SECURITIES REGULATION CODE (2007 Edition) Blue Sky Law- it seeks to protect publ ic from financial heister or investment

sc am that seeks to sell nothing more bu t the few feet of the sky. Prohibited Pleadings in the RTC are: Motion to dismis s, Bill of Particulars ,New Trial and Motion for reconsideration. The original and exclusive jurisdiction of the SEC to hear and decide all cases has been transferred to the Regional Trial Court (in the city or municipality wh ere the head office is located) namely: 1.jurisdiction & supervision over all c orporations,partnerships or associations who are the grantees of primary franchi ses and or license or permit issued by th e Govt. 2.formulate policies and recom mendations on issues concerning securities market, advise congress & other govt agencies on all aspects of the securities market an d propose legislation and am endments thereto. 3.approve,reject or suspend or require amendments to registrat ion statements and registration and licensing applications 4.regulate,investigat e or supervise activities of persons to ensure compliance 5.supervise,monitor,su spend or take over activities of exchanges,clearing agenci es and other SRO 6.im pose sanctions for violation of laws/rules issued pursuant thereto. 7.prepare,ap prove, amend or repeal rules,regulations and orders and issue opinio n and provi de guidance on and supervise compliance with such rules,regulations a nd orders 8.enlist the aid/ or deputize enforcement agencies of the govt, civil or militar y as well as any private institution,corp,firm and association in the implement a tion of its powers and functions under the code. 9.issue cease and desist orde rs to prevent fraud or injury to the investing publ ic 10.punish for contempt 11 .compel officers of any registered corp or association to call meetings of sto c kholders or members thereof under its supervision 12.issue subpoena duces tecum and summon witnesses to appear in any proceeding o f the commission and in appro priate cases order the examination ,search and seiz ure of all documents and boo k of account of any entity under investigation 13.suspend or revoke ,after prope r notice and hearing the franchise or certifica te of registration of corp or pa rtnerships/associations 14.exercise such other powers as may be provided by law as well as those which m ay be implied from or which are necessary or incidental to the carrying out of t he express powers granted the commission to achieve th e objectives and purposes of these laws. 2006 notes: #5-11 are general powers wh ich cannot grant damages since no adjudic atory power. 2006 notes:RTC not NLRC h as jurisdiction over cases involving removal from emplo yment of corporate offic ers.

2006 notes:even if they are former stockholders of a corp,it did not divest RTC of jurisdiction if the stockholders are suing the corporation or vice versa (si nce intra-corporate). SECURITIES IN GENERAL Securities are shares, participation or interests in a corporation or in a comme rcial enterprise or profit-making v enture and evidenced by a certificate, contra ct, instrument, whether written or electronic in character. It includes: (a) Shares of stock, bonds, debentures, n otes, evidences of indebtedness, assetbacked securities; (b) Investment contract s, certificates of interest or participation in a profit sharing agreement, cert ificates of deposit for a future subscription; (c) Fractional undivided interest s in oil, gas or other mineral rights; (d) Derivatives like option and warrants; (e) Certificates of assignments, certificates of participation, trust certifica t es, voting trust certificates or similar instruments; (f) Proprietary or nonpr oprietary membership certificates in corporations; and (g) Other instruments as may in the future be determined by the Commission (Sec 3.1 of R.A. 8799) (BAR): X has the following plans: a) organize the Tagaytay Country Club Incorpor ated; b) let the club buy a 10 hectare land for P10 M which will be developed in to a sports and health club complete with an Olympic size swimming pool, tennis and p elota courts, bowling lanes, pool rooms, etc. c) Five of the ten million pesos needed to develop the club will be raised thru the sale of certificates of membership. d) The certificate of membership shall give the purchaser the right to use all c lub facilities, and right in the transferable. It shall not, howev er, give the p urchaser any right in the Income or assets of the club. The purch aser must also pay monthly dues. X wants to know whether the certificate of memb ership is an investment contract and hence, a security within the meaning of the Revised Securities Act. What is your opinion? (1989 Bar) Answer: A certificate of membership whether or not the member becomes owner of t he assets or profits of the club, association or corporation is a security under t he Securities Code . Consequently, the issuer of these certificates will have to file an applicatio n with the SEC in order to register the securities about to be issued to the gen er al public. The Securities Code divides securities into two classes, which are: a. Exempt se curities, and securities emanating from exempt transactions;

b. Non-exempt securities Non-exempt securities are those which may be offered or sale or otherwise dispos ed of to the general public by registration with the S EC done by the filing by t he issuer, dealer or underwriter of an application co mplying with the provision of the code. REGISTRATION OF SECURITIES Securities sh all ippines, without C. prior to such each prospective not be sold or offered fo r sale or distribution within the Phil a registration statement duly filed with and approved by the SE sale, information on the securities shall be made availab le to purchaser (Sec. 8.1) The rule, however, is subject to exceptions with respect to exempt securities (S ec. 9) and exempt transactions (Sec. 10) where the requirement of registration s hall not apply. Bar Question: One day Jerry Haw, doing business under the name Starlight enterpr ise, a sole proprietorship, finds himself short on cash and unable to pay his d e bts as they fall due although he has sufficient property to cover such debts. He asks you, as his retained counsel, for advice on the following queries,Should h e sell profit participation certificates to his 10 brothers and sisters. No, he cannot sell profit participation certificate to his 10 bros and sis.A pro fit participation certificate is a security as defined by the Securities Regulatio ns Code. The issuer (Jerry Haw) is required by to apply for a license to issue s aid certificates and should register the same with the SEC. He can however proc ure the financial assistance from his brothers and sisters, t hrough means other than the issue by him of profit participation certificates. (Note: Answered und er R.A. 8799) 2006 notes: in registration, it needs the signature of the Preside nt and the sec retary or in absence of both, the Vice-President and the Asst Sec retary 2005 notes:Under B.P. 178, the rules and regulations promulgated by the C ommissi on with respect to registration of securities shall be subject to the ap proval o f the Monetary Board of the Bangko Sentral ng Pilipinas. No such approv al is nec essary under R.A 8799. Bar Question: Assume that you want to be a participant in the business independe ntly of your being its legal counsel and that more investors are expected after the firm is formally organized. Explain briefly with legal reasons. If the firm is to engage in mining, what steps do you advise to be taken before the firm of fers its shares to the public? Cite applicable laws. Answer: If the corporation is to engage in mining, where the shares are consider

1).000 or (b) indiscriminately to all its 10. In case it decides to sell to is m anagerial employees only. The i ssue of the stocks does not have for its purpos e.000 employees.000 emp loyees. Its Board of Directors intends to sell P2 M worth of common s to cks to either (a) its managerial employees only numbering about 1. whether to the 1. fraudu lent transactions (Sec. A trust fund is established and facilita ted by the Commission for the purpose of compensating investors for extraordinar y losses or damages suffered by them due to business failure or fraud or mismana gement of the persons with whom they transact (Sec. in such form and with such substance as the C ommission may prescribe. the issue o stocks to it s employees. Inc. 26). 24. 25). the corporation should secure a license from the Securities a nd Exchange Commission and should register also with said office the stocks it i ntends to sell to the public. failure of an insider to disclose when trading (Se c . Bar Question: Assume that Greater Manila Telephone and Telegraph Company. Prior to such sa le. does it have to register its securities? How about if the intended sale is to all its employees? (1989 Bar) Answer: The securities (st ocks) intended to be issued by the corporation have to comply with the registrat ion requirements of the code. 3. Four features of Securities Regulation Code intended to give protection to the i nvesting public are: 1.0 00 managerial employees or to all its 10. hence it is not an issue of securities emanating from an exempt transaction . compliance with any provision of law.). While the issuer (Greater Manila Telephone and Tel egraph Company. . 36.5). shall be made available to eac h prospective purchaser ( Sec. information on the securities. The Code enumerates and prohibits certain acts which may be detrimental t the public such as manipulation of prices.) is a pub lic utility corporation.ed as speculative. devices and practices (Sec. 27) and the regulation of option trading (Sec. It has a policy of encouraging stock ownership amo n g its employees.000 employees. 8. The issuer (the corporation) will have to apply for the registration of the st oc ks to be issued. is an issue pursuant to the duty of the corporation to encourage stock o wnership to its employees. without a registration statement duly filed w ith and approved by the Commission (Except Exempt Securities and Exempt Transact ions). Incorp orated has 10. 2. Securities shall not be sold or offered for sale or dis tribution within the P hilippines. regulation or decree to broaden its cap ital base or to finance a part of the capital investment through the sale of sto cks.

