Insolvency Law and Corporate Rehabilitation

Republic Act No. 10142 Financial Rehabilitation and Insolvency Act (FRIA) of 2010.

It is the policy of the State to encourage debtors, both juridical and natural persons, and their creditors to collectively and
realistically resolve and adjust competing claims and property rights.

How shall rehabilitation or liquidation be facilitated?

The rehabilitation or liquidation shall be made with the following views:
 to ensure or maintain certainly and predictability in commercial affairs
 to preserve and maximize the value of the assets of these debtors
 to recognize creditor rights and respect priority of claims
 to ensure equitable treatment of creditors who are similarly situated

What do you mean by insolvent?

Insolvent shall refer to the financial condition of a debtor that is generally unable to pay its or his liabilities as they fall due in the
ordinary course of business or has liabilities that are greater than its or his assets.

What is the main difference between voluntary and involuntary proceeding?

Voluntary proceedings shall refer to proceedings initiated by the insolvent debtor while involuntary proceedings shall refer to
proceedings initiated by creditors.

What is the approval requirement for voluntary proceeding?

An insolvent debtor may initiate voluntary proceeding by filing a petition for rehabilitation with the court only if with the prior
approval of the following:
 the owner in the case of a sole proprietorship
 the majority of the partners in the case of a partnership
 in the case of a stock corporation, the majority of the vote of the board of directors or trustees and authorized by the vote
of the stockholders representing at least 2/3 of the outstanding capital stock, in a stockholder’s meeting duly called for the
purpose
 in the case of a nonstock corporation, the vote of at least two-thirds (2/3) of the members, in a member’s meeting duly
called for the purpose

How is involuntary proceeding initiated?

Any creditor or group of creditors with a claim of, or the aggregate of whose claims is, at least One Million Pesos (P1,000,000.00) or
at least twenty-five percent (25%) of the subscribed capital stock or partners’ contributions, whichever is higher, may initiate
involuntary proceedings against the debtor by filing a petition for rehabilitation with the court.

What are the requirements before involuntary proceeding petition for rehabilitation can be filed with the court?
Either of the following must be present:
 There is no genuine issue of fact on law on the claim/s of the petitioner/s, and that the due and demandable payments
thereon have not been made for at least sixty (60) days or that the debtor has failed generally to meet its liabilities as they
fall due; or
 A creditor, other than the petitioner/s, has initiated foreclosure proceedings against the debtor that will prevent the debtor
from paying its debts as they become due or will render it insolvent

What is suspension of payment?

An individual debtor who, possessing sufficient property to cover all his debts but foreseeing the impossibility of meeting them when
they respectively fall due, may file a verified petition that he be declared in the state of suspension of payments by the court of the
province or city in which he has resides for six (6) months prior to the filing of his petition.

What should be attached in the petition for declaration of the state of suspension of payments?
As a minimum, the petition shall have the following attachments:
 A schedule of assets and liabilities
 An inventory of assets
 A proposed agreement with creditors

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What is rehabilitation?
Rehabilitation shall refer to the restoration of the debtor to a condition of successful operation and solvency.

When is rehabilitation possible?

Rehabilitation is possible if it is shown that the debtor’s continuance of operation is economically feasible and its creditors can
recover by way of the present value of payments projected in the plan, more if the debtor continues as a going concern than if it is
immediately liquidated.

What is a rehabilitation plan?

Rehabilitation Plan shall refer to a plan by which the financial well-being and viability of an insolvent debtor can be restored using
various means including, but not limited to, the following:
 debt forgiveness
 debt rescheduling
 reorganization or quasi-reorganization
 dacion en pago
 debt-equity conversion
 sale of the business (or parts of it) as a going concern
 setting-up of new business entity as prescribed in the Act
 other similar arrangements as may be approved by the court or creditors

What is a stay order or suspension order?

A stay or suspension order has the following effects:
 It suspends all actions or proceedings, in court or otherwise, for the enforcement of claims against the debtor
 It suspends all actions to enforce any judgment, attachment or other provisional remedies against the debtor
 It prohibits the debtor from selling, encumbering, transferring or disposing in any manner any of its properties except in the
ordinary course of business
 It prohibits the debtor from making any payment of its liabilities outstanding as of the commencement date except as may
be provided in the Act

What is a receiver?
Rehabilitation receiver shall refer to the person or persons, natural or juridical, appointed as such by the court pursuant to the Act
and which shall be entrusted with such powers and duties as set forth therein.

QUIZZER:

1) It shall refer to the financial condition of a debtor that is generally unable to pay its or his liabilities as they fall due in the
ordinary course of business or has liabilities that are greater than its or his assets.
A. Bankrupt
B. Insolvent
C. Indebted
D. Dissolved
2) Voluntary proceeding differs from involuntary proceeding in that it is initiated by the
A. Court
B. Insolvent debtor
C. Creditors
D. Receiver
3) Involuntary proceedings are initiated by the
A. Court
B. Insolvent debtor
C. Creditors
D. Receiver
4) An insolvent debtor may initiate involuntary proceeding by filing a petition for rehabilitation with the court only if with the
prior approval of the following (choose the incorrect one):
A. the owner in the case of a sole proprietorship
B. the majority of the partners in the case of a partnership
C. the vote of at least 2/3 of the members of a nonstock corporation, in a member’s meeting called for the purpose

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 D. the the majority of the vote of the board of directors or trustees and authorized by the vote of the stockholders representing
at least majority of the outstanding capital stock, in a meeting called for the purpose.

*For the stockholders, the required vote is at least 2/3 of the outstanding capital stock.

5) Which of the following creditor or group of creditors may initiate involuntary proceeding against the debtor by filing a
petition for rehabilitation with the court?
A. A creditor with a claim of P500,000
B. Group of creditors with aggregate claim of P750,000
C. A creditor with a claim of P800,000
D. Group of creditors with aggregate claim of P1,000,000

*Any creditor or group of creditors with a claim of, or the aggregate of whose claims is, at least P1,000,000. or at least twenty-
five percent (25%) of the subscribed capital stock or partners’ contributions, whichever is higher, may initiate involuntary
proceedings against the debtor by filing a petition for rehabilitation with the court.

6) An individual debtor who, possessing sufficient property to cover all his debts but foreseeing the impossibility of meeting
them when they respectively fall due, may file a verified petition that he be declared in the state of __________________ by
the court of the province or city in which he has resides for six (6) months prior to the filing of his petition.
A. bankruptcy
B. suspension of payments
C. insolvency
D. liquidation
7) In a petition for declaration for the state of suspension of payments, which of the following is not required as a minimum
attachment?
A. A schedule of assets and liabilities
B. An inventory of assets
C. A proposed agreement with creditors
D. A list of all loans in the last 5 years
8) It refers to the restoration of the debtor to a condition of successful operation and solvency.
A. Reorganization
B. Rehabilitation
C. Reconditioning
D. Liquidation
9) Which of the following is least likely included as a rehabilitation plan?
A. Debt-equity conversion
B. Quasi-reorganization
C. Liquidation
D. Dacion en pago

*Liquidation is the process of realizing the assets of the company, distributing the proceeds to rightful claimants and bringing an
end to the business, a process opposite to rehabilitation.

10) Which of the following is not an effect of a stay order or suspension order?
A. It suspends all actions or proceedings, in court or otherwise, for the enforcement of claims against the debtor.
B. It suspends all actions to enforce any judgment, attachment or other provisional remedies against the debtor.
C. It prohibits the debtor from selling, encumbering, transferring or disposing in any manner any of its properties even if it is in
the ordinary course of business.
D. It prohibits the debtor from making any payment of its liabilities outstanding as of the commencement date except as may be
provided in the Act.

*A stay order or suspension order prohibits the debtor from selling, encumbering, transferring or disposing in any manner any of
its properties except in the ordinary course of business.

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 Bouncing Checks
Batas Pambansa Blg. 22 “Anti-Bouncing Check Law”

What is a bounced check? A bounced check is a worthless check.

What does the law say on checks without sufficient funds?

A check without sufficient fund is a check:
 Upon presentment for payment, is dishonored by the bank for insufficiency of funds, and the issuer knows at the time of
issue that he does not have sufficient funds in or credit with the drawee bank
 Which would have been dishonored for insufficiency of funds, had the drawer not ordered his bank to stop the payment of
the check, without a valid reason for such order
 When presented for payment within 90 days from issue, is dishonored by the bank for insufficiency of funds, even if the
issuer has sufficient funds in or credit with the bank at the time of issue

What does credit mean?

Credit, as used in this Law, shall be construed to mean an arrangement or understanding with the bank for the payment of such
check.

Who shall be liable?

Any person making, drawing and issuing a check without sufficient fund is liable.

Who shall be liable in case the check is issued by a corporation?

Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of
such drawer (i.e. the corporation, company or entity) shall be liable. This means that the officers signing the check for the
corporation will be the ones liable.

What is the punishment?

The punishment shall be either or both of the following:
 Imprisonment of not less than 30 days but not more than 1 year
 Fine of not less than but not more than double the amount of the check, but shall not exceed P200,000

Given that no person shall be imprisoned for non-payment of debt, is Batas Pambansa Blg. 22 constitutional?
Yes, it is constitutional. What is punished by this law is the act of making and issuing of a worthless check or a check that is
dishonored upon its presentation for payment, and NOT the non-payment of the obligation.

What is the evidence of knowledge of insufficient funds?

The making, drawing and issuance of a check payment of which is refused by the drawee because of insufficient funds in or credit
with such bank, when presented within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of
such insufficiency of funds or credit.

Is there an exception to the presumption above?

Yes. The presumption does not apply when the maker or drawer pays the holder of the check the amount due, or makes
arrangement for payment in full by the drawee of such check within 5 banking days after receiving notice that such check has not
been paid by the drawee.

What is the duty of the drawee of a bounced check?

When refusing to pay the check to its holder upon presentment, it is the drawee’s (e.g. bank) duty to cause to be written, printed, or
stamped on the check, in plain language, or attached thereto, the reason for its dishonor or refusal to pay. Where there are no
sufficient funds in or credit with such drawee bank, such fact shall always be explicitly stated in the notice of dishonor or refusal.

