e operat"ons o! "nst"tut"ons and t e substant"ve s"m"$ar"t"es o! spec"!"c !unct"ons to ) "c suc ru$es, modes or standards are to be app$"ed* 4.2. T e conduct o! e1am"nat"on to determ"ne comp$"ance )"t $a)s and re#u$at"ons "! t e c"rcumstances so )arrant as determ"ned by t e Aonetary 'oard* 4.3. <versee"n# to ascerta"n t at $a)s and re#u$at"ons are comp$"ed )"t * 4.4. Re#u$ar "nvest"#at"on ) "c s a$$ not be o!tener t an once a year !rom t e $ast date o! e1am"nat"on to determ"ne ) et er an "nst"tut"on "s conduct"n# "ts bus"ness on a sa!e or sound bas"s+ Prov"ded, T at t e de!"c"enc"es0"rre#u$ar"t"es !ound by or d"scovered by an aud"t s a$$ be "mmed"ate$y addressed* 4.5. ;n2u"r"n# "nto t e so$vency and $"2u"d"ty o! t e "nst"tut"on (2.-)* or 4.@. 8n!orc"n# prompt correct"ve act"on. (n) T e 'an#%o (entra$ s a$$ a$so ave superv"s"on over t e operat"ons o! and e1erc"se re#u$atory po)ers over 2uas".ban%s, trust ent"t"es and ot er !"nanc"a$ "nst"tut"ons ) "c under spec"a$ $a)s are sub>ect to 'an#%o (entra$ superv"s"on. (2.,a) :or t e purposes o! t "s Act, C2uas".ban%sC s a$$ re!er to ent"t"es en#a#ed "n t e borro)"n# o! !unds t rou# t e "ssuance, endorsement or ass"#nment )"t recourse or acceptance o! depos"t subst"tutes as de!"ned "n (8, 95 o! Repub$"c Act =o. 7@53 ( erea!ter t e C=e) ,entra$ 'an% ActC) !or purposes o! re$end"n# or purc as"n# o! rece"vab$es and ot er ob$"#at"ons. (2.-a) 1.A. ;7.9 SE% $8. E!a#ination and 6ees. M T e superv"s"n# and e1am"n"n# department ead, persona$$y or by deputy, s a$$ e1am"ne t e boo%s o! every ban%"n# "nst"tut"on once "n every t)e$ve (12)

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so# 'ndependent directors

&9 o% $&&

mont s, and at suc ot er t"mes as t e Aonetary 'oard by an a!!"rmat"ve vote o! !"ve (5) members, may deem e1ped"ent and to ma%e a report on t e same to t e Aonetary 'oard+ Prov"ded, T at t ere s a$$ be an "nterva$ o! at $east t)e$ve (12) mont s bet)een annua$ e1am"nat"ons. T e ban% concerned s a$$ a!!ord to t e ead o! t e appropr"ate superv"s"n# and e1am"n"n# departments and to "s aut or"Ded deput"es !u$$ opportun"ty to e1am"ne "ts boo%s, cas and ava"$ab$e assets and #enera$ cond"t"on at any t"me dur"n# ban%"n# ours ) en re2uested to do so by t e 'an#%o (entra$+ Prov"ded, o)ever, T at none o! t e reports and ot er papers re$at"ve to suc e1am"nat"ons s a$$ be open to "nspect"on by t e pub$"c e1cept "nso!ar as suc pub$"c"ty "s "nc"denta$ to t e proceed"n#s ere"na!ter aut or"Ded or "s necessary !or t e prosecut"on o! v"o$at"ons "n connect"on )"t t e bus"ness o! suc "nst"tut"ons. 'an%"n# and 2uas".ban%"n# "nst"tut"ons ) "c are sub>ect to e1am"nat"on by t e 'an#%o (entra$ s a$$ pay to t e 'an#%o (entra$, )"t "n t e !"rst t "rty (3/) days o! eac year, an annua$ !ee "n an amount e2ua$ to a percenta#e as may be prescr"bed by t e Aonetary 'oard o! "ts avera#e tota$ assets dur"n# t e preced"n# year as s o)n on "ts end.o!.mont ba$ance s eets, a!ter deduct"n# cas on and and amounts due !rom ban%s, "nc$ud"n# t e 'an#%o (entra$ and ban%s abroad.

SE% 1.. Board o 2irectors. M T e prov"s"ons o! t e ,orporat"on ,ode to t e contrary not)"t stand"n#, t ere s a$$ be at $east !"ve (5), and a ma1"mum o! !"!teen (15) members o! t e board o! d"rectors o! ban%, t)o (2) o! ) om s a$$ be "ndependent d"rectors. An C"ndependent d"rectorC s a$$ mean a person ot er t an an o!!"cer or emp$oyee o! t e ban%, "ts subs"d"ar"es or a!!"$"ates or re$ated "nterests. (n) =on.:"$"p"no c"t"Dens may become members o! t e board o! d"rectors o! a ban% to t e e1tent o! t e !ore"#n part"c"pat"on "n t e e2u"ty o! sa"d ban%. ((ec. 7, RA 7721) T e meet"n#s o! t e board o! d"rectors may be conducted t rou# modern tec no$o#"es suc as, but not $"m"ted to, te$econ!erenc"n# and v"deo.con!erenc"n#. (n) 1uali ications o directors and o icers: the it and proper rule SE% 17. 6it and &roper 1ule. M To ma"nta"n t e 2ua$"ty o! ban% mana#ement and a!!ord better protect"on to depos"tors and t e pub$"c "n #enera$, t e Aonetary 'oard s a$$ prescr"be, pass upon and rev"e) t e 2ua$"!"cat"ons and d"s2ua$"!"cat"ons o! "nd"v"dua$s e$ected or appo"nted ban% d"rectors or o!!"cers and d"s2ua$"!y t ose !ound un!"t. A!ter due not"ce to t e board o! d"rectors o! t e ban%, t e Aonetary 'oard may d"s2ua$"!y, suspend or remove any ban% d"rector or o!!"cer ) o comm"ts or om"ts an act ) "c render "m un!"t !or t e pos"t"on. ;n determ"n"n# ) et er an "nd"v"dua$ "s !"t and proper to o$d t e pos"t"on o! a d"rector or o!!"cer o! a ban%, re#ard s a$$ be #"ven to "s "nte#r"ty, e1per"ence, educat"on, tra"n"n#, and competence. (9.Aa) (rohibition on public o icials SE% 1-. &rohibition on &ublic ' icials. M 81cept as ot er)"se prov"ded "n t e Rura$ 'an%s Act, no appo"nt"ve or e$ect"ve pub$"c o!!"c"a$, ) et er !u$$. t"me or part.t"me s a$$ at t e same t"me serve as o!!"cer o! any pr"vate ban%, save "n cases ) ere suc serv"ce "s "nc"dent to !"nanc"a$ ass"stance prov"ded by t e #overnment or a #overnment.o)ned or contro$$ed corporat"on to t e ban% or un$ess ot er)"se prov"ded under e1"st"n# $a)s. (13) Compensation and other bene its o directors and o icers SE% 18. %o#pensation and 'ther Bene its o 2irectors and ' icers. M To protect t e !unds o! depos"tors and cred"tors, t e Aonetary 'oard may re#u$ate t e payment by t e ban% to "ts d"rectors and o!!"cers o! compensat"on, a$$o)ance, !ees, bonuses, stoc% opt"ons, pro!"t s ar"n# and !r"n#e bene!"ts on$y "n e1cept"ona$ cases and ) en t e c"rcumstances )arrant, suc as but not $"m"ted to t e !o$$o)"n#+ 17.1. 4 en a ban% "s under comptro$$ers "p or conservators "p* or

!c+uisition b* ban&s o own shares SE% 1>. Treasury Stoc?s. M =o ban% s a$$ purc ase or ac2u"re s ares o! "ts o)n cap"ta$ stoc% or accept "ts o)n s ares as a secur"ty !or a $oan, e1cept ) en aut or"Ded by t e Aonetary 'oard+ Prov"ded, T at "n every case t e stoc% so purc ased or ac2u"red s a$$, )"t "n s"1 (@) mont s !rom t e t"me o! "ts purc ase or ac2u"s"t"on, be so$d or d"sposed o! at a pub$"c or pr"vate sa$e. (24a) #toc&holdings o amil* groups and related interests SE% 1$. Stoc?holdin=s o 6a#ily *roups or 1elated Interests. M (toc% o$d"n#s o! "nd"v"dua$s re$ated to eac ot er )"t "n t e !ourt de#ree o! consan#u"n"ty or a!!"n"ty, $e#"t"mate or common.$a), s a$$ be cons"dered !am"$y #roups or re$ated "nterests and must be !u$$y d"sc$osed "n a$$ transact"ons by suc an "nd"v"dua$ )"t t e ban%. (12.-a) SE% 19. %orporate Stoc?holdin=s. M T)o or more corporat"ons o)ned or contro$$ed by t e same !am"$y #roup or same #roup o! persons s a$$ be cons"dered re$ated "nterests and must be !u$$y d"sc$osed "n a$$ transact"ons by suc corporat"ons or re$ated #roups o! persons )"t t e ban%. (12.'a)

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

(0 o% $&&

17.2. 4 en a ban% "s !ound by t e Aonetary 'oard to be conduct"n# bus"ness "n an unsa!e or unsound manner* or 17.3. 4 en a ban% "s !ound by t e Aonetary 'oard to be "n an unsat"s!actory !"nanc"a$ cond"t"on. (n) Ratio o net worth to total ris& assets SE% 9/. 1is?EBased %apital. M T e Aonetary 'oard s a$$ prescr"be t e m"n"mum rat"o ) "c t e net )ort o! a ban% must bear to "ts tota$ r"s% assets ) "c may "nc$ude cont"n#ent accounts. :or purposes o! t "s (8,, t e Aonetary 'oard may re2u"re t at suc rat"o be determ"ned on t e bas"s o! t e net )ort and r"s% assets o! a ban% and "ts subs"d"ar"es, !"nanc"a$ or ot er)"se, as )e$$ as prescr"be t e compos"t"on and t e manner o! determ"n"n# t e net )ort and tota$ r"s% assets o! ban%s and t e"r subs"d"ar"es+ Prov"ded, T at "n t e e1erc"se o! t "s aut or"ty, t e Aonetary 'oard s a$$, to t e e1tent !eas"b$e, con!orm to "nternat"ona$$y accepted standards, "nc$ud"n# t ose o! t e 'an% !or ;nternat"ona$ (ett$ements (';(), re$at"n# to r"s%.based cap"ta$ re2u"rements+ Prov"ded, !urt er, T at "t may a$ter or suspend comp$"ance )"t suc rat"o ) enever necessary !or a ma1"mum per"od o! one (1) year+ Prov"ded, !"na$$y, T at suc rat"o s a$$ be app$"ed un"!orm$y to ban%s o! t e same cate#ory. ;n case a ban% does not comp$y )"t t e prescr"bed m"n"mum rat"o, t e Aonetary 'oard may $"m"t or pro "b"t t e d"str"but"on o! net pro!"ts by suc ban% and may re2u"re t at part or a$$ o! t e net pro!"ts be used to "ncrease t e cap"ta$ accounts o! t e ban% unt"$ t e m"n"mum re2u"rement as been met. T e Aonetary 'oard may, !urt ermore, restr"ct or pro "b"t t e ac2u"s"t"on o! ma>or assets and t e ma%"n# o! ne) "nvestments by t e ban%, )"t t e e1cept"on o! purc ases o! read"$y mar%etab$e ev"dences o! "ndebtedness o! t e Repub$"c o! t e P "$"pp"nes and o! t e 'an#%o (entra$ and any ot er ev"dences o! "ndebtedness or ob$"#at"ons t e serv"c"n# and repayment o! ) "c are !u$$y #uaranteed by t e Repub$"c o! t e P "$"pp"nes, unt"$ t e m"n"mum re2u"red cap"ta$ rat"o as been restored. ;n case o! a ban% mer#er or conso$"dat"on, or ) en a ban% "s under re ab"$"tat"on under a pro#ram approved by t e 'an#%o (entra$, t e Aonetary 'oard may temporar"$y re$"eve t e surv"v"n# ban%, conso$"dated ban%, or const"tuent ban% or corporat"ons under re ab"$"tat"on !rom !u$$ comp$"ance )"t t e re2u"red cap"ta$ rat"o under suc cond"t"ons as "t may prescr"be. 'e!ore t e e!!ect"v"ty o! t e ru$es ) "c t e Aonetary 'oard "s aut or"Ded to prescr"be under t "s prov"s"on, (8, 22 o! t e 3enera$ 'an%"n# Act, as amended, (8, 9 o! t e T r"!t 'an%s Act, and a$$ pert"nent ru$es "ssued pursuant t ereto, s a$$ cont"nue to be "n !orce. (22a) B!#)E !CC.R/ )imits on loans, the #B) rules

SE% 9.. Li#it on Loans, %redit Acco##odations and *uarantees. M 35.1. 81cept as t e Aonetary 'oard may ot er)"se prescr"be !or reasons o! nat"ona$ "nterest, t e tota$ amount o! $oans, cred"t accommodat"ons and #uarantees as may be de!"ned by t e Aonetary 'oard t at may be e1tended by a ban% to any person, partners "p, assoc"at"on, corporat"on or ot er ent"ty s a$$ at no t"me e1ceed t)enty percent (2/V) o! t e net )ort o! suc ban%. T e bas"s !or determ"n"n# comp$"ance )"t s"n#$e. borro)er $"m"t "s t e tota$ cred"t comm"tment o! t e ban% to t e borro)er. 35.2. En$ess t e Aonetary 'oard prescr"bes ot er)"se, t e tota$ amount o! $oans, cred"t accommodat"ons and #uarantees prescr"bed "n t e preced"n# para#rap may be "ncreased by an add"t"ona$ ten percent (1/V) o! t e net )ort o! suc ban% prov"ded t e add"t"ona$ $"ab"$"t"es o! any borro)er are ade2uate$y secured by trust rece"pts, s "pp"n# documents, )are ouse rece"pts or ot er s"m"$ar documents trans!err"n# or secur"n# t"t$e cover"n# read"$y mar%etab$e, non.per"s ab$e #oods ) "c must be !u$$y covered by "nsurance. 35.3. T e above prescr"bed ce"$"n#s s a$$ "nc$ude+ (a) t e d"rect $"ab"$"ty o! t e ma%er or acceptor o! paper d"scounted )"t or so$d to suc ban% and t e $"ab"$"ty o! a #enera$ "ndorser, dra)er or #uarantor ) o obta"ns a $oan or ot er cred"t accommodat"on !rom or d"scounts paper )"t or se$$s papers to suc ban%* (b) "n t e case o! an "nd"v"dua$ ) o o)ns or contro$s a ma>or"ty "nterest "n a corporat"on, partners "p, assoc"at"on or any ot er ent"ty, t e $"ab"$"t"es o! sa"d ent"t"es to suc ban%* (c) "n t e case o! a corporat"on, a$$ $"ab"$"t"es to suc ban% o! a$$ subs"d"ar"es "n ) "c suc corporat"on o)ns or contro$s a ma>or"ty "nterest* and (d) "n t e case o! a partners "p, assoc"at"on or ot er ent"ty, t e $"ab"$"t"es o! t e members t ereo! to suc ban%. 35.4. 8ven "! a parent corporat"on, partners "p, assoc"at"on, ent"ty or an "nd"v"dua$ ) o o)ns or contro$s a ma>or"ty "nterest "n suc ent"t"es as no $"ab"$"ty to t e ban%, t e Aonetary 'oard may prescr"be t e comb"nat"on o! t e $"ab"$"t"es o! subs"d"ary corporat"ons or members o! t e partners "p, assoc"at"on, ent"ty or suc "nd"v"dua$ under certa"n c"rcumstances, "nc$ud"n# but not $"m"ted to any o! t e !o$$o)"n# s"tuat"ons+ (a) t e parent corporat"on, partners "p, assoc"at"on, ent"ty or "nd"v"dua$ #uarantees t e repayment o! t e $"ab"$"t"es* (b) t e $"ab"$"t"es )ere "ncurred !or t e accommodat"on o! t e parent corporat"on or anot er subs"d"ary or o! t e partners "p or assoc"at"on or ent"ty or suc "nd"v"dua$* or (c) t e subs"d"ar"es t ou# separate ent"t"es operate mere$y as departments or d"v"s"ons o! a s"n#$e ent"ty. 35.5. :or purposes o! t "s (8,, $oans, ot er cred"t accommodat"ons and #uarantees s a$$ e1c$ude+

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

($ o% $&&

(a) $oans and ot er cred"t accommodat"ons secured by ob$"#at"ons o! t e 'an#%o (entra$ or o! t e P "$"pp"ne 3overnment* (b) $oans and ot er cred"t accommodat"ons !u$$y #uaranteed by t e #overnment as to t e payment o! pr"nc"pa$ and "nterest* (c) $oans and ot er cred"t accommodat"ons covered by ass"#nment o! depos"ts ma"nta"ned "n t e $end"n# ban% and e$d "n t e P "$"pp"nes* (d) $oans, cred"t accommodat"ons and acceptances under $etters o! cred"t to t e e1tent covered by mar#"n depos"ts* and (e) ot er $oans or cred"t accommodat"ons ) "c t e Aonetary 'oard may !rom t"me to t"me, spec"!y as non.r"s% "tems. 35.@. 5oans and ot er cred"t accommodat"ons, depos"ts ma"nta"ned )"t , and usua$ #uarantees by a ban% to any ot er ban% or non.ban% ent"ty, ) et er $oca$$y or abroad, s a$$ be sub>ect to t e $"m"ts as ere"n prescr"bed. 35.7. ,erta"n types o! cont"n#ent accounts o! borro)ers may be "nc$uded amon# t ose sub>ect to t ese prescr"bed $"m"ts as may be determ"ned by t e Aonetary 'oard. (23a) Restrictions on ban& exposure2 the /.#R' rules SE% 97. 1estriction on Ban? E!posure to 2irectors, ' icers, Stoc?holders and Their 1elated Interests. M =o d"rector or o!!"cer o! any ban% s a$$, d"rect$y or "nd"rect$y, !or "mse$! or as t e representat"ve or a#ent o! ot ers, borro) !rom suc ban% nor s a$$ e become a #uarantor, "ndorser or surety !or $oans !rom suc ban% to ot ers, or "n any manner be an ob$"#or or "ncur any contractua$ $"ab"$"ty to t e ban% e1cept )"t t e )r"tten approva$ o! t e ma>or"ty o! a$$ t e d"rectors o! t e ban%, e1c$ud"n# t e d"rector concerned+ Prov"ded, T at suc )r"tten approva$ s a$$ not be re2u"red !or $oans, ot er cred"t accommodat"ons and advances #ranted to o!!"cers under a !r"n#e bene!"t p$an approved by t e 'an#%o (entra$. T e re2u"red approva$ s a$$ be entered upon t e records o! t e ban% and a copy o! suc entry s a$$ be transm"tted !ort )"t to t e appropr"ate superv"s"n# and e1am"n"n# department o! t e 'an#%o (entra$. -ea$"n#s o! a ban% )"t any o! "ts d"rectors, o!!"cers or stoc% o$ders and t e"r re$ated "nterests s a$$ be upon terms not $ess !avorab$e to t e ban% t an t ose o!!ered to ot ers. A!ter due not"ce to t e board o! d"rectors o! t e ban%, t e o!!"ce o! any ban% d"rector or o!!"cer ) o v"o$ates t e prov"s"ons o! t "s (8, may be dec$ared vacant and t e d"rector or o!!"cer s a$$ be sub>ect to t e pena$ prov"s"ons o! t e =e) ,entra$ 'an% Act. T e Aonetary 'oard may re#u$ate t e amount o! $oans, cred"t accommodat"ons and #uarantees t at may be e1tended, d"rect$y or "nd"rect$y, by a ban% to "ts d"rectors, o!!"cers, stoc% o$ders and t e"r re$ated "nterests, as )e$$ as "nvestments o! suc ban% "n enterpr"ses o)ned or contro$$ed by sa"d d"rectors, o!!"cers, stoc% o$ders and t e"r re$ated "nterests. Bo)ever, t e outstand"n# $oans, cred"t accommodat"ons and #uarantees ) "c a ban% may e1tend to eac o! "ts stoc% o$ders, d"rectors, or o!!"cers and t e"r

re$ated "nterests, s a$$ be $"m"ted to an amount e2u"va$ent to t e"r respect"ve unencumbered depos"ts and boo% va$ue o! t e"r pa"d."n cap"ta$ contr"but"on "n t e ban%+ Prov"ded, o)ever, T at $oans, cred"t accommodat"ons and #uarantees secured by assets cons"dered as non.r"s% by t e Aonetary 'oard s a$$ be e1c$uded !rom suc $"m"t+ Prov"ded, !urt er, T at $oans, cred"t accommodat"ons and advances to o!!"cers "n t e !orm o! !r"n#e bene!"ts #ranted "n accordance )"t ru$es as may be prescr"bed by t e Aonetary 'oard s a$$ not be sub>ect to t e "nd"v"dua$ $"m"t. T e Aonetary 'oard s a$$ de!"ne t e term Cre$ated "nterests.C T e $"m"t on $oans, cred"t accommodat"ons and #uarantees prescr"bed ere"n s a$$ not app$y to $oans, cred"t accommodat"ons and #uarantees e1tended by a cooperat"ve ban% to "ts cooperat"ve s are o$ders. (73a) %icro inancing SE% />. 1e"uire#ent or *rant o Loans or 'ther %redit Acco##odations. M 'e!ore #rant"n# a $oan or ot er cred"t accommodat"on, a ban% must ascerta"n t at t e debtor "s capab$e o! !u$!"$$"n# "s comm"tments to t e ban%. To)ard t "s end, a ban% may demand !rom "ts cred"t app$"cants a statement o! t e"r assets and $"ab"$"t"es and o! t e"r "ncome and e1pend"tures and suc "n!ormat"on as may be prescr"bed by $a) or by ru$es and re#u$at"ons o! Aonetary 'oard to enab$e t e ban% to proper$y eva$uate t e cred"t app$"cat"on ) "c "nc$udes t e correspond"n# !"nanc"a$ statements subm"tted !or ta1at"on purposes to t e 'ureau o! ;nterna$ Revenue. ( ou$d suc statements prove to be !a$se or "ncorrect "n any mater"a$ deta"$, t e ban% may term"nate any $oan or ot er cred"t accommodat"on #ranted on t e bas"s o! sa"d statements and s a$$ ave t e r"# t to demand "mmed"ate repayment or $"2u"dat"on o! t e ob$"#at"on. ;n !ormu$at"n# ru$es and re#u$at"ons under t "s (8,, t e Aonetary 'oard s a$$ reco#n"De t e pecu$"ar c aracter"st"cs o! m"cro!"nanc"n#, suc as cas !$o).based $end"n# to t e bas"c sectors t at are not covered by trad"t"ona$ co$$atera$. (7@a) SE% /9. Authority to &rescribe Ter#s and %onditions o Loans and 'ther %redit Acco##odations. M T e Aonetary 'oard may, s"m"$ar$y, "n accordance )"t t e aut or"ty #ranted to "t "n (8, 1/@ o! t e =e) ,entra$ 'an% Act, and ta%"n# "nto account t e re2u"rements o! t e economy !or t e e!!ect"ve ut"$"Dat"on o! $on#.term !unds, prescr"be t e matur"t"es, as )e$$ as re$ated terms and cond"t"ons !or var"ous types o! ban% $oans and ot er cred"t accommodat"ons. Any c an#e by t e 'oard "n t e ma1"mum matur"t"es s a$$ app$y on$y to $oans and ot er cred"t accommodat"ons made a!ter t e date o! suc act"on. T e Aonetary 'oard s a$$ re#u$ate t e "nterest "mposed on m"cro!"nance borro)ers by $end"n# "nvestors and s"m"$ar $enders, suc as, but not $"m"ted to, t e unconsc"onab$e rates o! "nterest co$$ected on sa$ary $oans and s"m"$ar cred"t accommodat"ons. (77a)

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

(2 o% $&&

SE% //. A#ortiFation on Loans and 'ther %redit Acco##odations. M T e amort"Dat"on sc edu$e o! ban% $oans and ot er cred"t accommodat"ons s a$$ be adapted to t e nature o! t e operat"ons to be !"nanced. ;n case o! $oans and ot er cred"t accommodat"ons )"t matur"t"es o! more t an !"ve (5) years, prov"s"ons must be made !or per"od"c amort"Dat"on payments, but suc payments must be made at $east annua$$y+ Prov"ded, o)ever, T at ) en t e borro)ed !unds are to be used !or purposes ) "c do not "n"t"a$$y produce revenues ade2uate !or re#u$ar amort"Dat"on payments t ere!rom, t e ban% may perm"t t e "n"t"a$ amort"Dat"on payment to be de!erred unt"$ suc t"me as sa"d revenues are su!!"c"ent !or suc purpose, but "n no case s a$$ t e "n"t"a$ amort"Dat"on date be $ater t an !"ve (5) years !rom t e date on ) "c t e $oan or ot er cred"t accommodat"on "s #ranted. (79a) ;n case o! $oans and ot er cred"t accommodat"ons to m"cro!"nance sectors, t e sc edu$e o! $oan amort"Dat"on s a$$ ta%e "nto cons"derat"on t e pro>ected cas !$o) o! t e borro)er and adopt t "s "nto t e terms and cond"t"ons !ormu$ated by ban%s. (n) (repa*ment o loans SE% /.. &repay#ent o Loans and 'ther %redit Acco##odations. M A borro)er may at any t"me pr"or to t e a#reed matur"ty date prepay, "n ) o$e or "n part, t e unpa"d ba$ance o! any ban% $oan and ot er cred"t accommodat"on, sub>ect to suc reasonab$e terms and cond"t"ons as may be a#reed upon bet)een t e ban% and "ts borro)er. (7/a)

52.3. (uc as "t s a$$ purc ase at sa$es under >ud#ments, decrees, mort#a#es, or trust deeds e$d by "t and suc as "t s a$$ purc ase to secure debts due "t. Any rea$ property ac2u"red or e$d under t e c"rcumstances enumerated "n t e above para#rap s a$$ be d"sposed o! by t e ban% )"t "n a per"od o! !"ve (5) years or as may be prescr"bed by t e Aonetary 'oard+ Prov"ded, o)ever, T at t e ban% may, a!ter sa"d per"od, cont"nue to o$d t e property !or "ts o)n use, sub>ect to t e $"m"tat"ons o! t e preced"n# (8,. (25a) .utsourcing o ban& unctions SE% ... &rohibited Transactions. M 55.1. =o d"rector, o!!"cer, emp$oyee, or a#ent o! any ban% s a$$ M (e) <utsource "n erent ban%"n# !unct"ons. Emplo*ment o casual and probationar* personnel SE% .../. ,ons"stent )"t t e prov"s"ons o! Repub$"c Act =o. 14/5, ot er)"se %no)n as t e 'an%s (ecrecy 5a), no ban% s a$$ emp$oy casua$ or nonre#u$ar personne$ or too $en#t y probat"onary personne$ "n t e conduct o! "ts bus"ness "nvo$v"n# ban% depos"ts. /eclaration o dividends SE% .;. &rohibition on 2i@idend 2eclaration . M =o ban% or 2uas".ban% s a$$ dec$are d"v"dends #reater t an "ts accumu$ated net pro!"ts t en on and, deduct"n# t ere!rom "ts $osses and bad debts. =e"t er s a$$ t e ban% nor 2uas".ban% dec$are d"v"dends, "! at t e t"me o! dec$arat"on+ 57.1 ;ts c$ear"n# account )"t t e 'an#%o (entra$ "s overdra)n* or 57.2 ;t "s de!"c"ent "n t e re2u"red $"2u"d"ty !$oor !or #overnment depos"ts !or !"ve (5) or more consecut"ve days* or 57.3 ;t does not comp$y )"t t e $"2u"d"ty standards0rat"os prescr"bed by t e 'an#%o (entra$ !or purposes o! determ"n"n# !unds ava"$ab$e !or d"v"dend dec$arat"on* or 57.4 ;t as comm"tted a ma>or v"o$at"on as may be determ"ned by t e 'an#%o (entra$. (74a) !uthorit* to engage in trust business Trust Receipt SE% ;-. Authority to En=a=e in Trust Business. M <n$y a stoc% corporat"on or a person du$y aut or"Ded by t e Aonetary 'oard to en#a#e "n trust bus"ness s a$$ act as a trustee or adm"n"ster any trust or o$d property "n trust or on depos"t !or t e use, bene!"t, or be oo! o! ot ers. :or purposes o! t "s Act, suc a corporat"on s a$$ be re!erred to as a trust ent"ty. (5@a* 57a) /iligence re+uired SE% 8>. %onduct o Trust Business. M A trust ent"ty s a$$ adm"n"ster t e !unds or

Real Estate investments and ac+uisitions SE% .1. %eilin= on In@est#ents in %ertain Assets. M Any ban% may ac2u"re rea$ estate as s a$$ be necessary !or "ts o)n use "n t e conduct o! "ts bus"ness+ Prov"ded, o)ever, T at t e tota$ "nvestment "n suc rea$ estate and "mprovements t ereo!, "nc$ud"n# ban% e2u"pment, s a$$ not e1ceed !"!ty percent (5/V) o! comb"ned cap"ta$ accounts+ Prov"ded, !urt er, T at t e e2u"ty "nvestment o! a ban% "n anot er corporat"on en#a#ed pr"mar"$y "n rea$ estate s a$$ be cons"dered as part o! t e ban%Is tota$ "nvestment "n rea$ estate, un$ess ot er)"se prov"ded by t e Aonetary 'oard. (25a) SE% .$. Ac"uisition o 1eal Estate by Way o Satis action o %lai#s. M =ot)"t stand"n# t e $"m"tat"ons o! t e preced"n# (8,, a ban% may ac2u"re, o$d or convey rea$ property under t e !o$$o)"n# c"rcumstances+ 52.1. (uc as s a$$ be mort#a#ed to "t "n #ood !a"t by )ay o! secur"ty !or debts* 52.2. (uc as s a$$ be conveyed to "t "n sat"s!act"on o! debts prev"ous$y contracted "n t e course o! "ts dea$"n#s* or

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so# #eparation o trust business rom general business

(' o% $&&

property under "ts custody )"t t e d"$"#ence t at a prudent man )ou$d e1erc"se "n t e conduct o! an enterpr"se o! a $"%e c aracter and )"t s"m"$ar a"ms. =o trust ent"ty s a$$, !or t e account o! t e trustor or t e bene!"c"ary o! t e trust, purc ase or ac2u"re property !rom, or se$$, trans!er, ass"#n or $end money or property to, or purc ase debt "nstruments o!, any o! t e departments, d"rectors, o!!"cers, stoc% o$ders, or emp$oyees o! t e trust ent"ty, re$at"ves )"t "n t e !"rst de#ree o! consan#u"n"ty or a!!"n"ty, or t e re$ated "nterests, o! suc d"rectors, o!!"cers and stoc% o$ders, un$ess t e transact"on "s spec"!"ca$$y aut or"Ded by t e trustor and t e re$at"ons "p o! t e trustee and t e ot er party "nvo$ved "n t e transact"on "s !u$$y d"sc$osed to t e trustor or bene!"c"ary o! t e trust pr"or to t e transact"on. T e Aonetary 'oard s a$$ promu$#ate suc ru$es and re#u$at"ons as may be necessary to prevent c"rcumvent"on o! t "s pro "b"t"on or t e evas"on o! t e respons"b"$"ty ere"n "mposed on a trust ent"ty. (5@) /eposit re+uired as securit* or aith ul per ormance o trust duties SE% 8/. 2eposit or the 6aith ul &er or#ance o Trust 2uties. M 'e!ore transact"n# trust bus"ness, every trust ent"ty s a$$ depos"t )"t t e 'an#%o (entra$ as secur"ty !or t e !a"t !u$ per!ormance o! "ts trust dut"es, cas or secur"t"es approved by t e Aonetary 'oard "n an amount e2ua$ to not $ess t an :"ve undred t ousand pesos (P5//,///.//) or suc "# er amount as may be !"1ed by t e Aonetary 'oard+ Prov"ded, o)ever, T at t e Aonetary 'oard s a$$ re2u"re every trust ent"ty to "ncrease t e amount o! "ts cas or secur"t"es on depos"t )"t t e 'an#%o (entra$ ) enever "n "ts >ud#ment suc "ncrease "s necessary by reason o! t e trust bus"ness o! suc ent"ty+ Prov"ded, !urt er, T at t e pa"d."n cap"ta$ and surp$us o! suc ent"ty must be at $east e2ua$ to t e amount re2u"red to be depos"ted )"t t e 'an#%o (entra$ "n accordance )"t t e prov"s"ons o! t "s para#rap . ( ou$d t e cap"ta$ and surp$us !a$$ be$o) sa"d amount, t e Aonetary 'oard s a$$ ave t e same aut or"ty as t at #ranted to "t under t e prov"s"ons o! t e !"!t para#rap o! (8, 34 o! t "s Act. A trust ent"ty so $on# as "t s a$$ cont"nue to be so$vent and comp$y )"t $a)s or re#u$at"ons s a$$ ave t e r"# t to co$$ect t e "nterest earned on suc secur"t"es depos"ted )"t t e 'an#%o (entra$ and, !rom t"me to t"me, )"t t e approva$ o! t e 'an#%o (entra$, to e1c an#e t e secur"t"es !or ot ers. ;! t e trust ent"ty !a"$s to comp$y )"t any $a) or re#u$at"on, t e 'an#%o (entra$ s a$$ reta"n suc "nterest on t e secur"t"es depos"ted )"t "t !or t e bene!"t o! r"# t!u$ c$a"mants. A$$ c$a"ms ar"s"n# out o! t e trust bus"ness o! a trust ent"ty s a$$ ave pr"or"ty over a$$ ot er c$a"ms as re#ards t e cas or secur"t"es depos"ted as above prov"ded. T e Aonetary 'oard may not perm"t t e cas or secur"t"es depos"ted "n accordance )"t t e prov"s"ons o! t "s (8, to be reduced be$o) t e prescr"bed m"n"mum amount unt"$ t e depos"t"n# ent"ty s a$$ d"scont"nue "ts trust bus"ness and s a$$ sat"s!y t e Aonetary 'oard t at "t as comp$"ed )"t a$$ "ts ob$"#at"ons "n connect"on )"t suc bus"ness. (@5a)

SE% 8;. Separation o Trust Business ro# *eneral Business. M T e trust bus"ness and a$$ !unds, propert"es or secur"t"es rece"ved by any trust ent"ty as e1ecutor, adm"n"strator, #uard"an, trustee, rece"ver, or depos"tary s a$$ be %ept separate and d"st"nct !rom t e #enera$ bus"ness "nc$ud"n# a$$ ot er !unds, propert"es, and assets o! suc trust ent"ty. T e accounts o! a$$ suc !unds, propert"es, or secur"t"es s a$$ $"%e)"se be %ept separate and d"st"nct !rom t e accounts o! t e #enera$ bus"ness o! t e trust ent"ty. (@1) Exemption o trust assets rom claims SE% -$. E!e#ption o Trust Assets ro# %lai#s. M =o assets e$d by a trust ent"ty "n "ts capac"ty as trustee s a$$ be sub>ect to any c$a"ms ot er t an t ose o! t e part"es "nterested "n t e spec"!"c trusts. (@5) (enalties or violations "ine, imprisonment, etc. 1.A. ;7.9 SE% 9/. 1e usal to 4a?e 1eports or &er#it E!a#ination. M Any o!!"cer, o)ner, a#ent, mana#er, d"rector or o!!"cer."n.c ar#e o! any "nst"tut"on sub>ect to t e superv"s"on or e1am"nat"on by t e 'an#%o (entra$ )"t "n t e purv"e) o! t "s Act ) o, be"n# re2u"red "n )r"t"n# by t e Aonetary 'oard or by t e ead o! t e superv"s"n# and e1am"n"n# department )"$$!u$$y re!uses to !"$e t e re2u"red report or perm"t any $a)!u$ e1am"nat"on "nto t e a!!a"rs o! suc "nst"tut"on s a$$ be pun"s ed by a !"ne o! not $ess t an :"!ty t ousand pesos (P5/,///) nor more t an <ne undred t ousand pesos (P1//,///) or by "mpr"sonment o! not $ess t an one (1) year nor more t an !"ve (5) years, or bot , "n t e d"scret"on o! t e court. 1.A. ;7.9 SE% 9.. 6alse State#ent. M T e )"$$!u$ ma%"n# o! a !a$se or m"s$ead"n# statement on a mater"a$ !act to t e Aonetary 'oard or to t e e1am"ners o! t e 'an#%o (entra$ s a$$ be pun"s ed by a !"ne o! not $ess t an <ne undred t ousand pesos (P1//,///) nor more t an T)o undred t ousand pesos (P2//,///), or by "mpr"sonment o! not more t an (5) years, or bot , at t e d"scret"on o! t e court. 1.A. ;7.9 SE% 97. &roceedin=s Upon (iolation o This Act and 'ther Ban?in= Laws, 1ules, 1e=ulations, 'rders or Instructions. M 4 enever a ban% or 2uas".ban%, or ) enever any person or ent"ty )"$$!u$$y v"o$ates t "s Act or ot er pert"nent ban%"n# $a)s be"n# en!orced or "mp$emented by t e 'an#%o (entra$ or any order, "nstruct"on, ru$e or re#u$at"on "ssued by t e Aonetary 'oard, t e person or persons respons"b$e !or suc v"o$at"on s a$$ un$ess ot er)"se prov"ded "n t "s Act be pun"s ed by a !"ne

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

(& o% $&&

o! not $ess t an :"!ty t ousand pesos (P5/,///) nor more t an T)o undred t ousand pesos (P2//,///) or by "mpr"sonment o! not $ess t an t)o (2) years nor more t an ten (1/) years, or bot , at t e d"scret"on o! t e court. 4 enever a ban% or 2uas".ban% pers"sts "n carry"n# on "ts bus"ness "n an un$a)!u$ or unsa!e manner, t e 'oard may, )"t out pre>ud"ce to t e pena$t"es prov"ded "n t e preced"n# para#rap o! t "s (8, and t e adm"n"strat"ve sanct"ons prov"ded "n (8, 37 o! t "s Act, ta%e act"on under (8, 3/ o! t "s Act. 1.A. ;7.9 SE% 9;. Ad#inistrati@e Sanctions on Ban?s and DuasiEban?s. M 4"t out pre>ud"ce to t e cr"m"na$ sanct"ons a#a"nst t e cu$pab$e persons prov"ded "n (8,s 34, 35, and 3@ o! t "s Act, t e Aonetary 'oard may, at "ts d"scret"on, "mpose upon any ban% or 2uas".ban%, t e"r d"rectors and0or o!!"cers, !or any )"$$!u$ v"o$at"on o! "ts c arter or by.$a)s, )"$$!u$ de$ay "n t e subm"ss"on o! reports or pub$"cat"ons t ereo! as re2u"red by $a), ru$es and re#u$at"ons* any re!usa$ to perm"t e1am"nat"on "nto t e a!!a"rs o! t e "nst"tut"on* any )"$$!u$ ma%"n# o! a !a$se or m"s$ead"n# statement to t e 'oard or t e appropr"ate superv"s"n# and e1am"n"n# department or "ts e1am"ners* any )"$$!u$ !a"$ure or re!usa$ to comp$y )"t , or v"o$at"on o!, any ban%"n# $a) or any order, "nstruct"on or re#u$at"on "ssued by t e Aonetary 'oard, or any order, "nstruct"on or ru$"n# by t e 3overnor* or any comm"ss"on o! "rre#u$ar"t"es, and0or conduct"n# bus"ness "n an unsa!e or unsound manner as may be determ"ned by t e Aonetary 'oard, t e !o$$o)"n# adm"n"strat"ve sanct"ons, ) enever app$"cab$e+ (a) !"nes "n amounts as may be determ"ned by t e Aonetary 'oard to be appropr"ate, but "n no case to e1ceed T "rty t ousand pesos (P3/,///) a day !or eac v"o$at"on, ta%"n# "nto cons"derat"on t e attendant c"rcumstances, suc as t e nature and #rav"ty o! t e v"o$at"on or "rre#u$ar"ty and t e s"De o! t e ban% or 2uas".ban%* (b) suspens"on o! red"scount"n# pr"v"$e#es or access to 'an#%o (entra$ cred"t !ac"$"t"es* (c) suspens"on o! $end"n# or !ore"#n e1c an#e operat"ons or aut or"ty to accept ne) depos"ts or ma%e ne) "nvestments* (d) suspens"on o! "nterban% c$ear"n# pr"v"$e#es* and0or (e) revocat"on o! 2uas".ban%"n# $"cense. Res"#nat"on or term"nat"on !rom o!!"ce s a$$ not e1empt suc d"rector or o!!"cer !rom adm"n"strat"ve or cr"m"na$ sanct"ons. T e Aonetary 'oard may, ) enever )arranted by c"rcumstances, prevent"ve$y suspend any d"rector or o!!"cer o! a ban% or 2uas".ban% pend"n# an "nvest"#at"on+ Prov"ded, T at s ou$d t e case be not !"na$$y dec"ded by t e 'an#%o (entra$ )"t "n a per"od o! one undred t)enty (12/) days a!ter t e date o! suspens"on, sa"d d"rector or o!!"cer s a$$ be re"nstated "n "s pos"t"on+ Prov"ded, !urt er, T at ) en t e de$ay "n t e d"spos"t"on o! t e case "s due to t e !au$t, ne#$"#ence or pet"t"on o! t e d"rector or o!!"cer, t e per"od o! de$ay s a$$ not be counted "n comput"n# t e per"od o! suspens"on ere"n prov"ded.

T e above adm"n"strat"ve sanct"ons need not be app$"ed "n t e order o! t e"r sever"ty. 4 et er or not t ere "s an adm"n"strat"ve proceed"n#, "! t e "nst"tut"on and0or t e d"rectors and0or o!!"cers concerned cont"nue )"t or ot er)"se pers"st "n t e comm"ss"on o! t e "nd"cated pract"ce or v"o$at"on, t e Aonetary 'oard may "ssue an order re2u"r"n# t e "nst"tut"on and0or t e d"rectors and0or o!!"cers concerned to cease and des"st !rom t e "nd"cated pract"ce or v"o$at"on, and may !urt er order t at "mmed"ate act"on be ta%en to correct t e cond"t"ons resu$t"n# !rom suc pract"ce or v"o$at"on. T e cease and des"st order s a$$ be "mmed"ate$y e!!ect"ve upon serv"ce on t e respondents. T e respondents s a$$ be a!!orded an opportun"ty to de!end t e"r act"on "n a ear"n# be!ore t e Aonetary 'oard or any comm"ttee c a"red by any Aonetary 'oard member created !or t e purpose, upon re2uest made by t e respondents )"t "n !"ve (5) days !rom t e"r rece"pt o! t e order. ;! no suc ear"n# "s re2uested )"t "n sa"d per"od, t e order s a$$ be !"na$. ;! a ear"n# "s conducted, a$$ "ssues s a$$ be determ"ned on t e bas"s o! records, a!ter ) "c t e Aonetary 'oard may e"t er recons"der or ma%e !"na$ "ts order. T e 3overnor "s ereby aut or"Ded, at "s d"scret"on, to "mpose upon ban%"n# "nst"tut"ons, !or any !a"$ure to comp$y )"t t e re2u"rements o! $a), Aonetary 'oard re#u$at"ons and po$"c"es, and0or "nstruct"ons "ssued by t e Aonetary 'oard or by t e 3overnor, !"nes not "n e1cess o! Ten t ousand pesos (P1/,///) a day !or eac v"o$at"on, t e "mpos"t"on o! ) "c s a$$ be !"na$ and e1ecutory unt"$ reversed, mod"!"ed or $"!ted by t e Aonetary 'oard on appea$.

#uspension or removal o director or o icer SE% 77. &enalty or (iolation o this Act. M En$ess ot er)"se ere"n prov"ded, t e v"o$at"on o! any o! t e prov"s"ons o! t "s Act s a$$ be sub>ect to (8,s 34, 35, 3@ and 37 o! t e =e) ,entra$ 'an% Act. ;! t e o!!ender "s a d"rector or o!!"cer o! a ban%, 2uas".ban% or trust ent"ty, t e Aonetary 'oard may a$so suspend or remove suc d"rector or o!!"cer. ;! t e v"o$at"on "s comm"tted by a corporat"on, suc corporat"on may be d"sso$ved by 2uo )arranto proceed"n#s "nst"tuted by t e (o$"c"tor 3enera$. (77) /issolution o ban& SE% 77. &enalty or (iolation o this Act. M En$ess ot er)"se ere"n prov"ded, t e v"o$at"on o! any o! t e prov"s"ons o! t "s Act s a$$ be sub>ect to (8,s 34, 35, 3@ and 37 o! t e =e) ,entra$ 'an% Act. ;! t e o!!ender "s a d"rector or o!!"cer o! a ban%, 2uas".ban% or trust ent"ty, t e Aonetary 'oard may a$so suspend or remove suc d"rector or o!!"cer. ;! t e v"o$at"on "s comm"tted by a corporat"on,

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

(( o% $&&

suc corporat"on may be d"sso$ved by 2uo )arranto proceed"n#s "nst"tuted by t e (o$"c"tor 3enera$. (77) A22ITI')AL 4ATE1IALS '(P ,;R,E5AR( BS& %I1%ULA1 )'S. /88, /-9, ./9, ./8, 7/$ Re: "3,CT'.,# T-!T B!,4# C.3)/ .3T#.3RCE (8, 1. (ubsec. J1@9.3 <utsourc"n# o! ot er ban%"n# !unct"ons o! t e A<R' "s ereby amended to read, as !o$$o)s+ G(ub>ect to pr"or approva$ o! t e Aonetary 'oard, ban%s may outsource t e !o$$o)"n# !unct"ons, serv"ces or act"v"t"es+ 1. data "ma#"n#, stora#e, retr"eva$ and ot er re$ated systems* 2. c$ear"n# and process"n# o! c ec%s not "nc$uded "n t e P "$"pp"ne ,$ear"n# Bouse (ystem* 3. pr"nt"n# o! ban% depos"t statements* 4. cred"t card serv"ces* 5. cred"t "nvest"#at"on and co$$ect"on* @. process"n# o! e1port, "mport and ot er trad"n# transact"ons* 7. property appra"sa$* 7. property mana#ement serv"ces* 9. "nterna$ aud"t, sub>ect to t e !o$$o)"n# cond"t"ons+ a) t e board o! d"rectors and sen"or mana#ement o! t e re#u$ated ent"ty rema"n respons"b$e !or ma"nta"n"n# an e!!ect"ve system o! "nterna$ contro$ and !or prov"d"n# act"ve overs"# t o! t e outsourced "nterna$ aud"t act"v"t"es0!unct"ons* b) t e e1terna$ serv"ce prov"der s a$$ be an "ndependent e1terna$ aud"tor "nc$uded "n t e $"st o! '(P se$ected e1terna$ aud"tors or a parent company ) "c o)ns or contro$s more t an !"!ty percent (5/V) o! t e subscr"bed cap"ta$ stoc% o! t e outsourc"n# ent"ty+ prov"ded, t at "tem Gb.H o! t e #enera$ re2u"rements under (8, 2 o! ,"rcu$ar no.41/, ser"es o! 2//3 s a$$ app$y to t e parent company ) "$e "tems Gb.H, Gd.H, Ge.H, and G!.H s a$$ app$y to t e "ndependent e1terna$ aud"tor. c) t e contract0serv"ce a#reement )"t t e e1terna$ serv"ce prov"der s a$$ not be entered "nto !or a per"od $on#er t an !"ve (5) years* d) T ere s a$$ be a cont"n#ency p$an to m"t"#ate any s"#n"!"cant d"srupt"on, d"scont"nu"ty or #ap "n aud"t covera#e, part"cu$ar$y !or "# .r"s% areas* e) T e )r"tten en#a#ement contract or serv"ce a#reement )"t t e e1terna$ serv"ce prov"der s a$$, as a m"n"mum+ ". -e!"ne t e r"# ts, e1pectat"ons and respons"b"$"t"es o! bot part"es* "". (et t e scope and !re2uency o!, and t e !ees to be pa"d !or, t e )or% to be per!ormed by t e e1terna$ serv"ce prov"der* """. (tate t at t e outsourced "nterna$ aud"t serv"ces are sub>ect to re#u$atory rev"e) and t at '(P e1am"ners s a$$ be #ranted !u$$ and t"me$y access to "nterna$ aud"t reports and re$ated )or%"n# papers* "v. (tate t at t e e1terna$ serv"ce prov"der )"$$ not per!orm mana#ement !unct"ons, ma%e mana#ement dec"s"ons, or act or appear to act "n a capac"ty e2u"va$ent to t at o! a member o! mana#ement or an emp$oyee o! t e "nst"tut"on, and )"$$ comp$y )"t pro!ess"ona$ and re#u$atory "ndependence #u"de$"nes* v. (pec"!y t at t e e1terna$ serv"ce prov"der must ma"nta"n t e aud"t reports and re$ated )or%"n# papers0!"$es !or at $east !"ve (5) years* v". (tate t at "nterna$ aud"t reports are t e property o! t e "nst"tut"on, t at t e "nst"tut"on )"$$ be prov"ded )"t cop"es o! re$ated )or%"n# papers0!"$es "t deems necessary, and any "n!ormat"on perta"n"n# to t e "nst"tut"on must be %ept con!"dent"a$* and

v"". 8stab$"s a protoco$ !or c an#"n# t e terms o! t e serv"ce contract and st"pu$at"ons !or de!au$t and term"nat"on o! t e contract* 1/. mar%et"n# $oans, depos"ts and ot er ban% products and serv"ces, prov"ded "t does not "nvo$ve t e actua$ open"n# o! depos"t accounts* 11. #enera$ boo%%eep"n# and account"n# serv"ces, prov"ded t at t ese act"v"t"es do not "nc$ude serv"c"n# ban% depos"ts or ot er "n erent ban%"n# !unct"ons* 12. o!!s"te records stora#e serv"ces* 13. !ront0bac% o!!"ce !unct"ons, ".e., trade support serv"ces and do)nstream process"n# act"v"t"es, by parent to a subs"d"ary or v"ce.versa, sub>ect to t e !o$$o)"n# cond"t"ons+ a) T e ban% "ntend"n# to outsource t e a!orement"oned !unct"ons s a$$ cert"!y t at t e !ront o!!"ce !unct"ons to be done by "ts parent0subs"d"ary (serv"ce prov"der) s a$$ be $"m"ted to trade support serv"ces* b) T e ban% s a$$ rema"n a parent0subs"d"ary o! "ts subs"d"ary0 parent (serv"ce prov"der) and suc serv"ce prov"der s a$$ serv"ce on$y ent"t"es be$on#"n# to "ts bus"ness #roup* c) T e ban% s a$$ cert"!y t at no "n erent ban%"n# !unct"ons "nvo$v"n# depos"t transact"ons s a$$ be outsourced to "ts parent0subs"d"ary (serv"ce prov"der)* d) T e ban% s a$$ subm"t a (erv"ce 5eve$ A#reement du$y s"#ned by t e concerned part"es and any amendments t ereto, deta"$"n# t e !unct"ons to be outsourced, t e respect"ve respons"b"$"t"es o! t e ban% and "ts parent0 subs"d"ary (serv"ce prov"der), and a con!"dent"a$"ty c$ause* and e) Any breac "n any o! t e above cond"t"ons s a$$ sub>ect t e outsourc"n# o! t e a!orement"oned ban%"n# !unct"ons to a$$ t e re2u"rements o! t "s (8,* and 14. bac%.up and data recovery operat"ons* (as amended by '(P ,;RK 493) and 15. ,a$$ center operat"ons !or cred"t card and ban% serv"ces prov"ded t at suc ban% serv"ces do not "nvo$ve "n erent ban%"n# !unct"ons* (as amended by '(P ,;RK543) and1@. 1@. (uc ot er act"v"t"es as may be determ"ned by t e Aonetary 'oard.C T e ban% concerned must subm"t t e same documentary re2u"rements $"sted "n (ubsec. J1@9.2b ereo!, e1cept ) ere t ey e1c$us"ve$y perta"n to "n!ormat"on tec no$o#y operat"ons. 4"t out need o! pr"or Aonetary 'oard approva$, ban%s may outsource t e !o$$o)"n# !unct"ons, serv"ces or act"v"t"es+ 1. pr"nt"n# o! ban% $oan statements and ot er non.depos"t records, ban% !orms and promot"ona$ mater"a$s* 2. trans!er a#ent serv"ces !or debt and e2u"ty secur"t"es* 3. messen#er, cour"er and posta$ serv"ces* 4. secur"ty #uard serv"ces* 5. ve "c$e serv"ce contracts* @. >an"tor"a$ serv"ces* 7. pub$"c re$at"ons serv"ces, procurement serv"ces, and temporary sta!!"n#, prov"ded t at t ese act"v"t"es do not "nc$ude serv"c"n# ban% depos"ts or ot er "n erent ban%"n# !unct"ons* 7. sort"n# and ba##"n# o! notes and co"ns* 9. ma"ntenance o! computer ard)are, e.#., d"s% dr"ves, pr"nters, mon"tors, EP(, net)or% cab$"n# systems* 1/. payro$$ o! ban% emp$oyees* 11. te$ep one operator0recept"on"st serv"ces* 12. sa$e0d"sposa$ o! ac2u"red assets (R<P<A)* 13. Buman.resource re$ated serv"ces (suc as personne$ tra"n"n# and deve$opment, bac%#round "nvest"#at"on and sa$ary benc mar%"n# serv"ce) (as amended by '(P ,;RK@42)* 14. bu"$d"n#, #round and ot er !ac"$"t"es ma"ntenance* and

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

() o% $&&

15. $e#a$ serv"ces !rom $oca$ $e#a$ counse$ (amended by '(P ,;RK493)* 1@. comp$"ance r"s% assessment and test"n#* (amended by '(P ,;RK493) 17. ta1 comp$"ance serv"ces, prov"ded t at t e serv"ce prov"der "s not a$so t e e1terna$ aud"tor o! t e ban%* (as amended by '(P ,;RK547) 17. suc ot er act"v"t"es as may be determ"ned by t e Aonetary 'oard.C (8, 2. T e prov"s"ons on outsourc"n# o! (8, J1@9 and (ubsecs. J1@9.1 to J1@9.5 o! t e Aanua$ o! Re#u$at"ons !or 'an%s (A<R') "n so !ar as t ey are app$"cab$e to 2uas".ban%s and ot er non.ban% !"nanc"a$ "nst"tut"ons are ereby "ncorporated "n t e Aanua$ o! Re#u$at"ons !or =on.'an% :"nanc"a$ ;nst"tut"ons (A<R=':;). T "s ,"rcu$ar s a$$ ta%e e!!ect !"!teen (15) days !o$$o)"n# "ts pub$"cat"on e"t er "n t e <!!"c"a$ 3aDette or "n a ne)spaper o! #enera$ c"rcu$at"on.

may cons"der any ot er acts0om"ss"ons as unsa!e and unsound pract"ces. SE% $. T e Aonetary 'oard may, at "ts d"scret"on and based on t e ser"ousness and mater"a$"ty o! t e acts or om"ss"ons, "mpose any or a$$ o! t e !o$$o)"n# sanct"ons prov"ded under (8, 37 o! Repub$"c Act =o. 7@53 and (8, 5@ o! Repub$"c Act =o. 7791, ) enever a ban%, 2uas".ban% or trust ent"ty conducts bus"ness "n an unsa!e and unsound manner+ a. ;ssue an order re2u"r"n# t e "nst"tut"on to cease and des"st !rom conduct"n# bus"ness "n an unsa!e and unsound manner and may !urt er order t at "mmed"ate act"on be ta%en to correct t e cond"t"ons resu$t"n# !rom suc unsa!e or unsound pract"ce* b. :"nes "n amounts as may be determ"ned by t e Aonetary 'oard to be appropr"ate, but "n no case to e1ceed T "rty T ousand pesos (P3/,///.//) a day on a per transact"on bas"s ta%"n# "nto cons"derat"on t e attendant c"rcumstances, suc t e #rav"ty o! t e act or om"ss"on and t e s"De o! t e ban%, 2uas".ban% or trust ent"ty, to be "mposed on t e ban%, 2uas".ban%s or trust ent"t"es, t e"r d"rectors and0or respons"b$e o!!"cers* c. (uspens"on o! "nterban% c$ear"n# pr"v"$e#es0"mmed"ate e1c$us"on !rom c$ear"n#* d. (uspens"on o! red"scount"n# pr"v"$e#es or access to 'an#%o (entra$ cred"t !ac"$"t"es* e. (uspens"on o! $end"n# or !ore"#n e1c an#e operat"ons or aut or"ty to accept ne) depos"ts or ma%e ne) "nvestments* !. (uspens"on o! respons"b$e d"rectors and0or o!!"cers* #. Revocat"on o! 2uas".ban%"n# YYcense* and0or . Rece"vers "p and $"2u"dat"on under (8, 3/ o! RA 7@53. A$$ ot er prov"s"ons o! (8,s 3/ and 37 o! R.A. 7@53 ) enever appropr"ate s a$$ a$so be app$"cab$e on t e conduct o! bus"ness "n an unsa!e or unsound manner. T e "mpos"t"on o! t e above sanct"ons "s )"t out pre>ud"ce to t e !"$"n# o! appropr"ate cr"m"na$ c ar#es a#a"nst cu$pab$e persons as prov"ded "n (8,s 34, 35 and 3@ o! R.A. 7@53. T "s ,"rcu$ar s a$$ ta%e e!!ect "mmed"ate$y. !nnex ! 5"st o! Act"v"t"es 4 "c Aay 'e ,ons"dered Unsa e and Unsound 'an%"n# Pract"ces GT e act"v"t"es enumerated ere"n are cons"dered on$y as #u"de$"nes and are not "rrebutab$y presumed to be unsa!e or unsound. ,onverse$y, not a$$ pract"ces ) "c m"# t under t e c"rcumstances be termed unsa!e or unsound are ment"oned ere. T e Aonetary 'oard may =<4 A=- TB8= cons"der any ot er acts0om"ss"ons as unsa!e or unsound pract"ces.(open"n# par. As amended by '(P ,;RK@4/)H a. <perat"n# )"t mana#ement ) ose po$"c"es and pract"ces are detr"menta$ to t e ban%, 2uas" ban% or trust ent"ty and >eopard"De t e sa!ety o! "ts depos"ts0depos"t subst"tutes0trust accounts. b. <perat"n# )"t tota$ ad>usted cap"ta$ and reserves t at are "nade2uate "n re$at"on to t e %"nd and 2ua$"ty o! t e assets o! t e ban%, 2uas".ban% or trust ent"ty. c. <perat"n# "n a )ay t at produces a de!"c"t "n net operat"n# "ncome 4;TB<ET A-8OEAT8 A8A(ER8( T< 8=(ER8 A (ERP5E( ;= =8T <P8RAT;=3 ;=,<A8 ;= TB8 :ETER8. (as amended by '(P ,;RK@4/)

BS& %I1%ULA1 )'. 9/1 Series o $>>$ RE: 3,#!"E !,/ 3,#.3,/ B!,4',5 (R!CT'CE# Pursuant to Aonetary 'oard Reso$ut"on =o. 1/55 dated 25 6u$y 2//2, t e !o$$o)"n# #u"de$"nes s a$$ be observed "n "mp$ement"n# (8, 5@ o! t e 3enera$ 'an%"n# 5a) o! 2/// or Repub$"c Act =o. 7791+ SE% 1. 4 et er a part"cu$ar act"v"ty may be cons"dered as conduct"n# bus"ness "n an unsa!e or unsound manner, a$$ re$evant !acts must be cons"dered. An ana$ys"s o! t e "mpact t ereo! on t e ban%s02uas".ban%s0trust ent"t"esI operat"ons and !"nanc"a$ cond"t"ons must be underta%en, "nc$ud"n# eva$uat"on o! cap"ta$ pos"t"on, asset cond"t"on, mana#ement, earn"n#s posture and $"2u"d"ty pos"t"on. ;n determ"n"n# ) et er a part"cu$ar act or om"ss"on, ) "c "s not ot er)"se pro "b"ted by any $a), ru$e or re#u$at"on a!!ect"n# ban%s, 2uas".ban%s or trust ent"t"es, may be deemed as conduct"n# bus"ness "n an unsa!e or unsound manner, t e Aonetary 'oard, upon report o! t e ead o! t e superv"s"n# or e1am"n"n# department based on !"nd"n#s "n an e1am"nat"on or a comp$a"nt, s a$$ cons"der any o! t e !o$$o)"n# c"rcumstances+ a. T e act or om"ss"on as resu$ted or may resu$t "n mater"a$ $oss or dama#e, or abnorma$ r"s% or dan#er to t e sa!ety, stab"$"ty, $"2u"d"ty or so$vency o! t eI "nst"tut"on* b. T e act or om"ss"on as resu$ted or may resu$t "n mater"a$ $oss or dama#e or abnorma$ r"s% to t e "nst"tut"onIs depos"tors, cred"tors, "nvestors, stoc% o$ders or to t e 'an#%o (entra$ or to t e pub""c "n #enera$* c T e act or om"ss"on as caused any undue "n>ury, or as #"ven un)arranted bene!"ts, advanta#e or pre!erence to t e ban% or any party "n t e d"sc ar#e by t e d"rector or o!!"cer o! "s dut"es and respons"b"$"t"es t rou# man"!est part"a$"ty, ev"dent bad !a"t or #ross "ne1cusab$e ne#$"#ence* or d. T e act or om"ss"on "nvo$ves enter"n# "nto any contract or transact"on man"!est$y and #ross$y d"sadvanta#eous to t e ban%, 2uas".ban% or trust ent"ty, ) et er or not t e d"rector or o!!"cer pro!"ted or )"$$ pro!"t t ereby. Attac ed !or #u"dance "s a $"st o! act"v"t"es ) "c may be cons"dered unsa!e and unsound. (Anne1 A) T e Aonetary 'oard

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

(* o% $&&

d. <perat"n# )"t a ser"ous $ac% o! $"2u"d"ty, espec"a$$y "n v"e) o! t e asset and depos"t0depos"t subst"tute0$"ab"$"ty structure o! t e ban%, 2uas".ban% or trust ent"ty. e. 8n#a#"n# "n specu$at"ve and aDardous "nvestment po$"c"es. !. Pay"n# e1cess"ve cas d"v"dends "n re$at"on to t e cap"ta$ pos"t"on, earn"n#s capac"ty and asset 2ua$"ty o! t e ban%, 2uas". ban% or trust ent"ty. #. 81cess"ve re$"ance on $ar#e, "# .,<(T or vo$at"$e depos"ts0 borro)"n#s T< :E=- A33R8((;98 3R<4TB TBAT AAP '8 E=(E(TA;=A'58. :<R TB;( PERP<(8, A 'A=F ;( ,<=(;-8R8- <::8R;=3 B;3B.,<(T -8P<(;T(0 '<RR<4;=3( ;: TB8 8::8,T;98 ;=T8R8(T RAT8 PA;- <= (A;- -8P<(;T(0 '<RR<4;=3( A=-0<R =<=.,A(B ;=,8=T;98( ;( 5/V <98R TB8 PR89A;5;=3 ,<APARA'58 AARF8T A8-;A= RAT8 :<R (;A;5AR 'A=F ,AT83<R;8(, AATER;T;8( A=- ,ERR8=,P -8=<A;=AT;<= A=A,,<APA=;8'P <TB8R ,;R,EA(TA=,80( (E,B A(+ G1. E=-E8 R85;A=,8 <= (<5;,;TAT;<= A=- A,,8PTA=,8 <: 'R<F8R8- -8P<(;T(* G2. 'A=F ;=,ER( 5AR38 (EA <: -8P<(;T 38=8RAT;<= 8JP8=(8( ;= TB8 :<RA <: ,<AA;((;<=(, R8:8RRA5 A=(<5;,;TAT;<= :88( A=- R85AT8- 8JP8=(8( A=-0<R PAPA8=T <: A-9A=,8 ;=T8R8(T <= -8P<(;T(* G3. -8:8RRA5 <: TB8 A'<98 -8P<(;T 38=8RAT;<= 8JP8=(8( ;=,ERR8- T< -85AP R8,<R-;=3 <: 8JP8=(8( A=-0<R ;=A,,ERAT8 AA<RT;ZAT;<= <: A-9A=,8 ;=T8R8(T PA;- <= -8P<(;T(* G4. -8P<(;T PA,FA38( <::8R8- ;=,5E-8 =<=.,A(B ;=,8=T;98( -;(PR<P<RT;<=AT8 T< TB8 AA<E=T <: -8P<(;T( (<E3BT 4B;,B 3;98 E=-E8 <R E=4ARRA=T8- A-9A=TA38 <R PR8:8R8=,8 :<R TB8 'A=F* A=G5. 'A=F AARF8T(, (<5;,;T( A=- A,,8PT( -8P<(;T( <ET(;-8 TB8 'A=F PR8A;(8( ;=,5E-;=3 'RA=,B8(, E=58(( <TB8R4;(8 AETB<R;Z8- 'P TB8 '(P E=-8R (8,( J213 ((8R9;,;=3 -8P<(;T( <ET(;-8 'A=F PR8A;(8() <R J@21 (858,TR<=;, 'A=F;=3 (8R9;,8() <: TB8 AA=EA5 <: R83E5AT;<=( :<R 'A=F(.H (As amended by '(P ,;RK@4/) . 81cess"ve re$"ance on $etters o! cred"t e"t er "ssued by t e ban% or accepted as co$$atera$ to $oans advanced. ". 81cess"ve amounts o! $oan part"c"pat"ons so$d, >. Pay"n# "nterest on part"c"pat"ons )"t out adv"s"n# part"c"pat"n# "nst"tut"on t at t s course o! "nterest )as not !rom t e borro)er, %. (e$$"n# part"c"pat"ons )"t out d"sc$os"n# to t e purc asers o! t ose part"c"pat"ons mater"a[, non.pub$"c "n!ormat"on %no)n to t e ban% ". :a"$ure to $"m"t, contro$ and document cont"n#ent $"ab"$"t"es, m. 8n#a#"n# "n aDardous $end"n# and $a1 co$$ect"on po$"c"es and pract"ces, as ev"denced by+ 1 ) An e1cess"ve vo$ume o! $oans sub>ect to adverse c$ass"!"cat"on* 2) An e1cess"ve vo$ume o! $oans )"t out ade2uate documentat"on, "nc$ud"n# cred"t "n!ormat"on* 3) 81cess"ve net $oan $osses* 4) An e1cess"ve vo$ume o! $oans "n re$at"on to t e tota$ assets and depos"ts0depos"t subst"tutes0trust $"ab"$"t"es o! t e ban%, 2uas".ban% or trust ent"ty* 5) An e1cess"ve vo$ume o! )ea% and se$!.serv"n# $oans to persons connected )"t t e ban%, 2uas".ban% or trust ent"ty, espec"a$$y "! a s"#n"!"cant port"on o! t ese $oans are adverse$y c$ass"!"ed* @) e1cess"ve concentrat"ons o! cred"t, espec"a$$y "! a substant"a$ port"on o! t "s cred"t "s adverse$y c$ass"!"ed*

7) "nd"scr"m"nate part"c"pat"on "n )ea% and undocumented $oans or"#"nated by ot er "nst"tut"ons* 7) !a"$"n# to adopt )r"tten $oan po$"c"es* 9) an e1cess"ve vo$ume o! past due or non.per!orm"n# $oans* 1/) !a"$ure to d"vers"!y t e $oan port!o$"o0asset m"1 o! t e "nst"tut"on 11) !a"$ure to ma%e prov"s"on !or an ade2uate reserve !or poss"b$e $oan $osses n. Perm"tt"n# o!!"cers to en#a#e "n $end"n# pract"ces beyond t e scope o! t e"r pos"t"on, o. <perat"n# t e ban%, 2uas".ban% or trust ent"ty )"t "nade2uate "nterna$ contro$s, p. :a"$ure to %eep accurate and updated boo%s and records. 2. <perat"n# t e "nst"tut"on )"t e1cess"ve vo$ume o! out.o!.terr"tory $oans, r. 81cess"ve vo$ume o! non.earn"n# assets. s. :a"$ure to eed )arn"n#s and admon"t"ons o! t e superv"sory aut or"t"es o! t e "nst"tut"on. t. ,ont"nued and !$a#rant v"o$at"on o! any $a)s, ru$es, re#u$at"ons or )r"tten a#reements bet)een t e "nst"tut"on and t e 'an#%o (entra$ n# P"$"p"nas. u. Any act"on $"%e$y to cause "nso$vency or substant"a$ d"ss"pat"on o! assetsor earn"n#s o! t e "nst"tut"on or $"%e$y to ser"ous$y )ea%en "ts cond"t"on or ot er)"se ser"ous$y pre>ud"ce t e "nterest o! "ts depos"tors0"nvestors0c$"ents.

