BANKING INSTITUTIONS

BANKS Definition Sec. 3.1, RA No. 8791 [General Banking Law of 2000(GBL ! Banks shall refer to entities engaged in the lending of funds obtained in the form of deposits. B"#$%&'(, (nc. ). *A&RL "e)+,. 'or-ora,ion GR No. 179901, 1. A-ril 2008
CORONA, J.: This petition for review on certiorari[1] seeks to set aside the decision[2] of the Court of Appeals CA! in CA"#.$. %& 'o. ()*)( and its resolution[+] den,ing reconsideration. After evaluating the financial statements of respondent -A&$. /evelopment Corporation -A&$.! for fiscal ,ears 1((01 1((( and 22221[3] petitioner Banco de 4ro"5&C61 6nc. e7tended credit facilities to it amounting to &2+212221222[)] on 8arch 201 222+. $espondents $apid 9orming Corporation $9C! and -ose :. Arollado acted as -A&$.;s sureties. /espite its seemingl, strong financial position1 -A&$. defaulted in the pa,ment of four trust receipts soon after the approval of its loan.[*] &etitioner later learned from 8$8 8anagement1 -A&$.;s financial adviser1 that -A&$. had altered and falsified its financial statements. 6t allegedl, bloated its sales revenues to post a big income from operations for the concerned fiscal ,ears to pro<ect itself as a viable investment.[=]The information alarmed petitioner. Citing relevant provisions of the Trust $eceipt Agreement1[0] it demanded immediate pa,ment of -A&$.;s outstanding obligations amounting to &1(313(+1+00.(0.[(] SP Proc. No. Q-03-0 ! 4n August +21 222+1 -A&$. and its subsidiar,1 $9C! filed a petition for rehabilitation in the $egional Trial Court $TC! of >ue?on Cit,1 Branch (2 >ue?on Cit, $TC!.[12] 6t disclosed that it had been e7periencing a decline in sales for the three preceding ,ears and a staggering loss in 2222.[11] Because the petition was sufficient in form and substance1 a sta, order[12] was issued on %eptember 201 222+.[1+] @owever1 the proposed rehabilitation plan for -A&$. and $9C was eventuall, re<ected b, the >ue?on Cit, $TC in an order dated 8a, (1 222).[13] Ci"i# C$%e No. 03-&&' Because -A&$. ignored its demand for pa,ment1 petitioner filed a complaint for sum of mone, with an application for the issuance of a writ of preliminar, attachment against respondents in the $TC of 8akati Cit,1 Branch 13) 8akati $TC! on August 211 222+.[1)] &etitioner essentiall, asserted that -A&$. was guilt, of fraud because it -A&$.! altered and falsified its financial statements.[1*] The 8akati $TC subseAuentl, denied the application for the issuance of a writ of preliminar, attachment! for lack of merit as petitioner was unable to substantiate its allegations. 'evertheless1 it ordered the service of summons on respondents.[1=]&ursuant to the said order1 summonses were issued against respondents and were served upon them. $espondents moved to dismiss the complaint due to an allegedl, invalid service of summons. [10] Because the officer;s return stated that an Badministrative assistantB had received the summons1 [1(] -A&$. and $9C argued that %ection 111 $ule 13 of the $ules of Court[22] contained an e7clusive list of persons on whom summons against a corporation must be served.[21] An Badministrative assistantB was not one of them. Arollado1 on the other hand1 cited %ection *1 $ule 13 thereof[22] which mandated

personal service of summons on an individual defendant.[2+] The 8akati $TC1 in its 4ctober 121 222) order1[23] noted that because corporate officers are often bus,1 summonses to corporations are usuall, received onl, b, administrative assistants or secretaries of corporate officers in the regular course of business. @ence1 it denied the motion for lack of merit. $espondents moved for reconsideration[2)] but withdrew it before the 8akati $TC could resolve the matter.[2*] RTC S(C C$%e No. )-*00)-C 4n 9ebruar, 221 222*1 -A&$. and its subsidiar,1 $9C! filed a petition for rehabilitation in the $TC of Calamba1 .aguna1 Branch +3 Calamba $TC!. 9inding -A&$.;s petition sufficient in form and in substance1 the Calamba $TC issued a sta, order[2=] on 8arch 1+1 222*. 6n view of the said order1 respondents hastil, moved to suspend the proceedings in Civil Case 'o. 2+" ((1 pending in the 8akati $TC.[20] 4n -ul, =1 222*1 the 8akati $TC granted the motion with regard to -A&$. and $9C but ordered Arollado to file an answer. 6t ruled that1 because he was <ointl, and solidaril, liable with -A&$. and $9C1 the proceedings against him should continue.[2(]$espondents moved for reconsideration[+2] but it was denied.[+1] 4n August 111 222*1 respondents filed a petition for certiorari[+2] in the CA alleging that the 8akati $TC committed grave abuse of discretion in issuing the 4ctober 121 222) and -ul, =1 222* orders.[++] The, asserted that the court did not acAuire <urisdiction over their persons due to defective service of summons. Thus1 the 8akati $TC could not hear the complaint for sum of mone,.[+3] 6n its -une =1 222= decision1 the CA held that because the summonses were served on a mere administrative assistant1 the 8akati $TC never acAuired <urisdiction over respondents. Thus1 it granted the petition.[+)] &etitioner moved for reconsideration but it was denied.[+*] @ence1 this petition. &etitioner asserts that respondents maliciousl, evaded the service of summonses to prevent the 8akati $TC from acAuiring <urisdiction over their persons. 9urthermore1 the, emplo,ed bad faith to dela, proceedings b, cunningl, e7ploiting procedural technicalities to avoid the pa,ment of their obligations.[+=] Ce grant the petition. $espondents1 in their petition for certiorari in the CA1 Auestioned the <urisdiction of the 8akati $TC over their persons i.e., whether or not the service of summons was validl, made!. Therefore1 it was onl, the 4ctober 121 222) order of the said trial court which the, in effect assailed.[+0] @owever1 because the, withdrew their motion for reconsideration of the said order1 it became final. 8oreover1 the petition was filed 12 months and 1 da, after the assailed order was issued b, the 8akati $TC1 [+(] wa, past the *2 da,s allowed b, the $ules of Court. 9or these reasons1 the said petition should have been dismissed outright b, the CA. 8ore importantl,1 when respondents moved for the suspension of proceedings in Civil Case 'o. 2+" ((1 before the 8akati $TC on the basis of the 8arch 1+1 222* order of the Calamba $TC!1 the, waived whatever defect there was in the service of summons and were deemed to have submitted themselves voluntaril, to the <urisdiction of the 8akati $TC.[32] Ce withhold <udgment for the moment on the -ul, =1 222* order of the 8akati $TC suspending the proceedings in Civil Case 'o. 2+"((1 insofar as -A&$. and $9C are concerned. :nder the 6nterim $ules of &rocedure on Corporate $ehabilitation1 a sta, order defers all actions or claims against the corporation seeking rehabilitation[31]from the date of its issuance until the dismissal of the petition or termination of the rehabilitation proceedings.[32] The 8akati $TC ma, proceed to hear Civil Case 'o. 2+"((1 onl, against Arollado if there is no ground to go after -A&$. and $9C as will later be discussed!. A creditor can demand pa,ment from the suret, solidaril, liable with the corporation seeking rehabilitation.[3+] $espondents abused procedural technicalities albeit unsuccessfull,! for the sole purpose of preventing1 or at least dela,ing1 the collection of their legitimate obligations. Their reprehensible

scheme impeded the speed, dispensation of <ustice. 8ore importantl,1 however1 considering the amount involved1 respondents utterl, disregarded the significance of a stable and efficient banking s,stem to the national econom,.[33] Banks are entities engaged in the lending of funds obtained through deposits[3)] from the public. [3*] The, borrow the public;s e7cess mone, i.e., deposits! and lend out the same.[3=] Banks therefore redistribute wealth in the econom, b, channeling idle savings to profitable investments. Banks operate and earn income! b, e7tending credit facilities financed primaril, b, deposits from the public.[30] The, plough back the bulk of said deposits into the econom, in the form of loans.[3(] %ince banks deal with the public;s mone,1 their viabilit, depends largel, on their abilit, to return those deposits on demand. 9or this reason1 banking is undeniabl, imbued with public interest. ConseAuentl,1 much importance is given to sound lending practices and good corporate governance.[)2] &rotecting the integrit, of the banking s,stem has become1 b, large1 the responsibilit, of banks. The role of the public1 particularl, individual borrowers1 has not been emphasi?ed. 'evertheless1 we are not unaware of the rampant and unscrupulous practice of obtaining loans without intending to pa, the same. 6n this case1 petitioner alleged that -A&$. fraudulentl, altered and falsified its financial statements in order to obtain its credit facilities. Considering the amount of petitioner;s e7posure in -A&$.1 <ustice and fairness dictate that the 8akati $TC hear whether or not respondents indeed committed fraud in securing the credit accomodation. A finding of fraud will change the whole picture. 6n this event1 petitioner can use the finding of fraud to move for the dismissal of the rehabilitation case in the Calamba $TC. The protective remed, of rehabilitation was never intended to be a refuge of a debtor guilt, of fraud. 8eanwhile1 the 8akati $TC should proceed to hear Civil Case 'o. 2+"((1 against the three respondents guided b, %ection 32 of the #eneral Banking .aw which statesD %ection 32. Requirement for Grant of Loans or Other Credit Accommodations. Before granting a loan or other credit accommodation1 a bank must ascertain that the debtor is capable of fulfilling his commitments to the bank. Towards this end1 a bank ma, demand from its credit applicants a statement of their assets and liabilities and of their income and e7penditures and such information as ma, be prescribed b, law or b, rules and regulations of the 8onetar, Board to enable the bank to properl, evaluate the credit application which includes the corresponding financial statements submitted for ta7ation purposes to the Bureau of 6nternal $evenue. S+o,#- %,c+ %t$te.ent% /ro"e to 0e f$#%e or incorrect in $n1 .$teri$# -et$i#, t+e 0$n2 .$1 ter.in$te $n1 #o$n or cre-it $cco..o-$tion 3r$nte- on t+e 0$%i% of %$i- %t$te.ent% $n- %+$## +$"e t+e ri3+t to -e.$n- i..e-i$te re/$1.ent or #i4,i-$tion of t+e o0#i3$tion. 6n formulating the rules and regulations under this %ection1 the 8onetar, Board shall recogni?e the peculiar characteristics of microfinancing1 such as cash flow"based lending to the basic sectors that are not covered b, traditional collateral. emphasis supplied! :nder this provision1 banks have the right to annul an, credit accommodation or loan1 and demand the immediate pa,ment thereof1 from borrowers proven to be guilt, of fraud. &etitioner would then be entitled to the immediate pa,ment of &1(313(+1+00.(0 and other appropriate damages.[)1] 9inall,1 considering that respondents failed to pa, the four trust receipts1 the 8akati Cit, &rosecutor should investigate whether or not there is probable cause to indict respondents for violation of %ection 1+ of the Trust $eceipts .aw.[)2] ACCORDING561 the petition is hereb, GRANT(D. The -une =1 222= decision and August +11 222= resolution of the Court of Appeals in CA"#.$. %& 'o. ()*)( areR(7(RS(D and S(T ASID(. The $egional Trial Court of 8akati Cit,1 Branch 13) is ordered to proceed e7peditiousl, with the trial of Civil Case 'o. 2+"((1 with regard to respondent -ose :. Arollado1 and the other respondents if warranted. SO ORD(R(D.

T+e (%%ence of B$n2in3 Re-/0lic ). Sec/ri,1 're2i, an2 Acce-,ance 'or-. 19 S'RA 38 (1947
CONC(PCION, '.*.5 This is an original quo warranto proceeding1 initiated b, the %olicitor #eneral1 to dissolve the %ecurit, and Acceptance Corporation for allegedl, engaging in banking operations without the authorit, reAuired therefor b, the #eneral Banking Act $epublic Act 'o. ++=!. 'amed as respondents in the petition are1 in addition to said corporation1 the following1 as alleged members of its Board of /irectors andEor 57ecutive 4fficers1 namel,D NAME $osendo T. $esuello &ablo Tan<utco Arturo %oriano $uben Beltran Bienvenido F. Gapa &ilar #. $esuello $icardo /. Balatbat -ose $. %ebastian Fito Tan<utco -r. POSI ION President ! Chairman of the "oard #irector #irector #irector #irector ! $ice%President #irector ! Secretar&% reasurer #irector ! Auditor #irector ! Le'a( Counse( #irector ! Personne( Mana'er

The record shows that the Articles of 6ncorporation of defendant corporation1 were registered with the %ecurities and 57change Commission on 8arch 2=1 1(*1H that the ne7t da,1 the Board of /irectors of the corporation adopted a set of b,"laws12 which were filed with said Commission on April )1 1(*1H that on %eptember 1(1 1(*11 the %uperintendent of Banks of the Central Bank of the &hilippines asked its legal counsel an opinion on whether or not said corporation is a banking institution1 within the purview of $epublic Act 'o. ++=H that1 acting upon this reAuest1 on 4ctober 111 1(*11 said legal counsel rendered an opinion resolving the Auer, in the affirmativeH that in a letter1 dated -anuar, 1)1 1(*21 addressed to said %uperintendent of Banks1 the corporation through its president1 $osendo T. $esuello1 one of defendants herein1 sought a reconsideration of the aforementioned opinion1 which reconsideration was denied on 8arch 1*1 1(*2H that1 prior thereto1 or on 8arch (1 1(*11 the corporation had applied with the %ecurities and 57change Commission for the registration and licensing of its securities under the %ecurities ActH that1 before acting on this application1 the Commission referred it to the Central Bank1 which1 in turn1 gave the former a cop, of the above" mentioned opinion1 in line with which1 the Commission advised the corporation on /ecember )1 1(*11 to compl, with the reAuirements of the #eneral Banking ActH that1 upon application of members of the 8anila &olice /epartment and an agent of the Central Bank1 on 8a, 101 1(*21 the 8unicipal Court of 8anila issued %earch Carrant 'o. A"121(H that1 pursuant thereto1 members of the intelligence division of the Central Bank and of the 8anila &olice /epartment searched the premises of the corporation and sei?ed documents and records thereof relative to its business operationsH that1 upon the return of said warrant1 the sei?ed documents and records were1 with the authorit, of the court1 placed under the custod, of the Central Bank of the &hilippinesH that1 upon e7amination and evaluation of said documents and records1 the intelligence division of the Central Bank submitted1 to the Acting /eput, #overnor thereof1 a memorandum dated %eptember 121 1(*21 finding that the corporation isD 1. &erforming banking functions1 without reAuisite certificate of authorit, from the 8onetar, Board of the Central Bank1 in violation of %ecs. 2 and * of $epublic Act ++=1 in that it is so(icitin' and acce)tin' de)osit from the )u*(ic and (endin' out the funds so recei+edH 2. So(icitin' and acce)tin' sa+in's de)osits from the 'enera( )u*(ic when the compan,;s articles of incorporation authori?e it onl, to engage primaril, in financing agricultural1 commercial and industrial pro<ects1 and secondaril,1 in bu,ing and selling stocks and bonds of an, corporation1 thereb, e7ceeding the scope of its powers and authorit, as granted under its charterH conseAuentl, such acts are u(tra%+iresD

+. So(icitin' su*scri)tions to the cor)orate shares of stoc, and acce)tin' de)osits on account thereof, without )rior re'istration and-or (icensin' of such shares or securin' e.em)tion therefor, in +io(ation of the Securities ActH and 3. That being a private credit and financial institution1 it shou(d come under the su)er+ision of the Monetar& "oard of the Centra( "an,1 b, virtue of the transfer of the authorit,1 power1 duties and functions of the %ecretar, of 9inance1 Bank Commissioner and the defunct Bureau of Banking1 to the said Board1 pursuant to %ecs. 1+( and 132 of $epublic Act 2*) and %ecs. 00 and 0( of $epublic Act ++=.B 5mphasis %upplied.! that upon e7amination and evaluation of the same records of the corporation1 as well as of other documents and pertinent pipers obtained elsewhere1 the %uperintendent of Banks1 submitted to the 8onetar, Board of the Central Bank a memorandum dated August 201 1(*21 stating inter a(ia. 11. &ursuant to the reAuest for assistance b, the Chief1 6ntelligence /ivision1 contained in his 8emorandum to the #overnor dated 8a, 2+1 1(*2 and in accordance with the written instructions of #overnor Castillo dated 8a, +11 1(*21 an e7amination of the books and records of the %ecurit, Credit and .oans 4rgani?ations1 6nc. sei?ed b, the combined 8&/"CB team was conducted b, this /epartment. The e7amination disclosed the following findingsD a. Considering the e7tent of its operations1 the %ecurit, Credit and Acceptance Corporation1 6nc.1recei+es de)osits from the )u*(ic re'u(ar(&. Such de)osits are treated in the Cor)oration/s financia( statements as conditiona( su*scri)tion to ca)ita( stoc,. Accumulated deposits of &)1222 of an individual depositor ma, be converted into stock subscription to the capital stock of the %ecurit, Credit and Acceptance Corporation at the option of the depositor. %ale of its shares of stock or subscriptions to its capital stock are offered to the )u*(ic as )art of its re'u(ar o)erations. b. That out of the funds obtained from the public through the receipt of deposits andEor the sale of securities1 (oans are made re'u(ar(& to an& )erson *& the Securit& Credit and Acce)tance Cor)oration. A cop, of the 8emorandum $eport dated -ul, +21 1(*2 of the e7amination made b, 57aminers of this /epartment of the sei?ed books and records of the Corporation is attached hereto. 12. %ection 2 of $epublic Act 'o. ++=1 otherwise known as the #eneral Banking Act1 defines the term1 Bbanking institutionB as followsD %ec. 2. 4nl, dul, authori?ed persons and entities ma, engage in the lending of funds obtained from the public through the receipts of deposits or the sale of bonds1 securities1 or obligations of an, kind and all entities regularl, conducting operations shall be considered as banking institutions and shall be sub<ect to the provisions of this Act1 of the Central Bank Act1 and of other pertinent laws. ... 1+. &remises considered1 the e7amination disclosed that the %ecurit, Credit and Acceptance Corporation isre'u(ar(& (endin' funds o*tained from the recei)t of de)osits and-or the sa(e of securities. he Cor)oration therefore is )erformin' /*an,in' functions/ as contem)(ated in Re)u*(ic Act No. 001, without ha+in' first com)(ied with the )ro+isions of said Act. Recommendations2 6n view of all the foregoing1 it is recommended that the 8onetar, Board decide and declareD 1. That the %ecurit, Credit and Acceptance Corporation is performing banking functions without having first complied with the provisions of $epublic Act 'o. ++=1 otherwise known as the #eneral Banking Act1 in violation of %ections 2 and * thereofH and 2. That this case be referred to the %pecial Assistant to the #overnor .egal Counsel! for whatever legal actions are warranted1 including1 if warranted criminal action against the &ersons criminall, liable andEor quo warranto proceedings with preliminar, in<unction against the Corporation for its dissolution. 5mphasis supplied.! that1 acting upon said memorandum of the %uperintendent of Banks1 on %eptember 131 1(*21 the 8onetar, Board promulgated its $esolution 'o. 12()1 declaring that the corporation is performing banking operations1 without having first complied with the provisions of %ections 2 and * of $epublic Act 'o. ++=H+ that on %eptember 2)1 1(*21 the corporation was advised of the aforementioned resolution1 but1 this notwithstanding1 the corporation1 as well as the members of its Board of /irectors and the officers of the corporation1 have been and still are performing the functions and activities which

had been declared to constitute illegal banking operationsH that during the period from 8arch 2=1 1(*1 to 8a, 101 1(*21 the corporation had established =3 branches in principal cities and towns throughout the &hilippinesH that through a s,stematic and vigorous campaign undertaken b, the corporation1 the same had managed to induce the public to open )(13*+ savings deposit accounts with an aggregate deposit of &11*0(11+*.=3H that1 in conseAuence of the foregoing deposits with the corporation1 its original capital stock of &)2212221 divided into 221222 founders; shares of stock and 021222 preferred shares of stock1 both of which had a par value of &).22 each1 was increased1 in less than one 1! ,ear1 to &+12221222 divided into 1+21222 founders; shares and 3=21222 preferred shares1 both with a par value of &).22 eachH and that1 according to its statement of assets and liabilities1 as of /ecember +11 1(*11 the corporation had a capital stock aggregating &112=+12*).(0 and suffered1 during the ,ear 1(*11 a loss of &(*1*0).2(. Accordingl,1 on /ecember *1 1(*21 the %olicitor #eneral commenced this quo warranto proceedings for the dissolution of the corporation1 with a pra,er that1 meanwhile1 a writ of preliminar, in<unction be issued e7 parte1 en<oining the corporation and its branches1 as well as its officers and agents1 from performing the banking operations complained of1 and that a receiver be appointed pendente lite. :pon <oint motion of both parties1 on August 221 1(*+1 the %uperintendent of Banks of the Central Bank of the &hilippines was appointed b, this Court receiver pendente lite of defendant corporation1 and upon the filing of the reAuisite bond1 said officer assumed his functions as such receiver on %eptember 1*1 1(*+. 6n their answer1 defendants admitted practicall, all of the allegations of fact made in the petition. The,1 however1 denied that defendants Tan<utco &ablo and Fito1 -r.!1 %oriano1 Beltran1 Gapa1 Balatbat and %ebastian1 are directors of the corporation1 as well as the validit, of the opinion1 ruling1 evaluation and conclusions1 rendered1 made andEor reached b, the legal counsel and the intelligence division of the Central Bank1 the %ecurities and 57change Commission1 and the %uperintendent of Banks of the &hilippines1 or in $esolution 'o. 12() of the 8onetar, Board1 or of %earch Carrant 'o. A"121( of the 8unicipal Court of 8anila1 and of the search and sei?ure made thereunder. B, wa, of affirmative allegations1 defendants averred that1 as of -ul, =1 1(*11 the Board of /irectors of the corporation was composed of defendants $osendo T. $esuello1 AAuilino .. 6llera and &ilar #. $esuelloH that on -ul, 111 1(*21 the corporation had filed with the %uperintendent of Banks an application for conversion into a %ecurit, %avings and 8ortgage Bank1 with defendants Gapa1 Balatbat1 Tan<utco &ablo and Fito1 -r.!1 %oriano1 Beltran and %ebastian as proposed directors1 in addition to the defendants first named above1 with defendants $osendo T. $esullo1 Gapa1 &ilar #. $esuello1 Balatbat and %ebastian as proposed president1 vice"president1 secretar,"treasurer1 auditor and legal counsel1 respectivel,H that said additional officers had never assumed their respective offices because of the pendenc, of the approval of said application for conversionH that defendants %oriano1 Beltran1 %ebastian1 Fito Tan<utco -r. and &ablo Tan<utco had subseAuentl, withdrawn from the proposed mortgage and savings bankH that on 'ovember 2(1 1(*2 I or before the commencement of the present proceedings I the corporation and defendants $osendo T. $esuello and &ilar #. $esuello had instituted Civil Case 'o. )2+32 of the Court of 9irst 6nstance of 8anila against &urificacion %antos and other members of the savings plan of the corporation and the Cit, 9iscal for a declarator, relief and an in<unctionH that on /ecember +1 1(*21 -udge #audencio Cloribel of said court issued a writ directing the defendants in said case 'o. )2+32 and their representatives or agents to refrain from prosecuting the plaintiff spouses and other officers of the corporation b, reason of or in connection with the acceptance b, the same of deposits under its savings planH that acting upon a petition filed b, plaintiffs in said case 'o. )2+321 on /ecember *1 1(*21 the Court of 9irst 6nstance of 8anila had appointed -ose 8a. $amire? as receiver of the corporationH that1 on /ecember 121 1(*21 said $amire? Aualified as such receiver1 after filing the reAuisite bondH that1 e7cept as to one of the defendants in said case 'o. )2+321 the issues therein have alread, been <oinedH that the failure of the corporation to honor the demands for withdrawal of its depositors or members of its savings plan and its former emplo,ees was due1 not to mismanagement or misappropriation of corporate funds1 but to an abnormal situation created b, the mass demand for withdrawal of deposits1 b, the attachment of propert, of the corporation b, its creditors1 b, the suspension b, debtors of the corporation of the pa,ment of their debts thereto and b, an order of the %ecurities and 57change Commission dated %eptember 2*1 1(*21 to the corporation to stop soliciting and receiving depositsH and that the withdrawal of deposits of members of the savings plan of the corporation was understood to be sub<ect1 as to time and amounts1 to the financial condition of the corporation as an investment firm. 6n its repl,1 plaintiff alleged that a photostat cop,1 attached to said pleading1 of the anniversar, publication of defendant corporation showed that defendants &ablo Tan<utco1 Arturo %oriano1 $uben Beltran1 Bienvenido F. Gapa1 $icardo /. Balatbat1 -ose $. %ebastian and Fito Tan<utco -r. are officers andEor directors thereofH that this is confirmed b, the minutes of a meeting of stockholders of the corporation1 held on %eptember 2=1 1(*21 showing that said defendants had been elected officers thereofH that the views of the legal counsel of the Central Bank1 of the %ecurities and 57change Commission1 the 6ntelligence /ivision1 the %uperintendent of Banks and the 8onetar, Board above

referred to have been e7pressed in the lawful performance of their respective duties and have not been assailed or impugned in accordance with lawH that neither has the validit, of %earch Carrant 'o. A"121( been contested as provided b, lawH that the onl, assets of the corporation now consist of accounts receivable amounting appro7imatel, to &)2212221 and its office eAuipment and appliances1 despite its increased capitali?ation of &+12221222 and its deposits amounting to not less than &11*0(11+*.=3H and that the aforementioned petition of the corporation1 in Civil Case 'o. )2+32 of the Court of 9irst 6nstance of 8anila1 for a declarator, relief is now highl, improper1 the defendants having alread, committed infractions and violations of the law <ustif,ing the dissolution of the corporation. Although1 admittedl,1 defendant corporation has not secured the reAuisite authorit, to engage in banking1 defendants den, that its transactions partake of the nature of banking operations. 6t is conceded1 however1 that1 in conseAuence of a propaganda campaign therefor1 a total of )(13*+ savings account deposits have been made b, the public with the corporation and its =3 branches1 with an aggregate deposit of &11*0(11+*.=31 which has been lent out to such persons as the corporation deemed suitable therefor. 6t is clear that these transactions partake of the nature of banking1 as the term is used in %ection 2 of the #eneral Banking Act. 6ndeed1 a bank has been defined asD ... a mone,ed institute [Talmage vs. &ell = '.J. + %eld. ! +201 +3=1 +30] founded to facilitate the borrowing1 lending and safe"keeping of mone, %mith vs. Kansas Cit, Title L Trust Co.1 31 %. Ct. 23+1 2)) :.%. 1021 2121 *) .. 5d. )==! and to deal1 in notes1 bills of e7change1 and credits %tate vs. Cornings %av. Bank1 11) '.C. (+=1 1+( 6owa ++0!. Banks L Banking1 b, Gellmann Fol. 11 p. 3*!. 8oreover1 it has been held thatD An investment compan, which loans out the mone, of its customers1 collects the interest and charges a commission to both lender and borrower1 is a bank. Cestern 6nvestment Banking Co. vs. 8urra,1 )* &. =201 =+21 =+1H * Ari? 21).! ... an, person engaged in the business carried on b, banks of deposit1 of discount1 or of circulation is doing a banking business1 although but one of these functions is e7ercised. 8ac.aren vs. %tate1 123 '.C. **=1 131 Cis. )==1 1+) Am. %.$. ))1 10 Ann. Cas. 02*H ( C.-.%. +2.! Accordingl,1 defendant corporation has violated the law b, engaging in banking without securing the administrative authorit, reAuired in $epublic Act 'o. ++=. That the illegal transactions thus undertaken b, defendant corporation warrant its dissolution is apparent from the fact that the foregoing misuser of the corporate funds and franchise affects the essence of its business1 that it is willful and has been repeated )(13*+ times1 and that its continuance inflicts in<ur, upon the public1 owing to the number of persons affected thereb,. 6t is urged1 however1 that this case should be remanded to the Court of 9irst 6nstance of 8anila upon the authorit, of $era'uth +s. Isa*e(a Su'ar Co. )= &hil. 2**!. 6n this connection1 it should be noted that this Court is vested with original <urisdiction1 concurrentl, with courts of first instance1 to hear and decide quo warranto cases and1 that1 conseAuentl,1 it is discretionar, for us to entertain the present case or to reAuire that the issues therein be taken up in said Civil Case 'o. )2+32. The Feraguth case cited b, herein defendants1 in support of the second alternative1 is not in point1 because in said case there were issues of fact which reAuired the presentation of evidence1 and courts of first instance are1 in general1 better eAuipped than appellate courts for the taking of testimon, and the determination of Auestions of fact. 6n the case at bar1 there is1 however1 no dispute as to the principal facts or acts performed b, the corporation in the conduct of its business. The main issue here is one of law1 namel,1 the legal nature of said facts or of the aforementioned acts of the corporation. 9or this reason1 and because public interest demands an earl, disposition of the case1 we have deemed it best to determine the merits thereof. Cherefore1 the writ pra,ed for should be1 as it is hereb, granted and defendant corporation is1 accordingl,1 ordered dissolved. The appointment of receiver herein issued )endente (ite is hereb, made permanent1 and the receiver is1 accordingl,1 directed to administer the properties1 deposits1 and other assets of defendant corporation and wind up the affairs thereof conformabl, to $ules )( and ** of the $ules of Court. 6t is so ordered.

Ba6a7 ). A7ia$&acific 8inance 'or-ora,ion 18 #c,o0er 2000

B(55OSI55O, *.: C. #. /6G4' C4'%T$:CT64' 6'C. and C5'5' /6G4' in this petition for review seek the reversal of the 23 -ul, 1((* /ecision of the Court of Appeals dismissing their appeal for lack of merit and affirming in toto the decision of the trial court holding them liable to Asia &acific 9inance Corporation in the amount of &0=1*+=.)2 at 13M interest per annum in addition to attorne,;s fees and costs of suit1 as well as its 21 8arch 1((= $esolution den,ing reconsideration thereof.[2] 4n 22 8arch 1(01 Asia &acific 9inance Corporation A%6A &AC696C for short! filed a complaint for a sum of mone, with pra,er for a writ of replevin against Teodoro BaNas1 C. #. /i?on Construction and Cenen /i?on. %ometime in August 1(02 Teodoro BaNas e7ecuted a Promissor& Note in favor of C. #. /i?on Construction whereb, for value received he promised to pa, to the order of C. #. /i?on Construction the sum of &+(21222.22 in installments of B&+21)22.22 ever, 2)th da, of the month starting from %eptember 2)1 1(02 up to August 2)1 1(01.B[+] .ater1 C. #. /i?on Construction endorsed with recourse the Promissor& Note to A%6A &AC696C1 and to secure pa,ment thereof1 C. #. /i?on Construction1 through its corporate officers1 Cenen /i?on1 &resident1 and -uliette B. /i?on1 Fice &resident and Treasurer1 e7ecuted a #eed of Chatte( Mort'a'e covering three +! heav, eAuipment units of Caterpillar Bulldo?er Crawler Tractors with 8odel 'os. /0"13A1 /0"2: and /0@ in favor of A%6A &AC696C.[3] 8oreover1 Cenen /i?on e7ecuted on 2) August 1(02 a Continuin' 3nderta,in' wherein he bound himself to pa, the obligation <ointl, and severall, with C. #. /i?on Construction.[)] 6n compliance with the provisions of the Promissor& Note1 C. #. /i?on Construction made the following installment pa,ments to A%6A &AC696CD&+21)22.22 on 2) %eptember 1(021 &+21)22.22 on 2= 4ctober 1(02 and &*)1222.22 on 2= 9ebruar, 1(011 or a total of &1+21222.22. Thereafter1 however1 C. #. /i?on Construction defaulted in the pa,ment of the remaining installments1 prompting A%6A &AC696C to send a Statement of Account to Cenen /i?on for the unpaid balance of &2*=1=+=.)2 inclusive of interests and charges1 and &**1(2(.+0 representing attorne,;s fees. As the demand was unheeded1 A%6A &AC696C sued Teodoro BaNas1 C. #. /i?on Construction and Cenen /i?on. Chile defendants herein petitioners! admitted the genuineness and due e7ecution of the Promissor& Note1 the #eed of Chatte( Mort'a'e and theContinuin' 3nderta,in'1 the, nevertheless maintained that these documents were never intended b, the parties to be legal1 valid and binding but a mere subterfuge to conceal the loan of &+(21222.22 with usurious interests. /efendants claimed that since A%6A &AC696C could not directl, engage in banking business1 it proposed to them a scheme wherein plaintiff A%6A &AC696C could e7tend a loan to them without violating banking lawsD first1 Cenen /i?on would secure a promissor, note from Teodoro BaNas with a face value of &+(21222.22 pa,able in installmentsH second1 A%6A &AC696C would then make it appear that the promissor, note was sold to it b, Cenen /i?on with the 13M usurious interest on the loan or &)31222.22 discounted and collected in advance b, A%6A &AC696CH and1 (ast(&1 Cenen /i?on would provide sufficient collateral to answer for the loan in case of default in pa,ment and e7ecute a continuing guarant, to assure continuous and prompt pa,ment of the loan. /efendants also alleged that out of the loan of &+(21222.22 defendants actuall, received onl, &+2(110).22 after A%6A &AC696C deducted the discounted interest1 service handling charges1 insurance premium1 registration and notarial fees. %ometime in 4ctober 1(02 Cenen /i?on informed A%6A &AC696C that he would be dela,ed in meeting his monthl, amorti?ation on account of business reverses and promised to pa, instead in 9ebruar, 1(01. Cenen /i?on made good his promise and tendered pa,ment to A%6A &AC696C in an amount eAuivalent to two 2! monthl, amorti?ations. But A%6A &AC696C attempted to impose a +M interest for ever, month of dela,1 which he flatl, refused to pa, for being usurious. Afterwards1 A%6A &AC696C allegedl, made a verbal proposal to Cenen /i?on to surrender to it the ownership of the two 2! bulldo?er crawler tractors and1 in turn1 the latter would treat the former;s account as closed and the loan full, paid. Cenen /i?on supposedl, agreed and accepted the offer. /efendants averred that the value of the bulldo?er crawler tractors was more than adeAuate to cover their obligation to A%6A &AC696C. 8eanwhile1 on 21 April 1(01 the trial court issued a writ of replevin against defendant C. #. /i?on Construction for the surrender of the bulldo?er crawler tractors sub<ect of the #eed of Chatte( Mort'a'e. 4f the three +! bulldo?er crawler tractors1 onl, two 2! were actuall, turned over b, defendants " /0"13A and /0"2: " which units were subseAuentl, foreclosed b, A%6A &AC696C to

satisf, the obligation. /0"13A was sold for &1221222.22 and /0"2: for&*21222.22 both to A%6A &AC696C as the highest bidder. /uring the pendenc, of the case1 defendant Teodoro BaNas passed awa,1 and on motion of the remaining defendants1 the trial court dismissed the case against him. 4n the other hand1 A%6A &AC696C was substituted as part, plaintiff b, 6nternational Corporate Bank after the disputed Promissor& Note was assigned andEor transferred b, A%6A &AC696C to 6nternational Corporate Bank. .ater1 6nternational Corporate Bank merged with :nion Bank of the &hilippines. As the surviving entit, after the merger1 and having succeeded to all the rights and interests of 6nternational Corporate Bank in this case1 :nion Bank of the &hilippines was substituted as a part, in lieu of 6nternational Corporate Bank.[*] 4n 2) %eptember 1((2 the $egional Trial Court ruled in favor of A%6A &AC696C holding the defendants <ointl, and severall, liable for the unpaid balance of the obligation under the Promissor& Note in the amount of &0=1*+=.)2 at 13M interest per annum1 and attorne,;s fees eAuivalent to 2)M of the monetar, award.[=] 4n 23 -ul, 1((* the Court of Appeals affirmed in toto the decision of the trial court thus " /efendant"appellants; contention that the instruments were e7ecuted merel, as a subterfuge to skirt banking laws is an untenable defense. 6f that were so then the, too were parties to the illegal scheme. Ch, should the, now be allowed to take advantage of their own knaver, to escape the liabilities that their own chicaner, createdO /efendant"appellants also want us to believe their stor, that there was an agreement between them and the plaintiff"appellee that if the former would deliver their 2 bulldo?er crawler tractors to the latter1 the defendant"appellants; obligation would full, be e7tinguished. Again1 nothing but the word that comes out between the teeth supports such stor,.Ch, did the, not write down such an important agreementO 6s it believable that seasoned businessmen such as the defendant"appellant Cenen #. /i?on and the other officers of the appellant corporation would deliver the bulldo?ers without a receipt of acAuittance from the plaintiff"appellee 7 7 7 7 6n our book1 that is not credible. The pivotal issues raised areD a! Chether the disputed transaction between petitioners and A%6A &AC696C violated banking laws1 hence1 null and voidH and b! Chether the surrender of the bulldo?er crawler tractors to respondent resulted in the e7tinguishment of petitioners; obligation. 4n the first issue1 petitioners insist that A%6A &AC696C was organi?ed as an investment house which could not engage in the lending of funds obtained from the public through receipt of deposits. The disputed Promissor& Note1 #eed of Chatte( Mort'a'e and Continuin' 3nderta,in' were not intended to be valid and binding on the parties as the, were merel, devices to conceal their real intention which was to enter into a contract of loan in violation of banking laws. Ce re<ect the argument. An investment compan, refers to an, issuer which is or holds itself out as being engaged or proposes to engage primaril, in the business of investing1 reinvesting or trading in securities.[0] As defined in %ec. 21 par. a!1 of the Re+ised Securities Act1[(] securities Bshall include 7 7 7 7 commercial papers evidencing indebtedness of an, person1 financial or non"financial entit,1 irrespective of maturit,1 issued1 endorsed1 sold1 transferred or in an, manner conve,ed to another with or without recourse1 such as )romissor& notes 7 7 7 7B Clearl,1 the transaction between petitioners and respondent wasone involving not a loan but purchase of recei"$0#e% $t $ -i%co,nt1 well within the purview of Binvesting1 reinvesting or trading in securitiesB which an investment compan,1 like A%6A &AC696C1 is authori?ed to perform and does not constitute a violation of the #eneral Banking Act. [12] 8oreover1 %ec. 2 of theGenera( "an,in' Act provides in part " %ec. 2. 4nl, entities dul, authori?ed b, the 8onetar, Board of the Central Bank ma, engage in the lending of funds obtained from the public through the receipt of deposits of an, kind1 and all entities regularl, conducting such operations shall be considered as banking institutions and shall be sub<ect to the provisions of this Act1 of the Central Bank Act1 and of other pertinent laws underscorin' su))(ied!. 6ndubitabl,1 what is prohibited b, law is for investment companies to lend funds obtained from the public through receipts of deposit1 which is a function of banking institutions. But here1 the funds supposedl, BlentB to petitioners have not been shown to have been obtained from the public b, wa, of deposits1 hence1 the inapplicabilit, of banking laws. 4n petitioners; submission that the true intention of the parties was to enter into a contract of loan1 we have e7amined the Promissor& Note and failed to discern an,thing therein that would support

such theor,. 4n the contrar,1 we find the terms and conditions of the instrument clear1 free from an, ambiguit,1 and e7pressive of the real intent and agreement of the parties. Ce Auote the pertinent portions of the Promissor& Note " 94$ FA.:5 $5C56F5/1 6ECe1 hereb, promise to pa, to the order of C.#. /i?on Construction1 6nc. the sum of T@$55 @:'/$5/ '6'5TJ T@4:%A'/ 4'.J &+(21222.22!1 &hilippine Currenc, in the following mannerD &+21)22.22 due ever, 2)th of the month starting from %eptember 2)1 1(02 up to August 2)1 1(01. 6ECe agree that if an, of the said installments is not paid as and when it respectivel, falls due1 all the installments covered hereb, and not paid as ,et shall forthwith become due and pa,able at the option of the holder of this note with interest at the rate of 13M per annum on each unpaid installment until full, paid. 6f an, amount due on this note is not paid at its maturit, and this note is placed in the hands of an attorne, for collection1 6ECe agree to pa, in addition to the aggregate of the principal amount and interest due1 a sum eAuivalent to T5' &5$C5'T 12M! thereof as Attorne,;s fees1 in case no action is filed1 otherwise1 the sum will be eAuivalent to TC5'TJ 96F5 2)M! of the said principal amount and interest due 7 7 7 7 8akati1 8etro 8anila1 August 2)1 1(02. %gd! Teodoro BaNas (NDORS(D TO ASIA PACI8IC 8INANC( CORPORATION 9IT: R(COURS(, C.G. DI;ON CONSTRUCTION, INC. B,D %gd.! Cenen /i?on %gd.! -uliette B. /i?on &resident F&ETreasurer .ikewise1 the #eed of Chatte( Mort'a'e and Continuin' 3nderta,in' were dul, acknowledged before a notar, public and1 as such1 have in their favor the presumption of regularit,. To contradict them there must be clear1 convincing and more than merel, preponderant evidence. 6n the instant case1 the records do not show even a preponderance of evidence in favor of petitioners; claim that the /eed of Chatte( Mort'a'e and Continuin' 3nderta,in' were never intended b, the parties to be legal1 valid and binding. 'otarial documents are evidence of the facts in clear and uneAuivocal manner therein e7pressed.[11] 6nterestingl,1 petitioners; assertions were based mainl, on the self"serving testimon, of Cenen /i?on1 and not on an, other independent evidence. @is testimon, is not onl, unconvincing1 as found b, the trial court and the Court of Appeals1 but also self"defeating in light of the documents presented b, respondent1 i.e.1 Promissor& Note1 #eed of Chatte( Mort'a'e and Continuin' 3nderta,in'1 the accurac,1 correctness and due e7ecution of which were admitted b, petitioners. 4ral evidence certainl, cannot prevail over the written agreements of the parties. The courts need onl, rel, on the faces of the written contracts to determine their true intention on the principle that when the parties have reduced their agreements in writing1 it is presumed that the, have made the writings the onl, repositories and memorials of their true agreement. The second issue deals with a Auestion of fact. Ce have ruled often enough that it is not the function of this Court to anal,?e and weigh the evidence all over again1 its <urisdiction being limited to reviewing errors of law that might have been committed b, the lower court. [12] At an, rate1 while we are not a trier of facts1 hence1 not reAuired as a rule to look into the factual bases of the assailed decision of the Court of Appeals1 we did so <ust the same in this case if onl, to satisf, petitioners that we have carefull, studied and evaluated the case1 all too mindful of the tenacit, and vigor with which the parties1 through their respective counsel1 have pursued this case for nineteen 1(! ,ears. &etitioners contend that the parties alread, had a verbal understanding wherein A%6A &AC696C actuall, agreed to consider petitioners; account closed and the principal obligation full, paid in e7change for the ownership of the two 2! bulldo?er crawler tractors. Ce are not persuaded. Again1 other than the bare allegations of petitioners1 the records are bereft of an, evidence of the supposed agreement. As correctl, observed b, the Court of Appeals1 it is unbelievable that the parties entirel, neglected to write down such an important agreement. 5Auall, incredulous is the fact that petitioner Cenen /i?on1 a seasoned businessman1 readil, consented to

deliver the bulldo?ers to respondent without a corresponding receipt of acAuittance. 6ndeed1 even the testimon, of petitioner Cenen /i?on himself negates the supposed verbal understanding between the parties " >D Jou said and is it not a fact that ,ou surrendered the bulldo?ers to A&C4$ b, virtue of the sei?ure orderO AD There was no sei?ure order. Att,. Carag during that time said if 6 surrender the two eAuipment1 we might finall, close a deal if the eAuipment would come up to the balance of the loan. %o 6 voluntaril, surrendered1 6 pulled them from the <ob site and returned them to A&C4$ 7 7 7 7 >D Jou mentioned a certain Att,. Carag1 who is heO AD @e was the former legal counsel of A&C4$. The, were handling cases. 6n fact1 6 talked with Att,. Carag1 we have a verbal agreement if 6 surrender the eAuipmentit might suffice to pa, off the debt so 6 did <ust that underscoring ours!.[1+] 6n other words1 there was no binding and perfected contract between petitioners and respondent regarding the settlement of the obligation1 but onl, a conditional one1 a mere con<ecture in fact1 depending on whether the value of the tractors to be surrendered would eAual the balance of the loan plus interests. And since the bulldo?er crawler tractors were sold at the foreclosure sale for onl, &1021222.221[13] which was not enough to cover the unpaid balance of &2*=1*+=.)21 petitioners are still liable for the deficienc,. Barring therefore a showing that the findings complained of are totall, devoid of support in the records1 or that the, are so glaringl, erroneous as to constitute serious abuse of discretion1 we see no valid reason to discard them. 8ore so in this case where the findings of both the trial court and the appellate court coincide with each other on the matter. Cith regard to the computation of petitioners; liabilit,1 the records show that petitioners actuall, paid to respondent a total sum of &1+21222.22 in addition to the &1021222.22 proceeds reali?ed from the sale of the bulldo?er crawler tractors at public auction. /educting these amounts from the principal obligation of &+(21222.22 leaves a balance of &021222.221 to which must be added &=1*+=.)2 accrued interests and charges as of 22 8arch 1(011 or a total unpaid balance of &0=1*+=.)2 for which petitioners are <ointl, and severall, liable. 9urthermore1 the unpaid balance should earn 13M interest per annum as stipulated in the Promissor& Note1 computed from 22 8arch 1(01 until full, paid. 4n the amount of attorne,;s fees which under the Promissor& Note is eAuivalent to 2)M of the principal obligation and interests due1 it is not1 strictl, speaking1 the attorne,;s fees recoverable as between the attorne, and his client regulated b, the $ules of Court. $ather1 the attorne,;s fees here are in the nature of liAuidated damages and the stipulation therefor is aptl, called a penal clause. 6t has been said that so long as such stipulation does not contravene the law1 morals and public order1 it is strictl, binding upon the obligor. 6t is the litigant1 not the counsel1 who is the <udgment creditor entitled to enforce the <udgment b, e7ecution.[1)] 'evertheless1 it appears that petitioners; failure to full, compl, with their part of the bargain was not motivated b, ill will or malice1 but due to financial distress occasioned b, legitimate business reverses. &etitioners in fact paid a total of &1+21222.22 in three +! installments1 and even went to the e7tent of voluntaril, turning over to respondent their heav, eAuipment consisting of two 2! bulldo?er crawler tractors1 all in a *ona fide effort to settle their indebtedness in full. Article 122( of the 'ew Civil Code specificall, empowers the <udge to eAuitabl, reduce the civil penalt, when the principal obligation has been )art(& orirre'u(ar(& complied with. :pon the foregoing premise1 we hold that the reduction of the attorne,;s fees from 2)M to 1)M of the unpaid principal plus interests is in order. 9inall,1 while we empathi?e with petitioners1 we cannot close our e,es to the overriding considerations of the law on obligations and contracts which must be upheld and honored at all times. &etitioners have undoubtedl, benefited from the transactionH the, cannot now be allowed to impugn its validit, and legalit, to escape the fulfillment of a valid and binding obligation. 9:(R(8OR(1 no reversible error having been committed b, the Court of Appeals1 its assailed /ecision of 23 -ul, 1((* and its $esolution of 21 8arch 1((= are A996$85/. Accordingl,1 petitioners C.#. Construction 6nc. and Cenen /i?on are ordered <ointl, and severall, to pa, respondent Asia &acific 9inance Corporation1 substituted b, 6nternational Corporate Bank now known as :nion Bank of the &hilippines!1 &0=1*+=.)2 representing the unpaid balance on the Promissor& Note1 with interest at fourteen percent 13M! per annum computed from 22 8arch 1(01 until full, paid1 and fifteen percent 1)M! of the principal obligation and interests due b, wa, of attorne,;s fees. Costs against petitioners. SO ORD(R(D.

B$n2% $n- 8in$nci$# Inter.e-i$rie% 8ir7, &lan,er7 &awn79o-, (nc. ). '(R 340 S'RA 404 (2008
AUSTRIA-<ARTIN(;, *.2 9irst &lanters &awnshop1 6nc. petitioner! contests the deficienc, value"added and documentar, stamp ta7es imposed upon it b, the Bureau of 6nternal $evenue B6$! for the ,ear 2222. The core of petitioner;s argument is that it is not a lending investor within the purview of %ection 120 A! of the 'ational 6nternal $evenue Code '6$C!1 as amended1 and therefore not sub<ect to value"added ta7 FAT!. &etitioner also contends that a pawn ticket is not sub<ect to documentar, stamp ta7 /%T! because it is not proof of the pledge transaction1 and even assuming that it is so1 still1 it is not sub<ect to ta7 since a documentar, stamp ta7 is levied on the document issued and not on the transaction. The factsD 6n a &re"Assessment 'otice dated -ul, =1 222+1 petitioner was informed b, the B6$ that it has an e7isting ta7 deficienc, on its FAT and /%T liabilities for the ,ear 2222. The deficienc, assessment was at &)311122.=( for FAT and &2+1*3*.++ for /%T.[1] &etitioner protested the assessment for lack of legal and factual bases.[2] &etitioner subseAuentl, received a 9ormal Assessment 'otice on /ecember 2(1 222+1 directing pa,ment of FAT deficienc, in the amount of &)311122.=( and /%T deficienc, in the amount of &231=3=.1+1 inclusive of surcharge and interest.[+] &etitioner filed a protest1[3]which was denied b, Acting $egional /irector Anselmo #. Adriano per 9inal /ecision on /isputed Assessment dated -anuar, 2(1 2223.[)] &etitioner then filed a petition for review with the Court of Ta7 Appeals CTA!. [*] 6n a /ecision dated 8a, (1 222)1 the 2nd /ivision of the CTA upheld the deficienc, assessment. [=] &etitioner filed a motion for reconsideration[0] which was denied in a $esolution dated 4ctober =1 222).[(] &etitioner appealed to the CTA En "anc which rendered a /ecision dated -une =1 222*1 the dispositive portion of which reads as followsD C@5$594$51 premises considered1 the &etition for $eview is hereb, /5'65/ for lack of merit. The assailed /ecision dated 8a, (1 222) and $esolution dated 4ctober =1 222) are hereb, A996$85/. %4 4$/5$5/.[12] &etitioner sought reconsideration but this was denied b, the CTA En "anc per $esolution dated August 131 222*.[11] @ence1 the present petition for review under $ule 3) of the $ules of Court based on the following groundsD 6 T@5 @4'4$AB.5 C4:$T 49 TAP A&&5A.% EN "ANC #$AF5.J 5$$5/ 6' 96'/6'# &5T6T64'5$ .6AB.5 94$ FAT. 66 T@5 @4'4$AB.5 C4:$T 49 TAP A&&5A.% EN "ANC #$AF5.J 5$$5/ 6' $:.6'# T@AT &5T6T64'5$ 6% .6AB.5 94$ /%T 4' &AC' T6CK5T%.[12] The determination of petitioner;s ta7 liabilit, depends on the ta7 treatment of a pawnshop business. 4ddl,1 there has not been an, definitive declaration in this regard despite the fact that pawnshops have long been in e7istence. All that has been stated is what pawnshops are not1 but not what pawnshops are. The B6$ itself has maintained an ambivalent stance on this issue. 6nitiall,1 in Re+enue Memorandum Order No. 45% 64 issued on 8arch 111 1((11 a pawnshop business was considered as Qakin to lending investorRs business activit,S and sub<ect to )M percentage ta7 beginning-anuar, 11 1((11 under %ection 11* of the Ta7 Code of 1(==1 as amended b, 5.4. 'o. 2=+.[1+] Cith the passage of $epublic Act $.A.! 'o. ==1* or the 5FAT .aw in 1((31[13] the B6$ abandoned its earlier position and maintained that pawnshops are sub<ect to 12M FAT1 as implemented b, $evenue $egulations 'o. ="(). This was complemented b, Re+enue Memorandum Circu(ar No. 75%84 dated 4ctober 121 22211 which provided that pawnshop operators are liable to the 12M FAT based on gross receipts beginning -anuar, 11 1((*1

while pawnshops whose gross annual receipts do not e7ceed &))21222.22 are liable for percentage ta71 pursuant to %ection 12( ?! of the Ta7 Code of 1((=. CTA decisions affirmed the B6$;s position that pawnshops are sub<ect to FAT. 6n 9. am*untin' Pawnsho), Inc. +. Commissioner of Interna( Re+enue, [1)] the CTA ruled that the petitioner therein was sub<ect to 12M FAT under %ection 120 of the Ta7 Code of 1((=. AntamPawnsho) Cor)oration +. Commissioner of Interna( Re+enue[1*] reiterates said ruling. 6t was the CTA;s view that the services rendered b, pawnshops fall under the general definition of Qsale or e7change of servicesS under %ection 120 A! of the Ta7 Code of 1((=. 4n -ul, 1)1 222+1 the Court rendered Commissioner of Interna( Re+enue +. Miche( :. Lhui((ier Pawnsho), Inc.[1=] in which it was categoricall, ruled that while pawnshops are engaged in the business of lending mone,1 the, are not considered Qlending investorsS for the purpose of imposing percentage ta7es. [10] The Court gave the following reasonsD first1 under the 1((= Ta7 Code1 pawnshops and lending investors were sub<ected to different ta7 treatmentsH second1 Congress never intended pawnshops to be treated in the same wa, as lending investorsH third1 %ection 11* of the '6$C of 1(== sub<ects to percentage ta7 dealers in securities and lending investors onl,H and lastl,1 the B6$ had ruled several times prior to the issuance of $84 'o. 1)"(1 and $8C 3+"(1 that pawnshops were not sub<ect to the )M percentage ta7 on lending investors imposed b, %ection 11* of the '6$C of 1(==1 as amended b, 57ecutive 4rder 'o. 2=+. 6n view of said ruling1 the B6$ issued Re+enue Memorandum Circu(ar No. 0;%<887 dated -une 1*1 22231 canceling the previous lending investor;s ta7 assessments on pawnshops. %aid Circular stated1 inter a(iaD 6n view of the said %upreme Court decision1 all assessments on pawnshops for percentage ta7es as lending investors are hereb, cancelled. This Circular is being issued for the sole purpose of resolving the ta7 liabilit, of pawnshops to the )M lending investors ta7 provided under the then %ection 11* of the '6$C of 1(==1 as amended1 and shall not cover issues relating to their other ta7 liabilities. All internal revenue officials are en<oined from issuing assessments on pawnshops for percentage ta7es on lending investors1 under the then %ection 11* of the '6$C of 1(==1 as amended. 9or purposes of the gross receipt ta7 provided for under $epublic Act 'o. (2(31 the pawnshops are now sub<ect thereof. This shall however1 be covered b, another issuance.[1(] Re+enue Memorandum Circu(ar No. 01%<887 was issued on the same date whereb, pawnshop businesses were allowed to settle their FAT liabilities for the ta7 ,ears 1((*"2222 pursuant to a memorandum of agreement entered into b, the Commissioner of 6nternal $evenue and the Chambers of &awnbrokers of the &hilippines1 6nc. The Circular likewise instructed all revenue officers to ensure that Qall FAT due from pawnshops beginning -anuar, 11 222+1 including increments thereto1 if an,1 are assessed and collected from pawnshops under its <urisdiction.S 6n the interim1 however1 Congress passed $epublic Act $.A.! 'o. (2+0 on 9ebruar, )1 2223 entitled1 QAn Act Amending Certain %ections of the 'ational 6nternal $evenue Code of 1((=1 as amended1 b, 57cluding %everal %ervices from the Coverage of the Falue"added Ta7 and $e"imposing the #ross $eceipts Ta7 on Banks and 'on" bank 9inancial 6ntermediaries &erforming >uasi"banking 9unctions and 4ther 'on"bank 9inancial 6ntermediaries beginning -anuar, 211 2223.S[22] &ending publication of $.A. 'o. (2+01 the B6$ issued Bank Bulletin 'o. 2223"21 on 9ebruar, 121 2223 advising all banks and non"bank financial intermediaries that the, shall remain liable under the FAT s,stem. Chen $.A. 'o. (2+0 took effect on 9ebruar, 1*1 22231 the /epartment of 9inance issued Re+enue Re'u(ations No. 48%<887 dated4ctober 101 22231 classif,ing pawnshops as 4ther 'on"bank 9inancial 6ntermediaries. The B6$ then issued Re+enue Memorandum Circu(ar No. 10%<887 on 'ovember 2)1 22231 prescribing the guidelines and policies on the assessment and collection of 12M FAT for gross annual salesEreceipts e7ceeding &))21222.22 or +M percentage ta7 for gross annual salesEreceipts not e7ceeding &))21222.22 of pawnshops prior to -anuar, 11 222). 6n fine1 prior to the 5FAT .aw1 pawnshops were treated as lending investors sub<ect to lending investor;s ta7. %ubseAuentl,1 with the Court;s ruling in Lhui((ier1 pawnshops were then treated as FAT"able enterprises under the general classification of =sa(e or e.chan'e of ser+ices> under %ection 120 A! of the Ta7 Code of 1((=1 as amended. $.A. 'o. (2+0 finall, classified pawnshops as 4ther 'on"bank 9inancial 6ntermediaries. The Court finds that pawnshops should have been treated as non"bank financial intermediaries from the ver, beginning1 sub<ect to the appropriate ta7es provided b, law1 thus T :nder the 'ational 6nternal $evenue Code of 1(==1[21] pawnshops should have been levied the )M percentage ta7 on gross receipts imposed on bank and non"bank financial intermediaries under %ection 11( now %ection 121 of the Ta7 Code of 1((=!H

 Cith the imposition of the FAT under $.A. 'o. ==1* or the 5FAT .aw1[22] pawnshops should have been sub<ected to the 12M FAT imposed on banks and non"bank financial intermediaries and financial institutions under %ection 122 of the Ta7 Code of 1(== now %ection 120 of the Ta7 Code of 1((=!H[2+] This was restated b, $.A. 'o. 02311[23] which amended $.A. 'o. ==1*1 although the lev,1 collection and assessment of the 12M FAT on services rendered b, banks1 non"bank financial intermediaries1 finance companies1 and other financial intermediaries not performing Auasi"banking functions1 were made effective -anuar, 11 1((0H[2)] $.A. 'o. 0323 or the Ta7 $eform Act of 1((=[2*] likewise imposed a 12M FAT under %ection 120 but the lev,1 collection and assessment thereof were again deferred until /ecember +11 1(((H[2=] The lev,1 collection and assessment of the 12M FAT was further deferred b, $.A. 'o. 0=*1 until /ecember +11 22221 and b, $.A. 'o. (2121 until /ecember +11 2222H Cith no further deferments given b, law1 the lev,1 collection and assessment of the 12M FAT on banks1 non"bank financial intermediaries1 finance companies1 and other financial intermediaries not performing Auasi"banking functions were finall, made effective beginning -anuar, 11 222+H 9inall,1 with the enactment of $.A. 'o. (2+01 the services of banks1 non"bank financial intermediaries1 finance companies1 and other financial intermediaries not performing Auasi"banking functions were specificall, e7empted from FAT1[20] and the 2M to )M percentage ta7 on gross receipts on other non"bank financial intermediaries was reimposed under %ection 122 of the Ta7 Code of 1((=.[2(] At the time of the disputed assessment1 that is1 for the ,ear 22221 pawnshops were not sub<ect to 12M FAT under the general provision on Qsale or e7change of servicesS as defined under %ection 120 A! of the Ta7 Code of 1((=1 which statesD Q;sa(e or e.chan'e of ser+ices; means the performance of all kinds of services in the &hilippines for others for a fee1 remuneration or consideration 7 7 7.S 6nstead1 due to the specific nature of its business1 pawnshops were then sub<ect to 12M FAT under the categor, of non"bank financial intermediaries1 as provided in the same %ection 120 A!1 which readsD %5C. 120. $a(ue%added a. on Sa(e of Ser+ices and 3se or Lease of Pro)erties. % A! Rate and "ase of a.. " There shall be levied1 assessed and collected1 a value"added ta7 eAuivalent to ten percent 12M! of gross receipts derived from the sale or e7change of services1 including the use or lease of properties. The phrase ?sa(e or e.chan'e of ser+ices? means the performance of all kinds or services in the &hilippines for others for a fee1 remuneration or consideration1 including 7 7 7 %er"ice% of 0$n2%, non-0$n2 fin$nci$# inter.e-i$rie% $n- fin$nce co./$nie%H and non"life insurance companies e7cept their crop insurances!1 including suret,1 fidelit,1 indemnit, and bonding companiesH and similar services regardless of whether or not the performance thereof calls for the e7ercise or use of the ph,sical or mental faculties. The phrase ;sale or e7change of services; shall likewise includeD 7 7 7 5mphasis and underscoring supplied! The ta7 treatment of pawnshops as non"bank financial intermediaries is not without basis. $.A. 'o. ++=1 as amended1 or the #eneral Banking Act characteri?es the terms *an,in' institution and *an, as s,non,mous and interchangeable and specificall, include commercial banks1 savings bank1 mortgage banks1 development banks1 rural banks1 stock savings and loan associations1 and branches and agencies in the &hilippines of foreign banks.[+2] $.A. 'o. 0=(1 or the #eneral Banking .aw of 22221 meanwhile1 provided that *an,s shall refer to entities engaged in the lending of funds obtained in the form of deposits. [+1] $.A. 'o. 0=(1 also included cooperative banks1 6slamic banks and other banks as determined b, the 8onetar, Board of the "an',o Sentra( n' Pi(i)inas in the classification of banks.[+2] @inancia( intermediaries1 on the other hand1 are defined as Qpersons or entities whose principal functions include the lending1 investing or placement of funds or evidences of indebtedness or eAuit, deposited with them1 acAuired b, them1 or otherwise coursed through them1 either for their own account or for the account of others.S[++] 6t need not be elaborated that pawnshops are non"banksEbanking institutions. 8oreover1 the nature of their business activities partakes that of a financial intermediar, in that its principal function is lending. A pawnshop;s business and operations are governed b, &residential /ecree &./.! 'o. 113 or the &awnshop $egulation Act and Central Bank Circular 'o. +=3 $ules and $egulations for &awnshops!. %ection + of &./. 'o. 113 defines )awnsho) as Qa person or entit, engaged in the business of lending mone, on personal propert, delivered as securit, for loans and shall be s,non,mous1 and ma, be used interchangeabl,1 with pawnbroker or pawn brokerage.S That pawnshops are to be treated as non"bank financial intermediaries is further bolstered b, the fact that pawnshops are under the regulator, supervision of the "an',o Sentra( n' Pi(i)inas and covered b, its 8anual of $egulations for 'on"Bank 9inancial 6nstitutions. The 8anual includes pawnshops in the list of non"bank financial intermediaries1 +iA.D U 3121>.1 @inancia( Intermediaries

777 'on"bank financial intermediaries shall include the followingD 1! A person or entit, licensed andEor registered with an, government regulator, bod, as a non"bank financial intermediar,1 such as investment house1 investment compan,1 financing compan,1 securities dealerEbroker1 lending investor1 /$=n%+o/1 mone, broker 7 7 7. 5mphasis supplied! Re+enue Re'u(ations No. 48%<8871 in fact1 recogni?ed these bases1 to witD %5C. 2. BA%5% 49 >:A.69J6'# &AC'%@4&% A% '4'"BA'K 96'A'C6A. 6'T5$85/6A$65%. " Chereas1 in relation to %ec. 2.+ of $ev. $egs 'o. ("2223 defining Q'on"bank 9inancial 6ntermediaries1 the term QpawnshopS as defined under &residential /ecree 'o. 113 which authori?ed its creation1 to *e a )erson or entit& en'a'ed in the *usiness of (endin' mone& 1 all fall within the classification of 'on"bank 9inancial 6ntermediaries and therefore1 covered b, %ec. 3 of $.A. 'o. (2+0. This classification is eAuall, supported b, %ubsection 3121>.1 of the B%& 8anual of $egulations for 'on"Bank 9inancial 6ntermediaries and reiterated in B%& Circular 'o. 223"((1 classif,ing pawnshops as one of 'on"bank 9inancial 6ntermediaries within the supervision of the Bangko %entral ng &ilipinas. :ltimatel,1 $.A. 'o. (2+0 categoricall, confirmed the classification of pawnshops as non"bank financial intermediaries. Coming now to the issue at hand " %ince petitioner is a non"bank financial intermediar,1 it is sub<ect to 12M FAT for the ta7 ,ears 1((* to 2222H +o=e"er, =it+ t+e #e"1, $%%e%%.ent $n- co##ection of 7AT fro. non-0$n2 fin$nci$# inter.e-i$rie% 0ein3 %/ecific$##1 -eferre- 01 #$=1[+3] t+en /etitioner i% not #i$0#e for 7AT -,rin3 t+e%e t$> 1e$r%. But with the full implementation of the FAT s,stem on non"bank financial intermediaries starting -anuar, 11 222+1 petitioner is liable for 12M FAT for said ta7 ,ear. And beginning 2223 up to the present1 b, virtue of $.A. 'o. (2+01 petitioner is no longer liable for FAT but it is sub<ect to percentage ta7 on gross receipts from 2M to ) M1 as the case ma, be. .astl,1 petitioner is liable for documentar, stamp ta7es. The Court has settled this issue in Miche( :. Lhui((ier Pawnsho), Inc. +. Commissioner of Interna( Re+enue, in which it was ruled that the sub<ect of /%T is not limited to the document alone. &ledge1 which is an e7ercise of a privilege to transfer obligations1 rights or properties incident thereto1 is also sub<ect to /%T1 thus T 7 7 7 the sub<ect of a /%T is not limited to the document embod,ing the enumerated transactions. A /%T is an e7cise ta7 on the e7ercise of a right or privilege to transfer obligations1 rights or properties incident thereto. 6n Phi(i))ine 9ome Assurance Cor)oration +. Court of A))ea(s1 it was held thatD 7777 &ledge is among the privileges1 the e7ercise of which is sub<ect to /%T. A pledge ma, be defined as an accessor,1 real and unilateral contract b, virtue of which the debtor or a third person delivers to the creditor or to a third person movable propert, as securit, for the performance of the principal obligation1 upon the fulfillment of which the thing pledged1 with all its accessions and accessories1 shall be returned to the debtor or to the third person. This is essentiall, the business of pawnshops which are defined under %ection + of &residential /ecree 'o. 1131 or the &awnshop $egulation Act1 as persons or entities engaged in lending mone, on personal propert, delivered as securit, for loans. %ection 12 of the &awnshop $egulation Act and %ection 21 of the $ules and $egulations 9or &awnshops issued b, the Central Bank to implement the Act1 reAuire ever, pawnshop or pawnbroker to issue1 at the time of ever, such loan or pledge1 a memorandum or ticket signed b, the pawnbroker and containing the following detailsD 1! name and residence of the pawnerH 2! date the loan is grantedH +! amount of principal loanH 3! interest rate in percentH )! period of maturit,H *! description of pawnH =! signature of pawnbroker or his authori?ed agentH 0! signature or thumb mark of pawner or his authori?ed agentH and (! such other terms and conditions as ma, be agreed upon between the pawnbroker and the pawner. 6n addition1 Central Bank Circular 'o. 33)1 prescribed a standard form of pawn tickets with entries for the reAuired details on its face and the mandated terms and conditions of the pledge at the dorsal portion thereof. %ection + of the &awnshop $egulation Act defines a pawn ticket as followsD 7777 True1 the law does not consider said ticket as an evidence of securit, or indebtedness. @owever1 for purposes of ta7ation1 the same pawn ticket is proof of an e7ercise of a ta7able privilege of concluding a contract of pledge. At an, rate1 it is not said ticket that creates the pawnshopRs obligation to pa, /%T but the e7ercise of the privilege to enter into a contract of pledge. There is therefore no basis in petitionerRs assertion that a /%T is literall, a ta7 on a document and that no ta7 ma, be imposed on a pawn ticket. The settled rule is that ta7 laws must be construed in favor of the ta7pa,er and strictl, against the governmentH and that a ta7 cannot be imposed without clear and e7press words for that purpose. Taking our bearing from the foregoing doctrines1 we scrutini?ed %ection 1() of the '6$C1 but there is no wa, that said provision ma, be interpreted in favor of petitioner. %ection 1() ,n4,$#ifie-#1 %,0?ect% $## /#e-3e% to /%T. 6t states that Q[o]n e+er& . . . )(ed'e . . . there sha(( *e co((ected a documentar& stam) ta. . . ..S 6t is clear1 categorical1 and needs no further interpretation or construction. The e7plicit tenor thereof reAuires hardl, an,thing than a simple application.
[+)]

7777 6n the instant case1 there is no law specificall, and e7pressl, e7empting pledges entered into b, pawnshops from the pa,ment of /%T. %ection 1(( of the '6$C enumerated certain documents which are not sub<ect to stamp ta7H but a pawnshop ticket is not one of them. @ence1 petitionerRs nebulous claim that it is not sub<ect to /%T is without merit. 6t cannot be over"emphasi?ed that ta7 e7emption represents a loss of revenue to the government and must1 therefore1 not rest on vague inference. 57emption from ta7ation is never presumed. 9or ta7 e7emption to be recogni?ed1 the grant must be clear and e7pressH it cannot be made to rest on doubtful implications. :nder the principle of stare decisis et non quieta mo+ere follow past precedents and do not disturb what has been settled!1 once a case has been decided one wa,1 an, other case involving e7actl, the same point at issue1 as in the case at bar1 should be decided in the same manner.[+*] 9:(R(8OR(1 the petition is PARTIA556 GRANT(D. The /ecision dated -une =1 222* and $esolution dated August 131 222* of the Court of Ta7 Appeals En "anc is <ODI8I(D to the effect that the Bureau of 6nternal $evenue assessment for FAT deficienc, in the amount of &)311122.=( for the ,ear 2222 is R(7(RS(D $n- S(T ASID(1 while its assessment for /%T deficienc, in the amount of&231=3=.1+1 inclusive of surcharge and interest1 is UP:(5D. SO ORD(R(D.

A,t+orit1 to (n3$3e in B$n2in3 Sec. 4, GBL Authorit, to 5ngage in Banking and >uasi"Banking 9unctions. " 'o person or entit, shall engage in banking operations or Auasi"banking functions without authorit, from the Bangko %entralD &rovided1 however1 That an entit, authori?ed b, the Bangko %entral to perform universal or commercial banking functions shall likewise have the authorit, to engage in Auasi"banking functions. The determination of whether a person or entit, is performing banking or Auasi" banking functions without Bangko %entral authorit, shall be decided b, the 8onetar, Board. To resolve such issue1 the 8onetar, Board ma,H through the appropriate supervising and e7amining department of the Bangko %entral1 e7amine1 inspect or investigate the books and records of such person or entit,. :pon issuance of this authorit,1 such person or entit, ma, commence to engage in banking operations or Auasi"banking function and shall continue to do so unless such authorit, is sooner surrendered1 revoked1 suspended or annulled b, the Bangko %entral in accordance with this Act or other special laws. The department head and the e7aminers of the appropriate supervising and e7amining department are hereb, authori?ed to administer oaths to an, such person1 emplo,ee1 officer1 or director of an, such entit, and to compel the presentation or production of such books1 documents1 papers or records that are reasonabl, necessar, to ascertain the facts relative to the true functions and operations of such person or entit,. 9ailure or refusal to compl, with the reAuired presentation or production of such books1 documents1 papers or records within a reasonable time shall sub<ect the persons responsible therefore to the penal sanctions provided under the 'ew Central Bank Act. &ersons or entities found to be performing banking or Auasi"banking functions without authorit, from the Bangko %entral shall be sub<ect to appropriate sanctions under the 'ew Central Bank Act and other applicable laws.

