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ACT NO. 2031
February 03, 1911
THE NEGOTIABLE INSTRUMENTS LAW
I. FORM AND INTERPRETATION
Section 1. Form of negotiable instruments. - An instrument to
be negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or
drawer;
(b) Must contain an unconditional promise or order to pay
a sum certain in money;
(c) Must be payable on demand, or at a fixed or
determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he
must be named or otherwise indicated therein with reasonable
certainty.
Sec. 2. What constitutes certainty as to sum. - The sum
payable is a sum certain within the meaning of this Act,
although it is to be paid:
(a) with interest; or
(b) by stated installments; or
(c) by stated installments, with a provision that, upon
default in payment of any installment or of interest, the whole
shall become due; or
(d) with exchange, whether at a fixed rate or at the current
rate;
or
(e) with costs of collection or an attorney's fee, in case payment
shall not be made at maturity.
Sec. 3. When promise is unconditional. - An unqualified order
or promise to pay is unconditional within the meaning of this
Act though coupled with:
(a) An indication of a particular fund out of which
reimbursement is to be made or a particular account to be
debited with the amount; or
(b) A statement of the transaction which gives rise to the
instrument.
But an order or promise to pay out of a particular fund is not
unconditional.chan robles virtual law library
Sec. 4. Determinable future time; what constitutes. - An
instrument is payable at a determinable future time, within
the meaning of this Act, which is expressed to be payable:
(a) At a fixed period after date or sight; or
(b) On or before a fixed or determinable future time
specified therein; or
(c) On or at a fixed period after the occurrence of a
specified event which is certain to happen, though the time of
happening
be uncertain.
An instrument payable upon a contingency is not negotiable,
and the happening of the event does not cure the defect.
Sec. 5. Additional provisions not affecting negotiability. - An
instrument which contains an order or promise to do any act
in addition to the payment of money is not negotiable. But the
negotiable character of an instrument otherwise negotiable is
not affected by a provision which:
(a) authorizes the sale of collateral securities in case the
instrument be not paid at maturity; or
(b) authorizes a confession of judgment if the instrument
be not paid at maturity; or
(c) waives the benefit of any law intended for the
advantage or protection of the obligor; or
(d) gives the holder an election to require something to be
done in lieu of payment of money.
But nothing in this section shall validate any provision or
stipulation otherwise illegal.
Sec. 6. Omissions; seal; particular money. - The validity and
negotiable character of an instrument are not affected by the
fact that:
(a) it is not dated; or
(b) does not specify the value given, or that any value had
been given therefor; or
(c) does not specify the place where it is drawn or the place
where it is payable; or
(d) bears a seal; or
(e) designates a particular kind of current money in which
payment is to be made.
But nothing in this section shall alter or repeal any statute
requiring in certain cases the nature of the consideration to be
stated in the instrument.
Sec. 7. When payable on demand. - An instrument is payable
on demand:
(a) When it is so expressed to be payable on demand, or at
sight, or on presentation; or
(b) In which no time for payment is expressed.
Where an instrument is issued, accepted, or indorsed when
overdue, it is, as regards the person so issuing, accepting, or
indorsing it, payable on demand.
Sec. 8. When payable to order. - The instrument is payable to
order where it is drawn payable to the order of a specified
person or to him or his order. It may be drawn payable to the
order of:
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order, the payee must be
named or otherwise indicated therein with reasonable
certainty.
Sec. 9. When payable to bearer. - The instrument is payable to
bearer:
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer;
or
(c) When it is payable to the order of a fictitious or non-
existing person, and such fact was known to the person
making it so payable; or
(d) When the name of the payee does not purport to be the
name of any
person; or
(e) When the only or last indorsement is an indorsement in
blank.
Sec. 10. Terms, when sufficient. - The instrument need not
follow the language of this Act, but any terms are sufficient
which clearly indicate an intention to conform to the
requirements hereof.
Sec. 11. Date, presumption as to. - Where the instrument or an
acceptance or any indorsement thereon is dated, such date is
deemed prima facie to be the true date of the making,
drawing, acceptance, or indorsement, as the case may be.
chanrobles law
Sec. 12. Ante-dated and post-dated. - The instrument is not
invalid for
the reason only that it is ante-dated or post-dated, provided
this is not done for an illegal or fraudulent purpose. The
person to whom an instrument so dated is delivered acquires
the title thereto as of the date of delivery.
Sec. 13. When date may be inserted. - Where an instrument
expressed to be payable at a fixed period after date is issued
undated, or where the acceptance of an instrument payable at
a fixed period after sight is undated, any holder may insert
therein the true date of issue or acceptance, and the
instrument shall be payable accordingly. The insertion of a
wrong date does not avoid the instrument in the hands of a
subsequent holder in due course; but as to him, the date so
inserted is to be regarded as the true date.
Sec. 14. Blanks; when may be filled. - Where the instrument is
wanting in any material particular, the person in possession
thereof has a prima facie authority to complete it by filling up
the blanks therein. And a signature on a blank paper delivered
by the person making the signature in order that the paper
may be converted into a negotiable instrument operates as a
prima facie authority to fill it up as such for any amount. In
order, however, that any such instrument when completed
may be enforced against any person who became a party
thereto prior to its completion, it must be filled up strictly in
accordance with the authority given and within a reasonable
time. But if any such instrument, after completion, is
negotiated to a holder in due course, it is valid and effectual
for all purposes in his hands, and he may enforce it as if it had
been filled up strictly in accordance with the authority given
and within a reasonable time.
Sec. 15. Incomplete instrument not delivered. - Where an
incomplete instrument has not been delivered, it will not, if
completed and negotiated without authority, be a valid
contract in the hands of any holder, as against any person
whose signature was placed thereon before delivery.
Sec. 16. Delivery; when effectual; when presumed. - Every
contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose of
giving effect thereto. As between immediate parties and as
regards a remote party other than a holder in due course, the
delivery, in order to be effectual, must be made
either by or under the authority of the party making, drawing,
accepting, or indorsing, as the case may be; and, in such case,
the delivery may be shown to have been conditional, or for a
special purpose only, and not for the purpose of transferring
the property in the instrument. But where the instrument is
in the hands of a holder in due course, a valid delivery thereof
by all parties prior to him so as to make them liable to him is
conclusively presumed. And where the instrument is no longer
in the possession of a party whose signature appears thereon,
a valid and intentional delivery by him is presumed until the
contrary is proved.
Sec. 17. Construction where instrument is ambiguous. - Where
the language of the instrument is ambiguous or there are
omissions therein, the following rules of construction apply:
(a) Where the sum payable is expressed in words and also
in figures and there is a discrepancy between the two, the sum
denoted by the words is the sum payable; but if the words are
ambiguous or uncertain, reference may be had to the figures to
fix the amount;
(b) Where the instrument provides for the payment of
interest, without specifying the date from which interest is to
run, the interest runs from the date of the instrument, and if
the instrument is undated, from the issue thereof;
(c) Where the instrument is not dated, it will be considered
to be dated as of the time it was issued;
(d) Where there is a conflict between the written and
printed provisions of the instrument, the written provisions
prevail;
(e) Where the instrument is so ambiguous that there is
doubt whether it is a bill or note, the holder may treat it as
either at his election;
(f) Where a signature is so placed upon the instrument
that it is not clear in what capacity the person making the
same intended to sign, he is to be deemed an indorser;
(g) Where an instrument containing the word "I promise to
pay"
is signed by two or more persons, they are deemed to be jointly
and severally liable thereon.
Sec. 18. Liability of person signing in trade or assumed name.
- No person is liable on the instrument whose signature does
not appear thereon, except as herein otherwise expressly
provided. But one who signs in a trade or assumed name will
be liable to the same extent as if he had signed in his own
name.
Sec. 19. Signature by agent; authority; how shown. - The
signature of any party may be made by a duly authorized
agent. No particular form of appointment is necessary for this
purpose; and the authority of the agent may be established as
in other cases of agency.
Sec. 20. Liability of person signing as agent, and so forth. -
Where the instrument contains or a person adds to his
signature words indicating that he signs for or on behalf of a
principal or in a representative capacity, he is not liable on the
instrument if he was duly authorized; but the mere addition of
words describing him as an agent, or as filling a
representative character, without disclosing his principal, does
not exempt him from personal liability.
Sec. 21. Signature by procuration; effect of. - A signature by
"procuration" operates as notice that the agent has but a
limited authority to sign, and the principal is bound only in
case the agent in so signing acted within the actual limits of
his authority.
Sec. 22. Effect of indorsement by infant or corporation.- The
indorsement or assignment of the instrument by a corporation
or by an infant passes the property therein, notwithstanding
that from want of capacity, the corporation or infant may incur
no liability thereon.
Sec. 23. Forged signature; effect of. - When a signature is
forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no
right to retain the instrument, or to give a discharge therefor,
or to enforce payment thereof against any party thereto, can
be acquired through or under such signature, unless the party
against whom it is sought to enforce such right is precluded
from setting up the forgery or want of authority.
II. CONSIDERATION
Sec. 24. Presumption of consideration. - Every negotiable
instrument is deemed prima facie to have been issued for a
valuable consideration; and every person whose signature
appears thereon to have become a party thereto for value.
Sec. 25. Value, what constitutes. — Value is any consideration
sufficient to support a simple contract. An antecedent or pre-
existing debt constitutes value; and is deemed such whether
the instrument is payable on demand or at a future time.
Sec. 26. What constitutes holder for value. - Where value has
at any time been given for the instrument, the holder is
deemed a holder for value in respect to all parties who become
such prior to that time.
Sec. 27. When lien on instrument constitutes holder for value.
— Where the holder has a lien on the instrument arising
either from contract or by implication of law, he is deemed a
holder for value to the extent of his lien.
Sec. 28. Effect of want of consideration. - Absence or failure of
consideration is a matter of defense as against any person not
a holder in due course; and partial failure of consideration is a
defense pro tanto, whether the failure is an ascertained and
liquidated amount or otherwise.
Sec. 29. Liability of accommodation party. - An accommodation
party is one who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value therefor, and for
the purpose of lending his name to some other person. Such a
person is liable on the instrument to a holder for value,
notwithstanding such holder, at the time of taking the
instrument, knew him to be only an accommodation party.
III. NEGOTIATION
Sec. 30. What constitutes negotiation. - An instrument is
negotiated when it is transferred from one person to another
in such manner as
to constitute the transferee the holder thereof. If payable to
bearer, it is negotiated by delivery; if payable to order, it is
negotiated by the indorsement of the holder and completed by
delivery.
Sec. 31. Indorsement; how made. - The indorsement must be
written on the instrument itself or upon a paper attached
thereto. The signature of the indorser, without additional
words, is a sufficient indorsement.
Sec. 32. Indorsement must be of entire instrument. - The
indorsement must be an indorsement of the entire instrument.
An indorsement which purports to transfer to the indorsee a
part only of the amount payable, or which purports to transfer
the instrument to two or more indorsees severally, does not
operate as a negotiation of the instrument. But where the
instrument has been paid in part, it may be indorsed as to the
residue.
Sec. 33. Kinds of indorsement. - An indorsement may be either
special or in blank; and it may also be either restrictive or
qualified or conditional.
Sec. 34. Special indorsement; indorsement in blank. - A special
indorsement specifies the person to whom, or to whose order,
the instrument is to be payable, and the indorsement of such
indorsee is necessary to the further negotiation of the
instrument. An indorsement in blank specifies no indorsee,
and an instrument so indorsed is payable to bearer, and may
be negotiated by delivery.
Sec. 35. Blank indorsement; how changed to special
indorsement. - The holder may convert a blank indorsement
into a special indorsement by writing over the signature of the
indorser in blank any contract consistent with the character of
the indorsement.
Sec. 36. When indorsement restrictive. - An indorsement is
restrictive which either:
(a) Prohibits the further negotiation of the instrument; or
(b) Constitutes the indorsee the agent of the indorser; or
(c) Vests the title in the indorsee in trust for or to the use of
some other persons.
But the mere absence of words implying power to negotiate
does not make an indorsement restrictive.
Sec. 37. Effect of restrictive indorsement; rights of indorsee. -
A restrictive indorsement confers upon the indorsee the right:
(a) to receive payment of the instrument;
(b) to bring any action thereon that the indorser could
bring;
(c) to transfer his rights as such indorsee, where the form
of the
indorsement authorizes him to do so.
But all subsequent indorsees acquire only the title of the first
indorsee under the restrictive indorsement.
Sec. 38. Qualified indorsement. - A qualified indorsement
constitutes the indorser a mere assignor of the title to the
instrument. It may be made by adding to the indorser's
signature the words "without recourse" or any words of similar
import. Such an indorsement does not impair the negotiable
character of the instrument.
Sec. 39. Conditional indorsement. - Where an indorsement is
conditional, the party required to pay the instrument may
disregard the condition and make payment to the indorsee or
his transferee whether the condition has been fulfilled or not.
But any person to whom an instrument so indorsed is
negotiated will hold the same, or the proceeds thereof, subject
to the rights of the person indorsing conditionally.
Sec. 40. Indorsement of instrument payable to bearer. - Where
an instrument, payable to bearer, is indorsed specially, it may
nevertheless be further negotiated by delivery; but the person
indorsing specially is liable as indorser to only such holders as
make title through his indorsement.
Sec. 41. Indorsement where payable to two or more persons. -
Where an instrument is payable to the order of two or more
payees or indorsees who are not partners, all must indorse
unless the one indorsing has authority to indorse for the
others.
Sec. 42. Effect of instrument drawn or indorsed to a person as
cashier. - Where an instrument is drawn or indorsed to a
person as "cashier" or other fiscal officer of a bank or
corporation, it is deemed prima facie to be payable to the bank
or corporation of which he is such officer, and may be
negotiated by either the indorsement of the bank or
corporation or the indorsement of the officer.
Sec. 43. Indorsement where name is misspelled, and so forth. -
Where the name of a payee or indorsee is wrongly designated
or misspelled, he may indorse the instrument as therein
described adding, if he thinks fit, his proper signature.
Sec. 44. Indorsement in representative capacity. - Where any
person is under obligation to indorse in a representative
capacity, he may indorse in such terms as to negative personal
liability. robles virtual law library
Sec. 45. Time of indorsement; presumption. - Except where an
indorsement bears date after the maturity of the instrument,
every negotiation is deemed prima facie to have been effected
before the instrument was overdue.
Sec. 46. Place of indorsement; presumption. - Except where the
contrary appears, every indorsement is presumed prima facie
to have been made at the place where the instrument is dated.
Sec. 47. Continuation of negotiable character. - An instrument
negotiable in its origin continues to be negotiable until it has
been restrictively indorsed or discharged by payment or
otherwise.
Sec. 48. Striking out indorsement. - The holder may at any
time strike out any indorsement which is not necessary to his
title. The indorser whose indorsement is struck out, and all
indorsers subsequent to him, are thereby relieved from
liability on the instrument.
Sec. 49. Transfer without indorsement; effect of. - Where the
holder of an instrument payable to his order transfers it for
value without indorsing it, the transfer vests in the transferee
such title as the transferor had therein, and the transferee
acquires in addition, the
right to have the indorsement of the transferor. But for the
purpose of determining whether the transferee is a holder in
due course, the negotiation takes effect as of the time when
the indorsement is actually made.
Sec. 50. When prior party may negotiate instrument. - Where
an instrument is negotiated back to a prior party, such party
may, subject to the provisions of this Act, reissue and further
negotiable the same. But he is not entitled to enforce payment
thereof against any intervening party to whom he was
personally liable.
IV. RIGHTS OF THE HOLDER
Sec. 51. Right of holder to sue; payment. - The holder of a
negotiable instrument may to sue thereon in his own name;
and payment to him in due course discharges the instrument.
Sec. 52. What constitutes a holder in due course. - A holder in
due course is a holder who has taken the instrument under the
following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue,
and without notice that it has been previously dishonored, if
such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no
notice of any infirmity in the instrument or defect in the title
of the person negotiating it.
Sec. 53. When person not deemed holder in due course. -
Where an instrument payable on demand is negotiated on an
unreasonable length of time after its issue, the holder is not
deemed a holder in due course.
Sec. 54. Notice before full amount is paid. - Where the
transferee receives notice of any infirmity in the instrument or
defect in the title of the person negotiating the same before he
has paid the full amount agreed to be paid therefor, he will be
deemed a holder in due course
only to the extent of the amount therefore paid by him.
Sec. 55. When title defective. - The title of a person who
negotiates an instrument is defective within the meaning of
this Act when he obtained the instrument, or any signature
thereto, by fraud, duress, or force and fear, or other unlawful
means, or for an illegal consideration, or when he negotiates it
in breach of faith, or under such circumstances as amount to a
fraud.
Sec. 56. What constitutes notice of defect. - To constitutes
notice of an infirmity in the instrument or defect in the title of
the person negotiating the same, the person to whom it is
negotiated must have had actual knowledge of the infirmity or
defect, or knowledge of such facts that his action in taking the
instrument amounted to bad faith.
Sec. 57. Rights of holder in due course. - A holder in due course
holds the instrument free from any defect of title of prior
parties, and free from defenses available to prior parties
among themselves, and may enforce payment of the
instrument for the full amount thereof against all parties
liable thereon. robles virtual law library
Sec. 58. When subject to original defense. - In the hands of any
holder other than a holder in due course, a negotiable
instrument is subject to the same defenses as if it were non-
negotiable. But a holder who derives his title through a holder
in due course, and who is not himself a party to any fraud or
illegality affecting the instrument, has all the rights of such
former holder in respect of all parties prior to the latter.
Sec. 59. Who is deemed holder in due course. - Every holder is
deemed prima facie to be a holder in due course; but when it is
shown that the title of any person who has negotiated the
instrument was defective, the burden is on the holder to prove
that he or some person under whom he claims acquired the
title as holder in due course. But the last- mentioned rule does
not apply in favor of a party who became bound on the
instrument prior to the acquisition of such defective title.
V. LIABILITIES OF PARTIES
Sec. 60. Liability of maker. - The maker of a negotiable
instrument, by making it, engages that he will pay it
according to its tenor, and admits the existence of the payee
and his then capacity to indorse.
Sec. 61. Liability of drawer. - The drawer by drawing the
instrument admits the existence of the payee and his then
capacity to indorse; and engages that, on due presentment, the
instrument will be accepted or paid, or both, according to its
tenor, and that if it be dishonored and the necessary
proceedings on dishonor be duly taken, he will pay the amount
thereof to the holder or to any subsequent indorser who may
be compelled to pay it. But the drawer may insert in the
instrument an express stipulation negativing or limiting his
own liability to the holder.
Sec. 62. Liability of acceptor. - The acceptor, by accepting the
instrument, engages that he will pay it according to the tenor
of his acceptance and admits:
(a) The existence of the drawer, the genuineness of his
signature, and his capacity and authority to draw the
instrument; and
(b) The existence of the payee and his then capacity to
indorse. Sec. 63. When a person deemed indorser. - A person
placing his signature upon an instrument otherwise than as
maker, drawer, or acceptor, is deemed to be indorser unless he
clearly indicates by appropriate words his intention to be
bound in some other capacity.
Sec. 64. Liability of irregular indorser. - Where a person, not
otherwise a party to an instrument, places thereon his
signature in blank before delivery, he is liable as indorser, in
accordance with the following rules:
(a) If the instrument is payable to the order of a third
person, he is liable to the payee and to all subsequent parties.
(b) If the instrument is payable to the order of the maker
or drawer, or is payable to bearer, he is liable to all parties
subsequent to the maker or drawer.
(c) If he signs for the accommodation of the payee, he is
liable to all parties subsequent to the payee.
Sec. 65. Warranty where negotiation by delivery and so forth.
—
Every person negotiating an instrument by delivery or by a
qualified indorsement warrants:
(a) That the instrument is genuine and in all respects
what it purports to be;
(b) That he has a good title to it;
(c) That all prior parties had capacity to contract;
(d) That he has no knowledge of any fact which would
impair the validity of the instrument or render it valueless.
But when the negotiation is by delivery only, the warranty
extends in favor of no holder other than the immediate
transferee.
The provisions of subdivision (c) of this section do not apply to
a person negotiating public or corporation securities other
than bills and notes.
Sec. 66. Liability of general indorser. - Every indorser who
indorses without qualification, warrants to all subsequent
holders in due course:
(a) The matters and things mentioned in subdivisions (a),
(b), and (c) of the next preceding section; and
(b) That the instrument is, at the time of his indorsement,
valid and subsisting;
And, in addition, he engages that, on due presentment, it shall
be accepted or paid, or both, as the case may be, according to
its tenor, and that if it be dishonored and the necessary
proceedings on dishonor be duly taken, he will pay the amount
thereof to the holder, or to any subsequent indorser who may
be compelled to pay it.
Sec. 67. Liability of indorser where paper negotiable by
delivery. —
Where a person places his indorsement on an instrument
negotiable by delivery, he incurs all the liability of an indorser.
Sec. 68. Order in which indorsers are liable. - As respect one
another, indorsers are liable prima facie in the order in which
they indorse; but evidence is admissible to show that, as
between or
among themselves, they have agreed otherwise. Joint payees
or joint indorsees who indorse are deemed to indorse jointly
and severally. robles virtual law library
Sec. 69. Liability of an agent or broker. - Where a broker or
other agent negotiates an instrument without indorsement, he
incurs all the liabilities prescribed by Section Sixty-five of this
Act, unless he discloses the name of his principal and the fact
that he is acting only as agent.
VI. PRESENTATION FOR PAYMENT
Sec. 70. Effect of want of demand on principal debtor. -
Presentment for payment is not necessary in order to charge
the person primarily liable on the instrument; but if the
instrument is, by its terms, payable at a special place, and he
is able and willing to pay it there at maturity, such ability and
willingness are equivalent to a tender of payment upon his
part. But except as herein otherwise provided, presentment for
payment is necessary in order to charge the drawer and
indorsers.
Sec. 71. Presentment where instrument is not payable on
demand and where payable on demand. - Where the
instrument is not payable on demand, presentment must be
made on the day it falls due. Where it is payable on demand,
presentment must be made within a reasonable time after its
issue, except that in the case of a bill of exchange,
presentment for payment will be sufficient if made within a
reasonable time after the last negotiation thereof.
Sec. 72. What constitutes a sufficient presentment. -
Presentment for payment, to be sufficient, must be made:
(a) By the holder, or by some person authorized to receive
payment on his behalf;
(b) At a reasonable hour on a business day;
(c) At a proper place as herein defined;
(d) To the person primarily liable on the instrument, or if
he is
absent or inaccessible, to any person found at the place where
the presentment is made.
Sec. 73. Place of presentment. - Presentment for payment is
made at the proper place:
(a) Where a place of payment is specified in the instrument
and it is there presented;
(b) Where no place of payment is specified but the address
of the person to make payment is given in the instrument and
it is there presented;
(c) Where no place of payment is specified and no address
is given and the instrument is presented at the usual place of
business or residence of the person to make payment;
(d) In any other case if presented to the person to make
payment wherever he can be found, or if presented at his last
known place of business or residence.
Sec. 74. Instrument must be exhibited. - The instrument must
be exhibited to the person from whom payment is demanded,
and when it is paid, must be delivered up to the party paying
it.
Sec. 75. Presentment where instrument payable at bank. -
Where the instrument is payable at a bank, presentment for
payment must be made during banking hours, unless the
person to make payment has no funds there to meet it at any
time during the day, in which case presentment at any hour
before the bank is closed on that day is sufficient.
Sec. 76. Presentment where principal debtor is dead. - Where
the person primarily liable on the instrument is dead and no
place of payment is specified, presentment for payment must
be made to his personal representative, if such there be, and if,
with the exercise of reasonable diligence, he can be found.
Sec. 77. Presentment to persons liable as partners. - Where
the persons primarily liable on the instrument are liable as
partners and no place of payment is specified, presentment for
payment may be made to any one of them, even though there
has been a dissolution of the firm.
Sec. 78. Presentment to joint debtors. - Where there are
several persons, not partners, primarily liable on the
instrument and no place of payment is specified, presentment
must be made to them all.
Sec. 79. When presentment not required to charge the drawer.
-
Presentment for payment is not required in order to charge
the drawer where he has no right to expect or require that the
drawee or acceptor will pay the instrument.
Sec. 80. When presentment not required to charge the
indorser. -
Presentment is not required in order to charge an indorser
where the instrument was made or accepted for his
accommodation and he has no reason to expect that the
instrument will be paid if presented.
Sec. 81. When delay in making presentment is excused. -
Delay in making presentment for payment is excused when
the delay is caused by circumstances beyond the control of the
holder and not imputable to his default, misconduct, or
negligence. When the cause of delay ceases to operate,
presentment must be made with reasonable diligence.
Sec. 82. When presentment for payment is excused. -
Presentment for payment is excused:
(a) Where, after the exercise of reasonable diligence,
presentment, as required by this Act, cannot be made;
(b) Where the drawee is a fictitious person;
(c) By waiver of presentment, express or implied.
Sec. 83. When instrument dishonored by non-payment. - The
instrument is dishonored by non-payment when:
(a) It is duly presented for payment and payment is
refused or cannot be obtained; or
(b) Presentment is excused and the instrument is overdue
and unpaid.
Sec. 84. Liability of person secondarily liable, when
instrument dishonored. - Subject to the provisions of this Act,
when the instrument is dishonored by non-payment, an
immediate right of
recourse to all parties secondarily liable thereon accrues to the
holder. robles virtual law library
Sec. 85. Time of maturity. - Every negotiable instrument is
payable at the time fixed therein without grace. When the day
of maturity falls upon Sunday or a holiday, the instruments
falling due or becoming payable on Saturday are to be
presented for payment on the next succeeding business day
except that instruments payable on demand may, at the option
of the holder, be presented for payment before twelve o'clock
noon on Saturday when that entire day is not a holiday.
Sec. 86. Time; how computed. - When the instrument is
payable at a fixed period after date, after sight, or after that
happening of a specified event, the time of payment is
determined by excluding the day from which the time is to
begin to run, and by including the date of payment.
Sec. 87. Rule where instrument payable at bank. - Where the
instrument is made payable at a bank, it is equivalent to an
order to the bank to pay the same for the account of the
principal debtor thereon.
Sec. 88. What constitutes payment in due course. - Payment is
made in due course when it is made at or after the maturity of
the payment to the holder thereof in good faith and without
notice that his title is defective.
VII. NOTICE OF DISHONOR
Sec. 89. To whom notice of dishonor must be given. - Except as
herein otherwise provided, when a negotiable instrument has
been dishonored by non-acceptance or non-payment, notice of
dishonor must be given to the drawer and to each indorser,
and any drawer or indorser to whom such notice is not given is
discharged.
Sec. 90. By whom given. - The notice may be given by or on
behalf of the holder, or by or on behalf of any party to the
instrument who might be compelled to pay it to the holder,
and who, upon taking it up, would have a right to
reimbursement from the party to whom the notice is given.
Sec. 91. Notice given by agent. - Notice of dishonor may be
given by any agent either in his own name or in the name of
any party entitled to given notice, whether that party be his
principal or not.
Sec. 92. Effect of notice on behalf of holder. - Where notice is
given by or on behalf of the holder, it inures to the benefit of
all subsequent holders and all prior parties who have a right
of recourse against the party to whom it is given.
Sec. 93. Effect where notice is given by party entitled thereto. -
Where notice is given by or on behalf of a party entitled to give
notice, it inures to the benefit of the holder and all parties
subsequent to the party to whom notice is given. chanrobles
law
Sec. 94. When agent may give notice. - Where the instrument
has been dishonored in the hands of an agent, he may either
himself give notice to the parties liable thereon, or he may give
notice to his principal. If he gives notice to his principal, he
must do so within the same time as if he were the holder, and
the principal, upon the receipt of such notice, has himself the
same time for giving notice as if the agent had been an
independent holder.
Sec. 95. When notice sufficient. - A written notice need not be
signed and an insufficient written notice may be supplemented
and validated by verbal communication. A misdescription of
the instrument does not vitiate the notice unless the party to
whom the notice is given is in fact misled thereby.
Sec. 96. Form of notice. - The notice may be in writing or
merely oral and may be given in any terms which sufficiently
identify the instrument, and indicate that it has been
dishonored by non-acceptance or non-payment. It may in all
cases be given by delivering it personally or through the mails.
Sec. 97. To whom notice may be given. - Notice of dishonor
may be given either to the party himself or to his agent in that
behalf.
Sec. 98. Notice where party is dead. - When any party is dead
and his death is known to the party giving notice, the notice
must be given
to a personal representative, if there be one, and if with
reasonable diligence, he can be found. If there be no personal
representative, notice may be sent to the last residence or last
place of business of the deceased.
Sec. 99. Notice to partners. - Where the parties to be notified
are partners, notice to any one partner is notice to the firm,
even though there has been a dissolution.
Sec. 100. Notice to persons jointly liable. - Notice to joint
persons who are not partners must be given to each of them
unless one of them has authority to receive such notice for the
others.
Sec. 101. Notice to bankrupt. - Where a party has been
adjudged a bankrupt or an insolvent, or has made an
assignment for the benefit of creditors, notice may be given
either to the party himself or to his trustee or assignee.
Sec. 102. Time within which notice must be given. - Notice
may be given as soon as the instrument is dishonored and,
unless delay is excused as hereinafter provided, must be given
within the time fixed by this Act.
Sec. 103. Where parties reside in same place. - Where the
person giving and the person to receive notice reside in the
same place, notice must be given within the following times:
(a) If given at the place of business of the person to receive
notice, it must be given before the close of business hours on
the day following.
(b) If given at his residence, it must be given before the
usual hours of rest on the day following.
(c) If sent by mail, it must be deposited in the post office in
time
to reach him in usual course on the day following.
Sec. 104. Where parties reside in different places. - Where the
person giving and the person to receive notice reside in
different places, the notice must be given within the following
times:
(a) If sent by mail, it must be deposited in the post office in
time to go by mail the day following the day of dishonor, or if
there
be no mail at a convenient hour on last day, by the next mail
thereafter.
(b) If given otherwise than through the post office, then within
the time that notice would have been received in due course of
mail, if it had been deposited in the post office within the time
specified in the last subdivision.
Sec. 105. When sender deemed to have given due notice. -
Where notice of dishonor is duly addressed and deposited in
the post office, the sender is deemed to have given due notice,
notwithstanding any miscarriage in the mails.
Sec. 106. Deposit in post office; what constitutes. - Notice is
deemed to have been deposited in the post-office when
deposited in any branch post office or in any letter box under
the control of the post-office department.
Sec. 107. Notice to subsequent party; time of. - Where a party
receives notice of dishonor, he has, after the receipt of such
notice, the same time for giving notice to antecedent parties
that the holder has after the dishonor.
Sec. 108. Where notice must be sent. - Where a party has
added an address to his signature, notice of dishonor must be
sent to that address; but if he has not given such address, then
the notice must be sent as follows:
(a) Either to the post-office nearest to his place of
residence or to the post-office where he is accustomed to
receive his letters; or
(b) If he lives in one place and has his place of business in
another, notice may be sent to either place; or
(c) If he is sojourning in another place, notice may be sent
to
the place where he is so sojourning.
But where the notice is actually received by the party within
the time specified in this Act, it will be sufficient, though not
sent in accordance with the requirement of this section.
Sec. 109. Waiver of notice. - Notice of dishonor may be waived
either
before the time of giving notice has arrived or after the
omission to give due notice, and the waiver may be expressed
or implied.
Sec. 110. Whom affected by waiver. - Where the waiver is
embodied in the instrument itself, it is binding upon all
parties; but, where it is written above the signature of an
indorser, it binds him only.
Sec. 111. Waiver of protest. - A waiver of protest, whether in
the case of a foreign bill of exchange or other negotiable
instrument, is deemed to be a waiver not only of a formal
protest but also of presentment and notice of dishonor.
Sec. 112. When notice is dispensed with. - Notice of dishonor is
dispensed with when, after the exercise of reasonable
diligence, it cannot be given to or does not reach the parties
sought to be charged.
Sec. 113. Delay in giving notice; how excused. - Delay in giving
notice of dishonor is excused when the delay is caused by
circumstances beyond the control of the holder and not
imputable to his default, misconduct, or negligence. When the
cause of delay ceases to operate, notice must be given with
reasonable diligence.
Sec. 114. When notice need not be given to drawer. - Notice of
dishonor is not required to be given to the drawer in either of
the following cases:
(a) Where the drawer and drawee are the same person;
(b) When the drawee is fictitious person or a person not
having capacity to contract;
(c) When the drawer is the person to whom the instrument
is presented for payment;
(d) Where the drawer has no right to expect or require that
the drawee or acceptor will honor the instrument;
(e) Where the drawer has countermanded payment.
Sec. 115. When notice need not be given to indorser. — Notice
of dishonor is not required to be given to an indorser in either
of the following cases:
(a) When the drawee is a fictitious person or person not
having capacity to contract, and the indorser was aware of
that fact at the time he indorsed the instrument;
(b) Where the indorser is the person to whom the
instrument is presented for payment;
(c) Where the instrument was made or accepted for his
accommodation.
Sec. 116. Notice of non-payment where acceptance refused. -
Where due notice of dishonor by non-acceptance has been
given, notice of a subsequent dishonor by non- payment is not
necessary unless in the meantime the instrument has been
accepted.
Sec. 117. Effect of omission to give notice of non-acceptance. -
An omission to give notice of dishonor by non-acceptance does
not prejudice the rights of a holder in due course subsequent to
the omission.
Sec. 118. When protest need not be made; when must be made.
- Where any negotiable instrument has been dishonored, it
may be protested for non -acceptance or non-payment, as the
case may be; but protest is not required except in the case of
foreign bills of exchange. robles virtual law library
VIII. DISCHARGE OF NEGOTIABLE INSTRUMENTS
Sec. 119. Instrument; how discharged. - A negotiable
instrument is discharged:
(a) By payment in due course by or on behalf of the
principal debtor;
(b) By payment in due course by the party accommodated,
where the instrument is made or accepted for his
accommodation;
(c) By the intentional cancellation thereof by the holder;
(d) By any other act which will discharge a simple contract
for the payment of money;
(e) When the principal debtor becomes the holder of the
instrument at or after maturity in his own right.
Sec. 120. When persons secondarily liable on the instrument
are discharged. - A person secondarily liable on the instrument
is discharged:
(a) By any act which discharges the instrument;
(b) By the intentional cancellation of his signature by the
holder;
(c) By the discharge of a prior party;
(d) By a valid tender or payment made by a prior party;
(e) By a release of the principal debtor unless the holder's
right of recourse against the party secondarily liable is
expressly reserved;
(f) By any agreement binding upon the holder to extend
the time of payment or to postpone the holder's right to enforce
the instrument unless made with the assent of the party
secondarily liable or unless the right of recourse against such
party is
expressly reserved.
Sec. 121. Right of party who discharges instrument. - Where
the instrument is paid by a party secondarily liable thereon, it
is not discharged; but the party so paying it is remitted to his
former rights as regard all prior parties, and he may strike out
his own and all subsequent indorsements and against
negotiate the instrument, except:
(a) Where it is payable to the order of a third person and
has been paid by the drawer; and
(b) Where it was made or accepted for accommodation and
has been paid by the party accommodated.
Sec. 122. Renunciation by holder. - The holder may expressly
renounce his rights against any party to the instrument
before, at, or after its maturity. An absolute and unconditional
renunciation of his
rights against the principal debtor made at or after the
maturity of the instrument discharges the instrument. But a
renunciation does not affect the rights of a holder in due
course without notice. A renunciation must be in writing
unless the instrument is delivered up to the person primarily
liable thereon.
Sec. 123. Cancellation; unintentional; burden of proof. - A
cancellation made unintentionally or under a mistake or
without the authority of the holder, is inoperative but where
an instrument or any signature thereon appears to have been
cancelled, the burden of proof lies on the party who alleges
that the cancellation was made unintentionally or under a
mistake or without authority.
Sec. 124. Alteration of instrument; effect of. - Where a
negotiable instrument is materially altered without the assent
of all parties liable thereon, it is avoided, except as against a
party who has himself made, authorized, or assented to the
alteration and subsequent indorsers.
But when an instrument has been materially altered and is in
the hands of a holder in due course not a party to the
alteration, he may enforce payment thereof according to its
original tenor.
Sec. 125. What constitutes a material alteration. - Any
alteration which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment:
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be
made;
(f) Or which adds a place of payment where no place of
payment is specified, or any other change or addition which
alters the effect of the instrument in any respect, is a material
alteration.
BILLS OF EXCHANGE
IX. FORM AND INTERPRETATION
Sec. 126. Bill of exchange, defined. - A bill of exchange is an
unconditional order in writing addressed by one person to
another, signed by the person giving it, requiring the person to
whom it is addressed to pay on demand or at a fixed or
determinable future time a sum certain in money to order or to
bearer.
Sec. 127. Bill not an assignment of funds in hands of drawee. -
A bill of itself does not operate as an assignment of the funds
in the hands of the drawee available for the payment thereof,
and the drawee is not liable on the bill unless and until he
accepts the same.
Sec. 128. Bill addressed to more than one drawee. - A bill may
be addressed to two or more drawees jointly, whether they are
partners or not; but not to two or more drawees in the
alternative or in succession.
Sec. 129. Inland and foreign bills of exchange. - An inland bill
of exchange is a bill which is, or on its face purports to be, both
drawn and payable within the Philippines. Any other bill is a
foreign bill. Unless the contrary appears on the face of the bill,
the holder may treat it as an inland bill.
Sec. 130. When bill may be treated as promissory note. -
Where in a bill the drawer and drawee are the same person or
where the drawee is a fictitious person or a person not having
capacity to contract, the holder may treat the instrument at
his option either as a bill of exchange or as a promissory note.
Sec. 131. Referee in case of need. - The drawer of a bill and any
indorser may insert thereon the name of a person to whom the
holder may resort in case of need; that is to say, in case the bill
is dishonored by non -acceptance or non- payment. Such
person is called a referee in case of need. It is in the option of
the holder to resort to the referee in case of need or not as he
may see fit.
X. ACCEPTANCE
Sec. 132. Acceptance; how made, by and so forth. - The
acceptance of a bill is the signification by the drawee of his
assent to the order of the drawer. The acceptance must be in
writing and signed by the drawee. It must not express that the
drawee will perform his promise by any other means than the
payment of money.
Sec. 133. Holder entitled to acceptance on face of bill. - The
holder of a bill presenting the same for acceptance may require
that the acceptance be written on the bill, and, if such request
is refused, may treat the bill as dishonored.
Sec. 134. Acceptance by separate instrument. - Where an
acceptance is written on a paper other than the bill itself, it
does not bind the acceptor except in favor of a person to whom
it is shown and who, on the faith thereof, receives the bill for
value.
Sec. 135. Promise to accept; when equivalent to acceptance. -
An unconditional promise in writing to accept a bill before it is
drawn is deemed an actual acceptance in favor of every person
who, upon the faith thereof, receives the bill for value.
Sec. 136. Time allowed drawee to accept. - The drawee is
allowed twenty -four hours after presentment in which to
decide whether or not he will accept the bill; the acceptance, if
given, dates as of the day of presentation.
Sec. 137. Liability of drawee returning or destroying bill. -
Where a drawee to whom a bill is delivered for acceptance
destroys the same, or refuses within twenty-four hours after
such delivery or within such other period as the holder may
allow, to return the bill accepted or non-accepted to the holder,
he will be deemed to have accepted the same.
Sec. 138. Acceptance of incomplete bill. - A bill may be
accepted before it has been signed by the drawer, or while
otherwise incomplete, or when it is overdue, or after it has
been dishonored by a previous refusal to accept, or by non
payment. But when a bill payable after sight is dishonored by
non-acceptance and the drawee subsequently accepts it, the
holder, in the absence of any different agreement, is entitled to
have the bill accepted as of the date of the
first presentment.
Sec. 139. Kinds of acceptance. - An acceptance is either
general or qualified. A general acceptance assents without
qualification to the order of the drawer. A qualified acceptance
in express terms varies the effect of the bill as drawn.
Sec. 140. What constitutes a general acceptance. - An
acceptance to pay at a particular place is a general acceptance
unless it expressly states that the bill is to be paid there only
and not elsewhere.
Sec. 141. Qualified acceptance. - An acceptance is qualified
which is:
(a) Conditional; that is to say, which makes payment by
the acceptor dependent on the fulfillment of a condition
therein stated;
(b) Partial; that is to say, an acceptance to pay part only of
the amount for which the bill is drawn;
(c) Local; that is to say, an acceptance to pay only at a
particular place;
(d) Qualified as to time;
(e) The acceptance of some, one or more of the drawees but
not of all.
Sec. 142. Rights of parties as to qualified acceptance. - The
holder may refuse to take a qualified acceptance and if he does
not obtain an unqualified acceptance, he may treat the bill as
dishonored by non -acceptance. Where a qualified acceptance
is taken, the drawer and indorsers are discharged from
liability on the bill unless they have expressly or impliedly
authorized the holder to take a qualified acceptance, or
subsequently assent thereto. When the drawer or an indorser
receives notice of a qualified acceptance, he must, within a
reasonable time, express his dissent to the holder or he will be
deemed to have assented thereto.
XI. PRESENTMENT FOR ACCEPTANCE
Sec. 143. When presentment for acceptance must be made. -
Presentment for acceptance must be made:
(a) Where the bill is payable after sight, or in any other
case, where presentment for acceptance is necessary in order
to fix the maturity of the instrument; or
(b) Where the bill expressly stipulates that it shall be
presented for acceptance; or
(c) Where the bill is drawn payable elsewhere than at the
residence or place of business of the drawee.
In no other case is presentment for acceptance necessary in
order to render any party to the bill liable.
Sec. 144. When failure to present releases drawer and
indorser. - Except as herein otherwise provided, the holder of a
bill which is required by the next preceding section to be
presented for acceptance must either present it for acceptance
or negotiate it within a reasonable time. If he fails to do so, the
drawer and all indorsers are discharged.
Sec. 145. Presentment; how made. - Presentment for
acceptance must be made by or on behalf of the holder at a
reasonable hour, on a business day and before the bill is
overdue, to the drawee or some person authorized to accept or
refuse acceptance on his behalf; and
(a) Where a bill is addressed to two or more drawees who
are not partners, presentment must be made to them all
unless one has authority to accept or refuse acceptance for all,
in which case presentment may be made to him only;
(b) Where the drawee is dead, presentment may be made
to his personal representative;
(c) Where the drawee has been adjudged a bankrupt or an
insolvent or has made an assignment for the benefit of
creditors, presentment may be made to him or to his trustee or
assignee.
Sec. 146. On what days presentment may be made. - A bill
may be presented for acceptance on any day on which
negotiable
instruments may be presented for payment under the
provisions of Sections seventy-two and eighty-five of this Act.
When Saturday is not otherwise a holiday, presentment for
acceptance may be made before twelve o'clock noon on that
day.
Sec. 147. Presentment where time is insufficient. - Where the
holder of a bill drawn payable elsewhere than at the place of
business or the residence of the drawee has no time, with the
exercise of reasonable diligence, to present the bill for
acceptance before presenting it for payment on the day that it
falls due, the delay caused by presenting the bill for
acceptance before presenting it for payment is excused and
does not discharge the drawers and indorsers.
Sec. 148. Where presentment is excused. - Presentment for
acceptance is excused and a bill may be treated as dishonored
by non-acceptance in either of the following cases:
(a) Where the drawee is dead, or has absconded, or is a
fictitious person or a person not having capacity to contract by
bill.
(b) Where, after the exercise of reasonable diligence,
presentment can not be made.
(c) Where, although presentment has been irregular,
acceptance has been refused on some other ground.
Sec. 149. When dishonored by nonacceptance. - A bill is
dishonored by non-acceptance:
(a) When it is duly presented for acceptance and such an
acceptance as is prescribed by this Act is refused or can not be
obtained; or
(b) When presentment for acceptance is excused and the
bill is not accepted.
Sec. 150. Duty of holder where bill not accepted. - Where a bill
is duly presented for acceptance and is not accepted within the
prescribed time, the person presenting it must treat the bill as
dishonored by nonacceptance or he loses the right of recourse
against the drawer and indorsers.
Sec. 151. Rights of holder where bill not accepted. - When a
bill is dishonored by nonacceptance, an immediate right of
recourse against the drawer and indorsers accrues to the
holder and no presentment for payment is necessary.
XII. PROTEST
Sec. 152. In what cases protest necessary. - Where a foreign
bill appearing on its face to be such is dishonored by
nonacceptance, it must be duly protested for nonacceptance, by
nonacceptance is dishonored and where such a bill which has
not previously been dishonored by nonpayment, it must be
duly protested for nonpayment. If it is not so protested, the
drawer and indorsers are discharged. Where a bill does not
appear on its face to be a foreign bill, protest thereof in case of
dishonor is unnecessary.
Sec. 153. Protest; how made. - The protest must be annexed to
the bill or must contain a copy thereof, and must be under the
hand and seal of the notary making it and must specify:
(a) The time and place of presentment;
(b) The fact that presentment was made and the manner
thereof;
(c) The cause or reason for protesting the bill;
(d) The demand made and the answer given, if any, or the
fact that the drawee or acceptor could not be found.
Sec. 154. Protest, by whom made. - Protest may be made by:
(a) A notary public; or
(b) By any respectable resident of the place where the bill
is dishonored, in the presence of two or more credible
witnesses.
Sec. 155. Protest; when to be made. - When a bill is protested,
such protest must be made on the day of its dishonor unless
delay is excused as herein provided. When a bill has been duly
noted, the protest may be subsequently extended as of the date
of the noting.
Sec. 156. Protest; where made. - A bill must be protested at
the place where it is dishonored, except that when a bill drawn
payable at the
place of business or residence of some person other than the
drawee has been dishonored by nonacceptance, it must be
protested for non-payment at the place where it is expressed to
be payable, and no further presentment for payment to, or
demand on, the drawee is necessary.
Sec. 157. Protest both for non-acceptance and non -payment. -
A bill which has been protested for non-acceptance may be
subsequently protested for non-payment.
Sec. 158. Protest before maturity where acceptor insolvent. -
Where the acceptor has been adjudged a bankrupt or an
insolvent or has made an assignment for the benefit of
creditors before the bill matures, the holder may cause the bill
to be protested for better security against the drawer and
indorsers. robles virtual law library
Sec. 159. When protest dispensed with. - Protest is dispensed
with by any circumstances which would dispense with notice
of dishonor. Delay in noting or protesting is excused when
delay is caused by circumstances beyond the control of the
holder and not imputable to his default, misconduct, or
negligence. When the cause of delay ceases to operate, the bill
must be noted or protested with reasonable diligence.
Sec. 160. Protest where bill is lost and so forth. - When a bill is
lost or destroyed or is wrongly detained from the person
entitled to hold it, protest may be made on a copy or written
particulars thereof.
XIII. ACCEPTANCE FOR HONOR
Sec. 161. When bill may be accepted for honor. - When a bill of
exchange has been protested for dishonor by non-acceptance or
protested for better security and is not overdue, any person
not being a party already liable thereon may, with the consent
of the holder, intervene and accept the bill supra protest for
the honor of any party liable thereon or for the honor of the
person for whose account the bill is drawn. The acceptance for
honor may be for part only of the sum for which the bill is
drawn; and where there has been an acceptance for honor for
one party, there may be a further acceptance by a different
person for the honor of another party.
Sec. 162. Acceptance for honor; how made. - An acceptance for
honor supra protest must be in writing and indicate that it is
an acceptance for honor and must be signed by the acceptor for
honor. chanrobles law
Sec. 163. When deemed to be an acceptance for honor of the
drawer. - Where an acceptance for honor does not expressly
state for whose honor it is made, it is deemed to be an
acceptance for the honor of the drawer.
Sec. 164. Liability of the acceptor for honor. - The acceptor for
honor is liable to the holder and to all parties to the bill
subsequent to the party for whose honor he has accepted.
Sec. 165. Agreement of acceptor for honor. - The acceptor for
honor, by such acceptance, engages that he will, on due
presentment, pay the bill according to the terms of his
acceptance provided it shall not have been paid by the drawee
and provided also that is shall have been duly presented for
payment and protested for non-payment and notice of dishonor
given to him.
Sec. 166. Maturity of bill payable after sight; accepted for
honor. - Where a bill payable after sight is accepted for honor,
its maturity is calculated from the date of the noting for non-
acceptance and not from the date of the acceptance for honor.
Sec. 167. Protest of bill accepted for honor, and so forth. -
Where a dishonored bill has been accepted for honor supra
protest or contains a referee in case of need, it must be
protested for non-payment before it is presented for payment
to the acceptor for honor or referee in case of need.
Sec. 168. Presentment for payment to acceptor for honor, how
made.
- Presentment for payment to the acceptor for honor must be
made as follows:
(a) If it is to be presented in the place where the protest for
non-payment was made, it must be presented not later than
the day following its maturity.
(b) If it is to be presented in some other place than the place
where it was protested, then it must be forwarded within the
time specified in Section one hundred and four.
Sec. 169. When delay in making presentment is excused. - The
provisions of Section eighty- one apply where there is delay in
making presentment to the acceptor for honor or referee in
case of need.
Sec. 170. Dishonor of bill by acceptor for honor. - When the bill
is dishonored by the acceptor for honor, it must be protested
for non-payment by him.
XIV. PAYMENT FOR HONOR
Sec. 171. Who may make payment for honor. - Where a bill has
been protested for non-payment, any person may intervene
and pay it supra protest for the honor of any person liable
thereon or for the honor of the person for whose account it was
drawn.
Sec. 172. Payment for honor; how made. - The payment for
honor supra protest, in order to operate as such and not as a
mere voluntary payment, must be attested by a notarial act of
honor which may be appended to the protest or form an
extension to it.
Sec. 173. Declaration before payment for honor. - The notarial
act of honor must be founded on a declaration made by the
payer for honor or by his agent in that behalf declaring his
intention to pay the bill for honor and for whose honor he
pays.
Sec. 174. Preference of parties offering to pay for honor. -
Where two or more persons offer to pay a bill for the honor of
different parties, the person whose payment will discharge
most parties to the bill is to be given the preference.
Sec. 175. Effect on subsequent parties where bill is paid for
honor. - Where a bill has been paid for honor, all parties
subsequent to the party for whose honor it is paid are
discharged but the payer for honor is subrogated for, and
succeeds to, both the rights and duties of the holder as regards
the party for whose honor he pays and all parties liable to the
latter.
Sec. 176. Where holder refuses to receive payment supra
protest. -
Where the holder of a bill refuses to receive payment supra
protest, he loses his right of recourse against any party who
would have been discharged by such payment.
Sec. 177. Rights of payer for honor. - The payer for honor, on
paying to the holder the amount of the bill and the notarial
expenses incidental to its dishonor, is entitled to receive both
the bill itself and the protest.
XV. BILLS IN SET
Sec. 178. Bills in set constitute one bill. - Where a bill is drawn
in a set, each part of the set being numbered and containing a
reference to the other parts, the whole of the parts constitutes
one bill.
Sec. 179. Right of holders where different parts are negotiated.
- Where two or more parts of a set are negotiated to different
holders in due course, the holder whose title first accrues is, as
between such holders, the true owner of the bill. But nothing
in this section affects the right of a person who, in due course,
accepts or pays the parts first presented to him.
Sec. 180. Liability of holder who indorses two or more parts of
a set to different persons. - Where the holder of a set indorses
two or more parts to different persons he is liable on every
such part, and every indorser subsequent to him is liable on
the part he has himself indorsed, as if such parts were
separate bills.
Sec. 181. Acceptance of bill drawn in sets. - The acceptance
may be written on any part and it must be written on one part
only. If the drawee accepts more than one part and such
accepted parts negotiated to different holders in due course, he
is liable on every such part as if it were a separate bill.
Sec. 182. Payment by acceptor of bills drawn in sets. - When
the acceptor of a bill drawn in a set pays it without requiring
the part bearing his acceptance to be delivered up to him, and
the part at maturity is outstanding in the hands of a holder in
due course, he is liable to the holder thereon.
Sec. 183. Effect of discharging one of a set. - Except as herein
otherwise provided, where any one part of a bill drawn in a set
is discharged by payment or otherwise, the whole bill is
discharged.
XVI. PROMISSORY NOTES AND CHECKS
Sec. 184. Promissory note, defined. - A negotiable promissory
note within the meaning of this Act is an unconditional
promise in writing made by one person to another, signed by
the maker, engaging to pay on demand, or at a fixed or
determinable future time, a sum certain in money to order or
to bearer. Where a note is drawn to the maker's own order, it
is not complete until indorsed by him.
Sec. 185. Check, defined. - A check is a bill of exchange drawn
on a bank payable on demand. Except as herein otherwise
provided, the provisions of this Act applicable to a bill of
exchange payable on demand apply to a check.
Sec. 186. Within what time a check must be presented. - A
check must be presented for payment within a reasonable time
after its issue or the drawer will be discharged from liability
thereon to the extent of the loss caused by the delay.
Sec. 187. Certification of check; effect of. - Where a check is
certified by the bank on which it is drawn, the certification is
equivalent to an acceptance.
Sec. 188. Effect where the holder of check procures it to be
certified. - Where the holder of a check procures it to be
accepted or certified, the drawer and all indorsers are
discharged from liability thereon.
Sec. 189. When check operates as an assignment. - A check of
itself does not operate as an assignment of any part of the
funds to the credit of the drawer with the bank, and the bank
is not liable to the holder unless and until it accepts or
certifies the check.
XVII. GENERAL PROVISIONS
Sec. 190. Short title. - This Act shall be known as the
Negotiable Instruments Law.
Sec. 191. Definition and meaning of terms. - In this Act, unless
the contract otherwise requires:
"Acceptance" means an acceptance completed by delivery or
notification;
"Action" includes counterclaim and set-off;
"Bank" includes any person or association of persons carrying
on the business of banking, whether incorporated or not;
"Bearer" means the person in possession of a bill or note which
is payable to bearer;
"Bill" means bill of exchange, and "note" means negotiable
promissory note;
"Delivery" means transfer of possession, actual or constructive,
from one person to another;
"Holder" means the payee or indorsee of a bill or note who is in
possession of it, or the bearer thereof;
"Indorsement" means an indorsement completed by delivery;
"Instrument" means negotiable instrument;
"Issue" means the first delivery of the instrument, complete in
form, to a person who takes it as a holder;
"Person" includes a body of persons, whether incorporated or
not;
"Value" means valuable consideration;
"Written" includes printed, and "writing" includes print. Sec.
192. Persons primarily liable on instrument. - The person
"primarily" liable on an instrument is the person who, by the
terms of
the instrument, is absolutely required to pay the same. All
other parties are "secondarily" liable.
Sec. 193. Reasonable time, what constitutes. - In determining
what is a "reasonable time" regard is to be had to the nature of
the instrument, the usage of trade or business with respect to
such instruments, and the facts of the particular case.
Sec. 194. Time, how computed; when last day falls on holiday.
- Where the day, or the last day for doing any act herein
required or permitted to be done falls on a Sunday or on a
holiday, the act may be done on the next succeeding secular or
business day.
Sec. 195. Application of Act. - The provisions of this Act do not
apply to negotiable instruments made and delivered prior to
the taking effect hereof. chanrobles law
Sec. 196. Cases not provided for in Act. - Any case not provided
for in this Act shall be governed by the provisions of existing
legislation or in default thereof, by the rules of the law
merchant.
Sec. 197. Repeals. - All acts and laws and parts thereof
inconsistent with this Act are hereby repealed.
Sec. 198. Time when Act takes effect. - This Act shall take
effect ninety days after its publication in the Official Gazette
of the Philippine Islands shall have been completed.
Enacted: February 3, 1911
Back to Top - Back to Home
[REPUBLIC ACT NO. 10607]
AN ACT STRENGTHENING THE INSURANCE
INDUSTRY, FURTHER AMENDING PRESIDENTIAL
DECREE NO. 612, OTHERWISE KNOWN AS “THE
INSURANCE CODE”, AS AMENDED BY
PRESIDENTIAL DECREE NOS. 1141, 1280, 1455, 1460,
1814 AND 1981, AND BATAS PAMBANSA BLG. 874, AND
FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the
Philippines in Congress assembled:
SECTION 1. Presidential Decree No. 612, as amended, is
hereby further amended to read as follows:
“GENERAL PROVISIONS
“SECTION 1. This Decree shall be known as ‘The Insurance
Code’.
“SEC. 2. Whenever used in this Code, the following terms shall
have the respective meanings hereinafter set forth or
indicated, unless the context otherwise requires:
“(a) A contract of insurance is an agreement whereby one
undertakes for a consideration to indemnify another against
loss, damage or liability arising from an unknown or
contingent event.
“A contract of suretyship shall be deemed to be an insurance
contract, within the meaning of this Code, only if made by a
surety who or which, as such, is doing an insurance business
as hereinafter provided.
“(b) The term doing an insurance business or transacting an
insurance business, within the meaning of this Code, shall
include:
“(1) Making or proposing to make, as insurer, any insurance
contract;
“(2) Making or proposing to make, as surety, any contract of
suretyship as a vocation and not as merely incidental to any
other legitimate business or activity of the surety;
“(3) Doing any kind of business, including a reinsurance
business, specifically recognized as constituting the doing of
an insurance business within the meaning of this Code;
“(4) Doing or proposing to do any business in substance
equivalent to any of the foregoing in a manner designed to
evade the provisions of this Code.
“In the application of the provisions of this Code, the fact that
no profit is derived from the making of insurance contracts,
agreements or transactions or that no separate or direct
consideration is received therefor, shall not be deemed
conclusive to show that the making thereof does not constitute
the doing or transacting of an insurance business.
“(c) As used in this Code, the term Commissioner means
the Insurance Commissioner.
“CHAPTER I
“THE CONTRACT OF INSURANCE
“TITLE 1
“WHAT MAY BE INSURED
“SEC. 3. Any contingent or unknown event, whether past or
future, which may damnify a person having an insurable
interest, or create a liability against him, may be insured
against, subject to the provisions of this chapter.
“The consent of the spouse is not necessary for the validity of
an insurance policy taken out by a married person on his or
her life or that of his or her children.
“All rights, title and interest in the policy of insurance taken
out by an original owner on the life or health of the person
insured shall automatically vest in the latter upon the death of
the original owner, unless otherwise provided for in the policy.
“SEC. 4. The preceding section does not authorize an
insurance for or against the drawing of any lottery, or for or
against any chance or ticket in a lottery drawing a prize.
“SEC. 5. All kinds of insurance are subject to the provisions of
this chapter so far as the provisions can apply.
“TITLE 2
“PARTIES TO THE CONTRACT
“SEC. 6. Every corporation, partnership, or association, duly
authorized to transact insurance business as elsewhere
provided in this Code, may be an insurer.
“SEC. 7. Anyone except a public enemy may be insured.
“SEC. 8. Unless the policy otherwise provides, where a
mortgagor of property effects insurance in his own name
providing that the loss shall be payable to the mortgagee, or
assigns a policy of insurance to a mortgagee, the insurance is
deemed to be upon the interest of the mortgagor, who does not
cease to be a party to the original contract, and any act of his,
prior to the loss, which would otherwise avoid the insurance,
will have the same effect, although the property is in the
hands of the mortgagee, but any act which, under the contract
of insurance, is to be performed by the mortgagor, may be
performed by the mortgagee therein named, with the same
effect as if it had been performed by the mortgagor.
“SEC. 9. If an insurer assents to the transfer of an insurance
from a mortgagor to a mortgagee, and, at the time of his
assent, imposes further obligations on the assignee, making a
new contract with him, the acts of the mortgagor cannot affect
the rights of said assignee.
“TITLE 3
“INSURABLE INTEREST
“SEC. 10. Every person has an insurable interest in the life
and health:
“(a) Of himself, of his spouse and of his children;
“(b) Of any person on whom he depends wholly or in part for
education or support, or in whom he has a pecuniary interest;
“(c) Of any person under a legal obligation to him for the
payment of money, or respecting property or services, of which
death or illness might delay or prevent the performance; and
“(d) Of any person upon whose life any estate or interest
vested in him depends.
“SEC. 11. The insured shall have the right to change the
beneficiary he designated in the policy, unless he has
expressly waived this right in said policy. Notwithstanding the
foregoing, in the event the insured does not change the
beneficiary during his lifetime, the designation shall be
deemed irrevocable.
“SEC. 12. The interest of a beneficiary in a life insurance
policy shall be forfeited when the beneficiary is the principal,
accomplice, or accessory in willfully bringing about the death
of the insured. In such a case, the share forfeited shall pass on
to the other beneficiaries, unless otherwise disqualified. In the
absence of other beneficiaries, the proceeds shall be paid in
accordance with the policy contract. If the policy contract is
silent, the proceeds shall be paid to the estate of the insured.
“SEC. 13. Every interest in property, whether real or personal,
or any relation thereto, or liability in respect thereof, of such
nature that a contemplated peril might directly damnify the
insured, is an insurable interest.
“SEC. 14. An insurable interest in property may consist in:
“(a) An existing interest;
“(b) An inchoate interest founded on an existing interest; or
“(c) An expectancy, coupled with an existing interest in that
out of which the expectancy arises.
“SEC. 15. A carrier or depository of any kind has an insurable
interest in a thing held by him as such, to the extent of his
liability but not to exceed the value thereof.
“SEC. 16. A mere contingent or expectant interest in any
thing, not founded on an actual right to the thing, nor upon
any valid contract for it, is not insurable.
“SEC. 17. The measure of an insurable interest in property is
the extent to which the insured might be damnified by loss or
injury thereof.
“SEC. 18. No contract or policy of insurance on property shall
be enforceable except for the benefit of some person having an
insurable interest in the property insured.
“SEC. 19. An interest in property insured must exist when the
insurance takes effect, and when the loss occurs, but need not
exist in the meantime; and interest in the life or health of a
person insured must exist when the insurance takes effect, but
need not exist thereafter or when the loss occurs.
“SEC. 20. Except in the cases specified in the next four
sections, and in the cases of life, accident, and health
insurance, a change of interest in any part of a thing insured
unaccompanied by a corresponding change of interest in the
insurance, suspends the insurance to an equivalent extent,
until the interest in the thing and the interest in the
insurance are vested in the same person.
“SEC. 21. A change of interest in a thing insured, after the
occurrence of an injury which results in a loss, does not affect
the right of the insured to indemnity for the loss.
“SEC. 22. A change of interest in one or more of several
distinct things, separately insured by one policy, does not
avoid the insurance as to the others.
“SEC. 23. A change of interest, by will or succession, on the
death of the insured, does not avoid an insurance; and his
interest in the insurance passes to the person taking his
interest in the thing insured.
“SEC. 24. A transfer of interest by one of several partners,
joint owners, or owners in common, who are jointly insured, to
the others, does not avoid an insurance even though it has
been agreed that the insurance shall cease upon an alienation
of the thing insured.
“SEC. 25. Every stipulation in a policy of insurance for the
payment of loss whether the person insured has or has not any
interest in the property insured, or that the policy shall be
received as proof of such interest, and every policy executed by
way of gaming or wagering, is void.
“TITLE 4
“CONCEALMENT
“SEC. 26. A neglect to communicate that which a party knows
and ought to communicate, is called a concealment.
“SEC. 27. A concealment whether intentional or unintentional
entitles the injured party to rescind a contract of insurance.
“SEC. 28. Each party to a contract of insurance must
communicate to the other, in good faith, all facts within his
knowledge which are material to the contract and as to which
he makes no warranty, and which the other has not the means
of ascertaining.
“SEC. 29. An intentional and fraudulent omission, on the part
of one insured, to communicate information of matters proving
or tending to prove the falsity of a warranty, entitles the
insurer to rescind.
“SEC. 30. Neither party to a contract of insurance is bound to
communicate information of the matters following, except in
answer to the inquiries of the other:
“(a) Those which the other knows;
“(b) Those which, in the exercise of ordinary care, the other
ought to know, and of which the former has no reason to
suppose him ignorant;
“(c) Those of which the other waives communication;
“(d) Those which prove or tend to prove the existence of a risk
excluded by a warranty, and which are not otherwise material;
and
“(e) Those which relate to a risk excepted from the policy and
which are not otherwise material.
“SEC. 31. Materiality is to be determined not by the event, but
solely by the probable and reasonable influence of the facts
upon the party to whom the communication is due, in forming
his estimate of the disadvantages of the proposed contract, or
in making his inquiries.
“SEC. 32. Each party to a contract of insurance is bound to
know all the general causes which are open to his inquiry,
equally with that of the other, and which may affect the
political or material perils contemplated; and all general
usages of trade.
“SEC. 33. The right to information of material facts may be
waived, either by the terms of insurance or by neglect to make
inquiry as to such facts, where they are distinctly implied in
other facts of which information is communicated.
“SEC. 34. Information of the nature or amount of the interest
of one insured need not be communicated unless in answer to
an inquiry, except as prescribed by Section 51.
“SEC. 35. Neither party to a contract of insurance is bound to
communicate, even upon inquiry, information of his own
judgment upon the matters in question.
“TITLE 5
“REPRESENTATION
“SEC. 36. A representation may be oral or written.
“SEC. 37. A representation may be made at the time of, or
before, issuance of the policy.
“SEC. 38. The language of a representation is to be interpreted
by the same rules as the language of contracts in general.
“SEC. 39. A representation as to the future is to be deemed a
promise, unless it appears that it was merely a statement of
belief or expectation.
“SEC. 40. A representation cannot qualify an express provision
in a contract of insurance, but it may qualify an implied
warranty.
“SEC. 41. A representation may be altered or withdrawn
before the insurance is effected, but not afterwards.
“SEC. 42. A representation must be presumed to refer to the
date on which the contract goes into effect.
“SEC. 43. When a person insured has no personal knowledge
of a fact, he may nevertheless repeat information which he has
upon the subject, and which he believes to be true, with the
explanation that he does so on the information of others; or he
may submit the information, in its whole extent, to the
insurer; and in neither case is he responsible for its truth,
unless it proceeds from an agent of the insured, whose duty it
is to give the information.
“SEC. 44. A representation is to be deemed false when the
facts fail to correspond with its assertions or stipulations.
“SEC. 45. If a representation is false in a material point,
whether affirmative or promissory, the injured party is
entitled to rescind the contract from the time when the
representation becomes false.
“SEC. 46. The materiality of a representation is determined by
the same rules as the materiality of a concealment.
“SEC. 47. The provisions of this chapter apply as well to a
modification of a contract of insurance as to its original
formation.
“SEC. 48. Whenever a right to rescind a contract of insurance
is given to the insurer by any provision of this chapter, such
right must be exercised previous to the commencement of an
action on the contract.
“After a policy of life insurance made payable on the death of
the insured shall have been in force during the lifetime of the
insured for a period of two (2) years from the date of its issue
or of its last reinstatement, the insurer cannot prove that the
policy is void ab initio or is rescindable by reason of the
fraudulent concealment or misrepresentation of the insured or
his agent.
“TITLE 6
“THE POLICY
“SEC. 49. The written instrument in which a contract of
insurance is set forth, is called a policy of insurance.
“SEC. 50. The policy shall be in printed form which may
contain blank spaces; and any word, phrase, clause, mark,
sign, symbol, signature, number, or word necessary to
complete the contract of insurance shall be written on the
blank spaces provided therein.
“Any rider, clause, warranty or endorsement purporting to be
part of the contract of insurance and which is pasted or
attached to said policy is not binding on the insured, unless
the descriptive title or name of the rider, clause, warranty or
endorsement is also mentioned and written on the blank
spaces provided in the policy.
“Unless applied for by the insured or owner, any rider, clause,
warranty or endorsement issued after the original policy shall
be countersigned by the insured or owner, which
countersignature shall be taken as his agreement to the
contents of such rider, clause, warranty or endorsement.
“Notwithstanding the foregoing, the policy may be in
electronic form subject to the pertinent provisions of Republic
Act No. 8792, otherwise known as the ‘Electronic Commerce
Act’ and to such rules and regulations as may be prescribed by
the Commissioner.
“SEC. 51. A policy of insurance must specify:
“(a) The parties between whom the contract is made;
“(b) The amount to be insured except in the cases of open or
running policies;
“(c) The premium, or if the insurance is of a character where
the exact premium is only determinable upon the termination
of the contract, a statement of the basis and rates upon which
the final premium is to be determined;
“(d) The property or life insured;
“(e) The interest of the insured in property insured, if he is not
the absolute owner thereof;
“(f) The risks insured against; and
“(g) The period during which the insurance is to continue.
“SEC. 52. Cover notes may be issued to bind insurance
temporarily pending the issuance of the policy. Within sixty
(60) days after issue of a cover note, a policy shall be issued in
lieu thereof, including within its terms the identical insurance
bound under the cover note and the premium therefor.
“Cover notes may be extended or renewed beyond such sixty
(60) days with the written approval of the Commissioner if he
determines that such extension is not contrary to and is not
for the purpose of violating any provisions of this Code. The
Commissioner may promulgate rules and regulations
governing such extensions for the purpose of preventing such
violations and may by such rules and regulations dispense
with the requirement of written approval by him in the case of
extension in compliance with such rules and regulations.
“SEC. 53. The insurance proceeds shall be applied exclusively
to the proper interest of the person in whose name or for
whose benefit it is made unless otherwise specified in the
policy.
“SEC. 54. When an insurance contract is executed with an
agent or trustee as the insured, the fact that his principal or
beneficiary is the real party in interest may be indicated by
describing the insured as agent or trustee, or by other general
words in the policy.
