TRISTAN LOPEZ as Attorney-in-Fact of LETICIA and CECILIA LOPEZ v. LETICIA R.

FAJARDO 468 SCRA 664 (2005) A month-to-month lease under the New Civil Code is a lease with a definite period and expires after the last day of any given thirty-day period, upon proper demand and notice by the lessor to vacate. Leonor Sobrepena and her kins (the Sobrepenas) were the owners of a 2-door apartment at 1326 and 1328 Tomas Mapua St., Sta. Cruz, Manila. The apartment at No. 1328 has for so many years been occupied under a verbal contract of lease Leticia Fajardo (Fajardo). The Sobrepenas sold such property to Leticia and Cecilia Lopez (the Lopez sisters). The Lopez sisters filed before the Metropolitan Trial Court of Manila (MeTC) a complaint for ejectment with damages, against Fajardo on the ground of failure to pay her monthly rentals from May 1999 to February 2000. This was settled after Fajardo paid P35,000.00 representing rental in arrears and current rental for June 2000. Fajardo again failed and refused to pay her July and August 2000 rentals, prompting Lopez, et al. to send her a letter informing her that they have decided to terminate their monthly lease contract effective midnight of August 31, 2000, the very time their oral lease contract shall expire and they are giving her a grace period of one (1) month within which to vacate the premises. Fajardo then remitted to Lopez, et al. a check in the amount of P30,000 representing payment of the rentals in arrears for July 2000, August 2000 and September 2000, and advance rentals for October 2000 up to July 2001 but it was not accepted by Lopez, et al. Having no settlement, Lopez, et al. filed a new complaint for ejectment and damages against Fajardo before the MeTC wherein it held that Lopez, et al. had sufficiently established their cause of action arising from the expiration of the lease contract, the lease being terminable at the end of any month after due notice, and failure of Fajardo to pay the stipulated rental which are the grounds for ejectment under Article 1673 of the Civil Code. Such was appealed by Fajardo to the Regional Trial Court of Manila (RTC) which affirmed in toto the decision of MeTC. Fajardo appealed to the Court of Appeals which held that a minimum of 3-month arrearages is required to justify a lessor to eject a lessee and held that Fajardo had incurred back rentals of only 2 months when Lopez, et al. sent her the letter of demand hence, the filing of the ejectment case was premature. ISSUE: Whether or not Lopez, et al. has a valid ground for the ejectment of Fajardo HELD: A month-to-month lease under Article 1687 is a lease with a definite period and expires after the last day of any given thirty-day period, upon proper demand and notice by the lessor to vacate. Under the Rent Control Law, the prohibition against the ejectment of a lessee by his lessor is not absolute. There are exceptions expressly provided by law, which include the expiration of a lease for a definite period. In the instant case, it was noted that the rentals were paid on a month-to-month basis. Thus, the lease could be validly terminated at the end of any given month upon prior notice to that effect on the lessee. After all, when the rentals are paid monthly, the lease is deemed to be for a definite period, i.e., it expires at the end of every month. When Lopez, et al. then sent the August 18, 2000 letter to respondent informing her that the lease would be terminated effective at the end of the same month, it was well within his rights. In fine, it was error for the appellate court to ignore the fact that by the earlier-quoted August 18, 2000 letter of which was annexed as Annex F to the complaint, they had notified Fajardo of the expiration of the lease contract, another legal ground for judicial ejectment.

THIRD DIVISION [G.R. No. 131020. July 20, 2000] PHILIPPINE ECONOMIC ZONE AUTHORITY, petitioner, vs. HON. BENJAMIN T. VIANZON, Judge, Branch 4, Regional Trial Court, Balanga, Bataan and SAFFIROU SEACRAFTS, INC., respondents. DECISION GONZAGA-REYES, J.: This Petition for Review on Certiorari seeks the reversal of the Decision of the Court of Appeals[1] in CA-G.R. SP No. 44080 entitled "PHILIPPINE ECONOMIC ZONE AUTHORITY versus HON. BENJAMIN T. VIANZON, as Judge RTC of Balanga, Bataan, Branch 4 and SAFFIROU SEACRAFTS, INC.". The Court of Appeals affirmed the Order of the Regional Trial Court (RTC) granting the herein respondents Saffirou Seacrafts, Inc. (SSI) the writ of preliminary injunction which enjoined and restrained the Philippine Economic Zone Authority (PEZA) from enforcing and implementing its Board Resolution No. 97-023 and the "Notice of Cancellation, Termination and Demand to Vacate" pending the hearing of the case. The following facts as found by the Court of Appeals are undisputed: "It appears that on July 21, 1992 petitioner Philippine Economic Zone Authority and private respondent Saffirou Seacrafts, Inc. entered into a fifteen-year Registration Agreement under which petitioner leased to private respondent 1,500 square meters of land located in the Bataan Export Processing Zone for private respondents business of manufacture and repair of seacrafts. The said agreement provided, among other things, for a schedule to be followed by private respondent, specifically, building construction and importation of machineries by July, 1992, and start of commercial operation by August, 1992. On December 2, 1994, petitioner and private respondent entered into a Supplemental Agreement which provided, among other things, that the leased area shall only be used for launching or staging of private respondents boats for export; construction of additional buildings for use as production facilities and for storage of materials and equipment; and construction of an administration building. Allegedly, finding that private respondent has failed to comply with the above provisions of the agreements and after requiring private respondents explanation, petitioner through its Board of Trustees promulgated a resolution on February 6, 1997 canceling the agreements and demanded from private respondent to vacate the leased premises within thirty (30) days from notice. Said Board resolution was received by private respondent on February 13, 1997. Thus, on March 7, 1997, private respondent filed in the respondent court a petition for certiorari, prohibition, and mandamus with prayer for temporary restraining order and preliminary injunction against petitioner and its officers."[2] The RTC issued a temporary restraining order[3] and on March 26, 1997 issued a writ of preliminary injunction enjoining and restraining the PEZA from enforcing and implementing its Board Resolution No. 97-023 and the "Notice of Cancellation, Termination and Demand to Vacate" pending the hearing of the case and until further notice from the court.[4] From this Order, the PEZA appealed to the Court of Appeals, which affirmed the decision of the RTC and dismissed the petition for lack of merit.[5] Hence this petition where the PEZA raises the following argument for consideration: "The Court of Appeals erred in not finding that respondent Judge of the Regional Trial Court committed grave abuse of discretion in issuing the writ of preliminary injunction and thus acted without jurisdiction."[6] In support of its appeal, the PEZA maintains that the respondents had no factual or legal basis for the issuance of a preliminary injunction for said writ may only be issued if it is shown that the applicant has a clear and unmistakable right to protect. It cannot be granted when the alleged right is doubtful or disputed. In the case at bench, SSI allegedly lost its right to occupy the leased premises when it violated the terms of its agreement with PEZA. Under said agreement, the PEZA was allegedly authorized to cancel the same without need of judicial action. Thus, when the PEZA cancelled the agreement on January 22, 1997, it was merely exercising its right to do so. Considering that the PEZA validly cancelled the agreement, SSI no longer had a right to occupy the leased premises at the time it filed the case against PEZA and was therefore not entitled to the issuance of a writ of injunction as there was no existent right to protect. In its Memorandum, the petitioner also assails the order of the RTC dated June 20, 1997 on the ground that it ministerially gives due course to and approves all SSIs import applications. Petitioner argues that each application for importation should be separately evaluated for the reason that the merits of an import application is primarily dependent on the nature of the material to be imported and the purpose for which it will be used. There was therefore no basis for the assailed order, which removes the PEZAs discretionary authority to determine the merits of an importation. The petitioner likewise assails the order of the RTC dated October 11, 1999, which ordered the release of a sailboat deeming it an export sale notwithstanding that such release under PEZA law does not qualify as exportation. The petitioner therefore prays that the trial court be enjoined from proceeding with Civil Case No. 025-ML as it is an undue judicial interference with the petitioners exercise of its regulatory and police authority. Finally, the petitioner alleges that it is not guilty of forum shopping inasmuch as the rule on forum shopping does not prevent a party from seeking relief by appeal to another court.[7] The only issue properly raised for determination in the present case is whether or not the trial court properly issued an injunction. We rule affirmatively and resolve to affirm the decision of the Court of Appeals. Petitioners main contention is that there was no legal basis for the issuance of an injunctive writ inasmuch as the respondents did not have a clear and unmistakable right to protect. We disagree. Injunction is a judicial writ, process or proceeding whereby a party is ordered to do or refrain from doing a particular act. An applicant for preliminary injunction must file a verified complaint showing facts entitling him to the relief demanded accompanied with a bond which shall answer for all the damages which the party sought to be enjoined may sustain by reason of the injunction.[8] It may be issued when the following requisites are established: "1.....The invasion of the right is material and substantial; 2.....The right of complainant is clear and unmistakable; 3.....There is an urgent and permanent necessity for the writ to prevent serious damage."[9] The foregoing requisites are present in this case. The petitioner does not contest the validity of the contractual right of SSI as lessee but claims that said right was extinguished pursuant to Board Resolution No. 97023 which cancelled and terminated SSIs right on the ground that SSI violated certain provisions in the Registration Agreement and Supplemental Agreement. It is

also undisputed that SSI has possession over the subject property and in fact filed the action to prevent implementation of the demand made by the PEZA to vacate the leased premises since SSI claims that the PEZAs cancellation was unauthorized and is illegal. Verily, SSI has a clear and unmistakable right to protect its contractual right to lease the property lest it suffer business losses from its investments within the processing zone. We agree with the Court of Appeals that there was sufficient ground for the issuance of an injunction and we quote with approval said courts ratiocination to wit: "There is no question that private respondent is simply protecting its right under the Registration Agreement and the Supplemental Agreement it entered into with the petitioner in praying for a writ of preliminary injunction. Under the said agreements, private respondent has the right to lease the premises in question from 1992 to 2007 or for a period of fifteen years. When petitioner demanded of private respondent to vacate the leased premises in 1997, the latter had still ten (10) years to go under the said agreements. Thus, in filing the instant case for injunction, private respondent was just protecting its right as a lessee under the said agreements with petitioner. Private respondents right as a lessee of the premises in question is clear and unmistakable as evidenced by the Retainer (sic) Agreement and Supplemental Agreement with the petitioner, granting private respondent fifteen years to lease the said premises. At the time of petitioners demand for private respondent to vacate the leased premises, the latter had still ten years of the agreements subsisting as adverted to earlier. Petitioner relies heavily on Sec. 9.1, Article IX of the Registration Agreement granting it the right to revoke the Agreement within thirty days from notice to private respondent if the latter violates said Agreement. Precisely, private respondent is questioning petitioners basis in revoking the agreement, aggravated by lack of proper hearing even on the administrative level. This is where the regular court comes in as to the validity of the ground of the petitioner in revoking the agreements with private respondent. Only after a proper hearing in the respondent court can it be duly established that petitioner has the valid ground to revoke the agreements between the parties. Finally, the urgent and permanent necessity for the issuance of the writ of injunction in this case appears to be so in order to prevent a serious damage to private respondent. Said private respondent allegedly had already infused a capital of Fifty-Five Million (P55,000,000.00) Pesos in establishing its business in the leased premises, and considering that it has not even recouped said investment under the agreements with petitioner, not to mention its already paid rentals, the loss of employment for its workers as well as its business goodwill, private respondent stands to lose so much if it will just be unceremoniously evicted from its place of business. Thus, the need for a full-blown hearing of this case before the respondent court to resolve the conflicting positions of the parties, and also the need, meantime, to preserve the status quo through the writ of preliminary injunction until the respondent court issues a decision on the merits on private respondents complaint."[10] Considering that SSI was entitled to the issuance of the injunction, was the determination by the Court of Appeals of the status quo correct? The "status quo" is the last actual peaceable uncontested situation, which precedes a controversy.[11] We agree with the petitioners position that the status quo should be that existing at the time of the filing of the case.[12] However, we are not persuaded by petitioners reasoning that at the time of the filing of the case, SSI was no longer a lessee, therefore SSI no longer had any right to occupy the premises for the reason that the contractual right of SSI was extinguished when the PEZA cancelled the Registration Agreement on January 22, 1997. At the time of the filing of the case, SSI was still in actual physicial possession of the property in question as the lessee thereof. Although the PEZA sent SSI a letter which they received on February 13, 1997 purportedly cancelling the lease agreement and demanding that SSI vacate the same within thirty days,[13] said demand was never effectively implemented by the PEZA due to the filing of the present action for injunction on March 7, 1997 by SSI to prevent the enforcement of the PEZAs board resolution cancelling the lease. It is precisely the propriety of the cancellation of the lease, which compelled SSI to file an action to question the PEZA resolution and simultaneously sought to enjoin the implementation thereof through an injunction. We therefore find that at the time of the filing of the case, SSI was still the lessee of the subject property and this is precisely the status quo existing ante litem motam, which an injunction seeks to preserve. The petitioners claim that the Court of Appeals gravely erred in holding that there was an absence of an administrative hearing that violated SSIs right to due process is misplaced. While the Court of Appeals found that the alleged cancellation of the agreement made by the PEZA with SSI was aggravated by lack of hearing on the administrative level, the Court of Appeals never ruled on the validity of the basis of the PEZA in revoking said agreement nor the manner by which said cancellation was performed. The Court of Appeals correctly ruled that it was only after a proper hearing in the trial court where the main action (Special Civil Action No. 025-ML) was still pending when the determination of the validity of the cancellation could be made. In the same manner, we limit ourselves to only the determination of whether injunction was properly issued lest we preempt the trial courts decision in the main action in Special Civil Action No. 025-ML where a thorough hearing on the merits of the case must be held by the lower court to resolve the respective litigants claims. In general, courts should avoid issuing a writ of preliminary injunction, which in effect disposes of the main case without trial.[14] With respect to the validity of the orders issued by the respondent judge dated June 20, 1997 and October 11, 1999, the Court notes that the June 20 order is being questioned by the PEZA for the first time in its Petition while the October 11 order is being questioned for the first time in its Memorandum. Inasmuch as the petitioner, in its appeal to the Court of Appeals in G. R. SP No. 44080, never questioned these orders, there is no legal basis to determine their validity through this petition where the only issue properly raised by the petitioner is the validity of the issuance of the injunction. Finally, we rule that the petitioner is not guilty of a "special specie" of forum shopping even if it raises the same issues raised in the Court of Appeals in CA G.R. SP No. 44080. There is forum shopping whenever, as a result of an adverse decision in one forum, a party seeks a favorable opinion (other than by appeal or certiorari) in another.[15] Considering that the petitioner is questioning the Court of Appeals ruling in CA G.R. SP No. 44080 which held that the respondent judge did not commit grave abuse of discretion in issuing a writ of injunction by virtue of a petition for certiorari to this Court on purely questions of law, the petitioner cannot be guilty of forum shopping. To rule otherwise would render nugatory the PEZAs right to appeal the decision of the Court of Appeals to the Supreme Court on purely questions of law. ACCORDINGLY, the decision of the Court of Appeals in CA-G.R. SP No. 44080 is AFFIRMED and the instant petition is hereby DENIED. No pronouncement as to costs. SO ORDERED. Melo, (Chairman), Vitug, Panganiban, and Purisima, JJ., concur.

GO V. BACARON (2005)
THIRD DIVISION [ G.R. NO. 159048, October 11, 2005 ]
BENNY GO, PETITIONER, VS. ELIODORO BACARON, RESPONDENT.

FACTS:

Eliodoro BACARON conveyed a 15.3955-hectare parcel of land in favor of Benny GO for P20,000.00. He however averred that prior to extending said loan to him, GO required him to execute a document purporting to be a Transfer of Rights but was told that the same would only be a formality as he could redeem the unregistered land the moment he pays the loan. BACARON remains in possession of the property even after the conclusion of the transaction and continued paying the real property taxes subsequent to the alleged sale. About a year thereafter, BACARON, seeking to recover his property, went to GO to pay his alleged "loan" but the latter refused to receive the same and to return his property saying that the transaction between them was a sale and not a mortgage. ISSUE: Whether the agreement entered into by the parties was one for equitable mortgage or for absolute sale.

HELD: The instances in which a contract of sale is presumed to be an equitable mortgage are enumerated in Article 1602 of the Civil Code as follows:
Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: (1) When the price of a sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise; (3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (4) When the purchaser retains for himself a part of the purchase price; (5) When the vendor binds himself to pay the taxes on the thing sold; (6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws. Furthermore, Article 1604 of the Civil Code provides that the provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale.

The present Contract, which purports to be an absolute deed of sale, should be deemed an equitable mortgage for the following reasons: (1) the consideration has been proven to be unusually inadequate; (2) the supposed vendor has remained in possession of the property even after the execution of the instrument; and (3) the alleged seller has continued to pay the real estate taxes on the property.

