LABAN NOTES

SPECIAL COMMERCIAL LAWS

(SECURITIES REGULATION CODE, ANTI-MONEY

LAUNDERING ACT, FOREIGN INVESTMENTS ACT,
FINANCIAL REHABILITATION AND INSOLVENCY ACT,
LETTER OF CREDIT, & TRUST RECEIPT)

Prepared by Dennis Aran T. Abril

2017
 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE

Introductory*Concepts* salesman,! or! an! agent! or! a! person! whose! functions! are!
! solely!clerical!or!ministerial!
Governing*Laws* !
! Broker**
Republic! Act! No.! 8799! of! 2000! or! The! Securities! a! person! engaged! in! the! business! of! buying! and! selling!
Regulation!Code! securities!for!the!account!of!others!
! !
2015!IRR!of!RA!8799! Clearing*agency*
* Any!entity!that!provides!a!facility!for!the!performance!of!
State*Policy* the!following!activities:!
Any!doubt!that!may!arise!in!the!interpretation!of!these! 1.! make!deliveries!of!securities!and/or!payments!
Rules!shall!be!resolved!by!the!Commission!in!a!manner! in!connection!with!transactions!in!securities;!
that!would!accomplish!the!following!objectives:!! 2.! reduce!the!number!of!settlements!of!securities!
(i)! organize! a! sociallyKconscious! and! selfK transactions! or! allocate! settlement!
regulating!market;! responsibilities! in! accordance! with! the! rules!
(ii)! !encourage! wide! public! ownership! of! issued! by! the! Commission! or! the! Exchange;!
business!enterprises;! and/or!
(iii)! promote! the! development! of! the! capital! 3.! provide! the! means! for! the! central! handling! of!
market;! securities!so!that!transfers,!loans,!pledges!and!
(iv)! protect!the!investors;! similar! transactions! can! be! made! by!
(v)! ensure! full! and! timely! disclosure! of! bookkeeping! entry;! or! otherwise! facilitate! the!
material!information;!and!! settlement! of! securities! transactions! without!
(vi)! minimize,! if! not! eliminate,! fraudulent! or! physical!delivery!of!securities!certificates.!
manipulative! devices! and! practices! that! *
create!distortions!in!a!free!market.!(Rule)2,) Dealer*
2015) Implementing) Rules) and) Regulations) Any!person!who!buys!and!sells!securities!for!his/her!own!
of)the)Securities)Regulation)Code,)IRR)of)RA) account!in!the!ordinary!course!of!business!
8799,)[August)4,)2015])) !
! Exchange*
Jurisdiction*of*the*RTC* An!organized!marketplace!or!facility!that!brings!together!
The!Commission's!jurisdiction!over!all!cases!enumerated! buyers! and! sellers! and! executes! trades! of! securities!
under! Section! 5! of!Presidential! Decree! No.! 902KA!is! transactions!and/or!commodities!
hereby!transferred!to!the!Courts!of!general!jurisdiction! *
or!the!appropriate!Regional!Trial!Court:!Provided,!That! Issuer*
the! Supreme! Court! in! the! exercise! of! its! authority! may! Any!entity!authorized!by!the!Commission!to!offer!to!sell,!
designate! the! Regional! Trial! Court! branches! that! shall! sell!or!promote!the!sale!to!the!public!of!its!equity,!bonds,!
exercise! jurisdiction! over! these! cases.!! (sec.) 5.2,) The) instruments! of! indebtedness! and! other! forms! of!
Securities)Regulation)Code,)Republic)Act)No.)8799,)[July)19,) securities!
2000])) !
Thus,!the!following!are!within!the!jurisdiction!of!the!RTC:! Promoter*
1.! fraudulent! devices! and! schemes! employed! by! a!person!who,!acting!alone!or!with!others,!takes!initiative!
directors!detrimental!to!the!public!interest!and! in!founding!and!organizing!the!business!or!enterprise!of!
to!other!firms;! the!issuer!and!receives!consideration!therefor*
2.! intraKcorporate! dispute! and! with! the! state! in! *
relation!to!their!franchise!and!right!to!exist!as! Public*offering*
such;! any! offering! of! securities! to! the! public! or! to! anyone,!
3.! controversies! in! election,! appointment! of! whether! solicited! or! unsolicited.! Any! solicitation! or!
directors!or!trustees;!! presentation! of! securities! for! sale! through! any! of! the!
4.! petition!to!be!declared!in!state!of!suspension!of! following! modes! shall! be! presumed! to! be! a! public!
payments;!and! offering:!
5.! appointment! of! Rehabilitation! Receiver! or! 1.! publication! in! any! newspaper,! magazine! or!
Management!Committee.! printed! reading! material! which! is! distributed!
* within!the!Philippines;!!
* 2.! presentation!in!any!public!or!commercial!place;!
3.! advertisement! or! announcement! on! radio,!
Definition*of*Terms*
television,! telephone,! electronic!
!
communications,! information! communication!
Associated*person*of*a*broker*or*dealer*
technology! or! any! other! forms! of!
An!employee!of!a!dealer!who,!directly!exercises!control!
communication;!or!
of! supervisory! authority,! but! does! not! include! a!
4.! distribution! and/or! making! available! flyers,!
brochures! or! any! offering! material! in! a! public!

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 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE

or! commercial! place! or! to! prospective! written! or! electronic! in! character.)(The) Securities)
purchasers! through! the! postal! system,! Regulation)Code,)Republic)Act)No.)8799,)[July)19,)2000]))
information! communication! technology! and! )
other!means!of!information!distribution! )
* Kinds*of*Securities*
Discussion:* )
Not*all*public*offers*are*listings*with*the*Philippine* (a)! Shares!of!stock,!bonds,!government!securities,!
Stock*Exchange* commercial! papers,! debentures,! notes,!
In!a!public!offer,!it!does!not!necessarily!follow!that!one!is! evidences! of! indebtedness,! assetKbacked!
listing!with!the!PSE.!One!call!sell!his!shares!to!the!public! securities;!
through! other! methods,! e.g.! newspaper,! without! listing! (b)! Investment!contracts,!certificates!of!interest!or!
with! the! PSE.* But,! if! you! list! with! the! PSE! that! is! participation! in! a! profit! sharing! agreement,!
necessarily!a!public!offer!of!your!shares.* certificates!of!deposit!for!a!future!subscription;!
* (c)! Fractional! undivided! interests! in! oil,! gas! or!
Registration*statement* other!mineral!rights;!!
the!application!for!the!registration!of!securities!required! (d)! Derivatives!like!option!and!warrants;!!
to!be!filed!with!the!Commission! (e)! Certificates! of! assignments,! certificates! of!
! participation,! trust! certificates,! voting! trust!
Salesman* certificates!or!similar!instruments;!!
A!natural!person,!employed!as!such!or!as!an!agent,!by!a! (f)! Proprietary! or! nonproprietary! membership!
dealer,!issuer!or!broker!to!buy!and!sell!securities! certificates!in!corporations;!and!!
* (g)! Other! instruments! as! may! in! the! future! be!
SelfHRegulatory*Organization*(SRO)* determined!by!the!Commission.!
an! organized! Exchange,! registered! clearing! agency,! !
organization!or!association!registered!as!an!SRO!under! Debt! securities/instruments! include! any! evidence! of!
Section!39!of!the!Code,!and!which!have!been!authorized! indebtedness! such! as! bonds,! notes,! debentures,!
by! the! Commission! to:! (1)! enforce! compliance! with! commercial! papers,! treasury! bills,! treasury! bonds! and!
relevant!provisions!of!the!Code!and!rules!and!regulations! other!similar!instruments!as!may!be!determined!by!the!
adopted!thereunder;!(2)!promulgate!and!enforce!its!own! Commission.!
rules!which!have!been!approved!by!the!Commission,!by! !
their!members!and/or!participants,!and;!(3)!enforce!fair,! Equity!securities!include!shares!of!stock!in!a!corporation.!)
ethical! and! efficient! practices! in! the! securities! and! (2015) Implementing) Rules) and) Regulations) of) the)
commodity! futures! industries! including! securities! and! Securities) Regulation) Code,) IRR) of) RA) 8799,) [August) 4,)
commodities!exchanges! 2015]))
! !
Subsidiary* !
an! entity,! including! an! unincorporated! entity! such! as! Registration*of*Securities*
partnership!that!is!controlled!by!another!entity!(known! !
as!the!parent)|! Requirement*of*Registration*of*Securities*(sec.*8,*RA*
! 8799)*
Trading*Participant* Securities! shall! not! be! sold! or! offered! for! sale! or!
any! broker! dealer! who! has! the! right,! pursuant! to! the! distribution! within! the! Philippines,! without! a!
rules!of!the!Exchange!or!any!organized!market,!to!trade! registration! statement! duly! filed! with!and! approved! by!
in!that!Exchange!or!organized!market! the! Commission.! Prior! to! such! sale,! information! on! the!
* securities,!in!such!form!and!with!such!substance!as!the!
Uncertified*security* Commission! may! prescribe,! shall! be! made! available! to!
A!security!evidenced!by!electronic!or!similar!records! each!prospective!purchaser.!
* !
Underwriter* The! Commission! may! conditionally! approve! the!
A!person!who!guarantees!on!a!firm!commitment!and/or! registration!statement!under!such!terms!as!it!may!deem!
declared! best! effort! basis! the! distribution! and! sale! of! necessary.!
securities!of!any!kind!by!another!company! !
* The! Commission! may! specify! the! terms! and! conditions!
! under!which!any!written!communication,!including!any!
Securities* summary!prospectus,!shall!be!deemed!not!to!constitute!
! an!offer!for!sale!under!this!Section.!
Securities,*definition* !
shares,!participation!or!interests!in!a!corporation!or!in!a! A!record!of!the!registration!of!securities!shall!be!kept!in!
commercial! enterprise! or! profitKmaking! venture! and! a!Register!of!Securities!in!which!shall!be!recorded!orders!
evidenced!by!a!certificate,!contract,!instrument,!whether! entered! by! the! Commission! with! respect! to! such!

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 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE

securities.! Such! register! and! all! documents! or! Commission!pursuant!to!Section!5!(a)!(3)!of!the!Revised!

information! with! respect! to! the! securities! registered! Securities! Act,! now! Section! 9.1! (e)! of! the! Code.! (2015)
therein!shall!be!open!to!public!inspection!at!reasonable! Implementing) Rules) and) Regulations) of) the) Securities)
hours!on!business!days.! Regulation)Code,)IRR)of)RA)8799,)[August)4,)2015]))
! )
The! Commission! may! audit! the! financial! statements,! Sale*of*the*securities*subject*of*RS,*period*
assets! and! other! information! of! a! firm! applying! for! The! sale! of! the! securities! subject! of! the! registration!
registration!of!its!securities!whenever!it!deems!the!same! statement!shall!commence!within!ten!(10)!business!days!
necessary! to! insure! full! disclosure! or! to! protect! the! from! the! date! of! the! effectivity! of! the! registration!
interest!of!the!investors!and!the!public!in!general.!(The) statement!1!and! shall! continue! until! the! end! of! the!
Securities)Regulation)Code,)Republic)Act)No.)8799,)[July)19,) offering! period! or! until! the! sale! is! terminated! by! the!
2000])! Issuer.! If! the! sale! is! not! commenced! within! ten! (10)!
! business!days,!the!RS!shall!be!cancelled!and!all!fees!paid!
Discussion:* thereon! forfeited.! (2015) Implementing) Rules) and)
The!SRC!requirement!on!registration!only!applies!when! Regulations) of) the) Securities) Regulation) Code,) IRR) of) RA)
the!securities!are!sold!within!the!Philippines.! 8799,)[August)4,)2015]))
! !
What)is)cross%border)listing?) Written*notification*of*completion*or*termination*of*
Registration!and/or!sale!of!securities!to!the!public!both! offering,*when*and*by*whom*filed*
in!the!Philippines!and!abroad.!But,!the!same!is!required! A!written!notification!of!completion!or!termination!of!the!
to!be!registered!in!the!Philippines.! offering!shall!be!filed!by!the!Issuer!with!the!Commission!
* within!three!(3)!business!days!from!such!completion!or!
Public*company,*definition* termination,! and! the! notice! shall! state! the! number! of!
any!corporation!with!a!class!of!equity!securities!listed!on! securities! sold.! (2015) Implementing) Rules) and)
an! Exchange,! or! with! assets! in! excess! of! Fifty! Million! Regulations) of) the) Securities) Regulation) Code,) IRR) of) RA)
Pesos!(PhP50,000,000.00)!and!has!two!hundred!(200)!or! 8799,)[August)4,)2015])!
more! holders! each! holding! at! least! one! hundred! (100)! !
shares! of! a! class! of! its! equity! securities.! (2015) Shelf*Registration*
Implementing) Rules) and) Regulations) of) the) Securities) Securities,!which!are!intended!to!be!issued!in!tranches!at!
Regulation)Code,)IRR)of)RA)8799,)[August)4,)2015])) more!than!one!instance!after!the!registration!statement!
* has!been!rendered!effective!by!the!Commission,!may!be!
Filing*of*Registration*Statement*(RS)*and*Effectivity* registered!for!an!offering!to!be!made!on!a!continuous!or!
of*Offering* delayed! basis! in! the! future,! for! a! period! not! exceeding!
No! securities! shall! be! sold! or! offered! for! sale,! or! three!(3)!years!from!the!effective!date!of!the!registration!
distributed! by! any! person! or! entity! within! the! statement!under!which!they!are!being!offered!and!sold.!
Philippines! unless! such! securities! are! duly! registered! !
with! the! Commission! through! Form! 12K1,! and! the! Securities! offered! after! the! initial! tranche! shall! comply!
registration!statement!has!been!declared!effective!by!the! with!the!following!requirements:!
Commission!except!of!a!class!exempt!under!Section!9!of! !
the!Code!or!unless!sold!in!any!transaction!exempt!under! •! At! least! five! (5)! business! days! prior! to! the!
Section! 10! thereof! and! these! Rules.! No! information! offering!or!sale!of!the!securities,!it!shall!disclose!
relating!to!an!offering!of!securities!shall!be!disseminated! to! the! Commission! the! required! information!
unless! a! registration! statement! has! been! filed! with! the! using!SEC!Form!12K1KSR.!
Commission!and!the!written!communication!proposed!to! •! Filing!Fees!
be!released!contains!the!required!information!under!SRC! o! Upon!filing!of!an!RS,!the!total!filing!fee!
Rule!83.) )(2015) Implementing) Rules) and) Regulations) of) shall! be! computed! based! on! Section!
the)Securities)Regulation)Code,)IRR)of)RA)8799,)[August)4,) 12.5! (a)! of! the!SRC,! payable! per!
2015])! tranche!of!issuance!and!proportional!
! to!the!issued!value.!
Corporations* whose* outstanding* shares* shall* be* o! The! filing! fees! of! the! subsequent!
registered* tranches! shall! be! payable! within!
1.! Corporations! that! will! conduct! Initial! Public! seven! (7)! business! days! prior! to!
Offerings;!and! commencement! of! the! offer/sale! of!
2.! Corporations! that! will! apply! for! listing! on! an! the!said!securities.!
Exchange!by!way!of!introduction! •! The!registrant!shall!execute!an!Undertaking!to!
! pay! the! remaining! registration! fees! no! later!
Registration* is* not* required* for* reporting* than! thirty! (30)! business! days! prior! to! the!
corporations*already*listed* expiry! of! the! three! (3)! year! period! reckoned!
No! registration! shall! be! required! for! the! outstanding! from!the!date!of!effectivity!of!the!RS.!
shares! of! reporting! corporations! with! shares! already! !
listed!on!an!Exchange!that!were!not!registered!with!the!

LABAN NOTES ABRIL 3

 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE
Registration* requirement* applies* to* all* sales* of*
securities;*industry*practice*
The!registration!requirement!under!BP!178!applies!to!all!
sales!of!securities!"includ[ing]!every!contract!of!sale!or!
disposition! of! a! security,"!! regardless! of! the! stage! of!
development! of! the! project! on! which! the! securities! are!
based.!No!amount!of!"industry!practice"!works!to!amend!
these! provisions! on! preKsale! registration.!(Lopez) v.)
People,) G.R.) No.) 199294,) [July) 31,) 2013],) 715) PHIL) 839T
855)!
! payment! for! the! real! property! chosen! by! the! BCO! from!
! any!of![petitioner's]!accredited!real!estate!developers.!!!
Investment*contracts*
! An! investment! contract! is! defined! in! the! Amended!
Investment*contract,*definition*
a! contract,! transaction! or! scheme! (collectively!
"contract")! whereby! a! person! invests! his! money! in! a!
common!enterprise!and!is!led!to!expect!profits!primarily!
from!the!efforts!of!others.!!
! !
Investment*contract,*when*presumed*
An!investment!contract!is!presumed!to!exist!whenever!a!
person!seeks!to!use!the!money!or!property!of!others!on!
the! promise! of! profits.!(2015) Implementing) Rules) and)
Regulations) of) the) Securities) Regulation) Code,) IRR) of) RA)
8799,)[August)4,)2015]))
Investment* Contract* is* considered* a* security,* thus*
must*be*registered*wit*the*SEC*
! recognizing!that!the!term!"investment!contract"!was!not!
Power* Homes* Unlimited* Corp.* v.* Securities* and*
Exchange* Commission,* G.R.* No.* 164182,* [February*
26,*2008],*570*PHIL*161H173*
Public! respondent! SEC! found! the! petitioner! "as! a!
marketing!company!that!promotes!and!facilitates!sales!of!
real!properties!and!other!related!products!of!real!estate!
developers!through!effective!leverage!marketing."!It!also!
described!the!conduct!of!petitioner's!business!as!follows:!
! whether! a! transaction! falls! within! the! scope! of! an!
The! scheme! of! the! [petitioner]! corporation! requires! an!
investor!to!become!a!Business!Center!Owner!(BCO)!who!
must!fillKup!and!sign!its!application!form.!The!Terms!and!
Conditions! printed! at! the! back! of! the! application! form!
indicate! that! the! BCO! shall! mean! an! independent!
representative! of! Power! Homes,! who! is! enrolled! in! the!
company's! referral! program! and! who! will! ultimately!
purchase! real! property! from! any! accredited! real! estate!
developers! and! as! such! he! is! entitled! to! a! referral!
bonus/commission.! Paragraph! 5! of! the! same! indicates!
that! there! exists! no! employer/employee! relationship!
between!the!BCO!and!the!Power!Homes!Unlimited,!Corp.!
!
The!BCO!is!required!to!pay!US$234!as!his!enrollment!fee.!
His!enrollment!entitles!him!to!recruit!two!investors!who!
should! pay! US$234! each! and! out! of! which! amount! he!
shall!receive!US$92.!In!case!the!two!referrals/enrollees!
would! recruit! a! minimum! of! four! (4)! persons! each!
recruiting! two! (2)! persons! who! become! his/her! own!
down! lines,! the! BCO! will! receive! a! total! amount! of!
US$147.20! after! deducting! the! amount! of! US$36.80! as!
property! fund! from! the! gross! amount! of! US$184.! After!
LABAN NOTES ABRIL
recruiting!128!persons!in!a!period!of!eight!(8)!months!for!
each! Left! and! Right! business! groups! or! a! total! of! 256!
enrollees! whether! directly! referred! by! the! BCO! or!
through! his! down! lines,! the! BCO! who! receives! a! total!
amount!of!US$11,412.80!after!deducting!the!amount!of!
US$363.20! as! property! fund! from! the! gross! amount! of!
US$11,776,!has!now!an!accumulated!amount!of!US$2,700!
constituting! as! his! Property! Fund! placed! in! a! Property!
Fund! account! with! the! Chinabank.! This! accumulated!
amount! of! US$2,700! is! used! as! partial/full! down!
!!
Implementing!Rules!and!Regulations!of!R.A.!No.!8799!as!
a! "contract,! transaction! or! scheme! (collectively!
'contract')! whereby! a! person! invests! his! money! in! a!
common!enterprise!and!is!led!to!expect!profits!primarily!
from!the!efforts!of!others."!!!
It!behooves!us!to!trace!the!history!of!the!concept!of!an!
investment!contract!under!R.A.!No.!8799.!Our!definition!
of!an!investment!contract!traces!its!roots!from!the!1946!
United!States!(US)!case!of!SEC!v.!W.J.!Howey!Co.!14!In!this!
case,! the! US! Supreme! Court! was! confronted! with! the!
issue! of! whether! the!Howey!transaction! constituted! an!
"investment! contract"! under! the! Securities! Act's!
definition! of! "security."!15!The! US! Supreme! Court,!
defined! by! the! Act! or! illumined! by! any! legislative!
report,!16!held! that! "Congress! was! using! a! term! whose!
meaning! had! been! crystallized"!17!under! the! state's!
"blue!sky"!laws!18!in!existence!prior!to!the!adoption!of!
the! Securities! Act.!19!Thus,! it! ruled! that! the! use! of! the!
catchKall! term! "investment! contract"! indicated! a!
congressional!intent!to!cover!a!wide!range!of!investment!
transactions.!20!It! established! a! test! to! determine!
"investment! contract."!21!Known! as! the!Howey! Test,! it!
requires! a! transaction,! contract,! or! scheme! whereby! a!
person! (1)! makes! an! investment! of! money,! (2)! in! a!
common!enterprise,!(3)!with!the!expectation!of!profits,!
(4)! to! be! derived!solely!from! the! efforts! of!
others.!22Although! the! proponents! must! establish! all!
four! elements,! the! US! Supreme! Court! stressed! that!
the!Howey!Test!"embodies!a!flexible!rather!than!a!static!
principle,! one! that! is! capable! of! adaptation! to! meet! the!
countless! and! variable! schemes! devised! by! those! who!
seek! the! use! of! the! money! of! others! on! the! promise! of!
profits."!23!Needless! to! state,! any! investment! contract!
covered!by!the!Howey!Test!must!be!registered!under!the!
Securities! Act,! regardless! of! whether! its! issuer! was!
engaged!in!fraudulent!practices.!
!
After!Howey!came!the!1973!US!case!of!SEC!v.!Glenn!W.!
Turner! Enterprises,! Inc.! et! al.!24In! this! case,! the! 9th!
Circuit!of!the!US!Court!of!Appeals!ruled!that!the!element!
that!profits!must!come!"solely"!from!the!efforts!of!others!
should!not!be!given!a!strict!interpretation.!It!held!that!a!
literal!reading!of!the!requirement!"solely"!would!lead!to!
unrealistic! results.! It! reasoned! out! that! its! flexible!
4
 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE
reading!is!in!accord!with!the!statutory!policy!of!affording!
broad!protection!to!the!public.!Our!R.A.!No.!8799!appears!
to!follow!this!flexible!concept!for!it!defines!an!investment!
contract! as! a! contract,! transaction! or! scheme!
(collectively! "contract")! whereby! a! person! invests! his!
money! in! a! common! enterprise! and! is!led! to! expect!
profits! not! solely! but! primarily! from! the! efforts! of!
others.Thus,!to!be!a!security!subject!to!regulation!by!the!
SEC,!an!investment!contract!in!our!jurisdiction!must!be!
proved! to! be:! (1)! an! investment! of! money,! (2)! in! a!
common! enterprise,! (3)! with! expectation! of! profits,!
(4)!primarily!from!efforts!of!others.!
! offer!for!sale!or!distribution!to!the!public.!As!petitioner!
Prescinding!from!these!premises,!we!affirm!the!ruling!of!
the!public!respondent!SEC!and!the!Court!of!Appeals!that!
the!petitioner!was!engaged!in!the!sale!or!distribution!of!
an!investment!contract.!Interestingly,!the!facts!of!SEC!v.!
Turner!25!are! similar! to! the! case! at! bar.! In!Turner,! the!
SEC! brought! a! suit! to! enjoin! the! violation! of! federal!
securities!laws!by!a!company!offering!to!sell!to!the!public!
contracts!characterized!as!selfKimprovement!courses.!On!
appeal! from! a! grant! of! preliminary! injunction,! the! US!
Court! of! Appeals! of! the! 9th! Circuit! held! that! selfK
improvement! contracts! which! primarily! offered! the!
buyer! the! opportunity! of! earning! commissions! on! the!
sale!of!contracts!to!others!were!"investment!contracts"!
and! thus! were! "securities"! within! the! meaning! of! the!
federal!securities!laws.!This!is!regardless!of!the!fact!that!
buyers,! in! addition! to! investing! money! needed! to!
purchase! the! contract,! were! obliged! to! contribute! their!
own! efforts! in! finding! prospects! and! bringing! them! to!
sales!meetings.!The!appellate!court!held:!
It!is!apparent!from!the!record!that!what!is!sold!is!not!of!
the!usual!"business!motivation"!type!of!courses.!Rather,!
the!purchaser!is!really!buying!the!possibility!of!deriving!
money!from!the!sale!of!the!plans!by!Dare!to!individuals!
whom! the! purchaser! has! brought! to! Dare.! The!
promotional!aspects!of!the!plan,!such!as!seminars,!films,!
and!records,!are!aimed!at!interesting!others!in!the!Plans.!
Their! value! for! any! other! purpose! is,! to! put! it! mildly,!
minimal.!
! Prosperity.com,* Inc.,* G.R.* No.* 164197,* [January* 25,*
Once! an! individual! has! purchased! a! Plan,! he! turns! his!
efforts!toward!bringing!others!into!the!organization,!for!
which!he!will!receive!a!part!of!what!they!pay.!His!task!is!
to! bring! prospective! purchasers! to! "Adventure!
Meetings."!
! investment!contract!is!a!contract,!transaction,!or!scheme!
The! business! scheme! of! petitioner! in! the! case! at! bar! is!
essentially! similar.! An! investor! enrolls! in! petitioner's!
program!by!paying!US$234.!This!entitles!him!to!recruit!
two!(2)!investors!who!pay!US$234!each!and!out!of!which!
amount! he! receives! US$92.! A! minimum! recruitment! of!
four! (4)! investors! by! these! two! (2)! recruits,! who! then!
recruit! at! least! two! (2)! each,! entitles! the! principal!
investor!to!US$184!and!the!pyramid!goes!on.!
! problem,!has!on!several!occasions!discussed!the!nature!
We!reject!petitioner's!claim!that!the!payment!of!US$234!
is!for!the!seminars!on!leverage!marketing!and!not!for!any!
product.! Clearly,! the! trainings! or! seminars! are! merely!
designed!to!enhance!petitioner's!business!of!teaching!its!
LABAN NOTES ABRIL
investors! the! knowKhow! of! its! multiKlevel! marketing!
business.! An! investor! enrolls! under! the! scheme! of!
petitioner!to!be!entitled!to!recruit!other!investors!and!to!
receive! commissions! from! the! investments! of! those!
directly! recruited! by! him.! Under! the! scheme,! the!
accumulated! amount! received! by! the! investor! comes!
primarily!from!the!efforts!of!his!recruits.!
!
We! therefore! rule! that! the! business! operation! or! the!
scheme!of!petitioner!constitutes!an!investment!contract!
that! is! a! security! under!R.A.! No.! 8799.! Thus,! it! must! be!
registered!with!public!respondent!SEC!before!its!sale!or!
failed!to!register!the!same,!its!offering!to!the!public!was!
rightfully! enjoined! by! public! respondent! SEC.! The! CDO!
was! proper! even! without! a! finding! of! fraud.! As! an!
investment!contract!that!is!security!under!R.A.!No.!8799,!
it! must! be! registered! with! public! respondent! SEC,!
otherwise! the! SEC! cannot! protect! the! investing! public!
from! fraudulent! securities.! The! strict! regulation! of!
securities! is! founded! on! the! premise! that! the! capital!
markets! depend! on! the! investing! public's! level! of!
confidence!in!the!system.!
!
!
Howey*Test*
Test!to!determine!whether!a!transaction!falls!within!the!
scope!of!an!investment!contract;!the!following!elements!
must!concur:!
a.! A!contract,!transaction,!or!scheme;!
b.! An!investment!of!money;!
c.! Investment!is!made!in!a!common!enterprise;!
d.! Expectation!of!profits;!
e.! Profits! arising! primarily! from! the! efforts! of!
others! contract! (Securities) and) Exchange)
Commission) v.) Prosperity.com,) Inc.,) G.R.) No.)
164197,)[January)25,)2012],)680)PHIL)28T32)!
!
Investment*contract*v.*Network*marketing*
*
Securities* and* Exchange* Commission* v.*
2012]*
!
The! Securities! Regulation! Code!treats! investment!
contracts!as!"securities"!that!have!to!be!registered!with!
the! SEC! before! they! can! be! distributed! and! sold.! An!
where! a! person! invests! his! money! in! a! common!
enterprise!and!is!led!to!expect!profits!primarily!from!the!
efforts!of!others.!!
!!
Apart!from!the!definition,!which!the!Implementing!Rules!
and!Regulations!provide,!Philippine!jurisprudence!has!so!
far! not! done! more! to! add! to! the! same.! Of! course,! the!
United! States! Supreme! Court,! grappling! with! the!
of! investment! contracts.! That! court's! rulings,! while! not!
binding! in! the! Philippines,! enjoy! some! degree! of!
persuasiveness!insofar!as!they!are!logical!and!consistent!
with!the!country's!best!interests.!!
5
 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE

!! requiring! disclosures! to! prospective! plan! holders,!

The!United!States!Supreme!Court!held!in!Securities!and! prescribing!advertising!guidelines,!providing!for!uniform!
Exchange! Commission! v.! W.J.! Howey! Co.!10!that,! for! an! accounting! system,! reports! and! record! keeping! with!
investment! contract! to! exist,! the! following! elements,! respect! to! such! plans,! imposing! capital,! bonding! and!
referred!to!as!the!Howey!test!must!concur:!(1)!a!contract,! other! financial! responsibility,! and! establishing! trust!
transaction,!or!scheme;!(2)!an!investment!of!money;!(3)! funds!for!the!payment!of!benefits!under!such!plans.!(The)
investment! is! made! in! a! common! enterprise;! (4)! Securities)Regulation)Code,)Republic)Act)No.)8799,)[July)19,)
expectation! of! profits;! and! (5)! profits! arising! primarily! 2000])!
from! the! efforts! of! others.!11!Thus,! to! sustain! the! SEC! *
position! in! this! case,! PCI's! scheme! or! contract! with! its! *
buyers!must!have!all!these!elements.! PreHneed*plans*
! contracts! which! provide! for! the! performance! of! future!
An!example!that!comes!to!mind!would!be!the!longKterm! services! or! the! payment! of! future! monetary!
commercial!papers!that!large!companies,!like!San!Miguel! considerations! at! the! time! of! actual! need,! for! which!
Corporation!(SMC),!offer!to!the!public!for!raising!funds! planholders! pay! in! cash! or! installment! at! stated! prices,!
that!it!needs!for!expansion.!When!an!investor!buys!these! with! or! without! interest! or! insurance! coverage! and!
papers!or!securities,!he!invests!his!money,!together!with! includes! life,! pension,! education,! interment,! and! other!
others,!in!SMC!with!an!expectation!of!profits!arising!from! plans! which! the! Commission! may! from! time! to! time!
the! efforts! of! those! who! manage! and! operate! that! approve.!
company.!SMC!has!to!register!these!commercial!papers! !
with!the!SEC!before!offering!them!to!investors.! Stay*Order*over*a*preHneed*corporation’s*creditors*is*
! valid* even* the* relationship* between* them* is* one* of*
Here,!PCI's!clients!do!not!make!such!investments.!They! trust*
buy!a!product!of!some!value!to!them:!an!Internet!website! !
of! a! 15KMB! capacity.! The! client! can! use! this! website! to! Abrera* v.* Barza,* G.R.* No.* 171681,* [September* 11,*
enable!people!to!have!internet!access!to!what!he!has!to! 2009]!
offer! to! them,! say,! some! skin! cream.! The! buyers! of! the! Petitioners! allege! that! the! relationship! between! a!
website!do!not!invest!money!in!PCI!that!it!could!use!for! planholder!and!a!preKneed!corporation!was!one!of!trust!
running! some! business! that! would! generate! profits! for! and!not!a!debtorKcreditor!relationship.!They!avered!that!
the!investors.!The!price!of!US$234.00!is!what!the!buyer! in!2002,!the!Securities!and!Exchange!Commission!(SEC)!
pays!for!the!use!of!the!website,!a!tangible!asset!that!PCI! implemented!the!New!PreKNeed!Rules,!which!mandated!
creates,!using!its!computer!facilities!and!technical!skills.! a!preKneed!company!to!set!up!a!trust!fund!for!the!benefit!
! of!the!beneficiary!and!in!compliance!with!the!agreement;!
Actually,! PCI! appears! to! be! engaged! in! network! hence,! they! contend! that! an! express! trust! relationship!
marketing,! a! scheme! adopted! by! companies! for! getting! exists!between!the!policyholder!as!trustor,!the!preKneed!
people! to! buy! their! products! outside! the! usual! retail! firm! as! trustee,! and! the! beneficiary! as!cestui! que!
system!where!products!are!bought!from!the!store's!shelf.! trust.!Petitioners! add! that! Section! 1.9! of! the! PreKNeed!
Under! this! scheme,! adopted! by! most! health! product! Rules! defines! "trust! fund"! as! a! fund! set! up! from! the!
distributors,! the! buyer! can! become! a! downKline! seller.! planholders'! payments,! separate! and! distinct! from! the!
The! latter! earns! commissions! from! purchases! made! by! paidKup! capital! of! a! registered! PreKNeed! Company,!
new!buyers!whom!he!refers!to!the!person!who!sold!the! established! with! a! trustee! under! a! trust! agreement!
product!to!him.!The!network!goes!down!the!line!where! approved!by!the!Commission,!to!pay!for!the!benefits!as!
the!orders!to!buy!come.! provided!in!the!PreKNeed!Plan.!
! !
The! commissions,! interest! in! real! estate,! and! insurance! Petitioners! assert! that! since! a! trust! relationship! exists!
coverage!worth!P50,000.00!are!incentives!to!downKline! between!a!planholder!and!a!preKneed!company,!CAP!may!
sellers!to!bring!in!other!customers.!These!can!hardly!be! not! avail! itself! of! rehabilitation! proceedings! to! stop!
regarded! as! profits! from! investment! of! money! under! payments!from!its!trust!assets!to!the!beneficiaries.!
the!Howey!test.! !
* Petitioners! contend! that! respondent! Judge! "acted!
! completely! without! jurisdiction! in! giving! due! course! to!
! the! petition! for! rehabilitation,! including! planholders! in!
Regulation*of*PreHNeed*Plans* the! Stay! Order! and! including! trust! assets! in! the!
rehabilitation!proceedings!notwithstanding!the!fact!that!
!
there! was! a! prior! case! filed! by! planholders! for!
No!person!shall!sell!or!offer!for!sale!to!the!public!any!preK
receivership! and! management! committee! and! that! the!
need! plan! except! in! accordance! with! rules! and!
assets!of!debtors!do!not!include!the!funds!collected!from!
regulations!which!the!Commission!shall!prescribe.!Such!
planholders".!
rules!shall!regulate!the!sale!of!preKneed!plans!by,!among!
!
other!things,!requiring!the!registration!of!preKneed!plans,!
Petitioners'!arguments!do!not!persuade.!
licensing!persons!involved!in!the!sale!of!preKneed!plans,!
!

LABAN NOTES ABRIL 6

 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE
CAP!is!a!domestic!corporation!engaged!in!the!business!of!
selling! preKneed! educational! plans.!Republic! Act! (R.A.)!
No.!8799,!otherwise!known!as!The!Securities!Regulation!
Code,!defines! "preKneed! plans"! as! "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".!
! behalf!a!petition!for!rehabilitation!has!been!filed!under!
Section!16,!Chapter!IV!of!R.A.!No.!8799!provides!for!the!
regulation!of!preKneed!plans!by!SEC,!thus:!
SEC.!16.!PreKNeed!Plans.!—!No!person!shall!sell!or!offer!
for! sale! to! the! public! any! preKneed! plan! except! in!
accordance! with! rules! and! regulations! which! the!
Commission! (SEC)! shall! prescribe.! Such! rules! shall!
regulate! the! sale! of! preKneed! plans! by,! among! other!
things,! requiring! the! registration! of! preKneed! plans,!
licensing!persons!involved!in!the!sale!of!preKneed!plans,!
requiring! disclosures! to! prospective! planholders,!
prescribing!advertising!guidelines,!providing!for!uniform!
accounting! system,! reports! and! recordkeeping! with!
respect! to! such! plans,! imposing! capital,! bonding! and!
other! financial! responsibility,! and! establishing! trust!
funds!for!the!payment!of!benefits!under!such!plans.!
! the!Interim!Rules.!
The! law! governing! corporate! rehabilitation! and!
suspension! of! actions! for! claims! against! corporations!
is!Presidential! Decree! (P.D.)! No.! 902KA,!as! amended.!
Section!5!of!P.D.!No.!902KA,!as!amended!by!P.D.!No.!1758,!
enumerates!the!cases!over!which!SEC!has!jurisdiction!to!
hear! and! decide,! which! includes! "[p]etitions! of!
corporations,!partnerships!or!associations!to!be!declared!
in!the!state!of!suspension!of!payments!in!cases!where!the!
corporation,! partnership! or! association! possesses!
sufficient!property!to!cover!all!its!debts,!but!foresees!the!
impossibility!of!meeting!them!when!they!respectively!fall!
due! or! in! cases! where! the! corporation,! partnership! or!
association!has!no!sufficient!assets!to!cover!its!liabilities,!
but! is! under! the! management! of! a! Rehabilitation!
Receiver! or! Management! Committee".!R.A.! No.! 8799,!
which! took! effect! on! August! 8,! 2000,! transferred! SEC's!
jurisdiction! over! all! cases! enumerated! under! Section! 5!
of!P.D.! No.! 902KA,! as! amended,! to! the! courts! of! general!
jurisdiction!or!the!appropriate!Regional!Trial!Court.!
! the!trial!court!to!stay!enforcement!of!all!claims!upon!the!
On!November!21,!2000,!this!Court!approved!the!Interim!
Rules!of!Procedure!on!Corporate!Rehabilitation!of!2000!
(Interim!Rules),!which!took!effect!on!December!15,!2000.!
The! Interim! Rules! apply! to! petitions! for! rehabilitation!
filed! by! corporations,! partnerships,! and! associations!
pursuant!to!P.D.!No.!902KA,!as!amended.!
! appointment!of!a!management!committee,!rehabilitation!
The!Interim!Rules!governed!the!proceedings!in!Sp.!Proc.!
No.! MK6144.! CAP! filed! the! petition! for! corporate!
rehabilitation,!because!it!is!"unable!to!service!its!debts!as!
they! fall! due! and! its! assets! are! insufficient! to! cover! its!
liabilities".!CAP!filed!the!petition!under!Section!1,!Rule!4!
of!the!Interim!Rules,!which!provides:!
LABAN NOTES ABRIL
SECTION! 1.!!Who! May! Petition.!—! Any!debtor!who!
foresees!the!impossibility!of!meeting!its!debts!when!they!
respectively!fall!due,!or!any!creditor!or!creditors!holding!
at!least!twentyKfive!percent!(25%)!of!the!debtor's!total!
liabilities,!may!petition!the!proper!Regional!Trial!Court!
to!have!the!debtor!placed!under!rehabilitation.!
!
Under! the! Interim! Rules,! "debtor"! shall! mean! "any!
corporation,! partnership,! or! association,!whether!
supervised!or!regulated!by!the!Securities!and!Exchange!
Commission! or! other! government! agencies,! on! whose!
these!Rules".!
!
The! Interim! Rules! does! not! distinguish! whether! a! preK
need! corporation! like! CAP! cannot! file! a! petition! for!
rehabilitation!before!the!RTC.!Courts!are!not!authorized!
to! distinguish! where! the! Interim! Rules! makes! no!
distinction.!!
!
Moreover,!under!the!Interim!Rules,!"claim"!shall!include!
"all! claims! or! demandsof! whatever! nature! or!
character!against! a! debtor!or! its! property,! whether! for!
money!or!otherwise".!"Creditor"!shall!mean!"any!holder!
of!a!claim".!
Hence,!the!claim!of!petitioners!for!payment!of!tuition!fees!
from!CAP!is!included!in!the!definition!of!"claims"!under!
!
What!is!to!be!determined!at!this!point!is!whether!or!not!
claims! arising! from! the! preKneed! contracts! between!
petitioners!and!CAP!can!be!stayed!under!Section!6,!Rule!
4!of!the!Interim!Rules!or!Section!6!(c)!of!P.D.!No.!902KA.!
!
Section!6,!Rule!4!of!the!Interim!Rules!provides:!
SEC.!6.!Stay!Order.!—!If!the!court!finds!the!petition!to!be!
sufficient! in! form! and! substance,! it! shall,! not! later! than!
five!(5)!days!from!the!filing!of!the!petition,issue!an!Order:!
(a)! appointing! a! Rehabilitation! Receiver! and! fixing! his!
bond;!(b)!staying!enforcement!of!all!claims,!whether!for!
money! or! otherwise,! and! whether! such! enforcement! is!
by! court! action! or! otherwise,! against! the! debtor,! its!
guarantors! and! sureties! not! solidarily! liable! with! the!
debtor!xxx!
!
The!above!provision!does!not!provide!that!a!claim!arising!
from!a!preKneed!contract!is!an!exception!to!the!power!of!
finding!that!the!petition!for!rehabilitation!is!sufficient!in!
form!and!substance.!
!
The!foregoing!provision!echoes!the!provision!in!Section!
6(c)! of! the! governing! law,P.D.! No.! 602KA,! as! amended!
by!P.D.! No.! 1758,! which! mandates! that! "upon!
receiver,!board!or!body,!.!.!.!all!actions!for!claims!against!
corporations,! partnerships! or! associations! under!
management! or! receivership! pending! before! any! court,!
tribunal,!board!or!body!shall!be!suspended!accordingly".!
!
7
 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE

In!Negros! Navigation! Co.,! Inc.! v.! Court! of! Appeals,! the! Where*submitted*
Court! held! that! "P.D.! No.! 902KA!does! not! make! any! To!the!Commission!as!part!of!the!registration!statement!
distinction! as! to! what! claims! are! covered! by! the! !
suspension! of! actions! for! claims! against! corporations! Dissemination*of*Prospectus*
under! rehabilitation! .! .! .! Thus,! since! the! law! does! not! Securities!required!to!be!registered!pursuant!to!Sections!
make! any! exemptions! or! distinctions,! neither! should! 8!and!12!of!the!Code!shall!not!be!offered!for!sale!or!sold!
we".! unless!the!prospectus,!or!any!information!material!which!
! has!been!filed!with!the!registration!statement!in!the!form!
The! Interim! Rules! of! Procedure! on! Corporate! and! containing! the! information! described! below,! has!
Rehabilitation!of!2000!has!been!amended!by!the!Rules!of! been! widely! disseminated! and! sufficient! copies! have!
Procedure! on! Corporate! Rehabilitation! of! 2009,! which! been! made! available! to! interested! parties.! Further,! the!
took!effect!on!January!16,!2009.!Under!the!2009!Rules!of! prospectus!contains!the!following!statement!in!bold!face!
Procedure,! the! power! of! the! RTC! to! issue! a! Stay! Order! print,!at!least!12!point!type!prominently!displayed:!
when! it! finds! the! petition! for! rehabilitation! to! be! !!
sufficient!in!form!and!substance!is!contained!in!Section! A! REGISTRATION! STATEMENT! RELATING! TO! THESE!
7,!Rule!3,!which!likewise!does!not!exempt!claims!arising! SECURITIES! HAS! BEEN! FILED! WITH! THE! SECURITIES!
from!preKneed!contracts!from!the!Stay!Order.! AND!EXCHANGE!COMMISSION,!BUT!HAS!NOT!YET!BEEN!
! DECLARED! EFFECTIVE.! NO! OFFER! TO! BUY! THE!
Petitioners! contend! that! the! relationship! between! a! SECURITIES!CAN!BE!ACCEPTED!AND!NO!PART!OF!THE!
planholder!and!a!preKneed!corporation!is!one!of!trust!and! PURCHASE! PRICE! CAN! BE! RECEIVED! UNTIL! THE!
not! a! debtorKcreditor! relationship.! However,! such! a! REGISTRATION! STATEMENT! HAS! BECOME! EFFECTIVE!
relationship! has! not! been! properly! established! by! THEREBY,!AND!ANY!SUCH!OFFER!MAY!BE!WITHDRAWN!
petitioners.!This!Court!is!not!a!trier!of!facts!and!cannot! OR! REVOKED,! WITHOUT! OBLIGATION! OR!
rule!in!this!petition!on!whether!the!relationship!between! COMMITMENT! OF! ANY! KIND,! AT! ANY! TIME! PRIOR! TO!
CAP!and!the!planholders!is!one!of!trust,!absent!a!factual! THE!NOTICE!OF!ITS!ACCEPTANCE.!AN!INDICATION!OF!
finding! by! the! trial! court.! Nevertheless,! even! if! the! INTEREST! IN! RESPONSE! HERETO! INVOLVES! NO!
relationship!is!one!of!trust,!there!is!no!provision!in!the! OBLIGATION! OR! COMMITMENT! OF! ANY! KIND.! THIS!
Interim! Rules! that! a! claim! arising! from! a! trust! PROSPECTUS! SHALL! NOT! CONSTITUTE! AN! OFFER! TO!
relationship!is!excluded!from!the!Stay!Order.! SELL! OR! BE! CONSIDERED! A! SOLICITATION! OF! AN!
! OFFER!TO!BUY.!
Negros!Navigation!Co.,!Inc.!v.!Court!of!Appeals!explained! !
the! reason! for! suspending! all! pending! claims! against! a! Presumption* of* Dissemination* or* Circulation* of*
corporation!under!receivership,!thus:! Prospectus*
.! .! .! .! The! stay! order! is! effective! on! all! creditors! of! the! The! prospectus! is! presumed! to! have! been! widely!
corporation! without! distinction,! whether! secured! or! disseminated! or! circulated! if! copies! were! distributed!
unsecured.! All! assets! of! a! corporation! under! initially!and!additional!copies!were!furnished!promptly,!
rehabilitation!receivership!are!held!in!trust!for!the!equal! upon!request,!to!the!following:!
benefit!of!all!creditors!to!preclude!one!from!obtaining!an! •! All! the! participants! in! the! distribution!
advantage!or!preference!over!another!by!the!expedience! (e.g.,!underwriters!and!brokers);!
of! attachment,! execution! or! otherwise.! As! between! the! •! The!principal!office!of!the!Commission;!
creditors,!the!key!phrase!is!equality!in!equity.!Once!the! •! An!Exchange,!if!the!securities!will!be!listed;!and!
corporation!threatened!by!bankruptcy!is!taken!over!by!a! •! Twenty! (20)! or! more! persons! who! are! not!
receiver,!all!the!creditors!ought!to!stand!on!equal!footing.! qualified! buyers! under! Section! 10.1! (1)! of! the!
Not!one!of!them!should!be!paid!ahead!of!the!others.! Code.!
! !
! Notice*of*Availability*of*the*Prospectus*
! All! participants! in! the! distribution! of! an! offering! of!
Prospectus* securities! to! the! public! shall,! when! inquiries! are! made!
* about! it,! inform! the! interested! parties! about! the!
Prospectus,*definition* availability! of! the! prospectus! and! shall,! if! requested,!
the! document! made! by! or! on! behalf! of! an! issuer,! provide!them!copies.!!
underwriter!or!dealer!to!sell!or!offer!securities!for!sale!to! !
the!public!through!a!registration!statement!filed!with!the! A! notice! shall! be! placed! on! the! front! cover! of! the!
Commission! subscription! agreement! distributed! in! connection! with!
! the! offering! informing! interested! persons! that! they! are!
entitled!to!a!copy!of!the!prospectus!if!they!so!desire!and!
Prospectus*Delivery*Requirements!
how!and!where!it!can!be!obtained.!
(2015)Implementing)Rules)and)Regulations)of)the)
!
Securities)Regulation)Code,)IRR)of)RA)8799,)[August)4,)
The! information! referred! to! in!SRC!Rules! 8.1.3.5.1! and!
2015]))
8.1.3.5.2!above!on!where!the!prospectus!may!be!obtained!
! shall!include!the!address!of!the!principal!office!and!email!

LABAN NOTES ABRIL 8

 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE

address! of! the! Commission,! the! Exchange! where! the! !

securities! may! be! listed,! the! Issuer! company,! and! the! The! requirement! of! registration! shall! not,! as! a! general!
telephone! number,! address! and! email! address! of! the! rule,!apply!to!any!of!the!following!classes!of!securities:!
Issuer's!contact!person.!A!statement!shall!also!be!made! !
to! the! effect! that! the! prospectus! is! available! from! all! (a)! Any! security! issued! or! guaranteed! by! the!
underwriters! and! brokers! participating! in! the! Government! of! the! Philippines,! or! by! any!
distribution.! political! subdivision! or! agency! thereof,! or! by!
! any! person! controlled! or! supervised! by,! and!
! acting! as! an! instrumentality! of! said!
Prohibited*use*of*selling*documents* Government.!
The!use!of!selling!documents!other!than!the!prospectus! (b)! Any! security! issued! or! guaranteed! by! the!
during! the! offering! period! is! prohibited,! provided,! that! government! of! any! country! with! which! the!
the! information! described! in!SRC! Rule!8.3! may! be! Philippines! maintains! diplomatic! relations,! or!
disseminated! in! whole! or! in! part! to! summarize! the! by! any! state,! province! or! political! subdivision!
offering.! thereof! on! the! basis! of! reciprocity:!Provided,!
! That!the!Commission!may!require!compliance!
Prospectus,*when*used* with! the! form! and! content! of! disclosures! the!
!The! prospectus! shall! not! be! used! unless! all! the! Commission!may!prescribe.!
information! it! contains! are! up! to! date! and! accurately! (c)! Certificates!issued!by!a!receiver!or!by!a!trustee!
reflect! the! terms! of! the! offering! and! the! financial! in! bankruptcy! duly! approved! by! the! proper!
condition!of!the!Issuer.!Accordingly,!until!all!appropriate! adjudicatory!body.!
amendments! have! been! made! and! filed! with! the! (d)! Any! security! or! its! derivatives! the! sale! or!
Commission! under! SRC! Rule!14,! the! use! of! the! transfer! of! which,! by! law,! is! under! the!
prospectus!and!the!right!to!sell!and!offer!for!sale!may!be! supervision!and!regulation!of!the!Office!of!the!
suspended! under! Section! 15! of! the! Code! if! any! of! the! Insurance!Commission,!Housing!and!Land!Use!
following!events!occurs:! Regulatory! Board,! or! the! Bureau! of! Internal!
•! There! is! a! material! change! in! any! of! the! Revenue.!
information! provided! (including,! but! not! (e)! Any! security! issued! by! a! bank! except! its! own!
limited! to,! the! occurrence! of! a! material! event! shares!of!stock.!(The)Securities)Regulation)Code,)
that!is!required!to!be!reported!in!Form!17KC);! Republic)Act)No.)8799,)[July)19,)2000])!
•! The! accompanying! financial! statements! are! (f)! Evidence! of! indebtedness! issued! to! the! BSP!
more!than!two!hundred!twenty!five!(225)!days! under! its! open! market! and/or! rediscounting!
old.! operations;!
* (g)! Bills! of! exchange! arising! from! a!bona! fide!sale!
Format*of*the*Prospectus* of! goods! and! services! that! are! distributed!
!The!information!required!in!the!prospectus!shall!follow! and/or!traded!by!banks!or!investment!houses!
the!order!of!the!items!or!other!requirements!in!Part!I!of! duly! licensed! by! the! Commission! and! BSP!
Form! 12Kl.! The! information! should! be! complete! and! through! an! organized! market! that! is! operated!
should! not! mislead! its! reader! or! render! its! contents! under!the!rules!approved!by!the!Commission;!
incomprehensible.! (h)! Any! security! issued! or! guaranteed! by!
! multilateral! financial! entities! established!
All! information! in! the! prospectus! should! be! properly! through! a! treaty! or! any! other! binding!
captioned! or! labeled! to! indicate! the! subject! matters! agreement!to!which!the!Philippines!is!a!party!or!
covered.! The! information! shall! be! divided! into! short! subsequently! becomes! a! member! (hereinafter!
paragraphs! or! sections,! except! the! financial! statements! referred! as! Multilateral! Financial! Entities! or!
and!tabular!data.! MFE),!e.g.,!international! financial! institutions,!
! multilateral! development! banks,! development!
The! information! in! the! prospectus! shall! not! be! finance! institutions! or! any! other! similar!
condensed!or!summarized.!References!may!be!made!to! entities;! or! by! facilities! or! funds! established,!
information! in! other! parts! of! the! prospectus! instead! of! administered,! and! supported! by! MFEs;!
repeating!them.! Provided,! that! the! issuer! shall! file! an! offering!
! circular/memorandum! in! a! format! prescribed!
All!information!required!to!be!included!in!the!prospectus! by! the! Commission! and! containing! among!
should! be! clearly! understandable! without! the! need! to! others;!(1)!information!about!the!issuer!and!the!
refer!to!Form!12K1!or!to!outside!sources.! security!to!be!issued,!(2)!information!about!the!
|||!(2015! Implementing! Rules! and! Regulations! of! the! MFE,!and!(3)!information!about!the!guarantee.!
Securities! Regulation! Code,! IRR! of! RA! 8799,! [August! 4,! (i)! The! registration! requirements! shall! not!
2015])! likewise! apply! to! evidence! of!
* indebtedness,!e.g.,!commercial! papers,! that!
* meet!the!following!conditions:!
Exempt*Securities*

LABAN NOTES ABRIL 9

 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE

1.! Issued! to! not! more! than! nineteen! (19)! Exempt*Transactions*

nonKinstitutional!lenders;!
2.! Payable!to!a!specific!person;!
3.! Neither!negotiable!nor!assignable!and!held!
on!to!maturity;!and!
4.! In!an!amount!not!exceeding!P1!million!or!
such! higher! amount! as! the! Commission!
may!prescribe.!!
(j)! Consistent! with! public! interest! and! for! the!
protection! of! investors,! the! Commission,! may!
require! an! Issuer! of! a! class! of! securities!
exempted!from!registration,!to!make!available!
to! investors! and! file! with! the! Commission!
periodic! disclosures! regarding! the! Issuer,! its!
business!operations,!its!financial!condition,!its!
governance!principles!and!practices,!its!use!of!
investor!funds,!and!other!appropriate!matters,!
and! may! also! provide! for! suspension! and!
termination! of! such! requirement! with! respect!
to!such!Issuer.|!
(k)! Any!class!of!securities!added!if!the!Commission!
finds! that! the! enforcement! of! the! Code! with!
respect! to! such! securities! is! not! necessary! in!
the! public! interest! and! for! the! protection! of!
investors.! (2015) Implementing) Rules) and)
Regulations) of) the) Securities) Regulation) Code,)
IRR)of)RA)8799,)[August)4,)2015])!
! articles! of! incorporation,! of! securities! to! its!
Discussion:*
Why)are)securities)issued)by)Philippine)and)foreign)
governments)considered)exempt)securities?)
Because! of! the! nature! of! these! securities,! there! is! a!
presumption! that! they! will! always! be! paid! because! the!
government!can!never!go!bankrupt.!The!government!will!
always! make! good! on! its! promise! to! pay! a! particular!
security.! If! it! needs! more! money,! the! government! will!
just!collect!taxes!from!the!people.!That’s!why!based!on!
the!nature!of!the!securities,!the!presumption!that!it!will!
always! be! paid.! There! is! no! need! to! register! particular!
securities! which! are! issued! by! government,! whether!
Philippine!government!or!foreign!governments.!
! (g)! The! issue! and! delivery! of! any! security! in!
Why)are)securities)under)(c),)(d),)and)(e))above)exempt?)
Because!these!are!supervised!by!regulatory!agencies,!so!
the! SRC! considers! this! supervision! and! regulation! by!
other!government!agencies!already!sufficient!protection!
and!regulation.!
! surrendered! has! been! registered! under! this!
Why)are)shares)of)stocks)of)a)bank)not)exempt?)
The!issuance!shares!of!stocks!of!a!bank!are!not!part!of!the!
operations!of!the!bank.!Therefore,!they!are!not!regulated!
by!the!BSP.!BSP!regulates!the!operations!of!the!bank.!Any!
issuance!of!securities,!debt!instruments!or!other!types!of!
securities!which!are!not!shares!are!part!of!the!operations!
of! a! bank.! But,! the! shares! of! stocks! of! a! bank! are! not!
regulated!by!the!BSP!and!they!will!have!to!be!regulated!
by!the!SEC.!So!the!exemption!for!banks!will!only!apply!to!
other!securities!which!are!not!its!own!shares!of!stocks.)
) (h)! Broker's! transactions,! executed! upon!
! customer's!orders,!on!any!registered!Exchange!
! or!other!trading!market.!
!
The! requirement! of! registration! shall! not,! as! a! general!
rule,!apply!to!any!of!the!following!classes!of!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!
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!all!the!bonds!or!notes!secured!thereby!are!
sold!to!a!single!purchaser!at!a!single!sale.!
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!
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.!