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QUIZZER:

1) Which of the following is not one of the elements of violation of BP Blg. 22?
A. the making, drawing, and issuance of any check to apply for account or for value
B. the knowledge of the maker, drawer, or issuer that at the time of issue he does not have sufficient funds in or credit with the
drawee bank for the payment of the check in full upon its presentment
C. the subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason
had not the drawer, without any valid cause, ordered the bank to stop payment
D. the subsequent payment by the drawer to the holder of the check after it was dishonored by the drawee bank upon
presentment

2) A bounced or worthless check is also known as a

A. Post-dated check
B. Crossed check
C. Bum check
D. Special check

3) Which of the are checks without sufficient fund, as contemplated by BP Blg. 22.
I. A check dishonored by the bank upon presentment, due to insufficiency of funds, and the issuer has knowledge of
insufficiency at the time of issue
II. A check which would have been dishonored for insufficiency, were it not for the drawer’s unjustifiable order to his bank to
stop the payment of the check
III. A check dishonored for insufficiency when presented for payment within 90 days from issue, even if there was sufficient fund
at the time of issue
A. I and II only
B. I and III only
C. II and III only
D. I, II and III

4) A issued check in favor of B. A knew at the time of issue that the check has no sufficient fund in the drawee bank. Upon
presentment by B, the bank dishonored the check for insufficiency. B filed charges against A for violation of BP Blg. 22. A,
however, subsequently issued another check to B in payment of the amount covered by the original check. Can A still be
charged with violation of BP Blg. 22?
A. No, because the subsequent check cleared the offense
B. No, because there is no more unpaid debt
C. No, because no person shall be imprisoned for debt
D. Yes, because what is punished is the act of issuing a worthless check

*The law has made the mere act of issuing a bum check a malum prohibitum, an act proscribed by legislature for being deemed
pernicious and inimical to public welfare. The gravamen of the offense under this law is the act of issuing a worthless check or a
check that is dishonored upon its presentment for payment. Thus, even if there had been payment, through compensation or
some other means, there could still be prosecution for violation of B.P. 22. (Tan vs. Mendez, GR No. 138669, June 6, 2002).

5) As used in BP Blg. 22, it shall mean an arrangement or understanding with the bank for the payment of check.
A. Debit
B. Credit
C. Deposit
D. Withdrawal

6) When a worthless check is issued by a corporate entity, who shall be liable?

A. the shareholders
B. the corporate officers signing the check
C. the Board of Directors
D. no one

*Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of
such drawer (i.e. the corporation, company or entity) shall be liable. This means that the officers signing the check for the
corporation will be the ones liable.
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7) Persons guilty of issuing checks without sufficient funds face which two of the following sanctions?
A. Imprisonment of not less than 30 days but not more than 1 year
B. Imprisonment of not less than 60 days but not more than 2 years
C. Fine equal to the amount of the check
D. Fine of not less than but not more than double the amount of the check

*A and D. The punishment shall be either imprisonment of not less than 30 days but not more than 1 year, or fine of not less than
but not more than double the amount of the check.

8) The making, drawing and issuance of a check payment of which is refused by the drawee because of insufficient funds in or
credit with such bank, when presented within ninety (90) days from the date of the check, shall be
A. prima facie evidence of knowledge of such insufficiency of funds or credit
B. conclusive evidence of knowledge of such insufficiency of funds or credit
C. indisputable evidence of knowledge of such insufficiency of funds or credit
D. proof beyond reasonable doubt of knowledge of such insufficiency of funds or credit

*However, this presumption does not apply when the maker or drawer pays the holder of the check the amount due, or makes
arrangement for payment in full by the drawee of such check within 5 banking days after receiving notice that such check has
not been paid by the drawee.

9) When a check presented has bounced, it is the drawee bank’s duty to

A. initiate the filing of charges against the drawer for violation of BP Blg. 22
B. advise the payee of the check to file charges against the drawer for violation of BP Blg. 22
C. cause to be written, printed, or stamped on the check, in plain language, or attached thereto, the reason for its dishonor or
refusal to pay
D. All of the above

*Moreover, where there are no sufficient funds in or credit with such drawee bank, such fact shall always be explicitly stated in
the notice of dishonor or refusal.

GENERAL BANKING LAW

Republic Act No. 337 is known as “The General Banking Act.”
What is a bank or a banking institution?
A bank or a banking institution is a person or entity duly authorized to engage in the lending of funds obtained from the public
through the receipt of deposits or the sale of bonds, securities, or obligations of any kind, and any entity regularly conducting such
operations.

What does the term bank or banking institution include?

The following are considered banks or banking institutions:
 Commercial banks
 Savings banks
 Mortgage banks
 Trust companies
 Building and loan associations
 Branches and agencies in the Philippines of foreign banks
 All other corporations, companies, partnerships, and associations performing banking functions in the Philippines

What are specifically excluded from the provisions of Republic Act No. 337?
Persons and entities which receive deposits only occasionally shall not be considered as banks.
Also, insurance companies are exempted from the provisions of RA No. 337.

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How shall domestic banks be organized?
Domestic banking institutions, except building and loan associations, shall be organized in the form of stock corporations.

What type of stocks may be issued by banks?

No banking institution shall issue no par value stock.

Can banks advertise the amount of their authorized or subscribed capital stock?
No, unless they also indicate, at the same time and with equal prominence, the amount of their capital actually paid up.

What is the ownership requirement for banks’ stocks?

At least 60% of the capital stock of any banking institution shall be owned by citizens of the Philippines.

What is the directorship requirement for banks?

At least 2/3 of the members of the Board of Directors of any bank or banking institution shall be citizens of the Philippines.

What is a commercial banking corporation?

A commercial banking corporation shall be any corporation which accepts or creates demand deposits subject to withdrawal by
check.

What is a savings and mortgage banks?

A savings and mortgage banks shall be any corporation organized primarily for the purpose of accumulating the small savings of
depositors and investing them, together with its capital, in bonds or in loans secured by bonds, real estate mortgages, and other
forms of security provided in the Act.

What are building and loan associations?

Building and loan associations are all corporations whose capital stock is required or is permitted to be paid in by the stockholders in
regular, equal periodical payments and with the following purposes:
 to accumulate the savings of its stockholders
 to repay to said stockholders their accumulated savings and profits upon surrender of their shares
 to encourage industry, frugality, and home building among its stockholders
 to loan its funds, and funds borrowed for the purpose, to stockholders of the security of unencumbered real estate and with the
pledge of shares of the capital stock owned by such stockholders as collateral security

What loan is prohibited for a building and loan association?

It shall be unlawful for any building and loan association to make any loan upon property that is suitable for only as the following:
 theater
 public hall
 church
 convent
 school
 club
 hotel
 garage
 other public building

What is a trust corporation?

A trust corporation is any corporation formed or organized for the purpose of acting as trustee or administering any trust or holding
property in trust or on deposit for the use, benefit, or behoof (advantage) of others.

Can a trust corporation engage in commercial banking?

Yes. A trust company may, with the approval of the Monetary Board, do a commercial banking business but such business must be
kept separate and distinct from its trust business.

Can a commercial bank engage in the business of a trust company?

Yes. A commercial banking corporation may, with the approval of the Monetary Board, be authorized to engage in the business of a
trust company, but shall be subject to the provisions related to the trust corporations as regards its trust business.

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What specific business cannot be entered into by banking institutions?
Banking institutions shall not engage in insurance business as the insurer.

What is DOSRI?
DOSRI stands for Dealings of a bank with any of its Directors, Officers, Stockholders and their Related Interests.

What is the general policy for DOSRI?

DOSRI should meet both of the following requisites:
 Dealings should be in the regular course of business
 Dealings should be upon terms not less favorable to the bank than those offered to others

What is the DOSRI rule?

The DOSRI rule limits the loans and guarantees that can be granted by a bank to a single director, officer, stockholder or related
interest to an amount equivalent to his unencumbered deposits or the book value of his paid-in capital contribution to the bank.

What is a substantial stockholder?

Substantial stockholder shall mean a person, or group of persons whether natural or juridical, owning such number of shares that
will allow such person or group to elect at least one (1) member of the board of directors of a bank or who is directly or indirectly
the registered or beneficial owner of more than ten percent (10%) of any class of its equity security.

What is SBL? SBL stands for Single Borrower’s Limit.

What is the single borrower’s limit?

Per Bangko Sentral ng Pilipinas Circular No. 425, series of 2004, consistent with national interest, the total amount of loans, credit
accommodations and guarantees that may be extended by a bank to any person, partnership, association, corporation or other
entity shall at no time exceed twenty five percent (25%) of the net worth of such bank.

Can the single borrower’s limit be increased?

Yes. It can be increased by an additional 10%; Provided, That the additional liabilities 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.

QUIZZER:

1) Which of the following does not characterize a bank or banking institution?

A. Authorized to engage in lending of funds
B. Funds for lending are obtained mainly from private institutions
C. Funds are from receipt of deposits or sale of bonds
D. It conducts banking activities on a regular basis

*The funds used by the bank from lending are mainly from the public through the receipt of deposits or the sale of bonds,
securities, or obligations of any kind.

2) Which of the following is excluded from the term “banking institution”?

A. Building and loan association
B. Money changer
C. Trust company
D. Savings bank

*Bank or banking institutions include commercial, savings and mortgage banks, trust companies, savings and loan associations,
Philippine branches and agencies of foreign banks and all other corporations, companies, partnerships and associations
performing banking functions in the Philippines.

3) False: Insurance companies are included in the provisions of Republic Act No. 337 or the General Banking Law.
*Insurance companies are exempted from the provisions of RA No. 337.

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4) Which of the following security cannot be issued by banks?
A. Preferred stock
B. Common stock
C. Bonded instrument
D. No par value stock
*No banking institution shall issue no par value stock.

5) At least what percent of the capital stock of any banking institution shall be owned by citizens of the Philippines?
A. 50%
B. 60%
C. 75%
D. 90%

6) What type of banking institution is one which accepts or creates demand deposits subject to withdrawal by check?
A. Trust company
B. Mortgage bank
C. Commercial bank
D. Building and loan association

7) Which of the following is not a purpose of a building and loan association?