Ramos vs. Sarao (461 SCRA 103)

06 Mar MYRNA RAMOS, petitioner, vs. SUSANA S. SARAO and JONAS RAMOS, respondents. [G.R. No. 149756. February 11, 2005] FACTS: Spouses Jonas Ramos and Myrna Ramos executed a contract over their conjugal house and lot in favor of respondent for and in consideration of P1,310,430. Entitled DEED OF SALE UNDER PACTO DE RETRO, the contract, inter alia, granted the Ramos spouses the option to repurchase the property within six months plus an interest of 4.5 percent. Petitioner tendered to Sarao the amount of P1,633,034.20 in the form of two managers checks, which the latter refused to accept for being allegedly insufficient. Myrna filed a Complaint, and she deposited with the RTC two checks that Sarao refused to accept. Sarao filed against the Ramos spouses a Petition for consolidation of ownership in pacto de retro sale. Both RTC and CA dismissed petitioners complaint and appeal respectively in favor of respondent Sarao. ISSUE: Whether or not the pacto de retro sale was in reality an equitable mortgage? RULING: YES. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered (Art.1371, NCC). The contract shall be presumed to be an equitable mortgage, in any of the following cases:(1) When the price of a sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise; (3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (4) When the purchaser retains for himself a part of the purchase price; (5) When the vendor binds himself to pay the taxes on the thing sold; (6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. (Art. 1602, NCC)

Francisco vs CA
ADALIA FRANCISCO vs. COURT OF APPEALS, ET AL. G.R. No. 116320 November 29, 1999 --agents

FACTS: A. Francisco Realty & Development Corporation (AFRDC), of which petitioner Francisco is the president, entered into a Land Development and Construction Contract with private respondent Herby Commercial & Construction Corporation (HCCC), represented by its President and General Manager private respondent Ong. Under the contract, HCCC was to be paid on the basis of the completed houses and developed lands delivered to and accepted by AFRDC and the GSIS. Sometime in 1979, Ong discovered that Diaz and Francisco, the VicePresident of GSIS, had executed and signed seven checks of various dates and amounts payable to HCCC for completed and delivered work under the contract. Ong, however, claims that these checks were never delivered to HCCC. It turned out that Francisco forged the indorsement of Ong on the checks and indorsed the checks for a second time by signing her name at the back of the checks, petitioner then deposited said checks in her savings account. A case was brought by private respondents against petitioner to recover the value of said checks. Petitioner however claims that she was authorized to sign Ong's name on the checks by virtue of the Certification executed by Ong in her favor giving her the authority to collect all the receivables of HCCC from the GSIS, including the questioned checks.

ISSUE: Whether petitioner cannot be held liable on the questioned checks by virtue of the Certification executed by Ong giving her the authority to collect such checks from the GSIS.

RULING: Petitioner is liable. The Negotiable Instruments Law provides that where any person is under obligation to indorse in a representative capacity, he may indorse in such terms as to negative personal liability. An agent, when so signing, should indicate that he is merely signing in behalf of the principal and must disclose the name of his principal; otherwise he shall be held personally liable. Even assuming that Francisco was authorized by HCCC to sign Ong's name, still, Francisco did not indorse the instrument in accordance with law. Instead of signing Ong's name, Francisco should have signed her own name and expressly indicated that she was signing as an agent of HCCC. Thus, the Certification cannot be used by Francisco to validate her act of forgery.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 170785 October 19, 2007

REPUBLIC PLANTERS BANK (now known as MAYBANK PHILIPPINES, INC.) and PHILMAY PROPERTY, INC., petitioners, vs. VIVENCIO T. SARMIENTO, JESUSA N. SARMIENTO, JOSE N. SARMIENTO AND ELIZABETH B. SARMIENTO, respondents. DECISION TINGA, J.: This is an appeal by certiorari under Rule 45 of the 1997 Rules of Civil Procedure assailing the Decision1 of the Court of Appeals in CA-G.R. CV No. 74451. The Court of Appeals decision affirmed the decision2 of the Regional Trial Court (RTC) of Paraaque City, Branch 258, which ordered petitioner Maybank Philippines, Inc. (Maybank) to execute in favor of respondents a deed of redemption covering two pieces of mortgaged realty and rescinded the deeds of sale executed by Maybank in favor of petitioner Philmay Property, Inc. (Philmay) and Clara Fabra (Fabra). As found by the Court of Appeals, the factual antecedents are as follows: On 13 March 1979, respondents spouses Vivencio and Jesusa Sarmiento, their son, Jose, and the latters spouse, Elizabeth, executed a promissory note, obligating themselves to pay Maybank, then known as Republic Planters Bank, the amount of P80,000.00 due 360 days after date plus interest at the rate of 12 percent per annum.3 Earlier, on 9 March 1979, all four respondents executed a Real Estate Mortgage over two parcels of land covered by OCT No. 5781 and TCT No. 145850 and registered under the names of respondents Jesusa and Jose, respectively. The mortgage secured the payment of the principal loan of P80,000.00 and all other obligations, overdrafts and other credit accommodations obtained and those that may be obtained in the future from Maybank.4 On 8 April 1980, Vivencio for himself and as attorney-in-fact of Jesusa and Jose, executed a promissory note in which he undertook to pay the amount of P100,000.00 plus 14% interest per annum on or before April 1981.5 In the same month, all four respondents executed an amendment to the real estate mortgage changing the consideration of the mortgage from P80,000.00 to P100,000.00 but adopting all the terms and conditions of the previous mortgage as integral parts of the later one.6 Vivencio was the owner of V. Sarmiento Rattan Furniture, a sole proprietorship engaged in export business. On various occasions in 1981, he incurred loan obligations from Maybank by way of export advances. As of 08 September 1982, the debts incurred under the export bills transactions totaled P1,281,748.03. On 3 September 1981, Vivencio, Jose and Elizabeth executed a Suretyship Agreement,7 whereby they agreed to be solidarily liable with V. Sarmiento Rattan Furniture for the payment of P100,000.00 plus all obligations which the latter incurred or would incur from Maybank. Respondents defaulted in the payment of the export advances, prompting Maybank to institute an extrajudicial foreclosure of the real estate mortgage on 9 November 1982. At the foreclosure sale, Maybank was awarded the property for its bid of P254,000.00 and issued a certificate of sale. The certificate of sale was registered with the Register of Deeds on 04 March 1983.8 Maricel Sarmiento, sister of respondent Jose, purchased a managers check from Maybank in the amount of P300,000.00 on 21 July 1983.9 A week later, respondent Jesusa deposited the amount of P12,000.00.10 Maybank treated the total amount of P312,000.00 as a deposit and did not grant respondents request for certificate of redemption releasing the foreclosed property. Sometime in November 1983, Maybank demanded the payment of all outstanding loans under the export bills transactions. On 3 December 1983, respondents tendered the amount of P302,333.33 in the name of V. Sarmiento Rattan Furniture. On 4 July 1990, Maybank consolidated its ownership over the foreclosed property. On 12 November 1997, Maybank and Philmay executed a deed of absolute sale, transferring ownership of the foreclosed property to the latter. On 15 July 1998, Philmay sold the same to Fabra. On 3 September 1998, respondents Vivencio and Jose instituted an action for specific performance against Maybank, Philmay and Fabra. The Complaint,11 docketed as Civil Case No. 98-0323, prayed for judgment directing Maybank to

execute a deed of redemption in favor of respondents and revoking the subsequent sale of the property to Philmay and Fabra. During the pendency of the trial, Fabra died and was substituted by Kim Caro as the legal representative of the formers heirs. On 8 January 2002, the RTC rendered a Decision, the dispositive portion of which reads: WHEREFORE, viewed in the light of the foregoing, the plaintiffs having been able to preponderantly prove their case against the defendants, judgment for specific performance is hereby rendered ordering defendant Maybank to execute in favor of the plaintiffs a Deed of Redemption covering the two (2) parcels of land formerly embraced in and covered by Transfer Certificates of Title Nos. 5281 and 145850 of the Register of Deeds of the City of Paraaque together with all the improvements existing thereon free from all liens and encumbrances and once accomplished, to immediately deliver the said document to plaintiffs. Likewise, the Deed of Sale executed by Republic Planters Bank, now Maybank, in favor of Philmay Property, Inc., and thereafter, from Philmay Property, Inc. to Clara Fabra, are hereby revoked and rescinded as well as Certificate of Title No. 139161 registered in the latters name for being null and void. So also, Phimay Property is hereby directed to reimburse Clara Fabra, now represented by Kim Caro, the amount of P4,200,000.00[,] representing the purchase price of the property plus interest thereon at the legal rate computed from the filing of the complaint until fully paid. Defendants are likewise ordered to pay plaintiffs jointly and severally the following, to wit: 1. The amount of P100,000.00 as moral damages; 2. The amount of P50,000.00 as exemplary damages; 3. The amount of P100,000.00 as and by way of attorneys fees; and 4. The cost of suit. The counterclaims of the defendants are DISMISSED. SO ORDERED.12 The RTC based its finding that respondents were able to tender to Maybank within the redemption period the redemption price of P312,000.00 on the testimony of respondent Jose on and the official bank receipts evidencing the separate payments totaling said amount made by Maricel Sarmiento and respondent Jesusa. Upon this finding, the trial court held that Maybank had no justifiable legal reason to refuse the execution of documents reconveying the titles of the mortgaged property to respondents. Thus, the trial court concluded that the subsequent transfers of the mortgaged property to Philmay and then to Fabra were void because Maybank had not acquired any rights thereto in the first place. The trial court, however, declared Fabra as a purchaser in good faith and, therefore, entitled to reimbursement of the purchase price. The RTC rejected Maybanks defense that the suretyship agreement signed by respondents Vivencio, Jose and Elizabeth also constituted the mortgaged property as security for the export advances incurred in the name of V. Sarmiento Rattan Furniture because the real estate mortgage documents were signed by respondents in their personal capacity, whereas the suretyship agreement was signed by Vivencio in his capacity as manager of V. Sarmiento Rattan Furniture. The trial court noted that the suretyship agreement was not even annotated in the titles of the mortgaged property. On 12 December 2005, the Court of Appeals rendered the assailed Decision affirming the trial courts judgment, particularly the latters finding that respondents made a valid tender of the redemption price and that the export advances in the name of V. Sarmiento Rattan Furniture did not belong to the species of obligations secured by the real estate mortgage. Furthermore, the appellate court construed as a contract of adhesion the proviso in the mortgage contract that included "interest and expenses or any other obligation owing to the Mortgagee, whether direct or indirect, principal or secondary, as appears in the accounts, books and records of the Mortgagee."13 Describing the same as a "dragnet clause," the appellate court held that it should be carefully scrutinized and strictly construed. Only petitioners Maybank and Philmay appealed from the decision of the Court of Appeals. In the instant petition, they raise the following arguments: THE TRIAL COURT AND THE COURT OF APPEALS ERRED IN FINDING THAT PETITIONERS HAVE PROPERLY REDEEMED THE FORECLOSED PROPERTIES.

THE TRIAL COURT AND COURT OF APPEALS ERRED IN NOT TREATING RESPONDENTS EXPORT ADVANCES AS SECURED BY THE REAL ESTATE MORTGAGE AND THUS SHOULD ALSO BE PAID. THE TRIAL COURT AND COURT OF APPEALS ERRED IN NOT RULING THAT THE RESPONDENTS CLAIM IS ALREADY BARRED BY LACHES. THE TRIAL COURT AND COURT OF APPEALS ERRED IN NOT CONSIDERING AND FINDING THAT PHILMAY AND DEFENDANT CLARA FABRA ARE BUYERS IN GOOD FAITH. THE LOWER COURT AND THE COURT OF APPEALS ERRED IN FINDING THAT MAYBANK ACTED IN BAD FAITH. RESPONDENTS ARE NOT ENTITLED TO MORAL AND EXEMPLARY DAMAGES AS WELL AS ATTORNEYS FEES.14 In a nutshell, the instant petition raises the issue of whether the deposits made by respondents constituted a valid tender of the redemption price. Essential to the resolution of this issue is the determination of the amount of indebtedness that respondents were legally obligated to satisfy in order to consider the payment thereof as a valid redemption of the foreclosed property. Maybank argues that respondents outstanding obligation amounted to more than P1 million as of the date of the foreclosure sale. Hence, the tender by respondents of an amount less than that did not constitute a valid redemption of the foreclosed property. For their part, respondents contend that the factual finding of both the trial court and the Court of Appeals to the effect that they were able to make a valid tender of the redemption price, is binding on this Court. The petition is meritorious. The crux of the controversy pertains not to the amount of redemption price tendered by respondents but rather to the sufficiency of the amount tendered that would warrant the redemption of the foreclosed property. The determination of whether the amount tendered by respondents was enough to redeem the foreclosed property calls for the ascertainment of the liabilities covered and secured by the mortgage based on the text of the mortgage deed. Both the trial court and the appellate court concurred in concluding that the export advances obtained by respondent Vivencio from Maybank did not belong to the species of obligations secured by the mortgage and that, hence, respondents tender of an amount exceeding the principal loan of P100,000.00 was sufficient. Whether or not this conclusion is correct is a question of law15 that is within the purview of a Rule 45 petition. The real estate mortgage provides: xxx That, for and in consideration of certain loans, overdrafts and other credit accommodations obtained from the Mortgagee, and to secure the payment of the same and those that may hereafter be obtained, the principal of all of which is hereby fixed as EIGHTY THOUSAND ONLY Pesos (P80,000.00), Philippine Currency, as well as those that the Mortgagee may extend to the Mortgagor, including interest and expenses or any other obligation owing to the Mortgagee, whether direct or indirect, principal or secondary, as appears in the accounts, books and records of the Mortgagee, the Mortgagor does hereby transfer and convey by way of mortgage unto the Mortgagee, its successor or assigns, the parcels of land which are described in the list inserted on the back of this document, and/or appended hereto; x x x (Emphasis supplied)16 The aforementioned clause is a "blanket mortgage clause." A blanket mortgage clause, also known as a dragnet clause in American jurisprudence, is one that is specifically phrased to subsume all debts of past or future origins. Such clauses are carefully scrutinized and strictly construed. Mortgages of this character enable the parties to provide continuous dealings, the nature or extent of which may not be known or anticipated at the time, and they avoid the expense and inconvenience of executing a new security on each new transaction. A dragnet clause operates as a convenience and accommodation to the borrowers as it makes available additional funds without their having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees, etc.17 It is basic in the interpretation and construction of contracts that the literal meaning of the stipulations shall control if the terms of the contract are clear and leave no doubt on the intention of the contracting parties.18 It is only when the words appear to contravene the evident intention of the parties that the latter shall prevail over the former. The real nature of a contract may be determined from the express terms of the agreement and from the contemporaneous and subsequent acts of the parties thereto.19 Although at the time of the execution of the real estate mortgage the export advances had not yet been incurred and the principal obligation was fixed at P80,000.00 and thereafter amended to P100,000.00, the express tenor of the mortgage contract contemplated the inclusion of future loans and obligations obtained from Maybank to be secured by 9

the mortgaged property. Nothing in the mortgage contract would suggest that the parties actually intended to limit the security to only the principal amount of the loan fixed therein. The stipulations of the mortgage contract being clear, there is no necessity to ascertain the real intention of the parties. Be that as it may, nothing in the records would reveal that by the parties acts contemporaneous and subsequent to the execution of the real estate mortgage, they intended to be bound by terms and conditions other than those provided in the mortgage contract. The trial court reached the conclusion that the export advances were excluded from the security of the real estate mortgage based on the theory that respondent Vivencio agreed to be bound as surety for the payment of the export advances in his capacity as manager of V. Sarmiento Rattan Furniture, whereas he signed the real estate mortgage in his personal capacity. This theory is defensible if V. Sarmiento Rattan Furniture were a corporation having a personality distinct and separate from its corporate officers and Vivencio signed merely as a corporate representative of V. Sarmiento Rattan Furniture. Even then, a corporate officer may still be held personally liable for the debts of the corporation if he bound himself to pay the debt of the corporation under a separate contract of surety or guaranty. For its part, the Court of Appeals opined that the dragnet clause in the subject real estate mortgage should be strictly construed and, therefore, the subsequent export advances obtained from Maybank should not be included in the obligation secured by the mortgage contract. It is well settled that mortgages given to secure future advancements or loans are valid and legal contracts, and that the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered.20 A mortgage given to secure advancements is a continuing security and is not discharged by repayment of the amount named in the mortgage, until the full amount of the advancements is paid.21 At the time of the foreclosure sale of the mortgaged property, the outstanding obligation arising from the export bills transactions had already amounted to more than P1 million. In accordance with Section 78 of the General Banking Act, as amended,22 then governing the foreclosure of the mortgaged property, redemption may only be made by paying the amount due under the mortgage deed within one year from the sale of the property. Since respondents failed to satisfy the full amount of the indebtedness to Maybank, the latter was justified in refusing to grant respondents demand for redemption of the foreclosed property. WHEREFORE, the instant petition for review on certiorari is GRANTED and the Decision of the Court of Appeals in CAG.R. CV No. 74451 is hereby REVERSED and SET ASIDE. The complaint in Civil Case No. 98-0323 before the Regional Trial Court, Branch 258, Paraaque City is DISMISSED. Costs against respondents. SO ORDERED. Quisumbing, Carpio, Carpio-Morales, Velasco, Jr., JJ., concur.

