LETTERS OF CREDIT Kinds: 1. a. Commercial Letters of Credit 2. b. Travelers Letters of Credit 1. 2. No protest required in case of dishonor. 1. 3.

Issued to definite persons and not to order, thus, non-negotiable. 1. 4. Limited to a fixed account. WAREHOUSE RECEIPTS LAW 1. 1. Warehouse a building or place where goods are deposited and stored for profit. 1. 2. Warehouseman person lawfully engaged in the business of storing goods for profit. Only a warehouseman may issue warehouse receipts. 1. 3. Warehouse Receipt written acknowledgment by a warehouseman that he has received and holds certain goods therein described in store for the person to whom it is issued. 1. 4. Non-negotiable Receipt receipt deliverable to a specified person. 1. 5. Negotiable Receipt receipt deliverable to order or to bearer. 1. 6. Essential Terms which MUST be embodied in a Warehouse Receipt: 1. a. location of the warehouse 2. b. date of the issue of the receipt 3. c. consecutive number of the receipt 4. d. statement whether the goods received will be delivered to bearer, or a specified person, or his order 5. e. rate of storage charges 6. f. description of the goods or packages containing them for identification purposes 7. g. signature of the warehouseman 8. h. statement of the amount of advances made and of liabilities incurred for which the warehouseman claims as lien 1. 7. Effect of omission of any of the essential terms: 1. a. The validity of the warehouse receipt is not affected. 2. b. The warehouseman shall be held liable for damages to those injured by his omission. 3. c. The negotiability of the warehouse receipt is not affected. 4. d. The issuance of a warehouse receipt in the form provided by the law is merely permissive and directory and not mandatory in the sense that if the requirements are not observed, then the goods delivered for storage become ordinary deposits. 1. 8. Terms which may be inserted in a Warehouse Receipt: Any other terms except (a) those contrary to the provisions of this Act; (b) those that would impair a warehousemans obligation to exercise that degree of care in the safekeeping of the goods entrusted to him 1. 9. Marks to be made on a warehouse receipt: 1. a. A non-negotiable receipt must be clearly marked non-negotiable or not negotiable, otherwise, the holder of the receipt who purchased it for value and who supposed it to be negotiable, may treat it as negotiable. 2. b. Duplicate receipts must be so marked, otherwise, the warehouseman is held liable for all damages suffered by a holder believing the same to be the original. 1. 10. Warranties of a warehouseman as to duplicate receipts: 1. a. The duplicate is an accurate copy of the original receipt. 2. b. Such original receipt is uncancelled at the date of the issue of the duplicate. 1. 11. Effects of alteration on the liability of the warehouseman: 1. a. If the alteration is IMMATERIAL (the tenor of the receipt is not changed), whether fraudulent or not, authorized or not, the warehouseman is liable on the altered receipt according to its original tenor. 2. b. If the alteration is MATERIAL but AUTHORIZED, the warehouseman is liable according to the terms of the altered receipt. 3. c. If the alteration is MATERIAL, UNAUTHORIZED but INNOCENTLY MADE, the warehouseman is liable on the altered receipt according to its original tenor. 4. d. If the alteration is MATERIAL and FRAUDULENTLY MADE, the warehouseman is liable: (1) to the purchaser of the receipt for value and without notice of the alteration according to the tenor of the altered receipt (2) to the alterer, according to the terms of the original receipt (3) to subsequent purchasers with notice of the alteration, according to the terms of the original receipt 1. 12. Effects of misdescription of goods: 1. a. A warehouseman is under the obligation to deliver the identical property stored with him and if he fails to do so, he is liable directly to the owner. 2. b. As against a bona fide purchaser of a warehouse receipt, the warehouseman is estopped from denying that he has received the goods described in the receipt. 3. c. If the description consists merely of marks or label upon the goods or upon the packages containing them, the warehouseman is not liable even if the goods are not of the kind as indicated in the marks or labels. 1. 13. Principal Obligations of a Warehouseman: 1. a. To take care of the goods entrusted to his safekeeping General Rule: A warehouseman is required to exercise such degree of care which a reasonable careful owner would exercise over similar goods of his own. He shall be liable for any loss or injury to the goods caused by his failure to exercise such care. Exception: He shall not be liable for any loss or injury which could not have been avoided by the exercise of such care. Exception to the Exception: He may limit his liability to an agreed value of the property received in case of loss. He cannot stipulate that he will not be responsible for any loss caused by his negligence. 1. b. To deliver the goods to the holder of the receipt or the depositor upon demand, provided demand is accompanied with: (1) an offer to satisfy the warehousemans lien; (2) an offer to surrender the negotiable receipt properly endorsed. If the receipt is non-negotiable, any person lawfully entitled to the possession of the goods may be entitled to delivery without surrender of the receipt. (3) a readiness and willingness to sign an acknowledgment that the goods have been delivered if such is requested by the warehouseman. 1. 14. Persons to whom goods must be delivered: 1. A. Persons lawfully entitled to the possession of the goods or his agent: a. persons to whom a competent court has ordered the delivery of the goods (1) where a negotiable instrument has been lost or destroyed, the court may order delivery to a person upon satisfactory proof of such loss or destruction and upon proper posting of a bond to protect the warehouseman from any liability or expense which he may incur by reason of the original receipt remaining outstanding. (2) where more than one person claims title or possession of the goods the warehouseman may require all claimants to interplead. The court will then order delivery to the person having a better right. 1. 1.

b. an attaching creditor Goods, while in the possession of the warehouseman and covered by a negotiable receipt, cannot be attached or levied upon under an execution unless: (I) the negotiable receipt is first surrendered to the warehouseman, or (ii) its negotiation is enjoined, or (iii) the receipt is impounded by the court c. to the purchaser in case of sale of the goods by the warehouseman to enforce his lien 1. d. to the purchaser where perishable or hazardous goods are sold at private or public sale 1. B. If goods are covered by a non-negotiable receipt: 1. a. a person entitled to the delivery by the terms of the receipt, or 2. b. one who has written authority from letter a 1. C. If goods are covered by a negotiable receipt, a person in possession of the receipt, the terms of which the goods are deliverable: 1. a. to him or order 2. b. to bearer 3. c. indorsed to him 4. d. indorsed in blank by the person whom delivery was promised 1. 15. When is there Misdelivery? When the warehouseman delivers the goods to a person who is not in fact lawfully entitled to the possession of the goods because: 1. a. the person does not fall under letter B or C above; or 2. b. the person falls under letter B or C but prior to delivery, the warehouseman had either: (1) been requested by the person lawfully entitled to the delivery not to make such delivery, or (2) had information that the delivery about to be made was to one not lawfully entitled to the possession of the goods 1. 16. Effects of Misdelivery: The warehouseman shall be liable for conversion to all having a right to property or possession of the goods. 1. 17. What happens if there is proper delivery or partial delivery but the warehouseman fails to cancel the receipt or record on the receipt of such partial delivery? 1. a. If goods covered by a negotiable warehouse receipt are delivered by a warehouseman but he fails to take the receipt and cancel it, then he is still liable to one who purchases for value and in good faith such receipt. 2. b. If he makes partial delivery of the goods but fails to record the partial delivery on the receipt then he may still be held liable for the entire receipt to one who purchases for value and in good faith such receipt. 1. 18. Lawful excuses for refusal to deliver goods: 1. a. The warehouseman can refuse to deliver the goods if he has acquired title or right to the possession of the goods: (1) directly or indirectly from a transfer made by the depositor at the time of the deposit for storage or subsequent thereto; or (2) from the warehousemans lien 1. b. If someone other than the depositor or person claiming under the depositor has a claim to the title or possession of the goods and the warehouseman has information of such claim, the warehouseman shall be excused from liability for refusing to deliver the goods either to the depositor or person claiming under him until he has had a reasonable time to ascertain the validity of the adverse claim or to bring legal proceedings to compel all claimants to interplead. 1. c. The warehouseman will not be required to deliver the goods if such had been lost. But this is without prejudice to liabilities which may be incurred by him due to such loss. 1. d. The warehouseman having a valid lien against the person demanding the goods may refuse to deliver the goods to him until the lien is satisfied. 1. e. If goods have been lawfully sold or disposed of because of their perishable or hazardous nature, the warehouseman shall not be liable for failure to deliver the goods. 1. 19. A warehouseman cannot refuse to deliver goods to the depositor or to a person claiming under him on the ground that adverse title to the goods belongs to a third person. 1. 20. Rules as regards Co-mingling of Deposited Goods: General Rule: A warehouseman may not co-mingle goods belonging to different depositors or belonging to the same depositor for which separate receipts had been issued. Exception: A warehouseman may co-mingle fungible goods of the same kind and grade provided he is authorized by agreement or by custom. 1. 21. Effect of Co-mingling of Goods: 1. a. The different owners become co-owners of the whole mass. 2. b. The warehouseman shall be severally liable to each depositor for the care and redelivery of his share of such mass to the same extent and under the same circumstances as if the goods had been kept separate. 1. 22. Remedies of a Creditor: (the debtor being the owner of the negotiable receipt) Creditors of the depositors, before negotiation, may protect themselves by obtaining a writ of preliminary injunction and serve the same rd on the depositor before he has a chance to negotiate the receipt. Once enjoined, there will be no longer a danger that a 3 person will be prejudiced so the goods may now be attached, levied upon, or that the vendors lien or the right of stoppage in transit be exercised. 1. 23. Warehousemans Lien Extent of Warehousemans Lien: A warehouseman shall have a lien on goods deposited or on the proceeds thereof in his hands for: 1. a. all lawful charges for storage and preservation of the goods 2. b. all lawful claims for money advances, interest, insurance, transportation, labor, weighing, cooperating and other charges and expenses in relation to such goods 3. c. all reasonable charges and expenses for notice and advertisements of sale and for sale of the goods where default has been made in satisfying the warehouse lien Goods Subject to lien: 1. a. goods belonging to the depositor who is liable to the warehouseman as debtor whenever such goods are deposited and 2. b. goods belonging to other persons stored by the depositor who is liable to the warehouseman as debtor with authority to make a valid pledge How is a lien enforced? 1. a. by refusing to deliver the goods until the lien is satisfied 2. b. by causing the extrajudicial sale of the property and applying the proceeds to the value of the lien 3. c. by filing a civil action for unpaid charges or by way of counterclaim in an action to recover the property from him How is a lien lost? 1. a. when the warehouseman voluntarily surrenders possession of the goods without requiring payment of his lien; or 2. b. when the warehouseman wrongfully refuses to deliver the goods when a demand is made with which he is bound to comply 1. 24. Negotiation and Transfer of Receipts How do we negotiate a receipt deliverable to order? 1. a. by indorsing it in blank thereby making it deliverable to bearer or 1.

