SPECIAL COMMERCIAL LAW

Aquinas University
College of Law
atty.fionamaecorral-bobis
 COMMERCIAL LAW

 That branch of private law which regulates the

juridical relations arising from commercial acts.

 - that branch of private laws governing the rights,

obligations, and relations of persons engaged in
commerce or trade.
CHARACTERISTICS OF COMMERCIAL
LAW

 A) universal or international – exists in all society

 B) Progressive-keeps abreast with contemporary
developments
 C) Equitable - involves primarily the exchange of
values or consideration
 D) Uniformity-within a country, the same set of
rules
 E) Customary- invoked in everyday transactions
ECONOMIC NATIONALISM IN Sec. 1
Art. XII of the Constitution

 Sec. 1 . The goals of the National economy are a more equitable distribution of opportunities,
income, and wealth, a sustained increase in the amount of goods, and services produced by
the Nation for the benefit of the people; and an expanding productivity as the key to raising
the quality of life for all, specially the underprivileged.
 The State shall promote industrialization and full employment based on sound agricultural
development and agrarian reform, through industries that make full and efficient use of
human and natural resources, and which are competitive in both domestic and foreign
markets. However the State shall protect Filipino enterprises against unfair foreign
competition and trade practices.
 In the pursuit of these goals, all sectors of the economy and all regions of the country shall
be given optimum opportunity to develop private enterprises , including corporations,
cooperatives and similar collective organizations, shall be encouraged to broaden the base
of their ownership.
 FILIPINO FIRST POLICY
embodied in Secs. 10
and 12 of Art XII
 Sec. 10 . The Congress shall, upon recommendation of
the economic and planning agency, when the national
interest dictated, reserve to citizens of the Philippines
or to corporations or associations at least SIXTY PER
CENTUM of whose capital is owned by such citizens,
or such higher percentage as Congress may prescribe,
certain areas of investments. The Congress shall enact
measures that will encourage formation and operation
of enterprises whose capital is wholly owned by
Filipinos.
 In the grant of rights, privileges, and concessions
covering national economy and patrimony, the State
shall give preference to qualified Filipinos.
The State shall regulate and exercise authority over
foreign investments within its national jurisdiction and in
accordance with its national goals and priorities.

Sec. 12. The State shall promote the preferential use of

Filipino labor, domestic materials and locally produced
goods and adopt measures that help make them
competitive.
 Manila Prince Hotel v. GSIS
 267 SCRA 408 (1997)

 Should a Filipino bidder be allowed to match the winning

bid of a foreign bidder for 51% controlling and management
equity of Manila Hotel?
 YES. The Filipino First Policy enshrined in the
Constitution is mandatory, positive command which is
complete in itself and which needs no further guidelines for
its enforcement.
Foreign Investment Negative List
 LIST A: FOREIGN OWNERSHIP IS LIMITED BY MANDATE OF THE CONSTITUTION
AND SPECIFIC LAWS

 No Foreign Equity
 • Mass Media except recording
 • Practice of professions
 Retail trade enterprises with paid-up capital of less than US$ 2,500,00
 Cooperatives
 Private Security Agencies
 Small-scale Mining
 Utilization of Marine Resources in archipelagic waters, territorial sea, and
exclusive economic zone as well as small-scale utilizaton of natural resources in
rivers, lakes, bays, and lagoons
 Ownership, operation and management of cockpits
 Manufacture, repair, stockpiling and/or distribution
of nuclear weapons
 Manufacture, repair, stockpiling and/or distribution
of biological, chemical and radiological weapons
and anti-personal mines (various treaties to which
the Philippines is a signatory and conventions
supported by the Philippines)
 Manufacture of firecrackers and other pyrotechnic
devices
 Up to Twenty Percent (20%) Foreign Equity
 • Private radio communication network
 Up to Twenty-Five Percent (25%) Foreign Equity
 • Private recruitment, whether for local or overseas
employment
 • Contracts for the construction and repair of locally-
funded public works except:
 o Infrastructure/development projects covered in RA
7718; and
 o Projects which are foreign funded or assisted and
required to undergo international competitive bidding of
contracts for construction of defense-related structure
 Up to Thirty Percent (30%) Foreign Equity
 Advertising
 Up to Forty Percent (40%) Foreign Equity
 • Exploration, development and utilization of natural resources
 • Ownership of Private Lands
 • Operation and management of public utilities
 • Ownership/establishment and administration of educational
institutions
 • Culture, production, milling, processing, trading excepting
retailing, of rice and corn and acquiring, by barter, purchase or
otherwise, rice and corn and the by-products thereof
 • Contracts for the supply of materials, goods and commodities to
government-owned or controlled corporation, company, agency or
municipal corporation
 • Project Proponent and facility Operator of a BOT project requiring
a public utilities franchise
 • Operation of deep sea commercial fishing vessels
 • Adjustment Companies
 • Ownership of condominium units where the common areas in the
condominium projects are co-owned by the owners of the separate units
or owned by a corporation
 Up to Forty-Nine Percent (49%) Foreign Equity
 Lending companies
 Up to Sixty Percent (60%) Foreign Equity
 Financing companies regulated by the Securities and
Exchange Commission
 Investment houses regulated by the SEC
LIST B: FOREIGN OWNERSHIP IS LIMITED FOR REASONS OF
SECURITY, DEFENSE, RISK TO HEALTH AND MORALS AND
PROTECTION OF SMALL AND MEDIUM-SCALE ENTERPRISES

 Up to Forty Percent (40%) Foreign Equity

 Manufacture, repair, storage and/or distribution of
products and/or ingredients requiring Philippine National
Police (PNP) clearance:
 Firearms (handguns to shotguns), parts of firearms
and ammunition therefore, instruments or implements
used or intended to be used in the manufacture of
firearms
 Gunpowder
 Dynamite
 Blasting supplies
  Ingredients used in making explosives:
 Chlorates of potassium and sodium
 Telescopic sight, sniper scope and other similar
devices
 However, the manufacture or repair of these items
may be authorized by the Chief of the PNP to non-
Philippine nationals; Provided that a substantial
percentage of output, as determined by the said
agency, is exported. Provided further that the extent
of foreign equity ownership allowed shall be
specified in the said authority/clearance
 • Manufacture, repair, storage and/or distribution of
products requiring Department of National Defense (DND)
clearance;
 o Guns and ammunition for warfare
 o Military ordnance and parts thereof (e.g., torpedoes, depth
charges, bombs, grenades, missiles)
 o Gunnery, bombing and fire control systems and
components
 o Guided missiles/missile systems and components
 o Tactical aircraft (fixed and rotary -winged), parts and
components thereof
 o Space vehicles and component systems
 o Combat vessels (air. land and naval) and auxiliaries
 Weapons repair and maintenance equipment
 Military communications equipment
 Night vision equipment
 Stimulated coherent radiation devices,
components and accessories
 Armament training devices
 Others as may be determined by the Secretary of
the DND
 RETAIL TRADE
LIBERALIZALIZATION
 Retail Trade - cover any act, occupation or calling of
habitually selling direct to general public merchandise,
commodities or goods for consumptions, but the
restriction of Act shall not apply to the following sales
transactions:
 (EXEMPTED RETAIL TRANSACTIONS)
a) By a manufacture processor, laborer, or worker, to
general public the products manufactured processed
or produced by him if his capital does not exceed
P100.000,00;
b) By a manufacture of his products in a single outlet,
irrespective of capitalization
c) By a farmer or agriculturist selling his farm products;
and
d) In restaurants incidental to hotel business.
 CATEGORIES OF RETAIL TRADE
ENTERPRISES
 Category A – Enterprises with paid-up capital of the
equivalent in Philippine Pesos of less than
US$2,500,00;
 Category B – Enterprises with a minimum, paid-up
capital of the equivalent in Philippine Pesos of
US$2,500,000, but less than US$ 7,500,000, provided
that in no cases shall the investments for establishing,
a store less than the equivalent in Philippine Pesos of
US$30,000
 Category C – Enterprises with a paid-up capital of the
equivalent in Philippine Pesos of US$&,500,000 or
more provided that in no case shall the investments
for establishing a store be less than the equivalent in
Philippine Pesos of US$30,000; and
 Category D – Enterprises specializing in high-end or
luxury products with a paid-up capital of the
equivalent in Philippine Pesos of US$250,000 per
store.
WHO MAY ENGAGE IN RETAIL TRADE
1) Natural-born Filipino citizens who have lost their Phil. Citizenship but who
reside in the Philippines, and partnerships associations, and corporations
organized under the laws of the Philippines; which are wholly-owned by
Filipino citizens, may engage in all forms of retail trade in all categories
provided for under the Act;
2) Partnership, associations and corporations organized under foreign laws,
irrespective of Filipino ownership in their equity, cannot engage in any form of
retail trade in the Philippines other than in the Exempted Retail
Transactions(and they must comply with license to do business requirements)
3) Other than Exempted Retail Transactions in which they are authorized to
engage in (and must comply with license to do business requirements), alien
individuals, foreign partnership, associations and corporations organized
under foreign laws and foreign owned partnership, associations and
corporations formed and organized under Phil. Laws, may not engage in retail
trade under Category A ( enterprises with paid-up capital of the equivalent
Philippine Pesos of less than US$2,500,000) which are reserved exclusively for
Filipino citizens, natural-born Filipino citizens who have lost their Phil.
Citizenship but who reside in the Philippines, and corporations wholly- owned
by Filipino citizens.
4) Foreign-owned partnerships, associations, and corporations
formed and organized under the laws of the Philippines, upon
registrations with SEC, or in case of foreign-owned single
proprietorships, with DTI, may engage or invest in retail trade
business, as follows:
a) Under Category B (enterprises with a minimum paid-up capital
of the equivalent in Philippine Pesos of US$2,500,000, but less
than US$7,500,000
b) May wholly own real enterprises under Category C (enterprises
with a paid –up capital of equivalent in Philippine pesos of
US$7,500,000 or more):and
c) May wholly own retail enterprises under Category D
(enterprises specializing in high-end or luxury products with a
paid-up capital of the equivalent in Phil. Pesos of US$250,000
per store).
5) Foreign-owned partnerships, associations and corporations
formed and organized under Phil. laws, may not engage in
retail trade in:
a) Category B, the investments for establishing a store,
is less than the equivalent in Philippine Pesos of US
$30,000;
b) Category C, the investments for establishing a store
is less than the equivalent in Philippine Pesos of UsS
$30,000; and
c) Category D, when the paid-up capital is less than the
equivalent in Philippine Pesos US $250,000 per
store.
 ESPINA vs. ZAMORA, JR.
631 SCRA 17

