Mercantile Law - Divina PDF

2019 PRE-WEEK BAR LECTURE IN MERCANTILE LAW
Dean Nilo T. Divina

Faculty of Civil Law
University of Santo Tomas
Banking and Special Commercial Laws
What is a letter of credit?
A letter of credit is any arrangement, however named or described, whereby a bank, acting upon the request of its client or on its own behalf, agrees
to pay another against stipulated documents, provided that the terms of the credit are complied with.
Doctrine of Independence
By this doctrine, the relationships among: a) the issuing bank and the beneficiary; b ) the issuing bank and the applicant; and, c ) the beneficiary and
the applicant while interrelated are separate, distinct and independent of one another.
Thus, in determining the obligation of the issuing bank to pay the beneficiary, the issuing bank has no obligation to verify whether or not the main
contract has been fulfilled or not. The issuing bank is liable to pay the beneficiary upon the latter’s submission of the stipulated documents and
compliance with the terms of the credit regardless of any breach of contract by the beneficiary to the applicant of the l/c. Conversely, the right of the
issuing bank to obtain reimbursement from the applicant of the l/c is not adversely affected by the non-fulfillment by the beneficiary of its obligation
to the applicant.
Where is the doctrine of independence derived?
Article 17 of UCP 400 explains that under this principle, an issuing bank assumes no liability or responsibility "for the form, sufficiency, accuracy,
genuineness, falsification or legal effect of any documents, or for the general and/or particular conditions stipulated in the documents or superimposed
thereon..." Thus, as long as the proper documents are presented, the issuing bank has an obligation to pay even if the buyer should later on refuse
payment. To allow issuing bank to refuse to honor the Letter of Credit simply because it could not collect first from the buyer is to countenance a
breach of the Independence Principle. (The Hongkong & Shanghai Banking Corporation, Limited, Petitioner, V. National Steel Corporation And
Citytrust Banking Corporation (Now Bank Of The Philippine Islands); G.R. No. 183486, February 24, 2016)
SMC accredited B as one its dealers authorized to sell SMC beer products. As required by the terms of the dealership, B obtained a credit line
from ABC Bank and that in case of purchase by B from SMC, the latter may draw on the credit line and such drawdown shall be considered
loan availments on the part of B. The obligation of B under the dealership agreement secured by a letter of credit issued by ABC Bank. B
failed to pay certain purchase orders. SMC filed an action for collection against B and ABC Bank. The Court rendered judgment finding B
solely liable to pay SMC and omitted by inadvertence to insert in its decision the phrase “without prejudice to the decision that will be made
against ABC, may the Bank avoid responsibility on this ground?
No. The obligation of B to pay under its agreement with SMC is distinct and independent from the right of SMC to draw on the letter of credit. Under
the independence principle, the seller or beneficiary is assured of prompt payment independent of any breach of the main contract and precludes the
issuing bank from determining whether the main contract is actually fulfilled or not.
Fraud Exception Principle
The fraud exception principle is an exception to the doctrine of independence. Under the fraud exception principle, the beneficiary may be enjoined
from collecting on the letter of credit if the following elements are present: a) there is fraud on the part of the beneficiary, b ) fraud must be in relation
to the independent purpose or character of the credit, c ) unless the beneficiary is restrained, the applicant shall suffer grave and irreparable injury.
For the fraud exception principle to serve as an exception to the doctrine of independence, the fraud must not be in relation to the performance of the
main contract but in relation to the independent purpose or character of the credit.
Doctrine of Strict Compliance
Under this doctrine, the documents that the beneficiary should submit to the issuing bank or confirming bank must strictly conform to the documents
stipulated. If there is discrepancy, the issuing bank is not liable to pay. If it pays despite discrepant documents, it pays at its own risk and cannot obtain
reimbursement from the applicant.
It is not a question of whether or not it is fair or equitable to require submission of documents but whether or not the documents were agreed upon.
In which case, all such documents must be submitted.
TRUST RECEIPTS LAW
What is a Trust Receipt?
Trust receipt is a transaction between the entruster and the entrustee whereby the entruster who owns or holds absolute title or security interest
over certain goods, documents and instruments, releases the same to the possession of the entrustee upon the latter’s execution and delivery of a trust
receipt wherein the entrustee binds himself to hold the designated goods, documents and instruments in trust for the entruster and to sell or otherwise
dispose of the goods or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the
entruster or to return them to the entruster in case of non- sale.
No. In a trust receipt transaction, the entrustee has the obligation to deliver to the entruster the price of the sale, or if the merchandise is not sold, to
return the merchandise to the entruster. There are, therefore, two obligations in a trust receipt transaction: the first refers to money received under
the obligation involving the duty to turn it over to the owner of the merchandise sold, while, the second refers to the merchandise received under the
obligation to "return" it to the owner. BSP can not foreclose the real estate mortgage that secures the loan under a promissory note if what was assigned
to BSP is the PN with Trust Receipt Agreement, not the REM. (Bangko Sentral Ng Pilipinas V. Agustin Libo-On; G.R. No. 173864, November 23,
2015)
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Distinguish letter of credit from trust receipt
A letter of credit is any arrangement, however named or described, whereby a bank, acting upon the request of its client or on its own behalf, agrees
to pay another against stipulated documents, provided that the terms of the credit are complied with.
Then, add the following:

1. There are two basic parties in a trust receipt; the entruster and the entrustee whereas there are the parties to a letter of credit; the applicant or
account party who is the importer in a commercial letter of credit or the obligor in a standby letter of credit, the beneficiary who is the exporter in
a commercial letter of credit and obligee in a standby letter of credit and the issuing bank. Additional parties may be involved depending on the
need to engage a correspondent bank
2. In a letter of credit, the failure of the account party to reimburse the issuing bank will only give rise to civil liability whereas the failure of the
entrustee to deliver the proceeds of the sale of the goods under TR or to return the same in case of non-sale will give rise to criminal liability
Are all obligations of the entrustee criminal in nature?
No. only the failure of the entrustee to deliver the proceeds of the sale of the goods or instruments subject of the trust receipt up to the extent of the
amount owing to the entruster or to return the goods. Such violation constitutes estafa. Under recent jurisprudence, however, the penal sanction under
the trust receipts law does not apply in case the goods are not intended for sale or resale or to manufacture items intended for sale or resale, such as
when they are for actual use.
Transaction considered a loan even though denominated as a trust receipt
1. If the entrustee is already the owner or in possession of the goods before delivery of the loan and execution of the trust receipt agreement, the
transaction shall be considered a simple loan even though the parties may have denominated the agreement as one of trust receipt. To be in the
nature of the trust receipt, the entruster should have financed the acquisition or importation of the goods. The funds should have been delivered
before or simultaneously with delivery of the goods.
2. If the goods subject of the trust receipt are not intended for sale or resale
3. Sale of goods by a person in the business of selling goods, for profit, who at the outset of the transaction has as against the buyer general property
rights in such goods and the seller agrees to hold the proceeds of the sale of such goods to his creditor under a supposed trust receipt transaction.
D owns 100 sacks of rice which he sold to B. D obtained a loan from C secured by the proceeds of sale of the rice from B which D agrees to
hold in trust for C. D and C denominated their transaction as one of trust receipt. Is such transaction a trust receipt within the ambit of the
trust receipt law?
No. There is no trust receipt, notwithstanding the label, if goods offered as security for loan accommodation are goods owned and sold by the seller
who, at the outset of the transaction, has against the buyer general property rights over such goods.
Remedies available to the entruster in case of violation of the trust receipt agreement
1. File a criminal action for estafa in case of failure of the entrustee to deliver the proceeds of the sale of the goods under trust receipt up to the
extent of his obligation to the entruster. The civil action may be instituted in the criminal action or separately filed independently of the criminal
action. The criminal action is based on ex-delictu for violation of the law while the civil action is based on ex-contractu for violation of the trust
receipt agreement.
2. Cancel the trust and take possession of the goods at any time upon default of the entrustee. After repossession, the entruster may sell the goods
upon at least five day notice to the entrustee and apply the proceeds in payment of the obligation. The entrustee is liable for deficiency or
entitled to excess, if any.
3. If a surety secures the obligation of the entrustee in addition to the trust receipt, the law does not obligate the entruster to cancel the trust or
take possession of the goods. He can proceed against the surety. The options belong to the entruster
BANKING LAWS
Monetary Board Powers
It is settled that "the power and authority of the Monetary Board to close banks and liquidate them thereafter when public interest so requires is an
exercise of the police power of the State. Police power, however, is subject to judicial inquiry. It may not be exercised arbitrarily or unreasonably and
could be set aside if it is either capricious, discriminatory, whimsical, arbitrary, unjust, or is tantamount to a denial of due process and equal protection
clauses of the Constitution."
Nothing in Section 30 of RA 7653 requires the BSP, through the Monetary Board, to make an independent determination of whether a bank may still
be rehabilitated or not. As expressly stated in the afore-cited provision, once the receiver determines that rehabilitation is no longer feasible, the
Monetary Board is simply obligated to: (a) notify in writing the bank's board of directors of the same; and (b) direct the PDIC to proceed with
liquidation. (Apex Bancrights Holdings, Inc., Lead Bancfund Holdings, Et Al., vs. Bangko Sentral Ng Pilipinas and Philippine Deposit Insurance
Corporation; G.R. No. 214866. October 2, 2017)
Distinguish conservator from receiver
A conservator is appointed if the bank is in a continuing state of illiquidity (meaning, its assets are more than liabilities but are not in cash or readily
convertible to cash) whereas a receiver is generally appointed if the bank is insolvent.
A conservator takes charge of the assets, liabilities and management of the bank in distress whereas a receiver shall immediately gather and take
charge of all the assets and liabilities of the institution, administer the same for the benefit of its creditors, and exercise the general powers of the
receiver under the Rules of Court.
A conservator has one year from appointment to rehabilitate the bank whereas the receiver has 90 days to do so, otherwise, they shall recommend to
the MB the liquidation of the bank.
The court has no authority to appoint a conservator or receiver for a bank in financial distress or place it under a management committee. Such
authority is lodged with the BSP.
©2019 Dean Nilo T. Divina, All Rights Reserved

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Resolution of the BSP issued in the exercise of its quasi-judicial functions like imposing sanctions for violations of banking laws or regulations or
appointing a receiver or conservator or closing a bank is not subject to declaratory relief.
Requisites to assail the order of BSP appointing a receiver/conservator or closing a bank.
The order of conservatorship (receivership or closure) may be assailed: a ) by the stockholders representing at least majority of the outstanding capital
stock; b ) within ten days from receipt by the board of directors of the order; c ) thru a petition for certiorari with the Court of Appeals on the ground
that the action taken by BSP was in excess of jurisdiction or with grave abuse of discretion as to amount to lack of jurisdiction.
RTC, acting as a liquidation court, has no power to overrule the findings of the MB. It can not pass upon the issue of whether or not the order of closure
is valid. In fact, the liquidation court’s authority is limited to adjudicating disputed claims against the institution, assisting the enforcement of individual
liabilities of the stockholders, directors and officers and deciding on other issues to implement the liquidation plan. The exclusivity of the MB’s power
is highlighted by the absence of appeal from its actions under section 30 of RA 7653. MB’s actions are final and executory and can only be set aside by
filing a petition for certiorari within 10 days from receipt by the bank’s board of directors of the MB’s order directing the receivership, liquidation or
conservatorship (Yuseco vs PDIC, as the statutory liquidator of the Unitrust Development Bank; GR No. 217899, September 28, 2016.)
LAW ON SECRECY OF PHILIPPINE CURRENCY BANK DEPOSITS (RA 1405)
Laws on secrecy of bank funds
Republic Act 1405 which expressly provides that “all deposits of whatever nature with banks or banking institutions … are hereby considered as of an
absolutely confidential nature and may not be examined, inquired or looked into by any person, government official, bureau or office,” except upon the
limited instances provided therein.
The Foreign Currency Deposits Act (R.A. 6426) which provides that: “All foreign currency deposits … are hereby declared as and considered of an
absolutely confidential nature and, except upon the written permission of the depositor, in no instance shall foreign currency deposits be examined,
inquired or looked into by any person, government official, bureau or office whether judicial or administrative or legislative, or any other entity whether
public or private … ”
The General Banking Act which provides that “[n]o director, officer, employee, or agent of any bank shall … [w]ithout order of a court of competent
jurisdiction, disclose to any unauthorized person any information relative to the funds or properties in the custody of the bank belonging to private
individuals, corporations, or any other entity …” (Section 55.1(b)).
In what cases may information on Philippine currency bank deposits, as well as investment in government securities, be disclosed,
examined or looked into without violating the law?
1. written permission of the depositor
2. in case of impeachment
3. in case of order of a competent court in any of the following cases :
i. in case of bribery or dereliction of duty of public officials
ii. where the subject matter of litigation is the money deposited
iii. prosecution for unexplained wealth ( plunder is akin to unexplained wealth )
iv. prosecution for violation of the anti-graft and corrupt practices act
v. in case of prima facie violation of the anti-money laundering law
NOTE: Disclosure can only be made to the anti-money laundering council. Bank inquiry order is not necessary if the predicate crime is
kidnapping, hijacking, arson, murder and violation of the dangerous drugs law or terrorism
vi. garnishment of bank deposits
NOTE further that the TRAIN law removed the provision on the authority of BIR to look into the deposits of deceased taxpayer for the purpose of
computing tax on the estate since withdrawal of such deposits is subject to 6% withholding tax.
4. The BIR may also inquire into bank deposits if there is an offer of compromise of tax liability on account of financial incapacity to verify such
representation of the taxpayer
5. Under the Unclaimed Balances law, the bank may disclose to the National Treasurer information concerning dormant deposits for the purpose of
initiating escheat proceedings.
6. In case the law is repealed, superseded or modified by any law to the contrary.
May the bank disclose information about Philippine currency bank deposits pursuant to a writ of garnishment?
The Bank may disclose information about Philippine currency bank deposits pursuant to a writ of garnishment. The disclosure in this case is only
incidental to the execution process. There is nothing in the records of Congress that would show the intention of legislature to place Philippine currency
bank deposits beyond the reach of judgment creditor.
Foreign currency deposits, however, are exempt from garnishment or any court or administrative process. However, the exemption of foreign currency
deposits from court order and administrative processes cannot be invoked in case of violation of the anti-money laundering law, or if property or
funds are related to financing of terrorism or acts of terrorism or by a person who is not the owner of the FCDU account or against a co-owner of the
account or by a transient for any purpose contrary to that intended by law, which is to encourage foreign currency deposits to beef up our international
reserves.
The inquiry into bank deposits allowable under RA 1405 must be premised on the fact that the money deposited in the account is itself the subject of
the action. Where the information filed in court charged respondent with qualified theft, the subject matter of litigation is the money alleged to have
been stolen by the respondent. Thus, where the subject matter of the testimonial and documentary evidence is not at all relevant to the case, the
suppression of such testimony is valid, otherwise, it constitutes an attempt by the prosecution at an impermissible inquiry into a bank deposit account,
the privacy and confidentiality of which is protected by law. (BSB Group Inc vs. Go; GR No. 168644, February 16, 2010)
Republic Act 6426 is a special law designed especially for foreign currency deposits in the Philippines. RA 1405 which covers all bank deposits in the
Philippines is the general law which does not nullify the special law on foreign currency deposits. The surety which issued a bond to secure the
obligation of the principal debtor can not inquire into the foreign currency deposits of the debtor even if its purpose is to determine whether or not
the loan proceeds were used for the purpose specified in the surety agreement. The foreign currency deposits can not be examined without the consent
of the depositor. The subpoena issued by the bank should be quashed because foreign currency deposits are not subject to court order except for
violation of the anti-money laundering law. (GSIS vs. Court of Appeals; GR 189206, June 8, 2011)

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Section 2 of R.A. No. 1405, the Law on Secrecy of Bank Deposits provides for exceptions when records of deposits may be disclosed. These are under
any of the following instances: (a) upon written permission of the depositor, (b) in cases of impeachment, (c) upon order of a competent court in the
case of bribery or dereliction of duty of public officials or, (d) when the money deposited or invested is the subject matter of the litigation, and (e) in
cases of violation of the Anti-Money Laundering Act, the Anti-Money Laundering Council may inquire into a bank account upon order of any competent
court. The Joint Motion to Approve Agreement executed by the parties on waiver of confidentiality of its bank deposits does not bind the depositor
who was not a party and signatory to the said agreement. (Doña Adela Export International, Inc. vs. Trade And Investment Development
Corporation; G.R. No. 201931, February 11, 2015)
GENERAL BANKING ACT
What is a BANK?
A bank is an entity engaged in the lending of funds obtained from the public in the form of deposits.
A transaction involving not a loan but purchase of receivables at a discount within the purview of investing, reinvesting, or trading in securities which
an investment company may perform is not banking. What is prohibited is for investment company to lend funds obtained from the public through
receipts of deposit which is a banking function.
Prohibited Acts
1. Single borrower’s limit

2. Loans granted to its directors, officers, stockholders and their related interests must comply with certain requirements, otherwise, the erring
DOSRI may be held criminally and administratively liable.
What do you mean by the single borrower’s limit?
Unless otherwise prescribed by the MB, the total amount of loans, credit accommodations and guarantees that may be extended by a bank to a single
borrower shall not exceed 25% of the net worth of such bank. The amount may be increased by an additional 10% of the bank’s net worth provided
that the additional liabilities are adequately secured by documents of title covering readily marketable and non-perishable goods.
What are the rules governing transactions where DOSRI may incur contractual obligation with their banks?
No director or officer of any bank shall, directly or indirectly, for himself or as the representative or agent of others, borrow from such bank nor shall
become a guarantor, indorser or surety for loans from such bank to others, or in any be an obligor or incur any contractual liability to the bank except
with the written approval of at least majority of all the directors of the bank excluding the director concerned. The required approval shall be entered
upon the records of the bank and a copy of such entry shall be transmitted forthwith to the appropriate supervising and examining department of BSP.
The outstanding loans, credit accommodations and guarantees which a bank may extend to the DOSRI shall be limited to an amount equivalent to their
respective unencumbered deposits and book value of their paid-in capital contribution to the Bank.
A loan transaction that does not comply with the rules on DOSRI and/or Single Borrower’s limit is valid but without prejudice to criminal
prosecution against the parties responsible for the violation.
PHILIPPINE DEPOSIT INSURANCE CORPORATION
In one case, an investor placed his funds in a money market placement with a finance company. On maturity, the invested funds can not be paid owing
to the insolvency of the finance company but the latter referred the investor to its bank- affiliate which thereafter issued a certificate of deposit to the
same investor. The deposit was likewise not paid because the bank eventually closed. The investor filed an insurance claim covering the supposed
deposit. PDIC denied it. The legality of the denial was thereafter assailed. The High Court sustained the PDIC, ruling that the liability of PDIC is statutory.
It is based on the actual receipt by the bank of deposits not on a mere certification on the existence of deposit. (PDIC vs Court of Appeals 283 SCRA
462)
In another case, PDIC also denied the insurance claim when it discovered that the money allegedly placed with the insured bank was actually credited
to the personal account of the bank President and the certificates of time deposit ( CTD) were not duly issued by the bank but were mere replicas of
unissued CTDs in the inventory submitted by the bank with PDIC. The Supreme Court found no grave abuse of discretion on the part of PDIC, holding
that PDIC’s acts were consistent with law. (Spouses Chugani vs Philippine Deposit Insurance Corporation, GR No. 230037, March 19, 2018)
Deposit accounts not entitled to payment
PDIC shall not pay deposit insurance for the following accounts or transactions whether denominated, documented, recorded or booked as deposit by
the bank; IFUL investment products such as bonds and securities, trust accounts, and other similar instruments; deposit accounts or transactions
which are unfunded, or that are fictitious or fraudulent deposit accounts or transactions constituting unsafe and unsound banking practices as
determined by PDIC, in consultation with BSP, after due notice and hearing, and publication of a cease and desist order issued by the PDIC against such
deposit accounts or transactions; and deposits that are determined to be the proceeds of an unlawful activity as defined under the Anti-Money
Laundering law
Prohibition against splitting of deposits