A. to accumulate the savings of its stockholders
B. to repay to stockholders their accumulated savings and profits upon surrender of their shares
C. to loan its funds to stockholders of the security of unencumbered real estate
D. to act as trustee or administer any trust or hold property in trust or on deposit for the benefit of others

*What is described here is the purpose of a trust corporation.

8) False: Commercial banking institutions cannot engage in the business of a trust company.
*A commercial banking corporation may, with the approval of the Monetary Board, be authorized to engage in the business of a
trust company, but shall be subject to the provisions related to the trust corporations as regards its trust business.

9) What does the D in DOSRI represent?

A. Dividends
B. Directors
C. Discounts
D. Depreciation

10) DOSRI should be in the regular course of business and the dealings should be upon which terms?
A. Not more favorable to the bank than those offered to others
B. Not less favorable to the bank than those offered to others
C. Exactly similar to those offered to others
D. Double those offered to others

*The dealings should be upon terms not less favorable to the bank than those offered to others.

11) A substantial stockholder shall mean a person, or group of persons whether natural or juridical, owning such number of
shares that will allow such person or group to elect at least _______________ of the board of directors of a bank or who is
directly or indirectly the registered or beneficial owner of more than _______________ of any class of its equity security.
A. 1 member; 20%
B. 2 members; 10%
C. 1 member; 10%
D. 2 members; 20%

12) What does SBL stand for?

A. Standard By Laws
B. Secured Banking Legislation
C. Single Borrower’s Limit
D. See Bottom Line
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13) Per Bangko Sentral ng Pilipinas Circular No. 425, series of 2004, consistent with national interest, the total amount of loans,
credit accommodations and guarantees that may be extended by a bank to any person, partnership, association, corporation
or other entity shall at no time exceed ______ of the net worth of such bank.
A. 10%
B. 20%
C. 25%
D. 40%

14) With certain requirements, SBL can be increased by what percent?

A. 5%
B. 10%
C. 15%
D. 20%

*It can be increased by an additional 10%; Provided, That the additional liabilities 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.

ANTI-MONEY LAUNDERING ACT

Republic Act No. 9160 “Anti-Money Laundering Act of 2001.”
It is the policy of the State to protect and preserve the integrity and confidentiality of bank accounts and to ensure that the
Philippines shall not be used as a money laundering site for the proceeds of any unlawful activity.

What is money laundering?

Money laundering is a crime whereby the proceeds of an unlawful activity are transacted, thereby making them appear to have
originated from legitimate sources.

How is money laundering committed?

Money laundering is committed by the following:

 Any person knowing that any monetary instrument or property represents, involves, or relates to, the proceeds of any unlawful
activity, transacts or attempts to transact said monetary instrument or property.
 Any person knowing that any monetary instrument or property involves the proceeds of any unlawful activity, performs or fails
to perform any act as a result of which he facilitates the offense of money laundering referred to in paragraph above.
 Any person knowing that any monetary instrument or property is required under this Act to be disclosed and filed with the Anti-
Money Laundering Council (AMLC), fails to do so.

What is a covered transaction?

A covered transaction is a single, series, or combination of transactions of more than P4,000,000 or an equivalent amount in foreign
currency based on the prevailing exchange rate within 5 consecutive banking days. It likewise refers to a single, series or
combination or pattern of unusually large and complex transactions of more than P4,000,000 especially cash deposits and
investments having no credible purpose or origin, underlying trade obligation or contract.

Are there changes to the definition of covered transactions?

Yes. Republic Act No. 9194 amends the definition of a covered transaction as follows:
A covered transaction is a transaction in cash or other equivalent monetary instrument involving a total amount of more than
P500,000 within 1 banking day.
This is now the new definition of covered transaction.

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What are suspicious transactions?

RA No. 9194 further amends RA No. 9160 to define what a suspicious transaction is.

Suspicious transactions are transactions with covered institutions, regardless of the amounts involved, where any of the following
circumstances exist:

 there is no underlying legal or trade obligation, purpose or economic justification

 the client is not properly identified
 the amount involved is not commensurate with the business or financial capacity of the client
 taking into account all known circumstances, it may be perceived that the client’s transaction is structured in order to avoid being
the subject of reporting requirements under the Act
 any circumstances relating to the transaction which is observed to deviate from the profile of the client and/or the client’s past
transactions with the covered institution
 the transaction is in a way related to an unlawful activity or offense under this Act that is about to be, is being or has been
committed
 any transactions that is similar or analogous to any of the foregoing

Who shall report suspicious transactions? Suspicious transactions shall be reported by covered persons.

Who are covered persons?

Covered persons, natural or juridical, refer to:
 banks, non-banks, quasi-banks, trust entities, foreign exchange dealers, pawnshops, money changers, remittance and transfer
companies and other similar entities and all other persons and their subsidiaries and affiliates supervised or regulated by the
Bangko Sentral ng Pilipinas
 insurance companies, pre-need companies and all other persons supervised or regulated by the Insurance Commission
 securities dealers, brokers, salesmen, investment houses and other similar persons managing securities or rendering services as
investment agent, advisor, or consultant, (ii) mutual funds, close-end investment companies, common trust funds, and other
similar persons, and (iii) other entities administering or otherwise dealing in currency, commodities or financial derivatives based
thereon, valuable objects, cash substitutes and other similar monetary instruments or property supervised or regulated by the
Securities and Exchange Commission
 jewelry dealers in precious metals, who, as a business, trade in precious metals, for transactions of more than P1,000,000
 jewelry dealers in precious stones, who, as a business, trade in precious stones, for transactions of more than P1,000,000
 company service providers which, as a business, provide any of the following services to third parties:
 acting as a formation agent of juridical persons
 acting as (or arranging for another person to act as) a director or corporate secretary of a company, a partner of a partnership, or
a similar position in relation to other juridical persons
 providing a registered office, business address or accommodation, correspondence or administrative address for a company, a
partnership or any other legal person or arrangement
 acting as (or arranging for another person to act as) a nominee shareholder for another person
 persons who provide any of the following services:
 managing of client money, securities or other assets
 management of bank, savings or securities accounts
 organization of contributions for the creation, operation or management of companies
 creation, operation or management of juridical persons or arrangements, and buying and selling business entities.

Are there exceptions to the definitions of covered persons?

Yes. Notwithstanding the definitions above, covered persons shall not include lawyers and accountants acting as independent legal
professionals in relation to information concerning their clients or where disclosure of information would compromise client
confidences or the attorney-client relationship.

When should covered persons report suspicious transactions?

Per Republic Act No. 9160
Covered institutions shall report to the AMLC all covered transactions within 5 working days from occurrence thereof, unless the
Supervising Authority concerned prescribes a longer period not exceeding 10 working days.

Per Republic Act No. 10365 (amending RA No. 9160)

Covered persons shall report to the AMLC all covered transactions and suspicious transactions within 5 working days from
occurrence thereof, unless the AMLC prescribes a different period not exceeding 15 working days.
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QUIZZER:
1) As to the character of the offense, “Money Laundering” is
A. Civil
B. Criminal
C. Political
D. Natural
*Money laundering is a crime whereby the proceeds of an unlawful activity are transacted, thereby making them appear to have
originated from legitimate sources.

2) What is the threshold figure for a “covered transaction”?

A. at least P500,000
B. more than P500,000
C. at least P4,000,000
D. more than P4,000,000
*A covered transaction is a transaction in cash or other equivalent monetary instrument involving a total amount of more than
P500,000 within 1 banking day. (Note: the more than P4,000,000 threshold was before the amendments made under RA No. 9194).

3) False: The “more than P500,000” threshold applies to “suspicious transactions”.

*Suspicious transactions are transactions with covered institutions, regardless of the amounts involved, where any of the
circumstances enumerated in the law exist.

4) Suspicious transactions are transactions with covered institutions, regardless of the amounts involved, where any of the
following circumstances exist (choose the exception):
A. there is no underlying legal or trade obligation, purpose or economic justification
B. the client is not properly identified
C. the amount involved is commensurate with the business or financial capacity of the client
D. the transactions is in a way related to an unlawful activity or offense under the Act that is about to be, is being or has been
committed
*The phrase should read as: “not commensurate”.

5) Suspicious transactions shall be reported by covered persons. Which of the following is least likely considered as a covered
person?
A. Bank or banking institution
B. Insurance company
C. Jewelry dealer in precious metal
D. Lawyer acting as independent legal counsel
*Covered persons shall not include lawyers and accountants acting as independent legal professionals in relation to information
concerning their clients or where disclosure of information would compromise client confidences or the attorney-client relationship.

6) To which specific body shall covered persons report the occurrence of suspicious transactions?
A. COA – Commission on Audit
B. BSP – Bangko Sentral Ng Pilipinas
C. AMLC – Anti-Money Laundering Council
D. PDIC – Philippine Deposit Insurance Commission
*Covered persons shall report to the AMLC all covered transactions and suspicious transactions.

7) Within how many days shall covered persons report to the AMLC the occurrence of suspicious transactions?
A. 1 working day
B. 3 working days
C. 5 working days
D. 7 working days
*Covered persons shall report to the AMLC all covered transactions and suspicious transactions within 5 working days from
occurrence thereof, unless the AMLC prescribes a different period not exceeding 15 working days.

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 The New Central Bank Act
Republic Act No. 7653 “The New Central Bank Act”

What is the legal tender power of the Bangko Sentral ng Pilipinas?

All notes and coins issued by the Bangko Sentral shall be fully guaranteed by the Government of the Republic of the Philippines and
shall be legal tender in the Philippines for all debts, both public and private.

What does the “legal tender power” of a currency mean?

Legal tender power means that when the currency is offered in payment of a debt, public or private, the same must be accepted.

Is there a limit to the legal tender power of Philippine currency notes and coins?
Philippine currency notes have no limit to their legal tender power. This means that bills, in any denomination (P20, P50, P100, P200,
P500, P1,000) must be accepted up to any amount.
In the case of coins, their legal tender power shall have the following limits:
 25-centavo coins and above – acceptable up to P50
 10-centavo coins or less – acceptable up to P20

However, pursuant to BSP Circular No. 537, series of 2006, the new limits to the legal tender power of coins are:
 P1, P5 and P10 – acceptable up to P1,000
 All centavo (sentimo) coins – acceptable up to P100

Under what authority does the BSP issue currency?