LABAN NOTES ABRIL 10

 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE
(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!twelveKmonth!period.!
(l)! The! sale! of! securities! to! any! number! of! the!
following!qualified!buyers:!
(i)Bank;!
(ii)!Registered!investment!house;!
(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.!!
(m)! those! the! Commission! finds! that! the!
requirement!of!registration!is!not!necessary!in!
the!public!interest!or!for!the!protection!of!the!
investors!such!as!by!reason!of!the!small!amount!
involved!or!the!limited!character!of!the!public!
offering.! (The) Securities) Regulation) Code,)
Republic)Act)No.)8799,)[July)19,)2000])!
! !
! To!avail!of!the!isolated!transaction!exemption,!the!owner!
Discussion:*
How) are) exempt) transactions) different) from) exempt)
securities?)
Ordinarily,! there! is! a! oneKtime! exemption! from!
registration! in! an! exempt! transaction.! Transactions!
subsequent! thereto! are! no! longer! exempt.! An! exempt!
security! is! exempt! because! of! its! very! nature.! Any!
transaction!involving!an!exempt!security!does!not!need!
to!be!registered.!
! Therefore,! this! isolated! transaction! only! pertains! to! a!
Why)are)these)transactions)exempt)from)registration?)
*
LABAN NOTES ABRIL
At* any* judicial* sale,* or* sale* by* an* executor,*
administrator,* guardian* or* receiver* or* trustee* in*
insolvency*or*bankruptcy.*
*
These!are!sales!initiated,!supervised!or!regulated!by!the!
courts! (judicial).! Insolvency! or! bankruptcy! where! you!
cannot!just!do!that!extraKjudicially.!You!have!to!file!a!case!
under!FRIA!with!the!courts.!!
!
Under! the! FRIA,* in! order! to! avail! of! its! provisions,! you!
need! to! file! a! case! with! the! court! (voluntary)! or! your!
creditor! will! file! it! for! you! (involuntary).! At! all! times,!
there!is!a!judicial!proceeding.!Under!the!SRC,!the!sale!is!
already!regulated!by!the!courts.!That!is!already!sufficient!
regulation,! no! need! for! SEC! to! regulate! that! particular!
sale.!!
!
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.*
*
You!have!a!security!which!you!used!as!a!chattel!mortgage!
or!a!pledge.!And!when!you!sell!these!securities!again,!this!
is! already! with! supervision! of! the! court! or! at! least! a!
notarial! sale.! That! is! already! sufficient! protection!
according!to!the!SRC.!
!
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.*
*
Example:)
Corporation!A!has!as!its!stockholders!X,!Y,!and!Z.!Corp.!A!
intents! to! sell! its! shares! to! C! in! a! oneKtime! transaction.!
Can! Corp.! A! avail! of! the! exemption! under! the! aboveK
mentioned!provision?!
or!his!representative!must!sell!the!shares.!In!the!example,!
it!is!the!corporation!(Corp.!A),!an!issuer!or!underwriter!
of!shares)!that!sold!the!shares.!Hence,!it!cannot!avail!of!
the!exemption.!An!issuer!is!not!the!owner!of!the!shares!it!
issues! to! stockholders.! The! shares! (including! treasury!
shares)! of! a! corporation! are! not! owned! by! the!
corporation!itself.!Corporations!only!issue!shares!which!
are!eventually!owned!by!the!persons!who!acquire!them.!
!
situation!where!one!already!bought!securities!from!the!
11
 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE

issuer!and!then!subsequently!sell!the!same!to!some!other! distributed! are! securities.! Otherwise,! the! same! is! not!

persons.! covered!by!the!SRC.!
! !
* !
The*distribution*by*a*corporation,*actively*engaged* The*sale*of*capital*stock*of*a*corporation*to*its*own*
in* the* business* authorized* by* its* articles* of* stockholders* exclusively,* where* no* commission* or*
incorporation,* of* securities* to* its* stockholders* or* other* remuneration* is* paid* or* given* directly* or*
other* security* holders* as* a* stock* dividend* or* other* indirectly*in*connection*with*the*sale*of*such*capital*
distribution*out*of*surplus.* stock.*
! !
Kinds!of!dividends:! Remember!that!the!purpose!of!registration!of!securities!
a.!property;!b.!stock;!and!c.!cash! is!for!full!disclosure,!to!inform!the!possible!investors!that!
! these! are! the! risks! of! buying! the! securities! of! this!
When! the! corporation! has! retained! earnings! or! excess! particular!issuer.!In!paragraphs!(d)!and!(e),!there!is!no!
income,! it! will! take! out! the! retained! earnings! and! more! need! for! full! disclosure.! The! stockholders! are!
distribute! it! to! its! stockholders! in! the! form! of! stock! already! presumed! to! know! about! the! issuer! of! the!
dividends!or!cash!dividends.!! securities,! the! corporation! where! they! are! already!
! investors.!There!is!no!more!need!to!tell!a!new!investor!all!
What)are)the)subject)of)the)dividends)in)stock)dividends?) about! the! operations,! its! risks,! etc.! These! are! dealings!
Shares! of! stock! of! the! corporation! itself.! You! transfer! between!an!issuer!and!people!who!already!know!about!
from!Retained!Earnings!to!capital.!When!the!corporation! the!issuer.!Full!disclosure!would!be!redundant!if!this!is!
distributes! income! to! its! stockholders! in! the! form! of! the!case.!!
stock!dividends,!in!its!own!shares,!that!is!exempt.! !
! !
What)about)“other)distribution)out)of)surplus”?) The*issuance*of*bonds*or*notes*secured*by*mortgage*
These!are!still!dividends.! upon* real* estate* or* tangible* personal* property,*
! where* the* entire* mortgage* together* with* all* the*
Differentiate) stock) dividends) from) distributions) out) of) bonds*or*notes*secured*thereby*are*sold*to*a*single*
surplus.) purchaser*at*a*single*sale.*
Stock!dividends!are!a!distribution!by!the!corporation!of! !
its! excess! income! in! the! form! of! its! own! shares.! Other! Why)is)this)transaction)exempt?)
distributions!out!of!its!excess!profits!are!still!dividends.! The! requirement! of! registration! does! not! apply! to! a!
Since! cash! dividends! are! not! securities,! property! single!purchaser.!It!is!not!an!offer!to!the!public.!!
dividends!can!be!security.!! !
! !
Example:) Disclosure*to*Investors*
As! a! corporation,! corporation! A! has! investments! in! Any!person!claiming!exemption!under!Section!10.1!of!the!
securities.!It!has!investment!shares!in!Corporation!B.!Are! Code!shall!provide!to!any!party!to!whom!it!offers!or!sells!
the! latter! shares! assets! of! Corp.! A?! Yes.! They! are! a! securities! in! reliance! on! such! exemption! a! written!
property!of!Corp.!A.! disclosure!containing!the!following!information:!
! 1.! The! specific! provision! of! Section! 10.1! of! the!
Now,!Corp.!A!wants!to!declare!dividends.!It!may!declare! Code!on!which!the!exemption!from!registration!
the!dividends!as!stock!dividends!(from!it!own!unissued! is!claimed;!and!
stocks)!or!cash!dividends!(in!the!form!of!liquid!cash)!or! 2.! The!following!statement!in!bold!face:!
property! dividends! (assets)! and! distribute! them! to! its! !
stockholders.!! THE! SECURITIES! BEING! OFFERED! OR! SOLD!
! HEREIN!HAVE!NOT!BEEN!REGISTERED!WITH!
May!Corp.!A!distribute!its!investment!shares!in!Corp.!B!as! THE! SECURITIES! AND! EXCHANGE!
stock!dividends?! COMMISSION! UNDER! THE!SECURITIES!
! REGULATION! CODE.! ANY! FUTURE! OFFER! OR!
No,!it!is!not!its!own!shares.!It!is!not!cash.!Therefore,!these! SALE!OF!THE!SECURITIES!IS!SUBJECT!TO!THE!
investment! shares! in! Corp.! B! can! be! declared! only! as! REGISTRATION! REQUIREMENTS! UNDER! THE!
property!dividends.!! CODE! UNLESS! SUCH! OFFER! OR! SALE!
! QUALIFIES! AS! AN! EXEMPT!
Stock!and!property!dividends!are!within!the!purview!of! TRANSACTION.!(2015) Implementing) Rules) and)
the! aboveKmentioned! provision.! Distribution! by! a! Regulations) of) the) Securities) Regulation) Code,)
corporation!to!its!stockholders!of!its!excess!profits!either! IRR)of)RA)8799,)[August)4,)2015])!
in!the!form!of!stock!dividends!or!property!dividends!is! !
an!exempt!transaction.!! !
! Grounds*for*Revocation*and/or*Rejection*of*the*
Note:* ! Property! dividends! will! only! apply! if! what! are! Registration*of*Securities*

LABAN NOTES ABRIL 12

 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE

! It!shall!be!unlawful!for!any!person!acting!for!himself!or!
Disqualification*of*an*Issuer;*Incomplete*or* through!a!dealer!or!broker,!directly!or!indirectly:!
Inaccurate*Registration*Statement;*and*Conviction* !
of*an*offense*involving*moral*turpitude* To! create! a! false! or! misleading! appearance! of! active!
! trading! in! any! listed! security! traded! in! an! Exchange! or!
The!Commission!may!reject!a!registration!statement!and! any!other!trading!market!by:!
refuse!registration!of!the!security!thereunder,!or!revoke! 1.! Effecting!any!transaction!in!such!security!which!
the! effectivity! of! a! registration! statement! and! the! involves!no!change!in!the!beneficial!ownership!
registration! of! the! security! thereunder! after! due! notice! thereof!(Wash*sale);!
and! hearing! by! issuing! an! order! to! such! effect,! setting! 2.! Entering!an!order!or!orders!for!the!purchase!or!
forth!its!findings!in!respect!thereto,!if!it!finds!that:! sale!of!such!security!with!the!knowledge!that!a!
! simultaneous! order! or! orders! of! substantially!
(a)! The!issuer:! the! same! size,! time! and! prices,! for! the! sale! or!
(i)! Has!been!judicially!declared!insolvent;! purchase! of! any! such! security,! has! or! will! be!
(ii)! Has!violated!any!of!the!provisions!of!this!Code,! entered!by!or!for!the!same!or!different!parties!
the!rules!promulgated!pursuant!thereto,!or!any! (Matched*orders);!or!
order! of! the! Commission! of! which! the! issuer! 3.! Performing! similar! act! where! there! is! no!
has! notice! in! connection! with! the! offering! for! change! in! beneficial! ownership! (Market*
which!the!registration!statement!has!been!filed;! rigging*or*jiggling).!(2015)Implementing)Rules)
(iii)! Has!been!or!is!engaged!or!is!about!to!engage!in! and) Regulations) of) the) Securities) Regulation)
fraudulent!transactions;!! Code,)IRR)of)RA)8799,)[August)4,)2015])!
(iv)! Has! made! any! false! or! misleading! !
representation! of! material! facts! in! any! ‘Any!other!trading!markets’*
prospectus! concerning! the! issuer! or! its! the!use!of!this!phrase!connotes!that!there!should!be!no!
securities;! distinction! made! between! manipulative! trading!
(v)! Has!failed!to!comply!with!any!requirement!that! practices!on!an!exchange!and!those!undertake!in!the!soK
the!Commission!may!impose!as!a!condition!for! called! ‘overKtheKcounter! market.’! Protection! against!
registration! of! the! security! for! which! the! these! abuses! are! needed! in! both! markets.! (Decasa,) SRC)
registration!statement!has!been!filed;!or! Annotated)2013.))
(b)! The!registration!statement!is!on!its!face!incomplete! !
or!inaccurate!in!any!material!respect!or!includes!any! !
untrue!statement!of!a!material!fact!or!omits!to!state! It!shall!be!unlawful!for!any!person!to!make!a!bid!or!offer,!
a! material! fact! required! to! be! stated! therein! or! or! deal! in! securities! which! has! the! effect! or! is! likely! to!
necessary! to! make! the! statements! therein! not! have! the! effect! of! creating! a! false! or! misleading!
misleading;!or! appearance! of! active! trading! in! any! security! or! with!
(c)! The! issuer,! any! officer,! director! or! controlling! respect!to!the!market!for,!or!the!price!of,!any!security.!!
person! of! the! issuer,! or! person! performing! similar! !
functions,! or! any! underwriter! has! been! convicted,! It! shall! be! unlawful! for! any! Broker! Dealer,! Associated!
by! a! competent! judicial! or! administrative! body,! Person! or! salesman! of! a! Broker! Dealer! (hereinafter!
upon! plea! of! guilty,! or! otherwise,! of! an! offense! collectively!referred!to!as!"registered!person")!to!make!a!
involving! moral! turpitude! and/or! fraud! or! is! bid!or!offer!for,!or!deal!in!securities,! on! account! of! any!
enjoined!or!restrained!by!the!Commission!or!other! other!person,!where!the!registered!person!creates,!or!is!
competent! judicial! or! administrative! body! for! aware! that! the! other! person! creates,! or! taking! into!
violations! of! securities,! commodities,! and! other! account! the! circumstances! of! the! order,! reasonably!
related!laws.! suspects!that!the!order!creates!or!will!create,!a!false!or!
! misleading!appearance!of!active!trading!in!any!security!
For! purposes! of! this! subsection,! the! term! or! with! respect! to! the! market! for,! or! the! price! of,! any!
"competent! judicial! or! administrative! body"! shall! security.!(2015)Implementing)Rules)and)Regulations)of)the)
include!a!foreign!court!of!competent!jurisdiction!as! Securities) Regulation) Code,) IRR) of) RA) 8799,) [August) 4,)
provided! for! under! the! Rules! of! Court.! (The) 2015])!
Securities) Regulation) Code,) Republic) Act) No.) 8799,) *
[July)19,)2000])) Factors*to*consider*whether*there*is*manipulation*of*
) security*prices*
! 1.! Whether! the! order! of! execution! of! the! order,!
would! materially! alter! the! market! for,! and/or!
Prohibitions*on*Fraud,*Manipulation*and*Insider*
the!price!of,!the!securities;!
Trading*
2.! The!date!and!time!the!order!is!entered!or!any!
!
instructions! concerning! the! date! and! time! of!
Manipulative*Practices* entry!of!the!order;!
* 3.! Whether!the!person!on!whose!behalf!the!order!
is! placed,! or! another! person! who! the! Broker!

LABAN NOTES ABRIL 13

 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE
Dealer! knows! to! be! a! related! party! of! that!
person,!may!have!an!interest!in!creating!a!false!
or! misleading! appearance! of! active! trading! in!
any!security!or!with!respect!to!the!market!for,!
or!the!price!of,!any!security;!
4.! Whether! the! order! is! accompanied! by!
settlement,! delivery! or! security! arrangement!
which!are!unusual;!
5.! Whether!the!order!appears!to!be!part!of!a!series!
of!a!series!of!orders,!which!when!put!together!
with!the!other!orders!which!appear!to!make!up!
the! series,! the! order! or! the! series! is! unusual!
having!regard!to!the!matters!referred!to!in!SRC!
Rule!24.1.3;!and!
6.! Whether! there! appears! to! be! a! legitimate!
commercial! reason! or! basis! in! placing! the!
order,!unrelated!to!an!intention!to!create!a!false!
or!misleading!appearance!of!active!trading!in!or!
with!respect!to!the!market!for,!or!price!of,!any!
security.!
! Security*
Failure! to! consider! these! factors! shall! raise! a!
presumption! that! transaction/s! is/are!
manipulative.! (2015) Implementing) Rules) and)
Regulations) of) the) Securities) Regulation) Code,)
IRR)of)RA)8799,)[August)4,)2015]))
! fall! because! of! manipulative! market! operations! of! any!
Prohibited*Conducts*of*Price*Manipulation*
! raising! or! depressing! the! price! of! the! security! for! the!
Painting*the*tape*
A! series! of! transactions! in! securities! that! are! reported!
publicly! to! give! the! impression! of! activity! or! price!
movement!in!a!security!
! !
Marking*the*close*
buying!and!selling!securities!at!the!close!of!the!market!in!
an!effort!to!alter!the!closing!price!of!the!security!
! See! Rule! 24.1! (D)! of! 2015! Implementing! Rules! and!
Hyping*and*dumping*the*stock*(Hype*and*Dump)*
Engaging!in!buying!activity!at!increasingly!higher!prices!
and! then! selling! securities! in! the! market! at! the! higher!
prices;!individuals!or!entities!cause!the!price!of!certain!
stock!to!go!up!and!then!sell!the!securities!in!the!market!
at!the!higher!prices!after!announcing!a!glossy!picture!of!
a! particular! issue! as! good! investment! contrived! to!
sustain! public! interest! in! the! shares! and! thus! lure!
investors!to!trade!
!
Wash*sales*
When! stocks! are! traded! without! a! genuine! change! in!
actual! beneficial! ownership! making! it! appear! that! the!
stocks!are!actively!traded!
!
Squeezing*the*float*
Taking! advantage! of! a! shortage! of! securities! in! the!
market! by! controlling! the! demand! side! and! exploiting!
market!congestion!during!such!shortages!in!a!way!as!to!
create!artificial!price!
!
Circulating* unverified* rumorHbased* market*
information*
LABAN NOTES ABRIL
Circulating! false! or! misleading! market! information!
through! media,! including! the! internet,! or! any! other!
means!to!move!the!price!of!a!security!in!a!direction!that!
is!favorable!to!a!position!held!or!a!transaction!
!
Under! SECKBED! Memorandum! Circular! No.! 02,! s.! 1997,!
any! person! found! circulating! unverified! information,!
with! the! ned! in! view! of! influencing! the! price! of! a!
particular!issue,!or!trades!on!a!material!information!not!
known! to! the! general! public,! is! guilty! of! price!
manipulation! and/or! insider! trading.! (Decasa,) SRC)
Annotated)2013.)!
!
Others*
Other!types!of!prohibited!conduct!and/or!manipulative!
practices! which! include,! among! others,! the! creation! of!
temporary! funds! for! the! purpose! of! engaging! in! other!
manipulative!practices.!
!
Circulating*Information*to*Affect*the*Price*of*a*
!
It!shall!be!unlawful!for!any!person!acting!for!himself!or!
through! a! dealer! or! broker,! directly! or! indirectly,! to!
circulate!or!disseminate!information!that!the!price!of!any!
security!listed!in!an!Exchange!will!or!is!likely!to!rise!or!
one! or! more! persons! conducted! for! the! purpose! of!
purpose!of!inducing!the!purpose!of!sale!of!such!security.!)
(2015) Implementing) Rules) and) Regulations) of) the)
Securities) Regulation) Code,) IRR) of) RA) 8799,) [August) 4,)
2015])!
Advertisements*and*Communications*with*the*
Public;*False*and*Misleading*Statements*
!
Regulations!of!the!Securities!Regulation!Code,!IRR!of!RA!
8799,![August!4,!2015]!
!
!
Short*Sales*
!
Short*sale,*definition*
any!sale!of!a!security!which!the!seller!does!not!own!or!
any! sale! which! is! consummated! by! the! delivery! of! a!
security! borrowed! by,! or! for! the! account! of! the! seller!
with!the!commitment!of!the!seller!or!securities!borrower!
to!return!or!deliver!said!securities!or!their!equivalent!to!
the! lender! on! a! determined! or! determinable! future!
date.!(2015) Implementing) Rules) and) Regulations) of) the)
Securities) Regulation) Code,) IRR) of) RA) 8799,) [August) 4,)
2015])!
!
Who*is*deemed*owner*of*a*security*
A!person!shall!be!deemed!to!own!a!security!if:!!
(1)! he!or!his!agent!has!title!to!it;!
(2)! he! has! purchased,! or! has! entered! into! an!
unconditional!contract,!binding!on!both!parties!
14
 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE
thereto,!to!purchase!it!and!has!not!yet!received!
it;!!
(3)! he! owns! a! security! convertible! into! or!
exchangeable! for! it! and! has! tendered! such!
security!for!conversion!or!exchange;!
(4)! he!has!an!option!to!purchase!or!acquire!it!and!
has!exercised!such!option;!or!!
(5)! he!has!rights!or!warrants!to!subscribe!to!it!and!
has!exercised!such!rights!or!warrants!provided,!
however,!that!a!person!shall!be!deemed!to!own!
securities! only! to! the! extent! he! has! a! net! long!
position!in!such!securities.!(2015)Implementing)
Rules) and) Regulations) of) the) Securities)
Regulation) Code,) IRR) of) RA) 8799,) [August) 4,)
2015]))
! A!contract!involving!a!short!sale!which!has!not!resulted!
Determination*of*Good*Delivery*
No!Broker!or!Dealer!shall!accept!a!long!sale!order!from!a!
customer! unless! he! has! made! a! determination! that! the!
customer! owns! the! security! and! will! deliver! in! good!
deliverable!form!within!the!settlement!period!provided!
by!exchange!or!clearing!agency,!or!as!may!be!prescribed!
by! the! Commission.! The! determination! must! include! a!
notation!on!the!order!ticket!at!the!time!the!order!is!taken!
which! reflects! the! conversation! with! the! customer!
regarding!the!present!location!of!the!securities,!whether!
they! are! in! good! deliverable! form,! and! the! customer's!
ability! to! make! delivery.) (2015) Implementing) Rules) and)
Regulations) of) the) Securities) Regulation) Code,) IRR) of) RA)
8799,)[August)4,)2015]))
! corporation!in!which!he!is!a!director,!officer!or!principal!
Order*for*Short*Sale*
Upon!receiving!an!order!to!sell!short!a!qualified!security,!
the! order! should! be! indicated! on! the! selling! order! and!
throughout!all!the!records!pertinent!to!the!sale.!Prior!to!
acceptance! of! any! short! sale! order,! the! broker! dealer!
shall! make! a! determination! that! the! customer! has!
already!borrowed!the!security!and!such!will!be!delivered!
in! good! deliverable! form! within! the! prescribed!
settlement! period.! (2015) Implementing) Rules) and)
Regulations) of) the) Securities) Regulation) Code,) IRR) of) RA)
8799,)[August)4,)2015]))
) *
Definition*of*Qualified*Security*
For!purposes!of!this!rule,!the!term!qualified!security!shall!
mean!a!listed!security!that!is!eligible!for!short!selling!in!
accordance! with! the! following! standards:! (1)! market!
capitalization;!(2)!tradability;!(3)!liquidity;!and!(4)!with!
other!applicable!guidelines!as!may!be!prescribed!by!the!
Commission.!
* short! selling! is! necessary! or! appropriate! in! the! public!
Execution*of*Short*Sale/Uptick*Rule*
No!broker!or!dealer!shall!use!any!facility!of!a!securities!
exchange!to!effect!a!short!sale!of!any!security!unless!(1)!
at!a!price!higher!than!the!last!sale!or!(2)!at!the!price!of!
the!sale!if!that!price!is!above!the!next!preceding!different!
sale!price!on!such!day.!
! straddle,! option! or! privilege! in! relation! to! any! security!
Unless!otherwise!provided!by!the!Commission,!this!price!
requirement! shall! not! apply! to! a! sale! due! to! a!bona!
LABAN NOTES ABRIL
fide!marketKmaking! or! arbitrage! activity! executed! by! a!
broker!dealer!authorized!to!engage!in!such!activities.!
*
Failure*to*Deliver*
No!person!shall,!directly!or!indirectly,!by!the!use!of!any!
facility! of! a! securities! exchange,! effect! a! short! sale! in! a!
security!registered!or!listed!on!any!securities!exchange,!
where! the! seller! does! not! intend! or! is! unable! to! make!
delivery! of! the! securities! within! the! prescribed!
settlement! period.! Failure! on! the! part! of! the! seller! to!
make! delivery! on! such! date! will! be! construed! by! the!
Commission! as!prima! facie!evidence! of! the! lack! of!
intention!on!his!part!to!make!such!delivery.!
*
Mandatory*CloseHOut*
in!a!delivery!by!the!Broker!Dealer!within!the!settlement!
period! must! be! closed! by! the! Broker! Dealer! either! by!
purchasing!for!cash!or!guaranteed!delivery,!securities!of!
like! kind! and! quantity! on! the! next! business! day! after!
settlement!date,!unless!such!purchase!cannot!be!effected!
within!said!period!for!justifiable!reasons!in!which!case,!
notification!in!writing!shall!be!made!with!the!Exchange!
and!the!Commission,!or!in!accordance!with!rules!of!the!
clearing! agency! that! shall! clear! and! settle! the!
transactions.!
*
Directors,*Officers*or*Principal*Stockholders*
No! director,! officer! or! principal! stockholder! of! a!
corporation! shall! make! a! short! sale! in! securities! of! the!
stockholder.!
*
Record*Keeping*
A!Broker!Dealer!who!engages!in!short!selling!activities!is!
required! to! maintain! and! keep! upKtoKdate! ledgers,!
whether! in! manual! or! preferably! in! electronic! form,! to!
record! the! complete! details! of! all! short! selling!
transactions!whether!for!its!account!or!for!the!account!of!
its!customers.!Such!ledgers!shall!be!kept!in!accordance!
with!the!Records!Retention!Rule!and!be!made!available!
to!the!Commission.|!
Prohibition*on*Short*Selling*
The! Commission! may,!motu) proprio!or! upon!
recommendation!of!the!Exchange,!prohibit!short!selling!
in!the!Exchange!indefinitely!or!for!such!period!as!it!may!
deem! proper! for! the! protection! of! the! investors.! The!
Commission! may! also! prohibit! short! selling! in! any!
Exchange! as! an! emergency! measure! or! whenever! such!
interest.!
!
Option*Trading*
*
No! member! of! an! Exchange! shall,! directly! or! indirectly!
endorse! or! guarantee! the! performance! of! any! put,! call,!
registered! on! a! securities! exchange.! The! terms! "put",!
"call",!"straddle",!"option",!or!"privilege"!shall!not!include!
any! registered! warrant,! right! or! convertible! security.!
15
 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE

(2015) Implementing) Rules) and) Regulations) of) the) !

Securities) Regulation) Code,) IRR) of) RA) 8799,) [August) 4,) Churning*
2015])! A!situation!where!a!brokerKdealer!is!the!sole!or!dominant!
* marketKmaker! in! a! particular! security,! and! creates! a!
Applicability*of*this*provision* market!in!that!security!by!repeated!purchases!from,!and!
This! applies! only! to! options! that! are! created! by! an! results! to,! its! individual! retail! customers! at! steady!
exchange! or! other! market! where! the! clearing! increasing!prices.!
organization! and/or! members! guarantee! performance! *
and!where!offset!is!available.! Scalping*
! situation! in! which! brokerKdealer! or! an! investment!
Options,*definition* adviser!recommends!the!purchase!of!securities!without!
Contracts! that! give! the! buyer! the! right,! but! not! the! disclosing! its! practice! of! purchasing! such! securities!
obligation,! to! buy! or! sell! an! underlying! security! at! a! before! making! the! recommendation! and! then! selling!
predetermined!price,!called!the!exercise!or!strike!price,! them! at! a! profit! when! the! price! rises! after! the!
on!or!before!a!predetermined!date,!call!the!expiry!date,! recommendation!is!disseminated!
which!can!only!be!extended!in!accordance!with!exchange!
rules.!(Decasa,)SRC)Annotated)2013.)! )
* Single*day*trading*practice))
Call*options*v.*Put*options* practice!of!buying!and!selling!shares!in!a!single!trading!
Call! options! are! rights! to! buy;! put! options! are! rights! to! session,!where!the!investors!settle!their!accounts!at!the!
sell.!Call!is!a!transferable!option!to!buy!specified!number! end! of! the! day. Day! traders! usually! follow! a! trend! of!
of!shares!at!a!stated!price;!put!is!a!transferable!option!or! buying! activity! on! a! particular! stock! and! then! sell! the!
offer! to! deliver! a! given! number! of! shares! of! stock! at! a! same! issue! on! the! same! day! after! a! profit! has! been!
stated! price! at! any! given! time! during! a! stated! period.! realized!even!without!any!cash!outlay.
(Decasa,)SRC)Annotated)2013.)!
!
Straddle,*definition* Free!riding:!an!improper!extension!of!credit!or!purchase!
A!combination!of!put!and!call!options.!This!involves!the! of!shares!without!intent!of!paying!at!all!or!with!the!intent!
purchase! of! an! equal! number! of! put! options! and! call! of! paying! only! if! the! price! goes! up! by! the! settlement!
options! on! the! same! underlying! security! at! the! same! date. When!is!single!day!trading!activity!allowed?!Only!
strike! price! and! maturity! date.! Each! option! may! be! if!necessary!safety!measures!are!put!in!place!to!ensure!
exercised! separately,! although! the! combination! of! protection! of! the! investing! public! from! illegal! trading!
options!is!usually!bought!and!sold!as!a!unit.!(Decasa,)SRC) activities.!
Annotated)2013.)! )
* FrontHrunning*
* a! market! malpractice! whereby! brokers,! also! acting! as!
Fraudulent*Transactions* dealers,! prioritize! their! own! dealer! accounts! by!
* executing!their!own!orders!on!a!particular!issued!ahead!
Unlawful*acts*with*respect*to*the*purchase*and*sale* of!their!clients!!
of*securities* !
! !
It!shall!be!unlawful!for!any!person,!directly!or!indirectly,!
Use*of*information*obtained*in*fiduciary*capacity*for*
in!connection!with!the!purchase!or!sale!of!any!securities!
the*purpose*of*policing*or*making*purchases,*sales,*
to:!!
or*exchanges*of*securities.*
i.! employ! any! device,! scheme,! or! artifice! to!
defraud;! !
! A! Broker! Dealer,! Associated! Person! or! salesman! of! a!
ii.! obtain! money! or! property! by! means! of! any! Broker!Dealer,!a!paying!agent,!transfer!agent,!trustee,!or!
untrue! statement! of! a! material! fact! of! any! any! other! person! acting! in! a! similar! fiduciary! capacity,!
omission! to! state! a! material! fact! necessary! in! who! has! received! information! as! to! the! ownership! of!
order!to!make!the!statements!made,!in!the!light! securities,!shall!not!make!use!of!such!information!for!the!
of! the! circumstances! under! which! they! were! purpose! of! soliciting! or! making! purchases,! sales! or!
made,!not!misleading;!or!! exchanges! of! securities! or,! except! as! provided! in!SRC!
! Rule!30.2.9,!provide!such!information!to!any!person!who!
iii.! engage! in! any! act,! transaction,! practice! or! does! not! need! such! information! to! fulfill! his!
course! of! business! which! operates! or! would! responsibilities! under! the! Code.! (2015) Implementing)
operate! as! a! fraud! or! deceit! upon! any! person.! Rules) and) Regulations) of) the) Securities) Regulation) Code,)
(2015) Implementing) Rules) and) Regulations) of) IRR)of)RA)8799,)[August)4,)2015])!
the)Securities)Regulation)Code,)IRR)of)RA)8799,) !
[August)4,)2015])! !

LABAN NOTES ABRIL 16

 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE
Prohibited*Representations,*Dealings*and*
Solicitations*
!
It!shall!be!unlawful!for!any:!
1.!person! to! represent! that! he! has! been! registered!
as! a! securities! intermediary! with! the!
Commission! unless! such! person! is! registered!
under! the! Code.! *Registration! under! the!
Corporation! Code! shall! not! be! deemed! to! be!
registration!under!the!Code;!
2.!Broker!dealer!to!represent!that!the!registration!of!
the!broker!dealer!under!the!code,!or!the!failure!
of!the!Commission!to!deny,!suspend,!or!revoke!
such!registration,!indicates!in!any!way!that!the!
Commission!has!passed!upon!or!approved!the!
financial!standing,!business,!or!conduct!of!such!
Broker!Dealer,!or!the!merits!of!any!security!or!
any!transaction/s!conducted!thereby;!
3.! Person! to! represent! that! a! security! is! a!
particular! type! of! security! when! such!
representation! is! inconsistent! with! a! stated!
definition! under! the! Code! or! rules! or!
regulations!adopted!thereunder.!
4.! Person!to!represent!that!a!security!to!be!sold,!
transferred,!pledged,!mortgaged,!encumbered,!
used! for! delivery,! or! any! other! purpose! to!
another! entity! or! itself! has! been! legally!
authorized!by!the!registered!owner!when!such!
representation!is!not!true!and!documented!in!
writing!at!the!time!and!date!it!was!used.!!
5.! Person,!whether!as!principal!or!agent,!to!buy,!
sell!or!deal!in!securities!or!solicit!investments!
in! securities! and! other! investment! contracts,!
unless! he! is! a! registered! broker,! dealer! or!
licensed! salesman! of! a! broker! dealer! and! the!
securities! are! registered! under! the! Code! or!
exempt!from!registration!pursuant!to!Sections!
9! and! 10! thereof.)(2015) Implementing) Rules)
and) Regulations) of) the) Securities) Regulation)
Code,)IRR)of)RA)8799,)[August)4,)2015])!
Dealing*in*securities,*inclusions*
making!or!offering!to!make!with!any!person,!or!inducing!
or! attempting! to! induce! any! person! to! enter! into! or! to!
offer!to!enter!into!any!agreement!for!or!with!a!view!to!
acquiring,!disposing!of,!subscribing!for!securities!(2015)
Implementing) Rules) and) Regulations) of) the) Securities)
Regulation)Code,)IRR)of)RA)8799,)[August)4,)2015]))
) (Decasa,)SRC)Annotated)2013.)!
Solicitation,*definition*
act!of!seeking!or!asking!for!business!or!information!and!
including! the! act! of! providing! information! about! a!
security! or! investment! product! being! offered! for! sale!
with! the! view! of! making! another! person! a! client! or!
closing! or! bringing! in! a! sale! or! purchase! of! security! or!
investment!product.!The!solicitor!need!not!be!a!signatory!
to! any! contract! relative! to! such! offer! or! sale! of! the!
security!(2015)Implementing)Rules)and)Regulations)of)the)
LABAN NOTES ABRIL
Securities) Regulation) Code,) IRR) of) RA) 8799,) [August) 4,)
2015])!
)
Common*enterprise,*when*created*
when!two!(2)!or!more!investors!"pool"!their!resources,!
creating! a! common! enterprise,! even! if! the! promoter!
receives!nothing!more!than!a!broker's!commission!(2015)
Implementing) Rules) and) Regulations) of) the) Securities)
Regulation)Code,)IRR)of)RA)8799,)[August)4,)2015])!
!
!
Insider*Trading*
*
Insider,*meaning*
a)! the!issuer;!!
b)! a! director! or! officer! (or! person! performing!
similar!functions)!of,!or!a!person!controlling!the!
issuer;!!
c)! a! person! whose! relationship! or! former!
relationship! to! the! issuer! gives! or! gave! him!
access!to!material!information!about!the!issuer!
or!the!security!that!is!not!generally!available!to!
the!public;!!
d)! a!government!employee,!or!director,!or!officer!
of! an! exchange,! clearing! agency! and/or! selfK
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! (The) Securities) Regulation) Code,)
Republic)Act)No.)8799,)[July)19,)2000])!
!
Tipees,*when*liable*
The!scope!of!the!definition!of!“insider”!was!broadened!to!
include! nonKtraditional! insiders,! ‘tipees,’! who! receive!
material!information!based!upon!their!relationship!with,!
or!access!to,!the!issuer,!or!information!about!the!issuer.!
While! the! definition! raises! the! question! as! to! whether!
only! tipees! who! knowingly! receive! such! information!
from!the!communication!from!an!insider!is!liable,!sec.!27!
makes!it!quite!clear!that!tipees!are!liable!only!as!insiders!
when! they! receive! such! information! from! an!
unauthorized! disclosure! from! an! insider! and! use! such!
information! to! profit! illegally.! It! appears! that! the!
definition!limits!the!coverage!of!‘tipees’!to!the!first!layer!
of!those!who!get!information!from!insiders!enumerated!
from!(a)!to!(d).!other!persons!who!get!their!information!
from!tipees!are!not!covered!by!the!definition!of!insiders.!!
!
Insider*trading,*when*committed*
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! (2015) Implementing)
Rules) and) Regulations) of) the) Securities) Regulation) Code,)
IRR)of)RA)8799,)[August)4,)2015]))
)
17
 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE

Instances* when* insider* trading* is* deemed* not* Registration*of*Brokers,*Dealers,*Salesmen*and*

committed*
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.! (2015) Implementing) Rules) and)
Regulations) of) the) Securities) Regulation) Code,)
IRR)of)RA)8799,)[August)4,)2015]))
! 28.3.!The! Commission,! by! rule! or! order,! may!
Presumption*that*purchase*of*security*by*an*insider*
was* effected* while* in* possession* of* material*
nonpublic*information*
A!purchase!or!sale!of!a!security!of!the!issuer!made!by!an!
insider! defined! in! Section! 3.8! of! the! Code,! or! such!
insider's!spouse!or!relatives!by!affinity!or!consanguinity!
within! the! second! degree,! legitimate! or! commonKlaw,!
shall! be! presumed! to! have! been! effected! while! in!
possession! of! material! nonpublic! 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!market!to!
absorb!such!information!(2015)Implementing)Rules)and)
Regulations) of) the) Securities) Regulation) Code,) IRR) of) RA)
8799,)[August)4,)2015]))
! and!provide!a!bond!or!other!security!as!the!Commission!
Presumption,*how*rebutted*
Upon! showing! by! the! purchaser! or! seller! that! he! was!
aware!of!the!material!nonpublic!information!at!the!time!
of!the!purchase!or!sale!
! Commission!pursuant!to!Section!65!hereof.!
Information,*when*considered*‘material*nonpublic’*
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.(2015)Implementing)
Rules) and) Regulations) of) the) Securities)
Regulation) Code,) IRR) of) RA) 8799,) [August) 4,)
2015])!
! person!is!to!become!affiliated,!or!by!the!issuer!in!the!case!
Material*fact*or*information,*definition*
Any!fact!or!information!that!may!result!in!a!change!in!the!
market!place!or!value!of!any!of!the!issuer’s!securities,!or!
may! potentially! affect! the! investment! decision! of! an!
investor.! A! fact! is! thus! deemed! material! if! it! tends! to!
induce! or! otherwise! affects! the! sale! or! purchase! of! the!
securities.!(Decasa,)SRC)Annotated)2013.))
! sales!of!securities!of!the!issuer.!
! !
Registration*of*Securities*Market*Professionals*
!
Associated*Persons*
!
28.1.!No!person!shall!engage!in!the!business!of!buying!or!
selling!securities!in!the!Philippines!as!a!broker!or!dealer,!
or! act! as! a! salesman,! or! an! associated! person! of! any!
broker! or! dealer! unless! registered! as! such! with! the!
Commission.!
!
28.2.!No! registered! broker! or! dealer! shall! employ! any!
salesman! or! any! associated! person,! and! no! issuer! shall!
employ!any!salesman,!who!is!not!registered!as!such!with!
the!Commission.!
!
conditionally! or! unconditionally! exempt! from!
Subsections!28.1!and!28.2!any!broker,!dealer,!salesman,!
associated!person!of!any!broker!or!dealer,!or!any!class!of!
the! foregoing,! as! it! deems! consistent! with! the! public!
interest!and!the!protection!of!investors.!
!
28.4.!The! Commission! shall! promulgate! rules! and!
regulations!prescribing!the!qualifications!for!registration!
of!each!category!of!applicant,!which!shall,!among!other!
things,!require!as!a!condition!for!registration!that:!
(a)!If!a!natural!person,!the!applicant!satisfactorily!pass!a!
written!examination!as!to!his!proficiency!and!knowledge!
in!the!area!of!activity!for!which!registration!is!sought;!
(b)!In!the!case!of!a!broker!or!dealer,!the!applicant!satisfy!
a!minimum!net!capital!as!prescribed!by!the!Commission,!
may!prescribe!to!secure!compliance!with!the!provisions!
of!this!Code;!and!
(c)!If!located!outside!of!the!Philippines,!the!applicant!files!
a! written! consent! to! service! of! process! upon! the!
!
28.5.!A! broker! or! dealer! may! apply! for! registration! by!
filing!with!the!Commission!a!written!application!in!such!
form! and! containing! such! information! and! documents!
concerning!such!broker!or!dealer!as!the!Commission!by!
rule!shall!prescribe.!
!
28.6.!Registration! of! a! salesman! or! of! an! associated!
person! of! a! registered! broker! or! dealer! may! be! made!
upon! written! application! filed! with! the! Commission! by!
such! salesman! or! associated! person.! The! application!
shall!be!separately!signed!and!certified!by!the!registered!
broker! or! dealer! to! which! such! salesman! or! associated!
of!a!salesman!employed,!appointed!or!authorized!solely!
by!such!issuer.!The!application!shall!be!in!such!form!and!
contain!such!information!and!documents!concerning!the!
salesman!or!associated!person!as!the!Commission!by!rule!
shall!prescribe.!For!purposes!of!this!Section,!a!salesman!
shall! not! include! any! employee! of! an! issuer! whose!
compensation!is!not!determined!directly!or!indirectly!on!

LABAN NOTES ABRIL 18

 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE

28.7.!Applications!filed!pursuant!to!Subsections!28.5!and! any! person! who,! directly! or! indirectly,! through! any!

28.6!shall!be!accompanied!by!a!registration!fee!in!such! contract,! arrangement,! understanding,! relationship! or!
reasonable!amount!prescribed!by!the!Commission.! otherwise,! has! or! shares! voting! power! (which! includes!
! the!power!to!vote!or!direct!the!voting!of!such!security)!
28.8.!Within! thirty! (30)! days! after! the! filing! of! any! and/or!investment!returns!or!power!(which!includes!the!
application!under!this!Section,!the!Commission!shall!by! power! to! dispose! of,! or! direct! the! disposition! of! such!
order:! (a)! Grant! registration! if! it! determines! that! the! security);! provided,! that! a! person! shall! be! deemed! to!
requirements! of! this! Section! and! the! qualifications! for! have! an! indirect! beneficial! ownership! interest! in! any!
registration! set! forth! in! its! rules! and! regulations! have! security!which!is:!
been!satisfied;!or!(b)!Deny!said!registration.!! 1.! held! by! members! of! his! immediate! family!
! sharing!the!same!household;!
28.9.!The!names!and!addresses!of!all!persons!approved! 2.! held!by!a!partnership!in!which!he!is!a!general!
for! registration! as! brokers,! dealers,! associated! persons! partner;!
or! salesmen! and! all! orders! of! the! Commission! with! 3.! held! by! a! corporation! in! which! he! is! a!
respect! thereto! shall! be! recorded! in! a! Register! of! controlling!shareholder;!or!
Securities!Market!Professionals!kept!in!the!office!of!the! 4.! subject! to! any! contract,! arrangement! or!
Commission!which!shall!be!open!to!public!inspection.! understanding! which! gives! him! voting! power!
! or! investment! power! with! respect! to! such!
28.10.!Every!person!registered!pursuant!to!this!Section! securities;!provided,!that!the!following!persons!
shall! file! with! the! Commission,! in! such! form! as! the! or! institutions! shall! not! be! deemed! to! be!
Commission! shall! prescribe,! information! necessary! to! beneficial!owners!of!securities!held!by!them!for!
keep! the! application! for! registration! current! and! the! benefit! of! third! parties! or! in! customer! or!
accurate,! including! in! the! case! of! a! broker! or! dealer! fiduciary! accounts! in! the! ordinary! course! of!
changes! in! salesmen,! associated! persons! and! owners! business,!as!long!as!such!shares!were!acquired!
thereof.! by! such! persons! or! institutions! without! the!
! definite! and/or! clear! intention! of! effecting! a!
28.11.!Every!person!registered!pursuant!to!this!Section! change!or!influencing!the!control!of!the!Issuer:!
shall!pay!to!the!Commission!an!annual!fee!at!such!time! 1.! A!broker!dealer;!
and!in!such!reasonable!amount!as!the!Commission!shall! 2.! An! investment! house! registered!
prescribe.! Upon! notice! by! the! Commission! that! such! under!the!Investment!Houses!Law;!
annual!fee!has!not!been!paid!as!required,!the!registration! 3.! A! bank! authorized! to! operate! by! the!
of! such! person! shall! be! suspended! until! payment! has! Bangko!Sentral!ng!Pilipinas!("BSP");!
been!made.! 4.! A! dulyKregistered! insurance!
! company;!
28.12.!The! registration! of! a! salesman! or! associated! 5.! An! investment! company! registered!
person! shall! be! automatically! terminated! upon! the! under!the!Investment!Company!Act;!
cessation!of!his!affiliation!with!said!registered!broker!or! 6.! A! pension! plan! registered! with! and!
dealer,! or! with! an! issuer! in! the! case! of! a! salesman! regulated! by! the! Bureau! of! Internal!
employed,! appointed! or! authorized! by! such! issuer.! Revenue,! Insurance! Commission! or!
Promptly!following!any!such!cessation!of!affiliation,!the! any!other!regulatory!authority;!and!
registered!broker!or!dealer,!or!issuer,!as!the!case!may!be,! 7.! An! entity! whose! members! are! the!
shall!file!with!the!Commission!a!notice!of!separation!of! persons! specified! above.! (2015)
such! salesman! or! associated! person.! (The) Securities) Implementing) Rules) and) Regulations)
Regulation)Code,)Republic)Act)No.)8799,)[July)19,)2000])! of)the)Securities)Regulation)Code,)IRR)
! of)RA)8799,)[August)4,)2015])!
Broker*Dealer,*definition* !
any! entity! that! buys! or! sells! securities! for! its! own! and! All! securities! of! the! same! class! that! are! beneficially!
customers'!account!and!who!shall!be!registered!with!the! owned! by! a! person,! regardless! of! the! form! of! the!
Commission! pursuant! to! Section! 28! of! the! Code.! (2015) beneficial!ownership,!shall!be!aggregated!in!calculating!
Implementing) Rules) and) Regulations) of) the) Securities) the! number! of! shares! that! shall! be! considered! as!
Regulation)Code,)IRR)of)RA)8799,)[August)4,)2015])! beneficially!owned!by!such!person.!
! !
! When!is!one!deemed!a!beneficial!owner!of!securities!
Protection*of*Shareholder*(Investor)*Interests* A!person!shall!be!deemed!to!be!the!beneficial!owner!of!a!
! security!if!that!person!has!the!right!to!acquire!beneficial!
ownership! within! thirty! (30)! days! from! the! exercise! of!
Tender*Offers*
any! option,! warrant! or! right,! or! conversion! of! any!
!
security;! or! pursuant! to! the! power! to! revoke! a! trust,!
Definitions* discretionary! account! or! similar! arrangement;! or!
! pursuant! to! the! automatic! termination! of! a! trust,!
Beneficial*owner* discretionary! account! or! similar! arrangement.! (2015)

LABAN NOTES ABRIL 19

 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE

Implementing) Rules) and) Regulations) of) the) Securities) the! offeror! to! security! holders! which,! directly!
Regulation)Code,)IRR)of)RA)8799,)[August)4,)2015])! or!indirectly,!solicit,!invite!or!request!tenders!of!
! the!equity!securities!being!sought!in!the!tender!
* offer!
Offeror* *
any!person!who!makes!a!tender!offer!or!on!whose!behalf! Termination*
a!tender!offer!is!made! The! date! after! which! equity! securities! may! not! be!
* tendered!pursuant!to!the!tender!offer!
Commencement* *
The!date!a!tender!offer!is!first!published,!sent!or!given!to! *
security!holders! Mandatory*Tender*Offers*
* !
Issuer* 1.! Any! person! or! group! of! persons! acting! in!
Any! person! or! entity! subject! to! reporting! obligations! concert,!who!intends!to!acquire!fifteen!percent!
under!section!17.2!of!the!Code! (15%)!of!equity!securities!in!a!public!company!
* in!one!or!more!transactions!within!a!period!of!
Issuer*tender*offer* twelve! (12)! months,! shall! file! a! declaration! to!
A!publicly!announced!intention!by!an!issuer!to!reacquire! that!effect!with!the!Commission.!
any!of!its!own!class!of!equity!shares,!or!by!an!associate!of! 2.! Any! person! or! group! of! persons! acting! in!
such!issuer!to!acquire!such!securities! concert,! who! intends! to! acquire! thirty! five!
* percent!(35%)!of!the!outstanding!voting!shares!
Security*holders* or! such! outstanding! voting! shares! that! are!
Holders!of!record!and!beneficial!owners!of!securities!that! sufficient!to!gain!control!of!the!board!in!a!public!
are!the!subject!of!a!tender!offer! company!in!one!or!more!transactions!within!a!
* period! of! twelve! (12)! months,! shall! disclose!
Target*company* such!intention!and!contemporaneously!make!a!
Any! issuer! whose! equity! securities! are! sought! by! an! tender! offer! for! the! percentage! sought! to! all!
offeror!pursuant!to!a!tender!offer! holders! of! such! securities! within! the! said!
* period.!
Tender*offer* !
A!publicly!announced!intention!by!a!person!acting!alone! If! the! tender! offer! is! oversubscribed,! the!
or!in!concert!with!other!persons!to!acquire!outstanding! aggregate! amount! of! securities! to! be! acquired!
equity! securities! of! a! public! company,! or! outstanding! at! the! close! of! such! tender! offer! shall! be!
equity! securities! of! an! associate! or! related! company! of! proportionately! distributed! across! selling!
such! public! company! which! controls! the! said! public! shareholders! with! whom! the! acquirer! may!
company! have! been! in! private! negotiations! and! other!
* shareholders.!For!purposes!of!SRC!Rule!19.2.2,!
Purpose*of*a*Tender*Offer* the!last!sale!that!meets!the!threshold!shall!not!
Tender! offer! is! in! place! to! protect! the! interests! of! be! consummated! until! the! closing! and!
minority! stockholders! of! a! target! company! against! any! completion!of!the!tender!offer.!!
scheme!that!dilutes!the!share!value!of!their!investments.! !
It!affords!such!minority!shareholders!the!opportunity!to! 3.! Any! person! or! group! of! persons! acting! in!
withdraw! or! exit! from! the! company! under! reasonable! concert,! who! intends! to! acquire! thirty! five!
terms,!a!chance!to!sell!their!shares!at!the!same!price!as! percent!(35%)!of!the!outstanding!voting!shares!
those!of!the!majority!stockholders.!(Osmeña)III)v.)Social) or! such! outstanding! voting! shares! that! are!
Security)System),)G.R.)No.)165272,)[September)13,)2007],) sufficient!to!gain!control!of!the!board!in!a!public!
559)PHIL)723T738)! company!through!the!Exchange!trading!system!
* shall! not! be! required! to! make! a! tender! offer!
* even!if!such!person!or!group!of!persons!acting!
Tender*offer*materials* in! concert! acquire! the! remainder! through! a!
(a)! the! offeror’s! formal! offer,! including! all! the! block! sale! if,! after! acquisition! through! the!
material! terms! and! conditions! of! the! tender! Exchange! trading! system,! they! fail! to! acquire!
offer!and!all!their!amendments;! their!target!of!thirty!five!percent!(35%)!or!such!
(b)! the! related! transmittal! letter! (whereby! equity! outstanding! voting! shares! that! is! sufficient! to!
securities!of!the!target!company!that!are!sought! gain!control!of!the!board.!!
in! the! tender! offer! may! be! transmitted! to! the! !!
offeror! or! its! depository)! and! all! their! 4.! Any! person! or! group! of! persons! acting! in!
amendments;!and! concert,! who! intends! to! acquire! thirty! five!
(c)! press! releases,! advertisements,! letters! and! percent!(35%)!of!the!outstanding!voting!shares!
other! documents! published! by! the! offeror! or! or! such! outstanding! voting! shares! that! are!
sent!or!given!by!the!offeror!or!sent!or!given!by! sufficient!to!gain!control!of!the!board!in!a!public!

LABAN NOTES ABRIL 20

 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE

company! directly! from! one! or! more! a!corporation!with!assets!of!at!least!Fifty!million!pesos!

stockholders!shall!be!required!to!make!a!tender! (P50,000,000.00)! and! having! two! hundred! (200)! or!
offer!for!all!the!outstanding!voting!shares.!The! more! stockholders! with! at! least! one! hundred! (100)!
sale! of! shares! pursuant! to! the! private! shares! each! or! who! intends! to! acquire! at! least! thirty!
transaction!or!block!sale!shall!not!be!completed! percent!(30%)!of!such!equity!over!a!period!of!twelve!(12)!
prior! to! the! closing! and! completion! of! the! months! shall! make! a! tender! offer! to! stockholders! by!
tender!offer.! filing! with! the! Commission! a! declaration! to! that! effect;!
! and!furnish!the!issuer,!a!statement!containing!such!of!the!
5.! If! any! acquisition! that! would! result! in! information! required! in! Section! 17! of! this! Code! as! the!
ownership! of! over! fifty! percent! (50%)! of! the! Commission! may! prescribe.! Such! person! or! group! of!
total! outstanding! equity! securities! of! a! public! persons! shall! publish! all! requests! or! invitations! for!
company,! the! acquirer! shall! be! required! to! tender,!or!materials!making!a!tender!offer!or!requesting!
make!a!tender!offer!under!this!Rule!for!all!the! or! inviting! letters! of! such! a! security.! Copies! of! any!
outstanding! equity! securities! to! all! remaining! additional!material!soliciting!or!requesting!such!tender!
stockholders! of! the! said! company! at! a! price! offers! subsequent! to! the! initial! solicitation! or! request!
supported!by!a!fairness!opinion!provided!by!an! shall! contain! such! information! as! the! Commission! may!
independent! financial! advisor! or! equivalent! prescribe,! and! shall! be! filed! with! the! Commission! and!
third!party.!The!acquirer!in!such!a!tender!offer! sent!to!the!issuer!not!later!than!the!time!copies!of!such!
shall! be! required! to! accept! all! securities! materials!are!first!published!or!sent!or!given!to!security!
tendered.!(2015) Implementing) Rules) and) holders.!
Regulations) of) the) Securities) Regulation) Code,) !
IRR)of)RA)8799,)[August)4,)2015])! Under! existing! SEC! Rules,!the! 15%! and! 30%! threshold!
! acquisition!of!shares!under!the!foregoing!provision!was!
! increased! to! thirtyKfive! percent! (35%).! It! is! further!
Mandatory*Tender*Offer*Rule*applies*to*both*direct* provided! therein! that! mandatory! tender! offer! is! still!
and* indirect* acquisition* of* shares* in* a* public* applicable!even!if!the!acquisition!is!less!than!35%!when!
company* the!purchase!would!result!in!ownership!of!over!51%!of!
! the! total! outstanding! equity! securities! of! the! public!
Cemco*Holdings,*Inc.*v.*National*Life*Insurance*Co.*of* company.!
the* Philippines,* Inc.,* G.R.* No.* 171815,* [August* 7,* !
2007]* The!SEC!and!the!Court!of!Appeals!accurately!pointed!out!
* that! the! coverage! of! the! mandatory! tender! offer! rule!
On! the! second! issue,! petitioner! asserts! that! the! covers! not! only! direct! acquisition! but! also! indirect!
mandatory! tender! offer! rule! applies! only! to! direct! acquisition!or!"any!type!of!acquisition".!
acquisition!of!shares!in!the!public!company.! !
! Petitioner!counters!that!the!legislator's!reference!to!"any!
This!contention!is!not!meritorious.! type! of! acquisition"! during! the! deliberations! on!the!
! Securities! Regulation! Code!does! not! indicate! that!
Tender! offer! is! a! publicly! announced! intention! by! a! congress! meant! to! include! the! "indirect"! acquisition! of!
person!acting!alone!or!in!concert!with!other!persons!to! shares! of! a! public! corporation! to! be! covered! by! the!
acquire! equity! securities! of! a! public! company.!A! public! tender! offer! rule.! Petitioner! also! avers! that! it! did! not!
company!is!defined!as!a!corporation!which!is!listed!on!an! directly! acquire! the! shares! in! UCC! and! the! incidental!
exchange,! or! a! corporation! with! assets! exceeding! benefit!of!having!acquired!the!control!of!the!said!public!
P50,000,000.00! and! with! 200! or! more! stockholders,! at! company!must!not!be!taken!against!it.!
least!200!of!them!holding!not!less!than!100!shares!of!such! !
company.!Stated!differently,!a!tender!offer!is!an!offer!by! These! arguments! are! not! convincing.! The! legislative!
the!acquiring!person!to!stockholders!of!a!public!company! intent!of!Section!19!of!the!Code!is!to!regulate!activities!
for! them! to! tender! their! shares! therein! on! the! terms! relating! to! acquisition! of! control! of! the! listed! company!
specified!in!the!offer.!Tender!offer!is!in!place!to!protect! and! for! the! purpose! of! protecting! the! minority!
minority! shareholders! against! any! scheme! that! dilutes! stockholders! of! a! listed! corporation.! Whatever! may! be!
the!share!value!of!their!investments.!It!gives!the!minority! the! method! by! which! control! of! a! public! company! is!
shareholders! the! chance! to! exit! the! company! under! obtained,!either!through!the!direct!purchase!of!its!stocks!
reasonable! terms,! giving! them! the! opportunity! to! sell! or! through! an! indirect! means,! mandatory! tender! offer!
their! shares! at! the! same! price! as! those! of! the! majority! applies.!
shareholders.! !
! Guidelines*on*the*Conduct*of*Valuation*and*Issuance*
Under!Section!19!of!Republic!Act!No.!8799,!it!is!stated:! of*a*Fairness*Opinion*
Tender!Offers.!19.1.!(a)!Any!person!or!group!of!persons! !
acting!in!concert!who!intends!to!acquire!at!least!fifteen! Only! independent! firms! that! are! compliant! with! the!
percent! (15%)! of! any! class! of! any! equity! security! of! a! qualifications!prescribed!in!these!Rules!and!Regulations!
listed!corporation!or!of!any!class!of!any!equity!security!of! Circular! may! conduct! valuation! and! issue! fairness!

LABAN NOTES ABRIL 21

 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE
opinion! to! comply! with! the! aboveKquoted! provisions!
of!SRC!Rule!19.!
!!
"Independence"! shall! mean! absence! of! any! business!
interest! or! family! relationship! with! any! party! to! the!
transaction! or! of! any! of! its! directors,! officers,! or! major!
stockholders,! that! could,! or! could! reasonably! be!
perceived!to,!materially!interfere!with!the!exercise!of!the!
professional!judgment!of!the!firm,!its!representative!or!
any! member! of! the! engagement! team,! in! carrying! out!
their! responsibilities! in! assessing! the! fairness! of! the!
issuer's!securities;!
! apply!to!the!following:!
The! following! requirements! must! be! observed! in! the!
conduct!of!the!valuation!and!issuance!of!fairness!opinion!
by!an!accredited!firm:!
! ownership! of! securities! by! the! purchaser! or!
1.! The! individual! who! acts! on! behalf! of! the!
accredited!firm!shall!be!a!licensed!professional!
who! has! at! least! ten! (10)! years! experience! in!
the! field! of! accounting,! finance! or! economics!
and!holds!a!relevant!advance!degree;!
2.! The! firm! shall! use! in! its! assessment! relevant!
and! current! data! or! those! that! are! not! more!
than!three!months!from!date!of!valuation;!
3.! The! firm! shall! adopt! more! than! one! valuation!
methodology! and! compare! the! values! derived!
from! using! different! methodologies! to!
minimize!the!risk!that!the!opinion!is!unreliable.!
In! addition! to! referencing! the! quoted! price! of!
the! subject! equity! securities,! valuation!
methodologies! shall! include! balance! sheet!
valuation! or! book! value,! dividend! discount!
model,!price/earnings!ratio,!and!free!cash!flow!
approach;!
4.! If!the!firm's!valuation!of!a!company!materially!
differs!from!the!market!price!of!the!company's!
securities! prior! to! the! announcement! of! a!
proposed! transaction,! the! firm! shall! comment!
on!the!difference!and!the!factors!underlying!it;!
5.! The!firm!shall!not!include!prospective!financial!
information! (including! forecasts! and!
projections)! unless! it! has! made! sufficient!
inquiries!to!satisfy!itself!that!the!information!on!
which! it! relied! was! prepared! on! a! reasonable!
basis.!It!shall!also!disclose!how!and!why!it!finds!
such! inquiries! sufficient! and! utilize! several! of!
the! methodologies! in! 19.2.6.2.3! above.!
Discounted! cash! flow! methodology! which!
invariably! uses! forward! looking! information!
may! only! be! used! if! the! firm! has! reasonable!
grounds!for!doing!so.!If!the!firm!considered!the!
use! of! prospective! information,! the! reasons!
shall!be!indicated!in!the!report;!
6.! The! firm! shall! notify! the! party! commissioning!
the!report!within!two!(2)!days!from!date!of!its!
knowledge! of! a! significant! change! which! may!
affect! the! contents! of! the! report! or! from! the!
date!of!its!conclusion!that!a!material!statement!
in!the!report!is!misleading!or!deceptive.!A!copy!
of! such! a! report! shall! be! furnished! to! the!
LABAN NOTES ABRIL
Commission! within! the! same! period! (2015)
Implementing) Rules) and) Regulations) of) the)
Securities) Regulation) Code,) IRR) of) RA) 8799,)
[August)4,)2015])!
!
!
Exemptions*from*the*Mandatory*Tender*Offer*
Requirement*
!
Unless!the!acquisition!of!equity!securities!is!intended!to!
circumvent! or! defeat! the! objectives! of! the! tender! offer!
rules,!the!mandatory!tender!offer!requirement!shall!not!
1.! Any! purchase! of! securities! from! the! unissued!
capital!stock;!Provided,!the!acquisition!will!not!
result! to! a! fifty! percent! (50%)! or! more!
such! percentage! that! is! sufficient! to! gain!
control!of!the!board;!
2.! Any!purchase!of!securities!from!an!increase!in!
authorized!capital!stock;!
3.! Purchase! in! connection! with! foreclosure!
proceedings! involving! a! duly! constituted!
pledge! or! security! arrangement! where! the!
acquisition!is!made!by!the!debtor!or!creditor;!
4.! Purchases! in! connection! with! a! privatization!
undertaken! by! the! government! of! the!
Philippines;!
5.! Purchases! in! connection! with! corporate!
rehabilitation!under!court!supervision;!
6.! Purchases!in!the!open!market!at!the!prevailing!
market!price;!and!
7.! Merger! or! consolidation.! (2015) Implementing)
Rules) and) Regulations) of) the) Securities)
Regulation) Code,) IRR) of) RA) 8799,) [August) 4,)
2015])!
!
Purchasers! of! securities! in! the! foregoing! transactions!
shall! however! comply! with! the! disclosure! and! other!
obligations!under!SRC!Rules!18.1!(reports!by!5%!holders!
of! equity! securities)! and! 23! (transactions! of! directors,!
officers!and!principal!stockholders).!
!
!
Buy*Back*/*Tender*Offer*by*an*Issuer*
!
When*Buy*Back*occurs*
A! reacquisition! or! repurchase! by! an! Issuer! of! its! own!
securities! shall! only! be! made! if! such! Issuer! has!
unrestricted!retained!earnings!in!its!books!to!cover!the!
amount!of!shares!to!be!purchased,!and!is!undertaken!for!
any!of!the!following!purposes:!
•! To!implement!a!stock!option!or!stock!purchase!
plan;!
•! To! meet! shortKterm! obligations! which! can! be!
settled! by! the! reKissuance! of! the! repurchased!
shares;!
•! To!pay!dissenting!or!withdrawing!stockholders!
entitled! to! payment! for! their! securities!
under!the!Corporation!Code;!and!
22
 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE
•! Such! other! legitimate! corporate! purpose/s.!
(2015) Implementing) Rules) and) Regulations) of)
the)Securities)Regulation)Code,)IRR)of)RA)8799,)
[August)4,)2015]))
Reacquisition* through* active* and* widespread*
solicitation*from*stockholders*
An! Issuer! that! intends! to! reacquire! its! own! securities!
through! active! and! widespread! solicitation! from! the!
stockholders! in! general! and! in! substantial! amounts! as!
the! Commission! may! determine! shall! comply! with! the!
disclosure! and! procedural! requirements! provided! for!
in!SRC!Rules! 19.4.3! and! 19.4.4,! and! the! preceding!
provisions! of! this! Rule.! (2015) Implementing) Rules) and)
Regulations) of) the) Securities) Regulation) Code,) IRR) of) RA)
8799,)[August)4,)2015])!
! days!prior!to!the!commencement!of!the!offer;!Provided,!
Tender*Offer*by*means*of*summary*publication*
If! an! Issuer! publishes,! sends! or! disseminates! its! tender!
offer! to! security! holders! by! means! of! summary!
publication! in! the! manner! prescribed! in! this! Rule,! the!
summary! publication! shall! disclose! only! the! following!
information:!
•! The! identity! of! the! Issuer! making! the! tender!
offer;!
•! The!amount!and!class!of!securities!being!sought!
and!the!price!being!offered;!
•! The!information!required!by!SRC!Rule!19.7;!
•! A!statement!of!the!purpose!of!the!tender!offer;!
and!
•! The! appropriate! instruction! for! security!
holders! on! how! to! obtain! promptly,! at! the!
expense!of!the!Issuer!making!the!tender!offer,!
the! information! required! in!SRC! Rule!19.7.!
(2015) Implementing) Rules) and) Regulations) of)
the)Securities)Regulation)Code,)IRR)of)RA)8799,)
[August)4,)2015]))
! consideration!offered!is!first!published,!sent!or!
When*repurchase*is*not*allowed*
Until! the! expiration! of! at! least! ten! (10)! business! days!
from! the! date! of! termination! of! the! tender! offer,! the!
Issuer! shall! not! make! any! repurchase,! otherwise! than!
pursuant!to!the!tender!offer,!of:!
•! Any!security!which!is!the!subject!of!the!tender!
offer,! or! any! security! of! the! same! class! and!
series,! or! any! right! to! repurchase! such!
securities;!and!
•! In! the! case! of! a! tender! offer! which! is! an!
exchange! offer,! any! security! being! offered!
pursuant!to!the!exchange!offer,!or!any!security!
of! the! same! class! and! series,! or! any! right! to!
repurchase! any! such! security.! (2015)
Implementing) Rules) and) Regulations) of) the)
Securities) Regulation) Code,) IRR) of) RA) 8799,)
[August)4,)2015]))
! contract!entered!into!earlier,!or!with!the!approval!of!the!
When*Buy*Back*is*not*allowed*
Calls! or! redemption! of! any! security! in! accordance! with!
the!terms!and!conditions!of!its!governing!instruments;!
! 1.! Issue!any!authorized!but!unissued!shares;!
LABAN NOTES ABRIL
Offers!to!repurchase!securities!evidenced!by!a!certificate,!
order! form! or! similar! document! which! represents! a!
fractional!interest!in!a!share!of!stock!or!similar!security.))
(2015) Implementing) Rules) and) Regulations) of) the)
Securities) Regulation) Code,) IRR) of) RA) 8799,) [August) 4,)
2015]))
!
!
How*Tender*Offer*is*made*
!
Any! person! making! a! tender! offer! shall! make! an!
announcement!of!its!intention!in!a!national!newspaper!of!
general! circulation! within! five! (5)! business! days! from!
either! the! company's! board! approval! authorizing!
negotiations!relative!to!the!purchase!of!shares!that!may!
result!to!a!mandatory!tender!offer!or!thirty!(30)!business!
that! such! announcement! shall! not! be! made! until! the!
Offeror!has!the!resources!to!implement!the!offer!in!full.!A!
copy! of! the! said! notice! shall! be! submitted! to! the!
Commission! on! the! date! of! its! publication.! (2015)
Implementing) Rules) and) Regulations) of) the) Securities)
Regulation)Code,)IRR)of)RA)8799,)[August)4,)2015])!
*
*
Period*and*Manner*of*Making*Tender*Offers*
*
A!tender!offer!shall,!unless!withdrawn,!remain!open!until!
the!expiration!of:!
•! At! least! twenty! (20)! business! days! from! its!
commencement;!Provided,!that!an!offer!should!
as!much!as!possible!be!completed!within!sixty!
(60)!business!days!from!the!date!the!intention!
to!make!such!offer!is!publicly!announced;!or!
•! At! least! ten! (10)! business! days! from! the! date!
the!notice!of!a!change!in!the!percentage!of!the!
class! of! securities! being! sought! or! in! the!
given!to!security!holders!
*
In*case*of*a*mandatory*tender*offer*
In!a!mandatory!tender!offer,!the!Offeror!shall!be!
compelled!to!offer!the!highest!price!paid!by!him!for!
such!securities!during!the!preceding!six!(6)!months.!If!
the!offer!involves!payment!by!transfer!or!allotment!of!
securities,!such!securities!must!be!valued!on!an!
equitable!basis.!
!
In*case*of*tender*offer*other*than*by*an*Issuer*
In! case! of! a! tender! offer! other! than! by! an! Issuer,! the!
subject!of!the!tender!offer!("the!target!company")!shall!
not! engage! in! any! of! the! following! transactions! during!
the!course!of!a!tender!offer,!or!before!its!commencement!
if!its!board!has!reason!to!believe!that!an!offer!might!be!
imminent,! except! if! such! transaction! is! pursuant! to! a!
shareholders! in! a! general! meeting! or,! where! special!
circumstances!exist,!the!Commission's!approval!has!been!
obtained:!
23
 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE

2.! Issue! or! grant! options! in! respect! to! any!
unissued!shares;!
3.! Create! or! issue,! or! permit! the! creation! or!
issuance! of,! any! securities! carrying! rights! of!
conversion!into,!or!subscription!to,!shares;!
4.! Sell,!dispose!of!or!acquire,!or!agree!to!acquire,!
any!asset!whose!value!amounts!to!five!percent!
(5%)! or! more! of! the! total! value! of! the! assets!
prior!to!acquisition;!or!
5.! Enter!into!contracts!that!are!not!in!the!ordinary!
course!of!business.!
! Withdrawal*or*Lapse*of*the*Tender*Offer**
When*securities*tendered*may*be*withdrawn*
The!Offeror!in!a!tender!offer!shall!permit!the!securities!
tendered! to! be! withdrawn! (i)! at! any! time! during! the!
period!such!tender!offer!remains!open;!and!(ii)!if!not!yet!
accepted!for!payment,!after!the!expiration!of!sixty!(60)!
business! days! from! the! commencement! of! the! tender!
offer.!
! target!company!nor!acquire!any!securities!of!the!target!
When*Offeror*is*obliged*to*pay*and*accept*on*a*pro*
rata*basis*
In! the! event! the! Offeror! in! a! tender! offer! increases! the!
consideration! offered! after! the! tender! offer! has!
commenced,! the! Offeror! shall! pay! such! increased!
consideration! to! all! security! holders! whose! tendered!
securities! have! been! accepted! for! payment! by! such!
Offeror,! whether! or! not! the! securities! were! tendered!
prior!to!the!variation!of!the!tender!offer's!terms.!
! order!to!make!the!statements!made,!in!the!light!
When*Offeror*increases*consideration*offered*
In! the! event! the! Offeror! in! a! tender! offer! increases! the!
consideration! offered! after! the! tender! offer! has!
commenced,! the! Offeror! shall! pay! such! increased!
consideration! to! all! security! holders! whose! tendered!
securities! have! been! accepted! for! payment! by! such!
Offeror,! whether! or! not! the! securities! were! tendered!
prior!to!the!variation!of!the!tender!offer's!terms.!
! threshold! amounts! provided! for! in! this! Rule! without!
Options*of*Offeror*after*termination*of*tender*offer*
The! Offeror! in! a! tender! offer! shall! either! pay! the!
consideration!offered,!or!return!the!tendered!securities,!
not! later! than! ten! (10)! business! days! after! the!
termination!or!the!withdrawal!of!the!tender!offer.!
! !
When*no*tender*offer*shall*be*made*
No!tender!offer!shall!be!made!unless:!
•! It!is!open!to!all!security!holders!of!the!class!of!
securities!subject!to!the!tender!offer;!and!
•! The! consideration! paid! to! any! security! holder!
pursuant!to!the!tender!offer!shall!be!the!highest!
consideration!paid!to!any!other!security!holder!
during!such!tender!offer.!!
! Proxies!must!be!in!writing,!signed!by!the!stockholder!or!
Extension*of*period*of*a*Tender*Offer*
The!Offeror!shall!not!extend!the!period!of!a!tender!offer!
without! prior! clearance! from! the! Commission! and!
without!issuing!a!notice!of!such!extension!by!publication!
in!a!national!newspaper!of!general!circulation.!The!notice!
shall! include! a! disclosure! of! the! number! of! securities!
deposited!to!date!and!shall!be!made!public!not!later!than!
the!scheduled!original!expiration!date!of!the!offer.!
Tender*Offer*and*Insider*Trading*
If!a!person!shall!become!aware!of!a!potential!tender!offer!
before! the! tender! offer! has! been! publicly! announced,!
such! person! shall! not! buy! or! sell,! directly! or! indirectly,!
the!securities!of!the!target!company!until!the!tender!offer!
shall! have! been! publicly! announced.! Such! buying! or!
selling!shall!constitute!insider!trading!under!Section!27.4!
of!the!Code!
!
Unless!with!the!prior!approval!of!the!Commission,!if!an!
offer! has! been! announced! but! has! not! become!
unconditional!in!all!respects!and!has!been!withdrawn!or!
has!lapsed,!neither!the!Offeror!nor!any!person!who!acted!
in!concert!with!it!in!the!course!of!the!offer!may,!within!
six! (6)! months! from! the! date! on! which! such! offer! has!
been!withdrawn!or!has!lapsed,!announce!an!offer!for!the!
company! which! would! require! such! person! to! make! a!
mandatory!tender!offer!under!this!Rule!and!Section!19.1!
of!the!Code.!
!
Prohibited*acts*in*any*tender*offer*
To! employ! any! device,! scheme! or! artifice! to!
defraud!any!person;!
•! To!make!any!untrue!statement!of!a!material!fact!
or!to!omit!to!state!a!material!fact!necessary!in!
of! the! circumstances! under! which! they! were!
made,!not!misleading;!or!
•! To! engage! in! any! act,! practice! or! course! of!
business!which!operates!or!would!operate!as!a!
fraud!or!deceit!upon!any!person.!
!
Effect*of*violation*of*the*Tender*Offer*Rule*
If!equity!securities!of!a!public!company!are!purchased!at!
complying!with!the!tender!offer!requirements!under!this!
Rule,!the!Commission!may,!upon!complaint,!nullify!such!
purchase!and!order!the!conduct!of!a!tender!offer,!without!
prejudice!to!the!imposition!of!other!sanctions!under!the!
Code.!
!
Proxy*Solicitation*
!
Proxy,*definition*
Refers!to!the!proxy,!consent!or!authorization!referred!to!
in!section!20!of!the!Code!
!
Proxy*must*be*in*writing*
his! duly! authorized! representative! and! filed! before! the!
scheduled!meeting!with!the!corporate!secretary.!
!
Proxy,*effectivity*
Unless!otherwise!provided!in!the!proxy,!it!shall!be!valid!
only! for! the! meeting! for! which! it! is! intended.! No! proxy!