BS& %I1%ULA1 )'. 7.>Series o $>>RE: !3T-.R'T6 ." T-R'"T B!,4# T. '##3E ".RE'5, )ETTER# ." CRE/'T (ub>ect + Aut or"ty o! T r"!t 'an%s to ;ssue :ore"#n 5etters o! ,red"t (5,s) and Pay0Accept0=e#ot"ate ;mport081port -ra!ts0'"$$s o! 81c an#e Pursuant to Aonetary 'oard Reso$ut"on =o. 273 dated 19 :ebruary 2//9, t e Aanua$ o! Re#u$at"ons !or 'an%s (A<R') "s ereby amended, as !o$$o)s+ (8, 1. (ubsec. 21/1.7 on aut or"ty o! t r"!t ban%s to "ssue !ore"#n $etters o! cred"t (5,s) and pay0accept0ne#ot"ate "mport0e1port dra!ts0b"$$s o! e1c an#e "s ereby added and s a$$ read, as !o$$o)s+ G(ubsec. J21/1.7 Aut or"ty o! t r"!t ban%s to "ssue !ore"#n $etters o! cred"t (5,s) and pay0accept0ne#ot"ate "mport0e1port dra!ts0b"$$s o! e1c an#e. 4"t pr"or Aonetary 'oard approva$, t r"!t ban%s may be aut or"Ded to "ssue !ore"#n $etters o! cred"t (5,s) and pay0accept0ne#ot"ate "mport0e1port dra!ts0b"$$s o! e1c an#e, sub>ect to comp$"ance )"t t e !o$$o)"n# cond"t"ons (at t e t"me o! app$"cat"on un$ess ot er)"se "nd"cated)+ a) A"n"mum cap"ta$ re2u"rement o! P\ 1./ b"$$"on* b) Ten percent (1/V) r"s%.based cap"ta$ ade2uacy rat"o (,AR)* c) ,AA85( compos"te rat"n# not $o)er t an G3H, )"t Aana#ement component score not $o)er t an G3H "n t e $atest e1am"nat"on o! t e ban%* d) R"s% mana#ement system appropr"ate to "ts operat"ons, c aracter"Ded by c$ear de$"neat"on o! respons"b"$"ty !or r"s% mana#ement, ade2uate r"s% measurement system, appropr"ate$y structured r"s% $"m"ts, e!!ect"ve "nterna$ contro$ system and comp$ete, t"me$y and e!!"c"ent r"s% report"n# system* e) Art"c$es o! "ncorporat"on ) "c s a$$ "nc$ude amon# "ts po)ers or purposes, t e "ssuance o! !ore"#n 5,s and payment0acceptance0ne#ot"at"on o! "mport0e1port dra!ts0b"$$s o! e1c an#e () "c may be subm"tted any t"me pr"or to en#a#"n# "n sa"d act"v"t"es)* !) ,orrespondent ban%"n# re$at"ons "p or arran#ement )"t reputab$e !ore"#n ban%s () "c s ou$d be "n p$ace pr"or to en#a#"n# "n sa"d act"v"t"es)*

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

(+ o% $&&

#) Appo"ntment o! t e o!!"cer )"t actua$ e1per"ence o! at $east t)o (2) years as "n.c ar#e or at $east as ass"stant "n.c ar#e o! "mport and e1port !"nanc"n# operat"ons "n a un"versa$0 commerc"a$ ban% ) o )"$$ be "n.c ar#e o! t e sa"d operat"ons (pr"or to en#a#"n# "n sa"d act"v"t"es)* ) Appo"ntment o! ban% personne$ )"t actua$ e1per"ence and0or tra"n"n# o! at $east s"1 (@) mont s "n "mport and e1port !"nanc"n# operat"ons "n a un"versa$0commerc"a$ ban% ) o )"$$ and$e t e sa"d operat"ons (pr"or to en#a#"n# "n sa"d act"v"t"es)* ") =o net )ee%$y re#u$ar and $"2u"d"ty reserve de!"c"enc"es dur"n# t e t)e$ve (12) )ee% per"od "mmed"ate$y preced"n# t e date o! app$"cat"on* >) =o de!"c"ency "n asset and $"2u"d asset cover !or :,-E $"ab"$"t"es !or t ree (3) mont s "mmed"ate$y preced"n# t e date o! app$"cat"on* %) =o de!"c"ency "n $"2u"d"ty !$oor re2u"rement !or #overnment !unds e$d dur"n# t e t)e$ve (12) )ee% per"od "mmed"ate$y preced"n# t e date o! app$"cat"on* $) =o !$oat "tems outstand"n# !or more t an s"1ty (@/) ca$endar days "n t e G-ue :rom0To Bead <!!"ce0'ranc es0<!!"cesH and G-ue !rom '(PH accounts e1ceed"n# 1V o! t e tota$ resources as o! end o! mont preced"n# t e date o! app$"cat"on* m) =o unboo%ed va$uat"on reserves* n) ,omp$"ant )"t ce"$"n#s on $oans, ot er cred"t accommodat"ons and #uarantees to d"rectors, o!!"cers, stoc% o$ders, and t e"r re$ated "nterests (-<(R;) !or t e 2uarter "mmed"ate$y preced"n# t e date o! app$"cat"on* o) ,omp$"ant )"t t e s"n#$e borro)er&s $oan $"m"t (('5)* p) ,omp$"ant )"t t e $"m"t on rea$ estate and "mprovements, "nc$ud"n# ban% e2u"pment* 2) =o uncorrected !"nd"n#s o! unsa!e and unsound ban%"n# pract"ces* r) 3enera$$y comp$"ant )"t ban%"n# $a)s, ru$es and re#u$at"ons, orders or "nstruct"ons o! t e Aonetary 'oard and0or '(P Aana#ement* and s) =o past due ob$"#at"ons )"t t e '(P or )"t any !"nanc"a$ "nst"tut"on. (8, 2. (ubsec. 21/1.7 on app$"cat"on !or aut or"ty to "ssue !ore"#n $etters o! cred"t and pay0accept0ne#ot"ate "mport0e1port dra!ts0b"$$s o! e1c an#e "s ereby added, and s a$$ read as !o$$o)s+ G(ubsec. 21/1.7 App$"cat"on !or aut or"ty to "ssue !ore"#n $etters o! cred"t (5,s) and pay0accept0ne#ot"ate "mport0e1port dra!ts0b"$$s o! e1c an#e. An app$"cat"on !or aut or"ty to "ssue !ore"#n 5,s and pay0accept0ne#ot"ate "mport0e1port dra!ts0b"$$s o! e1c an#e s a$$ be s"#ned by t e pres"dent o! t e ban% or o!!"cer o! e2u"va$ent ran% and s a$$ be accompan"ed by a cert"!"ed true copy o! t e reso$ut"on o! t e ban%&s board o! d"rectors aut or"D"n# t e app$"cat"on.H T "s ,"rcu$ar s a$$ ta%e e!!ect !"!teen (15) days !o$$o)"n# "ts pub$"cat"on e"t er "n t e <!!"c"a$ 3aDette or "n a ne)spaper o! #enera$ c"rcu$at"on. $AS#S &3ILI&&I)E BA)KI)* %'1&'1ATI') @s. %A 3.R. =o. 1274@9 15 6anuary 2//4 6actsA <n 3/ Au#ust 1979, 5eon"$o Aarcos (GAarcosH) !"$ed )"t t e tr"a$ court a ,omp$a"nt !or (um o! Aoney )"t -ama#esS3T a#a"nst pet"t"oner P "$"pp"ne 'an%"n# ,orporat"on (G'A=FH).

Aarcos a$$e#ed t at somet"me "n 1972, t e 'A=F t rou# :$orenc"o '. Pa#sa$"#an (GPa#sa$"#anH), one o! t e o!!"c"a$s o! t e 'A=F and a c$ose !r"end o! Aarcos, persuaded "m to depos"t money )"t t e 'A=F. Aarcos y"e$ded to Pa#sa$"#an&s persuas"on and c$a"med e made a t"me depos"t )"t t e 'A=F on t)o occas"ons. T e !"rst )as on 11 Aarc 1972 !or P@@4,797.@7. <n 12 Aarc 1972, Aarcos c$a"med e a#a"n made a t"me depos"t )"t t e 'A=F !or P7@4,797.@7. T e 'A=F d"d not "ssue an o!!"c"a$ rece"pt !or t e second depos"t but "t ac%no)$ed#ed a depos"t o! t "s amount t rou# a $etter.cert"!"cat"on Pa#sa$"#an "ssued. T e t"me depos"ts earned "nterest at 17V per annum and ad a matur"ty per"od o! 9/ days. Aarcos a$$e#ed t at Pa#sa$"#an %ept t e var"ous t"me depos"t cert"!"cates on t e assurance t at t e 'A=F )ou$d ta%e care o! t e cert"!"cates, "nterests and rene)a$s. Aarcos c$a"med t at !rom t e t"me o! t e depos"t, e ad not rece"ved t e pr"nc"pa$ amount or "ts "nterest. (omet"me "n Aarc 1973, Aarcos )anted to )"t dra) !rom t e 'A=F "s t"me depos"ts and t e accumu$ated "nterests to buy mater"a$s !or "s construct"on bus"ness. Bo)ever, t e 'A=F t rou# Pa#sa$"#an conv"nced Aarcos to %eep "s t"me depos"ts "ntact and "nstead to open severa$ domest"c $etters o! cred"t. T e 'A=F re2u"red Aarcos to #"ve a mar#"na$ depos"t o! 3/V o! t e tota$ amount o! t e $etters o! cred"t. T e t"me depos"ts o! Aarcos )ou$d secure 7/V o! t e $etters o! cred"t. ("nce Aarcos trusted t e 'A=F and Pa#sa$"#an, e s"#ned b$an% pr"nted !orms o! t e app$"cat"on !or t e domest"c $etters o! cred"t, trust rece"pt a#reements and prom"ssory notes. Aarcos e1ecuted t ree Trust Rece"pt A#reements tota$$"n# P751,25/, bro%en do)n as !o$$o)s+ (1) Trust Rece"pt =o. ,- 73.7 dated 7 Aarc 1973 !or P3//,///* (2) Trust Rece"pt =o. ,- 73.9 dated 15 Aarc 1973 !or P3//,///* and (3) Trust Rece"pt =o. ,73.1/ dated 15 Aarc 1973 !or P251,25/. Aarcos depos"ted t e re2u"red 3/V mar#"na$ depos"t !or t e trust rece"pt a#reements. Aarcos c$a"med t at "s ob$"#at"on to t e 'A=F )as t ere!ore on$y P595,775 represent"n# 7/V o! t e $etters o! cred"t. Aarcos be$"eved t at e and t e 'A=F became cred"tors and debtors o! eac ot er. Aarcos e1pected t e 'A=F to o!!set automat"ca$$y a port"on o! "s t"me depos"ts and t e accumu$ated "nterest )"t t e amount covered by t e t ree trust rece"pts tota$$"n# P751,25/ $ess t e 3/V mar#"na$ depos"t t at e ad pa"d. Aarcos ar#ued t at "! on$y t e 'A=F app$"ed "s t"me depos"ts and t e accumu$ated "nterest to "s rema"n"n# ob$"#at"on, ) "c "s 7/V o! t e tota$ amount o! t e $etters o! cred"t, e )ou$d ave pa"d comp$ete$y "s debt. Aarcos !urt er po"nted out t at s"nce e d"d not app$y !or a rene)a$ o! t e trust rece"pt a#reements, t e 'A=F ad no r"# t to rene) t e same. Aarcos accused t e 'A=F o! un>ust$y demand"n# payment !or t e tota$ amount o! t e trust rece"pt a#reements )"t out deduct"n# t e 3/V mar#"na$ depos"t t at e ad a$ready made. Be decr"ed t e 'A=F&s un$a)!u$ c ar#"n# o! accumu$ated "nterest because e c$a"med t ere )as no a#reement as to t e payment o! "nterest. T e "nterest arose !rom numerous a$$e#ed e1tens"ons and pena$t"es. Aarcos re"terated t at t ere )as no a#reement to t "s e!!ect because "s t"me depos"ts served as t e co$$atera$ !or "s rema"n"n# ob$"#at"on. Aarcos a$so den"ed t at e obta"ned anot er $oan !rom t e 'A=F !or P5//,/// )"t "nterest at 25V per annum supposed$y covered by Prom"ssory =ote =o. 2/.979.73 dated 24 <ctober 1973. Aarcos be)a"$ed t e 'A=F&s be$ated c$a"m t at "s t"me depos"ts )ere app$"ed to t "s vo"d prom"ssory note on 12 Aarc 1975. ;n sum, Aarcos c$a"med t at+ B"s t"me depos"t )"t t e 'A=F G"n t e tota$ sum o! P1,427,795.34S5T as earned accumu$ated "nterest s"nce Aarc

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

(9 o% $&&

1972 up to t e present "n t e tota$ amount o! P1,727,3/5.45 at t e rate o! 17V per annum so "s tota$ money )"t de!endant (t e 'A=F) "s P3,15@,1//.79 $ess t e amount o! P595,775 represent"n# t e 7/V ba$ance o! t e mar#"na$ depos"t and0or ba$ance o! t e trust a#reements*H and B"s "ndebtedness )as on$y P751,25/ $ess t e 3/V pa"d as mar#"na$ depos"t or a ba$ance o! P595,775, ) "c t e 'A=F s ou$d ave automat"ca$$y deducted !rom "s t"me depos"ts and accumu$ated "nterest, $eav"n# t e 'A=F&s "ndebtedness to "m at P2,5@/,/25.79. Aarcos prayed t e tr"a$ court to dec$are Prom"ssory =ote =o. 2/. 979.73 vo"d and to order t e 'A=F to pay t e amount o! "s t"me depos"ts )"t "nterest. Be a$so sou# t t e a)ard o! mora$ and e1emp$ary dama#es as )e$$ as attorney&s !ees !or P2//,/// p$us 25V o! t e amount due. <n 9 <ctober 1979, t e 'A=F !"$ed "ts Ans)er )"t ,ounterc$a"m. T e 'A=F den"ed t e a$$e#at"ons "n t e comp$a"nt. T e 'A=F be$"eved t at t e su"t )as Aarcos& desperate attempt to avo"d $"ab"$"ty under severa$ trust rece"pt a#reements t at )ere t e sub>ect o! a cr"m"na$ comp$a"nt. T e 'A=F a$$e#ed t at as o! 12 Aarc 1972, t e tota$ amount o! t e var"ous t"me depos"ts o! Aarcos )as on$y P7@4,797.@7 and not P1,427,795.35 as a$$e#ed "n t e comp$a"nt. T e P7@4,797.@7 "nc$uded t e P@@4,797.@7 t at Aarcos depos"ted on 11 Aarc 1972. T e 'A=F po"nted out t at Aarcos de$"vered to t e 'A=F t e t"me depos"t cert"!"cates by v"rtue o! t e -eed o! Ass"#nment dated 2 6une 1979. Aarcos e1ecuted t e -eed o! Ass"#nment to secure "s var"ous $oan ob$"#at"ons. T e 'A=F c$a"med t at t ese $oans are covered by Prom"ssory =ote =o. 2/.75@.72 dated 2 6une 1972 !or P42/,/// and Prom"ssory =ote =o. 2/.979.73 dated 24 <ctober 1973 !or P5//,///. T e 'A=F stressed t at t ese ob$"#at"ons are separate and d"st"nct !rom t e trust rece"pt a#reements. 4 en Aarcos de!au$ted "n t e payment o! Prom"ssory =ote =o. 2/.979.73, t e 'A=F deb"ted "s t"me depos"ts and app$"ed t e same to t e ob$"#at"on t at "s no) cons"dered !u$$y pa"d. T e 'A=F "ns"sted t at t e -eed o! Ass"#nment aut or"Ded "t to app$y t e t"me depos"ts "n payment o! Prom"ssory =ote =o. 2/.979.73. ;n Aarc 1972, t e )"!e o! Aarcos, ,onso$ac"on Aarcos, sou# t t e adv"ce o! Pa#sa$"#an. ,onso$ac"on "n!ormed Pa#sa$"#an t at s e and er usband needed to !"nance t e purc ase o! construct"on mater"a$s !or t e"r bus"ness, 5.A. Aarcos ,onstruct"on ,ompany. Pa#sa$"#an su##ested t e open"n# o! t e $etters o! cred"t and t e e1ecut"on o! trust rece"pts, ) ereby t e 'A=F )ou$d a#ree to purc ase t e #oods needed by t e c$"ent t rou# t e $etters o! cred"t. T e 'A=F )ou$d t en entrust t e #oods to t e c$"ent, as entrustee, ) o )ou$d underta%e to de$"ver t e proceeds o! t e sa$e or t e #oods t emse$ves to t e entrustor )"t "n a spec"!"ed t"me. T e 'A=F c$a"med t at Aarcos !ree$y entered "nto t e trust rece"pt a#reements. 4 en Aarcos !a"$ed to account !or t e #oods de$"vered or !or t e proceeds o! t e sa$e, t e 'A=F !"$ed a comp$a"nt !or v"o$at"on o! Pres"dent"a$ -ecree =o. 115 or t e Trust Rece"pts 5a). ;nstead o! "n"t"at"n# ne#ot"at"ons !or t e sett$ement o! t e account, Aarcos !"$ed t "s su"t. T e 'A=F den"ed !a$s"!y"n# Prom"ssory =ote =o. 2/.979.73. T e 'A=F c$a"med t at t e prom"ssory note "s supported by documentary ev"dence suc as Aarcos& app$"cat"on !or t "s $oan and t e m"cro!"$m o! t e cas "er&s c ec% "ssued !or t e $oan. T e 'A=F "ns"sted t at Aarcos cou$d not deny t e a#reement !or t e payment o! "nterest and pena$t"es under t e trust rece"pt

a#reements. T e 'A=F prayed !or t e d"sm"ssa$ o! t e comp$a"nt, payment o! dama#es, attorney&s !ees and cost o! su"t. T e tr"a$ court rendered "ts dec"s"on "n !avor o! Aarcos. A##r"eved, t e 'A=F appea$ed to t e ,ourt o! Appea$s. <n 1/ -ecember 199@, t e ,ourt o! Appea$s mod"!"ed t e dec"s"on o! t e tr"a$ court by reduc"n# t e amount o! actua$ dama#es and de$et"n# t e attorney&s !ees a)arded to Aarcos. IssueA 4<= t e ban% "s $"ab$e !or o!!sett"n# "s t"me depos"ts 3eldA Pes 1atioA T e 'A=F "s $"ab$e to Aarcos !or o!!sett"n# "s t"me depos"ts )"t a !"ct"t"ous prom"ssory note. T e e1"stence o! Prom"ssory =ote =o. 2/.979.73 cou$d ave been eas"$y proven ad t e 'A=F presented t e or"#"na$ cop"es o! t e prom"ssory note and "ts support"n# ev"dence. ;n $"eu o! t e or"#"na$ cop"es, t e 'A=F presented t e Gmac "ne cop"es o! t e dup$"cateH o! t e documents. T ese subst"tute documents ave no ev"dent"ary va$ue. T e 'A=F&s !a"$ure to e1p$a"n t e absence o! t e or"#"na$ documents and to ma"nta"n a record o! t e o!!sett"n# o! t "s $oan )"t t e t"me depos"ts br"n# to !ore t e 'A=F&s d"sma$ !a"$ure to !u$!"$$ "ts !"duc"ary duty to Aarcos. (8, 2 o! Repub$"c Act =o. 7791 (3enera$ 'an%"n# 5a) o! 2///) e1press$y "mposes t "s !"duc"ary duty on ban%s ) en "t dec$ares t at t e (tate reco#n"Des t e G!"duc"ary nature o! ban%"n# t at re2u"res "# standards o! "nte#r"ty and per!ormance.H T "s statutory dec$arat"on mere$y ec oes t e ear$"er pronouncement o! t e (upreme ,ourt "n ("me1 ;nternat"ona$ (Aan"$a) ;nc. v. ,ourt o! Appea$s re2u"r"n# ban%s to Gtreat t e accounts o! "ts depos"tors )"t met"cu$ous care, a$)ays av"n# "n m"nd t e !"duc"ary nature o! t e"r re$at"ons "p.H T e ,ourt re"terated t "s !"duc"ary duty o! ban%s "n subse2uent cases. A$t ou# RA =o. 7791 too% e!!ect on$y "n t e year 2///, at t e t"me t at t e 'A=F transacted )"t Aarcos, >ur"sprudence ad a$ready "mposed on ban%s t e same "# standard o! d"$"#ence re2u"red under RA =o. 7791. T "s !"duc"ary re$at"ons "p means t at t e ban%&s ob$"#at"on to observe G "# standards o! "nte#r"ty and per!ormanceH "s deemed )r"tten "nto every depos"t a#reement bet)een a ban% and "ts depos"tor. T e !"duc"ary nature o! ban%"n# re2u"res ban%s to assume a de#ree o! d"$"#ence "# er t an t at o! a #ood !at er o! a !am"$y. T us, t e 'A=F&s !"duc"ary duty "mposes upon "t a "# er $eve$ o! accountab"$"ty t an t at e1pected o! Aarcos, a bus"nessman, ) o ne#$"#ent$y s"#ned b$an% !orms and entrusted "s cert"!"cates o! t"me depos"ts to Pa#sa$"#an )"t out reta"n"n# cop"es o! t e cert"!"cates. T e bus"ness o! ban%"n# "s "mbued )"t pub$"c "nterest. T e stab"$"ty o! ban%s $ar#e$y depends on t e con!"dence o! t e peop$e "n t e onesty and e!!"c"ency o! ban%s. ;n ("me1 ;nternat"ona$ (Aan"$a) ;nc. v. ,ourt o! Appea$sS3@T )e po"nted out t e depos"tor&s reasonab$e e1pectat"ons !rom a ban% and t e ban%&s correspond"n# duty to "ts depos"tor, as !o$$o)s+ ;n every case, t e depos"tor e1pects t e ban% to treat "s account )"t t e utmost !"de$"ty, ) et er suc account cons"sts on$y o! a !e) undred pesos or o! m"$$"ons. T e ban% must record every s"n#$e transact"on accurate$y, do)n to t e $ast centavo, and as prompt$y as poss"b$e. T "s as to be done "! t e account "s to re!$ect at any #"ven t"me t e amount o! money t e depos"tor can d"spose o! as e sees !"t, con!"dent t at t e ban% )"$$ de$"ver "t as and to ) omever e d"rects. As t e 'A=F&s depos"tor, Aarcos ad t e r"# t to e1pect t at t e 'A=F )as accurate$y record"n# "s transact"ons )"t "t. Epon t e matur"ty o! "s t"me depos"ts, Aarcos a$so ad t e r"# t to )"t dra)

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

)0 o% $&&

t e amount due "m a!ter t e 'A=F ad correct$y deb"ted "s outstand"n# ob$"#at"ons !rom "s t"me depos"ts. 'y t e very nature o! "ts bus"ness, t e 'A=F s ou$d ave ad "n "ts possess"on t e or"#"na$ cop"es o! t e d"sputed prom"ssory note and t e records and $ed#ers ev"denc"n# t e o!!sett"n# o! t e $oan )"t t e t"me depos"ts o! Aarcos. T e 'A=F "ne1p$"cab$y !a"$ed to produce t e or"#"na$ cop"es o! t ese documents. ,$ear$y, t e 'A=F !a"$ed to treat t e account o! Aarcos )"t met"cu$ous care. T e 'A=F c$a"ms t at "t "s a reputab$e ban%"n# "nst"tut"on and t at "t as no reason to !or#e Prom"ssory =ote =o. 2/.979.73. T e tr"a$ court and appe$$ate court d"d not ru$e t at "t )as t e ban% t at !or#ed t e prom"ssory note. ;t )as Pa#sa$"#an, t e 'A=F&s branc mana#er and a c$ose !r"end o! Aarcos, ) om t e tr"a$ court cate#or"ca$$y b$amed !or t e !"ct"t"ous $oan a#reements. T e tr"a$ court e$d t at Pa#sa$"#an made up t e $oan a#reement to cover up "s "nab"$"ty to account !or t e t"me depos"ts o! Aarcos. 4 et er "t )as t e 'A=F&s ne#$"#ence and "ne!!"c"ency or Pa#sa$"#an&s m"sdeed t at depr"ved Aarcos o! t e amount due "m )"$$ not e1cuse t e 'A=F !rom "ts ob$"#at"on to return to Aarcos t e correct amount o! "s t"me depos"ts )"t "nterest. T e duty to observe G "# standards o! "nte#r"ty and per!ormanceH "mposes on t e 'A=F t at ob$"#at"on. T e 'A=F cannot a$so un>ust$y enr"c "tse$! by %eep"n# Aarcos& money. Assum"n# Pa#sa$"#an )as be "nd t e spur"ous prom"ssory note, t e 'A=F )ou$d st"$$ be accountab$e to Aarcos. 4e ave e$d t at a ban% "s $"ab$e !or t e )ron#!u$ acts o! "ts o!!"cers done "n t e "nterest o! t e ban% or "n t e"r dea$"n#s as ban% representat"ves but not !or acts outs"de t e scope o! t e"r aut or"ty. T us, )e e$d+ A ban% o$d"n# out "ts o!!"cers and a#ents as )ort y o! con!"dence )"$$ not be perm"tted to pro!"t by t e !rauds t ey may t us be enab$ed to perpetrate "n t e apparent scope o! t e"r emp$oyment* nor )"$$ "t be perm"tted to s "r% "ts respons"b"$"ty !or suc !rauds, even t ou# no bene!"t may accrue to t e ban% t ere!rom (1/ Am 6ur 2d, p. 114). Accord"n#$y, a ban%"n# corporat"on "s $"ab$e to "nnocent t "rd persons ) ere t e representat"on "s made "n t e course o! "ts bus"ness by an a#ent act"n# )"t "n t e #enera$ scope o! "s aut or"ty even t ou# , "n t e part"cu$ar case, t e a#ent "s secret$y abus"n# "s aut or"ty and attempt"n# to perpetrate a !raud upon "s pr"nc"pa$ or some ot er person, !or "s o)n u$t"mate bene!"t. =ote+ T e prom"ssory note )as cons"dered as !or#ed as t e ban% d"d not s o) t e or"#"na$. App$y"n# t e 'est 8v"dence Ru$e, t e or"#"na$ s ou$d ave been s o)n not t e mac "ne pr"nt.out, ) "c )as ) at )as #"ven by t e 'an%.

(III. &3ILI&&I)E %'1&'1ATI') A%T

2E&'SIT

I)SU1A)%E

'as"c Po$"cy ((ec.1) To promote and sa!e#uard t e "nterests o! t e depos"t"n# pub$"c by )ay o! prov"d"n# permanent and cont"nu"n# "nsurance covera#e on a$$ "nsured depos"ts. Aa"n :unct"ons 1. ;nsurance o! 'an%s ((ec.5) To "nsure t e depos"t $"ab"$"t"es o! any ban% or ban%"n# "nst"tut"on en#a#ed "n t e bus"ness o! rece"v"n# depos"ts or ) "c t erea!ter may en#a#e "n t e bus"ness o! rece"v"n# depos"ts. 2. 81am"nat"on o! 'an%s ((ec. 7 and 9) To conduct e1am"nat"on o! ban%s )"t pr"or approva$ o! t e Aonetary 'oard. =o e1am"nat"on can be conducted )"t "n t)e$ve mont s !rom t e $ast e1am"nat"on date.

T e 'oard o! -"rectors s a$$ appo"nt e1am"ners ) o s a$$ ave po)er, on be a$! o! t e P-;, to e1am"ne any "nsured ban%. (uc e1am"ner s a$$ ave t e po)er to ma%e a t orou# e1am"nat"on o! a$$ t e a!!a"rs o! t e ban% and "n do"n# so, e s a$$ ave t e po)er to adm"n"ster oat s, to e1am"ne and ta%e and preserve t e test"mony o! any o! t e o!!"cers and a#ents t ereo!, and, to compe$ t e presentat"on o! boo%s, documents, papers, or records necessary "n "s >ud#ment to ascerta"n t e !acts re$at"ve to t e cond"t"on o! t e ban%* and s a$$ ma%e a !u$$ and deta"$ed report o! t e cond"t"on o! t e ban% to t e P-;,. T e 'oard o! -"rectors s a$$ appo"nt c$a"m a#ents ) o s a$$ ave t e po)er to "nvest"#ate and e1am"ne a$$ c$a"ms !or "nsured depos"ts and trans!erred depos"ts. 8ac c$a"m a#ent s a$$ ave t e po)er to adm"n"ster oat s and to e1am"ne under oat and ta%e and preserve test"mony o! any person re$at"n# to suc c$a"m 3. Re ab"$"tat"on o! 'an%s ((ec.17) Aoney o! t e P-;, not ot er)"se emp$oyed s a$$ be "nvested "n ob$"#at"ons o! t e Repub$"c o! t e P "$"pp"nes or "n ob$"#at"ons #uaranteed as to pr"nc"pa$ and "nterest by t e Repub$"c o! t e P "$"pp"nes. T e ban%"n# or c ec%"n# accounts o! t e P-;, s a$$ be %ept )"t t e 'an#%o (entra$ n# P"$"p"nas, )"t t e P "$"pp"ne =at"ona$ 'an%, or )"t any ot er ban% des"#nated as depos"tory or !"sca$ a#ent o! t e P "$"pp"ne #overnment. 4. Rece"vers "p o! ,$osed 'an%s ((ec.1/) T e P-;, as rece"ver s a$$ contro$, mana#e and adm"n"ster t e a!!a"rs o! t e c$osed ban%. 8!!ect"ve "mmed"ate$y upon ta%eover as rece"ver o! suc ban%, t e po)ers, !unct"ons and dut"es, as )e$$ as a$$ a$$o)ances, remunerat"ons and per2u"s"tes o! t e d"rectors, o!!"cers, and stoc% o$ders o! suc ban% are suspended, and t e re$evant prov"s"ons o! t e Art"c$es o! ;nP-;, and 'y.$a)s o! t e c$osed ban% are $"%e)"se deemed suspended. T e assets o! t e c$osed ban% under rece"vers "p s a$$ be deemed "n custodia legis "n t e ands o! t e rece"ver. :rom t e t"me t e c$osed ban% "s p$aced under suc rece"vers "p, "ts assets s a$$ not be sub>ect to attac ment, #arn"s ment, e1ecut"on, $evy or any ot er court processes. 5. 5"2u"dat"on o! ,$osed 'an%s ((ec.3/, R.A.7@53) 4 enever, upon report o! t e ead o! t e superv"s"n# or e1am"n"n# department, t e Aonetary 'oard !"nds t at a ban% or 2uas".ban%+ (a) "s unab$e to pay "ts $"ab"$"t"es as t ey become due "n t e ord"nary course o! bus"ness+ Prov"ded, T at t "s s a$$ not "nc$ude "nab"$"ty to pay caused by e1traord"nary demands "nduced by !"nanc"a$ pan"c "n t e ban%"n# commun"ty* (b) as "nsu!!"c"ent rea$"Dab$e assets, as determ"ned by t e 'an#%o (entra$, to meet "ts $"ab"$"t"es* or (c) cannot cont"nue "n bus"ness )"t out "nvo$v"n# probab$e $osses to "ts depos"tors or cred"tors* or (d) as )"$$!u$$y v"o$ated a cease and des"st order under (8, 37 t at as become !"na$, "nvo$v"n# acts or transact"ons ) "c amount to !raud or a d"ss"pat"on o! t e assets o! t e "nst"tut"on* "n ) "c cases, t e Aonetary 'oard may summar"$y and )"t out need !or pr"or ear"n# !orb"d t e "nst"tut"on !rom do"n# bus"ness "n t e P "$"pp"nes and des"#nate t e P "$"pp"ne -epos"t ;nsurance P-;, as rece"ver o! t e ban%"n# "nst"tut"on. :or a 2uas".ban%, any person o! reco#n"Ded competence "n ban%"n# or !"nance may be des"#ned as rece"ver. T e rece"ver s a$$ "mmed"ate$y #at er and ta%e c ar#e o! a$$ t e assets and $"ab"$"t"es o! t e "nst"tut"on, adm"n"ster t e same !or t e bene!"t o! "ts cred"tors, and e1erc"se t e #enera$ po)ers o! a rece"ver under t e Rev"sed Ru$es o! ,ourt but s a$$ not, )"t t e e1cept"on o! adm"n"strat"ve e1pend"tures, pay or comm"t any act t at )"$$ "nvo$ve t e trans!er or d"spos"t"on o! any asset o! t e "nst"tut"on+ Prov"ded, T at t e rece"ver may depos"t or p$ace t e

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

)$ o% $&&

!unds o! t e "nst"tut"on "n non.specu$at"ve "nvestments. T e rece"ver s a$$ determ"ne as soon as poss"b$e, but not $ater t an n"nety (9/) days !rom ta%e over, ) et er t e "nst"tut"on may be re ab"$"tated or ot er)"se p$aced "n suc a cond"t"on so t at "t may be perm"tted to resume bus"ness )"t sa!ety to "ts depos"tors and cred"tors and t e #enera$ pub$"c+ Prov"ded, T at any determ"nat"on !or t e resumpt"on o! bus"ness o! t e "nst"tut"on s a$$ be sub>ect to pr"or approva$ o! t e Aonetary 'oard. ;! t e rece"ver determ"nes t at t e "nst"tut"on cannot be re ab"$"tated or perm"tted to resume bus"ness "n accordance )"t t e ne1t preced"n# para#rap , t e Aonetary 'oard s a$$ not"!y "n )r"t"n# t e board o! d"rectors o! "ts !"nd"n#s and d"rect t e rece"ver to proceed )"t t e $"2u"dat"on o! t e "nst"tut"on. T e rece"ver s a$$+ (1) !"$e ex parte )"t t e proper re#"ona$ tr"a$ court, and )"t out re2u"rement o! pr"or not"ce or any ot er act"on, a pet"t"on !or ass"stance "n t e $"2u"dat"on o! t e "nst"tut"on pursuant to a $"2u"dat"on p$an adopted by t e P "$"pp"ne -epos"t ;nsurance P-;, !or #enera$ app$"cat"on to a$$ c$osed ban%s. ;n case o! 2uas".ban%s, t e $"2u"dat"on p$an s a$$ be adopted by t e Aonetary 'oard. Epon ac2u"r"n# >ur"sd"ct"on, t e court s a$$, upon mot"on by t e rece"ver a!ter due not"ce, ad>ud"cate d"sputed c$a"ms a#a"nst t e "nst"tut"on, ass"st t e en!orcement o! "nd"v"dua$ $"ab"$"t"es o! t e stoc% o$ders, d"rectors and o!!"cers, and dec"de on ot er "ssues as may be mater"a$ to "mp$ement t e $"2u"dat"on p$an adopted. T e rece"ver s a$$ pay t e cost o! t e proceed"n#s !rom t e assets o! t e "nst"tut"on. (2) convert t e assets o! t e "nst"tut"ons to money, d"spose o! t e same to cred"tors and ot er part"es, !or t e purpose o! pay"n# t e debts o! suc "nst"tut"on "n accordance )"t t e ru$es on concurrence and pre!erence o! cred"t under t e ,"v"$ ,ode o! t e P "$"pp"nes and e may, "n t e name o! t e "nst"tut"on, and )"t t e ass"stance o! counse$ as e may reta"n, "nst"tute suc act"ons as may be necessary to co$$ect and recover accounts and assets o!, or de!end any act"on a#a"nst, t e "nst"tut"on. T e assets o! an "nst"tut"on under rece"vers "p or $"2u"dat"on s a$$ be deemed "n custod"a $e#"s "n t e ands o! t e rece"ver and s a$$, !rom t e moment t e "nst"tut"on )as p$aced under suc rece"vers "p or $"2u"dat"on, be e1empt !rom any order o! #arn"s ment, $evy, attac ment, or e1ecut"on. T e act"ons o! t e Aonetary 'oard ta%en under t "s (8, or under (8, 29 o! t "s Act s a$$ be !"na$ and e1ecutory, and may not be restra"ned or set as"de by t e court e1cept on pet"t"on !or cert"orar" on t e #round t at t e act"on ta%en )as "n e1cess o! >ur"sd"ct"on or )"t suc #rave abuse o! d"scret"on as to amount to $ac% or e1cess o! >ur"sd"ct"on. T e pet"t"on !or cert"orar" may on$y be !"$ed by t e stoc% o$ders o! record represent"n# t e ma>or"ty o! t e cap"ta$ stoc% )"t "n ten (1/) days !rom rece"pt by t e board o! d"rectors o! t e "nst"tut"on o! t e order d"rect"n# rece"vers "p, $"2u"dat"on or conservators "p. ;nsured -epos"ts ((ec.4(#)) T e amount due to any bona ide depos"tor !or $e#"t"mate depos"ts "n an "nsured ban% net o! any ob$"#at"on o! t e depos"tor to t e "nsured ban% as o! date o! c$osure, but not to e1ceed P5//,///.//. 5"ab"$"ty to -epos"tors 1. -epos"t 5"ab"$"t"es Re2u"red to be ;nsured ((ec.5) T e depos"t $"ab"$"t"es o! any ban% or ban%"n# "nst"tut"on, ) "c "s en#a#ed "n t e bus"ness o! rece"v"n# depos"ts or ) "c t erea!ter may en#a#e "n t e bus"ness o! rece"v"n# depos"ts, s a$$ be "nsured )"t t e P-;,. 2. ,ommencement o! 5"ab"$"ty ((ec.14) 4 enever an "nsured ban% s a$$ ave been c$osed by t e Aonetary 'oard, payment o! t e "nsured depos"ts on suc c$osed

ban% s a$$ be made by t e P-;, as soon as poss"b$e e"t er (1) by cas or (2) by ma%"n# ava"$ab$e to eac depos"tor a trans!erred depos"t "n anot er "nsured ban% "n an amount e2ua$ to "nsured depos"t o! suc depos"tor. T e P-;,, "n "ts d"scret"on, may re2u"re proo! o! c$a"ms to be !"$ed be!ore pay"n# t e "nsured depos"ts, and t at "n any case ) ere t e P-;, "s not sat"s!"ed as to t e v"ab"$"ty o! a c$a"m !or an "nsured depos"t, "t may re2u"re !"na$ determ"nat"on o! a court o! competent >ur"sd"ct"on be!ore pay"n# suc c$a"m. :a"$ure to sett$e t e c$a"m, )"t "n s"1 (@) mont s !rom t e date o! !"$"n# o! c$a"m !or "nsured depos"t, ) ere suc !a"$ure )as due to #rave abuse o! d"scret"on, #ross ne#$"#ence, bad !a"t , or ma$"ce, s a$$, upon conv"ct"on, sub>ect t e d"rectors, o!!"cers or emp$oyees o! t e P-;, respons"b$e !or t e de$ay, to "mpr"sonment !rom s"1 (@) mont s to one (1) year. T e per"od s a$$ not app$y "! t e va$"d"ty o! t e c$a"m re2u"res t e reso$ut"on o! "ssues o! !acts and or $a) by anot er o!!"ce, body or a#ency "nc$ud"n# t e case ment"oned "n t e !"rst prov"so or by t e P-;, to#et er )"t suc ot er o!!"ce, body or a#ency. 3. -epos"t Accounts =ot 8nt"t$ed to Payment ((ec.4(!)) Any ob$"#at"on o! a ban% ) "c "s payab$e at t e o!!"ce o! t e ban% $ocated outs"de o! t e P "$"pp"nes s a$$ not be a depos"t or "nc$uded as part o! t e tota$ depos"ts or o! "nsured depos"t. (ub>ect to t e approva$ o! t e 'oard o! -"rectors, any "nsured ban% ) "c "s "ncorporated under t e $a)s o! t e P "$"pp"nes ) "c ma"nta"ns a branc outs"de t e P "$"pp"nes may e$ect to "nc$ude !or "nsurance "ts depos"t ob$"#at"ons payab$e on$y at suc branc . 4. 5"ab"$"ty !or ,ontents o! (a!ety 'o1 =ot $"ab$e ? t e 'an% as no )ay o! %no)"n# ) at a depos"tor p$aces "n "s secur"ty depos"t bo1 (,at"nd"#). 5. -eterm"nat"on o! ;nsured -epos"ts ((ec.1@) T e P-;, s a$$ commence t e determ"nat"on o! "nsured depos"ts due t e depos"tors o! a c$osed ban% upon "ts actua$ ta%eover o! t e c$osed ban%. @. ,a$cu$at"on o! 5"ab"$"ty ((ec. 4(#)) Per -epos"tor, Per ,apac"ty ;n determ"n"n# suc amount due to any depos"tor, t ere s a$$ be added to#et er a$$ depos"ts "n t e ban% ma"nta"ned "n t e same r"# t and capac"ty !or "s bene!"t e"t er "n "s o)n name or "n t e name o! ot ers. 6o"nt Accounts A >o"nt account re#ard$ess o! ) et er t e con>unct"on Cand,C Cor,C Cand0orC "s used, s a$$ be "nsured separate$y !rom any "nd"v"dua$$y. o)ned depos"t account. ;! t e account "s e$d >o"nt$y by t)o or more natura$ persons, or by t)o or more >ur"d"ca$ persons or ent"t"es, t e ma1"mum "nsured depos"t s a$$ be d"v"ded "nto as many e2ua$ s ares as t ere are "nd"v"dua$s, >ur"d"ca$ persons or ent"t"es, un$ess a d"!!erent s ar"n# "s st"pu$ated "n t e document o! depos"t. ;! t e account "s e$d by a >ur"d"ca$ person or ent"ty >o"nt$y )"t one or more natura$ persons, t e ma1"mum "nsured depos"t s a$$ be presumed to be$on# ent"re$y to suc >ur"d"ca$ person or ent"ty. T e a##re#ate o! t e "nterests o! eac co.o)ner over severa$ >o"nt accounts, ) et er o)ned by t e same or d"!!erent comb"nat"ons o! "nd"v"dua$s, >ur"d"ca$ persons or ent"t"es, s a$$ $"%e)"se be sub>ect to t e ma1"mum "nsured depos"t o! P25/,///.//. Aode o! Payments ((ec.14) Payment s a$$ be made by cas or trans!erred depos"t. Trans!erred -epos"t. -epos"t "n anot er "nsured ban% "n an amount e2ua$ to "nsured depos"t o! suc depos"tor. 8!!ect o! Payment ((ecc. 15, 1@(b)) Payment (a) o! an "nsured depos"t to any person by t e P-;, and (b) payment o! a trans!erred depos"t to any person by t e ne)

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

)2 o% $&&

ban% or by an "nsured ban% "n ) "c a trans!erred depos"t as been made ava"$ab$e s a$$ d"sc ar#e t e P-;,. Payment as Pre!erred ,red"t (Art.2244, ,"v"$ ,ode) :a"$ure to (ett$e ,$a"m o! an ;nsured -epos"tor ((ec. 14) T e P-;,, "n "ts d"scret"on, may re2u"re proo! o! c$a"ms to be !"$ed be!ore pay"n# t e "nsured depos"ts, and t at "n any case ) ere t e P-;, "s not sat"s!"ed as to t e v"ab"$"ty o! a c$a"m !or an "nsured depos"t, "t may re2u"re !"na$ determ"nat"on o! a court o! competent >ur"sd"ct"on be!ore pay"n# suc c$a"m. :a"$ure to sett$e t e c$a"m, )"t "n s"1 (@) mont s !rom t e date o! !"$"n# o! c$a"m !or "nsured depos"t, ) ere suc !a"$ure )as due to #rave abuse o! d"scret"on, #ross ne#$"#ence, bad !a"t , or ma$"ce, s a$$, upon conv"ct"on, sub>ect t e d"rectors, o!!"cers or emp$oyees o! t e P-;, respons"b$e !or t e de$ay, to "mpr"sonment !rom s"1 (@) mont s to one (1) year. T e per"od s a$$ not app$y "! t e va$"d"ty o! t e c$a"m re2u"res t e reso$ut"on o! "ssues o! !acts and or $a) by anot er o!!"ce, body or a#ency "nc$ud"n# t e case ment"oned "n t e !"rst prov"so or by t e ,orporat"on to#et er )"t suc ot er o!!"ce, body or a#ency. :a"$ure o! -epos"tor to ,$a"m ;nsured -epos"t ((ec.1@(e)) ;! t e depos"tor "n t e c$osed ban% s a$$ !a"$ to c$a"m "s "nsured depos"ts )"t t e ,orporat"on )"t "n t)o (2) years !rom actua$ ta%eover o! t e c$osed ban% by t e rece"ver, or does not en!orce "s c$a"m !"$ed )"t t e corporat"on )"t "n t)o (2) years a!ter t e t)o.year per"od to !"$e a c$a"m as ment"oned ere"nabove, a$$ r"# ts o! t e depos"tor a#a"nst t e ,orporat"on )"t respect to t e "nsured depos"t s a$$ be barred* o)ever, a$$ r"# ts o! t e depos"tor a#a"nst t e c$osed ban% and "ts s are o$ders or t e rece"vers "p estate to ) "c t e ,orporat"on may ave become subro#ated, s a$$ t ereupon revert to t e depos"tor. T erea!ter, t e ,orporat"on s a$$ be d"sc ar#ed !rom any $"ab"$"ty on t e "nsured depos"t. <t er Po)ers o! t e P-;, 1. To adopt and use a corporate sea$* 2. To ave success"on unt"$ d"sso$ved by an Act o! ,on#ress* 3. To ma%e contracts 4. To sue and be sued, comp$a"n and de!end, "n any court o! $a) "n t e P "$"pp"nes 5. To appo"nt "ts 'oard o! -"rectors, o!!"cers and emp$oyees @. To prescr"be "ts by.$a)s 7. To e1erc"se a$$ po)ers #ranted 7. To prescr"be ru$es and re#u$at"ons 9. To estab$"s "ts o)n prov"dent !und 1/. To comprom"se, condone, re$ease any c$a"m or sett$ed $"ab"$"ty 11. To under)r"te or advance $"t"#at"on costs or e1penses Pro "b"t"on a#a"nst t e (p$"tt"n# o! -epos"ts ((ec.21(!)(5)) (p$"tt"n# o! depos"ts occurs ) enever a depos"t account )"t an outstand"n# ba$ance o! more t an t e statutory ma1"mum amount o! "nsured depos"t ma"nta"ned under t e name o! natura$ or >ur"d"ca$ persons "s bro%en do)n and trans!erred "nto t)o or more accounts "n t e name0s o! natura$ or >ur"d"ca$ persons or ent"t"es ) o ave no bene!"c"a$ o)ners "p on trans!erred depos"ts "n t e"r names )"t "n t "rty (3/) days "mmed"ate$y preced"n# or dur"n# a ban%.dec$ared ban% o$"day, or "mmed"ate$y preced"n# a c$osure order "ssued by t e Aonetary 'oard o! t e 'an#%o (entra$ n# P"$"p"nas !or t e purpose o! ava"$"n# o! t e ma1"mum depos"t "nsurance covera#e. Pro "b"t"on a#a"nst ;ssuance o! TR<s ((ec.22)

=o court, e1cept t e ,ourt o! Appea$s, s a$$ "ssue any temporary restra"n"n# order, pre$"m"nary "n>unct"on or pre$"m"nary mandatory "n>unct"on a#a"nst t e P-;, !or any act"on under t e P-;, Act. T "s pro "b"t"on s a$$ app$y "n a$$ cases, d"sputes or controvers"es "nst"tuted by a pr"vate party, t e "nsured ban%, or any s are o$der o! t e "nsured ban%. T e (upreme ,ourt may "ssue a restra"n"n# order or "n>unct"on ) en t e matter "s o! e1treme ur#ency "nvo$v"n# a const"tut"ona$ "ssue, suc t at un$ess a temporary restra"n"n# order "s "ssued, #rave "n>ust"ce and "rreparab$e "n>ury )"$$ ar"se. T e party app$y"n# !or t e "ssuance o! a restra"n"n# order or "n>unct"on s a$$ !"$e a bond "n an amount to be !"1ed by t e (upreme ,ourt, ) "c bond s a$$ accrue "n !avor o! t e ,orporat"on "! t e court s ou$d !"na$$y dec"de t at t e app$"cant )as not ent"t$ed to t e re$"e! sou# t. Any restra"n"n# order or "n>unct"on "ssued "n v"o$at"on o! t "s "s vo"d and o! no !orce and e!!ect and any >ud#e ) o as "ssued t e same s a$$ su!!er t e pena$ty o! suspens"on o! at $east s"1ty (@/) days )"t out pay.

I<. LAW ') SE%1E%: '6 BA)K 2E&'SITS


Purpose To encoura#e peop$e to depos"t t e"r money "n ban%s and t ereby d"scoura#e pr"vate oard"n# so t at t e ban%s may $end out t e money and ass"st "n t e econom"c deve$opment o! t e country. Pro "b"ted Acts 1. T e e1am"nat"on and "n2u"ry or $oo%"n# "nto a$$ depos"ts o! ) atever nature )"t ban%s "n t e P "$"pp"nes ("nc$ud"n# "nvestments "n bonds "ssued by t e 3overnment) by any person, #overnment, bureau or o!!"ce. 2. T e d"sc$osure by any o!!"c"a$ or emp$oyee o! any ban% to any unaut or"Ded person o! any "n!ormat"on concern"n# sa"d depos"ts. 81cept"ons 1. Epon )r"tten perm"ss"on o! t e depos"tor 2. ;n cases o! "mpeac ment 3. Epon order o! a competent court "n cases o! br"bery or dere$"ct"on o! duty o! a pub$"c o!!"c"a$ 4. ;n cases ) ere t e money depos"ted or "nvested "s t e sub>ect matter o! t e $"t"#at"on 5. Epon court order "n cases o! une1p$a"ned )ea$t (RA3/19) @. Epon order o! t e ,omm"ss"oner o! ;nterna$ Revenue "n respect o! ban% depos"ts o! a decedent !or t e purpose o! determ"n"n# #ross estate 7. Epon order o! t e ,omm"ss"oner o! ;nterna$ Revenue "n respect o! ban% depos"ts o! a ta1payer ) o as !"$ed an app$"cat"on !or comprom"se o! "s ta1 $"ab"$"ty by reason o! !"nanc"a$ "ncapac"ty 7. Epon court order "n cases !"$ed by t e <mbudsman a. ;n case o! unc$a"med ba$ances b. 4"t out court order "! t e Ant".Aoney 5aunder"n# ,ounc"$ determ"nes t at a part"cu$ar depos"t or "nvestment "s re$ated to any one o! t e !o$$o)"n# un$a)!u$ act"v"t"es+ ". F"dnapp"n# !or ransom "". 9"o$at"ons o! t e ,ompre ens"ve -an#erous -ru#s Act """. B">ac%"n#, destruct"ve arson, murder c. Epon court order "! t e Ant".Aoney 5aunder"n# ,ounc"$ determ"nes t at a part"cu$ar depos"t or "nvestment "s re$ated to a money $aunder"n# o!!ense d. ;n2u"ry "nto or e1am"nat"on ) en made by t e 'an#%o (entra$

COMLAW REVIEWER 2009 3arn"s ment o! -epos"t , "na 'an%"n# ,orporat"on v. <rte#a

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

)' o% $&&

;((E8 4 et er or not suc an "n2u"ry "s a$$o)ed as re#ards pub$"c o!!"c"a$s under "nvest"#at"on !or a v"o$at"on o! t e Ant".3ra!t R ,orrupt Pract"ces Act B85- Pes. ) "$e Repub$"c Act =o. 14/5 prov"des t at ban% depos"ts are abso$ute$y con!"dent"a$ and t ere!ore may not be e1am"ned, "n2u"red or $oo%ed "nto, e1cept "n t ose cases enumerated t ere"n, t e Ant".3ra!t 5a) d"rects "n mandatory terms t at ban% depos"ts s a$$ be ta%en "nto cons"derat"on "n t e en!orcement o! t "s (8,, notwithstanding any prov"s"on o! $a) to t e contrary. T e on$y conc$us"on poss"b$e "s t at t e Ant".3ra!t 5a) "s "ntended to amend Repub$"c Act =o. 14/5 by prov"d"n# an add"t"ona$ e1cept"on to t e ru$e a#a"nst t e d"sc$osure o! ban% despos"ts. ,ases o! une1p$a"ned )ea$t are s"m"$ar to cases o! br"bery or dere$"ct"on o! duty and no reason "s seen ) y t ese t)o c$asses o! cases cannot be e1cepted !rom t e ru$e ma%"n# ban% depos"ts con!"dent"a$. T e po$"cy as to one cannot be d"!!erent !rom t e po$"cy as to t e ot er. T "s po$"cy e1presses t e not"on t at a pub$"c o!!"ce "s a pub$"c trust and any person ) o enters upon "ts d"sc ar#e does so )"t t e !u$$ %no)$ed#e t at "s $"!e, so !ar as re$evant to "s duty, "s open to pub$"c scrut"ny. T e "n2u"ry "nto "$$e#a$$y ac2u"red property e1tends to cases ) ere suc property "s concea$ed by be"n# e$d by or recorded "n t e name o! ot er persons. T "s propos"t"on "s made c$ear by R.A. =o. 3/19 ) "c 2u"te cate#or"ca$$y states t at t e term, $e#"t"mate$y ac2u"red property o! a pub$"c o!!"cer or emp$oyee s a$$ not "nc$ude property un$a)!u$$y ac2u"red by t e respondent, but "ts o)ners "p "s concea$ed by "ts be"n# recorded "n t e name o!, or e$d by, respondentIs spouse, ascendants, descendants, re$at"ves or an* other persons. Ae$$on 'an% v. Aa#s"no

:A,T( 6ud#ment by de!au$t )as rendered a#a"nst 'aut"sta 5o##"n# ,o., ;nc., 'R' :orest -eve$opment ,orporat"on and Aar"no 'aut"sta "n an act"on !or t e co$$ect"on o! a sum o! money. To sat"s!y t e >ud#ment, Tan F"m 5"on# sou# t t e #arn"s ment o! a ban% depos"t o! 'R' :orest )"t , "na 'an%"n# ,orporat"on. ;((E8 4 et er or not a ban%"n# "nst"tut"on may va$"d$y re!use to comp$y )"t a court process #arn"s "n# t e ban% depos"t o! a >ud#ment debtor, by "nvo%"n# t e prov"s"ons o! Repub$"c Act =o. 14/5. B85- =o. ;t )as not t e "ntent"on o! t e $e#"s$ature to p$ace ban% depos"ts beyond t e reac o! e1ecut"on to sat"s!y a !"na$ >ud#ment. T ere "s no rea$ "n2u"ry "n an order !or #arn"s ment and "! t e e1"stence o! t e depos"t )ere d"sc$osed, t e d"sc$osure )as pure$y "nc"denta$ to t e e1ecut"on process. P,;' v. ,A :A,T( An act"on )as !"$ed by a #roup o! $aborers, ) o obta"ned a !avorab$e >ud#ment !or t e payment o! bac%)a#es a#a"nst Aar"ndu2ue A"n"n# ,orporat"on (AA,). T e =5R, "ssued a )r"t o! e1ecut"on. T e ( er"!! o! =e#ros <cc"denta$ t en prepared a =ot"ce o! 3arn"s ment addressed to s"1 ban%s d"rect"n# t e ban%s concerned to "mmed"ate$y "ssue a c ec% "n t e name o! t e -eputy Prov"nc"a$ ( er"!! o! =e#ros <cc"denta$ "n an amount e2u"va$ent to t e amount o! t e #arn"s ment and t at proper rece"pt )ou$d be "ssued t ere!or. P,;' 'an% Aana#er 6ose Benares "ssued a deb"t memo !or t e !u$$ ba$ance o! AA,&s account and a$$o)ed "ts encas ment. ;((E8 4 et er or not P,;' v"o$ated Repub$"c Act =o. 14/5 ) en "t a$$o)ed t e s er"!! to #arn"s t e depos"t o! AA, pursuant to a )r"t o! e1ecut"on "ssued by t e =5R,. B85- =o. 3arn"s ment "s cons"dered as a spec"e o! attac ment !or reac "n# cred"ts be$on#"n# to t e >ud#ment debtor and o)"n# to "m !rom a stran#er to t e $"t"#at"on. Ender t e above.c"ted ru$e, t e #arn"s ee "s ob$"#ed to de$"ver t e cred"ts to t e proper o!!"cer "ssu"n# t e )r"t. T e $a) e1empts !rom $"ab"$"ty t e person av"n# "n "s possess"on or under "s contro$ any cred"ts or ot er persona$ property be$on#"n# to t e de!endant "! suc property be de$"vered or trans!erred to t e c$er%, s er"!!, or ot er o!!"cer o! t e court "n ) "c t e act"on "s pend"n#. ("nce t ere "s no ev"dence t at P,;' d"vu$#ed t e "n!ormat"on t at t e AA, ad an account )"t "t, and "t "s und"sputed t at t e sa"d account )as proper$y t e ob>ect o! t e not"ce o! #arn"s ment and )r"t o! e1ecut"on carr"ed out by t e deputy s er"!!, a du$y aut or"Ded o!!"cer o! t e court, P,;' "s not $"ab$e. ,oncea$ment o! ;$$e#a$$y Ac2u"red Property 'anco :"$"p"no v. Pur"s"ma :A,T( A comp$a"nt )as !"$ed by t e 'ureau o! ;nterna$ Revenue a#a"nst Aanue$ ,atur$a. ;n t e course o! t e pre$"m"nary "nvest"#at"on t ereo!, t e Tanodba*an "ssued a subpoena duces tecum to t e 'anco :"$"p"no (av"n#s R Aort#a#e 'an%, command"n# "ts representat"ve to to !urn"s t e Tanodba*an )"t du$y cert"!"ed cop"es o! t e records "n a$$ "ts branc es o! t e $oans, sav"n#s and t"me depos"ts and ot er ban%"n# transact"ons appear"n# "n t e names o! ,atur$a, "s )"!e and t e"r c "$dren.

:A,T( -o$ores 9entosa re2uested t e trans!er o! ]1,/// !rom t e :"rst =at"ona$ 'an% o! Aoundsv"$$e, 4est 9"r#"n"a, E.(.A. to 9"ctor"a 6av"er "n Aan"$a t rou# t e Prudent"a$ 'an%. :"rst =at"ona$ 'an% re2uested Ae$$on 'an%, to e!!ect t e trans!er. En!ortunate$y t e )"re sent by Ae$$on 'an% to Aanu!acturers Banover 'an%, a correspondent o! Prudent"a$ 'an%, "nd"cated t e amount trans!erred as E(]1,///,///.// "nstead o! E(]1,///.//. 6av"er&s usband used t e money to purc ase rea$ property !rom Bonor"o Pob$ador, 6r. ;((E8 4 et er or not t e accounts o! t "rd part"es can be $oo%ed "nto. B85- Pes. Repub$"c Act =o. 14/5 a$$o)s t e d"sc$osure o! ban% depos"ts "n cases ) ere t e money depos"ted "s t e sub>ect matter o! t e $"t"#at"on. ;nasmuc as t e case "s a"med at recover"n# t e amount converted by t e 6av"ers !or t e"r o)n bene!"t, necessar"$y, an "n2u"ry "nto t e ) ereabouts o! t e "$$e#a$$y ac2u"red amount e1tends to ) atever "s concea$ed by be"n# e$d or recorded "n t e name o! persons ot er t an t e one respons"b$e !or t e "$$e#a$ ac2u"s"t"on. ,ase Pend"n# "n ,ourt Re2u"red 'e!ore <mbudsman ,an 81am"ne 'an% Accounts Aar2ueD v. -es"erto

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

)& o% $&&

:A,T( T e <mbudsman attempted to "nspect certa"n depos"t accounts ma"nta"ned at t e 6u$"a 9ar#as 'ranc o! En"on 'an% "nvo$ved "n a case pend"n# )"t t e <mbudsman. ;((E8 4 et er or not t e po)er o! t e <mbudsman to e1am"ne and ave access to ba% accounts and records o$ds not)"t stand"n# t e prov"s"ons o! Repub$"c Act =o. 14/5. B85- =o. 'e!ore an in camera "nspect"on may be a$$o)ed, t ere must !"rst be a pend"n# case be!ore a court o! competent >ur"sd"ct"on. T e account must be c$ear$y "dent"!"ed, t e "nspect"on $"m"ted to t e sub>ect matter o! t e pend"n# case, and t e ban% personne$ as )e$$ as t e account o$der must be not"!"ed to be present dur"n# t e "nspect"on. Forei"n $ rrenc* De+o)it Act (a$vac"on v. ,entra$ 'an% :A,T( Faren (a$vac"on )as deta"ned and raped by 3re# 'arte$$", an Amer"can c"t"Den. 'arte$$" )as arrested but )as ab$e to escape !rom >a"$. T e c"v"$ case !or dama#es cont"nued, and >ud#ment )as rendered a#a"nst 'arte$$". ;((E8 4 et er or not 'arte$$"&s depos"ts )"t , "na 'an%"n# ,orporat"on can be #arn"s ed. B85- Pes. Repub$"c Act =o. @42@ does not protect and )ou$d not app$y to t e !ore"#n currency depos"t o! a trans"ent a$"en depos"tor under t e pecu$"ar c"rcumstances o! t "s case.

3.

