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

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

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

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

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 amo n g its employees. Its Board of Directors intends to sell P2 M worth of common s to cks to either (a) its managerial employees only numbering about 1,000 or (b) indiscriminately to all its 10,000 employees. In case it decides to sell to is m anagerial 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 (st ocks) intended to be issued by the corporation have to comply with the registrat ion requirements of the code. While the issuer (Greater Manila Telephone and Tel egraph Company, Inc.) is a pub lic utility corporation, the issue o stocks to it s employees, whether to the 1,0 00 managerial employees or to all its 10,000 emp loyees, is an issue pursuant to the duty of the corporation to encourage stock o wnership to its employees. The i ssue of the stocks does not have for its purpos e, compliance with any provision of law, regulation or decree to broaden its cap ital base or to finance a part of the capital investment through the sale of sto cks, 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 st oc ks to be issued. Four features of Securities Regulation Code intended to give protection to the i nvesting public are: 1. Securities shall not be sold or offered for sale or dis tribution within the P hilippines, without a registration statement duly filed w ith and approved by the Commission (Except Exempt Securities and Exempt Transact ions). 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 eac h prospective purchaser ( Sec. 8.1); 2. A trust fund is established and facilita ted by the Commission for the purpose of compensating investors for extraordinar y losses or damages suffered by them due to business failure or fraud or mismana gement of the persons with whom they transact (Sec. 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 (Se c . 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 materia l 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. EXCEPTION THAT IS THERE IS NO NEED FOR REGISTRATION OF THE FOLLOWING: 1. EXEMPT SECURITIES (SEC. 9) a.)Securities issued or guaranteed by the Govt. it s political subdivisions or ag ency thereof, or by person controlled or supervis ed by, and acting as an instrum entality of the govt. b.)Securities of foreign g ovt. with which the Phils. Maintain diplomatic relatio n. c.)Certificates issued by a receiver or by a Trustee in bankruptcy duly approved by the proper adjudic atory body. d.)Securities or its derivatives the sale or transfer of which, by l aw, is under the supervision and regulation of the Insurance commission, Housing and Land Re gulatory Board, or the bureau of Internal Revenue. e.)Any security issued by a bank except its own shares of stock. 2.EXEMPT TRANSACTIONS (SEC. 10) (1.) At any judicial sale or sale by an executor, administrator, guardian, rece i ver or trustee in insolvency or bankruptcy. (2.) By or for account of a pledge holder or mortgagee or any other similar lien holder selling or offering for sa le or delivery in the ordinary course of busin ess and not for the purpose of av oiding of the Code, to liquidate bona fide a de bt. (3.) An isolated transaction -not being made in repeated and successive manner. (4.) Distribution of a corp o f its securities to its stockholders or other holde r as stock dividend or distr ibution out of surplus. (5.) The issuance of bonds or notes secured by mortgage upon real property or ta ngible personal property, where the entire mortgage tog ether with all the bonds or notes secured thereby are sold to a single purchaser at a single sale. (6.) The issue and delivery of any security in exchange for a ny other security o f the same issuer pursuant to the right of conversion entitl ing the holder of th e security surrendered in exchange to make such conversion, provided such securi ty surrendered has been registered and exempt when sold. ( 7.) Broker s transaction, executed upon customer s order on any registered Excha nge . (8.) Subscription for shares of the capital stock of corp prior to the inc orpora tion thereof or in pursuance of an increase in its capital stock when no expense is incurred or no commission, compensation or remuneration is paid or gi ven in connection with the sale and only for the purpose of complying with the r equired percentage of subscription before registration as corp or its authorized capita l increased. (9.) The sale of securities by an issuer to fewer than 20 p ersons in the Phils. during any 12 month period. (10.) Sale of securities to (a) banks, (b) registered investment house, (c) insurance company, (d) Pension F

