Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
(2007 Edition)
Blue Sky Law- it seeks to protect public from financial heister or investment sc
am that seeks to sell nothing more but the few feet of the sky.
Prohibited Pleadings in the RTC are: Motion to dismiss, Bill of Particulars ,New
Trial and Motion for reconsideration.
The original and exclusive jurisdiction of the SEC to hear and decide all cases
has been transferred to the Regional Trial Court (in the city or municipality wh
ere the head office is located) namely:
1.jurisdiction & supervision over all corporations,partnerships or associations
who are the grantees of primary franchises and or license or permit issued by th
e Govt.
2.formulate policies and recommendations on issues concerning securities market,
advise congress & other govt agencies on all aspects of the securities market an
d propose legislation and amendments thereto.
3.approve,reject or suspend or require amendments to registration statements and
registration and licensing applications
4.regulate,investigate or supervise activities of persons to ensure compliance
5.supervise,monitor,suspend or take over activities of exchanges,clearing agenci
es and other SRO
6.impose sanctions for violation of laws/rules issued pursuant thereto.
7.prepare,approve, amend or repeal rules,regulations and orders and issue opinio
n and provide guidance on and supervise compliance with such rules,regulations a
nd orders
8.enlist the aid/ or deputize enforcement agencies of the govt, civil or militar
y as well as any private institution,corp,firm and association in the implementa
tion of its powers and functions under the code.
9.issue cease and desist orders to prevent fraud or injury to the investing publ
ic
10.punish for contempt
11.compel officers of any registered corp or association to call meetings of sto
ckholders or members thereof under its supervision
12.issue subpoena duces tecum and summon witnesses to appear in any proceeding o
f the commission and in appropriate cases order the examination ,search and seiz
ure of all documents and book of account of any entity under investigation
13.suspend or revoke ,after proper notice and hearing the franchise or certifica
te of registration of corp or partnerships/associations
14.exercise such other powers as may be provided by law as well as those which m
ay be implied from or which are necessary or incidental to the carrying out of t
he express powers granted the commission to achieve the objectives and purposes
of these laws.
2006 notes: #5-11 are general powers which cannot grant damages since no adjudic
atory power.
2006 notes:RTC not NLRC has jurisdiction over cases involving removal from emplo
yment of corporate officers.
2006 notes:even if they are former stockholders of a corp,it did not divest RTC
of jurisdiction if the stockholders are suing the corporation or vice versa (si
nce intra-corporate).
SECURITIES IN GENERAL
Securities are shares, participation or interests in a corporation or in a comme
rcial enterprise or profit-making venture and evidenced by a certificate, contra
ct, 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 certificat
es, voting trust certificates or similar instruments;
(f) Proprietary or nonproprietary membership certificates in corporations; and
(g) Other instruments as may in the future be determined by the Commission (Sec
3.1 of R.A. 8799)
The Securities Code divides securities into two classes, which are:
a. Exempt securities, and securities emanating from exempt transactions;
b. Non-exempt securities
Non-exempt securities are those which may be offered or sale or otherwise dispos
ed of to the general public by registration with the SEC done by the filing by t
he issuer, dealer or underwriter of an application complying with the provision
of the code.
REGISTRATION OF SECURITIES
Securities shall not be sold or offered for sale or distribution within the Phil
ippines, without a registration statement duly filed with and approved by the SE
C. prior to such sale, information on the securities shall be made available to
each prospective purchaser (Sec. 8.1)
The rule, however, is subject to exceptions with respect to exempt securities (S
ec. 9) and exempt transactions (Sec. 10) where the requirement of registration s
hall not apply.
Bar Question: One day Jerry Haw, doing business under the name Starlight enterpr
ise, a sole proprietorship, finds himself short on cash and unable to pay his de
bts as they fall due although he has sufficient property to cover such debts. He
asks you, as his retained counsel, for advice on the following queries,Should h
e sell profit participation certificates to his 10 brothers and sisters.
No, he cannot sell profit participation certificate to his 10 bros and sis.A pro
fit participation certificate is a security as defined by the Securities Regulatio
ns Code. The issuer (Jerry Haw) is required by to apply for a license to issue s
aid certificates and should register the same with the SEC.
He can however procure the financial assistance from his brothers and sisters, t
hrough means other than the issue by him of profit participation certificates.
(Note: Answered under R.A. 8799)
2006 notes: in registration, it needs the signature of the President and the sec
retary or in absence of both, the Vice-President and the Asst Secretary
2005 notes:Under B.P. 178, the rules and regulations promulgated by the Commissi
on with respect to registration of securities shall be subject to the approval o
f the Monetary Board of the Bangko Sentral ng Pilipinas. No such approval is nec
essary under R.A 8799.
Bar Question: Assume that you want to be a participant in the business independe
ntly of your being its legal counsel and that more investors are expected after
the firm is formally organized. Explain briefly with legal reasons.
If the firm is to engage in mining, what steps do you advise to be taken before
the firm offers its shares to the public? Cite applicable laws.
Answer: If the corporation is to engage in mining, where the shares are consider
ed as speculative, the corporation should secure a license from the Securities a
nd Exchange Commission and should register also with said office the stocks it i
ntends to sell to the public.