“SEC. 55. To render an insurance effected by one partner or
part-owner, applicable to the interest of his co-partners or
other part-owners, it is necessary that the terms of the policy
should be such as are applicable to the joint or common
interest.
“SEC. 56. When the description of the insured in a policy is so
general that it may comprehend any person or any class of
persons, only he who can show that it was intended to include
him, can claim the benefit of the policy.
“SEC. 57. A policy may be so framed that it will inure to the
benefit of whomsoever, during the continuance of the risk,
may become the owner of the interest insured.
“SEC. 58. The mere transfer of a thing insured does not
transfer the policy, but suspends it until the same person
becomes the owner of both the policy and the thing insured.
“SEC. 59. A policy is either open, valued or running.
“SEC. 60. An open policy is one in which the value of the thing
insured is not agreed upon, and the amount of the insurance
merely represents the insurer’s maximum liability. The value
of such thing insured shall be ascertained at the time of the
loss.
“SEC. 61. A valued policy is one which expresses on its face an
agreement that the thing insured shall be valued at a specific
sum.
“SEC. 62. A running policy is one which contemplates
successive insurances, and which provides that the object of
the policy may be from time to time defined, especially as to
the subjects of insurance, by additional statements or
indorsements.
“SEC. 63. A condition, stipulation, or agreement in any policy
of insurance, limiting the time for commencing an action
thereunder to a period of less than one (1) year from the time
when the cause of action accrues, is void.
“SEC. 64. No policy of insurance other than life shall be
cancelled by the insurer except upon prior notice thereof to the
insured, and no notice of cancellation shall be effective unless
it is based on the occurrence, after the effective date of the
policy, of one or more of the following:
“(a) Nonpayment of premium;
“(b) Conviction of a crime arising out of acts increasing the
hazard insured against;
“(c) Discovery of fraud or material misrepresentation;
“(d) Discovery of willful or reckless acts or omissions
increasing the hazard insured against;
“(e) Physical changes in the property insured which result in
the property becoming uninsurable;
“(f) Discovery of other insurance coverage that makes the total
insurance in excess of the value of the property insured; or
“(g) A determination by the Commissioner that the
continuation of the policy would violate or would place the
insurer in violation of this Code.
“SEC. 65. All notices of cancellation mentioned in the
preceding section shall be in writing, mailed or delivered to
the named insured at the address shown in the policy, or to his
broker provided the broker is authorized in writing by the
policy owner to receive the notice of cancellation on his behalf,
and shall state:
“(a) Which of the grounds set forth in Section 64 is relied upon;
and
“(b) That, upon written request of the named insured, the
insurer will furnish the facts on which the cancellation is
based.
“SEC. 66. In case of insurance other than life, unless the
insurer at least forty-five (45) days in advance of the end of the
policy period mails or delivers to the named insured at the
address shown in the policy notice of its intention not to renew
the policy or to condition its renewal upon reduction of limits
or elimination of coverages, the named insured shall be
entitled to renew the policy upon payment of the premium due
on the effective date of the renewal. Any policy written for a
term of less than one (1) year shall be considered as if written
for a term of one (1) year. Any policy written for a term longer
than one (1) year or any policy with no fixed expiration date
shall be considered as if written for successive policy periods or
terms of one (1) year.
“TITLE 7
“WARRANTIES
“SEC. 67. A warranty is either expressed or implied.
“SEC. 68. A warranty may relate to the past, the present, the
future, or to any or all of these.
“SEC. 69. No particular form of words is necessary to create a
warranty.
“SEC. 70. Without prejudice to Section 51, every express
warranty, made at or before the execution of a policy, must be
contained in the policy itself, or in another instrument signed
by the insured and referred to in the policy as making a part of
it.
“SEC. 71. A statement in a policy, of a matter relating to the
person or thing insured, or to the risk, as fact, is an express
warranty thereof.
“SEC. 72. A statement in a policy, which imparts that it is
intended to do or not to do a thing which materially affects the
risk, is a warranty that such act or omission shall take place.
“SEC. 73. When, before the time arrives for the performance of
a warranty relating to the future, a loss insured against
happens, or performance becomes unlawful at the place of the
contract, or impossible, the omission to fulfill the warranty
does not avoid the policy.
“SEC. 74. The violation of a material warranty, or other
material provision of a policy, on the part of either party
thereto, entitles the other to rescind.
“SEC. 75. A policy may declare that a violation of specified
provisions thereof shall avoid it, otherwise the breach of an
immaterial provision does not avoid the policy.
“SEC. 76. A breach of warranty without fraud merely
exonerates an insurer from the time that it occurs, or where it
is broken in its inception, prevents the policy from attaching to
the risk.
“TITLE 8
“PREMIUM
“SEC. 77. An insurer is entitled to payment of the premium as
soon as the thing insured is exposed to the peril insured
against. Notwithstanding any agreement to the contrary, no
policy or contract of insurance issued by an insurance
company is valid and binding unless and until the premium
thereof has been paid, except in the case of a life or an
industrial life policy whenever the grace period provision
applies, or whenever under the broker and agency agreements
with duly licensed intermediaries, a ninety (90)-day credit
extension is given. No credit extension to a duly licensed
intermediary should exceed ninety (90) days from date of
issuance of the policy.
“SEC. 78. Employees of the Republic of the Philippines,
including its political subdivisions and instrumentalities, and
government-owned or -controlled corporations, may pay their
insurance premiums and loan obligations through salary
deduction: Provided, That the treasurer, cashier, paymaster or
official of the entity employing the government employee is
authorized, notwithstanding the provisions of any existing
law, rules and regulations to the contrary, to make deductions
from the salary, wage or income of the latter pursuant to the
agreement between the insurer and the government employee
and to remit such deductions to the insurer concerned, and
collect such reasonable fee for its services.
“SEC. 79. An acknowledgment in a policy or contract of
insurance or the receipt of premium is conclusive evidence of
its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be
binding until the premium is actually paid.
“SEC. 80. A person insured is entitled to a return of premium,
as follows:
“(a) To the whole premium if no part of his interest in the
thing insured be exposed to any of the perils insured against;
“(b) Where the insurance is made for a definite period of time
and the insured surrenders his policy, to such portion of the
premium as corresponds with the unexpired time, at a pro
rata rate, unless a short period rate has been agreed upon and
appears on the face of the policy, after deducting from the
whole premium any claim for loss or damage under the policy
which has previously accrued: Provided, That no holder of a
life insurance policy may avail himself of the privileges of this
paragraph without sufficient cause as otherwise provided by
law.
“SEC. 81. If a peril insured against has existed, and the
insurer has been liable for any period, however short, the
insured is not entitled to return of premiums, so far as that
particular risk is concerned.
“SEC. 82. A person insured is entitled to a return of the
premium when the contract is voidable, and subsequently
annulled under the provisions of the Civil Code; or on account
of the fraud or misrepresentation of the insurer, or of his
agent, or on account of facts, or the existence of which the
insured was ignorant of without his fault; or when by any
default of the insured other than actual fraud, the insurer
never incurred any liability under the policy.
“A person insured is not entitled to a return of premium if the
policy is annulled, rescinded or if a claim is denied by reason of
fraud.
“SEC. 83. In case of an over insurance by several insurers
other than life, the insured is entitled to a ratable return of
the premium, proportioned to the amount by which the
aggregate sum insured in all the policies exceeds the insurable
value of the thing at risk.
“SEC. 84. An insurer may contract and accept payments, in
addition to regular premium, for the purpose of paying future
premiums on the policy or to increase the benefits thereof.
“TITLE 9
“LOSS
“SEC. 85. An agreement not to transfer the claim of the
insured against the insurer after the loss has happened, is
void if made before the loss except as otherwise provided in
the case of life insurance.
“SEC. 86. Unless otherwise provided by the policy, an insurer
is liable for a loss of which a peril insured against was the
proximate cause, although a peril not contemplated by the
contract may have been a remote cause of the loss; but he is
not liable for a loss of which the peril insured against was only
a remote cause.
“SEC. 87. An insurer is liable where the thing insured is
rescued from a peril insured against that would otherwise
have caused a loss, if, in the course of such rescue, the thing is
exposed to a peril not insured against, which permanently
deprives the insured of its possession, in whole or in part; or
where a loss is caused by efforts to rescue the thing insured
from a peril insured against.
“SEC. 88. Where a peril is especially excepted in a contract of
insurance, a loss, which would not have occurred but for such
peril, is thereby excepted although the immediate cause of the
loss was a peril which was not excepted.
“SEC. 89. An insurer is not liable for a loss caused by the
willful act or through the connivance of the insured; but he is
not exonerated by the negligence of the insured, or of the
insurance agents or others.
“TITLE 10
“NOTICE OF LOSS
“SEC. 90. In case of loss upon an insurance against fire, an
insurer is exonerated, if written notice thereof be not given to
him by an insured, or some person entitled to the benefit of the
insurance, without unnecessary delay. For other non-life
insurance, the Commissioner may specify the period for the
submission of the notice of loss.
“SEC. 91. When a preliminary proof of loss is required by a
policy, the insured is not bound to give such proof as would be
necessary in a court of justice; but it is sufficient for him to
give the best evidence which he has in his power at the time.
“SEC. 92. All defects in a notice of loss, or in preliminary proof
thereof, which the insured might remedy, and which the
insurer omits to specify to him, without unnecessary delay, as
grounds of objection, are waived.
“SEC. 93. Delay in the presentation to an insurer of notice or
proof of loss is waived if caused by any act of him, or if he
omits to take objection promptly and specifically upon that
ground.
“SEC. 94. If the policy requires, by way of preliminary proof of
loss, the certificate or testimony of a person other than the
insured, it is sufficient for the insured to use reasonable
diligence to procure it, and in case of the refusal of such person
to give it, then to furnish reasonable evidence to the insurer
that such refusal was not induced by any just grounds of
disbelief in the facts necessary to be certified or testified.
“TITLE 11
“DOUBLE INSURANCE
“SEC. 95. A double insurance exists where the same person is
insured by several insurers separately in respect to the same
subject and interest.
“SEC. 96. Where the insured in a policy other than life is over
insured by double insurance:
“(a) The insured, unless the policy otherwise provides, may
claim payment from the insurers in such order as he may
select, up to the amount for which the insurers are severally
liable under their respective contracts;
“(b) Where the policy under which the insured claims is a
valued policy, any sum received by him under any other policy
shall be deducted from the value of the policy without regard
to the actual value of the subject matter insured;
“(c) Where the policy under which the insured claims is an
unvalued policy, any sum received by him under any policy
shall be deducted against the full insurable value, for any sum
received by him under any policy;
“(d) Where the insured receives any sum in excess of the
valuation in the case of valued policies, or of the insurable
value in the case of unvalued policies, he must hold such sum
in trust for the insurers, according to their right of
contribution among themselves;
“(e) Each insurer is bound, as between himself and the other
insurers, to contribute ratably to the loss in proportion to the
amount for which he is liable under his contract.
“TITLE 12
“REINSURANCE
“SEC. 97. A contract of reinsurance is one by which an insurer
procures a third person to insure him against loss or liability
by reason of such original insurance.
“SEC. 98. Where an insurer obtains reinsurance, except under
automatic reinsurance treaties, he must communicate all the
representations of the original insured, and also all the
knowledge and information he possesses, whether previously
or subsequently acquired, which are material to the risk.
“SEC. 99. A reinsurance is presumed to be a contract of
indemnity against liability, and not merely against damage.
“SEC. 100. The original insured has no interest in a contract of
reinsurance.
“CHAPTER II
“CLASSES OF INSURANCE
“TITLE I
“MARINE INSURANCE
“SUB-TITLE 1-A
“DEFINITION
“SEC. 101. Marine Insurance includes:
“(a) Insurance against loss of or damage to:
“(1) Vessels, craft, aircraft, vehicles, goods, freights, cargoes,
merchandise, effects, disbursements, profits, moneys,
securities, choses in action, instruments of debts, valuable
papers, bottomry, and respondentia interests and all other
kinds of property and interests therein, in respect to,
appertaining to or in connection with any and all risks or
perils of navigation, transit or transportation, or while being
assembled, packed, crated, baled, compressed or similarly
prepared for shipment or while awaiting shipment, or during
any delays, storage, transhipment, or reshipment incident
thereto, including war risks, marine builder’s risks, and all
personal property floater risks;
“(2) Person or property in connection with or appertaining to a
marine, inland marine, transit or transportation insurance,
including liability for loss of or damage arising out of or in
connection with the construction, repair, operation,
maintenance or use of the subject matter of such insurance
(but not including life insurance or surety bonds nor insurance
against loss by reason of bodily injury to any person arising
out of ownership, maintenance, or use of automobiles);
“(3) Precious stones, jewels, jewelry, precious metals, whether
in course of transportation or otherwise; and
“(4) Bridges, tunnels and other instrumentalities of
transportation and communication (excluding buildings, their
furniture and furnishings, fixed contents and supplies held in
storage); piers, wharves, docks and slips, and other aids to
navigation and transportation, including dry docks and
marine railways, dams and appurtenant facilities for the
control of waterways.
“(b) Marine protection and indemnity insurance, meaning
insurance against, or against legal liability of the insured for
loss, damage, or expense incident to ownership, operation,
chartering, maintenance, use, repair, or construction of any
vessel, craft or instrumentality in use of ocean or inland
waterways, including liability of the insured for personal
injury, illness or death or for loss of or damage to the property
of another person.
“SUB-TITLE 1-B
“INSURABLE INTEREST
“SEC. 102. The owner of a ship has in all cases an insurable
interest in it, even when it has been chartered by one who
covenants to pay him its value in case of loss: Provided, That
in this case the insurer shall be liable for only that part of the
loss which the insured cannot recover from the charterer.
“SEC. 103. The insurable interest of the owner of the ship
hypothecated by bottomry is only the excess of its value over
the amount secured by bottomry.
“SEC. 104. Freightage, in the sense of a policy of marine
insurance, signifies all the benefits derived by the owner,
either from the chartering of the ship or its employment for
the carriage of his own goods or those of others.
“SEC. 105. The owner of a ship has an insurable interest in
expected freightage which according to the ordinary and
probable course of things he would have earned but for the
intervention of a peril insured against or other peril incident
to the voyage.
“SEC. 106. The interest mentioned in the last section exists, in
case of a charter party, when the ship has broken ground on
the chartered voyage. If a price is to be paid for the carriage of
goods it exists when they are actually on board, or there is
some contract for putting them on board, and both ship and
goods are ready for the specified voyage.
“SEC. 107. One who has an interest in the thing from which
profits are expected to proceed has an insurable interest in the
profits.
“SEC. 108. The charterer of a ship has an insurable interest in
it, to the extent that he is liable to be damnified by its loss.
“SUB-TITLE 1-C
“CONCEALMENT
“SEC. 109. In marine insurance, each party is bound to
communicate, in addition to what is required by Section 28, all
the information which he possesses, material to the risk,
except such as is mentioned in Section 30, and to state the
exact and whole truth in relation to all matters that he
represents, or upon inquiry discloses or assumes to disclose.
“SEC. 110. In marine insurance, information of the belief or
expectation of a third person, in reference to a material fact, is
material.
“SEC. 111. A person insured by a contract of marine insurance
is presumed to have knowledge, at the time of insuring, of a
prior loss, if the information might possibly have reached him
in the usual mode of transmission and at the usual rate of
communication.
“SEC. 112. A concealment in a marine insurance, in respect to
any of the following matters, does not vitiate the entire
contract, but merely exonerates the insurer from a loss
resulting from the risk concealed:
“(a) The national character of the insured;
“(b) The liability of the thing insured to capture and detention;
“(c) The liability to seizure from breach of foreign laws of
trade;
“(d) The want of necessary documents; and
“(e) The use of false and simulated papers.
“SUB-TITLE 1-D
“REPRESENTATION
“SEC. 113. If a representation by a person insured by a
contract of marine insurance, is intentionally false in any
material respect, or in respect of any fact on which the
character and nature of the risk depends, the insurer may
rescind the entire contract.
“SEC. 114. The eventual falsity of a representation as to
expectation does not, in the absence of fraud, avoid a contract
of marine insurance.
“SUB-TITLE 1-E
“IMPLIED WARRANTIES
“SEC. 115. In every marine insurance upon a ship or freight,
or freightage, or upon any thing which is the subject of marine
insurance, a warranty is implied that the ship is seaworthy.
“SEC. 116. A ship is seaworthy when reasonably fit to perform
the service and to encounter the ordinary perils of the voyage
contemplated by the parties to the policy.
“SEC. 117. An implied warranty of seaworthiness is complied
with if the ship be seaworthy at the time of the
commencement of the risk, except in the following cases:
“(a) When the insurance is made for a specified length of time,
the implied warranty is not complied with unless the ship be
seaworthy at the commencement of every voyage it undertakes
during that time;
“(b) When the insurance is upon the cargo which, by the terms
of the policy, description of the voyage, or established custom
of the trade, is to be transhipped at an intermediate port, the
implied warranty is not complied with unless each vessel upon
which the cargo is shipped, or transhipped, be seaworthy at
the commencement of each particular voyage.
“SEC. 118. A warranty of seaworthiness extends not only to
the condition of the structure of the ship itself, but requires
that it be properly laden, and provided with a competent
master, a sufficient number of competent officers and seamen,
and the requisite appurtenances and equipment, such as
ballasts, cables and anchors, cordage and sails, food, water,
fuel and lights, and other necessary or proper stores and
implements for the voyage.
“SEC. 119. Where different portions of the voyage
contemplated by a policy differ in respect to the things
requisite to make the ship seaworthy therefor, a warranty of
seaworthiness is complied with if, at the commencement of
each portion, the ship is seaworthy with reference to that
portion.
“SEC. 120. When the ship becomes unseaworthy during the
voyage to which an insurance relates, an unreasonable delay
in repairing the defect exonerates the insurer on ship or
shipowner’s interest from liability from any loss arising
therefrom.
“SEC. 121. A ship which is seaworthy for the purpose of an
insurance upon the ship may, nevertheless, by reason of being
unfitted to receive the cargo, be unseaworthy for the purpose
of insurance upon the cargo.
“SEC. 122. Where the nationality or neutrality of a ship or
cargo is expressly warranted, it is implied that the ship will
carry the requisite documents to show such nationality or
neutrality and that it will not carry any documents which cast
reasonable suspicion thereon.
“SUB-TITLE 1-F
“THE VOYAGE AND DEVIATION
“SEC. 123. When the voyage contemplated by a marine
insurance policy is described by the places of beginning and
ending, the voyage insured is one which conforms to the course
of sailing fixed by mercantile usage between those places.
“SEC. 124. If the course of sailing is not fixed by mercantile
usage, the voyage insured by a marine insurance policy is that
way between the places specified, which to a master of
ordinary skill and discretion, would mean the most natural,
direct and advantageous.
“SEC. 125. Deviation is a departure from the course of the
voyage insured, mentioned in the last two (2) sections, or an
unreasonable delay in pursuing the voyage or the
commencement of an entirely different voyage.
“SEC. 126. A deviation is proper:
“(a) When caused by circumstances over which neither the
master nor the owner of the ship has any control;
“(b) When necessary to comply with a warranty, or to avoid a
peril, whether or not the peril is insured against;
“(c) When made in good faith, and upon reasonable grounds of
belief in its necessity to avoid a peril; or
“(d) When made in good faith, for the purpose of saving human
life or relieving another vessel in distress.
“SEC. 127. Every deviation not specified in the last section is
improper.
“SEC. 128. An insurer is not liable for any loss happening to
the thing insured subsequent to an improper deviation.
“SUB-TITLE 1-G
“LOSS
“SEC. 129. A loss may be either total or partial.
“SEC. 130. Every loss which is not total is partial.
“SEC. 131. A total loss may be either actual or constructive.
“SEC. 132. An actual total loss is caused by:
“(a) A total destruction of the thing insured;
“(b) The irretrievable loss of the thing by sinking, or by being
broken up;
“(c) Any damage to the thing which renders it valueless to the
owner for the purpose for which he held it; or
“(d) Any other event which effectively deprives the owner of
the possession, at the port of destination, of the thing insured.
“SEC. 133. A constructive total loss is one which gives to a
person insured a right to abandon, under Section 141.
“SEC. 134. An actual loss may be presumed from the
continued absence of a ship without being heard of. The length
of time which is sufficient to raise this presumption depends
on the circumstances of the case.
“SEC. 135. When a ship is prevented, at an intermediate port,
from completing the voyage, by the perils insured against, the
liability of a marine insurer on the cargo continues after they
are thus reshipped.
“Nothing in this section shall prevent an insurer from
requiring an additional premium if the hazard be increased by
this extension of liability.
“SEC. 136. In addition to the liability mentioned in the last
section, a marine insurer is bound for damages, expenses of
discharging, storage, reshipment, extra freightage, and all
other expenses incurred in saving cargo reshipped pursuant to
the last section, up to the amount insured.
“Nothing in this or in the preceding section shall render a
marine insurer liable for any amount in excess of the insured
value or, if there be none, of the insurable value.
“SEC. 137. Upon an actual total loss, a person insured is
entitled to payment without notice of abandonment.
“SEC. 138. Where it has been agreed that an insurance upon a
particular thing, or class of things, shall be free from
particular average, a marine insurer is not liable for any
particular average loss not depriving the insured of the
possession, at the port of destination, of the whole of such
thing, or class of things, even though it becomes entirely
worthless; but such insurer is liable for his proportion of all
general average loss assessed upon the thing insured.
“SEC. 139. An insurance confined in terms to an actual loss
does not cover a constructive total loss, but covers any loss,
which necessarily results in depriving the insured of the
possession, at the port of destination, of the entire thing
insured.
“SUB-TITLE 1-H
“ABANDONMENT
“SEC. 140. Abandonment, in marine insurance, is the act of
the insured by which, after a constructive total loss, he
declares the relinquishment to the insurer of his interest in
the thing insured.
“SEC. 141. A person insured by a contract of marine insurance
may abandon the thing insured, or any particular portion
thereof separately valued by the policy, or otherwise
separately insured, and recover for a total loss thereof, when
the cause of the loss is a peril insured against:
“(a) If more than three-fourths (¾) thereof in value is actually
lost, or would have to be expended to recover it from the peril;
“(b) If it is injured to such an extent as to reduce its value
more than three-fourths (¾);
“(c) If the thing insured is a ship, and the contemplated voyage
cannot be lawfully performed without incurring either an
expense to the insured of more than three-fourths (¾) the
value of the thing abandoned or a risk which a prudent man
would not take under the circumstances; or
“(d) If the thing insured, being cargo or freightage, and the
voyage cannot be performed, nor another ship procured by the
master, within a reasonable time and with reasonable
diligence, to forward the cargo, without incurring the like
expense or risk mentioned in the preceding subparagraph. But
freightage cannot in any case be abandoned unless the ship is
also abandoned.
“SEC. 142. An abandonment must be neither partial nor
conditional.
“SEC. 143. An abandonment must be made within a
reasonable time after receipt of reliable information of the
loss, but where the information is of a doubtful character, the
insured is entitled to a reasonable time to make inquiry.
“SEC. 144. Where the information upon which an
abandonment has been made proves incorrect, or the thing
insured was so far restored when the abandonment was made
that there was then in fact no total loss, the abandonment
becomes ineffectual.
“SEC. 145. Abandonment is made by giving notice thereof to
the insurer, which may be done orally, or in writing: Provided,
That if the notice be done orally, a written notice of such
abandonment shall be submitted within seven (7) days from
such oral notice.
“SEC. 146. A notice of abandonment must be explicit, and
must specify the particular cause of the abandonment, but
need state only enough to show that there is probable cause
therefor, and need not be accompanied with proof of interest or
of loss.
“SEC. 147. An abandonment can be sustained only upon the
cause specified in the notice thereof.
“SEC. 148. An abandonment is equivalent to a transfer by the
insured of his interest to the insurer, with all the chances of
recovery and indemnity.
“SEC. 149. If a marine insurer pays for a loss as if it were an
actual total loss, he is entitled to whatever may remain of the
thing insured, or its proceeds or salvage, as if there had been a
formal abandonment.
“SEC. 150. Upon an abandonment, acts done in good faith by
those who were agents of the insured in respect to the thing
insured, subsequent to the loss, are at the risk of the insurer,
and for his benefit.
“SEC. 151. Where notice of abandonment is properly given, the
rights of the insured are not prejudiced by the fact that the
insurer refuses to accept the abandonment.
“SEC. 152. The acceptance of an abandonment may be either
express or implied from the conduct of the insurer. The mere
silence of the insurer for an unreasonable length of time after
notice shall be construed as an acceptance.
“SEC. 153. The acceptance of an abandonment, whether
express or implied, is conclusive upon the parties, and admits
the loss and the sufficiency of the abandonment.
“SEC. 154. An abandonment once made and accepted is
irrevocable, unless the ground upon which it was made proves
to be unfounded.
“SEC. 155. On an accepted abandonment of a ship, freightage
earned previous to the loss belongs to the insurer of said
freightage; but freightage subsequently earned belongs to the
insurer of the ship.
“SEC. 156. If an insurer refuses to accept a valid
abandonment, he is liable as upon an actual total loss,
deducting from the amount any proceeds of the thing insured
which may have come to the hands of the insured.
“SEC. 157. If a person insured omits to abandon, he may
nevertheless recover his actual loss.
“SUB-TITLE 1-I
“MEASURE OF INDEMNITY
“SEC. 158. A valuation in a policy of marine insurance is
conclusive between the parties thereto in the adjustment of
either a partial or total loss, if the insured has some interest at
risk, and there is no fraud on his part; except that when a
thing has been hypothecated by bottomry or respondentia,
before its insurance, and without the knowledge of the person
actually procuring the insurance, he may show the real value.
But a valuation fraudulent in fact, entitles the insurer to
rescind the contract.
“SEC. 159. A marine insurer is liable upon a partial loss, only
for such proportion of the amount insured by him as the loss
bears to the value of the whole interest of the insured in the
property insured.
“SEC. 160. Where profits are separately insured in a contract
of marine insurance, the insured is entitled to recover, in case
of loss, a proportion of such profits equivalent to the
proportion which the value of the property lost bears to the
value of the whole.
“SEC. 161. In case of a valued policy of marine insurance on
freightage or cargo, if a part only of the subject is exposed to
risk, the valuation applies only in proportion to such part.
“SEC. 162. When profits are valued and insured by a contract
of marine insurance, a loss of them is conclusively presumed
from a loss of the property out of which they are expected to
arise, and the valuation fixes their amount.
“SEC. 163. In estimating a loss under an open policy of marine
insurance the following rules are to be observed:
“(a) The value of a ship is its value at the beginning of the risk,
including all articles or charges which add to its permanent
value or which are necessary to prepare it for the voyage
insured;
“(b) The value of the cargo is its actual cost to the insured,
when laden on board, or where the cost cannot be ascertained,
its market value at the time and place of lading, adding the
charges incurred in purchasing and placing it on board, but
without reference to any loss incurred in raising money for its
purchase, or to any drawback on its exportation, or to the
fluctuation of the market at the port of destination, or to
expenses incurred on the way or on arrival;
“(c) The value of freightage is the gross freightage, exclusive of
primage, without reference to the cost of earning it; and
“(d) The cost of insurance is in each case to be added to the
value thus estimated.
“SEC. 164. If cargo insured against partial loss arrives at the
port of destination in a damaged condition, the loss of the
insured is deemed to be the same proportion of the value
which the market price at that port, of the thing so damaged,
bears to the market price it would have brought if sound.
“SEC. 165. A marine insurer is liable for all the expenses
attendant upon a loss which forces the ship into port to be
repaired; and where it is stipulated in the policy that the
insured shall labor for the recovery of the property, the insurer
is liable for the expense incurred thereby, such expense, in
either case, being in addition to a total loss, if that afterwards
occurs.
“SEC. 166. A marine insurer is liable for a loss falling upon
the insured, through a contribution in respect to the thing
insured, required to be made by him towards a general
average loss called for by a peril insured against: Provided,
That the liability of the insurer shall be limited to the
proportion of contribution attaching to his policy value where
this is less than the contributing value of the thing insured.
“SEC. 167. When a person insured by a contract of marine
insurance has a demand against others for contribution, he
may claim the whole loss from the insurer, subrogating him to
his own right to contribution. But no such claim can be made
upon the insurer after the separation of the interests liable to
contribution, nor when the insured, having the right and
opportunity to enforce contribution from others, has neglected
or waived the exercise of that right.
“SEC. 168. In the case of a partial loss of ship or its
equipment, the old materials are to be applied towards
payment for the new. Unless otherwise stipulated in the
policy, a marine insurer is liable for only two-thirds (2/3) of the
remaining cost of repairs after such deduction, except that
anchors must be paid in full.
“TITLE 2
“FIRE INSURANCE
“SEC. 169. As used in this Code, the term fire insurance shall
include insurance against loss by fire, lightning, windstorm,
tornado or earthquake and other allied risks, when such risks
are covered by extension to fire insurance policies or under
separate policies.
“SEC. 170. An alteration in the use or condition of a thing
insured from that to which it is limited by the policy made
without the consent of the insurer, by means within the
control of the insured, and increasing the risks, entitles an
insurer to rescind a contract of fire insurance.
“SEC. 171. An alteration in the use or condition of a thing
insured from that to which it is limited by the policy, which
does not increase the risk, does not affect a contract of fire
insurance.
“SEC. 172. A contract of fire insurance is not affected by any
act of the insured subsequent to the execution of the policy,
which does not violate its provisions, even though it increases
the risk and is the cause of the loss.
“SEC. 173. If there is no valuation in the policy, the measure
of indemnity in an insurance against fire is the expense it
would be to the insured at the time of the commencement of
the fire to replace the thing lost or injured in the condition in
which it was at the time of the injury; but if there is a
valuation in a policy of fire insurance, the effect shall be the
same as in a policy of marine insurance.
“SEC. 174. Whenever the insured desires to have a valuation
named in his policy, insuring any building or structure against
fire, he may require such building or structure to be examined
by an independent appraiser and the value of the insured’s
interest therein may then be fixed as between the insurer and
the insured. The cost of such examination shall be paid for by
the insured. A clause shall be inserted in such policy stating
substantially that the value of the insured’s interest in such
building or structure has been thus fixed. In the absence of
any change increasing the risk without the consent of the
insurer or of fraud on the part of the insured, then in case of a
total loss under such policy, the whole amount so insured upon
the insured’s interest in such building or structure, as stated
in the policy upon which the insurers have received a
premium, shall be paid, and in case of a partial loss the full
amount of the partial loss shall be so paid, and in case there
are two (2) or more policies covering the insured’s interest
therein, each policy shall contribute pro rata to the payment of
such whole or partial loss. But in no case shall the insurer be
required to pay more than the amount thus stated in such
policy. This section shall not prevent the parties from
stipulating in such policies concerning the repairing,
rebuilding or replacing of buildings or structures wholly or
partially damaged or destroyed.
“SEC. 175. No policy of fire insurance shall be pledged,
hypothecated, or transferred to any person, firm or company
who acts as agent for or otherwise represents the issuing
company, and any such pledge, hypothecation, or transfer
hereafter made shall be void and of no effect insofar as it may
affect other creditors of the insured.
“TITLE 3
“CASUALTY INSURANCE
“SEC. 176. Casualty insurance is insurance covering loss or
liability arising from accident or mishap, excluding certain
types of loss which by law or custom are considered as falling
exclusively within the scope of other types of insurance such as
fire or marine. It includes, but is not limited to, employer’s
liability insurance, motor vehicle liability insurance, plate
glass insurance, burglary and theft insurance, personal
accident and health insurance as written by non-life insurance
companies, and other substantially similar kinds of insurance.
“TITLE 4
“SURETYSHIP
“SEC. 177. A contract of suretyship is an agreement whereby a
party called the surety guarantees the performance by another
party called the principal or obligor of an obligation or
undertaking in favor of a third party called the obligee. It
includes official recognizances, stipulations, bonds or
undertakings issued by any company by virtue of and under
the provisions of Act No. 536, as amended by Act No. 2206.
“SEC. 178. The liability of the surety or sureties shall be joint
and several with the obligor and shall be limited to the
amount of the bond. It is determined strictly by the terms of
the contract of suretyship in relation to the principal contract
between the obligor and the obligee.
“SEC. 179. The surety is entitled to payment of the premium
as soon as the contract of suretyship or bond is perfected and
delivered to the obligor. No contract of suretyship or bonding
shall be valid and binding unless and until the premium
therefor has been paid, except where the obligee has accepted
the bond, in which case the bond becomes valid and
enforceable irrespective of whether or not the premium has
been paid by the obligor to the surety: Provided, That if the
contract of suretyship or bond is not accepted by, or filed with
the obligee, the surety shall collect only a reasonable amount,
not exceeding fifty percent (50%) of the premium due thereon
as service fee plus the cost of stamps or other taxes imposed
for the issuance of the contract or bond: Provided, however,
That if the nonacceptance of the bond be due to the fault or
negligence of the surety, no such service fee, stamps or taxes
shall be collected.
“In the case of a continuing bond, the obligor shall pay the
subsequent annual premium as it falls due until the contract
of suretyship is cancelled by the obligee or by the
Commissioner or by a court of competent jurisdiction, as the
case may be.
“SEC. 180. Pertinent provisions of the Civil Code of the
Philippines shall be applied in a suppletory character
whenever necessary in interpreting the provisions of a
contract of suretyship.
“TITLE 5
“LIFE INSURANCE
“SEC. 181. Life insurance is insurance on human lives and
insurance appertaining thereto or connected therewith.
“Every contract or undertaking for the payment of annuities
including contracts for the payment of lump sums under a
retirement program where a life insurance company manages
or acts as a trustee for such retirement program shall be
considered a life insurance contract for purposes of this Code.
“SEC. 182. An insurance upon life may be made payable on
the death of the person, or on his surviving a specified period,
or otherwise contingently on the continuance or cessation of
life.
“Every contract or pledge for the payment of endowments or
annuities shall be considered a life insurance contract for
purposes of this Code.
“In the absence of a judicial guardian, the father, or in the
latter’s absence or incapacity, the mother, of any minor, who is
an insured or a beneficiary under a contract of life, health, or
accident insurance, may exercise, in behalf of said minor, any
right under the policy, without necessity of court authority or
the giving of a bond, where the interest of the minor in the
particular act involved does not exceed Five hundred thousand
pesos (P500,000.00) or in such reasonable amount as may be
determined by the Commissioner. Such right may include, but
shall not be limited to, obtaining a policy loan, surrendering
the policy, receiving the proceeds of the Policy, and giving the
minor’s consent to any transaction on the policy.
“In the absence or in case of the incapacity of the father or
mother, the grandparent, the eldest brother or sister at least
eighteen (18) years of age, or any relative who has actual
custody of the minor insured or beneficiary, shall act as a
guardian without need of a court order or judicial appointment
as such guardian, as long as such person is not otherwise
disqualified or incapacitated. Payment made by the insurer
pursuant to this section shall relieve such insurer of any
liability under the contract.
“SEC. 183. The insurer in a life insurance contract shall be
liable in case of suicide only when it is committed after the
policy has been in force for a period of two (2) years from the
date of its issue or of its last reinstatement, unless the policy
provides a shorter period:Provided, however, That suicide
committed in the state of insanity shall be compensable
regardless of the date of commission.
“SEC. 184. A policy of insurance upon life or health may pass
by transfer, will or succession to any person, whether he has
an insurable interest or not, and such person may recover
upon it whatever the insured might have recovered.
“SEC. 185. Notice to an insurer of a transfer or bequest thereof
is not necessary to preserve the validity of a policy of
insurance upon life or health, unless thereby expressly
required.
“SEC. 186. Unless the interest of a person insured is
susceptible of exact pecuniary measurement, the measure of
indemnity under a policy of insurance upon life or health is
the sum fixed in the policy.
“TITLE 6
“MICROINSURANCE
“SEC. 187. Microinsurance is a financial product or service
that meets the risk protection needs of the poor where:
“(a) The amount of contributions, premiums, fees or charges,
computed on a daily basis, does not exceed seven and a half
percent (7.5%) of the current daily minimum wage rate for
nonagricultural workers in Metro Manila; and
“(b) The maximum sum of guaranteed benefits is not more
than one thousand (1,000) times of the current daily minimum
wage rate for nonagricultural workers in Metro Manila.
“SEC. 188. No insurance company or mutual benefit
association shall engage in the business of microinsurance
unless it possesses all the requirements as may be prescribed
by the Commissioner. The Commissioner shall issue such
rules and regulations governing microinsurance.
“CHAPTER II-A
“FINANCIAL REPORTING FRAMEWORK
“SEC. 189. All companies regulated by the Commission, unless
otherwise required by law, should comply with the financial
reporting frameworks adopted by the Commission for purposes
of creating the statutory financial reports and the annual
statements to be submitted to the Commission. Financial
reporting framework means a set of accounting and reporting
principles, standards, interpretations and pronouncements
that must be adopted in the preparation and submission of the
statutory financial statements and reports required by the
Commission. This financial reporting framework is not the
same as the financial reporting framework used to prepare the
financial statements that the Securities and Exchange
Commission may require. The main purpose of the statutory
statements is to present important information about the level
of risk and solvency situation of insurers. In prescribing the
applicable statutory financial reporting framework, the
Commissioner shall take into account international standards
concerning solvency and insurance company reporting as well
as generally accepted actuarial principles concerning financial
reporting promulgated by the Actuarial Society of the
Philippines.
“The assets and investments discussed in Sections 204 to 215
shall be accounted for in accordance with this section.
“The valuation of reserves shall be accounted for in accordance
with Title 5 of this Code.
“CHAPTER III
“THE BUSINESS OF INSURANCE
“TITLE 1
“INSURANCE COMPANIES, ORGANIZATION,
CAPITALIZATION AND AUTHORIZATION
“SEC. 190. For purposes of this Code, the
term insurer or insurance company shall include all
partnerships, associations, cooperatives or corporations,
including government-owned or -controlled corporations or
entities, engaged as principals in the insurance business,
excepting mutual benefit associations. Unless the context
otherwise requires, the term shall also include professional
reinsurers defined in Section 288. Domestic company shall
include companies formed, organized or existing under the
laws of the Philippines. Foreign company when used without
limitation shall include companies formed, organized, or
existing under any laws other than those of the Philippines.
“SEC. 191. The provisions of the Corporation Code, as
amended, shall apply to all insurance corporations now or
hereafter engaged in business in the Philippines insofar as
they do not conflict with the provisions of this chapter.
“SEC. 192. No corporation, partnership, or association of
persons shall transact any insurance business in the
Philippines except as agent of a corporation, partnership or
association authorized to do the business of insurance in the
Philippines, unless possessed of the capital and assets
required of an insurance corporation doing the same kind of
business in the Philippines and invested in the same manner;
unless the Commissioner shall have granted it a certificate to
the effect that it has complied with all the provisions of this
Code.
“Every entity receiving any such certificate of authority shall
be subject to the insurance and other applicable laws of the
Philippines and to the jurisdiction and supervision of the
Commissioner.
“SEC. 193. No insurance company shall transact any
insurance business in the Philippines until after it shall have
obtained a certificate of authority for that purpose from the
Commissioner upon application therefor and payment by the
company concerned of the fees hereinafter prescribed.
“The Commissioner may refuse to issue a certificate of
authority to any insurance company if, in his judgment, such
refusal will best promote the interest of the people of this
country. No such certificate of authority shall be granted to
any such company until the Commissioner shall have satisfied
himself by such examination as he may make and such
evidence as he may require that such company is qualified by
the laws of the Philippines to transact business therein, that
the grant of such authority appears to be justified in the light
of local economic requirements, and that the direction and
administration, as well as the integrity and responsibility of
the organizers and administrators, the financial organization
and the amount of capital, reasonably assure the safety of the
interests of the policyholders and the public.
“In order to maintain the quality of the management of the
insurance companies and afford better protection to
policyholders and the public in general, any person of good
moral character, unquestioned integrity and recognized
competence may be elected or appointed director or officer of
insurance companies in accordance with the pertinent
provisions contained in the corporate governance circulars
prescribed by the Commissioner. In addition hereto, the
Commissioner shall prescribe the qualifications of directors,
executive officers and other key officials of insurance
companies for purposes of this section.
“No person shall concurrently be a Director and/or Officer of
an insurance company and an adjustment company.
“Before issuing such certificate of authority, the Commissioner
must be satisfied that the name of the company is not that of
any other known company transacting a similar business in
the Philippines, or a name so similar as to be calculated to
mislead the public. The Commissioner may issue rules and
regulations on the use of names of insurance companies and
other supervised persons or entities.
“The certificate of authority issued by the Commissioner shall
expire on the last day of December, three (3) years following
its date of issuance, and shall be renewable every three (3)
years thereafter, subject to the company’s continuing
compliance with the provisions of this Code, circulars,
instructions, rulings or decisions of the Commission.
“Every company receiving any such certificates of authority
shall be subject to the provisions of this Code and other related
laws and to the jurisdiction and supervision of the
Commissioner.
“No insurance company may be authorized to transact in the
Philippines the business of life and non-life insurance
concurrently, unless specifically authorized to do so by the
Commissioner: Provided, That the terms life and non-
life insurance shall be deemed to include health, accident and
disability insurance.
“No insurance company shall have equity in an adjustment
company and neither shall an adjustment company have
equity in an insurance company.
“No insurance company issued with a valid certificate of
authority to transact insurance business anywhere in the
Philippines by the Insurance Commissioner, shall be barred,
prevented, or disenfranchised from issuing any insurance
policy or from transacting any insurance business within the
scope or coverage of its certificate of authority, anywhere in
the Philippines, by any local government unit or authority, for
whatever guise or reason whatsoever, including under any
kind of ordinance, accreditation system, or scheme. Any local
ordinance or local government unit regulatory issuance
imposing such restriction or disenfranchisement on any
insurance company shall be deemed null and void ab initio.
“SEC. 194. Except as provided in Section 289, no new domestic
life or non-life insurance company shall, in a stock corporation,
engage in business in the Philippines unless possessed of a
paid-up capital equal to at least One billion pesos
(P1,000,000,000.00):Provided, That a domestic insurance
company already doing business in the Philippines shall have
a net worth by June 30, 2013 of Two hundred fifty million
pesos (P250,000,000.00). Furthermore, said company must
have by December 31, 2016, an additional Three hundred
million pesos (P300,000,000.00) in net worth; by December 31,
2019, an additional Three hundred fifty million pesos
(P350,000,000.00) in net worth; and by December 31, 2022, an
additional Four hundred million pesos (P400,000,000.00) in
net worth.
“The Commissioner may, as a pre-licensing requirement of a
new insurance company, in addition to the paid-up capital
stock, require the stockholders to pay in cash to the company
in proportion to their subscription interests a contributed
surplus fund of not less than One hundred million pesos
(P100,000,000.00). He may also require such company to
submit to him a business plan showing the company’s
estimated receipts and disbursements, as well as the basis
therefor, for the next succeeding three (3) years.
“If organized as a mutual company, in lieu of such net worth,
it must have available total members equity in an amount to
be determined by the Insurance Commission above all
liabilities for losses reported; expenses, taxes, legal reserve,
and reinsurance of all outstanding risks, and the contributed
surplus fund equal to the amounts required of stock
corporations. A stock insurance company doing business in the
Philippines may, subject to the pertinent law and regulation
which now or hereafter may be in force, alter its organization
and transform itself into a mutual insurance company.
“The Secretary of Finance may, upon recommendation of the
Commissioner, increase such minimum paid-up capital stock
or cash assets requirement under such terms and conditions
as he may impose, to an amount which, in his opinion, would
reasonably assure the safety of the interests of the
policyholders and the public. The minimum paid-up capital
and net worth requirement must remain unimpaired for the
continuance of the license. The Commissioner may require the
adoption of the risk-based capital approach and other
internationally accepted forms of capital framework.
“For the purpose of this section, net worth shall consist of:
“(a) Paid-up capital;
“(b) Retained earnings;
“(c) Unimpaired surplus; and
“(d) Revaluation of assets as may be approved by the
Commissioner.
“The Commission may adopt for purposes of compliance with
capital build up requirement under this Code the recognition
as part of the capital account, capital notes or debentures
which are subordinate to all credits and senior only to common
capital stocks.
“The President of the Philippines may order a periodic review
every two (2) years the capital structure set out above to
determine the capital adequacy of the local insurance industry
from and after the integration and liberalization of the
financial services, including insurance, in the ASEAN Region.
For this purpose, a review committee consisting of
representatives from the Department of Finance (DOF), the
Insurance Commission (IC), the National Economic and
Development Authority (NEDA), the Securities and Exchange
Commission (SEC) and other agencies which the President
may designate shall conduct the review and may recommend
to the President to adopt for implementation the necessary
capital adjustment.
“SEC. 195. Every company must, before engaging in the
business of insurance in the Philippines, file with the
Commissioner the following:
“(a) A certified copy of the last annual statement or a verified
financial statement exhibiting the condition and affairs of such
company;
“(b) If incorporated under the laws of the Philippines, a copy of
the articles of incorporation and bylaws, and any amendments
to either, certified by the Securities and Exchange Commission
to be a copy of that which is filed in its Office;
“(c) If incorporated under any laws other than those of the
Philippines, a certificate from the Securities and Exchange
Commission showing that it is duly registered in the
mercantile registry of that Commission in accordance with the
Corporation Code. A copy of the articles of incorporation and
bylaws, and any amendments to either, if organized or formed
under any law requiring such to be filed, duly certified by the
officer having the custody of same, or if not so organized, a
copy of the law, charter or deed of settlement under which the
deed of organization is made, duly certified by the proper
custodian thereof, or proved by affidavit to be a copy; also, a
certificate under the hand and seal of the proper officer of such
state or country having supervision of insurance business
therein, if any there be, that such corporation or company is
organized under the laws of such state or country, with the
amount of capital stock or assets and legal reserve required by
this Code;
“(d) If not incorporated and of foreign domicile, aside from the
certificate mentioned in paragraph (c) of this section, a
certificate setting forth the nature and character of the
business, the location of the principal office, the name of the
individual or names of the persons composing the partnership
or association, the amount of actual capital employed or to be
employed therein, and the names of all officers and persons by
whom the business is or may be managed.
“The certificate must be verified by the affidavit of the chief
officer, secretary, agent, or manager of the company; and if
there are any written articles of agreement of the company, a
copy thereof must accompany such certificate.
“SEC. 196. The Commissioner must require as a condition
precedent to the transaction of insurance business in the
Philippines by any foreign insurance company, that such
company file in his office a written power of attorney
designating some person who shall be a resident of the
Philippines as its general agent, on whom any notice provided
by law or by any insurance policy, proof of loss, summons and
other legal processes may be served in all actions or other
legal proceedings against such company, and consenting that
service upon such general agent shall be admitted and held as
valid as if served upon the foreign company at its home office.
Any such foreign company shall, as further condition
precedent to the transaction of insurance business in the
Philippines, make and file with the Commissioner an
agreement or stipulation, executed by the proper authorities of
said company in form and substance as follows:
“The (name of company) does hereby stipulate and agree in
consideration of the permission granted by the Insurance
Commissioner to transact business in the Philippines, that if
at any time said company shall leave the Philippines, or cease
to transact business therein, or shall be without any agent in
the Philippines on whom any notice, proof of loss, summons, or
legal process may be served, then in any action or proceeding
arising out of any business or transaction which occurred in
the Philippines, service of any notice provided by law, or
insurance policy, proof of loss, summons, or other legal process
may be made upon the Insurance Commissioner, and that
such service upon the Insurance Commissioner shall have the
same force and effect as if made upon the company.
“Whenever such service of notice, proof of loss, summons, or
other legal process shall be made upon the Commissioner, he
must, within ten (10) days thereafter, transmit by mail,
postage paid, a copy of such notice, proof of loss, summons, or
other legal process to the company at its home or principal
office. The sending of such copy by the Commissioner shall be
a necessary part of the service of the notice, proof of loss, or
other legal process.
“SEC. 197. No insurance company organized or existing under
the government or laws other than those of the Philippines
shall engage in business in the Philippines unless possessed of
unimpaired capital or assets and reserve of not less than One
billion pesos (P1,000,000,000.00), nor until it shall have
deposited with the Commissioner for the benefit and security
of the policyholders and creditors of such company in the
Philippines, securities satisfactory to the Commissioner
consisting of good securities of the Philippines, including new
issues of stock of registered enterprises, as this term is defined
in Executive Order No. 226 of 1987, as amended, to the actual
market value of not less than the amount herein
required: Provided, That at least fifty percent (50%) of such
securities shall consist of bonds or other instruments of debt of
the Government of the Philippines, its political subdivisions
and instrumentalities, or of government-owned or -controlled
corporations and entities, including the Bangko Sentral ng
Pilipinas: Provided,further, That the total investment of a
foreign insurance company in any registered enterprise shall
not exceed twenty percent (20%) of the net worth of said
foreign insurance company nor twenty percent (20%) of the
capital of the registered enterprise, unless previously
authorized in writing by the Commissioner.
“The Commissioner may, as a pre-licensing requirement of a
new branch office of a foreign insurance company, in addition
to the required asset or net worth, require the company to
have an additional surplus fund in an amount to be
determined by the Insurance Commission.
“For purposes of this Code, the net worth of a foreign
insurance company shall refer only to its net worth in the
Philippines.
“SEC. 198. The Commissioner shall hold the securities,
deposited as required in the immediately preceding section, for
the benefit and security of all the policyholders and creditors
of the company depositing the same: Provided, That the
Commissioner may as long as the company is solvent, permit
the company to collect the interest or dividends on the
securities so deposited, and, from time to time, with his
assent, to withdraw any of such securities, upon depositing
with said Commissioner other like securities, the market value
of which shall be equal to the market value of such as may be
withdrawn. In the event of any company ceasing to do
business in the Philippines, the securities deposited as
aforesaid shall be returned to the company upon the
Commissioner’s written approval and only after the company
has duly proven in its application therefor that it has no
further liability whatsoever under any of its policies nor to any
of its creditors in the Philippines.
“SEC. 199. Every foreign company doing business in the
Philippines shall set aside an amount corresponding to the
legal reserves of the policies written in the Philippines and
invest and keep the same therein in accordance with the
provisions of this section. The legal reserve therein required to
be set aside shall be invested only in the classes of Philippine
securities described in Section 206:Provided, however, That no
investment in stocks or bonds of any single entity shall, in the
aggregate exceed twenty percent (20%) of the net worth of the
investing company or twenty percent (20%) of the capital of
the issuing company, whichever is the lesser, unless otherwise
approved in writing by the Commissioner. The securities
purchased and kept in the Philippines under this section, shall
not be sent out of the territorial jurisdiction of the Philippines
without the written consent of the Commissioner.
“TITLE 2
“SOLVENCY
“SEC. 200. An insurance company doing business in the
Philippines shall at all times maintain the minimum paid-up
capital, and net worth requirements as prescribed by the
Commissioner. Such solvency requirements shall be based on
internationally accepted solvency frameworks and adopted
only after due consultation with the insurance industry
associations.
“Whenever the aforementioned requirement be found to be
less than that herein required to be maintained, the
Commissioner shall forthwith direct the company to make
good any such deficiency by cash, to be contributed by all
stockholders of record in proportion to their respective
interests, and paid to the treasurer of the company, within
fifteen (15) days from receipt of the order: Provided, That the
company in the interim shall not be permitted to take any new
risk of any kind or character unless and until it make good any
such deficiency: Provided; further, That a stockholder who
aside from paying the contribution due from him, pays the
contribution due from another stockholder by reason of the
failure or refusal of the latter to do so, shall have a lien on the
certificates of stock of the insurance company concerned
appearing in its books in the name of the defaulting
stockholder on the date of default, as well as on any interests
or dividends that have accrued or will accrue to the said
certificates of stock, until the corresponding payment or
reimbursement is made by the defaulting stockholder.
“SEC. 201. No domestic insurance corporation shall declare or
distribute any dividend on its outstanding stocks unless it has
met the minimum paid-up capital and net worth requirements
under Section 194 and except from profits attested in a sworn
statement to the Commissioner by the president or treasurer
of the corporation to be remaining on hand after retaining
unimpaired:
“(a) The entire paid-up capital stock;
“(b) The solvency requirements defined by Section 200;
“(c) In the case of life insurance corporations, the legal reserve
fund required by Section 217;
“(d) In the case of corporations other than life, the legal
reserve fund required by Section 219; and
“(e) A sum sufficient to pay all net losses reported, or in the
course of settlement, and all liabilities for expenses and taxes.
“Any dividend declared or distributed under the preceding
paragraph shall be reported to the Commissioner within thirty
(30) days after such declaration or distribution.
“If the Commissioner finds that any such corporation has
declared or distributed any such dividend in violation of this
section, he may order such corporation to cease and desist
from doing business until the amount of such dividend or the
portion thereof in excess of the amount allowed under this
section has been restored to said corporation.
“The Commissioner shall prescribe solvency requirements for
branches of foreign insurance companies operating in the
Philippines.
“TITLE 3
“ASSETS
“SEC. 202. In any determination of the financial condition of
any insurance company doing business in the Philippines,
there shall be allowed and admitted as assets only such assets
legally or beneficially owned by the insurance company
concerned as determined by the Commissioner which consist
of:
“(a) Cash in the possession of the insurance company or in
transit under its control, and the true and duly verified
balance of any deposit of such company in a financially sound
bank or trust company duly authorized by the Bangko Sentral
ng Pilipinas.
“(b) Investments in securities, including money market
instruments, and in real property acquired or held in
accordance with and subject to the applicable provisions of this
Code and the income realized therefrom or accrued thereon.
“(c) Loans granted by the insurance company concerned to the
extent of that portion thereof adequately secured by non-
speculative assets with readily realizable values in accordance
with and subject to the limitations imposed by applicable
provisions of this Code.
“(d) Policy loans and other policy assets and liens on policies,
contracts or certificates of a life insurance company, in an
amount not exceeding legal reserves and other policy liabilities
carried on each individual life insurance policy, contract or
certificate.
“(e) The net amount of uncollected and deferred premiums and
annuity considerations in the case of a life insurance company
which carries the full mean tabular reserve liability.
“(f) Reinsurance recoverable by the ceding insurer:
“(1) From an insurer authorized to transact business in this
country, the full amount thereof; or
“(2) From an insurer not authorized in this country, in an
amount not exceeding the liabilities carried by the ceding
insurer for amounts withheld under a reinsurance treaty with
such unauthorized insurer as security for the payment of
obligations thereunder if such funds are held subject to
withdrawal by, and under the control of, the ceding insurer.
The Commissioner may prescribe the conditions under which a
ceding insurer may be allowed credit, as an asset or as a
deduction from loss and unearned premium reserves, for
reinsurance recoverable from an insurer not authorized in this
country but which presents satisfactory evidence that it meets
the applicable standards of solvency required in this country.
“(g) Funds withheld by a ceding insurer under a reinsurance
treaty, provided reserves for unpaid losses and unearned
premiums are adequately provided.
“(h) Deposits or amounts recoverable from underwriting
associations, syndicates and reinsurance funds, or from any
suspended banking institution, to the extent deemed by the
Commissioner to be available for the payment of losses and
claims and values to be determined by him.
“(i) Electronic data processing machines, as may be authorized
by the Commissioner to be acquired by the insurance company
concerned, the acquisition cost of which to be amortized in
equal annual amounts within a period of five (5) years from
the date of acquisition thereof.
“(j) Investments in mutual funds, real estate investment
trusts, salary loans, unit investment trust funds and special
deposit accounts, subject to the conditions as may be provided
for by the Commissioner.
“(k) Other assets, not inconsistent with the provisions of
paragraphs (a) to (j) hereof, which are deemed by the
Commissioner to be readily realizable and available for the
payment of losses and claims at values to be determined by
him in a circular, rule or regulation.
“SEC. 203. In addition to such assets as the Commissioner
may from time to time determine to be non-admitted assets of
insurance companies doing business in the Philippines, the
following assets shall in no case be allowed as admitted assets
of an insurance company doing business in the Philippines, in
any determination of its financial condition:
“(a) Goodwill, trade names, and other like intangible assets.
“(b) Prepaid or deferred charges for expenses and commissions
paid by such insurance company.
“(c) Advances to officers (other than policy loans), which are
not adequately secured and which are not previously
authorized by the Commissioner, as well as advances to
employees, agents, and other persons on mere personal
security.
“(d) Shares of stock of such insurance company, owned by it, or
any equity therein as well as loans secured thereby, or any
proportionate interest in such shares of stock through the
ownership by such insurance company of an interest in
another corporation or business unit.
“(e) Furniture, furnishing, fixtures, safes, equipment, library,
stationery, literature, and supplies.
“(f) Items of bank credits representing checks, drafts or notes
returned unpaid after the date of statement.
“(g) The amount, if any, by which the aggregate value of
investments as carried in the ledger assets of such insurance
company exceeds the aggregate value thereof as determined in
accordance with the provisions of this Code and/or the rules of
the Commissioner.
“All non-admitted assets and all other assets of doubtful value
or character included as ledger or non-ledger assets in any
statement submitted by an insurance company to the
Commissioner, or in any insurance examiner’s report to him,
shall also be reported, to the extent of the value disallowed as
deductions from the gross assets of such insurance company,
except where the Commissioner permits a reserve to be
carried among the liabilities of such insurance company in lieu
of any such deduction.
“TITLE 4
“INVESTMENTS
“SEC. 204. A life insurance company may lend to any of its
policyholders upon the security of the value of its policy such
sum as may be determined pursuant to the provisions of the
policy.
“No insurance company shall loan any of its money or deposits
to any person, corporation or association, except upon the
security of any of the following:
“(a) First mortgage or deeds of trust of registered,
unencumbered, improved or unimproved real estate, including
condominiums;
“(b) First mortgages or deeds of trust of actually cultivated,
improved and unencumbered agricultural lands in the
Philippines;
“(c) Purchase money mortgages, lease purchase agreements or
similar securities executed or received by it on account of the
sale or exchange of real property acquired pursuant to
Sections 206 and 208;
“(d) Bonds or other instruments of indebtedness issued or
guaranteed by the Government of the Philippines or its
political subdivisions authorized by law to incur such
obligations or issue such guarantees or of government-owned
or -controlled corporations and instrumentalities including the
Bangko Sentral ng Pilipinas; or
“(e) Obligations issued or guaranteed by universal banks,
commercial banks, offshore banking units, investment houses
or other financial intermediaries duly registered with the
Bangko Sentral ng Pilipinas; or
“(f) Obligations issued or guaranteed by foreign banks or
corporations, each of which shall have total net worth of at
least One hundred fifty million US dollars
($US150,000,000.00) or such other higher net worth as may be
prescribed by the Insurance Commission, as shown in their
financial statements as of the immediately preceding fiscal
year; or
“(g) Assignments of monetary instruments such as cash
deposits, deposit certificates or other similar instruments of
universal banks, commercial banks, investment houses or
other financial intermediaries duly registered with the Bangko
Sentral ng Pilipinas; or
“(h) Pledges of shares of stock, bonds or other instruments of
indebtedness specified in Section 209; or
“(i) Chattel mortgages over equipment not more than three (3)
years old; and
“(j) Such other security as may be approved by the
Commissioner.
“The loans provided in the preceding subsection shall be
subject to the following conditions:
“(1) The amount of loan secured by real estate mortgage over a
non-agricultural land shall not exceed seventy percent (70%)
of its appraised value, and in the case of a loan secured by a
real estate mortgage over an agricultural land, the amount of
loan shall not exceed forty percent (40%) of its market
value: Provided, That, in no case shall such loan have a
maturity period in excess of twenty-five (25) years;
“(2) Unless approved by the Commissioner, no loan may be
granted upon the security of a mortgage on improved real
estate if the improvements thereon do not belong to the owner
of the land, and the owner of the improvements does not sign
the deed of mortgage. However, if the owner of the land is the
Government of the Philippines or any of its political
subdivisions and a long-term lease has been executed in favor
of the owner of the improvements, the owner of the land need
not be a party to the deed of mortgage. The expiration date of
the lease shall not, however, precede the maturity of the loan.
The phrase ‘improved real estate’ as used herein shall mean
land with permanent building or buildings erected thereon;
“(3) Lease-agreements or similar securities received on the
sale of real estate property shall not exceed one hundred
percent (100%) of the selling price of said property, or one
hundred percent (100%) of its market value at the time of its
disposition, whichever amount is lower. However, in no case
shall such agreement have a maturity period not exceeding
thirty (30) years;
“(4) Loans secured by shares of stock of solvent corporations or
institutions shall not exceed fifty percent (50%) of:
“(i) The weighted average market price for the one hundred
eighty (180) days preceding the approval of the loan for shares
listed in the stock exchange; and
“(ii) For unlisted shares, the adjusted book value of such
shares.
“(5) Loans secured by the chattel mortgages over equipment
shall not exceed seventy percent (70%) of the market value of
said equipment.
“SEC. 205. No loan by any insurance company on the security
of real estate shall be made unless the title to such real estate
shall have first been registered in accordance with the existing
Land Registration Act, or shall have been previously
registered under the provisions of the existing Mortgage Law
and the lien or interest of the insurance company as
mortgagee has been registered.
“SEC. 206. (a) An insurance company may purchase, hold, own
and convey such property, real and personal, as may have
been mortgaged, pledged, or conveyed to it in good faith in
trust for its benefit by reason of money loaned by it in
pursuance of the regular business of the company, and such
real or personal property as may have been purchased by it at
sales under pledges, mortgages or deeds of trust for its benefit
on account of money loaned by it; and such real and personal
property as may have been conveyed to it by borrowers in
satisfaction and discharge of loans made by the company in
payment or by reason of any loan made by the company in
payment or by reason of any loan made by it shall be sold by
the company within twenty (20) years after the title thereto
has been vested in it.
“(b) An insurance company may purchase, hold, and own the
following:
“(1) Real properties which serve as its main place of business
and/or branch offices: Provided, That such investment shall
not in the overall exceed twenty percent (20%) of its net worth
as shown by its latest financial statement approved by the
Commissioner.
“(2) Bonds or other instruments of indebtedness of the
Government of the Philippines or its political subdivisions
authorized by law to issue bonds at the reasonable market
value thereof.
“(3) Bonds or other instruments of debt of government-owned
or -controlled corporations and entities, including the Bangko
Sentral ng Pilipinas.
“(4) Bonds, debentures or other instruments of indebtedness of
any solvent corporation or institution created or existing
under the laws of the Philippines: Provided, however, That the
issuing, assuming or guaranteeing entity or its predecessors
shall not have defaulted in the payment of interest on any of
its securities and that during each of any three (3) including
the last two (2) of the five (5) fiscal years next preceding the
date of acquisition by such insurance company of such bonds,
debentures, or other instruments of indebtedness, the net
earnings of the issuing, assuming or guaranteeing institution
available for its fixed charges, as hereinafter defined, shall
have been not less than one and one-quarter (1¼) times the
total of its fixed charges for such year: Provided, further, That
no life insurance company shall invest in or loan upon the
obligations of any one institution in the kinds permitted under
this subsection an amount in excess of twenty-five percent
(25%) of the total admitted assets of such insurer as of
December thirty-first next preceding the date of such
investment.
“As used in this subsection the term net earnings available for
fixed charges shall mean net income after deducting operating
and maintenance expenses, taxes other than income taxes,
depreciation and depletion; but excluding extraordinary
nonrecurring items of income or expense appearing in the
regular financial statement of the issuing, assuming or
guaranteeing institution. The term fixed charges shall include
interest on funded and unfunded debt, amortization of debt
discount, and rentals for leased properties.
“(5) Preferred or guaranteed stocks of any solvent corporation
or institution created or existing under the laws of the
Philippines:Provided, That if the stocks are guaranteed, the
amount of stocks so guaranteed is not in excess of fifty percent
(50%) of the amount of the preferred or common stocks, as the
case may be, of the guaranteeing corporation: Provided,
finally, That no life insurance company shall invest in or loan
upon obligations of any one institution in the kinds permitted
under this subsection an amount in excess of ten percent (10%)
of the total admitted assets of such insurer as of December
thirty-first next preceding the date of such investment.
“(6) Common stocks of any solvent corporation or institution
created or existing under the laws of the
Philippines: Provided, however, That no life insurance
company shall invest in or loan upon the obligations of any one
corporation or institution in the kinds permitted under this
subsection an amount in excess of ten percent (10%) of the
total admitted assets of such insurer as of December thirty-
first next preceding the date of such investment.
“(7) Securities issued by a registered enterprise, as this term is
defined in Executive Order No. 226, otherwise known as the
Omnibus Investments Code of 1987, as amended: Provided,
That the total investment of a domestic non-life insurance
company in any registered enterprise shall not exceed twenty
percent (20%) of the net worth of said insurance company as
shown by its aforesaid financial statement unless previously
authorized by the Commissioner.
“(8) Certificates, notes and other obligations issued by the
trustees or receivers of any institution created or existing
under the laws of the Philippines which, or the assets of
which, are being administered under the direction of any court
having jurisdiction: Provided, however, That such certificates,
notes or other obligations are adequately secured as to
principal and interests.
“(9) Equipment trust obligations or certificates which are
adequately secured or other adequately secured instruments
evidencing an interest in equipment wholly or in part within
the Philippines: Provided, however, That there is a right to
receive determined portions of rental, purchase or other fixed
obligatory payments for the use or purchase of such
equipment.
“(10) Any obligation of any corporation or institution created
or existing under the laws of the Philippines which is, on the
date of acquisition by the insurer, adequately secured and has
qualities and characteristics wherein the speculative elements
are not predominant.
“(11) Such other securities as may be approved by the
Commissioner.
“(c) Any domestic insurer which has outstanding insurance,
annuity or reinsurance contracts in currencies other than the
national currency of the Philippines may invest in, or
otherwise acquire or loan upon securities and investments in
such currency which are substantially of the same kinds,
classes and investment grades as those eligible for investment
under the foregoing subdivisions of this section; but the
aggregate amount of such investments and of such cash in
such currency which is at any time held by such insurer shall
not exceed one and one-half (1½) times the amount of its
reserves and other obligations under such contracts or the
amount which such insurer is required by the law of any
country or possession outside the Republic of the Philippines
to be invested in such country or possession, whichever shall
be greater.
“SEC. 207. An insurance company may:
“(1) Invest in equities of other financial institutions; and
“(2) Engage in the buying and selling of long-term debt
instruments: Provided, That any or all of such investments
shall be with the prior approval of the Commissioner.
Insurance companies may, however, invest in listed equities of
other financial institutions without need of prior approval by
the Commissioner.
“SEC. 208. Any life insurance company may:
“(a) Acquire or construct housing projects and, in connection
with any such project, may acquire land or any interest
therein by purchase, lease or otherwise, or use land acquired
pursuant to any other provision of this Code. Such company
may thereafter own, maintain, manage, collect or receive
income from, or sell and convey, any land or interest therein so
acquired and any improvements thereon. The aggregate book
value of the investments of any such company in all such
projects shall not exceed at the time of such investments
twenty-five percent (25%) of the total admitted assets of such
company on the thirty-first day of December next
preceding: Provided, That the funds of the company for the
payment of pending claims and obligations shall not be used
for such investments.
“(b) Acquire real property, other than property to be used
primarily for providing housing and property for
accommodation of its own business, as an investment for the
production of income, or may acquire real property to be
improved or developed for such investment purpose pursuant
to a program therefor, subject to the condition that the cost of
each parcel of real property so acquired under the authority of
this paragraph (b), including the estimated cost to the
company of the improvement or development thereof, when
added to the book value of all other real property held by it
pursuant to this paragraph (b), shall not exceed twenty-five
percent (25%) of its admitted assets as of the thirty-first day of
December next preceding.
“SEC. 209. Every domestic insurance company shall, to the
extent of an amount equal in value to twenty-five percent
(25%) of the minimum net worth required under Section 194,
invest its funds only in securities, satisfactory to the
Commissioner, consisting of bonds or other instruments of
debt of the Government of the Philippines or its political
subdivisions or instrumentalities, or of government-owned or -
controlled corporations and entities, including the Bangko
Sentral ng Pilipinas: Provided, That such investments shall at
all times be maintained free from any lien or
encumbrance: Provided, further, That such securities shall be
deposited with and held by the Commissioner for the faithful
performance by the depositing insurer of all its obligations
under its insurance contracts. The provisions of Section 198
shall, so far as practicable, apply to the securities deposited
under this section.
“Except as otherwise provided in this Code, no judgment
creditor or other claimant shall have the right to levy upon
any of the securities of the insurer held on deposit under this
section or held on deposit pursuant to the requirement of the
Commissioner.
“SEC. 210. After satisfying the requirements contained in the
preceding section, any domestic non-life insurance company,
shall invest, to an amount prescribed below, its funds in, or
otherwise, acquire or loan upon, only the classes of
investments described in Section 206, including securities
issued by any registered enterprise, as this term is defined in
Executive Order No. 226, otherwise known as ‘The Omnibus
Investments Code of 1987′ and such other classes of
investments as may be authorized by the Commissioner for
purposes of this section: Provided, That:
“(a) No more than twenty percent (20%) of the net worth of
such company as shown by its latest financial statement
approved by the Commissioner shall be invested in the lot and
building in which the insurance company conducts its
business; and
“(b) The total investment of an insurance company in any
registered enterprise shall not exceed twenty percent (20%) of
the net worth of said insurance company as shown by its
aforesaid financial statement nor twenty percent (20%) of the
paid-up capital of the registered enterprise excluding the
intended investment, unless previously authorized by the
Commissioner: Provided, further, That such investments, free
from any lien or encumbrance, shall be at least equal in
amount to the aggregate amount of: (1) its legal reserve, as
provided in Section 219, and (2) its reserve fund held for
reinsurance as provided for in the pertinent treaty provision in
the case of reinsurance ceded to authorized insurers.
