BUSINESS
ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
rd
3 EXAM
DUCO, L
So alright, let us now start with RA 8799 THE
SECURITIES REGULATION CODE otherwise known
as the Blue Sky Law. Why is it called the Blue Sky
Law? Blue Sky was created, that particular
terminology was created by the US SC in affirming
the validity of the Securities Act of the United States.
The US SC said that this law is intended to protect the
investing public from hipsters (not sure with this),
scam artists, those who by trickery and false
pretenses manage to convince innocent investors to
buy nothing less than a few feet of the blue sky.
That’s why it’s called Blue Sky Law. The terminology
in Manila is the scam artists are those who try to sell
the Jones Bridge in Manila. Jones Bridge in Manila
now has been sold so many times because there are
ignorant people who go to Manila and know no better
and they fall victims to these scam artists. In US they
call it selling a few feet of the Blue Sky. That’s why it’s
called Blue Sky Law.
Securities is the subject of The Securities Regulation
Code. Securities are intangible properties, and they
are becoming more varied, more sophisticated as
time goes on. So you will notice in the law, it says
section 1
Section 1. Title. - This shall be known as "The
Securities Regulation Code"
Declaration of Policy
Section 2. Declaration of State Policy. – The State
shall establish a socially conscious, free market
that regulates itself, encourage the widest
participation of ownership in enterprises, enhance
the democratization of wealth, promote the
development of the capital market, protect
investors, ensure full and fair disclosure about
securities, minimize if not totally eliminate insider
trading and other fraudulent or manipulative
devices and practices which create distortions in
the free market. To achieve these ends, this
Securities Regulation Code is hereby enacted.
That’s the aim of The Securities Regulation Code.
And section 3 says Definition of Terms: “securities”.
Take a look if you can get a definition. There is none.
It’s just an enumeration. “Securities” are shares,
participation or interests in a corporation or in a
commercial enterprise or profit-making venture and
evidenced by a certificate, contract, instrument,
whether written or electronic in character. It includes:
1
(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; etcetera. It goes
on. There’s a long list.
SEC. 3. Definition of Terms. –
3.1. “Securities” are shares, participation or
interests in a corporation or in a commercial
enterprise or profit-making venture and evidenced
by a certificate, contract, instrument, whether
written or electronic in character. It includes:
(a) Shares of stock, bonds, debentures, notes,
evidences of indebtedness, asset-backed
securities;
(b) Investment contracts, certificates of interest or
participation in a profit sharing agreement,
certificates of deposit for a future subscription;
(c) Fractional undivided interests in oil, gas or
other mineral rights;
(d) Derivatives like option and warrants;
(e) Certificates of assignments, certificates of
participation, trust certificates, voting trust
certificates or similar instruments;
(f) Proprietary or non proprietary membership
certificates incorporations; and
(g) Other instruments as may in the future be
determined by the Commission.
3.2 “Issuer” is the originator, maker, obligor, or
creator of the security.
3.3 “Broker” is a person engaged in the business
of buying and selling securities for the account of
others. chan robles virtual law library
3.4 “Dealer” means any person who buys and
sells securities for his/her own account in the
ordinary course of business.
3.5. “Associated person of a broker or dealer” is
an employee thereof who, directly exercises
control of supervisory authority, but does not
include a salesman, or an agent or a person
whose functions are solely clerical or ministerial.
3.6. “Clearing Agency” is any person who acts as
intermediary in making deliveries upon payment
to effect settlement in securities transactions.
3.7. “Exchange” is an organized marketplace or
facility that brings together buyers and sellers
and executes trades of securities and/or
commodities.
3.8. “Insider” means: (a) the issuer; (b) a director
or officer (or person performing similar functions)
of, or a person controlling the issuer; (c) a person
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
whose relationship or former relationship to the
issuer gives or gave him access to material
information about the issuer or the security that is
not generally available to the public; (d) a
government employee, or director, or officer of an
exchange, clearing agency and/or self-regulatory
organization who has access to material
information about an issuer or a security that is
not generally available to the public; or (e) a
person who learns such information by a
communication from any of the foregoing
insiders.
3.9. “Pre-Need Plans” are contracts which provide
for the performance of future services or the
payment of future monetary considerations at the
time of actual need, for which planholders pay in
cash or installment at stated prices, with or
without interest or insurance coverage and
includes life, pension, education, interment, and
other plans which the Commission may from time
to time approve.
3.10. “Promoter” is a person who, acting alone or
with others, takes initiative in founding and
organizing the business or enterprise of the
issuer and receives consideration therefor.
3.11. “Prospectus” is the document made by or
on behalf of an issuer, underwriter or dealer to
sell or offer securities for sale to the public
through a registration statement filed with the
Commission.
3.12. “Registration statement” is the application
for the registration of securities required to be
filed with the Commission.
3.13. “Salesman” is a natural person, employed as
such or as an agent, by a dealer, issuer or broker
to buy and sell securities.
3.14. “Uncertificated security” is a security
evidenced by electronic or similar records.
3.15. “Underwriter” is a person who guarantees
on a firm commitment and/or declared best effort
basis the distribution and sale of securities of any
kind by another company.
“Derivatives”, what is a derivative? Derivative is taken
from mathematics-calculus. For purposes of The
Securities Regulation Code, if you have a security
and the underlying asset of the security is another
security, then it is called a derivative. And that is part
of the * of the SC. Example, you have an option. What
is an option? A right to purchase a certain security,
stock, at a given pre-agreed strike price within a
certain period of time. That is an option. So, the
2
underlying value of that option is the security that you
can buy. Let us say you have an option to buy BDO
shares of stock at 114 which is the price today. One
share of stock of BDO is 114 and you have an option
to be able to buy 20 thousand shares of BDO at 114
exercisable not later than December 31, 2019. Who
issues that kind of security? Is it BDO? No.
Somebody who believes that BDO will not go up
higher than 114 by that time. So by December 31,
2019, if the price of BDO shares is 200 pesos, naa
kay option maka palit kag 20 thousand at 114, pirting
ginansyaha nimo. It is being sold and traded at the
stock market for 200 pesos. You can buy it for 114
per share from this fellow who issued you this option.
Pilay ginansya nimo ana? Muingun ka ‘wa man koy
kwarta ika palit anang *’. Ayaw nag ka guol. Daghan
may mu capitalize nimo ana kay barato man imong
pag papalit ana. Broker mismo maoy muhatag nimo
og kwarta na palitun na nimo. Kay pag palit nimo ana,
you turn around and sell it at the market rate, 200 less
114. Mao na imung ginansya. Kuhaan lang na nimog
mga commission sa mga broker, capital gains tax
which is gamay lang kaayo na. But, come 2019 the
price of BDO shares is 110, ma unsa man ka? 114
man imung option. It’s cheaper to buy it from the
stock market. Unsaun man na nimo? Gisiin na lang
na nimong option. Gisiin na lang nimo.
So the underlying value is another security that is a
derivative.
Another enumeration here is 3.9
3.9. “Pre-Need Plans” are contracts which provide for
the performance of future services or the payment of
future monetary considerations at the time of actual
need, for which plan holders pay in cash or
installment at stated prices, with or without interest or
insurance coverage and includes life, pension,
education, interment, and other plans which the
Commission may from time to time approve.
Pre-Need Plans are securities. Ingun nimo ‘insurance
plan na’. Dili. It is covered by The Securities
Regulation Code. Pre-Need Plans are securities.
So alright, what is the so-called Howey Doctrine? It is
taken from the SC case Securities and Exchange
Commission v. W. J. Howey Co., 328 U.S. 293
(1946). It has been asked in the bar examination. This
is a decided case of the Federal Supreme Court of
the US. What is that? It is a test of what a security is if
you are talking about investment contracts. If you are
talking about proprietary securities, shares of stock,
participation in a partnership, whatever, that is not the
test that you will use. It’s just the test if it is an
investment contract which is number or paragraph (b)
of section 3.1.
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
SEC. 3. Definition of Terms. –
3.1. “Securities” are shares, participation or interests
in a corporation or in a commercial enterprise or
profit-making venture and evidenced by a certificate,
contract, instrument, whether written or electronic in
character. It includes:
xxx
(b) Investment contracts, certificates of interest or
participation in a profit sharing agreement, certificates
of deposit for a future subscription;
xxx
Those type of securities, this is the best: Howey Test.
You can read the case. It’s in google.
This is what happened. This company owned a large
orange orchard in the state of Florida in the US. Now,
what did this Howey Company do with this orchard?
He made this proposition, gi divide2x niya iyang
orchard, 3 acres, and 4 acres, depending on the
takers. He said ‘I am selling my farm per acre, you
can buy 3 acres, 4 acres, any size’. Now, why will you
buy when you are a lawyer in New York? Why will you
buy? You have no knowledge of growing oranges.
‘You give it back to us after you put in, and we will run
the farm’. ‘We will market it, we will make the orchard
produce, we will do everything, tunga ta sa ginansya’.
So, there is a lease-back feature. Sell it, then you
lease it back, they work on it, and tunga mo sa
ginansya. So they sent brochures using the US postal
system. Now, the problem is the Securities Act of the
US says if you are selling securities, you have to first
register the security. If you don’t register, it’s illegal to
be selling these securities. You cannot use the postal
system. That’s another crime. If you use the postal
system, that is criminal liability. So, the SEC
investigated Howey. Then the SEC came to the
conclusion that Howie was engaged in selling
securities that were not registered because Howey
just subdivided its farm, sold it to the public, and then
those who wanted, they sign lease-back agreements,
tunga sila sa ginansya. The issue now is that a
security? That is the question, and the SC says that is
a security. So Howey was fined for using the postal
system or selling securities without first registering it.
What makes it a security? 3 elements may be
considered:
1. There is an investment. The investment is made
with the expectation of profits. The profits is totally
dependent on the third person that is making the
enterprise work not on the investor, the investor is
completely away from it. He does not have anything
to do with it. He just makes that investment.
Now, please, that is not the test for all securities. That
is the test for an investment contract. If it is not an
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investment contract, you do not use the Howey test
because there is a controversy in the US now and
they applied the Howey test to the Business Purchase
Rule. If you buy a business completely, * shares
completely to control a business, there are revenue
districts there that say you have all the security even if
that is privately-held. It’s not traded in the stock
market. You bought it, and then the business
continues as it is, then profits, so therefore if you get
profits, it complies with the Howey test. So therefore,
you should have registered the sale. The others
would say no. That is not a purchase of security. That
is a pure commercial transaction to buy a business.
And when you buy the business, you somehow
participate in the * event because you have not just
an expectation of profits but you are participating in
the running of the corporation or business entity that
you have bought *. But that controversy is still
persisting in the US jurisprudence, and the SC has
refused to separate. There have been cases where it
could have from the SC refuses to entertain. Wa pa.
But what is the correct stand? There is no
pronouncement yet of the US SC.
So you know now what the Howey test is for
investment contracts. Remember, securities can be
proprietary stocks, it can be credit instruments like
bonds. Or it can be risk instruments, instruments that
are designed not for you to raise capital but to
minimize your expenses, to manage your expenses.
That is why you have futures contracts. People will
agree to sell you this much at a given price. Like
foreign currency diba? You have a loan in dollars.
Why did you borrow in dollars? Na di ka man musibat
sa Pilipinas adto sa US. You borrow because the
interest rate is very low. But then you are only earning
in pesos. By the time your loan matures, you have to
produce the dollars to pay the principal plus interest.
How do you protect yourself that you will have enough
dollars? You enter into futures contract. Either you are
to cover it 100%. If you cover it 100%, the chances
are alkanse kana. You might want to cover it 50% or
less than 50%. They say if you have a forward cover
of your foreign loans of 100% that means that your
cure is worse than the disease. Nag inom kag tambal
na
February 2, 2017 Acosta, M
So we are still in this very exciting topic, securities. As
a general rule, how does the Securities Regulation
Code protect the xxx - it protects by the system of
registration. That which is sold, before it can be sold
should be registered, securities should be registered.
The one selling whether you are an issuer, a broker or
a dealer, they are all defined in section 3.1, 3.2; you
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
must be registered. Associated person of a broker, or
a dealer, you have to be registered.
Section 3. Definition of Terms.
3.1. "Securities" are shares, participation or
interests in a corporation or in a commercial
enterprise or profit-making venture and evidenced
by a certificate, contract, instruments, whether
written or electronic in character. It includes:
(a) Shares of stocks, bonds, debentures, notes
evidences of indebtedness, asset-backed
securities;
(b) Investment contracts, certificates of interest or
participation in a profit sharing agreement,
certifies of deposit for a future subscription;
(c) Fractional undivided interests in oil, gas or
other mineral rights;
(d) Derivatives like option and warrants;
(e) Certificates of assignments, certificates of
participation, trust certificates, voting trust
certificates or similar instruments
(f) Proprietary or nonproprietary membership
certificates in corporations; and
(g) Other instruments as may in the future be
determined by the Commission.
3.2. "Issuer" is the originator, maker, obligor, or
creator of the security.
3.3. "Broker" is a person engaged in the business
of buying and selling securities for the account of
others.
3.4. "Dealer" means many person who buys sells
securities for his/her own account in the ordinary
course of business.
3.5. "Associated person of a broker or dealer" is
an employee therefor whom, directly exercises
control of supervisory authority, but does not
include a salesman, or an agent or a person
whose functions are solely clerical or ministerial.
Before you can be registered if you are a person you
have to pass a test and the test is the securities
regulation code how much of it you know multiple
choice you might try applying for registration but you
have to be employed actually before you can take an
examination. You cannot just go to the SEC and
knock the door "I will take the exam" you cannot do
that. Your brokers will apply for you or the dealer will
apply for you then they do not trust you, you have to
go thru a seminar provided by an accredited
institution. Sad to say our law school is not accredited
with the SEC. We are good enough for the bar
examination but we are not good enough for
registration with the SEC. What the SEC!
4
So if you’re a person you have to be registered , if you
are a thing to be sold, you are a security, you have to
be registered; if you are the place where it is bought
and sold, actually place now is no longer a place, it's
a facility. What is the difference now between place
and a facility? The most famous place where
securities are bought and sold is called Wall Street it
sells stocks and bond now, just for curiosity you go to
Google you Google wall street stock exchange and
you go to images and take a look on how big the
street that is called Wall Street is. Just take a look
how wide wall street is because you might have some
idea of how wide it is, mas lapad panjng Jacinto
kaysa wall street, nigadto ko kay gitan aw nako,
sidestreet ranang wall street, side street ra. And yet it
is famous because that is where securities began to
be bought and sold, people stand by the walls crying
out this are the stocks being sold and the price, that is
how it begun Hantod sa na building na na.hantod sa if
you’re a tourist, you ha ve to apply for a tour and
schedule it if you go there, di na mahimo nga
manuktok ra ka didto a d kalit rakag sulod disto..di
mahimo.
And kasagarangag adtog New York ba Statue of
Liberty Empire state building. Mao na ilang panan
awon wa juy muadtog wall street ha unsaan intawon
na but I know if you go there you will look up
wallstrret. Go to the New York stock exchange. There
are two stock exchanges in New York there is the
American stock exchange and there is the New York
stock exchange. Let me tell you it's better to go to
American stock exchange. Painomon pakag kae
didto, tagaan pakag frrr brochure kay di man kaayo
na famous angAmerican stock exchange. Kanang
brochure pa na sayon kaau sabton kingkoy, comics
makasabot kud ka.
Now before you can open a stock exchange you have
to register with the SEC, you cannot just open the
stock exchange, stock exchange must be registered.
Now it is already called a facility. Why? You talk about
Nasdaq.
Unsa man daw ng Nasdaq? National
Association of Securities Dealers and Quotes;
quotations, there is no office of Nasdaq, but at any
time of the day or night you can buy and sell shares of
bonds that are listed in the Nasdaq, computer ra, that
is why place has now become irrelevant. Standard of
form, samot wala na, it's all in the internet at any time
of the day or night you can now trade by selling
shares of stocks or bonds in smp there are other
indices that are not well known.
But the most well-known index as representing to the
market is "Dow jones"'is the most famous index of
the thousands of shares of stocks being traded in new
york they pick out certain stocks 20 na sila kabuok
and collectively if they go up or they go down; they
say the market is up or the market is down.
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
Bull Market- Bear Market
Muingon gani kag market is up, that is called
bullmarket, if they call it a bearmarket mao ng
market nga paubos, kay ang bear kuno, ana manang
bear paubos man.so when somebody said bullmarket
pasaka inhon gani silag bearket paubos.
Pangutan on gani kag are you bearish about the US
economy because of Trump. Are you bearish? Unsa
may pasabot ana? You are bearish that means you
think the market will go down or it is on its way down.
If you are bullish that means you believe the market is
going up.
Now ha, Trump has just banned Muslims from the 7
countries that are all Muslims the executive order
never mentions even once the word Muslim he calls it
muslim man because the 7 countries are all muslim,
majority are officially muslim Libya, Egypt, Syria, Iraq,
Iran Pakistan, puros muslim.
Now, the market suddenly went down it's all up since
the inauguration of Trump sigeg saka ang market
lapos nagud sa 20k.paghuman ngini, bagsak, bad
effect no.pagpoll nila karon majority of americans
approves this. They approve the Muslim ban. Kinsa
may lwango ani? Kanang mga kano daghan, majority
niana, ignorante.and dili ignorante kanang gada sa
market mupalit ug baligya.
I have not seen an analyst who says that this is good.
You read Krugman, very harsh words. Not so harsh-
this economist who used to be CEO; Mohamed El-
Erian, Muslim but he has dual citizenship he is
Egyptian and American.
System of registration even if you are just a place you
have to be registered. If you buy securities or you sell
securities, you have to be registered. Ako diay kung
magpalit kog stocks magparegister diay ko? You think
you can buy securities, you cannot, somebody else
has to buy it for you, you have to ask a broker to buy
for you.may manag bangkerohan, di mana
kinahanglan ug registration para mamalit kag pierit.
Try to buy shares of stocks and you’re not a
broker you cannot buy. You have to ask a broker to
buy you shares because you cannot buy. Only those
who are registered.
• So how do you register a security?
You register a security by filing what is called a
registration statement. Please remember that.
In all the other administrative agencies what you do if
you want registration is to file a petition, a petition with
the securities and exchange commission it is a
registration statement. Nganong ing ana mana, mao
manay gisugdan sa america kita gani ka, sunod lang
ta sunod lang ta intawon.pagka walay hinungdan ini
5
nagsunod2x lang. You know you do not have to
reinvent the wheel, naa nay nakaimbento anang ligid
nganong imbemtohon paman jud na nimo
Gamiton nalang na nimo diba. You do not have to
reinvent the wheel. You file a registration statement.
• Who signs the registration statement?
That is found in chapter 3 registration of Securities
requirement for registration. Securities shall not be
sold or offer for sale or distribution in the Philippines
without a registration statement duly filed with and
approved by the Commission. Now this word
approved is an unintended mistake because later on
you will find out that the SEC never approves a
registration statement .why?
• Why does the SEC not approve a registration
statement?
Sec. 12.6. Within forty-five (45) days after the
date of filing of the registration statement, or by
such later date to which the issuer has
consented, the Commission shall declare the
registration statement effective or rejected,
unless the applicant is allowed to amend the
registration statement as provided in Section 14
hereof. The Commission shall enter an order
declaring the registration statement to be
effective if it finds that the registration
statement together with all the other papers and
documents attached thereto, is on its face
complete and that the requirements have been
complied with. The Commission may impose
such terms and conditions as may be
necessary or appropriate for the protection of
the investors.
Take a look at section 12.6 it says within 45 days after
the date of the filing of registration statement or by
such later date to which the issuer had consented the
Commission shall declare the registration statement
effective or rejected unless the applicant is allowed to
amend the registration statement as provided in
section 14 hereof. The Commission shall enter an
order declaring the registration statement to be
effective if it finds that the registration statement
together with all the other papers and documents
attached thereto is on its face complete and the
requirements have been complied with. The
commission may impose such terms and conditions
as maybe necessary or appropriate for the protection
of the investors. So a registration statement is never
approved it is just declared as either rejected or
effective
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
Why is that the case? Because that is the case on the
United States. Why is that the case in the United
States? Because the SEC should not be
misunderstood as indorsing one security over another
.daghan man jud na klase security nga
magparehistro. The approval of the sec does not
mean that its indorsing it it just says its effective, there
is nothing wrong with it. now the public xxx the SEC is
not in the business of pushing or a rejection of a
security. That is why it is not approved. It is just
proclaimed to be effective.
Bantay mo ana ha kay wa pana pangutan a sa bar.
Because it is very basic.
Registration Statement
Now, some securities, the registration statement is
very complicated. It could be thousands of pages
because the SEC wants total and complete
information. If you are raising capital in order to
expand your business, the SEC wants to know as
detailed as possible the cover of ecpansion.so you
submit all the papers, your plans, your estimated
costs. Kana tanan isubmit nimo. Then you must give
as complete information all directors of the board of
directors of the issuer kinsa ma ni si issuer? Section
3.2 issuer is the originator, maker, obligor, creator of
the security.
So San Miguel Corporation is an issuer. The shares
of stocks of San Miguel Corporation is an issue, in
plain security language it is called issue. Ayawg
kalimot ana tawon kay ang issue xx in plain legal
language, the issue is a question a legal problem to
be resolved. But in securities law, an issue is a
security; it is what the issuer offers to the public that is
an issue. So if you ask how many issues are traded in
the New York stocks exchange Google will answer.
You type it out in Google. Google will answer you
because Google is literate business wise. Mutubag na
siya nimo. So you have to explain who this issuer is.
Who is this issuer?
You type out SC Johnson is now being bought for
60.7 b, the trouble is SC Johnson is not listed in the
stock market. It's a private corporation. Corporation,
not listed at all, SC Johnson mao ng Johnson wax,
Listerine, Glade. It’s a private company, and yet it is
worldwide, it’s not listed at all in the stock market, its
already for sale, give up ng family ana pero its making
good money, it is for sale for 16.7B dollars. You look it
up in google, it just gave 150 million to Cornell
University so that’s its current business will be named
Cornell SC Johnson Business Crew. Barato na,
mamalit ka.
So, if the company who buys it is a listed company in
the stock and it will now raise the money to buy SC
6
Johnson by floating a bond then its registration
statement will have to contain the reason why its
raising the bond then it will have to explain SC
Johnson. Unsa maning SC Johnson anaa dira? Niya
wan a silay record sa stock exchange kay private
mana sila, private. Who are in the board? Unsa may
mga background ini, unsa may itsura ni ini banagason
bani, upaw bani, ha? Nagsungkod na bani? Batan-on
pa bani?
Now, what happens kung mailhan ka nga you did not
fully disclose something or you made an untruthful
statement. Muingon ka he’s a graduate of Wharton,
unya undergrad ra diay to, namakak ba.
Pareha ni Richard Li, Pacific Century CyberWorks he
is the son of the richest oversea chinese whose name
is Li Ka-Shing? Look it up. Siyay nagsugod anang
pre-selling, wala pa gani nagsugod ng bidding,
iapabaligya na niya ng units, an uneducated no
college guy, ang iyang anak si Richard Li, niingon
siya graduate of Stanford University, Mechanical
Engineering, sure enough Richard Li attended
Stanford University but what he did during the his last
year last semester- he left and when to Canada, wa
na siya mukuha sa final examination, so wa siya
kacomplete sa requirements. You know in the US you
do not take board exams you just take an ethics
exam, pasar gani ka sa college, after 2-3 years’
experience and you passed the ethics exam, you are
now registered engineer. Mao tung si Richard Li and