Bar Question: Assume that Greater Manila Telephone and Telegraph Company, Incorp
orated has 10,000 employees. It has a policy of encouraging stock ownership amon
g its employees. Its Board of Directors intends to sell P2 M worth of common sto
cks to either
(a) its managerial employees only numbering about 1,000 or
(b) indiscriminately to all its 10,000 employees. In case it decides to sell to
is managerial employees only, does it have to register its securities? How about
if the intended sale is to all its employees? (1989 Bar)
Answer: The securities (stocks) intended to be issued by the corporation have to
comply with the registration requirements of the code.
While the issuer (Greater Manila Telephone and Telegraph Company, Inc.) is a pub
lic utility corporation, the issue o stocks to its employees, whether to the 1,0
00 managerial employees or to all its 10,000 employees, is an issue pursuant to
the duty of the corporation to encourage stock ownership to its employees. The i
ssue of the stocks does not have for its purpose, compliance with any provision
of law, regulation or decree to broaden its capital base or to finance a part of
the capital investment through the sale of stocks, hence it is not an issue of
securities emanating from an exempt transaction.
The issuer (the corporation) will have to apply for the registration of the stoc
ks to be issued.
1. Securities shall not be sold or offered for sale or distribution within the P
hilippines, without a registration statement duly filed with and approved by the
Commission (Except Exempt Securities and Exempt Transactions). Prior to such sa
le, information on the securities, in such form and with such substance as the C
ommission may prescribe, shall be made available to each prospective purchaser (
Sec. 8.1);
2. A trust fund is established and facilitated by the Commission for the purpose
of compensating investors for extraordinary losses or damages suffered by them
due to business failure or fraud or mismanagement of the persons with whom they
transact (Sec. 36.5);
3. The Code enumerates and prohibits certain acts which may be detrimental t the
public such as manipulation of prices, devices and practices (Sec. 24,), fraudu
lent transactions (Sec. 26), failure of an insider to disclose when trading (Sec
. 27) and the regulation of option trading (Sec. 25);
4. The application for registration of an issuer judicially declared insolvent,
has violated any of the provisions of this Code or has been or is engaged in fra
udulent transactions, has made any false o misleading representation of material
facts in any prospectus concerning the issuer, among other, is rejected by SEC,
and if after registration is allowed, the issuer is eventually found to be in a
ny of the above situations, the registration may be revoked.
The SEC may reject a registration statement and refuse registration of the secur
ity thereunder, or revoke the effectivity of registration statement and the regi
stration of the security thereunder on the following grounds:
1. Issuer is insolvent, has violated the Code, its rules or order of the SEC, or
has engaged in fraudulent transactions, or has made false representations, or h
as failed to comply with any requirement of the SEC.
2. The registration statement is incomplete or inaccurate;
3. The issuer has been convicted of a offense involving moral turpitude or is re
strained by the Commission.
2005 notes:A shortswing is a purchase by which any person who acquires directly
or indirectly by beneficial ownership of more than five per centum (5%) of such
class or in excess of such lesser per centum as the commission by rule may presc
ribe (Sec. 18, R.A. 8799)
Bar Question: Bus Lines Inc. sold 1,000 common shares for P 100,000 to Andres, w
ho was persuaded to buy the shares after learning of three previous sales at com
parable prices made b Guillermo (a major bus Lines, Inc. stockholder) to Mutual
Inc., a 100 percent Filipino-owned investment corporation. Andres later came to
know that Guillermo owned a majority interest in Mutual, Inc. discuss briefly th
e possible ground, and feasibility thereof, for invalidation by Andres of his ac
quisition (1994 Bar)
Answer: The possible ground for invalidation is the provision of the Securities
Act (now Securities Regulations Code) against manipulation of security prices.
However, the problem above lacks some details for the case to be considered as a
violation of this provision, such as
(1) nothing is mentioned that the sale of Bus Lines Inc. to Mutual Inc. was a ma
nipulation;
(2) it is not stated that Andres was prejudiced by the transaction and
(3) who persuaded Andres to buy is not mentioned at all by the problem.
If manipulation an be shown in this case, the sale is viodable at the option of
Andres, the buyer. If he chooses to invalidate the purchase, he is entitled to r
eturn of his payment plus interest form the organization itself and from other p
ersons responsible for the manipulation, who are solidarily liable with the corp
oration for such return.
(a) Wash sale sale of securities which involves no change in the beneficial owne
rship.
takes place by creating a false or misleading appearance of active trading in an
y listed security traded in an Exchange by effecting any transaction in such sec
urity which involves no change in the beneficial ownership (Sec. 24, R.A. 8799)
4blue 95 says that it normally occurs when 1 party orders to sell shares when in
fact such party also order to buy such same share in order to give impression t
hat there is trading.
Bar Question: Suppose A is the owner of several inactive securities. To create an
appearance of active trading or such securities, A connives with B by which A will off
er for sale some of his securities and B will buy them at a certain fixed price, w
ith the understanding that although there would be an apparent sale, A will retain
the beneficial ownership thereof. (2001 Bar)
a) Is the arrangement lawful? The arrangement is unlawful. The law provides that
it shall be unlawful for any person acting for himself or through a dealer or b
roker, directly or indirectly to create a false or misleading appearance of acti
ve trading in any listed security traded in an Exchange or any other trading mar
ket by effecting any transaction in such security which involves no change in th
e beneficial ownership thereof (Section 24.1, R.A. 8799)
b) If the sale materializes, what is it called? It is commonly known as a wash s
ale
(b) Matched Order entering an order for he purchase of such security with the kn
owledge that an order of substantially the same size, time, price of the purchas
e of any such security, has or have been or will be entered by of for the same o
r different person. Some also for entering an order to sell.
