commercial law notes

7/24/2019 Commercial Law Notes

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Commercial Law Notes

1. INSIDER TRADING

Section 27.1.It shall be unlawful foran insider to sell or buy a security ofthe issuer, while in possession ofmaterial information with respect to

the issuer or the security that is notgenerally available to the public,unless:

(a) The insider proves that theinformation was not gained fromsuch relationship or

(b) If the other party selling to orbuying from the insider (or his agent)is identi!ed, the insider proves:(i) that he disclosed the information to

the other party, or(ii) that he had reason to believe thatthe other party otherwise is also inpossession of the information"

# purchase or sale of a security of theissuer made by an insider de!ned in$ubsection %"&, or such insider'sspouse or relatives by anity orconsanguinity within the seconddegree, legitimate or commonlaw,shall be presumed to have beene*ected while in possession ofmaterial nonpublic information iftransacted after such informationcame into e+istence but prior todissemination of such information tothe public and the lapse of areasonable time for maret to absorbsuch information: Provided, however,

That this presumption shall berebutted upon a showing by thepurchaser or seller that he was awareof the material nonpublic informationat the time of the purchase or sale"

SEC vs Interport Resources Corp.,G.R. No. 135808, cto!er ", 2008

#$cts% In -../, the 0oard of 1irectorsof I2C approved a 3emorandum of

#greement with 4anda 5oldings0erhad (450)" 6nder the3emorandum of #greement, I2Cac7uired -889 or the entire capitalstoc of 4anda nergy 5oldings, Inc"(45I), which would own and operate

a -8; megawatt (3>9 of the e+pandedcapital stoc of I2C amounting to/8"&& billion shares which had a totalpar value of =/&&"// million"

I2C alleged that a press release

announcing the approval of theagreement was sent through facsimiletransmission to the =hilippine $toc+change and the $C, but that thefacsimile machine of the $C could notreceive it" 6pon the advice of the $C,the I2C sent the press release thefollowing morning"

The $C averred that it receivedreports that I2C failed to mae timelypublic disclosures of its negotiationswith 450 and that some of itsdirectors, respondents herein, heavilytraded I2C shares utili?ing thismaterial insider information"


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& of =residential 1ecree .8;#, asamended, are hereby repealed" #llother laws, orders, rules andregulations, or parts thereof,inconsistent with any provision ofthis Code are hereby repealed or

modi!ed accordingly"

Thus, under the new law, the =1 hasbeen abolished, and the $ecurities2egulation Code has taen the placeof the 2evised $ecurities #ct"

&e'(%I.Sections 8, 30 and 36 of theRevised Securities Act do notrequire the enactment ofimplementing rules to make theminding and e!ective.In the absence of any constitutional orstatutory in!rmity, which may concern$ections %8 and %A of the 2evised$ecurities #ct, this Court upholdsthese provisions as legal and binding"It is well settled that every law has inits favor the presumption of validity"6nless and until a speci!c provision ofthe law is declared invalid andunconstitutional, the same is valid andbinding for all intents andpurposes" The mere absence ofimplementing rules cannot e*ectivelyinvalidate provisions of law, where areasonable construction that willsupport the law may be given"

II. "he right to cross#e$aminationis not asolute and cannot edemanded during investigative

proceedings efore the %&'.

III. "he Securities Regulations(ode did not repeal Sections 8, 30and 36 of the Revised Securities

Act since said provisions )erereenacted in the ne) la).In the present case, a criminal casemay still be !led against therespondents despite the repeal, since

$ections &, -;, ;A, ;@ and ;% of the$ecurities 2egulations Code imposeduties that are substantially similar to$ections &, %8 and %A of the repealed2evised $ecurities #ct"

I*. "he S&( retained the+urisdiction to investigateviolations of the RevisedSecurities Act, reenacted in theSecurities Regulations (ode,despite the aolition of the %&'.$ection >% of the $ecurities2egulations Code clearly provides thatcriminal complaints for violations ofrules and regulations enforced oradministered by the $C shall bereferred to the 1epartment of Dustice

(1ED) for preliminary investigation,while the $C nevertheless retainslimited investigatorypowers" #dditionally, the $C may stillimpose the appropriate administrativesanctions under $ection >/ of theaforementioned law" #s in 3orato v"Court of #ppeals, the repeal cannotdeprive $C of its Furisdiction tocontinue investigating the case or theregional trial court, to hear any casewhich may later be !led against therespondents"

*. "he instant case has not etprescried.The prescription period is interruptedby commencing the proceedings forthe prosecution of the accused" Incriminal cases, this is accomplished byinitiating the preliminary investigation"

The prosecution of o*ensespunishable under the 2evised$ecurities #ct and the $ecurities2egulations Code is initiated by the!ling of a complaint with the $C or byan investigation conducted by the$C motu proprio" Enly after a !ndingof probable cause is made by the $Ccan the 1ED instigate a preliminaryinvestigation" Thus, the investigation

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that was commenced by the $C in-..>, soon after it discovered the7uestionable acts of the respondents,e*ectively interrupted the prescriptionperiod" 4iven the nature and purposeof the investigation conducted by the

