ACT NO.

3135 - AN ACT TO REGULATE THE SALE OF PROPERTY UNDER SPECIAL

POWERS INSERTED IN OR ANNEXED TO REAL-ESTATE MORTGAGES

Section 1. When a sale is made under a special power inserted in or attached to any real-estate
mortgage hereafter made as security for the payment of money or the fulfillment of any other
obligation, the provisions of the following election shall govern as to the manner in which the sale and
redemption shall be effected, whether or not provision for the same is made in the power.

> Future  property  cannot  be  the  object  of  a  contract  of mortgage

> A   stipulation   however   subjecting   the   mortgage   lien, properties which the mortgagor
may subsequently acquire, install,  or  use  in  connection  with  real  property  already
mortgaged belonging to the mortgagor is valid

Art. 2124. Only the following property may be the object of a contract of mortgage:
 
      (1) Immovables;
 
      (2)  Alienable  real  rights  in  accordance  with  the  laws, imposed upon immovables.
 
Nevertheless,  movables  may  be  the  object  of  a  chattel mortgage.

What are the essential requisites of real estate mortgage?

1. Secures the fulfillment of a principal obligation;

2. Mortgagor, must be the absolute owner of the thing mortgaged; and

3. Mortgagor must have free disposal of their property, or be legally authorized for such purpose.

Chattel mortgage cannot be subject of security of after acquired properties;

There is no dispute that mere inadequacy of price per se will not set aside a judicial sale of real
property. Nevertheless, where the inadequacy of the price is purely shocking to the conscience such
that the mind revolts at it and such that a reasonable man would neither directly nor indirectly be
likely to consent to it, the sale shall be declared null and void. Said rule, however, does not strictly
apply in the case of extrajudicial foreclosure sales so that when a supposed "unconscionably low
price" paid by the bank-mortgagee for the mortgaged properties at the public auction sale is
assailed, the sale is not thereby readily set aside on account of such low purchase price. It is well-
settled that alleged gross inadequacy of price is not material "when the law gives the owner the right
to redeem as when a sale is made at a public auction, upon the theory that the lesser the price the
easier it is for the owner to effect the redemption." In fact, the property may be sold for less than its
fair market value.

Sec. 2. Said sale cannot be made legally outside of the province in which the property sold is situated;
and in case the place within said province in which the sale is to be made is subject to stipulation, such
sale shall be made in said place or in the municipal building of the municipality in which the property
or part thereof is situated.

Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least
three public places of the municipality or city where the property is situated, and if such property is
worth more than four hundred pesos, such notice shall also be published once a week for at least
three consecutive weeks in a newspaper of general circulation in the municipality or city.

Sec. 4. The sale shall be made at public auction, between the hours or nine in the morning and four in
the afternoon; and shall be under the direction of the sheriff of the province, the justice or auxiliary
justice of the peace of the municipality in which such sale has to be made, or a notary public of said
municipality, who shall be entitled to collect a fee of five pesos each day of actual work performed, in
addition to his expenses.

Sec. 5. At any sale, the creditor, trustee, or other persons authorized to act for the creditor, may
participate in the bidding and purchase under the same conditions as any other bidder, unless the
contrary has been expressly provided in the mortgage or trust deed under which the sale is made.

Sec. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore
referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of said
debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust
under which the property is sold, may redeem the same at any time within the term of one year from
and after the date of the sale; and such redemption shall be governed by the provisions of sections
four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in
so far as these are not inconsistent with the provisions of this Act.

Sec. 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First
Instance of the province or place where the property or any part thereof is situated, to give him
possession thereof during the redemption period, furnishing bond in an amount equivalent to the use
of the property for a period of twelve months, to indemnify the debtor in case it be shown that the
sale was made without violating the mortgage or without complying with the requirements of this
Act. Such petition shall be made under oath and filed in form of an ex parte motion in the registration
or cadastral proceedings if the property is registered, or in special proceedings in the case of property
registered under the Mortgage Law or under section one hundred and ninety-four of the
Administrative Code, or of any other real property encumbered with a mortgage duly registered in the
office of any register of deeds in accordance with any existing law, and in each case the clerk of the
court shall, upon the filing of such petition, collect the fees specified in paragraph eleven of section
one hundred and fourteen of Act Numbered Four hundred and ninety-six, as amended by Act
Numbered Twenty-eight hundred and sixty-six, and the court shall, upon approval of the bond, order
that a writ of possession issue, addressed to the sheriff of the province in which the property is
situated, who shall execute said order immediately.

Sec. 8. The debtor may, in the proceedings in which possession was requested, but not later than
thirty days after the purchaser was given possession, petition that the sale be set aside and the writ of
possession cancelled, specifying the damages suffered by him, because the mortgage was not violated
or the sale was not made in accordance with the provisions hereof, and the court shall take
cognizance of this petition in accordance with the summary procedure provided for in section one
hundred and twelve of Act Numbered Four hundred and ninety-six; and if it finds the complaint of the
debtor justified, it shall dispose in his favor of all or part of the bond furnished by the person who
obtained possession. Either of the parties may appeal from the order of the judge in accordance with
section fourteen of Act Numbered Four hundred and ninety-six; but the order of possession shall
continue in effect during the pendency of the appeal.