4blue 95 says that it occurs when there are 2 parties unlike in washed sales the
re are only 1 person whereby 1 party order to buy and the other order to sell.
(c ) Market Jiggling or rigging effecting series of transactions having the resu
lt f raising the prices of security for the purpose of inducing the purchase, o
r depressing the price for the purpose of inducing the sell.
(d) Circulating or disseminating information in the ordinary course of business
for the purpose of raising or depressing the price of such security
(e) Endorsing or guaranteeing the performance of any
PUT- an option, that in consideration of the premium paid, given the purchases t
he right to make the seller take from him a given number of shares within a give
n time at a stipulated price which is usually below the prevailing market price
of the stock at the time the put is purchased. (T.C. martin 1962 Rev Ed Commercial
Laws)
CALL an option that in consideration of the premium paid entitles the buyer to t
he right to compel the seller to deliver to him a certain numbers of shares with
in a given time at a stipulated price which is usually higher than the prevailin
g market price at the time the Call is bought. It is the reverse of Put . In Put what
is bought is the option to sell, while in Call, the option to buy.
STRADDLE means the double privilege of a Put and a call. It secures to the holde
r of the right to demand of the seller at a certain price within a certain time
a number of specified shares, or to require him to take, at the same price withi
n the same time the same shares.
(f) painting the tape ikaw nagbuot with regard the flow of a certain security in
a tape.
(g) marking the close an investor/broker waits for the closing transactions with
regard a particular issue and they are the last one to post a buy in order to a
rtificially raise the price (it can be a combination of washed sale, matched ord
er and painting the tape)
Insider means
(i) the issuer,
(ii) a director or officer (or person performing similar functions) of, or a per
son controlling the issuer,
(iii) 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;
(iv) a government employee, or director, or officer of an exchange, clearing age
ncy and or self-regulatory organization who has access to material information a
bout an issuer or a security that is nor generally available to the public; or
(v) a person who learns such information by a communication from any of the fore
going insiders (Sec. 3.8, R.A. 8799)
2006 notes: insider can trade shares where he knew of such material information
provided he discloses such info to other party (if not, then it is prohibited)
A fact of special significance is now referred to under R.A 8799 as material Nonpub
lic and information is considered as such if:
(i) it has not been generally disclosed to the public and would likely affect th
e market price of the security after being disseminated to the public and the la
pse of a reasonable time for the market to absorb the information; or
(ii) would be considered by a reasonable person important under the circumstance
s in determining his course of action whether to buy, sell or hold a security (S
ec. 27.2, R.A. 8799)
2005 notes: An insider who buys or sells a security of the issuer while in posse
ssion of material information not generally available to the public shall be lia
ble in a suit brought by any investor who, contemporaneously with the purchase o
r sale of securities that is the subject of the violation, purchased or sold sec
urities of the same class
unless such insider, proves that such investor knew the information or would hav
e purchased or sold at the same rice regardless of disclosure of the information
to him (Sec. 61.1, R.A. 8799).
Bar Question: Ms. OB was employed MAS Investment Bank WIC, a medical drug compan
y, retained the Bank to assess whether it is desirable to make a tender offer fo
r DOP company, a drug manufacture. OB overheard in the course of her work the pl
ans of WIC. By herself and thru associates, she purchased DOP stocks available a
t the stock exchange priced, at P20 per share. When WIC s tender offer was announc
ed, DOP stocks jumped to P30 per share. Thus OB earned a sizable profit.
Is OB liable for breach and misuse of confidential or insider or insider informa
tion gained from her employment? Is she also liable for damages to sellers or bu
yers with whom she traded? If so what is the measure of such damages? Explain br
iefly (2004 Bar)
Answer: Yes Ms. OB is liable for breach and misuse of confidential or insider in
formation because she is considered an insider under Sec. 3.8, R.A. 8799, being a
person whose relationship to the issuer (DOP) gave her access to material inform
ation about the issuer of the security that is not generally available to the pu
blic.
Ms. OB is also liable for any damages to any seller or buyer with whom she might
have had dealt with in an amount not exceeding triple the amount of the transac
tion plus actual damages attorney s fees not exceeding thirty percent (30%) of th
e award.
BAR: A,B,and C are directors of XYZ Mining corporation whose shares of stocks ar
e listed in the Manila Stock Exchange. On Feb 1,2004, they each purchased thru a
stockholder 1000 shares of XYZ Mining at the then Market Price of P4/share. On
May 1,2004, B left for abroad for a medical check-up and a vacation.
At the board meeting held on May 15,2004,at w/c B was absent but which both A&C
attended, the directors apprised of an important discovery in an area covered by
one of XYZ Mining leases.After discovery was duly publicized in the morning dai
lies, the market price of XYZ Mining started to rise.When it hit P8 on May 28,20
04, A sold all his 1000 shares.
Upon his return to Manila in the middle of June 2004, B sold 500 shares at P8 ju
st enough to cover the cost of the 1000 shares he acquired, believing that the s
tock would continue to rise. The price however started to drop.
On August 15 2004, when the price was P5 ,C sold 1000 shares. What are the right
s of XYZ Mining against A,B and C?
HELD: The transactions of buying and selling shares of stock having done in the
ordinary course of business and w/o taking advantage of any fact of special sign
ificance only known to them and unknown to persons w/ whom they are dealing, no
right of any kind at all is acquired by XYZ.