2. b. by special indorsement which would require further indorsements for further negotiations. In both cases, the indorsements must be coupled with delivery. How do we negotiate a receipt deliverable to bearer? There is no need to indorse for negotiation. Physical delivery of the instrument will suffice. But if the instrument is indorsed specially, the bearer character of the receipt is destroyed and for further negotiation, there will be a need for indorsement. Who may negotiate warehouse receipts? 1. a. the owner of the receipt, or 2. b. the person to whom possession of the receipt was entrusted to by the owner Rights acquired by a person to whom the receipt has been negotiated: 1. a. the title of the person negotiating the receipt over the goods covered by the receipt 2. b. the title of the person (depositor or owner) to whose order by the terms of the receipt the goods were to be delivered 3. c. the direct obligation of the warehouseman to hold possession of the goods for him, as if the warehouseman directly contracted with him May non negotiable receipts be negotiated? No, even if the receipt is indorsed, the transferee acquires no additional right. That is why they are called non negotiable receipts. But they may be transferred or assigned by delivery. Rights of a person to whom a non negotiable receipt has been transferred: 1. a. the title to the goods as against the transferor 2. b. the right to notify the warehouseman of the transfer thereof and 3. c. the right thereafter to acquire the obligation of the warehouseman to hold the goods for him Distinction between a non negotiable receipt from a negotiable receipt with regard to attachment or execution upon goods: Non-negotiable Receipt Prior to notification of the warehouseman by the transferor or transferee, the warehouseman is not bound to the transferee whose right may be defeated by a levy of an attachment or execution upon the goods by the creditor of the transferor or by a notification to such warehouseman of the subsequent sale of the goods. Negotiable Receipt

The goods cannot be attached or levied under an execution unless the receipt be first surrendered to the warehouseman or its negotiation enjoined.

1. 2. Note:

1. 2. 3. 4.

Rights of a person to whom a negotiable receipt has been transferred, not indorsed: a. the right to the goods as against the transferor b. the right to compel the transferor to indorse the receipt. But if the intention of the parties is that the receipt should merely be transferred, the transferee has no right to require the transferor to indorse the receipt. Negotiation takes effect as of the time when the indorsement is actually made. Warranties of a person negotiating or transferring a receipt: a. the receipt is genuine b. he has a legal right to negotiate or transfer it c. he has knowledge that would impair the validity or worth of the receipt and d. he has a right to transfer the title to the goods and that the goods are merchantable A holder for security of a receipt (mortgagee or pledgee) who in good faith accepts payment of the debt from a person does not warrant the genuineness of the receipt not the quality or quantity of the goods therein described. It is the duty of the purchaser, mortgagee or pledgee of goods for which a negotiable receipt has been issued to require the negotiation of the receipt to him, otherwise his failure will have the same effect as an express authorization on his part to the seller, mortgagor, or pledgor in possession of such receipt to make any subsequent negotiation. The subsequent purchaser must have taken the receipt in good faith and for value. A bona fide purchaser of a negotiable warehouse receipt acquires title to the goods where he purc hases from the owners agent within the actual or apparent scope of his authority. In sum, negotiation is valid despite having been made in breach of trust. Distinctions between a negotiable instrument and a negotiable warehouse receipt: Negotiable Instrument Negotiable Warehouse Receipt When a warehouse receipt is altered, it is still valid but it may be enforced only in accordance with its original tenor. If a warehouse receipt, payable to bearer, is indorsed specially, it will be converted into a receipt deliverable to order and can only be negotiated further by indorsement and delivery. An indorsee even if a holder in due course obtains only such title as the person negotiating has over the goods. The indorsement of a warehouse receipt amounts merely to a conveyance by the indorser. Accordingly, an indorser of a receipt shall not be liable to the holder if, for example, the warehouseman fails to deliver the goods because they were lost due to his fault or negligence.

When a negotiable instrument is altered deliberately, it becomes null and void. If a negotiable instrument is originally payable to bearer, it will always remain so payable regardless of the way it is indorsed, whether specially or in blank. A holder in due course may be able to obtain a title better than that which the party who negotiated the instrument to him had. The indorsement of a negotiable instrument has a double effect. It is at the same time a conveyance of the instrument and a contract the indorser has with the indorsee that on certain conditions, the indorser will pay the instrument if the party primarily liable fails to do so.

GENERAL BONDED WAREHOUSE LAW


1. 2. 3. 4.

Any warehouseman receiving commodities for (a) storage; (b) milling; (c) co-mingling must: a. obtain prior license from the Bureau of Commerce b. file a bond in an amount equivalent to 33 1/3 % of the capacity of the warehouse against which bond depositors may sue directly c. open to the public, no discrimination allowed d. liable for double market value should he accept goods in excess of the capacity of warehouse if goods are damaged or destroyed Note: for palay and corn license, a bond with the National Grains Authority is required; also an insurance cover is required.

a. b.

BQ (1999) A Warehouse Company received for safekeeping 1,000 bags of rice from a merchant. To evidence the transaction, the Warehouse Company issued a receipt expressly providing that the goods be delivered to the order of said merchant. A month after, a creditor obtained judgment against said merchant for a sum of money. The sheriff proceeded to levy on the rice and directed the Warehouse Company to deliver to him the deposited rice. What advice will you give the Warehouse Company. Explain your answer. (2%) Assuming that a week prior to the levy, the receiptwas sold to a rice mill on the basis of which it filed a claim with the sherill. Would the rice mill have better rights to the rice than the creditor? (2%) Answer: The 1,000 bags of rice were delivered to the Warehouse Company by a merchant, and a negotiable receipt was issued therefor. The rice cannot thereafter, while in the possession of the Warehouse Company, be attached by garnishment or otherwise, or be levied upon under an execution unless the receipt be first surrendered to the warehouseman, or its negotiation enjoined. The Warehouse Company cannot be compelled to deliver the actual possession of the rice until the receipt is surrendered to it or impounded by the court. Yes. The rice mill, as holder for value of the receipt, has a better right to the rice than the creditor. It is the rice mill that can surrender the receipt which is in its possession and can comply with the other requirements which will oblige the warehouseman to deliver the rice, namely, to sign a receipt for the delivery of the rice, and to pay the warehousemans liens and fees and other charges. ***** BQ (2005) Jojo deposited several cartons of goods with SN Warehouse Corporation. The corresponding warehouse receipt was issued to the order of Jojo. He endorsed the warehouse receipt to EJ who paid the value of the goods deposited. Before EJ could withdraw the goods, Melchor informed SN Warehouse Corporation that the goods belonged to him snd were taken by Jojo without his consent. Melchor wants to get the goods, but EJ also wants to withdraw the same. Who has a better right to the goods? Why? If SN Warehouse Corporation is uncertain as to who is entitled to the property, what is the proper recourse of the corporation? Explain. Answer: EJ has better right to the goods. The goods are covered by a negotiable warehouse receipt which was indorsed to EJ for value. The negotiation to EJ was not impaired by the fact that Jojo took the goods without the consent of Melchar, as EJ had no notice of such fact. Moreover, EJ is in possession of the warehouse receipt and only he can surrender it to the warehouseman. (Sec. 8, WRL) Since there are conflicting claims of ownership of title, SN Warehouse Corporation should file a complaint in interpleader. The matter involves a judicial question as to whose claim is valid. ***** BQ (2007) Alex deposited goods for which Billy, a warehouseman, issued a negotiable warehouse receipt wherein the goods were delivered to Alex or order. Alex negotiated the receipt to Caloy. Thereafter, Dario, a creditor, secured judgment against Alex and served notice of levy over the goods on the warehouseman. To whom should the warehouseman deliver the goods upon demand? Would your answer be the same if the warehouseman issued a non-negotiable warehouse receipt? Reason briefly. Answer: The warehouseman should deliver the goods to Caloy. The goods cannot be attached by garnishment or otherwise, or levied upon, unless the receipt be first surrendered to the warehouseman, or its negotiation is enjoined. (Sec. 25, WRL) No. The non-negotiable warehouse receipt does not confer upon the transferee the direct obligation of the warehouseman to hold possession of the goods for him. (Sec, 42, WRL). In such a case, the law provides that when a non-negotiable warehouse receipt is transferred to Caloy, he only gets such title to the goods as alex had and aso a right to notify the warehouseman to hold the goods for Caloys account. Prior to such notice, Caloys claim can be defeated by a levy of execution upon the goods by a creditor of A lex. *****

a)

b)

a) b)

a)

b)

a) b)

a) b)

Q: Coco was issued by a warehouseman a negotiable receipt for safekeeping by the latter of his goods. Can the judgment creditor of Coco levy by execution the goods covered by the negotiable receipt? A: The goods cannot, while in the possession of the warehouseman, be attached by garnishment or otherwise, or be levied upon under an execution unless the receipt be first surrendered to the warehouseman, or its negotiation enjoined. The warehouseman cannot be compelled to deliver the actual possession of the goods until the receipt is surrendered to it or impounded by the court. ***** Q. X deposits his goods in Y's warehouse, for which Y issues Warehouse receipt No. 00021 which stated that the goods received will be delivered to the bearer or to the order of any person named in such receipt. 1) Suppose X negotiates the warehouse receipt to Z, can Z convert the receipt to a non-negotiable warehousr receipt by writing on its face the word "non-negotiable"? A. No. Z cannot conver the receipt in that manner. According to Section 5 of the WRL, a negotiable warehouse receipt cannot be converted into a non-negotiable warehouse receipt by inserting any provision in the negotiable receipt that it is non-negotiable. 2) X negotiates the warehouse receipt to M. M, in claiming the goods covered by the receipt, does not bring with him the receipt, but simply makes an oral demand on Y and nothing more. Can Y validly refuse to deliverthe goods? Explain. A. Yes, Y can validly refuse to deliver the goods. The warehouseman is bound to deliver the goods upon demand either by the holder of a receipt for the goods or by the depositor, provided that such demand is accompanied by:

a) an offer to satisfy the warehouseman'lien; b) an offer to surrender the receipt if it is negotiable, and c) a readiness and willingness to sign an acknowledgement, when the goods are delivered, that they have been dleivered if such is requested by the warehouseman. 3) Suppose instead of claiming the goods himself, M indorses the receipt in blank to N. O, sees this and waits for an opportunity to steal the receipt. O succeeds and got to Y, demanding the goods. A few minutes before, however, Y was informed that Warehouse Receipt No. 00021 had been stolen. Should Y deliver the goods to O? Explain. A. No. Y should not deliver the goods to O. If Y were to deliver the goods to O, Y could be liable for misdelivery under Sec. 10, WRL, as Y had information that the delivery about to be made was to one not lawfully entitled to the possession of the goods. Y, being aware of the theft, is justified in refusing delivery to O.