Splitting of deposits occurs whenever a deposit account with an outstanding balance of more than the statutory maximum amount of insured deposit
maintained under the name of natural or juridical persons is broken down and transferred into two or more accounts in the name/s of natural or
juridical persons or entities who have no beneficial ownership on transferred deposits in their names within 120 days immediately preceding or
during a bank declared holiday or immediately preceding a closure order by the BSP for the purpose of availing of the maximum deposit insurance
coverage. Such splitting of deposit is punishable by imprisonment and/or fine.
In one case, the Supreme Court even held that monies deposited by individuals who benefitted from the unlawful splitting of deposits are considered
laundered funds. (Philippine Deposit Insurance Corporation vs. Gidwani, GR No. 234616, June 20, 2018)
Prohibition against issuance of TRO

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No court, except the Court of Appeals, shall issue any temporary restraining order, preliminary injunction or preliminary mandatory injunction against
PDIC for any action on its part under the PDIC charter. The Supreme Court may issue a temporary restraining order or injunction when the matter is
of extreme urgency involving a constitutional issues such that unless a TRO is issued, grave injustice or irreparable injury will arise.
The actions of PDIC with respect to determination of insured deposit accounts shall be final and executory and may not be set aside or restrained by
the court except on petition for certiorari on the ground that the action was taken in excess of jurisdiction or with grave abuse of discretion as to
amount to lack or excess of jurisdiction. The petition for certiorari may only be filed within 30 days from notice of denial of claim for deposit insurance.
(So vs Philippine Deposit Insurance Corporation, GR No. 230020, March 19, 2018 ).
The Regional Trial Court has no jurisdiction to nullify the action of PDIC in denying insurance claim. (Spouses Chugani vs PDIC, ibid. )
ANTI-MONEY LAUNDERING LAW (RA 9160, as amended by RA 10365)
Who are the covered institutions/persons under the Anti-Money Laundering law?
1. Institutions supervised or regulated by BSP;

2. Institutions supervised and regulated by the Insurance Commission; and,
3. Entities dealing in currency, commodities or financial derivatives based thereon valuable objects, cash substitutes and other similar monetary
instruments or property supervised and regulated by the Securities and Exchange Commission
4. “(4) jewelry dealers in precious metals, who, as a business, trade in precious metals, for transactions in excess of One million pesos (P1,000,000.00);
5. “(5) jewelry dealers in precious stones, who, as a business, trade in precious stones, for transactions in excess of One million pesos (P1,000,000.00);
6. “(6) company service providers which, as a business, provide any of the following services to third parties: (i) acting as a formation agent of
juridical persons; (ii) acting as (or arranging for another person to act as) a director or corporate secretary of a company, a partner of a partnership,
or a similar position in relation to other juridical persons; (iii) providing a registered office, business address or accommodation, correspondence
or administrative address for a company, a partnership or any other legal person or arrangement; and (iv) acting as (or arranging for another
person to act as) a nominee shareholder for another person; and
7. “(7) persons who provide any of the following services:
(i) managing of client money, securities or other assets;
(ii) management of bank, savings or securities accounts;
(iii) organization of contributions for the creation, operation or management of companies; and
(iv) creation, operation or management of juridical persons or arrangements, and buying and selling business entities.
“Notwithstanding the foregoing, the term ‘covered persons’ shall exclude lawyers and accountants acting as independent legal professionals
in relation to information concerning their clients or where disclosure of information would compromise client confidences or the attorney-
client relationship: Provided, That these lawyers and accountants are authorized to practice in the Philippines and shall continue to be subject
to the provisions of their respective codes of conduct and/or professional responsibility or any of its amendments.”
NB Single cash transaction involving an amount in excess of P 5 million or its equivalent in any other currency is a covered
transaction. (RA 10927)
Obligations of covered institutions/persons
1. Customer identification
2. Record keeping (records should be kept and safely stored for five years from date of the transaction)
3. Reporting of covered and suspicious transactions
When is Money Laundering committed?
Money laundering is a crime whereby the proceeds of an unlawful activity are transacted thereby making them appear to have originated from
legitimate sources. It is committed by the following:
Money laundering is committed by any person who, knowing that any monetary instrument or property represents, involves, or relates to the proceeds
of any unlawful activity:
“(a) transacts said monetary instrument or property;
“(b) converts, transfers, disposes of, moves, acquires, possesses or uses said monetary instrument or property;
“(c) conceals or disguises the true nature, source, location, disposition, movement or ownership of or rights with respect to said monetary
instrument or property;
“(d) attempts or conspires to commit money laundering offenses referred to in paragraphs (a), (b) or (c);
“(e) aids, abets, assists in or counsels the commission of the money laundering offenses referred to in paragraphs (a), (b) or (c) above; and
“(f) performs or fails to perform any act as a result of which he facilitates the offense of money laundering referred to in paragraphs (a), (b) or
(c) above.
Money laundering is also committed by any covered person who, knowing that a covered or suspicious transaction is required under this Act to be
reported to the Anti-Money Laundering Council (AMLC), fails to do so.”
What is the meaning of safe harbor provision under AMLA?
No administrative, criminal or civil proceedings shall lie against any person for having made a covered transaction or suspicious transaction report
in the regular performance of his duties and in good faith, whether or not such reporting results in any criminal prosecution under the AMLA or any
other Philippine law.
Bank inquiry and freeze orders
For the trial court to issue a bank inquiry order, it is necessary for the AMLC to be able to show specific facts and circumstances that provide a link
between an unlawful activity or a money laundering offense, on the one hand, and the account or monetary instrument or property sought to be
examined on the other hand. (Republic of the Philippines, Represented by the Anti-Money Laundering Council v. Jocelyn I. Bolante, Et Al.; G.R.
No. 186717, April 17, 2017, Sereno)

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Section 11 of the AMLA providing for ex-parte application and inquiry by the AMLC into certain bank deposits and investments does not violate
substantive due process, there being no physical seizure of property involved at that stage. It is the preliminary and actual seizure of the bank deposits
or investments in question which brings these within reach of the judicial process, specifically a determination that the seizure violated due process.
SPCMB's constitutional right to procedural due process is likewise not violated by the ex-parte application and inquiry by the AMLC into certain bank
deposits and investments. AMLC does not possess quasi-judicial powers and hence, it has no adjudicatory power. AMLC's investigation of money
laundering offenses and its determination of possible money laundering offenses, specifically its inquiry into certain bank accounts allowed by court
order, does not transform it into an investigative body exercising quasi-judicial powers.
Taken into account Section 11 of the AMLA, the Court found nothing arbitrary in the allowance and authorization to AMLC to undertake an inquiry
into certain bank accounts or deposits. Instead, the Court found that it provides safeguards before a bank inquiry order is issued, ensuring adherence
to the general state policy of preserving the absolutely confidential nature of Philippine bank accounts:
a. The AMLC is required to establish probable cause as basis for its ex-parte application for bank inquiry order;
b. The CA, independent of the AMLC's demonstration of probable cause, itself makes a finding of probable cause that the deposits or investments
are related to an unlawful activity under Section 3(i) or a money laundering offense under Section 4 of the AMLA;
c. A bank inquiry court order ex-parte for related accounts is preceded by a bank inquiry court order ex-parte for the principal account which
court order ex-parte for related accounts is separately based on probable cause that such related account is materially linked to the principal
account inquired into; and
d. The authority to inquire into or examine the main or principal account and the related accounts shall comply with the requirements of Article
III, Sections 2 and 3 of the Constitution.
Bound by these requirements for issuance of a bank inquiry order under Section 11 of the AMLA, the Court are hard pressed to declare that it violates
SPCMB's right to privacy.
1. Nonetheless, although the bank inquiry order ex-parte passes constitutional muster, there is nothing in Section 11 nor the implementing rules and
regulations of the AMLA which prohibits the owner of the bank account, as in this instance SPCMB, to ascertain from the CA, post issuance of the
bank inquiry order ex-parte, if his account is indeed the subject of an examination. Considering the safeguards under Section 11 preceding the
issuance of such an order, the Court find that there is nothing therein which precludes the owner of the account from challenging the basis for the
issuance thereof.
This allowance to the owner of the bank account to question the bank inquiry order is granted only after issuance of the freeze order physically seizing
the subject bank account. It cannot be undertaken prior to the issuance of the freeze order.
All told, the Court affirm the constitutionality of Section 11 of the AMLA allowing the ex-parte application by the AMLC for authority to inquire into,
and examine, certain bank deposits and investments.
The ex-parte inquiry shall be upon probable cause that the deposits or investments are related to an unlawful activity as defined in Section 3(i) of the
law or a money laundering offense under Section 4 of the same law. To effect the limit on the ex-parte inquiry, the petition under oath for authority to
inquire, must, akin to the requirement of a petition for freeze order enumerated in Title VIII of A.M. No. 05-11-,04-SC, contain the name and address
of the respondent; the grounds relied upon for the issuance of the order of inquiry; and the supporting evidence that the subject bank deposit are in
any way related to or involved in an unlawful activity.
If the CA finds no substantial merit in the petition, it shall dismiss the petition outright stating the specific reasons for such denial. If found meritorious
and there is a subsequent petition for freeze order, the proceedings shall be governed by the existing Rules on Petitions for Freeze Order in the CA.
From the issuance of a freeze order, the party aggrieved by the ruling of the court may appeal to the Supreme Court by petition for review on certiorari
under Rule 45 of the Rules of Court raising all pertinent questions of law and issues, including the propriety of the issuance of a bank inquiry order.
The appeal shall not stay the enforcement of the subject decision or final order unless the Supreme Court directs otherwise. (Subido Pagente Certeza
Mendoza and Binay Law Offices, Petitioner, - Versus - The Court of Appeals, Et Al.; G.R. No. 216914, December 6, 2016)
CORPORATION LAW
Nationality of Corporations
What the Constitution requires is full and legal beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the
voting rights which must rest in the hands of Filipino nationals. (Jose M. ROY III V. Chairperson Teresita Herbosa,et Al.: G.R. No. 207246, April
18, 2017)
The FIA clarifies, reiterates and confirms the interpretation that the term "capital" in Section 11, Article XII of the 1987 Constitution refers to shares
with voting rights, as well as with full beneficial ownership. This is precisely because the right to vote in the election of directors, coupled with full
beneficial ownership of stocks, translates to effective control of a corporation. (Jose M. Roy III, Petitioner,- Versus - Chairperson Teresita Herbosa,
Et Al.; G.R. No. 207246, November 22, 2016)
Test to determine the nationality of a corporation
1. Place of incorporation test - This means that the nationality of the corporation is determined by the place of incorporation. Under this test
then, a corporation is a Philippine national if it is organized and existing under Philippine laws regardless of the nationality of the the
shareholders. This test is applied if the corporation is not engaged in areas of activities reserved in whole or in part for Filipinos.
2. Control test - It is a mode of determining the nationality of a corporation engaged in nationalized areas of activities provided for under the
Constitution and other laws, where corporate shareholders with foreign shareholdings are present, by ascertaining the nationality of the
controlling stockholder of the corporation. If the capital of the investing Corporation is at least 60% owned by Filipinos, then the entire
shareholdings of the investing Corporation shall be recorded as Filipino-owned thus making both the investing and investee -corporations
Philippine national.
3. Grandfather rule - This is the method by which the percentage of Filipino equity in a corporation engaged in nationalized and/or partly
nationalized areas of activities, provided for under the Constitution and other nationalization laws, is accurately computed, in cases where
corporate shareholders with foreign shareholdings are present, by attributing the nationality of the second or even subsequent tier of
ownership to determine the nationality of the corporate shareholder.” Thus, to arrive at the actual Filipino ownership and control in a

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corporation, both the direct and indirect shareholdings in the corporation are determined. In the case of a multi-tiered corporation, the stock
attribution rule must be allowed to run continuously along the chain of ownership until it finally reaches the individual stockholders.
Common conditions for the application of the control test and grandfather rule
1. The corporation is engaged in economic activities which are reserved in whole or in part for Filipinos, otherwise known as nationalized
activities.
2. Stockholders include corporation/s. If stockholders are all natural persons, the nationality of the corporation, under this test, is ascertained
by simply computing the percentage of stock ownership by Filipino and foreigners. By way of example, in case of corporation engaged in
advertising, the capital of which, under the Philippine Constitution, is required to be 70% owned by Filipinos, it shall be considered a Philippine
national if the Filipino stockholders own at least 70% of total shares issued.
3. Foreign stockholders are present either by owning shares directly in the corporation or owning shares in a corporation which invested in the
equity of the corporation whose nationality is in issue.
What is the prevailing mode of determining the nationality of corporations engaged in a nationalized activities ?
The "control test" is the prevailing mode of determining whether or not a corporation is Filipino. The grandfather rule since the test is only employed
when the 60% Filipino ownership in the corporation is in doubt. (Leo Y. Querubin, Maria Corazon M. Akol, and Augusto C. Lagman V. Commission
On Elections En Banc, Represented By Chairperson J. Andres D. Bautista, Et. Al.; G.R. No. 218787, 08 December 2015)
However, when in the mind of the Court there is doubt as to where beneficial ownership- and control reside, based on the attendant facts and
circumstances of the case, , then it may apply the “grandfather rule.” (Narra Nickel Mining And Development Corp.Vs. Redmont Consolidated
Mines Corp.; G.R. No. 195580, 21 April 2014.)
In fact, the Control Test can be, as it has been, applied jointly with the Grandfather Rule to determine the observance of foreign ownership restriction
in nationalized economic activities. The Control Test and the Grandfather Rule are not, as it were, incompatible ownership-determinant methods that
can only be applied alternative to each other. Rather, these methods can, if appropriate, be used cumulatively in the determination of the ownership
and control of corporations engaged in fully or partly nationalized activities.
Indicators creating doubts that demand the application of the Grandfather Rule in addition to or in tandem with the Control test
1. That the foreign investors provide practically all the funds for the joint investment undertaken by these Filipino businessmen and their
foreign partner;
2. That the foreign investors undertake to provide practically all the technological support for the joint venture;
3. That the foreign investors, while being minority stockholders, manage the company and prepare all economic viability studies.
In one case, , the Supreme Court found serious doubt as to the true nationality of the corporations involved due to the following: 1) the presence of a
common major investor, a one hundred percent Canadian corporation, in three mining corporations; 2) the similarities of the corporate structures of the
corporations; 3) the presence of the same nominal shareholders in the corporations; and 4) the paid-in capital of the corporate owners being paid only
by the foreign investor, among many other indicators showing the desire to circumvent the nationality requirement in mining activities. Corporate
owners controlled by Filipinos did not pay for any of their subscribed shares, while the foreign investor contributed 99.75% of each of the corporation’s
paid-up capital. This fact creates serious doubt as to the true extent of foreigners’ control and ownership over the corporations since “a
reasonable investor would expect to have greater control and economic rights than other investors who invested less capital than him.” Thus, the
application of the Grandfather Rule is justified. (Narra Nickel Mining and Development Corp., Tesoro Mining And Development, Inc., and
Mcarthur Mining, Inc. Vs. Redmont Consolidated Mines Corp.: G.R. No. 195580, 28 January 2015)
When is the grandfather rule applied?
1. If the investing corporation is less than 60% owned by Filipinos.