und Retirement Plan maintained by the Govt. or its political subdivision or mana ged by bank or persons authorized by the BSP to engage in trust function, (e) i n vestment company, and (f) such other person as may be determined by the SEC as q ualified buyer. 2005 Notes: In Nestle Phils., Inc. vs. CA, 203 SCRA 504, 1991 decided under the old law. Sec. 6 (a) (4) was interpreted by SEC to mean that t he issuance of shares from t he unissued shares of the authorized capital stock is an exempt transaction but the issuance of shares taken from the additional in creased authorized capital st ock is not exempt transaction and thus need be reg istered. REFUSAL OR REVOCATION OF REGISTRATION The SEC may reject a registration statement and refuse registration of the secur ity thereunder, or revoke the effectivity of registration statement and the reg i stration of the security thereunder on the following grounds: 1. Issuer is ins olvent, 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 co mply with any requirement of the SEC. 2. The registration statement is incomplet e or inaccurate; 3. The issuer has been convicted of a offense involving moral t urpitude or is re strained by the Commission. 2005 notes:A shortswing is a purch ase by which any person who acquires directly or indirectly by beneficial owners hip of more than five per centum (5%) of such class or in excess of such lesser per centum as the commission by rule may presc ribe (Sec. 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 co m parable prices made b Guillermo (a major bus Lines, Inc. stockholder) to Mutua l Inc., a 100 percent Filipino-owned investment corporation. Andres later came t o 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 pro vision of the Securities Act (now Securities Regulations Code) against manipulat ion of security prices. However, the problem above lacks some details for the ca se to be considered as a violation of this provision, such as (1) nothing is men tioned that the sale of Bus Lines Inc. to Mutual Inc. was a ma nipulation; (2) i t is not stated that Andres was prejudiced by the transaction and (3) who persua ded Andres to buy is not mentioned at all by the problem. 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. 2005 notes: market juggling or rigging is prohibited if its purpose is to create a fa lse or misleading appearance of active trading in any security. UNLAWFUL ACTS IN TRADING 1. Making false or misleading declaration in the sworn registration statement fi led for registration of securities. This rise to civil liability on account of f alse registration statement. (Sec. 12-olc law; 56-new law) 2. Making untrue statement of a material fact or omits to stain material f act ne cessary to make the statement not misleading; give rise to civil liabilit y arisi ng in connection with prospectus, communications and reports. ( Sec. 13 old; 57new) 3. Engaging in business as broker, dealer, salesman unless registere d as such. ( Sec. 19-old; 28-new) 4. Excessive use of credit for the purchase or carrying of securities which is s ought to be prevented by the Margin requireme nts. (Sec. 23;48) 5. Manipulation of security prices. Practices of creating a false or misleading appearance of creative trading in a ny security such as the following: (a) Wash sale rship. sale of securities which involves no change in the beneficial owne takes place by creating a false or misleading appearance of active trading in an y listed security traded in an Exchange by effecting any transaction in such se c urity which involves no change in the beneficial ownership (Sec. 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 a n appearance of active trading or such securities, A connives with B by which A will of er for sale some of his securities and B will buy them at a certain fixe d price, 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 i ndirectly to create a false or misleading appearance of acti ve trading in any l isted security traded in an Exchange or any other trading mar ket by effecting a ny transaction in such security which involves no change in th e beneficial owne rship thereof (Section 24.1, 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 purcha s 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 th at it occurs when there are 2 parties unlike in washed sales the re are only 1 p erson whereby 1 party order to buy and the other order to sell. (c ) Market Jigg ling or rigging effecting series of transactions having the resu lt f raising th e prices of security for the purpose of inducing the purchase, o r depressing th e price for the purpose of inducing the sell. (d) Circulating or disseminating i nformation in the ordinary course of business for the purpose of raising or depr essing the price of such security (e) Endorsing or guaranteeing the performance of any PUT- an option, that in consideration he right to make the seller take fr om n time at a stipulated price which is of the stock at the time the put is Law s) of the premium paid, given the purchases t him a given number of shares withi n a give usually below the prevailing market price purchased. (T.C. martin 1962 Rev Ed Commercial CALL an option that in consideration of the premium paid entitles the buyer to t he right to compel the seller to deliver to him a certain numbers of shares wit h in a given time at a stipulated price which is usually higher than the prevail in g market price at the time the Call is bought. It is the reverse of Put . In Put what is bought is the option to sell, while in Call, the option to buy. STRA DDLE means the double privilege of a Put and a call. It secures to the holde r o f the right to demand of the seller at a certain price within a certain time a n umber of specified shares, or to require him to take, at the same price withi n the same time the same shares. (f) painting the tape a tape. ikaw nagbuot with r egard the flow of a certain security in (g) marking the close an investor/broker waits for the closing transactions with regard a particular issue and they are the last one to post a buy in order to a rtificially raise the price (it can be a combination of washed sale, matched or d er and painting the tape) 6. Manipulative or deceptive devices It using the facility of ANY EXCHANGE TO EF FECT a Short sale Where the seller does not own or control the securities he is selling , and therefore cannot himself supply the securities for delivery.