TRUST RECEIPTS LAW 1. 2. Definition: A written/printed document signed by the ENTRUSTEE in favor of the ENTRUSTER whereby the latter releases the goods, documents or instruments tot he possession of the former upon the ENTRUSTEES promise to hold said goods in trust for the ENTRUSTER, and to sell the goods, etc. WITH THE

OBLIGATION TO TURN OVER THE PROCEEDS THEREOF TO THE EXTENT OF WHAT IS OWING TO THE ENTRUSTER; or to return the goods if UNSOLD, or for other purposes. 1. 3. Trust receipts are denominated in Philippine currency or acceptable and eligible foreign currency. 1. 4. ENTRUSTER is not liable as principal or vendor under any sale or contract to sell made by the ENTRUSTEE.

1. 1.

1.

5. Risk of loss is borne by the ENTRUSTEE. 6. Pending the duration of the trust agreement, the ENTRUSTERS security interest cannot be prejudiced by claims of creditors of the ENTRUSTEE. 7. Loss of goods pending the dispossession shall not extinguish the obligation to the ENTRUSTER for the value thereof.

Section 4. What constitutes a trust receipt transaction. (see above) - the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or for other purposes substantially equivalent to any of the following: 1. In the case of goods or documents (a) to sell the goods or procure their sale; (b) to manufacture or process the goods with the purpose of ultimate sale: Provided, That, in the case of goods delivered under trust receipt for the purpose of manufacturing or processing before its ultimate sale, the entruster shall retain its title over the goods whether in its original or processed form until the entrustee has complied fully with his obligation under the trust receipt; (c) to load, unload, ship or tranship or otherwise deal with them in a manner preliminary or necessary to their sale; or 2. In the case of instruments, a) to sell or procure their sale or exchange; or b) to deliver them to a principal; or c) to effect the consummation of some transactions involving delivery to a depository or register; or d) to effect their presentation, collection or renewal The sale of goods, documents or instruments by a person in the business of selling goods, documents or instruments for profit who, at the outset of the transaction, has, as against the buyer, general property rights in such goods, documents or instruments, or who sells the same to the buyer on credit, retaining title or other interest as security for the payment of the purchase price, does not constitute a trust receipt transaction and is outside the purview and coverage of this Decree. Section 5. Form of trust receipts; contents. A trust receipt need not be in any particular form BUT must substantially contain (a) a description of the goods, documents or instruments subject of the trust receipt; (2) the total invoice value of the goods and the amount of the draft to be paid by the entrustee; (3) an undertaking or a commitment of the entrustee: (a) to hold in trust for the entruster the goods, documents or instruments therein described; (b) to dispose of them in the manner provided for in the trust receipt; and (c) to turn over the proceeds of the sale of the goods, documents or instruments to the entruster to the extent of the amount owing to the entruster or as appears in the trust receipt or to return the goods, documents or instruments in the event of their non-sale within the period specified therein. The trust receipt may contain other terms and conditions agreed upon by the parties in addition to those hereinabove enumerated provided that such terms and conditions shall not be contrary to the provisions of this Decree, any existing laws, public policy or morals, public order or good customs. Section 6. Currency in which a trust receipt may be denominated. A trust receipt may be denominated in the Philippine currency or any foreign currency acceptable and eligible as part of international reserves of the Philippines Section 7. Rights of the entruster.

- The entruster shall be entitled to the proceeds from the sale of the goods, documents or instruments released under a trust receipt to the entrustee to the extent of the amount owing to the entruster or - or to the return of the goods, documents or instruments in case of non-sale, and to the enforcement of all other rights conferred on him in the trust receipt provided such are not contrary to the provisions of this Decree. - The entruster may cancel the trust and take possession of the goods, documents or instruments subject of the trust or of the proceeds realized therefrom at any time upon default or failure of the entrustee to comply with any of the terms and conditions of the trust receipt or any other agreement between the entruster and the entrustee, - The entruster in possession of the goods, documents or instruments may, on or after default, give notice to the entrustee of the intention to sell, and may, not less than five days after serving or sending of such notice, sell the goods, documents or instruments at public or private sale, and the entruster may, at a public sale, become a purchaser. - The proceeds of any such sale, whether public or private, shall be applied: (a) to the payment of the expenses thereof; (b) to the payment of the expenses of re-taking, keeping and storing the goods, documents or instruments; (c) to the satisfaction of the entrustee's indebtedness to the entruster. The entrustee shall receive any surplus but shall be liable to the entruster for any deficiency. Notice of sale shall be deemed sufficiently given if in writing, and either personally served on the entrustee or sent by post-paid ordinary mail to the entrustee's last known business address. Section 8. Entruster not responsible on sale by entrustee. The entruster holding a security interest shall not be responsible as principal or as vendor under any sale or contract to sell made by the entrustee. Section 9. Obligations of the entrustee. (1) hold the goods, documents or instruments in trust for the entruster and shall dispose of them strictly in accordance with the terms and conditions of the trust receipt; (2) receive the proceeds in trust for the entruster and turn over the same to the entruster to the extent of the amount owing to the entruster or as appears on the trust receipt; (3) insure the goods for their total value against loss from fire, theft, pilferage or other casualties; (4) keep said goods or proceeds thereof whether in money or whatever form, separate and capable of identification as property of the entruster; (5) return the goods, documents or instruments in the event of non-sale or upon demand of the entruster; and (6) observe all other terms and conditions of the trust receipt not contrary to the provisions of this Decree. Section 10. Liability of entrustee for loss. The risk of loss shall be borne by the entrustee. Loss pending disposition, irrespective of whether or not it was due to the fault or negligence of the entrustee, shall not extinguish his obligation to the entruster for the value thereof. Section 11. Rights of purchaser for value and in good faith. Any purchaser of goods from an entrustee acquires said goods, documents or instruments free from the entruster's security interest. Section 12. Validity of entruster's security interest as against creditors. The entruster's security interest in goods, documents, or instruments pursuant to the written terms of a trust receipt shall be valid as against all creditors of the entrustee for the duration of the trust receipt agreement. Section 13. Penalty clause. The failure of an entrustee to turn over the proceeds of the sale or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of Article Three hundred and fifteen, paragraph one (b) of the Revised Penal Code. If the violation or offense is committed by a corporation, partnership, association or other juridical entities, the penalty provided for in this Decree shall be imposed upon the directors,

officers, employees or other officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense. Section 14. Cases not covered by this Decree. Cases not provided for in this Decree shall be governed by the applicable provisions of existing laws. REPUBLIC ACT NO. 8791 - AN ACT PROVIDING FOR THE REGULATION OF THEORGANIZATION AND OPERATIONS OF BANKS, QUASI- BANKS, TRUST ENTITIES AND FOR OTHER PURPOSES CHAPTER I TITLE AND CLASSIFICATION OF BANKS Section 1. Title. The short title of this Act shall be The General Banking Law of 2000." (1a) Sec. 2. Declaration Of Policy. Sec. 3. Definition and Classification of Banks. "Banks" shall refer to entities engaged in the lending of funds obtained in the form of deposits. Banks shall be classified into: (a) Universal banks; (b) Commercial banks; (c) Thrift banks, composed of: (i) Savings and mortgage banks; (ii) Stock savings and loan associations; and (iii) Private development banks, as defined in the Republic Act No. 7906 (hereafter the Thrift Banks Act); (d) Rural banks, as defined in Republic Act No. 73S3 (hereafter the "Rural Banks Act"); (e) Cooperative banks, as defined in Republic Act No 6938 (hereafter the "Cooperative Code"); (f) Islamic banks as defined in Republic Act No. 6848, otherwise known as the Charter of Al Amanah Islamic Investment Bank of the Philippines; and (g) Other classifications of banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas. CHAPTER II AUTHORITY OF THE BANGKO SENTRAL Sec. 4. Supervisory Powers. The operations and activities of banks shall be subject to supervision of the Bangko Sentral. Supervision shall include the following: - The issuance of rules of, conduct or the establishment standards of operation for uniform application to all institutions or functions covered, taking into consideration the distinctive character of the operations of institutions and the substantive similarities of specific functions to which such rules, modes or standards are to be applied; - The conduct of examination to determine compliance with laws and regulations if the circumstances so warrant as determined by the Monetary Board; -Overseeing to ascertain that laws and regulations are complied with; -Regular investigation which shall not be oftener than once a year from the last date of examination to determine whether an institution is conducting its business on a safe or sound basis: Provided, That the deficiencies/irregularities found by or discovered by an audit shall be immediately addressed; -Inquiring into the solvency and liquidity of the institution; or - Enforcing prompt corrective action. The Bangko Sentral shall also have supervision over the operations of and exercise regulatory powers over quasi-banks, trust entities and other financial institutions which under special laws are subject to Bangko Sentral supervision. . quasi-banks shall refer to entities engaged in the borrowing of funds through the issuance, endorsement or assignment with recourse or acceptance of deposit substitutes as defined in Section 95 of Republic Act No. 7653 (hereafter the New Central Bank Act) for purposes of re-lending or purchasing of receivables and other obligations. Sec.5. Policy Direction; Ratios, Ceilings and Limitations. The Bangko Sentral shall provide policy direction in the areas of money, banking and credit.