Per RA No. 7653, the Bangko Sentral ng Pilipinas is the sole government institution mandated by law to issue notes and coins for
circulation in the Philippines.

What is conservatorship?
Broadly defined, conservatorship is an attempt to save the bank from bankruptcy and eventual liquidation. Doing so entails
appointment of a conservator who will take steps such as management reforms and infusion of additional capital.

What is a conservator?
A conservator is person appointed by the Monetary Board to perform the following functions:

 Take charge of the assets, liabilities and management of a bank or quasi-bank

 Reorganize the management
 Collect all monies and debts due to it
 Exercise all powers necessary to restore the bank or quasi-bank’s viability

When is a conservator needed?

A conservator is appointed whenever a bank or a quasi-bank is in a state of continuing inability or unwillingness to maintain a
condition of liquidity deemed adequate to protect the interest of depositors and creditors.

Who appoints the conservator? The Monetary Board appoints the conservator.

For under what duration shall the conservatorship be? The conservatorship shall not exceed 1 year.

What is receivership?
Receivership is the summary closure of the bank by the Bangko Sentral ng Pilipinas without the need of prior notice and hearing.

When is a bank or quasi-bank placed under receivership?

Receivership happens upon finding by the Monetary Board that continuance in business of the bank or quasi-bank will involve
probable loss to its depositors and creditors.

What specific findings of the Monetary Board serve as bases for receivership?
The banking institution is placed under receivership upon finding of the Monetary Board of the following:
 Inability to pay liabilities
 Insufficiency of realizable assets to meet its liabilities
 Inability to continue business without involving probable loss to depositors and creditors

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  Wilful violation of cease and desist order under Sec. 37 of RA No. 7653 that has become final involving acts or transactions
which amount to fraud or dissipation of assets of the institution

Who shall function as the receiver?

For banks, the Monetary Board designates the Philippine Deposit Insurance Corporation as the receiver.
For quasi-banks, any person of recognized competence in banking or finance may be designated as the receiver.

What are the functions of the receiver?

Once appointed, the receiver shall perform the following functions:
 Immediately gather and take charge of all the assets and liabilities of the institution
 Administer the assets and liabilities for the benefit of its creditors
 Exercise the general powers of a receiver under the Revised Rules of Court

Is the receiver tasked to pay the claims of creditors and other liabilities?
No. With the exception of administrative expenditures, the receiver shall not pay or commit any act that will involve the transfer or
disposition of any asset of the institution. However, the receiver may deposit or place the funds of the institution in non-speculative
investments.

For under what duration shall the receivership be? The receivership shall not exceed 90 days.

What happens during or after the 90 days of receivership?

The receiver shall determine as soon as possible, but not later than 90 days from take over, whether the institution may be
rehabilitated or otherwise placed in such a condition so that it may be permitted to resume business with safety to its depositors
and creditors and the general public.

What if the receiver determines that the bank or quasi-bank can no longer be rehabilitated?
If the receiver determines that the institution cannot be rehabilitated or permitted to resume business, the Monetary Board shall
notify in writing the Board of Directors of its findings and direct the receiver to proceed with the liquidation of the institution.

What happens during liquidation of a bank or quasi-bank?

In liquidation, the claims of the bank’s creditors are determined and paid, as the bank can no longer be rehabilitated.

When does liquidation take place?

Liquidation may be voluntary, pursuant to Sec. 68 of the General Banking Law, or, as earlier answered, upon determination by the
receiver that the bank or quasi-bank can no longer be rehabilitated and cannot continue business after the 90-day receivership
period.

For under what duration shall the liquidation be?

The law does not state a specified period. Since this involves payments of liabilities, it may take as much time as needed to
determine and pay all claims of creditors.

QUIZZER:
1) It means that, when a currency is offered in payment of a debt, public or private, the same must be accepted.
A. Purchasing power
B. Negotiability of instrument
C. Legal tender power
D. Liquidity of money
2) Which of the following does not constitute legal tender?
A. 1,000 pieces of P20-bill
B. 100 pieces of P20-bill and 100 pieces of P10-coin
C. 300 pieces of P5-coin
D. Centavo coins worth P100
*Philippine currency notes (bills) have no limit to their legal tender power. For coins, centavos are acceptable up to P100, while
other coins (P1, P5, P10) are acceptable up to P1,000.

3) Which of the following has legal tender power?

I. Checks representing demand deposit
II. Negotiable promissory note
A. I only
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 B. II only
C. Both I and II
D. Neither I nor II
*Checks representing demand deposits do not have legal tender power and their acceptance in the payment of debts, both public
and private, is at the option of the creditor: Provided, however, That a check which has been cleared and credited to the account
of the creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account.
Negotiable instruments do not have legal tender power.

4) Which government institution has the sole authority to issue notes and coins for circulation in the Philippines?
A. Bureau of Treasury
B. Bureau of Internal Revenue
C. Bangko Sentral Ng Pilipinas
D. Landbank of the Philippines

5) It is an attempt to save the bank from bankruptcy and eventual liquidation.

A. Liquidation
B. Conservatorship
C. Receivership
D. Dissolution
*Broadly defined, conservatorship is an attempt to save the bank from bankruptcy and eventual liquidation. Doing so entails
appointment of a conservator who will take steps such as management reforms and infusion of additional capital.

6) Who appoints the conservator?

A. Monetary Board
B. Commission on Audit
C. Depositor
D. Court

7) Which of the following is not one of the functions of the conservator?

A. Take charge of the assets, liabilities and management of a bank or quasi-bank
B. Reorganize the management
C. Collect all monies and debts due to the bank
D. Administer the bank’s assets and liabilities for the benefit of its creditors
*Administering the bank’s assets and liabilities for the benefit of creditors is a function of a receiver, not conservator.

8) The conservatorship shall be for a period

A. Of at least 1 year
B. Of at least 2 years
C. Not to exceed 1 year
D. Not to exceed 2 years

9) It is the summary closure of the bank by the Bangko Sentral ng Pilipinas without the need of prior notice and hearing.
A. Conservatorship
B. Receivership
C. Liquidation
D. Rehabilitation

10) The bank or banking institution is placed under receivership upon finding of the Monetary Board of the following (choose the
exception):
A. Inability to pay liabilities
B. Insufficiency of realizable assets to meet its liabilities
C. Inability to continue business without involving probable loss to depositors and creditors
D. Inability to declare dividends

15
11) Who among the following has the task of paying the claims of creditors and other liabilities of the bank?
A. Conservator
B. Receiver
C. Liquidator
D. President

12) Receivership shall not exceed

A. 30 days
B. 90 days
C. 120 days
D. 60 days

13) Which of the following is not a function of a receiver?

A. Gather and take charge of all the assets and liabilities of the bank
B. Administer the assets and liabilities for the benefit of its creditors
C. Exercise the general powers of a receiver under the Revised Rules of Court
D. Pay or commit any act that will involve the transfer or disposition of any asset of the bank
*With the exception of administrative expenditures, the receiver shall not pay or commit any act that will involve the transfer or
disposition of any asset of the institution. However, the receiver may deposit or place the funds of the institution in non-
speculative investments.

COOPERATIVES
Republic Act No. 9520 “Philippine Cooperative Code of 2008”

 Organization and registration of cooperatives

 Types and categories of cooperatives
 Administration
 Responsibilities, rights and privileges of cooperatives
 Capital, property of funds
 Audit, inquiry and members’ right to examine
 Allocation and distribution of funds
 Dissolution of cooperatives

A cooperative is an autonomous and duly registered association of persons, with a common bond of interest, who have voluntarily
joined together to achieve their social, economic, and cultural needs and aspirations by making equitable contributions to the capital
required, patronizing their products and services and accepting a fair share of the risks and benefits of the undertaking in
accordance with universally accepted cooperative principles.

What are the essential characteristics of cooperatives?

 Autonomy and due registration
 Voluntary membership
 Equitable capital contributions of members
 Patronizing by members of the products and services of the cooperative
 Share in the risks and benefits

On Organization and registration of cooperatives

What is a primary cooperative?
A primary cooperative is a cooperative whose members are natural persons.
As to membership, the other categories are:
• Secondary cooperative – the members of which are primary cooperatives
• Tertiary cooperative – the members of which are secondary cooperatives

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Who may organize a primary cooperative?
Fifteen (15) or more natural persons who have the following requisites may organize a primary cooperative:
• Filipino citizens
• Of legal age
• Have a common bond of interest
• Actually residing or working in the intended area of operation

Can a primary cooperative be registered as a multi-purpose cooperative?

Any newly organized primary cooperative may be registered as multi-purpose cooperative only after compliance with the minimum
requirements for multipurpose cooperatives to be set by the Cooperative Development Authority (CDA).

Can a single-purpose cooperative become a multi-purpose cooperative?

Yes. A single-purpose cooperative may transform into a multipurpose or may create subsidiaries but only after at least 2 years of
operations.

What is the extent of the liability of a cooperative? A duly registered cooperative shall have limited liability.

What is the legal life of a cooperative?

A cooperative shall exist for a period not exceeding 50 years from the date of registration unless sooner dissolved or unless said
period is extended.

What is the rule on extension of cooperative life?

The cooperative term, as originally stated in the articles of cooperation, may be extended for periods not exceeding 50 years in any
single instance by an amendment of the articles of cooperation.

However, no extension can be made earlier than 5 years prior to the original or subsequent expiry date unless there are justifiable
reasons for an earlier extension.

What is the capital requirement to register a cooperative?

No cooperative, other than a cooperative union, shall be registered unless the Articles of Cooperation is accompanied with the
bonds of the accountable officers and a sworn statement of the treasurer elected by the subscribers showing that:
• at least 25% of the authorized share capital has been subscribed; and
• at least 25% of the total subscription has been paid
However, the paid-up share capital must be at least P15,000.

When does a cooperative acquire juridical personality?

A cooperative formed and organized under the Code acquires juridical personality from the date the CDA issues a certificate of
registration under its official seal.

What is the legal power of a certificate of registration?