4. (c) insurance company.) At any judicial sale or sale by an executor. (9. has violated any of the provisions of this Code or has been or is engaged in fra udulent transactions. and acting as an instrum entality of the govt.)Securities of foreign g ovt. during any 12 month period. the issuer is eventually found to be in a ny of the above situations. 2. and if after registration is allowed. d. where the entire mortgage tog ether with all the bonds or notes secured thereby are sold to a single purchaser at a single sale.) The issuance of bonds or notes secured by mortgage upon real property or ta ngible personal property.) An isolated transaction -not being made in repeated and successive manner. compensation or remuneration is paid or gi ven in connection with the sale and only for the purpose of complying with the r equired percentage of subscription before registration as corp or its authorized capita l increased.) Distribution of a corp o f its securities to its stockholders or other holde r as stock dividend or distr ibution out of surplus. among other. administrator.) The sale of securities by an issuer to fewer than 20 p ersons in the Phils. rece i ver or trustee in insolvency or bankruptcy. the registration may be revoked.EXEMPT TRANSACTIONS (SEC. Housing and Land Re gulatory Board. (6.)Securities or its derivatives the sale or transfer of which.) Subscription for shares of the capital stock of corp prior to the inc orpora tion thereof or in pursuance of an increase in its capital stock when no expense is incurred or no commission. to liquidate bona fide a de bt.) The issue and delivery of any security in exchange for a ny other security o f the same issuer pursuant to the right of conversion entitl ing the holder of th e security surrendered in exchange to make such conversion. (2. The application for registration of an issuer judicially declared insolvent.) Broker s transaction. 10) (1. it s political subdivisions or ag ency thereof. (d) Pension F . EXEMPT SECURITIES (SEC. ( 7. executed upon customer s order on any registered Excha nge . (10. EXCEPTION THAT IS THERE IS NO NEED FOR REGISTRATION OF THE FOLLOWING: 1. or the bureau of Internal Revenue. e. (5. or by person controlled or supervis ed by.) Sale of securities to (a) banks. is under the supervision and regulation of the Insurance commission. (b) registered investment house.)Any security issued by a bank except its own shares of stock.) By or for account of a pledge holder or mortgagee or any other similar lien holder selling or offering for sa le or delivery in the ordinary course of busin ess and not for the purpose of av oiding of the Code. has made any false o misleading representation of materia l facts in any prospectus concerning the issuer. with which the Phils. 9) a. guardian. Maintain diplomatic relatio n. (4.)Certificates issued by a receiver or by a Trustee in bankruptcy duly approved by the proper adjudic atory body. by l aw. c. is rejected by SEC . provided such securi ty surrendered has been registered and exempt when sold. (8.)Securities issued or guaranteed by the Govt. (3. b.

1991 decided under the old law. 2. 6 (a) (4) was interpreted by SEC to mean that t he issuance of shares from t he unissued shares of the authorized capital stock is an exempt transaction but the issuance of shares taken from the additional in creased authorized capital st ock is not exempt transaction and thus need be reg istered. to Mutual Inc. the buyer.A. If manipulation an be shown in this case. 18. Sec. Inc. If he chooses to invalidate the purchase. Issuer is ins olvent. for invalidation by Andres of his ac quisition (1994 Bar) Answer: The possible ground for invalidation is the pro vision of the Securities Act (now Securities Regulations Code) against manipulat ion of security prices. or revoke the effectivity of registration statement and the reg i stration of the security thereunder on the following grounds: 1.000 to Andres. Inc. R. However. (e) i n vestment company. 8799) Bar Question: Bus Lines Inc. stockholder) to Mutua l Inc. the sale is viodable at the option of Andres. or h as failed to co mply with any requirement of the SEC. (2) i t is not stated that Andres was prejudiced by the transaction and (3) who persua ded Andres to buy is not mentioned at all by the problem. or its political subdivision or mana ged by bank or persons authorized by the BSP to engage in trust function. w ho was persuaded to buy the shares after learning of three previous sales at co m parable prices made b Guillermo (a major bus Lines.und Retirement Plan maintained by the Govt. discuss briefly th e possible ground. Andres later came t o know that Guillermo owned a majority interest in Mutual. 3.000 common shares for P 100. Inc. The issuer has been convicted of a offense involving moral t urpitude or is re strained by the Commission. and (f) such other person as may be determined by the SEC as q ualified buyer. the problem above lacks some details for the ca se to be considered as a violation of this provision. and feasibility thereof. a 100 percent Filipino-owned investment corporation. vs.. The registration statement is incomplet e or inaccurate. sold 1. such as (1) nothing is men tioned that the sale of Bus Lines Inc. he is entitled to r eturn of his payment plus interest form the organization itself and from other p . was a ma nipulation.. CA. its rules or order of the SEC. 2005 notes:A shortswing is a purch ase by which any person who acquires directly or indirectly by beneficial owners hip of more than five per centum (5%) of such class or in excess of such lesser per centum as the commission by rule may presc ribe (Sec. or has made false representations. 203 SCRA 504. REFUSAL OR REVOCATION OF REGISTRATION The SEC may reject a registration statement and refuse registration of the secur ity thereunder. has violated the Code. 2005 Notes: In Nestle Phils. or has engaged in fraudulent transactions.

Making untrue statement of a material fact or omits to stain material f act ne cessary to make the statement not misleading.48) 5. 13 old. (Sec. sale of securities which involves no change in the beneficial owne takes place by creating a false or misleading appearance of active trading in an y listed security traded in an Exchange by effecting any transaction in such se c urity which involves no change in the beneficial ownership (Sec.1. (2001 Bar) a) Is the arrangement lawful? The arrangement is unlawful. Manipulation of security prices.A. directly or i ndirectly to create a false or misleading appearance of acti ve trading in any l isted security traded in an Exchange or any other trading mar ket by effecting a ny transaction in such security which involves no change in th e beneficial owne rship thereof (Section 24. A connives with B by which A will of er for sale some of his securities and B will buy them at a certain fixe d price. ( Sec. UNLAWFUL ACTS IN TRADING 1. 19-old. 23. communications and reports. To create a n appearance of active trading or such securities. dealer. This rise to civil liability on account of f alse registration statement. Excessive use of credit for the purchase or carrying of securities which is s ought to be prevented by the Margin requireme nts. (Sec. The law provides that it shall be unlawful for any person acting for himself or through a dealer or b roker. salesman unless registere d as such. 12-olc law. w ith the understanding that although there would be an apparent sale. give rise to civil liabilit y arisi ng in connection with prospectus. A will retain the beneficial ownership thereof.ersons responsible for the manipulation. 24. 8799 ) 4blue 95 says that it normally occurs when 1 party orders to sell shares when in fact such party also order to buy such same share in order to give impression t hat there is trading. R. Practices of creating a false or misleading appearance of creative trading in a ny security such as the following: (a) Wash sale rship. 28-new) 4. who are solidarily liable with the corp oration for such return. R. 57new) 3. 56-new law) 2. Making false or misleading declaration in the sworn registration statement fi led for registration of securities. Bar Question: Suppose A is the owner of several inactive securities. Engaging in business as broker. 8799) . 2005 notes: market juggling or rigging is prohibited if its purpose is to create a fa lse or misleading appearance of active trading in any security. ( Sec.A.

(f) painting the tape a tape. price of the purcha s e of any such security. STRA DDLE means the double privilege of a Put and a call. o r depressing th e price for the purpose of inducing the sell. 4blue 95 says th at it occurs when there are 2 parties unlike in washed sales the re are only 1 p erson whereby 1 party order to buy and the other order to sell. ikaw nagbuot with r egard the flow of a certain security in (g) marking the close an investor/broker waits for the closing transactions with regard a particular issue and they are the last one to post a buy in order to a rtificially raise the price (it can be a combination of washed sale. the option to buy. at the same price withi n the same time the same shares. (T. given the purchases t him a given number of shares withi n a give usually below the prevailing market price purchased. while in Call. (d) Circulating or disseminating i nformation in the ordinary course of business for the purpose of raising or depr essing the price of such security (e) Endorsing or guaranteeing the performance of any PUT. .b) If the sale materializes. It secures to the holde r o f the right to demand of the seller at a certain price within a certain time a n umber of specified shares. time. or to require him to take. matched or d er and painting the tape) 6. has or have been or will be entered by of for the same o r different person. Some also for entering an order to sell. martin 1962 Rev Ed Commercial CALL an option that in consideration of the premium paid entitles the buyer to t he right to compel the seller to deliver to him a certain numbers of shares wit h in a given time at a stipulated price which is usually higher than the prevail in g market price at the time the Call is bought. In Put what is bought is the option to sell. (c ) Market Jigg ling or rigging effecting series of transactions having the resu lt f raising th e prices of security for the purpose of inducing the purchase. It is the reverse of Put . and therefore cannot himself supply the securities for delivery.an option.C. Manipulative or deceptive devices It using the facility of ANY EXCHANGE TO EF FECT a Short sale Where the seller does not own or control the securities he is selling . what is it called? It is commonly known as a wash s ale (b) Matched Order entering an order for he purchase of such security with the kn owledge that an order of substantially the same size. that in consideration he right to make the seller take fr om n time at a stipulated price which is of the stock at the time the put is Law s) of the premium paid.