Sec. 9. When the property is redeemed after the purchaser has been given possession, the redeemer
shall be entitled to deduct from the price of redemption any rentals that said purchaser may have
collected in case the property or any part thereof was rented; if the purchaser occupied the property
as his own dwelling, it being town property, or used it gainfully, it being rural property, the redeemer
may deduct from the price the interest of one per centum per month provided for in section four
hundred and sixty-five of the Code of Civil Procedure.

Sec. 10. This Act shall take effect on its approval.

ACT NO. 4118

ACT NO. 4118 - AN ACT TO AMEND ACT NUMBERED THIRTY-ONE HUNDRED AND
THIRTY-FIVE, ENTITLED "AN ACT TO REGULATE THE SALE OF PROPERTY UNDER
SPECIAL POWERS INSERTED IN OR ANNEXED TO REAL-ESTATE MORTGAGES."

Section 1. Section six of Act Numbered Thirty-one hundred and thirty-five, entitled "An Act to regulate
the sale of property under special powers inserted in or annexed to real-estate mortgages," is hereby
amended to read as follows:

"Sec. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore
referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of said
debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust
under which the property is sold, may redeem the same at any time within the term of one year from
and after the date of the sale; and such redemption shall be governed by the provisions of sections
four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in
so far as these are not inconsistent with the provisions of this Act."
Sec. 2. The following three sections are hereby inserted after section six of said Act Numbered Thirty-
one hundred and thirty-five:

"Sec. 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First
Instance of the province or place where the property or any part thereof is situated, to give him
possession thereof during the redemption period, furnishing bond in an amount equivalent to the use
of the property for a period of twelve months, to indemnify the debtor in case it be shown that the
sale was made without violating the mortgage or without complying with the requirements of this
Act. Such petition shall be made under oath and filed in form of an ex parte motion in the registration
or cadastral proceedings if the property is registered, or in special proceedings in the case of property
registered under the Mortgage Law or under section one hundred and ninety-four of the
Administrative Code, or of any other real property encumbered with a mortgage duly registered in the
office of any register of deeds in accordance with any existing law, and in each case the clerk of the
court shall, upon the filing of such petition, collect the fees specified in paragraph eleven of section
one hundred and fourteen of Act Numbered Four hundred and ninety-six, as amended by Act
Numbered Twenty-eight hundred and sixty-six, and the court shall, upon approval of the bond, order
that a writ of possession issue, addressed to the sheriff of the province in which the property is
situated, who shall execute said order immediately.

"Sec. 8. The debtor may, in the proceedings in which possession was requested, but not later than
thirty days after the purchaser was given possession, petition that the sale be set aside and the writ of
possession cancelled, specifying the damages suffered by him, because the mortgage was not violated
or the sale was not made in accordance with the provisions hereof, and the court shall take
cognizance of this petition in accordance with the summary procedure provided for in section one
hundred and twelve of Act Numbered Four hundred and ninety-six; and if it finds the complaint of the
debtor justified, it shall dispose in his favor of all or part of the bond furnished by the person who
obtained possession. Either of the parties may appeal from the order of the judge in accordance with
section fourteen of Act Numbered Four hundred and ninety-six; but the order of possession shall
continue in effect during the pendency of the appeal.

"Sec. 9. When the property is redeemed after the purchaser has been given possession, the redeemer
shall be entitled to deduct from the price of redemption any rentals that said purchaser may have
collected in case the property or any part thereof was rented; if the purchaser occupied the property
as his own dwelling, it being town property, or used it gainfully, it being rural property, the redeemer
may deduct from the price the interest of one per centum per month provided for in section four
hundred and sixty-five of the Code of Civil Procedure."

Sec. 3. The number of the present section seven of said Act Numbered Thirty-one hundred and thirty-
five is hereby changed, making it section ten.
Sec. 4. This Act shall take effect on its approval.

Approved: December 7, 1933

PRESIDENTIAL DECREE No. 115 January 29, 1973

PROVIDING FOR THE REGULATION OF TRUST RECEIPTS TRANSACTIONS

WHEREAS, the utilization of trust receipts, as a convenient business device to assist importers and
merchants solve their financing problems, had gained popular acceptance in international and
domestic business practices, particularly in commercial banking transactions;

WHEREAS, there is no specific law in the Philippines that governs trust receipt transactions,
especially the rights and obligations of the parties involved therein and the enforcement of the said
rights in case of default or violation of the terms of the trust receipt agreement;

WHEREAS, the recommendations contained in the report on the financial system which have been
accepted, with certain modifications by the monetary authorities included, among others, the
enactment of a law regulating the trust receipt transactions;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the

powers vested in me by the Constitution, as Commander-in-Chief of all the Armed Forces of the
Philippines, and pursuant to Proclamation No. 1081, dated September 21, 1972, and General Order
No. 1, dated September 22, 1972, as amended, and in order to effect the desired changes and
reforms in the social, economic, and political structure of our society, do hereby order and decree
and make as part of the law of the land the following:

Section 1. Short Title. This Decree shall be known as the Trust Receipts Law.

Section 2. Declaration of Policy. It is hereby declared to be the policy of the state (a) to encourage
and promote the use of trust receipts as an additional and convenient aid to commerce and trade;
(b) to provide for the regulation of trust receipts transactions in order to assure the protection of the
rights and enforcement of obligations of the parties involved therein; and (c) to declare the misuse
and/or misappropriation of goods or proceeds realized from the sale of goods, documents or
instruments released under trust receipts as a criminal offense punishable under Article Three
hundred and fifteen of the Revised Penal Code.