T e amount "nvo$ved "s not commensurate )"t t e bus"ness or !"nanc"a$ capac"ty o! t e c$"ent 4. Ta%"n# "nto account a$$ %no)n c"rcumstances, "t may be perce"ved t at t e c$"entIs transact"on "s structured "n order to avo"d be"n# t e sub>ect o! report"n# re2u"rements under t e Act 5. Any c"rcumstances re$at"n# to t e transact"on ) "c "s observed to dev"ate !rom t e pro!"$e o! t e c$"ent and0or t e c$"entIs past transact"ons )"t t e covered "nst"tut"on 6. T e transact"ons "s "n a )ay re$ated to an un$a)!u$ act"v"ty or o!!ense under t "s Act t at "s about to be, "s be"n# or as been comm"tted 7. Any transact"ons t at "s s"m"$ar or ana$o#ous to any o! t e !ore#o"n# En$a)!u$ Act"v"t"es or Pred"cate ,r"mes IEn$a)!u$ act"v"tyI re!ers to any act or om"ss"on or ser"es or comb"nat"on t ereo! "nvo$v"n# or av"n# d"rect re$at"on to !o$$o)"n#+ 1. F"dnapp"n# !or ransom 2. 9"o$at"ons o! t e ,ompre ens"ve -ru#s Act o! 2//2 3. 9"o$at"ons o! t e Ant".3ra!t and ,orrupt Pract"ces Act 4. P$under under Repub$"c Act =o. 7/7/ 5. Robbery and e1tort"on 6. 6ueten# and Aas"ao 7. P"racy on t e "# seas 8. Oua$"!"ed t e!t 9. ()"nd$"n# 10. (mu##$"n# 11. 9"o$at"ons o! t e 8$ectron"c ,ommerce Act 12. B">ac%"n#, destruct"ve arson and murder 13. :raudu$ent Pract"ces under t e (ecur"t"es Re#u$at"on ,ode 14. :e$on"es or o!!enses o! a s"m"$ar nature t at are pun"s ab$e under t e pena$ $a)s o! ot er countr"es Aoney 5aunder"n# <!!enses Aoney $aunder"n# "s a cr"me ) ereby t e proceeds o! an un$a)!u$ act"v"ty as ere"n de!"ned are transacted, t ereby ma%"n# t em appear to ave or"#"nated !rom $e#"t"mate sources. ;t "s comm"tted by t e !o$$o)"n#+ 1. Any person %no)"n# t at any monetary "nstrument or property represents, "nvo$ves, or re$ates to, t e proceeds o! any un$a)!u$ act"v"ty, transacts or attempts to transacts sa"d monetary "nstrument or property. 2. Any person %no)"n# t at any monetary "nstrument or property "nvo$ves t e proceeds o! any un$a)!u$ act"v"ty, per!orms or !a"$s to per!orm any act as a resu$t o! ) "c e !a$"c"tates t e o!!ense o! money $aunder"n# re!erred to "n para#rap (a) above. 3. Any person %no)"n# t at any monetary "nstrument or property "s re2u"red under t "s Act to be d"sc$osed and !"$ed )"t t e Ant".Aoney 5aunder"n# ,ounc"$ (AA5,), !a"$s to do so. Ant".Aoney 5aunder"n# ,ounc"$ T e Ant".Aoney 5aunder"n# ,ounc"$ "s ereby created and s a$$ be composed o! t e 3overnor o! t e 'an#%o (entra$ n# P"$"p"nas as c a"rman, t e ,omm"ss"oner o! t e ;nsurance ,omm"ss"on and t e , a"rman o! t e (ecur"t"es and 81c an#e ,omm"ss"on as member. T e AA5, s a$$ s a$$ act unan"mous$y "n t e d"sc ar#e o! "ts !unct"ons as de!"ned ereunder+ 1. To re2u"re and rece"ve covered or susp"c"ous transact"on reports !rom covered "nst"tut"ons 2. To "ssue orders addressed to t e appropr"ate (uperv"s"n# Aut or"ty or t e covered "nst"tut"ons to determ"ne t e true "dent"ty o! t e o)ner o! any monetary "nstrument or preperty

Anti21one* Fa nderin" Act ,ommon (ta#es o! Aoney 5aunder"n# P$acement, $ayer"n#, "nte#rat"on ,overed ;nst"tut"ons 1. 'an%s, non.ban%s, 2uas".ban%s, trust ent"t"es, and a$$ ot er "nst"tut"ons and t e"r subs"d"ar"es and a!!"$"ates superv"sed or re#u$ated by t e 'an#%o (entra$ n# P"$"p"nas ('(P) 2. ;nsurance compan"es and a$$ ot er "nst"tut"ons superv"sed or re#u$ated by t e ;nsurance ,omm"ss"on 3. (") (ecur"t"es dea$ers, bro%ers, sa$esmen, "nvestment ouses and ot er s"m"$ar ent"t"es mana#"n# secur"t"es or render"n# serv"ces as "nvestment a#ent, adv"sor, or consu$tant, ("") mutua$ !unds, c$ose and "nvestment compan"es, common trust !unds, pre. need compan"es and ot er s"m"$ar ent"t"es, (""") !ore"#n e1c an#e corporat"ons, money c an#ers, money payment, rem"ttance, and trans!er compan"es and ot er s"m"$ar ent"t"es, and ("v) ot er ent"t"es adm"n"ster"n# or ot er)"se dea$"n# "n currency, commod"t"es or !"nanc"a$ der"vat"ves based t ereon, va$uab$e ob>ects, cas subst"tutes and ot er s"m"$ar monetary "nstruments or property superv"sed or re#u$ated by (ecur"t"es and 81c an#e ,omm"ss"on ,overed Transact"ons I,overed transact"onI "s a transact"on "n cas or ot er e2u"va$ent monetary "nstrument "nvo$v"n# a tota$ amount "n e1cess o! P5//,///.// )"t "n one ban%"n# day. (usp"c"ous Transact"ons Transact"ons )"t covered "nst"tut"ons, re#ard$ess o! t e amounts "nvo$ved, ) ere any o! t e !o$$o)"n# c"rcumstances e1"st+ 1. T ere "s no under$y"n# $e#a$ or trade ob$"#at"on, purpose or econom"c >ust"!"cat"on 2. T e c$"ent "s not proper$y "dent"!"ed

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

)( o% $&&

sub>ect o! a covered transact"on or susp"c"ous transact"on report or re2uest !or ass"stance !rom a !ore"#n (tate, or be$"eved by t e ,ounc"$, on t e bas"s !o substant"a$ ev"dence, to be, "n ) o$e or "n part, ) erever $ocated, represent"n#, "nvo$v"n#, or re$ated to d"rect$y or "nd"rect$y, "n any manner or by any means, t e proceeds o! an un$a)!u$ act"v"t"ty 3. To "nst"tute c"v"$ !or!e"ture proceed"n#s and a$$ ot er remed"a$ proceed"n#s t rou# t e <!!"ce o! t (o$"c"tor 3enera$ 4. To cause t e !"$"n# o! comp$a"nts )"t t e -epartment o! 6ust"ce or t e <mbudsman !or t e prosecut"on o! money $aunder"n# o!!enses 5. To "nvest"#ate susp"c"ous transact"ons and covered transact"ons deemed susp"c"ous a!ter an "nvest"#at"on by AA5,, money $aunder"n# act"v"t"es and ot er v"o$at"ons o! t "s Act 6. To app$y be!ore t e ,ourt o! Appea$s, ex parte, !or t e !reeD"n# o! any monetary "nstrument or property a$$e#ed to be t e proceeds o! any un$a)!u$ act"v"ty 7. To "mp$ement suc measures as may be necessary and >ust"!"ed under t "s Act to counteract money $aunder"n# 8. To rece"ve and ta%e act"on "n respect o!, any re2uest !rom !ore"#n states !or ass"stance "n t e"r o)n ant".money $aunder"n# operat"ons 9. To deve$op educat"ona$ pro#rams on t e pern"c"ous e!!ects o! money $aunder"n#, t e met ods and tec n"2ues used "n t e money $aunder"n#, t e v"ab$e means o! prevent"n# money $aunder"n# and t e e!!ect"ve )ays o! prosecut"n# and pun"s "n# o!!enders 10. To "mpose adm"n"strat"ve sanct"ons !or t e v"o$at"on o! $a)s, ru$es, re#u$at"ons, and orders and reso$ut"ons "ssued pursuant t ereto 'as"c Act"v"t"es Re2u"red o! ,overed ;nst"tut"ons to Prevent Aoney 5aunder"n# ,overed "nst"tut"ons s a$$ report to t e AA5, a$$ covered transact"ons and susp"c"ous transact"ons )"t "n !"ve(5) )or%"n# days !rom occurrences t ereo!, un$ess t e (uperv"s"n# Aut or"ty prescr"bes a $on#er per"od not e1ceed"n# ten )or%"n# days. ( ou$d a transact"on be determ"ned to be bot a covered transact"on and a susp"c"ous transact"on, t e covered "nst"tut"on s a$$ be re2u"red to report t e same as a susp"c"ous transact"on. :reeD"n# o! Aonetary ;nstrument or Property T e ,ourt o! Appea$s, upon app$"cat"on ex parte by t e AA5, and a!ter determ"nat"on t at probab$e cause e1"sts t at any monetary "nstrument or property "s "n any )ay re$ated to an un$a)!u$ act"v"ty, may "ssue a !reeDe order ) "c s a$$ be e!!ect"ve "mmed"ate$y. T e !reeDe order s a$$ be !or a per"od o! t)enty days un$ess e1tended by t e court. Aut or"ty to ;n2u"re ;nto 'an% -epos"ts T e AA5, may "n2u"re "nto or e1am"ne any part"cu$ar depos"t or "nvestment )"t any ban%"n# "nst"tut"on or non.ban% !"nanc"a$ "nst"tut"on upon order o! any competent court "n cases o! v"o$at"on o! t e Ant".Aoney 5aunder"n# Act, ) en "t as been estab$"s ed t at t ere "s probab$e cause t at t e depos"ts or "nvestments are re$ated to an un$a)!u$ act"v"ty or a money $aunder"n# e1cept t at no court order s a$$ be re2u"red "n cases "nvo$v"n# %"dnapp"n# !or ransom, v"o$at"ons o! t e ,ompre ens"ve -an#erous -ru#s act, ">ac%"n#, destruct"ve arson, and murder. Pena$ Prov"s"ons 1. Aa$"c"ous Report"n#. Any person ) o, )"t ma$"ce, or "n bad !a"t , reports or !"$es a comp$ete$y un)arranted or !a$se

"n!ormat"on re$at"ve to money $aunder"n# transact"on a#a"nst any person s a$$ be sub>ect to a pena$ty to s"1 (@) mont s to !our (4) years "mpr"sonment and a !"ne o! not $ess t an P1//,///.// but not more t an P5//,///.//, at t e d"scret"on o! t e court+ (rovided, T at t e o!!ender "s not ent"t$ed to ava"$ t e bene!"ts o! t e Probat"on 5a). 2. 'reac o! ,on!"dent"a$"ty. T e pun"s ment o! "mpr"sonment ran#"n# !rom t ree (3) to e"# t (7) years and a !"ne o! not $ess t an P5//,///.// but not more t an P1,///,///.// s a$$ be "mposed. ;n t e case o! a breac o! con!"dent"a$"ty t at "s pub$"s ed or reported by med"a, t e respons"b$e reporter, )r"ter, pres"dent, pub$"s er, mana#er and ed"tor."n.c "e! s a$$ be $"ab$e. Pro "b"t"ons A#a"nst Po$"t"ca$ Barrassment Act s a$$ not be used !or po$"t"ca$ prosecut"on or arassment or as an "nstrument to amper compet"t"on "n trade and commerce.=o case !or money $aunder"n# may be !"$ed a#a"nst and no assets s a$$ be !roDen, attac ed or !or!e"ted to t e pre>ud"ce o! a cand"date !or an e$ectora$ o!!"ce dur"n# an e$ect"on per"od. G man Sec rit* Act 6ud"c"a$ Aut or"Dat"on to 81am"ne 'an% -epos"ts, Accounts and Records T e prov"s"ons o! Repub$"c Act =o. 14/5 as amended, to t e contrary not)"t stand"n#, t e >ust"ces o! t e ,ourt o! Appea$s des"#nated as a spec"a$ court to and$e ant".terror"sm cases a!ter sat"s!y"n# t emse$ves o! t e e1"stence o! probab$e cause "n a ear"n# ca$$ed !or t at purpose t at+ (1) a person c ar#ed )"t or suspected o! t e cr"me o! terror"sm or, consp"racy to comm"t terror"sm, (2) o! a >ud"c"a$$y dec$ared and out$a)ed terror"st or#an"Dat"on, assoc"at"on, or #roup o! persons* and (3) o! a member o! suc >ud"c"a$$y dec$ared and out$a)ed or#an"Dat"on, assoc"at"on, or #roup o! persons, may aut or"De "n )r"t"n# any po$"ce or $a) en!orcement o!!"cer and t e members o! "s0 er team du$y aut or"Ded "n )r"t"n# by t e ant".terror"sm counc"$ to+ (a) e1am"ne, or cause t e e1am"nat"on o!, t e depos"ts, p$acements, trust accounts, assets and records "n a ban% or !"nanc"a$ "nst"tut"on* and (b) #at er or cause t e #at er"n# o! any re$evant "n!ormat"on about suc depos"ts, p$acements, trust accounts, assets, and records !rom a ban% or !"nanc"a$ "nst"tut"on. T e ban% or !"nanc"a$ "nst"tut"on concerned, s a$$ not re!use to a$$o) suc e1am"nat"on or to prov"de t e des"red "n!ormat"on, ) en so, ordered by and served )"t t e )r"tten order o! t e ,ourt o! Appea$s. App$"cat"on to 81am"ne 'an% -epos"ts, Accounts and Records T e )r"tten order o! t e ,ourt o! Appea$s aut or"D"n# t e e1am"nat"on o! ban% depos"ts, p$acements, trust accounts, assets, and records+ (1) o! a person c ar#ed )"t or suspected o! t e cr"me o! terror"sm or consp"racy to comm"t terror"sm* (2) o! any >ud"c"a$$y dec$ared and out$a)ed terror"st or#an"Dat"on, assoc"at"on, or #roup o! persons, or (3) o! any member o! suc or#an"Dat"on, assoc"at"on, or #roup o! persons "n a ban% or !"nanc"a$ "nst"tut"on, and t e #at er"n# o! any re$evant "n!ormat"on about t e same !rom sa"d ban% or !"nanc"a$ "nst"tut"on, s a$$ on$y be #ranted by t e aut or"D"n# d"v"s"on o! t e ,ourt o! Appea$s upon an e1 parte app$"cat"on to t at e!!ect o! a po$"ce or o! a $a) en!orcement o!!"c"a$ ) o as been du$y aut or"Ded "n )r"t"n# to !"$e suc e1 parte app$"cat"on by t e Ant".Terror"sm ,ounc"$ created "n (8, 53 o! t "s Act to !"$e suc e1 parte app$"cat"on, and upon e1am"nat"on under oat or a!!"rmat"on o! t e app$"cant and, t e )"tnesses e may produce to estab$"s t e !acts t at )"$$ >ust"!y t e need and ur#ency o! e1am"n"n# and !reeD"n# t e ban% depos"ts, p$acements, trust accounts, assets, and records+ (1) o! t e person c ar#ed )"t or

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

)) o% $&&

suspected o! t e cr"me o! terror"sm or consp"racy to comm"t terror"sm* (2) o! a >ud"c"a$$y dec$ared and out$a)ed terror"st or#an"Dat"on, assoc"at"on or #roup o! persons* or (3) o! any member o! suc or#an"Dat"on, assoc"at"on, or #roup o! persons. 8!!ect"ve Per"od o! ,ourt Aut or"Dat"on T e aut or"Dat"on "ssued or #ranted by t e aut or"D"n# d"v"s"on o! t e ,ourt o! Appea$s to e1am"ne or cause t e e1am"nat"on o! and to !reeDe ban% depos"ts, p$acements, trust accounts, assets, and records, or to #at er "n!ormat"on about t e same, s a$$ be e!!ect"ve !or t e $en#t o! t"me spec"!"ed "n t e )r"tten order o! t e aut or"D"n# d"v"s"on o! t e ,ourt o! Appea$s, ) "c s a$$ not e1ceed a per"od o! t "rty (3/) days !rom t e date o! rece"pt o! t e )r"tten order o! t e aut or"D"n# d"v"s"on o! t e ,ourt o! Appea$s by t e app$"cant po$"ce or $a) en!orcement o!!"c"a$. T e aut or"D"n# d"v"s"on o! t e ,ourt o! Appea$s may e1tend or rene) t e sa"d aut or"Dat"on !or anot er per"od, ) "c s a$$ not e1ceed t "rty (3/) days rene)ab$e to anot er t "rty (3/) days !rom t e e1p"rat"on o! t e or"#"na$ per"od+ Prov"ded, T at t e aut or"D"n# d"v"s"on o! t e ,ourt o! Appea$s "s sat"s!"ed t at suc e1tens"on or rene)a$ "s "n t e pub$"c "nterest+ and, Prov"ded, !urt er, T at t e app$"cat"on !or e1tens"on or rene)a$, ) "c must be !"$ed by t e or"#"na$ app$"cant, as been du$y aut or"Ded "n )r"t"n# by t e Ant". Terror"sm ,ounc"$. ;n case o! deat o! t e or"#"na$ app$"cant or "n case e "s p ys"ca$$y d"sab$ed to !"$e t e app$"cat"on !or e1tens"on or rene)a$, t e one ne1t "n ran% to t e or"#"na$ app$"cant amon# t e members o! t e ream named "n t e or"#"na$ )r"tten order o! t e aut or"D"n# d"v"s"on o! t e ,ourt o! Appea$s s a$$ !"$e t e app$"cat"on !or e1tens"on or rene)a$+ Prov"ded, T at, )"t out pre>ud"ce to t e $"ab"$"ty o! t e po$"ce or $a) en!orcement personne$ under (8, 19 ereo!, t e app$"cant po$"ce or $a) en!orcement o!!"c"a$ s a$$ ave t "rty (3/) days a!ter t e term"nat"on o! t e per"od #ranted by t e ,ourt o! Appea$s as prov"ded "n t e preced"n# para#rap s )"t "n ) "c to !"$e t e appropr"ate case be!ore t e Pub$"c ProsecutorIs <!!"ce !or any v"o$at"on o! t "s Act. ;! no case "s !"$ed )"t "n t e t "rty (3/).day per"od, t e app$"cant po$"ce or $a) en!orcement o!!"c"a$ s a$$ "mmed"ate$y not"!y "n )r"t"n# t e person sub>ect o! t e ban% e1am"nat"on and !reeD"n# o! ban% depos"ts, p$acements, trust accounts, assets and records. T e pena$ty o! ten (1/) years and one day to t)e$ve (12) years o! "mpr"sonment s a$$ be "mposed upon t e app$"cant po$"ce or $a) en!orcement o!!"c"a$ ) o !a"$s to not"!y "n )r"t"n# t e person sub>ect o! t e ban% e1am"nat"on and !reeD"n# o! ban% depos"ts, p$acements, trust accounts, assets and records.

(4) C,red"torC means any person en#a#ed "n t e bus"ness o! e1tend"n# cred"t ("nc$ud"n# any person ) o as a re#u$ar bus"ness pract"ce ma%e $oans or se$$s or rents property or serv"ces on a t"me, cred"t, or "nsta$$ment bas"s, e"t er as pr"nc"pa$ or as a#ent) ) o re2u"res as an "nc"dent to t e e1tens"on o! cred"t, t e payment o! a !"nance c ar#e. SE% /. Any cred"tor s a$$ !urn"s to eac person to ) om cred"t "s e1tended, pr"or to t e consummat"on o! t e transact"on, a c$ear statement "n )r"t"n# sett"n# !ort , to t e e1tent app$"cab$e and "n accordance )"t ru$es and re#u$at"ons prescr"bed by t e 'oard, t e !o$$o)"n# "n!ormat"on+ (1) t e cas pr"ce or de$"vered pr"ce o! t e property or serv"ce to be ac2u"red* (2) t e amounts, "! any, to be cred"ted as do)n payment and0or trade."n* (3) t e d"!!erence bet)een t e amounts set !ort under c$auses (1) and (2)* (4) t e c ar#es, "nd"v"dua$$y "tem"Ded, ) "c are pa"d or to be pa"d by suc person "n connect"on )"t t e transact"on but ) "c are not "nc"dent to t e e1tens"on o! cred"t* (5) t e tota$ amount to be !"nanced* (@) t e !"nance c ar#e e1pressed "n terms o! pesos and centavos* and (7) t e percenta#e t at t e !"nance bears to t e tota$ amount to be !"nanced e1pressed as a s"mp$e annua$ rate on t e outstand"n# unpa"d ba$ance o! t e ob$"#at"on. %o@ered and e!cluded transactions %o@ered transactions SE% 9. As used "n t "s Act, t e term (2) C,red"tC means any $oan, mort#a#e, deed o! trust, advance, or d"scount* any cond"t"ona$ sa$es contract* any contract to se$$, or sa$e or contract o! sa$e o! property or serv"ces, e"t er !or present or !uture de$"very, under ) "c part or a$$ o! t e pr"ce "s payab$e subse2uent to t e ma%"n# o! suc sa$e or contract* any renta$. purc ase contract* any contract or arran#ement !or t e "re, ba"$ment, or $eas"n# o! property* any opt"on, demand, $"en, p$ed#e, or ot er c$a"m a#a"nst, or !or t e de$"very o!, property or money* any purc ase, or ot er ac2u"s"t"on o!, or any cred"t upon t e secur"ty o!, any ob$"#at"on o! c$a"m ar"s"n# out o! any o! t e !ore#o"n#* and any transact"on or ser"es o! transact"ons av"n# a s"m"$ar purpose or e!!ect. (ec. 3, ,' ,"rcu$ar =o. 157 "mp$ement"n# RA 37@5 a) Any $oans, mort#a#es, deeds o! trust, advances and d"scounts* b) Any cond"t"ona$ sa$es contracts, any contract to se$$, or sa$e or contract o! sa$e o! property or serv"ces, e"t er !or present or !uture de$"very, under ) "c part or a$$ o! t e pr"ce "s payab$e subse2uent to t e ma%"n# o! suc sa$e or contract* c) Any renta$.purc ase contract* d) Any contract !or t e "re, ba"$ment or $eas"n# o! property* e) Any opt"on, demand, $"en, p$ed#e or ot er c$a"m a#a"nst or !or de$"very o!, property or money* !) Any purc ase, or ot er ac2u"s"t"on o!, or any cred"t upon t e secur"ty o!, any ob$"#at"on or c$a"m ar"s"n# out o! any o! t e !ore#o"n#* and #) Any transact"on or ser"es o! transact"ons av"n# a s"m"$ar purpose or e!!ect. E!cluded transactions (ec. 3, ,' ,"rcu$ar 157

<. T1UT3 I) LE)2I)* A%T RA 37@5 (19@3)


1>.1 Topics &urpose SE% $. -ec$arat"on o! Po$"cy. ;t "s ereby dec$ared to be t e po$"cy o! t e (tate to protect "ts c"t"Dens !rom a $ac% o! a)areness o! t e true cost o! cred"t to t e user by assur"n# a !u$$ d"sc$osure o! suc cost )"t a v"e) o! prevent"n# t e un"n!ormed use o! cred"t to t e detr"ment o! t e nat"ona$ economy. 'bli=ation o creditors SE% 9. As used "n t "s Act, t e term

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

)* o% $&&

a) T ose t at do not "nvo$ve t e payment o! any !"nance c ar#e by t e debtor* and b) T ose "n ) "c t e debtor "s t e one spec"!y"n# a de!"n"te and !"1ed set o! cred"t terms suc as ban% depos"ts, "nsurance contracts, sa$e o! bonds, etc. 6inance and nonE inance char=es 6inance char=es SE% 9. As used "n t "s Act, t e term (3) C:"nance c ar#eC "nc$udes "nterest, !ees, serv"ce c ar#es, d"scounts, and suc ot er c ar#es "nc"dent to t e e1tens"on o! cred"t as t e 'oard may be re#u$at"on prescr"be. Sec. $ ,h0, %B %ircular 1.8 :"nance c ar#es are t e amounts to be pa"d by t e debtor "nc"dent to t e e1tens"on o! cred"t suc as "nterests, d"scounts, co$$ect"on !ees, cred"t "nvest"#at"on !ees and attorney&s !ees. )onE inance char=es Sec. $, 0, %B %ircular 1.8 =on.!"nance c ar#es are t e amounts advanced by a cred"tor !or "tems norma$$y assoc"ated )"t t e o)ners "p o! property or t e ava"$ment o! t e serv"ces purc ased ) "c are not "nc"dent to t e e1tens"on o! cred"t. :or e1amp$e, ) en a debtor purc ases a car on cred"t, t e cred"tor may advance t e "nsurance prem"um as )e$$ as t e re#"strat"on !ee !or t e account o! t e debtor. %onse"uences o nonEco#pliance with obli=ation SE% 7. (a) Any cred"tor ) o "n connect"on )"t any cred"t transact"on !a"$s to d"sc$ose to any person any "n!ormat"on "n v"o$at"on o! t "s Act or any re#u$at"on "ssued t ereunder s a$$ be $"ab$e to suc person "n t e amount o! P1// or "n an amount e2ua$ to t)"ce t e !"nance c ar#ed re2u"red by suc cred"tor "n connect"on )"t suc transact"on, ) "c ever "s t e #reater, e1cept t at suc $"ab"$"ty s a$$ not e1ceed P2,/// on any cred"t transact"on. Act"on to recover suc pena$ty may be brou# t by suc person )"t "n one year !rom t e date o! t e occurrence o! t e v"o$at"on, "n any court o! competent >ur"sd"ct"on. ;n any act"on under t "s sub(8, "n ) "c any person "s ent"t$ed to a recovery, t e cred"tor s a$$ be $"ab$e !or reasonab$e attorneyIs !ees and court costs as determ"ned by t e court. (b) 81cept as spec"!"ed "n sub(8, (a) o! t "s (8,, not "n# conta"ned "n t "s Act or any re#u$at"on conta"ned "n t "s Act or any re#u$at"on t ereunder s a$$ a!!ect t e va$"d"ty or en!orceab"$"ty o! any contract or transact"ons. (c) Any person ) o )"$$!u$$y v"o$ates any prov"s"on o! t "s Act or any re#u$at"on "ssued t ereunder s a$$ be !"ned by not $ess t an P1,// or more t an P5,/// or "mpr"sonment !or not $ess t an @ mont s, nor more t an one year or bot . (d) =o pun"s ment or pena$ty prov"ded by t "s Act s a$$ app$y to t e P "$"pp"ne 3overnment or any a#ency or any po$"t"ca$ subd"v"s"on t ereo!. (e) A !"na$ >ud#ment erea!ter rendered "n any cr"m"na$ proceed"n# under t "s Act to t e e!!ect t at a de!endant as )"$$!u$$y v"o$ated t "s Act s a$$ be pr"ma !ac"e ev"dence a#a"nst suc de!endant "n an act"on or proceed"n# brou# t by any ot er party a#a"nst suc de!endant under t "s Act as to a$$ matters respect"n# ) "c sa"d >ud#ment )ou$d be an estoppe$ as bet)een t e part"es t ereto. 1>.$ %ases

81cess"ve "nterests, pena$t"es and ot er c ar#es not revea$ed "n d"sc$osure statements "ssued by ban%s, even "! st"pu$ated "n t e prom"ssory notes, cannot be #"ven e!!ect under t e Trut "n 5end"n# Act ,ew #ampaguita Builders Construction, 'nc., et al. v. (,B =o pena$ty c ar#es or "ncreases t ereo! appear e"t er "n t e -"sc$osure (tatements or "n any o! t e c$auses "n t e second and t e t "rd ,red"t A#reements ear$"er d"scussed. 4 "$e a standard pena$ty c ar#e o! @ percent per annum as been "mposed on t e amounts stated "n a$$ t ree Prom"ssory =otes st"$$ rema"n"n# unpa"d or unrene)ed ) en t ey !e$$ due, t ere "s no st"pu$at"on t ere"n t at )ou$d >ust"!y any "ncrease "n t at c ar#es. T e e!!ect, t ere!ore, ) en t e borro)er "s not c$ear$y "n!ormed o! t e -"sc$osure (tatements .. pr"or to t e consummat"on o! t e ava"$ment or dra)do)n .. "s t at t e $ender )"$$ ave no r"# t to co$$ect upon suc c ar#e or "ncreases t ereo!, even "! st"pu$ated "n t e =otes. T e t"me "s no) r"pe to #"ve teet to t e o!ten "#nored !orty.one.year o$d GTrut "n 5end"n# ActH and t us trans!orm "t !rom a sn"ve$$"n# paper t"#er to a #ro)$"n# !"nanc"a$ )atc do# o! ap$ess borro)ers. :a"$ure to d"sc$ose re2u"red "n!ormat"on "n d"sc$osure statement cured by d"sc$osure t ereo! "n $oan transact"on documents /B( v. !rcilla ;ssue+ 4<= -'P comp$"ed )"t t e d"sc$osure re2u"rement o! RA 37@5 and ,' ,"rcu$ar 157W Be$d+ Pes. Ender ,"rcu$ar =o. 157 o! t e ,entra$ 'an%, t e "n!ormat"on re2u"red by R.A. =o. 37@5 s a$$ be "nc$uded "n t e contract cover"n# t e cred"t transact"on or any ot er document to be ac%no)$ed#ed and s"#ned by t e debtor. ;! t e borro)er "s not du$y "n!ormed o! t e data re2u"red by t e $a) pr"or to t e consummat"on o! t e ava"$ment or dra)do)n, t e $ender )"$$ ave no r"# t to co$$ect suc c ar#e or "ncreases t ereo!, even "! st"pu$ated "n t e prom"ssory note. Bo)ever, suc !a"$ure s a$$ not a!!ect t e va$"d"ty or en!orceab"$"ty o! any contract or transact"on. ;n t e present case, -'P !a"$ed to d"sc$ose t e re2u"s"te "n!ormat"on "n t e d"sc$osure statement !orm aut or"Ded by t e ,entra$ 'an%, but d"d so "n t e $oan transact"on documents bet)een "t and Arc"$$a. ,ontrary to appe$$eeIs c$a"m t at e )as not su!!"c"ent$y "n!ormed o! t e deta"$s o! t e $oan, t e records d"sc$ose t at t e re2u"red "n!ormat"ons )ere read"$y ava"$ab$e "n t e t ree (3) prom"ssory notes e e1ecuted. T us, -'P substant"a$$y comp$"ed )"t RA 37@5 and ,' ,"rcu$ar 157. 1>.9 Additional 4aterials a) ;mp$ement"n# Ru$es+ ,' ,"rcu$ar =o. 157.@3 b) Add"t"ona$ ;mp$ement"n# Ru$es+ ,' ,"rcu$ar =o. 431.74 1>./ 1elated Statute Access -ev"ces Re#u$at"on Act o! 1997 (RA 7474) a) -"sc$osure re2u"red upon cred"t card app$"cat"on or so$"c"tat"on SE% /. $redit $ard A++-ication and So-icitation . ? Any app$"cat"on to open a cred"t card account !or any person under an open.end cred"t p$an or a so$"c"tat"on to open suc an account, e"t er by ma"$, te$ep one or ot er means, s a$$ d"sc$ose "n )r"t"n# or ora$$y, as t e case may be, t e !o$$o)"n# "n!ormat"on+ (a) Annua$ Percenta#e Rate 1) 8ac annua$ percenta#e rate o! "nterest on t e amount o! cred"t obta"ned by t e cred"t card o$der under suc cred"t p$an.

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

)+ o% $&&

4 ere an e1tens"on o! cred"t "s sub>ect to a var"ab$e rate, t e !act t at t e rate "s var"ab$e, and t e annua$ percenta#e rate "n e!!ect at t e t"me o! t e ma"$"n#. 2) 4 ere more t an one rate app$"es, t e ran#e o! ba$ances to ) "c eac rate app$"es. (b) Annua$ and ot er :ees 1) Any annua$ !ee, ot er per"od"c !ee, or members "p !ee "mposed !or t e "ssuance or ava"$ab"$"ty o! a cred"t card, "nc$ud"n# any account ma"ntenance !ee or any ot er c ar#e "mposed based on act"v"ty or "nact"v"ty !or t e account dur"n# t e b"$$"n# cyc$e. 2) Any m"n"mum !"nance c ar#e "mposed !or eac per"od dur"n# ) "c any e1tens"on o! cred"t ) "c "s sub>ect to a !"nance c ar#e "s outstand"n#. 3) Any transact"on c ar#e "mposed "n connect"on )"t use o! t e card to purc ase #oods or serv"ces. 4) Any !ee, pena$ty or surc ar#e "mposed !or t e de$ay "n payment o! an account. (c) 'a$ance ,a$cu$at"on Aet od ? t e name or a deta"$ed e1p$anat"on o! t e ba$ance ca$cu$at"on met od used "n determ"n"n# t e ba$ance upon ) "c t e !"nance c ar#e "s computed. (d) ,as Advance :ee ? any !ee "mposed !or an e1tens"on o! cred"t "n t e !orm o! cas . (e) <ver.t e.5"m"t.:ee ? any !ee "mposed "n connect"on )"t an e1tens"on o! cred"t "n e1cess o! t e amount o! cred"t aut or"Ded to be e1tended )"t respect to suc amount+ Prov"ded, o)ever, T at "n case t e app$"cat"on or so$"c"tat"on to open a cred"t card account !or any person under an open.end consumer cred"t p$an be made t rou# cata$o#s, ma#aD"nes, or ot er pub$"cat"ons, t e !o$$o)"n# add"t"ona$ "n!ormat"on s a$$ be d"sc$osed+ 1) A statement, "n a consp"cuous and prom"nent $ocat"on on t e app$"cat"on or so$"c"tat"on, t at+ ". t e "n!ormat"on "s accurate as o! t e date t e app$"cat"on or so$"c"tat"on )as pr"nted* "". t e "n!ormat"on conta"ned "n t e app$"cat"on or so$"c"tat"on "s sub>ect to c an#e a!ter suc date* """. t e app$"cant s ou$d contact t e cred"tor !or "n!ormat"on on any c an#e "n t e "n!ormat"on conta"ned "n t e app$"cat"on or so$"c"tat"on s"nce "t )as pr"nted* 2) T e date t e app$"cat"on or so$"c"tat"on )as pr"nted* and 3) ;n a consp"cuous and prom"nent $ocat"on on t e app$"cat"on or so$"c"tat"on, a to$$ !ree te$ep one number or ma"$"n# address ) "c t e app$"cant may contact to obta"n any c an#e "n t e "n!ormat"on prov"ded "n t e app$"cat"on or so$"c"tat"on s"nce "t )as pr"nted. b) -eta"$ed e1p$anat"on and c$ear "$$ustrat"on o! computat"on o! c ar#es and !ees SE% .. $om+ tation). ? ;n add"t"on to t e !ore#o"n#, a cred"t card "ssuer must, to t e e1tent pract"cab$e, prov"de a deta"$ed e1p$anat"on and a c$ear "$$ustrat"on o! t e manner by ) "c a$$ c ar#es and !ees are computed. c) 81cept"ons to t e d"sc$osure re2u"rement SE% 7. #4ce+tion). ? T e d"sc$osures re2u"red under (8, 4 o! t "s Act may be om"tted "n any te$ep one so$"c"tat"on or app$"cat"on "! t e cred"t card "ssuer+ (a) does not "mpose any !ee "n connect"on )"t para#rap (b)(1), (8, 4 o! t "s Act*

(b) does not "mpose any !ee "n connect"on )"t te$ep one so$"c"tat"on un$ess t e consumer s"#n"!"es acceptance by us"n# t e card* (c) d"sc$oses c$ear$y t e "n!ormat"on descr"bed "n (8, 4 o! t "s Act "n )r"t"n# )"t "n t "rty (3/) days a!ter t e consumer re2uests t e card, but "n no event $ater t an t e date o! de$"very o! t e card* and (d) d"sc$oses c$ear$y t at t e consumer "s not ob$"#ated to accept t e card or account and t e consumer )"$$ not be ob$"#ated to pay any !ees or c ar#es d"sc$osed un$ess t e consumer e$ects to accept t e card or account by us"n# t e card. d) -"sc$osure re2u"red pr"or to rene)a$ SE% ;. Di)c-o) re Prior to (enewa-. ? 81cept "n te$ep one so$"c"tat"ons a card "ssuer t at "mposes any !ee descr"bed "n (8, 4 s a$$ transm"t to a consumerIs cred"t card account a c$ear and consp"cuous d"sc$osure o!+ (a) t e date by ) "c , t e mont by ) "c , or t e b"$$"n# per"od at t e c$ose o! ) "c , t e account )"$$ e1p"re "! not rene)ed* (b) t e "n!ormat"on descr"bed "n (8, 4 ) "c s a$$ be transm"tted to a consumer at $east t "rty (3/) days pr"or to t e sc edu$ed rene)a$ date o! t e consumerIs cred"t card account* (c) t e "n!ormat"on descr"bed "n (8, 4 (a) (1) ) "c s a$$ be transm"tted to a consumerIs cred"t card account* and (d) t e met od by ) "c t e consumer may term"nate cont"nued cred"t ava"$ab"$"ty under t e account+ Prov"ded, T at t e d"sc$osures re2u"red by t "s (8, must be made pr"or to post"n# a !ee descr"bed "n (8, 4 (b) (1) to t e account, or )"t t e per"od"c b"$$"n# statement !"rst d"sc$os"n# t at t e !ee as been posted to t e account sub>ect to t e cond"t"on t at t e consumer "s #"ven t "rty (3/) day per"od to avo"d payment o! t e !ee or to ave t e !ee recred"ted to t e account "n any case ) ere t e consumer does not )"s to cont"nue t e ava"$ab"$"ty o! t e cred"t. e) Pena$ty !or !a"$ure to d"sc$ose SE% 8. Fai- re to Di)c-o)e. ? ,red"t card compan"es ) "c s a$$ !a"$ to d"sc$ose t e "n!ormat"on re2u"red under (8,s 4, 5 and 7 o! t "s Act, a!ter due not"ce and ear"n#, s a$$ be sub>ect to suspens"on or cance$$at"on o! t e"r aut or"ty to "ssue cred"t cards by t e 'an#%o (entra$ n# P"$"p"nas, (ecur"t"es and 81c an#e ,omm"ss"on and suc ot er #overnment a#enc"es.

<I. LETTE1S '6 %1E2IT ART 5@7.572 ,<-8 <: ,<AA8R,8


11.1 Topics *o@ernin= Law 1. Art"c$es 5@7.572 o! t e ,ode o! ,ommerce, ) "c prov"des a s%e$eta$ "ntroduct"on to t e sub>ect o! $etters o! cred"t 2. T e En"!orm ,ustoms and Pract"ce !or -ocumentary ,red"ts "ssued by t e ;nternat"ona$ , amber o! ,ommerce, ) "c re!$ects accepted commerc"a$ usa#e and pract"ce on t e sub>ect o! $etters o! cred"t and t e app$"cat"on o! ) "c "n t e P "$"pp"nes as been ac%no)$ed#ed by t e (upreme ,ourt based on Art"c$e 2 o! t e ,ode o! ,ommerce ) "c prov"des t at "n t e absence o! any app$"cab$e prov"s"on "n t e ,ode o! ,ommerce, commerc"a$ transact"ons s a$$ be #overned by usa#es #enera$$y observed. ((ee B(' v. /e Ren* "abric 'ndustries2 "eati Ban& v. C!2 and Ban& o !merica, ,T 7 #! v. C!8

COMLAW REVIEWER 2009 %oncept and nature

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

)9 o% $&&

A1TI%LE .7;. 5etters o! cred"t are t ose "ssued by one merc ant to anot er or !or t e purpose o! attend"n# to a commerc"a$ transact"on. Essential conditions A1TI%LE .78. T e essent"a$ cond"t"ons o! $etters o! cred"t s a$$ be+ 1. To be "ssued "n !avor o! a de!"n"te person and not to order. 2. To be $"m"ted to a !"1ed and spec"!"ed amount, or to one or more undeterm"ned amounts, but )"t "n a ma1"mum t e $"m"ts o! ) "c as to be stated e1act$y. T ose ) "c do not ave any o! t ese $ast c"rcumstances s a$$ be cons"dered as mere $etters o! recommendat"on. &eriod o @alidity A1TI%LE .;$. ;! t e bearer o! a $etter o! cred"t does not ma%e use t ereo! )"t "n t e per"od a#reed upon )"t t e dra)er, or, "n de!au$t o! a per"od !"1ed, )"t "n s"1 mont s, counted !rom "ts date "n any po"nt "n t e P "$"pp"nes, and )"t "n t)e$ve mont s any) ere outs"de t ereo!, "t s a$$ be vo"d "n !act and "n $a). Basic parties and =o@ernin= contracts Basic parties o a letter o credit a) T e buyer, ) o procures t e $etter o! cred"t and ob$"#es "mse$! to re"mburse t e "ssu"n# ban% upon rece"pt o! t e documents o! t"t$e* b) T e ban% "ssu"n# t e $etter o! cred"t, ) "c underta%es to pay t e se$$er upon rece"pt o! t e dra!t and proper documents o! t"t$es and to surrender t e documents to t e buyer upon re"mbursement* and c) T e se$$er, ) o "n comp$"ance )"t t e contract o! sa$e s "ps t e #oods to t e buyer and de$"vers t e documents o! t"t$e and dra!t to t e "ssu"n# ban% to recover payment. ((ee Ban& o !merica v. ,T 7 #!) *o@ernin= contracts a) ;ssu"n# ban% and app$"cant0buyer0"mporter ? T e"r re$at"ons "p "s #overned by t e terms o! t e app$"cat"on and a#reement !or t e "ssuance o! t e $etter o! cred"t by t e ban% b) ;ssu"n# ban% and bene!"c"ary0se$$er0e1porter ? T e"r re$at"ons "p "s #overned by t e terms o! t e $etter o! cred"t "ssued by t e ban% c) App$"cant and bene!"c"ary ? T e"r re$at"ons "p "s #overned by t e sa$es contract. ((ee Reliance Commodities v. /eawoo 'ndustrial) 'penin= ban? G buyer&s ban% ) "c "ssues t e $etter o! cred"t )oti yin= ban? G correspond"n# ban% o! t e open"n# ban% t rou# ) "c "t adv"ses t e bene!"c"ary o! t e e1"stence o! t e $etter o! cred"t )e=otiatin= ban? G any ban% "n t e c"ty o! t e bene!"c"ary &ayin= ban? E buys or d"scounts t e dra!ts "! suc dra!t "s dra)n on t e open"n# ban% or on anot er des"#nated ban% not "n t e c"ty o! t e bene!"c"ary %on ir#in= ban? G upon t e re2uest o! t e bene!"c"ary con!"rms t e $etter o! cred"t "ssued by t e open"n# ban% Independence principle

T e "ndependence pr"nc"p$e "n a $etter o! cred"t transact"ons means t at a ban%, "n determ"n"n# comp$"ance )"t t e terms o! a $etter o! cred"t "s re2u"red to e1am"ne on$y t e s "pp"n# documents presented by t e se$$er and "s prec$uded !rom determ"n"n# ) et er t e ma"n contract "s actua$$y accomp$"s ed or not. T "s arran#ement assures t e se$$er o! prompt payment, "ndependent o! any breac o! t e ma"n sa$es contract. ((ee Ban& o !merica ,T 7 #!). 1ule o strict co#pliance T e ru$e o! str"ct comp$"ance "n a $etter o! cred"t transact"on means t at t e documents tendered by t e se$$er or bene!"c"ary must str"ct$y con!orm to t e terms o! t e $etter o! cred"t, ".e., t ey must "nc$ude a$$ documents re2u"red by t e $etter o! cred"t. T us, a correspondent ban% ) "c departs !rom ) at as been st"pu$ated under t e $etter o! cred"t, as ) en "t accepts a !au$ty tender, acts on "ts o)n r"s% and may not t erea!ter be ab$e to recover !rom t e buyer or t e "ssu"n# ban%, as t e case may be* t e money t us pa"d to t e bene!"c"ary. ((ee "eati Ban&) 2ocu#ents associated with letters o credit transactions a) -ra!t ? somet"mes ca$$ed a b"$$ o! e1c an#e, "t "s an order )r"tten by an e1porter0se$$er "nstruct"n# an "mporter0buyer or "ts a#ent to pay a spec"!"ed amount o! money at a spec"!"ed t"me. b) '"$$ o! $ad"n# ? document "ssued to t e e1porter by a common carr"er transport"n# t e merc and"se. ;t serves t ree purposes+ as a rece"pt, a contract and a document o! t"t$e. c) ,ommerc"a$ "nvo"ce ? a document s"#ned and "ssued by t e se$$er and conta"ns a prec"se descr"pt"on o! t e merc and"se and t e terms o! t e sa$e suc as un"t pr"ces, amount due !rom t e buyer and s "pp"n# cond"t"ons re$ated to c ar#es. d) ,onsu$ar "nvo"ce ? a document "ssued by t e consu$ate o! t e "mport"n# country to prov"de customs "n!ormat"on and stat"st"cs !or t at country and to e$p prevent !a$se dec$arat"ons o! va$ue. e) ,ert"!"cate o! ana$ys"s ? a document t at may be re2u"red to ascerta"n t at certa"n spec"!"cat"ons o! )e"# t, pur"ty, san"tat"on, etc. ave been met. !) Pac%"n# $"st ? an enumerat"on o! t e contents o! conta"ners so t at t ey can be "dent"!"ed, e"t er !or customs purposes or !or "mporter "dent"!"cat"on o! t e contents o! separate conta"ners. #) 81port dec$arat"on ? a document prepared by t e e1porter to ass"st t e #overnment to prepare e1port stat"st"cs. 11.$ %ases =ature o! $etters o! cred"t (rudential Ban& v. '!C A $etter o! cred"t "s de!"ned as an en#a#ement by a ban% or ot er person made at t e re2uest o! a customer t at t e "ssuer )"$$ onor dra!ts or ot er demands !or payment upon comp$"ance )"t t e cond"t"ons spec"!"ed "n t e cred"t. T rou# a $etter o! cred"t, t e ban% mere$y subst"tutes "ts o)n prom"se to pay !or t e prom"se to pay o! one o! "ts customers ) o "n return prom"ses to pay t e ban% t e amount o! !unds ment"oned "n t e $etter o! cred"t p$us cred"t or comm"tment !ees mutua$$y a#reed upon. Ban& o !merica v. C! A $etter o! cred"t "s a !"nanc"a$ dev"ce deve$oped by merc ants as a conven"ent and re$at"ve$y sa!e mode o! dea$"n# )"t sa$es o! #oods

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

*0 o% $&&

to sat"s!y t e seem"n#$y "rreconc"$ab$e "nterest o! a se$$er, ) o re!uses to part )"t "s #oods be!ore e "s pa"d, and a buyer, ) o )ants to ave contro$ o! t e #oods be!ore pay"n#. To brea% t e "mpasse, t e buyer may be re2u"red to contract a ban% to "ssue a $etter o! cred"t "n !avor o! t e se$$er so t at, by v"rtue o! t e $etter o! t e $etter o! cred"t, t e "ssu"n# ban% can aut or"De t e se$$er to dra) dra!ts and en#a#e to pay t em upon t e"r presentment s"mu$taneous$y )"t t e tender o! documents re2u"red by t e $etter o! cred"t. T e buyer and t e se$$er a#ree on ) at documents are to be presented !or payment, but ord"nar"$y t ey are documents o! t"t$e ev"denc"n# or attest"n# to t e s "pment o! t e #oods to t e buyer. Ender t "s arran#ement, t e se$$er #ets pa"d on$y "! e de$"vers t e documents o! t"t$e over t e #oods, ) "$e t e buyer ac2u"res t e sa"d documents o! t"t$e over t e #oods on$y a!ter re"mburs"n# t e ban%. (rocess 1. <nce t e cred"t "s estab$"s ed, t e se$$er s "ps t e #oods to t e buyer and "n t e process secures t e s "pp"n# documents or -<T 2. To #et pa"d, t e se$$er e1ecutes a dra!t and presents "t to#et er )"t t e re2u"red documents to t e "ssu"n# ban% 3. T e "ssu"n# ban% redeems t e dra!t and pays cas to t e se$$er "! "t !"nds t e documents subm"tted by t e se$$er con!orm )"t ) at t e $etter o! cred"t re2u"res 4. T e ban% obta"ns possess"on o! t e documents upon pay"n# t e se$$er 5. Transact"on "s comp$eted ) en t e buyer re"mburses t e "ssu"n# ban% and ac2u"res t e documents ent"t$"n# "m to t e #oods. )ee v. C! Aodern $etters o! cred"t are usua$$y not made bet)een natura$ persons. T ey "nvo$ve ban%.to.ban% transact"ons. B"stor"ca$$y, $etters o! cred"t )as deve$oped to !ac"$"tate t e sa$e o! #oods bet)een d"stant and un!am"$"ar buyers and se$$ers. ;t )as an arran#ement under ) "c a ban%, ) ose cred"t )as acceptab$e to t e se$$er, )ou$d at t e "nstance o! t e buyer a#ree to pay dra!ts dra)n on "t by t e se$$er, prov"ded t at certa"n documents are presented suc as b"$$s o! $ad"n# accompan"ed t e correspond"n# dra!ts.

:acts+ Trans!"e$d P "$"pp"nes and 5B, entered "nto a turn%ey contract ) ereby t e !ormer undertoo% to construct a ydro. e$ectr"c po)er stat"on by 6une 1, 2///. To secure per!ormance o! t e ob$"#at"on on or be!ore t e tar#et comp$et"on date, Trans!"e$d opened "n !avor o! 5B, 2 standby $etters o! cred"t. Trans!e"$d !a"$ed to comp$ete t e pro>ect by t e tar#et date. Trans!"e$d !"$ed a ,omp$a"nt !or ;n>unct"on to restra"n 5B, !rom ca$$"n# on t e secur"t"es. ;ssue+ 4<= t e ban%s s ou$d d"spose o! t e secur"t"es upon app$"cat"on by 5B,W Pes. Be$d+ Concept o #tandb* letters o credit ? T e use o! cred"ts "n commerc"a$ transact"ons serves to reduce t e r"s% o! non.payment o! t e purc ase pr"ce under t e contract o! sa$e o! #oods. (tandby cred"ts o)ever are used "n non.sa$e sett"n#s ) ere t ey serve to reduce t e r"s% o! non.per!ormance. Commercial credit v. standb* credit 1. ,ommerc"a$ cred"t "nvo$ve o! payment o! money under a contract o! sa$e. 2. ,ommerc"a$ cred"ts become payab$e upon t e presentat"on by t e se$$er o! documents t at s o) e as ta%en a!!"rmat"ve steps to comp$y )"t t e sa$es a#reement. (tandby cred"ts "s payab$e upon cert"!"cat"on o! a party&s nonper!ormance o! t e a#reement. 3. 'ene!"c"ary o! commerc"a$ cred"t must present documents t at e as per!ormed "s contract. 4 "$e bene!"c"ary o! standby cred"t must cert"!y t at "s ob$"#or as not per!ormed t e contract. ;ndependence pr"nc"p$e B(' v. /e Ren* "abric 'ndustries :acts+ -e Reny :abr"c obta"ned $etters o! cred"t !rom 'P; cover"n# t e purc ase by t e corporat"on o! dyestu!!s !rom "ts Amer"can supp$"er. Epon presentment o! t e b"$$s o! $ad"n# and dra!ts cover"n# t e #oods to t e correspond"n# ban% o! 'P; "n t e E( t e supp$"er )as pa"d. -e Reny re!used to pay 'P; on t e #round t at t e #oods de$"vered )ere de!ect"ve. ;ssue+ 4<= t e !ore"#n correspond"n# ban%s o! 'P; ad t e duty to ta%e t e necessary precaut"on to "nsure t at t e #oods s "pped con!ormed )"t t e "tem appear"n# o! t e $etters o! cred"tW Be$d+ =o. Ender t e terms o! t e"r commerc"a$ $etter o! cred"t a#reements )"t t e ban%, -e Reny a#reed t at t e 'an% s a$$ not be respons"b$e or $"ab$e !or any de!ect or $oss o! t e #oods. 'ut even )"t out suc st"pu$at"on, t e burden o! $oss st"$$ cannot be s "!ted to t e 'an% on account o! t e se$$er breac o! "ts ob$"#at"on. Ender En"!orm ,ustoms and Pract"ce !or ,ommerc"a$ -ocumentary ,red"ts, ban%s "n prov"d"n# !"nanc"n# "n "nternat"ona$ bus"ness transact"ons, do not dea$ )"t t e property to be e1ported or s "pped to t e "mporter but on$y dea$ )"t t e documents. ,ustom "n "nternat"ona$ ban%"n# and !"nanc"n# c"rc$es ne#ate any duty on t e part o! a ban% to ver"!y ) et er ) at as been descr"bed "n $etters o! cred"t or dra!ts or s "pp"n# documents actua$$y ta$$"es )"t ) at )as $oaded abroad s "p. Ru$e o! str"ct comp$"ance "eati Ban& v. C! :acts+ T e $etter o! cred"t prov"ded t at t e dra!t s ou$d be presented to t e "ssu"n# ban% )"t t e !o$$o)"n# documents+ commerc"a$ "nvo"ce, ta$$y s eets, b"$$s o! $ad"n# and a cert"!"cat"on !rom Ban.A1e$ , r"st"ansen (cons"#nor). T e $atter re!used to "ssue

(arties to a commercial letter o credit 1. 'uyer or "mporter 2. (e$$er or t e bene!"c"ary 3. <pen"n# ban% ? buyer&s ban% ) "c "ssues t e $etter o! cred"t 4. =ot"!y"n# ban% ? correspond"n# ban% o! t e open"n# ban% t rou# ) "c "t adv"ses t e bene!"c"ary o! t e e1"stence o! t e $etter o! cred"t 5. =e#ot"at"n# ban% ? any ban% "n t e c"ty o! t e bene!"c"ary @. Pay"n# ban% ? buys or d"scounts t e dra!ts "! suc dra!t "s dra)n on t e open"n# ban% or on anot er des"#nated ban% not "n t e c"ty o! t e bene!"c"ary 7. ,on!"rm"n# ban% ? upon t e re2uest o! t e bene!"c"ary con!"rms t e $etter o! cred"t "ssued by t e open"n# ban% (tandby $etters o! cred"t Trans ield (hilippines, 'nc. v. )u9on -*dro Corporation

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

*$ o% $&&

t e cert"!"cat"on. :eat" 'an%, a correspond"n# ban% o! t e "ssu"n# ban% "n t e P "$"pp"nes, re!used to onor t e dra!ts )"t out t e cert"!"cat"on. ;ssue+ 4<= a correspondent ban% can be e$d $"ab$e under t e $etter o! cred"t desp"te non.comp$"ance by t e bene!"c"ary )"t t e terms t ereo!. Be$d+ ;t "s as sett$ed ru$e "n commerc"a$ transact"ons "nvo$v"n# $etters o! cred"t t at t e documents tendered must str"ct$y con!orm to t e terms o! t e $etter o! cred"t. T e tender o! documents by t e bene!"c"ary must "nc$ude a$$ documents re2u"red by t e $etter. A correspondent ban% ) "c departs !rom ) at as been st"pu$ated under t e $etter o! cred"t, as ) en "t accepts a !au$ty tender, acts on "ts o)n r"s%s and "t may not t erea!ter be ab$e to recover !rom t e buyer or t e "ssu"n# ban% t e money t us pa"d to t e bene!"c"ary. T us t e ru$e o! str"ct comp$"ance. ("nce a ban% dea$s on$y )"t documents, "t "s not "n a pos"t"on to determ"ne ) et er or not t e documents re2u"red by t e $etter o! cred"t are mater"a$ or super!$uous. T ere mere !act t at t e document )as spec"!"ed t ere"n read"$y means t at t e document "s o! v"ta$ "mportance to t e buyer.

process"n# be!ore "ts u$t"mate sa$e, t e entruster s a$$ reta"n "ts t"t$e over t e #oods ) et er "n "ts or"#"na$ or processed !orm unt"$ t e entrustee as comp$"ed !u$$y )"t "s ob$"#at"on under t e trust rece"pt* or (c) to $oad, un$oad, s "p or trans "p or ot er)"se dea$ )"t t em "n a manner pre$"m"nary or necessary to t e"r sa$e* or 2. ;n t e case o! "nstruments, a) to se$$ or procure t e"r sa$e or e1c an#e* or b) to de$"ver t em to a pr"nc"pa$* or c) to e!!ect t e consummat"on o! some transact"ons "nvo$v"n# de$"very to a depos"tory or re#"ster* or d) to e!!ect t e"r presentat"on, co$$ect"on or rene)a$ T e sa$e o! #oods, documents or "nstruments by a person "n t e bus"ness o! se$$"n# #oods, documents or "nstruments !or pro!"t ) o, at t e outset o! t e transact"on, as, as a#a"nst t e buyer, #enera$ property r"# ts "n suc #oods, documents or "nstruments, or ) o se$$s t e same to t e buyer on cred"t, reta"n"n# t"t$e or ot er "nterest as secur"ty !or t e payment o! t e purc ase pr"ce, does not const"tute a trust rece"pt transact"on and "s outs"de t e purv"e) and covera#e o! t "s -ecree. 2istin=uish ro# pled=e, conditional sale, chattel #ort=a=e and consi=n#ent

<II. T1UST 1E%EI&TS LAW &2 11. ,1-;90


1$.1 Topics 'ri=in T e Trust Rece"pts 5a) as no $e#"s$at"ve "story to spea% o! as "t )as a pres"dent"a$ "ssuance. ;t )as c$ose$y patterned a!ter t e En"!orm Trust Rece"pts Act promu$#ated "n 1993 by t e E( =at"ona$ ,on!erence o! ,omm"ss"oners on En"!orm (tate 5a)s and adopted by rou# $y t)o.t "rds o! t e states. T e ETRA )as rep$aced "n 1952 by t e En"!orm ,ommerc"a$ ,ode. T e ETRA, >ust $"%e t e Trust Rece"pts 5a), contemp$ated a tr"part"te arran#ement under ) "c a buyer, ca$$ed an entrustee, purc ased #oods !rom a se$$er, )"t t e !"nanc"n# be"n# prov"ded by a $ender ca$$ed t e entruster. )ature and tripartite character o trust receipts transaction SE% /. What constitutes a trust receipt transaction. A trust rece"pt transact"on, )"t "n t e mean"n# o! t "s -ecree, "s any transact"on by and bet)een a person re!erred to "n t "s -ecree as t e entruster, and anot er person re!erred to "n t "s -ecree as entrustee, ) ereby t e entruster, ) o o)ns or o$ds abso$ute t"t$e or secur"ty "nterests over certa"n spec"!"ed #oods, documents or "nstruments, re$eases t e same to t e possess"on o! t e entrustee upon t e $atterIs e1ecut"on and de$"very to t e entruster o! a s"#ned document ca$$ed a Ctrust rece"ptC ) ere"n t e entrustee b"nds "mse$! to o$d t e des"#nated #oods, documents or "nstruments "n trust !or t e entruster and to se$$ or ot er)"se d"spose o! t e #oods, documents or "nstruments )"t t e ob$"#at"on to turn over to t e entruster t e proceeds t ereo! to t e e1tent o! t e amount o)"n# to t e entruster or as appears "n t e trust rece"pt or t e #oods, documents or "nstruments t emse$ves "! t ey are unso$d or not ot er)"se d"sposed o!, "n accordance )"t t e terms and cond"t"ons spec"!"ed "n t e trust rece"pt, or !or ot er purposes substant"a$$y e2u"va$ent to any o! t e !o$$o)"n#+ 1. ;n t e case o! #oods or documents, (a) to se$$ t e #oods or procure t e"r sa$e* or (b) to manu!acture or process t e #oods )"t t e purpose o! u$t"mate sa$e+ Prov"ded, T at, "n t e case o! #oods de$"vered under trust rece"pt !or t e purpose o! manu!actur"n# or

&led=e ;n a p$ed#e, t e person do"n# t e !"nanc"n# as possess"on o! t e property* "n a trust rece"pt, t e property "s "n t e possess"on o! t e person !"nanced. %onditional Sale ;n a cond"t"ona$ sa$e, t ere "s a sa$e o! t e property !rom t e se$$er to t e buyer* "n a trust rece"pt, t ere "s no sa$e o! t e property !rom t e entruster to t e entrustee. %hattel 4ort=a=e A c atte$ mort#a#e "nvo$ves t e creat"on o! a $"en on t e property* a trust rece"pt does not "nvo$ve t e creat"on o! a $"en. %onsi=n#ent ;n a cons"#nment, t e cons"#nor reta"ns t"t$e to t e property to secure t e "ndebtedness due !rom t e cons"#nee* "n a trust rece"pt, t e se$$er does not reta"n t"t$e to t e property but trans!ers suc t"t$e to t e entruster.

1i=hts o entruster SE% ;. Rights o the entruster. T e entruster s a$$ be ent"t$ed to t e proceeds !rom t e sa$e o! t e #oods, documents or "nstruments re$eased under a trust rece"pt to t e entrustee to t e e1tent o! t e amount o)"n# to t e entruster or as appears "n t e trust rece"pt, or to t e return o! t e #oods, documents or "nstruments "n case o! non.sa$e, and to t e en!orcement o! a$$ ot er r"# ts con!erred on "m "n t e trust rece"pt prov"ded suc are not contrary to t e prov"s"ons o! t "s -ecree. T e entruster may cance$ t e trust and ta%e possess"on o! t e #oods, documents or "nstruments sub>ect o! t e trust or o! t e proceeds rea$"Ded t ere!rom at any t"me upon de!au$t or !a"$ure o! t e entrustee to comp$y )"t any o! t e terms and cond"t"ons o! t e trust rece"pt or any ot er a#reement bet)een t e entruster and t e entrustee, and t e entruster "n possess"on o! t e #oods, documents or "nstruments may, on or a!ter de!au$t, #"ve not"ce to t e entrustee o! t e "ntent"on to se$$, and may, not $ess t an !"ve

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

*2 o% $&&

days a!ter serv"n# or send"n# o! suc not"ce, se$$ t e #oods, documents or "nstruments at pub$"c or pr"vate sa$e, and t e entruster may, at a pub$"c sa$e, become a purc aser. T e proceeds o! any suc sa$e, ) et er pub$"c or pr"vate, s a$$ be app$"ed (a) to t e payment o! t e e1penses t ereo!* (b) to t e payment o! t e e1penses o! re.ta%"n#, %eep"n# and stor"n# t e #oods, documents or "nstruments* (c) to t e sat"s!act"on o! t e entrusteeIs "ndebtedness to t e entruster. T e entrustee s a$$ rece"ve any surp$us but s a$$ be $"ab$e to t e entruster !or any de!"c"ency. =ot"ce o! sa$e s a$$ be deemed su!!"c"ent$y #"ven "! "n )r"t"n#, and e"t er persona$$y served on t e entrustee or sent by post.pa"d ord"nary ma"$ to t e entrusteeIs $ast %no)n bus"ness address. 'bli=ations o entrustee SE% -. .bligations o the entrustee. T e entrustee s a$$ (1) o$d t e #oods, documents or "nstruments "n trust !or t e entruster and s a$$ d"spose o! t em str"ct$y "n accordance )"t t e terms and cond"t"ons o! t e trust rece"pt* (2) rece"ve t e proceeds "n trust !or t e entruster and turn over t e same to t e entruster to t e e1tent o! t e amount o)"n# to t e entruster or as appears on t e trust rece"pt* (3) "nsure t e #oods !or t e"r tota$ va$ue a#a"nst $oss !rom !"re, t e!t, p"$!era#e or ot er casua$t"es* (4) %eep sa"d #oods or proceeds t ereo! ) et er "n money or ) atever !orm, separate and capab$e o! "dent"!"cat"on as property o! t e entruster* (5) return t e #oods, documents or "nstruments "n t e event o! non.sa$e or upon demand o! t e entruster* and (@) observe a$$ ot er terms and cond"t"ons o! t e trust rece"pt not contrary to t e prov"s"ons o! t "s -ecree. )onEliability o entruster or sale o =oods #ade by entrustee SE% 8. Entruster not responsible on sale b* entrustee. T e entruster o$d"n# a secur"ty "nterest s a$$ not, mere$y by v"rtue o! suc "nterest or av"n# #"ven t e entrustee $"berty o! sa$e or ot er d"spos"t"on o! t e #oods, documents or "nstruments under t e terms o! t e trust rece"pt transact"on be respons"b$e as pr"nc"pa$ or as vendor under any sa$e or contract to se$$ made by t e entrustee. 1is? o loss o =oods borne by entrustee SE% 1>. )iabilit* o entrustee or loss. T e r"s% o! $oss s a$$ be borne by t e entrustee. 5oss o! #oods, documents or "nstruments ) "c are t e sub>ect o! a trust rece"pt, pend"n# t e"r d"spos"t"on, "rrespect"ve o! ) et er or not "t )as due to t e !au$t or ne#$"#ence o! t e entrustee, s a$$ not e1t"n#u"s "s ob$"#at"on to t e entruster !or t e va$ue t ereo!. Ac"uisition by purchaser o =oods ree ro# entrusterHs security interest SE% 11. Rights o purchaser or value and in good aith. Any purc aser o! #oods !rom an entrustee )"t r"# t to se$$, or o! documents or "nstruments t rou# t e"r customary !orm o! trans!er, ) o buys t e #oods, documents, or "nstruments !or va$ue and "n #ood !a"t !rom t e entrustee, ac2u"res sa"d #oods, documents or "nstruments !ree !rom t e entrusterIs secur"ty "nterest. Security interest o entruster @alid a=ainst all creditors o entrustee SE% 1$. :alidit* o entruster;s securit* interest as against creditors. T e entrusterIs secur"ty "nterest "n #oods, documents, or

"nstruments pursuant to t e )r"tten terms o! a trust rece"pt s a$$ be va$"d as a#a"nst a$$ cred"tors o! t e entrustee !or t e durat"on o! t e trust rece"pt a#reement. 1$.$ %ases 5"ab"$"ty o! entrustee not e1t"n#u"s ed by return o! #oods to entruster :intola v. 'B!! :acts+ 9"nto$as )ere #ranted a $etter o! cred"t by ;'AA to cover "ts purc ase o! seas e$$s. T erea!ter, t e 9"nto$as rece"ved t e seas e$$s !rom t e se$$er. 9"nto$as t en e1ecuted a trust rece"pt a#reement )"t ;'AA. T e 9"nto$as de!au$ted on t e"r ob$"#at"on as t ey )ere unab$e to se$$ t e seas e$$s. A!ter ;'AA demanded payment !rom t em, t ey returned t e seas e$$s to ;'AA. T e 9"nto$as c$a"m t at t e"r ob$"#at"on to ;'AA as been e1t"n#u"s ed "nasmuc as t ey ave re$"n2u"s ed possess"on t ereo! to ;'AA, as o)ner o! t e #oods. ;ssue+ 4<= t e ob$"#at"on o! t e 9"nto$as under t e trust rece"pt a#reement )as e1t"n#u"s edW =o Be$d+ ;'AA d"d not become t e rea$ o)ner o! t e #oods. ;t )as mere$y t e o$der o! a secur"ty o! t"t$e !or t e advances "t ad made to t e 9"nto$as. T e #oods rema"n t e property o! t e 9"nto$as and t ey o$d "t at t e"r o)n r"s%. T e trust rece"pt a#reement d"d not convert ;'AA "n to an "nvestor, t e $atter rema"ned a $ender and cred"tor. ("nce t e ;'AA "s not t e !actua$ o)ner o! t e #oods, t e 9"nto$as cannot c$a"m t at because t ey ave surrendered t e #oods to ;'AA t ey are abso$ute$y re$"eved o! t e"r ob$"#at"on to pay t e"r $oan because o! t e"r "nab"$"ty to d"spose o! t e #oods. Trust rece"pts $a) deemed to cover cap"ta$ #oods !llied Ban&ing v. .rdones :acts+ P'A )as #"ven $etter o! cred"t by A$$"ed 'an%"n# to cover t e purc ase o! -o$om"tes and =oDD$e 'r"c%s ("nsu$at"n# mater"a$s ) "c do not !orm part o! t e stee$ products). T e dra!ts dra)n a#a"nst t e $etter o! cred"t )as onored and pa"d by A$$"ed 'an%"n#. A trust rece"pt a#reement )as entered "nto bet)een P'A and A$$"ed 'an%"n#. P'A !a"$ed to turn over t e proceeds o! t e sa$e o! t e #oods or to return t e #oods t emse$ves. A$$"ed 'an%"n# !"$ed a cr"m"na$ case a#a"nst P'A !or v"o$at"on o! P- 115. T e -<6 e$d t at P- 115 covers on$y #oods or components o! #oods ) "c are u$t"mate$y dest"ned !or sa$e. ;ssue+ 4<= P- 115 a$so covers #oods t at do not !orm part o! t e !"n"s ed product ) "c are u$t"mate$y so$d but are "nstead used up "n t e operat"on o! t e e2u"pment and mac "ner"es o! t e entrustee.manu!acturerW Pes Be$d+ T e ,ourt ta%es >ud"c"a$ not"ce o! customary ban%"n# and bus"ness pract"ces ) ere trust rece"pts are used !or "mportat"on o! eavy e2u"pment, mac "ner"es and supp$"es used "n manu!actur"n# operat"ons. A construct"on s ou$d be avo"ded ) en "t a!!ords an opportun"ty to de!eat comp$"ance )"t t e terms o! a statute. T e pena$ prov"s"on o! P- 115 encompasses any act v"o$at"ve o! an ob$"#at"on covered by t e trust rece"pt* "t "s not $"m"ted to transact"ons "n #oods ) "c are to be so$d, res "pped, stored or processed as a component o! a product u$t"mate$y so$d. To up o$d

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

*' o% $&&

t e -<6&s ru$"n# )ou$d contravene not on$y t e $etter but t e sp"r"t o! P- 115. '"part"te transact"on deemed covered by trust rece"pts $a) Robles v. C! :acts+ =# entrusted to Rob$es o!!"ce e2u"pment ) "c )ere a$$ covered by de$"very trust rece"pts. :or a$$ t ese "tems, Rob$es a#reed to se$$ t em and rem"t t e proceeds o! t e sa$es to =# or to return t e "tems "! unso$d. 4 en Rob$es !a"$ed to comp$y )"t "s ob$"#at"on, =# !"$ed a case !or esta!a a#a"nst "m. Rob$es c$a"ms t at t e trust rece"pts )ere mere$y "ntended to ev"dence t e !act t at t e art"c$es $"sted t ere"n )ere de$"vered to and rece"ved by "m. Be c$a"ms t at t ese transact"ons )ere "n !act sa$es on a tr"a$ bas"s !or a per"od o! 2 days. T us, ) en e !a"$ed to return t e p"eces o! e2u"pment )"t "n t e 2 day per"od e )as deemed to ave purc ased t e same and "s $"ab"$"ty s ou$d t ere!ore on$y be c"v"$ ".e. to pay t e purc ase pr"ce. Be$d+ T e prov"s"ons o! t e trust rece"pts c$ear$y s o) t at (1) =# reta"ned o)ners "p o! t e o!!"ce e2u"pment covered by t e rece"pts* (2) t at possess"on o! t e #oods )ere conveyed to Rob$es sub>ect to t e !"duc"ary ob$"#at"on e"t er to return t em )"t "n a spec"!"ed per"od o! t"me or to pay or account !or t e pr"ce o! proceeds t ereo!. (urround"n# c"rcumstances a$so s o)ed t at t e transact"ons )ere not ord"nary sa$es on tr"a$ bas"s. T ere )ere @ transact"ons and eac transact"on "nvo$ved t e de$"very o! severa$ e2u"pment "nd"cat"n# t at Rob$es )as not an ord"nary buyer ) o )ou$d "mse$! use t e art"c$es bou# t but rat er a comm"ss"on merc ant. 9"o$at"on o! trust rece"pts $a) o!!ense a#a"nst pub$"c order, not a#a"nst property (eople v. ,ita an :acts+ A$$"ed 'an%"n# ,orporat"on c ar#ed An# )"t esta!a under P- 115. 6ud#e ="ta!an d"sm"ssed t e cased on t e #round t at t e pena$ c$ause o! P- 115 "s "noperat"ve because "t does actua$$y pun"s an o!!ense ma$a pro "b"ta. ="ta!an a$so asserts t at P- 115 "s unconst"tut"ona$ as "t v"o$ates t e const"tut"ona$ pro "b"t"on a#a"nst "mpr"sonment !or non.payment o! a debt. ;ssue+ 4<= an entrustee "n a trust rece"pt a#reement ) o !a"$s to de$"ver t e proceeds o! t e sa$e or to return t e #oods "! not so$d to t e entruster ban% "s $"ab$e !or t e cr"me o! esta!aW Pes Be$d+ T e Trusts Rece"pts 5a) pun"s es d"s onesty and abuse o! con!"dence "n t e and$"n# o! money or #oods to t e pre>ud"ce o! anot er re#ard$ess o! ) et er t e $atter "s t e o)ner or not. T e $a) does not see% to en!orce payment o! t e $oan. T us, t ere can be no v"o$at"on o! a r"# t a#a"nst "mpr"sonment !or non.payment o! a debt. P- 115 $"%e 'P 22 pun"s ed t e act Gnot as an o!!ense a#a"nst property, but as an o!!ense a#a"nst pub$"c order.H ;t "s "n t e conte1t o! up o$d"n# pub$"c "nterest t at t e $a) no) spec"!"ca$$y des"#nates a breac o! a trust rece"pt a#reement to be an act t at Gs a$$H ma%e one $"ab$e !or esta!a. Transact"on a s"mp$e $oan, not a trust rece"pt transact"on Colinares v. C! :acts+ ,o$"nares obta"ned mater"a$s !rom ,A 'u"$ders to renovate t e ,arme$"te ("sters& ,onvent. T e ne1t day, ,o$"nares app$"ed !or

a $etter o! cred"t !rom P', "n !avor o! t e ,A 'u"$ders. P', approved t e $etter o! cred"t to cover t e !u$$ "nvo"ce va$ue o! t e #oods. ,o$"nares s"#ned a pro.!orma trust rece"pt as secur"ty. ,o$"nares )as c ar#ed !or v"o$at"on o! P- 115. ;ssue+ 4<= t e transact"on )as an ord"nary $oan and not a trust rece"pt a#reement under t e Trust Rece"pts 5a)W Be$d+ T e transact"on "ntended by t e part"es )as a s"mp$e $oan not a trust rece"pt a#reement. ,o$"nares rece"ved t e merc and"se !rom ,A 'u"$ders on <ctober 3/. <n t at day, o)ners "p over t e merc and"se )as a$ready trans!erred to ,o$"nares ) o )as to use t e mater"a$s !or "s construct"on pro>ect. ;t )as on$y a day $ater t at ,o$"nares )ent to t e ban% to app$y !or a $oan to pay !or t e merc and"se. T "s s"tuat"on be$"es ) at norma$$y obta"ns "n a pure trust rece"pt transact"on ) ere #oods are o)ned by t e ban% and on$y re$eased to t e "mporter "n trust subse2uent to t e #rant o! t e $oan. T e ban% ac2u"res a Gsecur"ty "nterestH "n t e #oods as o$der o! a secur"ty t"t$e !or t e advances "t ad made to t e entrustee. T e o)ners "p o! t e merc and"se cont"nues to be vested "n t e person ) o ad advanced payment unt"$ e as been pa"d "n !u$$, or "! t e merc and"se as a$ready been so$d, t e proceeds o! t e sa$e s ou$d be turned over to "m by t e "mporter or by "s representat"ve or successor "n "nterest. To secure t at t e ban% )"$$ be pa"d "t ta%es !u$$ t"t$e to t e #oods at t e very be#"nn"n# and cont"nues to o$d t at t"t$e as "s "nd"spens"b$e secur"ty unt"$ t e #oods are so$d and t e vendee "s ca$$ed upon to pay !or t em. Bence t e "mporter as never o)ned t e #oods and "s not ab$e to de$"ver possess"on. ;n a certa"n manner, trust rece"pts parta%e t e nature o! a cond"t"ona$ sa$e ) ere t e "mporter becomes t e abso$ute o)ner o! t e merc and"se as soon as e as pa"d "ts pr"ce. Ac2u"tta$ "n cr"m"na$ case !or esta!a under (ec. 13 o! P- 115 does not e1t"n#u"s c"v"$ $"ab"$"ty ar"s"n# !rom breac o! trust rece"pts contract Tupa9 ': v. C! :acts+ 'P; c ar#ed TupaD )"t esta!a under (ec. 13 P- 115. T e tr"a$ court rendered >ud#ment ac2u"tt"n# TupaD o! esta!a on reasonab$e doubt. Bo)ever, t e tr"a$ court !ound TupaD so$"dar"$y $"ab$e !or t e ba$ance o! t e pr"nc"p$e debt under t e trust rece"pts. ;ssue+ 4<= TupaD&s ac2u"tta$ o! esta!a under (ec. 13 P- 115 e1t"n#u"s ed t e"r c"v"$ $"ab"$"tyW Be$d+ T e ru$e "s t at ) ere t e c"v"$ act"on "s "mp$"ed$y "nst"tuted )"t cr"m"na$ act"on, t e c"v"$ $"ab"$"ty "s not e1t"n#u"s ed by ac2u"tta$+ 1. ) ere t e ac2u"tta$ "s based on reasonab$e doubt as on$y preponderance o! ev"dence "s re2u"red "n c"v"$ cases* 2. ) ere t e court e1press$y dec$ares t at t e $"ab"$"ty o! t e accused "s not cr"m"na$ but c"v"$ "n nature and 3. ) ere t e c"v"$ $"ab"$"ty does not ar"se !rom or "s not based upon t e cr"m"na$ act o! ) "c t e accused )as ac2u"tted. A$t ou# t e tr"a$ court a2u"tted TupaD "s ac2u"tta$ d"d not e1t"n#u"s "s c"v"$ $"ab"$"ty. B"s $"ab"$"ty arose not !rom t e cr"m"na$ act o! ) "c e )as ac2u"tted but !rom t e trust rece"pt contract (e1 contractu) ) "c e s"#ned "n "s persona$ capac"ty.