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2. If, based on records, Filipinos own at least 60% of the investing corporation but there is doubt as to where control and beneficial ownership in
the corporation really reside.
3. In case of multi-layered corporation/s but the ultimate beneficial shareholdings shows less than 60 percent ownership by Filipinos
Under the Grandfather Rule Proper, if the percentage of Filipino ownership in the corporation or partnership is less than 60%, only the number of
shares corresponding to such percentage shall be counted as of Philippine nationality.” Under the Strict Rule or Grandfather Rule Proper, the combined
totals in the Investing Corporation and the Investee Corporation must be traced (i.e., “grandfathered”) to determine the total percentage of Filipino
ownership.
Corporate Juridical Personality
1. Doctrine of Separate Juridical Personality
Stockholders are not themselves the real parties in interest to claim and recover compensation for the damages arising from the wrongful attachment
of its assets. Their stockholdings represented only their proportionate or aliquot interest in the properties of the corporation, but did not vest in them
any legal right or title to any specific properties of the corporation. (Stronghold Insurance Company, Inc. v. Tomas Cuenca, Marcelina Cuenca,
Milagros Cuenca, Bramie T. Tayactac, and Manuel D. Maranon, Jr. G.R. No. 173297, March 6, 2013)
Directors and officers of the corporation can not be personally liable for obligations incurred by the corporation unless it can be shown that such
directors and officers are guilty of gross negligence or have assented to a patently unlawful act. (Mactan Rock Industries vs. Germo, GR No. 228799,
January 10, 2018)
Instead of holding the decedent's interest in the corporation separately as a stockholder, the probate court ordered the lessees of the corporation to
remit rentals to the estate's administrator without taking note of the fact that the decedent was not the absolute owner of Primrose but only an owner
of shares thereof.
Furthermore, the probate court in this case has not acquired jurisdiction over Primrose and its properties. Piercing the veil of corporate entity applies
to determination of liability not of jurisdiction.. Hence, before this doctrine can be even applied, based on the evidence presented, it is imperative that
the court must first have jurisdiction over the corporation. A corporation not impleaded in a suit cannot be subject to the court's process of piercing
the veil of its corporate fiction. Resultantly, any proceedings taken against the corporation and its properties would infringe on its right to due process.
(Manuela Azucena Mayor, Petitioner, - Versus - Edwin Tiu And Damiana Charito Marty, Respondents; G.R. No. 203770, Second Division,
November 23, 2016)
Piercing the corporate veil based on the alter ego theory requires the concurrence of three elements: control of the corporation The absence of any of
these elements prevents piercing the corporate veil.
1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in
respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its
own
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal
duty, or dishonest and unjust act in contravention of plaintiff’s legal right; and
3. The aforesaid control and breach of duty must have proximately caused the injury or unjust loss complained of.
(Development Bank of the Philippines Vs Hydro Resources Contractors Corporation; G.R. No. 167603)
Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a rule, only
when —
1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (c) for conflict of
interest, resulting in damages to the corporation, its stockholders or other persons;

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2. He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written
objection thereto;
4. He agrees to hold himself personally and solidarity liable with the corporation; or
5. He is made, by a specific provision of law, to personally answer for his corporate action.
(Pioneer Insurance Surety Corporation V. Morning Star Travel & Tours, Inc., Et. Al.; G.R. No. 198436, 08 July 2015)
Board of Directors and Officers
The following officials or employees of the company can sign the verification and certification without need of a board resolution: (1) the Chairperson
of the Board of Directors, (2) the President of a corporation, (3) the General Manager or Acting General Manager, (4) Personnel Officer, and (5) an
Employment Specialist in a labor case. The rationale behind the rule is that these officers are "in a position to verify the truthfulness and correctness
of the allegations in the petition." (Gabriel Yap, Sr. Duly Represented By Gilbert Yap Vs. Letecia Siao; G.R. No. 212504, June 1, 2016)
Doctrine of Apparent Authority
The doctrine of apparent authority provides that a corporation will be estopped from denying the agent’s authority if it knowingly permits one of its
officers or any other agent to act within the scope of an apparent authority, and it holds him out to the public as possessing the power to do those acts.
The doctrine of apparent authority does not apply if the principal did not commit any acts or conduct which a third party knew and relied upon in
good faith as a result of the exercise of reasonable prudence. Moreover, the agent’s acts or conduct must have produced a change of position to the
third party’s detriment. (Advance Paper Corporation And George Haw Vs Arma Traders Corporation, Manuel Ting, Et Al.; G.R. No 176897,
December 11, 2013)
Under the doctrine of apparent authority, a bank is liable to the seller who transferred ownership of his property in favor of its buyer after the seller
relied on the letter of the bank manager that the buyer had an approved real estate loan with the bank and guaranteed that subsequent releases from
the loan would be made directly to the seller but the manager released the loan instead to the buyer who, however, failed to pay the seller. (Games
and Garment Developers vs Allied Banking Corporation; GR No. 181426, July 13, 2015)
No. The Resolution by the Board of Directors of PRHTC cannot be construed to authorize Catajan to enter into a contract with PNCDC since the
Resolution provides that Catajan’s authority is limited only to dealing with FEPI and not with PNCDC. The doctrine of apparent authority finds no
application in this case. The board of directors, not the president, exercises corporate power. While in the absence of a charter or bylaw provision to
the contrary the president is presumed to have authority, the questioned act should still be within the domain of the general objectives of the
company's business and within the scope of his or her usual duties. Here, PRHTAI is an association of professional horse trainers in the Philippine
horse racing industry organized as a non-stock corporation and it is committed to the uplifting of the economic condition of the working sector of the
racing industry. It is not in its ordinary course of business to enter into housing projects, especially not in such scale and magnitude so massive as to
amount to P101,150,000.00. (Philippine Race Horse Trainer's Association, Inc. V. Piedras Negras Construction and Development Corporation;
G.R. No. 192659, December 02, 2015, Peralta, J.)
POWERS OF CORPORATION
a. Ultra Vires Acts
Acts of an officer that are not authorized by the board of directors/trustees do not bind the corporation unless the corporation ratifies the acts or holds
the officer out as a person with authority to transact on its behalf.
Petitioner does not have the power to mortgage its properties in order to secure loans of other persons. Securing FISLAI's loans by mortgaging
petitioner's properties does not appear to have even the remotest connection to the operations of petitioner as an educational institution. Not having
the proper board resolution to authorize Saturnino Petalcorin to execute the mortgage contracts for petitioner, the contracts he executed are
unenforceable against petitioner. According to respondent, the annotations of respondent's mortgage interests on the certificates of titles of
petitioner's properties operated as constructive notice to petitioner of the existence of such interests. Hence, petitioners are now estopped from
claiming that they did not know about the mortgage. However, annotations are merely claims of interest or claims of the legal nature and incidents of
relationship between the person whose name appears on the document and the person who caused the annotation. It does not say anything about the
validity of the claim or convert a defective claim or document into a valid one. Thus, annotations are not conclusive upon courts or upon owners who
may not have reason to doubt the security of their claim as their properties' title holders. (University Of Mindanao, Inc., Petitioner, V. Bangko Sentral
Pilipinas, Et Al.,Respondents; G.R. No. 194964-65, January 11, 2016)
How Exercised
A. By the Board of Directors

The creation of the position is under the corporation's charter or by-laws, and that the election of the officer is by the directors or stockholders must
concur in order for an individual to be considered a corporate officer, as against an ordinary employee or officer. It is only when the officer claiming
to have been illegally dismissed is classified as such corporate officer that the issue is deemed an intra-corporate dispute which falls within the
jurisdiction of the trial courts.
Here, it is apparent from the By-laws of WUP that the president was one of the officers of the corporation, and was an honorary member of the Board.
He was appointed by the Board and not by a managing officer of the corporation. We held that one who is included in the by-laws of a corporation
in its roster of corporate officers is an officer of said corporation and not a mere employee.
The alleged "appointment" of Maglaya instead of "election" as provided by the by-laws neither convert the president of university as a mere
employee, nor amend its nature as a corporate officer. With the office specifically mentioned in the by-laws, the NLRC erred in taking cognizance of
the case, and in concluding that Maglaya was a mere employee and subordinate official because of the manner of his appointment, his duties and
responsibilities, salaries and allowances, and considering the Identification Card, the Administration and Personnel Policy Manual which specified
the retirement of the university president, and the check disbursement as pieces of evidence supporting such finding.

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A corporate officer's dismissal is always a corporate act, or an intra-corporate controversy which arises between a stockholder and a
corporation, and the nature is not altered by the reason or wisdom with which the Board of Directors may have in taking such action. (Wesleyan
University-Philippines V. Guillermo T. Maglaya, Sr.; G.R. No. 212774, January 23, 2017)
Stockholders and Members
1. Participation in Management
A. Proxy
The power of the SEC to investigate violations of its rules on proxy solicitation is unquestioned when proxies are obtained to vote on matters
unrelated to the cases enumerated under Section 5 of Presidential Decree No. 902-A. However, when proxies are solicited in relation to the election of
corporate directors, the resulting controversy, even if it ostensibly raised the violation of the SEC rules on proxy solicitation, should be properly seen
as an election controversy within the original and exclusive jurisdiction of the trial courts by virtue of Section 5.2 of the SRC in relation to Section 5 (c)
of Presidential Decree No. 902-A. Indeed, the validation of proxies in this case relates to the determination of the existence of a quorum.Nonetheless,
it is a quorum for the election of directors and as such, the SEC therefore has no jurisdiction over the dispute but the RTC.
xxxx
(Securities And Exchange Commission Vs. The Honorable Court Of Appeals, Omico Corporation, G.R. No. 189014 October 22, 2014)
Proprietary Rights
A. Right to Inspect
The revocation of a corporation's Certificate of Registration does not automatically warrant the extinction of the corporation itself such that its rights
and liabilities are likewise altogether extinguished. In the case of Clemente v. Court of Appeals, the Court explained that the termination of the life of a
juridical entity does not, by itself, cause the extinction or diminution of the rights and liabilities of such entity nor those of its owners and creditors.
Thus, the revocation of BMTODA's registration does not automatically strip off Ongjoco of his right to examine pertinent documents and records
relating to such association. (Alejandro· D.C. Roque V. People of the Philippines; G.R. No. 211108, June 7, 2017, Tijam, J.)
The rights and remedies against, or liabilities of, the officers shall not be removed or impaired by reason of the dissolution of the corporation.
Corollarily then, a stockholder's right to inspect corporate records subsists during the period of liquidation. In the case at bar, the petitioners were
charged with violations of Section 74, in relation to Section 144, of the Corporation Code, a special law. Accordingly, since Joselyn was deprived of the
exercise of an effective right of inspection, offenses had in fact been committed, regardless of the petitioners' intent. (Alfredo L. Chuaversus -
People Of The Philippines, Respondent.; G.R. No. 216146, August 24, 2016, Third Division)
It must be emphasized that Section 144 already purports to penalize "[v]iolations" of "any provision" of the Corporation Code "not otherwise
specifically penalized therein." Hence, we find inconsequential the fact that Section 74 expressly mentions the application of Section 144 only to a
specific act, but not with respect to the other possible violations of the former section.
Indeed, we find no cogent reason why Section 144 of the Corporation Code cannot be made to apply to violations of the right of a stockholder to inspect
the stock and transfer book of a corporation under Section 74(4) given the already unequivocal intent of the legislature to penalize violations of a
parallel right, i.e., the right of a stockholder or member to examine the other records and minutes of a corporation under Section 74(2). Certainly, all
the rights guaranteed to corporators under Section 74 of the Corporation Code are mandatory for the corporation to respect. All such rights are just
the same underpinned by the same policy consideration of keeping public confidence in the corporate vehicle thru an assurance of transparency in
the corporation's operations.
A perusal of the second and fourth paragraphs of Section 74, as well as the first paragraph of the same section, reveal that they are provisions
that obligates a corporation: they prescribe what books or records a corporation is required to keep; where the corporation shall keep them; and what
are the other obligations of the corporation to its stockholders or members in relation to such books and records. Hence, by parity of reasoning, the
second and fourth paragraphs of Section 74, including the first paragraph of the same section, can only be violated by a corporation.
It is clear then that a criminal action based on the violation of the second or fourth paragraphs of Section 74 can only be maintained against corporate
officers or such other persons that are acting on behalf of the corporation. Violations of the second and fourth paragraphs of Section 74 contemplates
a situation wherein a corporation, acting thru one of its officers or agents, denies the right of any of its stockholders to inspect the records, minutes
and the stock and transfer book of such corporation.
The proprietary right of STRADEC to be in possession of such records and book.though certainly legally enforceable by other means, cannot be enforced
by a criminal prosecution based on a violation of the second and fourth paragraphs of Section 74. (Aderito Z. Yujuico And Bonifacio C. Sumbilla Vs.
Cezar T. Quiambao And Eric C. Pilapil; G.R. No. 180416, 02 June 2014, Perez J. (Second Division)
The Corporation Code has granted to all stockholders the right to inspect the corporate books and records, and in so doing has not required any specific
amount of interest for the exercise of the right to inspect. Ubi lex non distinguit nee nos distinguere debemos. When the law has made no distinction,
we ought not to recognize any distinction.
Neither could the petitioner arbitrarily deny the respondent's right to inspect the corporate books and records on the basis that her inspection would
be used for a doubtful or dubious reason. Under Section 74, third paragraph, of the Corporation Code, the only time when the demand to examine and
copy the corporation's records and minutes could be refused is when the corporation puts up as a defense to any action that "the person demanding"
had "improperly used any information secured through any prior examination of the records or minutes of such corporation or of any other corporation,
or was not acting in good faith or for a legitimate purpose in making his demand."
The right of the shareholder to inspect the books and records of the petitioner should not be made subject to the condition of a showing of any
particular dispute or of proving any mismanagement or other occasion rendering an examination proper, but if the right is to be denied, the burden of
proof is upon the corporation to show that the purpose of the shareholder is improper, by way of defense.
Among the purposes held to justify a demand for inspection are the following: (1) To ascertain the financial condition of the company or the propriety
of dividends; (2) the value of the shares of stock for sale or investment; (3) whether there has been mismanagement; (4) in anticipation of shareholders'
meetings to obtain a mailing list of shareholders to solicit proxies or influence voting; (5) to obtain information in aid of litigation with the corporation
or its officers as to corporate transactions. Among the improper purposes which may justify denial of the right of inspection are: (1) Obtaining of

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information as to business secrets or to aid a competitor; (2) to secure business "prospects" or investment or advertising lists; (3) to find technical
defects in corporate transactions in order to bring "strike suits" for purposes of blackmail or extortion.
While there is some conflict of authority, when an inspection by a shareholder is contested, the burden is usually held to be upon the corporation to
establish a probability that the applicant is attempting to gain inspection for a purpose not connected with his interests as a shareholder, or that his
purpose is otherwise improper. The burden is not upon the petitioner to show the propriety of his examination or that the refusal by the officers or
directors was wrongful, except under statutory provisions. (Terelay Investment and Development Corporation V. Cecilia Teresita J. Yulo; G.R.
No. 160924, 05 August 2015, First Division)
Remedial Rights
A. Intra-Corporate Controversy
SECTION 1. (a) Cases Covered – These Rules shall govern the procedure to be observed in civil cases involving the following:
a) Devices or schemes employed by, or any act of, the board of directors, business associates, officers or partners, amounting to fraud or
misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, or members of any corporation,
partnership, or association;
b) Controversies arising out of intra-corporate, partnership, or association relations, between and among stockholders, members, or
associates; and between, any or all of them and the corporation, partnership, or association of which they are stockholders, members, or associates,
respectively;
c) Controversies in the election or appointment of directors, trustees, officers, or managers of corporations, partnerships, or associations;
d) Derivative suits; and
e) Inspection of corporate books.
The designation of the said branch as a Special Commercial Court by no means diminished its power as a court of general jurisdiction to hear and
decide cases of all nature, whether civil, criminal or special proceedings. There is no question, therefore, that the Makati RTC, Branch 149 erred in
dismissing the petition for injunction with damages, which is clearly an ordinary civil case. As a court of general jurisdiction, it still has jurisdiction
over the subject matter thereof.
A petition that deals with the conflicting claims of ownership over the lots where Concorde Condominium Building stands and the parking lot for unit
owners, as well as the purported violations of the National Building Code which resulted in the revocation of the building and occupancy permits by
the Building Official. Clearly, as the suit between petitioner and respondents neither arises from an intra-corporate relationship nor does it pertain to
the enforcement of their correlative rights and obligations under the Corporation Code, and the internal and intra-corporate regulatory rules of the
corporation, Branch 149 correctly found that the subject matter of the petition is in the nature of an ordinary civil action. The designation of the said
branch as a Special Commercial Court by no means diminished its power as a court of general jurisdiction to hear and decide cases of all nature,
whether civil, criminal or special proceedings. There is no question, therefore, that the Makati RTC, Branch 149 erred in dismissing the petition for
injunction with damages, which is clearly an ordinary civil case. As a court of general jurisdiction, it still has jurisdiction over the subject matter thereof.
(Concorde Condominium, Inc., By Itself And Comprising The Unit Owners Of Concorde Condominium Building, V. Augusto H. Baculio, Et Al.;
G.R. No. 203678, February 17, 2016)
In Gonzales v. GJH Land, Inc., 774 SCRA 242 (2015), we laid down the guidelines to be observed if a commercial case filed before the proper RTC is
wrongly raffled to its regular branch.. (Forest Hills Golf and Country Club, Inc. vs. Fil-Estate Properties, Inc.; G.R. No. 206649 July 20, 2016,
Second Division, Del Castillo, J.)
The regional trial courts are courts of general jurisdiction because “[a]ll cases, the jurisdiction over which is not specifically provided for by law to be
within the jurisdiction of any other court, fall under the jurisdiction of the regional trial court.”
Jurisdiction over intracorporate disputes belongs to regional trial courts in general and not to particular branches of said courts. In the words of the SC,
“one must be disabused of the notion that the transfer of jurisdiction was made only in favor of particular RTC branches, and not to the RTCs in general.”
Guidelines
The ruling also applies to other commercial cases, such as for rehabilitation, liquidation in insolvency and intellectual property cases, that may have been
filed with or raffled to the wrong court.
For the guidance of the bench and the bar, this case provided guidelines not only for intracorporate disputes but also for other commercial cases as
follows:
1. If a commercial case filed before the proper RTC is wrongly raffled to its regular branch, the proper courses of action are as follows:
1.1 If the RTC has only one branch designated as a Special Commercial Court, then the case shall be referred to the Executive Judge for re-docketing
as a commercial case, and thereafter, assigned to the sole special branch;
1.2 If the RTC has multiple branches designated as Special Commercial Courts, then the case shall be referred to the Executive Judge for re-
docketing as a commercial case, and thereafter, raffled off among those special branches; and
1.3 If the RTC has no internal branch designated as a Special Commercial Court, then the case shall be referred to the nearest RTC with a designated
Special Commercial Court branch within the judicial region. Upon referral, the RTC to which the case was referred to should re-docket the case as
a commercial case, and then:
(a) If the said RTC has only one branch designated as a Special Commercial Court, assign the case to the sole special branch; or
(b) if the said RTC has multiple branches designated as Special Commercial Courts, raffle off the case among those special branches.
2. If an ordinary civil case filed before the proper RTC is wrongly raffled to its branch designated as a Special Commercial Court, then the case shall be
referred to the Executive Judge for re-docketing as an ordinary civil case. Thereafter, it shall be raffled off to all courts of the same RTC (including its
designated special branches which, by statute, are equally capable of exercising general jurisdiction same as regular branches), as provided for under
existing rules.
3. All transfer/raffle of cases is subject to the payment of the appropriate docket fees in case of any difference. On the other hand, all docket fees already
paid shall be duly credited, and any excess, refunded.