Section 3. Definition of terms. As used in this Decree, unless the context otherwise requires, the
term

(a) "Document" shall mean written or printed evidence of title to goods.

(b) "Entrustee" shall refer to the person having or taking possession of goods, documents or
instruments under a trust receipt transaction, and any successor in interest of such person
for the purpose or purposes specified in the trust receipt agreement.

(c) "Entruster" shall refer to the person holding title over the goods, documents, or
instruments subject of a trust receipt transaction, and any successor in interest of such
person.
 (d) "Goods" shall include chattels and personal property other than: money, things in action,
or things so affixed to land as to become a part thereof.

(e) "Instrument" means any negotiable instrument as defined in the Negotiable Instrument
Law; any certificate of stock, or bond or debenture for the payment of money issued by a
public or private corporation, or any certificate of deposit, participation certificate or receipt,
any credit or investment instrument of a sort marketed in the ordinary course of business or
finance, whereby the entrustee, after the issuance of the trust receipt, appears by virtue of
possession and the face of the instrument to be the owner. "Instrument" shall not include a
document as defined in this Decree.

(f) "Purchase" means taking by sale, conditional sale, lease, mortgage, or pledge, legal or
equitable.

(g) "Purchaser" means any person taking by purchase.

(h) "Security Interest" means a property interest in goods, documents or instruments to

secure performance of some obligations of the entrustee or of some third persons to the
entruster and includes title, whether or not expressed to be absolute, whenever such title is
in substance taken or retained for security only.

(i) "Person" means, as the case may be, an individual, trustee, receiver, or other fiduciary,
partnership, corporation, business trust or other association, and two more persons having a
joint or common interest.

(j) "Trust Receipt" shall refer to the written or printed document signed by the entrustee in
favor of the entruster containing terms and conditions substantially complying with the
provisions of this Decree. No further formality of execution or authentication shall be
necessary to the validity of a trust receipt.

(k) "Value" means any consideration sufficient to support a simple contract.

Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the
meaning of this Decree, is any transaction by and between a person referred to in this Decree as the
entruster, and another person referred to in this Decree as entrustee, whereby the entruster, who
owns or holds absolute title or security interests over certain specified goods, documents or
instruments, releases the same to the possession of the entrustee upon the latter's execution and
delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds
himself to hold the designated goods, documents or instruments in trust for the entruster and to sell
or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the
entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in
the trust receipt or the goods, documents or instruments themselves if they are unsold or not
otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or
for other purposes substantially equivalent to any of the following:

1. In the case of goods or documents, (a) to sell the goods or procure their sale; or (b) to
manufacture or process the goods with the purpose of ultimate sale: Provided, That, in the
case of goods delivered under trust receipt for the purpose of manufacturing or processing
before its ultimate sale, the entruster shall retain its title over the goods whether in its original
or processed form until the entrustee has complied fully with his obligation under the trust
receipt; or (c) to load, unload, ship or tranship or otherwise deal with them in a manner
preliminary or necessary to their sale; or
 2. In the case of instruments,

a) to sell or procure their sale or exchange; or

b) to deliver them to a principal; or

c) to effect the consummation of some transactions involving delivery to a depository

or register; or

d) to effect their presentation, collection or renewal

The sale of goods, documents or instruments by a person in the business of selling goods,
documents or instruments for profit who, at the outset of the transaction, has, as against the
buyer, general property rights in such goods, documents or instruments, or who sells the
same to the buyer on credit, retaining title or other interest as security for the payment of the
purchase price, does not constitute a trust receipt transaction and is outside the purview and
coverage of this Decree.

Section 5. Form of trust receipts; contents. A trust receipt need not be in any particular form, but
every such receipt must substantially contain (a) a description of the goods, documents or
instruments subject of the trust receipt; (2) the total invoice value of the goods and the amount of the
draft to be paid by the entrustee; (3) an undertaking or a commitment of the entrustee (a) to hold in
trust for the entruster the goods, documents or instruments therein described; (b) to dispose of them
in the manner provided for in the trust receipt; and (c) to turn over the proceeds of the sale of the
goods, documents or instruments to the entruster to the extent of the amount owing to the entruster
or as appears in the trust receipt or to return the goods, documents or instruments in the event of
their non-sale within the period specified therein.

The trust receipt may contain other terms and conditions agreed upon by the parties in addition to
those hereinabove enumerated provided that such terms and conditions shall not be contrary to the
provisions of this Decree, any existing laws, public policy or morals, public order or good customs.

Section 6. Currency in which a trust receipt may be denominated. A trust receipt may be
denominated in the Philippine currency or any foreign currency acceptable and eligible as part of
international reserves of the Philippines, the provisions of existing law, executive orders, rules and
regulations to the contrary notwithstanding: Provided, however, That in the case of trust receipts
denominated in foreign currency, payment shall be made in its equivalent in Philippine currency
computed at the prevailing exchange rate on the date the proceeds of sale of the goods, documents
or instruments held in trust by the entrustee are turned over to the entruster or on such other date as
may be stipulated in the trust receipt or other agreements executed between the entruster and the
entrustee.