$C, which is e7uivalent to thepreliminary investigation conducted bythe 1ED in criminal cases, suchinvestigation would surely interruptthe prescription period"

DISSENTING )ININ% *+STICECAR)I

This ruling of the maFority violates$ection ; of #ct No" %%;A entitledAn

Act to Establish Periods of Prescriptionfor Violations Penalized by Special

Acts and unicipal !rdinances and "oProvide #hen Prescription Shall $egin"o Run" $ection ; provides:

$ection ;" =rescription shall begin torun from the day of the commissionof the violation of the law, and if thesame be not nown at the time,from the discovery thereof and theinstitution of Fudicial proceedings forits investigation and punishment"

In%aldivia v& Reyes, 'r", the Court ruledthat the proceedings referred to in$ection ; of #ct No" %%;A are Fudicialproceedings and not administrativeproceedings"

Indeed, $ection ; of #ct No" %%;Ae+pressly refers to the Ginstitution o

-u(ici$' procee(ins"G Contrary tothe maFority opinionHs claim that Gapreliminary investigation interruptsthe prescriptive period,G on'/ teinstitution o -u(ici$' procee(insc$n interrupt te runnin o teprescriptive perio(" Thus, in thepresent case, since no criminal casewas !led in any court againstrespondents since -../ for violation ofthe Code, the prescriptive period of

twelve years under $ection - of #ctNo" %%;A has now e+pired"

2. IATINS # T&E SEC+RITIESREG+ATIN CDE RA 8744

6$vier$ vs )$'in$in, G.R. No.1"8380, #e!ru$r/ 8, 2007

#ACTS% $C0 is a foreign baningcorporation duly licensed to engage inbaning, trust, and other !duciarybusiness in the =hilippines"It acted as a stoc broer, soliciting

from local residents foreign securities

called G4LE0#L T5I21 =#2T 36T6#L

J6N1$G (4T=3J), denominated in 6$

dollars" These securities were notregistered with the $ecurities and

+change Commission ($C)" These

were then remitted outwardly to $C0

5ong Kong and $C0$ingapore"

$C0's counsel advised the ban to

proceed with the selling of the foreign

securities although unregistered with

the $C, under the guise of a

Gcustodianship agreementG and

should it be 7uestioned, it shall invoe

$ection @; of the 4eneral 0aning #ct

(2epublic #ct No"%%@)" In sum, $C0

was able to sell 4T=3J securities

worth around =A billion to some A/>

investors"

The Investment Capital #ssociation of

the =hilippines (IC#=) !led with the

$C a complaint alleging that $C0

violated the 2evised $ecurities #ct,particularly the provision prohibiting

the selling of securities without prior

registration with the $C and that its

actions are potentially damaging to

the local mutual fund industry"

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=etitioner !led with the 1ED a

complaint for violation of $ection

&"- of the $ecurities 2egulation Code

against private respondents" The 1ED

dismissed petitioner's complaint

holding that it should have been !ledwith the $C"

ISS+E% 1id the 1ED commit graveabuse of discretion in dismissingpetitioner's complaint

R+ING%NE"$C" >%" (nvestigations, (n)unctionsand Prosecution of !*enses"M>%" -" The Commission may, in itsdiscretion, mae such investigation asit deems necessary to determinewhether any person has violated or isabout to violate any provision of thisCode, any rule, regulation or orderthereunder, or any rule of an+change, registered securitiesassociation, clearing agency, otherselfregulatory organi?ation, and mayre7uire or permit any person to !lewith it a statement in writing, underoath or otherwise, as the Commissionshall determine, as to all facts andcircumstances concerning the matterto be investigated" The Commissionmay publish information concerningany such violations and to investigateany fact, condition, practice or matterwhich it may deem necessary orproper to aid in the enforcement of theprovisions of this Code, in theprescribing of rules and regulationsthereunder, or in securing informationto serve as a basis for recommendingfurther legislation concerning thematters to which this Coderelates: Provided, however, That anyperson re7uested or subpoenaed toproduce documents or testify in anyinvestigation shall simultaneously benoti!ed in writing of the purpose ofsuch investigation: Provided,

further, T$t $'' criin$'cop'$ints or vio'$tions o tisCo(e $n( te ip'eentin ru'es$n( reu'$tions enorce( or$(inistere( !/ te Coissions$'' !e reerre( to te

Dep$rtent o *ustice orpre'iin$r/ investi$tion $n(prosecution !eore te propercourt: Provided, furthermore,That ininstances where the law allowsindependent civil or criminalproceedings of violations arising fromthe act, the Commission shall taeappropriate action to implement thesame: Provided, +nally That theinvestigation, prosecution, and trial ofsuch cases shall be given priority"

6nder the above provision, a criminalcomplaint for violation of any law orrule administered by the $C must!rst be !led with the latter" If theCommission !nds that there isprobable cause, then it should referthe case to the 1ED" The petitionerfailed to comply with the foregoingprocedural re7uirement"

