Act No. 3895




[ Act No. 3895, November 16, 1931 ] AN ACT REGULATING THE CREATION AND OPERATION OF RURAL CREDIT ASSOCIATIONS, AND FOR OTHER PURPOSES Be it enacted by the Senate and House of Representatives of the Philippines in Legislature assembled and by the authority of the same: DENOMINATION Section 1. An association formed under the provisions of this Act shall be known and denominated a "Rural Credit Association." The name of the place where such an association is located shall form a part of its name. PURPOSE Section 2. It shall be the purpose of rural credit associations to accumulate funds through the cooperation of their members, to extend credit to their members on reasonable terms for exclusively agricultural purposes, and to encourage thrift and punctuality on the part of members in meeting their obligations to the associations. ORGANIZATION AND INCORPORATION Section 3. Before an association may begin to operate under this Act, it shall draw up articles of incorporation and by laws in accordance with rules and regulations to be issued by the Philippine National Bank; it shall submit such articles of incorporation and such by-laws to the Philippine National Bank for approval; and the Philippine National Bank shall issue to the association a certificate of authority to operate under this Act if the said articles of incorporation and by-laws of the association meet with its approval. For public information and reference purposes the Philippine National Bank shall file a copy of the articles of incorporation and by-laws of the association with the Bureau of Commerce and Industry. The provisions of Act Numbered One thousand four hundred and fifty-nine, as amended, known as the Corporation Law, shall not apply to associations organized under the provisions of this Act. The articles of incorporation and by-laws may from time to time be amended at a general assembly of the stockholders, but no amendment shall become effective until approved by the Philippine National Bank. Section 4. More than one association may be organized within the limits of a municipality, municipal district, or township subject to the approval of the Philippine National Bank. The treasurer of the political subdivision in which an association is located shall be the treasurer of the association. He may receive such reasonable remuneration as the board of directors of the association may designate with the approval of the Philippine National Bank, provided that the earnings of the association warrant the payment of such remuneration. Section 5 The by-laws shall provide for the qualifications of the members of, the manner of admission to, and the manner of withdrawal from an association. Section 6. The membership of an association shall consist of not less than twenty nor more than one hundred members. Section 7. Each member shall subscribe for at least one share of stock in the association and shall have made at least the first installment payment thereon as a condition of membership, but he shall have not more than one vote regardless of the number of shares of stock of the association owned or held by him. Section 8. A member may withdraw from an association only in the manner and under the conditions prescribed in the by-laws of the association. A withdrawing member shall not be permitted to demand the sums paid in on his shares of stock in the association if such demand would in any way embarrass the association. In case a member withdraws from the association, there shall be forfeited to the association such part of the accrued dividend on each unmaturing share of such member as may be fixed in the rules and regulations to be issued by the Philippine National Bank. A withdrawing member shall be liable for a proportionate share of the losses and obligations of the association in connection with operations effected during the period of his membership. CAPITAL STOCK AND SURPLUS RESERVES Section 9. Before an association may begin operations, it shall have a subscribed capital of not less than one thousand pesos and not more than fifty thousand pesos and at least one-tenth of the subscribed capital must be paid in cash. Section 10. The capital stock shall be divided into shares, the par value of each to be fifty pesos. No member shall own more than ten shares. Payment may be made for each share of stock in installments of at least fifteen per annum. The stock shall not be redeemed except with the approval of the Philippine National Bank and in the manner prescribed in this Act and in the by-laws of the association, but stock may be sold to another member provided such member is eligible to purchase it. Stock may be mortgaged or pledged only to the association. Section 11. The association may charge each member an admission fee and a conveyance fee for each share of stock transferred by him. These fees shall accrue to the general fund of the association. Section 12. A reasonable penalty in the form of interest or damages, as the case may be, may be imposed upon any member who is delinquent in meeting the payments due upon his stock or who in any manner shall fail to carry out his agreements with the association. Section 13. Each association shall accumulate a surplus equal to one hundred per centum of its paid-in capital by setting aside out of profits each year a sum equal to fifty per centum of such profits. In case for any reason the surplus should decrease below the amount of the paid-in capital, a sufficient amount of the net profits not exceeding fifty per centum thereof shall be set aside each year to restore the surplus to the required amount. ACTIVITIES OF ASSOCIATIONS Section 14. A rural credit association may engage in the following activities: a. Extending credit to the members of the association within the following limitations: 1. Loans for crop production purposes shall not be granted for a period exceeding one year, and they shall be made to mature during the customary