LABAN NOTES ABRIL 24

 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE

shall!be!valid!and!effective!for!a!period!longer!than!five! !
(5)!years!at!one!time! Under!Section!5!(c)!of!Presidential!Decree!No.!902KA,!in!
! relation! to! the!SRC,! the! jurisdiction! of! the! regular! trial!
Consent*of*customer* courts! with! respect! to! electionKrelated! controversies! is!
No! broker! or! dealer! shall! give! any! proxy,! consent! or! specifically!confined!to!"controversies!in!the!election!or!
authorization,!in!respect!of!any!security!carried!for!the! appointment!of!directors,!trustees,!officers!or!managers!
account! of! a! customer,! to! a! person! other! than! the! of! corporations,! partnerships,! or! associations".!
customer,! without! the! express! written! authorization! of! Evidently,!the!jurisdiction!of!the!regular!courts!over!soK
such!customer.! called!election!contests!or!controversies!under!Section!5!
! (c)!does!not!extend!to!every!potential!subject!that!may!
Report*as*to*the*beneficial*ownership* be!voted!on!by!shareholders,!but!only!to!the!election!of!
A!broker!or!dealer!who!holds!or!acquires!the!proxy!for!at! directors! or! trustees,! in! which! stockholders! are!
least! ten!per! centum!(10%)! or! such! percentage! as! the! authorized! to! participate! under! Section! 24! of!
Commission! may! prescribe! of! the! outstanding! share! of! the!Corporation!Code.!!
the!issuer,!shall!submit!a!report!identifying!the!beneficial! !!
owner!within!ten!(10)!days!after!such!acquisition,!for!its! This! qualification! allows! for! a! useful! distinction! that!
own!account!or!customer,!to!the!issuer!of!the!security,!to! gives! due! effect! to! the! statutory! right! of! the! SEC! to!
the! Exchange! where! the! security! is! traded! and! to! the! regulate!proxy!solicitation,!and!the!statutory!jurisdiction!
Commission.!(The) Securities) Regulation) Code,) Republic) of!regular!courts!over!election!contests!or!controversies.!
Act)No.)8799,)[July)19,)2000])! The!power!of!the!SEC!to!investigate!violations!of!its!rules!
! on!proxy!solicitation!is!unquestioned!when!proxies!are!
Solicitation,*definition* obtained! to! vote! on! matters! unrelated! to! the! cases!
The!terms!solicit!and!solicitation!shall!include:! enumerated!under!Section!5!of!Presidential!Decree!No.!
•! Any!request!for!a!proxy!or!authorization;! 902KA.!However,!when!proxies!are!solicited!in!relation!to!
•! Any!request!to!execute!or!not!to!execute,!or!to! the! election! of! corporate! directors,! the! resulting!
revoke,!a!proxy!or!authorization;!or! controversy,!even!if!it!ostensibly!raised!the!violation!of!
•! The! furnishing! of! a! form! of! proxy! or! other! the! SEC! rules! on! proxy! solicitation,! should! be! properly!
communication! to! security! holders! under! seen!as!an!election!controversy!within!the!original!and!
circumstances! reasonably! calculated! to! result! exclusive! jurisdiction! of! the! trial! courts! by! virtue! of!
in!the!procurement,!withholding!or!revocation! Section! 5.2! of! the!SRC!in! relation! to! Section! 5! (c)! of!
of!a!proxy.!! Presidential!Decree!No.!902KA.!
! !
The!terms!shall!not!apply!to:! The!conferment!of!original!and!exclusive!jurisdiction!on!
•! The!performance!by!any!person!of!ministerial! the!regular!courts!over!such!controversies!in!the!election!
acts!on!behalf!of!a!person!soliciting!a!proxy;!or! of! corporate! directors! must! be! seen! as! intended! to!
•! Any!solicitation!made!otherwise!than!on!behalf! confine!to!one!body!the!adjudication!of!all!related!claims!
of!the!issuer!where!the!total!number!of!persons! and! controversy! arising! from! the! election! of! such!
solicited!is!not!more!than!nineteen!(19).!(2015) directors.! For! that! reason,! the! aforequoted! Section! 2,!
Implementing) Rules) and) Regulations) of) the) Rule! 6! of! the! Interim! Rules! broadly! defines! the! term!
Securities) Regulation) Code,) IRR) of) RA) 8799,) "election! contest"! as! encompassing! all! plausible!
[August)4,)2015])! incidents!arising!from!the!election!of!corporate!directors,!
! including:!(1)!any!controversy!or!dispute!involving!title!
! or! claim! to! any! elective! office! in! a! stock! or! nonstock!
RTC* has* Jurisdiction* over* proxies* solicited* in* corporation,!(2)!the!validation!of!proxies,!(3)!the!manner!
relation* to* election* of* corporate* officers* while* the* and! validity! of! elections! and! (4)! the! qualifications! of!
SEC*over*those*in*relation*to*election*matters*other* candidates,!including!the!proclamation!of!winners.!If!all!
than*the*election*of*corporate*officers* matters! anteceding! the! holding! of! such! election! which!
! affect! its! manner! and! conduct,! such! as! the! proxy!
Shares! of! stock! in! corporations! may! be! divided! into! solicitation!process,!are!deemed!within!the!original!and!
voting!shares!and!nonKvoting!shares,!which!are!generally! exclusive! jurisdiction! of! the! SEC,! then! the! prospect! of!
issued!as!"preferred"!or!"redeemable"!shares.!45!Voting! overlapping! and! competing! jurisdictions! between! that!
rights!are!exercised!during!regular!or!special!meetings!of! body!and!the!regular!courts!becomes!frighteningly!real.!
stockholders;!regular!meetings!to!be!held!annually!on!a! From!the!language!of!Section!5!(c)!of!Presidential!Decree!
fixed! date,! while! special! meetings! may! be! held! at! any! No.! 902KA,! it! is! indubitable! that! controversies! as! to! the!
time!necessary!or!as!provided!in!the!byKlaws,!upon!due! qualification!of!voting!shares,!or!the!validity!of!votes!cast!
notice.!46!The!Corporation! Code!provides! for! a! whole! in! favor! of! a! candidate! for! election! to! the! board! of!
range! of! matters! which! can! be! voted! upon! by! directors!are!properly!cognizable!and!adjudicable!by!the!
stockholders,!including!a!limited!set!on!which!even!nonK regular! courts! exercising! original! and! exclusive!
voting!stockholders!are!entitled!to!vote!on.!47On!any!of! jurisdiction! over! election! cases.) (Government) Service)
these!matters!which!may!be!voted!upon!by!stockholders,! Insurance) System) v.) Court) of) Appeals,) G.R.) No.) 183905,)
the!proxy!device!is!generally!available.!!! 184275,)[April)16,)2009],)603)PHIL)676T722))

LABAN NOTES ABRIL 25

 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE

) be!accompanied!or!preceded!by!a!management!report!to!
The!Court!explained!that!the!power!of!the!SEC!to!regulate! such!stockholders!containing!the!following:!
proxies!remains!in!place!in!instances!when!stockholders! •! Consolidated!audited!financial!statements!and!
vote!on!matters!other!than!the!election!of!directors.!The! interim! unaudited! financial! statements! (if!
test!is!whether!the!controversy!relates!to!such!election.! applicable),! as! required! by!SRC! Rule!68,! as!
All! matters! affecting! the! manner! and! conduct! of! the! amended;!
election! of! directors! are! properly! cognizable! by! the! •! Information! concerning! disagreements! with!
regular!courts.!Otherwise,!these!matters!may!be!brought! accountants! on! accounting! and! financial!
before! the! SEC! for! resolution! based! on! the! regulatory! disclosures;!
powers!it!exercises!over!corporations,!partnerships!and! •! Management's!discussion!and!analysis!or!plan!
associations.! (Securities) and) Exchange) Commission) v.) of!operation;!
Court)of)Appeals,)G.R.)Nos.)187702)&)189014,)[October)22,) •! Brief! description! of! the! general! nature! and!
2014])) scope! of! the! business! of! the! Issuer! and! its!
! subsidiaries;!
! •! Identity! of! each! of! the! Issuer's! directors! and!
! executive! officers,! including! their! principal!
! occupation!or!employment,!name!and!principal!
Disclosure*Rule* business! of! any! organization! in! which! such!
! persons!are!employed;!
Disclosures*to*Stockholders*Prior*to*Meetings*(2015* •! Market! price! of! and! dividends! on! the! Issuer's!
IRR)* common!shares;!
This!Rule!shall!apply!to!all!corporations!covered!by!the! •! Discussion! on! compliance! with! leading!
reporting!requirements!of!Section!17!of!the!Code!and!to! practices!on!corporate!governance;!and!
any!person!who!shall!solicit!votes!for!any!stockholders'! •! Undertaking! in! bold! face! prominent! type! to!
meeting!or!securing!the!written!assent!of!stockholders!in! provide! without! charge! to! each! person!
lieu! of! such! meeting! pursuant! to! Section! 16! of!the! solicited,! upon! written! request! of! any! such!
Corporation!Code.! person,!a!copy!of!the!Issuer's!annual!report!on!
! SEC!Form!17KA!and!the!name!and!address!of!the!
! person!to!whom!such!written!request!is!to!be!
Obligations*of*an*Issuer*Proposing*Approval* directed.! At! the! discretion! of! management,! a!
through*a*Stockholders’*Meeting*by*Written*Assent* charge!may!be!made!for!exhibits,!provided!the!
! charge! is! limited! to! reasonable! expenses!
Submission* of* Information* Statement* and* Proxy* incurred! by! the! Issuer! in! furnishing! the!
Form* exhibits.) (2015) Implementing) Rules) and)
In!the!conduct!of!annual!or!other!stockholders'!meetings,! Regulations) of) the) Securities) Regulation) Code,)
the!Issuer!shall!transmit!either!a!written!or!verifiable!soft! IRR)of)RA)8799,)[August)4,)2015])!
copy! of! the! information! statement! and! proxy! form! (in! !
case! of! a! proxy! solicitation)! containing! the! information! Information* need* not* be* included* in* information*
specified! under! SEC! Form! 20KIS,! and! a! management! statement*
report! under!SRC! Rule!20.4,! if! applicable,! to! every! Any! information! required! to! be! disclosed! in! the!
security!holder!of!the!class!entitled!to!vote.! information! statement,! which! is! also! contained! in! the!
! Issuer's!annual!report,!need!not!be!provided!in!the!said!
Personal*solicitation*or*distribution* statement.! Reference! to! the! page! of! the! annual! report!
If! the! solicitation! or! distribution! shall! be! made! shall,!however,!be!made.!
personally! in! whole! or! in! part,! copies! of! all! written! !
instructions!or!other!materials!which!(i)!discuss,!review! In!case!of!a!special!meeting!where!the!Issuer!has!already!
or!comment!on!the!merits!of!any!matter!to!be!acted!upon! distributed!to!its!stockholders!its!annual!report!on!SEC!
and!(ii)!which!shall!be!furnished!by!the!persons!making! Form! 17KA! for! the! fiscal! year! preceding! the! date! of! its!
the! solicitation! in! connection! with! the! solicitation! shall! annual! stockholders'! meeting,! it! shall! no! longer! be!
be!filed!with,!or!mailed!for!filing!to,!the!Commission!by! required! to! comply! with!SRC! Rule!20.4.1! except! with!
the!person!on!whose!behalf!the!solicitation!shall!be!made! respect! to! the! disclosure! of! updated! financial! and! nonK
not!later!than!the!date!any!such!material!is!first!sent!or! financial!information.!
given!to!such!individuals.! !
! Management*Report*
! Copies! of! the! management! report! for! distribution! to!
Report*to*be*Furnished*to*Stockholders* security!holders!shall!be!filed!with!the!Commission!prior!
to! the! date! on! which! such! report! shall! be! first! sent! or!
!
given!to!security!holders.!
!If!the!information!statement!shall!relate!to!an!annual!(or!
!
special! meeting! in! lieu! of! the! annual)! meeting! of!
The! distribution! of! the! management! report! to! security!
stockholders!at!which!directors!shall!be!elected,!it!shall!
holders!shall!be!considered!as!compliance!with!Section!

LABAN NOTES ABRIL 26

 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE

75!of!the!Corporation!Code!in!regard!to!the!presentation! by!SRC! Rule!20.7.1! are! made! with! copies! of! the!

of! a! financial! report! of! operations,! including! financial! information!statement!and/or!the!management!report!to!
statements,!to!the!stockholders!at!their!regular!meeting.! security! holders! in! such! quantities,! assembled! in! such!
(2015) Implementing) Rules) and) Regulations) of) the) form! and! at! such! place(s),! as! the! record! holder! may!
Securities) Regulation) Code,) IRR) of) RA) 8799,) [August) 4,) reasonably!request!in!order!to!send!such!material!to!each!
2015])! beneficial!owner!of!securities!to!be!furnished!with!such!
* material!by!the!record!holder.!
! !
Obligations*of*an*Issuer*to*Provide*a*List*of,*or*Mail* At!the!request!of!any!record!holder!that!is!supplied!with!
Meeting*Material/s*to*Security*Holders* the! information! statement! and/or! annual! reports! to!
! security!holders!pursuant!to!SRC!Rule!20.7.1,!the!Issuer!
If!a!record!or!beneficial!holder!of!securities!of!the!class! shall! reimburse! the! record! holder! for! its! reasonable!
entitled!to!vote!at!the!meeting!makes!a!written!request! expenses!for!the!mailing!of!such!material!to!the!beneficial!
to!be!provided!with!a!list!of!stockholders!or!to!mail!the! owners.)(2015)Implementing)Rules)and)Regulations)of)the)
meeting! materials,! the! Issuer! shall! grant! the! request! Securities) Regulation) Code,) IRR) of) RA) 8799,) [August) 4,)
either!by!providing!the!list!or!mailing!the!materials!to!the! 2015]))
requesting!stockholder.! !
! !
If!the!Issuer!opts!to!mail!the!materials!for!the!requesting! False*or*Misleading*Statements*
stockholder,!the!Issuer!shall:! !
•! Promptly!advise!the!requesting!stockholder!of! No! information! subject! to! this! Rule! shall! be! made!
the! number! of! record! holders! and! beneficial! containing! any! statement! which,! at! the! time! and! in! the!
holders!to!whom!the!materials!will!be!sent;! light!of!the!circumstances!under!which!it!is!made,!is!false!
•! Inform! the! requesting! stockholder! of! the! or!misleading!with!respect!to!any!material!fact,!or!which!
estimated! cost! of! mailing! an! information! omits! to! state! any! material! fact! necessary! in! order! to!
statement,! proxy! form! or! other! materials! to! make!the!statements!therein!not!false!or!misleading!or!
such!holders;!and! necessary! to! correct! any! statement! in! any! earlier!
•! Promptly! mail! the! materials! to! the! communication!with!respect!to!the!solicitation!of!a!proxy!
stockholders.! (2015! Implementing! Rules! and! for! the! same! meeting! or! subject! matter! which! has!
Regulations! of! the! Securities! Regulation! Code,! become!false!or!misleading.!
IRR!of!RA!8799,![August!4,!2015])! !
! The!fact!that!a!statement!or!other!material!has!been!filed!
! with! or! examined! by! the! Commission! shall! not! be!
Providing*Copies*of*Material*to*Beneficial*Owners* considered! a! finding! by! the! Commission! that! such!
material! is! accurate! or! complete,! or! not! false! or!
!
misleading,!or!that!the!Commission!has!passed!upon!the!
If!the!Issuer!or!solicitor!knows!that!the!securities!of!any!
merits!of!or!approved!any!statement!contained!therein!
class!entitled!to!vote!at!a!meeting!for!which!SEC!Form!20K
or!any!matter!to!be!acted!upon!by!security!holders.!No!
IS! is! furnished! are! held! of! record! by! a! broker,! dealer,!
representation!contrary!to!the!foregoing!shall!be!made.!
investment! house,! voting! trustee,! bank,! association,! or!
!
other! entity! that! exercises! fiduciary! powers! in! a!
!
nominee's! name! or! otherwise,! the! Issuer! or! solicitor!
shall,! by! first! class! mail,! electronic! mail,! facsimile,! or! Obligation*of*Issuers*in*Communicating*with*
other! equally! prompt! means,! inquire! from! such! record! Beneficial*Owners*
holders! at! least! twenty! (20)! business! days! prior! to! the! !
record!date!of!the!meeting:! If!the!Issuer!knows!that!securities!of!any!class!entitled!to!
•! Whether! other! persons! are! the! beneficial! vote! at! a! meeting! with! respect! to! which! the! Issuer!
owners!of!such!securities!and,!if!so,!the!number! intends!to!solicit!proxies,!consents!or!authorizations!are!
of! copies! of! the! information! statement! held! of! record! by! a! broker,! dealer,! investment! house,!
necessary! to! supply! such! material! to! such! voting! trustee,! bank,! association,! or! other! entity! that!
beneficial!owners;!and! exercises! fiduciary! powers! in! nominee! name! or!
•! In!the!case!of!an!annual!(or!special!meeting!in! otherwise,!the!Issuer!shall!by!first!class!mail,!electronic!
lieu!of!the!annual)!meeting!at!which!directors! mail,!facsimile,!or!other!equally!prompt!means,!inquire!of!
are! to! be! elected,! the! number! of! copies! of! the! such! record! holders! at! least! twenty! (20)! business! days!
management! report! to! security! holders! prior!to!the!record!date!of!the!meeting:!
necessary! to! supply! such! report! to! beneficial! •! Whether! other! persons! are! the! beneficial!
owners! to! whom! such! reports! are! to! be! owners!of!such!securities!and!if!so,!the!number!
distributed!by!such!record!holder.! of! copies! of! the! proxy! and! other! soliciting!
! material! necessary! to! supply! such! material! to!
The!Issuer!or!solicitor!shall!supply,!in!a!timely!manner,! such!beneficial!owners;!and!
each! record! holder! for! whom! the! inquiries! required!

LABAN NOTES ABRIL 27

 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE

•! In!the!case!of!an!annual!(or!special!meeting!in! and! rules! and! regulations! adopted! thereunder! and!

lieu!of!the!annual)!meeting!at!which!directors! compliance! of! financing,! lending! companies! and!
are! to! be! elected,! the! number! of! copies! of! the! foundations!with!existing!laws,!rules!and!regulations!and!
management! report! to! security! holders! endorse! infractions! thereof! to! the! Enforcement! and!
necessary! to! supply! such! report! to! beneficial! Investor!Protection!Department.!
owners! to! whom! such! reports! are! to! be! !
distributed! by! such! record! holder.! (2015) It! monitors! covered! companies'! compliance! with!the!
Implementing) Rules) and) Regulations) of) the) Revised! Code! of! Corporate! Governance!and! other!
Securities) Regulation) Code,) IRR) of) RA) 8799,) corporate!governance!issuances!of!the!Commission.!
[August)4,)2015])! !
! !
! Company*Registration*and*Monitoring*Department*
! !
Securities*and*Exchange*Commission*(SEC)* The!Company!Registration!and!Monitoring!Department!
! registers! domestic! corporations,! partnerships! and!
SEC,*Composition* associations,!including!representative!offices!and!foreign!
A!collegial!body!composed!of!a!Chairperson!and!four!(4)! corporations!intending!to!do!business!in!the!Philippines.!
Commissioners.! It!also!supervises!and!monitors!such!entities!relative!to!
! their! compliance! with! law,! rules! and! regulations!
Four*(4)*Principal*Departments*of*the*Commission* administered!by!the!Commission.!
! !
Capital!market!regulation!shall!be!performed!by:! Enforcement*and*Investor*Protection*Department*
1.! Markets!and!Securities!Regulation!Department;! !
and! The! Enforcement! and! Investor! Protection! Department!
2.! Corporate! Governance! and! Finance! ensures! compliance! by! all! market! participants,! issuers!
Department! and! individuals,! and! takes! appropriate! enforcement!
! action!against!them!for!legal!infraction!of!the!Code!and!
Company! registration! and! enforcement! functions! shall! other!relevant!laws,!rules!and!regulations!administered!
be!performed!by:! by!the!Commission.!
3.! Company! Registration! and! Monitoring! !
Department! !
4.! Enforcement! and! Investor! Protection! Support*Services*Departments*
Department! !
! Each!of!the!!following!departments!shall!be!headed!by!a!
Markets*and*Securities*Regulation*Department* director:!
! 1.! Human!Resource!Administrative!Department!
The! Markets! and! Securities! Regulation! Department! 2.! Economic!Research!and!Training!Department!
develops! the! registration! criteria! for! all! market! 3.! Information! and! Communication! Technology!
participants!and!supervises!them!to!ensure!compliance! Department!
with!registration!requirements!and!endorses!infractions! 4.! Financial!Management!Department!
of!the!Code!and!rules!and!regulations!to!the!Enforcement! !
and!Investor!Protection!Department.!It!registers!equity! Human*Resource*Administrative*Department*
securities! and! debt! instruments,! or! recommends! their! !
exemption! from! registration,! before! they! are! sold,! The!Human!Resource!and!Administrative!Department!is!
offered!for!sale,!or!distributed!to!the!public!and!ensures! responsible! for! all! activities! relating! to! personnel! and!
that! full,! timely! and! accurate! information! is! available! human! resource! management,! including! benefits,!
about!the!said!securities.! training!and!development.!
! !
Corporate*Governance*and*Finance*Department* Economic*Research*and*Training*Department*
! !
The! Corporate! Governance! and! Finance! Department! The! Economic! Research! and! Training! Department!
registers!mutual!funds,!including!exchangeKtraded!funds,! coordinates! the! conduct! of! strategic! and! operational!
membership! certificates,! club! shares,! both! proprietary! planning! and! implementation! of! the! Commission;!
and! nonKproprietary,! and! time! shares! before! they! are! undertakes!relevant!economic!researches!and!publishes!
offered! for! sale! or! sold! to! the! public! and! ensures! that! investment! and! financial! statistics! and! analytics;!
adequate! information! is! available! about! the! said! conducts! certification! examinations! and! undertakes!
securities.!It!also!ensures!that!investors!have!access!to!all! periodic!training!needs!assessment!for!the!participants!
material!disclosures!regarding!the!said!offering!and!the! of! the! Philippine! financial! and! capital! markets! and!
securities! of! public! companies.! The! department! also! recommends! programs! for! career! growth! and! human!
monitors!compliance!by!the!above!issuers!with!the!Code!

LABAN NOTES ABRIL 28

 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE

resource! development! of! the! internal! public! for!
implementation! by! the! Human! Resource! and!
Administrative!Department.!
! Philippines!and!its!capital!market.!
Information*and*Communication*Technology*
Department*
! Extension*Offices**
Information! and! Communications! Technology!
Department! is! responsible! for! the! implementation! of!
SEC's! information! systems,! deployment! of! all! ICT!
resources! including! their! administration! and!
maintenance! in! order! to! promote! an! efficient! and!
comprehensive!management!information!system.!It!also!
assists! the! Commission! in! ensuring! that! all! the!
information!systems!are!aligned!with!the!mandate!of!SEC!
and! its! major! final! outputs! (MFO's)! and! are! geared!
towards!the!attainment!of!the!SEC!mission!and!vision.!
! The!Commission!shall!hold!regular!meetings!at!least!once!
Financial*Management*Department*
!
The! Financial! Management! Department! manages! the!
internal! finances! of! the! Commission! which! includes!
budgeting,!accounting!and!cash!management.!
!
!
Special*Offices*
! Regulations) of) the) Securities) Regulation) Code,) IRR) of) RA)
1.! Office!of!the!Commission!Secretary!
2.! Office!of!the!General!Counsel!
3.! Office!of!the!General!Accountant!
! The!Commission!may,!for!purposes!of!efficiency,!delegate!
Office*of*the*Commission*Secretary*
! department! or! office! of! the! Commission! or! any! staff!
The! Office! of! the! Commission! Secretary,! headed! by! the!
Commission!Secretary,!prepares!minutes!and!maintains!
official! records! of! Commission! meetings! and! Executive!
Sessions,!decisions!and!resolution!for!the!approval!of!the!
En!Banc.!It!also!develops!the!rules!of!practice!that!guide!
the! Commission,! Departments,! Offices,! staff! and! the!
public! in! the! Commission's! processes! and! procedures,!
and!performs!such!other!functions!as!may!be!directed!by!
the!Chair!and!the!Commissioners.!
! decision! or! action! of! any! of! its! departments,! offices,!
Office*of*the*General*Counsel*
!
The!Office!of!the!General!Counsel,!headed!by!the!General!
Counsel,! shall! serve! as! the! lead! legal! adviser! to! the!
Commission.! It! also! serves! as! legal! liaison! for! the!
Commission! with! other! government! agencies,! selfK
regulatory! organizations! and! foreign! government!
regulators! and! agencies.! It! oversees! nonKenforcement!
litigations! and! appeals! to! the! Commission! en! banc.! It!
likewise!oversees!the!office!of!the!Commission!Secretary.!
!
Office*of*the*General*Accountant*
! *
The! Office! of! the! General! Accountant,! headed! by! the!
General! Accountant,! advises! the! Commission! and! the!
private!sector!in!the!area!of!accounting!standards!and!on!
issues! of! accounting! treatment! for! public! offerings! and!
disclosures.!It!also!coordinates!with!any!board!or!council!
in! the! development! of! accounting! standards! for! the!
!
*
The! Commission! shall! have! Extension! Offices! in! key!
cities,! each! to! be! headed! by! a! Director.! The! Extension!
Offices!shall!perform!company!registration,!supervision,!
monitoring! and! other! delegated! functions! of! the!
Commission! within! its! geographical! jurisdiction.! The!
Directors!shall!execute!the!programs!of!the!Commission!
in!their!respective!geographical!jurisdictions,!subject!to!
the!supervision!of!the!Commission.!!
!
Meetings*of*the*Commission*
a! week! on! a! day! and! time! fixed! by! it.! Special! meetings!
may!also!be!called!as!often!as!may!be!necessary!by!the!
Chairperson! or! upon! the! request! of! three! (3)!
Commissioners.! In! such! cases,! the! Commissioners! shall!
be!given!notice!of!the!meeting,!and!the!presence!of!three!
(3)! Commissioners! shall! constitute! a! quorum.! In! the!
absence! of! the! Chairperson,! the! most! senior!
Commissioner!present!shall!act!as!the!presiding!officer!of!
the! meeting.|||)(2015) Implementing) Rules) and)
8799,)[August)4,)2015]))
)
Delegation*of*functions*
any!of!its!functions!to!an!individual!Commissioner,!any!
member! of! the! Commission! except! its! review! or!
appellate! authority! and! its! power! to! adopt,! alter! and!
supplement!any!rule!or!regulation.!(2015)Implementing)
Rules) and) Regulations) of) the) Securities) Regulation) Code,)
IRR)of)RA)8799,)[August)4,)2015])!
*
Petition*for*Review,*who*may*file**
The! Commission,!motu! proprio!or! upon! a! petition! filed!
by!an!interested!party,!may!review!any!order,!resolution,!
individual! Commissioner,! or! staff! member! of! the!
Commission.!
!
Petition*for*Review,*where*filed*
The!petition!for!review!shall!be!filed!with!the!Office!of!the!
General!Counsel!within!fifteen!(15)!days!from!receipt!of!
the! order,! resolution,! decision! or! any! document!
evidencing! the! action! taken! which! is! the! subject! of! the!
review.!The!petition!shall!contain,!among!other!things,!its!
factual! and! legal! basis! and! shall! be! signed! by! the!
petitioner! or! counsel.)(2015) Implementing) Rules) and)
Regulations) of) the) Securities) Regulation) Code,) IRR) of) RA)
8799,)[August)4,)2015]))
!
Powers*and*Functions*of*the*SEC*
!

LABAN NOTES ABRIL 29

 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE
The! Commission! shall! act! with! transparency! and! shall!
have! the! powers! and! functions! provided! by! the!
Code,!Presidential! Decree! No.! 902KA,!the! Corporation!
Code,! the!Investment! Houses! Law,! the!Financing!
Company!Act!and!other!existing!laws.!Pursuant!thereto!
the!Commission!shall!have,!among!others,!the!following!
powers!and!functions:!
! 5.1.14.! Exercise! such! other! powers! as! may! be!
5.1.1.! Have!jurisdiction!and!supervision!over!all!
corporations,!partnerships!or!associations!
who!are!the!grantees!of!primary!franchises!
and/or! a! license! or! permit! issued! by! the!
Government;!
5.1.2.! Formulate!policies!and!recommendations!
on! issues! concerning! the! securities!
market,! advise! Congress! and! other!
government!agencies!on!all!aspects!of!the!
securities! market! and! propose! legislation!
and!amendments!thereto;!
5.1.3.! Approve,! reject,! suspend,! revoke! or!
require! amendments! to! registration!
statements,!and!registration!and!licensing!
applications;!
5.1.4.! Regulate,! investigate! or! supervise! the!
activities!of!persons!to!ensure!compliance;!
5.1.5.! Supervise,! monitor,! suspend! or! take! over!
the! activities! of! exchanges,! clearing!
agencies!and!other!SROs;!
5.1.6.! Impose!sanctions!for!the!violation!of!laws!
and! the! rules,! regulations! and! orders!
issued!pursuant!thereto;!
5.1.7.! Prepare,! approve,! amend! or! repeal! rules,!
regulations!and!orders,!and!issue!opinions!
and! provide! guidance! on! and! supervise!
compliance! with! such! rules,! regulations!
and!orders;!
5.1.8.! Enlist! the! aid! and! support! of! and/or!
deputize!any!and!all!enforcement!agencies!
of!the!Government,!civil!or!military!as!well!
as! any! private! institution,! corporation,!
firm,! association! or! person! in! the!
implementation! of! its! powers! and!
functions!under!the!Code;!
5.1.9.! Issue! cease! and! desist! orders! to! prevent!
fraud!or!injury!to!the!investing!public;!
5.1.10.! Punish! for! contempt! of! the! Commission,!
both! direct! and! indirect,! in! accordance!
with! the! pertinent! provisions! of! and!
penalties!prescribed!by!the!Rules!of!Court;!
5.1.11.! Compel! the! officers! of! any! registered!
corporation!or!association!to!call!meetings!
of!stockholders!or!members!thereof!under!
its!supervision;!
5.1.12.! Issue!subpoena!duces!tecum!and!summon!
witnesses!to!appear!in!any!proceedings!of!
the!Commission!and!in!appropriate!cases,!
order!the!examination,!search!and!seizure!
of!all!documents,!papers,!files!and!records,!
tax!returns,!and!books!of!accounts!of!any!
entity! or! person! under! investigation! as!
may! be! necessary! for! the! proper!
LABAN NOTES ABRIL
disposition!of!the!cases!before!it,!subject!to!
the!provisions!of!existing!laws;!
5.1.13.! Suspend,! or! revoke,! after! proper! notice!
and!hearing!the!franchise!or!certificate!of!
registration!of!corporations,!partnerships!
or! associations,! upon! any! of! the! grounds!
provided!by!law;!and!
provided! by! law! as! well! as! those! which!
may! be! implied! from,! or! which! are!
necessary!or!incidental!to!the!carrying!out!
of,! the! express! powers! granted! the!
Commission!to!achieve!the!objectives!and!
purposes! of! these! laws.! (2015)
Implementing)Rules)and)Regulations)of)the)
Securities)Regulation)Code,)IRR)of)RA)8799,)
[August)4,)2015])!
*
SEC* retains* its* administrative,* regulatory,* and*
oversight* powers;* RTC* has* jurisdiction* over* cases*
involving* rights* which* are* legally* demandable* or*
enforceable*
Juxtaposing! the! jurisdiction! of! the! RTC! under!RA!
8799!and!the!powers!that!were!retained!by!the!SEC,!it!is!
clear!that!the!SEC!retained!its!administrative,!regulatory,!
and! oversight! powers! over! all! corporations,!
partnerships,! and! associations! who! are! grantees! of!
primary!franchises,!and/or!a!license!or!permit!issued!by!
the! Government.! However,! the!Securities! Regulations!
Code!(SRC)! is! clear! that! when! there! is! a! controversy!
arising! out! of! intraKcorporate! relations,! between! and!
among! stockholders,! members! or! associates,! and!
between,!any,!or!all!of!them!and!the!corporation,!it!is!the!
RTC,!not!SEC,!which!has!jurisdiction!over!the!case.!Thus,!
when! the! complaint! involves! "an! active! antagonistic!
assertion!of!a!legal!right!on!one!side!and!a!denial!thereof!
on!the!other!concerning!a!real,!and!not!a!mere!theoretical!
question!or!issue,"!a!cause!of!action!involving!a!delict!or!
wrongful! act! or! omission! committed! by! a! party! in!
violation! of! the! primary! right! of! another,!! or! an! actual!
controversy! involving! rights! which! are! legally!
demandable! or! enforceable,!the! jurisdiction! over! this!
complaint! is! lodged! with! the! RTC! but! not! the! SEC.!
(Orendain)v.)BF)Homes,)Inc.,)G.R.)No.)146313,)[October)31,)
2006],)536)PHIL)1059T1081)!
)
5.1.14L*implied*powers*of*the*SEC*
The! foregoing! provision! bestows! upon! the! SEC! the!
general! adjudicative! power! which! is! implied! from! the!
express!powers!of!the!Commission!or!which!is!incidental!
to,!or!reasonably!necessary!to!carry!out,!the!performance!
of! the! administrative! duties! entrusted! to! it.! As! a!
regulatory!agency,!it!has!the!incidental!power!to!conduct!
hearings! and! render! decisions! fixing! the! rights! and!
obligations! of! the! parties.! In! fact,! to! deprive! the! SEC! of!
this! power! would! render! the! agency! inutile,! because! it!
would!become!powerless!to!regulate!and!implement!the!
law.! xxx! For! sure,! the! SEC! has! the! authority! to!
promulgate! rules! and! regulations,! subject! to! the!
limitation!that!the!same!are!consistent!with!the!declared!
policy!of!the!Code.!Among!them!is!the!protection!of!the!
30
 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE
investors!and!the!minimization,!if!not!total!elimination,!
of! fraudulent! and! manipulative! devises.! The! power!
conferred! upon! the! SEC! to! promulgate! rules! and!
regulations!is!a!legislative!recognition!of!the!complexity!
and!the!constantlyKfluctuating!nature!of!the!market!and!
the! impossibility! of! foreseeing! all! the! possible!
contingencies! that! cannot! be! addressed! in! advance.!
(Cemco)Holdings,)Inc.)v.)National)Life)Insurance)Co.)of)the)
Philippines,) Inc.,) G.R.) No.) 171815,) [August) 7,) 2007],) 556)
PHIL)198T217)!
* Jurisdiction* over* the* parties* and* the* nature* of*
SEC’s*regulatory*authority*
This!authority!more!vividly!springs!from!the!fact!that!a!
corporation! owes! its! existence! to! the! concession! of! its!
corporate!franchise!from!the!state.!Under!its!regulatory!
responsibilities,!the!SEC!may!pass!upon!applications!for,!
or!may!suspend!or!revoke!(after!due!notice!and!hearing),!
certificates!of!registration!of!corporations,!partnerships!
and!associations!(excluding!cooperatives,!homeowners'!
association,! and! labor! unions);! compel! legal! and!
regulatory! compliances;! conduct! inspections;! and!
impose! fines! or! other! penalties! for! violations! of! the!
Revised!Securities!Act,!as!well!as!implementing!rules!and!
directives! of! the! SEC,! such! as! may! be!
warranted.!(Provident) International) Resources) Corp.) v.)
Venus,) G.R.) No.) 167041,) [June) 17,) 2008],) 577) PHIL) 410T
420))
) stockholders! and! the! corporation! does! not! necessarily!
* place! the! dispute! within! the! loop! of! jurisdiction! of! the!
Transfer*of*Jurisdiction*over*cases*under*the*SEC*to*
the*RTC*
! the! nature! of! the! question! that! is! the! subject! of! their!
The!Commission's!jurisdiction!over!all!cases!enumerated!
under! Section! 5! of!Presidential! Decree! No.! 902KA!is!
hereby!transferred!to!the!Courts!of!general!jurisdiction!
or! the! appropriate! Regional! Trial! Court:!Provided,!that!
the! Supreme! Court! in! the! exercise! of! its! authority! may!
designate! the! Regional! Trial! Court! branches! that! shall!
exercise! jurisdiction! over! these! cases.! The! Commission!
shall! retain! jurisdiction! over! pending! cases! involving!
intraKcorporate! disputes! submitted! for! final! resolution!
which!should!be!resolved!within!one!(1)!year!from!the!
enactment! of! the! Code.! The! Commission! shall! retain!
jurisdiction! over! pending! suspension! of!
payments/rehabilitation! cases! filed! as! of! 30! June! 2000!
until! finally! disposed.! (2015) Implementing) Rules) and)
Regulations) of) the) Securities) Regulation) Code,) IRR) of) RA)
8799,) [August) 4,) 2015])) However,! the! transfer! of!
jurisdiction!to!the!trial!courts!does!not!oust!the!Securities!
and! Exchange! Commission! of! its! jurisdiction! to!
determine! if! administrative! rules! and! regulations! were!
violated.! (Securities) and) Exchange) Commission) v.) Subic)
Bay)Golf)and)Country)Club,)Inc.,)G.R.)No.)179047),)[March)
11,)2015]))
* violation! of! any! law! or! rules! and! regulations!
Thus,*the*following*are*within*the*jurisdiction*of*the*
RTC:*
1.! fraudulent! devices! and! schemes! employed! by!
directors!detrimental!to!the!public!interest!and!
to!other!firms;!
LABAN NOTES ABRIL
2.! intraKcorporate! dispute! and! with! the! state! in!
relation!to!their!franchise!and!right!to!exist!as!
such;!
3.! controversies! in! election,! appointment! of!
directors!or!trustees;!!
4.! petition!to!be!declared!in!state!of!suspension!of!
payments;!and!
5.! appointment! of! Rehabilitation! Receiver! or!
Management!Committee.!
!
controversy*
In!order!that!the!SEC!(now,!RTC)!can!take!cognizance!of!
a! case,! the! controversy! must! pertain! to! any! of! the!
following!relationships:!!
a)! between! the! corporation,! partnership! or!
association!and!the!public;!!
b)! between! the! corporation,! partnership! or!
association! and! its! stockholders,! partners,!
members,!or!officers;!!
c)! between! the! corporation,! partnership,! or!
association!and!the!state!as!far!as!its!franchise,!
permit!or!license!to!operate!is!concerned;!and!!
d)! among!the!stockholders,!partners!or!associates!
themselves.!!
The!fact!that!the!parties!involved!in!the!controversy!are!
all! stockholders! or! that! the! parties! involved! are! the!
SEC.! Jurisdiction! should! be! determined! by! considering!
not!only!the!status!or!relationship!of!the!parties!but!also!
controversy.!(Vesagas)v.)Court)of)Appeals,)G.R.)No.)142924,)
[December)5,)2001],)422)PHIL)860T873)!
!
Findings*of*fact*of*SEC*are*accorded*finality*by*the*
Supreme*Court
Findings! of! fact! of! quasiKjudicial! agencies,! like! the! SEC,!
are!generally!accorded!respect!and!even!finality!by!the!
Supreme!Court,!if!supported!by!substantial!evidence,!in!
recognition! of! their! expertise! on! the! specific! matters!
under!their!consideration,!moreso!if!the!same!has!been!
upheld!by!the!appellate!court.!(Nautica)Canning)Corp.)v.)
Yumul,)G.R.)No.)164588,)[October)19,)2005],)510)PHIL)197T
210)!
*
!
IntraHcorporate*disputes*
!
IntraHcorporate*disputes,*definition*
any!act!or!omission!of!the!Board!of!Directors/Trustees!of!
corporations,!or!of!partnerships,!or!of!other!associations,!
or! of! their! stockholders,! officers,! or! partners,! including!
any! fraudulent! devices,! schemes! or! representations,! in!
administered! and! enforced! by! the! Commission! This!
underscores! the! relationship! of! the! partyKlitigants! with!
each!other,!and!indicates!that!the!nature!of!the!cause!of!
action!should!be!limited!to!fraudulent!devices,!schemes!
or!representations,!in!violation!of!any!law,!rules!and/or!
regulations! administered! and! enforced! by! the!
31
 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE
Commission! for! the! cause! of! action! to! fall! within! the!
ambit!of!authority!of!the!SEC!—!elements!that!are!both!
present!in!the!instant!case.!(Fabia)v.)Court)of)Appeals,)G.R.)
No.)132684,)[August)20,)2001],)415)PHIL)656T664))Under!
Section! 5.2! of!Republic! Act! No.! 8799,! original! and!
exclusive!jurisdiction!to!hear!and!decide,!cases!involving!
intraKcorporate!controversies!have!been!transferred!to!a!
court!of!general!jurisdiction!or!the!appropriate!Regional!
Trial!Court.!(Sumndad)v.)Harrigan,)G.R.)No.)132358,)[April)
12,)2002],)430)PHIL)612T625)!)
! persons! to! be! indemnified! did! not! commit! any! gross!
! negligence!or!misconduct.!
Estafa* can* independently* and* simultaneously*
proceed*with*corporate/civil*case*
The!criminal!case!for!estafa!currently!pending!before!the!
RTC!can!independently!and!simultaneously!proceed!with!
a!civil/interKcorporate!case!to!be!filed!with!the!Regional!
Trial! Court! vested! with! special! jurisdiction! pursuant!
to!The! Securities! Regulation! Code!(RA! 8799).! With!RA!
8799!signed!into!law!on!19!July!2000,!which!effectively!
amended! Sec.! 5! of!PD! 902KA,! jurisdiction! over! intraK
corporate! disputes! is! now! vested! in! the! Regional! Trial!
Courts!designated!by!this!Court!pursuant!to!A.M.!No.!00K
11K03KSC!promulgated!on!21!November!2000.!However,!
while! Sec.! 5! of!PD! No.! 902KA!was! amended! by! Sec.! 5.2!
of!RA!8799,!there!is!no!repeal!of!Sec.!6!thereof!declaring!
that!prosecution!under!the!Decree,!or!any!Act,!law,!rules,!
and! regulations! enforced! and! administered! by! the! SEC!
shall!be!without!prejudice!to!any!liability!for!violation!of!
any! provision! of!The! Revised! Penal! Code.! Moreover,! as!
pointed! out! by! the! Department! of! Justice,! Sec.! 54!
on!Administrative! Sanctions!found! in!RA! 8799!itself!
provides! that! the! imposition! of! the! sanctions! shall! be!
without!prejudice!to!the!filing!of!criminal!charges!against!
the! individuals! responsible! for! the! violation.! From! the!
foregoing,! it! could! be! concluded! that! the! fraudulent!
devices,! schemes! or! representations! which,! originally,!
the!Prosecution!and!Enforcement!Department!of!the!SEC!
would!exclusively!investigate!and!prosecute,!are!those!in!
violation! of! any! law! or! rules! and! regulations!
administered! and! enforced! by! the! SEC! and! shall! be!
without! prejudice! to! any! liability! for! violation! of! any!
provision! of!The! Revised! Penal! Code.! Hence,! if! the!
fraudulent! act! is! punished! under!The! Revised! Penal!
Code,!like!estafa!under!Art.!315,!the!responsible!person!
may!be!criminally!prosecuted!before!the!regular!courts!
in! addition! to! proceedings! before! the! branches! of! the!
RTC! designated! by! this! Court! to! try! and! decide! intraK
corporate!controversies.!(Fabia)v.)Court)of)Appeals,)G.R.)
No.)132684,)[September)11,)2002],)437)PHIL)389T404)!
! information! with! respect! to! any! actual! or! conflicting!
! interest!by!completing!SEC!Form!6!and!submitting!such!
Indemnifications*and*Responsibilities*of*the*
Commissioner*
! officers!shall!fill!up!this!form!and!submit!the!same!to!the!
Indemnification*for*suit*
The!Commission!shall!indemnify!each!Commissioner!and!
other! officials! of! the! Commission,! including! personnel!
performing! supervision! and! examination! functions! for!
all! costs! and! expenses! reasonably! incurred! by! such!
persons!in!connection!with!any!civil!or!criminal!actions,!
LABAN NOTES ABRIL
suits! or! proceedings! to! which! they! may! be! or! made! a!
party!by!reason!of!the!performance!of!their!functions!or!
duties,!unless!they!are!finally!adjudged!in!such!actions!or!
proceedings! to! be! liable! for! gross! negligence! or!
misconduct.!
!
In! the! event! of! settlement! or! compromise,!
indemnification! shall! be! provided! only! in! connection!
with!such!matters!covered!by!the!settlement!as!to!which!
the!Commission!is!advised!by!external!counsel!that!the!
!
The! costs! and! expenses! incurred! in! defending! the!
aforementioned! action,! suit! or! proceeding! may! be! paid!
by!the!Commission!in!advance!of!the!final!disposition!of!
such! action,! suit! or! proceeding! upon! receipt! of! an!
undertaking!by!or!on!behalf!of!the!Commissioner,!officer!
or! employee! to! repay! the! amount! advanced! should! it!
ultimately!be!determined!by!the!Commission!that!he/she!
is! not! entitled! to! be! indemnified! as! provided! in! this!
subsection.!(2015)Implementing)Rules)and)Regulations)of)
the)Securities)Regulation)Code,)IRR)of)RA)8799,)[August)4,)
2015]))
)
Loyalty*to*the*Commission*
The!Commissioners,!including!the!Chairperson,!officers!
and! employees! of! the! Commission! (hereinafter!
collectively! referred! to! as! officers! or! officer),! in! the!
execution!of!their!duties!owe!their!undivided!loyalty!to!
the! Commission.! They! shall! observe! the! highest!
standards! of! honesty,! integrity! and! good! faith! in! the!
performance!of!their!duties.!
!
Officers!shall!not!pursue!private!activities!in!any!manner!
which! may! conflict! with! their! duties.! They! shall!
subordinate! those! activities! which,! although! not! in!
conflict!with!their!duties,!will!require!time!and!effort!to!
the! prejudice! of! their! duties! at! the! Commission.! Every!
officer!who!has!discretionary!authority!shall!be!free!from!
any! conflicting! interest! or! influence! of! such! nature! and!
importance! which! would! make! it! difficult! for! him! to!
provide!his!best!efforts!and!loyalty!to!the!Commission.!
!
The!interest!of!officers!shall!include!the!interest!of!his!or!
her!spouse,!children!under!the!age!of!eighteen!(18)!and!
trusts! for! the! benefit! of! himself,! his! or! her! spouse! or!
children.!
!
Officers! shall! provide! the! Commission! with! complete!
form! to! the! Commission! Secretary! no! later! than! thirty!
(30)! days! from! the! effective! date! of! this! Rule.! New!
Commission!Secretary!thirty!(30)!days!prior!to!the!first!
day!of!their!employment.!
!
Even! if! not! specifically! required! to! be! disclosed! in! SEC!
Form! 6,! officers! shall! report! any! other! circumstances!
which,! in! their! judgment,! are! regarded! as! being! of!
32
 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE
possible!concern!to!the!Commission.!It!is!to!such!officer's!
advantage,!as!well!as!the!Commission's,!that!any!unclear!
situation!be!reported!in!order!that!a!policy!judgment!can!
be! made.! Questions! of! conflict! will! be! referred! to! the!
Office!of!the!General!Counsel.!If!the!Office!of!the!General!
Counsel! determines! that! such! officer! cannot! properly!
retain! his! outside! interest! or! relationship! while!
employed! by! the! Commission,! the! Office! of! the! General!
Counsel!(after!advising!those!to!whom!the!officer!reports!
to!of!the!circumstances)!shall!require!action!to!eliminate!
the!conflict,!such!as!the!disposition!by!the!officer!of!his!
conflicting! interest! or! relationship,! or! the! narrowing! of!
responsibilities!of!the!officer.!(2015)Implementing)Rules)
and)Regulations)of)the)Securities)Regulation)Code,)IRR)of)
RA)8799,)[August)4,)2015])!
! prosecution! before! the! proper! court;! Provided,!
Violation* of* the* Code* and* negligence,* abuse,*
malfeasance,* or* failure* to* exercise* extraordinary*
diligence*
The! Commissioners,! officers! and! employees! of! the!
Commission! who! willfully! violate! the! Code! or! who! are!
guilty!of!negligence,!abuse!or!acts!of!malfeasance!or!fail!
to!exercise!extraordinary!diligence!in!the!performance!of!
their! duties! shall! be! held! liable! for! any! loss! or! injury!
suffered! by! the! Commission! or! other! institutions! as! a!
result!of!such!violation,!negligence,!abuse,!malfeasance,!
or!failure!to!exercise!extraordinary!diligence.!
! Doctrine*of*Primary*Jurisdiction*
Similar!responsibility!shall!apply!to!the!Commissioners,!
officers! and! employees! of! the! Commission! for! (1)! the!
disclosure!of!any!information,!discussion!or!resolution!of!
the! Commission! of! a! confidential! nature,! or! about! the!
confidential! operations! of! the! Commission,! unless! the!
disclosure! is! in! connection! with! the! performance! of!
official! functions! with! the! Commission! or! with! prior!
authorization! of! the! Commissioners;! or! (2)! the! use! of!
such!information!for!personal!gain!or!to!the!detriment!of!
the! government,! the! Commission! or! third!
parties:!Provided,!however,!That!any!data!or!information!
required! to! be! submitted! to! the! President! and/or!
Congress! or! its! appropriate! committee,! or! to! be!
published!under!the!provisions!of!the!Code!shall!not!be!
considered! confidential.) (2015) Implementing) Rules) and)
Regulations) of) the) Securities) Regulation) Code,) IRR) of) RA)
8799,)[August)4,)2015]))
! provided! in! Section! 53.1! earlier! quoted.)(Baviera) v.)
! Paglinawan,)G.R.)No.)168380,)170602,)[February)8,)2007],)
Investigations,*Injunctions*and*Prosecutions*of*
Offenses*
! !
Rule*53.1.*The!Commission!may,!in!its!discretion,!make!
such!investigations!as!it!deems!necessary!to!determine!
whether! any! person! has! violated! or! is! about! to! violate!
any!provision!of!the!Code,!any!rule,!regulation!or!order!
thereunder,! or! any! rule! of! an! Exchange,! registered!
securities! association,! clearing! agency,! other! selfK
regulatory!organization,!and!may!require!or!permit!any!
person!to!file!with!it!a!statement!in!writing,!under!oath!
or!otherwise,!as!the!Commission!shall!determine,!as!to!all!
facts! and! circumstances! concerning! the! matter! to! be!
investigated.!The!Commission!may!publish!information!
LABAN NOTES ABRIL
concerning! any! such! violations,! and! to! investigate! any!
fact,! condition,! practice! or! matter! which! it! may! deem!
necessary! or! proper! to! aid! in! the! enforcement! of! the!
provisions! of! the! Code,! in! the! prescribing! of! rules! and!
regulations! thereunder,! or! in! securing! information! to!
serve! as! a! basis! for! recommending! further! legislation!
concerning! the! matters! to! which! the! Code! relates;!
Provided,! however,! That! any! person! requested! or!
subpoenaed! to! produce! documents! or! testify! in! any!
investigation!shall!simultaneously!be!notified!in!writing!
of! the! purpose! of! such! investigation;! Provided,) further,!
That! all! criminal! complaints! for! violations! of! the! Code,!
and!the!implementing!rules!and!regulations!enforced!or!
administered!by!the!Commission!shall!be!referred!to!the!
Department!of!Justice!for!preliminary!investigation!and!
furthermore,! That! in! instances! where! the! law! allows!
independent! civil! or! criminal! proceedings! of! violations!
arising! from! the! same! act,! the! Commission! shall! take!
appropriate! action! to! implement! the! same;! Provided,!
finally,! That! the! investigation,! prosecution,! and! trial! of!
such! cases! shall! be! given! priority.! (2015) Implementing)
Rules) and) Regulations) of) the) Securities) Regulation) Code,)
IRR)of)RA)8799,)[August)4,)2015])!
!
Commission’s* Investigatory* power;* subsequent*
referral* to* the* DOJ* for* preliminary* investigation;*
A! criminal! charge! for! violation! of!the! Securities!
Regulation!Code!is!a!specialized!dispute.!Hence,!it!must!
first! be! referred! to! an! administrative! agency! of! special!
competence,!i.e.,!the!SEC.!Under!the!doctrine!of!primary!
jurisdiction,! courts! will! not! determine! a! controversy!
involving! a! question! within! the! jurisdiction! of! the!
administrative!tribunal,!where!the!question!demands!the!
exercise!of!sound!administrative!discretion!requiring!the!
specialized! knowledge! and! expertise! of! said!
administrative! tribunal! to! determine! technical! and!
intricate! matters! of! fact.!12!The! Securities! Regulation!
Code!is! a! special! law.! Its! enforcement! is! particularly!
vested!in!the!SEC.!Hence,!all!complaints!for!any!violation!
of!the!Code!and!its!implementing!rules!and!regulations!
should! be! filed! with! the! SEC.! Where! the! complaint! is!
criminal!in!nature,!the!SEC!shall!indorse!the!complaint!to!
the!DOJ!for!preliminary!investigation!and!prosecution!as!
544)PHIL)107T122)!
!
Civil*Liability*
!
A!person!may!be!civilly!liable!for!the!following:!
1.! Fraud! in! connection! with! securities!
transactions!
2.! Manipulation!of!security!prices!
3.! With!respect!to!commodity!futures!contracts!
4.! Account!of!Insider!trading!
!
Civil* Liabilities* under* this* Code* are* under* the*
exclusive*original*jurisdiction*of*the*RTCs*
33
 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE
It!is!clear!that!cases!falling!under!Section!57!of!the!SRC,!
which!pertain!to!civil!liabilities!arising!from!violations!of!
the! requirements! for! offers! to! sell! or! the! sale! of!
securities,!as!well!as!other!civil!suits!under!Sections!56,!
58,!59,!60,!and!61!of!the!SRC!shall!be!exclusively!brought!
before!the!regional!trial!courts.!It!is!a!wellKsettled!rule!in!
statutory!construction!that!the!term!"shall"!is!a!word!of!
command,!and!one!which!has!always!or!which!must!be!
given! a! compulsory! meaning,! and! it! is! generally!
imperative! or! mandatory.! Likewise,! it! is! equally!
revelatory! that! no!SRC! provision! of! similar! import! is!
found!in!its!sections!governing!criminal!suits;!quite!the!
contrary,!the!SRC!states!that!criminal!cases!arising!from!
violations!of!its!provisions!should!be!first!referred!to!the!
SEC.!
! twelve!(12)!months!beginning!from!the!effective!date!of!
Therefore,! based! on! these! considerations,! it! stands! to!
reason!that!civil!suits!falling!under!the!SRC!are!under!the!
exclusive!original!jurisdiction!of!the!regional!trial!courts!
and!hence,!need!not!be!first!filed!before!the!SEC,!unlike!
criminal!cases!wherein!the!latter!body!exercises!primary!
jurisdiction.! (Pua) v.) Citibank,) N.A.,) G.R.) No.) 180064,)
[September)16,)2013],)718)PHIL)1T10)!
* statement! by! such! person.! (The) Securities) Regulation)
* Code,)Republic)Act)No.)8799,)[July)19,)2000])!
Civil*Liabilities*on*Account*of*False*Registration*
Statement*
* Civil*Liability*Arising*in*Connection*with*
56.1.! Any! person! acquiring! a! security,! the! registration!
statement! of! which! or! any! part! thereof! contains! on! its!
effectivity!an!untrue!statement!of!a!material!fact!or!omits!
to!state!a!material!fact!required!to!be!stated!therein!or!
necessary!to!make!such!statements!not!misleading,!and!
who!suffers!damage,!may!sue!and!recover!damages!from!
the! following! enumerated! persons,! unless! it! is! proved!
that! at! the! time! of! such! acquisition! he! knew! of! such!
untrue!statement!or!omission:!
(a)! The! issuer! and! every! person! who! signed! the!
registration!statement;!
(b)! !Every! person! who! was! a! director! of,! or! any!
other!person!performing!similar!functions,!or!a!
partner!in,!the!issuer!at!the!time!of!the!filing!of!
the! registration! statement! or! any! part,!
supplement! or! amendment! thereof! with!
respect!to!which!his!liability!is!asserted;!
(c)! Every!person!who!is!named!in!the!registration!
statement! as! being! or! about! to! become! a!
director! of,! or! a! person! performing! similar!
functions,!or!a!partner!in,!the!issuer!and!whose!
written! consent! thereto! is! filed! with! the!
registration!statement;!
(d)! Every!auditor!or!auditing!firm!named!as!having!
certified! any! financial! statements! used! in!
connection! with! the! registration! statement! or!
prospectus.!
(e)! Every! person! who,! with! his! written! consent,!
which! shall! be! filed! with! the! registration!
statement,!has!been!named!as!having!prepared!
or! certified! any! part! of! the! registration!
statement,! or! as! having! prepared! or! certified!
any! report! or! valuation! which! is! used! in!
LABAN NOTES ABRIL
connection! with! the! registration! statement,!
with! respect! to! the! statement,! report,! or!
valuation,! which! purports! to! have! been!
prepared!or!certified!by!him.!
(f)! Every! selling! shareholder! who! contributed! to!
and!certified!as!to!the!accuracy!of!a!portion!of!
the!registration!statement,!with!respect!to!that!
portion! of! the! registration! statement! which!
purports!to!have!been!contributed!by!him.!
(g)! Every! underwriter! with! respect! to! such!
security.!
!
56.2.!If!the!person!who!acquired!the!security!did!so!after!
the! issuer! has! made! generally! available! to! its! security!
holders!an!income!statement!covering!a!period!of!at!least!
the! registration! statement,! then! the! right! of! recovery!
under!this!subsection!shall!be!conditioned!on!proof!that!
such! person! acquired! the! security! relying! upon! such!
untrue!statement!in!the!registration!statement!or!relying!
upon!the!registration!statement!and!not!knowing!of!such!
income!statement,!but!such!reliance!may!be!established!
without! proof! of! the! reading! of! the! registration!
*
!
Prospectus,*Communications*and*Reports*
*
Any!person!who:!
(a)!Offers!to!sell!or!sells!a!security!in!violation!of!Chapter!
III,!or!
(b)!Offers! to! sell! or! sells! a! security,! whether! or! not!
exempted! by! the! provisions! of! this! Code,! by! the! use! of!
any! means! or! instruments! of! transportation! or!
communication,! by! means! of! a! prospectus! or! other!
written!or!oral!communication,!which!includes!an!untrue!
statement!of!a!material!fact!or!omits!to!state!a!material!
fact! necessary! in! order! to! make! the! statements,! in! the!
light!of!the!circumstances!under!which!they!were!made,!
not! misleading! (the! purchaser! not! knowing! of! such!
untruth!or!omission),!and!who!shall!fail!in!the!burden!of!
proof! that! he! did! not! know,! and! in! the! exercise! of!
reasonable!care!could!not!have!known,!of!such!untruth!
or!omission,!shall!be!liable!to!the!person!purchasing!such!
security! from! him,! who! may! sue! to! recover! the!
consideration! paid! for! such! security! with! interest!
thereon,!less!the!amount!of!any!income!received!thereon,!
upon!the!tender!of!such!security,!or!for!damages!if!he!no!
longer!owns!the!security.!
!
Any! person! who! shall! make! or! cause! to! be! made! any!
statement!in!any!report,!or!document!filed!pursuant!to!
this! Code! or! any! rule! or! regulation! thereunder,! which!
statement! was! at! the! time! and! in! the! light! of! the!
circumstances! under! which! it! was! made! false! or!
misleading! with! respect! to! any! material! fact,! shall! be!
liable! to! any! person! who,! not! knowing! that! such!
statement!was!false!or!misleading,!and!relying!upon!such!
statements!shall!have!purchased!or!sold!a!security!at!a!
34
 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE

price!which!was!affected!by!such!statement,!for!damages! security!while!in!possession!of!material!information!not!
caused! by! such! reliance,! unless! the! person! sued! shall! generally!available!to!the!public,!shall!be!liable!in!a!suit!
prove!that!he!acted!in!good!faith!and!had!no!knowledge! brought! by! any! investor! who,! contemporaneously! with!
that! such! statement! was! false! or! misleading.! (The) the!purchase!or!sale!of!securities!that!is!the!subject!of!the!
Securities)Regulation)Code,)Republic)Act)No.)8799,)[July)19,) violation,!purchased!or!sold!securities!of!the!same!class!
2000])! 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!
Civil*Liability*for*Fraud*in*Connection*with* regardless!of!disclosure!of!the!information!to!him.!
Securities*Transactions* !
! An! insider! who! violates! Subsection! 27.3! of! the! Code! or!
Any! person! who! engages! in! any! act! or! transaction! in! any! person! in! the! case! of! a! tender! offer! who! violates!
violation! of! Sections! 19.2,! 20! or! 26! of! the! Code,! or! any! Subsection!27.4!(a)!of!the!Code,!or!any!rule!or!regulation!
rule!or!regulation!of!the!Commission!thereunder,!shall!be! thereunder,! by! communicating! material! nonKpublic!
liable! to! any! other! person! who! purchases! or! sells! any! information,! shall! be! jointly! and! severally! liable! under!
security,!grants!or!refuses!to!grant!any!proxy,!consent!or! Subsection!61.1!of!the!Code!with,!and!to!the!same!extent!
authorization,! or! accepts! or! declines! an! invitation! for! as,!the!insider,!or!person!in!the!case!of!a!tender!offer,!to!
tender!of!a!security,!as!the!case!may!be,!for!the!damages! whom!the!communication!was!directed!and!who!is!liable!
sustained!by!such!other!person!as!a!result!of!such!act!or! under! Subsection! 61.1! of! the! Code! by! reason! of! his!
transaction.! purchase!or!sale!of!a!security.!
! !
! *
*
Civil*Liability*for*Manipulation*of*Security*Prices*
! Cease*and*Desist*Order*
Any! person! who! willfully! participates! in! any! act! or! *
transaction!in!violation!of!Section!24!of!the!Code!shall!be! The!Commission!has!the!power!to!issue!cease!and!desist!
liable! to! any! person! who! shall! purchase! or! sell! any! orders!to!prevent!fraud!or!injury!to!the!investing!public.!
security! at! a! price! which! was! affected! by! such! act! or! !
transaction,!and!the!person!so!injured!may!sue!to!recover! SECTION!64.!Cease!and!Desist!Order.!—!!
the! damages! sustained! as! a! result! of! such! act! or! 64.1.! The! Commission,! after! proper! investigation! or!
transaction.! verification,!motu!proprio,!or!upon!verified!complaint!by!
! any!aggrieved!party,!may!issue!a!cease!and!desist!order!
! without!the!necessity!of!a!prior!hearing!if!in!its!judgment!
the! act! or! practice,! unless! restrained,! will! operate! as! a!
Civil*Liability*with*Respect*to*Commodity*Futures*
fraud!on!investors!or!is!otherwise!likely!to!cause!grave!
Contracts*
or!irreparable!injury!or!prejudice!to!the!investing!public.!
!
!
Any! person! who! engages! in! any! act! or! transaction! in!
64.2.!Until! the! Commission! issues! a! cease! and! desist!
willful!violation!of!any!rule!or!regulation!promulgated!by!
order,!the!fact!that!an!investigation!has!been!initiated!or!
the! Commission! under! Section! 11! or! 16! of! the! Code,!
that!a!complaint!has!been!filed,!including!the!contents!of!
which! the! Commission! denominates! at! the! time! of!
the! complaint,! shall! be! confidential.! Upon! issuance! of! a!
issuance! as! intended! to! prohibit! fraud! in! the! offer! and!
cease!and!desist!order,!the!Commission!shall!make!public!
sale!of!commodity!future!contracts!or!to!prohibit!fraud,!
such! order! and! a! copy! thereof! shall! be! immediately!
manipulation,!fictitious!transactions,!undue!speculation,!
furnished!to!each!person!subject!to!the!order.!
or! other! unfair! or! abusive! practices! with! respect! to!
!
commodity!future!contracts,!shall!be!liable!to!any!other!
64.3.!Any!person!against!whom!a!cease!and!desist!order!
person! sustaining! damage! as! a! result! of! such! act! or!
was!issued!may,!within!five!(5)!days!from!receipt!of!the!
transaction.!
order,! file! a! formal! request! for! a! lifting! thereof.! Said!
!
request!shall!be!set!for!hearing!by!the!Commission!not!
!As!to!each!such!rule!or!regulation!so!denominated,!the!
later! than! fifteen! (15)! days! from! its! filing! and! the!
Commission!by!rule!shall!prescribe!the!elements!of!proof!
resolution!thereof!shall!be!made!not!later!than!ten!(10)!
required!for!recovery!and!any!limitations!on!the!amount!
days! from! the! termination! of! the! hearing.! If! the!
of!damages!that!may!be!imposed.!
Commission!fails!to!resolve!the!request!within!the!time!
!
herein! prescribed,! the! cease! and! desist! order! shall!
!
automatically! be! lifted.! (The) Securities) Regulation) Code,)
Civil*Liability*on*Account*of*Insider*Trading* Republic)Act)No.)8799,)[July)19,)2000])!
! !
Any!insider!who!violates!Subsection!27.1!of!the!Code!and! SEC*may*issue*a*CDO*motu)proprio)
any! person! in! the! case! of! a! tender! offer! who! violates! The!law!is!clear!on!the!point!that!a!cease!and!desist!order!
Subsection! 27.4! (a)! (i)! of! the! Code,! or! any! rule! or! may! be! issued! by! the! SEC!motu! proprio,! it! being!
regulation! thereunder,! by! purchasing! or! selling! a! unnecessary! that! it! results! from! a! verified! complaint!

LABAN NOTES ABRIL 35

 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE

from! an! aggrieved! party.! A! prior! hearing! is! also! not! both!civil!and!criminal!liability?!Or!does!it!pertain!solely!
required!whenever!the!Commission!finds!it!appropriate! to!civil!liability?!
to!issue!a!cease!and!desist!order!that!aims!to!curtail!fraud! !
or!grave!or!irreparable!injury!to!investors.!There!is!good! In! order! to! put! said! phrase! in! its! proper! perspective,!
reason!for!this!provision,!as!any!delay!in!the!restraint!of! reference! must! be! made! to! the! rule! of! statutory!
acts! that! yield! such! results! can! only! generate! further! construction! that! every! part! of! the! statute! must! be!
injury!to!the!public!that!the!SEC!is!obliged!to!protect.! interpreted!with!reference!to!the!context,!i.e.,!that!every!
! part!of!the!statute!must!be!considered!together!with!the!
To! equally! protect! individuals! and! corporations! from! other!parts,!and!kept!subservient!to!the!general!intent!of!
baseless!and!improvident!issuances,!the!authority!of!the! the!whole!enactment.!Section!62.2!should!not!be!read!in!
SEC!under!this!rule!is!nonetheless!with!defined!limits.!A! isolation! of! the! other! provision! included! in! Section! 62,!
cease! and! desist! order! may! only! be! issued! by! the! particularly! Section! 62.1,! which! provides! for! the!
Commission! after! proper! investigation! or! verification,! prescriptive!period!for!the!enforcement!of!civil!liability!
and!upon!showing!that!the!acts!sought!to!be!restrained! in!cases!of!violations!of!Sections!56,!57,!57.1!(a)!and!57.1!
could! result! in! injury! or! fraud! to! the! investing! public.! (b).!
Without! doubt,! these! requisites! were! duly! satisfied! by! !
the! SEC! prior! to! its! issuance! of! the! subject! cease! and! Moreover,! it! should! be! noted! that! the! civil! liabilities!
desist! order.! )(Primanila) Plans,) Inc.) v.) Securities) and) provided!in!the!SRC!are!not!limited!to!Sections!56!and!57.!
Exchange)Commission,)G.R.)No.)193791,)[August)6,)2014])! Section! 58! provides! for! Civil! Liability! for! Fraud! in!
* Connection! with! Securities! Transactions;! Section! 59! —!
! Civil!Liability!for!Manipulation!of!Security!Prices;!Section!
! 60!—!Civil!Liability!with!Respect!to!Commodity!Future!
Limitation*of*Actions* Contracts! and! PreKneed! Plans;! and! Section! 61! —! Civil!
! Liability!on!Account!of!Insider!Trading.!Thus,!bearing!in!
62.1.! No! action! shall! be! maintained! to! enforce! any! mind! that! Section! 62.1! merely! addressed! the!
liability! created! under! Section! 56! or! 57! of! this! Code! prescriptive! period! for! the! civil! liability! provided! in!
unless!brought!within!two!(2)!years!after!the!discovery! Sections!56,!57,!57.1!(a)!and!57.1!(b),!then!it!reasonably!
of!the!untrue!statement!or!the!omission,!or,!if!the!action! follows!that!the!other!subKprovision,!Section!62.2,!deals!
is!to!enforce!a!liability!created!under!Subsection!57.1!(a),! with! the! other! civil! liabilities! that! were! not! covered! by!
unless! brought! within! two! (2)! years! after! the! violation! Section! 62.1,! namely! Sections! 59,! 60! and! 61.! This!
upon!which!it!is!based.!In!no!event!shall!any!such!action! conclusion! is! further! supported! by! the! fact! that! the!
be!brought!to!enforce!a!liability!created!under!Section!56! subsequent! provision,! Section! 63,! explicitly! pertains! to!
or!Subsection!57.1!(a)!more!than!five!(5)!years!after!the! the! amount! of! damages! recoverable! under! Sections! 56,!
security! was!bona! fide!offered! to! the! public,! or! under! 57,!58,!59,!60!and!61,!the!trial!court!having!jurisdiction!
Subsection! 57.1! (b)! more! than! five! (5)! years! after! the! over! such! actions,! the! persons! liable!and! the! extent! of!
sale.! their! liability.! Clearly,! the! intent! is! to! encompass! in!
! Section! 62! the! prescriptive! periods! only! of! the! civil!
62.2.!No! action! shall! be! maintained! to! enforce! any! liability!in!cases!of!violations!of!the!SRC.!!
liability!created!under!any!other!provision!of!this!Code! The! CA,! therefore,! did! not! commit! any! error! when! it!
unless!brought!within!two!(2)!years!after!the!discovery! ruled! that! "the! phrase! 'any! liability'! in! subsection! 62.2!
of! the! facts! constituting! the! cause! of! action! and! within! can! only! refer! to! other! liabilities! that! are! also! civil! in!
five! (5)! years! after! such! cause! of! action! accrued.! (The) nature.!The!phrase!could!not!have!suddenly!intended!to!
Securities)Regulation)Code,)Republic)Act)No.)8799,)[July)19,) mean! criminal! liability! for! this! would! go! beyond! the!
2000])! context!of!the!other!provisions!among!which!it!is!found."!
! (Citibank) N.A.) v.) TancoTGabaldon,) G.R.) No.) 198444,)
! 198469T70,)[September)4,)2013])!
Two*prescriptive*periods* *
Section!62.1!specifically!sets!out!the!prescriptive!period! !
for!the!liabilities!created!under!Sections!56,!57,!57.1!(a)! Act*No.*3326*is*the*law*applicable*to*offenses*under*
and! 57.1! (b).! Section! 56! refers! to! Civil! Liabilities! on! SRC* for* the* same* does* not* provide* its* own*
Account!of!False!Registration!Statement!while!Section!57! prescriptive* periods;* Criminal* prosecution* for*
pertains!to!Civil!Liabilities!on!Arising!in!Connection!with! violations* of* the* SRC* shall* prescribe* in* twelve* (12)*
Prospectus,! Communications! and! Reports.! Under! these! years*
provisions,! enforcement! of! the! civil! liability! must! be! *
brought!within!two!(2)!years!or!five!(5)!years,!as!the!case! Section!1!of!Act!No.!3326!provides:!
may!be.!! Violations! penalized! by! special! acts! shall,! unless!
! otherwise!provided!in!such!acts,!prescribe!in!accordance!
On! the! other! hand,! Section! 62.2! provides! for! the! with! the! following! rules:! (a)! after! a! year! for! offenses!
prescriptive!period!to!enforce!any!liability!created!under! punished!only!by!a!fine!or!by!imprisonment!for!not!more!
the!SRC.! It! is! the! interpretation! of! the! phrase! "any! than! one! month,! or! both;! (b)! after! four! years! for! those!
liability"! that! creates! the! uncertainty.! Does! it! include! punished!by!imprisonment!for!more!than!one!month,!but!

LABAN NOTES ABRIL 36

 SPECIAL COMMERCIAL LAWS SECURITIES REGULATION CODE

less! than! two! years;! (c)! after! eight! years! for! those!
punished! by! imprisonment! for! two! years! or! more,! but!
less! than! six! years;! and! (d)!after! twelve! years! for! any!
other!offense!punished!by!imprisonment!for!six!years!or!
more,!except!the!crime!of!treason,!which!shall!prescribe!
after! twenty! years.! Violations! penalized! by! municipal!
ordinances!shall!prescribe!after!two!months.!
!
Under!Section!73!of!the!SRC,!violation!of!its!provisions!or!
the! rules! and! regulations! is! punishable! with!
imprisonment!of!not!less!than!seven!(7)!years!nor!more!
than!twentyKone!(21)!years.!Applying!Section!1!of!Act!No.!
3326,! a! criminal! prosecution! for! violations! of!
the!SRC!shall,!therefore,!prescribe!in!twelve!(12)!years.!
!
Hand! in! hand! with! Section! 1,! Section! 2! of!Act! No.!
3326!states!that!"prescription!shall!begin!to!run!from!the!
day!of!the!commission!of!the!violation!of!the!law,!and!if!
the!same!be!not!known!at!the!time,!from!the!discovery!
thereof!and!the!institution!of!judicial!proceedings!for!its!
investigation!and!punishment."!In!Republic!v.!Cojuangco,!
Jr.!29!the! Court! ruled! that! Section! 2! provides! two! rules!
for!determining!when!the!prescriptive!period!shall!begin!
to! run:!first,! from! the! day! of! the! commission! of! the!
violation! of! the! law,!if! such! commission! is! known;!
and!second,!from! its! discovery,!if! not! then! known,! and!
the! institution! of! judicial! proceedings! for! its!
investigation! and! punishment.! (Citibank) N.A.) v.) TancoT
Gabaldon,) G.R.) No.) 198444,) 198469T70,) [September) 4,)
2013])!
*
*
*
!
!
!
!

LABAN NOTES ABRIL 37

 SPECIAL COMMERCIAL LAWS ANTI-MONEY LAUNDERING ACT

Introductory*Concepts* Any!exception!to!the!rule!of!absolute!confidentiality!must!
! be! specifically! legislated.! Section! 2! of! the! Bank! Secrecy!
Governing*Laws* Act! itself! prescribes! exceptions! whereby! these! bank!
R.A.!No.!9160!–!Anti/Money!Laundering!Act!of!2001,!as! accounts!may!be!examined!by!"any!person,!government!
amended! official,!bureau!or!office";!namely!when:!(1)!upon!written!
! permission! of! the! depositor;! (2)! in! cases! of!
R.A.!No.!9194!–!An!Act!Amending!Act!No.!9160! impeachment;! (3)! the! examination! of! bank! accounts! is!
! upon! order! of! a! competent! court! in! cases! of! bribery! or!
R.A.!No.!10365!–!Amendment!to!R.A.!No.!9160! dereliction!of!duty!of!public!officials;!and!(4)!the!money!
! deposited! or! invested! is! the! subject! matter! of! the!
R.A.!No.!10167!–!An!act!to!further!strengthen!the!AMLA,! litigation.! Section! 8! of! R.A.!Act! No.! 3019,! the!Anti/Graft!
amending!for!the!purpose!sections!10!and!11!of!RA!9160! and! Corrupt! Practices! Act,! has! been! recognized! by! this!
! Court!as!constituting!an!additional!exception!to!the!rule!
2016! Revised! Implementing! Rules! and! Regulations! of! of! absolute! confidentiality,!A! subsequent! law,!the!
Republic! Act! No.! 9160,! as! Amended,! [September! 21,! Ombudsman!Act!of!1989,!contains!a!provision!relating!to!
2016])! "access!to!bank!accounts!and!records."!!
*
The!AMLA!also!provides!exceptions!to!the!Bank!Secrecy!
State*Policy*
Act.!Under!Section!11,!the!AMLC!may!inquire!into!a!bank!
It!is!hereby!declared!the!policy!of!the!State!to!protect!and!
account! upon! order! of! any! competent! court! in! cases! of!
preserve! the! integrity! and! confidentiality! of! bank!
violation! of! the! AMLA,! it! having! been! established! that!
accounts!and!to!ensure!that!the!Philippines!shall!not!be!
there!is!probable!cause!that!the!deposits!or!investments!
used!as!a!money!laundering!site!for!the!proceeds!of!any! are!related!to!unlawful!activities!as!defined!in!Section!3!
unlawful!activity.!Consistent!with!its!foreign!policy,!the! (i)! of! the! law,! or! a! money! laundering! offense! under!
State! shall! extend! cooperation! in! transnational! Section! 4! thereof.! Further,! in! instances! where! there! is!
investigations! and! prosecutions! of! persons! involved! in! probable! cause! that! the! deposits! or! investments! are!
money!laundering!activities!wherever!committed.!(Anti' related! to! kidnapping! for! ransom,!certain! violations! of!
Money! Laundering! Act! of! 2001,! Republic! Act! No.! 9160,! the! Comprehensive! Dangerous! Drugs! Act! of!
[September!29,!2001])! 2002,!!hijacking! and! other! violations! under!R.A.! No.!
!
6235,! destructive! arson! and! murder,! then! there! is! no!
Money*laundering,*definitions*
need!for!the!AMLC!to!obtain!a!court!order!before!it!could!
generally! defined! by! the! International! Criminal! Police!
inquire!into!such!accounts.!
Organization! (Interpol)!as! "any! act! or! attempted! act! to!
conceal! or! disguise! the! identity! of! illegally! obtained! It!cannot!be!successfully!argued!the!proceedings!relating!
proceeds! so! that! they! appear! to! have! originated! from! to!the!bank!inquiry!order!under!Section!11!of!the!AMLA!
legitimate! sources."|!(Republic! v.! Eugenio,! Jr.,! G.R.! No.! is!a!"litigation"!encompassed!in!one!of!the!exceptions!to!
174629,![February!14,!2008],!569!PHIL!98'136)! the! Bank! Secrecy! Act! which! is! when! "the! money!
! deposited! or! invested! is! the! subject! matter! of! the!
a!crime!whereby!the!proceeds!of!an!unlawful!activity!are! litigation."! The! orientation! of! the! bank! inquiry! order! is!
transacted,! thereby! making! them! appear! to! have! simply! to! serve! as! a! provisional! relief! or! remedy.! As!
originated! from! legitimate! sources.! !(Anti'Money! earlier!stated,!the!application!for!such!does!not!entail!a!
Laundering! Act! of! 2001,! Republic! Act! No.! 9160,! full/blown!trial.!
[September!29,!2001])!
! Nevertheless,! just! because! the! AMLA! establishes!
AMLA,* as* an* exception* to* the* Bank* Secrecy* Act* of* additional!exceptions!to!the!Bank!Secrecy!Act!it!does!not!
1995* mean!that!the!later!law!has!dispensed!with!the!general!
Because! of! the! Bank! Secrecy! Act,! the! confidentiality! of! principle!established!in!the!older!law!that!"[a]ll!deposits!
bank! deposits! remains! a! basic! state! policy! in! the! of!whatever!nature!with!banks!or!banking!institutions!in!
Philippines.!Subsequent!laws,!including!the!AMLA,!may! the! Philippines! .! .! .! are! hereby! considered! as! of! an!
have!added!exceptions!to!the!Bank!Secrecy!Act,!yet!the! absolutely! confidential! nature."!! Indeed,! by! force! of!
secrecy!of!bank!deposits!still!lies!as!the!general!rule.!It! statute,!all!bank!deposits!are!absolutely!confidential,!and!
falls! within! the! zones! of! privacy! recognized! by! our! that!nature!is!unaltered!even!by!the!legislated!exceptions!
laws.!The! framers! of! the!1987! Constitution!likewise! referred!to!above.!There!is!disfavor!towards!construing!
recognized!that!bank!accounts!are!not!covered!by!either! these!exceptions!in!such!a!manner!that!would!authorize!
the! right! to! information!under! Section! 7,! Article! III! or! unlimited!discretion!on!the!part!of!the!government!or!of!
under! the! requirement! of! full! public! disclosure!under! any! party! seeking! to! enforce! those! exceptions! and!
Section! 28,! Article! II.!!Unless! the! Bank! Secrecy! Act! is! inquire! into! bank! deposits.! If! there! are! doubts! in!
repealed! or! amended,! the! legal! order! is! obliged! to! upholding! the! absolutely! confidential! nature! of! bank!
conserve!the!absolutely!confidential!nature!of!Philippine! deposits! against! affirming! the! authority! to! inquire! into!
bank!deposits.! such! accounts,! then! such! doubts! must! be! resolved! in!
favor!of!the!former.!Such!a!stance!would!persist!unless!
Congress!passes!a!law!reversing!the!general!state!policy!

LABAN NOTES ABRIL 38

 SPECIAL COMMERCIAL LAWS ANTI-MONEY LAUNDERING ACT

of! preserving! the! absolutely! confidential! nature! of! d.! Insurance!brokers;!

Philippine! bank! accounts.! ! (Republic! v.! Eugenio,! Jr.,! G.R.! e.! Professional!reinsurers;!
No.!174629,![February!14,!2008],!569!PHIL!98'136)! f.! Reinsurance!brokers;!
g.! Holding!companies;!
Illegal* use* of* alias* does* not* necessarily* constitute* h.! Holding!company!systems;!
money*laundering* i.! Mutual!benefit!associations;!and!
Finally,!RA!9160!refers!to!the!crime!of!money!laundering! j.! All! other! persons! and! their! subsidiaries! and!
and! the! imposable! penalty! for! its! commission! —! the! affiliates! supervised! or! regulated! by! the! IC.!
illegal!use!of!alias!violative!of!CA!142!is!not!indispensable! (2016! Revised! Implementing! Rules! and!
in! sustaining! a! violation! of! the!anti/money! laundering! Regulations! of! Republic! Act! No.! 9160,! as!
law!and!illegal!use!of!alias!does!not!necessarily!amount! Amended,![September!21,!2016])!
to,!or!necessarily!constitute,!money!laundering.!!(People! !
v.!Estrada,!G.R.!Nos.!164368'69,![April!2,!2009],!602!PHIL! !
226'254)!
Persons*supervised*or*regulated*by*SEC*
*
!
!
1.! Securities! dealers,! brokers,! salesmen,!
Covered*Institutions* investment! houses,! and! other! similar! persons!
! managing!securities!or!rendering!services!such!
Person,*definition* as!investment!agents,!advisors,!or!consultants.!
any!natural!or!juridical!person!(2016!IRR)! 2.! mutual! funds! or! open/end! investment!
•! “Covered! institutions”! are! now! know! as! companies,!close/end!investment!companies!or!
“Covered!Persons”!by!the!2016!IRR!of!AMLA.* issuers!and!other!similar!entities;!
* 3.! other! entities! administering! or! otherwise!
Covered*Persons* dealing!in!commodities,!or!financial!derivatives!
! based! thereon,! valuable! objects,! cash!
Four*types*of*covered*persons* substitutes! and! other! similar! monetary!
1.! those! supervised! or! regulated! by! the! Bangko! instruments! or! properties! supervised! and!
Sentral!ng!Pilipinas!(BSP);! regulated! by! the! SEC.! (2016! Revised!
2.! those!supervised!or!regulated!by!the!Insurance! Implementing!Rules!and!Regulations!of!Republic!
Commission!(IC);! Act! No.! 9160,! as! Amended,! [September! 21,!
3.! those!supervised!or!regulated!by!the!Securities! 2016])!
Exchange!Commission;!and! !
4.! Designated! Non/Financial! Businesses! and! !
Professions!(DNFBPs)! Designated*NonJFinancial*Businesses*and*
! Professions*
Persons*supervised*or*regulated*by*BSP* !
! a.! Jewelry!dealers,!dealers!in!precious!metals,!and!
a.! Banks;! dealers!in!precious!stones.!
b.! Non/banks;! !
c.! Quasi/banks;!! "Dealer"!refers!to!an!individual!or!entity!who!
d.! Trust!entities;! buys! and/or! sells! precious! metals,! precious!
e.! Pawnshops;! stones! and/or! jewelry! in! the! course! of! its!
f.! Non/stock!savings!and!loan!associations;! business! activities.! The! purchases! or! sales! of!
g.! Electronic!money!issuers;!and! precious! metals,! precious! stones! and/or!
h.! All! other! persons! and! their! subsidiaries! and! jewelry! as! referred! to! herein! exclude! those!
affiliates!supervised!or!regulated!by!the!BSP.! carried! out! for,! connected! with,! or! for! the!
! purpose! of! extracting! precious! metals! or!
For! purposes! of! this! RIRR,! foreign! exchange! precious! stones! from! a! mine,! or! cutting! or!
dealers,! money! changers,! and! remittance! and! polishing!precious!stones.!
transfer!companies!are!covered!persons!under! !
the! regulation! of! the! BSP.! (2016! Revised! "Jewelry"!refers!to!finished!goods!deriving!fifty!
Implementing!Rules!and!Regulations!of!Republic! percent! (50%)! or! more! of! their! value! from!
Act!No.!9160,!as!Amended,![September!21,!2016]! jewels,! precious! metals! or! precious! stones!
! constituting,!forming!part!of!or!attached!to!said!
! finished!goods.!
Persons*supervised*or*regulated*by*IC* !
! "Jewel"!refers!to!organic!substances!that!have!
a.! Insurance!companies;! a! market/recognized! gem! level! of! quality,!
b.! Pre/need!companies;! beauty! and! rarity;! such! as! pearl,! amber! and!
c.! Insurance!agents;! coral.!!

LABAN NOTES ABRIL 39

 SPECIAL COMMERCIAL LAWS ANTI-MONEY LAUNDERING ACT
! Notwithstanding! the! foregoing,! lawyers! and!
"Precious* metals"! refers! to! gold,! silver,!
platinum,! palladium,! rhodium,! ruthenium,!
iridium!and!osmium!at!a!level!of!purity!of!five!
hundred! (500)! parts! per! one! thousand!
(1,000),singly!or!in!any!combination,!and!alloys!
of! precious! metals,! solders,! and! plating!
chemicals! such! as! rhodium! and! palladium!
plating! solutions,! potassium! gold! cyanide!
containing!at!least!sixty/eight!and!three/tenths!
percent!(68.3%)!gold,!potassium!silver!cyanide!
containing! at! least! sixty/eight! percent! (68%)!
silver! and! silver! cyanide! in! salt! solution!
containing! at! least! fifty/four! percent! (54%)!
silver.!
! Regulations! of! Republic! Act! No.! 9160,! as!
"Precious*stones"!refers!to!all!gems!and!stones!
used! in! jewelry! making,! such! as! gemstones,!
jewels!and!those!substances!that!have!market/
recognized! gem! level! of! quality,! beauty,! and!
rarity! such! as! diamond;! corundum! (including!
rubies! and! sapphires);beryl! (including!
emeralds! and! aquamarines);chrysoberyl,!
spinel,! topaz,! zircon,! tourmaline,! garnet,!
crystalline!and!cryptocrystalline!quartz,!olivine!
peridot,! tanzanite,! jadeite! jade,! nephrite! jade,!
spodumene,! feldspar,! turquoise,! lapis! lazuli,!
opal!and!pearl.!
! managed!by!an!asset!manager;!
b.! Company! service! providers! which,! as! a!
business,!provide!any!of!the!following!services!
to!third!parties:!
1.! acting! as! a! formation! agent! of! juridical!
persons;!
2.! acting!as!(or!arranging!for!another!person!
to!act!as)!a!director!or!corporate!secretary!
of! a! company,! a! partner! of! a! partnership,!
or! a! similar! position! in! relation! to! other!
juridical!persons;!
3.! providing! a! registered! office;! business!
address! or! accommodation,!
correspondence!or!administrative!address!
for!a!company,!a!partnership!or!any!other!
legal!person!or!arrangement;!and!
4.! acting!as!(or!arranging!for!another!person!
to!act!as)! a! nominee! shareholder! for!
another!person.!
! It!refers!to:!
c.! Persons,! including! lawyers! and! accountants,!
who!provide!any!of!the!following!services:!
1.! Managing! of! client! money,! securities! or!
other!assets;!
2.! Management!of!bank,!savings,!securities!or!
other!assets;!
3.! iii.!Organization! of! contributions! for! the!
creation,! operation! or! management! of!
companies;!and!
4.! Creation,! operation! or! management! of!
juridical! persons! or! arrangements,! and!
buying!and!selling!business!entities.!
!
LABAN NOTES ABRIL
accountants!who!are:!(1)!authorized!to!practice!
their!profession!in!the!Philippines;!and!are!(2)!
engaged!as!independent!legal!professionals!in!
relation!to!information!concerning!their!clients,!
or! where! disclosure! of! information! would!
compromise!client!confidences!or!the!attorney/
client!relationship,!are!not!covered!persons.!!
!
"Independent* legal* professional"! are!
lawyers! and! accountants! working! in! a! private!
firm! or! as! a! sole! practitioner! who! by! way! of!
business! provides! purely! legal,! notarial! or!
accounting!services!to!their!clients.!
(2016! Revised! Implementing! Rules! and!
Amended,![September!21,!2016])!
!
Client/Customer,*definition*
any!person!who!keeps!an!account,!or!otherwise!transacts!
business!with!a!covered!person.!It!includes!the!following:!
1.! any! person! or! entity! on! whose! behalf! an!
account! is! maintained! or! a! transaction! is!
conducted,! as! well! as! the! beneficiary! of! said!
transactions;!
2.! beneficiary!of!a!trust,!an!investment!fund!or!a!
pension!fund;!
3.! a! company! or! person! whose! assets! are!
4.! a!grantor!of!a!trust;!and!
5.! any!insurance!policy!holder,!whether!actual!or!
prospective.!(2016!Revised!Implementing!Rules!
and! Regulations! of! Republic! Act! No.! 9160,! as!
Amended,![September!21,!2016])!
!
!
Covered*Transactions*
!
Transaction,*definition*
any!act!establishing!any!right!or!obligation,!or!giving!rise!
to! any! contractual! or! legal! relationship! between! the!
parties!thereto.!It!also!includes!any!movement!of!funds!
by! any! means! with! a! covered! person|(2016! Revised!
Implementing! Rules! and! Regulations! of! Republic! Act! No.!
9160,!as!Amended,![September!21,!2016])!
!
Covered*transaction*
1.! A! transaction! in! cash! or! other! equivalent!
monetary! instrument! exceeding!Five! Hundred!
Thousand!pesos!(Php500,000.00)!
2.! A! transaction! exceeding!One! Million! pesos!
(Php1,000,000.00)!in! cases! of! jewelry! dealers,!
dealers! in! precious! metals! and! dealers! in!
precious! stones.! (2016! Revised! Implementing!
Rules!and!Regulations!of!Republic!Act!No.!9160,!
as!Amended,![September!21,!2016])!
!
!
!
40
 SPECIAL COMMERCIAL LAWS ANTI-MONEY LAUNDERING ACT
Suspicious*Transactions*
! Amended,![September!21,!2016])!
Suspicious*Transaction*
refers!to!a!transaction,!regardless!of!amount,!where!any!
of!the!following!circumstances!exists:!
1.! there!is!no!underlying!legal!or!trade!obligation,!
purpose!or!economic!justification;!
2.! the!client!is!not!properly!identified;!
3.! the!amount!involved!is!not!commensurate!with!
the!business!or!financial!capacity!of!the!client;!
4.! taking!into!account!all!known!circumstances,!it!
may!be!perceived!that!the!client's!transaction!is!
structured!in!order!to!avoid!being!the!subject!of!
reporting!requirements!under!the!AMLA;!
5.! any! circumstance! relating! to! the! transaction!
which!is!observed!to!deviate!from!the!profile!of!
the!client!and/or!the!client's!past!transactions!
with!the!covered!person;!
6.! the! transaction! is! in! any! way! related! to! an!
unlawful! activity! or! any! money! laundering!
activity! or! offense! that! is! about! to! be!
committed,!is!being!or!has!been!committed;!or!
7.! any! transaction! that! is! similar,! analogous! or!
identical!to!any!of!the!foregoing.!(2016!Revised!
Implementing!Rules!and!Regulations!of!Republic!
Act! No.! 9160,! as! Amended,! [September! 21,!
2016])!
! following:!
When*Is*Money*Laundering*Committed*
! of!Act!No.! 3815,! otherwise! known! as!
Money*Laundering,*By*Whom*and*How*Committed*
A.! Any! person! who,! knowing! that! any! monetary!
instrument!or!property!represents,!involves,!or!
relates!to!the!proceeds!of!any!unlawful!activity:!
1! transacts! said! monetary! instrument! or!
property;!
2! converts,! transfers,! disposes! of,! moves,!
acquires,!possesses!or!uses!said!monetary!
instrument!or!property;!
3! conceals! or! disguises! the! true! nature,!
source,!location,!disposition,!movement!or!
ownership!of!or!rights!with!respect!to!said!
monetary! instrument! or!
property;!SDHTEC!
4! attempts! or! conspires! to! commit! money!
laundering! offenses! referred! to! in! (1),(2)!
or!(3)!above;!
5! aids,! abets,! assists! in! or! counsels! the!
commission! of! the! money! laundering!
offenses!referred!to!in!(1),(2)!or!(3)!above;!
and!
6! performs! or! fails! to! perform! any!act!as! a!
result!of!which!he!facilitates!the!offense!of!
money!laundering!referred!to!in!(1),(2)!or!
(3)!above.!
! under!Republic!Act!No.! 1937,! as! amended,!
B.! Any! covered! person! who,! knowing! that! a!
covered! or! suspicious! transaction! is! required!
under! the!AMLA!to! be! reported! to! the! AMLC,!
fails!to!do!so.!(2016!Revised!Implementing!Rules!
LABAN NOTES ABRIL
and! Regulations! of! Republic! Act! No.! 9160,! as!
!
Separate*and*Distinct*Elements*
The! elements! of! money! laundering! are! separate! and!
distinct!from!the!elements!of!the!unlawful!activity.!The!
elements!of!the!unlawful!activity,!including!the!identity!
of!the!perpetrators!and!the!details!of!the!commission!of!
the! unlawful! activity,! need! not! be! established! by! proof!
beyond! reasonable! doubt! in! the! case! for! money!
laundering.! !(2016! Revised! Implementing! Rules! and!
Regulations! of! Republic! Act! No.! 9160,! as! Amended,!
[September!21,!2016])!
!
Knowledge*
The!element!of!knowledge!may!be!established!by!direct!
or!circumstantial!evidence.|!(2016!Revised!Implementing!
Rules! and! Regulations! of! Republic! Act! No.! 9160,! as!
Amended,![September!21,!2016])!
!
*
!
Unlawful*Activities*or*Predicate*Crimes*
!
Unlawful*Activity,*definition*
refers! to! any!act!or! omission,! or! series! or! combination!
thereof,! involving! or! having! direct! relation,! to! the!
1.! "Kidnapping! for! Ransom"!under! Article! 267!
the!Revised!Penal!Code,!as!amended;!
2.! Sections!4,!5,!6,!8,!9,!10,!11,!12,!13,!14,!15!and!
16!of!Republic!Act!No.!9165,!otherwise!known!
as!the!"Comprehensive!Dangerous!Drugs!Act!of!
2002";!
3.! Section! 3! paragraphs! b,! c,! e,! g,! h! and! i!
of!Republic!Act!No.! 3019,! as! amended,!
otherwise! known! as! the! "Anti/Graft! and!
Corrupt!Practices!Act";!
4.! "Plunder"!under!Republic!Act!No.! 7080,! as!
amended;!
5.! "Robbery"!and!"Extortion"!under! Articles! 294,!
295,!296,!299,!300,!301!and!302!of!the!Revised!
Penal!Code,!as!amended;!
6.! "Jueteng"!and!"Masiao"!punished! as! illegal!
gambling!under!Presidential!Decree!No.!1602;!
7.! "Piracy! on! the! High! Seas"!under! the!Revised!
Penal! Code,! as! amended,! and!Presidential!
Decree!No.!532;!
8.! "Qualified! Theft"!under! Article! 310! of!
the!Revised!Penal!Code,!as!amended;!
9.! "Swindling"!under! Article! 315! and!"Other!
Forms! of! Swindling"!under! Article! 316! of!
the!Revised!Penal!Code,!as!amended;!
10.! "Smuggling"!under!Republic!Act!No.! 455!and!
otherwise! known! as! the!"Tariff! and! Customs!
Code!of!the!Philippines";!
11.! Violations! under!Republic!Act!No.! 8792,!
otherwise! known! as! the!"Electronic!
Commerce!Act!of!2000";!
41
 SPECIAL COMMERCIAL LAWS ANTI-MONEY LAUNDERING ACT
12.! "Hijacking"!and! other! violations!
under!Republic!Act!No.!6235,!otherwise!known!
as!the!"Anti/Hijacking!Law";!
"Destructive! Arson";! and!"Murder,"!as! defined!
under!the!Revised!Penal!Code,!as!amended;!
13.! "Terrorism"!and!"Conspiracy! to! Commit!
Terrorism"!as! defined! and! penalized! under!
Sections!3!and!4!of!Republic!Act!No.!9372;!
14.! "Financing! of! Terrorism"!under! Section! 4! and!
offenses!punishable!under!Sections!5,!6,!7!and!
8!of!Republic!Act!No.!10168,!otherwise!known!
as! the!"Terrorism! Financing! Prevention! and!
Suppression!Act!of!2012";!
15.! "Bribery"!under!Articles!210,!211!and!211/A!of!
the!Revised! Penal! Code,! as! amended,! and!
"Corruption! of! Public! Officers"!under! Article!
212!of!the!Revised!Penal!Code,!as!amended;!
16.! "Frauds! and! Illegal! Exactions"!and!
Transactions!under!Articles!213,!214,!215!and!
216!of!the!Revised!Penal!Code,!as!amended;!
17.! "Malversation! of! Public! Funds"!and! Property!
under! Articles! 217! and! 222! of! the!Revised!
Penal!Code,!as!amended;!
18.! "Forgeries"!and!"Counterfeiting"!under!
Articles! 163,! 166,! 167,! 168,! 169! and! 176! of!
the!Revised!Penal!Code,!as!amended;!!
19.! Violations!of!Sections!4!to!6!of!Republic!Act!No.!
9208,!otherwise!known!as!the!"Anti/Trafficking!
in! Persons!Act!of! 2003,"! as! amended!
by!Republic!Act!No.!10364;!
20.! Violations! of! Sections! 78! to! 79! of! Chapter! IV!
of!Presidential! Decree!No.! 705,! otherwise!
known! as! the! "Revised! Forestry! Code! of! the!
Philippines,!as!amended";!
21.! Violations! of! Sections! 86! to! 106! of! Chapter! IV!
of!Republic!Act!No.! 8550,! otherwise! known! as!
the!"Philippine!Fisheries!Code!of!1998";!
22.! Violations! of! Sections! 101! to! 107,! and! 110!
of!Republic!Act!No.! 7942,! otherwise! known! as!
the!"Philippine!Mining!Act!of!1995";!
23.! Violations!of!Section!27!(c),!(e),!(f),!(g)!and!(i)!
of!Republic!Act!No.! 9147,! otherwise! known! as!
the! "Wildlife! Resources! Conservation! and!
Protection!Act";!
24.! Violations! of! Section! 7! (b)! of!Republic!Act!No.!
9072,!otherwise!known!as!the!"National!Caves!
and! Cave! Resources! Management!
Protection!Act";!
25.! Violation! of!Republic!Act!No.! 6539,! otherwise!
known!as!the!"Anti/Carnapping!Act!of!2002,!as!
amended";!
26.! Violation!of!Sections!1,!3,!and!5!of!Presidential!
Decree!No.! 1866,! as! amended,! otherwise!
known! as! the! decree!"Codifying! the! Laws! on!
Illegal/Unlawful! Possession,! Manufacture,!
Dealing! in,! Acquisition! or! Disposition! of!
Firearms,!Ammunition!or!Explosives";!
27.! Violation! of!Presidential! Decree!No.! 1612,!
otherwise!known!as!the!"Anti/Fencing!Law";!
28.! Violation!of!Section!6!of!Republic!Act!No.!8042,!
otherwise!known!as!the!"Migrant!Workers!and!
LABAN NOTES ABRIL
Overseas! Filipinos!Act!of! 1995,"!as! amended!
by!Republic!Act!No.!10022;!
29.! Violation! of!Republic!Act!No.! 8293,! otherwise!
known!as!the!"Intellectual!Property!Code!of!the!
Philippines,!as!amended";!
30.! Violation!of!Section!4!of!Republic!Act!No.!9995,!
otherwise!known!as!the!"Anti/Photo!and!Video!
Voyeurism!Act!of!2009";!
31.! Violation!of!Section!4!of!Republic!Act!No.!9775,!
otherwise! known! as! the!"Anti/Child!
Pornography!Act!of!2009";!
32.! Violations!of!Sections!5,!7,!8,!9,!10!(c),!(d)!and!
(e),! 11,! 12! and! 14! of!Republic!Act!No.! 7610,!
otherwise!known!as!the!"Special!Protection!of!
Children! against! Abuse,! Exploitation! and!
Discrimination";!
33.! Fraudulent! practices! and! other! violations!
under!Republic!Act!No.!8799,!otherwise!known!
as!the!"Securities!Regulation!Code!of!2000";!
34.! Felonies! or! offenses! of! a! nature! similar! to! the!
aforementioned! unlawful! activities! that! are!
punishable! under! the! penal! laws! of! other!
countries.!
!
!In! determining! whether! or! not! a! felony! or! offense!
punishable!under!the!penal!laws!of!other!countries!is!"of!
a! similar! nature,"! as! to! constitute! an! unlawful! activity!
under! the!AMLA,! the! nomenclature! of! said! felony! or!
offense! need! not! be! identical! to! any! of! the! unlawful!
activities!listed!above.!(2016!Revised!Implementing!Rules!
and! Regulations! of! Republic! Act! No.! 9160,! as! Amended,!
[September!21,!2016])!
!
Monetary* Instrument* or* Property* Related* to* an*
Unlawful*Activity,*definition*
1.!All!proceeds!of!an!unlawful!activity;!
2.!All!monetary,!financial!or!economic!means,!devices,!
accounts,!documents,!papers,!items!or!things!
used! in! or! having! any! relation! to! any!
unlawful!activity;!
3.!All! moneys,! expenditures,! payments,!
disbursements,! costs,! outlays,! charges,!
accounts,!refunds!and!other!similar!items!for!
the! financing,! operations,! and! maintenance!
of!any!unlawful!activity;!and!
4.!For! purposes! of! freeze! order! and! bank! inquiry:!
related! and! materially/linked!
accounts.!!(2016!Revised!Implementing!Rules!
and!Regulations!of!Republic!Act!No.!9160,!as!
Amended,![September!21,!2016])!
!
!
Jurisdiction*over*Money*Laundering*Cases*
!
Regional*Trial*Courts*
have! the! jurisdiction! to! try! money! laundering! cases!
committed!by!private!individuals,!and!public!officers!not!
42
 SPECIAL COMMERCIAL LAWS ANTI-MONEY LAUNDERING ACT

covered!by!the!jurisdiction!of!the!Sandiganbayan.|(2016! 3.! to!institute!civil!forfeiture!proceedings!and!all!

Revised! Implementing! Rules! and! Regulations! of! Republic! other!remedial!proceedings!through!the!Office!
Act!No.!9160,!as!Amended,![September!21,!2016])! of!the!Solicitor!General;!
* 4.! to! file! complaints! with! the! Department! of!
Sandiganbayan* Justice!or!the!Office!of!the!Ombudsman!for!the!
has! jurisdiction! to! try! money! laundering! cases! prosecution!of!money!laundering!offenses!and!
committed!by!public!officers!under!its!jurisdiction,!and! other!violations!under!the!AMLA;!
private!persons!who!are!in!conspiracy!with!such!public! 5.! to! investigate! suspicious! transactions! and!
officers.|(2016! Revised! Implementing! Rules! and! covered! transactions! deemed! suspicious! after!
Regulations! of! Republic! Act! No.! 9160,! as! Amended,! investigation! by! the! AMLC,! money! laundering!
[September!21,!2016])! activities!and!other!violations!of!the!AMLA;!!
! 6.! to! file! with! the! Court! of! Appeals,!ex! parte!
Independent*Proceedings* through!the!Office!of!the!Solicitor!General:!
The!prosecution!of!money!laundering!and!the!unlawful! a.! a! petition! for! the! freezing! of! any!
activity!shall!proceed!independently.!Any!person!may!be! monetary! instrument! or! property!
charged! with! and! convicted! of! both! money! laundering! that! is! in! any! way! related! to! an!
and! the! unlawful! activity.|(2016! Revised! Implementing! unlawful!activity;!or!!
Rules! and! Regulations! of! Republic! Act! No.! 9160,! as! b.! an!application!for!authority!to!inquire!
Amended,![September!21,!2016])! into! or! examine! any! particular!
! deposit! or! investment,! including!
Rules*of*Procedure* related! accounts,! with! any! banking!
The! Rules! of! Court! shall! govern! all! proceedings! institution! or! non/bank! financial!
concerning!the!prosecution!of!money!laundering.|!(2016! institution.!
Revised! Implementing! Rules! and! Regulations! of! Republic! 7.! to!formulate!and!implement!such!measures!as!
Act!No.!9160,!as!Amended,![September!21,!2016])! may! be! necessary! and! justified! under!
* the!AMLA!to!counteract!money!laundering.!
! 8.! to! receive! and! take! action! in! respect! of! any!
AntiJMoney*Laundering*Council*(AMLC)* request! from! foreign! states! for! assistance! in!
! their!own!anti/money!laundering!operations!as!
AntiJMoney*Laundering*Council,*definition* provided!in!the!AMLA.!
the! financial! intelligence! unit! of! the!Republic!of! the! 9.! to! develop! educational! programs,! including!
Philippines! which! is! the! government! agency! tasked! to! awareness!campaign!on!the!pernicious!effects,!
implement!the!AMLA!(2016!Revised!Implementing!Rules! the! methods! and! techniques! used,! and! the!
and! Regulations! of! Republic! Act! No.! 9160,! as! Amended,! viable! means! of! preventing! money! laundering!
[September!21,!2016])! and! the! effective! ways! of! prosecuting! and!
! punishing!offenders;!
AMLC,*Composition* 10.! to! enlist! the! assistance! of! any! branch,!
Chairperson!–!Governor!of!the!BSP! department,! bureau,! office,! agency! or!
Members:! instrumentality! of! the! government,! including!
a.! Commissioner!of!the!IC! government/owned! and! /controlled!
b.! Chairperson!of!the!SEC! corporations,! in! undertaking! any! and! all! anti/
! money! laundering! operations,! which! may!
! include! the! use! of! its! personnel,! facilities! and!
resources! for! the! more! resolute! prevention,!
Functions*of*AMLC*
detection! and! investigation! of! money!
!
laundering! offenses! and! prosecution! of!
The!functions!of!the!AMLC!are:!
offenders.!
1.! to! require! and! receive! covered! or! suspicious!
11.! to! impose! administrative! sanctions! for! the!
transaction!reports!from!covered!persons;!
violation!of!laws,!rules,!regulations,!orders,!and!
2.! to! issue! orders! addressed! to! the! appropriate!
resolutions!issued!pursuant!thereto.!
Supervising!Authority!or!the!covered!person!to!
12.! to!require!the!Land!Registration!Authority!and!
determine!the!true!identity!of!the!owner!of!any!
all! its! Registries! of! Deeds! to! submit! to! the!
monetary! instrument! or! property! subject! of! a!
AMLC,! reports! on! all! real! estate! transactions!
covered! or! suspicious! transaction! report,! or!
involving!an!amount!in!excess!of!Five!hundred!
request! for! assistance! from! a! foreign! State,! or!
thousand! pesos! (P500,000.00)! within! fifteen!
believed! by! the! AMLC,! on! the! basis! of!
(15)! days! from! the! date! of! registration! of! the!
substantial!evidence,!to!be,!in!whole!or!in!part,!
transaction,! in! a! form! to! be! prescribed! by! the!
wherever! located,! representing,! involving,! or!
AMLC.! The! AMLC! may! also! require! the! Land!
related!to,!directly!or!indirectly,!in!any!manner!
Registration!Authority!and!all!its!Registries!of!
or!by!any!means,!the!proceeds!of!any!unlawful!
Deeds!to!submit!copies!of!relevant!documents!
activity;!
of! all! real! estate! transactions.! (2016! Revised!

LABAN NOTES ABRIL 43

 SPECIAL COMMERCIAL LAWS ANTI-MONEY LAUNDERING ACT

Implementing!Rules!and!Regulations!of!Republic! The!use!of!Information!and!Communication!Technology!
Act! No.! 9160,! as! Amended,! [September! 21,! in! the! conduct! of! face/to/face! contact! may! be! allowed,!
2016])! provided!that!the!covered!person!is!in!possession!of!and!
! has! verified! the! identification! documents! submitted! by!
! the!prospective!client!prior!to!the!interview!and!that!the!
Scope* and* parameters* of* AMLC’s* investigatory* entire! procedure! is! documented.! (2016! Revised!
powers;* AMLC* does* not* exercise* quasiJjudicial* Implementing! Rules! and! Regulations! of! Republic! Act! No.!
functions* 9160,!as!Amended,![September!21,!2016])!
The!AMLC!shall!investigate:! !
1.! suspicious!transactions;! Minimum* Customer* Information* and* Identification*
2.! covered! transactions! deemed! suspicious! after! Documents*
an!investigation!conducted!by!the!AMLC;! See!Rule!9!of!2016!RIRR!of!AMLA!
3.! money!laundering!activities;!and! !
4.! other!violations!of!the!AMLA,!as!amended! Third*Party*Reliance*
|| A!covered!person!may!rely!on!a!third!party!to!perform!
! customer!identification,!including!face/to/face!contact.!
! The!third!party!shall!be:!
Obligations*of*Covered*Persons*(Preventive* 1.! A!covered!person;!or!
Measures)* 2.! A!financial!institution!or!DNFBP!operating!
! outside!the!Philippines!that!is!covered!by!
1.! Customer!Due!Diligence! equivalent!customer!identification!and!face/to/
2.! Record!Keeping! face!requirements.!
3.! Transaction!Reporting! Notwithstanding!the!foregoing,!the!ultimate!
! responsibility!for!identifying!the!customer!remains!with!
the!covered!person!relying!on!the!third!party.!
Customer*Due*Diligence*
!
! Provided!that,!in!cases!of!high!risk!customers,!the!
Covered! persons! shall! establish! and! record! the! true! covered!person!relying!on!the!third!person!shall!also!
identity! of! their! clients! based! on! official! documents,! as! conduct!enhanced!due!diligence!procedure.!!(2016!
defined!under!Rule!3.M!of!this!RIRR.!They!shall!maintain! Revised!Implementing!Rules!and!Regulations!of!Republic!
a! system! of! verifying! the! true! identity! of! their! clients! Act!No.!9160,!as!Amended,![September!21,!2016])!
based! on! reliable,! independent! source! data,! documents! !
of!information!and,!in!case!of!corporate!clients,!require!a! Outsourcing*the**Conduct*of*Customer*Identification*
system! of! verifying! their! legal! existence! and! Covered!persons!may!outsource!the!conduct!of!customer!
organizational! structure,! as! well! as! the! authority! and! identification,! including! face/to/face! contact,! to! a!
identification! of! all! persons! purporting! to!act!on! their! counter/party,! intermediary! or! agent.! The! outsource,!
behalf.! Covered! persons! shall! establish! appropriate! counter/party!or!intermediary!shall!be!regarded!as!agent!
systems! and! methods! and! adequate! internal! controls,!
of! the! covered! person! —! that! is,! the! processes! and!
compliant! with! the!AMLA,! this! RIRR,! other! AMLC!
documentation! are! those! of! the! covered! person! itself.!
issuances,! the! guidelines! issued! by! the! Supervising!
The!ultimate!responsibility!for!identifying!the!customer!
Authorities! and! internationally! accepted! anti/money!
and!keeping!the!identification!documents!remains!with!
laundering! standards,! for! verifying! and! recording! the!
the!covered!person.!
true!and!full!identity!of!their!customers.! !
! !The! covered! person! outsourcing! the! conduct! of!
In! conducting! customer! due! diligence,! a! risk/based! customer! identification,! including! face/to/face! contact,!
approach!shall!be!undertaken!depending!on!the!type!of! shall!ensure!that!the!employees!or!representatives!of!the!
customer,!business!relationship!or!nature!of!the!product,! counter/party,! intermediary! or! agent! undergo!
transaction!or!activity.!(2016!Revised!Implementing!Rules! equivalent! training! program! as! that! of! the! covered!
and! Regulations! of! Republic! Act! No.! 9160,! as! Amended,! person's! own! employees! undertaking! similar! activity.!
[September!21,!2016])! (2016! Revised! Implementing! Rules! and! Regulations! of!
! Republic!Act!No.!9160,!as!Amended,![September!21,!2016])!
Customer*Identification* *
* Identification*and*Verification*of*a*Beneficial*
FaceJtoJFace*Contact* Owner,*Trustee,*Nominee,*or*Agent*
Covered!persons!shall!conduct!face/to/face!contact!at!the! Where! an! account! is! opened! or! a! transaction! is!
commencement! of! the! relationship,! or! as! reasonably! conducted! by! any! person! in! behalf! of! another,! covered!
practicable!so!as!not!to!interrupt!the!normal!conduct!of! persons! shall! establish! and! record! the! true! and! full!
business,!taking!into!account!the!nature!of!the!product,! identity!and!existence!of!both!the!(1)!account!holder!or!
type! of! business! and! the! risks! involved;! provided! that! transactor! and! the! (2)beneficial! owner!or! person! on!
money!laundering!risks!are!effectively!managed.! whose!behalf!the!transaction!is!being!conducted.!!
! !

LABAN NOTES ABRIL 44

 SPECIAL COMMERCIAL LAWS ANTI-MONEY LAUNDERING ACT

!The!covered!person!shall!determine!the!true!nature!of! Covered! persons! shall! examine! the! background! and!

the!parties'!capacities!and!duties!by!obtaining!a!copy!of! purpose!of!all!complex,!unusually!large!transactions,!all!
the!written!document!evidencing!their!relationship!and! unusual! patterns! of! transactions,! which! have!
apply! the! same! standards! for! assessing! the! risk! profile! no!apparent! economic! or! lawful! purpose,! and! other!
and! determining! the! standard! of! due! diligence! to! be! transactions!that!may!be!considered!suspicious.!
applied!to!both.!In!case!it!entertains!doubts!as!to!whether! !
the! account! holder! or! transactor! is! being! used! as! a! Where! the! risks! of! money! laundering! or! terrorist!
dummy!in!circumvention!of!existing!laws,!it!shall!apply! financing!are!higher,!covered!persons!should!be!required!
enhanced!due!diligence!or!file!a!Suspicious!Transaction! to!conduct!enhanced!due!diligence!measures,!consistent!
Report,!if!warranted.!(2016!Revised!Implementing!Rules! with!the!risks!identified.!
and! Regulations! of! Republic! Act! No.! 9160,! as! Amended,! !
[September!21,!2016])! For! this! purpose,! covered! persons! shall! perform! the!
! following:!
! i.! gather! additional! customer! information! and!
Risk*Assessment* identification! documents,! such! as,! but! not!
* limited! to,! occupation,! volume! of! assets!
Covered! persons! shall! develop! clear,! written! and! information! available! through! public!
graduated!customer!acceptance!policies!and!procedures! databases,! internet,! etc.,! and! updating! more!
including!a!set!of!criteria!for!customers!that!are!likely!to! regularly! the! identification! data! of! customer!
pose! low,! normal! or! high! risk! to! their! operations.! The! and!beneficial!owner;!
criteria! may! include:! (1)! the! nature! of! the! service! or! ii.! ii.!obtain! additional! information! on! the!
product! to! be! availed! of! by! the! customers;! (2)! the! intended! nature! of! the! business! relationship;!
purpose!of!the!account!or!transaction;!(3)!the!amount!of! the!source!of!funds!or!wealth!of!the!customer;!
funds! to! be! deposited! by! a! customer! or! the! size! of! and! the! reasons! for! intended! or! performed!
transactions! undertaken;! (4)! the! regularity! or! duration! transaction;!
of!the!transaction;!(5)!the!fact!that!a!customer!came!from! iii.! conduct!validation!procedures;!
a! high! risk! jurisdiction;! (6)! the! existence! of! suspicious! iv.! secure! the! approval! of! senior! management! to!
transaction! indicators;! and! (7)! such! other! factors! the! commence! or! continue! transacting! with! the!
covered! persons! may! deem! reasonable! or! necessary! to! customer;!
consider! in! assessing! the! risk! of! a! customer! to! money! v.! conduct! enhanced! ongoing! monitoring! of! the!
laundering.! business!relationship;!
! vi.! require! the! first! payment! to! be! carried! out!
!Covered! persons! shall! set! the! standards! in! applying! through! an! account! in! the! customer's! name!
reduced,!normal!and!enhanced!customer!due!diligence,! with! a! bank! subject! to! similar! CDD! standards,!
including! a! set! of! conditions! for! the! denial! of! account! where!applicable;!and!
opening! or! services.! (2016! Revised! Implementing! Rules! vii.! such! other! measures! as! the! covered! persons!
and! Regulations! of! Republic! Act! No.! 9160,! as! Amended,! may! deem! reasonable! or! necessary.! (2016!
[September!21,!2016])! Revised!Implementing!Rules!and!Regulations!of!
* Republic!Act!No.!9160,!as!Amended,![September!
Reduced*Due*Diligence* 21,!2016])!
Where! lower! risks! of! money! laundering! and! terrorist! !
financing! have! been! identified,! through! an! adequate! *
analysis! of! risk! by! the! covered! persons,! reduced! due! Ongoing*Monitoring*of*Customers,*Accounts*and*
diligence! procedures! may! be! applied.! The! reduced! due! Transactions*
diligence!procedures!should!be!commensurate!with!the! *
lower!risk!factors,!but!are!not!acceptable!whenever!there! Covered! persons! shall,! on! the! basis! of! materiality! and!
is!suspicion!of!money!laundering!or!terrorist!financing,! risk,!update!all!customer!information!and!identification!
or!specific!higher!risk!scenarios!apply.! documents!of!existing!customers!required!to!be!obtained!
!! under!the!AMLA,!as!amended,!and!this!RIRR.!
In! strictly! limited! circumstances! and! where! there! is! Covered!persons!shall!establish!a!system!that!will!enable!
proven! low! risk! of! money! laundering! and! terrorist! them!to!understand!the!normal!and!reasonable!account!
financing,! the! Supervising! Authorities! may! issue! or! business! activity! of! customers! to! ensure! that! the!
guidelines! allowing! certain! exemptions,! taking! into! customers'! accounts! and! transactions! are! consistent!
account!the!nature!of!the!product,!type!of!business!and! with! the! covered! person's! knowledge! of! its! customers,!
the!risks!involved;!provided!that!money!laundering!risks! and! the! latter's! commercial! activities,! risk! profile,! and!
are! effectively! managed.! (2016! Revised! Implementing! source!of!funds.!
Rules! and! Regulations! of! Republic! Act! No.! 9160,! as! !
Amended,![September!21,!2016])! Covered!persons!shall!apply!enhanced!due!diligence!on!
! the!customer!if!it!acquires!information!in!the!course!of!
Enhanced*Due*Diligence* its!customer!account!or!transaction!monitoring!that:!