The purchase on Feb 1 occurred before the important discovery hence not covered
by prohibition. And they had no advance knowledge of said important discovery th
at they could have taken advantage of. Hence no rights of any kind are acquired
by XYZ against any of its directors.
and furnish the issuer, a statement containing such of the information required
in Section 17 of this Code as the Commission may prescribe. Such person or group
of persons shall publish all requests or invitations for tender, or materials ma
king a tender offer or requesting or inviting letters of such a security. Copies
of any additional material soliciting or requesting such tender offers subsequen
t to the initial solicitation or request shall contain such information as the C
ommission may prescribe, and shall be filed with the Commission and sent to the
issuer not later than the time copies of such materials are first published or s
ent or given to security holders.
11. Proxies (Sec. 34: ) Sale of shares with proxy. This deprives the sharehold
er of exercising his right to vote on his share.
Proxy Solicitations.
1.Proxies must be issued and proxy solicitation must be made in accordance with
rules and regulations to be issued by the Commission;
2.Proxies must be in writing, signed by the stockholder or his duly authorized r
epresentative and filed before the scheduled meeting with the corporate secretar
y.
3.Unless otherwise provided in the proxy, it shall be valid only for the meeting
for which it is intended. No proxy shall be valid and effective for a period lo
nger than five (5) years at one time.
4. No broker or dealer shall give any proxy, consent or authorization, in respect
of any security carried for the account of a customer, to a person other than th
e customer, without the express written authorization of such customer.
5. A broker or dealer who holds or acquires the proxy for at least ten per centum (
10%) or such percentage as the Commission may prescribe of the outstanding share
of the issuer, shall submit a report identifying the beneficial owner within te
n (10) days after such acquisition, for its own account or customer, to the issu
er of the security, to the Exchange where the security is traded and to the Comm
ission.
12. Over-the counter markets (Sec. 35: )
It is securities transactions made in market outside of the registered exchange
or transaction involving securities not registered between broker and customer d
irectly.
Floor trader is a professional trader in securities who acts for himself and not
for the account of the others, hence, receives no commission at all.
ADMINISTRATIVE MATTERS
Independent Directors.
a person other than an officer or employee of the corporation, its parent or sub
sidiaries, or any other individual having a relationship with the corporation, w
hich would interfere with the exercise of independent judgment in carrying out t
he responsibilities of a director.
1.Any corporation with a class of equity securities listed for trading on an Exch
ange
2.Those corporation with assets in excess of Fifty million pesos (P50,000,000.00
) and having two hundred (200) or more holders, at least of two hundred (200) of
which are holding at least one hundred (100) shares of a class of its equity se
curities
3.Corporation which are private but which has sold a class of equity securities
to the public pursuant to an effective registration statement
2006 notes: items 1,2 and 3 shall have at least two (2) independent directors o
r such independent directors shall constitute at least twenty percent (20%) of t
he members of such board, whichever is the lesser.
4.Banks (all banks and quasi-banks)
2006 notes: if the corporation don t want to stop their trading, they have to file
disclosure in the Philippine Stock Exchange (not SEC) and such operates as dis
closure to the public)
2006 notes: SEC can only suspend a corporation for 30 days ; however it can go b
eyond 30 days but not more than 90 days if it is with the authority of the Presi
dent.
Administrative Sanctions.
1.If, after due notice and hearing, the Commission finds that: (a) There is a vi
olation of this Code, its rules, or its orders; (b) Any registered broker or dea
ler, associated person thereof has failed reasonably to supervise, with a view t
o preventing violations, another person subject to supervision who commits any s
uch violation; (c) Any registrant or other person has, in a registration stateme
nt or in other reports, applications, accounts, records or documents required by
law or rules to be filed with the Commission, made any untrue statement of a ma
terial fact, or omitted to state any material fact required to be stated therein
or necessary to make the statements therein not misleading; or, in the case of
an underwriter, has failed to conduct an inquiry with reasonable diligence to in
sure that a registration statement is accurate and complete in all material resp
ects; or (d) Any person has refused to permit any lawful examinations into its a
ffairs, it shall, in its discretion, and subject only to the limitations hereina
fter prescribed, impose any or all of the following sanctions as may be appropri
ate in light of the facts and circumstances:
(i) Suspension, or revocation of any registration for the offering of securities;
(ii) A fine of no less than Ten thousand pesos (P10,000.00) nor more than One million
esos (P1,000,000.00) plus not more than Two thousand pesos (P2,000.00) for each
day of continuing violation;
(iii) In the case of a violation of Sections 19.2, 20, 24, 26 and 27, disqualification
from being an officer, member of the Board of Directors, or person performing s
imilar functions, of an issuer required to file reports under Section 17 of this
Code or any other act, rule or regulation administered by the Commission;
(iv) In the case of a violation of Section 34, a fine of no more than three (3) times
the profit gained or loss avoided as a result of the purchase, sale or communica
tion proscribed by such Section; and
(v) Other penalties within the power of the Commission to impose.
2. The imposition of the foregoing administrative sanctions shall be without prejud
ice to the filing of criminal charges against the individuals responsible for th
e violation.
3. The Commission shall have the power to issue writs of execution to enforce the p
rovisions of this Section and to enforce payment of the fees and other dues coll
ectible under this Code.
Settlement Offers.
1. At any time, during an investigation or proceeding under this Code, parties bein
g investigated and/or charged may propose in writing an offer of settlement with
the Commission.
2. Upon receipt of such offer of settlement, the Commission may consider the offer
based on timing, the nature of the investigation or proceeding, and the public i
nterest.