# criminal charge for violation of the$ecurities 2egulation Code is aspeciali?ed dispute" 5ence, it must!rst be referred to an administrativeagency of special competence, i"e",the $C" 6nder the (octrine opri$r/ -uris(iction, courts will notdetermine a controversy involving a7uestion within the Furisdiction of theadministrative tribunal, where the7uestion demands the e+ercise ofsound administrative discretionre7uiring the speciali?ed nowledgeand e+pertise of said administrativetribunal to determine technical andintricate matters of fact"The $ecurities2egulation Code is a special law" Itsenforcement is particularly vested inthe $C" 5ence, all complaints for anyviolation of the Code and itsimplementing rules and regulations

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should be !led with the $C" %"- earlier 7uoted"

SEC vs. )rosperit/.Co, Inc.G.R. No. 1"9147, *$n. 25, 2012

#ACTS% =rosperity"Com, Inc" (=CI)sold computer software and hostedwebsites without providing internetservice" To mae a pro!t, =CI deviseda scheme in which, for the price of6$;%/"88 (subse7uently increased to6$;./), a buyer could ac7uire from itan internet website of a ->3ega 0yte

(30) capacity" #t the same time, byreferring to =CI his own downlinebuyers, a !rsttime buyer could earncommissions, interest in real estate inthe =hilippines and in the 6nited$tates, and insurance coverage worth=>8,888"88" To bene!t from thisscheme, a =CI buyer must enlist andsponsor at least two other buyers ashis own downlines" These second tierof buyers could in turn build up theirown downlines" Jor each pair ofdownlines, the buyersponsorreceived a 6$.;"88 commission" 0utreferrals in a day by the buyersponsorshould not e+ceed -A since thecommissions due from e+cess referralsinure to =CI, not to the buyersponsor"

#pparently, =CI patterned its schemefrom that of 4olconda entures, Inc"(4I), which company stoppedoperations after the $ecurities and+change Commission ($C) issued acease and desist order (C1E) againstit" #s it later on turned out, the samepersons who ran the a*airs of 4Idirected =CI's actual operations"

In ;88-, disgruntled elements of 4I!led a complaint with the $C against

=CI, alleging that the latter had taenover 4I's operations" #fter hearing,the $C, through its Compliance andnforcement unit, issued a C1Eagainst =CI" The $C ruled that =CI'sscheme constitutes an Investment

contract and, following the $ecurities2egulations Code, it should have !rstregistered such contract or securitieswith the $C"

Instead of asing the $C to lift itsC1E in accordance with $ection A/"%of 2epublic #ct (2"#") &@.., =CI !ledwith the Court of #ppeals (C#) apetition for certiorariagainst the $C"

The C# ruled that, following theowey test, =CI's scheme did not

constitute an investment contract thatneeds registration pursuant to 2"#"&@.., hence, this petition"

ISS+E%


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v& #&'& owey Co" that, for aninvestment contract to e+ist, thefollowing elements, referred to as theowey test must concur: (-) acontract, transaction, or scheme (;)an investment of money (%)

investment is made in a commonenterprise (/) e+pectation of pro!tsand (>) pro!ts arising primarily fromthe e*orts of others" Thus, to sustainthe $C position in this case, =CI'sscheme or contract with its buyersmust have all these elements"

5ere, =CI's clients do not mae suchinvestments" They buy a product ofsome value to them: an Internetwebsite of a ->30 capacity" The

client can use this website to enablepeople to have internet access to whathe has to o*er to them, say, some sincream" The buyers of the website donot invest money in =CI that it coulduse for running some business thatwould generate pro!ts for theinvestors" The price of 6$;%/"88 iswhat the buyer pays for the use of thewebsite, a tangible asset that =CIcreates, using its computer facilitiesand technical sills"

#ctually, =CI appears to be engaged innetwor mareting, a scheme adoptedby companies for getting people tobuy their products outside the usualretail system where products arebought from the store's shelf"

The commissions, interest in realestate, and insurance coverage worth=>8,888"88 are incentives to downlinesellers to bring in other customers"

These can hardly be regarded aspro!ts from investment of moneyunder the oweytest"

The C# is right in ruling that the lastre7uisite in the owey test is lacingin the mareting scheme that =CI has

adopted" vidently, it is =CI thate+pects pro!t from the networmareting of its products" =CI iscorrect in saying that the 6$;%/ itgets from its clients is merely aconsideration for the sale of the

websites that it provides"

3. GENERA 6AN:ING ACT ; ENTR


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lodged in their boos under the

account G1ue to 5ead

EceQ0ranches"G 0ecause 0# also

e+cluded these from its deposit

liabilities, =1IC wrote to 0#, seeing

the remittance of =-8.,;A/"&%representing de!ciency premium

assessments for dollar deposits"

In their petitions for declaratory relief,

Citiban and 0# sought a declaratory

Fudgment stating that the money

placements they received from their

head oce and other foreign branches

were not deposits and did not give rise

to insurable deposit liabilities under

$ections % and / of 2"#" No" %>.- .the

P/(C Charter0and, as a conse7uence,

the de!ciency assessments made by

=1IC were improper and

erroneous" The cases were then

consolidated"

ISS+E% #re the funds placed in the=hilippine branch by the head oceand foreign branches of Citiban and0# insurable deposits under the =1ICCharter and, as such, are subFect toassessment for insurance premiums

R+ING% No"

A ranch has no separate legalpersonalit-

Jor a deposit to e+ist, there must be atleast two parties M a depositor and adepository M each with a legalpersonality distinct from the other"0ecause the respondents' respectivehead oces and their branches formonly a single legal entity, there is nocreditordebtor relationship and the

funds placed in the =hilippine branchbelong to one and the same ban" #ban cannot have a deposit with itself"

The head oce of a ban and its

branches are considered as one under

the eyes of the law"


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for an of the purposes of this Act

or included as part of the total

deposits or of the insured

deposits.?