LABAN NOTES ABRIL 45

 SPECIAL COMMERCIAL LAWS ANTI-MONEY LAUNDERING ACT

a.! Raises! doubt! as! to! the! accuracy! of! any! Retention* of* Records* Where* the* Account* is* the*
information! or! document! provided! or! the! Subject*of*a*Case*
ownership!of!the!entity;! If! a! case! has! been! filed! in! court! involving! the! account,!
b.! Justifies! reclassification! of! the! customer! from! records!must!be!retained!and!safely!kept!beyond!the!five!
low! or! normal! risk! to! high! risk! pursuant! to! (5)/year! period,! until! it! is! officially! confirmed! by! the!
these!Rules;! AMLC! Secretariat! that! the! case! has! been! resolved,!
c.! Indicates!that!any!of!the!circumstances!for!the! decided! or! terminated! with! finality.|||!(2016! Revised!
filing!of!a!Suspicious!Transaction!Report!exists.! Implementing! Rules! and! Regulations! of! Republic! Act! No.!
! 9160,!as!Amended,![September!21,!2016])!
If!the!covered!person:! !
a.! fails! to! satisfactorily! complete! the! enhanced! Closed*Accounts*
due!diligence!procedures;!or! Covered! persons! shall! maintain! and! safely! store! for! at!
b.! reasonably! believes! that! performing! the! least! five! (5)! years! from! the! dates! the! accounts! were!
enhanced!due!diligence!process!will!tip/off!the! closed,! all! records! of! customer! identification! and!
customer,! transaction! documents.|||!(2016! Revised! Implementing!
it!shall!file!a!Suspicious!Transaction!Report,!and!closely! Rules! and! Regulations! of! Republic! Act! No.! 9160,! as!
monitor! the! account! and! review! the! business! Amended,![September!21,!2016])!
relationship.! *
! Form*of*Records*
Covered! persons! shall,! on! the! basis! of! materiality! and! Covered!persons!shall!retain!all!records!as!originals!or!in!
risk,!update,!no!later!than!once!every!three!(3)!years,!all! such! forms! as! are! admissible! in! court.|||!(2016! Revised!
customer! information! and! identification! documents,! Implementing! Rules! and! Regulations! of! Republic! Act! No.!
unless!enhanced!ongoing!monitoring!is!warranted.!(2016! 9160,!as!Amended,![September!21,!2016])!
Revised! Implementing! Rules! and! Regulations! of! Republic! *
Act!No.!9160,!as!Amended,![September!21,!2016])! Covered! persons! shall,! likewise,! keep! the! electronic!
! copies!of!all!covered!and!suspicious!transaction!reports!
! for,!at!least,!five!(5)!years!from!the!dates!of!submission!
Prohibited*Accounts* to!the!AMLC.!
! !
The! following! accounts! shall! be! prohibited! and! may! be! For! low! risk! customers,! it! is! sufficient! that! covered!
the!subject!of!the!Supervising!Authorities'!annual!testing! persons! shall! maintain! and! store,! in! whatever! form,! a!
for! the! sole! purpose! of! determining! the! existence! and! record!of!customer!information!and!transactions.!(2016!
true!identity!of!their!owners:|! Revised! Implementing! Rules! and! Regulations! of! Republic!
! Act!No.!9160,!as!Amended,![September!21,!2016])!
Anonymous*Accounts*and*Accounts*under*Fictitious* *
Names* *
Covered!persons!shall!maintain!customers'!account!only! Transaction*Reporting*
in!the!true!and!full!name!of!the!account!owner!or!holder.! *
Anonymous! accounts,! accounts! under! fictitious! names,! Covered! persons! shall! report! to! the! AMLC! all! covered!
and! all! other! similar! accounts! shall! be! absolutely! transactions!and!suspicious!transactions!within!five!(5)!
prohibited;!and! working! days,! unless! the! AMLC! prescribes! a! different!
period!not!exceeding!fifteen!(15)!working!days,!from!the!
Numbered*Accounts* occurrence!thereof.!!
Numbered! accounts,! except! non/checking! numbered! !
accounts,!shall!not!be!allowed.! For! suspicious! transactions,! "occurrence"! refers! to! the!
! date! of! determination! of! the! suspicious! nature! of! the!
Covered! and! suspicious! transaction! reports! involving! transaction,! which! determination! should! be! made! not!
non/checking!numbered!accounts!shall!contain!the!true! exceeding! ten! (10)! calendar! days! from! the! date! of!
name!of!the!account!holder.!(2016!Revised!Implementing! transaction.! However,! if! the! transaction! is! in! any! way!
Rules! and! Regulations! of! Republic! Act! No.! 9160,! as! related! to,! or! the! person! transacting! is! involved! in! or!
Amended,![September!21,!2016])! connected!to,!an!unlawful!activity!or!money!laundering!
offense,! the! 10/day! period! for! determination! shall! be!
Record*Keeping* reckoned! from! the! date! the! covered! person! knew! or!
! should!have!known!the!suspicious!transaction!indicator.!
Covered!persons!shall!maintain!and!safely!store!for!five! !
(5)! years! from! the! dates! of! transactions! all! records! of! Should!a!transaction!be!determined!to!be!both!a!covered!
customer! identification! and! transaction! documents! of! and!a!suspicious!transaction,!the!same!shall!be!reported!
their!customers.|||! as!a!suspicious!transaction.!(2016!Revised!Implementing!
! Rules! and! Regulations! of! Republic! Act! No.! 9160,! as!
Amended,![September!21,!2016])!
!

LABAN NOTES ABRIL 46

 SPECIAL COMMERCIAL LAWS ANTI-MONEY LAUNDERING ACT

Substance*and*Form*of*Reports* MateriallyJlinked*Accounts*
Covered! persons! shall! ensure! the! accuracy! and!
completeness!of!Covered!Transaction!Report!(CTR)!and! 1.!All! accounts! or! monetary! instruments! under! the!
Suspicious!Transaction!Report!(STR),which!shall!be!filed! name! of! the! person! whose! accounts,!
in! the! forms! prescribed! by! the! AMLC! and! shall! be! monetary!instruments!or!properties!are!the!
submitted!in!a!secured!manner!to!the!AMLC!in!electronic! subject! of! the! freeze! order! or! an! order! of!
form.|!(2016!Revised!Implementing!Rules!and!Regulations! inquiry;!
of! Republic! Act! No.! 9160,! as! Amended,! [September! 21,!
2.!All!accounts!or!monetary!instruments!held,!owned!
2016])!
or! controlled! by! the! owner! or! holder! of! the!
!
accounts,! monetary! instruments! or!
Confidentiality*of*Reporting*
properties! subject! of! the! freeze! order! or!
When! reporting! covered! or! suspicious! transactions,!
order!of!inquiry,!whether!such!accounts!are!
covered! persons! and! their! officers! and! employees! are!
held,! owned! or! controlled! singly! or! jointly!
prohibited!from!communicating,!directly!or!indirectly,!in!
with!another!person;!
any!manner!or!by!any!means,!to!any!person!or!entity,!or!
the! media,! the! fact! that! a! covered! or! suspicious! 3.!All!"In!Trust!For"!accounts!where!either!the!trustee!
transaction! has! been! or! is! about! to! be! reported,! the! or! the! trustor! pertains! to! a! person! whose!
contents! of! the! report,! or! any! other! information! in! accounts,! monetary! instruments! or!
relation!thereto.! properties!are!the!subject!of!the!freeze!order!
! or!order!of!inquiry;!
Any! information! about! such! reporting! shall! not! be!
published!or!aired,!in!any!manner!or!form,!by!the!mass! 4.!All!accounts!held!for!the!benefit!or!in!the!interest!of!
media,! or! through! electronic! mail,! or! other! similar! the! person! whose! accounts,! monetary!
devices.! instruments!or!properties!are!the!subject!of!
! the!freeze!order!or!order!of!inquiry;!and!
In! case! of! violation! thereof,! the! concerned! officer,! and!
employee,!of!the!covered!person!and!media!shall!be!held! 5.!All! other! accounts,! shares,! units! or! monetary!
criminally!liable.! instruments! that! are! similar,! analogous! or!
(2016! Revised! Implementing! Rules! and! Regulations! of! identical! to! any! of! the! foregoing.! ! (2016!
Republic!Act!No.!9160,!as!Amended,![September!21,!2016])! Revised! Implementing! Rules! and! Regulations!
* of! Republic! Act! No.! 9160,! as! Amended,!
Safe*Harbor*Provision* [September!21,!2016])!
No!administrative,!criminal!or!civil!proceedings!shall!lie!
!
against!any!person!for!having!made!a!CTR!or!STR!in!the!
regular! performance! of! his! duties! and! in! good! faith,!
Freeze*Order*(sec.*10,*RA*9160,*as*amended)*
whether! or! not! such! reporting! results! in! any! criminal!
prosecution! under! the!AMLA!or! any! other! Philippine! !
law.!(2016!Revised!Implementing!Rules!and!Regulations!of! Issuance*of*Freeze*Order;*Who*may*file*
Republic!Act!No.!9160,!as!Amended,![September!21,!2016])! Upon! verified!ex! parte!petition! by! the! AMLC! and! after!
! determination! that! probable! cause! exists! that! any!
Enrollment*with*the*AMLC’s*Reporting*System* monetary!instrument!or!property!is!in!any!way!related!
All! covered! persons! shall! register! with! the! AMLC's! to!an!unlawful!activity,!the!Court!of!Appeals!may!issue!a!
electronic!reporting!system!within!ninety!(90)!days!from! freeze! order,! which! shall! be! effective! immediately,!
the!effectivity!of!this!RIRR.!(2016!Revised!Implementing! directing! the! concerned! covered! persons! and!
Rules! and! Regulations! of! Republic! Act! No.! 9160,! as! government! agency! to! desist! from! allowing! any!
Amended,![September!21,!2016])! transaction,! withdrawal,! transfer,! removal,! conversion,!
* concealment,! or! other! disposition! of! the! subject!
See!Rule!IX'A!of!the!2016!RIRR!of!AMLA!for!the!Preventive! monetary! instrument! or! property|||!(2016! Revised!
Measures!for!Specific!Customers!and!Activities! Implementing! Rules! and! Regulations! of! Republic! Act! No.!
! 9160,!as!Amended,![September!21,!2016])!
! *
Probable*cause*required*for*the*issuance*of*Freeze*
Freezing*of*Monetary*Instrument*or*Property*
Order*is*different*from*that*required*for*the*
! institution*of*criminal*action*
Related*Accounts,*definition* *
refers!to!those!accounts,!the!funds!and!sources!of!which!
Ligot*v.*Republic,*G.R.*No.*176944,*[March*6,*2013]*
originated! from! and/or! are! materially/linked! to! the!
*
monetary!instruments!or!properties!subject!of!the!freeze!
The! legal! basis! for! the! issuance! of! a! freeze! order! is!
order! or! an! order! of! inquiry|||!(2016! Revised!
Section!10!of!RA!No.!9160,!as!amended!by!RA!No.!9194,!
Implementing! Rules! and! Regulations! of! Republic! Act! No.!
which!states:!
9160,!as!Amended,![September!21,!2016])!
!
*

LABAN NOTES ABRIL 47

 SPECIAL COMMERCIAL LAWS ANTI-MONEY LAUNDERING ACT

Section! 10.!Freezing! of! Monetary! Instrument! or! Considering!the!intricate!and!diverse!web!of!interlocking!

Property.!—! The! Court! of! Appeals,! upon! application!ex! accounts! that! a! person! may! create! in! different! covered!
parte!by!the!AMLC!and!after!determination!that!probable! persons,!and!the!high!probability!that!these!accounts!are!
cause!exists!that!any!monetary!instrument!or!property!is! utilized! to! divert,! move,! conceal,! and! disguise! the!
in!any!way!related!to!an!unlawful!activity!as!defined!in! monetary! instrument! or! property! subject! of! the! freeze!
Section!3(i)!hereof,!may!issue!a!freeze!order!which!shall! order,!the!AMLC!may!include!in!its!petition!the!freezing!
be!effective!immediately.!The!freeze!order!shall!be!for!a! of!related!and!materially/linked!accounts.|(2016!Revised!
period!of!twenty!(20)!days!unless!extended!by!the!court.! Implementing! Rules! and! Regulations! of! Republic! Act! No.!
[italics!supplied]! 9160,!as!Amended,![September!21,!2016])!
! !
The! Ligots! claim! that! the! CA! erred! in! extending! the! Period*to*Resolve*Petition*
effectivity!period!of!the!freeze!order!against!them,!given! The!Court!of!Appeals!shall!resolve!the!petition!to!freeze!
that!they!have!not!yet!been!convicted!of!committing!any! within!24!hours!from!filing!thereof.!
of! the! offenses! enumerated! under! RA! No.! 9160! that! !
would! support! the! AMLC's! accusation! of! money/ Effectivity*of*Freeze*Order*
laundering!activity.! The!freeze!order!shall!be!effective!immediately!and!shall!
! not! exceed! six! (6)! months 1 !depending! upon! the!
We! do! not! see! any! merit! in! this! claim.! The! Ligots'! circumstances!of!the!case.!!
argument! is! founded! on! a! flawed! understanding! of! !
probable! cause! in! the! context! of! a! civil! forfeiture! A!freeze!order!cannot!be!issued!for!an!indefinite!period!
proceeding!or!freeze!order!application.!!! !
! Ligot*v.*Republic,*G.R.*No.*176944,*[March*6,*2013]*
Based! on! Section! 10! quoted! above,! there! are! only! two!
requisites! for! the! issuance! of! a! freeze! order:! (1)! the! A! freeze! order! is! an!extraordinary+ and+ interim+ relief!
application!ex! parte!by! the! AMLC! and! (2)! the! issued!by!the!CA!to!prevent!the!dissipation,!removal,!or!
determination!of!probable!cause!by!the!CA.!The!probable! disposal! of! properties! that! are! suspected! to! be! the!
cause!required!for!the!issuance!of!a!freeze!order!differs! proceeds!of,!or!related!to,!unlawful!activities!as!defined!
from!the!probable!cause!required!for!the!institution!of!a! in!Section!3!(i)!of!RA!No.!9160,!as!amended.!The!primary!
criminal!action,!and!the!latter!was!not!an!issue!before!the! objective! of! a! freeze! order! is! to*temporarily*
CA!nor!is!it!an!issue!before!us!in!this!case.! preserve*monetary!instruments!or!property!that!are!in!
! any! way! related! to! an! unlawful! activity! or! money!
As!defined!in!the!law,!the!probable!cause!required!for!the! laundering,!by!preventing!the!owner!from!utilizing!them!
issuance! of! a! freeze! order! refers! to! "such! facts! and! during!the!duration!of!the!freeze!order.!!The!relief!is!preJ
circumstances! which! would! lead! a! reasonably! discreet,! emptive!in!character,!meant!to!prevent!the!owner!from!
prudent! or! cautious! man! to! believe! that! an! unlawful! disposing!his!property!and!thwarting!the!State's!effort!in!
activity! and/or! a! money! laundering! offense! is! about! to! building! its! case! and! eventually! filing! civil! forfeiture!
be,!is!being!or!has!been!committed!and!that!the!account! proceedings!and/or!prosecuting!the!owner.!
or!any!monetary!instrument!or!property!subject!thereof! Our!examination!of!the!AntiJMoney*Laundering*Act*of*
sought!to!be!frozen!is!in!any!way!related!to!said!unlawful! 2001,!as!amended,!from!the!point!of!view!of!the!freeze!
activity!and/or!money!laundering!offense."!!! order!that!it!authorizes,!shows!that!the!law!is!silent!on!the!
! maximum! period! of! time! that! the! freeze! order! can! be!
In! other! words,! in! resolving! the! issue! of! whether! extended! by! the! CA.!The! final! sentence! of! Section! 10! of!
probable! cause! exists,! the! CA's! statutorily/guided! the!Anti/Money!Laundering!Act!of!2001!provides,!"[t]he!
determination's!focus!is!not!on!the!probable!commission! freeze! order! shall! be! for! a! period! of! twenty! (20)! days!
of! an! unlawful! activity! (or! money! laundering)! that! the! unless!extended!by!the!court."!In!contrast,!Section!55!of!
Office! of! the! Ombudsman! has! already! determined! to! the! Rule! in! Civil! Forfeiture! Cases! qualifies!the! grant! of!
exist,!but!on!whether!the!bank!accounts,!assets,!or!other! extension!"for! a! period! not! exceeding! six! months"!"for!
monetary!instruments!sought!to!be!frozen!are!in!any!way!
good!cause"!shown.!
related!to!any!of!the!illegal!activities!enumerated!under!
RA! No.! 9160,! as! amended.!Otherwise! stated,! probable! We!observe!on!this!point!that!nothing!in!the!law!grants!
cause!refers!to!the!sufficiency!of!the!relation!between!an! the!owner!of!the!"frozen"!property!any!substantive!right!
unlawful! activity! and! the! property! or! monetary! to! demand! that! the! freeze! order! be! lifted,! except! by!
instrument!which!is!the!focal!point!of!Section!10!of!RA! implication,!i.e.,!if! he! can! show! that! no! probable! cause!
No.!9160,!as!amended.! exists!or!if!the!20/day!period!has!already!lapsed!without!
* any!extension!being!requested!from!and!granted!by!the!
Freezing*of*Related*Accounts*and*MateriallyJLinked* CA.! Notably,! the! Senate! deliberations! on! RA! No.! 9160!
Accounts* even!suggest!the!intent!on!the!part!of!our!legislators!to!

1
Before, under the AMLA of 2001 and RA 9194, a freeze order issued In 2005, the Rule in Civil Forfeiture Cases took effect which provided
by the AMLC was effective for only a period not exceeding 15 days that a Freeze Order could be extended for a maximum of six (6)
and 20 days, respectively, unless extended “upon order of the court”. months.

LABAN NOTES ABRIL 48

 SPECIAL COMMERCIAL LAWS ANTI-MONEY LAUNDERING ACT
make!the!freeze!order!effective!until!the!termination!of!
the!case,!when!necessary.!!!
The! silence! of! the! law,! however,! does! not! in! any! way!
affect! the! Court's! own! power!under! the! Constitution!to!
"promulgate! rules! concerning! the! protection! and!
enforcement!of!constitutional!rights!.!.!.!and!procedure!in!
all!courts."!!Pursuant!to!this!power,!the!Court!issued!A.M.!
No.! 05/11/04! SC,! limiting! the! effectivity! of! an! extended!
freeze! order! to! six! months! —! to! otherwise! leave! the!
grant! of! the! extension! to! the! sole! discretion! of! the! CA,!
which! may! extend! a! freeze! order! indefinitely! or! to! an!
unreasonable! amount! of! time! —! carries! serious!
implications!on!an!individual's!substantive!right!to!due!
process.!!This! right! demands! that! no! person! be! denied!
his!right!to!property!or!be!subjected!to!any!governmental!
action!that!amounts!to!a!denial.!!The!right!to!due!process,!
under! these! terms,! requires! a! limitation! or! at! least! an!
inquiry! on! whether! sufficient! justification! for! the!
governmental!action.!!!
In! this! case,! the! law! has! left! to! the! CA! the! authority! to!
resolve!the!issue!of!extending!the!freeze!order!it!issued.!
Without!doubt,!the!CA!followed!the!law!to!the!letter,!but!
it! did! so! by! avoiding! thefundamental! law's!command!
under!its!Section!1,!Article!III.!This!command,!the!Court!
—!under!its!constitutional!rule/making!power!—!sought!
to!implement!through!Section!53!(b)!of!the!Rule!in!Civil!
Forfeiture!Cases!which!the!CA!erroneously!assumed!does!
not!apply.!
The! Ligots'! case! perfectly! illustrates! the! inequity! that!
would! result! from! giving! the! CA! the! power! to! extend!
freeze!orders!without!limitations.!As!narrated!above,!the!
CA,!via!its!September!20,!2005!resolution,!extended!the!
freeze!order!over!the!Ligots'!various!bank!accounts!and!
personal! properties!"until! after! all! the! appropriate!
proceedings! and/or! investigations! being! conducted! are!
terminated."! By! its! very! terms,! the! CA! resolution!
effectively!bars!the!Ligots!from!using!any!of!the!property!
covered!by!the!freeze!order!until*after!an!eventual!civil*
forfeiture* proceeding* is* concluded!in! their!
favor!and!after!they!shall!have!been!adjudged!not!guilty!
of! the! crimes! they! are! suspected! of! committing.! These!
periods! of! extension! are! way! beyond! the! intent! and!
purposes! of! a! freeze! order! which! is! intended! solely! as!
an!interim*relief;!the!civil!and!criminal!trial!courts!can!
very!well!handle!the!disposition!of!properties!related!to!
a!forfeiture!case!or!to!a!crime!charged!and!need!not!rely!
on!the!interim!relief!that!the!appellate!court!issued!as!a!
guarantee!against!loss!of!property!while!the!government!
is!preparing!its!full!case.!The!term!of!the!CA's!extension,!
too,!borders!on!inflicting!a!punishment!to!the!Ligots,!in!
violation! of! their! constitutionally! protected! right! to! be!
presumed!innocent,!because!the!unreasonable!denial!of!
their!property!comes!before!final!conviction.!DASEac!
In!more!concrete!terms,!the!freeze!order!over!the!Ligots'!
properties!has!been!in!effect!since!2005,!while!the!civil!
forfeiture! case! —! per! the! Republic's! manifestation! —!
was!filed!only!in!2011!and!the!forfeiture!case!under!RA!
No.! 1379!—! per! the! petitioners'! manifestation! —! was!
LABAN NOTES ABRIL
filed!only!in!2012.!This!means!that!the*Ligots*have*not*
been* able* to* access* the* properties* subject* of* the*
freeze*order*for*six*years*or*so*simply*on*the*basis*of*
the* existence* of* probable* cause*to+ issue+ a+ freeze+
order,* which* was* intended* mainly* as* an* interim*
preemptive*remedy.!
As! correctly! noted! by! the! petitioners,! a! freeze! order! is!
meant!to!have!a!temporary!effect;!it!was!never!intended!
to!supplant!or!replace!the!actual!forfeiture!cases!where!
the!provisional!remedy!—!which!means,!the!remedy!is!an!
adjunct!of!or!an!incident!to!the!main!action!—!of!asking!
for!the!issuance!of!an!asset!preservation!order!from!the!
court!where!the!petition!is!filed!is!precisely!available.!For!
emphasis,! a! freeze! order! is! both!
a+preservatory!and+preemptive!remedy.!THCSAE!
To! stress,! the! evils! caused! by! the! law's! silence! on! the!
freeze!order's!period!of!effectivity!compelled!this!Court!
to!issue!the!Rule!in!Civil!Forfeiture!Cases.!Specifically,!the!
Court! fixed! the! maximum! allowable! extension! on! the!
freeze!order's!effectivity!at!six!months.!In!doing!so,!the!
Court!sought!to!balance!the!State's!interest!in!going!after!
suspected! money! launderers! with! an! individual's!
constitutionally/protected!right!not!to!be!deprived!of!his!
property! without! due! process! of! law,! as! well! as! to! be!
presumed!innocent!until!proven!guilty.!
To! our! mind,! the! six/month! extension! period!
is!ordinarily!sufficient!for!the!government!to!act!against!
the! suspected! money! launderer! and! to! file! the!
appropriate! forfeiture! case! against! him,! and! is! a!
reasonable! period! as! well! that! recognizes! the! property!
owner's!right!to!due!process.!In+this+case,+the+period+of+
inaction+of+six+years,+under+the+circumstances,+already+
far+exceeded+what+is+reasonable.!
Who*may*extend*the*effectivity*of*the*Freeze*Order*
On!motion!of!the!AMLC!filed!before!the!expiration!of!the!
original!period!of!the!freeze!order,!the!Court!of!Appeals!
may,!for!good!cause!shown,!extend!its!effectivity.!Upon!
the!timely!filing!of!such!motion!and!pending!resolution!
by! the! Court! of! Appeals,! the! freeze! order! shall! remain!
effective.||(2016! Revised! Implementing! Rules! and!
Regulations! of! Republic! Act! No.! 9160,! as! Amended,!
[September!21,!2016])!
!
No*prior*criminal*charge,*pendency*of*or*conviction*
necessary*
No!prior!criminal!charge,!pendency!of!or!conviction!for!
an! unlawful! activity! or! money! laundering! offense! is!
necessary!for!the!commencement!or!the!resolution!of!a!
petition! for! freeze! order.|!(2016! Revised! Implementing!
Rules! and! Regulations! of! Republic! Act! No.! 9160,! as!
Amended,![September!21,!2016])!
!
Freeze! order! is! not! dependent! on! a! separate! criminal!
charge,!much!less!does!it!depend!on!a!conviction!
*
Ligot*v.*Republic,*G.R.*No.*176944,*[March*6,*2013]*
49
 SPECIAL COMMERCIAL LAWS ANTI-MONEY LAUNDERING ACT
Section!10!of!RA!No.!9160!(allowing!the!extension!of!the!
freeze! order)! and! Section! 28! (allowing! a! separate!
petition! for! the! issuance! of! a! freeze! order! to! proceed!
independently)!of!the!Rule!in!Civil!Forfeiture!Cases!are!
only!consistent!with!the!very!purpose!of!the!freeze!order,!
which! specifically! is! to! give! the! government! the!
necessary! time! to! prepare! its! case! and! to! file! the!
appropriate!charges!without!having!to!worry!about!the!
possible! dissipation! of! the! assets! that! are! in! any! way!
related!to!the!suspected!illegal!activity.!Thus,!contrary!to!
the! Ligots'! claim,! a! freeze! order! is! not! dependent! on! a!
separate!criminal!charge,!much!less!does!it!depend!on!a!
conviction.!
That! a! freeze! order! can! be! issued! upon! the! AMLC's!ex!
parte!application! further! emphasizes! the! law's!
consideration! of! how! critical! time! is! in! these!
proceedings.! As! we! previously! noted! in!Republic! v.!
Eugenio,!Jr.,!"[t]o!make!such!freeze!order!anteceded!by!a!
judicial! proceeding! with! notice! to! the! account! holder!
would!allow!for!or!lead!to!the!dissipation!of!such!funds!
even!before!the!order!could!be!issued."!
It! should! be! noted! that! the! existence! of! an! unlawful!
activity!that!would!justify!the!issuance!and!the!extension!
of!the!freeze!order!has!likewise!been!established!in!this!
case.!
From! the!ex! parte!application! and! the! Ombudsman's!
complaint,!we!glean!that!Lt.!Gen.!Ligot!himself!admitted!
that!his!income!came!from!his!salary!as!an!officer!of!the!
AFP.! Yet,! the! Ombudsman's! investigation! revealed! that!
the! bank! accounts,! investments! and! properties! in! the!
name! of! Lt.! Gen.! Ligot! and! his! family! amount! to! more!
than! Fifty/Four! Million! Pesos! (P54,000,000.00).! Since!
these! assets! are! grossly! disproportionate! to! Lt.! Gen.!
Ligot's! income,! as! well! as! the! lack! of! any! evidence! that!
the!Ligots!have!other!sources!of!income,!the!CA!properly!
found! that! probable! cause! exists! that! these! funds! have!
been! illegally! acquired.! On! the! other! hand,! the! AMLC's!
verified! allegations! in! its!ex! parte!application,! based! on!
the!complaint!filed!by!the!Ombudsman!against!Ligot!and!
his! family! for! violations! of! the!Anti/Graft! and! Corrupt!
Practices! Act,! clearly! sustain! the! CA's! finding! that!
probable! cause! exists! that! the! monetary! instruments!
subject! of! the! freeze! order! are! related! to,! or! are! the!
product!of,!an!unlawful!activity.!!
*
Rule*of*Procedure*
Proceedings! for! the! issuance! of! freeze! order! shall! be!
governed! by! the!"Rule! of! Procedure! in! Cases! of! Civil!
Forfeiture,! Asset! Preservation,! and! Freezing! of! Monetary!
Instrument,!Property,!or!Proceeds!Representing,!Involving,!
or!Relating!to!an!Unlawful!Activity!or!Money!Laundering!
Offense! under!Republic! Act! No.! 9160,! as! Amended"!(A.M.!
No.!05/11/04/SC).!(2016!Revised!Implementing!Rules!and!
Regulations! of! Republic! Act! No.! 9160,! as! Amended,!
[September!21,!2016])!
*
*
Motion*to*Lift*Freeze*Order*
LABAN NOTES ABRIL
*
A! person! whose! monetary! instrument! or! property! has!
been!frozen!may!file!a!motion!to!lift!the!freeze!order.!The!
court! must! resolve! the! motion! before! the! expiration! of!
the!freeze!order.|||(2016!Revised!Implementing!Rules!and!
Regulations! of! Republic! Act! No.! 9160,! as! Amended,!
[September!21,!2016])!
!
!
Lifting*the*Effects*of*the**Freeze*Order*
!
The! freeze! order! shall! be! deemed!ipso! facto!lifted! after!
its! expiration,! unless! a! money! laundering! complaint!
against! the! person! whose! monetary! instrument! or!
property! was! frozen,! or! a! petition! for! civil! forfeiture!
against!the!frozen!monetary!instrument!or!property,!has!
been! filed,! in! which! case! the! freeze! order! shall! remain!
effective!until!the!money!laundering!case!is!terminated!
or!an!asset!preservation!order!is!issued,!respectively.!
!
Upon! the! expiration! of! the! freeze! order,! the! covered!
person! shall! secure! a! written! confirmation! from! the!
AMLC! Secretariat! to! ascertain! if! a! petition! for! civil!
forfeiture!or!money!laundering!complaint!has!been!filed.!
(2016! Revised! Implementing! Rules! and! Regulations! of!
Republic!Act!No.!9160,!as!Amended,![September!21,!2016])!
!
Injunction*against*Freeze*Order*
No!court!shall!issue!a!temporary!restraining!order!or!a!
writ! of! injunction! against! any! freeze! order,! except! the!
Supreme!Court.|||!(2016!Revised!Implementing!Rules!and!
Regulations! of! Republic! Act! No.! 9160,! as! Amended,!
[September!21,!2016])!
*
*
*
Duties*of*Covered*Persons*and*Concerned*
Government*Agencies*upon*Receipt*of*Freeze*Order*
*
1.! Implement* Freeze* Order.—! Upon! receipt! of!
the! notice! of! the! freeze! order,! the! covered!
person! and! government! agency! concerned!
shall! immediately! freeze! the! monetary!
instrument! or! property! subject! thereof,! and!
shall!immediately!desist!from!and!not!allow!any!
transaction,! withdrawal,! transfer,! removal,!
conversion,! other! movement! or! concealment!
thereof.!
!
2.! Freeze* Related* Accounts.—! Upon! receipt! of!
the! freeze! order! and! upon! verification! by! the!
covered!person!that!there!are!accounts!related!
to!the!monetary!instrument!or!property!subject!
of! the! freeze! order,! the! covered! person! shall!
immediately! freeze! these! related! accounts!
wherever!these!may!be!found.!
!
If! the! related! accounts! cannot! be! determined!
within!twenty/four!(24)!hours!from!receipt!of!
the! freeze! order! due! to! the! volume! and/or!
50
 SPECIAL COMMERCIAL LAWS ANTI-MONEY LAUNDERING ACT
complexity! of! the! transactions! or! any! other!
justifiable! factors,! the! covered! person! shall!
effect! the! freezing! of! the! related! accounts!
within!a!reasonable!period!and!shall!submit!a!
supplemental! return! thereof! to! the! Court! of!
Appeals!and!the!AMLC!within!twenty/four!(24)!
hours! from! the! freezing! of! said! related!
accounts.!
! capable!of!manual!delivery.!
3.! Furnish* Copy* of* Freeze* Order* to* Owner* or*
Holder.—! The! covered! person! and!
government! agency! concerned! shall! likewise!
immediately!furnish!a!copy!of!the!notice!of!the!
freeze! order! upon! the! owner! or! holder! of! the!
monetary! instrument! or! property! or! related!
accounts!subject!thereof.!
! property,!or!proceeds!as!of!the!time!the!
4.! Submit* Detailed* Return.—! Within! twenty/
four!(24)!hours!from!receipt!of!the!freeze!order,!
the! covered! person! and! government! agency!
concerned!shall!submit,!by!personal!delivery,!to!
the!Court!of!Appeals!and!to!the!AMLC,!a!written!
detailed!return!on!the!freeze!order.!
! v.! The! basis! for! the! identification! of! the!
The! covered! persons! shall! also! submit! to! the!
AMLC,! through! the! internet,! an! electronic!
detailed!return!in!a!format!to!be!prescribed!by!
the!latter.!
! !
5.! Contents* of* the* Detailed* Return.—! The!
detailed!return!on!the!freeze!order!shall!specify!
all! the! pertinent! and! relevant! information,!
which!shall!include!the!following:!
!
a.! For! covered! persons:! The! account! numbers!
and/or! description! of! the! monetary!
instrument,!property,!or!proceeds!involved;!
b.! For!concerned!government!agencies:!
i.! Certificates! of! title! numbers! of!
registered! real! property! and! the!
volumes! and! pages! of! the! registration!
books! of! the! Register! of! Deeds! where!
the!same!are!registered;!
ii.! Registration!in!the!Primary!Entry!Book!
and!corresponding!Registration!Book!in!
the! Register! of! Deeds! for! unregistered!
real!property;!!
iii.! Registration!with!the!Register!of!Deeds!
of! the! enabling! or! master! deed! for! a!
condominium! project,! declaration! of!
restrictions! relating! to! such!
condominium!project,!certificate!of!title!
conveying!a!condominium!and!notice!of!
assessment!upon!any!condominium;!
iv.! Tax! declarations! for! improvements!
built!on!land!owned!by!a!different!party,!
together! with! the! annotation! of! the!
contract! of! lease! on! the! title! of! the!
owner! of! the! land! as! registered! in! the!
Register!of!Deeds;!
LABAN NOTES ABRIL
v.! Certificates! of! registration! for! motor!
vehicles! and! heavy! equipment!
indicating! the! engine! numbers,! chassis!
numbers!and!plate!numbers;!
vi.! Certificates!of!numbers!for!seacraft;!
vii.! Registration!certificates!for!aircraft;!or!
viii.! Commercial! invoices! or! notarial!
identification! for! personal! property!
c.! For!covered!persons!and!government!agencies,!
whichever!are!applicable:!
i.! The! names! of! the! account! holders,!
personal! property! owners! or!
possessors,!or!real!property!owners!or!
occupants;!
ii.! The! value! of! the! monetary! instrument,!
assets!were!ordered!frozen;!
iii.! All!relevant!information!as!to!the!status!
and!nature!of!the!monetary!instrument,!
property,!or!proceeds;!
iv.! The! date! and! time! when! the! freeze!
order!was!served;!and!
related! accounts.! (2016! Revised!
Implementing! Rules! and! Regulations! of!
Republic! Act! No.! 9160,! as! Amended,!
[September!21,!2016])!
!
Authority*to*Inquire*into*Bank*Deposits*(sec.*11,*RA*
9160,*as*amended)*
!
Bank*Inquiry*with*Court*Order**
!
Notwithstanding! the! provisions! of!Republic! Act! No.!
1405,!as!amended;!Republic!Act!No.!6426,!as!amended;!
Republic! Act! No.! 8791,! and! other! laws,! the! AMLC! may!
inquire! into! or! examine! any! particular! deposit! or!
investment!account,!including!related!accounts,!with!any!
banking! institution! or! non/bank! financial! institution,!
upon! order! by! the! Court! of! Appeals! based! on! an!ex!
parte!application!in!cases!of!violation!of!the!AMLA!when!
it!has!been!established!that!probable!cause!exists!that!the!
deposits! or! investments! involved,! including! related!
accounts,!are!in!any!way!related!to!an!unlawful!activity!
or! a! money! laundering! offense.! !(2016! Revised!
Implementing! Rules! and! Regulations! of! Republic! Act! No.!
9160,!as!Amended,![September!21,!2016])!
*
Elements* of* the* aboveJcited* provision* (sec.* 11,* RA*
9160)*
1.! Ex!parte!application!by!the!AMLC;!
2.! Determination!of!probable!cause!by!the!CA;!and!
3.! Exception! of! court! order! in! cases! involving!
unlawful!activities!defined!in!sections!3!(i)!(1),!
(2),!and!(12).!
!
Constitutionality* of* sec.* 11,* RA* 9160* visJàJvis*
Constitutional*due*process;*scope*and*parameters*of*
51
 SPECIAL COMMERCIAL LAWS ANTI-MONEY LAUNDERING ACT

the* AMLC’s* investigatory* powers;* AMLC* does* not* into! and! approximates! a! quasi/judicial! agency's!
exercise*a*quasiJjudicial*function* inquisitorial!powers!lies!in!the!AMLC's!investigation!and!
! consequent! initial! determination! of! whether! certain!
Subido* Pagente* Certeza* Mendoza* and* Binay* Law* activities! are! constitutive! of! anti/money! laundering!
Offices* v.* Court* of* Appeals,* G.R.* No.* 216914,* offenses.!
[December*6,*2016])* !
! The! enabling! law! itself,! the!AMLA,! specifies! the!
Succinctly,! Section! 11! of! the!AMLA!providing! for!ex/ jurisdiction!of!the!trial!courts,!RTC!and!Sandiganbayan,!
parte!application! and! inquiry! by! the! AMLC! into! certain! over! money! laundering! cases,! and! delineates! the!
bank! deposits! and! investments! does! not! violate! investigative!powers!of!the!AMLC.!
substantive!due!process,!there!being!no!physical!seizure! !
of! property! involved! at! that! stage.! It! is! the! preliminary! Textually,! the!AMLA!is! the! first! line! of! defense! against!
and!actual!seizure!of!the!bank!deposits!or!investments!in! money!laundering!in!compliance!with!our!international!
question!which!brings!these!within!reach!of!the!judicial! obligation.!There!are!three!(3)!stages!of!determination,!
process,! specifically! a! determination! that! the! seizure! two! (2)! levels! of! investigation,! falling! under! three! (3)!
violated! due! process.!14!In! fact,!Eugenio!delineates! a! jurisdictions:!
bank!inquiry!order!under!Section!11!from!a!freeze!order! !
under!Section!10!on!both!remedies'!effect!on!the!direct! 1.!The! AMLC! investigates! possible! money! laundering!
objects,!i.e.,!the!bank!deposits!and!investments:! offences! and! initially! determines! whether! there! is!
! probable! cause! to! charge! any! person! with! a! money!
On!the!other!hand,!a!bank!inquiry!order!under!Section!11! laundering! offence! under! Section! 4! of! the!AMLA,!
does! not! necessitate! any! form! of! physical! seizure! of! resulting!in!the!filing!of!a!complaint!with!the!Department!
property! of! the! account! holder.! What! the! bank! inquiry! of!Justice!or!the!Office!of!the!Ombudsman;!!!
order! authorizes! is! the! examination! of! the! particular! !
deposits!or!investments!in!banking!institutions!or!non/ 2.!The!DOJ!or!the!Ombudsman!conducts!the!preliminary!
bank!financial!institutions.!The!monetary!instruments!or! investigation! proceeding! and! if! after! due! notice! and!
property! deposited! with! such! banks! or! financial! hearing! finds! probable! cause! for! money! laundering!
institutions! are! not! seized! in! a! physical! sense,! but! are! offences,!shall!file!the!necessary!information!before!the!
examined! on! particular! details! such! as! the! account! Regional!Trial!Courts!or!the!Sandiganbayan;!!
holder's!record!of!deposits!and!transactions.!Unlike!the! !
assets! subject! of! the! freeze! order,! the! records! to! be! !3.!The!RTCs!or!the!Sandiganbayan!shall!try!all!cases!on!
inspected! under! a! bank! inquiry! order! cannot! be! money!laundering,!as!may!be!applicable.!!
physically!seized!or!hidden!by!the!account!holder.!Said! !
records!are!in!the!possession!of!the!bank!and!therefore! Nowhere!from!the!text!of!the!law!nor!its!Implementing!
cannot!be!destroyed!at!the!instance!of!the!account!holder! Rules! and! Regulations! can! we! glean! that! the! AMLC!
alone! as! that! would! require! the! extraordinary! exercises! quasi/judicial! functions! whether! the! actual!
cooperation!and!devotion!of!the!bank.!! preliminary!investigation!is!done!simply!at!its!behest!or!
!! conducted! by! the! Department! of! Justice! and! the!
At!the!stage!in!which!the!petition!was!filed!before!us,!the! Ombudsman.!
inquiry! into! certain! bank! deposits! and! investments! by! Again,! we! hark! back! to!Lantion!citing!Ruperto! v.!
the!AMLC!still!does!not!contemplate!any!form!of!physical! Torres,!23/a!where!the!Court!had!occasion!to!rule!on!the!
seizure! of! the! targeted! corporeal! property.! From! this! functions!of!an!investigatory!body!with!the!sole!power!of!
cite,! we! proceed! to! examine! whether! Section! 11! of! the! investigation:!
law!violates!procedural!due!process.! !
! [Such!a!body]!does!not!exercise!judicial!functions!and!its!
As!previously!stated,!the!AMLA!now!specifically!provides! power!is!limited!to!investigating!facts!and!making!findings!
for! an!ex/parte! application! for! an! order! authorizing! in! respect! thereto.! The! Court! laid! down! the! test! of!
inquiry! or! examination! into! bank! deposits! or! determining!whether!an!administrative!body!is!exercising!
investments! which! continues! to! pass! constitutional! judicial! functions! or! merely! investigatory! functions:!
muster.!! Adjudication!signifies!the!exercise!of!power!and!authority!
! to!adjudicate!upon!the!rights!and!obligations!of!the!parties!
Procedural!due!process!is!essentially!the!opportunity!to! before!it.!Hence,!if!the!only!purpose!for!investigation!is!to!
be!heard.!16!In!this!case,!at!the!investigation!stage!by!the! evaluate! evidence! submitted! before! it! based! on! the! facts!
AMLC! into! possible! money! laundering! offenses,! SPCMB! and!circumstances!presented!to!it,!and!if!the!agency!is!not!
demands! that! it! have! notice! and! hearing! of! AMLC's! authorized! to! make! a! final! pronouncement! affecting! the!
investigation!into!its!bank!accounts.! parties,!then!there!is!an!absence!of!judicial!discretion!and!
! judgment.!
xxxx! !
! n! adjudicate! in! regard! to! the! rights! and! obligations! of!
The! confusion! on! the! scope! and! parameters! of! the! both!the!Requesting!State!and!the!prospective!extraditee.!
AMLC's! investigatory! powers! and! whether! such! seeps! Its! only! power! is! to! determine! whether! the! papers!

LABAN NOTES ABRIL 52

 SPECIAL COMMERCIAL LAWS ANTI-MONEY LAUNDERING ACT
comply!with!the!requirements!of!the!law!and!the!treaty!
and,!therefore,!sufficient!to!be!the!basis!of!an!extradition!
petition.!Such!finding!is!thus!merely!initial!and!not!final.!
The!body!has!no!power!to!determine!whether!or!not!the!
extradition! should! be! effected.! That! is! the! role! of! the!
court.!The!body's!power!is!limited!to!an!initial!finding!of!
whether! or! not! the! extradition! petition! can! be! filed! in!
court.!
! Investigation!(NBI).!
It! is! to! be! noted,! however,! that! in! contrast! to! ordinary!
investigations,!the!evaluation!procedure!is!characterized!
by!certain!peculiarities.!Primarily,!it!sets!into!motion!the!
wheels! of! the! extradition! process.! Ultimately,! it! may!
result! in! the! deprivation! of! liberty! of! the! prospective!
extraditee.! This! deprivation! can! be! effected! at! two!
stages:!First,! the! provisional! arrest! of! the! prospective!
extraditee!pending!the!submission!of!the!request.!This!is!
so!because!the!Treaty!provides!that!in!case!of!urgency,!a!
contracting!party!may!request!the!provisional!arrest!of!
the! person! sought! pending! presentation! of! the! request!
(Paragraph![1],!Article!9,!RP/US!Extradition!Treaty),!but!
he!shall!be!automatically!discharged!after!60!days!if!no!
request!is!submitted!(Paragraph!4).!Presidential!Decree!
No.!1069!provides!for!a!shorter!period!of!20!days!after!
which!the!arrested!person!could!be!discharged!(Section!
20[d]).!Logically,!although!the!Extradition!Law!is!silent!
on! this! respect,! the! provisions! only! mean! that! once! a!
request! is! forwarded! to! the! Requested! State,! the!
prospective!extraditee!may!be!continuously!detained,!or!
if!not,!subsequently!rearrested!(Paragraph![5],!Article!9,!
RP/US!Extradition!Treaty),!for!he!will!only!be!discharged!
if!no!request!is!submitted.!Practically,!the!purpose!of!this!
detention! is! to! prevent! his! possible! flight! from! the!
Requested! State.!Second,the! temporary! arrest! of! the!
prospective! extraditee! during! the! pendency! of! the!
extradition! petition! in! court! (Section! 6,! Presidential!
Decree!No.!1069).!Clearly,!there!is!an!impending!threat!
to!a!prospective!extraditee's!liberty!as!early!as!during!the!
evaluation!stage.!It!is!not!only!an!imagined!threat!to!his!
liberty,!but!a!very!imminent!one.!
! right!could!have!taken!place;!the!NBI's!findings!were!still!
Because! of! these! possible! consequences,! we! conclude!
that!the!evaluation!process!is!akin!to!an!administrative!
agency! conducting! an! investigative! proceeding,! the!
consequences! of! which! are! essentially! criminal! since!
such! technical! assessment! sets! off! or! commences! the!
procedure!for,!and!ultimately,!the!deprivation!of!liberty!
of! a! prospective! extraditee.! As! described! by! petitioner!
himself,!this!is!a!"tool"!for!criminal!law!enforcement.!In!
essence,!therefore,!the!evaluation!process!partakes!of!the!
nature!of!a!criminal!investigation.!In!a!number!of!cases,!
we!had!occasion!to!make!available!to!a!respondent!in!an!
administrative! case! or! investigation! certain!
constitutional!rights!that!are!ordinarily!available!only!in!
criminal! prosecutions.! Further,! as! pointed! out! by! Mr.!
Justice! Mendoza! during! the! oral! arguments,! there! are!
rights!formerly!available!only!at!the!trial!stage!that!had!
been! advanced! to! an! earlier! stage! in! the! proceedings,!
such! as! the! right! to! counsel! and! the! right! against! self/
incrimination.!24!(Citations!omitted)!
! the!investigation!of!the!alleged!crime!of!falsification.!The!
LABAN NOTES ABRIL
In! contrast! to! the! disposition! in!Lantion!that! the!
evaluation! process! before! the! Department! of! Foreign!
Affairs! is! akin! to! an! administrative! agency! conducting!
investigative! proceedings! with! implications! on! the!
consequences! of! criminal! liability,i.e.,! deprivation! of!
liberty!of!a!prospective!extraditee,!the!sole!investigative!
functions! of! the! AMLC! finds! more! resonance! with! the!
investigative! functions! of! the! National! Bureau! of!
!
That! the! AMLC! does! not! exercise! quasi/judicial! powers!
and!is!simply!an!investigatory!body!finds!support!in!our!
ruling! in!Shu! v.! Dee.!25!In! that! case,! petitioner! Shu! had!
filed! a! complaint! before! the! NBI! charging! respondents!
therein!with!falsification!of!two!(2)!deeds!of!real!estate!
mortgage!submitted!to!the!Metropolitan!Bank!and!Trust!
Company!(Metrobank).! After! its! investigation,! the! NBI!
came!up!with!a!Questioned!Documents!Report!No.!746/
1098! finding! that! the! signatures! of! petitioner! therein!
which!appear!on!the!questioned!deeds!are!not!the!same!
as! the! standard! sample! signatures! he! submitted! to! the!
NBI.! Ruling! on! the! specific! issue! raised! by! respondent!
therein!that!they!had!been!denied!due!process!during!the!
NBI!investigation,!we!stressed!that!the!functions!of!this!
agency! are! merely! investigatory! and! informational! in!
nature:!!
!
[The!NBI]!has!no!judicial!or!quasi/judicial!powers!and!is!
incapable! of! granting! any! relief! to! any! party.! It! cannot!
even! determine! probable! cause.! The! NBI! is! an!
investigative! agency! whose! findings! are! merely!
recommendatory.! It! undertakes! investigation! of! crimes!
upon!its!own!initiative!or!as!public!welfare!may!require!
in! accordance! with! its! mandate.! It! also! renders!
assistance! when! requested! in! the! investigation! or!
detection! of! crimes! in! order! to! prosecute! the! persons!
responsible!
!
Since!the!NBI's!findings!were!merely!recommendatory,!
we! find! that! no! denial! of! the! respondent's! due! process!
subject!to!the!prosecutor's!and!the!Secretary!of!Justice's!
actions!for!purposes!of!finding!the!existence!of!probable!
cause.!We!find!it!significant!that!the!specimen!signatures!
in! the! possession! of! Metrobank! were! submitted! by! the!
respondents!for!the!consideration!of!the!city!prosecutor!
and! eventually! of! the! Secretary! of! Justice! during! the!
preliminary! investigation! proceedings.! Thus,! these!
officers!had!the!opportunity!to!examine!these!signatures.!
!
The!respondents!were!not!likewise!denied!their!right!to!
due! process! when! the! NBI! issued! the! questioned!
documents!report.!We!note!that!this!report!merely!stated!
that!the!signatures!appearing!on!the!two!deeds!and!in!the!
petitioner's! submitted! sample! signatures! were! not!
written!by!one!and!the!same!person.!Notably,!there!was!
no! categorical! finding! in! the! questioned! documents!
report!that!the!respondents!falsified!the!documents.!This!
report,!too,!was!procured!during!the!conduct!of!the!NBI's!
investigation!at!the!petitioner's!request!for!assistance!in!
53
 SPECIAL COMMERCIAL LAWS ANTI-MONEY LAUNDERING ACT

report! is! inconclusive! and! does! not! prevent! the! Bank* inquiry* order* not* dependent* on* the* preJ
respondents! from! securing! a! separate! documents! existence*of*a*money*laundering*offense*
examination!by!handwriting!experts!based!on!their!own! *
evidence.! On! its! own,! the! NBI's! questioned! documents! Republic* v.* Eugenio,* Jr.,* G.R.* No.* 174629,* [February*
report! does! not! directly! point! to! the! respondents'! 14,*2008]*
involvement!in!the!crime!charged.!Its!significance!is!that,!
taken! together! with! the! other! pieces! of! evidence! Respondents! posit! that! a! bank! inquiry! order! under!
submitted! by! the! parties! during! the! preliminary! Section!11!may!be!obtained!only!upon!the!pre/existence!
investigation,! these! evidence! could! be! sufficient! for! of!a!money!laundering!offense!case!already!filed!before!
purposes!of!finding!probable!cause!—!the!action!that!the! the!courts.!The!conclusion!is!based!on!the!phrase!"upon!
Secretary!of!Justice!undertook!in!the!present!case.! order!of!any!competent!court!in!cases!of!violation!of!this!
! Act,"!the!word!"cases"!generally!understood!as!referring!
As! carved! out! in!Shu,! the! AMLC! functions! solely! as! an! to!actual!cases!pending!with!the!courts.!
investigative! body! in! the! instances! mentioned! in! Rule!
We! are! unconvinced! by! this! proposition,! and! agree!
5.b.!26!Thereafter,!the!next!step!is!for!the!AMLC!to!file!a!
instead! with! the! then! Solicitor! General! who! conceded!
Complaint! with! either! the! DOJ! or! the! Ombudsman!
that!the!use!of!the!phrase!"in!cases!of"!was!unfortunate,!
pursuant!to!Rule!6.b.!
yet!submitted!that!it!should!be!interpreted!to!mean!"in!
!
the!event!there!are!violations"!of!the!AMLA,!and!not!that!
Plainly,! the! AMLC's! investigation! of! money! laundering!
there!are!already!cases!pending!in!court!concerning!such!
offenses! and! its! determination! of! possible! money!
violations.!If! the! contrary! position! is! adopted,! then! the!
laundering! offenses,! specifically! its! inquiry! into! certain!
bank!inquiry!order!would!be!limited!in!purpose!as!a!tool!
bank! accounts! allowed! by! court! order,! does! not!
in! aid! of! litigation! of! live! cases,! and! wholly! inutile! as! a!
transform!it!into!an!investigative!body!exercising!quasi/
means!for!the!government!to!ascertain!whether!there!is!
judicial! powers.! Hence,! Section! 11! of! the!AMLA,!
sufficient!evidence!to!sustain!an!intended!prosecution!of!
authorizing!a!bank!inquiry!court!order,!cannot!be!said!to!
the!account!holder!for!violation!of!the!AMLA.!Should!that!
violate! SPCMB's! constitutional! right! to! procedural! due!
be! the! situation,! in! all! likelihood! the! AMLC! would! be!
process.!
virtually!deprived!of!its!character!as!a!discovery!tool,!and!
thus!would!become!less!circumspect!in!filing!complaints!
! against!suspect!account!holders.!After!all,!under!such!set/
! up! the! preferred! strategy! would! be! to! allow! or! even!
Period*to*Resolve*Application* encourage!the!indiscriminate!filing!of!complaints!under!
The!Court!of!Appeals!shall!resolve!the!application!within! the!AMLA!with!the!hope!or!expectation!that!the!evidence!
twenty/four!(24)!hours!from!filing!thereof.! of!money!laundering!would!somehow!surface!during!the!
* trial.! Since! the! AMLC! could! not! make! use! of! the! bank!
Inquiry*into*or*Examination*of*Related*Accounts* inquiry!order!to!determine!whether!there!is!evidentiary!
A!court!order!ex!parte!must!be!obtained!before!the!AMLC! basis! to! prosecute! the! suspected! malefactors,! not! filing!
can!inquire!into!the!related!accounts.!The!procedure!for! any! case! at! all! would! not! be! an! alternative.! Such!
the!ex!parte!application!for!an!order!of!inquiry!into!the! unwholesome! set/up! should! not! come! to! pass.! Thus!
principal!account!shall!be!the!same!for!that!of!the!related! Section! 11! cannot! be! interpreted! in! a! way! that! would!
accounts.! emasculate!the!remedy!it!has!established!and!encourage!
* the! unfounded! initiation! of! complaints! for! money!
Compliance* with* Article* III,* sections* 2* and* 3* of* the* laundering.!
Constitution*
The! authority! to! inquire! into! or! examine! the! main! Still,! even! if! the! bank! inquiry! order! may! be! availed! of!
account!and!the!related!accounts!shall!comply!with!the! without! need! of! a! pre/existing! case! under! the! AMLA,! it!
requirements!of!Article!III,!Sections!2!and!3!of!the!1987! does! not! follow! that! such! order! may! be! availed! of!ex!
Constitution.! parte.!There!are!several!reasons!why!the!AMLA!does!not!
* generally!sanction!ex!parte!applications!and!issuances!of!
* the!bank!inquiry!order.!
No*prior*criminal*charge,*pendency*of*or*conviction*
necessary* !
No!prior!criminal!charge,!pendency!of!or!conviction!for! BEFORE:* Ex* parte* application* is* only* available* in*
an! unlawful! activity! or! money! laundering! offense! is! Freeze*Order*and*not*in*Bank*Deposit*Inquiry*Order2*
necessary!for!the!commencement!or!the!resolution!of!an! *
application!for!bank!inquiry.! Republic* v.* Eugenio,* Jr.,* G.R.* No.* 174629,* [February*
! 14,*2008]*
!

2
Now, pursuant to RA 10167 of 2012, amending the AMLA, and under
the 2016 RIRR of RA 9160, the AMLC may now file an ex parte
application for both Freeze Order and Bank Deposit Inquiry.