(iv) a government employee. or (ii) would be considered by a reasonab le person important under the circumstance s in determining his course of action whether to buy. 29:26) 9.is an order to the broker to sell or buy a stock as soon as t he market price reaches a designated figure.8. 28) 8. sell or hold a security (S ec. or officer of an exchange. Failure of Insider to disclose a Fact of special significance with respect to the issuer or the security that is not generally available. 8799) . or (v) a person who learns such information by a communication from any of th e fore going insiders (Sec. 8799) 2006 notes: insider can trade shares where he knew of such material information provided he discloses such info to o ther party (if not. (iii) a person whose relationship o r former relationship to the issuer gives or gave him access to material informa tion about the issuer or the security that is not generally available to the pub lic. Artificial measures of price control (Sec.A 8799 as material Non pub lic and information is considered as such if: (i) it has not been generally disclosed to the public and would likely affect th e market price of the securit y after being disseminated to the public and the la pse of a reasonable time for the market to absorb the information. R.A. clearin g age ncy and or self-regulatory organization who has access to material informa tion a bout an issuer or a security that is nor generally available to the publi c. R.Stop loss order -. 3.2. Fraudulent transactions (Sec. Insider means (i) the issuer. then it is prohibited) A fact of special significance is now referred to under R.A. or a per son controlling the issuer. 27. 7. or director. (ii) a director or officer (or person performing similar functio ns) of.

at w/c B was absent but which both A&C attended. 1 by reason of his purchase or sale of a security (Sec. the directors apprised of an important discovery in an area covered by one of XY Z Mining leases. proves that such investor kne w the information or would hav e purchased or sold at the same rice regardless o f disclosure of the information to him (Sec. Thus OB earned a sizable profit.After discovery was duly publicized in the morning dai lies.2005 notes: An insider who buys or sells a security of the issuer while in posse ssion of material information not generally available to the public shall be li a ble in a suit brought by any investor who. 2006 notes: An insider who unlawfully communicates material nonpublic informatio n about the issuer of the security 61. Ms.When it hit P8 on May 28. By herself and thru associates. 61. B left for abroad for a medical check-up and a vacation.1. 8799. believing that the s tock would continue to rise. OB is also liable for any damages to any sell er or buyer with whom she might have had dealt with in an amount not exceeding t riple the amount of the transac tion plus actual damages attorney s fees not exc eeding thirty percent (30%) of th e award. 8799).2. 3 . A so ld all his 1000 shares.A. Upon his return to Manila in the middle of June 2004. being a person whose relationship to the issuer (DOP) gave her ac cess to material inform ation about the issuer of the security that is not gener ally available to the pu blic.2004. On August 15 2004.20 04.and C are directors of XYZ Mining corporation whose shares of stocks ar e listed in the Manila Stock Exchange. 61. a medical drug compan y.B. Is OB liable for breach and misuse of confidential or insider or insider informa tion gained from her employment? Is she also liable for damages to sellers or b u yers with whom she traded? If so what is the measure of such damages? Explain br iefly (2004 Bar) Answer: Yes Ms.A.A. retained the Bank to assess whether it is desirable to make a tender offer f o r DOP company.1 with and to the same extent as the insi d er to whom the communication was directed and who is liable under subsection 6 1. 8799) Bar Question: Ms. What are the right .C sold 1000 shares. On Feb 1.2004. When WIC s tender offer was a nnounc ed. purchased or sold sec urities of the same class unless such insider. she purchased DOP stocks availabl e a t the stock exchange priced. OB was employed MAS Investment Bank WIC. At the boa rd meeting held on May 15. R.8. they each purchased thru a stockholder 1000 shares of XYZ Mining at the then Market Price of P4/share. when the price was P5 . The price however started to drop. OB is liable for breach and misuse of confid ential or insider in formation because she is considered an insider under Sec.2004. DOP stocks jumped to P30 per share. the market price of XYZ Mining started to rise. On May 1. R. OB overheard in the course of her work the pl ans of WIC. B sold 500 shares at P8 ju st enough to cover the cost of the 1000 shares he acqui red. contemporaneously with the purchase o r sale of securities that is the subject of the violation. BAR: A. a drug manufacture. R. at P20 per share.

And they had no advance knowledge of said important discovery t h at they could have taken advantage of. 11. and shall be file d with the Commission and sent to the issuer not later than the time copies of s uch materials are first published or s ent or given to security holders. 10.000. 34: ) Sale of shares with proxy. Proxies (Sec. or materials ma king a tender offer or requesting or invitin g letters of such a security. R.).s of XYZ Mining against A.A. (3) The person intends to acquire shares that would result in ownership of more than 50% of the equity shares of a public company (Rule 19. Tender of Offers (Sec. 8799) 2005 notes: A person is required to make a tender offer for equity shares of a p ublic company in an amount equal to the number o f shares that the person intends to acquire in the following circumstances: (1)a t least fifteen per cent (15%) of any class of any equity security of a list ed corporation or of any class of any equity security of a corporation with asse ts of at least Fifty Million Pesos (P50.000.B and C? HELD: The transactions of buying and selling shares of stock having done in the ordinary course of business and w/o taking ad vantage of any fact of special sign ificance only known to them and unknown to p ersons w/ whom they are dealing. This deprives the sharehold . The purchase on Feb 1 occurred before the important discovery hence not covered by prohibition.00) and having two hundred (200) o r more stockholders with at least one hundred (100) shares each (2) or who inten ds to acquire at least thirty per cent (30%) of such equity over a period of twe lve (12) months shall make a tender offer to stockholders by fil ing with the Co mmission a declaration to that effect. no right of any kind at all is acquired by XYZ. Hence no rights of any kind are acquire d by XYZ against any of its directors.1 [2-a]: Ibid. Such person or group of persons shall publish all requests or invi tations for tender. a statement containin g such of the information required in Section 17 of this Code as the Commission may prescribe.1. Copies of any additional material soliciting or req uesting such tender offers subsequen t to the initial solicitation or request sh all contain such information as the C ommission may prescribe. 33: ) 2005 notes:Tender offer means a publicly announced intention by a person acting alone or in concert with other persons to acquire equity securities of a public company (rule 19. and furnish the issuer.

hence. shall make. si ngly o r in concert with any other person. directly or indirectly. Regulation of Over-the-Counter Mark ets. or ena ble ano ther to make. for its own account or customer. for the buying and selling of any security. salesman. any trading market. to a person other than th e customer. No broker.Proxies must be issued and proxy solicitation must be made in accordance with rules and regulations to be issued by the Commission. dealer. 5. salesman or associated person of a broker or dealer. d Prohibition on Use of Unregistered Exchange. except in acc ordance w ith rules and regulations the Commission may prescribe. it shall be valid only for the meeting for which it is intended. shall submit a report identifying the beneficial owner within te n (10) days after such acquisition. Floor trader is a professional trader in securities who acts for himself and not for the account of the others. or E xchang e. No broker. to the i ssu er of the security. Proxy Solicitations. create or operate.Unless otherwise provided in the proxy. to the Exchange where the security is traded and to the Comm ission. No broker or dealer shall give any proxy. shall make use of any facility of an Exchange in the Philippines to effect any transaction in a security. signed by the stockholder or his duly authorized r epresentative and filed before the scheduled meeting with the corporate secretar y. otherwise than on a registe red Exchange. consent or authorization.er of exercising his right to vote on his share. No p roxy shall be valid and effective for a period lo nger than five (5) years at on e time. associated person of a broker or dealer. receives no commission at all. create or operate. in respect of any security carried for the account of a customer. dealer. or to report such tr ansacti on.Proxies must be in writing. 12. without the express written authorization of such customer. Over-the counter markets (Sec. . 3. 1. 2. A broker or dealer who holds or acquires the proxy for at least ten per centum ( 10%) or such percentage as the Commission may prescribe of the outstanding sha re of the issuer. 35: ) It is securities transacti ons made in market outside of the registered exchange or transaction involving s ecurities not registered between broker and customer irectly. 4. unless such Exchange is registered as such under Section 33 of this Code.

a person other than an officer or employee of the corporation. at least of two hundred (200) of which are holding at leas t one hundred (100) shares of a class of its equity se curities 3.must have independent directors? 1.00 ) and having two hundred ( 200) or more holders. its parent or sub sidiaries. whichev er is the lesser. What Corp. w hich would interfere with the ex ercise of independent judgment in carrying out t he responsibilities of a direct or.000.Any corporation with a class of equity securities listed for trading on an Exch ange 2.Corporation wh ich are private but which has sold a class of equity securities to the public pu rsuant to an effective registration statement 2006 notes: items 1. 4.2 and 3 shall have at least two (2) independent directors o r such independent directors shall constitute at least twenty percent (20%) of t he members of such board.Banks (all banks and quasi-banks) .000.ADMINISTRATIVE MATTERS Independent Directors. or any other individua l having a relationship with the corporation.Those corporation with as sets in excess of Fifty million pesos (P50.