iyang gibutang didto sa iyang company, sa iyang IPO
sa Hongkong stocks exchange, na siya graduate of
Standford, niya wa man diay siya mugraduate, wa
sad siya makick out, wa lang siya mutungha sa final
exams therefore he didi not get his final grade. As a
result of that, Pacific Century CyberWorks was fined,
100 000 Hongkong dollars.
So gusto ka mangwarta, basaha ng registration
statement, pangitaig sayup. Pagkahuman, mag
andam na kag suwat sa stock exchange nga imong
buhian, nya adtoon nimo ang issuer, andam na tanan.
Unsaon manang you did not fully disclose?
Xxxx mugawas ning pagukod na registration
statement addendum, kanang amended ban a
registration statement to correct the information
deficiency, then you are allowed to do that because
the moment there is prima facie evidence that there is
an untruthful statement, what happens?
The SEC will order a suspension of trading, for the
meantime the stock can’t be bought or sold,
suspended and then there is an investigation, the
nature of the investigation is; it is confidential; close-
door.
What does that remind you of? Close-door?
Disbarment, disbarment proceeding is confidential in
nature. It’s not open to the public, what’s the reason?
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ADDU-Law
According to the SC, it is easy to destroy a reputation
that you have built up in many years it is more difficult
to restore a reputation that has been unlawfully xx
that is why the investigation is confidential. So do with
securities, it is very easy to defame an issuer, a
corporation, so the investigation is confidential; only
when the finding has become final and there are no
more additional investigation, is the result of the
investigation revealed to the public but if nothing is
discovered then the investigation will remain
confidential, registration security.
Now for the life of me, no one reads the registration
statements, it is too detailed, complex and very
difficult xx so, in order to sell your security you create
a brochure di ba, naa dayoy mga color. The brochure
must be faithfully based on the registration statement,
the brochure must also be registered with the SEC,
you cannot have brochure without registering it with
SEC. Now, this is what is given to the public, the
brochure, what is worse, textsan ka nalang, text
nalang, makahurot sa imong memory, taas
kayo.tinunto.
Brochure available electronically, go to this
http://www, is that required to be registered? The
SEC now says, all electronic communications of
securities that are for sale in the market, the SEC
must be given a copy, otherwise it is considered as
unauthorized market maneuver of securities. The
SEC wants everything be registered. The whole idea
of the SEC is if all transactions are known by
everybody, then everybody will have an input in the
determination of the price, the correct price by which
the bank can supply all up xxx the correct price is
there, and that which is true. Do you believe in that
underlying premise? If everybody knows the price of
something bought or sold, then everybody will have a
chance to deal with it at a correct price. You believe in
that? That is the premise. That is why in shares of
stock you know how much is being bought or sold,
now in the web. It will give you a running price.
That is the theory behind registration of securities.
Now, are all securities to be registered when it is
bought and sold in the open market? Not all.
February 3, 2017 Enriquez, A.
I’ve given you a copy of the decision of the
SC where the court specifically refers to the Howie
Test, unlike the other first decision which I gave you,
where the court does not at all cite the HOWIE test.
SEC vs Prosperity.Com.Inc. Networking according
to the SC is not a security. It’s a 2012 case. I’m
referring to the Camp John Hay decision. You
compare this case with the case of Prosperity,
because exactly they are saying the same thing, they
7
are using the Howie test and ye Camp John ha does
not quote Howie, what is that, that is the cousin of
plagiarism. You should be very familiar with that.
Segue: Law is Rational. Know how to cite your cases.
Father talks about his friend who had a PhD in Math.
We took up Registration,that is the key method of
regulating the market, people, places and transaction
are registered in the SEC.
Now the transaction first you have to register the
security itself. Are there securities that do not need
registration? But actually they are registered. What do
you mean by not registered but actually they are
registered. Muapply man ka for an exemption of
registration so tua na recorded ang imong securities
didto, It is still recorded pero di n aka
mubayad.Gamay Gamay lang an imongbayad
So, because the state reviews those which can be
registered and those which need not be registered
then you are really registered. Now, ust take a look at
it, when you begin a new corporation. The shares of
stock are no bought and sold in the stock market, so
you file with the SEC your Articles and By-laws. In
your articles, there is authorized capital, there is
subscribed capital and there is paid up capital. And it
is written down there, subscribed, paid in, together
with that you also file a request for exemption from
registration. The SEC of course will approve it
because usually the incorporators are not more than
15. In the course of approving that you are exempt for
registration the SEC records your shares. You are
actually recorded there in the SEC but ou are an
exempt transaction not a exempt security.
Exempt security is very easy to understand. If I is
government, Section 9 Exempt Securities.
SEC. 9. Exempt Securities. -
9.1. The requirement of registration under
Subsection 8.1 shall not as a general rule apply to
any of the following classes of securities:
(a) Any security issued or guaranteed by the
Government of the Philippines, or by any political
subdivision or agency thereof, or by any person
controlled or supervised by, and acting as an
instrumentality of said Government.
(b) Any security issued or guaranteed by the
government of any country with which the
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
Philippines maintains diplomatic relations, or by
any state, province or political subdivision thereof
on the basis of reciprocity: Provided, That the
Commission may require compliance with the
form and content of disclosures the Commission
may prescribe.
(c) Certificates issued by a receiver or by
a trustee in bankruptcy duly approved by the
proper adjudicatory body.
(d) Any security or its derivatives the sale
or transfer of which, by law, is under the
supervision and regulation of the Office of the
Insurance Commission, Housing and Land Use
Regulatory Board, or the Bureau of Internal
Revenue.
(e) Any security issued by a bank except
its own shares of stock.
(a) Any security issued or guaranteed by the
Government of the Philippines, or by any political
subdivision or agency thereof, or by any person
controlled or supervised by, and acting as an
instrumentality of said Government.
Issued by the government, the example that I gave
you is the Treasury bills. The government borrows
from the public by issuing treasury bills (90 days,160
days, 300 days). That’s directly the government
borrowing from the public, it’s the treasury of the
Republic that is borrowing the money, so that treasury
bill that is not IOU, in fact if it were privately issued it
would be in a commercial paper, but because it is the
government, it is called a treasury bill.
Now, a security guaranteed by the government. Land
Bank Bonds are used to purchase land from the
private landowners whether it be large estate or not
too large estate, the government takes it, and
subdivides it and pass it to the agrarian reform and to
the beneficiaries. ARBA, Agrarian Reform Beneficiary
Association. The bigger the estate, the bigger the
component of the compensation in the exercise of the
eminent domain of the government. The
compensation of the portion is BONDS, issued by
Land Bank.
And yet it is there it is fully guaranteed by the
government, and the Agrarian Reform law says that
the Land Bank Bonds is wholly acceptable to the
government or all obligations of the holder of those
bond, the government is supposed to receive these
8
bonds in lieu of payments of cash. Ug na kay
bayranan sa tax, dawaton sa gobyerno ang bonds.
Now here comes the issue, since the Land Bank
bonds, some of them are 15 years, some of them 20
years, the government agency who accept these bods
discount it. They will say that it is on later 15 years
that these bonds will ripen and we will be able to get
cash. Now somebody filed a case and said that if you
receive that bonds at a discount which is a normal
practice in business kay di pa man na mahinog ang
bonds, huktan pa man na nimo, paugat pa ma na until
15years una ka maka cash, ug gusto ka mu cash, i-
negotiate na nimo, paliton na sad na sa lain.
Those who filed the case and said, “if the government
does not get these at 100% face value, the effect is
that they are paid less than what the court decided as
the just compensation for the taking of the property.”
So now, all the government financial institutions are
obligated to receive Land Bank Bonds at face value.
Ug unsa nay nasuwat diha, bahala na ug pila na ka
years mahinog, kinahanglan dawaton na sa gobyerno
sumala sa numero nga nakatla diha at full value.
Guaranteed by the government.
Is that registered with the SEC? No. Because it is
guaranteed by the government, and yet if a bank
purchases Land Bank Bonds, it is included in their
deposit liability. Remember one of the obligations of a
bank is to keep a certain percent of the deposit in
cash or near cash in their forms. In case of rural bank
only 7% of the deposit should be in cash or near
cash. If it is commercial bank, it is 14% of cash r near
cash.
Unsa man ng near cash? Mahimo na nga Land Bank
Bonds because it is guaranteed by the government
and is accepted by all institution. It is one rank higher
than negotiable instruments. It is more powerful than
negotiable instrument because it is that close to legal
tender. Muadto ka sa gobyenyo, sagpaon nimo ang
BIR ”oh dawata ni, umuma ni, mao ni ang bayad sa
akong tax. Dili ka maka dumili ani, maona, dawata
na!”
Kinsa mag kumkom ana hantod muhinog? gobyerno
ra sad, and yet it forced to accept it as if it were
already cash. Who said so? The SC has said so
because otherwise the SC says “if it’s not accepted at
face value, the effect is the amount of Just
Compensation is actually lower. So that is an example
of an exempt security.
b. Any security issued or guaranteed by the
government of any country with which the Philippines
maintains diplomatic relations, or by any state,
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From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
province or political subdivision thereof on the basis of
reciprocity.
The International Rice Research Institute, now and
then, issues their own bonds. For short term, cash
requirements of IRRI. That need not be registered but
you have to file a petition to be exempted for the
registration and you cite the SEC Regulation code
Republic Act 8799 and you cite Sec. 9 Letter B.
c. Certificates issued by a receiver or by a trustee in
bankruptcy duly approved by the proper adjudicatory
body.
This is now modified by the new law on bankruptcy,
FRIA of 2010, Financial Rehabilitation and Insolvency
Act of 2010.
Now you are a trustee in insolvency, does it mean
that the debtor has some securities that it is holding
and therefore that is the exempt security. Napordoy
na gani an ta, gikaluy-an na lan na i–exempt nalng.
No, that is not an existing security. The receiver asks
the court whether or not he can issue a security
because he needs money to run the corpus of
properties embraced by the debtor.
Kintahay ang debtor kay corporation, magkinahanglan
siya ug cash, wa nay magpahulam niya, pero
naninguha siya nga mu isyu sya ug bonds kay dako
man nga cash ang gikinahanglan niya.
The court scrutinizes the receiver in bankruptcy. After
the court scrutinizes and finds there is good reason to
grant, then the court will issue an order to issue
bonds. He does not have to register it because he
court is also part of this play, they scrutinize it. So it is
double work for the SEC to scrutinize this particular
security. Where the court is already supervising and
examining the moves of this particular debtor, the
issuer, there is no need for the SEC to do the same
work.
d. Any security or its derivatives the sale or transfer of
which, by law, is under the supervision and regulation
of the Office of the Insurance Commission, Housing
and Land Use Regulatory Board, or the Bureau of
Internal Revenue.
e. Any security issued by a bank except its own
shares of stock.
So the bank can issue bonds and it is no longer
required to be registered in SEC because the bank
cannot issue the securities without close examination
beforehand by the BSP.
9
Security or its derivatives the sale or transfer of which,
by law, is under the supervision and regulation of the
Office of the Insurance Commission. So there is
already an oversight government entity that is
examining the propriety of the bond, so why should
the SEC examine it. The housing and Land Use
Regulatory Board or the Bureau of Internal Revenue,
there is no need for the SEC to re-examine these
particular securities.
Kung magpa rehistro mo ug corporation composed of
owners, land ownersof a subdivision, you register it
with the SEC. Kung magpa rehistro mo ug mga home
seekers kanang wa pay yuta, squatters, naa na sila
yuta nga gikabay-an. Unya adtuon na nila ang tag-iya
ingnon nila nga paliton ni namo, an gobyerno lang
ang mu advance nimo Community Home Mortgage
Program sa Gobyerno, so mag pinirmahay nan a sila.
Requesting the land owner that they respond to their
intent to buy. CHMP, daghan kayo na.
The government is supposed to have a fund. But to
get money from that fund CHMP, lupig pay mag ibot
nimo ug ngipon. When the land owners says “ Oh
down payment lang mo 10% then we will go to the
fund”, utangan na sila sa gobyerno unya mag kolekta
pa jud na sila sa ilang kaugalion, kay data data namn
sila ug bayad. Kadaot lang anang mga registered sa
HLUR, because the transfer of ownership is so fast
and furious, ang mga original owners ana may lang
nay 20% ang nahibilin, approved na nag sinukanay
na sila, gibaligya na sa uban. Ang ma original officers
aning mga corporation, wala na kay gibaligya na man,
kay sila man ang officer so daghan siyay na lamay na
yuta, ang anak niya, ang apo niya.
Technically speaking they can float a bond as a
security. Even sell it to the public, or buy it themselves
in order to pay the land owner. Now if it is guaranteed
by the HLURB, then it is an exempt bond, it need not
be registered. There is no reason for the local
government unit not to borrow money to finance
infrastructure the power is already in the Local
Government Code. It is for lower cost, because it is
not registered in SEC, the problem is our local
executives are not investment literate.
rd
(Talks about CEBU and 3 bridge across Mactan.)
They are floating long term bonds to finance the
bridge, that is also an exempt security.
Exempt transactions. There is a final provision here
which tells you that even if it is exempt,
9.2. The Commission may, by rule or regulation
after public hearing, add to the foregoing any
class of securities if it finds that the enforcement
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From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
of this Code with respect to such securities is not
necessary in the public interest and for the
protection of investors.
So the list is not exhaustive. Exempt Securities, taas
taas ni.
SEC. 10. Exempt Transactions. - 10.1. The
requirement of registration under Subsection 8.1.
shall not apply to the sale of any security in any of
the following transactions:
(a) At any judicial sale, or sale by an executor,
administrator, guardian or receiver or trustee in
insolvency or bankruptcy.
(b) By or for the account of a pledge holder, or
mortgagee or any other similar lien holder selling
or offering for sale or delivery in the ordinary
course of business and not for the purpose of
avoiding the provisions of this Code, to liquidate
a bona fide debt, a security pledged in good faith
as security for such debt.
(c) An isolated transaction in which any
security is sold, offered for sale, subscription or
delivery by the owner thereof, or by his
representative for the owner’s account, such sale
or offer for sale, subscription or delivery not
being made in the course of repeated and
successive transactions of a like character by
such owner, or on his account by such
representative and such owner or representative
not being the underwriter of such security.
(d) The distribution by a corporation, actively
engaged in the business authorized by its articles
of incorporation, of securities to its stockholders
or other security holders as a stock dividend or
other distribution out of surplus.
(e) The sale of capital stock of a corporation to
its own stockholders exclusively, where no
commission or other remuneration is paid or
given directly or indirectly in connection with the
sale of such capital stock.
(f) The issuance of bonds or notes secured by
mortgage upon real estate or tangible personal
property, where the entire mortgage together with
10
all the bonds or notes secured thereby are sold to
a single purchaser at a single sale.
(g) The issue and delivery of any security in
exchange for any other security of the same
issuer pursuant to a right of conversion entitling
the holder of the security surrendered in
exchange to make such conversion: Provided,
That the security so surrendered has been
registered under this Code or was, when sold,
exempt from the provisions of this Code, and that
the security issued and delivered in exchange, if
sold at the conversion price, would at the time of
such conversion fall within the class of securities
entitled to registration under this Code. Upon
such conversion the par value of the security
surrendered in such exchange shall be deemed
the price at which the securities issued and
delivered in such exchange are sold.
(h) Broker’s transactions, executed upon
customer’s orders, on any registered Exchange or
other trading market.
(i) Subscriptions for shares of the capital stock
of a corporation prior to the incorporation thereof
or in pursuance of an increase in its authorized
capital stock under the Corporation Code, when
no expense is incurred, or no commission,
compensation or remuneration is paid or given in
connection with the sale or disposition of such
securities, and only when the purpose for
soliciting, giving or taking of such subscriptions
is to comply with the requirements of such law as
to the percentage of the capital stock of a
corporation which should be subscribed before it
can be registered and duly incorporated, or its
authorized capital increased.
(j) The exchange of securities by the
issuer with its existing security holders
exclusively, where no commission or other
remuneration is paid or given directly or indirectly
for soliciting such exchange.
(k) The sale of securities by an issuer to
fewer than twenty (20) persons in the Philippines
during any twelve-month period.
(l) The sale of securities to any number of
the following qualified buyers:
(i) Bank;
(ii) Registered investment house;
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From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
(iii) Insurance company;
(iv) Pension fund or retirement plan
maintained by the Government of the Philippines
or any political subdivision thereof or managed by
a bank or other persons authorized by the Bangko
Sentral to engage in trust functions;
(v) Investment company; or
(vi) Such other person as the
Commission may by rule determine as qualified
buyers, on the basis of such factors as financial
sophistication, net worth, knowledge, and
experience in financial and business matters, or
amount of assets under management.
These are exempt transactions. I’ll just point out to
you that which is very important.
(i) Subscriptions for shares of the capital stock of a
corporation prior to the incorporation thereof or in
pursuance of an increase in its authorized capital
stock under the Corporation Code, when no expense
is incurred, or no commission, compensation or
remuneration is paid or given in connection with the
sale or disposition of such securities, and only when
the purpose for soliciting, giving or taking of such
subscriptions is to comply with the requirements of
such law as to the percentage of the capital stock of a
corporation which should be subscribed before it can
be registered and duly incorporated, or its authorized
capital increased.
So, when you own a corporation, not listed in the
stock market, this is what you cite. Letter I of Section
10.1. Again stock dividends, Letter C.
(c) An isolated transaction in which any security is
sold, offered for sale, subscription or delivery by the
owner thereof, or by his representative for the owner’s
account, such sale or offer for sale, subscription or
delivery not being made in the course of repeated and
successive transactions of a like character by such
owner, or on his account by such representative and
such owner or representative not being the
underwriter of such security.
So in other words, just among the stock holders. For
instance, what they call pre-emptive right; The right of
each stock holder to subscribe to such number of
shares issued by the corporation so as to maintain his
original proportionate share of the Outstanding
Capital Stock. You are issuing new shares, a share of
stock is a security, technically speaking you should
register that, but since the public is not involved, only
11
you stock holders are involved, you have to exercise
your right of redemption, its only one year. Suppose
you say, the others are not exercising their right, does
that make that less than the public.
If you are already offering that to the public, ah that’s
another question. But as to the pre-emptive right
shares that are not taken up by their owners but are
nonetheless offered again to the existing stock
holders, then there is no public that s involved. That is
still an exempt transaction under Sec.10.1 letter C.
That is an Exempt Transaction.
(d) The distribution by a corporation, actively engaged
in the business authorized by its articles of
incorporation, of securities to its stockholders or other
security holders as a stock dividend or other
distribution out of surplus.
So the corporation declares stock dividend to its stock
holders, the public is not involved, it is an exempt
transaction, you do not have to register.
2
nd
hour, Calatrava, Sadsad A
Why do I say that those who are exempt from
registration, either as an exempt security or exempt
transaction, still have to pay? Because it says so in
Section 10.3
10.3. Any person applying for an exemption
under this Section, shall file with the
Commission a notice identifying the
exemption relied upon on such form and at
such time as the Commission by the rule may
prescribe and with such notice shall pay to
the Commission fee equivalent to one-tenth
(1/10) of one percent (1%) of the maximum
value aggregate price or issued value of the
securities.
So what is the basis for computing this fee? The PAR
VALUE OF YOUR SECURITY, face value of your
security and the exemption fee is 1/10 of 1%. If the
aggregate value is 1 Billion, pila bay 1/10 of 1% ana?
10 million!
Registration of a security requires publication which will
be supervised by the SEC. Because if there is anyone
who has information about the security, or wants to
register an objection as to the security, then he shall be
heard. He shall know because the notice of filing
registration statement shall be immediately published
by the issuer at its own expense in two newspapers of
general circulation in the Philippines. Once it is already
published for two consecutive weeks, or in such other
manner as the Commission by rules shall prescribe,
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
then it is declared effective if within 45 days after the
date of filing it is found to be sufficient in substance
and form and there is no objection. The registration
which is rendering the security as effective, so
therefore it can now be bought and sold in the open
market, may be revoked if the SEC subsequently find
out under Section 13 whether (all these are about the
issuer):
(a) The issuer:
(i) Has been judicially declared insolvent;
(ii) Has violated any of the provision of this
Code, the rules promulgate pursuant thereto, or
any order of the Commission of which the issuer
has notice in connection with the offering for
which a registration statement has been filed
(iii) Has been or is engaged or is about to
engage in fraudulent transactions;
(iv) Has made any false or misleading
representation of material facts in any
prospectus concerning the issuer or its
securities;
(v) Has failed to comply with any requirements
that the Commission may impose as a condition
for registration of the security for which the
registration statement has been filed; or
These are the grounds for revocation. There is a
particular provision here which says:
For the purposes of this subsection, the term
"competent judicial or administrative body" shall
include a foreign court of competent jurisdiction
as provided for under Rules of Court.
So di man ka mapamatud-an nga nakasala ka sa
SEC, didto sa Hongkong court man ka, you were found
to have violated Securities Regulation in the Hongkong
Stock Market. If that has not been disclosed in the
registration statement and you are the officials of the
issuer, and the SEC finds out about it, then it is
equivalently that you were found to have violated
Securities Law of the Philippines by a competent judicial
or administrative body because it includes a foreign
court.
So you can read all the other requirements
J Let us now summarize the percentages that we must
Reportorial requirements of those who are issuers of
the security that has been registered:
Every issuer satisfying the requirements in Section
17.2 shall file with the SEC, within 135 days after the
12
end of the issuer’s fiscal year or such other time as
the SEC may prescribe, annual reports which shall
include among among others, a balance sheet, profit
and loss statement and statement of cash flows, for
such last fiscal year, certified public accountant, an a
management discussion and analysis of results of
operation.
If you read any of the annual reports of Warren Buffett
you will be convinced that there is no reason why
these annual reports are so technical and are so
difficult to understand. Madiscourage man kag basa
kay grabe naman pagka technical. You read Warren
Buffett’s reports. Since he started in 1961 naa na sa
iyang website. Kasabot gyud ka! So these are their
reportorial requirements.
And then it says, all these annual reports certified by
a CPA, these are required of the following
corporations (Under Section 17.2):
(a) An issuer which has sold a class of its
securities pursuant to a registration under
section 12 hereof: Provided however, That the
obligation of such issuer to file reports shall be
suspended for any fiscal year after the year
such registration became effective if such
issuer, as of the first day of any such fiscal
year, has less than one hundred (100) holder of
such class securities or such other number as
the Commission shall prescribe and it notifies
the Commission of such;
(b) An issuer with a class of securities listed for
trading on an Exchange; and
(c) An issuer with assets of at least Fifty million
pesos (50,000,000.00) or such other amount as
the Commission shall prescribe, and having
two hundred (200) or more holder each holding
at least one hundred (100) share of a class of
its equity securities: Provided, however, That
the obligation of such issuer to file report shall
be terminate ninety (90) days after notification
to the Commission by the issuer that the
number of its holders holding at least one
hundred (100) share reduced to less than one
hundred (100).
So if you are publicly listed in the Stock Exchange, all
the more reason to file these annual reports.
remember:
5% Section If you buy 5% or more of
18 the OCS of a corporation
listed in the stock market,
you have the duty to
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law