Re4,i%ite%@Con-ition% to (n3$3e in B$n2in3 Sec. 8, GBL 4rgani?ation. " The 8onetar, Board ma, authori?e the organi?ation of a bank or Auasi"bank sub<ect to the following conditionsD 0.1. That the entit, is a stock corporationH 0.2. That its funds are obtained from the public1 which shall mean twent, 22! or more personsH and 0.+. That the minimum capital reAuirements prescribed b, the 8onetar, Board for each categor, of banks are satisfied. 'o new commercial bank shall be established within three +! ,ears from the effectivit, of this Act. 6n the e7ercise of the authorit, granted herein1 the 8onetar, Board shall take into consideration their capabilit, in terms of their financial resources and technical e7pertise and integrit,. The bank licensing process shall incorporate an assessment of the bank;s ownership structure1 directors and senior management1 its operating plan and internal controls as well as its pro<ected financial condition and capital base. T+e S(C $n- B$n2% Sec. 1., GBL Certificate of Authorit, to $egister. " The %ecurities and 57change Commission shall no register the articles of incorporation of an, bank1 or an, amendment thereto1 unless accompanied b, a certificate of authorit, issued b, the 8onetar, Board1 under its seal. %uch certificate shall not be issued unless the 8onetar, Board is satisfied from the evidence submitted to itD 13.1. That all reAuirements of e7isting laws and regulations to engage in the business for which the applicant is proposed to be incorporated have been complied withH 13.2. That the public interest and economic conditions1 both general and local1 <ustif, the authori?ationH and 13.+. That the amount of capital1 the financing1 organi?ation1 direction and administration1 as well as the integrit, and responsibilit, of the organi?ers and administrators reasonabl, assure the safet, of deposits and the public interest. The %ecurities and 57change Commission shall not register the b,"laws of an, bank1 or an, amendment thereto1 unless accompanied b, a certificate of authorit, from the Bangko %entral.

<ini.,. C$/it$# Stoc2 Re4,ire.ent BS& 'irc/lar No. 237, 13 A/g/7, 2000
The 8onetar, Board1 in its $esolution 'os. (3+ and 11)( dated ( -une 2222 and 13 -ul, 22221 respectivel,1 universal banks1 commercial banks1 thrift banks and rural banks are advised thatD 1. The target level of capitali?ation prescribed for banks as of end"2222 has been set asideH 2. The level of reAuired capitali?ation as of end"2222 shall be the same as that prescribed as of end"1(((H +. 9or new entrants in the banking s,stem1 the minimum level of capitali?ation1 unless otherwise prescribed b, the 8onetar, Board1 shall be as followsD B$n2 C$te3or1 57panded Commercial Banks 'on"e7panded Commercial Banks Thrift Banks Cith @ead 4ffice within 8etro 8anila Cith @ead 4ffice outside 8etro 8anila $ural Banks Cithin 8etro 8anila Cities of Cebu and /avao 1stE2ndE+rd class cities and 1st class municipalities 3thE)thE*th class cities and 2ndE+rdE3th class municipalities )th and *th class municipalities <ini.,. C$/it$# AIn <i##ion%B & 31()2 21322 +2) )2 & 2* 1+ *.) +.( 2.*

3. 9or banks that have e7ecuted a 8emoranda of :nderstanding 84:! with the Bangko %entral ng &ilipinas B%&!1 in compliance with Circular 'o. 101 dated 13 'ovember 1((01 the following guidelines shall appl,D a. 9or banks with capital deficienc, but with capital"to"risk assets ratio within the minimum prescribed $n- with no weaknesses i.e. high past due loans1 /4%$6 violations1 etc.!1 the 84: ma, be set asideH provided1 that the bank will be able to compl, with the minimum capital reAuirements as herein prescribedH and b. 9or banks with capital deficienc, but with significant weaknesses i.e. deficienc, in capital"to"risk assets ratio1 liAuidit, problems1 high past due loans1 etc.!1 the 84:1 as e7ecuted1 shall continue to be in full force and in effect until such time it shall be amended b, mutual consent of the parties theretoH waived andEor terminated b, the B%&. 'on"compliance with the above capital reAuirements shall sub<ect the bank to sanctions E penalties provided under e7isting banking laws and B%& rules and regulations.

T+e Acti"itie% $n- Ser"ice% of B$n2% Sec. 33, GBL 4ther Banking %ervices. " 6n addition to the operations specificall, authori?ed in this Act1 a bank ma, perform the following servicesD )+.1. $eceive in custod, funds1 documents and valuable ob<ectsH )+.2. Act as financial agent and bu, and sell1 b, order of and for the account of their customers1 shares1 evidences of indebtedness and all t,pes of securitiesH )+.+. 8ake collections and pa,ments for the account of others and perform such other services for their customers as are not incompatible with banking businessH )+.3. :pon prior approval of the 8onetar, Board1 act as managing agent1 adviser1 consultant or administrator of investment managementEadvisor,Econsultanc, accountsH and )+.). $ent out safet, deposit bo7es. The bank shall perform the services permitted under %ubsections )+.1.1 )+.2.1 )+.+. and )+.3. as depositar, or as an agent. Accordingl,1 it shall keep the funds1 securities and other effects which it receives dul, separate from the bank;s own assets and liabilitiesD The 8onetar, Board ma, regulate the operations authori?ed b, this %ection in order to ensure that such operations do not endanger the interests of the depositors and other creditors of the bank. 6n case a bank or Auasi"bank notifies the Bangko %entral or publicl, announces a bank holida,1 or in an, manner suspends the pa,ment of its deposit liabilities continuousl, for more than thirt, +2! da,s1 the 8onetar, Board ma, summaril, and without need for prior hearing close such banking institution and place it under receivership of the &hilippine /eposit 6nsurance Corporation. Sec. 29, GBL &owers of a Commercial Bank. " A commercial bank shall have1 in addition to the general powers incident to corporations1 all such powers as ma, be necessar, to carr, on the business of commercial banking such as accepting drafts and issuing letters of creditH discounting and negotiating promissor, notes1 drafts1 bills of e7change1 and other evidences of debtH accepting or creating demand depositsH receiving other t,pes of deposits and deposit substitutesH bu,ing and selling foreign e7change and gold or silver bullionH acAuiring marketable bonds and other debt securitiesH and e7tending credit1 sub<ect to such rules as the 8onetar, Board ma, promulgate. These rules ma, include the determination of bonds and other debt securities eligible for investment1 the maturities and aggregate amount of such investment.

<$1 B$n2% Ac4,ire Re$# (%t$te% Sec. 31, GBL Ceiling on 6nvestments in Certain Assets. " An, bank ma, acAuire real estate as shall be necessar, for its own use in the conduct of its businessD &rovided1 however1 That the total investment in such real estate and improvements thereof including bank eAuipment1 shall not e7ceed fift, percent )2M! of combined capital accountsD &rovided1 further1 That the eAuit, investment of a bank in another corporation engaged primaril, in real estate shall be considered as part of the bank;s total investment in real estate1 unless otherwise provided b, the 8onetar, Board. Sec. 32, GBL AcAuisition of $eal 5state b, Ca, of %atisfaction of Claims. " 'otwithstanding the limitations of the preceding %ection1 a bank ma, acAuire1 hold or conve, real propert, under the following circumstancesD )2.1. %uch as shall be mortgaged to it in good faith b, wa, of securit, for debtsH )2.2. %uch as shall be conve,ed to it in satisfaction of debts previousl, contracted in the course of its dealingsH or )2.+. %uch as it shall purchase at sales under <udgments1 decrees1 mortgages1 or trust deeds held b, it and such as it shall purchase to secure debts due it. An, real propert, acAuired or held under the circumstances enumerated in the above paragraph shall be disposed of b, the bank within a period of five )! ,ears or as ma, be prescribed b, the 8onetar, BoardD &rovided1 however1 That the bank ma,1 after said period1 continue to hold the propert, for its own use1 sub<ect to the limitations of the preceding %ection.

C5ASSI8ICATION O8 BANKS Sec. 3.2, GBL Banks shall be classified intoD a! :niversal banksH b! Commercial banksH c! Thrift banks1 composed ofD i! %avings and mortgage banksH ii! %tock savings and loan associationsH and iii! &rivate development banks1 as defined in the $epublic Act 'o. =(2* hereafter the BThrift Banks ActB!H d! $ural banks1 as defined in $epublic Act 'o. =+%+ hereafter the B$ural Banks ActB!H e! Cooperative banks1 as defined in $epublic Act 'o *(+0 hereafter the BCooperative CodeB!H f! 6slamic banks as defined in $epublic Act 'o. *0301 otherwise known as the BCharter of Al Amanah 6slamic 6nvestment Bank of the &hilippinesBH and g! 4ther classifications of banks as determined b, the 8onetar, Board of the Bangko %entral ng &ilipinas. /evelopment Bank of the &hilippines 54 'o. 011 as amended! .and Bank of the &hilippines $A 'o. +0331 %ec. =3"122!

T+rift B$n2% :9rif, Bank7 Ac, (RA No. 7904 A' ACT &$4F6/6'# 94$ T@5 $5#:.AT64' 49 T@5 4$#A'6GAT64' A'/ 4&5$AT64'% 49 T@$69T BA'K%1 A'/ 94$ 4T@5$ &:$&4%5% 9ebruar, 2+1 1(()
A' ACT &$4F6/6'# 94$ T@5 $5#:.AT64' 49 T@5 4$#A'6GAT64' A'/ 4&5$AT64'% 49 T@$69T BA'K%1 A'/ 94$ 4T@5$ &:$&4%5% C@A&T5$ 6 /5C.A$AT64' 49 &4.6CJ A'/ /596'6T64'% %ec. 1. Title. This Act shall be known and cited as the BThrift Banks Act of 1(().B %ec. 2. /eclaration of &olic,. 6t is hereb, declared the polic, of the %tate toD $ecogni?e the indispensable role of the private sector1 to encourage private enterprise1 and to provide incentives to needed investmentsH &romote economic development pursuant to the socio economic program of the government1 to e7pand industrial and agricultural growth1 to encourage the establishment of more private thrifts banks in order to meet the needs for capital1 personal and investment credit or medium and long"term loans for 9ilipino entrepreneursH c ! 5ncourage and assist the establishment of thrift bank s,stem which will promote agriculture and industr, and at the same time place within eas, reach of the people the medium and long"term credit facilities at reasonable costH d! 5ncourage industr,1 frugalit, and the accumulation of savings among the public1 and the members and stockholders of thrift banksH and e! $egulate and supervise the activities of thrift banks in order to place their operations on a sound1 stable and efficient basis and to curtail or prevent acts or practices which are pre<udicial to the public interest. %ec. +. appl,D /efinition of Terms. 9or purposes of implementing this Acts1 the following definitions shall

BThrift banksB shall include savings and mortgage banks1 private development banks1 and stock savings and loans associations organi?ed under e7isting laws1 and an, banking corporations that ma, be organi?ed for the following purposesD Accumulating the saving of depositors and investing them1 together with capital loans secured b, bonds1 mortgages in real estate and insured improvements thereon chattel mortgage1 bonds and other forms of securit, or in loans for personal or household finance1 whether secured or unsecured1 or in financing for home"building and home developmentH in readil, marketable and debt securitiesH in commercial papers and accounts receivables1 drafts1 bills of e7change1 acceptances or notes arising out of commercial transactionsH and in such other investments and loans which the 8onetar, Board ma, determine as necessar, in the furtherance of national economic ob<ectivesH &roviding short"term working capital1 medium " and long"term financing1 to businesses engaged in agriculture1 services1 industr, and housingH and &roviding diversified financial and allied service for its chosen market and constituencies speciall, for small and medium enterprises and individuals. B8onetar, BoardB shall mean the 8onetar, Board of the Bangko %entral ng &ilipinas. c ! BBangko %entralB shall refer to the Bangko %entral ng &ilipinas created under $epublic Act 'o. =*)+. C@A&T5$ 66 4$#A'6GAT64'

%ec. 3. 4rgani?ation. A thrift bank shall be organi?ed in the form of stock corporation. The 8onetar, Board shall fi7 the minimum paid"up capital of thrift banks in such amount as the Board ma, consider necessar, for the safe and sound operation of thrift banks taking into account the development thrusts of this Act and due protection of the general public. 'o thrift banks shall be organi?ed without a certificate of authorit, from the 8onetar, Board. %ec. ). 5stablishment of Thrift Banks. The articles of incorporation of an, bank1 or an, amendment thereto1 shall not be registered b, the %ecurities and 57change Commission unless accompanied b, a certificate of authorit, issued b, the 8onetar, Board1 under its official seal. %uch certificate shall not be issued unless the 8onetar, Board is satisfied from the evidence submitted to itD a! that all the reAuirements of the e7isting laws and regulations to engage in business for which the applicant is proposed to be incorporated have been complied withH b! that public interest and the economic conditions1 both general and local1 <ustif, the authori?ationH and c! that the amount of capital1 the financing organi?ation1 direction and administration1 as well as the integrit, and the responsibilit, of the organi?ers and administrators reasonabl, assure the safet, of the interest which the public ma, entrust to them. The b,laws of an, thrift bank1 or an, amendment thereto1 shall not be registered b, the %ecurities and 57change Commission unless accompanied b, a certificate of the 8onetar, Board to the effect that such b,"laws or amendments thereto are in accordance with law. %ec. *. Bank 8anagement. 6n order to maintain the Aualit, of bank management and afford better protection to depositors and the public in general1 the 8onetar, Board ma, pass upon and review the Aualifications of persons who are elected or appointed bank directors and officers and disAualif, those unfit. The 8onetar, Board shall prescribe the Aualifications of bank directors and officers for purposes of this %ection. %ec. =. /irectors and 4fficers. At least a ma<orit, of the members of the board of directors of an, thrift bank which ma, be established after the effectivit, of this Act shall be citi?ens of the &hilippinesD &rovided1 however1 That no appointive or elective official1 whether full"time or part"time1 shall at the same time serve as officer of an, thrift bank1 e7cept in cases where such service is incident to financial assistance provided b, the government or a government"owned or controlled corporation to the bankD &rovided1 further1 That in the case of merger or consolidation dul, approved b, the 8onetar, Board1 the limitation on the number of directors in a corporation1 as provided in %ection 13 of the Corporation Code of the &hilippines1 shall not be applied so that membership in the new board ma, include up to the total number of directors provided for in the respective articles of incorporation of the merging or consolidating banks. C@A&T5$ 666 4C'5$%@6& A'/ CA&6TA. $5>:6$585'T% %ec. 0. 4wnership. At least fort, percent 32M! of the voting stock of a thrift bank which ma, be established after the approval of this Act shall be owned b, citi?ens of the &hilippines1 e7cept where a new bank ma, be established as a result of a merger or consolidation of e7isting thrift banks with foreign holdings in which case1 the resulting foreign holdings shall not be increased but ma, be reduced and1 once reduced1 shall be increased thereafter be,ond si7t, percent *2M! of the voting stock of thrifts banks. The percentage of the foreign"owned voting stocks shall be determined b, the citi?enship of individual stockholders and in case of corporations owning shares1 b, the citi?enship of each stockholder in the said corporations. An, provision of e7isting laws to the contrar, notwithstanding1 stockholdings in a thrift bank shall be e7empt from an, ownership ceiling for a period of ten 12! ,ears from the effectivit, of this Act. %ec. (. Combined Capital Accounts of Thrift Banks. The combined capital accounts of each thrift bank shall not be less than an amount eAual to ten percent 12M! of its risk assets which is defined as its total assets minus the following assetsD Cash on handH Amounts from the Bangko %entralH c ! 5vidences of indebtedness of the $epublic of the &hilippines and of the Bangko %entral1 and an, other evidences of indebtedness or obligations the servicing and repa,ment of which are full, guaranteed b, the $epublic of the &hilippinesH d! .oans to the e7tent covered b, hold"out on1 or assignment of deposits maintained in the lending bank and held in the &hilippinesH and

e! 4ther non"risk items as the 8onetar, Board ma,1 from time to time1 authori?e to be deducted from total assets. The 8onetar, Board shall prescribe the manner of determining the total assets of banking institutions for purposes of this %ection. Chenever the capital accounts of a bank are deficient with respect to the reAuirements of the preceding paragraph1 the 8onetar, Board1 after considering the report of the appropriate supervising department on the state of solvenc, of the institution1 shall limit or prohibit the distribution of net profits and shall reAuire that part or all of net profits be used to increase the capital accounts of the institution until the minimum reAuirement has been met. The 8onetar, Board ma,1 after considering the aforesaid report of the appropriate supervising department and if the amount of the deficienc, <ustifies it1 restrict or prohibit the making of new investments of an, sort b, the bank with the e7ception of purchases of evidences of indebtedness included under subsection c! of this %ection1 until the minimum reAuired capital ratio has been restored. Chere in the process of a bank merger or consolidation1 the merged or constituent bank ma, not be able to compl, full, with the net worth to risk asset ratio herein prescribed1 the 8onetar, Board ma,1 at its discretion1 temporaril, relieve the bank from full compliance with this reAuirement under such conditions it ma, prescribed. C@A&T5$ 6F &4C5$% %ec. 12. &owers of Thrift Banks. 6n addition to powers granted it b, this Act and e7isting laws1 an, thrift bank ma,D Accept savings and time depositsH 4pen current or checking accountsD &rovided1 That the thrift bank has net assets of at least Twent, million pesos &2212221222! sub<ect to such guidelines as ma, be established b, the 8onetar, BoardH and shall be allowed to directl, clear its demand deposit operations with the Bangko %entral and the &hilippine Clearing @ouse CorporationH c ! Act as correspondent for other financial institutionsH d! Act as collection agent for government entities1 including but not limited to1 the Bureau of 6nternal $evenue1 %ocial %ecurit, %,stem1 and the Bureau of CustomsH e! Act as official depositor, of national agencies and of municipal1 cit, or provincial funds in the municipalit,1 cit, or province where the thrift bank is located1 sub<ect to such guidelines as ma, be established b, the 8onetar, BoardH f! $ediscount paper with the &hilippine 'ational Bank1 the .and Bank of the &hilippines1 the /evelopment Bank of the &hilippines1 and other government"owned or"controlled corporations. %aid institutions shall specif, the nature of paper deemed acceptable for rediscount1 as well as rediscounting rate to be charged b, an, of these institutionsH and g! 6ssue mortgage and chattel mortgage certificates1 bu, and sell them for its own account or for the account of others1 or accept and receive them in pa,ment or as amorti?ation of its loan. %uch mortgage and chattel mortgage certificates shall be issued e7clusivel, in national currenc, and e7clusivel, for the financing of eAuipment loans1 mortgage loans for the acAuisition of machiner, and other fi7ed installations1 conservation1 enlargement or improvement of productive properties and real estate mortgage loans forD 1! the construction1 acAuisition1 e7pansion or improvement of rural and urban propertiesH 2! the refinancing of similar loans and mortgagesH and +! such other purposes as ma, be authori?ed b, the 8onetar, Board. A thrift bank shall coordinate the amount and maturities of its certificates with those of its loans1 so as to ensure adeAuate cash receipts for the pa,ment of principal and interest at the time the, become due. The bank shall accept its own certificates at least at the actual price of issue1 in an, prepa,ment of loans which mortgage or chattel mortgage debtors ma, wish to makeD &rovided1 That the date of maturit, of the certificates is not later than the date on which the pa,ment would otherwise become due1 in the absence of the aforesaid prepa,mentH

h! &urchase1 hold and conve, real estate under the same conditions as those governing commercial banks as specified under %ection 2) of $epublic Act 'o. ++=H 5ngage in Auasi"banking and mone, market operationsH 4pen domestic letters of creditH 57tend credit facilities to private and government emplo,eesD &rovided1 That in the case of a borrower who is a permanent emplo,ee or wage earner1 the treasurer1 cashier or pa,master of the office emplo,ing him is authori?ed1 notwithstanding the provisions of an, e7isting law1 rules and regulations to the contrar,1 to make deductions from his salar,1 wage or income pursuant to the terms of his loan1 to remit deductions to the thrift bank concerned1 and collect such reasonable fee for his servicesH 57tend credit against the securit, of <ewelr,1 precious stones and articles of similar nature1 sub<ect to such rules and regulations as the 8onetar, Board ma, prescribedH and 4ffer other banking services as provided in %ection =2 of $epublic Act 'o. ++= and $epublic Act 'o. *32*1 as amended. Thrift banks ma, perform the services under subsections b!1 d!1 e!1 g! and i! onl, upon prior approval of the 8onetar, Board. 'othing in this %ection shall be construed as precluding a thrift bank from performing1 with prior approval of the 8onetar, Board1 commercial banking services1 or from operating under an e7panded banking authorit,1 nor from e7ercising1 whenever applicable and not inconsistent with the provisions of this Act and Bangko %entral regulations1 and such other powers incident to a corporation. %ec. 11. .imitations on .ending Authorit,. 57cept as the 8onetar, Board ma, otherwise prescribe1 the direct indebtedness to thrift banks of an, person1 compan,1 corporation1 or firm1 including the indebtedness of members of a partnership and association1 for mone, borrowed1 e7cludingD a! loans secured b, obligations of the Bangko %entralH b! loans full, guaranteed b, the government as to the pa,ment of principal and interestH c! loans to the e7tent covered b, the hold"out on1 or assignment of1 deposits maintained in the lending bank and held in the &hilippinesH and d! other loans or credits as the 8onetar, Board ma,1 from time to time1 specif, as non"risk assets1 which shall in no time e7ceed fifteen percent 1)M! of unimpaired capital and surplus of the bank. 'otwithstanding the provisions of the preceding paragraph and sub<ect to such regulations as the 8onetar, Board ma, prescribe1 the total indebtedness of an, borrower to the bank ma, amount to a further fifteen percent 1)M! of the unimpaired capital and surplus of such bank provided the additional indebtedness is for the purpose of financing subdivision or housing development1 medium " and low" income borrowers and agriculture on a full, secured basis. The term BindebtednessB as used herein1 shall mean the direct liabilit, of the maker or acceptor of paper discounted with or sold to such bank and liabilit, of the endorser1 drawer or guarantor who obtains a loan from or discounts paper with or sells paper under his guarant, to such bankH and shall include in the case of liabilities of a partnership or association the liabilities of the several members thereofH and shall include in the case of liabilities of a corporation1 all liabilities of all the subsidiaries thereof in which such corporation owns or controls a ma<orit, interestD &rovided1 That even if the parent corporation1 partnership or association has no liabilit, to the bank1 the 8onetar, Board ma, prescribe the combination of liabilities of subsidiar, corporations or members of the partnership or association under certain circumstances1 including but need not be limited to an, of the following situationsD a! the parent corporation1 partnership or association guarantees the repa,ment of liabilitiesH b! the liabilities were incurred for the accommodation of the parent corporation or another subsidiar, or of the partnership or associationH or c! the subsidiaries through separate entities operate merel, as departments or divisions of a single entit,D &rovided1 further1 That the discount of bills of e7change drawn in good faith against actuall, e7isting values1 and the discount of commercial and business paper actuall, owned b, the person negotiating the same1 shall not be considered as mone, borrowed for the purpose of this %ectionD &rovided1 finall,1 That certain t,pes of contingent liabilities of borrower ma, be included among the total liabilities as ma, be determined b, the 8onetar, Board. .oan accommodations granted b, thrift banks to an, other bank1 as well as deposits maintained b, them in an, bank licensed to do business in the &hilippines1 shall be sub<ect to the loan limit of an, single borrower as herein prescribed. %ec. 12. 6nvestment in Allied :ndertakings. %ub<ect to such guidelines as ma, be established b, the 8onetar, Board1 thrift banks ma, invest in eAuities of allied undertakings as hereinafter enumeratedD &rovided1 ThatD a! the total investment in eAuities shall not e7ceed twent,"five 2)M! of the worth of

the thrift bankH b! the eAuit, investment in an, single enterprise shall be limited to fifteen percent 1)M! of the net worth of the thrift bankH c! the eAuit, investment of the thrift bank in an, single enterprise shall remain a minorit, holding in that enterpriseH and d! the eAuit, investment in other banks shall be sub<ect to the same provisions governing similar investments of commercial banks and shall be deducted from the investing bank;s net worth for the purpose of computing of the prescribed ratio as provided in %ection ( hereofD &rovided1 further1 That eAuit, investments shall not be permitted in non"related activities. Chere the allied activit, is a wholl,"or ma<orit,"owned subsidiar, of the thrift bank1 the Bangko %entral ma, sub<ect it to e7amination. 6nvestment in allied undertaking shall include institutions engaged in the following activitiesD Banking and financingH Carehousing and other post"harvesting activitiesH c ! 9ertili?er and agricultural chemical and pesticides distributionH d! 9orm eAuipment distributionH e! Trucking and transportation of agricultural productsH f! 8arketing of agricultural productsH g! .easingH and h! 4ther undertakings as ma, be determined b, the 8onetar, Board. C@A&T5$ F %:&5$F6%64' %ec. 1+. %upervisor, &owers of the 8onetar, Board. The power to supervise the operation of an, thrift bank b, the 8onetar, Board shall consist in placing limits to the ma7imum credit allowed to an, individual borrowerH in indicating the manner in which technical assistance shall be e7tended to thrift banksH in imposing a uniform accounting s,stem and manner of keeping the accounts and records of thrift banksH in instituting periodic surve,s of loans and lending procedures1 audits1 test"check of cash and other transactions of the thrift banksH in instituting periodic surve,s of loans and lending procedures1 audits1 test"check of cash and other transactions of the thrift banksH in conducting training courses for personnel of thrift banksH and1 in general1 in supervising the business operations of the thrift banks. The Bangko %entral shall have the power to enforce the laws1 orders1 instructions1 rules and regulations promulgated b, the 8onetar, Board applicable to thrift banksH to reAuire thrift banks1 their directors1 officers and agents to conduct and manage the affairs of the thrift bank in a lawful and orderl, mannerH and upon proof that the thrift bank or its board of directors or officers are conducting and managing the affairs of the bank in a manner contrar, to laws1 orders instructions1 rules and regulations promulgated b, the 8onetar, Board or in a manner substantiall, pre<udicial to the interest of the government1 depositors1 creditors1 or the general public1 to appoint a conservator pursuant to %ection 2( of $epublic Act 'o. =*)+ without pre<udice to the prosecution of persons responsible for such violations under the provisions of %ections +* and += of $epublic Act 'o. =*)+. The director and e7aminers of the department of Bangko %entral charged with the supervision of thrift banks are hereb, authori?ed to administer oaths to an, director1 officer or emplo,ee of an, thrift bank or to an, voluntar, witness and to compel the presentation of all books1 documents1 papers or records necessar, in his or their <udgment to ascertain the facts relative to the true conditions of an, thrift bank or to an, loan. C@A&T5$ F6 6'C5'T6F5% %ec. 13. $eserve $eAuirement /ifferential. $eserve reAuirement imposed on thrift banks b, the 8onetar, Board shall en<o, eAuitable preferential terms over those imposed on commercial banksD &rovided1 That the 8onetar, Board ma, change reserve differentials for the purpose of stimulating economic growth in the countr,side1 thereb, promoting national economic development. %ec. 1). .iberali?ed Branching $ules. Thrift banks shall have unrestricted branching right within the region1 free from an, assessment or surcharges reAuired in setting up a branch1 but under coordination with the Bangko %entral which will have to assess that there are Aualified personnel1 control and procedures to operate the branch. %ec. 1*. 'otices of %tatement of Condition. %ub<ect to 8onetar, Board approval1 a thrift bank ma, publish its statement of condition in a newspaper of general circulation1 or post it in the most conspicuous area of its premises1 municipal public market1 baranga, hall and baranga, public market it there be an,1 where the thrift bank concerned is located. C@A&T5$ F66 5P58&T64'%

%ec. 1=. Ta7 57emptions. All thrift banks1 whether created or organi?ed under this Act or in operation as of the date of effectivit, of this Act1 shall be e7empt from pa,ment of all ta7es1 fees and charges of whatever nature and description1 e7cept the corporate income ta7es and local ta7es1 fees and charges for a period of five )! ,ears1 counted from the date of commencement of operations for thrift banks created under this Act and from the date of the effectivit, of this Act for e7isting thrift banks. %ec. 10. 57emption from &ublication $eAuirement. The foreclosure of mortgage covering loans granted b, thrift banks and e7ecutions of <udgments thereon involving real properties and levied upon b, a sheriff shall be e7empt from publication reAuirements where the total amount of the loan1 e7cluding interest due and unpaid1 does not e7ceed 4ne hundred thousand pesos &1221222! or such amount as the 8onetar, Board ma, prescribe1 as ma, be warranted b, the prevailing economic conditions and b, the nature of service of customers served b, each categor, of the thrift bank. 6t shall be sufficient publication in such cases if the notice of foreclosure and e7ecution of <udgment are posted in the conspicuous area of a thrift bank;s premises1 municipal building1 the municipal public market1 the baranga, hall1 and the baranga, public market1 if there b, an,1 where the land mortgaged is situated within a period of si7t, *2! da,s immediatel, preceding the public auction of the e7ecution of <udgment. &roof of publication as reAuired herein shall be accomplished b, an affidavit of the sheriff or officer conducting the foreclosure sale or e7ecution of <udgment and shall be attached with the records of the case. A thrift bank shall be allowed to foreclose lands mortgaged to itD &rovided1 That said lands shall be covered under $epublic Act 'o. **)=. %ec. 1(. 57emption from 'otarial Charges. An, metropolitan1 municipal1 or municipal circuit trial court <udge in his capacit, as notar, public e7 officio shall administer the oath to or acknowledge the instrument of an, thrift bank and its borrowers or mortgagor free from all charges1 fees and documentar, stamp ta71 collectible under e7isting laws1 relative to an, loan or transaction not e7ceeding 9ift, thousand pesos &)21222! or such amount as the %ecretar, of 9inance1 upon recommendation of the 8onetar, Board1 ma, prescribe as ma, be necessar, to promote and e7pand the econom,. %ec. 22. 57emption from $egistration 9ees. An, register of deeds shall accept from an, thrift bank and its borrowers and mortgagors for registration1 free from all charges1 fees and documentar, stamp ta71 collectible under e7isting laws1 an, instrument1 whether voluntar, or involuntar,1 relating to loans or transactions e7tended b, an, thrift bank in an amount not e7ceeding 9ift, thousand pesos &)21222!D &rovided1 however1 That charges1 if an, shall be collectible on the amount in e7cess of 9ift, thousand pesos &)21222!H and that an instrument related to assignments of several mortgages consolidated in a single deed1 if an,1 shall be levied onl, on the amount in e7cess of 9ift, thousand pesos &)21222! of the consideration in the assignment of each mortgage1 or such amount as the %ecretar, of 9inance1 upon recommendation of the 8onetar, Board1 ma, prescribe as ma, be necessar, to promote and e7pand the econom,. C@A&T5$ F666 &$4@6B6T64'% %ec. 21. &rohibited Acts. Cithout pre<udice to an, prosecution under an, law which ma, have been violated1 a fine of not more than Ten thousand pesos &121222! or imprisonment for not less than si7 *! months but not more than ten 12! ,ears1 or both1 at the discretion of the court1 shall be imposed uponD An, officer1 emplo,ee1 or agent of a thrift bank who shallD 8ake false entries in an, bank report or statement thereb, affecting the financial interest of1 or causing damage to1 the bank or an, personH or Cithout order of a court of competent <urisdiction1 disclose an, information relative to the funds or properties in the custod, of the bank belonging to private individuals1 corporations1 or an, other entit,H or Accept gifts1 fees or commissions or an, other form of remuneration in connection with the approval of a loan from said bankH or 4vervalue or aid in the overvaluing an, securit, for the purpose of influencing in an, wa, the action of the bank on an, loanH or Appear and sign as guarantor1 indorser1 or suret, for loans grantedH or

Fiolate an, provision of this Act. An, applicant for a loan from1 or borrower of a thrift bank who shallD 8isuse1 misappl, or divert the proceeds of the loan obtained b, him from its declared purposeH or 9raudulentl, overvalue propert, offered as securit, for a loan from said bankH or #ive out or furnish false or willful misinterpretation of material facts for the purpose of obtaining1 renewing1 or increasing a loan e7tending the period thereofH or Attempt to defraud the said bank in the event of court action to recover the loanH or 4ffer an, officer1 emplo,ee or agent of a thrift bank a gift1 fee1 commission or other forms of compensation in order to influence such bank personnel into approving a loan applicationH or /ispose or encumber the propert, offered as securit, for the loan. c ! An, e7aminer1 or officer or emplo,ee of the Bangko %entral or of an, department1 bureau1 office1 branch or agenc, of the government who is assigned to e7amine1 supervise1 assist or render technical service to thrift banks and who shall connive or aid in the commission of the same. d! An, metropolitan1 municipal1 or municipal circuit trial court <udge or register of deeds who shall demand or accept1 directl, or indirectl,1 an, gift1 fee1 commission1 or an, other form of compensation in connection with the service1 or shall arbitraril, and without reasonable cause dela, the acknowledgment or administration of oath or the registration of documents reAuired to be performed b, said <udge or b, said register of deeds shall be punished with a fine of not more than 4ne thousand pesos &11222! or b, imprisonment of not more than one 1! ,ear1 or both1 at the discretion of the court. e! An, bank not organi?ed under this Act and an, person1 association1 or corporation doing the business of banking1 not authori?ed under this Act or e7isting laws which shall use the words B/evelopment Bank1B B%avings Bank1B B8ortgage Bank1B B%avings and 8ortgage Bank1B or B%avings and .oan Association1B as part of the name or title of such bank or of such person1 association1 or corporation1 shall be punished b, a fine of not less than 4ne hundred pesos &122!1 but in no case to e7ceed Thirt, thousand pesos &+21222!1 for each da, during which the said words are so used. C@A&T5$ 6P #5'5$A. &$4F6%64'% %ec. 22. 8inors as /epositors. 8inors in their own rights and in their own names ma, make deposits and withdraw the same1 and ma, receive dividends and interestD &rovided1 however1 That if an, guardian shall give notice in writing to an, thrift bank not to make pa,ments of deposits1 dividends1 or interest to the minor of whom he is the guardian1 then such pa,ment shall be made onl, to the guardian. %ec. 2+. $eturn of /eposits. /eposits shall be returned to the depositors or to their legal representatives in the manner and at the time and under the conditions which shall be determined b, the board of directors and stipulated in regulations which shall be in conformit, with laws and with such regulations as the 8onetar, Board ma, prescribe. %ec. 23. /eposit 6nsurance. /eposit in thrift banks shall be eligible for insurance coverage under $epublic Act 'o. +)(11 as amended. %ec. 2). Annual 9ees. Consistent with the provisions of %ection 20 of $epublic Act 'o. =*)+1 an, thrift bank organi?ed under this Act ma,1 pursuant to regulations promulgated for the purpose b, the 8onetar, Board1 be reAuired to contribute to the Bangko %entral an annual fee in an amount to be determined b, the 8onetar, Board. %ec. 2*. 6mplementation. 9or the purpose of carr,ing the ob<ectives of this Act1 the Bangko %entral is authori?ed to reAuire the services and facilities of an, department or instrumentalit, of the government or an, officer or emplo,ee of an, such department or government instrumentalit,. %ec. 2=. Annual $eport. The 8onetar, Board shall submit a report to the Congress of the &hilippines at the end of each calendar ,ear of all the rules and regulations promulgated b, it in accordance with

the provisions of this Act1 as well as its other actuations in connection with thrift banks together with an e7planation of its reasons therefor and recommendations on legislative actions. %ec. 20. &arit, Clause :nder the %ame Circumstances. The incentives granted shall be en<o,ed b, financial institutions giving the same services for countr,side lending and development under such terms as ma, be eAuitable and as ma, be defined b, the 8onetar, Board. %ec. 2(. %eparabilit, Clause. 6f an, provision of this Act or the application thereof to an, person or circumstances is held invalid1 the other provisions of this Act and the application of such provisions to other persons and circumstances1 shall not be affected thereb,. %ec. +2. $epealing Clause. $epublic Act 'o. 32(+1 $epublic Act 'o. +==( to the e7tent that it applies to thrift banks1 and Chapter ) of $epublic Act 'o. ++= are hereb, repealed. An, law or parts of an, law inconsistent with the provisions of this Act are hereb, repealed. 6n all matters affecting the price stabilit, of the peso1 the provisions of $epublic Act 'o. =*)+ shall prevail. %ec. +1. Applicabilit, of 4ther .aws. The provisions of $epublic Act 'o. =*)+ and $epublic Act 'o. ++=1 as amended1 insofar as the, are applicable and not in conflict with an, provision of this Act1 shall appl, to thrift banks organi?ed hereunder. %ec. +2. 5ffectivit,. This Act shall take effect fifteen 1)! da,s following the completion of its publication in the 4fficial #a?ette or in two 2! national newspapers of general circulation.

R,r$# B$n2% R/ral Bank7 Ac, (RA No. 7333 A' ACT &$4F6/6'# 94$ T@5 C$5AT64'1 4$#A'6GAT64' A'/ 4&5$AT64' 49 $:$A. BA'K%1 A'/ 94$ 4T@5$ &:$&4%5% April 21 1((2
A' ACT &$4F6/6'# 94$ T@5 C$5AT64'1 4$#A'6GAT64' A'/ 4&5$AT64' 49 $:$A. BA'K%1 A'/ 94$ 4T@5$ &:$&4%5% %ec. 1. This Act shall be known and cited as the ;;$ural Banks Act of 1((2.B %ec. 2. The %tate hereb, recogni?es the need to promote comprehensive rural development with the end in view of attaining a more eAuitable distribution of opportunities1 income and wealthH a sustained increase in the amount of goods and services produced b, the nation for the benefit of the peopleH and in e7panding productivit, as a ke, to raising the Aualit, of life for all1 especiall, the under"privileged. Towards these ends1 the %tate hereb, encourages and assists in the establishment of a rural banking s,stem designed to make needed credit available and readil, accessible in the rural areas on reasonable terms. %ec. +. 6n furtherance of this polic,1 the 8onetar, Board of the Central Bank of the &hilippines shall formulate the necessar, rules and regulations governing the establishment and operation of rural banks for the purpose of providing adeAuate credit facilities to farmers and merchants1 or to cooperatives of such farmers and merchants1 or to cooperates of such farmers and merchants and1 in general1 to the people of the rural communities1 and to supervise the operation of such banks. %ec. 3. 'o rural bank shall be operated without a Certificate of Authorit, from the 8onetar, Board of the Central Bank. $ural banks shall be organi?ed in the form of stock corporations. :pon consultation with the rural banks in the area1 dul, established cooperatives and corporations primaril, organi?ed to hold eAuities in rural banks ma, organi?e a rural bank andEor subscribe to the shares of stock of an, rural bankD &rovided1 That a cooperative or corporation owning or controlling the whole or ma<orit, of the voting stock of the rural bank shall be sub<ect to special e7amination and to such rules and regulations as the 8onetar, Board ma, prescribe. Cith the e7ception of shareholdings of corporations organi?ed primaril, to hold eAuities in rural banks as provided for under %ection 12"C of $epublic Act 'o. ++=1 as amended1 and of 9ilipino"controlled domestics banks1 the capital stock of an, rural bank shall be full, owned and held directl, or indirectl, b, citi?ens of the &hilippines or corporations1 associations or1 cooperatives Aualified under &hilippine laws to own and hold such capital stockD &rovided1 That an, provisions of e7isting laws to the contrar, notwithstanding1 stockholdings in a rural bank shall be e7empt from an, ownership ceiling for a period of ten 12! ,ears from the approval of this ActD &rovided1 further1 That an, such e7emption shall reAuire the approval of the 8onetar, Board. 6f subscription of private shareholders to the capital stock of a rural bank cannot1 be secured or is not available1 or insufficient to meet the normal credit needs of the localit,1 the .and Bank of the &hilippines1 the /evelopment Bank of the &hilippines1 or an, government"owned or controlled bank or financial institution1 on representation of the said private share"holders but sub<ect to the investment guidelines1 policies and procedures of the bank or financial institution and upon approval of the 8onetar, Board of the Central Bank1 shall subscribe to the capital stock of such rural bank1 which shall be paid in full at the time of subscription1 in an amount eAual to the full, paid subscribed and unimpaired capital of the private stockholders or such amount as the 8onetar, Board ma, prescribe as ma, be necessar, to promote and e7pand rural economic developmentD &rovided1 however1 That such shares of stock subscribed b, the .and Bank of the &hilippines1 the /evelopment Bank of the &hilippines or an, government"owned or controlled bank or financial institution ma, be sold at an, time at market value to private individuals who are citi?ens of the &hilippinesD &rovided1 finall,1 That in the sale of shares of stock subscribed b, the .and Bank of the &hilippines1 the /evelopment Bank of the &hilippines or an, government"owned or controlled bank or financial institution1 the registered stockholders shall have the right of pre"emption within one 1! ,ear from the date of offer in proportion to their respective holdings1 but in the absence such bu,er1 preference1 however1 shall be given to residents of the localit, or province where the rural bank is located. %ec. ). All members of the Board of /irectors of the rural bank shall be citi?ens of the &hilippines at the time of their assumption to officeD &rovided1 however1 That nothing in this Act shall be construed as prohibiting an, appointive or elective public official from serving as director1 officer1 consultant or in an, capacit, in the bank.

'o director or officer of an, rural bank shall1 either directl, or indirectl,1 for himself or as the representative or agent of another1 borrow an, of the deposits or funds of such banks1 nor shall he become a guarantor1 indorser1 or suret, for loans from such bank to others1 or in an, manner be an obligor for mone, borrowed from the bank or loaned b, it e7cept with the written approval of the ma<orit, of the directors of the bank1 e7cluding the director concerned. An, such approval shall be entered upon the records of the corporation and a cop, of such entr, shall be transmitted forthwith to the appropriate supervising department. The directorEofficer of the bank who violates the provisions of this section shall be immediatel, dismissed from office and shall be penali?ed in accordance with %ection 2* of this Act. The 8onetar, Board ma, regulate the amount of credit accommodations that ma, be e7tended directl, to the directors1 officers or stockholders or rural bank of banking institutions. @owever1 the outstanding credit accommodations which a rural bank ma, e7tend to each of its stock"holders owning two percent 2M! or more of the subscribed capital stock1 its directors1 or officers shall be limited to an amount eAuivalent to the respective outstanding deposits and book value of the paid"in capital contributions in the bank. %ec. *. .oans or advances e7tended b, rural banks organi?ed and operated under this Act shall be primaril, for the purpose of meeting the normal credit needs of farmers1 fishermen or farm families owning or cultivating land dedicated to agricultural production as well as the normal credit needs of cooperatives and merchants. 6n the granting of loans1 the rural bank shall give preference to the application of farmers and merchants whose cash reAuirements are small. .oans ma, be granted b, rural banks on the securit, of lands without Torrens Title where the owner of private propert, can show five )! ,ears or more of peaceful1 continuous and uninterrupted possession in concept of ownerH or of portions of friar land estates or other lands administered b, the Bureau of .ands that are covered b, sales contracts and the purchasers have paid at least five )! ,ears installment thereon1 without the necessit, of prior approval and consent b, the /irector of .ands or of portions of other estates under the administration of the /epartment of Agrarian $eform or other governmental agenc, which are likewise covered b, sales contracts and the purchasers have paid at least five )! ,ears installment thereon1 without the necessit, of prior approval and consent of the /epartment of Agrarian $eform or corresponding governmental agenc,H or of homesteads or free patent lands pending the issuance of titles but alread, approved1 the provisions or an, law or regulations to the contrar, notwithstandingD &rovided1 That when the corresponding titles are issued1 the same shall be delivered to the $egister of /eeds of the province where such lands are situated for the annotation of the encumbranceD &rovided1 further1 That in the case of lands pending homestead or free patent titles1 copies of notices for the presentation of the final proof shall also be furnished the creditor rural bank and1 if the borrower applicants fail to present the final proof within thirt, +2! da,s from date of notice1 the creditor rural bank ma, do so for them at their e7penseD &rovided1 furthermore1 That the applicant for homestead or free patent has alread, improvements on the land and the loan applied for is to be used for further development of the same or for other productive economic activitiesD &rovided1 finall,1 That the appraisal and verification of the status of a land is a full responsibilit, of the rural bank and an, loan granted on an, land which shall be found later to be within the forest ?one shall be for the sole account of the rural bank. The foreclosure of mortgages covering loans granted b, rural banks and e7ecutions of <udgment thereon involving real properties levied upon b, a sheriff shall be e7empt from the publications in newspapers now reAuired b, law where the total amount of loan1 e7cluding interests due and unpaid1 does not e7ceed 4ne hundred thousand pesos &1221222! or such amount as the 8onetar, Board ma, prescribed as ma, be warranted b, prevailing economic conditions1 6t shall be sufficient publication in such cases if the notices of foreclosure and e7ecution of <udgment are posted in the most conspicuous area of the municipal building1 the municipal public market1 the rural bank1 the baranga, hall1 and the baranga, public market1 if an,1 where the land mortgaged is situated during the period of si7t, *2! da,s immediatel, preceding the public auction of e7ecution of <udgment. &roof of publication as reAuired herein shall be accomplished b, an affidavit of the sheriff or officer conducting the foreclosure sale or e7ecution of <udgment and shall be attached with the records of the caseD &rovided1 That when a homestead or free patent is foreclosed1 the homesteader or free patent holder1 as well as his heirs shall have the right to redeem the same within one 1! ,ear from the date of foreclosure in the case of land not covered b, a Torrens Title or one 1! ,ear from the date of the registration of the foreclosure in the case of land covered b, a Torrens TitleD &rovided1 finall,1 That in an, case1 borrowers1 especiall, those who are mere tenants1 need onl, to secure their loans with the produce corresponding to their share. A rural bank shall be allowed to foreclose lands mortgaged to itD &rovided1 That said lands shall be covered under $epublic Act 'o. *2)=.

%ec. =. Cith the view to ensuring the balanced rural economic growth and e7pansion1 rural banks ma,1 within limits and conditions fi7ed b, the 8onetar, Board1 devote a portion of their loan able funds to meeting the normal credit needs of small business enterprisesD &rovided1 That loans shall not e7ceed fifteen percent 1)M! of the net worth of a rural bank or such amount as the 8onetar, Board ma, prescribe as ma, be warranted b, prevailing economic conditions1 and of essential enterprises or industries1 other than those which are strictl, agricultural in nature. %ec. 0. To provide supplemental capital to an, rural bank until it has accumulated enough capital of its own or stimulate private investments in rural banks1 the .and Bank of the &hilippines1 the /evelopment Bank of the &hilippines or an, government"owned or controlled bank1 or financial institution shall subscribe within thirt, +2! da,s to the capital stock of an, rural bank from time to time in an amount eAual to the total eAuit, investment of the private shareholders which shall be paid in full at the time of the subscription or such amount as ma, be necessar, to promote and e7pand rural economic developmentD &rovided1 however1 That shares of stock issued to the .and Bank of the &hilippines1 the /evelopment Bank of the &hilippines or an, government"owned or controlled bank or financial institution1 ma,1 pursuant to this section1 at an, time1 be paid off at par and retired in whole or in part if the rural bank has accumulated enough capital strength to permit retirement of such sharesH or if an offer is received from private sources to replace the eAuit, investment of the .and Bank of the &hilippines1 the /evelopment Bank of the &hilippines or an, government"owned or controlled bank or financial institution with an eAuivalent investment or more in the eAuit, of such bank. 6n case of retirement of stock or replacement of eAuit, investments of the .and Bank of the &hilippines1 the /evelopment Bank of the &hilippines or an, government"owned or controlled bank or financial institution1 the registered private shareholders of the rural bank shall have the right of preemption within one 1! ,ear from the date of offer in proportion to their respective holdings. %tocks held b, the .and Bank of the &hilippines1 the /evelopment Bank of the &hilippines or b, an, government"owned or controlled bank or financial institution1 under the terms of this section1 shall be made preferred onl, as to assets upon liAuidation and without the power to vote and shall share in dividend distributions from the date of issuance in the amount of four percent 3M! on the first and second ,ears1 si7 percent *M! on the third and fourth ,ears1 eight percent 0M! on the fifth and si7th ,ears1 ten percent 12M! on the seventh and eighth ,ears and twelve percent 12M! on the ninth to the fifteenth ,ears without preferenceD &rovided1 however1 That if such stock of the .and Bank of the &hilippines1 the /evelopment Bank of the &hilippines or an, government"owned or controlled bank or financial institution is sold to private share holders1 the same ma, be converted into common stock of the class provided for in %ection 12 hereofD &rovided1 further1 That pending the amendment of the Articles of 6ncorporation of the rural bank1 if necessar,1 for the purpose of reflecting the conversion into common stock of preferred stock sold to private stockholders1 the transfer shall be recorded b, the rural bank in the stock and transfer book and such shareholders shall thereafter en<o, all the rights and privileges of common stockholders. The preferred stocks so transferred shall be surrendered and canceled and the corresponding common stocks shall be issued. The corporate secretar, of the rural bank shall submit to the Central Bank and the %ecurities and 57change Commission a report on ever, transfer of preferred stock to private shareholdersH and such report received b, the %ecurities and 57change Commission shall form part of the corporate records of the rural bank. Chen all the preferred shares of stock of a rural bank have been sold to private shareholders1 the Articles of 6ncorporation of the rural bank shall be amended to reflect the conversion of the preferred shares of stock into common stock. 9or this purpose1 the &resident1 the corporate secretar,1 and a ma<orit, of the Board of /irectors shall issue a certificate that all preferred shares have been sold to private shareholders which1 together with a cop, of the Articles of 6ncorporation1 as amended1 dul, certified correct b, the &resident1 corporation1 as amended1 dul, certified correct b, the &resident1 corporate secretar,1 and a ma<orit, of the Board of /irectors1 shall be filed with the %ecurities and 57change Commission1 which shall attach the same to the same to the original Articles of 6ncorporation on file with said office. The %ecurities and 57change Commission shall not register the amended Articles of 6ncorporation unless accompanied b, the Certificate of Authorit, reAuired under %ection ( of $epublic Act 'o. ++=1 as amended. All supervised past due and restructured past due loans1 including those covered under e7isting rehabilitation programs of the Central Bank1 and fift, percent )2M! of non"supervised past due and restructured past due loans including accrued interest thereon of rural banks organi?ed under $epublic Act 'o. =221 as amended1 as of /ecember +11 1(0*1 shall be converted into preferred stocks of the rural bank and issued in favor of the .and Bank of the &hilippines1 the /evelopment Bank of the &hilippines or an, government"owned or controlled bank or financial institutionHH &rovided1 That penalties thereon are hereb, waived e7cept accrued interest on arrearagesD &rovided1 further1 That the

eAuivalent penalties due from corresponding farmers are likewise waivedD &rovided1 further1 That rural banks that prefer to settle their arrearages under a plan of pa,ment or a combination of both plan of pa,ment and conversion ma, do so in accordance with e7isting regulations and provisions of this ActD &rovided1 furthermore1 That rural banks shall match these preferred stocks with private eAuit, in eAual annual installments over a period of fifteen 1)! ,ears to begin three +! ,ears after conversionD &rovided1 finall,1 That the Central Bank1 the .and Bank of the &hilippines1 the /evelopment Bank of the &hilippines and an, government"owned or controlled bank or financial institution shall continue to rediscount sub<ect to their respective programs1 policies and guidelines against papers evidencing a loan granted b, a rural bank in order to achieve the declared polic, and promote the ob<ectives of this Act. %ec. (. The .and Bank of the &hilippines1 the /evelopment Bank of the &hilippines or an, government"owned or controlled bank or financial institution ma, obtain from an, source as ma, be authori?ed under e7isting laws and regulations such amounts as it ma, reAuire for the purpose of subscribing to the shares of stock of rural banks1 and of granting loans to such banks as provided in %ection 1+ of this Act. %ec. 12. %tock certificates shall be issued to represent the contributions to capital stock of the rural bank b, the #overnment through the .and Bank of the &hilippines1 the /evelopment Bank of the &hilippines or through an, government"owned or controlled bank or financial institution1 and b, Aualified persons under such terms and conditions as the 8onetar, Board ma, prescribe. The powers of the 8onetar, Board over rural banks shall e7tend to prescribing the amount1 value and class of stock issued b, an, rural bank1 organi?ed under this Act. %ec. 11. The power to supervise the operation of an, rural bank b, the 8onetar, Board as herein indicated shall consist in placing limits to the ma7imum credit allowed to an, individual borrowerH in prescribing the interest rateH in determining the loan period and loan proceduresH in indicating the manner in which technical assistance shall be e7tended to rural banksH in imposing a uniform accounting s,stem and manner of keeping the accounts and records of rural banksH in instituting periodic surve,s of loan and lending procedures1 audits1 test"check of cash and other transactions of the rural banksH in conducting training courses for personnel of rural banksH and1 in general in supervising the business of operations of the rural banks. The Central Bank shall have the power to enforce the laws1 orders1 instructions1 rules and regulations promulgated b, the 8onetar, Board applicable to rural banksH to reAuire rural banks1 their directors1 officers and agents to conduct and manage the affairs of the rural banks in a lawful and orderl, mannerH and1 upon proof that the rural bank or its Board of /irectors1 or officers are conducting and managing the affairs of the bank in a manner contrar, to laws1 order1 instructions1 rules and regulations promulgated b, the 8onetar, Board or in a manner substantiall, pre<udicial to the interest of the #overnment1 depositors or creditors1 to take over the management of such bank when specificall, authori?ed to do so b, the 8onetar, Board after due hearing process until a new board of directors and officers are elected and Aualified without pre<udice to the prosecution of the persons responsible for such violations under the provisions of %ections +21 ++ and +3 of $epublic Act 'o. 2*)1 as amended. The management of the rural bank b, the Central Bank shall be without e7pense to the rural bank1 e7cept such as is actuall, necessar, for its operation1 pending the election and Aualification of a new board of directors and officers to take place of those responsible for the violations or acts contrar, to the interest of the #overnment1 depositors or creditors. The director and the e7aminers of the department of the Central Bank charged with the supervision of rural banks are hereb, authori?ed to administer oaths to an, director1 officer or emplo,ee of an, rural bank or to an, voluntar, witness and to compel the presentation of all books1 documents1 papers or records necessar, in his or their <udgment to ascertain the facts relative to the true condition of an, rural bank or to an, loan. %ec. 12. 6n addition to the operations specificall, authori?ed in this Act1 an, rural bank ma,D Accept saving and time depositsH 4pen current or checking accounts1 provided the rural bank has net assets of at least 9ive million pesos &)12221222! sub<ect to such guidelines as ma, be established b, the 8onetar, BoardH Act as corresponding for other financial institutionsH Act as a collection agentH Act as official depositor, of municipal1 cit, or provincial funds in the municipalit,1 cit, or province where it is located1 sub<ect to such guidelines as ma, be established b, the 8onetar, BoardH $ediscount paper with the &hilippine 'ational Bank1 the .and Bank of the &hilippines1 the /evelopment Bank of the &hilippines1 or an, other banking institution1 including its branches and

agencies. %aid institution shall specif, the nature of paper deemed acceptable for rediscount1 as well as the rediscount rate to be charged b, an, of these institutionsH 4ffer other banking services as provided in %ection =2 of $epublic Act 'o. ++=1 as amendedH and 57tend financial assistance to private and public emplo,ees in accordance with the provisions of %ection ) of $epublic Act 'o. +==01 as amended. Cith written permission of the 8onetar, Board of the Central Bank1 an, rural bank ma, act as trustee over estates or properties of farmers and merchants. 'othing in this section shall be construe as precluding a rural bank from performing with prior approval of the 8onetar, Board1 all the services authori?ed for savings and mortgage banks1 or for commercial bank1 under $epublic Act 'o. ++=1 as amended1 or from operating under an e7panded banking authorit, as provided in %ection 21"B of the same Act. %ec. 1+. %ub<ect to such guidelines as ma, be established b, the 8onetar, Board1 rural banks ma, invest in eAuities of allied undertakings is hereinafter enumeratedD &rovided1 ThatD a! the total investment in eAuities shall not e7ceed twent,"five percent 2)M! of the worth of the rural bankH b! the eAuit, investment in an, single enterprise shall be limited to fifteen percent 1)M! of the net worth of the rural bankH and c! the eAuit, investment holding in that enterpriseD &rovided1 further1 That eAuit, investment shall not be permitted in non"related activities. Allied undertakings shall includeD Banks1 financial institutions and non"bank financial intermediariesH Carehousing and other post"harvest facilitiesH 9ertili?er and agricultural chemical and pesticides distributionH 9arm eAuipment distributionH Trucking and transportation of agricultural productsH 8arketing of agricultural productsH .easingH and 4ther undertakings as ma, be determined b, the 8onetar, Board. %ec. 13. The .and Bank of the &hilippines1 the /evelopment Bank of the &hilippines or an, government"owned or controlled bank or financial institution shall1 within si7t, *2! da,s of certification of the 8onetar, Board1 which shall be final1 e7tend to a rural bank a loan or loans from1 time to time repa,able in ten 12! ,ears1 with concessional rates of interest1 against securit, which ma, be offered b, an, stock or stockholders of the rural bankD &rovidedD That the 8onetar, Board is convinced that the resources of the rural bank are inadeAuate to meet the legitimate credit reAuirements of the localit, wherein the rural bank is establishedH That there is a dearth of private capital in the localit,H and That it is not possible for the stockholders of the rural bank to increase the paid"up capital thereof. %ec. 1). All rural banks created and organi?ed under the provisions of this Act shall be e7empt from the pa,ment of all ta7es1 fees and charges of whatever nature and description1 e7cept the corporate income ta7 and local ta7es1 fees and charges1 for a period of five )! ,ears from the date of commencement of operations. All rural banks in operations as of the date of approval of this Act shall be e7empt from the pa,ment of all ta7es1 fees and charges of whatever nature and description1 e7cept the corporate income ta7 and local ta7es1 fees and charges1 for a period of five )! ,ears from the approval of this Act. %ec. 1*. 6n an emergenc, or when a financial crisis is imminent1 the Central Bank ma, give a loan to an, rural bank against assets of the rural bank which ma, be considered acceptable b, a concurrent vote of at least four 3! members of the 8onetar, Board. 6n normal times1 the Central Bank ma, rediscount against paper evidencing a loan granted b, a rural bank to an, of its customers which can be liAuefied within a period of three hundred si7t, +*2! da,sD &rovided1 however1 That for the purpose of implementing a nationwide program of agricultural and industrial development1 rural banks are hereb, authori?ed1 under such terms and conditions as the Central Bank shall prescribe1 to borrow1 on a medium"or long"terms basis1 funds that the Central Bank or an, other government financing institution shall borrow from the /evelopment Bank of the &hilippines or other international or foreign"lending institutions for the specific purpose of financing the abovestated agricultural and industrial program. $epa,ment of loans obtained b, the Central Bank of the &hilippines or an, other government financing institution from said foreign"lending institutions under this section shall be guaranteed b, the $epublic of the &hilippines.

%ec. 1=. /eposits of rural banks with government"owned or controlled financial institutions like the .and Bank of the &hilippines1 the /evelopment Bank of the &hilippines1 and the &hilippine 'ational Bank are e7empted from %ingle Borrower;s .imit imposed b, the #eneral Banking Act. 6n areas where there are no government banks1 rural banks ma, deposit in private banks more than the amount prescribed b, the %ingle Borrower;s .imit1 sub<ect to 8onetar, Board regulations. %ec. 10. To encourage consolidation and merges of rural banks1 if there are five )! or more rural banks within the region that merge and consolidate within three +! ,ears from the enactment of this Act1 the merged or consolidated entit, will be given the following incentives for a period of seven =! ,earsD 6ts deposits liabilities shall be sub<ected to onl, one"third 1E+! of reserves normall,1 reAuired for rural banksD 6ts reserve reAuirement can all be maintained under interest bearing government securities but kept unencumbered with government financial institutions or the Central BankH and 6t shall have unrestricted branching right within the region1 free from an, assessment or surcharges reAuired in setting up a branch but under coordination with the Central Bank which will have to assess that there are Aualified personnel1 control and procedures to operate the branch. %ec. 1(. The Central Bank of the &hilippines shall e7tend technical assistance to an, rural bank in the process of organi?ation or during the course of operations whenever it is reAuested to do so or whenever the 8onetar, Board deems it necessar, to preserves1 protect and promote the ob<ectives of this ActD &rovided1 however1 That said assistance shall be without cost or obligation on the part of the rural bank. %ec. 22. An, cit, or municipal trial court <udge in his capacit, as notar, public e7 officio shall administer the oath to or acknowledge the instruments of an, rural bank and its borrowers or mortgagors1 free from all charges1 fees and documentar, stamp ta71 collectible under e7isting laws1 relative to an, loan or transaction not e7ceeding 9ift, thousand &)21222!1 or such amount as the %ecretar, of 9inance1 upon recommendation of the 8onetar, Board ma, prescribe as ma, be necessar, to promote and e7pand the rural econom,. %ec. 21. An, $egister of /eeds shall accept from an, rural bank and its borrowers and mortgagors for registration free from1 all charges1 fees and documentar, stamp ta71 collectible under e7isting laws1 an, instruments1 whether voluntar, or involuntar,1 relating to loans or transaction e7tended b, a rural bank in an amount not e7ceeding 9ift, thousand pesos &)21222!D &rovided1 however1 That charges1 if an, shall be collectible on the amount in e7cess of 9ift, thousand pesos &)21222!H and an instruments related to assignments of several mortgages consolidated in a single deed1 if an,1 shall be devied onl, on the amount in e7cess of 9ift, thousand pesos &)21222! of the consideration in the assignment of each mortgage1 or such amount as the %ecretar, of 9inance1 upon recommendation of the 8onetar, Board1 ma, prescribe as ma, be necessar, to promote and e7pand the rural econom,. %ec. 22. An, rural bank organi?ed under this Act ma,1 pursuant to regulations promulgated for the purpose b, the 8onetar, Board1 be reAuired to contribute to the Central Bank an annual fee to help defra, the cost of maintaining the appropriate supervising within the Central Bank in an amount to be determined b, the 8onetar, Board but in no to e7ceed one"fortieth of one percent 1E32 of 1M! of its average total assets during the preceding ,ear1 as shown on its end"of"month balance sheets after deducting its cash on hand and amounts due from banks1 including the Central Bank. %ec. 2+. 5ver, individual acting as officer or emplo,ee of a rural bank and handling funds or securities amounting to 9ive thousand pesos &)1222! or more1 in an, one 1! ,ear1 shall be covered b, an adeAuate bond as determined b, the 8onetar, BoardH and the b,laws of the rural bank ma, also provide for the bonding of other emplo,ees or officers of rural banks. %ec. 23. 9or the purpose of carr,ing out the ob<ectives of this Act1 the Central Bank is authori?ed to reAuire the services and facilities of an, department or instrumentalit, of the #overnment or an, officer or emplo,ee of an, such department or government instrumentalit,. %ec. 2). $ural banks organi?ed and operated under the provisions of this Act shall acts agent of the &hilippine 'ational Bank1 the .and Bank of the &hilippines and the /evelopment Bank of the &hilippines in places where these banks have no offices1 sub<ect to accreditation guidelines.

%ec. 2*. Cithout pre<udice to an, prosecution under an, law which ma, have been violated1 a fine of not more than Ten thousand pesos &121222! or imprisonment for not less than si7 *! months but more than ten 12! ,ears1 or both1 at the discretion of the court1 shall be imposed uponD An, officer1 emplo,ee1 or agent of a rural bank who shallD 8ake false entries in an, bank report or statement thereb, affecting the financial interest of1 or causing damage to1 the bank or an, without personH or Cithout order of a court of competent <urisdiction1 disclose an, information relative to the funds or properties in the custod, of the bank belonging to private individuals1 corporations1 or an, other entit,H or Accept gifts1 fees or commission or an, other form of renumeration in connection with the approval of a loan from said bankH or 4vervalue or aid in overvaluing an, securit, for the purpose of influencing in an, wa, the action of the bank on an, loanH or Appear and sign as guarantor1 indorser1 or suret, for loans grantedH or Fiolate an, of the provisions of this Act. An, applicant for a loan from1 or borrower of a rural bank who shallD 8isuse1 misappl,1 or divert the proceeds of the loan obtained b, him from its declared purposeH or 9raudulentl, overvalue propert, offered as securit, for a loan from said bankH or #ive out or furnish or willfull mispresentation of materials facts for the purpose of obtaining1 renewing1 or increasing a loan or e7tending the period thereofH or Attempt to defraud the said bank in the event of court action to recover a loanH or 4ffer an, officer1 emplo,ee or agent of a rural bank as a gift1 fee1 commission or other form of compensation in order to influence such bank personnel into approving a loan applicationH or /ispose or encumber the propert, or the crops offered as securit, for the loan. An, e7aminer1 or officer or emplo,ee of the Central Bank of the &hilippines or an, department1 bureau1 office1 branch or agenc, of the #overnment who is assigned to e7amine1 supervise1 assist or render technical service to rural banks and who has shall connive or aid in the commission of the same. %ec. 2=. An, municipal trial court <udge or register of deeds who shall demand or accept1 directl, or indirectl,1 an, gift1 fee1 commission or other form of compensation in connection with the service1 or shall arbitraril, or without reasonable cause dela, the acknowledgment or administration of oath or the registration of documents reAuired to be performed b, said <udge as provided in %ection 22 and b, said register of deeds as provided in %ection 21 of this Act1 shall be punished b, a fine of not more than 4ne thousand pesos &11222! or b, imprisonment for not more than one 1! ,ear1 or both1 at the discretion of the court. %ec. 20. An, bank not organi?ed under this Act and an, person1 association or corporation doing the business of banking1 not authori?ed under this Act which use the words B$ural BankB as part of the name or title of such bank or of such person1 association1 or corporation1 shall be punished b, a fine of not less than 9ift, pesos &)2! for each da, during which said words are so used. %ec. 2(. The 8onetar, Board of the Central Bank submit a report to the Congress of the &hilippines as of the end of each calendar ,ear of all the rules and regulations promulgated b, it in accordance with the provisions of this Act1 as well as its other actuations in connection with rural banks1 together with an e7planation of its reasons therefor. %ec. +2. 6f an, provision or section of this Act or the application thereof to an, person or circumstances is held invalid1 the other provisions or sections of this Act1 and the application of such provision or section to other persons or circumstances1 shall not be affected thereb,.

%ec. +1. $epublic Act 'o. =22 as amended1 is hereb, repealedD The provisions of $epublic Act 'o. 2*)1 as amended1 and $epublic Act 'o. ++=1 as amended1 insofar as the, are applicable and not in conflict with an, provision of this Act1 are hereb, made a part of this Act. %ec. +2. This Act shall take effect upon its approval.