is at the time hold ing office in said issuer corpor ation as a director. associated person or salesman. Transactions of Brokers which are prohibited: No broker or dealer shall deal in or otherwise buy or sell. No broker or dealer shall effect any transaction in securities or induce or atte mpt to induce the purchase or sale of any security except in c ompliance with suc h rules and regulations as the Commission shall prescribe to ensure fair and hon est dealings in securities and provide financial safeguards and other standards for the operation of brokers and dealers. It is permissible only in a scenario where the inv estor has many street c ertificates being handled by the broker and there alread y exist trust between th . margin trading is pwede (it is legal). including the esta blishment of minimum net capital requirements. or a uthorized clerk of said broker or dealer and all the relatives of the foregoing within the fourth civil degree of consanguinity or affinity. it is purchase of se curities by investor using credit of broker (since the lat ter financed such purc hase). 2006 notes: As such. secretary or any office of trust and responsibi lity. s ecurities listed on an Exchange issued by any corporation where any stockholder. vice-president. and the carrying and use of deposits and credit ba lances of customers. they have to fi le disclosure in the Philippine Stock Exchange (not SEC) and such operates as di s closure to the public) 2006 notes: SEC can only suspend a corporation for 30 d ays . comptroller. the acceptance of custody and use of securities of cu stomers. director. or is a controlling perso n of the issuer.2006 notes: if the corporation don t want to stop their trading. however it can go b eyond 30 days but not more than 90 days if it is with the authority of the Presi dent. treasurer. manager. president. for its own account or for the account of customers.

disqualificatio . in a registration stateme nt or in other reports. transaction reasonably necessary to carry on an odd-lot transactions. or (d) Any person has refused to permit any lawful examinations into its a ffairs. In all instances where the member-broker effects a transaction on an Exchange fo r its own account or the account of an associated person or an account with res p ect to which it exercises investment discretion.00) for each da y of continuing violation. after due notice and hearing.000. the a ccount of an associated person. transaction to offset a transaction made in error.If.00) plus not more than Two thousand pesos (P2.00) nor more than One millio e os (P1. in its discretion.e broker and the investor. with a view t o preventing violations. accounts. 24. 26 and 27.000. That this fact shall be reflected in the order ticke t an d the confirmation slip. however. 20. Any member-broker who violates the provisions of this Section shall be subject t o the administrative sanction Administrative Sanctions. further. ma de any untrue statement of a ma terial fact. o r an account with respect to which it or an as sociated person thereof exercises investment discretion: Provided. 1. (ii) A fine of no less than Ten thousand pesos (P10.000. It shall be unlawful for any member-broker of an Exchange to effect any transact ion on such Exchange for its own account.2. (b) A ny registered broker or dea ler. another person subject to supervision who commits any s uch violation. and subj ect only to the limitations hereina fter prescribed. r ecords or documents required by law or rules to be filed with the Commission. it shall disclose to such cus to mer at or before the completion of the transaction it is acting for its own a cco unt: Provided. or omitted to state any material fa ct required to be stated therein or necessary to make the statements therein not misleading.000. applications. impose any or all of the fo llowing sanctions as may be appropri ate in light of the facts and circumstances : (i) Suspension. the Commission fin ds that: (a) There is a vi olation of this Code. an d right now such value d eclined below minimum standard. This occurs when the cred it extended by broker was based on value last month. its rules. (iii) In the case of a violation of Sections 19. associated person thereof has failed reasonably to supervise. or its orders. or revocation of any registration for the offering of securities. has failed to conduct an inquiry with reasonable diligence to in sure that a registration statement is accurate and complete in all material resp ects. it shall. That this section shall not make unlaw ful a) b) c) d) Any Any Any An the capacity of a market maker. 2006 notes: Margin Call exist when the shares of stoc k of the investor held by t he broker fluctuates whereby the broker may demand f rom the investor additional deposit from the investor. or. (c) Any registrant or other person has. in the case of an underwriter. and oth er transaction of a similar nature as may be defined by the Commission.

4. during an investigation or proceeding under this Code. wi thdrawal. 2006 notes: settlement offers can be made even without determination of guilt an d it is termed as no fault compromise . 3. and (v) Other penalties within the power of the Commissio o impose.from being an officer. The Commission may only agree to a settlement offer based on its findings that s uch settlement is in the public interest. form of rejection and acceptance of su ch offers. and the public i nterest.and it is practice in the Phi lippines due t o practicality. 3. The Commission shall adopt rules and procedures g overning the filing. (iv) In the case of a violation of Section 34. member of the Board of Directors. the nature of the investig ation or proceeding. 2. The Commission shall have the power to issue writs of e xecution to enforce the p rovisions of this Section and to enforce payment of th e fees and other dues coll ectible under this Code. At any time. 2. . Any agreement to settle shall have no legal effect until publicly disc losed. t he Commission may consider the offer based on timing. a fine of no more than three (3) times the pr ofit gained or loss avoided as a result of the purchase. review. of an issuer required to file reports under Section 17 of this Code or any other act. rule or regulation administered by the Commission. 1. sale or communica tion proscribed by such Section. The imposition of the foregoing administrative sanctions shall be with out prejud ice to the filing of criminal charges against the individuals respons ible for th e violation. parties bein g investigated and/or charged may propose in writing an offe r of settlement with the Commission. Upon receipt of such offer of settlement. Such decision may be made without a deter mination of guilt on the part o f the person making the offer. or person performing s imilar functions. Settlement Offers.

aider and abettor (sec. c) for circulation of p rospectuses. 58). b) those who are responsible for false registration statement (Sec. f) for commodity futures contracts and pre-need plan s engaged into in violation . 59). d) for fr aud in connection with securities transactions (Sec. 57). 56).Civil liabilities against persons have been expanded to cover the following: a) those who are controlling persons. 51). e) for manipulation of security prices (Sec. communications and reports violating the Cod e (Sec.

57. Amount of Damages to be Awarded. 60 and 61 shal l be brought before the Regional Trial Court. it alleged that it holds a perfected mining claim on 1 00 hectares of chromite land in Botolan. However. Bar Question: Philippine Chromite. fraud. The Court is also authorized to award attorney s fees not exceeding thirty percent um (30%) of th e award. 60). The Stock. 58. 60 and 61 hereof shal l be join tly and severally liable for the payment of damages. unless the former was guilty of fraudulent representation and the latter wa s not. malevolence or wantonness in the violation of t his Code or the rules and regulations promulg ated thereunder. g) for insider trading in violation of the Code (Sec 61). would have been liable to make t he same paym ent. However. directors and other officers of the issuer or pers ons occupying similar positions therein. Zambales. In no case shal l the principal stockholders. bou ght P50. 5 7. 1.000. 2.01 per share. held liable under the provisions of Sections 56.00 worth of stock of the corporation from the stock exchange. 57. X. After its public offering. the right of the issuer t o recover from the guilt y parties the amount it has contributed under this Sect ion shall not be prejudic ed. Incorporated. The persons specified in Sections 56. including the issuer. 60 and 61 shall contribute equally to the total liability adjudged he rein.of any rile or regulation of the Commission (Sec. 3. 58. In i t s registration statement. any pers on who bec omes liable for the payment of such damages may recover contribution from any ot her person who. recover their co ntribution to the liabi lity from the issuer. all p ersons. rallied and after two years commanded a price of one and one half centavo per . Notwithstanding any provision of law to the contrary. 59. The Cour t is hereby authorized to award dam ages in an amount not exceeding triple the a mount of the transaction plus actual damages Exemplary damages may also be award ed in cases of bad faith. X made s ome investigations and discovered that the mining claims of the corporation had not been perfected at the time of the issuance of its securities. a Botolan resident. 59. after registration of its secur ities. how eve r. if sued separately. sold P10 M worth of common stocks to the public at P . 59. 58. All suits to recover damages pursuant to Sectio ns 56. which shall have exclusive jurisdi ction to hear and decide such suits. the value of the stocks dropped to half its price.

malevo lence. d. 425 SCRA 691. Fabia v s. he 3. or wantonness in the violation of the code. supra . INTRA CORPORATE DISPUTES Under Section 5. Validity of Contracts: 2006 notes: section 71 states that : Any condition. the mining claims were not perfected at the time of the issuance of the certificate . Zambales. the company collapsed and its stocks became totally v alueless. b. shall be void. On its third year. 2. CA. X. It i s one which arises between stockho lders and the corporation. 4. 1. Harrigan. provision bindi ng any person to waive compliance with any provision of this Code or of any rule or regulation thereunder. What is the remedy of X? (1989 Bar) Answer: The registration in the pr oblem contains a false statement that the corp oration holds a perfected mining claim on 100 hectares of chromite land in Botol an. directors and the corporation. CA. stipu lation. fraud. Civil damages against: The person who signed the registration statements. original and exclusive jurisdiction to hear and decide cases involving intra-corporate controversies has been transfer red from t he SEC to a court of general jurisdiction or the appropriated Regiona l Trial Cou rt (Sumndad vs. The directo rs of the corporation of the issuer at the time of the filing of t registration statement. or of any rule of an Exchange required thereby. the buyer of the stocks has the following remedies. Vesagas vs. Speed vs. The persons named in the statement as being or about to become direct ors. supra. 371 SCRA 508) An intra-corporate controversy invo lves fraudulent actions and devices which are detrimental to the interest of sto ckholder. The damages can include exemplary damages incases of bad faith. 8799. The accountant or auditor who prepared the statement. CA. c. when in truth. as we ll as the waiver itself.A. a.share. The above described persons are solidarily liable to th e victim.2 of R. There is no distinc . The amount of damages how ever cannot exceed double the price at which the sec urity was offered plus exem plary damages if any.