harvesting and marketing period of the particular crop. 2. Loans for the purpose of promoting agricultural operations in general may be granted for a period not exceeding one year, provided it is evident that the member applying for the loan will have sufficient income from his crop to liquidate the debt. The loans shall be made to mature during the customary harvesting and marketing period of the particular crop. 3. Loans for a period in excess of one year and for agricultural purposes may be granted, provided that the following conditions are complied with by the borrower: (a) The loan shall not have a maximum maturity exceeding ten years and shall be payable with interest in annual installments, and (b) The loan shall be secured by a first mortgage upon productive farm lands with Torrens title of an appraised value equal to at least twice the amount of the loan. The only funds which may be loaned for a longer period than one year shall be those derived from one-half of the paid-in capital and one-half of the surplus of the association plus such sums as the association may borrow from the Philippine National Bank upon the pledge of such loans. Such loans may be used by the Philippine National Bank within existing legal limitations as collateral to the real estate mortgage bonds which it is authorized by law to issue. 4. Loans made under the provisions of paragraphs one and two, subsection (a) of this section, may be made from any funds belonging to the association and from funds borrowed for the purpose from the Philippine National Bank: Provided, however, That no deposits received from members, other than subscriptions for capital stock, may be used for making loans unless the depositor has agreed in writing to leave his deposit with the association for at least one year and unless the loans made with such deposit mature prior to the maturity date of the deposit. 5. Loans made under the provisions of paragraphs one and two, subsection (a) of this section, may be made upon the pledge of personal property or real estate with or without Torrens title and also upon personal security consisting of the signature of one or more solvent persons living in the municipality, municipal district, or township in which the association is located: Provided, however, That the responsibility and obligation of the guarantor or guarantors shall be exactly the same as that of the primary debtor. In the event of nonpayment of the debt when due the association may proceed against the guarantor or guarantors without the necessity of first exhausting its recourse against the primary debtor. 6. Rural Credit Associations in granting loans and in all other operations shall be subject to such rules and regulations as the Philippine National Bank may issue from time to time. 7. An association shall require that all obligations due it be promptly paid. The Philippine National Bank shall proceed to liquidate any rural credit associations if one fourth of the total loans due such associations have been past due for more than ninety clays from the original due date. Loans payable in installments shall be considered past due upon nonpayment of any installment at the maturity date of such installment. 8. An association granting loans shall distribute its funds available for loans as equitably as possible among the members soliciting loans. No member may borrow from the association an amount in excess of two hundred pesos: Provided, however, That if the paid-in capital and accumulated surplus of an association are equal in amount to the sum necessary to lend each member two hundred pesos, on the assumption that all members are borrowing at the same time, the Philippine National Bank is authorized to increase the loan limitation prescribed herein and to permit the association to make loans on adequate securities to farmers in the locality who are not members of the association: Provided, however, That such loans must meet the same conditions as are imposed by this act upon loans granted to members of the association, except the conditions in regard to membership. 9. The funds of the association not needed for making loans and in excess of the daily cash requirements of the association shall be deposited with the Philippine National Bank or invested in liquid securities which may be purchased for the association by the Philippine National Bank. 10. An association may, with the approval of the Philippine National Bank, make loans to another association. The liabilities of any association for money borrowed from any and all sources shall not exceed the limits prescribed by the Philippine National Bank. 11. Loans may be granted upon the pledge of stock in the association owned by the borrower, provided that the loan shall not exceed seventy per centum of the paid-in value of such stock and provided that the total loans of this class made by an association shall not exceed one-third of its paid-in capital. 12. A member may not borrow from an association for the purpose of paying another loan which he owes to the association or a loan which he owes to his guarantor or guarantors. 13. Any person who under false pretenses obtains a loan for another person or any person who under false pretenses succeeds in obtaining a loan from an association by using the name of somebody else shall be punished by a fine equivalent to the loan thus obtained, or imprisonment not to exceed two months, or by both such fine and imprisonment, in the discretion of the court. 14. No director shall vote for a loan in which he or any member of his family, natural or by affinity to the third degree, is interested. He shall not become bondsman, surety, or endorser in connection with any loan contracted with the association. Violation of this provision shall be punished by a fine of not less than two hundred pesos nor more than one thousand pesos or by imprisonment for not less than one month nor more than one year, or by both such fine and imprisonment, in the discretion of the court. 