 “The Retail Trade Liberation Act, which lessens the

restraint on the foreigners’ right to property or to
engage in an ordinary lawful business, ensures
safeguards that would not allow aliens to control the
retail trade business, therefore the law does not violate
the “Filipino First “policy promoted under the 1987
Constitution.”
ANTI-DUMMY ACT (as amended)

 Penalizes Filipinos who permit aliens to use them as nominees or

dummies to enjoy privileges reserved for Filipinos of Filipino entities.
Criminal liabilities are imposed on the officers in charge of the
violating entity and the government will forfeit its rights and
franchises.
 Sec 2-A : prohibits aliens from intervening in the management, operation,
administration or control of nationalized businesses or enterprises,
whether as officers, employees or laborers, with or without
remuneration. Aliens may take part in the technical aspects, provided no
Filipino can do such technical work, and with express authority from the
Pres. Of the Philippines.
 amendment – allows the election of aliens as members of the board
of directors in partially nationalized activities in proportion to their
allowable participation or share in the capital of such entities.
 GAMBOA VS. TEVES
652 SCRA 690 (2011)
 The interpretation of the term “capital” in Sec. 11, Art.
XII of the Constitution
 ‘ … to citizens of the Philippines or to corporation or
associations organized under the laws of the Philippines
at least sixty percentum of whose capital is owned by
such citizens”
 - SC ruled that the term “capital” refers only to shares of
stock entitled to vote in the election of directors, and
thus in the case only to common shares, and not the
total outstanding capital stock comprising both
common and non-voting preferred shares.
 FOREIGN CORPORATION
 A corporation that is organized other than under the
laws of the Philippines (i.e., organized under the laws
of a foreign country), provided said foreign country
allows Filipinos and Philippine corporations to do
business there.
 Necessity to Obtain License to do Business- A foreign
shall have the right to transact business in the
Philippines after it has obtained license to do
business.
 FOREIGN CORPORATION

a) Doing Business in the a) May sue and can be

Philippines, With a sued in the Philippines.
License.
b) Cannot sue, but may be
b) Doing Business in the sued in the Philippines.
Philippines, without
license. c) May sue
c) Not doing Business in d) May be sued.
Philippines, on Isolated
Transactions.
“Doing Business”- Sec 3 (d) of Foreign Investment Act of
1991 (rep Act 7042) enumerates what “doing business”
covers;
 Soliciting orders:
 Service contracts:
 Opening offices, whether called “liaison” offices or branches;
 Appointing representatives or distributors domiciled in the
Philippines or who in any calendar year stay in the country for a
period or periods totaling 180 days or more;
 Participating in the management, supervision or control of any
domestic business, firm, entity or corporation in the Philippines.
 Any other act or acts that imply a continuity of commercial
dealings or arrangements, and contemplate to that extent,
performance normally incident to, and in progressive
prosecution of, commercial gain or of the purpose and object of
the business organization. [Mentholatum v. Mangaliman, 72 Phil.
524 (1941).]
“Doing Business” shall not be deemed to
include;

a) Mere investments as a shareholder by a foreign

entity in a domestic corporation duly registered to
do business and/or the exercise of rights as such
investors;
b) Having a nominee director or officer to represents
its interest in such corporation; and
c) Appointing a representative or distributor domiciled
in the Philippines which transacts business in its own
name and for its own account.
  MR HOLDINGS, Ltd. Vs. Bajar
 380 SCRA 617 (2002)

 The expression “doing business” should not be

given such a strict and literal construction as to make
it apply to any corporate dealing whatever. For
example the mere fact that a foreign corporation
participated under an “Assignment Agreement “ by
which it acquired the mining properties, facilities and
equipment of a local company does not by itself
prove that it has engaged in business in the
Philippines. Mere ownership by a foreign corporation
of a property in a certain state, unaccompanied by its
active use in furtherance of the business for which it
was formed ,is insufficient in itself to constitute doing
business.
 PROCEDURE FOR ISSUANCE OF LICENSE:
 1) Appointment of Resident Agent – either a Filipino or domestic
corp. and power of attorney for SEC to receive process.
 2) Prove that the foreign corporation’s country of origin grants
reciprocal rights to Filipinos
 3) establish office in the Philippines , and bring its assets;
 4) undertaking that Filipino creditors will be preferred in case of
insolvency;
 5) Notice of six months is they should desire to terminate
operations;
 6) franchises/patents must remain in Philippines, if possible;
 7.) File a bond of P100,000.00: surety bond, government
securities, shares of stock of registered enterprises with SEC, or
shares of stock of any corporation being sold at the stock
exchange.
 GROUNDS FOR REVOCATION OF LICENSE:
 A) Failure of the foreign corp. to :
 File annual reports required by the Code
 Appoint or maintain resident agent
 Inform SEC of change of resident agent or the latter’s change of
address
 Submit copy of amended articles or by-laws; or articles of merger or
consolidation
 Pay taxes , impost, assessments
B) Misrepresentation in material matters in reports;
C) Engaging in business not authorized by SEC;
D) Acting as dummy of a foreign corporation not licensed to do
business in the Philippines
  Home Insurance Co. vs. Eastern Shipping Lines
 123 SCRA 424 (1983)

Failure to obtain a license by a foreign corporation

doing business in the Philippines does not affect the validity
of contracts entered into by such foreign corporation, but
merely removes its legal standing to sue in local tribunals.
The defect may even be cured by subsequent registration by
the foreign corporation to obtain the necessary license to do
business.
 DOCTRINE OF ESTOPPEL

 - Although the foreign corporation has engaged in

business in the Philippines without license, the
dismissal of the suit would not be proper on the
ground that if the local investors knew that the
foreign corporation had no license to do business in
the Philippines, then they are estopped from using
the lack of license to avoid their obligations. – (Mrrill
Lynch Futures, Inc. vs. CA 211 SCRA 824 )
 Trademarks