t he manner and validity of elections . The issuance of a promissory note in the name of a corporation b y the corporate officers without prior registration with SEC is a device or sche me amounting to fraud or misrepresentation. trustees. and alleges the same with particularly in the complaint. Ca. 1 [a] [1]. the board of directors. to exhaust all remedies available under the articles of incorpora tion. as the case may be. the validation of proxies 3. 01-2-04 SC) An action involving a stockholder or member may bring an action in the name of a corporation or ass ociation. by-laws. The RTC has jurisdiction in civil cases involving the following: a) Devices or s chemes employed by. Sec. supra). 1 [a][3]. partnership. partners. 01-2-04-SC). as the provision is broad and covers all kinds of controversies between stockholders and corporations (Fabia v s. IAC. 2) He exerted all reasonable efforts. mem bers of any corporation. 01-2-04-SC). CA. 2006 notes: Pyramid scam is aka Ponzi Sche me b) Derivative suits (Rule 1.M. amounting to fraud or misrepresentation whi ch may be det rimental to the interest of the public and/or of the stockholders. A. laws or rules governing the corporatio n or partnership to obtain the relief he desires. Sec. or association (Rule 1. partnership or associatio ns (Rule 1. 1 [a][4]. qualification nor any exemption whatsoever. busine ss associates. officers or managers of corporations. A. title or claim to any elect ive office in a stock or non-stock corporation 2. An otherwise ordinary action for recovery of certain pro perties and sum of money with damages is transposed into an intra-corporate cont roversy calling for the adjudicative powers of the SEC (now RTC) when the compla int alleges that an offi cer employed devices or schemes tantamount to fraud and misrepresentation in ord er to divert corporate funds and assets for his person al use (Alleje vs. Sec. the officers c ould disclaim liability by claiming the separate personality of the corporation. A. 175 SCRA 773).M. By not registering the note with SEC . officers of partners. The controversy is within SEC jurisdiction (now RTC) (Rivilla vs. Election contest shall refer to any controversy or dispute involving the followi ng: 1. M. 1). 3) No appraisal rights are ava ilable for the acts complained of: and 4) The suit is not a nuisance or harassme nt suit (Rule 8. or any act of. c) Controversies n the election or appointment of dire ctors. provided that: 1) He was a stockholder or member a t the time the acts or transactions subject o f the action occurred and at the t ime the action was filed. 240 SCRA 497).tion. Sec.

The corporation failed to pay the first install ment on the due date. a promissory note. CA. d)Petition for suspension of payments e) Controversies arising out of intra-corporate. 145 SCRA 211). or association rel ations between and among stockholders. [a] [2]. on the promissory. partnership. trustee or other officer directly elected by the stockh o lders in a close corporation or by members of a non-stock corporation where th e articles of incorporation or by-laws so provide (Rule 6. the book value thereof pa yable as follows: (a) P100. A then sued Paje Multi-Farms. with an acceleration clause.00. and (c) the remaining balance of P 100. The relation of a person to a corporation. the qualifications of candidates.. Does said court have jurisdiction over the case? (199 1 Bar) Answer: a suit to enforce a promissory note of a corporation buying out a withdr awing stockholder s stocks is intracorporate and cognizable by SEC (now RTC) becau se payment to him by the corporation may violate the trust fund doctr ine (Boman vs. in the Regional Trial Court. respectively (rules 1.000 on or before 30 September 198 9. Sec. Bar Question: On December 1988.000. (b) P 100. partnership or association of which they ar e stockholders. to t he office of directors. 01-2-04-SC). or associates. members. members or associates. was executed by the corp orati on for the unpaid balance. an incorporator and the General Manager of Pa je Multi-Farms Corp. NLRC. resigned as General Manager and sold to the corporation h i s shares of stocks in the corporation for P300. and between any o r all of them and the corporation. Corp. including the proclamation of winners. 167 SCRA 540). 2006 notes:The Securities and Exchange Commission (now RTC) has jurisdiction ove r a dispute involving the termination of a bank manager as a result of his nonr eelection (Dy vs. but by the inciden .4.M. Sec.000 as downpayment.. whether as officer or a gent or employ ee is not determined by the nature of the services performed. A. 2). A.000 on or before 31 Jul y 1989.

240 SCRA 53). Intecontinental. stockholder to compel issuance by the corporatio stock cert ificate. SEC. whether as officer or as agent or employee. 2006 notes:A controversy over the sale of shares of stocks. 2 01 SCRA 124). then by parity of reasoning. is an intracorporate controversy. 154 SCRA 548). An action brought by the heirs of a deceased incorporator for accounting and inv entory of the properties of the corporation for determination of the share o f th e deceased. Lozon vs. The CFI has no jurisdiction over an action for recovery of corporate funds filed against a c orporate President and two other minor employees. Men doza. by a competent appraiser and for its division into three parts for d istribution to his three children. Ilustre.ts of the relationship as they actually exist (Nacpil vs. 240 SCRA 1. A corporate officer s dismissal is always a corporate act and/or intra-corpo rate c ontroversy and that nature is not altered by the reason or wisdom which t he Boar d of Directors may have in taking such action (Bienvenido Ongkingco vs. Where an action is brought by a n of a replacem ent for his lost orate and therefore exclusively sion (now RTC). 272 SCRA 454 ). 2006 notes:A suit by certain stockholders to enjoin certain persons from exercis . NLRC. 138 SCRA 11). 117 SCRA 321). the controversy is intra-corp cognizable by the Securities and Exchange Commis suit includes a claim for damages (Philex vs. NLRC. 118 SCRA 602). 169 SCRA 109). NLRC. the matters invo lved being intracorporate and therefore exclusively falling under th e jurisdict ion of the SEC (now RTC) (Desa vs SEC. Hence. it can al so declare wh o is not the legitimate Board of Directors thereof (Islamic vs. t he relationship of a per son to a corporation. and over an action for damages arising from the filing of a case to dissolve the corporation. is not determi ned by the nature of the services performed. There can be no que stion as to the authority of the SEC to pass upon the issue a s to who among the different contending groups is the legitimate Board of Truste es of the Islamic Directorate of the Philippine (IDP) since this is a matter pro perty falling wi thin the original and exclusive jurisdiction of the SEC by virtu e of Sections 3 and 5© of PD 902-A. NLRC. 2005 notes: SEC (now RTC) not NLRC has jurisdiction over cases involving the rem oval from employment of c orporate officers under PD 902-A. CA. even though the yes. E strada vs . if the Sec (now RTC) can declare who is the le gitimate Board of Directors of a company. Generally speaking. supra ). Espino vs. 262 SCRA 709). it is intracorporate and falls within the original and wExclusive jurisdiction of t he SEC (now RTC) (DBP vs. 240 SCRA 52. and the right to rep resent these shares in annual stockholder s meetin gs falls within SEC (now RTC) ju risdiction (Sales vs. 27 0 SCRA 613. NLRC. An action to rescind a compromise agreement brought by a group of stockholders a gainst DBP is in effect an action to seek control of the corpo ration. Re The fact that the status of a stockholder in relation to the corporation has alr eady been terminated does not deprive the SEC (now RTC) of its jurisdiction to h ear and decide the controversy which arose from that relationship (SEC vs. but by the incidents of the relatio nship as they actually exist (Espino vs. and t herefo re falls within the exclusive jurisdiction of the SEC (now RTC) (Malayan vs. CA.