For this purpose, the Monetary Board may prescribe ratios, ceilings, limitations, or other forms of regulation on the different types of accounts and practices of banks and quasi-banks which shall, to the extent feasible, conform to internationally accepted standards, including of the Bank for International Settlements (BIS). The Monetary Board may exempt particular categories of transactions from such ratios, ceilings, and limitations, but not limited to exceptional cases or to enable a bank or quasi-bank under rehabilitation or during a merger or consolidation to continue in business, with safety to its creditors, depositors and the general public. Sec. 6. Authority to Engage in Banking and Quasi-Banking Functions. - No person or entity shall engage in banking operations or quasi-banking functions without authority from the Bangko Sentral: Provided, however, That an entity authorized by the Bangko Sentral to perform universal or commercial banking functions shall likewise have the authority to engage in quasibanking functions. The determination of whether a person or entity is performing banking or quasi-banking functions without Bangko Sentral authority shall be decided by the Monetary Board. To resolve such issue, the Monetary Board may; through the appropriate supervising and examining department of the Bangko Sentral, examine, inspect or investigate the books and records of such person or entity. Upon issuance of this authority, such person or entity may commence to engage in banking operations or quasibanking function and shall continue to do so unless such authority is sooner surrendered, revoked, suspended or annulled by the Bangko Sentral in accordance with this Act or other special laws. The department head and the examiners of the appropriate supervising and examining department are hereby authorized to administer oaths to any such person, employee, officer, or director of any such entity and to compel the presentation or production of such books, documents, papers or records that are reasonably necessary to ascertain the facts relative to the true functions and operations of such person or entity. Failure or refusal to comply with the required presentation or production of such books, documents, papers or records within a reasonable time shall subject the persons responsible therefore to the penal sanctions provided under the New Central Bank Act. Persons or entities found to be performing banking or quasibanking functions without authority from the Bangko Sentral shall be subject to appropriate sanctions under the New Central Bank Act and other applicable laws. Sec.7. Examination by the Bangko Sentral. The Bangko Sentral shall, when examining a bank, have the authority to examine an enterprise which is wholly or majority-owned or controlled by the bank. CHAPTER III ORGANIZATION, MANAGEMENT AND ADMINISTRATION OF BANKS, QUASI-BANKS AND TRUST ENTITIES Sec.8. Organization. The Monetary Board may authorize the organization of a bank or quasi-bank subject to the following conditions: 8.1 That the entity is a stock corporation;

8.2 That its funds are obtained from the public, which shall mean twenty (20) or more persons; and 8.3 That the minimum capital requirements prescribed by the Monetary Board for each category of banks are satisfied. No new commercial bank shall be established within three (3) years from the effectivity of this Act. In the exercise of the authority granted herein, the Monetary Board shall take into consideration their capability in terms of their financial resources and technical expertise and integrity. The bank licensing process shall incorporate an assessment of the banks ownership structure, directors and senior management, its operating plan and internal controls as well as its projected financial condition and capital base. Sec.9. Issuance of Stocks. The Monetary Board may prescribe rules and regulations on the types of stock a bank may issue, including the terms thereof and rights appurtenant thereto to determine compliance with laws and regulations governing

capital and equity structure of banks; Provided, That banks shall issue par value stocks only. Sec.10. Treasury Stocks. No bank shall purchase or acquire shares of its own capital stock or accept its own shares as a security for a loan, except when authorized by the Monetary Board: Provided, That in every case the stock so purchased or acquired shall, within six (6) months from the time of its purchase or acquisition, be sold or disposed of at a public or private sale. Sec.11. Foreign Stockholdings Foreign individuals and nonbank corporations may own or control up to forty percent (40%) of the voting stock of a domestic bank. This rule shall apply to Filipinos and domestic non-bank corporations. The percentage of foreign-owned voting stocks in a bank shall be determined by the citizenship of the individual stockholders in that bank. The citizenship of the corporation which is a stockholder in a bank shall follow the citizenship of the controlling stockholders of the corporation, irrespective of the place of incorporation. Sec.12. Stockholdings of Family Groups of Related Interests. Stockholdings of individuals related to each other within the fourth degree of consanguinity or affinity, legitimate or commonlaw, shall be considered family groups or related interests and must be fully disclosed in all transactions by such corporations or related groups of persons with the bank. . Sec. 13. Corporate Stockholdings. - Two or more corporations owned or controlled by the same family group or same group of persons shall be considered related interests and must be fully disclosed in all transactions by such corporations or related group of persons with the bank. Sec.14. Certificate of Authority to Register. The Securities and Exchange Commission shall no register the articles of incorporation of any bank, or any amendment thereto, unless accompanied by a certificate of authority issued by the Monetary Board, under its seal. Such certificate shall not be issued unless the Monetary Board is satisfied from the evidence submitted to it: 14.1. That all requirements of existing laws and regulations to engage in the business for which the applicant is proposed to be incorporated have been complied with; 14.2. That the public interest and economic conditions, both general and local, justify the authorization; and 14.3. That the amount of capital, the financing, organization, direction and administration, as well as the integrity and responsibility of the organizers and administrators reasonably assure the safety of deposits and the public interest. The Securities and Exchange Commission shall not register the by-laws of any bank, or any amendment thereto, unless accompanied by a certificate of authority from the Bangko Sentral. Sec. 15. Board of Directors. - The provisions of the Corporation Code to the contrary notwithstanding, there shall be at least five (5), and a maximum of fifteen (15) members of the board or directors of a bank, two (2) of whom shall be independent directors. An "independent director" shall mean a person other than an officer or employee of the bank, its subsidiaries or affiliates or related interests. . Non-Filipino citizens may become members of the board of directors of a bank to the extent of the foreign participation in the equity of said bank. The meetings of the board of directors may be conducted through modern technologies such as, but not limited to, teleconferencing and video-conferencing. Sec. 16. Fit and Proper Rule. - To maintain the quality of bank management and afford better protection to depositors and the public in general the Monetary Board shall prescribe, pass upon and review the qualifications and disqualifications of individuals elected or appointed bank directors or officers and disqualify those found unfit. After due notice to the board of directors of the bank, the Monetary Board may disqualify, suspend or remove any bank

director or officer who commits or omits an act which render him unfit for the position. In determining whether an individual is fit and proper to hold the position of a director or officer of a bank, regard shall be given to his integrity, experience, education, training, and competence. Sec. 17. Directors of Merged or Consolidated Banks. - In the case of a bank merger or consolidation, the number of directors shall not exceed twenty-one (21). . Sec. 18. Compensation and Other Benefits of Directors and Officers. To protect the finds of depositors and creditors the Monetary Board may regulate the payment by the bark to its directors and officers of compensation, allowance, fees, bonuses, stock options, profit sharing and fringe benefits only in exceptional cases and when the circumstances warrant, such as but not limited to the following: 18.1. When a bank is under comptrollership or conservatorship; or 18.2. When a bank is found by the Monetary Board to be conducting business in an unsafe or unsound manner; or 18.3. When a bank is found by the Monetary Board to be in an unsatisfactory financial condition. Sec. 19. Prohibition on Public Officials. - Except as otherwise provided in the Rural Banks Act, no appointive or elective public official whether full-time or part-time shall at the same time serve as officer of any private bank, save in cases where such service is incident to financial assistance provided by the government or a government owned or controlled corporation to the bank or unless otherwise provided under existing laws. Sec. 20. Bank Branches. - Universal or commercial banks may open branches or other offices within or outside the Philippines upon prior approval of the Bangko Sentral. Branching by all other banks shall be governed by pertinent laws. A bank may, subject to prior approval of the Monetary Board, use any or all of its branches as outlets for the presentation and/or sale of the financial products of its allied undertaking or of its investment house units. A bank authorized to establish branches or other offices shall be responsible for all business conducted in such branches and offices to the same extent and in the same manner as though such business had all been conducted in the head office. A bank and its branches and offices shall be treated as one unit. . Sec. 21. Banking Days and Hours. Unless otherwise authorized by the Bangko Sentral in the interest of the banking public, all banks including their branches and offices shall transact business on all working days for at least six (6) hours a day. In addition, banks or any of their branches or offices may open for business on Saturdays, Sundays or holidays for at least three (3) hours a day: Provided, That banks which opt to open on days other than working days shall report to the Bangko Sentral the additional days during which they or their branches or offices shall transact business. For purposes of this Section, working days shall mean Mondays to Fridays, except if such days are holidays. Sec. 22. Strikes and Lockouts. - The banking industry is hereby declared as indispensable to the national interest and, notwithstanding the provisions of any law to the contrary, any strike or lockout involving banks, if unsettled after seven (7) calendar days shall be reported by the Bangko Sentral to the Secretary of Labor who may assume jurisdiction over the dispute or decide it or certify the same to the National Labor Relations Commission for compulsory arbitration. However, the President of the Philippines may at any time intervene and assume jurisdiction over such labor dispute in order to settle or terminate the same. CHAPTER IV DEPOSITS. LOANS AND OTHER OPERATIONS Article I. Operations Of Universal Banks Sec. 23. Powers of a Universal Bank - A universal bank shall have the authority to exercise, in addition to the powers authorized for a commercial bank in Section 29, the powers of an

investment house as provided in existing laws and the power to invest in non-allied enterprises as provided in this Act. Sec. 24. Equity Investments of a Universal Bank. A universal bank may, subject to the conditions stated in the succeeding paragraph, invest in the equities of allied and non-allied enterprises as may be determined by the Monetary Board. Allied enterprises may either be financial or non-financial. Except as the Monetary Board may otherwise prescribe: 24.1. The total investment in equities of allied and non-allied enterprises shall not exceed fifty percent (50%) of the net worth of the bank; and 24.2. The equity investment in any one enterprise, whether allied or non-allied, shall not exceed twenty-five percent (25%) of the net worth of the bank. As used in this Act, net worth shall mean the total of the unimpaired paid-in capital including paid-in surplus, retained earnings and undivided profit, net of valuation reserves and other adjustments as may be required by the Bangko Sentral. The acquisition of such equity or equities is subject to the prior approval of the Monetary Board which shall promulgate appropriate guidelines to govern such investments. . Sec. 25. Equity Investments of a Universal Bank in Financial Allied Enterprises. - A universal bank can own up to one hundred percent (100%) of the equity in a thrift bank, a rural bank or a financial allied enterprise. A publicly-listed universal or commercial bank may own up to one hundred percent (100%) of the voting stock of only one other universal or commercial bank. Sec. 26. Equity Investments of a Universal Bank in NonFinancial Allied Enterprises. A universal bank may own up to one hundred percent (100%) of the equity in a non-financial allied enterprise. Sec. 27. Equity Investments of a Universal Bank in Non-Allied Enterprises. - The equity investment of a universal bank, or of its wholly or majority-owned subsidiaries, in a single non-allied enterprise shall not exceed thirty-five percent (35%) of the total equity in that enterprise nor shall it exceed thirty-five percent (35%) of the voting stock in that enterprise. Sec. 28. Equity Investments in Quasi-Banks. To promote competitive conditions in financial markets, the Monetary Board may further limit to forty percent (40%) equity investments of universal banks in quasi-banks. This rule shall also apply in the case of commercial banks.

The acquisition of such equity or equities is subject to the prior approval of the Monetary Board which shall promulgate appropriate guidelines to govern such investment. . Sec. 31. Equity Investments of a Commercial Bank in Financial Allied Enterprises. - A commercial bank may own up to one hundred percent (100%) of the equity of a thrift bank or a rural bank. Where the equity investment of a commercial bank is in other financial allied enterprises, including another commercial bank, such investment shall remain a minority holding in that enterprise. Sec. 32. Equity Investments of a Commercial Bank in NonFinancial Allied Enterprises. - A commercial bank may own up to one hundred percent (100%) of the equity in a non-financial allied enterprise.