Section 7. Rights of the entruster. The entruster shall be entitled to the proceeds from the sale of
the goods, documents or instruments released under a trust receipt to the entrustee to the extent of
the amount owing to the entruster or as appears in the trust receipt, or to the return of the goods,
documents or instruments in case of non-sale, and to the enforcement of all other rights conferred
on him in the trust receipt provided such are not contrary to the provisions of this Decree.

The entruster may cancel the trust and take possession of the goods, documents or instruments
subject of the trust or of the proceeds realized therefrom at any time upon default or failure of the
entrustee to comply with any of the terms and conditions of the trust receipt or any other agreement
between the entruster and the entrustee, and the entruster in possession of the goods, documents
or instruments may, on or after default, give notice to the entrustee of the intention to sell, and may,
not less than five days after serving or sending of such notice, sell the goods, documents or
instruments at public or private sale, and the entruster may, at a public sale, become a purchaser.
The proceeds of any such sale, whether public or private, shall be applied (a) to the payment of the
expenses thereof; (b) to the payment of the expenses of re-taking, keeping and storing the goods,
documents or instruments; (c) to the satisfaction of the entrustee's indebtedness to the entruster.
The entrustee shall receive any surplus but shall be liable to the entruster for any deficiency. Notice
of sale shall be deemed sufficiently given if in writing, and either personally served on the entrustee
or sent by post-paid ordinary mail to the entrustee's last known business address.

Section 8. Entruster not responsible on sale by entrustee. The entruster holding a security interest
shall not, merely by virtue of such interest or having given the entrustee liberty of sale or other
disposition of the goods, documents or instruments under the terms of the trust receipt transaction
be responsible as principal or as vendor under any sale or contract to sell made by the entrustee.

Section 9. Obligations of the entrustee. The entrustee shall (1) hold the goods, documents or
instruments in trust for the entruster and shall dispose of them strictly in accordance with the terms
and conditions of the trust receipt; (2) receive the proceeds in trust for the entruster and turn over the
same to the entruster to the extent of the amount owing to the entruster or as appears on the trust
receipt; (3) insure the goods for their total value against loss from fire, theft, pilferage or other
casualties; (4) keep said goods or proceeds thereof whether in money or whatever form, separate
and capable of identification as property of the entruster; (5) return the goods, documents or
instruments in the event of non-sale or upon demand of the entruster; and (6) observe all other
terms and conditions of the trust receipt not contrary to the provisions of this Decree.

Section 10. Liability of entrustee for loss. The risk of loss shall be borne by the entrustee. Loss of
goods, documents or instruments which are the subject of a trust receipt, pending their disposition,
irrespective of whether or not it was due to the fault or negligence of the entrustee, shall not
extinguish his obligation to the entruster for the value thereof.

Section 11. Rights of purchaser for value and in good faith. Any purchaser of goods from an
entrustee with right to sell, or of documents or instruments through their customary form of transfer,
who buys the goods, documents, or instruments for value and in good faith from the entrustee,
acquires said goods, documents or instruments free from the entruster's security interest.

Section 12. Validity of entruster's security interest as against creditors. The entruster's security

interest in goods, documents, or instruments pursuant to the written terms of a trust receipt shall be
valid as against all creditors of the entrustee for the duration of the trust receipt agreement.

Section 13. Penalty clause. The failure of an entrustee to turn over the proceeds of the sale of the
goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the
entruster or as appears in the trust receipt or to return said goods, documents or instruments if they
were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the
crime of estafa, punishable under the provisions of Article Three hundred and fifteen, paragraph one
(b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as
the Revised Penal Code. If the violation or offense is committed by a corporation, partnership,
association or other juridical entities, the penalty provided for in this Decree shall be imposed upon
the directors, officers, employees or other officials or persons therein responsible for the offense,
without prejudice to the civil liabilities arising from the criminal offense.
Section 14. Cases not covered by this Decree. Cases not provided for in this Decree shall be
governed by the applicable provisions of existing laws.

Section 15. Separability clause. If any provision or section of this Decree or the application thereof
to any person or circumstance is held invalid, the other provisions or sections hereof and the
application of such provisions or sections to other persons or circumstances shall not be affected
thereby.

Section 16. Repealing clause. All Acts inconsistent with this Decree are hereby repealed.

Section 17. This Decree shall take effect immediately.

Done in the City of Manila, this 29th day of January, in the year of Our Lord, nineteen hundred and
seventy-three.

REPUBLIC ACT No. 3765

 AN ACT TO REQUIRE THE DISCLOSURE OF FINANCE CHARGES IN CONNECTION WITH
EXTENSIONS OF CREDIT.

Section 1. This Act shall be known as the "Truth in Lending Act."

Section 2. Declaration of Policy. It is hereby declared to be the policy of the State to protect its
citizens from a lack of awareness of the true cost of credit to the user by assuring a full disclosure of
such cost with a view of preventing the uninformed use of credit to the detriment of the national
economy.

Section 3. As used in this Act, the term

(1) "Board" means the Monetary Board of the Central Bank of the Philippines.

(2) "Credit" means any loan, mortgage, deed of trust, advance, or discount; any conditional
sales contract; any contract to sell, or sale or contract of sale of property or services, either
for present or future delivery, under which part or all of the price is payable subsequent to
the making of such sale or contract; any rental-purchase contract; any contract or
arrangement for the hire, bailment, or leasing of property; any option, demand, lien, pledge,
or other claim against, or for the delivery of, property or money; any purchase, or other
acquisition of, or any credit upon the security of, any obligation of claim arising out of any of
the foregoing; and any transaction or series of transactions having a similar purpose or
effect.