A suit to enforce a promissory n ote of a corporation buying out a withdrawing st ockholder s stocks is intracorp orate and cognizable by SEC (now RTC) because payme nt to him by the corporation may violate the trust fund doctrine (Boman vs. . Calalang. CA. 162 SCRA 336). 167 SCRA 540).ing their voting rights is intracorporate and within the jurisdiction of the SEC (now RTC) (Aytona vs.

the Condominium Law. The first element requires that the contro versy must arise out of intracorporate or partnership relations between and amon g stockholders. the case corr ectly filed in the regular court. the controversy is w ithin the jurisdicti on of the Securities and Exchange Commission under Presiden tial Decree No. sha ll be entitled to the ownership of the unit so purchased and to shares o f stock pertaining thereto in the condominium corporation. 326 SCRA 147. 1). 333 SCRA 799. and (2) the nature of the question that is the subject of their controversy. becomes a stockholder only after fu ll payment of the contract price. members or associates. was not yet a stockholder of the Condominium Corpora tion because he. Pilipinas vs. Such determination i s possible only after f actual examination by the board of directors of petitione r of the existence of such profits. BF. For the RTC to acquire jurisdiction over any controversy under these provisions. under the contract to sell. Suara vs. CA. for A. under Sections 7 4 and 75 of the Corporation Code ( Rule 7. It built condominium units within manila and o f fered the dame for sale. between any or all of them an the corpora tion. obtained a li cense from the SEC to set up a regional headq uarters in the Philippines. partnership or association a nd the State in so far as it concerns t heir individual franchises. Hence. private respondents may th en avail themselves of the proper legal remedies authorized by the governing law s and pertinent rul es for the declaration of dividends and demand their appropri ate participation therein (Capitol vs. Is the order of the court co rrect? Explain (1981 Bar) Answer: The order of the tri al court dismissing the case and directing the par ties to ventilate their contr oversy before the SEC is erroneous. Bar Question: XYZ is a Condominium corporation within the meaning of Republic Ac t No. After th e determination of th e existence of any such profits. at the t ime the action was brought. 902-A . A bought one unit on installment basis under a contra ct t o buy and sell. which provided that A upon full payment of the contract pri ce. respectively. partnership or association of wh ich they are stockholders. Ltd. The court dismissed the case and directed the parties to ventilate their controv ersy before the Securities and Exchange Commission. The second e lement requires that the dispute among t he parties be intrinsically connected w ith the regulation or the internal affair s of the corporation. 313 SCRA 465). 4726. and therefore. (OIL). two elements must be considered: (1) th e status of relationship of the parties. he being a s tockholder of XYZ already. CA. Sec. and between such corporation. partnership or a ssociation (Arranza vs. 302 SCRA 349). a Japanese company. the issue not being an intracorporate c ontroversy. OIL has . A defaulted in the pa yment of h is installment and XYZ filed a case in court for collection of overdu e accounts. A filed a motion to dismiss the case on the ground that the controve rsy between hi m and XYZ arose out of intracorporate relations between stockhold ers. Bar Question: Okura International. Saura. and their declaration of dividends. member or asso ciates.f) Inspection of Corporate Books It shall apply to disputes exclusively involvin g the rights of stockholders or m embers to inspect the books and records and/or o be furnished with the financial statements of a corporation. The purpose of the inspectio n of petitioner s books of accounts is not only to det ermine whether dividends have been earned by the latter and whether private resp ondents have been unjust ly deprived of their share therein.

being intracorporate in nature. will be governed and regulated by Philippine laws. was organized under Philippine laws. 4blue 95 notes:However. JAPIL. D irector and regular courts to the SEC. That OIL is a Japanese company. and the right to receive dividends whi ch pertain to the said shares are all rights that flow from ownership. if owne rship of the shares in n or clearly established and is still unresolved at the t ime the action for mandam us is files. 4blue notes:The registration of shares in a stockholder s na me. However. jurisdict ion is determined not f rom the law upon which the cause of action is based.. 191 SCRA 308 ). it do es not necessarily follow that when both parties of a dispute are stockholders o f a corporation.A. nor does it transform the controversy from intra-corporate to a crim inal one (Fabia vs. 2005 notes:The crimi nal case for estafa currently pending before the RTC can ind ependently and simu ltaneously proceed with a civil/intra-corporate case to be fi led with the RTC p ursuant to R. Inc. partners or asso ciates themselves is intra-c orporate in nature and falls within the jurisdictio n of the SEC (now RTC) (Lim T ay vs.A. OIL filed suit befor e the Philippines SEC against its fellow stockholders in JAPIL. who seeks to recover his de posit in paid-in surp lus which was written off by the former. 2005 notes:An action to determine the validity of the rescission of a contact is an ordinary civil litig ation not requiring any special aptitude or expertise to justify its referral to another entity like the SEC (Viray vs. The filing of a suit by JAPIL of its pr oprietary right as a stockholders of OIL. 8799 (Fabia vs. 363 SCRA 427). CA. ( 1987 Bar) Answer: The suit filed by OIL. hence matters wh ich are intracorporate in natu re. the issuance of st ocks certificates. Because of an intra-corporate dispute in JAPIL. as a stockholder of JAPIL. from the allegations stated in th e complaint. Inc. Will such suit p rosper? Reasons. that fact that a complaint has been filed against him does no t negate and nullify the intra-corporate nature of the cause of action. Presidential Dec ree 902-A (repeated by R. 326 SCRA 147). 2005 notes:A case instituted by a bank against one of its st ockholders to collec t loans obtained by the latter. The deter mination of whether or not a shareholder is entitled to exercise the above-menti oned rights falls withi n the jurisdiction of the SEC (now RTC) However. then among stockholders. CA. falls under the jurisdiction of the Regional Trial Court. and therefore. CA. wh ich the Manager of OIL s regional office in Manila doubles as the General Manage r of JAPIL. nor the type of proceedings initiated. JAPIL. (Note: Answered under R. does not mean that it cannot file a suit in Philippine courts for lack of a lic ense t o engage in business in the Philippines. CA. CA.a substantial investment in a Philippine joint venture company. is an assertion by JAPIL of it s propri etary right as a stockholder and does not amount to engaging in busines s in the Philippines. within the jurisdiction of the Sec urities and Exchange Commission (now RTC) (Pilipinas vs. The acts complained of are in the nature of an intracorporate dispu te since it involves fraud against the corporation committed by the President. against the other stoc kholders of JAPIL. 8799). 8799) did not confer upo n the SEC absolute jurisdic tion and control over all matters affecting corporati . 293 SCRA 634). a foreign juridical person. and actions brought by on e stockholder cognizable by the Regional Trial C ourt. 388 SCRA 574). although with foreign stockholders. but rather. 2005 notes:The charge is estafa under the Revised Penal code.A. is an intra-corpo rate controversy or di spute arising from intra-corporate relations. the dispute is automatically consi dered intra-corporate in nat ure and jurisdiction consequently falls with the SEC (now RTC).

13 old law : 57 new law) 2. vs. (Sec. CIVIL LIABILITIES 1. it is beyond the ambit of the limited jurisdiction of the SEC ( Int estate vs. Attorney s fees not exceeding 30% of the award. (Sec. 59. not merely status of the parties involved. Respondent Zosa s amended complaint focus es heavily of the illegality of the E mployment Agreement s Arbitration Clause a nd under Republic Act No. Civil liabilities fo r Fraud in connection with securities transactions (58) 4. 181 SCRA 245. it is th e regional trial court which exercises jurisd iction over questions relating to arbitration (Magellan vs. 876. malevolen ce or wantonness in vi olating the Code. 60) 6. regardless of the nature of the transaction which gave rise to such dispute s (Peneyra. 61) LIMITATION OF ACTION No action shall be maintain ed to enforce any civil liabilities unless brought wi thin 2 years after discove ry of the untrue statement under Sec. Este del sol. 56. 57. CA. fraud. 12 : 56) 3. 56 or 57. 60 & 61 shall be jointly and sever ally liabl e for the payment of the damages. 356 SCRA661). The court is authorized to award damages in an amount not exceeding tr iple th e amount of the transaction plus actual damages. CA. Civil liabilities with respect to Commod ity Future Contract and Pre-Need Plan s (Sec. citing DMRC vs. 355 SCRA 157). or wit hin 5 years after the sec urity was bona fide offered to the public under same se ctions 56 & 57 DAMAGES A WARDED 1. Exemplary damages ma y also be awarded in cases of bad faith. The controversy does not in anyway involve the election/appoin tment of officers of petitioner MC HC. 58. Civil liabilities on accoun t of Insider Trading. When the nature of the controversy involves matters that are purely civ il in character. co mmunications and s ports. The better policy in determining which body has jurisdiction over this case wou l d be to consider.ons. Civil liabilities for Manipulation of Security Price (59) 5. 2. Zosa. 2005 notes:It is error for the petitioners to c laim that the case should fall un der the jurisdiction of the Securities and Exc hange Commission. 3. (Sec. (Sec. Civil liabilities arising in connection with prospectus.2) . 132 SCRA 293). 63. The persons specified in Sec. IAC. Civil liabilities on account of False Registration Statement. but likewise the na ture of the question that is subject of the controversy (Viray vs. otherwise k nown as the Arbitration Law. 191 SC RA 309).