LABAN NOTES ABRIL 54

 SPECIAL COMMERCIAL LAWS ANTI-MONEY LAUNDERING ACT
In!the!instances!where!a!court!order!is!required!for!the!
issuance!of!the!bank!inquiry!order,!nothing!in!Section!11!
specifically! authorizes! that! such! court! order! may! be!
issued!ex!parte.!It!might!be!argued!that!this!silence!does!
not! preclude! the!ex! parte!issuance! of! the! bank! inquiry!
order!since!the!same!is!not!prohibited!under!Section!11.!
Yet!this!argument!falls!when!the!immediately!preceding!
provision,!Section!10,!is!examined.!
! such!ex!parte!applications.!
SEC.!10.Freezing!of!Monetary!Instrument!or!Property.!—!
The! Court! of! Appeals,! upon! application!ex! parte!by! the!
AMLC!and!after!determination!that!probable!cause!exists!
that! any! monetary! instrument! or! property! is! in! any! way!
related! to! an! unlawful! activity! as! defined! in! Section! 3(i)!
hereof,! may! issue! a!freeze! order! which! shall! be! effective!
immediately.! The! freeze! order! shall! be! for! a! period! of!
twenty!(20)!days!unless!extended!by!the!court.!!
!!
Although!oriented!towards!different!purposes,!the!freeze!
order!under!Section!10!and!the!bank!inquiry!order!under!
Section! 11! are! similar! in! that! they! are! extraordinary!
provisional! reliefs! which! the! AMLC! may! avail! of! to!
effectively! combat! and! prosecute! money! laundering!
offenses.! Crucially,! Section! 10! uses! specific! language! to!
authorize! an!ex! parte!application! for! the! provisional!
relief! therein,! a! circumstance! absent! in! Section! 11.! If!
indeed! the! legislature! had! intended! to! authorize!ex!
parte!proceedings! for! the! issuance! of! the! bank! inquiry!
order,!then!it!could!have!easily!expressed!such!intent!in!
the!law,!as!it!did!with!the!freeze!order!under!Section!10.!
! !
Even!more!tellingly,!the!current!language!of!Sections!10!
and! 11! of! the! AMLA! was! crafted! at! the! same! time,!
through! the! passage! of!R.A.! No.! 9194.! Prior! to! the!
amendatory! law,! it! was! the! AMLC,! not! the! Court! of!
Appeals,! which! had! authority! to! issue! a! freeze! order,!
whereas! a! bank! inquiry! order! always! then! required,!
without! exception,! an! order! from! a! competent!
court.!74!It! was! through! the! same! enactment! that!ex!
parte!proceedings!were!introduced!for!the!first!time!into!
the!AMLA,!in!the!case!of!the!freeze!order!which!now!can!
only!be!issued!by!the!Court!of!Appeals.!It!certainly!would!
have! been! convenient,! through! the! same! amendatory!
law,!to!allow!a!similar!ex!parte!procedure!in!the!case!of!a!
bank! inquiry! order! had! Congress! been! so! minded.! Yet!
nothing! in! the! provision! itself,! or! even! the! available!
legislative!record,!explicitly!points!to!an!ex!parte!judicial!
procedure! in! the! application! for! a! bank! inquiry! order,!
unlike!in!the!case!of!the!freeze!order.!
! inquiry!order!under!Section!11!from!a!freeze!order!under!
That! the! AMLA! does! not! contemplate!ex!
parte!proceedings! in! applications! for! bank! inquiry!
orders! is! confirmed! by! the! present! implementing! rules!
and! regulations! of! the! AMLA,! promulgated! upon! the!
passage! of!R.A.! No.! 9194.! With! respect! to! freeze! orders!
under! Section! 10,! the! implementing! rules! do! expressly!
provide!that!the!applications!for!freeze!orders!be!filed!ex!
parte,!75!but!no!similar!clearance!is!granted!in!the!case!
of! inquiry! orders! under! Section! 11.!76!These!
implementing! rules! were! promulgated! by! the! Bangko!
Sentral!ng!Pilipinas,!the!Insurance!Commission!and!the!
LABAN NOTES ABRIL
Securities!and!Exchange!Commission,!77!and!if!it!was!the!
true!belief!of!these!institutions!that!inquiry!orders!could!
be! issued!ex! parte!similar! to! freeze! orders,! language! to!
that! effect! would! have! been! incorporated! in! the! said!
Rules.! This! is! stressed! not! because! the! implementing!
rules! could! authorize!ex! parte! applications! for! inquiry!
orders!despite!the!absence!of!statutory!basis,!but!rather!
because!the!framers!of!the!law!had!no!intention!to!allow!
!
Even! the! Rules! of! Procedure! adopted! by! this! Court!
in!A.M.! No.! 05/11/04/SC!78!to! enforce! the! provisions! of!
the! AMLA! specifically! authorize!ex! parte!applications!
with! respect! to! freeze! orders! under! Section! 10!79!but!
make! no! similar! authorization! with! respect! to! bank!
inquiry!orders!under!Section!11.!
!
The! Court! could! divine! the! sense! in! allowing!ex!
parte!proceedings! under! Section! 10! and! in! proscribing!
the!same!under!Section!11.!A!freeze!order!under!Section!
10! on! the! one! hand! is! aimed! at! preserving! monetary!
instruments! or! property! in! any! way! deemed! related! to!
unlawful!activities!as!defined!in!Section!3!(i)!of!the!AMLA.!
The! owner! of! such! monetary! instruments! or! property!
would!thus!be!inhibited!from!utilizing!the!same!for!the!
duration!of!the!freeze!order.!To!make!such!freeze!order!
anteceded! by! a! judicial! proceeding! with! notice! to! the!
account!holder!would!allow!for!or!lead!to!the!dissipation!
of!such!funds!even!before!the!order!could!be!issued.!
*
Sec.* 11* of* the* AMLA* does* not* violate* the*
constitutional* right* to* due* process;* AMLC* does* not*
exercise* quasiJjudicial* powers,* only* investigatory*
powers*
*
Subido* Pagente* Certeza* Mendoza* and* Binay* Law*
Offices* v.* Court* of* Appeals,* G.R.* No.* 216914,*
[December*6,*2016]*
*
Succinctly,! Section! 11! of! the!AMLA!providing! for!ex/
parte!application! and! inquiry! by! the! AMLC! into! certain!
bank! deposits! and! investments! does! not! violate!
substantive!due!process,!there!being!no!physical!seizure!
of! property! involved! at! that! stage.! It! is! the! preliminary!
and!actual!seizure!of!the!bank!deposits!or!investments!in!
question!which!brings!these!within!reach!of!the!judicial!
process,! specifically! a! determination! that! the! seizure!
violated! due! process.!In! fact,!Eugenio!delineates! a! bank!
Section! 10! on! both! remedies'! effect! on! the! direct!
objects,!i.e.,!the!bank!deposits!and!investments:*
*
On!the!other!hand,!a!bank!inquiry!order!under!Section!11!
does! not! necessitate! any! form! of! physical! seizure! of!
property! of! the! account! holder.! What! the! bank! inquiry!
order! authorizes! is! the! examination! of! the! particular!
deposits! or! investments! in! banking! institutions! or! non'
bank!financial!institutions.!The!monetary!instruments!or!
property! deposited! with! such! banks! or! financial!
institutions! are! not! seized! in! a! physical! sense,! but! are!
55
 SPECIAL COMMERCIAL LAWS ANTI-MONEY LAUNDERING ACT

examined! on! particular! details! such! as! the! account! requirement,!yet!we!fail!to!see!any!unreasonable!burden!

holder's! record! of! deposits! and! transactions.! Unlike! the!
assets! subject! of! the! freeze! order,! the! records! to! be!
inspected!under!a!bank!inquiry!order!cannot!be!physically!
seized!or!hidden!by!the!account!holder.!Said!records!are!in!
the! possession! of! the! bank! and! therefore! cannot! be!
destroyed! at! the! instance! of! the! account! holder! alone! as!
that! would! require! the! extraordinary! cooperation! and!
devotion!of!the!bank.!!
! deprivation! of! its! property! as! in! a! freeze! order! under!
At!the!stage!in!which!the!petition!was!filed!before!us,!the!
inquiry! into! certain! bank! deposits! and! investments! by!
the!AMLC!still!does!not!contemplate!any!form!of!physical!
seizure! of! the! targeted! corporeal! property.! From! this!
cite,! we! proceed! to! examine! whether! Section! 11! of! the!
law!violates!procedural!due!process.!
! documents! are! sufficient! and! complete! in! form! and!
As!previously!stated,!the!AMLA!now!specifically!provides!
for! an!ex/parte!application! for! an! order! authorizing!
inquiry! or! examination! into! bank! deposits! or!
investments! which! continues! to! pass! constitutional!
muster.!!
! provisions!of!Presidential!Decree!No.!1069.!For!while!it!is!
Procedural!due!process!is!essentially!the!opportunity!to!
be! heard.! In! this! case,! at! the! investigation! stage! by! the!
AMLC! into! possible! money! laundering! offenses,! SPCMB!
demands! that! it! have! notice! and! hearing! of! AMLC's!
investigation!into!its!bank!accounts.!
! thoroughly! evaluating! the! same! and! its! accompanying!
We!are!not!unaware!of!the!obiter!in!Eugenio!and!cited!by!
SPCMB,! voicing! misgivings! on! an! interpretation! of! the!
former! Section! 11! of! the!AMLA!allowing! for!ex/
parte!proceedings!in!bank!inquiry!orders,!to!wit:!
! [T]he!record!cannot!support!the!presumption!of!regularity!
There!certainly!is!fertile!ground!to!contest!the!issuance!of!
an!ex'parte!order.! Section! 11! itself! requires! that! it! be!
established!that!"there!is!probable!cause!that!the!deposits!
or! investments! are! related! to! unlawful! activities,"! and! it!
obviously! is! the! court! which! stands! as! arbiter! whether!
there! is! indeed! such! probable! cause.! The! process! of!
inquiring! into! the! existence! of! probable! cause! would!
involve!the!function!of!determination!reposed!on!the!trial!
court.! Determination! clearly! implies! a! function! of!
adjudication! on! the! part! of! the! trial! court,! and! not! a!
mechanical! application! of! a! standard! pre'determination!
by! some! other! body.! The! word! "determination"! implies!
deliberation! and! is,! in! normal! legal! contemplation,!
equivalent!to!"the!decision!of!a!court!of!justice."!
! of!the!supporting!documents!the!crimes!indicated!are!not!
The! court! receiving! the! application! for! inquiry! order!
cannot!simply!take!the!AMLC's!word!that!probable!cause!
exists!that!the!deposits!or!investments!are!related!to!an!
unlawful! activity.! It! will! have! to! exercise! its! own!
determinative!function!in!order!to!be!convinced!of!such!
fact.!The! account! holder! would! be! certainly! capable! of!
contesting!such!probable!cause!if!given!the!opportunity!
to!be!apprised!of!the!pending!application!to!inquire!into!
his!account;!hence!a!notice!requirement!would!not!be!an!
empty! spectacle.! It! may! be! so! that! the! process! of!
obtaining! the! inquiry! order! may! become! more!
cumbersome! or! prolonged! because! of! the! notice!
cast! by! such! circumstance.! After! all,! as! earlier! stated,!
requiring!notice!to!the!account!holder!should!not,!in!any!
way,! compromise! the! integrity! of! the! bank! records!
subject!of!the!inquiry!which!remain!in!the!possession!and!
control!of!the!bank.!(Emphasis!supplied)!
!
On! that! score,! the! SPCMB! points! out! that! the! AMLC's!
bank! inquiry! is! preliminary! to! the! seizure! and!
Section!10!of!the!AMLA!which!peculiarity!lends!itself!to!
a!sui!generis!proceeding!akin!to!the!evaluation!process!in!
extradition! proceedings! pronounced! in!Secretary! of!
Justice! v.! Hon.! Lantion.!! Under! the! extradition! law,! the!
Secretary!of!Foreign!Affairs!is!bound!to!make!a!finding!
that! the! extradition! request! and! its! supporting!
substance!before!delivering!the!same!to!the!Secretary!of!
Justice.!We!ruled:!
!
[L]ooking! at! the! factual! milieu! of! the! case! before! us,! it!
would! appear! that! there! was! failure! to! abide! by! the!
true! that! the! extradition! request! was! delivered! to! the!
Department! of! Foreign! Affairs! on! June! 17,! 1999,! the!
following!day!or!less!than!24!hours!later,!the!Department!
of! Justice! received! the! request,! apparently! without! the!
Department! of! Foreign! affairs! discharging! its! duty!
documents.!.!.!.!!
!
xxx!xxx!xxx!
!
that! the! Department! of! Foreign! Affairs! thoroughly!
reviewed! the! extradition! request! and! supporting!
documents!and!that!it!arrived!at!a!well'founded!judgment!
that! the! request! and! its! annexed! documents! satisfy! the!
requirements!of!law.!.!.!.!.!
!
The! evaluation! process,! just! like! the! extradition!
proceedings,! proper! belongs! to! a! class! by! itself.! It! is!sui!
generis.! It! is! not! a! criminal! investigation,! but! it! is! also!
erroneous!to!say!that!it!is!purely!an!exercise!of!ministerial!
functions.! At! such! stage,! the! executive! authority! has! the!
power:! (a)! to! make! a! technical! assessment! of! the!
completeness!and!sufficiency!of!the!extradition!papers;!(b)!
to!outrightly!deny!the!request!if!on!its!face!and!on!the!face!
extraditable;!and!(c)!to!make!a!determination!whether!or!
not!the!request!is!politically!motivated,!or!that!the!offense!
is! a! military! one! which! is! not! punishable! under! non'
military! penal! legislation.! Hence,! said! process! may! be!
characterized!as!an!investigative!or!inquisitorial!process!
in!contrast!to!a!proceeding!conducted!in!the!exercise!of!an!
administrative!body's!quasi'judicial!power.!
!
In! administrative! law,! a! quasi/judicial! proceeding!
involves:! (a)! taking! and! evaluation! of! evidence;! (b)!
determining! facts! based! upon! the! evidence! presented;!
and!(c)!rendering!an!order!or!decision!supported!by!the!

LABAN NOTES ABRIL 56

 SPECIAL COMMERCIAL LAWS ANTI-MONEY LAUNDERING ACT

facts!proved.!Inquisitorial!power,!which!is!also!known!as! !
examining! or! investigatory! power,! is! one! of! the! The! enabling! law! itself,! the!AMLA,! specifies! the!
determinative! powers! of! an! administrative! body! which! jurisdiction!of!the!trial!courts,!RTC!and!Sandiganbayan,!
better!enables!it!to!exercise!its!quasi/judicial!authority.! over! money! laundering! cases,! and! delineates! the!
This!power!allows!the!administrative!body!to!inspect!the! investigative!powers!of!the!AMLC.!
records! and! premises,! and! investigate! the! activities,! of! !
persons! or! entities! coming! under! its! jurisdiction,! or! to! Textually,! the!AMLA!is! the! first! line! of! defense! against!
require!disclosure!of!information!by!means!of!accounts,! money!laundering!in!compliance!with!our!international!
records,! reports,! testimony! of! witnesses,! production! of! obligation.!There!are!three!(3)!stages!of!determination,!
documents,!or!otherwise.! two! (2)! levels! of! investigation,! falling! under! three! (3)!
! jurisdictions!
The! power! of! investigation! consists! in! gathering,! !
organizing,!and!analyzing!evidence,!which!is!a!useful!aid! 1.!The! AMLC! investigates! possible! money! laundering!
or!tool!in!an!administrative!agency's!performance!of!its! offences! and! initially! determines! whether! there! is!
rule/making! or! quasi/judicial! functions.! Notably,! probable! cause! to! charge! any! person! with! a! money!
investigation!is!indispensable!to!prosecution.!(Emphasis! laundering! offence! under! Section! 4! of! the!AMLA,!
supplied,!citations!omitted)! resulting!in!the!filing!of!a!complaint!with!the!Department!
! of!Justice!or!the!Office!of!the!Ombudsman;!!!
The! submission! of! AMLC! requires! a! determination! !
whether!the!AMLC!is!an!administrative!body!with!quasi/ 2.!The!DOJ!or!the!Ombudsman!conducts!the!preliminary!
judicial!powers;!corollary!thereto,!a!determination!of!the! investigation! proceeding! and! if! after! due! notice! and!
jurisdiction!of!the!AMLC.! hearing! finds! probable! cause! for! money! laundering!
! offences,!shall!file!the!necessary!information!before!the!
Lim! v.! Gamosa!!is! enlightening! on! jurisdiction! and! the! Regional!Trial!Courts!or!the!Sandiganbayan;!!!
requirement! of! a! specific! grant! thereof! in! the! enabling! !
law.! We! declared! that! the! creation! of! the! National! 3.!The!RTCs!or!the!Sandiganbayan!shall!try!all!cases!on!
Commission! on! Indigenous! Peoples! (NCIP)! by! money!laundering,!as!may!be!applicable.!!!
the!Indigenous!Peoples!Rights!Act!(IPRA)!did!not!confer! !
it!exclusive!and!original,!nor!primary!jurisdiction,!in!all! Nowhere!from!the!text!of!the!law!nor!its!Implementing!
claims! and! disputes! involving! rights! of! IPs! and! ICCs! Rules! and! Regulations! can! we! glean! that! the! AMLC!
where!no!such!specific!grant!is!bestowed.!! exercises! quasi/judicial! functions! whether! the! actual!
! preliminary!investigation!is!done!simply!at!its!behest!or!
In! this! instance,! the! grant! of! jurisdiction! over! cases! conducted! by! the! Department! of! Justice! and! the!
involving!money!laundering!offences!is!bestowed!on!the! Ombudsman.!
Regional!Trial!Courts!and!the!Sandiganbayan!as!the!case! !
may!be.!In!fact,!Rule!5!of!the!IRR!is!entitled!Jurisdiction! Plainly,! the! AMLC's! investigation! of! money! laundering!
of! Money! Laundering! Cases! and! Money! Laundering! offenses! and! its! determination! of! possible! money!
Investigation!Procedures:! laundering! offenses,! specifically! its! inquiry! into! certain!
! bank! accounts! allowed! by! court! order,! does! not!
Rule!5.a.!Jurisdiction!of!Money!Laundering!Cases.!—!The! transform!it!into!an!investigative!body!exercising!quasi/
Regional!Trial!Courts!shall!have!the!jurisdiction!to!try!all! judicial! powers.! Hence,! Section! 11! of! the!AMLA,!
cases!on!money!laundering.!Those!committed!by!public! authorizing!a!bank!inquiry!court!order,!cannot!be!said!to!
officers!and!private!persons!who!are!in!conspiracy!with! violate! SPCMB's! constitutional! right! to! procedural! due!
such!public!officers!shall!be!under!the!jurisdiction!of!the! process.|!
Sandiganbayan.! !
! !
Rule!5.b.!Investigation!of!Money!Laundering!Offenses.!—! There*is*a*right*to*privacy*concerning*bank*accounts*
The!AMLC!shall!investigate:! in* the* Philippines* (Bank* Secrecy* Act);* AMLA*
(1)!suspicious!transactions;! provides*for*exceptions*to*the*confidentiality*of*bank*
(2)!covered! transactions! deemed! suspicious! after! an! deposits;* Owner* of* bank* account* is* not* precluded*
investigation!conducted!by!the!AMLC;! from*assailing*the*Order*
(3)!money!laundering!activities;!and! !
(4)!other!violations!of!the!AMLA,!as!amended.! Subdio* Pagente* Certeza* Mendoza* and* Binay* Law*
! Offices* v.* Court* of* Appeals,* G.R.* No.* 216914,*
The! confusion! on! the! scope! and! parameters! of! the! [December*6,*2016]*
AMLC's! investigatory! powers! and! whether! such! seeps! *
into! and! approximates! a! quasi/judicial! agency's! We!now!come!to!a!determination!of!whether!Section!11!
inquisitorial!powers!lies!in!the!AMLC's!investigation!and! is! violative! of! the! constitutional! right! to! privacy!
consequent! initial! determination! of! whether! certain! enshrined! in! Section! 2,! Article! III! of! the!Constitution.!
activities! are! constitutive! of! anti/money! laundering! SPCMB!is!adamant!that!the!CA's!denial!of!its!request!to!
offenses.! be!furnished!copies!of!AMLC's!ex/parte!application!for!a!

LABAN NOTES ABRIL 57

 SPECIAL COMMERCIAL LAWS ANTI-MONEY LAUNDERING ACT
bank! inquiry! order! and! all! subsequent! pleadings,!
documents! and! orders! filed! and! issued! in! relation!
thereto,!constitutes!grave!abuse!of!discretion!where!the!
purported! blanket! authority! under! Section! 11:! (1)!
partakes! of! a! general! warrant! intended! to! aid! a! mere!
fishing! expedition;! (2)! violates! the! attorney/client!
privilege;! (3)! is! not! preceded! by! predicate! crime!
charging!SPCMB!of!a!money!laundering!offense;!and!(4)!
is!a!form!of!political!harassment![of!SPCMB's]!clientele.!
! peculiar!to!bank!deposits.!
We! shall! discuss! these! issues! jointly! since! the! assailed!
Section! 11! incorporates! by! reference! that! "[t]he!
authority! to! inquire! into! or! examine! the! main! and! the!
related!accounts!shall!comply!with!the!requirements!of!
Article!III,!Sections!2!and!3!of!the!1987!Constitution."!On!
this! point,! SPCMB! asseverates! that! "there! is! nothing! in!
the!AMLA!that! allows! or! justifies! the! withholding! of!
information! and/or! any! court! records! or! proceedings!
pertaining! to! an! examination! of! a! bank! account,!
especially!if!the!court!has!already!granted!the!authority!
to!conduct!the!examination."!
! investments! in! bonds! issued! by! the! Government! of! the!
The! theme! of! playing! off! privacy! rights! and! interest!
against! that! of! the! state's! interest! in! curbing! money!
laundering!offenses!is!recurring.!!
The!invoked!constitutional!provisions!read:!
! bureau! or! office,! except! upon! written! permission! of! the!
SEC.!2.!The!right!of!the!people!to!be!secure!in!their!persons,!
houses,!papers,!and!effects!against!unreasonable!searches!
and!seizures!of!whatever!nature!and!for!any!purpose!shall!
be!inviolable,!and!no!search!warrant!or!warrant!of!arrest!
shall! issue! except! upon! probable! cause! to! be! determined!
personally! by! the! judge! after! examination! under! oath! or!
affirmation!of!the!complainant!and!the!witnesses!he!may!
produce,! and! particularly! describing! the! place! to! be!
searched!and!the!person!or!things!to!be!seized.!
SEC.! 3.!(1)! The! privacy! of! communication! and!
correspondence! shall! be! inviolable! except! upon! lawful!
order!of!the!court,!or!when!public!policy!or!order!requires!
otherwise!as!prescribed!by!law.!
(2)! Any! evidence! obtained! in! violation! of! this! or! the!
preceding!section!shall!be!inadmissible!for!any!purpose!in!
any!proceeding.!
! repealed! or! amended,! the! legal! order! is! obliged! to!
Once!again,!Eugenio!offers!guidance:!
The! Court's! construction! of! Section! 11! of! the!AMLA!is!
undoubtedly! influenced! by! right! to! privacy!
considerations.!If!sustained,!petitioner's!argument!that!a!
bank! account! may! be! inspected! by! the! government!
following! an! ex! parte! proceeding! about! which! the!
depositor! would! know! nothing! would! have! significant!
implications! on! the! right! to! privacy,! a! right! innately!
cherished!by!all!notwithstanding!the!legally!recognized!
exceptions! thereto.! The! notion! that! the! government!
could! be! so! empowered! is! cause! for! concern! of! any!
individual!who!values!the!right!to!privacy!which,!after!all,!
embodies! even! the! right! to! be! "let! alone,"! the! most!
comprehensive! of! rights! and! the! right! most! valued! by!
civilized!people.!
! Court!as!constituting!an!additional!exception!to!the!rule!
LABAN NOTES ABRIL
One! might! assume! that! the! constitutional! dimension! of!
the!right!to!privacy,!as!applied!to!bank!deposits,!warrants!
our!present!inquiry.!We!decline!to!do!so.!Admittedly,!that!
question! has! proved! controversial! in! American!
jurisprudence.!Notably,!the!United!States!Supreme!Court!
in!U.S.! v.! Miller!held! that! there! was! no! legitimate!
expectation! of! privacy! as! to! the! bank! records! of! a!
depositor.!Moreover,!the!text!of!our!Constitution!has!not!
bothered! with! the! triviality! of! allocating! specific! rights!
!
However,!sufficient!for!our!purposes,!we!can!assert!there!
is! a! right! to! privacy! governing! bank! accounts! in! the!
Philippines,!and!that!such!right!finds!application!to!the!
case! at! bar.! The! source! of! such! right! is! statutory,!
expressed! as! it! is! in! R.A.! No.! 1405! otherwise! known! as!
the! Bank! Secrecy! Act! of! 1955.! The! right! to! privacy! is!
enshrined!in!Section!2!of!that!law,!to!wit:!!
!
SECTION!2.!All!deposits!of!whatever!nature!with!banks!or!
banking! institutions! in! the! Philippines! including!
Philippines,! its! political! subdivisions! and! its!
instrumentalities,! are! hereby! considered! as! of! an!
absolutely!confidential!nature!and!may!not!be!examined,!
inquired!or!looked!into!by!any!person,!government!official,!
depositor,!or!in!cases!of!impeachment,!or!upon!order!of!a!
competent!court!in!cases!of!bribery!or!dereliction!of!duty!
of!public!officials,!or!in!cases!where!the!money!deposited!
or!invested!is!the!subject!matter!of!the!litigation.!
!
Because! of! the! Bank! Secrecy! Act,! the! confidentiality! of!
bank! deposits! remains! a! basic! state! policy! in! the!
Philippines.! Subsequent! laws,! including! the!AMLA,! may!
have!added!exceptions!to!the!Bank!Secrecy!Act,!yet!the!
secrecy!of!bank!deposits!still!lies!as!the!general!rule.!It!
falls!within!the!zones!of!privacy!recognized!by!our!laws.!
The! framers! of! the!1987! Constitution!likewise!
recognized!that!bank!accounts!are!not!covered!by!either!
the! right! to! information! under! Section! 7,! Article! III! or!
under! the! requirement! of! full! public! disclosure! under!
Section! 28,! Article! II.! Unless! the! Bank! Secrecy! Act! is!
conserve!the!absolutely!confidential!nature!of!Philippine!
bank!deposits.!
!
Any!exception!to!the!rule!of!absolute!confidentiality!must!
be! specifically! legislated.! Section! 2! of! the! Bank! Secrecy!
Act! itself! prescribes! exceptions! whereby! these! bank!
accounts!may!be!examined!by!"any!person,!government!
official,!bureau!or!office";!namely!when:!(1)!upon!written!
permission! of! the! depositor;! (2)! in! cases! of!
impeachment;! (3)! the! examination! of! bank! accounts! is!
upon! order! of! a! competent! court! in! cases! of! bribery! or!
dereliction!of!duty!of!public!officials;!and!(4)!the!money!
deposited! or! invested! is! the! subject! matter! of! the!
litigation.! Section! 8! of! R.A.! Act! No.! 3019,! the! Anti/Graft!
and! Corrupt! Practices! Act,! has! been! recognized! by! this!
58
 SPECIAL COMMERCIAL LAWS ANTI-MONEY LAUNDERING ACT
of! absolute! confidentiality,! and! there! have! been! other!
similar!recognitions!as!well.!
The!AMLA!also!provides!exceptions!to!the!Bank!Secrecy!
Act.!Under!Section!11,!the!AMLC!may!inquire!into!a!bank!
account! upon! order! of! any! competent! court! in! cases! of!
violation! of! the!AMLA,! it! having! been! established! that!
there!is!probable!cause!that!the!deposits!or!investments!
are! related! to! unlawful! activities! as! defined! in! Section!
3(i)! of! the! law,! or! a! money! laundering! offense! under!
Section! 4! thereof.! Further,! in! instances! where! there! is!
probable! cause! that! the! deposits! or! investments! are!
related! to! kidnapping! for! ransom,! certain! violations! of!
the! Comprehensive! Dangerous! Drugs! Act! of! 2002,!
hijacking! and! other! violations! under! R.A.! No.! 6235,!
destructive!arson!and!murder,!then!there!is!no!need!for!
the!AMLC!to!obtain!a!court!order!before!it!could!inquire!
into!such!accounts.!
! and!authorization!to!AMLC!to!undertake!an!inquiry!into!
It!cannot!be!successfully!argued!the!proceedings!relating!
to! the! bank! inquiry! order! under! Section! 11! of!
the!AMLA!is! a! "litigation"! encompassed! in! one! of! the!
exceptions! to! the! Bank! Secrecy! Act! which! is! when! "the!
money!deposited!or!invested!is!the!subject!matter!of!the!
litigation."! The! orientation! of! the! bank! inquiry! order! is!
simply! to! serve! as! a! provisional! relief! or! remedy.! As!
earlier!stated,!the!application!for!such!does!not!entail!a!
full/blown!trial.!
! that! the! deposits! or! investments! are! related! to! an!
Nevertheless,! just! because! the!AMLA!establishes!
additional!exceptions!to!the!Bank!Secrecy!Act!it!does!not!
mean!that!the!later!law!has!dispensed!with!the!general!
principle!established!in!the!older!law!that!"[a]ll!deposits!
of!whatever!nature!with!banks!or!banking!institutions!in!
the! Philippines! .! .! .! are! hereby! considered! as! of! an!
absolutely! confidential! nature."! Indeed,! by! force! of!
statute,!all!bank!deposits!are!absolutely!confidential,!and!
that!nature!is!unaltered!even!by!the!legislated!exceptions!
referred!to!above.!There!is!disfavor!towards!construing!
these!exceptions!in!such!a!manner!that!would!authorize!
unlimited!discretion!on!the!part!of!the!government!or!of!
any! party! seeking! to! enforce! those! exceptions! and!
inquire! into! bank! deposits.! If! there! are! doubts! in!
upholding! the! absolutely! confidential! nature! of! bank!
deposits! against! affirming! the! authority! to! inquire! into!
such! accounts,! then! such! doubts! must! be! resolved! in!
favor!of!the!former.!Such!a!stance!would!persist!unless!
Congress!passes!a!law!reversing!the!general!state!policy!
of! preserving! the! absolutely! confidential! nature! of!
Philippine! bank! accounts.! (Citations! omitted,! emphasis!
supplied)!
! we!specifically!discuss!the!CA's!denial!of!SPCMB's!letter!
From!the!foregoing!disquisition,!we!extract!the!following!
principles:!
1.!The!Constitution!did! not! allocate! specific! rights!
peculiar!to!bank!deposits;!
! required! to! demonstrate! and! ascertain! probable!
2.!The! general! rule! of! absolute! confidentiality! is! simply!
statutory,!i.e.,!not!specified!in!the!Constitution,!which!has!
been!affirmed!in!jurisprudence;!!
! defined!probable!cause,!thus:!
LABAN NOTES ABRIL
3.!Exceptions! to! the! general! rule! of! absolute!
confidentiality!have!been!carved!out!by!the!Legislature!
which!legislation!have!been!sustained,!albeit!subjected!to!
heightened!scrutiny!by!the!courts;!and!
!
4.!One! such! legislated! exception! is! Section! 11! of!
the!AMLA.!
!
The! warning! in!Eugenio!that! an!ex/parte!proceeding!
authorizing! the! government! to! inspect! certain! bank!
accounts!or!investments!without!notice!to!the!depositor!
would! have! significant! implications! on! the! right! to!
privacy!still!does!not!preclude!such!a!bank!inquiry!order!
to!be!allowed!by!specific!legislation!as!an!exception!to!the!
general!rule!of!absolute!confidentiality!of!bank!deposits.!
We!thus!subjected!Section!11!of!the!AMLA!to!heightened!
scrutiny! and! found! nothing! arbitrary! in! the! allowance!
certain!bank!accounts!or!deposits.!Instead,!we!found!that!
it! provides! safeguards! before! a! bank! inquiry! order! is!
issued,!ensuring!adherence!to!the!general!state!policy!of!
preserving! the! absolutely! confidential! nature! of!
Philippine!bank!accounts:!!
(1)!The!AMLC!is!required!to!establish!probable!cause!as!
basis!for!its!ex/parte!application!for!bank!inquiry!order;!
(2)!The!CA,!independent!of!the!AMLC's!demonstration!of!
probable!cause,!itself!makes!a!finding!of!probable!cause!
unlawful! activity! under! Section! 3! (i)! or! a! money!
laundering!offense!under!Section!4!of!the!AMLA;!
(3)!A! bank! inquiry! court! order!ex/parte!for! related!
accounts! is! preceded! by! a! bank! inquiry! court! order!ex/
parte!for! the! principal! account! which! court! order!ex/
parte!for! related! accounts! is! separately! based! on!
probable! cause! that! such! related! account! is! materially!
linked!to!the!principal!account!inquired!into;!and!
(4)!The!authority!to!inquire!into!or!examine!the!main!or!
principal!account!and!the!related!accounts!shall!comply!
with!the!requirements!of!Article!III,!Sections!2!and!3!of!
the!Constitution.!
!
The! foregoing! demonstrates! that! the! inquiry! and!
examination! into! the! bank! account! are! not! undertaken!
whimsically! and! solely! based! on! the! investigative!
discretion!of!the!AMLC.!In!particular,!the!requirement!of!
demonstration! by! the! AMLC,! and! determination! by! the!
CA,! of! probable! cause! emphasizes! the! limits! of! such!
governmental!action.!
!
We! will! revert! to! these! safeguards! under! Section! 11! as!
request! for! information! concerning! the! purported!
issuance!of!a!bank!inquiry!order!involving!its!accounts!
!
First.!The!AMLC!and!the!appellate!court!are!respectively!
cause.!Ret.! Lt.! Gen.! Ligot,! et! al.! v.! Republic! of! the!
Philippines,! which! dealt! with! the! adjunct! provisional!
remedy! of! freeze! order! under! Section! 10! of! the!AMLA,!
59
 SPECIAL COMMERCIAL LAWS ANTI-MONEY LAUNDERING ACT
The!probable!cause!required!for!the!issuance!of!a!freeze!
order! differs! from! the! probable! cause! required! for! the!
institution!of!a!criminal!action,!.!.!.!.!
! trial.! Since! the! AMLC! could! not! make! use! of! the! bank!
As!defined!in!the!law,!the!probable!cause!required!for!the!
issuance! of! a! freeze! order! refers! to! "such! facts! and!
circumstances! which! would! lead! a! reasonably! discreet,!
prudent! or! cautious! man! to! believe! that! an! unlawful!
activity!and/or!money!laundering!offence!is!about!to!be,!
is!being!or!has!been!committed!and!that!the!account!or!
any! monetary! instrument! or! property! subject! thereof!
sought!to!be!frozen!is!in!any!way!related!to!said!unlawful!
activity!and/or!money!laundering!offense."!
! Guided!as!we!are!by!prior!holdings,!and!bound!as!we!are!
In! other! words,! in! resolving! the! issue! of! whether!
probable! cause! exits,! the! CA's! statutorily/guided!
determination's! focus! is! not! on! the! probable!
commissions! of! an! unlawful! activity! (or! money!
laundering)! that! the! office! of! the! Ombudsman! has!
already! determined! to! exist,! but! on! whether! the! bank!
accounts,!assets,!or!other!monetary!instruments!sought!
to! be! frozen! are!in! any! way! related!to! any! of! the! illegal!
activities! enumerated! under!R.A.! 9160,! as! amended.!
Otherwise!stated,!probable!cause!refers!to!the!sufficiency!
of! the! relation! between! an! unlawful! activity! and! the!
property!or!monetary!instrument!which!is!the!focal!point!
of!Section!10!of!RA!No.!9160,!as!amended.!.!.!.!.!(Emphasis!
supplied)!
! owner!of!the!account!from!challenging!the!basis!for!the!
Second.!As! regards! SPCMB's! contention! that! the! bank!
inquiry! order! is! in! the! nature! of! a! general!
warrant,!Eugenio!already!declared!that!Section!11,!even!
with! the! allowance! of! an!ex/parte!application! therefor,!
"is! not! a! search! warrant! or! warrant! of! arrest! as! it!
contemplates! a! direct! object! but! not! the! seizure! of!
persons! or! property."!It! bears! repeating! that! the! "bank!
inquiry!order"!under!Section!11!is!a!provisional!remedy!
to!aid!the!AMLC!in!the!enforcement!of!the!AMLA.!TCAScE!
! financial!institution!and!their!subsidiaries!and!affiliates!
Third.!Contrary!to!the!stance!of!SPCMB,!the!bank!inquiry!
order! does! not! contemplate! that! SPCMB! be! first!
impleaded! in! a! money! laundering! case! already! filed!
before!the!courts:!
! 1.! Kidnapping!for!ransom!under!Article!267!of!Act!
We! are! unconvinced! by! this! proposition,! and! agree!
instead! with! the! then! Solicitor! General! who! conceded!
that!the!use!of!the!phrase!"in!cases!of"!was!unfortunate,!
yet!submitted!that!it!should!be!interpreted!to!mean!"in!
the!event!there!are!violations"!of!the!AMLA,!and!not!that!
there!are!already!cases!pending!in!court!concerning!such!
violations.! If! the! contrary! position! is! adopted,! then! the!
bank!inquiry!order!would!be!limited!in!purpose!as!a!tool!
in! aid! of! litigation! of! live! cases,! and! wholly! inutile! as! a!
means!for!the!government!to!ascertain!whether!there!is!
sufficient!evidence!to!sustain!an!intended!prosecution!of!
the!account!holder!for!violation!of!the!AMLA.!Should!that!
be! the! situation,! in! all! likelihood! the! AMLC! would! be!
virtually!deprived!of!its!character!as!a!discovery!tool,!and!
thus!would!become!less!circumspect!in!filing!complaints!
against!suspect!account!holders.!After!all,!under!such!set/
up! the! preferred! strategy! would! be! to! allow! or! even!
LABAN NOTES ABRIL
encourage!the!indiscriminate!filing!of!complaints!under!
the!AMLA!with!the!hope!or!expectation!that!the!evidence!
of!money!laundering!would!somehow!surface!during!the!
inquiry!order!to!determine!whether!there!is!evidentiary!
basis! to! prosecute! the! suspected! malefactors,! not! filing!
any! case! at! all! would! not! be! an! alternative.! Such!
unwholesome! set/up! should! not! come! to! pass.! Thus!
Section! 11! cannot! be! interpreted! in! a! way! that! would!
emasculate!the!remedy!it!has!established!and!encourage!
the! unfounded! initiation! of! complaints! for! money!
laundering.!(Citation!omitted)!
!
by!the!requirements!for!issuance!of!a!bank!inquiry!order!
under! Section! 11! of! the!AMLA,! we! are! hard! pressed! to!
declare!that!it!violates!SPCMB's!right!to!privacy.!
!
Nonetheless,! although! the! bank! inquiry! order!ex/
parte!passes! constitutional! muster,! there! is! nothing! in!
Section!11!nor!the!implementing!rules!and!regulations!of!
the!AMLA!which! prohibits! the! owner! of! the! bank!
account,!as!in!this!instance!SPCMB,!to!ascertain!from!the!
CA,! post! issuance! of! the! bank! inquiry! order!ex/parte,! if!
his! account! is! indeed! the! subject! of! an! examination.!
Emphasized! by! our! discussion! of! the! safeguards! under!
Section!11!preceding!the!issuance!of!such!an!order,!we!
find! that! there! is! nothing! therein! which! precludes! the!
issuance!thereof.!
!
!
Bank*Inquiry*without*Court*Order*
!
The!AMLC!shall!issue!a!resolution!authorizing!the!AMLC!
Secretariat! to! inquire! into! or! examine! any! particular!
deposit! or! investment! account,! including! related!
accounts,! with! any! banking! institution! or! non/bank!
when!it!has!been!established!that!probable!cause!exists!
that! the! deposits! or! investments! involved,! including!
related! accounts,! are! in! any! way! related! to! any! of! the!
following!unlawful!activities:!
No.! 3815,! otherwise! known! as! the!Revised!
Penal!Code,!as!amended;!
2.! Sections!4,!5,!6,!8,!9,!10,!11,!12,!13,!14,!15!and!
16!of!Republic!Act!No.!9165,!otherwise!known!
as!the!Comprehensive!Dangerous!Drugs!Act!of!
2002;!
3.! Hijacking! and! other! violations! under!Republic!
Act!No.!6235;!destructive!arson!and!murder,!as!
defined! under! the!Revised! Penal! Code,! as!
amended;!
4.! Felonies!or!offenses!of!a!nature!similar!to!those!
mentioned!in!Section!3!(i)!(1),!(2)!and!(12)!of!
the!AMLA!which! are! punishable! under! the!
penal!laws!of!other!countries;!
60
 SPECIAL COMMERCIAL LAWS ANTI-MONEY LAUNDERING ACT

5.! Terrorism!and!conspiracy!to!commit!terrorism!
as! defined! and! penalized! under!Republic! Act!
No.!9372;!and!
6.! Financing! of! terrorism! under! Section! 4! and!
offenses!punishable!under!Sections!5,!6,!7!and!
8!of!Republic!Act!No.!10168,!otherwise!known!
as!the! Terrorism! Financing! Prevention! and!
Suppression! Act! of! 2012.! ! (2016! Revised!
Implementing!Rules!and!Regulations!of!Republic!
Act! No.! 9160,! as! Amended,! [September! 21,!
2016])!
! deposit,!investment,!account!and/or!transaction!subject!
! of! the! bank! inquiry! shall! be! submitted! to! the! AMLC!
Judicial* order* not* necessary* if* deposits* or*
investments* are* related* to* kidnapping* for* ransom,*
etc.*
* 9160,!as!Amended,![September!21,!2016])!
Republic* v.* Eugenio,* Jr.,* G.R.* No.* 174629,* [February*
14,*2008]*
It! is! evident! that! Section! 11! does! not! specifically!
authorize,!as!a!general!rule,!the!issuance!ex!parte!of!the!
bank!inquiry!order.!We!quote!the!provision!in!full:!
! In! the! course! of! a! periodic! or! special! examination,! the!
SEC.! 11.Authority! to! Inquire! into! Bank! Deposits.!—!
Notwithstanding!the!provisions!of!Republic!Act!No.!1405,!
as!amended,!Republic!Act!No.!6426,!as!amended,!Republic!
Act!No.!8791,!and!other!laws,!the!AMLC!may!inquire!into!
or!examine!any!particular!deposit!or!investment!with!any!
banking!institution!or!non!bank!financial!institution!upon!
order!of!any!competent!court!in!cases!of!violation!of!this!
Act,!when! it! has! been! established! that! there! is! probable!
cause! that! the! deposits! or! investments! are! related! to! an!
unlawful! activity! as! defined! in! Section! 3(i)! hereof! or! a!
money! laundering! offense! under! Section! 4! hereof,! except!
that! no! court! order! shall! be! required! in! cases! involving!
unlawful!activities!defined!in!Sections!3(i)1,!(2)!and!(12).!
! !
To!ensure!compliance!with!this!Act,!the!Bangko!Sentral!
ng! Pilipinas! (BSP)! may! inquire! into! or! examine! any!
deposit! of! investment! with! any! banking! institution! or!
non! bank! financial! institution! when! the! examination! is!
made!in!the!course!of!a!periodic!or!special!examination,!
in! accordance! with! the! rules! of! examination! of! the!
BSP.!70!(Emphasis!supplied)!
! Regulations! of! Republic! Act! No.! 9160,! as! Amended,!
Of!course,!Section!11!also!allows!the!AMLC!to!inquire!into!
bank!accounts!without!having!to!obtain!a!judicial!order!
in!cases!where!there!is!probable!cause!that!the!deposits!
or! investments! are! related! to! kidnapping! for!
ransom,!71!certain! violations! of! the! Comprehensive!
Dangerous! Drugs! Act! of! 2002,!72!hijacking! and! other!
violations! under!R.A.! No.! 6235,! destructive! arson! and!
murder.!Since!such!special!circumstances!do!not!apply!in!
this!case,!there!is!no!need!for!us!to!pass!comment!on!this!
proviso.! Suffice! it! to! say,! the! proviso! contemplates! a!
situation!distinct!from!that!which!presently!confronts!us,!
and! for! purposes! of! the! succeeding! discussion,! our!
reference! to! Section! 11! of! the! AMLA! excludes! said!
proviso.!
!
!
Duties*of*the*Covered*Persons*upon*Receipt*of*Bank*
Inquiry*Order*
!
The!concerned!covered!persons!shall!immediately,!upon!
receipt!of!the!court!order!or!AMLC!Resolution,!give!the!
AMLC!and/or!its!Secretariat!full!access!to!all!information,!
documents! or! objects! pertaining! to! the! deposit,!
investment,!account!and/or!transaction.!
!
Certified! true! copies! of! the! documents! pertaining! to!
Secretariat,!within!five!(5)!working!days!from!receipt!of!
the! court! order! or! AMLC! Resolution.! (2016! Revised!
Implementing! Rules! and! Regulations! of! Republic! Act! No.!
!
!
Authority*of*the*BSP*to*Inquire*into*or*Examine*
Bank*Accounts*
!
BSP! may! inquire! into! or! examine! bank! accounts,!
including!customer!identification,!account!opening,!and!
transaction! documents,! for! the! purpose! of! checking!
compliance!by!covered!persons!under!its!supervision!or!
regulation!with!the!requirements!of!the!AMLA,!this!RIRR,!
and! other! AMLC! issuances.|||!(2016! Revised!
Implementing! Rules! and! Regulations! of! Republic! Act! No.!
9160,!as!Amended,![September!21,!2016])!
!
!
Asset*Forfeiture*
*
Civil*Forfeiture*
Where*petition*for*civil*forfeiture*filed*
Upon!determination!that!probable!cause!exists!that!any!
monetary!instrument!or!property!is!in!any!way!related!
to!an!unlawful!activity!or!a!money!laundering!offense,!the!
AMLC!shall!file!with!the!regional!trial!court,!through!the!
Office!of!the!Solicitor!General,!a!verified!petition!for!civil!
forfeiture.|||(2016! Revised! Implementing! Rules! and!
[September!21,!2016])!
!
Balance*between*due*process*and*the*government’s*
interest*in*curbing*criminality,*i.e.*money*laundering*
and*the*predicate*crimes*underlying*it*
!
Ligot*v.*Republic,*G.R.*No.*176944,*[March*6,*2013]*
!
To! our! mind,! the! six/month! extension! period!
is!ordinarily!sufficient!for!the!government!to!act!against!
the! suspected! money! launderer! and! to! file! the!
appropriate! forfeiture! case! against! him,! and! is! a!
reasonable! period! as! well! that! recognizes! the! property!
owner's!right!to!due!process.!In+this+case,+the+period+of+

LABAN NOTES ABRIL 61

 SPECIAL COMMERCIAL LAWS ANTI-MONEY LAUNDERING ACT
inaction+of+six+years,+under+the+circumstances,+already+
far+exceeded+what+is+reasonable.!
We!are!not!unmindful!that!the!State!itself!is!entitled!to!
due! process.! As! a! due! process! concern,! we! do! not! say!
that+the+ six;month+ period+ is+ an+ inflexible+ rule!that!
would!result!in!the!automatic!lifting!of!the!freeze!order!
upon!its!expiration!in!all!instances.!An!inflexible!rule!may!
lend! itself! to! abuse! —! to! the! prejudice! of! the! State's!
legitimate!interests!—!where!the!property!owner!would!
simply!file!numerous!suits,!questioning!the!freeze!order!
during! the! six/month! extension! period,! to! prevent! the!
timely!filing!of!a!money!laundering!or!civil!forfeiture!case!
within! this! period.! With! the! limited! resources! that! our!
government!prosecutors!and!investigators!have!at!their!
disposal,! the! end/result! of! an! inflexible! rule! is! not!
difficult!to!see.!
We! observe,! too,! that! the! factual! complexities! and!
intricacies! of! the! case! and! other! matters! that! may! be!
beyond!the!government's!prosecutory!agencies'!control!
may!contribute!to!their!inability!to!file!the!corresponding!
civil!forfeiture!case!before!the!lapse!of!six!months.!Given!
these!considerations,!it!is!only!proper!to!strike!a!balance!
between! the! individual's! right! to! due! process! and! the!
government's! interest! in! curbing! criminality,!
particularly!money!laundering!and!the!predicate!crimes!
underlying!it.!
Thus,! as! a! rule,! the! effectivity! of! a! freeze! order! may! be!
extended! by! the! CA! for! a! period! not! exceeding! six!
months.!Before!or!upon!the!lapse!of!this!period,!ideally,!
the! Republic! should! have! already! filed! a! case! for! civil!
forfeiture! against! the! property! owner! with! the! proper!
courts! and! accordingly! secure! an! asset! preservation!
order! or! it! should! have! filed! the! necessary!
information.!! Otherwise,!the! property! owner! should!
already! be! able! to! fully! enjoy! his! property! without! any!
legal! process! affecting! it.! However,! should! it! become!
completely!necessary!for!the!Republic!to!further!extend!
the! duration! of! the! freeze! order,! it! should! file! the!
necessary!motion!before!the!expiration!of!the!six/month!
period!and!explain!the!reason!or!reasons!for!its!failure!to!
file! an! appropriate! case! and! justify! the! period! of!
extension! sought.! The! freeze! order! should! remain!
effective! prior! to! the! resolution! by! the! CA,! which! is!
hereby! directed! to! resolve! this! kind! of! motion! for!
extension!with!reasonable!dispatch.!
In! the! present! case,! we! note! that! the! Republic! has! not!
offered!any!explanation!why!it!took!six!years!(from!the!
time! it! secured! a! freeze! order)! before! a! civil! forfeiture!
case!was!filed!in!court,!despite!the!clear!tenor!of!the!Rule!
in! Civil! Forfeiture! Cases! allowing! the! extension! of! a!
freeze! order! for! only! a! period! of! six! months.! All! the!
Republic! could! proffer! is! its! temporal! argument! on! the!
inapplicability! of! the! Rule! in! Civil! Forfeiture! Cases;! in!
effect,! it! glossed! over! the! squarely/raised! issue! of! due!
process.! Under! these! circumstances,! we! cannot! but!
conclude!that!the!continued!extension!of!the!freeze!order!
beyond!the!six/month!period!violated!the!Ligots'!right!to!
due!process;!thus,!the!CA!decision!should!be!reversed.!
LABAN NOTES ABRIL
!
*
Asset*Forfeiture*in*Money*Laundering*Cases*
*
Where! there! is! conviction! for! money! laundering,! the!
court!shall!issue!a!judgment!of!forfeiture!in!favor!of!the!
Government! of! the! Philippines! with! respect! to! the!
monetary!instrument!or!property!found!to!be!proceeds!
of! an! unlawful! activity.|||!(2016! Revised! Implementing!
Rules! and! Regulations! of! Republic! Act! No.! 9160,! as!
Amended,![September!21,!2016])!
*
Claim*on*Forfeited*Assets*
*
Where!the!court!has!issued!an!order!of!forfeiture!of!the!
monetary! instrument! or! property! in! a! criminal!
prosecution! for! any! money! laundering! offense,! the!
offender!or!any!other!person!claiming!an!interest!therein!
may!apply,!by!verified!petition,!for!a!declaration!that!the!
same!legitimately!belongs!to!him!and!for!segregation!or!
exclusion! of! the! monetary! instrument! or! property!
corresponding!thereto.!The!verified!petition!shall!be!filed!
with! the! court! which! rendered! the! judgment! of!
forfeiture,!within!fifteen!(15)!days!from!the!date!of!the!
finality!of!the!order!of!forfeiture,!in!default!of!which!the!
said! order! shall! become! final! and! executory.! This!
provision! shall! also! apply! in! civil! forfeiture.! (2016!
Revised! Implementing! Rules! and! Regulations! of! Republic!
Act!No.!9160,!as!Amended,![September!21,!2016])!
*
*
Payment*in*Lieu*of*Forfeiture*
*
Where!the!court!has!issued!an!order!of!forfeiture!of!the!
monetary! instrument! or! property! subject! of! a! money!
laundering! offense,! and! said! order! cannot! be! enforced!
because!any!particular!monetary!instrument!or!property!
cannot,! with! due! diligence,! be! located,! or! it! has! been!
substantially! altered,! destroyed,! diminished! in! value! or!
otherwise! rendered! worthless! by! any! act! or! omission,!
directly! or! indirectly,! attributable! to! the! offender,! or! it!
has! been! concealed,! removed,! converted,! or! otherwise!
transferred!to!prevent!the!same!from!being!found!or!to!
avoid! forfeiture! thereof,! or! it! is! located! outside! the!
Philippines! or! has! been! placed! or! brought! outside! the!
jurisdiction!of!the!court,!or!it!has!been!commingled!with!
other! monetary! instruments! or! property! belonging! to!
either! the! offender! himself! or! a! third! person! or! entity,!
thereby! rendering! the! same! difficult! to! identify! or! be!
segregated! for! purposes! of! forfeiture,! the! court! may,!
instead! of! enforcing! the! order! of! forfeiture! of! the!
monetary! instrument! or! property! or! part! thereof! or!
interest! therein,! accordingly! order! the! convicted!
offender! to! pay! an! amount! equal! to! the! value! of! said!
monetary! instrument! or! property.! This! provision! shall!
apply! in! both! civil! and! criminal! forfeiture.|||!(2016!
Revised! Implementing! Rules! and! Regulations! of! Republic!
Act!No.!9160,!as!Amended,![September!21,!2016])!
*
62
 SPECIAL COMMERCIAL LAWS FOREIGN INVESTMENTS ACT

Introductory*Concepts* No! franchise,! certificate,! or! any! other! form! of!

! authorization!for!the!operation!of!a!public!utility!shall!be!
Governing*Law** granted! except! to! citizens! of! the! Philippines! or! to!
R.A.!No.!7042!–!Foreign!Investments!Act!of!1991! corporations!or!associations!organized!under!the!laws!of!
! the!Philippines!at!least!sixty*per*centum*of!whose!capital!
•! This! Act! shall! not! apply! to! banking! and! other! is! owned! by! such! citizens,! nor! shall! such! franchise,!
financial! institutions! which! are! governed! and! certificate,!or!authorizations!be!exclusive!in!character!or!
regulated!by!the!General!Banking!Act!and!other! for!a!longer!period!than!fifty!years.!Neither!shall!any!such!
laws!under!the!supervision!of!the!Central!Bank! franchise!or!right!be!granted!except!under!the!condition!
! that! it! shall! be! subject! to! amendment,! alteration,! or!
Implementing!Rules!and!Regulations!of!RA!7042,!IRRJRA! repeal! by! the! Congress! when! the! common! good! so!
7042,![July!9,!1996])! requires.!The!State!shall!encourage!equity!participation!
! in!public!utilities!by!the!general!public.!The!participation!
! of!foreign!investors!in!the!governing!body!of!any!public!
State*Policy* utility!enterprise!shall!be!limited!to!their!proportionate!
It! is! the! policy! of! the! State! to! attract,! promote! and! share! in! its! capital,! and! all! the! executive! and! managing!
welcome! officers! of! such! corporation! or! association! must! be!
productive!investments!from!foreign!individuals,! citizen! of! the! Philippines.|(sec.* 11,* Art.* XII,* 1987*
partnerships,!corporations,!and!governments,!including! Philippine*Constitution)*
their! political! subdivisions,! in! activities! which! *
significantly!contribute!to!national!industrialization!and! Filipino*First*Policy*
socioeconomic! development! to! the! extent! In! the! instant! case,! where! a! foreign! firm! submits! the!
that!foreign!investment!is!allowed!in!such!activity!by!the! highest! bid! in! a! public! bidding! concerning! the! grant! of!
Constitution! and! relevant! rights,!privileges!and!concessions!covering!the!national!
laws.!Foreign!investments!shall! be! encouraged! in! economy!and!patrimony,!thereby!exceeding!the!bid!of!a!
enterprises! that! significantly! expand! livelihood! and! Filipino,!there!is!no!question!that!the!Filipino!will!have!to!
employment! opportunities! for! Filipinos;! enhance! be!allowed!to!match!the!bid!of!the!foreign!entity.!And!if!
economic!value!of!farm!products;!promote!the!welfare!of! the!Filipino!matches!the!bid!of!a!foreign!firm!the!award!
Filipino! consumers;! expand! the! scope,! quality! and! should!go!to!the!Filipino.!It!must!be!so!if!we!are!to!give!
volume! of! exports! and! their! access! to!foreign! markets;! life!and!meaning!to!the!Filipino*First*Policy!provision!of!
and/or! transfer! relevant! technologies! in! agriculture,! the!1987! Constitution.! For,! while! this! may! neither! be!
industry!and!support!services.!Foreign!investments!shall! expressly!stated!nor!contemplated!in!the!bidding!rules,!
be! welcome! as! a! supplement! to! Filipino! capital! and! the! constitutional! fiat! is! omnipresent! to! be! simply!
technology! in! those! enterprises! serving! mainly! the! disregarded.!To!ignore!it!would!be!to!sanction!a!perilous!
domestic! market.!|(Foreign* Investments* Act* of* 1991,* skirting!of!the!basic!law.!
Republic*Act*No.*7042,*[June*13,*1991])! This!Court!does!not!discount!the!apprehension!that!this!
! policy! may! discourage! foreign! investors.! But!the!
The!Act!opens!the!door!to!foreign!investments!only!after! Constitution!and!laws!of!the!Philippines!are!understood!
securing! to! Filipinos! their! rights! and! interests! over! the! to! be! always! open! to! public! scrutiny.! These! are! given!
national! economy.|||(Garcia* v.* Executive* Secretary,* G.R.* factors! which! investors! must! consider! when! venturing!
No.*100883,*[December*2,*1991])! into! business! in! a! foreign! jurisdiction.! Any! person!
! therefore! desiring! to! do! business! in! the! Philippines! or!
! with!any!of!its!agencies!or!instrumentalities!is!presumed!
Foreign*ownership* to! know! his! rights! and! obligations! under!the!
As! a! general! rule,! there! are! no! restrictions! on! extent! Constitution!and! the! laws! of! the! forum! (Manila* Prince*
of!foreign!ownership! of! export! enterprises.! In! domestic! Hotel* v.* Government* Service* Insurance* System,* G.R.* No.*
market!enterprises,!foreigners!can!invest!as!much!as!one! 122156,*[February*3,*1997],*335*PHIL*82W154)!
hundred!percent!(100%)!equity!except!in!areas!included!
in!the!negative!list.!Foreign!owned!firms!catering!mainly! !
to!the!domestic!market!shall!be!encouraged!to!undertake! Filipino*First*Policy*vis>à>vis*Qualified*Filipinos*
measures! that! will! gradually! increase! Filipino! Paragraph!2!of!Section!10!explicitly!mandates!the!"ProJ
participation! in! their! businesses! by! taking! in! Filipino! Filipino"!bias!in!all!economic!concerns.!It!is!better!known!
partners,! electing! Filipinos! to! the! board! of! directors,! as! the! FILIPINO! FIRST! Policy.! .! .! .! This! provision! was!
implementing! transfer! of! technology! to! Filipinos,! never!found!in!previous!Constitutions.!.!.!.!
generating! more! employment! for! the! economy! and! !
enhancing! skills! of! Filipino! workers.! (Foreign* The! term! "qualified! Filipinos"! simply! means! that!
Investments*Act*of*1991,*Republic*Act*No.*7042,*[June*13,* preference!shall!be!given!to!those!citizens!who!can!make!
1991])* a! viable! contribution! to! the! common! good,! because! of!
* credible! competence! and! efficiency.! It! certainly! does!
Constitutional* basis* on* the* limitation* of* foreign* NOT!mandate!the!pampering!and!preferential!treatment!
ownership*in*public*utilities*

LABAN NOTES ABRIL 63

 SPECIAL COMMERCIAL LAWS FOREIGN INVESTMENTS ACT

to!Filipino!citizens!or!organizations!that!are!incompetent! outstanding!capital!stock!comprising!both!common!and!
or! inefficient,! since! such! an! indiscriminate! preference! nonJvoting!preferred!shares.!
would!be!counterproductive!and!inimical!to!the!common! !
good.! Indisputably,! one! of! the! rights! of! a! stockholder! is! the!
! right!to!participate!in!the!control!or!management!of!the!
In! the! granting! of! economic! rights,! privileges,! and! corporation.!This! is! exercised! through! his! vote! in! the!
concessions,! when! a! choice! has! to! be! made! between! a! election!of!directors!because!it!is!the!board!of!directors!
"qualified!foreigner"!and!a!"qualified!Filipino,"!the!latter! that!controls!or!manages!the!corporation.!In!the!absence!
shall! be! chosen! over! the! former."! (Nolledo,* J.N.,* The* of! provisions! in! the! articles! of! incorporation! denying!
New*Constitution* of* the* Philippines*Annotated,* 1990* ed.,* voting!rights!to!preferred!shares,!preferred!shares!have!
pp.*930W931.)* the! same! voting! rights! as! common! shares.! However,!
* preferred! shareholders! are! often! excluded! from! any!
* control,! that! is,! deprived! of! the! right! to! vote! in! the!
Exhaustive*discussion*on*the*term*‘capital’*in*sec.* election!of!directors!and!on!other!matters,!on!the!theory!
11,*Art.*XII*of*the*1987*Philippine*Constitution* that!the!preferred!shareholders!are!merely!investors!in!
* the! corporation! for! income! in! the! same! manner! as!
Discussion* on* the* definition* of* the* term* ‘capital’* in* bondholders.!!In! fact,! under! the!Corporation! Code!only!
sec.* 11,* Art.* XII* of* the* 1987* Constitution* –* 2011* preferred! or! redeemable! shares! can! be! deprived! of! the!
Gamboa*v.*Teves*case right!to!vote.!!Common!shares!cannot!be!deprived!of!the!
! right!to!vote!in!any!corporate!meeting,!and!any!provision!
in! the! articles! of! incorporation! restricting! the! right! of!
Gamboa*v.*Teves,*G.R.*No.*176579,*[June*28,*2011]*
common!shareholders!to!vote!is!invalid.!!!
!
!
The!1987!Constitution!"provides!for!the!Filipinization!of!
Considering! that! common! shares! have! voting! rights!
public! utilities! by! requiring! that! any! form! of!
which! translate! to! control,! as! opposed! to! preferred!
authorization!for!the!operation!of!public!utilities!should!
shares! which! usually! have! no! voting! rights,! the! term!
be! granted! only! to! 'citizens! of! the! Philippines! or! to!
"capital"! in! Section! 11,! Article! XII! of!
corporations!or!associations!organized!under!the!laws!of!
the!Constitution!refers!only!to!common!shares.!However,!
the!Philippines!at!least!sixty!per!centum!of!whose!capital!
if!the!preferred!shares!also!have!the!right!to!vote!in!the!
is!owned!by!such!citizens.'!The!provision!is![an!express]!
election!of!directors,!then!the!term!"capital"!shall!include!
recognition! of! the! sensitive! and! vital! position! of! public!
such!preferred!shares!because!the!right!to!participate!in!
utilities! both! in! the! national! economy! and! for! national!
the! control! or! management! of! the! corporation! is!
security."!! The! evident! purpose! of! the! citizenship!
exercised! through! the! right! to! vote! in! the! election! of!
requirement!is!to!prevent!aliens!from!assuming!control!
directors.!In! short,! the! term! "capital"! in! Section! 11,!
of!public!utilities,!which!may!be!inimical!to!the!national!
Article! XII! of! the!Constitution!refers! only! to! shares! of!
interest.!!This! specific! provision! explicitly! reserves! to!
Filipino!citizens!control!of!public!utilities,!pursuant!to!an! stock!that!can!vote!in!the!election!of!directors.!
overriding! economic! goal! of! the!1987! Constitution:! to! !
"conserve! and! develop! our! patrimony"!and! ensure! "a! Thus,! 60! percent! of! the! "capital"! assumes,! or! should!
selfJreliant! and! independent! national! result! in,! "controlling! interest"! in! the! corporation.!
economy!effectively!controlled!by!Filipinos."!|||!! Reinforcing! this! interpretation! of! the! term! "capital,"! as!
! referring! to! controlling! interest! or! shares! entitled! to!
Any!citizen!or!juridical!entity!desiring!to!operate!a!public! vote,! is! the! definition! of! a! "Philippine! national"! in!the!
Foreign!Investments!Act!of!1991.|!
utility! must! therefore! meet! the! minimum! nationality!
!
requirement! prescribed! in! Section! 11,! Article! XII! of!
Mere! legal! title! is! insufficient! to! meet! the! 60! percent!
the!Constitution.!Hence,!for!a!corporation!to!be!granted!
FilipinoJowned! "capital"! required! in! the!Constitution.!
authority!to!operate!a!public!utility,!at!least!60!percent!of!
Full! beneficial! ownership! of! 60! percent! of! the!
its!"capital"!must!be!owned!by!Filipino!citizens.!
outstanding!capital!stock,!coupled!with!60!percent!of!the!
!
voting! rights,! is! required.! The! legal! and! beneficial!
The!crux!of!the!controversy!is!the!definition!of!the!term!
ownership!of!60!percent!of!the!outstanding!capital!stock!
"capital."*Does*the*term*"capital"*in*Section*11,*Article*
must!rest!in!the!hands!of!Filipino!nationals!in!accordance!
XII*of*the*Constitution*refer*to*common*shares*or*to*
with! the! constitutional! mandate.! Otherwise,! the!
the*total*outstanding*capital*stock*(combined*total*of*
corporation! is! "considered! as! nonJPhilippine!
common*and*non>voting*preferred*shares)?*
national[s]."!!
!
!
We! agree! with! petitioner! and! petitionersJinJ
Under! Section! 10,! Article! XII! of! the!Constitution,!
intervention.!The!term!"capital"!in!Section!11,!Article!XII!
Congress!may!"reserve!to!citizens!of!the!Philippines!or!to!
of!the!Constitution!refers!only!to!shares!of!stock!entitled!
corporations!or!associations!at!least!sixty!per!centum!of!
to! vote! in! the! election! of! directors,! and! thus! in! the!
whose!capital!is!owned!by!such!citizens,!or!such!higher!
present!case!only!to!common!shares,!and!not!to!the!total!
percentage! as! Congress! may! prescribe,! certain! areas! of!
investments."! Thus,! in! numerous! laws! Congress! has!