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4. Finally, to avert any future confusion, all initiatory pleadings must state the action’s nature both in its caption and body. Otherwise, the initiatory
pleading may, upon motion or by order of the court motu proprio (on its own), be dismissed without prejudice to its re-filing after due rectification.
This last procedural rule is prospective in application.
Intra-Corporate Controversies
Civil cases involving the inspection of corporate books are governed by the rules of procedure set forth in the Interim Rules of Procedure for Intra-
Corporate Controversies under Republic Act No. 8799 (Interim Rules). In order to assail the decision or order issued under the Interim Rules on Intra-
corporate controversy, the order must be sought from the appellate court via petition for review and not petition for certiorari to enjoin the
enforcement or implementation of the decision or order, and unless a restraining order is so issued, the decision or order rendered under the Interim
Rules shall remain to be immediately executory. (Dee Ping Wee vs Lee Hiong Wee,; G.R. No. 169345, August 25, 2010)
A controversy between the condominium corporation and its members-unit owners for alleged unsound business practices and violation of the master
deed of restriction does not fall within the jurisdiction of the HLRUB despite its expansive jurisdiction. It is considered an intra-corporate controversy
falling within the jurisdiction of the Regional Trial Court designated as special commercial court. (Lim vs. Distinction Properties Development and
Construction; GR no. 194024, April 25, 2012)
A complaint for damages filed by a member of the subdivision homeowners association for the harm he suffered when another member maliciously
closed a portion of the plaintiff’s drainage pipe which led to the overflowing of his septic tank is not an intra corporate controversy following nature
of the controversy test. (Gulfo v. Ancheta, G.R. No. 175301, August 15, 2012)
The mere fact that a corporation's shares of stocks are owned by a sequestered corporation does not, by itself, automatically categorize the matter as
one involving sequestered assets, or matters incidental to or related to transactions involving sequestered corporations and/or their assets.
To determine whether or not a case involves an intra-corporate dispute, two tests are applied — the relationship test and the nature of the controversy
test.
Under the relationship test, there is an intra-corporate controversy when the conflict is (a) between the corporation, partnership, or association and
the public; (b) between the corporation, partnership, or association and the State insofar as its franchise, permit, or license to operate is concerned;
(c) between the corporation, partnership, or association and its stockholders, partners, members, or officers; and (d) among the stockholders, partners,
or associates themselves.
On the other hand, in accordance with the nature of controversy test, an intra-corporate controversy arises when the controversy is not only rooted
in the existence of an intra-corporate relationship, but also in the enforcement of the parties' correlative rights and obligations under the Corporation
Code and the internal and intra-corporate regulatory rules of the corporation. Based on the foregoing tests, it is clear that this case involves an intra-
corporate dispute. It is a conflict between a stockholder and the corporation, which satisfies the relationship test, and it involves the enforcement of
the right of Ozamiz, as a stockholder, to inspect the books of PHC and the obligation of the latter to allow its stockholder to inspect its books. (Roberto
V. San Jose and Delfin P. Angcao V. Jose Ma. Ozamiz; G.R. No. 190590, July 12, 2017)
Derivative Suit
A derivative suit is an action filed by stockholders on behalf of the Corporation to enforce a corporate action. It is an exception to the general rule that
the corporation's power to sue is exercised only by the board of directors or trustees.
Individual stockholders may be allowed to sue on behalf of the corporation whenever the directors or officers of the corporation refuse to sue to
vindicate the rights of the corporation or are the ones to be sued and are in control of the corporation. It is allowed when the "directors [or officers]
are guilty of breach of . . . trust, [and] not of mere error of judgment." In derivative suits, the real party in interest is the corporation, and the suing
stockholder is a mere nominal party.
Rule 8, Section 1 of the Interim Rules of Procedure for Intra-Corporate Controversies (Interim Rules) provides the five (5) requisites for filing derivative
suits:
SECTION 1. Derivative action. - A stockholder or member may bring an action in the name of a corporation or association, as the case may be,
provided, that:
1. He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time the action was filed;
2. He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the
articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires;
3. No appraisal rights are available for the act or acts complained of; and
4. The suit is not a nuisance or harassment suit.
In case of nuisance or harassment suit, the court shall forthwith dismiss the case.
The fifth requisite for filing derivative suits, while not included in the enumeration, is implied in the first paragraph of Rule 8, Section 1 of the Interim
Rules: The action brought by the stockholder or member must be "in the name of [the] corporation or association. ..." This requirement has already
been settled in jurisprudence.
Neither did respondent Balmores implead PPC as party in the case nor did he allege that he was filing on behalf of the corporation. The non-derivative
character of respondent Balmores' action may also be gleaned from his allegations in the trial court complaint. In the complaint, he described the
nature of his action as an action under Rule 1, Section l(a)(l) of the Interim Rules, and not an action under Rule 1, Section l(a)(4) of the Interim Rules,
which refers to derivative suits. Rule 1, Section 1 (a)(1) of the Interim Rules refers to acts of the board, associates, and officers, amounting to fraud or
misrepresentation, which may be detrimental to the interest of the stockholders. This is different from a derivative suit.
While devices and schemes of the board of directors, business associates, or officers amounting to fraud under Rule 1, Section l(a)(l) of the Interim
Rules are causes of a derivative suit, it is not always the case that derivative suits are limited to such causes or that they are necessarily derivative
suits. Hence, they are separately enumerated in Rule 1, Section 1 (a) of the Interim Rules.
Respondent Balmores did not bring the action for the benefit of the corporation. Instead, he was alleging that the acts of PPC's directors, specifically
the waiver of rights in favor of Villamor's law firm and their failure to take back the MC Home Depot checks from Villamor, were detrimental to
his individual interest as a stockholder. In filing an action, therefore, his intention was to vindicate his individual interest and not PPC's or a
group of stockholders'. (Alfredo L. Villamor, Jr., Vs. John S. Umale; G.R. Nos. 172843 & 172881, 24 September 2014 )

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In this case, the Marcelino, Jr. Group anchored their Complaint on violations of and liabilities arising from the Corporation Code, specifically: Section
23 (on corporate decision-making being vested in the board of directors), Section 25 (quorum requirement for the transaction of corporate business),
Sections 39 and 102 (both on stockholders' pre-emptive rights), Section 62 (stipulating the consideration for which stocks must be issued), Section 63
(stipulating that no transfer of shares "shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation"),
and Section 65 (on liabilities of directors and officers "to the corporation and its creditors" for the issuance of watered stocks) in relation to provisions
in People's Broadcasting's Articles of Incorporation and By-Laws as regards conditions for issuances of and subscription to shares. The Marcelino, Jr.
Group ultimately prays that People's Broadcasting's entire capital structure be reconfigured to reflect a status quo ante.
The action should be a proper derivative suit even if the assailed acts do not pertain to a corporation's transactions with third persons. The pivotal
consideration is whether the wrong done as well as the cause of action arising from it accrues to the corporation itself or to the whole body of its
stockholders. An action "seeking to nullify and invalidate the duly constituted acts [of a corporation]" entails a cause of action that "rightfully pertains
to [the corporation itself and which stockholders] cannot exercise . . . except through a derivative suit.
Accordingly, it was upon People's Broadcasting itself that the causes of action now claimed by the Marcelino Jr. Group accrued. While stockholders in
the Marcelino, Jr. Group were permitted to seek relief, they should have done so not in their unique capacity as individuals or as a group of stockholders
but in place of the corporation itself through a derivative suit. As they, instead, sought relief in their individual capacity, they did so bereft of a cause
of action. Likewise, they did so without even the slightest averment that the requisites for the filing of a derivative suit, as spelled out in Rule 8, Section
1 of the Interim Rules of Procedure for Intra-Corporate Controversies, have been satisfied. Since the Complaint lacked a cause of action and failed to
comply with the requirements of the Marcelino, Jr. Group's vehicle for relief, it was only proper for the Complaint to have been dismissed.
Erroneously pursuing a derivative suit as a class suit not only meant that the Marcelino, Jr. Group lacked a cause of action; it also meant that they failed
to implead an indispensable party. In derivative suits, the corporation concerned must be impleaded as a party. Hence, the Marcellino Jr. Group’s
complaint must fail for failure to implead People's Broadcasting, Inc. (Marcelino M. Florete, V. Rogelio M. Florete, Et Al; G.R. No. 174909, January
20, 2016)
Here, the complaint cannot be considered as a derivative suit because the loan was not a corporate obligation but a personal debt of the Ang brothers
and their spouses. Petitioners also failed to prove damage to the corporation. The complaint also failed to allege that all available corporate remedies
under the articles of incorporation, by-laws, laws or rules governing the corporation were exhausted, as required under the Interim Rules. (Juanito
Ang, for and in behalf of Sunrise Marketing (Bacolod), Inc. v. Sps. Roberto and Rachel Ang; G.R. No. 201675, June 19, 2013 Justice Carpio)
The reliefs sought in the Complaint, namely that of enjoining defendants from acting as officers and Board of Directors of the corporation, the
appointment of a receiver, and the prayer for damages in the amount of the decrease in the value of the shares of stock, clearly show that the Complaint
was filed to curb the alleged mismanagement of SBGCCI. The causes of action pleaded by petitioners do not accrue to a single shareholder or a class of
shareholders but to the corporation itself.
However, as minority stockholders, petitioners do not have any statutory right to override the business judgments of SBGCCI’s officers and Board of
Directors on the ground of the latter’s alleged lack of qualification to manage a golf course.
While there were allegations in the Complaint of fraud in their subscription agreements, such as the misrepresentation of the Articles of Incorporation,
petitioners do not pray for the rescission of their subscription or seek to avail of their appraisal rights. Instead, they ask that defendants be enjoined
from managing the corporation and to pay damages for their mismanagement. Petitioners’ only possible cause of action as minority stockholders
against the actions of the Board of Directors is the common law right to file a derivative suit. The legal standing of minority stockholders to bring
derivative suits is not a statutory right, there being no provision in the Corporation Code or related statutes authorizing the same, but is instead a
product of jurisprudence based on equity. However, a derivative suit cannot prosper without first complying with the legal requisites for its institution.
(Nestor Ching Vs. Subic Bay Golf And Country Club, Inc., Et Al.; G.R. No. 174353 September 10, 2014)
Appointment of management committee
Assuming that respondent Balmores has an individual cause of action, the Court of Appeals still erred in placing PPC under receivership and in creating
and appointing a management committee.
A corporation may be placed under receivership, or management committees may be created to preserve properties involved in a suit and to protect
the rights of the parties under the control and supervision of the court. Management committees and receivers are appointed when the corporation is
in imminent danger of "(1) [dissipation, loss, wastage or destruction of assets or other properties; and (2) [p]aralysation of its business operations
that may be prejudicial to' the interest of the minority stockholders, parties-litigants, or the general public."
Applicants for the appointment of a receiver or management committee need to establish the confluence of these two requisites. This is because
appointed receivers and management committees will immediately take over the management of the corporation and will have the management
powers specified in law. This may have a negative effect on the operations and affairs of the corporation with third parties, as persons who are more
familiar with its operations are necessarily dislodged from their positions in favor of appointees who are strangers to the corporation's operations
and affairs.
PPC waived its rights, without any consideration in favor of Villamor. The checks were already in Villamor's possession. Some of the checks may have
already been encashed. This court takes judicial notice that the goodwill money of P1,8,000,000.00 and the rental payments of P4,500,000.00 every
month are not meager amounts only to be waived without any consideration. It is, therefore, enough to constitute loss or dissipation of assets under
the Interim Rules.
Respondent Balmores, however, failed to show that there was an imminent danger of paralysis of PPC's business operations. Apparently, PPC was-
earning substantial amounts from its other sub-lessees. Respondent Balmores did not prove otherwise. He, therefore, failed to show at least one of the
requisites for appointment of a receiver or management committee. (Alfredo L. Villamor, Jr., Vs. John S. Umale: G.R. Nos. 172843 & 172881, 24
September 2014)
MEETINGS
A non-unit owner cannot be elected as a member of the Board of Directors of Condocor.
Section 23 of the Corporation Code provides that the board of directors of trustees are to be elected from among the holders of stocks, or where
there is no stock, from among the members of the corporation. The same provision also requires that trustees of non-stock corporations must
be members thereof. This rule was reiterated in Section 92 of the Code which states: No person shall be elected as trustee unless he is a member of
the corporation.

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While Moldex may rightfully designate proxies or representatives, the latter, however, cannot be elected as directors or trustees of Condocor. First,
the Code clearly provides that a director or trustee must be a member of record of the corporation. Further, the power of the proxy is merely to vote.
If said proxy is not a member in his own right, he cannot be elected as a director or proxy.
The general membership meeting of Condocor, being null and void, all acts and resolutions emanating therefrom are likewise null and void such as
the President’s election. (Mary E. Lim V. Moldex Land, Inc., Et Al.; G.R. No. 206038. January 25, 2017, Mendoza, J )
In justifying its Order declaring that the complaint had not prescribed since it did not involve an election contest, the RTC adverted to the fact that
none of the petitioners was claiming an elective office in NADECOR, or questioning the manner and validity of the election of the New Board, or the
qualifications of the candidates for directors.
Yet, there can be no denying that the petitioners were really seeking the holding of a new election for members of the Board of Directors of NADECOR
and were clearly challenging the validity of the election of the new Board of Directors. This makes the petition an election contest which should have
been filed within 15 days from the date of the election. (Corazon H. Ricafort, Et Al V. The Honorable Isaias P. Dicdican.; G.R. Nos. 202647-50,
March 09, 2016)
Capital Structure
1. Subscription Agreements
The assignment of the subscription agreements is a form of novation by substitution of a new debtor and which required the consent of or notice to
the creditor.Under the Civil Code, obligations may be modified by: (l) changing their object or principal conditions; or (2) substituting the person of
the debtor; or (3) subrogating a third person in the rights of the creditor.
Novation extinguished an obligation between two parties. Clearly, the effect of the assignment of the subscription agreements to SSI was to extinguish
the obligation of R.C. Lee to Oceanic, now Interport, to settle the unpaid balance on the subscription. As a result of the assignment, Interport was no
longer obliged to accept any payment from R.C. Lee because the latter had ceased to be privy to Subscription Agreements Nos. 1805, and 1808 to 1811
for having been extinguished insofar as it was concerned. On the other hand, Interport was legally bound to accept SSI's tender of payment for the
75% balance on the subscription price because SSI had become the new debtor under Subscription Agreements Nos. 1805, and 1808 to 1811. As such,
the issuance of the stock certificates in the name of R.C. Lee had no legal basis in the absence of a contractual agreement between R. C. Lee and Interport.
(Interport Resources Corporation Vs. Securities Specialist, Inc., And R.C. Lee Securities Inc.; G .R. No. 154069, June 6, 2016)
2. Shares of Stock
A. Nature of Stock
Section 63 of the Corporation Code provides that shares of stock so issued are personal property and may be transferred by delivery of the certificate
or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. In this case, Vertex fully paid the
purchase price by February 11, 1999 but the stock certificate was only delivered on January 23, 2002 after Vertex filed an action for rescission against
FEGDI.
Under these facts, considered in relation to the governing law, FEGDI clearly failed to deliver the stock certificates, representing the shares of stock
purchased by Vertex, within a reasonable time from the point the shares should have been delivered. This was a substantial breach of their contract
that entitles Vertex the right to rescind the sale under Article 1191 of the Civil Code. It is not entirely correct to say that a sale had already been
consummated as Vertex already enjoyed the rights a shareholder can exercise. The enjoyment of these rights cannot suffice where the law, by its
express terms, requires a specific form to transfer ownership. (Fil-Estate Golf And Development, Inc. and Filestate Land, Inc., Vs. Vertex Sales
And Trading, Inc.; G.R. No. 202079, June 10, 2013)
3. Certificate of Stock
A. Nature of the Certificate
A stock certificate is prima facie evidence that the holder is a shareholder of the corporation, but the possession of the certificate is not the sole
determining factor of one’s stock ownership. To establish their stock ownership, the petitioners actually turned over to the trial court through their
Compliance and Manifestation submitted on April 7, 2010 the various documents showing their ownership of Abra Valley’s shares, specifically: the
official receipts of their payments for their subscriptions of the shares of Abra Valley; and the copies duly certified by the Securities and Exchange
Commission (SEC) stating that Abra Valley had issued shares in favor of the petitioners, such as the issuance of part of authorized and unissued capital
stock xxx; and the general information sheet.
The petitioners adduced competent proof showing that the respondents had allowed the petitioners to become members of the Board of Directors.
Considering that Section 23 of the Corporation Code requires every director to be the holder of at least one share of capital stock of the corporation of
which he is a director, the respondents would not have then allowed any of the petitioners to be elected to sit in the Board of Directors as members
unless they believed that the petitioners so elected were not disqualified for lack of stock ownership.
A person becomes a stockholder of a corporation by acquiring a share through either purchase or subscription. Here, the petitioners acquired their
shares in Abra Valley: (1) by subscribing to 36 shares each from Abra Valley’s authorized and unissued capital stock; and (2) by purchasing the
shareholdings of existing stockholders, as borne out by the latter’s indorsement on the stock certificates.
The stock and transfer book, like other corporate books and records, is not in any sense a public record, and thus is not exclusive evidence of the
matters and things which ordinarily are or should be written therein. In fact, it is generally held that the records and minutes of a corporation are not
conclusive even against the corporation but are prima facie evidence only, and may be impeached or even contradicted by other competent
evidence. Thus, parol evidence may be admitted to supply omissions in the records or explain ambiguities, or to contradict such records.
For sure, the transfer of shares in favor of the petitioners was made through the indorsement by the original holders who were presumably the
registered owners of the shares, coupled with the delivery of the stock certificates. Such procedure conformed to Section 63 of the Corporation Code.
(Grace Borgoña Insigne, Et. Al. V. Abra Valley Colleges, Inc. And Francis Borgoña; G.R No. 204089, 29 July 2015)
B. Negotiability
I. Requirements for Valid Transfer Of Stocks