 General Garments vs. Directors of Patents

41 SCRA 50

A foreign corporation although not doing business in

the Philippines has the personality to sue to oppose the
registration of trademark when its is shown that its
products using such trademark are being imported and
sold in the Philippines.
 SECURITIES REGULATION CODE
(RA 8799)
 Definition of Terms. –
 3.1. “Securities” are shares, participation or interests in a corporation or
in a commercial enterprise or profit-making venture and evidenced by a
certificate, contract, instrument, whether written or electronic in
character. It includes:
 (a) Shares of stock, bonds, debentures, notes, evidences of
indebtedness, asset-backed securities;
 (b) Investment contracts, certificates of interest or participation in a
profit sharing agreement, certificates of deposit for a future
subscription;
 (c) Fractional undivided interests in oil, gas or other
mineral rights;
 (d) Derivatives like option and warrants;
 (e) Certificates of assignments, certificates of
participation, trust certificates, voting trust
certificates or similar instruments;
 (f) Proprietary or non proprietary membership
certificates incorporations; and
 (g) Other instruments as may in the future be
determined by the Commission.
 3.2 “Issuer” is the originator, maker, obligor, or
creator of the security.
 3.3 “Broker” is a person engaged in the business of
buying and selling securities for the account of
others. 3.4 “Dealer” means any person who buys and
sells securities for his/her own account in the ordinary
course of business.
 3.5. “Associated person of a broker or dealer” is an
employee thereof who, directly exercises control of
supervisory authority, but does not include a
salesman, or an agent or a person whose functions
are solely clerical or ministerial.
 3.6. “Clearing Agency” is any person who acts as
intermediary in making deliveries upon payment to
effect settlement in securities transactions.
 3.7. “Exchange” is an organized marketplace or facility that
brings together buyers and sellers and executes trades of
securities and/or commodities.
 3.8. “Insider” means: (a) the issuer; (b) a director or officer
(or person performing similar functions) of, or a person
controlling the issuer; (c) a person whose relationship or
former relationship to the issuer gives or gave him access
to material information about the issuer or the security
that is not generally available to the public; (d) a
government employee, or director, or officer of an
exchange, clearing agency and/or self-regulatory
organization who has access to material information
 about an issuer or a security that is not generally available
to the public; or (e) a person who learns such information
by a communication from any of the foregoing insiders.
 3.9. “Pre-Need Plans” are contracts which provide for
the performance of future
 services or the payment of future monetary
considerations at the time of actual need, for which
planholders pay in cash or installment at stated
prices, with or without interest or insurance coverage
and includes life, pension, education, interment, and
other plans which the Commission may from time to
time approve.
 3.10. “Promoter” is a person who, acting alone or
with others, takes initiative in founding and
organizing the business or enterprise of the issuer
and receives consideration therefor.
 3.11. “Prospectus” is the document made by or on
behalf of an issuer, underwriter or dealer to sell or
offer securities for sale to the public through a
registration statement filed with the Commission.
 3.12. “Registration statement” is the application for
the registration of securities required to be filed with
the Commission.
 3.13. “Salesman” is a natural person, employed as
such or as an agent, by a dealer, issuer or broker to
buy and sell securities.
 3.14. “Uncertificated security” is a security evidenced
by electronic or similar records.
 3.15. “Underwriter” is a person who guarantees on a
firm commitment and/or declared best effort basis
the distribution and sale of securities of any kind by
another company.
SECURITIES REGULATION CODE

 The SRC is termed as “blue sky law,”

enacted to protect the public from
unscrupulous promoters, who stake
business or venture claims which have
no real basis, and sell shares or interests
therein to investors, who are left
holding certificates representing
nothing more than a claim to a square
of the blue sky.
 RSA VS SRC
1. Requiring through the process of registration,
issuers, of securities to furnish the public with full
and accurate disclosure of all material facts
concerning the issuer and its securities so that the
public may make a reasonable business judgment
whether or not to invest.
2. Limiting margin and borrowing requirement to
prevent undue speculations; and
3. Punishing those who manipulate the market and
from misrepresentations, manipulations and
fraudulent practices covering securities.
 The SRC declares itself as self-executory, and failure
of SEC to issue rules and regulations shall not in any
manner affect its self-executory nature.
SEC V. Interport Resources Corp.
567 SCRA (2008)
• The mere absence of implementing rules and regulations cannot
effectively invalidate provisions of law, where a reasonable
construction that will support the law may be given. To rule that
the absence of implementing rules can render ineffective an act
of Congress, such as Revised Securities Act, would empower the
administrative bodies to defeat the legislative will by delaying
the implementing rules. To assert that a law is less than a law,
because it is made to depend on a future event or act, is to rob
Congress power to act wisely to the public welfare, whenever a
law is passed relating to state of affairs not yet developed, or to
things future and impossible to fully know.
REGULATORY CONTROLS COVERED
a. Registration of Securities – Generally requires the sale or
offer for sale of any securities in the Philippines to be
registered and permitted by SEC.
b. Registrations of Market Participants – Requires
registrations of those who participate in the offer and sale of
securities, like brokers, dealers and salesmen and securities
exchanges;
c. Mechanisms to Ensure Sound Market – Provides
requirements to ensure that transaction involving securities
would be pursued on sound, fair and equitable principles and
to prevent market manipulation.
d. Expanded SEC Powers as Market Regulator --
Expanded SEC powers and functions, including investigatory
power and power to promulgate rules and regulations and
removed its quasi-judicial powers under P.D 902-A that it can
concentrate on its regulatory and capital-market formation
functions.
SEC POWERS AND FUNCTIONS
a) Primary jurisdictions and supervision over all corporations, partnership
or associations who are grantees of primary franchises;
b) Formulate policies and recommendations on securities market,
advised Congress and other agencies on all aspects of securities
market, and propose legislation and amendments thereto;
c) Approve, reject, suspend, revoke, or require amendments to the
registration statements, registration and licensing applications;
d) Regulate, investigate, or supervise activities of persons to ensure
compliance;
e) Supervise, monitor, suspend or take over activities of exchanges
clearing agencies and other SROs;
f) Impose sanctions for violation of laws and rules, regulations and
orders;
g) Prepare, approve, amend or repeal rules and regulations and orders,
and issues opinions and provide guidance on and supervise
compliance therewith;
h) Enlist and support and/or deputize any and all enforcement
agencies of Government, as well as any private institution,
corporation, firm, association or person in the implementation
of its powers and functions;
i) Issue cease and desist orders to prevent fraud or injury to
investing public;
j) Punish for both direct and indirect contempt;
k) Compel corporate officers to call meetings of stockholders or
members thereof under its supervision;
l) Issue subpoena duces tecum and summon witnesses, and
order the examination search and seizure of all documents,
papers, files and records, tax returns, and books of accounts of
any entity or person under investigation;
m) Suspend or revoke, after proper notice and hearing franchise
or certificate of registration of any corporations, partnerships,
or associations; and
n) Exercise such other powers as may be provided by law, implied
from or which are necessary or incidental to the carrying out of
the express powers
REGISTRATION OF SECURITIES