Stop loss order -- is an order to the broker to sell or buy a stock as soon as t he market price reaches a designated figure. 7. Artificial measures of price control (Sec. 28) 8. Fraudulent transactions (Sec. 29:26) 9. Failure of Insider to disclose a Fact of special significance with respect to the issuer or the security that is not generally available. Insider means (i) the issuer, (ii) a director or officer (or person performing similar functio ns) of, or a per son controlling the issuer, (iii) a person whose relationship o r former relationship to the issuer gives or gave him access to material informa tion about the issuer or the security that is not generally available to the pub lic; (iv) a government employee, or director, or officer of an exchange, clearin g age ncy and or self-regulatory organization who has access to material informa tion a bout an issuer or a security that is nor generally available to the publi c; or (v) a person who learns such information by a communication from any of th e 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 o ther party (if not, then it is prohibited) A fact of special significance is now referred to under R.A 8799 as material Non pub lic and information is considered as such if: (i) it has not been generally disclosed to the public and would likely affect th e market price of the securit y after being disseminated to the public and the la pse of a reasonable time for the market to absorb the information; or (ii) would be considered by a reasonab le 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 li a 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 kne w the information or would hav e purchased or sold at the same rice regardless o f disclosure of the information to him (Sec. 61.1, R.A. 8799). 2006 notes: An insider who unlawfully communicates material nonpublic informatio n about the issuer of the security 61.1 with and to the same extent as the insi d er to whom the communication was directed and who is liable under subsection 6 1. 1 by reason of his purchase or sale of a security (Sec. 61.2, 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 f o 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 availabl e a t the stock exchange priced, at P20 per share. When WIC s tender offer was a nnounc 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 b u 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 confid ential 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 ac cess to material inform ation about the issuer of the security that is not gener ally available to the pu blic. Ms. OB is also liable for any damages to any sell er or buyer with whom she might have had dealt with in an amount not exceeding t riple the amount of the transac tion plus actual damages attorney s fees not exc eeding thirty percent (30%) of th e award. 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 boa rd 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 XY Z 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 so ld 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 acqui red, 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 ad vantage of any fact of special sign ificance only known to them and unknown to p ersons 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 t h at they could have taken advantage of. Hence no rights of any kind are acquire d by XYZ against any of its directors. 10. Tender of Offers (Sec. 33: ) 2005 notes:Tender offer means a publicly announced intention by a person acting alone or in concert with other persons to acquire equity securities of a public company (rule 19.1, R.A. 8799) 2005 notes: A person is required to make a tender offer for equity shares of a p ublic company in an amount equal to the number o f shares that the person intends to acquire in the following circumstances: (1)a t least fifteen per cent (15%) of any class of any equity security of a list ed corporation or of any class of any equity security of a corporation with asse ts of at least Fifty Million Pesos (P50,000,000.00) and having two hundred (200) o r more stockholders with at least one hundred (100) shares each (2) or who inten ds to acquire at least thirty per cent (30%) of such equity over a period of twe lve (12) months shall make a tender offer to stockholders by fil ing with the Co mmission a declaration to that effect; (3) The person intends to acquire shares that would result in ownership of more than 50% of the equity shares of a public company (Rule 19.1 [2-a]: Ibid.). and furnish the issuer, a statement containin g 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 invi tations for tender, or materials ma king a tender offer or requesting or invitin g letters of such a security. Copies of any additional material soliciting or req uesting such tender offers subsequen t to the initial solicitation or request sh all contain such information as the C ommission may prescribe, and shall be file d with the Commission and sent to the issuer not later than the time copies of s uch materials are first published or s ent or given to security holders. 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 p roxy shall be valid and effective for a period lo nger than five (5) years at on e 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 sha re 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 i ssu 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 transacti ons made in market outside of the registered exchange or transaction involving s ecurities not registered between broker and customer irectly. d Prohibition on Use of Unregistered Exchange; Regulation of Over-the-Counter Mark ets. No broker, dealer, salesman, associated person of a broker or dealer, or E xchang e, directly or indirectly, shall make use of any facility of an Exchange in the Philippines to effect any transaction in a security, or to report such tr ansacti on, unless such Exchange is registered as such under Section 33 of this Code. No broker, dealer, salesman or associated person of a broker or dealer, si ngly o r in concert with any other person, shall make, create or operate, or ena ble ano ther to make, create or operate, any trading market, otherwise than on a registe red Exchange, for the buying and selling of any security, except in acc ordance w ith rules and regulations the Commission may prescribe. 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 individua l having a relationship with the corporation, w hich would interfere with the ex ercise of independent judgment in carrying out t he responsibilities of a direct or. What Corp.must have independent directors? 1.Any corporation with a class of equity securities listed for trading on an Exch ange 2.Those corporation with as sets 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 leas t one hundred (100) shares of a class of its equity se curities 3.Corporation wh ich are private but which has sold a class of equity securities to the public pu rsuant to an effective registration statement 2006 notes: items 1,2 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, whichev er 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 fi le disclosure in the Philippine Stock Exchange (not SEC) and such operates as di s closure to the public) 2006 notes: SEC can only suspend a corporation for 30 d ays ; however it can go b eyond 30 days but not more than 90 days if it is with the authority of the Presi dent. Transactions of Brokers which are prohibited: No broker or dealer shall deal in or otherwise buy or sell, for its own account or for the account of customers, s ecurities listed on an Exchange issued by any corporation where any stockholder, director, associated person or salesman, or a uthorized clerk of said broker or dealer and all the relatives of the foregoing within the fourth civil degree of consanguinity or affinity, is at the time hold ing office in said issuer corpor ation as a director, president, vice-president, manager, treasurer, comptroller, secretary or any office of trust and responsibi lity, or is a controlling perso n of the issuer. No broker or dealer shall effect any transaction in securities or induce or atte mpt to induce the purchase or sale of any security except in c ompliance with suc h rules and regulations as the Commission shall prescribe to ensure fair and hon est dealings in securities and provide financial safeguards and other standards for the operation of brokers and dealers, including the esta blishment of minimum net capital requirements, the acceptance of custody and use of securities of cu stomers, and the carrying and use of deposits and credit ba lances of customers. 2006 notes: As such, margin trading is pwede (it is legal), it is purchase of se curities by investor using credit of broker (since the lat ter financed such purc hase). It is permissible only in a scenario where the inv estor has many street c ertificates being handled by the broker and there alread y exist trust between th