A certificate of registration issued by the CDA under its official seal shall be conclusive evidence that the cooperative therein
mentioned is duly registered, unless it is proved that the registration has been cancelled.

What are the different types of cooperatives?

 Credit Cooperative – one that promotes and undertakes savings and lending services among its members. It generates a common
pool of funds in order to provide financial assistance to its members for productive and provident purposes.
 Consumers Cooperative – one the primary purpose of which is to procure and distribute commodities to members and non-
members.
 Producers Cooperative – one that undertakes joint production whether agricultural or industrial. It is formed and operated by its
members to undertake the production and processing of raw materials or goods produced by its members into finished or
processed products for sale by the cooperative to its members and non-members. Any end product or its derivative arising from
the raw materials produced by its members, sold in the name and for the account of the cooperative, shall be deemed a product
of the cooperative and its members.
 Marketing Cooperative – one which engages in the supply of production inputs to members and markets their products.
 Service Cooperative – one which engages in medical and dental care, hospitalization, transportation, insurance, housing, labor,
electric light and power, communication, professional and other services.
 Multi-purpose Cooperative – one which combines two (2) or more of the business activities of these different types of
cooperatives.
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 Advocacy Cooperative – a primary cooperative which promotes and advocates cooperativism among its members and the public
through socially-oriented projects, education and training, research and communication, and other similar activities to reach out
to its intended beneficiaries.
 Agrarian Reform Cooperative – one organized by marginal farmers majority of which are agrarian reform beneficiaries for the
purpose of developing an appropriate system of land tenure, land development, land consolidation or land management in areas
covered by agrarian reform.
 Cooperative Bank – one organized for the primary purpose of providing a wide range of financial services to cooperatives and
their members.
 Dairy Cooperative – one whose members are engaged in the production of fresh milk which may be processed and/or marketed
as dairy products.
 Education Cooperative – one organized for the primary purpose of owning and operating licensed educational institutions
notwithstanding the provisions of Republic Act No. 9155, otherwise known as the Governance of Basic Education Act of 2001.
 Electric Cooperative – one organized for the primary purposed of undertaking power generations, utilizing renewable energy
sources, including hybrid systems, acquisition and operation of subtransmission or distribution to its household members.
 Financial Service Cooperative – one organized for the primary purpose of engaging in savings and credit services and other
financial services.
 Fishermen Cooperative – one organized by marginalized fishermen in localities whose products are marketed either as fresh or
processed products.
 Health Services Cooperative – one organized for the primary purpose of providing medical, dental and other health services.
 Housing Cooperative – one organized to assist or provide access to housing for the benefit of its regular members who actively
participate in the savings program for housing. It is co-owned and controlled by its members.
 Insurance Cooperative – one engaged in the business of insuring life and poverty of cooperatives and their members.
 Transport Cooperative – one which includes land and sea transportation, limited to small vessels, as defined or classified under
the Philippine maritime laws, organized under the provisions of the Code.
 Water Service Cooperative – one organized to own, operate and manage waters systems for the provision and distribution of
potable water for its members and their households.
 Workers Cooperative – one organized by workers, including the self-employed, who are at same time the members and owners of
the enterprise. Its principal purpose is to provide employment and business opportunities to its members and manage it in
accordance with cooperative principles.

What is a laboratory cooperative?

A laboratory cooperative is one organized by minors. It shall be governed by special guidelines to be promulgated by the CDA.

On membership and administration of cooperatives

What are the types of members in a cooperative?

A cooperative may have 2 types of members:
• Regular members
• Associate members
•

What is a regular member?

A regular member is one who has complied with all the membership requirements and entitled to all the rights and privileges of
membership.

What is an associate member?

An associate member is one who has no right to vote nor be voted upon and shall be entitled only to such rights and privileges as the
bylaws may provide.
However, an associate who meets the minimum requirements of regular membership, and continues to patronize the cooperative
for 2 years, and signifies his/her intention to remain a member shall be considered a regular member.

Who are disqualified to become members or elected as officers of a cooperative?

Any officer or employee of the CDA shall be disqualified to be elected or appointed to any position in a cooperative.
All elective officials of the Government shall be ineligible to become officers and directors of cooperatives.

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What is the extent of a member’s liability?
A member shall be liable for the debts of the cooperative to the extent of his contribution to the share of the cooperative.
Unlike in partnership, and like in corporations, a member’s personal assets shall not answer for the debts of the cooperative.

May a member withdraw his membership from the cooperative?

Yes. A member of a cooperative may, for any valid reason, withdraw his membership from the cooperative by giving a 60 day notice
to the Board of Directors.

Will a withdrawing member receive a refund of his capital contribution?

Yes, with qualifications. Subject to the bylaws of the cooperative, the withdrawing member shall be entitled to a refund of his share
capital contribution and all other interests in the cooperative.
However, the refund shall not be made if upon such payment the value of the assets of the cooperative would be less than the
aggregate amount of its debts and liabilities exclusive of his share capital contribution.

Can a member be removed from the cooperative?

Yes. Membership in the cooperative may be terminated by a vote of the majority of all the members of the BOD for any of the
following causes:
• When a member has not patronized any of the services of the cooperative for an unreasonable period of time as may be
previously determined by the BOD
• When a member has continuously failed to comply with his obligations
• When a member has acted in violation of the bylaws and the rules of the cooperative
• For any act or omission injurious or prejudicial to the interest or the welfare of the cooperative

What is the composition of a cooperative’s General Assembly?

The General Assembly shall be composed of such members who are entitled to vote under the Articles of Cooperation and bylaws of
the cooperative

What are the powers of the General Assembly?

The General Assembly shall be the highest policy-making body of the cooperative and shall exercise such powers as are stated in the
Code.
Specifically, the following powers of the General Assembly cannot be delegated:
• To determine and approve amendments to the articles of cooperation and bylaws
• To elect or appoint the members of the board of directors, and to remove them for cause. However, in the case of the electric
cooperatives registered under the Code, election of the members of the board shall be held in accordance with its bylaws or
election guideline of such electric cooperative
• To approve developmental plans of the cooperative

When should general meetings of a cooperative be held?

A regular meeting shall be held annually by the General Assembly on a date fixed in the bylaws.

What if the bylaws do not fix a period for the regular meeting?
If not fixed in the bylaws, the regular meeting shall be on any date within 90 days after the close of each fiscal year.

What constitutes a quorum in cooperative meetings?

A quorum shall consist of at least 25% of all the members entitled to vote.

Is the quorum the same for all types of cooperatives?

No, there are exceptions. In the case of electric cooperatives, a quorum, unless otherwise provided in the bylaws, shall consist of 5%
of all the members entitled to vote.
In the case of cooperative banks, the quorum requirement for General Assembly meetings, whether special or regular, shall be 1/2
plus one of the number of voting shares of all the members in good standing.
In the meetings of the BOD, whether special or regular, the quorum requirement shall be 1/2 plus one of all the members of the
BOD.
Each director shall only have 1 vote.

What is the voting system in meetings of cooperatives?

The voting system depends upon the category of cooperative.
For primary cooperatives, each member shall have 1 vote.
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For secondary or tertiary cooperatives, each member shall have 1 basic vote and as many incentive votes as provided for in the
bylaws but not to exceed 5 votes.

What is the composition of the BOD of cooperatives?

Like regular corporations, the BOD of cooperatives shall be composed of not less than 5 but not more than 15 members.

Who elects the members of the BOD?

The members of the BOD are elected by the General Assembly.

What is the term of office of the members of the BOD?

BOD members shall be elected for a term of 2 years and shall hold office until their successors are duly elected and qualified, or until
duly removed for cause.

What are the powers and functions of the BOD?

The direction and management of the affairs of the cooperative shall be vested in the BOD.
Also, the BOD shall be responsible for the strategic planning, direction-setting and policy-formulation activities of the cooperative.

What is the prohibition for BOD members on voting?

Directors cannot attend or vote by proxy at board meetings.

Who shall elect the officers of the cooperative?

The BOD shall elect from among themselves the chairperson and vice-chairperson, and elect or appoint other officers of the
cooperative from outside of the board in accordance with their bylaws.

What is the status of dealings of directors and officers with the cooperative?
A contract entered into by the cooperative with 1 or more of its directors, officers, and committee members is voidable, at the
option of the cooperative, unless all the following conditions are present:
• That the presence of such director in the board meeting wherein contract was approved was not necessary to constitute a
quorum for such meeting
• That the vote of such director was not necessary for the approval of the contract
• That the contract is fair and reasonable under the circumstances
• That in the case of an officer or committee member, the contract with the officer or committee member has been previously
authorized by the General Assembly or by the BOD
 On responsibilities, rights and privileges of cooperatives
 What cooperative books shall be kept open for inspection?
 Every cooperative shall have the following documents ready and accessible to its members and representatives of the CDA for
inspection during reasonable office hours at its official address:
• A copy of the Cooperative Code and all other laws pertaining to cooperatives
• A copy of the regulations of the CDA
• A copy of the articles of cooperation and bylaws of the cooperative
• A register of members
• The books of the minutes of the meetings of the General Assembly, BOD and committee
• Share books, where applicable
• Financial statement
• Such other documents as may be prescribed by laws or the bylaws

The accountant or the bookkeeper of the cooperative shall be responsible for the maintenance of the cooperative records in
accordance with generally accepted accounting practices.

He shall also be responsible for the production of the same at the time of audit or inspection.

The audit committee shall be responsible for the continuous and periodic review of the books and records of account to ensure that
these are in accordance with generally accepted accounting practices.

He shall also be responsible for the production of the same at the time of audit or inspection.

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For up to what period shall cooperatives keep its records?
A cooperative may dispose by way of burning or other method of complete destruction any document, record or book pertaining to
its financial and nonfinancial operations which are already more than 5 years old except those relating to transactions which are the
subject of civil, criminal and administrative proceedings.

Which cooperative members need to be bonded?

Every director, officer, and employee handling funds, securities or property on behalf of any cooperative shall be covered by a surety
bond to be issued for a duly registered insurance or bonding company for the faithful performance of their respective duties and
obligations.

Are cooperatives required to pay tax?