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Upon the death of the stockholder, his heirs do not automatically become the stockholders of the corporation. The heirs acquire standing in the
corporation only upon registration of the transfer of the ownership of the shares in the books of the corporation. (Puno v. Puno Enterprises,
September 11, 2009)
It is the delivery of the certificate, coupled with the endorsement by the owner or his duly authorized representative that is the operative act of transfer
of shares from the original owner to the transferee. The delivery contemplated in Section 63, however, pertains to the delivery of the certificate of
shares by the transferor to the transferee, that is, from the original stockholder named in the certificate to the person or entity the stockholder was
transferring the shares to, whether by sale or some other valid form of absolute conveyance of ownership.
The delivery or surrender adverted to by Teng, i.e., from Ting Ping to TCL, is not a requisite before the conveyance may be recorded in its books. To
compel Ting Ping to deliver to the corporation the certificates as a condition for the registration of the transfer would amount to a restriction on the
right of Ting Ping to have the stocks transferred to his name, which is not sanctioned by law. The only limitation imposed by Section 63 is when the
corporation holds any unpaid claim against the shares intended to be transferred.
The Court stressed that a corporation, either by its board, its by-laws, or the act of its officers, cannot create restrictions in stock transfers. In
transferring stock, the secretary of a corporation acts in purely ministerial capacity, and does not try to decide the question of ownership. If a
corporation refuses to make such transfer without good cause, it may, in fact, even be compelled to do so by mandamus.
With regard to the issuance of new certificate of stock, the surrender of the original certificate of stock is necessary before the issuance of a new one
so that the old certificate may be cancelled. A corporation is not bound and cannot be required to issue a new certificate unless the original certificate
is produced and surrendered. Surrender and cancellation of the old certificates serve to protect not only the corporation but the legitimate shareholder
and the public as well, as it ensures that there is only one document covering a particular share of stock. (Anna Teng, Petitioner, V. Securities And
Exchange Commission (Sec) And Ting Ping Lay, Respondents; G.R. No. 184332, February 17, 2016)
Andaya bought from Chute 2,200 shares of stock in the Rural Bank of Cabadbaran. The bank eventually denied the request of Andaya. It reasoned that
he had a conflict of interest, as he was then president and chief executive officer of the Green Bank of Caraga, a competitor bank. It also maintained
that Chute should have first offered her shares to the other stockholders. Andaya instituted an action for mandamus and damages to compel the
recording of the transfer in the bank's stock and transfer book and to issue new certificates of stock in his name. The R TC issued a Decision dismissing
the complaint. Citing Ponce v. Alsons Cement Corporation, the trial court ruled that Andaya had no standing to compel the bank to register the transfer
and issue stock certificates in his name.
The Supreme Court ruled that the reliance of the RTC on Ponce in finding that petitioner had no cause of action for mandamus against the defendant
bank was misplaced. In Ponce, the issue resolved by this Court was whether the petitioner therein had a cause of action for mandamus to compel the
issuance of stock certificates, not the registration of the transfer. Ruling in the negative, the Court said in that case that without any record of the
transfer of shares in the stock and transfer book of the corporation, there would be no clear basis to compel that corporation to issue a stock certificate.
By the import of Section 63 of the Corporation Code, the stock and transfer book would be the main reference book in ascertaining a person's
entitlement to the rights of a stockholder. Consequently, without the registration of the transfer, the alleged transferee could not yet be recognized as
a stockholder who is entitled to be given a stock certificate.
In contrast, at the crux of this petition are the registration of the transfer and the issuance of the corresponding stock certificates. Requiring petitioner
to register the transaction before he could institute a mandamus suit in supposed abidance by the ruling in Ponce was a palpable error. It led to an
absurd, circuitous situation in which Andaya was prevented from causing the registration of the transfer, ironically because the shares had not been
registered. With the logic resorted to by the RTC, transferees of shares of stock would never be able to compel the registration of the transfer and the
issuance of new stock certificates in their favor. They would first be required to show the registration of the transfer in their names – the ministerial
act that is the subject of the mandamus suit in the first place. Transferees of shares of stock are real parties in interest then having a cause of action for
mandamus to compel the registration of the transfer and the corresponding issuance of stock certificates. (Joseph Omar O. Andaya Vs. Rural Bank Of
Cabadbaran, Inc.; G.R. No. 188769, August 3, 2016)
4. Disposition and Encumbrance of Shares
A. Requisites of a Valid Transfer
The Corporation whose shares of stock are the subject of a transfer transaction (through sale, assignment, donation, or any other mode of conveyance)
need not be a party to the transaction, as may be inferred from the terms of Section 63 of the Corporation Code. However, to bind the corporation as
well as third parties, it is necessary that the transfer is recorded in the books of the corporation. (Forest Hills Golf & Country Club Vs. Vertex Sales
and Trading, Inc.; G.R. No. 202205, March 6, 2013)
Other Corporations
1. Close Corporations
No. In San Juan Structural and Steel Fabricators. Inc. v. Court of Appeals, this Court held that a narrow distribution of ownership does not, by itself, make
a close corporation. Courts must look into the articles of incorporation to find provisions expressly stating that (l) the number of stockholders shall
not exceed 20; or (2) a preemption of shares is restricted in favor of any stockholder or of the corporation; or (3) the listing of the corporate stocks in
any stock exchange or making a public offering of those stocks is prohibited. Here, there is no basis for finding that MSI is a close corporation.
Section 97 of the Corporation Code only specifies that "the stockholders of the corporation shall be subject to all liabilities of directors." Nowhere in
that provision do we find any inference that stockholders of a close corporation are automatically liable for corporate debts and obligations.
It is true that the stockholders who are actively engaged in the management or operation of the business and affairs of a close corporation, shall
be personally liable for corporate torts unless the corporation has obtained reasonably adequate liability insurance. But, as s can be read in that
provision, several requisites must be present for its applicability. None of these were alleged in the case . Neither did the RTC or the CA explain the
factual circumstances for this Court to discuss the personally liability of respondents to their creditors because of corporate torts." (Joselito Hernand
M. Bustos V. Millians Shoe, Inc.; G.R. No. 185024, April 4, 2017)
Mergers and Consolidations
1. Definition and Concepts

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There are two types of corporate acquisitions: asset sales and stock sales. In asset sales, the corporate entity sells all or substantially all of its assets to
another entity. In stock sales, the individual or corporate shareholders sell a controlling block of stock to new or existing shareholders.
In asset sales, the rule is that the seller in good faith is authorized to dismiss the affected employees, but is liable for the payment of separation pay
under the law. The buyer in good faith, on the other hand, is not obliged to absorb the employees affected by the sale, nor is it liable for the payment
of their claims. The most that it may do, for reasons of public policy and social justice, is to give preference to the qualified separated personnel of the
selling firm.
In contrast with asset sales, in which the assets of the selling corporation are transferred to another entity, the transaction in stock sales takes place
at the shareholder level. Because the corporation possesses a personality separate and distinct from that of its shareholders, a shift in the composition
of its shareholders will not affect its existence and continuity.
Thus, notwithstanding the stock sale, the corporation continues to be the employer of its people and continues to be liable for the payment of their
just claims. Furthermore, the corporation or its new majority shareholders are not entitled to lawfully dismiss corporate employees absent a just or
authorized cause.
The fact that there was a change in the composition of its shareholders did not affect the employer-employee relationship between the employees and
the corporation, because an equity transfer affects neither the existence nor the liabilities of a corporation. Thus, the corporation continued to be the
employer of the corporation’s employees notwithstanding the equity change in the corporation. This outcome is in line with the rule that a corporation
has a personality separate and distinct from that of its individual shareholders or members, such that a change in the composition of its shareholders
or members would not affect its corporate liabilities. (SME BANK INC. vs. PEREGRIN T. DE GUZMAN G.R. No. 186641, October 8, 2013)
No merger took place between Bancommerce and TRB as the requirements and procedures for a merger were absent. A merger does not become
effective upon the mere agreement of the constituent corporations. All the requirements specified in the law must be complied with in order for merger
to take effect. Section 79 of the Corporation Code further provides that the merger shall be effective only upon the issuance by the Securities and
Exchange Commission (SEC) of a certificate of merger.
The idea of a de facto merger came about because, prior to the present Corporation Code, no law authorized the merger or consolidation of Philippine
Corporations, except insurance companies, railway corporations, and public utilities. And, except in the case of insurance corporations, no procedure
existed for bringing about a merger. Still, the Supreme Court held in Reyes v. Blouse, that authority to merge or consolidate can be derived from Section
28.5 (now Section 40) of the former Corporation Law which provides, among others, that a corporation may “sell, exchange, lease or otherwise dispose
of all or substantially all of its property and assets” if the board of directors is so authorized by the affirmative vote of the stockholders holding at least
two-thirds of the voting power. The words “or otherwise dispose of,” according to the Supreme Court, is very broad and in a sense, covers a merger or
consolidation. But the facts in Reyes show that the Board of Directors of the Corporation being dissolved clearly intended to be merged into the other
corporations.
No de facto merger took place in the present case simply because the TRB owners did not get in exchange for the bank’s assets and liabilities an
equivalent value in Bancommerce shares of stock. Bancommerce and TRB agreed with BSP approval to exclude from the sale the TRB’s contingent
judicial liabilities, including those owing to RPN, et al.
It is pointed out that under common law, if one corporation sells or otherwise transfers all its assets to another corporation, the latter is not liable for
the debts and liabilities of the transferor if it has acted in good faith and has paid adequate consideration for the assets, except: (1) where the purchaser
expressly or impliedly agrees to assume such debts; (2) where the transaction amounts to a consolidation or merger of the corporations; (3) where
the purchasing corporation is merely a continuation of the selling corporation; and (4) where the transaction is entered into fraudulently in order to
escape liability for such debts.
The evidence in this case fails to show that Bancommerce was a mere continuation of TRB. TRB retained its separate and distinct identity after the
purchase. Although it subsequently changed its name to Traders Royal Holding’s, Inc. such change did not result in its dissolution. “The changing of
the name of a corporation is no more than creation of a corporation than the changing of the name of a natural person is the begetting of a natural
person. The act, in both cases, would seem to be what the language which we use to designate it imports—a change of name and not a change of being.”
As such, Bancommerce and TRB remained separate corporations.
Merger is a re-organization of two or more corporations that results in their consolidating into a single corporation, which is one of the constituent
corporations, one disappearing or dissolving and the other surviving. To put it another way, merger is the absorption of one or more corporations by
another existing corporation, which retains its identity and takes over the rights, privileges, franchises, properties, claims, liabilities and obligations of
the absorbed corporation(s). The absorbing corporation continues its existence while the life or lives of the other corporation(s) is or are terminated.
The Corporation Code requires the following steps for merger or consolidation:
(1) The board of each corporation draws up a plan of merger or consolidation. Such plan must include any amendment, if necessary,
to the articles of incorporation of the surviving corporation, or in case of consolidation, all the statements required in the articles
of incorporation of a corporation.
(2) Submission of plan to stockholders or members of each corporation for approval. A meeting must be called and at least two (2)
weeks’ notice must be sent to all stockholders or members, personally or by registered mail. A summary of the plan must be
attached to the notice. Vote of two-thirds of the members or of stockholders representing two-thirds of the outstanding capital
stock will be needed. Appraisal rights, when proper, must be respected.
(3) Execution of the formal agreement, referred to as the articles of merger o[r] consolidation, by the corporate officers of each
constituent corporation. These take the place of the articles of incorporation of the consolidated corporation, or amend the
articles of incorporation of the surviving corporation.
(4) Submission of said articles of merger or consolidation to the SEC for approval.
(5) If necessary, the SEC shall set a hearing, notifying all corporations concerned at least two weeks before.
(6) Issuance of certificate of merger or consolidation.
(Bank Of Commerce Vs. Radio Philippines Network, Inc., Intercontinental Broadcasting Corporation, And Banahaw Broadcasting
Corporation, Thru Board Of Administrator, and Sheriff Bienvenido S. Reyes, Jr., Sheriff, Regional Trial Court Of Quezon City, Branch 98; G.R.
No. 195615, 21 April 2014)

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Effects
One of the effects of a merger is that the surviving company shall inherit not only the assets, but also the liabilities of the corporation it merged with.
(Sumifru (Philippines) Corporation (Surviving Entity In A Merger With Davao Fruits Corporation And Other Companies) V. Bernabe Baya;
G.R. No. 188269, April 17, 2017)
The merger of a corporation with another does not operate to dismiss the employees of the corporation absorbed by the surviving corporation. This
is in keeping with the nature and effects of a merger as provided under law and the constitutional policy protecting the rights of labor. The employment
of the absorbed employees subsists. Necessarily, these absorbed employees are not entitled to separation pay on account of such merger in the absence
of any other ground for its award. (The Philippine Geothermal, Geothermal, Inc. Employees Union, Petitioner, -Versus- Unocal Philippines, Inc.
(Now Known As Chevron Geothermal Philippines Holdings, Inc.); GR. No. 190187, September 28, 2016)
The surviving bank is liable for the garnished deposits of the judgment debtor maintained with the absorbed bank because in a merger the liabilities
of the absorbed corporation shall be assumed by the surviving bank as if they were directly incurred by the latter. BPI vs. Lee, GR 190144, August 1,
2012
The surviving corporation is liable for damages for the bad faith of its predecessor-in-interest ( absorbed bank ) in initiating foreclosure proceedings
despite the fact that it violated the terms of the principal loan contract because in a merger the liability of the absorbed corporation shall be assumed
by the surviving corporation (Spouses Ong vs BPI Family Savings Bank, January 24, 2018)
Non-Stock Corporation
Applying the law and Condocor's By-Laws, if there are 100 members in a non-stock corporation, 60 of which are members in good standing, then
the presence of 50% plus 1 of those members in good standing will constitute a quorum. Thus, 31 members in good standing will suffice in order to
consider a meeting valid as regards the presence of quorum. The 31 members will naturally have to exercise their voting rights. It is in this instance
when the number of voting rights each member is entitled to becomes significant. If 29 out of the 31 members are entitled to 1 vote each, another
member (known as A) is entitled to 20 votes and the remaining member (known as B) is entitled to 15 votes, then thetotal number of voting rights
of all 31 members is 64. Thus, majority of the 64 total voting rights, which is 33 (50% plus 1), is necessary to pass a valid act. Assuming that only A
and B concurred in approving a specific undertaking, then their combined votes are more than sufficient to authorize such act. The quorum during
the July 21, 2012 meeting should have been majority of Condocor's members in good standing. Accordingly, there was no quorum during the July 21,
2012 meeting considering that only 29 of the 108 unit buyers were present. (Lim Vs Moldex Land, Inc.; G.R. No. 206038, January 25, 2017)
BCDA is not a stock corporation because it has no capital stock divided into shares and not authorized to distribute to the holders of such shares surplus
profits. Neither is it a non-stock corporation because it is not organized for any of the allowable purposes for non-stock corporation. (Bases Conversion
and Development Authority vs.Commissioner of Internal Revenue, GR No. 205925, June 20, 2018)
Foreign Corporation
The legal consequence of doing business in the Philippines without a license consists of criminal liability for violating the Corporation Code or, at least,
depriving the foreign corporation from suing in the Philippines, although it can be sued before our courts or administrative tribunals.
Characterization test
There is no hard and fast rule in determining whether a certain foreign corporation is doing, transacting or engaging in business in the Philippines. The
determination is done on a case-to-case basis.
The Supreme Court has, however, adopted the so-called “Twin Characterization Test” as to when a foreign corporation is considered to be “doing business”
in the Philippines, to wit:
a. The foreign corporation is maintaining or continuing in the Philippines the body or substance of the business or enterprise for which it was organized
or whether it has substantially retired from it and turned it over to another; and
b. The foreign corporation is engaged in activities which necessarily imply a continuity of commercial dealings and arrangements, and contemplates, to
that extent, the performance of acts or works or the exercise of some of the functions normally incidental to, and in progressive prosecution of, the
purpose and object of its organization. (Mentholatum Co., Inc. v. Anacleto Mangaliman, G.R. No. 47701, 27 June 1941; B. Van Zuiden Bros., Ltd.,
v. GTVL Manufacturing Industries, Inc. G.R. No. 147905, 28 May 2007).
SECURITIES REGULATION CODE (R.A. NO. 8799)
Definition of Securities
A corporation allowing a principal investor to enroll in its program by paying a certain amount, which in turn, entitles him to be paid a certain amount
if the recruit was able to get a minimum recruitment of four investors is engaged in the sale and distribution of an investment contract. (Power Homes
Unlimited Corporation vs SEC, 546 SCRA 567)
Network Marketing, a scheme adopted by companies for getting people to buy their products where the buyer can become a down-line seller, who
earns commissions from purchases made by new buyers whom he refers to the person who sold the product to him is not an investment contract.
(Securities and Exchange Commission vs Prosperity.com; GR No. 164197, January 25, 2012)
In this jurisdiction, the Supreme Court employs the Howey test to determine whether or not the security being offered takes the form of an investment
contract. Under the Howey test, the following must concur for an investment contract to exist: (1) a contract, transaction, or scheme; (2) an investment
of money; (3) investment is made in a common enterprise; (4) expectation of profits; and (5) profits arising primarily from the efforts of others.
Indubitably, all of the elements are present in the extant case.
First, Wincorp offered what it purported to be "sans recourse" transactions wherein the investment house would allegedly match investors with pre-
screened corporate borrowers in need of financial assistance. Second, Ng Wee invested the aggregate amount of P213,290,410.36 in the "sans
recourse" transactions through his trustees, as embodied in the Confirmation Advices. Third, prior to being matched with a corporate borrower, all
the monies infused by the investors are pooled in an account maintained by Wincorp. This ensures that there are enough funds to meet large
drawdowns by single borrowers. Fourth, the investors were induced to invest by Wincorp with promises of high yield. In Ng Wee's case, his
Confirmation Advices reveal that his funds were supposed to earn 13.5% at their respective maturity dates. Fifth, the profitability of the enterprise
depended largely on whether or not Wincorp, on best effort basis, would be able to match the investors with their approved corporate borrowers.