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

*& o% $&&

8ntrustee as no aut or"ty to mort#a#e #oods covered by trust rece"pts /B( v. (rudential Ban& :acts+ 5"te1 opened a $etter o! cred"t !rom Prudent"a$ 'an% to cover t e "mportat"on o! sp"nd$es etc. Prudent"a$ 'an% re$eased t e sp"nd$es to 5"te1 under a trust rece"pt a#reement. (ubse2uent$y, 5"te1 obta"ned a $oan !rom -'P ) "c )as secured by rea$ estate and c atte$ mort#a#es over "ts p$ant and mac "ner"es "nc$ud"n# t e #oods covered by t e trust rece"pts. 4 en 5"te1 !a"$ed to pay "ts $oan, -'P !orec$ose t e mort#a#es. Prudent"a$ !"$ed a case !or dama#es a#a"nst -'P. ;ssue+ 4<= 5"te1 as entrustee cou$d mort#a#e t e #oods covered by t e trust rece"ptsW Be$d+ T e art"c$es )ere o)ned by Prudent"a$ 'an% and t ey )ere on$y e$d by 5"te1 "n trust. 4 "$e "t )as a$$o)ed to se$$ t e "tems, 5"te1 ad no aut or"ty to d"spose o! t em or any part t ereo! or t e"r proceeds t rou# cond"t"ona$ sa$e, p$ed#e or any ot er means. Art"c$e 2/75 (2) o! t e ,"v"$ ,ode re2u"res t at, "n a contract o! p$ed#e or mort#a#e, "t "s essent"a$ t at t e p$ed#or or mort#a#or s ou$d be t e abso$ute o)ner o! t e t "n# p$ed#ed or mort#a#ed. Art"c$e 2/75 (3) !urt er mandates t at t e person const"tut"n# t e p$ed#e or mort#a#e must ave t e !ree d"sposa$ o! "s property, and "n t e absence t ereo!, t at e be $e#a$$y aut or"Ded !or t e purpose. 5"te1 ad ne"t er abso$ute o)ners "p, !ree d"sposa$ nor t e aut or"ty to !ree$y d"spose o! t e art"c$es. 5"te1 cou$d not ave sub>ected t em to a c atte$ mort#a#e. T e"r "nc$us"on "n t e mort#a#e )as vo"d and ad no $e#a$ e!!ect. T ere be"n# no va$"d mort#a#e, t ere cou$d a$so be no va$"d !orec$osure or va$"d auct"on sa$e.

A1TI%LE 9. T e $e#a$ presumpt"on o! ab"tua$$y en#a#"n# "n commerce s a$$ e1"st !rom t e moment t e person ) o "ntends to en#a#e t ere"n announces t rou# c"rcu$ars, ne)spapers, andb"$$s, posters e1 "b"ted to t e pub$"c, or "n any ot er manner ) atsoever, an estab$"s ment ) "c as !or "ts ob>ect some commerc"a$ operat"on. A1TI%LE /. Persons ) o possess t e !o$$o)"n# "uali ications s a$$ ave le=al capacity to habitually en=a=e in co##erce + 1. Bav"n# comp$eted t e a#e o! t)enty.one years. 2. =ot be"n# sub>ect to t e aut or"ty o! t e !at er or o! t e mot er nor to mar"ta$ aut or"ty. 3. Bav"n# t e !ree d"spos"t"on o! t e"r property. A1TI%LE .. T ose under t)enty.one years o! a#e and t ose "ncapac"tated may cont"nue, t rou# t e"r #uard"ans, t e bus"ness en#a#ed "n by t e"r parents or t e"r predecessors. ;! t e #uard"ans do not ave $e#a$ capac"ty to trade or are under some d"s2ua$"!"cat"ons, t ey s a$$ be ob$"#ed to appo"nt one or more !actors av"n# t e $e#a$ 2ua$"!"cat"ons ) o s a$$ subst"tute t em "n conduct o! t e bus"ness. A1TI%LE 7. 9(e+ea-ed: 1 A1TI%LE ;. 9(e+ea-ed: 2 A1TI%LE 8. T e usband may !ree$y revo%e t e aut or"Dat"on "mp$"ed$y or e1press$y #ranted to "s )"!e to trade, stat"n# t e revocat"on "n a pub$"c "nstrument ) "c s a$$ a$so be recorded "n t e commerc"a$ re#"stry, pub$"s ed "n t e o!!"c"a$ per"od"ca$ o! t e to)n, "! t ere be one, or ot er)"se "n t at o! t e to)n, "! t ere be one, or ot er)"se "n t at o! t e prov"nce, and announced to er correspondents by means o! c"rcu$ars. T e pub$"cat"on may a$so be made, "! t e usband so demands, by proc$amat"ons and common cr"ers. T "s revocat"on may, "n no case, pre>ud"ce r"# ts ac2u"red be!ore "ts pub$"cat"on "n t e o!!"c"a$ per"od"ca$. A1TI%LE -. <Repealed8 = A1TI%LE 1>. <Repealed8 > A1TI%LE 11. <Repealed8 ? A1TI%LE 1$. <Repealed8 @ Who #ay )'T en=a=e in co##erceI

<III. 4E1%3A)TS A)2 T1A)SA%TI')S ,<-8 <: ,<AA8R,8 (1777)


Who are #erchantsI

%'44E1%IAL

A1TI%LE 1. :or purposes o! t "s ,ode, merc!ant) are+ 1. T ose ) o, av"n# $e#a$ capac"ty to en#a#e "n commerce, ab"tua$$y devote t emse$ves to "t* 2. T e commerc"a$ or "ndustr"a$ compan"es ) "c may be created "n accordance )"t St "s ,odeT e1"st"n# $e#"s$at"on. A1TI%LE $. Acts o co##erce, ) et er t ose ) o e1ecute t em be merc ants or not, and ) et er spec"!"ed "n t "s ,ode or not, s ou$d be #overned by t e prov"s"ons conta"ned "n "t, "n t e"r absence, by t e usa#es o! commerce #enera$$y observed "n eac p$ace* and "n t e absence o! bot ru$es, by t ose o! t e c"v"$ $a). T ose acts conta"ned "n t "s ,ode and a$$ ot ers o! ana$o#ous c aracter s a$$ be deemed acts o! commerce.

A1TI%LE 19. T e ollowin= #ay not en=a=e in co##erce nor o$d o!!"ce or ave any d"rect adm"n"strat"ve or !"nanc"a$ "ntervent"on "n commerc"a$ or "ndustr"a$ compan"es+ 1. T ose sentenced to t e pena$ty o! c"v"$ "nterd"ct"on, ) "$e t ey ave not served t e"r sentence or ave not been amnest"ed or pardoned. 2. T ose dec$ared ban%rupt, ) "$e t ey ave not obta"ned t e"r d"sc ar#e Sor ave not been aut or"Ded, by v"rtue o! an a#reement accepted at a #enera$ meet"n# o! cred"tors and approved by >ud"c"a$ aut or"ty, to cont"nue at t e ead o! t e estab$"s ment, t e aut or"ty be"n# understood "n suc case as $"m"ted to t at e1pressed "n t e a#reement.T 3. T ose ) o on account o! spec"a$ $a)s or prov"s"ons can not trade. A1TI%LE 1/. T e !o$$o)"n# cannot en#a#e "n t e mercant"$e pro!ess"on, "n person or t rou# anot er, nor o$d o!!"ce or ave any d"rect adm"n"strat"ve or !"nanc"a$ "ntervent"on "n commerc"a$ or "ndustr"a$ assoc"at"ons, )"t "n t e $"m"ts o! t e d"str"cts, prov"nces or to)ns "n ) "c t ey d"sc ar#e t e"r dut"es+

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

*( o% $&&

1. 6ust"ces, >ud#es and o!!"c"a$s o! t e !"sca$s& o!!"ce "n act"ve serv"ce. T "s prov"s"on s a$$ not be app$"cab$e to t e mun"c"pa$ mayors, >ud#es and prosecut"n# attorneys, nor to t ose ) o may temporar"$y d"sc ar#e >ud"c"a$ or prosecut"on dut"es. $. Adm"n"strat"ve, econom"c or m"$"tary eads o! d"str"cts, prov"nces, or posts. 9. T ose emp$oyed "n t e co$$ect"on and adm"n"strat"on o! !unds o! t e (tate, appo"nted by t e 3overnment. T ose ) o adm"n"ster and co$$ect under contract and t e"r representat"ve are e1cepted. /. (toc% and commerc"a$ bro%ers o! ) atever c$ass t ey may be. .. T ose ) o, under spec"a$ $a)s and prov"s"ons, cannot trade "n spec"!"ed terr"tory. A1TI%LE 1.. :ore"#ners and compan"es created abroad may en#a#e "n commerce "n t e P "$"pp"nes, sub>ect to t e $a)s o! t e"r country )"t respect to t e"r capac"ty to contract, and to t e prov"s"ons o! t "s ,ode as re#ard t e creat"on o! t e"r estab$"s ments "n P "$"pp"ne terr"tory, t e"r mercant"$e operat"ons, and t e >ur"sd"ct"on o! t e courts o! t e nat"on. T e prov"s"ons o! t e art"c$e s a$$ be understood to be )"t out pre>ud"ce to ) at, "n part"cu$ar cases, may be estab$"s ed by treat"es or a#reements )"t ot er po)ers. T"t$e ;; . ,ommerc"a$ Re#"str"es A1TI%LE 17. ;n a$$ t e cap"ta$s o! prov"nces s a$$ be opened a mercant"$e re#"stry composed o! t)o "ndependent boo%s "n ) "c s a$$ be "nscr"bed+ 1. ;nd"v"dua$ merc ants. 2. Assoc"at"ons. ;n t e coasta$ prov"nces and "n t e "nter"or ones ) ere "t "s cons"dered conven"ent because o! t e presence o! nav"#at"on, t e re#"stry s a$$ "nc$ude a t "rd boo% !or t e re#"strat"on o! vesse$s. A1TI%LE 1;. Re#"strat"on "n t e mercant"$e re#"stry s a$$ be opt"ona$ !or "nd"v"dua$ merc ants and compu$sory !or assoc"at"ons ) "c are created "n accordance )"t t "s ,ode or )"t spec"a$ $a)s, and !or vesse$s. A1TI%LE 18. T e unre#"stered merc ant cannot re2uest t e "nscr"pt"on o! any document "n t e mercant"$e re#"stry, nor ta%e advanta#e o! "ts $e#a$ e!!ects. A1TI%LE 1-. T e re#"ster s a$$ %eep t e boo%s necessary !or re#"strat"on, stamped, !o$"oed and )"t a memorandum on t e !"rst pa#e o! t e number o! pa#es ) "c eac boo% conta"ns, s"#ned by t e >ust"ce o! t e peace. 4 ere t ere are severa$ >ust"ces o! t e peace, any one o! t em may s"#n t e memorandum. A1TI%LE $>. T e re#"strar s a$$ enter "n c rono$o#"ca$ order "n t e re#"stry and #enera$ "nde1 a$$ t e merc ants and compan"es ) "c are re#"stered, #"v"n# eac s eet t e corre$at"ve number ) "c corresponds to "t. A1TI%LE $1. <n t e record s eet o! eac merc ant or company s a$$ be entered+ 1. T e name, !"rm name, or t"t$e. cd 2. T e c$ass o! commerce or transact"ons "n ) "c en#a#ed. 3. T e date on ) "c t e transact"ons s a$$ commence or ave commenced. 4. T e dom"c"$e, )"t a spec"!"cat"on o! t e branc es ) "c may ave been estab$"s ed, )"t out pre>ud"ce to t e re#"strat"on o! t e

branc es "n t e re#"stry o! t e prov"nce "n ) "c t ey may be dom"c"$ed. 5. ;nstruments !or t e creat"on o! commerc"a$ assoc"at"ons, ) atever t e"r ob>ect or denom"nat"on may be, as )e$$ as t ose !or t e mod"!"cat"on, resc"ss"on or d"sso$ut"on o! suc assoc"at"ons. @. S3enera$ po)ers o! attorney, and t e revocat"on o! t e same, s ou$d t ere be any, #"ven to mana#ers, !actors, emp$oyees and any ot er a#ents.T 7. ST e aut or"Dat"on o! t e usband !or "s )"!e to en#a#e "n commerce and t e $e#a$ or >ud"c"a$ aut or"ty o! t e )"!e to adm"n"ster er property on account o! t e absence or "ncapac"ty o! t e usband.T 7. ST e revocat"on o! t e perm"ss"on #"ven to t e )"!e to trade.T 9. S-ota$ "nstrumentsT, marr"a#e sett$ement and t e t"t$e ) "c prove t e o)ners "p o! t e parap erna$ property o! t e )"ves o! merc ants. 1/. T e "ssue o! s ares, cert"!"cates, and bonds o! ra"$roads and o! a$$ c$asses o! assoc"at"ons, be t ey assoc"at"ons !or pub$"c )or%s, cred"t compan"es, or ot ers, stat"n# t e ser"es and number o! t e cert"!"cates o! eac "ssue, t e"r part"c"pat"on, "nterest, payment and prem"um, s ou$d t ey ave one or t e ot er, t e tota$ amount o! t e "ssue, and t e property, )or%s, r"# ts or mort#a#es, s ou$d t ere be any, by ) "c t e"r payment "s secured. T e "ssues ) "c may be made by "nd"v"dua$s s a$$ a$so be recorded "n accordance )"t t e prov"s"ons o! t e preced"n# para#rap . 11. ST e "ssues o! ban% notes, stat"n# t e date, c$ass, ser"es, 2uant"ty and va$ue o! eac "ssue.T 12. ST e t"t$es o! "ndustr"a$ property, patents, and trademar%s, "n t e !orm and manner estab$"s ed by $a).T :ore"#n assoc"at"ons ) "c des"re to estab$"s t emse$ves or create branc es "n t e P "$"pp"nes s a$$ present and record "n t e re#"stry, bes"des t e"r by.$a)s and t e documents re2u"red o! :"$"p"nos, a cert"!"cate "ssued by t e P "$"pp"ne consu$ t at t ey are const"tuted and aut or"Ded "n accordance )"t t e $a)s o! t e"r respect"ve countr"es. A1TI%LE $$. S;n t e re#"stry o! vesse$s t ere s a$$ be stated+ 1. T e name o! t e vesse$, %"nd o! e2u"pment, system or po)er o! t e en#"nes, "! "t "s a steamer, stat"n# ) et er t ey are nom"na$ or "nd"cated orsepo)er* p$ace o! construct"on o! t e u$$ and en#"nes* year t ereo!, mater"a$ o! t e u$$, stat"n# ) et er "t "s o! )ood, "ron, stee$, or m"1ed* pr"nc"pa$ d"mens"ons o! $en#t , breadt o! beam, and dept o! o$d* t e #ross and net tonna#e* d"st"nct"ve s"#na$ ) "c "t bears "n t e ;nternat"ona$ ,ode o! ("#na$s* !"na$$y, t e names and dom"c"$es o! t e o)ners or part o)ners o! t e same. 2. T e c an#es "n t e o)ners "p o! vesse$s, "n t e"r name, or "n any o! t e ot er cond"t"ons enumerated "n t e !ore#o"n# para#rap . 3. T e "mpos"t"on, mod"!"cat"on or cance$$at"on o! $"ens o! any c$ass ) atsoever ) "c encumber vesse$s.T A1TI%LE $9. As a #enera$ ru$e, t e re#"strat"on s a$$ be made by v"rtue o! notar"a$ cop"es o! t e documents ) "c t e "nterested party may present. T e re#"strat"on o! notes, bonds, or order and bearer "nstruments ) "c do not carry mort#a#es o! "mmovab$e property s a$$ be made upon presentat"on o! t e cert"!"ed m"nutes ) ere "n appears t e reso$ut"on o! t e person or persons ) o made t e "ssue, and t e cond"t"ons, re2u"s"tes and #uarant"es t ereo!. 4 en t ese #uarant"es cons"st o! mort#a#e o! "mmovab$es, t e correspond"n# "nstrument s a$$ be presented !or annotat"on "n t e mercant"$e re#"stry.

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

*) o% $&&

A1TI%LE $/. Enre#"stered art"c$es o! assoc"at"on s a$$ produce e!!ect amon# t e members ) o e1ecute t em, but t ey s a$$ not pre>ud"ce t "rd person ) o, o)ever, may ma%e use t ereo! "n so !ar as !avorab$e. A1TI%LE $.. A$$ t e reso$ut"ons or acts ) "c e!!ect an "ncrease or reduct"on "n t e cap"ta$ o! commerc"a$ assoc"at"ons, ) atever t e"r denom"nat"on may be, and t ose ) "c mod"!y or a$ter t e cond"t"ons o! recorded "nstruments, s a$$ a$so be recorded "n t e mercant"$e re#"stry. T e om"ss"on o! t "s re2u"s"te s a$$ produce t e e!!ects ment"oned "n t e preced"n# art"c$e. A1TI%LE $7. Registered documents shall produce legal e ect to the pre$udice o third persons onl* rom the date o their registration, and cannot be invalidated b* prior or subse+uent unregistered documents. A1TI%LE $;. S-ota$T "nstruments Sand t oseT re!err"n# to parap erna$ property o! t e merc ant&s )"!e, not re#"stered "n t e mercant"$e re#"stry, s a$$ ave no r"# t o! pre!erence over ot er cred"ts. ;mmovab$e property and rea$ r"# ts over t em, ac2u"red by t e )"!e pr"or to t e creat"on o! t e concurrent cred"ts, s a$$ be e1cepted. A1TI%LE $8. ;! a merc ant s ou$d !a"$ to ma%e "n t e re#"stry t e "nscr"pt"on o! t e Sdota$ orT parap erna$ property o! "s )"!e, t e $atter erse$! may re2uest "t or "t may be done !or er by er parents, by ot ers or unc$es by consan#u"n"ty, as )e$$ as by t ose ) o d"sc ar#e or may ave d"sc ar#ed t e dut"es o! #uard"ans or curators o! t e )"!e, Sor ) o const"tute or may ave const"tuted t e do)ry.T A1TI%LE $-. SEnre#"stered po)ers o! attorney s a$$ #"ve r"se to act"ons bet)een t e pr"nc"pa$ and t e a#ent, but t ey cannot be used to t e pre>ud"ce o! t "rd persons, ) o, o)ever, may re$y t ereon "n so !ar as t ey may be !avorab$e.T A1TI%LE 9>. T e mercant"$e re#"stry s a$$ be pub$"c. T e re#"strar s a$$ !urn"s t ose ) o may re2uest "t any data re!err"n# to ) at may appear on t e re#"strat"on s eet o! eac merc ant, assoc"at"on or vesse$. 5"%e)"se, e s a$$ "ssue true cop"es o! t e ) o$e or part o! sa"d s eet to anyone ) o may as% !or "t "n a s"#ned re2uest. A1TI%LE 91. ST e commerc"a$ re#"strar s a$$ ave under "s c ar#e, ) ere t ere "s an e1c an#e, cop"es o! t e da"$y 2uotat"ons o! t e propert"es ne#ot"ated and t e e1c an#es !"1ed t ere"n. T e cop"es s a$$ serve as or"#"na$ "nstruments "n a$$ cases o! "nvest"#at"on and ver!"cat"on o! e1c an#es and 2uotat"ons on determ"ned dates.T A1TI%LE 9$. ST e o!!"ce o! commerc"a$ re#"strar s a$$ be !"$$ed by t e #overnment a!ter a compet"t"ve e1am"nat"on.T TITLE III E B''KS A)2 B''KKEE&I)* '6 %'44E1%E A1TI%LE 99. Aerc ants s a$$ necessar"$y %eep+ 1. A boo% o! "nventor"es and ba$ances. 2. A >ourna$. 3. A $ed#er. 4. A boo% or boo%s !or cop"es o! $etters and te$e#rams. 5. <t er boo%s ) "c may be re2u"red by spec"a$ $a)s. Assoc"at"ons and compan"es s a$$ a$so %eep a boo% or

boo%s o! m"nutes, "n ) "c s a$$ be entered a$$ reso$ut"ons re!err"n# to t e pro#ress and operat"ons o! t e ent"t"es, approved at #enera$ meet"n#s or at t ose o! mana#"n# boards. A1TI%LE 9/. T ey may a$so %eep ot er boo%s ) "c t ey may deem conven"ent, accord"n# to t e system o! boo%%eep"n# t ey may adopt. T ese boo%s s a$$ not be sub>ect to t e prov"s"ons o! Art"c$e 3@* but t ey may $e#a$"De t ose ) "c t ey may cons"der proper. A1TI%LE 9.. Aerc ants may %eep t e"r boo%s persona$$y or t rou# persons ) om t ey aut or"De !or t e purpose. ;! a merc ant does not %eep "s boo%s persona$$y, aut or"Dat"on s a$$ be presumed #ranted to "m ) o %eeps t em un$ess t ere "s proo! to t e contrary. A1TI%LE 97. Aerc ants s a$$ present t e boo%s re!erred to "n Art"c$e 33, bound, ru$ed, and !o$"oed, to t e >ust"ce o! t e peace o! t e mun"c"pa$"ty "n ) "c t ey ave t e"r commerc"a$ estab$"s ments "n order t at e may put on t e !"rst pa#e o! eac one a s"#ned memorandum o! t e number o! pa#es ) "c t e boo% conta"ns. T e sea$ o! t e >ust"ce o! t e peace $e#a$"D"n# "t s a$$, !urt ermore, be stamped on a$$ t e pa#es o! eac boo%. A1TI%LE 9;. T e boo? o in@entories and balance s a$$ be#"n )"t t e "nventory ) "c t e merc ant must prepare at t e t"me e starts "s operat"ons, and s a$$ conta"n+ 1. An e1act statement o! t e money, secur"t"es, cred"ts, notes rece"vab$e, movab$e and "mmovab$e property, merc and"se and #oods o! a$$ %"nds, appra"sed at t e"r true va$ue, and ) "c const"tute "s assets. 2. An e1act statement o! t e debts and a$$ %"nds o! pend"n# ob$"#at"ons, s ou$d t ere be any, and ) "c !orm "s $"ab"$"t"es. 3. Be s a$$ determ"ne, "n proper cases, t e e1act d"!!erence bet)een t e assets and t e $"ab"$"t"es, ) "c s a$$ be t e cap"ta$ )"t ) "c e be#"ns "s operat"ons. T e merc ant s a$$, !urt ermore, prepare annua$$y and enter "n t e same boo% t e #enera$ ba$ance o! "s bus"ness, )"t t e deta"$s ment"oned "n t "s art"c$e, and "n accordance )"t t e entr"es "n t e >ourna$, )"t out any reservat"ons or om"ss"ons, under "s s"#nature and respons"b"$"ty. A1TI%LE 98. ;n t e >ourna$ s a$$ be entered as t e !"rst "tem t e resu$t o! t e "nventory ment"oned "n t e preced"n# art"c$e, d"v"ded "nto one or var"ous consecut"ve accounts, accord"n# to t e system o! boo%%eep"n# adopted. T erea!ter, a$$ "s operat"ons s a$$ !o$$o) day by day, eac entry stat"n# t e cred"t and deb"t o! t e respect"ve accounts. 4 en t e operat"ons are numerous, ) atever t e"r "mportance may be, or ) en t ey ave ta%en p$ace outs"de t e dom"c"$e, t ose re!err"n# to eac account and ) "c ave ta%en p$ace "n eac day may be "nc$uded "n a s"n#$e entry, but observ"n# "n t e"r statement, "! "tem"Ded, t e same order "n ) "c t ey too% p$ace. 5"%e)"se, t e amounts ) "c t e merc ant uses !or "s ouse o$d e1penses s a$$ be entered on t e date on ) "c t ey are )"t dra)n !rom t e !unds, and t ey s a$$ be carr"ed "nto a spec"a$ account to be opened !or t at purpose "n t e $ed#er. A1TI%LE 9-. T e accounts re!err"n# to eac ob>ect or person "n part"cu$ar s a$$, !urt ermore, be opened )"t -eb"t and ,red"t "n t e $ed#er, and to eac o! t ese accounts s a$$ be trans!erred, "n str"ct order o! dates, t e entr"es "n t e >ourna$ re!err"n# to t em.

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

** o% $&&

A1TI%LE />. ;n t e boo% o! m"nutes ) "c eac assoc"at"on s a$$ carry s a$$ be entered verbat"m t e reso$ut"ons a#reed upon at "ts meet"n#s or at t ose o! "ts mana#ers, stat"n# t e date o! eac one, t ose present "n t em, t e votes cast, and ot er matters conduc"ve to an e1act %no)$ed#e o! ) at as a#reed upon, aut ent"cated )"t t e s"#natures o! t e mana#ers, d"rectors or adm"n"strators c ar#ed )"t t e mana#ement o! t e assoc"at"on or des"#nated by t e by.$a)s or re#u$at"ons by ) "c "t "s #overned. A1TI%LE /1. A$$ t e $etters ) "c a merc ant may )r"te re#ard"n# "s bus"ness and t e te$e#rap "c d"spatc es ) "c e may send s a$$ be trans!erred, e"t er by and or by any mec an"ca$ means, to t e boo% !or cop"es., !u$$y and success"ve$y by order o! dates, "nc$ud"n# t e subscr"b"n# c$ause and t e s"#natures. A1TI%LE /$. Aerc ants s a$$ care!u$$y %eep, "n bund$es and "n proper order, t e $etters and te$e#rap "c d"spatc es ) "c t ey may rece"ve re$at"ve to t e"r transact"ons. A1TI%LE /9. 'es"des comp$y"n# )"t and !u$!"$$"n# t e cond"t"ons and !orma$"t"es prescr"bed "n t "s t"t$e, merc ants must %eep t e"r boo%s )"t c$earness, "n t e order o! dates, )"t out b$an%s, "nterpo$at"ons, erasures or b$ots, and )"t out s o)"n# s"#ns o! av"n# been a$tered by subst"tut"n# or tear"n# out !o$"os, or "n any ot er manner ) atsoever. A1TI%LE //. Aerc ants s a$$ correct t e errors or om"ss"ons ) "c t ey may ma%e "n enter"n# "n t e"r boo%s, "mmed"ate$y upon not"c"n# t em, e1p$a"n"n# c$ear$y "n ) at t ey cons"sted, and )r"t"n# t e entry as "t s ou$d ave been )r"tten. ;! some t"me s ou$d ave e$apsed s"nce t e error )as comm"tted or s"nce t e om"ss"on )as "ncurred, t ey s a$$ ma%e t e proper entry o! correct"on, add"n# on t e mar#"n o! t e erroneous entry a memorandum "nd"cat"n# t e correct"on. A1TI%LE /.. =o >ud#e or court or aut or"ty may, on "s o)n "n"t"at"ve, ma%e an "n2u"ry to ascerta"n "! merc ants %eep t e"r boo%s "n accordance )"t t e prov"s"ons o! t "s ,ode, nor ma%e a #enera$ "nvest"#at"on or e1am"nat"on o! t e boo%%eep"n# "n t e o!!"ces or count"n#. ouses o! merc ants. A1TI%LE /7. S=e"t er may t e commun"cat"on, de$"very or #enera$ e1am"nat"on o! t e boo%s, correspondence and ot er documents o! merc ants, be decreed at t e "nstance o! a party, e1cept "n t e cases o! $"2u"dat"on, un"versa$ success"on or ban%ruptcy.T A1TI%LE /;. S<uts"de o! t e cases ment"oned "n t e preced"n# art"c$e, t e e1 "b"t"on o! t e boo%s and documents o! merc ants may be decreed at t e "nstance o! a party or at t e "n"t"at"ve o! t e court, on$y ) en t e person to ) om t ey be$on# as an "nterest or respons"b"$"ty "n t e case "n ) "c t e e1 "b"t"on "s made. T e e1am"nat"on s a$$ be made "n t e count"n#. ouse o! t e merc ant, "n "s presence or "n t at o! t e person ) om e comm"ss"ons, and s a$$ be $"m"ted to t e po"nts re$ated to t e 2uest"on at "ssue* t ese be"n# t e on$y ones t at may be ver"!"ed.T A1TI%LE /8. ;n order to measure t e probat"ve !orce o! t e boo%s o! merc ants, t e !o$$o)"n# ru$es s a$$ be observed+ 1. T e boo%s o! merc ants s a$$ be ev"dence a#a"nst t emse$ves, no proo! to t e contrary be"n# adm"ss"b$e* but t e adverse party cannot accept t e entr"es ) "c may be !avorab$e to "m and re>ect t ose ) "c may pre>ud"ce "m, but av"n# accepted t "s means o! proo!, e s a$$ be bound by t e resu$t ) "c "t may s o) "n "ts ent"rety, ta%"n# "nto e2ua$ cons"derat"on a$$ t e entr"es re$at"ve to t e 2uest"on "n $"t"#at"on.

2. ;! t ere s ou$d be a con!$"ct "n t e entr"es o! t e boo%s %ept by t)o merc ant, and t ose o! one s ou$d ave been %ept )"t a$$ t e !orma$"t"es ment"oned "n t "s t"t$e, and t ose o! t e ot er s ou$d su!!er !rom any de!ect or s ou$d $ac% t e re2u"s"tes prescr"bed by t "s ,ode, t e entr"es o! t e boo%s proper$y %ept s a$$ be adm"tted a#a"nst t ose o! t e de!ect"ve one. un$ess t e contrary "s s o)n by means o! ot er ev"dence adm"ss"b$e "n $a). 3. ;! one o! t e merc ants s ou$d not present "s boo%s or s ou$d man"!est t at e does not ave t em, t ose o! "s adversary, %ept )"t a$$ t e $e#a$ !orma$"t"es, s a$$ be adm"tted a#a"nst "m, un$ess "t "s s o)n t at t e absence o! suc boo%s "s due to !orce ma>eure, and a$)ays sav"n# proo! by ot er means adm"ss"b$e "n su"ts a#a"nst t e entr"es e1 "b"ted. 4. ;! t e boo%s o! t e merc ants s ou$d ave a$$ t e $e#a$ re2u"s"tes and s ou$d be contrad"ctory, t e court s a$$ dec"de by t e ot er proo!s, )e"# "n# t em accord"n# to t e #enera$ ru$es o! $a). A1TI%LE /-. Aerc ants and t e"r e"rs or successors shall ?eep the boo?s, tele=ra#s, and correspondence o their business in =eneral, durin= a$$ t e t"me t at t "s may $ast and !or &ive *ear) a!ter t e $"2u"dat"on o! a$$ t e"r bus"ness and commerc"a$ a!!a"rs. -ocuments ) "c spec"a$$y concern spec"!"c acts or transact"ons may be rendered use$ess or destroyed upon t e $aps o! t e prescr"pt"ve per"od o! t e act"ons ) "c may ar"se t ere!rom, un$ess some 2uest"ons re!err"n# d"rect$y or "nd"rect$y to t em s ou$d be pend"n#, "n ) "c case, t ey must be %ept unt"$ t e conc$us"on t ereo!. TITLE I( E *E)E1AL &1'(ISI')S 1ELATI)* %')T1A%TS
T'

%'44E1%IAL

A1TI%LE .>. ,ommerc"a$ contracts, "n everyt "n# re$at"ve to t e"r re2u"s"tes, mod"!"cat"ons, e1cept"ons, "nterpretat"ons and e1t"nct"on and to t e capac"ty o! t e contract"n# part"es, s a$$ be #overned "n a$$ matters not e1press$y prov"ded !or "n t "s ,ode or "n spec"a$ $a)s, by t e #enera$ ru$es o! t e c"v"$ $a). STe$e#rap "c correspondence s a$$ on$y be t e bas"s o! an ob$"#at"on bet)een contract"n# part"es ) o ave prev"ous$y adm"tted t "s med"um "n a )r"tten contract, and prov"ded t e te$e#rams !u$!"$$ t e convent"ona$ cond"t"ons or convent"ona$ s"#ns ) "c may ave been prev"ous$y !"1ed and a#reed to by t e contract"n# part"es.T A1TI%LE .1. ,ommerc"a$ contracts s a$$ be va$"d and s a$$ #"ve r"se to ob$"#at"ons and causes o! act"on "n su"ts, ) atever t e !orm and $an#ua#e "n ) "c t ey may be e1ecuted, t e c$ass to ) "c t ey may be$on#, and t e amount t ey may "nvo$ve, prov"ded t e"r e1"stence "s s o)n by any means estab$"s ed by t e c"v"$ $a). Bo)ever, t e test"mony o! )"tness a$one s a$$ not be su!!"c"ent to prove t e e1"stence o! a contract ) "c "nvo$ves an amount e1ceed"n# 1,5// pesetas un$ess supported by some ot er ev"dence. A1TI%LE .$. :rom t e prov"s"ons o! t e preced"n# art"c$e s a$$ be e1cepted+ 1. ,ontracts ) "c , "n accordance )"t t "s ,ode or )"t spec"a$ $a)s, must be reduced to )r"t"n# or re2u"re !orms or !orma$"t"es necessary !or t e"r e!!"cacy. 2. ,ontracts e1ecuted "n a !ore"#n country "n ) "c t e $a) re2u"res certa"n "nstruments, !orms or !orma$"t"es !or t e"r va$"d"ty, a$t ou# P "$"pp"ne $a) does not re2u"re t em. ;n e"t er case, contracts ) "c do not sat"s!y t e c"rcumstances

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

*+ o% $&&

respect"ve$y re2u"red s a$$ not #"ve r"se to ob$"#at"ons or causes o! act"on. A1TI%LE .9. ;$$"c"t a#reements do not #"ve r"se to ob$"#at"ons or causes o! act"on even s ou$d t ey re!er to commerc"a$ transact"on. A1TI%LE ./. ,ontracts entered "nto by correspondence s a$$ be per!ected !rom t e moment an ans)er "s made accept"n# t e o!!er or t e cond"t"ons by ) "c t e $atter may be mod"!"ed. A1TI%LE ... ,ontracts "n ) "c an a#ent or bro%er "ntervenes s a$$ be per!ected ) en t e contract"n# part"es s a$$ ave accepted "s o!!er. A1TI%LE .7. ;n a commerc"a$ contract "n ) "c a pena$ty !or "ndemn"!"cat"on a#a"nst t e party !a"$"n# to comp$y t ere)"t "s !"1ed, t e "n>ured party may demand t rou# $e#a$ means t e !u$!"$$ment o! t e contract or t e pena$ty st"pu$ated* but t e recourse to one o! t ese act"ons s a$$ e1t"n#u"s t e ot er un$ess t e contrary "s st"pu$ated. A1TI%LE .;. ,ommerc"a$ contracts s a$$ be e1ecuted and comp$"ed )"t "n #ood !a"t , accord"n# to t e terms "n ) "c t ey )ere made and dra)n up, )"t out evad"n# t rou# arb"trary "nterpretat"ons t e p$a"n, proper and usua$ mean"n# o! t e spo%en or )r"tten )ords, or $"m"t"n# t e e!!ects ) "c are natura$$y der"ved !rom t e manner "n ) "c t e contract"n# part"es may ave e1pressed t e"r )"$$ and contracted t e"r ob$"#at"ons. A1TI%LE .8. ;! a d"screpancy s ou$d appear bet)een t e cop"es o! a contract ) "c t e contract"n# part"es present, and, "n "ts e1ecut"on, an a#ent or bro%er s ou$d ave "ntervened, t at ) "c appears "n t e boo%s o! t e $atter s a$$ preva"$ prov"ded t ey are %ept "n accordance )"t $a). A1TI%LE .-. ;! doubts ) "c cannot be dec"ded "n accordance )"t ) at "s prov"ded "n Art"c$e 2 o! t "s ,ode s ou$d ar"se, t e 2uest"on s a$$ be dec"ded "n !avor o! t e debtor. A1TI%LE 7>. ;n a$$ computat"ons o! days, mont s and years, "t s a$$ be understood t at a day as t)enty !our ours, t e mont s as des"#nated "n t e 3re#or"an ca$endar, and t e year as t ree undred s"1ty.!"ve days. '"$$s o! e1c an#e, prom"ssory notes, and $oans, )"t respect to ) "c t at spec"a$$y prov"ded !or t em by t "s ,ode s a$$ #overn, are e1cepted. A1TI%LE 71. -ays o! #race, courtesy or ot ers ) "c under any name ) atsoever de!er t e !u$!"$$ment o! commerc"a$ ob$"#at"ons, s a$$ not be reco#n"Ded, e1cept t ose ) "c t e part"es may ave prev"ous$y !"1ed "n t e contract or ) "c are based on a de!"n"te prov"s"on o! $a). A1TI%LE 7$. <b$"#at"ons ) "c do not ave a per"od prev"ous$y !"1ed by t e part"es or by t e prov"s"ons o! t "s ,ode, s a$$ be demandab$e ten days a!ter av"n# been contracted "! t ey #"ve r"se on$y to an ord"nary act"on, and on t e ne1t day "! t ey "nvo$ve "mmed"ate e1ecut"on. A1TI%LE 79. T e e ect o de ault "n t e per!ormance o! commerc"a$ ob$"#at"ons s a$$ commence+ 1. ;n contracts )"t a day !or per!ormance !"1ed by t e )"$$ o! t e part"es or by t e $a), on t e day !o$$o)"n# t e"r matur"ty. 2. ;n t ose ) "c do not ave suc day !"1ed, !rom t e day on ) "c t e cred"tor ma%es a >ud"c"a$ demand on t e debtor or

not"!"es "m o! t e protest !or $oss and dama#es made a#a"nst "m be!ore a >ud#e, notary or ot er pub$"c o!!"c"a$ aut or"Ded to adm"t t e same. TITLE II E 5'I)T A%%'U)TS A1TI%LE $9-. Aerc ants may "nterest t emse$ves "n t e transact"on o! ot er merc ants, contr"but"n# t ereto t e amount o! cap"ta$ t ey may a#ree upon, and part"c"pat"n# "n t e !avorab$e or un!avorab$e resu$ts t ereo! "n t e proport"on t ey may determ"ne. A1TI%LE $/>. 4"t re#ard to t e"r !ormat"on, >o"nt accounts s a$$ not be sub>ected to any !orma$"ty, and may be pr"vate$y contracted ora$$y or "n )r"t"n#, and t e"r e1"stence may be proved by any o! t e means accepted by $a), "n accordance )"t t e prov"s"ons o! Art"c$e 51. A1TI%LE $/1. ;n t e transact"ons treated o! "n t e !ore#o"n# art"c$es, no commerc"a$ name common to a$$ t e part"c"pants can be adopted, nor can any !urt er d"rect cred"t be made use o! e1cept t at o! t e merc ant ) o transacts and mana#es t e bus"ness "n "s o)n name and under "s "nd"v"dua$ $"ab"$"ty. A1TI%LE $/$. Persons transact"n# bus"ness )"t t e merc ant carry"n# on t e >o"nt bus"ness s a$$ on$y ave a r"# t o! act"on a#a"nst t e $atter and not a#a"nst t e ot er persons "nterested, and t e $atter, on t e ot er and, s a$$ ave no r"# t o! act"on a#a"nst t e t "rd person ) o made t e transact"on )"t t e mana#er un$ess sa"d mana#er !orma$$y cedes "s r"# ts to t em. A1TI%LE $/9. T e $"2u"dat"on s a$$ be e!!ected by t e mana#er, and a!ter t e transact"ons ave been conc$uded, e s a$$ render a proper account o! "ts resu$ts. %o##erce (de!"n"t"on) ? ;t "s t e e1c an#e o! #oods, product"ons, or property o! any %"nd. ;t "s "ntercourse by )ay o! trade and tra!!"c bet)een d"!!erent peop$es or states and t e c"t"Dens or "n ab"tants t ereo!, "nc$ud"n# not on$y t e purc ase, sa$e, e1c an#e o! commod"t"es, but a$so t e "nstrumenta$"t"es and a#enc"es by ) "c "t "s promoted and t e means and app$"ances by ) "c "t "s carr"ed on, and transportat"on o! persons as )e$$ as #oods. Law #erchant ? "s an o$d trans$at"on o! t e 5at"n $e1 mercator"a+ an o$d "nternat"ona$ $a) o! merc ants and mar"ners #ro)"n# out o! t e"r customary pract"ces. ;t )as a $a) pract"ced and en!orced by bus"nessmen and s "po)ners "n t e"r o)n courts, )"t out pro!ess"ona$ >ud#es or $a)yers. Who are #erchants under the %o##ercial %odeI ,Art. 10 1. t ose ) o av"n# capac"ty en#a#e "n commerce, ab"tua$$y devote t emse$ves t ereto* and 2. commerc"a$ or "ndustr"a$ assoc"at"ons or#an"Ded "n accordance )"t t e ,ode )'TEA T e $e#a$ presumpt"on o! ab"tua$$y en#a#"n# "n commerce s a$$ e1"st !rom t e t"me t e person ) o "ntends to en#a#e t ere"n #"ves announcement by means o! c"rcu$ars, ne)spapers, andb"$$s, posters, etc. !or t e purpose o! conduct"n# any commerc"a$ transact"on. What are co##ercial transactionsI %o##ercial transactions re!er to t ose acts covered by t e ,ode o! ,ommerce and a$$ ot ers o! ana$o#ous c aracter. T ey

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

*9 o% $&&

are #overned by t e prov"s"ons o! the %ode o %o##erceJ in de ault o such pro@isions, by the co##ercial usa=es obser@ed in each placeJ and in the absence o both, by the rules o ci@il law. Who cannot en=a=e in co##erceI T e !o$$o)"n# cannot en#a#e "n commerce+ 1. persons sentenced to c"v"$ "nterd"ct"on* 2. persons dec$ared ban%rupt 3. persons ) o, on account o! $a)s or spec"a$ prov"s"ons, may not en#a#e "n commerce. :or some o! t e ru$es to be observed "n respect o! commerc"a$ contracts, see Art"c$es 5/.57 above ("mportant parts are a$ready under$"ned). 5oint Accounts K cuentas en participacion G "s an arran#ement amon# merc ants ) o "nterest t emse$ves "n t e transact"ons o! ot er merc ants, contr"but"n# t ereto t e part o! t e cap"ta$ t ey may a#ree upon, and ) o part"c"pate "n t e !avorab$e or un!avorab$e resu$ts t ereo! "n t e proport"on t ey may determ"ne (Art. 239). (see Art"c$es 24/.243 above !or ru$es #overn"n# >o"nt accounts) 5oint Accounts @s. &artnerships 5oint Accounts &artnership 1. has no separate Buridical 1. has Buridical personality personalityJ can sue and be and #ay sue and be sued sued only in the na#e o the under the partnership na#e ostensible partner $. prohibited ro# ha@in= a $. has a ir# na#e co##ercial na#e ,thus, business is conducted in the na#e o the ostensible partner0 9. business is #ana=ed by 9. =eneral partners ha@e the the ostensible partner ri=ht o #ana=e#ent /. li"uidation shall be #ade /. li"uidation #ay, by by the ostensible partner a=ree#ent, be entrusted to a partner or partners ,ase+ Bourns @s. %ar#an 3.R. 5.27// :acts+ T e p$a"nt"!! "n t "s act"on see%s to recover t e sum o! ]437.5/, ba$ance due on a contract !or t e sa)"n# o! $umber !or t e $umber yard o! 5o., "m.5"m. 5o., "m.5"m and "s code!endants a$$e#ed t at at t e t"me t e contract )as made, t ey )ere t e >o"nt propr"etors and operators o! t e sa"d $umber yard en#a#ed "n t e purc ase and sa$e o! $umber under t e name and sty$e o! 5o., "m.5"m. Apparent$y t e p$a"nt"!! tr"es to s o) t at t e ot er de!endants )ere t e partners o! 5o., "m.5"m "n t e sa"d $umber yard bus"ness. Be$d+ As !ar as t e ev"dence s o)s "t seems t at t e bus"ness )as conducted by 5o., "m.5"m "n "s o)n name, a$t ou# e #ave to t e appe$$ants a s are o! t e earn"n#s o! t e bus"ness* but ) at t at s are )as as not been s o)n )"t certa"nty. T e contracts made )"t t e p$a"nt"!! )ere made by 5o., "m.5"m "nd"v"dua$$y "n "s o)n name, and t ere "s no ev"dence t at t e partners "p ever contracted "n any ot er !orm. Ender suc

c"rcumstances )e !"nd not "n# upon ) "c to cons"der t "s partners "p ot er t an as a partners "p o! cuentas en participacion. ;t may be t at, as a matter o! !act, "t "s somet "n# d"!!erent, but t e uncerta"n and scant ev"dence "ntroduced by t e part"es does not perm"t o! any ot er des"#nat"on o! t "s partners "p. 4e see not "n#, accord"n# to t e ev"dence, but a s"mp$e bus"ness conducted by 5o., "m.5"m e1c$us"ve$y, "n "s o)n name, t e names o! ot er persons "nterested "n t e pro!"ts and $osses o! t e bus"ness no) ere appear"n#. A partners "p const"tuted "n suc a manner, t e e1"stence o! ) "c )as on$y %no)n to t ose ) o ad an "nterest "n t e same, t ere be"n# no mutua$ a#reements bet)een t e partners, and )"t out a corporate name "nd"cat"n# to t e pub$"c "n some )ay t at t ere )ere ot er peop$e bes"des t e one ) o ostens"b$y mana#ed and conducted t e bus"ness, "s e1act$y t e acc"denta$ partners "p o! cuentas en participacion de!"ned "n art"c$e 239 o! t e ,ode o! ,ommerce. T ose ) o contract )"t t e person under ) ose name t e bus"ness o! suc partners "p o! cuentas en participacion "s conducted, s a$$ ave on$y a r"# t o! act"on a#a"nst suc person and not a#a"nst t e ot er persons "nterested, and t e $atter, on t e ot er and, s a$$ ave no r"# t o! act"on a#a"nst t e t "rd person ) o contracted )"t t e mana#er un$ess suc mana#er !orma$$y trans!ers "s r"# t to t em. (Art 242 o! t e code <! ,ommerce.) ;t !o$$o)s, t ere!ore t at t e p$a"nt"!! as no r"# t to demand !rom t e appe$$ants t e payment o! t e amount c$a"med "n t e comp$a"nt, as 5o., "m.5"m )as t e on$y one ) o contracted )"t "m. t e act"on o! t e p$a"nt"!! $ac%s, t ere!ore, a $e#a$ !oundat"on and s ou$d be accord"n#$y d"sm"ssed.

<I(. T3E I)S'L(E)%: LAW A,T 195@ (19/9), A( AA8=-8- 'P A,T 3544 (1929), A,T 3@1@ (1929), A=- A,T 3@92 (1932)
1/.1 &urpose T e purpose o! t e $a) "s to prov"de !or an order$y mec an"sm by ) "c t e assets o! t e "nso$vent debtor cou$d be converted "nto money !or d"str"but"on amon# "s cred"tors and t ereby re$"eve t e debtor !rom t e )e"# t o! "s debts and perm"t "m to start ane) !ree !rom suc debts. 1/.$ Sources ,Spanish %ode o %o##erce as to suspension o pay#ents0 4itsui Bussan Kaisha @s. 3on=?on= C Shan=hai Ban?in= %orp. *.1. 11>;Be$d+ (Actua$$y, t "s "s on$y narrates t e "story o! P "$"pp"ne ;nso$vency 5a)) ;n 19/7 t)o b"$$s (Assemb$y '"$$ =o. 12@ and ,omm"ss"on '"$$ =o. 77) )ere "ntroduced "n t e P "$"pp"ne 5e#"s$ature and bot )ere re>ected. T e comm"ttee o! t e ,omm"ss"on, "n report"n# upon t e Assemb$y b"$$, stated "n "ts report o! 6une 12, 19/7, t at CT e $a) see%s to b$end t e Amer"can $a)s o! "nso$vency and

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

+0 o% $&&

ban%ruptcy )"t t e (pan"s $a) o! ban%ruptcy. (uc a po$"cy "s sure to resu$t "n comp$"cat"ons and to br"n# about a system so cumbersome and un)"e$d$y as to ma%e "t "mpract"cab$e and uneconom"ca$.C 5ater a >o"nt con!erence comm"ttee )as appo"nted !rom t e t)o ouses and "t prepared a b"$$ ) "c )as des"#nated Assemb$y '"$$ =o. 57@. T "s b"$$ )as passed )"t out any mater"a$ c an#es and became Act =o. 195@. 'y compar"n# t e ,omm"ss"on '"$$ =o. 77 )"t Act =o. 195@, "t )"$$ be seen t at every (8, o! t e !ormer "s embod"ed "n t e $atter. T e on$y apparent e1cept"on "s (8, 41 o! t e ,omm"ss"on '"$$, but t e substant"a$ prov"s"ons o! t at (8, appear "n sub(8, 9 o! (8, 47 o! t e Act. :urt ermore, t ere "s $"tt$e "n t e Act !rom (8, 14 ) "c "s not "n t e ,omm"ss"on '"$$. (ub(8, 3 o! (8, 71 o! t e Act conta"ns pena$ prov"s"ons ) "c re$ate to t e suspens"on o! payments and ) "c are not "n t e ,omm"ss"on '"$$. (8, 47 o! t e Act as no counterpart "n t e ,omm"ss"on '"$$. A#a"n, a compar"son o! ,omm"ss"on '"$$ =o. 77 )"t t e ;nso$vency Act o! ,a$"!orn"a, enacted "n 1795, (8, by (8, and c$ause by c$ause, s o)s t at t e !ormer "s, "n a #reat many respects, a copy o! t e $atter. T e ,omm"ss"on '"$$ om"ts one o! t e acts o! ban%ruptcy named "n (8, 9 o! t e ,a$"!orn"a Act. A$so (8, 15 and 2@, sub(8, 5 o! (8, 25, and sub(8, 3 o! (8, 1, and severa$ m"nor port"ons o! t e ot er (8,s o! t e ,a$"!orn"a Act are om"tted. T ese re$ate to procedure "n t e ma"n and are substant"a$$y #overned by ot er prov"s"ons "n t e ,omm"ss"on '"$$. T e conc$ud"n# (8,s o! t e ,omm"ss"on '"$$ and o! t e ,a$"!orn"a Act are d"!!erent. T e most "mportant d"!!erence "s t e "nc$us"on "n t e ,omm"ss"on '"$$ o! (8, 34, ) "c "s ) o$$y $ac%"n# "n t e ,a$"!orn"a Act. T "s (8, dea$s )"t pre!erred c$a"ms and as "ts counterpart "n (8, 47b o! t e En"ted (tates 'an%ruptcy Act o! 1797. Anot er add"t"on "s c apter 7 o! t e ,omm"ss"on '"$$ ent"t$ed C,ompos"t"ons.C T "s c apter corresponds c$ose$y to (8, 12 and 13 o! t e En"ted (tates 'an%ruptcy Act o! 1797. T e resu$t "s t at t e on$y prov"s"ons "n Act =o. 195@, ) "c tend to s o) t at t e 5e#"s$ature d"d not "ntend to adopt "n t "s >ur"sd"ct"on t e Amer"can t eory o! ban%ruptcy, are !ound "n (8, 47. T "s (8,, by "ts n"ne subd"v"s"ons, spec"!"es ) at property "n t e ands o! t e "nso$vent may not be ta%en by t e ass"#nee. T ese prov"s"ons are !ound ne"t er "n t e En"ted (tates 'an%ruptcy Act o! 1797 nor "n t e ,a$"!orn"a Act o! 1795. T ey are !ound, o)ever, "n Assemb$y '"$$ =o. 12@ and )ere "nserted !or t e purpose o! avo"d"n# a con!$"ct bet)een Act =o. 195@ and certa"n )e$$ de!"ned prov"s"ons o! t e ,"v"$ ,ode. Act =o. 195@ dea$s )"t t ree pr"nc"pa$ sub>ects, name$y, suspens"on o! payments, vo$untary "nso$vency, and "nvo$untary "nso$vency. T at part o! t e Act re!err"n# to t e !"rst appears to ave been ta?en ro# the Spanish %ode o %o##erce, as amended by t e $a) o! 6une 1/, 1797. :ormer$y t ere )ere "n 8n#$and and Amer"ca mar%ed d"st"nct"ons bet)een ban%ruptcy $a)s and "nso$vency $a)s. T e t)o pr"nc"pa$ d"st"nct"ons, ) "c ave been #"ven by var"ous aut ors, bet)een t ese $a)s are+ :"rst, ban%ruptcy $a)s app$"ed on$y to traders and merc ants, ) "$e "nso$vency $a)s app$"ed to a$$ c$asses o! persons* second, t e !ormer d"sc ar#ed abso$ute$y t e debts o! t e onest debtor, ) "$e t e $atter d"sc ar#ed on$y t e person o! t e debtor !rom arrest and "mpr"sonment, but $e!t t e property subse2uent$y ac2u"red by t e debtor $"ab$e to t e demands o! "s cred"tors. Aore recent$y "n some >ur"sd"ct"ons no attempt as been made to d"st"n#u"s bet)een t em. A ban%ruptcy $a) may conta"n t ose re#u$at"ons ) "c are #enera$$y !ound "n "nso$vency $a)s, and an "nso$vency $a) may dea$ )"t t ose ) "c are common "n ban%ruptcy $a)s. Whether these distinctions were reco=niFed and #aintained in the Spanish syste# is o no i#portance. It is su icient to say that the Act, in so ar as it relates to @oluntary and in@oluntary

insol@ency, is essentially a ban?ruptcy law because it di)c!ar"e) the honest debtor. Insol@ency Act o %ali ornia o 18-., as to @oluntary and in@oluntary insol@ency Sun Li e Assurance @s. In=ersoll *.1. 17/;. 3eldA (a#a"n, "stor"ca$ bac%#round $an# to n# ;nso$vency 5a)) =o), "t "s a )e$$.%no)n !act "n our $e#"s$at"ve "story t at t e ;nso$vency 5a) (Act =o. 195@) "s "n #reat part a copy o! t e ;nso$vency Act o! ,a$"!orn"a, enacted "n 1795, t ou# "t conta"ns a !e) prov"s"ons !rom t e Amer"can 'an%ruptcy 5a) o! 1797 (see observat"on o! 6ust"ce Trent "n A"tsu" 'ussan Fa"s a vs. Bon#%on# and ( an# a" 'an%"n# ,orporat"on, 3@ P "$., 27, 37). A#a"n, upon compar"n# t e ,a$"!orn"a ;nso$vency 5a) o! 1795 )"t t e Amer"can 'an%ruptcy Act o! 17@7, "t )"$$ be !ound t at t e !ormer conta"ns muc "n common )"t t e $atter* and amon# t e prov"s"ons common to t e 'an%ruptcy Act o! 17@7, t e ,a$"!orn"a ;nso$vency 5a) o! 1795, and t e ;nso$vency 5a) "n !orce "n t ese ;s$ands (Act =o. 195@), "s prec"se$y t e prov"s"on ) "c appears as (8, 32 o! our Act, de!"n"n# t e property ) "c passes as assets to t e ass"#nee "n "nso$vency. ('an%ruptcy Act o! 17@7, sec. 14* ,a$"!orn"a ;nso$vency 5a) o! 1795, sec. 21* P "$"pp"ne ;nso$vency 5a), sec. 32.) Ender eac o! sa"d $a)s t e ass"#nee ac2u"res a$$ t e rea$ and persona$ property, estate, and e!!ects o! t e debtor, not e1empt by $a) !rom e1ecut"on, )"t a$$ deeds, boo%s and papers re$at"n# t ereto* and ) "$e t "s $an#ua#e "s broad, "t nevert e$ess $ac%s t e compre ens"veness o! (8, 7/ ( a) o! t e Amer"can 'an%ruptcy 5a) o! 1797 "n t e $east t)o part"cu$ars* !or under sub(8, 3 o! (8, 7/ (a) o! t e $ast ment"oned $a), t e trustee "n ban%ruptcy ac2u"res t e r"# t to e1erc"se any po)ers ) "c t e "nso$vent m"# t ave e1erc"sed !or "s o)n bene!"t, and under sub(8, 5 t e trustee ac2u"res any property o! t e "nso$vent ) "c t e $atter cou$d by any means ave ass"#ned to anot er. T e ;nso$vency 5a) ere "n !orce, "n common )"t t e predecessor $a)s above.ment"oned, conta"ns not "n# s"m"$ar to t ese prov"s"ons. 1/.9 Applicability to ban?s, "uasi ban?s, and insurance co#panies T e ;nso$vency $a) "s =<T app$"cab$e to ban%s, 2uas".ban%s, and "nsurance compan"es. SUS&E)SI') '6 &A:4E)TS )ature Who could ile petition SE% $. T e debtor who, possessing su icient propert* to cover all his debts, be it an individual person, be it a sociedad or corporation, oresees the impossibilit* o meeting them when the* respectivel* all due, ma* petition that he be declared in the state o suspension o pa*ments b* the court, or the $udge thereo in vacation, o the province or o the cit* in which he has resided or six months next preceding the iling o his petition. Be s a$$ necessar"$y anne1 to "s pet"t"on a sc edu$e and "nventory "n t e !orm prov"ded "n (8,s !"!teen, s"1teen, and seventeen o! t "s Act, "n add"t"on to t e statement o! "s assets and $"ab"$"t"es and t e proposed a#reement e re2uests o! "s cred"tors. 2i erentiate ro# insol@ency proceedin= Suspension o pay#ents @s. Insol@ency proceedin=

COMLAW REVIEWER 2009 Suspension o &ay#ents 1. ob>ect o! suspens"on o! payments "s t e de!erment o! t e payment o! debts unt"$ suc t"me as t e debtor, ) o possesses su!!"c"ent property to cover a$$ "s debts, "s ab$e to convert suc assets "nto cas or ot er)"se ac2u"res t e cas necessary to pay "s debts 2. amount o! debts "s not a!!ected a$t ou# t e"r payment "s postponed

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

+$ o% $&&

Insol@ency &roceedin= 1. ob>ect "s to compe$ presentment o! a$$ debts, due or not due, and secure a comp$ete d"sc ar#e !rom suc debts

2. t e cred"tors rece"ve $ess t an ) at t ey are ent"t$ed to* "n some cases, ) ere pre!erences are proper, some cred"tors may not rece"ve any amount at a$$

newspaper which, in the Bud=#ent o the Bud=e, will best =i@e notice to the creditors o the said debtor, and in the newspaper so desi=nated said order shall be published as o ten as #ay be prescribed by the court or the Bud=e thereo . (a"d order s a$$ !urt er conta"n an abso$ute "n>unct"on !orb"dd"n# t e pet"t"on"n# debtor !rom d"spos"n# "n any manner o! "s property, e1cept "n so !ar as concerns the ordinary operations o co##erce or o industry in which the petitioner is en=a=ed, and, urther#ore, ro# #a?in= any pay#ents outside o the necessary or le=iti#ate e!penses o his business or industry, so lon= as the proceedin=s relati@e to the suspension o pay#ents are pendin=, and said proceedin=s or the purposes o this Act shall be considered to ha@e been instituted ro# the date o the ilin= o the petition. SE% .. <n$y cred"tors "nc$uded "n t e sc edu$e !"$ed by t e debtor s a$$ be c"ted to appear and ta%e part "n t e meet"n# ment"oned "n (8, t ree, and t ey s a$$ be not"!"ed upon deliver* or transmission to them o a cop* o the order calling the meeting to appear at same with the written evidences o their respective claims, without which the* shall not be admitted. 1e"uired "uoru# or holdin= o #eetin= 1e"uired @ote or appro@al o debtorHs proposal SE% 8. T e +re)ence o the creditors representing at -ea)t t!ree2 &i&t!) o& t!e -ia,i-itie) shall be necessar* or holding a meeting. The meeting shall be held on the da* and at the hour and place designated, the $udge, or commissioner deputi9ed b* him when he is absent rom the province where the meeting is held, acting as president and the cler& as secretar* thereo , sub$ect to the ollowing rules: (a) T e c$er% s a$$ prepare !or "nsert"on "n t e m"nutes o! t e meet"n# a statement o! t e persons present and t e"r c$a"ms* t e >ud#e, or, "n de!au$t t ereo!, t e comm"ss"oner, s a$$ e1am"ne t e )r"tten ev"dences o! t e c$a"ms and t e po)ers o! attorney, "! any. ;! t e persons present ) o ave comp$"ed )"t t e !ore#o"n# ru$es represent at $east t ree.!"!t s o! t e $"ab"$"t"es, t e >ud#e or comm"ss"oner s a$$ dec$are t e meet"n# open !or bus"ness. (b) T e pet"t"on o! t e debtor, t e sc edu$e o! debts and o! property, t e statement o! assets and $"ab"$"t"es, and t e proposed a#reement !"$ed t ere)"t s a$$ be read !ort )"t by t e c$er%, and t e d"scuss"on s a$$ be opened. (c) T e debtor may mod"!y "s propos"t"on or propos"t"ons "n v"e) o! t e resu$t o! t e debate, or "ns"st upon t e ones a$ready made, and t e >ud#e or comm"ss"oner, )"t out !urt er d"scuss"on, s a$$ c$ear$y and succ"nct$y p$ace t ese severa$ propos"t"ons be!ore t e meet"n# !or a vote t ereupon. (d) T e vote s a$$ be ta%en by a ca$$ o! names and s a$$ be "nserted "n and t e m"nutes* a ma>or"ty vote s a$$ ru$e. (e) To or# a #aBority it is necessary M 1. T at t)o.t "rds o! t e cred"tors vot"n# un"te upon t e same propos"t"on. 2. T at t e c$a"ms represented by sa"d ma>or"ty vote amount to at $east t ree.!"!t s o! t e tota$ $"ab"$"t"es o! t e debtor ment"oned "n t e pet"t"on. (!) A!ter t e resu$t o! t e vot"n# as been announced, a$$ protests made a#a"nst t e ma>or"ty vote s a$$ be adm"tted and stated "n t e record, and t e meet"n# s a$$ be c$osed. (#) T e m"nutes o! t e meet"n#, conta"n"n# a succ"nct statement o! a$$ proceed"n#s ad t ere"n, s a$$ be dra)n up, and t ere s a$$ be "nserted t ere"n t e propos"t"on or propos"t"ons voted upon, ) "c , a!ter av"n# been read and approved, s a$$ be s"#ned

E ect o ilin= o petition 'n e!ecution pendin= a=ainst debtor 'n e!ecution a=ainst property specially #ort=a=ed 'n action to collect su# o #oney still to be iled a=ainst debtor 'n other actions SE% 7. ;! any e1ecut"on be pend"n# a#a"nst t e debtor "t s a$$ not be conso$"dated )"t t "s proceed"n#, but t e course t ereo! s a$$ be suspended be!ore sa$e o! property "s made t ereunder, prov"ded t e debtor ma%es a re2uest t ere!or to t e court be!ore ) "c t e proceed"n# !or suspens"on o! payments "s pend"n#, unless t e e1ecut"on be a#a"nst property espec"a$$y mort#a#ed ) "c "s ereby e1empted !rom t e prov"s"ons o! t "s (8,. T e suspens"on ordered by v"rtue o! t "s (8, s a$$ $apse ) en three months shall have passed without the proposed agreement being accepted b* the creditors or as soon as it is denied. ,o creditor other than those mentioned in #EC nine shall sue or institute proceedings to collect his claim rom the debtor rom the moment that suspension o pa*ments is applied or and while the proceedings are pending. &rocedure (a) !"$"n# o! pet"t"on by t e debtor (b) "ssuance by t e court o! an order ca$$"n# !or a meet"n# o! t e cred"tors (c) pub$"cat"on o! t e order and serv"ce t ereo! on t e cred"tors (d) meet"n# o! cred"tors !or approva$ or d"sapprova$ o! t e debtor&s propos"t"on (e) ob>ect"on, "! any and "! >ust"!"ed, to t e dec"s"on o! t e meet"n# o! cred"tors Issuance, publication and deli@ery o order callin= creditors to #eetin= ,Secs. 9 and .0 SE% 9. Upon recei@in= and ilin= the petition with the schedule and docu#ents #entioned in the ne!t precedin= SE%, the court, or the Bud=e thereo in @acation, shall #a?e an order callin= a #eetin= o creditors to ta?e place in not less than two wee?s nor #ore than ei=ht wee?s ro# the date o such order. Said order shall desi=nate the day, hour, and place o #eetin= o said creditors as well as a newspaper o =eneral circulation published in the pro@ince or city in which the petition is iled, i there be one, and i there be none, in a

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so# Sc!ed -e o& de,t) and -ia,i-itie) /nventor* o& +ro+ert*

+2 o% $&&

by t e >ud#e or comm"ss"oner to#et er )"t a$$ persons ta%"n# part "n t e vot"n#* "! any suc persons s a$$ be unab$e to )r"te, any person present s a$$ s"#n, at t e"r re2uest, and t e c$er% s a$$ cert"!y to a$$ o! t e above. &ersons not bound by a=ree#ent on debtorHs proposal SE% -. Persons av"n# c$a"ms !or personal labor, maintenance, expenses o last illness and uneral o the wi e or children o the debtor, incurred in the sixt* da*s immediatel* preceding the iling o the petition, and persons having legal or contractual mortgages, ma* re rain rom attending the meeting and rom voting therein. #uch persons shall not be bound b* an* agreement determined upon at such meeting, , t i the* should $oin in the voting the* shall be bound in the same manner as are the other creditors. Ter#ination o proceedin=s SE% 11. ;! t e dec"s"on o! t e meet"n# be ne#at"ve as re#ards t e proposed a#reement or "! no dec"s"on "s ad "n de!au$t o! suc number or o! suc ma>or"t"es, t e proceed"n# s a$$ be term"nated )"t out recourse and t e part"es concerned s a$$ be at $"berty to en!orce t e r"# ts ) "c may correspond to t em. ;! t e dec"s"on "s !avorab$e to t e debtor "t may be ob>ected to )"t "n ten days !o$$o)"n# t e date o! t e meet"n# by any cred"tor ) o attended t e meet"n# and ) o d"ssented !rom and protested a#a"nst t e vote o! t e ma>or"ty. T e oppos"t"on or ob>ect"on to t e dec"s"on o! t e ma>or"ty !avorab$e to t e debtor s a$$ be proceeded )"t as "n any ot er "nc"denta$ mot"on, t e debtor and t e cred"tors ) o s a$$ appear dec$ar"n# t e"r purpose to susta"n t e dec"s"on o! t e meet"n# be"n# t e de!endants. T e court s a$$ ear and pass upon suc ob>ect"on as soon as poss"b$e and "n a summary manner, and "n "ts order, ) "c s a$$ be !"na$, "t s a$$ dec$are ) et er or not t e dec"s"on o! t e meet"n# "s va$"d. ;n case t at t e dec"s"on o! t e meet"n# "s e$d to be nu$$, t e court s a$$ dec$are t e proceed"n# term"nated and t e part"es concerned at $"berty to e1erc"se t e r"# ts ) "c may correspond to t em* and "n case t e dec"s"on o! t e meet"n# "s dec$ared va$"d, or ) en no oppos"t"on or ob>ect"on to sa"d dec"s"on as been presented, t e court s a$$ order t at t e a#reement be carr"ed out and t e persons concerned s a$$ be bound by t e dec"s"on o! t e meet"n#. T e court may a$so "ssue a$$ orders ) "c may be proper to en!orce t e a#reement on mot"on o! any o! t e part"es $"t"#ant. T e order d"rect"n# t e a#reement to be made e!!ect"ve s a$$ be b"nd"n# upon a$$ cred"tors "nc$uded "n t e sc edu$e o! t e debtor ) o may ave been proper$y summoned, but not upon cred"tors ment"oned "n (8, n"ne who ailed to attend the meeting or re rained rom voting therein, and their rights shall not be a ected b* the agreement unless the* ma* have expressl* or impliedl* consented thereto. %onse"uences o debtorHs ailure to per or# a=ree#ent SE% 19. ;! t e debtor !a"$s ) o$$y or "n part to per!orm t e a#reement decided upon at the meeting o the creditors, all the rights which the creditors had against the debtor be ore the agreement shall revest in them. 'n such case the debtor ma* be made sub$ect to the ban&ruptc* and insolvenc* proceedings in the manner established b* the ollowing chapters o this !ct. ('LU)TA1: I)S'L(E)%: 1/.. .at re 0!o co -d &i-e +etition

Di&&erentiate &rom invo- ntar* in)o-venc* Bo- ntar* v). /nvo- ntar* /n)o-venc* 'n voluntar* insolvenc*, a debtor is deemed insolvent upon his iling o a petition or voluntar* insolvenc*2 while in involuntar* insolvenc*, the debtor is considered insolvent upon the issuance b* the court o an order declaring him insolvent. &rocedure

a. b.

!"$"n# o! pet"t"on by t e debtor "ssuance by t e court o! an order dec$ar"n#, amon# ot er t "n#s, t at t e pet"t"oner "s "nso$vent c. pub$"cat"on o! order and serv"ce t ereo! on t e cred"tors d. meet"n# o! cred"tors !or e$ect"on o! ass"#nee "n "nso$vency e. conveyance o! debtor&s property to ass"#nee "n "nso$vency f. $"2u"dat"on o! assets and payment o! debts g. d"sc ar#e o! t e debtor h. ob>ect"ons to d"sc ar#e, "! any i. appea$ to t e (upreme ,ourt "n certa"n cases.