“SEC. 211. After satisfying the requirements contained in
Sections 197, 199, 209 and 210, any non-life insurance
company may invest any portion of its funds representing
earned surplus in any of the investments described in Sections
204, 206 and 207, or in any securities issued by a registered
enterprise mentioned in the preceding sections: Provided, That
no investment in stocks or bonds of any single entity shall in
the aggregate, exceed twenty percent (20%) of the net worth of
the insurance company as shown in its latest financial
statement approved by the Commissioner or twenty percent
(20%) of the paid-up capital of the issuing company, whichever
is lesser, unless otherwise approved by the Commissioner.
“SEC. 212. After satisfying the minimum capital investment
required in Section 209, any life insurance company may
invest its legal policy reserve, as provided in Section 217 or in
Section 218, in any of the classes of securities or types of
investments described in Sections 204, 206, 207 and 208,
subject to the limitations therein contained, and in any
securities issued by any registered enterprise mentioned in
Section 210, free from any lien or encumbrance, in such
amounts as may be approved by the Commissioner. Such
company may likewise invest any portion of its earned surplus
in the aforesaid securities or investments subject to the
aforesaid limitations.
“SEC. 213. Any investment made in violation of the applicable
provisions of this title shall be considered non-admitted assets.
“SEC. 214. (a) All bonds or other instruments of indebtedness
having a fixed term and rate of interest and held by any life
insurance company authorized to do business in this country,
if amply secured and if not in default as to principal or
interest, shall be valued based on their amortized cost using
effective interest method less impairment and unrecoverable
amount based on appropriate measurement methods which
are generally accepted in the industry and accepted by the
Commissioner. The Commissioner shall have the power to
determine the eligibility of any such investments for valuation
on the basis of amortization, and may by regulation prescribe
or limit the classes of securities so eligible for amortization. All
bonds or other instruments of indebtedness which in the
judgment of the Commissioner are not amply secured shall not
be eligible for amortization and shall be valued in accordance
with paragraph two. The Commissioner may, if he finds that
the interest of policyholders so permit or require, by official
regulation permit or require any class or classes of insurers,
other than life insurance companies authorized to do business
in this country, to value their bonds or other instruments of
indebtedness in accordance with the foregoing rule.
“(b) The investments of all insurers authorized to do business
in this country, except securities subject to amortization and
except as otherwise provided in this chapter, shall be valued,
in the discretion of the Commissioner, at their amortized cost
using effective interest method less impairment and
unrecoverable amount or at valuation representing their fair
market value. If the Commissioner finds that in view of the
character of investments of any insurer authorized to do
business in this country it would be prudent for such insurer
to establish a special reserve for possible losses or fluctuations
in the values of its investments, he may require such insurer
to establish such reserve, reasonable in amount, and include a
report thereon in any statement or report of the financial
condition of such insurer. The Commissioner may, in
connection with any examination or required financial
statement of an authorized insurer, require such insurer to
furnish him complete financial statements and audited report
of the financial condition of any corporation of which the
securities are owned wholly or partly by such insurer and may
cause an examination to be made of any subsidiary or affiliate
of such insurer as appropriate to specific investments as
provided in appropriate circulars issued by the Commissioner.
“(c) Investments in equity of an insurance company shall be
valued as follows:
“(1) Listed stocks shall be valued at market value and
periodically adjusted to reflect market changes through a
special valuation account to reflect their realizable value when
sold;
“(2) Unlisted stocks shall be valued at adjusted book value
based on the latest unqualified audited financial statements of
the company which issued such stocks; and
“(3) Stocks of a corporation under the control of the insurer
shall be valued using the equity method which is the cost plus
or minus the share of the controlling company in the earnings
or losses of the controlled company after acquisition of such
stocks.
“(d) The stock of an insurance company shall be valued at the
lesser of its market value or its book value as shown by its last
approved audited financial statement or the last report on
examination, whichever is more recent. The book value of a
share of common stock of an insurance company shall be
ascertained by dividing (1) the amount of its capital and
surplus less the value of all of its preferred stock, if any,
outstanding, by (2) the number of shares of its common stock
issued and outstanding.
“Notwithstanding the foregoing provisions, an insurer may, at
its option, value its holdings of stock in a subsidiary insurance
company in an amount not less than acquisition cost if such
acquisition cost is less than the value determined as
hereinbefore provided.
“(e) Real estate acquired by foreclosure or by deed in lieu
thereof, in the absence of a recent appraisal deemed by the
Commissioner to be reliable, shall not be valued at an amount
greater than the unpaid principal of the defaulted loan at the
date of such foreclosure or deed, together with any taxes and
expenses paid or incurred by such insurer at such time in
connection with such acquisition, and the cost of additions or
improvements thereafter paid by such insurer and any
amount or amounts thereafter paid by such insurer or any
assessments levied for improvements in connection with the
property.
“(f) Purchase money mortgages received on dispositions of real
property held pursuant to Section 208 shall be valued in an
amount equivalent to ninety percent (90%) of the value of such
real property. Purchase money mortgages received on
disposition of real property otherwise held shall be valued in
an amount not exceeding ninety percent (90%) of the value of
such real property as determined by an appraisal made by an
appraiser at or about the time of disposition of such real
property.
“(g) The stock of a subsidiary of an insurer shall be valued on
the basis of the greater of:
“(1) The value of only such of the assets of such subsidiary as
would constitute lawful investments for the insurer if acquired
or held directly by the insurer; or
“(2) Such other value determined pursuant to standards and
cumulative limitations, contained in a regulation to be
promulgated by the Commissioner.
“(h) Notwithstanding any provision contained in this section or
elsewhere in this chapter, if the Commissioner finds that the
interests of policyholders so permit or require, he may permit
or require any class or classes of insurers authorized to do
business in this country to value their investments or any
class or classes thereof as of any date heretofore or hereafter
in accordance with any applicable valuation or method.
“SEC. 215. It shall be the duty of the officers of the insurance
company to report within the first fifteen (15) days of every
month all such investments as may be made by them during
the preceding month, and the Commissioner may, if such
investments or any of them seem injudicious to him, require
the sale or disposal of the same. The report shall also include a
list of investments sold or disposed of by the company during
the same period.
“TITLE 5
“RESERVES
“SEC. 216. Every life insurance company, doing business in
the Philippines, shall annually make a valuation of all policies,
additions thereto, unpaid dividends, and all other obligations
outstanding on the thirty-first day of December of the
preceding year. All such valuations shall be made according to
the standard adopted by the company, as prescribed by the
Commissioner in accordance with internationally accepted
actuarial standards, which standard shall be stated in its
annual report.
“Such standard of valuations shall be according to a standard
table of mortality with interest to be determined by the
Insurance Commissioner. When the preliminary term basis is
used, the term insurance shall be limited to the first policy
year.
“The results of such valuations shall be reported to the
Commissioner on or before the thirtieth day of April of each
year accompanied by a sworn statement of a designated
company officer and stating the methods and assumptions
used in arriving at the values reported.
“SEC. 217. The aggregate net value so ascertained of the
policies of such company shall be deemed its reserve liability,
to provide for which it shall hold funds in secure investments
equal to such net value, above all its other liabilities; and it
shall be the duty of the Commissioner, after having verified, to
such an extent as he may deem necessary, the valuation of all
policies in force, to satisfy himself that the company has such
amount in safe legal securities after all other debts and claims
against it have been provided for.
“The reserve liability for variable contracts defined in Section
238 shall be established in accordance with actuarial
procedures that recognize the variable nature of the benefits
provided, and shall be approved by the Commissioner.
“SEC. 218. Every life insurance company, conducted on the
mutual plan or a plan in which policyholders are by the terms
of their policies entitled to share in the profits or surplus shall,
on all policies of life insurance heretofore or hereafter issued,
under the conditions of which the distribution of surplus is
deferred to a fixed or specified time and contingent upon the
policy being in force and the insured living at that time,
annually ascertain the amount of the surplus to which all such
policies as a separate class are entitled, and shall annually
apportion to such policies as a class the amount of the surplus
so ascertained, and carry the amount of such apportioned
surplus, plus the actual interest earnings and accretions to
such fund, as a distinct and separate liability to such class of
policies on and for which the same was accumulated, and no
company or any of its officers shall be permitted to use any
part of such apportioned surplus fund for any purpose
whatsoever other than for the express purpose for which the
same was accumulated.
“SEC. 219. Every insurance company, other than life, shall
maintain a reserve for unearned premiums on its policies in
force, which shall be charged as a liability in any
determination of its financial condition. Such reserve shall be
calculated based on the twenty-fourth (24th) method.
“SEC. 220. In addition to its liabilities and reserves on
contracts of insurance issued by it, every insurance company
shall be charged with the estimated amount of all of its other
liabilities, including taxes, expenses and other obligations due
or accrued at the date of statement, and including any special
reserves required by the Commissioner pursuant to the
provisions of this Code.
TITLE 6
“LIMIT OF SINGLE RISK
“SEC. 221. No insurance company other than life, whether
foreign or domestic, shall retain any risk on any one subject of
insurance in an amount exceeding twenty percent (20%) of its
net worth. For purposes of this section, the term subject of
insurance shall include all properties or risks insured by the
same insurer that customarily are considered by non-life
company underwriters to be subject to loss or damage from the
same occurrence of any hazard insured against.
“The Commissioner may issue regulations providing for a
maximum limit on the overall retained risks of insurers to
serve as a catastrophe cover requirement for the same.
“Reinsurance ceded as authorized under the succeeding title
shall be deducted in determining the risk retained. As to
surety risk, deduction shall also be made of the amount
assumed by any other company authorized to transact surety
business and the value of any security mortgaged, pledged, or
held subject to the surety’s control and for the surety’s
protection.
“TITLE 7
“REINSURANCE TRANSACTIONS
“SEC. 222. An insurance company doing business in the
Philippines may accept reinsurances only of such risks, and
retain risk thereon within such limits, as it is otherwise
authorized to insure.
“SEC. 223. No insurance company doing business in the
Philippines shall cede all or part of any risks situated in the
Philippines by way of reinsurance directly to any foreign
insurer not authorized to do business in the Philippines unless
such foreign insurer or, if the services of a nonresident broker
are utilized, such nonresident broker is represented in the
Philippines by a resident agent duly registered with the
Commissioner as required in this Code.
“The resident agent of such unauthorized foreign insurer or
nonresident broker shall immediately upon registration
furnish the Commissioner with the annual statement of such
insurer, or of such company or companies where such broker
may place Philippine business as of the year preceding such
registration, and annually thereafter as soon as available.
“SEC. 224. All insurance companies, both life and non-life,
authorized to do business in the Philippines shall cede their
excess risks to other companies similarly authorized to do
business in the Philippines in such amounts and under such
arrangements as would be consistent with sound underwriting
practices before they enter into reinsurance arrangements
with unauthorized foreign insurers.
“SEC. 225. Any insurance company doing business in the
Philippines desiring to cede their excess risks to foreign
insurance or reinsurance companies not authorized to transact
business in the Philippines may do so under such terms and
conditions which the Commissioner may prescribe.
“Should any reinsurance agreement be for any reason
cancelled or terminated, the ceding company concerned shall
inform the Commissioner in writing of such cancellation or
termination within thirty (30) days from the date of such
cancellation or termination or from the date notice or
information of such cancellation or termination is received by
such company as the case may be.
“SEC. 226. Every insurance company authorized to do
business in the Philippines shall report to the Commissioner
on forms prescribed by him the particulars of reinsurance
treaties or any new treaties or changes in existing treaties
within three (3) months from their effectivity.
“SEC. 227. No credit shall be allowed as an admitted asset or
as a deduction from liability, to any ceding insurer for
reinsurance made, ceded, renewed, or otherwise becoming
effective after January 1, 1975, unless the reinsurance shall be
payable by the assuming insurer on the basis of the liability of
the ceding insurer under the contract or contracts reinsured
without diminution because of the insolvency of the ceding
insurer nor unless under the contract or contracts of
reinsurance the liability for such reinsurance is assumed by
the assuming insurer or insurers as of the same effective date;
nor unless the reinsurance agreement provides that payments
by the assuming insurer shall be made directly to the ceding
insurer or to its liquidator, receiver, or statutory successor
except:
“(a) Where the contract specifically provides another payee of
such reinsurance in the event of the insolvency of the ceding
insurer; and
“(b) Where the assuming insurer with the consent of the direct
insured or insureds has assumed such policy obligations of the
ceding insurer as direct obligations of the assuming insurer to
the payees under such policies and in substitution for the
obligations of the ceding insurer to such payees.
“SEC. 228. No life insurance company doing business in the
Philippines shall reinsure its whole risk on any individual life
or joint lives, or substantially all of its insurance in force,
without having first obtained the written permission of the
Commissioner.
“TITLE 8
“ANNUAL STATEMENT
“SEC. 229. Every insurance company doing business in the
Philippines shall terminate its fiscal period on the thirty-first
day of December every year, and shall annually on or before
the thirtieth day of April of each year render to the
Commissioner a statement signed and sworn to by the chief
officer of such company showing, in such form and details as
may be prescribed by the Commissioner, the exact condition of
its affairs on the preceding thirty-first day of December.
“The annual statement shall be prepared in accordance with
the financial reporting framework as determined by the
Commissioner. In addition, the Commissioner may require
other relevant information. The form and details of such other
relevant information shall be prescribed by the Commissioner
and shall form part of the supplementary schedules to the
annual statement.
“Any entry in the statement which is found to be false shall
constitute a misdemeanor and the officer signing such
statement shall be subject to the penalty provided for under
Section 442.
“SEC. 230. Every insurance company authorized under Title
10 of this chapter to issue, deliver or use variable contracts
shall annually file with the Commissioner separate annual
statement of its separate variable accounts. Such statement
shall be on a form prescribed or approved by the
Commissioner and shall include details as to all of the income,
disbursements, assets and liability items of and associated
with the said separate variable accounts. Said statement shall
be under oath of two (2) officers of the company and shall be
filed simultaneously with the annual statement required by
the preceding section.
“SEC. 231. Within thirty (30) days after receipt of the annual
statement approved by the Commissioner, every insurance
company doing business in the Philippines shall publish in a
newspaper of general circulation, a full synopsis of its annual
financial statement showing fully the conditions of its
business, and setting forth its resources and liabilities in
accordance with such form prescribed by the Commissioner.
“The Commissioner shall have the authority to make, amend,
and rescind such accounting rules and regulations as may be
necessary to carry out the provisions of this Code, and define
accounting, technical and trade terms used in this
Code: Provided, That such shall be in accordance with
internationally accepted accounting standards. Among other
things, the Commissioner may prescribe the form or forms in
which required information shall be set forth, the items or
details to be shown in the balance sheet and income
statement, and the methods to be followed in the preparation
of accounts, appraisal or valuation of assets and liabilities,
determination of recurring and nonrecurring income,
differentiation of investment and operating income, and in the
preparation, where the Commissioner deems it necessary or
desirable, of consolidated balance sheets or income accounts of
any person directly or indirectly controlling or controlled by
the insurance company.
“TITLE 9
“POLICY FORMS
“SEC. 232. No policy, certificate or contract of insurance shall
be issued or delivered within the Philippines unless in the
form previously approved by the Commissioner, and no
application form shall be used with, and no rider, clause,
warranty or endorsement shall be attached to, printed or
stamped upon such policy, certificate or contract unless the
form of such application, rider, clause, warranty or
endorsement has been approved by the Commissioner.
“SEC. 233. In the case of individual life or endowment
insurance, the policy shall contain in substance the following
conditions:
“(a) A provision that the policyholder is entitled to a grace
period either of thirty (30) days or of one (1) month within
which the payment of any premium after the first may be
made, subject at the option of the insurer to an interest charge
not in excess of six percent (6%) per annum for the number of
days of grace elapsing before the payment of the premium,
during which period of grace the policy shall continue in full
force, but in case the policy becomes a claim during the said
period of grace before the overdue premium is paid, the
amount of such premium with interest may be deducted from
the amount payable under the policy in settlement;
“(b) A provision that the policy shall be incontestable after it
shall have been in force during the lifetime of the insured for a
period of two (2) years from its date of issue as shown in the
policy, or date of approval of last reinstatement, except for
nonpayment of premium and except for violation of the
conditions of the policy relating to military or naval service in
time of war;
“(c) A provision that the policy shall constitute the entire
contract between the parties, but if the company desires to
make the application a part of the contract it may do so
provided a copy of such application shall be indorsed upon or
attached to the policy when issued, and in such case the policy
shall contain a provision that the policy and the application
therefor shall constitute the entire contract between the
parties;
“(d) A provision that if the age of the insured is considered in
determining the premium and the benefits accruing under the
policy, and the age of the insured has been misstated, the
amount payable under the policy shall be such as the premium
would have purchased at the correct age;
“(e) If the policy is participating, a provision that the company
shall periodically ascertain and apportion any divisible
surplus accruing on the policy under conditions specified
therein;
“(f) A provision specifying the options to which the policyholder
is entitled to in the event of default in a premium payment
after three (3) full annual premiums shall have been paid.
Such option shall consist of:
“(1) A cash surrender value payable upon surrender of the
policy which shall not be less than the reserve on the policy,
the basis of which shall be indicated, for the then current
policy year and any dividend additions thereto, reduced by a
surrender charge which shall not be more than one-fifth (1/5)
of the entire reserve or two and one-half percent (2½%) of the
amount insured and any dividend additions thereto; and
“(2) One or more paid-up benefits on a plan or plans specified
in the policy of such value as may be purchased by the cash
surrender value.
“(g) A provision that at any time after a cash surrender value
is available under the policy and while the policy is in force,
the company will advance, on proper assignment or pledge of
the policy and on sole security thereof, a sum equal to, or at
the option of the owner of the policy, less than the cash
surrender value on the policy, at a specified rate of interest,
not more than the maximum allowed by law, to be determined
by the company from time to time, but not more often than
once a year, subject to the approval of the Commissioner; and
that the company will deduct from such loan value any
existing indebtedness on the policy and any unpaid balance of
the premium for the current policy year, and may collect
interest in advance on the loan to the end of the current policy
year, which provision may further provide that such loan may
be deferred for not exceeding six (6) months after the
application therefor is made;
“(h) A table showing in figures cash surrender values and
paid-up options available under the policy each year upon
default in premium payments, during at least twenty (20)
years of the policy beginning with the year in which the values
and options first become available, together with a provision
that in the event of the failure of the policyholder to elect one
of the said options within the time specified in the policy, one
of said options shall automatically take effect and no
policyholder shall ever forfeit his right to same by reason of his
failure to so elect;
“(i) In case the proceeds of a policy are payable in installments
or as an annuity, a table showing the minimum amounts of
the installments or annuity payments;
“(j) A provision that the policyholder shall be entitled to have
the policy reinstated at any time within three (3) years from
the date of default of premium payment unless the cash
surrender value has been duly paid, or the extension period
has expired, upon production of evidence of insurability
satisfactory to the company and upon payment of all overdue
premiums and any indebtedness to the company upon said
policy, with interest rate not exceeding that which would have
been applicable to said premiums and indebtedness in the
policy years prior to reinstatement.
“Any of the foregoing provisions or portions thereof not
applicable to single premium or term policies shall to that
extent not be incorporated therein; and any such policy may be
issued and delivered in the Philippines which in the opinion of
the Commissioner contains provisions on any one or more of
the foregoing requirements more favorable to the policyholder
than hereinbefore required.
“This section shall not apply to policies of group life or
industrial life insurance.
“SEC. 234. No policy of group life insurance shall be issued
and delivered in the Philippines unless it contains in
substance the following provisions, or provisions which in the
opinion of the Commissioner are more favorable to the persons
insured, or at least as favorable to the persons insured and
more favorable to the policyholders:
“(a) A provision that the policyholder is entitled to a grace
period of either thirty (30) days or of one (1) month for the
payment of any premium due after the first, during which
grace period the death benefit coverage shall continue in force,
unless the policyholder shall have given the insurer written
notice of discontinuance in advance of the date of
discontinuance and in accordance with the terms of the policy.
The policy may provide that the policyholder shall be liable for
the payment of a pro rata premium for the time the policy is in
force during such grace period;
“(b) A provision that the validity of the policy shall not be
contested, except for nonpayment of premiums after it has
been in force for two (2) years from its date of issue; and that
no statement made by any insured under the policy relating to
his insurability shall be used in contesting the validity of the
insurance with respect to which such statement was made
after such insurance has been in force prior to the contest for a
period of two (2) years during such person’s lifetime nor unless
contained in a written instrument signed by him;
“(c) A provision that a copy of the application, if any, of the
policyholder shall be attached to the policy when issued, that
all statements made by the policyholder or by persons insured
shall be deemed representations and not warranties, and that
no statement made by any insured shall be used in any contest
unless a copy of the instrument containing the statement is or
has been furnished to such person or to his beneficiary;
“(d) A provision setting forth the conditions, if any, under
which the insurer reserves the right to require a person
eligible for insurance to furnish evidence of individual
insurability satisfactory to the insurer as a condition to part or
all of his coverage;
“(e) A provision specifying an equitable adjustment of
premiums or of benefits or of both to be made in the event that
the age of a person insured has been misstated, such provision
to contain a clear statement of the method of adjustment to be
used;
“(f) A provision that any sum becoming due by reason of death
of the person insured shall be payable to the beneficiary
designated by the insured, subject to the provisions of the
policy in the event that there is no designated beneficiary, as
to all or any part of such sum, living at the death of the
insured, and subject to any right reserved by the insurer in the
policy and set forth in the certificate to pay at its option a part
of such sum not exceeding Five hundred pesos (P500.00) to
any person appearing to the insurer to be equitably entitled
thereto by reason of having incurred funeral or other expenses
incident to the last illness or, death of the person insured;
“(g) A provision that the insurer will issue to the policyholder
for delivery to each person insured a statement as to the
insurance protection to which he is entitled, to whom the
insurance benefits are payable, and the rights set forth in
paragraphs (h), (i) and (j) following;
“(h) A provision that if the insurance, or any portion of it, on a
person covered under the policy ceases because of termination
of employment or of membership in the class or classes eligible
for coverage under the policy, such person shall be entitled to
have issued to him by the insurer, without evidence of
insurability, an individual policy of life insurance without
disability or other supplementary benefits, provided
application for the individual policy and payment of the first
premium to the insurer shall be made within thirty (30) days
after such termination, and provided further that:
“(1) The individual policy shall be on any one of the forms,
except term insurance, then customarily issued by the insurer
at the age and for an amount not in excess of the coverage
under the group policy; and
“(2) The premium on the individual policy shall be at the
insurer’s then customary rate applicable to the form and
amount of the individual policy, to the class of risk to which
such person then belongs, and to his age attained on the
effective date of the individual policy.
“(i) A provision that if the group policy terminates or is
amended so as to terminate the insurance of any class of
insured persons, every person insured thereunder at the date
of such termination whose insurance terminates and who has
been so insured for five (5) years prior to such termination
date shall be entitled to have issued to him by the insurer an
individual policy of life insurance subject to the same
limitations as set forth in paragraph (h), except that the group
policy may provide that the amount of such individual policy
shall not exceed the amount of the person’s life insurance
protection ceasing;
“(j) A provision that if a person insured under the group policy
dies during the thirty (30)-day period within which he would
have been entitled to an individual policy issued to him in
accordance with paragraphs (h) and (i) above and before such
individual policy shall have become effective, the amount of
life insurance which he would have been entitled to have
issued to him as an individual policy shall be payable as a
claim under the group policy whether or not application for the
individual policy or the payment of the first premium has been
made;
“(k) In the case of a policy issued to a creditor to insure debtors
of such creditor, a provision that the insurer will furnish to the
policyholder for delivery to each debtor insured under the
policy a form which will contain a statement that the life of
the debtor is insured under the policy and that any death
benefit paid thereunder by reason of his death shall be applied
to reduce or extinguish indebtedness.
“The provisions of paragraphs (f) to (j) shall not apply to
policies issued to a creditor to insure his debtors. If a group life
policy is on a plan of insurance other than term, it shall
contain a non-forfeiture provision or provisions which in the
opinion of the Commissioner is or are equitable to the insured
or the policyholder: Provided, That nothing herein contained
shall be so construed as to require group life policies to contain
the same non-forfeiture provisions as are required of
individual life policies.
“SEC. 235. The term industrial life insurance as used in this
Code shall mean that form of life insurance under which the
premiums are payable either monthly or oftener, if the face
amount of insurance provided in any policy is not more than
five hundred times that of the current statutory minimum
daily wage in the City of Manila, and if the words industrial
policy are printed upon the policy as part of the descriptive
matter.
“An industrial life policy shall not lapse for nonpayment of
premium if such nonpayment was due to the failure of the
company to send its representative or agent to the insured at
the residence of the insured or at some other place indicated
by him for the purpose of collecting such premium: Provided,
That the provisions of this paragraph shall not apply when the
premium on the policy remains unpaid for a period of three (3)
months or twelve (12) weeks after the grace period has
expired.
“SEC. 236. In the case of industrial life insurance, the policy
shall contain in substance the following provisions:
“(a) A provision that the insured is entitled to a grace period of
four (4) weeks within which the payment of any premium after
the first may be made, except that where premiums are
payable monthly, the period of grace shall be either one (1)
month or thirty (30) days; and that during the period of grace,
the policy shall continue in full force, but if during such grace
period the policy becomes a claim, then any overdue and
unpaid premiums may be deducted from any amount payable
under the policy in settlement;
“(b) A provision that the policy shall be incontestable after it
has been in force during the lifetime of the insured for a
specified period, not more than two (2) years from its date of
issue, except for nonpayment of premiums and except for
violation of the conditions of the policy relating to naval or
military service, or services auxiliary thereto, and except as to
provisions relating to benefits in the event of disability as
defined in the policy, and those granting additional insurance
specifically against death by accident or by accidental means,
or to additional insurance against loss of, or loss of use of,
specific members of the body;
“(c) A provision that the policy shall constitute the entire
contract between the parties, or if a copy of the application is
endorsed upon and attached to the policy when issued, a
provision that the policy and the application therefor shall
constitute the entire contract between the parties, and in the
latter case, a provision that all statements made by the
insured shall, in the absence of fraud, be deemed
representations and not warranties;
“(d) A provision that if the age of the person insured, or the
age of any person, considered in determining the premium, or
the benefits accruing under the policy, has been misstated,
any amount payable or benefit accruing under the policy shall
be such as the premium paid would have purchased at the
correct age;
“(e) A provision that if the policy is a participating policy, the
company shall periodically ascertain and apportion any
divisible surplus accruing on the policy under the conditions
specified therein;
“(f) A provision that in the event of default in premium
payments after three (3) full years’ premiums have been paid,
the policy shall be converted into a stipulated form of
insurance, and that in the event of default in premium
payments after five (5) full years’ premiums have been paid, a
specified cash surrender value shall be available, in lieu of the
stipulated form of insurance, at the option of the policyholder.
The net value of such stipulated form of insurance and the
amount of such cash value shall not be less than the reserve
on the policy and dividend additions thereto, if any, at the end
of the last completed policy year for which premiums shall
have been paid (the policy to specify the mortality table, rate
of interest and method of valuation adopted to compute such
reserve), exclusive of any reserve on disability benefits and
accidental death benefits, less an amount not to exceed two
and one-half percent (2½%) of the maximum amount insured
by the policy and dividend additions thereto, if any, when the
issue age is under ten (10) years, and less an amount not to
exceed two and one-half percent (2½%) of the current amount
insured by the policy and dividend additions thereto, if any, if
the issue age is ten (10) years or older, and less any existing
indebtedness to the company on or secured by the policy;
“(g) A provision that the policy may be surrendered to the
company at its home office within a period of not less than
sixty (60) days after the due date of a premium in default for
the specified cash value: Provided, That the insurer may defer
payment for not more than six (6) months after the application
therefor is made;
“(h) A table that shows in figures the nonforfeiture benefits
available under the policy every year upon default in payment
of premiums during at least the first twenty (20) years of the
policy, such table to begin with the year in which such values
become available, and a provision that the company will
furnish upon request an extension of such table beyond the
year shown in the policy;
“(i) A provision that specifies which one of the stipulated forms
of insurance provided for under the provision of paragraph (f)
of this section shall take effect in the event of the insured’s
failure, within sixty (60) days from the due date of the
premium in default, to notify the insurer in writing as to
which one of such forms he has selected;
“(j) A provision that the policy may be reinstated at any time
within two (2) years from the due date of the premium in
default unless the cash surrender value has been paid or the
period of extended term insurance expired, upon production of
evidence of insurability satisfactory to the company and
payment of arrears of premiums with interest at a rate not
exceeding six percent (6%) per annum payable annually;
“(k) A provision that when a policy shall become a claim by
death of the insured, settlement shall be made upon receipt of
due proof of death, or not later than two (2) months after
receipt of such proof;
“(l) A title on the face and on the back of the policy correctly
describing its form;
“(m) A space on the front or the back of the policy for the name
of the beneficiary designated by the insured with a reservation
of the insured’s right to designate or change the beneficiary
after the issuance of the policy. The policy may also provide
that no designation or change of beneficiary shall be binding
on the insurer until endorsed on the policy by the insurer, and
that the insurer may refuse to endorse the name of any
proposed beneficiary who does not appear to the insurer to
have an insurable interest in the life of the insured. Such
policy may also contain a provision that if the beneficiary
designated in the policy does not surrender the policy with due
proof of death within the period stated in the policy, which
shall not be less than thirty (30) days after the death of the
insured, or if the beneficiary is the estate of the insured, or is a
minor, or dies before the insured, or is not legally competent to
give valid release, then the insurer may make any payment
thereunder to the executor or administrator of the insured, or
to any of the insured’s relatives by blood or legal adoption or
connections by marriage or to any person appearing to the
insurer to be equitably entitled thereto by reason of having
incurred expense for the maintenance, medical attention or
burial of the insured; and
“(n) A provision that when an industrial life insurance policy is
issued providing for accidental or health benefits, or both, in
addition to life insurance, the foregoing provisions shall apply
only to the life insurance portion of the policy.
“Any of the foregoing provisions or portions thereof not
applicable to nonparticipating or term policies shall to that
extent not be incorporated therein. The foregoing provisions
shall not apply to policies issued or granted pursuant to the
nonforfeiture provisions prescribed in provisions of paragraphs
(f) and (i) of this section, nor shall provisions of paragraphs (f),
(g), (h), and (i) hereof be required in term insurance of twenty
(20) years or less but such term policies shall specify the
mortality table, rate of interest, and method of computing
reserves.
“SEC. 237. No policy of industrial life insurance shall be
issued or delivered in the Philippines if it contains any of the
following provisions:
“(a) A provision that gives the insurer the right to declare the
policy void because the insured has had any disease or
ailment, whether specified or not, or because the insured has
received institutional, hospital, medical or surgical treatment
or attention, except a provision which gives the insurer the
right to declare the policy void if the insured has, within two
(2) years prior to the issuance of the policy, received
institutional, hospital, medical or surgical treatment or
attention and if the insured or the claimant under the policy
fails to show that the condition occasioning such treatment or
attention was not of a serious nature or was not material to
the risk;
“(b) A provision that gives the insurer the right to declare the
policy void because the insured has been rejected for
insurance, unless such right be conditioned upon a showing by
the insurer that knowledge of such rejection would have led to
a refusal by the insurer to make such contract;
“(c) A provision that allows the company to pay the proceeds of
the policy at the death of the insured to any person other than
the named beneficiary, except in accordance with a standard
provision as specified under the provisions of paragraph (m) of
the preceding section;
“(d) A provision that limits the time within which any action
at law or in equity may be commenced to less than six (6)
years after the cause of action shall accrue; and
“(e) A provision that specifies any mode of settlement at
maturity of less value than the amount insured by the policy
plus dividend additions, if any, less any indebtedness to the
company on the policy and less any premium that may by the
terms of the policy be deducted, payments to be made in
accordance with the terms of the policy.
“Nothing contained in this section nor in the provision of
paragraph (b) of the preceding section, relating to
incontestability, shall be construed as prohibiting the life
insurance company from placing in its industrial life policies
provisions limiting its liability with respect to:
“(1) Death resulting from aviation other than as a fare-paying
passenger on a regularly scheduled route between definitely
established airports; and
“(2) Military or naval service: Provided, That if the liability of
the company is limited as herein provided, such liability shall
in no event be fixed at an amount less than the reserve on the
policy (excluding the reserve for any additional benefits in the
event of death by accident or accidental means or for benefits
in the event of any type of disability), less any indebtedness on
or secured by such policy; nor shall any provision of this
section apply to any provision in an industrial life insurance
policy for additional benefits in the event of death by accident
or accidental means.
“TITLE 10
“VARIABLE CONTRACTS
“SEC. 238. (a) No insurance company authorized to transact
business in the Philippines shall issue, deliver, sell or use any
variable contract in the Philippines, unless and until such
company shall have satisfied the Commissioner that its
financial and general condition and its methods of operations,
including the issue and sale of variable contracts, are not and
will not be hazardous to the public or to its policy and contract
owners. No foreign insurance company shall be authorized to
issue, deliver or sell any variable contract in the Philippines,
unless it is likewise authorized to do so by the laws of its
domicile.
“(b) The term variable contract shall mean any policy or
contract on either a group or on an individual basis issued by
an insurance company providing for benefits or other
contractual payments or values thereunder to vary so as to
reflect investment results of any segregated portfolio of
investments or of a designated separate account in which
amounts received in connection with such contracts shall have
been placed and accounted for separately and apart from other
investments and accounts. This contract may also provide
benefits or values incidental thereto payable in fixed or
variable amounts, or both. It shall not be deemed to be a
security or securities as defined in The Securities Act, as
amended, or in the Investment Company Act, as amended, nor
subject to regulations under said Acts.
“(c) In determining the qualifications of a company requesting
authority to issue, deliver, sell or use variable contracts, the
Commissioner shall always consider the following:
“(1) The history, financial and general condition of the
company: Provided, That such company, if a foreign company,
must have deposited with the Commissioner for the benefit
and security of its variable contract owners in the Philippines,
securities satisfactory to the Commissioner consisting of bonds
of the Government of the Philippines or its instrumentalities
with an actual market value of Two million pesos
(P2,000,000.00);
“(2) The character, responsibility and fitness of the officers and
directors of the company; and
“(3) The law and regulation under which the company is
authorized in the state of domicile to issue such contracts.
“(d) If after notice and hearing, the Commissioner shall find
that the company is qualified to issue, deliver, sell or use
variable contracts in accordance with this Code and the
regulations and rules issued thereunder, the corresponding
order of authorization shall be issued. Any decision or order
denying authority to issue, deliver, sell or use variable
contracts shall clearly and distinctly state the reasons and
grounds on which it is based.
“SEC. 239. Any insurance company issuing variable contracts
pursuant to this Code may in its discretion issue contracts
providing a combination of fixed amount and variable amount
of benefits and for option lump-sum payment of benefits.
“SEC. 240. Every variable contract form delivered or issued for
delivery in the Philippines, and every certified form evidencing
variable benefits issued pursuant to any such contract on a
group basis, and the application, rider and endorsement forms
applicable thereto and used in connection therewith, shall be
subject to the prior approval of the Commissioner.
“SEC. 241. Illustration of benefits payable under any variable
contract shall not include or involve projections of past
investment experience into the future and shall conform with
the rules and regulations promulgated by the Commissioner.
“SEC. 242. Variable contracts may be issued on the industrial
life basis, provided that the pertinent provisions of this Code
and of the rules and regulations of the Commissioner
governing variable contracts are complied with in connection
with such contracts.
“SEC. 243. Every life insurance company authorized under the
provisions of this Code to issue, deliver, sell or use variable
contracts shall, in connection with the same, establish one or
more separate accounts to be known as separate variable
accounts. All amounts received by the company in connection
with any such contracts which are required by the terms
thereof, to be allocated or applied to one or more designated
separate variable accounts shall be placed in such designated
account or accounts. The assets and liabilities of each such
separate variable account shall at all times be clearly
identifiable and distinguishable from the assets and liabilities
in all other accounts of the company. Notwithstanding any
provision of law to the contrary, the assets held in any such
separate variable account shall not be chargeable with
liabilities arising out of any other business the company may
conduct but shall be held and applied exclusively for the
benefit of the owners or beneficiaries of the variable contracts
applicable thereto. In the event of the insolvency of the
company, the assets of each such separate variable account
shall be applied to the contractual claims of the owners or
beneficiaries of the variable contracts applicable thereto.
Except as otherwise specifically provided by the contract, no
sale, exchange or other transfer of assets may be made by a
company, between any of its separate accounts or between any
other investment account and one or more of its separate
accounts, unless in the case of a transfer into a separate
account, such transfer is made solely to establish the account
or to support the operation of the contracts with respect to the
separate account to which the transfer is made, or in case of a
transfer from a separate account, such transfer would not
cause the remaining assets of the account to become less than
the reserves and other contract liabilities with respect to such
separate account. Such transfer, whether into or from a
separate account, shall be made by a transfer of cash, or by a
transfer of securities having a valuation which could be
readily determined in the market place: Provided, That such
transfer of securities is approved by the Commissioner. The
Commissioner may authorize other transfers among such
accounts, if, in his opinion, such transfers would not be
inequitable. All amounts and assets allocated to any such
separate variable account shall be owned by the company and
with respect to the same the company shall not be nor hold
itself out to be a trustee.
“SEC. 244. Any insurance company which has established one
or more separate variable accounts pursuant to the preceding
section may invest and reinvest all or any part of the assets
allocated to any such account in the securities and
investments authorized by Sections 204, 206, 207 and 208 for
any of the funds of an insurance company in such amount or
amounts as may be approved by the Commissioner. In
addition thereto, such company may also invest in common
stocks or other equities which are listed on or admitted to
trading in a securities exchange located in the Philippines, or
which are publicly held and traded in the over-the-counter
market as defined by the Commissioner and as to which
market quotations have been available: Provided,
however, That no such company shall invest in excess of ten
percent (10%) of the assets of any such separate variable
accounts in any one corporation issuing such common stock.
The assets and investments of such separate variable accounts
shall not be taken into account in applying the quantitative
investment limitations applicable to other investments of the
company. In the purchase of common capital stock or other
equities, the insurer shall designate to the broker, or to the
seller if the purchase is not made through a broker, the
specific variable account for which the investment is made.
“SEC. 245. Assets allocated to any separate variable account
shall be valued at their market value on the date of any
valuation, or if there is no readily available market value then
in accordance with the terms of the variable contract
applicable to such assets, or if there are no such contract
terms then in such manner as may be prescribed by the rules
and regulations of the Commissioner.
“SEC. 246. The reserve liability for variable contracts shall be
established in accordance with actuarial procedures that
recognize the variable nature of the benefits provided, and
shall be approved by the Commissioner.
“TITLE 11
“CLAIMS SETTLEMENT
“SEC. 247. (a) No insurance company doing business in the
Philippines shall refuse, without just cause, to pay or settle
claims arising under coverages provided by its policies, nor
shall any such company engage in unfair claim settlement
practices. Any of the following acts by an insurance company,
if committed without just cause and performed with such
frequency as to indicate a general business practice, shall
constitute unfair claim settlement practices:
“(1) Knowingly misrepresenting to claimants pertinent facts or
policy provisions relating to coverage at issue;
“(2) Failing to acknowledge with reasonable promptness
pertinent communications with respect to claims arising under
its policies;
“(3) Failing to adopt and implement reasonable standards for
the prompt investigation of claims arising under its policies;
“(4) Not attempting in good faith to effectuate prompt, fair and
equitable settlement of claims submitted in which liability has
become reasonably clear; or
“(5) Compelling policyholders to institute suits to recover
amounts due under its policies by offering without justifiable
reason substantially less than the amounts ultimately
recovered in suits brought by them.
“(b) Evidence as to numbers and types of valid and justifiable
complaints to the Commissioner against an insurance
company, and the Commissioner’s complaint experience with
other insurance companies writing similar lines of insurance
shall be admissible in evidence in an administrative or judicial
proceeding brought under this section.
“(c) If it is found, after notice and an opportunity to be heard,
that an insurance company has violated this section, each
instance of noncompliance with paragraph (a) may be treated
as a separate violation of this section and shall be considered
sufficient cause for the suspension or revocation of the
company’s certificate of authority.
“SEC. 248. The proceeds of a life insurance policy shall be paid
immediately upon maturity of the policy, unless such proceeds
are made payable in installments or as an annuity, in which
case the installments, or annuities shall be paid as they
become due: Provided, however, That in the case of a policy
maturing by the death of the insured, the proceeds thereof
shall be paid within sixty (60) days after presentation of the
claim and filing of the proof of death of the insured. Refusal or
failure to pay the claim within the time prescribed herein will
entitle the beneficiary to collect interest on the proceeds of the
policy for the duration of the delay at the rate of twice the
ceiling prescribed by the Monetary Board, unless such failure
or refusal to pay is based on the ground that the claim is
fraudulent.
“The proceeds of the policy maturing by the death of the
insured payable to the beneficiary shall include the discounted
value of all premiums paid in advance of their due dates, but
are not due and payable at maturity.
“SEC. 249. The amount of any loss or damage for which an
insurer may be liable, under any policy other than life
insurance policy, shall be paid within thirty (30) days after
proof of loss is received by the insurer and ascertainment of
the loss or damage is made either by agreement between the
insured and the insurer or by arbitration; but if such
ascertainment is not had or made within sixty (60) days after
such receipt by the insurer of the proof of loss, then the loss or
damage shall be paid within ninety (90) days after such
receipt. Refusal or failure to pay the loss or damage within the
time prescribed herein will entitle the assured to collect
interest on the proceeds of the policy for the duration of the
delay at the rate of twice the ceiling prescribed by the
Monetary Board, unless such failure or refusal to pay is based
on the ground that the claim is fraudulent.
“SEC. 250. In case of any litigation for the enforcement of any
policy or contract of insurance, it shall be the duty of the
Commissioner or the Court, as the case may be, to make a
finding as to whether the payment of the claim of the insured
has been unreasonably denied or withheld; and in the
affirmative case, the insurance company shall be adjudged to
pay damages which shall consist of attorney’s fees and other
expenses incurred by the insured person by reason of such
unreasonable denial or withholding of payment plus interest of
twice the ceiling prescribed by the Monetary Board of the
amount of the claim due the insured, from the date following
the time prescribed in Section 248 or in Section 249, as the
case may be, until the claim is fully satisfied: Provided, That
failure to pay any such claim within the time prescribed in
said sections shall be considered prima facie evidence of
unreasonable delay in payment.
“SEC. 251. It is unlawful to:
“(a) Present or cause to be presented any fraudulent claim for
the payment of a loss under a contract of insurance; and
“(b) Fraudulently prepare, make or subscribe any writing with
intent to present or use the same, or to allow it to be presented
in support of any such claim. Any person who violates this
section shall be punished by a fine not exceeding twice the
amount claimed or imprisonment of two (2) years, or both, at
the discretion of the court.
“TITLE 12
“EXAMINATION OF COMPANIES
“SEC. 252. The Commissioner shall require every insurance
company doing business in the Philippines to keep its books,
records, accounts and vouchers in such manner that he or his
authorized representatives may readily verify its annual
statements and ascertain whether the company is solvent and
has complied with the provisions of this Code or the circulars,
instructions, rulings or decisions of the Commissioner.
“SEC. 253. The Commissioner shall at least once a year and
whenever he considers the public interest so demands, cause
an examination to be made into the affairs, financial condition
and method of business of every insurance company
authorized to transact business in the Philippines and of any
other person, firm or corporation managing the affairs and/or
property of such insurance company. Such company, as well as
such managing person, firm or corporation, shall submit to the
examiner all such books, papers and securities as he may
require and such examiner shall also have the power to
examine the officers of such company under oath touching its
business and financial condition, and the authority to transact
business in the Philippines of any such company shall be
suspended by the Commissioner if such examination is refused
and such company shall not thereafter be allowed to transact
further business in the Philippines until it has fully complied
with the provisions of this section.
“Government-owned or -controlled corporations or entities
engaged in social or private insurance shall similarly be
subject to such examination by the Commissioner unless their
respective charters otherwise provide.
“TITLE 13
“SUSPENSION OR REVOCATION OF AUTHORITY
“SEC. 254. If the Commissioner is of the opinion upon
examination of other evidence that any domestic or foreign
insurance company is in an unsound condition, or that it has
failed to comply with the provisions of law or regulations
obligatory upon it, or that its condition or method of business
is such as to render its proceedings hazardous to the public or
to its policyholders, or that its net worth requirement, in the
case of a domestic stock company, or its available cash assets,
in the case of a domestic mutual company, or its security
deposits, in the case of a foreign company, is impaired or
deficient, or that the margin of solvency required of such
company is deficient, the Commissioner is authorized to
suspend or revoke all certificates of authority granted to such
insurance company, its officers and agents, and no new
business shall thereafter be done by such company or for such
company by its agent in the Philippines while such
suspension, revocation or disability continues or until its
authority to do business is restored by the Commissioner.
Before restoring such authority, the Commissioner shall
require the company concerned to submit to him a business
plan showing the company’s estimated receipts and
disbursements, as well as the basis therefor, for the next
succeeding three (3) years.
“TITLE 14
“APPOINTMENT OF CONSERVATOR
“SEC. 255. If at any time before, or after, the suspension or
revocation of the certificate of authority of an insurance
company as provided in the preceding title, the Commissioner
finds that such company is in a state of continuing inability or
unwillingness to maintain a condition of solvency or liquidity
deemed adequate to protect the interest of policyholders and
creditors, he may appoint a conservator to take charge of the
assets, liabilities, and the management of such company,
collect all moneys and debts due to said company and exercise
all powers necessary to preserve the assets of said company,
reorganize the management thereof, and restore its viability.
The said conservator shall have the power to overrule or
revoke the actions of the previous management and board of
directors of the said company, any provision of law, or of the
articles of incorporation or bylaws of the company, to the
contrary notwithstanding, and such other powers as the
Commissioner shall deem necessary.
“The conservator may be another insurance company doing
business in the Philippines, any officer or officers of such
company, or any other competent and qualified person, firm or
corporation. The remuneration of the conservator and other
expenses attendant to the conservation shall be borne by the
insurance company concerned.
“The conservator shall not be subject to any action, claim or
demand by, or liability to, any person in respect of anything
done or omitted to be done in good faith in the exercise, or in
connection with the exercise, of the powers conferred on the
conservator.
“The conservator appointed shall report and be responsible to
the Commissioner until such time as the Commissioner is
satisfied that the insurance company can continue to operate
on its own and the conservatorship shall likewise be
terminated should the Commissioner, on the basis of the
report of the conservator or of his own findings, determine that
the continuance in business of the insurance company would
be hazardous to policyholders and creditors, in which case the
provisions of Title 15 shall apply.
“No insurance company, life or non-life, or any professional
reinsurer, ordered to be liquidated by the Commissioner under
the provisions hereunder may be rehabilitated or authorized to
transact anew, insurance or reinsurance business, as the case
may be.
“TITLE 15
“PROCEEDINGS UPON INSOLVENCY
“SEC. 256. Whenever, upon examination or other evidence, it
shall be disclosed that the condition of any insurance company
doing business in the Philippines is one of insolvency, or that
its continuance in business would be hazardous to its
policyholders and creditors, the Commissioner shall forthwith
order the company to cease and desist from transacting
business in the Philippines and shall designate a receiver to
immediately take charge of its assets and liabilities, as
expeditiously as possible collect and gather all the assets and
administer the same for the benefit of its policyholders and
creditors, and exercise all the powers necessary for these
purposes including, but not limited to, bringing suits and
foreclosing mortgages in the name of the insurance company.
“The Commissioner shall thereupon determine within ninety
(90) days whether the insurance company may be reorganized
or otherwise placed in such condition so that it may be
permitted to resume business with safety to its policyholders
and creditors and shall prescribe the conditions under which
such resumption of business shall take place as well as the
time for fulfillment of such conditions. In such case, the
expenses and fees in the collection and administration of the
insurance company shall be determined by the Commissioner
and shall be paid out of the assets of such company.
“If the Commissioner shall determine and confirm within the
said period that the insurance company is insolvent, as
defined hereunder, or cannot resume business with safety to
its policyholders and creditors, he shall, if the public interest
requires, order its liquidation, indicate the manner of its
liquidation and approve a liquidation plan and implement it
immediately. The Commissioner shall designate a competent
and qualified person as liquidator who shall take over the
functions of the receiver previously designated and, with all
convenient speed, reinsure all its outstanding policies, convert
the assets of the insurance company to cash, or sell, assign or
otherwise dispose of the same to the policyholders, creditors
and other parties for the purpose of settling the liabilities or
paying the debts of such company and he may, in the name of
the company, institute such actions as may be necessary in the
appropriate court to collect and recover accounts and assets of
the insurance company, and to do such other acts as may be
necessary to complete the liquidation as ordered by the
Commissioner.
“The provisions of any law to the contrary notwithstanding,
the actions of the Commissioner under this section shall be
final and executory, and can be set aside by the court upon
petition by the company and only if there is convincing proof
that the action is plainly arbitrary and made in bad faith. The
Commissioner, through the Solicitor General, shall then file
the corresponding answer reciting the proceeding taken and
praying the assistance of the court in the liquidation of the
company. No restraining order or injunction shall be issued by
the court enjoining the Commissioner from implementing his
actions under this section, unless there is convincing proof
that the action of the Commissioner is plainly arbitrary and
made in bad faith and the petitioner or plaintiff files with the
Clerk or Judge of the Court in which the action is pending a
bond executed in favor of the Commissioner in an amount to
be fixed by the court. The restraining order or injunction shall
be refused or, if granted, shall be dissolved upon filing by the
Commissioner, if he so desires, of a bond in an amount twice
the amount of the bond of the petitioner or plaintiff
conditioned that it will pay the damages which the petition or
plaintiff may suffer by the refusal or the dissolution of the
injunction. The provisions of Rule 58 of the New Rules of
Court insofar as they are applicable shall govern the issuance
and dissolution of the restraining order or injunction
contemplated in this section.
“All proceedings under this title shall be given preference in
the courts. The Commissioner shall not be required to pay any
fee to any public officer for filing, recording, or in any manner
authenticating any paper or instrument relating to the
proceedings.
“As used in this title, the term Insolvency shall mean the
inability of an insurance company to pay its lawful obligations
as they fall due in the usual and ordinary course of business as
may be shown by its failure to maintain the solvency
requirements under Section 200 of this Code.
“SEC. 257. The receiver or the liquidator, as the case may be,
designated under the provisions of this title, shall not be
subject to any action, claim or demand by, or liability to, any
person in respect of anything done or omitted to be done in
good faith in the exercise, or in connection with the exercise, of
the powers conferred on such receiver or liquidator.
“TITLE 16
“CONSOLIDATION AND MERGER OF
INSURANCE COMPANIES
“SEC. 258. Upon prior notice to the Commissioner, two (2) or
more domestic insurance companies, acting through their
respective boards of directors, may negotiate to merge into a
single corporation which shall be one of the constituent
corporations, or consolidate into a single corporation which
shall be a new corporation to be formed by the consolidation. A
common agreement of the proposed merger or consolidation
shall be drawn up for submission to the stockholders or
members of the constituent companies for adoption and
approval in accordance with the provisions of the respective
bylaws of the constituent companies and all existing laws that
may be pertinent.
“SEC. 259. Such agreement shall include, aside from the
proposed merger or consolidation, provisions relative to the
manner of transfer of assets to and assumption of liabilities by
the absorbing or acquiring company from the absorbed or
dissolved company or companies; the proposed articles of
merger or consolidation and bylaws of the surviving or
acquiring company; the corporate name to be adopted which
should not be that of any other existing company transacting
similar business or one so similar as to be calculated to
mislead the public; the rights of the stockholders or members
of the absorbed or dissolved companies; date of effectivity of
the merger or consolidation; and such particulars as may be
necessary to explain and make manifest the objects and
purposes of the absorbing or acquiring company.
“SEC. 260. Upon execution of such agreement to merge or
consolidate by and between or among the boards of directors of
the constituent companies, notice thereof shall be mailed
immediately to their policyholders and creditors. The company
or companies to be absorbed or dissolved shall discharge all its
accrued liabilities; otherwise, such liabilities shall, with the
consent of its creditors, be transferred to and assumed by the
absorbing or acquiring company, or such liabilities be
reinsured by the latter. In the case of such policies as are
subject to cancellation by the company or companies to be
absorbed or dissolved, same may be cancelled pursuant to the
terms thereof in lieu of such transfer, assumption, or
reinsurance.
“SEC. 261. Upon approval or adoption in the meetings of the
stockholders or members called for the purpose in each of the
constituent companies of the agreement to merge or
consolidate, all stockholders or members dissenting or
objecting to the merger or consolidation shall be paid the value
of their shares by the company concerned in accordance with
the bylaws thereof.
“SEC. 262. Upon approval or adoption of the agreement to
merge or consolidate by the stockholders or members of the
constituent companies, the corresponding articles of merger or
of consolidation shall be duly executed by the presidents and
attested by the corporate secretaries and shall bear the
corporate seals of the merging or consolidating companies
setting forth:
“(a) The plan of merger or the plan of consolidation;
“(b) As to each corporation, the number of shares outstanding,
or in case of mutual corporations, the number of members; and
“(c) As to each corporation, the number of shares or members
voted for and against such plan, respectively. Thereafter, a
certified copy of such articles of merger or consolidation,
together with a certificate of approval or adoption by the
stockholders or members of such articles of merger or
consolidation, verified by affidavits of such officers and under
the seal of the constituent companies, shall be submitted to
the Commissioner, together with such other papers or
documents which the Commissioner may require, for his
consideration.
“SEC. 263. The articles of merger or of consolidation, signed
and verified as hereinabove required, shall be filed with the
Securities and Exchange Commission for its examination and
approval.
“SEC. 264. Upon receipt from the Securities and Exchange
Commission of the certificate of merger or of consolidation, the
constituent companies shall surrender to the Commissioner
their respective certificates of authority to transact insurance
business. The absorbing or surviving company in case of
merger, or the newly formed company in case of consolidation,
shall immediately file with the Commissioner the
corresponding application for issuance of a new certificate of
authority to transact insurance business, together with a
certified copy of the certificate of merger or of consolidation,
and of the certificate of increase of stocks, if there is any,
issued by the Securities and Exchange Commission.
“SEC. 265. Nothing in this title shall be construed to enlarge
the powers of the absorbing or surviving company in case of
merger, or the newly formed company in case of consolidation,
except those conferred by the certificate of merger or of
consolidation and the articles of merger or of consolidation, or
the amended articles of incorporation, as registered with the
Securities and Exchange Commission.
“SEC. 266. No director, officer, or stockholder of any such
constituent companies shall receive any fee, commission,
compensation, or other valuable consideration whatsoever,
directly or indirectly, or in any manner aiding, promoting or
assisting in such merger or consolidation.
“SEC. 267. The merger or consolidation of companies under
this Code shall be subject to the provisions of the Corporation
Code, and, in those cases specified in Republic Act No. 5455, as
amended, be further subject to the provisions of said law.
“TITLE 17
“MUTUALIZATION OF STOCK LIFE
INSURANCE COMPANIES
“SEC. 268. Any domestic stock life insurance company doing
business in the Philippines may convert itself into an
incorporated mutual life insurer. To that end it may provide
and carry out a plan for the acquisition of the outstanding
shares of its capital stock for the benefit of its policyholders, or
any class or classes of its policyholders, by complying with the
requirements of this chapter.
“SEC 269. Such plan shall include appropriate proceedings for
amending the insurer’s articles of incorporation to give effect
to the acquisition, by said insurer, for the benefit of its
policyholders or any class or classes thereof, of the outstanding
shares of its capital stock and the conversion of the insurer
from a stock corporation into a nonstock corporation for the
benefit of its members. The members of such nonstock
corporation shall be the policyholders from time to time of the
class or classes for whose benefit the stock of the insurer was
acquired, and the policyholders of such other class or classes
as may be specified in such corporation’s articles of
incorporation as they may be amended from time to time. Such
plan shall be:
“(a) Adopted by a vote of a majority of the directors;
“(b) Approved by the vote of the holders of at least a majority
of the outstanding shares at a special meeting of shareholders
called for that purpose, or by the written consent of such
shareholders;
“(c) Submitted to the Commissioner and approved by him in
writing;
“(d) Approved by a majority vote of all the policyholders of the
class or classes for whose benefit the stock is to be acquired
voting at an election by the policyholders called for that
purpose, subject to the provisions of Section 271. The
terms policyholder or policyholdersas used in this chapter
shall be deemed to mean the person or persons insured under
an individual policy of life insurance, or of health and accident
insurance, or of any combination of life, health and accident
insurance. They shall also include the person or persons to
whom any annuity or pure endowment is presently or
prospectively payable by the terms of an individual annuity or
pure endowment contract, except where the policy or contract
declares some other person to be the owner or holder thereof,
in which case such other person shall be deemed policyholder.
In any case where a policy or contract names two or more
persons as joint insured, payees, owners or holders thereof, the
persons so named shall be deemed collectively to be one (1)
policyholder for the purpose of this chapter. In any case where
a policy or contract shall have been assigned by assignment
absolute on its face to an assignee other than the insurer, and
such assignment shall have been filed at the principal office of
the insurer at least thirty (30) days prior to the date of any
election or meeting referred to in this chapter, then such
assignee shall be deemed at such election or meeting to be the
policyholder. For the purpose of this chapter the
terms policyholder and policyholders include the employer to
whom, or a president, secretary or other executive officer of
any corporation or association to which a master group policy
has been issued, but exclude the holders of certificates or
policies issued under or in connection with a master group
policy. Beneficiaries under unmatured contracts shall not as
such be deemed to be policyholders; and
“(e) Filed with the Commissioner after having been approved
as provided in this section.
“SEC. 270. The Commissioner shall examine the plan
submitted to him under the provisions of subparagraph (c) of
Section 269. He shall not approve such plan unless in his
opinion the rights and interests of the insurer, its
policyholders and shareholders are protected nor unless he is
satisfied that the plan will be fair and equitable in its
operation.
“SEC. 271. The election prescribed by subparagraph (d) of
Section 269 shall be called by the board of directors or the
president, and every policyholder of the class or classes for
whose benefit the stock is to be acquired, whose insurance
shall have been in force for at least one (1) year prior to such
election shall have one vote, regardless of the number of
policies or amount of insurance he holds, and regardless of
whether such policies are policies of life insurance or policies
of health and accident insurance or annuity contracts. Notice
of such election shall be given to policyholders entitled to vote
by mail from the principal office of such insurer at least thirty
(30) days prior to the date set for such election, in a sealed
envelope, postage prepaid, addressed to each such policyholder
at his last known address.
“Voting shall be by one of the following methods:
“(a) At a meeting of such policyholders, held pursuant to such
notice, by ballot in person or by proxy.
“(b) If not by the method described in the preceding
subparagraph, then by mail pursuant to a procedure and on
forms to be prescribed by such plan.
“Such election shall be conducted under the direction and
supervision of three (3) impartial and disinterested inspectors
appointed by the insurer and approved by the Commissioner.
In case any person appointed as inspector fails to appear at
such meeting or fails or refuses to act at such election, the
vacancy, if occurring in advance of the convening of the
meeting or in advance of the opening of the mail vote, may be
filled in the manner prescribed for the appointment of
inspectors and, if occurring at the meeting or during the
canvass of the mail vote, may be filled by the person acting as
chairman of said meeting or designated for that purpose in
such plan. The decision, act or certificate of a majority of the
inspectors shall be effective in all respects as the decision, act
or certificate of all. The inspectors of election shall determine
the number of policyholders, the voting power of each, the
policyholders represented at the meeting or voting by mail, the
existence of a quorum and the authenticity, validity and effect
of proxies. They shall receive votes, hear and determine all
challenges and questions in any way arising in connection
with the right to vote, count and tabulate all votes, determine
the result, and do such other acts as are proper to conduct the
vote with fairness to all policyholders. The inspectors of
election shall, before commencing performance of their duties,
subscribe to and file with the insurer and with the
Commissioner an oath that they, and each of them, will
perform their duties impartially, in good faith, to the best of
their ability and as expeditiously as is practicable. On the
request of the insurer, the Commissioner, a policyholder or his
proxy, the inspectors shall make a report in writing of any
challenge or question or matter determined by them and
execute a certificate of any fact found by them. They shall also
certify the result of such vote to the insurer and to the
Commissioner. Any report or certificate made by them shall
be prima facie evidence of facts stated therein. All necessary
expenses incurred in connection with such election shall be
paid by the insurer. For the purpose of this section, a quorum
shall consist of five percent (5%) of the policyholders of such
insurer entitled to vote at such election.
“SEC. 272. In carrying out any such plan, the insurer may
acquire any shares of its own stock by gift, bequest or
purchase. Any shares so acquired shall, unless as a result of
such acquisition all of the shares of the insurer shall have
been acquired, be acquired in trust for the policyholders of the
class or classes for whose benefit the plan provides that the
stock of the insurer shall be acquired as hereinafter provided.
Such shares shall be assigned and transferred on the books of
such insurer and approved by the Commissioner. Such
trustees shall hold such stock in trust until all of the
outstanding shares of capital stock of such insurer have been
acquired, but for not longer than thirty (30) years with such
extensions of not more than five (5) years each as may be
granted by the Commissioner. Such extensions may be
granted by the Commissioner if the plan so provides and if in
his opinion the plan of acquisition of all of such stock can be
completed within a reasonable period. Such trustees shall vote
such stock at all corporate meetings at which stockholders
have the right to vote. When all the outstanding shares of
capital stock of such insurer have been acquired, all said
shares shall be cancelled, the certificate of amendment of the
insurer’s articles of incorporation giving effect thereto shall be
filed in accordance with the provisions of the Corporation
Code, and the insurer shall become a nonstock corporation for
the profit of its members and such trust shall thereupon
terminate. Thereafter such corporation shall be conducted for
the mutual benefit, ratably, of its policyholders of the class or
classes for whose benefit the stock was acquired and shall
have power to issue non-assessable policies on a reserve basis
subject to all provisions of law applicable to incorporated life
insurers issuing non-assessable policies on a reserve basis.
Policies so issued may be upon the basis of full or partial
participation therein as agreed between the insurer and the
insured.
“Upon the termination of any such voting trust, either in
accordance with its terms or as hereinabove provided, such
plan of mutualization shall terminate, unless theretofore
completed. Upon such termination, unless the plan of
mutualization provides for the disposition of the shares
acquired by the insurer under such plan or for the disposition
of the proceeds thereof, the shares held by such trustees shall
be disposed of in accordance with an order of the court of
competent jurisdiction in the judicial district in which is
located the principal office of such insurer, made upon a
verified petition of the Commissioner.
“SEC. 273. Any such plan of mutualization may provide for the
creation of a voting trust under a trust agreement for the
holding and voting by three (3) or more trustees of any portion
or all of the shares of the insurer not required upon the
adoption of such plan. The voting trustees shall be named in
accordance with such plan or, if no provision is made therein
for the naming of such trustees, then by the insurer. The
voting trust agreement and voting trustees shall be subject to
the approval of the Commissioner. Any or all of the trustees
under such voting trust agreement may be the same person or
persons as any or all of the trustees referred to in Section 272.
Such voting trust agreement shall provide that in the event of
acquisition by the insurer of any of the shares of stock held
thereunder in accordance with the provisions of the plan, such
shares so acquired together with the voting rights thereof
shall be transferred by the trustees named under the
provisions of this section to the trustees named under the
provisions of Section 272. Any voting trust agreement created
pursuant to the provisions of this section may be made
irrevocable for not longer than thirty (30) years and thereafter
until the termination of the trust provided for in Section 272.
The trust created pursuant to the provisions of this section
shall terminate in any event upon termination of the trust
provided for in Section 272. Upon the termination of the trust
created pursuant to the provisions of this section, any shares
held in such trust shall revert to the persons entitled thereto
by law.
“SEC. 274. Every payment for the acquisition of any shares of
the capital stock of such insurer, the purchase price of which is
not fixed by such plan, shall be subject to the prior approval of
the Commissioner. Neither such plan, nor any such payment,
may be approved by the Commissioner unless he finds that the
rights and interests of the insurer, its policyholders, and
shareholders are protected.
“SEC. 275. The trustees referred to in Section 272 shall file
with such insurer and with the Commissioner a verified
acceptance of their appointments and verified declarations
that they will faithfully discharge their duties as such
trustees. All dividends and other sums received by said
trustees on the shares held by them, after paying the
necessary expenses of executing their trust, shall be
immediately repaid to such insurer for the benefit of all who
are, or may become, policyholders of such insurance of the
class or classes for whose benefit the stock of such insurer was
acquired and entitled to participate in the profits thereof and
shall be added to and become part of the assets of such
insurer.
“SEC. 276. If, at any time within the period provided in the
plan for the acquisition of the outstanding shares of stock of
the insurer, ninety percent (90%) thereof has already been
acquired and transferred to the trustees under the plan, the
insurer by a vote of a majority of the directors may determine
to make an offer, with the permission of the Commissioner and
subject to such requirement as he may specify, to acquire by
purchase all of the shares not theretofore acquired under the
plan, at a specified price which the insurer considers to be
their fair value as of the date of making such offer.
“If the offer to acquire is permitted by the Commissioner, the
insurer shall make a written offer by registered mail to each
shareholder whose shares have not theretofore been acquired
under the plan or otherwise, offering to acquire all his shares
at such price if accepted in writing within thirty (30) days
after the mailing of such offer. Any shareholder accepting such
offer within the time therefor shall, within sixty (60) days
after his acceptance, transfer to the insurer the certificates
representing such shares and, upon doing so, shall be paid by
the insurer the amount of such offer for his shares. Any share
so acquired shall be assigned and transferred to the trustees
under the plan and held by them as shares acquired pursuant
to the plan.
“Each shareholder who does not accept such offer to acquire
his shares within the time stated in such offer for acceptance
thereof shall within fifteen (15) days after the expiration of
such offer apply to the Secretary of Finance for a
determination of the fair value of his shares as of the date of
making such offer. The Secretary of Finance may himself,
after due notice and hearing, determine upon the evidence
received the fair value of the shares as of the date of making
such offer, or appoint three (3) impartial and disinterested
persons to appraise the fair value of such shares with such
direction as he shall deem proper and necessary to expedite
the proceedings. Upon completion of the appraisal
proceedings, the appraisers shall file with the Secretary of
Finance their report in writing stating the fair value of such
shares as of the date of the making of such offer and setting
forth their findings in support of such statement. The
appraisers shall furnish each party to the proceedings a copy
of their appraisal report, and within ten (10) days after receipt
thereof, any such party may signify his objection, if any, to the
report or move for the approval thereof. Upon the expiration of
the period of ten (10) days referred to above, the report shall
be set for hearing, after which the Secretary of Finance shall
issue an order adopting, modifying or rejecting the report, in
whole or in part, or he may receive further evidence or may
recommit it with instructions. Whenever the Secretary of
Finance shall determine in any manner, as aforesaid, the fair
value of such shares, he may also determine the terms of
payment thereof by the insurer. The expenses incidental to the
proceedings including charges of the appraisers, if any, shall
be paid equally by the insurer and the shareholder.
“The findings of the Secretary of Finance on all questions of
fact raised at the hearing of the application for determination
of the fair value of such shares shall be conclusive upon all
parties to the proceedings. The order of the Secretary of
Finance determining the fair value of the shares and the
terms of payment thereof shall have the force and effect of a
judgment which shall be appealable on any question of law.
Such order shall become final and executory fifteen (15) days
after receipt thereof by the parties to the proceedings.
“Upon any such order becoming final and from which no
appeal is pending, or when the time to appeal therefrom has
expired, each shareholder party to the proceedings shall
transfer his shares to the insurer and surrender to the said
insurer the certificates representing such shares and the
insurer shall make payment therefor as provided in such
order. Any shares so acquired by the insurer shall be assigned
and transferred to the trustees and held by them as shares
acquired pursuant to the plan.
“Any shareholder who does not apply to the Secretary of
Finance in the manner and within the time hereinbefore
prescribed shall be deemed to have accepted the offer referred
to above, effective, however, upon the expiration of the time
hereinabove prescribed for making such application, and such
shareholder’s time for accepting such offer shall, for that
purpose only, be deemed to have been extended accordingly.
“Any offer to acquire shares made pursuant to this section
shall, except as otherwise provided herein, be irrevocable until
all proceedings upon such offer have been completed or all
shares have otherwise been earlier acquired by the insurer.
“Any shareholder who has expressly or impliedly accepted the
plan or the offer to acquire his shares not theretofore acquired
under the plan, and any shareholder who has rejected such
plan or such offer and has applied, as aforesaid, to the
Secretary of Finance for a determination of the fair value of
his shares subsequent to which an agreement has been
reached or a final order issued fixing such fair value but who
fails to surrender his certificates for cancellation upon
payment of the amount to which he is entitled, may be
compelled to do so by an order of the Secretary of Finance for
that purpose and such order may provide that upon failure of
such shareholder to surrender such certificates for
cancellation, such order shall stand in lieu of such surrender
and cancellation.