 “Shares participation or interest in any corporation or in a a

commercial enterprise or profit-making venture, and evidenced
by a certificate, contract, instrument, whether written or
electronic in character,” and include:
a. Debt Instrument: bonds, debentures, notes, and other
evidences of indebtedness, assets-backed securities;
b. Equity Instruments: shares of stock, certificate of interest or
participation in a profit sharing agreement, certificates of
deposit for a future subscription; proprietary or nonproprietary
membership certificates in corporations;
c. Investments Instruments: Investment contracts, fractional,
undivided interests in oil, gas or other mineral rights.
d. Derivatives: like options and warrants;
e. Trust Instruments: certificates of assignments,
certificates of participation, trust certificates, voting
trust certificates or similar certificates;
f. Catch-all: “Other instruments a may in the future be
determined by the (SEC)”
 SEC POWER ON SECURITIES
TRANSACTIONS
a) Grant “conditional approval” of registration statements;
b) Define terms and conditions under which any written
communication, including any summary prospectus, shall not be
deemed to constitute an offer for sale;
c) Keep and open to public inspection at reasonable hours on
business days., Register of Securities (which shall contain the
record of the registration of securities and SEC orders with
respect to such securities) and all documents or information with
respect to registered securities;
d) Audit financial statements, assets and other information of
applicants for registration of securities when necessary to insure
full disclosure or to protect interests of any investors and the
public.
e) Require or dispense with such information or documents as it may
prescribe or may require additional information or documents
including written information from an expert depending on the
necessity thereof or their applicability to the class of securities
sought to b registered.
EXEMPT SECURITIES:
1) Issued or guaranteed by the Gov’t or by any political
subdivision, agency, or by any person controlled or supervised
by, and acting as an instrumentality of the Gov’t;
2) Issued or guaranteed by the government of any country with
which the Philippines has diplomatic relations, or by any state,
province, or political subdivision thereof on the basis of
reciprocity; although SEC may require compliance with the
form and content of disclosures;
3) Issued by the receiver or by the trustees in a bankruptcy duty
approved by the proper adjudicatory body;
4) Those involving the sale or transfer of which by law is under
the supervision and regulation of OIC, HLURB, or BIR;
5) Issued by a bank, except its own shares.
 EXEMPT TRANSACTIONS
1. Any judicial sale, or sale by an executor, administrator,
guardian receiver, or trustee in insolvency or bankruptcy
2. Those sold by a pledgee, mortgagee, or any other similar
lienholder, to liquidate a bona fide debt, a security pledged in
good faith as security for such debt;
3. Those sold or offered for sale in an isolated transaction,
subscription or delivery by the owner or for his account; such
transaction not being made in a course of repeated and
successive transactions, and such owner not being an
underwriter;
4. Distribution by the corporation, actively engaged in business
authorized by its articles of incorporation of securities to its
stockholders or other security holders as a stock dividend or
other distribution out of surplus
5. Sale of capital stock of corporation to its own stockholders
exclusively, where no commission or other remuneration is
paid or given directly or indirectly.
6. Issuance of secured bonds or notes, where entire mortgage
together with all the bonds or notes secured thereby are sold
to a single purchaser at a single sale;
7. Issuance and delivery of security in exchange for any other
security of the same issuer pursuant to the right of conversion,
provided that the security so surrendered has been registered
or was, when sold, exempt from registration;
8. Broker’s transactions executed upon the customer’s orders
but not those made upon broker’s solicitation thereof;
9. Share subscriptions prior to incorporation or in pursuance of
an increase in its authorized capital stock; when no expense is
incurred or no commission, compensation, or remuneration is
paid or given, in connection with the sale or disposition of such
securities;
10. Exchange of securities by the issuer with its, existing security
holders exclusively, where no commission or other
remuneration is paid or given directly for soliciting such
exchange;
11. Sale by issuer to fewer than 20 persons in the Phil. during any
12-month period; and
12. Sale to any number of the following qualified
buyers:
 Banks
 Investment house
 Insurance company
 pension fund or retirement plan maintained by the Government
or any political subdivision thereof or managed by a banking
institution.
 Investment company
 Such other as SEC may rule, determine as qualified buyers on the
basis of such factors as financial sophistication, net woth,
knowledge, and experience in financial and business matters, or
amount of assets under management.
PROTECTIONS OF SHAREHOLDERS
TENDER OFFERS
a. Obligations for Tender Offers – Any person, or
group of person acting in concert who intend to:
1. Acquire at least 15%, or
2. Acquire at least 30% over a period of 12 months.
of any class of equity security of:
• A listed corporation, or
• A corporation with assets of at least P50.0 Million and having
200 or more stockholders with at least 100 shares each;
ARE OBLIGED TO MAKE A TENDER OFFER
TO ALL STOCKHOLDERS BY:
a) Filling with SEC a declaration to that effect, and
paying the filling fee;
b) Furnishing the issuer a statement containing such of
the information required of issuers as SEC may
prescribe, including subsequent of additional
materials.
c) Publishing all request or invitations for tender, or
materials making a tender offer, or requesting or
inviting letters of such a security.
 MANIPULATIVE PRACTICES AND
INSIDER TRADING
1. Manipulation of Security Prices – It shall be
unlawful for any person for himself or through the
dealer or broker, directly and indirectly:
a. “Wash Sales” – For the purpose of creating a false or
misleading appearance of active trading in any listed
security in any Exchange or any other trading market.
 To effect any transaction which involves no change in
beneficial ownership thereof;
 To enter order or orders with the knowledge that a
simultaneous orders of the same sizes, time, and price has
or will be entered by different parties.
 Perform similar acts where there is no change in beneficial
ownership.
b. To effect or with others a series of transactions, with the
purpose of including the sale or purchase of any security:
 That raised or depresses the price of a security to induce sale or
purchase of such sale security;
 That creates active trading to induce purchase or sale through
manipulative devices such as:
 Marketing the close – buying and selling securities at the close of
the market in an effort to alter the closing price of the security.
 Painting the taps – engaging in a series of transactions that are
reported publicly to give the impression of activity or price
movement in a security.
 Squeezing the float – taking advantage of a shortage of
securities in the market by controlling the demand side, and
exploiting market congestion during such shortages in a way as
to create artificial prices.
 Hype and dump -- engaging in buying activity at increasingly
high prices and then selling the securities in the market at high
prices.
 Improper matched and orders – engaging in transactions where
both the buy and sell orders are entered at the same time with
the same price and quantity by different but colluding parties.
 Boiler room operations – a well-organized operation where in a
room there would be well-trained salesman operating over
several phones and using high-pressure sales talk to get
investors to invest in securities offered.
 Scalping – where a person, like an investment advisor, purchases
securities for his own account before recommending the
security, and then sells the share as a profit upon the rise in the
market price following the recommendation.
 Daisy chain – a pattern of fictitious trading activity by a group of
persons who lures innocent people into the scheme.
 Flipping – operated where one office buys a particular stock for
customers, while another office simultaneously recommends
that its customers sell the stock, with the stock being shifted
from one office to another, and the firm makes a profit, and the
brokers earn their commissions.
 Other similar operations or devices.
c. By circulation or dissemination of information to the effect
that the price of any such security will or is likely to rise or fall
because of market operations.
d. To make, regarding any security registered on an exchange,
any statement which is false or misleading with respect to any
material fact, and which he knew or had reasonable ground to
believe is false or misleading.
e. To effect series of transactions for the purpose of pegging,
fixing, or Stabilizing the price of security trade in Exchange,
unless otherwise allowed by SRC or SEC rules.
MANIPULATIVE AND DECEPTIVE DEVICES – it shall be unlawful for
any person by the use of any facility of any Exchange:
a. “Short sale” – To effect a short sale, or to use or employ any
stop-loss order in connection with the purchase or sale of any
security registered on an exchange, in contravention of SEC
rules and regulations.
b. Use of employ any Manipulative or Deceptive Device or
Contrivance.
 OPTION TRADING – It shall be unlawful for an Exchange member to,
directly or indirectly, endorse or guarantee the performance of any
put, call, straddle, option, or privilege, in relation to any security
registered on an Exchange.

 INSIDER TRADING - it shall be unlawful for an “insider” to sell or

buy securities of the issuer , if he knows a fact of special significance
with respect to the issuer or the security which is not generally
available to the public;
UNLESS : A) THE INFORMATION WAS NOT GAINED FROM SUCH
RELATIONSHIP OR THAT B) THE INSIDER PROVES THAT THE FACT IS
GENERALLY AVAILABLE.
presumption : A purchase or sale of security made by an insider, or
such insider’s spouse or relatives by affinity or consanguinity within
the second degree, legitimate or common-law, shall be presumed to
have been effected while in possession of material non-public
information, if transacted after such information came into existence,
but prior to the public dissemination of such information, and lapse of
reasonable time for the market to absorb such information
TRUST RECEIPTS LAW (PD 115)
 Trust Receipt – a commercial document whereby the
bank releases the goods in the possession of the
entrustee but retains ownership thereof while the
entrustee sells the goods and apply the proceeds for
the full payment of his liability with the bank. It is a
security arrangement to which a bank acquires
ownership of the imported property (Garcia v. CA,
256 SCRA 446)
 A Trust receipt is to be utilized “as a convenient
business device to assist importers and merchants
solve their financing problems.”
PARTIES TO A TRUST RECEIPT ARRANGEMENT
Entrustee – The person to whom goods are delivered for sale or processing
and who bears the risk of loss.