Coo/er$ti"e B$n2% 'oo-era,i)e 'o2e (RA No. 4938

A' ACT T4 4$/A6' A C44&5$AT6F5 C4/5 49 T@5 &@6.6&&6'5% 8arch 121 1((2 A' ACT T4 4$/A6' A C44&5$AT6F5 C4/5 49 T@5 &@6.6&&6'5%. C@A&T5$ 6 #5'5$A. C4'C5&T% A'/ &$6'C6&.5% Art. 1. Title. This Act shall be known as the BCooperative Code of the &hilippines.B Art. 2. /eclaration of &olic,. 6t is the declared polic, of the %tate to foster the creation and growth of cooperatives as a practical vehicle for promoting self"reliance and harnessing people power towards the attainment of economic development and social <ustice. The state shall encourage the private sector to undertake the actual formation and organi?ation of cooperatives and shall create an atmosphere that is conducive to the growth and development of these cooperatives. Toward this end1 the #overnment and all its branches1 subdivisions1 instrumentalities and agencies shall ensure the provision of technical guidance1 financial assistance and other services to enable said cooperatives to develop into viable and responsive economic enterprises and thereb, bring about a strong cooperative movement that is free from an, conditions that might infringe upon the autonom, or organi?ational integrit, of cooperatives. 9urther1 the %tate recogni?es the principle of subsidiarit, under which the cooperative sector will initiate and regulate within its own ranks the promotion and organi?ation1 training1 and research1 audit and support services relating to cooperatives with government assistance where necessar,. Art. +. #eneral Concepts. A cooperative is a dul, registered association of persons1 with a common bond of interest1 who have voluntaril, <oined together to achieve a lawful common social or economic end1 making eAuitable contributions to the capital reAuired and accepting a fair share of the risks and benefits of the undertaking in accordance with universall, accepted cooperative principles. Art. 3. Cooperative &rinciples. 5ver, cooperative shall conduct its affairs in accordance with 9ilipino culture and e7perience and the universall, accepted principles of cooperation which include the followingD 4pen and Foluntar, 8embership 8embership in a cooperative shall be voluntar, and available to all individuals regardless of their social1 political1 racial or religious background or beliefs. /emocratic Control Cooperatives are democratic organi?ations. Their affairs shall be administered b, persons elected or appointed in a manner agreed upon the members. 8embers of primar, cooperatives shall have eAual voting rights on a one"member"one"vote principleD &rovided1 however1 That1 in the case of secondar, and tertiar, cooperatives1 the provisions of Article += of this Code shall appl,. .imited 6nterest in Capital %hare capital shall receive a strictl, limited rate of interest. /ivision of 'et %urplus 'et surplus arising out of the operations of a cooperative belongs to its members and shall be eAuitabl, distributed for cooperative development1 common services1 indivisible reserve fund1 and for limited interest on capital andEor patronage refund in the manner provided in this Code and in the articles of cooperation and b,laws. Cooperative 5ducation All cooperatives shall make provision for the education of their members1 officers and emplo,ees and of the general public based on the principles of cooperation. Cooperation Among Cooperatives All cooperatives in order to best serve the interest of their members and communities1 shall activel, cooperate with other cooperatives at local1 national1 and international levels. Art. ). /efinition of Terms. The following terms shall meanD 8ember includes a person either natural or <uridical who1 adhering to the principles set forth in this Code and in the articles of cooperation1 has been admitted b, the cooperative as memberH

#eneral Assembl, shall mean the full membership of the cooperative dul, assembled for the purpose of e7ercising all the rights and performing all the obligations pertaining to cooperatives1 as provided b, this Code1 its articles of cooperation and b,lawsH Board of /irectors shall mean that bod, entrusted with the management of the affairs of the cooperative under its articles of cooperation and b,lawsH Committee shall refer to an, bod, entrusted with specific functions and responsibilities under the b,laws or resolution of the general assembl, or the board of directorsH Articles of Cooperation means the articles of cooperation registered under this Code and includes a registered amendment thereofH B,laws means the b,laws registered under this Code and includes an, registered amendment thereofH $egistration means the operative act granting <uridical personalit, to a proposed cooperative and is evidenced b, a certificate of registrationH Cooperative /evelopment Authorit, means the government agenc, in charge of the registration and regulation of cooperatives as such1 hereinafter referred to as the Authorit,H and :niversall, Accepted &rinciples means that bod, of cooperative principles adhered to worldwide b, cooperatives in other <urisdictions. C@A&T5$ 66 4$#A'6GAT64' A'/ $5#6%T$AT64' Art. *. 4rgani?ation of Cooperatives. A cooperative ma, be organi?ed and registered b, at least fifteen 1)! persons for an, or all of the following purposesD To encourage thrift and savings mobili?ation among the membersH To generate funds and e7tend credit to the members for productive and provident purposesH To encourage among members s,stematic production and marketingH To provide goods and services and other reAuirements to the membersH To develop e7pertise and skills among its membersH To acAuire lands and provide housing benefits for the membersH To insure against losses of the membersH To promote and advance the economic1 social and educational status of the membersH To establish1 own1 lease or operate cooperative banks1 cooperative wholesale and retail comple7es1 insurance and agriculturalEindustrial processing enterprises1 and public marketsH To coordinate and facilitate the activities of cooperativesH and To undertake an, and all other activities for the effective and efficient implementation of the provisions of this Code. Art. =. 4b<ectives of Cooperative. The primar, ob<ective of ever, cooperative is to provide goods and services to its members and thus enable them to attain increased income and savings1 investments1 productivit,1 and purchasing power and promote among them eAuitable distribution of net surplus through ma7imum utili?ation of economies of scale1 cost"sharing and risk"sharing without1 however1 conducting the affairs of the cooperative for eleemos,nar, or charitable purposes. A cooperative shall provide ma7imum economic benefits to its members1 teach them efficient wa,s of doing things in a cooperative manner1 and propagate cooperative practices and new ideas in business and management and allow the lower income groups to increase their ownership in the wealth of this nation. Art. 0. Cooperatives 'ot in $estraint of Trade. 'o cooperative or method or act thereof which complies with this Code shall be deemed a conspirac, or combination in restraint of trade or an illegal monopol,1 or an attempt to lessen competition or fi7 prices arbitraril, in violation of an, of the laws of the &hilippines. Art. (. Cooperative &owers and Capacities. A cooperative registered under this Code shall have the following powers and capacitiesD To sue and be sued in its cooperative nameH 4f successionH To amend its articles of cooperation in accordance with the provisions of this CodeH

To adopt b,laws not contrar, to law1 morals or public polic,1 and to amend and repeal the same in accordance with this CodeH To purchase1 receive1 take or grant1 hold1 conve,1 sell1 lease1 pledge1 mortgage1 and otherwise deal with such real and personal propert, as the transaction of the lawful affairs of the cooperative ma, reasonabl, and necessaril, reAuire1 sub<ect to the limitations prescribed b, law and the ConstitutionD To enter into division1 merger or consolidation1 as provided in this CodeH To <oin federations or unions1 as provided in this CodeH To accept and receive grants1 donations and assistance from foreign and domestic sourcesH and To e7ercise such other powers granted b, this Code or necessar, to carr, out its purpose or purposes as stated in its articles of cooperation. Art. 12. 4rgani?ing a &rimar, Cooperative. 9ifteen 1)! or more natural persons1 who are citi?ens of the &hilippines1 having a common bond of interest and are residing or working in the intended area of operation ma, organi?e a cooperative under this Code. Art. 11. 5conomic %urve,. 5ver, group of individuals or cooperatives intending to form a cooperative under this Code shall submit to the Cooperative /evelopment Authorit, a general statement describing the structure1 purposes and economic feasibilit, of the proposed cooperative1 indicating therein the area of operation1 the si?e of membership and other pertinent data. Art. 12. .iabilit,. A cooperative shall be registered under this Code1 with limited liabilit,. Art. 1+. Term. A cooperative shall e7ist for a period not e7ceeding fift, )2! ,ears from the date of registration unless sooner dissolved or unless said period is e7tended. The cooperative term1 as originall, stated in the articles of cooperation1 ma, be e7tended for periods not e7ceeding fift, )2! ,ears in an, single instance b, an amendment of the articles of cooperation1 in accordance with this CodeD &rovided1 That no e7tension can be made earlier than five )! ,ears prior to the original or subseAuent e7pir, dateEdates unless there are <ustifiable reasons for an earlier e7tension as ma, be determined b, the Cooperative /evelopment Authorit,. Art. 13. Articles of Cooperation. 1! All operatives appl,ing for registration shall file with the Cooperative /evelopment Authorit, the articles of cooperation which shall be signed b, each of the organi?ers and acknowledged b, them if natural persons1 and b, the presidents or secretaries1 if <uridical persons1 before a notar, public. 2! The articles of cooperation shall set forthD The name of the cooperative which shall include the word BcooperativeBH The purpose or purposes and scope of business for which the cooperative is to be registeredH c ! The term of e7istence of the cooperativeH d! The area of operation and the postal address of its principal officeH e! The names1 nationalit,1 and the postal addresses of the registrantsH f! The common bond of membershipH g! The list of names of the directors who shall manage the cooperativeH and h! The amount of its share capital1 the names and residences of its contributors and a statement of whether the cooperative is primar,1 secondar, or tertiar, in accordance with Article 2+ hereof. +! The articles of cooperation ma, also contain an, other provisions not inconsistent with this Code or an, related law. 3! 9our 3! copies each of the proposed articles of cooperation1 b,laws1 and the general statement reAuired under Article 11 of this Code shall be submitted to the Cooperative /evelopment Authorit,. )! 'o cooperative shall be registered unless the articles of cooperation is accompanied with the bonds of the accountable officers and a sworn statement of the treasurer elected b, the subscribers showing that at least twent,"five per centum 2)M! of the authori?ed share capital has been subscribed and at least twent,"five per centum 2)M! of the total subscription has been paidD &rovided1 That in no case shall the paid"up share capital shall be less than Two thousand pesos &21222.22!. Art. 1). B,laws. 1! 5ach cooperative to be registered under this Code shall adopt b,laws not inconsistent with the provisions of this Code. The b,laws shall be filed at the same time as the articles of cooperation. 2! The b,laws of each cooperative shall provideD

The Aualifications for admission to membership and the pa,ment to be made or interest to be acAuired as a condition for the e7ercise of the right of membershipH The rights and liabilities of membershipH c ! The circumstances under which membership is acAuired1 maintained and lostH d! The procedure to be followed in cases of termination of membershipH

e! The conditions under which the transfer of a share or interest of the members shall be permittedH f! The rules and procedures on the agenda1 time1 place and manner of calling1 convening1 conducting meetings1 Auorum reAuirements1 voting s,stems1 and other matters relative to the business affairs of the general assembl,1 board of directors1 and committeesH g! The general conduct of the affairs of the cooperative1 including the powers and duties of the general assembl,1 the board of directors1 committees and the officers1 and their Aualifications and disAualificationsH h! The manner in which the capital ma, be raised and the purposes for which it can be utili?edH The mode of custod, and of investment of net surplusH The accounting and auditing s,stemsH The manner of loaning and borrowing1 limitations thereofH The method of distribution of net surplusH The manner of adopting1 amending1 repealing1 and abrogating b,lawsH A conciliation or mediation mechanism for the amicable settlement of disputes among members1 directors1 officers and committee members of the cooperativeH and 4ther matters incident to the purposes and activities of the cooperative. Art. 1*. $egistration. A cooperative formed or organi?ed under this Code reAuires <uridical personalit, from the date the Cooperative /evelopment Authorit, issues a certificate of registration under its official seal. All applications for registration shall be finall, disposed of b, the Cooperative /evelopment Authorit, within a period of thirt, +2! da,s from the filing thereof1 otherwise the application is deemed approved unless the cause of the dela, is attributable to the applicantD &rovided1 That1 in case of a denial of the application for registration1 an appeal shall lie with the 4ffice of the &resident within ninet, (2! da,s from receipt of notice of such denialD &rovided1 further1 That failure of the 4ffice of the &resident to act on the appeal within ninet, (2! da,s from the filing thereof shall mean approval of said application. Art. 1=. Certificate of $egistration. A certificate of registration issued b, the Cooperative /evelopment Authorit, under its official seal shall be conclusive evidence that the cooperative therein mentioned is dul, registered unless it is proved that the registration thereof has been canceled. Art. 10. Amendment of Articles of Cooperation and B,laws. :nless otherwise prescribed b, this Code and for legitimate purposes1 an, provision or matter stated in the articles of cooperation ma, be amended b, two"thirds 2E+! vote of all the members with voting rights1 without pre<udice to the right of the dissenting members to e7ercise their right to withdraw their membership under Articles +1 and +2. The original and amended articles together shall contain all provisions reAuired b, law to be set out in the articles of cooperation. Amendments shall be indicated b, underscoring or otherwise appropriatel, indicating the change or changes made and a cop, thereof dul, certified under oath b, the cooperative secretar, and a ma<orit, of the directors stating the fact that said amendment or amendments have been dul, approved b, the reAuired vote of the members. All amendments to the articles of cooperation shall be submitted to the Cooperative /evelopment Authorit,. The amendments shall take effect upon its approval b, the Cooperative /evelopment Authorit, or within thirt, +2! da,s from the date of filing thereof if not acted upon b, the Authorit, for a cause not attributable to the cooperative. Art. 1(. Contracts 57ecuted &rior to $egistration and 5ffects Thereof. Contracts e7ecuted between private persons and cooperatives prior to the registration of the cooperative shall remain valid and

binding between the parties and upon registration of the cooperative. A formal written contract shall be adopted and made in the cooperative;s name or on its behalf prior to its registration. Art. 22. /ivision of Cooperatives. An, registered cooperative ma,1 b, a resolution approved b, a vote of two"thirds 2E+! of the members eligible to vote at a general assembl, meeting1 resolve to divide itself into two 2! or more cooperatives. The procedure for such division shall be prescribed in the regulations of the Cooperative /evelopment Authorit,. The new cooperatives shall become legall, established upon registration with the Authorit,D &rovided1 That all the reAuirements set forth in this Code have been complied with b, the new cooperatives D &rovided1 further1 That no division of a cooperative in fraud of creditors shall be valid. Art. 21. 8erger and Consolidation of Cooperatives. Two 2! or more cooperatives ma, merge into a single cooperative which shall be one of the constituent cooperatives or ma, consolidate into a new single cooperative which shall be the consolidated cooperative. 'o merger or consolidation shall be valid unless approved b, two"thirds 2E+! of all the members eligible to vote of each of the constituent cooperatives at separate general assembl, meetings. The dissenting members shall have the right to e7ercise their right to withdraw their membership pursuant to Articles +1 and +2. The Cooperative /evelopment Authorit, shall issue the guidelines governing the procedure of merger or consolidation of cooperatives. 6n an, case1 the merger or consolidation shall be effective upon the issuance of the certificate of merger or consolidation b, the Cooperative /evelopment Authorit,. Art. 22. 5ffects of 8erger and Consolidation. The merger or consolidation of cooperatives shall have the following effectsD The constituent cooperatives shall become a single cooperative which1 in case of merger1 shall be the surviving cooperative1 and1 in case of consolidation1 shall be the consolidated cooperativeH The separate e7istence of the constituent cooperatives shall cease1 e7cept that of the surviving or the consolidated cooperativeH The surviving or the consolidated cooperative shall possess all the rights1 privileges1 immunities and powers and shall be sub<ect to all the duties and liabilities of a cooperative organi?ed under this CodeH The surviving or the consolidated cooperative shall possess all the assets1 rights1 privileges1 immunities and franchises of each of the constituent cooperativesH and The surviving or the consolidated cooperative shall be responsible for all the liabilities and obligations of each of the constituent cooperatives in the same manner as if such surviving or consolidated cooperative had itself incurred such liabilities or obligations. An, claim1 action or proceeding pending b, or against an, such constituent cooperatives ma, be prosecuted b, or against the surviving or consolidated cooperative1 as the case ma, be. 'either the rights of creditors nor an, lien upon the propert, of an, of such constituent cooperatives shall be impaired b, such merger or consolidation. Art. 2+. T,pes and Categories of Cooperatives. T,pes of Cooperatives Cooperative ma, fall under an, of the following t,pesD Credit Cooperative is one which promotes thrift among its members and creates funds in order to grant loans for productive and provident purposesH Consumers Cooperative is one the primar, purpose of which is to procure and distribute commodities to members and nonmembersH c ! &roducers Cooperative is one that undertakes <oint production whether agricultural or industrialH 8arketing Cooperative is one which engages in the suppl, of production inputs to members and markets their productsH %ervice Cooperative is one which engages in medical and dental care1 hospitali?ation1 transportation1 insurance1 housing1 labor1 electric light and power1 communication and other servicesH and 8ultipurpose Cooperative is one which combines two 2! or more of the business activities of these different t,pes of cooperatives. Categories of Cooperatives Cooperatives shall be categori?ed according to membership and territorial considerations as followsD

6n terms of membership1 cooperative shall be categori?ed intoD &rimar, The members of which are natural personsH %econdar, The members of which are primaries1 and Tertiar, The members of which are secondaries upward to one 1! or more ape7 organi?ations. Those cooperatives the members of which are cooperatives shall be known as federations or unions1 as the case ma, beH and 6n terms of territor,1 cooperatives shall be categori?ed according to areas of operations which ma, or ma, not coincide with the political subdivisions of the countr,. Art. 23. 9ederation of Cooperatives. A federation of cooperatives whose members are primar, andEor secondar, cooperatives with single line or multipurpose business activities ma, be registered under this Code for an, or all of the following purposesD &rimar, &urpose To carr, on an, cooperative enterprise authori?ed under Article *H %econdar, &urpose To carr, on1 encourage1 and assist educational and advisor, work relating to its member cooperativesH To render services designed to encourage simplicit,1 efficienc,1 and econom, in the conduct of the business of its member cooperatives and to facilitate the implementation of their bookkeeping1 accounting1 and other s,stems and proceduresH To print1 publish1 and circulate an, newspaper or other publication in the interest of its member cooperatives and enterprisesH To coordinate and facilitate the activities of its member cooperativesH To enter into <oint ventures with national or international cooperatives of other countries in the manufacture and sale of products and or services in the &hilippines and abroadH and To perform such other functions as ma, be necessar, to attain its ob<ectives. A federation of cooperatives ma, be registered b, carr,ing out the formalities for registration of a cooperative. 2! $egistered cooperatives ma, organi?e a federation at the provincial1 cit,1 regional1 and national levels according to the t,pe of business carried on. Art. 2). Cooperative :nions. $egistered cooperatives and federations at the appropriate levels ma, organi?e or <oin cooperative unions to represent the interest and welfare of all t,pes of cooperatives at the provincial1 cit,1 regional1 and national levels. Cooperative unions ma, have the following purposesD To represent its member organi?ationsH To acAuire1 anal,?e1 and disseminate economic1 statistical1 and other information relating to its members and to all t,pes of cooperatives within its area of operationH c ! To sponsor studies in the economic1 legal1 financial1 social and other phases of cooperation1 and publish the results thereofH To promote the knowledge of cooperative principles and practicesH To develop the cooperative movement in their respective <urisdictionsH To advise the appropriate authorities on all Auestions relating to cooperativesH To raise funds through membership fees1 dues and contributions1 donations1 and subsidies from local and foreign sources whether private or governmentH and

To do and perform such other activities as ma, be necessar, to attain the foregoing ob<ectives. Cooperative unions ma, assist the national and local governments in the latter;s development activities in their respective <urisdictions. C@A&T5$ 666 858B5$%@6& Art. 2*. Cho 8a, Be 8embers of Cooperatives. An, natural person1 who is a citi?en of the &hilippines1 a cooperative1 or nonprofit organi?ation with <uridical personalit, shall be eligible for membership in a cooperative if the applicant meets the Aualifications prescribed in the b,lawsD &rovided1 That onl, natural persons ma, be admitted as members of a primar, cooperative. Art. 2=. Kinds of 8embership. A cooperative ma, have two 2! kinds of members1 to witD 1! regular members and 2! associate members. A regular member is one who is entitled to all the rights and privileges of membership. An associate member is one who has no right to vote nor be voted upon and shall be entitled onl, to such rights and privileges as the b,laws ma, provide. A cooperative organi?ed b, minors shall be considered a laborator, cooperative and must be affiliated with a registered cooperative. A laborator, cooperative shall be governed b, special guidelines to be promulgated b, the Cooperative /evelopment Authorit,. Art. 20. #overnment 4fficers and 5mplo,ees. An, officer or emplo,ee of the Cooperative /evelopment Authorit, shall be disAualified to be elected or appointed to an, position in a cooperativeH 2! 5lective officials of the #overnment1 e7cept baranga, officials1 shall be ineligible to become officers and directors of cooperativesH and +! An, government emplo,ee ma,1 in the discharge of his duties as member in the cooperative1 be allowed b, the head of office concerned to use official time for attendance at the general assembl,1 board and committee meetings of cooperatives as well as cooperative seminars1 conferences1 workshops1 technical meetings1 and training courses locall, or abroadD &rovided1 That the operations of the office concerned are not adversel, affected. Art. 2(. Application. An applicant for membership shall be deemed a member after approval of his membership b, board of directors and shall e7ercise the rights of member after having made such pa,ments to the cooperative in respect to membership or acAuired interest in the cooperative as ma, be prescribed in the b,laws. 6n case membership is refused or denied b, the board of directors1 an appeal ma, be made to the general assembl, and the latter;s decision shall be final. Art. +2. .iabilit, of 8embers. A member shall be liable for the debts of the cooperative to the e7tent of his contribution to the share capital of the cooperative. Art. +1. Termination of 8embership. A member of a cooperative ma,1 for an, reason1 withdraw his membership from the cooperative b, giving a si7t, *2! da, notice to the board of directors. The withdrawing member shall be entitled to a refund of his share capital contribution and all other interests in the cooperativeD &rovided1 That such refund shall not be made if upon such pa,ment the value of the assets of the cooperative would be less than the aggregate amount of its debts and liabilities e7clusive of his share capital contribution. The death1 insanit,1 insolvenc, or dissolution of a member shall be considered an automatic termination of membership. A member ma, be terminated b, a vote of the ma<orit, of all the members of the board of directors for an, of the following causesD Chen a member has not patroni?ed the services of the cooperative for an unreasonable period of time as ma, be fi7ed b, the board of directorsH Chen a member has continuousl, failed to compl, with his obligationsH c ! Chen a member has acted in violation of the b,laws and the rules of the cooperativeH and 9or an, act or omission in<urious or pre<udicial to the interest or the welfare of the cooperative. A member whose membership the board of directors ma, wish to terminate shall be informed of such intended action in writing and shall be given an opportunit, to be heard before the said board makes

its decision. The decision of the board shall be in writing and shall be communicated in person or b, registered mail to the member and shall be appealable1 within thirt, +2! da,s after the decision is promulgated1 to the general assembl, whose decision therein1 whether in a general or special session1 shall be final. &ending a decision b, the general assembl,1 the membership remains in force. Art. +2. $efund of 6nterests. All sums computed in accordance with the b,laws to be due from a cooperative to a former member shall be paid to him either b, the cooperative or b, the approved transferee1 as the case ma, be1 in accordance with this Code. C@A&T5$ 6F A/86'6%T$AT64' Art. ++. Composition of the #eneral Assembl,. The general assembl, shall be composed of such members who are entitled to vote under the articles of cooperation and b,laws of the cooperative. Art. +3. &owers of the #eneral Assembl,. The general assembl, shall be the highest polic,"making bod, of the cooperative and shall e7ercise such powers as are stated in this Code1 in the articles of cooperation and in the b,laws of the cooperative. The general assembl, shall have the following e7clusive powers which cannot be delegatedD To determine and approve amendments to the articles of cooperation and b,lawsH To elect or appoint the members of the board of directors1 and to remove them for causeH To approve developmental plans of the cooperativeH and %uch other matters reAuiring a two"thirds 2E+! vote of all the members of the general assembl,1 as provided in this Code. Art. +). 8eetings.

A regular meeting shall be held annuall, b, the general assembl, on a date fi7ed in the b,laws1 or if not so fi7ed1 on an, date within ninet, (2! da,s after the close of each fiscal ,earD &rovided1 That written notice of regular meetings shall be sent to all members of record at their official addresses at least two 2! weeks prior to the meeting1 unless a different period is reAuired in the b,laws. Chenever necessar,1 a special meeting of the general assembl, ma, be called at an, time b, a ma<orit, vote of the board of directors or in the cases specified in the b,lawsD &rovided1 That at least one 1! week written notice shall be sent to all members. @owever1 a special meeting shall be called b, the board of directors after compliance with the reAuired notice within one 1! month after receipt of a reAuest in writing from at least ten per centum 12M! of the total members to transact specific business covered b, the call. 6f the board fails to call a regular or a special meeting within the given period1 the Cooperative /evelopment Authorit,1 upon petition of ten per centum 12M! of all the members of the cooperative1 and for good cause shown1 ma, issue an order to the petitioners directing them to call a meeting of the general assembl, b, giving proper notice reAuired b, this Code or b, the b,laws. +! 6n the case of a newl, approved cooperative1 a special general assembl, shall be called within ninet, (2! da,s from such approval. 3! The Authorit, ma, call a special meeting of the cooperativeD

9or the purpose of reporting to the members the result of an, audit1 e7amination1 or other investigation of the cooperative affairs ordered or made b, himH or Chen the cooperative fails to hold an annual general assembl, during the period reAuired for the purpose of enabling the members to secure an, information regarding the affairs of the cooperative and benefits that the, are entitled to receive pursuant to this Code. )! 'otice of an, meeting ma, be waived1 e7pressl, or impliedl,1 b, an, member.

Art. +*. >uorum. :nless otherwise provided in the b,laws1 a Auorum shall consist of twent,"five per centum 2)M! of all the members entitled to vote. Art. +=. Foting %,stem.

5ach member of a primar, cooperative shall have onl, one 1! vote. A secondar, or tertiar, cooperative shall have voting rights as delegate of members"cooperatives1 but such cooperatives shall have onl, five )! votes. The votes cast b, the delegates shall be deemed as votes cast b, the members thereof. 'o voting agreement or other device to evade the one"member"one"vote provision e7cept as provided under subsection 1! hereof shall be valid. 'o member of a primar, cooperative shall be permitted to vote b, pro7, unles s provided for specificall, in the b,laws of the cooperative. @owever1 the b,laws of a cooperative other than a primar, ma, provide for voting b, pro7,. Foting b, pro7, means allowing a delegate of a cooperative to represent or vote in behalf of another delegate of the same cooperative. Art. +0. Composition of the Board of /irectors. The conduct and management of the affairs of a cooperative shall be vested in a board of directors which shall be composed of not less than five )! nor more than fifteen 1)! members elected b, the general assembl, for a term fi7ed in the b,laws but not e7ceeding a term of two 2! ,ears and shall hold office until their successors are dul, elected and Aualified1 or until dul, removed. @owever1 no director shall serve for more than three +! consecutive terms. Art. +(. &owers of the Board of /irectors. The board of directors shall direct and supervise the business1 manage the propert, of the cooperative and ma,1 b, resolution1 e7ercise all such powers of the cooperative as are not reserved for the general assembl, under this Code and the b,laws. Art. 32. /irectors.

An, member of a cooperative who1 under the b,laws of the cooperative1 has the right to vote and who possesses all the Aualifications and none of the disAualifications provided in the laws or the b,laws shall be eligible for election as director. The cooperative ma,1 b, resolution of its board of directors1 admit as director1 or committee member one appointed b, an, financing institution from which the cooperative received financial assistance solel, to provide technical knowledge not available within its membership. %uch director or committee member need not be a member of the cooperative and shall have no powers1 rights nor responsibilities e7cept to provide technical assistance as reAuired b, the cooperative. Art. 31. 8eeting of the Board1 >uorum.

$egular meetings of the board of directors of ever, cooperative shall be held monthl,1 unless the b,laws provide otherwise. %pecial meetings of the board of directors ma, be held at an, time upon the call of the &resident or as provided in the b,laws. A ma<orit, of the members of the board shall constitute a Auorum for the conduct of business1 unless the b,laws provide otherwise. /irectors cannot attend or vote b, pro7, at board meetings. Art. 32. Facanc, in the Board of /irectors. An, vacanc, in the board of directors1 other than b, e7piration of term1 ma, be filled b, the vote of at least a ma<orit, of the remaining directors1 if still constituting a AuorumH otherwise1 the vacanc, must be filled b, the general assembl, in a regular or special meeting called for the purpose. A director so elected to fill a vacanc, shall be elected onl, for the une7pired term of his predecessor in office. Art. 3+. 4fficers of the Cooperative. The board of directors shall elect from among themselves onl, the chairman and vice"chairman1 and elect or appoint other officers of the cooperative from outside of the board in accordance with their b,laws. All officers shall serve during good behavior and shall not be removed e7cept for cause after due hearing. .oss of confidence shall not be a valid ground for removal unless evidenced b, acts or omission causing loss of confidence in the honest, and integrit, of such officer. 'o two 2! or more persons with relationships up to the third civil degree of consanguinit, or affinit, shall serve as elective or appointive officers in the same board. Art. 33. Committees of Cooperatives.

The b,laws ma, create an e7ecutive committee to be appointed b, the board of directors with such powers and duties as ma, be delegated to it in the b,laws or b, a ma<orit, vote of all the members of the board of; directors. The b,laws shall provide for the creation of an audit committee and such other committees as ma, be necessar, for the proper conduct of the affairs of the cooperative. :nless otherwise provided in the b,laws1 the board1 in case of vacanc, in said committees1 ma, cause an election to fill the vacanc, or appoint a person to fill the same sub<ect to the provision that the person elected or appointed shall serve onl, for the une7pired portion of the term. Art. 3). 9unctions and $esponsibilities of /irectors1 4fficers and Committee 8embers. The functions and responsibilities of the directors1 officers and committee members shall be as prescribed in detail in the b,laws of a cooperative. Art. 3*. .iabilit, of /irectors1 4fficers and Committee 8embers. /irectors1 officers and committee members1 who willfull, and knowingl, vote for or assent to patentl, unlawful acts or who are guilt, of gross negligence or bad faith in directing the affairs of the cooperative or acAuire an, personal or pecuniar, interest in conflict with their dut, as such directors1 officers or committee members shall be liable <ointl, and severall, for all damages or profits resulting therefrom to the cooperative1 members and other persons. Chen a director1 officer or committee member attempts to acAuire of acAuires1 in violation of his dut,1 an, interest or eAuit, adverse to the cooperative in respect to an, matter which has been reposed in him in confidence1 he shall1 as a trustee for the cooperative1 be liable for damages and for double the profits which otherwise would have accrued to the cooperative. Art. 3=. Compensation.

6n the absence of an, provision in the b,laws fi7ing their compensation1 the directors shall not receive an, compensation e7cept for reasonable per diemsD &rovided1 That an, compensation other than per diems ma, be granted to directors b, a ma<orit, vote of the members with voting rights at a regular or special general assembl, meeting specificall, called for the purposeD &rovides1 further1 That no additional compensation other than per diems shall be paid during the first ,ear of e7istence of an, cooperative. The compensation of officers of the cooperative as well as the members of the committees created pursuant to this Code or its b,laws ma, be fi7ed in the b,laws. :nless alread, fi7ed in the b,laws1 the compensation of all other emplo,ees shall be determined b, the board of directors. Art. 30. /ealings of /irectors1 4fficers or Committee 8embers. A contract of the cooperative with one 1! or more of its directors1 officers1 committee members is voidable1 at the option of such cooperative1 unless all the following conditions are presentD That the presence of such director in the board meeting in which the contract was approved was not necessar, to constitute a Auorum for such meetingH That the vote of such director was not necessar, for the approval of the contractH That the contract is fair and reasonable under the circumstancesH and That in the case of an officer or committee member1 the contract with the officer or committee member has been previousl, authori?ed b, the general assembl, or b, the board of directors. Chere an, of the first two conditions set forth in the preceding paragraph is absent1 in the case of a contract with a director1 such contract ma, be ratified b, a two thirds 2E+! vote of all the members with voting rights in a meeting called for the purposeD &rovided1 That full disclosure of the adverse interest of the directors involved is made at such meeting1 and that the contract is fair and reasonable under the circumstances. Art. 3(. /islo,alt, of a /irector. A director who1 b, virtue of his office1 acAuires for himself an opportunit, which should belong to the cooperative shall be liable for damages and must account for double the profits that otherwise would have accrued to the cooperative b, refunding the same1 unless

his act has been ratified b, a two"thirds 2E+! vote of all the members with voting rights. This provision shall be applicable1 notwithstanding the fact that the director used his own funds in the venture. Art. )2. 6llegal :se of Confidential 6nformation. A director or officer1 or an associate of a director or officer1 who1 in connection with a transaction relating to shares of a cooperative or a debt obligation of a cooperative and for his benefit or advantage or that of an associate1 makes use of confidential information that1 if generall, known1 might reasonabl, be e7pected to affect materiall, the value of the share or the debt obligation1 shall be heldD .iable to compensate an, person for a direct loss suffered b, that person as a result of the transaction1 unless the information was known or reasonabl, should have been known to the person at the time of the transactionH and Accountable to the cooperative for an, direct benefit or advantage received or ,et to be received b, him or his associate1 as a result of the transaction. The cooperative shall take the necessar, steps to enforce the liabilities described in subsection a!. Art. )1. $emoval. An elective officer1 director1 or committee member ma, be removed b, a vote of two"thirds 2E+! of the voting members present and constituting a Auorum1 in a regular or special general assembl, meeting called for the purpose. The person involved shall be given an opportunit, to be heard at said assembl,. Art. )2. Address. 5ver, cooperative shall have an official postal address to which all notices and communications shall be sent. %uch address and ever, change thereof shall be registered with the Cooperative /evelopment Authorit,. Art. )+. Books to be Kept 4pen. 5ver, cooperative shall have the following open to its members and representatives of the Authorit, for inspection during reasonable office hours at its official addressD A cop, of this Code and all other laws pertaining to cooperativesH A cop, of the regulations of the Cooperative /evelopment Authorit,H c ! A cop, of the articles of cooperation and b,laws of the cooperativeH A register of membersH The books of the minutes of the meetings of the general assembl,1 board of directors and committeesH %hare books1 where applicableH 9inancial statementsH and %uch other documents as ma, be prescribed b, laws or the b,laws. 2! The chairman of the audit committee of a cooperative shall be responsible for books and records of account of the cooperative in accordance with generall, accepted accounting practices. @e shall also be responsible for the production of the same at the time of audit or inspection. +! 5ach cooperative shall maintain records of accounts such that the true and correct condition and the results of the operation of the cooperative ma, be ascertained therefrom at an, time. The financial statements1 audited according to generall, accepted auditing standards1 principles and practices1 shall be published annuall,. 3! %ub<ect to the pertinent provisions of the 'ational 6nternal $evenue Code and other laws1 a cooperative ma, dispose b, wa, of burning or other method of complete destruction an, document1 record or book pertaining to its financial and non"financial operations which are alread, more than five )! ,ears old e7cept those relating to transactions which are the sub<ect of civil1 criminal1 and administrative proceedings. An inventor, of the audited documents1 records1 and books to be disposed of shall be drawn up and certified to b, the cooperative secretar, and the chairman of the audit committee of the cooperative and presented to the board of directors which ma, thereupon approve the disposition of said records. Art. )3. Annual $eports.

5ver, cooperative shall draw up an annual report of its affairs as of the end of ever, fiscal ,ear1 and publish the same furnishing copies to all its members of record. A cop, thereof shall be filed with the Cooperative /evelopment Authorit, within si7t, *2! da,s from the end of ever, fiscal ,ear. The form and contents of the annual report shall be prescribed b, the rules of the Authorit,. 9ailure to file the

reAuired annual report shall be a ground for revocation of authorit, of the cooperative to operate as such. The fiscal ,ear of ever, cooperative shall be the calendar ,ear e7cept as ma, be otherwise provided in the b,laws. 6f an, cooperative fails to make1 publish and file the report reAuired herein1 or fails to include therein an, matter reAuired b, this Code1 the Cooperative /evelopment Authorit, shall1 within fifteen 1)! da,s from the e7piration of the prescribed period1 send such cooperative a registered notice1 directed to its official postal address stating the delinAuenc, and its conseAuences. 6f the cooperative fails to make1 publish or file a cop, of the report within thirt, +2! da,s from receipt of such notice1 an, member of the cooperative or the #overnment ma, petition the court for mandamus to compel the cooperative and its officers to make1 publish1 and file such report1 as the case ma, be1 and reAuire the cooperative or the officers at fault to pa, all the e7penses of the proceeding1 including counsel fees when the filing is made b, a member. Art. )). $egister of 8embers as &rima 9acie 5vidence. An, register or list of members or shares kept b, an, registered cooperative shall be prima facie evidence of the following particulars entered thereinD The date on which the name of an, person was entered in such register or list as memberH and The date on which an, such person ceased to be a member. Art. )*. &robative Falue of Certified Copies of 5ntries.

A cop, of an, entr, in an, book1 register or list regularl, kept in the course of business in the possession of a cooperative shall1 if dul, certified in accordance with the rules of evidence1 be admissible as evidence of the e7istence of the entr, and prima facie evidence of the matters and transactions therein recorded. 'o person or a cooperative in possession1 of the books of such cooperative shall1 in an, legal proceedings to which the cooperative is not a part,1 be compelled to produce an, of the books of the cooperative1 the contents of which can be proved and the matters1 transactions and accounts therein recorded1 unless b, order of a competent court. Art. )=. Bonding of Accountable 4fficer. 5ver, director1 officer1 and emplo,ee handling funds1 securities or propert, on behalf of an, cooperative shall e7ecute and deliver adeAuate bonds for the faithful performance of his duties and obligations. The board of directors shall determine the adeAuac, of such bonds. Art. )0. &reference of Claims.

'otwithstanding the provisions of e7isting laws1 rules and regulations to the contrar,1 but sub<ect to the prior claim of the Cooperative /evelopment Authorit,1 an, debt due a cooperative from a member shall be first lien upon an, raw materials1 production inputs1 and products producedH or an, land1 building1 facilities1 eAuipment1 goods or services acAuired and held1 b, such member through the proceeds of the loan or credit granted b, the cooperative to him for as long as the same is not full, paid. 'o propert, or interest on propert, which is sub<ect to a lien under paragraph 1! shall be sold nor conve,ed to third parties without the prior permission of the cooperative. The lien upon the propert, or interest shall continue to e7ist even after the sale or conve,ance thereof until such lien has been dul, e7tinguished. 'otwithstanding the provisions of an, law to the contrar,1 an, sale or conve,ance made in contravention of paragraph 2! hereof shall be void. Art. )(. 6nstrument for %alar, or Cage /eduction. 1! A member of a cooperative ma,1 notwithstanding the provisions of e7isting laws to the contrar,1 e7ecute an instrument in favor of the cooperative authori?ing his emplo,er to deduct from the salar, or wages pa,able to him b, the emplo,er and pa, to the cooperative such amount as ma, be specified in satisfaction of an, debt or other demand due from the member to the cooperative. 2! :pon the e7ecution of such instrument and as ma, be reAuired b, the cooperative contained in a written reAuest1 the emplo,er shall make the deduction in accordance with the agreement and remit forthwith the amount so deducted to the cooperative. The emplo,er shall make the deduction for as long as such debt or other demand or an, part of it remains unpaid b, the emplo,ee.

+! The term Bemplo,erB as used in this article shall include all private firms and the national and local governments and government"owned or controlled corporations who have under their emplo, a member of a cooperative and have agreed to carr, out the terms of the instrument mentioned in paragraphs 1! and 2! of this article. 3! The provision of this article shall also appl, to all such agreements of the nature referred to in paragraph 1! as were in force on the date of the approval of this Code. Art. *2. &rimar, .ien. 'otwithstanding the provisions of an, law to the contrar,1 a cooperative shall have a primar, lien upon the capital1 deposits or interest of a member for an, debt due to the cooperative from such a member. Art. *1. Ta7 Treatment of Cooperatives. /ul, registered cooperatives under this Code which do not transact an, business with nonmembers or the general public shall not be sub<ect to an, government ta7es or fees imposed under the internal revenue laws and other ta7 laws. Cooperatives not falling under this article shall be governed b, the succeeding section. Art. *2. Ta7 and 4ther 57emptions. Cooperatives transacting business with both members and nonmembers shall not be sub<ect to ta7 on their transactions to members. 'otwithstanding the provisions of an, law or regulation to the contrar,1 such cooperatives dealing with nonmembers shall en<o, the following ta7 e7emptionsD Cooperatives with accumulated reserves and undivided net savings of not more than Ten million pesos &1212221222.22! shall he e7empt from all national1 cit,1 provincial1 municipal or baranga, ta7es of whatever name and nature. %uch cooperatives shall be e7empt from customs duties1 advance sales or compensating ta7es on their importation of machineries1 eAuipment and spare parts used b, them and which are not available locall, as certified b, the /epartment of Trade and 6ndustr,. All ta7"free importations shall not be transferred to an, person until after five )! ,ears1 otherwise1 the cooperative and the transferee or assignee shall be solidaril, liable to pa, twice the amount of the ta7 andEor duties thereon. Cooperatives with accumulated reserves and undivided net savings of more than Ten million pesos & 1212221222.22! shall pa, the following ta7es at the full rateD 6ncome Ta7 4n the amount allocated for interest on capitalsD &rovided1 That the same ta7 is not conseAuentl, imposed on interest individuall, received b, membersH %ales Ta7 4n sales to nonmembersD &rovided1 however1 That all cooperatives1 regardless of classification1 are e7empt from the pa,ment of income and sales ta7es for a period of ten 12! ,ears. 9or cooperatives whose e7emptions were removed b, 57ecutive 4rder 'o. (+1 the ten",ear period shall be reckoned from the effectivit, date of said e7ecutive order. Cooperatives created after the approval of this Code shall be granted the same e7emptions1 the period of which shall be reckoned from the date of registration with the Authorit,D &rovided1 That at least twent,"five per centum 2)M! of the net income of the cooperatives is returned to the members in the form of interest andEor patronage refundsH All other ta7es unless otherwise provided hereinH and /onations to charitable1 research and educational institutions and reinvestment to socioeconomic pro<ects within the area of operation of the cooperative ma, be ta7 deductible. +! All cooperatives1 regardless of the amount of accumulated reserves and undivided net savings shall be e7empt from pa,ment of local ta7es and ta7es on transactions with banks and insurance companiesD &rovided1 That all sales or services rendered for nonmembers shall be sub<ect to the applicable percentage ta7es e7cept sales made b, producers1 marketing or service cooperativesD &rovided1 further1 That nothing in this article shall preclude the e7amination of the books of accounts or other accounting records of the cooperative b, dul, authori?ed internal avenue officers for internal revenue ta7 purposes onl,1 after previous authori?ation b, the Authorit,. 3! An, <udge in his capacit, as notar, public1 e7 officio1 shall render service1 free of charge1 to an, person or group of persons reAuiring either the administration of oath or the acknowledgment of articles of cooperation of a cooperative applicant for registration and instruments of loan from cooperative not e7ceeding 9ift, thousand pesos &)21222.22!.

)! An, register of deeds shall acceptH for registration free of charge1 an, instrument relative to a loan made under this Code which does not e7ceed 9ift, thousand pesos &)21222.22! or the deeds of title of an, propert, acAuired b, the cooperative or an, paper or document drawn in connection with an, action brought b, the cooperative or with an, court <udgment rendered in its favor or an, instrument relative to a bond of an, accountable officer of a cooperative for the faithful performance of his duties and obligations. *! Cooperatives shall be e7empt from the pa,ment of all court and sheriff;s fees pa,able to the &hilippine #overnment for and in connection with all actions brought under this Code1 or where such1 action is brought b, the Cooperative /evelopment Authorit, before the court1 to enforce the pa,ment of obligations contracted in favor of the cooperative. =! All cooperatives shall be e7empt from putting"up a bond for bringing an appeal against the decision of an inferior court or for seeking to set aside an, third part, claimD &rovided1 That a certification of the Authorit, showing that the net assets of the cooperative are in e7cess of the amount of the bond reAuired b, the court in similar cases shall be accepted b, the court as a sufficient bond. 0! An, securit, issued b, cooperatives shall be e7empt from the provisions of the %ecurities Act provided such securit, shall not be speculative. Art. *+. &rivileges of Cooperatives. Cooperatives registered under this Code shall1 notwithstanding the provisions of an, law to the contrar,1 be also accorded the following privilegesD Cooperatives shall en<o, the privilege of depositing their sealed cash bo7es or containers documents or an, valuable papers in the safes of the municipal or cit, treasurers and other government offices free of charge1 and the custodian of such articles shall issue a receipt acknowledging the articles received dul, witnessed b, another personH Cooperatives organi?ed among government emplo,ees1 notwithstanding an, law or regulation to the contrar,1 shall en<o, the free use of an, available space in their agenc,1 whether owned or rented b, the #overnmentH Cooperatives rendering special t,pes of services and facilities such as cold storage1 ice plant1 electricit,1 transportation1 and similar services and facilities shall secure a franchise therefor1 and such cooperatives shall open their membership to all persons Aualified in their areas of operationH 6n areas where appropriate cooperatives e7ist1 the preferential right to suppl, government institutions and agencies rice1 corn and other grains1 fish and other marine products1 meat1 eggs1 milk1 vegetables1 tobacco and other agricultural commodities produced b, their members shall be granted to the cooperatives concernedH &referential treatment in the allocation of fertili?ers and in rice distribution shall be granted to cooperatives b, the appropriate government agenciesH &referential and eAuitable treatment in the allocation or control of bottomries of commercial shipping vessels in connection with the shipment of goods and products of cooperativesH Cooperatives and their federations1 such as market vendor cooperatives1 shall have preferential rights in management of public markets andEor lease of public market facilities1 stall or spacesH Credit cooperatives andEor federations shall be entitled to loans1 credit lines1 rediscounting of their loan notes1 and other eligible papers with the /evelopment Bank of the &hilippines1 the &hilippine 'ational Bank1 the .and Bank of the &hilippines1 and other financial institutions e7cept the Central Bank of the &hilippinesH Cooperatives transacting business with the #overnment of the &hilippines or an, of its political subdivisions or an, of its agencies or instrumentalities1 including government"owned and controlled corporations shall be e7empt from preAualification bidding reAuirementsH and Cooperatives shall en<o, the privilege of being represented b, the provincial or cit, fiscal or the 4ffice of the %olicitor #eneral1 free of charge1 e7cept when the adverse part, is the $epublic of the &hilippines. C@A&T5$ F6 6'%4.F5'CJ 49 C44&5$AT6F5%

Art. *3. &roceedings :pon 6nsolvenc,. 6n case a cooperative is unable to fulfill its obligations to creditors due to insolvenc,1 such cooperative ma, appl, for such remedies as it ma, deem fit under the provisions of the 6nsolvenc, .aw Act 'o. 1()*1 as amended!. 'othing in this article1 however1 precludes creditors from seeking protection from said insolvenc, law. C@A&T5$ F66 /6%%4.:T64' 49 C44&5$AT6F5%

Art. *). Foluntar, /issolution Chere no Creditors are Affected. 6f the dissolution of a cooperative does not pre<udice the rights of an, creditor having a claim against it1 the dissolution ma, be effected b, a ma<orit, vote of the board of directors1 and b, a resolution dul, adopted b, the affirmative vote of at least two"thirds 2E+! of all the members with voting rights at a meeting to be held upon call of the directorsD &rovided1 That notice of time1 place and ob<ect of the meeting shall be published for three +! consecutive weeks in a newspaper published in the place where the principal office of said cooperative is located1 or if no newspaper is published in such place1 in a newspaper of general circulation in the &hilippinesD &rovided1 further1 That notice of such meeting is sent to each stockholder or member either b, registered mail or b, personal deliver, at least thirt, +2! da,s prior to said meeting. A cop, of the resolution authori?ing the dissolution shall be certified b, a ma<orit, of the board of directors and countersigned b, the secretar, of the cooperative. The Cooperative /evelopment Authorit, shall thereupon issue the certificate of dissolution. Art. **. Foluntar, /issolution Chere Creditors Are Affected. Chere the dissolution of a cooperative ma, pre<udice the rights of an, creditor1 the petition for dissolution shall be filed with the Cooperative /evelopment Authorit,. The petition shall be signed b, a ma<orit, of its board of directors or other officers managing its affairs1 shall be verified b, its president or secretar, or one of its directors and shall set forth all claims and demands against it and that its dissolution was resolved upon b, the affirmative vote of at least two"thirds 2E+! of all the members with voting rights1 at a meeting called for that purpose. 6f the petition is sufficient in form and substance1 the Cooperative /evelopment Authorit, shall1 b, an order reciting the purpose of the petition1 fi7 a date on or before which ob<ections thereto ma, be filed b, an, person1 which date shall not be less than thirt, +2! nor more than si7t, *2! da,s after the entr, of the order. Before such date1 a cop, of the order shall be published at least once a week for three +! consecutive weeks in a newspaper of general circulation published in the municipalit, or cit, where the principal office of the cooperative is situated1 or in the absence of such newspaper1 then in a newspaper of general circulation in the &hilippines1 and a similar cop, shall be posted for three +! consecutive weeks in three +! public places in the municipalit, or cit,. :pon five )! da,s notice1 given after the date on which the right to file ob<ections as fi7ed in the order has e7pired1 the Cooperative /evelopment Authorit, shall proceed to hear the petition and tr, an, issue made b, the ob<ections filedH and if no such ob<ection is sufficient1 and the material allegations of the petition are true1 it shall issue an order dissolving the cooperative and directing such disposition of its assets as <ustice reAuires. The order of dissolution shall set forth thereinD The assets and liabilities of the cooperativeH The claim of an, creditorH The number of membersH and The nature and e7tent of the interests of the members of the cooperative. Art. *=. 6nvoluntar, /issolution. A cooperative ma, be dissolved b, order of a competent court after due hearing on the grounds ofD violation of an, law1 regulation1 or provisions of its b,lawsH or insolvenc,. Art. *0. /issolution b, 4rder of the Authorit,. The Authorit, ma, suspend or revoke1 after due notice and hearing1 the certificate of registration of a cooperative on an, of the following groundsD @aving obtained its registration b, fraudH 57isting for an illegal purposeH Cillful violation1 despite notice b, the Authorit,1 of the provisions of this Code or its b,lawsH Cillful failure to operate on a cooperative basisH and

9ailure to meet the reAuired minimum number of members in the cooperative. Art. *(. /issolution b, 9ailure to 4rgani?e and 4perate. 6f a cooperative has not commenced business and operation within two 2! ,ears after the date shown on its certificate of registration or has not carried on business for two 2! consecutive ,ears1 the Authorit, shall send formal inAuir, to the said cooperative as to the status of its operation. 9ailure of the cooperative to promptl, provide <ustifiable cause for its failure to operate shall warrant the Authorit, to strike off its name from the register and1 for all intents and purposes1 the cooperative shall be deemed dissolved. Art. =2. Cooperative .iAuidation. 5ver, cooperative1 whose charter e7pires b, its own limitation or whose cooperative e7istence is terminated b, voluntar, dissolution or is terminated b, appropriate <udicial proceedings shall nevertheless be continued as a bod, cooperative for three +! ,ears after the time when it would have been so dissolved for the purpose of prosecuting and defending suits b, or against it and enabling it to settle and close its affairs1 to dispose of and conve, its propert, and to distribute its assets1 but not for the purpose of continuing the business for which it was established. At an, time during said three +! ,ears1 said cooperative is authori?ed and empowered to conve, all of its propert, to trustees for the benefit of members1 creditors1 and other persons in interest. 9rom and after an, such conve,ance b, the cooperative of its propert, in trust for the benefit of its members1 creditors and others in interest1 all interest which the cooperative had in the propert, terminates the legal interest vests in the trustees and the beneficial interest vests in the members1 creditors or other persons in interest. :pon the winding up of the cooperative affairs1 an, asset distributable to an, creditor or shareholder or member who is unknown or cannot be found shall be given to the federation1 union or association to which the cooperative is affiliated or to the movement. 57cept b, decrease of share capital and as otherwise allowed b, this Code1 no cooperative shall distribute an, of its assets or propert, e7cept upon lawful dissolution and after Dpa,ment of all its debts and liabilities. Art. =1. $ules and $egulations on .iAuidation. The Authorit, shall issue the appropriate implementing guidelines for the liAuidation of cooperatives. C@A&T5$ F666 CA&6TA.1 &$4&5$TJ1 A'/ 9:'/% Art. =2. Capital. The capitali?ation of cooperatives and the accounting therefor shall be governed b, the provisions of this Code and the regulations issued thereunder. Art. =+. Capital %ources. Cooperation registered under this Code ma, derive their capital from an, or all of the following sourcesD 8embers; share capitalH .oans and borrowing including depositsH $evolving capital which consists of the deferred pa,ment of patronage refunds1 or interest on share capitalH and %ubsidies1 donations1 legacies1 grants1 aids and such other assistance from an, local or foreign institution whether public or private. Art. =3. .imitation on %hare Capital @oldings. 'o member of a cooperative other than a cooperative shall own or hold more than twent, per centum 22M! of the share capital of the cooperative. Chere a member of a cooperative dies1 his heir shall be entitled to the shares of the decedentD &rovided1 That the total share holding of the heir does not e7ceed twent, per centum 22M! of the share capital of the cooperativeD &rovided1 further1 That the heir Aualif, and is admitted as member of the cooperativeD &rovided1 finall,1 That where the heir fails to Aualif, as such member or where his total share holding e7ceeds twent, per centum 22M! of the share capital1 the share or shares in e7cess will revert to the cooperative upon pa,ment to the heir of the value of such shares. Art. =). Assignment of %hare Capital Contribution or 6nterest. %ub<ect to the provisions of this Code1 no member shall transfer his shares or interest in the cooperative or an, part thereof unlessD @e has held such share capital contribution or interest for not less than one 1! ,ear.

The assignment is made to the cooperative or to a member of the cooperative or to a person who falls within the field of membership of the cooperativeH and The board of directors has approved such assignmentH Art. =*. 6nterest on %hare Capital. 6nterest on share capital shall not e7ceed the normal rate of return on investments as determined b, the Cooperative /evelopment Authorit, and such interest shall be non"cumulative. Art. ==. %hares. The term BshareB refers to a unit of capital the par value of which ma, be fi7ed at an, figure but not less than 4ne peso &1.22!. The %hare capital of a cooperative is the mone, paid or reAuired to be paid for to conduct its operations. The method of issuing the share certificates ma, be prescribed in the b,laws of the cooperative. Art. =0. 9ines. The b,laws of a cooperative ma, prescribe a fine on unpaid subscribed share capital sub<ect to the guidelines which the Cooperative /evelopment Authorit, ma, issue. Art. =(. 6nvestment of Capital. A cooperative ma, invest its capital in an, of the followingD 6n shares or debentures or securities of an, other cooperativeH 6n an, reputable bank in the localit,1 or an, cooperativeH 6n securities issued or guaranteed b, the #overnmentH 6n real estate primaril, for the use of the cooperative or its membersH or 6n an, other manner authori?ed in the b,laws. Art. 02. $evolving Capital. The general assembl, of an, cooperative ma, authori?e the board of directors to raise a revolving capital to strengthen its capital structure b, deferring the pa,ment of patronage refunds and interest on share capital or b, the authori?ed deduction of a percentage from the proceeds of products sold or per unit of product handled. The board of directors shall issue revolving capital certificates with serial number1 name1 amount1 and rate of interest to be paid and shall distinctl, set forth that the time of retirement b, such certificates and the amounts to be returned are at the discretion of the board of directors. C@A&T5$ 6P A:/6T1 6'>:6$J A'/ 858B5$%; $6#@T T4 5PA86'5 Art. 01. Annual Audit. Cooperatives under this Code shall be sub<ect to an annual audit b, an auditor who satisfies all of the following AualificationsD @e is independent of the cooperative being audited and of an, subsidiar, of the cooperativeH and @e is a member of an, recogni?ed professional accounting or cooperative auditors; association with similar Aualifications. Art. 02. Audit $eport. The auditor shall submit to the audit committee a report of the audit which shall contain a statement of the assets and liabilities of the cooperative1 including earnings and e7penses1 amount of net surplus as well as losses and bad debts1 if an,. The audit committee shall forthwith furnish the board of directors a cop, of the audit report. Thereafter1 the board of directors shall present the complete audit report to the general assembl, in its ne7t meeting. Art. 0+. 'on"liabitit, for /efamation. An auditor is not liable to an, person in an action for defamation based on an, act done1 or an, statement made b, him in good faith in connection with an, matter he is authori?ed or reAuired to do pursuant to this Code. Art. 03. $ight to 57amine. A member shall have the right to e7amine the records reAuired to be kept b, the cooperative under Article )1 of this Code during reasonable hours on business da,s and he ma, demand1 in writing1 for a cop, of e7cerpts from said records without charge e7cept the cost of reproduction. An, officer of the cooperative who shall refuse to allow an, member of the cooperative to e7amine and cop, e7cerpts from its records shall be liable to such member for damages and shall be guilt, of an offense which shall be punishable under Article 12* of this CodeD &rovided1 That if such refusal is pursuant to a resolution or order of the board of directors1 the liabilit, under this article shall be

imposed upon the directors who voted for such refusalD &rovided1 further1 That it shall be a defense to an, action under this article that the member demanding to e7amine and cop, e7cerpts from the cooperative records has improperl, used an, information secured through an, prior e7amination of the records of such cooperative or was not acting in good faith or for a legitimate purpose in making his demand. Art. 0). %afet, of $ecords. 5ver, cooperative shall1 at its principal office1 keep and carefull, preserve the records reAuired b, this Code to be prepared and maintained. 6t shall take all necessar, precaution to prevent its loss1 destruction or falsification. C@A&T5$ P A..4CAT64' A'/ /6%T$6B:T64' 49 '5T %:$&.:% Art. 0*. 'et %urplus. 'otwithstanding the provisions of e7isting laws1 the net surplus of cooperatives shall be determined in accordance with its b,laws. 5ver, cooperative shall determine its net surplus at the close of ever, fiscal ,ear and at such other time as ma,be prescribed b, the b,laws. The net surplus shall not be construed as profit but as e7cess of pa,ments made b, the members for the loans borrowed1 or the goods and services bought b, them from the cooperative and which shall be deemed to have been returned to them if the same is distributed as prescribed herein. Art. 01. 4rder of /istribution. The net surplus of ever, cooperative shall be distributed as followsD An amount for the reserve fund1 which shall be at least ten per centum 12M! of net surplusD The reserve fund shall be used for the stabilit, of the cooperative and to meet net losses in its operations. The general assembl, ma, decrease the amount allocated to the reserve fund when reserve fund alread, e7ceeds the share capital. An, sum recovered on items previousl, charged to the reserve fund shall be credited to such fund. The reserve fund shall not be utili?ed for investment1 other than those allowed in the Code. %uch sum of the reserve fund in e7cess of the share capital ma, be used at an,time for an, pro<ect that would e7pand the operations of the cooperative upon the resolution of the general assembl,. :pon the dissolution of the cooperative1 the reserve fund shall not be distributed among the members. The general assembl, ma, resolveD To establish a usufructuar, trust fund for the benefit of an, federation or union to which the cooperative is affiliatedH and ii! To donate1 contribute1 or otherwise dispose of the amount for the benefit of the communit, where the cooperative operates. 6f the members cannot decide upon the disposal of the reserve fund1 the same shall go to the federation or union to which the cooperative is affiliated. An amount for the education and training fund1 which shall be not more than ten per centum 12M! of net surplus. The b,laws ma, provide that certain fees or fines or a portion thereof be credited to such fundD @alf of the amounts transferred to the education and training fund annuall, under this subsection ma, be spent b, the cooperative for education and training and other purposesH while the other half shall be credited to the cooperative education and training fund of the respective ape7 organi?ation of which the cooperative is a member. An ape7 organi?ation ma, be a federation or union. :pon the dissolution of the cooperative1 the une7pended balance of the education and training fund appertaining to the cooperative shall be credited to the cooperative education and training fund of the above"mentioned ape7 organi?ation. An optional fund1 a land and building1 communit, development1 and an, other necessar, fund the total of which ma, not e7ceed ten per centum 12M!. The remaining net surplus shall be made available to the members in the form of interest not to e7ceed the normal rate of return on investments and patronage refunds. The sum allocated for patronage refunds shall be made available at the same rate to all patrons of the cooperative in proportion to their individual patronageD &rovided1 ThatD

6n the case of a member patron with paid up share capital contribution1 his proportionate amount of patronage refund shall be paid to him unless he agrees to credit the amount to his account as additional share capital contributionH 6n the case of a member patron with unpaid share capital contribution1 his &roportionate amount of patronage refund shall be credited to his account until his share capital contribution has been full, paidH 6n the case of a nonmember patron1 his proportionate amount of patronage refund shall be set aside in a general fund for such patrons and shall be allocated to individual nonmember patrons onl, upon reAuest and presentation of evidence of the amount of his patronage. The amount so allocated shall be credited to such patron toward pa,ment of the minimum capital contribution for membership. Chen a sum eAual to this amount has accumulated at an, time within a period specified in the b,laws1 such patron shall be deemed and become a member of the cooperative if he so agrees or reAuests and complies with the provisions of the b,laws for admission to membershipH and 6f within an, period of time specified in the b,laws1 an, subscriber who has not full, paid his subscribed share capital or an, nonmember patron who has accumulated the sum necessar, for membership but who does not reAuest nor agree to become a member or fails to compl, with the provisions of the b,laws for admission to membership1 the amount so accumulated or credited to their account together with an, part of the general fund for nonmember patrons shall be credited to the reserve fund or to the education and training fund of the co"operative1 at the option of the cooperative. Art. 00. Coverage. The provisions of this Chapter shall primaril, govern agrarian reform cooperativesD &rovided1 That the provisions of other chapters of this Code shall appl, suppletoril, e7cept insofar as this Chapter otherwise provides. Art. 0(. /efinition and &urpose. An agrarian reform cooperative within the meaning of this Code is one where the ma<orit, of the members are agrarian reform beneficiaries and marginal farmers and organi?ed for an, or all of the following purposesD To develop an appropriate s,stem of land tenure1 land development1 land consolidation or land management in areas covered b, agrarian reformH To coordinate and facilitate the dissemination of scientific methods of production1 and provide assistance in the storage1 transport1 and marketing of farm products for agrarian reform beneficiaries and their immediate famil,1 hereinafter referred to as BbeneficiariesBH To provide financial facilities to beneficiaries for provident or productive purposes at reasonable costsH To arrange and facilitate the e7peditious transfer of appropriate and suitable technolog, to beneficiaries and marginal farmers at the lowest possible costH To provide social securit, benefits1 health1 medical and social insurance benefits and other social and economic benefits that promote the general welfare of the agrarian reform beneficiaries and marginal farmersH To provide non"formal education1 vocationalEtechnical training1 and livelihood programs to beneficiaries and marginal farmersH To act as channels for e7ternal assistance and services to the beneficiaries and marginal farmersH To undertake a comprehensive and integrated development program in agrarian reform and resettlement areas with special concern for the development of agro"based1 marine"based1 and cottage"based industriesD To represent the beneficiaries on an, or all matters that affect their interestH and To undertake such other economic or social activities as ma, be necessar, or incidental in the pursuit of the foregoing purposes. Art. (2. Cooperative 5states. .andholdings like plantations1 estates or haciendas acAuired b, the %tate for the benefit of the workers in accordance with the Comprehensive Agrarian $eform &rogram shall be owned collectivel, b, the workers"beneficiaries who shall form a cooperative at their option.

Art. (1. 6nfrastructure. 6n agrarian reform and resettlement areas1 the #overnment shall grant agrarian reform cooperatives preferential treatment1 if necessar,1 the authorit, to construct1 maintain1 and manage with government funding roads1 bridges1 canals1 wharves1 ports1 reservoirs1 irrigation s,stems1 waterworks s,stems1 and other infrastructures. 9or this purpose1 government technical assistance1 facilities and eAuipment shall be made available to such agrarian reform cooperatives for their use. Art. (2. .ease of &ublic .ands. The #overnment ma, lease public lands to an, agrarian reform cooperative for a period not e7ceeding twent,"five 2)! ,ears1 sub<ect to renewal for another twent," five 2)! ,ears onl,D &rovided1 That the application for renewal shall be made one 1! ,ear before the e7piration of the leaseD &rovided1 further1 That such lease shall be for the e7clusive use and benefit of the beneficiaries and marginal farmers sub<ect to the provisions of the Comprehensive Agrarian $eform &rogram. Art. (+. &referential $ight. 6n agrarian reform areas1 an agrarian reform cooperative shall have the preferential right in the grant of franchise and certificate of public convenience and necessit, for the operation of public utilities and servicesD &rovided1 That it meets the reAuirements and conditions imposed b, the appropriate government agenc, granting the franchise or certificate of public convenience and necessit,. 5lectric service agencies shall1 upon reAuest of agrarian reform cooperatives1 immediatel, provide electric services to agrarian reform areas. 6f the electric service agencies concerned fails for an, reason to provide the services reAuested within a period of one 1! ,ear from receipt thereof1 the agrarian reform cooperative concerned ma, provide the electric services in the agrarian reform area directl, through its own resources and shall continue to do so until such time that the electric service agenc, concerned purchases all the investments made b, the agrarian reform cooperative in the electrification of the agrarian reform areas. Art. (3. &rivileges. %ub<ect to such reasonable terms and conditions as the /epartment of Agrarian $eform and the Authorit, ma, impose1 agrarian reform cooperatives ma, be given the e7clusive right to do an, or all of the following economic activities in agrarian reform and resettlement areas. %uppl, and distribution of consumer1 agricultural1 aAuacultural1 and industrial goods1 production inputs1 and raw materials and supplies1 machiner,1 eAuipment1 facilities and other services and reAuirements of the beneficiaries and marginal farmers in the agrarian reform areas at reasonable pricesH 8arketing of the products and services of the beneficiaries on the local and foreign marketsH &rocessing of the members; products into finished consumer or industrial goods for domestic consumption or for e7portH &rovision of essential public services at cost such as power1 irrigation1 potable water1 passenger andEor cargo transportation b, land1 sea1 or air1 communication services1 and public health and medical care servicesH 8anagement1 conservation1 and commercial development of marine1 forestr,1 mineral1 water and other natural resources sub<ect to compliance with the laws and regulations on environmental and ecological controlsH &rovision of financial1 technological1 and other services and facilities reAuired b, the beneficiaries in their dail, lives and livelihood. The #overnment shall provide the necessar, financial and technical assistance to agrarian reform cooperatives to enable them to discharge effectivel, their purposes under this article. The /epartment of Agrarian $eform1 the cooperative /evelopment Authorit, and the Central Bank of the &hilippines shall draw up a <oint program for the organi?ation and financing of the agrarian reform cooperatives sub<ect to this Chapter. The <oint program shall be geared towards the beneficiaries; gradual assumption of full ownership and management control of the agrarian reform cooperatives within ten 12! ,ears from the date of registration of said cooperatives. Art. (). 4rgani?ation and $egistration. Agrarian reform cooperatives ma, be organi?ed and registered under this Code onl, upon prior written verification b, the /epartment of Agrarian $eform to the effect that the same is needed and desired b, the beneficiariesH results of a stud, that has been conducted fairl, indicate the economic feasibilit, of organi?ing the same and that it will be economicall, viable in its operationsH and that the same ma, now be organi?ed and registered in accordance with the reAuirements of this Code.

C@A&T5$ P66 %&5C6A. &$4F6%64'% 4' &:B.6C %5$F6C5 C44&5$AT6F5% Art. (*. /efinition and Coverage. A public service cooperative1 within the meaning of this Code1 is one organi?ed to render public services as authori?ed under a franchise or certificate of public convenience and necessit, dul, issued b, the appropriate government agenc,. %uch services ma, include the followingD &ower generation1 transmission andEor distributionH 6ce plants and cold storage services. 5lectric co"operatives created under &residential /ecree 'o. 2*( shall be governed b, this Chapter if the, Aualif, as cooperatives under the provisions of this CodeH Communications services including telephone1 telegraph1 and telecommunicationsH .and1 sea1 and air transportation cooperatives for passenger andEor cargo. Transport cooperatives organi?ed under the provisions of 57ecutive 4rder 'o. 0(01 %eries of 1(0+1 shall be governed b, this ChapterH &ublic markets1 slaughterhouses and other similar servicesH and %uch other t,pes of public service as ma, be engaged in b, an, cooperative. %uch cooperative shall be primaril, governed b, this Chapter and the general provisions of this Code insofar as the, ma, be applicable unless the, are inconsistent herewith. Art. (=. $egistration $eAuirements. 'o public service cooperative shall be registered unless it satisfies the following reAuirementsD 6t has the favorable endorsement of the proper government agenc, authori?ed to issue the franchise or certificates of public convenience and necessit,H 6ts articles of cooperation and b,laws provide for the membership of the users andEor producers of the service of such cooperativesH and 6t satisfies such other reAuirements as ma, be imposed b, the other pertinent government agencies concerned. 6n case there are two 2! or more applicants for the same public service franchise or certificate of public convenience and necessit,1 all things being eAual1 preference shall be given to a public service cooperative. Art. (0. $egulation of &ublic %ervice Cooperatives. The internal affairs of public"service"cooperatives such as the rights and privileges of members1 the rules and procedures for meetings of the general assembl,1 board of directors and committeesH for the election and Aualifications of officers1 directors1 and committee membersH allocation and distribution of surplusesH and all other matters relating to their internal affairs shall be governed b, this Code. All matters relating to the franchise or certificate of public convenience and necessit, of public service cooperatives such as capitali?ation and investment reAuirements1 eAuipment and facilities1 freAuencies1 rate"fi7ing and such other matters affecting their public service operations shall be governed b, the government agenc, concerned. The Cooperative /evelopment Authorit, and the proper government agenc, concerned shall <ointl, issue the necessar, rules and regulations to implement this Chapter. C@A&T5$ P666 %&5C6A. &$4F6%64'% $5.AT6'# T4 C44&5$AT6F5 BA'K% Art. ((. #overning .aw.

The provisions of this Chapter shall primaril, govern cooperative banks registered under this Code and the other provisions of this Code shall appl, to them onl, insofar as the, are not inconsistent with the provisions contained in this Chapter. Cooperatives dul, established and registered under the provisions of this Code ma, organi?e among themselves a cooperative bank which shall likewise be considered a cooperative registerable under the provisions of this Code sub<ect to the reAuirements of and reAuisite authori?ation from the Central Bank.

Art. 122. /efinition1 Classification and 9unctions. A cooperative bank is one organi?ed b,1 the ma<orit, shares of which is owed and controlled b,1 cooperatives primaril, to provide financial and credit services to cooperatives. The term Bcooperative bankB shall include cooperative rural banks. A cooperative bank ma, perform the following functionsD To carr, on banking and credit services for the cooperativesH To receive financial aid or loans from the #overnment and the Central Bank of the &hilippines for and in behalf of the cooperative banks and primar, cooperatives and their federations engaged in business and to supervise the lending and collection of loansH To mobili?e savings of its members for the benefit of the cooperative movementH To act as a balancing medium for the surplus funds of cooperatives and their federationsH To discount bills and promissor, notes issued and drawn b, cooperativesH To issue negotiable instruments to facilitate the activities of cooperativesH To issue debentures sub<ect to the approval of and under conditions and guarantees to be prescribed b, the #overnmentH To borrow mone, from banks and other financial institutions within the limit to be prescribed b, the Central BankH and To carr, out all other functions as ma, be prescribed b, the Authorit,D &rovided1 That the performance of an, banking function shall be sub<ect to prior approval b, the Central Bank of the &hilippines. Art. 121. $egistration $eAuirements. 'o entit, shall be registered b, the Cooperative /evelopment Authorit, as a cooperative bank unless the articles of cooperations and b,laws thereof as well as its establishment and operation as a cooperative bank have been approved b, the Central Bank of the &hilippines and it satisfies all reAuirements for registration as a cooperative. Art. 122. 8embership. 8embership of cooperative bank shall include onl, cooperatives and federations of cooperatives. Art. 12+. Board of /irectors. The number1 composition1 and voting rights of the board of directors shall be defined in the articles of cooperation and b,laws of the cooperative bank1 notwithstanding provisions of this Code to the contrar,. Art. 123. .oans. Cooperatives ma, obtain loans from a cooperative bank. .oans granted b, a cooperative bank shall be reported to the Central Bank of the &hilippines. Art. 12). %upervision. The cooperative banks registered under this Code shall be under the supervision of the Central Bank. The Central Bank upon consultation with the agenc, and the cooperative movement shall formulate guidelines regarding the operations and banking transactions of cooperative banks1 These guidelines shall give due recognition to the uniAue cooperative nature and character of cooperative banks. To this end1 cooperative banks ma, be e7empted from Central Bank rules and regulations1 applicable to other t,pes of banks1 which would impede the cooperative rural bank from performing legitimate financial and banking services to its members. Art. 12*. Capitali?ation.

A national cooperative bank shall have a minimum authori?ed share capital of Two hundred million pesos &22212221222.22! in relation to Article 13 )!. The authori?ed share capital shall be divided into such number of shares with a minimum par value of 4ne thousand pesos &11222.22! per share. 9or the purpose primaril, of determining the permanenc, 4f eAuit,1 the t,pes of share a cooperative bank ma, issue1 including the terms thereof and the rights appurtenant thereto1 shall be sub<ect to such rules and regulations as the Central bank ma, prescribeH A local cooperative bank shall have a minimum authori?ed share capital of Twent, million pesos &2212221222.22! divided into such number of shares with a minimum par value of 4ne hundred pesos &122.22! per share.

Art. 12=. /istribution of 'et %urplus. The provisions of this Code on the allocation and distribution of net surplus shall appl,. Art. 120. &rivileges. Cooperative banks shall have the following privileges sub<ect to the approval of the Central Bank and compliance with applicable banking laws1 rules and regulationsD The cooperative banks registered under this Code shall be given the same privilege granted to the rural banks1 private development banks1 commercial banks1 and all other banks to rediscount notes with the Central Bank1 the .and Bank of the &hilippines1 and other government banks without affecting in an, wa, the provisions of this CodeH and To act as a depositor, of government funds. 9or this purpose1 all government departments1 agencies and units of the national and local governments1 including government"owned and controlled corporations are hereb, authori?ed to deposit their funds in an, cooperative bank. Art. 12(. Assistance to Cooperative Bank. Chenever a cooperative bank organi?ed under this Code is distressed or ma, need assistance in the rehabilitation of its financial condition or to avoid bankruptc,1 the 8onetar, Board of the Central Bank of the &hilippines shall designate an official of the Central Bank or a person of recogni?ed competence in banking or finance as receiver or conservator of the said bank pursuant to the provisions of %ection 2( of $epublic Act 'o. 2*)1 as amended. C@A&T5$ P6F %&5C6A. &$4F6%64'% $5.AT6'# T4 C$5/6T C44&5$AT6F5 Art. 112. Coverage. This Chapter shall appl, onl, to credit cooperatives and the rest of the provisions of this Code shall appl, to them insofar as the same are not inconsistent with the provisions of this Chapter. Art. 111. /efinition and 4b<ectives. A credit cooperative is a financial organi?ation owned and operated b, its members with the following ob<ectivesD To encourage savings among its membersH To create a pool of such savings for which loans for productive or provident purposes ma, be granted to its membersH and To provide related services to enable its members to ma7imi?e the benefit from such loans. Art. 112. 4rgani?ation and $egistration. Credit cooperatives shall be organi?ed and registered in accordance with the general provisions of this Code. Art. 11+. 4rgani?ational .inkage. Credit cooperatives ma, organi?e chapter or subsidiaries1 or <oin leagues and federations for the purpose of providing commonl, needed essential services including but not limited to the followingD 6nterlending of surplus fundH 8utual benefitsH /eposit guaranteeH BondingH 5ducation and trainingH &rofessional and technical assistanceH $esearch and developmentH $epresentationH and 4ther services needed to improve their performance. 57isting support organi?ations such as federations of credit cooperatives1 credit cooperatives at the provincial1 regional and national levels ma, continue as such under this Code. Art. 113. &rohibition. The term Bcredit cooperativeB shall be used e7clusivel, b, those who are dul, registered under this Chapter1 and no person or group of persons1 or organi?ations shall use the said term unless dul, registered herein. C@A&T5$ PF %&5C6A. &$4F6%64'% $5.AT6'# T4 C44&5$AT6F5 6'%:$A'C5 %4C65T65%

Art. 11). Cooperative 6nsurance %ocieties. 57isting cooperatives ma, organi?e themselves into a cooperative insurance entit, for the purpose of covering the insurance reAuirements of the cooperative members including their properties and assets. Art. 11*. T,pes of 6nsurance &rovided. :nder the cooperative insurance program established and formed b, virtue of the provisions of this Code1 the cooperative insurance societies shall provide its constituting members different t,pes of insurance coverage consisting of1 but not limited to1 life insurance with special group coverage1 loan protection1 retirement plans1 endowment with health and accident coverage1 fire insurance1 motor vehicle coverage1 bonding1 crop and livestock protection and eAuipment insurance. Art. 11=. Applicabilit, of 6nsurance .aws. The provisions of the 6nsurance Code and all other laws and regulations relative to the organi?ation and operation of an insurance compan, shall appl, to cooperative insurance entities organi?ed under this Code. The reAuirements on capitali?ation1 investments and reserves of insurance firms ma, be liberall, modified upon consultation with the Cooperative /evelopment Authorit, and the cooperative sector. But in no case ma, the reAuirements be reduced to less than half of those provided for under the 6nsurance Code and other related laws. Art. 110. 6mplementing $ules. The 6nsurance Commission1 upon consultation with the Cooperative /evelopment Authorit, and the cooperative sector1 shall formulate the rules and regulations implementing these provisions. C@A&T5$ PF6 86%C5..A'54:% &$4F6%64'% Art. 11(. Compliance with 4ther .aws.

