Article 159Supplement v1, p. 159

COMMERCIAL LAWS SUPPLEMENT

private

shareholders

but

subject

to

the

investment

guidelines,

policies

and

procedures

of

the

bank

or

financial institution and upon approval of the Monetary

Board of the Bangko Sentral ng Pilipinas, shall subscribe

to the capital stock of such rural bank, which shall be paid

in full at the time of subscription, in an amount equal to

the fully paid subscribed and unimpaired capital of the

private stockholders or such amount as the Monetary

Board may prescribe as may be necessary to promote

and

expand

rural

economic

development:

Provided,

however, That such shares of stock subscribed by the

Land Bank of the Philippines, the Development Bank of

the Philippines or any government-owned or -controlled

bank or financial institution may be sold at any time at

adjusted book value: Provided, finally, That in the sale of

shares of stock subscribed by the Land Bank of the

Philippines, the Development Bank of the Philippines or

any government-owned or -controlled bank or financial

institution, the registered stockholders shall have the

right of preemption within one (1) year from the date of

offer in proportion to their respective holdings, but in the

absence of such buyer, preference, however, shall be

given to residents of the locality or province where the

rural bank is located. (as amended by RA No 10574)

Section 5. Non-Filipino citizens may become members of

the

Board

of

Directors

of

a

rural

bank

but

their

participation

in

the

Board shall be limited to their

proportionate share in the equity of the rural bank:

Provided, however, That at least one (1) independent

director shall be elected to the Board of Directors.

No director or officer of any rural bank shall, either

directly or indirectly, for himself or as the representative

or agent of another, borrow any of the deposits or funds

of such banks, nor shall he become a guarantor, indorser,

or surety for loans from such bank to others, or in any

manner be an obligor for money borrowed from the bank

or loaned by it except with the written approval of the

majority of the directors of the bank, excluding the

director concerned. Any such approval shall be entered

upon the records of the corporation and a copy of such

entry shall be transmitted forthwith to the appropriate

supervising department. The director/officer of the bank

who

violates

the provisions of this section shall be

immediately dismissed from his office and shall be

penalized in accordance with Section 26 of this Act.

The Monetary Board may regulate the amount of credit

accommodations that may be extended directly to the

directors,

officers

or

stockholders

of

rural

banks

of

banking institutions. However, the outstanding credit

accommodations which a rural bank may extend to each

of its stockholders owning two percent (2%) or more of

the subscribed capital stock, its directors, or officers shall

be limited to an amount equivalent to the respective

outstanding deposits and book value of the paid-in

capital contributions in the bank. (as amended by RA No

10574)

Section 6. Loans or advances extended by rural banks

organized and operated under this Act shall be primarily

for the purpose of meeting the normal credit needs of

farmers, fishermen or farm families owning or cultivating

land dedicated to agricultural production as well as the

normal credit needs of cooperatives and merchants.

Loans may be granted by rural banks on the security of

lands without Torrens Title where the owner of private

property can show five (5) years or more of peaceful,

continuous and uninterrupted possession in concept of

owner; or of portions of friar land estates or other lands

administered by the Bureau of Lands that are covered by

sales contracts and the purchasers have paid at least five

(5) years installment thereon, without the necessity of

prior approval and consent by the Director of Lands; or of

portions of other estates under the administration of the

Department of Agrarian Reform or other governmental

agency which are likewise covered by sales contracts and

the purchasers have paid at least five (5) years installment

thereon, without the necessity of prior approval and

consent

of

the

Department

of

Agrarian

Reform

or

corresponding governmental agency; or of homesteads

or free patent lands pending the issuance of titles but

already approved, the provisions of any law or regulations

to the contrary notwithstanding: Provided, That when the

corresponding

titles

are

issued,

the

same

shall

be

delivered to the Register of Deeds of the province where

such

lands

are

situated

for

the

annotation

of

the

encumbrance: Provided, further, That in the case of lands

pending homestead or free patent titles, copies of notices

for the presentation of the final proof shall also be

furnished the creditor rural bank and, if the borrower

applicants fail to present the final proof within thirty (30)

days from date of notice, the creditor rural bank may do

so for them at their expense: Provided, furthermore, That

the applicant for homestead or free patent has already

made improvements on the land and the loan applied for

is to be used for further development of the same or for

other productive economic activities: Provided, finally,

That the appraisal and verification of the status of a land

is a full responsibility of the rural bank and any loan

granted on any land which shall be found later to be

within the forest zone shall be for the sole account of the

rural bank.

The foreclosure of mortgages covering loans granted by

rural

banks

and

executions

of

judgment

thereon

involving real properties levied upon by a sheriff shall be

exempt

from

the

publications

in

newspapers

now

required by law where the total amount of loan, excluding

interest due and unpaid, does not exceed One hundred

thousand

pesos

(P100,000)

or

such

amount

as the

Monetary Board may prescribe as may be warranted by

prevailing economic conditions. It shall be sufficient

publication in such cases if the notices of foreclosure and

execution

of

judgment

are

posted

in

the

most

conspicuous

area

of

the

municipal

building,

the

municipal public market, the rural bank, the barangay

hall, and the barangay public market, if any, where the

land mortgaged is situated during the period of sixty (60)

days

immediately

preceding

the

public

auction

or

execution of judgment. Proof of publication as required

herein shall be accomplished by an affidavit of the sheriff

or officer conducting the foreclosure sale or execution of

judgment and shall be attached with the records of the

case: Provided, That when a homestead or free patent is

foreclosed, the homesteader or free patent holder, as well

as his heirs shall have the right to redeem the same

within one (1) year from the date of foreclosure in the case

of land not covered by a Torrens Title or one (1) year from

the date of the registration of the foreclosure in the case

of land covered by a Torrens Title: Provided, finally, That in

any case, borrowers, especially those who are mere

tenants, need only to secure their loans with the produce

corresponding to their share.

A

rural

bank

shall

be

allowed

to

foreclose

lands

mortgaged to it including lands covered by Republic Act

No. 6657 (Comprehensive Agrarian Reform Law of 1988),

as amended: Provided, That said lands shall be subject to

the retention limits provided under Republic Act No. 6657.

Rural banks which are not qualified to acquire or hold

land in the Philippines shall be allowed to bid and take

part in foreclosure sales of real property mortgaged to

them, as well as to avail of enforcement and other

proceedings, and accordingly to take possession of the

mortgaged property, for a period not exceeding five

(5)-years from actual possession: Provided, That in no

event shall title to the property be transferred to such

rural bank. In case the rural bank is the winning bidder, it

shall, during the said five (5)-year period, transfer its rights

to a qualified Philippine national, without prejudice to a

borrower’s rights under applicable laws. Should a rural

bank be not able to transfer such property within the five

(5)-year period, the rural bank shall be penalized one-half

(1/2) of one percent (1%) per annum of the price at which

the property was foreclosed until the rural bank is able to

transfer the property to a qualified Philippine national. (as

amended by RA No 10574)

Section 7. With the view to ensuring the balanced rural

economic growth and expansion, rural banks may, within

limits and conditions fixed by the Monetary Board, devote

© Compiled by RGL

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