Question 1 5 / 5 pts

Problem No. I

XYZ Manufacturing Corp. intends to diversify into the power industry. In doing so, it shall need
at least one billion pesos (P1,000,000,000.00) – which amount it does not have. As it does not
want to borrow from any bank, it decided to source the money from the public.

(a) In what form may it entice the public to invest with it?

Your Answer:

XYZ Manufacturing Corp. may either issue preferred or common stocks or may
issue bonds or debentures.
In the first option, the public subscribers become part owners of XYZ
Manufacturing Corp. by holding its stocks.
In the second option, the public becomes the lender of XYZ Manufacturing Corp.,
and any holder of bond or debenture is entitled to payment of the value and
interests thereof.

Question 2 5 / 5 pts
(b) What documents should it issue upon receipt of the investments from the public? (Be
specific about the documents and the type of investment they shall pertain to.)

Your Answer:

If XYZ Manufacturing Corp. raises capital through stock ownership, it shall issue
a stock certificate in favor of a fully paid subscriber of its shares of stock.
However, if XYZ Manufacturing Corp. raises capital by borrowing money from
the public, it shall issue a promissory note, a bond, or a debenture.

Question 3 5 / 5 pts
(c) What is meant by “public” under the Securities Regulation Code?
Your Answer:

The Securities Regulation Code contemplates the term "public" as more than 19
individuals, regardless of whether natural or juridical.

Question 4 5 / 5 pts
(d) Before it could even cause the printing of its brochures for the purpose of enticing the public,
what should it do with the Securities and Exchange Commission?
Your Answer:

XYZ Manufacturing Corp. must file a registration statement because Sec. 8 of

the Securities Regulation Code (SRC) expressly mandates that, generally, no
security shall be sold within the Philippines without filing a registration
statement with the SEC first. Furthermore, Secs. 9 and 10 of the SRC enumerate
the exempt securities and exempt transactions, respectively.
Not being considered as exempt securities nor as an exempt transaction, the
securities to be issued by XYZ Manufacturing Corp. must be registered to the
SEC first before even printing its brochures for the purpose of enticing the public.

Question 5 5 / 5 pts
(e) Since it has no experience on the profitability of power generation, in what form of investment
should it entice the public so that it would not be obliged to make any periodic or regular payment
of return on investments?
Your Answer:

XYZ Manufacturing Corp. may issue common shares.

A corporation that is not sure of the profitability of its business or whether it can
return a person's investment within a period of time may issue common shares
because common shares have no definite amount of the payment of return.

Question 6 5 / 5 pts
(f) As it will be going public, what should it do so that the documents showing the investments
could conveniently be transacted between buyer and seller?
Your Answer:

Before buying and selling securities in the public market, XYZ Manufacturing
Corp. must first register its securities with the SEC. Then, apply for listing with
the Philippine Stock Exchange.

Question 7 5 / 5 pts
(g) If you were the investor, whom should you engage to assist you in buying and, perhaps later
on, selling those documents evidencing your investments?
Your Answer:

If I am an investor, I will engage the services of a broker to assist me in buying

and selling the documents evidencing my investments.
The SRC defines a broker as a person engaged in the business of buying and
selling securities for the account of others.

Question 8 5 / 5 pts
(h) Where could one conveniently buy and sell, particularly shares of stock, and perhaps have
a transaction in about two (2) minutes?
Your Answer:

One may conveniently buy and sell shares of stock in the stock market.
Here in the Philippines, the Philippine Stock Exchange is the entity that governs
the local stock market where people conveniently buy and sell their stocks.

Question 9 5 / 5 pts
(i) When you engage the person in (g) above, how do you call the natural person it shall assign
to you to assist you in buying and selling evidence of your investments?
Your Answer:

Such person is called a salesman. A salesman refers to a natural person,

employed as an agent by a dealer, issuer, or broker to buy and sell securities.
Salesmen are usually certified public accountants because they keep records of
the transactions of their clients.

Question 10 5 / 5 pts
(j) May persons validly transact over listed shares without doing it through (h)? If so, how shall
that transaction be called?
Your Answer:

Yes, through an over-the-counter transaction. An over-the-counter transaction

is the buying or selling of shares listed in the PSE but made directly between the
parties and no longer coursed through the PSE.

Question 11 5 / 5 pts
(k) If the corporation would find great difficulty in having its shares listed with (h), what may it
legally do to have its shares traded with it?
Your Answer:

XYZ Manufacturing Corp. may resort to backdoor listing which is done by an

active corporation (XYZ) who searches for a listed dormant corporation to
acquire. Once merger is completed, the active corporation will be dissolved and
the listed dormant corporation will survive. Consequently, the shares of the
dissolved corporation will be replaced by the shares of the listed corporation.