The .abor Code and all other labor laws shall appl, to all cooperatives. The %ocial %ecurit, Act1 the 8edical Care Act1 and all other social legislations shall appl, to all cooperatives. All other laws and e7ecutive orders applicable to cooperatives dul, registered under this Code. Art. 122. $egister of Cooperatives. The Cooperative /evelopment Authorit, shall establish a register which shall contain a chronological entr, of the name of ever, cooperative registered or dissolved under this Code together with the basic information reAuired for registration or dissolution and an, other information considered useful. The Cooperative /evelopment Authorit, shall publish ever, ,ear a list of cooperatives in e7istence1 under dissolution and whose registration is canceled during the ,ear together with such information on each of them as ma, be prescribed in the regulations. Art. 121. %ettlement of /isputes. /isputes among members1 officers1 directors1 and committee members1 and intra"cooperative disputes shall1 as far as practicable1 be settled amicabl, in accordance with the conciliation or mediation mechanisms embodied in the b,laws of the cooperative1 and in applicable laws. %hould such a conciliationEmediation proceeding fail1 the matter shall be settled in a court of competent <urisdiction. Art. 122. 5lectric Cooperatives. 5lectric cooperatives shall be covered b, this Code. @owever1 there shall be a transaction period of three +! ,ears within which the Cooperative /evelopment Authorit, and the 'ational 5lectrification Administration shall help and assist electric cooperatives to Aualif, under this Code. The Cooperative /evelopment Authorit, and the 'ational 5lectrification Administration shall <ointl, promulgate rules and regulations to the end that the provisions of this law are harmoni?ed with the provisions of &residential /ecree 'o. 2*(. Art. 12+. $egulations.

The Cooperative /evelopment Authorit, ma, issue regulations to implement those provisions of this Code which e7pressl, call for the issuance thereof. This paragraph shall not appl, to those cases wherein a specific provision of this Code e7pressl, designates particular government agencies which shall issue the regulations called for b, an, provision of this Code. Chere a provision of this Code does not e7pressl, call for nor authori?e the issuance of a regulation1 no regulation shall be issued thereon. An, regulation issued in violation of this paragraph shall be null and void ab initio.

'o regulation shall be issued nor become effective under this Code unless the following reAuirements are satisfiedD &ublic announcement on the intention to issue regulations describing the sub<ect to be dealt on with a cop, of the proposed regulations attached1 inviting the public to make known their views thereon and submit their positions with respect thereof. The announcement shall be published in a dail, newspaper of national general circulation at least once a week for four 3! consecutive weeks prior to the intended date of commencement of the public hearing thereon1 specif,ing the date1 time and place of the public hearingH &ublic hearings ma, be conducted separatel, in .u?on1 Fisa,as and 8indanao b, the Authorit, and the proceedings thereof shall be dul, recorded. 8inutes of a public hearing shall be made available to the public at cost. The public hearing ma, be held in several sessionsD &rovided1 That no session shall be conducted unless the minutes of all other previous sessions have been published beforehandH The proceed regulations shall be supported b, a memorandum of <ustification for ever, provision thereof which shall include citation of the legal bases therefor1 the reasons for such provision1 and the e7pected results therefromH and The regulations shall be recommended b, the Authorit, and approved b, the 4ffice of the &resident1 and the same shall take effect thirt, +2! da,s after publication in the 4fficial #a?ette. Art. 123. &enal &rovisions. prohibitedD The following acts or omissions affecting cooperatives are hereb,

The use of the word BcooperativeB b, an, person or of persons or organi?ations1 domestic or foreign1 unless dul, registered as a cooperative under this Code. 6n case of violation hereof1 the individual or individuals concerned1 or in the case of an organi?ation1 its officers and directors shall1 upon conviction1 each suffer the penalt, of imprisonment for one 1! ,ear and a fine not e7ceeding 4ne thousand pesos &11222.22!1 or both at the discretion of the courtH /irect or indirect interference or intervention b, an, public official or emplo,ee into the internal affairs of cooperative of which he is not a member1 such as1 but not limited to1 the following. 6nfluencing the election or appointment of officers1 directors1 committee members and emplo,ees through public or private endorsement or campaign for or against an, person or group of personsH $eAuiring prior clearance for an, polic, or decision within the cooperativeH $eAuesting or demanding for the creation of positions or organi?ational units1 or recommending an, person for appointment1 transfer1 or removal from his positionH or An, other acts inimical or adverse to the autonom, and independence of cooperatives. 6n case of violation of an, provision of this subsection1 the individual or individuals1 and in the case of organi?ations1 its officers and directors shall1 upon conviction b, a court1 each suffer a penalt, of not less than one 1! ,ear but not more than five )! ,ears imprisonment or a fine in the amount of not less than 9ive thousand pesos &)1222.22!1 or both at the discretion of the courtH +! A director1 officer or committee member who violated the provisions of Article 3= liabilit, of directors1 officers committee members!1 Article )2 dislo,alt, of a director! and Article )1 illegal use of confidential information!1 shall upon conviction suffer a fine of not less than 9ive thousand pesos &)1222.22! nor more than 9ive hundred thousand pesos &)221222.22! or imprisonment of not less than five )! ,ears but not more than ten 12! ,ears or both at the court;s discretionH 3! An, violation of an, provision of this Code for which no penalt, is imposed shall be punished b, imprisonment of not less than si7 *! months nor more than one 1! ,ear and a fine of not less than 4ne thousand pesos &11222.22!1 or both at the discretion of the court. Art. 12). &rinting and /istribution. The 'ational &rinting 4ffice shall publish this Code in the 4fficial #a?ette in full within si7t, *2! da,s from the date of approval thereof. Copies of this Code shall be given to ever, department1 agenc, and instrumentalit, of the 'ational #overnment1 including regional1 provincial offices and local governments including government"owned and controlled corporations.

All dul, registered cooperatives and their federations1 unions and associations1 and cooperative corporations shall be given one 1! cop, each at cost. Thereafter1 ever, newl, registered cooperative or cooperative corporations shall be issued at cost a cop, of this Code and the regulations promulgated thereon together with its certificate of registration. Art. 12*. 6nterpretation and Construction. 6n case of doubt as to the meaning of an, provision of this Code or the regulations issued in pursuance thereof1 the same shall be resolved liberall, in favor of the cooperatives and their members. Art. 12=. $epeals. 57cept as e7pressl, provided b, this Code1 &residential /ecree 'o. 1=) and all other laws1 or parts thereof1 inconsistent with an, provision of this Code shall be deemed repealedD &rovided1 however1 That nothing in this Code shall be interpreted to mean the amendment or repeal of an, provision of &residential /ecree 'o. 2*(D &rovided1 further1 That the electric cooperatives which Aualif, as such under this Code shall fall under the coverage thereof. Art. 120. Transitor, &rovisions. All cooperatives registered under &residential /ecree 'os. 1=) and ==) and 57ecutive 4rder 'o. 0(01 and all other laws shall be deemed registered with the Cooperative /evelopment Authorit,D &rovided however1 That the, shall submit to the nearest Cooperative /evelopment Authorit, office their certificate of registration1 copies of the articles of cooperation and b,laws and their latest dul, audited financial statements within one 1! ,ear from the effectivit, of this Act1 otherwise their registration shall be canceledD &rovided1 further1 That cooperatives created under &residential /ecree 'o. 2*(1 as amended b, &residential /ecree 'o. 1*3)1 shall be given three +! ,ears within which to Aualif, and register with the Authorit,D &rovided1 finall,1 That after these cooperatives shall have Aualified and registered1 the provisions of %ections + and ) of &residential /ecree 'o. 1*3) shall no longer be applicable to said cooperatives. Art. 12(. %eparabilit,. %hould an, part of this Code be declared unconstitutional1 the rest of the provisions shall not be affected thereb,. Art. 1+2. 5ffectivit,. This Code shall take effect fifteen 1)! da,s from its publication in a newspaper of general circulation.

I%#$.ic B$n2% RA No. 48.8

A' ACT &$4F6/6'# 94$ T@5 1(0( C@A$T5$ 49 T@5 A."A8A'A@ 6%.A86C 6'F5%T85'T BA'K 49 T@5 &@6.6&&6'5%1 A:T@4$6G6'# 6T% C4'/:CT 49 6%.A86C BA'K6'# B:%6'5%%1 A'/ $5&5A.6'# 94$ T@6% &:$&4%5 &$5%6/5'T6A. /5C$55 ':8B5$5/ TC4 @:'/$5/ A'/ %6PTJ"94:$ A% A85'/5/ BJ &$5%6/5'T6A. /5C$55 ':8B5$5/ 96F5 @:'/$5/ A'/ 94$TJ"TC4 C$5AT6'# T@5 &@6.6&&6'5 A8A'A@ BA'K! -anuar, 2*1 1((2 C@5$5A%1 the %tate1 in %ection 221 Article 66 of the Constitution1 encourages private enterprise and provides incentives to needed investmentsH C@5$5A%1 under the Constitution1 the use of propert, bears a social function1 so that the conseAuences in law also must be defined b, polic, ob<ectives related to propert, rights in productive enterprisesH C@5$5A%1 toward this end1 the #overnment has committed itself to the establishment of an 6slamic bank that operates within a legal framework permitting the investors or participants the rights to eAuitable or beneficial share in the profits reali?ed from financing productive activities and other operationsD 'ow1 therefore1 T@5 C@A$T5$ 49 T@5 A."A8A'A@ 6%.A86C 6'F5%T85'T BA'K 49 T@5 &@6.6&&6'5% T6T.5 %ec. 1. Title. This Act shall be known as BThe Charter of the Al"Amanah 6slamic 6nvestment Bank of the &hilippines.B 5%TAB.6%@85'T A'/ 9:'CT64'% %ec. 2. 'ame1 /omicile and &lace of Business. There is hereb, created the Al"Amanah 6slamic 6nvestment Bank of the &hilippines1 which shall be hereinafter called the 6slamic Bank. 6ts principal domicile and place of business shall be in Gamboanga Cit,. 6t ma, establish branches1 agencies or other offices at such places in the &hilippines or abroad sub<ect to the laws1 rules and regulations of the Central Bank. %ec. +. &urpose and Basis. The primar, purpose of the 6slamic Bank shall be to promote and accelerate the socioeconomic development of the Autonomous $egion b, performing banking1 financing and investment operations and to establish and participate in agricultural1 commercial and industrial ventures based on the 6slamic concept of banking. All business dealings and activities of the 6slamic Bank shall be sub<ect to the basic principles and rulings of 6slamic %hari;a within the purview of the aforementioned declared polic,. An, ?akat or BtitheB paid b, the 6slamic Bank on behalf of its shareholders and depositors shall be considered as part of compliance b, the 6slamic Bank with its obligation to appropriate said ?akat fund and to disburse it in legitimate channels to be ascertained first b, the %hari;a Advisor, Council. %ec. 3. %hari;a Advisor, Council. There is hereb, created a %hari;a Advisor, Council of the 6slamic Bank which shall be composed of not more than five )! members1 selected from among 6slamic scholars and <urists of comparative law. The members shall be elected at a general shareholders meeting of the 6slamic Bank ever, three +! ,ears from a list of nominees prepared b, the Board of /irectors of the 6slamic Bank. The Board is hereb, authori?ed to select the members of the first %hari;a Advisor, Council and to determine their remunerations. %ec. ). 9unctions of the %hari;a Advisor, Council. The functions of the %hari;a Advisor, Council shall be to offer advice and undertake reviews pertaining to the application of the principles and rulings of the 6slamic %hari;a to the 6slamic Bank;s transactions1 but it shall not directl, involve itself in the operations of the Bank. An, member of the %hari;a Advisor, Council ma, be invited to sit in the regular or special meetings of the Board of /irectors of the 6slamic Bank to e7pound his views on matters of the 6slamic %hari;a

affecting a particular transaction but he shall not be entitled to vote on the Auestion presented before the board meetings. C4$&4$AT5 &4C5$% %ec. *. 6slamic Bank;s &owers. The Al"Amanah 6slamic 6nvestment Bank of the &hilippines1 upon its organi?ation1 shall be a bod, corporate and shall have the powerD To prescribe its b,laws and its operating policiesH To adopt1 alter and use a corporate sealH To make contracts1 to sue and be suedH To borrow mone,H to own real or personal propert, and to introduce improvements thereon1 and to sell1 mortgage or otherwise dispose of the sameH To emplo, such officers and personnel1 preferabl, from the Aualified 8uslim sector1 as ma, be necessar, to carr, 6slamic banking businessH To establish such branches and agencies in provinces and cities in the &hilippines1 particularl, where 8uslims are predominantl, located1 and such correspondent offices in other areas in the countr, or abroad as ma, be necessar, to carr, on its 6slamic banking business1 sub<ect to the provisions of %ection 2 hereofH To perform the following banking servicesD 4pen current or checking accountsH 4pen savings accounts for safekeeping or custod, with no participation in profit and losses e7cept unless otherwise authori?ed b, the account holders to be investedH Accept investment account placements and invest the same for a term with the 6slamic Bank;s funds in 6slamicall, permissible transactions on participation basisH Accept foreign currenc, deposits from banks1 companies1 organi?ations and individuals1 including foreign governmentsH Bu, and sell foreign e7changeH Act as correspondent of banks and institutions to handle remittances or an, fund transfersH Accept drafts and issue letters of credit or letters of guarantee1 negotiate notes and bills of e7change and other evidence of indebtedness under the universall, accepted 6slamic financial instrumentsH Act as collection agent insofar as the pa,ment orders1 bills of e7change or other commercial documents are e7clusive of riba1 or interest prohibitionsH &rovide financing with or without collateral b, wa, of leasing1 sale and leaseback1 or cost plus profit sales arrangementH @andle storage operations for goods or commodit, financing secured b, warehouse receipts presented to the BankH 6ssue shares for the account of institutions and companies assisted b, the Bank in meeting subscription calls or augmenting their capital andEor fund reAuirements as ma, be allowed b, lawH :ndertake various investments in all transactions allowed b, the 6slamic %hari;a in such a wa, that shall not permit the haram forbidden!1 nor forbid the halal permissible!H To act as an official government depositor,1 or its branches1 subdivisions and instrumentalities and of government"owned or controlled corporations1 particularl, those doing business in the autonomous regionH To issue investment participation certificates1 muAuaradah non"interest"bearing bonds!1 debentures1 collaterals andEor the renewal or refinancing of the same1 with the approval of the 8onetar, Board of the Central Bank of the &hilippines1 to be used b, the Bank in its financing operations for pro<ects that will promote the economic development primaril, of the Autonomous $egionH To carr, out financing and <oint investment operations b, wa, of mudarabah partnership1 musharaka <oint venture or b, decreasing participation1 murabaha purchasing for others on a cost"plus financing arrangement1 and to invest funds directl, in various pro<ects or through the use of funds whose owners desire to invest <ointl, with other resources available to the 6slamic Bank on a <oint mudarabah basisH To invest in eAuities of the following allied undertakingsD Carehousing companiesH .easing companiesH %torage companiesH %afe deposit bo7 companiesH Companies engaged in the management of mutual funds but not in the mutual funds themselvesH and %uch other similar activities as the 8onetar, Board of the Central Bank of the &hilippines has declared or ma, declare as appropriate from time to time1 sub<ect to e7isting limitations imposed b, lawH

To e7ercise the powers granted under this Charter and such incidental powers as ma, be necessar, to carr, on its business1 and to e7ercise further the general powers mentioned in the Corporation .aw and the #eneral Banking Act1 insofar as the, are not inconsistent or incompatible with the provisions of this Charter. CA&6TA. $5%4:$C5% 49 T@5 BA'K %ec. =. Authori?ed Capital %tock. The authori?ed capital stock of the 6slamic Bank shall be 4ne billion pesos &1122212221222! divided into ten million par value shares of 4ne hundred pesos each. All shares are nominative and indivisible. The subscription to and ownership of such shares1 including the transfer thereof to third parties1 shall be limited to persons and entities who subscribe to the concept of 6slamic banking. %ec. 0. Classification of %haresD 6ts 9eatures. The 6slamic Bank;s authori?ed capital stock shall have the following classifications and features in relation to its 6slamic banking operationD %eries BA;; shares shall comprise five million one hundred thousand shares eAuivalent to 9ive hundred ten million pesos &)1212221222! to be made available for subscription b, the present stockholders of the &hilippine Amanah Bank namel,D the 'ational #overnment1 and such other financial entities as it ma, designate. %eries BBB shares shall comprise nine hundred thousand shares eAuivalent to 'inet, million pesos &(212221222! to be made available for subscription b, the 9ilipino individuals and institutions. %eries BCB shares shall comprise four million shares eAuivalent to 9our hundred million pesos &32212221222! to be made available for subscription b, 9ilipino and foreign individuals andEor institutions or entities. An,one of the shareholders ma, e7ercise its preemptive right to consolidate ownership of the outstanding shares as hereinafter increasedD &rovided1 That the common shares of the &hilippine Amanah Bank which have been issued and outstanding shall form part of the increased capitali?ation of the 6slamic Bank1 sub<ect to the concurrence of the e7isting shareholders of the &hilippine Amanah Bank. The 6slamic Bank is authori?ed to reacAuire its common shares that are held privatel,. The 6slamic Bank ma, take the necessar, steps to have its series BB;; shares listed in an, dul, registered stock e7change. %ec. (. Board of Arbitration. The Board of /irectors1 acting as an arbitrator1 shall settle b, the ma<orit, decision of its members an, dispute between and among shareholders of the 6slamic Bank1 whether individuals or entities1 where such dispute arises from their relations as shareholders in the 6slamic Bank. The Board shall not be bound in this respect to the procedures of laws on civil and commercial pleadings1 e7cept in regard to the basic principles of due process. 6f the dispute is between the 6slamic Bank and an, of the investors or the shareholders1 a Board of Arbitration shall settle such dispute. 6n this case1 the Board of Arbitration1 consisting of three +! members1 shall be formed b, two 2! parties to the dispute within fort,"five 3)! da,s from receipt of written notice b, either part, to the dispute. The three +! members shall be selected as followsD one 1! arbitrator from each part, who shall then select a casting arbitrator as the third member of the board. The three +! shall select one of them to preside over the Board of Arbitration. The selection b, each part, of its arbitrator shall be deemed as an acceptance of the arbitrator;s decision and of its finalit,. 6n the event that one of the two parties shall fail to select its arbitrator or in the case of nonagreement on the selection of the casting arbitrator or the presiding member of the Board of Arbitration within the period specified in the preceding paragraph1 the matter shall be submitted to the %hari;a Advisor, Council to select the arbitrator1 the casting arbitrator or the presiding member1 as the case ma, be. The Board of Arbitration shall meet at the 6slamic Bank;s principal office and shall set up the procedure of arbitration which it shall follow in hearing and deciding the dispute. The decision shall include the method of its e7ecution and the part, that shall incur the costs of arbitration. The final <udgment shall be deposited with the office of the Corporate %ecretar, of the Bank and the %ecurities and 57change Commission.

The Board of Arbitration;s decision1 shall in all cases1 be final and e7ecutor,. 6t shall be valid for e7ecution in the same manner as final <udgments are effected under $epublic Act 'o. 0=* otherwise known as the Arbitration .aw. %ec. 12. 6ncentives to 6slamic Banking. %ub<ect to the provisions of %ection =3 of the Central Bank Act1 the provisions of the 4mnibus 6nvestment Code on the basic rights and guarantees of investors are made applicable to the commercial operations of the 6slamic Bank in respect to repatriation or remittance of profits from investments1 and to protection against nationali?ation1 seAuestrations1 or e7propriation proceedings. An, proceedings of <udicial or administrative sei?ure ma, not be taken against the said propert, or investment e7cept upon a final court <udgment. %ec. 11. #rants and /onations. The 6slamic Bank shall accept grants1 donations1 endowments1 and subsidies1 or funds andEor propert, offered b, individuals and organi?ations1 who ma, earmark such grants for a specific purpose or for such other purposes beneficial to the 8uslim communities1 without pre<udice to the general ob<ectives of the 6slamic Bank. The financial statement and books of accounts of such funds shall be maintained separatel, but ma, be supplemented to the 6slamic Bank;s balance sheet. :nder special circumstances in which the Board of /irectors considers it advisable to promote or facilitate 6slamic banking business and commercial operations1 the 6slamic Bank ma, seek financing from governments1 organi?ations1 individuals or banks alwa,s without pre<udice to the provisions of %ection 3+ of this Charter. &.AC585'T% A'/ 6'F5%T85'T% 49 9:'/% %ec. 12. 'on"6nterest Bearing &lacements. The 6slamic Bank is authori?ed to accept deposits from governments1 banks1 organi?ations or other entities and individuals from within the &hilippines or abroad which shall form under an, of the following non"interest bearing placementsD %avings accounts 6nvestment participation accounts Current accounts and other deposit liabilities. An, deposit received b, the 6slamic Bank without authori?ation to invest shall be treated as current accounts and savings accounts and ma, be withdrawn wholl, or partl, at an, time. All deposits received with authori?ation to invest for a given period of time shall form part of the general pool of placements allocated for the investment portfolios of the 6slamic Bank and ma, be added to its working capital to be invested in an, special pro<ects or in general areas of investments or commercial operations of the Bank. %ec. 1+. 6nvestment of 9unds. The 6slamic Bank shall have the capacit, of agent or attorne, and shall act with full authorit, on behalf of the group of depositors in general in investing their co"mingled deposits without pre<udice to the following sections and shall ensure a degree of liAuidit, to be determined b, the Board of /irectors to meet the current obligations of the 6slamic Bank including drawings from savings accounts and current accountsD &rovided1 That such degree of liAuidit, shall be sub<ect to the reserve reAuirement as ma, be determined b, the Central Bank. The Board of /irectors shall determine the period for an investment participation account. 6nvestment of funds shall be undertaken b, the 6slamic Bank acting on behalf of the group of depositors or investors in selected areas of investment under such terms and conditions as the Board of /irectors ma, determine b, wa, of mudarabah or other forms of <oint investment permitted b, 6slamic %hari;a principle. %ec. 13. $eturn on 6nvestment 9unds. The depositors or investors in <oint investment participation accounts shall be entitled to a portion of the return on investment according to the deposit balances and its period. The profits on participation account with authori?ation to invest in specific transaction shall be calculated on the same basis as on the capital funds invested as determined b, the Board of /irectors pursuant to %ection +) of this Act. %ec. 1). Allocation of $esources. An, provision of law to the contrar, notwithstanding1 the 6slamic Bank ma, allocate part of its own investible funds or of the deposits on hand to finance investment pro<ects and carr, on its 6slamic banking business directl, or indirectl, under its own supervision. 9or this purpose1 it ma, create and finance investment companies or affiliates which shall manage investment pro<ects on behalf of and under the supervision of the 6slamic Bank and for its own account. The 6slamic Bank shall ascertain the viabilit, and soundness of investment pro<ects which it ma, directl, supervise and those in which it ma, participate with part of its own funds1 with the general pool

of investors funds with authori?ation. The 6slamic Bank shall have the right to inspect and supervise the pro<ects which it shall finance or in which it is the ma<orit, shareholder. The original capital and related profits shall be remitted in the same currenc, it was originall, contributed or in one of the convertible currencies1 as the Board of /irectors shall determine in accordance with this Charter. 6%.A86C BA'K 4&5$AT64'% 6' #5'5$A. %ec. 1*. Authori?ed Banking %ervices. The 6slamic Bank shall e7ercise all the powers and perform all the services of a bank1 e7cept as otherwise prohibited b, this ActD &rovided1 That no transactions b, an, customer1 compan,1 corporation or firm with the said 6slamic Bank shall be permitted for discounts b, the Central Bank of the &hilippines. %ec. 1=. Authori?ed Commercial 4perations. 'otwithstanding the provisions of an, law to the contrar,1 the 6slamic Bank is hereb, authori?ed to operate an 6nvestment @ouse pursuant to &residential /ecree 'o. 12(1 as amended1 and as a Fenture Capital Corporation pursuant to &residential /ecree 'o. 1*00 and1 b, virtue thereof1 carr, on the following t,pes of commercial operationsD The 6slamic Bank ma, have a direct interest as a shareholder1 partner1 owner or an, other capacit, in an, commercial1 industrial1 agricultural1 real estate or development pro<ect under mudarabah form of partnership or musharaka <oint venture agreement or b, decreasing participation1 or otherwise invest under an, of the various contemporar, 6slamic financing techniAues or modes of investment for profit sharingH The 6slamic Bank ma, carr, on commercial operations for the purpose of reali?ing its investment banking ob<ectives b, establishing enterprises or financing e7isting enterprises1 or otherwise b, participating in an, wa, with other companies1 institutions or banks performing activities similar to its own or which ma, help accomplish its ob<ectives in the &hilippines or abroad1 under an, of the contemporar, 6slamic financing techniAues or modes of investment for profit sharingH and The 6slamic Bank ma, perform all business ventures and transactions as ma, be necessar, to carr, out the ob<ectives of its charter within the framework of the 6slamic Bank;s financial capabilities and technical considerations prescribed b, law and conventionD &rovided1 That these shall not involve an, riba or other activities prohibited b, the 6slamic %hari;a principles. %ec. 10. 5mplo,ee %hare %chemes. The Board of /irectors ma, adopt an emplo,ee profit sharing scheme under an, of the following wa,sD An, arrangement under which the directors1 officers and emplo,ees of the 6slamic Bank receive in addition to their salaries and wages a share1 fi7ed beforehand1 in the profits reali?ed b, the 6slamic Bank or b, affiliate companies of the 6slamic Bank to which the profit sharing scheme relatesH and An, arrangement under which the 6slamic Bank facilitates the acAuisition b, its directors1 officers and emplo,ees of common shares of stock either as share"incentives1 share"bonus options1 or an, other share"saving schemes as the Board of /irectors ma, determine. 'o scheme shall be approved b, the Board of /irectors under this section unless it is satisfied that the participant in the profit sharing scheme is bound b, a contract with the 6slamic Bank b, virtue of which an appropriation of shares has been made for the purpose. The shares so purchased or appropriated shall be deposited in escrow with the Bank. The 6slamic Bank shall then constitute the trustees of an approved scheme1 whose functions with respect to the common shares held b, them are regulated b, Chapter F66 of the #eneral Banking Act and other pertinent laws1 and terms of which are embodied in a deed of instrument as the Board ma, reAuire. %ec. 1(. 6nvestment CeilingsH Business .imits. The 6slamic Bank shall observe the following investment ceilings and business limits in its operationsD The aggregate credit facilities or an, other liabilities of an, customer of the 6slamic Bank shall not e7ceed at all times fifteen per centum 1)M! of the unimpaired capital and surplus of the BankH The aggregate amount of investment portfolios for an, single industr, shall at no time e7ceed thirt, per centum +2M! of the 6slamic Bank;s investment capacit,. 6nvestment capacit, of the 6slamic Bank being the 6slamic eAuivalent of commercial lending and overall credit ceilings shall be defined as the ma7imum e7pansion for investments and credits that the 6slamic Bank is authori?ed to grant or e7tend

as ma, be determined and computed b, the Central Bank in relation to the unimpaired capital and surplus of the BankH The outstanding unsecured loans or credit accommodations which the 6slamic Bank ma, e7tend at an, time without securit,1 or in respect of an, advance1 loan or credit facilit, made with the securit, wholl, or partl,1 whenever at an, time it e7ceeds the aggregate market value of the assets constituting the securit,1 shall be limited to 9ift, thousand pesos &)21222.22! to an, person1 compan,1 corporation or firm. The term loan whenever used in this paragraph shall represent Aard hasan benevolent loanH and The 6slamic Bank shall not grant an, credit facilit, to an, person for the purpose of financing the acAuisition of the holding of shares in an, compan,1 corporation or firm in e7cess of fift, percent )2M! of the appraised value of the shares at the time the credit facilit, is granted. %ec. 22. .oans to /irectors1 4fficers or 5mplo,ees $estrictions. %ub<ect to the limitations provided herein1 the 6slamic Bank ma, grant to an, of its officers or emplo,ees a loan as provided under its scheme of service and1 whenever the 6slamic Bank is satisfied that special circumstances e7ist1 a loan not e7ceeding at an, one time an amount eAuivalent to si7 *! months remuneration of each officer or emplo,ee on such terms and conditions as the 6slamic Bank deems fit. The 6slamic Bank shall not1 directl, or indirectl,1 grant an advance loan or credit facilit, to an, of its directors1 officers or emplo,ees1 or an, other person for whom an, of them is a guarantor or in an, manner to be an obligor for mone, granted b, the 6slamic Bank. 'o loan or credit facilit, shall be granted b, the 6slamic Bank to a compan,1 corporation1 partnership or firm wherein an, member of the Board of /irectors or auditors is a shareholder1 partner1 manager1 agent or emplo,ee in an, manner1 e7cept with the written approval of and b, the unanimous vote of no less than two"thirds 2E+! of all the members of the Board of /irectors e7cluding the director concernedD &rovided1 That the total liabilities to the 6slamic Bank shall be limited to the director or auditor;s outstanding deposits or the book value of his or her paid"in capital in the 6slamic Bank. An, such approval shall be entered upon the records of the 6slamic Bank and a cop, of such entr, shall be transmitted forthwith to the appropriate supervising department of the Central Bank of the &hilippines. The office of an, director1 officer or auditor of the 6slamic Bank who violates the provisions of this section shall automaticall, become vacant and the persons who acted in contravention thereof shall be sub<ect to criminal prosecution and suffer the penalties provided b, law. %ec. 21. %pecial Cash Account. The 6slamic Bank shall open a special cash account with the Central Bank in which its liAuid funds shall be deposited. An, transfer of funds from this account to other accounts shall be made onl, upon prior consultation with the 6slamic Bank. %ec. 22. Capital 9unds $eAuirement. The 6slamic Bank shall maintain its combined capital accounts in proportion to its assets as prescribed b, the #eneral Banking Act and sub<ect to the rules and regulations of the Central Bank. %ec. 2+. 6nvestment $isk 9und. The 6slamic Bank shall maintain general reserves and appropriations pursuant to the profit and loss distributions made under %ection +) of this Act. All amounts appropriated for the 6nvestment $isk 9und out of the net profits of each ,ear shall be invested for the benefit of the 6slamic Bank onl, in safe non"interest"bearing transactions b, authorit, of the Board of /irectors. %ec. 23. &eriodic $eports. The 6slamic Bank shall1 in addition to periodic reports which ma, be reAuired pursuant to the provisions of an, other law1 be reAuired to submit to the Central Bank a report of an, changes relating to the 6slamic Bank;s emplo,ee profit sharing scheme approved b, the Board of /irectors. The 6slamic Bank shall likewise make a report to the Central Bank whenever a change is about to take place in relation to the ownership or control of the 6slamic Bank. The approval of the 8onetar, Board shall be reAuired in the following changesD An, proposal for the sale or disposal of its share or business1 or other matters related thereto1 which will result in a change of the control or management of the 6slamic BankH and An, scheme for reconstruction or for consolidation or merger1 or otherwise1 between the 6slamic Bank and an, other compan, wherein the whole or an, part of the undertaking or the propert, of the 6slamic Bank is to be transferred to another corporation. BA'K 8A'A#585'T A'/ #5'5$A. 855T6'#

%ec. 2). Board of /irectors. The Board of /irectors composed of nine (! members dul, elected b, the #eneral %hareholders 8eeting1 as provided for in this Act1 shall convene at the principal office once ever, three +! months at the most upon due notice b, the Chairman or1 whenever the need arises1 upon the reAuest of three +! members of the Board of /irectors. The Board ma, convene outside the 6slamic Bank;s principal office as the members shall determine in the b,laws of the 6slamic Bank. %ec. 2*. &owers of the Board. The Board of /irectors shall have the broadest powers to manage the 6slamic Bank1 e7cept such matters as are e7plicitl, reserved for the general shareholders meeting. The Board shall adopt polic, guidelines necessar, to carr, out effectivel, the provisions of this Charter as well as internal rules and regulations necessar, for the conduct of its 6slamic banking business and all matters related to personnel organi?ation1 office functions and salar, administration. The Board of /irectors shall have the power to appoint managers1 authori?e agents or legal representatives and shall vest them with signing authorit, on behalf of the Bank either severall, or <ointl, in accordance with the operational procedures of the Bank. The Board shall cause the preparation of the 6slamic Bank;s balance sheet for each financial ,ear within three +! months at the latest from the end of each accounting period as well as the profit and loss statement according to accounting rules established and based on 6slamic criteria. Copies of the audited annual balance sheet1 profit and loss account1 together with an, note thereon1 and the report of the auditor and the directors own report shall he provided to the shareholders before the date of the general meeting. %ec. 2=. Chief 57ecutive 4fficerH 4ther 4fficers and 5mplo,ees. The Chief 57ecutive 4fficer of the 6slamic shall be the Chairman who shall be chosen b, the Board of /irectors from among themselves. All other officers and emplo,ees of the 6slamic Bank shall be appointed and removed b, the Board upon recommendation of the Chief 57ecutive 4fficer which shall not be sub<ect to Civil %ervice .aw. The Chief 57ecutive 4fficer of the 6slamic Bank shall1 among others1 e7ecute and administer the policies1 measures1 orders and resolutions approved b, the Board of /irectors. 6n particular1 he shall have the power and dut,D to e7ecute all contracts in behalf of the 6slamic Bank and to enter into all necessar, obligations b, this Charter reAuired or permittedH to report weekl, to the Board of /irectors the main facts concerning the operations of the 6slamic Bank during the preceding week and suggest changes in polic, or policies which will serve the best interest of the 6slamic Bank. %ec. 20. Business /evelopment 4ffice. The 6slamic Bank shall have a Business /evelopment 4ffice which shall be responsible for the followingD To conduct periodic economic surve,s and studies of the investment climate and opportunities in the 6slamic Bank;s sphere of operations and identif, the viable pro<ects which ma, be sponsored b, the people of the Autonomous $egionH To offer technical consultanc, services in the preparation of pro<ect studies and in meeting other technical credit reAuirements of the 6slamic Bank1 including the provision of the management consultants at rates to be determined b, the Board of /irectors to pro<ects financiall, assisted b, the 6slamic BankH and To perform such other functions as ma, be directed b, the Board of /irectors. %ec 2(. #eneral %hareholders 8eeting. The general shareholders meeting shall convene annuall, at the latest within si7 *! months following the end of the financial ,ear of the Bank at the place1 date and time fi7ed in the notice for the meeting. The attendance of shareholders representing at least si7t, per centum *2M! of the capital of the 6slamic Bank shall constitute a Auorum to do business. %ec. +2. &urpose of #eneral 8eeting. The general shareholders meeting shall convene purposel, to hear the Board of /irectors; report on the activities of the 6slamic Bank1 its financial condition1 the auditor;s report and to approve the balance sheet for the financial ,ear ended and the profit and loss statement1 to determine the portion of dividends to be distributed to the shareholders and the method of distribution1 to appoint the auditors1 and to elect the members of the %hari;a Advisor, Council. %ec. +1. 4rdinar, and 57traordinar, %essions. The general shareholders meeting shall be presided over b, the Chairman of the Board of /irectors. All resolutions adopted b, the general meeting in ordinar, session assembled shall be taken b, a vote of ma<orit, of the shareholders represented therein and in case of votes being eAual1 the Chairman shall cast his vote to break the tie. The

resolutions of the general meeting adopted in accordance therewith shall be binding on all shareholders including those not in attendance or opposing the resolution. An e7traordinar, general meeting shall be reAuired to pass resolutions related to the increase or decrease of capital of the Bank1 the e7tension of its legal e7istence or matters affecting amendment of the Charter. $esolutions of the e7traordinar, general meeting shall be deemed adopted when a ma<orit, vote of at least si7t,"si7 and two"thirds plus one per centum ** L 2E+ V 1M! of the capital shares shall have been cast. 6n no case shall the general meeting resolve to modif, the ob<ect of the Bank as an 6slamic 6nvestment Bank. %ec. +2. Bank AuditorD $eports. 'otwithstanding the provisions of an, e7isting law to the contrar,1 the 6slamic Bank is hereb, authori?ed to appoint an e7ternal auditor approved b, the general shareholders meeting whose Aualifications and remunerations shall be fi7ed b, the Board of /irectors. The e7ternal auditor appointed under this section shall assume his functions from the date of his appointment until the date of the ne7t general shareholders meeting. 6n case a vacanc, occurs at an, time during the ,ear for an, reason1 the Board of /irectors shall immediatel, appoint a replacement. The duties of the auditor shall be to conduct an audit of the accounts of the Bank and to make a report to the Board of /irectors. 6n the e7ercise of his auditing functions1 all Bank books1 accounts and documents shall be made available to the auditor for inspection to ascertain the Bank;s asset and obligations. Copies of the latest audited balance sheet1 profit and loss statement1 together with an, note thereon1 and the reports of the auditor to the Board of /irectors shall be forwarded b, the 6slamic Bank1 within the prescribed time to the Central Bank. C4'96/5'T6A. 6'94$8AT64' %ec. ++. Confidential 6nformation. Banking transactions relating to all deposits of whatever nature are confidential and ma, not be e7amined1 inAuired or looked into b, an, person1 government official1 bureau or office e7cept as provided in the preceding section1 or upon written permission b, the depositor1 or in cases where the mone, deposited or the transaction concerned is the sub<ect of a court order. 6t shall be unlawful for an, official or emplo,ee of the 6slamic Bank or an, person as ma, be designated b, the Board of /irectors to e7amine or audit the books of the Bank to disclose or reveal to an, person an, confidential information e7cept under the circumstances mentioned in the preceding paragraph. &$496T A'/ .4%% &4.6CJ %ec. +3. Accounting &eriod. The 9inancial Jear of the 6slamic Bank shall be based on the #regorian calendar1 but the corresponding 6slamic @i<ra date shall be mentioned on all correspondence1 contracts1 printed materials1 forms and records of the 6slamic Bank. The accounting period shall commence from the first da, of -anuar, and close at the end of /ecember each ,ear. %ec. +). /etermination of &rofits and .osses. At the close of each financial ,ear1 the 6slamic Bank shall determine the results of its operation1 in the determination of which the portion of profits due to the 6slamic Bank and the investors shall be allocated pursuant to the provisions of this Act. The Board of /irectors shall1 after deducting the general and administrative e7penses of the Bank and all its operating e7penses including remunerations of the Board of /irectors and the %hari;a Advisor, Council1 determine annuall, what part of the income shall be appropriated to reserves1 investors and shareholders. All accounts relating to financing and <oint investment operations shall be kept separatel, from the accounts from that of the other banking activities and services offered b, the 6slamic Bank. The same rule in respect to the accounts of specific investments shall appl, where such specific pro<ects ma, have a separate account. Allocation of <oint investment profits shall be made after deducting an amount eAual to ten per centum 12M! of the profits reali?ed from various operations during the financial ,ear to be transferred to a reserve account known as 6nvestment $isk 9und for the purpose of meeting an, losses e7ceeding the total profits derived from investments of that ,earD &rovided1 however1 That should the accumulated

reserves eAual the authori?ed capital of the 6slamic Bank1 the Board of /irectors ma, reduce the amount of the annual deduction to a minimal percentage until the aggregate reserves become double the amount of the capital after which the herein authori?ed deduction shall cease to accrue to the reserve account. .osses incurred1 if an,1 shall be deducted from the total profits reali?ed for the financial ,ear in which such losses are incurred but an, e7cess of losses over the profits which have been actuall, reali?ed during that ,ear ma, be deducted from the 6nvestment $isk 9und opened for covering the risks of investmentD &rovided1 That should the total profits reali?ed in the ,ear together with the reserves accumulated from previous ,ears be insufficient to cover the losses incurred1 the 6slamic Bank shall carr, out a comprehensive assessment to arrive at estimated profit and loss based on market rates1 from operations which are financed b, mudarabah funds and which have not reached the stage of final settlement b, the end of the financial ,ear. %ec. +*. %haring Between the Bank and the 6nvestors. 'ot later than the end of the first month of each financial ,ear1 the Board of /irectors shall determine and publish the general percentages of profit to be allocated to the total funds participating in <oint investments of the 6slamic Bank. The 6slamic Bank as a <oint venturer mudarib! shall be entitled to certain percentage after deducting the amount allocated to investors. The Bank shall likewise be entitled to a share in the profits of <oint investments in proportion to its own invested funds. 9or the purpose of calculating funds emplo,ed in financing operations1 priorit, shall be given to <oint investment accounts and the holders of muAuaradah bonds. All ?akat due on the shareholder;s capital and reserves represented b, the pecuniar, value of shares and the ?akat due on the investor;s funds or profits accruing to ever, depositor shall be paid to the ?akat fund1 sub<ect to their instructions. %ec. +=. Ta7 57emption. The 6slamic Bank assets1 profits1 distributions and all contracts1 deeds1 documents and transactions related to the conduct of business of the 6slamic Bank shall be e7empted from all ta7es under the 'ational 6nternal $evenue Code to commence from the first ta7able ,ear1 following its actual 6slamic banking operation as certified b, the Central Bank1 to the e7tent as herein made allowableD 4ne hundred per centum 122M! for the first five )! ,earsH and %event,"five per centum =)M! for the si7th through the eighth ,earsD &rovided1 however1 That said e7emption shall appl, onl, to such ta7es1 fees1 charges and assessments for which the 6slamic Bank would otherwise be liable1 and shall not appl, to the ta7es1 fees1 charges or assessments pa,able b, persons or other entities doing business with the 6slamic Bank. An investment in 6slamic banking business to the e7tent of actual participation in profit and loss sharing scheme1 paid in cash or propert,1 shall be granted an e7emption from all ta7es under the 'ational 6nternal $evenue Code1 e7cept income ta7D &rovided1 That an investment ta7 allowance shall be permitted as a deduction from ta7able income under such transactions to the e7tent that the 6slamic Bank pa,s out ?akat on the income of investors capital and surplus reserves for the duration of the <oint investment period. %ec. +0. 57emption from Customs /uties. Cithin the first five )! ,ears of operation of the 6slamic Bank1 all importations b, the Bank of machiner,1 eAuipment1 calculators and computers and the accompan,ing spare parts1 as ma, be necessar, for its operation1 shall be e7empted from customs duties and compensating ta7es pa,able thereonD &rovided1 however1 That the same shall not be disposed of domesticall, unless pa,ment is made of all duties thereof at the tariff rates and according to their condition at the time of disposal and upon compliance with all import and e7change procedures. %ec. +(. 'on"Applicabilit, of %elected Acts. 6n order to achieve the international and domestic ob<ectives of 6slamic banking business1 the provisions of the following acts and laws shall not appl, to the 6slamic Bank to the e7tent as herein rendered inoperativeD The provisions of the Central Bank Act and the #eneral Banking Act with particular reference to the determination of bank interest rates1 loans and discounts1 and an, interest"bearing instruments or chargeD &rovided1 That nothing contained herein shall be construed to impair the powers of the Central Bank to supervise and regulate the activities of the 6slamic BankH The #eneral Auditing Act and an, other enactments thereon inconsistent with this ActH and

The provisions of $epublic Act 'umbered Three thousand five hundred ninet,"one1 as amended1 and all laws regulating insurance companiesD &rovided however1 That nothing contained herein shall preclude the 6slamic Bank from the establishment of contemporar, 6slamic tafakul solidarit, services! free of riba premiums or interests. %ec. 32. 5mplo,ment of 9oreign 'ationals. %ub<ect to the provisions of %ection 2( of Commonwealth Act 'o. *1+1 and the Anti"/umm, .aw1 as amended1 the 6slamic Bank ma, emplo, foreign nationals in supervisor,1 technical or advisor, positions for a period not e7ceeding five )! ,ears e7tendible for limited periods upon the recommendation of the #overnor of the Central Bank. 9oreign nationals under emplo,ment contract within the purview of this Act1 their spouses and unmarried children under twent,"one 21! ,ears of age1 who are not e7cluded b, %ection 2( of Commonwealth Act 'o. *1+1 shall be permitted to enter and reside in the &hilippines during the period of emplo,ment of such foreign nationals. %ec. 31. Training of Technical &ersonnel. The 6slamic Bank shall promote and sponsor the training of technical personnel in the field of 6slamic banking1 finance and insurance. Towards this end1 the 6slamic Bank is hereb, authori?ed to defra, the costs of stud,1 at home or abroad1 of outstanding emplo,ees of the 6slamic Bank1 of promising universit, graduates or of an, other Aualified persons who shall be determined b, proper competitive e7aminations. The Board of /irectors shall prescribe rules and regulations to govern the training program of the 6slamic Bank. .5#A. 5P6%T5'C5 %ec. 32. Terms of .egal 57istence. The legal e7istence of the 6slamic Bank shall be for a period of fift, )2! ,ears1 from and after the date of the approval of this Act1 renewable upon resolution of the general shareholders meeting called for said purpose. At the e7piration of the 6slamic Bank;s corporate e7istence or in the event of its dissolution before this date1 the general shareholders meeting shall1 upon the reAuest of the Board of /irectors1 define the method of dissolution as provided for in its b,laws. #5'5$A. &$4F6%64'% %ec. 3+. Application of the 6slamic %hari;a. The 8onetar, Board of the Central Bank of &hilippines shall formulate the necessar, rules and regulations to carr, out the provisions of Charter for the purpose of providing adeAuate credit facilities primaril, to the people of Autonomous $egion1 and to supervise the operation of the 6slamic Bank in accordance with universal principle of the 6slamic %hari;a. %ec. 33. adoptedD the this the the

/efinition of Terms. 9or purposes of this Act1 the following definition of terms is hereb,

6slamic Bank means the bank created under this ActH 6slamic banking business means banking business whose aims and operations do not involve interest riba! which is prohibited b, the 6slamic %hari;a principlesH %hari;a has the meaning assigned to it b, 6slamic law and <urisprudence as e7pounded b, authoritative sourcesH in the conte7t of this Act1 it is construed b, reference to pertinent >uranic ordinances and applicable rules in 6slamic <urisprudence on business transactionsH $iba has the meaning assigned to it b, 6slamic law and <urisprudence as e7pounded b, authoritative sourcesH in the conte7t of banking activities1 the term includes the receipt and pa,ment of interest in the various t,pes of lending and borrowing and in the e7change of currencies on forward basisH Gakat has the meaning assigned to it b, 6slamic law and <urisprudence as e7pounded b, authoritative sourcesH in the conte7t of this Act1 it represents an annual BtitheB pa,able b, the Bank on behalf of its shareholders and investors in compliance with 6slamic %hari;a principlesH /epositor means a person or entit, who has an account at an 6slamic Bank1 whether the account is a current account1 a savings account1 an investment account or an, other deposit accountH unless the conte7t reAuires another meaning1 a depositor corresponds to an investor in <oint investment of the 6slamic BankH

=! Current account liabilities in relation to 6slamic banking services means the total deposits at the bank which are repa,able on demandH 0! %avings account liabilities in relation to 6slamic banking services means the total deposits at the 6slamic Bank which normall, reAuire the presentation of passbooks or such other legall, acceptable documents in lieu of passbooks as approved b, the Central Bank for the deposit or withdrawal of mone,H (! 6nvestment account liabilities in relation to 6slamic banking services means the total deposit liabilities at the 6slamic Bank in respect of funds placed b, a depositor with that bank for a fi7ed period of time under an agreement to share the profits and losses of that bank on the investment of such fundsH 12! 4ther deposit liabilities in relation to an 6slamic Bank means the deposit liabilities at that bank other than savings account1 investment account1 current account liabilities and deposit liabilities from an, 6slamic Bank or an, other licensed bankH 11! &articipation in relation to 6slamic banking and commercial operations means an, agreement or arrangement under which the mode of <oint investments or specific transactions shall not involve the element of interest charge other than as percentage share in profits and losses of businessH 12! %hare means share in the capital of the Bank or a corporation and includes a stock1 e7cept where a distinction between stock and share is e7pressed or implied. &5'A.T65% %ec. 3). &enalties for Fiolation. An, director1 officer1 emplo,ee1 auditor or agent of the 6slamic Bank who violates or permits the violation of an, provision of this Act shall be punished b, a fine not e7ceeding Ten thousand pesos &121222.22! or an imprisonment of not more than five )! ,ears1 or both1 at the discretion of the court. T$A'%6T4$J A'/ 86%C5..A'54:% &$4F6%64'% %ec. 3*. %upervision and $egulation b, the Central Bank. The 6slamic Bank shall be under the supervision and regulation of the Central Bank. All provisions of this Act1 e7cept those which pertain to the principles of 6slamic %hari;a1 shall be sub<ect to all banking and pertinent laws of the &hilippines and Central Bank $ules and $egulations which shall include proper safeguards to depositors and investors in the investments1 partnerships1 agencies and other operations of the bank. %ec. 3=. &rivati?ation. 'othing in this Act shall be construed to preclude the 6slamic Bank from privati?ing its ownership. 9or this purpose1 an, limitation on the transfer of shares shall not be applicable with respect to the shareholdings of the 'ational #overnment1 %ocial %ecurit, %,stem1 #overnment %ervice 6nsurance %,stem1 &hilippine 'ational Bank and /evelopment Bank of the &hilippines. %ec. 30. Transformation to 6slamic Banking Business. :pon approval of this Act1 all the assets1 liabilities and capital accounts of the &hilippine Amanah Bank are hereb, transferred to the Al"Amanah 6slamic 6nvestment Bank. 'othing in this Act shall be construed to preclude the 6slamic Bank from transforming its investment portfolios1 accounts or assets for the conduct of 6slamic banking business. 6f1 for an, reason1 such portfolios1 accounts or assets granted under the authorit, of the &hilippine Amanah Bank Charter are not eligible for this purpose1 the same ma, be transferred1 swapped1 sold or otherwise disposed of in an, manner deemed feasible following the effectivit, of this Act. %ec. 3(. $eorgani?ation of the Bank. The 6slamic Bank shall commence its reorgani?ation within si7 *! months from the date this Act takes effect. The present personnel complement of the &hilippine Amanah Bank shall in the interim continue to discharge their respective functions. 4fficials and personnel whose services ma, be dispensed with as a result of this reorgani?ation shall be paid the usual gratuities to which the, ma, be entitled under the e7isting laws. %ec. )2. %tatutor, Articles of 6ncorporation. This Act upon its effectivit,1 shall be deemed accepted for all legal intents and purposes as the %tatutor, Articles of 6ncorporation of the Al"Amanah 6slamic 6nvestment Bank of the &hilippinesH and that notwithstanding the provision of an, e7isting law to the contrar,1 said 6slamic Bank shall be deemed registered and dul, authori?ed to do business and operate as an 6slamic Bank as of the date of approval of this Act.

%ec. )1. B,laws. Cithin si7t, *2! da,s upon effectivit, of this Act1 the b,laws of the 6slamic Bank for its organi?ational1 functional and operational government and procedure shall be adopted b, affirmative vote at the general shareholders meeting representing a ma<orit, of all the subscribed capital stock entitled to vote1 whether paid or unpaid1 sub<ect to certification b, the 8onetar, Board pursuant to %ection Ten of the #eneral Banking Act. The b,laws1 dul, certified b, the 8onetar, Board as aforesaid1 shall be signed b, the shareholders voting for them and shall be kept in the principal office of the 6slamic Bank1 sub<ect to the inspection of the shareholders during office hours1 and a cop, thereof1 dul, certified b, a ma<orit, of the directors and countersigned b, the Corporate %ecretar, of the 6slamic Bank1 shall be filed and registered with the %ecurities and 57change Commission. %ec. )2. $epealing and %eparabilit, Clauses. &residential /ecree 'o. 2*31 as amended b, &residential /ecree 'o. )321 creating the &hilippine Amanah Bank is hereb, repealed. All acts1 e7ecutive orders1 administrative orders1 proclamations1 rules and regulations or parts thereof inconsistent with an, of the provisions of this Act are hereb, repealed or modified accordingl,. 6f an, provision or section of this Act or the application thereof to an, person1 association or circumstances is held invalid1 the other pertinent provisions or section of this Act and their application to such person1 association or circumstances shall not be affected thereb,. %ec. )+. 5ffectivit,. This Act shall take effect fifteen 1)! da,s after its publication in at least two 2! newspapers of general circulation.

Ot+er C#$%%ific$tion% of B$n2% $% Deter.ine- 01 t+e <onet$r1 Bo$r- of t+e B$n32o Sentr$# n3 Pi#i/in$% "e)elo-;en, Bank of ,9e &9ili--ine7 %# No. 81, a7 a;en2e2 "ece;0er 3, 1984
&$4F6/6'# 94$ T@5 1(0* $5F6%5/ C@A$T5$ 49 T@5 /5F5.4&85'T BA'K 49 T@5 &@6.6&&6'5%C@5$5A%1 it is the polic, of the %tate that the national interest in both the maintenance of economic stabilit, and the promotion of economic development is best served b, a s,stem of financial intermediation that places primar, reliance on the private sector1 on the maintenance of conditions of competition1 and on the market mechanism for its effective operations. C@5$5A%1 within the conte7t of the general polic, there nevertheless e7ists a clear role for direct government participation in the banking s,stem through a government development bank1 particularl, in servicing the medium and long term reAuirements of agriculture1 and small and medium scale industr,1 e7port development1 and the government sectorH C@5$5A%1 in pursuit of this national polic, there is need to restructure the government financial institutions1 particularl, the /evelopment Bank of the &hilippines1 to achieve a more efficient and effective use of available resources1 to improve their viabilit,1 and avoid unfair competition with the private sectorH and '4C1 T@5$594$51 61 C4$AG4' C. A>:6'41 &resident of the &hilippines1 do hereb, order. %ec. 1. This 57ecutive 4rder shall be known as B T@5 1(0* $5F6%5/ C@A$T5$ 49 T@5 /5F5.4&85'T BA'K 49 T@5 &@6.6&&6'5%B. %ec. 2. 'ame1 &urpose and /omicile. The /evelopment Bank of the &hilippines1 hereinafter called the Bank1 operating under the provisions of $epublic Act 'o. 0)1 as amended1 shall henceforth operate under the provisions of this 1(0* $evised Charter. The Bank shall be a bod, corporate and shall e7ist for a period of fift, ,ears. The primar, purpose of the Bank shall be to provide banking services principall, to service the medium and long term needs of agricultural and industrial enterprises1 particularl, in the countr,"side and preferabl, for small and medium scale enterprisesH &rovided1 however1 that the pursuit of these ob<ectives shall be undertaken within the conte7t of a financiall, viable and stable banking institutionsH &rovided1 further that the Bank shall continue to be classified as a development Bank1 &rovided1 finall,1 that unless otherwise provided herein1 the Bank ma, perform all other functions of a thrift bank. The Bank;s principal office and place of business shall be in the 'ational Capital $egion1 also known as 8etro 8anila. 6t ma, open and maintain branches1 agencies or other offices at such places in the &hilippines as its Board of /irectors ma, deem advisable1 with the prior approval of the 8onetar, Board of the Central Bank of the &hilippines. %ec. +. Corporate &owers. The /evelopment Bank of the &hilippines shall have the power.

To accept such deposits as are allowed thrift banks under e7isting law and Central Bank regulations1 including but not limited to demand1 savings1 and time deposits. To grant loans for the establishment1 development or e7pression of an, agricultural or industrial enterpriseH c ! To accept and manage trust funds and properties and carr, on the business of a trust corporationH To act as official government depositor, with authorit, to maintain deposits of the government1 its subdivisions1 branches1 and instrumentalities1 and of government"owned or controlled corporations1 sub<ect to such rules and regulations as the 8onetar, Board ma, prescribeH To acAuire1 assign1 or otherwise dispose of marketable securities and other debt instruments which are essential to the effective conduct of its general banking activitiesH

To enter into such contracts of guarant, on suret,ship as are generall, allowed domestic banking institutions under the #eneral Banking ActH and To adopt1 amend1 or charge its B,"lawsH to adopt1 alter and use a sealH to make contractsH to sue and be suedH and to e7ercise the general powers of a corporation mentioned in the Corporation Code of the &hilippines1 and of a thrift bank under the #eneral Banking Act1 insofar as such powers are not inconsistent or incompatible with the provisions of this Charter. :nless otherwise provided in this Charter1 the e7ercise of the above"mentioned powers on banking shall be sub<ect to applicable law1 as well as regulations promulgated b, the Central Bank of the &hilippines. %ec. 3. .oans and other 6nvestments. .oans and other investments of the Bank shall be sub<ect to the same limits and ceilings applicable to thrift banks under e7isting provisions of law and regulations promulgated b, the 8onetar, Board1 including but not limited to prescribed limits and ceilingsH &rovided1 that loans and investments e7isting as of the date of the effectivit, of this Charter and which loans and investments would e7ceed the prescribed limits as a result of the implementation of its rehabilitation program1 as well as those investment authori?ed under %ection * hereof which are in e7cess of the prescribed limits shall be reduced within five ,ears in accordance with such program of reduction as ma, be approved b, the 8onetar, Board. The period of reduction ma, be e7tended up to another five ,ears b, the &resident of the &hilippines upon recommendation b, the 8onetar, Board. %ec. ). 6ssuance of Bonds. The Bank ma, issue all kinds of bonds1 debentures1 and securities1 andEor the renewal or refunding thereof hereinafter called BBondsB!1 within andEor outside the &hilippines1 at such terms1 rates1 and conditions as the Board of /irectors of the Bank ma, determine1 sub<ect to compliance with the provisions of applicable law1 and rules and regulations promulgated b, the 8onetar, Board. The Bank shall provide for appropriate reserves for the redemption or retirement of the bonds. These bonds and other obligations shall be redeemable at the option of the Bank at or before maturit, and in such manner as ma, be stipulated therein and shall bear such rate of interest as ma, be fi7ed b, the Bank. %uch obligations shall be secured b, the assets of the Bank1 including the stocks1 bonds1 debentures1 and other securities purchased or held b, it under the provisions of this Charter. These bonds and debentures ma, be long"term1 medium1 or short"term1 with fi7ed interest rate or floating interest rate. %ec. *. &rivate /evelopment Banks1 4ther Thrift Banks and $ural Banks. The Bank ma, assist private development banks and other privatel, owned banks in the thrift bank categor,1 as well as rural banks1 through general credit accommodations including but not limited to conduit lending and rediscounting operations1 and e7tension of technical and managerial assistanceH &rovided1 That the Bank ma, likewise make eAuit, investments in private development banks and other private owned banks in the thrift bank categor,1 as well as rural banks1 if such investment is in connection with the privati?ation of certain branches of the BankH &rovided1 further1 That the e7tent of such eAuit, investment ma,1 with the prior approval of the 8onetar, Board1 e7ceed the ceilings prescribed in %ection 3 hereofH and1 &rovided1 finall,1 That after five ,ears from effectivit, of this Charter1 an, eAuit, investment shall not e7ceed thirt, +2M! per cent of the eAuit, in an, such bank nor shall its total eAuit, investments e7ceed the prescribed aggregate ceiling on such investments. %ec. =. Authori?ed Capital %tock &ar value. The capital stock of the Bank shall be 9ive Billion &esos to be divided into 9ift, 8illion common shares with par value of &122 per share. These are available for subscription b, the 'ational #overnment. :pon the effectivit, of this Charter1 the 'ational #overnment shall subscribe to Twent,"9ive 8illion common shares of stock worth Two Billion 9ive @undred 8illion which shall be deemed paid for b, the #overnment with the net asset values of the Bank remaining after the transfer of assets and liabilities as provided in %ection +2 hereof. %ec. 0. Board of /irectors Composition Tenure &er /iems. The affairs and business of the Bank shall be directed and its properties managed and preserved and its corporate powers e7ercised1 unless otherwise provided in this Charter1 b, a Board of /irectors consisting of nine members1 to be appointed b, the &resident of the &hilippines. The term of office of the Chairman1 Fice"Chairman1 and the members of the Board of /irectors shall be for a period of one ,ear or until such time as their successors are appointed. The Chairman and the Fice Chairman of the Board shall be appointed b, the &resident of the &hilippines. The Fice Chairman of the Board shall assist the Chairman and act in his stead in case of

absence or incapacit,. 6n case of incapacit, or absence of both the chairman and vice"chairman1 the Board of /irectors shall designate a temporar, chairman from among its members. 'o person shall be elected director of the Bank unless he is a natural"born citi?en of the &hilippines1 not less than thirt,"five ,ears of age1 of good moral character and has attained proficienc,1 e7pertise and recogni?ed competence in one or more of the followingD banking1 finance1 economics1 law1 agriculture1 business management1 public utilit, or government administration. At least four of the members of the Board shall come from the private sector. 57cept for the Chairman and the Fice Chairman of the Board1 no officer or emplo,ee of the Bank ma, be appointed as a member of the Board of /irectors of the BankH nor shall an, director1 officer1 or emplo,ee of an, other bank be eligible as a member of the Board of /irectors of the Bank. :nless otherwise set b, the Board and approved b, the &resident of the &hilippines1 members of the Board shall be paid a per diem of one thousand pesos for each meeting of the Board of /irectors actuall, attendedD &rovided1 that the total amount of per diems for ever, single months shall not e7ceed the sum of 9ive Thousand &esos. %ec. (. &owers and /uties of the Board of /irectors. The Board of /irectors shall have1 among others1 the following duties1 powers and authorit,D To formulate policies necessar, to carr, out effectivel, the provisions of this Charter and to prescribe1 amend1 and repeal b,"laws1 rules and regulations for the effective operation of the Bank1 and the manner in which the general business of the Bank ma, be conducted and the powers granted b, law to the Bank e7ercisedH To approve loans1 to fi7 rates of interest on loans and to prescribe such terms and conditions for loans and credits as ma, be deemed necessar,1 consistent with the provisions of this CharterH &rovided1 that the Board ma, delegate the authorit, to approve loans to such officers as ma, be deemed necessar,H c ! To adopt an annual budget for the effective operation and administration of the BankH To create and establish a B&rovident 9undB which shall consist of contributions1 made both b, the Bank and its officers or emplo,ees1 to a common fund for the pa,ment of benefits to such officers or emplo,ees1 or their heirs1 under such terms and conditions as the Board of /irectors ma, fi7H To compromise or release1 in whole or in part1 an, claim or settled liabilit, to the Bank regardless of the amount involved1 under such terms and conditions it ma, impose to protect the interests of the Bank. This authorit, to compromise shall e7tend to claims against the BankH and To appoint1 promote or remove officers from the rank of Fice &resident or its eAuivalent1 and other more senior officer positions1 e7cluding the Chairman and the Fice Chairman. %ec. 12. Chairman and Chief 57ecutive 4fficer. The Chairman shall be the Chief 57ecutive 4fficer of the Bank and1 as such1 shall1 on behalf of the Board1 have the direction and control of the business affairs and properties of the Bank in all matters which are not b, this Charter or b, the B,".aws of the Bank specificall, reserved to be done b, the Board or other officers of the Bank. 9or this purpose1 he shall1 among other powers and duties1 e7ecute1 carr, out1 and administer the policies1 measures1 orders1 and resolutions approved b, the BoardH direct and supervise the operation and administration of the BankH and e7ercise such other powers and perform such other functions or duties as ma, be directed or assigned to him b, law or b, the Board from time to time. &articularl,1 he shall have the power and dut,D To sign and e7ecute all contracts concluded b, the Bank and enter into all necessar, obligations reAuired or permitted b, this Charter1 upon proper authori?ation b, the BoardH and sign all notes1 securities certificates1 and other ma<or documents of the BankH To e7ercise1 as Chief 57ecutive 4fficer of the Bank1 the powers of control and supervision over decisions and actions of subordinate officers and all other powers that ma, be granted b, the BoardH c ! To report to the Board the main facts concerning the operations of the Bank and to recommend changes in policies which he ma, deem advisableH To submit an annual report to the &resident of the &hilippines on the result of the operations of the BankH

To recommend to the Board the appointment1 promotion1 or removal of all officers of the Bank1 with the rank of at least vice"president or its eAuivalentH To appoint1 promote or remove emplo,ees and officers below the rank of vice"president or its eAuivalentH &rovided1 that promotions1 transfers1 assignments or reassignments of officers and personnel of the Bank are personnel actions deemed made in the interest of the service and not disciplinar,1 an, provision of the Civil %ervice .aw to contrar, notwithstandingH and As reAuired b, circumstances1 to delegate an, of his powers1 duties or functions to an, officer or director of the Bank1 with the approval of the Board. %ec. 11. Fice Chairman and Chief 4perating 4fficer. The Fice Chairman shall be the Chief 4perating 4fficer of the Bank and shall assume and e7ercise such specific duties and responsibilities as ma, be delegated to him b, the Chairman. %ec. 12. .egal 8atters and Cases. The Bank shall have its own .egal /epartment1 the head of which shall be appointed b, the Board of /irectors of the Bank upon recommendation of the Chairman. 6n appropriate cases1 the Bank ma, avail also of the legal services of an, government legal office authori?ed to render such services to government"owned or controlled corporations. The Bank ma,1 upon the recommendation of its Chief .egal Counsel1 deputi?e an, member of its legal staff to act as special sheriff in foreclosure cases1 in the sale or attachment of the debtor;s properties and in the enforcement of court writs and processes in cases involving the Bank. The special sheriff of the Bank shall make a report to the proper court after an, action taken b, him1 which shall treat such action as if it were an act of its own sheriffs in all respects. %ec. 1+. 4ther 4fficers and 5mplo,ments. The Board of /irectors shall provided for an organi?ation and staff of officers and emplo,ees of the Bank and upon recommendation of the Chairman of the Board1 fi7 their remunerations and other emoluments. 'o 4fficer or emplo,ee of the Bank sub<ect to Civil %ervice .aw shall be dismissed e7cept as provided b, law. %ec. 13. 57emption from Attachment. The provisions of an, law to the contrar, notwithstanding1 securities on loans andEor other accommodation granted b, the Bank or its predecessors"in"interest shall not be sub<ect to attachment1 e7ecution or an, other court process1 nor shall the, be included in the propert, of insolvent persons or institutions1 unless all debts and obligations of the debtor to the Bank and its predecessors"in"interest have been previousl, paid1 including accrued interest1 penalties1 collection e7penses1 and other charges1 sub<ect to the provisions of paragraph e! of %ection ( of this Charter. %ec. 1). 4fficer to Conduct %ale. 6n case of sale of mortgaged properties under the provisions of e7isting laws or of this Charter1 such sale shall be conducted under the direction of the sheriff of the &rovince or an, special sheriff of the Bank1 or of a municipal <udge or notar, public of the Cit, or 8unicipalit, where the sale is to be made1 who shall be entitled to collect the fees provided for in the $ules of the Court with respect to sale of properties under e7ecution. %ec. 1*. $ight of $edemption. An, mortgagor of the Bank whose real propert, has been e7tra<udiciall, sold at public auction shall1 within one 1! ,ear counted from the date of registration of the certificate of sale1 have the right to redeem the real propert, b, pa,ing to the Bank all of the latter;s claims against him1 as determined b, the Bank. The Bank ma, take possession of the foreclosed propert, during the redemption period. Chen the Bank takes possession during such period1 it shall be entitled to the fruits of the propert, with no obligation to account for them1 the same being considered compensation for the interest that would otherwise accrue on the account. 'either shall the Bank be obliged to post a bond for the purpose of such possession. %ec. 1=. 6nhibition from Board 8eeting of 8ember with &ersonal 6nterest. Chenever an, member attending a meeting of the Board of /irectors has a direct personal interest in the discussion or resolution of an, given matter1 or an, of his relatives within the second civil degree or consanguinit, or second civil degree of affinit, has such an interest1 said member shall not participate in the discussion or resolution of the matter and must retire from the meeting during the deliberation thereon. The

minutes of the meeting1 which shall note the sub<ect matter1 when resolve1 the fact that a member had a personal interest in it1 and the withdrawal of the member concerned1 ma, be made available to the public. 9or this purpose1 the member of the Board shall1 at the beginning of their respective terms1 disclose to the board an, and all interests the, ma, have in an, corporation1 partnership. or association and shall1 thereafter1 disclosed to the Board1 an, charges thereto. %ec. 10. &rohibition on &ersons with &ersonal 6nterest. 'o member of the Board1 officer1 attorne,1 agent1 or emplo,ee of the Bank shall in an, manner1 directl, participate in the deliberation upon or the determination of an, Auestion affecting his direct personal interest or the personal interests of his relatives within the second civil degree of consanguinit, or second civil degree of affinit,1 or of an, corporation1 partnership1 or association in which he has a direct interest. An, person violating the provisions of this section shall be summaril, removed from office and shall upon conviction be punished with a not less than one thousand pesos nor more than ten thousand pesos or with imprisonment of not less than one ,ear nor more than five ,ears1 or b, both fine and imprisonment at the discretion of the court. %ec. 1(. Borrowing b, /irectors1 4fficer and 5mplo,ees $estriction and .imitation. 'o director or officer or emplo,ees of the Bank or an, corporation1 partnership1 or compan, wherein an, member of the Board of /irectors1 officer or emplo,ee1 andEor their respective immediate famil, is a controlling shareholder1 or wherein he is a director or officer shall1 either directl, or indirectl,1 for himself or as representative or agent of others1 borrow an, of the deposits of funds from the bank1 nor shall he become a guarantor1 or in an, manner be an obligator for mone, borrowed from the bank or loaned b, itD &rovided1 That this prohibition on loans to directors1 officers and emplo,ees shall not include loans allowed in the form of fringe benefits granted in accordance with rules and regulations as ma, be prescribed b, the 8onetar, Board of the Central Bank. %ec. 22. $ules and $egulations on Conflict of 6nterest. The foregoing provisions notwithstanding and in addition thereto1 the Board of /irectors is hereb, authori?ed to issue rules and regulations for the purposes of determining and resolving conflict of interest Auestions1 which rules shall1 in particular1 include the reAuirement on all officers and emplo,ees of the Bank to disclose an, shareholdings the,1 or their relatives within the second civil degree of consanguinit, or second civil degree of affinit,1 ma, have in an, corporation1 partnership1 or compan, in e7cess of 2M of the eAuit, of said corporation1 partnership1 or compan,. %ec. 21. 57amination of the Bank. The Bank shall be sub<ect to supervision and e7amination b, the appropriate department of the Central Bank of the &hilippines. %ec. 22. &rohibition on 4fficers and 5mplo,ees of the Bank. 57cept as reAuired b, law1 or upon order of a court of competent <urisdiction1 or the e7press order of the &resident of the &hilippines or written permission of the client1 no officer or emplo,ee of the Bank shall reveal to1 nor allow to be e7amined1 inAuired or looked into1 b, an, third person1 government official1 bureau or office an, information relative to details of individual accounts or specific banking transactionsD &rovided1 that in respect to deposits or whatever nature1 the provisions of e7isting law shall appl,. This prohibition shall not appl, to the e7change of confidential credit information among government financial institutions or among banks1 in accordance with established banking practices or as ma, be allowed b, law. %ec. 2+. 57action of 9ee1 Commission1 #ift or Charge. 'o authori?ed fee1 commission1 gift1 or charge of an, kind shall be e7acted1 demanded1 or paid1 for obtaining loans from the Bank1 and an, officer1 emplo,ee1 or agent of the Bank found guilt, of e7acting1 demanding1 or receiving an, fee services in obtaining a loan1 shall be punished b, a fine of not less than one thousand nor more than twent, thousand pesos1 imprisonment for not less than one ,ear nor more than ten ,ears1 and perpetual disAualification from public office. %ec. 23. &enal &rovisions of #eneral Banking Act. The penal provisions of %ection 0="A of the #eneral Banking Act shall be applicable to officers1 emplo,ees and borrowers of the Bank. %ec. 2). #eneral &enal &rovisions. An, officer or emplo,ee of the Bank who violates1 or permits an, of the officers1 emplo,ees or agents of said Banks or an, other person to violate1 an, of the provision of this Chapter not specificall, punished in the preceding section and an, person violating an, provision of this Charter or aiding and abetting the violation thereof1 shall be punished with a fine not less than one thousand nor more than ten thousand pesos and with imprisonment not less than one ,ear nor more than five ,ears.