Duly registered cooperatives which do not transact any business with non-members or the general public shall not be subject to any
taxes and fees imposed under the internal revenue laws and other tax laws.

What if the cooperatives have transaction with both members and non-members?
Cooperatives transacting business with both members and non-members shall not be subjected to taxon their transactions with
members.

What privileges do cooperatives have?

• The privilege of depositing their sealed cash boxes or containers, documents or any valuable papers in the safes of the municipal
or city treasurers and other government offices free of charge
• Cooperatives organized among government employees enjoy the free use of any available space in their agency, whether owned
or rented by the Government
• Cooperatives rendering special types of services and facilities such as cold storage, ice plant, electricity, transportation shall
secure a franchise therefore, and such cooperatives shall open their membership to all persons qualified in their areas of
operation
• In areas where appropriate cooperatives exist, the preferential right to supply government institutions and agencies rice, corn
and other grains, fish and other marine products, meat, eggs, milk, vegetables, tobacco and other agricultural commodities
produced by their members shall be granted to the cooperatives concerned
• Preferential treatment in the allocation of fertilizers, including seeds and other agricultural inputs and implements, and in rice
distribution
• Preferential and equitable treatment in the allocation or control of bottomries of commercial shipping vessels in connection with
the shipment of goods and products of cooperatives
• Preferential rights in the management of public markets and/or lease of public market facilities, stalls or spaces for cooperatives
and their federations, such as farm and fishery producers and suppliers, market vendors and such other cooperatives, which have
for their primary purpose the production and/or the marketing of products from agriculture, fisheries and small entrepreneurial
industries and federations thereof
• Cooperatives engaged in credit services and/or federations shall be entitled to loans credit lines, rediscounting of their loan
notes, and other eligible papers with the Development Bank of the Philippines, the Land Bank of the Philippines and other
financial institutions except the Bangko Sentral ng Pilipinas
• A public transport service cooperative may be entitled to financing support for the acquisition and/or maintenance of land and
sea transport equipment, facilities and parts through the program of the government financial institutions. It shall have the
preferential right to the management and operation of public terminals and ports whether land or sea transport where the
cooperative operates and on securing a franchise for active or potential routes for the public transport
• Cooperatives transacting business with the Government of the Philippines or any of its political subdivisions or any of its agencies
or instrumentalities, including government-owned and controlled corporations shall be exempt from prequalification bidding
requirements
• The privilege of being represented by the provincial or city fiscal or the Office of the Solicitor General, free of charge, except
when the adverse party is the Republic of the Philippines
• Preferential right in the management of the canteen and other services related to the operation of the educational institution
where they are employed for Cooperatives organized by faculty members and employees of educational institutions
• The appropriate housing agencies and government financial institutions shall create a special window for financing housing
projects undertaken by cooperatives, with interest rates and terms equal to, or better than those given for socialized housing
projects. This financing shall be in the form of blanket loans or long-term wholesale loans to qualified cooperatives, without need
for individual processing

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QUIZZER:
1) Which of the following does not necessarily characterize a cooperative?
A. Autonomy
B. Common bond of interest
C. Voluntary involvement
D. Absence of capital

2) A cooperative whose members are natural persons is called

A. Primary
B. Natural
C. Parent
D. De jure

3) Which of the following is not a qualification for membership to a primary cooperative?

A. Natural born resident citizen
B. Of legal age
C. Common bond of interest
D. Actually residing or working in the intended area of operation

4) A single-purpose cooperative may transform into a multi-purpose cooperative only after at least how many years of
operations?
A. 2
B. 3
C. 4
D. 5
5) Multi-purpose cooperatives must have a minimum paid-up capital of
A. P15,000
B. P50,000
C. P100,000
D. P250,000
*With the exception of agricultural and agrarian reform cooperatives, only those cooperatives with a minimum paid-up
capital of P100,000 may be allowed to transform into a multi-purpose cooperative.

6) Duly registered cooperatives shall have what extent of liability?

A. Unlimited
B. Limited
C. None at all
D. To the extent fixed by its by-laws

7) Cooperatives have maximum legal life of 50 years. This period may be extended for periods not exceeding 50 years in any
single instance by an amendment of the articles of cooperation. However, no extension can be made earlier than ______
prior to the original or subsequent expiry date unless there are justifiable reasons for an earlier extension.
A. 3 years
B. 5 years
C. 7 years
D. 10 years

8) The preferred share capital of a cooperative shall not exceed what percent of its total authorized share capital?
A. 5%
B. 10%
C. 20%
D. 25%
9) No member shall own more than what percent of the subscribed share capital of a cooperative?
A. 5%
B. 10%
C. 15%
D. 20%

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10) When does a cooperative acquire juridical personality?
A. From the formation of all its members
B. From the transfer of funds to the cooperatives
C. From the issuance of certificate of registration by the CDA
D. From the assumption of offices by its directors

*In addition, the certificate is conclusive evidence that the cooperative therein mentioned is duly registered, unless it is
proved that the registration has been cancelled.

11) Which type of cooperative has the primary purpose of procuring and distributing commodities to its members and non-
members?
A. Credit
B. Consumers
C. Service
D. Producers
12) This type of cooperative undertakes joint production whether agricultural or industrial.
A. Producers
B. Multi-purpose
C. Consumers
D. Marketing

*It is formed and operated by its members to undertake the production and processing of raw materials or goods produced
by its members into finished or processed products for sale by the cooperative to its members and non-members.

13) This type of cooperative is organized for the primary purpose of engaging in savings and credit services and other
financial services.
A. Cooperative bank
B. Financial service cooperative
C. Lending cooperative
D. Commercial cooperative

14) A laboratory cooperative is one organized by

A. Scientists
B. People of scientific background
C. Minors
D. Researchers

15) What type of cooperative member has no right to vote or be voted upon and shall only be entitled to any such rights and
privileges as the bylaws may provide?
A. Regular member
B. Associate member
C. Loyal member
D. Disloyal member

16) It is the highest policy-making body of the cooperative.

A. Board of Directors
B. Board of Trustees
C. General Assembly
D. Cooperative Governance

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 PDIC (Philippine Deposit Insurance Corporation) Law
Republic Act No. 3591

What is the main function of the PDIC?

PDIC is created to insure the deposits of all banks which are entitled to the benefits of insurance.

What are the specific functions of the PDIC?

• Deposit insurer
• Co-regulator of banks
• Receiver and liquidator of closed banks

What is an insured deposit?

The term insured deposit means the amount due to any bona fide depositor for legitimate deposits in an insured bank net of any
obligation of the depositor to the insured bank as of date of closure, but not to exceed P500,000.

How shall joint accounts be insured?

A joint account shall be insured separately from any individually-owned deposit account.

What types of deposits are insured by the PDIC?

Deposits in the following banks are insured by the PDIC:

• Commercial banks
• Savings and mortgage banks
• Private development banks
• Cooperative banks
• Savings and loan associations
• Branches and agencies in the Philippines of foreign banks
• Other corporations authorized to perform banking functions in the Philippines

Are deposits in Philippine banks with branches outside the Philippines insured by the PDIC?
Subject to the approval of the Board of Directors, any insured bank with branch outside the Philippines may elect to include for
insurance its deposit obligations payable at such branch.

Are deposits in foreign currency insured?

Yes, foreign currency deposits are insured. This is pursuant to Republic Act No. 6426 (An act instituting a foreign currency deposit
system in the Philippines, and for other purposes), and Central Bank Circular No. 1389.
Depositors may receive payment in the same currency in which the insured deposit is denominated.

Which accounts or deposits will not have deposit insurance?

Republic Act No. 9576, amending Republic Act No. 3591, enumerates that the following accounts or transactions on which the PDIC
will not pay deposit insurance:
• Investment products such as bonds, securities and trust accounts
• Deposit accounts which are unfunded, fictitious or fraudulent
• Deposit products constituting or emanating from unsafe and unsound banking practices
• Deposits that are determined to be proceeds of an unlawful activity as defined under the Anti-Money Laundering Law

What is the maximum liability of the PDIC for insured deposits?

Effective June 1, 2009, the maximum deposit insurance coverage is P500,000 per depositor.

What if the depositor has more than one account in one bank?
All deposit accounts by a depositor in a closed bank maintained in the same right and capacity shall be added together.
Deposit insurance coverage is not determined on a per-account basis. The type of account (whether checking, savings, time or other
form of deposit) has no bearing on the amount of insurance coverage.

What if the depositor has more than one account but in different banks?
Deposits in different banking institutions are insured separately.

What if the depositor has more than one account but in different branches of the same bank?
If a bank has one or more branches, the main office and all branch offices are considered as one bank.
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Thus, if you have deposits at the main office and at one or more branch offices of the same bank, the deposits are added together
when determining deposit insurance coverage, the total of which shall not exceed P500,000.

What are the requirements for claiming the insurance?

• Original evidence of deposits such as savings passbook, certificate of deposit, bank statement, used or unused checks, or ATM
card
• 1 valid original photo-bearing ID with clear signature of depositor/claimant (bringing 2 valid IDs is recommended in case of
discrepancies)
• For depositor below 18 years old, photocopy of birth certificate and valid ID of the parent
• Original copy of a notarized Special Power of Attorney (SPA) for claimants who are not signatories in the bank records (SPA
executed by the parent, if minor)
• Claim form
 Who are not required to file deposit insurance claims?
 Depositors with valid deposit accounts with balances of P100,000 and below are not required to file claims, provided they:
• have no obligations with the closed bank, or have not acted as co-makers of these obligations, or are not spouses of the
borrowers
• have complete mailing address found in the bank records or have updated their addresses through the Mailing Address Update
Form (MAUF) of PDIC before the start of the onsite claims settlement operation
• have not maintained the account under the name of business entities

What happens to uninsured deposit in excess of P500,000?

The claim for the uninsured portion of the deposit is a claim against the assets of the closed bank.

QUIZZER:
1) Which of the following is not a function of the PDIC?
A. Deposit insurer
B. Co-regulator of banks
C. Receiver and liquidator of closed banks
D. Engage in the lending of funds obtained from the public
*This is a function of banks or banking institutions.

2) What is the amount of insured deposit?