inform the SEC of the Pagsaka sa graph tanan mga analyst ug broker, “Uy
beneficial owner of the naay naga-accumulate. Accumulate sad ta aron sa
5% that you have. pag-abot na sa taas kita’y mupresenta sa atong
15% Section If you buy 15% or more in kaugalingon. Kita’y controlling.” In other words, nilihok
19 one purchase, of the OCS mang crocodile, sakay ta sa ikog. That’s why
of a corporation traded in investors are saying we’d rather go for the jugular.
the stock market, then you Palit dayon mi sa 50%+1. Sabuton na nato dayon
must make what is called tong mga dagko na stockholders sa gawas.
a tender offer. *
35% Section Creeping Rule within the Know the rules! 5%- beneficial ownership. 15% -
19 1 year period, ginagmay tender offer rule. 35% - creeping 35% tender offer
imong palit hantod maabot rule gihapon. 50%+1 – that is general offer.
ug 35% imong
accumulated purchases, Let me introduce you to the case of CEMCO
you are required to make Holdings, Inc v National Life Insurance Company
a tender offer. (2007):
50% +1 Section You have to make a
19 general offer You know if you are a holding company you are
deemed a parent company and you own subsidiaries.
*What is a tender offer? You announce to everybody If you own less than 50% of the OSC of the
that you are now going to buy 15% so all those who corporation, that corporation is called an affiliate. If
want to sell will make a tender offer to you. Kung you own more than 50% (50% +1, majority naka) then
tanan mu-tender offer sa imo unsaon man na nimo? the company is called a subsidiary. The latter one,
You only buy according to their percentage of the didto na sa accounting, you can consolidate the
OCS. 15% man imong paliton, nay mubaligya pero financial statements of the subsidiary with the parent
20% diay na siya sa OCS. Gusto siya mubaligya company.
nimo. Sobra siyag 15%. Naa man say uban gusto
mubaligya. Out of the 15% nimo, buhaton nimo nag Ang holding company daghan na siyag subsidiary.
100%, 15% ray paliton nimo kay 20% man na siya sa Kintahay kani siya Metro Pacific Investments Corp,
OCS. (I think what Father means is that you pro-rate holding company siya, naa sila’y Maynilad Water,
the 15%) Meralco, Manila Tollways, hospitals etc. Normally
holding companies have intermediate holding
• What is the purpose of that rule?( Tender Offer corporations which are 100% wholly owned by the
Rule) holding company. So dili gyud na directly held diha.
Naa gyud nay intermediate holding companies. Unya
That is to give everyone equal chance to be bought. muingon ka, “Ngano pa man na butangan ug
This is the so called Tender Offer Rule. Let me warn intermediary diha?” Ah! Ang reason ana kining SRC.
you, aha man ning tender offer wa man ni nako makit- Why? Because if you want to sell Maynilad, you do
an, the rule in the Philippines is if you buy 10% or not have to sell Metro Pacific. You just have to sell
more you already have to make a tender offer. Maynilad in its entirety. But the question is, you
Gipasobrahan sa Phil Stock Exchange and they have bought 100% of Maynilad, are you now obligated to
the right to do that because they are a self-regulating make a general offer? Because the rule is if you buy
organization. Exchanges that are registered should as 50% + 1 of the OCS of a listed corp, you must make a
much as possible be self governing. The SEC has general offer to all the stockholders. So they bought
approved that. Unsa may rule nila? 10% pa lang 100% of the subsidiary but they are not subject to the
imong paliton kinhanglan na mag-tender offer ka na general offer rule because they did not buy a single
even if the law says 15%. share of this holding company which is unlisted.
Trabaho na sa mga ACCRA boys, Sycip Salazar
• What do the corporations do to escape that boys. Mao na ilang gibuhat sa CEMCO. Gipalit nila
rule? ang intermediate holding unya wala sila magbuhat ug
tender offer.
They just buy 14.5% so di na sila covered. Mangita na
sila diha sa list of stockholders. Ikaw gusto ka Chismis: Ato-ato ra ni ha, the Jesuits bought a lot of
mubaligya kay 15% man imo. Magsabot sa mo, karon stock of NU. Why? Because Bishop Escaler was from
14% lang akong paliton. 1 year later kana nasad 1% the Escaler clan that owned substantial stockholdings
akong paliton. in Finma(?) Finma owned by the Del Rosario Clan.
Del Rosario was originally with SGV. Niadto Sycip
If you are an investor, this is your problem: magsugod Gorres Velayo Del Rosario. Pero kana si Del Rosario
na gani kag pamalit, musaka naman na ang graph. nagbuhat man na siyag kaugalingon negosyo in the