Article III. Provisions Applicable To All Banks, Quasi-Banks, And Trust Entities Sec. 33. Acceptance of Demand Deposits. - A bank other than a universal or commercial bank cannot accept or create demand deposits except upon prior approval of, and subject to such conditions and rules as may be prescribed by the Monetary Board. Sec. 34. Risk-Based Capital. - The Monetary Board shall prescribe the minimum ratio which the net worth of a bank must bear to its total risk assets which may include contingent accounts. For purposes of this Section, the Monetary Board may require such ratio be determined on the basis of the net worth and risk assets of a bank and its subsidiaries, financial or otherwise, as well as prescribe the composition and the manner of determining the net worth and total risk assets of banks and their subsidiaries: Provided, That in the exercise of this authority, the Monetary Board shall, to the extent feasible conform to internationally accepted standards, including those of the Bank for International Settlements (BIS), relating to risk-based capital requirements: Provided further, That it may alter or suspend compliance with such ratio whenever necessary for a maximum period of one (1) year: Provided, finally, That such ratio shall be applied uniformly to banks of the same category. . In case a bank does not comply with the prescribed minimum ratio, the Monetary Board may limit or prohibit the distribution of net profits by such bank and may require that part or all of the net profits be used to increase the capital accounts of the bank until the minimum requirement has been met The Monetary Board may, furthermore, restrict or prohibit the acquisition of major assets and the making of new investments by the bank, with the exception of purchases of readily marketable evidences of indebtedness of the Republic of the Philippines and of the Bangko Sentral and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines, until the minimum required capital ratio has been restored. . In case of a bank merger or consolidation, or when a bank is under rehabilitation under a program approved by the Bangko Sentral, Monetary Board may temporarily relieve the surviving bank, consolidated bank, or constituent bank or corporations under rehabilitation from full compliance with the required capital ratio under such conditions as it may prescribe. Before the effectivity of rules which the Monetary Board is authorized to prescribe under this provision, Section 22 of the General Banking Act, as amended, Section 9 of the Thrift Banks Act, and all pertinent rules issued pursuant thereto, shall continue to be in force. . Sec. 35. Limit on Loans, Credit Accommodations and Guarantees. 35.1. Except as the Monetary Board may otherwise prescribe for reasons of national interest, the total amount of loans, credit accommodations and guarantees as may be defined by the Monetary Board that may be extended by a bank to any person, partnership, association, corporation or other entity shall at no time exceed twenty percent (20%) of the net worth of such bank. The basis for determining compliance with single borrower limit is the total credit commitment of the bank to the borrower.

Article II. Operations Of Commercial Banks Sec. 29. Powers of a Commercial Bank. - A commercial bank shall have, in addition to the general powers incident to corporations, all such powers as may be necessary to carry on the business of commercial banking such as accepting drafts and issuing letters of credit; discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; accepting or creating demand deposits; receiving other types of deposits and deposit substitutes; buying and selling foreign exchange and gold or silver bullion; acquiring marketable bonds and other debt securities; and extending credit, subject to such rules as the Monetary Board may promulgate. These rules may include the determination of bonds and other debt securities eligible for investment, the maturities and aggregate amount of such investment. Sec. 30. Equity Investments of a Commercial Bank. - A commercial bank may, subject to the conditions stated in the succeeding paragraphs, invest only in the equities of allied enterprises as may be determined by the Monetary Board. Allied enterprises may either be financial or non-financial. . Except as the Monetary Board may otherwise prescribe: 30.1. The total investment in equities of allied enterprises shall not exceed thirty-five percent (35%) of the net worth of the bank; and 30.2. The equity investment in any one enterprise shall not exceed twenty-five percent (25%) of tile net worth of the bank.

35.2. Unless the Monetary Board prescribes otherwise, the total amount of loans, credit accommodations and guarantees prescribed in the preceding paragraph may be increased by an additional ten percent (10%) of the net worth of such bank provided the additional liabilities of any borrower are adequately secured by trust receipts, shipping documents, warehouse receipts or other similar documents transferring or securing title covering readily marketable, non-perishable goods which must be fully covered by insurance. 35.3. The above prescribed ceilings shall include: (a) the direct liability of the maker or acceptor of paper discounted with or sold to such bank and the liability of a general endorser, drawer or guarantor who obtains a loan or other credit accommodation from or discounts paper with or sells papers to such bank; (b) in the case of an individual who owns or controls a majority interest in a corporation, partnership, association or any other entity, the liabilities of said entities to such bank; (c) in the case of a corporation, all liabilities to such bank of all subsidiaries in which such corporation owns or controls a majority interest; and (d) in the case of a partnership, association or other entity, the liabilities of the members thereof to such bank. 35.4. Even if a parent corporation, partnership, association, entity or an individual who owns or controls a majority interest in such entities has no liability to the bank, the Monetary Board may prescribe the combination of the liabilities of subsidiary corporations or members of the partnership, association, entity or such individual under certain circumstances, including but not limited to, any of the following situations: . (a) the parent corporation, partnership, association, entity or individual guarantees the repayment of the liabilities; (b) the liabilities were incurred for the accommodation of the parent corporation or another subsidiary or of the partnership or association or entity or such individual; or (c) the subsidiaries though separate entities operate merely as departments or divisions of a single entity. 35.5. For purposes of this Section, loans, other credit accommodations and guarantees shall exclude: (a) loans and other credit accommodations secured by obligations of the Bangko Sentral or of the Philippine Government; (b) loans and other credit accommodations fully guaranteed by the government as to the payment of principal and interest; (c) loans and other credit accommodations covered by assignment of deposits maintained in the lending bank and held in the Philippines; (d) loans, credit accommodations and acceptances under letters of credit to the extent covered by margin deposits; and (e) other loans or credit accommodations which the Monetary Board may from time to time, specify as non-risk items. 35.6. Loans and other credit accommodations, deposits maintained with, and usual guarantees by a bank to any other bank or non-bank entity, whether locally or abroad, shall be subject to the limits as herein prescribed.

such bank to others, or in any manner be an obligor or incur any contractual liability to the bank except with the written approval of the majority of all the directors of the bank, excluding the director concerned: Provided, That such written approval shall not be required for loans, other credit accommodations and advances granted to officers under a fringe benefit plan approved by the Bangko Sentral. The required approval shall be entered upon the records of the bank and a copy of such entry shall be transmitted forthwith to the appropriate supervising and examining department of the Bangko Sentral. Dealings of a bank with any of its directors, officers or stockholders and their related interests shall be upon terms not less favorable to the bank than those offered to others. After due notice to the board of directors of the bank, the office of any bank director or officer who violates the provisions of this Section may be declared vacant and the director or officer shall be subject to the penal provisions of the New Central Bank Act. The Monetary Board may regulate the amount of loans, credit accommodations and guarantees that may be extended, directly or indirectly, by a bank to its directors, officers, stockholders and their related interests, as well as investments of such bank in enterprises owned or controlled by said directors, officers, stockholders and their related interests. However, the outstanding loans, credit accommodations and guarantees which a bank may extend to each of its stockholders, directors, or officers and their related interests, shall be limited to an amount equivalent to their respective unencumbered deposits and book value of their paid-in capital contribution in the bank: Provided, however, That loans, credit accommodations and guarantees secured by assets considered as non-risk by the Monetary Board shall be excluded from such limit: Provided, further, That loans, credit accommodations and advances to officers in the form of fringe benefits granted in accordance with rules as may be prescribed by the Monetary Board shall not be subject to the individual limit. The Monetary Board shall define the term related interests. The limit on loans, credit accommodations and guarantees prescribed herein shall not apply to loans, credit accommodations and guarantees extended by a cooperative bank to its cooperative shareholders. . Sec. 37. Loans and Other Credit Accommodations Against Real Estate. Except as the Monetary Board may otherwise prescribe, loans and other credit accommodations against real estate shall not exceed seventy-five percent (75%) of the appraised value of the respective real estate security, plus sixty percent (60%) of the appraised value of the insured improvements, and such loans may be made to the owner of the real estate or to his assignees. Sec. 38. Loans And Other Credit Accommodations on Security of Chattels and Intangible Properties. - Except as the Monetary Board may otherwise prescribe, loans and other credit accommodations on security of chattels and intangible properties such as, but not limited to, patents, trademarks, trade names, and copyrights shall not exceed seventy-five percent (75%) of the appraised value of the security, an such loans and other credit accommodation may be made to the title-holder of the chattels and intangible properties or his assignees. Sec. 39. Grant and Purpose of Loans and Other Credit Accommodations. - A bank shall grant loans and other credit accommodations only in amounts and for the periods of time essential for the effective completion of the operations to be financed. Such grant of loans and other credit accommodations shall be consistent with safe and sound banking practices. The purpose of all loans and other credit accommodations shall be stated in the application and in the contract between the bank and the borrower. If the bank finds that the proceeds of the loan or other credit accommodation have been employed, without its approval, for purposes other than those agreed upon with the bank, it shall have the right to terminate the loan or other credit accommodation and demand immediate repayment of the obligation. . Sec. 40. Requirement for Grant Of Loans or 0ther Credit Accommodations. - Before granting a loan or other credit accommodation, a bank must ascertain that the debtor is capable of fulfilling his commitments to the bank.