A. Minimum of P500,000, gross
B. Maximum of P500,000, gross
C. Maximum of P500,000, net
D. Minimum of P500,000 net

*The insured deposit is net of any obligation of the depositor to the insured bank as of the date of closure, but not to exceed
P500,000.

3) True: Joint accounts shall be insured separately from any individually-owned deposit account.

Case 1 (for questions 4 to 8)

Juan dela Cruz has the following deposits in Bank 1:
– Individual account in his name: P600,000 savings deposit
– Joint account in his name AND Maria dela Cruz: P500,000 time deposit
– Joint account in his name OR Pedro dela Cruz: P800,000 demand deposit
Assume that for the joint accounts, there is equal sharing. (Source: PDIC)

4) What is the total insured deposit of Juan dela Cruz?

A. P500,000
B. P750,000
C. P1,000,000
D. P1,250,000

*For the single/individual account = P500,000; for the AND joint account = P250,000 (P500,000 maximum/2); for the OR joint
account = P250,000 (P500,000 maximum/2)
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5) What is the total uninsured deposit of Juan dela Cruz?
A. P100,000
B. P250,000
C. P500,000
D. P600,000

*For the single account = excess of P100,000; for the AND joint account = no excess; for the OR joint account = excess of
P150,000 (P300,000/2)

6) What is the total insured deposit of Maria dela Cruz?

A. Zero
B. P250,000
C. P500,000
D. None of the choices

*P500,000/2

7) What is the total insured deposit of Pedro dela Cruz?

A. Zero
B. P250,000
C. P400,000
D. P500,000

*Maximum P500,000/2

8) What is the total uninsured deposit of Pedro dela Cruz?

A. Zero
B. P100,000
C. P150,000
D. P250,000

*Excess of P300,000/2

Case 2 (questions 9 to 10)

In addition to the accounts in Case 1, assume that, the following joint account is also maintained by Juan dela Cruz in the same
bank:
– Joint account in his name or Maria dela Cruz or Pedro dela Cruz = P450,000 (equal sharing)

9) What is the total of insured deposit of Juan dela Cruz?

A. P500,000
B. P1,000,000
C. P1,150,000
D. None of the choices

*The joint accounts will be insured separately from the individual account. However, the share of Juan dela Cruz in the joint
accounts shall not exceed P500,000 total (which has been reached already in Case 1 Question 4). This means that the additional
P150,000 share (P450,000/3) will become uninsured deposit.

10)What is the total of insured deposit of Pedro dela Cruz?

A. P250,000
B. P400,000
C. P500,000
D. P600,000

*Share in joint OR account = P250,000 (maximum of P500,000/2); share in 3-way joint OR account = P150,000 (P450,000/3)

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11)The portion of the deposit not insured shall
A. Be forfeited in favor of the bank
B. Be forfeited in favor of the Government
C. Become a claim against the asset of the closed bank
D. Be written off immediately by the depositor
12)Deposits in which of the following banks are insured by the PDIC?
I. Commercial banks
II. Savings and mortgage banks
III. Private development banks
IV. Cooperative banks
V. Savings and loan associations
A. All except IV
B. All except V
C. All except IV and V
D. All banks enumerated above
13)True: Foreign currency deposits are also insured by the PDIC.
14)The PDIC will not pay deposit insurance on the following accounts or transactions. Which is the exception?
A. Investments in bonds
B. Deposit products emanating from unsafe and unsound banking practices
C. Deposits from unlawful proceeds
D. Deposits in foreign currency
15)True/False. Deposits in different banks are added together for the purpose of the P500,000 maximum.
Deposits in different branches of the same bank are insured separately.
A. False, True
B. True, False
C. False, False
D. True, True

*Deposits in different banks are separately insured. Deposits in different branches of the same bank are considered as deposits in
one bank.

16)To file for claims on the insured deposits, which of the following is/are not required?
A. Original evidence of deposits such as savings passbook
B. Claim form
C. For all depositors, photocopy of birth certificate and valid ID of the parent
D. 1 valid original photo-bearing ID with clear signature of depositor

*This is only required for depositors below 18 years old.

17)Depositors with valid deposit accounts with balances of ___________________ are not required to file claims, provided they
meet other qualifications, as required.
A. P100,000 and below
B. P150,000 and below
C. P200,000 and below
D. P250,000 and below
18)A joint demand deposit account in the name of Juan dela Cruz and ABC Corporation in the amount of P500,000 was held in
Bank 1. What is the insured deposit of Juan dela Cruz?
A. Zero
B. P250,000
C. P500,000
D. P100,000

*The deposit is presumed to belong entirely to ABC Corporation, the juridical person or entity in the joint account.

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 Secrecy of Bank Deposits
Republic Act No. 1405 “An Act Prohibiting Disclosure Of Or Inquiry Into, Deposits With Any Banking Institution And
Providing Penalty Therefor”

The Bank Deposit Secrecy Law was created for the following purposes:
• To encourage people to deposit their money in banking institutions
• To discourage private hoarding of money so that the same may be utilized by banks in authorized loans

What is covered by the law on bank secrecy?

The law states that all deposits of whatever nature with banks or banking institutions in the Philippines including investments in
bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities are considered absolutely
confidential.

Does the law on secrecy also apply to foreign currency deposits?

Yes. Republic Act No. 6426, known as the “Foreign Currency Deposit Act of the Philippines”, Sec. 8 states that all foreign currency
deposits are also considered of an absolutely confidential nature.

Are there exceptions to the confidentiality rule on deposits?

Yes. In the following cases, the deposits may be examined, inquired or looked into by any person, government official, bureau or
office:
• With written permission of the depositor
• In cases of impeachment
• Upon order of a competent court in cases of bribery or dereliction of duty of public officials
• In cases where the money deposited or invested is the subject matter of litigation
• During special or general examination of a bank, as authorized by the Monetary Board to investigate bank fraud or a serious
irregularity

On the part of the auditor on the audit of bank’s financial statements, does it mean that the auditor can no longer inquire into or
examine bank deposits because of the law on secrecy?
Not necessarily. Presidential Decree No. 1792, amending Republic Act No. 1405 states that, during a regular audit of a bank by an
independent auditor, the auditor may inquire, examine or look into deposits, provided that the following conditions are satisfied:
 The examination is for audit purposes only
 The results of the examination shall be for the exclusive use of the bank

What are the sanctions for violations of the Bank Secrecy Law?
Any violation of this law will subject offender upon conviction, to either or both of the following (upon the discretion of the court):
 Imprisonment of not more than 5 years
 Fine of not more than P20,000

QUIZZER:
1) Which of the following are covered by the bank secrecy law?
A. Only demand deposits
B. All deposits of whatever nature
C. Investments in bonds issued by the Philippine Government
D. B and D
*The law states that all deposits of whatever nature with banks or banking institutions in the Philippines including investments in
bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities are considered absolutely
confidential.

2) False: Foreign currency deposits are excluded from the protection of bank secrecy laws.

*Republic Act No. 6426, known as the “Foreign Currency Deposit Act of the Philippines”, Sec. 8 states that all foreign currency
deposits are also considered of an absolutely confidential nature.

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 3) In all of the following cases, the deposits may be examined, inquired or looked into by any person, government official,
bureau or office. Choose the exception.
A. When permitted (written) by the depositor
B. In cases of impeachment
C. When the depositor is a public official
D. In cases where the money deposited or invested is the subject matter of litigation

*Being a public official does not automatically waive the right to bank secrecy. The deposit may only be examined, inquired or
looked into upon order of competent court in cases of bribery or dereliction of duty of public officials.

4) Can independent external auditors inquire into or examine bank deposits during the course of the audit?
A. Yes, anytime.
B. Yes, in the regular audit of the bank, with conditions
C. No, because of the absolute nature of secrecy
D. No, unless the auditor has reason to believe that bank fraud exists

*Presidential Decree No. 1792, amending Republic Act No. 1405 states that, during a regular audit of a bank by an independent
auditor, the auditor may inquire, examine or look into deposits, provided that the following conditions are satisfied: a)
the examination is for audit purposes only, and b) the results of the examination shall be for the exclusive use of the bank.

5) Violations of the bank secrecy law subjects the offender, upon conviction, to which of the following?
A. Imprisonment of not more than 2 years or fine of not more than P20,000 or both
B. Imprisonment of not more than 5 years or fine of not more than P20,000 or both
C. Imprisonment of not more than 2 years or fine of not more than P40,000 or both
D. Imprisonment of not more than 5 years or fine of not more than P40,000 or both

Unclaimed Balances Law

Act No. 3936, as amended by Presidential Decree No. 679, requires banks, trust corporations, and building and loans associations,
to transfer unclaimed balances held by them to the Treasurer of the Philippines and for other purposes.

What is the meaning of “unclaimed balances”?

Unclaimed balances shall include credits or deposits of the following:
• money
• bullion
• security
• other evidence of indebtedness of any kind, and interest thereon with banks, buildings and loan associations, and trust
corporations, in favor of the following:
• any person known to be dead
• any person who has not made further deposits or withdrawals during the preceding 10 years or more
Note: the credit or deposit must be in covered institutions (i.e. banks, buildings and loan associations or trust corporations).

What will happen to unclaimed balances?

Unclaimed balances, together with the increase and proceeds thereof, shall be deposited with the Treasurer of the Philippines to the
credit of the Government of the Republic of the Philippines to be used as the National Assembly may direct after reclassification and
procedures provided by law.

What is an escheat proceeding?

Escheat proceedings refer to the judicial process in which the state, by virtue of its sovereignty, steps in and claims abandoned, left
vacant, or unclaimed property, without there being an interested person having a legal claim thereto.

In the case of dormant accounts, the state inquires into the status, custody, and ownership of the unclaimed balance to determine
whether the inactivity was brought about by the fact of death or absence of or abandonment by the depositor.

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If after the proceedings the property remains without a lawful owner interested to claim it, the property shall be reverted to the
state to forestall an open invitation to self-service by the first comers.

What happens if interested parties have come forward and lain claim to the unclaimed balance?
If interested parties have come forward and lain claim to the property, the courts shall determine whether the credit or deposit
should pass to the claimants or be forfeited in favor of the state.