3. The Commission may only agree to a settlement offer based on its findings that s
uch settlement is in the public interest. Any agreement to settle shall have no
legal effect until publicly disclosed. Such decision may be made without a deter
mination of guilt on the part of the person making the offer.
4. The Commission shall adopt rules and procedures governing the filing, review, wi
thdrawal, form of rejection and acceptance of such offers.
2006 notes: settlement offers can be made even without determination of guilt an
d it is termed as no fault compromise ,and it is practice in the Philippines due t
o practicality.
Civil liabilities against persons have been expanded to cover the following:
a) those who are controlling persons, aider and abettor (sec. 51),
b) those who are responsible for false registration statement (Sec. 56);
c) for circulation of prospectuses, communications and reports violating the Cod
e (Sec. 57);
d) for fraud in connection with securities transactions (Sec. 58);
e) for manipulation of security prices (Sec. 59);
f) for commodity futures contracts and pre-need plans engaged into in violation
of any rile or regulation of the Commission (Sec. 60);
g) for insider trading in violation of the Code (Sec 61).
Validity of Contracts:
2006 notes: section 71 states that : Any condition, stipulation, provision bindi
ng any person to waive compliance with any provision of this Code or of any rule
or regulation thereunder, or of any rule of an Exchange required thereby, as we
ll as the waiver itself, shall be void.
Under Section 5.2 of R.A. 8799, original and exclusive jurisdiction to hear and
decide cases involving intra-corporate controversies has been transferred from t
he SEC to a court of general jurisdiction or the appropriated Regional Trial Cou
rt (Sumndad vs. Harrigan, supra; Speed vs. CA, 425 SCRA 691; Fabia vs. CA, supra
; Vesagas vs. CA, 371 SCRA 508)
An intra-corporate controversy involves fraudulent actions and devices which are
detrimental to the interest of stockholder, directors and the corporation. It i
s one which arises between stockholders and the corporation. There is no distinc
tion, qualification nor any exemption whatsoever, as the provision is broad and
covers all kinds of controversies between stockholders and corporations (Fabia v
s. Ca, supra).
a) Devices or schemes employed by, or any act of, the board of directors, busine
ss associates, officers of partners, amounting to fraud or misrepresentation whi
ch may be detrimental to the interest of the public and/or of the stockholders,
partners, members of any corporation, partnership, or association (Rule 1, Sec.
1 [a] [1], A.M. 01-2-04-SC).
The issuance of a promissory note in the name of a corporation by the corporate
officers without prior registration with SEC is a device or scheme amounting to
fraud or misrepresentation. By not registering the note with SEC, the officers c
ould disclaim liability by claiming the separate personality of the corporation.
The controversy is within SEC jurisdiction (now RTC) (Rivilla vs. IAC, 175 SCRA
773).
An otherwise ordinary action for recovery of certain properties and sum of money
with damages is transposed into an intra-corporate controversy calling for the
adjudicative powers of the SEC (now RTC) when the complaint alleges that an offi
cer employed devices or schemes tantamount to fraud and misrepresentation in ord
er to divert corporate funds and assets for his personal use (Alleje vs. CA, 240
SCRA 497).
2006 notes: Pyramid scam is aka Ponzi Scheme
2006 notes:The Securities and Exchange Commission (now RTC) has jurisdiction ove
r a dispute involving the termination of a bank manager as a result of his non-r
eelection (Dy vs. NLRC, 145 SCRA 211).
2006 notes:A suit by certain stockholders to enjoin certain persons from exercis
ing their voting rights is intracorporate and within the jurisdiction of the SEC
(now RTC) (Aytona vs. Calalang, 162 SCRA 336).
A suit to enforce a promissory note of a corporation buying out a withdrawing st
ockholder s stocks is intracorporate and cognizable by SEC (now RTC) because payme
nt to him by the corporation may violate the trust fund doctrine (Boman vs. CA,
167 SCRA 540).
f) Inspection of Corporate Books
It shall apply to disputes exclusively involving the rights of stockholders or m
embers to inspect the books and records and/or o be furnished with the financial
statements of a corporation, under Sections 74 and 75 of the Corporation Code (
Rule 7, Sec. 1).
The purpose of the inspection of petitioner s books of accounts is not only to det
ermine whether dividends have been earned by the latter and whether private resp
ondents have been unjustly deprived of their share therein. Such determination i
s possible only after factual examination by the board of directors of petitione
r of the existence of such profits, and their declaration of dividends. After th
e determination of the existence of any such profits, private respondents may th
en avail themselves of the proper legal remedies authorized by the governing law
s and pertinent rules for the declaration of dividends and demand their appropri
ate participation therein (Capitol vs. CA, 302 SCRA 349).
For the RTC to acquire jurisdiction over any controversy under these provisions,
two elements must be considered:
(1) the status of relationship of the parties; and
(2) the nature of the question that is the subject of their controversy.
The first element requires that the controversy must arise out of intracorporate
or partnership relations between and among stockholders, members or associates;
between any or all of them an the corporation, partnership or association of wh
ich they are stockholders, member or associates, respectively; and between such
corporation, partnership or association and the State in so far as it concerns t
heir individual franchises. The second element requires that the dispute among t
he parties be intrinsically connected with the regulation or the internal affair
s of the corporation, partnership or association (Arranza vs. BF, 333 SCRA 799;
Pilipinas vs. CA, 326 SCRA 147; Suara vs. Saura, 313 SCRA 465).