(3) "Finance charge" includes interest, fees, service charges, discounts, and such other
charges incident to the extension of credit as the Board may be regulation prescribe.

(4) "Creditor" means any person engaged in the business of extending credit (including any
person who as a regular business practice make loans or sells or rents property or services
on a time, credit, or installment basis, either as principal or as agent) who requires as an
incident to the extension of credit, the payment of a finance charge.

(5) "Person" means any individual, corporation, partnership, association, or other organized
group of persons, or the legal successor or representative of the foregoing, and includes the
Philippine Government or any agency thereof, or any other government, or of any of its
political subdivisions, or any agency of the foregoing.

Section 4. Any creditor shall furnish to each person to whom credit is extended, prior to the
consummation of the transaction, a clear statement in writing setting forth, to the extent applicable
and in accordance with rules and regulations prescribed by the Board, the following information:

(1) the cash price or delivered price of the property or service to be acquired;

(2) the amounts, if any, to be credited as down payment and/or trade-in;

(3) the difference between the amounts set forth under clauses (1) and (2);

(4) the charges, individually itemized, which are paid or to be paid by such person in
connection with the transaction but which are not incident to the extension of credit;

(5) the total amount to be financed;

 (6) the finance charge expressed in terms of pesos and centavos; and

(7) the percentage that the finance bears to the total amount to be financed expressed as a
simple annual rate on the outstanding unpaid balance of the obligation.

Section 5. The Board shall prescribe such rules and regulations as may be necessary or proper in
carrying out the provisions of this Act. Any rule or regulation prescribed hereunder may contain such
classifications and differentiations as in the judgment of the Board are necessary or proper to
effectuate the purposes of this Act or to prevent circumvention or evasion, or to facilitate the
enforcement of this Act, or any rule or regulation issued thereunder.

Section 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any
person any information in violation of this Act or any regulation issued thereunder shall be liable to
such person in the amount of P100 or in an amount equal to twice the finance charged required by
such creditor in connection with such transaction, whichever is the greater, except that such liability
shall not exceed P2,000 on any credit transaction. Action to recover such penalty may be brought by
such person within one year from the date of the occurrence of the violation, in any court of
competent jurisdiction. In any action under this subsection in which any person is entitled to a
recovery, the creditor shall be liable for reasonable attorney's fees and court costs as determined by
the court.

(b) Except as specified in subsection (a) of this section, nothing contained in this Act or any
regulation contained in this Act or any regulation thereunder shall affect the validity or
enforceability of any contract or transactions.

(c) Any person who willfully violates any provision of this Act or any regulation issued
thereunder shall be fined by not less than P1,00 or more than P5,000 or imprisonment for
not less than 6 months, nor more than one year or both.

(d) No punishment or penalty provided by this Act shall apply to the Philippine Government
or any agency or any political subdivision thereof.

(e) A final judgment hereafter rendered in any criminal proceeding under this Act to the effect
that a defendant has willfully violated this Act shall be prima facie evidence against such
defendant in an action or proceeding brought by any other party against such defendant
under this Act as to all matters respecting which said judgment would be an estoppel as
between the parties thereto.

Section 7. This Act shall become effective upon approval.

Approved: June 22, 1963

REPUBLIC ACT No. 9474             May 22, 2007

 AN ACT GOVERNING THE ESTABLISHMENT, OPERATION AND REGULATION OF LENDING
COMPANIES

Be it enacted by the Senate and the House of Representatives of the Philippines in Congress
assembled:

SECTION 1. Title. - This Act shall be known as the ""Lending Company Regulation Act of 2007"".

SEC. 2. Declaration of Policy. - It is hereby declared the policy of the State to regulate the
establishment of lending companies and to place their operation on a sound, efficient and stable
condition to derive the optimum advantages from them as an additional source of credit; to prevent
and mitigate, as far as practicable, practices prejudicial to public interest; and to lay down the
minimum requirements and standards under which they may be established and do business.

SEC. 3. Definition of Terms. - For purposes of implementing this Act, the following definitions shall
apply:

(a) Lending Company shall refer to a corporation engaged in granting loans from its own
capital funds or from funds sourced from not more than nineteen (19) persons. It shall not be
deemed to include banking institutions, investment houses, savings and loan associations,
financing companies, pawnshops, insurance companies, cooperatives and other credit
institutions already regulated by law. The term shall be synonymous with lending investors.

(b) Debtor shall refer to a borrower or person granted a loan by the lending company.

(c) Quasi-Bank shall refer to a non-bank financial institution authorized by the BSP to engage
in quasi-banking functions and to borrow funds from more than nineteen (19) lenders
through the issuance, endorsement or assignment with recourse or acceptance of deposit
substitutes as defined in Section 95 of Republic Act No. 7653 (the ":New Central Bank Act":)
for purposes of relending or purchasing of receivables and other obligations.

(d) Subsidiary shall refer to a corporation more than fifty percent (50%) of the voting stock of
which is owned by a bank or quasi-bank.

(e) Affiliate shall refer to a corporation, the voting stock of which, to the extent of fifty percent
(50%) or less, is owned by a bank or quasi-bank which is related or linked to such institution
through common stockholders or such other factors as may be determined by the Monetary
Board of the BSP.

(f) SEC shall refer to the Securities and Exchange Commission.