10

THIRD DIVISION ANTONIO P. TAMBUNTING, JR. and COMMERCIAL HOUSE OF FINANCE, INC., Petitioners, G.R. No. 144101

versus

September 16, 2005 x-------------------------------------------x CORONA, J.: DECISION

SPOUSES EMILIO SUMABAT and ESPERANZA BAELLO, Respondents.

Present : PANGANIBAN, J., Chairman, SANDOVAL-GUTIERREZ, CORONA, CARPIO MORALES and GARCIA, JJ. Promulgated:

This petition for review on certiorari under Rule 45 of the Rules of Court assails the February 11, 2000 decision of the Regional Trial Court (RTC) of Caloocan City, Branch 120, in Civil Case No. C-16822. This case involves a dispute over a parcel of land situated in Caloocan City covered by TCT No. (87655) 18837. It was previously registered in the names of respondents, spouses Emilio Sumabat and Esperanza Baello. On May 3, 1973, respondents mortgaged it to petitioner Antonio Tambunting, Jr. to secure the payment of a P7,727.95 loan. In August 1976, respondents were informed that their indebtedness had ballooned to P15,000 for their failure to pay the monthly amortizations. In May 1977, because respondents defaulted in their obligation, petitioner Commercial House of Finance, Inc. (CHFI), as assignee of the mortgage, initiated foreclosure proceedings on the mortgaged property but the same did not push through. It was restrained by the then Court of First Instance (CFI) of Caloocan City, Branch 33 (now RTC Branch 123) in Civil Case No. C-6329, a complaint for injunction filed by respondents against petitioners. However, the case was subsequently dismissed for failure of the parties to appear at the hearing on November 9, 1977. On March 16, 1979, respondents filed an action for declaratory relief with the CFI of Caloocan City, Branch 33, seeking a declaration of the extent of their actual indebtedness. It was docketed as Civil Case No. C-7496. Petitioners were declared in default for failure to file an answer within the reglementary period. They moved for the dismissal of the action on the ground that its subject, the mortgage deed, had already been breached prior to the filing of the action. The motion was denied for having been filed out of time and petitioners had already been declared in default. On January 8, 1981, the CFI rendered its decision. It fixed respondents liability at P15,743.83 and authorized them to consign the amount to the court for proper disposition. In compliance with the decision, respondents consigned the required amount on January 9, 1981. In March 1995, respondents received a notice of sheriffs sale indicating that the mortgage had been foreclosed by CHFI on February 8, 1995 and that an extrajudicial sale of the property would be held on March 27, 1995. On March 27, 1995, respondents instituted Civil Case No. C-16822, a petition for preliminary injunction, damages and cancellation of annotation of encumbrance with prayer for the issuance of a temporary restraining order, with the RTC of Caloocan City, Branch 120. However, the public auction scheduled on that same day proceeded and the property was sold to CHFI as the highest bidder. Respondents failed to redeem the property during the redemption period. Hence, title to the property was consolidated in favor of CHFI and a new certificate of title (TCT No. 310191) was issued in its name. In view of these developments, respondents amended their complaint to an action for nullification of foreclosure, sheriffs sale and consolidation of title, reconveyance and damages. On February 11, 2000, the RTC issued the assailed decision. It ruled that the 1981 CFI decision in Civil Case No. C-7496 (fixing respondents liability at P15,743.83 and authorizing consignation) had long attained finality. The mortgage was extinguished when respondents paid their indebtedness by consigning the amount in court. Moreover, the ten-year period within which petitioners should have foreclosed the property was already barred by prescription. They abused their right to foreclose the property and exercised it in bad faith. As a consequence, the trial court nullified the foreclosure and extrajudicial sale of the property, as well as the consolidation of title in CHFIs name in 1995. It then ordered the register of deeds of Caloocan City to cancel TCT No. 310191 and to reconvey the property to respondents. It also held petitioners liable for moral damages, exemplary damages and attorneys fees. Petitioners moved for a reconsideration of the trial courts decision but it was denied. Hence, this petition. Petitioners claim that the trial court erred when it affirmed the validity of the consignation. They insist that the CFI was barred from taking cognizance of the action for declaratory relief since, petitioners being already in default in their loan amortizations, there existed a violation of the mortgage deed even before the institution of the action. Hence, the CFI could not have rendered a valid judgment in Civil Case No. C-7496 and the consignation made pursuant to a void judgment was likewise void. Respondents also fault the trial court for holding that their right to foreclose the property had already prescribed. True, the trial court erred when it ruled that the 1981 CFI decision in Civil Case No. C-7496 was already final and executory. An action for declaratory relief should be filed by a person interested under a deed, will, contract or other written instrument, and whose rights are affected by a statute, executive order, regulation or ordinance before breach or violation thereof.[1] The purpose of the action is to secure an authoritative statement of the rights and obligations of the parties under a statute, deed, contract, etc. for their guidance in its enforcement or compliance and not to settle issues arising from its alleged breach.[2] It may be entertained only before the breach or violation of the statute, deed, contract, etc. to which it refers.[3] Where the law or contract has already been contravened prior to the filing of an action for declaratory relief, the court can no longer assume jurisdiction over the action.[4] In other words, a court has no more jurisdiction over an action for declaratory relief if its subject, i.e., the statute, deed, contract, etc., has already been infringed or transgressed before the institution of the action. Under such circumstances, inasmuch as a cause of action has already accrued in favor of one or the other party, there is nothing more for the court to explain or clarify short of a judgment or final order. Here, an infraction of the mortgage terms had already taken place before the filing of Civil Case No. C-7496. Thus, the CFI lacked jurisdiction when it took cognizance of the case in 1979. And in the absence of jurisdiction, its decision was void and without legal effect. As this Court held in Arevalo v. Benedicto:[5]

11

Furthermore, the want of jurisdiction by a court over the subject-matter renders its judgment void and a mere nullity, and considering that a void judgment is in legal effect no judgment, by which no rights are divested, from which no rights can be obtained, which neither binds nor bars any one, and under which all acts performed and all claims flowing out of are void, and considering further, that the decision, for want of jurisdiction of the court, is not a decision in contemplation of law, and, hence, can never become executory, it follows that such a void judgment cannot constitute a bar to another case by reason of res judicata. Nonetheless, the petition must fail. Article 1142 of the Civil Code is clear. A mortgage action prescribes after ten years. An action to enforce a right arising from a mortgage should be enforced within ten years from the time the right of action accrues.[6] Otherwise, it will be barred by prescription and the mortgage creditor will lose his rights under the mortgage. Here, petitioners right of action accrued in May 1977 when respondents defaulted in their obligation to pay their loan amortizations. It was from that time that the ten-year period to enforce the right under the mortgage started to run. The period was interrupted when respondents filed Civil Case No. C-6329 sometime after May 1977 and the CFI restrained the intended foreclosure of the property. However, the period commenced to run again on November 9, 1977 when the case was dismissed. The respondents institution of Civil Case No. C-7496 in the CFI on March 16, 1979 did not interrupt the running of the ten-year prescriptive period because, as discussed above, the court lacked jurisdiction over the action for declaratory relief. All proceedings therein were without legal effect. Thus, petitioners could have enforced their right under the mortgage, including its foreclosure, only until November 7, 1987, the tenth year from the dismissal of Civil Case No. C-6329. Thereafter, their right to do so was already barred by prescription. The foreclosure held on February 8, 1995 was therefore some seven years too late. The same thing can be said about the public auction held on March 27, 1995, the consolidation of title in CHFIs favor and the issuance of TCT No. 310191 in its name. They were all void and did not exist in the eyes of the law. WHEREFORE, the petition is hereby DENIED. Costs against petitioners. SO ORDERED. RENATO C. CORONA

12

Heirs of Sofia Quirong, etc. vs. Development Bank of the Philippines, G.R. No. 173441, December 3, 2009 Rescission (vs. resolution) of contract Posted on January 6, 2010 by Hector M. de Leon Jr Posted in Civil Law Tagged contract, rescission, sale If the heirs of a lot buyer were evicted from the lot because of a final judgment based on a right prior to the sale (i.e., the seller did not validly acquire the lot from the person who sold the lot to the seller), should the evicted heirs file an action for rescission under article 1381 or an action for rescission/resolution under Article 1191? Within what period should the appropriate action be filed? Should the prescriptive period be four years as provided under Article 1389 of the Civil Code, which states that the action to claim rescission must be commenced within four years? Or should the prescriptive period be 10 years as provided under Article 1144 of the Civil Code, which states that actions upon a written contract must be brought within 10 years from the date the right of action accrues? In Heirs of Sofia Quirong, etc. vs. Development Bank of the Philippines, G.R. No. 173441, December 3, 2009, the late Emillo Daloppe left a parcel of land to his wife Felisa and nine children. To enable one of the children (Rosa DalopeFuncion) to get a loan from the Development Bank of the Philippines (DBP), Felisa sold the parcel of land to Funcions. The Funcions failed to pay the loan. DBP subsequently foreclosed the mortgage and made a conditional sale of the land to Sofia Quirong for PhP78,000. In their contract of sale, Sofia Quirong waived any warranty against eviction. The contract provided that the DBP did not guarantee possession of the property and that it would not be liable for any lien or encumbrance on the same. Quirong gave a down payment of P14,000.00. Two months after the conditional sale to Quirong, Felisa and her eight other children subsequently filed an action for partition and declaration of nullity of documents with damages against DBP and the Funcions before the Regional Trial Court (RTC) of Dagupan City. Notwithstanding the suit, the DBP executed a deed of absolute sale of the subject lot in Sofia Quirongs favor. The deed of sale carried substantially the same waiver of warranty against eviction and of any adverse lien or encumbrance. Sofia Quirong having since died, her heirs filed an answer in intervention in which they asked the RTC to award the lot to them and, should it instead be given to the Dalopes, to allow the Quirong heirs to recover the lots value from the DBP. Because the heirs failed to file a formal offer of evidence, the trial court did not rule on the merits of their claim to the lot and, alternatively, to relief from DBP. The RTC rendered a decision, declaring DBPs sale to Sofia Quirong valid only with respect to the shares of Felisa and Rosa Funcion in the property. It declared Felisas sale to the Funcions, the latters mortgage to the DBP, and the latters sale to Sofia Quirong void insofar as they prejudiced the shares of the eight other children of Emilio and Felisa who were each entitled to a tenth share in the subject lot. The Quirong heirs then filed an action against DBP before the RTC of Dagupan City for rescission of the contract of sale between Sofia Quirong, their predecessor, and the DBP and praying for the reimbursement of the price of P78,000.00 that she paid the bank plus damages. The heirs alleged that they were entitled to the rescission of the sale because the decision in Civil Case D-7159 stripped them of nearly the whole of the lot that Sofia Quirong, their predecessor, bought from DBP. DBP filed a motion to dismiss the action on ground of prescription and res judicata but the RTC denied their motion. After hearing the case, the RTC rendered a decision, rescinding the sale between Sofia Quirong and DBP and ordering the latter to return to the Quirong heirs the PhP78,000.00 Sofia Quirong paid the bank. On appeal by DBP, Court of Appeals (CA) reversed the RTC decision and dismissed the heirs action on the ground of prescription. The CA concluded that, reckoned from the finality of the December 16, 1992 decision in Civil Case D-7159, the complaint filed on June 10, 1998 was already barred by the 4-year prescriptive period under Article 1389 of the Civil Code. The Quirong heirs filed a motion for reconsideration of the decision but the CA court denied it. According to DBP, the prescriptive period should be 4 years as provided under Article 1389 of the Civil Code, which provides that the action to claim rescission must be commenced within four years. On the other hand, the Quirong heirs argue that it should be 10 years as provided under Article 1144 which states that actions upon a written contract must be brought within 10 years from the date the right of action accrues. The Supreme Court agreed with DBP that the prescriptive period was 4 years because the action involved was one for rescission under Article 1381. The Court distinguished between a rescission under Article 1381 and a rescission under Article 1191: The remedy of rescission is not confined to the rescissible contracts enumerated under Article 1381. Article 1191 of the Civil Code gives the injured party in reciprocal obligations, such as what contracts are about, the option to choose 13

between fulfillment and rescission. Arturo M. Tolentino, a well-known authority in civil law, is quick to note, however, that the equivalent of Article 1191 in the old code actually uses the term resolution rather than the present rescission. The calibrated meanings of these terms are distinct. Rescission is a subsidiary action based on injury to the plaintiffs economic interests as described in Articles 1380 and 1381. Resolution, the action referred to in Article 1191, on the other hand, is based on the defendants breach of faith, a violation of the reciprocity between the parties. As an action based on the binding force of a written contract, therefore, rescission (resolution) under Article 1191 prescribes in 10 years. Ten years is the period of prescription of actions based on a written contract under Article 1144. The distinction makes sense. Article 1191 gives the injured party an option to choose between, first, fulfillment of the contract and, second, its rescission. An action to enforce a written contract (fulfillment) is definitely an action upon a written contract, which prescribes in 10 years (Article 1144). It will not be logical to make the remedy of fulfillment prescribe in 10 years while the alternative remedy of rescission (or resolution) is made to prescribe after only four years as provided in Article 1389 when the injury from which the two kinds of actions derive is the same. The Court noted that the action filed by the Quirong heirs was an action for rescission (not resolution): Here, the Quirong heirs alleged in their complaint that they were entitled to the rescission of the contract of sale of the lot between the DBP and Sofia Quirong because the decision in Civil Case D-7159 deprived her heirs of nearly the whole of that lot. But what was the status of that contract at the time of the filing of the action for rescission? Apparently, that contract of sale had already been fully performed when Sofia Quirong paid the full price for the lot and when, in exchange, the DBP executed the deed of absolute sale in her favor. There was a turnover of control of the property from DBP to Sofia Quirong since she assumed under their contract, the ejectment of squatters and/or occupants on the lot, at her own expense. Actually, the cause of action of the Quirong heirs stems from their having been ousted by final judgment from the ownership of the lot that the DBP sold to Sofia Quirong, their predecessor, in violation of the warranty against eviction that comes with every sale of property or thing. Article 1548 of the Civil Code provides: Article 1548. Eviction shall take place whenever by a final judgment based on a right prior to the sale or an act imputable to the vendor, the vendee is deprived of the whole or of a part of thing purchased. xxxx With the loss of 80% of the subject lot to the Dalopes by reason of the judgment of the RTC in Civil Case D-7159, the Quirong heirs had the right to file an action for rescission against the DBP pursuant to the provision of Article 1556 of the Civil Code which provides: Article 1556. Should the vendee lose, by reason of the eviction, a part of the thing sold of such importance, in relation to the whole, that he would not have bought it without said part, he may demand the rescission of the contract; but with the obligation to return the thing without other encumbrances than those which it had when he acquired it. x x x Finally, the Court concluded that the action for rescission was barred by prescription as it was filed beyond the 4-year prescriptive period: And that action for rescission, which is based on a subsequent economic loss suffered by the buyer, was precisely the action that the Quirong heirs took against the DBP. Consequently, it prescribed as Article 1389 provides in four years from the time the action accrued. Since it accrued on January 28, 1993 when the decision in Civil Case D-7159 became final and executory and ousted the heirs from a substantial portion of the lot, the latter had only until January 28, 1997 within which to file their action for rescission. Given that they filed their action on June 10, 1998, they did so beyond the four-year period.