LABAN NOTES ABRIL 64

 SPECIAL COMMERCIAL LAWS FOREIGN INVESTMENTS ACT
reserved!certain!areas!of!investments!to!Filipino!citizens!
or!to!corporations!at!least!sixty!percent!of!the!"capital"!of!
which!is!owned!by!Filipino!citizens.!Some!of!these!laws!
are:! (1)! Regulation! of! Award! of! Government! Contracts!
or!R.A.!No.!5183;!(2)!Philippine!Inventors!Incentives!Act!
or!R.A.! No.! 3850;! (3)! Magna! Carta! for! Micro,! Small! and!
Medium! Enterprises! or! R.A.! No.! 6977;! (4)! Philippine!
Overseas! Shipping! Development! Act! or!R.A.! No.! 7471;!
(5)!Domestic!Shipping!Development!Act!of!2004!or!R.A.!
No.! 9295;! (6)!Philippine! Technology! Transfer! Act! of!
2009!or!R.A.! No.! 10055;! and! (7)! Ship! Mortgage! Decree!
or!P.D.!No.!1521.!Hence,!the!term!"capital"!in!Section!11,!
Article! XII! of! the!Constitution!is! also! used!in! the! same!
context! in! numerous! laws!reserving! certain! areas! of!
investments!to!Filipino!citizens.!
! in! determining! compliance! with! the! 60J40! ownership!
To! construe! broadly! the! term! "capital"! as! the! total!
outstanding! capital! stock,! including! both! common!
and!nonJvoting!preferred! shares,! grossly! contravenes!
the! intent! and! letter! of! the!Constitution!that! the! "State!
shall! develop! a! selfJreliant! and! independent! national!
economy!effectively! controlled!by! Filipinos."! A! broad!
definition! unjustifiably! disregards! who! owns! the! allJ
important! voting! stock,! which! necessarily! equates! to!
control!of!the!public!utility.!
**
* resources.*Necessarily,*therefore,*the*Rule*interpreting*the*
Discussion* on* the* definition* of* the* term* ‘capital’* in*
sec.* 11,* Art.* XII* of* the* 1987* Constitution* –* 2012*
Gamboa*v.*Teves*case
! and* practiced* via* the* 1967* SEC* Rules,* has* favored*
Heirs* of* Gamboa* v.* Teves,* G.R.* No.* 176579*
(Resolution),*[October*9,*2012],*
The!opinions!of!the!SEC,!as!well!as!of!the!Department!of!
Justice! (DOJ),! on! the! definition! of! the! term! "capital"! as!
referring! to! both! voting! and! nonJvoting! shares!
(combined!total!of!common!and!preferred!shares)!are,!in!
the! first! place,! conflicting! and! inconsistent.! There! is! no!
basis!whatsoever!to!the!claim!that!the!SEC!and!the!DOJ!
have!consistently!and!uniformly!adopted!a!definition!of!
the! term! "capital"! contrary! to! the! definition! that! this!
Court!adopted!in!its!28!June!2011!Decision.!
! citizens.!If!such!investing!corporation!is!in!turn!owned!to!
In! DOJ! Opinion! No.! 130,! s.! 1985,!10!dated! 7! October!
1985,!the!scope!of!the!term!"capital"!in!Section!9,!Article!
XIV!of!the!1973!Constitution!was!raised,!that!is,!whether!
the!term!"capital"!includes!"both!preferred!and!common!
stocks."!The!issue!was!raised!in!relation!to!a!stockJswap!
transaction! between! a! Filipino! and! a! Japanese!
corporation,! both! stockholders! of! a! domestic!
corporation! that! owned! lands! in! the! Philippines.! Then!
Minister! of! Justice! Estelito! P.! Mendoza! ruled! that! the!
resulting!ownership!structure!of!the!corporation!would!
be!unconstitutional!because! 60%! of! the! voting! stock!
would!be!owned!by!Japanese!while!Filipinos!would!own!
only! 40%! of! the! voting! stock,! although! when! the! nonJ
voting! stock! is! added,! Filipinos! would! own! 60%! of! the!
combined! voting! and! nonJvoting! stock.!This! ownership!
structure!is!remarkably!similar!to!the!current!ownership!
structure!of!PLDT.!xxx!
! capital*stock,*coupled*with*60*percent*of*the*voting*rights,*
LABAN NOTES ABRIL
In! short,! Minister! Mendoza!categorically! rejected!the!
theory!that!the!term!"capital"!in!Section!9,!Article!XIV!of!
the! 1973! Constitution! includes! "both! preferred! and!
common! stocks"! treated! as! the! same! class! of! shares!
regardless!of!differences!in!voting!rights!and!privileges.!
Minister! Mendoza! stressed! that! the! 60J40! ownership!
requirement! in! favor! of! Filipino! citizens! in! the!
Constitution! is! not! complied! with! unless! the!
corporation!"satisfies! the! criterion! of! beneficial!
ownership"!and! that! in! applying! the! same! "the!
primordial!consideration!is!situs!of!control."!xxx!
!
Significantly,!the!SEC!en!banc,!which!is!the!collegial!body!
statutorily! empowered! to! issue! rules! and! opinions! on!
behalf!of!the!SEC,!has!adopted!even!the!Grandfather!Rule!
requirement!in!favor!of!Filipino!citizens!mandated!by!the!
Constitution! for! certain! economic! activities.! This!
prevailing!SEC!ruling,!which!the!SEC!correctly!adopted!to!
thwart! any! circumvention! of! the! required! Filipino!
"ownership! and! control,"! is! laid! down! in! the! 25! March!
2010! SEC!en! banc!ruling! in!Redmont! Consolidated!
Mines,!Corp.!v.!McArthur!Mining,!Inc.,!et!al.,!15!to!wit:!
!
The*avowed*purpose*of*the*Constitution*is*to*place*in*the*
hands* of* Filipinos* the* exploitation* of* our* natural*
constitutional* provision* should* not* diminish* that* right*
through* the* legal* fiction* of* corporate*ownership* and*
control.* But* the* constitutional* provision,* as* interpreted*
foreigners* contrary* to* the* command* of* the*
Constitution.*Hence,*the*Grandfather*Rule*must*be*applied*
to* accurately* determine* the* actual* participation,* both*
direct*and*indirect,*of*foreigners*in*a*corporation*engaged*
in*a*nationalized*activity*or*business.*
*
Compliance! with! the! constitutional! limitation(s)! on!
engaging! in! nationalized! activities! must! be! determined!
by! ascertaining! if! 60%! of! the! investing! corporation's!
outstanding!capital!stock!is!owned!by!"Filipino!citizens",!
or! as! interpreted,! by! natural! or! individual! Filipino!
some!extent!by!another!investing!corporation,!the!same!
process! must! be! observed.! One! must! not! stop! until! the!
citizenships!of!the!individual!or!natural!stockholders!of!
layer! after! layer! of! investing! corporations! have! been!
established,!the!very!essence!of!the!Grandfather!Rule.!!
!
This! SEC!en! banc!ruling! conforms! to! our! 28! June! 2011!
Decision!that!the!60J40!ownership!requirement!in!favor!
of! Filipino! citizens! in! the! Constitution! to! engage! in!
certain! economic! activities! applies! not! only! to! voting!
control! of! the! corporation,! but!also! to! the! beneficial!
ownership!of!the!corporation.!Thus,!in!our!28!June!2011!
Decision!we!stated:!
!
Mere* legal* title* is* insufficient* to* meet* the* 60* percent*
FilipinoWowned*"capital"*required*in*the*Constitution.*Full*
beneficial* ownership* of* 60* percent* of* the* outstanding*
65
 SPECIAL COMMERCIAL LAWS FOREIGN INVESTMENTS ACT
is* required.* The* legal* and* beneficial* ownership* of* 60*
percent* of* the* outstanding* capital* stock* must* rest* in* the*
hands* of* Filipino* nationals* in* accordance* with* the*
constitutional* mandate.* Otherwise,* the* corporation* is*
"considered* as* nonWPhilippine* national[s]."* (Emphasis*
supplied)*!
! percent!Filipino!ownership!and!control!requirement!as!
Both! the! Voting! Control! Test! and! the! Beneficial!
Ownership!Test!must!be!applied!to!determine!whether!a!
corporation!is!a!"Philippine!national."!
! Filipinos! eagerly! awaited! its! expiration.! In! late! 1968,!
The!interpretation!by!legal!officers!of!the!SEC!of!the!term!
"capital,"! embodied! in! various! opinions! which!
respondents! relied! upon,! is! merely! preliminary! and! an!
opinion!only!of!such!officers.!To!repeat,!any!such!opinion!
does! not! constitute! an! SEC! rule! or! regulation.! In! fact,!
many! of! these! opinions! contain! a! disclaimer! which!
expressly! states:! ".! .! .!the! foregoing! opinion!is! based!
solely!on!facts!disclosed!in!your!query!and!relevant!only!
to! the! particular! issue! raised! therein! and!shall! not! be!
used! in! the! nature! of! a! standing! rule! binding! upon! the!
Commission! in! other! cases! whether! of! similar! or!
dissimilar!circumstances."!16!Thus,!the!opinions!clearly!
make! a!caveat!that! they! do! not! constitute! binding!
precedents!on!any!one,!not!even!on!the!SEC!itself.!xxx!
! movants'!interpretation!opens!up!our!national!economy!
Final*Word*
The! Constitution! expressly! declares! as! State! policy! the!
development! of! an! economy!"effectively! controlled"!by!
Filipinos.! Consistent! with! such! State! policy,! the!
Constitution! explicitly! reserves! the! ownership! and!
operation!of!public!utilities!to!Philippine!nationals,!who!
are! defined! in! the! Foreign! Investments! Act! of! 1991! as!
Filipino!citizens,!or!corporations!or!associations!at!least!
60!percent!of!whose!capital!with!voting!rights!belongs!to!
Filipinos.! The! FIA's! implementing! rules! explain! that!
"[f]or!stocks!to!be!deemed!owned!and!held!by!Philippine!
citizens! or! Philippine! nationals,! mere! legal! title! is! not!
enough! to! meet! the! required! Filipino! equity.!Full!
beneficial! ownership! of! the! stocks,! coupled! with!
appropriate!voting!rights!is!essential."!In!effect,!the!FIA!
clarifies,!reiterates!and!confirms!the!interpretation!that!
the! term! "capital"!in! Section! 11,! Article!XII!of!the!1987!
Constitution! refers! to!shares! with! voting! rights,! as! well!
as! with! full! beneficial! ownership.! This! is! precisely!
because! the! right! to! vote! in! the! election! of! directors,!
coupled! with! full! beneficial! ownership! of! stocks,!
translates!to!effective!control!of!a!corporation.!
! This!Court!has!no!power!to!amend!the!Constitution!for!
Any! other! construction! of! the! term! "capital"! in! Section!
11,!Article!XII!of!the!Constitution!contravenes!the!letter!
and!intent!of!the!Constitution.!Any!other!meaning!of!the!
term! "capital"! openly! invites! alien! domination! of!
economic! activities! reserved! exclusively! to! Philippine!
nationals.! Therefore,! respondents'! interpretation! will!
ultimately!result!in!handing!over!effective!control!of!our!
national!economy!to!foreigners!in!patent!violation!of!the!
Constitution,! making! Filipinos! secondJclass! citizens! in!
their!own!country.!
! owner!or!beneficial! ownership!means! any! person! who,!
LABAN NOTES ABRIL
Filipinos! have! only! to! remind! themselves! of! how! this!
country! was! exploited! under! the! Parity! Amendment,!
which!gave!Americans!the!same!rights!as!Filipinos!in!the!
exploitation!of!natural!resources,!and!in!the!ownership!
and! control! of! public! utilities,! in! the! Philippines.! To! do!
this!the!1935!Constitution,!which!contained!the!same!60!
the!present!1987!Constitution,!had!to!be!amended!to!give!
Americans!parity!rights!with!Filipinos.!There!was!bitter!
opposition! to! the! Parity! Amendment!62!and! many!
PLDT!was!one!of!the!AmericanJcontrolled!public!utilities!
that! became! FilipinoJcontrolled! when! the! controlling!
American! stockholders! divested! in! anticipation! of! the!
expiration! of! the! Parity! Amendment! on! 3! July!
1974.!63!No!economic!suicide!happened!when!control!of!
public! utilities! and! mining! corporations! passed! to!
Filipinos'! hands! upon! expiration! of! the! Parity!
Amendment.!!
!
Movants'!interpretation!of!the!term!"capital"!would!bring!
us! back! to! the! same! evils! spawned! by! the! Parity!
Amendment,! effectively! giving! foreigners! parity! rights!
with! Filipinos,! but! this! time! even! without! any!
amendment! to! the! present! Constitution.! Worse,!
to!effective!control!not!only!by!Americans!but!also!by!all!
foreigners,!be!they!Indonesians,!Malaysians!or!Chinese,!
even!in!the!absence!of!reciprocal!treaty!arrangements.!At!
least! the! Parity! Amendment,! as! implemented! by! the!
LaurelJLangley! Agreement,! gave! the! capitalJstarved!
Filipinos! theoretical! parity! —! the! same! rights! as!
Americans!to!exploit!natural!resources,!and!to!own!and!
control! public! utilities,!in! the! United! States! of! America.!
Here,! movants'! interpretation! would! effectively! mean!
a!unilateral! opening! up! of! our! national! economy! to! all!
foreigners,!without! any! reciprocal! arrangements.! That!
would! mean! that! Indonesians,! Malaysians! and! Chinese!
nationals!could!effectively!control!our!mining!companies!
and!public!utilities!while!Filipinos,!even!if!they!have!the!
capital,! could! not! control! similar! corporations! in! these!
countries.!
!
The! 1935,! 1973! and! 1987! Constitutions! have! the! same!
60!percent!Filipino!ownership!and!control!requirement!
for! public! utilities! like! PLDT.! Any! deviation! from! this!
requirement! necessitates! an! amendment! to! the!
Constitution! as! exemplified! by! the! Parity! Amendment.!
its! power! and! duty! is! only! to! faithfully! apply! and!
interpret!the!Constitution.!
*
*
Full*beneficial*ownership*test,*explained*
*
Roy* III* v.* Herbosa,* G.R.* No.* 207246,* [November* 22,*
2016]*
!
As! defined! in! the!SRCJIRR,! "[b]eneficial!
directly! or! indirectly,! through! any! contract,!
66
 SPECIAL COMMERCIAL LAWS FOREIGN INVESTMENTS ACT

arrangement,!understanding,!relationship!or!otherwise,!
has!or!shares!voting!power!(which!includes!the!power!to!
vote! or! direct! the! voting! of! such! security)! and/or!
investment!returns!or!power!(which!includes!the!power!
to!dispose!of,!or!direct!the!disposition!of!such!security)!.!
.!.!."!!
!!
While! it! is! correct! to! state! that! beneficial! ownership! is!
that!which!may!exist!either!through!voting!power!and/or!
investment!returns,!it!does!not!follow,!as!espoused!by!the!
minority!opinion,!that!the!SRCJIRR,!in!effect,!recognizes!
a! possible! situation! where! voting! power! is! not!
commensurate! to! investment! power.! That! is! a! wrong!
syllogism.!The!fallacy!arises!from!a!misunderstanding!on!
what! the! definition! is! for.! The! "beneficial! ownership"!
referred!to!in!the!definition,!while!it!may!ultimately!and!
indirectly! refer! to! the! overall! ownership! of! the!
corporation,!more!pertinently!refers!to!the!ownership!of!
the!share!subject!of!the!question:!is!it!FilipinoJowned!or!
not?!
!
As!noted!earlier,!the!FIAJIRR!states:!
Compliance! with! the! required! Filipino! ownership! of! a!
corporation! shall!be! determined! on! the! basis! of!
outstanding!capital!stock!whether!fully!paid!or!not,!but!
only!such!stocks!which!are!generally!entitled!to!vote!are!
considered.!
!
For!stocks!to!be!deemed!owned!and!held!by!Philippine!
citizens! or! Philippine! nationals,! mere! legal! title! is! not!
enough! to! meet! the! required! Filipino! equity.! Full!
beneficial! ownership! of! the! stocks,! coupled! with!
appropriate! voting! rights! is! essential.! Thus,! stocks,! the!
voting!rights!of!which!have!been!assigned!or!transferred!
to!aliens!cannot!be!considered!held!by!Philippine!citizens!
or!Philippine!nationals.!!
!!
The! emphasized! portions! in! the! foregoing! provision! is!
the! equivalent! of! the! soJcalled! "beneficial! ownership!
test."!That!is!all.!
!
The! term! "full! beneficial! ownership"! found! in! the!FIAJ
IRR!is! to! be! understood! in! the! context! of! the! entire!
paragraph!defining!the!term!"Philippine!national."!Mere!
legal! title! is! not! enough! to! meet! the! required! Filipino!
equity,!which!means!that!it!is!not!sufficient!that!a!share!
is! registered! in! the! name! of! a! Filipino! citizen! or!
national,!i.e.,! he! should! also! have! full! beneficial!
ownership!of!the!share.!If!the!voting!right!of!a!share!held!
in!the!name!of!a!Filipino!citizen!or!national!is!assigned!or!
transferred!to!an!alien,!that!share!is!not!to!be!counted!in!
the!determination!of!the!required!Filipino!equity.!In!the!
same! vein,! if! the! dividends! and! other! fruits! and!
accessions!of!the!share!do!not!accrue!to!a!Filipino!citizen!
or!national,!then!that!share!is!also!to!be!excluded!or!not!
counted.!
!
In! this! regard,! it! is! worth! reiterating! the! Court's!
pronouncement! in! the!Gamboa!Decision,! which! is!
consistent!with!the!FIAJIRR,!viz.:!
Mere* legal* title* is* insufficient* to* meet* the* 60* percent*
FilipinoWowned*"capital"*required*in*the*Constitution.*Full*
beneficial* ownership* of* 60* percent* of* the* outstanding*
capital*stock,*coupled*with*60*percent*of*the*voting*rights,*
is*required.*.*.*.*
!
xxx!xxx!xxx!
!
The* legal* and* beneficial* ownership* of* 60* percent* of* the*
outstanding* capital* stock* must* rest* in* the* hands* of*
Filipinos* in* accordance* with* the* constitutional*
mandate.*Full* beneficial* ownership* of* 60* percent* of* the*
outstanding*capital*stock,*coupled*with*60*percent*of*the*
voting* rights,* is* constitutionally* required* for* the* State's*
grant*of*authority*to*operate*a*public*utility.*.*.*.*.!
*
*
Control*Test*or*Liberal*Rule*
*
Control*Test,*explained*
*
Roy* III* v.* Herbosa,* G.R.* No.* 207246,* [November* 22,*
2016]*
*
Mindful! of! the! constitutional! objective! of! ensuring! that!
Filipinos! remain! in! effective! control! of! our! national!
economy,!the!Court!in!Gamboa!seized!the!opportunity!to!
define!the!term!capital!as!read!in!the!context!of!the!1987!
Constitution.! In! deciding! the! issue,! the! Court!
fundamentally! recognized! and! employed! the!control!
test!41!as!a!primary!method!of!determining!compliance!
with! the! restrictions! imposed! by! the!Constitution!on!
foreign!equity!participation.!Under!such!test,!one!has!to!
first! look! into! the! nationality! of! each! stockholder! as! it!
appears! in! the! books! of! the! corporation! because! for! a!
stockholder!to!have!control!over!the!shares,!he!must!hold!
them! as! the! duly! registered! owner! in! the! stock! and!
transfer! book! of! a! corporation.! Thus,! in!Gamboa,! the!
Court!declared!that!the!required!Filipino!control!over!the!
"capital"! of! a! public! utility! meant! 60%! control! over! all!
shares!with!the!right!to!elect!the!members!of!the!board!
coupled! with! 60%! control! over! the! total! outstanding!
capital! stock.! This! would! ensure! that! effective! control!
over! a! public! utility! would! remain! in! the! hands! of!
Filipinos.!
!
The! Court,! however,! further! stated! that! even!
stockholders,!deprived!of!the!right!to!participate!in!the!
elections! of! directors,! could! still! exert! effective! control!
through! the! power! of! their! vote! on! fundamental!
corporate! transactions! as! outlined! under! Section! 6! of!
the!Corporation! Code.!42!For! instance,! stockholders,!
holding! preferred! shares,! though! not! generally! entitled!
to!elect!directors,!can!still!exercise!their!undeniable!right!
to!approve!or!disapprove!an!amendment!in!the!articles!
of!incorporation.!
!
Foreigners! can! greatly! control! and! influence! corporate!
decisionJmaking!processes!even!if!they!do!not!have!legal!
title! to! the! shares.! NonJstockholders! or! persons! or!

LABAN NOTES ABRIL 67

 SPECIAL COMMERCIAL LAWS FOREIGN INVESTMENTS ACT

entities!that!do!not!have!shares!of!a!subject!corporation! !
registered! under! their! names! can! remain! in! effective! As! worded,!effective! control!by! Filipino! citizens! of! a!
control,! albeit! indirectly,! of! those! with! controlling! public! utility! is! already! assured! in! the! provision.! With!
interest!by!just!having!specific!property!rights!("use!and! respect!to!a!stock!corporation!engaged!in!the!business!of!
title")!in!equity!given!to!them!while!the!legal!title!of!the! a! public! utility,! the! constitutional! provision! mandates!
property! given! to! another.!43Thus,! in! the!Gamboa! three!safeguards:!(1)!60%!of!its!capital!must!be!owned!
Resolution!it!was!clarified!and!stressed!that:!! by!Filipino!citizens;!(2)!participation!of!foreign!investors!
! in!its!board!of!directors!is!limited!to!their!proportionate!
Since! the! constitutional! requirement! of! at! least! 60! share!in!its!capital;!and!(3)!all!its!executive!and!managing!
percent! Filipino! ownership! applies! not! only! to! voting! officers!must!be!citizens!of!the!Philippines.!
control! of! the! corporation! but! also! to! the! beneficial! !
ownership! of! the! corporation,! it! is! In! the! exhaustive! review! made! by! the! Court! in!
therefore!imperative!that! such! requirement! apply! the!Gamboa!Resolution! of! the! deliberations! of! the!
uniformly!and!across!the!board!to!all!classes!of!shares,! Constitutional!Commission,!the!opinions!of!the!framers!
regardless!of!nomenclature!and!category,!comprising!the! of!the!1987!Constitution,!the!opinions!of!the!SEC!and!the!
capital! of! a! corporation.! Under! the!Corporation! Code,! DOJ!as!well!as!the!provisions!of!the!FIA,!its!implementing!
capital! stock! consists! of! all! classes! of! shares! issued! to! rules!and!its!predecessor!statutes,!the!intention!to!apply!
stockholders,!that!is,!common!shares!as!well!as!preferred! the!voting!control!test!and!the!beneficial!ownership!test!
shares,! which! may! have! different! rights,! privileges! or! was!not!mentioned!in!reference!to!"each!class!of!shares."!
restrictions! as! stated! in! the! articles! of! Even!the!Gamboa!Decision!was!silent!on!this!point.!!
incorporation.!44![Emphases!supplied]! !
! To!be!sure,!the!application!of!the!60J40!FilipinoJforeign!
The!Court!then!went!on!to!explain!that!"[f]ull!beneficial! ownership! requirement! separately! to! each! class! of!
ownership!of!60!percent!of!the!outstanding!capital!stock,! shares,! whether! common,! preferred! nonJvoting,!
coupled!with!60%!of!the!voting!rights,!is!also!required."! preferred! voting! or! any! other! class! of! shares! fails! to!
In! other! words,! not! only! should! the! 60%! of! the! total! understand! and! appreciate! the! nature! and! features! of!
outstanding!capital!stock!and!the!shares!with!the!right!to! stocks!as!financial!instruments.!!
elect!the!directors!be!registered!in!the!names!of!Filipinos,! !!
but! also! the! beneficial! or! equitable! title! to! such! shares! There!are!basically!only!two!types!of!shares!or!stocks,!i.e.,!
must!be!reasonably!traced!to!Filipinos.! common!stock!and!preferred!stock.!However,!the!classes!
* and! variety! of! shares! that! a! corporation! may! issue! are!
* dictated!by!the!confluence!of!the!corporation's!financial!
60%*Filipino*equity*requirement*not*to*be*applied*in* position! and! needs,! business! opportunities,! shortJterm!
each*class*of*shares* and!longJterm!targets,!risks!involved,!to!name!a!few;!and!
! they!can!be!classified!and!reJclassified!from!time!to!time.!
Roy* III* v.* Herbosa,* G.R.* No.* 207246,* [November* 22,* With! respect! to! preferred! shares,! there! are! cumulative!
2016]* preferred! shares,! nonJcumulative! preferred! shares,!
! convertible! preferred! shares,! participating! preferred!
Petitioners'! insistence! that! the! 60%! Filipino! equity! shares.!
requirement! must! be! applied! to! each! class! of! shares! is! !
simply! beyond! the! literal! text! and! contemplation! of! Because!of!the!different!features!of!preferred!shares,!it!is!
Section!11,!Article!XII!of!the!1987!Constitution,!viz.:! required! that! the! presentation! and! disclosure! of! these!
! financial!instruments!in!financial!statements!should!be!in!
Sec.* 11.*No* franchise,* certificate,* or* any* other* foam* of* accordance! with! the! substance! of! the! contractual!
authorization*for*the*operation*of*a*public*utility*shall*be* arrangement!and!the!definitions!of!a!financial!liability,!a!
granted* except* to* citizens* of* the* Philippines* or* to* financial!asset!and!an!equity!instrument.!!
corporations*or*associations*organized*under*the*laws*of* !!
the*Philippines*at*least*sixty*per*centum*or*whose*capital* Under! IAS!90!32.16,! a! financial! instrument! is! an! equity!
is* owned* by* such* citizens,* nor* shall* such* franchise,* instrument! only! if! (a)! the! instrument! includes! no!
certificate*or*authorization*be*exclusive*in*character*or*for* contractual! obligation! to! deliver! cash! or! another!
a* longer* period* than* fifty* years.* Neither* shall* any* such* financial!asset!to!another!entity,!and!(b)!if!the!instrument!
franchise* or* right* be* granted* except* under* the* condition* will! or! may! be! settled! in! the! issuer's! own! equity!
that*it*shall*be*subject*to*amendment,*alteration,*or*repeal* instruments,!it!is!either:!(i)!a!nonJderivative!that!includes!
by*the*Congress*when*the*common*good*so*requires.*The* no! contractual! obligation! for! the! issuer! to! deliver! a!
State* shall* encourage* equity* participation* in* public* variable!number!of!its!own!equity!instruments;!or!(ii)!a!
utilities*by*the*general*public.*The*participation*of*foreign* derivative! that! will! be! settled! only! by! the! issuer!
investors* in* the* governing* body* of* any* public* utility* exchanging! a! fixed! amount! of! cash! or! another! financial!
enterprise*shall*be*limited*to*their*proportionate*share*in* asset!for!a!fixed!number!of!its!own!equity!instruments.!!
its*capital,*and*all*the*executive*and*managing*officers*of* !!
such* corporation* or* association* must* be* citizens* of* the* The! following! are! illustrations! of! how! preferred! shares!
Philippines.* should!be!presented!and!disclosed:!

LABAN NOTES ABRIL 68

 SPECIAL COMMERCIAL LAWS FOREIGN INVESTMENTS ACT
! further!unwarranted!limitations!that!are!not!articulated!
Illustration!—!preference!shares!
If!an!entity!issues!preference!(preferred)!shares!that!pay!
a! fixed! rate! of! dividend! and! that! have! a! mandatory!
redemption!feature!at!a!future!date,!the!substance!is!that!
they! are! a! contractual! obligation! to! deliver! cash! and,!
therefore,! should! be! recognized! as! a! liability.! [IAS!
32.18(a)]!In!contrast,!preference!shares!that!do!not!have!
a! fixed! maturity,! and! where! the! issuer! does! not! have! a!
contractual!obligation!to!make!any!payment!are!equity.!
In!this!example!even!though!both!instruments!are!legally!
termed! preference! shares! they! have! different!
contractual!terms!and!one!is!a!financial!liability!while!the!
other!is!equity.!
! common!shares,!100!Class!A!preferred!shares!(with!right!
Illustration! —! issuance! of! fixed! monetary! amount! of!
equity!instruments!
A!contractual!right!or!obligation!to!receive!or!deliver!a!
number! of! its! own! shares! or! other! equity! instruments!
that!varies!so!that!the!fair!value!of!the!entity's!own!equity!
instruments!to!be!received!or!delivered!equals!the!fixed!
monetary!amount!of!the!contractual!right!or!obligation!is!
a!financial!liability.![IAS!32.20]!
Illustration! —! one! party! has! a! choice! over! how! an!
instrument!is!settled!
! *
When!a!derivative!financial!instrument!gives!one!party!a!
choice!over!how!it!is!settled!(for!instance,!the!issuer!or!
the! holder! can! choose! settlement! net! in! cash! or! by!
exchanging! shares! for! cash),! it! is! a! financial! asset! or! a!
financial!liability!unless!all!of!the!settlement!alternatives!
would!result!in!it!being!an!equity!instrument.![IAS!32.26]!!
! !
The! fact! that! from! an! accounting! standpoint,! the!
substance! or! essence! of! the! financial! instrument! is! the!
key! determinant! whether! it! should! be! categorized! as! a!
financial! liability! or! an! equity! instrument,! there! is! no!
compelling!reason!why!the!same!treatment!may!not!be!
recognized! from! a! legal! perspective.! Thus,! to! require!
Filipino! shareholders! to! acquire! preferred! shares! that!
are!substantially!debts,!in!order!to!meet!the!"restrictive"!
Filipino! ownership! requirement! that! petitioners!
espouse,! may! not! bode! well! for! the! Philippine!
corporation!and!its!Filipino!shareholders.!
! !
Parenthetically,! given! the! innumerable! permutations!
that!the!types!and!classes!of!stocks!may!take,!requiring!
the!SEC!and!other!government!agencies!to!keep!track!of!
the!everJchanging!capital!classes!of!corporations!will!be!
impracticable,!if!not!downright!impossible.!And!the!law!
does! not! require! the! impossible.! (Lex! non! cogit! ad!
impossibilia.)!
!!
That!stock!corporations!are!allowed!to!create!shares!of!
different!classes!with!varying!features!is!a!flexibility!that!
is!granted,!among!others,!for!the!corporation!to!attract!
and!generate!capital!(funds)!from!both!local!and!foreign!
capital!markets.!This!access!to!capital!—!which!a!stock!
corporation! may! need! for! expansion,! debt!
relief/repayment,! working! capital! requirement! and!
other!corporate!pursuits!—!will!be!greatly!eroded!with!
LABAN NOTES ABRIL
in!the!Constitution.!The!intricacies!and!delicate!balance!
between! debt! instruments! (liabilities)! and! equity!
(capital)!that!stock!corporations!need!to!calibrate!to!fund!
their!business!requirements!and!achieve!their!financial!
targets!are!better!left!to!the!judgment!of!their!boards!and!
officers,!whose!bounden!duty!is!to!steer!their!companies!
to! financial! stability! and! profitability! and! who! are!
ultimately!answerable!to!their!shareholders.!
!
Going! back! to! the! illustration! above,! the! restrictive!
meaning! of! the! term! "capital"! espoused! by! petitioners!
will! definitely! be! complied! with! if! 60%! of! each! of! the!
three!classes!of!shares!of!Company!X,!consisting!of!100!
to! elect! directors)! and! 100! Class! B! preferred! shares!
(without! right! to! elect! directors),! is! owned! by!
Filipinos.!However,!what!if!the!60%!Filipino!ownership!
in!each!class!of!preferred!shares,i.e.,!60!Class!A!preferred!
shares! and! 60! Class! B! preferred! shares,! is! not! fully!
subscribed! or! achieved! because! there! are! not! enough!
Filipino! takers?! Company! X! will! be! deprived! of! capital!
that!would!otherwise!be!accessible!to!it!were!it!not!for!
this!unwarranted!"restrictive"!meaning!of!"capital."!
!
*
Preferred*shares*when*included*in*determining*60%*
Filipino*equity*
!
Roy* III* v.* Herbosa,* G.R.* No.* 207246,* [November* 22,*
2016]*
The!Gamboa!Decision! held! that! preferred! shares! are! to!
be! factored! in! only! if! they! are! entitled! to! vote! in! the!
election!of!directors.!If!preferred!shares!have!no!voting!
rights,! then! they! cannot! elect! members! of! the! board! of!
directors,!which!wields!control!of!the!corporation.!As!to!
the!right!of!nonJvoting!preferred!shares!to!vote!in!the!8!
instances! enumerated! in! Section! 6! of! the!Corporation!
Code,! the!Gamboa!Decision! considered! them! but,! in! the!
end,!did!not!find!them!significant!in!resolving!the!issue!of!
the!proper!interpretation!of!the!word!"capital"!in!Section!
11,!Article!XII!of!the!Constitution.!
Therefore,! to! now! insist! in! the! present! case! that!
preferred! shares! be! regarded! differently! from! their!
unambiguous! treatment! in! the!Gamboa!Decision! is!
enough! proof! that! the!Gamboa!Decision,! which! had!
attained! finality! more! than! 4! years! ago,! is! being!
drastically!changed!or!expanded.!
!
In! this! regard,! it! should! be! noted! that! the! 8! corporate!
matters!enumerated!in!Section!6!of!the!Corporation!Code!
require,! at! the! outset,! a! favorable! recommendation! by!
the! management! to! the! board.! As! mandated! by! Section!
11,! Article! XII! of! the!Constitution,! all! the! executive! and!
managing! officers! of! a! public! utility! company! must! be!
Filipinos.!Thus,!the!allJFilipino!management!team!must!
first!be!convinced!that!any!of!the!8!corporate!actions!in!
Section! 6! will! be! to! the! best! interest! of! the! company.!
69
 SPECIAL COMMERCIAL LAWS FOREIGN INVESTMENTS ACT

Then,! when! the! allJFilipino! management! team! in! the! issuance! of! preferred! shares! with! varying! terms!
recommends! this! to! the! board,! a! majority! of! the! board! and! conditions.! Consequently,! the! rights! and!
has!to!approve!the!recommendation!—!and,!as!required! prerogatives! of! the! owners! of! the! corporation! will! be!
by! the!Constitution,! foreign! participation! in! the! board! unwarrantedly!stymied.!!
cannot! exceed! 40%! of! the! total! number! of! board! seats.! *
Since!the!Filipino!directors!comprise!the!majority,!they,! *
if! united,! do! not! even! need! the! vote! of! the! foreign! Grandfather*Rule*or*Strict*Rule*
directors! to! approve! the! intended! corporate! act.! After! *
approval! by! the! board,! all! the! shareholders! (with! and! Grandfather*Rule*applied*when*corporate*layering*
without!voting!rights)!will!vote!on!the!corporate!action.! is*present*and*doubt*exists*as*to*the*nationality*of*
The!required!vote!in!the!shareholders'!meeting!is!2/3!of! the*corporation,*explained*
the! outstanding! capital! stock.!95!Given! the! super! !
majority!vote!requirement,!foreign!shareholders!cannot!
Narra* Nickel* Mining* &* Development* Corp.* v.*
dictate! upon! their! Filipino! counterpart.! However,!
foreigners!(if!owning!at!least!a!third!of!the!outstanding! Redmont*Consolidated*Mines*Corp.,*G.R.*No.*195580,*
[April*21,*2014]*
capital!stock)!must!agree!with!Filipino!shareholders!for!
!
the! corporate! action! to! be! approved.! The! 2/3! voting!
The! main! issue! in! this! case! is! centered! on! the! issue! of!
requirement! applies! to! all! corporations,! given! the!
petitioners'! nationality,! whether! Filipino! or! foreign.! In!
significance! of! the! 8! corporate! actions! contemplated! in!
their! previous! petitions,! they! had! been! adamant! in!
Section!6!of!the!Corporation!Code.!
insisting!that!they!were!Filipino!corporations,!until!they!
!
submitted! their! Manifestation! and! Submission! dated!
In! short,! if! the! Filipino! officers,! directors! and!
October!19,!2012!where!they!stated!the!alleged!change!
shareholders! will! not! approve! of! the! corporate! act,! the!
of! corporate! ownership! to! reflect! their! Filipino!
foreigners!are!helpless.!
ownership.! Thus,! there! is! a! need! to! determine! the!
!
nationality!of!petitioner!corporations.!
Allowing!stockholders!holding!preferred!shares!without!
!
voting! rights! to! vote! in! the! 8! corporate! matters!
Basically,! there! are! two! acknowledged! tests! in!
enumerated!in!Section!6!is!an!acknowledgment!of!their!
determining!the!nationality!of!a!corporation:!the!control!
right! of! ownership.! If! the! owners! of! preferred! shares!
test!and!the!grandfather!rule.!Paragraph!7!of!DOJ!Opinion!
without!right!to!vote/elect!directors!are!not!allowed!to!
No.! 020,! Series! of! 2005,! adopting! the! 1967! SEC! Rules!
vote! in! any! of! those! 8! corporate! actions,! then! they! will!
which! implemented! the! requirement! of!the!
not! be! entitled! to! the! appraisal! right! provided! under!
Constitution!and!other!laws!pertaining!to!the!controlling!
Section!81!of!the!Corporation!Code!in!the!event!that!they!
interests! in! enterprises! engaged! in! the! exploitation! of!
dissent! in! the! corporate! act.! As! required! in! Section! 82,!
natural!resources!owned!by!Filipino!citizens,!provides:!
the! appraisal! right! can! only! be! exercised! by! any!
Shares*belonging*to*corporations*or*partnerships*at*least*
stockholder! who! voted! against! the! proposed! action.!
60%*of*the*capital*of*which*is*owned*by*Filipino*citizens*
Thus,!without!recognizing!the!right!of!every!stockholder!
shall*be*considered*as*of*Philippine*nationality,*but*if*the*
to! vote! in! the! 8! instances! enumerated! in! Section! 6,! the!
percentage* of* Filipino* ownership* in* the* corporation* or*
stockholder!cannot!exercise!his!appraisal!right!in!case!he!
partnership* is* less* than* 60%,* only* the* number* of* shares*
votes!against!the!corporate!action.!In!simple!terms,!the!
corresponding* to* such* percentage* shall* be* counted* as* of*
right!to!vote!in!the!8!instances!enumerated!in!Section!6!
Philippine* nationality.* Thus,* if* 100,000* shares* are*
is! more! in! furtherance! of! the! stockholder's! right! of!
ownership!rather!than!as!a!mode!of!control.! registered*in*the*name*of*a*corporation*or*partnership*at*
least* 60%* of* the* capital* stock* or* capital,* respectively,* of*
!
which*belong*to*Filipino*citizens,*all*of*the*shares*shall*be*
As! to! financial! interest,! giving! shortJlived! preferred! or!
recorded*as*owned*by*Filipinos.*But*if*less*than*60%,*or*say,*
superior!terms!to!certain!classes!or!series!of!shares!may!
50%*of*the*capital*stock*or*capital*of*the*corporation*or*
be! a! welcome! option! to! expand! capital,! without! the!
partnership,*respectively,*belongs*to*Filipino*citizens,*only*
Filipino! shareholders! putting! up! additional! substantial!
50,000*shares*shall*be*counted*as*owned*by*Filipinos*and*
capital! and/or! losing! ownership! and! control! of! the!
the*other*50,000*shall*be*recorded*as*belonging*to*aliens.*
company.! For! shareholders! who! are! not! keen! on! the!
*
creation! of! those! shares,! they! may! opt! to! avail!
The! first! part! of! paragraph! 7,!DOJ! Opinion! No.! 020,!
themselves!of!their!appraisal!right.!As!acknowledged!in!
stating! "shares! belonging! to! corporations! or!
the!Gamboa!Decision,!preferred!shareholders!are!merely!
partnerships! at! least! 60%! of! the! capital! of! which! is!
investors!in!the!company!for!income!in!the!same!manner!
owned! by! Filipino! citizens! shall! be! considered! as! of!
as! bondholders.! Without! a! lucrative! package,! including!
Philippine!nationality,"!pertains!to!the!control!test!or!the!
an!attractive!return!of!investment,!preferred!shares!will!
liberal!rule.!On!the!other!hand,!the!second!part!of!the!DOJ!
not! be! subscribed! and! the! muchJneeded! additional!
Opinion!which!provides,!"if!the!percentage!of!the!Filipino!
capital! will! be! elusive.! A! too! restrictive! definition! of!
ownership!in!the!corporation!or!partnership!is!less!than!
"capital,"! one! which! was! never! contemplated! in!
60%,!only!the!number!of!shares!corresponding!to!such!
the!GamboaDecision,!will!surely!have!a!dampening!effect!
on!the!business!milieu!by!eroding!the!flexibility!inherent!

LABAN NOTES ABRIL 70

 SPECIAL COMMERCIAL LAWS FOREIGN INVESTMENTS ACT
percentage! shall! be! counted! as! Philippine! nationality,"!
pertains!to!the!stricter,!more!stringent!grandfather!rule.!!
! sharing*agreements*with*Filipino*citizens,*or*corporations*
Prior! to! this! recent! change! of! events,! petitioners! were!
constant! in! advocating! the! application! of! the! "control!
test"!under!RA!7042,!as!amended!by!RA!8179,!otherwise!
known!as!the!Foreign!Investments!Act!(FIA),!rather!than!
using! the! stricter! grandfather! rule.! The! pertinent!
provision!under!Sec.!3!of!the!FIA!provides:!
! The* President* may* enter* into* agreements* with* ForeignW
SECTION!3.!!!!Definitions.!—!As!used!in!this!Act:!
a.)!!The!term!Philippine!national!shall!mean!a!citizen!of!
the!Philippines;!or!a!domestic!partnership!or!association!
wholly! owned! by! the! citizens! of! the! Philippines;! a!
corporation!organized!under!the!laws!of!the!Philippines!
of!which!at!least!sixty!percent!(60%)!of!the!capital!stock!
outstanding! and! entitled! to! vote! is! wholly! owned! by!
Filipinos! or! a! trustee! of! funds! for! pension! or! other!
employee! retirement! or! separation! benefits,! where! the!
trustee!is!a!Philippine!national!and!at!least!sixty!percent!
(60%)!of!the!fund!will!accrue!to!the!benefit!of!Philippine!
nationals:!Provided,!That!were!a!corporation!and!its!nonJ
Filipino! stockholders! own! stocks! in! a! Securities! and!
Exchange! Commission! (SEC)! registered! enterprise,! at!
least!sixty!percent!(60%)!of!the!capital!stock!outstanding!
and!entitled!to!vote!of!each!of!both!corporations!must!be!
owned!and!held!by!citizens!of!the!Philippines!and!at!least!
sixty! percent! (60%)! of! the! members! of! the! Board! of!
Directors,! in! order! that! the! corporation! shall! be!
considered!a!Philippine!national.!(emphasis!supplied)!
! !
The!grandfather!rule,!petitioners!reasoned,!has!no!leg!to!
stand! on! in! the! instant! case! since! the! definition! of! a!
"Philippine! National"! under! Sec.! 3! of! the!FIA!does! not!
provide! for! it.! They! further! claim! that! the! grandfather!
rule!"has!been!abandoned!and!is!no!longer!the!applicable!
rule."!41!They!also!opined!that!the!last!portion!of!Sec.!3!
of! the!FIA!admits! the! application! of! a! "corporate!
layering"!scheme!of!corporations.!Petitioners!claim!that!
the! clear! and! unambiguous! wordings! of! the! statute!
preclude! the! court! from! construing! it! and! prevent! the!
court's! use! of! discretion! in! applying! the! law.! They! said!
that! the! plain,! literal! meaning! of! the! statute! meant! the!
application!of!the!control!test!is!obligatory.!
! 2005!provides:!
We!disagree.!"Corporate!layering"!is!admittedly!allowed!
by! the!FIA;! but! if! it! is! used! to! circumvent!the!
Constitution!and!pertinent!laws,!then!it!becomes!illegal.!
Further,! the! pronouncement! of! petitioners! that! the!
grandfather! rule! has! already! been! abandoned! must! be!
discredited!for!lack!of!basis.!
Art.!XII,!Sec.!2!of!the!Constitution!provides:!
* by! corporations! and! partnerships! ('Investing!
Sec.* 2.**All* lands* of* the* public* domain,* waters,* minerals,*
coal,* petroleum* and* other* mineral* oils,* all* forces* of*
potential*energy,*fisheries,*forests*or*timber,*wildlife,*flora*
and*fauna,*and*other*natural*resources*are*owned*by*the*
State.* With* the* exception* of* agricultural* lands,* all* other*
natural*resources*shall*not*be*alienated.*The*exploration,*
development,*and*utilization*of*natural*resources*shall*be*
under* the* full* control* and* supervision* of* the* State.*The*
LABAN NOTES ABRIL
State* may* directly* undertake* such* activities,* or* it* may*
enter* into* coWproduction,* joint* venture* or* productionW
or*associations*at*least*sixty*per*centum*of*whose*capital*
is*owned*by*such*citizens.*Such*agreements*may*be*for*a*
period*not*exceeding*twentyWfive*years,*renewable*for*not*
more* than* twentyWfive* years,* and* under* such* terms* and*
conditions*as*may*be*provided*by*law.*
xxx*xxx*xxx*
owned*corporations*involving*either*technical*or*financial*
assistance* for* largeWscale* exploration,* development,* and*
utilization*of*minerals,*petroleum,*and*other*mineral*oils*
according*to*the*general*terms*and*conditions*provided*by*
law,*based*on*real*contributions*to*the*economic*growth*
and* general* welfare* of* the* country.* In* such* agreements,*
the*State*shall*promote*the*development*and*use*of*local*
scientific*and*technical*resources.*(emphasis*supplied)*
!
The!emphasized!portion!of!Sec.!2!which!focuses!on!the!
State!entering!into!different!types!of!agreements!for!the!
exploration,! development,! and! utilization! of! natural!
resources!with!entities!who!are!deemed!Filipino!due!to!
60!percent!ownership!of!capital!is!pertinent!to!this!case,!
since! the! issues! are! centered! on! the! utilization! of! our!
country's!natural!resources!or!specifically,!mining.!Thus,!
there!is!a!need!to!ascertain!the!nationality!of!petitioners!
since,! as!the! Constitution! so! provides,! such! agreements!
are!only!allowed!corporations!or!associations!"at!least!60!
percent!of!such!capital!is!owned!by!such!citizens."!
It!is!apparent!that!it!is!the!intention!of!the!framers!of!the!
Constitution!to!apply!the!grandfather!rule!in!cases!where!
corporate! layering! is! present.! Elementary! in! statutory!
construction! is! when! there! is! conflict! between!the!
Constitution!and! a! statute,!the! Constitution!will! prevail.!
In!this!instance,!specifically!pertaining!to!the!provisions!
under! Art.! XII! of!the! Constitution!on! National! Economy!
and! Patrimony,! Sec.! 3! of! the!FIA!will! have! no! place! of!
application.!As!decreed!by!the!honorable!framers!of!our!
Constitution,!the!grandfather!rule!prevails!and!must!be!
applied.!
!
Likewise,! paragraph! 7,!DOJ! Opinion! No.! 020,! Series! of!
The!aboveJquoted!SEC!Rules!provide!for!the!manner!of!
calculating! the! Filipino! interest! in! a! corporation! for!
purposes,!among!others,!of!determining!compliance!with!
nationality! requirements! (the! 'Investee! Corporation').!
Such! manner! of! computation! is! necessary! since! the!
shares!in!the!Investee!Corporation!may!be!owned!both!
by!individual!stockholders!('Investing!Individuals')!and!
Corporation').! The! said! rules! thus! provide! for! the!
determination! of! nationality! depending! on! the!
ownership! of! the! Investee! Corporation! and,! in! certain!
instances,!the!Investing!Corporation.!
!
Under!the!aboveJquoted!SEC!Rules,!there!are!two!cases!
in! determining! the! nationality! of! the! Investee!
Corporation.! The! first! case! is! the! 'liberal! rule',! later!
71
 SPECIAL COMMERCIAL LAWS FOREIGN INVESTMENTS ACT
coined!by!the!SEC!as!the!Control!Test!in!its!30!May!1990!
Opinion,!and!pertains!to!the!portion!in!said!Paragraph!7!
of!the!1967!SEC!Rules!which!states,!'(s)hares!belonging!
to! corporations! or! partnerships! at! least! 60%! of! the!
capital! of! which! is! owned! by! Filipino! citizens! shall! be!
considered!as!of!Philippine!nationality.'!Under!the!liberal!
Control! Test,! there! is! no! need! to! further! trace! the!
ownership!of!the!60%!(or!more)!Filipino!stockholdings!
of!the!Investing!Corporation!since!a!corporation!which!is!
at!least!60%!FilipinoJowned!is!considered!as!Filipino.!
! Obviously,! the! instant! case! presents! a! situation! which!
The!second!case!is!the!Strict!Rule!or!the!Grandfather!Rule!
Proper!and!pertains!to!the!portion!in!said!Paragraph!7!of!
the!1967!SEC!Rules!which!states,!"but!if!the!percentage!
of!Filipino!ownership!in!the!corporation!or!partnership!
is! less! than! 60%,! only! the! number! of! shares!
corresponding!to!such!percentage!shall!be!counted!as!of!
Philippine! nationality."! Under! the! Strict! Rule! or!
Grandfather! Rule! Proper,! the! combined! totals! in! the!
Investing! Corporation! and! the! Investee! Corporation!
must! be! traced! (i.e.,! "grandfathered")! to! determine! the!
total!percentage!of!Filipino!ownership.!
! *
Moreover,!the!ultimate!Filipino!ownership!of!the!shares!
must! first! be! traced! to! the! level! of! the! Investing!
Corporation!and!added!to!the!shares!directly!owned!in!
the!Investee!Corporation!.!.!.!.!
xxx!xxx!xxx!
In! other! words,! based! on! the! said! SEC! Rule! and! DOJ!
Opinion,!the!Grandfather!Rule!or!the!second!part!of!the!
SEC! Rule! applies! only! when! the! 60J40! FilipinoJforeign!
equity!ownership!is!in!doubt!(i.e.,!in!cases!where!the!joint!
venture! corporation! with! Filipino! and! foreign!
stockholders!with!less!than!60%!Filipino!stockholdings!
[or! 59%]! invests! in! other! joint! venture! corporation!
which! is! either! 60J40%! FilipinoJalien! or! the! 59%! less!
Filipino).!Stated! differently,! where! the! 60J40! FilipinoJ
foreign!equity!ownership!is!not!in!doubt,!the!Grandfather!
Rule!will!not!apply.!(emphasis!supplied)!!
! activities.!The!Control!Test!and!the!Grandfather!Rule!are!
After! a! scrutiny! of! the! evidence! extant! on! record,! the!
Court!finds!that!this!case!calls!for!the!application!of!the!
grandfather!rule!since,!as!ruled!by!the!POA!and!affirmed!
by! the! OP,! doubt! prevails! and! persists! in! the! corporate!
ownership!of!petitioners.!Also,!as!found!by!the!CA,!doubt!
is! present! in! the! 60J40! Filipino! equity! ownership! of!
petitioners! Narra,! McArthur! and! Tesoro,! since! their!
common! investor,! the! 100%! Canadian! corporation! —!
MBMI,!funded!them.!However,!petitioners!also!claim!that!
there!is!"doubt"!only!when!the!stockholdings!of!Filipinos!
are!less!than!60%.!!
! corporation,! as! it! could! result! in! an! otherwise! foreign!
The! assertion! of! petitioners! that! "doubt"! only! exists!
when! the! stockholdings! are! less! than! 60%! fails! to!
convince! this! Court.! DOJ! Opinion! No.! 20,! which!
petitioners! quoted! in! their! petition,! only! made! an!
example! of! an! instance! where! "doubt"! as! to! the!
ownership! of! the! corporation! exists.! It! would! be!
ludicrous!to!limit!the!application!of!the!said!word!only!to!
the! instances! where! the! stockholdings! of! nonJFilipino!
stockholders! are! more! than! 40%! of! the! total!
LABAN NOTES ABRIL
stockholdings! in! a! corporation.! The! corporations!
interested!in!circumventing!our!laws!would!clearly!strive!
to!have!"60%!Filipino!Ownership"!at!face!value.!It!would!
be!senseless!for!these!applying!corporations!to!state!in!
their!respective!articles!of!incorporation!that!they!have!
less! than! 60%! Filipino! stockholders! since! the!
applications! will! be! denied! instantly.! Thus,! various!
corporate! schemes! and! layerings! are! utilized! to!
circumvent!the!application!of!the!Constitution.!
!
exhibits! a! scheme! employed! by! stockholders! to!
circumvent! the! law,! creating! a! cloud! of! doubt! in! the!
Court's! mind.! To! determine,! therefore,! the! actual!
participation,!direct!or!indirect,!of!MBMI,!the!grandfather!
rule!must!be!used.!
!
*
Application*of*the*Grandfather*Rule*with*the*Control*
Test;*Grandfather*Test*no*longer*necessary*when*
Control*Test*confirms*that*the*corporation*is*not*
Filipino*
Narra* Nickel* Mining* and* Development* Corp.* v.*
Redmont*Consolidated*Mines*Corp.,*G.R.*No.*195580*
(Resolution),*[January*28,*2015]*
!
Admittedly,!an!ongoing!quandary!obtains!as!to!the!role!
of!the!Grandfather!Rule!in!determining!compliance!with!
the! minimum! Filipino! equity! requirement! visJàJvis! the!
Control!Test.!This!confusion!springs!from!the!erroneous!
assumption!that!the!use!of!one!method!forecloses!the!use!
of!the!other.!
!
As!exemplified!by!the!above!rulings,!opinions,!decisions!
and!this!Court's!April!21,!2014!Decision,!the!Control!Test!
can! be,! as! it! has! been,! applied!jointly! with!the!
Grandfather!Rule!to!determine!the!observance!of!foreign!
ownership! restriction! in! nationalized! economic!
not,! as! it! were,! incompatible! ownershipJdeterminant!
methods! that! can! only! be! applied! alternative! to! each!
other.! Rather,! these! methods!can,! if! appropriate,! be!
used!cumulatively!in!the!determination!of!the!ownership!
and! control! of! corporations! engaged! in! fully! or! partly!
nationalized!activities,!as!the!mining!operation!involved!
in! this! case! or! the! operation! of! public! utilities! as!
in!Gamboa!or!Bayantel.!
!
The!Grandfather!Rule,!standing!alone,!should!not!be!used!
to! determine! the! Filipino! ownership! and! control! in! a!
corporation!rendered!qualified!to!perform!nationalized!
or! partly! nationalized! activities.! Hence,!it! is! only! when!
the! Control! Test! is! first! complied! with! that! the!
Grandfather!Rule!may!be!applied.!Put!in!another!manner,!
if!the!subject!corporation's!Filipino!equity!falls!below!the!
threshold! 60%,! the! corporation! is! immediately!
considered! foreignJowned,! in! which! case,! the! need! to!
resort!to!the!Grandfather!Rule!disappears.!
!
72
 SPECIAL COMMERCIAL LAWS FOREIGN INVESTMENTS ACT

On!the!other!hand,!a!corporation!that!complies!with!the! ...The* [SEC* Enforcement* and* Prosecution* Department*

60J40! Filipino! to! foreign! equity! requirement! can! be! (EPD)]*maintained*that*the*basis*for*determining*the*level*
considered!a!Filipino!corporation!if!there!is!no!doubt!as! of*foreign*participation*is*the*number*of*shares*subscribed,*
to! who! has! the! "beneficial! ownership"! and! "control"! of! regardless* of* the* par* value.* Applying* such* an*
the! corporation.! In! that! instance,! there! is! no! need! for!a! interpretation,* the* EPD* rules* that* the* foreign* equity*
dissection! or! further! inquiry! on! the! ownership! of! the! participation* in* Linearworks* Realty* Development*
corporate! shareholders! in! both! the! investing! and! Corporation* amounts* to* 26.41%* of* the* corporation's*
investee! corporation!or! the! application! of! the! capital* stock* since* the* amount* of* shares* subscribed* by*
Grandfather!Rule.!12!As!a!corollary!rule,!even!if!the!60J foreign* nationals* is* 1,795* only* out* of* the* 6,795* shares.*
40! Filipino! to! foreign! equity! ratio! is! apparently! met! by! Thus,*the* subject* corporation* is* compliant* with* the* 40%*
the! subject! or! investee! corporation,!a! resort! to! the! limit*on*foreign*equity*participation.*Accordingly,*the*EPD*
Grandfather! Rule! is! necessary!if!doubt!exists!as! to! dismissed* the* complaint,* and* did* not* pursue* any*
the!locus!of!the!"beneficial!ownership"!and!"control."!In! investigation*against*the*subject*corporation.*
this!case,!a!further!investigation!as!to!the!nationality!of! xxx*xxx*xxx*
the! personalities! with! the! beneficial! ownership! and! ...[I]n* this* respect* we* find* no* error* in* the* assailed* order*
control! of! the! corporate! shareholders! in! both! the! made*by*the*EPD.*The*EPD*did*not*err*when*it*did*not*take*
investing!and!investee!corporations!is!necessary.! into* account* the* par* value* of* shares* in* determining*
! compliance* with* the* constitutional* and* statutory*
As!explained!in!the!April!21,!2012!Decision,!the!"doubt"! restrictions*on*foreign*equity.*
that!demands!the!application!of!the!Grandfather!Rule!in! !
addition! to! or! in! tandem! with! the! Control! Test! is! not! However,!we! are! aware! that! some! unscrupulous!
confined! to,! or! more! bluntly,! does! not! refer! to! the! fact! individuals! employ! schemes! to! circumvent! the!
that!the!apparent!Filipino!ownership!of!the!corporation's! constitutional! and! statutory! restrictions! on! foreign!
equity! falls! below! the! 60%! threshold.! Rather,!"doubt"! equity.!In!the!present!case,!the!fact!that!the!shares!of!the!
refers!to!various!indicia!that!the!"beneficial!ownership"! Japanese!nationals!have!a!greater!par!value!but!only!have!
and!"control"!of!the!corporation!do!not!in!fact!reside!in! similar!rights!to!those!held!by!Philippine!citizens!having!
Filipino! shareholders! but! in! foreign! stakeholders.!As! much! lower! par! value,! is! highly! suspicious.! This! is!
provided!in!DOJ!Opinion!No.!165,!Series!of!1984,!which! because!a! reasonable! investor! would! expect! to! have!
applied!the!pertinent!provisions!of!the!AntiJDummy!Law! greater!control!and!economic!rights!than!other!investors!
in!relation!to!the!minimum!Filipino!equity!requirement! who!invested!less!capital!than!him.!Thus,!it!is!reasonable!
in!the!Constitution,!"significant!indicators!of!the!dummy! to! suspect!that! there! may! be! secret! arrangements!
status"! have! been! recognized! in! view! of! reports! "that! between! the! corporation! and! the! stockholders!
some! Filipino! investors! or! businessmen! are! being! wherein!the! Japanese! nationals! who! subscribed! to! the!
utilized! or! [are]! allowing! themselves! to! be! used! as! shares! with! greater! par! value! actually! have! greater!
dummies! by! foreign! investors"! specifically! in! joint! control! and! economic! rights!contrary! to! the! equality! of!
ventures!for!national!resource!exploitation.!! shares!based!on!the!articles!of!incorporation.!
! !
These!indicators!are:! With! this! in! mind,! we! find! it! proper! for! the! EPD! to!
! investigate!the!subject!corporation.!The!EPD!is!advised!
1.!That! the! foreign! investors! provide! practically! all! the! to!avail!of!the!Commission's!subpoena!powers!in!order!
funds! for! the! joint! investment! undertaken! by! these! to! gather! sufficient! evidence,! and! file! the! necessary!
Filipino!businessmen!and!their!foreign!partner;! complaint.!
! As!will!be!discussed,!even!if!at!first!glance!the!petitioners!
2.!That! the! foreign! investors! undertake! to! provide! comply! with! the! 60J40! Filipino! to! foreign! equity!
practically! all! the! technological! support! for! the! joint! ratio,!doubt!exists!in!the!present!case!that!gives!rise!to!a!
venture;! reasonable! suspicion! that! the! Filipino! shareholders! do!
! not! actually! have! the! requisite! number! of! control! and!
3.!That! the! foreign! investors,! while! being! minority! beneficial! ownership! in! petitioners! Narra,! Tesoro,! and!
stockholders,! manage! the! company! and! prepare! all! McArthur.!Hence,!a!further!investigation!and!dissection!
economic!viability!studies.! of! the! extent! of! the! ownership! of! the! corporate!
! shareholders!through!the!Grandfather!Rule!is!justified.!
Thus,!In!the!Matter!of!the!Petition!for!Revocation!of!the! !
Certificate! of! Registration! of! Linear! Works! Realty! Parenthetically,!it!is!advanced!that!the!application!of!the!
Development! Corporation,!13!the! SEC! held! that!when! Grandfather! Rule! is! impractical! as! tracing! the!
foreigners! contribute! more! capital! to! an! enterprise,! shareholdings! to! the! point! when! natural! persons! hold!
doubt!exists!as!to!the!actual!control!and!ownership!of!the! rights! to! the! stocks! may! very! well! lead! to! an!
subject! corporation! even! if! the! 60%! Filipino! equity! investigation!ad!infinitum.!Suffice!it!to!say!in!this!regard!
threshold! is! met.!Hence,! the! SEC! in! that! one! ordered! a! that,!while!the!Grandfather!Rule!was!originally!intended!
further!investigation,!viz.:! to! trace! the! shareholdings! to! the! point! where! natural!
! persons! hold! the! shares,! the! SEC! had! already! set! up! a!
limit!as!to!the!number!of!corporate!layers!the!attribution!