“SEC. 277. Such insurer, after mutualization, shall be a
continuation of the original insurer, and such mutualization
shall not affect such insurer’s certificate of authority nor
existing suits, rights or contracts except as provided in said
plan for the acquisition of the outstanding shares of the capital
stock of such insurer, approved as provided in this chapter.
Such insurer, after mutualization, shall exercise all the rights
and powers and shall perform all the duties conferred or
imposed by law upon insurers writing the classes of insurance
written by it, and to protect rights and contracts existing prior
to mutualization, subject to the effect of said plan. The board
of directors of such insurer, prior to mutualization, may adopt
amendments to its bylaws to take effect upon mutualization.
“SEC. 278. (a) An annual meeting of members shall be held at
ten o’clock in the morning of the fourth Tuesday of March of
each year at the principal office of the insurer, unless a
different time or place is provided in the bylaws.
“(b) Special meetings of the members, for any purpose or
purposes whatsoever, may be called at any time by the
president, or by the board of directors, or by one or more
members holding not less than one-fifth (1/5) of the voting
power of such insurer, or by such other officers or persons as
the bylaws authorize.
(c) Notice of all meetings of members whether annual or
special shall be given in writing to the members entitled to
vote by the secretary, or an assistant secretary, or other
person charged with that duty, or if there be no such officer, or
in case of his neglect or refusal, by any director or member. At
the option of the insurer such notice may be imprinted on
premium notices or receipts or on both.
“A notice may be given by such insurer to any member either
personally, or by mail, or other means of written
communication, charges prepaid, addressed to such member at
his address appearing on the books of the insurer, or given by
him to the insurer for the purpose of notice. If a member gives
no address, notice shall be deemed to have been given him if
sent by mail or other means of written communication
addressed to the place where the principal office of the insurer
is situated, or if published at least once in some newspaper of
general circulation in the place in which said office is located.
“Notice of any meeting of members shall be sent to each
member entitled thereto not less than seven (7) days before
such meeting, unless the bylaws provide otherwise.
“Notice of any meeting of members shall specify the place, the
day and the hour of the meeting and the general nature of the
business to be transacted.
“Notice of an annual meeting to be held at the time and place
specified in subparagraph (a) of this section shall be
sufficiently given if published at least once in each of four (4)
successive weeks in a newspaper of general circulation in the
place in which the principal office of such insurer is located,
and if so published no other notice of such meeting shall be
required.
“(d) The presence in person or by proxy of five percent (5%) of
the members entitled to vote at any meeting shall constitute a
quorum for the transaction of business, including the
amendment of the articles of incorporation and/or the bylaws
unless otherwise provided by the bylaws.
“(e) Each such member shall have one (1) vote at any meeting
of members regardless of the number of policies or the amount
of insurance that such member holds and regardless of
whether such policies are policies of life insurance, or of health
and accident insurance, or both. Any member entitled to vote
shall have the right to do so either in person or by an agent or
agents authorized by a written proxy executed by such person
or his duly authorized agent and filed with the secretary of
such insurer.
“(f) The directors of the insurer in office at the time the insurer
is mutualized as provided in this chapter shall continue in
office until the first annual meeting of members. At the first
annual meeting of members and at each annual meeting
thereafter, directors shall be elected by the members for the
term or terms authorized by this chapter.
“(g) The articles of incorporation or the bylaws may provide
that the directors may be divided into two (2) or more classes
whose terms of office shall expire at different times, but no
terms shall continue longer than six (6) years. In the absence
of such provisions, each director, except members of the board
of directors at the time the insurer is mutualized, shall be
elected for a term of one (1) year. All directors shall hold office
for a term for which they are elected and until their successors
are elected and qualified. A director may, but need not be a
member or policyholder of the insurer of which he is acting as
director. Vacancies in the board of directors may be filled by a
majority of the remaining directors, though less than a
quorum, and each director so elected shall hold office until the
next annual meeting.
“(h) All insurers mutualized under the provisions of this
chapter shall be subject to all other applicable provisions of
this Code. The provisions of the Corporation Code shall apply
in a suppletory manner.
“SEC. 279. The provisions of Commonwealth Act No. 83,
otherwise known as the Securities Act, as amended, shall not
apply to any of the following:
“(a) Shares of the capital stock of such insurer acquired as
provided in Section 272 and assigned and transferred to the
trustees as is provided in said section, and the assignment and
transfer of said shares as so provided;
“(b) Any certificate or other instrument issued to a
policyholder of such mutualized insurer conferring or
evidencing membership in such mutualized insurer or
conferring or evidencing such member’s right to participate in
the profits or share in the assets of such mutualized insurer by
virtue of his membership therein, and the issuance of such
certificate or other instrument;
“(c) The plan for the acquisition of the outstanding shares of
the capital stock of such insurer authorized by the provisions
of this chapter, the submission of said plan to the
Commissioner and to the policyholders of such insurer as
provided in this chapter, and the approval and carrying out of
said plan or any part thereof in accordance with the provisions
of this chapter.
“SEC. 280. A domestic mutual life insurance company doing
business in the Philippines may convert itself into an
incorporated stock life insurance company by demutualization.
To that end, it may provide and carry out a plan for the
conversion by complying with the requirements of this title.
“The conversion of a domestic mutual life insurance company
to an incorporated stock life insurance company shall be
carried out pursuant to a conversion plan duly approved by
the Commissioner.
“The Commissioner shall promulgate such rules and
regulations as he or she may deem necessary to carry out the
provisions of this title, after due consultation with
representatives of the insurance industry.
“All converted insurers under the provisions of this title shall
be subject to all other applicable provisions of this Code. The
provisions of the Corporation Code shall apply in a suppletory
manner.
“TITLE 18
“WITHDRAWAL OF FOREIGN
INSURANCE COMPANIES
“SEC. 281. A foreign insurance company doing business in the
Philippines, upon payment of the fee hereinafter prescribed
and surrender to the Commissioner of its certificate of
authority, may apply to withdraw from the Philippines. Such
application shall be duly executed in writing, accompanied by
evidence of due authority for such execution, properly
acknowledged.
“SEC. 282. The Commissioner shall publish the application for
withdrawal once a week for three (3) consecutive weeks in a
newspaper of general circulation in the Philippines. The
expenses of such publication shall be paid by the insurance
company filing such application.
“SEC. 283. Every foreign insurance company desiring to
withdraw from the Philippines shall, prior to such withdrawal,
discharge its liabilities to policyholders and creditors in this
country. In case of its policies insuring residents of the
Philippines, it shall cause the primary liabilities under such
policies to be reinsured and assumed by another insurance
company authorized to transact business in the Philippines. In
the case of such policies as are subject to cancellation by the
withdrawing company, it may cancel such policies pursuant to
the terms thereof in lieu of such reinsurance and assumption
of liabilities.
“SEC. 284. The Commissioner shall cause an examination of
the books and records of the withdrawing company, and if,
upon such examination, the Commissioner finds that the
insurer has no outstanding liabilities to policyholders and
creditors in the Philippines, and no policies uncancelled; or its
primary liabilities have been reinsured or assumed by another
insurance company authorized to transact business in the
Philippines, as required in the preceding section, it shall
cancel the withdrawing company’s certificate of authority, if
unexpired, and shall permit the insurer to withdraw. The cost
and expenses of all such examination shall be paid as
prescribed in Section 440.
“SEC. 285. Upon the failure of such withdrawing insurance
company or its agents in the Philippines to pay the expenses of
such publication within thirty (30) days after the presentation
of the bill therefor, the Commissioner shall collect such fee
from the deposit furnished in accordance with the provisions of
Section 197.
“SEC. 286. A foreign life insurance company that withdraws
from the Philippines shall be considered a servicing insurance
company if its business transactions are confined to accepting
periodic premium payments from, or granting policy loans and
paying cash surrender values of outstanding policies to, or
reviving lapsed policies of, Philippine policyholders, and such
other related services.
“SEC. 287. No company shall act as a servicing insurance
company until after it shall have obtained a special certificate
of authority to act as such from the Commissioner upon
application therefor and payment by the company of the fees
hereinafter prescribed. Such certificate shall expire on the last
day of December of the third year and shall be renewed, while
the company continues to service its policyholders, and to
comply with all the applicable provisions of law and
regulations.
“TITLE 19
“PROFESSIONAL REINSURERS
“SEC. 288. Except as otherwise provided in this Code, no
partnership, association or corporation shall transact any
business in the Philippines as a professional reinsurer until it
shall have obtained a certificate of authority for that purpose
from the Commissioner upon application therefor and
payment by such entity of the fees hereinafter prescribed. As
used in this Code, the term ‘professional reinsurer’ shall mean
any entity that transacts solely and exclusively reinsurance
business in the Philippines.
“The Commissioner may refuse to issue a certificate of
authority to any such entity when such refusal will best
promote public interest. No such certificate of authority shall
be granted to any such entity unless and until the
Commissioner is satisfied by such examination and such
evidence as may be required that such entity is qualified by
the laws of the Philippines to transact business therein as a
professional reinsurer.
“Before issuing such certificate of authority, the Commissioner
must be satisfied that the name of the applicant is not that of
any other known company transacting insurance or
reinsurance business in the Philippines, or a name so similar
as to be calculated to mislead the public.
“Such certificate of authority shall expire on the last day of
December the third year following its issuance unless it is
renewed.
“Every such partnership, association, or corporation receiving
such certificate of authority shall be subject to the provisions
of this Code and other related laws, and to the jurisdiction and
supervision of the Commissioner.
“SEC. 289. Any partnership, association, or corporation
authorized to transact solely reinsurance business must have
a capitalization of at least Three billion pesos
(P3,000,000,000.00) paid in cash of which at least fifty percent
(50%) is paid-up and the remaining portion thereof is
contributed surplus, which in no case shall be less than Four
hundred million pesos (P400,000,000.00) or such capitalization
as may be determined by the Secretary of Finance, upon the
recommendation of the Commissioner: Provided, That twenty-
five percent (25%) of the paid-up capital must be invested in
securities satisfactory to the Commissioner consisting of bonds
or other instruments of debt of the Government of the
Philippines or its political subdivisions or instrumentalities, or
of government-owned or -controlled corporations and entities,
including the Bangko Sentral ng Pilipinas, and deposited with
the Commissioner, and the remaining seventy-five percent
(75%) in such other securities as may be allowed and
permitted by the Commissioner, which securities shall at all
times be maintained free from any lien or
encumbrance: Provided, further, That the aforesaid capital
requirement is without prejudice to other requirements to be
imposed under any risk-based capital method that may be
adopted by the Commissioner: Provided, finally, That the
provisions of this chapter applicable to insurance companies
shall as far as practicable be likewise applicable to
professional reinsurers.
“TITLE 20
“HOLDING COMPANIES
“SEC. 290. As used in this title, the following terms shall have
the respective meanings hereinafter set forth unless the
context shall otherwise require:
“(a) Person means an individual, partnership, firm,
association, corporation, trust, any similar entity or any
combination of the foregoing acting in concert.
“(b) Control, including the terms controlling, controlled
by and under common control with, means the possession
directly or indirectly of the power to direct or cause the
direction of the management and policies of a person, whether
through the ownership of voting securities by a contract other
than a commercial contract for goods or non-management
services or otherwise. Subject to Section 292, control shall be
presumed to exist if any person directly or indirectly owns,
controls or holds with the power to vote forty percent (40%) or
more of the voting securities of any other person: Provided,
That no person shall be deemed to control another person
solely by reason of his being an officer or director of such other
person.
“(c) Holding company means any person who directly or
indirectly controls any authorized insurer.
“(d) Controlled insurer means an authorized insurer controlled
directly or indirectly by a holding company.
“(e) Controlled person means any person, other than a
controlled insurer, who is controlled directly or indirectly by a
holding company.
“(f) Holding company system means a holding company
together with its controlled insurers and controlled persons.
“SEC. 291. Notwithstanding paragraph (b) of Section 290, the
Commissioner may determine after notice and opportunity to
be heard, that a person exercises directly or indirectly either
alone or pursuant to an agreement with one or more other
persons such a controlling influence over the management or
policies of an authorized insurer as to make it necessary or
appropriate in the public interest or for the protection of
policyholders or stockholders of the insurer that the person be
deemed to control the insurer.
“SEC. 292. The Commissioner may determine upon
application that any person, either alone or pursuant to
agreement with one or more other persons, does not or will not
upon the taking of some proposed action control another
person. The filing of an application hereunder in good faith by
any person shall relieve the applicant from any obligation or
liability imposed by this title with respect to the subject of the
application, except as contained in Section 302, until the
Commissioner has acted upon the application. Within thirty
(30) days or such further period as he may prescribe, the
Commissioner may prospectively revoke or modify his
determination, after notice and opportunity to be heard,
whenever in his judgment, revocation or modification is
consistent with this title.
“SEC. 293. Notwithstanding any other provisions of this title,
the following shall not be deemed holding companies:
“(a) Authorized insurers or reinsurers or their subsidiaries;
and
“(b) The Government of the Philippines, or any political
subdivision, agency or instrumentality thereof, or any
corporation which is wholly owned directly or indirectly by one
or more of the foregoing.
“The Commissioner may conditionally or unconditionally
exempt any specified person or class of persons from any of the
obligations or liabilities imposed under this title, if and to the
extent he finds the exemption necessary or appropriate in the
public interest or not adverse to the interests of policyholders
or stockholders and consistent with the purposes of this title.
“SEC. 294. (a) Every person who on the date this Code takes
effect is a controlled insurer and every person who thereafter
becomes a controlled insurer, shall, within sixty (60) days
thereafter, or within thirty (30) days after becoming a
controlled insurer, whichever is later, register with the
Commissioner. Such registration shall be amended within
thirty (30) days following any change in the identity of its
holding company. The Commissioner may grant one or more
reasonable extensions of the time to register.
“(b) Every registrant shall furnish the Commissioner with the
following information concerning its holding company:
“(1) A copy of its charter or articles of incorporation and its
bylaws;
“(2) The identities of its principal shareholders, officers,
directors and controlled persons; and
“(3) Information as to its capital structure and financial
condition, and a description of its principal business activities.
“SEC. 295. Every controlled insurer shall file with the
Commissioner such reports or material as he may direct for
the purpose of disclosing information concerning the
operations of persons within the holding company system
which may materially affect the operations, management or
financial condition of the insurer.
“SEC. 296. Every holding company and every controlled
person within a holding company system shall be subject to
examination by order of the Commissioner if he has cause to
believe that the operations of such persons may materially
affect the operations, management or financial condition of
any controlled insurer with the system and that he is unable
to obtain relevant information from such controlled insurer.
The grounds relied upon by the Commissioner for such
examination shall be stated in his order, which order shall be
subject to judicial review only at the instance of the person
sought to be examined. Such examination shall be confined to
matters specified in the order. The cost of such examination
shall be assessed against the person examined and no portion
thereof shall thereafter be reimbursed to it directly or
indirectly by the controlled insurer.
“SEC. 297. The Commissioner shall keep the contents of each
report made pursuant to this title and any information
obtained by him in connection therewith confidential and shall
not make the same public without the prior written consent of
the controlled insurer to which it pertains unless the
Commissioner after notice and an opportunity to be heard
shall determine that the interests of policyholders,
stockholders or the public will be served by the publication
thereof. In any action or proceeding by the Commissioner
against the person examined or any other person within the
same holding company system a report of such examination
published by him shall be admissible as evidence of the facts
stated therein.
“SEC. 298. Transactions within a holding company system to
which a controlled insurer is a party shall be subject to the
following:
“(a) The terms shall be fair and equitable;
“(b) Charges or fees for services performed shall be reasonable;
“(c) Expenses incurred and payments received shall be
allocated to the insurer on an equitable basis in conformity
with customary insurance accounting practices consistently
applied.
“The books, accounts and records of each party to all such
transactions shall be maintained as to clearly and accurately
disclose the nature and details of the transactions including
such accounting information as is necessary to support the
reasonableness of the charges or fees to the respective parties.
“SEC. 299. The prior written approval of the Commissioner
shall be required for the following transactions between a
controlled insurer and any person in its holding company
system: sales, purchases, exchanges, loans or extensions of
credit, or investments, involving five percent (5%) or more of
the insurer’s admitted assets as of the thirty-first day of
December next preceding.
“SEC. 300. The following transactions between a controlled
insurer and any person in its holding company system may not
be entered into unless the insurer has notified the
Commissioner in writing of its intention to enter into any such
transaction at least thirty (30) days prior thereto, or such
shorter period as he may permit, and he has not disapproved it
within such period:
“(a) Sales, purchases, exchanges, loans or extensions of credit,
or investments, involving more than one-half of one percent
(½%) but less than five percent (5%) of the insurer’s admitted
assets as of the thirty-first day of December next preceding;
“(b) Reinsurance treaties or agreements;
“(c) Rendering of services on a regular or systematic basis; or
“(d) Any material transaction, specified by regulation, which
the Commissioner determines may adversely affect the
interest of the insurer’s policyholders or stockholders or of the
public.
“Nothing herein contained shall be deemed to authorize or
permit any transaction which, in the case of a non-controlled
insurer, would be otherwise contrary to law.
“SEC. 301. The Commissioner, in reviewing transactions
pursuant to Sections 299 and 300, shall consider whether the
transactions comply with the standard set forth in Section 298
and whether they may adversely affect the interests of
policyholders. This section shall not apply to transactions
subject to other sections of this Code which impose notice or
approval requirements greater than those prescribed by this
title.
“SEC. 302. (a) No person, other than an authorized insurer,
shall acquire control of any domestic insurer, whether by
purchase of its securities or otherwise, except:
“(1) After twenty (20) days written notice to its insurer or such
shorter period as the Commissioner may permit, of its
intention to acquire control; and
“(2) With the prior written approval of the Commissioner.
“(b) The Commissioner shall disapprove the acquisition of
control of a domestic insurer if he determines, after notice and
an opportunity to be heard, that such action is reasonably
necessary to protect the interest of the people of this country.
The following shall be the only factors to be considered by him
in reaching the foregoing determination:
“(1) The financial condition of the acquiring person and the
insurer;
“(2) The trustworthiness of the acquiring person or any of its
officers or directors;
“(3) A plan for the proper and effective conduct of the insurer’s
operations;
“(4) The source of the funds or assets for the acquisition;
“(5) The fairness of any exchange of stock, assets, cash or other
consideration for the stock or assets to be received;
“(6) Whether the effect of the acquisition may be substantially
to lessen competition in any line of commerce in insurance or
to tend to create a monopoly therein; and
“(7) Whether the acquisition is likely to be hazardous or
prejudicial to the insurer’s policyholders or stockholders.
“(c) The following conditions affecting any controlled insurer,
regardless of when such control has been acquired, are
violations of this title:
“(1) The controlling person or any of its officers or directors
have demonstrated untrustworthiness; and
“(2) The effect of retention of control may be substantially to
lessen competition in any line of commerce in insurance in this
country or to tend to create a monopoly therein. If, after notice
and an opportunity to be heard, the Commissioner determines
that any of the foregoing violations exists, he shall reduce his
findings to writing and shall issue an order based thereon and
cause the same to be served upon the insurer and upon all
persons affected thereby directing any person found to be in
violation thereof to take appropriate action to cure such
violation. Upon the failure of any such person to comply with
such order, Section 306 shall become applicable.
“(d) The Commissioner may require the submission of such
information as he deems necessary to determine whether any
acquisition or retention of control complies with this title and
may require, as a condition of approval of such acquisition or
retention of control, that all or any portion of such information
be disclosed to the insurer’s stockholders.
“(e) Unless subject to registration under Section 294 or unless
acquisition of its control is subject to paragraphs (a) and (b)
hereof, every authorized insurer shall notify the Commissioner
in writing of the identity of any person whom the insurer then
knows or has reason to believe controls or has taken any
action, other than preliminary negotiations or discussion, to
acquire control of the insurer.
“SEC. 303. (a) Notwithstanding the control of an authorized
insurer by any person, the officers and directors of the insurer
shall not thereby be relieved of any obligation or liability to
which they would otherwise be subject by law, and the insurer
shall be managed so as to assure its separate operating
identity consistent with this title.
“(b) Nothing herein shall preclude an authorized insurer from
having or sharing a common management or cooperative or
joint use of personnel, property or services with one or more
other persons under arrangements meeting the standards of
Section 298.
“SEC. 304. To the extent that any information or material is
set forth in forms or other matter on file with any government
agency or in a registration form filed with the Commissioner
by another person within the same holding company system,
the controlled insurer may comply with the registration or
reporting requirements of this title by referring in its
registration form or report to such other filed matter and
attaching a copy thereof certified by the insurer as a true and
complete copy, to such registration form or report or, if such
other filed matter is on file with the Commissioner,
incorporating such matter by reference.
“SEC. 305. No holding company or controlled person shall
directly or indirectly or through another person do or cause to
be done for or in behalf of the controlled insurer any act
intended to affect the insurance operations of the insurer
which, if done by the insurer, would violate any provision of
this Code.
“SEC. 306. In addition to any other penalty provided by law,
the Commissioner may, upon the willful failure of any person
within a holding company system to comply with this title or
any regulation or order promulgated hereunder:
“(a) Proceed under Title 14 or Title 15, Chapter III of this Code
with respect to insurer within the holding company system; or
“(b) Revoke or refuse to renew the authority to do business in
this country of an insurer within the holding company system
or refuse to issue such authority to any other insurer in the
system; or
“(c) Direct that, in addition to any other penalty provided by
law, such person forfeit to the people of this country a sum not
less than Five thousand pesos (P5,000.00) for a first violation
and Twenty-five thousand pesos (P25,000.00) for any
subsequent violation. An additional sum not less than Twenty-
five thousand pesos (P25,000.00) shall be imposed for each
month during which any such violation shall continue.
“CHAPTER IV
“SALES AGENCIES AND TECHNICAL SERVICES
“TITLE l
“INSURANCE AGENTS AND INSURANCE BROKERS
“SEC. 307. No insurance company doing business in the
Philippines, nor any agent thereof, shall pay any commission
or other compensation to any person for services in obtaining
insurance, unless such person shall have first procured from
the Commissioner a license to act as an insurance agent of
such company or as an insurance broker as hereinafter
provided.
“No person shall act as an insurance agent or as an insurance
broker in the solicitation or procurement of applications for
insurance, or receive for services in obtaining insurance, any
commission or other compensation from any insurance
company doing business in the Philippines, or any agent
thereof, without first procuring a license so to act from the
Commissioner, which must be renewed every three (3) years
thereafter. Such license shall be issued by the Commissioner
only upon the written application of the person desiring it,
such application if for a license to act as insurance agent,
being approved or endorsed by the company such person
desires to represent, and shall be upon a form prescribed by
the Commissioner giving such information as he may require,
and upon payment of the corresponding fee hereinafter
prescribed. The Commissioner shall satisfy himself as to the
competence and trustworthiness of the applicant and shall
have the right to refuse to issue or renew and to suspend or
revoke any such license in his discretion. The license shall
expire after the thirty-first day of December of the third year
following the date of issuance unless it is renewed.
“Licenses may be renewed in the case of the company
represented by such agents, and in the case of insurance
brokers, upon the application of the said brokers, themselves.
“SEC. 308. The provisions of Sections 307 and 309 shall apply
to an employee who shall be engaged to sell insurance
products by an insurance company.
“SEC. 309. Any person who for compensation solicits or
obtains insurance on behalf of any insurance company or
transmits for a person other than himself an application for a
policy or contract of insurance to or from such company or
offers or assumes to act in the negotiating of such insurance
shall be an insurance agent within the intent of this section
and shall thereby become liable to all the duties,
requirements, liabilities and penalties to which an insurance
agent is subject.
“An insurance agent is an independent contractor and not an
employee of the company represented. ‘Insurance agent’
includes an agency leader, agency manager, or their
equivalent.
“Since the insurance industry is imbued with public interest,
the insurance companies upon approval of the Commissioner
may exercise wide latitude in supervising the activities of their
insurance agents to ensure the protection of the insuring
public.
“SEC. 310. Any person who for any compensation, commission
or other thing of value acts or aids in any manner in soliciting,
negotiating or procuring the making of any insurance contract
or in placing risk or taking out insurance, on behalf of an
insured other than himself, shall be an insurance broker
within the intent of this Code, and shall thereby become liable
to all the duties, requirements, liabilities and penalties to
which an insurance broker is subject.
“SEC. 311. Every applicant for an insurance broker’s license
shall file with the application and shall thereafter maintain in
force while so licensed, a bond in favor of the people of the
Republic of the Philippines executed by a company authorized
to become surety upon official recognizances, stipulations,
bonds and undertakings. The bond shall be in such amount as
may be fixed by the Commissioner, but in no case less than
Five hundred thousand pesos (P500,000.00), and shall be
conditioned upon full accounting and due payment to the
person entitled thereto of funds coming into the broker’s
possession through insurance transactions under license. The
bond shall remain in force until released by the Commissioner,
or until cancelled by the surety. Without prejudice to any
liability previously incurred thereunder, the surety may cancel
the bond on thirty (30) days advance written notice to both the
broker and the Commissioner.
“Upon approval of the application, the applicant must also file
two (2) errors and omissions (professional liability or
professional indemnity) policies issued separately by two (2)
insurance companies authorized to do business in the
Philippines, satisfactory to the Commissioner to indemnify the
applicant against any claim or claims for breach of duty as
insurance broker which may be made against him by reason of
any negligent act, error or omission, whenever or wherever
committed or alleged to have been committed, on the part of
the applicant or any person who has been, is now, or may
hereafter during the subsistence of the policies be employed by
the said applicant in his capacity as insurance
broker: Provided, That the filing of any claim or claims under
one of such policies shall preclude the filing of the said claim
or claims under the other policy. The said policies shall be in
such amounts as may be prescribed by the Commissioner,
depending upon the size or amount of the broking business of
the applicant, but in no case shall the amount of each of such
policies be less than Five hundred thousand pesos
(P500,000.00).
“SEC. 312. The Commissioner shall, in order to determine the
competence of every applicant to have the kind of license
applied for, require such applicant to submit to a written
examination and to pass the same to the satisfaction of the
Commissioner. The Commissioner may delegate or authorize
the administration of the examination to an independent
organization, subject to such conditions that the Commissioner
may provide.
“SEC. 313. An applicant for the written examination
mentioned in the preceding section must be of good moral
character and must not have been convicted of any crime
involving moral turpitude. He must satisfactorily show to the
Commissioner that he has been trained in the kind of
insurance contemplated in the license applied for. Such
examination may be waived if it is shown to the satisfaction of
the Commissioner that the applicant has undergone extensive
education and/or training in insurance.
“SEC. 314. An application for the issuance or renewal of a
license to act as an insurance agent or insurance broker may
be refused, or such license, if already issued or renewed, shall
be suspended or revoked if the Commissioner finds that the
applicant for, or holder of, such license:
“(a) Has willfully violated any provision of this Code; or
“(b) Has intentionally made a material misstatement in the
application to qualify for such license; or
“(c) Has obtained or attempted to obtain a license by fraud or
misrepresentation; or
“(d) Has been guilty of fraudulent or dishonest practices; or
“(e) Has misappropriated or converted to his own use or
illegally withheld moneys required to be held in a fiduciary
capacity; or
“(f) Has not demonstrated trustworthiness and competence to
transact business as an insurance agent or insurance broker
in such manner as to safeguard the public; or
“(g) Has materially misrepresented the terms and conditions
of policies or contracts of insurance which he seeks to sell or
has sold; or
“(h) Has failed to pass the written examination prescribed, if
not otherwise exempt from taking the same.
“In addition to the foregoing causes, no license to act as
insurance agent or insurance broker shall be renewed if the
holder thereof has not been actively engaged as such agent or
broker in accordance with such rules as the Commissioner
may prescribe.
“SEC. 315. The premium, or any portion thereof, which an
insurance agent or insurance broker collects from an insured
and which is to be paid to an insurance company because of
the assumption of liability through the issuance of policies or
contracts of insurance, shall be held by the agent or broker in
a fiduciary capacity and shall not be misappropriated or
converted to his own use or illegally withheld by the agent or
broker.
“Any insurance company which delivers to an insurance agent
or insurance broker a policy or contract of insurance shall be
deemed to have authorized such agent or broker to receive on
its behalf payment of any premium which is due on such policy
or contract of insurance at the time of its issuance or delivery
or which becomes due thereon.
“In order to ensure faithful performance by the insurance
agent or insurance broker of these fiduciary responsibilities,
the Insurance Commissioner shall prescribe the minimum
terms and conditions on such matters in the standard agency
or brokers agreement between the agents and/or the broker
with the insurance companies.
“SEC. 316. Any provision of existing laws to the contrary
notwithstanding, no person shall, within the Philippines, sell
or offer for sale a variable contract or do or perform any act or
thing in the sale, negotiation, making or consummating of any
variable contract other than for himself unless such person
shall have a valid and current license from the Commissioner
authorizing such person to act as a variable contract agent. No
such license shall be issued unless and until the Commissioner
is satisfied, after examination that such person is by training,
knowledge, ability and character qualified to act as such
agent. Any such license may be withdrawn and cancelled by
the Commissioner after notice and hearing, if he shall find
that the holder thereof does not then have the qualifications
required for the issuance of such license.
“SEC. 317. It shall be unlawful for any person, company or
corporation in the Philippines to act as general agent of any
insurance company unless he is empowered by a written
power of attorney duly executed by such insurance company,
and registered with the Commissioner to receive notices,
summons and legal processes for and in behalf of the
insurance company concerned in connection with actions or
other legal proceedings against said insurance company. It
shall be the duty of said general agent to notify the
Commissioner of his post office address in the Philippines, or
any change thereof. Notices, summons, or processes of any
kind sent by registered mail to the last registered address of
such general agent of the company concerned or to the
Commissioner shall be sufficient service and deemed as if
served on the insurance company itself.
“SEC. 318. Except as otherwise provided by law or treaty, it
shall be unlawful for any person, partnership, association or
corporation in the Philippines, for himself or itself, or for some
other person, partnership, association or corporation, either to
procure, receive or forward applications of insurance in, or to
issue or to deliver or accept policies or contracts of insurance of
or for, any insurance company or companies not authorized to
transact business in the Philippines, covering risks, life or
non-life, situated in the Philippines; and any such person,
partnership, association or corporation violating the provisions
of this section shall be deemed guilty of a penal offense, and
upon conviction thereof, shall for each such offense be
punished by a fine of Two hundred fifty thousand pesos
(P250,000.00), or imprisonment of six (6) months, or both, at
the discretion of the court: Provided, That the provisions of
this section shall not apply to reinsurance.
“TITLE 2
“REINSURANCE BROKERS
“SEC. 319. Except as provided in the next succeeding title, no
person shall act as reinsurance broker in the Philippines
unless he is authorized as such by the Commissioner.
“A reinsurance broker is one who, for compensation, not being
a duly authorized agent, employee or officer of an insurer in
which any reinsurance is effected, acts or aids in any manner
in negotiating contracts of reinsurance, or placing risks of
effecting reinsurance, for any insurance company authorized
to do business in the Philippines.
“SEC. 320. Upon application and payment of the
corresponding fee hereinafter prescribed, and the filing of two
(2) errors and omissions (professional liability or professional
indemnity) policies hereinafter described, a person may, if
found qualified, be issued a license to act as reinsurance
broker by the Commissioner. No such license shall be valid
after December 31 of the third year following its issuance
unless it is renewed.
“The errors and omissions (professional liability or
professional indemnity) policies mentioned above shall
indemnify the applicant against any claim or claims for breach
of duty as reinsurance broker which may be made against him
by reason of any negligent act, error or omission, whenever or
wherever committed or alleged to have been committed, on the
part of the applicant or any person who has been, is now, or
may hereafter during the subsistence of the policies be
employed by the said applicant in his capacity as reinsurance
broker: Provided, That the filing of any claim or claims under
one of such policies shall preclude the filing of the said claim
or claims under the other policy. The said policies shall be
issued separately by two (2) insurance companies authorized
to do business in the Philippines and shall be in such amounts
as may be prescribed by the Insurance Commissioner,
depending upon the size or amount of the broking business of
the applicant, but in no case shall the amount of each of such
policies be less than Five hundred thousand pesos
(P500,000.00).
“SEC. 321. The Commissioner may recall, suspend or revoke
the license granted to a reinsurance broker for violation of any
existing law, rule and regulation, or any provision of this Code
after due notice and hearing.
“TITLE 3
“RESIDENT AGENTS
“SEC. 322. No person shall act as resident agent, as
hereinafter defined, unless he is registered as such with the
Commissioner.
“SEC. 323. The term resident agent, as used in this title, is one
duly appointed by a foreign insurer or broker not authorized to
do business in the Philippines to receive in its behalf notices,
summons and legal processes in connection with actions or
other legal proceedings against such foreign insurer or broker.
“SEC. 324. The application for a certificate of registration as
resident agent filed with the Commissioner must be
accompanied with a copy of the power of attorney, duly
notarized and authenticated by the Philippine Consul in the
place where such foreign insurer or broker is domiciled,
empowering the applicant to act as resident agent and to
receive notices, summons and legal processes for and in behalf
of such foreign insurer or broker in connection with any action
or legal proceeding against such foreign insurer or broker.
“SEC. 325. It shall be the duty of such resident agent to notify
immediately the Commissioner of any change of his office
address.
“SEC. 326. A certificate of registration issued to a resident
agent shall expire on the thirty-first day of December of the
third year following its issuance unless it is renewed.
“The Commissioner may, after due notice and hearing, recall
or cancel the certificate of registration issued to a resident
agent for violation of any existing law, rule or regulation, or
any provision of this Code.
“TITLE 4
“NON-LIFE COMPANY UNDERWRITER
“SEC. 327. No person shall act, and no company shall employ
any person, as non-life company underwriter, whose duty and
responsibility it shall be to select, evaluate and accept risks
for, and to determine the terms and conditions, including
those pertaining to amounts of retentions, under which such
risks are to be accepted by the company, unless such
underwriter is registered as such with the Commissioner.
“SEC. 328. Every non-life insurance company doing business
in the Philippines must maintain at all times a register of
risks accepted and a claims register for each line of risks
engaged in by such non-life insurance company with such
entries therein as are now or as may hereafter be required by
the Commissioner, and it shall be the responsibility of the
underwriter on the particular line of risk involved to see to it
that the said registers are well maintained and kept, and that
all entries therein are properly and correctly recorded. Such
registers shall be open to inspection and examination of duly
authorized representatives of the Commissioner at all times
during business hours.
“SEC. 329. No person shall be registered with the
Commissioner, unless such person shall be at least twenty-one
(21) years of age on the date of such registration; a resident of
the Philippines; of good moral character and with no
conviction of any crime involving moral turpitude; has had at
the time such registration is made at least two (2) years of
underwriting work in the particular line of risk involved; and
has passed such qualifying written examination that the
Commissioner shall conduct at such time and in such place as
he may decide to hold for applicants desiring to act as
underwriters.
“Such examination shall not be required of any person who
has served as non-life company underwriter for a period of at
least five (5) years, if the Commissioner is satisfied of the
applicant’s competence as shown by the results of his
underwriting work in the non-life insurance company or
companies that employed him in that capacity. The minimum
underwriting experience herein required may be reduced or
waived if it is shown to the satisfaction of the Commissioner
that the non-life company underwriter has undergone
extensive education and/or training in insurance.
“SEC. 330. Any applicant who misrepresents or omits any
material fact in his application for registration as a non-life
company underwriter, or commits any dishonest act in taking
or in connection with the qualifying written examination for
underwriters, shall be barred from being registered as such
non-life company underwriter and, if already registered, his
registration shall be cancelled and the certificate of
registration issued in his favor shall be recalled immediately
by the Commissioner.
“In the event that the certificate of authority of a non-life
insurance company to transact business is suspended or
revoked due to business failure arising largely from the
imprudent and injudicious acceptance of risks by the
underwriter concerned, the registration of such underwriter
shall likewise be cancelled and his certificate of registration
shall be recalled by the Commissioner, and no similar
certificate shall thereafter be issued in his favor.
“SEC. 331. No certificate of registration issued to an
underwriter shall be valid after December 31 of the third year
following its issuance unless it is renewed.
“The Commissioner may, after due notice and hearing, also
suspend or cancel such certificate for violation of existing laws,
rules and regulations or of any provisions of this Code.
“TITLE 5
“ADJUSTERS
“SEC. 332. No person, partnership, association, or corporation
shall act as an adjuster, as hereinafter defined, unless
authorized so to act by virtue of a license issued or renewed by
the Commissioner pursuant to the provisions of this
Code: Provided, That in the case of a natural person, he must
be a Filipino citizen and in the case of a partnership,
association or corporation, at least sixty percent (60%) of its
capital must be owned by citizens of the Philippines.
“SEC. 333. An adjuster may be an independent adjuster or a
public adjuster.
“The term independent adjuster means any person,
partnership, association or corporation which, for money,
commission or any other thing of value, acts for or on behalf of
an insurer in the adjusting of claims arising under insurance
contracts or policies issued by such insurer.
“The term public adjuster means any person, partnership,
association or corporation which, for money, commission or
any other thing of value, acts on behalf of an insured in
negotiating for, or effecting, the settlement of a claim or claims
of the said insured arising under insurance contracts or
policies, or which advertises for or solicits employment as an
adjuster of such claims.
“SEC. 334. For every line of insurance claim adjustment,
adjusters shall be licensed either as independent adjusters or
as public adjusters. No adjuster shall act on behalf of an
insurer unless said adjuster is licensed as an independent
adjuster; and no adjuster shall act on behalf of an insured
unless said adjuster is licensed as a public adjuster: Provided,
however, That when a firm or person has been licensed as a
public adjuster, he shall not be granted another license as
independent adjuster and vice versa.
“No license, however, shall be required of any company
adjuster who is a salaried employee of an insurance company
for the adjustment of claims filed under policies issued by such
insurance company.
“SEC. 335. Such license or any renewal thereof may be issued
by the Commissioner upon written application filed by the
person interested on the form or forms prescribed by the
Commissioner, which shall contain such information as he
may require, and upon payment of the corresponding fee
hereinafter prescribed.
“SEC. 336. The Commissioner shall conduct, at such times,
and in such places as he may decide to hold, written
examinations to determine the competence and ability of
applicants desiring to act as adjuster of insurance claims.
“SEC. 337. No adjuster’s license issued hereunder shall be
valid after December 31 of the third year following the
issuance of such license unless it is renewed.
“SEC. 338. Nothing contained in this title shall apply to any
duly licensed attorney-at-law who acts or aids in adjusting
insurance claims as an incident to the practice of his
profession and who does not advertise himself as an adjuster.
“SEC. 339. The Commissioner may suspend or revoke any
adjuster’s license if, after giving notice and hearing to the
adjuster concerned, the Commissioner finds that the said
adjuster:
“(a) Has violated any provision of this Code and of the
circulars, rulings and instructions of the Commissioner or has
violated any law in the course of his dealings as an adjuster; or
“(b) Has made a material misstatement in the application for
such license; or
“(c) Has been guilty of fraudulent or dishonest practices; or
“(d) Has demonstrated his incompetence or untrustworthiness
to act as adjuster; or
“(e) Has made patently unjust valuation of loss; or
“(f) Has failed to make a report of the adjustment he proposed
within sixty (60) days from the date of the filing of the claim
by the insured with the insurer, unless prevented so to do by
reasons beyond his control; or
“(g) Has refused to allow an examination into his affairs or
method of doing business as hereinafter provided.
“SEC. 340. Every adjuster shall submit to the Commissioner a
quarterly report of all losses which are the subject of
adjustment effected by him during each month in the form
prescribed by the Commissioner. The report shall be filed
within one (1) month after the end of each quarter.
“SEC. 341. Every adjuster shall keep his or its books, records,
reports, accounts, and vouchers in such manner that the
Commissioner or his duly authorized representatives may
readily verify the quarterly reports of the said adjuster and
ascertain whether the said adjuster has complied with the
provisions of law or regulations obligatory upon him or
whether the method of doing business of the said adjuster has
been fair, just and honest.
“SEC. 342. The Commissioner shall, at least once a year and
whenever he considers the public interest so demands, cause
an examination to be made into the affairs and method of
doing business of every adjuster.
“SEC. 343. Any violation of any provision of this title shall be
punished by a fine of not less than Ten thousand pesos
(P10,000.00), or by imprisonment at the discretion of the
court: Provided, That, in case of a partnership, association or
corporation, the said penalty shall be imposed upon the
partner, president, manager, managing director, director or
person in charge of its business or responsible for the
violation.
“TITLE 6
“ACTUARIES
“SEC. 344. No life insurance company shall be licensed to do
business in the Philippines nor shall any life insurance
company doing business in the Philippines be allowed to
continue doing such business unless they shall engage the
services of an actuary duly accredited with the Commissioner
who shall, during his tenure of office, be directly responsible
for the direction and supervision of all actuarial work
connected with or that may be involved in the business of the
insurance company. The Commissioner may also require non-
life insurance companies to engage the services of an
accredited actuary, in accordance with the rules and
regulations that the Commissioner will formulate.
“SEC. 345. Any person may be officially accredited by the
Commissioner to act as an actuary in any life insurance
company or in any mutual benefit association authorized to do
business in the Philippines upon application therefor and the
payment of the corresponding fee hereinafter
prescribed: Provided, That:
“(a) He is a fellow of good standing of the Actuarial Society of
the Philippines at the time of his appointment and remains in
such good standing during the tenure of his engagement; or
“(b) In the case of one who is not a fellow of the Actuarial
Society of the Philippines, he meets all the requirements of the
said Society for accreditation as a fellow of the Society, and
has been given permission by the pertinent government
authorities in the Philippines to render services in the
Philippines, in the event that he is not a citizen of the
Philippines.
“The registration of the actuary shall be suspended or revoked
by the Commissioner on the following grounds:
“(1) Failure to adequately perform required functions and
duties under this Code;
“(2) Failure to disclose conflict of interest;
“(3) Failure to comply with the Code of Conduct of the
Actuarial Society of the Philippines; or
“(4) Such other grounds that may be determined by the
Commissioner.
“No actuary engaged by a life insurance company shall be at
the same time a stockholder or a director of the board, chief
executive officer or chief financial officer of the company or
hold any position that the Commissioner may determine to
have an inherent conflict of interest to the position of an
actuary.
“No certificate of registration issued under this title shall be
valid after December 31 of the third year following its issuance
unless it is renewed.
“SEC. 346. The following documents, which are from time to
time submitted to the Commissioner by a life insurance
company authorized to do business in the Philippines, shall be
duly certified by an accredited actuary employed by such
company:
“(a) Policy reserves, claims or loss reserves and net due and
deferred premiums.
“(b) Statements of bases and net premiums, loading for gross
premiums, and on non-forfeiture values and reserves, when
applying for approval of gross premiums, reserves and non-
forfeiture values.
“(c) Policies of insurance under any plan submitted to the
Commissioner as required by law.
“(d) Annual statements and valuation reports submitted to the
Commissioner as required by law.
“(e) Financial projection showing the probable income and
outgo and reserve requirements, enumerating the actuarial
assumptions and bases of projections.
“(f) Valuation of annuity funds or retirement plans.
“The Commissioner may also require non-life insurance
companies to submit, from time to time, similar documents
which shall be duly certified by an accredited actuary
employed by such company.
“Any life insurance company authorized to do business in the
Philippines may employ any person who is not officially
accredited under either of the qualifications for any kind of
actuarial work: Provided, That he shall not, at any time, have
the authority to certify to the correctness of the foregoing
documents.
“SEC. 347. No accredited actuary shall serve more than one
client or employer at the same time. However, one already in
the employ of an insurance company may be allowed by the
Commissioner to serve a mutual benefit association or any
other insurance company, provided the following conditions
are first complied with:
“(a) That the request to engage his services by the other
employer is in writing;
“(b) That his present employer acquiesced to it in writing; and
“(c) That he furnishes the Commissioner with copies of said
request and acquiescence.
“No external auditor shall be engaged by supervised persons
or entities unless it has been issued an accreditation
certificate by the Commissioner. The accreditation certificate
shall be valid until December 31 of the third year from
issuance unless it is revoked or suspended. The Commissioner
shall issue rules and regulations to govern the accreditation of
the external auditor and the revocation or suspension of the
accreditation.
“TITLE 7
“RATING ORGANIZATION AND RATE MAKING
“SEC. 348. Every organization which now exists or which may
hereafter be formed for the purpose of making rates to be used
by more than one insurance company authorized to do
business in the Philippines shall be known as a rating
organization. The term rate as used in this title shall generally
mean the ratio of the premium to the amount insured and
shall include, as the context may require, either the
consideration to be paid or charged for insurance contracts,
including surety bonds, or the elements and factors forming
the basis for the determination or application of the same, or
both.
“SEC. 349. Every rating organization which now exists or
which may hereafter be formed shall be subject to the
provisions of this title.
“SEC. 350. No rating organization hereafter formed shall
commence rate-making operations until it shall have obtained
a license from the Commissioner. Before obtaining such
license, such rating organization shall file with the
Commissioner a notice of its intention to commence rate-
making operations, a copy of its constitution, articles of
agreement or association, or of incorporation, and its bylaws, a
list of insurance companies that have agreed to become
members or subscribers, and such other information
concerning such rating organization and its operations as may
be required by the Commissioner. If the Commissioner finds
that the organization has complied with the provisions of law
and that it has a sufficient number of members or subscribers
and is otherwise qualified to function as a rating organization,
the Commissioner may issue a license to such rating
organization authorizing it to make rates for the kinds of
insurance or subdivisions thereof as may be specified in such
license. No license issued to a rating organization shall be
valid after December 31 of the third year following its issuance
unless it is renewed. No rating organization which now exists
and is not licensed pursuant to this section shall continue
rate-making operations until it shall have obtained from the
Commissioner a license which he may issue if satisfied that
such organization is complying with the provisions of this title.
Every rating organization shall notify the Commissioner
promptly of every change in:
“(a) Its constitution, its articles of agreement or association or
its certificate of incorporation, and its bylaws, rules and
regulations governing the conduct of its business; and
“(b) Its list of members and subscribers.
“A member means an insurer who participates in or is entitled
to participate in the management of a rating organization.
“A subscriber means an insurer which is furnished at its
request with rates and rating manuals by a rating
organization of which it is not a member.
“SEC. 351. Each rating organization shall furnish its rating
service without discrimination to all of its members and
subscribers, and shall, subject to reasonable rules and
regulations, permit any insurance company doing business in
the Philippines, not admitted to membership, to become a
subscriber to its rating services for any kind of insurance or
subdivisions thereof. Notice of proposed changes in such rules
and regulations shall be given to subscribers. The
reasonableness of any rule or regulation in its application to
subscribers, or the refusal of any rating organization to admit
an insurance company as a subscriber, shall, at the request of
any subscriber or any such insurance company, be reviewed by
the Commissioner at a hearing held upon at least ten (10)
days’ written notice to such rating organization and to such
subscriber or insurance company. The Commissioner may,
after such hearing, issue an appropriate order.
“SEC. 352. No rating organization or any other association
shall refuse to do business with, or prohibit or prevent the
payment of commissions to, any person licensed as an
insurance broker pursuant to the provisions of Title 1 of this
chapter.
“SEC. 353. Rating organizations shall be subject to
examination by the Commissioner, as often as he may deem
such examination expedient, pursuant to the provisions of this
Code applicable to the examination of insurance companies.
He shall cause such an examination of each rating
organization to be made at least once in every five (5) years.
“SEC. 354. The Commissioner may suspend or revoke the
license of any rating organization which fails to comply with
his order within the time limited by such order, or any
extension thereof which he may grant. The Commissioner may
determine when a suspension of license shall become effective
and it shall remain in effect for the period fixed by him, unless
he modifies or rescinds such suspension.
“SEC. 355. Any rating organization may subscribe for or
purchase actuarial, technical or other services, and such
services shall be available to all members and subscribers
without discrimination.
“SEC. 356. Any rating organization may provide for the
examination of policies, daily reports, binders, renewal
certificates, endorsements or other instruments of insurance,
or the cancellation thereof, and may make reasonable rules
governing their submission. Such rules shall contain a
provision that in the event an insurance company does not
within sixty (60) days furnish satisfactory evidence to the
rating organization of the correction of any error or omission
previously called to its attention by the rating organization, it
shall be the duty of the rating organization to notify the
Commissioner thereof. All information so submitted for
examination shall be confidential.
“SEC. 357. Cooperation among rating organizations or among
rating organizations and insurers in rate making or in other
matters within the scope of this title is hereby authorized,
provided the filings resulting from such cooperation are
subject to all provisions of this title which are applicable to
filings generally. The Commissioner may review such
cooperative activities and practices and if he finds that any
such activity or practice is unfair or unreasonable or otherwise
inconsistent with the provisions of this title, he may issue a
written order specifying in what respects such activity or
practice is unfair or unreasonable or otherwise inconsistent
with the provisions of this title, and requiring the
discontinuance of such activity or practice.
“SEC. 358. Every rating organization and every insurance
company which makes and files its own rates, shall make
rates for all risks rated by such organization or insurance
company in accordance with the following provisions:
“(a) Basic classification, manual, minimum, class, or schedule
rates or rating plans, shall be made and adopted for all such
risks. Any departure from such rates shall be in accordance
with schedules, rating plans and rules filed with the
Commissioner;
“(b) Rates shall be reasonable and adequate for the class of
risks to which they apply;
“(c) No rate shall discriminate unfairly between risks involving
essentially the same hazards and expense elements or
between risks in the application of like charges and credits;
“(d) Consideration shall be given to the past and prospective
loss experience, including the conflagration and catastrophe
hazards, if any, to all factors reasonably attributable to the
class of risks, to a reasonable profit, to commissions paid
during the most recent annual period and to past and
prospective other expenses. In case of fire insurance rates,
consideration shall be given to the experience of the fire
insurance business during a period of not less than five (5)
years next preceding the year in which the review is made;
“(e) Risk may be grouped by classifications for the
establishment of rates and minimum premiums. Classification
rates may be modified to produce rates for individual risks in
accordance with rating plans which establish standards for
measuring variations in hazards or expense provisions, or
both. Such standards may measure any difference among risks
that can be demonstrated to have a probable effect upon losses
or expenses.
“SEC. 359. No rating organization and no insurance company
which makes and files its own rates shall make or promulgate
any rate or schedule of rates which is to be applied to any fire
risk on the condition that the whole amount of insurance on
any risk or any specified part thereof shall be placed with the
members of or subscribers to such rating organization or with
such insurer.
“SEC. 360. Every insurance company doing business in the
Philippines shall annually file with the rating organization of
which it is a member or subscriber, or with such other agency
as the Commissioner may designate, a statistical report
showing a classification schedule of its premiums and losses
on all kinds or types of insurance business to which Section
358 is applicable, and such other information as the
Commissioner may deem necessary or expedient for the
administration of the provisions of this title.
“SEC. 361. Every non-life rating organization and every non-
life insurance company doing business in the Philippines shall
file with the Commissioner, except as to risks which by
general custom of the business are not written according to
manual rates or rating plans, every rate manual, schedule of
rates, classification of risks, rating plan, and every other
rating rule and every modification of any of the foregoing
which it proposes to use. An insurance company may satisfy
its obligation to make such filings for any kind or type of
insurance by becoming a member of or subscriber to a rating
organization which makes such filings for such kind or type of
insurance, and by authorizing the Commissioner to accept
such filings of the rating organization on behalf of such
insurance company.
“SEC. 362. Every manual or schedule of rates and every rating
plan filed as provided in the preceding section shall state or
clearly indicate the character and extent of the coverage to
which any such rate or any modification thereof will be
applied.
“SEC. 363. The Commissioner shall review filings as soon as
reasonably possible after they have been made in order to
determine whether they meet the requirements of this title.
When a filing is not accompanied by the information upon
which the insurance company supports such filing, and the
Commissioner does not have sufficient information to
determine whether such filing meets the requirements of this
title, he shall require such insurance company to furnish the
information upon which it supports such filing. The
information furnished in support of a filing may include:
“(a) The experience or judgment of the insurance company or
rating organization making the filing;
“(b) Its interpretation of any statistical data it relies upon;
“(c) The experience of other insurance companies or rating
organization; or
“(d) Any other relevant factors.
“SEC. 364. If the Commissioner finds that any rate filings
theretofore filed with him do not comply with the provisions of
this title or that they provide rates or rules which are
inadequate, excessive, unfairly discriminatory or otherwise
unreasonable, he may order the same withdrawn and at the
expiration of sixty (60) days thereafter the same shall be
deemed no longer on file. Before making any such finding and
order, the Commissioner shall give notice, not less than ten
(10) days in advance, and a hearing, to the rating
organization, or to the insurer, which filed the same. Such
order shall not affect any contract or policy made or issued
prior to the expiration of such sixty (60)-day period.
“SEC. 365. No member or subscriber of a rating organization,
and no insurance company doing business in the Philippines,
or agent, employee or other representative of such company,
and no insurance broker shall charge or demand a rate or
receive a premium which deviates from the rates, rating plans,
classifications, schedules, rules and standards, made and last
filed by a rating organization or by or on behalf of the
insurance company, or shall issue or make any policy or
contract involving a violation of such rate filings.
“SEC. 366. Notwithstanding any other provisions of this title,
upon the written application of the insurer, stating his reasons
therefor, filed with and approved by the Commissioner, a rate
in excess of that provided by a filing otherwise applicable may
be used on any specific risk.
“SEC. 367. Whenever the Commissioner shall determine, after
notice and a hearing, that the rates charged or filed on any
class of risks are excessive, discriminatory, inadequate or
unreasonable, he shall order that such rates be appropriately
adjusted. For the purpose of applying the provisions of this
section, the Commissioner may from time to time approve
reasonable classifications of risks for any or all such classes,
having due regard to the past and prospective loss experience,
including conflagration or catastrophe hazards, if any, to all
other relevant factors and to a reasonable profit.
“SEC. 368. Nothing contained in this title shall be construed
as requiring any insurer to become a member of or subscriber
to any rating organization.
“SEC. 369. Agreements may be made among insurance
companies with respect to the equitable apportionment among
them of insurance which may be afforded applicants who are
in good faith entitled to but are unable to procure such
insurance through ordinary methods and such insurance
companies may agree among themselves on the use of
reasonable rates and modifications for such insurance, such
agreements and rate modifications to be subject to the
approval of the Commissioner: Provided, however, That the
provisions of this section shall not be deemed to apply to
workmen’s compensation insurance.
“SEC. 370. No insurance company doing business in the
Philippines or any agent thereof, no insurance broker, and no
employee or other representative of any such insurance
company, agent, or broker, shall make, procure or negotiate
any contract of insurance or agreement as to policy contract,
other than is plainly expressed in the policy or other written
contract issued or to be issued as evidence thereof, or shall
directly or indirectly, by giving or sharing a commission or in
any manner whatsoever, pay or allow or offer to pay or allow
to the insured or to any employee of such insured, either as an
inducement to the making of such insurance or after such
insurance has been effected, any rebate from the premium
which is specified in the policy, or any special favor or
advantage in the dividends or other benefits to accrue thereon,
or shall give or offer to give any valuable consideration or
inducement of any kind, directly or indirectly, which is not
specified in such policy or contract of insurance; nor shall any
such company, or any agent thereof, as to any policy or
contract of insurance issued, make any discrimination against
any Filipino in the sense that he is given less advantageous
rates, dividends or other policy conditions or privileges than
are accorded to other nationals because of his race.
“SEC. 371. No insurance company doing business in the
Philippines, and no officer, director, or agent thereof, and no
insurance broker or any other person, partnership or
corporation shall issue or circulate or cause or permit to be
issued or circulated any literature, illustration, circular or
statement of any sort misrepresenting the terms of any policy
issued by any insurance company of the benefits or advantages
promised thereby, or any misleading estimate of the dividends
or share of surplus to be received thereon, or shall use any
name or title of any policy or class of policies misrepresenting
the true nature thereof; nor shall any such company or agent
thereof, or any other person, partnership or corporation make
any misleading representation or incomplete comparison of
policies to any person insured in such company for the purpose
of inducing or tending to induce such person to lapse, forfeit,
or surrender his said insurance.
“SEC. 372. If the Commissioner, after notice and hearing,
finds that any insurance company, rating organization, agent,
broker or other person has violated any of the provisions of
this title, it shall order the payment of a fine not to exceed
Twenty-five thousand pesos (P25,000.00) for each such offense,
and shall immediately suspend or revoke the license issued to
such insurance company, rating organization, agent, or broker.
The issuance, procurement or negotiation of a single policy or
contract of insurance shall be deemed a separate offense.
“TITLE 8
“PROVISION COMMON TO AGENTS,
BROKERS AND ADJUSTERS
“SEC. 373. A license issued to a partnership, association or
corporation to act as an insurance agent, general agent,
insurance broker, reinsurance broker, or adjuster shall
authorize only the individual named in the license who shall
qualify therefor as though an individual licensee. The
Commissioner shall charge, and the licensee shall pay, a full
additional license fee as to each respective individual so
named in such license in excess of one.
“Licenses and certificates of registration issued under the
provisions of this chapter may be renewed by the filing of
notices of intention on forms to be prescribed by the
Commissioner and payment of the fees therefor.
“SEC. 374. The Commissioner, in consultation with the duly
accredited associations representing the insurance industry,
shall adopt and promulgate a code of conduct to promote
integrity, honesty and ethical business practices among
insurance agents, distributors and other intermediaries.
“TITLE 9
“BANCASSURANCE
“SEC. 375. The term bancassurance shall mean the
presentation and sale to bank customers by an insurance
company of its insurance products within the premises of the
head office of such bank duly licensed by the Bangko Sentral
ng Pilipinas or any of its branches under such rules and
regulations which the Commissioner and the Bangko Sentral
ng Pilipinas may promulgate. To engage in bancassurance
arrangement, a bank is not required to have equity ownership
of the insurance company. No insurance company shall enter
into a bancassurance arrangement unless it possesses all the
requirements as may be prescribed by the Commissioner and
the Bangko Sentral ng Pilipinas.
“No insurance product under this section, whether life or non-
life, shall be issued or delivered unless in the form previously
approved by the Commissioner.
“SEC. 376. Personnel tasked to present and sell insurance
products within the bank premises shall be duly licensed by
the Commissioner and shall be subject to the rules and
regulations of this Act.
“SEC. 377. The Commissioner and the Bangko Sentral ng
Pilipinas shall promulgate rules and regulations to effectively
supervise the business of bancassurance.
“CHAPTER V
“SECURITY FUND
“SEC. 378. There is hereby created a fund to be known as the
Security Fund which shall be used in the payment of allowed
claims against an insurance company authorized to transact
business in the Philippines remaining unpaid by reason of the
insolvency of such company. The said Fund may also be used
to reinsure the policy of the insolvent insurer in any solvent
insurer authorized to do business in the Philippines as
provided in Section 256. The Fund may likewise be used to pay
insured claims which otherwise would not be compensable
under the provisions of the policy. No payment from the
Security Fund shall, however, be made to any person who
owns or controls ten percent (10%) or more of the voting shares
of stock of the insolvent insurer and no payment on any one
claim shall exceed Twenty thousand pesos (P20,000.00).
“SEC. 379. Such Fund shall consist of all payments made to
the Fund by insurance companies authorized to do business in
the Philippines. Payments made by life insurance companies
shall be treated separately from those made by non-life
insurance companies and the corresponding fund shall be
called Life Account and Non-Life Account, respectively, and
shall be held and administered as such by the Commissioner
in accordance with the provisions of this title. The Life
Account shall be utilized exclusively for disbursements that
refer to life insurance companies, while the Non-Life Account
shall be utilized exclusively for disbursements that refer to
non-life insurance companies.
“SEC. 380. All insurance companies doing business in the
Philippines shall contribute to the Security Fund, Life or Non-
Life Account, as the case may be, the aggregate amount of
Five million pesos (P5,000,000.00) for each Account. The
contributions of the life insurance companies and of the non-
life insurance companies shall be in direct proportion to the
ratio between a particular life insurance company or a
particular non-life insurance company’s net worth and the
aggregate net worth of all life insurance companies or all non-
life insurance companies, as the case may be, as shown in
their latest financial statements approved by the
Commissioner. This proportion applied to the Five million
pesos (P5,000,000.00) shall be the contribution of a particular
company to the corresponding Account of the Security Fund.
“The amount of Five million pesos (P5,000,000.00) in each
Account shall be in the form of a revolving trust fund. The
respective contributions of the companies shall remain as
admitted assets in their books and any disbursement
therefrom shall be deducted proportionately from the
contributions of each company which will be allowed as
deductions for income tax purposes. Any earnings of the Fund
shall be turned over to the contributing companies in
proportion to their contributions.
“In the case of disbursements of funds from the Fund as
provided in the foregoing paragraph, the life and non-life
companies, as the case may be, shall replenish the amount
disbursed in direct proportion to the individual company’s net
worth and the aggregate net worth of the life or non-life
companies, as the case may be. However, in no case shall the
Fund exceed the aggregate amount of Ten million pesos
(P10,000,000.00), or Five million pesos (P5,000,000.00) for
each Account.
“Should the Fund, Life or Non-Life Account, as the case may
be, be inadequate for a disbursement as provided for, then the
Life or Non-Life companies, as the case may be, shall
contribute to the Fund their respective shares in the
proportion previously mentioned.
“SEC. 381. The Commissioner may adopt, amend, and enforce
all reasonable rules and regulations necessary for the proper
administration of the Fund and of the Accounts. In the event
any insurer shall fail to make any payment required by this
title, or that any payment made is incorrect, he shall have full
authority to examine all the books and records of the insurer
for the purpose of ascertaining the facts and shall determine
the correct amount to be paid and may proceed in any court of
competent jurisdiction to recover for the benefit of the Fund or
of the Account concerned any sum shown to be due upon such
examination and determination. Any insurer which fails to
make any payment to the Fund or to the Account concerned
when due, shall thereby forfeit to said Fund or Account
concerned a penalty of five percent (5%) of the amount
determined to be due as provided by this title, plus one percent
(1%) of such amount for each month of delay or fraction
thereof, after the expiration of the first month of such delay,
but the Commissioner, if satisfied that the delay was
excusable, may remit all or any part of such penalty. The
Commissioner, in his discretion, may suspend or revoke the
certificate of authority to do business in the Philippines of any
insurance company which shall fail to comply with this title or
to pay any penalty imposed in accordance therewith.
“SEC. 382. The Accounts created by this title shall be separate
and apart from each other and from any other fund. The
Treasurer of the Philippines shall be the custodian of the Life
Account and Non-Life Account of the Security Fund; and all
disbursements from any Account shall be made by the
Treasurer of the Philippines upon vouchers signed by the
Commissioner or his deputy, as hereinafter provided. The
moneys of said Account may be invested by the Commissioner
only in bonds or other instruments of debt of the Government
of the Philippines or its political subdivisions or
instrumentalities. The Commissioner may sell any of the
securities in which an Account is invested, if advisable, for its
proper administration or in the best interest of such Account.
“SEC. 383. Payments from either the Life Insurance Account
or Non-Life Account, as the case may be, shall be made by the
Treasurer of the Philippines to the Commissioner, upon the
authority of appropriate certificate filed with him by the
Commissioner acting in such capacity.
“SEC. 384. The Commissioner may, in his discretion,
designate or appoint a duly authorized representative or
representatives to appear and defend before any court or other
body or official having jurisdiction any or all actions or
proceedings against principals or assureds on insurance
policies or contracts issued to them where the insurer has
become insolvent or unable to meet its insurance obligations.
The Commissioner shall have, as of the date of insolvency of
such insurer or as of the date of its inability to meet its
insurance obligations, only the rights which such insurer
would have had if it had not become insolvent or unable to
meet its insurance obligations. For the purpose of this title,
the Commissioner shall have power to employ such counsel,
clerks and assistants as he may deem necessary.
“SEC. 385. The expense of administering an Account shall be
paid out of the Account concerned. The Commissioner shall
serve as administrator of the Fund and of the Accounts
without additional compensation, but may be allowed and paid
from the Account concerned expenses incurred in the
performance of his duties in connection with said Account. The
compensation of those persons employed by the Commissioner
shall be deemed administration expense payable from the
Account concerned. The Commissioner shall include in his
annual report to the Secretary of Finance a statement of the
expenses of administration of the Fund and of the Life Account
and Non-Life Account for the preceding year.
“CHAPTER VI
“COMPULSORY MOTOR VEHICLE
LIABILITY INSURANCE
“SEC. 386. For purposes of this chapter:
“(a) Motor Vehicle is any vehicle as defined in Section 3,
paragraph (a) of Republic Act No. 4136, otherwise known as
the ‘Land Transportation and Traffic Code’.
“(b) Passenger is any fare paying person being transported and
conveyed in and by a motor vehicle for transportation of
passengers for compensation, including persons expressly
authorized by law or by the vehicle’s operator or his agents to
ride without fare.
“(c) Third party is any person other than a passenger as
defined in this section and shall also exclude a member of the
household, or a member of the family within the second degree
of consanguinity or affinity, of a motor vehicle owner or land
transportation operator, as likewise defined herein, or his
employee in respect of death, bodily injury, or damage to
property arising out of and in the course of employment.
“(d) Owner or motor vehicle owner means the actual legal
owner of a motor vehicle, in whose name such vehicle is duly
registered with the Land Transportation Office;
“(e) Land transportation operator means the owner or owners
of motor vehicles for transportation of passengers for
compensation, including school buses.
“(f) Insurance policy or Policy refers to a contract of insurance
against passenger and third-party liability for death or bodily
injuries and damage to property arising from motor vehicle
accidents.
“SEC. 387. It shall be unlawful for any land transportation
operator or owner of a motor vehicle to operate the same in the
public highways unless there is in force in relation thereto a
policy of insurance or guaranty in cash or surety bond issued
in accordance with the provisions of this chapter to indemnify
the death, bodily injury, and/or damage to property of a third-
party or passenger, as the case may be, arising from the use
thereof.
“SEC. 388. The Commissioner shall furnish the Land
Transportation Office with a list of insurance companies
authorized to issue the policy of insurance or surety bond
required by this chapter.
“SEC. 389. The Land Transportation Office shall not allow the
registration or renewal of registration of any motor vehicle
without first requiring from the land transportation operator
or motor vehicle owner concerned the presentation and filing
of a substantiating documentation in a form approved by the
Commissioner evidencing that the policy of insurance or
guaranty in cash or surety bond required by this chapter is in
effect.
“SEC. 390. Every land transportation operator and every
owner of a motor vehicle shall, before applying for the
registration or renewal of registration of any motor vehicle, at
his option, either secure an insurance policy or surety bond
issued by any insurance company authorized by the
Commissioner or make a cash deposit in such amount as
herein required as limit of liability for purposes specified in
Section 387.
“(a) In the case of a land transportation operator, the
insurance guaranty in cash or surety bond shall cover liability
for death or bodily injuries of third-parties and/or passengers
arising out of the use of such vehicle in the amount not less
than Twelve thousand pesos (P12,000.00) per passenger or
third-party and an amount, for each of such categories, in any
one accident of not less than that set forth in the following
scale:
“(1) Motor vehicles with an authorized capacity of twenty-six
(26) or more passengers: Fifty thousand pesos (P50,000.00);
“(2) Motor vehicles with an authorized capacity of from twelve
(12) to twenty-five (25) passengers: Forty thousand pesos
(P40,000.00);
“(3) Motor vehicles with an authorized capacity of from six (6)
to eleven (11) passengers: Thirty thousand pesos (P30,000.00);
“(4) Motor vehicles with an authorized capacity of five (5) or
less passengers: Five thousand pesos (P5,000.00) multiplied by
the authorized capacity.
“Provided, however, That such cash deposit made to, or surety
bond posted with, the Commissioner shall be resorted to by
him in cases of accidents the indemnities for which to third-
parties and/or passengers are not settled accordingly by the
land transportation operator and, in that event, the said cash
deposit shall be replenished or such surety bond shall be
restored within sixty (60) days after impairment or expiry, as
the case may be, by such land transportation operator,
otherwise, he shall secure the insurance policy required by
this chapter. The aforesaid cash deposit may be invested by
the Commissioner in readily marketable government bonds,
and/or securities.
“(b) In the case of an owner of a motor vehicle, the insurance
or guaranty in cash or surety bond shall cover liability for
death or injury to third-parties in an amount not less than
that set forth in the following scale in any one accident:
“(1) Private Cars
“(i) Bantam: Twenty thousand pesos (P20,000.00);
“(ii) Light: Twenty thousand pesos (P20,000.00); and
“(iii) Heavy: Thirty thousand pesos (P30,000.00).
“(2) Other Private Vehicles
“(i) Tricycles, motorcycles and scooters: Twelve thousand pesos
(P12,000.00);
“(ii) Vehicles with an unladen weight of 2,600 kilos or less:
Twenty thousand pesos (P20,000.00);
“(iii) Vehicles with an unladen weight of between 2,601 kilos
and 3,930 kilos: Thirty thousand pesos (P30,000.00); and
“(iv) Vehicles with an unladen weight over 3,930 kilos: Fifty
thousand pesos (P50,000.00).
“The Commissioner may, if warranted, set forth schedule of
indemnities for the payment of claims for death or bodily
injuries with the coverages set forth herein.