6ilin= o petition an act o insol@ency SE% 1/. An insolvent debtor, owing debts exceeding in amount the sum o one thousand pesos, ma* appl* to be discharged rom his debts and liabilities b* petition to the Court o "irst 'nstance o the province or cit* in which he has resided or six months next preceding the iling o such petition. 'n his petition he shall set orth his place o residence, the period o his residence therein immediatel* prior to iling said petition, his inabilit* to pa* all his debts in ull, his willingness to surrender all his propert*, estate, and e ects not exempt rom execution or the bene it o his creditors, and an application to be ad$udged an insolvent. -e shall annex to his petition a schedule and inventor* in the orm hereina ter provided. '!e &i-in" o& ) c! +etition )!a-- ,e an act o& in)o-venc*. SE% 1.. (a"d )c!ed -e must contain a ull and true statement o all his debts and liabilities, together with a list o all those to whom, to the best o his &nowledge and belie , said debts or liabilities are due, the place o residence o his creditors and the sum due each, the nature o the indebtedness or liabilit* and whether ounded on written securit*, obligation, contract or otherwise, the true cause and consideration thereo , the time and place when and where such indebtedness or liabilit* accrued, a declaration o an* existing pledge, lien, mortgage, $udgment, or other securit* or the pa*ment o the debt or liabilit*, and an outline o the acts giving rise or which might give rise to a cause o action against such insolvent debtor. SE% 17. (a"d inventor* must contain, besides the creditors, an accurate description o all the real and personal propert*, estate, and e ects o the petitioner, including his homestead, i an*, together with a statement o the value o each item o said propert*, estate, and e ects and its location, and a statement o the incumbrances thereon. !ll propert* exempt b* law rom

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

+' o% $&&

execution shall be set out in said inventor* with a statement o its valuation, location, and the incumbrances thereon, i an*. The inventor* shall contain an outline o the acts giving rise, or which might give rise, to a right o action in avor o the insolvent debtor. SE% 1;. T e pet"t"on, sc edu$e, and "nventory must be ver"!"ed by t e a!!"dav"t o! t e pet"t"oner, anne1ed t ereto, and s a$$ be "n !orm substant"a$$y as !o$$o)s+ G;, NNNNNNNNNNNNNNN, do so$emn$y s)ear t at t e sc edu$e and "nventory no) de$"vered by me conta"n a !u$$, correct, and true d"scovery o! a$$ my debts and $"ab"$"t"es and o! a$$ #oods, e!!ects, estate, and property o! ) atever %"nd or c$ass to me "n any )ay be$on#"n#. T e "nventory a$so conta"ns a !u$$, true and correct statement o! a$$ debts o)"n# or due to me, or to any person or persons "n trust !or me and o! a$$ secur"t"es and contracts ) ereby any money may erea!ter become due or payab$e to me or by or t rou# ) "c any bene!"t or advanta#e ) atever may accrue to me or to my use, or to any ot er person or persons "n trust !or me. T e sc edu$e conta"ns a c$ear out$"ne o! t e !acts #"v"n# r"se, or ) "c m"# t #"ve r"se, to a cause o! act"on a#a"nst me, and t e "nventory conta"ns an out$"ne o! t e !acts #"v"n# r"se, or ) "c m"# t #"ve r"se, to any cause o! act"on "n my !avor. ; ave no $ands, money, stoc%, or estate, revers"on, or e1pectancy, or property o! any %"nd, e1cept t at set !ort "n sa"d "nventory. ; ave "n no "nstance created or ac%no)$ed#ed a debt !or a #reater sum t an ; onest$y and tru$y o)e. ; ave not, d"rect$y or "nd"rect$y, concea$ed, !raudu$ent$y so$d, or ot er)"se !raudu$ent$y d"sposed o!, any part o! my rea$ or persona$ property, estate, e!!ects, or r"# ts o! act"on, and ; ave not "n any )ay compounded )"t any o! my cred"tors "n order to secure suc cred"tors, or to rece"ve or to accept any pro!"t or advanta#e t ere!rom, or to de!raud or dece"ve "n any manner any cred"tor to ) om ; am "ndebted. (o e$p me 3od.H SE% 18. Epon rece"v"n# and !"$"n# sa"d pet"t"on, sc edu$e, and "nventory, t e court, or t e >ud#e t ereo! "n vacat"on, s a$$ ma&e an order declaring the petitioner insolvent, and directing the sheri o the province or cit* in which the petition is iled to ta&e possession o , and sa el* &eep, until the appointment o a receiver or assignee, all the deeds, vouchers, boo&s o account, papers, notes, bonds, bills, and securities o the debtor, and all his real and personal propert*, estate, and e ects, except such as ma* be b* law exempt rom execution. #aid order shall urther orbid the pa*ment to the debtor o an* debts due to him and the deliver* to the debtor, or to an* person or him, o an* propert* belonging to him, and the trans er o an* propert* b* him, and shall urther appoint a time and place or a meeting o the creditors to choose an assignee o the estate. #aid order shall designate a newspaper o general circulation published in the province or cit* in which the petition is iled, i there be one, and i there be none, in a newspaper which, in the opinion o the $udge, will best give notice to the creditors o the said insolvent, and in the newspaper so designated said order shall be published as o ten as ma* be prescribed b* the court or the $udge thereo . The time appointed or the election o an assignee shall not be less than two, nor more than eight, wee&s rom the date o the order o ad$udication. 3pon the granting o said order all civil proceedings pending against the said insolvent shall be sta*ed. When a receiver is appointed, or an assignee chosen, as provided in this !ct, the sheri shall thereupon deliver to such receiver or assignee, as the case ma* be, all the propert*, assets, and belongings o the insolvent which have come into his possession, and he shall be allowed and paid as compensation or his services the same expenses and ees as would b* law be collectible i the propert* had been levied upon and sa el* &ept under attachment. SE% 1-. A copy o! sa"d order s a$$ "mmed"ate$y be pub$"s ed by t e c$er% o! sa"d court, "n t e ne)spaper des"#nated t ere"n, !or t e

number o! t"mes and as prescr"bed by t e court or t e >ud#e t ereo!, and a copy o! sa"d order s a$$ be de$"vered persona$$y or sent by t e c$er% !ort )"t by re#"stered ma"$, posta#e prepa"d, to a$$ cred"tors named "n t e sc edu$e. T ere s a$$ be depos"ted, "n add"t"on to t)enty.!our pesos, ) "c s a$$ be rece"ved by t e c$er% on commenc"n# suc proceed"n#s, a sum o! money su!!"c"ent to de!ray t e e1pense o! t e pub$"cat"on ordered by t e court, necessary posta#e, and ten centavos !or eac copy, to be de$"vered persona$$y or ma"$ed to t e cred"tors, ) "c $ast.named sum "s ereby const"tuted t e $e#a$ !ee o! t e c$er% !or t e persona$ de$"very or ma"$"n# re2u"red by t "s #EC.

I)('LU)TA1: I)S'L(E)%: )ature Who could ile petition 4ust be acco#panied by bond Acts o insol@ency SE% $>. An ad>ud"cat"on o! "nso$vency may be made on t e petition o three or #ore creditors, res"dents o! t e P "$"pp"ne ;s$ands, ) ose cred"ts or demands accrued "n t e P "$"pp"ne ;s$ands, and t e amount o! ) "c cred"ts or demands are "n t e a##re#ate not $ess t an one t ousand pesos+ Prov"ded, T at none o! sa"d cred"tors as become a cred"tor by ass"#nment, o)ever made, )"t "n t "rty days pr"or to t e !"$"n# o! sa"d pet"t"on. (uc pet"t"on must be !"$ed "n t e ,ourt o! :"rst ;nstance o! t e prov"nce or c"ty "n ) "c t e debtor res"des or as "s pr"nc"pa$ p$ace o! bus"ness, and must be ver"!"ed by at $east t ree o! t e pet"t"oners. T e !o$$o)"n# s a$$ be cons"dered acts o insol@ency, and t e pet"t"on !or "nso$vency s a$$ set !ort one or more o! suc acts+ ,10 T at suc person "s about to depart or as departed !rom t e P "$"pp"ne ;s$ands, )"t "ntent to de!raud "s cred"tors* ,$0 t at be"n# absent !rom t e P "$"pp"ne ;s$ands, )"t "ntent to de!raud "s cred"tors, e rema"ns absent* ,90 t at e concea$s "mse$! to avo"d t e serv"ce o! $e#a$ process !or t e purpose o! "nder"n# or de$ay"n# or de!raud"n# "s cred"tors* ,/0 t at e concea$s, or "s remov"n#, any o! "s property to avo"d "ts be"n# attac ed or ta%en on $e#a$ process* ,.0 t at e as su!!ered "s property to rema"n under attac ment or $e#a$ process !or t ree days !or t e purpose o! "nder"n# or de$ay"n# or de!raud"n# "s cred"tors* ,70 t at e as con!essed or o!!ered to a$$o) >ud#ment "n !avor o! any cred"tor or c$a"mant !or t e purpose o! "nder"n# or de$ay"n# or de!raud"n# any cred"tor or c$a"mant* ,;0 t at e as )"$$!u$$y su!!ered >ud#ment to be ta%en a#a"nst "m by de!au$t !or t e purpose o! "nder"n# or de$ay"n# or de!raud"n# "s cred"tors* ,80 t at e as su!!ered or procured "s property to be ta%en on $e#a$ process )"t "ntent to #"ve a pre!erence to one or more o! "s cred"tors and t ereby "nder, de$ay, or de!raud any one o! "s cred"tors* ,-0 t at e as made any ass"#nment, #"!t, sa$e, conveyance, or trans!er o! "s estate, property, r"# ts, or cred"ts )"t "ntent to de$ay, de!raud, or "nder "s cred"tors* ,1>0 t at e as, "n contemp$at"on o! "nso$vency, made any payment, #"!t, #rant, sa$e conveyance, or trans!er o! "s estate, property, r"# ts, or cred"ts* ,110 t at be"n# a merc ant or tradesman e as #enera$$y de!au$ted "n t e payment o! "s current ob$"#at"ons !or a per"od o! t "rty days* ,1$0 t at !or a per"od o! t "rty days e as !a"$ed, a!ter demand, to pay any moneys depos"ted )"t "m or rece"ved by "m "n a !"duc"ary capac"ty* and ,190 t at an e1ecut"on av"n# been "ssued a#a"nst "m on !"na$ >ud#ment !or money, e s a$$ ave been !ound to be )"t out su!!"c"ent property sub>ect to e1ecut"on to sat"s!y t e >ud#ment. T e pet"t"oners may, !rom t"me to t"me, by $eave o! t e

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

+& o% $&&

court, amend and correct t e pet"t"on, so t at t e same s a$$ con!orm to t e !acts, suc amendment or amendments to re$ate bac% to and be rece"ved as embraced "n t e or"#"na$ pet"t"on. T e sa"d pet"t"on s a$$ be accompan"ed by a bond, approved b* the court, with at least two sureties, in such penal sum as the court shall direct, conditioned that i the petition in insolvenc* be dismissed b* the court, or withdrawn b* the petitioner, or i the debtor shall not be declared an insolvent, the petitioners will pa* to the debtor alleged in the petition to be insolvent all costs, expenses, and damages occasioned b* the proceedings in insolvenc*, together with a reasonable counsel ee to be ixed b* the court. The court ma*, upon motion, direct the iling o an additional bond, with di erent sureties, when deemed necessar* 2eter#ination o sol@ency or insol@ency o debtor SE% $9. At t e t"me !"1ed !or t e ear"n# o! sa"d order to s o) cause, or at anot er t"me to ) "c suc ear"n# may be ad>ourned, the debtor must answer the petition, or ma* demur or the same causes as are provided or demurrer in other cases b* the Code o Civil (rocedure. ' he demur and the demurrer be overruled, the debtor shall immediatel* answer the petition. #uch answer shall contain a speci ic denial o the material allegations o the petition controverted b* him, and shall be sworn to2 and the issues raised thereon shall be promptl* tried and disposed o . ' , upon such trial, the issues are ound in avor o the respondent, the proceedings shall be dismissed, and the respondent shall be allowed all costs, counsel ees, expenses, and damages sustained b* reason o the proceedings therein. Counsel ees, costs, expenses, and damages shall be ixed and allowed b* the court. &1'(ISI')S %'44') T' ('LU)TA1: A)2 I)('LU)TA1: I)S'L(E)%IES 1/.; Proced re i& de,tor de&a -t) or i) &o nd in)o-vent De,tor to &i-e )c!ed -e o& de,t) and -ia,i-itie) and inventor* o& +ro+ert* SE% $/. ;! t e respondent s a$$ ma%e de!au$t, or "!, a!ter tr"a$, t e "ssues are !ound "n !avor o! t e pet"t"oners, t e court s a$$ ma%e an order ad>ud#"n# t at sa"d respondent "s and )as, at t e t"me o! !"$"n# t e pet"t"on, an "nso$vent debtor and t at t e debtor )as #u"$ty o! t e acts and t "n#s c ar#ed "n t e pet"t"on, or suc o! t em as t e court may !"nd to be true* and s a$$ re2u"re sa"d debtor, )"t "n suc t"me as t e court may des"#nate, not to e1ceed t ree days, to !"$e "n court t e sc edu$e and "nventory prov"ded !or "n (8,s !"!teen and s"1teen o! t "s Act, du$y ver"!"ed as re2u"red o! a pet"t"on"n# debtor+ Prov"ded, T at "n t e a!!"dav"t o! t e "nso$vent, touc "n# "s property and "ts d"spos"t"on, e s a$$ not be re2u"red to s)ear t at e as not made any !raudu$ent pre!erence or comm"tted any ot er act "n con!$"ct )"t t e prov"s"ons o! t "s Act* but e may do so "! e des"res. (a"d order s a$$ !urt er d"rect t e s er"!! o! t e prov"nce or c"ty ) ere t e "nso$vency pet"t"on "s !"$ed, or t e rece"ver, "! one as been t ereto!ore appo"nted, to ta%e possess"on o! and sa!e$y %eep, unt"$ t e appo"ntment o! an ass"#nee, a$$ t e deeds, vouc ers, boo%s o! account, papers, notes, b"$$s, bonds and secur"t"es o! t e debtor, and a$$ "s rea$ and persona$ property, estate and e!!ects, e1cept suc as may be by $a) e1empt !rom e1ecut"on. (a"d order s a$$ !urt er !orb"d t e payment to t e debtor o! any debts due to "m, and t e de$"very to t e debtor, or to any person !or "m, o! any property be$on#"n# to "m, and t e trans!er o! any property by "m, and s a$$ !urt er appo"nt a t"me and p$ace !or a meet"n# o! t e cred"tors to c oose an ass"#nee o! t e estate. (a"d order s a$$ des"#nate a ne)spaper o! #enera$ c"rcu$at"on pub$"s ed "n t e

prov"nce or c"ty "n ) "c t e pet"t"on "s !"$ed, "! t ere be one, and "! t ere be none, "n a ne)spaper ) "c , "n t e op"n"on o! t e >ud#e, )"$$ best #"ve not"ce to t e cred"tors o! t e sa"d "nso$vent, and "n t e ne)spaper so des"#nated sa"d order s a$$ be pub$"s ed as o!ten as may be prescr"bed by t e court or t e >ud#e t ereo!. T e t"me appo"nted !or t e e$ect"on o! an ass"#nee s a$$ not be $ess t an t)o nor more t an e"# t )ee%s !rom t e date o! t e order o! ad>ud"cat"on. Epon t e #rant"n# o! sa"d order, a$$ c"v"$ proceed"n#s pend"n# a#a"nst t e sa"d "nso$vent s a$$ be stayed. When an assignee is chosen as provided in this !ct, the sheri or receiver, i there be one, shall thereupon deliver to such assignee all the propert*, estate, and belongings o the insolvent, which have come into his possession, and he shall be allowed and paid as compensation or his services the same expenses and ees as would b* law be collectible i the propert* had been levied upon and sa el* &ept under attachment. Sheri to ta?e possession o insol@entHs property SE% $7. ;n a$$ cases ) ere t e debtor res"des out o! t e P "$"pp"ne ;s$ands* or as departed !rom t e P "$"pp"ne ;s$ands* or can not, a!ter due d"$"#ence, be !ound )"t "n t e P "$"pp"ne ;s$ands* or concea$s "mse$! to avo"d serv"ce o! t e order to s o) cause, or any ot er pre$"m"nary process or orders "n t e matter* or "s a !ore"#n corporat"on av"n# no mana#"n# or bus"ness a#ent, cas "er, or secretary )"t "n t e P "$"pp"ne ;s$ands upon ) om serv"ce or orders and process can be made, and "t t ere!ore becomes necessary to obta"n serv"ce o! process and order to s o) cause, as prov"ded "n SE% twentyEtwo o this Act, then the petitionin= creditors, upon sub#ittin= the a ida@its re"uisite to procure an order o publication, and presentin= a bond in double the a#ount o the a==re=ate su# o their clai#s a=ainst the debtor, shall be entitled to an order o the court directin= the sheri o the pro@ince or city in which the #atter is pendin= to ta?e into his custody a su icient a#ount o property o the debtor to satis y the de#ands o the petitionin= creditors and the costs o the proceedin=s. Upon recei@in= such order o the court to ta?e into custody property o the debtor, it shall be the duty o the sheri to ta?e possession o the property and e ects o the debtor, not e!e#pt ro# e!ecution, to an e!tent su icient to co@er the a#ount pro@ided or, and to prepare, within three days ro# the ti#e o ta?in= such possession, a co#plete in@entory o all the property so ta?en, and to return it to the court as soon as co#pleted. The ti#e or ta?in= the in@entory and #a?in= return thereo #ay be e!tended or =ood cause shown to the court or a Bud=e thereo . The sheri shall also prepare a schedule o the na#es and residences o the creditors, and the a#ount due each, ro# the boo?s o the debtor, or ro# such other papers or data o the debtor a@ailable as #ay co#e to his possession, and shall ile such schedule list o creditors and in@entory with the cler? o the court 4eetin= o creditors or election o assi=nee in insol@ency 6ilin= o clai#s by creditors prior to election SE% $-. =o cred"tor s a$$ be ent"t$ed to vote !or t e e$ect"on o! an ass"#nee un$ess e s a$$ ave !"$ed "s c$a"m "n t e o!!"ce o! t e c$er% o! t e court "n ) "c t e proceed"n#s are pend"n# at $east t)o days pr"or to t e t"me appo"nted !or suc e$ect"on. All clai#s shall contain a state#ent showin= the a#ount and nature o the clai# and security, i any. The clai# shall be @eri ied by the clai#ant, or his duly authoriFed a=ent or attorney. )o clai#

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

+( o% $&&

barred by the statute o li#itations shall be pro@ed or allowed a=ainst the estate o an insol@ent debtor or any purpose. Any person interested in the estate o the insol@ent #ay ile e!ceptions to the le=ality or =ood aith o any clai#, by settin= orth speci ically in writin= his interest in the estate, and the =rounds o his obBection to such clai#. Such e!ceptions shall be @eri ied by the a ida@it o the party obBectin=, or his duly authoriFed a=ent or attorney, and the a ida@it shall set out that such e!ceptions are not #ade or the purpose o delay and are #ade in =ood aith in the best interests o said estate. E!ceptions to any clai# #ust be iled with the cler? o the court at least one day be ore the ti#e appointed or the election o an assi=nee, and such e!ceptions shall be heard and disposed o by the court, on a ida@it or other e@idence, in a su##ary #anner, be ore the election o an assi=nee. )o creditor or clai#ant who holds any #ort=a=e, pled=e, or lien o any ?ind whate@er as security or the pay#ent o his clai# or attach#ent or e!ecution on property o the debtor duly recorded and not dissol@ed under this Act shall be per#itted to @ote at the election o the assi=nee any part o his secured clai# unless e s a$$ !"rst ave t e va$ue o! suc secur"ty !"1ed as prov"ded "n SE% i tyEnine o this Act, or shall surrender to the sheri or recei@er o the estate o the insol@ent, i there be a recei@er, all such property, or assi=n such lien to such sheri or recei@er. The surrender or assi=n#ent o such security or lien shall be or the bene it o all creditors o the estate o the insol@ent. The @alue o such security, i i!ed by the court, shall be so i!ed at least one day be ore the day appointed or the election o an assi=nee, in which e@ent the clai#ant #ay pro@e his de#and as pro@ided in this SE% or any unsecured balance, subBect to the ilin= o e!ceptions as in all other clai#s. %on@eyance o insol@entHs property to assi=nee SE% 9$. As soon as an ass"#nee "s e$ected or appo"nted and 2ua$"!"ed, t e c$er% o! t e court s a$$ , by an instru#ent under his hand and seal o the court, assi=n and con@ey to the assi=nee all the real and personal property, estate, and e ects o the debtor with all his deeds, boo?s, and papers relatin= thereto, and such assi=n#ent shall relate bac? to the co##ence#ent o the proceedin=s in insol@ency, and s a$$ re$ate bac% to t e acts upon ) "c t e ad>ud"cat"on )as !ounded, and by operation o law shall @est the title to all such property, estate, and e ects in the assi=nee, althou=h the sa#e is then attached on #esne process, as the property o the debtor. Such assi=n#ent shall operate to @est in the assi=nee all o the estate o the insol@ent debtor not e!e#pt by law ro# e!ecution. It shall also dissol@e any attach#ent le@ied within one #onth ne!t precedin= the co##ence#ent o the insol@ency proceedin=s and @acate and set aside any Bud=#ent entered in any action co##enced within thirty days i##ediately prior to the co##ence#ent o insol@ency proceedin=s and shall @acate and set aside any e!ecution issued thereon and shall @acate and set aside any Bud=#ent entered by de ault or consent o the debtor within thirty days i##ediately prior to the co##ence#ent o the insol@ency proceedin=s. Assi=neeHs ri=ht to reco@er insol@entHs property to assi=nee, etc.

SE% 99. T e assignee shall have the right to recover all the estate debts, and e ects o said insolvent. ' , at the time o the commencement o proceedings in insolvenc*, an action is pending in the name o the debtor, or the recover* o a debt or other thing which might or ought to pass to the assignee b* the assignment, the assignee shall be allowed and admitted to prosecute the action, in li&e manner and with li&e e ect as i it had been originall* commenced b* him. ' there are an* rights o action in avor o the insolvent or damages, on an* account, or which an action is not pending, the assignee shall have the right to prosecute the same with the same e ect as the insolvent might have done himsel i no proceedings in insolvenc* had been instituted. ' an* action or proceeding in which the insolvent is de endant is pending at the time o the ad$udication, the assignee ma* de end the same in the same manner and with li&e e ect as it might have been de ended b* the insolvent. 'n a suit prosecuted or de ended b* the assignee, a certi ied cop* o the assignment made to him shall be conclusive evidence o his authorit* to sue or de end. &owers o assi=nee SE% 97. T e sa"d ass"#nee s a$$ ave +ower: 1. To sue and recover a$$ t e estate, assets, debts, and c$a"ms, be$on#"n# to or due to suc debtor* and no set.o!! or counterc$a"m s a$$ be a$$o)ed "n any suc !or debts contracted by t e "nso$vent )"t "n t "rty days "mmed"ate$y preced"n# t e !"$"n# o! t e pet"t"on o! "nso$vency e1cept "n case o! cred"tors spec"!"ed "n (8, !"!ty o! t "s Act. 2. To ta%e "nto "s possess"on a$$ t e estate o! suc debtor e!cept property e1empt by $a) !rom e1ecut"on, ) et er attac ed or de$"vered to "m, or a!ter)ards d"scovered, and a$$ boo%s, vouc ers, ev"dence o! "ndebtedness, and secur"t"es be$on#"n# to t e same. 3. ;n case o! a non.res"dent or abscond"n# or concea$ed debtor, to demand and rece"ve o! every s er"!! ) o s a$$ ave attac ed any o! t e property o! suc debtor, or ) o s a$$ ave "n "s possess"on any moneys ar"s"n# !rom t e sa$e o! suc property, a$$ suc property and moneys, on pay"n# "m "s $a)!u$ costs and c ar#es !or attac "n# and %eep"n# t e same. 4. :rom t"me to t"me to se$$ at pub$"c auct"on a!ter advert"sement "n t e manner prov"ded by sub(8,s (1), (2), and (3) o! (8, !our undred and !"!ty.!our o! t e ,ode o! ,"v"$ Procedure, upon order o! t e court, any o! t e estate, rea$ and persona$, ) "c as come "nto "s possess"on, and ) "c "s vested "n "m as suc ass"#nee, and on suc sa$es to e1ecute t e necessary conveyances and b"$$s o! sa$e. 5. To redeem a$$ va$"d mort#a#es and cond"t"ona$ contracts, and a$$ va$"d p$ed#es o! persona$ property, and to sat"s!y any >ud#ments ) "c may be an "ncumbrance on any property so$d by "m* or to se$$ suc property, sub>ect to suc mort#a#e, contracts, p$ed#es, >ud#ments, or $"ens. @. To sett$e a$$ matters and accounts bet)een suc debtor and "s cred"tors, sub>ect to t e approva$ o! t e court. 7. Ender t e order o! t e court or >ud#e appo"nt"n# "m, to compound )"t any person "ndebted to suc debtor, and t ereupon d"sc ar#e a$$ demands a#a"nst suc person. 7. To recover !rom any person rece"v"n# a conveyance, #"!t, trans!er, payment, or ass"#nment, made contrary to any prov"s"on o! t "s Act, t e property t ereby trans!erred or ass"#ned* or "n case a re.de$"very o! t e property can not be ad, to recover t e va$ue t ereo!, )"t dama#es !or t e detent"on.

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

+) o% $&&

%on@ersion o insol@entHs property into #oney SE% 9-. T e ass"#nee s a$$ as speed"$y as poss"b$e convert t e estate, rea$ and persona$, "nto money . 3e shall ?eep a re=ular account o all #oneys recei@ed by hi# as assi=nee, to which e@ery creditor or other person interested therein #ay, at all reasonable ti#es, ha@e access. )o pri@ate sale o any property o the estate o any insol@ent debtor shall be @alid unless #ade under the order o the court, upon a petition in writin=, which shall set orth the acts showin= the sale to be necessary. Upon ilin= the petition, notice o the hearin= thereo o at least ten days shall be =i@en by publication and #ailin=, in the sa#e #anner as is pro@ided in SE% nineteen o this Act. I it appears that a pri@ate sale is or the best interests o the estate, the court shall order it to be #ade.

a c$a"m "n "ts nature not provab$e a#a"nst t e estate+ Prov"ded, T at no set.o!! or counterc$a"m s a$$ be a$$o)ed "n !avor o! any debtor to t e "nso$vent o! a c$a"m purc ased by or trans!erred to suc debtor )"t "n t "rty days "mmed"ate$y preced"n# t e !"$"n#, or a!ter t e !"$"n# o! t e pet"t"on by or a#a"nst t e "nso$vent. SE% .-. 4 en a cred"tor as a mort#a#e, or p$ed#e o! rea$ or persona$ property o! t e debtor, or a $"en t ereon, !or secur"n# t e payment o! a debt o)"n# to "m !rom t e debtor, or an attac ment or e1ecut"on on property o! t e debtor du$y recorded and not d"sso$ved under t "s Act, e s a$$ be adm"tted as a cred"tor !or t e ba$ance o! t e debt on$y, a!ter deduct"n# t e va$ue o! suc property, suc va$ue to be ascerta"ned by a#reement bet)een "m and t e rece"ver, "! any, and "! no rece"ver, t en upon suc sum as t e court or a >ud#e t ereo! may dec"de to be !a"r and reasonab$e, be!ore t e e$ect"on o! an ass"#nee, or by a sa$e t ereo!, to be made "n suc manner as t e court or >ud#e t ereo! s a$$ d"rect* or t e cred"tor may re$ease or convey "s c$a"m to t e rece"ver, "! any, or "! no rece"ver t en to t e s er"!!, be!ore t e e$ect"on o! an ass"#nee, or to t e ass"#nee "! an ass"#nee as been e$ected, upon suc property, and be adm"tted to prove "s ) o$e debt. ;! t e va$ue o! t e property e1ceeds t e sum !or ) "c "t "s so e$d as secur"ty, t e ass"#nee may re$ease to t e cred"tor t e debtor&s r"# t o! redempt"on t ereon on rece"v"n# suc e1cess* or e may se$$ t e property, sub>ect to t e c$a"m o! t e cred"tor t ereon, and "n e"t er case t e ass"#nee and cred"tor, respect"ve$y, s a$$ e1ecute a$$ deeds and )r"t"n#s necessary or proper to consummate t e transact"on. ;! t e property "s not so$d or re$eased, and de$"vered up, or "ts va$ue !"1ed, t e cred"tor s a$$ not be a$$o)ed to prove any part o! "s debt, but t e ass"#nee s a$$ de$"ver to t e cred"tor a$$ suc property upon ) "c t e cred"tor o$ds a mort#a#e, p$ed#e, or $"en, or upon ) "c e as an attac ment or e1ecut"on. SE% 7>. =o cred"tor, prov"n# "s debt or c$a"m, s a$$ be a$$o)ed to ma"nta"n any su"t t ere!or a#a"nst t e debtor, but s a$$ be deemed to ave )a"ved a$$ r"# t o! act"on and su"t a#a"nst "m, and a$$ proceed"n#s a$ready commenced, or any unsat"s!"ed >ud#ment a$ready obta"ned t ereon, s a$$ be deemed to be d"sc ar#ed and surrendered t ereby* and a!ter t e debtor&s d"sc ar#e, upon proper app$"cat"on and proo! to t e court av"n# >ur"sd"ct"on, a$$ suc proceed"n#s s a$$ be d"sm"ssed, and suc unsat"s!"ed >ud#ments sat"s!"ed o! record+ Prov"ded, T at no va$"d $"en e1"st"n# "n #ood !a"t t ereunder s a$$ be t ereby a!!ected. A cred"tor prov"n# "s debt or c$a"m s a$$ not be e$d to ave )a"ved "s r"# t o! act"on or su"t a#a"nst t e debtor ) en a d"sc ar#e as ave been re!used or t e proceed"n#s ave been determ"ned )"t out a d"sc ar#e. ,o creditor whose debt is provable under this !ct shall be allowed, a ter the commencement o proceedings in insolvenc*, to prosecute to inal $udgment an* action there or against the debtor until the +uestion o the debtorAs discharge shall have been determined, and an* such suit or proceeding shall, upon the application o the debtor or o an* creditor, or the assignee, be sta*ed to await the determination o the court on the +uestion o discharge: (rovided, That i the amount due the creditor is in dispute, the suit, b* leave o the court in insolvenc*, ma* proceed to $udgment or the purpose o ascertaining the amount due, which amount, when ad$udged, ma* be allowed in the insolvenc* proceedings, but execution shall be sta*ed as a oresaid. SE% 71. Any person ) o s a$$ ave accepted any pre!erence, av"n# reasonab$e cause to be$"eve t at t e same )as made or #"ven by t e debtor contrary to any prov"s"on o! t "s Act, s a$$ not be a$$o)ed to prove t e debt or c$a"m on account o! ) "c t e pre!erence )as made or #"ven, nor s a$$ e rece"ve any d"v"dend

&roo o debts ,SE%s .9E7$0 SE% .9. A$$ debts due and payab$e !rom t e debtor at t e t"me o! t e ad>ud"cat"on o! "nso$vency, and a$$ debts t en e1"st"n# but not payab$e unt"$ a !uture t"me, a d"scount be"n# made "! no "nterest "s payab$e by t e terms o! t e contract, may be proved a#a"nst t e estate o! t e debtor. SE% ./. ;! t e debtor "s bound as "ndorser, surety, ba"$, or #uarantor, upon any b"$$, bond, note, or ot er spec"a$ty or contract, or !or any debt o! any person, and "s $"ab"$"ty s a$$ not ave become abso$ute unt"$ a!ter t e ad>ud"cat"on o! "nso$vency, t e cred"tor may prove t e same a!ter suc $"ab"$"ty s a$$ ave become !"1ed, and be!ore t e !"na$ d"v"dend s a$$ ave been dec$ared. SE% ... ;n a$$ cases o! cont"n#ent debts and cont"n#ent $"ab"$"t"es, contracted by t e debtor, and not ere"n ot er)"se prov"ded !or, t e cred"tor may ma%e c$a"m t ere!or and ave "s c$a"m a$$o)ed, )"t t e r"# t to s are "n t e d"v"dends, "! t e cont"n#ency s a$$ appen be!ore t e order o! t e !"na$ d"v"dend* or e may, at any t"me, app$y to t e court to ave t e present va$ue o! t e debt or $"ab"$"ty ascerta"ned and $"2u"dated, ) "c s a$$ be done "n suc manner as t e court s a$$ order, and "t s a$$ be a$$o)ed !or t e amount so ascerta"ned. SE% .7. Any person $"ab$e as ba"$, surety, or #uarantor, or ot er)"se, !or t e debtor, ) o s a$$ ave pa"d t e debt, or any part t ereo!, "n d"sc ar#e o! t e ) o$e, s a$$ be ent"t$ed to prove suc debt, or to stand "n t e p$ace o! t e cred"tor, "! e s a$$ ave proved t e same, a$t ou# suc payments s a$$ ave been made a!ter t e proceed"n#s "n "nso$vency )ere commenced* and any person so $"ab$e !or t e debtor, and ) o as not pa"d t e ) o$e o! sa"d debt, but "s st"$$ $"ab$e !or t e same, or any part t ereo!, may, "! t e cred"tor s a$$ !a"$ or om"t to prove suc debt, prove t e same "n t e name o! t e cred"tor. SE% .;. 4 ere t e debtor "s $"ab$e to pay rent, or ot er debt !a$$"n# due at !"1ed and stated per"ods, t e cred"tor may prove !or a proport"onate part t ereo! up to t e t"me o! t e "nso$vency, as "! t e same became due !rom day to day, and not at suc !"1ed and stated per"ods. SE% .8. ;n a$$ cases o! mutua$ debts and mutua$ cred"ts bet)een t e part"es, t e account bet)een t em s a$$ be stated, and one debt set o!! a#a"nst t e ot er, and t e ba$ance on$y s a$$ be a$$o)ed and pa"d. 'ut no set.o!! or counterc$a"m s a$$ be a$$o)ed o!

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

+* o% $&&

t ereon, unt"$ e s a$$ ave surrendered to t e ass"#nee a$$ property, money, bene!"t, or advanta#e rece"ved by "m under suc pre!erence. SE% 7$. T e court may, upon t e app$"cat"on o! t e ass"#nee, or o! any cred"tor, or )"t out any app$"cat"on, be!ore or a!ter ad>ud"cat"on "n "nso$vency, e1am"ne upon oat t e debtor "n re$at"on to "s property and "s estate and may e1am"ne any ot er person tender"n# or ma%"n# proo! o! c$a"ms, and may subpoena )"tnesses to #"ve ev"dence re$at"n# to suc matters. A$$ e1am"nat"ons o! )"tnesses s a$$ be ad and depos"t"ons s a$$ be ta%en "n accordance )"t and "n t e same manner as "s prov"ded by t e ,ode o! ,"v"$ Procedure.

2ischar=e ,SE%) 64269: 0!en de,tor ma* a++-* &or di)c!ar"e SE% 7/. At an* time a ter the expiration o three months rom the ad$udication o insolvenc*, but not later than one *ear rom such ad$udication, unless the propert* o the insolvent has not been converted into mone*, the debtor ma* appl* to the court or a di)c!ar"e rom his debts, and the court shall thereupon order notice to be given to all creditors who have proved their debts to appear on a da* appointed or that purpose and show cause wh* a discharge should not be granted to the debtor2 said notice shall be given b* registered mail and b* publication at least once a wee&, or six wee&s, in a newspaper published in the province or cit*, or, i there be none, in a newspaper which, in the opinion o the $udge, will best give notice to the creditors o the said insolvent: (rovided, That i no debts have been proven, such notice shall not be re+uired. When dischar=e #ay not be =ranted SE% 7.. =o d"sc ar#e s a$$ be #ranted, or "! #ranted s a$$ be va$"d , <B8 i the debtor shall have sworn alsel* in his a idavit annexed to his petition, schedule, or inventor*, or upon an* examination in the course o the proceedings in insolvenc*, in relation to an* material act concerning his estate or his debts or to an* other material act2 or <C8 i he has concealed an* part o his estate or e ects, or an* boo&s or writing relating thereto2 or <=8 i he has been guilt* o raud or will ul neglect in the care or custod* o his propert* or in the deliver* to the assignee o the propert* belonging to him at the time o the presentation o his petition and inventor*, excepting such propert* as he is permitted to retain under the provisions o this !ct2 or <>8 i , within one month be ore the commencement o such proceedings, he has procured his real estate, goods, mone*s, or chattels to be attached or sei9ed on execution2 or <?8 i he has destro*ed, mutilated, altered, or alsi ied an* o his boo&s, documents, papers, writings, or securities, or has made, or been priv* to the ma&ing o , an* alse or raudulent entr* in an* boo& o account or other document with intent to de raud his creditors2 or <@8 i he has given an* raudulent pre erence, contrar* to the provisions o this !ct, or has made an* raudulent pa*ment, gi t, trans er, conve*ance, or assignment o an* part o his propert*, or has admitted a alse or ictitious debt against his estate2 or <D8 i , having &nowledge that an* person has proven such alse or ictitious debt, he has not disclosed the same to his assignee within one month a ter such &nowledge2 or <E8 i , being a merchant or tradesman, he has not &ept proper boo&s o account in !rabic numerals and in accordance with the provisions o the Code o

Commerce2 or <F8 i he, or an* other person on his account, or in his behal , has in luenced the action o an* creditor, at an* stage o the proceedings, b* an* pecuniar* consideration or obligation2 or <BG8 i he has, in contemplation o becoming insolvent, made an* pledge, pa*ment, trans er, assignment, or conve*ance o an* part o his propert*, directl* or indirectl*, absolutel* or conditionall*, or the purpose o pre erring an* creditor or person having a claim against him, or who is, or ma* be, under liabilit* or him, or or the purpose o preventing the propert* rom coming into the hands o the assignee, or o being distributed under this !ct in satis action o his debts2 or <BB8 i he has been convicted o an* misdemeanor under this !ct, or has been guilt* o raud contrar* to the true intent o this !ct2 or <BC8 in case o voluntar* insolvenc*, has received the bene it o this or an* other !ct o insolvenc* or ban&ruptc* within six *ears next preceding his application or discharge2 or <B=8 i insolvenc* proceedings in which he could have applied or a discharge are pending b* or against him in the Court o "irst 'nstance o an* other province or cit* in the (hilippine 'slands. Be ore an* discharge is granted, the debtor shall ta&e and subscribe an oath to the e ect that he has not done, su ered, or been priv* to an* act, matter, or thing speci ied in this !ct as grounds or withholding such discharge or as invalidating such discharge, i granted. SE% 77. Any cred"tor oppos"n# t e d"sc ar#e o! a debtor s a$$ !"$e "s ob>ect"ons t ereto, spec"!y"n# t e #rounds o! "s oppos"t"on, and a!ter t e debtor as !"$ed and served "s ans)er t ereto, ) "c p$ead"n#s s a$$ be ver"!"ed, t e court s a$$ try t e "ssue or "ssues ra"sed, accord"n# to t e pract"ce prov"ded by $a) "n c"v"$ act"ons. SE% 7;. ;! "t s a$$ appear to t e court t at t e debtor as "n a$$ t "n#s con!ormed to "s duty under t "s Act, and t at e "s ent"t$ed under t e prov"s"ons t ereo! to rece"ve a d"sc ar#e, t e court s a$$ #rant "m a d"sc ar#e !rom a$$ "s debts, e1cept as ere"na!ter prov"ded, and s a$$ #"ve "m a cert"!"cate t ereo!, under t e sea$ o! t e court, "n substance as !o$$o)s+ G;n t e ,ourt o! :"rst ;nstance o! t e NNNNNNNNNNNNN, P "$"pp"ne ;s$ands. 4 ereas, NNNNNNNNNNNNNN, as been du$y ad>ud#ed an "nso$vent under t e ;nso$vency 5a) o! t e P "$"pp"ne ;s$ands, and appears to ave con!ormed to a$$ t e re2u"rements o! $a) "n t at be a$!, "t "s t ere!ore ordered by t e court t at sa"d NNNNNNNNNNNNNNN be !orever d"sc ar#ed !rom a$$ debts and c$a"ms, ) "c by sa"d ;nso$vency 5a) are made provab$e a#a"nst "s estate, and ) "c e1"sted on t e NNNNNNN day o! NNNNNNNNN, on ) "c t e pet"t"on o! ad>ud"cat"on )as !"$ed by (or a#a"nst) "m, e1cept"n# suc debts, "! any, as are by sa"d ;nso$vency 5a) e1cepted !rom t e operat"on o! a d"sc ar#e "n "nso$vency. 3"ven under my and, and t e sea$ o! t e court, t "s NNNN day o! NNNNNNNNNNNNNN, Anno -om"n" NNNNNNNNNNNNNN Attest+ NNNNNNNNNNNN, c$er%. ((ea$) NNNNNNNNNNNNN, >ud#e.H 2ebts not dischar=ed SE% 78. =o ta1 or assessment due to t e ;nsu$ar 3overnment or an* provincial or municipal government, whether proved or not as provided or in this !ct, shall be discharged. ,or shall an* debt created b* the raud or embe99lement o the debtor, or b* his de alcation as a public o icer or while acting in a iduciar* capacit*, be discharged under this !ct, but the debt ma* be proved, and the dividend thereon shall be a pa*ment on account o said debt. ,o discharge granted under this !ct shall release, discharge or a ect an* person liable or the same debt, or or with

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

++ o% $&&

the debtor, either as partner, $oint contractor, indorser, suret*, or otherwise. SE% 7-. A d"sc ar#e, du$y #ranted under t "s Act, s a$$, )"t t e e1cept"ons a!oresa"d, re$ease t e debtor !rom a$$ c$a"ms, debts, $"ab"$"t"es, and demands set !ort "n "s sc edu$e , or which were or might have been proved against his estate in insolvenc*, and ma* be pleaded b* a simple averment that on the da* o its date such discharge was granted to him, setting orth the same in ull, and the same shall be a complete bar to all suits brought on an* such debts, claims, liabilities, or demands, and the certi icate shall be prima acie evidence in avor o such act and o the regularit* o such discharge: (rovided, however, That an* creditor whose debt was proved or provable against the estate in insolvenc* who shall see it to contest the validit* o such discharge on the ground that it was raudulentl* obtained and who has discovered the acts constituting the raud subse+uent to the discharge, ma*, at an* time within one *ear a ter the date thereo , appl* to the court which granted it to set it aside and annul the same. %o##issions due assi=nee SE% 42. !ssignees shall be allowed a$$ necessary e1penses "n t e care, mana#ement, and sett$ement o! t e estate, and s a$$ be ent"t$ed to c ar#e and rece"ve !or t e"r serv"ces comm"ss"ons upon a$$ sums o! money com"n# to t e"r ands and accounted !or by t em, as !o$$o)s: "or the irst thousand pesos, at the rate o seven per centum2 or all above that sum and not exceeding ten thousand pesos, at the rate o ive per centum2 and or all above that sum, at the rate o our per centum: (rovided, however, That i the person acting as assignee was receiver o the propert* o the estate pending the election o an assignee, an* compensation allowed him as such receiver shall be deducted rom the compensation to which he otherwise would be entitled as such assignee: !nd provided urther, That i there should be two or more assignees the court shall order an e+uitable division o the compensation herein provided, and i or an* reason an assigneeAs term is completed be ore the inal settlement o the estate and a successor is appointed the court shall not allow to an* such assignee prior to the settlement o the estate an amount exceeding our per centum o the sums o mone* coming into his hands. 3pon the inal settlement o the estate an e+uitable distribution o the compensation o the assignee shall be made. %o#position SE% 79. An "nso$vent may o!!er term) o& com+o)ition to his creditors a ter, but not be ore, he has iled in court a schedule o his propert* and list o his creditors as provided in this !ct. !n application or the con irmation o a composition ma* be iled in the insolvenc* court a ter, but not be ore, it has been accepted in writing b* a ma$orit* in number o all creditors whose claims have been allowed, which number must represent a ma$orit* in amount o such claims and a ter the consideration to be paid b* the insolvent to his creditors and the mone* necessar* to pa* all debts which have priorit* and the costs o proceedings have been deposited in such place as shall be designated b* and sub$ect to the order o the court. ! time shall be ixed b* the court or the hearing upon an application or the con irmation o a composition, and or the hearing o such ob$ections as ma* be made to its con irmation. The court shall con irm a composition i satis ied that <B8 it is or the best interest o the creditors2 <C8 that the insolvent has not been guilt* o an* o the acts, or o a ailure to per orm an*

o the duties, which would create a bar to his discharge2 and <=8 that the o er and its acceptance are in good aith, and have not been made or procured except as herein provided, or b* an* means, promises, or acts herein orbidden. 3pon the con irmation o a composition the consideration shall be distributed as the $udge shall direct, and the case dismissed, and the title to the insolventAs propert* shall revest in him. Whenever a composition is not con irmed, the estate in insolvenc* shall be administered as herein provided. The court ma*, upon application o a part* in interest, iled at an* time within six months a ter the composition has been con irmed, set the same aside, and reinstate the case i it shall be made to appear upon a trial that raud was practiced in the procuring o such composition, and that the &nowledge thereo has come to the petitioner since the con irmation o such composition. 6raudulent pre erences and trans ers SE% ;>. ;! any debtor, be"n# "nso$vent, or "n contemp$at"on o! "nso$vency, )"t "n t "rty days be!ore t e !"$"n# o! a pet"t"on by or a#a"nst "m, )"t a v"e) to #"v"n# a pre!erence to any cred"tor or person av"n# a c$a"m a#a"nst "m or ) o "s under any $"ab"$"ty !or "m, procures any part o! "s property to be attac ed, se2uestered, or se"Ded on e1ecut"on, or ma%es any payment, p$ed#e, mort#a#e, ass"#nment, trans!er, sa$e, or conveyance o! any part o! "s property, e"t er d"rect$y or "nd"rect$y, abso$ute$y or cond"t"ona$$y, to any one, t e person rece"v"n# suc payment, p$ed#e, mort#a#e, ass"#nment, trans!er, sa$e, or conveyance, or to be bene!"ted t ereby, or by suc attac ment or se"Dure, av"n# reasonab$e cause to be$"eve t at suc debtor "s "nso$vent, and t at suc attac ment, se2uestrat"on, se"Dure, payment, p$ed#e, mort#a#e, conveyance, trans!er, sa$e, or ass"#nment "s made )"t a v"e) to prevent "s property !rom com"n# to "s ass"#nee "n "nso$vency, or to prevent t e same !rom be"n# d"str"buted ratab$y amon# "s cred"tors, or to de!eat t e ob>ect o!, or "n any )ay "nder, "mpede, or de$ay t e operat"on o! or to evade any o! t e prov"s"ons o! t "s Act, suc attac ment, se2uestrat"on, se"Dure, payment, p$ed#e, mort#a#e, trans!er, sa$e, ass"#nment, or conveyance "s vo"d, and t e ass"#nee, or t e rece"ver, may recover t e property, or t e va$ue t ereo!, as assets o! suc "nso$vent debtor. ' such pa*ment, pledge, mortgage, conve*ance, sale, assignment, or trans er is not made in the usual and ordinar* course o business o the debtor, or i such sei9ure is made under a $udgment which the debtor has con essed or o ered to allow, that act shall be prima acie evidence o raud. !n* pa*ment, pledge, mortgage, conve*ance, sale, assignment, or trans er o propert* o whatever character made b* the insolvent within one month be ore the iling o a petition in insolvenc* b* or against him, except or a valuable pecuniar* consideration made in good aith, shall be void. !ll assignments, trans ers, conve*ances, mortgages, or incumbrances o real estate shall be deemed, under this #EC, to have been made at the time the instrument conve*ing or a ecting such realt* was iled or record in the o ice o the register o deeds o the province or cit* where the same is situated. 2i@idends in insol@ency SE% /.. 4 enever any d"v"dend as been du$y dec$ared, t e d"str"but"on o! "t s a$$ not be stayed or a!!ected by reason o! debts be"n# subse2uent$y proved, but any cred"tor prov"n# suc a debt s a$$ be ent"t$ed to a d"v"dend e2ua$ to t ose a$ready rece"ved by t e ot er cred"tors be!ore any !urt er d"v"dend "s made to t e $atter, "! t e !a"$ure to prove suc c$a"m s a$$ not ave resu$ted !rom "s o)n ne#$ect.

COMLAW REVIEWER 2009 Articles $$97E$$.1 o %i@il %ode

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

+9 o% $&&

Art. 223@. T e debtor "s $"ab$e )"t a$$ "s property, present and !uture, !or t e !u$!"$$ment o! "s ob$"#at"ons, sub>ect to t e e1empt"ons prov"ded by $a). (1911a) Art. 2237. ;nso$vency s a$$ be #overned by spec"a$ $a)s "nso!ar as t ey are not "ncons"stent )"t t "s ,ode. (n) Art. 2237. (o $on# as t e con>u#a$ partners "p or abso$ute commun"ty subs"sts, "ts property s a$$ not be amon# t e assets to be ta%en possess"on o! by t e ass"#nee !or t e payment o! t e "nso$vent debtorIs ob$"#at"ons, e1cept "nso!ar as t e $atter ave redounded to t e bene!"t o! t e !am"$y. ;! "t "s t e usband ) o "s "nso$vent, t e adm"n"strat"on o! t e con>u#a$ partners "p o! abso$ute commun"ty may, by order o! t e court, be trans!erred to t e )"!e or to a t "rd person ot er t an t e ass"#nee. (n) Art. 2239. ;! t ere "s property, ot er t an t at ment"oned "n t e preced"n# art"c$e, o)ned by t)o or more persons, one o! ) om "s t e "nso$vent debtor, "s und"v"ded s are or "nterest t ere"n s a$$ be amon# t e assets to be ta%en possess"on o! by t e ass"#nee !or t e payment o! t e "nso$vent debtorIs ob$"#at"ons. (n) Art. 224/. Property e$d by t e "nso$vent debtor as a trustee o! an e1press or "mp$"ed trust, s a$$ be e1c$uded !rom t e "nso$vency proceed"n#s. (n) ,BAPT8R 2 ,5A((;:;,AT;<= <: ,R8-;T( Art. 2241. 4"t re!erence to spec"!"c movab$e property o! t e debtor, t e !o$$o)"n# c$a"ms or $"ens s a$$ be pre!erred+ (1) -ut"es, ta1es and !ees due t ereon to t e (tate or any subd"v"s"on t ereo!* (2) ,$a"ms ar"s"n# !rom m"sappropr"at"on, breac o! trust, or ma$!easance by pub$"c o!!"c"a$s comm"tted "n t e per!ormance o! t e"r dut"es, on t e movab$es, money or secur"t"es obta"ned by t em* (3) ,$a"ms !or t e unpa"d pr"ce o! movab$es so$d, on sa"d movab$es, so $on# as t ey are "n t e possess"on o! t e debtor, up to t e va$ue o! t e same* and "! t e movab$e as been reso$d by t e debtor and t e pr"ce "s st"$$ unpa"d, t e $"en may be en!orced on t e pr"ce* t "s r"# t "s not $ost by t e "mmob"$"Dat"on o! t e t "n# by dest"nat"on, prov"ded "t as not $ost "ts !orm, substance and "dent"ty* ne"t er "s t e r"# t $ost by t e sa$e o! t e t "n# to#et er )"t ot er property !or a $ump sum, ) en t e pr"ce t ereo! can be determ"ned proport"ona$$y* (4) ,red"ts #uaranteed )"t a p$ed#e so $on# as t e t "n#s p$ed#ed are "n t e ands o! t e cred"tor, or t ose #uaranteed by a c atte$ mort#a#e, upon t e t "n#s p$ed#ed or mort#a#ed, up to t e va$ue t ereo!* (5) ,red"ts !or t e ma%"n#, repa"r, sa!e%eep"n# or preservat"on o! persona$ property, on t e movab$e t us made, repa"red, %ept or possessed* (@) ,$a"ms !or $aborersI )a#es, on t e #oods manu!actured or t e )or% done* (7) :or e1penses o! sa$va#e, upon t e #oods sa$va#ed* (7) ,red"ts bet)een t e $and$ord and t e tenant, ar"s"n# !rom t e contract o! tenancy on s ares, on t e s are o! eac "n t e !ru"ts or arvest* (9) ,red"ts !or transportat"on, upon t e #oods carr"ed, !or t e pr"ce o! t e contract and "nc"denta$ e1penses, unt"$ t e"r de$"very and !or t "rty days t erea!ter* (1/) ,red"ts !or $od#"n# and supp$"es usua$$y !urn"s ed to trave$$ers by ote$ %eepers, on t e movab$es be$on#"n# to t e #uest as $on# as suc movab$es are "n t e ote$, but not !or money $oaned to t e #uests*

(11) ,red"ts !or seeds and e1penses !or cu$t"vat"on and arvest advanced to t e debtor, upon t e !ru"ts arvested* (12) ,red"ts !or rent !or one year, upon t e persona$ property o! t e $essee e1"st"n# on t e "mmovab$e $eased and on t e !ru"ts o! t e same, but not on money or "nstruments o! cred"t* (13) ,$a"ms "n !avor o! t e depos"tor "! t e depos"tary as )ron#!u$$y so$d t e t "n# depos"ted, upon t e pr"ce o! t e sa$e. ;n t e !ore#o"n# cases, "! t e movab$es to ) "c t e $"en or pre!erence attac es ave been )ron#!u$$y ta%en, t e cred"tor may demand t em !rom any possessor, )"t "n t "rty days !rom t e un$a)!u$ se"Dure. (1922a) Art. 2242. 4"t re!erence to spec"!"c "mmovab$e property and rea$ r"# ts o! t e debtor, t e !o$$o)"n# c$a"ms, mort#a#es and $"ens s a$$ be pre!erred, and s a$$ const"tute an encumbrance on t e "mmovab$e or rea$ r"# t+ (1) Ta1es due upon t e $and or bu"$d"n#* (2) :or t e unpa"d pr"ce o! rea$ property so$d, upon t e "mmovab$e so$d* (3) ,$a"ms o! $aborers, masons, mec an"cs and ot er )or%men, as )e$$ as o! arc "tects, en#"neers and contractors, en#a#ed "n t e construct"on, reconstruct"on or repa"r o! bu"$d"n#s, cana$s or ot er )or%s, upon sa"d bu"$d"n#s, cana$s or ot er )or%s* (4) ,$a"ms o! !urn"s ers o! mater"a$s used "n t e construct"on, reconstruct"on, or repa"r o! bu"$d"n#s, cana$s or ot er )or%s, upon sa"d bu"$d"n#s, cana$s or ot er )or%s* (5) Aort#a#e cred"ts recorded "n t e Re#"stry o! Property, upon t e rea$ estate mort#a#ed* (@) 81penses !or t e preservat"on or "mprovement o! rea$ property ) en t e $a) aut or"Des re"mbursement, upon t e "mmovab$e preserved or "mproved* (7) ,red"ts annotated "n t e Re#"stry o! Property, "n v"rtue o! a >ud"c"a$ order, by attac ments or e1ecut"ons, upon t e property a!!ected, and on$y as to $ater cred"ts* (7) ,$a"ms o! co. e"rs !or )arranty "n t e part"t"on o! an "mmovab$e amon# t em, upon t e rea$ property t us d"v"ded* (9) ,$a"ms o! donors or rea$ property !or pecun"ary c ar#es or ot er cond"t"ons "mposed upon t e donee, upon t e "mmovab$e donated* (1/) ,red"ts o! "nsurers, upon t e property "nsured, !or t e "nsurance prem"um !or t)o years. (1923a) Art. 2243. T e c$a"ms or cred"ts enumerated "n t e t)o preced"n# art"c$es s a$$ be cons"dered as mort#a#es or p$ed#es o! rea$ or persona$ property, or $"ens )"t "n t e purv"e) o! $e#a$ prov"s"ons #overn"n# "nso$vency. Ta1es ment"oned "n =o. 1, Art"c$e 2241, and =o. 1, Art"c$e 2242, s a$$ !"rst be sat"s!"ed. (n) Art. 2244. 4"t re!erence to ot er property, rea$ and persona$, o! t e debtor, t e !o$$o)"n# c$a"ms or cred"ts s a$$ be pre!erred "n t e order named+ (1) Proper !unera$ e1penses !or t e debtor, or c "$dren under "s or er parenta$ aut or"ty ) o ave no property o! t e"r o)n, ) en approved by t e court* (2) ,red"ts !or serv"ces rendered t e "nso$vent by emp$oyees, $aborers, or ouse o$d e$pers !or one year preced"n# t e commencement o! t e proceed"n#s "n "nso$vency* (3) 81penses dur"n# t e $ast "$$ness o! t e debtor or o! "s or er spouse and c "$dren under "s or er parenta$ aut or"ty, "! t ey ave no property o! t e"r o)n* (4) ,ompensat"on due t e $aborers or t e"r dependents under $a)s prov"d"n# !or "ndemn"ty !or dama#es "n cases o! $abor acc"dent, or "$$ness resu$t"n# !rom t e nature o! t e emp$oyment* (5) ,red"ts and advancements made to t e debtor !or support o! "mse$! or erse$!, and !am"$y, dur"n# t e $ast year preced"n# t e "nso$vency* (@) (upport dur"n# t e "nso$vency proceed"n#s, and !or t ree mont s t erea!ter*

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

90 o% $&&

(7) :"nes and c"v"$ "ndemn"!"cat"on ar"s"n# !rom a cr"m"na$ o!!ense* (7) 5e#a$ e1penses, and e1penses "ncurred "n t e adm"n"strat"on o! t e "nso$ventIs estate !or t e common "nterest o! t e cred"tors, ) en proper$y aut or"Ded and approved by t e court* (9) Ta1es and assessments due t e nat"ona$ #overnment, ot er t an t ose ment"oned "n Art"c$es 2241, =o. 1, and 2242, =o. 1* (1/) Ta1es and assessments due any prov"nce, ot er t an t ose re!erred to "n Art"c$es 2241, =o. 1, and 2242, =o. 1* (11) Ta1es and assessments due any c"ty or mun"c"pa$"ty, ot er t an t ose "nd"cated "n Art"c$es 2241, =o. 1, and 2242, =o. 1* (12) -ama#es !or deat or persona$ "n>ur"es caused by a 2uas". de$"ct* (13) 3"!ts due to pub$"c and pr"vate "nst"tut"ons o! c ar"ty or bene!"cence* (14) ,red"ts ) "c , )"t out spec"a$ pr"v"$e#e, appear "n (a) a pub$"c "nstrument* or (b) "n a !"na$ >ud#ment, "! t ey ave been t e sub>ect o! $"t"#at"on. T ese cred"ts s a$$ ave pre!erence amon# t emse$ves "n t e order o! pr"or"ty o! t e dates o! t e "nstruments and o! t e >ud#ments, respect"ve$y. (1924a) Art. 2245. ,red"ts o! any ot er %"nd or c$ass, or by any ot er r"# t or t"t$e not compr"sed "n t e !our preced"n# art"c$es, s a$$ en>oy no pre!erence. (1925) ,BAPT8R 3 <R-8R <: PR8:8R8=,8 <: ,R8-;T( Art. 224@. T ose cred"ts ) "c en>oy pre!erence )"t respect to spec"!"c movab$es, e1c$ude a$$ ot ers to t e e1tent o! t e va$ue o! t e persona$ property to ) "c t e pre!erence re!ers. Art. 2247. ;! t ere are t)o or more cred"ts )"t respect to t e same spec"!"c movab$e property, t ey s a$$ be sat"s!"ed pro rata, a!ter t e payment o! dut"es, ta1es and !ees due t e (tate or any subd"v"s"on t ereo!. (192@a) Art. 2247. T ose cred"ts ) "c en>oy pre!erence "n re$at"on to spec"!"c rea$ property or rea$ r"# ts, e1c$ude a$$ ot ers to t e e1tent o! t e va$ue o! t e "mmovab$e or rea$ r"# t to ) "c t e pre!erence re!ers. Art. 2249. ;! t ere are t)o or more cred"ts )"t respect to t e same spec"!"c rea$ property or rea$ r"# ts, t ey s a$$ be sat"s!"ed pro rata, a!ter t e payment o! t e ta1es and assessments upon t e "mmovab$e property or rea$ r"# t. (1927a) Art. 225/. T e e1cess, "! any, a!ter t e payment o! t e cred"ts ) "c en>oy pre!erence )"t respect to spec"!"c property, rea$ or persona$, s a$$ be added to t e !ree property ) "c t e debtor may ave, !or t e payment o! t e ot er cred"ts. (1927a) Art. 2251. T ose cred"ts ) "c do not en>oy any pre!erence )"t respect to spec"!"c property, and t ose ) "c en>oy pre!erence, as to t e amount not pa"d, s a$$ be sat"s!"ed accord"n# to t e !o$$o)"n# ru$es+ (1) ;n t e order estab$"s ed "n Art"c$e 2244* (2) ,ommon cred"ts re!erred to "n Art"c$e 2245 s a$$ be pa"d pro rata re#ard$ess o! dates. (1929a)

9"$$anueva )"$$ cont"nue payment to R:, (!or t e rese$$"n# pr"ce). 9"$$anueva mort#a#ed t e $and to -e 'arreto ) en "t obta"ned a $oan !rom t e $atter. 9"$$anueva !a"$ed to pay bot ,ruDado and -e 'arreto. <n t e one and, -e 'arreto sued !or !orec$osure and )on. <n t e ot er and, ,ruDado !"$ed a mot"on "n t at !orec$osure proceed"n# !or t e reco#n"t"on o! "s Gvendor&s $"en.H RT,+ #ranted ,ruDado&s mot"on t at "s $"en be sat"s!"ed by t e !orec$osure proceeds. (,+ a!!"rmed RT,. 'ut on A:R, reversed RT, ru$"n#. Be$d+ T e 2uest"on as to ) et er t e ,"v"$ ,ode and t e ;nso$vency 5a) can be armon"Ded "s sett$ed by Art"c$e 2243, ,"v"$ ,ode. T e pre!erences named "n Art"c$es 2241 and 2242 are to be en orced in accordance with the 'nvolvenc* )aw. Thus, it beco#es e@ident that one pre erred creditorLs thirdEparty clai# to the proceeds o a oreclosure sale ,as in the case now be ore us0 is not the proceedin= conte#plated by law or the en orce#ent o pre erences under Article $$/$, unless the clai#ant were en orcin= a credit or ta!es that enBoy absolute priority. I none o the clai#s is or ta!es, a dispute between two creditors will not enable the %ourt to ascertain the pro rata di@idend correspondin= to each, because the ri=hts o the other creditors li?ewise enBoyin= pre erence under Article $$/$ can not be ascertained. 4 ere!ore, t e order o! t e ,ourt o! :"rst ;nstance o! Aan"$a no) appea$ed !rom decree"n# t at t e proceeds o! t e !orec$osure sa$e be apport"oned on$y bet)een appe$$ant and appe$$ee, "s "ncorrect and must be reversed. ;n t e absence o! "nso$vency proceed"n#s (or ot er e2u"va$ent #enera$ $"2u"dat"on o! t e debtorIs estate), t e con!$"ct bet)een t e part"es no) be!ore us must be dec"ded pursuant to t e )e$$ estab$"s ed pr"nc"p$e concern"n# re#"ster $ands* t at a purc aser "n #ood !a"t and !or va$ue (as t e appe$$ant conceded$y "s) ta%es re#"stered property !ree !rom $"ens and encumbrances ot er t an statutory $"ens and t ose recorded "n t e cert"!"cate o! t"t$e. There bein= no insol@ency or li"uidation, the clai# o the appellee, as unpaid @endor, did not ac"uire the character and ran? o a statutory lien coEe"ual to the #ort=a=eeLs recorded encu#brance, and #ust re#ain subordinate to the latter.

=o $"en on spec"!"c property created by Art. 11/ o! t e 5abor ,ode 2B& @s. Secretary o Labor *.1. ;-9.1 :acts+ -"!ontorum and ot er co.emp$oyees obta"ned a !avorab$e >ud#ment a#a"nst RA, !or "$$e#a$ d"sm"ssa$, E5P, etc. A )r"t o! e1ecut"on )as not sat"s!"ed ("n 1974). ;n 1973, -'P !orec$osed RA,&s prem"ses. T us, -"!ontorum et a$. !"$ed )"t t e A"n"ster o! 5abor and 8mp$oyment a Gmot"on !or de$"very o! propert"es o! RA, "n possess"on o! -'P to A<58 !or proper d"spos"t"onH pursuant to Art. 11/ o! t e 5abor ,ode ) "c #"ves emp$oyees 1 st pre erence o@er properties o the e#ployer. 3eldA S%A 2i ontoru# et al. are oolsMMM It is clear ro# the wordin= o the law that the pre erential ri=ht accorded to e#ployees and wor?ers under Article 11> #ay be in@o?ed only durin= ban?ruptcy or Budicial li"uidation proceedin=s a=ainst the e#ployer. The law is une"ui@ocal and ad#its o no other construction.

1/.8 %ases App$"cat"on o! ,"v"$ ,ode prov"s"ons on concurrence and pre!erence o! cred"ts 2e Barreto @s. (illanue@a 3.R. 5.14937 :acts+ ,ruDado so$d $and () "c )as !orec$osed by R:, but $ater reso$d to ,ruDado) to 9"$$anueva )"t a st"pu$at"on t at

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

9$ o% $&&

T ere "s no G!"rst automat"c $"en.H What Article 11> o the Labor %ode establishes is not a lien, but a pre erence o credit in a@or o e#ployees. This si#ply #eans that durin= ban?ruptcy, insol@ency or li"uidation proceedin=s in@ol@in= the e!istin= properties o the e#ployer, the e#ployees ha@e the ad@anta=e o ha@in= their unpaid wa=es satis ied ahead o certain clai#s which #ay be pro@ed therein.

3reen "$$s. <n =ov. 22, 1991, 'A, !"$ed a pet"t"on !or re ab"$"tat"on )"t t e (8,. Pet"t"oner avers t at t e <n#.5ee sa$es contract parta%es o! a !raudu$ent trans!er and "s nu$$ and vo"d "n contemp$at"on o! t e a!ore2uoted prov"s"on, t e sa$e av"n# occurred on <ctober 22, 1991 or )"t "n t "rty (3/) days be!ore 'A, !"$ed a pet"t"on !or suspens"on o! payments on =ovember 22, 1991. Be$d+ Pet"t"onerIs re$"ance on t e a!ore.2uoted prov"s"on "s m"sp$aced !or t e !o$$o)"n# reasons+ "irst, SE% ;> o the Insol@ency Law speci ically #a?es re erence to con@eyance o properties #ade by a NdebtorO or by an Ninsol@entO who iled a petition, or a=ainst who# a petition or insol@ency has been iled. Respondent spouses <n# ave doubt$ess$y not !"$ed a pet"t"on !or a dec$arat"on o! t e"r o)n "nso$vency. =e"t er as one been !"$ed a#a"nst t em. ;t )as never proven t at respondent spouses are $"%e)"se "nso$vent. ;t may be t at 'A, ad !"$ed a pet"t"on !or re ab"$"tat"on and suspens"on o! payments )"t t e (8,. T e na##"n# !act, o)ever "s t at 'A, "s a d"!!erent >ur"d"ca$ person !rom t e respondent spouses. Accord"n#$y, t e a$$e#ed "nso$vency o! 'A, cannot, as pet"t"oner postu$ates, e1tend to t e respondent spouses suc t at transact"on o! t e $atter comes )"t "n t e purv"e) o! (8, 7/ o! t e ;nso$vency 5a). #econd, t e rea$ debtor o! pet"t"oner ban% "n t "s case "s 'A,. T e !act t at t e respondent spouses bound t emse$ves to ans)er !or 'A,&s "ndebtedness under t e surety a#reement re!erred to at t e outset "s not reason enou# to conc$ude t at t e spouses are t emse$ves debtors o! pet"t"oner ban%. Third, SE% ;> o the Insol@ency Law considers trans ers #ade within a #onth a ter the date o clea@a=e @oid, e!cept those #ade in =ood aith and or @aluable pecuniary consideration. The twin ele#ents o =ood aith and @aluable and su icient consideration ha@e been duly established. *i@en the @alidity and the basic le=iti#acy o the sale in "uestion, there is si#ply no occasion to apply SE% ;> o the Insol@ency Law to nulli y the transaction subBect o the instant case. Additional #aterials Articles $-E99 1A ;7.9 (8, 29. Appo"ntment o! ,onservator. M 4 enever, on t e bas"s o! a report subm"tted by t e appropr"ate superv"s"n# or e1am"n"n# department, t e Aonetary 'oard !"nds t at a ban% or a 2uas".ban% "s "n a state o! cont"nu"n# "nab"$"ty or un)"$$"n#ness to ma"nta"n a cond"t"on o! $"2u"d"ty deemed ade2uate to protect t e "nterest o! depos"tors and cred"tors, t e Aonetary 'oard may appo"nt a conser@ator )"t suc po)ers as t e Aonetary 'oard s a$$ deem necessary to ta%e c ar#e o! t e assets, $"ab"$"t"es, and t e mana#ement t ereo!, reor#an"De t e mana#ement, co$$ect a$$ mon"es and debts due sa"d "nst"tut"on, and e1erc"se a$$ po)ers necessary to restore "ts v"ab"$"ty. T e conservator s a$$ report and be respons"b$e to t e Aonetary 'oard and s a$$ ave t e po)er to overru$e or revo%e t e act"ons o! t e prev"ous mana#ement and board o! d"rectors o! t e ban% or 2uas".ban%. T e conservator s ou$d be competent and %no)$ed#eab$e "n ban% operat"ons and mana#ement. T e conservators "p shall not e!ceed one ,10 year.