14

EXECUTIVE ORDER NO. 80 December 3, 1986 PROVIDING FOR THE 1986 REVISED CHARTER OF THE PHILIPPINE NATIONAL BANK WHEREAS, it is the policy of the state that the national interest in both the maintenance of economic stability and the promotion of economic development is best served by a system of financial intermediation that places primary reliance on the private sector, on the market mechanism, and on the maintenance of conditions of competition; WHEREAS, within the context of the general policy there nevertheless exists a clear role for direct government participation in the banking system, particularly in servicing the requirements of agriculture, small and medium scale industry, export development, and the government sector; WHEREAS, in pursuit of this national policy there is need to restructure the government financial institutions, particularly the Philippine National Bank, to achieve a more efficient and effective use of available scarce resources, to improve its viability, and to avoid unfair competition with the private sector; and WHEREAS, the reorganization and rehabilitation of the Philippine National Bank into a smaller but stronger and more operationally viable bank is an important competent of the nationalization programs for both the financial system and the government corporation sector; NOW, THEREFORE, I, CORAZON C. AQUINO, President of the Republic of the Philippines, do hereby order: Sec. 1. This Executive Order shall be known as "The 1986 Revised Charter of the Philippine National Bank." Sec. 2. Name, Place of Business; Branches; Agencies and Other Offices. The Philippine National Bank (hereinafter referred to as the "Bank"), a bank created under Act No. 2612, as amended, and operating under the provisions of Presidential Decree No. 694, as amended, shall henceforth operate under the provisions of this 1986 Revised Charter. The Bank's principal office and place of business shall be in the National Capital Region, also known as Metro Manila. It may open and maintain other branches, agencies or other offices at such places in the Philippines or abroad as its Board of Directors may deem advisable, with the prior approval of the Monetary Board of the Central Bank of the Philippines. Sec. 3. Corporate Powers and Purposes. The Bank shall be a body corporate and shall have the following powers and purposes: (a) To perform commercial banking, as well as expanded commercial banking functions; and, within the context of a financially viable and stable banking institution, to provide banking services for the development of agriculture and small and medium scale commercial and industrial enterprises particularly in the countryside, as provided in Section 4; to provide banking services to the National Government, other government entities and Local governments; and to engage in international banking activities, particularly in the promotion of exports; (b) To accept foreign currency deposits and operate foreign currency deposit unit as established under Republic Act No. 6426, as amended; (c) To accept and administer trusts and to carry on a general trust business; (d) To act as official government depository with authority to maintain deposits of the government, its branches, subdivisions and instrumentalities, and of government owned or controlled corporations, subject to the provisions of Section 6 hereof and such rules and regulations as the Monetary Board may prescribed; and (e) To adopt, amend or change its By-laws, to adopt, alter and use a seal, to make contracts; to sue and be sued, and to exercise the general powers of a corporation as provided in the Corporation Code of the Philippines and the powers of a bank of its category under the General Banking Act. The exercise of the above-mentioned powers on banking shall be subject to applicable law, as well as regulations promulgated by the Central Bank of the Philippines. Sec. 4. Granting of Loans; Exposure Ceilings and Limits on Equity Investments. In the exercise of its lending authority, the Bank shall give preference to loans for agricultural and small-and medium-scale commercial and industrial enterprises, particularly in the countryside. Unless otherwise provided in this Charter, loans and other credit accommodations granted by the Bank shall be subject to the appropriate applicable loan limits to any single borrower as provided for under Republic Act No. 337, as amended. The aggregate amount of loans, guarantees and contingent accounts, to Government agencies and entities including government owned and controlled corporations, shall at no time exceed the deposits and book value of the shareholdings of the Government, including government agencies and entities, government owned or controlled corporations plus twenty percent (20%) of such total. The authority of the Bank to invest in equities of allied undertakings, financial or non-financial, as well as in non-allied undertakings, shall be governed by the provisions of Republic Act No. 337, as amended. Sec. 5. Authorized Capital Stock; Par Value; Scale of Shares. The authorized capital stock of the Bank shall be Ten Billion Pesos to be divided into One Hundred Million common shares with par value of P100 per share which are available for subscription by the National Government. The common shares may be offered for sale to or subscription by private investors; Provided, that, the investment of private investors shall be subject to the applicable provisions of the General Banking Act. The Board of Directors shall have authority to convert such number of unissued common voting shares into preferred non-voting shares to be issued for sale or subscription, with such features, terms, and restrictions as it may determine. The issue and offering for sale of additional shares to private investors which will result in more than one-third of the common voting shares being eligible for acquisition by such investors shall require prior approval of the President of the Philippines; provided, that, where the sale of shares will result in a majority ownership by the private sector, the prior approval of the President shall also be required. 6. Change in Ownership of the Majority of the Voting Equity of the Bank. When the ownership of the majority of the issued common voting shares passes to private investors, the stockholders shall cause the adoption and registration with the Securities and Exchange Commission of the appropriate Articles of Incorporation and revised by-laws within three (3) months from such transfer of ownership. Upon the issuance of the certificate of incorporation under the provisions of the Corporation Code, this Charter shall cease to have force and effect, and shall be deemed repealed. Any special privileges granted to the Bank such as the authority to act as official government depository, or restrictions imposed upon the Bank, shall be withdrawn, and the Bank shall thereafter be considered a privately organized bank subject to the laws and regulations generally applicable to private banks. The Bank shall likewise cease to be a government owned or controlled corporation subject to the coverage of service-wide agencies such as the Commission on Audit and the Civil Service Commission. The fact of the change of the nature of the Bank from a government-owned and controlled financial institution to a privately-owned entity shall be given publicity. Sec. 7. National Government Subscription. Upon the effectivity of this Charter, the National Government shall subscribe to Twenty-Five Million common shares of stock worth Two Billion Five Hundred Million Pesos which shall be deemed paid for by the Government with the net asset values of the Bank remaining after the transfer of assets and liabilities as provided in Section 29 hereof. Sec. 8. Who may Vote Government Owned Stock. The voting rights of all the stock of the Bank owned and controlled by the National Government shall be vested to the President of the Philippines, or in such person or persons as the President may from time to time designate. Sec. 9. Board of Directors; Compositions: Tenure; Per Diems. The affairs and business of the Bank shall be directed and its properties managed and preserved and its corporate powers exercised, unless otherwise provided in this Charter, by a Board of Directors consisting of nine members, duly elected as herein provided for a term of one year or until their successors are duly elected and qualified. The Chairman of the Board shall be appointed by the President of the Philippines from among member of the Board: Provided, That the position of Chairman of the Board and President of the Bank shall not be held by the same person. The Chairman shall preside at meetings of the Board and of the Stockholders. The President of the Bank shall be vice-chairman of the Board and, as such, shall assist the chairman and act in his stead in case of absence or incapacity. In case of incapacity or absence of both the chairman and vice-chairman, the Board of Directors shall designate a temporary chairman from among its members. Unless otherwise set by the Board and approved by the President of the Philippines, members of the Board shall be paid a per diem of one thousand pesos for each meeting of the Board of Directors as actually attended: Provided, That the total amount of per diems for every single months shall not exceed the sum of Five Thousand Pesos. Sec. 10. Election and Qualification of Members of the Board of Directors. Annually on the first Tuesday after the first Monday in March, the stockholders shall meet to elect the members of the Board of directors for the current year. Each stockholder or proxy will be entitled to as many votes as he may have shares of stock register his name on the thirty-first of January last preceding and held by him at the time of the election multiplied by the number of directions be elected. In the election of the members of the Board, stockholders shall have the right of commutative voting as recognized by law. No person shall be elected director of the Bank unless he is a natural-born citizen of the Philippines, not less than thirty-five years of age, of good moral character and has attained proficiency expertise and recognized competence in one more of the following banking, finance, economics, law, agriculture, business management, public utility or government administration. At least four of the elective members of the Board shall concurrently hold appointive or elective positions in the National Government, any government-owned or controlled corporation, or in any local government.

15

No director, officer or employee of any other bank shall be eligible as a member of the Board of Directors of the Bank. Sec. 11. Powers of the Board of Directors. The Board of Directors shall have, among others, the following duties, powers and authority. (a) To formulate policies necessary to carry out effectively the provisions of this Charter; (b) To adopt, amend or change the by-laws as well as such rules and regulations as may be necessary for the effective operation of the Bank, in conformity with this Charter and existing laws; (c) To prescribe such terms and conditions to govern the granting of loans and credits, consistent with the provisions of this Charter; (d) To adopt an annual budget for the effective operation and administration of the Bank; (e) To create, establish and operate a "Self-Insurance System" in order to offset possible damage or loss of cash-in-transit that the Bank may suffer on account of cash and check remittances to its branches and agencies and vice-versa, as well as those that may arise from irregular encashment or negotiation of checks, drafts, telegraphic transfer and similar instruments, or losses arising from other forms of fraud; (f) To create and establish a Provident Fund which shall consist of contributions made both by the Bank and its officers or employees to a common fund for the payment of benefits to such officer or employee or his heirs under such terms and conditions as the Board of Directors may fix; (g) To compromise or release, in whole or in part, any claim, liability, or demand for or against the Bank, regardless of the amount involved, under such terms and conditions as it may impose to protect the interests of the Bank. (h) To determine the procedure and requirements for the acquisition of properties necessary for the business of the Bank; and (i) To dispose of properties of the Bank, whether used in the conduct of its business or acquired as a result of its banking operations, by public bidding or private negotiations as provided in Sec. 21 of this Charter. The Board shall meet as frequently as necessary and the presence of five members shall constitute a quorum. Sec. 12. President of the Bank. The Chief Executive Officer of the Bank shall be the President who shall be elected by the Board of Directors from among themselves with the advise and consent of the President of the Philippines. No person shall be appointed President of the Bank unless he is at least forty years of age, of good moral character and reputation, with at least ten years previous experience in banking, and has a reputed proficiency, expertise and recognized competence in banking or financial management. The President of the Bank shall, among other powers and duties, execute and administer the policies, measures, orders and resolutions approved by the Board of Directors, and direct and supervise the operations and administration of the Bank. Particularly, he shall have the power and duty: (a) To execute all contracts and to enter into all authorized transactions in behalf of the Bank; (b) To exercise, as Chief Executive Officer; the power of supervision and control over decisions or actions of subordinate officers and all other powers that may be granted by the Board; (c) To recommend to the Board the appointment, promotion, or removal of all officers of the Bank with the rank of at least Vice President or its equivalent; (d) To appoint, promote or remove employees and officers below the rank of Vice-President; (e) To transfer, assign or reassign officers and personnel of the Bank in the interest of the service; (f) To report periodically to the Board of Directors on the operations of the Bank; (g) To submit annually a report on the result of the operations of the Bank to the President of the Philippines and to the private shareholders in the Bank, if any; and (h) To delegate any of his powers, duties or functions to unto any official of the Bank, with the approval of the Board of Directors. Sec. 13. Legal Matters and Cases. The Bank shall have its own Legal Department, the head of which shall be appointed by the Board of Directors of the Bank upon recommendation of the President of the Bank. The Bank may, subject to court approval, deputise any member of its legal staff to act as Special Sheriff in the enforcement of court writs and processes in cases involving the Bank. Sec. 14. Bank Auditor. The Commission on Audit shall be ex-oficio auditor of the Bank and shall designate a representative to the Bank. Sec. 15. Other Officers and Employees. The Board of Directors shall provide for an organization and staff of officers and employees of the Bank and upon recommendation of the President of the Bank, fix their remunerations and other emoluments. No officer or employee of the Bank subject to the Civil Service Law shall be dismissed or suspended except as provided by law. Sec. 16. Examination of the Bank. The Bank shall be subject to supervision and examination by the appropriate department of the Central Bank of Philippines. Sec. 17. Inhibition from Board Meeting of Member with Personal Interest. Whenever any member attending a meeting of the Board of Directors has a personal interest directly or indirectly, in the discussion or resolution of any given matter, said member shall not participate in the discussion or resolution of the matter and must retire from the meeting during the deliberation thereon. The minutes of the meeting, which shall note the subject matter, when resolved, the fact that a member had a personal interest in it, and the withdrawal of the member concerned, may be made available to the public. Sec. 18. Prohibition on Officers and Employees of the Bank. Except as required by law, or upon order of a court of competent jurisdiction, or express order of the client, no officer or employee of the Bank shall reveal to, nor allow to be examined, inquired or looked into by any third person, government official, bureau or office any information relative to details of individual accounts or specific banking transactions: Provided, that in respect to deposits of whatever nature, the provisions of existing laws shall apply. This prohibition shall not apply to the exchange of confidential credit information among government financial institutions or among banks, in accordance with established banking practices or as may allowed by law. Sec. 19. Borrowing by Directors, Officers and Employees Restriction and Limitations. No directors or officers or employee of the Bank or any corporation, partnership, or company wherein any member of the Board of Directors, officer or employee, and/or their respective relatives within the second degree of consaguinity or affinity, is a director, officer, or controlling shareholder, shall either directly or indirectly, for himself or as representative or agent of others, borrow any of the deposits of funds from the Bank, nor shall he become a guarantor, indorser, or surety for loans from the Bank to others, or in any manner be an obligator for money borrowed from the Bank or loaned by it: Provided, That this provision on loans to directors, officers and employees shall not include loans allowed in the form of fringe benefits granted in accordance with rules and regulations as may be prescribed by the Monetary Board of the Central Bank. The Bank shall not grant, directly or indirectly, any loans or credit accommodations to the head or to any officer or personnel directly exercising supervisory or regulatory authority over the activities of the Bank such as those of the Central Bank of the Philippines or of the Commission on Audit. Sec. 20. Prohibited Interest or Fees with Reference to Obtaining Loans. No Director, officer or employee of the Bank shall, except as provided in the preceding Section, directly or indirectly, have any pecuniary interest in any loan from the Bank. Neither shall he charge, exact, demand or receive any fee, charge or commission in any form for his service or the use of his influence in obtaining a loan. Any violation of this Section shall be punished as hereinafter provided in Section 27 of this Charter. Sec. 21. Disposal of Real Estate and Other Properties in the Collection of Debts. Real and other properties acquired by the Bank in the collection of debts, receivables or investment by way of foreclosure or other means shall be sold or otherwise disposed of in accordance with the policies and guidelines adopted by the Board of Directors within five years after date of their acquisition. Sec. 22. Right of Redemption of Foreclosure Property Right of Possession During Redemption Period. Within one year from the registration of the foreclosure sale of real property, the mortgagor shall have the right to redeem the property by paying the principal, interests, charges, commissions and all claims of whatever nature of the Bank outstanding and due as of the date of the sale including all the costs and other expenses incurred by reason of the foreclosure sale and custody of the property, as well as charges and accrued interest. The Bank may take possession of the foreclosure property during the redemption period. When the Bank takes possession during such period, it shall be entitled to the fruits of the property with no obligation to account for them, the same being considered compensation for the interest that would otherwise accrue on the account. Neither shall the Bank be obliged to post a bond for the purpose of such possession. Sec. 23. Allocation of Current Net Profits. At the close of the calendar year, the Bank shall determine the net results of its operations in the calculation of which adequate allowances shall be made for probable losses. Of the net profits arrived at, least fifty percent (50%) shall be set aside and accumulated in the earned surplus account. The remaining current net profits may after an examination of the financial condition of the Bank be used for the declaration of Dividends corresponding to the shares of the Government and the private stockholders. Dividends may either be in the form of cash or stock as the Board of Directors shall determine. Sec. 24. Payment of Cash Dividends Corresponding to Government-Owned Shares. Cash Dividends corresponding to the shares of the National Government shall first be set aside and used for the purpose of rehiring the government securities which may have been issued by the Minister of Finance for additional Government subscriptions to the unissued shares of the capital stock of the Bank prior to the effectivity of this Charter. Thereafter, cash dividends corresponding to the Government-owned shares shall be paid unto the Treasury of the Philippines to become part of the general funds. Sec. 25. Terms of Legal Existence. The legal existence of the Bank shall be for a period of fifty years, counted from the date the Bank operates under the provisions of this Chapter.

