QuestionsQuestions (DAR ADMINISTRATIVE ORDER NO. 03)
Act No. 3392 amends Section 182 of Act No. 1459 (as last amended by Act No. 2092) by further prescribing/clarifying the requirements for corporate loans, specifically the types of security that must be provided.
Every loan must be properly evidenced by a note or other instrument in writing.
The loan must be (1) secured by a first mortgage or deed of trust on unencumbered real estate, and (2) secured by the pledge to the corporation of shares of stock of the corporation whose matured value at least equals the amount of the loan.
It implies the real estate security must be the first/primary encumbrance, with priority over later claims—consistent with the Act’s requirement that the encumbrance be valid against the whole world and prioritized.
It means the real estate offered as security should not already be burdened by existing liens/encumbrances at the time of the loan, so that the corporation can obtain a first mortgage or deed of trust.
It refers to the value of the shares at maturity as contemplated by the corporation’s arrangements/by-laws; the Act requires that this matured value be at least equal to the loan amount.
When, at the time the loan is made, the withdrawal value of such free shares under the by-laws exceeds the amount borrowed plus interest for six months.
By comparing the withdrawal value of the free shares (per the by-laws) against the loan amount plus interest for six months—withdrawal value must exceed that total.
The general rule requires both (real estate first mortgage/deed of trust on unencumbered real estate and pledge of shares). The Act provides a specific exception allowing loans on security of free shares under the stated withdrawal-value conditions.
No loan on the security of real estate shall be made unless the title to the real estate has been first registered in accordance with the Land Registration Act (or under the Public Act in authorized cases, or under the registration system existing on the approval date of those Acts).
It ensures that the real estate title is under the applicable registration system, so that the legal encumbrance/conveyance is properly recorded and recognized for priority purposes.
The legal encumbrance or conveyance of real estate with such registered title “shall be valid against the whole world and shall have priority over any other claims” against the real estate.
The statute bars making a real-estate-secured loan unless the title has been registered under the specified registration systems; thus, the real-estate security arrangement would not comply with the statutory condition.
It guarantees the corporation’s encumbrance has superior priority as against other claims; this is crucial for enforcement and recovery if other liens or claims arise.
It takes effect on its approval (approved December 5, 1927).