2005 notes:It is error for the petitioners to claim that the case should fall un
der the jurisdiction of the Securities and Exchange Commission. The controversy
does not in anyway involve the election/appointment of officers of petitioner MC
HC. Respondent Zosa s amended complaint focuses heavily of the illegality of the E
mployment Agreement s Arbitration Clause and under Republic Act No. 876, otherwise k
nown as the Arbitration Law, it is the regional trial court which exercises jurisd
iction over questions relating to arbitration (Magellan vs. Zosa, 355 SCRA 157).
CIVIL LIABILITIES
1. Civil liabilities arising in connection with prospectus, communications and s
ports. (Sec. 13 old law : 57 new law)
2. Civil liabilities on account of False Registration Statement. (Sec. 12 : 56)
3. Civil liabilities for Fraud in connection with securities transactions (58)
4. Civil liabilities for Manipulation of Security Price (59)
5. Civil liabilities with respect to Commodity Future Contract and Pre-Need Plan
s (Sec. 60)
6. Civil liabilities on account of Insider Trading. (Sec. 61)
LIMITATION OF ACTION
No action shall be maintained to enforce any civil liabilities unless brought wi
thin 2 years after discovery of the untrue statement under Sec. 56 or 57, or wit
hin 5 years after the security was bona fide offered to the public under same se
ctions 56 & 57
DAMAGES AWARDED
1. The court is authorized to award damages in an amount not exceeding triple th
e amount of the transaction plus actual damages;
2. Exemplary damages may also be awarded in cases of bad faith, fraud, malevolen
ce or wantonness in violating the Code.
3. Attorney s fees not exceeding 30% of the award.
The persons specified in Sec. 56, 57, 58, 59, 60 & 61 shall be jointly and sever
ally liable for the payment of the damages. (Sec. 63.2)
REHABILITATION
The RTC has jurisdiction over petitions for rehabilitation filed by corporation
filed by corporations, partnership and associations under P.D. 902-A, and over c
ases for rehabilitation transferred from the SEC.
2006 notes: Rehabilitation are effected either through a receiver or through man
agement committee.
The contents of petition for Corporate Rehabilitation are provided under Rule 4,
Section 2(k) of the Interim Rules on corporate Rehabilitation which state that
first under letter
(a) , the filing of the petition has been duly authorized; and second, under let
ter
(b), the directors and stockholders have irrevocably approved and/or consented t
o, in accordance with existing laws, all actions or matters necessary and desira
ble to rehabilitate the debtor including, but not limited to, amendments to the
articles of incorporations and by-laws or articles of partnership; increase or d
ecrease in the authorized capital stock; issuance of bonded indebtedness, aliena
tion, transfer, or encumbrance of assets of the debtor; and modification of shar
eholder s rights observe that aforesaid rule prescribes the need for a certificati
on, one, to state that the filing of the petition has been duly authorized , and
two, to confirm that the directors and stockholders have irrevocable approved a
nd/or consented to, in accordance with existing laws, all actions or matters nec
essary and desirable to rehabilitate the corporate debtor, including, as and whe
n called for, extraordinary corporate actions as may be marked out. The phrase i
n accordance with existing laws obviously would refer to that which is, or to tho
se that are, intended to be done by the corporation in the pursuit of its plan f
or rehabilitation.
Thus, if any extraordinary corporate action is to be done under the proposed reh
abilitation plan, the petitioner would be bound to make it known hat it has rece
ived the approval of a majority of the directors and the affirmative votes of st
ockholders representing at least 2/3 of the outstanding capital stock of the cor
poration. Where no such extraordinary corporate acts (or one that under the law
would call for a 2/3 vote) are contemplated then the approval of stockholders wo
uld only be by a majority, not necessarily a 2/3 vote, as long as, of course, th
ere is a quorum (Chas vs. Talavera, 397 SCRA 84).
RECEIVER
4blue 95 notes: A receiver is a person appointed by the court, or in this instan
ce, by a quasi-judicial administrative agency (now RTC), in behalf of all the pa
rties for the purpose of preserving and conserving the property and preventing i
ts possible its possible destruction or dissipation, if it were left in the poss
ession of any of the parties. It is the duty of the receiver to administer the a
ssets of the receivership estate, and in the management and disposition of the p
roperty committed to his possession, he acts in a fiduciary capacity and with im
partially towards all interested persons (Arranza vs. BF, 333 SCRA 799).
2006 notes:Receivership is aimed at the preservation of, and at making more secu
re, existing rights, it cannot be used as an instrument for the destruction of t
hose rights (Ibid.).
The appointment of a receiver does not dissolve a corporation, nor does it inter
fere with the exercise of its corporate rights. In this case where there appears
to be no restraints imposed upon respondent as it undergoes rehabilitation rece
ivership, respondent continues to exist as a corporation and hence, continues or
should continue to perform its contractual and statutory responsibilities to pe
titioners as homeowners (Ibid.).
Bar:During the pendency of the case, ABC Corporation defaulted in the payment of
its debt to XYZ Corporation, a mortgage creditor. Thereupon, XYZ Corporation, w
hat argument would you raise to resists the foreclosure? If you were the hearing
officer of the Securities and Exchange Commission (now Judge of RTC). Would you
permit the foreclosure? Why? (1984 Bar).
Answer: If I were the counsel for ABC Corporation, I will raise the argument tha
t the appointment of a rehabilitation receiver produces the effect of suspending
all actions pending before any court, body or tribunal against ABC Corporation.