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Apparent then is that the factual milieu of the case at bar sufficiently satisfies the Howey test. The "sans recourse" transactions are, in actuality,
investment contracts wherein investors pool their resources to meet the financial needs of a borrowing company. (Virata V. Ng Wee G.R. Nos.
220926, 221058, 221109, 221135 & 221218, July 5, 2017)
The SEC was not mandated to allow herein respondents to participate in the investigation conducted by the Commission prior to the cease and desist
order's issuance. The law is clear on the point that a cease and desist order may be issued by the SEC motu proprio, it being unnecessary that it results
from a verified complaint from an aggrieved party. A prior hearing is also not required whenever the Commission finds it appropriate to issue a
cease and desist order that aims to curtail fraud or grave or irreparable injury to investors. (The Securities And Exchange Commission (Sec) Versus
- Cjh Development Corporation; G.R. No. 210316, November 28, 2016)
Educational plans are securities and as such, can not be sold or distributed within the Philippines without prior approval of the Securities
and Exchange Commission. The continued sale would operate as fraud to its investors and would cause grave and irreparable injury to the
investing public which justifies the issuance of a cease and desist order under section 64 of the SRC. Prima Nila Plans vs Securities and
Exchange Commission
A “public company,” as contemplated by the SRC is not limited to a company whose shares of stock are publicly listed; even companies whose shares
are offered only to a specific group of people, are considered a public company, provided they meet the requirements provided for under Subsec. 17.2
of the SRC, that is: “any corporation with a class of equity securities listed on an Exchange or with assets in excess of Fifty Million Pesos
(P50,000,000.00) and having two hundred (200) or more holders, at least two hundred (200) of which are holding at least one hundred (100) shares
of a class of its equity securities.” (Philippine Veterans Bank v. Callangan, in her capacity Director of the Corporation Finance Department of
the Securities and Exchange Commission and/or the Securities and Exchange Commission; G.R. No. 191995, August 3, 2011)
NB. Under Subsection 17.2 of the SRC, it is not in excess of P 50m but at least P 50m asset value which characterizes a public company
Liabilities under SRC
Under Section 62 of the SRC, no action shall be maintained to enforce any liability created under Section 56 of the SRC ( False registration statement
) and Section 57 ( sale of unregistered security and liabilities arising in connection with prospectus, communication and other reports ) unless brought
within two ( 2 ) years after discovery of the untrue statement or omission or after the violation upon which it is based but not more than five ( 5 )
years after the security was bona fide offered to the public or more than 5 years after the sale, respectively. However, it should be noted that the civil
liabilities provided in the SRC are not limited to Sections 56 and 57. Clearly, the intent is to encompass in Section 62 the prescriptive periods only of
the civil liability in cases of violations of the SRC. Given the absence of prescriptive period for the enforcement of criminal liability in violations of SRC,
ACT No. 3326, the law applicable to offenses under special laws, applies. Under Section 73 of the SRC, violation of its provisions is punishable by
imprisonment of not less than seven years nor more than 21 years. Applying ACT no. 3326, criminal prosecution for violations of SRC prescribes in 12
years. (Citibank N.A. vs. TANCO-GABALDON, et al. G.R. No. 198444, September 4, 2013)
Civil suits falling under the SRC ( like liability for selling unregistered securities ) are under the exclusive original jurisdiction of the RTC and hence,
need not be first filed before the SEC, unlike criminal cases wherein the latter body exercises primary jurisdiction. (Pua vs. Citibank, N. A. G.R. No.
180064, September 16, 2013)
The violation of Section 28 of the SRC has the following elements: a) engaging in the business of buying or selling securities as a broker or dealer;
or b ) acting as salesman; or c) acting as associated person of any broker or dealer unless registered as such with the SEC. Thus, a person is liable for
violating Section 28 of the SRC where acting as a broker, dealer or salesman, is in the employ of a corporation which sold or offered for sale unregistered
securities in the Philippines. (Securities and Exchange Commission vs Santos; GR. No. 195542, March 19, 2014)
This Supreme Court effectively held that an employee of an issuer, who provides information on unregistered securities offered by the latter, may be
deemed as “salesman” of securities if such giving of information brings about the sale of the unregistered securities.
Rules on Tender Offer
A. Definition
19.1.8. "Tender offer" means a publicly announced intention by a person acting alone or in concert with other persons (hereinafter referred to as
"person") to acquire outstanding equity securities of a public company as defined in SRC Rule 3, or outstanding equity securities of an associate or
related company of such public company which controls the said public company.
B. Mandatory Tender Offer
19.2. Mandatory tender offers
19.2.1. Any person or group of persons acting in concert, who intends to acquire fifteen percent (15%) of equity securities in a public company in one
or more transactions within a period of twelve (12) months, shall file a declaration to that effect with the Commission.
19.2.2. Any person or group of persons acting in concert, who intends to acquire thirty five percent (35%) of the outstanding voting shares or such
outstanding voting shares that are sufficient to gain control of the board in a public company in one or more transactions within a period of twelve (12)
months, shall disclose such intention and contemporaneously make a tender offer for the percentage sought to all holders of such securities within the
said period.
If the tender offer is oversubscribed, the aggregate amount of securities to be acquired at the close of such tender offer shall be proportionately
distributed across selling shareholders with whom the acquirer may have been in private negotiations and other shareholders. For purposes of SRC
Rule 19.2.2, the last sale that meets the threshold shall not be consummated until the closing and completion of the tender offer.
outstanding voting shares that are sufficient to gain control of the board in a public company through the Exchange trading system shall not be required
to make a tender offer even if such person or group of persons acting in concert acquire the remainder through a block sale if, after acquisition through
the Exchange trading system, they fail to acquire their target of thirty five percent (35%) or such outstanding voting shares that is sufficient to gain
control of the board.
outstanding voting shares that are sufficient to gain control of the board in a public company directly from one or more stockholders shall be required

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to make a tender offer for all the outstanding voting shares. The sale of shares pursuant to the private transaction or block sale shall not be completed
prior to the closing and completion of the tender offer.
19.2.5. If any acquisition that would result in ownership of over fifty percent (50%) of the total outstanding equity securities of a public company, the
acquirer shall be required to make a tender offer under this Rule for all the outstanding equity securities to all remaining stockholders of the said
company at a price supported by a fairness opinion provided by an independent financial advisor or equivalent third party. The acquirer in such a tender
offer shall be required to accept all securities tendered.
INCLUDE THE DIAGRAM WITH EXPLANATION
C. Exemptions from Tender Offer Requirement
19.3.1. Unless the acquisition of equity securities is intended to circumvent or defeat the objectives of the tender offer rules, the mandatory tender offer
requirement shall not apply to the following:
19.3.1.1. Any purchase of securities from the unissued capital stock; Provided, the acquisition will not result to a fifty percent (50%) or more
ownership of securities by the purchaser or such percentage that is sufficient to gain control of the board;
19.3.1.2. Any purchase of securities from an increase in authorized capital stock;
19.3.1.3. Purchase in connection with foreclosure proceedings involving a duly constituted pledge or security arrangement where the acquisition
is made by the debtor or creditor;
19.3.1.4. Purchases in connection with a privatization undertaken by the government of the Philippines;
19.3.1.5. Purchases in connection with corporate rehabilitation under court supervision;
19.3.1.6. Purchases in the open market at the prevailing market price; and
19.3.1.7. Merger or consolidation.
19.3.2. Purchasers of securities in the foregoing transactions shall, however, comply with the disclosure and other obligations under SRC Rules 18.1
and 23.
D. Violation
19.13. Violation
If equity securities of a public company are purchased at threshold amounts provided for in this Rule without complying with the tender offer
requirements under this Rule, the Commission may, upon complaint, nullify such purchase and order the conduct of a tender offer, without prejudice to
the imposition of other sanctions under the Code.
Short swing profit rule
The short-swing profits rule provides that any profit realized by insiders of an issuer from the combineD purchase and sale, or any sale and purchase, of
any equity security of the issuer within any period of less than six months, unless such security was acquired in good faith in connection with a debt
previously contracted, shall inure to and be recoverable by the issuer (Section 23.2, Securities Regulation Code). It is [f]or the purpose of preventing the
unfair use of information which may have been obtained by such beneficial owner, director, or officer by reason of his relationship to the issuer.
The insiders covered by the rule are officers, directors and beneficial owners or those holding more than ten percent of any class of any equity security of
the issuer.
The short-swing profits rule is separate and distinct from the insider trading rule, which is governed by a different provision under section 27 of the
Securities Regulation Code
Neither intent nor actual use of inside information is required. All that is required is that profit was made from a combined purchase and sale of equity
securities within a period of six months by the insiders in question.
The SRC provides that an action to recover such short-swing profits may be instituted before a regional trial court by the issuer, or by the owner of any
security of the issuer in the name and in behalf of the issuer if the latter shall fail or refuse to bring such suit within 60 days after request or shall fail
diligently to prosecute the same thereafter. The suit should be brought within two years from the date the profit was realized.
Prohibitions on Fraud, Manipulation and Insider Trading
1. Manipulation of security prices; devices and practices

a. Creating a false or misleading appearance of active trading through
i. wash sale
11. Matched order
111. Similar acts where there is no change of beneficial ownership
b. Effect alone or with other transactions in securities that raises their price to induce the purchase or depresses the price to induce their sale;
or creating active trading to induce purchase or sale through manipulative devices
c. Circular information that the price of any security will rise or fall because of manipulative market operations
d. Make false or misleading statement to induce purchase or sale
e. To effect alone or others series of transactions for the purchase and or sale any security traded in the exchange to peg, fix or stabilize price of
security
Treble damages in securities law
In case of violation of securities law, the Court is authorized to award damages in an amount not exceeding triple the amount of the transaction plus actual
damages.
Doctrine of primary jurisdiction
Under the doctrine of primary jurisdiction, cases involving violation of the SRC require the expertise, specialized knowledge and competence of the
SEC and as such, should first be referred to the latter for appropriate investigation. If after investigation, the SEC finds a violation, then IT shall refer
the matter to the Department of Justice for criminal investigation. Direct filing of the complaint with the DOJ violates this doctrine. (Baviera vs
Standard Chartered Bank)

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FINANCIAL REHABILITATION AND INSOLVENCY ACT
Financial Rehabilitation and Insolvency Act of 2010 (R.A. No.10142)
1. Debt reliefs or remedies available to a juridical insolvent debtor under FRIA
i. Rehabilitation
a. Court supervised rehabilitation

i. Voluntary
ii. Involuntary
b. Pre-negotiated rehabilitation
c. Out of court or informal restructuring agreement or Rehabilitation Plan
II. Petition for liquidation

a. Voluntary
b. Involuntary
2. Reliefs or remedies available to OR AGAINST individual debtor

i. Suspension of payments
ii. Voluntary liquidation
iii. Involuntary Liquidation
3. What do you mean by insolvent debtor?
Insolvent shall refer to the financial condition of a debtor that is generally unable to pay its or his liabilities as they fall due in the ordinary
course of business or has liabilities that are greater than its or his assets
Previous ruling (New Frontier vs Equitable Bank case (2007), that an insolvent debtor cannot file petition for rehabilitation no longer holds.
NB The term debtor does not include banks, insurance companies, pre-need companies, and national and local government agencies or units
4. What is the objective of rehabilitation?
Corporate rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its
former position of successful operation and solvency, the purpose being to enable the company to gain a new lease on life and allow its creditors
to be paid their claims out of its earnings. Thus, the basic issues in rehabilitation proceedings concern the viability and desirability of
continuing the business operations of the distressed corporation, all with a view of effectively restoring it to a state of solvency or to its former
healthy financial condition through the adoption of a rehabilitation plan. (Philippine Asset Growth Two, Inc. and Planters Development
Bank vs. Fastech Synergy Philippines Inc., et al. G.R. No. 206528, 28 June 2016)
Rehabilitation assumes that the corporation has been operational but for some reasons like economic crisis or mismanagement had become
distressed or insolvent. The petition for rehab should be denied if the debtor had not been in the position of successful operation and solvency
prior to the filing of the petition. While the debtor had indeed commenced business through the preparatory act of opening a credit line with
the bank to finance the construction of a new hospital building for its future operations, the debtor corporation itself admits that it has not
formally operated nor earned any income since its incorporation. This simply means that there exists no viable business concern to be restored.
(BPI Family Savings Bank vs St Michael Medical Center, GR No. 205469, March 25, 2015)
5. How is this objective attained?
During the pendency of the rehabilitation, enforcement of claims against the debtor are generally suspended- to give time to the debtor and
the rehabilitation receiver to rehabilitate the company undistracted by court suits.
Likewise, the rehabilitation plan is binding on the debtor and all creditors affected by the proceedings even to those who did not take part or
opposed the rehabilitation plan under the cram down effect of the plan.
National and local taxes are waived until approval of the rehabilitation plan or its termination.
6. How do we distinguish voluntary from involuntary liquidation of individual debtors?
Voluntary liquidation is filed by the debtor whose assets are less than liabilities. Involuntary liquidation is filed by a creditor or group of
creditors whose aggregate claim is at least 500,000 if the debtor commits an act of insolvency (basically fraudulent act to defeat the rights of
creditor/creditors)
7. Who can file petition for rehabilitation?
a. sole proprietorship
b. Partnership when the filing is approved by at least a majority of the partners
c. Corporation when approved by at least majority vote of the board of directors or trustees and authorized by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock, or in case of nonstock corporation, by the vote of at least two-thirds
(2/3) of the members, in a stockholder's or member's meeting duly called for the purpose.
8. What is the procedure for debtor initiated rehabilitation
The procedure is as follows:

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i. File a petition for rehabilitation in the RTC of the city where the debtor has principal office. It shall be verified to establish the insolvency
of the debtor and the viability of its rehabilitation. It shall include, among others, a rehabilitation plan and names of at least three
nominees to the position of rehabilitation receiver ( who will implement the rehabilitation plan).
ii. If the court finds the petition to be sufficient in form and substance, it shall issue within five working days a commencement order.
Otherwise, the court, at its discretion, give petitioner time to amend the petition to make it sufficient in form and substance.
iii. The rehabilitation proceedings shall commence upon issuance of the commencement order. The commencement order, among others,
appoints the rehabilitation receiver and sets the case for initial hearing. It shall also include a stay order which shall suspend all actions
or proceedings for the enforcement of claims against the debtor, as well as actions to enforce any judgment or attachment or provisional
remedy against the debtor; prohibits disposition or encumbrance of property except in the ordinary course of business and prohibit
debtor from making any payment except when authorized by the rules. CJAPDEP
The stay order does not include, among others, cases on appeal with the sc, cases falling with a specialized court or quasi-judicial agency,
enforcement of claims against surety and other persons solidarily liable with the debtor and third party or accommodation mortgagors
as well as issuers of letter of credit, unless the property subject of third party mortgage is necessary for the rehabilitation of the debtor
as determined by the court; criminal action against the debtor.SSQSIAC
iv. At the hearing, court will direct creditors to give their comments to the petition and rehab plan and the rehab receiver to submit report
to the court on whether debtor can be rehabilitated.
v. Receiver submits report to the court on whether debtor can be rehabilitated.
vi. Within ten days from submission of the report, the court may give due course to the petition or convert the proceedings into one for
liquidation (if debtor is insolvent and no substantial likelihood for rehabilitation.
vii. If the petition is given due course, the court shall direct receiver to review, revise and/or recommend action on the rehab plan.
viii. Receiver consults with debtor and creditors.
ix. Receiver submits rehab plan to the court.
x. Court directs creditors to give comments to the rehab plan.
xi. Court approves rehab plan upon recommendation of receiver and even over the objection of creditors if objection is manifestly
unreasonable.
xii. The court has one year from filing of petition to approve rehabilitation plan.
xiii. Proceedings terminated by order of the court declaring successful implementation of the rehab plan or a failure of rehabilitation .
There is failure of rehabilitation in the following cases:
i. Dismissal of the petition by the court;

ii. The debtor fails to submit a rehabilitation plan;
iii. Under the rehabilitation plan submitted by the debtor, there is no substantial likelihood that the debtor can be rehabilitated within a
reasonable period;
iv. In the implementation of the rehabilitation plan, the debtor fails to perform its obligations thereunder or there is failure to realize the
objectives, targets or goals set forth therein, including the timeliness and conditions for the settlement of the obligations due to the
creditors and other claimants;
v. The Commission of fraud in securing the rehabilitation plan or its amendment; and
vi. Other analogous circumstances as may be defined by the rules of procedure.
Upon failure of the rehabilitation, the Court may issue an order converting the proceedings to a liquidation.
What is the rationale for the Stay Order?
The stay order is a recognition that all assets of a corporation under rehabilitation are held in trust for the equal benefit of all creditors under
the doctrine of “equality is equity”. As all the creditors ought to stand on equal footing, not any one of them should be paid ahead of others.
Furthermore, the stay order will enable the the rehabilitation receiver to effectively exercise its or his powers free from judicial or
extrajudicial interference that might unduly hinder or prevent the “rescue” of the distressed company, rather than to waste its/his time,
effort and resources in defending claims against the corporation. (BAR 2006)
NB The stay order is now referred to under FRIA as commencement order. The commencement order includes a stay order
IMPORTANT POINTS
a. Stay order covers claims of pecuniary nature

b. It does not cover surety, issuers of l/c and third party mortgagors except if property of latter needed for rehab of the debtor
c. The court not bound by the report of the receiver
The CA's reliance on the expertise of the court-appointed Rehabilitation Receiver, who opined that respondents' rehabilitation is viable, in
order to justify its finding that the financial statements submitted were reliable, overlooks the fact that the determination of the validity and
the approval of the rehabilitation plan is not the responsibility of the rehabilitation receiver, but remains the function of the court. The
rehabilitation receiver's duty prior to the court's approval of the plan is to study the best way to rehabilitate the debtor, and to ensure that the
value of the debtor's properties is reasonably maintained; and after approval, to implement the rehabilitation plan. Notwithstanding the
credentials of the court-appointed rehabilitation receiver, the duty to determine the feasibility of the rehabilitation of the debtor rests with the
court. While the court may consider the receiver's report favorably recommending the debtor's rehabilitation, it is not bound thereby if, in its
judgment, the debtor's rehabilitation is not feasible. Philippine Asset Growth Two, Inc. and Planters Development Bank vs. Fastech
Synergy Philippines Inc., et al. G.R. No. 206528, 28 June 2016, J. Perlas-Bernabe