,ontractor&s c$a"m not ent"t$ed to pre!erence "n t e absence o! "nso$vency proceed"n# 5.L. Bernardo %onstruction, et al. @s. %A *.1. 1>.8$; :acts+ T e Aun"c"pa$"ty o! (an Anton"o !a"$ed to pay pet"t"oners !or t e $atter&s construct"on o! t e pub$"c mar%et o! (an Anton"o. Pet"t"oners t en sued t e mun"c"pa$"ty !or breac o! contract, spec"!"c per!ormance, etc. )"t a prayer !or t e en!orcement o! contractor&s $"en (based on Art. 2242 o! t e ,"v"$ ,ode). RT, #ranted pet"t"oners& mot"on and a)arded possess"on and use o! t e bu"$d"n# to t em. ,A reversed RT,. (,+ a!!"rmed ,A Be$d+ Article $$/$ only inds application when there is a concurrence o credits, i.e. when the sa#e speci ic property o the debtor is subBected to the clai#s o se@eral creditors and the @alue o such property o the debtor is insu icient to pay in ull all the creditors. ;n suc a s"tuat"on, t e 2uest"on o! pre!erence )"$$ ar"se, t at "s, t ere )"$$ be a need to determ"ne ) "c o! t e cred"tors )"$$ be pa"d a ead o! t e ot ers. :undamenta$ tenets o! due process )"$$ d"ctate t at t "s statutory $"en s ou$d t en on$y be en!orced "n t e conte1t o! some %"nd o! a proceed"n# ) ere t e c$a"ms o! a$$ t e pre!erred cred"tors may be b"nd"n#$y ad>ud"cated, suc as "nso$vency proceed"n#s. T "s "s made e1p$"c"t by Art"c$e 2243 ) "c states t at t e c$a"ms and $"ens enumerated "n art"c$es 2241 and 2242 s a$$ be cons"dered as mort#a#es or p$ed#es o! rea$ or persona$ property, or $"ens )"t "n t e purv"e) o! $e#a$ prov"s"ons #overn"n# "nso$vency. The action iled by petitioners in the trial court does not parta?e o the nature o an insol@ency proceedin=. It is basically or speci ic per or#ance and da#a=es. Thus, e@en i it is inally adBudicated that petitioners herein actually stand in the position o unpaid contractors and are entitled to in@o?e the contractorLs lien =ranted under Article $$/$, such lien cannot be en orced in the present action or there is no way o deter#inin= whether or not there e!ist other pre erred creditors with clai#s o@er the San Antonio &ublic 4ar?et. T e records do not conta"n any a$$e#at"on t at pet"t"oners are t e on$y cred"tors )"t respect to suc property. T e !act t at no t "rd party c$a"ms ave been !"$ed "n t e tr"a$ court )"$$ not bar ot er cred"tors !rom subse2uent$y br"n#"n# act"ons and c$a"m"n# t at t ey a$so ave pre!erred $"ens a#a"nst t e property "nvo$ved. Trans!ers made )"t "n a mont a!ter date o! c$eava#e Union Ban? o the &hilippines @s. Spouses 'n= *.1. 1.$9/; :acts+ 'A, (a corporat"on 7/V o! ) "c "s o)ned by (pouses <n#) obta"ned a P p 4/A cred"t $"ne !ac"$"ty !rom En"on 'an% ) ere"n t e <n#s assumed a so$"dary $"ab"$"ty underta%"n#. <n <ct. 22, 1991, (pouses <n# so$d to 5ee t e"r ouse and $ot "n

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

92 o% $&&

T e conservator s a$$ rece"ve remunerat"on to be !"1ed by t e Aonetary 'oard "n an amount not to e1ceed t)o.t "rds (203) o! t e sa$ary o! t e pres"dent o! t e "nst"tut"on "n one (1) year, payab$e "n t)e$ve (12) e2ua$ mont $y payments+ Prov"ded, T at, "! at any t"me )"t "n one.year per"od, t e conservators "p "s term"nated on t e #round t at t e "nst"tut"on can operate on "ts o)n, t e conservator s a$$ rece"ve t e ba$ance o! t e remunerat"on ) "c e )ou$d ave rece"ved up to t e end o! t e year* but "! t e conservators "p "s term"nated on ot er #rounds, t e conservator s a$$ not be ent"t$ed to suc rema"n"n# ba$ance. T e Aonetary 'oard may appo"nt a conservator connected )"t t e 'an#%o (entra$, "n ) "c case e s a$$ not be ent"t$ed to rece"ve any remunerat"on or emo$ument !rom t e 'an#%o (entra$ dur"n# t e conservators "p. T e e1penses attendant to t e conservators "p s a$$ be borne by t e ban% or 2uas".ban% concerned. T e Aonetary 'oard s a$$ term"nate t e conservators "p ) en "t "s sat"s!"ed t at t e "nst"tut"on can cont"nue to operate on "ts o)n and t e conservators "p "s no $on#er necessary. T e conservators "p s a$$ $"%e)"se be term"nated s ou$d t e Aonetary 'oard, on t e bas"s o! t e report o! t e conservator or o! "ts o)n !"nd"n#s, determ"ne t at t e cont"nuance "n bus"ness o! t e "nst"tut"on )ou$d "nvo$ve probab$e $oss to "ts depos"tors or cred"tors, "n ) "c case t e prov"s"ons o! (8, 3/ s a$$ app$y. (8, 3/. Proceed"n#s "n Rece"vers "p and 5"2u"dat"on. M 4 enever, upon report o! t e ead o! t e superv"s"n# or e1am"n"n# department, t e Aonetary 'oard !"nds t at a ban% or 2uas".ban%+ (a) "s unab$e to pay "ts $"ab"$"t"es as t ey become due "n t e ord"nary course o! bus"ness+ Prov"ded, T at t "s s a$$ not "nc$ude "nab"$"ty to pay caused by e1traord"nary demands "nduced by !"nanc"a$ pan"c "n t e ban%"n# commun"ty* (b) as "nsu!!"c"ent rea$"Dab$e assets, as determ"ned by t e 'an#%o (entra$, to meet "ts $"ab"$"t"es* or (c) cannot cont"nue "n bus"ness )"t out "nvo$v"n# probab$e $osses to "ts depos"tors or cred"tors* or (d) as )"$$!u$$y v"o$ated a cease and des"st order under (8, 37 t at as become !"na$, "nvo$v"n# acts or transact"ons ) "c amount to !raud or a d"ss"pat"on o! t e assets o! t e "nst"tut"on* "n ) "c cases, t e Aonetary 'oard may summar"$y and )"t out need !or pr"or ear"n# !orb"d t e "nst"tut"on !rom do"n# bus"ness "n t e P "$"pp"nes and des"#nate t e P "$"pp"ne -epos"t ;nsurance ,orporat"on as rece"ver o! t e ban%"n# "nst"tut"on. :or a 2uas".ban%, any person o! reco#n"Ded competence "n ban%"n# or !"nance may be des"#ned as rece"ver. T e rece"ver s a$$ "mmed"ate$y #at er and ta%e c ar#e o! a$$ t e assets and $"ab"$"t"es o! t e "nst"tut"on, adm"n"ster t e same !or t e bene!"t o! "ts cred"tors, and e1erc"se t e #enera$ po)ers o! a rece"ver under t e Rev"sed Ru$es o! ,ourt but s a$$ not, )"t t e e1cept"on o! adm"n"strat"ve e1pend"tures, pay or comm"t any act t at )"$$ "nvo$ve t e trans!er or d"spos"t"on o! any asset o! t e "nst"tut"on+ Prov"ded, T at t e rece"ver may depos"t or p$ace t e !unds o! t e "nst"tut"on "n non.specu$at"ve "nvestments. T e rece"ver s a$$ determ"ne as soon as poss"b$e, but not $ater t an n"nety (9/) days !rom ta%e over, ) et er t e "nst"tut"on may be re ab"$"tated or ot er)"se p$aced "n suc a cond"t"on so t at "t may be perm"tted to resume bus"ness )"t sa!ety to "ts depos"tors and cred"tors and t e #enera$ pub$"c+ Prov"ded, T at any determ"nat"on !or t e resumpt"on o! bus"ness o! t e "nst"tut"on s a$$ be sub>ect to pr"or approva$ o! t e Aonetary 'oard. ;! t e rece"ver determ"nes t at t e "nst"tut"on cannot be re ab"$"tated or perm"tted to resume bus"ness "n accordance )"t t e ne1t preced"n# para#rap , t e Aonetary 'oard s a$$ not"!y "n )r"t"n# t e board o! d"rectors o! "ts !"nd"n#s and d"rect t e rece"ver to proceed )"t t e $"2u"dat"on o! t e "nst"tut"on. T e rece"ver s a$$+

(1) !"$e e1 parte )"t t e proper re#"ona$ tr"a$ court, and )"t out re2u"rement o! pr"or not"ce or any ot er act"on, a pet"t"on !or ass"stance "n t e $"2u"dat"on o! t e "nst"tut"on pursuant to a $"2u"dat"on p$an adopted by t e P "$"pp"ne -epos"t ;nsurance ,orporat"on !or #enera$ app$"cat"on to a$$ c$osed ban%s. ;n case o! 2uas".ban%s, t e $"2u"dat"on p$an s a$$ be adopted by t e Aonetary 'oard. Epon ac2u"r"n# >ur"sd"ct"on, t e court s a$$, upon mot"on by t e rece"ver a!ter due not"ce, ad>ud"cate d"sputed c$a"ms a#a"nst t e "nst"tut"on, ass"st t e en!orcement o! "nd"v"dua$ $"ab"$"t"es o! t e stoc% o$ders, d"rectors and o!!"cers, and dec"de on ot er "ssues as may be mater"a$ to "mp$ement t e $"2u"dat"on p$an adopted. T e rece"ver s a$$ pay t e cost o! t e proceed"n#s !rom t e assets o! t e "nst"tut"on. (2) convert t e assets o! t e "nst"tut"ons to money, d"spose o! t e same to cred"tors and ot er part"es, !or t e purpose o! pay"n# t e debts o! suc "nst"tut"on "n accordance )"t t e ru$es on concurrence and pre!erence o! cred"t under t e ,"v"$ ,ode o! t e P "$"pp"nes and e may, "n t e name o! t e "nst"tut"on, and )"t t e ass"stance o! counse$ as e may reta"n, "nst"tute suc act"ons as may be necessary to co$$ect and recover accounts and assets o!, or de!end any act"on a#a"nst, t e "nst"tut"on. T e assets o! an "nst"tut"on under rece"vers "p or $"2u"dat"on s a$$ be deemed "n custod"a $e#"s "n t e ands o! t e rece"ver and s a$$, !rom t e moment t e "nst"tut"on )as p$aced under suc rece"vers "p or $"2u"dat"on, be e1empt !rom any order o! #arn"s ment, $evy, attac ment, or e1ecut"on. T e act"ons o! t e Aonetary 'oard ta%en under t "s (8, or under (8, 29 o! t "s Act s a$$ be !"na$ and e1ecutory, and may not be restra"ned or set as"de by t e court e1cept on pet"t"on !or cert"orar" on t e #round t at t e act"on ta%en )as "n e1cess o! >ur"sd"ct"on or )"t suc #rave abuse o! d"scret"on as to amount to $ac% or e1cess o! >ur"sd"ct"on. T e pet"t"on !or cert"orar" may on$y be !"$ed by t e stoc% o$ders o! record represent"n# t e ma>or"ty o! t e cap"ta$ stoc% )"t "n ten (1/) days !rom rece"pt by t e board o! d"rectors o! t e "nst"tut"on o! t e order d"rect"n# rece"vers "p, $"2u"dat"on or conservators "p. T e des"#nat"on o! a conservator under (8, 29 o! t "s Act or t e appo"ntment o! a rece"ver under t "s (8, s a$$ be vested e1c$us"ve$y )"t t e Aonetary 'oard. :urt ermore, t e des"#nat"on o! a conservator "s not a precond"t"on to t e des"#nat"on o! a rece"ver. (8, 31. -"str"but"on o! Assets. M ;n case o! $"2u"dat"on o! a ban% or 2uas".ban%, a!ter payment o! t e cost o! proceed"n#s, "nc$ud"n# reasonab$e e1penses and !ees o! t e rece"ver to be a$$o)ed by t e court, t e rece"ver s a$$ pay t e debts o! suc "nst"tut"on, under order o! t e court, "n accordance )"t t e ru$es on concurrence and pre!erence o! cred"t as prov"ded "n t e ,"v"$ ,ode. (8, 32. -"spos"t"on o! Revenues and 8arn"n#s. M A$$ revenues and earn"n#s rea$"Ded by t e rece"ver "n )"nd"n# up t e a!!a"rs and adm"n"ster"n# t e assets o! any ban% or 2uas".ban% )"t "n t e purv"e) o! t "s Act s a$$ be used to pay t e costs, !ees and e1penses ment"oned "n t e preced"n# (8,, sa$ar"es o! suc personne$ ) ose emp$oyment "s rendered necessary "n t e d"sc ar#e o! t e $"2u"dat"on to#et er )"t ot er add"t"ona$ e1penses caused t ereby. T e ba$ance o! revenues and earn"n#s, a!ter t e payment o! a$$ sa"d e1penses, s a$$ !orm part o! t e assets ava"$ab$e !or payment to cred"tors. (8, 33. -"spos"t"on o! 'an%"n# :ranc "se. M T e 'an#%o (entra$ may, "! pub$"c "nterest so re2u"res, a)ard to an "nst"tut"on, upon suc terms and cond"t"ons as t e Aonetary 'oard may approve, t e ban%"n# !ranc "se o! a ban% under $"2u"dat"on to operate "n t e area ) ere sa"d ban% or "ts branc es )ere prev"ous$y operat"n#+ Prov"ded, T at ) atever proceeds may be rea$"Ded !rom suc

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

9' o% $&&

a)ard s a$$ be sub>ect to t e appropr"ate e1c$us"ve d"spos"t"on o! t e Aonetary 'oard.

;nsurance ,ode T"t$e 13 (E(P8=(;<= <R R89<,AT;<= <: AETB<R;TP Sec. $/;. ;! t e ,omm"ss"oner "s o! t e op"n"on upon e1am"nat"on o! ot er ev"dence t at any domest"c or !ore"#n "nsurance company "s "n an unsound cond"t"on, or t at "t as !a"$ed to comp$y )"t t e prov"s"ons o! $a) or re#u$at"ons ob$"#atory upon "t, or t at "ts cond"t"on or met od o! bus"ness "s suc as to render "ts proceed"n#s aDardous to t e pub$"c or to "ts po$"cy o$ders, or t at "ts pa"d.up cap"ta$ stoc%, "n t e case o! a domest"c stoc% company, or "ts ava"$ab$e cas assets, "n t e case o! a domest"c mutua$ company, or "ts secur"ty depos"ts, "n t e case o! a !ore"#n company, "s "mpa"red or de!"c"ent, or t at t e mar#"n o! so$vency re2u"red o! suc company "s de!"c"ent, t e ,omm"ss"oner "s aut or"Ded to suspend or revo%e a$$ cert"!"cates o! aut or"ty #ranted to suc "nsurance company, "ts o!!"cers and a#ents, and no ne) bus"ness s a$$ t erea!ter be done by suc company or !or suc company by "ts a#ent "n t e P "$"pp"nes ) "$e suc suspens"on, revocat"on or d"sab"$"ty cont"nues or unt"$ "ts aut or"ty to do bus"ness "s restored by t e ,omm"ss"oner. 'e!ore restor"n# suc aut or"ty, t e ,omm"ss"oner s a$$ re2u"re t e company concerned to subm"t to "m a bus"ness p$an s o)"n# t e companyIs est"mated rece"pts and d"sbursements, as )e$$ as t e bas"s t ere!or, !or t e ne1t succeed"n# t ree years. (As amended by Pres"dent"a$ -ecree =o. 1455). T"t$e 14 APP<;=TA8=T <: ,<=(8R9AT<R Sec. $/8. ;! at any t"me be!ore, or a!ter, t e suspens"on or revocat"on o! t e cert"!"cate o! aut or"ty o! an "nsurance company as prov"ded "n t e preced"n# t"t$e, t e ,omm"ss"oner !"nds t at suc company "s "n a state o! cont"nu"n# "nab"$"ty or un)"$$"n#ness to ma"nta"n a cond"t"on o! so$vency or $"2u"d"ty deemed ade2uate to protect t e "nterest o! po$"cy o$ders and cred"tors, e may appo"nt a conservator to ta%e c ar#e t e assets, $"ab"$"t"es, and t e mana#ement o! suc company, co$$ect a$$ moneys and debts due sa"d company and e1erc"se a$$ po)ers necessary to preserve t e assets o! sa"d company, reor#an"De t e mana#ement t ereo!, and restore "ts v"ab"$"ty. T e sa"d conservator s a$$ ave t e po)er to overru$e or revo%e t e act"ons o! t e prev"ous mana#ement and board o! d"rectors o! t e sa"d company, any prov"s"on o! $a), or o! t e art"c$es o! "ncorporat"on or by.$a)s o! t e company, to t e contrary not)"t stand"n#, and suc ot er po)ers as t e ,omm"ss"oner s a$$ deem necessary. T e conservator may be anot er "nsurance company do"n# bus"ness "n t e P "$"pp"nes, by o!!"cer or o!!"cers o! suc company, or any ot er competent and 2ua$"!"ed person, !"rm or corporat"on. T e remunerat"on o! t e conservator and ot er e1penses attendant to t e conservat"on s a$$ be borne by t e "nsurance company concerned. T e conservator s a$$ not be sub>ect to any act"on, c$a"m or demand by, or $"ab"$"ty to, any person "n respect o! anyt "n# done or om"tted to be done "n #ood !a"t "n t e e1erc"se, or "n connect"on )"t t e e1erc"se, o! t e po)ers con!erred on t e conservator.

T e conservator appo"nted s a$$ report and be respons"b$e to t e ,omm"ss"oner unt"$ suc t"me as t e ,omm"ss"oner "s sat"s!"ed t at t e "nsurance company can cont"nue to operate on "ts o)n and t e conservators "p s a$$ $"%e)"se be term"nated s ou$d be ,omm"ss"oner, on t e bas"s o! t e report o! t e conservator or o! "s o)n !"nd"n#s, determ"ne t at t e cont"nuance "n bus"ness o! t e "nsurance company )ou$d be aDardous to po$"cy o$ders and cred"tors, "n ) "c case t e prov"s"ons o! T"t$e 15 s a$$ app$y. T"t$e 15 PR<,88-;=3( EP<= ;=(<598=,P Sec. $/-. 4 enever, upon e1am"nat"on or ot er ev"dence, "t s a$$ be d"sc$osed t at t e cond"t"on o! any "nsurance company do"n# bus"ness "n t e P "$"pp"nes "s one o! "nso$vency, or t at "ts cont"nuance "n bus"ness )ou$d be aDardous to "ts po$"cy o$ders and cred"tors, t e ,omm"ss"oner s a$$ !ort )"t order t e company to cease and des"st !rom transact"n# bus"ness "n t e P "$"pp"nes and s a$$ des"#nate a rece"ver to "mmed"ate$y ta%e c ar#e o! "ts assets and $"ab"$"t"es, as e1ped"t"ous$y as poss"b$e co$$ect and #at er a$$ t e assets and adm"n"ster t e same !or t e bene!"t o! "ts po$"cy o$ders and cred"tors, and e1erc"se a$$ t e po)ers necessary !or t ese purposes "nc$ud"n#, but not $"m"ted to, br"n#"n# su"ts and !orec$os"n# mort#a#es "n t e name o! t e "nsurance company. T e ,omm"ss"oner s a$$ t ereupon determ"ne )"t "n t "rty days ) et er t e "nsurance company may be reor#an"Ded or ot er)"se p$aced "n suc cond"t"on so t at "t may be perm"tted to resume bus"ness )"t sa!ety to "ts po$"cy o$ders and cred"tors and s a$$ prescr"be t e cond"t"ons under ) "c suc resumpt"on o! bus"ness s a$$ ta%e p$ace as )e$$ as t e t"me !or !u$!"$$ment o! suc cond"t"ons. ;n suc case, t e e1penses and !ees "n t e co$$ect"on and adm"n"strat"on o! t e "nsurance company s a$$ be determ"ned by t e ,omm"ss"oner and s a$$ be pa"d out o! t e assets o! suc company. ;! t e ,omm"ss"oner s a$$ determ"ne and con!"rm )"t "n t e sa"d per"od t at t e "nsurance company "s so$vent, as de!"ned ereunder, or cannot resume bus"ness )"t sa!ety to "ts po$"cy o$ders and cred"tors, e s a$$, "! t e pub$"c "nterest re2u"res, order "ts $"2u"dat"on, "nd"cate t e manner o! "ts $"2u"dat"on and approve a $"2u"dat"on p$an and "mp$ement "t "mmed"ate$y. T e ,omm"ss"oner s a$$ des"#nate a competent and 2ua$"!"ed person as $"2u"dator ) o s a$$ ta%e over t e !unct"ons o! t e rece"ver prev"ous$y des"#nated and, )"t a$$ conven"ent speed, re"nsure a$$ "ts outstand"n# po$"c"es, convert t e assets o! t e "nsurance company to cas , or se$$, ass"#n or ot er)"se d"spose o! t e same to t e po$"cy o$ders, cred"tors and ot er part"es !or t e purpose o! sett$"n# t e $"ab"$"t"es or pay"n# t e debts o! suc company and e may, "n t e name o! t e company, "nst"tute suc act"ons as may be necessary "n t e appropr"ate ,ourt to co$$ect and recover accounts and assets o! t e "nsurance company, and to do suc ot er acts as may be necessary to comp$ete t e $"2u"dat"on as ordered by t e ,omm"ss"oner. T e prov"s"ons o! any $a) to t e contrary not)"t stand"n#, t e act"ons o! t e ,omm"ss"oner under t "s (8, s a$$ be !"na$ and e1ecutory, and can be set as"de by t e ,ourt upon pet"t"on by t e company and on$y "! t ere "s conv"nc"n# proo! t at t e act"on "s p$a"n$y arb"trary and made "n bad !a"t . T e ,omm"ss"oner, t rou# t e (o$"c"tor 3enera$, s a$$ t en !"$e t e correspond"n# ans)er rec"t"n# t e proceed"n# ta%en and pray"n# t e ass"stance o! t e ,ourt "n t e $"2u"dat"on o! t e company. =o restra"n"n# order or "n>unct"on s a$$ be "ssued by t e ,ourt en>o"n"n# t e ,omm"ss"oner !rom "mp$ement"n# "s act"ons under t "s (8,, un$ess t ere "s conv"nc"n# proo! t at t e act"on o! t e ,omm"ss"oner "s p$a"n$y arb"trary and made "n bad !a"t and t e

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

9& o% $&&

pet"t"oner or p$a"nt"!! !"$es )"t t e ,$er% or 6ud#e o! t e ,ourt "n ) "c t e act"on "s pend"n# a bond e1ecuted "n !avor o! t e ,omm"ss"oner "n an amount to be !"1ed by t e ,ourt. T e restra"n"n# order or "n>unct"on s a$$ be re!used or, "! #ranted, s a$$ be d"sso$ved upon !"$"n# by t e ,omm"ss"oner, "! e so des"res, o! a bond "n an amount t)"ce t e amount o! t e bond o! t e pet"t"oner or p$a"nt"!! cond"t"oned t at "t )"$$ pay t e dama#es ) "c t e pet"t"on or p$a"nt"!! may su!!er by t e re!usa$ or t e d"sso$ut"on o! t e "n>unct"on. T e prov"s"ons o! Ru$e 57 o! t e =e) Ru$es o! ,ourt "nso!ar as t ey are app$"cab$e s a$$ #overn t e "ssuance and d"sso$ut"on o! t e restra"n"n# order or "n>unct"on contemp$ated "n t "s (8,. A$$ proceed"n#s under t "s T"t$e s a$$ be #"ven pre!erence "n t e ,ourts. T e ,omm"ss"oner s a$$ not be re2u"red to pay any !ee to any pub$"c o!!"cer !or !"$"n#, record"n#, or "n any manner aut ent"cat"n# any paper or "nstrument re$at"n# to t e proceed"n#s. As used "n t "s T"t$e, t e term C;nso$vencyC s a$$ mean t e "nab"$"ty o! an "nsurance company to pay "ts $a)!u$ ob$"#at"ons as t ey !a$$ due "n t e usua$ and ord"nary course o! bus"ness as may be s o)n by "ts !a"$ure to ma"nta"n t e mar#"n o! so$vency re2u"red under (8, 194 o! t "s ,ode. (As amended by Pres"dent"a$ -ecree =o. 1141 and !urt er amended by Pres"dent"a$ -ecree =o. 1455). Sec. $.>. ;n case o! $"2u"dat"on o! an "nsurance company, a!ter payment o! t e cost o! t e proceed"n#s, "nc$ud"n# reasonab$e e1penses and !ees "ncurred "n t e $"2u"dat"on to be a$$o)ed by t e ,ourt, t e ,omm"ss"oner s a$$ pay a$$ a$$o)ed c$a"ms a#a"nst suc company, under order o! t e ,ourt, "n accordance )"t t e"r $e#a$ pr"or"ty. Sec. $.1. T e rece"ver or t e $"2u"dator, as t e case may be, des"#nated under t e prov"s"ons o! t "s t"t$e s a$$ not be sub>ect to any act"on, c$a"m or demand by, or $"ab"$"ty to, any person "n respect o! anyt "n# done or om"tted to be done "n #ood !a"t "n t e e1erc"se, or "n connect"on )"t t e e1erc"se, o! t e po)ers con!erred on suc rece"ver or $"2u"dator. &.2. 1.$SE% 89. )otice o insol@ency. 4 enever proceed"n# "n ban%ruptcy or "nso$vency, or ana$o#ous proceed"n#s, are "nst"tuted a#a"nst a debtor ) o o)ns re#"stered $and, "t s a$$ be t e duty o! t e o!!"cer serv"n# t e not"ce o! t e "nst"tut"on o! suc proceed"n#s on t e debtor to !"$e a copy t ereo! )"t t e o!!"ce o! t e Re#"ster o! -eeds !or t e prov"nce or c"ty ) ere t e $and o! t e debtor $"es. T e ass"#nee or trustee appo"nted by t e court "n suc proceed"n#s s a$$ be ent"t$ed to t e entry o! a ne) cert"!"cate o! t e re#"stered $and o! t e debtor or ban%rupt, upon present"n# and !"$"n# a cert"!"ed copy o! t e ass"#nment "n "nso$vency or order or ad>ud"cat"on "n ban%ruptcy )"t t e "nso$ventIs or ban%ruptIs dup$"cate cert"!"cate o! t"t$e* but t e ne) cert"!"cate s a$$ state t at "t "s entered to "m as ass"#nee "n "nso$vency or trustee "n ban%ruptcy or ot er proceed"n#s, as t e case may be. SE% 8/. 5ud=#ent or order @acatin= insol@ency proceedin=s . 4 enever any o! t e proceed"n#s o! t e c aracter named "n t e preced"n# (8, a#a"nst a re#"stered o)ner, o! ) "c not"ce as been re#"stered, "s vacated by >ud#ment, a cert"!"ed copy o! t e >ud#ment or order may be re#"stered. 4 ere a ne) cert"!"cate as been entered "n t e name o! t e ass"#nee or trustee, suc cert"!"cate s a$$ be surrendered !or cance$$at"on and !ort )"t t e debtor s a$$ be ent"t$ed to t e entry o! a ne) cert"!"cate to "m.

%'1&'1ATE 1E3ABILITATI') (, Ru$es Procedure on ,orporate Re ab"$"tat"on (AA =o. //.7.1/. (,) %o@era=e ,1ule 10 T ese Ru$es s a$$ app$y to pet"t"ons !or re ab"$"tat"on o! corporat"ons, partners "ps and assoc"at"ons pursuant to Pres"dent"a$ -ecree =o. 9/2.A. 2e initions o ter#s and construction ,1ule $0 NAd#inistrati@e E!pensesO (a) 1easonable and necessary e!penses t at are "ncurred "n connect"on )"t t e !"$"n# o! t e pet"t"on* (b) E!penses incurred in the ordinary course o business a ter t e "ssuance o! t e stay order . e1c$ud"n# "nterest payab$e to t e cred"tors !or $oans and cred"t accommodat"ons e1"st"n# at t e t"me o! t e "ssuance o! t e stay order* and (c) <t er e1penses t at are authoriFed under t "s Ru$es. P%lai#P ;nc$ude all clai#s or de#ands o whate@er nature or charter a#a"nst a debtor or "ts property, ) et er !or money or ot er)"se P%ontrolP Po)er o! a parent corporat"on to d"rect or #overn t e !"nanc"a$ and operat"n# po$"c"es o! an enterpr"se so as to obta"n bene!"ts !rom "ts act"v"t"es. %ontrol is presu#ed to e!it ) en+ a. parent o)ns, d"rect$y or "nd"rect$y t ou# subs"d"ar"es, #ore than one E hal ,Q0 o the @otin= power o! t e vot"n# po)er o! an enterpr"se unless, such ownership does not constitute control. b. parents o)ns one. a$! (102) or $ess o! t e vot"n# po)er o! an enterpr"se ) en t ere "s po)er. a. <ver more t an one. a$! (^) o! a#reement )"t "nvestors* b. To d"rect or #overn t e !"nanc"a$ and operat"n# po$"c"es o! t e enterpr"se under a statute or a#reement* c. To appo"nt or remove t e ma>or"ty o! t e member o! t e board o! d"rectors or e2u"va$ent #overn"n# body* or d. To cast t e ma>or"ty votes at meet"n# o! t e board o! d"rectors or e2u"va$ent #overn"n# body. P6orei=n proceedin=P %ollecti@e Budicial or ad#inistrati@e proceedin= in a orei=n State, pursuant to a $a) re#ard"n# so$vency ) ere t e assets and a!!a"rs o! t e debtor are sub>ect to contro$ or superv"s"on by a !ore"#n court, !or t e purpose o! re ab"$"tat"on or re.or#an"Dat"on. P*roup o co#paniesP

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

9( o% $&&

,an cover on$y, corporat"ons t at are inancially related to one another as parent corporat"on, subs"d"ar"es and a!!"$"ates. P&arentP A corporat"on d"rect$y or "nd"rect$y "n contro$ over anot er company. (aut or&s o)n meet"n#) P1ehabilitationP 1estoration o! t e debtor to a pos"t"on o! success!u$ operat"on and so$vency, "! "t "s s o)n t at "t&s cont"nuance o! operat"on "s econom"ca$$y !eas"b$e and "ts cred"tors can recover more "! t e corporat"on cont"nues operat"on. PSecured clai#P Any c$an ) ose payment or !u$!"$$ment "s secured by contract or by $a), "nc$ud"n# any c$am or cred"t enumerated under Art"c$es 2241 and 2242 o! t e c"v"$ ,ode and Art"c$e 11/, as amended, o! t e 5abor code o! t e P "$"pp"nes. PSubsidiaryP A corporat"on ) ere #ore than i ty percent ,.>R0 o! "ts vot"n# stoc% "s o)ned or contro$$ed d"rect$y or "nd"rect$y by anot er corporat"on. *eneral &ro@ision ,1ule 90 )ature o &roceedin= ,Sec 10 . ;n Rem. . 6ur"sd"ct"on over a$$ persons cons"dered as ac2u"red upon pub$"cat"on o! t e not"ce o! t e commencement o! t e proceed"n#s "n any ne)spaper or #enera$ c"rcu$at"on. .T e proceed"n#s s a$$ a$so be summary and non.adversar"a$ "n nature. . T e !o$$o)"n# p$ead"n# are pro "b"ted+ (a) Aot"on to d"sm"ss* (b) Aot"on !or a b"$$ o! part"cu$ars+ (c) Pet"t"on !or re$"e!* (d) Aot"on !or e1tens"on* (e) Aot"on !or postponement (!) T "rd.party comp$a"nt* (#) ;ntervent"on* ( ) Aot"on to ear a!!"rmat"ve de!enses* and (;) Any p$ead"n# or mot"on ) "c "s s"m"$ar to or o! $"%e e!!ect as any o! t e !ore#o"n#. Ser@ice o pleadin=s and docu#ents ,Sec 90 .Any p$ead"n# and0or document re2u"red by t ese Ru$es #ay be iled with the court and0or served upon t e ot er part"es by a! or eE#ail. .2ate o trans#ission shall be dee#ed to be the date o ser@ice. .4 ere t e p$ead"n# or document "s @olu#inous, t e court may, upon mot"on, )a"ve t e re2u"rement o! serv"ce* prov"ded t at a copy t ereo! to#et er )"t a$$ "ts attac ments "s du$y !"$ed )"t t e court and "s made ava"$ab$e !or e1am"nat"on and reproduct"on by any party, and prov"ded, !urt er, t at a not"ce o! suc !"$"n# and ava"$ab"$"ty "s du$y served on t e part"es. E!ecutory nature o orders ,Sec .0 .Any order "ssued by t e court under t ese Ru$es "s " ##ediately e!ecutory. .A petition to re@iew the order shall not stay the e!ecution o! t e order un$ess restra"ned or en>o"ned by t e appe$$ate court.

)ulli ication o Ille=al Trans ers and &re erences ,Sec 70 Epon mot"on t e court may nulli y any trans er o property or any other con@eyance, sale, pay#ent or a=ree#ent #ade in @iolation o its stay order or "n v"o$at"on o! t ese Ru$es. Stay 'rder ,Sec ;0 ;! t e court !"nds t e pet"t"on to be su!!"c"ent "n !orm and substance, "t s a$$* not $ater t an !"ve (5) )or%"n# days !rom t e !"$"n# o! t e pet"t"on, "ssue an order+ Stay o en orce#ent o clai#s ,Sec ;.b0 .stayin= en orce#ent o all clai#s, ) et er !or money or ot er)"se and ) et er suc en!orcement is by court action or ot er)"se, a#a"nst t e debtor, "ts #uarantors and persons not so$"dar"$y $"ab$e )"t t e debtor* .stay order s a$$ not cover c$a"ms a#a"nst $etters o! cred"t and s"m"$ar secur"ty arran#ements "ssued by a t "rd party to secure t e payment o! t e debtorIs ob$"#at"ons* .stay order s a$$ not cover !orec$osure by a cred"tor o! property not be$on#"n# to a debtor under corporate re ab"$"tat"on* .) ere t e o)ner o! suc property sou# t to be !orec$osed "s a$so a #uarantor or one ) o "s not so$"dar"$y $"ab$e, sa"d o)ner s a$$ be ent"t$ed to t e bene!"t o! e1cuss"on as suc #uarantor* &rohibition a=ainst disposition and encu#brances o property ,Sec ;.c0 .t e debtor cannot se$$, encumber, trans!er, or d"spose "n any manner any o! "ts propert"es e1cept "n t e ord"nary course o! bus"ness* &rohibition a=ainst pay#ent o preEpetition liabilities ,Sec ;.d0 .t e debtor cannot ma%e any payment on "ts $"ab"$"t"es e1cept as prov"ded "n "tems (e), (!) and (#) o! t "s (8, or ) en ordered by t e court pursuant to (8, 1/ o! Ru$e 3* &rohibition a=ainst withholdin= o =oods and ser@ices ,Sec ;.e0 .t e debtorIs supp$"ers o! #oods or serv"ces cannot )"t o$d supp$y o! #oods and serv"ces "n t e ord"nary course o! bus"ness !or as $on# as t e debtor ma%es payments !or t e serv"ces and #oods supp$"ed a!ter t e "ssuance o! t e stay order* &ay#ent o postEpetition ad#inistrati@e e!penses ,Sec ;. 0 .payment "n !u$$ o! a$$ adm"n"strat"ve e1penses "ncurred a!ter t e "ssuance o! t e stay order* &ay#ent o postEpetition credits ,Sec ;.=0 d"rect t e payment o! ne) $oans or ot er !orms o! cred"t accommodat"ons obta"ned !or t e re ab"$"tat"on o! t e debtor )"t pr"or court approva$* &reser@ation o clai#s a=ainst debtor ,Sec ; last par0 T e "ssuance o! a stay order does not a!!ect t e r"# t to commence act"ons or proceed"n#s "nso!ar as "t "s necessary to preserve a c$a"m a#a"nst t e debtor. %oncept o Ade"uate &rotection o &roperty ,Sec 1>0 t e cred"tor $ac%s ade2uate protect"on "! "t can be s o)n t at+ (1) T e debtor !a"$s or re!uses to onor a pre.e1"st"n# a#reement )"t t e to %eep t e property "nsured* (2) T e debtor !a"$s or re!uses to ta%e commerc"a$$y reasonab$e steps to ma"nta"n t e property* or

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

9) o% $&&

(3) T e property as deprec"ated to an e1tent t at t e cred"tor "s undersecured Duali ications and 2is"uali ication o 1ehabilitation 1ecei@er ,Sec 110 Duali icationsA (1) 81pert"se and acumen to mana#e and operate a bus"ness s"m"$ar "n s"De and comp$e1"ty to t at o! t e debtor* (2) Fno)$ed#e "n mana#ement, !"nance and re ab"$"tat"on o! d"stressed compan"es* (3) 3enera$ !am"$"ar"ty )"t t e r"# ts o! cred"tors "n suspens"on o! payments or re ab"$"tat"on and #enera$ understand"n# o! t e dut"es and ob$"#at"ons o! a re ab"$"tat"on rece"ver* (4) 3ood mora$ c aracter, "ndependence and "nte#r"ty* (5) 5ac% o! con!$"ct o! "nterest as de!"ned "n t "s (8,* and (@) 4"$$"n#ness and ab"$"ty to !"$e a bond "n suc amount as may be determ"ned by t e court. 2is"uali icationsA (1) Be "s cred"tor or stoc% o$der o! t e debtor* (2) Be "s en#a#ed "n a $"ne o! bus"ness ) "c competes )"t t e debtor* (3) Be "s, or )as )"t "n t)o (2) years !rom t e !"$"n# o! t e pet"t"on, a d"rector, o!!"cer, or emp$oyee or t e aud"tor or accountant o! t e debtor* (4) Be "s or )as )"t "n t)o (2) years !rom t e !"$"n# o! t e pet"t"on, an under)r"ter o! t e outstand"n# secur"t"es o! t e debtor* (5) Be "s re$ated by consan#u"n"ty or a!!"n"ty )"t "n t e !ourt c"v"$ de#ree to any cred"tor, stoc% o$der, d"rector, o!!"cer, emp$oyee, or under)r"ter o! t e debtor* or (@) Be as any ot er d"rect or "nd"rect mater"a$ "nterest "n t e debtor or any cred"tor. &owers and 6unctions o 1ehabilitation 1ecei@er ,Sec 1$0 =ot ta%e over t e mana#ement and contro$ o! t e debtor but s a$$ c$ose$y oversee and mon"tor t e operat"ons o! t e debtor dur"n# t e pendency o! t e proceed"n#s. :or t "s purpose, t e re ab"$"tat"on rece"ver s a$$ ave t e po)ers, dut"es and !unct"ons o! a rece"ver under Pres"dent"a$ -ecree =o. 9/2.A 1. cons"dered as an o!!"cer o! t e court. 2. Be s a$$ be pr"mar"$y tas%ed to study t e best )ay to re ab"$"tate t e debtor and to ensure t at t e va$ue o! t e debtorIs property "s reasonab$y ma"nta"ned pend"n# t e determ"nat"on o! ) et er or not t e debtor s ou$d be re ab"$"tated, as )e$$ as 3."mp$ement t e re ab"$"tat"on p$an a!ter "ts approva$. Accord"n#$y, e s a$$ ave t e !o$$o)"n# po)ers and !unct"ons+ (a) To ver"!y t e accuracy o! t e pet"t"on, "nc$ud"n# "ts anne1es suc as t e (c edu$e o! -ebts and 5"ab"$"t"es and t e ;nventory o! Assets subm"tted "n support to t e pet"t"on* (b) To accept and "ncorporate, ) en >ust"!"ed, amendments to t e (c edu$e o! -ebts and 5"ab"$"t"es* (c) To recommend to t e court t e d"sa$$o)ance o! c$a"ms and re>ect"on o! amendments t t e (c edu$e o! -ebts and 5"ab"$"t"es t at $ac% su!!"c"ent proo! and >ust"!"cat"on* (d) To subm"t to t e court and ma%e ava"$ab$e !or rev"e) by t e cred"tors, a rev"sed (c edu$e o! -ebts and 5"ab"$"t"es* (e) To "nvest"#ate t e acts, conduct, propert"es, $"ab"$"t"es and !"nanc"a$ cond"t"on o! t e debtor, t e operat"on o! "ts bus"ness and t e des"rab"$"ty o! t e cont"nuance t ereo!* and, any ot er matter

re$evant to t e proceed"n# or to t e !ormu$at"on o! a re ab"$"tat"on p$an* (!) To e1am"ne under oat t e d"rectors and o!!"cers o! t e debtor and any ot er )"tnesses t at e may deem appropr"ate* (#) To ma%e ava"$ab$e to t e cred"tors documents and not"ces necessary !or t em to !o$$o) and part"c"pate "n t e proceed"n#s* ( ) To report to t e court any !act ascerta"ned by "m perta"n"n# to t e causes o! t e debtorIs prob$ems, !raud, pre!erences, d"spos"t"ons, encumbrances, m"sconduct, m"smana#ement and "rre#u$ar"t"es comm"tted by t e stoc% o$ders, d"rectors, mana#ement,, or any ot er person a#a"nst t e debtor* (") To emp$oy suc person or persons suc as $a)yers, accountants, appra"sers and sta!! are necessary "n per!orm"n# "s !unct"ons and dut"es as re ab"$"tat"on rece"ver* (>) To mon"tor t e operat"ons o! t e debtor and to "mmed"ate$y report to t e court any mater"a$ adverse c an#e "n t e debtorIs bus"ness* (%) To eva$uate t e e1"st"n# assets and $"ab"$"t"es, earn"n#s and operat"ons o! t e debtor* ($) To determ"ne and recommend to t e court t e best )ay to sa$va#e and protect t e "nterests o! t e cred"tors, stoc% o$ders and t e #enera$ pub$"c* (m) To study t e re ab"$"tat"on p$an proposed by t e debtor or any re ab"$"tat"on p$an subm"tted dur"n# t e proceed"n#s, to#et er )"t any comments made t ereon* (n) To pro "b"t and report to t e court any encumbrance, trans!er or d"spos"t"on o! t e debtorIs property outs"de o! t e ord"nary course o! bus"ness or ) at "s a$$o)ed by t e court* (o) To pro "b"t and report to t e court any payments outs"de o! t e ord"nary course o! bus"ness* (p) To ave un$"m"ted access to t e debtorIs emp$oyees, prem"ses, boo%s, records and !"nanc"a$ documents dur"n# bus"ness ours* (2) To "nspect, copy, p otocopy or p oto#rap any document, paper, boo%, account or $etter, ) et er "n t e possess"on o! t e debtor or ot er persons* (r) To #a"n entry "nto any property !or t e purpose o! "nspect"n#, measur"n#, survey"n# or p oto#rap "n# "t or any des"#nated re$evant ob>ect or operat"on t ereon* (s) To ta%e possess"on, contro$ and custody o! t e debtorIs assets* (t) To not"!y counterpart"es and t e court as to contracts t at t e debtor as dec"ded to cont"nue to per!orm t e breac * (u) To be not"!"ed o! and to attend a$$ meet"n#s o! t e board o! d"rectors and stoc% o$der o! t e debtor* (v) To recommend any mod"!"cat"on o! an approved re ab"$"tat"on p$an as e may deem appropr"ate* ()) To br"n# to t e attent"on o! t e court any mater"a$ c an#e a!!ect"n# t e debtorIs ab"$"ty to meet t e ob$"#at"ons under t e re ab"$"tat"on p$an* (1) To recommend t e appo"ntment o! a mana#ement comm"ttee "n t e cases prov"ded !or under Pres"dent"a$ -ecree =o. 9/2.A, as amended* (y) To recommend t e term"nat"on o! t e proceed"n#s and t e d"sso$ut"on o! t e debtor "! e determ"nes t at t e cont"nuance "n bus"ness o! suc ent"ty "s no $on#er !eas"b$e or pro!"tab$e or no $on#er )or%s to t e best "nterest o! t e stoc% o$ders, part"es. $"t"#ants, cred"tors or t e #enera$ pub$"c* (D) To app$y to t e court !or any order or d"rect"ve t at e may deem necessary or des"rab$e to a"d "m "n t e e1erc"se o! "s po)ers and per!ormance o! "s dut"es and !unct"ons* and (aa) To e1erc"se suc ot er po)ers as may !rom t"me to t"me be con!erred upon "m by t e court. %ontents o 1ehabilitation &lan ,Sec 180

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

9* o% $&&

(a) des"red business tar=ets or =oals and the duration and co@era=e o! t e re ab"$"tat"on* (b) ter#s and conditions o! suc re ab"$"tat"on ) "c s a$$ "nc$ude t e #anner o its i#ple#entation, #"v"n# due re#ard to t e "nterests o! secured cred"tors suc as, but not $"m"ted, to t e non. "mpa"rment o! t e"r secur"ty $"ens or "nterests* (c) #aterial inancial co##it#ents to support t e re ab"$"tat"on p$an* (d) #eans or the e!ecution o the rehabilitation plan* (e) a li"uidation analysis* and (!) suc other rele@ant in or#ation to enab$e a reasonab$e "nvestor to ma%e an "n!ormed dec"s"on on t e !eas"b"$"ty o! t e re ab"$"tat"on p$an. E ects o 1ehabilitation ,Sec $>0 (a) T e p$an and "ts prov"s"ons s a$$ be bindin= upon the debtor and all persons who #ay be a ected t ereby, includin= the creditors, whether or not such persons ha@e participated "n t e proceed"n#s or opposed t e p$an or ) et er or not t e"r c$a"ms ave been sc edu$ed* (b) T e debtor s a$$ co#ply with the pro@isions o the plan and s a$$ ta%e a$$ act"ons necessary to carry out t e p$an* (c) &ay#ents shall be #ade to the creditors "n accordance )"t t e prov"s"ons o! t e p$an* (d) %ontracts and other arran=e#ents bet)een t e debtor and "ts cred"tors s a$$ be "nterpreted as cont"nu"n# to app$y to t e e1tent t at t ey do not con!$"ct )"t t e prov"s"ons o! t e p$an* and (e) Any co#pro#ises on a#ounts or reschedulin= o! t"m"n# o! payments by t e debtor shall be bindin= on creditors re#ard$ess o! ) et er or not t e p$an "s success!u$$y "mp$emented. Ter#ination o 1ehabilitation &roceedin= ,Sec $10 .Epon mot"on, )"t "n n"nety (9/) days !rom t e approva$ o! t e re ab"$"tat"on p$an, and a!ter not"ce and ear"n#, t e court #ay re@o?e the appro@al thereo on the =round that the sa#e was secured throu=h raud. Sec $9 ,not in outline0 (a) -"sm"ssa$ o! t e pet"t"on* (b) :a"$ure o! t e debtor to subm"t t e re ab"$"tat"on p$an* (c) -"sapprova$ o! t e re ab"$"tat"on p$an by t e court* (d) :a"$ure to ac "eve t e des"red tar#ets or #oa$s as set !ort "n t e re ab"$"tat"on p$an* (e) :a"$ure o! t e debtor to per!orm "ts ob$"#at"ons under t e p$an* (!) -eterm"nat"on t at t e re ab"$"tat"on p$an may no $on#er be "mp$emented "n accordance )"t "ts terms, cond"t"ons, restr"ct"ons or assumpt"ons* or (#) (uccess!u$ "mp$ementat"on o! t e re ab"$"tat"on p$an. 2ebtorEInitiated 1ehabilitation ,1ule /0 Who #ay petition ,Sec 10 .Any debtor ) o !oresees t e "mposs"b"$"ty o! meet"n# "ts debts ) en t ey respect"ve$y !a$$ due, may pet"t"on t e proper re#"ona$ tr"a$ court !or re ab"$"tat"on. . A =roup o co#panies may >o"nt$y !"$e a pet"t"on !or re ab"$"tat"on ) en one or more o! "ts const"tuent corporat"ons !oresee t e "mposs"b"$"ty o! meet"n# debts ) en t ey respect"ve$y !a$$ due, and t e !"nanc"a$ d"stress )ou$d $"%e$y adverse$y a!!ect t e !"nanc"a$ cond"t"on and0or operat"ons o! t e ot er member compan"es o! t e #roup "s essent"a$ under t e terms and cond"t"ons o! t e proposed re ab"$"tat"on p$an. 'pposition to or %o##ent on the &etition ,Sec /0

E8very cred"tor o! t e debtor or any "nterested party s a$$ !"$e "s @eri ied opposition to or co##ent on t e pet"t"on not later than i teen ,1.0 days be ore the date o the initial hearin= !"1ed "n t e stay order. . A ter such ti#e, no creditor or interested party shall be allowed to ile any comment t ereon or oppos"t"on t ereto )"t out $eave o! court. .;! t e (c edu$e o! -ebts and 5"ab"$"t"es om"ts a c$a"m or $"ab"$"ty, t e cred"tor concerned s a$$ attac to "ts comment or oppos"t"on a ver"!"ed statement o! t e ob$"#at"ons a$$e#ed$y due "t. Appro@al o 1ehabilitation &lan By %ourt ,Sec ;.b0 T e court s a$$ approve t e ne) re ab"$"tat"on p$an not later than ninety ,->0 days !rom t e date o! t e $ast "n"t"a$ ear"n#. By %reditors ,Sec ;.b.10 Appro@al or endorse#ent o creditors holdin= at least twoE thirds ,$K90 o! t e tota$ $"ab"$"t"es o! t e debtor includin= secured creditors holdin= #ore than i ty percent ,.>R0 o! t e tota$ secured c$a"ms o! t e debtor and unsecured creditors holdin= #ore than i ty percent ,.>R0 o! t e tota$ unsecured c$a"ms o! t e debtor* %ra# 2own ,Sec 110 T e court #ay appro@e a rehabilitation plan e@en o@er the opposition o! cred"tors o! t e debtor, i , in its Bud=#ent, the rehabilitation o the debtor is easible and the opposition o the creditors is #ani estly unreasonable "! t e !o$$o)"n# are present+ (a) T e rehabilitation plan co#plies with the re"uire#ents speci ied "n (8, 17 o! Ru$e 3* (b) T e rehabilitation plan would pro@ide the obBectin= class o! cred"tors with pay#ents whose present @alue proBected in the plan would be =reater than that which they would ha@e recei@ed "! t e assets o! t e debtor )ere so$d by a $"2u"dator )"t "n a s"1 (@).mont per"od !rom t e date o! !"$"n# o! t e pet"t"on* and (c) T e rehabilitation recei@er has reco##ended approva$ o! t e p$an. ;n approv"n# t e re ab"$"tat"on p$an, t e court shall ensure that the ri=hts o the secured creditors are not i#paired. %reditorEinitiated rehabilitation ,1ule .0 Who 4ay &etition ,Sec 10 Any creditor or creditors o$d"n# at least twenty percent ,$>R0 o the debtorLs total liabilities may !"$e a pet"t"on )"t t e proper re#"ona$ tr"a$ court !or re ab"$"tat"on o! a debtor t at cannot meet "ts debts as t ey respect"ve$y !a$$ due. 1e"uire#ents ,Sec $0 T e pet"t"on "s accompan"ed by+ 1. re ab"$"tat"on p$an 2. $"st o! at $east t ree (3) nom"nees to t e pos"t"on o! re ab"$"tat"on rece"ver and 3. ver"!"ed by a s)orn statement t at t e a!!"ant as read t e pet"t"on and t at "ts contents are true and correct o! "s persona$ %no)$ed#e or based on aut ent"c records and t at t e pet"t"on "s be"n# !"$ed to protect t e "nterests o! t e debtor, t e stoc% o$ders, t e "nvestors and t e cred"tors o! t e debtor. &reEne=otiated rehabilitation ,1ule 70 1e"uire#ents ,Sec 10

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

9+ o% $&&

1. A debtor that oresees the i#possibility o! meet"n# "ts debts as t ey !a$$ due may, by "tse$! or >o"nt$y )"t any o! "ts cred"tors, 2. !"$e a @eri ied petition or the appro@al o a pre.ne#ot"ated re ab"$"tat"on p$an. 3. T e pet"t"on s a$$ co#ply with SE% $ o 1ule / and be supported by an a ida@it s o)"n# t e written appro@al or endorse#ent o creditors o$d"n# at $east t)o.t "rds (203) o! t e tota$ $"ab"$"t"es o! t e debtor, "nc$ud"n# secured cred"tors o$d"n# more t an !"!ty percent (5/V) o! t e tota$ secured c$a"ms o! t e debtor and unsecured cred"tors o$d"n# more t an !"!ty percent (5/V) o! t e tota$ unsecured c$a"ms o! t e debtor. 1eco=nition o 6orei=n &roceedin=s ,1ule ;0 Scope ,Sec 10 T "s Ru$e app$"es ) ere+ (a) assistance is sou=ht in a &hilippine court by a orei=n court or a orei=n representati@e "n connect"on )"t a !ore"#n proceed"n#* (b) assistance is sou=ht in a orei=n State in connection with a do#estic proceedin= #overned by t ese Ru$es* or (c) a !ore"#n proceed"n# and a domest"c proceed"n# are concurrently ta?in= place. T e sole act that a petition is iled pursuant to this 1ule does not subBect the orei=n representati@e or the orei=n assets and a airs o the debtor to the Burisdiction o! t e $oca$ courts !or any purpose ot er t an t e pet"t"on. &eriod or 1eco=nition ,Sec .0 .Pet"t"on !or reco#n"t"on o! a !ore"#n proceed"n# s a$$ be decided within thirty ,9>0 days ro# the ilin= thereo . E ect o reco=nition o orei=n procedure ,Sec 80 Epon reco#n"t"on o! a !ore"#n proceed"n#+ (a) %o##ence#ent or continuation o indi@idual actions or indi@idual proceedin=s concern"n# t e debtorIs assets, r"# ts, ob$"#at"ons or $"ab"$"t"es is stayed* prov"ded, t at such stay does not a ect the ri=ht to co##ence indi@idual actions or proceedin=s to the e!tent necessary to preser@e a clai# a=ainst the debtor. (b) E!ecution a=ainst the debtorLs assets is stayed* and (c) T e ri=ht to trans er, encumber or ot er)"se d"spose o! any assets o! t e debtor is suspended. &rocedural re#edies ,1ule 80 4otion or reco=nition ,Sec 10 a. &rior to the appro@al o the rehabilitation plan. .)o relie can be e!tended to t e party a##r"eved by t e courtIs order on t e mot"on throu=h a special ci@il action or certiorari under 1ule 7. o the rules o %ourt . (uc order can only be ele@ated to the %ourt o Appeals as an ass"#ned error "n t e pet"t"on !or rev"e) o! t e dec"s"on or order approv"n# or d"sapprov"n# t e re ab"$"tat"on p$an. b. A ter the appro@al o rehabilitation plan. .An order issued a ter the appro@al o the rehabilitation plan can be re@iewed only throu=h a special ci@il action or certiorari under 1ule 7. o the 1ules o %ourt. 1e@iew o decision or order on rehabilitation plan ,Sec $0 .an order appro@in= or disappro@in= a rehabilitation plan can only be re@iewed throu=h a petition or re@iew to the %ourt o

Appeals under 1ule /9 o! t e Ru$es o! ,ourt )"t "n !"!teen (15) days !rom not"ce o! t e dec"s"on or order. %oncept o debtorEinEplace .T e re ab"$"tat"on rece"ver does not ta%e over t e mana#ement and contro$ o! t e debtor but s"mp$y oversees and mon"tors c$ose$y t e operat"ons o! t e debtor dur"n# t e pendency o! t e proceed"n#s Appoint#ent o #ana=e#ent co##ittee ,1ule -, Sec 1, S% Interi# 1ules o &rocedure or IntraEcorporate %ontro@ersies0 T e appo"ntment o! a mana#ement comm"ttee !or a corporat"on, partners "p or assoc"at"on may be app$"ed !or as "nc"dent to any o! t e cases t at may be !"$ed under t e Ru$es or t e ;nter"m Ru$es on ,orporate Re ab"$"tat"on ) en t ere "s "mm"nent dan#er o!+ a. d"ss"pat"on, $oss, )asta#e or destruct"on o! assets or ot er propert"es* and b. para$yDat"on o! "ts bus"ness operat"ons ) "c may be pre>ud"c"a$ to t e "nterest o! t e m"nor"ty stoc% o$ders, part"es.$"t"#ants or t e #enera$ pub$"c. %asesA HE+ualit* is E+uit*I Ale#arHs Sibal C Sons, Inc. @s. Elbinias, et.al., -ur"n# re ab"$"tat"on, assets are e$d "n trust !or t e e2ua$ bene!"t o! a$$ cred"tors. As bet)een cred"tors, e2ua$"ty "s e2u"ty. A$$ cred"tors s ou$d stand on e2ua$ !oot"n#. #uspension o mone* claim &AL @s. Spouses Kuran=?an=, et.al., The stay order is e ecti@e ro# the date o its issuance until the dis#issal o the petition or the ter#ination o the rehabilitation proceedin=s. T e "nter"m ru$es must $"%e)"se be read and app$"ed a$on# )"t SE% 7,c0 o &.2. ->$EA, as so a#ended, directin= that upon the appoint#ent o a #ana=e#ent co##ittee, rehabilitation recei@er, board or body pursuant to the decree, Nall actionsO or clai#s a=ainst the distressed corporation Npendin= be ore any court, tribunal, board or body shall be suspended accordin=ly.H A Nclai#O "s sa"d to be Ga r"# t to payment, ) et er or not ;t "s reduced to >ud#ment, $"2u"dated or un$"2u"dated, !"1ed or cont"n#ent, matured or unmatured, d"sputed or und"sputed, $e#a$ or e2u"tab$e, and secured or unsecured.H ;n :"nas"a ;nvestments and :"nance ,orporat"on t "s ,ourt as de!"ned t e )ord Gc$a"m,H contemp$ated "n (8, @(c) o! P.-. 9/2.A, as re!err"n# to debts or demands o! a pecun"ary nature and t e assert"on o! a r"# t to ave money pa"d as )e$$. 9er"$y, t e clai# o pri@ate respondents a=ainst petitioner &AL is a #oney clai# or the #issin= lu==a=es, a inancial de#and, that the law re"uires to be suspended pendin= the rehabilitation proceedin=s. ,on0suspension o claims against guarantors and sureties solidaril* liable with debtor 4WSS @s. 3on. 2away 81cept ) en a $etter o! cred"t spec"!"ca$$y st"pu$ates ot er)"se, t e ob$"#at"on o! t e ban%s "ssu"n# $etters o! cred"t are so$"dary )"t t at

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

99 o% $&&

o! t e person or ent"ty re2uest"n# !or "ts "ssuance, t e same be"n# a d"rect, pr"mary, abso$ute and de!"n"te underta%"n# to pay t e bene!"c"ary upon t e presentat"on o! t e set o! documents re2u"red t ere"n. 'e"n# a so$"dary ob$"#at"on, t e $etter o! cred"t ere "s e1c$uded !rom t e >ur"sd"ct"on o! t e re ab"$"tat"on court.

(urpose o #uspension o actions or claims against the corporation SobreBuanite, et.al., @s. ASB 2e@elop#ent %orp T e purpose !or t e suspens"on o! t e proceed"n#s "s to prevent a cred"tor !rom obta"n"n# an advanta#e or pre!erence over anot er and to protect and preserve t e r"# ts o! party $"t"#ants as )e$$ as t e "nterest o! t e "nvest"n# pub$"c or cred"tors. (uc suspens"on "s "ntended to #"ve enou# breat "n# space !or t e mana#ement comm"ttee or re ab"$"tat"on rece"ver to ma%e t e bus"ness v"ab$e a#a"n, )"t out av"n# to d"vert attent"on and resources to $"t"#at"ons "n var"ous !ora. T e suspens"on )ou$d enab$e t e mana#ement comm"ttee or re ab"$"tat"on rece"ver to e!!ect"ve$y e1erc"se "ts0 "s po)ers !ree !rom any >ud"c"a$ or e1tra.>ud"c"a$ "nter!erence t at m"# t undu$y "nder or prevent t e GrescueH o! t e debtor company.

H#erious #ituation TestI &ryce %orporation @s. %A. Rece"vers )"$$ be appo"nted ) enever+ 1. necessary "n order to preserve t e r"# ts o! t e $"t"#ants* and0or 2. necessary "n order to protect t e "nterest o! t e pub$"c . c$ear and "mm"nent dan#er o! $os"n# corporat"on assets "! a rece"ver "s not appo"nted.