Necessarily, any action brought, like foreclosure in the problem at bar, will al
so have to be held n abeyance, and the claim for credit by the foreclosing credi
tor, XYZ Corporation, brought before the rehabilitation receiver.
If I were the hearing officer of the SEC I will not permit the foreclosure south
by XYZ Corporation. I will instead direct XYZ Corporation to file its claim wit
h the rehabilitation receiver appointed by SEC.
(Note Under A.M. 00-8-10-SC, the RTC shall order a stay in the enforcement of al
l claims within 5 days from filing the petition for rehabilitation)
Section 6(b) of Rule 4 of the Interim rules does not enjoin the enforcement of a
ll claims against guarantors and sureties, but only those claims against guarant
ors and sureties who are not solidarily liable wit the debtor. Respondent s claim
that the banks are not solidarily liable with the debtor does not find support i
n jurisprudence. The participating bank s obligation is solidary with respondent i
n that it is a primary, direct, definite and an absolute of the debtor s assets. T
hese are the same characteristics of a surety or solidary obligor (Metropolitan
vs. Daway, 432 SCRA 559).
Bar Question: Debtor Corporation and its principal stockholders filed with the S
ecurities and Exchange Commission (SEC) a petition for rehabilitation and declar
ation of a state of suspension of payments under P.D. 902-A. the objective was f
or SEC o take control of the corporation and all its assets and liabilities, ear
nings and operation and to determine the feasibility of continuing operations an
d 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 mortgag
e constituted on the factory of Debtor Corporation.
Second Bank had already initiated judicial foreclosure proceedings on the mortga
ge constituted on certain assets of the principal stockholders.
Third Bank had already filed a suit against the principal stockholders who had h
eld 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 foreclosur
e proceedings initiated by First Bank.
c. Would the order of suspension have any effect on the foreclosure proceedings
initiated by Second Bank?
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 o Debtor Corporati
on? (1999 Bar)
Answer:
a. The order of suspension is valid but only with respect to the Debtor Corporat
ion and not with the principal stockholders.
The RTC has no jurisdiction to entertain a petition for rehabilitation by privat
e individuals, as Section 1, rule 4 of the Interim Rules on Corporate Rehabilita
tion provides that such a petition can only be file in the RTC by a corporation,
partnership and association.
It logically follows that the SEC does not have jurisdiction to entertain petiti
ons for rehabilitation filed by parties other than corporations, partnership, or
associations (Modern paper Products vs. CA, 286 SCRA 749 reiterated in Union Ba
nk vs. CA 290 SCRA 198.).
b. The SEC (now RTC) order of suspension of payment applies to the judicial proc
eedings initiated by the First Bank. The suspension order applies to all claims
including secured creditors and regardless of the stage thereof.
c. The order of suspension shall have no effect on the foreclosure proceedings b
y Second Bank, as the foreclosure does not pertain to corporate properties but t
o properties belonging to stockholders acting as sureties or co-principals, and
being such, they do not benefit from the stay order by the court.
d) The order of suspension shall have no effect on the suit filed by third Bank
against the stockholders, for being sureties of the stay of the enforcement of a
ll claims against the Debtor Corporation.
e) Upon the appointment of a rehabilitation receiver, all actions for clams agai
nst corporations, partnerships or associations under receivership pending before
any court shall be suspended accordingly.
The Rehabilitation Receiver shall not take over the management and control of th
e debtor but shall closely oversee and monitor the operations of the debtor duri
ng the pendency of the proceedings.
He shall be considered an officer of the court, primarily tasked to study the be
st way to rehabilitate the debtor and ensure that the value of debtor s property i
s maintained pending determination of whether or not to rehabilitate the debtor.
He shall also implement the rehabilitation plan after its approval.
In stay order, the petition can only be filed by a corporation, partnership and
association (Sec. 1, Rule 4 of Interim Rules on Corporate Rehabilitation)
A corporation seeking rehabilitation is not insolvent but merely illiquid. It ha
s sufficient asses and properties, but could not convert them into cash at the m
aturity of its obligations. It could not, however, muster 3/5 of its liabilities
and 2/3 of the number of its creditors to act favorably on its intention to del
ay payments.
2005 Notes: Pursuant to R.A. 8799, the period of appeal shall be for intra-corpo
rate disputes appeals shall be governed by Section 3, Rule 41 of the 1997 rules
Implemented of B.P Blg. 129 for special proceedings shall apply.
Bar Question: X Corporation applied for its rehabilitation and submitted a rehab
ilitation plan which called for the entry by it into a joint venture agreement w
ith Y Corporation. Under the agreement, Y Corporation was to lend to X Corporati
on its credit facilities with certain banks to obtain funds not only to operate
X Corporation but also for a part thereof in the amount of P1 million as initial
deposit in a sinking fund to be augmented annually in amounts equivalent to 10%
of the yearly income from its operation of the business of X Corporation. From
this fund the creditors of X Corporation were to be paid annually, starting from
the second yea of operations, with the entire indebtedness to be liquidated in
15 yeas. The creditors of X Corporation objected to the plan because Y Corporati
on would be taking over the business and assets of X Corporation. Could the cour
t approve the plan despite the objection of the creditors of X Corporation and c
ould the creditors be compelled to follow the plan? Could Y Corporation, in mana
ging the business of X Corporation in the meantime, be deemed to have taken-over
X Corporation itself? (2003 Bar)
Answer: Yes, the court can approve the plan. Since rehabilitation proceedings ar
e summary and non-adversarial in nature, the court may decide on matters merely
on the basis of affidavits and other documentary evidence of X Corporation. Shou
ld the creditors oppose the plan, they must file and serve upon X Corporation th
eir comments or oppositions to the petition, with supporting affidavits and docu
ments. Any order issued by the court is immediately executory, hence the credito
rs may be compelled to follow.