“SEC. 391. Any claim for death or injury to any passenger or
third-party pursuant to the provisions of this chapter shall be
paid without the necessity of proving fault or negligence of any
kind: Provided, That for purposes of this section:
“(a) The total indemnity in respect of any person shall not be
less than Fifteen thousand pesos (P15,000.00);
“(b) The following proofs of loss, when submitted under oath,
shall be sufficient evidence to substantiate the claim:
“(1) Police report of accident; and
“(2) Death certificate and evidence sufficient to establish the
proper payee; or
“(3) Medical report and evidence of medical or hospital
disbursement in respect of which refund is claimed;
“(c) Claim may be made against one motor vehicle only. In the
case of an occupant of a vehicle, claim, shall lie against the
insurer of the vehicle in which the occupant is riding,
mounting or dismounting from. In any other case, claim shall
lie against the insurer of the directly offending vehicle. In all
cases, the right of the party paying the claim to recover
against the owner of the vehicle responsible for the accident
shall be maintained.
“SEC. 392. No land transportation operator or owner of motor
vehicle shall be unreasonably denied the policy of insurance or
surety bond required by this chapter by the insurance
companies authorized to issue the same, otherwise, the Land
Transportation Office shall require from said land
transportation operator or owner of the vehicle, in lieu of a
policy of insurance or surety bond, a certificate that a cash
deposit has been made with the Commissioner in such amount
required as limits of indemnity in Section 390 to answer for
the passenger and/or third-party liability of such land
transportation operator or owner of the vehicle.
“No insurance company may issue the policy of insurance or
surety bond required under this chapter unless so authorized
under existing laws.
“The authority to engage in the casualty and/or surety lines of
business of an insurance company that refuses to issue or
renew, without just cause, the insurance policy or surety bond
therein required shall be withdrawn immediately.
“SEC. 393. No cancellation of the policy shall be valid unless
written notice thereof is given to the land transportation
operator or owner of the vehicle and to the Land
Transportation Office at least fifteen (15) days prior to the
intended effective date thereof. Upon receipt of such notice,
the Land Transportation Office, unless it receives evidence of
a new valid insurance or guaranty in cash or surety bond as
prescribed in this chapter, or an endorsement of revival of the
cancelled one, shall order the immediate confiscation of the
plates of the motor vehicle covered by such cancelled policy.
The same may be reissued only upon presentation of a new
insurance policy or that a guaranty in cash or surety bond has
been made or posted with the Commissioner and which meets
the requirements of this chapter, or an endorsement or revival
of the cancelled one.
“SEC. 394. If the cancellation of the policy or surety bond is
contemplated by the land transportation operator or owner of
the vehicle, he shall, before the policy or surety bond ceases to
be effective, secure a similar policy of insurance or surety bond
to replace the policy or surety bond to be cancelled or make a
cash deposit in sufficient amount with the Commissioner, and
without any gap, file the required documentation with the
Land Transportation Office, and notify the insurance company
concerned of the cancellation of its policy or surety bond.
“SEC. 395. In case of change of owner ship of a motor vehicle,
or change of the engine of an insured vehicle, there shall be no
need of issuing a new policy until the next date of registration
or renewal of registration of such vehicle, and: Provided, That
the insurance company shall agree to continue the policy, such
change of ownership or such change of the engine shall be
indicated in a corresponding endorsement by the insurance
company concerned, and a signed duplicate of such
endorsement shall, within a reasonable time, be filed with the
Land Transportation Office.
“SEC. 396. In the settlement and payment of claims, the
indemnity shall not be availed of by any accident victim or
claimant as an instrument of enrichment by reason of an
accident, but as an assistance or restitution insofar as can
fairly be ascertained.
“SEC. 397. Any person having any claim upon the policy
issued pursuant to this chapter shall, without any
unnecessary delay, present to the insurance company
concerned a written notice of claim setting forth the nature,
extent and duration of the injuries sustained as certified by a
duly licensed physician. Notice of claim must be filed within
six (6) months from the date of accident, otherwise, the claim
shall be deemed waived. Action or suit for recovery of damage
due to loss or injury must be brought, in proper cases, with the
Commissioner or the courts within one (1) year from denial of
the claim, otherwise, the claimant’s right of action shall
prescribe.
“SEC. 398. The insurance company concerned shall forthwith
ascertain the truth and extent of the claim and make payment
within five (5) working days after reaching an agreement. If no
agreement is reached, the insurance company shall pay only
the no-fault indemnity provided in Section 391 without
prejudice to the claimant from pursuing his claim further, in
which case, he shall not be required or compelled by the
insurance company to execute any quit claim or document
releasing it from liability under the policy of insurance or
surety bond issued.
“In case of any dispute in the enforcement of the provisions of
any policy issued pursuant to this chapter, the adjudication of
such dispute shall be within the original and exclusive
jurisdiction of the Commissioner, subject to the limitations
provided in Section 439.
“SEC. 399. It shall be unlawful for a land transportation
operator or owner of motor vehicle to require his or its drivers
or other employees to contribute in the payment of premiums.
“SEC. 400. No government office or agency having the duty of
implementing the provisions of this chapter nor any official or
employee thereof shall act as agent in procuring the insurance
policy or surety bond provided for herein. The commission of
an agent procuring the said policy or bond shall in no case
exceed ten percent (10%) of the amount of the premiums
therefor.
“SEC. 401. Any land transportation operator or owner of motor
vehicle or any other person violating any of the provisions of
the preceding sections shall be punished by a fine of not less
than Five hundred pesos (P500.00) and/or imprisonment for
not more than six (6) months. The violation of Section 390 by a
land transportation operator shall be a sufficient cause for the
revocation of the certificate of public convenience issued by the
Land Transportation Franchising and Regulatory Board
covering the vehicle concerned.
“SEC. 402. Whenever any violation of the provisions of this
chapter is committed by a corporation or association, or by a
government office or entity, the executive officer or officers of
said corporation, association or government office or entity
who shall have knowingly permitted, or failed to prevent, said
violation shall be held liable as principals.
“CHAPTER VII
“MUTUAL BENEFIT ASSOCIATIONS AND
TRUSTS FOR CHARITABLE USES
“TITLE l
“MUTUAL BENEFIT ASSOCIATIONS
“SEC. 403. Any society, association or corporation, without
capital stock, formed or organized not for profit but mainly for
the purpose of paying sick benefits to members, or of
furnishing financial support to members while out of
employment, or of paying to relatives of deceased members of
fixed or any sum of money, irrespective of whether such aim or
purpose is carried out by means of fixed dues or assessments
collected regularly from the members, or of providing, by the
issuance of certificates of insurance, payment of its members
of accident or life insurance benefits out of such fixed and
regular dues or assessments, but in no case shall include any
society, association, or corporation with such mutual benefit
features and which shall be carried out purely from voluntary
contributions collected not regularly and/or no fixed amount
from whomsoever may contribute, shall be known as a mutual
benefit association within the intent of this Code.
“Any society, association, or corporation principally organized
as a labor union shall be governed by the Labor Code
notwithstanding any mutual benefit feature provisions in its
charter as incident to its organization.
“In no case shall a mutual benefit association be organized and
authorized to transact business as a charitable or benevolent
organization, and whenever it has this feature as incident to
its existence, the corresponding charter provision shall be
revised to conform with the provision of this section. Mutual
benefit association, already licensed to transact business as
such on the date this Code becomes effective, having
charitable or benevolent feature shall abandon such incidental
purpose upon effectivity of this Code if they desire to continue
operating as such mutual benefit associations.
“SEC. 404. A mutual benefit association, before it may
transact as such, must first secure a license from the
Commissioner. The application for such license shall be filed
with the Commissioner together with certified true copies of
the articles of incorporation or the constitution and bylaws of
the association, and all amendments thereto, and such other
documents or testimonies as the Commissioner may require.
“No license shall be granted to a mutual benefit association
until the Commissioner shall have been satisfied by such
examination as he may make and such evidence as he may
require that the association is qualified under existing laws to
operate and transact business as such. The Commissioner may
refuse to issue a license to any mutual benefit association if, in
his judgment, such refusal will best promote the interest of the
members of such association and of the people of this country.
Any license issued shall expire on the last day of December of
the third year following its issuance and, upon proper
application, may be renewed if the association is continuing to
comply with existing laws, rules and regulations, orders,
instructions, rulings and decisions of the Commissioner. Every
association receiving any such license shall be subject to the
supervision of the Commissioner: Provided, That no such
license shall be granted to any such association if such
association has no actuary.
“SEC. 405. No mutual benefit association shall be issued a
license to operate as such unless it has constituted and
established a Guaranty Fund by depositing with the
Commissioner an initial minimum amount of Five million
pesos (P5,000,000.00) in cash, or in government securities with
a total value equal to such amount, to answer for any valid
benefit claim of any of its members.
“All moneys received by the Commissioner for this purpose
must be deposited by him in interest-bearing deposits with
any bank or banks authorized to transact business in the
Philippines for the account of the particular association
constituting the Guaranty Fund.
“Any accrual to such fund, be it interest earned or dividend
additions on moneys or securities so deposited, may, with the
prior approval of the Commissioner, be withdrawn by the
association if there is no pending benefit claim against it,
including interest thereon or dividend additions thereto.
“The Commissioner, prior to or after licensing a mutual
benefit association, may require such association to increase
its Guaranty Fund from the initial minimum amount required
to an amount equal to the capital investment required of an
existing domestic insurance company under Section 209 of this
Code.
“SEC. 406. Every mutual benefit association licensed to do
business as such shall issue membership certificates to its
members specifying the benefits to which such members are
entitled.
“Such certificates, together with the articles of incorporation of
the association or its constitution and bylaws, and all existing
laws as may be pertinent shall constitute the agreement, as of
the date of its issuance, between the association and the
member. The membership certificate shall be in a form
previously approved by the Commissioner.
“SEC. 407. A mutual benefit association may, by reinsurance
agreement, cede in whole or in part any individual risk or
risks under certificates of insurance issued by it, only to a life
insurance company authorized to transact business or to a
professional reinsurer authorized to accept life risks in the
Philippines: Provided, That a copy of the draft of such
reinsurance agreement shall be submitted to the
Commissioner for his approval. The association may take
credit for the reserves on such ceded risks to the extent
reinsured.
“SEC. 408. The constitution or bylaws of a mutual benefit
association must distinctly state the purpose for which dues
and/or assessments are made and collected and the portion
thereof which may be used for expenses.
“Death benefit and other relief funds shall be created and used
exclusively for paying benefits due the members under their
respective membership certificates. A general fund shall
likewise be created and used for expenses of administration of
the association.
“A mutual benefit association shall only maintain free and
unassigned surplus of not more than twenty percent (20%) of
its total liabilities as verified by the Commissioner. Any
amount in excess shall be returned to the members by way of
dividends, enhancing the equity value or providing benefits in
kind and other relevant services. In addition, subject to the
approval of the Commissioner, a mutual benefit association
may allocate a portion for capacity building and research and
development such as developing new products and services,
upgrading and improving operating systems and equipment
and continuing member education.
“SEC. 409. Every outstanding membership certificate must
have an equity value equivalent to at least fifty percent (50%)
of the total contributions collected thereon. The equity value
only applies to basic life insurance product and excludes
optional products.
“SEC. 410. Every mutual benefit association must accumulate
and maintain, out of the periodic dues collected from its
members, sufficient reserves for the payment of claims or
obligations for which it shall hold funds in securities
satisfactory to the Commissioner consisting of bonds of the
Government of the Philippines, or any of its political
subdivisions and instrumentalities, or in such other good
securities as may be approved by the Commissioner.
“The reserve liability shall be established in accordance with
actuarial procedures and shall be approved by the
Commissioner.
“The articles of incorporation or the constitution and bylaws of
a mutual benefit association must provide that if its reserve as
to all or any class of certificates becomes impaired, its board of
directors or trustees may require that there shall be paid by
the members to the association the amount of the members’
equitable proportion of such deficiency as ascertained by said
board and that if the payment be not made it shall stand as an
indebtedness against the membership certificates of the
defaulting members and draw interest not to exceed five
percent (5%) per annum compounded annually.
“SEC. 411. A mutual benefit association may invest such
portion of its funds as shall not be required to meet pending
claims and other obligations in any of the classes of
investments or types of securities in which life insurance
companies doing business in the Philippines may invest.
“It may also grant loans to members on the security of a
pledge or chattel mortgage of personal properties of the
borrowers, or in the absence thereof, on the security of the
membership certificate of the borrowing members, in which
event such loan shall become a first lien on the proceeds
thereof.
“SEC. 412. The Commissioner or any of his duly designated
representatives, shall have the power of visitation, audit and
examination into the affairs, financial condition, and methods
of doing business of all mutual benefit associations, and he
shall cause such examination to be made at least once every
two (2) years or whenever it may be deemed proper and
necessary. Free access to the books, records and documents of
the association shall be accorded to the Commissioner, or to
his representatives, in such manner that the Commissioner or
his representatives may readily verify or determine the true
affairs, financial condition, and method of doing business of
such association. In the course of such examination, the
Commissioner or his duly designated representatives shall
have authority to administer oaths and take testimony or
other evidence on any matter relating to the affairs of the
association.
“All minutes of the proceedings of the board of directors or
trustees of the association, and those of the regular or special
meetings of the members, shall be taken, and a copy thereof,
in English or in Pilipino, shall be submitted to the
Commissioner’s representatives or examiners in the course of
such examination.
“A copy of the findings of such examination, together with the
recommendations of the Commissioner, shall be furnished the
association for its information and compliance, and the same
shall be taken up immediately in the meetings of the board of
directors or trustees and of the members of the association.
“SEC. 413. Every mutual benefit association shall, annually on
or before the thirtieth day of April of each year, render to the
Commissioner an annual statement in such form and detail as
may be prescribed by the Commissioner, signed and sworn to
by the president, secretary, treasurer, and actuary of the
association, showing the exact condition of its affairs on the
preceding thirty-first day of December.
“SEC. 414. No money, aid or benefit to be paid, provided or
tendered by any mutual benefit association, shall be liable to
attachment, garnishment, or other process, or be seized,
taken, appropriated, or applied by any legal or equitable
process to pay any debt or liability of a member or beneficiary,
or any other person who may have a right thereunder, either
before or after payment.
“SEC. 415. Any member of a mutual benefit association shall
have the right at all times to change the beneficiary or
beneficiaries or add another beneficiary or other beneficiaries
in accordance with the rules and regulations of the association
unless he has expressly waived this right in the membership
certificate. Every association may, under such rules as it may
adopt, limit the scope of beneficiaries and provide that no
beneficiary shall have or obtain any vested interest in the
proceeds of any certificate until the certificate has become due
and payable under the terms of the membership certificate.
“SEC. 416. Any chapter affiliate independently licensed as a
mutual benefit association may consolidate or merge with any
other similar chapter affiliate or with the mother association.
“SEC. 417. Any mutual benefit association may be converted
into and licensed as a mutual life insurance company by
complying with the requirements of the pertinent provisions of
this Code and submitting the specific plan for such conversion
to the Commissioner for his approval. Such plan, as approved,
shall then be submitted to the members either in the regular
meeting or in a special meeting called for the purpose for their
adoption. The affirmative vote of at least two-thirds (2/3) of all
the members shall be necessary in order to consider such plan
as adopted.
“No such conversion shall take effect unless and until
approved by the Commissioner.
“SEC. 418. No mutual benefit association shall be dissolved
without first notifying the Commissioner and furnishing him
with a certified copy of the resolution authorizing the
dissolution, duly adopted by the affirmative vote of two-thirds
(2/3) of the members at a meeting called for that purpose, the
financial statements as of the date of the resolution, and such
other papers or documents as may be required by the
Commissioner.
“No dissolution shall proceed until and unless approved by the
Commissioner and all proceedings in connection therewith
shall be witnessed and attested by his duly designated
representative.
“No mutual benefit association shall be officially declared as
dissolved until after the Commissioner so certifies that all
outstanding claims against the association have been duly
settled and liquidated.
“SEC. 419. The Commissioner shall, after notice and hearing,
have the power either to suspend or revoke the license issued
to a mutual benefit association if he finds that the association
has:
“(a) Failed to comply with any provision of this Code;
“(b) Failed to comply with any other law or regulation
obligatory upon it;
“(c) Failed to comply with any order, ruling, instruction,
requirement or recommendation of the Commissioner;
“(d) Exceeded its power to the prejudice of its members;
“(e) Conducted its business fraudulently or hazardously;
“(f) Rendered its affairs and condition to one of insolvency; or
“(g) Failed to carry out its aims and purposes for which it was
organized due to any cause.
“After receipt of the order from the Commissioner suspending
or revoking the license, the association must immediately
exert efforts to remove such cause or causes which brought
about the order and, upon proper showing, may apply with the
Commissioner for the lifting of the order and restoration or
revival of the license so revoked or suspended.
“SEC. 420. For failure to remove such cause or causes which
brought about the suspension or revocation of the license of a
mutual benefit association, the Commissioner shall apply
under this Code for an order from the proper court to liquidate
such association.
“The provisions of Titles 14 and 15, Chapter III, pertaining to
the appointment of a conservator and proceedings upon
insolvency of an insurance company shall, insofar as
practicable, apply to mutual benefit associations.
“SEC. 421. To secure the enforcement of any provision under
this title, the Commissioner may issue such rules, rulings,
instructions, orders and circulars.
“SEC. 422. The violation of any provision of this title shall
subject the person violating or the officer of the association
responsible therefor to a fine of not less than Ten thousand
pesos (P10,000.00), or imprisonment of not exceeding three (3)
years, or both such fine and imprisonment, at the discretion of
the court.
“SEC. 423. All provisions of this Code governing life insurance
companies and such other provisions whenever practicable
and necessary, shall be applicable to mutual benefit
associations.
“TITLE 2
“TRUSTS FOR CHARITABLE USES
“SEC. 424. The term trust for charitable uses, within the
intent of this Code, shall include, all the real or personal
properties or funds, as well as those acquired with the fruits or
income therefrom or in exchange or substitution thereof, given
to or received by any person, corporation, association,
foundation, or entity, except the National Government, its
instrumentalities or political subdivisions, for charitable,
benevolent, educational, pious, religious, or other uses for the
benefit of the public at large or a particular portion thereof or
for the benefit of an indefinite number of persons.
“SEC. 425. The term trustee shall include any individual,
corporation, association, foundation, or entity, except the
National Government, its instrumentalities or political
subdivisions, in charge of, or acting for, or concerned with the
administration of, the trust referred to in the section
immediately preceding and with the proper application of
trust property.
“SEC. 426. The term trust property shall include all real or
personal properties or funds pertaining to the trust as well as
those acquired with the fruits or income therefrom or in
exchange or substitution thereof.
“SEC. 427. All trustees shall, before entering in the
performance of the duties of their trust, obtain a certificate of
registration from the Commissioner. The registration shall
expire on December 31 of the third year following its issuance
unless it is renewed.
“All provisions of this Code governing mutual benefit
associations and such other provisions herein, whenever
practicable and necessary, shall be applicable to trusts for
charitable uses.
“SEC. 428. The treasurer of a charitable trust shall file a
fidelity bond in the amount commensurate with the value of
the trust property in his custody, as may be determined by the
Commissioner.
“CHAPTER VIII
“TRUST BUSINESS IN GENERAL
“SEC. 429. An insurance company may engage in limited trust
business, consisting of managing funds pertaining only to
retirement and pre-need plans, provided it has secured a
license to do so from the Bangko Sentral ng Pilipinas. This
trust business shall be separate and distinct from the general
business of the insurance company and shall be subject to
rules and regulations as may be promulgated by the Bangko
Sentral ng Pilipinas in consultation with the Commissioner.
“CHAPTER IX
“REGISTRATION, RESPONSIBILITIES AND
OVERSIGHT OF SELF-REGULATORY
ORGANIZATIONS
“SEC 430. The Commissioner shall have the power to register
as a self-regulatory organization, or otherwise grant licenses,
and to regulate, supervise, examine, suspend or otherwise
discontinue, as a condition for the operation of organizations
whose operations are related to or connected with the
insurance market such as, but not limited to, associations of
insurance companies, whether life or non-life, reinsurers,
actuaries, agents, brokers, dealers, mutual benefit
associations, trusts, rating agencies, and other persons
regulated by the Commissioner, which are engaged in the
business regulated by this Code.
“The Commissioner may prescribe rules and regulations which
are necessary or appropriate in the public interest or for the
protection of investors to govern self-regulatory organizations
and other organizations licensed or regulated pursuant to the
authority granted hereunder including, but not limited to, the
requirement of cooperation within and among all participants
in the insurance market to ensure transparency and facilitate
exchange of information.
“SEC. 431. An association cannot be registered as a self-
regulatory organization unless the Commissioner determines
that:
“(a) The association is so organized and has the capacity to be
able to carry out the purposes of this Code and to comply with,
and to enforce compliance by its members and persons
associated with its members, with the provisions of this Code,
the rules and regulations thereunder, and the rules of the
association.
“(b) The rules of the association, notwithstanding anything in
the Corporation Code to the contrary, provide the following:
“(1) Qualifications and the disqualifications on membership of
the association;
“(2) A fair representation of its members to serve on the board
of directors of the association and the administration of its
affairs, and that any natural person associated with a juridical
entity that is a member shall also be deemed to be a member
for this purpose;
“(3) The president of the association and at least two (2)
independent directors as members of the board of directors of
the association;
“(4) Equitable allocation of reasonable dues, fees, and other
charges among members and other persons using any facility
or system which the association operates or controls;
“(5) The prevention of fraudulent and manipulative acts and
practices to protect the insuring public and the promotion of
just and equitable principles of business;
“(6) Members and persons associated with its members subject
to discipline for violation of any provision of this Code, the
rules or regulations thereunder, or the rules of the association;
“(7) Fair procedure for the disciplining of members and
persons associated with members; and
“(8) The prohibition or limitation of access to services offered
by the association or a member thereof.
“SEC. 432. A self-regulatory organization may examine and
verify the qualifications of an applicant to become a member in
accordance with procedures established by the rules of the
association.
“A self-regulatory organization shall deny membership or
condition the membership of an entity, if it does not meet the
standards of financial responsibility, operational capability,
training, experience, or competence that are prescribed by the
rules of the association; or has engaged, and there is a
reasonable likelihood it will again engage, in acts or practices
inconsistent with just and equitable principles of fair trade.
“A self-regulatory organization may deny membership to an
entity not engaged in a type of business in which the rules of
the association require members to be engaged.
“SEC. 433. Upon the filing of an application for registration as
a self-regulatory organization under this title, the
Commissioner shall have ninety (90) days within which to
either grant registration or institute a proceeding to determine
whether registration should be denied. In the event
proceedings are instituted, the Commissioner shall have two
hundred seventy (270) days within which to conclude such
proceedings at which time he shall, by order, grant or deny
such registration.
“SEC. 434. Every self-regulatory organization shall comply
with the provisions of this Code, the rules and regulations
thereunder, and its own rules, and enforce compliance
therewith by its members, persons associated with its
members or its participants, notwithstanding any provision of
the Corporation Code to the contrary.
“SEC. 435. Each self-regulatory organization shall submit to
the Commissioner for prior approval any proposed rule or
amendment thereto, together with a concise statement of the
reason and effect of the proposed amendment.
“Within sixty (60) days after submission of a proposed
amendment, the Commissioner shall, by order, approve the
proposed amendment. Otherwise, the same may be made
effective by the self-regulatory organization.
“In the event of an emergency requiring action for the
protection of the insuring public, a self-regulatory organization
may put a proposed amendment into effect
summarily: Provided, however, That a copy of the same shall
be immediately submitted to the Commissioner.
“The Commissioner is further authorized, if after making
appropriate request in writing to a self-regulatory
organization that such organization effect on its own behalf
specified changes in its rules and practices and, after due
notice and hearing, it determines that such changes have not
been effected, and that such changes are necessary, by rule or
regulation or by order, may alter, abrogate or supplement the
rules of such self-regulatory organization insofar as necessary
or appropriate to effect such changes in respect of such
matters as:
“(a) Safeguards in respect of the financial responsibility of
members and adequate provision against the evasion of
financial responsibility through the use of corporate forms or
special partnerships;
“(b) The supervision of market practices;
“(c) The manner, method and place of soliciting business;
“(d) The fixing of reasonable rates of fees, interest, listing and
other charges, but not rates of commission; and self-regulatory
organization; and
“(e) The supervision, auditing and disciplining of members.
“In addition to the general powers of the Commissioner over
the entities under supervision, the Commissioner, after due
notice and hearing, is authorized, in the public interest and to
protect the insuring public:
“(1) To suspend for a period not exceeding twelve (12) months
or to revoke the registration of a self-regulatory organization,
or to censure or impose limitations on the activities, functions
and operations of such self-regulatory organization, if the
Commission finds that such a self-regulatory organization has
willfully violated or is unable to comply with any provision of
this Code or of the rules and regulations thereunder, or its
own rules, or has failed to enforce compliance therewith by a
member of, person associated with a member, or a participant
in such self-regulatory organization;
“(2) To expel from a self-regulatory organization any member
thereof or any participant therein who is found to have
willfully violated any provision of this Code or suspend for a
period not exceeding twelve (12) months for violation of any
provision of this Code or any other law administered by the
Commission, or the rules and regulations thereunder, or
effected, directly or indirectly, any transaction for any person
who, such member or participant had reason to believe, was
violating in respect of such transaction any of such provisions;
and
“(3) To remove from office or censure any officer or director of a
self-regulatory organization if it finds that such officer or
director has violated any provision of this Code, any other law
administered by the Commissioner, the rules or regulations
thereunder and the rules of such self-regulatory organization,
or has abused his authority, or without reasonable
justification or excuse has failed to enforce compliance with
any of such provisions.
“SEC. 436. (a) A self-regulatory organization is authorized to
discipline a member of or participant in such self-regulatory
organization, or any person associated with a member,
including suspending or expelling such member or participant,
or suspending or barring such person from being associated
with a member, if engaged in acts or practices inconsistent
with just and equitable principles of fairness or in willful
violation of any provision of this Code, any other law
administered by the Commission, the rules or regulations
thereunder, or the rules of the self-regulatory organization. In
any disciplinary proceeding by a self-regulatory organization
(other than a summary proceeding pursuant to paragraph (b)
of this section) the self-regulatory organization shall bring
specific charges, provide notice to the person charged, afford
the person charged with an opportunity to defend against the
charges, and keep a record of the proceedings. A determination
to impose a disciplinary sanction shall be supported by a
written statement of the offense, a summary of the evidence
presented and a statement of the sanction imposed.
“(b) A self-regulatory organization may summarily:
“(1) Suspend a member, participant or person associated with
a member who has been or is expelled or suspended from any
other self-regulatory organization; or
“(2) Suspend a member who the self-regulatory organization
finds to be in such financial or operating difficulty that the
member or participant cannot be permitted to continue to do
business as a member with safety to investors, creditors, other
members, participants or the self-regulatory
organization: Provided, That the self-regulatory organization
immediately notifies the Commission of the action taken. Any
person aggrieved by a summary action pursuant to this
paragraph shall be promptly afforded an opportunity for a
hearing by the association in accordance with the preceding
paragraph. The Commissioner, by order, may stay a summary
action on his own or upon application by any person aggrieved
thereby, if the Commissioner determines summarily or after
due notice and hearing (which hearing may consist solely of
the submission of affidavits or presentation of oral
arguments), that a stay is consistent with the public interest
and the protection of the insuring public.
“(c) A self-regulatory organization shall promptly notify the
Commission of any disciplinary sanction on any member
thereof or participant therein, any denial of membership or
participation in such organization, or the imposition of any
disciplinary sanction on a person associated with a member or
a bar of such person from becoming so associated. Within
thirty (30) days after such notice, any aggrieved person may
appeal to the Commissioner from, or the Commissioner on its
own motion within such period, may institute review of, the
decision of the self-regulatory organization, at the conclusion
of which, after due notice and hearing (which may consist
solely of review of the record before the self-regulatory
organization), the Commissioner shall affirm, modify or set
aside the sanction. In such proceeding, the Commissioner shall
determine whether the aggrieved person has engaged or
omitted to engage in the acts and practices as found by the
self-regulatory organization, whether such acts and practices
constitute willful violations of this Code, any other law
administered by the Commission, the rules or regulations
thereunder, or the rules of the self-regulatory organization as
specified by such organization, whether such provisions were
applied in a manner consistent with the purposes of this Code,
and whether, with due regard for the public interest and the
protection of investors, the sanction is excessive or oppressive.
“CHAPTER X
“THE INSURANCE COMMISSIONER
“TITLE l
“ADMINISTRATIVE AND ADJUDICATORY POWERS
“SEC. 437. The Insurance Commissioner shall be appointed by
the President of the Republic of the Philippines for a term of
six (6) years without reappointment and who shall serve as
such until the successor shall have been appointed and
qualified. If the Insurance Commissioner is removed before
the expiration of his term of office, the reason for the removal
must be published.
“The Insurance Commissioner shall have the duty to see that
all laws relating to insurance, insurance companies and other
insurance matters, mutual benefit associations, and trusts for
charitable uses are faithfully executed and to perform the
duties imposed upon him by this Code, and shall,
notwithstanding any existing laws to the contrary, have sole
and exclusive authority to regulate the issuance and sale of
variable contracts as defined in Section 238 hereof and to
provide for the licensing of persons selling such contracts, and
to issue such reasonable rules and regulations governing the
same.
“The Commissioner may issue such rulings, instructions,
circulars, orders and decisions as may be deemed necessary to
secure the enforcement of the provisions of this Code, to
ensure the efficient regulation of the insurance industry in
accordance with global best practices and to protect the
insuring public. Except as otherwise specified, decisions made
by the Commissioner shall be appealable to the Secretary of
Finance.
“In addition to the foregoing, the Commissioner shall have the
following powers and functions:
“(a) Formulate policies and recommendations on issues
concerning the insurance industry, advise Congress and other
government agencies on all aspects of the insurance industry
and propose legislation and amendments thereto;
“(b) Approve, reject, suspend or revoke licenses or certificates
of registration provided for by this Code;
“(c) Impose sanctions for the violation of laws and the rules,
regulations and orders issued pursuant thereto;
“(d) Prepare, approve, amend or repeal rules, regulations and
orders, and issue opinions and provide guidance on and
supervise compliance with such rules, regulations and orders;
“(e) Enlist the aid and support of, and/or deputize any and all
enforcement agencies of the government in the
implementation of its powers and functions under this Code;
“(f) Issue cease and desist orders to prevent fraud or injury to
the insuring public;
“(g) Punish for contempt of the Commissioner, both direct and
indirect, in accordance with the pertinent provisions of and
penalties prescribed by the Rules of Court;
“(h) Compel the officers of any registered insurance
corporation or association to call meetings of stockholders or
members thereof under its supervision;
“(i) Issue subpoena duces tecum and summon witnesses to
appear in any proceeding of the Commission and, in
appropriate cases, order the examination, search and seizure
of all documents, papers, files and records, tax returns, and
books of accounts of any entity or person under investigation
as may be necessary for the proper disposition of the cases
before it, subject to the provisions of existing laws;
“(j) Suspend or revoke, after proper notice and hearing, the
license or certificate of authority of any entity or person under
its regulation, upon any of the grounds provided by law;
“(k) Conduct an examination to determine compliance with
laws and regulations if the circumstances so warrant as
determined by appropriate rules and regulations;
“(l) Investigate not oftener than once a year from the last date
of examination to determine whether an institution is
conducting its business on a safe and sound basis: Provided,
That, the deficiencies/irregularities found by or discovered by
an audit shall be immediately addressed;
“(m) Inquire into the solvency and liquidity of the institutions
under its supervision and enforce prompt corrective action;
“(n) To retain and utilize, in addition to its annual budget, all
fees, charges and other income derived from the regulation of
insurance companies and other supervised persons or entities;
“(o) To fix and assess fees, charges and penalties as the
Commissioner may find reasonable in the exercise of
regulation; and
“(p) Exercise such other powers as may be provided by law as
well as those which may be implied from, or which are
necessary or incidental to the express powers granted the
Commission to achieve the objectives and purposes of this
Code.
“The Commission shall indemnify the Commissioner, Deputy
Commissioner, and other officials of the Commission,
including personnel performing supervision and examination
functions, for all costs and expenses reasonably incurred by
such persons in connection with any civil or criminal actions,
suits or proceedings to which they may be made a party to by
the reason of the performance of their duties and functions,
unless they are finally adjudged in such actions, suits or
proceedings to be liable for negligence or misconduct.
“In the event of settlement or compromise, indemnification
shall be provided only in connection with such matters covered
by the settlement as to which the Commission is advised by
external counsel that the persons to be indemnified did not
commit any negligence or misconduct:
“The costs and expenses incurred in defending the
aforementioned action, suit or proceeding may be paid by the
Commission in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on
behalf of the Commissioner, Deputy Commissioner, officer or
employee to repay the amount advanced should it ultimately
be determined by the Commission that the person is not
entitled to be indemnified.
“SEC. 438. In addition to the administrative sanctions
provided elsewhere in this Code, the Insurance Commissioner
is hereby authorized, at his discretion, to impose upon
insurance companies, their directors and/or officers and/or
agents, for any willful failure or refusal to comply with, or
violation of any provision of this Code, or any order,
instruction, regulation, or ruling of the Insurance
Commissioner, or any commission or irregularities, and/or
conducting business in an unsafe or unsound manner as may
be determined by the Insurance Commissioner, the following:
“(a) Fines not less than Five thousand pesos (P5,000.00) and
not more than Two hundred thousand pesos (P200,000.00);
and
“(b) Suspension, or after due hearing, removal of directors
and/or officers and/or agents.
“SEC. 439. The Commissioner shall have the power to
adjudicate claims and complaints involving any loss, damage
or liability for which an insurer may be answerable under any
kind of policy or contract of insurance, or for which such
insurer may be liable under a contract of suretyship, or for
which a reinsurer may be sued under any contract of
reinsurance it may have entered into; or for which a mutual
benefit association may be held liable under the membership
certificates it has issued to its members, where the amount of
any such loss, damage or liability, excluding interest, cost and
attorney’s fees, being claimed or sued upon any kind of
insurance, bond, reinsurance contract, or membership
certificate does not exceed in any single claim Five million
pesos (P5,000,000.00).
“The power of the Commissioner does not cover the
relationship between the insurance company and its
agents/brokers but is limited to adjudicating claims and
complaints filed by the insured against the insurance
company.
“The Commissioner may authorize any officer or group of
officers under him to conduct investigation, inquiry and/or
hearing and decide claims and he may issue rules governing
the conduct of adjudication and resolution of cases. The Rules
of Court shall have suppletory application.
“The party filing an action pursuant to the provisions of this
section thereby submits his person to the jurisdiction of the
Commissioner. The Commissioner shall acquire jurisdiction
over the person of the impleaded party or parties in
accordance with and pursuant to the provisions of the Rules of
Court.
“The authority to adjudicate granted to the Commissioner
under this section shall be concurrent with that of the civil
courts, but the filing of a complaint with the Commissioner
shall preclude the civil courts from taking cognizance of a suit
involving the same subject matter.
“Any decision, order or ruling rendered by the Commissioner
after a hearing shall have the force and effect of a judgment.
Any party may appeal from a final order, ruling or decision of
the Commissioner by filing with the Commissioner within
thirty (30) days from receipt of copy of such order, ruling or
decision a notice of appeal to the Court of Appeals in the
manner provided for in the Rules of Court for appeals from the
Regional Trial Court to the Court of Appeals.
“For the purpose of any proceeding under this section, the
Commissioner, or any officer thereof designated by him is
empowered to administer oaths and affirmation, subpoena
witnesses, compel their attendance, take evidence, and require
the production of any books, papers, documents, or contracts
or other records which are relevant or material to the inquiry.
“A full and complete record shall be kept of all proceedings had
before the Commissioner, or the officers thereof designated by
him, and all testimony shall be taken down and transcribed by
a stenographer appointed by the Commissioner.
“In order to promote party autonomy in the resolution of cases,
the Commissioner shall establish a system for resolving cases
through the use of alternative dispute resolution.
“TITLE 2
“FEES AND OTHER SOURCES OF FUNDS
“SEC. 440. (a) For the issuance or renewal of certificates of
authority, licenses and certificates of registration, pursuant to
pertinent provisions of this Code, the Commissioner shall
collect and receive fees which shall be not less than the
following:
“For each certificate of authority issued to an insurance
company doing business in the Philippines, Two hundred
pesos (P200.00).
“For each special certificate of authority issued to a servicing
insurance company, One hundred pesos (P100.00).
“For each license issued to a general agent of an insurance
company, Fifty pesos (P50.00).
“For each license issued to an insurance agent, Twenty-five
pesos (P25.00).
“For each license issued to an agent of variable contract policy,
Twenty-five pesos (P25.00).
“For each license issued to an insurance broker, One hundred
pesos (P100.00).
“For each license issued to a reinsurance broker, One hundred
pesos (P100.00).
“For each license issued to an insurance adjuster, One
hundred pesos (P100.00).
“For each certificate of registration issued to an actuary, Fifty
pesos (P50.00).
“For each certificate of registration issued to a resident agent,
Fifty pesos (P50.00).
“For each license issued to a rating organization, One hundred
pesos (P100.00).
“For each certificate of registration issued to a non-life
company underwriter, Fifty pesos (P50.00).
“For each license issued to a mutual benefit association, Ten
pesos (P10.00).
“For each certificate of registration issued to a trust for
charitable uses, Ten pesos (P10.00).
“All certificates of authority and all other licenses, as well as
all certificates of registration, issued to any person,
partnership, association or corporation under the pertinent
provisions of this Code for which no expiration date has been
prescribed, shall expire on the last day of December of the
third year from its issuance and shall be renewed upon
application therefor and payment of the corresponding fee, if
the licensee or holder of such license or certificate is
continuing to comply with all the applicable provisions of
existing laws, and of rules, instructions, orders and decisions
of the Commissioner.
“(b) For the filing of the annual statement referred to in
Section 229, the Commissioner shall collect and receive from
the insurance company so filing a fee of not less than Five
hundred pesos (P500.00): Provided, That a fine of not less than
One hundred pesos (P100.00) shall be imposed and collected
by the Commissioner for each week of delay, or any fraction
thereof, in the filing of the annual statement.
“For the filing of annual statement referred to in Section 413,
the Commissioner shall collect and receive from the mutual
benefit association so filing a fee of not less than Ten pesos
(P10.00): Provided, That a fine of not less than Ten pesos
(P10.00) shall be imposed and collected by the Commissioner
for each week of delay, or any fraction thereof, in the filing of
the annual statement.
“(c) For the examination prescribed in Section 253, the
Commissioner shall collect and receive fees according to the
amount of its total assets, in the case of a domestic company,
or of its assets in the Philippines, in the case of a foreign
company, not less than the amount as follows:
“(1) Two million pesos or more but less than Four million
pesos, Four hundred pesos (P400.00);
“(2) Four million pesos or more but less than Six million pesos,
Eight hundred pesos (P800.00);
“(3) Six million pesos or more but less than Eight million
pesos, One thousand two hundred pesos (P1,200.00);
“(4) Eight million pesos or more but less than Ten million
pesos, One thousand six hundred pesos (P1,600.00);
“(5) Ten million pesos or more, Two thousand pesos
(P2,000.00);
“Provided, That if the said examination is made in places
outside the Metropolitan Manila area, besides these fees, the
Commissioner shall require of the company examined the
payment of the actual and necessary travelling and
subsistence expenses of the examiner or examiners concerned.
“For the examination prescribed in Section 412, the
Commissioner shall collect and receive a minimum fee of not
less than One hundred pesos (P100.00) from the mutual
benefit association examined: Provided, That if such
association has total assets of more than One hundred
thousand pesos (P100,000.00), an additional fee of not less
than Ten pesos (P10.00) for every Fifty thousand pesos
(P50,000.00) in excess thereof shall be imposed:
“(d) For the filing of an application to withdraw from the
Philippines under Title 18, the Commissioner shall collect and
receive from the foreign company so withdrawing a fee of not
less than One thousand pesos (P1,000.00).
“(e) The Commissioner may fix and collect fees or charges for
documents, transcripts, or other materials which may be
furnished by him not in excess of reasonable cost.
“SEC. 441. The Commissioner, in accordance with the rules
and regulations of the Department of Budget and
Management and other relevant regulatory agencies, shall
source the salary, allowances and other expenses from the
retained amount of the fees, charges, penalties and other
income from the regulation of insurance companies and other
covered persons and entities, and from the Insurance Fund,
which is created out of the proceeds of taxes on insurance
premiums mentioned in Section 255 of the National Internal
Revenue Code, as amended.
“MISCELLANEOUS PROVISIONS
“SEC. 442. Any person, company or corporation subject to the
supervision and control of the Commissioner who violates any
provision of this Code, for which no penalty is provided, shall
be deemed guilty of a penal offense, and upon conviction be
punished by a fine not exceeding Two hundred thousand pesos
(P200,000.00) or imprisonment of six (6) months, or both, at
the discretion of the court.
“If the offense is committed by a company or corporation, the
officers, directors, or other persons responsible for its
operation, management, or administration, unless it can be
proved that they have taken no part in the commission of the
offense, shall likewise be guilty of a penal offense, and upon
conviction be punished by a fine not exceeding Two hundred
thousand pesos (P200,000.00) or imprisonment of six (6)
months, or both, at the discretion of the court.
“SEC. 443. All criminal actions for the violation of any of the
provisions of this Code shall prescribe after three (3) years
from the discovery of such violation: Provided, That such
actions shall in any event prescribe after ten (10) years from
the commission of such violation.
“SEC. 444. Any person, partnership, association or corporation
heretofore authorized, licensed or registered by the
Commissioner shall be deemed to have been authorized,
licensed or registered under the provisions of this Code and
shall be governed by the provisions thereof: Provided,
however, That where any such person, partnership, association
or corporation is affected by the new requirements of this
Code, said person, partnership, association or corporation
shall, unless otherwise herein provided, be given a period of
one (1) year from the effectivity of this Code within which to
comply with the same.
“SEC. 445. Transitory Provision. – Renewal of existing
licenses, certificates of authority or accreditation which will
expire on June 30, 2013 shall be valid until December 31,
2015. Thereafter, renewal shall be filed on the last day of
December every third year following the date of expiry of the
license, certificate of authority or accreditation.
“SEC. 446. Repealing Clause. – Except as expressly provided
by this Code, all laws, decrees, orders, rules and regulations or
parts thereof, inconsistent with any provision of this Code
shall be deemed repealed, amended or modified accordingly.
“SEC. 447. Separability Clause. – If any provision of this Code
or any part hereof be declared invalid or unconstitutional, the
remainder of the law or other provisions not otherwise affected
shall remain valid and subsisting.
“SEC. 448. This Code shall take effect fifteen (15) days
following its publication in a newspaper of general circuation.”
This Act which is a consolidation of House Bill No. 4867 and
Senate Bill No. 3280 was finally passed by the House of
Representatives and the Senate on February 6, 2013.
Approved: AUG 15 2013
Batas Pambansa Bilang 68
THE CORPORATION CODE OF THE PHILIPPINES
Be it enacted by the Batasang Pambansa in session
assembled:
TITLE I - GENERAL PROVISIONS
DEFINITIONS AND CLASSIFICATIONS
Section 1. Title of the Code. – This Code shall be known as
“The Corporation Code of the Philippines.” (n)
Section 2. Corporation defined. – A corporation is an artificial
being created by operation of law, having the right of
succession and the powers, attributes and properties expressly
authorized by law or incident to its existence. (2)
Section 3. Classes of corporations. – Corporations formed or
organized under this Code may be stock or non-stock
corporations. Corporations which have capital stock divided
into shares and are authorized to distribute to the holders of
such shares dividends or allotments of the surplus profits on
the basis of the shares held are stock corporations. All other
corporations are non-stock corporations. (3a)
Section 4. Corporations created by special laws or charters. –
Corporations created by special laws or charters shall be
governed primarily by the provisions of the special law or
charter creating them or applicable to them, supplemented by
the provisions of this Code, insofar as they are applicable. (n)
Section 5. Corporators and incorporators, stockholders and
members. – Corporators are those who compose a corporation,
whether as stockholders or as members. Incorporators are
those stockholders or members mentioned in the articles of
incorporation as originally forming and composing the
corporation and who are signatories thereof.
Corporators in a stock corporation are called stockholders or
shareholders. Corporators in a non-stock corporation are
called members. (4a)
Section 6. Classification of shares. – The shares of stock of
stock corporations may be divided into classes or series of
shares, or both, any of which classes or series of shares may
have such rights, privileges or restrictions as may be stated in
the articles of incorporation: Provided, That no share may be
deprived of voting rights except those classified and issued as
“preferred” or “redeemable” shares, unless otherwise provided
in this Code: Provided, further, That there shall always be a
class or series of shares which have complete voting rights.
Any or all of the shares or series of shares may have a par
value or have no par value as may be provided for in the
articles of incorporation: Provided, however, That banks, trust
companies, insurance companies, public utilities, and building
and loan associations shall not be permitted to issue no-par
value shares of stock.
Preferred shares of stock issued by any corporation may be
given preference in the distribution of the assets of the
corporation in case of liquidation and in the distribution of
dividends, or such other preferences as may be stated in the
articles of incorporation which are not violative of the
provisions of this Code: Provided, That preferred shares of
stock may be issued only with a stated par value. The board of
directors, where authorized in the articles of incorporation,
may fix the terms and conditions of preferred shares of stock
or any series thereof: Provided, That such terms and
conditions shall be effective upon the filing of a certificate
thereof with the Securities and Exchange Commission.
Shares of capital stock issued without par value shall be
deemed fully paid and non-assessable and the holder of such
shares shall not be liable to the corporation or to its creditors
in respect thereto: Provided; That shares without par value
may not be issued for a consideration less than the value of
five (P5.00) pesos per share: Provided, further, That the entire
consideration received by the corporation for its no-par value
shares shall be treated as capital and shall not be available for
distribution as dividends.
A corporation may, furthermore, classify its shares for the
purpose of insuring compliance with constitutional or legal
requirements.
Except as otherwise provided in the articles of incorporation
and stated in the certificate of stock, each share shall be equal
in all respects to every other share.
Where the articles of incorporation provide for non-voting
shares in the cases allowed by this Code, the holders of such
shares shall nevertheless be entitled to vote on the following
matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition
of all or substantially all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another
corporation or other corporations;
7. Investment of corporate funds in another corporation or
business in accordance with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph,
the vote necessary to approve a particular corporate act as
provided in this Code shall be deemed to refer only to stocks
with voting rights. (5a)
Section 7. Founders’ shares. – Founders’ shares classified as
such in the articles of incorporation may be given certain
rights and privileges not enjoyed by the owners of other stocks,
provided that where the exclusive right to vote and be voted
for in the election of directors is granted, it must be for a
limited period not to exceed five (5) years subject to the
approval of the Securities and Exchange Commission. The
five-year period shall commence from the date of the aforesaid
approval by the Securities and Exchange Commission. (n)
Section 8. Redeemable shares. – Redeemable shares may be
issued by the corporation when expressly so provided in the
articles of incorporation. They may be purchased or taken up
by the corporation upon the expiration of a fixed period,
regardless of the existence of unrestricted retained earnings in
the books of the corporation, and upon such other terms and
conditions as may be stated in the articles of incorporation,
which terms and conditions must also be stated in the
certificate of stock representing said shares. (n)
Section 9. Treasury shares. – Treasury shares are shares of
stock which have been issued and fully paid for, but
subsequently reacquired by the issuing corporation by
purchase, redemption, donation or through some other lawful
means. Such shares may again be disposed of for a reasonable
price fixed by the board of directors. (n)
TITLE II
INCORPORATION AND ORGANIZATION OF PRIVATE
CORPORATIONS
Section 10. Number and qualifications of incorporators. – Any
number of natural persons not less than five (5) but not more
than fifteen (15), all of legal age and a majority of whom are
residents of the Philippines, may form a private corporation
for any lawful purpose or purposes. Each of the incorporators
of s stock corporation must own or be a subscriber to at least
one (1) share of the capital stock of the corporation. (6a)
Section 11. Corporate term. – A corporation shall exist for a
period not exceeding fifty (50) years from the date of
incorporation unless sooner dissolved or unless said period is
extended. The corporate term as originally stated in the
articles of incorporation may be extended for periods not
exceeding fifty (50) years in any single instance by an
amendment of the articles of incorporation, in accordance with
this Code; Provided, That no extension can be made earlier
than five (5) years prior to the original or subsequent expiry
date(s) unless there are justifiable reasons for an earlier
extension as may be determined by the Securities and
Exchange Commission. (6)
Section 12. Minimum capital stock required of stock
corporations. – Stock corporations incorporated under this
Code shall not be required to have any minimum authorized
capital stock except as otherwise specifically provided for by
special law, and subject to the provisions of the following
section.
Section 13. Amount of capital stock to be subscribed and paid
for the purposes of incorporation. – At least twenty-five
percent (25%) of the authorized capital stock as stated in the
articles of incorporation must be subscribed at the time of
incorporation, and at least twenty-five (25%) per cent of the
total subscription must be paid upon subscription, the balance
to be payable on a date or dates fixed in the contract of
subscription without need of call, or in the absence of a fixed
date or dates, upon call for payment by the board of directors:
Provided, however, That in no case shall the paid-up capital be
less than five Thousand (P5,000.00) pesos. (n)
Section 14. Contents of the articles of incorporation. – All
corporations organized under this code shall file with the
Securities and Exchange Commission articles of incorporation
in any of the official languages duly signed and acknowledged
by all of the incorporators, containing substantially the
following matters, except as otherwise prescribed by this Code
or by special law:
1. The name of the corporation;
2. The specific purpose or purposes for which the corporation is
being incorporated. Where a corporation has more than one
stated purpose, the articles of incorporation shall state which
is the primary purpose and which is/are the secondary purpose
or purposes: Provided, That a non-stock corporation may not
include a purpose which would change or contradict its nature
as such;
3. The place where the principal office of the corporation is to
be located, which must be within the Philippines;
4. The term for which the corporation is to exist;
5. The names, nationalities and residences of the
incorporators;
6. The number of directors or trustees, which shall not be less
than five (5) nor more than fifteen (15);
7. The names, nationalities and residences of persons who
shall act as directors or trustees until the first regular
directors or trustees are duly elected and qualified in
accordance with this Code;
8. If it be a stock corporation, the amount of its authorized
capital stock in lawful money of the Philippines, the number of
shares into which it is divided, and in case the share are par
value shares, the par value of each, the names, nationalities
and residences of the original subscribers, and the amount
subscribed and paid by each on his subscription, and if some or
all of the shares are without par value, such fact must be
stated;
9. If it be a non-stock corporation, the amount of its capital,
the names, nationalities and residences of the contributors
and the amount contributed by each; and
10. Such other matters as are not inconsistent with law and
which the incorporators may deem necessary and convenient.
The Securities and Exchange Commission shall not accept the
articles of incorporation of any stock corporation unless
accompanied by a sworn statement of the Treasurer elected by
the subscribers showing that at least twenty-five (25%)
percent of the authorized capital stock of the corporation has
been subscribed, and at least twenty-five (25%) of the total
subscription has been fully paid to him in actual cash and/or
in property the fair valuation of which is equal to at least
twenty-five (25%) percent of the said subscription, such paid-
up capital being not less than five thousand (P5,000.00) pesos.
Section 15. Forms of Articles of Incorporation. – Unless
otherwise prescribed by special law, articles of incorporation of
all domestic corporations shall comply substantially with the
following form:
ARTICLES OF INCORPORATION OF
__________________________
(Name of Corporation)
KNOW ALL MEN BY THESE PRESENTS:
The undersigned incorporators, all of legal age and a majority
of whom are residents of the Philippines, have this day
voluntarily agreed to form a (stock) (non-stock) corporation
under the laws of the Republic of the Philippines;
AND WE HEREBY CERTIFY:
FIRST: That the name of said corporation shall be
“_____________________, INC. or CORPORATION”;
SECOND: That the purpose or purposes for which such
corporation is incorporated are: (If there is more than one
purpose, indicate primary and secondary purposes);
THIRD: That the principal office of the corporation is located
in the City/Municipality of ________________________, Province
of _______________________, Philippines;
FOURTH: That the term for which said corporation is to exist
is _____________ years from and after the date of issuance of
the certificate of incorporation;
FIFTH: That the names, nationalities and residences of the
incorporators of the corporation are as follows:
NAME NATIONALITY RESIDENCE
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________
SIXTH: That the number of directors or trustees of the
corporation shall be _______; and the names, nationalities and
residences of the first directors or trustees of the corporation
are as follows:
NAME NATIONALITY RESIDENCE
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________
SEVENTH: That the authorized capital stock of the
corporation is ______________________ (P___________) PESOS
in lawful money of the Philippines, divided into __________
shares with the par value of ____________________
(P_____________) Pesos per share.
(In case all the share are without par value):
That the capital stock of the corporation is ______________
shares without par value. (In case some shares have par value
and some are without par value): That the capital stock of said
corporation consists of _____________ shares of which
______________ shares are of the par value of
_________________ (P____________) PESOS each, and of which
_________________ shares are without par value.
EIGHTH: That at least twenty five (25%) per cent of the
authorized capital stock above stated has been subscribed as
follows:
Name of Subscriber Nationality No of Shares Amount
Subscribed Subscribed
_________________ __________ ____________ ____________
_________________ __________ ____________ ____________
_________________ __________ ____________ ____________
_________________ __________ ____________ ____________
_________________ __________ ____________ ____________
NINTH: That the above-named subscribers have paid at least
twenty-five (25%) percent of the total subscription as follows:
Name of Subscriber Amount Subscribed Total Paid-In
_________________ ___________________ _______________
_________________ ___________________ _______________
_________________ ___________________ _______________
_________________ ___________________ _______________
_________________ ___________________ _______________
(Modify Nos. 8 and 9 if shares are with no par value. In case
the corporation is non-stock, Nos. 7, 8 and 9 of the above
articles may be modified accordingly, and it is sufficient if the
articles state the amount of capital or money contributed or
donated by specified persons, stating the names, nationalities
and residences of the contributors or donors and the respective
amount given by each.)
TENTH: That _____________________ has been elected by the
subscribers as Treasurer of the Corporation to act as such
until his successor is duly elected and qualified in accordance
with the by-laws, and that as such Treasurer, he has been
authorized to receive for and in the name and for the benefit of
the corporation, all subscription (or fees) or contributions or
donations paid or given by the subscribers or members.
ELEVENTH: (Corporations which will engage in any business
or activity reserved for Filipino citizens shall provide the
following):
“No transfer of stock or interest which shall reduce the
ownership of Filipino citizens to less than the required
percentage of the capital stock as provided by existing laws
shall be allowed or permitted to be recorded in the proper
books of the corporation and this restriction shall be indicated
in all stock certificates issued by the corporation.”
IN WITNESS WHEREOF, we have hereunto signed these
Articles of Incorporation, this __________ day of
________________, 19 ______ in the City/Municipality of
____________________, Province of ________________________,
Republic of the Philippines.
_______________________ _______________________
_______________________ _______________________
________________________________
(Names and signatures of the incorporators)
SIGNED IN THE PRESENCE OF:
_______________________ _______________________
(Notarial Acknowledgment)
TREASURER’S AFFIDAVIT
REPUBLIC OF THE PHILIPPINES)
CITY/MUNICIPALITY OF ) S.S.
PROVINCE OF )
I, ____________________, being duly sworn, depose and say:
That I have been elected by the subscribers of the corporation
as Treasurer thereof, to act as such until my successor has
been duly elected and qualified in accordance with the by-laws
of the corporation, and that as such Treasurer, I hereby certify
under oath that at least 25% of the authorized capital stock of
the corporation has been subscribed and at least 25% of the
total subscription has been paid, and received by me, in cash
or property, in the amount of not less than P5,000.00, in
accordance with the Corporation Code.
____________________
(Signature of Treasurer)
SUBSCRIBED AND SWORN to before me, a Notary Public,
for and in the City/Municipality
of___________________Province of _____________________, this
_______ day of ___________, 19 _____; by __________________
with Res. Cert. No. ___________ issued at
_______________________ on ____________, 19 ______
NOTARY PUBLIC
My commission expires on
_________, 19 _____
Doc. No. _________;
Page No. _________;
Book No. ________;
Series of 19____ (7a)
Section 16. Amendment of Articles of Incorporation. – Unless
otherwise prescribed by this Code or by special law, and for
legitimate purposes, any provision or matter stated in the
articles of incorporation may be amended by a majority vote of
the board of directors or trustees and the vote or written
assent of the stockholders representing at least two-thirds
(2/3) of the outstanding capital stock, without prejudice to the
appraisal right of dissenting stockholders in accordance with
the provisions of this Code, or the vote or written assent of at
least two-thirds (2/3) of the members if it be a non-stock
corporation.
The original and amended articles together shall contain all
provisions required by law to be set out in the articles of
incorporation. Such articles, as amended shall be indicated by
underscoring the change or changes made, and a copy thereof
duly certified under oath by the corporate secretary and a
majority of the directors or trustees stating the fact that said
amendment or amendments have been duly approved by the
required vote of the stockholders or members, shall be
submitted to the Securities and Exchange Commission.
The amendments shall take effect upon their approval by the
Securities and Exchange Commission or from the date of filing
with the said Commission if not acted upon within six (6)
months from the date of filing for a cause not attributable to
the corporation.
Section 17. Grounds when articles of incorporation or
amendment may be rejected or disapproved. – The Securities
and Exchange Commission may reject the articles of
incorporation or disapprove any amendment thereto if the
same is not in compliance with the requirements of this Code:
Provided, That the Commission shall give the incorporators a
reasonable time within which to correct or modify the
objectionable portions of the articles or amendment. The
following are grounds for such rejection or disapproval:
1. That the articles of incorporation or any amendment thereto
is not substantially in accordance with the form prescribed
herein;
2. That the purpose or purposes of the corporation are patently
unconstitutional, illegal, immoral, or contrary to government
rules and regulations;
3. That the Treasurer’s Affidavit concerning the amount of
capital stock subscribed and/or paid is false;
4. That the percentage of ownership of the capital stock to be
owned by citizens of the Philippines has not been complied
with as required by existing laws or the Constitution.
No articles of incorporation or amendment to articles of
incorporation of banks, banking and quasi-banking
institutions, building and loan associations, trust companies
and other financial intermediaries, insurance companies,
public utilities, educational institutions, and other
corporations governed by special laws shall be accepted or
approved by the Commission unless accompanied by a
favorable recommendation of the appropriate government
agency to the effect that such articles or amendment is in
accordance with law. (n)
Section 18. Corporate name. – No corporate name may be
allowed by the Securities and Exchange Commission if the
proposed name is identical or deceptively or confusingly
similar to that of any existing corporation or to any other
name already protected by law or is patently deceptive,
confusing or contrary to existing laws. When a change in the
corporate name is approved, the Commission shall issue an
amended certificate of incorporation under the amended name.
(n)
Section 19. Commencement of corporate existence. – A private
corporation formed or organized under this Code commences
to have corporate existence and juridical personality and is
deemed incorporated from the date the Securities and
Exchange Commission issues a certificate of incorporation
under its official seal; and thereupon the incorporators,
stockholders/members and their successors shall constitute a
body politic and corporate under the name stated in the
articles of incorporation for the period of time mentioned
therein, unless said period is extended or the corporation is
sooner dissolved in accordance with law. (n)
Section 20. De facto corporations. – The due incorporation of
any corporation claiming in good faith to be a corporation
under this Code, and its right to exercise corporate powers,
shall not be inquired into collaterally in any private suit to
which such corporation may be a party. Such inquiry may be
made by the Solicitor General in a quo warranto proceeding.
(n)
Section 21. Corporation by estoppel. – All persons who assume
to act as a corporation knowing it to be without authority to do
so shall be liable as general partners for all debts, liabilities
and damages incurred or arising as a result thereof: Provided,
however, That when any such ostensible corporation is sued
on any transaction entered by it as a corporation or on any tort
committed by it as such, it shall not be allowed to use as a
defense its lack of corporate personality.
On who assumes an obligation to an ostensible corporation as
such, cannot resist performance thereof on the ground that
there was in fact no corporation. (n)
Section 22. Effects on non-use of corporate charter and
continuous inoperation of a corporation. – If a corporation does
not formally organize and commence the transaction of its
business or the construction of its works within two (2) years
from the date of its incorporation, its corporate powers cease
and the corporation shall be deemed dissolved. However, if a
corporation has commenced the transaction of its business but
subsequently becomes continuously inoperative for a period of
at least five (5) years, the same shall be a ground for the
suspension or revocation of its corporate franchise or
certificate of incorporation. (19a)
This provision shall not apply if the failure to organize,
commence the transaction of its businesses or the construction
of its works, or to continuously operate is due to causes beyond
the control of the corporation as may be determined by the
Securities and Exchange Commission.
TITLE III
BOARD OF DIRECTORS/TRUSTEES AND OFFICERS
Section 23. The board of directors or trustees. – Unless
otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all
business conducted and all property of such corporations
controlled and held by the board of directors or trustees to be
elected from among the holders of stocks, or where there is no
stock, from among the members of the corporation, who shall
hold office for one (1) year until their successors are elected
and qualified. (28a)
Every director must own at least one (1) share of the capital
stock of the corporation of which he is a director, which share
shall stand in his name on the books of the corporation. Any
director who ceases to be the owner of at least one (1) share of
the capital stock of the corporation of which he is a director
shall thereby cease to be a director. Trustees of non-stock
corporations must be members thereof. A majority of the
directors or trustees of all corporations organized under this
Code must be residents of the Philippines.
Section 24. Election of directors or trustees. – At all elections
of directors or trustees, there must be present, either in person
or by representative authorized to act by written proxy, the
owners of a majority of the outstanding capital stock, or if
there be no capital stock, a majority of the members entitled to
vote. The election must be by ballot if requested by any voting
stockholder or member. In stock corporations, every
stockholder entitled to vote shall have the right to vote in
person or by proxy the number of shares of stock standing, at
the time fixed in the by-laws, in his own name on the stock
books of the corporation, or where the by-laws are silent, at
the time of the election; and said stockholder may vote such
number of shares for as many persons as there are directors to
be elected or he may cumulate said shares and give one
candidate as many votes as the number of directors to be
elected multiplied by the number of his shares shall equal, or
he may distribute them on the same principle among as many
candidates as he shall see fit: Provided, That the total number
of votes cast by him shall not exceed the number of shares
owned by him as shown in the books of the corporation
multiplied by the whole number of directors to be elected:
Provided, however, That no delinquent stock shall be voted.
Unless otherwise provided in the articles of incorporation or in
the by-laws, members of corporations which have no capital
stock may cast as many votes as there are trustees to be
elected but may not cast more than one vote for one candidate.
Candidates receiving the highest number of votes shall be
declared elected. Any meeting of the stockholders or members
called for an election may adjourn from day to day or from
time to time but not sine die or indefinitely if, for any reason,
no election is held, or if there are not present or represented by
proxy, at the meeting, the owners of a majority of the
outstanding capital stock, or if there be no capital stock, a
majority of the member entitled to vote. (31a)
Section 25. Corporate officers, quorum. – Immediately after
their election, the directors of a corporation must formally
organize by the election of a president, who shall be a director,
a treasurer who may or may not be a director, a secretary who
shall be a resident and citizen of the Philippines, and such
other officers as may be provided for in the by-laws. Any two
(2) or more positions may be held concurrently by the same
person, except that no one shall act as president and secretary
or as president and treasurer at the same time.
The directors or trustees and officers to be elected shall
perform the duties enjoined on them by law and the by-laws of
the corporation. Unless the articles of incorporation or the by-
laws provide for a greater majority, a majority of the number
of directors or trustees as fixed in the articles of incorporation
shall constitute a quorum for the transaction of corporate
business, and every decision of at least a majority of the
directors or trustees present at a meeting at which there is a
quorum shall be valid as a corporate act, except for the
election of officers which shall require the vote of a majority of
all the members of the board.
Directors or trustees cannot attend or vote by proxy at board
meetings. (33a)
Section 26. Report of election of directors, trustees and officers.
– Within thirty (30) days after the election of the directors,
trustees and officers of the corporation, the secretary, or any
other officer of the corporation, shall submit to the Securities
and Exchange Commission, the names, nationalities and
residences of the directors, trustees, and officers elected.
Should a director, trustee or officer die, resign or in any
manner cease to hold office, his heirs in case of his death, the
secretary, or any other officer of the corporation, or the
director, trustee or officer himself, shall immediately report
such fact to the Securities and Exchange Commission. (n)
Section 27. Disqualification of directors, trustees or officers. –
No person convicted by final judgment of an offense
punishable by imprisonment for a period exceeding six (6)
years, or a violation of this Code committed within five (5)
years prior to the date of his election or appointment, shall
qualify as a director, trustee or officer of any corporation. (n)
Section 28. Removal of directors or trustees. – Any director or
trustee of a corporation may be removed from office by a vote
of the stockholders holding or representing at least two-thirds
(2/3) of the outstanding capital stock, or if the corporation be a
non-stock corporation, by a vote of at least two-thirds (2/3) of
the members entitled to vote: Provided, That such removal
shall take place either at a regular meeting of the corporation
or at a special meeting called for the purpose, and in either
case, after previous notice to stockholders or members of the
corporation of the intention to propose such removal at the
meeting. A special meeting of the stockholders or members of
a corporation for the purpose of removal of directors or
trustees, or any of them, must be called by the secretary on
order of the president or on the written demand of the
stockholders representing or holding at least a majority of the
outstanding capital stock, or, if it be a non-stock corporation,
on the written demand of a majority of the members entitled
to vote. Should the secretary fail or refuse to call the special
meeting upon such demand or fail or refuse to give the notice,
or if there is no secretary, the call for the meeting may be
addressed directly to the stockholders or members by any
stockholder or member of the corporation signing the demand.
Notice of the time and place of such meeting, as well as of the
intention to propose such removal, must be given by
publication or by written notice prescribed in this Code.
Removal may be with or without cause: Provided, That
removal without cause may not be used to deprive minority
stockholders or members of the right of representation to
which they may be entitled under Section 24 of this Code. (n)
Section 29. Vacancies in the office of director or trustee. – Any
vacancy occurring in the board of directors or trustees other
than by removal by the stockholders or members or by
expiration of term, may be filled by the vote of at least a
majority of the remaining directors or trustees, if still
constituting a quorum; otherwise, said vacancies must be filled
by the stockholders in a regular or special meeting called for
that purpose. A director or trustee so elected to fill a vacancy
shall be elected only or the unexpired term of his predecessor
in office.
Any directorship or trusteeship to be filled by reason of an
increase in the number of directors or trustees shall be filled
only by an election at a regular or at a special meeting of
stockholders or members duly called for the purpose, or in the
same meeting authorizing the increase of directors or trustees
if so stated in the notice of the meeting. (n)
Section 30. Compensation of directors. – In the absence of any
provision in the by-laws fixing their compensation, the
directors shall not receive any compensation, as such directors,
except for reasonable per diems: Provided, however, That any
such compensation other than per diems may be granted to
directors by the vote of the stockholders representing at least a
majority of the outstanding capital stock at a regular or
special stockholders’ meeting. In no case shall the total yearly
compensation of directors, as such directors, exceed ten (10%)
percent of the net income before income tax of the corporation
during the preceding year. (n)
Section 31. Liability of directors, trustees or officers. -
Directors or trustees who wilfully and knowingly vote for or
assent to patently unlawful acts of the corporation or who are
guilty of gross negligence or bad faith in directing the affairs of
the corporation or acquire any personal or pecuniary interest
in conflict with their duty as such directors or trustees shall be
liable jointly and severally for all damages resulting therefrom
suffered by the corporation, its stockholders or members and
other persons.
When a director, trustee or officer attempts to acquire or
acquires, in violation of his duty, any interest adverse to the
corporation in respect of any matter which has been reposed in
him in confidence, as to which equity imposes a disability upon
him to deal in his own behalf, he shall be liable as a trustee for
the corporation and must account for the profits which
otherwise would have accrued to the corporation. (n)
Section 32. Dealings of directors, trustees or officers with the
corporation. – A contract of the corporation with one or more of
its directors or trustees or officers is voidable, at the option of
such corporation, unless all the following conditions are
present:
1. That the presence of such director or trustee in the board
meeting in which the contract was approved was not necessary
to constitute a quorum for such meeting;
2. That the vote of such director or trustee was not necessary
for the approval of the contract;
3. That the contract is fair and reasonable under the
circumstances; and
4. That in case of an officer, the contract has been previously
authorized by the board of directors.
Where any of the first two conditions set forth in the preceding
paragraph is absent, in the case of a contract with a director or
trustee, such contract may be ratified by the vote of the
stockholders representing at least two-thirds (2/3) of the
outstanding capital stock or of at least two-thirds (2/3) of the
members in a meeting called for the purpose: Provided, That
full disclosure of the adverse interest of the directors or
trustees involved is made at such meeting: Provided, however,
That the contract is fair and reasonable under the
circumstances. (n)
Section 33. Contracts between corporations with interlocking
directors. – Except in cases of fraud, and provided the contract
is fair and reasonable under the circumstances, a contract
between two or more corporations having interlocking
directors shall not be invalidated on that ground alone:
Provided, That if the interest of the interlocking director in
one corporation is substantial and his interest in the other
corporation or corporations is merely nominal, he shall be
subject to the provisions of the preceding section insofar as the
latter corporation or corporations are concerned.