15. A general meeting of the members of an association shall be held at least once each year at a time to be fixed in the by-laws. At least a majority of the members of the association shall be present to constitute a quorum. Among other things, the general meeting shall consider all applications for loans to be made during the year to the members of the association and it shall approve the loans to be granted to the members, within the limitations prescribed by this Act and after considering the total amount of funds from all sources which will be available during the year for the purpose of making loans. The applications for loans shall be submitted to the general assembly through the board of directors which shall make its recommendation regarding each application. Within the limitations fixed by law and the general assembly, the directors may distribute the loans to those members for whom loans have been approved: Provided, however, That before any distribution is made the board of directors shall first obtain approval of the Philippine National Bank of the action taken by the general assembly. 16. The members of an association shall be jointly and severally liable for all funds borrowed from the Philippine National Bank or from any creditor other than a member of the association: Provided, however, That such joint and several liability shall not extend to advances obtained by the association from the Philippine National Bank under paragraph three of this subsection (a). 17. A loan may be repaid before its date of maturity. In this case a proportionate amount of the interest paid will be refunded for the unexpired period of the loan in cases where interest for the whole period has been collected in advance. 18. All laws and provisions of laws to the contrary notwithstanding, an association may fix the rate of interest which it will charge on loans at such a figure, subject to the approval of the Philippine National Bank, as will enable it to cover all expenses and to set up adequate reserves against bad debts and accumulate the surplus prescribed in this Act. 19. An association may declare immediately due and payable the entire amount of any loan granted, if the borrower has not paid when due any installment of interest or principal on such loan. The association may proceed immediately, without resorting to any court proceedings, to advertise for sale at public auction in the manner to be prescribed by the Philippine National Bank, all property, real or personal, which might have been mortgaged, pledged, or otherwise conveyed to secure the loan. The actual sale of the property shall be conducted by the provincial sheriff or his representative and shall take place thirty days after the public announcement of the sale. 20. An association may purchase at any public or private sale any property on which it has a mortgage or any other lien or encumbrance or in which it has any property interest, and it may sell, convey, lease or mortgage such property: Provided, however, That the property purchased shall be sold within three years after its acquisition by the association: And provided, further, That no deed of sale, conveyance, lease or mortgage executed by an association in accordance with this provision shall be valid unless approved by the Philippine National Bank. b. Receiving deposits in accordance with rules and regulations as to amount, rate of interest, and other matters to be prescribed by the Philippine National Bank: Provided, however, That unless the depositor agrees in writing to leave his deposit with the association for a period of at least one year, the deposit shall not be available for use in making loans to members and in no event may such deposit be used for making loans other than those provided for in paragraphs one and two of subsection (a) of this section. Deposits not used in making loans under the conditions prescribed herein shall be deposited with the Philippine National Bank or invested in liquid securities purchased for the association by the Philippine National Bank. ADMINISTRATION Section 15. At least once each year at a time or times to be prescribed in the by-laws of the association, the members of each association shall hold a general assembly.1aшphi1 The general assembly shall elect the board of directors and the officers of the association. It shall consider the reports of the officers and directors covering the operations of the association during the period of time that has elapsed since the last general assembly. It shall prescribe such policies as the directors and officers shall follow in conducting the business of the association. It shall approve all amendments to the articles of incorporation and by-laws of the association. It shall approve the lines of credit to be extended to members of the association as prescribed in this Act. All actions of the general assembly must be approved by the Philippine National Bank before becoming effective. Section 16. The board of directors of each rural credit association shall consist of five members, including the president, all elected by the general assembly. Each director shall have subscribed for at least one share of stock on which there are not past due payments and which shall not be transferred, mortgaged, or pledged during his term of office. The board of directors shall hold a meeting at least once each month to act upon the admission of members and other business of the association. Special meetings may be called at any time by the president. A majority of directors shall constitute a quorum for the transaction of business: Provided, however, That no loan shall be considered as approved by the board, even if it is within the limitations fixed by the general assembly, unless at least three members of the board approve the loan. The directors shall be held personally responsible for operations effected in violation of this Act, the