CITI6AN:, N.A. $n( INESTRS@#INANCE CR)RATIN, (oin!usiness un(er te n$e $n(st/'e o #NC6 #in$nce vs.DESTA R. SA6ENIANG.R. No. 15"132 #e!ru$r/", 2007

#ACTS% 2espondent was a client ofpetitioners" $he had several depositsand maret placements with

petitioners" #t the same time,respondent had outstanding loans withpetitioner Citiban, incurred atCitiban3anila, all of which hadbecome due and demandable" 1espiterepeated demands by petitionerCitiban, respondent failed to pay heroutstanding loans" Thus, petitionerCitiban used respondent's depositsand money maret placements to o*set and li7uidate her outstandingobligations"

2espondent, however, denied havingany outstanding loans with petitionerCitiban" 2espondent instituted acomplaint for G#ccounting, $um of3oney and 1amagesG againstpetitioners"

=etitioner now contends that the termGCitiban, N"#"G used therein should bedeemed to refer to all branches ofpetitioner Citiban in the =hilippines

and abroad thus, giving petitionerCitiban the authority to apply aspayment for the =Ns evenrespondent's dollar accounts withCitiban4eneva"

ISS+E% Is petitioner correct

R+ING% No.

=ertinent provisions of 2epublic #ctNo" &@.-, otherwise nown as the4eneral 0aning Law of ;888,

governing ban branches arereproduced below M

SEC& 12& "ransacting $usiness inthe Philippines& 3 "he entry offoreign ban4s in the Philippinesthrough the establishment ofbranches shall be governed by the

provisions of the 5oreign $an4s6iberalization Act&

"he conduct of o*shore ban4ing

business in the Philippines shall begoverned by the provisions ofPresidential /ecree 7o& 89:;,otherwise 4nown as the

SEC& 1;& 6ocal $ranches of 5oreign$an4s& 3 (n case of a foreign ban4which has more than one .80branch in the Philippines, all suchbranches shall be treated as one .80unit for the purpose of this Act, andall references to the Philippinebranches of foreign ban4s shall beheld to refer to such units&

SEC& 1=& ead !>ce ?uarantee& 3(n order to provide e*ective

protection of the interests of thedepositors and other creditors ofPhilippine branches of a foreignban4, the head o>ce of suchbranches shall fully guarantee the

prompt payment of all liabilities ofits Philippine branch&

Residents and citizens of thePhilippines who are creditors of abranch in the Philippines of aforeign ban4 shall have preferential

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rights to the assets of such branchin accordance with e-isting laws&

2epublic #ct No" @@;-, otherwisenown as the Joreign 0ansLiberali?ation Law, lays down the

policies and regulations speci!callyconcerning the establishment andoperation of local branches of foreignbans" 2elevant provisions of the saidstatute read M

Sec& 2& odes of Entry& @ "heonetary $oard may authorizeforeign ban4s to operate in thePhilippine ban4ing system throughany of the following modes of entry.i0 by acBuiring, purchasing or

owning up to si-ty percent .9D0 ofthe voting stoc4 of an e-istingban4 .ii0 by investing in up to si-ty

percent .9D0 of the voting stoc4 ofa new ban4ing subsidiary incorporated under the laws of thePhilippines or .iii0 by establishingbranches with full ban4ingauthority Provided, "hat a foreignban4 may avail itself of only one .80mode of entry Provided, further,"hat a foreign ban4 or a Philippinecorporation may own up to a si-ty

percent .9D0 of the voting stoc4 ofonly one .80 domestic ban4 or newban4ing subsidiary&

It is true that the afore7uoted $ection;8 of the 4eneral 0aning Law of ;888e+pressly states that the ban and itsbranches shall be treated as one unit"It should be pointed out, however, thatthe said provision applies to auniversal or commercial ban, dulyestablished and organi?ed as a=hilippine corporation in accordancewith $ection & of the samestatute, and authori?ed to establishbranches within or outside the=hilippines"

The 4eneral 0aning Law of ;888,however, does not mae the samecategorical statement as regards toforeign bans and their branches inthe =hilippines"


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reverse purpose, in or(er toeBten( te 'i$!i'it/ o $ c'ient tote orein !$n=@s )i'ippine!r$nc to its e$( oce, $s e''$s to its !r$nces in otercountries. Tus, i $ c'ient o!t$ins