Stockholdings exceeding twenty (20%) percent of the
outstanding capital stock shall be considered substantial for
purposes of interlocking directors. (n)
Section 34. Disloyalty of a director. – Where a director, by
virtue of his office, acquires for himself a business opportunity
which should belong to the corporation, thereby obtaining
profits to the prejudice of such corporation, he must account to
the latter for all such profits by refunding the same, unless his
act has been ratified by a vote of the stockholders owning or
representing at least two-thirds (2/3) of the outstanding
capital stock. This provision shall be applicable,
notwithstanding the fact that the director risked his own
funds in the venture. (n)
Section 35. Executive committee. – The by-laws of a
corporation may create an executive committee, composed of
not less than three members of the board, to be appointed by
the board. Said committee may act, by majority vote of all its
members, on such specific matters within the competence of
the board, as may be delegated to it in the by-laws or on a
majority vote of the board, except with respect to: (1) approval
of any action for which shareholders’ approval is also required;
(2) the filing of vacancies in the board; (3) the amendment or
repeal of by-laws or the adoption of new by-laws; (4) the
amendment or repeal of any resolution of the board which by
its express terms is not so amendable or repealable; and (5) a
distribution of cash dividends to the shareholders.
TITLE IV
POWERS OF CORPORATIONS
Section 36. Corporate powers and capacity. – Every
corporation incorporated under this Code has the power and
capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of time
stated in the articles of incorporation and the certificate of
incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with
the provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or public
policy, and to amend or repeal the same in accordance with
this Code;
6. In case of stock corporations, to issue or sell stocks to
subscribers and to sell stocks to subscribers and to sell
treasury stocks in accordance with the provisions of this Code;
and to admit members to the corporation if it be a non-stock
corporation;
7. To purchase, receive, take or grant, hold, convey, sell, lease,
pledge, mortgage and otherwise deal with such real and
personal property, including securities and bonds of other
corporations, as the transaction of the lawful business of the
corporation may reasonably and necessarily require, subject to
the limitations prescribed by law and the Constitution;
8. To enter into merger or consolidation with other
corporations as provided in this Code;
9. To make reasonable donations, including those for the
public welfare or for hospital, charitable, cultural, scientific,
civic, or similar purposes: Provided, That no corporation,
domestic or foreign, shall give donations in aid of any political
party or candidate or for purposes of partisan political activity;
10. To establish pension, retirement, and other plans for the
benefit of its directors, trustees, officers and employees; and
11. To exercise such other powers as may be essential or
necessary to carry out its purpose or purposes as stated in the
articles of incorporation. (13a)
Section 37. Power to extend or shorten corporate term. – A
private corporation may extend or shorten its term as stated
in the articles of incorporation when approved by a majority
vote of the board of directors or trustees and ratified at a
meeting by the stockholders representing at least two-thirds
(2/3) of the outstanding capital stock or by at least two-thirds
(2/3) of the members in case of non-stock corporations. Written
notice of the proposed action and of the time and place of the
meeting shall be addressed to each stockholder or member at
his place of residence as shown on the books of the corporation
and deposited to the addressee in the post office with postage
prepaid, or served personally: Provided, That in case of
extension of corporate term, any dissenting stockholder may
exercise his appraisal right under the conditions provided in
this code. (n)
Section 38. Power to increase or decrease capital stock; incur,
create or increase bonded indebtedness. – No corporation shall
increase or decrease its capital stock or incur, create or
increase any bonded indebtedness unless approved by a
majority vote of the board of directors and, at a stockholder’s
meeting duly called for the purpose, two-thirds (2/3) of the
outstanding capital stock shall favor the increase or
diminution of the capital stock, or the incurring, creating or
increasing of any bonded indebtedness. Written notice of the
proposed increase or diminution of the capital stock or of the
incurring, creating, or increasing of any bonded indebtedness
and of the time and place of the stockholder’s meeting at
which the proposed increase or diminution of the capital stock
or the incurring or increasing of any bonded indebtedness is to
be considered, must be addressed to each stockholder at his
place of residence as shown on the books of the corporation
and deposited to the addressee in the post office with postage
prepaid, or served personally.
A certificate in duplicate must be signed by a majority of the
directors of the corporation and countersigned by the
chairman and the secretary of the stockholders’ meeting,
setting forth:
(1) That the requirements of this section have been complied
with;
(2) The amount of the increase or diminution of the capital
stock;
(3) If an increase of the capital stock, the amount of capital
stock or number of shares of no-par stock thereof actually
subscribed, the names, nationalities and residences of the
persons subscribing, the amount of capital stock or number of
no-par stock subscribed by each, and the amount paid by each
on his subscription in cash or property, or the amount of
capital stock or number of shares of no-par stock allotted to
each stock-holder if such increase is for the purpose of making
effective stock dividend therefor authorized;
(4) Any bonded indebtedness to be incurred, created or
increased;
(5) The actual indebtedness of the corporation on the day of
the meeting;
(6) The amount of stock represented at the meeting; and
(7) The vote authorizing the increase or diminution of the
capital stock, or the incurring, creating or increasing of any
bonded indebtedness.
Any increase or decrease in the capital stock or the incurring,
creating or increasing of any bonded indebtedness shall
require prior approval of the Securities and Exchange
Commission.
One of the duplicate certificates shall be kept on file in the
office of the corporation and the other shall be filed with the
Securities and Exchange Commission and attached to the
original articles of incorporation. From and after approval by
the Securities and Exchange Commission and the issuance by
the Commission of its certificate of filing, the capital stock
shall stand increased or decreased and the incurring, creating
or increasing of any bonded indebtedness authorized, as the
certificate of filing may declare: Provided, That the Securities
and Exchange Commission shall not accept for filing any
certificate of increase of capital stock unless accompanied by
the sworn statement of the treasurer of the corporation
lawfully holding office at the time of the filing of the
certificate, showing that at least twenty-five (25%) percent of
such increased capital stock has been subscribed and that at
least twenty-five (25%) percent of the amount subscribed has
been paid either in actual cash to the corporation or that there
has been transferred to the corporation property the valuation
of which is equal to twenty-five (25%) percent of the
subscription: Provided, further, That no decrease of the capital
stock shall be approved by the Commission if its effect shall
prejudice the rights of corporate creditors.
Non-stock corporations may incur or create bonded
indebtedness, or increase the same, with the approval by a
majority vote of the board of trustees and of at least two-thirds
(2/3) of the members in a meeting duly called for the purpose.
Bonds issued by a corporation shall be registered with the
Securities and Exchange Commission, which shall have the
authority to determine the sufficiency of the terms thereof.
(17a)
Section 39. Power to deny pre-emptive right. – All stockholders
of a stock corporation shall enjoy pre-emptive right to
subscribe to all issues or disposition of shares of any class, in
proportion to their respective shareholdings, unless such right
is denied by the articles of incorporation or an amendment
thereto: Provided, That such pre-emptive right shall not
extend to shares to be issued in compliance with laws
requiring stock offerings or minimum stock ownership by the
public; or to shares to be issued in good faith with the approval
of the stockholders representing two-thirds (2/3) of the
outstanding capital stock, in exchange for property needed for
corporate purposes or in payment of a previously contracted
debt.
Section 40. Sale or other disposition of assets. – Subject to the
provisions of existing laws on illegal combinations and
monopolies, a corporation may, by a majority vote of its board
of directors or trustees, sell, lease, exchange, mortgage, pledge
or otherwise dispose of all or substantially all of its property
and assets, including its goodwill, upon such terms and
conditions and for such consideration, which may be money,
stocks, bonds or other instruments for the payment of money
or other property or consideration, as its board of directors or
trustees may deem expedient, when authorized by the vote of
the stockholders representing at least two-thirds (2/3) of the
outstanding capital stock, or in case of non-stock corporation,
by the vote of at least to two-thirds (2/3) of the members, in a
stockholder’s or member’s meeting duly called for the purpose.
Written notice of the proposed action and of the time and place
of the meeting shall be addressed to each stockholder or
member at his place of residence as shown on the books of the
corporation and deposited to the addressee in the post office
with postage prepaid, or served personally: Provided, That any
dissenting stockholder may exercise his appraisal right under
the conditions provided in this Code.
A sale or other disposition shall be deemed to cover
substantially all the corporate property and assets if thereby
the corporation would be rendered incapable of continuing the
business or accomplishing the purpose for which it was
incorporated.
After such authorization or approval by the stockholders or
members, the board of directors or trustees may, nevertheless,
in its discretion, abandon such sale, lease, exchange,
mortgage, pledge or other disposition of property and assets,
subject to the rights of third parties under any contract
relating thereto, without further action or approval by the
stockholders or members.
Nothing in this section is intended to restrict the power of any
corporation, without the authorization by the stockholders or
members, to sell, lease, exchange, mortgage, pledge or
otherwise dispose of any of its property and assets if the same
is necessary in the usual and regular course of business of said
corporation or if the proceeds of the sale or other disposition of
such property and assets be appropriated for the conduct of its
remaining business.
In non-stock corporations where there are no members with
voting rights, the vote of at least a majority of the trustees in
office will be sufficient authorization for the corporation to
enter into any transaction authorized by this section.
Section 41. Power to acquire own shares. – A stock corporation
shall have the power to purchase or acquire its own shares for
a legitimate corporate purpose or purposes, including but not
limited to the following cases: Provided, That the corporation
has unrestricted retained earnings in its books to cover the
shares to be purchased or acquired:
1. To eliminate fractional shares arising out of stock dividends;
2. To collect or compromise an indebtedness to the corporation,
arising out of unpaid subscription, in a delinquency sale, and
to purchase delinquent shares sold during said sale; and
3. To pay dissenting or withdrawing stockholders entitled to
payment for their shares under the provisions of this Code. (a)
Section 42. Power to invest corporate funds in another
corporation or business or for any other purpose. – Subject to
the provisions of this Code, a private corporation may invest
its funds in any other corporation or business or for any
purpose other than the primary purpose for which it was
organized when approved by a majority of the board of
directors or trustees and ratified by the stockholders
representing at least two-thirds (2/3) of the outstanding
capital stock, or by at least two thirds (2/3) of the members in
the case of non-stock corporations, at a stockholder’s or
member’s meeting duly called for the purpose. Written notice
of the proposed investment and the time and place of the
meeting shall be addressed to each stockholder or member at
his place of residence as shown on the books of the corporation
and deposited to the addressee in the post office with postage
prepaid, or served personally: Provided, That any dissenting
stockholder shall have appraisal right as provided in this
Code: Provided, however, That where the investment by the
corporation is reasonably necessary to accomplish its primary
purpose as stated in the articles of incorporation, the approval
of the stockholders or members shall not be necessary. (17
1/2a)
Section 43. Power to declare dividends. - The board of directors
of a stock corporation may declare dividends out of the
unrestricted retained earnings which shall be payable in cash,
in property, or in stock to all stockholders on the basis of
outstanding stock held by them: Provided, That any cash
dividends due on delinquent stock shall first be applied to the
unpaid balance on the subscription plus costs and expenses,
while stock dividends shall be withheld from the delinquent
stockholder until his unpaid subscription is fully paid:
Provided, further, That no stock dividend shall be issued
without the approval of stockholders representing not less
than two-thirds (2/3) of the outstanding capital stock at a
regular or special meeting duly called for the purpose. (16a)
Stock corporations are prohibited from retaining surplus
profits in excess of one hundred (100%) percent of their paid-in
capital stock, except: (1) when justified by definite corporate
expansion projects or programs approved by the board of
directors; or (2) when the corporation is prohibited under any
loan agreement with any financial institution or creditor,
whether local or foreign, from declaring dividends without
its/his consent, and such consent has not yet been secured; or
(3) when it can be clearly shown that such retention is
necessary under special circumstances obtaining in the
corporation, such as when there is need for special reserve for
probable contingencies. (n)
Section 44. Power to enter into management contract. – No
corporation shall conclude a management contract with
another corporation unless such contract shall have been
approved by the board of directors and by stockholders owning
at least the majority of the outstanding capital stock, or by at
least a majority of the members in the case of a non-stock
corporation, of both the managing and the managed
corporation, at a meeting duly called for the purpose:
Provided, That (1) where a stockholder or stockholders
representing the same interest of both the managing and the
managed corporations own or control more than one-third (1/3)
of the total outstanding capital stock entitled to vote of the
managing corporation; or (2) where a majority of the members
of the board of directors of the managing corporation also
constitute a majority of the members of the board of directors
of the managed corporation, then the management contract
must be approved by the stockholders of the managed
corporation owning at least two-thirds (2/3) of the total
outstanding capital stock entitled to vote, or by at least two-
thirds (2/3) of the members in the case of a non-stock
corporation. No management contract shall be entered into for
a period longer than five years for any one term.
The provisions of the next preceding paragraph shall apply to
any contract whereby a corporation undertakes to manage or
operate all or substantially all of the business of another
corporation, whether such contracts are called service
contracts, operating agreements or otherwise: Provided,
however, That such service contracts or operating agreements
which relate to the exploration, development, exploitation or
utilization of natural resources may be entered into for such
periods as may be provided by the pertinent laws or
regulations. (n)
Section 45. Ultra vires acts of corporations. – No corporation
under this Code shall possess or exercise any corporate powers
except those conferred by this Code or by its articles of
incorporation and except such as are necessary or incidental to
the exercise of the powers so conferred. (n)
TITLE V
BY LAWS
Section 46. Adoption of by-laws. – Every corporation formed
under this Code must, within one (1) month after receipt of
official notice of the issuance of its certificate of incorporation
by the Securities and Exchange Commission, adopt a code of
by-laws for its government not inconsistent with this Code.
For the adoption of by-laws by the corporation the affirmative
vote of the stockholders representing at least a majority of the
outstanding capital stock, or of at least a majority of the
members in case of non-stock corporations, shall be necessary.
The by-laws shall be signed by the stockholders or members
voting for them and shall be kept in the principal office of the
corporation, subject to the inspection of the stockholders or
members during office hours. A copy thereof, duly certified to
by a majority of the directors or trustees countersigned by the
secretary of the corporation, shall be filed with the Securities
and Exchange Commission which shall be attached to the
original articles of incorporation.
Notwithstanding the provisions of the preceding paragraph,
by-laws may be adopted and filed prior to incorporation; in
such case, such by-laws shall be approved and signed by all
the incorporators and submitted to the Securities and
Exchange Commission, together with the articles of
incorporation.
In all cases, by-laws shall be effective only upon the issuance
by the Securities and Exchange Commission of a certification
that the by-laws are not inconsistent with this Code.
The Securities and Exchange Commission shall not accept for
filing the by-laws or any amendment thereto of any bank,
banking institution, building and loan association, trust
company, insurance company, public utility, educational
institution or other special corporations governed by special
laws, unless accompanied by a certificate of the appropriate
government agency to the effect that such by-laws or
amendments are in accordance with law. (20a)
Section 47. Contents of by-laws. – Subject to the provisions of
the Constitution, this Code, other special laws, and the articles
of incorporation, a private corporation may provide in its by-
laws for:
1. The time, place and manner of calling and conducting
regular or special meetings of the directors or trustees;
2. The time and manner of calling and conducting regular or
special meetings of the stockholders or members;
3. The required quorum in meetings of stockholders or
members and the manner of voting therein;
4. The form for proxies of stockholders and members and the
manner of voting them;
5. The qualifications, duties and compensation of directors or
trustees, officers and employees;
6. The time for holding the annual election of directors of
trustees and the mode or manner of giving notice thereof;
7. The manner of election or appointment and the term of
office of all officers other than directors or trustees;
8. The penalties for violation of the by-laws;
9. In the case of stock corporations, the manner of issuing
stock certificates; and
10. Such other matters as may be necessary for the proper or
convenient transaction of its corporate business and affairs.
(21a)
Section 48. Amendments to by-laws. – The board of directors
or trustees, by a majority vote thereof, and the owners of at
least a majority of the outstanding capital stock, or at least a
majority of the members of a non-stock corporation, at a
regular or special meeting duly called for the purpose, may
amend or repeal any by-laws or adopt new by-laws. The
owners of two-thirds (2/3) of the outstanding capital stock or
two-thirds (2/3) of the members in a non-stock corporation may
delegate to the board of directors or trustees the power to
amend or repeal any by-laws or adopt new by-laws: Provided,
That any power delegated to the board of directors or trustees
to amend or repeal any by-laws or adopt new by-laws shall be
considered as revoked whenever stockholders owning or
representing a majority of the outstanding capital stock or a
majority of the members in non-stock corporations, shall so
vote at a regular or special meeting.
Whenever any amendment or new by-laws are adopted, such
amendment or new by-laws shall be attached to the original
by-laws in the office of the corporation, and a copy thereof,
duly certified under oath by the corporate secretary and a
majority of the directors or trustees, shall be filed with the
Securities and Exchange Commission the same to be attached
to the original articles of incorporation and original by-laws.
The amended or new by-laws shall only be effective upon the
issuance by the Securities and Exchange Commission of a
certification that the same are not inconsistent with this Code.
(22a and 23a)
TITLE VI
MEETINGS
Section 49. Kinds of meetings. – Meetings of directors,
trustees, stockholders, or members may be regular or special.
(n)
Section 50. Regular and special meetings of stockholders or
members. - Regular meetings of stockholders or members shall
be held annually on a date fixed in the by-laws, or if not so
fixed, on any date in April of every year as determined by the
board of directors or trustees: Provided, That written notice of
regular meetings shall be sent to all stockholders or members
of record at least two (2) weeks prior to the meeting, unless a
different period is required by the by-laws.
Special meetings of stockholders or members shall be held at
any time deemed necessary or as provided in the by-laws:
Provided, however, That at least one (1) week written notice
shall be sent to all stockholders or members, unless otherwise
provided in the by-laws.
Notice of any meeting may be waived, expressly or impliedly,
by any stockholder or member.
Whenever, for any cause, there is no person authorized to call
a meeting, the Securities and Exchange Commission, upon
petition of a stockholder or member on a showing of good cause
therefor, may issue an order to the petitioning stockholder or
member directing him to call a meeting of the corporation by
giving proper notice required by this Code or by the by-laws.
The petitioning stockholder or member shall preside thereat
until at least a majority of the stockholders or members
present have chosen one of their number as presiding officer.
(24, 26)
Section 51. Place and time of meetings of stockholders of
members. – Stockholder’s or member’s meetings, whether
regular or special, shall be held in the city or municipality
where the principal office of the corporation is located, and if
practicable in the principal office of the corporation: Provided,
That Metro Manila shall, for purposes of this section, be
considered a city or municipality.
Notice of meetings shall be in writing, and the time and place
thereof stated therein.
All proceedings had and any business transacted at any
meeting of the stockholders or members, if within the powers
or authority of the corporation, shall be valid even if the
meeting be improperly held or called, provided all the
stockholders or members of the corporation are present or duly
represented at the meeting. (24 and 25)
Section 52. Quorum in meetings. – Unless otherwise provided
for in this Code or in the by-laws, a quorum shall consist of the
stockholders representing a majority of the outstanding
capital stock or a majority of the members in the case of non-
stock corporations. (n)
Section 53. Regular and special meetings of directors or
trustees. – Regular meetings of the board of directors or
trustees of every corporation shall be held monthly, unless the
by-laws provide otherwise.
Special meetings of the board of directors or trustees may be
held at any time upon the call of the president or as provided
in the by-laws.
Meetings of directors or trustees of corporations may be held
anywhere in or outside of the Philippines, unless the by-laws
provide otherwise. Notice of regular or special meetings
stating the date, time and place of the meeting must be sent to
every director or trustee at least one (1) day prior to the
scheduled meeting, unless otherwise provided by the by-laws.
A director or trustee may waive this requirement, either
expressly or impliedly. (n)
Section 54. Who shall preside at meetings. – The president
shall preside at all meetings of the directors or trustee as well
as of the stockholders or members, unless the by-laws provide
otherwise. (n)
Section 55. Right to vote of pledgors, mortgagors, and
administrators. – In case of pledged or mortgaged shares in
stock corporations, the pledgor or mortgagor shall have the
right to attend and vote at meetings of stockholders, unless
the pledgee or mortgagee is expressly given by the pledgor or
mortgagor such right in writing which is recorded on the
appropriate corporate books. (n)
Executors, administrators, receivers, and other legal
representatives duly appointed by the court may attend and
vote in behalf of the stockholders or members without need of
any written proxy. (27a)
Section 56. Voting in case of joint ownership of stock. – In case
of shares of stock owned jointly by two or more persons, in
order to vote the same, the consent of all the co-owners shall
be necessary, unless there is a written proxy, signed by all the
co-owners, authorizing one or some of them or any other
person to vote such share or shares: Provided, That when the
shares are owned in an “and/or” capacity by the holders
thereof, any one of the joint owners can vote said shares or
appoint a proxy therefor. (n)
Section 57. Voting right for treasury shares. – Treasury shares
shall have no voting right as long as such shares remain in the
Treasury. (n)
Section 58. Proxies. – Stockholders and members may vote in
person or by proxy in all meetings of stockholders or members.
Proxies shall in writing, signed by the stockholder or member
and filed before the scheduled meeting with the corporate
secretary. Unless otherwise provided in the proxy, it shall be
valid only for the meeting for which it is intended. No proxy
shall be valid and effective for a period longer than five (5)
years at any one time. (n)
Section 59. Voting trusts. – One or more stockholders of a
stock corporation may create a voting trust for the purpose of
conferring upon a trustee or trustees the right to vote and
other rights pertaining to the shares for a period not exceeding
five (5) years at any time: Provided, That in the case of a
voting trust specifically required as a condition in a loan
agreement, said voting trust may be for a period exceeding five
(5) years but shall automatically expire upon full payment of
the loan. A voting trust agreement must be in writing and
notarized, and shall specify the terms and conditions thereof.
A certified copy of such agreement shall be filed with the
corporation and with the Securities and Exchange
Commission; otherwise, said agreement is ineffective and
unenforceable. The certificate or certificates of stock covered
by the voting trust agreement shall be cancelled and new ones
shall be issued in the name of the trustee or trustees stating
that they are issued pursuant to said agreement. In the books
of the corporation, it shall be noted that the transfer in the
name of the trustee or trustees is made pursuant to said
voting trust agreement.
The trustee or trustees shall execute and deliver to the
transferors voting trust certificates, which shall be
transferable in the same manner and with the same effect as
certificates of stock.
The voting trust agreement filed with the corporation shall be
subject to examination by any stockholder of the corporation in
the same manner as any other corporate book or record:
Provided, That both the transferor and the trustee or trustees
may exercise the right of inspection of all corporate books and
records in accordance with the provisions of this Code.
Any other stockholder may transfer his shares to the same
trustee or trustees upon the terms and conditions stated in the
voting trust agreement, and thereupon shall be bound by all
the provisions of said agreement.
No voting trust agreement shall be entered into for the
purpose of circumventing the law against monopolies and
illegal combinations in restraint of trade or used for purposes
of fraud.
Unless expressly renewed, all rights granted in a voting trust
agreement shall automatically expire at the end of the agreed
period, and the voting trust certificates as well as the
certificates of stock in the name of the trustee or trustees shall
thereby be deemed cancelled and new certificates of stock shall
be reissued in the name of the transferors.
The voting trustee or trustees may vote by proxy unless the
agreement provides otherwise. (36a)
TITLE VII
STOCKS AND STOCKHOLDERS
Section 60. Subscription contract. – Any contract for the
acquisition of unissued stock in an existing corporation or a
corporation still to be formed shall be deemed a subscription
within the meaning of this Title, notwithstanding the fact that
the parties refer to it as a purchase or some other contract. (n)
Section 61. Pre-incorporation subscription. – A subscription for
shares of stock of a corporation still to be formed shall be
irrevocable for a period of at least six (6) months from the date
of subscription, unless all of the other subscribers consent to
the revocation, or unless the incorporation of said corporation
fails to materialize within said period or within a longer period
as may be stipulated in the contract of subscription: Provided,
That no pre-incorporation subscription may be revoked after
the submission of the articles of incorporation to the Securities
and Exchange Commission. (n)
Section 62. Consideration for stocks. – Stocks shall not be
issued for a consideration less than the par or issued price
thereof. Consideration for the issuance of stock may be any or
a combination of any two or more of the following:
1. Actual cash paid to the corporation;
2. Property, tangible or intangible, actually received by the
corporation and necessary or convenient for its use and lawful
purposes at a fair valuation equal to the par or issued value of
the stock issued;
3. Labor performed for or services actually rendered to the
corporation;
4. Previously incurred indebtedness of the corporation;
5. Amounts transferred from unrestricted retained earnings to
stated capital; and
6. Outstanding shares exchanged for stocks in the event of
reclassification or conversion.
Where the consideration is other than actual cash, or consists
of intangible property such as patents of copyrights, the
valuation thereof shall initially be determined by the
incorporators or the board of directors, subject to approval by
the Securities and Exchange Commission.
Shares of stock shall not be issued in exchange for promissory
notes or future service.
The same considerations provided for in this section, insofar as
they may be applicable, may be used for the issuance of bonds
by the corporation.
The issued price of no-par value shares may be fixed in the
articles of incorporation or by the board of directors pursuant
to authority conferred upon it by the articles of incorporation
or the by-laws, or in the absence thereof, by the stockholders
representing at least a majority of the outstanding capital
stock at a meeting duly called for the purpose. (5 and 16)
Section 63. Certificate of stock and transfer of shares. – The
capital stock of stock corporations shall be divided into shares
for which certificates signed by the president or vice president,
countersigned by the secretary or assistant secretary, and
sealed with the seal of the corporation shall be issued in
accordance with the by-laws. Shares of stock so issued are
personal property and may be transferred by delivery of the
certificate or certificates indorsed by the owner or his
attorney-in-fact or other person legally authorized to make the
transfer. No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded in the books
of the corporation showing the names of the parties to the
transaction, the date of the transfer, the number of the
certificate or certificates and the number of shares
transferred.
No shares of stock against which the corporation holds any
unpaid claim shall be transferable in the books of the
corporation. (35)
Section 64. Issuance of stock certificates. – No certificate of
stock shall be issued to a subscriber until the full amount of
his subscription together with interest and expenses (in case of
delinquent shares), if any is due, has been paid. (37)
Section 65. Liability of directors for watered stocks. – Any
director or officer of a corporation consenting to the issuance of
stocks for a consideration less than its par or issued value or
for a consideration in any form other than cash, valued in
excess of its fair value, or who, having knowledge thereof, does
not forthwith express his objection in writing and file the same
with the corporate secretary, shall be solidarily, liable with the
stockholder concerned to the corporation and its creditors for
the difference between the fair value received at the time of
issuance of the stock and the par or issued value of the same.
(n)
Section 66. Interest on unpaid subscriptions. – Subscribers for
stock shall pay to the corporation interest on all unpaid
subscriptions from the date of subscription, if so required by,
and at the rate of interest fixed in the by-laws. If no rate of
interest is fixed in the by-laws, such rate shall be deemed to be
the legal rate. (37)
Section 67. Payment of balance of subscription. – Subject to
the provisions of the contract of subscription, the board of
directors of any stock corporation may at any time declare due
and payable to the corporation unpaid subscriptions to the
capital stock and may collect the same or such percentage
thereof, in either case with accrued interest, if any, as it may
deem necessary.
Payment of any unpaid subscription or any percentage thereof,
together with the interest accrued, if any, shall be made on the
date specified in the contract of subscription or on the date
stated in the call made by the board. Failure to pay on such
date shall render the entire balance due and payable and shall
make the stockholder liable for interest at the legal rate on
such balance, unless a different rate of interest is provided in
the by-laws, computed from such date until full payment. If
within thirty (30) days from the said date no payment is made,
all stocks covered by said subscription shall thereupon become
delinquent and shall be subject to sale as hereinafter provided,
unless the board of directors orders otherwise. (38)
Section 68. Delinquency sale. – The board of directors may, by
resolution, order the sale of delinquent stock and shall
specifically state the amount due on each subscription plus all
accrued interest, and the date, time and place of the sale
which shall not be less than thirty (30) days nor more than
sixty (60) days from the date the stocks become delinquent.
Notice of said sale, with a copy of the resolution, shall be sent
to every delinquent stockholder either personally or by
registered mail. The same shall furthermore be published once
a week for two (2) consecutive weeks in a newspaper of general
circulation in the province or city where the principal office of
the corporation is located.
Unless the delinquent stockholder pays to the corporation, on
or before the date specified for the sale of the delinquent stock,
the balance due on his subscription, plus accrued interest,
costs of advertisement and expenses of sale, or unless the
board of directors otherwise orders, said delinquent stock shall
be sold at public auction to such bidder who shall offer to pay
the full amount of the balance on the subscription together
with accrued interest, costs of advertisement and expenses of
sale, for the smallest number of shares or fraction of a share.
The stock so purchased shall be transferred to such purchaser
in the books of the corporation and a certificate for such stock
shall be issued in his favor. The remaining shares, if any, shall
be credited in favor of the delinquent stockholder who shall
likewise be entitled to the issuance of a certificate of stock
covering such shares.
Should there be no bidder at the public auction who offers to
pay the full amount of the balance on the subscription together
with accrued interest, costs of advertisement and expenses of
sale, for the smallest number of shares or fraction of a share,
the corporation may, subject to the provisions of this Code, bid
for the same, and the total amount due shall be credited as
paid in full in the books of the corporation. Title to all the
shares of stock covered by the subscription shall be vested in
the corporation as treasury shares and may be disposed of by
said corporation in accordance with the provisions of this
Code. (39a-46a)
Section 69. When sale may be questioned. – No action to
recover delinquent stock sold can be sustained upon the
ground of irregularity or defect in the notice of sale, or in the
sale itself of the delinquent stock, unless the party seeking to
maintain such action first pays or tenders to the party holding
the stock the sum for which the same was sold, with interest
from the date of sale at the legal rate; and no such action shall
be maintained unless it is commenced by the filing of a
complaint within six (6) months from the date of sale. (47a)
Section 70. Court action to recover unpaid subscription. –
Nothing in this Code shall prevent the corporation from
collecting by action in a court of proper jurisdiction the
amount due on any unpaid subscription, with accrued interest,
costs and expenses. (49a)
Section 71. Effect of delinquency. – No delinquent stock shall
be voted for or be entitled to vote or to representation at any
stockholder’s meeting, nor shall the holder thereof be entitled
to any of the rights of a stockholder except the right to
dividends in accordance with the provisions of this Code, until
and unless he pays the amount due on his subscription with
accrued interest, and the costs and expenses of advertisement,
if any. (50a)
Section 72. Rights of unpaid shares. – Holders of subscribed
shares not fully paid which are not delinquent shall have all
the rights of a stockholder. (n)
Section 73. Lost or destroyed certificates. – The following
procedure shall be followed for the issuance by a corporation of
new certificates of stock in lieu of those which have been lost,
stolen or destroyed:
1. The registered owner of a certificate of stock in a
corporation or his legal representative shall file with the
corporation an affidavit in triplicate setting forth, if possible,
the circumstances as to how the certificate was lost, stolen or
destroyed, the number of shares represented by such
certificate, the serial number of the certificate and the name of
the corporation which issued the same. He shall also submit
such other information and evidence which he may deem
necessary;
2. After verifying the affidavit and other information and
evidence with the books of the corporation, said corporation
shall publish a notice in a newspaper of general circulation
published in the place where the corporation has its principal
office, once a week for three (3) consecutive weeks at the
expense of the registered owner of the certificate of stock
which has been lost, stolen or destroyed. The notice shall state
the name of said corporation, the name of the registered owner
and the serial number of said certificate, and the number of
shares represented by such certificate, and that after the
expiration of one (1) year from the date of the last publication,
if no contest has been presented to said corporation regarding
said certificate of stock, the right to make such contest shall be
barred and said corporation shall cancel in its books the
certificate of stock which has been lost, stolen or destroyed and
issue in lieu thereof new certificate of stock, unless the
registered owner files a bond or other security in lieu thereof
as may be required, effective for a period of one (1) year, for
such amount and in such form and with such sureties as may
be satisfactory to the board of directors, in which case a new
certificate may be issued even before the expiration of the one
(1) year period provided herein: Provided, That if a contest has
been presented to said corporation or if an action is pending in
court regarding the ownership of said certificate of stock which
has been lost, stolen or destroyed, the issuance of the new
certificate of stock in lieu thereof shall be suspended until the
final decision by the court regarding the ownership of said
certificate of stock which has been lost, stolen or destroyed.
Except in case of fraud, bad faith, or negligence on the part of
the corporation and its officers, no action may be brought
against any corporation which shall have issued certificate of
stock in lieu of those lost, stolen or destroyed pursuant to the
procedure above-described. (R.A. 201a)
TITLE VIII
CORPORATE BOOKS AND RECORDS
Section 74. Books to be kept; stock transfer agent. – Every
corporation shall keep and carefully preserve at its principal
office a record of all business transactions and minutes of all
meetings of stockholders or members, or of the board of
directors or trustees, in which shall be set forth in detail the
time and place of holding the meeting, how authorized, the
notice given, whether the meeting was regular or special, if
special its object, those present and absent, and every act done
or ordered done at the meeting. Upon the demand of any
director, trustee, stockholder or member, the time when any
director, trustee, stockholder or member entered or left the
meeting must be noted in the minutes; and on a similar
demand, the yeas and nays must be taken on any motion or
proposition, and a record thereof carefully made. The protest
of any director, trustee, stockholder or member on any action
or proposed action must be recorded in full on his demand.
The records of all business transactions of the corporation and
the minutes of any meetings shall be open to inspection by any
director, trustee, stockholder or member of the corporation at
reasonable hours on business days and he may demand, in
writing, for a copy of excerpts from said records or minutes, at
his expense.
Any officer or agent of the corporation who shall refuse to
allow any director, trustees, stockholder or member of the
corporation to examine and copy excerpts from its records or
minutes, in accordance with the provisions of this Code, shall
be liable to such director, trustee, stockholder or member for
damages, and in addition, shall be guilty of an offense which
shall be punishable under Section 144 of this Code: Provided,
That if such refusal is made pursuant to a resolution or order
of the board of directors or trustees, the liability under this
section for such action shall be imposed upon the directors or
trustees who voted for such refusal: and Provided, further,
That it shall be a defense to any action under this section that
the person demanding to examine and copy excerpts from the
corporation’s records and minutes has improperly used any
information secured through any prior examination of the
records or minutes of such corporation or of any other
corporation, or was not acting in good faith or for a legitimate
purpose in making his demand.
Stock corporations must also keep a book to be known as the
“stock and transfer book”, in which must be kept a record of all
stocks in the names of the stockholders alphabetically
arranged; the installments paid and unpaid on all stock for
which subscription has been made, and the date of payment of
any installment; a statement of every alienation, sale or
transfer of stock made, the date thereof, and by and to whom
made; and such other entries as the by-laws may prescribe.
The stock and transfer book shall be kept in the principal
office of the corporation or in the office of its stock transfer
agent and shall be open for inspection by any director or
stockholder of the corporation at reasonable hours on business
days.
No stock transfer agent or one engaged principally in the
business of registering transfers of stocks in behalf of a stock
corporation shall be allowed to operate in the Philippines
unless he secures a license from the Securities and Exchange
Commission and pays a fee as may be fixed by the
Commission, which shall be renewable annually: Provided,
That a stock corporation is not precluded from performing or
making transfer of its own stocks, in which case all the rules
and regulations imposed on stock transfer agents, except the
payment of a license fee herein provided, shall be applicable.
(51a and 32a; P.B. No. 268.)
Section 75. Right to financial statements. – Within ten (10)
days from receipt of a written request of any stockholder or
member, the corporation shall furnish to him its most recent
financial statement, which shall include a balance sheet as of
the end of the last taxable year and a profit or loss statement
for said taxable year, showing in reasonable detail its assets
and liabilities and the result of its operations.
At the regular meeting of stockholders or members, the board
of directors or trustees shall present to such stockholders or
members a financial report of the operations of the corporation
for the preceding year, which shall include financial
statements, duly signed and certified by an independent
certified public accountant.
However, if the paid-up capital of the corporation is less than
P50,000.00, the financial statements may be certified under
oath by the treasurer or any responsible officer of the
corporation. (n)
TITLE IX
MERGER AND CONSOLIDATION
Section 76. Plan or merger of consolidation. – Two or more
corporations may merge into a single corporation which shall
be one of the constituent corporations or may consolidate into
a new single corporation which shall be the consolidated
corporation.
The board of directors or trustees of each corporation, party to
the merger or consolidation, shall approve a plan of merger or
consolidation setting forth the following:
1. The names of the corporations proposing to merge or
consolidate, hereinafter referred to as the constituent
corporations;
2. The terms of the merger or consolidation and the mode of
carrying the same into effect;
3. A statement of the changes, if any, in the articles of
incorporation of the surviving corporation in case of merger;
and, with respect to the consolidated corporation in case of
consolidation, all the statements required to be set forth in the
articles of incorporation for corporations organized under this
Code; and
4. Such other provisions with respect to the proposed merger
or consolidation as are deemed necessary or desirable. (n)
Section 77. Stockholder’s or member’s approval. – Upon
approval by majority vote of each of the board of directors or
trustees of the constituent corporations of the plan of merger
or consolidation, the same shall be submitted for approval by
the stockholders or members of each of such corporations at
separate corporate meetings duly called for the purpose.
Notice of such meetings shall be given to all stockholders or
members of the respective corporations, at least two (2) weeks
prior to the date of the meeting, either personally or by
registered mail. Said notice shall state the purpose of the
meeting and shall include a copy or a summary of the plan of
merger or consolidation. The affirmative vote of stockholders
representing at least two-thirds (2/3) of the outstanding
capital stock of each corporation in the case of stock
corporations or at least two-thirds (2/3) of the members in the
case of non-stock corporations shall be necessary for the
approval of such plan. Any dissenting stockholder in stock
corporations may exercise his appraisal right in accordance
with the Code: Provided, That if after the approval by the
stockholders of such plan, the board of directors decides to
abandon the plan, the appraisal right shall be extinguished.
Any amendment to the plan of merger or consolidation may be
made, provided such amendment is approved by majority vote
of the respective boards of directors or trustees of all the
constituent corporations and ratified by the affirmative vote of
stockholders representing at least two-thirds (2/3) of the
outstanding capital stock or of two-thirds (2/3) of the members
of each of the constituent corporations. Such plan, together
with any amendment, shall be considered as the agreement of
merger or consolidation. (n)
Section 78. Articles of merger or consolidation. – After the
approval by the stockholders or members as required by the
preceding section, articles of merger or articles of consolidation
shall be executed by each of the constituent corporations, to be
signed by the president or vice-president and certified by the
secretary or assistant secretary of each corporation setting
forth:
1. The plan of the merger or the plan of consolidation;
2. As to stock corporations, the number of shares outstanding,
or in the case of non-stock corporations, the number of
members; and
3. As to each corporation, the number of shares or members
voting for and against such plan, respectively. (n)
Section 79. Effectivity of merger or consolidation. – The
articles of merger or of consolidation, signed and certified as
herein above required, shall be submitted to the Securities and
Exchange Commission in quadruplicate for its approval:
Provided, That in the case of merger or consolidation of banks
or banking institutions, building and loan associations, trust
companies, insurance companies, public utilities, educational
institutions and other special corporations governed by special
laws, the favorable recommendation of the appropriate
government agency shall first be obtained. If the Commission
is satisfied that the merger or consolidation of the corporations
concerned is not inconsistent with the provisions of this Code
and existing laws, it shall issue a certificate of merger or of
consolidation, at which time the merger or consolidation shall
be effective.
If, upon investigation, the Securities and Exchange
Commission has reason to believe that the proposed merger or
consolidation is contrary to or inconsistent with the provisions
of this Code or existing laws, it shall set a hearing to give the
corporations concerned the opportunity to be heard. Written
notice of the date, time and place of hearing shall be given to
each constituent corporation at least two (2) weeks before said
hearing. The Commission shall thereafter proceed as provided
in this Code. (n)
Section 80. Effects of merger or consolidation. – The merger or
consolidation shall have the following effects:
1. The constituent corporations shall become a single
corporation which, in case of merger, shall be the surviving
corporation designated in the plan of merger; and, in case of
consolidation, shall be the consolidated corporation designated
in the plan of consolidation;
2. The separate existence of the constituent corporations shall
cease, except that of the surviving or the consolidated
corporation;
3. The surviving or the consolidated corporation shall possess
all the rights, privileges, immunities and powers and shall be
subject to all the duties and liabilities of a corporation
organized under this Code;
4. The surviving or the consolidated corporation shall
thereupon and thereafter possess all the rights, privileges,
immunities and franchises of each of the constituent
corporations; and all property, real or personal, and all
receivables due on whatever account, including subscriptions
to shares and other choses in action, and all and every other
interest of, or belonging to, or due to each constituent
corporation, shall be deemed transferred to and vested in such
surviving or consolidated corporation without further act or
deed; and
5. The surviving or consolidated corporation shall be
responsible and liable for all the liabilities and obligations of
each of the constituent corporations in the same manner as if
such surviving or consolidated corporation had itself incurred
such liabilities or obligations; and any pending claim, action or
proceeding brought by or against any of such constituent
corporations may be prosecuted by or against the surviving or
consolidated corporation. The rights of creditors or liens upon
the property of any of such constituent corporations shall not
be impaired by such merger or consolidation. (n)
TITLE X
APPRAISAL RIGHT
Section 81. Instances of appraisal right. – Any stockholder of a
corporation shall have the right to dissent and demand
payment of the fair value of his shares in the following
instances:
1. In case any amendment to the articles of incorporation has
the effect of changing or restricting the rights of any
stockholder or class of shares, or of authorizing preferences in
any respect superior to those of outstanding shares of any
class, or of extending or shortening the term of corporate
existence;
2. In case of sale, lease, exchange, transfer, mortgage, pledge
or other disposition of all or substantially all of the corporate
property and assets as provided in the Code; and
3. In case of merger or consolidation. (n)
Section 82. How right is exercised. – The appraisal right may
be exercised by any stockholder who shall have voted against
the proposed corporate action, by making a written demand on
the corporation within thirty (30) days after the date on which
the vote was taken for payment of the fair value of his shares:
Provided, That failure to make the demand within such period
shall be deemed a waiver of the appraisal right. If the
proposed corporate action is implemented or affected, the
corporation shall pay to such stockholder, upon surrender of
the certificate or certificates of stock representing his shares,
the fair value thereof as of the day prior to the date on which
the vote was taken, excluding any appreciation or depreciation
in anticipation of such corporate action.
If within a period of sixty (60) days from the date the corporate
action was approved by the stockholders, the withdrawing
stockholder and the corporation cannot agree on the fair value
of the shares, it shall be determined and appraised by three (3)
disinterested persons, one of whom shall be named by the
stockholder, another by the corporation, and the third by the
two thus chosen. The findings of the majority of the appraisers
shall be final, and their award shall be paid by the corporation
within thirty (30) days after such award is made: Provided,
That no payment shall be made to any dissenting stockholder
unless the corporation has unrestricted retained earnings in
its books to cover such payment: and Provided, further, That
upon payment by the corporation of the agreed or awarded
price, the stockholder shall forthwith transfer his shares to the
corporation. (n)
Section 83. Effect of demand and termination of right. – From
the time of demand for payment of the fair value of a
stockholder’s shares until either the abandonment of the
corporate action involved or the purchase of the said shares by
the corporation, all rights accruing to such shares, including
voting and dividend rights, shall be suspended in accordance
with the provisions of this Code, except the right of such
stockholder to receive payment of the fair value thereof:
Provided, That if the dissenting stockholder is not paid the
value of his shares within 30 days after the award, his voting
and dividend rights shall immediately be restored. (n)
Section 84. When right to payment ceases. – No demand for
payment under this Title may be withdrawn unless the
corporation consents thereto. If, however, such demand for
payment is withdrawn with the consent of the corporation, or
if the proposed corporate action is abandoned or rescinded by
the corporation or disapproved by the Securities and Exchange
Commission where such approval is necessary, or if the
Securities and Exchange Commission determines that such
stockholder is not entitled to the appraisal right, then the
right of said stockholder to be paid the fair value of his shares
shall cease, his status as a stockholder shall thereupon be
restored, and all dividend distributions which would have
accrued on his shares shall be paid to him. (n)
Section 85. Who bears costs of appraisal. – The costs and
expenses of appraisal shall be borne by the corporation, unless
the fair value ascertained by the appraisers is approximately
the same as the price which the corporation may have offered
to pay the stockholder, in which case they shall be borne by
the latter. In the case of an action to recover such fair value,
all costs and expenses shall be assessed against the
corporation, unless the refusal of the stockholder to receive
payment was unjustified. (n)
Section 86. Notation on certificates; rights of transferee. –
Within ten (10) days after demanding payment for his shares,
a dissenting stockholder shall submit the certificates of stock
representing his shares to the corporation for notation thereon
that such shares are dissenting shares. His failure to do so
shall, at the option of the corporation, terminate his rights
under this Title. If shares represented by the certificates
bearing such notation are transferred, and the certificates
consequently cancelled, the rights of the transferor as a
dissenting stockholder under this Title shall cease and the
transferee shall have all the rights of a regular stockholder;
and all dividend distributions which would have accrued on
such shares shall be paid to the transferee. (n)
TITLE XI
NON-STOCK CORPORATIONS
Section 87. Definition. – For the purposes of this Code, a non-
stock corporation is one where no part of its income is
distributable as dividends to its members, trustees, or officers,
subject to the provisions of this Code on dissolution: Provided,
That any profit which a non-stock corporation may obtain as
an incident to its operations shall, whenever necessary or
proper, be used for the furtherance of the purpose or purposes
for which the corporation was organized, subject to the
provisions of this Title.
The provisions governing stock corporation, when pertinent,
shall be applicable to non-stock corporations, except as may be
covered by specific provisions of this Title. (n)
Section 88. Purposes. – Non-stock corporations may be formed
or organized for charitable, religious, educational,
professional, cultural, fraternal, literary, scientific, social, civic
service, or similar purposes, like trade, industry, agricultural
and like chambers, or any combination thereof, subject to the
special provisions of this Title governing particular classes of
non-stock corporations. (n)
CHAPTER I
MEMBERS
Section 89. Right to vote. – The right of the members of any
class or classes to vote may be limited, broadened or denied to
the extent specified in the articles of incorporation or the by-
laws. Unless so limited, broadened or denied, each member,
regardless of class, shall be entitled to one vote.
Unless otherwise provided in the articles of incorporation or
the by-laws, a member may vote by proxy in accordance with
the provisions of this Code. (n)
Voting by mail or other similar means by members of non-
stock corporations may be authorized by the by-laws of non-
stock corporations with the approval of, and under such
conditions which may be prescribed by, the Securities and
Exchange Commission.
Section 90. Non-transferability of membership. – Membership
in a non-stock corporation and all rights arising therefrom are
personal and non-transferable, unless the articles of
incorporation or the by-laws otherwise provide. (n)
Section 91. Termination of membership. – Membership shall
be terminated in the manner and for the causes provided in
the articles of incorporation or the by-laws. Termination of
membership shall have the effect of extinguishing all rights of
a member in the corporation or in its property, unless
otherwise provided in the articles of incorporation or the by-
laws. (n)
CHAPTER II
TRUSTEES AND OFFICES
Section 92. Election and term of trustees. – Unless otherwise
provided in the articles of incorporation or the by-laws, the
board of trustees of non-stock corporations, which may be
more than fifteen (15) in number as may be fixed in their
articles of incorporation or by-laws, shall, as soon as
organized, so classify themselves that the term of office of one-
third (1/3) of their number shall expire every year; and
subsequent elections of trustees comprising one-third (1/3) of
the board of trustees shall be held annually and trustees so
elected shall have a term of three (3) years. Trustees
thereafter elected to fill vacancies occurring before the
expiration of a particular term shall hold office only for the
unexpired period.
No person shall be elected as trustee unless he is a member of
the corporation.
Unless otherwise provided in the articles of incorporation or
the by-laws, officers of a non-stock corporation may be directly
elected by the members. (n)
Section 93. Place of meetings. – The by-laws may provide that
the members of a non-stock corporation may hold their regular
or special meetings at any place even outside the place where
the principal office of the corporation is located: Provided,
That proper notice is sent to all members indicating the date,
time and place of the meeting: and Provided, further, That the
place of meeting shall be within the Philippines. (n)
CHAPTER III
DISTRIBUTION OF ASSETS IN NON-STOCK
CORPORATIONS
Section 94. Rules of distribution. – In case dissolution of a non-
stock corporation in accordance with the provisions of this
Code, its assets shall be applied and distributed as follows:
1. All liabilities and obligations of the corporation shall be
paid, satisfied and discharged, or adequate provision shall be
made therefore;
2. Assets held by the corporation upon a condition requiring
return, transfer or conveyance, and which condition occurs by
reason of the dissolution, shall be returned, transferred or
conveyed in accordance with such requirements;
3. Assets received and held by the corporation subject to
limitations permitting their use only for charitable, religious,
benevolent, educational or similar purposes, but not held upon
a condition requiring return, transfer or conveyance by reason
of the dissolution, shall be transferred or conveyed to one or
more corporations, societies or organizations engaged in
activities in the Philippines substantially similar to those of
the dissolving corporation according to a plan of distribution
adopted pursuant to this Chapter;
4. Assets other than those mentioned in the preceding
paragraphs, if any, shall be distributed in accordance with the
provisions of the articles of incorporation or the by-laws, to the
extent that the articles of incorporation or the by-laws,
determine the distributive rights of members, or any class or
classes of members, or provide for distribution; and
5. In any other case, assets may be distributed to such
persons, societies, organizations or corporations, whether or
not organized for profit, as may be specified in a plan of
distribution adopted pursuant to this Chapter. (n)
Section 95. Plan of distribution of assets. – A plan providing
for the distribution of assets, not inconsistent with the
provisions of this Title, may be adopted by a non-stock
corporation in the process of dissolution in the following
manner:
The board of trustees shall, by majority vote, adopt a
resolution recommending a plan of distribution and directing
the submission thereof to a vote at a regular or special
meeting of members having voting rights. Written notice
setting forth the proposed plan of distribution or a summary
thereof and the date, time and place of such meeting shall be
given to each member entitled to vote, within the time and in
the manner provided in this Code for the giving of notice of
meetings to members. Such plan of distribution shall be
adopted upon approval of at least two-thirds (2/3) of the
members having voting rights present or represented by proxy
at such meeting. (n)
TITLE XII
CLOSE CORPORATIONS
Section 96. Definition and applicability of Title. - A close
corporation, within the meaning of this Code, is one whose
articles of incorporation provide that: (1) All the corporation’s
issued stock of all classes, exclusive of treasury shares, shall
be held of record by not more than a specified number of
persons, not exceeding twenty (20); (2) all the issued stock of
all classes shall be subject to one or more specified restrictions
on transfer permitted by this Title; and (3) The corporation
shall not list in any stock exchange or make any public
offering of any of its stock of any class. Notwithstanding the
foregoing, a corporation shall not be deemed a close
corporation when at least two-thirds (2/3) of its voting stock or
voting rights is owned or controlled by another corporation
which is not a close corporation within the meaning of this
Code.
Any corporation may be incorporated as a close corporation,
except mining or oil companies, stock exchanges, banks,
insurance companies, public utilities, educational institutions
and corporations declared to be vested with public interest in
accordance with the provisions of this Code.
The provisions of this Title shall primarily govern close
corporations: Provided, That the provisions of other Titles of
this Code shall apply suppletorily except insofar as this Title
otherwise provides.
Section 97. Articles of incorporation. – The articles of
incorporation of a close corporation may provide:
1. For a classification of shares or rights and the qualifications
for owning or holding the same and restrictions on their
transfers as may be stated therein, subject to the provisions of
the following section;
2. For a classification of directors into one or more classes,
each of whom may be voted for and elected solely by a
particular class of stock; and
3. For a greater quorum or voting requirements in meetings of
stockholders or directors than those provided in this Code.
The articles of incorporation of a close corporation may provide
that the business of the corporation shall be managed by the
stockholders of the corporation rather than by a board of
directors. So long as this provision continues in effect:
1. No meeting of stockholders need be called to elect directors;
2. Unless the context clearly requires otherwise, the
stockholders of the corporation shall be deemed to be directors
for the purpose of applying the provisions of this Code; and
3. The stockholders of the corporation shall be subject to all
liabilities of directors.
The articles of incorporation may likewise provide that all
officers or employees or that specified officers or employees
shall be elected or appointed by the stockholders, instead of by
the board of directors.
Section 98. Validity of restrictions on transfer of shares. –
Restrictions on the right to transfer shares must appear in the
articles of incorporation and in the by-laws as well as in the
certificate of stock; otherwise, the same shall not be binding on
any purchaser thereof in good faith. Said restrictions shall not
be more onerous than granting the existing stockholders or the
corporation the option to purchase the shares of the
transferring stockholder with such reasonable terms,
conditions or period stated therein. If upon the expiration of
said period, the existing stockholders or the corporation fails
to exercise the option to purchase, the transferring stockholder
may sell his shares to any third person.
Section 99. Effects of issuance or transfer of stock in breach of
qualifying conditions. -
1. If stock of a close corporation is issued or transferred to any
person who is not entitled under any provision of the articles
of incorporation to be a holder of record of its stock, and if the
certificate for such stock conspicuously shows the
qualifications of the persons entitled to be holders of record
thereof, such person is conclusively presumed to have notice of
the fact of his ineligibility to be a stockholder.
2. If the articles of incorporation of a close corporation states
the number of persons, not exceeding twenty (20), who are
entitled to be holders of record of its stock, and if the
certificate for such stock conspicuously states such number,
and if the issuance or transfer of stock to any person would
cause the stock to be held by more than such number of
persons, the person to whom such stock is issued or
transferred is conclusively presumed to have notice of this
fact.
3. If a stock certificate of any close corporation conspicuously
shows a restriction on transfer of stock of the corporation, the
transferee of the stock is conclusively presumed to have notice
of the fact that he has acquired stock in violation of the
restriction, if such acquisition violates the restriction.
4. Whenever any person to whom stock of a close corporation
has been issued or transferred has, or is conclusively
presumed under this section to have, notice either (a) that he
is a person not eligible to be a holder of stock of the
corporation, or (b) that transfer of stock to him would cause
the stock of the corporation to be held by more than the
number of persons permitted by its articles of incorporation to
hold stock of the corporation, or (c) that the transfer of stock is
in violation of a restriction on transfer of stock, the corporation
may, at its option, refuse to register the transfer of stock in the
name of the transferee.
5. The provisions of subsection (4) shall not be applicable if the
transfer of stock, though contrary to subsections (1), (2) or (3),
has been consented to by all the stockholders of the close
corporation, or if the close corporation has amended its articles
of incorporation in accordance with this Title.
6. The term “transfer”, as used in this section, is not limited to
a transfer for value.
7. The provisions of this section shall not impair any right
which the transferee may have to rescind the transfer or to
recover under any applicable warranty, express or implied.
Section 100. Agreements by stockholders. -
1. Agreements by and among stockholders executed before the
formation and organization of a close corporation, signed by all
stockholders, shall survive the incorporation of such
corporation and shall continue to be valid and binding between
and among such stockholders, if such be their intent, to the
extent that such agreements are not inconsistent with the
articles of incorporation, irrespective of where the provisions of
such agreements are contained, except those required by this
Title to be embodied in said articles of incorporation.
2. An agreement between two or more stockholders, if in
writing and signed by the parties thereto, may provide that in
exercising any voting rights, the shares held by them shall be
voted as therein provided, or as they may agree, or as
determined in accordance with a procedure agreed upon by
them.
3. No provision in any written agreement signed by the
stockholders, relating to any phase of the corporate affairs,
shall be invalidated as between the parties on the ground that
its effect is to make them partners among themselves.
4. A written agreement among some or all of the stockholders
in a close corporation shall not be invalidated on the ground
that it so relates to the conduct of the business and affairs of
the corporation as to restrict or interfere with the discretion or
powers of the board of directors: Provided, That such
agreement shall impose on the stockholders who are parties
thereto the liabilities for managerial acts imposed by this Code
on directors.
5. To the extent that the stockholders are actively engaged in
the management or operation of the business and affairs of a
close corporation, the stockholders shall be held to strict
fiduciary duties to each other and among themselves. Said
stockholders shall be personally liable for corporate torts
unless the corporation has obtained reasonably adequate
liability insurance.
Section 101. When board meeting is unnecessary or
improperly held. - Unless the by-laws provide otherwise, any
action by the directors of a close corporation without a meeting
shall nevertheless be deemed valid if:
1. Before or after such action is taken, written consent thereto
is signed by all the directors; or
2. All the stockholders have actual or implied knowledge of the
action and make no prompt objection thereto in writing; or
3. The directors are accustomed to take informal action with
the express or implied acquiescence of all the stockholders; or
4. All the directors have express or implied knowledge of the
action in question and none of them makes prompt objection
thereto in writing.
If a director’s meeting is held without proper call or notice, an
action taken therein within the corporate powers is deemed
ratified by a director who failed to attend, unless he promptly
files his written objection with the secretary of the corporation
after having knowledge thereof.
Section 102. Pre-emptive right in close corporations. – The
pre-emptive right of stockholders in close corporations shall
extend to all stock to be issued, including reissuance of
treasury shares, whether for money, property or personal
services, or in payment of corporate debts, unless the articles
of incorporation provide otherwise.
Section 103. Amendment of articles of incorporation. – Any
amendment to the articles of incorporation which seeks to
delete or remove any provision required by this Title to be
contained in the articles of incorporation or to reduce a
quorum or voting requirement stated in said articles of
incorporation shall not be valid or effective unless approved by
the affirmative vote of at least two-thirds (2/3) of the
outstanding capital stock, whether with or without voting
rights, or of such greater proportion of shares as may be
specifically provided in the articles of incorporation for
amending, deleting or removing any of the aforesaid
provisions, at a meeting duly called for the purpose.
Section 104. Deadlocks. – Notwithstanding any contrary
provision in the articles of incorporation or by-laws or
agreement of stockholders of a close corporation, if the
directors or stockholders are so divided respecting the
management of the corporation’s business and affairs that the
votes required for any corporate action cannot be obtained,
with the consequence that the business and affairs of the
corporation can no longer be conducted to the advantage of the
stockholders generally, the Securities and Exchange
Commission, upon written petition by any stockholder, shall
have the power to arbitrate the dispute. In the exercise of such
power, the Commission shall have authority to make such
order as it deems appropriate, including an order: (1)
cancelling or altering any provision contained in the articles of
incorporation, by-laws, or any stockholder’s agreement; (2)
cancelling, altering or enjoining any resolution or act of the
corporation or its board of directors, stockholders, or officers;
(3) directing or prohibiting any act of the corporation or its
board of directors, stockholders, officers, or other persons
party to the action; (4) requiring the purchase at their fair
value of shares of any stockholder, either by the corporation
regardless of the availability of unrestricted retained earnings
in its books, or by the other stockholders; (5) appointing a
provisional director; (6) dissolving the corporation; or (7)
granting such other relief as the circumstances may warrant.
A provisional director shall be an impartial person who is
neither a stockholder nor a creditor of the corporation or of any
subsidiary or affiliate of the corporation, and whose further
qualifications, if any, may be determined by the Commission.
A provisional director is not a receiver of the corporation and
does not have the title and powers of a custodian or receiver. A
provisional director shall have all the rights and powers of a
duly elected director of the corporation, including the right to
notice of and to vote at meetings of directors, until such time
as he shall be removed by order of the Commission or by all
the stockholders. His compensation shall be determined by
agreement between him and the corporation subject to
approval of the Commission, which may fix his compensation
in the absence of agreement or in the event of disagreement
between the provisional director and the corporation.
Section 105. Withdrawal of stockholder or dissolution of
corporation. – In addition and without prejudice to other
rights and remedies available to a stockholder under this
Title, any stockholder of a close corporation may, for any
reason, compel the said corporation to purchase his shares at
their fair value, which shall not be less than their par or
issued value, when the corporation has sufficient assets in its
books to cover its debts and liabilities exclusive of capital
stock: Provided, That any stockholder of a close corporation
may, by written petition to the Securities and Exchange
Commission, compel the dissolution of such corporation
whenever any of acts of the directors, officers or those in
control of the corporation is illegal, or fraudulent, or dishonest,
or oppressive or unfairly prejudicial to the corporation or any
stockholder, or whenever corporate assets are being
misapplied or wasted.
TITLE XIII
SPECIAL CORPORATIONS
CHAPTER I - EDUCATIONAL CORPORATIONS
Section 106. Incorporation. – Educational corporations shall be
governed by special laws and by the general provisions of this
Code. (n)
Section 107. Pre-requisites to incorporation. – Except upon
favorable recommendation of the Ministry of Education and
Culture, the Securities and Exchange Commission shall not
accept or approve the articles of incorporation and by-laws of
any educational institution. (168a)
Section 108. Board of trustees. – Trustees of educational
institutions organized as non-stock corporations shall not be
less than five (5) nor more than fifteen (15): Provided,
however, That the number of trustees shall be in multiples of
five (5).
Unless otherwise provided in the articles of incorporation on
the by-laws, the board of trustees of incorporated schools,
colleges, or other institutions of learning shall, as soon as
organized, so classify themselves that the term of office of one-
fifth (1/5) of their number shall expire every year. Trustees
thereafter elected to fill vacancies, occurring before the
expiration of a particular term, shall hold office only for the
unexpired period. Trustees elected thereafter to fill vacancies
caused by expiration of term shall hold office for five (5) years.
A majority of the trustees shall constitute a quorum for the
transaction of business. The powers and authority of trustees
shall be defined in the by-laws.
For institutions organized as stock corporations, the number
and term of directors shall be governed by the provisions on
stock corporations. (169a)
CHAPTER II
RELIGIOUS CORPORATIONS
Section 109. Classes of religious corporations. – Religious
corporations may be incorporated by one or more persons.
Such corporations may be classified into corporations sole and
religious societies.
Religious corporations shall be governed by this Chapter and
by the general provisions on non-stock corporations insofar as
they may be applicable. (n)
Section 110. Corporation sole. – For the purpose of
administering and managing, as trustee, the affairs, property
and temporalities of any religious denomination, sect or
church, a corporation sole may be formed by the chief
archbishop, bishop, priest, minister, rabbi or other presiding
elder of such religious denomination, sect or church. (154a)
Section 111. Articles of incorporation. – In order to become a
corporation sole, the chief archbishop, bishop, priest, minister,
rabbi or presiding elder of any religious denomination, sect or
church must file with the Securities and Exchange
Commission articles of incorporation setting forth the
following:
1. That he is the chief archbishop, bishop, priest, minister,
rabbi or presiding elder of his religious denomination, sect or
church and that he desires to become a corporation sole;
2. That the rules, regulations and discipline of his religious
denomination, sect or church are not inconsistent with his
becoming a corporation sole and do not forbid it;
3. That as such chief archbishop, bishop, priest, minister,
rabbi or presiding elder, he is charged with the administration
of the temporalities and the management of the affairs, estate
and properties of his religious denomination, sect or church
within his territorial jurisdiction, describing such territorial
jurisdiction;
4. The manner in which any vacancy occurring in the office of
chief archbishop, bishop, priest, minister, rabbi of presiding
elder is required to be filled, according to the rules, regulations
or discipline of the religious denomination, sect or church to
which he belongs; and
5. The place where the principal office of the corporation sole
is to be established and located, which place must be within
the Philippines.
The articles of incorporation may include any other provision
not contrary to law for the regulation of the affairs of the
corporation. (n)
Section 112. Submission of the articles of incorporation. – The
articles of incorporation must be verified, before filing, by
affidavit or affirmation of the chief archbishop, bishop, priest,
minister, rabbi or presiding elder, as the case may be, and
accompanied by a copy of the commission, certificate of
election or letter of appointment of such chief archbishop,
bishop, priest, minister, rabbi or presiding elder, duly certified
to be correct by any notary public.
From and after the filing with the Securities and Exchange
Commission of the said articles of incorporation, verified by
affidavit or affirmation, and accompanied by the documents
mentioned in the preceding paragraph, such chief archbishop,
bishop, priest, minister, rabbi or presiding elder shall become
a corporation sole and all temporalities, estate and properties
of the religious denomination, sect or church theretofore
administered or managed by him as such chief archbishop,
bishop, priest, minister, rabbi or presiding elder shall be held
in trust by him as a corporation sole, for the use, purpose,
behalf and sole benefit of his religious denomination, sect or
church, including hospitals, schools, colleges, orphan asylums,
parsonages and cemeteries thereof. (n)
Section 113. Acquisition and alienation of property. – Any
corporation sole may purchase and hold real estate and
personal property for its church, charitable, benevolent or
educational purposes, and may receive bequests or gifts for
such purposes. Such corporation may sell or mortgage real
property held by it by obtaining an order for that purpose from
the Court of First Instance of the province where the property
is situated upon proof made to the satisfaction of the court
that notice of the application for leave to sell or mortgage has
been given by publication or otherwise in such manner and for
such time as said court may have directed, and that it is to the
interest of the corporation that leave to sell or mortgage
should be granted. The application for leave to sell or
mortgage must be made by petition, duly verified, by the chief
archbishop, bishop, priest, minister, rabbi or presiding elder
acting as corporation sole, and may be opposed by any member
of the religious denomination, sect or church represented by
the corporation sole: Provided, That in cases where the rules,
regulations and discipline of the religious denomination, sect
or church, religious society or order concerned represented by
such corporation sole regulate the method of acquiring,
holding, selling and mortgaging real estate and personal
property, such rules, regulations and discipline shall control,
and the intervention of the courts shall not be necessary.
(159a)
Section 114. Filling of vacancies. – The successors in office of
any chief archbishop, bishop, priest, minister, rabbi or
presiding elder in a corporation sole shall become the
corporation sole on their accession to office and shall be
permitted to transact business as such on the filing with the
Securities and Exchange Commission of a copy of their
commission, certificate of election, or letters of appointment,
duly certified by any notary public.
During any vacancy in the office of chief archbishop, bishop,
priest, minister, rabbi or presiding elder of any religious
denomination, sect or church incorporated as a corporation
sole, the person or persons authorized and empowered by the
rules, regulations or discipline of the religious denomination,
sect or church represented by the corporation sole to
administer the temporalities and manage the affairs, estate
and properties of the corporation sole during the vacancy shall
exercise all the powers and authority of the corporation sole
during such vacancy. (158a)
Section 115. Dissolution. – A corporation sole may be dissolved
and its affairs settled voluntarily by submitting to the
Securities and Exchange Commission a verified declaration of
dissolution.
The declaration of dissolution shall set forth:
1. The name of the corporation;
2. The reason for dissolution and winding up;
3. The authorization for the dissolution of the corporation by
the particular religious denomination, sect or church;
4. The names and addresses of the persons who are to
supervise the winding up of the affairs of the corporation.
Upon approval of such declaration of dissolution by the
Securities and Exchange Commission, the corporation shall
cease to carry on its operations except for the purpose of
winding up its affairs. (n)
Section 116. Religious societies. – Any religious society or
religious order, or any diocese, synod, or district organization
of any religious denomination, sect or church, unless forbidden
by the constitution, rules, regulations, or discipline of the
religious denomination, sect or church of which it is a part, or
by competent authority, may, upon written consent and/or by
an affirmative vote at a meeting called for the purpose of at
least two-thirds (2/3) of its membership, incorporate for the
administration of its temporalities or for the management of
its affairs, properties and estate by filing with the Securities
and Exchange Commission, articles of incorporation verified
by the affidavit of the presiding elder, secretary, or clerk or
other member of such religious society or religious order, or
diocese, synod, or district organization of the religious
denomination, sect or church, setting forth the following:
1. That the religious society or religious order, or diocese,
synod, or district organization is a religious organization of a
religious denomination, sect or church;
2. That at least two-thirds (2/3) of its membership have given
their written consent or have voted to incorporate, at a duly
convened meeting of the body;
3. That the incorporation of the religious society or religious
order, or diocese, synod, or district organization desiring to
incorporate is not forbidden by competent authority or by the
constitution, rules, regulations or discipline of the religious
denomination, sect, or church of which it forms a part;
4. That the religious society or religious order, or diocese,
synod, or district organization desires to incorporate for the
administration of its affairs, properties and estate;
5. The place where the principal office of the corporation is to
be established and located, which place must be within the
Philippines; and
The names, nationalities, and residences of the trustees
elected by the religious society or religious order, or the
diocese, synod, or district organization to serve for the first
year or such other period as may be prescribed by the laws of
the religious society or religious order, or of the diocese, synod,
or district organization, the board of trustees to be not less
than five (5) nor more than fifteen (15). (160a)
TITLE XIV
DISSOLUTION
Section 117. Methods of dissolution. – A corporation formed or
organized under the provisions of this Code may be dissolved
voluntarily or involuntarily. (n)
Section 118. Voluntary dissolution where no creditors are
affected. – If dissolution of a corporation does not prejudice the
rights of any creditor having a claim against it, the dissolution
may be effected by majority vote of the board of directors or
trustees, and by a resolution duly adopted by the affirmative
vote of the stockholders owning at least two-thirds (2/3) of the
outstanding capital stock or of at least two-thirds (2/3) of the
members of a meeting to be held upon call of the directors or
trustees after publication of the notice of time, place and object
of the meeting for three (3) consecutive weeks in a newspaper
published in the place where the principal office of said
corporation is located; and if no newspaper is published in
such place, then in a newspaper of general circulation in the
Philippines, after sending such notice to each stockholder or
member either by registered mail or by personal delivery at
least thirty (30) days prior to said meeting. A copy of the
resolution authorizing the dissolution shall be certified by a
majority of the board of directors or trustees and
countersigned by the secretary of the corporation. The
Securities and Exchange Commission shall thereupon issue
the certificate of dissolution. (62a)
Section 119. Voluntary dissolution where creditors are
affected. – Where the dissolution of a corporation may
prejudice the rights of any creditor, the petition for dissolution
shall be filed with the Securities and Exchange Commission.