(g) BSP shall refer to the Bangko Sentral ng Pilipinas.

SEC. 4. Form of Organization. - A lending company shall be established only as a

corporation: Provided That existing lending investors organized as single proprietorships or
partnerships shall be disallowed from engaging in the business of granting loans to the public one
year after the date of effectivity of this Act.

No lending company shall conduct business unless granted an authority to operate by the SEC.
SEC. 5. Capital. - The minimum paid in capital of any lending company which may be established
after the effectivity of this Act shall be One million pesos (P1,000,000.00): Provided, however, That
lending companies established and in operation prior thereto shall comply with the minimum
capitalization required under the provisions of this Section within such time as may be prescribed by
the SEC which time shall, in no case, be less than three years from the date of effectivity of this Act
and: Provided, further, That the SEC may prescribe a higher minimum capitalization if warranted by
circumstances.

SEC. 6. Citizenship Requirements. - Upon the effectivity of this Act, at least a majority of the voting
capital stock shall be owned by citizens of the Philippines.

The percentage of foreign-owned voting stock in any lending company existing prior to the effectivity
of this Act, if such percentage is in excess of forty-nine percent (49%) of the voting stock, shall not
be increased but may be reduced and, once reduced, shall not be increased thereafter beyond forty-
nine percent (49%) of the voting stock of the lending company. The percentage of foreign-owned
voting stocks in any lending company shall be determined by the citizenship of the individual
stockholders. In the case of corporations owning shares in a lending company, the citizenship of the
individual owners of voting stock in such corporations shall be the basis in the computation of the
percentage.

No foreign national may be allowed to own stock unless the country of which he is a national
accords reciprocal rights to Filipinos.

SEC. 7. Amount and Charges on Loans. - A lending company may grant loans in such amounts
and reasonable interest rates and charges as may be agreed upon between the lending company
and the debtor: Provided, That the agreement shall be in compliance with the provisions of Republic
Act No. 3765, otherwise known as the "Truth in Lending Act" and Republic Act 7394, otherwise
known as the "Consumer Act of the Philippines": Provided, further, That the Monetary Board, in
consultation with the SEC and the industry, may prescribe such interest rate as may be warranted by
prevailing economic and social conditions.

SEC. 8. Maintenance of Books of Accounts and Records. - Every lending company shall
maintain books of accounts and records as may be required by the SEC and prescribed by the
Bureau of Internal Revenue and other government agencies. In case a lending company engages in
other businesses, it shall maintain separate books of accounts for these businesses.

The Manual of Accounts prescribed by the BSP for lending investors shall continue to be adopted by
lending companies for uniform recording and reporting of their operations, until a new Manual of
Accounts shall have been prescribed by the SEC.

It shall issue the appropriate instruments and documents to the parties concerned to evidence its
lending and borrowing transactions.

SEC. 9. Authority of the SEC. - The SEC is hereby authorized to:

(a) Create a new division or bureau within its control to regulate and supervise the
operations and activities of lending companies in the country;

(b) Issue rules and regulations to implement the provisions contained herein;
 (c) Issue rules and regulations on, among other things, minimum capitalization, uses of funds
received, method of marketing and distribution, maturity of funds received, restrictions or
outright prohibition of purchases or sales of receivables with or without recourse basis;

(d) Require from lending companies reports of condition and such other reports necessary to
determine compliance with the provisions of this Act;

(e) Exercise visitorial powers whenever deemed necessary; and

(f) Impose such administrative sanctions including suspension or revocation of the lending
company's authority to operate and the imposition of fines for violations of this Act and
regulations issued by the SEC in pursuance thereto.

SEC. 10. Implementing Rules and Regulations. – Within three months after the approval of this
Act, the SEC shall promulgate the necessary rules and regulations implementing the provisions of
this Act.

SEC. 11. Delineation of Authority between SEC and the BSP. - Lending companies shall be
under the supervision and regulation of the SEC: Provided, however, That lending companies which
are subsidiaries and affiliates of banks and quasi-banks shall be subject to BSP supervision and
examination in accordance with Republic Act No. 7653: Provider further, That the Monetary Board,
after being satisfied that there is reasonable ground to believe that a lending company is being used
as a conduit by a bank, quasi-bank or their subsidiary/affiliate to circumvent or violate BSP rules and
regulations, may order an examination of the lending company's books and accounts.

SEC. 12. Penalty. - A fine of not less than Ten Thousand Pesos (P10,000.00) and not more than
Fifty thousand pesos(P50,000.00) or imprisonment of not less than six months but not more than ten
(10) years or both, at the discretion of the court, shall be imposed upon:

1. Any person who shall engage in the business of a lending company without a validly
subsisting authority to operate from the SEC.

2. The president, treasurer and other officers of the corporation, including the managing
officer thereof, who shall knowingly and willingly:

a. Engage in the business of a lending company without a validly subsisting authority

to operate from the SEC;

b. Hold themselves out to be a lending company, either through advertisement in

whatever form, whether in its stationery, commercial paper, or other document, or
through other representations without authority;

c. Make use of a trade or firm name containing the words "lending company" or
"lending investor" or any other designation that would give the public the impression
that it is engaged in the business of a lending company as defined in this Act without
authority; and

d. Violate the provisions of this Act.