$ 'o$n ro te orein !$n=@s)i'ippine !r$nc, (oes it$!so'ute'/ $n( $uto$tic$''/$=e te c'ient $ (e!tor, not -usto te )i'ippine !r$nc, !ut $'soo te e$( oce $n( $'' oter!r$nces o te orein !$n=$roun( te or'( This Court rulesin the negative"6nlie =hilippine statutes, the#merican legislation e+plicitly de!nesthe relations among foreign branches

of an #merican ban" $ection ;> of the6nited $tates Jederal 2eserve#ct states that M

Every national ban4ing associationoperating foreign branches shallconduct the accounts of each foreignbranch independently of the accountsof other foreign branches establishedby it and of its home o>ce, and shallat the end of each +scal periodtransfer to its general ledger the pro+tor loss accrued at each branch as aseparate item&

Contrary to petitioners' assertion thatthe accounts of Citiban3anila andCitiban4eneva should be deemed asa single account under its head oce,the foregoing provision mandates thatthe accounts of foreign branches of an#merican ban shall be conductedindependently of each other" $ince thehead oce of petitioner Citiban is inthe 6"$"#", then it is bound to treat itsforeign branches in accordance withthe said provision" It is only at the endof its !scal period that the ban isre7uired to transfer to its generalledger the pro!t or loss accrued ateach branch, but still reporting it as a

separate item" It is by virtue of thisprovision that the Circuit Court of#ppeals of New or declared in Pan@

American $an4 and "rust Co& v&7ational City $an4 of 7ew For4 that abranch is not merely a teller's window

it is a separate business entity"

9. ANTI;NE< A+NDERING ACT

Repu!'ic o te )i'ippinesrepresente( !/ te AC v Tin$$n( &on. Antonio Euenio *r

Jollowing the promulgation of #gan, aseries of investigations concerning theaward of the N#I# % contracts to

=I#TCE were undertaen by theEmbudsman and the Compliance andInvestigation $ta* (CI$) of petitioner#3LC"

#3LC !led an application to in7uireinto or e+amine the deposits orinvestments of #lvare? and the others"

The trial court being satis!ed thatthere e+isted to believe that thedeposits in various ban accounts,details of which appear in paragraph -of the application, are related to theo*ense of violation of #nti4raft andCorrupt =ractices #ct now the subFectof criminal prosecution before the$andiganbayan as attested in thesubmitted information" The CI$proceeded to in7uire and e+amine thesaid deposits"

Issue%


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7uestion which after all is a pure7uestion of law"

$CTIEN ;" A'' (eposits o$tever n$ture it !$n=s or!$n=in institutions in te

)i'ippines inc'u(ininvestents in !on(s issue( !/te Governent o te)i'ippines, its po'itic$'su!(ivisions $n( itsinstruent$'ities, $re ere!/consi(ere( $s o $n $!so'ute'/con(enti$' n$ture and may notbe e+amined, in7uired or looedinto by any person, governmentocial, bureau or oce, e+ceptupon written permission of the

depositor, or in cases of impeachment, or upon order of acompetent court in cases of briberyor dereliction of duty of publicocials, or in cases where themoney deposited or invested is thesubFect matter of the litigation"(mphasis supplied)

Nowhere in the legislative record citedby Lilia Cheng does it appear thatthere was an une7uivocal intent toe+empt from the ban in7uiry order allban accounts opened prior to thepassage of the #3L#" There is a citede+change between 2epresentativesSamora and Lope? where the lattercon!rmed to the former that depositsare supposed to be e+empted fromscrutiny or monitoring if they arealready in place as of the time the lawis enacted" That statement doesindicate that transactions already inplace when the #3L# was passed areindeed e+empt from scrutiny througha ban in7uiry order, but it cannotyield any interpretation that records oftransactions undertaen after theenactment of the #3L# are similarlye+empt" 1ue to the absence of citedauthority from the legislative record

that un7uali!edly supports respondentLilia Cheng thesis, there is no causefor us to sustain her interpretation ofthe #3L#, fatal as it is to the anima ofthat law"

=rior to the enactment of the #3L#,the fact that ban accounts ordeposits were involved in activitieslater on enumerated in $ection % ofthe law did not, by itself, remove suchaccounts from the shelter of absolutecon!dentiality" =rior to the #3L#, inorder that ban accounts could bee+amined, there was need to secureeither the written permission of thedepositor or a court order authori?ingsuch e+amination, assuming that they

were involved in cases of bribery ordereliction of duty of public ocials, orin a case where the money depositedor invested was itself the subFectmatter of the litigation" The passage ofthe #3L# stripped another layer o*the rule on absolute con!dentialitythat provided a measure of lawfulprotection to the account holder" Jorthat reason, the application of theban in7uiry order as a means ofin7uiring into records of transactionsentered into prior to the passage ofthe #3L# would be constitutionallyin!rm, o*ensive as it is to the e- postfacto clause"


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found prima facie to be related to theunlawful activities of the respondents"

The #3LC !led with the C# variouspetitions" It invoed the Furisdiction ofthe C# in the belief that the powergiven to the C# to issue a T2E or writ

of inFunction against any free?e orderissued by the #3LC carried with it thepower to e+tend the e*ectivity of afree?e order" The C# disagreed anddismissed the petitions"