13

 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
early 1960s nibuwag na siya mao na iyang negosyo
kanang cement. They used to have plantations here
and other businesses. Now they are in to education.
Hapit na na sila mahapay because they
overextended. Dollar denominated debts sus igo
bitaw sila sa 1998 financial crisis. They had no choice
they had to sell to Holcim. CEMCO Holdings was
bought and then they said we are not subject to the
tender offer rule.
The SC said, they might not have bought a single
share but the effect is you are already deemed owner
of more than 50% + 1. You are subject to the general
offer rule.
RULE ON PROXY SOLICITATION (Section 20)
By the way, it’s not easy to be listed in the PSE. You
must register three successive years of profitability
and you must have the minimum capitalization,
minimum profits. Daghan kaayo na sila ug
requirements. It’s difficult to be listed unless gwapo
kaayo ang imong corporation. So what do most
people do to get listed? They practice what is called
backdoor listing. Mangita sila ug corporation nga
nagkagidlay na pero naa gihapon sila sa lista sa PSE
because they used to qualify. Paliton na nila tanan
shares ana. Pagkahuman ug palit, amend the articles.
Kato dayon corporation na gusto nila i-lista mao na
ilang i-merge adto. Mao nay nahitabo sa BDO.
By the way, before there was what is called a general
proxy provision in the articles which says that if you
do not designate a proxy and you are habitually not
present in the stockholders’ meeting, then it shall be
understood that you are making the President/Chair
as your default proxy. NOW THAT IS OUTLAWED.
You can no longer provide that in the articles. The
right to appoint a proxy must be exercised, or if it is
not exercised, there is no proxy.
Now, if the controlling shares want to solicit proxies
the rules are:
20.2. Proxies must be in writing, signed by the
stockholder or his duly authorized
representative and file before the scheduled
meeting with the corporate secretary.
20.3. Unless otherwise provided in the proxy, it
shall be valid only for the meeting for which it
is intended. No proxy shall be valid only for the
meting for which it is intended. No proxy shall
be valid and effective for a period longer than
five (5) years at one time.
20.4. No broker or dealer shall give any proxy,
consent or any authorization, in respect of any
14
security carried for the account of the
customer, to a person other than the customer,
without written authorization of such customer.
20.5. A broker or dealer who holds or acquire
the proxy for at least ten percent (10%) or such
percentage as the commission may prescribe
of the outstanding share of such issuer, shall
submit a report identifying the beneficial owner
of ten days after such acquisition, for its own
account or customer, to the issuer of security,
to the exchange where the security is traded
and to the Commission.
It must be made explicitly. You must issue a proxy
statement.
A proxy statement must consist a clear, explicit,
unequivocal solicitation of proxy along with the
reason.
Now, if there is another group that is controlling and
they want to solicit proxies, they should be given
access to the stock and transfer book. Tanawon nila
kung unsa ang distribution sa ownership. So they
should be given a list of stockholder and allowed to
distribute literature with regard to their position.
• Who determines the validity of proxies? It is the
SEC.
Rule of proxies with respect to brokers:
Many stock exchange players, they call them
pundits or day traders, concentrate kag 1, 2 or 3
issue. Unya mu-trade ka ana. Ang imong trade is
concentrated on the day itself lang. Many of the day
trader are called as technical analysts as opposed
to fundamental analysts.
Kanang mga fundamental analysts,
mutanaw na ug financial statements. Kanang mga
technical analyst mutanaw sa price movement. Day
trader ka pagkita nimo, ni-pitik man na, baligya naka.
Muuli na ka sa inyo. Pundits in the stock market can
make money whether the market is going up or down.
Ang atong nahibal-an “buy low, sell high” But you can
still make money when the market is down. Pag-abri
sa stock market, wa pakay shares of stock unya
muingon ka sell 10,000 shares of San Miguel. Wa kay
San Miguel pero naa man kay broker. Baligya siya
unya sigeg paubos, diha ka mupalit pasira na ang
market, mao ra gihapon ihatag nimo sa first order
nimo na sell high. That’s how you make money when
the market is going down. (Wa ka ka-gets? Ako sad.
Hahaha)
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
The most sophisticated markets are dominated with
electronic trades. Computer nay mao mu-dikta kanus-
a mubaligya ug mupalit. So ikaw kung day trader ka,
naa na dinha imong computer magkagubot mo, di ka
kasulod. Patay ka sa imong kalaban nga electronic
trading.
So, the SEC has jurisdiction to determine the
adequacy or inadequacy of proxies. What is the
exception? GSIS v Anthony Rosete et. al The SC
said that if the proxies are involved in an election
protest, it is the intracorporate court that has
jurisdiction not the SEC.
Now we go practices guarded against by the
law – manipulative practices and insider trading.
CHAPTER VII PROHIBITIONS AND FRAUD,
MANIPULATION AND INSIDER TRADING
Manipulative practices are largely simulated
transactions made to appear that there are these
transactions but there are none. How do you know?
Like a wash sale. What is a wash sale? That is
Section 24.1.
Section 24. Manipulation of Security Prices;
Devices and Practices. –
24.1 It shall be unlawful for any person acting for
himself or through a dealer or broker, directly or
indirectly:
(a) To create a false or misleading
appearance of active trading in any
listed security traded in an Exchange
of any other trading market (hereafter
referred to purposes of this Chapter as
"Exchange"):
(i) By effecting any transaction in such
security which involves no change in
the beneficial ownership thereof;
(ii) By entering an order or orders for
the purchase or sale of such security
with the knowledge that a investing public that there is something going on in
simultaneous order or orders of
substantially the same size, time and
price, for the sale or purchase of any
such security, has or will be entered by
or for the same or different parties; or
(iii) By performing similar act where
there is no change in beneficial
ownership.
(b) To affect, alone or with others, a securities or
transactions in securities that:
(I) Raises their price to induce the purchase of a
security, whether of the same or a different class
15
of the same issuer or of controlling, controlled, or
commonly controlled company by others; or (iii)
Creates active trading to induce such a purchase
or sale through manipulative devices such as
marking the close, painting the tape, squeezing
the float, hype and dump, boiler room operations
and such other similar devices.
(c) To circulate or disseminate information that
the price of any security listed in an Exchange
will or is likely to rise or fall because of
manipulative market operations of any one or
more persons conducted for the purpose of
raising or depressing the price of the security for
the purpose of inducing the purpose of sale of
such security.
(d) To make false or misleading statement with
respect to any material fact, which he knew or
had reasonable ground to believe was so false or
misleading, for the purpose of inducing the
purchase or sale of any security listed or traded
in an Exchange.
(e) To effect, either alone or others, any series of
transactions for the purchase and/or sale of any
security traded in an Exchange for the purpose of
pegging, fixing or stabilizing the price of such
security; unless otherwise allowed by this Code
or by rules of the Commission
Naa kay share sa Aragon Mines, pila namay traded
price? .001 sa ato ba 10% of 1 centavo ang traded
price. Nitawag ka sa broker ingon ka buy Aragon
1million shares. Ingon sad ang broker tanawon nato
kung naa pay mubaligya ana kay mingaw naman na
murag 3 ka tuig ang last transaction ana. Mutawag
nasad ka sa lain broker, sell my 1million Aragon
shares and 1 centavor. Order ka diri palit, diri sad sell.
Who is the seller? You. Who is the buyer? You. Lakra
na diha. There is no change in beneficial ownership of
the shares. That is a wash sale! That is a
manipulative practice. It is resorted to to mislead the
this issue.
Another example is a matched order. Kana duha
namo kabuok ana. Ingnan nimo imong amigo, “Bai
ugma 10am ingna sell kag Aragon 1million shares at
1 centavo. Ako ang mu-buy. Unya ako nasad sell,
ikaw nasad buy.” So lakra na na dinha galihok na
imong shares.
Wa pa na gipangutana sa Bar pero daghan
kaayo nag klase. We will continue next meeting.
February, 8 2017, Romero R
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
Manipulative Practices
The first manipulative practice that is said that the
Securities and Regulation code said that should stop
is: simulated transactions. Simulated transactions
like wash sales.
• What is wash sale in the NIRC?
Wash sale is a transaction in the stock market where
there is no change in the beneficial (?). You call one
broker and you tell him “Sell 1,000 shares at this
price”. And then you call another broker, and you tell
him “Buy” at the same number at the same price.
Who’s selling? You. Who’s buying? You. So since
every transaction is reflected for all to see, they will
believe that there is a transaction. Now you cannot do
that because you are telling the public that there is a
transaction when there is none.
The next transaction that the Securities Regulation
Code wants to outlaw is the so-called “insider
trading”.
• What is insider trading?
When you make a transaction in the stock market, it
be either buying or selling, and you are in possession
of material information that is not yet made public and
that material information has an influence on the
buyer or the seller either to hold, sell, or buy a
particular issue. So you are in possession of the
material information and the others do not have that
information. So you have an unfair advantage. How
did you get that material information? You got it
because you are an insider.
• Who is an insider?
An insider, according to Sec 3.8, means either of this
5 entities:
1. The issuer – you are the one who issues the
security and you are in possession of
material information.
For instance: Shell Philippines. Who is the
operator of the consortium of Malapaya. You
just track and liquid natural gas. How come
you knew of it? Because your team out
there, off shore, sends you the message that
you have hit liquid natural gas.
2. The director, officer, or a person similar
functions, or a person controlling the issuer
or insider
16
3. The person whose relationship or former
relationship to the issuer gives him access to
material information about the issuer or the
security that is not generally available to the
public
4. You are a government employee or director
or officer of an exchange, clearing agency
and/or self regulatory organization who has
access to material information about an
issuer or a security that is not generally
available to the public
5. A person who learns such information by a
communication from any of the foregoing
insiders
What are the unlawful acts committed by an insider?
They are found in Sec 27.
27.1. It shall be unlawful for an insider to sell or
buy a security of the issuer, while in possession
of material information with respect to the issuer
or the security that is not generally available to
the public, unless:
(a) The insider proves that the information was
not gained from such relationship; or
(b) If the other party selling to or buying from the
insider (or his agent) is identified, the insider
proves: (i) that he disclosed the information to the
other party, or
(ii) that he had reason to believe that the other
party otherwise is also in possession of the
information.
A purchase or sale of a security of the issuer
3.8. "Insider" means (a) the issuer; (b) a
director or officer (or any person performing
similar functions) of, or a person controlling
the issuer; gives or gave him access to
material information about
the issuer or the security that is not generally
available to the public; (d) A government
employee, director, or officer of an exchange,
clearing agency and/or self-regulatory
organization who has access to material
information about an issuer or a security that
is not generally available to the public; or (e)
a person who learns such information by a
communication from any forgoing insiders.
made by an insider defined in Subsection 3.8, or
such insider’s spouse or relatives by affinity or
consanguinity within the second degree,
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
legitimate or common-law, shall be presumed to
have been effected while in possession of
material non-public information if transacted after
such information came into existence but prior to
dissemination of such information to the public
and the lapse of a reasonable time for the market
to absorb such information: Provided, however
that this presumption shall be rebutted upon a
showing by the purchaser or seller that he was
not aware of the material non-public information
at the time of the purchase or sale.
• What is the presumption whenever an insider,
or his spouse, or his relatives by affinity or
consanguinity within the 2
nd
degree whether
legitimate or common law, sells or purchases
securities?
The presumption is that these transactions
have been effective while in possession of material
non-public information, and that he transacted after
such information came into existence but prior to
dissemination of such information to the public and
the lapse of a reasonable for the market to absorb
such information.
This presumption can be rebutted by a
showing that the purchaser or the seller that he was
not aware of the material non public information at the
time of the purchase or sale.
• Again, what is the yardstick when the
information material and non-public?
27.2. For purposes of this Section, information is
“material non-public” if:
(a) It has not been generally disclosed to the
public and would likely affect the market price of
the security after being disseminated to the public
and the lapse of a reasonable time for the market
to absorb the information; or
(b) would be considered by a reasonable person
important under the circumstances in determining
his course of action whether to buy, sell or hold a
security.
That is why in the Philippine Stock Exchange,
when you say “self regulatory organization”, when
they hear a rumor to forestall any insider trading, right
away they confront the issuer. They ask the issuer
“We are going to suspend trading of your shares of
stock until you answer this question: are you in
merger talks with this other company?” Now if you say
“Yes”, then they will not the allow the trading of your
shares. Immediately, they will let a reasonable time
pass so as to give a chance to the public to weigh the
information whether it is really material or not.
17
This morning, it was announced that
Singapore Airlines just went into a hedge contract,
actually a futures contract, of their fuel needs. 34% of
their fuel needs is hedged up to $64 per gallon for the
next 2 years. The present benchmark is now $55 or
$56. This means that they are protected. That there is
someone willing to sell them crude at today’s price
even if it reaches up to $64 in the open market.
Nobody else is doing that! And the price of Singapore
Airlines shares of stock has been going up since this
morning. The public is really (??) very well. Why?
Because Singapore Airlines looks at the oil market.
Singapore Airlines is able to foresee that there is a
chance that the price of oil will start going up because
of conflicts in supply.
Now if you are the one who is preparing this
contract, and as you are preparing it, even before it
reaches the public because it has not yet been
signed, you execute a sale or purchase of shares of
stock of Singapore Airlines, are you engaged in
insider trading? Is the information material? You want
to make sure that the price of oil, which is your
biggest expense in an airline business, is protected.
But you are not sure what the effect is. It is not clear
whether that will bring down the price of Singapore
Airline shares or if it will bring it up. Either Singapore
Airlines is very wise or Singapore Airlines engaging in
a useless expense. So there is a debate there
whether that particular information is material
information or not. You do not know. ½ of Singapore
Airline’s income doesn’t even come from its
passengers. It comes from airplane maintenance.
• What is this structured dissemination of
material information?
Issuers give so-called advance investors
briefing. You are a big investor, you are a big fund,
and they want to court you, you are then given an
advanced briefing before they make the
announcement. Like Apple, before it unveils a new
iPhone. They will give an advanced briefing to
selected investors. Who are their selected investors?
They will look at their stock and transfer book and
they will look at who are their big investors. Now what
will prevent these investors from calling their brokers
to tell them “Buy me more Apple shares!” What is the
difference between the release to the public and this
briefing? Sometimes it’s just a few minutes or an
hour, but that is enough advantage given to these
institutional investors. That is a big controversy that is
hounding securities relation in the U.S.
• What are the liabilities of a person who violates
the pertinent provisions of insider information?
Section 61. Civil Liability on Account of Insider
Trading. – 61.1. Any insider who violates
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
Subsection 27.1 and any person in the case of a
tender offer who violates Subsection 27.4 (a)(I), or
any rule or regulation thereunder, by purchasing
or selling a security while in possession of
material information not generally available to the
public, shall be liable in a suit brought by any
investor who, contemporaneously with the
purchase or sale of securities that is the subject
of the violation, purchased or sold securities of
the same class unless such insider, or such
person in the case of a tender offer, proves that
such investor knew the information or would have
purchased or sold at the same price regardless of
disclosure of the information to him.
Section 63. Amount of Damages to be Awarded. –
63.1. All suits to recover damages pursuant to
Sections 56, 57, 58, 59, 60 and 61 shall be brought
before the Regional Trial Court, which shall have
exclusive jurisdiction to hear and decide such
suits. The Court is hereby authorized to award
damages in an amount not exceeding triple the
amount of the transaction plus actual damages.
Exemplary damages may also be awarded in
cases of bad faith, fraud, malevolence or
wantonness in the violation of this Code or the
rules and regulations promulgated thereunder.
The Court is also authorized to award attorney’s
fees not exceeding thirty percentum (30%) of the
award.
63.2. The persons specified in Sections 56, 57, 58,
59, 60 and 61 hereof shall be jointly and severally
liable for the payment of damages. However, any
person who becomes liable for the payment of
such damages may recover contribution from any
other person who, if sued separately, would have
been liable to make the same payment, unless the
former was guilty of fraudulent representation and
the latter was not.
63.3. Notwithstanding any provision of law to the
contrary, all persons, including the issuer, held
liable under the provisions of Sections 56, 57, 58,
59, 60 and 61 shall contribute equally to the total
liability adjudged herein. In no case shall the
principal stockholders, directors and other
officers of the issuer or persons occupying
similar positions therein, recover their
contribution to the liability from the issuer.
However, the right of the issuer to recover from
the guilty parties the amount it has contributed
under this Section shall not be prejudiced.
18
Why is there tender offer here?
Because you might make an announcement
that you are willing to buy shares of stock of this
corporation 10% higher of the market price because
you are in possession of material possession not yet
known to the public. So ang mga tao, mag-isip ang
mga tao na ibaligya na lang nila. 1 week later and
they will find out that the issuer has really stuck a high
grade gold ore. Wa na nabaligya na nimo! So you
can also violate by making a tender offer while in
possession of material information.
• What if you create false material information? Is
that insider information or insider trading?
NO! That is ESTAFA or fraud but that is not insider
trading. Mas dakog prison term ang estafa kay
Revised Penal Code na man na.
What is the penalty for that?
Section 73. Penalties. – Any person who violates
any of the provisions of this Code, or the rules
and regulations promulgated by the Commission
under authority thereof, or any person who, in a
registration statement filed under this Code,
makes any untrue statement of a material fact or
omits to state any material fact required to be
stated therein or necessary to make the
statements therein not misleading, shall, upon
conviction, suffer a fine of not less than Fifty
thousand pesos (P50,000.00) nor more than Five
million pesos (P5,000,000.00) or imprisonment of
not less than seven (7) years nor more than
twenty-one (21) years, or both in the discretion of
the court. If the offender is a corporation,
partnership or association or other juridical entity,
the penalty may in the discretion of the court be
imposed upon such juridical entity and upon the
officer or officers of the corporation, partnership,
association or entity responsible for the violation,
and if such officer is an alien, he shall in addition
to the penalties prescribed, be deported without
further proceedings after service of sentence.
There are so called exempt securities and there are
so called exempt transactions.
Exempt Securities, they can be found in Section 9.
What constitute an exempt security?
Section 10 are exempt transactions.
Example of an exempt security, securities issued by
the government. Every Monday they auction treasury
bills, those treasury bills need not be registered, why?
Because of an age old dictum that the crown does not
pay taxes to itself. The bills that are sold by the
government 90-day 160-day treasury bills they are
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law