%ec. 2*. 4ther .iabilit, of #uilt, 4fficer or 5mplo,ee. An, member of the Board of /irectors or officer or emplo,ee of the Bank who willfull, violates an, of the provisions of this Charter shall in1 addition to the criminal and administrative liabilit, resulting from such act1 be held liable for an, loss or in<ur, suffered b, the Bank as a result of such violation. %ec. 2=. .iabilit, of /irectors1 4fficers or &artners of 4ffending Corporation or &artnership. 6f the violation of the provisions of this Charter is committed b, a corporation or partnership1 the directors1 officers or partners hereof who participated in the violation shall be criminall, liable for such violation. %ec. 20. Applicabilit, of Banking .aws. The provisions of $epublic Act 'o. 2*)1 as amended1 and $epublic Act 'o. ++=1 as amended1 insofar as applicable and not in conflict with an, provision of this Charter1 shall appl, to the Bank. T$A'%6T4$J &$4F6%64'% %ec. 2(. &reparator, Cork. :pon the effectivit, of this Charter1 the Board of /irectors and management of the Bank shall undertake the appropriate steps to establish its current financial condition for the purpose of determining its net asset values and the book value of shares thereof. The shares of stock held b, the #overnment of the &hilippines in the Bank are deemed cancelled and e7change for common voting shares of the Bank. %ec. +2. Transfer of Assets and .iabilities of the /evelopment Bank of the &hilippines. The Bank shall transfer to the 'ational #overnment such of its assets and liabilities as ma, be necessar, to rehabilitate the bank and to start its operations under the $evised Charter on a viable basis1 as determined b, the appropriate authorities1 such assets to include but need not be limited to its acAuired assets and non"performing accounts and such liabilities to include real as well as contingent liabilities. The 'ational #overnment is hereb, authori?ed to accept the same under terms and conditions as ma, be mutuall, acceptable to the Bank and the 'ational #overnment. %ec. +1. 8aintenance1 Care and &reservation of Assets Transferred to the 'ational #overnment. The Bank is hereb, authori?ed to enter into an agreement with the 'ational #overnment as transferee of assets from the Bank as hereinabove provided1 either as an interim arrangement or otherwise and under such terms and conditions as ma, be necessar, to preserve andEor to maintain andEor to dispose of such assets transferred to the 'ational #overnment. %ec. +2. Authorit, to $eorgani?e. 6n view of the new scope of operations of the Bank1 a reorgani?ation of the Bank and a reduction in force are hereb, authori?ed to achieve simplicit, and econom, in operations1 including adopting a new staffing pattern to suit the reduced operations envisioned. The formulation of the program of reorgani?ation shall be completed within si7 months after the approval of this Charter1 and the full implementation of the reorgani?ation program within thirt, months thereafter. %ec. ++. 6mplementing /etailsH 4rgani?ation and %taffing of the Bank. :pon the effectivit, of this Charter1 the Board of /irectors of the Bank shall be constituted and its Chairman appointed. The Chairman is hereb, authori?ed1 sub<ect to the approval of the Board of /irectors as appropriate1 to issue such orders1 rules and regulations as ma, be necessar, to implement the provisions of this Charter including those relative to the financial aspects1 if an,1 and to the reorgani?ation of the Bank as hereinabove authori?ed which will involve the determination and adoption of 1! the new internal structure of the Bank as reorgani?ed down to the divisional section or lowest organi?ational levels1 including such appropriate units as ma, be needed to handle caretaking activities such as the disposition of certain assets and the collection of certain accountsH 2! a new staffing pattern including appropriate salar, rates1 and +! the initial operating budget. 6n the implementation of the reorgani?ation of the Bank1 as authori?ed under the preceding section1 Aualified personnel of the Bank ma, be appointed to appropriate positions in the new staffing pattern thereof and those not so appointed are deemed separated from the service. 'o preferential or priorit, rights shall be given to or en<o,ed b, an, officer or personnel of the Bank for appointment to an, position in the new staffing pattern nor shall an, officer or personnel be considered as having prior or vested rights with respect to retention in the Bank or in an, position as ma, have been created in its new staffing pattern1 even if he should be the incumbent of a similar position thereon. &ending the completion of the personnel actions above provided and the issuance of the appropriate implementing orders1 all present remaining incumbents of position in the Bank shall continue to e7ercise their usual functions1 duties and responsibilities.

%ec. +3. %eparation Benefits. All those who shall retire from the service or are separated therefrom on account of the reorgani?ation of the Bank under the provisions of this Charter shall be entitled to all gratuities and benefits provided for under e7isting laws andEor supplementar, retirement plans adopted b, and effective in the BankD &rovided1 that an, separation benefits and incentives which ma, be granted b, the Bank subseAuent to -une 11 1(0*1 which ma, be in addition to those provided under e7isting laws and previous retirement programs of the Bank prior to the said date1 for those personnel referred to in this section shall be funded b, the 'ational #overnmentH &rovided1 further1 that1 an, supplementar, retirement plan adopted b, the Bank after the effectivit, of this Chapter shall reAuire the prior approval of the 8inister of 9inance. %ec. +). Banking 4perations under 1(0* $evised Charter1 #overnment .aws. The banking operations of the Bank shall be governed b, the provisions of the 1(0* $evised Charter beginning on -anuar, 21 1(0= on such subseAuent date as ma, be determined b, the &resident of the &hilippines upon the recommendation of the 8inister of 9inance. %ec. +*. %eparabilit, Clause. 6n the event that an, provision of this Charter or the applicabilit, of such provisions to an, person or circumstances is declared invalid1 the remainder of the Charter or the application of said provision to other persons or circumstances shall not be affected b, such declaration. %ec. +=. $epealing Clause. All acts1 e7ecutive1 orders1 administrative orders1 proclamations1 rules and regulations or parts thereof inconsistent with an, of the provisions of this charter are hereb, repealed or modified accordingl,. %ec. +0. 5ffectivit,. This Charter shall take effect upon its approval.

Lan2 Bank of ,9e &9ili--ine7 Agric/l,/ral Lan2 Refor; 'o2e RA No. 38.., Sec7. 7. < 100
%ec. =3. Creation. To finance the acAuisition b, the #overnment of landed estates for division and resale to small landholders1 as well as the purchase of the landholding b, the agricultural lessee from the landowner1 there is hereb, established a bod, corporate to be known as the B.and Bank of the &hilippinesB1 hereinafter called the BBankB1 which shall have its principal place of business in 8anila. The legal e7istence of the Bank shall be for a period of fift, ,ears counting from the date of the approval hereof. The Bank shall be sub<ect to such rules and regulations as the Central Bank ma, from time to time promulgate. %ec. =). &owers in #eneral. To carr, out this main purpose1 the Bank shall have the powerD To prescribe1 repeal1 and alter its own b, laws1 to determine its operating policies1 and to issue such rules and regulations as ma, be necessar, to achieve the main purpose for the creation of the BankH To adopt1 alter and use a corporate sealH To acAuire and own real and personal propert, and to sell1 mortgage or otherwise dispose of the sameH To sue and be sued1 make contracts1 and borrow mone, from both local and foreign sources. %uch loans shall be sub<ect to approval b, the &resident of the &hilippines and shall be full, guaranteed b, the #overnment of the &hilippinesH :pon recommendation of the Committee on 6nvestments1 to hold1 own1 purchase1 acAuire1 sell or otherwise invest1 or reinvest in stocks1 bonds or other securities capable of giving the Bank a reasonabl, assured income sufficient to support its financing activities and give its private stockholders a fair return on their holdingsD &rovided1 however1 That pending the organi?ation of the Committee on 6nvestments1 the Bank ma, e7ercise the powers herein provided without the recommendation of said Committee on 6nvestmentsD &rovided1 further1 That in case of the dissolution of the .and Bank all unsold public lands transferred to it which ma, be allocated to the #overnment of the &hilippines in the course of liAuidation of the business of the Bank shall revert to the /epartment of Agriculture and 'atural $esourcesH and To provide1 free of charge1 investment counselling and technical services to landowners whose lands have been acAuired b, the .and Bank. 9or this purpose1 the .and Bank ma, contract the services of private consultants. %ec. =*. 6ssuance of Bonds. The .and Bank shall1 upon recommendation b, the Board of Trustees and approval of the 8onetar, Board of the Central Bank1 issue bonds1 debentures and other evidences of indebtedness at such terms1 rates and conditions as the Bank ma, determine up to an aggregate amount not e7ceeding1 at an, one time1 five times its unimpaired capital and surplus. %uch bonds and other obligations shall be secured b, the assets of the Bank and shall be full, ta7 e7empt both as to principal and income. %aid income shall be paid to the bondholder ever, si7 *! months from the date of issue. These bonds and other obligations shall be full, negotiable and unconditionall, guaranteed b, the #overnment of the $epublic of the &hilippines and shall be redeemable at the option of the Bank at or prior to maturit,1 which in no case shall e7ceed twent,"five ,ears. These negotiable instruments of indebtedness shall be mortgageable in accordance with established banking procedures and practices to government institutions not to e7ceed si7t, per centum of their face value to enable the holders of such bonds to make use of them in investments in productive enterprises. The, shall also be accepted as pa,ments for reparation eAuipment and materials. The Board of Trustees shall have the power to prescribe rules and regulations for the registration of the bonds issued b, the Bank at the reAuest of the holders thereof. %ec. ==. 6ssuance of &referred %hares of %tock to 9inance AcAuisition of .anded 5states. The .and Bank shall issue1 from time to time1 preferred shares of stock in such Auantities not e7ceeding si7 hundred million pesos worth of preferred shares as ma, be necessar, to pa, the owners of landed estates in accordance with %ections eight, and eight,"one of this Code. The amount of shares that the Bank ma, issue shall not e7ceed the aggregate amount need to pa, for acAuired estates in the proportions prescribed in said %ection eight, of this Code. The Board of Trustees shall include as a necessar, part of the b,"laws that it shall issue under %ection sevent,"five of this Code1 such formula as it deems adeAuate for determining the net asset value of its holdings as a guide and basis for the

issuance of preferred shares. The shares of stock issued under the authorit, of this provision shall be guaranteed a rate of return of si7 per centum per annum. 6n the event that the earnings of the Bank for an, single fiscal ,ear are not sufficient to enable the Bank1 after making reasonable allowance for administration1 contingencies and growth1 to declare dividends at the guaranteed rate1 the amount eAuivalent to the difference between the Bank;s earnings available for dividends and that necessar, to pa, the guaranteed rate shall be paid b, the Bank out of its own assets but the #overnment shall1 on the same da, that the Bank makes such pa,ment1 reimburse the latter in full1 for which purpose such amounts as ma, be necessar, to enable the #overnment to make such reimbursements are hereb, appropriated out of an, mone,s in the 'ational Treasur, not otherwise appropriated. The Bank shall give sufficient notice to the Budget Commissioner and the &resident of the &hilippines in the event that it is not able to pa, the guaranteed rate of return on an, fiscal period. The guaranteed rate of return on these shares shall not preclude the holders thereof from participating at a percentage higher than si7 per centum should the earnings of the Bank for the corresponding fiscal period e7ceed the guaranteed rate of return. The Board of Trustees shall declare and distribute dividends within three months after the close of each fiscal ,ear at the guaranteed rate unless a higher rate of return in <ustified b, the Bank;s earnings after making reasonable allowance for administration1 contingencies and growth1 in which case dividends shall be declared and distributed at a higher rate. The capital gains derived from the sale or transfer of such shares and all income derived therefrom in the form of dividends shall be full, e7empt from ta7es. %ec. =0. %pecial #uarant, 9und. 6n the event that the Bank shall be unable to pa, the bonds1 debentures1 and other obligations issued b, it1 a fi7ed amount thereof shall be paid from a special guarant, fund to be set up b, the #overnment1 to guarantee the obligation of the .and Bank1 and established in accordance with this %ection1 and thereupon1 to the e7tent of the amounts so paid1 the #overnment of the $epublic of the &hilippines shall succeed to all the rights of the holders of such bonds1 debendures or other obligationsD &rovided1 however1 That for the ne7t four ,ears after the establishment of the Bank1 the pa,ment to the special guarant, fund should not e7ceed one million pesos per ,ear1 after which period1 the #overnment shall pa, into the guarant, fund the sum of five hundred thousand pesos each ,ear until the cumulative total of such guarant, fund is no less than twent, percent of the outstanding net obligation of the .and Bank at the end of an, single calendar ,ear. The guarant, fund shall be administered b, the Central Bank of the &hilippines in the manner most consistent with its charter. 9or the purpose of such fund1 there shall be appropriated annuall, the sum of one million pesos out of an, mone,s in the 'ational Treasur, not otherwise appropriated1 until the total amount of twent, million pesos shall have been attained. %ec. =(. $eceiving &a,ments and Time /eposits. The Bank1 under the supervision of the 8onetar, Board and sub<ect to the provisions of the #eneral Banking Act1 shall receive savings and time deposits from the small landholders in whose favor public lands or landed estates acAuired b, the .and Authorit, have been sold and1 for this purpose1 establish1 and maintain branches and offices in such areas as ma, be necessar, to service such deposits. The 8onetar, Board shall supervise and authori?e the Bank to receive savings and time deposits from the public in areas where facilities for such a service do not e7ist or cannot be adeAuatel, provided b, other deposit institutions. %ec. 02. 8aking &a,ment to 4wners of .anded 5states. The .and bank shall make pa,ments in the form herein prescribed to the owners of land acAuired b, the .and Authorit, for division and resale under this Code. %uch pa,ment shall be made in the following mannerD ten per centum in cash and the remaining balance in si7 percent1 ta7"free1 redeemable bonds issued b, the Bank in accordance with %ection sevent,"si71 unless the landowner desires to be paid in shares of stock issued b, the .and Bank in accordance with %ection sevent,"seven in an amount not e7ceeding thirt, per centum of the purchase price. 6n the event there is an e7isting lien on encumbrance on the land in favor of an, #overnment institution at the time of acAuisition b, the .and Bank1 the bonds andEor shares1 in that order1 shall be accepted as substitute collaterals to secure the indebtedness. The profits accruing from pa,ment shall be e7empt from the ta7 on capital gains. %ec. 01. Capital. The authori?ed capital stock of the Bank shall be one billion five hundred million pesos divided into ninet, million shares with a par value of ten pesos each1 which shall be full, subscribed b, the #overnment and si7t, million preferred shares with a par value of ten pesos each which shall be issued in accordance with the provisions of %ections sevent,"seven and eight,"three of this Code. 4f the total capital subscribed b, the #overnment1 two hundred million pesos shall be paid b, the #overnment within one ,ear from the approval of this Code1 and one hundred million pesos ever, ,ear thereafter for two ,ears for which purpose the amount of two hundred million pesos is

hereb, appropriated upon the effectivit, of this Code1 and one hundred million pesos ever, ,ear for the ne7t two ,ears thereafter1 out of the funds in the 'ational Treasur, not otherwise appropriated for the purposeD &rovided1 That if there are not enough funds in the 'ational Treasur, for the appropriation herein made1 the %ecretar, of 9inance1 with the approval of the &resident of the &hilippines1 shall issue bonds or other evidence of indebtedness to be negotiated either locall, or abroad in such amount as ma, be necessar, to cover an, deficienc, in the amount above"appropriated but not e7ceeding four hundred million pesos1 the proceeds of which are hereb, appropriatedD &rovided1 further1 That the bonds to be issued locall, shall not be supported b, the Central BankD &rovided1 finall,1 That there is automaticall, appropriated out of the unappropriated funds in the 'ational Treasur, such amounts as is necessar, to cover the losses which shall include among other things loss of earnings occasioned b, the limitation of the resale cost herein provided such that said amount together with the administrative e7penses mentioned in %ection ninet, hereof shall not e7ceed in the aggregate the eAuivalent of two and one"half per centum of its assets limited therein. %ec. 02. #overnment %hares. All shares of stock in the Bank subscribed or owned b, the #overnment shall not be entitled to participate in the income earned b, the Bank from its investments and other operations1 whether in the form of cash or stock dividends or otherwise. Amounts e7pended for the administration of the Bank shall not be deemed as a participation of the #overnment in income. %ec. 0+. &referred %hares. All preferred shares of stock issued under %ection sevent,"seven of this Code shall be entitled to the income earned b, the Bank on its investments and other operations and shall have a limited right to elect annuall, one member of the Board of Trustees and one member of the Committee on 6nvestmentsD &rovided1 That the holders of such preferred shares of stock shall not bring derivative suits against the Bank. %uch preferred shares shall be full, transferableD &rovided1 further1 That upon the liAuidation of the Bank1 the redemption of such preferred shares shall be given priorit, and shall be guaranteed at par value. %ec. 03. Foting of %hares. The voting power of all the shares of stock of the .and Bank owned or controlled b, the #overnment shall be vested in the &resident of the &hilippines or in such person or persons as he ma, from time to time designate. %ec. 0). :se of Bonds. The bonds issued b, the .and Bank ma, be used b, the holder thereof and shall be accepted in the amount of their face value as an, of the followingD &a,ment for agricultural lands or other real properties purchased from the #overnmentH &a,ment for the purchase of shares of stock of all or substantiall, all of the assets of the following #overnment owned or controlled corporationsD The 'ational /evelopment Compan,H Cebu &ortland Cement Compan,H 'ational %hip,ards and %teel CorporationH 8anila #as CorporationH and the 8anila @otel Compan,. :pon offer b, the bondholder1 the corporation owned or controlled b, the #overnment shall1 through its Board of /irectors1 negotiate with such bondholder with respect to the price and other terms and conditions of the sale. 6n case there are various bondholders making the offer1 the one willing to purchase under terms and conditions most favorable to the corporation shall be preferred. 6f no price is acceptable to the corporation1 the same shall be determined b, a Committee of Appraisers composed of three members1 one to be appointed b, the corporation1 another b, the bondholder making the highest or onl, offer1 and the third b, the two members so chosen. The e7penses of appraisal shall be borne eAuall, b, the corporation and the successful purchaser. %hould the #overnment offer for sale to the public an, or all of the shares of stock or the assets of an, of the #overnment owned or controlled corporations enumerated herein1 the bidder who offers to pa, in bonds of the .and Bank shall be preferred provided that the various bids be eAual in ever, respect e7cept in the medium of pa,ment. +! %uret, or performance bonds in all cases where the #overnment ma, reAuire or accept real propert, as bondsH and 3! &a,ment for1 reparations goods. %ec. 0*. Board of Trustees. The affairs and business of the Bank shall be directed1 its powers e7ercised and its propert, managed and preserved b, a Board of Trustees. %uch Board shall be composed of one Chairman and four members1 one of whom shall be the head of the .and Authorit, who shall be an e7"officio member of such Board and another to be elected b, the holders of preferred shares. The Chairman and two members of the Board of Trustees shall serve on full"time basis with the Bank. Cith the e7ception of the head of the .and Authorit, and the member elected b, the holders

of preferred shares1 the Chairman and all members of the Board shall be appointed b, the &resident with the consent of the Commission on Appointments for a term of seven ,ears1 e7cept that the first Chairman and members to be appointed under this Code shall serve for a period of three1 five and seven ,ears1 such terms to be specified in their respective appointments. Thereafter the Chairman and members1 with the e7ception of the e7"officio member1 appointed after such initial appointment shall serve for a term of seven ,ears including an, Chairman or member who is appointed in place of one who resigns or is removed or otherwise vacates his position before the e7piration of his seven",ear term. The Chairman and the two full"time members of the Board shall act as the heads of such operating departments as ma, be set up b, the Board under the authorit, granted b, %ection eight," seven of this Code. The Chairman shall have authorit,1 e7erciseable at his discretion1 to determine from time to time the organi?ational divisions to be headed b, each member serving full time and to make the corresponding shifts in designations pursuant thereto. The compensation of the Chairman and the members of the Board of Trustees serving full time shall be twent,"four thousand and eighteen thousand pesos1 respectivel,. The other members of the Board shall receive a per diem of one hundred pesos for each session of the Board that the, attend. %ec. 0=. The Chairman and Fice"Chairman. The Chairman of the Board shall be the chief e7ecutive officer of the Bank. @e shall have direct control and supervision of the business of the Bank in all matters which are not b, this Code or b, the b,"laws of the Bank specificall, reserved to be done b, the Board of Trustees. @e shall be assisted b, an 57ecutive Fice"Chairman and one or more vice" chairman who shall be chosen and ma, be removed b, the Board of Trustees. The salaries of the Fice"Chairmen shall be fi7ed b, the Board of Trustees with the approval of the &resident of the &hilippines. %ec. 00. >ualifications of 8embers. 'o person shall be appointed Chairman or member of the Board unless he is a man of accepted integrit,1 probit,1 training and e7perience in the field of banking and finance1 at least thirt,"five ,ears of age and possessed of demonstrated administrative skill and abilit,. %ec. 0(. Committee on 6nvestments. There shall be a Committee on 6nvestments composed of three membersH the member of the Board of Trustees elected b, the holders of preferred shares as Chairman1 one member to be appointed b, the &resident of the &hilippines from among the government members of the Board of Trustees1 and another member to be selected b, the holders of preferred shares under %ection eight,"three of this Code. The Committee on 6nvestments shall recommend to the Board of Trustees the corporations or entities from which the .and Bank shall purchase shares of stock. The .and Bank shall not invest in an, corporation1 partnership or compan, wherein an, member of the Board of Trustees or of the Committee on 6nvestments or his spouse1 direct descendant or ascendant has substantial pecuniar, interest or has participation in the management or control of the enterprise e7cept with the unanimous vote of the members of the Board of Trustees and of the Committee on 6nvestments1 e7cluding the member interested1 in a <oint meeting held for that purpose where full and fair information of the e7tent of such interest or participation has been adeAuatel, disclosed in writing and recorded in the minutes of the meetingD &rovided1 That such interested member shall not in an, manner participate in the deliberations and shall refrain from e7erting an, pressure or influence whatever on an, official or member of the Bank whose functions bear on or relate to the investment of the funds of the Bank in the enterpriseD &rovided1 further1 That the total investment in an, single corporation1 partnership1 compan,1 or association shall not e7ceed five per centum of the total investible funds. %ec. (2. &ersonnelH Cost of Administration. The Administrative e7penses of the Bank during an, single fiscal ,ear shall not in an, case e7ceed two and one"half per centum of its total assets. The Board of Trustees shall provide for an organi?ation and staff of officers and emplo,ees necessar, to carr, out the functions of the Bank1 fi7 their compensation1 and appoint and remove such officers and emplo,ees for cause. The Bank officers and emplo,ees shall be sub<ect to the rules and regulations issued b, the Civil %ervice Commission but shall not fall under the Cage and &osition Classification 4ffice. The Board of Trustees shall recommend to the Civil %ervice Commission rules and regulations for the recruitment1 appointment1 compensation1 administration1 conduct1 promotion and removal of all Bank officers and emplo,ees under a strict merit s,stem and prepare and conduct e7aminations under the supervision of said Commission. %ec. (1. .egal counsel. The %ecretar, of -ustice shall be e7"officio legal adviser of the Bank. An, provision of law to the contrar, notwithstanding1 the .and Bank shall have its own .egal /epartment1 the chief and members of which shall be appointed b, the Board of Trustees. The composition1 budget and operating e7penses of the 4ffice of the .egal Counsel and the salaries and traveling e7penses of its officers and emplo,ees shall be fi7ed b, the Board of Trustees and paid b, the Bank.

%ec. (2. Auditor. The Auditor #eneral shall be the e7"officio auditor of the Bank and shall appoint a representative1 who shall be the auditor in charge of the auditing office of the Bank. The Auditor #eneral shall1 upon the recommendation of the auditor of the Bank1 appoint or remove the personnel of the auditing office. The compensation1 budget and operating e7penses of the auditing office and the salaries and traveling e7penses of the officers and emplo,ees thereof shall be fi7ed b, the Board of Trustees and paid b, the Bank notwithstanding an, provision of law to the contrar,. %ec. (+. $eport on Condition of Bank. The representative of the Auditor #eneral shall make a Auarterl, report on the condition of the Bank to the &resident of the &hilippines1 to the %enate through its &resident1 to the @ouse of $epresentatives through its %peaker1 to the %ecretar, of 9inance1 to the Auditor #eneral and to the Board of Trustees of the Bank. The report shall contain1 among other things1 a statement of the resources and liabilities including earnings and e7penses1 the amount of capital stock1 surplus1 reserve and profits1 as well as losses1 bad debts1 and suspended and overdue paper carried in the books as assets of the Bank1 and a plantilla of the Bank. %ec. (3. Auditing $ules and $egulations. The Auditor #eneral shall1 with respect to the Bank1 formulate improved and progressive auditing rules and regulations designed to e7pedite the operations of the Bank and prevent the occurrence of dela,s and bottlenecks in its work. %ec. (). $emoval of 8embers. The &resident of the &hilippines ma,1 at an, time1 remove the Chairman or an, member of the Board appointed b, him if the interest of the Bank so reAuires1 for an, of the following causesD 8ismanagement1 grave abuse of discretion1 infidelit, in the conduct of fiduciar, relations1 or gross neglect in the performance of dutiesH /ishonest,1 corruption1 or an, act involving moral turpitudeH and An, act or performance tending to pre<udice or impair the substantial rights of the stockholders. Conviction of the Chairman or a member for a crime carr,ing with it a penalt, greater than arresto ma,or shall cause the removal of such Chairman or member without the necessit, of &residential action. The Chairman or member ma,1 in an, of the above cases1 be civill, liable for an, damage that ma, have been suffered b, the stockholders. %ec. (*. Transfer of Claims and .iabilities. The assets of the former .and Tenure Administration and the 'ational $esettlement and $ehabilitation Administration in the form of claims and receivables arising from the sale or transfer of private and public lands1 agricultural eAuipment1 machiner,1 tools and work animals1 but e7cluding advances made for subsistence1 to small landholders shall1 after an e7haustive evaluation to determine their true asset value1 be irrevocabl, transferred to the Bank under such arrangements as the .and Authorit, and the Bank shall agree upon. Thereafter1 the Bank shall have authorit, and <urisdiction to administer the claims1 to collect and make ad<ustments on the same and1 generall,1 to do all other acts properl, pertaining to the administration of claims held b, a financial institution. The .and Authorit,1 upon reAuest of the Bank1 shall assist the latter in the collection of such claims. The .and Authorit, shall be entitled to collect from the Bank no more than the actual cost of such collection services as it ma, e7tend. The claims transferred under this %ection shall not be considered as part of the #overnment;s subscription to the capital of the Bank. %ec. (=. $egulation. The Bank shall not be sub<ect to the laws1 rules and regulations governing banks and other financial institutions of whatever t,pe e7cept with respect to the receipt of savings and time deposits in accordance with %ection sevent,"nine of this Code1 in which case the legal reserve and other reAuirements prescribed b, the Central Bank for such deposits shall appl,. The Bank shall be operated as an autonomous bod, and shall be under the supervision of the Central Bank. %ec. (0. Ta7 57emption. The operations1 as well as holdings1 eAuipment1 propert,1 income and earnings of the Bank from whatever sources shall be full, e7empt from ta7ation. %ec. ((. 4rgani?ation of Bank. The Bank shall be organi?ed within one ,ear from the date that this Code takes effect. %ec. 122. &enalt, for Fiolation of the &rovisions of this Chapter. An, trustee1 officer1 emplo,ee or agent of the Bank who violates or permits the violation of an, of the provisions of this Chapter1 or an, person aiding or abeting the violations of an, of the provisions of this Chapter1 shall be punished b, a

fine not to e7ceed ten thousand pesos or b, imprisonment of not more than five ,ears1 or both such fine and imprisonment at the discretion of the Court.

Uni"er%$# B$n2 "%. Co..erci$# B$n2 =ni)er7al 0ank &rimaril, governed b, the #eneral Banking .aw #B.!1 can e7ercise the powers of an investment house and invest in non"allied enterprises and have the highest capitali?ation reAuirement. 'o;;ercial 0ank 4rdinar, banks governed b, the #B. which have a lower capitali?ation reAuirement than universal banks and can neither e7ercise the powers of an investment house nor invest in non"allied enterprises. A universal bank can e7ercise all the powers and functions of a commercial bank. 6n addition1 a universal bank can perform the functions of an investment house as well as in non"allied enterprises without prior approval of the 8onetar, Board of the B%&1 unlike commercial bank which needs prior B%& approval. Uni0$n2 $% In"e%t.ent :o,%eC Sec. 23, GBL &owers of a :niversal Bank " A universal bank shall have the authorit, to e7ercise1 in addition to the powers authori?ed for a commercial bank in %ection 2(1 the powers of an investment house as provided in e7isting laws and the power to invest in non"allied enterprises as provided in this Act. Sec. 29, GBL &owers of a Commercial Bank. " A commercial bank shall have1 in addition to the general powers incident to corporations1 all such powers as ma, be necessar, to carr, on the business of commercial banking such as accepting drafts and issuing letters of creditH discounting and negotiating promissor, notes1 drafts1 bills of e7change1 and other evidences of debtH accepting or creating demand depositsH receiving other t,pes of deposits and deposit substitutesH bu,ing and selling foreign e7change and gold or silver bullionH acAuiring marketable bonds and other debt securitiesH and e7tending credit1 sub<ect to such rules as the 8onetar, Board ma, promulgate. These rules ma, include the determination of bonds and other debt securities eligible for investment1 the maturities and aggregate amount of such investment.

Uni0$n2 $n- In"e%t.ent in A##ie- $n- Non-$##ie- (nter/ri%e% Sec. 2., GBL 5Auit, 6nvestments of a :niversal Bank. " A universal bank ma,1 sub<ect to the conditions stated in the succeeding paragraph1 invest in the eAuities of allied and non"allied enterprises as ma, be determined b, the 8onetar, Board. Allied enterprises ma, either be financial or non"financial. Co..erci$# B$n2 $n- In"e%t.ent in A##ie- $n- Non-$##ie- (nter/ri%e% Sec. 30, GBL 5Auit, 6nvestments of a Commercial Bank. " A commercial bank ma,1 sub<ect to the conditions stated in the succeeding paragraphs1 invest onl, in the eAuities of allied enterprises as ma, be determined b, the 8onetar, Board. Allied enterprises ma, either be financial or non"financial. 57cept as the 8onetar, Board ma, otherwise prescribeD +2.1. The total investment in eAuities of allied enterprises shall not e7ceed thirt,"five percent +)M! of the net worth of the bankH and +2.2. The eAuit, investment in an, one enterprise shall not e7ceed twent," five percent 2)M! of tile net worth of the bank. The acAuisition of such eAuit, or eAuities is sub<ect to the prior approval of the 8onetar, Board which shall promulgate appropriate guidelines to govern such investment.

OT:(R BANKING S(R7IC(S Sec. 33. GBL 6n addition to the operations specificall, authori?ed in this Act1 a bank ma, perform the following servicesD )+.1. $eceive in custod, funds1 documents and valuable ob<ectsH )+.2. Act as financial agent and bu, and sell1 b, order of and for the account of their customers1 shares1 evidences of indebtedness and all t,pes of securitiesH )+.+. 8ake collections and pa,ments for the account of others and perform such other services for their customers as are not incompatible with banking businessH )+.3. :pon prior approval of the 8onetar, Board1 act as managing agent1 adviser1 consultant or administrator of investment managementEadvisor,Econsultanc, accountsH and )+.). $ent out safet, deposit bo7es. The bank shall perform the services permitted under %ubsections )+.1.1 )+.2.1 )+.+. and )+.3. as depositar, or as an agent. Accordingl,1 it shall keep the funds1 securities and other effects which it receives dul, separate from the bank;s own assets and liabilitiesD The 8onetar, Board ma, regulate the operations authori?ed b, this %ection in order to ensure that such operations do not endanger the interests of the depositors and other creditors of the bank. 6n case a bank or Auasi"bank notifies the Bangko %entral or publicl, announces a bank holida,1 or in an, manner suspends the pa,ment of its deposit liabilities continuousl, for more than thirt, +2! da,s1 the 8onetar, Board ma, summaril, and without need for prior hearing close such banking institution and place it under receivership of the &hilippine /eposit 6nsurance Corporation. Sec,rit1 Bro2erC Sec. 33.2, GBL Act as financial agent and bu, and sell1 b, order of and for the account of their customers1 shares1 evidences of indebtedness and all t,pes of securitiesH In%,r$nceC Sec. 3., GBL &rohibition to Act as 6nsurer. " business as the insurer. A bank shall not directl, engage in insurance

PRO:IBIT(D TRANSACTIONS@ACTS Sec. 33, GBL &rohibited Transactions. " )).1. 'o director1 officer1 emplo,ee1 or agent of an, bank shall " a! 8ake false entries in an, bank report or statement or participate in an, fraudulent transaction1 thereb, affecting the financial interest of1 or causing damage to1 the bank or an, personH b! Cithout order of a court of competent <urisdiction1 disclose to an, unauthori?ed person an, information relative to the funds or properties in the custod, of the bank belonging to private individuals1 corporations1 or an, other entit,D &rovided1 That with respect to bank deposits1 the provisions of e7isting laws shall prevailH c! Accept gifts1 fees1 or commissions or an, other form of remuneration in connection with the approval of a loan or other credit accommodation from said bankH d! 4vervalue or aid in overvaluing an, securit, for the purpose of influencing in an, wa, the actions of the bank or an, bankH or e! 4utsource inherent banking functions. )).2. 'o borrower of a bank shall " a! 9raudulentl, overvalue propert, offered as securit, for a loan or other credit accommodation from the bankH b! 9urnish false or make misrepresentation or suppression of material facts for the purpose of obtaining1 renewing1 or increasing a loan or other credit accommodation or e7tending the period thereofH c! Attempt to defraud the said bank in the event of a court action to recover a loan or other credit accommodationH or d! 4ffer an, director1 officer1 emplo,ee or agent of a bank an, gift1 fee1 commission1 or an, other form of compensation in order to influence such persons into approving a loan or other credit accommodation application. )).+. 'o e7aminer1 officer or emplo,ee of the Bangko %entral or of an, department1 bureau1 office1 branch or agenc, of the #overnment that is assigned to supervise1 e7amine1 assist or render technical assistance to an, bank shall commit an, of the acts enumerated in this %ection or aid in the commission of the same. The making of false reports or misrepresentation or suppression of material facts b, personnel of the Bangko %ental ng &ilipinas shall be sub<ect to the administrative and criminal sanctions provided under the 'ew Central Bank Act.

)).3. Consistent with the provisions of $epublic Act 'o. 132)1 otherwise known as the Banks %ecrec, .aw1 no bank shall emplo, casual or non regular personnel or too length, probationar, personnel in the conduct of its business involving bank deposits. Di%c#o%,re of 8,n-% $n- Pro/ertie% in t+e C,%to-1 of B$n2% Sec. 33.1 0, GBL b! Cithout order of a court of competent <urisdiction1 disclose to an, unauthori?ed person an, information relative to the funds or properties in the custod, of the bank belonging to private individuals1 corporations1 or an, other entit,D &rovided1 That with respect to bank deposits1 the provisions of e7isting laws shall prevail. O,t%o,rcin3 of In+erent B$n2in3 8,nction% Sec. 33.1 e, GBL e! 4utsource inherent banking functions. BS& 'irc/lar No. 248, 03 "ece;0er 2000
&ursuant to 8onetar, Board $esolution 'o. 22=* dated 'ovember 231 22221 the following rules and regulations are hereb, issued to implement %ection )).1 e! of $epublic Act $.A.! 'o. 0=(11 the #eneral Banking .aw of 2222. %ection 1. /uties and $esponsibilities of Banks and their /irectorsE4fficers in All Cases of 4utsourcing of Banking 9unctions. Chen outsourcing of banking functions is allowed b, law and under this circular1 all banks concerned shallD 1! carr, out the same in accordance with proper standards1 ensuring the integrit, of the data1 s,stems and controls of the banks and sub<ect to the supervisor,1 regulator, and administrative authorit, of the Bangko %entral ng &ilipinas B%&! over the banks and their directorsEofficersH 2! be responsible for the performance thereof in the same manner and to the same e7tent as it was before the outsourcingH +! compl, with all laws and regulations governing the banking activitiesEservices performed b, the Aualified service providers in its behalf such as but not limited to keeping of records and preparation of reports1 signing authorities1 internal control and clearing regulationsH and 3! manage1 monitor and review on an ongoing basis the performance b, the Aualified service providers of the outsourced banking activitiesEservices. %ection 2. &rohibition Against 4utsourcing Certain Banking 9unctions. %ection 2.1 'o bank or an, director1 officer1 emplo,ee1 or agent thereof shall outsource inherent banking functions. 9or purposes of this circular1 outsourcing of inherent banking functions shall refer to an, contract between the bank and a service provider for the latter to suppl,1 or an, act whereb, the latter supplies1 the manpower to service the deposit transactions of the former. %ection 2.2 Banks cannot outsource management functions e7cept as ma, be authori?ed b, the 8onetar, Board when circumstances <ustif,.

%ection +. 4utsourcing of 6nformation Technolog, %,stemsE&rocesses. %ub<ect to prior approval of the 8onetar, Board1 banks ma, outsource all information technolog, s,stems and processes e7cept for functions e7cluded in %ection +.1. %ection +.1 Certain functions affecting the abilit, of the bank to ensure the fit of technolog, services deplo,ed to meet its strategic and business ob<ectives and to compl, with all pertinent banking laws and regulations1 such as but not limited to strategic planning for the use of information technolog,H determination of s,stem functionalitiesH change management inclusive of Aualit, assurance and testingH service level and contract managementH and securit, polic, and administration1 ma, not be outsourced. %ub<ect to prior approval of the 8onetar, Board and submission of the same documentar, reAuirements in %ection +.2 hereof1 consultants andEor service providers ma, be engaged to provide assistanceEsupport to the bank personnel assigned to perform such functions. %ection +.2 A bank intending to outsource information technolog, s,stems and processes shall submit the following documents to B%& which shall treat the same as strictl, confidentialD 1! &roposed contract between the bank and the service provider which should1 at a minimum1 include all the followingD

a. b. c.

Complete description of the work to be performed or services to be providedH 9ee structureH &rovisions regarding on"line communication availabilit,1 transmission line securit,1 and transaction authenticationH d. $esponsibilities regarding hardware1 software and infrastructure upgradesH e. &rovisions governing amendment and pretermination of contractH f. 8andator, notification b, the service provider of all s,stems changes that will affect the bankH g. /etails of all securit, procedures and standardsH h. $esponsibilit,1 fines1 penalties and accountabilit, of the service provider for errors1 omissions and fraudsH i. Confidentialit, clause covering all data and informationH solidar, liabilit, of service provider and bank for an, violation of $.A. 'o. 132)1 the Bank /eposits %ecrec, .awH actions that the bank ma, take against the service provider for breach of confidentialit, or an, form of disclosure of confidential informationH and the applicable penaltiesH j. %egregation of the data of the bank from that of the service provider and its other clientsH k. /isaster recover,Ebusiness continuit, contingenc, plans and proceduresH l. AdeAuate insurance for fidelit, and fire liabilit,H m. 4wnershipEmaintenance of the computer hardware1 software program source code!1 user and s,stem documentation1 master and transaction data filesH n. #uarantee that the service provider will provide necessar, levels of transition assistance if the bank decides to convert to other service providers or other arrangementsH o. Access to the financial information of the service providerH p. Access of internal and e7ternal auditors to information regarding the outsourced activitiesEservices which the, need to fulfill their respective responsibilitiesH q. Access of B%& to the operations of the service provider in order to review the same in relation to the outsourced activitiesEservicesH r. &rovision which reAuires the service provider to immediatel, take the necessar, corrective measures to satisf, the findings and recommendations of B%& e7aminers and those of the internal andEor e7ternal auditors of the bank andEor the service providerH and s. $emedies for the bank in the event of change of ownership1 assignment1 attachment of assets1 insolvenc,1 or receivership of the service provider. 2! 8inutes of 8eetings of the Board of /irectors of the bank concerned signed b, ma<orit, thereof1 certified b, the %ecretar, and attested b, the &resident documenting their discussions on the followingD

a.

The benefits and advantages of outsourcing with respect to1 among others1 its role and contribution to the accomplishment of the strategic and business plans of the bank as well as the econom,1 efficienc, and Aualit, of its over"all operationsH b. The careful and diligent evaluation1 prior to selecting the service provider with which it is entering into an outsourcing contract1 b, the bank of various service providers and their proposals1

including their reputation1 financial condition1 cost for development1 maintenance and support1 internal controls1 recover, processes1 service level agreements1 availabilit, of competent1 technicall, Aualified and e7perienced personnel1 strategic or convenient location of support services and such similar other considerationsH c. The creation1 organi?ation and membership of a senior management oversight committee to handle and oversee the efficient implementation and monitoring of the applicationsEoperations of the service provider to ensure that the same is in accordance with the e7isting information technolog, initiatives1 policies and guidelines of the bankH the list of the members of such committee1 its organi?ational chart1 and a detailed description of the roles and responsibilities of its members must be included in the 8inutes of the 8eeting or submitted as attachments theretoH d. The creation1 organi?ation and membership of a help desk to resolve all Aueries1 problems and other concerns arising from the applicationsEoperations rendered b, the service providerH and e. The s,stems and user acceptance tests that will be conducted b, the service provider before full implementation of the outsourced s,stemsEprocesses and the unsatisfactor, results of which shall be valid ground to rescind the contract with the service provider. +! &rofile of the selected service provider or the non"bank partner1 in case of <oint ventures and other similar arrangements1 which should includeD

a. b. c.

8ost recent and complete financial and operational informationH Track recordH .ist of clientele1 particularl, banks and the services provided thereto b, the service providerH

and d. At the option of the service provider or non"bank partner1 other documents demonstrative of its competence and reputation in the field of information technolog, as applied to banking operations. %ection 3. 4utsourcing of 4ther Banking 9unctions. %ection 3.1 %ub<ect to prior approval of the 8onetar, Board1 banks ma, outsource data imaging1 storage1 retrieval and other related s,stemsH clearing and processing of checks not included in the &hilippine Clearing @ouse %,stemH printing of bank deposit statementsH and such other activities as ma, be determined b, the 8onetar, Board. The bank concerned must submit the same documentar, reAuirements listed in %ection +.2 hereof1 e7cept where the, e7clusivel, pertain to information technolog, operations. %ection 3.2. Banks ma, outsource credit card servicesH printing of bank loan statements and other non"deposit records1 bank forms and promotional materialsH credit investigation and collectionH processing of e7port1 import and other trading transactionsH transfer agent services for debt and eAuit, securitiesH propert, appraisalH propert, management servicesH messenger1 courier and postal servicesH securit, guard servicesH vehicle service contractsH <anitorial servicesH and such other activities as ma, be determined b, the 8onetar, Board. %ection ). %ervice &roviders. Chen allowed b, law and under this circular1 banks ma, enter into outsourcing contracts onl, with service providers with demonstrable technical and financial capabilit, commensurate to the services to be rendered. %ection *. $eview of %ubsisting 4utsourcing Contracts. Cithin si7 *! months from the effectivit, of this circularD 1! all banks should submit a list of all their e7isting contracts with service providers1 detailing theD a. b. c. d. %ervicesEactivities being outsourcedH Terms of the contractsH 8easures1 if an,1 undertaken b, the bank andEor service provider to ensure the secrec, of bank deposits and confidentialit, of all other data and informationH and %uch other information as ma, be necessar, to show compliance with the pertinent provisions of this circular or be reAuired b, the 8onetar, BoardH and 2! for outsourcing contracts not in accordance with this circular1 the following alternative courses of action are available to the bank concernedD a. preterminate said contractsH b. renegotiate or remed, the same to compl, with this circular and submit the amendments thereto or new contracts to the B%&H or

c.

submit a program of compliance to the B%&.

%ection =. &enalties. Fiolation of this circular shall be sub<ect to %ections +31 +)1 +* and += of $.A. 'o. =*)+1 the 'ew Central Bank Act. 6f the offender is a director or officer or a bank1 the 8onetar, Board ma, also suspend or remove such director or officer. %ection 0. $epeal of %ection P1*( of the 8anual of $egulations for Banks 84$B!. This circular supersedes the provisions of %ection P1*( of the 84$B. %ection (. 5ffectivit,. This circular shall take effect immediatel,.

(./#o1.ent of C$%,$# or Non-re3,#$r Per%onne# Sec. 33.., GBL )).3. Consistent with the provisions of $epublic Act 'o. 132)1 otherwise known as the Banks %ecrec, .aw1 no bank shall emplo, casual or non regular personnel or too length, probationar, personnel in the conduct of its business involving bank deposits.

Pro+i0ite- Tr$n%$ction% $n- Re/,0#ic Act No. &D'0 AAn Act (%t$0#i%+in3 t+e Cre-it Infor.$tion S1%te. $n- Ot+er P,r/o%e%: A//ro"e- 3' Octo0er *00)B $A 'o. ()12 which aims to provide a credit information s,stem to directl, address the needs for reliable credit information concerning the credit standing and track record of borrowers1 shall not impair %B/1 9C/A1 #B. and A8.A andEor client funds and investments in government securities and funds. %ecs. 1 and 12! RA No. 9310 31 #c,o0er 2008
Section '. :i,le. " This Act shall be known as the E're2i, (nfor;a,ion S17,e; Ac,>. Section *. "eclara,ion of &olic1. " The %tate recogni?es the need to establish a comprehensive and centrali?ed credit information s,stem for the collection and dissemination of fair and accurate information relevant to1 or arising from1 credit and credit"related activities of all entities participating in the financial s,stem. A credit information s,stem will directl, address the need for reliable credit information concerning the credit standing and track record of borrowers. The operations and services of a credit information s,stem can be e7pected toD greatl, improve the overall availabilit, of credit especiall, to micro1 small and medium"scale enterprisesH provide mechanisms to make credit more cost"effectiveH and reduce the e7cessive dependence on collateral to secure credit facilities. The %tate shall endeavor to have credit information provided at the least cost to all participants and shall ensure the protection of consumer rights and the e7istence of fair competition in the industr, at all times. An efficient credit information s,stem will also enable financial institutions to reduce their over"all credit risk1 contributing to a healthier and more stable financial s,stem. Section 3. "efini,ion of :er;7. " 9or purposes of this ActD a! BAccessin' Entit&B refers to an, submitting entit, or an, other entit, authori?ed b, the Corporation to access basic credit data from the Corporation. b! B"asic Credit #ataB refers to positive and negative information provided b, a borrower to a submitting entit, in connection with the application for and availment of a credit facilit, and an, information on the borrowerRs creditworthiness in the possession of the submitting entit, and other factual and ob<ective information related or relevant thereto in the submitting entit,Rs data files or that of other sources of informationD Pro+ided1 that in the absence of a written waiver dul, accomplished b, the borrower1 basic credit data shall e7clude confidential information on bank deposits andEor clients funds under $epublic Act 'o. 132) .aw on %ecrec, of Bank /eposits!1 $epublic Act 'o. *32* The 9oreign Currenc, /eposit Act!1 $epublic Act 'o. 0=(1 The #eneral Banking .aw of 2222!1 $epublic Act 'o. (1*2 Anti" 8one, .aundering .aw! and their amendator, laws. c! B"orrowerB refers to a natural or <uridical person1 including an, local government unit .#:!1 its subsidiaries and affiliates1 that applies for andEor avails of a credit facilit,. d! B"SPB refers to the Bangko %entral ng &ilipinas1 created under $epublic Act 'o.=*)+. e! BCor)orationB refers to the Credit 6nformation Corporation established under %ection ) of this Act. f! BCredit faci(it&B refers to an, loan1 credit line1 guarantee or an, other form of financial accommodation from a submitting entit,D Pro+ided1 That for purposes of this Act1 deposits in banks shall not be considered a credit facilit, e7tended b, the depositor in favor of the bank.

g! BCredit Ratin'B refers to an opinion regarding the creditworthiness of a borrower or of an issuer of debt securit,1 using an established and defined ranking s,stem. h! BCredit Re)ortB refers to a summar, of consolidated and evaluated information on creditworthiness1 credit standing1 credit capacit,1 character and general reputation of a borrower. i! BGo+ernment Lendin' InstitutionsB refers to e7isting and future government #96s!1 government"owned and controlled corporations #4CCs! primarill, engaged in lending activities. <! BNe'ati+e Credit InformationB refers to informationEdata concerning the poor credit performance of borrowers such as1 but not limited to1 defaults on loans1 adverse court <udgments relating to debts and reports on bankruptc,1 insolvenc,1 petitions or orders on suspension of pa,ments and corporate rehabilitation. k! BNon%Accessin' Entit&B refers to an entit, other than a %ubmitting 5ntit,1 %pecial Accessing 5ntit, or Borrower that is authori?ed b, the Corporation to access credit information from a %pecial Accessing 5ntit,. l! BOutsource entit&B refers to an, accredited third part, provider to whom the Corporation ma, outsource the processing and consolidation of basic credit data pertaining to a borrower or issuer of debt or convertible securities under such Aualifications1 criteria and strict confidentialit, guidelines that the Corporation shall prescribe and dul, publish. m! BPositi+e credit informationB refers to informationEdata concerning the credit performance of a borrower such as1 but not limited to1 information on timel, repa,ments or non" delinAuenc,. n! BRe(e+ant Go+ernment A'enciesB refers to the /epartment of 9inance1 /epartment of Trade and 6ndustr,1 Bangko %entral ng &ilipinas1 6nsurance Commission and the Cooperative /evelopment Authorit,. o! BSECB refers to the %ecurities and 57change Commission. p! BS)ecia( Accessin' Entit&B refers to a dul, accredited private corporation engaged primaril, in the business of providing credit reports1 ratings and other similar credit information products and services. A! BSu*mittin' Entit&B refers to an, entit, that provides credit facilities such as1 but not limited to1 banks1 Auasi"banks1 trust entities1 investment houses1 financing companies1 cooperatives1 nongovernmental1 micro"financing organi?ations1 credit card companies1 insurance companies and government lending institutions. Section !. %7,a0li79;en, of ,9e 're2i, (nfor;a,ion S17,e;. " 6n furtherance of the polic, set forth in %ection 2 of this Act1 a credit information s,stem is hereb, established. a! Banks1 Auasi"banks1 their subsidiaries and affiliates1 life insurance companies1 credit card companies and other entities that provide credit facilities are reAuired to submit basic credit data and updates thereon on a regular basis to the Corporation. b! The Corporation ma, include other credit providers to be sub<ect to compulsor, participationD Pro+ided1 That all other entities Aualified to be submitting entities ma, participate sub<ect to their acceptance b, the CorporationD Pro+ided1 further1 That1 in all cases1 participation under the s,stem shall be in accordance with such standards and rules that the %5C in coordination with the relevant government agencies m, prescribe. c! &articipating submitting entities are reAuired to submit to the Corporation an, negative and positive credit information that tends to update andEor correct the credit status of borrowers. The Corporation shall fi7 the time interval for such submissionD Pro+ided1 That such interval shall not be less than fifteen 1)! working da,s but not more than thirt, +2! working da,s.

d! The Corporation should regularl, collect basic credit data of borrowers at least on a Auarterl, basis to correctEupdate the basic credit data of said borrowers. e! The Corporation ma, also access credit and other relevant information from government offices1 <udicial and administrative tribunals1 prosecutorial agencies and other related offices1 as well as pension plans administered b, the government. f! 5ach submitting entit, shall notif, its borrowers of the formerRs obligation to submit basic credit data to the Corporation and the disclosure thereof to the Corporation1 sub<ect to the provisions of this Act and the implementing rules and regulations. g! The Corporation is in turn authori?ed to release consolidated basic credit data on the borrower1 sub<ect to the provisions of %ection * of this Act. h! The negative information on the borrower as contained in the credit histor, files of borrowers should sta, in the database of the Corporation unless sooner corrected1 for not more than three +! ,ears from and after the date when the negative credit information was rectified through pa,ment or liAuidation of the debt1 or through settlement of debts through compromise agreements or court decisions that e7culpate the borrower from liabilit,. 'egative information shall be corrected and updated within fifteen 1)! da,s from the time of pa,ment1 liAuidation or settlement of debts. i! %pecial Accessing 5ntities shall be accredited b, the Corporation in accordance with such standards and rules as the %5C in coordination with the relevant government agencies1 ma, prescribe. <! %pecial accessing entities shall be entitled access to the CorporationRs pool of consolidated basic credit data1 sub<ect to the provisions of %ection s * and = of this Act and related implementing rules and regulations. k! %pecial accessing entities are prohibited from releasing basic credit data received from the Corporation or credit reports and credit ratings derived from the basic credit data received from the Corporation1 to non"accessing entities unless the written consent or authori?ation has been obtained from the BorrowerDPro+ided1 howe+er1 That in case the borrower is a local government unit .#:! or its subsidiar, or affiliate1 the special accessing entit, ma, release credit information on the .#:1 its subsidiar, or affiliate upon written reAuest and pa,ment of reasonable fees b, a constituent of the concerned .#:. l! 4utsource 5ntities1 which ma, process and consolidate basic credit data1 are absolutel, prohibited from releasing such data received from the Corporation other than to the Corporation itself. m! Accessing 5ntities shall hold strictl, confidential an, credit information the, receive from the Corporation. n! The borrower has the right to know the causes of refusal of the application for credit facilities or services from a financial institution that uses basic credit data as basis or ground for such a refusal. o! The borrower1 for a reasonable fee1 shall have1 as a matter of right1 read, and immediate access to the credit information pertinent to the borrower. 6n case of erroneous1 incomplete or misleading credit information1 the sub<ect borrower shall have the right to dispute the erroneous1 incomplete1 outdated or misleading credit information before the Corporation. The Corporation shall investigate and verif, the disputed information within five )! working da,s from receipt of the complaint. 6f its accurac, cannot be verified and cannot be proven1 the disputed information shall be deleted. The borrower and the accessing entities and special accessing entities who have received such information shall be informed of the corresponding correction or removal within five )! working da,s. The Corporation should use a simplified dispute resolution process to fast track the settlementEresolution of disputed credit information. /enial of these borrowersR rights1 without <ustifiable reason1 shall entitle the borrower to indemnit,.

Section D. %7,a0li79;en, of ,9e 'en,ral 're2i, (nfor;a,ion 'or-ora,ion. " There is hereb, created a Corporation which shall be known as the Credit 6nformation Corporation1 whose primar, purpose shall be to receive and consolidate basic credit data1 to act as a central registr, or central repositor, of credit information1 and to provide access to reliable1 standardi?ed information on credit histor, and financial condition of borrowers. a! The Corporation is hereb, authori?ed to adopt1 alter1 and use a corporate seal which shall be <udiciall, noticedH to enter into contractsH to incur liabilitiesH to lease or own real or personal propert,1 and to sell or otherwise dispose of the sameH to sue and be suedH to compromise1 condone or release an, liabilit, and otherwise to do and perform an, and all things that ma, be necessar, or proper to carr, out the purposes of this Act. b! The authori?ed capital stock of the Corporation shall be 9ive hundred million pesos &)2212221222.22! which shall be divided into common and preferred shares which shall be non"voting. The 'ational #overnment shall own and hold si7t, percent *2M! of the common shares while the balance of fort, percent 32M! shall be owned b, and held b, Aualified investors which shall be limited to industr, associations of banks1 Auasi"banks and other credit related associations including associations of consumers. The amount of %event,"five million pesos &h&=)12221222.22! shall be appropriated in the #eneral Appropriations Act for the subscription of common shares b, the 'ational #overnment to represent its si7t, percent *2M! eAuit, share and the amount of 9ift, million pesos &h&)212221222.22! shall be subscribed and paid up b, such Aualified investors in accordance with %ection ) d! hereof. c! The 'ational #overnment ma, subscribe or purchase securities or financial instrument that ma, be issued b, the Corporation as a supplement to capital. d! 5Aual eAuit, participation in the Corporation shall be offered and held b, Aualified private sector investors but in no case shall each of the Aualified investor represented b, an association of banks1 Auasi"banks and other credit"related associations including the associations of consumers have more than ten percent 12M! each of the total common shares issued b, the Corporation. e! The %5C in coordination with relevant government agencies1 shall prescribe additional reAuirements for the establishment of the Corporation1 such as industr, representation1 capital structure1 number of independent directors1 and the process for nominating directors1 and such other reAuirements to ensure consumer protection and free1 fair and health, competition in the industr,. f! The Chairman of the %5C shall be the Chairman of the Board of /irectors of the Corporation. Chenever the Chairman of the %5C is unable to attend a meeting of the Board1 heEshe shall designate an Associate Commissioner of the %5C to act as hisEher alternate. The powers and functions of the Corporation shall be e7ercised b, a board of directors composed of fifteen 1)! members. The directors representing the government shares shall be appointed b, the &resident of the &hilippines. g! The directors and principal officers of the Corporation1 shall be Aualified b, the Bfit and properB rule for bank directors and officers. To maintain the Aualit, of management of the Corporation and afford better protection to the s,stem and the public in general1 the %5C in coordination with the relevant government agencies1 shall prescribe1 pass upon and review the Aualifications and disAualifications of individuals elected or appointed directors of the Corporation and disAualif, those found unfit. After due notice to the board of directors of the Corporation1 the %5C ma, disAualif,1 suspend or remove an, director who commits or omits an act which render him unfit for the position. 6n determining whether an individual is fit and proper to hold the position of a director of the Corporation1 due regard shall be given to his integrit,1 e7perience1 education1 training and competence. The members of the Board of /irectors must be 9ilipino citi?ens and at least thirt, +2! ,ears of age. 6n addition1 the, shall be persons of good moral character1 of unAuestionable integrit,1 of known probit,1 and have attained competence in the fields of law1 finance1 economics1 computer science or information technolog,. 6n addition to the disAualifications imposed b, the Corporation Code1 as amended1 no person shall be nominated b, the national government

if he has been connected directl, with a banking or financial institution as a director or officer1 or has substantial interest therein within three +! ,ears prior to his appointment. h! The Board of /irectors ma, appoint such officers and emplo,ees as are not otherwise provided for in this Act1 define their duties1 fi7 their compensations and impose disciplinar, sanctions upon such officers and emplo,ees1 for cause. The salaries and other compensation of the officers and emplo,ees of the Corporation shall be e7empt from the %alar, %tandardi?ation .aw. Appointments in the Corporation1 e7cept to those which are polic," determining1 primaril, confidential or highl, technical in nature1 shall be made onl, according to the Civil %ervice .aw. i! The Corporation shall acAuire and use state"of"the"art technolog, and facilities in its operations to ensure its continuing competence and capabilit, to provide updated negative and positive credit informationH to enable the Corporation to rela, credit information electronicall, as well as in writing to those authori?ed to have access to the credit information s,stemH and to insure accurac, of collected1 stored and disseminated credit information. The Corporation shall implement a borrowerRs identification s,stem for the purpose of consolidating credit information. <! The provisions of an, general or special law to the contrar, notwithstanding1 the importation b, the Corporation of all eAuipment1 hardware or software1 as well as all other eAuipment needed for its operations shall be full, e7empt from all customs duties and from all other ta7es1 assessments and charges related to such importation. k! The Corporation shall have its principal place of business in 8etro 8anila1 but ma, maintain branches in such other places as the proper conduct of its business ma, reAuire. l! An, and all acAuisition of goods and services b, the Corporation shall be sub<ect to &rocurement .aws. m! The national government shall continue to hold si7t, percent *2M! of the common shares for a period not to e7ceed five )! ,ears from the date of commencement of operations of the Corporation. After the said period1 the national government shall dispose of at least twent, percent 22M! of its stockholdings in the Corporation to Aualified investors which shall be limited to industr, associations of banks1 Auasi"banks and other credit"related associations1 including associations of consumers. The national government shall offer eAual eAuit, participation in the Corporation to all Aualified investors. Chen the ownership of the ma<orit, of the common voting shares of the Corporation passes to private investors1 the stockholders shall cause the adoption and registration with the %5C of the amended articles of incorporation within three +! months from such transfer of ownership. Section . 'onfi2en,iali,1 of 're2i, (nfor;a,ion. " The Corporation1 the submitting entities1 the accessing entities1 the outsource entities1 the special accessing entities and the dul, authori?ed non" accessing entities shall hold the credit information under strict confidentialit, and shall use the same onl, for the declared purpose of establishing the creditworthiness of the borrower. 4utsource entities which ma, process and consolidate basic credit data are absolutel, prohibited from releasing such data received from the Corporation other than to the Corporation. The accreditation of an accessing entit,1 a special entit, andEor an outsource entit, which violates the confidentialit, of1 or which misuses1 the credit information accessed from the Corporation1 ma, be suspended or revoked. An, entit, which violates this section ma, be barred access to the credit information s,stem and penali?ed pursuant to %ection 11 of this Act. The Corporation shall be authori?ed to release and disclose consolidated basic credit data onl, to the Accessing 5ntities1 the %pecial Accessing 5ntities1 the 4utsource 5ntities and Borrowers. Basic Consolidated basic credit data released to Accessing 5ntities shall be limited to those pertaining to e7isting Borrowers or Borrowers with pending credit applications. Credit information shall not be released to entities other than those enumerated under this %ection e7cept upon order of the court. Section F. %2/ca,ional 'a;-aign. " A continuing nationwide educational campaign shall be developed and undertaken b, the Corporation to promote the benefits of a credit information s,stem to the econom,H to create awareness on the rights of consumersEborrowers to access their credit reports collected1 stored and disseminated b, the CorporationH to disseminate the rights of the borrowers to

dispute an, incorrectEinaccurate credit information in the database file of the CorporationH to familiari?e consumers of the procedure in collecting1 storing and disseminating credit information of borrowers b, the CorporationH and to brief consumers of other related information. Section ). R/le7 an2 Reg/la,ion7. " 9or purposes of creating a health, balance between the need for reliable credit information and safeguarding consumer protection1 ensuring free and health, competition in the industr,1 the %5C1 in coordination with relevant government agencies and e7isting industr, stakeholders1 shall issue the implementing rules and regulations 6$$s!1 which shall be reviewed1 revised and approved b, the 4versight Committee to ensure consistenc, and compliance with the provisions of this Act1 embod,ing among othersD a! The basic credit data shall be limited or confined in form and content to an ob<ective and factual information and shall e7clude an, sub<ective information or opinionH b! $estrictions on the use and transfer of credit informationH c! $ights of the borrowers to access their respective credit information and to dispute the factual accurac, of such credit informationH d! $eAuirements and standards for the establishment of the Corporation including1 but not limited to1 ownership1 industr, representation1 independent directors and process of nomination of directorsH e! Accreditation standards for submitting entities and special accessing entities and non" accessing entitiesH f! %anctions to be imposed b, the Corporation onD i! The submitting entities for non"submission of reports and for dela,ed andEor erroneous reportingH ii! Accessing entities1 special accessing entities1 outsource entities and dul, authori?ed non"accessing entities1 for breaches of the confidentialit, of misuse of1 the credit information obtained from the credit information s,stemH and iii! Fiolations of other applicable rules and regulationsD Pro+ided1 That these administrative sanctions shall be in the form of fines in amounts as ma, be determined b, the Corporation but in no case to e7ceed Thirt, thousand pesos &h&+21222.22! a da, for each violation1 taking into consideration the attendant circumstances1 such as the nature and gravit, of the violation or irregularit,. 6mposition of administrative sanctions shall be without pre<udice to an, criminal and other sanctions as ma, be applicable under this Act and relevant lawsH g! %uspension or cancellation of the rights of an, Accessing 5ntit, or %pecial Accessing 5ntit, to access Credit 6nformation from the CorporationH Pro+ided1 That the %5C in coordination with relevant government agencies and e7isting industr, stakeholders1 ma, issue subseAuent regulations consistent with the 6$$ as approved b, the Congressional 4versight Committee. 6n addition1 the %5C ma, regulate access to the credit information s,stem as well as the fees that shall be collected b, the Corporation from the Accessing and %pecial Accessing 5ntities1 taking into consideration the polic, of lowering the cost of credit1 promoting fair competition1 and the need of the Corporation to emplo, state"of"the"art technolog,H and h! The basic credit data about a borrower shall be limited to credit information e7isting on the date of the enactment of this Act and thereafter. Section &. 'ongre77ional #)er7ig9, 'o;;i,,ee. " There is hereb, created a congressional oversight committee1 composed of seven =! members from the %enate and seven =! members from the @ouse of $epresentatives. The 8embers from the %enate shall be appointed b, the %enate &resident with at least three +! %enators representing the minorit,. The 8embers of the @ouse of

$epresentatives shall be appointed b, the %peaker with at least three +! members representing the minorit,. After the 4versight Committee approved the implementing rules and regulations1 it shall thereafter become functus officio1 and therefore cease to e7istD Pro+ided1 That the Congress ma, revive the Congressional 4versight Committee in case of a need for an, ma<or revisionEs in the implementing rules and regulations. Section '0. (n2e;ni,1 in 8a)or of ,9e 'or-ora,ion, i,7 #fficer7 an2 %;-lo1ee7. " :nless the Corporation or an, of its officers and emplo,ees is found liable for an, willful violation of this Act1 bad faith1 malice andEor gross negligence1 the %ubmitting 5ntities1 Accessing 5ntities1 %pecial Accessing 5ntities1 4utsource 5ntities and dul, authori?ed non"accessing entities shall hold the Corporation1 its directors1 officers and emplo,ees free and harmless to the fullest e7tent permitted b, law and shall indemnif, them from an, and all liabilities1 losses1 claims1 demands1 damages1 deficiencies1 costs and e7penses of whatsoever kind and nature that ma, arise in connection with the performance of their functions without pre<udice to an, criminal liabilit, under e7isting laws. Section ''. &enal,ie7. " An, person who willfull, violates an, of the provisions of this Act or the rules and regulations promulgated b, the %5C in coordination with the relevant government agencies shall1 upon conviction1 suffer a fine of not less than 9ift, thousand pesos &h&)21222.22!. nor more than 4ne million pesos &h&112221222.22! or imprisonment of not less than one 1! ,ear nor more than five )! ,ears1 or both1 at the discretion of the court. Section '*. (n)iola0le Na,/re of ,9e Secrec1 of Bank "e-o7i,7 an2?or 'lien, 8/n27. "&ursuant to $epublic Act 'o. 132) .aw on %ecrec, of Bank /eposits!1 $epublic Act 'o. *32* The 9oreign Currenc, /eposit Act!1 $epublic Act 'o. 0=(1 The #eneral Banking .aw of 2222!1 $epublic Act 'o. (1*2 Anti"8one, .aundering .aw! and their amendator, laws1 nothing in this Act shall impair the secrec, of bank deposits and andEor client funds and investments in government securities or funds. Section '3. Ann/al Re-or,. " The %5C shall submit an annual report to Congress on the status of the implementation of this Act. Sec. '!. &rinci-al Go)ern;en, Agenc1. " The %5C shall be the lead government agenc, to implement and enforce this Act. As lead agenc,1 the %5C shall consult and coordinate with other relevant government agencies in the adoption of all rules and regulations for the full and effective implementation and enforecement of this Act1 taking into account the polic, ob<ectives contained in %ection 2 hereof. Section 'D. Se-ara0ili,1 'la/7e. " %hould an, provision of this Act or the application thereof to an, person or circumstance be held invalid1 the other provisions or sections of this Act shall not be affected thereb,. Section ' . Re-ealing 'la/7e. " This Act repeals &residential /ecree 'o. 1(31 in its entiret,. All laws1 decrees1 e7ecutive orders1 rules and regulations or parts thereof which are inconsistent with this Act are hereb, repealed1 amended or modified accordingl,. Section 'F. %ffec,i)i,1 'la/7e. " This Act shall take effect fifteen 1)! da,s following its publication in the Officia( GaAette or in at least two 2! newspapers of general circulation.