ISS+E%which court has Furisdiction toe+tend the e*ectivity of a free?eorder

R+ING%1uring the pendency of these

petitions, or on 3arch %, ;88%,Congress enacted 2# .-./ (#n #ct#mending 2epublic #ct No" .-A8,Etherwise Known as the G#nti3oneyLaundering #ct of ;88-G)" It amended$ection -8 of 2# .-A8 as follows:

$C" @" $ection -8 of 2# .-A8U ishereby amended to read as follows:

$C" -8" 5reezing of onetary(nstrument or Property" M The Courtof #ppeals, upon application e-

parteby the #3LC and afterdetermination that probable causee+ists that any monetaryinstrument or property is in any wayrelated to an unlawful activity asde!ned in $ec" %(i) hereof, mayissue a free?e order which shall bee*ective immediately" The free?eorder shall be for a period of twenty(;8) days unless e+tended by thecourt"

$ection -; of 2# .-./ furtherprovides:$C -;" "ransitory Provision" M+isting free?e orders issued by the#3LC shall remain in force for aperiod of thirty (%8) days after the

e*ectivity of this #ct, unlesse+tended by the Court of #ppeals"

The amendment by 2# .-./ of 2#.-A8 erased any doubt on the

Furisdiction of the C# over the

e+tension of free?e orders" #s the lawnow stands, it is solely the C# whichhas the authority to issue a free?eorder as well as to e+tend itse*ectivity" It also has the e+clusive

Furisdiction to e+tend e+isting free?eorders previously issued by the#3LC vis@G@visaccounts and depositsrelated to moneylaundering activities"

CR)RATIN CDE1. )IERCING T&E EI #

CR)RATE ENTIT(-.&;) and Republic v& (glesia 7iCristo, -;@ $C2# A&@ -.&/U) that a

corporation sole is dis7uali!ed toac7uire or hold alienable lands of thepublic domain, because of theconstitutional prohibition 7ualifyingonly individuals to ac7uire land of thepublic domain and the provision underthe =ublic Land #ct which applied onlyto Jilipino citi?ens or natural persons"Republic v& (glesia ni Cristo, -;@ $C2#A&@ (-.&/) Republic v& (AC, -A& $C2#-A> (-.&&)"

11. CANCEATIN # STC:SCERTI#ICATE

T$n v SEC 1442

#lfonso Tan is owner of /88 shares inisayan ducational $upply Corpevidenced by certi!cate No" ;"#lfonso transferred >8 shares to #ngel"Certi!cate No" ; was cancelled andCerti!cate No" A was issued to #ngeland Certi!cate No" & was issued to#lfonso" 5owever, #lfonso did notmae the proper endorsement and didnot mae delivery of certi!cate no" ;"Later on, #lfonso Tan elected towithdraw from the corporation" Ine+change for his shares, he receivedstocs in trade" Certi!cate No" & was

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later on cancelled due to above" #fterseveral years, #lfonso Tan !led a casewith Cebu $C 7uestioning thecancellation of his stoc certi!catesdespite nonendorsement and lac ofdelivery

5L1: 1elivery and endorsementunder $ection A% of the corporationcode is not mandatory because of theuse of the word may" 1elivery is notessential where it appears that thepersons sought to be held asstocholders are ocers of thecorporation and have custody of thestoc boo as in this case" To holdthat cancellation of certi!cate of stocof #lfonso is null and void because of

lac of delivery and endorsement ofmother certi!cate of stoc no" ; whichwas deliberately withheld is toprescribe restrictions on the transferof stoc in violation of corporation law

12. IN+NTAR< DISS+TIN# corporation may be dissolved by the$ecurities and +change Commissionupon !ling of a veri!ed complaint andafter proper notice and hearing on thegrounds provided by e+isting laws,rules and regulations ($ec" -;-)

13. DEADC:S IN CSECR)RATIN

$C has the power to arbitratedisputes in case of deadlocs, uponwritten petition by any stocholder"(Sec& 89;0 This includes the power toappoint a provisional director, as wellas to dissolve the corporation"

=rocedure:-" $C upon a stocholder's written

petition is allowed to intervene inorder to arbitrate a dispute ordeadloc in a corporation"

;" There is a dispute or deadloc asdescribed by this provision when thedirectors or stocholders are sodivided respecting the management ofthe corporation that the re7uired votesfor any corporate action cannot be

obtained, with the conse7uence thatits business can no longer beconducted to the advantage of thestocholders generally"

%" The $C in e+ercising arbitrationpowers may:a" Cancel or alter any provision in thearticles,by laws or stocholder's agreementb" Cancel, alter or enFoin any

resolution or other act of thecorporation or its directors, ocers orstocholdersc" 1irect or prohibit any act of thecorporation, directors, ocers,stocholders and even third personswho are parties to the corporationaction"d" 2e7uire purchase of shares of anystocholders either by corporationregardless whether availability ofunrestricted retained earnings, or byany other stocholders"e" #ppoint a provisional directorf" 1issolve the corporationg" 4rant other reliefs as thecircumstances may warrant"19. IA6IIT< # RECEIER