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d. The rehab plan should be feasible, contains liquidation analysis and material financial commitment of the debtor to make it work
and
- Economic feasibility
In the recent case of Viva Shipping Lines, Inc. v. Keppel Philippines Mining, Inc., the Court took note of the characteristics of an economically
feasible rehabilitation plan.
a. The debtor has assets that can generate more cash if used in its daily operations than if sold.
b. Liquidity issues can be addressed by a practicable business plan that will generate enough cash to sustain daily operations.
c. The debtor has a definite source of financing for the proper and full implementation of a Rehabilitation Plan that is anchored on realistic
assumptions and goals.
The Regional Trial Court correctly dismissed petitioner's rehabilitation plan. It found that petitioner's assets are non-performing. Petitioner
admitted this in its Amended Petition when it stated that its vessels were no longer serviceable. In Wonder Book Corporation v. Philippine Bank
of Communications, a rehabilitation plan is infeasible if the assets are nearly fully or fully depreciated. This reduces the probability that
rehabilitation may restore and reinstate petitioner to its former position of successful operation and solvency.
The plan of selling properties of petitioner's sister company to generate cash flow cannot be a basis for the approval of the rehabilitation plan.
As pointed out by the Regional Trial Court, this plan requires conformity from the sister company. Even if the two companies have the same
directorship and ownership, they are still two separate juridical entities. VIVA SHIPPING LINES, INC., Petitioner, v. KEPPEL PHILIPPINES
MINING, INC., METROPOLITAN BANK & TRUST COMPANY, PILIPINAS SHELL PETROLEUM CORPORATION, CITY OF BATANGAS, CITY
OF LUCENA, PROVINCE OF QUEZON, ALEJANDRO OLIT, NIDA MONTILLA, PIO HERNANDEZ, EUGENIO BACULO, AND HARLAN
BACALTOS, Respondents. G.R. No. 177382, February 17, 2016, LEONEN, J.
- Liquidations analysis :
Given the various stakeholders of the insolvent debtor- shareholders, creditors, the state, it is better to rehabilitate the debtor than to carry
out its liquidation. Is the present value recovery better if the debtor continues as a going concern than if the debtor is to go under
liquidation within 120 days from filing of the petition?
- Material financial commitment
A material financial commitment becomes significant in gauging the resolve, determination, earnestness and good faith of the distressed
corporation in financing the proposed rehab plan. The commitment may include the voluntary undertakings of the stockholders or the would
be investors of the debtor corporation indicating their readiness, willingness and ability to contribute funds or property to guarantee the
continued successful operation of the debtor-corporation during the period of rehabilitation.
The rehab plan should be denied f the debtor avers that it will not require the infusion of additional capital but only proposes to have all
accrued penalties, charges and interest waived and reduced interest rate prospectively applied to all its obligations without any concrete plan
to build on debtor’s beleaguered financial position through substantial investment. Anathema to the true purpose of rehabilitation, a distressed
corporation can not be restored to its former position of successful operation and regain solvency by the sole strategy of delaying
payments/waiving accrued interests and penalties at the expense of the creditors ( Philippine Asset Growth Two vs Fastech Synergy
Philippines, GR No. 206528, June 28, 2016 )
The rehab plan should be dismissed if the only proposed source of revenue the plan suggests is the capital which would come from the
company’s potential investors, which negotiations are merely pending. (BPI Family Savings Bank vs St Michael Medical Center, GR No.
205469, March 25, 2015)
E. Equality is equity principle
All assets of a corporation under rehabilitation receivership are held in trust for the equal benefit of all creditors, precluding one from obtaining
an advantage or preference over another by the expediency of attachment, execution or otherwise. Once the corporation is taken over by a
receiver, all the creditors stand on equal footing and no one may be paid ahead of the others. This is precisely the reason for suspending all
pending claims against the corporation under receivership. This is called the “pari passu principle”. (BAR 2008)
F. Mortgagee and pledgee cannot foreclose
G. Commencement order retroacts to date of petition
H. Affects even objecting creditors
Among other rules that foster the foregoing policies, Section 23, Rule 4 of the Interim Rules of Procedure on Corporate Rehabilitation (Interim
Rules) states that a rehabilitation plan may be approved even over the opposition of the creditors holding a majority of the corporation’s total
liabilities if there is a showing that rehabilitation is feasible and the opposition of the creditors is manifestly unreasonable. Also known as the
"cram-down" clause, this provision, which is currently incorporated in the FRIA, is necessary to curb the majority creditors’ natural tendency
to dictate their own terms and conditions to the rehabilitation, absent due regard to the greater long-term benefit of all stakeholders. Otherwise
stated, it forces the creditors to accept the terms and conditions of the rehabilitation plan, preferring long-term viability over immediate but
incomplete recovery. (Bank of the Philippine Islands v. Sarabia Manor Hotel Corporation, G.R. No. 175844, 29 July 2013, J. Perlas-
Bernabe)
Bar exam questions
Debtor Corporation and its principal stockholders filed with the SEC a petition for rehabilitation and declaration of a state of suspension of
payments under P.D. 902-A. The objective was for SEC to take control of the corporation and all its assets and liabilities, earnings and operations
and rehabilitating the company for the benefit of investors and creditors.
Generally, the unsecured creditors had manifested willingness to cooperate with Debtor Corporation. The secured creditors, however,
expressed serious objections and reservations.
First Bank had already initiated judicial foreclosure proceedings on the mortgage constituted on the factory of Debtor Corporation.

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Second Bank had already initiated foreclosure proceedings on a third-party mortgage constituted on certain assets of the principal
stockholders.
Third Bank had already filed a suit against the principal stockholders who had held themselves liable jointly and severally for the loans of
Debtor Corporation with said Bank.
After hearing, 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.
a) Discuss the validity of the SEC order of suspension?

b) Discuss the effects of the SEC order of suspension on the judicial foreclosure proceedings initiated by First Bank.
c) Would the order of suspension have any legal effect on the foreclosure proceedings initiated by Second Bank? Explain.
d) Would the order of suspension have any effect on the suit filed by Third Bank? Explain.
e) What are the legal consequences of a rehabilitation receivership?
f) What measures may the receiver take to preserve the assets of Debtor Corporation?
Answer:
a) The SEC order of suspension of payment is valid with respect to the debtor corporation, but not with respect to the principal stockholder.
The SEC has jurisdiction to declare suspension of payments with respect to corporations, partnership or associations, but not with respect
to individuals.
b) The SEC order of suspension of payment suspended the judicial proceedings initiated by First Bank. According to the Supreme Court in a
line of cases, the suspension order applies to secured creditors and to the action to enforce the security against the corporation regardless
of the stage thereof.
NB same answer except that for the jurisdiction of the SEC which has been transferred to the RTC
c) The order of suspension of payments suspended the foreclosure proceedings initiated by the Second Bank. While the foreclosure is against
the property of a third party, it is in reality an action to collect the principal obligation owed by the corporation. During the time that the
payment of the principal obligation is suspended, the debtor corporation is considered to be not in default and, therefore, even the right to
enforce the security, whether owned by the debtor-corporation or of a third party, has not yet arisen.
NB Under Section 18 of FRIA, the stay order shall not apply to the enforcement of claims against sure ties and other persons solidarily
liable with the debtor, and third party or accommodation mortgagors as well as issuers of letter of credit, unless the property subject of
the third party or accommodation mortgage is necessary for the rehabilitation of the debtor as determined by the court upon the
recommendation of the rehabilitation receiver.
d) For the same reason as in (c), the order of suspension of payments suspended the suit filed by Third Bank against the principal stockholders.
e) Under PD 902-A, the appointment of a rehabilitation receiver will suspend all actions for claims against the corporation and the corporation
will be placed under rehabilitation in accordance with a rehabilitation plan approved by the Commission.
NB the FRIA repealed PD 902-A insofar as it is now the RTC not the SEC that has authority to appoint rehabilitation receiver
f) To preserve the assets of the Debtor Corporation, the receiver may take custody of, and control over, all the existing assets and property
of the corporation; evaluate existing assets and liabilities, earnings and operations of the corporation; and determine the best way to
salvage and protect the interest of the investors and creditors. (BAR 1999)
13. What do you understand by pre-negotiated rehabilitation plan?
An insolvent debtor, by itself or jointly with any of its creditors, may file a verified petition with the court for the approval of a pre-negotiated
Rehabilitation Plan which has been endorsed or approved by creditors holding at least two-thirds (2/3) of the total liabilities of the debtor,
including secured creditors holding more than fifty percent (50%) of the total secured claims of the debtor and unsecured creditors holding
more than fifty percent (50%) of the total unsecured claims of the debtor. The petition shall include the pre-negotiated Rehabilitation Plan,
including the names of at least three (3) qualified nominees for rehabilitation receiver.
14. What are the requirements for an Out of Court or Informal restructuring agreement or rehab plan?
a. The debtor must agree to the out-of-court or informal restructuring/workout agreement or Rehabilitation Plan;
b. It must be approved by creditors representing at least sixty-seven (67%) of the secured obligations of the debtor;
c. It must be approved by creditors representing at least seventy-five percent (75%) of the unsecured obligations of the debtor; and
d. It must be approved by creditors holding at least eighty-five percent (85%) of the total liabilities, secured and unsecured, of the debtor.
It means that among the secured and unsecured creditors and total number of creditors, there is a threshold percentage of liabilities.
The approval is based on the amount of liabilities and not based on number of creditors.
15. What do you mean by standstill agreement ?
It is an agreement by the debtor and the creditors providing for a standstill period pending negotiation and finalization of the out-of court
or informal restructuring agreement which is effective and enforceable not only against the contracting parties but also against other
creditors. Provided, That such agreement is approved by creditors representing more than 50% of the total liabilities of the debtor; notice
thereof is published in a newspaper of general circulation in the Philippines once a week for two consecutive weeks; and the standstill
period does not exceed 120 days from the date of effectivity. The notice must invite creditors to participate in the negotiation for out- of-
court rehabilitation or restructuring agreement and notify them that said agreement will be binding on all creditors if the required majority
votes are met.

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16. When may an individual debtor file a petition for Suspension of Payments?
An individual debtor who, possessing sufficient property to cover all his debts but foreseeing the impossibility of meeting them when they
respectively fall due, may file a verified petition that he be declared in the state of suspension of payments by the court of the province or
city in which he has resided for six (6) months prior to the filing of his petition. He shall attach to his petition, as a minimum: (a) a schedule
of debts and liabilities; (b) an inventory of assess; and (c) a proposed agreement with his creditors.
If the court finds the petition sufficient in form and substance, it shall, within five (5) working days from the filing of the petition, issue an
Order, among others, calling a meeting of all the creditors named in the schedule of debts and liabilities; directing such creditors to prepare
and present written evidence of their claims before the scheduled creditors' meeting and forbidding the individual debtor from selling,
transferring, encumbering or disposing in any manner of his property, except those used in the ordinary operations of commerce or of
industry and prohibiting the individual debtor from making any payment outside of the necessary or legitimate expenses of his business or
industry, so long as the proceedings relative to the suspension of payments are pending;
The suspension order shall lapse when three (3) months shall have passed without the proposed agreement being accepted by the creditors
or as soon as such agreement is denied.
17. Who are not covered by the court order and proceedings on suspension of payments?
a. those creditors having claims for personal labor, maintenance, expense of last illness and funeral of the wife or children of the debtor
incurred in the sixty (60) days immediately prior to the filing of the petition; and
b. secured creditors
c. creditors whose claims are not listed in the petition.
18. What are the requisites for the approval of the petition by the court?
The presence of creditors holding claims amounting to at least three-fifths (3/5) of the liabilities shall be necessary for holding a meeting.
The creditors and individual debtor shall discuss the propositions in the proposed agreement and put them to a vote;
To form a majority, it is necessary:
1. that two-thirds (2/3) of the creditors voting unite upon the same proposition; and
2. that the claims represented by said majority vote amount to at least three-fifths (3/5) of the total liabilities of the debtor mentioned
in the petition; and
If the decision of the majority of the creditors to approve the proposed agreement or any amendment thereof made during the creditors'
meeting is upheld by the court, or when no opposition or objection to said decision has been presented, the court shall order that the
agreement be carried out and all parties bound thereby to comply with its terms.
19. Distinguish petition for liquidation from suspension of payment.
The distinctions are as follows :
In liquidation, the liabilities of the debtor are more than his assets, while in suspension of payments, assets of the debtor are more than his
liabilities but that the debtor foresees the impossibility of paying his debts as they fall due.
In liquidation, the assets of the debtor are to be converted into cash for distribution among his creditors, while in suspension of payments,
the debtor is only asking for time within which to convert his frozen assets into liquid cash with which to pay his obligations when the
latter fall due.
There is discharge in voluntary liquidation of individual debtor but there is no discharge in suspension of payment
The court order in petition for suspension of payments does not include secured creditors whereas in petition for liquidation, foreclosure
proceedings shall not be allowed for a period of 180 days from issuance of the liquidation order.
Distinguish between voluntary liquidation and involuntary liquidation of individual debtors.
In voluntary liquidation, it is the debtor himself who files the petition for insolvency, while in involuntary liquidation, a creditor or group of
creditors are the ones who file the petition for liquidation against the insolvent debtor.
In voluntary liquidation, the assets of the debtor are less than his liabilities while involuntary liquidation, the assets need not be less than
liabilities
In voluntary liquidation, the filing of the petition is by itself the act of insolvency whereas in involuntary liquidation filed by creditor/s against
the individual, the latter must have committed an act of insolvency.
The required amount of debt for the debtor to file the petition for voluntary liquidation should exceed P 500,000 whereas in involuntary
liquidation, the creditor/s claims should be at least P 500,000.
What are the remedies of the secured creditor in liquidation proceeding ?
During liquidation proceedings, a secured creditor may waive its security or lien, prove its claim, and share in the distribution of the assets of
the debtor, in which case it will be admitted as an unsecured creditor; or maintain its rights under the security or lien, in which case:
1. [T]he value of the property may be fixed in a manner agreed upon by the creditor and the liquidator. When the value of the property is less
than the claim . . . the [creditor] will be admitted . . . as a creditor for the balance. If its value exceeds the claim . . . the liquidator may convey the
property to the creditor and waive the debtor’s right of redemption upon receiving the excess from the creditor;
2. [T]he liquidator may sell the property and satisfy the secured creditor’s entire claim from the proceeds of the sale; or

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3. [T]he secured creditor may enforce the lien or foreclose on the property pursuant to applicable laws.
It is worth mentioning that under Republic Act No. 10142, otherwise known as the Financial Rehabilitation and Insolvency Act (FRIA) of 2010,
the right of a secured creditor to enforce his lien during liquidation proceedings is retained. A secured creditor, however, is subject to the
temporary stay of foreclosure proceedings for a period of 180 days, upon the issuance by the court of the Liquidation Order. (Metropolitan
Bank and Trust Company vs. S.F. Naguiat Enterprises, G.R. No. 178407, 18 March 2015, J. Leonen)
Distinguish the remedies of the secured creditors in rehabilitation proceedings, suspension of payment and liquidation proceedings.
In rehabilitation, the stay order suspends enforcement of the mortgage lien until termination of the rehabilitation proceedings. The order of the
court in suspension of payments does not cover secured creditors while in liquidation, the secured creditor can only enforce his lien after 180
days from issuance of the liquidation order.
20. What are the procedural remedies under FRIA?
A. Decisions of the Regional Trial Court on rehabilitation are immediately executory and shall be appealable to the Court of Appeals under
Rule 43 of the Rules of Court. Motion for reconsideration of the decision is not allowed.
B. A party may file a motion for reconsideration of any court order prior to the approval of the rehabilitation plan or any order prior to
its resolution confirming or disapproving the proposed agreement to suspend payment, as well as any order prior to the issuance of
the liquidation order.
No relief can be extended to the party aggrieved by the court’s order on the motion through a special civil action for certiorari under
Rule 65 of the Rules of Court.
C. The court’s dismissal of the petition for suspension of payment on the ground of insufficiency in form and substance resulting in the
non-issuance of the suspension order and its order confirming or disapproving the proposed suspension of payment agreement, as
well as the liquidation order and the order approving or disapproving the liquidation plan can only be reviewed through a petition for
certiorari to the Court of Appeals under Rule 65 of the Rules of Court within 15 days from notice of the decision or order.
Other cases
A corporation that may seek corporate rehabilitation is characterized not by its debt but by its capacity to pay this debt. There is no reason why
corporations with dents that may have already matured should not be given the opportunity to recover and pay their debtors in an orderly fashion.
The opportunity to rehabilitate the affairs of an economic entity, regardless of the status of its debts, redounds to the benefit of its creditors, owners,
and to the economy in general. Rehabilitation, rather than collection of debts from a company already near bankruptcy, is a better use of judicial
rewards.
Thus, the condition that triggers rehabilitation is not the maturation of a corporation’s debts by the inability of the debtor to pay these debts
(METROPOLITAN BANK AND TRUST COMPANY v. LIBERTY CORRUGATED BOXES MANUFACTURING CORP. G.R. No. 184317, January 25, 2017)
The prosecution of the officers of the corporation has no bearing on the pending rehabilitation of the corporation, especially since they are charged in
their individual capacities. Such being the case, the purpose of the law for the issuance of the stay order is not compromised, since the appointed
rehabilitation receiver can still fully discharge his functions as mandated by law. It bears to stress that the rehabilitation receiver is not charged to
defend the officers of the corporation. If there is anything that the rehabilitation receiver might be remotely interested in is whether the court also
rules that petitioners are civilly liable. Such a scenario, however, is not a reason to suspend the criminal proceedings, because as aptly discussed
in Rosario, should the court prosecuting the officers of the corporation find that an award or indemnification is warranted, such award would fall under
the category of claims, the execution of which would be subject to the stay order issued by the rehabilitation court. (People Of The
Philippines, V. Ervin Y. Mateo, G.R. No. 210612. October 9, 2017., Peralta, J.)
Yes. The acts of sending a notice of informal conference and a Formal Letter of Demand are part and parcel of the entire process for the assessment
and collection of deficiency taxes from a delinquent taxpayer, - an action or proceeding for the enforcement of a claim which should have been
suspended pursuant to the Commencement Order. Unmistakably, Misajon, et al. 's foregoing acts are in clear defiance of the Commencement Order.
Petitioners' insistence that: (a) Misajon, et al. only performed such acts to toll the prescriptive period for the collection of deficiency taxes; and (b) to
cite them in indirect contempt would unduly interfere with their function of collecting taxes due to the government, cannot be given any credence.
They could have easily tolled the running of such prescriptive period, and at the same time, perform their functions as officers of the BIR, without
defying the Commencement Order and without violating the laudable purpose of RA 10142 by simply ventilating their claim before the Rehabilitation
Court. After all, they were adequately notified of the LCI's corporate rehabilitation and the issuance of the corresponding Commencement Order. In
sum, it was improper for Misajon, et al. to collect, or even attempt to collect, deficiency taxes from LCI outside of the rehabilitation proceedings
concerning the latter, and in the process, willfully disregard the Commencement Order lawfully issued by the Rehabilitation Court. Hence, the RTC Br.
35 correctly cited them for indirect contempt. (Bureau Of Internal Revenue, Assistant Commissioner Alfredo V. Misajon, Group Supervisor
Rolando M. Balbido, And Examiner Reynante Dp. Martirez V. Lepanto Ceramics, Inc.; G.R. No. 224764, April 24, 2017, Perlas-Bernabe, J.)
A belated application of the insurance proceeds to the obligations of West Bay or PBR and BCP would violate the Stay Order dated July 10, 2002 issued
by the RTC. (Land Bank Of The Philippines V. West Bay Colleges, Inc., PBR Management And Development Corp. And Bcp Trading Co., Inc.;
G.R. No. 211287, April 17, 2017, Reyes, J.)
The Regional Trial Court correctly dismissed petitioner's rehabilitation plan. It found that petitioner's assets are non-performing. Petitioner admitted
this in its Amended Petition when it stated that its vessels were no longer serviceable. In Wonder Book Corporation v. Philippine Bank of
Communications, a rehabilitation plan is infeasible if the assets are nearly fully or fully depreciated. This reduces the probability that rehabilitation
may restore and reinstate petitioner to its former position of successful operation and solvency.
The plan of selling properties of petitioner's sister company to generate cash flow cannot be a basis for the approval of the rehabilitation plan. As
pointed out by the Regional Trial Court, this plan requires conformity from the sister company. Even if the two companies have the same directorship
and ownership, they are still two separate juridical entities. (Viva Shipping Lines, Inc., Petitioner, V. Keppel Philippines Mining, Inc., Metropolitan
Bank & Trust Company, Pilipinas Shell Petroleum Corporation, City Of Batangas, City Of Lucena, Province Of Quezon, Alejandro Olit, Nida
Montilla, Pio Hernandez, Eugenio Baculo, And Harlan Bacaltos, Respondents. G.R. No. 177382, February 17, 2016, Leonen, J.)
Any final order or decision of the Regional Trial Court may be subject of an appeal. In Re: Mode of Appeal in Cases Formerly Cognizable by the Securities
and Exchange Commission, the SC clarified that all decisions and final orders falling under the Interim Rules of Procedure on Corporate Rehabilitation
shall be appealable to the Court of Appeals through a petition for review under Rule 43 of the Rules of Court.