already scrutinized by the government by the BSP so Unsay meaning anang exempt from registration,
it’s exempt. Those issued by foreign governments meaning di ka mubayad. Gamay lang bayad nimo,
sold in the Philippines over which we have reciprocal mas dakog bayad kung di exempt. But you still have
relationship, those are also allowed in the same certain information about your issue. Exempt
privilege. That is also an exempt security. If the city of transactions, that is where the leeway is of many
Davao should have an enlightened local government corporations.
that will float a bond so xxx from Tagum to Digos so
the 3 cities will jointly issue Davao railway bond or
bus is that exempt? Yes, exempt from registration.
An amount not greater than the whichever is
the higher of –
February 15, 2017 (Acosta,M)
(a) Sixty-five per centum (65%) of the current
So we must solve the practices in the exchanges that market price of the security, or
are xx in the Securities Regulation Code.
(b) One hundred per centum (100%) of the
Manipulative Practices lowest market price of the security during the
preceding thirty-six (36) calendar months, but
Xx is so called manipulative practices making it
not more than seventy-five per centum (75%) of
appear that there certain transactions of an issue
the current market price.
when actually there is none such as wash sale, xx
order and so on.
And then the second practice is so called insider So those are the 2 possible ceilings, and it is the higher
trading, what is prohibited by insider trading is of the 2 that is the absolute ceiling of the amount your
passing on materially significant information before it broker can lend you to transact.
is operate or being in possession of material
information not yet divulge in public. So you are liable Now, the most famous in margin trading is Soros xxx
for the loss incur by those who are unknowingly xxx sometime in the 90s early 90s APEC gets theand he
the transaction. won probably the biggest return of the investment in a
single day because of margin trading. xxx.
Margin Trading
Now, so a broker must maintain this regulated ceiling if
Alright, the next thing we take up is chapter 12 which you want to extend credit to your client. Now, as you
is called margin trading. What is margin trading? may notice, the figures are conflicting -Sixty-five per
centum (65%) of the current market price of the
Margin trading is you buy stocks for equities of
security is xx figure, what is current?-today’s price,
bonds or you borrowed capital form your broker, in
tomorrow’s price? The day after tomorrow’s price?
other words it is your broker who finances you. Now,
Now, the moment this goes above, then the broker
why would he finance you, he finances you because
must demand additional security from his client. Alright,
you have certain long issues on her, you brought
now the persons that have to be registered, they are all
certain securities from the market and then it remains
mentioned in section 3, the issuer, the broker, the
in her control and possession because it xxx.,so she
dealer, the associated person, salesman, the
extends you credit.
promoter- these are the persons that must be
Now is that prohibited? The answer is no, it is not registered. If you are a broker or a dealer, normally you
prohibited. But there are limits to the amount that you are not a natural person, you a juridical person. If you
may be extended by your broker. What is the limit, the are a salesman - you have to be a natural person. You
limit is found in section 48. must go through examination, you register.
Section 48. Margin Requirements. –
48.1. For the purpose of preventing the Uncertificated Security
excessive use of credit for the purchase or
Now, the SEC under this law professes to be moving
carrying of securities, the Commission, in
towards what is called uncertificated security. We’ve
accordance with the credit and monetary
studied the Corporation Code; shares of stock are
policies that may be promulgated from time to
evidence by the certificate, so they are still talking of
time by the Monetary Board of the Bangko
certificated securities. You have a bond and it is
Sentral ng Pilipinas, shall prescribed rules and
evidenced by a bond certificate, then that is a
regulations with respect to the amount of credit that
certificated security. Now the Securities Regulation
may be extended on any security. For the
Code accepts and is moving towards uncertificated
extension of credit, such rules and regulations shall
security bonds.
be based upon the following standard:

19

 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
• What is an uncertificated security?
Section 3.14 says it is a security that is evidenced by
electronic or similar records, it is no longer evidenced
by a piece of paper, and it is evidenced by other
electronic record.
Why go into that? Because it breaks down the
cost of transacting. Moving pieces of paper and
keeping it is expensive, it’s expensive; but if it is
electronic it is very easy to make and makes
possibilities the danger associated with it is just
hacking, somebody can hack the database of all
the bonds. So, that is the only danger, but it
reduces the cost of transactions and can then
purchase more transactions.
Settlement Offer
Alright, now, the last thing we discussed is the so
called settlement offers (Sec. 55).
• What is a settlement offer?
At any time during an investigation of proceeding
under this code parties being investigated and of
charge may propose in writing an offer of settlement
with the commission, upon receipt of such offer of
settlement the commission may consider the offer
based on timing, the nature of the investigation
proceeding and the public interest . The commission
may agree to the settlement offer based on its
findings that such settlement is in public interest, any
agreement to settle shall have no legal effect until
publicly disclosed; such decision may be made
without any termination of guilt on the part of the
person making the offer.
So when you talk about settlement offers as to the
securities regulation code, you are talking about a no-
fault offer. Kwartahon nalang ba because this is all
about xx. that is allowed its constitutional there for
the US supreme court but the challenge of the
Philippines. Because the equal protection clause
when it comes to property has a greater leeway (no
person shall be deprived of life, liberty, or property
without due process of law) the leeway with respect to
property is wider because it is a question of law.
So those are the main points of the securities
regulation Code.
Now let us discuss the SRC in relation to PD 902-A.
PD 902-A
It is the old reorganization decree of the SEC, that
decree has been superseded by SRC but because of
section 5 of SRC which outlines 5.2 the transfer of
jurisdiction from SEC decreed by PD 902-A to a new
intracorporate board to be designated by the SC, one
of the salas of the RTC shall be designated as an
intracoporate court which at least in this judicial
placement is also the same bankruptcy court
20
designated by the FRIA law. According to the SC the
intracoporate court here is also the bankruptcy court.
That is the next law that we will take up, FRIA. That is
the law that took over the insolvency act, that is why
we have to take up 5.2 in relation to PD 902-A?
which gives you the classification of cases that are
under the jurisdiction of intracorporate court.
Alright, PD 902-A says the following cases are under
the jurisdiction of the SEC and section 5.2 of the
revised , the RA 8799 the SEC says this is now; the
SEC is now substituted by the intracoporate court .
Cases under the Jurisdiction of
Intracorporate Court
There are four classes of cases.
1. Devices or schemes
2. Pyramiding Schemes
3. Ponzi Schemes
4. Multi level party
Devices or Schemes
The first class of cases is devices or schemes
employed by or any act of the board of directors,
business associates, officers or partners amounting to
fraud or misrepresentation which may be detrimental
to the interest of the public and/or of the stockholders
partners or members of the corporation, partnership
or association. The shorthand term for this class of
cases is devices and schemes, pyramiding schemes,
devices or schemes employed by corporations or
individuals, pyramiding schemes.
Pyramiding Schemes
They are called pyramiding schemes. I will give a
copy of the latest pyramiding scheme that was
exposed in the US xxx corporate vision upon the
rejection of the SC of the appeal of the xx scheme,
imagine this guy. The SC on Monday, November 28,
2016 rejected Texas financier Robert Allen Stanford ‘s
xx to overturn his conviction of 110-year prison
sentence for running what prosecutors called a 7.2 B
dollar Ponzi Scheme that built investors on 133
countries.
Ponzi Scheme
In the US it is called the Ponzi Scheme in the
Philippines and in Asia it is called a pyramiding
scheme. Pyramiding scheme because the structure is
pyramiding, it begins with one person or one company
who says make a placement and you will be given a
very lucrative return, something like 2% a month so
that results to 24% a year. So you put money there.
How will he be able to pay you that interest, he is able
to pay you interest because he will convince more
people to come.
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
As long as people is keep on putting money to him in
a xxx then newcomers will subsidize the ones ahead
of them. Now that is the naked Ponzi scheme.
• Why, is there a Ponzi scheme that is dressed?
Yes there is a Ponzi scheme that is even more
cleverly dressed. And that is described in the SEC
advisory dated 18, April 2002.
Kining SEC ha, sulat silag advisory walay mupirma,
walay ni , the author is Atty. Enrique Quiason. So I’ll
also give you a copy of this so you can distinguish
what a Ponzi scheme is in contrast to multi-level party
claim.
Multi-level Party
What is multi-level party claim? ang kuan nato ana,
ang tawag nato ana diri sa Philippines networking,
naa na diri sa advisory sa SEC.
I am giving you the ruling in the US SEC on the
favorite multi-level party company Herbalife. Herbalife
entered into a settlement offer with the SEC in the
US, multi-level marketing Herbalife. They entered into
a compromise agreement .
You know, the way they distinguish before Ponzi
scheme. It’s a Ponzi scheme if there is no commercial
thing of value or service that is involved; panu sila
magkakwarta, unsa may negosyo ana, wa gyud, sige
lang silag panguhag kwarta niya pagkakatapusan ang
makuha nilang kwarta maonasad nay ibayad
nila.maundang na gani, di na sila kabayad. There is
actually no business. That is the naked ponzi scheme.
th
Tung 18 century, katong si ponzi he was a
miliionaire while work xxx even the police department
put in their payroll; nidagan gud to si ponzi balik sa
Rome, nagtago siya didto, nadakpan siys, napreso
sya.
Now, wa gyud, there is no business at all.
Now when you have multi –level party claim, there is
a thing of value for selling something.
Why is it a Ponzi scheme? It is Ponzi scheme
according to SEC of the US and now I don’t know if
this is the SEC advisory is official, if it is official then it
is adapted by the SEC but I have scored the SEC
website there was no circular at all, there was an
advisory but there was no circular. So I don’t think the
SEC accepts this as the ruling now because the SC
does not accept it. The Supreme Court does not
accept it. In fact naa kaso, I will give you 3 cases
decided by the SC. There is a 2008 case Power
homes Unlimited Corp. which is the problematic ruling
of the SC.
Anyway, why did the SEC initially called the Herbalife
is a pyramiding scheme. According to the SEC
Herbalife has all this powdered drinks to get people to
avail of their miracle reduction program. According to
21
the Supreme court, it is true we have. But in actuality,
they gain more not form the sales of this powdered
drinks but from recruitment of sellers kuan mana
pabayron man ka, mamyembruhon ka, nya pakuhaon
kag lain, daghan na kag makuha muingon sila
mubaligya siguro ni. And they still able to sell because
there is 90% drop out rate, nakabayd na sila, dagkog
mga bayad when they disappear and in fact there is
this powdered drink that they’re supposed to sell
nobody sell it. So if you are a multi-level party
marketing set up and your sales is more from
recruitment of sales people you call it the downline,
kung mas dako nag kwarta you are a pyramiding
scheme.
Now, how did they compromise? Herbalife: we will
change everything we will make the rewards not the
recruitment of sales people but actual sale. So SEC
says, you pay a fine and then you institute a plan.
Now when was that entered into 15 July 2016 so by
this coming July 2017, they will be re-examined by the
SEC as to whether or not their sales is from
recruitment of sales people or from the sale of this
miracle reduction diet powdered drinks. Xxx
Pyramiding scheme. So what is the rule now, even if
there is something of commercial value that is
transacted if the sales of this particular xx are on the
hold all from recruiting these people who will sell that
is a pyramiding scheme. Dri sa ato, networking didto
sa America multi-level marketing, pyramid ba.
Murecruit ka, kutob sa iyang mabaligya naa kay %
ang iya sang gibayad sa multi-level marketing
company aron makabaligya siya, naa pud siyay
komisyon; unya katong musunod nga ilang
makumbinsi sad naa sad kay komisyon ato unya
katong subsequently na mag kuha nila naa ka sad.
So that, nagpyramid na. kung mas daghan ang kita sa
pagrecruit lang ug mubaligya kaysa nabaligya,
proceeds you are a pyramiding scheme.
The latest pyramiding scheme is for xxx, kadungog
namo ana? One Lightning Corp, a Filipino owned
marketing company founded only in 2014 it is finally
engaged in marketing xxx so kana na ganing organic.
Organic na gani, tinunto na. no therapeutic claim but
everybody advertise he is cured naayo sa iyang sakit
and then after the advertisement they say there’s no
therapeutic claim. So why did, that guy Dok
Alternatibo. I used to go hiking with him, he was an
announcer in ABS CBN and everybody thinks he’s a
doctor; Dok Alternatibo ang ngalan niya.xxx
So, this decision of SC of Power homes says it gets
more money from getting people to pay the
membership fee than the sales itself and yet the SC
does not call it pyramiding, this is a 2008 decision of
the SC. Of course, in most part of our country, the
most famous pyramiding scheme is legacy. Xxx When
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
the returns is to high that it is too good to be true then
maybe indeed it is too good to be true. Xxx
Now, let me tell you who the biggest Ponzi scheme
operator is; until now xxx, who is the biggest, the
biggest is the government, SSS, GSIS is a Ponzi
scheme structure. Pagsugod sa balaod, all those who
retired are covered they have not yet made enough
contribution, they were paid so SSS and GSIS begins
with a debt. It is a pay as you go basis. If you retire
now it is the people who are paying the system that
pays your benefits. It is essential that SSS xxx
pyramid , there must be those people contributing to
the system but it is guaranteed by the government so
essentially it is a Ponzi scheme. Alright just read
those cases.
Controversies arising out of intracorporate
partnership.
• What makes a controversy an intracoporate
controversy? (2 tests)
1. Relationship test
2. Nature of the controversy test
According to the latest SC decisions there are two
tests; with the SC decision in Cosare vs Broadcom
Asia Inc. February 5, 2014 GR 201298; the first test
according to the SC is the relationship test.
So what is the relationship test? An intracorporate
controversy is one which pertains to any of the
following relationships (1) between a corporation,
partnership, or association and the public, (2)
between a corporation, partnership, or association
and the state in so far as the franchise and license xx
(3) between a corporation, partnership, or association
and its stockholders, partners, members, officers (4)
among the stockholders, partners or associates
themselves. Under the relationship test, the existence
of any of the above intracorporate relations makes a
case intracorporate. So that is the first test; the
relationship test.
The second test is what is called the nature of the
controversy test, the controversy must not only be
rooted in existence of an intracorporate relationship
but must as well pertain to the enforcement of the
parties’ correlative rights and obligations under the
Corporation Code and internal and intracorporate
regulatory rules of the corporation. In other words
distinction should be determined by considering both
the relationship of the parties as well as the nature of
the question. My caveat is this; the way you satisfy
nature of controversy you ask the question what law
is used to resolve the controversy; if the law that is
used corporation law, SRC, then it satisfies the nature
of controversy.
FEB 16- BAGYO
22
February 17 2017, Tongo K
I would like to point out to you that the
Securities and Exchange Commission in August 4
2015 issued a completely new IRR of the Securities
and Regulations Code. It gives provisions of
electronic filing, certification and uncertificated
securities, all sorts of new electronic consequential
interpretation of the provisions of the securities and
regulations code.
Now, if you have not observed or have not
seen teleconference hearings, because we now
accept hearings on teleconference in SEC, I suggest
you go to youtube and listen to the argumentation of
the Department of Justice and the State of Seattle
and Minessota and the trump “Muslim” it is
teleconference. (chikka si father about
teleconferencing nila...) I would suggest you go over
the implementing rules because if you have a copy of
the implementing rules chances are that is no longer
the implementing rules, because the new one
completely is not just an amendment but it is …, it is
Resolution No. 04 Series of 2015, August 4 2015.
I would also suggest that you would take a
look at the Interim Rules of Procedure of 2001. The
Supreme Court approved the specific rules of
procedure of Intra-corporate cases. That is included
in your Rules of Court. If you bought a codal provision
there is supposed to be the interim rules, if not you
have been shortchanged. There is supposed to be a
rule on, it is still interim, because the court rules relies
on the experts and the experts have not come up with
a thorough Revision of the Interim Rules on the intra-
corporate decisions.
You know sometimes they submit voluminous
financial records, so the interim rules on intra-
corporate cases allow you not to serve a copy of the
annexes to the opposing party because of the
voluminous nature of the annexes. Can you imagine
that? In ordinary cases that is part and parcel of the
pleading, you must serve a copy of the annexes. But
in the intracoporate cases because of the voluminous
nature you are excused. So what do you do? You tell
the other party to go to the SEC or to the intra-
corporate court and make a copy of the annexes
which constitute financial statements, supporting
documents of the financial statements which you are
already excused from serving your opposing party.
Then there is a list there of prohibited pleadings.
Appeals as to interlocutory orders are more
stringently disallowed. You cannot appeal
interlocutory order.
A.M. No. 01-2-04-SC. March 13, 2001
 BUSINESS ORGANIZATION II TRANSCRIPT
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ADDU-Law
Re: PROPOSED INTERIM RULES OF
PROCEDURE GOVERNING
INTRA-CORPORATE CONTROVERSIES UNDER
R. A. NO. 8799
SEC. 8. Prohibited pleadings. – The following
pleadings are prohibited:
1. Motion to dismiss;
2. Motion for a bill of particulars;
3. Motion for new trial, or for reconsideration of
judgment or order, or for
re-opening of trial;
4. Motion for extension of time to file pleadings,
affidavits or any other paper,
except those filed due to clearly compelling
reasons. Such motion must be
verified and under oath; and
5. Motion for postponement and other motions
of similar intent, except those filed
due to clearly compelling reasons. Such motion
must be verified and under oath.
You asked for restraining order and it is
granted, you cannot appeal that if you are the
opposing party. That will have to be resolved together
with the merits of the case. So there are many things
new in that intra corporate interim rules.
Now, so we saw the first class of cases that are now
under the jurisdiction of the Intra-corporate court.
devices and schemes, … controversies arising out of
intra corporate partnership or associations. These are
intra-corporate cases.
Section 5. In addition to the regulatory and
adjudicative functions of the Securities and
Exchange Commission over corporations,
partnerships and other forms of associations
registered with it as expressly granted under
existing laws and decrees, it shall have original
and exclusive jurisdiction to hear and decide
cases involving.
a) Devices or schemes employed by or
any acts, of the board of directors, business
associates, its officers or partnership,
amounting to fraud and misrepresentation
which may be detrimental to the interest of
the public and/or of the stockholder, partners,
members of associations or organizations
registered with the Commission.
b) Controversies arising out of intra-
corporate or partnership relations, between
and among stockholders, members, or
associates; between any or all of them and
the corporation, partnership or association of
23
which they are stockholders, members or
associates, respectively; and between such
corporation, partnership or association and
the state insofar as it concerns their individual
franchise or right to exist as such entity;
c) Controversies in the election or
appointments of directors, trustees,
officers or managers of such
corporations, partnerships or
associations.
Remember the new ruling now is there is this two fold
test as reiterated in the case of Cosare vs
Broadcomm Asia Inc. 715 SCRA 534, 2014 case
2 TEST TO DETERMINE WHETHER OR NOT IT
IS AN INTRA CORPORATE CONTROVERSY
1. The relationship test – the status or
relationship test
2. The nature of the controversy test- The
nature of the question
1. Relationship test- whether or not the case
pertains to any of the following relationships:
1.Between the corporation, partnership,
association and the public.
2.Between the corporation, partnership or
association and the state insofar as its
franchise, permit or license to operate is
concerned
3.Between the corporation, partnership or
association and its stockholders, partners,
members or officers.
4.Among the stockholders, partners or
associates themselves.
So under the relationship test the existence of any
of the above intra-corporate relations makes the
case intra-corporate provided that it passes the
second test.
2. The nature of the controversy test
The controversy must not only be rooted in the
existence of the intra-corporate relationship but must
as well pertain to the enforcement of the parties’
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
collective rights and obligations under the
corporation code, the internal and intra-corporate
regulatory rules of the corporation such as the by-
laws and its article of incorporation. Or in other
words the jurisdiction should be determined by
considering both the relationship of the parties as
well as the nature of the question involved.
So in order to resolve the controversy there must be a
need of applying either the corporation code, any of
the corporation laws like the SEC or the internal rules
of the corporation such as the by-laws and the articles
of incorporation. So that is what makes an intra-
corporate case.
Now, the third class of cases over which the sole and
exclusive jurisdiction is now in the intracorporte court
are
c. Controversies in the election and appointment of
the directors, trustees, officers or managers of
corporation, partnership or association.
So election controversies or appointment of officers,
managers of the corporation or the partnership. The
shorthand term for this is election controversies.
• When is an individual considered a corporate
officer as distinguished from ordinary employee?
This is answered by
COSARE VS BROADCOMM ASIA, INC. et al
Feb 5 2014 201298 (from the FT)
There are two circumstances which must concur in
order for an individual to be considered a corporate
officer, as against an ordinary employee or officer,
namely:
(1) the creation of the position is under the
corporation’s charter or by-laws; and
(2) the election of the officer is by the directors or
stockholders. It is only when the officer claiming to
have been illegally dismissed is classified as such
corporate officer that the issue is deemed an intra-
corporate dispute which falls within the jurisdiction
of the trial courts.
SC says there are circumstance that concur in order
to consider an individual a corporate officer as against
an ordinary employee or officer
1. The creation of the position is under the corporation
code, the corporation charter or the corporation’s by
laws. So if the position like secretary of the
corporation is provided for in the corporation code, or
24
provided for in the by laws or it is provided for in the
articles of incorporation, then the occupant of that
position is an officer of the corporation.
2. The election of the officer is by the board of
directors of the corporation or by the stockholder in
case of non-stock and non profit corporation. It is only
when the officer claiming to have been illegally
dismissed is classified as intra corporate officer, the
issue is deemed classified as intracorporate dispute
which falls within the jurisdiction of the trial court.
Remember, he is not an officer and he has a
complaint against the corporation, he is an ordinary
employee then it is a labor case. If he is an officer of
the corporation and he complains against the
corporation, let us say he is not reappointed by the
board, then that is an intra-corporate controversy, an
election protest.
Now there is a long list of cases where the NLRC has
ventured into resolving an employee complaint
against the corporation because he was not
reappointed or he was dismissed by the vote of board
of directors/ board of trustees and time again the
Supreme Court has checked the unwarranted
extension of the jurisdiction of NLRC. There are many
many cases.
1. PSBA vs LEANO
G.R. No. L-58468. February 24, 1984 (excerpt
from FT)
Foregoing indubitably show that, fundamentally, the
controversy is intra-corporate in nature. It revolves
around the election of directors, officers or managers
of the PSBA, the relation between and among its
stockholders, and between them and the corporation.
Private respondent also contends that his "ouster"
was a scheme to intimidate him into selling his shares
and to deprive him of his just and fair return on his
investment as a stockholder received through his
salary and allowances as Executive Vice-President.
Vis-a-vis the NLRC, these matters fall within the
jurisdiction of the SEC. Presidential Decree No. 902-
A vests in the Securities and Exchange
Commission:jgc:chanrobles.com.ph
sec 5 xxxx
This is not a case of dismissal. The situation is that of
a corporate office having been declared vacant, and
of TAN’s not having been elected thereafter. The
matter of whom to elect is a prerogative that belongs
to the Board, and involves the exercise of deliberate
choice and the faculty of discriminative selection.
Generally speaking, the relationship of a person to a
corporation, whether as officer or as agent or
employee, is not determined by the nature of the
services performed, but by the incidents of the
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From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
relationship as they actually exist
. arose from, or is closely connected with, his
2. De leon vs NLRC
3. ESPINO vs NLRC G.R. Nos. 109642-43 January
5, 1995
Indisputably, the position of Executive Vice President-
Chief Operating Officer from which petitioner Espino
claims to have been illegally dismissed, is an elective
office under Section 7, Article III is an elective
corporate office under Section 1, Article IV of the
Amended by-Laws of PAL. The said corporate office
has a fixed term of one (1) year and the one elected
shall hold office until a successor shall have been
elected and qualified. He lost that position when his
appointment or election as Executive Vice President-
Chief Operating Officer, together with other senior
officers who were similarly charged administratively,
were deferred by the Board of Directors in its
organizational meeting on October 19, 1990. He was
later considered by the Board as resigned from the
service, for reasons earlier stated, and the said
position was later abolished.
The matter of petitioner's not being elected to the
office of Executive
Vice-President-Chief Operating Officer thus falls
squarely within the purview of Section 5 par. (c) of
P.D. 902-A. In the case of PSBA v. Leano, supra,
which involved an Executive Vice President who was
not re-elected to the said position during the election
of officers on September 5, 1981 by the PSBA's
newly elected Board of Directors, the Court
emphatically stated:
This is not a case of dismissal. The situation is
that of a corporate office having been declared
vacant, and that of TAN's not having been
elected thereafter. The matter of whom to elect
is a prerogative that belongs to the Board, and
involves the exercise of deliberate choice and
the faculty of discriminative selection. Generally
speaking, the relationship of a person to a
corporation, whether as officer or as agent or
employee, is not determined by the nature of
the services performed, but by the incidents of
the relationship as they actually exists.
A corporate officer's dismissal is always a corporate
act and/or an intra-corporate controversy and that
nature is not altered by the reason or wisdom which
the Board of Directors may have in taking such
action.
7 corporate whether or it is a labor case.
Furthermore, it must be noted that the reason behind
25
the non-election of petitioner to the position of
Executive Vice President-Chief Operating Officer
involvement in the alleged irregularities in the
aforementioned cases which, upon investigation and
recommendation, were resolved by the PAL Board of
Directors against him and other senior officers.
Evidently, this intra-corporate ruling places the instant
case under the specialized competence and
expertise of the SEC.
And..time again the Supreme Court said that the
NLRC does not have a jurisdiction to examine the
internal workings of the board of directors. There are
however two exception
What are these two exceptions?
1. Gregorio Araneta University Foundation
vs Teodoro 167 SCRA 79, 1988 case
2. Salafranca vs Philam life 300 SCRA 469,
1998
In other words, here what happened is that the
Board of Directors dismisses a particular individual
who the board claims is an officer. This officer files a
case with the NLRC , the Labor Arbiter and the SC
upholds the jurisdiction of the Labor Arbiter.
GREGORIO ARANETA FOUNDATION VS
TEODORO
Teodoro was a member of the regular faculty of
the University. After many years of teaching he
was promoted by the University to the position of
Vice President of University for Administrative
Affairs.
After being re-elected/re-appointed to the position
for many years, all of a sudden the board of
directors no longer appointed Teodoro and tells
Teodoro, “no more appointment, go home. You
are no longer with the University.” He files an
illegal dismissal complaint.
The issue is whether or not the action of the board
will give rise from the controversy that is intra
His position is in the by laws of the University.
There is such a position for vice president of
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ADDU-Law
Administration. Does it make the case an Intra-
corporate case so that the labor arbiter does not
have jurisdiction?
The Supreme Court says that teodoro is first and
foremost a regular employee. He had tenure , he
attained regular employment so he had tenure.
He is promoted to Vice president for
administration. When the board no longer
appointed him he is not dismissed, he is not
severed from his employment relationship with the
University. He is reverted to his regular faculty
position. Therefore the University equivalently
dismissed him without cause or without due
process when he was .. of the University. And it is
not ultra vires for the Labor Arbiter to look into the
actuations of the University when it dismissed Mr.
Teodoro.
Make sure you know the gravamen of the
decision. He was first a regular employee then he
was made an officer of the corporation subject to
yearly appointments by the Board of Director. They
did not appoint him. The corporation has power to do
that, because officers of the corporation are
confidential employees. They serve at the pleasure
of the Board. Therefore when he was no longer
appointed he should have reverted to his regular
faculty status. He should not have been severed
completely from the University. That is the lesson
here from Gregorio Araneta University Foundation
nd
2 case.
Salafranca vs Philam Life
Salafranca here was the chief security of Philam
Life employees in Edsa that is the part going to
balintawak already from Quezon Ave. there is that
subdivision of Philam life employees and
Salfranca was head of the Security.
The Subdivision owners reported and complained
with the Board of Directors of the subdivision
owners corporation that Salafranca is no longer
efficient in his job because he cannot control the
teenagers in the subdivision. They are speeding,
they are coming home loud at night sometimes in
the wee hours of the Morning and the Salafranca
security guards cannot control the young people
in the subdivision. So they want him out, and
Salafranca everytime he receives a complaint he
throws it back to the parents.(HAHA)
What did the board do? The board of Philam life
homeowners , they amened the bylaws of the
homeowners’ association. And they provide in the
bylaws that the Security head should be
appointed by the Board of Directors and be given
26
a term of one year and reappointed . So that’s
what they did so they serve that to Salafranca, so
the first annual meeting after the amendment
Salafranca was appointed. So he continues
basically the same function.
After one year the board no longer appointed
Salafranca, they appointed another person. So
Salafranca is equivalently dismissed. So
Salafranca complained. He filed an illegal
dismissal complaint with the Labor Arbiter.
Ofcourse the homeowners association move to
dismiss from the groun that this is an intra
corporate controversy. The parties’ officers vs the
corporation and then to give the Labor Arbiter
jurisdiction of the case would give it undue
powers to look into the actuations of the Board of
Directors which the Labor Arbiter does not have
any power to do.
Question: Who is correct? The Philamlife
homeowners, the corporation or Salfranca?
The Supreme Court says that Salafranca has a
better right. Why?
The amendment of Articles and By-laws created
that position is not an afterthought designed to
circumvent the vested right of Salafranca to
security of tenure. He is already secured. The
right of security of tenure has already vested in
him because he is no longer a probationary
employee.
So you cannot just remove security of tenure by a
simple rubric of creating a position and making him a
corporate officer but all the while he was a regular
employee of the subdivision.
So take note of those two cases. This Gregorio
Araneta foundation was already asked in the bar
examination but this Salafranca case has not been
asked yet. Salafranca might just come out. So that is
the key distinction when by exception the action
taken by the board is a matter to be looked into by
the Labor Arbiter who is with a forum that has a
limited jurisdiction.
You know the courts are the courts of general
jurisdiction. The courts have a leeway to look into
almost anything when it is brought to them for
adjudication. But, the Labor Tribunal is only specific.
Just labor---issues on employer-employee
relationship.
So the courts in these cases they are saying the
severance which arise into controversy is to be
resolved by applying not the corporation code but the
labor code. That is what the Supreme court says in
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law