GERGE , #ARRE CIE., INC.,C&INA 6AN:ING CR)RATINAND E)D :A&N vs. .IC&EIN CIE.G.R. 3"430 *une 30, 1433

The appointment of a receiver by thecourt to wind up the a*airs of thecorporation upon petition of voluntarydissolution does not empower thecourt to hear and pass on the claimsof the creditors of the corporation at!rst hand" The rulings of the receiver

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on the validity of claims submitted aresubFect to review by the courtappointing such receiver though noappeal is taen to the latter's ruling (&

Thompson on Corp", @-&), and duringthe winding up proceedings after

dissolution, no creditor will bepermitted by legal process orotherwise to ac7uire priority, or toenforce his claim against the propertyheld for distribution as against therights of other creditors" (> Thompsonon Corp" ;nded"U, pages -%&., -%.-,-/8;, and -/8%")

IG+E EASC, $ssinee o Te)i'ippine Ceic$' )ro(uct Co.t(.,

vs. *EAN . )IOATReceiver@s Rit@s, not is'i$!i'ities

#$cts% =oi?at subscribed for ;8shares (wQ a par value of =-88Qshare)for =;,888 of wQc he was only able topay =>88 (;>9)" 0E1 issued a call to=oi?at" Notice of the resolution wasgiven to =oi?at" =oi?at replied that hewas willing to lose the ;>9 heinvested because of the unreliableposition of the C" Indeed theprediction of =oi?at became true" TheC became insolvent"elasco, asassignee of the C, sued =oi?at for thebalance of his subscription"

Issue% Is =oi?at liable for hisproscription

Ru'in% =oi?at is L0 on hissubscription" . might have been an obstacle toa recovery by the corporation itself"

That reason is this:


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socalled complaint in interventionssection -;- of the Code of Civil=rocedure, were she is alleged that theabovementioned receiver had usedand occupied a certain house and lot,the property of the intervener, from

the date of his appointment, 3ay -8,-.8/, until the %8th of $eptember,-.8/, of which the rental value duringthat period was not less than =/@8,and prayed that the receiver beordered to show cause why he shouldnot be directed to pay that amount tothe intervener out of any funds in hishands as receiver"

The ground upon which counsel for theintervener appears to have rested the

prayer of her complaint in interventionwas that the receiver in theperformance of his duties as receiver,made use of the house and lot of theintervener in storing, guarding andpreserving the property entrusted tohis hands, and that she was, therefore,entitled to payment from any funds inthe hands of the receiver of areasonable sum for the use andoccupation of the house and lot, suchsum being properly chargeable toe+penses incurred by the receiver inthe performance of the duties of hisoce and there can be no doubt thathad she established the use andoccupancy by the receiver for thispurpose, she would be entitled torecover from him a reasonablecompensation therefor" 0ut the trialcourt found that the house and lotwere occupied by the Casa ComisiYnitself during the period for whichcompensation is demanded of thereceiver

Issue%


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%" Jailure, after change of its residentagent or of his address, to submit tothe $ecurities and +changeCommission a statement of suchchange as re7uired by this Title/" Jailure to submit to the $ecurities

and +change Commission anauthenticated copy of any amendmentto its articles of incorporation or bylaws or of any articles of merger orconsolidation within the timeprescribed by this Title>" # misrepresentation of any materialmatter in any application, report,adavit or other document submittedby such corporation pursuant to this

TitleA" Jailure to pay any and all ta+es,

imposts, assessments or penalties, ifany, lawfully due to the =hilippine4overnment or any of its agencies orpolitical subdivisions@" Transacting business in the=hilippines outside of the purpose orpurposes for which such corporation isauthori?ed under its license&" Transacting business in the=hilippines as agent of or acting forand in behalf of any foreigncorporation or entity not duly licensedto do business in the =hilippines or." #ny other ground as would render itun!t to transact business in the=hilippines"

1". F&AT CNSTIT+TES DING6+SINESS IN T&E )&II))INES

STEECASE, INC. vs" DESIGN

INTERNATINA SEECTINS, INC.

G.R. No. 171445 Apri' 18,

2012

#ACTS% =etitioner $teelcase, Inc" is a

foreign corporation e+isting under the

laws of 3ichigan, 6nited $tates of

#merica and engaged in the

manufacture of oce furniture with

dealers worldwide" 2espondent 1esign

International $elections, Inc" is a

corporation e+isting under =hilippineLaws and engaged in the furniture

business, including the distribution of

furniture"

$teelcase and 1I$I orally entered into

a dealership agreement whereby

$teelcase granted 1I$I the right to

maret, sell, distribute, install, and

service its products to enduser

customers within the =hilippines" The

business relationship continued

smoothly until it was terminated after

the agreement was breached with

neither party admitting any fault"

$teelcase !led a complaint for sum of

money against 1I$I alleging, among

others, that 1I$I had an unpaid

account of 6$A88,888"88"

1I$I alleged that the complaint failedto state a cause of action and to

contain the re7uired allegations on

$teelcase's capacity to sue in the

=hilippines despite the fact that it

($teelcase) was doing business in the

=hilippines without the re7uired

license to do so"