3. Any officer, employee, or agent of a lending company who shall:

 a. Knowingly and willingly make any statement in any application, report, or
document required to be filed under this Act, which statement is false or misleading
with respect to any material fact; and

b. Overvalue or aid in overvaluing any security for the purpose of influencing in any
way the action of the company in any loan, or discounting line.

4. Any officer, employee or examiner of the SEC directly charged with the implementation of
this Act or of other government agencies who shall commit, connive, aid, or assist in the
commission of acts enumerated under Subsections 1 and 2 of this Section.

SEC. 13. Matters not Covered by this Act. – The provisions of Republic Act No. 3765, otherwise
known as the "Truth in Lending Act", Republic Act No. 7394 or the "Consumer Act of the Philippines"
and other existing laws, insofar as they are not in conflict with any provision of this Act, shall apply in
matters not otherwise specifically provided in this Act.

SEC. 14. Repealing Clause. - All laws, executive orders, letters of instruction, rules and regulations,
or provisions thereof which are inconsistent with the provisions of this Act are hereby repealed,
amended or modified accordingly.

SEC. 15. Separability Clause. - If any portion hereof shall be held invalid or unconstitutional, such
invalidity or unconstitutionality shall not affect the other provisions which shall remain in full force and
effect.

SEC. 16. Effectivity. - This Act shall take effect fifteen (15) days after its publication in at least two
national newspapers of general circulation.
REPUBLIC ACT No. 10881

An Act Amending Investment Restrictions in Specific Laws Governing Adjustment

Companies, Lending Companies, Financing Companies and Investment Houses Cited in the
Foreign Investment Negative List and for Other Purposes

Be it enacted by the Senate and House of Representatives of the Philippine Congress Assembled:

Section 1. Declaration of Policy. - It is the policy of the State to attract and promote investments
from foreign individuals, partnerships, corporations and governments, including their political
subdivisions, in activities that significantly contribute to industrialization, socioeconomic development
and sustainable inclusive growth.

Given the country’s development objectives and the need to increase investments to achieve these,
amending the limitations on foreign investments or participation in certain activities listed in the
Foreign Investment Negative List as provided for in specific laws, becomes necessary.

Section 2. Definition of Investment. - As used in this Act, investment shall refer to equity
participation in any enterprise organized or existing under the laws of the Philippines and duly
recorded in the Stock Transfer Book, or its equivalent, of the enterprise.

Section 3. Lifting of Nationality Requirements. - The nationality requirements for adjustment

companies as provided in Presidential Decree No. 612, investment houses as provided in
Presidential Decree No. 129, lending companies as provided in Republic Act No. 9474 and financing
companies as provided in Republic Act No. 8556 are hereby repealed, subject to the provisions of
this Act and the Constitution.

Section 4. Adjustment Companies. - Section 332 of Presidential Decree No. 612, otherwise known
as "The Insurance Code", as amended by Republic Act No. 10607, is hereby amended to read as
follows:

"Sec. 332. No person, partnership, association, or corporation shall act as an adjuster, as herein
earlier defined, unless authorized so to act by virtue of a license issued or renewed by the
Commissioner pursuant to the provisions of this Code."

Section 5. Lending Companies. - Section 6 of Republic Act No. 9474, otherwise known as the
"Lending Company Regulation Act of 2007", is hereby amended to read as follows:

"Sec. 6. Citizenship Requirements. - A lending company may be owned up to one hundred percent
(100%) by foreign nationals: Provided, However, That where the loan is secured by land, a lending
company, more than forty percent (46%) of whose capital is owned by foreign nationals, may bid and
take part in any sale of such land as a consequence of such mortgage, avail of enforcement
proceedings, take possession, and transfer their rights to qualified Philippine nationals for a period
not exceeding five (5) years from actual possession: Provided, further, That title to said land shall not
be transferred to such lending companies: Provided, finally, That investments of a lending company
shall be in accordance with the provisions of the Constitution."

Section 6. Financing Companies. - Section 6 of Republic Act o. 8556, otherwise known as the
"Financing Company Act of 1998", is hereby amended to read as follows:
"Sec. 6. Form of Organization and Capital Requirements. - Financing companies shall be organized
in the form of stock corporations, may be owned up to one hundred percent (100%) by foreign
nationals, and shall have a paid-up capital of not less than ten million pesos (₱10,000,000.00) in
case the financing company is located in Metro Manila and other first class cities, five million pesos
(₱5,000,000.00) in other classes of cities and two million five hundred thousand pesos
(₱2,500,000.00) in municipalities: Provided, That the Securities and Exchange Commission may
adjust said minimum paid-up levels as it deems warranted by its prudential oversight requirements
and consistent with the objectives of this Act: Provided, However, That financing companies duly
existing and in operation before the effectivity of this Act shall comply with the minimum capital
requirement within one (1) year from the date of the said effectivity; and Provided, further, That
where land is concerned, the financing company shall comply with the constitutional provision on
foreign ownership of land."

Section 7. Investment Houses. - Section 5 of Presidential Decree No. 129, as amended by Republic
Act No. 8366, otherwise known as "The Investment Houses Law", is hereby amended to read as
follows:

"Sec. 5. Citizenship Requirements. - An Investment House may be owned up to one hundred

percent (100%) by foreign nationals.  Foreign nationals may become members of the board of
1âwphi1

directors to the extent of the foreign participation in the equity of said enterprise."