35.7. Certain types of contingent accounts of borrowers may be included among those subject to these prescribed limits as may be determined by the Monetary Board. Sec. 36. Restriction on Bank Exposure to Directors, Officers, Stockholders and Their Related Interests. - No director or officer of any bank shall, directly or indirectly, for himself or as the representative or agent of others, borrow from such bank nor shall he become a guarantor, endorser or surety for loans from

Toward this end, a bank may demand from its credit applicants a statement of their assets and liabilities and of their income and expenditures and such information as may be prescribed by law or by rules and regulations of the Monetary Board to enable the bank to properly evaluate the credit application which includes the corresponding financial statements submitted for taxation purposes to the Bureau of Internal Revenue. Should such statements prove to be false or incorrect in any material detail, the bank may terminate any loan or other credit accommodation granted on the basis of said statements and shall have the right to demand immediate repayment or liquidation of the obligation. In formulating rules and regulations under this Section, the Monetary Board shall recognize the peculiar characteristics of micro financing, such as cash flow-based lending to the basic sectors that are not covered by traditional collateral. Sec. 41. Unsecured Loans or Other Credit Accommodations. The Monetary Board is hereby authorized to issue such regulations as it may deem necessary with respect to unsecured loans or other credit accommodations that may be granted by banks. Sec. 42. Other Security Requirements for Bank Credits. - The Monetary Board may, by regulation, prescribe further security requirements to which the various types of bank credits shall be subject, and, in accordance with the authority granted to it in Section 106 of the New Central Bank Act, the Board may by regulation, reduce the maximum ratios established in Sections 36 and 37 of this Act, or, in special cases, increase the maximum ratios established therein. Sec. 43. Authority to Prescribe Terms and Conditions of Loans and Other Credit Accommodations. - The Monetary Board, may, similarly in accordance with the authority granted to it in Section 106 of the New Central Bank Act, and taking into account the requirements of the economy for the effective utilization of longterm funds, prescribe the maturities, as well as related terms and conditions for various types of bank loans and other credit accommodations. Any change by the Board in the maximum maturities, as well as related terms and conditions for various types of bank loans and other credit accommodations. Any change by the Board in the maximum maturities shall apply only to loans and other credit accommodations made after the date of such action. The Monetary Board shall regulate the interest imposed on micro finance borrowers by lending investors and similar lenders such as, but not limited to, the unconscionable rates of interest collected on salary loans and similar credit accommodations. Sec. 44. Amortization on Loans and Other Credit Accommodations. - The amortization schedule of bank loans and other credit accommodations shall be adapted to the nature of the operations to be financed. In case of loans and other credit accommodations with maturities of more than five (5) years, provisions must be made for periodic amortization payments, but such payments must be made at least annually: Provided, however, That when the borrowed funds are to be used for purposes which do not initially produce revenues adequate for regular amortization payments therefrom, the bank may permit the initial amortization payment to be deferred until such time as said revenues are sufficient for such purpose, but in no case shall the initial amortization date be later than five (5) years from the date on which the loan or other credit accommodation is granted. In case of loans and other credit accommodations to micro finance sectors, the schedule of loan amortization shall take into consideration the projected cash flow of the borrower and adopt this into the terms and conditions formulated by banks. Sec. 45. Prepayment of Loans and Other Credit Accommodations. A borrower may at any time prior to the agreed maturity date prepay, in whole or in part, the unpaid balance of any bank loan and other credit accommodation, subject to such reasonable terms and conditions as may be agreed upon between the bank and its borrower. Sec. 46. Development Assistance Incentives. - The Bangko Sentral shall provide incentives to banks which, without government guarantee, extend loans to finance educational institutions cooperatives, hospitals and other medical services,

socialized or low-cost housing, local government units and other activities with social content. Sec. 47. Foreclosure of Real Estate Mortgage. - In the event of foreclosure, whether judicially or extra-judicially, of any mortgage on real estate which is security for any loan or other credit accommodation granted, the mortgagor or debtor whose real property has been sold for the full or partial payment of his obligation shall have the right within one year after the sale of the real estate, to redeem the property by paying the amount due under the mortgage deed, with interest thereon at rate specified in the mortgage, and all the costs and expenses incurred by the bank or institution from the sale and custody of said property less the income derived therefrom. However, the purchaser at the auction sale concerned whether in a judicial or extra-judicial foreclosure shall have the right to enter upon and take possession of such property immediately after the date of the confirmation of the auction sale and administer the same in accordance with law. Any petition in court to enjoin or restrain the conduct of foreclosure proceedings instituted pursuant to this provision shall be given due course only upon the filing by the petitioner of a bond in an amount fixed by the court conditioned that he will pay all the damages which the bank may suffer by the enjoining or the restraint of the foreclosure proceeding. Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an extrajudicial foreclosure, shall have the right to redeem the property in accordance with this provision until, but not after, the registration of the certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three (3) months after foreclosure, whichever is earlier. Owners of property that has been sold in a foreclosure sale prior to the effectivity of this Act shall retain their redemption rights until their expiration. Sec. 48. Renewal or Extension of Loans and Other Credit Accommodations. The Monetary Board may, by regulation, prescribe the conditions and limitations under which a bank may grant extensions or renewals of its loans and other credit accommodations. Sec. 49. Provisions for Losses and Write-Offs. - All debts due to any bank on which interest is past due and unpaid for such period as may be determined by the Monetary Board, unless the same are welt-secured and in the process of collection shall be considered bad debts within the meaning of this Section. The Monetary Board may fix, by regulation or by order in a specific case, the amount of reserves for bad debts or doubtful accounts or other contingencies. Writing off of loans, other credit accommodations, advances and other assets shall be subject to regulations issued by the Monetary Board. Sec. 50. Major Investments. - For the purpose or enhancing bank supervision, the Monetary Board shall establish criteria for reviewing major acquisitions of investments by a bank including corporate affiliations or structures that may expose the bank to undue risks or in any way hinder effective supervision. Sec. 51. Ceiling on Investments in Certain Assets. Any bank may acquire real estate as shall be necessary for its own use in the conduct of its business: Provided, however, That the total investment in such real estate and improvements thereof including bank equipment, shall not exceed fifty percent (50%) of combined capital accounts: Provided, further, That the equity investment of a bank in another corporation engaged primarily in real estate shall be considered as part of the banks total investment in real estate, unless otherwise provided by the Monetary Board. Sec. 52. Acquisition of Real Estate by Way of Satisfaction of Claims. Notwithstanding the limitations of the preceding Section, a bank may acquire, hold or convey real property under the following circumstances: 52.1. Such as shall be mortgaged to it in good faith by way of security for debts; 52.2. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings; or 52.3. Such as it shall purchase at sales under judgments, decrees, mortgages, or trust deeds held by it and such as it shall purchase to secure debts due it.

Any real property acquired or held under the circumstances enumerated in the above paragraph shall be disposed of by the bank within a period of five (5) years or as may be prescribed by the Monetary Board: Provided, however, That the bank may, after said period, continue to hold the property for its own use, subject to the limitations of the preceding Section. Sec. 53. Other Banking Services. In addition to the operations specifically authorized in this Act, a bank may perform the following services: 53.1. Receive in custody funds, documents and valuable objects; 53.2. Act as financial agent and buy and sell, by order of and for the account of their customers, shares, evidences of indebtedness and all types of securities; 53.3. Make collections and payments for the account of others and perform such other services for their customers as are not incompatible with banking business; 53.4 Upon prior approval of the Monetary Board, act as managing agent, adviser, consultant or administrator of investment management/advisory/consultancy accounts; and 53.5. Rent out safety deposit boxes. The bank shall perform the services permitted under Subsections 53.1., 53.2., 53.3. and 53.4. as depositary or as an agent. Accordingly, it shall keep the funds, securities and other effects which it receives duly separate from the bank's own assets and liabilities: The Monetary Board may regulate the operations authorized by this Section in order to ensure that such operations do not endanger the interests of the depositors and other creditors of the bank. In case a bank or quasi-bank notifies the Bangko Sentral or publicly announces a bank holiday, or in any manner suspends the payment of its deposit liabilities continuously for more than thirty (30) days, the Monetary Board may summarily and without need for prior hearing close such banking institution and place it under receivership of the Philippine Deposit Insurance Corporation. Sec. 54. Prohibition to Act as Insurer. - A bank shall not directly engage in insurance business as the insurer. Sec. 55. Prohibited Transactions. 55.1. No director, officer, employee, or agent of any bank shall (a) Make false entries in any bank report or statement or participate in any fraudulent transaction, thereby affecting the financial interest of, or causing damage to, the bank or any person; (b) Without order of a court of competent jurisdiction, disclose to any unauthorized person any information relative to the funds or properties in the custody of the bank belonging to private individuals, corporations, or any other entity: Provided, That with respect to bank deposits, the provisions of existing laws shall prevail; (c) Accept gifts, fees, or commissions or any other form of remuneration in connection with the approval of a loan or other credit accommodation from said bank; (d) Overvalue or aid in overvaluing any security for the purpose of influencing in any way the actions of the bank or any bank; or (e) Outsource inherent banking functions. 55.2. No borrower of a bank shall (a) Fraudulently overvalue property offered as security for a loan or other credit accommodation from the bank; (b) Furnish false or make misrepresentation or suppression of material facts for the purpose of obtaining, renewing, or increasing a loan or other credit accommodation or extending the period thereof; (c) Attempt to defraud the said bank in the event of a court action to recover a loan or other credit accommodation; or

(d) Offer any director, officer, employee or agent of a bank any gift, fee, commission, or any other form of compensation in order to influence such persons into approving a loan or other credit accommodation application. 55.3. No examiner, officer or employee of the Bangko Sentral or of any department, bureau, office, branch or agency of the Government that is assigned to supervise, examine, assist or render technical assistance to any bank shall commit any of the acts enumerated in this Section or aid in the commission of the same. The making of false reports or misrepresentation or suppression of material facts by personnel of the Bangko Sental ng Pilipinas shall be subject to the administrative and criminal sanctions provided under the New Central Bank Act. 55.4. Consistent with the provisions of Republic Act No. 1405, otherwise known as the Banks Secrecy Law, no bank shall employ casual or non regular personnel or too lengthy probationary personnel in the conduct of its business involving bank deposits. Sec. 56. Conducting Business in an Unsafe or Unsound Manner - In determining whether a particular act or omission, which is not otherwise prohibited by any law, rule or regulation affecting banks, quasi-banks or trust entities, may be deemed as conducting business in an unsafe or unsound manner for purposes of this Section, the Monetary Board shall consider any of the following circumstances: 56.1. The act or omission has resulted or may result in material loss or damage, or abnormal risk or danger to the safety, stability, liquidity or solvency of the institution; . 56.2. The act or omission has resulted or may result in material loss or damage or abnormal risk to the institution's depositors, creditors, investors, stockholders or to the Bangko Sentral or to the public in general; 56.3. The act or omission has caused any undue injury, or has given any unwarranted benefits, advantage or preference to the bank or any party in the discharge by the director or officer of his duties and responsibilities through manifest partiality, evident bad faith or gross inexcusable negligence; or 56.4. The act or omission involves entering into any contract or transaction manifestly and grossly disadvantageous to the bank, quasi-bank or trust entity, whether or not the director or officer profited or will profit thereby. Whenever a bank, quasi-bank or trust entity persists in conducting its business in an unsafe or unsound manner, the Monetary Board may, without prejudice to the administrative sanctions provided in Section 37 of the New Central Bank Act, take action under Section 30 of the same Act and/or immediately exclude the erring bank from clearing, the provisions of law to the contrary notwithstanding. Sec. 57. Prohibition on Dividend Declaration. No bank or quasi-bank shall declare dividends, if at the time of declaration: 57.1. Its clearing account with the Bangko Sentral is overdrawn; or 57.2. It is deficient in the required liquidity floor for government deposits for five (5) or more consecutive days, or . 57.3. It does not comply with the liquidity standards/ratios prescribed by the Bangko Sentral for purposes of determining funds available for dividend declaration; or 57.4. It has committed a major violation as may be determined by the Bangko Sentral. . Sec. 58. Independent Auditor. - The Monetary Board may require a bank, quasi-bank or trust entity to engage the services of an independent auditor to be chosen by the bank, quasi-bank or trust entity concerned from a list of certified public accountants acceptable to the Monetary Board. The term of the engagement shall be as prescribed by the Monetary Board which may either be on a continuing basis where the auditor shall act as resident examiner, or on the basis of special engagements; but in any case, the independent auditor shall be responsible to the banks, quasi-banks or trust entitys board of directors. A copy of the