e broker and the investor. 2006 notes: Margin Call exist when the shares of stoc k of the investor held by t he broker fluctuates whereby the broker may demand f rom the investor additional deposit from the investor. This occurs when the cred it extended by broker was based on value last month, an d right now such value d eclined below minimum standard. It shall be unlawful for any member-broker of an Exchange to effect any transact ion on such Exchange for its own account, the a ccount of an associated person, o r an account with respect to which it or an as sociated person thereof exercises investment discretion: Provided, however, That this section shall not make unlaw ful a) b) c) d) Any Any Any An the capacity of a market maker; transaction reasonably necessary to carry on an odd-lot transactions; transaction to offset a transaction made in error; and oth er transaction of a similar nature as may be defined by the Commission. In all instances where the member-broker effects a transaction on an Exchange fo r its own account or the account of an associated person or an account with res p ect to which it exercises investment discretion, it shall disclose to such cus to mer at or before the completion of the transaction it is acting for its own a cco unt: Provided, further, That this fact shall be reflected in the order ticke t an d the confirmation slip. Any member-broker who violates the provisions of this Section shall be subject t o the administrative sanction Administrative Sanctions. 1.If, after due notice and hearing, the Commission fin ds that: (a) There is a vi olation of this Code, its rules, or its orders; (b) A ny 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, r ecords or documents required by law or rules to be filed with the Commission, ma de any untrue statement of a ma terial fact, or omitted to state any material fa ct 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 subj ect only to the limitations hereina fter prescribed, impose any or all of the fo llowing 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 millio e os (P1,000,000.00) plus not more than Two thousand pesos (P2,000.00) for each da y of continuing violation; (iii) In the case of a violation of Sections 19.2, 20, 24, 26 and 27, disqualificatio

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 pr ofit 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 Commissio o impose. 2. The imposition of the foregoing administrative sanctions shall be with out prejud ice to the filing of criminal charges against the individuals respons ible for th e violation. 3. The Commission shall have the power to issue writs of e xecution to enforce the p rovisions of this Section and to enforce payment of th e fees and other dues coll ectible under this Code. 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 offe r of settlement with the Commission. 2. Upon receipt of such offer of settlement, t he Commission may consider the offer based on timing, the nature of the investig ation 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 disc losed. Such decision may be made without a deter mination of guilt on the part o f the person making the offer. 4. The Commission shall adopt rules and procedures g overning the filing, review, wi thdrawal, form of rejection and acceptance of su ch 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 Phi lippines 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 p rospectuses, communications and reports violating the Cod e (Sec. 57); d) for fr aud in connection with securities transactions (Sec. 58); e) for manipulation of security prices (Sec. 59); f) for commodity futures contracts and pre-need plan s 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). Amount of Damages to be Awarded. 1. All suits to recover damages pursuant to Sectio ns 56, 57, 58, 59, 60 and 61 shal l be brought before the Regional Trial Court, which shall have exclusive jurisdi ction to hear and decide such suits. The Cour t is hereby authorized to award dam ages in an amount not exceeding triple the a mount of the transaction plus actual damages Exemplary damages may also be award ed in cases of bad faith, fraud, malevolence or wantonness in the violation of t his Code or the rules and regulations promulg ated thereunder. The Court is also authorized to award attorney s fees not exceeding thirty percent um (30%) of th e award. 2. The persons specified in Sections 56, 57, 58, 59, 60 and 61 hereof shal l be join tly and severally liable for the payment of damages. However, any pers on who bec omes liable for the payment of such damages may recover contribution from any ot her person who, if sued separately, would have been liable to make t he same paym ent, unless the former was guilty of fraudulent representation and the latter wa s not. 3. Notwithstanding any provision of law to the contrary, all p ersons, including the issuer, held liable under the provisions of Sections 56, 5 7, 58, 59, 60 and 61 shall contribute equally to the total liability adjudged he rein. In no case shal l the principal stockholders, directors and other officers of the issuer or pers ons occupying similar positions therein, recover their co ntribution to the liabi lity from the issuer. However, the right of the issuer t o recover from the guilt y parties the amount it has contributed under this Sect ion shall not be prejudic ed. Bar Question: Philippine Chromite, Incorporated, after registration of its secur ities, sold P10 M worth of common stocks to the public at P .01 per share. In i t s registration statement, it alleged that it holds a perfected mining claim on 1 00 hectares of chromite land in Botolan, Zambales, X, a Botolan resident, bou ght P50,000.00 worth of stock of the corporation from the stock exchange. After its public offering, the value of the stocks dropped to half its price. X made s ome investigations and discovered that the mining claims of the corporation had not been perfected at the time of the issuance of its securities. The Stock, how eve r, rallied and after two years commanded a price of one and one half centavo per