The petition shall be signed by a majority of its board of
directors or trustees or other officers having the management
of its affairs, verified by its president or secretary or one of its
directors or trustees, and shall set forth all claims and
demands against it, and that its dissolution was resolved upon
by the affirmative vote of the stockholders representing at
least two-thirds (2/3) of the outstanding capital stock or by at
least two-thirds (2/3) of the members at a meeting of its
stockholders or members called for that purpose.
If the petition is sufficient in form and substance, the
Commission shall, by an order reciting the purpose of the
petition, fix a date on or before which objections thereto may
be filed by any person, which date shall not be less than thirty
(30) days nor more than sixty (60) days after the entry of the
order. Before such date, a copy of the order shall be published
at least once a week for three (3) consecutive weeks in a
newspaper of general circulation published in the municipality
or city where the principal office of the corporation is situated,
or if there be no such newspaper, then in a newspaper of
general circulation in the Philippines, and a similar copy shall
be posted for three (3) consecutive weeks in three (3) public
places in such municipality or city.
Upon five (5) day’s notice, given after the date on which the
right to file objections as fixed in the order has expired, the
Commission shall proceed to hear the petition and try any
issue made by the objections filed; and if no such objection is
sufficient, and the material allegations of the petition are true,
it shall render judgment dissolving the corporation and
directing such disposition of its assets as justice requires, and
may appoint a receiver to collect such assets and pay the debts
of the corporation. (Rule 104, RCa)
Section 120. Dissolution by shortening corporate term. – A
voluntary dissolution may be effected by amending the articles
of incorporation to shorten the corporate term pursuant to the
provisions of this Code. A copy of the amended articles of
incorporation shall be submitted to the Securities and
Exchange Commission in accordance with this Code. Upon
approval of the amended articles of incorporation of the
expiration of the shortened term, as the case may be, the
corporation shall be deemed dissolved without any further
proceedings, subject to the provisions of this Code on
liquidation. (n)
Section 121. Involuntary dissolution. – A corporation may be
dissolved by the Securities and Exchange Commission upon
filing of a verified complaint and after proper notice and
hearing on the grounds provided by existing laws, rules and
regulations. (n)
Section 122. Corporate liquidation. – Every corporation whose
charter expires by its own limitation or is annulled by
forfeiture or otherwise, or whose corporate existence for other
purposes is terminated in any other manner, shall
nevertheless be continued as a body corporate for three (3)
years after the time when it would have been so dissolved, for
the purpose of prosecuting and defending suits by or against it
and enabling it to settle and close its affairs, to dispose of and
convey its property and to distribute its assets, but not for the
purpose of continuing the business for which it was
established.
At any time during said three (3) years, the corporation is
authorized and empowered to convey all of its property to
trustees for the benefit of stockholders, members, creditors,
and other persons in interest. From and after any such
conveyance by the corporation of its property in trust for the
benefit of its stockholders, members, creditors and others in
interest, all interest which the corporation had in the property
terminates, the legal interest vests in the trustees, and the
beneficial interest in the stockholders, members, creditors or
other persons in interest.
Upon the winding up of the corporate affairs, any asset
distributable to any creditor or stockholder or member who is
unknown or cannot be found shall be escheated to the city or
municipality where such assets are located.
Except by decrease of capital stock and as otherwise allowed
by this Code, no corporation shall distribute any of its assets
or property except upon lawful dissolution and after payment
of all its debts and liabilities. (77a, 89a, 16a)
TITLE XV
FOREIGN CORPORATIONS
Section 123. Definition and rights of foreign corporations. –
For the purposes of this Code, a foreign corporation is one
formed, organized or existing under any laws other than those
of the Philippines and whose laws allow Filipino citizens and
corporations to do business in its own country or state. It shall
have the right to transact business in the Philippines after it
shall have obtained a license to transact business in this
country in accordance with this Code and a certificate of
authority from the appropriate government agency. (n)
Section 124. Application to existing foreign corporations. –
Every foreign corporation which on the date of the effectivity
of this Code is authorized to do business in the Philippines
under a license therefore issued to it, shall continue to have
such authority under the terms and condition of its license,
subject to the provisions of this Code and other special laws.
(n)
Section 125. Application for a license. – A foreign corporation
applying for a license to transact business in the Philippines
shall submit to the Securities and Exchange Commission a
copy of its articles of incorporation and by-laws, certified in
accordance with law, and their translation to an official
language of the Philippines, if necessary. The application shall
be under oath and, unless already stated in its articles of
incorporation, shall specifically set forth the following:
1. The date and term of incorporation;
2. The address, including the street number, of the principal
office of the corporation in the country or state of
incorporation;
3. The name and address of its resident agent authorized to
accept summons and process in all legal proceedings and,
pending the establishment of a local office, all notices affecting
the corporation;
4. The place in the Philippines where the corporation intends
to operate;
5. The specific purpose or purposes which the corporation
intends to pursue in the transaction of its business in the
Philippines: Provided, That said purpose or purposes are those
specifically stated in the certificate of authority issued by the
appropriate government agency;
6. The names and addresses of the present directors and
officers of the corporation;
7. A statement of its authorized capital stock and the
aggregate number of shares which the corporation has
authority to issue, itemized by classes, par value of shares,
shares without par value, and series, if any;
8. A statement of its outstanding capital stock and the
aggregate number of shares which the corporation has issued,
itemized by classes, par value of shares, shares without par
value, and series, if any;
9. A statement of the amount actually paid in; and
10. Such additional information as may be necessary or
appropriate in order to enable the Securities and Exchange
Commission to determine whether such corporation is entitled
to a license to transact business in the Philippines, and to
determine and assess the fees payable.
Attached to the application for license shall be a duly executed
certificate under oath by the authorized official or officials of
the jurisdiction of its incorporation, attesting to the fact that
the laws of the country or state of the applicant allow Filipino
citizens and corporations to do business therein, and that the
applicant is an existing corporation in good standing. If such
certificate is in a foreign language, a translation thereof in
English under oath of the translator shall be attached thereto.
The application for a license to transact business in the
Philippines shall likewise be accompanied by a statement
under oath of the president or any other person authorized by
the corporation, showing to the satisfaction of the Securities
and Exchange Commission and other governmental agency in
the proper cases that the applicant is solvent and in sound
financial condition, and setting forth the assets and liabilities
of the corporation as of the date not exceeding one (1) year
immediately prior to the filing of the application.
Foreign banking, financial and insurance corporations shall,
in addition to the above requirements, comply with the
provisions of existing laws applicable to them. In the case of
all other foreign corporations, no application for license to
transact business in the Philippines shall be accepted by the
Securities and Exchange Commission without previous
authority from the appropriate government agency, whenever
required by law. (68a)
Section 126. Issuance of a license. – If the Securities and
Exchange Commission is satisfied that the applicant has
complied with all the requirements of this Code and other
special laws, rules and regulations, the Commission shall
issue a license to the applicant to transact business in the
Philippines for the purpose or purposes specified in such
license. Upon issuance of the license, such foreign corporation
may commence to transact business in the Philippines and
continue to do so for as long as it retains its authority to act as
a corporation under the laws of the country or state of its
incorporation, unless such license is sooner surrendered,
revoked, suspended or annulled in accordance with this Code
or other special laws.
Within sixty (60) days after the issuance of the license to
transact business in the Philippines, the license, except
foreign banking or insurance corporation, shall deposit with
the Securities and Exchange Commission for the benefit of
present and future creditors of the licensee in the Philippines,
securities satisfactory to the Securities and Exchange
Commission, consisting of bonds or other evidence of
indebtedness of the Government of the Philippines, its
political subdivisions and instrumentalities, or of government-
owned or controlled corporations and entities, shares of stock
in “registered enterprises” as this term is defined in Republic
Act No. 5186, shares of stock in domestic corporations
registered in the stock exchange, or shares of stock in domestic
insurance companies and banks, or any combination of these
kinds of securities, with an actual market value of at least one
hundred thousand (P100,000.) pesos; Provided, however, That
within six (6) months after each fiscal year of the licensee, the
Securities and Exchange Commission shall require the
licensee to deposit additional securities equivalent in actual
market value to two (2%) percent of the amount by which the
licensee’s gross income for that fiscal year exceeds five million
(P5,000,000.00) pesos. The Securities and Exchange
Commission shall also require deposit of additional securities
if the actual market value of the securities on deposit has
decreased by at least ten (10%) percent of their actual market
value at the time they were deposited. The Securities and
Exchange Commission may at its discretion release part of the
additional securities deposited with it if the gross income of
the licensee has decreased, or if the actual market value of the
total securities on deposit has increased, by more than ten
(10%) percent of the actual market value of the securities at
the time they were deposited. The Securities and Exchange
Commission may, from time to time, allow the licensee to
substitute other securities for those already on deposit as long
as the licensee is solvent. Such licensee shall be entitled to
collect the interest or dividends on the securities deposited. In
the event the licensee ceases to do business in the Philippines,
the securities deposited as aforesaid shall be returned, upon
the licensee’s application therefor and upon proof to the
satisfaction of the Securities and Exchange Commission that
the licensee has no liability to Philippine residents, including
the Government of the Republic of the Philippines. (n)
Section 127. Who may be a resident agent. – A resident agent
may be either an individual residing in the Philippines or a
domestic corporation lawfully transacting business in the
Philippines: Provided, That in the case of an individual, he
must be of good moral character and of sound financial
standing. (n)
Section 128. Resident agent; service of process. – The
Securities and Exchange Commission shall require as a
condition precedent to the issuance of the license to transact
business in the Philippines by any foreign corporation that
such corporation file with the Securities and Exchange
Commission a written power of attorney designating some
person who must be a resident of the Philippines, on whom
any summons and other legal processes may be served in all
actions or other legal proceedings against such corporation,
and consenting that service upon such resident agent shall be
admitted and held as valid as if served upon the duly
authorized officers of the foreign corporation at its home office.
Any such foreign corporation shall likewise execute and file
with the Securities and Exchange Commission an agreement
or stipulation, executed by the proper authorities of said
corporation, in form and substance as follows:
“The (name of foreign corporation) does hereby stipulate and
agree, in consideration of its being granted by the Securities
and Exchange Commission a license to transact business in
the Philippines, that if at any time said corporation shall cease
to transact business in the Philippines, or shall be without any
resident agent in the Philippines on whom any summons or
other legal processes may be served, then in any action or
proceeding arising out of any business or transaction which
occurred in the Philippines, service of any summons or other
legal process may be made upon the Securities and Exchange
Commission and that such service shall have the same force
and effect as if made upon the duly-authorized officers of the
corporation at its home office.”
Whenever such service of summons or other process shall be
made upon the Securities and Exchange Commission, the
Commission shall, within ten (10) days thereafter, transmit by
mail a copy of such summons or other legal process to the
corporation at its home or principal office. The sending of such
copy by the Commission shall be necessary part of and shall
complete such service. All expenses incurred by the
Commission for such service shall be paid in advance by the
party at whose instance the service is made.
In case of a change of address of the resident agent, it shall be
his or its duty to immediately notify in writing the Securities
and Exchange Commission of the new address. (72a; and n)
Section 129. Law applicable. – Any foreign corporation
lawfully doing business in the Philippines shall be bound by
all laws, rules and regulations applicable to domestic
corporations of the same class, except such only as provide for
the creation, formation, organization or dissolution of
corporations or those which fix the relations, liabilities,
responsibilities, or duties of stockholders, members, or officers
of corporations to each other or to the corporation. (73a)
Section 130. Amendments to articles of incorporation or by-
laws of foreign corporations. – Whenever the articles of
incorporation or by-laws of a foreign corporation authorized to
transact business in the Philippines are amended, such foreign
corporation shall, within sixty (60) days after the amendment
becomes effective, file with the Securities and Exchange
Commission, and in the proper cases with the appropriate
government agency, a duly authenticated copy of the articles
of incorporation or by-laws, as amended, indicating clearly in
capital letters or by underscoring the change or changes made,
duly certified by the authorized official or officials of the
country or state of incorporation. The filing thereof shall not of
itself enlarge or alter the purpose or purposes for which such
corporation is authorized to transact business in the
Philippines. (n)
Section 131. Amended license. – A foreign corporation
authorized to transact business in the Philippines shall obtain
an amended license in the event it changes its corporate name,
or desires to pursue in the Philippines other or additional
purposes, by submitting an application therefor to the
Securities and Exchange Commission, favorably endorsed by
the appropriate government agency in the proper cases. (n)
Section 132. Merger or consolidation involving a foreign
corporation licensed in the Philippines. – One or more foreign
corporations authorized to transact business in the Philippines
may merge or consolidate with any domestic corporation or
corporations if such is permitted under Philippine laws and by
the law of its incorporation: Provided, That the requirements
on merger or consolidation as provided in this Code are
followed.
Whenever a foreign corporation authorized to transact
business in the Philippines shall be a party to a merger or
consolidation in its home country or state as permitted by the
law of its incorporation, such foreign corporation shall, within
sixty (60) days after such merger or consolidation becomes
effective, file with the Securities and Exchange Commission,
and in proper cases with the appropriate government agency,
a copy of the articles of merger or consolidation duly
authenticated by the proper official or officials of the country
or state under the laws of which merger or consolidation was
effected: Provided, however, That if the absorbed corporation
is the foreign corporation doing business in the Philippines,
the latter shall at the same time file a petition for withdrawal
of its license in accordance with this Title. (n)
Section 133. Doing business without a license. – No foreign
corporation transacting business in the Philippines without a
license, or its successors or assigns, shall be permitted to
maintain or intervene in any action, suit or proceeding in any
court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid
cause of action recognized under Philippine laws. (69a)
Section 134. Revocation of license. – Without prejudice to other
grounds provided by special laws, the license of a foreign
corporation to transact business in the Philippines may be
revoked or suspended by the Securities and Exchange
Commission upon any of the following grounds:
1. Failure to file its annual report or pay any fees as required
by this Code;
2. Failure to appoint and maintain a resident agent in the
Philippines as required by this Title;
3. Failure, after change of its resident agent or of his address,
to submit to the Securities and Exchange Commission a
statement of such change as required by this Title;
4. Failure to submit to the Securities and Exchange
Commission an authenticated copy of any amendment to its
articles of incorporation or by-laws or of any articles of merger
or consolidation within the time prescribed by this Title;
5. A misrepresentation of any material matter in any
application, report, affidavit or other document submitted by
such corporation pursuant to this Title;
6. Failure to pay any and all taxes, imposts, assessments or
penalties, if any, lawfully due to the Philippine Government or
any of its agencies or political subdivisions;
7. Transacting business in the Philippines outside of the
purpose or purposes for which such corporation is authorized
under its license;
8. Transacting business in the Philippines as agent of or acting
for and in behalf of any foreign corporation or entity not duly
licensed to do business in the Philippines; or
9. Any other ground as would render it unfit to transact
business in the Philippines. (n)
Section 135. Issuance of certificate of revocation. – Upon the
revocation of any such license to transact business in the
Philippines, the Securities and Exchange Commission shall
issue a corresponding certificate of revocation, furnishing a
copy thereof to the appropriate government agency in the
proper cases.
The Securities and Exchange Commission shall also mail to
the corporation at its registered office in the Philippines a
notice of such revocation accompanied by a copy of the
certificate of revocation. (n)
Section 136. Withdrawal of foreign corporations. – Subject to
existing laws and regulations, a foreign corporation licensed to
transact business in the Philippines may be allowed to
withdraw from the Philippines by filing a petition for
withdrawal of license. No certificate of withdrawal shall be
issued by the Securities and Exchange Commission unless all
the following requirements are met;
1. All claims which have accrued in the Philippines have been
paid, compromised or settled;
2. All taxes, imposts, assessments, and penalties, if any,
lawfully due to the Philippine Government or any of its
agencies or political subdivisions have been paid; and
3. The petition for withdrawal of license has been published
once a week for three (3) consecutive weeks in a newspaper of
general circulation in the Philippines.
TITLE XVI
MISCELLANEOUS PROVISIONS
Section 137. Outstanding capital stock defined. – The term
“outstanding capital stock”, as used in this Code, means the
total shares of stock issued under binding subscription
agreements to subscribers or stockholders, whether or not
fully or partially paid, except treasury shares. (n)
Section 138. Designation of governing boards. – The provisions
of specific provisions of this Code to the contrary
notwithstanding, non-stock or special corporations may,
through their articles of incorporation or their by-laws,
designate their governing boards by any name other than as
board of trustees. (n)
Section 139. Incorporation and other fees. – The Securities and
Exchange Commission is hereby authorized to collect and
receive fees as authorized by law or by rules and regulations
promulgated by the Commission. (n)
Section 140. Stock ownership in certain corporations. –
Pursuant to the duties specified by Article XIV of the
Constitution, the National Economic and Development
Authority shall, from time to time, make a determination of
whether the corporate vehicle has been used by any
corporation or by business or industry to frustrate the
provisions thereof or of applicable laws, and shall submit to
the Batasang Pambansa, whenever deemed necessary, a
report of its findings, including recommendations for their
prevention or correction.
Maximum limits may be set by the Batasang Pambansa for
stockholdings in corporations declared by it to be vested with a
public interest pursuant to the provisions of this section,
belonging to individuals or groups of individuals related to
each other by consanguinity or affinity or by close business
interests, or whenever it is necessary to achieve national
objectives, prevent illegal monopolies or combinations in
restraint or trade, or to implement national economic policies
declared in laws, rules and regulations designed to promote
the general welfare and foster economic development.
In recommending to the Batasang Pambansa corporations,
businesses or industries to be declared vested with a public
interest and in formulating proposals for limitations on stock
ownership, the National Economic and Development Authority
shall consider the type and nature of the industry, the size of
the enterprise, the economies of scale, the geographic location,
the extent of Filipino ownership, the labor intensity of the
activity, the export potential, as well as other factors which
are germane to the realization and promotion of business and
industry.
Section 141. Annual report or corporations. – Every
corporation, domestic or foreign, lawfully doing business in the
Philippines shall submit to the Securities and Exchange
Commission an annual report of its operations, together with a
financial statement of its assets and liabilities, certified by any
independent certified public accountant in appropriate cases,
covering the preceding fiscal year and such other requirements
as the Securities and Exchange Commission may require.
Such report shall be submitted within such period as may be
prescribed by the Securities and Exchange Commission. (n)
Section 142. Confidential nature of examination results. – All
interrogatories propounded by the Securities and Exchange
Commission and the answers thereto, as well as the results of
any examination made by the Commission or by any other
official authorized by law to make an examination of the
operations, books and records of any corporation, shall be kept
strictly confidential, except insofar as the law may require the
same to be made public or where such interrogatories, answers
or results are necessary to be presented as evidence before any
court. (n)
Section 143. Rule-making power of the Securities and
Exchange Commission. – The Securities and Exchange
Commission shall have the power and authority to implement
the provisions of this Code, and to promulgate rules and
regulations reasonably necessary to enable it to perform its
duties hereunder, particularly in the prevention of fraud and
abuses on the part of the controlling stockholders, members,
directors, trustees or officers. (n)
Section 144. Violations of the Code. – Violations of any of the
provisions of this Code or its amendments not otherwise
specifically penalized therein shall be punished by a fine of not
less than one thousand (P1,000.00) pesos but not more than
ten thousand (P10,000.00) pesos or by imprisonment for not
less than thirty (30) days but not more than five (5) years, or
both, in the discretion of the court. If the violation is
committed by a corporation, the same may, after notice and
hearing, be dissolved in appropriate proceedings before the
Securities and Exchange Commission: Provided, That such
dissolution shall not preclude the institution of appropriate
action against the director, trustee or officer of the corporation
responsible for said violation: Provided, further, That nothing
in this section shall be construed to repeal the other causes for
dissolution of a corporation provided in this Code. (190 1/2 a)
Section 145. Amendment or repeal. – No right or remedy in
favor of or against any corporation, its stockholders, members,
directors, trustees, or officers, nor any liability incurred by any
such corporation, stockholders, members, directors, trustees,
or officers, shall be removed or impaired either by the
subsequent dissolution of said corporation or by any
subsequent amendment or repeal of this Code or of any part
thereof. (n)
Section 146. Repealing clause. – Except as expressly provided
by this Code, all laws or parts thereof inconsistent with any
provision of this Code shall be deemed repealed. (n)
Section 147. Separability of provisions. – Should any provision
of this Code or any part thereof be declared invalid or
unconstitutional, the other provisions, so far as they are
separable, shall remain in force. (n)
Section 148. Applicability to existing corporations. – All
corporations lawfully existing and doing business in the
Philippines on the date of the effectivity of this Code and
heretofore authorized, licensed or registered by the Securities
and Exchange Commission, shall be deemed to have been
authorized, licensed or registered under the provisions of this
Code, subject to the terms and conditions of its license, and
shall be governed by the provisions hereof: Provided, That if
any such corporation is affected by the new requirements of
this Code, said corporation shall, unless otherwise herein
provided, be given a period of not more than two (2) years from
the effectivity of this Code within which to comply with the
same. (n)
Section 149. Effectivity. – This Code shall take effect
immediately upon its approval.
Approved, May 1, 1980
REPUBLIC ACT NO. 8799
THE SECURITIES REGULATION CODE
Be it enacted by the Senate and the House of Representative
of the Philippines in the Congress assembled:
CHAPTER I
TITLE AND DEFINITIONS
Section 1. Title. - This shall be known as "The Securities
Regulation Code"
Section 2. Declaration of State Policy. – The State shall
establish a socially conscious, free market that regulates itself,
encourage the widest participation of ownership in
enterprises, enhance the democratization of wealth, promote
the development of the capital market, protect investors,
ensure full and fair disclosure about securities, minimize if not
totally eliminate insider trading and other fraudulent or
manipulative devices and practices which create distortions in
the free market. To achieve these ends, this Securities
Regulation Code is hereby enacted.
Section 3. Definition of Terms. - 3.1. "Securities" are shares,
participation or interests in a corporation or in a commercial
enterprise or profit-making venture and evidenced by a
certificate, contract, instruments, whether written or
electronic in character. It includes:
(a) Shares of stocks, bonds, debentures, notes evidences of
indebtedness, asset-backed securities;
(b) Investment contracts, certificates of interest or
participation in a profit sharing agreement, certifies of deposit
for a future subscription;
(c) Fractional undivided interests in oil, gas or other mineral
rights;
(d) Derivatives like option and warrants;
(e) Certificates of assignments, certificates of participation,
trust certificates, voting trust certificates or similar
instruments
(f) Proprietary or nonproprietary membership certificates in
corporations; and
(g) Other instruments as may in the future be determined by
the Commission.
3.2. "Issuer" is the originator, maker, obligor, or creator of the
security.
3.3. "Broker" is a person engaged in the business of buying and
selling securities for the account of others.
3.4. "Dealer" means many person who buys sells securities for
his/her own account in the ordinary course of business.
3.5. "Associated person of a broker or dealer" is an employee
therefor whom, directly exercises control of supervisory
authority, but does not include a salesman, or an agent or a
person whose functions are solely clerical or ministerial.
3.6. "Clearing Agency" is any person who acts as intermediary
in making deliveries upon payment effect settlement in
securities transactions.
3.7. "Exchange" is an organized market place or facility that
brings together buyers and sellers and executes trade of
securities and/or commodities.
3.8. "Insider" means (a) the issuer; (b) a director or officer (or
any person performing similar functions) of, or a person
controlling the issuer; gives or gave him access to material
information about the issuer or the security that is not
generally available to the public; (d) A government employee,
director, or officer of an exchange, clearing agency and/or self-
regulatory organization who has access to material
information about an issuer or a security that is not generally
available to the public; or (e) a person who learns such
information by a communication from any forgoing insiders.
3.9. "Pre-need plans" are contracts which provide for the
performance of future services of or the payment of future
monetary considerations at the time actual need, for which
plan holders pay in cash or installment at stated prices, with
or without interest or insurance coverage and includes life,
pension, education, interment, and other plans which the
Commission may from time to time approve.
3.10. "Promoter" is a person who, acting alone or with others,
takes initiative in founding and organizing the business or
enterprise of the issuer and receives consideration therefor.
3.11. "Prospectus" is the document made by or an behalf of an
issuer, underwriter or dealer to sell or offer securities for sale
to the public through registration statement filed with the
Commission.
3.12. "Registration statement" is the application for the
registration of securities required to be filed with the
Commission.
3.13. "Salesman" is a natural person, employed as such as an
agent, by a dealer, issuer or broker to buy and sell securities.
3.14. "Uncertificated security" is a security evidenced by
electronic or similar records.
3.15. "Underwriter" is a person who guarantees on a firm
commitment and/or declared best effort basis the distribution
and sale of securities of any kind by another company.
CHAPTER II
SECURITIES AND EXCHANGE COMMISSION
Section 4. Administrative Agency. – 4.1. This Code shall be
administered by the Security and Exchange Commission
(hereinafter referred to as the "Commission") as a Collegial
body, composed of a chairperson and (4) Commissioners,
appointed by the President for a term of (7) seven years each
and who shall serves as such until their successor shall have
been appointed and qualified. A Commissioner appointed to
fill a vacancy occurring prior to the expiration of the term for
which his/her predecessor was appointed, shall serve only for
the unexpired portion of their terms under Presidential Decree
No. 902-A. Unless the context indicates otherwise, the term
"Commissioner" includes the Chairperson.
4.2. The Commissioners must be natural-born citizens of the
Philippines, at least forty (40) years of age for the Chairperson
and at least thirty-five (35) years of age for the
Commissioners, of good moral character, or unquestionable
integrity, of known probity and patriotism, and with
recognized competence in social and economic disciplines:
Provided, That the majority of Commissioners, including the
Chairperson, shall be members of the Philippine Bar.
4.3. The chairperson is chief executive officer of the
Commission. The Chairperson shall execute and administer
the policies, decisions, orders and resolutions approved by the
Commission and shall have the general executive direction
and supervision of the work and operation of the Commission
and it’s members, bodies, boards, offices, personnel and all its
administrative business.
4.4. The salary of the Chairperson and the Commissioners
shall be fixed by the President of the Philippines based on the
objective classification system, at a sum comparable to the
members of the Monetary Board and commensurate
importance and responsibilities attached to the position.
4.5. The Commission shall hold meetings at least once a week
for the conduct of business or as often as may be necessary
upon the call of the Chairperson or upon the request of (3)
Commissioners. The notice of the meeting shall be given to all
Commissioners and the presence of three (3) Commissioners
shall constitute a quorum. In the absence of the Chairperson,
the most senior Commissioner shall act as presiding officer of
the meeting.
4.6. The Commission may, for purposes of efficiency, delegate
any of its functions to any department of office of the
Commission, an individual Commissioner or staff member of
the Commission except its review or appellate authority and
its power to adopt, alter and supplement any rule or
regulation.
The commission may review upon its own initiative or upon
the petition of any interested party any action of any
department or office, individual Commissioner, or staff
member of the Commission.
Section 5. Powers and Functions of the Commission.– 5.1. The
commission shall act with transparency and shall have the
powers and functions provided by this code, Presidential
Decree No. 902-A, the Corporation Code, the Investment
Houses law, the Financing Company Act and other existing
laws. Pursuant thereto the Commission shall have, among
others, the following powers and functions:
(a) Have jurisdiction and supervision over all corporations,
partnership or associations who are the grantees of primary
franchises and/or a license or a permit issued by the
Government;
(b) Formulate policies and recommendations on issues
concerning the securities market, advise Congress and other
government agencies on all aspect of the securities market and
propose legislation and amendments thereto;
(c) Approve, reject, suspend, revoke or require amendments to
registration statements, and registration and licensing
applications;
(d) Regulate, investigate or supervise the activities of persons
to ensure compliance;
(e) Supervise, monitor, suspend or take over the activities of
exchanges, clearing agencies and other SROs;
(f) Impose sanctions for the violation of laws and rules,
regulations and orders, and issued pursuant thereto;
(g) Prepare, approve, amend or repeal rules, regulations and
orders, and issue opinions and provide guidance on and
supervise compliance with such rules, regulation and orders;
(h) Enlist the aid and support of and/or deputized any and all
enforcement agencies of the Government, civil or military as
well as any private institution, corporation, firm, association
or person in the implementation of its powers and function
under its Code;
(i) Issue cease and desist orders to prevent fraud or injury to
the investing public;
(j) Punish for the contempt of the Commission, both direct and
indirect, in accordance with the pertinent provisions of and
penalties prescribed by the Rules of Court;
(k) Compel the officers of any registered corporation or
association to call meetings of stockholders or members
thereof under its supervision;
(l) Issue subpoena duces tecum and summon witnesses to
appear in any proceedings of the Commission and in
appropriate cases, order the examination, search and seizure
of all documents, papers, files and records, tax returns and
books of accounts of any entity or person under investigation
as may be necessary for the proper disposition of the cases
before it, subject to the provisions of existing laws;
(m) Suspend, or revoke, after proper notice and hearing the
franchise or certificate of registration of corporations,
partnership or associations, upon any of the grounds provided
by law; and
(n) Exercise such other powers as may be provided by law as
well as those which may be implied from, or which are
necessary or incidental to the carrying out of, the express
powers granted the Commission to achieve the objectives and
purposes of these laws.
5.2. The Commission’s jurisdiction over all cases enumerated
under section 5 of Presidential Decree No. 902-A is hereby
transferred to the Courts of general jurisdiction or the
appropriate Regional Trial Court: Provided, That the Supreme
Court in the exercise of its authority may designate the
Regional Trial Court branches that shall exercise jurisdiction
over the cases. The Commission shall retain jurisdiction over
pending cases involving intra-corporate disputes submitted for
final resolution which should be resolved within one (1) year
from the enactment of this Code. The Commission shall retain
jurisdiction over pending suspension of payment/rehabilitation
cases filed as of 30 June 2000 until finally disposed.
Section 6. Indemnification and Responsibilities of
Commissioners.– 6.1. The Commission shall indemnify each
Commissioner and other officials of the Commission, including
personnel performing supervision and examination functions
for all cost and expenses reasonably incurred by such persons
in connection with any civil or criminal actions, suits or
proceedings to be liable for gross negligence or misconduct. In
the event of settlement or compromise, indemnification shall
be provided only in connection with such matters covered by
the settlement as to which the Commission is advised by
external counsel that the persons to be indemnified did not
commit any gross negligence or misconduct. The costs and
expenses incurred in defending the aforementioned action, suit
or proceeding may be paid by the Commission in advance of
the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the Commissioner,
officer or employee to repay the amount advanced should it
ultimately be determined by the Commission that he/she is not
entitled to be indemnified as provided in this subsection.
6.2. The Commissioners, officers and employees of the
Commission who willfully violate this Code or who are guilty
of negligence, abuse or acts of malfeasance or fail to exercise
extraordinary diligence in the performance of their duties
shall be held liable for any loss or injury suffered by the
Commission or other institutions such as a result of such
violation, negligence, abuse, or malfeasance, or failure to
exercise extraordinary diligence. Similar responsibility shall
apply to the Commissioners, officers and employees of the
Commission for (1) the disclosure of any information,
discussion or resolution of the Commission of a confidential
nature, or about the confidential operations of the Commission
unless the disclosure is in connection with the performance of
official functions with the Commission or prior authorization
of the Commissioners; or (2) the use of such information for
personal gain or to the detriment of the government, the
Commission or third parties: Provided, however, That any
data or information required to be submitted to the President
and/or Congress or its appropriate committee, or to be
published under the provisions of this Code shall not be
considered confidential.
Section 7. Reorganization. – 7.1. To achieve the goals of this
Code, consistent with the Civil Service laws, the Commission
is hereby authorized to provide for its reorganization, to
streamline its structure and operations, upgrade its human
resource component and enable it to more efficiently and
effectively perform its functions and exercise its power under
this Code.
7.2. All positions of the Commissions shall be governed by a
compensation and position classification system and
qualification standards approved by the Commission based on
comprehensive job analysis and audit of actual duties and
personal responsibilities. The compensation plan shall be
comparable with the prevailing compensation plan in the
Bangko Sentral ng Pilipinas and other government financial
institutions and shall be subject to periodic review by the
Commission no more than once every two (2) years without
prejudice to yearly merit review or increases based on
productivity and efficiency. The Commission shall, therefore,
be exempt from laws, rules, and regulations on compensation,
position classification and qualifications standards. The
Commission shall, however, endeavor to make its system
conform as closely as possible with the principles under the
Compensation and Position Classification Act of 1989
(Republic Act. 6758, as amended).
CHAPTER III
REGISTRATION OF SECURITIES
Section 8. Requirement of Registration of Securities.– 8.1.
Securities shall not be sold or offered for sale or distribution
within the Philippines, without a registration statement duly
filed with and approved by the Commission. Prior to such sale,
information on the securities, in such form and with such
substance as the Commission may prescribe, shall be made
available to each prospective purchaser.
8.2. The Commission may conditionally approve the
registration statement under such terms as it may deem
necessary.
8.3. The Commission may specify the terms and conditions
under which any written communication, including any
summary prospectus, shall be deemed not to constitute an
offer for sale under this Section.
8.4. A record of the registration of securities shall be kept in
Register Securities in which shall be recorded orders entered
by the Commission with respect such securities. Such register
and all documents or information with the respect to the
securities registered therein shall be open to public inspection
at reasonable hours on business days.
8.5. The Commission may audit the financial statements,
assets and other information of firm applying for registration
of its securities whenever it deems the same necessary to
insure full disclosure or to protect the interest of the investors
and the public in general.
Section 9. Exempt Securities. – 9.1. The requirement of
registration under Subsection 8.1 shall not as a general rule
apply to any of the following classes of securities:
(a) Any security issued or guaranteed by the Government of
the Philippines, or by any political subdivision or agency
thereof, or by any person controlled or supervised by, and
acting as an instrumentality of said Government.
(b) Any security issued or guaranteed by the government of
any country with which the Philippines maintains diplomatic
relations, or by any state, province or political subdivision
thereof on the basis of reciprocity: Provided, That the
Commission may require compliance with the form and
content for disclosures the Commission may prescribe.
(c) Certificates issued by a receiver or by a trustee in
bankruptcy duly approved by the proper adjudicatory body.
(d) Any security or its derivatives the sale or transfer of which,
by law, is under the supervision and regulation of the Office of
the Insurance Commission, Housing and Land Use Rule
Regulatory Board, or the Bureau of Internal Revenue.
(e) Any security issued by a bank except its own shares of
stock.
9.2. The Commission may, by rule or regulation after public
hearing, add to the foregoing any class of securities if it finds
that the enforcement of this Code with respect to such
securities is not necessary in the public interest and for the
protection of investors.
Section 10. Exempt Transactions. – 10.1. The requirement of
registration under Subsection 8.1 shall not apply to the sale of
any security in any of the following transactions:
(a) At any judicial sale, or sale by an executor, administrator,
guardian or receiver or trustee in insolvency or bankruptcy.
(b) By or for the account of a pledge holder, or mortgagee or
any of a pledge lien holder selling of offering for sale or
delivery in the ordinary course of business and not for the
purpose of avoiding the provision of this Code, to liquidate a
bonafide debt, a security pledged in good faith as security for
such debt.
(c) An isolated transaction in which any security is sold,
offered for sale, subscription or delivery by the owner
therefore, or by his representative for the owner’s account,
such sale or offer for sale or offer for sale, subscription or
delivery not being made in the course of repeated and
successive transaction of a like character by such owner, or on
his account by such representative and such owner or
representative not being the underwriter of such security.
(d) The distribution by a corporation actively engaged in the
business authorized by its articles of incorporation, of
securities to its stockholders or other security holders as a
stock dividend or other distribution out of surplus.
(e) The sale of capital stock of a corporation to its own
stockholders exclusively, where no commission or other
remuneration is paid or given directly or indirectly in
connection with the sale of such capital stock.
(f) The issuance of bonds or notes secured by mortgage upon
real estate or tangible personal property, when the entire
mortgage together with all the bonds or notes secured thereby
are sold to a single purchaser at a single sale.
(g) The issue and delivery of any security in exchange for any
other security of the same issuer pursuant to a right of
conversion entitling the holder of the security surrendered in
exchange to make such conversion: Provided, That the security
so surrendered has been registered under this Code or was,
when sold, exempt from the provision of this Code, and that
the security issued and delivered in exchange, if sold at the
conversion price, would at the time of such conversion fall
within the class of securities entitled to registration under this
Code. Upon such conversion the par value of the security
surrendered in such exchange shall be deemed the price at
which the securities issued and delivered in such exchange are
sold.
(h) Broker’s transaction, executed upon customer’s orders, on
any registered Exchange or other trading market.
(i) Subscriptions for shares of the capitals stocks of a
corporation prior to the incorporation thereof or in pursuance
of an increase in its authorized capital stocks under the
Corporation Code, when no expense is incurred, or no
commission, compensation or remuneration is paid or given in
connection with the sale or disposition of such securities, and
only when the purpose for soliciting, giving or taking of such
subscription is to comply with the requirements of such law as
to the percentage of the capital stock of a corporation which
should be subscribed before it can be registered and duly
incorporated, or its authorized, capital increase.
(j) The exchange of securities by the issuer with the existing
security holders exclusively, where no commission or other
remuneration is paid or given directly or indirectly for
soliciting such exchange.
(k) The sale of securities by an issuer to fewer than twenty
(20) persons in the Philippines during any twelve-month
period.
(l) The sale of securities to any number of the following
qualified buyers:
(i) Bank;
(ii) Registered investment house;
(iii) Insurance company;
(iv) Pension fund or retirement plan maintained by the
Government of the Philippines or any political subdivision
thereof or manage by a bank or other persons authorized by
the Bangko Sentral to engage in trust functions;
(v) Investment company or;
(vi) Such other person as the Commission may rule by
determine as qualified buyers, on the basis of such factors as
financial sophistication, net worth, knowledge, and experience
in financial and business matters, or amount of assets under
management.
10.2. The Commission may exempt other transactions, if it
finds that the requirements of registration under this Code is
not necessary in the public interest or for the protection of the
investors such as by the reason of the small amount involved
or the limited character of the public offering.
10.3. Any person applying for an exemption under this
Section, shall file with the Commission a notice identifying the
exemption relied upon on such form and at such time as the
Commission by the rule may prescribe and with such notice
shall pay to the Commission fee equivalent to one-tenth (1/10)
of one percent (1%) of the maximum value aggregate price or
issued value of the securities.
Section 11. Commodity Futures Contracts. - No person shall
offer, sell or enter into commodity futures contracts except in
accordance with the rules, regulations and orders the
Commission may prescribe in the public interest. The
Commission shall promulgate rules and regulations involving
commodity futures contracts to protect investors to ensure the
development of a fair and transparent commodities market.
Section 12. Procedure of Registration Securities. - 12.1. All
securities required to be registered under Subsection 8. I shall
be registered through the filing by the issuer in the main office
of the Commission, of a sworn registration statement with the
respect to such securities, in such form and containing such
information and document as the Commission prescribe. The
registration statement shall include any prospectus required
or permitted to be delivered under Subsections 8.2, 8.3, and
8.4.
12.2. In promulgating rules governing the content of any
registration statement (including any prospectus made a part
thereof or annex thereto), the Commission may require the
registration statement to contain such information or
documents as it may, by rule, prescribe. It may dispense with
any such requirements, or may require additional information
or documents, including written information from an expert,
depending on the necessity thereof or their applicability to the
class of securities sought to be registered.
12.3. The information required for the registration of any kind,
and all securities, shall include, among others, the effect of the
securities issue on ownership, on the mix of ownership,
especially foreign and local ownership.
12.4. The registration statement shall be signed by the issuer’s
executive officer, its principal operating officer, its principal
financial officer, its comptroller, its principal accounting
officer, its corporate secretary, or persons performing similar
functions accompanied by a duly verified resolution of the
board of directors of the issuer corporation. The written
consent of the expert named as having certified any part of the
registration statement or any document used in connection
therewith shall also be filed. Where the registration statement
shares to be sold by selling shareholders, a written
certification by such selling shareholders as to the accuracy of
any part of the registration statement contributed to by such
selling shareholders shall be filed.
12.5. (a) Upon filing of the registration statement, the issuer
shall pay to the Commission a fee of not more than one-tenth
(1/10) of one per centum (1%) of the maximum aggregate price
at which such securities are proposed to be offered. The
Commission shall prescribe by the rule diminishing fees in
inverse proportion the value of the aggregate price of the
offering.
(b) Notice of the filing of the registration statement shall be
immediately published by the issuer, at its own expense, in
two (2) newspapers of general circulation in the Philippines,
once a week for two (2) consecutive weeks, or in such other
manner as the Commission by the rule shall prescribe, reciting
that a registration statement for the sale of such securities has
been filed, and that aforesaid registration statement, as well
as the papers attached thereto are open to inspection at the
Commission during business hours, and copies thereof,
photostatic or otherwise, shall be furnished to interested
parties at such reasonable charge as the Commission may
prescribe.
12.6. Within forty-five (45) days after the date of filing of the
registration statement, or by such later date to which the
issuer has consented, the Commission shall declare the
registration statement effective or rejected, unless the
applicant is allowed to amend the registration statement as
provided in Section 14 hereof. The Commission shall enter an
order declaring the registration statement to be effective if it
finds that the registration statement together with all the
other papers and documents attached thereto, is on its face
complete and that the requirements have been complied with.
The Commission may impose such terms and conditions as
may be necessary or appropriate for the protection of the
investors.
12.7. Upon affectivity of the registration statement, the issuer
shall state under oath in every prospectus that all registration
requirements have been met and that all information are true
and correct as represented by the issuer or the one making the
statement. Any untrue statement of fact or omission to state a
material fact required to be stated herein or necessary to make
the statement therein not misleading shall constitute fraud.
Section 13. Rejection and Revocation of Registration of
Securities. – 13.1. The Commission may reject a registration
statement and refuse registration of the security there-under,
or revoke the affectivity of a registration statement and the
registration of the security there-under after the due notice
and hearing by issuing an order to such effect, setting forth its
finding in respect thereto, if it finds that:
(a) The issuer:
(i) Has been judicially declared insolvent;
(ii) Has violated any of the provision of this Code, the rules
promulgate pursuant thereto, or any order of the Commission
of which the issuer has notice in connection with the offering
for which a registration statement has been filed
(iii) Has been or is engaged or is about to engage in fraudulent
transactions;
(iv) Has made any false or misleading representation of
material facts in any prospectus concerning the issuer or its
securities;
(v) Has failed to comply with any requirements that the
Commission may impose as a condition for registration of the
security for which the registration statement has been filed; or
(b) The registration statement is on its face incomplete or
inaccurate in any material respect or includes any untrue
statements of a material fact required to be stated therein or
necessary to make the statement therein not misleading; or
(c) The issuer, any officer, director or controlling person
performing similar functions, or any under writer has been
convicted, by a competent judicial or administrative body,
upon plea of guilty, or otherwise, of an offense involving moral
turpitude and /or fraud or is enjoined or restrained by the
Commission or other competent or administrative body for
violations of securities, commodities, and other related laws.
For the purposes of this subsection, the term "competent
judicial or administrative body" shall include a foreign court of
competent jurisdiction as provided for under Rules of Court.
13.2. The Commission may compel the production of all the
books and papers of such issuer, and may administer oaths to,
and examine the officers of such the issuer or any other person
connected therewith as to its business and affairs.
13.3. If any issuer shall refuse to permit an examination to be
made by the Commission, its refusal shall be ground for the
refusal or revocation of the registration of its securities.
13.4. If the Commission deems its necessary, it may issue an
order suspending the offer and sale of the securities pending
any investigation. The order shall state the grounds for taking
such action, but such order of suspension although binding
upon the persons notified thereof, shall be deemed
confidential, and shall not be published. Upon the issuance of
the suspension order, no further offer or sale of such security
shall be made until the same is lifted or set aside by the
Commission. Otherwise, such sale shall be void.
13.5. Notice of issuance of such order shall be given to the
issuer and every dealer and broker who shall have notified the
Commission of an intention to sell such security.
13.6. A registration statement may be withdrawn by the issuer
only with the consent of the Commission.
Section 14. Amendment to the Registration Statement. – 14.1.
If a registration statement is on its face incomplete or
inaccurate in any material respect, the Commission shall issue
an order directing the amendment of the registration
statement. Upon compliance with such order, the amended
registration statement shall become effective in accordance
with the procedure mentioned in Subsection 12.6 hereof.
14.2. An amendment filed prior to the effective date of the
registration statement shall recommence the forty-five (45)
day period within which the Commission shall act on a
registration statement. An amendment filed after the effective
date of the registration statement shall become effective only
upon such date as determined by the Commission.
14.3. If any change occurs in the facts set forth in a
registration statement, the issuer shall file an amendment
thereto setting forth the change.
14.4. If, at any time, the Commission finds that the
registration statement contains any false statement or omits
to state any fact required to be stated therein or necessary to
make the statements therein not misleading, the Commission
may conduct an examination, and, after due notice and
hearing, issue an order suspending the affectivity registration
statement. If the statement is duly amended, the suspension
order may be lifted.
14.5. In making such examination the Commission or any
officer or officers designated by it may administer oaths and
affirmations and shall have access to, and may demand the
production of, any books, records or documents relevant to the
examination. Failure of the issuer, underwriter, or any other
person to cooperate, or his obstruction or refusal to undergo an
examination, shall be a ground for the issuance of a
suspension order.
Section 15. Suspension of Registration. - 15.1. If at any time,
the information contained in the registration statement filed is
or has become misleading, incorrect, inadequate or incomplete
in any material respect, or the sale or offering for sale of the
security registered thereunder may work or tend to work a
fraud, the Commission may require from the issuer such
further information as may in its judgement be necessary to
enable the Commission to ascertain whether the registration
of such security should be revoked on any ground specified in
this Code. The Commission may also suspend the right to sell
and offer for the sale such security pending further
investigation, by entering an order specifying the grounds for
such action, and by notifying the issuer, underwriter, dealer or
broker known as participating in such offering.
15.2. The refusal to furnish information required by the
Commission may be a ground for the issuance of an order of
suspension pursuant to Subsection 15.1. Upon the issuance of
any such order and notification to the issuer, underwriter,
dealer or broken know as participating in such offering, no
further offer or sale of any such security shall be made until
the same is lifted or set aside by the Commission. Otherwise
such sale shall be void.
15.3. Upon issuance of an order of suspension, the Commission
shall conduct a hearing. If the Commission determines that
the sale of any security should be revoked is shall issue an
order prohibiting sale of such security.
15.4. Until the issuance of a final order, the suspension of the
right to sell, though binding upon the persons notified there of,
shall be deemed confidential, and shall not be published,
unless it shall appear that the order of suspension has been
violated after notice. If, however, the Commission finds that
the sale of the security will neither be fraudulent nor result in
fraud, it shall forthwith issue an order revoking the order of
suspension, and such security shall be restored to its status as
a registered security as of the date of such order of suspension.
CHAPTER IV
REGULATION OF PRE-NEED PLANS
Section 16. Pre-Need Plans. – No person shall sell or offer for
sale to the public any pre-need plan except in accordance with
rules and regulations which the Commission shall prescribe.
Such rules shall regulate the sale of pre-need plans by, among
other things, requiring the registration of pre-need plans,
licensing persons involved in the sale of pre- need plans,
requiring disclosures to prospective plan holders, prescribing
advertising guidelines, providing for uniform accounting
system, reports and recording keeping with respect to such
plans, imposing capital, bonding and other financial
responsibility, and establishing trust funds for the payment of
benefits under such plans.
CHAPTER V
REPORTORIAL REQUIREMENTS
Section 17. Periodic and Other Reports of Issuer. 17.1. Every
issuer satisfying the requirements in Subsection 17.2 hereof
shall file with the Commission:
(a) Within one hundred thirty-five (135) days, after the end of
the issuer’s fiscal year, or such other time as the Commission
may prescribe, an annual report which shall include, among
others, a balance sheet, profit and loss statement and
statement of cash flows, for such last fiscal year, certified
public accountant, an a management discussion and analysis
of results of operation; and
(b) Such other periodical reports for interim fiscal periods and
current reports on significant developments of the issuer as
the Commission may prescribe as necessary to keep current
information on the operation of the business and financial
condition of the issuer.
17.2. The reportorial requirements of Subsection 17.1 shall
apply to the following:
(a) An issuer which has sold a class of its securities pursuant
to a registration under section 12 hereof: Provided however,
That the obligation of such issuer to file reports shall be
suspended for any fiscal year after the year such registration
became effective if such issuer, as of the first day of any such
fiscal year, has less than one hundred (100) holder of such
class securities or such other number as the Commission shall
prescribe and it notifies the Commission of such;
(b) An issuer with a class of securities listed for trading on an
Exchange; and
(c) An issuer with assets of at least Fifty million pesos
(50,000,000.00) or such other amount as the Commission shall
prescribe, and having two hundred (200) or more holder each
holding at least one hundred (100) share of a class of its equity
securities: Provided, however, That the obligation of such
issuer to file report shall be terminate ninety (90) days after
notification to the Commission by the issuer that the number
of its holders holding at least one hundred (100) share reduced
to less than one hundred (100).
17.3. Every issuer of a security listed for trading on an
Exchange a copy of any report filed with the Commission
under Subsection 17.1. hereof.
17.4. All reports (including financial statements) required to
be filed with the Commission pursuant to Subsection 17.1
hereof shall be in such form, contain such information and be
filed at such times as the Commission shall prescribe, and
shall be in lieu of any periodical or current reports or financial
statements otherwise required to be filed under the
Commission shall prescribe.
17.5. Every issuer which has a class of equity securities
satisfying any of the requirements in Subsection 17.2 shall
furnish to each holder of such equity security an annual report
in such form and containing such information as the
Commission shall prescribe.
17.6. Within such period as the Commission may prescribe
preceding the annual meeting of the holders of any equity
security of a class entitled to vote at such meeting , the issuer
shall transmit to such holders an annual report in conformity
with subsection 17.5.
Section 18. Reports by five per centum (5%) Holders of Equity
Securities. – 18.1. In every case in which an issuer satisfies
the requirements of Subsection 17.2 hereof any person who
acquires directly or indirectly the beneficial ownership of more
than five of per centum (5%) of such class or in excess of such
lesser per centum as the Commission by rule may prescribe,
shall, within ten (10) days after such acquisition or such
reasonable time as fixed by the Commission, submit to the
issuer of the securities, to the Exchange where the security is
traded, and to the Commission a sworn statement containing
the following information and such order information as the
Commission may require in the public interest or for the
protection of investors.
(a) The personal background, identity, residence, and
citizenship of, and the nature of such beneficial ownership by,
such person and all other person by whom or on whose behalf
the purchases are effected; in the event the beneficial owner is
a juridical person, the of business of the beneficial owner shall
also be reported;
(b) If the purpose of the purchases or prospective purchases is
to acquire control of the business of the issuer of the securities,
any plans or proposals which such persons may have that will
effect a major change in its business or corporate structure;
(c) The number of shares of such security which are
beneficially owned, and the number of shares concerning
which there is a right to acquire, directly or indirectly, by; (i)
such person, and (ii) each associate of such person, giving the
background, identity, residence, and citizenship of each such
associate; and
(d) Information as to any contracts, arrangements, or
understanding with any person with respect to any securities
of the issuer including but not limited to transfer, joint
ventures, loan or option arrangements, puts or call guarantees
or division of losses or profits, or proxies naming the persons
with whom such contracts, arrangements, or understanding
have been entered into, and giving the details thereof.
18.2. If any change occurs in the facts set forth in the
statements, an amendment shall be transmitted to the issuer,
the Exchange and the Commission.
18.3. The Commission, may permit any person to file in lieu of
the statement required by subsection 17.1 hereof, a notice
stating the name of such person, the shares of any equity
securities subject to Subsection 17.1 which are owned by him,
the date of their acquisition and such other information as the
commission may specify, if it appears to the commission that
such securities were acquired by such person in the ordinary
course of his business and were not acquired for the purpose of
and do not have the effect of changing or influencing the
control of the issuer nor in connection with any transaction
having such purpose or effect.
CHAPTER VI
PROTECTION OF SHAREHOLDERS INTERESTS
Section 19. Tender Offers. – Any person or group of persons
acting in concert who intends to acquire at least 15% of any
class of any equity security of a listed corporation of any class
of any equity security of a corporation with assets of at least
fifty million pesos (50,000,000.00) and having two
hundred(200) or more stockholders at least one hundred
shares each or who intends to acquire at least thirty
percent(30%) of such equity over a period of twelve months(12)
shall make a tender offer to stockholders by filling with the
Commission a declaration to that effect; and furnish the
issuer, a statement containing such of the information
required in Section 17 of this Code as the Commission may
prescribe. Such person or group of persons shall publish all
request or invitations or tender offer or requesting such tender
offers subsequent to the initial solicitation or request shall
contain such information as the Commission may prescribe,
and shall be filed with the Commission and sent to the issuer
not alter than the time copies of such materials are first
published or sent or given to security holders.
(a) Any solicitation or recommendation to the holders of such a
security to accept or reject a tender offer or request or
invitation for tenders shall be made in accordance with such
rules and regulations as may be prescribe.
(b) Securities deposited pursuant to a tender offer or request
or invitation for tenders may be withdrawn by or on behalf of
the depositor at any time throughout the period that tender
offer remains open and if the securities deposited have not
been previously accepted for payment, and at any time after
sixty (60) days from the date of the original tender offer to
request or invitation, except as the Commission may otherwise
prescribe.
(c) Where the securities offered exceed that which person or
group of persons is bound or willing to take up and pay for, the
securities that are subject of the tender offers shall be taken
up us nearly as may be pro data, disregarding fractions,
according to the number of securities deposited to each
depositor. The provision of this subject shall also apply to
securities deposited within ten (10) days after notice of
increase in the consideration offered to security holders, as
described in paragraph (e) of this subsection, is first published
or sent or given to security holders.
(d) Where any person varies the terms of a tender offer or
request or invitation for tenders before the expiration thereof
by increasing the consideration offered to holders of such
securities, such person shall pay the increased consideration to
each security holder whose securities are taken up and paid
for whether or not such securities have been taken up by such
person before the variation of the tender offer or request or
invitation.
19.2. It shall be lawful for any person to make any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements made in the light of
the circumstances under which they are made, not mis-
leading, or to engaged to any fraudulent, deceptive or
manipulative acts or practices, in connection with any tender
offer or request or invitation for tenders, or any solicitation for
any security holders in opposition to or in favor of any such
favor of any such offer, request, or invitation. The Commission
shall, for the purposes of this subsection, define and prescribe
means reasonably designed to prevent, such acts and practices
as are fraudulent, deceptive and manipulative.
Section 20. Proxy solicitations. - 20.1. Proxies must be issued
and proxy solicitation must be made in accordance with rules
and regulations to be issued by the Commission;
20.2. Proxies must be in writing, signed by the stockholder or
his duly authorized representative and file before the
scheduled meeting with the corporate secretary.
20.3. Unless otherwise provided in the proxy, it shall be valid
only for the meeting for which it is intended. No proxy shall be
valid only for the meting for which it is intended. No proxy
shall be valid and effective for a period longer than five (5)
years at one time.
20.4. No broker or dealer shall give any proxy, consent or any
authorization, in respect of any security carried for the
account of the customer, to a person other than the customer,
without written authorization of such customer.
20.5. A broker or dealer who holds or acquire the proxy for at
least ten percent (10%) or such percentage as the commission
may prescribe of the outstanding share of such issuer, shall
submit a report identifying the beneficial owner of ten days
after such acquisition, for its own account or customer, to the
issuer of security, to the exchange where the security is traded
and to the Commission.
Section 21. Fees of Tender Offers and Certain Proxy
Solicitations. – At the time of filling with the Commission of
any statement required under Section 19 for any tender offer
or Section 72.2 for issuer purchases, or Section 20 for proxy or
consent solicitation, The Commission may require that the
person making such filing pay a fee of not more than one-tenth
(1/10)(1%) of;
21.1. The propose aggregate purchase price in the case of a
transaction under Section 20 or 72.2; or
21.2. The proposed payment in cash, and ion value of any
securities or property to be transferred in the acquisition,
merger or consolidating, or the cash and value of any
securities proposed to be received upon the sale disposition of
such assets in the case of a solicitation under Section 20. The
Commission shall prescribe by rule diminishing fees in inverse
proportion to the value of the aggregate price of the offering.
Section 22. Internal Record Keeping and Accounting Control. -
Every issuer which has a class of securities that satisfies the
requirements of Subsection 17.2 shall:
22.1. Device and maintain a system of internal accounting
controls sufficient to provide reasonable assurance that: (a)
Transactions and access to assets are pursuant to
management authorization; (b) Financial statements are
provided in conformity with generally accepted accounting
principles that are adopted by the Accounting standards
council and the rules promulgated by the Commission with the
regard to the preparation of the financial statements; and (c)
Recorded assets are compared with existing assets at
reasonable intervals and differences are reconciled.
Section 23. Transactions of Directors officers and Principal
Stockholders. – 23.1. Every person who is directly or indirectly
the beneficial owner of more than ten per centum (10%) of any
class of any equity security which satisfies the requirements of
subsection 17.2, or who is a director or an officer of the issuer
of such security, shall file, at the time either such requirement
is first satisfied or after ten days after he becomes such a
beneficial owner, director, or officer, a statement form the
Commission and, if such security is listed for trading on an
exchange, also with the exchange of the amount of all the
equity security of such issuer of which he is the beneficial
owner, and within ten days after the close of each calendar
month thereafter, if there has been a change in such
ownership at the close of the calendar month and such
changes in his ownership as have occurred during such
calendar month.
23.2. For the purpose of preventing the unfair use of
information which may have been obtained by such beneficial
owner, director or officer by reason of his relationship to the
issuer, any profit realized by him from any purchase or sale, or
any sale or purchase, of any equity security of such issuer
within any period of less than (6) months unless such security
was acquired in good faith in connection with a debt
previously contracted, shall inure to and be recoverable by the
issuer, irrespective of any intention of holding the security
purchased or of not repurchasing the security sold for a period
exceeding six (6) months. Suit to recover such profit may be
instituted before the Regional Trial Court by the issuer, or by
the owner of any security of the issuer in the name and in
behalf of the issuer if the issuer shall fail or refuse to bring
such suit within sixty (60) days after request or shall fail
diligently to prosecute the same thereafter, but not such shall
be brought more than two years after the date such profit was
realized. This Subsection shall not be construed to cover any
transaction were such beneficial owner was not such both time
of the owner or the sale, or the sale of purchase, of the security
involved, or any transaction or transactions which the
Commission by rules and regulations may exempt as not
comprehended within the purpose of this subsection.
23.3. It shall be unlawful for any such beneficial owner,
director or officer, directly or indirectly, to sell any equity
security of such issuer if the person selling the principal: (a)
Does not own the security sold: or (b) If owning the security,
does not deliver not deliver it against such sale within 20 days
thereafter, or does not within five days after such sale deposit
in the mails or the unusual channels of transportation; but no
person shall be deemed to have violated this subsection if he
proves not withstanding the exercise of good faith he was
unable to make such delivery in such time, or that to do so
would cause undue inconvenience or expense.
23.4. The provisions of subsection 23.2 shall not apply to any
purchase and sale, or sale and purchase, and the provisions of
Subsection 23.3 shall not apply to any sale, of an equity
security not then or thereafter held by him and an investment
account, by a dealer in the ordinary course of his business and
incident to the establishment or maintenance by him of a
primary or secondary market, otherwise than on an Exchange,
for such security. The Commission may, by such rules and
regulations as it deems necessary or appropriate in the public
interest, define and prescribe terms and conditions with
respect to securities held in an investment account and
transactions made in the ordinary course of business and
incident to the establishment or maintenance of a primary or
secondary market.
CHAPTER VII
PROHIBITIONS AND FRAUD, MANIPULATION AND
INSIDER TRADING
Section 24. Manipulation of Security Prices; Devices and
Practices. – 24.1 It shall be unlawful for any person acting for
himself or through a dealer or broker, directly or indirectly:
(a) To create a false or misleading appearance of active trading
in any listed security traded in an Exchange of any other
trading market (hereafter referred to purposes of this Chapter
as "Exchange"):
(i) By effecting any transaction in such security which involves
no change in the beneficial ownership thereof;
(ii) By entering an order or orders for the purchase or sale of
such security with the knowledge that a simultaneous order or
orders of substantially the same size, time and price, for the
sale or purchase of any such security, has or will be entered by
or for the same or different parties; or
(iii) By performing similar act where there is no change in
beneficial ownership.
(b) To affect, alone or with others, a securities or transactions
in securities that: (I) Raises their price to induce the purchase
of a security, whether of the same or a different class of the
same issuer or of controlling, controlled, or commonly
controlled company by others; or (iii) Creates active trading to
induce such a purchase or sale through manipulative devices
such as marking the close, painting the tape, squeezing the
float, hype and dump, boiler room operations and such other
similar devices.
(c) To circulate or disseminate information that the price of
any security listed in an Exchange will or is likely to rise or
fall because of manipulative market operations of any one or
more persons conducted for the purpose of raising or
depressing the price of the security for the purpose of inducing
the purpose of sale of such security.
(d) To make false or misleading statement with respect to any
material fact, which he knew or had reasonable ground to
believe was so false or misleading, for the purpose of inducing
the purchase or sale of any security listed or traded in an
Exchange.
(e) To effect, either alone or others, any series of transactions
for the purchase and/or sale of any security traded in an
Exchange for the purpose of pegging, fixing or stabilizing the
price of such security; unless otherwise allowed by this Code or
by rules of the Commission.
24.2. No person shall use or employ, in connection with the
purchase or sale of any security any manipulative or deceptive
device or contrivance. Neither shall any short sale be effected
nor any stop-loss order be executed in connection with the
purchase or sale of any security except in accordance with
such rules and regulations as the Commission may prescribe
as necessary or appropriate in the public interest for the
protection of investors.
24.3. The foregoing provisions notwithstanding, the
Commission, having due regard to the public interest and the
protection of investors, may, by rules and regulations, allow
certain acts or transactions that may otherwise be prohibited
under this Section.
Section 25. Regulation of Option Trading. – No member of an
Exchange shall, directly or indirectly endorse or guarantee the
performance of any put, call, straddle, option or privilege in
relation to any security registered on a securities exchange.
The terms "put", "call", "straddle", "option", or "privilege" shall
not include any registered warrant, right or convertible
security.
Section 26. Fraudulent Transactions. – It shall be unlawful for
any person, directly or indirectly, in connection with the
purchase or sale of any securities to:
26.1. Employ any device, scheme, or artifice to defraud;
26.2. Obtain money or property by means of any untrue
statement of a material fact of any omission to state a material
fact necessary in order to make the statements made, in the
light of the circumstances under which they were made, not
misleading; or
26.3. Engage in any act, transaction, practice or course of
business which operates or would operate as a fraud or deceit
upon any person.
Section 27. Insider’s Duty to Disclose When Trading. – 27.1. It
shall be unlawful for an insider to sell or buy a security of the
issuer, while in possession of material information with
respect to the issuer or the security that is not generally
available to the public, unless: (a) The insider proves that the
information was not gained from such relationship; or (b) If
the other party selling to or buying from the insider (or his
agent) is identified, the insider proves: (I) that he disclosed the
information to the other party, or (ii) that he had reason to
believe that the other party otherwise is also in possession of
the information. A purchase or sale of a security of the issuer
made by an insider defined in Subsection 3.8, or such insider’s
spouse or relatives by affinity or consanguinity within the
second degree, legitimate or common-law, shall be presumed
to have been effected while in possession of material nonpublic
information if transacted after such information came into
existence but prior to dissemination of such information to the
public and the lapse of a reasonable time for market to absorb
such information: Provided, however, That this presumption
shall be rebutted upon a showing by the purchaser or seller
that he was aware of the material nonpublic information at
the time of the purchase or sale.
27.2. For purposes of this Section, information is "material
nonpublic" if: (a) It has not been generally disclosed to the
public and would likely affect the market price of the security
after being disseminated to the public and the lapse of a
reasonable time for the market to absorb the information; or
(b) would be considered by a reasonable person important
under the circumstances in determining his course of action
whether to buy, sell or hold a security.
27.3. It shall be unlawful for any insider to communicate
material nonpublic information about the issuer or the
security to any person who, by virtue of the communication,
becomes an insider as defined in Subsection 3.8, where the
insider communicating the information knows or has reason to
believe that such person will likely buy or sell a security of the
issuer whole in possession of such information.
27.4. (a) It shall be unlawful where a tender offer has
commenced or is about to commence for:
(i) Any person (other than the tender offeror) who is in
possession of material nonpublic information relating to such
tender offer, to buy or sell the securities of the issuer that are
sought or to be sought by such tender offer if such person
knows or has reason to believe that the information is
nonpublic and has been acquired directly or indirectly from
the tender offeror, those acting on its behalf, the issuer of the
securities sought or to be sought by such tender offer, or any
insider of such issuer; and
(ii) Any tender offeror, those acting on its behalf, the issuer of
the securities sought or to be sought by such tender offer, and
any insider of such issuer to communicate material nonpublic
information relating to the tender offer to any other person
where such communication is likely to result in a violation of
Subsection 27.4 (a)(I).
(b) For purposes of this subsection the term "securities of the
issuer sought or to be sought by such tender offer" shall
include any securities convertible or exchangeable into such
securities or any options or rights in any of the foregoing
securities.
CHAPTER VIII
REGULATION OF SECURITIES MARKET
PROFESSIONALS
Section 28. Registration of Brokers, Dealers, Salesmen and
Associated Persons. – 28.1. No person shall engage in the
business of buying or selling securities in the Philippine as a
broker or dealer, or act as a salesman, or an associated person
of any broker or dealer unless registered as such with the
Commission.
28.2. No registered broker or dealer shall employ any
salesman or any associated person, and no issuer shall employ
any salesman, who is not registered as such with the
Commission.
28.3. The Commission, by rule or order, may conditionally or
unconditionally exempt from subsection 28.1 and 28.2 any
broker, dealer, salesman, associated person of any broker or
dealer, or any class of the foregoing, as it deems consistent
with the public interest and the protection of investors.
28.4. The Commission shall promulgate rules and regulation
prescribing the qualifications for registration of each category
of applicant, which shall, among other things, require as a
condition for registration that:
(a) If a natural person, the applicant satisfactorily pass a
written examination as to his proficiency and knowledge in the
area of activity for which registration is sought;
(b) In the case of a broker or dealer, the applicant satisfy a
minimum net capital as prescribed by the Commission, and
provide a bond or other security as the Commission may
prescribe to secure compliance with the provisions of this
Code; and
(c) If located outside of the Philippines, the applicant files a
written consent to service of process upon the Commission
pursuant to Section 65 hereof.
28.5. A broker or dealer may apply for registration by filing
with the Commission a written application in such forms and
containing such information and documents concerning such
broker or dealer as the Commission by rule shall prescribe.
28.6. Registration of a salesman or of an associated person of a
registered broker or dealer may be made upon written
application filed with the Commission by such salesman or
associated person. The application shall be separately signed
and certified by the registered broker or dealer to which such
salesman or associated person is to become affiliated, or by the
issuer in the case of a salesman employed appointed or
authorized solely by such issuer. The application shall be in
such form and contain such information and documents
concerning the salesman or associated person as the
Commission by rule shall prescribe. For purposes of this
Section, a salesman shall not include any employee of an
issuer whose compensation is not determined directly or
indirectly on sales of securities if the issuer.
28.7. Applications filed pursuant to Subsections 28.5 and 28.6
shall be accompanied by a registration fee in such reasonable
amount prescribed by the Commission.
28.8. Within thirty (30) days after the filing of any application
under this Section, the Commission shall by order: (a) Grant
registrations if it determines that the requirements of this
Section and the qualifications for registrations set forth in its
rules and regulations have been satisfied ; or (b) Deny said
registration.
28.9. The names and addresses of all persons approved for the
registration as brokers, dealers, associated persons or
salesman and all orders of the Commission with respect
thereto shall be recorded in a Register of Securities Market
Professionals kept in the office of the Commission which shall
be open to public inspection.
28.10. Every person registered pursuant to this Section shall
file with the Commission, in such form as the Commission
shall prescribe, information necessary to keep the application
for registration current and accurate, including in the case of a
broker or dealer changes in salesmen, associated persons and
owners thereof.
28.11. Every person registered pursuant to this Selection shall
pay to the Commission an annual fee at such time and in such
reasonable amount as the Commission shall prescribe. Upon
notice by the Commission that such annual fee has not been
paid as required, the registration of such person shall be
suspended until payment has been made.
28.12. The registration of a salesman or associated person
shall be automatically terminated upon the cessation of his
affiliation with said registered broker or dealer or with an
issuer in the case of a salesman employed, appointed or
authorized by such issuer. Promptly following any such
cessation of affiliation, the registered broker or dealer, issuer
as the case may be, shall file with the Commission a notice of
separation of such salesman or associated person.