report shall be furnished to the Monetary Board. The Monetary Board may also direct the board of directors of a bank, quasibank, trusty entity and/or the individual members thereof; to conduct, either personally or by a committee created by the board, an annual balance sheet audit of the bank, quasi-bank or trust entity to review the internal audit and control system of the bank, quasi-bank or trust entity and to submit a report of such audit. Sec. 59. Authority to Regulate Electronic Transactions. - The Bangko Sentral shall have full authority to regulate the use of electronic devices, such as computers, and processes for recording, storing and transmitting information or data in connection with the operations of a bank; quasi-bank or trust entity, including the delivery of services and products to customers by such entity. Sec. 60. Financial Statements. Every bank, quasi-bank or trust entity shall submit to the appropriate supervising and examining department of the Bangko Sentral financial statements in such form and frequency as may be prescribed by the Bangko Sentral. Such statements, which shall be as of a specific date designated by the Bangko Sentral, shall show thee actual financial condition of the institution submitting the statement, and of its branches, offices, subsidiaries and affiliates, including the results of its operations, and shall contain such information as may be required in Bangko Sentral regulations. . SEC 61. Publication of Financial Statements. - Every bank, quasi-bank or trust entity, shall publish a statement of its financial condition, including those of its subsidiaries and affiliates, in such terms understandable to the layman and in such frequency as may be prescribed Bangko Sentral, in English or Filipino, at least once every quarter in a newspaper of general circulation in the city or province where the principal office, in the case of a domestic institution or the principal branch or office in the case of a foreign bank, is located, but if no newspaper is published in the same province, then in a newspaper published in Metro Manila or in the nearest city or province. The Bangko Sentral may by regulation prescribe the newspaper where the statements prescribed herein shall be published. . The Monetary Board may allow the posting of the financial statements of a bank, quasi-bank or trust entity in public places it may determine, lieu of the publication required in the preceding paragraph, when warranted by the circumstances. Additionally, banks shall make available to the public in such form and manner as the Bangko Sentral may prescribe the complete set of its audited financial statements as well as such other relevant information including those on enterprises majority-owned or controlled by the bank, that will inform the public of the true financial condition of a bank as of any given time. . In periods of national and/or local emergency or of imminent panic which directly threaten monetary and banking stability, the Monetary Board, by a vote of at least five (5) of its members, in special cases and upon application of the bank, quasi-bank or trust entity, may allow such bank, quasi-bank or trust entity to defer for a stated period of time the publication of the statement of financial condition required herein. Sec. 62. Publication of Capital Stock. A bank, quasi-bank or trust entity incorporated under the laws of the Philippines shall not publish the amount of its authorized or subscribed capital stock without indicating at the same time and with equal prominence, the amount of its capital actually paid up. No branch of any foreign bank doing business in the Philippines shall in any way announce the amount of the capital and surplus of its head office, or of the bank in its entirety without indicating at the same time and with equal prominence the amount of the capital, if any, definitely assigned to such branch, such fact shall be stated in, and shall form part of the publication. Sec. 63. Settlement of Disputes. The provisions of any law to the contrary notwithstanding, the Bangko Sentral shall be consulted by other government agencies or instrumentalities in actions or proceedings initiated by or brought before them involving controversies in banks, quasi-banks or trust entities arising out of and involving relations between and among their directors, officers or stockholders, as well as disputes between

any or all of them and the bank, quasi-bank or trust entity of which they are directors, officers or stockholders. . Sec. 64. Unauthorized Advertisement or Business Representation. No person, association, or corporation unless duly authorized to engage in the business of a bank, quasi-bank, trust entity, or savings and loan association as defined in this Act, or other banking laws, shall advertise or hold itself out as being engaged in the business of such bank, quasi-bank, trust entity, or association, or use in connection with its business title, the word or words bank, banking, banker, quasi -bank, quasibanking, quasi-banker, savings and loan association, trust corporation, trust company or words of similar import or transact in any manner the business of any such bank, corporation or association. Sec. 65. Service Fees. The Bangko Sentral may charge equitable rates, commissions or fees, as may be prescribed by the Monetary Board for supervision, examination and other services which it renders under this Act. Sec. 66. Penalty for Violation of this Act. Unless otherwise herein provided, the violation of any of the provisions of this Act shall be subject to Sections 34, 35, 36 and 37 of the New Central Bank Act. If the offender is a director or officer of a bank, quasibank or trust entity, the Monetary Board may also suspend or remove such director or officer. If the violation is committed by a corporation, such corporation may be dissolved by quo warranto proceedings instituted by the Solicitor General.

PLACEMENT UNDER CONSERVATORSHIP Sec. 67. Conservatorship. The grounds and procedures for placing a bank under conservatorship, as well as, the powers and duties of the conservator appointed for the bank shall be governed by the provisions of Section 29 and the last two paragraphs of Section 30 of the New Central Bank Act: Provided, That this Section shall also apply to conservatorship proceedings of quasi-banks.. CHAPTER VI CESSATION OF BANKING BUSINESS Sec. 68. Voluntary Liquidation. In case of voluntary liquidation of any bank organized under the laws of the Philippines, or of any branch or office in the Philippines of a foreign bank, written notice of such liquidation shall be sent to the Monetary Board before such liquidation shall be sent to the Monetary Board before such liquidation is undertaken, and the Monetary Board shall have the right to intervene and take such steps as may be necessary to protect the interests of creditors. Sec. 69. Receivership and Involuntary Liquidation. The grounds and procedures for placing a bank under receivership or liquidation, as well as the powers and duties of the receiver or liquidator appointed for the bank shall be governed by the provisions of Sections 30, 31, 32, and 33 of the New Central Bank Act: Provided, That the petitioner or plaintiff files with the clerk or judge of the court in which the action is pending a bond, executed in favor of the Bangko Sentral, in an amount to be fixed by the court. This Section shall also apply to the extent possible to the receivership and liquidation proceedings of quasi-banks. Sec. 70. Penalty for Transactions After a Bank Becomes Insolvent. Any director or officer of any bank declared insolvent or placed under receivership by the Monetary Board who refuses to turn over the banks records and assets to the designated receivers, or who tampers with banks records, or who appropriates for himself for another party or destroys or causes the misappropriation and destruction of the banks asset s, or who receives or permits or causes to be received in said bank any deposit, collection of loans and/or receivables, or who pays out or permits or causes to be transferred any securities or property of said bank shall be subject to the penal provisions of the New Central Bank Act. CHAPTER VII LAWS GOVERNING OTHER TYPES OF BANKS Sec. 71. Other Banking Laws. The organization, the ownership and capital requirements, powers, supervision and general conduct of business of thrift banks, rural banks and cooperative banks shall be governed by the provisions of the Thrift Banks Act, the Rural Banks Act, and the Cooperative Code, respectively.

The organization, ownership and capital requirements, powers, supervision and general conduct of business of Islamic banks shall be governed by special laws. The provisions of this Act, however, insofar as they are not in conflict with the provisions of the Thrift Banks Act, the Rural Banks Act, and the Cooperative Code shall likewise apply to thrift banks, rural banks, and cooperative banks, respectively. However, for purposes of prescribing the minimum ratio which the net worth of a thrift bank must bear to its total risk assets, the provisions of Section 33 of this Act shall govern.

In the absence of the agent or head or should there be no person authorized by the bank upon whom service of summons, processes and all legal notices may be made, service of summons, processes and legal notices may be made upon the Bangko Sentral Deputy Governor In-Charge of the supervising and examining departments and such service shall be as effective as if made upon the bank or its duly authorized agent or head. In case of service for the bank upon the Bangko Sentral Deputy Governor In-charge of the supervising and examining departments, the said deputy Governor shill register and transmit by mail to the president or the secretary of the bank at its head or principal office a copy, duly certified by him, of the summons, process, or notice. The sending of such copy of the summons, process, or notice shall be a necessary part of the services and shall complete the service. The registry receipt of mailing shall be prima facie evidence of the transmission of the summons, process or notice. All costs necessarily incurred by the said Deputy Governor for the making and mailing and sending of a copy of the summons, process, or notice to the president or the secretary of the bank at its head or principal office shall be paid in advance by the party at whose instance the service is made.. Sec. 77. Laws Applicable. - In all matters not specifically covered by special provisions applicable only to a foreign bank or its branches and other offices in the Philippines any foreign bank licensed to do business in the Philippines shall be bound by the provisions of this Act, all other laws, rules and regulations applicable to banks organized under the laws of the Philippines of the same class, except those that provide for the creation, formation, organization or dissolution of corporations or for the fixing of the relations, liabilities, responsibilities, or duties of stockholders, members, directors or officers of corporations to each other or to the corporation. Sec. 78. Revocation of License of a Foreign Bank The Monetary Board may revoke the license to transact business in the Philippines of, any foreign bank, 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 license, it shall be unlawful for any such foreign banks to transact business in the Philippines unless its license is renewed or reissued. After the revocation of such license, the Bangko Sentral shall take the necessary action to protect the creditors of such foreign bank and the public. The provisions of the New Central Bank Act on sanctions and penalties shall likewise be applicable. CHAPTER IX TRUST OPERATIONS Sec. 79. Authority to Engage in Trust Business. Only a stock corporation or a person duly authorized by the Monetary Board to engage in trust business shall act as a trustee or administer any trust or hold property in trust or on deposit for the use, benefit, or behoof of others. For purposes of this Act, such a corporation shall be referred to as a trust entity. . Sec. 80. Conduct of Trust Business. A trust entity shall administer the funds or property under its custody with the diligence that a prudent man would exercise in the conduct of an enterprise of a like character and with similar aims. No trust entity shall, for the account of the trustor or the beneficiary of the trust, purchase or acquire property from, or sell, transfer, assign, or lend money or property to, or purchase debt instruments of, any of the departments, directors, officers, stockholders, or employees of the trust entity, relatives within the first degree of consanguinity or affinity, or the related interests, of such directors, officers and stockholders, unless the transaction is specifically authorized by the trustor and the relationship of the trustee and the other party involved in the transaction is fully disclosed to the trustor of beneficiary of the trust prior to the transaction. The Monetary Board shall promulgate such rules and regulations as may be necessary to prevent circumvention of this prohibition or the evasion of the responsibility herein imposed on a trust entity. Sec. 81. Registration of Articles of Incorporation and By-Laws of a Trust Entity. The Securities and Exchange Commission shall not register the articles of incorporation and by-laws or any