share. On its third year, the company collapsed and its stocks became totally v alueless. What is the remedy of X? (1989 Bar) Answer: The registration in the pr oblem contains a false statement that the corp oration holds a perfected mining claim on 100 hectares of chromite land in Botol an, Zambales, when in truth, the mining claims were not perfected at the time of the issuance of the certificate . X, the buyer of the stocks has the following remedies. a. 1. 2. he 3. 4. Civil damages against: The person who signed the registration statements; The directo rs of the corporation of the issuer at the time of the filing of t registration statement; The persons named in the statement as being or about to become direct ors; The accountant or auditor who prepared the statement; b. The damages can include exemplary damages incases of bad faith, fraud, malevo lence, or wantonness in the violation of the code; c. The amount of damages how ever cannot exceed double the price at which the sec urity was offered plus exem plary damages if any; d. The above described persons are solidarily liable to th e victim. Validity of Contracts: 2006 notes: section 71 states that : Any condition, stipu lation, 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. INTRA CORPORATE DISPUTES Under Section 5.2 of R.A. 8799, original and exclusive jurisdiction to hear and decide cases involving intra-corporate controversies has been transfer red from t he SEC to a court of general jurisdiction or the appropriated Regiona l Trial Cou rt (Sumndad vs. Harrigan, supra; Speed vs. CA, 425 SCRA 691; Fabia v s. CA, supra ; Vesagas vs. CA, 371 SCRA 508) An intra-corporate controversy invo lves fraudulent actions and devices which are detrimental to the interest of sto ckholder, directors and the corporation. It i s one which arises between stockho lders 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). The RTC has jurisdiction in civil cases involving the following: a) Devices or s chemes 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 det rimental to the interest of the public and/or of the stockholders, partners, mem bers 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 b y the corporate officers without prior registration with SEC is a device or sche me 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 pro perties and sum of money with damages is transposed into an intra-corporate cont roversy calling for the adjudicative powers of the SEC (now RTC) when the compla int alleges that an offi cer employed devices or schemes tantamount to fraud and misrepresentation in ord er to divert corporate funds and assets for his person al use (Alleje vs. CA, 240 SCRA 497). 2006 notes: Pyramid scam is aka Ponzi Sche me b) Derivative suits (Rule 1, Sec. 1 [a][4], A.M. 01-2-04 SC) An action involving a stockholder or member may bring an action in the name of a corporation or ass ociation, as the case may be, provided that: 1) He was a stockholder or member a t the time the acts or transactions subject o f the action occurred and at the t ime the action was filed; 2) He exerted all reasonable efforts, and alleges the same with particularly in the complaint, to exhaust all remedies available under the articles of incorpora tion, by-laws, laws or rules governing the corporatio n or partnership to obtain the relief he desires; 3) No appraisal rights are ava ilable for the acts complained of: and 4) The suit is not a nuisance or harassme nt suit (Rule 8, Sec. 1). c) Controversies n the election or appointment of dire ctors, trustees, officers or managers of corporations, partnership or associatio ns (Rule 1, Sec. 1 [a][3], A.M. 01-2-04-SC). Election contest shall refer to any controversy or dispute involving the followi ng: 1. title or claim to any elect ive office in a stock or non-stock corporation 2. the validation of proxies 3. t he manner and validity of elections

4. the qualifications of candidates, including the proclamation of winners, to t he office of directors, trustee or other officer directly elected by the stockh o lders in a close corporation or by members of a non-stock corporation where th e articles of incorporation or by-laws so provide (Rule 6, Sec. 2). 2006 notes:The Securities and Exchange Commission (now RTC) has jurisdiction ove r a dispute involving the termination of a bank manager as a result of his nonr eelection (Dy vs. NLRC, 145 SCRA 211). Bar Question: On December 1988, A, an incorporator and the General Manager of Pa je Multi-Farms Corp., resigned as General Manager and sold to the corporation h i s shares of stocks in the corporation for P300,000.00, the book value thereof pa yable as follows: (a) P100,000 as downpayment, (b) P 100,000 on or before 31 Jul y 1989, and (c) the remaining balance of P 100,000 on or before 30 September 198 9. a promissory note, with an acceleration clause, was executed by the corp orati on for the unpaid balance. The corporation failed to pay the first install ment on the due date. A then sued Paje Multi-Farms, Corp., on the promissory, in the Regional Trial Court. Does said court have jurisdiction over the case? (199 1 Bar) Answer: a suit to enforce a promissory note of a corporation buying out a withdr awing stockholder s stocks is intracorporate and cognizable by SEC (now RTC) becau se payment to him by the corporation may violate the trust fund doctr ine (Boman vs. CA, 167 SCRA 540). d)Petition for suspension of payments e) Controversies arising out of intra-corporate, partnership, or association rel ations between and among stockholders, members, or associates; and between any o r all of them and the corporation, partnership or association of which they ar e stockholders, members or associates, respectively (rules 1, Sec. [a] [2], A.M. 01-2-04-SC). The relation of a person to a corporation, whether as officer or a gent or employ ee is not determined by the nature of the services performed, but by the inciden