Question 12 5 / 5 pts
(l) How do you call the transaction that a person that is related to a corporation and who has
information not known to the public and who buys shares of that corporation while the prices
are low anticipating that with that information the prices of those shares shall later on increase?
Your Answer:

The transaction is called insider trading defined by the SRC as a transaction

wherein an insider sells or buys a security of the issuer, while in possession of
material information with respect to the issuer or security that is not generally
available to the public.
Question 13 5 / 5 pts
(m) Suppose that Cris is the owner of numerous inactive (listed) securities. To create an
appearance of active trading for such securities, he connives with Tom by which Cris will offer
for sale some of his securities and Tom will buy them at a certain price, which price shall be
increased by 5% in every transaction, and will repeat the process for a month with the
understanding that although there would be an apparent sale, Cris will retain the beneficial
ownership thereof.

(1) Is that arrangement lawful?

(2) If the agreement materializes, is it called a “short sale?”

Your Answer:

(1) No, the arrangement is unlawful.

The IRR of the SRC defines a wash sale as transactions wherein there is no
change in the beneficial ownership of a security, among others.
Here, the arrangement between Cris and Tom has, ultimately, no change in the
beneficial ownership.
(2) No, it is not a short sale.
Short sale is defined as any sale of a security which the seller does not own or
any sale which is consummated by the delivery of a borrowed security by, or for
the account of the seller with the commitment of the seller or securities borrower
to return or deliver said securities or their equivalent to the lender on a
determined or determinable future date.
Here, the facts do not constitute a short sale because the ownership is
technically transferred from Cris to Tom then back to Cris.

Question 14 5 / 5 pts
Problem No. II

Jose is a merchant in Manila. He wants to sell dried fish in his supermarket. He was referred
to a big-time supplier in Palawan.

(n) How can they have transactions (sales) where the supplier shall be assured of payment and
Jose assured of delivery without any of them leaving his place of business?
Your Answer:

Jose may ask the bank to issue a letter of credit defined as any engagement by
a bank or other person made at the request of a customer that the issuer will
honor drafts or other demands for payment upon compliance with the conditions
specified in the credit.
As an effect, the transaction will be more secured because of the letter of credit.
Question 15 5 / 5 pts
(o) What are the requirements of the Code of Commerce for this transaction?
Your Answer:

The requirements of the Code of Commerce for a Letter of Credit are:

• It must be issued in favor of a person and not to order; and

• It must be limited to a fixed amount, or to one or more amounts, but
with a maximum stated limit.

Question 16 5 / 5 pts
(p) Within what periods should these transacted?
Your Answer:

Within six (6) months or 180 days because the Code of Commerce provides that
a domestic letter of credit is valid for a period of six (6) months or 180 days.
Here, both parties reside in the Philippines; thus, making the transaction a
domestic letter of credit.

Question 17 5 / 5 pts
(q) What are the three (3) independent contracts in that transaction?
Your Answer:

The three (3) independent contracts in a domestic letter of credit are:

• the contract of sale between the buyer and the seller;

• the contract of the buyer with the issuing bank; and
• the letter of credit proper wherein the bank obligates itself to pay the
seller or to the order of the seller after the presentation to the bank of
the documents stipulated thereon.

Question 18 5 / 5 pts
Problem No. III

Maria has a time deposit of P600,000.00 with Bank Rupt Savings Bank. With that bank, she
has a joint account with her husband Jose amounting to P1,200,000.00. She has another joint
account with her brother Julio amounting to P800,000.00. If that bank would be ordered closed
due to insolvency,

(r) how much in all may Maria recover from the PDIC?
Your Answer:

Maria may recover a total of P1,000,000 from the PDIC.

Under the PDIC, joint accounts are insured independently and separately
wherein a maximum amount of P500,000 is recoverable by an individual per sole
account per bank and a maximum amount of P500,000 for all joint accounts
combined per bank.
Thus, Maria may recover P500,000 from here time deposit and another P500,000
from her joint account, totaling to P1,000,000.

Question 19 5 / 5 pts
(s) how much may Jose recover from the PDIC?
Your Answer:

Jose may recover P500,000.

Under the PDIC, joint accounts are insured independently and separately
wherein a maximum amount of P500,000 is recoverable by an individual per sole
account per bank and a maximum of P500,000 for all joint accounts combined
per bank.
Thus, Jose may only recover P500,000.

Question 20 5 / 5 pts
(t) how much may Julio recover from the PDIC?

Your Answer:

Julio may recover P400,000 because the PDIC provides that the maximum
insured deposit shall be divided in as many equal shares as there are individuals
holding the joint account, except when there is a different sharing scheme that
is stipulated.
Here, Maria and Julio's joint account has a total amount of P800,000.
Thus, Julio may recover half of P800,000 or P400,000.

Quiz Score: 100 out of 100