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all actions or mat ters necessary and desira ble to rehabilitate the debtor including. th ere is a quorum (Chas vs. Thus. 90 2-A. as long as. extraordinary corporate actions as may be marked out.D. aliena tion. under let ter (b). . or encumbrance of assets of the debt or. amendments to the articles of incorporations and by-laws or articles of partnership. 2006 notes: Re habilitation are effected either through a receiver or through man agement commi ttee. if any extraordi nary corporate action is to be done under the proposed reh abilitation plan. but not limi ted to. as and whe n called for. and two. the filing of the petition has been duly authorized. in accordance with existing laws. transfer. all actions or matters nec essary and desirable to rehabilitate the corpo rate debtor. partnership and associations under P. The phrase i n accordance with existing laws obviously wo uld refer to that which is. to state that the filing of the petitio n has been duly authorized . one. the petitioner would be bound to make it known hat it has rece ived the approval of a majority of the directors and the affirmative votes of st ockholders represen ting at least 2/3 of the outstanding capital stock of the cor poration. intended to be done by the co rporation in the pursuit of its plan f or rehabilitation. 397 SCRA 84).REHABILITATION The RTC has jurisdiction over petitions for rehabilitation filed by corporation filed by corporations. the directors and stockholders have irrevocably app roved and/or consented t o. The contents of petition for Corporate Rehabilitation are provided under Rule 4. an d second. including. and modification of shar eholder s rights observe that aforesaid rule prescr ibes the need for a certificati on. in accordance with existing laws. increase or d ecrease in the authorized capital stock. not necessarily a 2/3 vote. issuance of bonded indebtedness. to confirm that the directors and stockhol ders have irrevocable approved a nd/or consented to. of course. Section 2(k) of the Interim Rules on corporate Rehabilitation which state that first under letter (a) . and over c ases for rehabilitation transferred from the SEC. or to tho se that are. Talavera. Where no such extraordinary corporate acts (or one that under the law would call for a 2 /3 vote) are contemplated then the approval of stockholders wo uld only be by a majority.

XYZ Corporation. XYZ Corporation. it cannot be used as an instrument for the destru ction of t hose rights (Ibid. Necessarily. I will instead direct XYZ Corporation to file its claim wit h the rehab ilitation receiver appointed by SEC. Would you permit the foreclosure? Why? (1984 Bar). respondent continues to exist as a c orporation and hence. It is the duty of the receiver to adm inister the a ssets of the receivership estate. nor does it inter fere with the exercise of its corporate rights. the RTC shall order a stay in the enforcement of al l claims within 5 days from filing the pet ition for rehabilitation) Section 6(b) of Rule 4 of the Interim rules does not enjoin the enforcement of a ll claims against guarantors and sureties. 00-8-10-SC. 333 SC RA 799). a mortgage creditor. w hat argumen t would you raise to resists the foreclosure? If you were the hearing officer of the Securities and Exchange Commission (now Judge of RTC).). If I were th e hearing officer of the SEC I will not permit the foreclosure south by XYZ Corp oration. In this case where there appears to be no restraints imposed upon respondent as it undergoes rehabilitation rece ivership. brought before the rehabilitation receiver. Respondent s cl aim that the banks are not solidarily liable with the debtor does not find suppo rt i n jurisprudence. continues or should continue to perform its contractual an d statutory responsibilities to pe titioners as homeowners (Ibid. he acts in a fiduciary capac ity and with im partially towards all interested persons (Arranza vs. will al so have to be held n abeyance. BF. and at making more secu re. by a quasi-judicial administrative agency (now RTC). I will raise the argument tha t the appointment of a rehabilitation receiver p roduces the effect of suspending all actions pending before any court. or in th is instan ce. The appointment of a receiver does not dissolve a corporation. existing rights. if it were left in the poss ession of any of the parties. body or t ribunal against ABC Corporation. and in the management and dispos ition of the p roperty committed to his possession. like foreclosure in the problem at bar.M. but only those claims against guaran t ors and sureties who are not solidarily liable wit the debtor. any action brought. ABC Corporation defaulted in the payment of its debt to XYZ Corporation. in behalf of all the pa rties for the purpose of preserving and conserving the property and p reventing i ts possible its possible destruction or dissipation. The participating bank s obligation is solidary with respo ndent i . Bar:During t he pendency of the case. Answer: If I were the counsel for ABC Corporation . 2006 notes:Receivership is aimed at the preservation of. and the claim for credit by the foreclosing cred i tor.). Thereupon. (Note Under A.RECEIVER 4blue 95 notes: A receiver is a person appointed by the court.

Third Bank had already fi led a suit against the principal stockholders who had h eld themselves liable jo intly and severally for the loans of Debtor Corporation with said Bank. Bar Question: Debtor Corporation and its principal stockholders filed with the S ecurities and Exchange Commission (SEC) a petition for rehabilitation and decla r ation of a state of suspension of payments under P. . T hese are the same characteristics of a surety or solidary obligor (Metropolit an vs. The suspension order applies to all claims including secured creditor s and regardless of the stage thereof. part nership and association. Would the order of su spension have any effect on the foreclosure proceedings initiated by Second Bank ? d. What measures may the receiver take to preserve the assets o Debtor Corpor ati on? (1999 Bar) Answer: a. b. 432 SCRA 559). Daway. 902-A. The SEC (now RTC) order of suspension of payment applies to the judicial proc eedings initiated by the F irst Bank. the objective was f or SEC o take control of the corporation and all its assets and liabilities. CA 290 SCRA 198.D. rule 4 of the Interim Rules on Corporate Rehabilita tion provides that such a petition can only be file in the RTC by a corporation. the SEC directed the appointment of a rehabilitation receiver and ordered the suspension of all actions and claims against the Debtor Corporation as well as against the principal stockholders. definite and an absolute of the debtor s assets.n that it is a primary. however. The RTC has no jurisdiction to entertain a petition for rehabilitation by privat e indi viduals. Ge nerally. Would the order of suspension have any effect on the suit filed by Third ba nk ? Explain. First Bank had already initiated judicial foreclosure proceedin gs on the mortgag e constituted on the factory of Debtor Corporation. Discuss the validity of the SEC order of suspension? b. or associations (Modern paper Products vs. It logically follows that the SEC does not have jurisdi ction to entertain petiti ons for rehabilitation filed by parties other than cor porations. expressed serious objections a nd reservations.). The order of suspension is valid but only with res pect to the Debtor Corporat ion and not with the principal stockholders. After he aring. the unsecured creditors had manifested willingness to cooperate with De btor Corporation. The secured creditors. partnership. CA. Second Ban k had already initiated judicial foreclosure proceedings on the mortga ge consti tuted on certain assets of the principal stockholders. as Section 1. What are the legal consequences of a rehabilitation receivershi p? f. c. direct. e. a. 286 SCRA 749 reiterated in Union Ba nk vs. discuss the effects of the SEC order of suspension on the jud icial foreclosur e proceedings initiated by First Bank. ear nings and operation and to determine the feasibility of continuing operation s an d rehabilitating the company for the benefit of investors and creditors.

7) to notify counterparties and court as to contracts the debtor has decided t o continue to perform or breach. The R ehabilitation Receiver shall not take over the management and control of th e de btor but shall closely oversee and monitor the operations of the debtor duri ng the pendency of the proceedings. they do not benefit from the stay order by the court. partnerships or associations u nder receivership pending before any court shall be suspended accordingly. 2) to monitor operation s of debtor and immediately report to court any material adverse change in busin ess. control and custody of debtor s asset . as the foreclosure does not pertain to corporate properties but t o properties belonging to stockholders acting as sureties or co-principals. liabilities. all actions for clams agai nst corporations. . f) Among the powers of the receiver are: 1) to investigate acts. He shall also implement the rehabilitation plan after its approval. The order of suspension shall have no effect on the foreclosure proceedings b y Second Bank. and operations of de btor. d) The order of suspension shall have no effect on the suit filed by third Bank against the stockholders. He shall be considered an officer of the court. conduct. e) Upon the appointment of a rehabilitation recei ver. transfer or dispositio n of d ebtor s property outside the ordinary course of business or what is allow ed by cou rt. 6) to take possession. 5) to prohibit and report to court any payments outside ordinary c ourse of busin ess. for being sureties of the stay of the enforcement of a ll claims a gainst the Debtor Corporation. liabilities and financial condition of the debtor.c. 3) to evaluate existing assets. an d being such. primarily tasked to study the be st way to rehabilitate the debtor and ensure t hat the value of debtor s property i s maintained pending determination of wheth er or not to rehabilitate the debtor. earnings. 4) to prohibit and report to court any encumbrance. proper ties.

an individual is given ample time to l iquidate his assets so that he may be able to meet his obligations when they fa l l due. 90 2-A. partnership and association (Sec. Rule 4 of Interim Rules on Corporate Rehabilitation) A corporation seeking rehabilitation is not insolvent but merely illiquid. Distinguish the stay order in corporate rehabilitation from a declaration in a s tate of suspension o f payment (2003 Bar) AS TO PARTIES: In suspension of payments. foresees the impossibility of meeting them when they fall due. having sufficient asset to meet his obliga t ions. In stay order in corporate rehabilitation. or (2) in cases where it has no sufficient assets to cover i ts liabilities. however. It ha s sufficient asses and properties. the justification for the au tomatic s tay of all pending actions for claims is to enable the management comm ittee or t he rehabilitation to effectively exercise its/his powers free from an y judicial . possessing sufficient property to over his debts. as amended. partnerships and associa tions pursuant to PD No. it is a remedy available under the Ins olvency Law to a natural person who. but is under the management of Rehabilitation /receiver or Manag ement Committee created pursuant to Sec. 5 (d) P. It could not. AS TO PURPOSE: In suspension of payments. (b) Cases for rehabilitation transferred from the Securities an d Exchange Commis sion to the Regional Trial Courts. and there fo re presents a proposal to pay his obligations on dates later than the due dat es. muster 3/5 of its liabilities and 2/3 of the number of its creditors to act favorably on its intention to del ay payments. foresees the impossibility of meeting th em when they fall due. In stay order in corporate rehabilitation. the petition can only be filed by a corporation. 902-A. (a) Petitions for rehabilita tion filed by corporations. AS TO CASES COVERED: In suspension of payments. but could not convert them into cash at the m aturity of its obligations. 1. the following are the two (2) grounds for filing such a petition.Bar Question: When is the remedy of declaration in a state of suspension of paym ents available to a corporation? (2003 Bar) The remedy is available to a corpor ation. In stay order. for individuals who. partnership or association where (1) it possesses sufficient property to over all its debts but foresees the impo ssibility of meeting them when they res pectively fall due.D.