16

Sec. 26. Applicability of Banking Laws. The provisions of Republic Acts No. 265, as amended, and No. 337, as amended, insofar as applicable and not in conflict with any provisions of this Charter, shall apply to the Bank. Sec. 27. Penalties for Violation of the Provisions of this Charter. Any director, officer or employee of the Bank who violates or knowingly permits the violation and any person aiding or abetting any violations of any of the provisions of this Charter, shall be punished by a fine not to exceed ten thousand pesos or by imprisonment of not more than five years or both such fine and imprisonment. TRANSITORY PROVISIONS Sec. 28. Preparatory Work. Upon the effectivity of this Executive Order, the Board of Directors and management of the Bank shall undertake the appropriate steps to establish its current financial condition for the purpose of determining its net asset values and the book value of shares thereof. All shares of stock held by the Government of the Philippines in the Bank are deemed cancelled and exchanged for Twenty-Five Million common shares of stock subscribed and paid-in by the Government, pursuant to Section 7 hereof. The ratio of the shareholdings of the Government of the Philippines to the shareholdings of the private shareholders before the effectivity of this Charter shall be maintained. Private shareholders of the Bank, including holders of Common "A" shares, shall exchange their shares for such number of shares of stock of the Bank computed on the basis of the ratio of the common shares held by the Government immediately prior to the effectivity of this Charter to the new shares of stock subscribed and paid-in by the Government pursuant to Section 7 hereof. Sec. 29. Transfer of Assets and Liabilities of the Philippine National Bank. The Bank shall transfer to the National Government such of its assets and liabilities as may be necessary to rehabilitate the Bank and to start its operations under the Revised Charter on a viable basis, as determined by the appropriate authorities, such assets to include but not necessarily be limited to its acquired assets and non-performing accounts, and such liabilities to include real as well as contingent liabilities. The National Government is hereby authorized to accept the same under terms and conditions as may be mutually acceptable to the Bank and the National Government. Sec. 30. Maintenance, Care and Preservation of Assets Transferred to the National Government. The Bank is hereby authorized to enter into an agreement with the National Government as transferee of assets from the Bank as hereinabove provided, either as an interim arrangement or otherwise and under such terms and conditions as may be necessary to preserve and/or to maintain and/or dispose of such assets transferred to the National Government. Sec. 31. Banking Operations under the 1986 Revised Charters; Governing Laws. The Banking operations of the Bank shall be governed by the provisions of this Charter beginning on January 1, 1987, or on such subsequent date as may be determine by the President of the Philippine upon the recommendation of the Minister of Finance. Sec. 32. Loans and Other Investments, and Liabilities in Excess of Prescribed Limits. Loans and other investments as well as liabilities existing as of the date of the effectivity of this Revised Charter which as a result of the assets and liabilities transfer under Section 29 hereof will exceed the limits prescribed under the provisions of this Act, the General Banking Act or Central Bank regulations shall not be subject to such prescribed limits but shall be reduced within a period of two years unless a longer period is prescribed by the Monetary Board, and once reduced, shall not be increased beyond the prescribed limits. Sec. 33. Authority to Reorganize. In view of reduced operations contemplated under this Charter in pursuance of the national policy expressed in the "whereas" clauses hereof, a reorganization of the Bank and a reduction in force are hereby authorized to achieve greater efficiency and economy in operations, including the adoption of a new staffing pattern to suit the reduced operations envisioned. The program or reorganization shall begin immediately after the approval of this Order, and shall be completed within six months and shall be fully implemented within eighteen months thereafter. Sec. 34. Implementing Details, Organization and Staffing of the Bank. Upon the effectivity of this Charter, the incumbent Board of Directors and President of the Bank shall continue in office unless or until replaced by the President of the Philippines, provided, that the provisions of Section 10 of this Charter shall be observed. The President of the Bank is hereby authorized, subject to the approval of the Board of Directors as appropriate, to issue such orders, rules and regulations as may be necessary to implement the provisions of this Charter, including those relative to the financial aspects, if any, and to the reorganization of the Bank as hereinabove authorized under Section 33 which will involve the determination and adoption of (1) the new internal structure of the Bank as reorganized down to the divisional, section or lowest organizational levels, including such appropriate units as may be needed to handle caretaking activities such as the disposition of certain assets and the collection of certain accounts; (2) a new staffing pattern including appropriate salary rates; and (3) the initial operating budget. In the implementation of the reorganization of the Bank as authorized under Section 33, and in appointments to appropriate positions in the new staffing pattern of the Bank, no personnel of the Bank shall have vested rights to any position in the new staffing pattern or to be otherwise retained in the Bank even if should be the incumbent of the same or similar position in the new staffing pattern. Sec. 35. Recall of External Personnel in the Bank. Effective on the date the Bank commences to operate in accordance with this Charter, all representatives and/or personnel of other government offices, Commission and government corporations assigned to or on detail with the bank are considered recalled to their respective offices and/or units. New designations to the Bank shall made by the respective government offices or Commissions conformably with the mandate of law and the requirements of the Bank. Sec. 36. Separation Benefits. All those who are separated from the Bank as result of its reorganization in pursuance of Section 33 hereof shall be entitled to all gratuities and benefits provided for under existing laws and/or supplementary retirement plans adopted by and effective in the Bank. Sec. 37. No legal action or suit brought by or on behalf of any aggrieved officer or personnel of the Bank in connection with any matter treated in any court unless the verified complaint shows on its face that the cause has first has been submitted to, and adversed resolved by, the Civil Service Commission. Sec. 38. Repealing Clauses. Subject to Section 31 of this Charter, Presidential Decree No. 694, as amended, is hereby repealed. All other laws, decrees, acts, executive orders, administrative orders, proclamations, rules and regulations or parts thereof inconsistent with any of the provisions of this Charter are hereby repealed or modified accordingly. Sec. 39. Separability Clause. If any provisions or section of this Charter or the application thereof to any person, association or circumstances is held invalid, the other pertinent provisions or sections of this Charter and their application to such person, association or circumstances shall not be affected thereby. Sec. 40. Effectivity. This Executive Order shall take effect upon its approval. Done in the City of Manila, on the 3rd day of December, in the year of Our Lord, nineteen hundred and eighty-six.

17

REPUBLIC ACT NO. 8791 May 23, 2000 AN ACT PROVIDING FOR THE REGULATION OF THE ORGANIZATION AND OPERATIONS OF BANKS, QUASI-BANKS, TRUST ENTITIES AND FOR OTHER PURPOSES CHAPTER I TITLE AND CLASSIFICATION OF BANKS Section 1. Title. The short title of this Act shall be "The General Banking Law of 2000." (1a) Section 2. Declaration Of Policy. - The State recognizes the vital role of banks providing an environment conducive to the sustained development of the national economy and the fiduciary nature of banking that requires high standards of integrity and performance. In furtherance thereof, the State shall promote and maintain a stable and efficient banking and financial system that is globally competitive, dynamic and responsive to the demands of a developing economy. (n) Section 3. Definition and Classification of Banks. 3.1. "Banks" shall refer to entities engaged in the lending of funds obtained in the form of deposits. (2a) 3.2. Banks shall be classified into: (a) Universal banks; (b) Commercial banks; (c) Thrift banks, composed of: (i) Savings and mortgage banks, (ii) Stock savings and loan associations, and (iii) Private development banks, as defined in the Republic Act No. 7906 (hereafter the "Thrift Banks Act"); (d) Rural banks, as defined in Republic Act No. 73S3 (hereafter the "Rural Banks Act"); (e) Cooperative banks, as defined in Republic Act No 6938 (hereafter the "Cooperative Code"); (f) Islamic banks as defined in Republic Act No. 6848, otherwise known as the "Charter of Al Amanah Islamic Investment Bank of the Philippines"; and (g) Other classifications of banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas. (6-Aa) CHAPTER II AUTHORITY OF THE BANGKO SENTRAL Section 4. Supervisory Powers. The operations and activities of banks shall be subject to supervision of the Bangko Sentral. "Supervision" shall include the following: 4.1. The issuance of rules of, conduct or the establishment standards of operation for uniform application to all institutions or functions covered, taking into consideration the distinctive character of the operations of institutions and the substantive similarities of specific functions to which such rules, modes or standards are to be applied; 4.2 The conduct of examination to determine compliance with laws and regulations if the circumstances so warrant as determined by the Monetary Board; 4.3 Overseeing to ascertain that laws and regulations are complied with; 4.4 Regular investigation which shall not be oftener than once a year from the last date of examination to determine whether an institution is conducting its business on a safe or sound basis: Provided, That the deficiencies/irregularities found by or discovered by an audit shall be immediately addressed; 4.5 Inquiring into the solvency and liquidity of the institution (2-D); or 4.6 Enforcing prompt corrective action. (n) The Bangko Sentral shall also have supervision over the operations of and exercise regulatory powers over quasi-banks, trust entities and other financial institutions which under special laws are subject to Bangko Sentral supervision. (2-Ca) For the purposes of this Act, "quasi-banks" shall refer to entities engaged in the borrowing of funds through the issuance, endorsement or assignment with recourse or acceptance of deposit substitutes as defined in Section 95 of Republic Act No. 7653 (hereafter the "New Central Bank Act") for purposes of re-lending or purchasing of receivables and other obligations. (2-Da) Section 5. Policy Direction; Ratios, Ceilings and Limitations. - The Bangko Sentral shall provide policy direction in the areas of money, banking and credit. (n) For this purpose, the Monetary Board may prescribe ratios, ceilings, limitations, or other forms of regulation on the different types of accounts and practices of banks and quasi-banks which shall, to the extent feasible, conform to internationally accepted standards, including of the Bank for International Settlements (BIS). The Monetary Board may exempt particular categories of transactions from such ratios, ceilings. and limitations, but not limited to exceptional cases or to enable a bank or quasi-bank under rehabilitation or during a merger or consolidation to continue in business, with safety to its creditors, depositors and the general public. (2-Ca) Section 6. Authority to Engage in Banking and Quasi-Banking Functions. - No person or entity shall engage in banking operations or quasi-banking functions without authority from the Bangko Sentral: .Provided, however, That an entity authorized by the Bangko Sentral to perform universal or commercial banking functions shall likewise have the authority to engage in quasi-banking functions. The determination of whether a person or entity is performing banking or quasi-banking functions without Bangko Sentral authority shall be decided by the Monetary Board. To resolve such issue, the Monetary Board may; through the appropriate supervising and examining department of the Bangko Sentral, examine, inspect or investigate the books and records of such person or entity. Upon issuance of this authority, such person or entity may commence to engage in banking operations or quasi-banking function and shall continue to do so unless such authority is sooner surrendered, revoked, suspended or annulled by the Bangko Sentral in accordance with this Act or other special laws. The department head and the examiners of the appropriate supervising and examining department are hereby authorized to administer oaths to any such person, employee, officer, or director of any such entity and to compel the presentation or production of such books, documents, papers or records that are reasonably necessary to ascertain the facts relative to the true functions and operations of such person or entity. Failure or refusal to comply with the required presentation or production of such books, documents, papers or records within a reasonable time shall subject the persons responsible therefore to the penal sanctions provided under the New Central Bank Act. Persons or entities found to be performing banking or quasi-banking functions without authority from the Bangko Sentral shall be subject to appropriate sanctions under the New Central Bank Act and other applicable laws. (4a) Section 7. Examination by the Bangko Sentral. - The Bangko Sentral shall, when examining a bank, have the authority to examine an enterprise which is wholly or majority-owned or controlled by the bank. (2-Ba) CHAPTER III ORGANIZATION, MANAGEMENT AND ADMINISTRATION OF BANKS. QUASI-BANKS AND TRUST ENTITIES Section 8. Organization. - The Monetary Board may authorize the organization of a bank or quasi-bank subject to the following conditions: 8.1 That the entity is a stock corporation (7); 8.2 That its funds are obtained from the public, which shall mean twenty (20) or more persons (2-Da); and 8.3 That the minimum capital requirements prescribed by the Monetary Board for each category of banks are satisfied. (n) No new commercial bank shall be established within three (3) years from the effectivity of this Act. In the exercise of the authority granted herein, the Monetary Board shall take into consideration their capability in terms of their financial resources and technical expertise and integrity. The bank licensing process shall incorporate an assessment of the bank's ownership structure, directors and senior management, its operating plan and internal controls as well as its projected financial condition and capital base. Section 9. Issuance of Stocks. - The Monetary Board may prescribe rules and regulations on the types of stock a bank may issue, including the terms thereof and rights appurtenant thereto to determine compliance with laws and regulations governing capital and equity structure of banks; Provided, That banks shall issue par value stocks only. Section 10. Treasury Stocks. - No bank shall purchase or acquire shares of its own capital stock or accept its own shares as a security for a loan, except when authorized by the Monetary Board: Provided, That in every case the stock so purchased or acquired shall, within six (6) months from the time of its purchase or acquisition, be sold or disposed of at a public or private sale. (24a) Section 11. Foreign Stockholdings. - Foreign individuals and non-bank corporations may own or control up to forty percent (40%) of the voting stock of a domestic bank. This rule shall apply to Filipinos and domestic non-bank corporations. (12a; 12-Aa) The percentage of foreign-owned voting stocks in a bank shall be determined by the citizenship of the individual stockholders in that bank. The citizenship of the corporation which is a stockholder in a bank shall follow the citizenship of the controlling stockholders of the corporation, irrespective of the place of incorporation. (n) Section 12. Stockholdings of Family Groups of Related Interests. - Stockholdings of individuals related to each other within the fourth degree of consanguinity or affinity, legitimate or common-law, shall be considered family groups or related interests and must be fully disclosed in all transactions by such corporations or related groups of persons with the bank. (12-Ba) Section 13. Corporate Stockholdings. - Two or more corporations owned or controlled by the same family group or same group of persons shall be considered related interests and must be fully disclosed in all transactions by such corporations or related group of persons with the bank. (12-Ba)

18

Section 14. Certificate of Authority to Register. - The Securities and Exchange Commission shall no register the articles of incorporation of any bank, or any amendment thereto, unless accompanied by a certificate of authority issued by the Monetary Board, under it seal. Such certificate shall not be issued unless the Monetary Board is satisfied from the evidence submitted to it: 14.1 That all requirements of existing laws and regulations to engage in the business for which the applicant is proposed to be incorporated have been complied with; 14.2 That the public interest and economic conditions, both general and local, justify the authorization; and 14.3 That the amount of capital, the financing, organization, direction and administration, as well as the integrity and responsibility of the organizers and administrators reasonably assure the safety of deposits and the public interest. (9) The Securities and Exchange Commission shall not register the by-laws of any bank, or any amendment thereto, unless accompanied by a certificate of authority from the Bangko Sentral. (10) Section 15. Board of Directors. - The provisions of the Corporation Code to the contrary notwithstanding, there shall be at least five (5), and a maximum of fifteen (15) members of the board or directors of a bank, two (2) of whom shall be independent directors. An "independent director" shall mean a person other than an officer or employee of the bank, its subsidiaries or affiliates or related interests. (n) Non-Filipino citizens may become members of the board of directors of a bank to the extent of the foreign participation in the equity of said bank. (Sec. 7, RA 7721) The meetings of the board of directors may be conducted through modern technologies such as, but not limited to, teleconferencing and video-conferencing. (n) Section 16. Fit and Proper Rule. - To maintain the quality of bank management and afford better protection to depositors and the public in general the Monetary Board shall prescribe, pass upon and review the qualifications and disqualifications of individuals elected or appointed bank directors or officers and disqualify those found unfit. After due notice to the board of directors of the bank, the Monetary Board may disqualify, suspend or remove any bank director or officer who commits or omits an act which render him unfit for the position. In determining whether an individual is fit and proper to hold the position of a director or officer of a bank, regard shall be given to his integrity, experience, education, training, and competence. (9-Aa) Section 17. Directors of Merged or Consolidated Banks. - In the case of a bank merger or consolidation, the number of directors shall not exceed twenty-one (21). (l3a) Section 18. Compensation and Other Benefits of Directors and Officers. To protect the finds of depositors and creditors the Monetary Board may regulate the payment by the bark to its directors and officers of compensation, allowance, fees, bonuses, stock options, profit sharing and fringe benefits only in exceptional cases and when the circumstances warrant, such as but not limited to the following: 18.1. When a bank is under comptrollership or conservatorship; or 18.2. When a bank is found by the Monetary Board to be conducting business in an unsafe or unsound manner; or 18.3. When a bank is found by the Monetary Board to be in an unsatisfactory financial condition. (n) Section 19. Prohibition on Public Officials. - Except as otherwise provided in the Rural Banks Act, no appointive or elective public official whether full-time or part-time shall at the same time serve as officer of any private bank, save in cases where such service is incident to financial assistance provided by the government or a government owned or controlled corporation to the bank or unless otherwise provided under existing laws. (13) Section 20. Bank Branches. - Universal or commercial banks may open branches or other offices within or outside the Philippines upon prior approval of the Bangko Sentral. Branching by all other banks shall be governed by pertinent laws. A bank may, subject to prior approval of the Monetary Board, use any or all of its branches as outlets for the presentation and/or sale of the financial products of its allied undertaking or of its investment house units. A bank authorized to establish branches or other offices shall be responsible for all business conducted in such branches and offices to the same extent and in the same manner as though such business had all been conducted in the head office. A bank and its branches and offices shall be treated as one unit. (6-B; 27) Section 21. Banking Days and Hours. - Unless otherwise authorized by the Bangko Sentral in the interest of the banking public, all banks including their branches and offices shall transact business on all working days for at least six (6) hours a day. In addition, banks or any of their branches or offices may open for business on Saturdays, Sundays or holidays for at least three (3) hours a day: Provided, That banks which opt to open on days other than working days shall report to the Bangko Sentral the additional days during which they or their branches or offices shall transact business. For purposes of this Section, working days shall mean Mondays to Fridays, except if such days are holidays. (6-Ca) Section 22. Strikes and Lockouts. - The banking industry is hereby declared as indispensable to the national interest and, notwithstanding the provisions of any law to the contrary, any strike or lockout involving banks, if unsettled after seven (7) calendar days shall be reported by the Bangko Sentral to the secretary of Labor who may assume jurisdiction over the dispute or decide it or certify the sane to the National Labor Relations Commission for compulsory arbitration. However, the President of the Philippines may at any time intervene and assume jurisdiction over such labor dispute in order to settle or terminate the same. (6-E) CHAPTER IV DEPOSITS. LOANS AND OTHER OPERATIONS Article I Operations Of Universal Banks Section 23. Powers of a Universal Bank - A universal bank shall have the authority to exercise, in addition to the powers authorized for a commercial bank in Section 29, the powers of an investment house as provided in existing laws and the power to invest in non-allied enterprises as provided in this Act. (21-B) Section 24. Equity Investments of a Universal Bank. - A universal bank may, subject to the conditions stated in the succeeding paragraph, invest in the equities of allied and non-allied enterprises as may be determined by the Monetary Board. Allied enterprises may either be financial or non-financial. Except as the Monetary Board may otherwise prescribe: 24.1. The total investment in equities of allied and non-allied enterprises shall not exceed fifty percent (50%) of the net worth of the bank; and 24.2. The equity investment in any one enterprise, whether allied or non-allied, shall not exceed twenty-five percent (25%) of the net worth of the bank. As used in this Act, "net worth" shall mean the total of the unimpaired paid-in capital including paid-in surplus, retained earnings and undivided profit, net of valuation reserves and other adjustments as may be required by the Bangko Sentral. The acquisition of such equity or equities is subject to the prior approval of the Monetary Board which shall promulgate appropriate guidelines to govern such investments. (21-Ba) Section 25. Equity Investments of a Universal Bank in Financial Allied Enterprises. - A universal bank can own up to one hundred percent (100%) of the equity in a thrift bank, a rural bank or a financial allied enterprise. A publicly-listed universal or commercial bank may own up to one hundred percent (100%) of the voting stock of only one other universal or commercial bank. (21-B; 21-Ca) Section 26. Equity Investments of a Universal Bank in Non-Financial Allied Enterprises. - A universal bank may own up to one hundred percent (100%) of the equity in a non-financial allied enterprise. (21-Ba) Section 27. Equity Investments of a Universal Bank in Non-Allied Enterprises. - The equity investment of a universal bank, or of its wholly or majority-owned subsidiaries, in a single non-allied enterprise shall not exceed thirty-five percent (35%) of the total equity in that enterprise nor shall it exceed thirty-five percent (35%) of the voting stock in that enterprise. (21-B) Section 28. Equity Investments in Quasi-Banks. - To promote competitive conditions in financial markets, the Monetary Board may further limit to forty percent (40%) equity investments of universal banks in quasi-banks. This rule shall also apply in the case of commercial banks. (12-E) Article II. Operations Of Commercial Banks Section 29. Powers of a Commercial Bank. - A commercial bank shall have, in addition to the general powers incident to corporations, all such powers as may be necessary to carry on the business of commercial banking such as accepting drafts and issuing letters of credit; discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; accepting or creating demand deposits; receiving other types of deposits and deposit substitutes; buying and selling foreign exchange and gold or silver bullion; acquiring marketable bonds and other debt securities; and extending credit, subject to such rules as the Monetary Board may promulgate. These rules may include the determination of bonds and other debt securities eligible for investment, the maturities and aggregate amount of such investment. Section 30. Equity Investments of a Commercial Bank. - A commercial bank may, subject to the conditions stated in the succeeding paragraphs, invest only in the equities of allied enterprises as may be determined by the Monetary Board. Allied enterprises may either be financial or non-financial. Except as the Monetary Board may otherwise prescribe: 30.1. The total investment in equities of allied enterprises shall not exceed thirty-five percent (35%) of the net worth of the bark; and 30.2. The equity investment in any one enterprise shall not exceed twenty-five percent (25%) of tile net worth of the bank. The acquisition of such equity or equities is subject to the prior approval of the Monetary Board which shall promulgate appropriate guidelines to govern such investment.(2lA-a; 21-Ca) Section 31. Equity Investments of a Commercial Bank in Financial Allied Enterprises. - A commercial bank may own up to one hundred percent (100%) of the equity of a thrift bank or a rural bank. Where the equity investment of a commercial bank is in other financial allied enterprises, including another commercial bank, such investment shall remain a minority holding in that enterprise. (21-Aa; 21-Ca)