T:( SIGNI8ICANC( O8 BANKS IN T:( (CONO<IC 5I8( O8 T:( COUNTR6 Si.e> ". CA ')3 SCRA 3 0 '&&F
CRU;, *.5 Ce are concerned in this case with the Auestion of damages1 specificall, moral and e7emplar, damages. The negligence of the private respondent has alread, been established. All we have to ascertain is whether the petitioner is entitled to the said damages and1 if so1 in what amounts. The parties agree on the basic facts. The petitioner is a private corporation engaged in the e7portation of food products. 6t bu,s these products from various local suppliers and then sells them abroad1 particularl, in the :nited %tates1 Canada and the 8iddle 5ast. 8ost of its e7ports are purchased b, the petitioner on credit. The petitioner was a depositor of the respondent bank and maintained a checking account in its branch at $omulo Avenue1 Cubao1 >ue?on Cit,. 4n 8a, 2)1 1(011 the petitioner deposited to its account in the said bank the amount of &1221222.221 thus increasing its balance as of that date to &1(21+02.=3. ' %ubseAuentl,1 the petitioner issued several checks against its deposit but was suprised to learn later that the, had been dishonored for insufficient funds. The dishonored checks are the followingD 1. Check 'o. 21)+(1 dated 8a, 2(1 1(011 in favor of California 8anufacturing Compan,1 6nc. for &1*1302.22D 2. Check 'o. 21)32* dated 8a, 201 1(011 in favor of the Bureau of 6nternal $evenue in the amount of &+1+0*.=+D +. Check 'o. 21)3)1 dated -une 31 1(011 in favor of 8r. #reg &edreNo in the amount of &=1202.22H 3. Check 'o. 21)331 dated -une )1 1(011 in favor of 8alabon .onglife Trading Corporation in the amount of &321(2*.22D ). Check 'o. 21)3=3 dated -une 121 1(011 in favor of 8alabon .onglife Trading Corporation in the amount of &121()+.22D *. Check 'o. 21)3== dated -une (1 1(011 in favor of %ea".and %ervices1 6nc. in the amount of &2=1223.3)D =. Check 'o. 21)312 dated -une 121 1(011 in favor of Baguio Countr, Club Corporation in the amount of &31+0).22D and 0. Check 'o. 21)302 dated -une (1 1(011 in favor of 5nriAueta Ba,la in the amount of &*12=).22. * As a conseAuence1 the California 8anufacturing Corporation sent on -une (1 1(011 a letter of demand to the petitioner1 threatening prosecution if the dishonored check issued to it was not made good. 6t also withheld deliver, of the order made b, the petitioner. %imilar letters were sent to the petitioner b, the 8alabon .ong .ife Trading1 on -une 1)1 1(011 and b, the #. and :. 5nterprises1 on -une 121 1(01. 8alabon also canceled the petitioner;s credit line and demanded that future pa,ments be made b, it in cash or certified check. 8eantime1 action on the pending orders of the petitioner with the other suppliers whose checks were dishonored was also deferred. The petitioner complained to the respondent bank on -une 121 1(01. 3 6nvestigation disclosed that the sum of &1221222.22 deposited b, the petitioner on 8a, 2)1 1(011 had not been credited to it. The

error was rectified on -une 1=1 1(011 and the dishonored checks were paid after the, were re" deposited. ! 6n its letter dated -une 221 1(011 the petitioner demanded reparation from the respondent bank for its Bgross and wanton negligence.B This demand was not met. The petitioner then filed a complaint in the then Court of 9irst 6nstance of $i?al claiming from the private respondent moral damages in the sum of &112221222.22 and e7emplar, damages in the sum of &)221222.221 plus 2)M attorne,;s fees1 and costs. After trial1 -udge -ohnico #. %erAuinia rendered <udgment holding that moral and e7emplar, damages were not called for under the circumstances. @owever1 observing that the plaintiff;s right had been violated1 he ordered the defendant to pa, nominal damages in the amount of &221222.22 plus &)1222.22 attorne,;s fees and costs. D This decision was affirmed in toto b, the respondent court. The respondent court found with the trial court that the private respondent was guilt, of negligence but agreed that the petitioner was nevertheless not entitled to moral damages. 6t saidD The essential ingredient of moral damages is proof of bad faith /e Aparicio vs. &arogurga1 1)2 %C$A 202!. 6ndeed1 there was the omission b, the defendant" appellee bank to credit appellant;s deposit of &1221222.22 on 8a, 2)1 1(01. But the bank rectified its records. 6t credited the said amount in favor of plaintiff"appellant in less than a month. The dishonored checks were eventuall, paid. These circumstances negate an, imputation or insinuation of malicious1 fraudulent1 wanton and gross bad faith and negligence on the part of the defendant"appellant. 6t is this ruling that is faulted in the petition now before us. This Court has carefull, e7amined the facts of this case and finds that it cannot share some of the conclusions of the lower courts. 6t seems to us that the negligence of the private respondent had been brushed off rather lightl, as if it were a minor infraction reAuiring no more than a slap on the wrist. Ce feel it is not enough to sa, that the private respondent rectified its records and credited the deposit in less than a month as if this were sufficient repentance. The error should not have been committed in the first place. The respondent bank has not even e7plained wh, it was committed at all. 6t is true that the dishonored checks were1 as the Court of Appeals put it1 Beventuall,B paid. @owever1 this took almost a month when1 properl,1 the checks should have been paid immediatel, upon presentment. As the Court sees it1 the initial carelessness of the respondent bank1 aggravated b, the lack of promptitude in repairing its error1 <ustifies the grant of moral damages. This rather lackadaisical attitude toward the complaining depositor constituted the gross negligence1 if not wanton bad faith1 that the respondent court said had not been established b, the petitioner. Ce also note that while stressing the rectification made b, the respondent bank1 the decision practicall, ignored the pre<udice suffered b, the petitioner. This was simpl, glossed over if not1 indeed1 disbelieved. The fact is that the petitioner;s credit line was canceled and its orders were not acted upon pending receipt of actual pa,ment b, the suppliers. 6ts business declined. 6ts reputation was tarnished. 6ts standing was reduced in the business communit,. All this was due to the fault of the respondent bank which was undeniabl, remiss in its dut, to the petitioner. Article 222) of the Civil Code provides that actual or compensator, damages ma, be received B 2! for in<ur, to the plaintiff s business standing or commercial credit.B There is no Auestion that the petitioner did sustain actual in<ur, as a result of the dishonored checks and that the e7istence of the loss having been established Babsolute certaint, as to its amount is not reAuired.B F %uch in<ur, should bolster all the more the demand of the petitioner for moral damages and <ustifies the e7amination b, this Court of the validit, and reasonableness of the said claim. Ce agree that moral damages are not awarded to penali?e the defendant but to compensate the plaintiff for the in<uries he ma, have suffered. ) 6n the case at bar1 the petitioner is seeking such damages for the pre<udice sustained b, it as a result of the private respondent;s fault. The respondent court said that the claimed losses are purel, speculative and are not supported b, substantial evidence1 but if failed to consider that the amount of such losses need not be established with e7actitude precisel, because of their nature. 8oral damages are not susceptible of pecuniar, estimation. Article 221* of the Civil Code specificall, provides that Bno proof of pecuniar, loss is necessar, in order that moral1 nominal1 temperate1 liAuidated or e7emplar, damages ma, be

ad<udicated.B That is wh, the determination of the amount to be awarded e7cept liAuidated damages! is left to the sound discretion of the court1 according to Bthe circumstances of each case.B 9rom ever, viewpoint e7cept that of the petitioner;s1 its claim of moral damages in the amount of &112221222.22 is nothing short of preposterous. 6ts business certainl, is not that big1 or its name that prestigious1 to sustain such an e7travagant pretense. 8oreover1 a corporation is not as a rule entitled to moral damages because1 not being a natural person1 it cannot e7perience ph,sical suffering or such sentiments as wounded feelings1 serious an7iet,1 mental anguish and moral shock. The onl, e7ception to this rule is where the corporation has a good reputation that is debased1 resulting in its social humiliation. & Ce shall recogni?e that the petitioner did suffer in<ur, because of the private respondent;s negligence that caused the dishonor of the checks issued b, it. The immediate conseAuence was that its prestige was impaired because of the bouncing checks and confidence in it as a reliable debtor was diminished. The private respondent makes much of the one instance when the petitioner was sued in a collection case1 but that did not prove that it did not have a good reputation that could not be marred1 more so since that case was ultimatel, settled. '0 6t does not appear that1 as the private respondent would portra, it1 the petitioner is an unsavor, and disreputable entit, that has no good name to protect. Considering all this1 we feel that the award of nominal damages in the sum of &221222.22 was not the proper relief to which the petitioner was entitled. :nder Article 2221 of the Civil Code1 Bnominal damages are ad<udicated in order that a right of the plaintiff1 which has been violated or invaded b, the defendant1 ma, be vindicated or recogni?ed1 and not for the purpose of indemnif,ing the plaintiff for an, loss suffered b, him.B As we have found that the petitioner has indeed incurred loss through the fault of the private respondent1 the proper remed, is the award to it of moral damages1 which we impose1 in our discretion1 in the same amount of &221222.22. 'ow for the e7emplar, damages. The pertinent provisions of the Civil Code are the followingD Art. 222(. 57emplar, or corrective damages are imposed1 b, wa, of e7ample or correction for the public good1 in addition to the moral1 temperate1 liAuidated or compensator, damages. Art. 22+2. 6n contracts and Auasi"contracts1 the court ma, award e7emplar, damages if the defendant acted in a wanton1 fraudulent1 reckless1 oppressive1 or malevolent manner. The banking s,stem is an indispensable institution in the modern world and pla,s a vital role in the economic life of ever, civili?ed nation. Chether as mere passive entities for the safekeeping and saving of mone, or as active instruments of business and commerce1 banks have become an ubiAuitous presence among the people1 who have come to regard them with respect and even gratitude and1 most of all1 confidence. Thus1 even the humble wage"earner has not hesitated to entrust his life;s savings to the bank of his choice1 knowing that the, will be safe in its custod, and will even earn some interest for him. The ordinar, person1 with eAual faith1 usuall, maintains a modest checking account for securit, and convenience in the settling of his monthl, bills and the pa,ment of ordinar, e7penses. As for business entities like the petitioner1 the bank is a trusted and active associate that can help in the running of their affairs1 not onl, in the form of loans when needed but more often in the conduct of their da,"to"da, transactions like the issuance or encashment of checks. 6n ever, case1 the depositor e7pects the bank to treat his account with the utmost fidelit,1 whether such account consists onl, of a few hundred pesos or of millions. The bank must record ever, single transaction accuratel,1 down to the last centavo1 and as promptl, as possible. This has to be done if the account is to reflect at an, given time the amount of mone, the depositor can dispose of as he sees fit1 confident that the bank will deliver it as and to whomever he directs. A blunder on the part of the bank1 such as the dishonor of a check without good reason1 can cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation. The point is that as a business affected with public interest and because of the nature of its functions1 the bank is under obligation to treat the accounts of its depositors with meticulous care1 alwa,s having in mind the fiduciar, nature of their relationship. 6n the case at bar1 it is obvious that the respondent bank was remiss in that dut, and violated that relationship. Chat is especiall, deplorable is that1

having been informed of its error in not crediting the deposit in Auestion to the petitioner1 the respondent bank did not immediatel, correct it but did so onl, one week later or twent,"three da,s after the deposit was made. 6t bears repeating that the record does not contain an, satisfactor, e7planation of wh, the error was made in the first place and wh, it was not corrected immediatel, after its discover,. %uch ineptness comes under the concept of the wanton manner contemplated in the Civil Code that calls for the imposition of e7emplar, damages. After deliberating on this particular matter1 the Court1 in the e7ercise of its discretion1 hereb, imposes upon the respondent bank e7emplar, damages in the amount of &)21222.221 Bb, wa, of e7ample or correction for the public good1B in the words of the law. 6t is e7pected that this ruling will serve as a warning and deterrent against the repetition of the ineptness and indefference that has been displa,ed here1 lest the confidence of the public in the banking s,stem be further impaired. ACC4$/6'#.J1 the appealed <udgment is hereb, 84/6965/ and the private respondent is ordered to pa, the petitioner1 in lieu of nominal damages1 moral damages in the amount of &221222.221 and e7emplar, damages in the amount of &)21222.22 plus the original award of attorne,;s fees in the amount of &)1222.221 and costs. %4 4$/5$5/.

S$n-e?$% ". I3n$cio, Jr. D!' SCRA ' *00F

AUSTRIA-<ARTIN(;, *.2 Before the Court is a &etition for $eview on Certiorari under $ule 3) of the $ules of Court assailing the /ecision[1] of the Court of Appeals CA! in CA"#.$. CF 'o. *2323 promulgated on August 2=1 22221 which affirmed with modification the /ecision of the $egional Trial Court $TC! of &asig Cit,1 Branch 1)01 in Civil Case 'o. *)13* dated /ecember 101 1((0. The facts of the case1 as summari?ed b, the $TC1 are as followsD 6t appears from the plaintiffs; [petitioners] evidence that Arturo [respondent] is the elder brother of Alice [petitioner] and $osita [petitioner]1 Ben<amin [petitioner] and &atricia [petitioner] are Arturo;s nephew and niece. Arturo and his wife 5vel,n [respondent] are residents of the :nited %tates. 6n 4ctober 1((+1 Arturo leased from /r. Bor<a a condominium unit identified as :nit 20"C #ilmore Townhomes located at #ranada %t.1 >ue?on Cit,. The lease was for the benefit of Ben<amin who is the occupant of the unit. The rentals were paid b, 6gnacio. The term of the lease is for one 1! ,ear and will e7pire on 4ctober 1)1 1((3. 6t appears that Arturo was intending to renew the lease contract. As he had to leave for the :.%.1 Arturo drew up a check1 :C&B Check 'o. #$@")*22+( and wrote on it the name of the pa,ee1 /r. 8anuel Bor<a1 but left blank the date and amount. @e signed the check. The check was intended as pa,ment for the renewal of the lease. The date and the amount were left blank because Arturo does not know when it will be renewed and the new rate of the lease. The check was left with Arturo;s sister"in"law1 who was instructed to deliver or give it to Ben<amin. The check later came to the possession of Alice who felt that Arturo cheated their sister in the amount of three million pesos &+12221222.22!. %he believed that Arturo and $osita had a <oint QandEorS mone, market placement in the amount of &+ million with the :C&B branch at 4rtigas Ave.1 %an -uan and that 6gnacio preterminated the placement and ran awa, with it1 which rightfull, belonged to $osita. Alice then inAuired from :C&B #reenhills branch if Arturo still has an account with them. 4n getting a confirmation1 she together with $osita drew up a scheme to recover the &+ million from Arturo. Alice filled up the date of the check with Q8arch 1=1 1(()S and the amount with Qthree million onl,.S Alice got her driver1 Kudera1 to stand as the pa,ee of the check1 /r. Bor<a. Alice and $osita came to %BC[2] #reenhills Branch together with a man Kudera! who[m] the, introduced as /r. Bor<a to the then Assistant Cashier .uis. After introducing the said man as /r. Bor<a1 $osita1 Alice and the man who was later identified as Kudera opened a -oint %avings Account 'o. 2=1"312))3"=. As initial deposit for the -oint %avings Account1 Alice1 $osita and Kudera deposited the check. 'o 6/ card was reAuired of 8r. Kudera because it is an internal polic, of the bank that when a valued client opens an account1 an identification card is no longer reAuired T%'1 April 211 1((=1 pp. 1)"1*!. %BC also allowed the check to be deposited without the endorsement of the impostor Kudera. %BC officials stamped on the dorsal portion of the check QendorsementElack of endorsement guaranteedS and sent the check for clearing to the &hilippine Clearing @ouse Corporation. 4n 21 8arch 1(()1 after the check had alread, been cleared b, the drawer bank :C&B1 $osita withdrew &1 million from -oint %avings Account and deposited said amount to the current account of Alice with %BC #reenhills Branch. 4n the same date1 Alice caused the transfer of &2 million from the -oint %avings Account to two 2! 6nvestment %avings Account[s] in the names of Alice1 $osita andEor &atricia. ... 4n April 31 1(()1 a da, after 5vel,n and Att,. %an? inAuired about the identit, of the persons and the circumstances surrounding the deposit and withdrawal of the check1 the three million pesos in the two investment savings account[s] and in the current account <ust opened with %BC were withdrawn b, Alice and $osita.[+] 4n -une 101 1(()1 Arturo 6gnacio1 -r. and 5vel,n 6gnacio respondents! filed a verified complaint for recover, of a sum of mone, and damages against %ecurit, Bank and Trust Compan, %BTC! and its officers1 namel,D $ene Colin /. #ra,1 8anagerH and %onia 4rti?".uis1 Cashier. The complaint also impleaded herein petitioner Ben<amin A.6. 5spiritu Ben<amin!1 a Q-ohn /oe1S representing himself as 8anuel '.Bor<aH and a Q-ane /oe.S

4n 'ovember =1 1(()1 the complaint was amended b, additionall, impleading herein petitioners Alice A.6. %ande<as Alice!1 $osita A.6.Cusi $osita! and &atricia A.6. %ande<as &atricia! as defendants who filed their respective answers and counterclaims. After trial1 the $TC following dispositive portionD rendered <udgment dated /ecember 101 1((0 with the

C@5$594$51 in view of the foregoing1 <udgment is rendered in favor of plaintiffs as against defendants %ecurit, Bank and Trust Co.1 $ene Colin #ra,1 %onia 4rti? .uis1 Alice A.6. %ande<as and $osita A.6. Cusi1 ordering them to pa, <ointl, and severall, the plaintiffs the following amountsD 1! &+12221222.22 plus legal interest on it from 8arch 1=1 1(() full, paidH 2! &)221222.22 as moral damagesH +! &2221222.22 as e7emplar, damagesH 3! &+221222.22 as attorne,;s feesH plus )! the cost of suit. until the entire amount is

6n turn1 plaintiffs are directed to pa, Ben<amin A.6. 5spiritu the amount of &1221222.22 as moral damages1 &)21222.22 as e7emplar, damages and another&)21222.22 as attorne,;s fees. The counterclaims of &atricia A.6. %ande<as are dismissed. %4 4$/5$5/.[3] Both parties appealed the $TC /ecision to the CA. 4n August 131 1(((1 during the pendenc, of the appeal with the CA1 herein respondent Arturo 6gnacio1 -r. Arturo! died.[)] 4n August 2=1 22221 the CA promulgated the presentl, assailed /ecision1 disposing as followsD C@5$594$51 in view of the foregoing1 the assailed decision of the trial court is hereb, A88IR<(D =it+ t+e <ODI8ICATION that the <udgment shall read as followsD The defendants"appellants %ecurit, Bank and Trust Compan,1 $ene Colin /. #ra,1 %onia 4rti?".uis1 Alice A.6. %ande<as1 and $osita A.6. Cusi1 are hereb, ordered to <ointl, and severall, pa, the plaintiffs the following amountsD 1. &+12221222.22 plus legal interest computed from 8arch 1=1 amount is full, paidH 2. &2221222.22 as moral damagesH +. &1221222.22 as e7emplar, damagesH 3. &)21222.22 as attorne,;s feesH plus ). the costs of suit. 1(() until the entire

The award of moral damages1 e7emplar, damages1 and attorne,;s fees in favor of Ben<amin 5spiritu is D(5(T(D. SO ORD(R(D.[*] &etitioners and %BTC1 together with #ra, and 4rti?".uis1 filed their respective petitions for review before this Court. @owever1 the petition filed b, %BTC1 #ra, and 4rti?".uis1 docketed as #.$. 'o. 1))2+01 was denied in a $esolution[=] issued b, this Court on 'ovember 221 22221 for their failure to properl, verif, the petition1 submit a valid certification of non"forum shopping1 and attach to the petition the duplicate original or certified true cop, of the assailed CA /ecision. %aid $esolution became final and e7ecutor, on April (1 222+.[0] 4n the other hand1 the instant petition was given due course. &etitioners enumerated the following grounds in support of their petitionD 6. T@5 C4:$T 49 A&&5A.% @A/ /5C6/5/ A >:5%T64' 49 %:B%TA'C5 '4T @5$5T494$5 /5C6/5/ BJ T@6% C4:$T A'/E4$ @A/ /5C6/5/ 6T 6' A CAJ &$4BAB.J '4T

6' ACC4$/ C6T@ 5>:6TJ1 T@5 .AC A'/ T@5 A&&.6CAB.5 /5C6%64'% 49 T@6% C4:$T1 %:C@ A%D a! 6' '4T @4./6'# T@AT A% B5TC55' %6B.6'#%1 T@5 A##$65F5/ %6B.6'# @A% T@5 $6#@T T4 TAK5 85A%:$5% 4$ %T5&% T4 &$4T5CT @6% 4C' 6'T5$5%T 4$ &$4&5$TJ $6#@T% 9$48 A' ACT 49 T@5 #:6.TJ %6B.6'#H b! 6' '4T @4./6'# T@AT T@5 ACT 49 $4%6TA A'/ A.6C5 6' 96..6'# 4:T T@5 B.A'K &4$T64'% 49 T@5 C@5CK T4 $5C4F5$ C@AT A$T:$41 -$. T44K 9$48 A'/ /:5 $4%6TA1 /6/ '4T #6F5 $6%5 T4 A' ACT64'AB.5 T4$TH c! 6' '4T @4./6'# T@AT T@5 C$686'A. ACT 49 A$T:$41 -$. 6' %:B86TT6'# A' A996/AF6T 49 .4%% 49 T@5 C5$T696CAT5 49 T685 /5&4%6T 94$ &+12221222 T@AT $6#@T9:..J B5.4'#5/ T4 $4%6TA -:%T T4 B5 AB.5 T4 &$5"T5$86'AT5 T@5 T685 /5&4%6T A'/ #5T 6T% 9AC5 FA.:51 C@5' @5 K'5C 6T CA% '4T .4%T B:T 6' 9ACT 6'TACT A'/ 6' T@5 &4%%5%%64' 49 $4%6TA1 6% A /6%@4'5%T A'/ $5&$5@5'%6B.5 ACT T@AT -:%T6965/ $4%6TA A'/ A.6C5 6' TAK6'# 85A'% T4 $5#A6' T@5 84'5J A'/ T4 /5'J A$T:$41 -$. A'J $6#@T T4 $5C4F5$ T@5 %A6/ A84:'T A% C5.. A% T4 A' ACA$/ 49 /A8A#5%H d! 6' '4T @4./6'# T@AT T@5 C$686'A. ACT 49 A$T:$41 -$. 6' %:B86TT6'# A' A996/AF6T 49 .4%% 49 T@5 4C'5$;% C4&J 49 T@5 T6T.5 6' 84$AJTA A'/ 6' T5%T69J6'# 6' C4:$T A% T4 %:C@1 C@5' T@AT 6% '4T T@5 T$:T@ A% @5 K'5C T@AT T@5 4$6#6'A. 4C'5$;% C4&J 49 T@5 T6T.5 CA% C6T@ $4%6TA1 6% A'4T@5$ /6%@4'5%T A'/ $5&$5@5'%6B.5 ACT T@AT %@4:./ '4T @AF5 5'T6T.5/ @68 T4 A'J ACA$/ 49 /A8A#5%H A'/ e! 6' '4T A&&.J6'# T@5 $:.5 4' &AR( "%L(':# :'/5$ A$T. 1312 49 T@5 C6F6. C4/5. 66. T@5 C4:$T 49 A&&5A.% @A/ /5&A$T5/ 9$48 T@5 :%:A. C4:$%5 49 -:/6C6A. &$4C55/6'#% C@5' 6T 9A6.5/ T4 $5%4.F5 6' T@5 A&&5A. T@5 C4:'T5$C.A68 49 $4%6TA A#A6'%T A$T:$41 -$. 94$ T@5 $5C4F5$J 49 T@5 A84:'T% .5#A..J @5$% T@AT %@4:./ -:%T69J A.6C5;% B56'# AB%4.F5/ 9$48 A'J .6AB6.6TJ 94$ :%6'# T@5 C@5CK 6' $5C4F5$6'# T@5 A84:'T $6#@T9:..J B5.4'#6'# T4 $4%6TAH 666. T@5 C4:$T 49 A&&5A.% @A/ /5&A$T5/ 9$48 T@5 :%:A. C4:$%5 49 -:/6C6A. &$4C55/6'#% C@5' 6T $5F5$%5/ T@5 T$6A. C4:$T;% 96'/6'# T@AT $5%&4'/5'T CA% #:6.TJ 49 BA/ 9A6T@ A'/ 8A.6C5 T@AT 5'T6T.5/ &5T6T64'5$ B5'-A86' A.6. 5%&6$6T: T4 T@5 ACA$/ 49 /A8A#5% '4TC6T@%TA'/6'# T@AT T@5$5 CA% A8&.5 5F6/5'C5 %@4C' T@AT %:C@ BA/ 9A6T@ A'/ 8A.6C5 CA% 8A/5 A% A .5F5$A#5 T4 C48&5. A$T:$4;% %6B.6'#% T4 $5T:$' T4 @68 T@5 &+12221222 C@6C@ CA% '4T @6%H and1 6F. T@5 C4:$T 49 A&&5A.% @A/ /5C6/5/ T@5 CA%5 '4T 6' ACC4$/ C6T@ .AC C@5' 6T /5.5T5/ T@5 ACA$/ 49 /A8A#5% T4 &5T6T64'5$ 5%&6$6T: A'/ 6' '4T @AF6'# $:.5/ T@AT @5 CA% 5'T6T.5/ T4 A @6#@5$ ACA$/ 49 /A8A#5% C4'%6/5$6'# T@5 C6$C:8%TA'C5% 49 T@5 CA%5 A% C5.. A% 6' '4T @AF6'# $:.5/ T@AT &AT$6C6A CA% 5'T6T.5/ T4 A' ACA$/ 49 /A8A#5%.[(] &etitioners argue that the CA overlooked and ignored vital pieces of evidence showing that the encashment of the sub<ect check was not fraudulent and1 on the contrar,1 was <ustified under the circumstancesH and that such encashment did not amount to an actionable tort and that it merel, called for the application of the civil law rule on )ari de(icto. 6n support of these arguments1 petitioners contend that the principal adversaries in the present case are full blooded siblingsH that the law recogni?es the solidarit, of famil, which is wh, it is made a condition that earnest efforts towards a compromise be e7erted before one famil, member can institute a suit against the otherH that even if Arturo previousl, defrauded $osita and deprived her of her lawful share in the sale of her propert,1 petitioners $osita and Alice did not precipitatel, file suit against him and instead took e7tra"legal measures to protect $osita;s propert, rights and at the same time preserve the solidarit, of their famil, and save it from public embarrassment. &etitioners also aver that $osita;s and Alice;s act of encashing the sub<ect check is not fraudulent because the, did not have an, unlawful intent and that the, merel, took from Arturo what rightfull, belonged to $osita. &etitioners contend that even granting that the act of $osita and Alice amounted to an actionable tort1 the, could not be ad<udged liable to return the amount to respondents or to pa, damages in their favor1 because the civil law rule on )aride(icto dictates that1 when both parties are at

fault1 neither of them could e7pect positive relief from courts of <ustice and1 instead1 are left in the state where the, were at the time of the filing of the case. &etitioners also contend that the CA erred in failing to award damages to &atricia even if the appellate court sustained the trial court;s finding that she was not a part, to the fraudulent acts committed b, $osita and Alice. &etitioners argue that even if &atricia did not bother to know the details of the cases against her and left ever,thing to her mother1 she did not even know the nature of the case against her1 or her superiors in the bank where she worked did not know whether she was the plaintiff or defendant1 these were not reasons to den, her award of damages. The fact remains that she had been maliciousl, dragged into the case1 and that the suit had adversel, affected her work and caused her mental worries and anguish1 besmirched reputation1 embarrassment and humiliation. As to Ben<amin1 petitioners aver that the CA also erred in deleting the award of damages and attorne,;s fees in his favor. &etitioners assert that the trial court found that Ben<amin suffered mental anguish1 wounded feelings and moral shock as a result of the filing of the present case. Citing the credentials and social standing of Ben<amin1 petitioners claim that the award of damages and attorne,;s fees in his favor should be increased. .astl,1 petitioners contend that the award of damages and attorne,;s fees to respondents should be deleted for their failure to establish malice or bad faith on the part of petitioners Alice and $osita in recovering the &+12221222.22 which Arturo took from $ositaH and that it is $osita who is entitled to damages and attorne,;s fees for Arturo;s failure and refusal to give her share in the sale of her propert, in 8ora,ta. 6n their 8emorandum1 respondents simpl, contend that the issues raised b, petitioners are factual in nature and that the settled rule is that Auestions of fact are not sub<ect to review b, the %upreme Court in a petition for review on certiorari under $ule 3) of the $ules of Court. Chile there are e7ceptions to this rule1 respondents assert that petitioners failed to show that the instant case falls under an, of these e7ceptions. T+e Co,rtG% R,#in3 The Court finds the petition bereft of merit. There is no compelling reason for the Court to disturb the findings of facts of the lower courts. The trial court;s findings are as followsD 1! $osita failed to establish that there is an agreement between her and Arturo that the latter will give her one"third of the proceeds of the sale of the 8ora,ta propert,H 2! petitioners were not able to establish b, clear and sufficient evidence that the &+12221222.22 which the, took from Arturo when the, encashed the sub<ect check was part of the proceeds of the sale of the 8ora,tapropert,H +! $osita;s counterclaim is permissive and she failed to pa, the full docket and filing fees for her counterclaim.[12] &etitioners challenge the findings of the $TC and insist that the, should not be held liable for encashing the sub<ect check because Arturo defrauded $osita and that he committed deceitful acts which deprived her of her rightful share in the sale of her building in 8ora,taH that the amount of &+12221222.22 represented b, the check which the, encashed formed part of the proceeds of the said saleH that Alice and $osita were merel, moved b, their desire to recover from Arturo1 $osita;s supposed share in the sale of her propert,. @owever1 the Court agrees with respondents that onl, Auestions of law are entertained in petitions for review on certiorari under $ule 3) of the $ules of Court.[11] The trial courtRs findings of fact1 which the Court of Appeals affirmed1 are generall, binding and conclusive upon this court. [12] There are recogni?ed e7ceptions to this rule1 among which areD 1! the conclusion is grounded on speculations1 surmises or con<ecturesH 2! the inference is manifestl, mistaken1 absurd or impossibleH +! there is grave abuse of discretionH 3! the <udgment is based on a misapprehension of factsH )! the findings of facts are conflictingH *! there is no citation of specific evidence on which the factual findings are basedH =! the finding of absence of facts is contradicted b, the presence of evidence on recordH 0! the findings of the CA are contrar, to the findings of the trial courtH (! the CA manifestl, overlooked certain relevant and undisputed facts that1 if properl, considered1 would <ustif, a different conclusionH 12! the findings of the CA are be,ond the issues of the caseH and 11! such findings are contrar, to the admissions of both parties.[1+] 6n the instant case1 petitioners failed to demonstrate that their petition falls under an, one of the above e7ceptions. &etitioners; assignments of errors boil down to the basic issue of whether or not Alice and $osita are <ustified in encashing the sub<ect check given the factual circumstances established in the present case.

&etitioners; posture is not sanctioned b, law. 6f the, trul, believe that Arturo took advantage of and violated the rights of $osita1 petitioners should have sought redress from the courts and should not have simpl, taken the law into their own hands. 4ur laws are replete with specific remedies designed to provide relief for the violation of one;s rights. 6n the instant case1 $osita could have immediatel, filed an action for the nullification of the sale of the building she owns in light of petitioners; claim that the document bearing her conformit, to the sale of the said building was taken b, Arturo from her without her knowledge and consent. 4r1 in the alternative1 as the CA correctl, held1 she could have brought a suit for the collection of a sum of mone, to recover her share in the sale of her propert, in 8ora,ta. 6n a civili?ed societ, such as ours1 the rule of law should alwa,s prevail. To allow otherwise would be productive of nothing but mischief1 chaos and anarch,. As a law,er1 who has sworn to uphold the rule of law1 $osita should know better. %he must go to court for relief. 6t is true that Article 1)1 of the 9amil, Code reAuires that earnest efforts towards a compromise be made before famil, members can institute suits against each other. @owever1 nothing in the law sanctions or allows the commission of or resort to an, e7tra"legal or illegal measure or remed, in order for famil, members to avoid the filing of suits against another famil, member for the enforcement or protection of their respective rights. &etitioners invoke the rule of )ari de(icto to support their contention that respondents do not deserve an, relief from the courts. The principle of )ari de(icto provides that when two parties are eAuall, at fault1 the law leaves them as the, are and denies recover, b, either one of them.[13] 6ndeed1 one who seeks eAuit, and <ustice must come to court with clean hands.[1)] @owever1 in the present case1 petitioners were not able to establish that respondents are also at fault. Thus1 the principle of )ari de(icto cannot appl,. 6n an, case1 the application of the )ari de(icto principle is not absolute1 as there are e7ceptions to its application.[1*] 4ne of these e7ceptions is where the application of the )ari de(icto rule would violate well"established public polic,.[1=] The prevention of lawlessness and the maintenance of peace and order are established public policies. 6n the instant case1 to den, respondents relief on the ground of )ari de(ictowould put a premium on the illegal act of petitioners in taking from respondents what the former claim to be rightfull, theirs. &etitioners also Auestion the trial court;s ruling that their counterclaim is permissive. This Court has laid down the following tests to determine whether a counterclaim is compulsor, or not1 to witD 1! Are the issues of fact or law raised b, the claim and the counterclaim largel, the sameO 2! Could res Budicata bar a subseAuent suit on defendantRs claims1 absent the compulsor, counterclaim ruleO +! Cill substantiall, the same evidence support or refute plaintiffRs claim as well as the defendantRs counterclaimO and 3! 6s there an, logical relation between the claim and the counterclaim1 such that the conduct of separate trials of the respective claims of the parties would entail a substantial duplication of effort and time b, the parties and the courtO[10] Tested against the above"mentioned criteria1 this Court agrees with the view of the $TC that $osita;s counterclaim for the recover, of her alleged share in the sale of the 8ora,ta propert, is permissive in nature. The evidence needed to prove respondents; claim to recover the amount of &+12221222.22 from petitioners is different from that reAuired to establish $osita;s demands for the recover, of her alleged share in the sale of the sub<ect 8ora,ta propert,. The recover, of respondents; claim is not contingent or dependent upon the establishment of $osita;s counterclaim such that conducting separate trials will not result in the substantial duplication of the time and effort of the court and the parties. 6n Sun Insurance Office, Ltd., CSIOLD +. Asuncion1[1(] this Court laid down the rules on the pa,ment of filing fees1 to witD 1. 6t is not simpl, the filing of the complaint or appropriate initiator, pleading1 but the pa,ment of the prescribed docket fee1 that vests a trial court with <urisdiction over the sub<ect"matter or nature of the action. Chere the filing of the initiator, pleading is not accompanied b, pa,ment of the docket fee1 the court ma, allow pa,ment of the fee within a reasonable time but in no case be,ond the applicable prescriptive or reglementar, period. 2. The same rule applies to permissive counterclaims1 third"part, claims and similar pleadings1 which shall not be considered filed until and unless the filing fee prescribed therefor is paid. The court ma, allow pa,ment of said fee within a reasonable time but also in no case be,ond its applicable prescriptive or reglementar,period.

+. Chere the trial court acAuires <urisdiction over a claim b, the filing of the appropriate pleading and pa,ment of the prescribed filing fee but1 subseAuentl,1 the <udgment awards a claim not specified in the pleading1 or if specified the same has been left for determination b, the court1 the additional filing fee therefor shall constitute a lien on the <udgment. 6t shall be the responsibilit, of the Clerk of Court or his dul, authori?ed deput, to enforce said lien and assess and collect the additional fee.[22] 6n order for the trial court to acAuire <urisdiction over her permissive counterclaim1 $osita is bound to pa, the prescribed docket fees.[21]%ince it is not disputed that $osita never paid the docket and filing fees1 the $TC did not acAuire <urisdiction over her permissive counterclaim. 'onetheless1 the trial court ruled on the merits of $osita;s permissive counterclaim b, dismissing the same on the ground that she failed to establish that there is a sharing agreement between her and Arturo with respect to the proceeds of the sale of the sub<ect 8ora,ta propert, and that the amount of &+12221222.22 represented b, the check which $osita and Alice encashed formed part of the proceeds of the said sale. 6t is settled that an, decision rendered without <urisdiction is a total nullit, and ma, be struck down at an, time1 even on appeal before this Court.[22] 6n the present case1 considering that the trial court did not acAuire <urisdiction over the permissive counterclaim of $osita1 an, proceeding taken up b, the trial court and an, ruling or <udgment rendered in relation to such counterclaim is considered null and void. 6n effect1 $osita ma, file a separate action against Arturo for recover, of a sum of mone,. @owever1 $osita;s claims for damages and attorne,;s fees are compulsor, as the, necessaril, arise as a result of the filing b, respondents of their complaint. Being compulsor, in nature1 pa,ment of docket fees is not reAuired. [2+] 'onetheless1 since petitioners are found to be liable to return to respondents the amount of &+12221222.22 as well as to pa, moral and e7emplar, damages and attorne,;s fees1 it necessaril, follows that $osita;s counterclaim for damages and attorne,;s fees should be dismissed as correctl, done b, the $TC and affirmed b, the CA. As to &atricia;s entitlement to damages1 this Court has held that while no proof of pecuniar, loss is necessar, in order that moral damages ma, be awarded1 the amount of indemnit, being left to the discretion of the court1 it is nevertheless essential that the claimant should satisfactoril, show the e7istence of the factual basis of damages and its causal connection to defendantRs acts. [23] This is so because moral damages1 though incapable of pecuniar, estimation1 are in the categor, of an award designed to compensate the claimant for actual in<ur, suffered and not to impose a penalt, on the wrongdoer.[2)] 8oreover1 additional facts must be pleaded and proven to warrant the grant of moral damages under the Civil Code1 these being1 social humiliation1 wounded feelings1 grave an7iet,1 etc. that resulted from the act being complained of.[2*] 6n the present case1 both the $TC and the CA were not convinced that &atricia is entitled to damages. >uoting the $TC1 the CA held thusD Cith respect to &atricia1 she did not even bother to know the details of the case against her1 she left ever,thing to the hands of her mother Alice. @er attitude towards the case appears weird1 she being a banker who seems so concerned of her reputation. Aside from the parties to this case1 her immediate superiors in the B&6 knew that she is involved in a case. The, did not however know whether she is the plaintiff or the defendant in the case. 9urther1 the, did not know the nature of the case that she is involved in. 6t appears that &atricia has not suffered an, of the in<uries enumerated in Article 221= of the Civil Code1 thus1 she is not entitled to moral damages and attorne,;s fees.[2=] This Court finds no cogent reason to depart from the above"Auoted findings as &atricia failed to satisfactoril, show the e7istence of the factual basis for granting her moral damages and the causal connection of such fact to the act of respondents in filing a complaint against her. 6n addition1 and with respect to Ben<amin1 the Court agrees with the CA that in the absence of a wrongful act or omission1 or of fraud or bad faith1 moral damages cannot be awarded. [20] The adverse result of an action does not )er se make the action wrongful1 or the part, liable for it.[2(] 4ne ma, err1 but error alone is not a ground for granting such damages.[+2] 6n the absence of malice and bad faith1 the mental anguish suffered b, a person for having been made a part, in a civil case is not the kind of an7iet, which would warrant the award of moral damages.[+1] A resort to <udicial processes is not1 )er se, evidence of ill will upon which a claim for damages ma, be based.[+2] 6n China "an,in' Cor)oration +. Court of A))ea(s1[++] this Court heldD

%ettled in our <urisprudence is the rule that moral damages cannot be recovered from a person who has filed a complaint against another in good faith1 or without malice or bad faith CPhi(i))ine Nationa( "an, +. Court of A))ea(s1 1)( %C$A 3++ [1(00]H R ! " Suret& and Insurance +. Intermediate A))e((ate Court1 12( %C$A =+* [1(03]!. 6f damage results from the filing of the complaint1 it is damnum a*sque inBuria CI(ocos Norte E(ectrica( Com)an& +. Court of A))ea(s1 1=( %C$A ) [1(0(]!.
[+3]

6n the present case1 the Court agrees with the $TC and the CA that petitioners failed to establish that respondents were moved b, bad faith or malice in impleading &atricia and Ben<amin. @ence1 &atricia and Ben<amin are not entitled to damages. The Court sustains the award of moral and e7emplar, damages as well as attorne,;s fees in favor of respondents. As to moral damages1 Article 22 of the Civil Code provides that ever, person who1 contrar, to law1 willfull, or negligentl, causes damage to another1 shall indemnif, the latter for the same. 6n addition1 Article 221( 12! of the Civil Code provides that moral damages ma, be recovered in acts or actions referred to in Articles 211 2*1 2=1 201 2(1 +21 +21 +3 and +) of the same Code. 8ore particularl,1 Article 21 of the said Code provides that an, person who willfull, causes loss or in<ur, to another in a manner that is contrar, to morals1 good customs1 or public polic, shall compensate the latter for the damage. 6n the present case1 the act of Alice and $osita in fraudulentl, encashing the sub<ect check to the pre<udice of respondents is certainl, a violation of law as well as of the public polic, that no one should put the law into his own hands. As to %BTC and its officers1 their negligence is so gross as to amount to a willfull in<ur, to respondents. The banking s,stem has become an indispensable institution in the modern world and pla,s a vital role in the economic life of ever, civili?ed societ,.[+)] Chether as mere passive entities for the safe"keeping and saving of mone, or as active instruments of business and commerce1 banks have attained a ubiAuitous presence among the people1 who have come to regard them with respect and even gratitude and most of all1 confidence. [+*] 9or this reason1 banks should guard against in<ur, attributable to negligence or bad faith on its part.
[+=]

There is no hard"and"fast rule in the determination of what would be a fair amount of moral damages since each case must be governed b, its own peculiar facts.[+0] The ,ardstick should be that it is not palpabl, and scandalousl, e7cessive.[+(] 8oreover1 the social standing of the aggrieved part, is essential to the determination of the proper amount of the award.[32] 4therwise1 the goal of enabling him to obtain means1 diversions1 or amusements to restore him to the status quo ante would not be achieved.[31] 6n the present case1 the Court finds no cogent reason to modif, the amount of moral damages granted b, the CA. .ikewise1 the Court finds no compelling reason to disturb the modifications made b, the CA on the award of e7emplar, damages and attorne,;s fees. :nder Article 222( of the Civil Code1 e7emplar, or corrective damages are imposed b, wa, of e7ample or correction for the public good1 in addition to moral1 temperate1 liAuidated1 or compensator, damages. 6n the instant case1 the award of e7emplar, damages in favor of respondents is in order for the purpose of deterring those who intend to enforce their rights b, taking measures or remedies which are not in accord with law and public polic,. 4n the part of respondent bank1 the public relies on a bank;s sworn profession of diligence and meticulousness in giving irreproachable service.[32] @ence1 the level of meticulousness must be maintained at all times b, the banking sector. [3+] 6n the present case the award of e7emplar, damages is <ustified b, the bra?en acts of petitioners $osita and Alice in violating the law coupled with the gross negligence committed b, respondent bank and its officers in allowing the sub<ect check to be deposited which later paved the wa, for its encashment. As to attorne,;s fees1 Article 2220 of the same Code provides1 among others1 that attorne,;s fees ma, be recovered when e7emplar, damages are awarded or when the defendant;s act or omission has compelled the plaintiff to litigate with third persons or to incur e7penses to protect his interest. 9:(R(8OR(1 the instant petition is D(NI(D. The /ecision of the Court of Appeals dated August 2=1 2222 in CA"#.$. CF 'o. *2323 is A88IR<(D. Costs against the petitioners. SO ORD(R(D.

Sec,rit1 $n- Tr,%t Co. ". RCBC DFF SCRA !0F 30 J$n,$r1 *00&
QUISU<BING, Ac,ing '.*.5 Before us are opposing partiesR petitions for review of the /ecision1 dated 8arch 2(1 222) and $esolution2 dated /ecember 121 222) of the Court of Appeals in CA"#.$. CF 'o. *=+0=. The two petitions are herein consolidated as the, stem from the same set of factual circumstances. The facts1 as found b, the trial and appellate courts1 are as followsD 4n -anuar, (1 1(011 %ecurit, Bank and Trust Compan, %BTC! issued a managerRs check for &0 million1 pa,able to BCA%@1B as proceeds of the loan granted to #uidon Construction and /evelopment Corporation #C/C!. 4n the same da,1 the &0"million check1 along with other checks1 was deposited b, Continental 8anufacturing Corporation C8C! in its Current Account 'o. 212("222000 with $i?al Commercial Banking Corporation $CBC!. 6mmediatel,1 $CBC honored the &0"million check and allowed C8C to withdraw the same.+ 4n the ne7t banking da,1 -anuar, 121 1(011 #C/C issued a B%top &a,ment 4rderB to %BTC1 claiming that the &0"million check was released to a third part, b, mistake. ConseAuentl,1 %BTC dishonored and returned the managerRs check to $CBC. Thereafter1 the check was returned back and forth between the two banks1 resulting in automatic debits and credits in each bankRs clearing balance.3 4n 9ebruar, 1+1 1(011 $CBC filed a complaint) for damages against %BTC with the then Court of 9irst 6nstance of $i?al1 Branch PP66. %aid case was docketed as Civil Case 'o. 1201 and later transferred to the $egional Trial Court $TC! of 8akati Cit,1 Branch 13+. 8eanwhile1 following the rules of the &hilippine Clearing @ouse1 $CBC and %BTC stopped returning the checks to each other. B, wa, of a temporar, arrangement pending resolution of the case1 the &0" million check was eAuall, divided between1 and credited to1 $CBC and %BTC.* 4n 8a, (1 22221 the $TC of 8akati Cit,1 Branch 13+1 rendered a /ecision= in favor of $CBC. The dispositive portion of the decision readsD &$586%5% C4'%6/5$5/1 the Court renders <udgment in favor of plaintiff [$CBC] and finds defendant %BTC <ustl, liable to [$CBC] and sentences [%BTC] to pa, [$CBC] the amount ofD 1. &h&312221222.22 as and for actual damagesH 2. &h&1221222.22 as and for attorne,Rs feesH and1 +. the costs. %4 4$/5$5/.0 4n appeal1 the Court of Appeals affirmed with modification the above /ecision1 to witD 9:(R(8OR(, the appealed /ecision is A88IR<(D with <ODI8ICATION. Appellant %ecurit, Bank and Trust Co. shall pa, appellee $i?al Commercial Banking Corporation not onl, the principal amount of &312221222.22 but also interest thereon at *M! per annum covering appelleeRs unearned income on interest computed from the time of filing of the complaint on 9ebruar, 1+1 1(01 to the date of finalit, of this /ecision. 9or lack of factual and legal basis1 the award of attorne,Rs fees is D(5(T(D. SO ORD(R(D.( 'ow for our resolution are the opposing partiesR petitions for review on certiorari of the abovecited decision. 4n its part1 %BTC alleges the following to support its petitionD 6.

T@5 @4'4$AB.5 C4:$T 49 A&&5A.% 5$$5/ #$AF5.J 6' $59:%6'# T4 A&&.J T@5 .AC B5CA:%51 6' 6T% 4&6'64'1 T4 /4 %4 C4:./ B$5%:.T 6' A' 6'-:%T6C5.B 66. T@5 @4'4$AB.5 C4:$T 49 A&&5A.% 5$$5/ #$AF5.J 6' @4./6'# T@AT T4 /5T5$86'5 C@5T@5$ 4$ '4T A BA'K 6% A @4./5$ 6' /:5 C4:$%51 4'.J T@5 '5#4T6AB.5 6'%T$:85'T% .AC '55/ B5 A&&.65/ T4 T@5 5PC.:%64' 49 C5'T$A. BA'K $:.5% A'/ $5#:.AT64'%. 666. T@5 @4'4$AB.5 C4:$T 49 A&&5A.% 5$$5/ #$AF5.J 6' 9A6.6'# T4 '4T5 T@AT T@5 8A'A#5$R% C@5CK 6' >:5%T64' CA% ACC5&T5/ 94$ /5&4%6T BJ T@5 $CBC A'/ CA% '4T 5'CA%@5/ BJ T@5 &AJ55. 6F. T@5 @4'4$AB.5 C4:$T 49 A&&5A.% 5$$5/ #$AF5.J 6' 9A6.6'# T4 C4'%6/5$ T@AT &$64$ T4 T@5 /5&4%6T 49 T@5 C@5CK% C4$T@ &h&)+ 86..64'1 $CBC CA% @4./6'# 3+ C@5CK% T4TA.6'# &3(121=1**(.** /$AC' BJ C4'T6'5'TA. 8A':9ACT:$6'# C4$&4$AT64' A#A6'%T 6T% C:$$5'T ACC4:'T C@5' T@5 BA.A'C5 49 T@AT ACC4:'T CA% A 85$5 &)=+.*2. F. T@5 @4'4$AB.5 C4:$T 49 A&&5A.% 5$$5/ #$AF5.J 6' 9A6.6'# T4 C4'%6/5$ T@AT T@5 C@5CK% /5&4%6T5/ C6T@ $CBC T@5 &$4C55/% 49 C@6C@ C5$5 6885/6AT5.J C6T@/$AC' T4 @4'4$ T@5 3+ C@5CK% T4TA.6'# &3(121=1**(.** /$AC' BJ C4'T6'5'TA. 8A':9ACT:$6'# C4$&4$AT64' 4' 6T% C:$$5'T ACC4:'T C5$5 '4T A.. 8A'A#5$R% C@5CK[%] B:T 6'C.:/5/ 4$/6'A$J C@5CK% 6' T@5 T4TA. A84:'T 49 &h&1)13+*1132.01. F6. T@5 @4'4$AB.5 C4:$T 49 A&&5A.% 5$$5/ #$AF5.J 6' 9A6.6'# T4 C4'%6/5$ T@AT 5AC@ 49 T@5 3+ C@5CK% /$AC' BJ T@5 C4'T6'5'TA. 8A':9ACT:$6'# C4$&4$AT64' C5$5 A.. @4'4$5/ BJ $CBC 4' T@5 BA%6% 49 A 86PT:$5 49 A.. T@5 8A'A#5$R% A'/ 4$/6'A$J C@5CK% /5&4%6T5/ 4' T@AT /AJ 49 ( -A':A$J 1(01. F66. T@5 @4'4$AB.5 C4:$T 49 A&&5A.% 5$$5/ #$AF5.J 6' @4./6'# T@AT T@5 $CBC 6% A @4./5$ 6' /:5 C4:$%5. F666. T@5 @4'4$AB.5 C4:$T 49 A&&5A.% 5$$5/ #$AF5.J 6' @4./6'# T@AT %BTC CA6T5/ 94$ T@$55 +! /AJ% T4 '4T69J T@5 $CBC 49 T@5 %T4& &AJ85'T 4$/5$. 6P. T@5 @4'4$AB.5 C4:$T 49 A&&5A.% 5$$5/ #$AF5.J 6' @4./6'# T@AT %BTC %@4:./ @AF5 96$%T AC>:6$5/ &5$%4'A. K'4C.5/#5 49 T@5 9ACT% C@6C@ #AF5 $6%5 T4 T@5 $5>:5%T 94$ T@5 %T4& &AJ85'T 4$/5$ B594$5 @4'4$6'# %:C@ $5>:5%T. P.

T@5 @4'4$AB.5 C4:$T 49 A&&5A.% $:.5/ C4$$5CT.J 6' $59:%6'# T4 @4./ %BTC .6AB.5 94$ /A8A#5 C.A68% BA%5/ %4.5.J 4' %&5C:.AT64'1 C4'-5CT:$5 A'/ #:5%%C4$K. P6. T@5 @4'4$AB.5 C4:$T 49 A&&5A.% $:.5/ C4$$5CT.J 6' @4./6'# T@AT $CBC 6% '4T 5'T6T.5/ T4 5P58&.A$J /A8A#5%. P66. T@5 @4'4$AB.5 C4:$T 49 A&&5A.% 5$$5/ #$AF5.J 6' @4./6'# %BTC .6AB.5 94$ T@5 ATT4$'5JR% 955% 49 $CBC [%6C].12 4n $CBCRs part1 the following issues are submitted for resolutionD 6. C@5T@5$ 4$ '4T %BTC 6% .6AB.5 94$ T@5 8A'A#5$R% C@5CK 6T 6%%:5/. 66. C@5T@5$ 4$ '4T $CBC 6% 5'T6T.5/ T4 C48&5'%AT4$J /A8A#5% 5>:6FA.5'T T4 T@5 6'T5$5%T 6'C485 .4%T A% A $5%:.T 49 T@5 6..5#A. $59:%A. 49 %BTC T4 @4'4$ 6T% 4C' 8A'A#5$R% C@5CK1 A% C5.. A% 94$ 5P58&.A$J /A8A#5% A'/ ATT4$'5JR% 955%.11 %impl, stated1 we find that in these consolidated petitions1 the legal issues for our resolution areD 1! 6s %BTC liable to $CBC for the remaining &3 millionO and 2! 6s %BTC liable to pa, for lost interest income on the remaining &3 million1 e7emplar, damages and attorne,Rs feesO $CBC avers that the managerRs check issued b, %BTC is substantiall, as good as the mone, it represents because b, its peculiar character1 its issuance has the effect of an advance acceptance. $CBC claims that it is a holder in due course when it credited the &0"million managerRs check to C8CRs account. Accordingl,1 $CBC asserts that %BTCRs refusal to honor its obligation <ustifies $CBC claim for lost interest income1 e7emplar, damages and attorne,Rs fees. 4n the other hand1 %BTC contends that $CBC violated 8onetar, Board $esolution 'o. 2222 of the Central Bank of the &hilippines mandating all banks to verif, the genuineness and validit, of all checks before allowing drawings of the same. %BTC insists that $CBC should bear the conseAuences of allowing C8C to withdraw the amount of the check before it was cleared.12 Ce shall rule on the issues seriatim. At the outset1 it must be noted that the Auestioned check issued b, %BTC is not <ust an ordinar, check but a managerRs check. A managerRs check is one drawn b, a bankRs manager upon the bank itself. 6t stands on the same footing as a certified check11+ which is deemed to have been accepted b, the bank that certified it.13 As the bankRs own check1 a managerRs check becomes the primar, obligation of the bank and is accepted in advance b, the act of its issuance.1) 6n this case1 $CBC1 in immediatel, crediting the amount of &0 million to C8CRs account1 relied on the integrit, and honor of the check as it is regarded in commercial transactions. Chere the Auestioned check1 which was pa,able to BCash1B appeared regular on its face1 and the bank found nothing unusual in the transaction1 as the drawer usuall, issued checks in big amounts made pa,able to cash1 $CBC cannot be faulted in pa,ing the value of the Auestioned check.1* 6n our considered view1 %BTC cannot escape liabilit, b, invoking 8onetar, Board $esolution 'o. 2222 dated /ecember 211 1(=(1 prohibiting drawings against uncollected deposits. 9or we must point out that the Central Bank at that time issued a 8emorandum dated -ul, (1 1(021 which interpreted said 8onetar, Board $esolution 'o. 2222. 6n its pertinent portion1 said 8emorandum readsD

B8584$A'/:8 T4 A.. BA'K% -ul, (1 1(02 9or the guidance of all concerned1 8onetar, Board $esolution 'o. 2222 dated /ecember +11 1(=( prohibiting1 as a matter of polic,1 drawing against uncollected deposit effective -ul, 11 1(021uncollected deposits representing managerRs cashierRsE treasurerRs checks1 treasur, warrants1 postal mone, orders and dul, funded Bon usB checks which ma, be permitted at the discretion of each bank1 covers drawings against demand deposits as well as withdrawals from savings deposits.B1= Thus1 it is clear from the -ul, (1 1(02 8emorandum that banks were given the discretion to allow immediate drawings on uncollected deposits of managerRs checks1 among others. ConseAuentl,1 $CBC1 in allowing the immediate withdrawal against the sub<ect managerRs check1 onl, e7ercised a prerogative e7pressl, granted to it b, the 8onetar, Board. 8oreover1 neither 8onetar, Board $esolution 'o. 2222 nor the -ul, (1 1(02 8emorandum alters the e7traordinar, nature of the managerRs check and the relative rights of the parties thereto. %BTCRs liabilit, as drawer remains the same W b, drawing the instrument1 it admits the e7istence of the pa,ee and his then capacit, to indorseH and engages that on due presentment1 the instrument will be accepted1 or paid1 or both1 according to its tenor.10 Concerning $CBCRs claim for lost interest income on the remaining &3 million1 this is alread, covered b, the amount of damages in the form of legal interest of *M1 based on Article 22221( and 222(22 of the Civil Code of the &hilippines1 as awarded b, the Court of Appeals in its decision. 6n addition to the above"mentioned award of compensator, damages1 we also find merit in the need to award e7emplar, damages in order to set an e7ample for the public good. The banking s,stem has become an indispensable institution in the modern world and pla,s a vital role in the economic life of ever, civili?ed societ,. Chether as mere passive entities for the safe"keeping and saving of mone, or as active instruments of business and commerce1 banks have attained an ubiAuitous presence among the people1 who have come to regard them with respect and even gratitude and1 above all1 trust and confidence. 6n this connection1 it is important that banks should guard against in<ur, attributable to negligence or bad faith on its part. As repeatedl, emphasi?ed1 since the banking business is impressed with public interest1 the trust and confidence of the public in it is of paramount importance. ConseAuentl,1 the highest degree of diligence is e7pected1 and high standards of integrit, and performance are reAuired of it. %BTC having failed in this respect1 the award of e7emplar, damages to $CBC in the amount of &)21222.22 is warranted.21 &ursuant to current <urisprudence1 with the finding of liabilit, for e7emplar, damages1 attorne,Rs fees in the amount of &2)1222.2222 must also be awarded against %BTC and in favor of $CBC. C@5$594$51 the assailed /ecision dated 8arch 2(1 222) and $esolution dated /ecember 121 222) of the Court of Appeals in CA"#.$. CF 'o. *=+0= is hereb, A88IR<(D with 84/696CAT64'. %ecurit, Bank and Trust Compan, is ordered to pa, $i?al Commercial Banking CorporationD 1! the remaining &312221222.221 with legal interest thereon at si7 percent *M! per annum from the time of filing of the complaint on 9ebruar, 1+1 1(01 to the date of finalit, of this /ecisionH 2! e7emplar, damages of &)21222.22H and +! attorne,Rs fees of &2)1222.22. 'o pronouncement as to costs. SO ORD(R(D.

T:( BUSIN(SS O8 BANKING IS I<BU(D 9IT: PUB5IC INT(R(ST O.en3$n ". PNB D'* SCRA 30D *00F
CORONA, *.5 This petition for review on certiorari1 seeks a review and reversal of the Court of Appeals CA! decision2 and resolution+ in CA"#.$. CF 'o. =1+22. 6n 4ctober 1((*1 the &hilippine 'ational Bank &'B! Tabuk Kalinga! Branch approved petitioners" spousesR application for a revolving credit line of &+ million. The loan was secured b, two residential lots in Tabuk1 Kalinga"Apa,ao covered b, Transfer Certificate of Title TCT! 'os. 12()3 and 12112. The certificates of title1 issued b, the $egistr, of /eeds of the &rovince of Kalinga"Apa,ao1 were in the name of 5dgar3 4mengan married to /inah 4mengan. The first &2.) million was released b, Branch 8anager @enr, 8ontalvo on three separate dates. The release of the final half million was1 however1 withheld b, 8ontalvo because of a letter allegedl, sent b, 5dgarRs sisters. 6t readD Appas1 Tabuk Kalinga = 'ovember 1((* The 8anager &hilippine 'ational Bank Tabuk Branch &oblacion1 Tabuk Kalinga %irD This refers to the land at Appas1 Tabuk in the name of our brother1 5dgar 4mengan1 which was mortgaged to [the] Bank in the amount of Three 8illion &esos &+12221222.22!1 the sum of [&2.) 8illion] had alread, been released and received b, our brother1 5dgar. 6n this connection1 it is reAuested that the remaining unreleased balance of [half a million pesos] be held in abe,ance pending an understanding b, the rest of the brothers and sisters of 5dgar. P#e$%e 0e infor.e- t+$t t+e /ro/ert1 .ort3$3e-, =+i#e in t+e n$.e of (-3$r O.en3$n, i% o=ne- in coo=ner%+i/ 01 $## t+e c+i#-ren of t+e #$te Ro0erto $n- (#nor$ O.en3$n. T+e #$=1er =+o -r$ftet+e -oc,.ent re3i%terin3 t+e %,0?ect /ro/ert1 ,n-er (-3$rG% n$.e c$n $tte%t to t+i% f$ct. 9e +$- $ /rior ,n-er%t$n-in3 =it+ (-3$r in $##o=in3 +i. to .$2e ,%e of t+e /ro/ert1 $% co##$ter$#, 0,t +e ref,%e% to co./#1 =it+ %,c+ $rr$n3e.ent. @ence1 this letter. emphasis ours! Fer, trul, ,ours1 %gd.! %hirle, 4. #amon %gd.! 6mogene 4. Bangao %gd.! Caroline 4. %alicob %gd.! Alice 4. Claver) 8ontalvo was eventuall, replaced as branch manager b, 8anuel Acierto who released the remaining half million pesos to petitioners on 8a, 21 1((=. Acierto also recommended the approval of a &2 million increase in their credit line to the Caga,an Falle, Business Center Credit Committee in %antiago Cit,. The credit committee approved the increase of petitionersR credit line from &+ million to &) million!1 provided 5dgarRs sisters gave their conformit,. Acierto informed petitioners of the conditional approval of their credit line.

But petitioners failed to secure the consent of 5dgarRs sistersH hence1 &'B put on hold the release of the additional &2 million. 4n 4ctober =1 1((01 5dgar 4mengan demanded the release of the &2 million. @e claimed that the condition for its release was not part of his credit line agreement with &'B because it was added without his consent. &'B denied his reAuest. 4n 8arch +1 1(((1 petitioners filed a complaint for breach of contract and damages against &'B with the $egional Trial Court $TC!1 Branch 2) in Tabuk1 Kalinga. After trial1 the court decided in favor of petitioners. Accordingl,1 <udgment is hereb, rendered finding in favor of [petitioners.] [&'B is ordered]D 1! To release without dela, in favor of [petitioners] the amount of &212221222.22 to complete the &)12221222.22 credit line agreementH 2! To pa, [petitioners] the amount of &21=*21222.22 representing the losses andEor e7pected income of the [petitioners] for three ,earsH +! To pa, lawful interest1 until the amount aforementioned on paragraphs 1 and 2 above are full, paidH and 3! To pa, the costs.4aw)hi4.net %4 4$/5$5/.* The CA1 however1 on -une 101 222+1 reversed and set aside the $TC decision dated April 211 2221.= &etitioners now contend that the CA erred when it did not sustain the finding of breach of contract b, the $TC. 0 The e7istence of breach of contract is a factual matter not usuall, reviewed in a petition filed under $ule 3). But since the $TC and the CA had contradictor, findings1 we are constrained to rule on this issue. Cas there a breach of contractO There was none. Breach of contract is defined as followsD [6t] is the Bfailure without legal reason to compl, with the terms of a contract.B 6t is also defined as the B[f]ailure1 without legal e7cuse1 to perform an, promise which forms the whole or part of the contract.B( 6n this case1 the parties agreed on a &+ million credit line. This sum was completel, released to petitioners who subseAuentl, applied12 for an increase in their credit line. This was conditionall, approved b, &'BRs credit committee. 9or all intents and purposes1 petitioners sought an additional loan. The condition attached to the increase in credit line reAuiring petitioners to acAuire the conformit, of 5dgarRs sisters was never acknowledged and accepted b, petitioners. Thus1 as to the additional loan1 no meeting of the minds actuall, occurred and no breach of contract could be attributed to &'B. There was no perfected contract over the increase in credit line. B[T]he business of a bank is one affected with public interest1 for which reason the bank should guard against loss due to negligence or bad faith. 6n approving the loan of an applicant1 the bank concerns itself with proper [information] regarding its debtors.B11 An, investigation previousl, conducted on the propert, offered b, petitioners as collateral did not preclude &'B from considering new information on the same propert, as securit, for a subseAuent loan. The credit and propert, investigation for the original loan of &+ million did not oblige &'B to grant and release an, additional loan. At the time the original &+ million credit line was approved1 the title to the propert, appeared to pertain e7clusivel, to petitioners. B, the time the application for an increase was considered1 however1 &'B alread, had reason to suspect petitionersR claim of e7clusive ownership.4a++)hi4.net

A mortgagee can rel, on what appears on the certificate of title presented b, the mortgagor and an innocent mortgagee is not e7pected to conduct an e7haustive investigation on the histor, of the mortgagorRs title. This rule is strictl, applied to banking institutions. 777 B$n2%, in-ee-, %+o,#- e>erci%e .ore c$re $n- /r,-ence in -e$#in3 e"en =it+ re3i%tere- #$n-%, t+$n /ri"$te in-i"i-,$#%, $% t+eir 0,%ine%% i% one $ffecte- =it+ /,0#ic intere%t. >>> T+,%, t+i% Co,rt c#$rifie- t+$t t+e r,#e t+$t /er%on% -e$#in3 =it+ re3i%tere- #$n-% c$n re#1 %o#e#1 on t+e certific$te of tit#e -oe% no, $//#1 to 0$n2%.12 emphasis supplied! @ere1 &'B had acAuired information sufficient to induce a reasonabl, prudent person to inAuire into the status of the title over the sub<ect propert,. 6nstead of defending their position1 petitioners merel, insisted that reliance on the face of the certificate of title in their name! was sufficient. This principle1 as alread, mentioned1 was not applicable to financial institutions like &'B. 6n truth1 petitioners had ever, chance to turn the situation in their favor if1 as the, said1 the, reall, owned the sub<ect propert, alone1 to the e7clusion of an, other owner s!. :nfortunatel,1 all the, offered were bare denials of the co"ownership claimed b, 5dgarRs sisters. &'B e7ercised reasonable prudence in reAuiring the above"mentioned condition for the release of the additional loan. 6f the condition proved unacceptable to petitioners1 the parties could have discussed other terms instead of making an obstinate and outright demand for the release of the additional amount. 6f the alleged co"ownership in fact had no leg to stand on1 petitioners could have introduced evidence other than a simple denial of its e7istence. %ince &'B did not breach an, contract and since it e7ercised the degree of diligence e7pected of it1 it cannot be held liable for damages. 9:(R(8OR(1 the decision and resolution of the Court of Appeals in CA"#.$. CF 'o. =1+22 are hereb, A88IR<(D. Costs against petitioners. SO ORD(R(D.

BPI ". CA D'* SCRA *0 *00F

A;CUNA, *.5 This is a petition for review under $ule 3) of the $ules of Court seeking the reversal of the /ecision1 dated April +1 1((01 and the $esolution2 dated 'ovember (1 1((01 of the Court of Appeals in CA"#.$. CF 'o. 32231. The facts+ are as followsD A.A. %ala?ar Construction and 5ngineering %ervices filed an action for a sum of mone, with damages against herein petitioner Bank of the &hilippine 6slands B&6! on /ecember )1 1((1 before Branch 1)* of the $egional Trial Court $TC! of &asig Cit,. The complaint was later amended b, substituting the name of Annabelle A. %ala?ar as the real part, in interest in place of A.A. %ala?ar Construction and 5ngineering %ervices. &rivate respondent %ala?ar pra,ed for the recover, of the amount of Two @undred %i7t,"%even Thousand1 %even @undred %even &esos and %event, Centavos &2*=1=2=.=2! debited b, petitioner B&6 from her account. %he likewise pra,ed for damages and attorne,Rs fees. &etitioner B&61 in its answer1 alleged that on August +11 1((11 -ulio $. Templonuevo1 third"part, defendant and herein also a private respondent,demanded from the former pa,ment of the amount of Two @undred %i7t,"%even Thousand1 %i7 @undred 'inet,"Two &esos and 9ift, Centavos &2*=1*(2.)2! representing the aggregate value of three +! checks1 which were allegedl, pa,able to him1 but which were deposited with the petitioner bank to private respondent %ala?arRs account Account 'o. 222+"110="*=! without his knowledge and corresponding endorsement. Accepting that TemplonuevoRs claim was a valid one1 petitioner B&6 fro?e Account 'o. 2221"2)00"30 of A.A. %ala?ar and Construction and 5ngineering %ervices1 instead of Account 'o. 222+"110="*= where the checks were deposited1 since this account was alread, closed b, private respondent %ala?ar or had an insufficient balance. &rivate respondent %ala?ar was advised to settle the matter with Templonuevo but the, did not arrive at an, settlement. As it appeared that private respondent %ala?ar was not entitled to the funds represented b, the checks which were deposited and accepted for deposit1 petitioner B&6 decided to debit the amount of &2*=1=2=.=2 from her Account 'o. 2221"2)00"30 and the sum of &2*=1*(2.)2 was paid to Templonuevo b, means of a cashierRs check. The difference between the value of the checks &2*=1*(2.)2! and the amount actuall, debited from her account &2*=1=2=.=2! represented bank charges in connection with the issuance of a cashierRs check to Templonuevo. 6n the answer to the third"part, complaint1 private respondent Templonuevo admitted the pa,ment to him of &2*=1*(2.)2 and argued that said pa,ment was to correct the malicious deposit made b, private respondent %ala?ar to her private account1 and that petitioner bankRs negligence and tolerance regarding the matter was violative of the primar, and ordinar, rules of banking. @e likewise contended that the debiting or taking of the reimbursed amount from the account of private respondent %ala?ar b, petitioner B&6 was a matter e7clusivel, between said parties and ma, be pursuant to banking rules and regulations1 but did not in an, wa, affect him. The debiting from another account of private respondent %ala?ar1 considering that her other account was effectivel, closed1 was not his concern. After trial1 the $TC rendered a decision1 the dispositive portion of which reads thusD C@5$594$51 premises considered1 <udgment is hereb, rendered in favor of the plaintiff [private respondent %ala?ar] and against the defendant [petitioner B&6] and ordering the latter to pa, as followsD 1. The amount of &2*=1=2=.=2 with 12M interest thereon from %eptember 1*1 1((1 until the said amount is full, paidH 2. The amount of &+21222.22 as and for actual damagesH +. The amount of &)21222.22 as and for moral damagesH

3. The amount of &)21222.22 as and for e7emplar, damagesH ). The amount of &+21222.22 as and for attorne,Rs feesH and *. Costs of suit. The counterclaim is hereb, ordered /6%86%%5/ for lack of factual basis. The third"part, complaint [filed b, petitioner] is hereb, likewise ordered /6%86%%5/ for lack of merit. Third"part, defendantRs [i.e.1 private respondent TemplonuevoRs] counterclaim is hereb, likewise /6%86%%5/ for lack of factual basis. %4 4$/5$5/.3 4n appeal1 the Court of Appeals CA! affirmed the decision of the $TC and held that respondent %ala?ar was entitled to the proceeds of the three +! checks notwithstanding the lack of endorsement thereon b, the pa,ee. The CA concluded that %ala?ar and Templonuevo had previousl, agreed that the checks pa,able to -$T Construction and Trading) actuall, belonged to %ala?ar and would be deposited to her account1 with petitioner acAuiescing to the arrangement.* &etitioner therefore filed this petition on these groundsD 6. The Court of Appeals committed reversible error in misinterpreting %ection 3( of the 'egotiable 6nstruments .aw and %ection + r and s! of $ule 1+1 of the 'ew $ules on 5vidence. 66. The Court of Appeals committed reversible error in '4T appl,ing the provisions of Articles 221 12=0 and 12(2 of the Civil Code in favor of B&6. 666. The Court of Appeals committed a reversible error in holding1 based on a misapprehension of facts1 that the account from which B&6 debited the amount of &2*=1=2=.=2 belonged to a corporation with a separate and distinct personalit,. 6F. The Court of Appeals committed a reversible error in holding1 based entirel, on speculations1 surmises or con<ectures1 that there was an agreement between %A.AGA$ and T58&.4':5F4 that checks pa,able to T58&.4':5F4 ma, be deposited b, %A.AGA$ to her personal account and that B&6 was priv, to this agreement. F. The Court of Appeals committed reversible error in holding1 based entirel, on speculation1 surmises or con<ectures1 that %A.AGA$ suffered great damage and pre<udice and that her business standing was eroded. F6. The Court of Appeals erred in affirming instead of reversing the decision of the lower court against B&6 and dismissing %A.AGA$Rs complaint. F66.