Y Corporation is not deemed to have taken over X Corporation by the mere fact th
at a joint venture agreement has been made between the two of them. It is merely
a poling of resources for a limited period for the purpose of assisting X Corpo
ration to obtain funds.
The issue is whether or not the Department of Labor and Employment, the Labor Ar
biter and the National Labor relations Commission may legally act on the claims
of respondents despite the order of the Securities and Exchange Commission suspe
nding all actions against a company under rehabilitation by a management committ
ee created by the Securities and Exchange Commission. Presidential Decree 902-A
is clear that all actions for claims against corporations, partnerships or associ
ations under management or receivership pending before any court, tribunal, boar
d or body shall be suspended accordingly. The law did not make any exception in f
avor of labor claims (Rubberworld vs. NLRC, supra).
The power to hear and decide labor disputes is deemed suspended when the Securit
ies and Exchange Commission puts the corporation under rehabilitation (Ibid).
MANAGEMENT COMMITTEE:
In exercising the discretion to appoint a management committee, the officer or t
ribunal before whom the application was made must take into account all the circ
umstances and facts of the case, the presence of conditions and grounds justifyi
ng the relief, the ends of justice, the rights of all the parties interested in
the controversy and the adequacy and effectiveness of other available remedies.
The discretion must be exercised with great caution and circumspection and only
for a reason strongly appearing to the tribunal or officer exercising jurisdicti
on. Once the discretion has been exercised, the presumption to be considered is
that the officer or tribunal has fairly weighed and appraised the evidence submi
tted by the parties (Jacinto vs. First, 410 SCRA 140)
A reading of the aforecited legal provision (Sec. 6, par. [d]) reveals that for
a minority stockholder to obtain the appointment of an interim management commit
tee, he must do more than merely make a prima facie showing of a denial of his r
ight to share in the concerns of the corporation; he must shoe that the corporat
e property is in danger of being diverted from the purpose for which it has been
his detriment. It is only in a strong case where there is a showing that the ma
jority are clearly violating the chartered rights of the minority and putting th
eir interest in imminent danger that a management committee may be created (Ibid
.).
2005 notes:Mere disagreement among stockholders as to the affairs of the corpora
tion would not in itself suffice as a ground for the appointment of a management
committee. At least where there is no imminent danger of loss of corporate prop
erty or of any other injury to stockholders, management of corporate business sh
ould not be wrestled away from duly elected officers, who are prima facie entitl
ed to administer the affairs of the corporation, and placed in the hands of the
management committee. However, where the dissension among stockholders is such t
hat the corporation cannot successfully carry on its corporate functions the app
ointment of management committee becomes imperative (Ibid.).
2005 notes: Presidential Decree 902-A, as amended , provides that upon the appoin
tment of a management committee, rehabilitation receiver, board of body pursuant
to this Decree, all actions for claims against corporations, partnership, or as
sociations under management or receivership pending before any court, tribunal,
board or body shall be suspended accordingly. Such suspension is intended to giv
e enough breathing space for the management committee or rehabilitation receiver
to make the business viable again, without having to divert attention and resou
rces to litigations in various for a. among the actions suspended are those for
money claims before labor tribunals, like the National Labor Relations Commissio
n (NLRC) and the labor arbiters (Rubberworld vs. NLRC 305 SCRA 721; Philippine v
s. Kurangking, supra).
(Note: Under A.M. 00-08-10-SC, the RTC shall order a stay in the enforcement of
all claims within 5 days from filing the petition for rehabilitation)
Bar Question: Robert, Rey and Ben executed a joint venture agreement to form a c
lose corporation under the Corporation code, the outstanding capital stock of wh
ich the three of them would equally own. They also provided therein that any cor
porate act would need the vote of seventy percent (70%) of the outstanding capit
al stock. The terms of the agreement were accordingly implemented and the corres
ponding close corporation was incorporated. After three (3) years, Robert, Rey a
nd Ben could not agree on the business in which to invest the funds of the corpo
ration. Robert wants he deadlock broken.
a. What are the remedies available to Robert under the Corporation Code to break
the deadlock? Explain.
b. Are there any remedies to prevent the paralyzation of the business available
to Robert under P.D. 902-A while the petition to break the deadlock is pending l
itigation? Explain, (1995 Bar)
Answer:
a) According to Section 104 of the NCC, if the directors are so divided respecti
ng the management of corporation s business and affairs that the votes required fo
r any corporate action cannot be obtained, with the consequences that the busine
ss and affairs of the corporation can no longer be conducted to the advantage of
the stockholder generally, the SEC, upon written petition by any stockholder, s
hall have the power to arbitrate the dispute. Hence, Robert may petition SEC to
arbitrate the dispute in the case at bar can thereafter appoint a receiver who s
hall ensure the preservation of the corporation and existing rights.
(Note: Under R.A. 8799, the petition for rehabilitation must be filed with the R
TC)
2005 notes: ABC Corporation has been experiencing liquidity problems. Anticipati
ng that it would be unable to pay maturing obligations, it filed with the Securi
ties and Exchange Commission (now RTC) a petition for suspension of payments wit
h a prayer for the appointment of a rehabilitation receiver. The petition was gr
anted and a rehabilitation receiver appointed.