Section 8. Regulatory Powers of the Bangko Sentral ng Pilipinas. - Nothing in this Act shall preclude
the Bangko Sentral Ng Pilipinas from exercising its powers and authorities over financing
companies, lending companies and investment houses pursuant to existing laws.

Section 9. Separability Clause. - If any of the provisions of this Act is declared invalid, the other
provisions not affected thereby shall remain in full force and effect.

Section 10. Repealing Clause. - All statutory laws, orders, issuances, rules and regulations and/or
parts thereof which are inconsistent with the provisions of this Act are hereby repealed or modified
accordingly.

Section 11. Effectivity. - This Act shall take effect fifteen (15) days after its publication in the Official
Gazette or in a newspaper of general circulation.

REPUBLIC ACT No. 10881 UPDATED VERSION

An Act Amending Investment Restrictions in Specific Laws Governing Adjustment

Companies, Lending Companies, Financing Companies and Investment Houses Cited in the
Foreign Investment Negative List and for Other Purposes

Be it enacted by the Senate and House of Representatives of the Philippine Congress Assembled:

Section 1. Declaration of Policy. - It is the policy of the State to attract and promote investments
from foreign individuals, partnerships, corporations and governments, including their political
subdivisions, in activities that significantly contribute to industrialization, socioeconomic development
and sustainable inclusive growth.

Given the country’s development objectives and the need to increase investments to achieve these,
amending the limitations on foreign investments or participation in certain activities listed in the
Foreign Investment Negative List as provided for in specific laws, becomes necessary.
Section 2. Definition of Investment. - As used in this Act, investment shall refer to equity
participation in any enterprise organized or existing under the laws of the Philippines and duly
recorded in the Stock Transfer Book, or its equivalent, of the enterprise.

Section 3. Lifting of Nationality Requirements. - The nationality requirements for adjustment

companies as provided in Presidential Decree No. 612, investment houses as provided in
Presidential Decree No. 129, lending companies as provided in Republic Act No. 9474 and financing
companies as provided in Republic Act No. 8556 are hereby repealed, subject to the provisions of
this Act and the Constitution.

Section 4. Adjustment Companies. - Section 332 of Presidential Decree No. 612, otherwise known
as "The Insurance Code", as amended by Republic Act No. 10607, is hereby amended to read as
follows:

"Sec. 332. No person, partnership, association, or corporation shall act as an adjuster, as herein
earlier defined, unless authorized so to act by virtue of a license issued or renewed by the
Commissioner pursuant to the provisions of this Code."

Section 5. Lending Companies. - Section 6 of Republic Act No. 9474, otherwise known as the
"Lending Company Regulation Act of 2007", is hereby amended to read as follows:

"Sec. 6. Citizenship Requirements. - A lending company may be owned up to one hundred percent
(100%) by foreign nationals: Provided, However, That where the loan is secured by land, a lending
company, more than forty percent (46%) of whose capital is owned by foreign nationals, may bid and
take part in any sale of such land as a consequence of such mortgage, avail of enforcement
proceedings, take possession, and transfer their rights to qualified Philippine nationals for a period
not exceeding five (5) years from actual possession: Provided, further, That title to said land shall not
be transferred to such lending companies: Provided, finally, That investments of a lending company
shall be in accordance with the provisions of the Constitution."

Section 6. Financing Companies. - Section 6 of Republic Act o. 8556, otherwise known as the
"Financing Company Act of 1998", is hereby amended to read as follows:

"Sec. 6. Form of Organization and Capital Requirements. - Financing companies shall be organized
in the form of stock corporations, may be owned up to one hundred percent (100%) by foreign
nationals, and shall have a paid-up capital of not less than ten million pesos (₱10,000,000.00) in
case the financing company is located in Metro Manila and other first class cities, five million pesos
(₱5,000,000.00) in other classes of cities and two million five hundred thousand pesos
(₱2,500,000.00) in municipalities: Provided, That the Securities and Exchange Commission may
adjust said minimum paid-up levels as it deems warranted by its prudential oversight requirements
and consistent with the objectives of this Act: Provided, However, That financing companies duly
existing and in operation before the effectivity of this Act shall comply with the minimum capital
requirement within one (1) year from the date of the said effectivity; and Provided, further, That
where land is concerned, the financing company shall comply with the constitutional provision on
foreign ownership of land."

Section 7. Investment Houses. - Section 5 of Presidential Decree No. 129, as amended by Republic
Act No. 8366, otherwise known as "The Investment Houses Law", is hereby amended to read as
follows:
"Sec. 5. Citizenship Requirements. - An Investment House may be owned up to one hundred
percent (100%) by foreign nationals.  Foreign nationals may become members of the board of
1âwphi1

directors to the extent of the foreign participation in the equity of said enterprise."

Section 8. Regulatory Powers of the Bangko Sentral ng Pilipinas. - Nothing in this Act shall preclude
the Bangko Sentral Ng Pilipinas from exercising its powers and authorities over financing
companies, lending companies and investment houses pursuant to existing laws.

Section 9. Separability Clause. - If any of the provisions of this Act is declared invalid, the other
provisions not affected thereby shall remain in full force and effect.

Section 10. Repealing Clause. - All statutory laws, orders, issuances, rules and regulations and/or
parts thereof which are inconsistent with the provisions of this Act are hereby repealed or modified
accordingly.

Section 11. Effectivity. - This Act shall take effect fifteen (15) days after its publication in the Official
Gazette or in a newspaper of general circulation.