ts of the relationship as they actually exist (Nacpil vs. Intecontinental, supra ). A corporate officer s dismissal is always a corporate act and/or intra-corpo rate c ontroversy and that nature is not altered by the reason or wisdom which t he Boar d of Directors may have in taking such action (Bienvenido Ongkingco vs. NLRC, 27 0 SCRA 613; Lozon vs. NLRC, 240 SCRA 1; Espino vs. NLRC, 240 SCRA 52; E strada vs . NLRC, 262 SCRA 709). Where an action is brought by a n of a replacem ent for his lost orate and therefore exclusively sion (now RTC), even though the yes, 118 SCRA 602). stockholder to compel issuance by the corporatio stock cert ificate, the controversy is intra-corp cognizable by the Securities and Exchange Commis suit includes a claim for damages (Philex vs. Re The fact that the status of a stockholder in relation to the corporation has alr eady been terminated does not deprive the SEC (now RTC) of its jurisdiction to h ear and decide the controversy which arose from that relationship (SEC vs. CA, 2 01 SCRA 124). An action to rescind a compromise agreement brought by a group of stockholders a gainst DBP is in effect an action to seek control of the corpo ration. Hence, it is intracorporate and falls within the original and wExclusive jurisdiction of t he SEC (now RTC) (DBP vs. Ilustre, 138 SCRA 11). The CFI has no jurisdiction over an action for recovery of corporate funds filed against a c orporate President and two other minor employees, and over an action for damages arising from the filing of a case to dissolve the corporation, the matters invo lved being intracorporate and therefore exclusively falling under th e jurisdict ion of the SEC (now RTC) (Desa vs SEC. 117 SCRA 321). 2005 notes: SEC (now RTC) not NLRC has jurisdiction over cases involving the rem oval from employment of c orporate officers under PD 902-A. Generally speaking, t he relationship of a per son to a corporation, whether as officer or as agent or employee, is not determi ned by the nature of the services performed, but by the incidents of the relatio nship as they actually exist (Espino vs. NLRC, 240 SCRA 53). There can be no que stion as to the authority of the SEC to pass upon the issue a s to who among the different contending groups is the legitimate Board of Truste es of the Islamic Directorate of the Philippine (IDP) since this is a matter pro perty falling wi thin the original and exclusive jurisdiction of the SEC by virtu e of Sections 3 and 5 of PD 902-A. if the Sec (now RTC) can declare who is the le gitimate Board of Directors of a company, then by parity of reasoning, it can al so declare wh o is not the legitimate Board of Directors thereof (Islamic vs. CA, 272 SCRA 454 ). An action brought by the heirs of a deceased incorporator for accounting and inv entory of the properties of the corporation for determination of the share o f th e deceased, by a competent appraiser and for its division into three parts for d istribution to his three children, is an intracorporate controversy, and t herefo re falls within the exclusive jurisdiction of the SEC (now RTC) (Malayan vs. Men doza, 154 SCRA 548). 2006 notes:A controversy over the sale of shares of stocks, and the right to rep resent these shares in annual stockholder s meetin gs falls within SEC (now RTC) ju risdiction (Sales vs. SEC, 169 SCRA 109). 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 n ote of a corporation buying out a withdrawing st ockholder s stocks is intracorp orate and cognizable by SEC (now RTC) because payme nt to him by the corporation may violate the trust fund doctrine (Boman vs. CA, 167 SCRA 540).

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

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

ons, regardless of the nature of the transaction which gave rise to such dispute s (Peneyra, vs. IAC, 181 SCRA 245, citing DMRC vs. Este del sol, 132 SCRA 293). The better policy in determining which body has jurisdiction over this case wou l d be to consider, not merely status of the parties involved, but likewise the na ture of the question that is subject of the controversy (Viray vs. CA, 191 SC RA 309). When the nature of the controversy involves matters that are purely civ il in character, it is beyond the ambit of the limited jurisdiction of the SEC ( Int estate vs. CA, 356 SCRA661). 2005 notes:It is error for the petitioners to c laim that the case should fall un der the jurisdiction of the Securities and Exc hange Commission. The controversy does not in anyway involve the election/appoin tment of officers of petitioner MC HC. Respondent Zosa s amended complaint focus es heavily of the illegality of the E mployment Agreement s Arbitration Clause a nd under Republic Act No. 876, otherwise k nown as the Arbitration Law, it is th e 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, co mmunications 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 fo r Fraud in connection with securities transactions (58) 4. Civil liabilities for Manipulation of Security Price (59) 5. Civil liabilities with respect to Commod ity Future Contract and Pre-Need Plan s (Sec. 60) 6. Civil liabilities on accoun t of Insider Trading. (Sec. 61) LIMITATION OF ACTION No action shall be maintain ed to enforce any civil liabilities unless brought wi thin 2 years after discove ry of the untrue statement under Sec. 56 or 57, or wit hin 5 years after the sec urity was bona fide offered to the public under same se ctions 56 & 57 DAMAGES A WARDED 1. The court is authorized to award damages in an amount not exceeding tr iple th e amount of the transaction plus actual damages; 2. Exemplary damages ma y also be awarded in cases of bad faith, fraud, malevolen ce or wantonness in vi olating 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 liabl e 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. 90 2-A, and over c ases for rehabilitation transferred from the SEC. 2006 notes: Re habilitation are effected either through a receiver or through man agement commi ttee. 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; an d second, under let ter (b), the directors and stockholders have irrevocably app roved and/or consented t o, in accordance with existing laws, all actions or mat ters necessary and desira ble to rehabilitate the debtor including, but not limi ted 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 debt or; and modification of shar eholder s rights observe that aforesaid rule prescr ibes the need for a certificati on, one, to state that the filing of the petitio n has been duly authorized , and two, to confirm that the directors and stockhol ders have irrevocable approved a nd/or consented to, in accordance with existing laws, all actions or matters nec essary and desirable to rehabilitate the corpo rate 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 wo uld refer to that which is, or to tho se that are, intended to be done by the co rporation in the pursuit of its plan f or rehabilitation. Thus, if any extraordi nary 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 represen ting 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 th is 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 p reventing 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 adm inister the a ssets of the receivership estate, and in the management and dispos ition of the p roperty committed to his possession, he acts in a fiduciary capac ity and with im partially towards all interested persons (Arranza vs. BF, 333 SC RA 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 destru ction 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 c orporation and hence, continues or should continue to perform its contractual an d statutory responsibilities to pe titioners as homeowners (Ibid.). Bar:During t he pendency of the case, ABC Corporation defaulted in the payment of its debt to XYZ Corporation, a mortgage creditor. Thereupon, XYZ Corporation, w hat argumen t would you raise to resists the foreclosure? If you were the hearing officer of the Securities and Exchange Commission (now Judge of RTC). 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 p roduces the effect of suspending all actions pending before any court, body or t ribunal 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 cred i tor, XYZ Corporation, brought before the rehabilitation receiver. If I were th e hearing officer of the SEC I will not permit the foreclosure south by XYZ Corp oration. I will instead direct XYZ Corporation to file its claim wit h the rehab ilitation 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 pet ition for rehabilitation) Section 6(b) of Rule 4 of the Interim rules does not enjoin the enforcement of a ll claims against guarantors and sureties, but only those claims against guaran t ors and sureties who are not solidarily liable wit the debtor. Respondent s cl aim that the banks are not solidarily liable with the debtor does not find suppo rt i n jurisprudence. The participating bank s obligation is solidary with respo ndent 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 (Metropolit an 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 decla r 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 operation s an d rehabilitating the company for the benefit of investors and creditors. Ge nerally, the unsecured creditors had manifested willingness to cooperate with De btor Corporation. The secured creditors, however, expressed serious objections a nd reservations. First Bank had already initiated judicial foreclosure proceedin gs on the mortgag e constituted on the factory of Debtor Corporation. Second Ban k had already initiated judicial foreclosure proceedings on the mortga ge consti tuted on certain assets of the principal stockholders. Third Bank had already fi led a suit against the principal stockholders who had h eld themselves liable jo intly and severally for the loans of Debtor Corporation with said Bank. After he aring, 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 jud icial foreclosur e proceedings initiated by First Bank. c. Would the order of su spension 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 ba nk ? Explain. e. What are the legal consequences of a rehabilitation receivershi p? f. What measures may the receiver take to preserve the assets o Debtor Corpor ati on? (1999 Bar) Answer: a. The order of suspension is valid but only with res pect 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 indi viduals, 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, part nership and association. It logically follows that the SEC does not have jurisdi ction to entertain petiti ons for rehabilitation filed by parties other than cor porations, 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 F irst Bank. The suspension order applies to all claims including secured creditor s 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, an d 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 a gainst the Debtor Corporation. e) Upon the appointment of a rehabilitation recei ver, all actions for clams agai nst corporations, partnerships or associations u nder receivership pending before any court shall be suspended accordingly. The R ehabilitation Receiver shall not take over the management and control of th e de btor but shall closely oversee and monitor the operations of the debtor duri ng the pendency of the proceedings. He shall be considered an officer of the court, primarily tasked to study the be st way to rehabilitate the debtor and ensure t hat the value of debtor s property i s maintained pending determination of wheth er or not to rehabilitate the debtor. He shall also implement the rehabilitation plan after its approval. f) Among the powers of the receiver are: 1) to investigate acts, conduct, proper ties, liabilities and financial condition of the debtor. 2) to monitor operation s of debtor and immediately report to court any material adverse change in busin ess; 3) to evaluate existing assets, liabilities, earnings, and operations of de btor. 4) to prohibit and report to court any encumbrance, transfer or dispositio n of d ebtor s property outside the ordinary course of business or what is allow ed by cou rt. 5) to prohibit and report to court any payments outside ordinary c ourse of busin ess. 6) to take possession, control and custody of debtor s asset . 7) to notify counterparties and court as to contracts the debtor has decided t o continue to perform or breach.