CHAPTER VIII FOREIGN BANKS Sec. 72. Transacting Business in the Philippines. The entry of foreign banks in the Philippines through the establishment of branches shall be governed by the provisions of the Foreign Banks Liberalization Act. The conduct of offshore banking business in the Philippines shall be governed by the provisions of the Presidential Decree No. 1034, otherwise known as the Offshore Banking System Decree. Sec. 73. Acquisition of Voting Stock in a Domestic Bank. Within seven (7) years from the effectivity of this act and subject to guidelines issued pursuant to the Foreign Banks Liberalization Act, the Monetary Board may authorize a foreign bank to acquire up to one hundred percent (100%) of the voting stock of only one (1) bank organized under the laws of the Republic of the Philippines. Within the same period, the Monetary Board may authorize any foreign bank, which prior to the effectivity of this Act availed itself of the privilege to acquire up to sixty percent (60%) of the voting stock of a bank under the Foreign Banks Liberalization Act and the Thrift Banks Act, to further acquire voting shares such bank to the extent necessary for it to own one hundred percent (100%) of the voting stock thereof. In the exercise of the authority, the Monetary Board shall adopt measures as may be necessary to ensure that at all times the control of seventy percent (70%) of the resources or assets of the entire banking system is held by banks which are at least majority-owned by Filipinos. Any right, privilege or incentive granted to a foreign bank under this Section shall be equally enjoyed by and extended under the same conditions to banks organized under the laws of the Republic of the Philippines. Sec. 74. Local Branches of Foreign Banks. In the case of a foreign bank which has more than one (1) branch in the Philippines, all such branches shall be treated as one (1) unit for the purpose of this Act, and all references to the Philippine branches of foreign banks shall be held to refer to such units. Sec. 75. Head Office Guarantee. In order to provide effective protection of the interests of the depositors and other creditors of Philippine branches of a foreign bank, the head office of such branches shall fully guarantee the prompt payment of all liabilities of its Philippine branch. Residents and citizens of the Philippines who are creditors of a branch in the Philippines of a foreign bank shall have preferential rights to the assets of such branch in accordance with the existing laws. Sec. 76. Summons and Legal Process. Summons and legal process served upon the Philippine agent or head of any foreign bank designated to accept service thereof shall give jurisdiction to the courts over such bank, 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. Should the authority of such agent or head to accept service of summons and legal processes for the bank or notice to it be revoked, or should such agent or head become mentally incompetent or otherwise unable to accept service while exercising such authority, it shall be the duty of the bank to name and designate promptly another agent or head upon whom service of summons and processes in legal proceedings against the bank and of notices affecting the bank may be made, and to file with the Securities and Exchange Commission a duly authenticated nomination of such agent.

amendment thereto, of any trust entity, unless accompanied by a certificate of authority issued by the Bangko Sentral. Sec. 82. Minimum Capitalization. A trust entity, before it can engage in trust or other fiduciary business, shall comply with the minimum paid-in capital requirement which will be determined by the Monetary Board.. Sec. 83. Powers of a Trust Entity. A trust entity, in addition to the general powers incident to corporations, shall have the power to: 83.1. Act as trustee on any mortgage or bond issued by any municipality, corporation, or any body politic and to accept and execute any trust consistent with law; 83.2. Act under the order or appointment of any court as guardian, receiver, trustee, or depositary of the estate of any minor or other incompetent person, and as receiver and depositary of any moneys paid into court by parties to any legal proceedings and of property of any kind which may be brought under the jurisdiction of the court; 83.3. Act as the executor of any will when it is named the executor thereof; 83.4. Act as administrator of the estate of any deceased person, with the will annexed, or as administrator of the estate of any deceased person when there is no will; 83.5. Accept and execute any trust for the holding, management, and administration of any estate, real or personal, and the rents, issues and profits thereof; and 83.6. Establish and manage common trust funds, subject to such rules and regulations as may be prescribed by the Monetary Board. Sec. 84. Deposit for the Faithful Performance of Trust Duties. Before transacting trust business, every trust entity shall deposit with the Bangko Sentral, as security for the faithful performance of its trust duties, cash or securities approved by the Monetary Board in an amount equal to or not less than Five hundred thousand pesos (P500,000.00) or such higher amount as may fixed by the Monetary Board: Provided, however, That the Monetary Board shall require every trust entity to increase the amount of its cash or securities on deposit with the Bangko Sentral in accordance with the provisions of this paragraph. Should the capital and surplus fall below said amount, the Monetary Board shall have the same authority as that granted to it under the provisions of the fifth paragraph of Section 34 of this Act. A trust entity so long as it shall continue to be solvent and comply with laws or regulations shall have the right to collect the interest earned on such securities deposited with the Bangko Sentral and, from time to time, with the approval of the Bangko Sentral, to exchange the securities for others. If the trust entity fails to comply with any law or regulation, the Bangko Sentral shall retain such interest on the securities deposited with it for the benefit of rightful claimants. Al claims rising out of the trust business of a trust entity shall have priority over all other claims as regards the cash or securities deposited as above provided. The Monetary Board may not permit the cash or securities deposited in accordance with the provisions of this Section to be reduced below the prescribed minimum amount until the depositing entity shall discontinue its trust business and shall satisfy the Monetary Board that it has complied with all its obligations in connection with such business. Sec. 85. Bond of Certain Persons for the Faithful Performance of Duties. Before an executor, administrator, guardian, trustee, receiver or depositary appointed by the court enters upon the execution of his duties, he shall, upon order of the court, file a bond in such sum as the court may direct. Upon the application of any executor, administrator, guardian, trustee, receiver, depositary or any other person in interest, the court may, after notice and hearing, order that the subject matter of the trust or any part, thereof be deposited with a trust entity. Upon presentation of proof to the court that the subject matter of the trust has been deposited with a trust entity. Upon presentation of proof to the court that the subject matter of the trust has been deposited with a trust entity, the court may order

that the bond given by such persons for the faithful performance of their duties be reduced to such sums as it may deem proper: Provided, however, That the reduced bond shall be sufficient to secure adequately the proper administration and care of any property remaining under the control of such persons and the proper accounting for such property. . Property deposited with any trust entity in conformity with this Section shall be held by such entity under the orders and direction of the court. Sec. 86. Exemption of Trust Entity from Bond Requirement. No bond or other security shall be required by the court from a trust entry for the faithful performance of its duties as courtappointed trustee, executor, administrator, guardian, receiver, or depositary. However, the court may, upon proper application with it showing special cause therefore, require the trust entity to post a bond or other security for the protection of funds or property confided to such entity. Sec. 87. Separation of Trust Business from General Business. The trust business and all funds, properties or securities received by any trust entity as executor, administrator, guardian, trustee, receiver, or depositary shall be kept separate and distinct from the general business including all other funds, properties, and assets of such trust entity. The accounts of all such funds, properties, or securities shall likewise be kept separate and distinct from the accounts of the general business of the trust entity. Sec. 88. Investment Limitations of a Trust Entity. Unless otherwise directed by the instrument creating the trust, the lending and investment of funds and other assets acquired by a trust entity as executor, administrator, guardian, trustee, receiver or depositary of the estate of any minor or other incompetent person shall be limited to loans or investments as may be prescribed by law, the Monetary Board or any court of competent jurisdiction. . Sec. 89. Real Estate Acquired by a Trust Entity. Unless otherwise specifically directed by the trustor or the nature of the trust, real estate acquired by a trust entity in whatever manner and for whatever purposes, shall likewise be governed by the relevant provisions of Section 52 of this Act. Sec. 90. Investment of Non-Trust Funds. The investment of funds other than trust funds of a trust entity which is a bank, financing company or an investment house shall be governed by the relevant provisions of this Act and other applicable laws. Sec. 91. Sanctions and Penalties. - A trust entity or any of its officers and directors found to have willfully violated any pertinent provisions of this Act, shall be subject to the sanctions and penalties provided tinder Section 66 of this Act as well as Sections 36 and 37 of the New Central Bank Act. Sec. 92. Exemption of Trust Assets from Claims. - No assets held by a trust entity in its capacity as trustee shall be subject to any claims other than those of the parties interested in the specific trusts. Sec. 93. Establishment of Branches of a Trust Entity. The ordinary business of a trust entity shall be transacted at the place of business specified in its articles of incorporation. Such trust entity may, with prior approval of the Monetary Board, establish branches in the Philippines and the said entity shall be responsible for all business conducted in such branches to the same extent and in the same manner as though such business had all been conducted in the head office. For the purpose of this Act, the trust entity and its branches shall be treated as one unit.

CHAPTER X FINAL PROVISIONS Sec. 94. Phase Out of Bangko Sentral Powers Over Building and Loan Associations. - Within a period of three (3) years from the effectivity of this Act, the Bangko Sentral shall phase out and transfer its supervising and regulatory powers over building and loan associations to the Home Insurance and Guaranty Corporation which shall assume the same. Until otherwise provided by law, building and loan associations shall continue to be governed by Sections 39 to 55, Chapter VI of the General

Banking Act, as amended, including such rules and regulations issued pursuant thereto. Upon assumption by the Home Insurance and Guaranty Corporation of supervising and regulatory powers over building and loan associations, a references in Sections 39 to 55 of the General Banking Act, as amended, to the Bangko Sentral and the Monetary Board shall be deemed to refer to the Home Insurance and Guaranty Corporation and its board of directors, respectively. . Sec. 95. Repealing Clause. - Except as may be provided for in Sections 34 and 94 of this Act, the General Banking Act, as amended, and the provisions of any other law, special charters, rule or regulation issued pursuant to said General Banking Act, as amended, or parts thereof, which may be inconsistent with the provisions of this Act are hereby repealed. The provisions of paragraph 8, Section 8, Republic Act No. 3591, as amended by Republic Act No. 7400, are likewise repealed. Sec. 96. Separability Clause. - If any provision or section of this Act or the application thereof to any person or circumstance is held invalid, the other provisions or sections of this Act, and the application of such provision or section to other persons or circumstances shall not be affected thereby. . Sec. 97. Effectivity Clause - This Act shall take effect fifteen (15) days following its publication in the Official Gazette or in two (2) national newspapers of general circulation.