19

Section 32. Equity Investments of a Commercial Bank in Non-Financial Allied Enterprises. A commercial bank may own up to one hundred percent (100%) of the equity in a non-financial allied enterprise. (21-Aa) Article III. Provisions Applicable To All Banks, Quasi-Banks, And Trust Entities Section 33. Acceptance of Demand Deposits. - A bank other than a universal or commercial bank cannot accept or create demand deposits except upon prior approval of, and subject to such conditions and rules as may be prescribed by the Monetary Board. (72-Aa) Section 34. Risk-Based Capital. - The Monetary Board shall prescribe the minimum ratio which the net worth of a bank must bear to its total risk assets which may include contingent accounts. For purposes of this Section, the Monetary Board may require such ratio be determined on the basis of the net worth and risk assets of a bank and its subsidiaries, financial or otherwise, as well as prescribe the composition and the manner of determining the net worth and total risk assets of banks and their subsidiaries: Provided, That in the exercise of this authority, the Monetary Board shall, to the extent feasible conform to internationally accepted standards, including those of the Bank for International Settlements(BIS), relating to risk-based capital requirements: Provided further, That it may alter or suspend compliance with such ratio whenever necessary for a maximum period of one (1) year: Provided, finally, That such ratio shall be applied uniformly to banks of the same category. In case a bank does not comply with the prescribed minimum ratio, the Monetary Board may limit or prohibit the distribution of net profits by such bank and may require that part or all of the net profits be used to increase the capital accounts of the bank until the minimum requirement has been met The Monetary Board may, furthermore, restrict or prohibit the acquisition of major assets and the making of new investments by the bank, with the exception of purchases of readily marketable evidences of indebtedness of the Republic of the Philippines and of the Bangko Sentral and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines, until the minimum required capital ratio has been restored. In case of a bank merger or consolidation, or when a bank is under rehabilitation under a program approved by the Bangko Sentral, Monetary Board may temporarily relieve the surviving bank, consolidated bank, or constituent bank or corporations under rehabilitation from full compliance with the required capital ratio under such conditions as it may prescribe. Before the effectivity of rules which the Monetary Board is authorized to prescribe under this provision, Section 22 of the General Banking Act, as amended, Section 9 of the Thrift Banks Act, and all pertinent rules issued pursuant thereto, shall continue to be in force. (22a) Section 35. Limit on Loans, Credit Accommodations and Guarantees 35.1 Except as the Monetary Board may otherwise prescribe for reasons of national interest, the total amount of loans, credit accommodations and guarantees as may be defined by the Monetary Board that may be extended by a bank to any person, partnership, association, corporation or other entity shall at no time exceed twenty percent (20%) of the net worth of such bank. The basis for determining compliance with single borrower limit is the total credit commitment of the bank to the borrower. 35.2. Unless the Monetary Board prescribes otherwise, the total amount of loans, credit accommodations and guarantees prescribed in the preceding paragraph may be increased by an additional ten percent (10%) of the net worth of such bank provided the additional liabilities of any borrower are adequately secured by trust receipts, shipping documents, warehouse receipts or other similar documents transferring or securing title covering readily marketable, non-perishable goods which must be fully covered by insurance. 35.3 The above prescribed ceilings shall include (a) the direct liability of the maker or acceptor of paper discounted with or sold to such bank and the liability of a general endorser, drawer or guarantor who obtains a loan or other credit accommodation from or discounts paper with or sells papers to such bank; (b) in the case of an individual who owns or controls a majority interest in a corporation, partnership, association or any other entity, the liabilities of said entities to such bank; (c) in the case of a corporation, all liabilities to such bank of all subsidiaries in which such corporation owns or controls a majority interest; and (d) in the case of a partnership, association or other entity, the liabilities of the members thereof to such bank. 35.4. Even if a parent corporation, partnership, association, entity or an individual who owns or controls a majority interest in such entities has no liability to the bank, the Monetary Board may prescribe the combination of the liabilities of subsidiary corporations or members of the partnership, association, entity or such individual under certain circumstances, including but not limited to any of the following situations: (a) the parent corporation, partnership, association, entity or individual guarantees the repayment of the liabilities; (b) the liabilities were incurred for the accommodation of the parent corporation or another subsidiary or of the partnership or association or entity or such individual; or (c) the subsidiaries though separate entities operate merely as departments or divisions of a single entity. 35.5. For purposes of this Section, loans, other credit accommodations and guarantees shall exclude: (a) loans and other credit accommodations secured by obligations of the Bangko Sentral or of the Philippine Government: (b) loans and other credit accommodations fully guaranteed by the government as to the payment of principal and interest; (c) loans and other credit accommodations covered by assignment of deposits maintained in the lending bank and held in the Philippines; (d) loans, credit accommodations and acceptances under letters of credit to the extent covered by margin deposits; and (e) other loans or credit accommodations which the Monetary Board may from time to time, specify as non-risk items. 35.6. Loans and other credit accommodations, deposits maintained with, and usual guarantees by a bank to any other bank or non-bank entity, whether locally or abroad, shall be subject to the limits as herein prescribed. 35.7. Certain types of contingent accounts of borrowers may be included among those subject to these prescribed limits as may be determined by the Monetary Board.(23a) Section 36. Restriction on Bank Exposure to Directors, Officers, Stockholders and Their Related Interests. - No director or officer of any bank shall, directly or indirectly, for himself or as the representative or agent of others, borrow from such bank nor shall he become a guarantor, endorser or surety for loans from such bank to others, or in any manner be an obligor or incur any contractual liability to the bank except with the written approval of the majority of all the directors of the bank, excluding the director concerned: Provided, That such written approval shall not be required for loans, other credit accommodations and advances granted to officers under a fringe benefit plan approved by the Bangko Sentral. The required approval shall be entered upon the records of the bank and a copy of such entry shall be transmitted forthwith to the appropriate supervising and examining department of the Bangko Sentral. Dealings of a bank with any of its directors, officers or stockholders and their related interests shall be upon terms not less favorable to the bank than those offered to others. After due notice to the board of directors of the bank, the office of any bank director or officer who violates the provisions of this Section may be declared vacant and the director or officer shall be subject to the penal provisions of the New Central Bank Act. The Monetary Board may regulate the amount of loans, credit accommodations and guarantees that may be extended, directly or indirectly, by a bank to its directors, officers, stockholders and their related interests, as well as investments of such bank in enterprises owned or controlled by said directors, officers, stockholders and their related interests. However, the outstanding loans, credit accommodations and guarantees which a bank may extend to each of its stockholders, directors, or officers and their related interests, shall be limited to an amount equivalent to their respective unencumbered deposits and book value of their paid-in capital contribution in the bank: Provided, however, That loans, credit accommodations and guarantees secured by assets considered as non-risk by the Monetary Board shall be excluded from such limit: Provided, further, That loans, credit accommodations and advances to officers in the form of fringe benefits granted in accordance with rules as may be prescribed by the Monetary Board shall not be subject to the individual limit. The Monetary Board shall define the term "related interests." The limit on loans, credit accommodations and guarantees prescribed herein shall not apply to loans, credit accommodations and guarantees extended by a cooperative bank to its cooperative shareholders. (83a) Section 37. Loans and Other Credit Accommodations Against Real Estate. - Except as the Monetary Board may otherwise prescribe, loans and other credit accommodations against real estate shall not exceed seventy-five percent (75%) of the appraised value of the respective real estate security, plus sixty percent (60%) of the appraised value of the insured improvements, and such loans may be made to the owner of the real estate or to his assignees. (78a) Section 38. Loans And Other Credit Accommodations on Security of Chattels and Intangible Properties. - Except as the Monetary Board may otherwise prescribe, loans and other credit accommodations on security of chattels and intangible properties such as, but not limited to, patents, trademarks, trade names, and copyrights shall not exceed seventy-five percent (75%) of the appraised value of the security, an such loans and other credit accommodation may be made to the title-holder of the chattels and intangible properties or his assignees. (78a) Section 39. Grant and Purpose of Loans and Other Credit Accommodations. - A bank shall grant loans and other credit accommodations only in amounts and for the periods of time essential for the effective completion of the operations to be financed. Such grant of loans and other credit accommodations shall be consistent with safe and sound banking practices. (75a) The purpose of all loans and other credit accommodations shall be stated in the application and in the contract between the bank and the borrower. If the bank finds that the proceeds of the loan or other credit accommodation have been employed, without its approval, for purposes other than those agreed upon with the bank, it shall have the right to terminate the loan or other credit accommodation and demand immediate repayment of the obligation. (77) Section 40. Requirement for Grant Of Loans or 0ther Credit Accommodations. - Before granting a loan or other credit accommodation, a bank must ascertain that the debtor is capable of fulfilling his commitments to the bank. Toward this end, a bank may demand from its credit applicants a statement of their assets and liabilities and of their income and expenditures and such information as may be prescribed by law or by rules and regulations of the Monetary Board to enable the bank to properly evaluate the credit application which includes the corresponding financial statements submitted for taxation purposes to the Bureau of Internal Revenue. Should such statements prove to be false or incorrect in any material detail, the bank may terminate any loan or other credit accommodation granted on the basis of said statements and shall have the right to demand immediate repayment or liquidation of the obligation. In formulating rules and regulations under this Section, the Monetary Board shall recognize the peculiar characteristics of micro financing, such as cash flow-based lending to the basic sectors that are not covered by traditional collateral. (76a)