Ching vs. Sec. of Justice

481 SCRA 602 (2006)
“Entrustee” is one having or taking possession of goods, documents or
instruments under a trust receipt transaction, and any successor in
interest of such person for purpose of payment specified in trust receipt
agreement. Entrustee is obliged to:
a) Hold goods, documents, or instruments in trust for
entruster and shall dispose of them strictly in
accordance with terms and conditions of trust
receipts.
b) Receive proceeds in trust for entruster and turn
over same to entruster to extent of amount owing
to entruster or as appears on trust receipt;
c) Insure goods for their total value against loss from
fire, theft, pilferage, or other casualties;
d) Keep said goods or proceeds thereof whether in
money or whatever form, separate and capable of
identification as property of entruster;
e) Return goods, documents, or instruments in event
of non-sale or upon demand of entruster; and
f) Observe all other terms and conditions of trust
receipt not contrary to provisions of P.D 115
 Entrustor – On issuing trust receipts, the
bank, if not paid what is due it, will be
preferred over other creditors of the
entrustee. It is not liable to the buyer of
the goods as vendor. Purchasers from
entrustee get good title to the goods.
No particular form is required for a trust
receipt.
 “Entruster” shall be entitled to the proceeds
from the sale of the goods., documents, or
instruments released under a trust receipt to
the entrustee to the extent of the amount
owing to the entruster or as appearing in the
trust receipt, or to the return of the goods,
documents, instruments in case of non-sale,
and to the enforcement of all other rights
conferred on him in the trust receipts;
provided such are not contrary to the
provisions of the document.
 Colinares v. Court of Appeals
Two possible situations in a trust receipt transaction;
a. The first is covered by provision which refers to money
received under the obligation involving the duty to
deliver it (entregaria) to owner of the merchandise sold;
b. The second is covered by provision which refers to
merchandise received under obligation to “return” it
(devolvera) to owner.
Failure of entrustee by provision to turn over proceeds, or to
return said goods if they were not disposed of in
accordance with terms of trust receipt shall be
punishable as estafa under Art. 315 910 of Revised Penal
Code, without need of proving intent to defraud.
Entrustee Always Bound to pay the
Loan;
Landl & Company (Phils) v. Metropolitan Bank
435 SCRA 639 (2004)
In a trust receipts transaction, can entruster who has
taken actual and juridical possession of the goods
subsequently avail of the right to demand from
entrustees the deficiency of the amount covered by the
trust receipt?
Held : Yes, Trust receipts agreements being only a security
for the loan agreement, the full turn over of the goods,
subject of the trust receipts does not suffice to divest
debtors of their obligations to repay principal amount
of their loan Sec 7 of P.D. 115 expressly provides that
entrustee shall be liable to entruster for any deficiency.
 Osario textile v. Home Bankers
Savings 462 SCRA 88 (2005)

 If under trust receipt, bank is made to appear as

owner, it was but an artificial expedient, more of legal
fiction than fact, for if it were really so, it could
dispose of goods in any manner it wants, which it
cannot do, just to give consistency, with purpose of
the trust receipt of giving a stronger security for the
loan obtained by the importer. Thus, the entrustee-
borrower, cannot be relieved of his obligation to pay
the loan simply by abandoning property with the
bank.
Prudential Bank v. IAC 216 SCRA 257
(1992)

 Upon bank’s payment of letter of credit issued

covering a trust receipt, entrustee becomes
immediately liable and banker ‘s advancing of money
and credit should receive protection, since banker
then takes full title to the goods, at the very
beginning when the trust receipt is issued. Failure of
entrustee to turn over the proceeds of sale of the
goods, covered by trust receipt constitutes crime of
estafa under Sec. 13 of P.D 115
 Metropolitan Bank vs. Tonda
338 SCRA 254
 Damage to the entrustor need not be proven because the nature of
trust receipts agreements and the damage caused to trade circles and
the banking community in case of violation thereof is the basis for the
criminal offense. The finding that there was no fraud and deceit is
likewise misplaced considering that the offense is punished as a malum
prohibitum regardless of the existence of intent or malice. A mere failure
to deliver proceeds of sale or goods if not sold, constitutes a criminal
offense that causes prejudice not only to another, but more to the public
interests.
 Note : SALE vis a vis TRUST RECEIPT:
 Under Art. 1505 of the Civil Code, where there is a
contract of sale, the buyer is to acquire only whatever
title the seller had at the time the sale was perfected.
Under Pres. Decree 115, although the entrustee is not
the owner of the goods under a trust receipt
(ownership is retained by the entruster), anyone who
acquires the goods from the entrustee acquires good
title (ownership) over the goods.

 Exception to the rule “Res Perit Domino” – under a

trust receipt agreement, although the entrustee is
not the owner of the goods covered by a trust
receipt, should the goods be lost while in his
possession, entrustee will bear the risk of loss.
 LETTERS OF CREDIT
 Letter of credit – an instrument issued by a bank that
guarantees its client’s ability to pay for imported
goods or services, authorizing an individual or a firm
to draw drafts on the bank or on its correspondents
for bank’s account under certain conditions of the
credit.
 PRUDENTIAL BANK v. IAC 216 SCRA 257
A letter of credit is an engagement by a bank or other person made
at the request of a customer that the issuer will honor a draft or other
demands for payments or other complaints with the conditions
specified in the credit.
 Transfield Philippines Inc. v. Luzon Hydro Corp. 443 SCRA 307
 “ The letter of credit has evolved as the ubiquitous and most
important device in international trade. A creation of commerce and
businessmen, the letter of credit is also unique in the number of parties
involved and its supranational character.”

 - it is to support , the agreement of buyer-importer to pay money under

a contract or other arrangement , but is not necessarily a condition for
the perfection of the contract.

 In a letter of credit arrangement , there are three (3) distinct

independent contracts, thus :
 A) Sale between buyer and seller;
 B) Contract of buyer with the issuing bank
 C) Letter of credit proper, in which the bank promises to pay seller pursuant
to the terms and conditions stated therein
 Opening of a letter of credit in favor of a vendor is
only a mode of payment, but it is not among the
essential requirements of a contract of sale
enumerated in Arts. 1305 and 1475 of Civil Code and
therefore the non-opening thereof does not prevent
the perfection of the contract of sale between the
parties [when not specifically provided as suspensive
condition]. (Schuback v. CA)
BANK OF AMERICA v. COURT OF
APPEALS 228 SCRA 357 (1993)
There would be at least three (3) parties to a letter of
credit arrangement.
a) Buyer (Applicant) who procures the letter of credit
and obliges himself to reimburse issuing Bank upon
receipt of documents of title.
b) Bank issuing the letter of credit, which undertakes
to pay seller upon receipt of the draft and proper
documents of titles and to surrender the documents
to Buyer upon reimbursements; and
c) Seller (beneficiary), who in compliance with the
contract of sale ships the goods to Buyer and
delivers the documents of title and draft to the
issuing Bank .
But the parties may increase, such requiring the services
of:
a) Advising (notifying) bank, to convey to Seller the
existence of the credit;
Confirming bank, which will lend credence to the
letter of credit issued by a letter known issuing Bank;
Paying bank which undertakes to encash the drafts
drawn by the exporter; or
Negotiating bank, where instead of going to the
place of issuing Bank to claim payment. Seller may
approach Negotiating Bank to have draft discounted.
Transfield Philippines, Inc. v. Luzon
Hydro Corp. 443 SCRA 307 (2004)
The letter of credit evolved as a mercantile specialty, and the only way to
understand all its facets is to recognizes that it is an entity unto itself, thus:
a) Relationship between Beneficiary-Seller and the Issuer is not strictly
contractual, because both privity and a meeting of the minds are lacking,
yet strict compliance with its terms is an enforceable rights.
b) Nevertheless, the letter of credit is not a third-party beneficiary contract (
pour autri), because issuer must honor drafts drawn against the letter of
credit regardless of problems subsequently arising in the underlying
contract;
c) Since the bank’s customers (Applicant-Buyer) can not draw on the letter, it
does not function as an assignment by the customer to the Beneficiary.
d) If properly used, letter of credit is not a contract of suretyship or
guarantee, because it entails a primary liability on the part of issuer
following a default, and;
e) Finally, letter of credit is not a negotiable instrument, because it is not a
payable to order or bearer and is generally conditional; yet, the draft
presented under it is often negotiable.
Irrevocable letter of credit:
 Refers to the duration of the letter of credit, and
simply means that the issuing bank may not, without
the consent of beneficiary (seller) and the applicant
(buyer) revoke his undertaking under the letter,
because the issuing bank does not reserve the right
to revoke the credit.
 A confirmed letter of credit pertains to the kind of
obligation assumed by the correspondent bank,
which means that the correspondent bank gives an
absolute assurance to the beneficiary that it will
undertake the issuing bank’s obligation as its own
according to the terms and conditions of the credit.
 Independent Principle – Engagement of issuing bank is to pay
seller-beneficiary of the credit once the draft and the required
documents are presented to it. The so-called “Independent
principle” assures the seller or the beneficiary of prompt
payment independent of any breach of the main contract and
precludes the issuing bank from determining whether the main
contract is actually accomplished or not.
 Under the Independent principle, banks assume 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
super-imposed thereon, nor do they assume any liability or
responsibility for the description, quantity, weight, quality,
condition, packing, delivery, value or existence of the goods
represented by any document or for the good faith or acts an/or
omissions, solvency, performance or standing of the consignor,
the carriers or the insures of the goods, or any other person
whomsoever.
Land Bank v. Monet’s Export Mfg
Corp 453 SCRA 173 (2005)