. o! %no)n prob"ty R patr"ot"sm . )0 reco#n"Ded competence "n soc"a$ R econom"c d"sc"p$"nes . Aa>or"ty o! ,omm"ss"oners, "nc$ , a"rperson, s a$$ be members o! P "$ 'ar. 4.3. . , a"rperson "s ,8< o! t e ,omm"ss"on. . , a"rperson s a$$ . e1ecute R adm"n"ster po$"c"es, dec"s"ons, orders, reso$ut"ons approved by ,omm"ss"on A=. ave #en e1ecut"ve d"rect"on R superv"s"on o! )or% R operat"on o! ,omm"ss"on and "ts members, bod"es, boards, o!!"ces, personne$, and a$$ adm"n b"D 4.4. . (a$ary o! , a"rperson R ,omm"ss"oners s a$$ be . !"1ed by Pres . based on ob>ect"ve c$ass"!"cat"on system . at a sum comparab$e to members o! Aonetary 'oard and commensurate to "mportance attac ed to pos"t"on 4.5. . ,omm"ss"on o$ds mt#s at $east once a )% <R as o!ten as necessary upon ca$$ o! , a"rperson or upon re2uest o! 3 ,omm"ss"oners. . =ot"ce o! mt# "s #"ven to a$$ ,omm"ss"oners and presence o! 3 ,omm"ss"oners const"tutes 2uorum. ;n absence o! , a"rperson, t e most sen"or ,omm"ss"oner acts as pres"d"n# o!!"cer. 4.@. . ,omm"ss"on may de$e#ate any o! "ts !cns to any dept 0 o!c o! t e ,omm"ss"on, an "nd"v"dua$ ,omm"ss"oner or sta!! member o! ,omm"ss"on e1cept "ts . rv) 0 appe$$ate aut or"ty A=. po)er to adopt, a$ter, supp$ement any ru$e . ,omm"ss"on may rv) upon o)n "n"t"at"ve or upon pet"t"on o! party any act"on o! dept 0 o!c, "nd"v"dua$ ,omm"ss"oner, or sta!! member o! ,omm"ss"on. (ec @, RA 7799 ;ndemn"!"cat"on and Respons"b"$"t"es o! ,omm"ss"oners. @.1. . ,omm"ss"on s a$$ "ndemn"!y ea ,omm"ss"oner and o!!"c"a$s o! ,omm"ss"on, "nc$ personne$ per!orm"n# superv"s"on R e1am !cns !or a$$ costs R e1penses reasonab$y "ncurred "n connect"on )0 any c"v"$ 0 cr"m"na$ act"ons, su"ts, proceed"n#s to )0c t ey may be or made party by reason o! t e"r !cns 0 dut"es, un$ess t ey&re !"na$$y ad>ud#ed to be $"ab$e !or #ross ne#$"#ence 0 m"sconduct. . ;n sett$ement 0 comprom"se, "ndemn"!"cat"on "s prov"ded on$y "n connect"on )0 suc matters covered by sett$ement as to )0c ,omm"ss"on "s adv"sed by e1terna$ counse$ t at persons to be "ndemn"!"ed d"dn&t comm"t any #ross ne#$"#ence 0 m"sconduct. . ,osts R e1penses "n de!end"n# act"on, su"t, proceed"n# may be pd by ,omm"ss"on "n advance o! !"na$ d"spos"t"on upon rece"pt o! underta%"n# by or on be a$! o! ,omm"ss"oner, o!!"cer, emp$oyee to repay amt advanced s $d "t be determ"ned by ,omm"ss"on t at e 0 s e "sn&t ent"t$ed. @.2. . ,omm"ss"oners, o!!"cers, emp$oyees o! ,omm"ss"on ) o )"$$!u$$y v"o$ate t "s ,ode <R are #u"$ty o! ne#$"#ence, abuse, ma$!easance or !a"$ to e1erc"se e1traord"nary d"$"#ence "n per!ormance o! dut"es s a$$ be e$d $"ab$e. . ("m"$ar respons"b"$"ty app$"es to ,omm"ss"oners, o!!"cers, emp$oyees o! ,omm"ss"on !or 1. d"sc$osure o! "n!o, d"scuss"on, reso$ut"on o! ,omm"ss"on o! con!"dent"a$ nature <R abt con!"dent"a$ operat"ons o! ,omm"ss"on, un$ess d"sc$osure "s . "n connect"on )0 o!!"c"a$ !cns )0 ,omm"ss"on <R

<(. SE% 1E'1*A)I+ATI') 2E%1EE P- 9/2.A A( AA8=-8'r=aniFation (ec 4, RA 7799 Adm"n"strat"ve A#ency. 4.1. . T "s ,ode "s adm"n"stered by (8, as co$$e#"a$ body composed o! , a"rperson and 4 ,omm"ss"oners . appo"nted by Pres !or term o! 7y ea . ) o serve as suc unt"$ successor "s appo"nted R 2ua$"!"ed . ,omm"ss"oner appo"nted to !"$$ vacancy pr"or to e1p"rat"on o! term !or )0c "s 0 er predecessor )as appo"nted, serves on$y !or une1p"red port"on o! term. . En$ess conte1t "nd"cates ot er)"se, G,omm"ss"onerH "nc$ , a"rperson. 4.2. . ,omm"ss"oners must be . natura$.born c"t"Dens . at $east 4/y !or , a"rperson and at $east 35y !or ,omm"ss"oners . o! #ood mora$ c aracter . o! un2uest"onab$e "nte#r"ty

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$00 o% $&&

. )0 pr"or aut or"Dat"on o! ,omm"ss"oners 2. use o! suc "n!o !or persona$ #a"n or to detr"ment o! #ov&t, t e ,omm"ss"on, 3rd part"es . -ata 0 "n!o re2u"red to be subm"tted to Pres and 0 or ,on#ress or "ts comm"ttee <R to be pub$"s ed s a$$ not be con!"dent"a$. (ec 7, RA 7799 Reor#an"Dat"on. 7.1. . ,omm"ss"on "s aut or"Ded to prov"de !or "ts reor#an"Dat"on, to stream$"ne structure R operat"ons, up#rade BR component and enab$e "t to more e!!"c"ent$y R e!!ect"ve$y per!orm !cns R e1erc"se po)ers. 7.2. . A$$ pos"t"ons o! ,omm"ss"on are #overned by compensat"on R pos"t"on c$ass"!"cat"on systems R 2ua$"!"cat"on standards approved by ,omm"ss"on based on compre ens"ve >ob ana$ys"s R aud"t o! actua$ dut"es R respons"b"$"t"es. . ,ompensat"on p$an s a$$ be . comparab$e )0 preva"$"n# p$an "n 'an#%o (entra$ and ot er #ov&t !"nanc"a$ "nst"tut"ons A=. sub>ect to per"od"c rv) by ,omm"ss"on no more t an once every 2y )0o pre>ud"ce to year$y mer"t rv)s 0 "ncreases based on product"v"ty R e!!"c"ency. . ,omm"ss"on s a$$ be e1empt !r $a)s, ru$es, re#u$at"ons on compensat"on, pos"t"on c$ass"!"cat"on, 2ua$"!"cat"on standards. . ,omm"ss"on s a$$ endeavor to ma%e "ts system con!orm as c$ose$y as poss"b$e )0 ,ompensat"on R Pos"t"on ,$ass"!"cat"on Act o! 1979. (ec 7@, RA 7799 Repea$"n# ,$ause. . Rev"sed (ecur"t"es Act ('P 177) "n "ts ent"rety A=- (ec 2, 4, 7 o! P- 9/2A as amended, are repea$ed. . A$$ ot er $a)s, orders, ru$es, re#u$at"ons, or parts t ereo!, "ncons"stent )0 t "s ,ode are repea$ed or mod"!"ed. Po)ers and :unct"ons (ec 3. . ,omm"ss"on as abso$ute >ur"sd"ct"on, superv"s"on, contro$ over a$$ corps, partners "ps, assns, ) o are #rantees o! pr"mary !ranc "se and 0 or $"cense or perm"t "ssued by #ov&t to operate "n P "$s . ;t as po)er to en$"st a"d o! any and a$$ en!orcement a#enc"es o! #ov&t, c"v"$ or m"$"tary. (ec @. . ,omm"ss"on as !! po)ers+ a. "ssue pre$"m 0 permanent "n>unct"ons, pro "b"tory 0 mandatory, ) ere "t as >ur"sd"ct"on (Ro, s a$$ app$y) b. pun"s !or contempt o! ,omm"ss"on, d"rect R "nd"rect, "n accordance )0 Ro, c. compe$ o!!"cers o! corp 0 assn re#"stered by "t to ca$$ mt#s o! stoc% o$ders 0 members under "ts superv"s"on d. pass upon va$"d"ty o! "ssuance R use o! pro1"es R vot"n# trust a#reements !or absent stoc% o$ders 0 members e. "ssue subpoena duces tecum and summon )"tnesses to appear "n proceed"n#s o! ,omm"ss"on* "n appropr"ate cases order searc R se"Dure or cause searc R se"Dure o! docs, papers, !"$es, records, boo%s o! accts o! ent"ty under "nvest"#at"on !. "mpose !"nes and 0 or pena$t"es !or v"o$at"on o! t "s -ecree, $a)s "mp$emented by ,omm"ss"on, ru$es, etc #. aut or"De estab$"s ment o! stoc% e1c an#es, commod"ty

e1c an#es, ot er s"m"$ar or#s A=- superv"se R re#u$ate t e same* "nc$ aut or"ty to determ"ne t e"r number, s"De, $ocat"on . pass upon, re!use, deny, a!ter consu$tat"on )0 'o;, -ept o! ;ndustry, =8-A or ot er #ov&t a#ency, t e app$"cat"on !or re#"strat"on o! corp, partners "p, assn, or# )0"n "ts >ur"sd"ct"on, "! not cons"stent )0 nat&$ econom"c po$"c"es ". suspend, revo%e, a!ter not"ce R ear"n#, t e !ranc "se 0 cert o! re#"strat"on o! corp, partners "p, assn, upon any o! #rounds prov"ded by $a), "nc$+ 1. !raud "n procur"n# cert o! re#"strat"on 2. ser"ous m"srepresentat"on as to ) at corp can do or "s do"n# 3. re!usa$ to comp$y 0 de!"ance o! $a)!u$ order o! ,omm"ss"on restra"n"n# comm"ss"on o! acts )0c )ou$d amt to #rave v"o$at"on o! !ranc "se 4. cont"nuous "noperat"on !or at $east 5y 5. !a"$ure to !"$e by.$a)s )0"n re2u"red per"od @. !a"$ure to !"$e reports "n !orms determ"ned by ,omm"ss"on )0"n per"od >. e1erc"se ot er po)ers as "mp$"ed, necessary, "nc"denta$ to e1press po)ers . Bear"n#s are conducted by ,omm"ss"on <R by ,omm"ss"oner <R ot er bod"es, boards, comm"ttees and 0 or o!!"cer created 0 des"#nated by ,omm"ss"on !or t e purpose. -ec"s"on, ru$"n#, order may be appea$ed to ,omm"ss"on en banc )0"n 3/d a!ter rece"pt by appe$$ant o! not"ce o! dec"s"on, ru$"n#, order. . ,omm"ss"on s a$$ promu$#ate ru$es o! procedures to #overn proceed"n#s, ear"n#s, appea$s. . A##r"eved party may appea$ order, dec"s"on, ru$"n# o! ,omm"ss"on en banc to (, by pet"t"on !or rv). (ec 5, RA 7799 Po)ers and :unct"ons o! t e ,omm"ss"on. 5.1. . ,omm"ss"on s a$$ act )0 transparency and ave po)ers R !cns prov"ded by t "s ,ode, P- 9/2A, ,orp ,ode, ;nvestment Bouses 5a), :"nanc"n# ,ompany Act, ot er $a)s. . ,omm"ss"on, po)ers R !cns+ a. ave >ur"sd"ct"on R superv"s"on over corp, partners "p, assn ) o are #rantees o! pr"mary !ranc "ses and 0 or $"cense 0 perm"t "ssued by #ov&t b. !ormu$ate po$"c"es R recommendat"ons on "ssues re secur"t"es mar%et, adv"se ,on#ress R #ov&t a#enc"es on secur"t"es mar%et, propose $e#"s$at"on and amendments c. approve, re>ect, suspend, revo%e, re2u"re amendments to re#"strat"on statements, re#"strat"on R $"cens"n# app$"cat"ons d. re#u$ate, "nvest"#ate, superv"se act"v"t"es o! persons to ensure comp$"ance e. superv"se, mon"tor, suspend, ta%e over act"v"t"es o! e1c an#es, c$ear"n# a#enc"es, ot er (R<s !. "mpose sanct"ons #. prepare, approve, amend, repea$ ru$es, re#u$at"ons, orders* "ssue op"n"ons, prov"de #u"dance on and superv"se comp$"ance )0 suc ru$es . en$"st a"d o! and 0 or deput"De en!orcement a#enc"es o! #ov&t, c"v"$ or m"$"tary as )e$$ as pvt "nst"tut"on, corp, !"rm, assn or person "n "mp$ementat"on ". "ssue cease R des"st orders >. pun"s !or contempt o! ,omm"ss"on, d"rect R "nd"rect, "n accordance )0 Ro, %. compe$ o!!"cers o! corp or assn to ca$$ mt#s o! stoc% o$ders 0 members under "ts superv"s"on $. "ssue subpoena duces tecum, summon )"tnesses to appear "n proceed"n#s o! ,omm"ss"on, order e1am, searc , se"Dure o! docs,

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$0$ o% $&&

papers, !"$es, records, ta1 returns, boo%s o! accts o! ent"ty under "nvest"#at"on m. suspend, revo%e, a!ter not"ce R ear"n# t e !ranc "se 0 cert o! re#"strat"on o! corp, partners "p, assn, upon #rounds prov"ded by $a) n. e1erc"se ot er po)ers prov"ded by $a) as )e$$ as t ose "mp$"ed !r, or )0c are necessary 0 "nc"denta$ to e1press po)ers JJJ 6ur"sd"ct"on (ec 5, RA 7799 Po)ers and :unct"ons o! t e ,omm"ss"on. JJJ 5.2. . ,omm"ss"on&s >ur"sd"ct"on over cases under (ec 5 P- 9/2A "s trans!erred to ,ourts o! #en >ur"sd"ct"on <R RT,. . (, may des"#nate RT, branc es t at e1erc"se >ur"sd"ct"on over t ese cases. %ases (ro Catindig: Read Espino and Eas*call cases together. Read Cualoping and (rovident cases together. Compare and contrast. 1E4'(AL 61'4 E4&L':4E)T '6 %'1&'1ATE '66I%E1S )'T WIT3I) 5U1IS2I%TI') '6 )L1% Espino @. )L1% 0 ! corporate o icer;s dismissal is alwa*s corporate act and J or intra0corporate controvers*. That nature isnAt altered b* reason J wisdom wJc Board ma* have in ta&ing such action. 0 That Espino sought pa*ment o bac&wages, other bene its, moral 7 exemplar* damages, att*;s ees in complaint or illegal dismissal will not prevent #EC r exercising $urisdiction under (/ FGC!. )L1% 3AS 5U1IS2I%TI') '(E1 %ASE I)('L(I)* N'66I%E1O W3'SE &'SITI') IS )'T &1'(I2E2 6'1 I) T3E B:ELAWS A)2 W3' WAS )'T ELE%TE2 B: T3E B'A12 '6 2I1E%T'1S Easycall %o##unications &hils Inc @. Kin= 0 't had to be irst established that the person removed J dismissed was a corporate o icer be ore removal J dismissal could properl* all wJin $urisdiction o #EC and not ,)RC. 0 HCorporate o icersI in context o (/ FGC! are those o icers o corp who are given that character either b* Corp Code or b* b*0 laws. 3nder #ec C? o Corp Code, the Hcorporate o icersI are the pres, sec, treas and such other o icers as provided or in b*0laws. 0 !n Ho iceI is created b* charter o the corp2 the o icer is elected b* directors J stoc&holders. .n the other hand, an emplo*ee occupies no o c and generall* is emplo*ed not b* action o directors J stoc&holders but b* managing o icer who also determines compensation to be pd. 1E*ULAT'1: A)2 A25U2I%AT'1: 6U)%TI')S '6 SE% 2ISTI)*UIS3E2 SE% @. %A, %ualopin= Securities and 6idelity Trans ers 0 #EC has both regulator* !,/ ad$udicative unctions. 0 3nder its regulator* responsibilities, #EC ma*

0 pass upon applications or, suspend, revo&e <a ter notice 7 hearing8, certi icates o registration o corps, partnerships, assn <excl cooperatives, homeowners; assn, labor unions8 0 compel legal 7 regulator* compliances 0 conduct inspections 0 impose ines J penalties or violations o Revised #ecurities !ct, implementing rules 7 directives o #EC 0 Kusticiable controvers* such as can occasion exercise o #EC;s exclusive $urisdiction would re+uire assertion o right b* proper part* against another who, in turn, contests it. 't is one instituted b* 7 against parties having interest in sub$ect matter appropriate or $udicial determination predicated on given state o acts. That controvers* must be raised b* part* entitled to maintain action. -eAs the person to whom right to see& $udicial redress J relie belongs wJc can be en orced against part* charged wJ having been responsible or, or to have given rise to, the cause o action. ! person J entit* tas&ed wJ power to ad$udicate stands neutral 7 impartial and acts on basis o admissible representations o parties. 0 'n this case, the proper parties that can bring the controvers* 7 can cause exercise b* #EC o its orig 7 exclusive $urisdiction would be all or an* o those who are adversel* a ected b* trans er o pil ered certi icates o stoc&. !n* peremptor* $udgment b* #EC, wJo such proceedings having irst been initiated, would be precipitate. 2ETE14I)ATI') '6 W3I%3 '6 TW' ST'%K A)2 T1A)S6E1 B''KS IS (ALI2 )'T A) I)T1AE%'1&'1ATE 2IS&UTE &ro@ident International 1esources %orp @. 5oa"uin T. (enus 0 #ECAs regulator* authorit* over pvt corps encompasses a wide margin o areas, touching nearl* all o corpAs concerns. 0 3nder its regulator* responsibilities, #EC ma* 0 pass upon applications or, suspend, revo&e <a ter notice 7 hearing8, certi icates o registration o corps, partnerships, assn <excl cooperatives, homeowners; assn, labor unions8 0 compel legal 7 regulator* compliances 0 conduct inspections 0 impose ines J penalties or violations o Revised #ecurities !ct, implementing rules 7 directives o #EC 0 Considering that the #EC, a ter notice 7 hearing, has regulator* power to revo&e corporate ranchise L r wJc a corp owes its legal existence, #EC must li&ewise have lesser power o merel* recalling and canceling #TB that was erroneousl* registered. 0 !s regulator* bod*, it is #ECAs dut* to ensure that thereAs onl* one set o #TB or ea corp. )L1% 3AS )' 5U1IS2I%TI') '(E1 %ASE I)('L(I)* )')E 1EELE%TI') '6 2I1E%T'1 ET%. &earson and *eor=e ,SE Asia0 Inc @. )L1% 0 !n* +uestion relating or incident to election o new Board o /irectors, non0reelection o )lorente as /irector, his loss o position o %anaging /irector, or abolition o said o c are intra0 corporate matters. /isputes arising there rom are intra0corporate disputes wJc, i unresolved wJin corporate structure, ma* be resolved in appropriate action onl* b* #EC pursuant to its authorit* under #ec ? o (/ FGC!. 0 This isnAt a case o dismissal. The matter o whom to elect is a prerogative that belongs to Board, and involves exercise o deliberate choice and acult* o discriminative selection. 5enerall*, the relationship o person to a corp, whether as o icer

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$02 o% $&&

or as agent or emplo*ee, isnAt determined b* nature o the svcs per ormed, but b* incidents o relationship as the* actuall* exist.

. (anct"ons "n Ro, !or !a"$ure to ava"$ o!, or re!usa$ to comp$y )0 modes o! d"scovery app$y. . ;n add"t"on, court may upon mot"on, dec$are party non.su"ted or as "n de!au$t, as case may be, "! re!usa$ to comp$y )0 mode o! d"scovery "s patent$y un>ust"!"ed. Pre.tr"a$ (Ru$e 4) (ec 1. Pre.tr"a$ con!erence* mandatory nature. . 40"n 5d a!ter per"od !or ava"$ment o!, and comp$"ance )0 modes o! d"scovery, ) "c ever comes $ater, court "ssues R serves order . sett"n# t e case !or pre.tr"a$ con!erence A=. d"rect"n# part"es to subm"t pre.tr"a$ br"e!s . Part"es s a$$ !"$e )0 court and !urn"s ea ot er cop"es o! pre.tr"a$ br"e! to ensure rece"pt by court R ot er party at $east 5d be!ore date set !or pre.tr"a$. . Part"es set !ort "n pre.tr"a$ br"e!s !!+ 1. br"e! statement o! nature o! case* summar"De t eory o! party "n c$ear R conc"se $an#ua#e 2. a$$e#at"ons e1press$y adm"tted by e"t er 0 bot part"es 3. a$$e#at"ons deemed adm"tted by e"t er 0 bot part"es 4. docs not spec"!"ca$$y den"ed under oat by e"t er 0 bot part"es 5. amendments to p$ead"n#s @. statement o! "ssues, )0c separate$y summar"Des !actua$ R $e#a$ "ssues 7. names o! )"tnesses to be presented* summary o! t e"r test"mony as conta"ned "n a!!"dav"ts 7. ot er pcs o! ev"dence 9. spec"!"c proposa$s !or am"cab$e sett$ement 1/. poss"b"$"ty o! re!erra$ to med"at"on or ot er a$ternat"ve modes o! d"spute reso$ut"on 11. proposed sc edu$e o! ear"n#s 12. ot er matters (ec 2. =ature and purpose o! pre.tr"a$ con!erence. . -ur"n# pre.tr"a$ con!erence, court s a$$ ensure t at part"es cons"der !!+ 1. poss"b"$"ty o! am"cab$e sett$ement 2. re!erra$ to med"at"on 0 ot er !orms o! d"spute reso$ut"on 3. !acts t at need not be proven, bec t ey&re o! >ud"c"a$ not"ce or e1press$y 0 deemed adm"tted 4. amendments to p$ead"n#s 5. poss"b"$"ty o! obta"n"n# st"pu$at"ons R adm"ss"on o! !acts R docs @. ob>ect"ons to adm"ss"b"$"ty o! test"mon"a$, documentary, ot er ev"dence 7. ob>ect"ons to !orm 0 substance o! a!!"dav"t, or part t ereo! 7. s"mp$"!"cat"on o! "ssues 9. poss"b"$"ty o! subm"tt"n# case !or dec"s"on on bas"s o! pos"t"on papers, a!!"dav"ts, documentary R rea$ ev"dence 1/. sc edu$e o! ear"n# dates 11. ot er matters (ec 3. Term"nat"on. . Pre$"m con!erence "s term"nated not $ater t an 1/d a!ter commencement, 4<= part"es a#reed to sett$e am"cab$y. (ec 4. 6ud#ment be!ore pre.tr"a$. . ;!, a!ter subm"ss"on o! pre.tr"a$ br"e!s, court determ"nes t at upon cons"derat"on o! p$ead"n#s, a!!"dav"ts, ot er ev"dence subm"tted, a >ud#ment may be rendered, court may order part"es to !"$e s"mu$taneous$y respect"ve memoranda )0"n non.e1tend"b$e 2/d !r rece"pt o! order. . ,ourt renders >ud#ment, !u$$ or ot er)"se, not $ater t an 9/d !r e1p"rat"on o! per"od to !"$e memoranda.

/.'(A2$%(P%(A'# $%.'(%B#(S/#S 9A1 .%. 01222042S$: ,ases ,overed (Ru$e 1) (ec 1. a. ,ases covered. . T ese Ru$es #overn "n c"v"$ cases "nvo$v"n#+ 1. dev"ces 0 sc emes emp$oyed by <R act o! board o! d"rectors, b"D assoc"ates, o!!"cers, partners, amount"n# to !raud 0 m"srepresentat"on )0c may be detr"menta$ to pub$"c and 0 or stoc% o$ders, partners, members o! corp, partners "p, assn 2. controvers"es . out o! "ntra.corporate, partners "p, assn re$at"ons . bet)een R amon# stoc% o$ders, members, assoc"ates . bet)een any or a$$ o! t em and t e corp, partners "p, assn o! )0c t ey&re stoc% o$ders, members, assoc"ates 3. controvers"es "n e$ect"on 0 appo"ntment o! d"rectors, trustees, o!!"cers, mana#ers o! corp, partners "p, assn 4. der"vat"ve su"ts 5. "nspect"on o! corp boo%s b. Pro "b"t"on a#a"nst nu"sance and arassment su"ts. . =u"sance R arassment su"ts are pro "b"ted. ;n determ"n"n# ) et er su"t "s nu"sance 0 arassment su"t, court cons"ders+ 1. e1tent o! s are o$d"n# 0 "nterest o! "n"t"at"n# stoc% o$der 0 member 2. sub>ect matter o! su"t 3. $e#a$ R !actua$ bas"s 4. ava"$ab"$"ty o! appra"sa$ r"# ts 5. pre>ud"ce to corp, partners "p, assn "n re$at"on to re$"e! sou# t . ;n case o! nu"sance 0 arassment su"ts, court may, motu propr"o or upon mot"on, d"sm"ss t e case. -"st"n#u"s !rom (, ;nter"m Ru$es o! Procedure on ,orporate Re ab"$"tat"on Aodes o! -"scovery (Ru$e 3) (ec 1. ;n #enera$. . A party can on$y ava"$ o! any o! modes o! d"scovery not $ater t an 15d !r >o"nder o! "ssues. (ec 2. <b>ect"ons. . Any mode o! d"scovery may be ob>ected to . )0"n 1/d !r rece"pt o! d"scovery dev"ce A=. on$y on #round t at t e matter re2uested "s patent$y "ncompetent, "mmater"a$, "rre$evant, pr"v"$e#ed . ,ourt s a$$ ru$e on ob>ect"ons not $ater t an 15d !r !"$"n#. (ec 3. ,omp$"ance. . ,omp$"ance )0 mode o! d"scovery s a$$ be made )0"n 1/d !r rece"pt o! d"scovery dev"ce <R "! t ere are ob>ect"ons, !r rece"pt o! ru$"n# o! court. (ec 4. (anct"ons.

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$0' o% $&&

(ec 5. Pre.tr"a$ order* >ud#ment a!ter pre.tr"a$. . Proceed"n#s "n pre.tr"a$ are recorded. . 40"n 1/d a!ter term"nat"on o! pre.tr"a$, court "ssues order )0c rec"tes . matters ta%en up "n con!erence . act"ons ta%en . amendments a$$o)ed "n p$ead"n#s . a#reements 0 adm"ss"ons made by part"es . ,ourt s a$$ ru$e on ob>ect"ons to or comments on adm"ss"b"$"ty o! documentary 0 ot er ev"dence, "nc$ a!!"dav"t or part t ereo!. . ( $d act"on proceed to tr"a$, order de!"nes R $"m"ts "ssues and s a$$ str"ct$y !o$$o) !orm "n Anne1 CAC. . ,ontents o! order contro$ subse2uent course o! act"on, un$ess mod"!"ed be!ore tr"a$ to prevent man"!est "n>ust"ce. . A!ter pre.tr"a$, court may render >ud#ment, !u$$ or part"a$, as ev"dence presented dur"n# pre.tr"a$ may )arrant. 8$ect"on ,ontests (Ru$e @) (ec 2. -e!"n"t"on. . 8$ect"on contests ? any controversy 0 d"spute "nvo$v"n# t"t$e 0 c$a"m to any e$ect"ve o!c "n stoc% 0 non.stoc% corp, va$"dat"on o! pro1"es, manner R va$"d"ty o! e$ect"ons, 2ua$"!"cat"ons o! cand"dates, "nc$ proc$amat"on o! )"nners to o!c o! d"rector, trustee, ot er o!!"cer d"rect$y e$ected by stoc% o$ders "n c$ose corp or by members o! non.stoc% corp ) ere art"c$e o! "ncorporat"on or by.$a)s so prov"de. ;nspect"on o! ,orporate 'oo%s and Records (Ru$e 7) (ec 1. ,ases covered. . T "s Ru$e app$"es to d"sputes e1c$us"ve$y "nvo$v"n# r"# ts o! stoc% o$ders 0 members to "nspect boo%s R records and 0 or to be !urn"s ed )0 !"nanc"a$ statements o! corp under ,orp ,ode. (ec 2. ,omp$a"nt. . ;n add"t"on to re2u"rements "n (ec 4 Ru$e 2, comp$a"nt must state !!+ 1. case "s !or en!orcement o! p$a"nt"!!Is r"# t o! "nspect"on o! corporate orders 0 records and 0 or to be !urn"s ed )0 !"nanc"a$ statements 2. demand !or "nspect"on R copy"n# o! boo%s R records and 0 or to be !urn"s ed )0 !"nanc"a$ statements 3. re!usa$ o! de!endant to #rant demands o! p$a"nt"!! and reasons #"ven 4. reasons ) y re!usa$ to #rant demands o! p$a"nt"!! "s un>ust"!"ed R "$$e#a$, stat"n# $a) R >ur"sprudence (ec 7. -ec"s"on. . ,ourt renders dec"s"on based on p$ead"n#s, a!!"dav"ts, documentary R ot er ev"dence attac ed )0"n 15d !r rece"pt o! $ast p$ead"n#. . -ec"s"on order"n# de!endants to a$$o) "nspect"on and 0 or to !urn"s cop"es s a$$ a$so . order p$a"nt"!! to depos"t est"mated cost o! manpo)er necessary to produce boo%s R records and cost o! copy"n# A=. state $"m"tat"ons R cond"t"ons to e1erc"se o! r"# t -er"vat"ve (u"ts (Ru$e 7) (ec 1. -er"vat"ve act"on. . (toc% o$der 0 member may br"n# act"on "n t e name o! corp 0 assn prov"ded t at+

1. e )as stoc% o$der 0 member at t"me t e acts 0 transact"ons occurred and t e t"me t e act"on )as !"$ed 2. e e1erted a$$ reasonab$e e!!orts, and a$$e#es t e same )0 part"cu$ar"ty "n comp$a"nt, to e1 aust a$$ remed"es ava"$ab$e under art"c$es o! "ncorporat"on, by.$a)s, $a)s 0 ru$es #overn"n# t e corp 0 partners "p to obta"n re$"e! e des"res 3. no appra"sa$ r"# ts are ava"$ab$e !or acts comp$a"ned o! 4. su"t "sn&t nu"sance or arassment su"t . "n nu"sance 0 arassment su"t, court s a$$ d"sm"ss case. (ec 2. -"scont"nuance. . -er"vat"ve act"on s a$$ not be d"scont"nued, comprom"sed, sett$ed )0o approva$ o! court. . -ur"n# pendency o! act"on, any sa$e o! s ares o! comp$a"n"n# stoc% o$ders s a$$ be approved by court. . ;! court determ"nes t at "nterest o! stoc% o$ders 0 members are substant"a$$y a!!ected by d"scont"nuance, comprom"se, sett$ement, t e court may d"rect t at not"ce, by pub$"cat"on or ot er)"se, be #"ven to stoc% o$ders 0 members ) ose "nterest )"$$ be a!!ected. Aana#ement ,omm"ttee (Ru$e 9) (ec 1. ,reat"on o! a mana#ement comm"ttee. . As "nc"dent to cases !"$ed under t ese Ru$es <R ;nter"m Ru$es ,orporate Re ab"$"tat"on, party may app$y !or appo"ntment o! m#mt comm"ttee !or corp, partners "p, assn, ) en t ere&s "mm"nent dan#er o!+ 1. d"ss"pat"on, $oss, )asta#e, destruct"on o! assets 0 props 2. para$yDat"on o! b"D )0c may be pre>ud"c"a$ to m"nor"ty stoc% o$ders, part"es.$"t"#ants, pub$"c (ec 2. Rece"ver. . ;! court !"nds app$"cat"on to be su!!"c"ent "n !orm R substance, court "ssues order a. appo"nt"n# rcver o! %no)n prob"ty, "nte#r"ty, competence and )0o con!$"ct o! "nterest to ta%e over corp, partners "p, assn, spec"!y"n# suc po)ers "t deems appropr"ate b. !"1"n# bond o! rcver c. d"rect"n# rcver to ma%e report )0"n @/d !r t"me e assumes o!c d. pro "b"t"n# "ncumbent m#mt !r se$$"n#, encumber"n#, trans!err"n#, d"spos"n# any o! "ts props e1cept "n ord"nary course o! b"D e. d"rect"n# payment "n !u$$ o! adm"n e1penses "ncurred a!ter "ssuance o! order (ec 4. ,ompos"t"on o! t e mana#ement comm"ttee. . A!ter not"ce R ear"n#, court may appo"nt m#mt comm"ttee composed o! 3 members c osen by court. . ;n appo"ntment, !! 2ua$"!"cat"ons are cons"dered 1. e1pert"se R acumen to mana#e b"D s"m"$ar "n s"De R comp$e1"ty as t e corp, assn, partners "p to be put under m#mt comm"ttee 2. %no)$ed#e "n m#mt R !"nance 3. #ood mora$ c aracter, "ndependence, "nte#r"ty 4. $ac% o! con!$"ct o! "nterest 5. )"$$"n#ness R ab"$"ty to !"$e bond "n amt determ"ned by court . 40o $"m"t"n# #enera$"ty o! !!, member o! m#mt comm"ttee may be deemed to ave con!$"ct o! "nterest "! e "s 1. en#a#ed "n $"ne o! b"D )0c competes )0 corp, assn, partners "p sou# t to be p$aced under m#mt 2. d"rector, o!!"cer, stoc% o$der c ar#ed )0 m"sm#mt, d"ss"pat"on, )asta#e o! prop o! ent"ty under m#mt 3. re$ated by consan#u"n"ty 0 a!!"n"ty )0"n 4t c"v"$ de#ree to d"rector, o!!"cer, stoc% o$der c ar#ed )0 m"sm#mt, d"ss"pat"on, )asta#e o! props

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$0& o% $&&

(ec 5. Po)ers and !unct"ons o! t e mana#ement comm"ttee. . Epon assumpt"on to o!c o! m#mt comm"ttee, rcver renders report A=- turns over m#mt R contro$ o! ent"ty to m#mt comm"ttee. . A#mt comm"ttee as po)er to ta%e custody o! R contro$ assets R propert"es o)ned 0 possessed by ent"ty. . ;t s a$$ ta%e p$ace o! m#mt and board o! d"rectors, assume t e"r r"# ts R respons"b"$"t"es, and preserve assets R propert"es "n possess"on. . 40o $"m"t"n# #enera$"ty o! !ore#o"n#, m#mt comm"ttee e1erc"ses po)ers R !cns+ 1. "nvest"#ate acts, conduct, props, $"ab"$"t"es, !"nanc"a$ cond"t"on o! corp, assn, partners "p 2. e1am"ne under oat t e d"rectors R o!!"cers, ot er )"tnesses 3. report to court any !act ascerta"ned by "t perta"n"n# to causes o! prob$ems, !raud, m"sconduct, m"sm#mt, "rre#u$ar"t"es 4. emp$oy person0s suc as $a)yers, accountants, aud"tors, appra"sers, sta!! as necessary 5. report to court mater"a$ adverse c an#e "n b"D @. eva$uate e1"st"n# assets R $"ab"$"t"es, earn"n#s, operat"ons o! corp, assn, partners "p 7. determ"ne R recommend to court t e best )ay to sa$va#e R protect "nterest o! cred"tors, stoc% o$ders, pub$"c, "nc$ re ab o! t e corp, assn, partners "p 7. pro "b"t R report to court encumbrance, trans!er, d"spos"t"on o! debtorIs prop outs"de o! ord"nary course o! b"D or ) at&s a$$o)ed by court 9. pro "b"t R report to court payments made outs"de o! ord"nary course o! b"D 1/. ave un$td access to emp$oyees, prem"ses, boo%s, records, !"nanc"a$ docs dur"n# b"D rs 11. "nspect, copy, p otocopy, p oto#rap any doc, paper, boo%, acct, $etter, ) et er "n possess"on o! corp, assn, partners "p, ot er persons 12. #a"n entry "nto prop !or purposes o! "nspect"n#, measur"n#, survey"n#, p oto#rap "n# "t or any re$evant ob>ect 0 operat"on t ereon 13. br"n# to attn o! court any mater"a$ c an#e a!!ect"n# ent"tyIs ab"$"ty to meet ob$"#at"ons 14. revo%e reso$ut"ons passed by 81ecut"ve ,omm"ttee or 'oard o! -"rectors 0 Trustees or #overn"n# body o! ent"ty under m#mt and pass reso$ut"on "n subst"tut"on o! t e same 15. mod"!y, nu$$"!y, revo%e transact"ons )0c "t deems detr"menta$ 0 pre>ud"c"a$ 1@. recommend term"nat"on o! proceed"n#s R d"sso$ut"on o! ent"ty "! cont"nuance "n b"D "s no $on#er !eas"b$e 0 pro!"tab$e or no $on#er )or%s to best "nterest o! stoc% o$ders, part"es.$"t"#ants, cred"tors, pub$"c 17. app$y to court !or order 0 d"rect"ve to a"d "t "n e1erc"se o! po)ers R per!ormance o! dut"es 17. e1erc"se ot er po)ers con!erred upon "t by court (ec 7. Transact"ons deemed to be "n bad !a"t . . Transact"ons made by prev"ous m#mt and d"rectors are deemed !raudu$ent R resc"ss"b$e "! made . )0"n 3/d pr"or to appo"ntment o! rcver 0 m#mt comm"ttee <R . dur"n# t e"r "ncumbency as rcver 0 m#mt comm"ttee (ec 9. ;mmun"ty !rom su"t. . Rcver R members o! m#mt comm"ttee and persons emp$oyed by t em s a$$ not be sub>ect to act"on, c$a"m, demand "n connect"on )0 act done 0 om"tted by t em "n #ood !a"t "n e1erc"se o! t e"r !cns R po)ers.

. <!!"c"a$ acts R transact"ons o! rcver 0 m#mt comm"ttee approved 0 rat"!"ed by court render t em "mmune !r su"t "n connect"on )0 suc act 0 transact"on. (ec 12. -"sc ar#e o! t e mana#ement comm"ttee. . A#mt comm"ttee "s d"sc ar#ed R d"sso$ved under !!+ 1. court, on mot"on or motu propr"o, determ"ned t at necess"ty !or m#mt comm"ttee no $on#er e1"sts 2. by a#reement o! part"es 3. upon term"nat"on o! proceed"n#s . Epon d"sc ar#e R d"sso$ut"on, m#mt comm"ttee subm"ts !"na$ report R renders acct#. ,ases &U1&'SE A)2 )ATU1E '6 2E1I(ATI(E SUITS %hua @. %A 0 3nder #ec =@ o Corp Code in relation to #ec C=, where corp is in$ured part*, its power to sue is lodged wJ board o directors J trustees. !n individual stoc&holder is permitted to institute derivative suit on behal o corp where he holds stoc&s to protect J vindicate corporate rights, when o icials re use to sue, or are the ones to be sued, or hold control o the corp. 'n such actions, suing stoc&holder is nominal part*, wJ the corp as real part* in interest. 0 /erivative action is suit b* shareholder to en orce corporate cause o action. The corp is necessar* part* to the suit. The relie granted is $udgment against =rd person in avor o corp. #imilarl*, i corp has de ense to action against it and isnAt asserting it, stoc&holder ma* intervene 7 de end on behal o corp. 0 ,ot ever* suit iled in behal o corp is derivative suit. "or derivative suit to prosper, itAs re+uired that minorit* stoc&holder suing or and on behal o corp must allege in his complaint that heAs suing on derivative cause o action on behal o corp and other stoc&holders similarl* situated who ma* wish to $oin him. 0 'tAs condition sine +ua non that the corp be impleaded as part* bec not onl* is the corp an indispensable part*, but itAs also the present rule that it must be served wJ process. Kudgment must be made binding upon corp in order that the corp ma* get the bene it o suit and ma* not bring subse+uent suit against same de endants or same cause o action. The corp must be $oined as part* bec it is its cause o action thatAs being litigated and bec $udgment must be a res $udicata against it. )'T ALL ST'%K3'L2E1S K 4E4BE1S I)2IS&E)SABLE &A1TIES I) 2E1I(ATI(E SUIT A1E

Sy#aco Tradin= %orp @. Santos 0 .ne o the re+uisites o derivative suit is that the part* bringing suit shld be stoc&holder J member at the time o action J transaction complained o . 0 The right to sue derivativel* is an attribute o corporate ownership wJc re+uires that the in$ur* alleged be indirect as ar as stoc&holders J members are concerned, and direct onl* inso ar as corp is concerned. 0 The whole purpose o law authori9ing derivative suit is to allow stoc&holder J member to en orce rights wJc are derivative <secondar*8 in nature. ! derivative action is suit b* shareholder J member to en orce corporate cause o action. 0 ,ot all %"B!' members are indispensable parties in derivative suit. 'tAs enough that a member or minorit* o members ile derivative suit or and in behal o corp. ! ter all, members J stoc&holders who iled derivative suit are merel* nominal parties,

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$0( o% $&&

the real part*0in0interest being the corp or and in whose behal the suit is iled. !n* monetar* bene its under the decision shall pertain to the corp. A&&'I)T4E)T '6 4A)A*E4E)T %'44ITTEE (ALI2 5acinto @. 6irst Wo#enHs %redit %orp 0 "or minorit* stoc&holder to obtain appointment o interim mgmt committee, he must do more than merel* ma&e prima acie showing o denial o his right to share in concerns o the corp. -e must show that the corporate prop is in danger o being wasted 7 destro*ed and the bi9 o the corp is being diverted r the purpose or wJc it has been organi9ed and there is serious parali9ation o operations all to his detriment. 0 'tAs onl* in strong case where thereAs showing that the ma$orit* are clearl* violating chartered rights o minorit* and putting their interests in imminent danger that mgmt committee ma* be created. %ere disagreement among stoc&holders as to a airs o corp wouldnAt in itsel su ice as ground or appointment o mgmt committee. 0 !t least where thereAs no imminent danger o loss o corporate prop or o an* other in$ur* to stoc&holders, mgmt o corporate bi9 shldnAt be wrested awa* r dul* elected o icers, who are prima acie entitled to administer a airs o corp and placed in the hands o mgmt committee. 0 -owever, where dissension among stoc&holders is such that the corp canAt success ull* carr* on corporate cns the appointment o mgmt committee becomes imperative. A&&'I)T4E)T '6 4A)A*E4E)T %'44ITTEE )'T (ALI2 Sy %hi# @. Sy Siy 3o C Sons Inc 0 "or minorit* stoc&holder to obtain appointment o interim mgmt committee, he must do more than merel* ma&e prima acie showing o denial o his right to share in concerns o the corp. -e must show that the corporate prop is in danger o being wasted 7 destro*ed and the bi9 o the corp is being diverted r the purpose or wJc it has been organi9ed and there is serious parali9ation o operations all to his detriment. 0 The rationale or the need to establish con luence o the C re+uisites under #ec B Rule F b* applicant or appointment o mgmt committee is primaril* based upon act that such committee 7 rcver appointed b* court will immediatel* ta&e over mgmt o the corp, partnership, assn incl such power as appropriate, and an* o powers in #ec ? o the Rule. 0 3pon appointment o rcver, the elected J appointed o icers o corp are divested o mgmt o corp in avor o mgmt committee J rcver. #uch trans erence o mgmt will certainl* have negative, i not crippling e ect, on operations J a airs o corp not onl* wJ ban&s 7 other bi9 institutions including those abroad wJc it deals with. ! wall o uncertaint* is erected2 the short 7 long0term plans are disrupted, i not derailed. 0 The creation 7 appointment o mgmt committee 7 rcver is an extraordinar* 7 drastic remed* to be exercised wJ care2 and onl* when re+uirements under 'nterim Rules are shown. 'tAs a drastic course or bene it o minorit* stoc&holders, the parties0litigants or gen public are allowed onl* under pressing circumstances and, when thereAs inade+uate J ine ectual legal or other remedies or when the* have been exhausted. 0 ,either (/ FGC! and R! EDFF nor the 'nterim Rules o (rocedure de ine Mimminent danger.M M/angerM is a gen term, incl peril, $eopard*, ha9ard, ris&2 as used in the Rule, it re ers to exposure J liabilit* to in$ur*. M'mminentM re ers to something wJc is

threatening to happen at once, something close at hand, something to happen upon the instant, close although not *et happening, and on the verge o happening. 0 'n the absence o strong showing o imminent danger o dissipation, loss, wastage, destruction o assets J props o corp and paral*sis o bi9 operations, the mere apprehension o uture misconduct based upon prior mismanagement will not authori9e appointment o mgmt committee J rcver.

AoEAs @. %A 0 !ppointment o mgmt committee inevitabl* results in drastic summar* removal o all directors 7 o icers. 0 Where the corp is solvent, rcver will not be appointed bec o past misconduct and subse+uent mere apprehension o uture misdoing, where present situation and prospects or the uture are not such as to warrant receivership. 0 5en rule: Rcver or mgmt committee will not be appointed unless necessar* either to prevent raud, or to save prop r raud J threatened destruction, or at least in case o solvent corporation. The burden o proo is heav* one wJc re+uires clear showing that emergenc* exists. #imilarl*, rcver J mgmt committee shldnAt be appointed in action b* minorit* stoc&holder against corporate o icers or accounting where corp is solvent and going concern and rcver isnAt necessar* to preserve corporate prop pending accounting. 0 %gmt committee shldnAt be created when there was ade+uate remed* available to pvt respondents or li+uidation o unaccounted unds. !ppointment o rcver or going corp is last resort remed*, and shldnAt be emplo*ed when another remed* is available. &'WE1 T' %1EATE 4A)A*E4E)T %'44ITTEE I)%LU2ES &'WE1 T' 1E'1*A)I+E T3E SA4E &unon=bayan @. &unon=bayan 0 ! mgmt committee is tas&ed to manage, ta&e custod* o and control existing assets, unds, records o corp !,/ to determine the best wa* to protect interest o stoc&holders 7 creditors. 0 -aving the power to create mgmt committee, it ollows that RTC can order reorgani9ation o existing mgmt committee. #uch appointment o new members doesnAt mean creation o new mgmt committee. Existing mgmt committee wasnAt abolished.

<(I. T3E SE%U1ITIES 1E*ULATI') %'2E RA 7799 (2///)


LI%E)SI)* '6 B1'KE1S

)I%'LAS @s. %A 3.R. =o. 122757 27 Aarc 1997 RT, #ranted. ,A d"sm"ssed. :ebruary 19, 1977 ="co$as and 'uan entered "nto a Port!o$"o Aana#ement A#reement g ="co$as )"$$ mana#e 'uan&s stoc% transact"ons !or 3 mont s, )"t an automat"c rene)a$ c$ause.

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$0) o% $&&

Au#ust 19, 1977 'uan sou# t term"nat"on o! t e A#reement and re2uested an account"n# !rom ="co$as. T ree )ee%s a!ter, ="co$as demanded mana#ement !ees o! P@7,2@3.@7 !or 6une 3/, 6u$y 31 and Au#ust 19, 1977 as stated "n t e A#reement. g ;#nored. ="co$as !"$ed "n RT, a comp$a"nt !or co$$ect"on o! sum o! money. 'uan&s ans)er+ =ot ent"t$ed ? ="co$as m"smana#ed "s transact"ons resu$t"n# "n $osses. RT,+ 3ranted ? 'uan s ou$d pay ="co$as& mana#ement !ees. ,A reversed and d"sm"ssed+ ()eep"n# statement St at pro!"ts )ere #enerated by ="co$as& transact"onsT )ere unsubstant"ated S="co$as& pro!"t and $oss statements )ere re$evant and adm"ss"b$e, but t ey are not cred"b$e because se$!.serv"n#T. !nchor -oc&ing 5lass Corp. vs. White Cap. + T e statements s"mp$y tabu$ate t e number o! s ares ac2u"red !rom eac company, a co$umn !or pro!"t and t e $ast co$umn !or $oss. T e statements )ere not aut ent"cated by an aud"tor, nor by t e person ) o caused t e preparat"on o! t e same. (amp$e (tatement subm"tted by ="co$as+ GPro!"t R 5oss (tatement o! Atty. '$es"$o 'uan !or t e Per"od 8nded 6une 3/, 1977 ( ares ;ssue Pro!"t 5oss 1,5// P5-T P 7,2@5.@2H GT e $ed#er o! accounts as proo! o! t e transact"ons entered "nto on$y s o)s t e !o$$o)"n# data+ (1) dates "n ) "c t e stoc%s )ere ac2u"red* (2) c$ass"!"ed t e ac2u"red stoc%s to be "n $on# or s ort term trad"n#* (3) t e pr"ce o! eac stoc%* (4) ) "c companyIs stoc%s )ere ac2u"red* and, (5) t e tota$ amount pa"d !or eac stoc%. ;t does not s o) o) muc pro!"t )as rea$"Ded !rom eac transact"on.C (,+ ,A a!!"rmed. Port!o$"o Aana#ement A#reement states t at 'uan )ou$d pay ="co$as 2/V o! a$$ rea$"Ded pro!"ts every end o! t e mont as "s mana#ement !ees. CPro!"tsC \ Ce1cess o! return over e1pend"ture "n a transact"on or ser"es o! transact"onsC or Cser"es o! an amount rece"ved over t e amount pa"d !or #oods and serv"ces.C ="co$as bears burden o! prov"n# t at t e transact"on rea$"Ded #a"ns or pro!"ts. Pes, stoc% bro%ers are ent"t$ed to commerc"a$ !ees or compensat"on+ CRev"sed (ecur"t"es Act Ru$e 19.13. , ar#es !or (erv"ces Per!ormed. , ar#es by bro%ers or dea$ersLs a$$ be reasonab$e and not un!a"r$y d"scr"m"natory bet)een customers.C Bauer 7 Cie vs. .;/onnel+ Any !ee or comm"ss"on must be )"t due re#ard to re$evant c"rcumstances. 'ut ere, t e statements are "ncomp$ete, y"e$d"n# eas"$y to t e "nc$us"on or de$et"on o! certa"n matters.. T ere are no concrete bases or spec"!"cs as to t e met od o! arr"v"n# at t e amounts "nd"cated. ;t does not state ) en t e stoc%s )ere purc ased, t e type o! stoc%s () et er ,$ass CAC or C'C or common or pre!erred) bou# t, ) en t e stoc%s )ere so$d, t e ac2u"s"t"on and se$$"n# pr"ce o! eac stoc%, ) en t e pro!"ts, "! any, )ere de$"vered to t e

pr"vate respondent, t e cost o! sa!e%eep"n# or custody o! t e stoc%s, as )e$$ as t e ta1es pa"d !or eac transact"on. Bauer 7 Cie vs. .;/onne + 4 ere a pro!"t or $oss statement s o)s a $oss, t e statement must s o) "ncome and "tems o! e1pense to e1p$a"n t e met od o! determ"n"n# suc $oss. T ere )ere no cred"b$e documentary ev"dence (e.#. rece"pts o! t e transact"ons, order t"c%et, cert"!"cate o! depos"t* ) et er t e stoc% cert"!"cates )ere depos"ted "n a ban% or pro!ess"ona$ custod"an, and ot ers) to support "s c$a"m t at pro!"ts )ere "ndeed rea$"Ded. ="co$asIs comp$a"nt "s s"m"$ar to an act"on !or dama#es. T e recoverab$e dama#e not on$y be capab$e o! proo! but must actua$$y be proved )"t a reasonab$e de#ree o! certa"nty. T e a)ard"n# court must pos"t spec"!"c !acts as su!!"c"ent bas"s !or measur"n# compensatory or actua$ dama#es. 5ast$y, ="co$as can&t recover because e traded secur"t"es !or t e account o! ot ers )"t out t e necessary $"cense !rom t e (ecur"t"es and 81c an#e ,omm"ss"on ((8,), v"o$at"n# (8, 19 o! t e Rev"sed (ecur"t"es Act. !gba*ani+ Purpose \ protect t e pub$"c and stren#t en t e secur"t"es mec an"sm. !m Kur+ C. . ., an un$"censed person may not recover compensat"on !or serv"ces as a bro%er ) ere a statute or ord"nance re2u"r"n# a $"cense "s app$"cab$e and suc statute or ord"nance "s o! a re#u$atory nature, )as enacted "n t e e1erc"se o! t e po$"ce po)er !or t e purpose o! protect"n# t e pub$"c, re2u"res a $"cense as ev"dence o! 2ua$"!"cat"on and !"tness, and e1press$y prec$udes an un$"censed person !rom recover"n# compensat"on by su"t, or at $east man"!ests an "ntent to pro "b"t and render un$a)!u$ t e transact"on o! bus"ness by an un$"censed person.C W3E1E B'T3 &A1TIES A1E EDUALL: AT 6AULT, )EIT3E1 ')E %'UL2 3A(E 1E%'U1SE A*AI)ST T3E 'T3E1

ABA%US SE%U1ITIES %'1&'1ATI') @s. A4&IL 3.R. =o. 1@//1@ 27 :ebruary 2//@ 6actsA Abacus "s en#a#ed "n bus"ness as a bro%er and dea$er o! secur"t"es o! $"sted compan"es at t e P "$"pp"ne (toc% 81c an#e ,enter. <n Apr"$ 7, 1997, Amp"$ opened a cas account )"t Abacus !or "s transact"ons "n secur"t"es* Amp"$&s purc ases )ere cons"stent$y unpa"d !rom Apr"$ 1/ to 3/, 1997* Amp"$ !a"$ed to pay "n !u$$, or even >ust "s de!"c"ency, !or t e transact"ons on Apr"$ 1/ and 11, 1997* -esp"te Amp"$&s !a"$ure to cover "s "n"t"a$ de!"c"ency, Abacus subse2uent$y purc ased and so$d secur"t"es !or Amp"$&s account on Apr"$ 25 and 29* Abacus d"d not cance$ or $"2u"date a substant"a$ amount o! Amp"$&s stoc% transact"ons unt"$ Aay @, 1997. 1T% 1ULI)*A RT, e$d t at Abacus v"o$ated (8,s 23 and 25 o! t e Rev"sed (ecur"t"es Act (R(A) and Ru$e 25.1 o! t e Ru$es ;mp$ement"n# t e Act (R(A Ru$es) ) en "t !a"$ed to+ 1) re2u"re t e Amp"$ to pay !or "s stoc% purc ases )"t "n t ree or !our days !rom trad"n#* and 2) re2uest !rom t e appropr"ate aut or"ty an e1tens"on o! t"me !or t e payment o! Amp"$&s cas purc ases. RT, noted t at desp"te Amp"$&s non.payment )"t "n t e re2u"red per"od,

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$0* o% $&&

Abacus d"d not cance$ t e purc ases o! Amp"$. =e"t er d"d "t re2u"re "m to depos"t cas payments be!ore "t e1ecuted t e buy and0or se$$ orders subse2uent to t e !"rst unsett$ed transact"on. Accord"n# to t e RT,, by a$$o)"n# Amp"$ to trade "s account act"ve$y )"t out cas , Abacus e!!ect"ve$y "nduced "m to purc ase secur"t"es t ereby "ncurr"n# e1cess"ve cred"ts. RT, a$so !ound Amp"$ to be e2ua$$y at !au$t, by "ncurr"n# e1cess"ve cred"ts and )a"t"n# to see o) "s "nvestments turned out be!ore dec"d"n# to "nvo%e t e R(A. T us, t e RT, conc$uded t at Abacus and Amp"$ )ere "n par" de$"cto and t ere!ore )"t out recourse a#a"nst eac ot er. %A 1ULI)*+ ,A up e$d t e $o)er court&s !"nd"n# t at t e part"es )ere "n par" de$"cto. ;t cast"#ated Abacus !or a$$o)"n# Amp"$ to %eep on trad"n# desp"te t e $atter&s !a"$ure to pay "s outstand"n# ob$"#at"ons. ;t e1p$a"ned t at Gt e reason Sbe "nd Abacus&s actT "s e$ementa$ "n "ts s"mp$"c"ty. And "t "s not e1act$y a$tru"st"c. 'ecause ) et er SAmp"$&sT trad"n# transact"on )ou$d resu$t "n a surp$us or de!"c"t, e )ou$d st"$$ be $"ab$e to pay Abacus "ts comm"ss"on. SAbacus&sT cas re#"ster )"$$ %eep on r"n#"n# to t e sound o! "ncom"n# money, no matter ) at appened to Amp"$.H Bence, t "s Pet"t"on. IssueA 4<= t e par" de$"cto ru$e "s app$"cab$e "n t e present case. 3eld+ ;n Par" -e$"cto ru$e app$"es on$y to transact"ons entered "nto A6TE1 the initial trades made on Apr"$ 1/ and 11, 1997. 1atioA T e prov"s"ons #overn"n# t e above transact"ons are (8,s 23 and 25 o! t e R(A and Ru$e 25.1 o! t e R(A Ru$es, ) "c state as !o$$o)s+ (8,. 23. Aar#"n Re2u"rements. ? 111 (b) ;t s a$$ be un$a)!u$ !or any member o! an e1c an#e or any bro%er or dea$er, d"rect$y or "nd"rect$y, to e1tend or ma"nta"n cred"t or arran#e !or t e e1tens"on or ma"ntenance o! cred"t to or !or any customer ? (1) <n any secur"ty ot er t an an e1empted secur"ty, "n contravent"on o! t e ru$es and re#u$at"ons ) "c t e ,omm"ss"on s a$$ prescr"be under sub(8, (a) o! t "s (8,* (2) 4"t out co$$atera$ or on any co$$atera$ ot er t an secur"t"es, e1cept (") to ma"nta"n a cred"t "n"t"a$$y e1tended "n con!orm"ty )"t t e ru$es and re#u$at"ons o! t e ,omm"ss"on and ("") "n cases ) ere t e e1tens"on or ma"ntenance o! cred"t "s not !or t e purpose o! purc as"n# or carry"n# secur"t"es or o! evad"n# or c"rcumvent"n# t e prov"s"ons o! subpara#rap (1) o! t "s sub(8,. 111 (8,. 25. 8n!orcement o! mar#"n re2u"rements and restr"ct"ons on borro)"n#s. ? To prevent "nd"rect v"o$at"ons o! t e mar#"n re2u"rements under (8, 23 ereo!, t e bro%er or dea$er s a$$ re2u"re t e customer "n nonmar#"n transact"ons to pay t e pr"ce o! t e secur"ty purc ased !or "s account )"t "n suc per"od as t e ,omm"ss"on may prescr"be, ) "c s a$$ "n no case e1ceed t ree trad"n# days* ot er)"se, t e bro%er s a$$ se$$ t e secur"ty purc ased start"n# on t e ne1t trad"n# day but not beyond ten trad"n# days !o$$o)"n# t e $ast day !or t e customer to pay suc purc ase pr"ce, un$ess suc sa$e cannot be e!!ected )"t "n sa"d per"od !or >ust"!"ab$e reasons. T e sa$e s a$$ be )"t out pre>ud"ce to t e r"# t o! t e bro%er or dea$er to recover any de!"c"ency !rom t e customer. 1 1 1.H R(A RE58 25.1 Purc ases and (a$es "n ,as Account (a) Purc ases by a customer "n a cas account s a$$ be pa"d "n !u$$ )"t "n t ree (3) bus"ness days a!ter t e trade date.

(b) ;! !u$$ payment "s not rece"ved )"t "n t e re2u"red t"me per"od, t e bro%er or dea$er s a$$ cance$ or ot er)"se $"2u"date t e transact"on, or t e unsett$ed port"on t ereo!, start"n# on t e ne1t bus"ness day but not beyond ten (1/) bus"ness days !o$$o)"n# t e $ast day !or t e customer to pay, un$ess suc sa$e cannot be e!!ected )"t "n sa"d per"od !or >ust"!"ab$e reasons. (c) ;! a transact"on "s cance$$ed or ot er)"se $"2u"dated as a resu$t o! non.payment by t e customer, pr"or to any subse2uent purc ase dur"n# t e ne1t n"nety (9/) days, t e customer s a$$ be re2u"red to depos"t su!!"c"ent !unds "n t e account to cover eac purc ase transact"on pr"or to e1ecut"on. 111 111 111 (!) 4r"tten app$"cat"on !or an e1tens"on o! t e per"od o! t"me re2u"red !or payment under para#rap (a) be made by t e bro%er or dea$er to t e P "$"pp"ne (toc% 81c an#e, "n t e case o! a member o! t e 81c an#e, or to t e ,omm"ss"on, "n t e case o! a non.member o! t e 81c an#e. App$"cat"ons !or t e e1tens"on must be based upon e1cept"ona$ c"rcumstances and must be !"$ed and acted upon be!ore t e e1p"rat"on o! t e or"#"na$ payment per"od or t e e1p"rat"on o! any subse2uent e1tens"on.H (8, 23(b) above .. t e a$$e#ed v"o$at"on o! Abacus ) "c prov"des t e bas"s !or Amp"$&s de!ense .. ma%es "t un$a)!u$ !or a bro%er to e1tend or ma"nta"n cred"t on any secur"t"es ot er t an "n con!orm"ty )"t t e ru$es and re#u$at"ons "ssued by (ecur"t"es and 81c an#e ,omm"ss"on ((8,). (8, 25 $ays do)n t e ru$es to prevent "nd"rect v"o$at"ons o! (8, 23 by bro%ers or dea$ers. R(A Ru$e 25.1 prescr"bes "n deta"$ t e re#u$at"ons #overn"n# cas accounts. T e mar#"n re2u"rements set out "n t e R(A are pr"mar"$y "ntended to ac "eve a macroeconom"c purpose .. t e protect"on o! t e overa$$ economy !rom e1cess"ve specu$at"on "n secur"t"es. T e"r reco#n"Ded secondary purpose "s to protect sma$$ "nvestors. T e $a) p$aces t e burden o! comp$"ance )"t mar#"n re2u"rements pr"mar"$y upon t e bro%ers and dea$ers. (8,s 23 and 25 and Ru$e 25.1, ot er)"se %no)n as t e Gmandatory c$ose.out ru$e,H c$ear$y vest upon Abacus t e ob$"#at"on, not >ust t e r"# t, to cance$ or ot er)"se $"2u"date a customer&s order, "! payment "s not rece"ved )"t "n t ree days !rom t e date o! purc ase. A#pil is liable or the irst, but not or the subse"uent trades =onet e$ess, t ese mar#"n re2u"rements are app$"cab$e on$y to transact"ons entered "nto by t e present part"es subse2uent to t e "n"t"a$ trades o! Apr"$ 1/ and 11, 1997. T us, )e o$d t at Abacus can st"$$ co$$ect !rom Amp"$ to t e e1tent o! t e d"!!erence bet)een t e $atter&s outstand"n# ob$"#at"on as o! Apr"$ 11, 1997 $ess t e proceeds !rom t e mandatory se$$ out o! t e s ares pursuant to t e R(A Ru$es. Abacus&s r"# t to co$$ect "s >ust"!"ed under t e #enera$ $a) on ob$"#at"ons and contracts. T e r"# t to co$$ect cannot be den"ed to Abacus as t e "n"t"a$ transact"ons )ere entered pursuant to t e "nstruct"ons o! Amp"$. T e ob$"#at"on o! Amp"$ !or stoc% transact"ons made and entered "nto on Apr"$ 1/ and 11, 1997 rema"ns outstand"n#. These transactions were @alid and the obli=ations incurred by A#pil concernin= his stoc? purchases on these dates subsist. At t at t"me, t ere )as no v"o$at"on o! t e R(A yet. Abacus&s !au$t arose on$y ) en "t !a"$ed to+ 1) $"2u"date t e transact"ons on t e !ourt day !o$$o)"n# t e stoc% purc ases, or on Apr"$ 14 and 15, 1997* and 2) comp$ete "ts $"2u"dat"on no $ater t an ten days t erea!ter, app$y"n# t e proceeds t ereo! as payment !or Amp"$&s outstand"n# ob$"#at"on. 8$uc"dat"n# !urt er, s"nce t e buyer )as not ab$e to pay !or t e transact"ons t at too% p$ace on Apr"$ 1/ and 11,, t e bro%er )as duty.bound to advance t e payment to t e sett$ement ban%s )"t out pre>ud"ce to t e r"# t o! t e bro%er to co$$ect $ater !rom t e c$"ent.

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so# 3.R. 171715 7 Au#ust 2//7

$0+ o% $&&

;n secur"t"es trad"n#, t e bro%ers are essent"a$$y t e counterpart"es to t e stoc% transact"ons at t e 81c an#e. ("nce t e pr"nc"pa$s o! t e bro%er are #enera$$y und"sc$osed, t e bro%er "s persona$$y $"ab$e !or t e contracts t us made. Bence, Abacus ad to advance t e payments !or Amp"$&s trades. 'ro%ers ave a r"# t to be re"mbursed !or sums advanced by t em )"t t e e1press or "mp$"ed aut or"Dat"on o! t e pr"nc"pa$ ("n t "s case, Amp"$). ;n t e present case, Abacus obv"ous$y !a"$ed to en!orce t e terms and cond"t"ons o! "ts A#reement )"t Amp"$, purported$y act"n# on t e p$ea o! Amp"$ to #"ve "m t"me to ra"se !unds t ere!or. 'y !a"$"n# to ensure Amp"$&s payment o! "s !"rst purc ase transact"on )"t "n t e per"od prescr"bed by $a), t ereby a$$o)"n# "m to ma%e subse2uent purc ases, Abacus e!!ect"ve$y converted Amp"$&s cas account "nto a cred"t account. Bo)ever, e1tens"on or ma"ntenance o! cred"ts on nonmar#"n transact"ons, are spec"!"ca$$y pro "b"ted under (8, 23(b). T us, Abacus )as rem"ss "n "ts duty and cannot be sa"d to ave come to court )"t Gc$ean andsH "nso!ar as "t "ntended to co$$ect on transact"ons subse+uent to the initial trades o !pril BG and BB, BFFD. A#pil is e"ually =uilty or subse"uent trades <n t e ot er and, )e !"nd Amp"$ e2ua$$y #u"$ty "n enter"n# "nto t e transact"ons "n v"o$at"on o! t e R(A and R(A Ru$es. 4e are not prepared to accept "s se$!.serv"n# assert"ons o! be"n# an G"nnocent v"ct"mH "n a$$ t e transact"ons. Rat er, e "s an e1per"enced and %no)$ed#eab$e trader ) o "s )e$$ versed "n t e secur"t"es mar%et and ) o made "s o)n "nvestment dec"s"ons. 4e note t at "t )as Amp"$ ) o repeated$y as%ed !or some t"me to pay "s ob$"#at"ons !or "s stoc% transact"ons. Abacus acceded to "s re2uests. ;t "s on$y ) en sued upon "s "ndebtedness t at Amp"$ ra"sed as a de!ense t e "nva$"d"ty o! t e transact"ons due to a$$e#ed v"o$at"ons o! t e R(A. ;t )as Amp"$&s pr"v"$e#e to #amb$e or specu$ate, as e apparent$y d"d so by as%"n# !or e1tens"ons o! t"me and re!ra"n"n# !rom #"v"n# orders to "s bro%er to se$$, "n t e ope t at t e pr"ces )ou$d r"se. (usta"n"n# "s ar#ument no) )ou$d amount to re$"ev"n# "m o! t e r"s% and conse2uences o! "s o)n specu$at"on and sadd$"n# t em on t e Abacus a!ter t e resu$t )as %no)n to be un!avorab$e. In the inal analysis, bot part"es acted "n v"o$at"on o! t e $a) and d"d not come to court )"t c$ean ands )"t re#ard to transact"ons subse+uent to the initial trades made on Apr"$ 1/ and 11, 1997. Thus, the peculiar acts o the present case bar the application o the pari delicto rule .. e1pressed "n t e ma1"ms G81 do$o ma$o non or"tur act"onH and G;n par" de$"cto pot"or est cond"t"o de!endent"sH .. to a$$ t e transact"ons entered "nto by t e part"es. T e par" de$ecto ru$e re!uses $e#a$ remedy to e"t er party to an "$$e#a$ a#reement and $eaves t em ) ere t ey )ere. In this case, the pari delicto rule applies only to transactions entered into A6TE1 the initial trades #ade on April 1> and 11, 1--;. Since the I)ITIAL trades are @alid and subsistin= obli=ations, A#pil is liable or the#. 2ispositi@e+ 4B8R8:<R8, ,A -ec"s"on and Reso$ut"on are A<-;:;8-. Amp"$ "s ordered to pay Abacus t e d"!!erence bet)een t e !ormer&s outstand"n# ob$"#at"on as o! Apr"$ 11, 1997 $ess t e proceeds !rom t e mandatory se$$ out o! s ares pursuant to t e R(A Ru$es, )"t "nterest t ereon at t e $e#a$ rate unt"$ !u$$y pa"d. TE)2E1 '66E1 1ULES A&&L: T' I)2I1E%T A%DUISITI') '6 S3A1ES

%E4%' 3'L2I)*S, I)%. @s. )ATI')AL LI6E I)SU1A)%E %'4&A):

6actsA En"on ,ement or GE,,H (pub$"c$y $"sted) as 2 pr"nc"pa$ (B (stoc% o$ders) ? E,B, (non.$"sted) o)n"n# @/.51V and ,emco o)n"n# 17./3V. Aa>or"ty o! E,B,&s stoc%s )ere o)ned by ',; (21.31V) and A,, (29.@9V). ,emco o)ned 9V o! E,B,&s stoc%s. 5 6u$y 2//4+ ',; "n!ormed t e P "$"pp"ne (toc% 81c an#e (P(8) t at "t and "ts subs"d"ary A,, ad passed reso$ut"ons to se$$ to ,emco a$$ o! t e stoc%s o! ',; and A,, "n E,B,. 7 6u$y 2//4+ ;n P(8 ,"rcu$ar !or 'ro%ers =o. 314@.2//4 "t )as stated t at as a resu$t o! ,emco&s ac2u"s"t"on o! ',; and A,,&s s ares "n E,B,, "ts tota$ bene!"c"a$ o)ners "p, d"rect and "nd"rect, "n E,, as "ncreased by 3@V and amounted to at $east 53V o! t e s ares o! E,,. 15 6u$y 2//4+ As a conse2uence o! t "s d"sc$osure, t e P(8, "n a $etter to t e (8, "n2u"red as to ) et er t e Tender <!!er Ru$e under Ru$e 19 o! t e ;mp$ement"n# Ru$es o! t e (ecur"t"es Re#u$at"on ,ode "s not app$"cab$e to ,emco&s purc ase o! t e ma>or"ty o! s ares o! E,,. 1@ 6u$y 2//4+ -"rector 6ust"na ,a$$an#an o! t e (8,&s ,orporate :"nance -epartment rep$"ed t at "t )as t e stance o! t e department t at t e tender o!!er ru$e )as not app$"cab$e. Bo)ever, t e matter must st"$$ ave to be con!"rmed by t e (8, en banc. 27 6u$y 2//4+ ;n a subse2uent $etter, -"rector ,a$$an#an con!"rmed t at t e (8, en banc ad reso$ved t at t e ,emco transact"on )as not covered by t e tender o!!er ru$e. 27 6u$y 2//4, !ee$"n# a##r"eved by t e transact"on, respondent =at"ona$ 5"!e ;nsurance ,ompany o! t e P "$"pp"nes, ;nc., a m"nor"ty stoc% o$der o! E,,, sent a $etter to ,emco demand"n# t e $atter to comp$y )"t t e ru$e on mandatory tender o!!er. ,emco, o)ever, re!used. 5 Au#ust 2//4+ a ( are Purc ase A#reement )as e1ecuted by A,, and ',;, as se$$ers, and ,emco, as buyer. 19 Au#ust 2//4+ Respondent =at"ona$ 5"!e !"$ed a comp$a"nt )"t t e (8, as%"n# "t to reverse "ts 27 6u$y 2//4 Reso$ut"on and to dec$are t e purc ase a#reement o! ,emco vo"d and pray"n# t at t e mandatory tender o!!er ru$e be app$"ed to "ts E,, s ares. ,emco, E,,, E,B,, ',; and A,, (a$$ "mp$eaded) !"$ed t e"r comments+ ,<AA<= P<;=T+ t e tender o!!er ru$e app$"ed on$y to a d"rect ac2u"s"t"on o! t e s ares o! t e $"sted company and d"d not e1tend to an "nd"rect ac2u"s"t"on ar"s"n# !rom t e purc ase o! t e s ares o! a o$d"n# company o! t e $"sted !"rm. ,8A,<+ ) "$e t e (8, can ta%e co#n"Dance o! respondent&s comp$a"nt on t e a$$e#ed v"o$at"on by pet"t"oner ,emco o! t e mandatory tender o!!er re2u"rement under (8, 19 o! Repub$"c Act =o. 7799, t e same statute does not vest t e (8, )"t >ur"sd"ct"on to ad>ud"cate and determ"ne t e r"# ts and ob$"#at"ons o! t e part"es s"nce, under t e same statute, t e (8,&s aut or"ty "s pure$y adm"n"strat"ve. Bav"n# been vested )"t pure$y adm"n"strat"ve aut or"ty, t e (8, can on$y "mpose adm"n"strat"ve sanct"ons suc as t e "mpos"t"on o! adm"n"strat"ve !"nes, t e suspens"on or revocat"on o! re#"strat"ons )"t t e (8,, and t e $"%e. =ot "n# "n t e statute aut or"Des t e (8, to "ssue orders #rant"n# a!!"rmat"ve re$"e!s. ("nce t e (8,&s order command"n# "t to ma%e a tender o!!er "s an a!!"rmat"ve re$"e! !"1"n# t e respect"ve r"# ts and ob$"#at"ons o! part"es, suc order "s vo"d.