by-laws, and resolutions of the general assembly, except those who entered a protest at the time such operations were determined upon. Section 17. The specific powers and duties of the directors and officers shall be prescribed in the by-laws. The officers and directors shall receive no compensation for their services until, in the judgment of the Philippine National Bank, the income of the association warrants the payment of compensation, in which event the compensation to be paid shall be approved by the Philippine National Bank. STATEMENT OF CONDITION, EARNINGS AND DIVIDENDS Section 18. The board of directors shall at least once each year prepare a balance sheet of the association and a statement of its income and expenses. The statement shall be presented to the general assembly and a copy thereof sent to the Philippine National Bank. With the approval of the Philippine National Bank, the directors may declare such dividends as the earnings of the association will permit, provided that such dividends do not exceed ten per centum of the average paid-up value of the stock in the case of each member and provided further that dividends may not be withdrawn by members until after their stock has been fully paid for. Dividends shall be credited in a deposit account to be opened for each member and shall earn interest at such rate as may be approved by the Philippine National Bank. No dividend shall be declared until after the statements submitted by the board of directors have been approved by the Philippine National Bank. In computing the net profits for the purpose of declaring dividends, all losses and bad debts shall be deducted. All debts due any association on which interest is past due and unpaid for a period of six months shall be considered bad debts within the meaning of this section. Interest accrued but not collected shall not be considered profits for the purpose of computing dividends. Section 19. Directors, who in the annual balance sheet or statement of earnings shall knowingly fail to state correctly the actual condition of the association and its true profits and losses, or who shall knowingly declare dividends except out of the net earnings as determined in accordance with the provisions of this Act shall be punished by a fine of not less than five hundred pesos nor more than five thousand pesos, or by imprisonment of not less than six months nor more than two years, or by both such fine and imprisonment in the discretion of the court. EXEMPTIONS AND PRIVILEGES Section 20. The associations created under this Act shall enjoy the following exemptions and privileges, the provisions of existing law to the contrary notwithstanding: a. They shall not be subject to the payment of the taxes established by the Internal Revenue Laws, nor shall they be required to submit income tax declarations. b. Persons making deposits with or loans to the said associations, or persons borrowing money therefrom, shall also be exempt from the payment of any tax established by existing law or hereafter established upon deposits or loans, and from the payment of any fees required by justices, of the peace, in their capacity as ex officio notaries public, for acknowledging documents relating to loans contracted in favor of the associations. c. The associations shall likewise be exempt from the payment of all court fees payable to the Insular Government for actions brought under this Act, or to enforce the payment of obligations contracted in favor of the association. d. The registration of the securities required by an association for loans upon real estate, property rights, or personal property, or of the deeds of title to any property acquired by an association shall be exempt from the payment of the fees established by existing law or any other law on the subject which may hereafter be enacted. e. Instruments covering loans and any other business transactions between said associations and their members shall be exempt from the documentary stamps tax and shall be acknowledged free of charge before the justice of the peace concerned. The credits of said associations against members for sums borrowed by them shall have preference as regards collection over any other claim except duly registered hypothecary credits on real or personal property and taxes within two years after the same have become due and payable. f. Sums lent to, or deposited with an association up to the amount of five hundred pesos, either in the form of deposits or shares of stock, shall enjoy exemption from attachment by virtue of any civil action, provided such loan, deposit or share of stock has been made prior to the fact resulting in said action otherwise, and in case said action is derived from a criminal action, said sums may be attached, but shall not be withdrawn from the association, and the creditor shall merely succeed the lender, depositor or shareholder concerned in his rights in the same: Provided, however, That none of the provisions of this subsection shall be applicable to debts contracted in favor of the association by lenders, depositors or shareholders. g. Associations shall also enjoy the privilege of depositing free of charge, their closed cash boxes, documents or any valuable papers in the safes of the municipal treasurers' offices. h. They shall enjoy the privilege of being represented in the Court of First Instance by the provincial fiscal of the province in which they are operating, in any case in which they are either plaintiffs or defendants, except when the Government is itself an interested party. i. The provisions of existing law to the contrary notwithstanding, justices of the peace or judges of first instance who are members of rural credit associations may try cases instituted by the said associations against their delinquent members, except when said justices of the peace or judges of first instance are disqualified by virtue of section eight of Act Numbered One hundred and