 Land Bank was being faulted when it failed to protect

the importer’s interest when it paid the suppliers
under the letter of credit despite discrepancies in the
shipment vis-à-vis the order specifications of the
importer.
 Held: A letter of credit is drawable on its own terms
and compliance therewith cannot be avoided because
of pending issues with respect to the main contract.
WAREHOUSE RECEIPTS ACT (2137)

A “warehouseman” as a person
lawfully engaged in the business of
storing goods for profit.
 BIR v. Hawaiian-Philippine Co. 11
SCRA 256 (1964)

 A warehouseman has been defined as one who

receives and stores goods of another for
compensation. For one to be considered engaged in
the warehousing business, therefore, it is sufficient
that he receives goods owned by another for storage,
and collects, fees in connection with the same.
 NATURE AND FUNCTION OF
WAREHOUSE RECEIPTS
Under Art. 1636 of Civil Code, a warehouse receipt,
being designated as a species of documents of title, has
the following twin-functions.
 Proof of the possession or control of the goods
described therein; and
 Authorizing or purporting to authorize the possession
of the warehouse receipt to transfer or receive, either
by endorsement or by delivery, of the goods
represented by such receipt.
Warehouse Receipts Constituted as
Equitable Mortgage

GENERAL RULE: The proper negotiation or assignment

of a warehouse receipt carries with it the transfer of
title over the commodities covered.

EXCEPTION: Where a negotiable warehouse receipt is

indorsed and delivered to a creditor as a collateral for a
loan, which would then be a species of security referred
to as equitable mortgage.
Martinez v. PNB 93 Phil. 765 (1953)
 Where a warehouse receipt is negotiated to a creditor only
to secure the payment of a loan, the transferee or
endorsee does not automatically become the owner of the
goods covered by the warehouse receipt but merely
retains the rights to keep, and the consent of the owner to
sell them so as to satisfy the obligation from the proceeds
of the sale but only a mortgage or pledge. In the event of
loss of the commodity covered by the receipt through a
fortuitous event, it will be the debtor who will bear the loss
as the true intent of the parties is not the negotiation of
the warehouse receipt, with its consequent transfer to title
of little but merely as security.
Non-Negotiable Warehouse Receipt

“Deliver to Mr. X 1,000 piculs of first

grade sugar.”

(sgd) “B”
1. This is a non-negotiable warehouse receipt, since Sec. 4
provides that a “receipt in which it is stated that the goods
received will be delivered to the depositor, or to any other
specified persons, is a negotiable receipt.”
If X wants to sell the sugar, he may do so by assigning the
warehouse receipt to the buyer.
Although Art. 1511 of Civil Code provides that a non-negotiable
document of title can be transferred “by delivery to a purchaser,”
nevertheless to bind third parties, Art 1625 (on Assignment)
requires that it must be done through the execution of a public
instrument.
NEVERTHELESS, under both Sec. 42 of WRA, and Art. 1514 of Civil
Code, it is the notice to the warehouseman that legally transfers
ownership over the commodities to the assignee-buyer.
Sec. 7 obliges the warehouseman to mark a non-negotiable receipt
on its face as “non negotiable” or “not negotiable” otherwise the
warehouseman is faced with the same liabilities as through it were
negotiable to a person who took the receipt supposing it to be so
negotiable.
b. Negotiable “To Order” Warehouse Receipt

“Deliver to Mr. X or his order 1,000 piculs of first

grade sugar.”

(sgd) “B”

This is negotiable warehouse receipt because it is

deliverable to Mr. X or his order (Sec. 5.) If X wants to
sell the sugar, he can do by special endorsement and
delivery (Sec. 38)
 Negotiable “Bearer” Warehouse Receipt:

“Deliver to Mr. X or bearer 1,000 piculs of first grade

sugar.”

(sgd) “B”

 This is negotiable because it is deliverable to bearer

(sec. 5) Ownership over sugar can be transferred by X
by delivering the receipt to transferee and the latter
owner (Sec. 37)
 Warner Barnes v. Flores

 Despite endorsement and delivery of a negotiable

warehouse receipt, if the only purpose thereof is to
make the warehouse receipt a security for a loan and
there was no intent to transfer ownership, debtor,
still had to bear the risk of loss. (There was no real
sale, but only an equitable mortgage.)
SUMMARY OF RULES PERTAINING
TO NEGOTIABLE RECEIPTS
a) No provisions shall be inserted in a negotiable receipt that it is
not negotiable, and if so inserted, such insertion (not the
receipt) is void;
b) Duplicate negotiable receipt must be so marked “duplicate,”
otherwise the warehouseman shall be liable for the damage
caused by failure to do so; and be in fact criminally liable; but
when properly marked, it shall impose no additional liability on
the warehouseman;
c) Negotiable receipt must be cancelled or properly marked when
goods covered therein are delivered wholly or partially,
otherwise the warehouseman shall be liable to any person who
purchases for value and in good faith such receipt, and likewise
be held criminally liable:
d) Alternation of a negotiable receipt does not make it void, and
shall not excuse the warehouseman from liability under the
receipt as altered if alternation authorized, or from the original
terms of the receipt in all other cases;
e) Where negotiable receipt has been lost or destroyed, court
process necessary to install protection but nevertheless;
delivery of the goods under an order of the court shall not
relieve the warehouseman from liability to a person to whom
the negotiable receipt has been or shall be negotiable for value
without notice of the proceedings or of the delivery of the
goods.
f) Goods covered by the negotiable receipt cannot be attached
or leveled upon directly and creditors must resort to attaching
or levying the receipt while in the hands of debtor-transferor
(i.e being in the handle of the holder, it is freed from the legal
attachment or levy of transferor’s creditors”.)
g) Unless the charges are so specified in a negotiable receipts
then it is understood that the warehouseman lien is limited to
charges for storage of the good subsequent to the date of the
receipts;
h. Proper negotiation ipso jure grants to the holder:
Not only the title of the transferor to the goods but also title of the
depositor.
The direct obligation of the warehouseman to hold possession of
the goods for him without need of notice;
i) When an order receipt is delivered without endorsement,
nevertheless;
The mere delivery of the negotiable receipts transfers title to the
goods to the holder as against the transfer;
Grant the holder the right to compel transferor to endorse the
receipt, but effects of negotiation shall take place upon actual
endorsement.
j) Proper negotiation of the receipts gives rise to the following
warrantless against the transferor:
 That the receipt is genuine:
 Transferor had legal right to negotiate to transfer it;
 Transferor had no knowledge of any fact which would impair
validity or worth of the receipt; and
 Transferor had a right to transfer title to the goods and the
goods are merchantable or fit for the purpose so bought;
k) Endorsement of a negotiable receipt does not make endorser
liable for the failure of the warehouseman or previous
endorser to comply with their obligation;
l) But when it is mortgagee, pledgee or holder for security who
demands or receive payment of the debt for which such
receipt is security, such receipt of payment shall be not to
represent or to warrant the genuineness of the receipt nor the
quantity or quality of the goods;
m) Goods covered by a negotiable receipt are not subject to
seller’s possessory lien or stoppage in transitu apart from the
receipt:
 WAREHOUSE LIEN
 GENERAL RULE: Warehouseman, by issuing the
receipt is estopped form setting up any title or right
to the possession of the goods except when it
pertains to enforcement of his lien.
 HOWEVER: Warehouseman has a lien on good
deposited or the proceeds thereof in his hands, for all
lawful charges and fees.
NEW CENTRAL BANK ACT
(Rep. Act 7653)
 OBJECTIVES
a) To maintain price stability conducive to a balanced and
sustainable growth of the economy;
b) To promote and maintain the monetary stability and
convertibility of the peso;
c) To provide directions in areas of money, banking, and credit,
with supervision over operations of banks, and with
regulatory powers over operations of finance companies, and
non-bank financial institutions performing quasi-banking
functions.
 BSP has authority to request from government offices and
instrumentalities, or GOCCs data it requires for the proper
discharge of its functions and responsibilities with the power to
issue subpoena for the production of books and records.
 MONETARY BOARD

 BSP powers and functions are exercised by the

Monetary Board composed of 7 appointed by the
President of the Philippines for a term of 6 years.
a) Governor, as Chairman;
b) A member of the Cabinet designated by the
President of the Philippines
c) Five (5) members who shall come from the private
sector, all of whom shall serve full-time.
 No Member of the Board may be reappointed more
than once
QUALIFICATIONS OF MEMBERS OF
MONETARY BOARD:

 Must be a natural-born Filipino citizens;

 At least 35 years of age, with the exception of the
Governor, who should at least be 40 years of age;
 Of good moral character, of unquestionable integrity
of known probity and patriotism; and
 With recognized competence in social and economic
discipline.
 POWERS OF THE BSP

 BSP MONETARY BOARD V. Antonio-Valenzuela

602 SCRA 698 (2009)
Under the law, the sanction of closure would be imposed upon a
bank by BSP even without notice and hearing– this “close now
hear later” scheme is ground or practical and legal considerations
to prevent unwarranted dissipation of the bank’s assets and as a
valid exercise of police power to protect the depositors,
stockholders, and the general public.” Closure of a bank is in the
nature of the exercise of police power, as a measure for the
protection of the public interest
*** BSP is not subject to any restraining order or injunction issued
by the Court enjoining BSP from examining any institution subject
to its supervision or examination, unless its action in plainly
arbitrary and made in bad faith and the petitioner files a bond.
 DOSRI ACCOUNTS
 Any director, office or stockholder who, together with his related
interest, contracts a loan or any of financial accommodation from;
a) His bank; or
b) From a bank ---
 Which is a subsidiary of a bank holding company of which both his bank
and the lending bank are subsidiaries are: or
 In which a controlling proportion of the shares is owned by the same
interest that owns a controlling proportion of the shares of his bank;
 In excess of 5% of his bank’s capital and surplus, or in the maximum
amount permitted by law, whichever is lower shall be required by the
lending bank to waive the secrecy of his deposits of whatever nature in
all banks in the Philippines.
CONSERVATOR, RECEIVERSHIP AND
LIQUIDATION
1. Appointment of Conservator – Whenever a bank or a quasi-bank is in
A state of continuing inability; or Unwillingness to maintain a condition of
liquidity deemed adequate to protect the interest of depositors and
creditors the Monetary Board may;
a) Appoint a conservator to take charge, for a period not exceeding one
(1) year, of the assets, liabilities, and the management thereof;
b) Reorganize the management;
c) Collect all monies and debts due said bank; and
d) Exercise all powers necessary to restore its viability, with power to
overrule or rebuke the actions of the previous management and board
of directors of the bank or quasi-bank.
 Receivership
-- Whenever the Monetary Board finds that a bank or a quasi-bank
• Is unable to pay its liabilities as they become due in the ordinary
course of business
BUT: Shall not include inability to pay caused by extraordinary
demands, induced by financial panic in the banking community;
* Has insufficient realizable assets to meet its liabilities;
*Cannot continue in business without involving probable loans to
its depositors or creditors; or
*Has willfully violated a cease and desist order that has become
final, involving act or transactions which amount to fraud, or a
dissipation of the assets of the institutions.
In which cases, the Monetary Board may summarily and without
need for prior hearing, forbid the institution from doing business in
the Phil. and designate the PDIC as receiver of the banking
institution.
 Koruga v. Arcenas Jr.
590 SCRA 49 (2009)

 The appointment of a receiver under Sec. 30 shall be

vested exclusively with the Monetary Board. There Is
no doubt that the RTC has no jurisdiction to hear and
decide a suit that seeks to place Banco Filipino under
receivership. The court’s jurisdiction could only have
been invoked after the Monetary Board had taken
action on the matter and only on the ground that the
jurisdictions or with such grave abuse of discretion as
to amount to lack or excess of jurisdiction.
 LIQUIDATION
 If the receiver determines that the institution cannot be rehabilitated or
permitted to resume business, the Monetary Board shall notify in
writing the Board of Directors of its findings, and direct the receiver to
proceed with the liquidation of the institution.
The Receiver shall then:
1) File ex parte with the RTC, and without the requirement of prior notice,
or any other action for assistance in the liquidation of the institution
pursuant to the liquidation plan adopted by PDIC;
2) Upon acquiring jurisdiction, RTC shall upon motion by the institution,
assist the enforcement of the individual liabilities of the stockholders,
directors, and officers and decide on other issues as may be material to
implement the liquidation plan adopted;
3) Convert the assets of the institution to money, dispose the same to the
creditors and other parties for the purpose of paying the debts of such
institution in accordance with the rules concurrence and preference of
credit;
4) Institute necessary actions to collect and recover accounts and assets
of, or defend any action against, the institution.
 The assets of an institution under receivership or
liquidation shall be deemed in custodia legis, in the
hands of the receiver, and shall, from the moment the
institution was placed under such receivership or
liquidation, be exempt from any order of
garnishment, levy, attachment, or execution.
United Coconut Planters v. E. Ganzon
591 SCRA 321 (2009)

 “The BSP Monetary Board is a quasi-judicial agency

exercising quasi-judicial powers of functions .
Consequently the Court of Appeals has appellate
jurisdiction over the final judgments, orders,
resolution, or awards of BSP Monetary Board on
administrative complaints against banks and quasi-
banks.”
 BANK RESERVES
Reserve Requirement- In order to control the volume of money
created by the credit operations of the banking system, all banks
operating in the Phil. shall be required to maintain reserves against
their deposit liabilities. The required reserves of each bank shall be
proportional to the volume of its deposit liabilities, and shall
ordinarily take the form of a deposit in BSP.
* Since the reserve requirement is imposed primarily to control the
volume of money, BSP shall not pay interest on the reserves
maintained with it unless the Monetary Board decides otherwise,
as warranted by circumstances.
* If a bank or quasi-bank chronically has a reserve deficiency, the
Monetary Board may limit prohibit the making of new loans or
investments by the institutions, and may require that part or all of
the net profits of the institution be assigned to surplus.
GENERAL BANKING LAW
Rep. Act. 8791
 Bank of P.I v. Lifetime Marketing
Corp. 555 SCRA 373 (2008)