Section 29. Revocation, Refusal or Suspension of Registration
of Brokers, Dealers, Salesmen and Associated Persons. – 29.1.
Registration under Section 28 of this Code may be refused , or
any registration granted thereunder may be revoked,
suspended, or limitations placed thereon, by the Commission
if, after due notice and hearing the Commission determines
the application or registrant.
(a) Has willfully violated any provision of this Code, any rule,
regulation or order made hereunder, or any other law
administered by the Commission, or in the case of a registered
broker, dealer or associated persons has failed to supervise,
with a view to preventing such violation, another person who
commits such violation;
(b) Has willfully made or caused to be made a materially false
or misleading statement in any application for registration or
report filed with the Commission or a self-regulatory
organization, or has willfully omitted to state any material
fact that is required to be stated therein;
(c) Has failed to satisfy the qualifications or requirements for
registration prescribed under Section 28 and the rules and
regulations of the Commission promulgated thereunder;
(d) Has been convicted, by a competent judicial or
administrative body of an offense involving moral turpitude,
fraud, embezzlement, counterfeiting, theft, estafa,
misappropriation, forgery, bribery, false oath, or perjury, or of
a violation of securities, commodities, banking, real state or
insurance laws;
(e) Is enjoined or restrained by a competent judicial or
administrative body from engaging in securities, commodities,
banking, real state or insurance activities or from willfully
violating laws governing such activities;
(f) Is subject to an order of a competent judicial or
administrative body refusing, revoking or suspending any
registration, licensed or other permit under this Code, the
rules and regulations promulgated thereunder, any other law
administered by the Commission;
(g) Is subject to an order of a self-regulatory organization
suspending or expelling him from membership or participating
therein or from association with a member or participant
thereof;
(h) Has been found by a competent judicial or administrative
body to have willfully violated any provisions of securities,
commodities, banking, real state or insurance laws, or has
willfully aided, abetted, counseled, commanded, induced or
procured such violation; or
(i) Has been judicially declared insolvent.
For purposes of this subsection, the term "competent judicial
or administrative body" shall include a foreign court of
competent jurisdiction and a foreign financial regulator.
29.2. (a) In case of charges against a salesman or associated
person, notice thereof shall also be given the broker, dealer or
issuer employing such salesman or associated person.
(b) Pending the hearing, the Commission shall have the power
to order the suspensions of such broker’s, dealers, associated
person’s or salesman’s registration: Provided, That such order
shall state the cause for such suspension. Until the entry of a
final order, the suspension of such registration, though
binding upon the persons notified thereof, shall be deemed
confidential, and shall not be published, unless it shall appear
that the order of suspension has been violated after notice.
29.3. The orders of the Commission refusing, revoking,
suspending or placing limitations on a registration as herein
above provided, together with its findings, shall be entered in
the Register of Securities Market Professionals. The
suspension or revocation of the registration of a dealer or
broker shall also automatically suspend the registration of all
salesmen and associated persons affiliated with such broker or
dealer. The order of the Commission refusing, revoking,
suspending or placing limitations on a registration as herein
above provided, together with its findings, shall be entered in
the Register of Securities Market Professionals. The
suspension or revocation of the registration of a dealer or
broker shall also automatically suspend the registration of a
dealer or broker shall also automatically suspend the
registration of all salesmen and associated persons affiliated
with such broker or dealer.
29.4. It shall be sufficient cause for refusal, revocation or
suspension of a broker’s or dealer’s registrations, if any
associated person thereof or any juridical entity controlled by
such associated person has committed any act or omission or is
subject to any disability enumerated in paragraphs (a)
through (i) of Subsection 29. I hereof.
Section 30. Transactions and Responsibility of Brokers and
Dealers. – 30.1 No brokers or dealer shall deal in or otherwise
buy or sell, for its own account or for its own account or for the
account of customers, securities listed on an Exchange issued
by any corporation where any stockholders, director,
associated person or salesman, or authorized clerk of said
broker or dealer and all the relatives of the foregoing within
the fourth civil degree of consanguinity or affinity, is at the
same time holding office in said issuer corporation as a
director, president, vice-president, manager, treasurer,
comptroller, secretary or any office trust and responsibility, or
is a controlling of the issuer.
30.2. No broker or dealer shall effect any transaction in
securities or induce or attempt to induce the purchase or sale
of any security except in compliance with such rules and
regulations as the Commission shall prescribe to ensure fair
and honest dealings in securities and provide financial
safeguards and other standards for the operations of brokers
and dealers, including the establishments of minimum net
capital requirements, the acceptance of custody and use of
securities of customers, and the carrying and use of deposits
and credit balances of customers.
Section 31. Development of Securities Market Professionals. –
The Commission in joint undertaking with self regulatory
organizations, organizations and associations of finance
professionals as well as private educational and research
institute shall undertake or facilitate/organize continuing
training, conferences/seminars, updating programs, research
and developments as well as technology transfer at the latest
and advance trends in issuance and trading of securities,
derivatives, commodity trades and other financial
instruments, as well as securities markets of other countries.
CHAPTER IX
EXCHANGES AND OTHER SECURITIES TRADING
MARKETS
Section 32. Prohibition on Use of Unregistered Exchange;
Regulation of Over-the-Counter Markets. –32.1. No broker,
dealer, salesman, associated person of a broker or dealer, or
Exchange, directly or indirectly shall make use of any facility
of an Exchange in the Philippines to effect any transaction in a
security, or to report such transaction, unless such Exchange
is registered as such under Section 33 of this Code.
32.2. (a) No broker, dealer, salesman or associated person of a
broker or dealer, singly or in concert with any other person,
shall make, create or operate, or enable another to make,
create or operate, any trading market, otherwise than on a
registered Exchange, for the buying and selling of any
security, except in accordance with rules and regulations the
Commission may prescribe.
(b) The Commission may promulgate rules and regulations
governing transactions by brokers, dealers, salesmen or
associated persons of a broker or dealer, over any facilities of
such trading market and may require such market to be
administered by a self-regulatory organization determined by
the Commission as capable of insuring the protection of
investors comparable to that provided in the case of a
registered Exchange. Such self-regulatory organization must
provide a centralized marketplace for trading and must satisfy
requirements comparable to those prescribed for registration
of Exchanges in Section 33 of this Code.
Section 33. Registration of Exchanges. – 33.1. Any Exchange
may be registered as such with the Commission under the
terms and conditions hereinafter provided in this Section and
Section 40 hereof, by filing an application for registration in
such form and containing such information and supporting
documents as the Commission by rule shall prescribe,
including the following:
(a) An undertaking to comply and enforce by its members with
the provisions of this Code, its implementing rules and
regulations and the rules of the Exchange;
(b) The organizational charts of the Exchange, rules of
procedure, and a list of its officers and members;
(c) Copies of the rules of the Exchange; and
(d) An undertaking that in the event a member firm becomes
insolvent or when the Exchange shall have found that the
financial condition of its member firm has so deteriorated that
it cannot readily meet the demands of its customers for the
delivery of securities and/or payment of sales proceeds, the
Exchange shall, upon order of the Commission, take over the
operation of the insolvent member firm and immediately
proceed to settle the member firm’s liabilities to its customers.
33.2. Registrations of an Exchange shall be granted upon
compliance with the following provisions:
(a) That the applicant is organized as a stock corporation:
Provided, That any registered Exchange existing prior to the
effectivity of this Code shall within one (1) year reorganize as
a stock corporation pursuant to a demutualization plan
approved by the Commission;
(b) That the applicant is engaged solely in the business of
operating an exchange: Provided, however, That the
Commission may adopt rules, regulations or issue an order,
upon application, exempting an Exchange organized as a stock
corporation and owned and controlled by another juridical
person from the restriction.
(c) Where the Exchange is organized as a stock corporation,
that no person may beneficially own or control, directly or
indirectly, more than five percent (5%) of the voting rights of
the Exchange and no industry or business group may
beneficially own or control, directly or indirectly, more than
twenty percent (20%) of the voting rights of the Exchange:
Provided, however, That the Commission may adopt rules,
regulations or issue an order, upon application from this
prohibition where it finds that such ownership or control will
not negatively impact on the exchange’s ability to effectively
operate in the public interest.
(d) The expulsion, suspension, or disciplining of a member and
persons associated with a member for conduct or proceeding
inconsistent with just and equitable principles of fair trade,
and for violations of provisions of this Code, or any other Act
administered by the Commission, the rules, regulations and
orders thereunder, or the rules of the Exchange;’
(e) A fair procedure for the disciplining of members and
persons associated with members, the denial of membership to
any person seeking to be a member, the barring of any person
from association with a member, and the prohibition or
limitation of any person from association with member, and
the prohibition or limitation of any person from access to
services offered by the Exchange;
(f) That the brokers in the board of the Exchange shall
comprise of not more than forty-nine percent (49%) of such
board and shall proportionately represent the Exchange
membership in terms of volume/value or trade and paid up
capital, and that any natural person associated with a
juridical entity that is a member for this purpose; Provide,
That any registered Exchange existing prior to the affectivity
of this Code shall immediately comply with this requirement;
(g) For the board of the Exchange to include in its composition
(1) the president of the Exchange, and (ii) no less than fifty
one percent (51%) of the remaining members of the board to be
comprised of three (3) independent directors and persons who
represent the interests of issuers, investors, and other market
participants, who are not associated with any broker or dealer
or member of the Exchange for a period of two (2) years prior
to his/her appointment. No officer or employee of a member,
its subsidiaries or affiliates or related interests shall become
an independent director: Provided, however, That the
Commission may by rule, regulation, or order upon
application, permit the exchange organized as a stock
corporation to use a different governance structure: Provided,
further, That the Commission is satisfied that the Exchange is
acting in the public interest and is able to effectively operate
as a self-regulatory organization under this Code: Provided,
finally, That any registered exchange existing prior to the
affectivity of this Code shall immediately comply with this
requirement.
(h) The president and other management of the Exchange to
consist only of persons who are not members and are not
associated in any capacity, directly or indirectly with any
broker or dealer or member or listed company of the Exchange:
Provided, That the Exchange may only appoint, and a person
may only serve, as an officer of the exchange if such person
has not been a member or affiliated with any broker, dealer, or
member of the Exchange for a period of at least two (2) years
prior to such appointment;
(i) The transparency of transactions on the Exchange;
(j) The equitable allocation of reasonable dues, fees, and other
charges among members and issuers and other persons using
any facility or system which the Exchange operates or
controls;
(k) Prevention of fraudulent and manipulative acts and
practices, promotion of just and equitable principles of trade,
and, in general, protection of investors and the public interest;
and
(l) The transparent, prompt and accurate clearance and
settlement of transactions effected on the Exchange.
33.3. If the Commission finds that the applicant Exchange is
capable of complying and enforcing compliance by its
members, and persons associated with such members, with
the provisions of this Code, and the rules of the Exchange, and
that the rules of Exchange are fair, just and adequate, the
Commission shall cause such Exchange to be registered. If,
after notice due and hearing, the Commission finds otherwise,
the application shall be denied.
33.4. Within ninety (90) days after the filing of the application
the Commission may issue an order either granting or denying
registration as an Exchange, unless the Exchange applying for
registration shall withdraw its application or shall consent to
the Commission’s deferring action on its application for a
stated longer period after the date of filing. The filing with the
Commission of an application for registration by an Exchange
shall be deemed to have taken place upon the receipt thereof.
Amendments to an application may be made upon such terms
as the Commission may prescribe.
33.5. Upon the registration of an Exchange, it is shall pay a fee
in such amount and within such period as the Commission
may fix.
33.6. Upon appropriate application in accordance with the
rules and regulations of the Commission and upon such terms
as the Commission may deemed necessary for the protection of
investors, an exchange may withdraw its registration or
suspend its operations or resume the same.
Section 34. Segregation and Limitation of functions of
Members, Broker and Dealers. - 34.1. It shall be unlawful for
any member-broker of an Exchange to effect any transaction
on such Exchange for its own account, the account of an
associated person, or an account with the respect to which it or
an associated person thereof exercises the investment
discretion: Provided, however, That this Section shall not
make unlawful-
(a) Any transaction by a member-broker acting in the capacity
of a market maker;
(b) Any transaction reasonably necessary to carry on an odd-
lot transactions;
(c) Any transaction to offset a transaction made in error; and
(d) Any other transaction of a similar nature as may be
defined by the Commission.
34.2. In all instances where the member-broker effects a
transaction on an Exchange for its own account or the account
of an associated person or an account with the respect to
which it exercises investment discretion, it shall disclose to
such customer at or before the completion of the transaction it
is acting for its own account: Provided, further, That this fact
shall be reflected in the order ticket and the confirmation slip.
34.3. Any member-broker who violates the provisions of this
Section shall be subject to the administrative sanctions
provided in Section 54 of this Code.
Section 35. Additional Fees of Exchanges. – In addition to the
registration fee prescribed in Section 33 of this Code, every
Exchange shall pay to the Commission, on a semestral basis
on or before the tenth day of the end of the end of every
semester of the calendar year, a fee in such an amount as the
Commission shall prescribe, but not more than one-hundredth
of one per centum (1%) of the aggregate amount of the sales of
securities transacted on such Exchange during the preceding
calendar year for the privilege of doing business, during the
preceding calendar year or any part thereof.
Section 36. Powers with Respect to Exchanges and Other
Trading Market. – 36.1. The Commission is authorized, if in
its opinion such action is necessary or appropriate for the
protection of investors and the public interest so requires,
summarily to suspend trading in any listed security on any
Exchange or other trading market for a period not exceeding
thirty (30) days but not exceeding ninety (90) days: Provided,
however, That the Commission promptly following the
issuance of the order of suspension, shall notify the affected
issuer of the reasons for such suspension and provide such
issuer with an opportunity for hearing to determine whether
the suspension should be lifted.
36.2. Wherever two (2) or more Exchanges or other trading
markets exist, the Commission may require and enforce
uniformity of trading regulations in and/or between or among
said Exchanges or other trading markets.
36.3. In addition to the existing Philippine Stock Exchange,
the Commission shall have the authority to determine the
number, size and location of stock Exchanges, other trading
markets and commodity Exchanges and other similar
organizations in the light of national or regional requirements
for such activities with the view to promote, enhance, protect,
conserve or rationalize investment.
36.4. The Commission, having due regard to the public
interest, the protection of investors, the safeguarding of
securities and funds, and maintenance of fair competition
among brokers, dealers, clearing agencies, and transfer
agents, shall promulgate rules and regulations for the prompt
and accurate clearance and settlement of securities
transactions.
36.5. (a) The Commission may establish or facilitate the
establishment of trust funds which shall be contributed by
Exchanges, brokers, dealers, underwriters, transfer agents,
salesmen and other persons transacting in securities, as the
Commission may require, for the purpose of compensating
investors for the extraordinary losses or damage they may
suffer due to business failure or fraud or mismanagement of
the persons with whom they transact, under such rules and
regulations as the Commission may from time to time
prescribe or approve in the public interest.
(b) The Commission may, having due regard to the public
interest or the protection of investors, regulate, supervise,
examine, suspend or otherwise discontinue such and other
similar funds under such rules and regulations which the
Commission may promulgate, and which may include taking
custody and management of the fund itself as well as
investments in and disbursements from the funds under such
forms of control and supervision by the Commission as it may
from time to time require. The authority granted to the
Commission under this subsection shall also apply to all funds
established for the protection of investors, whether established
by the Commission or otherwise.
Section 37. Registration of Innovative and Other Trading
Markets. – The Commission, having due regard for national
economic development, shall encourage competitiveness in the
market by promulgating within six (6) months upon the
enactment of this Code, rules for the registration and licensing
of innovative and other trading markets or Exchanges
covering, but not limited to, the issuance and trading of
innovative securities, securities of small, medium, growth and
venture enterprises, and technology-based ventures pursuant
to Section 33 of this Code.
Section 38. Independent Directors. – Any corporation with a
class of equity securities listed for trading on an Exchange or
with assets in excess of Fifty million pesos (P50,000,000.00)
and having two hundred (200) or more holders, at least of two
hundred (200) of which are holding at least one hundred (100)
shares of a class of its equity securities or which has sold a
class of equity securities to the public pursuant to an effective
registration statement in compliance with Section 12 hereof
shall have at least two (2) independent directors or such
independent directors shall constitute at least twenty percent
(20%) of the members of such board whichever is the lesser.
For this purpose, an "independent director" shall mean a
person other than an officer or employee of the corporation, its
parent or subsidiaries, or any other individual having a
relationship with the corporation, which would interfere with
the exercise of independent judgement in carrying out the
responsibilities of a director.
CHAPTER X
REGISTRATION, RESPONSIBILITIES AND OVERSIGHT
OF SELF-REGULATORY ORGANIZATIONS
Section 39. Associations of Securities Brokers, and Dealers,
and Other Securities Related Organizations. – 39.1. The
Commission shall have the power to register as a self-
regulatory organization, or otherwise grant licenses, and to
regulate, supervise, examine, suspend or otherwise
discontinue, as a condition for the operation of organizations
whose operations are related to or connected with the
securities market such as but not limited to associations of
brokers and dealers, transfer agents, custodians, fiscal and
paying agents, computer services, news disseminating
services, proxy solicitors, statistical agencies, securities rating
agencies, and securities information processor which are
engaged in business of: (a) Collecting, processing, or preparing
for distribution or publication, or assisting, participating in, or
coordinating the distribution or publication of, information
with respect to transactions in or quotations for any security;
or (b) Distributing or publishing, whether by means of a ticker
tape, a communications network, a terminal display device, or
otherwise, on a current and continuing basis, information with
respect to such transactions or quotations. The Commission
may prescribe rules and regulations which are necessary or
appropriate in the public interest or for the protection of
investors to govern self-regulatory organizations and other
organizations licensed or regulated pursuant to the authority
granted in Subsection 39.1 including the requirement of
cooperation within and among, and electronic integration of
the records of, all participants in the securities market to
ensure transparency and facilitate exchange of information.
39.2. An association of brokers and dealers may be registered
as a securities association pursuant to Subsection 39.3 by
filing with the Commission an application for registration in
such form as the Commission, by rule, may prescribe
containing the rules of the association and such other
information and documents as the Commission, by rule, may
prescribe as necessary or appropriate in the public interest or
for the protection of investors.
39.3. An association of brokers and dealers shall not be
registered as a securities association unless the Commission
determines that:
(a) The association is so organized and has the capacity to be
able to carry out the purposes of this Code and to comply with,
and to enforce compliance by its members and persons
associated with its members, with the provisions of this Code,
the rules and regulations thereunder, and the rules of the
association.
(b) The rules of the association, notwithstanding anything in
the Corporation Code to the contrary, provide that:
(i) Any registered broker or dealer may become a member of
the association;
(ii) There exist a fair representation of its members to serve on
the Board of Directors of the association and in the
administration of its affairs, and that may any natural person
associated with a juridical entity that is a member shall
himself be deemed to be a member for this purpose;
(iii) The Board of Directors of the association includes in its
composition:
(a) The president of the association and
(b) Person who represent the interests of the issuer and public
investors and are not associated with any broker or dealer or
member of the association; that the president and other
management of the association not be a member or associated
with any broker, dealer or member of the association;
(iv) For the equitable allocation of reasonable dues, fees, and
other charges among member and issuers and other persons
using any facility or system which the association operates or
controls;
(v) For the prevention of fraudulent and manipulative acts and
practices, the promotion of just and equitable principles of
trade, and, in general, the protection of investors and the
public interest;
(vi) That its members and persons associated with its
members shall be appropriately disciplined for violation of any
provision of this Code, the rules and regulations thereunder,
or the rules of the association;
(vii) That a fair procedure for the disciplining of members and
persons associated with members, the denial of membership to
any person seeking membership therein, the barring of any
person from becoming associated with a member thereof, and
the prohibition or limitation by the association of any person
with respect to access to services offered by the association or
a member thereof.
39.4. (a) A registered securities association shall deny
membership to any person who is not a registered broker or
dealer.
(b) A registered securities association may deny membership
to, or condition the membership of, a registered broker or
dealer if such broker or dealer:
(i) Does not meet the standards of financial responsibility,
operational capability, training, experience or competence that
are prescribe by the rules of the association; or
(ii) Has engaged, and there is a reasonable likelihood it will
again engage, in acts or practices inconsistent with just and
equitable principles of fair trade.
(c) A registered securities association may deny membership to
a registered broker or dealer not engage in a type of business
in which the rules of the association require members to be
engaged: Provided, however, That no registered securities
association may deny membership to a registered broker or
dealer by reason of the amount of business done by the broker
or dealer.
A registered securities association may examine and verify the
qualifications of an applicant to become a member in
accordance with procedure established by the rules of the
association.
(d) A registered securities association may bar a salesman or
person associated with a broker or dealer from being employed
by a member or set conditions for the employment of a
salesman or associated if such person:
(i) Does not meet the standards of training, experience, or
competence that are prescribe by the rules of the association;
or
(ii) Has engage, and there is a reasonable likelihood he will
again engage, in acts or practices inconsistent with just and
equitable principles of fair trade.
A registered securities association may examine and verify the
qualifications of an applicant to become a salesman or
associated person employed by a member in accordance with
the procedures establish by the rules of the association. A
registered association also may require a salesman or
associated person employed by a member to be registered with
the association in accordance with the procedures prescribed
in the rules of the association.
39.5. In any proceeding by a registered securities association
to determine whether a person shall be denied membership, or
barred from association with a member, the association shall
provide notice to the person under review of the specific
grounds being considered for denial, afford him an opportunity
to defend against the allegations, and keep a record of the
proceedings. A determination by the association to deny
membership shall be supported by a statement setting forth
the specific grounds on which the denial is based.
Section 40. Powers with Respect to Self-Regulatory
Organizations. - 40.1. Upon the filing of an application for
registration as an Exchange under Section 33, a registered
securities association under Section 39, a registered clearing
agency under Section 42, or other self-regulatory organization
under this Section, the Commission shall have ninety (90)
days within which to either grant registration should be
denied. In the event proceedings are instituted, the
Commission shall have two hundred seventy (270) days within
which to conclude such proceedings at which time it shall, by
order, grant or deny such registration.
40.2. Every self-regulatory organization shall comply with the
provision of this Code, the rules and regulations thereunder,
and its own rules, and enforce compliance therewith,
notwithstanding any provisions of the Corporation Code to the
contrary, by its members, persons associated with its members
of its participants.
40.3. (a) Each self-regulatory organization shall submit to the
Commission for prior approval any proposed rule or
amendment thereto, together with a concise statement of the
reason and effect of the proposed amendment
(b) Within sixty (60) days after submission of a proposed
amendment, the Commission shall, by order, approve the
proposed amendment. Otherwise, the same may be made
effective by the self-regulatory organization.
(c) In the event of an emergency requiring action for the
protection of investors, the maintenance of fair and orderly
markets, or the safeguarding of securities and funds, a self-
regulatory organization may put a proposed amendment into
effect summarily; Provided however, That the copy of the same
shall be immediately submitted to the Commission.
40.4. The Commission is further authorized, if after making
appropriate request in writing to a self-regulatory
organization that such organization effect on its own behalf
specified changes in its rules and practices and, after due to
notice and hearing it determines that such changes have not
been effected, and that such changes are not necessary, by the
rule or regulation or by order, may alter, abrogate or
supplement the rules of such self-regulatory organization in so
far as necessary or appropriate to effect such changes in
respect of such matters as:
(a) Safeguards in respect of the financial responsibility of
members and adequate provision against the evasion of
financial responsibility through the use of corporate forms or
special partnerships;
(b) The supervision of trading practices;
(c) The listing or striking from listing of any security;
(d) Hours of trading;
(e) The manner, methods, and place of soliciting business;
(f) Fictitious accounts;
(g) The time and method of making settlements, payments,
and deliveries, and of closing accounts;
(h) The transparency of securities transactions and prices;
(i) The fixing of reasonable rates of fees, interest, listing and
other charges, but not rates of commission;
(j) Minimum units of trading;
(k) Odd-lot purchases and sales;
(l) Minimum deposits on margin accounts; and
(m) The supervision, auditing and disciplining of members or
participants.
40.5. The Commission, after due notice and hearing, is
authorized, in the public interest and to protect investors:
(a) To suspend for a period not exceeding twelve (12) months
or to revoke the registration of a self-regulatory organization,
or to censure or impose limitations on the activities, functions,
and operations of such self-organization, if the Commission
finds that such a self-regulatory organization has willfully
violated or is unable to comply with any provision of this Code
or of the rules and regulations thereunder, or its own or has
failed to enforce compliance therewith by a member of, person
associated with a member, or a participant in such self-
regulatory organization;
(b) To expel from a self-regulatory organization any member
thereof or any participant therein who is subject to an order of
the Commission under Section 29 of this Code or is found to
have willfully violated any provision of this Code or suspend
for a period not exceeding twelve (12) months for violation of
any provision of this Code or any other laws administered by
the Commission, or rules and regulations thereunder, or
effected, directly or indirectly, any transaction for any person
who, such member or participant had reason to believe, was
violating in respect of such transaction any of such provisions;
and
(c) To remove from the office or censure any officer or director
of a self-regulatory organization if it finds that such officer or
director has violated any provision of this Code, any other law
administered by the Commission, the rules or regulations
thereunder, or the rules of such self-regulatory organization,
abused his authority, without reasonable justification or
excuse has failed to enforce compliance with any of such
provisions.
40.6. (a) A self-regulatory organization is authorized to
discipline a member of or participant in such self-regulatory
organization, or any person associated with a member,
including the suspension or expulsion of such member or
participant, and the suspension or bar from being associated
with a member, if such person has engage in acts or practices
inconsistent with just and equitable principles of fair trade or
in willful violation of any provision of the Code, any other law
administered by the Commission, the rules or regulations
thereunder, or the rules of the self-regulatory organization. In
any disciplinary proceeding by a self-regulatory organization
(other than a summary proceeding pursuant to paragraph (b)
of this subsection) the self-regulatory organization shall bring
specific charges, provide notice to the person charged, afford
the person charged with an opportunity to defend against the
charges, and keep a record of the proceedings. A determination
to impose a disciplinary sanction shall be supported by a
written statement of the offenses, a summary of the evidence
presented and a statement of the sanction imposed.
(b) A self-regulatory organization may summarily: (I) Suspend
a member, participant or person associated with a member
who has been or is expelled or suspended from any other self-
regulatory organization; or (ii) Suspend a member who the
self-regulatory organization finds to be in such financial or
operating difficulty that the member or participant cannot be
permitted to continue to do business as a member with safety
to investors, creditors, other members, participants or the self-
regulatory organization: Provided, That the self-regulatory
organization immediately notifies the Commission of the
action taken. Any person aggrieved by a summary action
pursuant to this paragraph shall be promptly afforded an
opportunity for a hearing by the association in accordance
with the provisions of paragraph (a) of this subsection. The
Commission, by order, may stay a summary action on its own
motion or upon application by any person aggrieved thereby, if
the Commission determines summarily or after due notice and
hearing (which hearing may consist solely of the submission of
affidavits or presentation of oral arguments) that a stay is
consistent with the public interest and the protection of
investors.
40.7. A self-regulatory organization shall promptly notify the
Commission of any disciplinary sanction on any member
thereof or participant therein, any denial of membership or
participation in such organization, or the imposition of any
disciplinary sanction on a person associated with a member or
a bar of such person from becoming so associated. Within
thirty (30) days after such notice, any aggrieved person may
appeal to the Commission from, or the Commission from, or
the Commission on its own motion within such period, may
institute review of, the decision of the self-regulatory
organization, at the conclusion of which, after due notice and
hearing (which may consist solely of review of the record
before the self-regulatory organization), the Commission shall
affirm, modify or set aside the sanction. In such proceeding the
Commission shall determine whether the aggrieved person
has engaged or omitted to engage in the acts and practices as
found by the self-regulatory organization, whether such acts
and practices constitute willful violations of this Code, any
other law administered by the Commission, the rules or
regulations thereunder, or the rules of the self-regulatory
organization as specified by such organization, whether such
provisions were applied in a manner consistent with the
purposes of this Code, and whether, with due regard for the
public interest and the protection of investors the sanction is
excessive or oppressive.
40.8. The powers of the Commission under this Section shall
apply to organized exchanges and registered clearing agencies.
CHAPTER XI
ACQUISITION AND TRANSFER OF SECURITIES AND
SETTLEMENT OF TRANSACTION IN SECURITIES
Section 41. Prohibition on Use of Unregistered Clearing
Agency. – It shall be unlawful for any broker, dealer,
salesman, associated person of a broker or dealer, or clearing
agency, directly or indirectly, to make use of any facility of a
clearing agency in Philippines to make deliveries in connection
with transaction in securities or to reduce the number of
settlements of securities transactions or to allocate securities
settlement responsibilities or to provide for the central
handling of securities so that transfers, loans and pledges and
similar transaction can be made by bookkeeping entry or
otherwise to facilitate the settlement of securities transactions
without physical delivery of securities certificates, unless such
clearing agency is registered as such under Section 42 of this
Code or is exempted from such registration upon application
by the clearing agency because, in the opinion of the
Commission, by reason of the limited volume of transactions
which are settled using the clearing agency, it is not
practicable and not necessary or appropriate in the public
interest or for the protection of investors to require such
registration.
Section 42. Registration of Clearing Agencies. - 42.1. Any
clearing agency may be registered as such with the
Commission under the terms and conditions hereinafter
provided in this Section, by filing an application for
registration in such form and containing such information and
supporting documents as the Commission by rule shall
prescribe, including the following:
(a) An undertaking to comply and enforce compliance by its
participants with the provisions of this Code, and any
amendments thereto, and the implementing rules or
regulations made or to be made thereunder, and the clearing
agency’s rules;
(b) The organizational charts of the Exchange, its rules of
procedure, and list of its officers and participants;
(c) Copies of the clearing agency’s rules.
42.2. No registration of a clearing agency shall be granted
unless the rules of the clearing agency include provision for:
(a) The expulsions, suspension, or disciplining of a participant
for violations of this Code, or any other Act administered by
the Commission, the rules, regulations, and orders
thereunder, or the clearing agency’s rules;
(b) A fair procedure for the disciplining of participants, the
denial of participation rights to any person seeking to be a
participant, and the prohibition or limitation of any person
from access to services offered by the clearing agency;
(c) The equitable allocation of reasonable dues, fees, and other
charges among participants;
(d) Prevention of fraudulent and manipulative acts and
practices, promotion of just and equitable principles of trade,
and, in general, protection of investors and the public interest;
(e) The transparent, prompt and accurate clearance and
settlement of transactions in securities handled by the
clearing agency; and
(f) The establishment and oversight of a fund to guarantee the
prompt and accurate clearance and settlement of transaction
executed on an exchange, including a requirement that
members each contribute an amount based on their and a
relevant percentage of the daily exposure of the (4) largest
trading brokers which adequately reflects trading risks
undertaken or pursuant to another formula set forth in
Commission rules or regulations or order, upon application:
Provided, however, That a clearing agency engaged in the
business of securities depository shall be exempt from this
requirement.
42.3. In the case of an application filed pursuant to this
section, the Commission shall grant registration if it is finds
That the requirements of this code and the rules and
regulations thereunder with respect to the applicant have
been satisfied, and shall deny registration if it does not make
such finding.
42.4. Upon appropriate application in accordance with the
rules and regulations of the Commission and upon such terms
as the Commission may deem necessary for the protection of
investors, a clearing agency may withdraw its registration or
suspend its operation or resume the same.
Section 43. Uncertificated Securities. – Notwithstanding
Section 63 of the Corporation Code of the Philippines: 43.1. A
corporation whose securities are registered pursuant to this
Code or listed on securities exchange may:
(a) If so resolved by its Board of Directors and agreed by a
shareholder, investor or securities intermediary, issue shares
to, or record the transfer of some or all its shares into the
name of said shareholders, investors or, securities
intermediary in the form of uncertified securities. The use of
uncertified securities in these circumstances shall be without
prejudice to the rights of the securities intermediary
subsequently to require the corporation to issue a certificate in
respect of any shares recorded in its name; and
(b) If so provided in its articles of incorporation and by-laws,
issue all of the shares of a particular class in the form of
Uncertificated securities and subject to a condition that
investors may not require the corporation to issue a certificate
in respect of any shares recorded in their name.
43.2. The Commission by rule may allow other corporations to
provide in their articles of incorporation and by-laws for the
use of uncertificated securities.
43.3. Transfers of securities, including an uncertificated
securities, may be validly made and consummated by
appropriate book-entries in the securities intermediaries, or in
the stock and transfer book held by the corporation or the
stock transfer agent and such bookkeeping entries shall be
binding on the parties to the transfer. A transfer under this
subsection has the effect of the delivery of a security in bearer
form or duly indorsed in blank representing the quantity or
amount of security or right transferred, including the
unrestricted negotiability of that security by reason of such
delivery. However, transfer of uncertificated shares shall only
be valid, so far as the corporation is concerned, when a
transfer is recorded in the books of the corporation so as to
show the names of the parties to the transfer and the number
of shares transferred.
However, nothing in this Code shall compliance by banking
and other institutions under the supervision of the Bangko
Sentral ng Pilipinas and their stockholders with the applicable
ceilings on shareholding prescribed under pertinent banking
laws and regulations.
Section 44. Evidentiary Value of Clearing Agency Record. –
The official records and book entries of a clearing agency shall
constitute the best evidence of such transactions between
clearing agency shall constitute the best between clearing
agency and its participants’ or members’ clients to prove their
rights, title and entitlement with respect to the book-entry
security holdings of the participants or members held on
behalf of the clients. However, the corporation shall not be
bound by the foregoing transactions unless the corporate
secretary is duly notified in such manner as the Commission
may provide.
Section 45. Pledging a Security or Interest Therein. – In
addition to other methods recognized by law, a pledge of,
including an uncertificated security, is properly constituted
and the instrument proving the right pledged shall be
considered delivered to the creditor under Articles 2093 and
2095 of the Civil Code if a securities intermediary indicates by
book entry that such security has been credited to a specially
designated pledge account in favor of the pledgee. A pledge
under this subsection has the effect of the delivery of a
security in bearer form or duly indorsed in blank representing
the quantity or amount of such security or right pledged. In
the case of a registered clearing agency, the procedures by
which, and the exact time at which, such book-entries are
created shall be governed by the registered clearing agency’s
rules. However, the corporation shall not be bound by the
foregoing transactions unless the corporate secretary is duly
notified in such manner as the Commission may provide.
Section 46. Issuer’s Responsibility for Wrongful Transfer to
Registered Clearing Agency. - The registration of a transfer of
a security into the name of and by a registered clearing agency
or its name of or by a registered clearing agency or its nominee
shall be final and conclusive unless the clearing agency had
notice of an adverse claim before the registration was made.
The above provisions which the claimant may have against the
issuer for wrongful registration in such circumstances.
Section 47. Power of the Commission With Respect to
Securities Ownership. – The Commission is authorize, having
due regard to the public interest and the protection of
investors, to promulgate rules and regulations which:
47.1. Validate the transfer of securities by book-entries rather
than the delivery of physical certificates;
47.2. Establish when a person acquires a security or an
interest therein and when delivery of a security to a purchaser
occurs;
47.3. Establish which records constitute the best evidence of a
person’s interests in a security and the effect of any errors in
electronic records of ownership;
47.4. Codify the rights of investors who choose to hold their
securities indirectly through a registered clearing agency and/
or other securities intermediaries;
47.5. Codify the duties of securities intermediaries (including
clearing agencies) who hold securities on behalf of investors;
and
47.6 Give first priority to any claims of a registered clearing
agency against a participant arising from a failure by the
participant to meet its obligations under the clearing agency’s
rules in respect of the clearing and settlement of transactions
in securities, in a dissolution of the participant, and any such
rules and regulation shall bind the issuers of the securities,
investors in the securities, any third parties with interests in
the securities, and the creditors of a participant of a registered
clearing agency.
CHAPTER XII
MARGIN AND CREDIT
Section 48. Margin Requirements. – 48.1. For the purpose of
preventing the excessive use of credit for the purchase or
carrying of securities, the Commission, in accordance with the
credit and monetary policies that may be promulgated from
time to time by the Monetary Board of the Bangko Sentral ng
Pilipinas, shall prescribed rules and regulations with respect
to the amount of credit that may be extended on any security.
For the extension of credit, such rules and regulations shall be
based upon the following standard:
An amount not greater than the whichever is the higher of –
(a) Sixty-five per centum (65%) of the current market price of
the security, or
(b) One hundred per centum (100%) of the lowest market price
of the security during the preceding thirty-six (36) calendar
months, but not more than seventy-five per centum (75%) of
the current market price.
However, the Monetary Board may increase or decrease the
above percentages, in order to achieve the objectives of the
Government with due regard for promotion of the economy
and prevention of the use of excessive credit.
Such rules and regulations may make appropriate provision
with respect to the carrying of undermargined accounts for
limited periods and under specified conditions; the withdrawal
of funds or securities; the transfer of accounts from one lender
to another; special or different margin requirements for
delayed deliveries, short sales, arbitrage transactions, and
securities to which letter (b) of the second paragraph of this
subsection does not apply; the methods to be used in
calculating loans, and margins and market prices; and similar
administrative adjustments and details.
48.2. No member of an Exchange or broker or dealer shall,
directly or indirectly, extend or maintain credit is extended
and maintain credit or arrange for the extension or
maintenance of credit to or for any customer:
(a) On any security unless such credit is extended and
maintained in accordance with the rules and regulations
which the Commission shall prescribe under this Section
including rules setting credit in relation to net capital of such
member, broker or dealer; and
(b) Without collateral or any collateral other than securities,
except (I) to maintain a credit initially extended in conformity
with rules and regulations of the Commission and (ii) in cases
where the extension or maintenance of credit is not for the
purpose of purchasing or carrying securities or of evading or
circumventing the provisions of paragraph (a) of this
subsection.
48.3 Any person not subject to Subsection 48.2 hereof shall
extend or maintain credit or arrange for the extension or
maintenance of credit for the purpose of purchasing or
carrying any security, only in accordance with such rules and
regulations as the Commission shall prescribe to prevent the
excessive use of credit for the purchasing or carrying of or
trading in securities in circumvention of the other provisions
of this Section.. Such rules and regulations may impose upon
all loans made for the purpose of purchasing or carrying
securities limitations similar to those imposed upon members,
brokers, or dealers by Subsection 48.2 and the rules and
regulations thereunder. This subsection and the rules and
regulations thereunder shall not apply:
(a) To a credit extension made by a person not in the ordinary
course of business; (b) to a loan to a dealer to aid in the
financing of the distribution of securities to customers not
through the medium of an Exchange; or (c) To such other
credit extension as the Commission shall exempt from the
operation of this subsection and the rules and regulations
thereunder upon specified terms and conditions for stated
period.
Section 49. Restrictions on Borrowings by Members, Brokers,
and Dealers. – It shall be unlawful for any registered broker or
dealer, or member of an Exchange, directly or indirectly;
49.1. To permit in the ordinary course of business as a broker
or dealer his aggregate indebtedness including customers’
credit balances, to exceed such percentage of the net capital
(exclusive of fixed assets and value of Exchange membership)
employed in the business, but not exceeding in any case to
thousand percentum (2,000%), as the Commission may be
rules and regulations prescribe as necessary or appropriate in
the public interest or for the protection of investors.
49.2. To pledge, mortgage, or otherwise encumber or arrange
for the pledge, mortgage, or encumbrance of any security
carried for the account of any customer under circumstances:
(a) That will permit the commingling of his securities, without
his written consent, with the securities of any customer; (b)
That will permit such securities to be commingled with the
securities of any person other than a bona fide customer; or (c)
that will permit such securities to be pledged, mortgaged or
encumbered, or subjected to any lien or claim of the pledgee,
for a sum in excess of the aggregate indebtedness of such
customers in respect of such securities. However, the
Commission, having due regard to the protection of investors,
may, by rules and regulations, allow certain transactions that
may otherwise be prohibited under this subsection.
49.3. To lend or arrange for the lending of any security carried
for the account of any customer without the written consent of
such customer or in contravention of such rules and
regulations as the Commission shall prescribe.
Section 50. Enforcement of Margin Requirement and
Restrictions on Borrowing. – To prevent indirect violations of
the margin requirements under Section 48, the broker or
dealer shall require the customer in non-margin transactions
to pay the price of the security purchased for his account
within such period as the Commission may prescribe, which
shall in no case exceed the prescribed settlement date.
Otherwise, the broker shall sell the security purchased
starting on the next trading day but not beyond ten (10)
trading days following the last day for the customer to pay
such purchase price, unless such sale cannot be effected within
said period for justifiable reasons. The sale shall be without
prejudice to the right of the broker or dealer to recover any
deficiency from the customer. To prevent indirect violation of
the restrictions on borrowing under Section 49, the broker
shall, unless otherwise directed by the customer, pay the net
sales price of the securities sold for a customer within the
same period as above prescribed by the Commission: Provided,
That the customer shall be required to deliver the instruments
evidencing the securities as a condition for such payment upon
demand by the broker.
CHAPTER XIII
GENERAL PROVISIONS
Section 51. Liabilities of Controlling Persons, Aider and
Abettor and Other Secondary Liability. 51.1. Every person
who, by or through stock ownership, agency, or otherwise, or
in connection with an agreement or understanding with one or
more other persons, controls any person liable under this Code
or the rules or regulations of the Commission thereunder,
shall also be liable jointly and severally with and to the same
extent as such controlled persons to any person to whom such
controlled person is liable, unless the controlling person proves
that, despite the exercise of due diligence on his part, he has
no knowledge of the existence of the facts by reason of which
the liability of the controlled person is alleged to exist.
51.2. It shall be unlawful for any person, directly, or indirectly,
to do any act or thing which it would be unlawful for such
person to do under the provisions of this Code or any rule or
regulation thereunder.
51.2. It shall be unlawful for any director or officer of, or any
owner of any securities issued by, any issuer required to file
any document, report or other information under this Code or
any rule or regulation of the Commission thereunder, without
just cause, to hinder, delay or obstruct the making or filing of
any such document, report, or information.
51.3. It shall be unlawful for any person to aid, abet, counsel,
command, induce or procure any violation of this Code, or any
rule, regulation or order of the Commission thereunder.
52.4. Every person who substantially assists the act or
omission of any person primarily liable under Sections 57, 58,
59 and 60 of this Code, with knowledge or in reckless
disregard that such act or omission is wrongful, shall be jointly
and severally liable as an aider and abettor for damages
resulting from the conduct of the person primarily liable:
Provided, however, That an aider and abettor shall be liable
only to the extent of his relative contribution in causing such
damages in comparison to that of the person primarily liable,
or the extent to which the aider and abettor was unjustly
enriched thereby, whichever is greater.
Section 52. Accounts and Records, Reports, Examination of
Exchanges, members, and Others. – 52.1. Every registered
Exchange, broker or dealer, transfer agent, clearing agency,
securities association, and other self-regulatory organization,
and every other person required to register under this Code,
shall make, keep and preserve for such periods, records,
furnish such copies thereof, and make such reports, as the
Commission by its rules and regulations may prescribe. Such
accounts, correspondence, memoranda, papers, books, and
other records shall be subject at any time to such reasonable
periodic, special or other examinations by representatives of
the Commission as the Commission may deem necessary or
appropriate in the public interest of for the protection of
investors.
52.2. Any brother, dealer or other person extending credit, who
is subject to the rules and regulations prescribed by the
Commission pursuant to this Code, shall make such reports to
the Commission as may be necessary or appropriate to enable
it to perform the functions conferred upon it by this Code.
52.3. For purposes of this Section, the term "records refers to
accounts, correspondence, memoranda, tapes, discs, papers,
books and other documents or transcribed information of any
type, whether written or electronic in character.
Section 53. Investigations, Injunctions and Prosecution of
Offenses. 53.1. The Commission may, in its discretion, make
such investigations as it deems necessary to determine
whether any person has violated or is about to violate any
provision of this Code, any rule, regulation or order
thereunder, or any rule of an Exchange, registered securities
association, clearing agency, other self-regulatory
organization, and may require or permit any person to file
with it a statement in writing, under oath or otherwise, as the
Commission shall determine, as to all facts and circumstances
concerning the matter to be investigated. The Commission
may publish information concerning any such violations, and
to investigate any fact, condition, practice or matter which it
may deem necessary or proper to aid in the enforcement of the
provisions of this Code, in the prescribing of rules and
regulations thereunder, or in securing information to serve as
a basis for recommending further legislation concerning the
matters to which this Code relates: Provided, however, That
any person requested or subpoenaed to produce documents or
testify in any investigation shall simultaneously be notified in
writing of the purpose of such investigation: Provided, further,
That all criminal complaints for violations of this Code, and
the implementing rules and regulations enforced or
administered by the Commission shall be referred to the
Department of Justice for preliminary investigation and
prosecution before the proper court: Provided, furthermore,
That in instances where the law allows independent civil or
criminal proceedings of violations arising from the same act,
the Commission shall take appropriate action to implement
the same: provided, finally, That the investigation,
prosecution, and trial of such cases shall be given priority.
53.2. For the purpose of any such investigation, or any other
proceeding under this Code, the Commission or any officer
designated by it is empowered to administer oaths and
affirmations, subpoena witnesses, compel attendance, take
evidence, require the production of any book, paper,
correspondence, memorandum, or other record which the
Commission deems relevant or material to the inquiry, and to
perform such other acts necessary in the conduct of such
investigation or proceedings.
53.3. Whenever it shall appear to the Commission that any
person has engaged or is about to engage in any act or practice
constituting a violation of any provision of this Code, any rule,
regulation or order thereunder, or any rule of an Exchange,
registered securities association, clearing agency or other self-
regulatory organization, it may issue an order to such person
to desist from committing such act or practice: Provided,
however, That the Commission shall not charge any person
with violation of the rules of an Exchange or other self-
regulatory organization unless it appears to the Commission
that such Exchange or other self-regulatory organization is
unable or unwilling to take action against such person. After
finding that such person has engaged in any such act or
practice and that there is a reasonable likelihood of
continuing, further or future violations by such person, the
Commission may issue ex-parte a cease and desist order for a
maximum period of ten (10) days, enjoining the violation and
compelling compliance with such provision. The Commission
may transmit such evidence as may be available concerning
any violation of any provision of this Code, or any rule,
regulation or order thereunder, to the Department of Justice,
which may institute the appropriate criminal proceedings
under this Code.
53.4. Any person who, within his power but without cause,
fails or refuses to comply with any lawful order, decision or
subpoena issued by the Commission under Subsection 53.2 or
Subsection 53.3 or Section 64 of this Code, shall after due
notice and hearing, be guilty of contempt of the Commission.
Such person shall be fined in such reasonable amount as the
Commission may determine, or when such failure or refusal is
a clear and open defiance of the Commission’s order, decision
or subpoena, shall be detained under an arrest order issued by
the Commission, until such order, decision or subpoena is
complied with.
Section 54. Administrative Sanctions. – 54.1. If, after due
notice and hearing, the Commission finds that: (a) There is a
violation of this Code, its rule, or its orders; (b) Any registered
broker or dealer, associated person thereof has failed
reasonably to supervise, with a view to preventing violations,
another person subject to supervision who commits any such
violation; (c) Any registrant or other person has, in a
registration statement or in other reports, applications,
accounts, records or documents required by law or rules to be
filed with the Commission, made any untrue statement of a
material fact, or omitted to state any material fact required to
be stated their or necessary to make the statements therein
not misleading; or, in the case of an underwriter, has failed to
conduct an inquiry with reasonable diligence to insure that a
registration statement is accurate and complete in all material
respects; or (d) Any person has refused to permit any lawful
examinations into its affairs, it shall, in its discretion, and
subject only to the limitations hereinafter prescribed, impose
any or all of the following sanctions as may be appropriate in
light of the facts and circumstances:
(i) Suspension, or revocation of any registration for the offering
of securities;
(ii) A fine of no less than Ten thousand pesos (P10,000.00) nor
more than One million pesos (P1,000,000.00) plus not more
than Two thousand pesos (P2,000.00) for each day of
continuing violation;
(iii) In the case of a violation of Sections 19.2, 20, 24, 26 and
27, disqualification from being an officer, member of the Board
of Directors, or person performing similar functions, of an
issuer required to file reports under Section 17 of this Code or
any other act, rule or regulation administered by the
Commission;
(iv) In the case of a violation of Section 34, a fine of no more
than three (3) times the profit gained or loss avoided as result
of the purchase, sale or communication proscribed by such
Section, and
(v) Other penalties within the power of the Commission to
impose.
54.2. The imposition of the foregoing administrative sanctions
shall be without prejudice to the filing of criminal charges
against the individuals responsible for the violation.
54.3. The Commission shall have the power to issue writs of
execution to enforce the provisions of the Section and to
enforce payment of the fees and other dues collectible under
this Code.
Section 55. Settlement Offers. – 55.1. At any time, during an
investigation or proceeding under this Code, parties being
investigated and/or charged may propose in writing an offer of
settlement with the Commission.
55.2. Upon receipt of such offer of settlement, the Commission
may consider the offer based on timing, the nature of the
investigation or proceeding, and the public interest.
55.3. The Commission may only agree to a settlement offer
based on its findings that such settlement is in the public
interest. Any agreement to settle shall have no legal effect
until publicly disclosed. Such decision may be made without a
determination of guilt on the part of the person making the
offer.
55.4. The Commission shall adopt rules and procedures
governing the filing, review, withdrawal, form of rejection and
acceptance of such offers.
Section 56. Civil Liabilities on Account of False Registration
Statement. 56.1. Any person acquiring a security, the
registration statement of which or any part thereof contains
on its effectivity an untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary to make such statements not misleading, and who
suffers damage, may sue and recover damages from the
following enumerated persons, unless it is proved that at the
time of such acquisition he knew of such untrue statement or
omission:
(a) The issuer and every person who signed the registration
statement:
(b) Every person who was a director of, or any other person
performing similar functions, or a partner in, the issuer at the
time of the filing of the registration statement or any part,
supplement or amendment thereof with respect to which his
liability is asserted;
(c) Every person who is named in the registration statement as
being or about to become a director of, or a person performing
similar functions, or a partner in, the issuer and whose
written consent thereto is filed with the registration
statement;
(d) Every auditor or auditing firm named as having certified
any financial statements used in connection with the
registration statement or prospectus.
(e) Every person who, with his written consent, which shall be
filed with the registration statement, has been named as
having prepared or certified any part of the registration
statement, or as having prepared or certified any report or
valuation which is used in connection with the registration
statement, with respect to the statement, report, or valuation,
which purports to have been prepared or certified by him.
(f) Every selling shareholder who contributed to and certified
as to the accuracy of a portion of the registration statement,
with respect to that portion of the registration statement
which purports to have been contributed by him.
(g) Every underwriter with respect to such security.
56.2. If the person who acquired the security did so after the
issuer has made generally available to its security holders an
income statement covering a period of at least twelve (12)
months beginning from the effective date of the registration
statement, then the right of recovery under this subsection
shall be conditioned on proof that such person acquired the
security relying upon such untrue statement in the
registration statement or relying upon the registration
statement and not knowing of such income statement, but
such reliance may be established without proof of the reading
of the registration statement by such person.
Section 57. Civil Liabilities Arising in Connection With
Prospectus, Communications and Reports. 57.1. Any person
who:
(a) Offers to sell or sells a security in violation of Chapter III,
or
(b) Offers to sell or sells a security, whether or not exempted
by the provisions of this Code, by the use of any means or
instruments of transportation or communication, by means of
a prospectus or other written or oral communication, which
includes an untrue statement of a material fact or omits to
state a material fact necessary in order to make the
statements, in the light of the circumstances under which they
were made, not misleading (the purchaser not knowing of such
untruth or omission), and who shall fail in the burden of proof
that he did not know, and in the exercise of reasonable care
could not have known, of such untruth or omission, shall be
liable to the person purchasing such security from him, who
may sue to recover the consideration paid for such security
with interest thereon, less the amount of any income received
thereon, upon the tender of such security, or for damages if he
no longer owns the security.
57.2. Any person who shall make or cause to be made any
statement in any report, or document filed pursuant to this
Code or any rule or regulation thereunder, which statement as
at the time and in the light of the circumstances under which
it was made false or misleading with respect to any material
fact, shall be liable to any person who, not knowing that such
statement was false or misleading, and relying upon such
statement shall have purchased or sold a security at a price
which was affected by such statement, for damages caused by
such reliance, unless the person sued shall prove that he acted
in good faith and had no knowledge that such statement was
false or misleading.
Section 58. Civil Liability of Fraud in Connection with
Securities Transactions. – Any person who engages in any act
or transaction in violation of Sections 19.2, 20 or 26, or any
rule or regulation of the Commission thereunder, shall be
liable to any other person who purchases or sells any security,
grants or refuses to grant any proxy, consent or authorization,
or accepts or declines an invitation for tender of a security, as
the case may be, for the damages sustained by such other
person as a result of such act or transaction.
Section 59. Civil Liability for Manipulation of Security Prices.
– Any person who willfully participates in any act or
transaction in violation of Section 24 shall be liable to any
person who shall purchase or sell any security at a price which
was affected by such act or transaction, and the person so
injured may sue to recover the damages sustained as a result
of such act or transaction.
Section 60. Civil Liability with Respect to Commodity Futures
Contracts and Pre-need Plans. – 60.1. Any person who engages
in any act or transactions in willful violation of any rule or
regulation promulgated by the Commission under Section 11
or 16, which the Commission denominates at the time of
issuance as intended to prohibit fraud in the offer and sale of
pre-need plans or to prohibit fraud, manipulation, fictitious
transactions, undue speculation, or other unfair or abusive
practices with respect to commodity future contracts, shall be
liable to any other person sustaining damages as a result of
such act or transaction.
60.2. As to each such rule or regulation so denominated, the
Commission by rule shall prescribe the elements of proof
required for recovery and any limitations on the amount of
damages that may be imposed.
Section 61. Civil Liability on Account of Insider Trading. –
61.1. Any insider who violates Subsection 27.1 and any person
in the case of a tender offer who violates Subsection 27.4 (a)(I),
or any rule or regulation thereunder, by purchasing or selling
a security while in possession of material information not
generally available to the public, shall be liable in a suit
brought by any investor who, contemporaneously with the
purchase or sale of securities that is the subject of the
violation, purchased or sold securities of the same class unless
such insider, or such person in the case of a tender offer,
proves that such investor knew the information or would have
purchased or sold at the same price regardless of disclosure of
the information to him.
61.2. An insider who violates Subsection 27.3 or any person in
the case of a tender offer who violates Subsection 27.4 (a), or
any rule or regulation thereunder, by communicating material
nonpublic information, shall be jointly and severally liable
under Subsection 61.1 with, and to the same extent as, the
insider, or person in the case of a tender offer, to whom the
communication was directed and who is liable under
Subsection 61.1 by reason of his purchase or sale of a security.
Section 62. Limitation of Actions. – 62.1. No action shall be
maintained to enforce any liability created under Section 56 or
57 of this Code unless brought within two (2) years after the
discovery of the untrue statement or the omission, or, if the
action is to enforce a liability created under Subsection 57.1
(a), unless, brought within two (2) yeas after the violation
upon which it is based. In no event shall an such action be
brought to enforce a liability created under Section 56 or
Subsection 57.1 (a) more than five (5) years after the security
was bona fide offered to the public, or under Subsection 57.1
(b0 more than five (5) years after the sale.
62.2. No action shall be maintained to enforce any liability
created under any other provision of this Code unless brought
within two (20 years after the discovery of the facts
constituting the cause of action and within five (5) years after
such cause of action accrued.
Section 63. Amount of Damages to be Awarded. – 63.1. All
suits to recover damages pursuant to Sections 56, 57, 58, 59,
60 and 61 shall be brought before the Regional Trial Court,
which shall have exclusive jurisdiction to hear and decide such
suits. The Court is hereby authorized to award damages in an
amount not exceeding triple the amount of the transaction
plus actual damages.
Exemplary damages may also be awarded in cases of bad
faith, fraud, malevolence or wantonness in the violation of this
Code or the rules and regulations promulgated thereunder.
The Court is also authorized to award attorney’s fees not
exceeding thirty percentum (30%) of the award.
63.2. The persons specified in Sections 56, 57, 58, 59, 60 and
61 hereof shall be jointly and severally liable for the payment
of damages. However, any person who becomes liable for the
payment of such damages may recover contribution from any
other person who, if sued separately, would have been liable to
make the same payment, unless the former was guilty of
fraudulent representation and the latter was not.
63.3. Notwithstanding any provision of law to the contrary, all
persons, including the issuer, held liable under the provisions
of Sections 56, 57, 58, 59, 60 and 61 shall contribute equally to
the total liability adjudged herein. In no case shall the
principal stockholders, directors and other officers of the
issuer or persons occupying similar positions therein, recover
their contribution to the liability from the issuer. However, the
right of the issuer to recover from the guilty parties the
amount it has contributed under this Section shall not be
prejudiced.
Section 64. Cease and Desist Order. – 64.1. The Commission,
after proper investigation or verification, motu proprio or upon
verified complaint by any aggrieved party, may issue a cease
and desist order without the necessity of a prior hearing if in
its judgment the act or practice, unless restrained, will operate
as a fraud on investors or is otherwise likely to cause grave or
irreparable injury or prejudice to the investing public.
64.2. Until the Commission issue a cease and desist order, the
fact that an investigation has been initiated or that a
complaint has been filed, including the contents of the
complaint, shall be confidential. Upon issuance of a cease and
desist order, the Commission shall make public such order and
a copy thereof shall be immediately furnished to each person
subject to the order.
64.3. Any person against whom a cease and desist order was
issued may, within five (5) days from receipt of the order, file a
formal request for a lifting thereof. Said request shall be set
for hearing by the Commission not later than fifteen (15) days
from its filing and the resolution thereof shall be made not
later than ten (10) days from the termination of the hearing. If
the Commission fails to resolve the request within the time
herein prescribed, the cease and desist order shall
automatically be lifted.
Section 65. Substituted Service Upon the Commission. –
Service of summons or other process shall be made upon the
Commission in actions or legal proceedings against an issuer
or any person liable under this Code who is not domiciled in
the Philippines. Upon receipt by the Commission of such
summons, the Commission shall within ten (10) days
thereafter, transmit by registered mail a copy of such
summons and the complaint or other legal process to such
issuer or person at his last known address or principal office.
The sending thereof by the Commission, the expenses for
which shall be advanced by the party at whose instance it is
made, shall complete such service.
Section 66. Revelation of Information Filed with the
Commission. – 66.1. All information filed with the commission
in compliance with the requirements of this Code shall be
made available to any member of the general public, upon
request, in the premises and during regular office hours of the
Commission, except as set forth in this Section.
66.2. Nothing in this Code shall be construed to require, or to
authorize the Commission to require, the revealing of trade
secrets or processes in any application, report, or document
filed with the Commission.
66.3. Any person filing any such application, report or
document may make written objection to the public disclosure
of information contained therein, stating the grounds for such
objection, and the Commission may hear objections as it deems
necessary. The Commission may, in such cases, make
available to the public the information contained in any such
application, report, or document only when a disclosure of such
information is required in the public interest or for the
protection of investors; and copies of information so made
available may be furnished to any person having a legitimate
interest therein at such reasonable charge and under such
reasonable limitations as the Commission may prescribe.
66.4. It shall be unlawful for any member, officer, or employee
of the Commission to disclose to any person other than a
member, officer or employee of the Commission or to use for
personal benefit, any information contained in any application,
report, or document filed with the Commission which is not
made available to the public pursuant to Subsection 66.3.
66.5. Notwithstanding anything in Subsection 66.4 to the
contrary, on request from a foreign enforcement authority of
any country whose laws grant reciprocal assistance as herein
provided, the Commission may provide assistance in
accordance with this subsection, including the disclosure of
any information filed with or transmitted to the Commission.
If the requesting authority states that it is conducting an
investigation which it deems necessary to determine whether
any person has violated, is violating, or is about to violate any
laws relating to securities or commodities matters that the
requesting authority administers or enforces. Such assistance
may be provided without regard to whether the facts stated in
the request would also constitute a violation of law of the
Philippines.
Section 67. Effect of action of Commission and Unlawful
Representations with Respect Thereto. – 67.1. No action or
failure to act by the Commission in the administration of this
Code shall be construed to mean that the Commission has in
any way passed upon the merits of or given approval to any
security or any transactions or transactions therein, nor shall
such action or failure to act with regard to any statement or
report filed with or examined by the Commission pursuant to
this Code or the rules and regulations thereunder to be
deemed a finding by the Commission that such statements or
report is true and accurate on its face or that it is not false or
misleading. It shall be unlawful to make, or cause to be made,
to any prospective purchaser or seller or a security any
representation that any such action or failure to act by the
Commission is to be so construed or has such effect.
67.2. Nothing contained in Subsection 67.1 shall, however, be
construed as an exemption from liability of an employee or
officer of the Commission for any nonfeasance, misfeasance or
malfeasance in the discharge of his official duties.
Section 68. Special Accounting Rules. – The Commission shall
have the authority to make, amend, and rescind such
accounting rules and regulations as may be necessary to carry
out the provisions of this Code, including rules and regulations
as may be necessary to carry out the provisions of this Code,
including rules and regulations governing registration
statements and prospectuses for various classes of securities
and issuers, and defining accounting, technical and trade
terms used in this Code. Among other things, the Commission
may prescribe the form or forms in which required information
shall be set forth, the items or details to be shown in the
balance sheet and income statement, and the methods to be
followed in the preparation of accounts, appraisal or valuation
of assets and liabilities, determination of depreciation and
depletion, differentiation of recurring and non-recurring
income, differentiation of investment and operating income,
and in the preparation, where the Commission deems it
necessary or desirable of consolidated balance sheets or
income accounts of any person directly or indirectly controlling
or controlled by the issuer, or any person under direct or
indirect common control with the issuer.
Section 69. Effect on Existing Law. – The rights and remedies
provided by this Code shall be in addition to any and all order
rights and remedies that may now exist. However, except as
provided in Section 56 and 63 hereof, no person permitted to
maintain a suit for damages under the provisions of this Code
shall recover, through satisfaction of judgment in one or more
actions, a total amount in excess of his actual damages on
account of the act complained of: Provided, That exemplary
damages may be awarded in cases of bad faith, fraud,
malevolence or wantonness in the violation of this Code or the
rules and regulations promulgated thereunder.
Section 70. Judicial Review of Commission Orders. – Any
person aggrieved by an order of the Commission may appeal
the order to the Court of Appeals by petition for review in
accordance with the pertinent provisions of the Rules of Court.
Section 71. Validity of Contracts. – 71.1. Any condition,
stipulation, provision binding any person to waive compliance
with any provision of this Code or of any rule or regulation
thereunder, or of any rule of an Exchange required thereby, as
well as the waiver itself, shall be void.
71.2. Every contract made in violation of any provision of this
Code or of any rule or regulation thereunder, and every
contract, including any contract for listing a security or an
Exchange heretofore or hereafter made, the performance of
which involves the violation of, or the continuance of any
relationship or practice in violation of, any provision of this
Code, or any rule or regulation thereunder, shall be void:
(a) As regards the rights of any person who, in violation of any
such provision, rule or regulation, shall have made or engaged
in the performance of any such contract, and
(b) As regards the rights of any person who, not being a party
to such contract, shall have acquired any right thereunder
with actual knowledge of the facts by reason of which the
making or performance of such contract was in violation of any
such provision, rule or regulation.
71.3. Nothing in this Code shall be construed:
(a) To affect the validity of any loan or extension of credit
made or of any lien created prior or subsequent to the
effectivity of this Code, unless at the time of the making of
such loan or extension of credit or the creating of such lien, the
person making such loan or extension of credit or acquiring
such lien shall have actual knowledge of the facts by reason of
which the making of such loan or extension of credit or the
acquisition of such lien is a violation of the provisions of this
Code or any rules or regulations thereunder, or
(b) To afford a defense to the collection of any debt, obligation
or the enforcement of any lien by any person who shall have
acquired such debt, obligation or lien in good faith for value
and without actual knowledge of the violation of any provision
of this Code or any rule or regulation thereunder affecting the
legality of such debt, obligation or lien.
Section 72. Rules and Regulations; Effectivity. – 72.1. This
Code shall be self-executory. To effect the provisions and
purposes of this Code, the Commission may issue, amend, and
rescind such rules and regulations and orders necessary or
appropriate, including rules and regulations defining
accounting, technical, and trade terms used in this Code, and
prescribing the form or forms in which information required in
registration statements, applications, and reports to the
Commission shall be set forth. For purposes of its rules or
regulations, the Commission may classify persons, securities,
and other matters within its jurisdiction, prescribe different
requirements for different classes of persons, securities, or
matters, and by rule or order, conditionally or unconditionally
exempt any person, security, or transaction, or class or classes
of persons, securities or transactions, from any or all
provisions of this Code.
Failure on the part of the Commission to issue rules and
regulations shall not in any manner affect the self-executory
nature of this Code.
72.2. The Commission shall promulgate rules and regulations
providing for reporting, disclosure and the prevention of
fraudulent, deceptive or manipulative practices in connection
with the purchase by an issuer, by tender offer or otherwise, of
and equity security of a class issued by it that satisfies the
requirements of Subsection 17.2. such rules and regulations
may require such issuer to provide holders of equity securities
of such dates with such information relating to the reasons for
such purchase, the source of funds, the number of shares to be
purchased, the price to be paid for such securities, the method
of purchase and such additional information as the
Commission deems necessary or appropriate in the public
interest or for the protection of investors, or which the
Commission deems to be material to a determination by
holders whether such security should be sold.
72.3. For the purpose of Subsection 72.2, a purchase by or for
the issuer or any person controlling, controlled by, or under
common control with the issuer, or a purchase subject to the
control of the issuer or any such person, shall be deemed to be
a purchased by the issuer. The commission shall have the
power to make rules and regulations implementing this
subsection, including exemptive rules and regulations covering
situations in which the Commission deems it unnecessary or
inappropriate that a purchase of the type described in this
subsection shall be deemed to be a purchase by the issuer for
the purpose of some or all of the provisions of Subsection 72.2.
72.4. The rules and regulations promulgated by the
Commission shall be published in two (20 newspapers or
general circulation in the Philippines, and unless otherwise
prescribed by the Commission, the same shall be effective
fifteen (15) days after the date of the last publication.
Section 73. Penalties. – Any person who violates any of the
provisions of this Code, or the rules and regulations
promulgated by the Commission under authority thereof, or
any person who, in a registration statement filed under this
Code, makes any untrue statement of a material fact or omits
to state any material fact required to be stated therein or
necessary to make the statements therein not misleading,
shall, upon conviction, suffer a fine of not less than Fifty
thousand pesos (P50,000.00) nor more than Five million pesos
(P5,000,000.00) or imprisonment of not less than seven (7)
years nor more than twenty-one (21) years, or both in the
discretion of the court. If the offender is a corporation,
partnership or association or other juridical entity, the penalty
may in the discretion of the court be imposed upon such
juridical entity and upon the officer or officers of the
corporation, partnership, association or entity responsible for
the violation, and if such officer is an alien, he shall in
addition to the penalties prescribed, be deported without
further proceedings after service of sentence.
Section 74. Transitory Provisions. – The Commission, as
organized under existing laws, shall continue to exist and
exercise its powers, functions and duties under such laws and
this Code: Provided, That until otherwise mandated by a
subsequent law, the Commission shall continue to regulate
and supervise commodity futures contracts as provided in
Section 11 and pre-need plans and the pre-need industry as
provided in Section 16 of this Code.
All further requirements herein shall be complied with upon
approval of this Code: Provided, however, That compliance
may be deferred for such reasonable time as the Commission
may determine but not to exceed one (1) year from approval of
this Code: Provided, further, That securities which are being
offered at the time of effectivity of this Code pursuant to an
effective registration and permit, may continue to be offered
and sold in accordance with the provisions of the Revised
Securities Act in effect immediately prior to approval of this
Code.
All unexpended funds for the calendar year, properties,
equipment and records of the Securities and Exchange
Commission are hereby retained by the Commission as
reorganized under this Code and the amount of Two hundred
million pesos (P200,000,000.00) or such amount necessary to
carry out the reorganization provided in this Code is hereby
appropriated.
All employees of the Commission who voluntarily retire or are
separated from the service with the Commission and whose
retirement or separation has been approved by the
Commission, shall be paid retirement or separation benefits
and other entitlement granted under existing laws.
Section 75. Partial Use of Income. – To carry out the purposes
of this Code, the Commission is hereby authorized, in addition
to its annual budget, to retain and utilize an amount equal to
One hundred million pesos (P100,000,000.00) from its income.
The use of such additional amount shall be subject to the
auditing requirements, standards and procedures under
existing laws.
Section 76. Repealing Clause. – The Revised Securities Act
(Batas Pambansa Blg. 178), as amended, are hereby repealed.
All other laws, orders, rules and regulations, or parts thereof,
inconsistent with any provision of this Code are hereby
repealed or modified accordingly.
Section 77. Separability Clause. – if any portion or provision of
this Code is declared unconstitutional or invalid, the other
portions or provisions hereof, which are not affected thereby
shall continue in full force and effect.
Section 78. Effectivity. – This Code shall take effect fifteen (15)
days after its publication in the Official Gazette or in two (2)
newspapers of general circulation.
Approved: July 19, 2000
(Sgd.)JOSEPH E. ESTRADA
President of the Philippines