The @onorable Court erred in affirming the decision of the lower court dismissing the third"part, complaint of B&6.= The issues center on the propriet, of the deductions made b, petitioner from private respondent %ala?arRs account. %tated otherwise1 does a collecting bank1 over the ob<ections of its depositor1 have the authorit, to withdraw unilaterall, from such depositorRs account the amount it had previousl, paid upon certain unendorsed order instruments deposited b, the depositor to another account that she later closedO &etitioner argues thusD 1. There is no presumption in law that a check pa,able to order1 when found in the possession of a person who is neither a pa,ee nor the indorsee thereof1 has been lawfull, transferred for value. @ence1 the CA should not have presumed that %ala?ar was a transferee for value within the contemplation of %ection 3( of the 'egotiable 6nstruments .aw10 as the latter applies onl, to a holder defined under %ection 1(1of the same.( 2. %ala?ar failed to adduce sufficient evidence to prove that her possession of the three checks was lawful despite her allegations that these checks were deposited pursuant to a prior internal arrangement with Templonuevo and that petitioner was priv, to the arrangement. +. The CA should have applied the Civil Code provisions on legal compensation because in deducting the sub<ect amount from %ala?arRs account1 petitioner was merel, rectif,ing the undue pa,ment it made upon the checks and e7ercising its prerogative to alter or modif, an erroneous credit entr, in the regular course of its business. 3. The debit of the amount from the account of A.A. %ala?ar Construction and 5ngineering %ervices was proper even though the value of the checks had been originall, credited to the personal account of %ala?ar because A.A. %ala?ar Construction and 5ngineering %ervices1 an unincorporated single proprietorship1 had no separate and distinct personalit, from %ala?ar. ). Assuming the deduction from %ala?arRs account was improper1 the CA should not have dismissed petitionerRs third"part, complaint against Templonuevo because the latter would have the legal dut, to return to petitioner the proceeds of the checks which he previousl, received from it. *. There was no factual basis for the award of damages to %ala?ar. The petition is partl, meritorious. 9irst1 the issue raised b, petitioner reAuires an inAuir, into the factual findings made b, the CA. The CARs conclusion that the deductions from the bank account of A.A. %ala?ar Construction and 5ngineering %ervices were improper stemmed from its finding that there was no ineffective pa,ment to %ala?ar which would call for the e7ercise of petitionerRs right to set off against the formerRs bank deposits. This finding1 in turn1 was drawn from the pleadings of the parties1 the evidence adduced during trial and upon the admissions and stipulations of fact made during the pre"trial1 most significantl, the followingD a! That %ala?ar previousl, had in her possession the following checksD 1! %olid Bank Check 'o. CB=**))* dated -anuar, +21 1((2 in the amount of &)=1=12.)2H 2! %olid Bank Check 'o. CB0(0(=0 dated -ul, +11 1((2 in the amount of &))1102.22H and1 +! 5Auitable Banking Corporation Check 'o. +2+02*+0 dated August 201 1((2 for the amount of &1)31022.22H

b! That these checks which had an aggregate amount of &2*=1*(2.)2 were pa,able to the order of -$T Construction and Trading1 the name and st,le under which Templonuevo does businessH c! That despite the lack of endorsement of the designated pa,ee upon such checks1 %ala?ar was able to deposit the checks in her personal savings account with petitioner and encash the sameH d! That petitioner accepted and paid the checks on three +! separate occasions over a span of eight months in 1((2H and e! That Templonuevo onl, protested the purportedl, unauthori?ed encashment of the checks after the lapse of one ,ear from the date of the last check.12 &etitioner concedes that when it credited the value of the checks to the account of private respondent %ala?ar1 it made a mistake because it failed to notice the lack of endorsement thereon b, the designated pa,ee. The CA1 however1 did not lend credence to this claim and concluded that petitionerRs actions were deliberate1 in view of its admission that the BmistakeB was committed three times on three separate occasions1 indicating acAuiescence to the internal arrangement between %ala?ar and Templonuevo. The CA e7plained thusD 6t was Auite apparent that the three checks which appellee %ala?ar deposited were not indorsed. Three times she deposited them to her account and three times the amounts borne b, these checks were credited to the same. And in those separate occasions1 the bank did not return the checks to her so that she could have them indorsed. 'either did the bank Auestion her as to wh, she was depositing the checks to her account considering that she was not the pa,ee thereof1 thus allowing us to come to the conclusion that defendant"appellant B&6 was full, aware that the proceeds of the three checks belong to appellee. 9or if the bank was not priv, to the agreement between %ala?ar and Templonuevo1 it is most unlikel, that appellant B&6 or an, bank for that matter! would have accepted the checks for deposit on three separate times nar, an, Auestion. Banks are most finick, over accepting checks for deposit without the corresponding indorsement b, their pa,ee. 6n fact1 the, hesitate to accept indorsed checks for deposit if the depositor is not one the, know ver, well.11 The CA likewise sustained %ala?arRs position that she received the checks from Templonuevo pursuant to an internal arrangement between them1 ratiocinating as followsD 6f there was indeed no arrangement between Templonuevo and the plaintiff over the three Auestioned checks1 it baffles us wh, it was onl, on August +11 1((1 or more than a ,ear after the third and last check was deposited that he demanded for the refund of the total amount of &2*=1*(2.)2. A prudent man knowing that pa,ment is due him would have demanded pa,ment b, his debtor from the moment the same became due and demandable. 8ore so if the sum involved runs in hundreds of thousand of pesos. B, and large1 ever, person1 at the ver, moment he learns that he was deprived of a thing which rightfull, belongs to him1 would have created a big fuss. @e would not have waited for a ,ear within which to do so. 6t is most inconceivable that Templonuevo did not do this.12 #enerall,1 onl, Auestions of law ma, be raised in an appeal b, certiorari under $ule 3) of the $ules of Court.1+ 9actual findings of the CA are entitled to great weight and respect1 especiall, when the CA affirms the factual findings of the trial court.13 %uch Auestions on whether certain items of evidence should be accorded probative value or weight1 or re<ected as feeble or spurious1 or whether or not the proofs on one side or the other are clear and convincing and adeAuate to establish a proposition in issue1 are Auestions of fact. The same holds true for Auestions on whether or not the bod, of proofs presented b, a part,1 weighed and anal,?ed in relation to contrar, evidence submitted b, the adverse part, ma, be said to be strong1 clear and convincing1 or whether or not inconsistencies in the bod, of proofs of a part, are of such gravit, as to <ustif, refusing to give said proofs weight T all these are issues of fact which are not reviewable b, the Court.1) This rule1 however1 is not absolute and admits of certain e7ceptions1 namel,D a! when the conclusion is a finding grounded entirel, on speculations1 surmises1 or con<ecturesH b! when the inference made is manifestl, mistaken1 absurd1 or impossibleH c! when there is a grave abuse of discretionH d! when the

<udgment is based on a misapprehension of factsH e! when the findings of fact are conflictingH f! when the CA1 in making its findings1 went be,ond the issues of the case and the same are contrar, to the admissions of both appellant and appelleeH g! when the findings of the CA are contrar, to those of the trial courtH h! when the findings of fact are conclusions without citation of specific evidence on which the, are basedH i! when the finding of fact of the CA is premised on the supposed absence of evidence but is contradicted b, the evidence on recordH and <! when the CA manifestl, overlooked certain relevant facts not disputed b, the parties and which1 if properl, considered1 would <ustif, a different conclusion.1* 6n the present case1 the records do not support the finding made b, the CA and the trial court that a prior arrangement e7isted between %ala?ar and Templonuevo regarding the transfer of ownership of the checks. This fact is crucial as %ala?arRs entitlement to the value of the instruments is based on the assumption that she is a transferee within the contemplation of %ection 3( of the 'egotiable 6nstruments .aw. %ection 3( of the 'egotiable 6nstruments .aw contemplates a situation whereb, the pa,ee or indorsee delivers a negotiable instrument for value without indorsing it1 thusD ransfer without indorsementE effect of" Chere the holder of an instrument pa,able to his order transfers it for value without indorsing it1 the transfer vests in the transferee such title as the transferor had therein1 and the transferee acAuires in addition1 the right to have the indorsement of the transferor. But for the purpose of determining whether the transferee is a holder in due course1 the negotiation takes effect as of the time when the indorsement is actuall, made. 1= 6t bears stressing that the above transaction is an eAuitable assignment and the transferee acAuires the instrument sub<ect to defenses and eAuities available among prior parties. Thus1 if the transferor had legal title1 the transferee acAuires such title and1 in addition1 the right to have the indorsement of the transferor and also the right1 as holder of the legal title1 to maintain legal action against the maker or acceptor or other part, liable to the transferor. The underl,ing premise of this provision1 however1 is that a valid transfer of ownership of the negotiable instrument in Auestion has taken place. Transferees in this situation do not en<o, the presumption of ownership in favor of holders since the, are neither pa,ees nor indorsees of such instruments. The weight of authorit, is that the mere possession of a negotiable instrument does not in itself conclusivel, establish either the right of the possessor to receive pa,ment1 or of the right of one who has made pa,ment to be discharged from liabilit,. Thus1 something more than mere possession b, persons who are not pa,ees or indorsers of the instrument is necessar, to authori?e pa,ment to them in the absence of an, other facts from which the authorit, to receive pa,ment ma, be inferred.10 The CA and the trial court surmised that the sub<ect checks belonged to private respondent %ala?ar based on the pre"trial stipulation that Templonuevo incurred a one",ear dela, in demanding reimbursement for the proceeds of the same. To the CourtRs mind1 however1 such period of dela, is not of such unreasonable length as to estop Templonuevo from asserting ownership over the checks especiall, considering that it was readil, apparent on the face of the instruments1( that these were crossed checks. 6n State In+estment 9ouse +. IAC122 the Court enumerated the effects of crossing a check1 thusD 1! that the check ma, not be encashed but onl, deposited in the bankH 2! that the check ma, be negotiated onl, once " to one who has an account with a bankH and +! that the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that such holder must inAuire if the check has been received pursuant to that purpose. Thus1 even if the dela, in the demand for reimbursement is taken in con<unction with %ala?arRs possession of the checks1 it cannot be said that the presumption of ownership in TemplonuevoRs favor as the designated pa,ee therein was sufficientl, overcome. This is consistent with the principle that if instruments pa,able to named pa,ees or to their order have not been indorsed in blank1 onl, such pa,ees or their indorsees can be holders and entitled to receive pa,ment in their own right.21 The presumption under %ection 1+1 s! of the $ules of Court stating that a negotiable instrument was given for a sufficient consideration will not inure to the benefit of %ala?ar because the term BgivenB does not pertain merel, to a transfer of ph,sical possession of the instrument. The phrase Bgiven or indorsedB in the conte7t of a negotiable instrument refers to the manner in which such instrument ma, be negotiated. 'egotiable instruments are negotiated b, Btransfer to one person or another in such a

manner as to constitute the transferee the +o#-er thereof. 6f pa,able to bearer it is negotiated b, deliver,. 6f pa,able to order it is negotiated b, the indorsement completed b, deliver,.B22 The present case involves checks pa,able to order. 'ot being a /$1ee or in-or%ee of the checks1 private respondent %ala?ar could not be a +o#-er thereof. 6t is an e7ception to the general rule for a pa,ee of an order instrument to transfer the instrument without indorsement. &recisel, because the situation is abnormal1 it is but fair to the maker and to prior holders to reAuire possessors to prove without the aid of an initial presumption in their favor1 that the, came into possession b, virtue of a legitimate transaction with the last holder.2+ %ala?ar failed to discharge this burden1 and the return of the check proceeds to Templonuevo was therefore warranted under the circumstances despite the fact that Templonuevo ma, not have clearl, demonstrated that he never authori?ed %ala?ar to deposit the checks or to encash the same. 'oteworth, also is the fact that petitioner stamped on the back of the checks the wordsD BAll prior endorsements andEor lack of endorsements guaranteed1B thereb, making the assurance that it had ascertained the genuineness of all prior endorsements. @aving assumed the liabilit, of a general indorser1 petitionerRs liabilit, to the designated pa,ee cannot be denied. ConseAuentl,1 petitioner1 as the collecting bank1 had the right to debit %ala?arRs account for the value of the checks it previousl, credited in her favor. 6t is of no moment that the account debited b, petitioner was different from the original account to which the proceeds of the check were credited because both admittedl, belonged to %ala?ar1 the former being the account of the sole proprietorship which had no separate and distinct personalit, from her1 and the latter being her personal account. The right of set"off was e7plained in Associated "an, +. an223 A bank generall, has a right of set"off over the deposits therein for the pa,ment of an, withdrawals on the part of a depositor. The right of a collecting bank to debit a client;s account for the value of a dishonored check that has previousl, been credited has fairl, been established b, <urisprudence. To begin with1 Article 1(02 of the Civil Code provides that B[f]i7ed1 savings1 and current deposits of mone, in banks and similar institutions shall be governed b, the provisions concerning simple loan.B @ence1 the relationship between banks and depositors has been held to be that of creditor and debtor. Thus1 legal compensation under Article 12=0 of the Civil Code ma, take place Bwhen all the reAuisites mentioned in Article 12=( are present1B as followsD 1! That each one of the obligors be bound principall,1 and that he be at the same time a principal creditor of the otherH 2! That both debts consist in a sum of mone,1 or if the things due are consumable1 the, be of the same kind1 and also of the same Aualit, if the latter has been statedH +! That the two debts be dueH 3! That the, be liAuidated and demandableH )! That over neither of them there be an, retention or controvers,1 commenced b, third persons and communicated in due time to the debtor. Chile1 however1 it is conceded that petitioner had the right of set"off over the amount it paid to Templonuevo against the deposit of %ala?ar1 the issue of whether it acted <udiciousl, is an entirel, different matter.2) As businesses affected with public interest1 and because of the nature of their functions1 banks are under obligation to treat the accounts of their depositors with meticulous care1 alwa,s having in mind the fiduciar, nature of their relationship.2* 6n this regard1 petitioner was clearl, remiss in its dut, to private respondent %ala?ar as its depositor. To begin with1 the irregularit, appeared plainl, on the face of the checks. /espite the obvious lack of indorsement thereon1 petitioner permitted the encashment of these checks three times on three separate occasions. This negates petitionerRs claim that it merel, made a mistake in crediting the value of the checks to %ala?arRs account and instead bolsters the conclusion of the CA that petitioner recogni?ed %ala?arRs claim of ownership of checks and acted deliberatel, in pa,ing the same1 contrar, to ordinar, banking polic, and practice. 6t must be emphasi?ed that the law imposes a dut, of diligence on the collecting bank to scrutini?e checks deposited with it1 for the purpose of determining their

genuineness and regularit,. The collecting bank1 being primaril, engaged in banking1 holds itself out to the public as the e7pert on this field1 and the law thus holds it to a high standard of conduct.2= The taking and collection of a check without the proper indorsement amount to a conversion of the check b, the bank.20 8ore importantl,1 however1 solel, upon the prompting of Templonuevo1 and with full knowledge of the brewing dispute between %ala?ar and Templonuevo1 petitioner debited the account held in the name of the sole proprietorship of %ala?ar without even serving due notice upon her. This ran contrar, to petitionerRs assurances to private respondent %ala?ar that the account would remain untouched1 pending the resolution of the controvers, between her and Templonuevo.2( 6n this connection1 the CA cited the letter dated %eptember )1 1((1 of 8r. 8anuel Ablan1 %enior 8anager of petitioner bankRs &asigE4rtigas branch1 to private respondent %ala?ar informing her that her account had been fro?en1 thusD 9rom the tenor of the letter of 8anuel Ablan1 it is safe to conclude that Account 'o. 2221"2)00"30 will remain fro?en or untouched until herein [%ala?ar] has settled matters with Templonuevo. But1 in an une7pected move1 in less than two weeks eleven da,s to be precise! from the time that letter was written1 [petitioner] bank issued a cashierRs check in the name of -ulio $. Templonuevo of the -.$.T. Construction and Trading for the sum of&2*=1*(2.)2 57hibit B0B! and debited said amount from 8s. ArcillaRs account 'o. 2221"2)00"30 which was supposed to be fro?en or controlled. %uch a move b, B&6 is1 to 4ur minds1 a clear case of negligence1 if not a fraudulent1 wanton and reckless disregard of the right of its depositor. The records further bear out the fact that respondent %ala?ar had issued several checks drawn against the account of A.A. %ala?ar Construction and 5ngineering %ervices prior to an, notice of deduction being served. The CA sustained private respondent %ala?arRs claim of damages in this regardD The act of the bank in free?ing and later debiting the amount of &2*=1*(2.)2 from the account of A.A. %ala?ar Construction and 5ngineering %ervices caused plaintiff"appellee great damage and pre<udice particularl, when she had alread, issued checks drawn against the said account. As can be e7pected1 the said checks bounced. To prove this1 plaintiff"appellee presented as e7hibits photocopies of checks dated %eptember 01 1((11 4ctober 201 1((11 and 'ovember 131 1((1 57hibits B/B1 B5B and B9B respectivel,!+2 These checks1 it must be emphasi?ed1 were subseAuentl, dishonored1 thereb, causing private respondent %ala?ar undue embarrassment and inflicting damage to her standing in the business communit,. :nder the circumstances1 she was clearl, not given the opportunit, to protect her interest when petitioner unilaterall, withdrew the above amount from her account without informing her that it had alread, done so. 9or the above reasons1 the Court finds no reason to disturb the award of damages granted b, the CA against petitioner. This whole incident would have been avoided had petitioner adhered to the standard of diligence e7pected of one engaged in the banking business. A depositor has the right to recover reasonable moral damages even if the bankRs negligence ma, not have been attended with malice and bad faith1 if the former suffered mental anguish1 serious an7iet,1 embarrassment and humiliation.+1 8oral damages are not meant to enrich a complainant at the e7pense of defendant. 6t is onl, intended to alleviate the moral suffering she has undergone. The award of e7emplar, damages is <ustified1 on the other hand1 when the acts of the bank are attended b, malice1 bad faith or gross negligence. The award of reasonable attorne,Rs fees is proper where e7emplar, damages are awarded. 6t is proper where depositors are compelled to litigate to protect their interest.+2 9:(R(8OR(1 the petition is partiall, GRANT(D. The assailed /ecision dated April +1 1((0 and $esolution dated April +1 1((0 rendered b, the Court of Appeals in CA"#.$. CF 'o. 32231 are <ODI8I(D insofar as it ordered petitioner Bank of the &hilippine 6slands to return the amount of Two @undred %i7t,"seven Thousand %even @undred and %even and =2E122 &esos &2*=1=2=.=2! to respondent Annabelle A. %ala?ar1 which portion is R(7(RS(Dand S(T ASID(. 6n all other respects1 the same are A88IR<(D. 'o costs. %4 4$/5$5/.

BDO-(PCI, Inc. ". JAPR5 De"Gt. Cor/. GR No. 'F&&0' '! A/ri# *00)
CORONA, J.: This petition for review on certiorari[1] seeks to set aside the decision[2] of the Court of Appeals CA! in CA"#.$. %& 'o. ()*)( and its resolution[+] den,ing reconsideration. After evaluating the financial statements of respondent -A&$. /evelopment Corporation -A&$.! for fiscal ,ears 1((01 1((( and 22221[3] petitioner Banco de 4ro"5&C61 6nc. e7tended credit facilities to it amounting to &2+212221222[)] on 8arch 201 222+. $espondents $apid 9orming Corporation $9C! and -ose :. Arollado acted as -A&$.;s sureties. /espite its seemingl, strong financial position1 -A&$. defaulted in the pa,ment of four trust receipts soon after the approval of its loan.[*] &etitioner later learned from 8$8 8anagement1 -A&$.;s financial adviser1 that -A&$. had altered and falsified its financial statements. 6t allegedl, bloated its sales revenues to post a big income from operations for the concerned fiscal ,ears to pro<ect itself as a viable investment.[=]The information alarmed petitioner. Citing relevant provisions of the Trust $eceipt Agreement1[0] it demanded immediate pa,ment of -A&$.;s outstanding obligations amounting to &1(313(+1+00.(0.[(] SP Proc. No. Q-03-0 ! 4n August +21 222+1 -A&$. and its subsidiar,1 $9C! filed a petition for rehabilitation in the $egional Trial Court $TC! of >ue?on Cit,1 Branch (2 >ue?on Cit, $TC!.[12] 6t disclosed that it had been e7periencing a decline in sales for the three preceding ,ears and a staggering loss in 2222.[11] Because the petition was sufficient in form and substance1 a sta, order[12] was issued on %eptember 201 222+.[1+] @owever1 the proposed rehabilitation plan for -A&$. and $9C was eventuall, re<ected b, the >ue?on Cit, $TC in an order dated 8a, (1 222).[13] Ci"i# C$%e No. 03-&&' Because -A&$. ignored its demand for pa,ment1 petitioner filed a complaint for sum of mone, with an application for the issuance of a writ of preliminar, attachment against respondents in the $TC of 8akati Cit,1 Branch 13) 8akati $TC! on August 211 222+.[1)] &etitioner essentiall, asserted that -A&$. was guilt, of fraud because it -A&$.! altered and falsified its financial statements.[1*] The 8akati $TC subseAuentl, denied the application for the issuance of a writ of preliminar, attachment! for lack of merit as petitioner was unable to substantiate its allegations. 'evertheless1 it ordered the service of summons on respondents.[1=]&ursuant to the said order1 summonses were issued against respondents and were served upon them. $espondents moved to dismiss the complaint due to an allegedl, invalid service of summons. [10] Because the officer;s return stated that an Badministrative assistantB had received the summons1[1(] -A&$. and $9C argued that %ection 111 $ule 13 of the $ules of Court[22] contained an e7clusive list of persons on whom summons against a corporation must be served.[21] An Badministrative assistantB was not one of them. Arollado1 on the other hand1 cited %ection *1 $ule 13 thereof[22] which mandated personal service of summons on an individual defendant.[2+] The 8akati $TC1 in its 4ctober 121 222) order1[23] noted that because corporate officers are often bus,1 summonses to corporations are usuall, received onl, b, administrative assistants or secretaries of corporate officers in the regular course of business. @ence1 it denied the motion for lack of merit. $espondents moved for reconsideration[2)] but withdrew it before the 8akati $TC could resolve the matter.[2*]

RTC S(C C$%e No. )-*00)-C 4n 9ebruar, 221 222*1 -A&$. and its subsidiar,1 $9C! filed a petition for rehabilitation in the $TC of Calamba1 .aguna1 Branch +3 Calamba $TC!. 9inding -A&$.;s petition sufficient in form and in substance1 the Calamba $TC issued a sta, order[2=] on 8arch 1+1 222*. 6n view of the said order1 respondents hastil, moved to suspend the proceedings in Civil Case 'o. 2+"((1 pending in the 8akati $TC.[20] 4n -ul, =1 222*1 the 8akati $TC granted the motion with regard to -A&$. and $9C but ordered Arollado to file an answer. 6t ruled that1 because he was <ointl, and solidaril, liable with -A&$. and $9C1 the proceedings against him should continue.[2(]$espondents moved for reconsideration[+2] but it was denied.[+1] 4n August 111 222*1 respondents filed a petition for certiorari[+2] in the CA alleging that the 8akati $TC committed grave abuse of discretion in issuing the 4ctober 121 222) and -ul, =1 222* orders.[++] The, asserted that the court did not acAuire <urisdiction over their persons due to defective service of summons. Thus1 the 8akati $TC could not hear the complaint for sum of mone,.[+3] 6n its -une =1 222= decision1 the CA held that because the summonses were served on a mere administrative assistant1 the 8akati $TC never acAuired <urisdiction over respondents. Thus1 it granted the petition.[+)] &etitioner moved for reconsideration but it was denied.[+*] @ence1 this petition. &etitioner asserts that respondents maliciousl, evaded the service of summonses to prevent the 8akati $TC from acAuiring <urisdiction over their persons. 9urthermore1 the, emplo,ed bad faith to dela, proceedings b, cunningl, e7ploiting procedural technicalities to avoid the pa,ment of their obligations.[+=] Ce grant the petition. $espondents1 in their petition for certiorari in the CA1 Auestioned the <urisdiction of the 8akati $TC over their persons i.e., whether or not the service of summons was validl, made!. Therefore1 it was onl, the 4ctober 121 222) order of the said trial court which the, in effect assailed.[+0] @owever1 because the, withdrew their motion for reconsideration of the said order1 it became final. 8oreover1 the petition was filed 12 months and 1 da, after the assailed order was issued b, the 8akati $TC1[+(] wa, past the *2 da,s allowed b, the $ules of Court. 9or these reasons1 the said petition should have been dismissed outright b, the CA. 8ore importantl,1 when respondents moved for the suspension of proceedings in Civil Case 'o. 2+"((1 before the 8akati $TC on the basis of the 8arch 1+1 222* order of the Calamba $TC!1 the, waived whatever defect there was in the service of summons and were deemed to have submitted themselves voluntaril, to the <urisdiction of the 8akati $TC.[32] Ce withhold <udgment for the moment on the -ul, =1 222* order of the 8akati $TC suspending the proceedings in Civil Case 'o. 2+"((1 insofar as -A&$. and $9C are concerned. :nder the 6nterim $ules of &rocedure on Corporate $ehabilitation1 a sta, order defers all actions or claims against the corporation seeking rehabilitation[31]from the date of its issuance until the dismissal of the petition or termination of the rehabilitation proceedings.[32] The 8akati $TC ma, proceed to hear Civil Case 'o. 2+"((1 onl, against Arollado if there is no ground to go after -A&$. and $9C as will later be discussed!. A creditor can demand pa,ment from the suret, solidaril, liable with the corporation seeking rehabilitation.[3+] $espondents abused procedural technicalities albeit unsuccessfull,! for the sole purpose of preventing1 or at least dela,ing1 the collection of their legitimate obligations. Their reprehensible scheme impeded the speed, dispensation of <ustice. 8ore importantl,1 however1 considering the amount involved1 respondents utterl, disregarded the significance of a stable and efficient banking s,stem to the national econom,.[33]

Banks are entities engaged in the lending of funds obtained through deposits[3)] from the public. [3*] The, borrow the public;s e7cess mone, i.e., deposits! and lend out the same.[3=] Banks therefore redistribute wealth in the econom, b, channeling idle savings to profitable investments. Banks operate and earn income! b, e7tending credit facilities financed primaril, b, deposits from the public.[30] The, plough back the bulk of said deposits into the econom, in the form of loans. [3(] %ince banks deal with the public;s mone,1 their viabilit, depends largel, on their abilit, to return those deposits on demand. 9or this reason1 banking is undeniabl, imbued with public interest. ConseAuentl,1 much importance is given to sound lending practices and good corporate governance.[)2] &rotecting the integrit, of the banking s,stem has become1 b, large1 the responsibilit, of banks. The role of the public1 particularl, individual borrowers1 has not been emphasi?ed. 'evertheless1 we are not unaware of the rampant and unscrupulous practice of obtaining loans without intending to pa, the same. 6n this case1 petitioner alleged that -A&$. fraudulentl, altered and falsified its financial statements in order to obtain its credit facilities. Considering the amount of petitioner;s e7posure in -A&$.1 <ustice and fairness dictate that the 8akati $TC hear whether or not respondents indeed committed fraud in securing the credit accomodation. A finding of fraud will change the whole picture. 6n this event1 petitioner can use the finding of fraud to move for the dismissal of the rehabilitation case in the Calamba $TC. The protective remed, of rehabilitation was never intended to be a refuge of a debtor guilt, of fraud. 8eanwhile1 the 8akati $TC should proceed to hear Civil Case 'o. 2+"((1 against the three respondents guided b, %ection 32 of the #eneral Banking .aw which statesD %ection 32. Requirement for Grant of Loans or Other Credit Accommodations. Before granting a loan or other credit accommodation1 a bank must ascertain that the debtor is capable of fulfilling his commitments to the bank. Towards this end1 a bank ma, demand from its credit applicants a statement of their assets and liabilities and of their income and e7penditures and such information as ma, be prescribed b, law or b, rules and regulations of the 8onetar, Board to enable the bank to properl, evaluate the credit application which includes the corresponding financial statements submitted for ta7ation purposes to the Bureau of 6nternal $evenue. S+o,#- %,c+ %t$te.ent% /ro"e to 0e f$#%e or incorrect in $n1 .$teri$# -et$i#, t+e 0$n2 .$1 ter.in$te $n1 #o$n or cre-it $cco..o-$tion 3r$nte- on t+e 0$%i% of %$i- %t$te.ent% $n- %+$## +$"e t+e ri3+t to -e.$n- i..e-i$te re/$1.ent or #i4,i-$tion of t+e o0#i3$tion. 6n formulating the rules and regulations under this %ection1 the 8onetar, Board shall recogni?e the peculiar characteristics of microfinancing1 such as cash flow"based lending to the basic sectors that are not covered b, traditional collateral. emphasis supplied! :nder this provision1 banks have the right to annul an, credit accommodation or loan1 and demand the immediate pa,ment thereof1 from borrowers proven to be guilt, of fraud. &etitioner would then be entitled to the immediate pa,ment of &1(313(+1+00.(0 and other appropriate damages.[)1] 9inall,1 considering that respondents failed to pa, the four trust receipts1 the 8akati Cit, &rosecutor should investigate whether or not there is probable cause to indict respondents for violation of %ection 1+ of the Trust $eceipts .aw.[)2] ACCORDING561 the petition is hereb, GRANT(D. The -une =1 222= decision and August +11 222= resolution of the Court of Appeals in CA"#.$. %& 'o. ()*)( areR(7(RS(D and S(T ASID(. The $egional Trial Court of 8akati Cit,1 Branch 13) is ordered to proceed e7peditiousl, with the trial of Civil Case 'o. 2+"((1 with regard to respondent -ose :. Arollado1 and the other respondents if warranted. SO ORD(R(D.

BANKING AND CO<<ON CARRI(RS So#i-0$n2@<etro0$n2 ". T$n D*0 SCRA '*3 *00F
CORONA, *.5 Assailed in this petition for review b, certiorari under $ule 3) of the $ules of Court are the decision1 and resolution2 of the Court of Appeals CA! dated 'ovember 2*1 2223 and 8arch 11 222)1 respectivel,1 in CA"#.$. CF 'o. )0*101+ affirming the decision of the $egional Trial Court $TC! of 8anila1 Branch +1.3 4n /ecember 21 1((11 respondentsR representative1 $emigia 9rias1 deposited with petitioner ten checks worth &3))1(*2. #race 'eri1 petitionerRs teller no. 0 in its -uan .una1 8anila Branch1 received two deposit slips for the checks1 an original and a duplicate. 'eri verified the checks and their amounts in the deposit slips then returned the duplicate cop, to 9rias and kept the original cop, for petitioner. 6n accordance with the usual practice between petitioner and respondents1 the latterRs passbook was left with petitioner for the recording of the deposits on the bankRs ledger. .ater1 respondents retrieved the passbook and discovered that one of the checks1 8etropolitan Bank and Trust Compan, 8etrobank! check no. 32+()31 pa,able to cash in the sum of &2)21222 was not posted therein. 6mmediatel,1 respondents notified petitioner of the problem. &etitioner showed respondent &eter Tan a duplicate cop, of a deposit slip indicating the list of checks deposited b, 9rias. But it did not include the missing check. The deposit slip bore the stamp mark Bteller no. =B instead of Bteller no. 0B who previousl, received the checks. %till later1 respondent &eter Tan learned from 8etrobank where he maintained an account! that 8etrobank check no. 32+()3 had cleared after it was ine7plicabl, deposited b, a certain /olores .agsac in &remier Bank in %an &edro1 .aguna. $espondents demanded that petitioner pa, the amount of the check but it refused1 hence1 the, filed a case for collection of a sum of mone, in the $TC of 8anila1 Branch +1. 6n its answer1 petitioner averred that the deposit slips 9rias used when she deposited the checks were spurious. &etitioner accused respondents of engaging in a scheme to illegall, e7act mone, from it. 6t added that1 contrar, to the claim of respondents1 it was Bteller no. =B who received the deposit slips and1 although respondents insisted that 9rias deposited ten checks1 onl, nine checks were actuall, received b, said teller. B, wa, of counterclaim1 it sought pa,ment of &112221222 as actual and moral damages and &)221222 as e7emplar, damages. After trial1 the $TC found petitioner liable to respondentsD :pon e7amination of the oral1 as well as of the documentar, evidence which the parties presented at the trial in support of their respective contentions1 and after taking into consideration all the circumstances of the case1 this Court believes that the loss of 8etrobank Check 'o. 32+()3 in the sum of&2)21222.22 was due to the fault of [petitioner]X[6t] retained the original cop, of the [deposit slip marked b, BTeller 'o. =B]. There is a presumption in law that evidence willfull, suppressed would be adverse if produced. Art. 11=+ of the Civil Code states that Bthe fault or negligence of the obligor consists in the omission of that diligence which is reAuired b, the nature of the obligation and corresponds with the circumstances of the person of the time and of the placeBH and that Bif the law or contract does not state the diligence which is to be observed in the performance1 the same as e7pected of a good father of a famil, shall be reAuired.B X9or failure to compl, with its obligation1 [petitioner] is presumed to have been at fault or to have acted negligentl, unless the, prove that the, observe e7traordinar, diligence as prescribed in Arts. 1=++ and 1=+) of the Civil Code Art. 1=)*!X

777 777 777 C@5$594$51 premises considered1 <udgment is hereb, rendered in favor of [respondents]1 ordering [petitioner] to pa, the sum of &2)212221 with legal interest from the time the complaint [for collection of a sum of mone,] was filed until satisfiedH &2)1222.22 moral damagesH &2)1222.22 e7emplar, damages plus 22M of the amount due [respondents] as and for attorne,Rs fees. Cith costs. %4 4$/5$5/.) &etitioner appealed to the CA which affirmed in toto the $TCRs assailed decisionD %erious doubt [was] engendered b, the fact that [petitioner] did not present the original of the deposit slip marked with BTeller 'o. =B and on which the entr, as to 8etrobank Check 'o. 32+()3 did not appear. 5ven the most cursor, look at the handwriting thereon reveal[ed] a ver, marked difference with that in the other deposit slips filled up [b, 9rias] on /ecember 21 1((1. %aid circumstances spawn[ed] the belief thus1 the said deposit slip was prepared b, [petitioner] itself to cover up for the lost check.* &etitioner filed a motion for reconsideration but the CA dismissed it. @ence1 this appeal.4aFG-)hi4.net Before us1 petitioner faults the CA for upholding the $TC decision. &etitioner argues thatD 1! the findings of the $TC and the CA were not supported b, the evidence and records of the caseH 2! the award of damages in favor of respondents was unwarranted and +! the application b, the $TC1 as affirmed b, the CA1 of the provisions of the Civil Code on common carriers to the instant case was erroneous.= The petition must fail. 4n the first issue1 petitioner contends that the lower courts erred in finding it negligent for the loss of the sub<ect check. According to petitioner1 the fact that the check was deposited in &remier Bank affirmed its claim that it did not receive the check. At the outset1 the Court stresses that it accords respect to the factual findings of the trial court and1 unless it overlooked substantial matters that would alter the outcome of the case1 this Court will not disturb such findings.0 Ce meticulousl, reviewed the records of the case and found no reason to deviate from the rule. 8oreover1 since the CA affirmed these findings on appeal1 the, are final and conclusive on us.( Ce therefore sustain the $TCRs and CARs findings that petitioner was indeed negligent and responsible for respondentsR lost check. 4n the issue of damages1 petitioner argues that the moral and e7emplar, damages awarded b, the lower courts had no legal basis. 9or the award of moral damages to stand1 petitioner avers that respondents should have proven the e7istence of bad faith b, clear and convincing evidence. According to petitioner1 simple negligence cannot be a basis for its award. 6t insists that the award of e7emplar, damages is <ustified onl, when the act complained of was done in a wanton1 fraudulent and oppressive manner.12 Ce disagree. Chile petitioner ma, argue that simple negligence does not warrant the award of moral damages1 it nonetheless cannot insist that that was all it was guilt, of. 6t refused to produce the original cop, of the deposit slip which could have proven its claim that it did not receive respondentsR missing check. Thus1 in suppressing the best evidence that could have bolstered its claim and confirmed its innocence1 the presumption now arises that it withheld the same for fraudulent purposes.11 8oreover1 in presenting a false deposit slip in its attempt to feign innocence1 petitionerRs bad faith was apparent and unmistakable. Bad faith imports a dishonest purpose or some moral obliAuit, or conscious doing of a wrong that partakes of the nature of fraud.12 As to the award of e7emplar, damages1 the law allows it b, wa, of e7ample for the public good. The business of banking is impressed with public interest and great reliance is made on the bankRs sworn profession of diligence and meticulousness in giving irreproachable service.1+ 9or petitionerRs failure to

carr, out its responsibilit, and to account for respondentsR lost check1 we hold that the lower courts did not err in awarding e7emplar, damages to the latter. 4n the last issue1 we hold that the trial court did not commit an, error.4aw)hi4.nHt A cursor, reading of its decision reveals that it anchored its conclusion that petitioner was negligent on Article 11=+ of the Civil Code.13 6n citing the different provisions of the Civil Code on common carriers11) the trial court merel, made reference to the kind of diligence that petitioner should have performed under the circumstances. 6n other words1 like a common carrier whose business is also imbued with public interest1 petitioner should have e7ercised e7traordinar, diligence to negate its liabilit, to respondents. Assuming ar'uendo that the trial court indeed used the provisions on common carriers to pin down liabilit, on petitioner1 still we see no reason to strike down the $TC and CA rulings on this ground alone. 6n one case11* the Court did not hesitate to appl, the doctrine of last clear chance commonl, used in transportation laws involving common carriers! to a banking transaction where it ad<udged the bank responsible for the encashment of a forged check. There1 we enunciated that the degree of diligence reAuired of banks is more than that of a good father of a famil, in keeping with their responsibilit, to e7ercise the necessar, care and prudence in handling their clientsR mone,. Ce find no compelling reason to disallow the application of the provisions on common carriers to this case if onl, to emphasi?e the fact that banking institutions like petitioner! have the dut, to e7ercise the highest degree of diligence when transacting with the public. B, the nature of their business1 the, are reAuired to observe the highest standards of integrit, and performance1 and utmost assiduousness as well.1= 9:(R(8OR(1 the assailed decision and resolution of the Court of Appeals dated 'ovember 2*1 2223 and 8arch 11 222)1 respectivel,1 in CA"#.$. CF 'o. )0*10 are hereb, A88IR<(D. Accordingl,1 the petition is D(NI(D. Costs against petitioner. SO ORD(R(D.

QUASI-BANKS Sec. ! #$%t /$r., GB5 9or the purposes of this Act1 BAuasi"banksB shall refer to entities engaged in the borrowing of funds through the issuance1 endorsement or assignment with recourse or acceptance of deposit substitutes as defined in %ection () of $epublic Act 'o. =*)+ hereafter the B'ew Central Bank ActB! for purposes of re"lending or purchasing of receivables and other obligations. De/o%it S,0%tit,te% Sec. 93, RA No. 7433, :9e New 'en,ral Bank Ac, (N'BA /efinition of /eposit %ubstitutes. I The term Bdeposit substitutesB is defined as an alternative form of obtaining funds from the public1 other than deposits1 through the issuance1 endorsement1 or acceptance of debt instruments for the borrower;s own account1 for the purpose of relending or purchasing of receivables and other obligations. These instruments ma, include1 but need not be limited to1 bankers acceptances1 promissor, notes1 participations1 certificates of assignment and similar instruments with recourse1 and repurchase agreements. The 8onetar, Board shall determine what specific instruments shall be considered as deposit substitutes for the purposes of %ection (3 of this ActD &rovided1 however1 That deposit substitutes of commercial1 industrial and other non" financial companies for the limited purpose of financing their own needs or the needs of their agents or dealers shall not be covered b, the provisions of %ection (3 of this Act. Sec. 9., RA No. 7433, :9e New 'en,ral Bank Ac, (N'BA $eserve $eAuirements. I 6n order to control the volume of mone, created b, the credit operations of the banking s,stem1 all banks operating in the &hilippines shall be reAuired to maintain reserves against their deposit liabilitiesD &rovided1 That the 8onetar, Board ma,1 at its discretion1 also reAuire all banks andEor Auasi"banks to maintain reserves against funds held in trust and liabilities for deposit substitutes as defined in this Act. The reAuired reserves of each bank shall be proportional to the volume of its deposit liabilities and shall ordinaril, take the form of a deposit in the Bangko %entral. $eserve reAuirements shall be applied to all banks of the same categor, uniforml, and without discrimination. $eserves against deposit substitutes1 if imposed1 shall be determined in the same manner as provided for reserve reAuirements against regular bank deposits1 with respect to the imposition1 increase1 and computation of reserves. The 8onetar, Board ma, e7empt from reserve reAuirements deposits and deposit substitutes with remaining maturities of two 2! ,ears or more1 as well as interbank borrowings. %ince the reAuirement to maintain bank reserves is imposed primaril, to control the volume of mone,1 the Bangko %entral shall not pa, interest on the reserves maintained with it unless the 8onetar, Board decides otherwise as warranted b, circumstances.

T:( ORGANI;ATION AND O9N(RS:IP O8 BANKS Sec%. ) H '&, GB5 %5C.0. 4rgani?ation. " The 8onetar, Board ma, authori?e the organi?ation of a bank or Auasi"bank sub<ect to the following conditionsD 0.1 That the entit, is a stock corporationH 0.2 That its funds are obtained from the public1 which shall mean twent, 22! or more personsH and 0.+ That the minimum capital reAuirements prescribed b, the 8onetar, Board for each categor, of banks are satisfied. 'o new commercial bank shall be established within three +! ,ears from the effectivit, of this Act. 6n the e7ercise of the authorit, granted herein1 the 8onetar, Board shall take into consideration their capabilit, in terms of their financial resources and technical e7pertise and integrit,. The bank licensing process shall incorporate an assessment of the bank;s ownership structure1 directors and senior management1 its operating plan and internal controls as well as its pro<ected financial condition and capital base. %5C.(. 6ssuance of %tocks. " The 8onetar, Board ma, prescribe rules and regulations on the t,pes of stock a bank ma, issue1 including the terms thereof and rights appurtenant thereto to determine compliance with laws and regulations governing capital and eAuit, structure of banksH &rovided1 That banks shall issue par value stocks onl,. %5C.12. Treasur, %tocks. " 'o bank shall purchase or acAuire shares of its own capital stock or accept its own shares as a securit, for a loan1 e7cept when authori?ed b, the 8onetar, BoardD &rovided1 That in ever, case the stock so purchased or acAuired shall1 within si7 *! months from the time of its purchase or acAuisition1 be sold or disposed of at a public or private sale. %5C.11. 9oreign %tockholdings " 9oreign individuals and non"bank corporations ma, own or control up to fort, percent 32M! of the voting stock of a domestic bank. This rule shall appl, to 9ilipinos and domestic non"bank corporations. The percentage of foreign"owned voting stocks in a bank shall be determined b, the citi?enship of the individual stockholders in that bank. The citi?enship of the corporation which is a stockholder in a bank shall follow the citi?enship of the controlling stockholders of the corporation1 irrespective of the place of incorporation. %5C.12. %tockholdings of 9amil, #roups of $elated 6nterests. " %tockholdings of individuals related to each other within the fourth degree of consanguinit, or affinit,1 legitimate or common"law1 shall be considered famil, groups or related interests and must be full, disclosed in all transactions b, such corporations or related groups of persons with the bank.

%5C. 1+. Corporate %tockholdings. " Two or more corporations owned or controlled b, the same famil, group or same group of persons shall be considered related interests and must be full, disclosed in all transactions b, such corporations or related group of persons with the bank. %5C.13. Certificate of Authorit, to $egister. " The %ecurities and 57change Commission shall no register the articles of incorporation of an, bank1 or an, amendment thereto1 unless accompanied b, a certificate of authorit, issued b, the 8onetar, Board1 under its seal. %uch certificate shall not be issued unless the 8onetar, Board is satisfied from the evidence submitted to itD 13.1. That all reAuirements of e7isting laws and regulations to engage in the business for which the applicant is proposed to be incorporated have been complied withH 13.2. That the public interest and economic conditions1 both general and local1 <ustif, the authori?ationH and 13.+. That the amount of capital1 the financing1 organi?ation1 direction and administration1 as well as the integrit, and responsibilit, of the organi?ers and administrators reasonabl, assure the safet, of deposits and the public interest. The %ecurities and 57change Commission shall not register the b,"laws of an, bank1 or an, amendment thereto1 unless accompanied b, a certificate of authorit, from the Bangko %entral. %5C. 1). Board of /irectors. " The provisions of the Corporation Code to the contrar, notwithstanding1 there shall be at least five )!1 and a ma7imum of fifteen 1)! members of the board or directors of a bank1 two 2! of whom shall be independent directors. An Bindependent directorB shall mean a person other than an officer or emplo,ee of the bank1 its subsidiaries or affiliates or related interests. 'on"9ilipino citi?ens ma, become members of the board of directors of a bank to the e7tent of the foreign participation in the eAuit, of said bank. The meetings of the board of directors ma, be conducted through modern technologies such as1 but not limited to1 teleconferencing and video"conferencing. %5C. 1*. 9it and &roper $ule. " To maintain the Aualit, of bank management and afford better protection to depositors and the public in general the 8onetar, Board shall prescribe1 pass upon and review the Aualifications and disAualifications of individuals elected or appointed bank directors or officers and disAualif, those found unfit. After due notice to the board of directors of the bank1 the 8onetar, Board ma, disAualif,1 suspend or remove an, bank director or officer who commits or omits an act which render him unfit for the position. 6n determining whether an individual is fit and proper to hold the position of a director or officer of a bank1 regard shall be given to his integrit,1 e7perience1 education1 training1 and competence.

%5C. 1=. /irectors of 8erged or Consolidated Banks. " 6n the case of a bank merger or consolidation1 the number of directors shall not e7ceed twent,"one 21!. %5C. 10. Compensation and 4ther Benefits of /irectors and 4fficers. To protect the finds of depositors and creditors the 8onetar, Board ma, regulate the pa,ment b, the bark to its directors and officers of compensation1 allowance1 fees1 bonuses1 stock options1 profit sharing and fringe benefits onl, in e7ceptional cases and when the circumstances warrant1 such as but not limited to the followingD 10.1. Chen a bank is under comptrollership or conservatorshipH or 10.2. Chen a bank is found b, the 8onetar, Board to be conducting business in an unsafe or unsound mannerH or 10.+. Chen a bank is found b, the 8onetar, Board to be in an unsatisfactor, financial condition. %5C. 1(. &rohibition on &ublic 4fficials. " 57cept as otherwise provided in the $ural Banks Act1 no appointive or elective public official whether full"time or part"time shall at the same time serve as officer of an, private bank1 save in cases where such service is incident to financial assistance provided b, the government or a government owned or controlled corporation to the bank or unless otherwise provided under e7isting laws.

Stoc2+o#-in3% Sec7. 12 < 1., GBL %5C.12. %tockholdings of 9amil, #roups of $elated 6nterests. " %tockholdings of individuals related to each other within the fourth degree of consanguinit, or affinit,1 legitimate or common"law1 shall be considered famil, groups or related interests and must be full, disclosed in all transactions b, such corporations or related groups of persons with the bank. %5C. 1+. Corporate %tockholdings. " Two or more corporations owned or controlled b, the same famil, group or same group of persons shall be considered related interests and must be full, disclosed in all transactions b, such corporations or related group of persons with the bank. %5C.13. Certificate of Authorit, to $egister. " The %ecurities and 57change Commission shall no register the articles of incorporation of an, bank1 or an, amendment thereto1 unless accompanied b, a certificate of authorit, issued b, the 8onetar, Board1 under its seal. %uch certificate shall not be issued unless the 8onetar, Board is satisfied from the evidence submitted to itD 13.1. That all reAuirements of e7isting laws and regulations to engage in the business for which the applicant is proposed to be incorporated have been complied withH 13.2. That the public interest and economic conditions1 both general and local1 <ustif, the authori?ationH and 13.+. That the amount of capital1 the financing1 organi?ation1 direction and administration1 as well as the integrit, and responsibilit, of the organi?ers and administrators reasonabl, assure the safet, of deposits and the public interest. The %ecurities and 57change Commission shall not register the b,"laws of an, bank1 or an, amendment thereto1 unless accompanied b, a certificate of authorit, from the Bangko %entral.

T+e Re4,ire- N,.0er of Bo$r- of Director% Sec7. 13 < 18, GBL %5C. 1). Board of /irectors. " The provisions of the Corporation Code to the contrar, notwithstanding1 there shall be at least five )!1 and a ma7imum of fifteen 1)! members of the board or directors of a bank1 two 2! of whom shall be independent directors. An Bindependent directorB shall mean a person other than an officer or emplo,ee of the bank1 its subsidiaries or affiliates or related interests. 'on"9ilipino citi?ens ma, become members of the board of directors of a bank to the e7tent of the foreign participation in the eAuit, of said bank. The meetings of the board of directors ma, be conducted through modern technologies such as1 but not limited to1 teleconferencing and video"conferencing. %5C. 1*. 9it and &roper $ule. " To maintain the Aualit, of bank management and afford better protection to depositors and the public in general the 8onetar, Board shall prescribe1 pass upon and review the Aualifications and disAualifications of individuals elected or appointed bank directors or officers and disAualif, those found unfit. After due notice to the board of directors of the bank1 the 8onetar, Board ma, disAualif,1 suspend or remove an, bank director or officer who commits or omits an act which render him unfit for the position. 6n determining whether an individual is fit and proper to hold the position of a director or officer of a bank1 regard shall be given to his integrit,1 e7perience1 education1 training1 and competence. %5C. 1=. /irectors of 8erged or Consolidated Banks. " 6n the case of a bank merger or consolidation1 the number of directors shall not e7ceed twent,"one 21!. %5C. 10. Compensation and 4ther Benefits of /irectors and 4fficers. To protect the finds of depositors and creditors the 8onetar, Board ma, regulate the pa,ment b, the bark to its directors and officers of compensation1 allowance1 fees1 bonuses1 stock options1 profit sharing and fringe benefits onl, in e7ceptional cases and when the circumstances warrant1 such as but not limited to the followingD 10.1. Chen a bank is under comptrollership or conservatorshipH or 10.2. Chen a bank is found b, the 8onetar, Board to be conducting business in an unsafe or unsound mannerH or 10.+. Chen a bank is found b, the 8onetar, Board to be in an unsatisfactor, financial condition.

(n2e-en2en, "irec,or7 Sec. 13, GBL Board of /irectors. " The provisions of the Corporation Code to the contrar, notwithstanding1 there shall be at least five )!1 and a ma7imum of fifteen 1)! members of the board or directors of a bank1 two 2! of whom shall be independent directors. An Bindependent directorB shall mean a person other than an officer or emplo,ee of the bank1 its subsidiaries or affiliates or related interests. 'on"9ilipino citi?ens ma, become members of the board of directors of a bank to the e7tent of the foreign participation in the eAuit, of said bank. The meetings of the board of directors ma, be conducted through modern technologies such as1 but not limited to1 teleconferencing and video"conferencing. 8oreigner a7 @e;0er of ,9e Boar2 Sec. 13 2n2 &ar., GBL 'on"9ilipino citi?ens ma, become members of the board of directors of a bank to the e7tent of the foreign participation in the eAuit, of said bank.

O=ner%+i/ of In-i"i-,$#% =it+in t+e !t+ -e3ree of Con%$n3,init1 or Affinit1 Sec. 12, GBL %tockholdings of 9amil, #roups of $elated 6nterests. " %tockholdings of individuals related to each other within the fourth degree of consanguinit, or affinit,1 legitimate or common"law1 shall be considered famil, groups or related interests and must be full, disclosed in all transactions b, such corporations or related groups of persons with the bank. Sec. A1.1.1, @an/al of Reg/la,ion7 for Bank7 (@#RB
Definition@#i.it% a. #efinition of directors. /irectors shall includeD 1! directors who are named as such in the articles of incorporationH 2! directors dul, elected in subseAuent meetings of the stockholdersH and +! those elected to fill vacancies in the board of directors. b. Limits on the num*er of the mem*ers of the *oard of directors. &ursuant to %ections 1) and 1= of the $.A. 'o. 0=(11 there shall be at least five )!1 and a ma7imum of fifteen 1)! members of the board of directors of a bank at least two 2! of whom shall be independent directorsD Pro+ided1 That in case of a bankEAuasi" bankEtrust entit, merger or consolidation1 the number of directors ma, be increased up to twent,"one 21!. An inde)endent director shall mean a person who T 1! 6s not or has not been an officer or emplo,ee of the bank its subsidiaries or affiliates or related interests during the past three +! ,ears counted from the date of his electionH 2! 6s not a director or officer of the related companies of the institutionRs ma<orit, stockholderH +! 6s not a ma<orit, stockholder of the institution1 an, of its related companies1 or of its ma<orit, shareholdersH 3! 6s not a relative within the fourth degree of consanguinit, or affinit,1 legitimate or common"law of an, director1 officer or ma<orit, shareholder of the bank or an, of its related companiesH )! 6s not acting as a nominee or representative of an, director or substantial shareholder of the bank1 an, of its related companies or an, of its substantial shareholdersH and1 *! 6s not retained as professional adviser1 consultant1 agent or counsel of the institution1 an, of its related companies or an, of its substantial shareholders1 either in his personal capacit, or through his firmH is independent of management and free from an, business or other relationship1 has not engaged and does not engage in an, transaction with the institution or with an, of its related companies or with an, of its substantial shareholders1 whether b, himself or with other persons or through a firm of which he is a partner or a compan, of which he is a director or substantial

shareholder1 other than transactions which are conducted at arms length and could not materiall, interfere with or influence the e7ercise of his <udgment. An independent director of a bank can be elected as an independent director of itsD a! parent or holding compan,H b! subsidiar, or affiliateH c! substantial shareholderH or d! other related companies1 or vice"versaD Pro+ided1 That he is not a substantial shareholder of the bank or an, of the said concerned entities. The foregoing terms and phrases used in 6tems =C4D to C;D> of this %ection shall have the following meaningD a! &aren, is a corporation which has control over another corporation directl, or indirectl, through one 1! or more intermediaries. b! S/07i2iar1 means a corporation more than fift, percent )2M! of the voting stock of which is owned or controlled directl, or indirectl, through one 1! or more intermediaries b, a bank. c! Affilia,e is a <uridical person that directl, or indirectl,1 through one 1! or more intermediaries1 is controlled b,1 or is under common control with the bank or its affiliates. d! Rela,e2 in,ere7,7 as defined under %ections 12 and 1+ of $. A. 'o. 0=(1 shall mean individuals related to each other within the fourth degree of consanguinit, or affinit,1 legitimate or common law1 and two 2! or more corporations owned or controlled b, a single individual or b, the same famil, group or the same group of persons. e! 'on,rol e7ists when the parent owns directl, or indirectl, through subsidiaries more than one"half of the voting power of an enterprise unless1 in e7ceptional circumstance1 it can be clearl, demonstratedthat such ownership does not constitute control. Contro( ma, also e7ist even whenownership is one"half or less of the voting power of an enterprise when there isD i. power over more than one"half of the voting rights b, virtue of an agreement with other stockholdersH or ii. power to govern the financial and operating policies of the enterprise under a statute or an agreementH or iii. power to appoint or remove the ma<orit, of the members of the board of directors or eAuivalent governing bod,H or iv. power to cast the ma<orit, votes at meetings of the board of directors or eAuivalent governing bod,H or v. an, other arrangement similar to an, of the above. f! Rela,e2 co;-an1 means another compan, which isD a! its parent or holding compan,H b! its subsidiar, or affiliateH or c! a corporation where a bank or its ma<orit, stockholder own such number of shares that will allowEenable him to elect at least one 1! member of the board of directors or a partnership where such ma<orit, stockholder is a partner. g! S/07,an,ial or ;aBor 79are9ol2er shall mean a person1 whether natural or <uridical1 owning such number of shares that will allow him to elect at least one 1! member of the board of directors of a bank or who is directl, or indirectl, the registered or beneficial owner of more than ten percent 12M! of an, class of its eAuit, securit,.

h! @aBori,1 7,ock9ol2er or ;aBori,1 79are9ol2er means a person1 whether natural or <uridical1 owning more than fift, percent )2M! of the voting stock of a bank. 'on"9ilipino citi?ens ma, become members of the board of directors of a bank to the e7tent of the foreign participation in the eAuit, of said bankD Pro+ided, That pursuant to %ection 2+ of the Corporation Code of the &hilippines B& Blg. *0!1 a ma<orit, of the directors must be residents of the &hilippines. The meetings of the board of directors ma, be conducted through modern technologies such as1 but not limited to1 teleconferencing and videoconferencing as long as the director who is taking part in said meetings can activel, participate in the deliberations on matters taken up thereinD Pro+ided, That ever, member of the board shall participate in at least fift, percent )2M! and shall ph,sicall, attend at least twent,five percent 2)M! of all board meetings ever, ,earD Pro+ided, further, That in the case of a director who is unable to ph,sicall, attend or participate in board meetings via teleconferencing or videoconferencing1 the corporate secretar, shall e7ecute a notari?ed certification attesting that said director was given the agenda materials prior to the meeting and that hisEher commentsEdecisions thereon were submitted for deliberationE discussion and were taken up in the actual board meeting1 and that the submission of said certification shall be considered compliance with the reAuired fift, percent )2M! minimum attendance in board meetings.

T+e BSP $n- B$n2 Offici$#%@(./#o1ee% &re7cri-,ion an2 re)iew of C/alifica,ion7 Sec. 14, GBL 9it and &roper $ule. " To maintain the Aualit, of bank management and afford better protection to depositors and the public in general the 8onetar, Board shall prescribe1 pass upon and review the Aualifications and disAualifications of individuals elected or appointed bank directors or officers and disAualif, those found unfit. After due notice to the board of directors of the bank1 the 8onetar, Board ma, disAualif,1 suspend or remove an, bank director or officer who commits or omits an act which render him unfit for the position. 6n determining whether an individual is fit and proper to hold the position of a director or officer of a bank1 regard shall be given to his integrit,1 e7perience1 education1 training1 and competence. Reg/la,ion of co;-en7a,ion 0enefi,7 Sec. 18, GBL Compensation and 4ther Benefits of /irectors and 4fficers. To protect the finds of depositors and creditors the 8onetar, Board ma, regulate the pa,ment b, the bark to its directors and officers of compensation1 allowance1 fees1 bonuses1 stock options1 profit sharing and fringe benefits onl, in e7ceptional cases and when the circumstances warrant1 such as but not limited to the followingD 10.1. Chen a bank is under comptrollership or conservatorshipH or 10.2. Chen a bank is found b, the 8onetar, Board to be conducting business in an unsafe or unsound mannerH or 10.+. Chen a bank is found b, the 8onetar, Board to be in an unsatisfactor, financial condition.

Pro+i0ition on P,0#ic Offici$#% Sec. 19, GBL &rohibition on &ublic 4fficials. " 57cept as otherwise provided in the $ural Banks Act1 no appointive or elective public official whether full"time or part"time shall at the same time serve as officer of an, private bank1 save in cases where such service is incident to financial assistance provided b, the government or a government owned or controlled corporation to the bank or unless otherwise provided under e7isting laws. Sec. 3, R/ral Bank Ac, (RBA All members of the Board of /irectors of the rural bank shall be citi?ens of the &hilippines at the time of their assumption to officeD &rovided1 however1 That nothing in this Act shall be construed as prohibiting an, appointive or elective public official from serving as director1 officer1 consultant or in an, capacit, in the bank. 'o director or officer of an, rural bank shall1 either directl, or indirectl,1 for himself or as the representative or agent of another1 borrow an, of the deposits or funds of such banks1 nor shall he become a guarantor1 indorser1 or suret, for loans from such bank to others1 or in an, manner be an obligor for mone, borrowed from the bank or loaned b, it e7cept with the written approval of the ma<orit, of the directors of the bank1 e7cluding the director concerned. An, such approval shall be entered upon the records of the corporation and a cop, of such entr, shall be transmitted forthwith to the appropriate supervising department. The directorEofficer of the bank who violates the provisions of this section shall be immediatel, dismissed from office and shall be penali?ed in accordance with %ection 2* of this Act. The 8onetar, Board ma, regulate the amount of credit accommodations that ma, be e7tended directl, to the directors1 officers or stockholders or rural bank of banking institutions. @owever1 the outstanding credit accommodations which a rural bank ma, e7tend to each of its stock"holders owning two percent 2M! or more of the subscribed capital stock1 its directors1 or officers shall be limited to an amount eAuivalent to the respective outstanding deposits and book value of the paid"in capital contributions in the bank. Sec. 10, G/i2eline7 for ,9e #rganiDa,ion7 of 'oo-era,i)e Bank7

8orei3n O=ner%+i/ of B$n2% $n- 8orei3n B$n2% 8oreign in2i)i2/al7 an2 non$0ank cor-ora,ion7 Sec. 11, GBL 9oreign %tockholdings " 9oreign individuals and non"bank corporations ma, own or control up to fort, percent 32M! of the voting stock of a domestic bank. This rule shall appl, to 9ilipinos and domestic non"bank corporations. The percentage of foreign"owned voting stocks in a bank shall be determined b, the citi?enship of the individual stockholders in that bank. The citi?enship of the corporation which is a stockholder in a bank shall follow the citi?enship of the controlling stockholders of the corporation1 irrespective of the place of incorporation. 8oreign 0ank7 an2 owner79i- of local 0ank7 Sec. 7 3, GBL AcAuisition of Foting %tock in a /omestic Bank. " Cithin seven =! ,ears from the effectivit, of this act and sub<ect to guidelines issued pursuant to the 9oreign Banks .iberali?ation Act1 the 8onetar, Board ma, authori?e a foreign bank to acAuire up to one hundred percent 122M! of the voting stock of onl, one 1! bank organi?ed under the laws of the $epublic of the &hilippines. Cithin the same period1 the 8onetar, Board ma, authori?e an, foreign bank1 which prior to the effectivit, of this Act availed itself of the privilege to acAuire up to si7t, percent *2M! of the voting stock of a bank under the 9oreign Banks .iberali?ation Act and the Thrift Banks Act1 to further acAuire voting shares such bank to the e7tent necessar, for it to own one hundred percent 122M! of the voting stock thereof. 6n the e7ercise of the authorit,1 the 8onetar, Board shall adopt measures as ma, be necessar, to ensure that at all times the control of sevent, percent =2M! of the resources or assets of the entire banking s,stem is held b, banks which are at least ma<orit,"owned b, 9ilipinos. An, right1 privilege or incentive granted to a foreign bank under this %ection shall be eAuall, en<o,ed b, and e7tended under the same conditions to banks organi?ed under the laws of the $epublic of the &hilippines. Gran2fa,9er R/le

:9e 'on,rolling S,ock9ol2er7 R/le BS& 'irc/lar No. 234

&ursuant to 8onetar, Board $esolution 'o. 12++ dated -ul, 211 22221 the following rules and regulations are hereb, issued to implement %ection 11 of $epublic Act 'o. 0=(11 BThe #eneral Banking .aw of 2222B. Sec,ion 1. 9oreign individuals and non"bank corporations ma, own or control up to fort, percent 32M! of the voting stock of a domestic bankD &rovided1 That the aggregate foreign owned voting stocks owned b, foreign individuals and non"bank corporations in a domestic bank shall not e7ceed fort, percent 32M! of the outstanding voting stock of the bank. The percentage of foreign"owned voting stocks in a bank shall be determined b, the citi?enship of the individual stockholders in that bank. Sec,ion 2. A 9ilipino individual and a domestic non"bank corporation ma, each own up to fort, percent 32M! of the voting stock of a domestic bank. There shall be no aggregate ceiling on the ownership b, such individuals and corporations in a domestic bank. Sec,ion 3. The citi?enship of the corporation which is a stockholder of a bank shall follow the citi?enship of the controlling stockholders of the corporation1 irrespective of the place of incorporation. 9or purposes hereof1 the term Bcontrolling stockholdersB shall refer to individuals holding more than fift, percent )2M! of the voting stock of the corporate stockholder of the bank. Sec,ion .. The right of &hilippine corporations1 however1 under %ection 0 of $epublic Act 'o. ==21 Act .iberali?ing the 5ntr, of 9oreign Banks!1 to witD B7 7 7 An, right1 privilege or incentive granted to foreign banks or their subsidiaries or affiliates under this Act1 shall be eAuall, en<o,ed b, and e7tended under the same conditions to &hilippine banks. &hilippine corporations whose shares of stocks are listed in the &hilippine %tock 57change or are of long standing for at least ten 12! ,ears shall have the right to acAuire1 purchase or own up to si7t, percent *2M! of the voting stock of a domestic bank.B shall continue to be in force and effect. Sec,ion 3. This circular supersedes the provisions of %ubsection P12*.1 of the 8anual of $egulations for Banks insofar as inconsistent herewith.

8oreign owner79i- in ,9rif, 0ank7 Sec. 8, :9rif, Bank7 Ac, 4wnership. At least fort, percent 32M! of the voting stock of a thrift bank which ma, be established after the approval of this Act shall be owned b, citi?ens of the &hilippines1 e7cept where a new bank ma, be established as a result of a merger or consolidation of e7isting thrift banks with foreign holdings in which case1 the resulting foreign holdings shall not be increased but ma, be reduced and1 once reduced1 shall be increased thereafter be,ond si7t, percent *2M! of the voting stock of thrifts banks. The percentage of the foreign"owned voting stocks shall be determined b, the citi?enship of individual stockholders and in case of corporations owning shares1 b, the citi?enship of each stockholder in the said corporations. An, provision of e7isting laws to the contrar, notwithstanding1 stockholdings in a thrift bank shall be e7empt from an, ownership ceiling for a period of ten 12! ,ears from the effectivit, of this Act.

8oreign owner79i- in r/ral 0ank7 Sec. ., R/ral Bank7 Ac, 'o rural bank shall be operated without a Certificate of Authorit, from the 8onetar, Board of the Central Bank. $ural banks shall be organi?ed in the form of stock corporations. :pon consultation with the rural banks in the area1 dul, established cooperatives and corporations primaril, organi?ed to hold eAuities in rural banks ma, organi?e a rural bank andEor subscribe to the shares of stock of an, rural bankD &rovided1 That a cooperative or corporation owning or controlling the whole or ma<orit, of the voting stock of the rural bank shall be sub<ect to special e7amination and to such rules and regulations as the 8onetar, Board ma, prescribe. Cith the e7ception of shareholdings of corporations organi?ed primaril, to hold eAuities in rural banks as provided for under %ection 12"C of $epublic Act 'o. ++=1 as amended1 and of 9ilipino"controlled domestics banks1 the capital stock of an, rural bank shall be full, owned and held directl, or indirectl, b, citi?ens of the &hilippines or corporations1 associations or1 cooperatives Aualified under &hilippine laws to own and hold such capital stockD &rovided1 That an, provisions of e7isting laws to the contrar, notwithstanding1 stockholdings in a rural bank shall be e7empt from an, ownership ceiling for a period of ten 12! ,ears from the approval of this ActD &rovided1 further1 That an, such e7emption shall reAuire the approval of the 8onetar, Board. 6f subscription of private shareholders to the capital stock of a rural bank cannot1 be secured or is not available1 or insufficient to meet the normal credit needs of the localit,1 the .and Bank of the &hilippines1 the /evelopment Bank of the &hilippines1 or an, government"owned or controlled bank or financial institution1 on representation of the said private share"holders but sub<ect to the investment guidelines1 policies and procedures of the bank or financial institution and upon approval of the 8onetar, Board of the Central Bank1 shall subscribe to the capital stock of such rural bank1 which shall be paid in full at the time of subscription1 in an amount eAual to the full, paid subscribed and unimpaired capital of the private stockholders or such amount as the 8onetar, Board ma, prescribe as ma, be necessar, to promote and e7pand rural economic developmentD &rovided1 however1 That such shares of stock subscribed b, the .and Bank of the &hilippines1 the /evelopment Bank of the &hilippines or an, government" owned or controlled bank or financial institution ma, be sold at an, time at market value to private individuals who are citi?ens of the &hilippinesD &rovided1 finall,1 That in the sale of shares of stock subscribed b, the .and Bank of the &hilippines1 the /evelopment Bank of the &hilippines or an, government"owned or controlled bank or financial institution1 the registered stockholders shall have the right of pre"emption within one 1! ,ear from the date of offer in proportion to their respective holdings1 but in the absence such bu,er1 preference1 however1 shall be given to residents of the localit, or province where the rural bank is located. B/lo7, *r. ). Ea7/;a 327 S'RA 727 2007
This is a &etition for $eview on Certiorari under $ule 3) of the 1((= $evised $ules of Civil &rocedure seeking to set aside and to declare null and void 1! the /ecision1 dated ) -anuar, 22231 of the Court of Appeals in CA"#.$. CF 'o. )3(*(1 which affirmed the /ecision1 dated +2 August 1((*1 of the 8akati Cit, $egional Trial Court $TC!1 Branch 1301 in Civil Case 'o. (2"12)+H and 2! the $esolution of the Court of Appeals1 dated 11 -une 22231 which denied the petitionerRs 8otion for $econsideration. @erein petitioner @onorio C. Bulos petitioner! was one of the defendants in a Complaint for collection of sum of mone, plus damages with pra,er for a writ of preliminar, attachment1 docketed as Civil Case 'o. (2"12)+1 entitled1 QIoBi Jasuma +. Ramon R. Lim,

9onorio C. "u(os and "ede S. Jasuma1 a -apanese national.

a*a(in'cos 1S filed with the $TC b, herein respondent Ko<i

The controvers, in the present case arose from the following antecedentsD &etitioner1 together with /r. $amon $. .im /r. .im! and Att,. Bede %. Tabalingcos Att,. Tabalingcos!1 obtained a loan from Ko<i Jasuma respondent! in the amount of &21)221222.221 as evidenced b, a promissor, note1 dated 11 4ctober 1(001 signed solel, b, /r. .im per agreement among the petitioner1 /r. .im and Att,. Tabalingcos. The said promissor, note provides for the following conditionsD 1! pa,ment of interest at the rate of 3M for a period of three months or until 12 -anuar, 1(0(H 2! in case of a Qroll overS for failure of the borrowers to pa, on the agreed period1 the e7tension will be considered running monthl, under the same terms and rate of interest until the principal amount has been full, paidH and +! should the said promissor, note be brought to court for collection1 the borrowers agree to pa, an additional amount eAuivalent to 12M of the principal amount plus attorne,Rs fee1 which in no case shall be less than &121222.22. As a securit, for the said loan1 both petitioner and /r. .im e7ecuted $eal 5state 8ortgages over their respective properties. 4n 1* /ecember 1(001 petitioner and /r. .im e7ecuted a /eed of Assumption1 to the effect that petitioner assumed the loan obligation of /r. .im due respondent with the condition that /r. .im shall first secure the respondentRs consent to and approval of the said /eed of Assumption. @owever1 the conformit, of respondent to the said /eed of Assumption was not obtained b, /r. .im. Chen the loan obligation became due and demandable on 12 -anuar, 1(0(1 respondent demanded pa,ment from the petitioner1 /r. .im and Att,. Tabalingcos1 but the, failed and refused to pa, the same. $espondent then made a demand in writing and through telephone calls to Att,. Tabalingcos. Att,. Tabalingcos <ust told respondent that he would talk first to the petitioner and /r. .im and he will then inform the respondent of their response1 but Att,. Tabalingcos never called back. After painstaking efforts to collect the loan from the petitioner1 /r. .im and Att,. Tabalingcos1 respondent reAuested Att,. Tabalingcos1 who happened to be his legal adviser at that time1 to foreclose the $eal 5state 8ortgages e7ecuted b, the petitioner and /r. .im over their respective properties. Att,. Tabalingcos failed to do so. 6nstead1 he made a proposal to respondent that the petitioner had certain properties in &araNaAue Cit, which he was willing to sell to the respondent to cover the obligation of the petitioner1 /r. .im and Att,. Tabalingcos. 4ut of respondentRs desperation to collect the loan that he had e7tended to the petitioner1 /r. .im and Att,. Tabalingcos1 respondent agreed to the aforesaid proposal. Thus1 on 23 9ebruar, 1(0(1 a /eed of %ale1 over certain parcels of land located in &araNaAue Cit, and covered b, Transfer Certificates of Title TCTs! 'o. 3*==+3 and ++2+)) in the name of petitioner1 was e7ecuted in favor of the respondent for a total consideration of &11*+21=)2.221 paid +ia a dacion en )a'o arrangement. After the e7ecution of the /eed of %ale1 all the parties agreed that there was still a balance of &212321222.22 owed to the respondent. 6n a Certification dated 2= 9ebruar, 1(0(1 which the petitioner and /r. .im considered as another /eed of Assumption1 petitioner assumed the &11)221222.22 obligation of /r. .im. The consideration for the said assumption of obligation is the transfer of the shares of stocks of the $ural Bank of &araNaAue to the respondent to offset the obligation. &etitioner thus offered the said shares of stocks to the respondent. Att,. Tabalingcos1 for his part and in his capacit, as Chairman of the Board of the said bank1 issued a certification to the effect that the respondent holds &112)21222.22 worth of shares of stocks1 eAuivalent to 22M shareholdings in the $ural Bank of &araNaAue. @owever1 during that time1 the $ural Bank of &araNaAue must first increase its authori?ed capital stock sub<ect to the approval of the %ecurities and 57change Commission %5C! because the original shares had alread, been full, subscribed and full, paid. Because of this and of the information provided b, his then counsel1 the late Att,. Ba,ani 8. Timario1 -r. Att,. Timario1 -r.!1 that a foreigner cannot be a stockholder of a rural bank1 the respondent absolutel, refused to accept the shares of stocks and demanded instead an outright pa,ment of the loan obligation. As the shares of stocks were alread, assigned to the respondent +ia a certification issued b, Att,. Tabalingcos1 the latter then issued a check in the amount of &212321222.22 to the order of the respondent1 dated 2) /ecember 1(0(1 to bu, the said shares in behalf of an interested bu,er. Chen the respondent presented the check to the bank1 it was dishonored for having been drawn against insufficient funds. %ubseAuentl,1 the respondent sent a demand letter to each of the borrowers "" the petitioner1 /r. .im and Att,. Tabalingcos "" for the full pa,ment of their outstanding obligationH but1 to no avail. This prompted the respondent to file with the $TC a Complaint for %um of

8one, with /amages and with &ra,er for a Crit of &reliminar, Attachment against the petitioner1 /r. .im and Att,. Tabalingcos. 4n 2+ April 1((21 the trial court issued an 4rder granting the writ of preliminar, attachment applied for b, the respondent upon his filing of a bond fi7ed at &212321222.22. B, virtue of the said writ1 several lots of the petitioner1 and the house and lot of /r. .im located in >ue?on Cit,1 were attached. &etitioner filed a 8otion to /issolve Crit of Attachment which was granted b, the trial court in its 4rder dated = 4ctober 1((2 conditioned upon petitionerRs posting of a counter"bond in the amount of &212321222.22. &etitioner moved for the reduction of his counter"bond to &==21222.22 considering that the respondent made an admission that the petitioner partiall, paid the loan obligation in the amount of &11*+21=)2.22. The said motion was granted b, the court a quo in its 4rder dated 1 August 1((). 4n +2 August 1((*1 the trial court rendered a /ecision in favor of the respondent and against the petitioner1 /r. .im and Att,. Tabalingcos1 the decretal portion of which reads as followsD C@5$594$51 premises considered1 and finding that [herein respondent] has full, established not onl, b, preponderance of evidence b, competent proof of his entitlement to his claims in the [C]omplaint1 <udgment is hereb, rendered in favor of [respondent] and against [herein petitioner1 together with /r. .im and Att,. Tabalingcos]. 4rdering [the petitioner1 /r. .im and Att,. Tabalingcos] to <ointl, and severall, pa, the [respondent] the followingD

(1) The amount of &212321222.22 plus interest of 21M per

annum as of April1 1((21 the time of the filing of the [C]omplaintH (2) The sum eAuivalent to 22M of &212321222.22 plus &)22.22 per appearance in the case1 for and as attorne,Rs fees. +! Costs of the suit. The cross"claim filed b, [Att,. Tabalingcos] against the [petitioner] is hereb, /6%86%%5/ for reasons stated above. Costs against [petitioner1 /r. .im and Att,. Tabalingcos]. Aggrieved b, the aforesaid /ecision of the trial court1 the petitioner1 /r. .im and Att,. Tabalingcos appealed to the Court of Appeals. @owever1 Att,. Tabalingcos did not file his appellantRs brief. 4n ) -anuar, 22231 the Court of Appeals rendered a /ecision affirming in toto the /ecision of the trial court. The petitioner moved for its reconsideration1 but it was denied in a $esolution dated 11 -une 2223 issued b, the appellate court. @ence1 this petition b, petitioner. @owever1 /r. .im and Att,. Tabalingcos did not appeal before this Court. &etitioner submits the following issues for this CourtRs resolutionD 6. Chether or not the obligation of petitioner to pa, respondent has alread, sic! full, e7tinguished. Chether or not the offer to purchase shares of stock of $ural Bank of &araNaAue amounting to &112)21222.22 e7tinguished petitioner BulosR obligation to pa, the balance of the loan with sic! respondent. Chether or not petitioner Bulos is entitled to claim for damages. Chether or not [the] imposition of 21M interest on &212321222.22 and 22M of the said amount as attorne,Rs fees has no legal and factual basis sic!.