and which presently is under receivership. The issue is whether or not the Department of Labor and E mployment. Premiere. partnerships or associ . 2005 Notes: Pursuant to R. Since rehabilitation proceedings ar e summary and non-adversarial in natur e. Rule 41 of the 1997 rules Implemented of B. Could the cour t approve the plan despite the objection of the creditors of X Corporation and c ould the creditors be compelled to follow the plan? Could Y Corporation. It is merely a poling of resources for a limited period for the purpose of assisting X Corpo r ation to obtain funds. Among t he actions suspended are those for money claims before labor tribunals. with supporting affidavits and docu ments. be deemed to have tak en-over X Corporation itself? (2003 Bar) Answer: Yes. Y C orporation is not deemed to have taken over X Corporation by the mere fact th at a joint venture agreement has been made between the two of them. of th Such suspension is intended to give enough breathing space for the management co mmittee or rehabilitation receiver to make the business viable again. solicited by a financing comp any with an expired authority. Any order issued by the cour t is immediately executory. like the N ational Labor Relations commission and the labor arbiters (Rubberworld vs. with the entire indebtedness to be liquidated in 15 yeas. NL RC. 129 for special pro ceedings shall apply. 336 SCRA 433) 2005 notes: An action to recover amounts of money. the perio d of appeal shall be for intra-corpo rate disputes appeals shall be governed by Section 3. the court can approve the plan. the Labor Ar biter and the National Labor relations Commission may le gally act on the claims of respondents despite the order of the Securities and E xchange Commission suspe nding all actions against a company under rehabilitatio n by a management committ ee created by the Securities and Exchange Commission. hence the credito rs may be compelled to follow. Presidential Decree 902-A is clear that all actions for claims against corporati ons. the court may decide on matters merely on the basis of affidavits and other d ocumentary evidence of X Corporation. is co g nizable by SEC (now RTC).P Blg. Bar Question: X Corporation applied for its rehabilitation and submitted a rehab ilitation plan which called for the entry by it into a joint venture agreement w ith Y Corporation. 8799. Y Corporation was to lend to X Corpora ti on its credit facilities with certain banks to obtain funds not only to opera te X Corporation but also for a part thereof in the amount of P1 million as init ial deposit in a sinking fund to be augmented annually in amounts equivalent to 10% of the yearly income from its operation of the business of X Corporation. Under the agreement. 209 SCRA 260). the y must file and serve upon X Corporation th eir comments or oppositions to the p etition.or extrajudicial interference that might unduly hinder or prevent the rescue e d ebtor company. Shou ld the creditors oppose the plan. i n mana ging the business of X Corporation in the meantime. The creditors of X Corporation objected to the plan because Y Corpor ati on would be taking over the business and assets of X Corporation. starting f rom the second yea of operations. and the claim should be filed with said receiver (Ma ga lad vs. Fr om this fund the creditors of X Corporation were to be paid annually. without h a ving to divert attention and resources to litigations in various form.A.

while danger means peril or exposure to loss or inj ury (Ibid. tribunal. [d]) reveals that for a minority stockholder to obtain the appointment of an interim management commi t tee. the officer or t ribunal before whom the application was made must take in to account all the circ umstances and facts of the case.). he must do more than merely make a prima facie showing of a denial of his r ight to share in the concerns of the corporation. or director of a corpo ration. The law did not make any exception in f avor of labor claims (Rubberworld vs. loss wastage or destruction of corporate assets. The power to hear and dec ide labor disputes is deemed suspended when the Securit ies and Exchange Commiss ion puts the corporation under rehabilitation (Ibid). 410 SCRA 140) A reading of the aforecited legal provision (Sec. the presum ption to be considered is that the officer or tribunal has fairly weighed and ap praised the evidence submi tted by the parties (Jacinto vs. cannot join the corporation as a co-petitioner to a suit for suspension . Once the discretion has been exercised. 2005 notes:A private person. and placed in th e hands of the management committee. It is only in a strong case where there is a showing that th e ma jority are clearly violating the chartered rights of the minority and putti ng th eir interest in imminent danger that a management committee may be created (Ibid . the ends of justice. 20 05 notes:The appointment of the interim management committee is fully warrante d by the circumstances. who are prim a facie entitl ed to administer the affairs of the corporation. where the dissension among stockho lders is such t hat the corporation cannot successfully carry on its corporate f unctions the app ointment of management committee becomes imperative (Ibid. First. The discretion must be exercised with great caution and circumspection and only for a reason strongly appearing to the tribunal or offi cer exercising jurisdicti on. supra). boar d or body shall be suspended accordingly. management of corporat e business sh ould not be wrestled away from duly elected officers. 6. The word imminent has been defined as impend in g or on the point of happening . the presence of conditi ons and grounds justifyi ng the relief. At least where there is no imminent danger of loss of co rporate prop erty or of any other injury to stockholders.). 2005 notes:Mere disagreement among stockholders as to the affairs of the corpora tion would not in itself suffice as a ground for the appointment of a management committee.). NLRC. as there is imminent danger of dissipation. par. MANAGEMENT COMMITTEE: In exercising the discretion to appoint a management commi ttee. he must shoe that the corpo rat e property is in danger of being diverted from the purpose for which it has been his detriment.ations under management or receivership pending before any court. not a stockholder. the rights of all t he parties interested in the controversy and the adequacy and effectiveness of o ther available remedies. officer. However.

CA. The terms of the agreement were accordingly implement ed and the corres ponding close corporation was incorporated. 8799. boar d or body shall be suspended accordingly.of payments filed with the SEC (now RTC) (Traders vs. upon written petition by any stockholder. (1995 Bar) Answer: a) According to Section 104 of the NCC. partnership.D. the outstanding capit al stock of wh ich the three of them would equally own. without having to divert attention and resou rc es to litigations in various for a. What are the rem edies available to Robert under the Corporation Code to break the deadlock? Expl ain. The petition was gr anted and a rehabilitation rec eiver appointed. Rey a nd Ben could not agree on the business in which to invest the funds of the corpo ration. it filed with the Securi ties and Exchange Commission (no w RTC) a petition for suspension of payments wit h a prayer for the appointment of a rehabilitation receiver.A. (Note: Under A. supra). 902-A while the petition to break the deadlock is pend ing l itigation? Explain. tribunal. After three (3) ye ars. with the consequences that the busine ss and affairs of the corporat ion can no longer be conducted to the advantage of the stockholder generally. board of body pursuant to t his Decree. Robert. if the directors are so divided respecti ng the management of corporation s business and affairs that the votes required fo r any corporate action cannot b e obtained. b. 2005 no tes: Presidential Decree 902-A. like the National Labor Relations Commissio n (NLRC) and the labor arbiters (Rubberworld vs. Are there any remedies to prevent the paralyzation of the business avail able to Robert under P. the RTC shall order a stay in the enforcement of all claims within 5 days from filing the petition for reh abilitation) Bar Question: Robert. Anticipati ng that it would be unable to pay maturing obligations. Kurangking. Philippine v s. Robert wants he deadlock broken. Robert may petition SEC to arbitrate the dispute in the case at bar can thereafter appoint a receiver who s hall ensure the preservation of the corporation and existing rights. provides that upon the appoin tment of a management committee. Hence. Such suspension is intended to giv e e nough breathing space for the management committee or rehabilitation receiver to make the business viable again. th e SEC. 00-08-10-SC. (Note: Under R. s hall have the power to arbitr ate the dispute.M. a. They also provided there in that any cor porate act would need the vote of seventy percent (70%) of the o utstanding capit al stock. or as soci ations under management or receivership pending before any court. rehabilitation receiver. the petition fo r rehabilitation must be filed with the R TC) 2005 notes: ABC Corporation has be en experiencing liquidity problems. among the actions suspended are those for mo ney claims before labor tribunals. NLRC 305 SCRA 721. as amended . 177 SCRA 788). Rey and Ben executed a joint venture agreemen t to form a c lose corporation under the Corporation code. . all actions for claims against corporations.

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