ninety. j. The Philippine National Bank shall not be required to pay any fee for the filing of any case in court arising from the operation of any association organized in accordance with the provisions of this Act. SUPERVISING AUTHORITY Section 21. The Philippine National Bank shall be the supervising authority and shall do everything possible by way of propaganda, instruction, advice and general assistance to bring about the organization of rural credit associations subject to the provisions of this Act. Section 22. The Philippine National Bank shall have control and supervision over all rural credit associations and shall issue such instructions, rules and regulations governing the activities of such associations as it may deem wise. It shall at all times have access to the records and books of the association. It shall have the power to administer oaths to the officers, directors and employees of associations. The Philippine National Bank may at any time in its discretion suspend or dismiss any director, officer, or employee of any rural credit association. It may countermand and nullify any action or resolution taken or made by any officer or by the board of directors of any association. It shall have authority to arbitrate and finally decide any dispute or difference arising between associations or between members of associations or between members and an association if such dispute or difference has arisen from the operations of associations. Section 23. The Philippine National Bank may liquidate at any time in its discretion any rural credit association Section 24. Any officer, director or employee who in any manner obstructs or interferes with the Philippine National Bank or any representative of the Philippine National Bank in exercising the powers conferred upon such bank by the provisions of this law shall be punished by a fine of not less than one thousand pesos nor more than five thousand pesos or by imprisonment for not less than one year nor more than five years, or by both such fine and imprisonment in the discretion of the court. Section 25. The provincial treasurers and provincial auditors, or their duly authorized representatives may be deputized by the Philippine National Bank, with the consent of the Secretary of the Interior, and the Insular Auditor, respectively, for the purpose of making examinations or investigations of the accounts or operations of rural credit associations. Section 26. The accounts and books of each rural credit association shall be kept in accordance with rules and regulations to be issued by the Philippine National Bank. Section 27. Each rural credit association shall keep a register of members, on the first page of which shall appear copies of the articles of incorporation and by-laws of the association translated into the dialect of the locality. Immediately after the by-laws there shall follow a complete list of the members with their names, surnames, addresses, occupations, number of shares of stock subscribed for, and amounts paid on such stock. Each member shall sign his name or make his mark on the place provided at the time of his admission, and the date of signing shall be recorded. His signature or mark shall be considered as an agreement to abide by the articles of incorporation and the by-laws. The signature or mark of a member entering or withdrawing shall be witnessed by two persons, one of whom shall be a director of the association and the other a member thereof. The books of rural credit associations shall be open for inspection by the members at any time during regular office hours. LIQUIDATION AND DISSOLUTION Section 28. Rural Credit Associations may be dissolved. a. By resolution of the stockholder's general assembly approved by a two-third vote of all members at a regular or special meeting called for the purpose and with the approval of the Philippine National Bank. b. Upon liquidation of the business of the association in the discretion of the Philippine National Bank. In any case; the liquidation and dissolution shall be effected by the Philippine National Bank without the necessity of complying with the provisions of the corporation or any other law on the subject. Provided, however, That any settlement or decision made by the Philippine National Bank regarding any claim for or against an association in liquidation may be appealed by the party or parties concerned to the Secretary of Finance whose decision shall be final. Section 29. Until ten rural credit associations organized and established under the provisions of this Act shall have been in successful operation for a period of at least five years, the Philippine National Bank will not permit the organization at any one time of more than ten such associations. This section shall not apply to associations operating under this Act by virtue of section thirty thereof. AGRICULTURAL CREDIT COOPERATIVE ASSOCIATIONS Section 30. Agricultural Credit Cooperative Associations organized under the provisions of Act Numbered Twenty-five hundred and eight, as amended, shall have the option of continuing their operations under the provisions of said Act or of operating under the provisions of this Act, provided they have been in successful operation for a continuous period of at least five years and provided they can satisfy the Philippine National Bank of their ability to comply with the provisions of this Act. In the latter case, they shall be permitted to operate under the provisions of this Act without the necessity of complying with those provisions of the Corporation Law governing the liquidation and dissolution of corporations. REPEALING SECTION Section 31. All acts or parts of acts in conflict with the provisions of this Act are hereby repealed. APPROVAL SECTION Section 32. This Act shall take effect upon its approval and upon its acceptance by the Philippine National Bank. Approved, November 16, 1931. 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