II.

666.

IV.

&etitioner argues that despite the partial pa,ment made b, him in the amount &11*+21=)2.221 and in spite of the respondentRs uneAuivocal admission of the same1 still1 the respondent did not deduct the said amount from the total amount of the obligation due him. 6nstead1 the respondent continuousl, claimed the amount of &212321222.22 as of 2)

/ecember 1(0(1 plus interest at the rate of 3M per month from 2) /ecember 1(0( when he filed his Complaint on = April 1((2. The petitioner likewise avers that his obligation to pa, the balance of the loan to the respondent had alread, been e7tinguished when he offered to the respondent the shares of stocks of the $ural Bank of &araNaAue amounting to &112)21222.22. $espondentRs assertion that he did not accept the offer of the shares of stocks because of his nationalit, deserves scant consideration as in fact1 he had religiousl, followed up with petitioner and Att,. Tabalingcos the issuance of the certificate for the said shares of stocks. &etitioner further alleges that he is entitled to claim damages for he had been sub<ected to ridicule1 mental anguish1 besmirched reputation1 and e7treme an7iet, as a result of the respondentRs unfounded and malicious suit. &etitioner lost business opportunities as a conseAuence of the attachment made on his real properties in TarlacH thus1 respondent should be made liable for the pa,ment of damages for all that he had suffered. As to the imposition of 21M interest on the &212321222.22 outstanding loan obligation and 22M of the said amount as attorne,Rs fees1 petitioner asserts that the same has no legal and factual bases. The imposition of the said interest is highl, e7cessive and e7orbitant in light of the dacion en )a'o arrangement and the assignment of shares of stocks of the $ural Bank of &araNaAue. 6t is well"settled that the findings of fact of the trial court1 especiall, when affirmed b, the Court of Appeals1 are accorded the highest degree of respect1 and generall, will not be disturbed on appeal. %uch findings are binding and conclusive to the Court. 9urthermore1 it is not the CourtRs function under $ule 3) of the 1((= $evised $ules of Civil &rocedure to review1 e7amine and evaluate or weigh the probative value of the evidence presented. The <urisdiction of the Court in a &etition for $eview under $ule 3) is limited to reviewing onl, errors of law. :nless the case falls under the recogni?ed e7ceptions1 the rule shall not be disturbed. The following findings of fact1 properl, supported b, evidence1 made b, both the trial court and the appellate court can no longer be modified and are binding on this CourtD 1! the original loan obtained b, the petitioner1 together with /r. .im and Att,. Tabalingcos1 from the respondent amounted to &21)221222.22 with 3M interest for three months1 or from 11 4ctober 1(00 up to 12 -anuar, 1(0(1 and in case of e7tension of the loan1 the interest of )M per month will be imposedH 2! the obligation of the petitioner1 /r. .im and Att,. Tabalingcos was <oint and solidar, as evidenced b, the following actsD a! the promissor, note was solel, signed b, /r. .im per agreement among the partiesH b! the act of /r. .im in e7ecuting a /eed of $eal 5state 8ortgage in favor of respondent to cover the amount of the promissor, noteH c! the act of the petitioner in e7ecuting a second /eed of $eal 5state 8ortgage as additional securit, to the loanH and d! the act of Att,. Tabalingcos in issuing a check in the amount of &21 2321222.22 to cover the balance of the obligationH +! petitioner failed to pa, the loan b, 12 -anuar, 1(0(H thus1 from 11 4ctober 1(00 up to 9ebruar, 1(0(1 the loan obligation1 including interest1 reached a total amount of &21=221222.22H 3! petitioner made a partial pa,ment via a dacion en )a'o1 amounting to &11*+21=)2.221 which was deducted from the total loan obligation of &21=221222.22 leaving a balance of &112*(1222.22 as of 23 9ebruar, 1(0(H )! b, 8arch 1(0(1 the balance of the loan began earning a )M interest per month after all the parties agreed to an increase in the interest rate during the e7tended periodH *! taking into consideration the outstanding loan balance of &112*(1222.221 plus interest1 and minus a discount granted b, respondent1 the amount still due respondent was determined b, the parties to be &212321222.22H and =! to pa, the remaining indebtedness1 Att,. Tabalingcos issued a check covering the amount but it was dishonored1 therefore1 t+e in-e0te-ne%% re.$in% $t P*,*!0,000.00. Chen the e7istence of a debt is full, established b, the evidence contained in the record1 the burden of proving that it has been e7tinguished b, pa,ment devolves upon the debtor who offers such defense. The debtor has the burden of showing with legal certaint,

that the obligation has been discharged b, pa,ment. 6n the present case1 the petitioner failed to prove that indeed1 his liabilit, to pa, the remaining balance of his obligation with the respondent had been e7tinguished b, his offer to transfer to respondent his shares of stocks in the $ural Bank of &araNaAue. The defense of the petitioner that the offer he made to respondent of his shares of stocks in $ural Bank of &araNaAue amounting to &112)21222.22 had alread, e7tinguished his obligation to pa, the balance of the loan stands on hollow ground. %ection 31 $epublic Act 'o. =+)+1 otherwise known as QThe $ural Banks Act of 1((21S providesD %ection. 3. 7 7 7. Cith the e7ception of shareholdings of corporations organi?ed primaril, to hold eAuities in rural banks as provided for under %ection 12"C of $epublic Act 'o. ++=1 as amended1 and of 9ilipino" controlled domestic banks1 the c$/it$# %toc2 of $n1 r,r$# 0$n2 %+$## 0e f,##1 o=ne- $n- +e#- -irect#1 or in-irect#1 01 citiIen% of t+e P+i#i//ine% or corporations1 associations or cooperatives Aualified under &hilippine laws to own and hold such capital stockD 7 7 7. 5mphasis supplied.! #iven the foregoing provision of law1 this Court agrees with the Court of Appeals that the respondent1 being a foreigner1 is not Aualified to own capital stock in the $ural Bank of &araNaAue. This renders the assignment of shares of stocks in the $ural Bank of &araNaAue in favor of respondent void. As previousl, stated1 the assignment of the shares of stocks in the rural bank was not accepted b, the respondent precisel, because of the prohibition stated under $epublic Act 'o. =+)+1 which was e7plained to him b, his counsel1 the late Att,. Timario1 -r. 8oreover1 petitioner mentioned in his testimon, before the trial court that all the shares of stocks of the $ural Bank of &araNaAue had alread, been full, subscribed and1 for shares to be made available1 additional capital should be infused and the %5C should approved the additional shares for subscription. @ere we Auote that part of the petitionerRs testimon,D >D 'ow1 ,ou have stated a while ago 8r. Citness1 that the balance be paid b, shares of stocks and as a matter of fact the [respondent] has accepted that preposition1 what happened if an,1 afterwardsO 6n m, case1 6 transferred ++2 something shares of stocks in the name of [the respondent] and 6 believe [Att,.] Tabalingcos have done the same. /id ,ou find out for ,ourselves what happened afterwards if an,O @owever we have transferred in their name however there are technicalities in the issuance1 Central Bank technicalities. Chat are these Central Bank technicalitiesO 6ssuance of shares of stocks certificate1 during that period we have to increase our authori?ed capital stock with the [%5C] because the ori3in$# one =ere $#re$-1 f,##1 %,0%cri0e- $n- f,##1 /$i-. [5mphasis supplied]. Then what happenedO The onl, wa, for us1 for the bank to issue additional shares of stocks certificate is to wait for the approval of the increase of capitali?ation from the [%5C] so that these assigned shares to [Att,.] Tabalingcos can be lodge. Chat did ,ou do if an, afterwardsO Ce informed the [respondent] about that.

AD

>D AD >D AD

>D AD

>D AD

7 7 7 7. >D AD Chat was his repl, if an,O @e started complaining and said1 Q<ust return to me m, mone,S that is how it all started.

9rom the aforesaid testimon, of the petitioner1 it is highl, impossible for respondent to have acAuired b, assignment an, shares of stocks in the $ural Bank of &araNaAue. Thus1 the obligation of the petitioner to pa, the balance of the loan remains subsisting. 6n the face of all of the above1 this Court nevertheless sustains the assertion of the petitioner that the imposition of 21M interest on the outstanding loan obligation of &212321222.22 has no legal and factual bases. According to the promissor, note e7ecuted b, /r. .im1 and agreed to b, all the parties1 in case of the borrowerRs failure to pa, the loan obligation within the stipulated period1 the e7tended period shall be considered running monthl, under the same terms and rate of interest1 which is 3M per month1 until the principal has been full, paid. Thus1 the remaining balance of &212321222.22 is still sub<ect to the interest rate of 3M per month or 30M per annum. To our mind such rate of interest is highl, unconscionable and inordinate. 6n the case of RuiA +. Court of A))ea(s1 citing the cases of Mede( +. Court of A))ea(s1 Garcia +. Court of A))ea(s, S)ouses "autista +. Pi(ar #e+e(o)ment Cor)oration and the recent case of S)ouses So(an'on +. Sa(aAar, this Court considered the +M interest per month or +*M interest per annum as e7cessive and unconscionable. Thereb,1 the Court1 in the said case1 eAuitabl, reduced the rate of interest to 1M interest per month or 12M interest per annum. The Court also held that while the :sur, .aw has been suspended b, Central Bank Circular 'o. (2)1 s. 1(021 effective on 1 -anuar, 1(0+1 and parties to a loan agreement have been given wide latitude to agree on an, interest rate1 still stipulated interest rates are illegal if the, are unconscionable. 'othing in the said circular grants lenders carte *(anche authorit, to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. %urel,1 it is more consonant with <ustice that the rate of interest in the present case1 which is 3M per month or 30M per annum1 be reduced eAuitabl,. Ce find1 that the reduction of the interest rate b, the trial court1 pegged at 21M per annum1 was not proper. 6n Eastern Shi))in' Lines, Inc. +. Court of A))ea(s1 the Court formulated the following rules of thumb to guide the lower courts in the imposition of the proper interest on the amounts due1 to witD

6. 66.

7 7 7 7.

Cith regard particularl, to an award of interest in the concept of actual and compensator, damages1 the rate of interest1 as well as the accrual thereof1 is imposed1 as followsD

1.

Chen the obligation is breached1 and it consists in the pa,ment of a sum of mone,1 i.e.1 a loan or forbearance of mone,1 the interest due should be that which ma, have been %ti/,#$te- in =ritin3. 9urthermore1 the interest due shall itself earn legal interest from the time it is <udiciall, demanded. 6n the $0%ence of %ti/,#$tion1 the rate of interest shall be '*J /er $nn,. to be computed from default1 i.e.1 from <udicial or e7tra<udicial demand under and sub<ect to the provisions of Article 11*( of the Civil Code.

2. +.

7 7 7 7.

Chen the <udgment of the court awarding a sum of mone, becomes final and e7ecutor,1 the rate of legal interest1 whether the case falls under paragraph 1 or

paragraph 21 above1 shall be 12M per annum from such finalit, until its satisfaction1 this interim period being deemed to be b, then an eAuivalent to a forbearance of credit. [5mphasis supplied]. The agreed interest rate of 3M per month or 30M per annum is unconscionable and must be mitigated. 9ollowing established <urisprudence1 the legal interest rate of 12M should appl,1 computed from the date of <udicial demand1 that is1 = April 1((2. The aforeAuoted paragraph + of the guidelines is also appropriate herein1 and a 12M interest per annum is imposed on petitionerRs monetar, liabilit, to respondent from the date of the finalit, of this /ecision until it is full, paid. As regards the argument of the petitioner that the award of attorne,Rs fees eAuivalent to 22M of &212321222.22 is e7cessive1 this Court finds the same specious. The lower courts found that b, reason of the acts of the petitioner and his cohorts1 the respondent had to secure the services of counsel in order to preserve and protect his rights. 6f not for the refusal of the petitioner to settle his obligation1 the respondent would not have incurred e7penses in filing a case which dragged on for more than a decade in order to recover the loan which he e7tended to the petitioner1 /r. .im and Att,. Tabalingcos. @ence1 the award of 22M of &212321222.22 as attorne,Rs fees is onl, reasonable. Conspicuousl,1 there appears to be a variation as to the percentage of attorne,Rs fees awarded in the dispositive portion and in the bod, of the $TC decision. 6n the dispositive portion of the $TC decision1 the attorne,Rs fees awarded was 22M of &212321222.22H while in the bod, of the same decision1 the rate referred to 12M of &212321222.22. The 3ener$# r,#e is that1 where there is conflict between the dispositive portion or the fa((o and the bod, of a decision1 the fa((o controls. This rule rests on the theor, that the fa((o is the final order while the opinion in the bod, is merel, a statement ordering nothing. @owever1 where the inevitable conclusion from the bod, of the decision is so clear as to show that there was a mistake in the dispositive portion1 the bod, of the decision prevails. 6n his complaint before the $TC1 the respondent pra,ed for 22M of &212321222.22 as attorne,Rs fees. 6n the bod, of the $TC decision1 the trial court awarded outright respondentRs pra,er for attorne,Rs fees without an, discussion that it found the 22M respondent pra,ed for as e7cessive and that it was reducing the percentage of the attorne,Rs fees to 12M. This court is more inclined to believe that the 12M attorne,Rs fees in the bod, of the $TC decision is merel, a t,pographical error. ConseAuentl,1 the general rule applies to this case1 and the 22M attorne,Rs fees ordered paid b, the fa((o of the $TC decision controls. 9:(R(8OR(1 premises considered1 the instant &etition is PARTIA556 GRANT(D. The /ecision and $esolution of the Court of Appeals dated ) -anuar, 2223 and 11 -une 22231 respectivel,1 in CA"#.$. CF 'o. )3(*(1 which affirmed the /ecision1 dated +2 August 1((*1 of the 8akati Cit, $TC1 Branch 1301 in Civil Case 'o. (2"12)+1 are hereb, A88IR<(D with the <ODI8ICATION that an interest rate of 12M per annum shall be applied to the balance of the loan amounting to &212321222.221 computed from the date of <udicial demand1 i.e.1 = April 1((2H and of 12M interest per annum on the amount due from the date of the finalit, of this /ecision until full, paid. Costs against the petitioner. SO ORD(R(D.

N/nga, *r ). N/nga ((( 37. S'RA 740 18 "ece;0er 2008

C@6C4"'AGA$641 :.D Before this Court is a &etition for $eview on Certiorari under $ule 3) of the $ules of Court assailing the /ecision[1] dated +1 -anuar, 222= and $esolution[2] dated 3 -une 222= of the Court of Appeals in CA"#.$. CF 'o. =0323. The appellate court1 in its assailed decision1 reversed the /ecision[+] dated 2) 4ctober 2222 of the $egional Trial Court $TC! of the Cit, of %an 9ernando1 &ampanga1 Branch 321 in Commercial Case 'o. 2101 which ordered the registration of the transfer of ownership of the disputed shares of stock in the $ural Bank of

Apalit1 6nc. $BA! in favor of petitionersH and in its resolution1 denied the 8otion for $econsideration of the aforementioned decision. &resented hereunder are the factual antecedents of the case. 4n +2 -anuar, 1((*1 the $BA conducted its Annual %tockholdersR 8eeting at its principal office in %an Ficente1 Apalit1 &ampanga. Attending the said meeting were stockholders representing 2011)2 out of the +)1()* total outstanding shares of stock of $BA. [3] &etitioner 9rancisco $. 'unga1 -r. 9rancisco -r.!1 his son petitioner Fictor /. 'unga Fictor!1 and his nephew respondent 9rancisco '. 'unga 666 9rancisco 666! were among the stockholders of $BA. @owever1 petitioner 9rancisco -r. was not present at the meeting1 as he was then in the:nited %tates of America where he is a naturali?ed citi?en. >uorum having been established at the meeting1 the stockholders proceeded with the election of the $BA Board of /irectors to serve for the fiscal ,ear 1((*. 9rancisco 666 was voted the Chairman of the BoardH with 8a. 5lena $ueda1 8a. $osario 5lena 'acario1 Cecilia Fira, and /wight 'unga1 the 8embers. 6n the same meeting1 stockholder -esus #on?ale? #on?ale?! made known his intention to sell his shareholdings. Fictor1 thereafter1 informed his father1 9rancisco -r.1 of #on?ale?Rs intention to sell his shares. 9rancisco -r. then instructed Fictor to inAuire from #on?ale? the terms of the sale. After a series of negotiations1 #on?ale? ultimatel, agreed to sell his shares of stock to 9rancisco -r. 4n 1( 9ebruar, 1((*1 #on?ale? e7ecuted a Contr$ct to Se##[)] in favor of 9rancisco -r.1 which pertinentl, providedD CONTRACT TO S(55 K'4C A.. 85' BJ T@5%5 &$5%5'T%D This C4'T$ACT T4 %5..1 e7ecuted this 1(th da, of 9ebruar,1 1((*1 at >ue?on Cit,1 b,D J(SUS J. GON;A5(K;L, of legal age1 9ilipino citi?en1 married to Cristina /. #on?ale[?]1 residing at 'o. 12 2nd Ave.1 Crame1 >ue?on Cit,1 hereinafter referred to as the 7(NDORM in favor of 8RANCISCO D. sic! NUNGA, JR., of legal age1 single1 residing at &oblacion1 8asantol1 &ampanga[1] hereinafter referred to as the NPURC:AS(ROM 9ITN(SS(T:: That the F5'/4$ is the absolute registered owner of several shares of stocks of the $:$A. BA'K 49 A&A.6T1 6'C. located at Apalit1 &ampanga1 more particularl, described as followsD %tock Cert. 'o. ) +* 12) 1)2 1** 101 21+ 'o. of %hares $epresented 2)2 122 2*3 30= 0 )2) ++* /ate of 6ssue Ma&, 461K -an.1 1((1 9eb.1 1((1 'ov.1 1((+ 9eb.1 1((3 -ul,1 1((3 -ournal 9olio 'o. 1 1 ) = = 0

That the F5'/4$ has offered to sell the abovestated sic! shares of stocks and the &:$C@A%5$ has agreed to purchase the same for a total consideration of &2221222H

That it is hereb, agreed that out of the total consideration or contract price1 the purchaser will pa, the amount of 969TJ T@4:%A'/ &5%4% &)21222.22!1 receipt of which is herein acknowledged b, the purchaser1 at the date and place below stated and the remaining balance of &1)21222 will be paid in full on 9ebruar,1 sic! 201 1((*H That it is further agreed that the F5'/4$ will e7ecute an authori?ation in favor of the herein purchaser or his representative1 Fictor /. 'unga[1] to retrieve all the corresponding %tocks sic! Certificates as above indicated from the Apalit $ural Bank1 6nc. 9:(R(8OR(1 for and in consideration of the total amount of &2221222 sic! receipt in part of which is herein acknowledged in the amount of&)21222.221 the vendor hereb, agrees to sell1 cede and transfer all the above stated shares of stocks to the &:$C@A%5$1 his heirs[1] successors1 and assigns1 absolutel, free from an, encumbrance and lien whatsoever. IN 9ITN(SS 9:(R(O81 6 have hereunto set m, signature this 1(th da, of 95B$:A$J1 sic! 1((*1 at >ue?on Cit,1 &hilippines. signed! J(SUS J. GON;A5(S Fendor 4n even date1 Fictor gave the initial pa,ment of &)21222.22 to #on?ale?1 who dul, acknowledged the same.[*] 6n e7change1 #on?ale? handed Fictor $BA %tock Certificates 'o. 12)1 'o. 1)2 and 'o. 1**. As to the four other certificates that were in the possession of the $BA1 #on?ale? issued a letter[=] addressed to 6sabel 9irme 9irme!1 the $BA Corporate %ecretar,1 which instructed the latter to turn over to Fictor the remaining stock certificates in #on?ale?Rs name. :pon being presented with #on?ale?Rs letter1 9irme gave Fictor %tock Certificate 'o. 1011 but alleged that %tock Certificates 'o. ) and 'o. +* could no longer be located in the files of $BA. 9irme advised Fictor to merel, reconstitute the missing stock certificates.[0] A reading of the said Contract to %ell would reveal1 however1 that the same was onl, notari?ed on 20 9ebruar, 1((*. Before 9rancisco -r. and Fictor could pa, the balance of the contract price for #on?ale?Rs $BA shares of stock1 #on?ale? entered into another contract involving the ver, same shares. 6t would appear that on 2= 9ebruar, 1((*1 #on?ale? e7ecuted a Dee- of A%%i3n.ent[(] of his $BA shares of stock in favor of 9rancisco 6661 the relevant terms of which reciteD D((D O8 ASSIGN<(NT K'4C A.. 85' BJ T@5%5 &$5%5'T%D 9or value sic! consideration received1 the undersigned A%%6#'4$ -5%:% #4'GA.5[G]1 of legal age1 9ilipino and resident of Y12 2'/ AF5':51 C:BA41 >:5G4' C6TJ1 85T$4 8A'6.A hereb, sells1 assigns and transfers unto 9$A'C6%C4 '. ':'#A 666 A% A%%6#'55!1 9ilipino1 of legal age and with postal address at 1122 Alhambra %t.1 5rmita 1222 8etro 8anila1 his assigns and successors1 all their rights1 titles and interests to the following shares of stocks owned b, the A%%6#'4$ in Apalit $ural Bank1 6nc.1 with par value of one hundred pesos onl, &122.22! per share1 free from all liens and encumbrances. /ate 8a, 231 1(*( -anuar, 221 1(=) 9ebruar, 1(1 1((1 'ovember 121 1((+ 9ebruar, 221 1((3 -ul, 2)1 1((3 9ebruar, 21 1((* %C. 'o. 3 sic! +* 12) 1)2 1** 101 21+ 'o. of %hares 2)2 122 2*3 30= 0 )2) ++* Amount & 2)1222.22 121222.22 2*1322.22 301=22.22 022.22 )21)22.22 ++1*22.22

6' C6T'5%% C@5$5491 the A%%6#'4$ have sic! cause sic! these presents to be signed at >ue?on Cit,1 this 2= da, of 9ebruar,1 1((*. signed!-5%:% -. #4'GA.5[G] Assignor At the same time the afore"Auoted /eed was e7ecuted1 9rancisco 666 paid in full the agreed purchase price of &+221222.22 using a B&6 Bank of the &hilippine 6slands! 9amil, Bank Check 'o. 2+3=)2) issued in favor of #on?ale?. An acknowledgment receipt signed b, #on?ale? and witnessed b, his wife Cristina /. #on?ale? evidenced the pa,ment. [12] %ince the stock certificates covering the shares were alread, in FictorRs possession1 #on?ale? immediatel, wrote Fictor a letter1[11] demanding that Fictor hand over the said stock certificates to 9rancisco 6661 the supposed new owner of the shares. The ne7t da,1 on 20 9ebruar, 1((*1 9rancisco -r. arrived from the :nited %tates of America. @e and Fictor then promptl, proceeded to the residence of #on?ale? in order to pa, the balance of &1)21222.22 of the purchase price stated in their Contract to %ell with #on?ale?. #on?ale?1 however1 informed them that he alread, sold his shares of stock to 9rancisco 666.[12] After discussing the matter1 #on?ale? was somehow convinced to accept the balance of the purchase price and sign his name at the dorsal portion of the stock certificates to endorse the same to 9rancisco -r. #on?ale? also e7ecuted a Dee- of A0%o#,te S$#e[1+] in favor of 9rancisco -r.1 which statesD D((D O8 ABSO5UT( SA5( K'4C A.. 85' BJ T@5%5 &$5%5'T%D This /55/ 49 AB%4.:T5 %A.51 e7ecuted this 20th da, of 9ebruar,1 1((*1 at %A' -:A'1 8.8. b,D J(SUS J. GON;A5(K;L, of legal age1 9ilipino citi?en1 married to Cristina /. #on?ale[?]1 residing at 'o. 12 2nd Ave.1 Crame1 >ue?on Cit,1 hereinafter referred to as the 7(NDORM in favor of 8RANCISCO R. NUNGA, JR., of legal age1 married1 residing at &oblacion1 8asantol1 &ampanga[1] hereinafter referred to as the NPURC:AS(RO[H] 9ITN(SS(T:: That the F5'/4$ is the absolute registered owner of several shares of stocks of the $:$A. BA'K 49 A&A.6T1 6'C. located at Apalit1 &ampanga1 more particularl, described as followsD %tock Cert. 'o. ) +* 12) 1)2 1** 101 21+ 'o. of %hares $epresented 2)2 122 2*3 30= 0 )2) ++* /ate of 6ssue 8a,1 1(=0 -an.1 1((1 9eb.1 1((1 'ov.1 1((+ 9eb.1 1((3 -ul,1 1((3 -ournal 9olio 'o. 1 1 ) = = 0

That %tock Certificate 'os. ) and +* respectivel, representing 2)2 and 122 shares of the $ural Bank of Apalit[1] 6nc. were lost and is sic! currentl, in the process of reconstitutionH

That the F5'/4$ has offered to sell the abovestated sic! shares of stocks and the &:$C@A%5$ has agreed to purchase the same. C@5$594$51 for and in consideration of the total amount of TC4 @:'/$5/ T@4:%A'/ &5%4% & 2221222.22!1 receipt of which in full is herein acknowledged1 the F5'/4$ hereb, sells1 cedes and transfers all the above stated shares of stocks to the &:$C@A%5$1 his heirs1 successors1 and assigns1 absolutel, free from an, encumbrance and lien whatsoever. 6' C6T'5%% C@5$5491 6 have hereunto set m, signature this 20 da, of 95B sic!1 1((*1 at %A' -:A'1 881 &hilippines. signed! -5%:% -. #4'GA.5[G] Fendor 6ncidentall,1 on that same da,1 9rancisco 666 delivered to 9irme the /eed of Assignment which #on?ale? e7ecuted in his favor1 and a cop, of #on?ale?Rs letter to Fictor dated 2= 9ebruar, 1((* demanding the latter to surrender the stock certificates in his possession to 9rancisco 666. Accordingl,1 on 1 8arch 1((*1 9irme wrote Fictor a letter[13] reAuesting that the latter immediatel, compl, with the enclosed 2= 9ebruar, 1((* letter of #on?ale?. Fictor refused to compl, with 9irmeRs reAuest and instead demanded that the sale of shares of stock b, #on?ale? in favor of 9rancisco -r. on 20 9ebruar, 1((* be entered into the Corporate Book of Transfer of $BA. 9irme1 in turn1 re<ected FictorRs demand1 alleging that 9rancisco 666 alread, bought #on?ale?Rs shares.[1)] ConseAuentl,1 on 13 8arch 1((*1 Fictor filed a &etition [1*] with the %ecurities and 57change Commission %5C! against 9rancisco 666 and 9irme1 which was docketed as S(C C$%e No. 03-& -D*)). Fictor pra,ed that the %5C declare null and void the %tockholdersR 8eeting held on +2 -anuar, 1((* for lack of the reAuired ma<orit, AuorumH as well as the votes cast for the shares of the deceased stockholders1 namel,1 Teodorico $. 'unga1 Carmencita '. 'unga and -esus 5nrico '. 'unga. Fictor additionall, reAuested that the transfer of #on?ale?Rs $BA shareholdings to 9rancisco -r. be annotated on the $BA Corporate Transfer Book and new stock certificates be issued in favor of 9rancisco -r. Fictor finall, pleaded that 9rancisco 666 and 9irme be ordered to <ointl, pa, him &)21222.22 as attorne,Rs fees1 damages and litigation e7penses. 4n the same date1 9rancisco 666 likewise filed a Complaint [1=] against #on?ale?1 9rancisco -r.1 and Fictor before the %5C1 which was docketed as S(C C$%e No. 03-& D*&*. 9rancisco 666 sought the issuance of a Temporar, $estraining 4rder T$4! against 9rancisco -r. and Fictor1 who were allegedl, conspiring to oust him and the other members of the $BA Board of /irectors. 9rancisco 666 also pra,ed1 inter a(ia1 for <udgment ordering a! Fictor to surrender #on?ale?Rs stock certificates in order that the same ma, be transferred to 9rancisco 666Rs nameH and b! 9rancisco -r. and Fictor to desist from attempting to register the purported sale b, #on?ales of his $BA shares of stock to 9rancisco -r.1 who had alread, become a naturali?ed American citi?en and was1 thus1 disAualified from owning shares in $BA. 9rancisco 666 and 9irme filed their <oint Answer[10] in S(C C$%e No. 03-& -D*))1 while 9rancisco -r. and Fictor filed their Answer[1(]in S(C C$%e No. 03-& -D*&*. #on?ale?1 however1 was considered in default in both %5C cases for failure to file his answers despite notice. 5ventuall,1 9rancisco -r.[22] and Fictor filed a 8otion for Consolidation[21] of the two cases pending before the %5C1 alleging that the, involved common Auestions of fact and law1 which reAuired the presentation of similar evidence. %aid 8otion was granted in an 4rder[22]dated +2 %eptember 1((*. Thereafter1 %5C Cases 'o. 2+"(*")200 and 'o. 2+"(*" )2(2 were <ointl, heard. After the parties submitted their respective 4ffers of 5vidence1 but before the %5C could rule on the same1 the cases were eventuall, turned over to the $TC pursuant to Administrative Circular A8 'o. 22"11"2+[2+] of the %upreme Court dated 21 'ovember 2222.[23]

6n the $TC1 S(C C$%e% No. 03-& -D*)) $n- No. 03-& -D*&* were docketed as Co..erci$# C$%e% No. 00' $n- No. 0')1 respectivel,. 9rancisco -r. and Fictor subseAuentl, filed a 8otion to $esolve their 9ormal 4ffer of 57hibits1 which the %5C was not able to act upon. 6n an 4rder[2)] dated +2 April 22221 the $TC admitted the formal offers of evidence in both cases. 4n 2) 4ctober 22221[2*] the $TC promulgated its /ecision. Cith respect to Co..erci$# C$%e No. 00'1 FictorRs &etition1 the $TC ruledD T+e Co,rt, $fter $ c$ref,# %t,-1 on t+e e"i-ence% on recorfin-% t+$t K+erein /etitioner 7ictorL f$i#e- to %,0%t$nti$te t+e $##e3$tion in t+e /etition. [Fictor] failed to controvert the documentar, evidences presented b, [herein respondent 9rancisco 666] to witD 8inutes of the %tockholders 8eeting1 showing the number of shares present in person or in pro7,[H] written Pro.& in fa+or of #wi'ht N. Nun'a in CsicD *eha(f of deceased eodorico R. Nun'a *& +irtue of the E.traBudicia( Sett(ement of estate in CsicD *eha(f of Carmencita Noe( Nun'a )ro.& e.ecuted *& Ma. #e( Carmen N. Le+eriAa in her ca)acit& as the :udicia( Administratri. du(& a))ointed *& the R C "ranch ;8, Ma,atiL,M Metro Mani(a in S)ecia( Proceedin's No. M%47;4[2=]H Affidavit of respondent 6sabel C. 9irme stating thereat the fact that the certificate of stock delivered for registration in the Corporate Transfer Book were mere 7ero7 copies thus1 the refusal. Thus further1 proved [FictorRs] lack of cause of action against [9rancisco 666] and as a result of which damages on the part of [9rancisco 666] and 6sabel C. 9irme who were constrained to hire the services of their counsel to protect their right sic!. 5mphasis ours.! As regards Co..erci$# C$%e No. 0')1[20] 9rancisco 666Rs Complaint1 the $TC decreedD T+e Co,rtK,L $fter $ c$ref,# %t,-1 on t+e $fore.entionee"i-ence% A%icB on recor-K,L fin-% $n- +o#-% t+$t K+erein /etitioner 8r$nci%co Jr.L +$% $ 0etter ri3+t o"er t+e %,0?ect %+$re% considering that the Contract to %ell was e7ecuted prior to the /eed of Assignment presented b, the [herein respondent 9rancisco 666]. The Court gleaned also from the evidences sic! that the /eed of Assignment was e7ecuted in bad faith as [9rancisco 666] is aware of the transaction between [herein petitioner Fictor] in sic! behalf of his father and [#on?ale?]1 thus1 the conclusion that the /eed of Assignment was e7ecuted with malice. The Contract to %ell ma, not be a public instrument[2(] but being a consensual contract it is1 therefore1 valid there being a meeting of the mind sic! between the parties. 9urther1 there being no contention on sic! the contrar,1 on the validit, of the /eed of Absolute %ale interposed b, [#on?ale?] coupled with the proof of full pa,ment and the endorsement of the %tock Certificate at the back b, the owner[1] which is the onl, operative act of valid transfer of shares of stock certificate provided for b, law and <urisprudence1 clearl, convinced the Court that the latter honored the transaction between him and [Fictor] in sic! behalf of his father [9rancisco -r.] and[1] to bind third parties1 the fact of transfer should be registered with the transfer book of the corporation. 7777 9urther1 with respect to the issue on the citi?enship of [9rancisco -r.]1 not being Aualified to own such share sic!1 the Court is inclined to give credence on sic! the contention of the latter[1] it being supported b, $.A. 01=([1] known as QAn Act to 9urther .iberali?e 9oreign 6nvestment1[S] to witD B%5C. (. 6nvestment $ights of 9ormer 'atural" born 9ilipinos. T 9or purposes of this Act1 former natural born citi?ens of the &hilippinesshall have the same investment rights of a 9ilipino citi?en in Cooperatives under $epublic Act 'o. *(+01 R,r$# B$n2% ,n-er Re/,0#ic Act No. F3D31 Thrift Banks and &rivate /evelopment Banks

under $epublic Act 'o. =(2*1 and 9inancing Companies under $epublic Act 'o. )(02.S 9urthermore1 insofar as sic! [#on?ale?]1 the same was sic! considered as in default for failure to appear and participate despite notice. 5mphasis ours.! 6n the end1 the $TC disposed of the two cases in this wiseD C@5$594$51 in view of the foregoing1 <udgment is hereb, rendered in Co..erci$# C$%e No. 00' ordering the dismissal of the &etition filed b, [herein petitioner Fictor] against [herein respondent 9rancisco 666] and 6sabel C. 9irme. 6nsofar as Co..erci$# C$%e No. 0')[1] <udgment is hereb, rendered in favor of the [herein petitioners Fictor and 9rancisco -r.] and against [9rancisco 666] ordering the followingD 1! 4rdering the Corporate %ecretar, of the $ural Bank of Apalit1 6nc1 sic! to register the fact of the transfer of ownership in favor of [9rancisco -r.] and to cancel %tock certificate sic! in the name of -esus [#on?ale?] and to issue a new one sic! in the name of [9rancisco -r.] upon presentation of %tock Certificate 'os. 12)1 1)21 1**1 1011 21+1 ) and +* dul, endorsed b, -esus [#on?ale?]H 2! The [respondent 9rancisco 666] to pa, the [petitioners Fictor and 9rancisco -r.] the amount of &1221222.22 [for] moral damages[H] +! The amount of &1221222.22 [for] e7emplar, damages[H] 3! The amount of &)21222.22 [for] attorne,s sic! fees and the cost of suit.[+2] 9rancisco 666 filed a 8otion for &artial $econsideration[+1] of the afore"Auoted /ecision1 but it was denied b, the $TC in an 4rder[+2]dated +1 -anuar, 222+. Thus1 9rancisco 666 filed with the $TC a 'otice of Appeal. [++] @is appeal before the Court of Appeals was docketed as CA-G.R. C7 No. F)!*!. Before the Court of Appeals1 9rancisco 666 argued that the $TC erred inD 1! ruling that 9rancisco -r. had a better right over the disputed shares of stock1 considering that the prior contract which he had entered into with #on?ale? was a mere contract to sellH 2! finding that the /eed of Assignment in 9rancisco 666Rs favor was e7ecuted in bad faith1 inasmuch as it was not supported b, an, of the evidence presented b, all the partiesH and +! giving retroactive effect to $epublic Act 'o. 01=(1 [+3] which grants former natural born citi?ens such as 9rancisco -r.! eAual investment rights in rural banks of the &hilippines as &hilippine citi?ens. 6n relation to his third assignment of error1 9rancisco 666 pointed out that $epublic Act 'o. 01=( took effect onl, on 1* April 1((*1 after 9rancisco -r. entered into the Auestionable contracts with #on?ale?H hence1 the said statute cannot benefit 9rancisco -r. 4n +1 -anuar, 222=1 the Court of Appeals rendered its assailed /ecision favoring 9rancisco 666. 6t held that 9rancisco -r. cannot invoke the provisions of $epublic Act 'o. 01=( based on the following ratiocinationD In t+e in%t$nt c$%e, t+ere i% not+in3 in Re/,0#ic Act No. )'F& KAn Act to 8,rt+er 5i0er$#iIe 8orei3n In"e%t.entL =+ic+ /ro"i-e% t+$t it %+o,#- retro$ct to t+e -$te of effecti"it1 of Re/,0#ic Act No. F3D3 KT+e R,r$# B$n2% Act of '&&*L. Neit+er i% it nece%%$ri#1 i./#ie- fro. Re/,0#ic Act No. )'F& t+$t it or $n1 of it% /ro"i%ion% %+o,#- 0e 3i"en $ retro$cti"e effect. 4n the contrar,1 there is an e7press provision in $epublic Act 'o. 01=( that it Qshall take effect fifteen 1)! da,s after publication in two 2! newspapers of general circulation in the &hilippines.S Being cr,stal clear on its prospective application1 it must be given its literal meaning and applied without further interpretation "PI Leasin' Cor)oration +s. Court of A))ea(s1 31* %C$A 31 1+

[222+]!. $epublic Act 'o. 01=( was published on 8arch +11 1((* at the 8anila Times and Ma(a&aH hence1 it took effect on April 1)1 1((*. 7 7 7. $epublic Act 'o. =+)+ specificall, states that Qthe capital stock of an, rural bank shall be full, owned and held directl, or indirectl, b, citi?ens of the &hilippines 777.S 6t bears stressing that the use of the word QshallS alone1 appl,ing the rule on statutor, construction1 alread, underscores the mandator, nature of the law1 and henceH sic! reAuires adherence thereto. 777 Therefore1 it is 4ur considered view that the sale and the subseAuent transfer on 9ebruar, 201 1((* of the shares of stock of -5%:% [#on?ale?] to 9$A'C6%C41 -$.1 a naturali?ed American citi?en1 were made in patent violation of $epublic Act 'o. =+)+. Considering that $epublic Act 'o. =+)+ did not contain an, provision authori?ing the validit, of the sale and transfer of the shares of stock to a foreigner1 specificall, to a former natural" born citi?en of the &hilippines1 the same should be deemed null and void pursuant to Article ) of the Civil Code of the &hilippines1 which readsD QA$T. ). Acts e7ecuted against the provisions of mandator, or prohibitor, laws shall be void1 e7cept when the law itself authori?es their validit,.S 7 7 7 The fact that $epublic Act 'o. 01=( e7pressl, granted to former natural"born citi?ens of the &hilippines investment rights similar to those of citi?ens of the &hilippines bolsters the view that $epublic Act 'o. =+)+ indeed prohibited foreign nationals from owning shares of stock in rural banks. @ad it been necessaril, implied from the provisions of $epublic Act 'o. =+)+ that foreign nationals could own shares of stock in rural banks1 the legislature would not have wasted time and effort in inserting a new provision granting to former natural"born citi?ens of the &hilippines eAual investment rights in $epublic Act 'o. 01=(. 9urthermore1 there is no merit in the assertion of 9$A'C6%C4 -$. and F6CT4$ that $epublic Act 'o. 01=( should be given a retroactive effect in accordance with the following ruleD QThe principle that a new law shall not have retroactive effect onl, governs rights arising from acts done under the rule of the former lawH but if a right be declared for the first time b, a new law it shall take effect from the time of such declaration1 even though it has arisen from acts sub<ect to the former laws1 provided that it does not pre<udice another acAuired right of the same origin.S 7 7 7. $epublic Act 'o. 01=( cannot be applied retroactivel, insofar as the instant case is concerned1 as its application would pre<udice the sic! 9$A'C6%C4 666 who had acAuired vested right over the shares of stock prior to the effectivit, of the said law. %uch right was vested to him when the /eed of Assignment was e7ecuted b, -esus in his favor on 9ebruar, 2=1 1((*. :ndoubtedl,1 9$A'C6%C4 666 had a better right over the shares of stock of -5%:% inasmuch as the validit, of the /eed of Assignment was not affected despite the prior e7ecution of the Contract to %ell in favor of 9$A'C6%C4 -$. on 9ebruar, 1(1 1((*. As previousl, adverted to1 the said Contract1 as well as the /eed of Absolute %ale and the subseAuent transfer of the shares of stock to 9$A'C6%C4 -$.1 was null and void for violating a mandator, provision of $epublic Act 'o. =+)+. 7 7 7.[+)] The Court of Appeals1 however1 decided to award 9rancisco 666 onl, attorne,Rs fees and cost of suit1 but not moral and e7emplar, damagesD Ce hold that 9$A'C6%C4 666 is not entitled to moral damages. 9$A'C6%C4 666 made no mention in his Complaint and during the hearing that he sustained mental anguish1 serious an7iet,1 wounded feelings and other emotional and mental sufferings b, reason of the double sale. 7 7 7.

.ikewise1 9$A'C6%C4 666 is not entitled to e7emplar, damages. 7 7 7 6n the instant case1 9$A'C6%C4 666 failed to sufficientl, prove his entitlement to moral1 temperate or compensator, damages. @ence1 his claim for e7emplar, damages must similarl, fail. @owever1 as to his claim for attorne,Rs fees and cost of suit1 Ce find it to be tenable as the records of the case clearl, reveal that 9$A'C6%C4 666 was compelled to litigate or to incur e7penses to protect his interest because of the double sale. 7 7 7. :nder the circumstances obtaining in the instant case1 Ce deem that the award of &221222.22 as attorne,Rs fees is reasonable.[+*] The fa((o of the Court of Appeals /ecision thus readsD 9:(R(8OR(1 the foregoing premises considered1 the /ecision dated 4ctober 2)1 2222 of Branch 32 of the $egional Trial Court of %an 9ernando1 &ampanga with respect to Commercial Case 'o. 210 is hereb, R(7(RS(D and S(T ASID(. A new one is hereb, rendered ORD(RING the followingD 1! Fictor 'unga to surrender the stock certificates of -esus #on?ale? to the Corporate %ecretar, of $ural Bank of Apalit1 6nc.H 2! [T]he Corporate %ecretar, of $ural Bank of Apalit1 6nc. to register the assignment of shares of stock in favor of 9rancisco 'unga 6661 to cancel the stock certificates of -esus #on?ale[?]1 and to issue new ones in the name of 9rancisco 'unga 666H and1 +! -esus #on?ale[?]1 9rancisco 'unga1 -r.1 and Fictor 'unga to pa,1 <ointl, and severall,1 the sum of &221222.22 as attorne,Rs fees1 plus the cost of suit.[+=] 9rancisco -r. and Fictor1 together with #on?ale?1 filed a 8otion for $econsideration[+0] of the foregoing /ecision. Their 8otion1 however1 was denied b, the Court of Appeals in its assailed $esolution dated 3 -une 222=. $efusing to concede1 9rancisco -r. and Fictor filed the instant &etition1 [+(] which the, anchor on the following assignment of errorsD 6. C@5T@5$ 4$ '4T T@5 C4:$T 49 A&&5A.% 5$$5/ 6' /5C.A$6'# T@5 %A.5 49 T@5 %@A$5% 49 %T4CK 49 #4'GA.5[G] T4 9$A'C6%C4 -$.1 ':.. A'/ F46/ A" INI IO 4' T@5 BA%6% 49 T@5 A..5#5/ /6%>:A.696CAT64' 49 9$A'C6%C4 -$. :'/5$ $5&:B.6C ACT '4. =+)+O 66. C@5T@5$ 4$ '4T T@5 C4:$T 49 A&&5A.% #$AF5.J 5$$5/ 6' @4./6'# T@AT 9$A'C6%C4 666 @A% A F5%T5/ $6#@T T4 T@5 %@A$5% 49 %T4CK 49 #4'GA.5[G]1 C@6C@ C4:./ B5 68&A6$5/ BJ T@5 $5T$4ACT6F5 A&&.6CAT64' 49 $5&:B.6C ACT '4. 01=(O 666. C@5T@5$ 4$ '4T T@5 C4:$T 49 A&&5A.% #$AF5.J 5$$5/ [6'] ACA$/6'# /A8A#5% T4 9$A'C6%C4 666 A'/ C6T@/$AC6'# T@5 ACA$/ 49 '486'A. /A8A#5% T4 &5T6T64'5$% BJ T@5 T$6A. C4:$TO 5ssentiall,1 the fundamental issue that this Court is called upon to resolve is who among the parties to this case has a better right to the disputed $BA shares of stock.

9rancisco -r. and Fictor contend that the consummated sale of the $BA shares of stock b, #on?ale? to 9rancisco -r. gives the latter a superior right over the same1 since the transaction complied with all the elements of a valid sale. Contrar, to the ruling of the Court of Appeals1 9rancisco -r. and Fictor claim that there was no provision in $epublic Act 'o. =+)+1 prior to its amendment1 which e7plicitl, prohibited an, transfer of shares to individuals who were not &hilippine citi?ens1 or which declared such a transfer void. @ence1 there was an implied recognition b, the legislature that to declare the nullit, of such acts would be more disadvantageous and harmful to the purposes of the law. 8oreover1 9rancisco -r. and Fictor contend that the passage of $epublic Act 'o. 01=(1 An Act to 9urther .iberali?e 9oreign 6nvestment1 cured whatever legal infirmit, there ma, have been in the purchase b, 9rancisco -r. of the $BA shares of stock from #on?ale?. As $epublic Act 'o. 01=( e7pressl, creates and declares for the first time a substantive right1 then it ma, be given retroactive effect. The /eed of Assignment between 9rancisco 666 and #on?ale? did not confer upon 9rancisco 666 a vested interest that could be impaired b, the retroactive application of $epublic Act 'o. 01=(. The /eed was not onl, e7ecuted later in time1 but the check issued for its pa,ment was also never encashed. There was1 therefore1 a total absence of consideration1 making the said contract between 9rancisco 666 and #on?ale? ine7istent. The Court finds the &etition devoid of merit. As the Court of Appeals declared1 9rancisco -r. was disAualified from acAuiring #on?ale?Rs shares of stock in $BA. The argument of 9rancisco -r. and Fictor that there was no specific provision in $epublic Act 'o. =+)+ which prohibited the transfer of rural bank shares to individuals who were not &hilippine citi?ens or declared such transfer void1 is both erroneous and unfounded. %ection 3 of $epublic Act 'o. =+)+ e7plicitl, providesD %ection 3. 7 7 7 Cith e7ception of shareholdings of corporations organi?ed primaril, to hold eAuities in rural banks as provided for under %ection 12"C of $epublic Act ++=1 as amended1 and of 9ilipino"controlled domestic banks1 t+e c$/it$# %toc2 of $n1 r,r$# 0$n2 %+$## 0e f,##1 o=ne$n- +e#- -irect#1 or in-irect#1 01 citiIen% of t+e P+i#i//ine% or corporations1 associations or cooperatives Aualified under &hilippine laws to own and hold such capital stockD 7 7 7. 5mphasis ours.! 4therwise stated1 the afore"Auoted provision categoricall, provides that onl, citi?ens of the &hilippines can own and hold1 directl, or indirectl,1 the capital stock of a rural bank1 sub<ect onl, to the e7ception also clearl, stated in the same provision. This was the ver, interpretation of %ection 3 of $epublic Act 'o. =+)+ made b, this Court in "u(os, :r. +. Jasuma1[32] on the basis of which the Court disAualified therein respondent Jasuma1 a foreigner1 from owning capital stock in the $ural Bank of &araNaAue. 6n the instant case1 it is undisputed that when #on?ale? e7ecuted the Contract to %ell and the /eed of Absolute %ale covering his $BA shares of stock in favor of 9rancisco -r.1 the latter was alread, a naturali?ed citi?en of the :nited %tates of America. ConseAuentl,1 the acAuisition b, 9rancisco -r. of the disputed $BA shares b, virtue of the foregoing contracts is a violation of the clear and mandator, dictum of $epublic Act 'o. =+)+1 which the Court cannot countenance. 5ven the subseAuent enactment of $epublic Act 'o. 01=( cannot benefit 9rancisco -r. 6t is true that under the Civil Code of the&hilippines1 laws shall have no retroactive effect1 unless the contrar, is provided.[31] But there are settled e7ceptions to this general rule1 such as when the statute is C:$AT6F5 or $585/6A. in nature1 or when it C$5AT5% '5C $6#@T%.[32] 9rancisco -r. and Fictor assert that1 as an e7ception to the cardinal rule of prospective application of laws1 $epublic Act 'o. 01=( ma, be retroactivel, applied1 since it creates for the first time a substantive right in favor of natural"born citi?ens of the &hilippines. 9rancisco -r. and Fictor1 however1 overlooked the vital e7ception to the e7ception. Chile it is true that a law creating new rights ma, be given retroactive effect1 the same can onl, be made possible if t+e ne= ri3+t -oe% not /re?,-ice or i./$ir $n1 "e%te- ri3+t.[3+] The Court upholds the finding of the Court of Appeals that $epublic Act 'o. 01=( cannot be applied retroactivel, to the present case1 as to do so would pre<udice the

vested rights of 9rancisco 666 to the disputed $BA shares of stock. 9rancisco 6661 who is undeniabl, a citi?en of the &hilippines1 and who is full, Aualified to own shares of stock in a &hilippine rural bank1 had acAuired vested rights to the disputed $BA shares of stock b, virtue of the /eed of Assignment e7ecuted in his favor b, #on?ale?. 6t would not matter that #on?ale? e7ecuted the Contract to %ell in favor of 9rancisco -r. prior to the /eed of Assignment in favor of 9rancisco 666. As established in the previous discussion1 the Contract to %ell between #on?ale? and 9rancisco -r. was void and without force and effect for being contrar, to law. 6t intended to effect a transfer1 which was prohibited b, $epublic Act 'o. =+)+. 6t is even irrelevant that the terms of said Contract to %ell had been full, complied with and performed b, the parties thereto1 and that a /eed of Absolute %ale was alread, e7ecuted b, #on?ale? in favor of 9rancisco -r. A void agreement will not be rendered operative b, the parties; alleged performance partial or full! of their respective prestations. A contract that violates the law is null and +oid a* initio and vests no rights and creates no obligations. 6t produces no legal effect at all.[33] Cith respect to the award of damages1 the Court agrees in the findings of the Court of Appeals that 9rancisco 666 failed to establish his entitlement to moral damages in view of the absence of proof that he endured ph,sical suffering1 mental anguish1 fright1 serious an7iet,1 besmirched reputation1 wounded feelings1 moral shock1 social humiliation1 or an, similar in<ur,.[3)] As regards the grant of e7emplar, damages1 we likewise uphold the ruling of the appellate court that the same was not warranted under the circumstances1 as 9$A'C6%C4 666 was not able to prove that he was entitled to moral1 temperate or compensator, damages. 57emplar, damages are imposed b, wa, of e7ample or correction for the public good1 in addition to moral1 temperate1 liAuidated or compensator, damages.[3*] 6n contracts and Auasi"contracts1 e7emplar, damages ma, be awarded if the defendant acted in a wanton1 fraudulent1 reckless1 oppressive or malevolent manner.[3=] 6t cannot1 however1 be considered as a matter of rightH the court has to decide whether or not such damages should be ad<udicated.[30] Before the court ma, consider an award for e7emplar, damages1 the plaintiff must first show that he is entitled to moral1 temperate or compensator, damagesH but it is not necessar, that he prove the monetar, value thereof.[3(] As to the contention that the Court of Appeals erred in withdrawing the award of nominal damages to the petitioners b, the $TC1 the Court finds the same to be utterl, misleading. The appellate court did not decree an, such withdrawal1 as the $TC had not awarded an, nominal damages in favor of the petitioners in the first place. @owever1 as 9rancisco 666 was indeed compelled to litigate and incur e7penses to protect his interests1[)2] the Court sustains the award b, the Court of Appeals of &221222.22 as attorne,Rs fees1 plus costs of suit. 9:(R(8OR(1 premises considered1 the &etition for $eview under $ule 3) of the $ules of Court is hereb, D(NI(D. The assailed /ecision dated +1 -anuar, 222= and $esolution dated 3 -une 222= of the Court of Appeals in CA"#.$. CF 'o. =0323 are hereb, A88IR<(Din ,o,o. 'o costs. SO ORD(R(D.

8oreign 0ank7 Sec7. 72 < 78, GBL %5C. =2. Transacting Business in the &hilippines. " The entr, of foreign banks in the &hilippines through the establishment of branches shall be governed b, the provisions of the 9oreign Banks .iberali?ation Act. The conduct of offshore banking business in the &hilippines shall be governed b, the provisions of the &residential /ecree 'o. 12+31 otherwise known as the B4ffshore Banking %,stem /ecree.B %5C. =+. AcAuisition of Foting %tock in a /omestic Bank. " Cithin seven =! ,ears from the effectivit, of this act and sub<ect to guidelines issued pursuant to the 9oreign Banks .iberali?ation Act1 the 8onetar, Board ma, authori?e a foreign bank to acAuire up to one hundred percent 122M! of the voting stock of onl, one 1! bank organi?ed under the laws of the $epublic of the &hilippines. Cithin the same period1 the 8onetar, Board ma, authori?e an, foreign bank1 which prior to the effectivit, of this Act availed itself of the privilege to acAuire up to si7t, percent *2M! of the voting stock of a bank under the 9oreign Banks .iberali?ation Act and the Thrift Banks Act1 to further acAuire voting shares such bank to the e7tent necessar, for it to own one hundred percent 122M! of the voting stock thereof. 6n the e7ercise of the authorit,1 the 8onetar, Board shall adopt measures as ma, be necessar, to ensure that at all times the control of sevent, percent =2M! of the resources or assets of the entire banking s,stem is held b, banks which are at least ma<orit,"owned b, 9ilipinos. An, right1 privilege or incentive granted to a foreign bank under this %ection shall be eAuall, en<o,ed b, and e7tended under the same conditions to banks organi?ed under the laws of the $epublic of the &hilippines. %5C. =3. .ocal Branches of 9oreign Banks. " 6n the case of a foreign bank which has more than one 1! branch in the &hilippines1 all such branches shall be treated as one 1! unit for the purpose of this Act1 and all references to the &hilippine branches of foreign banks shall be held to refer to such units. %5C. =). @ead 4ffice #uarantee. " 6n order to provide effective protection of the interests of the depositors and other creditors of &hilippine branches of a foreign bank1 the head office of such branches shall full, guarantee the prompt pa,ment of all liabilities of its &hilippine branch. $esidents and citi?ens of the &hilippines who are creditors of a branch in the &hilippines of a foreign bank shall have preferential rights to the assets of such branch in accordance with the e7isting laws. %5C. =*. %ummons and .egal &rocess. " %ummons and legal process served upon the &hilippine agent or head of an, foreign bank designated to accept service thereof shall give <urisdiction to the courts over such bank1 and service of

notices on such agent or head shall be as binding upon the bank which he represents as if made upon the bank itself. %hould the authorit, of such agent or head to accept service of summons and legal processes for the bank or notice to it be revoked1 or should such agent or head become mentall, incompetent or otherwise unable to accept service while e7ercising such authorit,1 it shall be the dut, of the bank to name and designate promptl, another agent or head upon whom service of summons and processes in legal proceedings against the bank and of notices affecting the bank ma, be made1 and to file with the %ecurities and 57change Commission a dul, authenticated nomination of such agent. 6n the absence of the agent or head or should there be no person authori?ed b, the bank upon whom service of summons1 processes and all legal notices ma, be made1 service of summons1 processes and legal notices ma, be made upon the Bangko %entral /eput, #overnor 6n"Charge of the supervising and e7amining departments and such service shall be as effective as if made upon the bank or its dul, authori?ed agent or head. 6n case of service for the bank upon the Bangko %entral /eput, #overnor 6n" charge of the supervising and e7amining departments1 the said deput, #overnor shill register and transmit b, mail to the president or the secretar, of the bank at its head or principal office a cop,1 dul, certified b, him1 of the summons1 process1 or notice. The sending of such cop, of the summons1 process1 or notice shall be a necessar, part of the services and shall complete the service. The registr, receipt of mailing shall be prima facie evidence of the transmission of the summons1 process or notice. All costs necessaril, incurred b, the said /eput, #overnor for the making and mailing and sending of a cop, of the summons1 process1 or notice to the president or the secretar, of the bank at its head or principal office shall be paid in advance b, the part, at whose instance the service is made. %5C. ==. .aws Applicable. " 6n all matters not specificall, covered b, special provisions applicable onl, to a foreign bank or its branches and other offices in the &hilippines an, foreign bank licensed to do business in the &hilippines shall be bound b, the provisions of this Act1 all other laws1 rules and regulations applicable to banks organi?ed under the laws of the &hilippines of the same class1 e7cept those that provide for the creation1 formation1 organi?ation or dissolution of corporations or for the fi7ing of the relations1 liabilities1 responsibilities1 or duties of stockholders1 members1 directors or officers of corporations to each other or to the corporation. %5C. =0. $evocation of .icense of a 9oreign Bank " The 8onetar, Board ma, revoke the license to transact business in the &hilippines of1 an, foreign bank1 if it finds that the foreign bank is insolvent or in imminent danger thereof or that its continuance in business will involve probable loss to those transacting business with it. After the revocation of its license1 it shall be unlawful for an, such foreign banks to transact business in the &hilippines unless its license is renewed or reissued. After the revocation of such license1 the Bangko %entral shall take the necessar, action to protect the creditors of such foreign bank and the public. The provisions of the 'ew Central Bank Act on sanctions and penalties shall likewise be applicable.

RA No. 7721 8oreign Bank7 Li0eraliDa,ion Ac, (8BLA

A' ACT .6B5$A.6G6'# T@5 5'T$J A'/ %C4&5 49 4&5$AT64'% 49 94$56#' BA'K% 6' T@5 &@6.6&&6'5% A'/ 94$ 4T@5$ &:$&4%5% %ec. 1. /eclaration of &olic,. " The %tate shall develop a self"reliant and independent national econom, effectivel, controlled b, 9ilipinos and encourage1 promote1 and maintain a stable1 competitive1 efficient1 and d,namic banking and financial s,stem that will stimulate economic growth1 attract foreign investments1 provide a wider variet, of financial services to &hilippine enterprises1 households and individuals1 strengthen linkages with global financial centers1 enhance the countr,;s competitiveness in the international market and serve as a channel for the flow of funds and investments into the econom, to promote industriali?ation. &ursuant to this polic,1 the &hilippine banking and financial s,stem is hereb, liberali?ed to create a more competitive environment and encourage greater foreign participation through increase in ownership in domestic banks b, foreign banks and the entr, of new foreign bank branches. 6n allowing increased foreign participation in the financial s,stem1 it shall be the polic, of the %tate that the financial s,stem shall remain effectivel, controlled b, 9ilipinos. %ec. 2. 8odes of 5ntr,. " The 8onetar, Board ma, authori?e foreign banks to operate in the &hilippine banking s,stem through an, of the following modes of entr,D i! b, acAuiring1 purchasing or owning up to si7t, percent *2M! of the voting stock of an e7isting bankH ii! b, investing in up to si7t, percent *2M! of the voting stock of a new banking subsidiar, incorporated under the laws of the &hilippinesH or iii! b, establishing branches with full banking authorit,D &rovided1 That a foreign bank ma, avail itself of onl, one 1! mode of entr,D &rovided1 further1 That a foreign bank or a &hilippine corporation ma, own up to a si7t, percent *2M! of the voting stock of onl, one 1! domestic bank or new banking subsidiar,. %ec. +. #uidelines for Approval. " 6n approving entr, applications of foreign banks1 the 8onetar, Board shallD i! ensure geographic representation and complementationH ii! consider strategic trade and investment relationships between the &hilippines and the countr, of incorporation of the foreign bankH iii! stud, the demonstrated capacit,1 global reputation for financial innovations and stabilit, in a competitive environment of the applicantH iv! see to it that reciprocit, rights are en<o,ed b, &hilippine banks in the applicant;s countr,H and v! consider willingness to full, share their technolog,. 4nl, those among the top one hundred fift, 1)2! foreign banks in the world or the top five )! banks in their countr, of origin as of the date of application shall be allowed entr, in accordance with %ection 2 ii! and iii! hereof. 6n the e7ercise of this authorit,1 the 8onetar, Board shall adopt such measures as ma, be necessar, toD i! ensure that at all times the control of sevent, percent =2M! of the resources or assets of the entire banking s,stem is held b, domestic banks which are at least ma<orit," owned b, 9ilipinosH ii! prevent a dominant market position b, one bank or the concentration of economic power in one or more financial institutions1 or in corporations1 participations1 partnerships1 groups or individuals with related interestsH and iii! secure the listing in the &hilippine %tock 57change of the shares of stocks of banking corporations established under %ection 2 i! and ii! of this ActD &rovided1 That said banking corporations shall establish stock option plans for their officers and emplo,ees as the resources or assets of these corporations ma, allow in the best business <udgment of their respective boards of directors1 pursuant to the Corporation Code of the &hilippines. To Aualif, to establish a branch or a subsidiar,1 the foreign bank applicant must be widel," owned and publicl,"listed in its countr, of origin1 unless the foreign bank applicant is owned b, the government of its countr, of origin. %ec. 3. Capital $eAuirements. " i! 9or .ocall, 6ncorporated %ubsidiaries. " The minimum capital reAuired for locall, incorporated subsidiaries of foreign banks shall be eAual to that prescribed b, the 8onetar, Board for domestic banks of the same categor,. ii! 9or 9oreign Bank Branches. " 9oreign banks seeking entr, pursuant to %ection 2 iii! of this Act shall permanentl, assign capital of not less than the :.%. dollar eAuivalent of Two hundred

ten million pesos &21212221222.22! at the e7change rate on the date of the effectivit, of this Act1 as ascertained b, the 8onetar, Board. The permanentl, assigned capital shall be inwardl, remitted and converted into &hilippine currenc,. The foreign bank shall be entitled to three +! branches. The foreign bank ma, open three +! additional branches in locations designated b, the 8onetar, Board b, inwardl, remitting and converting into &hilippine currenc, as permanentl, assigned capital1 the :.%. dollar eAuivalent of Thirt,"five million pesos &+)12221222.22! per additional branch at the e7change rate on the date of the effectivit, of this Act1 as ascertained b, the 8onetar, Board. The total number of branches for each new foreign bank entrant shall not e7ceed si7 *!. 9or purposes of meeting the prescribed capital ratios1 the term BcapitalB shall include permanentl, assigned capital plus Bnet due to head office1 branches and subsidiaries and offices outside the &hilippinesB in the ratio prescribed b, law or as ma, be prescribed b, the 8onetar, BoardD &rovided1 That in all cases1 the permanentl, assigned capital and fifteen percent 1)M! of Bnet due toB reAuired to compl, with prescribed capital ratios shall be inwardl, remitted and converted to &hilippine currenc,D &rovided1 further1 That amounts invested in productive enterprises or utili?ed b, &hilippine companies for e7port activities1 shall not be sub<ect to conversion into &hilippine currenc,D &rovided1 finall,1 That the 8onetar, Board shall monitor the effective use of the Bnet due toB funds. Chenever there results Bnet due from head officeB outside the &hilippines1 this shall be deducted from the capital accounts for purposes of determining the reAuired capital ratios. %ec. ). @ead 4ffice #uarantee. " The head office of foreign bank branches shall guarantee prompt pa,ment of all liabilities of its &hilippine branches. %ec. *. 5ntrants under %ection 2 iii!. " 9oreign banks shall be allowed entr, under %ection 2 iii! within five )! ,ears from the effectivit, of this Act. /uring this period1 si7 *! new foreign banks shall be allowed entr, under %ection 2 iii! upon the approval of the 8onetar, Board. An additional four 3! foreign banks ma, be allowed entr, on recommendation of the 8onetar, Board1 sub<ect to compliance with %ections 21 +1 31 and ) of this Act1 upon approval of the &resident as the national interest ma, reAuire. %ec. =. Board of /irectors. " 'on"9ilipino citi?ens ma, become members of the Board of /irectors of a bank to the e7tent of the foreign participation in the eAuit, of said bank. %ec. 0. 5Aual Treatment. " 9oreign banks authori?ed to operate under %ection 2 of this Act1 shall perform the same functions1 en<o, the same privileges1 and be sub<ect to the same limitations imposed upon a &hilippine bank of the same categor,. These limits include1 among others1 the single borrower;s limit and capital to risk asset ratio as well as the capitali?ation reAuired for e7panded commercial banking activities under the #eneral Banking Act and other related laws of the &hilippines. The basis for computing the ratio shall be the capital of the foreign bank branch in the &hilippines. The foreign banks shall guarantee the observance of the rights of their emplo,ees under the Constitution. An, right1 privilege or incentive granted to foreign banks or their subsidiaries or affiliates under this Act1 shall be eAuall, en<o,ed b, and e7tended under the same conditions to &hilippine banks. &hilippine corporations whose shares of stocks are listed in the &hilippine %tock 57change or are of long standing for at least ten 12! ,ears shall have the right to acAuire1 purchase or own up to si7t, percent *2M! of the voting stock of a domestic bank. %ec. (. /evelopment .oans 6ncentives. " .oans e7tended b, a foreign bank;s ma<orit,"owned subsidiar, incorporated under the laws of the &hilippines andEor a &hilippine bank si7t, percent *2M! of the voting stock of which is held b, a foreign bank1 to finance educational institutions1 cooperatives1 hospitals and other medical services1 sociali?ed or low"cost housing1 and to local government units without national government guarantee1 shall be included for purposes of determining compliance with the provisions of &residential /ecree 'o. =1=1 as amended. %ec. 12. Transitor, &rovisions. " 9oreign banks operating through branches in the &hilippines upon the effectivit, of this Act1 shall be eligible for the privilege of establishing up to si7 *!

additional branches under the same terms and conditions reAuired b, %ection 3 ii! hereofD &rovided1 That for an, branch additional to what is e7isting at the time of the effectivit, of this Act1 the prescribed permanentl, assigned capital shall be complied with immediatel,D &rovided1 further1 That a foreign bank ma, open three +! branches in the location of its choice and the ne7t three +! branches in locations designated b, the 8onetar, Board to insure balanced economic development in all the regions. The e7isting &hilippine branches of foreign banks shall be given one"and"a"half 1 1E2! ,ears from the effectivit, of this Act to compl, with the minimum capital reAuirements as prescribed under %ection 3 ii! of this Act. %ec. 11. %eparabilit, Clause. " 6f an, provision of this Act is declared unconstitutional1 the same shall not affect the validit, of the other provisions not affected thereb,. %ec. 12. Applicabilit, of 4ther Banking .aws. " The provisions of $epublic Act 'o. ++=1 as amended1 otherwise known as the #eneral Banking Act1 insofar as the, are applicable and not in conflict with an, provision of this Act1 shall appl, to banks authori?ed pursuant to this Act. %ec. 1+. /elegation of $ule"8aking &owers and Compliance $eports. " The 8onetar, Board is hereb, authori?ed to issue such rules and regulations as ma, be needed to implement the provisions of this Act after consultation with the chairpersons of the Banks Committee of the @ouse of $epresentatives and the %enate of the &hilippines. 4n or before 8a, +2 of each ,ear1 the 8onetar, Board shall file a written report to Congress and its respective Banks Committees1 on the developments in the implementation of this Act. %ec. 13. Amendment and $epeal of 6nconsistent .aws. " %ections 111 121 12"A1 12"B1 1+1 13" A1 21"B1 and *0 of $epublic Act 'o. ++=1 as amended1 otherwise known as the #eneral Banking ActD %ections 3 and ) of $epublic Act 'o. =+)+1 otherwise known as the $ural Banks ActH %ections 3 and 13 of $epublic Act 'o. +==(1 as amended1 otherwise known as the %avings and .oan Association ActH and %ection 3 of $epublic Act 'o. 32(+1 as amended1 otherwise known as the &rivate /evelopment Banks Act insofar as the, are inconsistent with this Act1 are hereb, repealed or modified accordingl,. %ec. 1). 5ffectivit, Clause. " This Act shall take effect fifteen 1)! da,s after its publication in the 4fficial #a?ette or in two 2! national newspapers of general circulation.

:9e licen7e of foreign 0ank7 Sec. 78, GBL $evocation of .icense of a 9oreign Bank " The 8onetar, Board ma, revoke the license to transact business in the &hilippines of1 an, foreign bank1 if it finds that the foreign bank is insolvent or in imminent danger thereof or that its continuance in business will involve probable loss to those transacting business with it. After the revocation of its license1 it shall be unlawful for an, such foreign banks to transact business in the &hilippines unless its license is renewed or reissued. After the revocation of such license1 the Bangko %entral shall take the necessar, action to protect the creditors of such foreign bank and the public. The provisions of the 'ew Central Bank Act on sanctions and penalties shall likewise be applicable. Law7 go)erning foreign 0ank7 Sec. 77, GBL .aws Applicable. " 6n all matters not specificall, covered b, special provisions applicable onl, to a foreign bank or its branches and other offices in the &hilippines an, foreign bank licensed to do business in the &hilippines shall be bound b, the provisions of this Act1 all other laws1 rules and regulations applicable to banks organi?ed under the laws of the &hilippines of the same class1 e7cept those that provide for the creation1 formation1

organi?ation or dissolution of corporations or for the fi7ing of the relations1 liabilities1 responsibilities1 or duties of stockholders1 members1 directors or officers of corporations to each other or to the corporation.

S/;;on7 an2 o,9er legal -roce77e7 again7, a foreign 0ank Sec. 74, GBL %ummons and .egal &rocess. " %ummons and legal process served upon the &hilippine agent or head of an, foreign bank designated to accept service thereof shall give <urisdiction to the courts over such bank1 and service of notices on such agent or head shall be as binding upon the bank which he represents as if made upon the bank itself. %hould the authorit, of such agent or head to accept service of summons and legal processes for the bank or notice to it be revoked1 or should such agent or head become mentall, incompetent or otherwise unable to accept service while e7ercising such authorit,1 it shall be the dut, of the bank to name and designate promptl, another agent or head upon whom service of summons and processes in legal proceedings against the bank and of notices affecting the bank ma, be made1 and to file with the %ecurities and 57change Commission a dul, authenticated nomination of such agent. 6n the absence of the agent or head or should there be no person authori?ed b, the bank upon whom service of summons1 processes and all legal notices ma, be made1 service of summons1 processes and legal notices ma, be made upon the Bangko %entral /eput, #overnor 6n"Charge of the supervising and e7amining departments and such service shall be as effective as if made upon the bank or its dul, authori?ed agent or head. 6n case of service for the bank upon the Bangko %entral /eput, #overnor 6n"charge of the supervising and e7amining departments1 the said deput, #overnor shill register and transmit b, mail to the president or the secretar, of the bank at its head or principal office a cop,1 dul, certified b, him1 of the summons1 process1 or notice. The sending of such cop, of the summons1 process1 or notice shall be a necessar, part of the services and shall complete the service. The registr, receipt of mailing shall be prima facie evidence of the transmission of the summons1 process or notice. All costs necessaril, incurred b, the said /eput, #overnor for the making and mailing and sending of a cop, of the summons1 process1 or notice to the president or the secretar, of the bank at its head or principal office shall be paid in advance b, the part, at whose instance the service is made. :9e 0ranc9e7 of a foreign 0ank Sec. 7., GBL .ocal Branches of 9oreign Banks. " 6n the case of a foreign bank which has more than one 1! branch in the &hilippines1 all such branches shall be treated as one 1! unit for the purpose of this Act1 and all references to the &hilippine branches of foreign banks shall be held to refer to such units.

O88S:OR( BANKING UNIT Section '0, PD '03! B4ffshore Banking :nitB shall mean a branch1 subsidiar, or affiliate of a foreign banking corporation which is dul, authori?ed b, the Central Bank of the &hilippines to transact offshore banking business in the &hilippines. Off%+ore 0$n2in3 Sec. '$, PD '03! B4ffshore BankingB shall refer to the conduct of banking transactions in foreign currencies involving the receipt of funds from e7ternal sources and the utili?ation of such funds as provided in this /ecree.