these two cases. The parties, it might have passed
the relationship test, the parties are the corporation So the Supreme Court says that the restaining order
versus the officer. You have the relationship test but issued purportedly by the Commission enbanc and
the nature of the controversy test is .. so therefore it is signed only by one commissioner is suspect and for
a labor case. that reason must be rejected.

That is the third, controversies in the election or So, the Court of Appeals is not in error for not
appointment of the directors, trustees, officers or honoring the restraining order. Besides that, the SEC
managers. has no power to restrain the meeting due to
controversies of the proxies. Who has the power? It is
• What is a representative case about election the intra-corporate court.
controversies of the corporation?
The intra corporate court has the power because the
issues of the proxies is intimately tied with the
GSIS by President General Manager Winston
propriety of the annual election or the annual meeting
Garcia vs Anthony Rosete, Sec. of Meralco and
of the corporation therefore it is an election
Meralco, together with Manolo Lopez and other
controversy. Letter C of Section 5 of the Securities
directors.
regulation Code.
That is the case the once fighting for jurisdiction is the th
Derivative suits, 4 class of cases.
SEC vs the Intra corporate court.
• What is derivative suit?
• Who can determine as to whether or not
proxies for the general annual meeting of the
It is a necessary contrivance of the law because a
stock holders are sufficient to allow the
corporation is a juridical person which can act only
annual meeting of stock holders?
through natural person.
Who can determine? According to Supreme Court in
When those who act for the corporation, when the
that decision if there is no election controversy it is the
officers who are supposed to look after the good of
SEC because it the SEC that is given by the
the corporation, protect the corporation are the same
Securities Regulation Code the exclusive and initial
people who harm the corporation, the corporation
jurisdiction over proxies. But if the issue of proxies is
loses the person who is supposed to act in its
material to an election controversies then the SEC
defense. Who files a case for and in behalf of the
has no longer jurisdiction, it is the intra-corporate
corporation? The officers. If the officers themselves
court that has jurisdiction.
are the ones harming the corporation what happens?
By jurisprudence, it is now accepted that any stock
The SEC cannot determine whether the meeting
holders can file a case against those officers for and
should go on for the election of directors, it is the Intra
in behalf of the corporation. That is why it is called
corporate court subject to review or appeal on the
derivative suit. The stockholders derive their power to
factual basis by the Court of Appeals and on the legal
file a case against the officers simply because there is
basis as to questions of law, the Supreme Court.
no other, that is why it is called derivative suit.
Remember PGM Garcia he produced the restraining
order signed by one of the Commissioners of the SEC
This is very well explained by SC, lenghty explanation
and he ,.. that this Commissioner is signing for the
in the case of San Miguel Corporation by Eduardo
other commissioners.
Delos Angeles vs Ernest kang et.al
Now is that allowed? You have an issuance
Who his Hermes Kang? He is the oldest treasurer of
by SEC Enbanc but only one commissioner signed,
San Miguel when it is ruled by Kastilaloys, Andres
according to him because he has the authority of the
Soriano, James Prysler, Ernest kang all these
other commissioners. The other commissioners did
different Lastilaloys. Now who is ruling San Miguel
not countermand the signature, they just kept silent.
Corp? who is the controlling owner? Nobody has
heard of New frontrier corporation? If you are studying
The Supreme Court says the SEC is a collegiate
in Manila in 60s and 70s, new frontier was newly
body. Commissioner gani ka, naa nay S daghan mo
housed in Cubao, it is no longer there. But that is now
ana because it must act as a collegiate body. It
the name of the corporation that is holding controlling
cannot be that the issuance order directive of the
.. of San Miguel, and who controls it? New frontrier
SEC can only be signed by one, unless or the others
controls it.
are incapacitated. For example napungkulan sila ug
The ones who control it are these Maverick Boys.
kamot, di na sila kapirma it cannot be that only one
Who are these Maverick boys? They are composed of
will sign because it is a collegiate body.