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Petitioner did not comply with the requirements under Rule 43. First, it did not implead its creditors as respondents. Instead, petitioner only impleaded
the Presiding Judge of the Regional Trial Court, contrary to Section 6(a) of Rule 43. Second, it did not serve a copy of the Petition on some of its creditors,
specifically, its former employees. Finally, it did not serve a copy of the Petition on the Regional Trial Court.
A corporate rehabilitation case cannot be decided without the creditors' participation. The court's role is to balance the interests of the corporation, the
creditors, and the general public. Impleading creditors as respondents on appeal will give them the opportunity to present their legal arguments before
the appellate court. The courts will not be able to balance these interests if the creditors are not parties to a case. Ruling on petitioner's appeal in the
absence of its creditors will not result in judgment that is effective, complete, and equitable.
The failure of petitioner to implead its creditors as respondents cannot be cured by serving copies of the Petition on its creditors. Since the creditors
were not impleaded as respondents, the copy of the Petition only serves to inform them that a petition has been filed before the appellate court. Their
participation was still significantly truncated. Petitioner's failure to implead them deprived them of a fair hearing. The appellate court only serves
court orders and processes on parties formally named and identified by the petitioner. Since the creditors were not named as respondents, they could
not receive court orders prompting them to file remedies to protect their property rights.
All decisions and final orders in cases falling under the Interim Rules of Corporate Rehabilitation and the Interim Rules of Procedure Governing Intra-
Corporate Controversies under Republic Act No. 8799 shall be appealable to the Court of Appeals through a petition for review under Rule 43 of the
Rules of Court. (Marilyn Victorio-Aquino Vs. Pacific Plans, Inc. And Mamerto A. Marcelo, Jr. (Court-Appointed Rehabilitation Receiver Of
Pacific Plans, Inc.) G.R. No. 193108 December 10, 2014)
Subsequently, the Supreme Court issued A.M. No. 00-8-10-SC38 (Rehabilitation Rules), which took effect on January 16, 2009, embodying the
rehabilitation rules applicable to petitions for rehabilitation of corporations, partnerships and associations pursuant to P.D. No. 902-A, as amended.
Section 1, Rule 8 thereof unequivocally states:
SEC. 1. Motion for Reconsideration. — A party may file a motion for reconsideration of any order issued by the court prior to the approval of the
rehabilitation plan. No relief can be extended to the party aggrieved by the court’s order on the motion through a special civil action for certiorari
under Rule 65 of the Rules of Court. Such order can only be elevated to the Court of Appeals as an assigned error in the petition for review of the
decision or order approving or disapproving the rehabilitation plan.
An order issued after the approval of the rehabilitation plan can be reviewed only through a special civil action for certiorari under Rule 65 of the
Rules of Court. (Aquino, ibid.)
E-COMMERCE LAW
Electronic Data Message
Refers to information generated, sent, received or stored by electronic, optical or similar means (Section 5(c), RA No. 8792)
Electronic Document
Refers to information or the representation of information, data, figures, symbols or other modes of written expression, described or however
represented, by which a right is established or an obligation extinguished, or by which a fact may be proved and affirmed, which is received, recorded,
transmitted, stored, processed, retrieved or produced electronically. (Section 5(f), RA No. 8792)
NOTE: Under the Rules on Electronic Evidence, the term “electronic document” may be used interchangeably with electronic data message”. [Rule 2,
Sec 1 (h), Rules on Electronic Evidence].
Legal Effect of Electronic Document
1. Electronic documents shall have the legal effect, validity or enforceability as any other document or legal writing (Section 7, RA No, 8792).
2. Equivalent compliance
a. Any legal requirement that a document be in writing is complied by an electronic document if

1. it maintains its integrity and reliability and
2. can be authenticated so as to be usable for subsequent reference, in that -
i. The electronic document has remained complete and unaltered, apart from the addition of any endorsement and any authorized
change, or any change which arises in the normal course of communication, storage and display; and
ii. The electronic document is reliable in the light of the purpose for which it was generated and in the light of all relevant circumstances.
b. Any legal requirement that a document be presented or retained in its original form is met by an electronic document if –
1. There exists a reliable assurance as to the integrity of the document from the time when it was first generated in its final form; and
2. That document is capable of being displayed to the person to whom it is to be presented (Section 7, RA No. 8792)
The Rules on Electronic Evidence regards an electronic document as admissible in evidence if it complies with the rules on admissibility prescribed
by the Rules of Court and related laws, and is authenticated in the manner prescribed by the said Rules. [Rule 3, Section 2, Rules on Electronic Evidence].
An electronic document shall be regarded as the equivalent of an original document under the Best Evidence Rule if it is a printout or output readable
by sight or other means, shown to reflect the data accurately [Rule 4, Sec. 1, Rules on Electronic Evidence]
NB it is not a secondary evidence which can only be good in the absence of written evidence
Admissible for the purpose being offered. Electric document can not prove sound mind as it is not the evidence for that but evidence of the contents
of the agreement.
NOTE: R.A. No. 8792 considers an electronic data message or an electronic document as the functional equivalent of a written document only
for evidentiary purposes, that is, the law merely recognizes the admissibility in evidence (for their being the original) of electronic data messages
and/or electronic documents. BUT, it does not regard the internet as a valid medium for publishing laws, rules and regulations [Garcillano v. House of
Representatives, G.R. No. 170338, December 23, 2008]
Admissibility and Evidential Weight of Electronic Data Message or Electronic Document.

In any legal proceedings, the admissibility of an electronic data message or electronic document in evidence cannot be denied:

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a. On the sole ground that it is in electronic form; or

b. On the ground that it is not in the standard written form and electronic data message or electronic document meeting and complying with the
requirements under Section 6 or 7 hereof shall be the best evidence of the agreement and transaction contained therein.
In assessing the evidential weight of an electronic data message or electronic document, the reliability of the manner in which it was generated, stored
or communicated, the reliability of the manner in which its originator was identified, and other relevant factors shall be given due regard (Section 12,
RA No. 8792).
Facsimile printouts are NOT electronic document/data message

Accordingly, a facsimile transmission cannot be considered as electronic evidence. It is not the functional equivalent of an original under the Best
Evidence Rule and is not admissible as electronic evidence. (MCC Industrial Sales Corp. V. Ssangyong corp., G.R. No. 170633, October 17, 2007).
NOTE: The rule is different in elections, where the picture image of the paper ballot scanned is considered an electronic document. Hence, even if the
type of automated election system that our country used is “paper-based,” the picture images of the paper ballots, as scanned and recorded by the
PCOS machines, are considered "official ballots" that faithfully captures in electronic form the votes cast by the voter, as defined by Section 2 (3) of
R.A. No. 9369. As such, the printouts thereof are the functional equivalent of the paper ballots filled out by the voters and, thus, may be used for
purposes of revision of votes in an electoral protest. [Chato v. House of Representatives Electoral Tribunal, G.R. No. 199149, January 22, 2013].
However, despite the equal probative weight accorded to the paper ballots and the printouts of their picture images, before the latter may be utilized,
it must be first shown that the official ballots are lost or their integrity has been compromised if the other party does not agree that the printouts
should be used. [Maliksi v. COMELEC, G.R. No. 203302, April 11, 2013]
DATA PRIVACY ACT OF 2012
Subjects of DPA (subject to comply with the rules on data processing)
Personal Information Controllers (PIC) - a person or organization who controls the collection, holding, processing or use of personal information,
including a person or organization who instructs another person or organization to collect, hold, process, use, transfer or disclose personal information
on his or her behalf.
Google FB Amazon HMOs Hospitals schools law firms, COMELEC, GOVERNMENT OFFICES
Personal Information Processors (PIP) - any natural or juridical person to whom a personal information controller may outsource the processing
of personal data pertaining to a data subject (Section 3(i), DPA)
What is Processing?
Any operation or any set of operations performed upon personal information including, but not limited to, the collection, recording, organization,
storage, updating or modification, retrieval, consultation, use, consolidation, blocking, erasure or destruction of data (Section 3(j), DPA)
NB CROS MR CUCUBED
What is personal information?
Any information whether recorded in a material form or not, from which the identity of an individual is apparent or can be reasonably and directly
ascertained by the entity holding the information, or when put together with other information would directly and certainly identify an individual
(Section 3(g), DPA)
Hence, the image of a person recorded by a camera constitutes personal data (Rynes v. Urda, CJEU 11 December 2014)
What is Sensitive Personal Information?
(l) Sensitive personal information refers to the following personal information:

a. an individual’s race, ethnic origin, marital status, age, color, and religious, philosophical or political affiliations; REM CAR PP
b. an individual’s health, education, genetic or sexual life of a person, or to any proceeding for any offense committed or alleged to have been
committed by such person, the disposal of such proceedings, or the sentence of any court in such proceedings; HEG SOS
Grades of students cant be given to parents; grades cant be given to other students. On line viewing of all grades not allowed
c. Issued by government agencies peculiar to an individual which includes, but not limited to, social security numbers, previous or current health
records, licenses or its denials, suspension or revocation, and tax returns; and
d. Those specifically established by an executive order or an act of Congress to be kept classified. (Section 3t, IRR)
Rights of Data Subjects (Section 16, DPA):
1. The right to be informed IBAROP C D

a. on whether personal data pertaining to him or her shall be, are being, or have been processed, including the existence of automated decision-
making and profiling;
b. and notified about the following information before the entry thereof into the processing system of the personal information controller, or at
the next practical opportunity:
- Description of the personal data to be entered into the system;
- Purposes for which they are being or will be processed,
- Basis of processing, when processing is not based on the consent of data subject;
- Scope and method of the personal data processing; Recipients or classes of recipients to whom the personal data are or may be disclosed;
- Methods utilized for automated access, if the same is allowed by the data subject, and the extent to which such access is authorized, including
meaningful information about the logic involved, as well as the significance and the envisaged consequences of such processing for the data
subject;
- identity and contact details of the personal data controller or its representative;
- period for which the information will be stored; and
- existence of their rights as data subjects (Section 34a, IRR).

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2. The right to access. This means reasonable access upon demand to the following:
- Contents of his or her personal data that were processed
- Sources from which personal data were obtained
- Names and addresses of recipients of the personal data
- Manner by which such data were processed
- Reasons for the disclosure of the personal data to recipients, if any
- Information on automated processes where the data will, or is likely to, be made as the sole basis for any decision that significantly affects or
will affect the data subject
- Date when his or her personal data concerning the data subject were last accessed and modified
- The designation, name or identity, and address of the personal information controller (Section 34c, IRR)
3. The right to object. The data subject shall have the right to object to the processing of his or her personal data, including processing for direct
marketing, automated processing or profiling.
Rule: When a data subject objects or withholds consent, the personal information controller shall no longer process the personal data
Exceptions:
a. The personal data is needed pursuant to a subpoena
b. The collection and processing are for obvious purposes, including, when it is necessary for the performance of or in relation to a contract or
service to which the data subject is a party, or when necessary or desirable in the context of an employer-employee relationship between the
collector and the data subject; or
c. The information is being collected and processed as a result of a legal obligation (Section 34b, IRR)
4. The right to erasure or blocking. The data subject shall have the right to suspend, withdraw or order the blocking, removal or destruction of his or
her personal data from the personal information controller’s filing system, upon proof of any of the following grounds:
- The personal data is incomplete, outdated, false, or unlawfully obtained

- The personal data is being used for purpose not authorized by the data subject
- The personal data is no longer necessary for the purposes for which they were collected
- The data subject withdraws consent or objects to the processing, and there is no other legal ground or overriding legitimate interest for the
processing
- The personal data concerns private information that is prejudicial to data subject, unless justified by freedom of speech, of expression, or of
the press or otherwise authorized
- The processing is unlawful
- The personal information controller or personal information processor violated the rights of the data subject (Section 34e, IRR)
5. The right to damages. The data subject shall be indemnified for any damages sustained due to such inaccurate, incomplete, outdated, false,
unlawfully obtained or unauthorized use of personal data, taking into account any violation of his or her rights and freedoms as data subject
(Section 34f, IRR)
6. The right to file a complaint
NOTE: This is subject to exhaustion of remedies. Otherwise, the complaint is dismissible.
a. The complainant must have first informed, in writing, the personal information controller or concerned entity of the privacy violation or
personal data breach to allow for appropriate action on the same; AND
b. the personal information controller or concerned entity did not take timely or appropriate action on the claimed privacy violation or personal
data breach, or there is no response from the personal information controller within fifteen (15) days from receipt of information from the
complaint ; AND
c. the complaint is filed within six (6) months from the occurrence of the claimed privacy violation or personal data breach, or thirty (30) days
from the last communiqué with the personal information controller or concerned entity, whichever is earlier.
7. The right to rectify. The data subject has the right to dispute the inaccuracy or error in the personal data and have the personal information
controller correct it immediately and accordingly, unless the request is vexatious or otherwise unreasonable. If the personal data has been
corrected, the personal information controller shall ensure the accessibility of both the new and the retracted information and the simultaneous
receipt of the new and the retracted information by the intended recipients thereof: Provided, That recipients or third parties who have previously
received such processed personal data shall be informed of its inaccuracy and its rectification, upon reasonable request of the data subject (Section
34d, IRR)
8. Right to data portability – this right gives data subjects the mechanism to obtain their personal data in an electronic or structured format from
personal information controllers if such personal data is being processed through electronic means, and enables the further use of such personal
data by the data subjects (Section 36, IRR; Section 18, DPA)
What is the right to be forgotten? Is this right recognized under the DPA?
The right to be forgotten is a right recognized by the Court of Justice of the European Union (CJEU) allowing a data subject to request a search engine
operator (such as Google), as a data controller, to have the particular information about him (which appears when his name is searched via the search
engine) “no longer be linked to his name by a list of results displayed following a search made on the basis of his name” on the ground “that information
appears, having regard to all the circumstances of the case, to be inadequate, irrelevant or no longer relevant, or excessive in relation to the purposes
of the processing at issue carried out by the operator of the search engine, the information and links concerned in the list of results must be erased.”
(Google Spain SL, Google Inc. v Agencia Española de Protección de Datos (AEPD), Mario Costeja González, 2014)
NOTE: The website that published or has the information sought to be removed is NOT covered by the right to be forgotten because to them, the
freedom of expression applies (Google Spain SL, Google Inc. v Agencia Española de Protección de Datos (AEPD), Mario Costeja González, 2014)
The right to be forgotten is recognized in the form of “right of erasure or blocking” under the DPA in that the data subject may to ‘suspend, withdraw
or order the blocking, removal or destruction of his or her personal information from the personal information controller’s filing system upon
discovery and substantial proof that the personal information are incomplete, outdated, false, unlawfully obtained, used for unauthorized purposes or
are no longer necessary for the purposes for which they were collected.”
I MADE THE RIGHT TO BE FORGOTTEN AS MY LAST SLIDE WITH THE HOPE THAT THE LECTURE WILL NOT BE FORGOTTEN. -

Page 29 of 29
CONGRATULATIONS IN ADVANCE.

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2019 PRE-WEEK BAR LECTURE IN MERCANTILE LAW

Dean Nilo T. Divina

Banking and Special Commercial Laws

What is a letter of credit?

Where is the doctrine of independence derived?

Fraud Exception Principle

Doctrine of Strict Compliance

TRUST RECEIPTS LAW

What is a Trust Receipt?

Distinguish letter of credit from trust receipt

Then, add the following:

Are all obligations of the entrustee criminal in nature?

Transaction considered a loan even though denominated as a trust receipt

Monetary Board Powers

Distinguish conservator from receiver

©2019 Dean Nilo T. Divina, All Rights Reserved

Requisites to assail the order of BSP appointing a receiver/conservator or closing a bank.

LAW ON SECRECY OF PHILIPPINE CURRENCY BANK DEPOSITS (RA 1405)

Laws on secrecy of bank funds

©2019 Dean Nilo T. Divina, All Rights Reserved

GENERAL BANKING ACT

1. Single borrower’s limit

What do you mean by the single borrower’s limit?

PHILIPPINE DEPOSIT INSURANCE CORPORATION

Deposit accounts not entitled to payment

Prohibition against splitting of deposits

Prohibition against issuance of TRO

©2019 Dean Nilo T. Divina, All Rights Reserved

ANTI-MONEY LAUNDERING LAW (RA 9160, as amended by RA 10365)

1. Institutions supervised or regulated by BSP;

Obligations of covered institutions/persons

When is Money Laundering committed?

What is the meaning of safe harbor provision under AMLA?

Bank inquiry and freeze orders

©2019 Dean Nilo T. Divina, All Rights Reserved

Test to determine the nationality of a corporation

©2019 Dean Nilo T. Divina, All Rights Reserved

When is the grandfather rule applied?

1. If the investing corporation is less than 60% owned by Filipinos.

©2019 Dean Nilo T. Divina, All Rights Reserved

Corporate Juridical Personality

1. Doctrine of Separate Juridical Personality

©2019 Dean Nilo T. Divina, All Rights Reserved

Board of Directors and Officers

Doctrine of Apparent Authority

a. Ultra Vires Acts

A. By the Board of Directors

©2019 Dean Nilo T. Divina, All Rights Reserved

Stockholders and Members

©2019 Dean Nilo T. Divina, All Rights Reserved

d) Derivative suits; and

e) Inspection of corporate books.

©2019 Dean Nilo T. Divina, All Rights Reserved

©2019 Dean Nilo T. Divina, All Rights Reserved

Appointment of management committee

A non-unit owner cannot be elected as a member of the Board of Directors of Condocor.

©2019 Dean Nilo T. Divina, All Rights Reserved

A. Nature of the Certificate

I. Requirements for Valid Transfer Of Stocks

©2019 Dean Nilo T. Divina, All Rights Reserved

4. Disposition and Encumbrance of Shares

A. Requisites of a Valid Transfer

Mergers and Consolidations