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$09 o% $&&

;n t e absence o! any spec"!"c #rant o! >ur"sd"ct"on by ,on#ress, t e (8, cannot, by mere adm"n"strat"ve re#u$at"on, con!er on "tse$! t at >ur"sd"ct"on. A5(<, t e ru$"n# on mandatory tender o!!er ru$e by t e (8, and t e ,ourt o! Appea$s s ou$d not ave retroact"ve e!!ect or be made to app$y to "ts purc ase o! t e E,B, s ares as "t re$"ed "n #ood !a"t on t e $etter dated 27 6u$y 2//4 o! t e (8, ) "c op"ned t at t e proposed ac2u"s"t"on o! t e E,B, s ares )as not covered by t e mandatory o!!er ru$e. 14 :eb 2//5+ (8, ru$ed "n !avor o! t e respondent ? reversed and set as"de "ts 27 6u$y 2//4 Reso$ut"on and d"rected pet"t"oner ,emco to ma%e a tender o!!er !or E,, s ares to respondent and ot er o$ders o! E,, s ares s"m"$ar to t e c$ass e$d by E,B, "n accordance )"t (8, 9(8), Ru$e 19 o! t e (ecur"t"es Re#u$at"on ,ode. T e ,A a!!"rmed+ ;t ru$ed t at t e (8, as >ur"sd"ct"on to render t e 2uest"oned dec"s"on and, "n any event, ,emco )as barred by estoppe$ !rom 2uest"on"n# t e (8,&s >ur"sd"ct"on. ;t, $"%e)"se, e$d t at t e tender o!!er re2u"rement under t e (ecur"t"es Re#u$at"on ,ode and "ts ;mp$ement"n# Ru$es app$"es to ,emco&s purc ase o! E,B, stoc%s. ;ssue0s R Be$d+ 4<= t e (8, as >ur"sd"ct"on over respondent&s comp$a"nt and to re2u"re ,emco to ma%e a tender o!!er !or respondent&s E,, s ares . P8( 4<= t e ru$e on mandatory tender o!!er app$"es to t e "nd"rect ac2u"s"t"on o! s ares "n a $"sted company, "n t "s case, t e "nd"rect ac2u"s"t"on by ,emco o! 3@V o! E,,, a pub$"c$y.$"sted company, t rou# "ts purc ase o! t e s ares "n E,B,, a non.$"sted company . P8( 4<= t e 2uest"oned ru$"n# o! t e (8, can be app$"ed retroact"ve$y to ,emco&s transact"on ) "c )as consummated under t e aut or"ty o! t e (8,&s pr"or reso$ut"on . P8( Rat"o+ :"rst ;ssue . 6ur"sd"ct"on (8, )as act"n# pursuant to Ru$e 19(13) o! t e Amended ;mp$ement"n# Ru$es and Re#u$at"ons o! t e (ecur"t"es Re#u$at"on ,ode, to )"t+ B=. :iolation+ ;! t ere s a$$ be v"o$at"on o! t "s Ru$e by pursu"n# a purc ase o! e2u"ty s ares o! a pub$"c company at t res o$d amounts )"t out t e re2u"red tender o!!er, t e ,omm"ss"on, upon comp$a"nt, may nu$$"!y t e sa"d ac2u"s"t"on and d"rect t e o$d"n# o! a tender o!!er. T "s s a$$ be )"t out pre>ud"ce to t e "mpos"t"on o! ot er sanct"ons under t e ,ode. T e !ore#o"n# ru$e emanates !rom t e (8,&s po)er and aut or"ty to re#u$ate, "nvest"#ate or superv"se t e act"v"t"es o! persons to ensure comp$"ance )"t t e (ecur"t"es Re#u$at"on ,ode, more spec"!"ca$$y t e prov"s"on on mandatory tender o!!er under (8, 19 t ereo!. Anot er prov"s"on o! t e statute, ) "c prov"des t e bas"s o! Ru$e 19(13) o! t e Amended ;mp$ement"n# Ru$es and Re#u$at"ons o! t e (ecur"t"es Re#u$at"on ,ode, "s (8, 5.1(n)+ T e ,omm"ss"on s a$$ ave, amon# ot ers, t e !o$$o)"n# po)ers and !unct"ons+ (n) 81erc"se suc ot er po)ers as may be prov"ded by $a) as )e$$ as t ose ) "c may be "mp$"ed !rom, or ) "c are necessary or "nc"denta$ to t e carry"n# out o!, t e e1press po)ers #ranted t e ,omm"ss"on to ac "eve t e ob>ect"ves and purposes o! t ese $a)s T e !ore#o"n# prov"s"on besto)s upon t e (8, t e #enera$ ad>ud"cat"ve po)er ) "c "s "mp$"ed !rom t e e1press po)ers o! t e ,omm"ss"on or ) "c "s "nc"denta$ to, or reasonab$y necessary to

carry out, t e per!ormance o! t e adm"n"strat"ve dut"es entrusted to "t. As a re#u$atory a#ency, "t as t e "nc"denta$ po)er to conduct ear"n#s and render dec"s"ons !"1"n# t e r"# ts and ob$"#at"ons o! t e part"es. ;n !act, to depr"ve t e (8, o! t "s po)er )ou$d render t e a#ency "nut"$e, because "t )ou$d become po)er$ess to re#u$ate and "mp$ement t e $a). Aoreover, pet"t"oner "s barred !rom 2uest"on"n# t e >ur"sd"ct"on o! t e (8,. ;t must be po"nted out t at pet"t"oner ad part"c"pated "n a$$ t e proceed"n#s be!ore t e (8, and ad prayed !or a!!"rmat"ve re$"e!. ;n !act, pet"t"oner de!ended t e >ur"sd"ct"on o! t e (8, "n "ts ,omment dated 15 (eptember 2//4. Pet"t"oner d"d not 2uest"on t e >ur"sd"ct"on o! t e (8, ) en "t rendered an op"n"on !avorab$e to "t, suc as t e 27 6u$y 2//4 Reso$ut"on, ) ere t e (8, op"ned t at t e ,emco transact"on )as not covered by t e mandatory tender o!!er ru$e. (econd ;ssue ? app$"cab"$"ty o! t e mandatory tender o!!er ru$e Tender o!!er "s a pub$"c$y announced "ntent"on by a person act"n# a$one or "n concert )"t ot er persons to ac2u"re e2u"ty secur"t"es o! a pub$"c company. A pub$"c company "s de!"ned as a corporat"on ) "c "s $"sted on an e1c an#e, or a corporat"on )"t assets e1ceed"n# P5/,///,///.// and )"t 2// or more stoc% o$ders, at $east 2// o! t em o$d"n# not $ess t an 1// s ares o! suc company. (tated d"!!erent$y, a tender o!!er "s an o!!er by t e ac2u"r"n# person to stoc% o$ders o! a pub$"c company !or t em to tender t e"r s ares t ere"n on t e terms spec"!"ed "n t e o!!er. Tender o!!er "s "n p$ace to protect m"nor"ty s are o$ders a#a"nst any sc eme t at d"$utes t e s are va$ue o! t e"r "nvestments. ;t #"ves t e m"nor"ty s are o$ders t e c ance to e1"t t e company under reasonab$e terms, #"v"n# t em t e opportun"ty to se$$ t e"r s ares at t e same pr"ce as t ose o! t e ma>or"ty s are o$ders. (ee te1t o! (ec 19.1, (R,+ G(a) Any person or #roup o! persons act"n# "n concert ) o "ntends to ac2u"re at $east !"!teen percent (15V) o! any c$ass o! any e2u"ty secur"ty o! a $"sted corporat"on or o! any c$ass o! any e2u"ty secur"ty o! a corporat"on )"t assets o! at $east :"!ty m"$$"on pesos (P5/,///,///.//) and av"n# t)o undred (2//) or more stoc% o$ders )"t at $east one undred (1//) s ares eac or ) o "ntends to ac2u"re at $east t "rty percent (3/V) o! suc e2u"ty over a per"od o! t)e$ve (12) mont s s a$$ ma%e a tender o!!er to stoc% o$ders by !"$"n# )"t t e ,omm"ss"on a dec$arat"on to t at e!!ect* and !urn"s t e "ssuer, a statement conta"n"n# suc o! t e "n!ormat"on re2u"red "n (8, 17 o! t "s ,ode as t e ,omm"ss"on may prescr"be. (uc person or #roup o! persons s a$$ pub$"s a$$ re2uests or "nv"tat"ons !or tender, or mater"a$s ma%"n# a tender o!!er or re2uest"n# or "nv"t"n# $etters o! suc a secur"ty. ,op"es o! any add"t"ona$ mater"a$ so$"c"t"n# or re2uest"n# suc tender o!!ers subse2uent to t e "n"t"a$ so$"c"tat"on or re2uest s a$$ conta"n suc "n!ormat"on as t e ,omm"ss"on may prescr"be, and s a$$ be !"$ed )"t t e ,omm"ss"on and sent to t e "ssuer not $ater t an t e t"me cop"es o! suc mater"a$s are !"rst pub$"s ed or sent or #"ven to secur"ty o$ders.H Ender e1"st"n# (8, Ru$es, t e 15V and 3/V t res o$d ac2u"s"t"on o! s ares under t e !ore#o"n# prov"s"on )as "ncreased to t "rty.!"ve percent (35V). ;t "s !urt er prov"ded t ere"n t at mandatory tender o!!er "s st"$$ app$"cab$e even "! t e ac2u"s"t"on "s $ess t an 35V ) en t e purc ase )ou$d resu$t "n o)ners "p o! over 51V o! t e tota$ outstand"n# e2u"ty secur"t"es o! t e pub$"c company. T e (8, and t e ,ourt o! Appea$s ru$ed t at t e "nd"rect ac2u"s"t"on by pet"t"oner o! 3@V o! E,, s ares t rou# t e

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$$0 o% $&&

ac2u"s"t"on o! t e non.$"sted E,B, s ares "s covered by t e mandatory tender o!!er ru$e. T "s "nterpretat"on #"ven by t e (8, and t e ,ourt o! Appea$s must be susta"ned. T e ru$e "n t "s >ur"sd"ct"on "s t at t e construct"on #"ven to a statute by an adm"n"strat"ve a#ency c ar#ed )"t t e "nterpretat"on and app$"cat"on o! t at statute "s ent"t$ed to #reat )e"# t by t e courts, un$ess suc construct"on "s c$ear$y s o)n to be "n s arp contrast )"t t e #overn"n# $a) or statute. T e rat"ona$e !or t "s ru$e re$ates not on$y to t e emer#ence o! t e mu$t"!ar"ous needs o! a modern or modern"D"n# soc"ety and t e estab$"s ment o! d"verse adm"n"strat"ve a#enc"es !or address"n# and sat"s!y"n# t ose needs* "t a$so re$ates to accumu$at"on o! e1per"ence and #ro)t o! spec"a$"Ded capab"$"t"es by t e adm"n"strat"ve a#ency c ar#ed )"t "mp$ement"n# a part"cu$ar statute. T e (8, and t e ,ourt o! Appea$s accurate$y po"nted out t at t e covera#e o! t e mandatory tender o!!er ru$e covers not on$y d"rect ac2u"s"t"on but a$so "nd"rect ac2u"s"t"on or Cany type o! ac2u"s"t"on.C T "s "s c$ear !rom t e d"scuss"ons o! t e '"camera$ ,on!erence ,omm"ttee on t e (ecur"t"es Act o! 2///, on 17 6u$y 2///+ (8=. (. <(A8_XA. 8to an# man#yayar" d"yan, e . (omebody contro$s @7V o! t e ,ompany. <! course, e )"$$ pay a prem"um !or t e !"rst @7V. ,ontro$ yan, e . 8 , %a)a)a yun# m#a ma"")an, an# 33V because t e va$ue o! t e stoc% mar%et cou$d #o do)n, cou$d #o do)n a!ter t at, because t ere )"$$ be no more mar%et. 4a$a nan# #uston# bumenta. 4a$a nan#... ; mean maram"n# #uston# bumenta, )a$an# #uston# bum"$" %un# "nd" yun# ma>or"ty o)ner. And t ey )"$$ not buy. T ey a$ready ave @7V. T ey a$ready ave contro$. And t "s protects t e m"nor"ty. And )e ave ad a case "n ,ebu ) ere"n Aya$a A ) o a$ready o)ned 4/V o! Aya$a ' made an o!!er !or anot er 4/V o! Aya$a ' )"t out o!!er"n# t e 2/V. Fa)a)a naman yun# na%a a)a% n#ayon n# 2/V. An# baba n# s are sa mar%et. 'ut )e d"d not ave a $a) protect"n# t em at t at t"me. ,BA;RAA= R<,<. (o ) at "s "t t at you )ant to ac "eveW (8=. (. <(A8_XA. T at "! a certa"n #roup ac "eves a certa"n amount o! o)ners "p "n a corporat"on, yea , e "s ob$"#ated to buy anybody ) o )ants to se$$. ,BA;RAA= R<,<. Pro.rata $an#. R8P. T8<-<R<. As $on# as "t reac es 3/, ayan na. !n* t*pe o ac+uisition $ust as long as it will result in =G ... (p.5/)... reac es 3/, ayan na. Any type o! ac2u"s"t"on >ust as $on# as "t )"$$ resu$t "n 3/, #enera$ tender, pro.rata. Pet"t"oner counters t at t e $e#"s$atorIs re!erence to Cany type o! ac2u"s"t"onC dur"n# t e de$"berat"ons on t e (ecur"t"es Re#u$at"on ,ode does not "nd"cate t at con#ress meant to "nc$ude t e C"nd"rectC ac2u"s"t"on o! s ares o! a pub$"c corporat"on to be covered by t e tender o!!er ru$e. Pet"t"oner a$so avers t at "t d"d not d"rect$y ac2u"re t e s ares "n E,, and t e "nc"denta$ bene!"t o! av"n# ac2u"red t e contro$ o! t e sa"d pub$"c company must not be ta%en a#a"nst "t. T ese ar#uments are not conv"nc"n#. T e $e#"s$at"ve "ntent o! (8, 19 o! t e ,ode "s to re#u$ate act"v"t"es re$at"n# to ac2u"s"t"on o! contro$ o! t e $"sted company and !or t e purpose o! protect"n# t e m"nor"ty stoc% o$ders o! a $"sted corporat"on. 4 atever may be t e met od by ) "c contro$ o! a pub$"c company "s obta"ned, e"t er t rou# t e d"rect purc ase o! "ts stoc%s or t rou# an "nd"rect means, mandatory tender o!!er app$"es. T e pet"t"oner pos"ts t at ) at "t ac2u"red )ere stoc%s o! E,B, and not E,,. 'y appenstance, as a resu$t o! t e transact"on, "t became an "nd"rect o)ner o! E,,. 4e are constra"ned, o)ever, to construe o)ners "p ac2u"s"t"on to mean bot d"rect and "nd"rect. 4 at "s dec"s"ve "s t e determ"nat"on o! t e po)er o! contro$. T e $e#"s$at"ve "ntent be "nd t e tender o!!er ru$e ma%es c$ear t at t e

type o! act"v"ty "ntended to be re#u$ated "s t e ac2u"s"t"on o! contro$ o! t e $"sted company t rou# t e purc ase o! s ares. ,ontro$ may SbeT e!!ected t rou# a d"rect and "nd"rect ac2u"s"t"on o! stoc%, and ) en t "s ta%es p$ace, "rrespect"ve o! t e means, a tender o!!er must occur. T e bottom$"ne o! t e $a) "s to #"ve t e s are o$der o! t e $"sted company t e opportun"ty to dec"de ) et er or not to se$$ "n connect"on )"t a trans!er o! contro$. T "rd ;ssue ? retroact"ve app$"cat"on o! (8, ru$"n# T e act"on o! t e (8, on t e P(8 re2uest !or op"n"on on t e ,emco transact"on cannot be construed as pass"n# mer"ts or #"v"n# approva$ to t e 2uest"oned transact"on. T e $etter dated 27 6u$y 2//4 o! t e (8, )as not "n# but an approva$ o! t e dra!t $etter prepared by -"rector ,a$$an#a. T ere )as no pub$"c ear"n# ) ere "nterested part"es cou$d ave been eard. Bence, "t )as not "ssued upon a de!"n"te and concrete controversy a!!ect"n# t e $e#a$ re$at"ons o! part"es t ereby ma%"n# "t a >ud#ment conc$us"ve on a$$ t e part"es. (a"d $etter )as mere$y adv"sory. 6ur"sprudence as "t t at an adv"sory op"n"on o! an a#ency may be str"c%en do)n "! "t dev"ates !rom t e prov"s"on o! t e statute. ("nce t e $etter dated 27 6u$y 2//4 runs counter to t e (ecur"t"es Re#u$at"on ,ode, t e same may be d"sre#arded as ) at t e (8, as done "n "ts dec"s"on dated 14 :ebruary 2//5. Aoreover, t e "mp$ement"n# ru$es and re#u$at"ons o! t e ,ode are su!!"c"ent to "n!orm and #u"de t e part"es on o) to proceed )"t t e mandatory tender o!!er.

<(II. I)TELLE%TUAL &1'&E1T: %'2E RA 7923 (1997), A( AA8=-8- 'P RA 915/ (2//1)
'G# '(/PS A8(##1#.' 1;.1 Topics International A=ree#ents on Intellectual &roperty a. Par"s ,onvent"on (1773) ? Protect"on o! ;ndustr"a$ Property b. 'erne ,onvent"on (179@) ? Protect"on o! 5"terary and Art"st"c 4or%s c. Aadr"d A#reement (1791) ? Repress"on o! :a$se or -ecept"ve ;nd"cat"ons o! (ource o! 3oods d. Aadr"d A#reement (1791) ? ;nternat"ona$ Re#"strat"on o! Aar%s e. Ba#ue A#reement (1925) ? ;nternat"ona$ -epos"t o! ;ndustr"a$ -es"#ns !. ="ce A#reement (1957) ? ;nternat"ona$ ,$ass"!"cat"on o! 3oods and (erv"ces !or t e Purposes o! t e Re#"strat"on o! Aar%s #. 5"sbon A#reement (1957) ? Protect"on o! Appe$$at"ons o! <r"#"n and t e"r ;nternat"ona$ Re#"strat"on . Rome ,onvent"on (19@1) ? Protect"on o! Per!ormers, Producers o! P ono#rams and 'roadcast"n# <r#an"Dat"ons ". 5ocarno A#reement (19@7) ? ;nternat"ona$ ,$ass"!"cat"ons o! ;ndustr"a$ -es"#ns >. Patent ,ooperat"on Treaty (197/) ? s"mu$taneous !"$"n# o! G"nternat"ona$H patent app$"cat"on %. 3eneva ,onvent"on (1971) ? Protect"on o! Producers o! P ono#rams a#a"nst Enaut or"Ded -up$"cat"on o! t e"r P ono#rams

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$$$ o% $&&

$. (trasbour# A#reement (1971) ? ;nternat"ona$ Patent App$"cat"on m. 9"enna A#reement (1973) ? ;nternat"ona$ ,$ass"!"cat"on o! t e :"#urat"ve 8$ements o! Aar%s n. 'russe$s ,onvent"on (1974) ? -"str"but"on o! Pro#ramme.,arry"n# ("#na$s Transm"tted by (ate$$"te o. 'udapest Treaty (1977) ? depos"t o! m"croor#an"sms !or purposes o! patent procedure p. =a"rob" Treaty (1971) ? Protect"on o! <$ymp"c (ymbo$ 2. 4as "n#ton Treaty (1979) ? ;nte$$ectua$ Property "n Respect o! ;nte#rated ,"rcu"ts r. Protoco$ on Aadr"d A#reement (1979) ? ;nternat"ona$ Re#"strat"on o! Aar%s s. Trademar% 5a) Treaty (1994) ? ma%e re#"strat"on systems t. 4;P< ,opyr"# t Treaty (199@) ? computer pro#ram and databases, u. 4;P< Per!ormances and P ono#ram Treaty (199@) The WT' and T1I&S A=ree#ents Trade.Re$ated Aspects o! ;nte$$ectua$ Property R"# ts (TR;P() A#reement . b"nd"n# on a$$ members o! 4T< a0 )ational Treat#ent G eac 4T< member s a$$ accord to t e nat"ona$s o! ot er members treatment no $ess !avorab$e t an t at ) "c "t accords to "ts o)n nat"ona$s )"t re#ard to t e protect"on o! "nte$$ectua$ property (sub>ect to certa"n e1cept"ons prov"ded "n t e Par"s, 'erne and Rome convent"ons and "n t e Treaty on ;nte$$ectua$ Property "n respect o! ;nte#rated ,"rcu"ts) b0 4ostE6a@ored )ation Treat#ent G )"t re#ard to t e protect"on o! "nte$$ectua$ property, any advanta#e, !avor, pr"v"$e#e or "mmun"ty #ranted by a member to t e nat"ona$s o! any ot er country s a$$ be accorded "mmed"ate$y and uncond"t"ona$$y to t e nat"ona$s o! a$$ ot er members 1;.$ %ase 0'% A"reement not ncon)tit tionaTASA2A @s. A)*A1A 272 (,RA 17 1997 6actsA A!ter 44;;, t e 3ATT (3enera$ A#reement on Tar"!!s and Trade) )as born. 5ater, t e 4T< (4or$d Trade <r#an"Dat"on) )as const"tuted to be t e treaty&s adm"n"ster"n# body. T e 4T< )as s"#ned "n Aorocco by "ts !ound"n# members, one o! ) "c )as t e P "$"pp"nes. T e Pres"dent o! t e P "$"pp"nes (Ramos) rat"!"ed t e 4T<. T e (enate concurred "n t "s rat"!"cat"on. T e senate rat"!"cat"on "s t e sub>ect o! t "s pet"t"on !or cert"orar", mandamus, and pro "b"t"on, ) "c 2uest"ons t e const"tut"ona$"ty o! t e 4T<. T e 4T< G:"na$ ActH s"#ned by t e P "$"pp"nes "nc$udes var"ous a#reements and assoc"ated $e#a$ "nstruments, amon# ) "c "s t e TR;P( (A#reement on Trade.Re$ated Aspects o! ;nte$$ectua$ Property R"# ts) T e pet"t"on 2uest"ons t e const"tut"ona$"ty o! certa"n prov"s"ons "n t e 4T< A#reement. Amon# t ose 2uest"oned are prov"s"ons o! t e TR;P( on ev"dence

IssueA 4<= certa"n prov"s"ons o! t e A#reement "mpa"r t e e1erc"se o! >ud"c"a$ po)er by t "s Bonorab$e ,ourt "n promu$#at"n# t e ru$es o! ev"dence. 3eldA =o 1atioA Pet"t"oners aver t at para#rap 1, Art"c$e 34 o! t e 3enera$ Prov"s"ons and 'as"c Pr"nc"p$es o! t e A#reement on Trade. Re$ated Aspects o! ;nte$$ectua$ Property R"# ts (TR;P() "ntrudes on t e po)er o! t e (upreme ,ourt to promu$#ate ru$es concern"n# p$ead"n#, pract"ce and procedures. Article 9/ &rocess &atentsA Burden o &roo 1. :or t e purposes o! c"v"$ proceed"n#s "n respect o! t e "n!r"n#ement o! t e r"# ts o! t e o)ner re!erred to "n para#rap 1(b) o! Art"c$e 27, "! t e sub>ect matter o! a patent "s a process !or obta"n"n# a product, t e >ud"c"a$ aut or"t"es s a$$ ave t e aut or"ty to order t e de!endant to prove t at t e process to obta"n an "dent"ca$ product "s d"!!erent !rom t e patented process. T ere!ore, Aembers s a$$ prov"de, "n at $east one o! t e !o$$o)"n# c"rcumstances, t at any "dent"ca$ product ) en produced )"t out t e consent o! t e patent o)ner s a$$, "n t e absence o! proo! to t e contrary, be deemed to ave been obta"ned by t e patented process+ (a) "! t e product obta"ned by t e patented process "s ne)* (b) "! t ere "s a substant"a$ $"%e$" ood t at t e "dent"ca$ product )as made by t e process and t e o)ner o! t e patent as been unab$e t rou# reasonab$e e!!orts to determ"ne t e process actua$$y used. 2. Any Aember s a$$ be !ree to prov"de t at t e burden o! proo! "nd"cated "n para#rap 1 s a$$ be on t e a$$e#ed "n!r"n#er on$y "! t e cond"t"on re!erred to "n subpara#rap (a) "s !u$!"$$ed or on$y "! t e cond"t"on re!erred to "n subpara#rap (b) "s !u$!"$$ed. 3. ;n t e adduct"on o! proo! to t e contrary, t e $e#"t"mate "nterests o! de!endants "n protect"n# t e"r manu!actur"n# and bus"ness secrets s a$$ be ta%en "nto account. :rom t e above, a 4T< Aember "s re2u"red to prov"de a ru$e o! d"sputab$e (note t e )ords G"n t e absence o! proo! to t e contraryH) presumpt"on t at a product s o)n to be "dent"ca$ to one produced )"t t e use o! a patented process s a$$ be deemed to ave been obta"ned by t e ("$$e#a$) use o! t e sa"d patented process, (1) ) ere suc product obta"ned by t e patented product "s ne), or (2) ) ere t ere "s Gsubstant"a$ $"%e$" oodH t at t e "dent"ca$ product )as made )"t t e use o! t e sa"d patented process but t e o)ner o! t e patent cou$d not determ"ne t e e1act process used "n obta"n"n# suc "dent"ca$ product. Bence, t e Gburden o! proo!H contemp$ated by Art"c$e 34 s ou$d actua$$y be understood as t e duty o! t e a$$e#ed patent "n!r"n#er to overt ro) suc presumpt"on. (uc burden, proper$y understood, actua$$y re!ers to t e Gburden o! ev"denceH (burden o! #o"n# !or)ard) p$aced on t e producer o! t e "dent"ca$ (or !a%e) product to s o) t at "s product )as produced )"t out t e use o! t e patented process. T e !ore#o"n# not)"t stand"n#, t e patent o)ner st"$$ as t e Gburden o! proo!H s"nce, re#ard$ess o! t e presumpt"on prov"ded under para#rap 1 o! Art"c$e 34, suc o)ner st"$$ as to "ntroduce ev"dence o! t e e1"stence o! t e a$$e#ed "dent"ca$ product, t e !act t at "t "s G"dent"ca$H to t e #enu"ne one produced by t e patented process and t e !act o! Gne)nessH o! t e #enu"ne product or t e !act o! Gsubstant"a$ $"%e$" oodH t at t e "dent"ca$ product )as made by t e patented process. T e !ore#o"n# s ou$d rea$$y present no prob$em "n c an#"n# t e ru$es o! ev"dence as t e present $a) on t e sub>ect, Repub$"c Act =o. 1@5, as amended, ot er)"se %no)n as t e Patent 5a), prov"des a s"m"$ar presumpt"on "n cases o! "n!r"n#ement o! patented des"#n or ut"$"ty mode$, t us+

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$$2 o% $&&

SE%. 7>. In rin=e#ent. E ;n!r"n#ement o! a des"#n patent or o! a patent !or ut"$"ty mode$ s a$$ cons"st "n unaut or"Ded copy"n# o! t e patented des"#n or ut"$"ty mode$ !or t e purpose o! trade or "ndustry "n t e art"c$e or product and "n t e ma%"n#, us"n# or se$$"n# o! t e art"c$e or product copy"n# t e patented des"#n or ut"$"ty mode$. ;dent"ty or substant"a$ "dent"ty )"t t e patented des"#n or ut"$"ty mode$ s a$$ const"tute ev"dence o! copy"n#. Aoreover, "t s ou$d be noted t at t e re2u"rement o! Art"c$e 34 to prov"de a d"sputab$e presumpt"on app$"es on$y "! (1) t e product obta"ned by t e patented process "s =84 or (2) t ere "s a substant"a$ $"%e$" ood t at t e "dent"ca$ product )as made by t e process and t e process o)ner as not been ab$e t rou# reasonab$e e!!ort to determ"ne t e process used. 4 ere e"t er o! t ese t)o prov"sos does not obta"n, members s a$$ be !ree to determ"ne t e appropr"ate met od o! "mp$ement"n# t e prov"s"ons o! TR;P( )"t "n t e"r o)n "nterna$ systems and processes. (u!!"ce "t to say t at t e rec"proc"ty c$ause more t an >ust"!"es suc "ntrus"on, "! any actua$$y e1"sts. 'es"des, Art"c$e 34 does not conta"n an unreasonab$e burden, cons"stent as "t "s )"t due process and t e concept o! adversar"a$ d"spute sett$ement "n erent "n our >ud"c"a$ system. (o too, s"nce t e P "$"pp"ne "s a s"#natory to most "nternat"ona$ convent"ons on patents, trademar%s and copyr"# ts, t e ad>ustment "n $e#"s$at"on and ru$es o! procedure )"$$ not be substant"a$.

/.'#FF#$'AAF P(%P#('H %FF/$# 17.3 'o+ic) Structure and 6unctions SE% .. "unctions o the 'ntellectual (ropert* . ice <'(.8. . 5.1. To adm"n"ster and "mp$ement t e (tate po$"c"es dec$ared "n t "s Act, t ere "s ereby created t e ;nte$$ectua$ Property <!!"ce (;P<) ) "c s a$$ ave t e !o$$o)"n# !unct"ons+ a) 81am"ne app$"cat"ons !or #rant o! $etters patent !or "nvent"ons and re#"ster ut"$"ty mode$s and "ndustr"a$ des"#ns* b) 81am"ne app$"cat"ons !or t e re#"strat"on o! mar%s, #eo#rap "c "nd"cat"on, "nte#rated c"rcu"ts* c) Re#"ster tec no$o#y trans!er arran#ements and sett$e d"sputes "nvo$v"n# tec no$o#y trans!er payments covered by t e prov"s"ons o! Part ;;, , apter ;J on 9o$untary 5"cens"n# and deve$op and "mp$ement strate#"es to promote and !ac"$"tate tec no$o#y trans!er* d) Promote t e use o! patent "n!ormat"on as a too$ !or tec no$o#y deve$opment* e) Pub$"s re#u$ar$y "n "ts o)n pub$"cat"on t e patents, mar%s, ut"$"ty mode$s and "ndustr"a$ des"#ns, "ssued and approved, and t e tec no$o#y trans!er arran#ements re#"stered* !) Adm"n"strat"ve$y ad>ud"cate contested proceed"n#s a!!ect"n# "nte$$ectua$ property r"# ts* and #) ,oord"nate )"t ot er #overnment a#enc"es and t e pr"vate sector e!!orts to !ormu$ate and "mp$ement p$ans and po$"c"es to stren#t en t e protect"on o! "nte$$ectua$ property r"# ts "n t e country. 5.2. T e <!!"ce s a$$ ave custody o! a$$ records, boo%s, dra)"n#s, spec"!"cat"ons, documents, and ot er papers and t "n#s re$at"n# to "nte$$ectua$ property r"# ts app$"cat"ons !"$ed )"t t e <!!"ce. (n) SE% 7. The .rgani9ational #tructure o the '(.. . @.1. T e <!!"ce s a$$ be eaded by a -"rector 3enera$ ) o s a$$ be ass"sted by t)o (2) -eput"es -"rector 3enera$. @.2. T e <!!"ce s a$$ be d"v"ded "nto s"1 (@) 'ureaus, eac o! ) "c s a$$ be eaded by a -"rector and ass"sted by an Ass"stant -"rector. T ese 'ureaus are+

a) T e 'ureau o! Patents* b) T e 'ureau o! Trademar%s* c) T e 'ureau o! 5e#a$ A!!a"rs* d) T e -ocumentat"on, ;n!ormat"on and Tec no$o#y Trans!er 'ureau* e) T e Aana#ement ;n!ormat"on (ystem and 8-P 'ureau* and !) T e Adm"n"strat"ve, :"nanc"a$ and Personne$ (erv"ces 'ureau. @.3. T e -"rector 3enera$, -eput"es -"rector 3enera$, -"rectors and Ass"stant -"rectors s a$$ be appo"nted by t e Pres"dent, and t e ot er o!!"cers and emp$oyees o! t e <!!"ce by t e (ecretary o! Trade and ;ndustry, con!ormab$y )"t and under t e ,"v"$ (erv"ce 5a). (n) SE% ;. The /irector 5eneral and /eputies /irector 5eneral. . 7.1. :unct"ons. . T e -"rector 3enera$ s a$$ e1erc"se t e !o$$o)"n# po)ers and !unct"ons+ a) Aana#e and d"rect a$$ !unct"ons and act"v"t"es o! t e <!!"ce, "nc$ud"n# t e promu$#at"on o! ru$es and re#u$at"ons to "mp$ement t e ob>ect"ves, po$"c"es, p$ans, pro#rams and pro>ects o! t e <!!"ce+ Prov"ded, T at "n t e e1erc"se o! t e aut or"ty to propose po$"c"es and standards "n re$at"on to t e !o$$o)"n#+ (1) t e e!!ect"ve, e!!"c"ent, and econom"ca$ operat"ons o! t e <!!"ce re2u"r"n# statutory enactment* (2) coord"nat"on )"t ot er a#enc"es o! #overnment "n re$at"on to t e en!orcement o! "nte$$ectua$ property r"# ts* (3) t e reco#n"t"on o! attorneys, a#ents, or ot er persons represent"n# app$"cants or ot er part"es be!ore t e <!!"ce* and (4) t e estab$"s ment o! !ees !or t e !"$"n# and process"n# o! an app$"cat"on !or a patent, ut"$"ty mode$ or "ndustr"a$ des"#n or mar% or a co$$ect"ve mar%, #eo#rap "c "nd"cat"on and ot er mar%s o! o)ners "p, and !or a$$ ot er serv"ces per!ormed and mater"a$s !urn"s ed by t e <!!"ce, t e -"rector 3enera$ s a$$ be sub>ect to t e superv"s"on o! t e (ecretary o! Trade and ;ndustry* b) 81erc"se e1c$us"ve appe$$ate >ur"sd"ct"on over a$$ dec"s"ons rendered by t e -"rector o! 5e#a$ A!!a"rs, t e -"rector o! Patents, t e -"rector o! Trademar%s, and t e -"rector o! t e -ocumentat"on, ;n!ormat"on and Tec no$o#y Trans!er 'ureau. T e dec"s"ons o! t e -"rector 3enera$ "n t e e1erc"se o! "s appe$$ate >ur"sd"ct"on "n respect o! t e dec"s"ons o! t e -"rector o! Patents, and t e -"rector o! Trademar%s s a$$ be appea$ab$e to t e ,ourt o! Appea$s "n accordance )"t t e Ru$es o! ,ourt* and t ose "n respect o! t e dec"s"ons o! t e -"rector o! -ocumentat"on, ;n!ormat"on and Tec no$o#y Trans!er 'ureau s a$$ be appea$ab$e to t e (ecretary o! Trade and ;ndustry* and c) 81erc"se or"#"na$ >ur"sd"ct"on to reso$ve d"sputes re$at"n# to t e terms o! a $"cense "nvo$v"n# t e aut orIs r"# t to pub$"c per!ormance or ot er commun"cat"on o! "s )or%. T e dec"s"ons o! t e -"rector 3enera$ "n t ese cases s a$$ be appea$ab$e to t e (ecretary o! Trade and ;ndustry. 7.2. Oua$"!"cat"ons. . T e -"rector 3enera$ and t e -eput"es -"rector 3enera$ must be natura$ born c"t"Dens o! t e P "$"pp"nes, at $east t "rty.!"ve (35) years o! a#e on t e day o! t e"r appo"ntment, o$ders o! a co$$e#e de#ree, and o! proven competence, "nte#r"ty, prob"ty and "ndependence+ Prov"ded, T at t e -"rector 3enera$ and at $east one (1) -eputy -"rector 3enera$ s a$$ be members o! t e P "$"pp"ne 'ar ) o ave en#a#ed "n t e pract"ce o! $a) !or at $east ten (1/) years+ Prov"ded !urt er, T at "n t e se$ect"on o! t e -"rector 3enera$ and t e -eput"es -"rector 3enera$, cons"derat"on s a$$ be #"ven to suc 2ua$"!"cat"ons as )ou$d resu$t, as !ar as pract"cab$e, "n t e ba$anced representat"on "n t e -"rectorate 3enera$ o! t e var"ous !"e$ds o! "nte$$ectua$ property. 7.3. Term o! <!!"ce. . T e -"rector 3enera$ and t e -eput"es -"rector 3enera$ s a$$ be appo"nted by t e Pres"dent !or a term o! !"ve (5) years and s a$$ be e$"#"b$e !or reappo"ntment on$y once+ Prov"ded, T at t e !"rst -"rector 3enera$ s a$$ ave a !"rst term o!

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$$' o% $&&

seven (7) years. Appo"ntment to any vacancy s a$$ be on$y !or t e une1p"red term o! t e predecessor. 7.4. T e <!!"ce o! t e -"rector 3enera$. . T e <!!"ce o! t e -"rector 3enera$ s a$$ cons"st o! t e -"rector 3enera$ and t e -eput"es -"rector 3enera$, t e"r "mmed"ate sta!! and suc <!!"ces and (erv"ces t at t e -"rector 3enera$ )"$$ set up to support d"rect$y t e <!!"ce o! t e -"rector 3enera$. (n) SE% 8. The Bureau o (atents. . T e 'ureau o! Patents s a$$ ave t e !o$$o)"n# !unct"ons+ 7.1. (earc and e1am"nat"on o! patent app$"cat"ons and t e #rant o! patents* 7.2. Re#"strat"on o! ut"$"ty mode$s, "ndustr"a$ des"#ns, and "nte#rated c"rcu"ts* and 7.3. ,onduct stud"es and researc es "n t e !"e$d o! patents "n order to ass"st t e -"rector 3enera$ "n !ormu$at"n# po$"c"es on t e adm"n"strat"on and e1am"nat"on o! patents. (n) SE% -. The Bureau o Trademar&s. . T e 'ureau o! Trademar%s s a$$ ave t e !o$$o)"n# !unct"ons+ 9.1. (earc and e1am"nat"on o! t e app$"cat"ons !or t e re#"strat"on o! mar%s, #eo#rap "c "nd"cat"ons and ot er mar%s o! o)ners "p and t e "ssuance o! t e cert"!"cates o! re#"strat"on* and 9.2. ,onduct stud"es and researc es "n t e !"e$d o! trademar%s "n order to ass"st t e -"rector 3enera$ "n !ormu$at"n# po$"c"es on t e adm"n"strat"on and e1am"nat"on o! trademar%s. (n) SE% 1>. The Bureau o )egal ! airs. . T e 'ureau o! 5e#a$ A!!a"rs s a$$ ave t e !o$$o)"n# !unct"ons+ 1/.1. Bear and dec"de oppos"t"on to t e app$"cat"on !or re#"strat"on o! mar%s* cance$$at"on o! trademar%s* sub>ect to t e prov"s"ons o! (8, @4, cance$$at"on o! patents, ut"$"ty mode$s, and "ndustr"a$ des"#ns* and pet"t"ons !or compu$sory $"cens"n# o! patents* 1/.2. (a) 81erc"se or"#"na$ >ur"sd"ct"on "n adm"n"strat"ve comp$a"nts !or v"o$at"ons o! $a)s "nvo$v"n# "nte$$ectua$ property r"# ts+ Prov"ded, T at "ts >ur"sd"ct"on "s $"m"ted to comp$a"nts ) ere t e tota$ dama#es c$a"med are not $ess t an T)o undred t ousand pesos (P2//,///)+ Prov"ded !urt er, T at ava"$ment o! t e prov"s"ona$ remed"es may be #ranted "n accordance )"t t e Ru$es o! ,ourt. T e -"rector o! 5e#a$ A!!a"rs s a$$ ave t e po)er to o$d and pun"s !or contempt a$$ t ose ) o d"sre#ard orders or )r"ts "ssued "n t e course o! t e proceed"n#s. (n) (b) A!ter !orma$ "nvest"#at"on, t e -"rector !or 5e#a$ A!!a"rs may "mpose one (1) or more o! t e !o$$o)"n# adm"n"strat"ve pena$t"es+ (") T e "ssuance o! a cease and des"st order ) "c s a$$ spec"!y t e acts t at t e respondent s a$$ cease and des"st !rom and s a$$ re2u"re "m to subm"t a comp$"ance report )"t "n a reasonab$e t"me ) "c s a$$ be !"1ed "n t e order* ("") T e acceptance o! a vo$untary assurance o! comp$"ance or d"scont"nuance as may be "mposed. (uc vo$untary assurance may "nc$ude one or more o! t e !o$$o)"n#+ (1) An assurance to comp$y )"t t e prov"s"ons o! t e "nte$$ectua$ property $a) v"o$ated* (2) An assurance to re!ra"n !rom en#a#"n# "n un$a)!u$ and un!a"r acts and pract"ces sub>ect o! t e !orma$ "nvest"#at"on* (3) An assurance to reca$$, rep$ace, repa"r, or re!und t e money va$ue o! de!ect"ve #oods d"str"buted "n commerce* and (4) An assurance to re"mburse t e comp$a"nant t e e1penses and costs "ncurred "n prosecut"n# t e case "n t e 'ureau o! 5e#a$ A!!a"rs. T e -"rector o! 5e#a$ A!!a"rs may a$so re2u"re t e respondent to subm"t per"od"c comp$"ance reports and !"$e a bond to #uarantee comp$"ance o! "s underta%"n#* (""") T e condemnat"on or se"Dure o! products ) "c are sub>ect o! t e o!!ense. T e #oods se"Ded ereunder s a$$ be d"sposed o! "n suc manner as may be deemed appropr"ate by t e -"rector o! 5e#a$ A!!a"rs, suc as by sa$e, donat"on to d"stressed $oca$

#overnments or to c ar"tab$e or re$"e! "nst"tut"ons, e1portat"on, recyc$"n# "nto ot er #oods, or any comb"nat"on t ereo!, under suc #u"de$"nes as e may prov"de* ("v) T e !or!e"ture o! parap erna$"a and a$$ rea$ and persona$ propert"es ) "c ave been used "n t e comm"ss"on o! t e o!!ense* (v) T e "mpos"t"on o! adm"n"strat"ve !"nes "n suc amount as deemed reasonab$e by t e -"rector o! 5e#a$ A!!a"rs, ) "c s a$$ "n no case be $ess t an :"ve t ousand pesos (P5,///) nor more t an <ne undred !"!ty t ousand pesos (P15/,///). ;n add"t"on, an add"t"ona$ !"ne o! not more t an <ne t ousand pesos (P1,///) s a$$ be "mposed !or eac day o! cont"nu"n# v"o$at"on* (v") T e cance$$at"on o! any perm"t, $"cense, aut or"ty, or re#"strat"on ) "c may ave been #ranted by t e <!!"ce, or t e suspens"on o! t e va$"d"ty t ereo! !or suc per"od o! t"me as t e -"rector o! 5e#a$ A!!a"rs may deem reasonab$e ) "c s a$$ not e1ceed one (1) year* (v"") T e )"t o$d"n# o! any perm"t, $"cense, aut or"ty, or re#"strat"on ) "c "s be"n# secured by t e respondent !rom t e <!!"ce* (v""") T e assessment o! dama#es* ("1) ,ensure* and (1) <t er ana$o#ous pena$t"es or sanct"ons. ((ecs. @, 7, 7, and 9, 81ecut"ve <rder =o. 913 S1973Ta) 1/.3. T e -"rector 3enera$ may by Re#u$at"ons estab$"s t e procedure to #overn t e "mp$ementat"on o! t "s (8,. (n) SE% 11. The /ocumentation, 'n ormation and Technolog* Trans er Bureau. . T e -ocumentat"on, ;n!ormat"on and Tec no$o#y Trans!er 'ureau s a$$ ave t e !o$$o)"n# !unct"ons+ 11.1. (upport t e searc and e1am"nat"on act"v"t"es o! t e <!!"ce t rou# t e !o$$o)"n# act"v"t"es+ (a) Aa"nta"n and up%eep c$ass"!"cat"on systems ) et er t ey be nat"ona$ or "nternat"ona$ suc as t e ;nternat"ona$ Patent ,$ass"!"cat"on (;P,) system* (b) Prov"de adv"sory serv"ces !or t e determ"nat"on o! searc patterns* (c) Aa"nta"n searc !"$es and searc rooms and re!erence $"brar"es* and (d) Adapt and pac%a#e "ndustr"a$ property "n!ormat"on. 11.2. 8stab$"s net)or%s or "ntermed"ar"es or re#"ona$ representat"ves* 11.3. 8ducate t e pub$"c and bu"$d a)areness on "nte$$ectua$ property t rou# t e conduct o! sem"nars and $ectures, and ot er s"m"$ar act"v"t"es* 11.4. 8stab$"s )or%"n# re$at"ons )"t researc and deve$opment "nst"tut"ons as )e$$ as )"t $oca$ and "nternat"ona$ "nte$$ectua$ property pro!ess"ona$ #roups and t e $"%e* 11.5. Per!orm state.o!.t e.art searc es* 11.@. Promote t e use o! patent "n!ormat"on as an e!!ect"ve too$ to !ac"$"tate t e deve$opment o! tec no$o#y "n t e country* 11.7. Prov"de tec n"ca$, adv"sory, and ot er serv"ces re$at"n# to t e $"cens"n# and promot"on o! tec no$o#y, and carry out an e!!"c"ent and e!!ect"ve pro#ram !or tec no$o#y trans!er* and 11.7. Re#"ster tec no$o#y trans!er arran#ements, and sett$e d"sputes "nvo$v"n# tec no$o#y trans!er payments. (n) SE% 1$. The %anagement 'n ormation #ervices and E/( Bureau. . T e Aana#ement ;n!ormat"on (erv"ces and 8-P 'ureau s a$$+ 12.1. ,onduct automat"on p$ann"n#, researc and deve$opment, test"n# o! systems, contracts )"t !"rms, contract"n#, purc ase and ma"ntenance o! e2u"pment, des"#n and ma"ntenance o! systems, user consu$tat"on, and t e $"%e* and 12.2. Prov"de mana#ement "n!ormat"on support and serv"ce to t e <!!"ce. (n) SE% 19. The !dministrative, "inancial and -uman Resource /evelopment #ervice Bureau. . 13.1. T e Adm"n"strat"ve (erv"ce s a$$+ (a) Prov"de serv"ces re$at"ve to procurement and a$$ocat"on o!

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$$& o% $&&

supp$"es and e2u"pment, transportat"on, messen#er"a$ )or%, cas "er"n#, payment o! sa$ar"es and ot er <!!"ceIs ob$"#at"ons, o!!"ce ma"ntenance, proper sa!ety and secur"ty, and ot er ut"$"ty serv"ces* and comp$y )"t #overnment re#u$atory re2u"rements "n t e areas o! per!ormance appra"sa$, compensat"on and bene!"ts, emp$oyment records and reports* (b) Rece"ve a$$ app$"cat"ons !"$ed )"t t e <!!"ce and co$$ect !ees t ere!or, and (c) Pub$"s patent app$"cat"ons and #rants, trademar% app$"cat"ons, and re#"strat"on o! mar%s, "ndustr"a$ des"#ns, ut"$"ty mode$s, #eo#rap "c "nd"cat"on, and $ay.out.des"#ns o! "nte#rated c"rcu"ts re#"strat"ons. 13.2. T e Patent and Trademar% Adm"n"strat"on (erv"ces s a$$ per!orm t e !o$$o)"n# !unct"ons amon# ot ers+ (a) Aa"nta"n re#"sters o! ass"#nments, mer#"n#s, $"censes, and b"b$"o#rap "c on patents and trademar%s* (b) ,o$$ect ma"ntenance !ees, "ssue cert"!"ed cop"es o! documents "n "ts custody and per!orm s"m"$ar ot er act"v"t"es* and (c) Bo$d "n custody a$$ t e app$"cat"ons !"$ed )"t t e o!!"ce, and a$$ patent #rants, cert"!"cate o! re#"strat"ons "ssued by t e o!!"ce, and t e $"%e. 13.3. T e :"nanc"a$ (erv"ce s a$$ !ormu$ate and mana#e a !"nanc"a$ pro#ram to ensure ava"$ab"$"ty and proper ut"$"Dat"on o! !unds* prov"de !or an e!!ect"ve mon"tor"n# system o! t e !"nanc"a$ operat"ons o! t e <!!"ce* and 13.4. T e Buman Resource -eve$opment (erv"ce s a$$ des"#n and "mp$ement uman resource deve$opment p$ans and pro#rams !or t e personne$ o! t e <!!"ce* prov"de !or present and !uture manpo)er needs o! t e or#an"Dat"on* ma"nta"n "# mora$e and !avorab$e emp$oyee att"tudes to)ards t e or#an"Dat"on t rou# t e cont"nu"n# des"#n and "mp$ementat"on o! emp$oyee deve$opment pro#rams. (n) SE% 1/. 3se o 'ntellectual (ropert* Rights "ees b* the '(.. . 14.1. :or a more e!!ect"ve and e1ped"t"ous "mp$ementat"on o! t "s Act, t e -"rector 3enera$ s a$$ be aut or"Ded to reta"n, )"t out need o! a separate approva$ !rom any #overnment a#ency, and sub>ect on$y to t e e1"st"n# account"n# and aud"t"n# ru$es and re#u$at"ons, a$$ t e !ees, !"nes, roya$t"es and ot er c ar#es, co$$ected by t e <!!"ce under t "s Act and t e ot er $a)s t at t e <!!"ce )"$$ be mandated to adm"n"ster, !or use "n "ts operat"ons, $"%e up#rad"n# o! "ts !ac"$"t"es, e2u"pment out$ay, uman resource deve$opment, and t e ac2u"s"t"on o! t e appropr"ate o!!"ce space, amon# ot ers, to "mprove t e de$"very o! "ts serv"ces to t e pub$"c. T "s amount, ) "c s a$$ be "n add"t"on to t e <!!"ceIs annua$ bud#et, s a$$ be depos"ted and ma"nta"ned "n a separate account or !und, ) "c may be used or d"sbursed d"rect$y by t e -"rector 3enera$. 14.2. A!ter !"ve (5) years !rom t e com"n# "nto !orce o! t "s Act, t e -"rector 3enera$ s a$$, sub>ect to t e approva$ o! t e (ecretary o! Trade and ;ndustry, determ"ne "! t e !ees and c ar#es ment"oned "n (ub(8, 14.1 ereo! t at t e <!!"ce s a$$ co$$ect are su!!"c"ent to meet "ts bud#etary re2u"rements. ;! so, "t s a$$ reta"n a$$ t e !ees and c ar#es "t s a$$ co$$ect under t e same cond"t"ons "nd"cated "n sa"d (ub(8, 14.1 but s a$$ !ort )"t , cease to rece"ve any !unds !rom t e annua$ bud#et o! t e =at"ona$ 3overnment* "! not, t e prov"s"ons o! sa"d (ub(8, 14.1 s a$$ cont"nue to app$y unt"$ suc t"me ) en t e -"rector 3enera$, sub>ect to t e approva$ o! t e (ecretary o! Trade and ;ndustry, cert"!"es t at t e above.stated !ees and c ar#es t e <!!"ce s a$$ co$$ect are enou# to !und "ts operat"ons. (n) SE% 1.. #pecial Technical and #cienti ic !ssistance. . T e -"rector 3enera$ "s empo)ered to obta"n t e ass"stance o! tec n"ca$, sc"ent"!"c or ot er 2ua$"!"ed o!!"cers and emp$oyees o! ot er departments, bureaus, o!!"ces, a#enc"es and

"nstrumenta$"t"es o! t e 3overnment, "nc$ud"n# corporat"ons o)ned, contro$$ed or operated by t e 3overnment, ) en deemed necessary "n t e cons"derat"on o! any matter subm"tted to t e <!!"ce re$at"ve to t e en!orcement o! t e prov"s"ons o! t "s Act. ((ec. 3, R.A. =o. 1@5a) SE% 17. #eal o . ice. . T e <!!"ce s a$$ ave a sea$, t e !orm and des"#n o! ) "c s a$$ be approved by t e -"rector 3enera$. ((ec. 4, R.A. =o. 1@5a) SE% 1;. (ublication o )aws and Regulations. . T e -"rector 3enera$ s a$$ cause to be pr"nted and ma%e ava"$ab$e !or d"str"but"on, pamp $et cop"es o! t "s Act, ot er pert"nent $a)s, e1ecut"ve orders and "n!ormat"on c"rcu$ars re$at"n# to matters )"t "n t e >ur"sd"ct"on o! t e <!!"ce. ((ec. 5, R.A. =o. 1@5a) SE% 18. The '(. 5a9ette. . A$$ matters re2u"red to be pub$"s ed under t "s Act s a$$ be pub$"s ed "n t e <!!"ceIs o)n pub$"cat"on to be %no)n as t e ;P< 3aDette. (n) SE% 1-. /is+uali ication o . icers and Emplo*ees o the . ice. . A$$ o!!"cers and emp$oyees o! t e <!!"ce s a$$ not app$y or act as an attorney or patent a#ent o! an app$"cat"on !or a #rant o! patent, !or t e re#"strat"on o! a ut"$"ty mode$, "ndustr"a$ des"#n or mar% nor ac2u"re, e1cept by ered"tary success"on, any patent or ut"$"ty mode$, des"#n re#"strat"on, or mar% or any r"# t, t"t$e or "nterest t ere"n dur"n# t e"r emp$oyment and !or one (1) year t erea!ter. ((ec. 77, R.A. =o. 1@5a) 5urisdiction o@er I& disputes and Appeals SE% ;. The /irector 5eneral and /eputies /irector 5eneral. . 7.1. :unct"ons. . T e -"rector 3enera$ s a$$ e1erc"se t e !o$$o)"n# po)ers and !unct"ons+ b) 81erc"se e1c$us"ve appe$$ate >ur"sd"ct"on over a$$ dec"s"ons rendered by t e -"rector o! 5e#a$ A!!a"rs, t e -"rector o! Patents, t e -"rector o! Trademar%s, and t e -"rector o! t e -ocumentat"on, ;n!ormat"on and Tec no$o#y Trans!er 'ureau. T e dec"s"ons o! t e -"rector 3enera$ "n t e e1erc"se o! "s appe$$ate >ur"sd"ct"on "n respect o! t e dec"s"ons o! t e -"rector o! Patents, and t e -"rector o! Trademar%s s a$$ be appea$ab$e to t e ,ourt o! Appea$s "n accordance )"t t e Ru$es o! ,ourt* and t ose "n respect o! t e dec"s"ons o! t e -"rector o! -ocumentat"on, ;n!ormat"on and Tec no$o#y Trans!er 'ureau s a$$ be appea$ab$e to t e (ecretary o! Trade and ;ndustry* and c) 81erc"se or"#"na$ >ur"sd"ct"on to reso$ve d"sputes re$at"n# to t e terms o! a $"cense "nvo$v"n# t e aut orIs r"# t to pub$"c per!ormance or ot er commun"cat"on o! "s )or%. T e dec"s"ons o! t e -"rector 3enera$ "n t ese cases s a$$ be appea$ab$e to t e (ecretary o! Trade and ;ndustry. SE% 1>. The Bureau o )egal ! airs. . T e 'ureau o! 5e#a$ A!!a"rs s a$$ ave t e !o$$o)"n# !unct"ons+ 1/.1. Bear and dec"de oppos"t"on to t e app$"cat"on !or re#"strat"on o! mar%s* cance$$at"on o! trademar%s* sub>ect to t e prov"s"ons o! (8, @4, cance$$at"on o! patents, ut"$"ty mode$s, and "ndustr"a$ des"#ns* and pet"t"ons !or compu$sory $"cens"n# o! patents* 1/.2. (a) 81erc"se or"#"na$ >ur"sd"ct"on "n adm"n"strat"ve comp$a"nts !or v"o$at"ons o! $a)s "nvo$v"n# "nte$$ectua$ property r"# ts+ Prov"ded, T at "ts >ur"sd"ct"on "s $"m"ted to comp$a"nts ) ere t e tota$ dama#es c$a"med are not $ess t an T)o undred t ousand pesos (P2//,///)+ Prov"ded !urt er, T at ava"$ment o! t e prov"s"ona$ remed"es may be #ranted "n accordance )"t t e Ru$es o! ,ourt. T e -"rector o! 5e#a$ A!!a"rs s a$$ ave t e po)er to o$d and pun"s !or contempt a$$ t ose ) o d"sre#ard orders or )r"ts "ssued "n t e course o! t e proceed"n#s. (n) (b) A!ter !orma$ "nvest"#at"on, t e -"rector !or 5e#a$ A!!a"rs may "mpose one (1) or more o! t e !o$$o)"n# adm"n"strat"ve pena$t"es+

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$$( o% $&&

(") T e "ssuance o! a cease and des"st order ) "c s a$$ spec"!y t e acts t at t e respondent s a$$ cease and des"st !rom and s a$$ re2u"re "m to subm"t a comp$"ance report )"t "n a reasonab$e t"me ) "c s a$$ be !"1ed "n t e order* ("") T e acceptance o! a vo$untary assurance o! comp$"ance or d"scont"nuance as may be "mposed. (uc vo$untary assurance may "nc$ude one or more o! t e !o$$o)"n#+ (1) An assurance to comp$y )"t t e prov"s"ons o! t e "nte$$ectua$ property $a) v"o$ated* (2) An assurance to re!ra"n !rom en#a#"n# "n un$a)!u$ and un!a"r acts and pract"ces sub>ect o! t e !orma$ "nvest"#at"on* (3) An assurance to reca$$, rep$ace, repa"r, or re!und t e money va$ue o! de!ect"ve #oods d"str"buted "n commerce* and (4) An assurance to re"mburse t e comp$a"nant t e e1penses and costs "ncurred "n prosecut"n# t e case "n t e 'ureau o! 5e#a$ A!!a"rs. T e -"rector o! 5e#a$ A!!a"rs may a$so re2u"re t e respondent to subm"t per"od"c comp$"ance reports and !"$e a bond to #uarantee comp$"ance o! "s underta%"n#* (""") T e condemnat"on or se"Dure o! products ) "c are sub>ect o! t e o!!ense. T e #oods se"Ded ereunder s a$$ be d"sposed o! "n suc manner as may be deemed appropr"ate by t e -"rector o! 5e#a$ A!!a"rs, suc as by sa$e, donat"on to d"stressed $oca$ #overnments or to c ar"tab$e or re$"e! "nst"tut"ons, e1portat"on, recyc$"n# "nto ot er #oods, or any comb"nat"on t ereo!, under suc #u"de$"nes as e may prov"de* ("v) T e !or!e"ture o! parap erna$"a and a$$ rea$ and persona$ propert"es ) "c ave been used "n t e comm"ss"on o! t e o!!ense* (v) T e "mpos"t"on o! adm"n"strat"ve !"nes "n suc amount as deemed reasonab$e by t e -"rector o! 5e#a$ A!!a"rs, ) "c s a$$ "n no case be $ess t an :"ve t ousand pesos (P5,///) nor more t an <ne undred !"!ty t ousand pesos (P15/,///). ;n add"t"on, an add"t"ona$ !"ne o! not more t an <ne t ousand pesos (P1,///) s a$$ be "mposed !or eac day o! cont"nu"n# v"o$at"on* (v") T e cance$$at"on o! any perm"t, $"cense, aut or"ty, or re#"strat"on ) "c may ave been #ranted by t e <!!"ce, or t e suspens"on o! t e va$"d"ty t ereo! !or suc per"od o! t"me as t e -"rector o! 5e#a$ A!!a"rs may deem reasonab$e ) "c s a$$ not e1ceed one (1) year* (v"") T e )"t o$d"n# o! any perm"t, $"cense, aut or"ty, or re#"strat"on ) "c "s be"n# secured by t e respondent !rom t e <!!"ce* (v""") T e assessment o! dama#es* ("1) ,ensure* and (1) <t er ana$o#ous pena$t"es or sanct"ons. ((ecs. @, 7, 7, and 9, 81ecut"ve <rder =o. 913 S1973Ta) 1/.3. T e -"rector 3enera$ may by Re#u$at"ons estab$"s t e procedure to #overn t e "mp$ementat"on o! t "s (8,. (n) SE% 11. The /ocumentation, 'n ormation and Technolog* Trans er Bureau. . T e -ocumentat"on, ;n!ormat"on and Tec no$o#y Trans!er 'ureau s a$$ ave t e !o$$o)"n# !unct"ons+ 11.1. (upport t e searc and e1am"nat"on act"v"t"es o! t e <!!"ce t rou# t e !o$$o)"n# act"v"t"es+ (a) Aa"nta"n and up%eep c$ass"!"cat"on systems ) et er t ey be nat"ona$ or "nternat"ona$ suc as t e ;nternat"ona$ Patent ,$ass"!"cat"on (;P,) system* (b) Prov"de adv"sory serv"ces !or t e determ"nat"on o! searc patterns* (c) Aa"nta"n searc !"$es and searc rooms and re!erence $"brar"es* and (d) Adapt and pac%a#e "ndustr"a$ property "n!ormat"on. 11.2. 8stab$"s net)or%s or "ntermed"ar"es or re#"ona$ representat"ves*

11.3. 8ducate t e pub$"c and bu"$d a)areness on "nte$$ectua$ property t rou# t e conduct o! sem"nars and $ectures, and ot er s"m"$ar act"v"t"es* 11.4. 8stab$"s )or%"n# re$at"ons )"t researc and deve$opment "nst"tut"ons as )e$$ as )"t $oca$ and "nternat"ona$ "nte$$ectua$ property pro!ess"ona$ #roups and t e $"%e* 11.5. Per!orm state.o!.t e.art searc es* 11.@. Promote t e use o! patent "n!ormat"on as an e!!ect"ve too$ to !ac"$"tate t e deve$opment o! tec no$o#y "n t e country* 11.7. Prov"de tec n"ca$, adv"sory, and ot er serv"ces re$at"n# to t e $"cens"n# and promot"on o! tec no$o#y, and carry out an e!!"c"ent and e!!ect"ve pro#ram !or tec no$o#y trans!er* and 11.7. Re#"ster tec no$o#y trans!er arran#ements, and sett$e d"sputes "nvo$v"n# tec no$o#y trans!er payments. (n) Ad#inistrati@e &enalties SE% 1>.$ (b) A!ter !orma$ "nvest"#at"on, t e -"rector !or 5e#a$ A!!a"rs may "mpose one (1) or more o! t e !o$$o)"n# adm"n"strat"ve pena$t"es+ (") T e "ssuance o! a cease and des"st order ) "c s a$$ spec"!y t e acts t at t e respondent s a$$ cease and des"st !rom and s a$$ re2u"re "m to subm"t a comp$"ance report )"t "n a reasonab$e t"me ) "c s a$$ be !"1ed "n t e order* ("") T e acceptance o! a vo$untary assurance o! comp$"ance or d"scont"nuance as may be "mposed. (uc vo$untary assurance may "nc$ude one or more o! t e !o$$o)"n#+ (1) An assurance to comp$y )"t t e prov"s"ons o! t e "nte$$ectua$ property $a) v"o$ated* (2) An assurance to re!ra"n !rom en#a#"n# "n un$a)!u$ and un!a"r acts and pract"ces sub>ect o! t e !orma$ "nvest"#at"on* (3) An assurance to reca$$, rep$ace, repa"r, or re!und t e money va$ue o! de!ect"ve #oods d"str"buted "n commerce* and (4) An assurance to re"mburse t e comp$a"nant t e e1penses and costs "ncurred "n prosecut"n# t e case "n t e 'ureau o! 5e#a$ A!!a"rs. T e -"rector o! 5e#a$ A!!a"rs may a$so re2u"re t e respondent to subm"t per"od"c comp$"ance reports and !"$e a bond to #uarantee comp$"ance o! "s underta%"n#* (""") T e condemnat"on or se"Dure o! products ) "c are sub>ect o! t e o!!ense. T e #oods se"Ded ereunder s a$$ be d"sposed o! "n suc manner as may be deemed appropr"ate by t e -"rector o! 5e#a$ A!!a"rs, suc as by sa$e, donat"on to d"stressed $oca$ #overnments or to c ar"tab$e or re$"e! "nst"tut"ons, e1portat"on, recyc$"n# "nto ot er #oods, or any comb"nat"on t ereo!, under suc #u"de$"nes as e may prov"de* ("v) T e !or!e"ture o! parap erna$"a and a$$ rea$ and persona$ propert"es ) "c ave been used "n t e comm"ss"on o! t e o!!ense* (v) T e "mpos"t"on o! adm"n"strat"ve !"nes "n suc amount as deemed reasonab$e by t e -"rector o! 5e#a$ A!!a"rs, ) "c s a$$ "n no case be $ess t an :"ve t ousand pesos (P5,///) nor more t an <ne undred !"!ty t ousand pesos (P15/,///). ;n add"t"on, an add"t"ona$ !"ne o! not more t an <ne t ousand pesos (P1,///) s a$$ be "mposed !or eac day o! cont"nu"n# v"o$at"on* (v") T e cance$$at"on o! any perm"t, $"cense, aut or"ty, or re#"strat"on ) "c may ave been #ranted by t e <!!"ce, or t e suspens"on o! t e va$"d"ty t ereo! !or suc per"od o! t"me as t e -"rector o! 5e#a$ A!!a"rs may deem reasonab$e ) "c s a$$ not e1ceed one (1) year* (v"") T e )"t o$d"n# o! any perm"t, $"cense, aut or"ty, or re#"strat"on ) "c "s be"n# secured by t e respondent !rom t e <!!"ce* (v""") T e assessment o! dama#es* ("1) ,ensure* and (1) <t er ana$o#ous pena$t"es or sanct"ons. ((ecs. @, 7, 7, and 9, 81ecut"ve <rder =o. 913 S1973Ta)

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$$) o% $&&

&rescripti@e &eriod o Actions or 2a#a=es SE% ;-. )imitation o !ction or /amages. . =o dama#es can be recovered !or acts o! "n!r"n#ement comm"tted more t an !our (4) years be!ore t e "nst"tut"on o! t e act"on !or "n!r"n#ement. SE% $$7. /amages. . =o dama#es may be recovered under t "s Act a!ter !our (4) years !rom t e t"me t e cause o! act"on arose.

/.'#FF#$'AAF P(%P#('H (/8G'S /. 8#.#(AF PA'#.'S 1;.. Topics Patenta,-e /nvention) SE% $1. (atentable 'nventions. . Any tec n"ca$ so$ut"on o! a prob$em "n any !"e$d o! uman act"v"ty ) "c "s ne), "nvo$ves an "nvent"ve step and "s "ndustr"a$$y app$"cab$e s a$$ be Patentab$e. ;t may be, or may re$ate to, a product, or process, or an "mprovement o! any o! t e !ore#o"n#. ((ec. 7, R.A. =o. 1@5a) .ove-t* SE% $9. ,ovelt*. . . An "nvent"on s a$$ not be cons"dered ne) "! "t !orms part o! a pr"or art. ((ec. 9, R.A. =o. 1@5a) Prior Art SE% $/. (rior !rt. . Pr"or art s a$$ cons"st o!+ 24.1. 8veryt "n# ) "c as been made ava"$ab$e to t e pub$"c any) ere "n t e )or$d, be!ore t e !"$"n# date or t e pr"or"ty date o! t e app$"cat"on c$a"m"n# t e "nvent"on* and 24.2. T e ) o$e contents o! an app$"cat"on !or a patent, ut"$"ty mode$, or "ndustr"a$ des"#n re#"strat"on, pub$"s ed "n accordance )"t t "s Act, !"$ed or e!!ect"ve "n t e P "$"pp"nes, )"t a !"$"n# or pr"or"ty date t at "s ear$"er t an t e !"$"n# or pr"or"ty date o! t e app$"cat"on+ Prov"ded, T at t e app$"cat"on ) "c as va$"d$y c$a"med t e !"$"n# date o! an ear$"er app$"cat"on under (8, 31 o! t "s Act, s a$$ be pr"or art )"t e!!ect as o! t e !"$"n# date o! suc ear$"er app$"cat"on+ Prov"ded !urt er, T at t e app$"cant or t e "nventor "dent"!"ed "n bot app$"cat"ons are not one and t e same. ((ec. 9, R.A. =o. 1@5a) /nventive Ste+ or .on2%,vio )ne)) SE% $7. 'nventive #tep. . An "nvent"on "nvo$ves an "nvent"ve step "!, av"n# re#ard to pr"or art, "t "s not obv"ous to a person s%"$$ed "n t e art at t e t"me o! t e !"$"n# date or pr"or"ty date o! t e app$"cat"on c$a"m"n# t e "nvent"on. (n) /nd )tria- A++-ica,i-it* SE% $;. 'ndustrial !pplicabilit*. . An "nvent"on t at can be produced and used "n any "ndustry s a$$ be "ndustr"a$$y app$"cab$e. (n) .on2Patenta,-e /nvention)

SE% $$. ,on0(atentable 'nventions. . T e !o$$o)"n# s a$$ be e1c$uded !rom patent protect"on+ T24T&A&U 22.1. -"scover"es, sc"ent"!"c t eor"es and mat emat"ca$ met ods* 22.2. (c emes, ru$es and met ods o! per!orm"n# menta$ acts, p$ay"n# #ames or do"n# bus"ness, and pro#rams !or computers* 22.3. Aet ods !or treatment o! t e uman or an"ma$ body by sur#ery or t erapy and d"a#nost"c met ods pract"ced on t e uman or an"ma$ body. T "s prov"s"on s a$$ not app$y to products and compos"t"on !or use "n any o! t ese met ods* 22.4. P$ant var"et"es or an"ma$ breeds or essent"a$$y b"o$o#"ca$ process !or t e product"on o! p$ants or an"ma$s. T "s prov"s"on s a$$ not app$y to m"cro.or#an"sms and non.b"o$o#"ca$ and m"crob"o$o#"ca$ processes. Prov"s"ons under t "s sub(8, s a$$ not prec$ude ,on#ress to cons"der t e enactment o! a $a) prov"d"n# su" #ener"s protect"on o! p$ant var"et"es and an"ma$ breeds and a system o! commun"ty "nte$$ectua$ r"# ts protect"on+ 22.5. Aest et"c creat"ons* and 22.@. Anyt "n# ) "c "s contrary to pub$"c order or mora$"ty. ((ec. 7, R.A. =o. 1@5a) (i"!t to a Patent TI3AU SE% $8. Right to a (atent. . T e r"# t to a patent be$on#s to t e "nventor, "s e"rs, or ass"#ns. 4 en t)o (2) or more persons ave >o"nt$y made an "nvent"on, t e r"# t to a patent s a$$ be$on# to t em >o"nt$y. ((ec. 1/, R.A. =o. 1@5a) Fir)t2to2Fi-e ( -e SE% $-. "irst to "ile Rule. . ;! t)o (2) or more persons ave made t e "nvent"on separate$y and "ndependent$y o! eac ot er, t e r"# t to t e patent s a$$ be$on# to t e person ) o !"$ed an app$"cat"on !or suc "nvent"on, or ) ere t)o or more app$"cat"ons are !"$ed !or t e same "nvent"on, to t e app$"cant ) o as t e ear$"est !"$"n# date or, t e ear$"est pr"or"ty date. (3rd sentence, (ec. 1/, R.A. =o. 1@5a.) (i"!t o& Priorit* T%TSU SE% 91. Right o (riorit*. . . An app$"cat"on !or patent !"$ed by any person ) o as prev"ous$y app$"ed !or t e same "nvent"on "n anot er country ) "c by treaty, convent"on, or $a) a!!ords s"m"$ar pr"v"$e#es to :"$"p"no c"t"Dens, s a$$ be cons"dered as !"$ed as o! t e date o! !"$"n# t e !ore"#n app$"cat"on+ Prov"ded, T at+ (a) t e $oca$ app$"cat"on e1press$y c$a"ms pr"or"ty* (b) "t "s !"$ed )"t "n t)e$ve (12) mont s !rom t e date t e ear$"est !ore"#n app$"cat"on )as !"$ed* and (c) a cert"!"ed copy o! t e !ore"#n app$"cat"on to#et er )"t an 8n#$"s trans$at"on "s !"$ed )"t "n s"1 (@) mont s !rom t e date o! !"$"n# "n t e P "$"pp"nes. ((ec. 15, R.A. =o. 1@5a) $ontent) o& A++-ication T112%AU SE% 99. !ppointment o !gent or Representative. . An app$"cant ) o "s not a res"dent o! t e P "$"pp"nes must appo"nt and ma"nta"n a res"dent a#ent or representat"ve "n t e P "$"pp"nes upon ) om not"ce or process !or >ud"c"a$ or adm"n"strat"ve procedure re$at"n# to t e app$"cat"on !or patent or t e patent may be served. ((ec. 11, R.A. =o. 1@5a)

COMLAW REVIEWER 2009

james-deng-carol-mario-des-ria-marvin-reizel-chris-ric !-o"en-so#

$$* o% $&&

SE% 9/. The Re+uest. . T e re2uest s a$$ conta"n a pet"t"on !or t e #rant o! t e patent, t e name and ot er data o! t e app$"cant, t e "nventor and t e a#ent and t e t"t$e o! t e "nvent"on. (n) T&)TU SE% 9.. /isclosure and /escription o the 'nvention. . 35.1. -"sc$osure. . T e app$"cat"on s a$$ d"sc$ose t e "nvent"on "n a manner su!!"c"ent$y c$ear and comp$ete !or "t to be carr"ed out by a person s%"$$ed "n t e art. 4 ere t e app$"cat"on concerns a m"crob"o$o#"ca$ process or t e product t ereo! and "nvo$ves t e use o! a m"cro.or#an"sm ) "c cannot be su!!"c"ent$y d"sc$osed "n t e app$"cat"on "n suc a )ay as to enab$e t e "nvent"on to be carr"ed out by a person s%"$$ed "n t e art, and suc mater"a$ "s not ava"$ab$e to t e pub$"c, t e app$"cat"on s a$$ be supp$emented by a depos"t o! suc mater"a$ )"t an "nternat"ona$ depos"tory "nst"tut"on. TS%%E &SAE424U 35.2. -escr"pt"on. . T e Re#u$at"ons s a$$ prescr"be t e contents o! t e descr"pt"on and t e order o! presentat"on. ((ec. 14, R.A. =o. 1@5a) SE% 97. The Claims. . 3@.1. T e app$"cat"on s a$$ conta"n one (1) or more c$a"ms ) "c s a$$ de!"ne t e matter !or ) "c protect"on "s sou# t. 8ac c$a"m s a$$ be c$ear and conc"se, and s a$$ be supported by t e descr"pt"on. T'2%%U 3@.2. T e Re#u$at"ons s a$$ prescr"be t e manner o! t e presentat"on o! c$a"ms. (n) SE% 9;. The !bstract. . T e abstract s a$$ cons"st o! a conc"se summary o! t e d"sc$osure o! t e "nvent"on as conta"ned "n t e descr"pt"on, c$a"ms and dra)"n#s "n pre!erab$y not more t an one undred !&qu