What is the duty of the covered institution on unclaimed balances?

Immediately after the taking effect of the Act and within the month of January of every odd year, all banks, building and loan
associations, and trust corporations shall forward to the Treasurer of the Philippines a statement, under oath, of their respective
managing officers, of all credits and deposits held by them in favor of persons known to be dead, or who have not made further
deposits or withdrawals during the preceding ten years or more, arranged in alphabetical order according to the names of creditors
and depositors, and showing:
• The names and last known place of residence or post office addresses of the persons in whose favor such unclaimed balances
stand
• The amount and the date of the outstanding unclaimed balance and whether the same is in money or in security, and if the latter,
the nature of the same
• The date when the person in whose favor the unclaimed balance stands died, if known, or the date when he made his last deposit
or withdrawal
• The interest due on such unclaimed balance, if any, and the amount thereof
A copy of the above sworn statement shall be posted in a conspicuous place in the premises of the bank, building and loan
association, or trust corporation concerned for at least sixty days from the date of filing thereof: Provided, That immediately before
filing the above sworn statement, the bank, building and loan association, and trust corporation shall communicate with the person
in whose favor the unclaimed balance stands at his last known place of residence or post office address.

What is the duty of the Treasurer of the Philippines?

It shall be the duty of the Treasurer of the Philippines to inform the Solicitor General from time to time the existence of unclaimed
balances held by banks, building and loan associations, and trust corporations.

Intellectual Property Code

Republic Act No. 8923 Intellectual Property Code of the Philippines
The following points are of primary concern:
• Patents
• Trademark, service marks, trade names
• Copyright

Which inventions are patentable?

Any technical solution of a problem in any field of human activity which:
• is new;
• involves an inventive step; and
• is industrially applicable shall be patentable.
It may be, or may relate to, a product, or process, or an improvement of any of the foregoing.

Which items shall be excluded from patent protection?

The following shall be excluded from patent protection:
• Discoveries, scientific theories and mathematical methods
• Schemes, rules and methods of performing mental acts, playing games or doing business, and programs for computers
• Methods for treatment of the human or animal body by surgery or therapy and diagnostic methods practiced on the human or
animal body (except products and composition for use in any of these methods)
• Plant varieties or animal breeds or essentially biological process for the production of plants or animals (except micro-organisms
and non-biological and microbiological processes)
• Aesthetic creations
• Anything which is contrary to public order or morality.

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To whom does the right to a patent belong?
The right to a patent belongs to the inventor, his heirs, or assigns.
*When two (2) or more persons have jointly made an invention, the right to a patent shall belong to them jointly.
If the patent is created pursuant to a commission, the person who commissions the work shall own the patent, unless otherwise
provided in the contract.

Who owns the patent for an invention made by the employee in the course of his employment contract?
In case the employee made the invention in the course of his employment contract, the patent shall belong to:
A. The EMPLOYEE – if the inventive activity is not a part of his regular duties even if the employee uses the time, facilities and
materials of the employer.
B. The EMPLOYER – if the invention is the result of the performance of his regularly-assigned duties, unless there is an agreement,
express or implied, to the contrary.

What is the “first to file rule”?

If 2 or more persons have made the invention separately and independently of each other, the right to the patent shall belong to the
person who filed an application for such invention.
*Where two or more applications are filed for the same invention, to the applicant who has the earliestfiling date or, the earliest
priority date.

When does a patent take effect?

A patent shall take effect on the date of the publication of the grant of the patent in the IPO (Intellectual Property Office) Gazette.

What is the legal life of a patent?

The term of a patent shall be 20 years from the filing date of the application.

What rights are given to a patent owner?

A patent shall confer on its owner the following exclusive rights:
• Where the subject matter of a patent is a product, to restrain, prohibit and prevent any unauthorized person or entity from
making, using, offering for sale, selling or importing that product
• Where the subject matter of a patent is a process, to restrain, prevent or prohibit any unauthorized person or entity from using
the process, and from manufacturing, dealing in, using, selling or offering for sale, or importing any product obtained directly or
indirectly from such process
• The right to assign, or transfer by succession the patent, and to conclude licensing contracts for the same

What is a trademark or service mark?

A “mark” means any visible sign capable of distinguishing the goods or service of an enterprise and shall include a stamped or
marked container of goods.

What is the difference between a trademark and service mark? Trademark refers to goods while service mark refers to service.
What is a trade name? “Trade name” means the name or designation identifying or distinguishing an enterprise.

How are rights to a trademark or service mark acquired?

The rights in a mark shall be acquired through registration made validly in accordance with the provisions of this law.

In what cases is the registration of a trademark or service mark not allowed?

A mark cannot be registered if it:
• Consists of immoral, deceptive or scandalous matter, or matter which may disparage or falsely suggest a connection with
persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt or disrepute
• Consists of the flag or coat of arms or other insignia of the Philippines or any of its political subdivisions, or of any foreign
nation, or any simulation thereof
• Consists of a name, portrait or signature identifying a particular living individual except by his written consent, or the name,
signature, or portrait of a deceased President of the Philippines, during the life of his widow, if any, except by written consent
of the widow
• Is identical with a registered mark belonging to a different proprietor or a mark with an earlier filing or priority date, in respect
of
 The same goods or services, or
 Closely related goods or services, or
 If it nearly resembles such a mark as to be likely to deceive or cause confusion

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 • Is identical with, or confusingly similar to, or constitutes a translation of a mark which is considered by the competent authority
of the Philippines to be well-known internationally and in the Philippines, whether or not it is registered here, as being already
the mark of a person other than the applicant for registration, and used for identical or similar goods or services
• Is identical with, or confusingly similar to, or constitutes a translation of a mark considered well-known in accordance with the
preceding paragraph, which is registered in the Philippines with respect to goods or services which are not similar to those with
respect to which registration is applied for
• Is likely to mislead the public, particularly as to the nature, quality, characteristics or geographical origin of the goods or
services
• Consists exclusively of signs that are generic for the goods or services that they seek to identify
• Consists exclusively of signs or of indications that have become customary or usual to designate the goods or services in
everyday language or in bona fide and established trade practice
• Consists exclusively of signs or of indications that may serve in trade to designate the kind, quality, quantity, intended purpose,
value, geographical origin, time or production of the goods or rendering of the services, or other characteristics of the goods or
services
• Consists of shapes that may be necessitated by technical factors or by the nature of the goods themselves or factors that affect
their intrinsic value
• Consists of color alone, unless defined by a given form
• Is contrary to public order or morality

What is the legal life of a trademark or service mark? A certificate of registration shall remain in force for 10 years.

What rights does the owner of a registered trademark or service mark have?
The owner of a registered mark shall have the exclusive right to prevent all third parties not having the owner’s consent from using
in the course of trade identical or similar signs or containers for goods or services which are identical or similar to those in respect of
which the trademark is registered where such use would result in a likelihood of confusion.
In case of the use of an identical sign for identical goods or services, a likelihood of confusion shall be presumed.

What are the rules on assignment and transfer of application and registration of trademark and service mark?
The following rules are observed:
1. An application for registration of a mark, or its registration, may be assigned or transferred with or without the transfer of the
business using the mark.
2. The assignment of the application for registration of a mark, or of its registration, shall be in writing and require the signatures
of the contracting parties. Transfers by mergers or other forms of succession may be made by any document supporting such
transfer.
3. Assignments and transfers shall have no effect against third parties until they are recorded at the Office.

What is the prohibition on the use of trade names?

A name or designation may not be used as a trade name if by its nature or the use to which such name or designation may be put:
 it is contrary to public order or morals
 if, in particular, it is liable to deceive trade circles or the public as to the nature of the enterprise identified by that name

What is a copyright or economic right?

Copyright or economic rights shall consist of the exclusive right to carry out, authorize or prevent the following acts:
• Reproduction of the work or substantial portion of the work
• Dramatization, translation, adaptation, abridgment, arrangement or other transformation of the work
• The first public distribution of the original and each copy of the work by sale or other forms of transfer of ownership
• Rental of the original or a copy of an audiovisual or cinematographic work, a work embodied in a sound recording, a computer
program, a compilation of data and other materials or a musical work in graphic form, irrespective of the ownership of the
original or the copy which is the subject of the rental
• Public display of the original or a copy of the work
• Public performance of the work
• Other communication to the public of the work

Which works are not protected by copyright?

No protection shall extend, under this law, to:
• any idea, procedure, system, method or operation, concept, principle, discovery or mere data as such, even if they are
expressed, explained, illustrated or embodied in a work
• news of the day and other miscellaneous facts having the character of mere items of press information
• any official text of a legislative, administrative or legal nature, as well as any official translation thereof
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Who owns the rights to a copyright if:
The work is literary and artistic?
In the case of original literary and artistic works, copyright shall belong to the author of the work.

There is joint authorship?

In the case of works of joint authorship, the co-authors shall be the original owners of the copyright and in the absence of
agreement, their rights shall be governed by the rules on co-ownership.

If, a work of joint authorship consists of parts that can be used separately and the author of each part can be identified, the author
of each part shall be the original owner of the copyright in the part that he has created.

Pursuant to a commission?
In the case of a work commissioned by a person other than an employer of the author and who pays for it and the work is made in
pursuance of the commission, the person who so commissioned the work shall have ownership of the work, but the copyright
thereto shall remain with the creator, unless there is a written stipulation to the contrary.

The work is an audiovisual like movies?

In the case of audiovisual work, the copyright shall belong to the producer, the author of the scenario, the composer of the music,
the film director, and the author of the work so adapted.

The author is an employee?

In the case of work created by an author during and in the course of his employment, the rules stated on patent above apply.

Who owns the rights to a letter sent to someone?

In respect of letters, the copyright shall belong to the writer subject to the provisions of Article 723 of the Civil Code.

What does Article 723 of the Civil Code say on letters?

Letters and other private communications in writing are owned by the person to whom they are addressed and delivered, but they
cannot be published or disseminated without the consent of the writer or his heirs.

However, the court may authorize their publication or dissemination if the public good or the interest of justice so requires.
What is the legal duration of copyright?

Copyright protection for artistic, literary and derivative works lasts for the life of the author plus 50 years after the author’s death.

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