20

Section 41. Unsecured Loans or Other Credit Accommodations. - The Monetary Board is hereby authorized to issue such regulations as it may deem necessary with respect to unsecured loans or other credit accommodations that may be granted by banks. (n) Section 42. Other Security Requirements for Bank Credits. - The Monetary Board may, by regulation, prescribe further security requirements to which the various types of bank credits shall be subject, and, in accordance with the authority granted to it in Section 106 of the New Central Bank Act, the Board may by regulation, reduce the maximum ratios established in Sections 36 and 37 of this Act, or, in special cases, increase the maximum ratios established therein. (78) Section 43. Authority to Prescribe Terms and Conditions of Loans and Other Credit Accommodations. - The Monetary Board, may, similarly in accordance with the authority granted to it in Section 106 of the New Central Bank Act, and taking into account the requirements of the economy for the effective utilization of long-term funds, prescribe the maturities, as well as related terms and conditions for various types of bank loans and other credit accommodations. Any change by the Board in the maximum maturities, as well as related terms and conditions for various types of bank loans and other credit accommodations. Any change by the Board in the maximum maturities shall apply only to loans and other credit accommodations made after the date of such action. The Monetary Board shall regulate the interest imposed on micro finance borrowers by lending investors and similar lenders such as, but not limited to, the unconscionable rates of interest collected on salary loans and similar credit accommodations. (78a) Section 44. Amortization on Loans and Other Credit Accommodations. - The amortization schedule of bank loans and other credit accommodations shall be adapted to the nature of the operations to be financed. In case of loans and other credit accommodations with maturities of more than five (5) years, provisions must be made for periodic amortization payments, but such payments must be made at least annually: Provided, however, That when the borrowed funds are to be used for purposes which do not initially produce revenues adequate for regular amortization payments therefrom, the bank may permit the initial amortization payment to be deferred until such time as said revenues are sufficient for such purpose, but in no case shall the initial amortization date be later than five (5) years from the date on which the loan or other credit accommodation is granted. (79a) In case of loans and other credit accommodations to micro finance sectors, the schedule of loan amortization shall take into consideration the projected cash flow of the borrower and adopt this into the terms and conditions formulated by banks. (n) Section 45. Prepayment of Loans and Other Credit Accommodations. - A borrower may at any time prior to the agreed maturity date prepay, in whole or in part, the unpaid balance of any bank loan and other credit accommodation, subject to such reasonable terms and conditions as may be agreed upon between the bank and its borrower. (80a) Section 46. Development Assistance Incentives. - The Bangko Sentral shall provide incentives to banks which, without government guarantee, extend loans to finance educational institutions cooperatives, hospitals and other medical services, socialized or low-cost housing, local government units and other activities with social content. (n) Section 47. Foreclosure of Real Estate Mortgage. - In the event of foreclosure, whether judicially or extra-judicially, of any mortgage on real estate which is security for any loan or other credit accommodation granted, the mortgagor or debtor whose real property has been sold for the full or partial payment of his obligation shall have the right within one year after the sale of the real estate, to redeem the property by paying the amount due under the mortgage deed, with interest thereon at rate specified in the mortgage, and all the costs and expenses incurred by the bank or institution from the sale and custody of said property less the income derived therefrom. However, the purchaser at the auction sale concerned whether in a judicial or extra-judicial foreclosure shall have the right to enter upon and take possession of such property immediately after the date of the confirmation of the auction sale and administer the same in accordance with law. Any petition in court to enjoin or restrain the conduct of foreclosure proceedings instituted pursuant to this provision shall be given due course only upon the filing by the petitioner of a bond in an amount fixed by the court conditioned that he will pay all the damages which the bank may suffer by the enjoining or the restraint of the foreclosure proceeding. Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an extrajudicial foreclosure, shall have the right to redeem the property in accordance with this provision until, but not after, the registration of the certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three (3) months after foreclosure, whichever is earlier. Owners of property that has been sold in a foreclosure sale prior to the effectivity of this Act shall retain their redemption rights until their expiration. (78a) Section 48. Renewal or Extension of Loans and Other Credit Accommodations. - The Monetary Board may, by regulation, prescribe the conditions and limitations under which a bank may grant extensions or renewals of its loans and other credit accommodations. (81) Section 49. Provisions for Losses and Write-Offs. - All debts due to any bank on which interest is past due and unpaid for such period as may be determined by the Monetary Board, unless the same are welt-secured and in the process of collection shall be considered bad debts within the meaning of this Section. The Monetary Board may fix, by regulation or by order in a specific case, the amount of reserves for bad debts or doubtful accounts or other contingencies. Writing off of loans, other credit accommodations, advances and other assets shall be subject to regulations issued by the Monetary Board. (84a) Section 50. Major Investments. - For the purpose or enhancing bank supervision, the Monetary Board shall establish criteria for reviewing major acquisitions of investments by a bank including corporate affiliations or structures that may expose the bank to undue risks or in any way hinder effective supervision. Section 51. Ceiling on Investments in Certain Assets. - Any bank may acquire real estate as shall be necessary for its own use in the conduct of its business: Provided, however, That the total investment in such real estate and improvements thereof including bank equipment, shall not exceed fifty percent (50%) of combined capital accounts: Provided, further, That the equity investment of a bank in another corporation engaged primarily in real estate shall be considered as part of the bank's total investment in real estate, unless otherwise provided by the Monetary Board. (25a) Section 52. Acquisition of Real Estate by Way of Satisfaction of Claims. - Notwithstanding the limitations of the preceding Section, a bank may acquire, hold or convey real property under the following circumstances: 52.1. Such as shall be mortgaged to it in good faith by way of security for debts; 52.2. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings, or 52.3. Such as it shall purchase at sales under judgments, decrees, mortgages, or trust deeds held by it and such as it shall purchase to secure debts due it. Any real property acquired or held under the circumstances enumerated in the above paragraph shall be disposed of by the bank within a period of five (5) years or as may be prescribed by the Monetary Board: Provided, however, That the bank may, after said period, continue to hold the property for its own use, subject to the limitations of the preceding Section. (25a) Section 53. Other Banking Services. - In addition to the operations specifically authorized in this Act, a bank may perform the following services: 53.1. Receive in custody funds, documents and valuable objects; 53.2. Act as financial agent and buy and sell, by order of and for the account of their customers, shares, evidences of indebtedness and all types of securities; 53.3. Make collections and payments for the account of others and perform such other services for their customers as are not incompatible with banking business; 53.4 Upon prior approval of the Monetary Board, act as managing agent, adviser, consultant or administrator of investment management/advisory/consultancy accounts; and 53.5. Rent out safety deposit boxes. The bank shall perform the services permitted under Subsections 53.1, 53.2,53.3 and 53.4 as depositary or as an agent. Accordingly, it shall keep the funds, securities and other effects which it receives duly separate from the bank's own assets and liabilities: The Monetary Board may regulate the operations authorized by this Section in order to ensure that such operations do not endanger the interests of the depositors and other creditors of the bank. In case a bank or quasi-bark notifies the Bangko Sentral or publicly announces a bank holiday, or in any manner suspends the payment of its deposit liabilities continuously for more than thirty (30) days, the Monetary Board may summarily and without need for prior hearing close such banking institution and place it under receivership of the Philippine Deposit Insurance Corporation. (72a) Section 54. Prohibition to Act as Insurer. - A bank shall not directly engage in insurance business as the insurer. (73) Section 55. Prohibited Transactions. 55.1. No director, officer, employee, or agent of any bank shall (a) Make false entries in any bank report or statement or participate in any fraudulent transaction, thereby affecting the financial interest of, or causing damage to, the bank or any person; (b) Without order of a court of competent jurisdiction, disclose to any unauthorized person any information relative to the funds or properties in the custody of the bank belonging to private individuals, corporations, or any other entity: Provided, That with respect to bank deposits, the provisions of existing laws shall prevail; (c) Accept gifts, fees, or commissions or any other form of remuneration in connection with the approval of a loan or other credit accommodation from said bank; (d) Overvalue or aid in overvaluing any security for the purpose of influencing in any way the actions of the bank or any bank; or (e) Outsource inherent banking functions. 55.2. No borrower of a bank shall (a) Fraudulently overvalue property offered as security for a loan or other credit accommodation from the bank; (b) Furnish false or make misrepresentation or suppression of material facts for the purpose of obtaining, renewing, or increasing a loan or other credit accommodation or extending the period thereof; (c) Attempt to defraud the said bank in the event of a court action to recover a loan or other credit accommodation; or

21

(d) Offer any director, officer, employee or agent of a bank any gift, fee, commission, or any other form of compensation in order to influence such persons into approving a loan or other credit accommodation application. 55.3 No examiner, officer or employee of the Bangko Sentral or of any department, bureau, office, branch or agency of the Government that is assigned to supervise, examine, assist or render technical assistance to any bank shall commit any of the acts enumerated in this Section or aid in the commission of the same. (87-Aa) The making of false reports or misrepresentation or suppression of material facts by personnel of the Bangko Sental ng Pilipinas shall be subject to the administrative and criminal sanctions provided under the New Central Bank Act. 55.4. Consistent with the provisions of Republic Act No. 1405, otherwise known as the Banks Secrecy Law, no bank shall employ casual or non regular personnel or too lengthy probationary personnel in the conduct of its business involving bank deposits. Section 56. Conducting Business in an Unsafe or Unsound Manner - In determining whether a particular act or omission, which is not otherwise prohibited by any law, rule or regulation affecting banks, quasi-banks or trust entities, may be deemed as conducting business in an unsafe or unsound manner for purposes of this Section, the Monetary Board shall consider any of the following circumstances: 56.1 The act or omission has resulted or may result in material loss or damage, or abnormal risk or danger to the safety, stability, liquidity or solvency of the institution; 56.2 The act or omission has resulted or may result in material loss or damage or abnormal risk to the institution's depositors, creditors, investors, stockholders or to the Bangko Sentral or to the public in general; 56.3 The act or omission has caused any undue injury, or has given any unwarranted benefits, advantage or preference to the bank or any party in the discharge by the director or officer of his duties and responsibilities through manifest partiality, evident bad faith or gross inexcusable negligence; or 56.4 The act or omission involves entering into any contract or transaction manifestly and grossly disadvantageous to the bank, quasi-bank or trust entity, whether or not the director or officer profited or will profit thereby. Whenever a bank, quasi-bank or trust entity persists in conducting its business in an unsafe or unsound manner, the Monetary Board may, without prejudice to the administrative sanctions provided in Section 37 of the New Central Bank Act, take action under Section 30 of the same Act and/or immediately exclude the erring bank from clearing, the provisions of law to the contrary notwithstanding. (n) Section 57. Prohibition on Dividend Declaration. - No bank or quasi-bank shall declare dividends, if at the time of declaration: 57.1 Its clearing account with the Bangko Sentral is overdrawn; or 57.2 It is deficient in the required liquidity floor for government deposits for five (5) or more consecutive days, or 57.3 It does not comply with the liquidity standards/ratios prescribed by the Bangko Sentral for purposes of determining funds available for dividend declaration; or 57.4 It has committed a major violation as may be determined by the Bangko Sentral (84a) Section 58. Independent Auditor. - The Monetary Board may require a bank, quasi-bank or trust entity to engage the services of an independent auditor to be chosen by the bank, quasi-bank or trust entity concerned from a list of certified public accountants acceptable to the Monetary Board. The term of the engagement shall be as prescribed by the Monetary Board which may either be on a continuing basis where the auditor shall act as resident examiner, or on the basis of special engagements; but in any case, the independent auditor shall be responsible to the bank's, quasi-bank's or trust entity's board of directors. A copy of the report shall be furnished to the Monetary Board. The Monetary Board may also direct the board of directors of a bank, quasi-bank, trusty entity and/or the individual members thereof; to conduct, either personally or by a committee created by the board, an annual balance sheet audit of the bank, quasi-bank or trust entity to review the internal audit and control system of the bank, quasi-bank or trust entity and to submit a report of such audit. (6-Da) Section 59. Authority to Regulate Electronic Transactions. - The Bangko Sentral shall have full authority to regulate the use of electronic devices, such as computers, and processes for recording, storing and transmitting information or data in connection with the operations of a bank; quasi-bank or trust entity, including the delivery of services and products to customers by such entity. (n) Section 60. Financial Statements. - Every bank, quasi-bank or trust entity shall submit to the appropriate supervising and examining department of the Bangko Sentral financial statements in such form and frequency as may be prescribed by the Bangko Sentral. Such statements, which shall be as of a specific date designated by the Bangko Sentral, shall show thee actual financial condition of the institution submitting the statement, and of its branches, offices, subsidiaries and affiliates, including the results of its operations, and shall contain such information as may be required in Bangko Sentral regulations. (n) Section 61. Publication of Financial Statements. - Every bank, quasi-bank or trust entity, shall publish a statement of its financial condition, including those of its subsidiaries and affiliates, in such terms understandable to the layman and in such frequency as may be prescribed Bangko Sentral, in English or Filipino, at least once every quarter in a newspaper of general circulation in the city or province where the principal office, in the case of a domestic institution or the principal branch or office in the case of a foreign bank, is located, but if no newspaper is published in the same province, then in a newspaper published in Metro Manila or in the nearest city or province. The Bangko Sentral may by regulation prescribe the newspaper where the statements prescribed herein shall be published. The Monetary Board may allow the posting of the financial statements of a bank, quasi-bank or trust entity in public places it may determine, lieu of the publication required in the preceding paragraph, when warranted by the circumstances. Additionally, banks shall make available to the public in such form and manner as the Bangko Sentral may prescribe the complete set of its audited financial statements as well as such other relevant information including those on enterprises majority-owned or controlled by the bank, that will inform the public of the true financial condition of a bank as of any given time. In periods of national and/or local emergency or of imminent panic which directly threaten monetary and banking stability, the Monetary Board, by a vote of at least five (5) of its members, in special cases and upon application of the bank, quasi-bank or trust entity, may allow such bank, quasi-bank or trust entity to defer for a stated period of time the publication of the statement of financial condition required herein. (n) Section 62. Publication of Capital Stock. - A bank, quasi-bank or trust entity incorporated under the laws of the Philippines shall not publish the amount of its authorized or subscribed capital stock without indicating at the same time and with equal prominence, the amount of its capital actually paid up. No branch of any foreign bank doing business in the Philippines shall in any way announce the amount of the capital and surplus of its head office, or of the bank in its entirety without indicating at the same time and with equal prominence the amount of the capital, if any, definitely assigned to such branch, such fact shall be stated in, and shall form part of the publication. (82) Section 63. Settlement of Disputes. - The provisions of any law to the contrary notwithstanding, the Bangko Sentral shall be consulted by other government agencies or instrumentalities in actions or proceedings initiated by or brought before them involving controversies in banks, quasi-banks or trust entities arising out of and involving relations between and among their directors, officers or stockholders, as well as disputes between any or all of them and the bank, quasi-bank or trust entity of which they are directors, officers or stockholders. (n) Section 64. Unauthorized Advertisement or Business Representation. - No person, association, or corporation unless duly authorized to engage in the business of a bank, quasi-bank, trust entity, or savings and loan association as defined in this Act, or other banking laws, shall advertise or hold itself out as being engaged in the business of such bank, quasi-bank, trust entity, or association, or use in connection with its business title, the word or words "bank", "banking", "banker", "quasibank", "quasi-banking", "quasi-banker", "savings and loan association", "trust corporation", "trust company" or words of similar import or transact in any manner the business of any such bank, corporation or association. (6) Section 65. Service Fees. - The Bangko Sentral may charge equitable rates, commissions or fees, as may be prescribed by the Monetary Board for supervision, examination and other services which it renders under this Act. (n) Section 66. Penalty for Violation of this Act. - Unless otherwise herein provided, the violation of any of the provisions of this Act shall be subject to Sections 34, 35, 36 and 37 of the New Central Bank Act. If the offender is a director or officer of a bank, quasi-bank or trust entity, the Monetary Board may also suspend or remove such director or officer. If the violation is committed by a corporation, such corporation may be dissolved by quo warranto proceedings instituted by the Solicitor General. (87) CHAPTER V PLACEMENT UNDER CONSERVATORSHIP Section 67. Conservatorship. - The grounds and procedures for placing a bank under conservatorship, as well as, the powers and duties of the conservator appointed for the bank shall be governed by the provisions of Section 29 and the last two paragraphs of Section 30 of the New Central Bank Act: Provided, That this Section shall also apply to conservatorship proceedings of quasi-banks. (n) CHAPTER VI CESSATION OF BANKING BUSINESS Section 68. Voluntary Liquidation. - In case of voluntary liquidation of any bank organized under the laws of the Philippines, or of any branch or office in the Philippines of a foreign bank, written notice of such liquidation shall be sent to the Monetary Board before such liquidation shall be sent to the Monetary Board before such liquidation is undertaken, and the Monetary Board shall have the right to intervene and take such steps as may be necessary to protect the interests of creditors. (86)