Bar Question: When is the remedy of declaration in a state of suspension of paym ents available to a corporation? (2003 Bar) The remedy is available to a corpor ation, partnership or association where (1) it possesses sufficient property to over all its debts but foresees the impo ssibility of meeting them when they res pectively fall due, or (2) in cases where it has no sufficient assets to cover i ts liabilities, but is under the management of Rehabilitation /receiver or Manag ement Committee created pursuant to Sec. 5 (d) P.D. 902-A. Distinguish the stay order in corporate rehabilitation from a declaration in a s tate of suspension o f payment (2003 Bar) AS TO PARTIES: In suspension of payments, it is a remedy available under the Ins olvency Law to a natural person who, having sufficient asset to meet his obliga t ions, foresees the impossibility of meeting them when they fall due, and there fo re presents a proposal to pay his obligations on dates later than the due dat es. 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. AS TO CASES COVERED: In suspension of payments, for individuals who, possessing sufficient property to over his debts, foresees the impossibility of meeting th em when they fall due. In stay order in corporate rehabilitation, the following are the two (2) grounds for filing such a petition. (a) Petitions for rehabilita tion filed by corporations, partnerships and associa tions pursuant to PD No. 90 2-A, as amended. (b) Cases for rehabilitation transferred from the Securities an d Exchange Commis sion to the Regional Trial Courts. AS TO PURPOSE: In suspension of payments, an individual is given ample time to l iquidate his assets so that he may be able to meet his obligations when they fa l l due. In stay order in corporate rehabilitation, the justification for the au tomatic s tay of all pending actions for claims is to enable the management comm ittee or t he rehabilitation to effectively exercise its/his powers free from an y judicial