27

 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
Inigo Zobel de Ayala, James Campos who used to be
the President of Unilab until his elders sister kicked
him out, belongs to the Campos family who contols
UNILAB, he is the president and chairman of
DelMonte international, here in Bukidnon, he merged
it together with his other corporation, they serve this
Filipino Asian seasoning..
nd
2 Hour, Abad, I.
He merged it together with his other corporations. All
of a sudden this San Miguel Corporation (SMC), beer
corporation, is now Petroleum. Can you imagine?
55% of the sales of SMC is not beer but petroleum
because of Petron etc.
Derivative Suit
Eduardo de Los Angeles became a board director of
SMC because he was appointed by Cory Aquino to
represent the sequestered shares. Why is there
sequestered shares? There were sequestered shares
because Danding Cojuangco, through his Coco
named companies bought something like 23% of the
outstanding capital shares of SMC. Danding used the
coco levy funds (story about the coco levy funds).
Before that, Danding already bought the shares of
stock of the Ayala clan which they had with SMC. The
Ayala and Sorianos, were the controlling owners of
SMC, they were first cousins. The one leading SMC
that time was Enrique Zobel de Ayala (story about
how Enrique married his first cousin and how Danding
bought the shares of the Sorianos in SMC). But
Danding cannot pay the entire sum of the shares, so
he just made a down payment and asked for a Voting
Trust Agreement (VTA). He now exercises the votes
of the Soriano shares. Actually, in the books of the
corporation, it is still Andres Soriano that is the owner.
But the shares of stocks were already surrendered to
the Secretary and there were new certificates of stock
that were issued. And Danding issues another
certificate to the trustee, who exercises the rights.
Now, before Danding could pay the balance, EDSA
happens. Marcos flees the country and he calls
Danding to fly away with him for they are close
friends. So Andres Soriano takes over SMC. Now that
Andres Soriano was at the helm, they discovered the
sequestered shares. Then Andres calls the board and
says that SMC will be the surety of the loan that it will
take out from HSBC to return to Danding the down
payment he made for the Soriano shares. Because
Soriano now wants to get back the shares and control
of the SMC.
Who is going to borrow the money? It is Andres
Soriano and his companions. For whose benefit? Not
for SMC, but for their benefit, so that they could get
back the shares. Who would guarantee that loan?
28
SMC. Why would SMC guarantee a loan over
which it has no beneficial interest? That was the
question raised by Eduardo de Los Angeles, and the
board just ignored him. He was the only one who was
raising questions, all the other PCGG members that
were sitting on the board were on the side of Andres
Soriano (Pag ka way hinungdan aning mga tao na
gikuha ni Cory Aquino! What do you expect from a
housewife, dammit.) That is why Eduardo de Los
Angeles filed a derivative suit to stop SMC from
guaranteeing this loan. It was about $500 million that
time, dako ana.
In the argumentation there, they said, Eduardo cannot
sue for SMC because he merely had qualifying
shares. Gipalitan siya sa PCGG because the
requirement to be a director is you must be an owner
of at least 1 share. The argument of Ernest Khan, et
al, is how can a small share, stay or stop an action by
the corporation which is decided by owners with
multiple number of shares. In other words, the issue is
how many shares do you need to exercise the
rights of a derivative suit.
The SC said, you just need 1 share.
When do you need to own it to exercise the rights of
the derivative suit?
- First, you have to own it at the time the
controversy arose.
- Second, you must own it at the time of the
filing of the suit.
Two instances ha. At the time the controversy or the
act against the corporation was committed and at the
time of the filing of the suit, that is the time when you
need to own the shares.
FIFTH class of cases: Inspection of Corporate
books.
These are cases arising from the inspection of
corporate books. What is that? More recently, the SC
has said that officers or directors who prevent the
exercise of inspection of the corporate books without
justifiable reasons may be liable criminally. So it is a
criminal suit. You must bring it to the prosecutor’s
office if you want the criminal provisions of the
Corporation Code to take effect against the ones who
prevented you from inspecting the books of the
corporation.
Venue of action
Alright, where is the Venue of all this intra-corporate
cases? What determines the venue? We know the
court, it is the intra-corporate court. Is it the intra-
corporate court of the complainant?
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
- All actions covered by the rules shall be
commenced and tried in the Regional Trial Court
which has jurisdiction over the principal office of the
corporation, partnership or association concerned. If
the principal office of the corporation, partnership or
association is registered in Manila, the action must be
filed in the city or municipality where the head office is
located.
So if against SMC, it must be filed in the intra-
corporate sala of the city of Mandaluyong, where the
principal head office of SMC is. You must connect this
now with the requirement of the SEC. You have to put
the real full address in your articles of incorporation.
FINANCIAL REHABILITATION and INSOLVENCY
ACT
Alright, we can now begin with RA 10142 – FRIA
This is supposed to replace the Insolvency
Law. A little history is in order. I challenge you, after
the 1950s, locate the decision of the SC of the
Insolvency Law and you will find zero, no decision at
all. The decisions are prior to 1950.
When was the Insolvency Law introduced in
the Philippines? It was introduced at about the same
time as the Corporation Law, around early 1900s. The
Americans took over on 1900, mao na ang Philippine
Reports kay 1901. Take a look at the first case
decided by the SC, Phil Report 1 page 1 – In re
Aguas, you should not pass lawschool without
reading that case. Gwapo kaayo ng kasuha. Before
that there was no SC of the Philippines, we were just
a province of Spain.
Now, Insolvency Law, why is there no case?
1. Culturally, it goes against the greed of the Filipinos
to admit that they are insolvent.
Wa juy Filipino na muadmit na wala na silay
kwarta. Mao bitaw muhuwam ka kay makabayad ka
man. Og wala na jud kay kwarta eh di dili na jud ka
kahuwam. Do you get the logic? Kinsa may
pautangon sa bangko, katong naay kwarta o wala?
Wa gani kay kwarta di jud ka kahulam sa bangko. So,
there is no insolvency case.
2. Even if there was a Filipino who would muster his
will to file insolvency petition for the good of his family,
it could not offer him a permanent relief. What is the
final order in an insolvency petition? The final order is
the Order to Dismiss, you the petitioner are
dismissed, your petition is dismissed, wala na kay
obligation. Paghuman sa court og dawat sa tanan
nimong mga assets, then ibaligya na niya and applies
the preference of credits, pagkahuman ana, bisan
29
mahibilin pa tong utang nimo na wala mabayri kay
wala naman kay ikabayad, muingon ang court
nahuman na, dismiss, so you walk out free. If that
very day you purchased a lotto ticket and you win a
jackpot, mahibal-an ka sa imong mga creditors, wala
na, no more. You are free. You cannot be made to
pay your obligations because your obligations are
declared null, no longer in existence of the law. So, it
is for your benefit. Dismiss, pauli ka sa inyo.
Now, in the old Insolvency Law, corporations
cannot be freed from their obligations to Secured
Debtors. The insolvency law has no power over them,
only the General Creditors, those that have no
security. There might be a stay order, but the stay
order does not cover secured debtors. So, deficient
ang Insolvency Law. Muingon ka, batia diay sa
Insolvency Law sa Philippines, pero we are the most
advance in Insolvency Law in Asia. Dinha na
nahibaw-an tong Asian Financial Crises, walay
Insolvency Law. Kay ngano man? Kay bati lagi na,
ang culture will not vent itself to confessing that you
are insolvent. That is like losing face, maulawan ka
nga wala na kay kwarta, that is why in Asia, walay
insolvency law. Did you not notice in the 1998 crisis,
sa Thailand daghan kaayo gipamatay na executives
nga daghan og utang.
Now, you cannot participate in the World
Trade Organization, etc., if you cannot put up a
creditor insolvency law, which is why we have to pass
FRIA. What is the bridge law of the case? The bridge
law was PD 902-A, that paragraph there which
allowed Financial rehabilitation. They gave part of the
jurisdiction to the SEC with respect to the proceeding
called Petition for Suspension of Payments. What
is it? You have more than enough assets to meet your
obligations, but your assets are not ripening at the
same time that your assets are ripening. That is why
you ask for an order of the court to stay your creditors
from collecting from you until your assets ripen. What
is wrong with that principle? That market value
fluctuates, legal concepts are a little bit more static,
commercial values are fluid, it is only good for a
particular time.
This is a more realistic law, financial
rehabilitation and insolvency act. Read more about it
because this is our next exam. This is the last exam.
Why do I give a special exam for this? Because when
it comes to the bar exam you will not have to read it
anymore kay wala na kay time. At least, naagian nimo
sa pari.Basaha, that is our last exam. After that,
dismissed.
February 22, 2017, Ching K
Before we take up Financial Rehabilitation and
Insolvency Act of 2010, I would like just to discuss on
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
an important part of the General Banking law which is
the provisions on Trust Entity.
Why are the provisions on trust entity in the General
Banking Law? The trust function is not part of banking
but why is it that it is in the General Banking Law?
It is found in the General Banking Law because most
trust entities are banks. They have the necessary
capital packing and personnel packing to conduct
trust functions. That is why the trust laws are found
in the General Banking Law.
The notion of trust is found in the Civil Code.
Atleast in the Civil Code they distinguish 2 kinds of
trusts.
1.) Implied Trust
2.) Express Trust
ARTICLE 442 of the CIVIL CODE
Article 442 of the Civil Code states that the principles
of the General Law on trust in so far as they are not in
conflict with the Civil Code, Code of Commerce and
the Rules of Court and special laws in the General
Banking law are hereby adopted.
Trust entities as a modern notion is more developed
in common law than in continental law. That is why
our Supreme Court has now and then referred to the
terminologies of the TRUST RULINGS UNDER
COMMON LAW.
Like for instance, the PRUDENT MAN RULE, a trust
entity shall administer the funds or property under his
custody with a diligence of a prudent man would
exercise in the conduct of an enterprise of the right
character and with similar aims.
The General Banking Law provides as a GENERAL
RULE that: NO trust entity shall for the account of
the trustor or the beneficiary of the trust:
1.) Purchases or acquires property from or
sell, transfer, assign, or lend money or property to
or purchase debt instruments of any of the
departments, directors, officers, stockholders, or
employees of the trust entity.
So if Chinabanking is made the trustee of a particular
fund, Chinabank cannot enter into self-dealing. For
instance, it cannot buy property, if the articles of trust
so allow it. It cannot buy property that is foreclosed by
the bank. Property that is foreclosed by the bank
belongs to the bank. And the bank is supposed to sell
that within a certain number of years.
The bank as a trust entity cannot purchase property
that is foreclosed by the bank. Why?
30
Because that is Self-dealing. That is suspect. As
we all know, the interest of a buyer and the interest
of a seller of the same thing are irreducibly in
conflict. Because the buyer will want to buy at the
lowest price. The seller will want to sell at the highest
price. So if you do so, that is as a general rule, so
trust entities cannot do that.
Then you have explained this. When you
create a trust, the FIRST THING you do is to DRAW
UP THE ARTICLES OF TRUST. The articles of trust
right away delineates:
1.) What is covered by the trust.
What is the corpus that is covered. We
call it corpus because it could be money, it
could be property, it could be choices in
action, it could be intellectual property.
After that is done, any trustee whose duties are
delineated in the articles of trust, after articles are
drawn, and the trustee agrees to his duties as
delineated there.
For instance, if the Articles of Trust say that the
trustee can only make the following kinds of
investment as to the funds of the trust. xxx Only
sovereign government bonds of the Philippines.
Secondarily, sovereign government bonds of the
following countries and then it names it. If the trustee
invests in sovereign bonds of countries not mention in
the Articles of trust, then it is in violation of the Articles
of Trust. So they can be penalized by that because
you are going directly against the articles of trust.
When you agree, you are a trustee, you sign your
conforme, then what does the trustor do?
The trustor conveys the entire corpus of the trust.
Now if it is money, it is very easy, you just deposit it
by way of trust.
But if it is real property, what happens? You have to
make a conveyance of the property so that it will now
be in the name of the trustee. Very few know that.
That the trustee receives title to property in such that
he can dispose of it not as his, because he owns it,
BUT AS TRUSTEE. And so on. Everything in the
corpus of the trust must be conveyed to the trustee.
That is why, in your subject, Land Titles and Deeds,
the title before of that course was more complete
than that title. Land Titles and Deeds, it should be
Land, Titles, Deeds and Conveyancing because
when you transfer the title of the property to a
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
trustee, that is less than an absolute transfer, that is
a conveyancing.
Gamay ra kahibalo ana, kay wala na gitudlo sa inyo
sa Land Titles and Deeds na naa diay nang
conveyancing as a trustee and then he disposes of it
as if it were her own. The trustee can sell it as much
as the owner. If the articles of trust does not allow it,
and he still sells it, THAT IS VALID. But is penalized
by the trustor and he will have to pay damages and
etc. That is why banks are allowed to be trustees
because they are supposed to have the capital to pay
if there are damages.
So the General Banking law sets limits of
a trust entity. Remember a trust entity just like a
bank has to be licensed to act as a trustee. The
banking license does not include the license to be a
trust entity. You must apply for a separate license to
be the trustee.
And then these are your general limitations, you
cannot make transactions with yourself. As a
trustee, you buy from yourself, repossessed property,
you cannot do that.
Is there any exception?
Yes. There is an exception.
1.) The exception is, that the
transaction is specifically authorized by
the trustor.
2.) The relationship of the trustee
and the other party involved in the
transaction is fully disclosed with the
trustor or beneficiary of the trust prior to
the transaction.
So those are the two requisites that will allow self-
dealing on the part of the trustee.
You might have read about the trust that President
Trump has created. Why is it a subject of so much
criticism?
It is a subject of so much criticism because under
common law it is not a blind trust. Under continental
law, a blind is equivalent to irrevocable trust.
You create a trust, it says “All my business, all my
assets in business, I have transferred to my children
and two of my sons will be managing it and I will have
nothing to do with it. “
Who are the beneficiaries?
1.) My children
2.) My Wife
3.) My grandchildren
31
4.) And whoever becomes my
descendants.
I have remove this, so I cannot not have any part of
this. But what happened? That is not irrevocable
because it says after I am president and finish my
term, I will resume managing my business. So
temporaryo lang diay. In other words, the trust will
benefit irregular deals and he, after becomes the
president, he will indirectly benefit xxx. Di masirado
bah.
Nakakuha naman mog insurance. Nakakuha naman
mog taxation. Naa kay life insurance. Ang imong
beneficiary dili irrevocable, unsa man resulta? Your
beneficiary is not irrevocable, lets say your beneficiary
is your offspring, your parents, siblings but it is not
irrevocable? What is the implication?
When the trustor dies, that insurance is still
considered a part of his estate. And its value at the
time of death is included in the estate and that is
taxable under his estate. Again, when the beneficiary
dies, and the beneficiary is not irrevocable, that is
part of the trustor’s estate, the proceeds are still
part of the trustor’s estate.
Is there an exception to the rule?
The exception to the rule is when a person takes
out a life insurance of himself and makes the
estate its beneficiary and its irrevocable and it is
for the purpose of paying the taxes of the estate.
Daghan kaayo kag property, naay mayor diha sa
Laac, gimassacre, patay. Iyang titulo sa yuta,
ingnana ka tas-a (father referring to makapal daw na
files na puro titulo) tanan yuta. Karon gixxx sa iyang
mga anak, kay ngano man? Kay wala man cash.
Bayran mana tanan. Dili mana mabaligya kung dili
masettle ang estate. Naa pa nag advice sa iyaha na
palit ug life insurance for the sole purpose of paying
your estate tax when you die. Exception na, kay
gobyerno na ang imung gibuhat nga beneficiary sa
imong life insurance. At it is irrevocable, dili na
pangbayad sa ICU. Diretso na sa gobyerno. That is
the same thing with the trust.
If you create a trust account, one of the crucial issues
raised, is the beneficiary irrevocable? If it is, it is a
blind trust. It is not included in your estate, it is a
person in itself, therefore, it has its own TIN and it
pays its own taxes. Whatever properties are there,
real property, who is responsible then? Ayaw kog
ingna na, ako naman na giconvey sa trustee, siya na
bayad sa estate ana. Trustee mana siya, he has the
responsibility to pay lawful taxes.
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
How does he source it?
It must be from the trust because it is a
separate taxable person. The emphasis is on
taxable. Not on person because it is not a person. A
trust entity is not a person.
As GENERAL RULE: A trustee cannot
engage in Self-dealing. It is a trustee.
Self-dealing includes transactions of the relatives of
the trust entity or any of its directors, officers,
st
stockholders or employees within the 1 degree of
consanguinity or affinity or the related interest of
such directors, officers and stockholders.
SECTION 79 General banking Law
Now, there is a requirement under Section
79, Only a stock corporation or a person duly
authorized by the Monetary Board to engage in
trust business shall act as a trustee or administer
any trust or hold property in trust or on deposit for
the use, benefit, or behalf of others. For purposes
of General banking law, such a corporation shall be
referred to as a trust entity.
TRUST BUSINESS
What is a Trust Business?
A trust business is any activity resulting from a
trustor-trustee relationship involving the
appointment of the trustee by the trustor for the
administration, holding, management of funds
and or properties of the trustor by the trustee for
the use, benefit or advantage of the trustor or of
others called beneficiaries.
The definition of trust business highlights the parties.
These are:
1.) Trustor – the one who creates the trust
2.) Trustee – the one who will administer
the trust, and who hold the title of all the
corpus of the trust that is transferred.
3.) Beneficiary – beneficial owner of the
trust that is created.
SEC 83 Powers of the Trust entity
What are the powers of the trust entity? Let’s say
Chinabank and Trust entity.
SEC 83 Powers of the Trust entity. In addition to
the general powers incident to corporations, shall
have the power to:
83.1. Act as trustee on any mortgage or bond
issued by any municipality, corporation, or any body
politic and to accept and execute any trust
32
consistent with law;
83.2. Act under the order or appointment of any
court as guardian, receiver, trustee, or
depositary of the estate of any minor or other
incompetent person, and as receiver and
depositary of any moneys paid into court by parties
to any legal proceedings and of property of any kind
which may be brought under the jurisdiction of the
court;
83.3. Act as the executor of any will when it is
named the executor thereof;
83.4. Act as administrator of the estate of any
deceased person, with the will annexed, or as
administrator of the estate of any deceased person
when there is no will;
83.5 Accept and execute any trust for the holding,
management, and administration of any estate, real
or personal, and the rents, issues and profits
thereof; and
83.6. Establish and manage common trust funds,
subject to such rules and regulations as may be
prescribed by the Monetary Board.
83.1. Act as trustee on any mortgage or bond
issued by any municipality, corporation, or any
body politic and to accept and execute any trust
consistent with law;
The moment you have a debt instrument that
has many persons involved, in fact more than 20,
then it becomes public, A public debt. Since there are
many creditors, the trustee becomes the
representative of all the creditors for purposes of
holding the mortgage. So it will be mortgage in the
name of the trustee as trustee of all the creditors.
83.2. Act under the order or appointment of any
court as guardian, receiver, trustee, or depositary
of the estate of any minor or other incompetent
person, and as receiver and depositary of any
moneys paid into court by parties to any legal
proceedings and of property of any kind which
may be brought under the jurisdiction of the
court;
So the court may appoint a Trust entity, a licensed
trust entity to manage a complicated trust.
How many kinds of guardianship are there? Special
Proceedings. There are two kinds of guardianship.
1.Guardianship over the PERSON - You can only
be appointed a guardian of another person. Dili ka
pwede mahimog guardian sa imong iro. Dili ka
mahimog guardian of property. (Joke ni FR. GUARD
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
mana siya, so Guardian diay na! LOL!) Trustee ka
of property pero dili ka mahimo ug guardian.
2.) Guardianship over the PROPERTY over the
Person.
But in special proceedings, there is a guardianship as
to the person and there is a guardianship as to the
property of that person. And one person can have
two guardian as to his persons, and as to his
property. It does not mean that because you are
appointed as the guardian of the person, you are also
the guardian of the property. NO! Those are two
different decisions by the judge of the family
court.
If you are TRUST ENTITY, you can be appointed as
a guardian of the properties because that is what
you are equipped to do.
\But if you are Chinabank and Trust Company, you
cannot be appointed as a guardian of the person who
is the beneficiary of the trust entity.
Why?
Obviously being a juridical person, you do not have
the arm to wipe the nose of your guardianship,
beneficiary. Kung sip-onon nana siya, nagkurog kurog
nana siya kay gihilantan na siya, ikaw may muatiman
ana kay ikaw man ang guardian of the person,
unsaon man nimo pagbantay ana nga juridical person
man ka. Dili ka makahimo ana.
So this is what the second power tells us. It can be
appointed as guardian, receiver, trustee or depositary
of the estate of the minor or other incompetent
person. And in fact, the court that appoint the trust
entity as to guardian. And you also in your will, you
can also designate the trust entity as your
administratrix, administrator, receiver of your property
or estate.
83.3. Act as the executor of any will when it is
named the executor thereof;
You can be named. “Chinabanking and Trust
company is my choice of executor.” Remember that is
still your property. But if you put in your will that even
after your death, you want to be put in one of this
vessel minus 200 degrees unsa gani na? (Short chika
ni Fr.). That has to do with your person. So
Chinabank and Trust Company cannot be the Trustee
because you have to appoint another guardian of your
person. You can only be the trustee of that property of
the decedent.
83.4. Act as administrator of the estate of any
deceased person, with the will annexed, or as
administrator of the estate of any deceased
person when there is no will.
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So it’s the court who will appoints you.
83.5 Accept and execute any trust for the holding,
management, and administration of any estate,
real or personal, and the rents, issues and profits
thereof; and
83.6. Establish and manage common trust funds,
subject to such rules and regulations as may be
prescribed by the Monetary Board.
SECTION 87. Separation of Trust Business from
General Business
Very important rule in Section 87 of the General
Banking Law. What is that? The Separation of the
Trust Business from the Banking business. What
does it say?
SECTION 87. Separation of Trust Business from
General Business. — The trust business and all
funds, properties or securities received by any trust
entity as executor, administrator, guardian, trustee,
receiver, or depositary shall be kept separate and
distinct from the general business including all
other funds, properties, and assets of such trust
entity. The accounts of all such funds, properties,
or securities shall likewise be kept separate and
distinct from the accounts of the general business
of the trust entity. (61)
Why is this required, this particular provision?
This particular provision is required because the
corpus of the trust entity is conveyed to the trust
entity. It is in its name, the name of the Chinabank.
The lands will be in the name of Chinabank, (not
clear: mahapay/mawala) ang Chinabank, IT IS NOT
INCLUDED in the properties that of the insolvent
Chinabank that would be liquidated, it could not be
included because it is a trust entity. You will have to
have supporting papers because it is in the name of
Chinabank. Naa na diha, gikuptan na sa Chinabank.
Mahapay nang Chinabank, maapil na dira, wala
manay labot. Nganong maapil man? Kay ila man
ngalan na.
There is a very important case.
METROBANK vs. COURT OF APPEALS 194 SCRA
169 1991 case
There is a bank account. A savings account.
And the savings account says “Juan dela Cruz in
trust for Juanita Santos”
Can you open an account like that?
YES YOU CAN open. Juan dela Cruz is the
trustee, Juanita Santos is the beneficiary.
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
Can Juanita Santos withdraw from that money?
Juanita Santos cannot withdraw because the
account is not under her name. It is only Juan Dela
Cruz who can withdraw.
Suppose Juanita Santos learns of that account, and
he goes to the bank and says that: “My trustee to this
account, it is admitted by Juan Dela Cruz that I am
the beneficiary, he squandered the money in loose
living with wine, women and etc. And I am left empty
handed. Why did you release the amount to him? Is
the bank liable?
The Supreme Court said that the NO, THE
BANK IS NOT LIABLE. The safeguards between the
beneficiary and the trustee is between the two of
them. Where the bank account is carried in the name
of a depositor with words added to the effect that the
money belongs to some other person than the
depositor, the money in such account cannot be
applied by the bank to the satisfaction of an
overdraft in the personal account of the same
depositor.
Nangutang tong person na nag abri anang
account sa bangki, unya wala pa niya to nabayri, they
cannot get the money because it is for specific
beneficiary. If the bank does that, it is in violation of
its fiduciary duty.
HOWEVER, the Supreme Court said that
the Bank in NOT A GUARDIAN OF TRUST FUNDS.
Because if they did it in a sense that it must see to its
proper application be done. And so long as it
serves its function, and release the money out in
good faith to the person who deposited it, without
knowledge that it is assisting in the
misappropriation, the bank will not be liable.
personnel whose duty is to check and
countercheck them for possible errors. The
highest degree of fiduciary duty. So that is the trust
business of the bank as a trust entity.
I would just like to bring to your attention because you
never take this in special proceedings, there is a rule
on FINANCIAL LIQUIDATION AND SUSPENSION
OF PAYMENTS RULES OF PROCEDURE FOR
INSOLVENT DEBTOR which the Supreme Court
approved in April 21,2015 or the specific proceeding
of Financial Rehabilitation and Suspension of
payments. That is one of the proceedings in the FRIA
law.
And there is another Special Rule on Financial
Rehabilitation Rules of Procedure which the
Supreme Court approves on August 27, 2013.
Specific (Liquidation and Suspension of Payments).
This one is in General (Financial Rehabilitation)
because there are several proceedings to be
followed. Financial Rehabilitation Insolvency Act. So,
look this up and I do not if it is whether an Addendum
in your Rules of Court. So in the internet its free. You
will not understand FRIA unless you will read this. If
you will just read the concepts, dili jud ka kahibawo.
(*Fr chika about recipe like paella*). The secret s go
to the procedure and then you will understand. If you
do not go, then suffer the consequences of ignorance.
“Everything you want’s a dream away, under this
pressure under this weight, we are diamonds taking
shape”
Adventure of a lifetime, Coldplay
------Dalaygon ang Diyos!------

On the other hand, when the depositary bank

allows the client to withdraw deposits of treasury
warrants, before they are cleared is guilty of
negligence. Because you are doing a special favor.
Wala pa nahinog ang deposit unya ngano man
giallow man nimo magwithdraw, that is violation of
banking rules.

• What is the responsibility of the Bank as to its

fiduciary obligation?

It has the same obligation that must be performed

with meticulous care having in mind the fiduciary
nature of the relationship between the bank and
depositors. Accordingly, the bank is not expected to
be infallible, it must bear the blame for not
discovering the mistake of its teller despite the
established procedure requiring the papers and
bankbooks, xxx to pass properly to bank

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