22

Section 69. Receivership and Involuntary Liquidation. - The grounds and procedures for placing a bank under receivership or liquidation, as well as the powers and duties of the receiver or liquidator appointed for the bank shall be governed by the provisions of Sections 30, 31, 32, and 33 of the New Central Bank Act: Provided, That the petitioner or plaintiff files with the clerk or judge of the court in which the action is pending a bond, executed in favor of the Bangko Sentral, in an amount to be fixed by the court. This Section shall also apply to the extent possible to the receivership and liquidation proceedings of quasi-banks. (n) Section 70. Penalty for Transactions After a Bank Becomes Insolvent. - Any director or officer of any bank declared insolvent or placed under receivership by the Monetary Board who refuses to turn over the bank's records and assets to the designated receivers, or who tampers with banks records, or who appropriates for himself for another party or destroys or causes the misappropriation and destruction of the bank's assets, or who receives or permits or causes to be received in said bank any deposit, collection of loans and/or receivables, or who pays out or permits or causes to be transferred any securities or property of said bank shall be subject to the penal provisions of the New Central Bank Act. (85a) CHAPTER VII LAWS GOVERNING OTHER TYPES OF BANKS Section 71. Other Banking Laws. - The organization, the ownership and capital requirements, powers, supervision and general conduct of business of thrift banks, rural banks and cooperative banks shall be governed by the provisions of the Thrift Banks Act, the Rural Banks Act, and the Cooperative Code, respectively. The organization, ownership and capital requirements, powers, supervision and general conduct of business of Islamic banks shall be governed by special laws. The provisions of this Act, however, insofar as they are not in conflict with the provisions of the Thrift Banks Act, the Rural Banks Act, and the Cooperative Code shall likewise apply to thrift banks, rural banks, and cooperative banks, respectively. However, for purposes of prescribing the minimum ratio which the net worth of a thrift bank must bear to its total risk assets, the provisions of Section 33 of this Act shall govern. (n) CHAPTER VIII FOREIGN BANKS Section 72. Transacting Business in the Philippines. - The entry of foreign banks in the Philippines through the establishment of branches shall be governed by the provisions of the Foreign Banks Liberalization Act. The conduct of offshore banking business in the Philippines shall be governed by the provisions of the Presidential Decree No. 1034, otherwise known as the "Offshore Banking System Decree." (14a) Section 73. Acquisition of Voting Stock in a Domestic Bank. - Within seven (7) years from the effectivity of this act and subject to guidelines issued pursuant to the Foreign Banks Liberalization Act, the Monetary Board may authorize a foreign bank to acquire up to one hundred percent (100%) of the voting stock of only one (1) bank organized under the laws of the Republic of the Philippines. Within the same period, the Monetary Board may authorize any foreign bank, which prior to the effectivity of this Act availed itself of the privilege to acquire up to sixty percent (60%) of the voting stock of a bank under the Foreign Banks Liberalization Act and the Thrift Banks Act, to further acquire voting shares such bank to the extent necessary for it to own one hundred percent (100%) of the voting stock thereof. In the exercise of the authority, the Monetary Board shall adopt measures as may be necessary to ensure that at all times the control of seventy percent (70%) of the resources or assets of the entire banking system is held by banks which are at least majority-owned by Filipinos. Any right, privilege or incentive granted to a foreign bank under this Section shall be equally enjoyed by and extended under the same conditions to banks organized under the laws of the Republic of the Philippines. (Secs. 2 and 3, RA 7721 Section 74. Local Branches of Foreign Banks. - In the case of a foreign bank which has more than one (1) branch in the Philippines, all such branches shall be treated as one (1) unit for the purpose of this Act, and all references to the Philippine branches of foreign banks shall be held to refer to such units. (68) Section 75. Head Office Guarantee. - In order to provide effective protection of the interests of the depositors and other creditors of Philippine branches of a foreign bank, the head office of such branches shall fully guarantee the prompt payment of all liabilities of its Philippine branch. (69) Residents and citizens of the Philippines who are creditors of a branch in the Philippines of a foreign bank shall have preferential rights to the assets of such branch in accordance with the existing laws. (19) Section 76. Summons and Legal Process. - Summons and legal process served upon the Philippine agent or head of any foreign bank designated to accept service thereof shall give jurisdiction to the courts over such bank, and service of notices on such agent or head shall be as binding upon the bank which he represents as if made upon the bank itself. Should the authority of such agent or head to accept service of summons and legal processes for the bank or notice to it be revoked, or should such agent or head become mentally incompetent or otherwise unable to accept service while exercising such authority, it shall be the duty of the bank to name and designate promptly another agent or head upon whom service of summons and processes in legal proceedings against the bank and of notices affecting the bank may be made, and to file with the Securities and Exchange Commission a duly authenticated nomination of such agent. In the absence of the agent or head or should there be no person authorized by the bank upon whom service of summons, processes and all legal notices may be made, service of summons, processes and legal notices may be made upon the Bangko Sentral Deputy Governor In-Charge of the supervising and examining departments and such service shall be as effective as if made upon the bank or its duly authorized agent or head. In case of service for the bank upon the Bangko Sentral Deputy Governor In-charge of the supervising and examining departments, the said deputy Governor shill register and transmit by mail to the president or the secretary of the bank at its head or principal office a copy, duly certified by him, of the summons, process, or notice. The sending of such copy of the summons, process, or notice shall be a necessary part of the services and shall complete the service. The registry receipt of mailing shall be prima facie evidence of the transmission of the summons, process or notice. All costs necessarily incurred by the said Deputy Governor for the making and mailing and sending of a copy of the summons, process, or notice to the president or the secretary of the bank at its head or principal office shall be paid in advance by the party at whose instance the service is made. (17) Section 77. Laws Applicable. - In all matters not specifically covered by special provisions applicable only to a foreign bank or its branches and other offices in the Philippines any foreign bank licensed to do business in the Philippines shall be bound by the provisions of this Act, all other laws, rules and regulations applicable to banks organized under the laws of the Philippines of the same class, except those that provide for the creation, formation, organization or dissolution of corporations or for the fixing of the relations, liabilities, responsibilities, or duties of stockholders, members, directors or officers of corporations to each other or to the corporation. (18) Section 78. Revocation of License of a Foreign Bank - The Monetary Board may revoke the license to transact business in the Philippines of, any foreign bank, if it finds that the foreign bank is insolvent or in imminent danger thereof or that its continuance in business will involve probable loss to those transacting business with it. After the revocation of its license, it shall be unlawful for any such foreign banks to transact business in the Philippines unless its license is renewed or reissued. After the revocation of such license, the Bangko Sentral shall take the necessary action to protect the creditors of such foreign bank and the public. The provisions of the New Central Bank Act on sanctions and penalties shall likewise be applicable. (16) CHAPTER IX TRUST OPERATIONS Section 79. Authority to Engage in Trust Business. - Only a stock corporation or a person duly authorized by the Monetary Board to engage in trust business shall act as a trustee or administer any trust or hold property in trust or on deposit for the use, benefit, or behoof of others. For purposes of this Act, such a corporation shall be referred to as a trust entity. (56a; 57a) Section 80. Conduct of Trust Business. - A trust entity shall administer the funds or property under its custody with the diligence that a prudent man would exercise in the conduct of an enterprise of a like character and with similar aims. No trust entity shall, for the account of the trustor or the beneficiary of the trust, purchase or acquire property from, or sell, transfer, assign, or lend money or property to, or purchase debt instruments of, any of the departments, directors, officers, stockholders, or employees of the trust entity, relatives within the first degree of consanguinity or affinity, or the related interests, of such directors, officers and stockholders, unless the transaction is specifically authorized by the trustor and the relationship of the trustee and the other party involved in the transaction is fully disclosed to the trustor of beneficiary of the trust prior to the transaction. The Monetary Board shall promulgate such rules and regulations as may be necessary to prevent circumvention of this prohibition or the evasion of the responsibility herein imposed on a trust entity. (56) Section 81. Registration of Articles of Incorporation and By-Laws of a Trust Entity. - The Securities and Exchange Commission shall not register the articles of incorporation and by-laws or any amendment thereto, of any trust entity, unless accompanied by a certificate of authority issued by the Bangko Sentral. (n) Section 82. Minimum Capitalization. - A trust entity, before it can engage in trust or other fiduciary business, shall comply with the minimum paid-in capital requirement which will be determined by the Monetary Board. (n) Section 83. Powers of a Trust Entity. - A trust entity, in addition to the general powers incident to corporations, shall have the power to: 83.1 Act as trustee on any mortgage or bond issued by any municipality, corporation, or any body politic and to accept and execute any trust consistent with law; 83.2 Act under the order or appointment of any court as guardian, receiver, trustee, or depositary of the estate of any minor or other incompetent person, and as receiver and depositary of any moneys paid into court by parties to any legal proceedings and of property of any kind which may be brought under the jurisdiction of the court; 83.3. Act as the executor of any will when it is named the executor thereof; 83.4 Act as administrator of the estate of any deceased person, with the will annexed, or as administrator of the estate of any deceased person when there is no will; 83.5. Accept and execute any trust for the holding, management, and administration of any estate, real or personal, and the rents, issues and profits thereof; and 83.6. Establish and manage common trust funds, subject to such rules and regulations as may be prescribed by the Monetary Board.

23

Section 84. Deposit for the Faithful Performance of Trust Duties. - Before transacting trust business, every trust entity shall deposit with the Bangko Sentral, as security for the faithful performance of its trust duties, cash or securities approved by the Monetary Board in an amount equal to or not less than Five hundred thousand pesos (P500,000.00) or such higher amount as may fixed by the Monetary Board: Provided, however, That the Monetary Board shall require every trust entity to increase the amount of its cash or securities on deposit with the Bangko Sentral in accordance with the provisions of this paragraph. Should the capital and surplus fall below said amount, the Monetary Board shall have the same authority as that granted to it under the provisions of the fifth paragraph of Section 34 of this Act. A trust entity so long as it shall continue to be solvent and comply with laws or regulations shall have the right to collect the interest earned on such securities deposited with the Bangko Sentral and, from time to time, with the approval of the Bangko Sentral, to exchange the securities for others. If the trust entity fails to comply with any law or regulation, the Bangko Sentral shall retain such interest on the securities deposited with it for the benefit of rightful claimants. Al claims rising out of the trust business of a trust entity shall have priority over all other claims as regards the cash or securities deposited as above provided. The Monetary Board may not permit the cash or securities deposited in accordance with the provisions of this Section to be reduced below the prescribed minimum amount until the depositing entity shall discontinue its trust business and shall satisfy the Monetary Board that it has complied with all its obligations in connection with such business. (65a) Section 85. Bond of Certain Persons for the Faithful Performance of Duties. - Before an executor, administrator, guardian, trustee, receiver or depositary appointed by the court enters upon the execution of his duties, he shall, upon order of the court, file a bond in such sum as the court may direct. Upon the application of any executor, administrator, guardian, trustee, receiver, depositary or any other person in interest, the court may, after notice and hearing, order that the subject matter of the trust or any part, thereof be deposited with a trust entity. Upon presentation of proof to the court that the subject matter of the trust has been deposited with a trust entity. Upon presentation of proof to the court that the subject matter of the trust has been deposited with a trust entity, the court may order that the bond given by such persons for the faithful performance of their duties be reduced to such sums as it may deem proper: Provided, however, That the reduced bond shall be sufficient to secure adequately the proper administration and care of any property remaining under the control of such persons and the proper accounting for such property. Property deposited with any trust entity in conformity with this Section shall be held by such entity under the orders and direction of the court. (59) Section 86. Exemption of Trust Entity from Bond Requirement. - No bond or other security shall be required by the court from a trust entry for the faithful performance of its duties as court-appointed trustee, executor, administrator, guardian, receiver, or depositary. However, the court may, upon proper application with it showing special cause therefore, require the trust entity to post a bond or other security for the protection of funds or property confided to such entity. (59) Section 87. Separation of Trust Business from General Business. - The trust business and all funds, properties or securities received by any trust entity as executor, administrator, guardian, trustee, receiver, or depositary shall be kept separate and distinct from the general business including all other funds, properties, and assets of such trust entity. The accounts of all such funds, properties, or securities shall likewise be kept separate and distinct from the accounts of the general business of the trust entity. (61) Section 88. Investment Limitations of a Trust Entity. - Unless otherwise directed by the instrument creating the trust, the lending and investment of funds and other assets acquired by a trust entity as executor, administrator, guardian, trustee, receiver or depositary of the estate of any minor or other incompetent person shall be limited to loans or investments as may be prescribed by law, the Monetary Board or any court of competent jurisdiction. (63a) Section 89. Real Estate Acquired by a Trust Entity. - Unless otherwise specifically directed by the trustor or the nature of the trust, real estate acquired by a trust entity in whatever manner and for whatever purposes, shall likewise be governed by the relevant provisions of Section 52 of this Act. (64a) Section 90. Investment of Non-Trust Funds. - The investment of funds other than trust funds of a trust entity which is a bank, financing company or an investment house shall be governed by the relevant provisions of this Act and other applicable laws. (64) Section 91. Sanctions and Penalties. - A trust entity or any of its officers and directors found to have willfully violated any pertinent provisions of this Act, shall be subject to the sanctions and penalties provided tinder Section 66 of this Act as well as Sections 36 and 37 of the New Central Bank Act. Section 92. Exemption of Trust Assets from Claims. - No assets held by a trust entity in its capacity as trustee shall be subject to any claims other than those of the parties interested in the specific trusts. (65) Section 93. Establishment of Branches of a Trust Entity. - The ordinary business of a trust entity shall be transacted at the place of business specified in its articles of incorporation. Such trust entity may, with prior approval of the Monetary Board, establish branches in the Philippines and the said entity shall be responsible for all business conducted in such branches to the same extent and in the same manner as though such business had all been conducted in the head office. For the purpose of this Act, the trust entity and its branches shall be treated as one unit. (67) CHAPTER X FINAL PROVISIONS Section 94. Phase Out of Bangko Sentral Powers Over Building and Loan Associations. - Within a period of three (3) years from the effectivity of this Act, the Bangko Sentral shall phase out and transfer its supervising and regulatory powers over building and loan associations to the Home Insurance and Guaranty Corporation which shall assume the same. Until otherwise provided bylaw1 building and loan associations shall continue to be governed by Sections 39 to 55, Chapter VI of the General Banking Act, as amended, including such rules and regulations issued pursuant thereto. Upon assumption by the Home Insurance and Guaranty Corporation of supervising and regulatory powers over building and loan associations, a references in Sections 39 to 55 of the General Banking Act, as amended, to the Bangko Sentral and the Monetary Board shall be deemed to refer to the Home Insurance and Guaranty Corporation and its board of directors, respectively. (n) Section 95. Repealing Clause. - Except as may be provided for in Sections 34 and 94 of this Act, the General Banking Act, as amended, and the provisions of any other law, special charters, rule or regulation issued pursuant to said General Banking Act, as amended, or parts thereof, which may be inconsistent with the provisions of this Act are hereby repealed. The provisions of paragraph 8, Section 8, Republic Act No. 3591, as amended by republic Act No. 7400, are likewise repealed. (90a) Section 96. Separability Clause. - If any provision or section of this Act or the application thereof to any person or circumstance is held invalid, the other provisions or sections of this Act, and the application of such provision or section to other persons or circumstances shall not be affected thereby. (n) Section 97. Effectivity Clause - This Act shall take effect fifteen (15) days following its publication in the Official Gazette or in two (2) national newspapers of general circulation. (91) Approved, FRANKLIN M. DRILON President of the Senate MANUEL B. VILLAR JR. Speaker of the House of Representatives This Act, which is a consolidation of Senate Bill No. 1519 and House Bill No. 6814, was finally passed by the Senate and the House of Representatives on April 12, 2000. ROBERTO P. NAZARENO Secretary General House of Representatives OSCAR G. YABES Secretary of the Senate Approved: JOSEPH EJERCITO ESTRADA President of the Philippines

24

Republic of the Philippines SUPREME COURT Manila EN BANC A.M. No. 99-10-05-0 December 14, 1999 (Amended by A.M. 99-10-05-0, August 7, 2001) PROCEDURE IN EXTRA-JUDICIAL FORECLOSURE OF MORTGAGE In line with the responsibility of an Executive Judge under Administrative Order No. 6, dated June 30, 1975, for the management of courts within his administrative area, included in which is the task of supervising directly the work of the Clerk of Court, who is also the Ex Officio Sheriff, and his staff, and the issuance of commissions to notaries public and enforcement of their duties under the law, the following procedures are hereby prescribed in extrajudicial foreclosure of mortgages: 1. All applications for extra-judicial foreclosure of mortgage whether under the direction of the sheriff or a notary public, pursuant to Act 3135, as amended by Act 4118, and Act 1508, as amended, shall be filed with the Executive Judge, through the Clerk of Court who is also the Ex-Officio Sheriff. 2. Upon receipt of an application for extra-judicial foreclosure of mortgage, it shall be the duty of the Clerk of Court to: a) receive and docket said application and to stamp thereon the corresponding file number, date and time of filing; b) collect the filing fees therefor and issue the corresponding official receipt; c) examine, in case of real estate mortgage foreclosure, whether the applicant has complied with all the requirements before the public auction is conducted under the direction of the sheriff or a notary public, pursuant to Sec. 4 of Act 3135, as amended; d) sign and issue the certificate of sale, subject to the approval of the Executive Judge, or in his absence, the ViceExecutive Judge; and e) after the certificate of sale has been issued to the highest bidder, keep the complete records, while awaiting any redemption within a period of one (1) year from date of registration of the certificate of sale with the Register of Deeds concerned, after which the records shall be archived. Where the application concerns the extrajudicial foreclosure of mortgages of real estates and/or chattels in different locations covering one indebtedness, only one filing fee corresponding to such indebtedness shall be collected. The collecting Clerk of Court shall, apart from the official receipt of the fees, issue a certificate of payment indicating the amount of indebtedness, the filing fees collected, the mortgages sought to be foreclosed, the real estates and/or chattels mortgaged and their respective locations, which certificate shall serve the purpose of having the application docketed with the Clerks of Court of the places where other properties are located and of allowing the extrajudicial foreclosures to proceed thereat. 3. The notices of auction sale in extrajudicial foreclosure for publication by the sheriff or by a notary public shall be published in a newspaper of general circulation pursuant to Section 1, Presidential Decree No. 1709, dated January 26, 1977, and non-compliance therewith shall constitute a violation of Section 6 thereof. 4. The Executive Judge shall, with the assistance of the Clerk of Court, raffle application for extrajudicial foreclosure of mortgage under the direction of the sheriff among all sheriffs, including those assigned to the Office of the Clerk of Court and Sheriffs IV assigned in the branches. 5. No auction sale shall be held unless there are at least two (2) participating bidders, otherwise the sale shall be postponed to another date. If on the new date set for the sale there shall not be at least two bidders, the sale shall then proceed. The names of the bidders shall be reported by the sheriff or the notary public who conducted the sale to the Clerk of Court before the issuance of the certificate of sale. This Resolution amends or modifies accordingly Administrative Order No. 3 issued by then Chief Justice Enrique M. Fernando on 19 October 1984 and Administrative Circular No. 3-98 issued by the Chief Justice Andres R. Narvasa on 5 February 1998. The Court Administrator may issue the necessary guidelines for the effective enforcement of this Resolution. The Clerk of Court shall cause the publication of this Resolution in a newspaper of general circulation not later than 27 December 1999 and furnish copies thereof to the Integrated Bar of the Philippines. This Resolution shall take effect on the fifteenth day of January year 2000. Enacted this 14th day of December 1999 in the City of Manila. Davide, Jr., C.J., Bellosillo, Mendoza, Quisumbing, Melo, Vitug, Panganiban, Purisima, Puno, Kapunan, Pardo, Buena, Ynares-Santiago, Gonzaga-Reyes and De Leon, Jr., JJ.

25