 The degree of diligence required of banks is more than

that of a reasonable man or a good father of a family.
In view of the fiduciary nature of their relationship with
their depositors, banks are duty-bound to treat the
accounts of their clients with the highest degree of
care.
 BANK COVERED
 “Banks” refers to the entities engaged in the lending of
funds obtained in the form of deposits and classified as
follows:
1. Universal banks;
2. Commercial banks;
3. Thrift banks;
 Savings and mortgage banks
 Stocks savings and loan associations
 Private development banks
4. Rural banks;
5. Cooperative banks;
6. Islamic banks;
 Authority and Powers of BSP
Operations and activities of banks shall be subject to supervision of
BSP, which shall include:
a) Issuance of rules of conduct or standards of operations for
uniform application to all institutions or functions covered;
b) Conduct of examination to determine compliance with laws
and regulations;
c) Overseeing compliance with laws and regulations;
d) Regular investigation (not oftener than once a year) to
determine whether an institution is conducting its business on
safe and sound basis;
e) Inquiring into solvency and liquidity of the institution; or
f) Enforcing prompt corrective action.
 Organization of Banks
Monetary Board may authorize organization of a bank
or quasi-bank subject to following conditions:
a) Entity is a stock corporation
 Only par value stocks may be issued
a) Funds are obtained from the public, which shall
mean twenty (20) or more persons; and
b) Maximum capital requirements prescribed by
Monetary Board for each category of banks are
satisfied.
SEC shall not register articles of incorporation and/or by-
laws of any bank, or any amendment thereto, unless
accompanied by a certificate of authority issued by the
Monetary Board.
 PROHIBITIONS ON TREASURY STOCKS – No bank shall purchase or
acquire shares of its own capital stock its own shares as a security for a
loan., except when authorized by Monetary Board
 PROVIDED: Every case stock so purchase or acquired shall, within 8
months from time of its purchase or acquisition, be sold or disposed at a
public or private sale.
 Foreign Stockholdings- Foreign individuals and non-bank corporations
may own or control up to 40% of voting stock of domestic bank. Rule
should apply to Filipino and domestic non-bank corporation.
 GRANDFATHER RULE Percentage of foreign-owned voting stocks in a
bank shall be determined by citizenship of individual stockholders in
that bank. Citizenship of corporation which is a stockholder in a bank
shall follow the citizenship of controlling stockholders of the
corporation, irrespective of place of incorporation.
 Stockholdings of Family Group or Related Interest _Stockholdings of
individuals related to each other within the 4th degree of consanguinity
or affinity, legitimate, or common-law, shall be considered family groups
or related interests and must be fully disclosed in all transactions by
such an individual with the bank. Two or more corporations owned or
controlled by same family group or same group of person shall be
considered related interests, which must fully be disclosed in all
transactions with the bank.
 Associated Bank V. Tan
446 SCRA 282 (2004)
 As a general rule, a bank is liable for wrongful or
tortuous acts and declarations of its officers or agents
within the course and scope of the employment. Due
to the very nature of their business banks are
expected to exercise the highest degree of diligence
in the selection and supervision of its employees.
Consequently, the bank is itself liable for the act of its
branch manager who categorically admitted that they
allowed withdrawal of the amount of a check deposit
prior to time it was cleared.
 TYPES OF DEPOSITS:
1. Time Deposit – interest rate stipulated depending on the
number of days, which may be 30, 60, 90, 180, 360, or 540
days.
During this period, money deposited cannot be withdrawn. The
banks use the money to lend to others. That is why in such
accounts, depositors, are paid high interest rates as compensation
for the use of the money by the bank.
2. Savings Deposit– Interest at say 8%. Under the fine prints you
deposit today, you cannot withdraw the amount not until 60
days later. The bank can lend out such funds; that is why it pays
interests on such deposits.
3. Demand Deposit – No interest is paid by the bank, because the
deposit can take out his funds any time. It is called demand
deposit because depositor can withdraw the money he
deposited on the very same day when he deposited it.
 PROHIBITIONS
GBL provides for the following prohibitions:
 Bank Cannot as Act as Insurer- A bank shall not directly engage in
insurance business as the insurer.
 Prohibited Transactions by Bank Directors and Officers- No director,
officer, employee, or agent of any bank shall:
1. Make false entries in any bank report or statement or participate in any
fraudulent transaction, thereby affecting the financial interest of, or
causing damage to the bank or any person;
2. Without order of court of competent jurisdiction, disclose to any
unauthorized person any information relative to the funds or properties in
custody of bank belonging to private individuals, corporations, or any
other entity.
With respect to bank deposits the provisions of existing laws shall prevail.
3. Accept gifts, fees or commissions or any other forms of remuneration in
connection with approval of a loan or other credit accommodation from
said bank;
4. Overvalue or aid in overvaluing any security for purpose of influencing in
any way bank actions.
5. Outsource inherent banking functions.
 TRUST OPERATIONS
1. Authority to Engage in Trust Business – Only a stock
corporation or a person duly authorized by Monetary
Board to engage in trust business shall act as trustee or
administer any trust hold properly in trust or on deposit
for the use, benefit, or behalf of others (the trust entity)
2. Registration and Capital Structure – SEC shall register
the articles of incorporations unless accompanied by a
certificate of authority issued by BSP.
a. Minimum Capitalization – A trust entity before it can
engage in trust or other fiduciary business, shall comply
with the minimum paid-in capital requirement
determined by the Monetary Board.
3. Conduct of Trust Business- a trust entity, shall administer
the funds or properly under its custody with the diligence
that a prudent man would exercise in the conduct of an
enterprise of all character and with similar aims.
a) Prohibited Transactions- No trust entity shall, for the
account of the trustor or the beneficiary trust, purchase,
debt instrument of:
1. Any of the departments, directors, officers, stockholders,
or employees, of the trust entity;
2. Relatives within the first degree of consanguinity or
affinity or
3. Related interests, of such directors, officers and
stockholders unless transaction Is specifically authorized
by Trustor who previously received full disclosure of the
relationship.
 POWERS OF ENTITY
In addition to general powers incident corporation, a trust
entity shall have the power to:

1. Act as trustee on any mortgage or bond issued by

any municipality, corporation, or any body politic
and to accept and execute any trust consistent with
law;
2. Under the order or appointment of any court to act:
 As guardian, trustee, or depositary of the estate of
any minor or other incompetent person;
 As receiver and depositary of any moneys paid into
court by parties to any legal proceedings and of
property of any kind which may be brought under the
jurisdiction of the court;
 Investments Limitations
 Unless otherwise directed by instrument creating trust, lending
and investment of funds and other assets acquired by a trust
entity as executor; administrator, guardian, trustee, receiver, or
depositary of the estate of any minor or other incompetent
person shall be limited to loans or investments as may be
prescribed by law, Monetary Board or any court of competent
jurisdiction.
 Unless otherwise specifically directed by Trustor or nature of the
trust real estate acquired by trust entity in whatever manner and
for whatever purpose shall likewise be governed by relevant
provisions of Sec. 52 of GBL
 Investment of funds other than trust funds of trust entity is a
bank, financing company or investment house shall be able
governed by relevant provisions of GBL and other applicable
laws.
SECRECY OF BANK DEPOSITS
ACT
Rep. Act 1405
 SECRECY OF BANK DEPOSITS
Under the Act, all deposits of whatever nature with banks or
banking institutions, including investments in bond issued by the
Government, and its political subdivisions and instrumentalities, are
absolutely confidential in nature and may not be examined,
inquired, or looked into by any person, government official, bureau
or office
EXCEPT:
1. Upon the depositor’s written permission.
2. In case of impeachment
3. Upon a competent court’s order in cases of bribery of or,
dereliction of duty by, public, officials; or
4. In cases where money deposited or invested in the subject
matter litigation.
Under the Foreign Currency Deposit Act (Rep. Act
6426, amended by Pres. Decrees 1043, 1035 and 1246)
1. Except upon written permission by the depositor,
FCDU deposits are hereby declared as and
considered of an absolutely confidential nature, and
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 any other entity
whether public or private.
2. FCDU accounts are “ exempt from attachment
garnishment or any other order or process of any
court, legislative body, government agency or any
administrative body whatsoever (But read
SALVACION vs. CENTRAL BANK OF THE PHILIPPINES
,GR No. 94723)
 Other exceptions :
 1. Anti-Graft and Corrupt Practices Act
 2. Monetary Board Authority
3. Under the NIRC
a) to determine gross estate of decedent
b) when a taxpayer filed an application for
compromise of tax liability due to financial
incapacity to pay
4. Information Requested by Foreign Country (thru
the BIR)
Intengan V. Court of Appeals 377
SCRA 63 (2002)
 Since the accounts in questions are U.S dollar
deposits the applicable law is not the Secrecy of Bank
Deposit Act, but the Foreign Currency Deposit Act,
which contains only a single exception to the secrecy
of foreign currency deposits, i.e., disclosure is allowed
only upon the written permission of the depositor.
The violation of the secrecy of foreign deposit is
punishable as an act malum prohibitum. Violation of
FCDU Act Prescribes in eight (8) years, and the filing
of complaint or information for alleged violation of
the Secretary of Bank Deposit Act not toll running of
the prescriptive period.
Banco Filipino v. Purisima 161 SCRA
576 (1988)

 The provisions of the Anti-Graft Law are quite

categorical in their terms as to warrant examination
of bank records not only in the name of the
respondent’s spouse, ascendant, descendants,
relatives, but also other person. (exception to Secrecy
of Bank Deposit Law)
Anti-Money Laundering Act of 2001
(AMLA)
 Reporting on Account- Under Sec. 9 (c) of Anti-Money Laundering Act (rep.
Act 9160), banking and other covered institutions are required report to the
AMLC: (Treshhold Transactions)
i. Any single, series or combination of transactions involving a total amount in excess of
P500,000 or an equivalent amount in foreign currency; , within one banking day , or
ii. Any suspicious transactions of any amount;
- Transactions with “Covered Institutions” (Banks, Insurance Companies, SEC
supervised/regulated) regardless of the amount involved, where any of the following
circumstances exist:
a) No underlying legal or trade obligation, purpose or economic justification;
b) Client is not properly identified;
c) Amount involved not commensurate with client’s business or financial capacity;
d)Based on known circumstances, transaction is structured in order to avoid being
subject of reporting requirements;
e) any circumstance relating to transaction observed to deviate from client’s profile
and/or client’s past transactions with Covered Institution;
f) Transaction is in any way related to an unlawful activity or offense under the Act
that is about to be, is being, or has been committed;
f) Similar or analogous transactions.
 - Covered transactions and Suspicious Transactions must
be reported to AMLC within five (5) working days from
occurrence.
 PROHIBITS ANONYMOUS ACCOUNTS, ACCOUNTS
UNDER FICTITIOUS NAMES AND OTHER SIMILAR
ACCOUNTS.
 JURISDICTION –RTC OR SANDIGANBAYAN
 - AMLC cannot order freezing of account – CA only for
20 days unless extended.