ISS+ES%


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The rule that an unlicensed foreign

corporations doing business in the

=hilippine do not have the capacity to

sue before the local courts is well

established" $ection -%% of the

Corporation Code of the =hilippinese+plicitly states:

$ec" -%%"1oing business without a

license" No foreign corporation

transacting business in the =hilippines

without a license, or its successors or

assigns, shall be permitted to maintain

or intervene in any action, suit or

proceeding in any court or

administrative agency of the

=hilippines but such corporation may

be sued or proceeded against before

=hilippine courts or administrative

tribunals on any valid cause of action

recogni?ed under =hilippine laws"

The phrase Gdoing businessG is clearly

de!ned in $ection %(d) of 2"#" No"

@8/; (Joreign Investments #ct of

-..-), to wit:

d) The phrase Gdoing businessG shall

include soliciting orders, service

contracts, opening oces, whether

called GliaisonG oces or branches

$ppointin represent$tives or

(istri!utors (oici'e( in te

)i'ippines or who in any calendar

year stay in the country for a period or

periods totalling one hundred eighty

(-&8) days or more participating inthe management, supervision or

control of any domestic business, !rm,

entity or corporation in the =hilippines

and any other act or acts that imply a

continuity of commercial dealings or

arrangements, and contemplate to

that e+tent the performance of acts or

wors, or the e+ercise of some of the

functions normally incident to, and in

progressive prosecution of,

commercial gain or of the purpose and

obFect of the business organi?ation:=rovided, however, That the phrase

Gdoing businessG shall not be deemed

to include mere investment as a

shareholder by a foreign entity in

domestic corporations duly registered

to do business, andQor the e+ercise of

rights as such investor nor having a

nominee director or ocer to

represent its interests in such

corporation nor appointing a

representative or distributor domiciled

in the =hilippines which transacts

business in its own name and for its

own account

This de!nition is supplemented by its

Implementing 2ules and 2egulations,

2ule I, $ection -(f) which elaborates

on the meaning of the same phrase:

f" G1oing businessG shall includesoliciting orders, service contracts,

opening oces, whether liaison oces

or branches $ppointin

represent$tives or (istri!utors,

operating under full control of the

foreign corporation, domiciled in the

=hilippines or who in any calendar

year stay in the country for a period

totalling one hundred eighty -&8U

days or more participating in themanagement, supervision or control of

any domestic business, !rm, entity or

corporation in the =hilippines and any

other act or acts that imply a

continuity of commercial dealings or

arrangements, and contemplate to

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that e+tent the performance of acts or

wors, or the e+ercise of some of the

functions normally incident to and in

progressive prosecution of commercial

gain or of the purpose and obFect of

the business organi?ation"

The following acts s$'' not be

deemed Gdoing businessG in the

=hilippines:

-" 3ere investment as a

shareholder by a foreign entity in

domestic corporations duly

registered to do business, andQor

the e+ercise of rights as such

investor

;" 5aving a nominee director or

ocer to represent its interest in

such corporation

%" Appointin $ represent$tive

or (istri!utor (oici'e( in te

)i'ippines ic tr$ns$cts

!usiness in te represent$tivePs

or (istri!utorPs on n$e $n($ccount

/" The publication of a general

advertisement through any print or

broadcast media

>" 3aintaining a stoc of goods in

the =hilippines solely for the

purpose of having the same

processed by another entity in the

=hilippines

A" Consignment by a foreign entity

of e7uipment with a local company

to be used in the processing of

products for e+port

@" Collecting information in the

=hilippines and

&" =erforming services au+iliary to

an e+isting isolated contract of sale

which are not on a continuing basis,such as installing in the =hilippines

machinery it has manufactured or

e+ported to the =hilippines,

servicing the same, training

domestic worers to operate it, and

similar incidental services"

Jrom the preceding citations, the

appointment of a distributor in the

=hilippines is not sucient to

constitute Gdoing businessG unless it is

under the full control of the foreign

corporation" En the other hand, if the

distributor is an independent entity

which buys and distributes products,

other than those of the foreign

corporation, for its own name and its

own account, the latter cannot be

considered to be doing business in the

=hilippines" It should be ept in mind

that the determination of whether aforeign corporation is doing business

in the =hilippines must be Fudged in

light of the attendant circumstances"

In the case at bench, it is undisputed

that 1I$I is independently owned and

managed by the spouses Leandro and

Dosephine 0antug" In addition to

$teelcase products, 1I$I also

distributed products of othercompanies including carpet tiles,

relocatable walls and theater

settings"This clearly belies 1I$I's

assertion that it was a mere conduit

through which $teelcase conducted its

business in the country" Jrom the

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preceding facts, the only reasonable

conclusion that can be reached is that

1I$I was an independent contractor,

distributing various products of

$teelcase and of other companies,

acting in its own name and for its ownaccount"#s a result, $teelcase cannot

be considered to be doing business in

the =hilippines by its act of appointing

a distributor as it falls under one of the

e+ceptions under 2"#" No" @8/;"

commercial law notes

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