or extrajudicial interference that might unduly hinder or prevent the rescue e d ebtor company. of th Such suspension is intended to give enough breathing space for the management co mmittee or rehabilitation receiver to make the business viable again, without h a ving to divert attention and resources to litigations in various form. Among t he actions suspended are those for money claims before labor tribunals, like the N ational Labor Relations commission and the labor arbiters (Rubberworld vs. NL RC, 336 SCRA 433) 2005 notes: An action to recover amounts of money, solicited by a financing comp any with an expired authority, and which presently is under receivership, is co g nizable by SEC (now RTC), and the claim should be filed with said receiver (Ma ga lad vs. Premiere, 209 SCRA 260). 2005 Notes: Pursuant to R.A. 8799, the perio d 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 pro ceedings 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 Corpora ti on its credit facilities with certain banks to obtain funds not only to opera te X Corporation but also for a part thereof in the amount of P1 million as init ial deposit in a sinking fund to be augmented annually in amounts equivalent to 10% of the yearly income from its operation of the business of X Corporation. Fr om this fund the creditors of X Corporation were to be paid annually, starting f rom 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 Corpor ati 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, i n mana ging the business of X Corporation in the meantime, be deemed to have tak en-over X Corporation itself? (2003 Bar) Answer: Yes, the court can approve the plan. Since rehabilitation proceedings ar e summary and non-adversarial in natur e, the court may decide on matters merely on the basis of affidavits and other d ocumentary evidence of X Corporation. Shou ld the creditors oppose the plan, the y must file and serve upon X Corporation th eir comments or oppositions to the p etition, with supporting affidavits and docu ments. Any order issued by the cour t is immediately executory, hence the credito rs may be compelled to follow. Y C orporation is not deemed to have taken over X Corporation by the mere fact th at a joint venture agreement has been made between the two of them. It is merely a poling of resources for a limited period for the purpose of assisting X Corpo r ation to obtain funds. The issue is whether or not the Department of Labor and E mployment, the Labor Ar biter and the National Labor relations Commission may le gally act on the claims of respondents despite the order of the Securities and E xchange Commission suspe nding all actions against a company under rehabilitatio n by a management committ ee created by the Securities and Exchange Commission. Presidential Decree 902-A is clear that all actions for claims against corporati ons, 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 dec ide labor disputes is deemed suspended when the Securit ies and Exchange Commiss ion puts the corporation under rehabilitation (Ibid). MANAGEMENT COMMITTEE: In exercising the discretion to appoint a management commi ttee, the officer or t ribunal before whom the application was made must take in to account all the circ umstances and facts of the case, the presence of conditi ons and grounds justifyi ng the relief, the ends of justice, the rights of all t he parties interested in the controversy and the adequacy and effectiveness of o ther available remedies. The discretion must be exercised with great caution and circumspection and only for a reason strongly appearing to the tribunal or offi cer exercising jurisdicti on. Once the discretion has been exercised, the presum ption to be considered is that the officer or tribunal has fairly weighed and ap praised the evidence submi tted by the parties (Jacinto vs. 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 commi t 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 corpo rat 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 th e ma jority are clearly violating the chartered rights of the minority and putti ng th eir interest in imminent danger that a management committee may be created (Ibid .). 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 co rporate prop erty or of any other injury to stockholders, management of corporat e business sh ould not be wrestled away from duly elected officers, who are prim a facie entitl ed to administer the affairs of the corporation, and placed in th e hands of the management committee. However, where the dissension among stockho lders is such t hat the corporation cannot successfully carry on its corporate f unctions the app ointment of management committee becomes imperative (Ibid.). 20 05 notes:The appointment of the interim management committee is fully warrante d by the circumstances, as there is imminent danger of dissipation, loss wastage or destruction of corporate assets. The word imminent has been defined as impend in g or on the point of happening , while danger means peril or exposure to loss or inj ury (Ibid.). 2005 notes:A private person, not a stockholder, officer, or director of a corpo ration, cannot join the corporation as a co-petitioner to a suit for suspension

of payments filed with the SEC (now RTC) (Traders vs. CA, 177 SCRA 788). 2005 no tes: Presidential Decree 902-A, as amended , provides that upon the appoin tment of a management committee, rehabilitation receiver, board of body pursuant to t his Decree, all actions for claims against corporations, partnership, or as soci ations under management or receivership pending before any court, tribunal, boar d or body shall be suspended accordingly. Such suspension is intended to giv e e nough breathing space for the management committee or rehabilitation receiver to make the business viable again, without having to divert attention and resou rc es to litigations in various for a. among the actions suspended are those for mo ney 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 reh abilitation) Bar Question: Robert, Rey and Ben executed a joint venture agreemen t to form a c lose corporation under the Corporation code, the outstanding capit al stock of wh ich the three of them would equally own. They also provided there in that any cor porate act would need the vote of seventy percent (70%) of the o utstanding capit al stock. The terms of the agreement were accordingly implement ed and the corres ponding close corporation was incorporated. After three (3) ye ars, 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 rem edies available to Robert under the Corporation Code to break the deadlock? Expl ain. b. Are there any remedies to prevent the paralyzation of the business avail able to Robert under P.D. 902-A while the petition to break the deadlock is pend ing 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 b e obtained, with the consequences that the busine ss and affairs of the corporat ion can no longer be conducted to the advantage of the stockholder generally, th e SEC, upon written petition by any stockholder, s hall have the power to arbitr ate 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 fo r rehabilitation must be filed with the R TC) 2005 notes: ABC Corporation has be en experiencing liquidity problems. Anticipati ng that it would be unable to pay maturing obligations, it filed with the Securi ties and Exchange Commission (no w RTC) a petition for suspension of payments wit h a prayer for the appointment of a rehabilitation receiver. The petition was gr anted and a rehabilitation rec eiver appointed.