LABAN NOTES ABRIL 73

 SPECIAL COMMERCIAL LAWS FOREIGN INVESTMENTS ACT

of!the!nationality!of!the!corporate!shareholders!may!be! the!mind!of!the!Court,!doubt!in!the!60J40!FilipinoJequity!
applied.! ownership! in! the! corporation,! that! it! may! apply! the!
! "grandfather!rule."||!
In! a! 1977! internal! memorandum,! the! SEC! suggested! !
applying! the! Grandfather! Rule! on! two! (2)! levels! of! xxx!
corporate! relations! for! publiclyJheld! corporations! or! !
where!the!shares!are!traded!in!the!stock!exchanges,!and! !Indeed,! the! application! of! the! control! test! would! yield!
to! three! (3)! levels! for! closely! held! corporations! or! the! the! result! that! SMTC! is! a! Filipino! corporation.! There! is!
shares! of! which! are! not! traded! in! the! stock! then! no! truth! to! petitioners'! claim! that! SMTC! is! 100%!
exchanges.!14!These!limits!comply!with!the!requirement! foreignJowned.!Consequently,!it!becomes!unnecessary!to!
in!Palting! v.! San! Jose! Petroleum,! Inc.!15!that! the! confirm! this! finding! through! the! grandfather! rule!since!
application!of!the!Grandfather!Rule!cannot!go!beyond!the! the! test! is! only! employed! when! the! 60%! Filipino!
level!of!what!is!reasonable.! ownership!in!the!corporation!is!in!doubt.!!In!this!case,!not!
!! even! the! slightest! doubt! is! cast! since! the! petition! is!
* severely! wanting! in! facts! and! circumstances! that! raise!
* legitimate! challenges! to! SMTC's! 60J40! Filipino!
60%*Filipino*equity*ownership*also*required*in* ownership.! The! petition! rested! solely! on! petitioners'!
Joint*Venture*Agreements;*Grandfather*Rule*used* vague!assertions!and!baseless!claims.!On!the!other!hand,!
only*when*there*is*doubt*as*to*the*60>40*Filipino* SMTC!countered!by!furnishing!the!Court!a!copy!of!its!GIS!
equity*ownership* providing!its!shareholders'!stock!ownership!details,!and!
* by! submitting! a! copy! of! its! AOI,! which! reserved! all! of!
Querubin*v.*Commission*on*Elections*(En*Banc),*G.R.* SMTC's! 135,600,000! class! A! common! shares! to!
No.*218787,*[December*8,*2015]* Filipinos!in!a!bid!to!guarantee!that!when!all!of!its!shares!
! are!outstanding,!foreign!ownership!will!not!exceed!40%.|!
In! a! desperate! last! ditch! effort! to! have! Smartmatic! JV! *
declared! ineligible! to! participate! in! the! procurement! *
project,! petitioners! question! the! nationality! of! SMTC.! Who*are*Philippine*nationals?*
They! direct! the! Court's! attention! to! the! 2013! Annual! !
Report! and! Consolidated! Financial! Statements!of! Philippine*national,*definition*
Smartmatic!Limited!to!prove!that!SMTC!is!100%!foreign! •! A! citizen! of! the! Philippines! or! a! domestic!
owned.! They! then! contend! that! SMTC! is! the! biggest! partnership! or! association! wholly! owned! by!
shareholder!in!the!bidding!joint!venture!at!46.5%!share,! citizens!of!the!Philippines;!or!
making!the!joint!venture!less!than!60%!FilipinoJowned! •! A!corporation!organized!under!the!laws!of!the!
and,!hence,!ineligible.|||* Philippines!of!which!at!least!60%!of!the!capital!
* stock!outstanding!and!entitled!to!vote!is!owned!
While! petitioners! are! correct! in! asserting! that! and!held!by!citizens!of!the!Philippines;!or!
Smartmatic!JV!ought!to!be!at!least!60%!FilipinoJowned! •! or!a!corporation!organized!abroad!and!
to! qualify,! they! did! not! adduce! sufficient! evidence! to! registered!as!doing!business!in!the!Philippines!
prove! that! the! joint! venture! did! not! meet! the! under!the!Corporation!Code!of!which!100%!of!
requirement.! Petitioners,! having! alleged! nonJ the!capital!stock!outstanding!and!entitled!to!
compliance,!have!the!correlative!burden!of!proving!that! vote!is!wholly!owned!by!
Smartmatic! JV! did! not! meet! the! requirement,! but! aside! Filipinos||(Implementing*Rules*and*Regulations*
from! their! bare! allegation! that! SMTC! is! 100%! foreignJ of*RA*7042,*IRRWRA*7042,*[July*9,*1996])!
owned,! they! did! not! offer! any! relevant! evidence! to! •! A! trustee! of! funds! for! pension! for! pension! or!
substantiate! their! claim.! Even! the! 2013! financial! other! employee! retirement! or! separation!
statements! submitted! to! Court! fail! to! impress! for! they! benefits,! where! the! trustee! is! a! Philippine!
pertain! to! the! financial! standing! of! Smartmatic* national! and! at! least! 60%! of! the! fund! will!
Limited,!! which! is! a! distinct! and! separate! entity! accrue!to!the!benefit!of!the!Philippine!nationals;!
from!SMTC.! It! goes! without! saying! that! Smarmatic! or!!
Limited's!nationality!is!irrelevant!herein!for!it!is!not!even! •! A! SEC! registered! enterprise! owned! by! the!
a!party!to!this!case,!and!even!to!the!joint!venture.!D|||*! corporation! and! its! nonJFilipino! stockholders!
! at! least! 60%! of! its! capital! stocks! outstanding!
In!Narra* Nickel* Mining* and* Development,* Corp.* v.* and! entitled! to! vote! are! owned! and! held! by!
Redmont*Consolidated*Mines,*Corp.,*!the!Court!held!that! citizens!of!the!Philippines!and!at!least!60%!of!
the!"control!test"!is!the!prevailing!mode!of!determining! the!Board!of!Directors!of!both!corporations!are!
whether! or! not! a! corporation! is! Filipino.! Under! the!
"control! test,"! shares! belonging! to! corporations! or!
partnerships! at! least! 60%! of! the! capital! of! which! is!
owned! by! Filipino! citizens! shall! be! considered! as! of!
Philippine! nationality.!It! is! only! when! based! on! the!
attendant!facts!and!circumstances!of!the!case,!there!is,!in!

LABAN NOTES ABRIL 74

 SPECIAL COMMERCIAL LAWS FOREIGN INVESTMENTS ACT
citizens! of! the! Philippines! (Corporate*
Layering1)!
! argue!that!the!60J40%!control!of!the!joint!venture!by!TIM!
Corporate*Layering;*Control*Test*
Provided,!That!where!a!corporation!and!its!nonJFilipino!
stockholders! own! stocks! in! a! Securities! and! Exchange!
Commission! (SEC)! registered! enterprise,! at! least! sixty!
percent! (60%)! of! the! capital! stocks! outstanding! and!
entitled!to!vote!of!both!corporations!must!be!owned!and!
held! by! citizens! of! the! Philippines! and! at! least! sixty!
percent!(60%)!of!the!members!of!the!Board!of!Directors!
of!both!corporations!must!be!citizens!of!the!Philippines,!
in! order! that! the! corporations! shall! be! considered! a!
Philippine! national.! (sec.* 3a)! The! control! test! shall! be!
applied! for! this! purpose.|*(Implementing* Rules* and*
Regulations*of*RA*7042,*IRRWRA*7042,*[July*9,*1996])!
! the! board! controls! and! directs! the! affairs! of! the!
Compliance* with* Filipino* ownership,* how*
determined*
Compliance! with! the! required! Filipino! ownership! of! a!
corporation! shall! be! determined! on! the! basis! of!
outstanding!capital!stock!whether!fully!paid!or!not,!but!
only!such!stocks!which!are!generally!entitled!to!vote!are!
considered.|*(Implementing* Rules* and* Regulations* of* RA*
7042,*IRRWRA*7042,*[July*9,*1996])!
! venture! with! Smartmatic.! Besides,! issues! on! the!
Legal*title*+*Full*beneficial*ownership*of*stock*with*
voting*rights*
For!stocks!to!be!deemed!owned!and!held!by!Philippine!
citizens! or! Philippine! nationals,! mere! legal! title! is! not!
enough! to! meet! the! required! Filipino! equity.! Full!
beneficial! ownership! of! the! stocks,! coupled! with!
appropriate! voting! rights! is! essential.! Thus,! stocks,! the!
voting!rights!of!which!have!been!assigned!or!transferred!
to!aliens!cannot!be!considered!held!by!Philippine!citizens!
or! Philippine! nationals.! *(Implementing* Rules* and*
Regulations*of*RA*7042,*IRRWRA*7042,*[July*9,*1996])!
* Foreign*investment,*definition*
Who*are*considered*non>Philippine*nationals?*
Those! who! do! not! meet! the! qualifications! mentioned!
above.!
! the! Central! Bank! which! shall! assess! and! appraise! the!
!
Ownership,*not*management,*is*required*to*be*60%*
Filipino*
! Nationalized*Activities*–*Foreign*Investment*
Roque,* Jr.* v.* Commission* on* Elections,* G.R.* No.*
188456,*[September*10,*2009]*
*
Regarding! the! ownership! requirement! under!RA!
7042!and!the!RFP,!the!JVA!and!articles!of!incorporation!
of! SmartmaticJTIM! categorically! state! that! 60%! of! the!
shares!of!the!joint!venture!shall!be!held!by!TIM!itself!or!
its! subsidiary! while! 40%! shall! be! held! by! Smartmatic!
itself! or! its! subsidiary,! but! each! shall! be! jointly! and!
severally!liable!to!the!Comelec!for!the!obligations!of!the!
other!under!the!RFP.!!
!!
1
See illustration on the last page of this Chapter.
LABAN NOTES ABRIL
However,!notwithstanding!the!clarity!of!the!provisions!of!
the! JVA! and! the! articles! of! incorporation,! petitioners!
and! Smartmatic,! respectively,! is! merely! on! paper! and!
that,!in!reality,!Smartmatic!has!control!equal!to!or!greater!
than! TIM.! According! to! petitioners,! Smartmatic's!
nominated! director! can! determine! the! quorum! in! the!
board! of! directors! and! the! executive! committee,! and!
approve! or! veto! the! acts! of! the! board! or! executive!
committee.!Smartmatic!alone!can!nominate!the!chairman!
of!the!board,!the!treasurer!and!the!corporate!secretary.!!
!!
But!then,!it!is!not!the!management!but!the!ownership!of!
the!joint!venture!SmartmaticJTIM!which!is!required!to!be!
at! least! 60%! Filipino.! The! board! of! directors! of! a!
corporation!is!a!creation!of!the!stockholders!and,!as!such,!
corporation!by!delegation!of!the!stockholders.!48!Hence,!
the!authority!to!be!exercised!by!the!board!of!directors!of!
the! joint! venture! of! SmartmaticJTIM! is! actually! the!
authority! of! the! stockholders! of! TIM! and! Smartmatic!
from!which!the!joint!venture!derives!its!authority.!As!the!
source! of! the! authority,! the! stockholders! may! by! autoJ
limitation!impose!restraints!or!restrictions!on!their!own!
powers! such! as! that! allegedly! done! by! TIM! in! its! joint!
distribution!of!management!powers!in!the!joint!venture!
are! a! purely! business! prerogative! in! which! the! Court!
would!rather!not!meddle.!
*
!
Foreign*Investment*
!
Investment,*definition*
Equity! participation! in! any! enterprise! organized! or!
existing!under!the!laws!of!the!Philippines!(sec.*3b)!
!
Equity!investment!made!by!a!nonJPhilippine!national!in!
the!form!of!foreign!exchange!and/or!other!assets!actually!
transferred! to! the! Philippines! and! duly! registered! with!
value!of!such!assets!other!than!foreign!exchange!
!
Negative*List*
!
Foreign*Investment*Negative*List*(FINL),*definition*
a!list!of!areas!of!economic!activity!
whose!foreign!ownership!is!limited!to!a!maximum!of!
forty!percent!(40%)!of!the!equity!capital!of!the!
enterprises!engaged!therein|(sec.*3g)!
•! This!is!the!exception!to!the!rule!that!foreigners!
can!invest!as!much!as!100%!equity!in!domestic!
market!enterprises.2!
•! List!A:!Foreign!Ownership! is! Limited! by!
Mandate!of!the!Constitution!and!Specific!Laws!
2
See the Tenth Regular Foreign Investment Negative List, Executive
Order No. 184, [May 29, 2015], on the last page of this Chapter.
75
 SPECIAL COMMERCIAL LAWS FOREIGN INVESTMENTS ACT

•! List!B:!Foreign!Ownership! is! Limited! for! "transacting"!business.!Each!case!must!be!judged!in!the!

Reasons!of!Security,!Defense,!Risk!to!Health!and! light! of! its! own! peculiar! environmental! circumstances.!
Morals! and! Protection! of! SmallJ! and! MediumJ The!true!tests,!however,!seem!to!be!whether!the!foreign!
Scale!Enterprises! corporation! is! continuing! the! body! or! substance! of! the!
! business! or! enterprise! for! which! it! was! organized! or!
Advanced*technology,*definition* whether!it!has!substantially!retired!from!it!and!turned!it!
a! higher! degree! or! form! of! technology! than! what! is! over! to! another.! As! a! general! proposition! upon! which!
domestically!available!and!needed!for!the!development! many! authorities! agree! in! principle,! subject! to! such!
of! certain! industries! as! subject! to! guidelines! of! the! modifications! as! may! be! necessary! in! view! of! the!
Department! of! Science! and! Technology! (DOST).! Its! particular!issue!or!of!the!terms!of!the!statute!involved,!it!
introduction! into! the! country! through! foreign! is! recognized! that! a! foreign! corporation! is! "doing",!
investments! under! the! terms! and! conditions! of! the! Act! "transacting",!"engaging!in",!or!carrying!on!"business!in!
must!be!linked!to!its!appropriateness!and!adaptability!to! the!State!when,!and!ordinarily!only!when,!it!has!entered!
local! conditions! with! a! view! towards! eventual! transfer! the!State!by!its!agent!and!is!there!engaged!in!carrying!on!
and! applicability! including! the! upgrading! of! the! and! transacting! through! them! some! substantial! part! of!
indigenous! technology! available|*(Implementing* Rules* its!ordinary!or!customary!business,!usually!continuous!in!
and*Regulations*of*RA*7042,*IRRWRA*7042,*[July*9,*1996])! the! sense! that! it! may! be! distinguished! from! merely!
* casual,!sporadic,!or!occasional!transactions!and!isolated!
Paid>in*equity*capital,*definition* acts.! The! Corporation! Code! does! not! itself! define! or!
the!total!investment!in!a!business!that!has!been!paidJin! categorize! what! acts! constitute! doing! or! transacting!
in! a! corporation! or! partnership! or! invested! in! a! single! business!in!the!Philippines.!Jurisprudence!has,!however,!
proprietorship,! which! may! be! in! cash! or! in! property.! It! held! that! the! term! implies! a! continuity! of! commercial!
shall!also!refer!to!inward!remittance!or!assigned!capital! dealings! and! arrangements,! and! contemplates,! to! that!
in!the!case!of!foreign!corporations.|*(Implementing*Rules* extent,!the!performance!of!acts!or!works!or!the!exercise!
and*Regulations*of*RA*7042,*IRRWRA*7042,*[July*9,*1996])! of! some! of! the! functions! normally! incident! to! or! in!
! progressive!prosecution!of!the!purpose!and!subject!of!its!
! organization.|||(Columbia* Pictures,* Inc.* v.* Court* of*
! Appeals,*G.R.*No.*110318,*[August*28,*1996],*329*PHIL*875W
“Doing*Business”*in*the*Philippines* 932)*
! *
Doing*business,*definition* *
shall!include:!! Three*(3)*modes*of*doing*business*in*the*Philippines*
a.! soliciting! orders,! service! contracts,! opening! as*employed*by*foreign*corporations,*thus*license*is*
offices,!whether!liaison!offices!or!branches;!! required*
! 1.! Incorporation!of!a!subsidiary!
b.! appointing! representatives! or! distributors,! 2.! Establishment!of!a!branch!office!
operating! under! full! control! of! the! foreign! 3.! Establishment!of!a!representative!office!
corporation,! domiciled! in! the! Philippines! or! *
who!in!any!calendar!year!stay!in!the!country!for! *
a! period! or! periods! totalling! one! hundred! Doing* business* is* determined* by* the* nature* and*
eighty!(180)!days!or!more;!! character*of*transactions*
! !
! *Eriks*Pte.*Ltd.*v.*Court*of*Appeals,*G.R.*No.*118843,*
c.! participating! in! the! management,! supervision! [February*6,*1997]*
or!control!of!any!domestic!business,!firm,!entity! !
or!corporation!in!the!Philippines;!! What! is! determinative! of! "doing! business"! is! not! really!
! the!number!or!the!quantity!of!the!transactions,!but!more!
d.! and! any! other! act! or! acts! that! comply! a! importantly,! the! intention! of! an! entity! to! continue! the!
continuity! of! commercial! dealings! or! body! of! its! business! in! the! country.! The! number! and!
arrangements,! and! contemplate! to! that! extent! quantity! are! merely! evidence! of! such! intention.! The!
the! performance! of! acts! or! works,! or! the! phrase! "isolated! transaction"! has! a! definite! and! fixed!
exercise! of! some! of! the! functions! normally! meaning.!i.e.! a! transaction! or! series! of! transactions! set!
incident! to! and! in! progressive! prosecution! of! apart!from!the!common!business!of!a!foreign!enterprise!
commercial!gain!or!of!the!purpose!and!object!of! in! the! sense! that! there! is! no! intention! to! engage! in! a!
the! business! organization.!|(Implementing* progressive! pursuit! of! the! purpose! and! object! of! the!
Rules*and*Regulations*of*RA*7042,*IRRWRA*7042,* business!organization.!Whether!a!foreign!corporation!is!
[July*9,*1996])! "doing!business"!does!not!necessarily!depend!upon!the!
* frequency!of!its!transactions,!but!more!upon!the!nature!
Doing*business*in*the*Philippines,*construed* and!character!of!the!transactions.||!
No!general!rule!or!governing!principle!can!be!laid!down! !
as! to! what! constitutes! "doing"! or! "engaging! in"! or!

LABAN NOTES ABRIL 76

 SPECIAL COMMERCIAL LAWS FOREIGN INVESTMENTS ACT
We! find! no! reason! to! disagree! with! both! lower! courts.!
More!than!the!sheer!number!of!transactions!entered!into,!
a! clear! and! unmistakable! intention! on! the! part! of!
petitioner! to! continue! the! body! of! its! business! in! the!
Philippines! is! more! than! apparent.! As! alleged! in! its!
complaint,! it! is! engaged! in! the! manufacture! and! sale! of!
elements! used! in! sealing! pumps,! valves,! and! pipes! for!
industrial!purposes,!valves!and!control!equipment!used!
for!industrial!fluid!control!and!PVC!pipes!and!fittings!for!
industrial! use.! Thus,! the! sale! by! petitioner! of! the! items!
covered!by!the!receipts,!which!are!part!and!parcel!of!its!
main! product! line,! was! actually! carried! out! in! the!
progressive! prosecution! of! commercial! gain! and! the!
pursuit! of! the! purpose! and! object! of! its! business,! pure!
and! simple.! Further,! its! grant! and! extension! of! 90Jday!
credit! terms! to! private! respondent! for! every! purchase!
made,! unarguably! shows! an! intention! to! continue!
transacting! with! private! respondent,! since! in! the! usual!
course! of! commercial! transactions,! credit! is! extended!
only!to!customers!in!good!standing!or!to!those!on!whom!
there!is!an!intention!to!maintain!longJterm!relationship.!
This! being! so,! the! existence! of! a! distributorship!
agreement! between! the! parties,! as! alleged! but! not!
proven!by!private!respondent,!would,!if!duly!established!
by! competent! evidence,! be! merely! corroborative,! and!
failure! to! sufficiently! prove! said! allegation! will! not!
significantly! affect! the! finding! of! the! courts! below.! Nor!
our!own!ruling.!It!is!precisely!upon!the!set!of!facts!aboveJ
detailed! that! we! concur! with! respondent! Court! that!
petitioner! corporation! was! doing! business! in! the!
country.!
Equally! important! is! the! absence! of! any! fact! or!
circumstance!which!might!tend!even!remotely!to!negate!
such!intention!to!continue!the!progressive!prosecution!of!
petitioner's! business! activities! in! this! country.! Had!
private!respondent!not!turned!out!to!be!a!bad!risk,!in!all!
likelihood! petitioner! would! have! indefinitely! continued!
its! commercial! transactions! with! him,! and! not!
surprisingly,!in!ever!increasing!volumes.!
Thus,!we!hold!that!the!series!of!transactions!in!question!
could!not!have!been!isolated!or!casual!transactions.!What!
is! determinative! of! "doing! business"! is! not! really! the!
number! or! the! quantity! of! the! transactions,! but! more!
importantly,! the! intention! of! an! entity! to! continue! the!
body! of! its! business! in! the! country.! The! number! and!
quantity! are! merely! evidence! of! such! intention.! The!
phrase! "isolated! transaction"! has! a! definite! and! fixed!
meaning,!i.e.! a! transaction! or! series! of! transactions! set!
apart!from!the!common!business!of!a!foreign!enterprise!
in! the! sense! that! there! is! no! intention! to! engage! in! a!
progressive! pursuit! of! the! purpose! and! object! of! the!
business!organization.!Whether!a!foreign!corporation!is!
"doing!business"!does!not!necessarily!depend!upon!the!
frequency!of!its!transactions,!but!more!upon!the!nature!
and!character!of!the!transactions.!
* B.* Van* Zuiden* Bros.,* Ltd.* v.* GTVL* Manufacturing*
* Industries,*Inc.,*G.R.*No.*147905,*[May*28,*2007]*
Foreign*corporation,*definition*
LABAN NOTES ABRIL
One! which! is! formed,! organized! or! existing! under! laws!
other!than!those!of!the!Philippines!
!
Branch*office,*definition*
Carries!out!the!business!activities!of!the!head!office!of!a!
foreign! company! and! derives! income! from! the! host!
country!
!
Representative*liaison*office,*definition*
Deals!directly!with!the!clients!of!the!parent!company!but!
does!not!derive!income!from!the!host!country!and!is!fully!
subsidized!by!its!head!office.!It!undertakes!activities!such!
as! but! not! limited! to! information! dissemination! and!
promotion!of!the!company’s!products!as!well!as!quality!
control!of!products!
!
Start*of**commercial*operations*
the! date! when! a! particular! enterprise! actually! begins!
production! of! the! product! for! commercial! purposes! or!
commercial!harvest!in!the!case!of!agricultural!activities.!
In!the!case!of!service!oriented!activities,!the!date!when!
the!enterprise!begins!catering!or!servicing!its!clients!on!
a! commercial! basis.! In! the! case! of! export! traders! and!
service! exporters,! the! date! when! the! initial! export!
shipment! in! commercial! quantity! has! been! made! or!
initial! performance! of! service! as! borne! out! by! the!
appropriate! supporting! documents.|||(Implementing*
Rules* and* Regulations* of* RA* 7042,* IRRWRA* 7042,* [July* 9,*
1996])!
!
Two*(2)*Tests*to*determine*whether*or*not*a*foreign*
corporation* is* considered* as* “doing* business”*
Philippines*
Substance!Test!
The!true!test![for!doing!business],!however,!seems!to!be!
whether!the!foreign!corporation!is!continuing!the!body!
of!the!business!or!enterprise!for!which!it!was!organized!
or!whether!it!has!substantially!retired!from!it!and!turned!
it! over! to! another.! *(Agilent* Technologies* Singapore* v.*
Integrated*Silicon*Technology*Phil.*Corp.,*G.R.*No.*154618,*
[April*14,*2004],*471*PHIL*582W607)*
!
Continuity!Test!
The! term! [doing! business]! implies! a! continuity! of!
commercial! dealings! and! arrangements,! and!
contemplates,!to!that!extent,!the!performance!of!acts!or!
works!or!the!exercise!of!some!of!the!functions!normally!
incident! to,! and! in! the! progressive! prosecution! of,! the!
purpose! and! object! of! its! organization.|*(Agilent*
Technologies* Singapore* v.* Integrated* Silicon* Technology*
Phil.* Corp.,* G.R.* No.* 154618,* [April* 14,* 2004],* 471* PHIL*
582W607)!
!
Actual* performance* of* specific* commercial* acts*
within* Philippine* territory,* essential* condition* in*
‘doing*business*in*the*Philippines’*requirement*
*
!
77
 SPECIAL COMMERCIAL LAWS FOREIGN INVESTMENTS ACT
In! the! present! controversy,! petitioner! is! a! foreign!
corporation!which!claims!that!it!is!not!doing!business!in!
the!Philippines.!As!such,!it!needs!no!license!to!institute!a!
collection! suit! against! respondent! before! Philippine!
courts.!
! deliver! the! lace! products! to! the! Philippines.! In! other!
Respondent! argues! otherwise.! Respondent! insists! that!
petitioner! is! doing! business! in! the! Philippines! without!
the! required! license.! Hence,! petitioner! has! no! legal!
capacity!to!sue!before!Philippine!courts.!
! petitioner! and! respondent! transpired! and! were!
Under!Section!3!(d)!of!Republic!Act!No.!7042!(RA!7042)!
or! "The!Foreign! Investments! Act! of! 1991,"! the! phrase!
"doing!business"!includes:!
.* .* .* soliciting* orders,* service* contracts,* opening* offices,*
whether* called* "liaison"* offices* or* branches;* appointing*
representatives*or*distributors*domiciled*in*the*Philippines*
or*who*in*any*calendar*year*stay*in*the*country*for*a*period*
or* periods* totalling* one* hundred* eighty* (180)* days* or*
more;* participating* in* the* management,* supervision* or*
control* of* any* domestic* business,* firm,* entity* or*
corporation*in*the*Philippines;*and*any*other*act*or*acts*
that* imply* a* continuity* of* commercial* dealings* or*
arrangements,* and* contemplate* to* that* extent* the*
performance*of*acts*or*works,*or*the*exercise*of*some*of*the*
functions* normally* incident* to,* and* in* progressive*
prosecution* of,* commercial* gain* or* of* the* purpose* and*
object* of* the* business* organization:*Provided,* however,*
That* the* phrase* "doing* business"* shall* not* be* deemed* to*
include* mere* investment* as* a* shareholder* by* a* foreign*
entity* in* domestic* corporations* duly* registered* to* do*
business,*and/or*the*exercise*of*rights*as*such*investor;*nor*
having* a* nominee* director* or* officer* to* represent* its*
interests* in* such* corporation;* nor* appointing* a*
representative*or*distributor*domiciled*in*the*Philippines*
which*transacts*business*in*its*own*name*and*for*its*own*
account.*
! Section! 3! (d)! of!Republic! Act! No.! 7042,!Foreign!
The! series! of! transactions! between! petitioner! and!
respondent! cannot! be! classified! as! "doing! business"! in!
the! Philippines! under! Section! 3! (d)! of!RA! 7042.! An!
essential!condition!to!be!considered!as!"doing!business"!
in! the! Philippines! is! the! actual! performance! of! specific!
commercial! acts! within! the! territory! of! the! Philippines!
for! the! plain! reason! that! the! Philippines! has! no!
jurisdiction! over! commercial! acts! performed! in! foreign!
territories.! Here,! there! is! no! showing! that! petitioner!
performed! within! the! Philippine! territory! the! specific!
acts!of!doing!business!mentioned!in!Section!3!(d)!of!RA!
7042.!Petitioner!did!not!also!open!an!office!here!in!the!
Philippines,! appoint! a! representative! or! distributor,! or!
manage,! supervise! or! control! a! local! business.! While!
petitioner! and! respondent! entered! into! a! series! of!
transactions! implying! a! continuity! of! commercial!
dealings,! the! perfection! and! consummation! of! these!
transactions!were!done!outside!the!Philippines.!!!
! PIL's! alleged! acts! in! actively! negotiating! to! employ!
In! its! complaint,! petitioner! alleged! that! it! is! engaged! in!
the! importation! and! exportation! of! several! products,!
including! lace! products.! Petitioner! asserted! that! on!
several! occasions,! respondent! purchased! lace! products!
LABAN NOTES ABRIL
from! it.! Petitioner! also! claimed! that! respondent!
instructed! it! to! deliver! the! purchased! goods! to! Kenzar,!
which! is! a! Hong! Kong! company! based! in! Hong! Kong.!
Upon! Kenzar's! receipt! of! the! goods,! the! products! were!
considered! sold.! Kenzar,! in! turn,! had! the! obligation! to!
words,! the! sale! of! lace! products! was! consummated! in!
Hong!Kong.!
!
As! earlier! stated,! the! series! of! transactions! between!
consummated! in! Hong! Kong.!9!We! also! find! no! single!
activity! which! petitioner! performed! here! in! the!
Philippines! pursuant! to! its! purpose! and! object! as! a!
business! organization.!10!Moreover,! petitioner's! desire!
to!do!business!within!the!Philippines!is!not!discernible!
from! the! allegations! of! the! complaint! or! from! its!
attachments.!Therefore,!there!is!no!basis!for!ruling!that!
petitioner!is!doing!business!in!the!Philippines.!
!
!
!
Solicitation* of* service* contracts* and* directing* and*
establishing* commercial* operations* in* the*
Philippines*are*‘doing*business*in*the*Philippines’*
!
Pioneer* International,* Ltd.* v.* Guadiz,* Jr.,* G.R.* No.*
156848,*[October*11,*2007]*
!
As! to! the! first! subJissue,! PIL! insists! that! its! sole! act! of!
"transacting"! or! "doing! business"! in! the! Philippines!
consisted!of!its!investment!in!PPHI.!Under!Philippine!law,!
PIL's!mere!investment!in!PPHI!does!not!constitute!"doing!
business."! However,! we! affirm! the! lower! courts'! ruling!
and! declare! that,! based! on! the! allegations! in! Todaro's!
complaint,! PIL! was! doing! business! in! the! Philippines!
when! it! negotiated! Todaro's! employment! with! PPHI.!
Investments!Act!of!1991,!states:!
!
The* phrase* "doing* business"* shall* include*
soliciting*orders,*service* contracts,* opening* offices,*
whether* called* "liaison"* offices* or* branches;* appointing*
representatives*or*distributors*domiciled*in*the*Philippines*
or*who*in*any*calendar*year*stay*in*the*country*for*a*period*
or*periods*totaling*one*hundred*eighty*[180]*days*or*more;*
participating*in*the*management,*supervision*or*control*of*
any* domestic* business,* firm,* entity* or* corporation* in* the*
Philippines;* and* any* other* act* or* acts* that* imply* a*
continuity* of* commercial* dealings* or* arrangements* and*
contemplate* to* that* extent* the* performance* of* acts* or*
works,* or* the* exercise* of* some* of* the* functions* normally*
incident*to,*and*in*progressive*prosecution*of*commercial*
gain* or* of* the* purpose* and* object* of* the* business*
organization*
!
Todaro! to! run! its! preJmixed! concrete! operations! in! the!
Philippines,! which! acts! are! hypothetically! admitted! in!
PIL's! motion! to! dismiss,! are! not! mere! acts! of! a! passive!
investor!in!a!domestic!corporation.!Such!are!managerial!
78
 SPECIAL COMMERCIAL LAWS FOREIGN INVESTMENTS ACT

and! operational! acts! in! directing! and! establishing! purpose* and* object* of* the* business* organization.*
commercial!operations!in!the!Philippines.! (Emphasis!supplied)!
! !
! A! plain! application! of! Section! 3! (d)! of! the!Foreign!
Foreign*corporations*opening*branches*or*offices*in* Investments! Act!leads! to! no! other! conclusion! than! that!
the*Philippines,*‘doing*business’*in*the*Philippines* Saudia! is! a! foreign! corporation! doing! business! in! the!
* Philippines.! As! such,! Saudia! may! be! sued! in! the!
Saudi* Arabian* Airlines* (Saudia)* v.* Rebesencio,* G.R.* Philippines!and!is!subject!to!the!jurisdiction!of!Philippine!
No.*198587,*[January*14,*2015]* tribunals.!
* !
Summons!were!validly!served!on!Saudia!and!jurisdiction! Moreover,! since! there! is! no! real! distinction! between!
over!it!validly!acquired.! "Saudia!Jeddah"!and!"Saudia!Manila"!—!the!latter!being!
! nothing! more! than! Saudia's! local! office! —! service! of!
There!is!no!doubt!that!the!pleadings!and!summons!were! summons! to! Saudia's! office! in! Manila! sufficed! to! vest!
served! on! Saudia! through! its! counsel.!42!Saudia,! jurisdiction!over!Saudia's!person!in!Philippine!tribunals.!
however,!claims!that!the!Labor!Arbiter!and!the!National! *
Labor!Relations!Commission!had!no!jurisdiction!over!it! *
because! summons! were! never! served! on! it! but! on! An* offline* international* air* carrier* selling* passage*
"Saudia!Manila."!43!Referring!to!itself!as!"Saudia!Jeddah,"! tickets* in* the* Philippines,* through* a* general* sales*
it! claims! that! "Saudia! Jeddah"! and! not! "Saudia! Manila"! agent,* is* a* resident* foreign* corporation* doing*
was!the!employer!of!respondents!because:! business*in*the*Philippines.*
!
First,! "Saudia! Manila"! was! never! a! party! to! the! Cabin! Air*Canada*v.*Commissioner*of*Internal*Revenue,*
Attendant!contracts!entered!into!by!respondents;! G.R.*No.*169507,*[January*11,*2016]
Second,!it!was!"Saudia!Jeddah"!that!provided!the!funds!to! !
pay!for!respondents'!salaries!and!benefits;!and! While! Section! 3! (d)! above! states! that! "appointing! a!
Lastly,!it!was!with!"Saudia!Jeddah"!that!respondents!filed! representative! or! distributor! domiciled! in! the!
their!resignations.!44!CTIEac! Philippines! which! transacts! business! in! its! own! name!
! and! for! its! own! account"! is! not! considered! as! "doing!
Saudia!posits!that!respondents'!Complaint!was!brought! business,"! the! Implementing! Rules! and! Regulations!
against!the!wrong!party!because!"Saudia!Manila,"!upon! of!Republic! Act! No.! 7042!clarifies! that! "doing! business"!
which!summons!was!served,!was!never!the!employer!of! includes!"appointing! representatives! or!
respondents.!!! distributors,!operating! under! full! control! of! the! foreign!
! corporation,!domiciled!in!the!Philippines!or!who!in!any!
Saudia!is!vainly!splitting!hairs!in!its!effort!to!absolve!itself! calendar!year!stay!in!the!country!for!a!period!or!periods!
of!liability.!Other!than!its!bare!allegation,!there!is!no!basis! totaling!one!hundred!eighty!(180)!days!or!more[.]"!!
for! concluding! that! "Saudia! Jeddah"! is! distinct! from! !
"Saudia!Manila."! An! offline! carrier! is! "any! foreign! air! carrier! not!
What! is! clear! is! Saudia's! statement! in! its! own! Petition! certificated! by! the! [Civil! Aeronautics]! Board,! but! who!
that!what!it!has!is!a!"Philippine!Office!.!.!.!located!at!4/F! maintains! office! or!who! has! designated! or! appointed!
Metro! House! Building,! Sen.! Gil! J.! Puyat! Avenue,! Makati! agents! or! employees! in! the! Philippines,!who! sells! or!
City."!46!Even! in! the! position! paper! that! Saudia! offers! for! sale! any! air! transportation! in! behalf! of! said!
submitted! to! the! Labor! Arbiter,!47!what! Saudia! now! foreign! air! carrier! and/or! others,! or! negotiate! for,! or!
refers!to!as!"Saudia!Jeddah"!was!then!only!referred!to!as! holds! itself! out! by! solicitation,! advertisement,! or!
"Saudia! Head! Office! at! Jeddah,! KSA,"!48!while! what! otherwise! sells,! provides,! furnishes,! contracts,! or!
Saudia! now! refers! to! as! "Saudia! Manila"! was! then! only! arranges!for!such!transportation."!!
referred!to!as!"Saudia's!office!in!Manila."!! !
!! "Anyone!desiring!to!engage!in!the!activities!of!an!offJline!
By! its! own! admission,! Saudia,! while! a! foreign! carrier![must]!apply!to!the![Civil!Aeronautics]!Board!for!
corporation,!has!a!Philippine!office.! such!authority."!64!Each!offline!carrier!must!file!with!the!
! Civil! Aeronautics! Board! a! monthly! report! containing!
Section!3!(d)!of!Republic!Act!No.!7042,!otherwise!known! information! on! the! tickets! sold,! such! as! the! origin! and!
as! the*Foreign* Investments* Act* of* 1991,* provides* the* destination! of! the! passengers,! carriers! involved,! and!
following:* commissions!received.!!
The* phrase* "doing* business"* shall* include* .* .* .* opening* !!
offices,*whether*called*"liaison"*offices*or*branches;*.* Petitioner!is!undoubtedly!"doing!business"!or!"engaged!
.* .* and* any* other* act* or* acts* that* imply* a* continuity* of* in!trade!or!business"!in!the!Philippines.!
commercial*dealings*or*arrangements*and*contemplate*to* !
that* extent* the* performance* of* acts* or* works,* or* the* Aerotel! performs! acts! or! works! or! exercises! functions!
exercise*of*some*of*the*functions*normally*incident*to,*and* that! are! incidental! and! beneficial! to! the! purpose! of!
in* progressive* prosecution* of* commercial* gain* or* of* the* petitioner's! business.! The! activities! of! Aerotel! bring!

LABAN NOTES ABRIL 79

 SPECIAL COMMERCIAL LAWS FOREIGN INVESTMENTS ACT
direct! receipts! or! profits! to! petitioner.!66!There! is!
nothing!on!record!to!show!that!Aerotel!solicited!orders!
alone!and!for!its!own!account!and!without!interference!
from,!let!alone!direction!of,!petitioner.!On!the!contrary,!
Aerotel! cannot! "enter! into! any! contract! on! behalf! of!
[petitioner! Air! Canada]! without! the! express! written!
consent!of![the!latter,]"!!and!it!must!perform!its!functions!
according! to! the! standards! required! by!
petitioner.!!Through!Aerotel,!petitioner!is!able!to!engage!
in!an!economic!activity!in!the!Philippines.!
! *
Further,! petitioner! was! issued! by! the! Civil! Aeronautics!
Board!an!authority!to!operate!as!an!offline!carrier!in!the!
Philippines! for! a! period! of! five! years,! or! from! April! 24,!
2000!until!April!24,!2005.!!
!!
Petitioner! is,! therefore,! a! resident! foreign! corporation!
that!is!taxable!on!its!income!derived!from!sources!within!
the!Philippines.!Petitioner's!income!from!sale!of!airline!
tickets,! through! Aerotel,! is! income! realized! from! the!
pursuit!of!its!business!activities!in!the!Philippines.!!
* appointment! of! an! attorneyJinJfact,! can! be! deemed! by!
* and!of!themselves!to!be!doing!business!here.|||**
“Not*doing*business”*in*the*Philippines*
* In! accordance! with! the! rule! that! "doing! business"!
Acts*not*deemed*“doing*business”*
a.! Mere!investment!as!a!shareholder!by!a!foreign!
entity!in!domestic!corporations!duly!registered!
to!do!business,!and/or!the!exercise!of!rights!as!
such!investor;!
b.! Having! a! nominee! director! or! officer! to!
represent!its!interest!in!such!corporation;!
c.! !Appointing! a! representative! or! distributor!
domiciled! in! the! Philippines! which! transacts!
business!in!the!representative's!or!distributor's!
own!name!and!account;!
d.! The! publication! of! a! general! advertisement!
through!any!print!or!broadcast!media;!
e.! Maintaining!a!stock!of!goods!in!the!Philippines!
solely! for! the! purpose! of! having! the! same!
processed!by!another!entity!in!the!Philippines;!
f.! Consignment! by! a! foreign! entity! of! equipment!
with! a! local! company! to! be! used! in! the!
processing!of!products!for!export;!
g.! Collecting!information!in!the!Philippines;!and!
h.! Performing! services! auxiliary! to! an! existing!
isolated! contract! of! sale! which! are! not! on! a!
continuing! basis,! such! as! installing! in! the!
Philippines! machinery! it! has! manufactured! or!
exported!to!the!Philippines,!servicing!the!same,!
training! domestic! workers! to! operate! it,! and!
similar!incidental!services.*(Implementing*Rules*
and*Regulations*of*RA*7042,*IRRWRA*7042,*[July*9,*
1996])!
LABAN NOTES ABRIL
Reason*why*the*aforementioned*acts*are*deemed*not*
doing*business*in*the*Philippines*
Most!of!these!activities!do!not!bring!any!direct!receipts!
or!profits!to!the!foreign!corporation,!consistent!with!the!
ruling!of!this!Court!in*National*Sugar*Trading*Corp.*v.*CA!
that!activities!within!Philippine!jurisdiction!that!do!not!
create!earnings!or!profits!to!the!foreign!corporation!do!
not!constitute!doing!business!in!the!Philippines.|*(Cargill,*
Inc.* v.* Intra* Strata* Assurance* Corp.* ,* G.R.* No.* 168266,*
[March*15,*2010],*629*PHIL*320W335)!
!
Appointment*of*representative*or*distributor*in*the*
Philippines,*not*considered*doing*business*
*
Neither* appointment* of* an* attorney>in>fact* nor*
engaging*in*litigation*is*doing*business*
Neither! is! the! appointment! of! Atty.! Rico!V.! Domingo! as!
attorneyJinJfact! of! petitioners,! tantamount! to! doing!
business!in!the!Philippines.!We!fail!to!see!how!exercising!
one's!legal!and!property!rights!and!taking!steps!for!the!
vigilant! protection! of! said! rights,! particularly! the!
*
imports! only! acts! in! furtherance! of! the! purposes! for!
which!a!foreign!corporation!was!organized,!it!is!held!that!
the!mere!institution!and!prosecution!or!defense!of!a!suit,!
particularly! if! the! transaction! which! is! the! basis! of! the!
suit! took! place! out! of! the! State,! do! not! amount! to! the!
doing!of!business!in!the!State.!The!institution!of!a!suit!or!
the!removal!thereof!is!neither!the!making!of!contract!nor!
the! doing! of! business! within! a! constitutional! provision!
placing! foreign! corporations! licensed! to! do! business! in!
the! State! under! the! same! regulations,! limitations! and!
liabilities! with! respect! to! such! acts! as! domestic!
corporations.! Merely! engaging! in! litigation! has! been!
considered! as! not! a! sufficient! minimum! contact! to!
warrant! the! exercise! of! Jurisdiction! over! a! foreign!
corporation.*(Columbia*Pictures,*Inc.*v.*Court*of*Appeals,*
G.R.*No.*110318,*[August*28,*1996],*329*PHIL*875W932)*
*
*
Appointing* a* representative* or* distributor* in* the*
Philippines*who*does*NOT*transact*in*its*name*for*its*
own* account* is* deemed* “doing* business* in* the*
Philippines”!
!
Hahn*v.*Court*of*Appeals,*G.R.*No.*113074,*[January*
22,*1997]!
!
Thus,!the!phrase!includes!"appointing!representatives!or!
distributors! in! the! Philippines"! but! not! when! the!
representative! or! distributor! "transacts! business! in! its!
name! and! for! its! own! account."! In! addition,!Section!
1(f)(1)!of!the!Rules!and!Regulations!implementing!(IRR)!
the!Omnibus! Investment! Code! of! 1987!(E.O.! No.! 226)!
provided:!
!
80
 SPECIAL COMMERCIAL LAWS FOREIGN INVESTMENTS ACT
(f)*"doing*business"*shall*be*any*act*or*combination*of*acts,*
enumerated*in*Article*44*of*the*Code.*In*particular,*"doing*
business"*includes:*
(1)*.* .* .* A* foreign* firm* which* does* business* through*
middlemen*acting*in*their*own*names,*such*as*indentors,*
commercial*brokers*or*commission*merchants,*shall*not*be*
deemed* doing* business* in* the* Philippines.* But* such*
indentors,* commercial* brokers* or* commission* merchants*
shall* be* the* ones* deemed* to* be* doing* business* in* the*
Philippines.*
! *
The! question! is! whether! petitioner! Alfred! Hahn! is! the!
agent! or! distributor! in! the! Philippines! of! private!
respondent!BMW.!If!he!is,!BMW!may!be!considered!doing!
business!in!the!Philippines!and!the!trial!court!acquired!
jurisdiction! over! it! (BMW)! by! virtue! of! the! service! of!
summons! on! the! Department! of! Trade! and! Industry.!
Otherwise,! if! Hahn! is! not! the! agent! of! BMW! but! an!
independent! dealer,! albeit! of! BMW! cars! and! products,!
BMW,! a! foreign! corporation,! is! not! considered! doing!
business! in! the! Philippines! within! the! meaning! of!
the!Foreign!Investments!Act!of!1991!and!the!IRR,!and!the!
trial!court!did!not!acquire!jurisdiction!over!it!(BMW).!
! and!for!its!own!account.!Steelcase!claims!that!it!was!not!
The! Court! of! Appeals! held! that! petitioner! Alfred! Hahn!
acted!in!his!own!name!and!for!his!own!account!and!not!
as!agent!or!distributor!in!the!Philippines!of!BMW!on!the!
ground! that! "he! alone! had! contacts! with! individuals! or!
entities! interested! in! acquiring! BMW! vehicles.!
Independence! characterizes! Hahn's! undertakings! for!
which! reason! he! is! to! be! considered,! under! governing!
statutes,! as! doing! business."! (p.! 13)! In! support! of! this!
conclusion,! the! appellate! court! cited! the! following!
allegations!in!Hahn's!amended!complaint:!
! in!its!own!name!and!for!its!own!account.!Hence,!DISI!was!
8.*From*the*time*the*trademark*"BMW*&*DEVICE"*was*first*
used* by* the* Plaintiff* in* the* Philippines* up* to* the* present,*
Plaintiff,* through* its* firm* name* "HAHN* MANILA"* and*
without* any* monetary* contributions* from* defendant*
BMW,*established*BMW's*goodwill*and*market*presence*in*
the*Philippines.*Pursuant*thereto,*Plaintiff*invested*a*lot*of*
money*and*resources*in*order*to*singleWhandedly*compete*
against*other*motorcycle*and*car*companies*.*.*.*Moreover,*
Plaintiff*has*built*buildings*and*other*infrastructures*such*
as* service* centers* and* showrooms* to* maintain* and*
promote*the*car*and*products*of*defendant*BMW.*
! that! Steelcase! treated! and! considered! DISI! as! a! mere!
As! the! above! quoted! allegations! of! the! amended!
complaint!show,!however,!there!is!nothing!to!support!the!
appellate!court's!finding!that!Hahn!solicited!orders!alone!
and!for!his!own!account!and!without!"interference!from,!
let! alone! direction! of,! BMW."! (p.! 13)! To! the! contrary,!
Hahn! claimed! he! took! orders! for! BMW! cars! and!
transmitted! them! to! BMW.! Upon! receipt! of! the! orders,!
BMW! fixed! the! down! payment! and! pricing! charges,!
notified!Hahn!of!the!scheduled!production!month!for!the!
orders,! and! reconfirmed! the! orders! by! signing! and!
returning! to! Hahn! the! acceptance! sheets.! Payment! was!
made! by! the! buyer! directly! to! BMW.! Title! to! cars!
purchased!passed!directly!to!the!buyer!and!Hahn!never!
paid! for! the! purchase! price! of! BMW! cars! sold! in! the!
LABAN NOTES ABRIL
Philippines.!Hahn!was!credited!with!a!commission!equal!
to! 14%! of! the! purchase! price! upon! the! invoicing! of! a!
vehicle!order!by!BMW.!Upon!confirmation!in!writing!that!
the!vehicles!had!been!registered!in!the!Philippines!and!
serviced!by!him,!Hahn!received!an!additional!3%!of!the!
full!purchase!price.!Hahn!performed!afterJsale!services,!
including,! warranty! services.! for! which! he! received!
reimbursement!from!BMW.!All!orders!were!on!invoices!
and!forms!of!BMW.!
!
Appointment* of* distributor,* ‘not* doing* business* in*
the*Philippines’*
*
Steelcase,*Inc.*v.*Design*International*Selections,*
Inc.,*G.R.*No.*171995,*[April*18,*2012]*
!
Anent!the!first!issue,!Steelcase!argues!that!Section!3!(d)!
of!R.A.! No.! 7042!or!the! Foreign! Investments! Act! of!
1991!(FIA)expressly! states! that! the! phrase! "doing!
business"! excludes! the! appointment! by! a! foreign!
corporation! of! a! local! distributor! domiciled! in! the!
Philippines! which! transacts! business! in! its! own! name!
doing!business!in!the!Philippines!when!it!entered!into!a!
dealership!agreement!with!DISI!where!the!latter,!acting!
as! the! former's! appointed! local! distributor,! transacted!
business! in! its! own! name! and! for! its! own! account.!
Specifically,!Steelcase!contends!that!it!was!DISI!that!sold!
Steelcase's! furniture! directly! to! the! endJusers! or!
customers! who,! in! turn,! directly! paid! DISI! for! the!
furniture!they!bought.!Steelcase!further!claims!that!DISI,!
as!a!nonJexclusive!dealer!in!the!Philippines,!had!the!right!
to!market,!sell,!distribute!and!service!Steelcase!products!
an! independent! distributor! of! Steelcase! products,! and!
not!a!mere!agent!or!conduit!of!Steelcase.!
On!the!other!hand,!DISI!argues!that!it!was!appointed!by!
Steelcase!as!the!latter's!exclusive!distributor!of!Steelcase!
products.!DISI!likewise!asserts!that!it!was!not!allowed!by!
Steelcase!to!transact!business!in!its!own!name!and!for!its!
own!account!as!Steelcase!dictated!the!manner!by!which!
it!was!to!conduct!its!business,!including!the!management!
and! solicitation! of! orders! from! customers,! thereby!
assuming! control! of! its! operations.! DISI! further! insists!
conduit,! as! evidenced! by! the! fact! that! Steelcase! itself!
directly! sold! its! products! to! customers! located! in! the!
Philippines! who! were! classified! as! part! of! their! "global!
accounts."! DISI! cited! other! established! circumstances!
which! prove! that! Steelcase! was! doing! business! in! the!
Philippines! including! the! following:! (1)! the! sale! and!
delivery!by!Steelcase!of!furniture!to!Regus,!a!Philippine!
client,!through!Modernform,!a!Thai!corporation!allegedly!
controlled!by!Steelcase;!(2)!the!imposition!by!Steelcase!
of! certain! requirements! over! the! management! and!
operations! of! DISI;! (3)! the! representations! made! by!
Steven! Husak! as! Country! Manager! of! Steelcase;! (4)! the!
cancellation!by!Steelcase!of!orders!placed!by!Philippine!
clients;!and!(5)!the!expression!by!Steelcase!of!its!desire!
81
 SPECIAL COMMERCIAL LAWS FOREIGN INVESTMENTS ACT
to! maintain! its! business! in! the! Philippines.! Thus,!
Steelcase!has!no!legal!capacity!to!sue!in!Philippine!Courts!
because!it!was!doing!business!in!the!Philippines!without!
a!license!to!do!so.!
xxx!
From! the! preceding! citations,! the! appointment! of! a!
distributor! in! the! Philippines! is! not! sufficient! to!
constitute! "doing! business"! unless! it! is! under! the! full!
control!of!the!foreign!corporation.!On!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!
Philippines.!!It! should! be! kept! in! mind! that! the!
determination!of!whether!a!foreign!corporation!is!doing!
business!in!the!Philippines!must!be!judged!in!light!of!the!
attendant!circumstances.!
!
! !
Mere*act*of*exporting*products*is*not*‘doing*business*
in*the*Philippines’*
* suit*in*the*Philippines*
B.* Van* Zuiden* Bros.,* Ltd.* v.* GTVL* Manufacturing*
Industries,*Inc.,*G.R.*No.*147905,*[May*28,*2007]*
We! disagree! with! the! Court! of! Appeals'! ruling! that! the!
proponents! to! the! transaction! determine! whether! a!
foreign!corporation!is!doing!business!in!the!Philippines,!
regardless! of! the! place! of! delivery! or! place! where! the!
transaction!took!place.!To!accede!to!such!theory!makes!it!
possible!to!classify,!for!instance,!a!series!of!transactions!
between!a!Filipino!in!the!United!States!and!an!American!
company!based!in!the!United!States!as!"doing!business!in!
the! Philippines,"! even! when! these! transactions! are!
negotiated! and! consummated! only! within! the! United!
States.!
An! exporter! in! one! country! may! export! its! products! to!
many!foreign!importing!countries!without!performing!in!
the! importing! countries! specific! commercial! acts! that!
would! constitute! doing! business! in! the! importing!
countries.! The! mere! act! of! exporting! from! one's! own!
country,! without! doing! any! specific! commercial! act!
within!the!territory!of!the!importing!country,!cannot!be!
deemed!as!doing!business!in!the!importing!country.!The!
importing!country!does!not!acquire!jurisdiction!over!the!
foreign! exporter! who! has! not! performed! any! specific!
commercial! act! within! the! territory! of! the! importing!
country.!Without!jurisdiction!over!the!foreign!exporter,!
the! importing! country! cannot! compel! the! foreign!
exporter! to! secure! a! license! to! do! business! in! the!
importing!country.!TIcAaH!
Otherwise,!Philippine!exporters,!by!the!mere!act!alone!of!
exporting! their! products,! could! be! considered! by! the!
importing! countries! to! be! doing! business! in! those!
countries.! This! will! require! Philippine! exporters! to!
secure!a!business!license!in!every!foreign!country!where!
they! usually! export! their! products,! even! if! they! do! not!
perform!any!specific!commercial!act!within!the!territory!
LABAN NOTES ABRIL
of! such! importing! countries.! Such! a! legal! concept! will!
have!a!deleterious!effect!not!only!on!Philippine!exports,!
but!also!on!global!trade.!
To!be!doing!or!"transacting!business!in!the!Philippines"!
for!purposes!of!Section!133!of!the!Corporation!Code,!the!
foreign!corporation!must!actually*transact*business*in*the*
Philippines,! that! is,! perform! specific! business!
transactions! within! the! Philippine! territory! on! a!
continuing!basis!in!its!own!name!and!for!its!own!account.!
Actual! transaction! of! business! within! the! Philippine!
territory! is! an! essential! requisite! for! the! Philippines! to!
acquire!jurisdiction!over!a!foreign!corporation!and!thus!
require! the! foreign! corporation! to! secure! a! Philippine!
business! license.! If! a! foreign! corporation! does! not!
transact!such!kind!of!business!in!the!Philippines,!even!if!
it!exports!its!products!to!the!Philippines,!the!Philippines!
has!no!jurisdiction!to!require!such!foreign!corporation!to!
secure!a!Philippine!business!license.!
!
Rules*on*the*Right*of*a*Foreign*Corporation*to*bring*
The! principles! regarding! the! right! of! a! foreign!
corporation!to!bring!suit!in!Philippine!courts!may!thus!be!
condensed!in!four!statements:!!
(1)! if! a! foreign! corporation! does! business! in! the!
Philippines! without! a! license,! it! cannot! sue!
before!the!Philippine!courts;!!
(2)! !if!a!foreign!corporation!is!not!doing!business!in!
the!Philippines,!it!needs!no!license!to!sue!before!
Philippine!courts!on!an!isolated!transaction!or!
on!a!cause!of!action!entirely!independent!of!any!
business!transaction;!!
(3)! if! a! foreign! corporation! does! business! in! the!
Philippines! without! a! license,! a! Philippine!
citizen!or!entity!which!has!contracted!with!said!
corporation!may!be!estopped!from!challenging!
the!foreign!corporation’s!corporate!personality!
in!a!suit!brought!before!Philippine!courts;!!and!!
(4)! if! a! foreign! corporation! does! business! in! the!
Philippines!with!the!required!license,!it!can!sue!
before! Philippine! courts! on! any!
transaction.!*(Agilent*Technologies*Singapore*v.*
Integrated* Silicon* Technology* Phil.* Corp.,* G.R.*
No.*154618,*[April*14,*2004],*471*PHIL*582W607)!
!
‘Doing* business* without* license’* under* the*
Corporation*Code*
Section!133!of!the!Corporation!Code!provides:!
Doing* business* without* license.! —!
No!foreign!corporation!transacting!
business!in!the!Philippines!without!
a! license,! or! its! successors! or!
assigns,! shall! be! permitted! to!
82
 SPECIAL COMMERCIAL LAWS FOREIGN INVESTMENTS ACT

maintain!or!intervene!in!any!action,!
suit! or! proceeding! in! any! court! or!
administrative! agency! of! the!
Philippines;! but! such! corporation!
may! be! sued! or! proceeded! against!
before! Philippine! courts! or!
administrative! tribunals! on! any!
valid! cause! of! action! recognized!
under!Philippine!laws.!!
The!law!is!clear.!An!unlicensed!foreign!corporation!doing!
business!in!the!Philippines!cannot!sue!before!Philippine!
courts.! On! the! other! hand,! an! unlicensed! foreign!
corporation!not!doing! business! in! the! Philippines! can!
sue!before!Philippine!courts.!(B.*Van*Zuiden*Bros.,*Ltd.*v.*
GTVL* Manufacturing* Industries,* Inc.,* G.R.* No.* 147905,*
[May*28,*2007],*551*PHIL*231W240)!
!
!
Investment*
! (1)! sales! of! products! to! bonded! manufacturing!
Investment,*definition*
equity! participation! in! any! enterprise! organized! or!
existing! under! the! laws! of! the! Philippines.! It! includes!
both!original!and!additional!investments,!whether!made!
directly! as! in! stock! subscription,! or! indirectly! through!
the!transfer!of!equity!from!one!investor!to!another!as!in!
stock! purchase.! Ownership! of! bonds! (including! income!
bonds),! debentures,! notes! or! other! evidences! of!
indebtedness! does! not! qualify! as!
investments.|(Implementing*Rules*and*Regulations*of*RA*
7042,*IRRWRA*7042,*[July*9,*1996])!
* products!whether!paid!for!in!foreign!currency!
The!purchase!of!stock!options!or!stock!warrants!is!not!an!
investment!until!the!holder!thereof!exercises!his!option!
and! actually! acquires! stock! from! the!
corporation.|*(Implementing*Rules*and*Regulations*of*RA*
7042,*IRRWRA*7042,*[July*9,*1996])!
! !
! !
Export*Enterprise*(ExE)*
! *
Export*enterprise,*definition*
an! enterprise! wherein! a! manufacture,! processor! or!
service!(including!tourism)!enterprise!exports!sixty!per!
cent! (60%)! or! more! of! its! output,! or! wherein! a! trader!
purchases! products! domestically! and! exports! sixty! per!
cent!(60%)!or!more!of!such!purchases|||*(sec.*3e)*
* Foreign*Investments*in*Domestic*Market*
Exports,*definition*
the! volume! or! the! Philippine! port! F.O.B.! peso! value,!
determined!from!invoices,!bills!of!lading,!inward!letters!
of! credit,! loading! certificates,! and! other! commercial!
documents,! of! products! exported! directly! by! an! export!
enterprise!or!the!value!of!services!including!tourism!sold!
by! serviceJoriented! enterprise! to! nonJresident!
foreigners!or!the!net!selling!price!of!export!products!sold!
by!an!export!enterprise!to!another!export!enterprise!that!
subsequently!exports!the!same|(Implementing*Rules*and*
Regulations*of*RA*7042,*IRRWRA*7042,*[July*9,*1996])*
*
Sales! of! locally! manufactured! or! assembled! goods! for!
household! and! personal! use! to! Filipinos! abroad! and!
other! nonJresidents! of! the! Philippines! as! well! as!
returning! overseas! Filipinos! under! the! Internal! Export!
Program!of!the!Government!and!paid!for!in!convertible!
foreign! currency! inwardly! remitted! through! the!
Philippine! banking! system! shall! also! be! considered!
exports.|||*(Implementing* Rules* and* Regulations* of* RA*
7042,*IRRWRA*7042,*[July*9,*1996])!
!
*
Sales* of* export* products* to* another* export*
enterprise,*when*deemed*exports*
Only! when! they! are! actually! exported! by! the! export!
enterprise!
!
Constructive*exportation*
Provided,* finally,! that! without! actual! exportation,! the!
following!shall!be!considered!constructively!exported!for!
purposes!of!the!Act:!!
warehouses!of!export!enterprises;!!
(2)! sales! of! products! to! export! processing! zone!
enterprises;!
(3)! sales! of! products! to! export! enterprises!
operating! bonded! trading! warehouses!
supplying! raw! materials! used! in! the!
manufacture!of!export!products;!and!
(4)! !sales! of! products! to! foreign! military! bases,!
diplomatic!missions!and!other!agencies!and/or!
instrumentalities! granted! tax! immunities! of!
locally! manufactured,! assembled! or! repacked!
or! pesos! funded! from! inwardly! remitted!
foreign! currency.|||(Implementing* Rules* and*
Regulations* of* RA* 7042,* IRRWRA* 7042,* [July* 9,*
1996])!
!
Domestic*Market*Enterprise*(DME)*
Domestic*market*enterprise,*definition*
an!enterprise!which!produces!goods!for!sale,!or!renders!
service! or! otherwise! engages! in! any! business! in! the!
Philippines.||(Implementing*Rules*and*Regulations*of*RA*
7042,*IRRWRA*7042,*[July*9,*1996])!
*
Enterprises*
NonJPhilippine! nationals! may! own! up! to! one! hundred!
percent! (100%)! of! domestic! market! enterprises! unless!
foreign!ownership! therein! is! prohibited! or! limited! by!
existing! law! or! the!Foreign!Investment! Negative! List!
under!Section!8!hereof.!
!
A! domestic! market! enterprise! may! change! its! status! to!
export! enterprise! if! over! a! three! (3)! year! period! it!
consistently!exports!in!each!year!thereof!sixty!per!cent!
(60%)!or!more!of!its!output.!

LABAN NOTES ABRIL 83

 SPECIAL COMMERCIAL LAWS FOREIGN INVESTMENTS ACT

!(sec.*7)* there! is! no! evidence! of! similar! desire! or! intent.!
* Unarguably,! petitioner! may,!as* the* Court* of* Appeals*
GR:* For! both! types! of! enterprises! (Export! Market! and! suggested,! decide! to! operate! Marcopper's! mining!
Domestic! Market),! foreign! ownership! is! allowed! up! to! business,! but,! of! course,! at! this! stage,! that! is! a! mere!
100%.! speculation.!Or!it!may!decide!to!sell!the!credit!secured!by!
! the! mining! properties!to!an! offshore!investor,! in! which!
Exc:* SmallJandJMedium! Scale! Enterprises! (foreign! case! the! acts! will! still! be! isolated! transactions.!To* see*
equity! ownership! is! limited! to! 40%! only)! such! as! through* the* present* facts* an* intention* on* the* part* of*
domestic!market!enterprises!with!paidJin!equity!capital! petitioner*to*start*a*series*of*business*transaction*is*to*rest*
of! less! than! the! equivalent! of! US$200,000! (RA! 7042!as! on* assumptions* or* probabilities* falling* short* of* actual*
amended!by!RA!8179)! proof.*Courts*should*never*base*its*judgments*on*a*state*of*
* facts* so* inadequately* developed* that* it* cannot* be*
Therefore,!100%!foreign!equity!is!allowed!only!in!largeJ determined*where*inference*ends*and*conjecture*begins.||*!
scale!domestic!market!enterprises.! *
* *
Exc>to>exc:*Domestic!market!enterprises!paidJin!equity! Registration*of*Investments*of*Non>Philippine*
capital!of!less!than!the!equivalent!of!US$100,000,!which:! Nationals*
1.! involve!advanced!technology;!or!!
!
2.! employ!at!least!fifty!(50)!direct!employees!*
* Qualifications*
* !
Section*7*explained* Non>Philippine*national*may*do*business*or*invest*
Section!7!of!RA!7042!allows!nonJPhilippine!nationals!to! in*a*domestic*enterprise*up*to*100%*of*its*capital*
own!up!to!100%!of!domestic!market!enterprises!only!in! provided!
areas! of! investments! outside! the! prohibitions! and! 1.! it!is!investing!in!a!DME!in!areas!outside!the!
limitations!imposed!by!law!to!protect!Filipino!ownership! FINL;!or!
and! interest.*(Garcia* v.* Executive* Secretary,* G.R.* No.* 2.! it!is!investing!in!an!ExE!whose!products!and!
100883,*[December*2,*1991])! services!do!not!fall!within!Lists!A!and!B!
! (except!defenseJrelated!activities,!which!may!
Mere*participation*in*an*Assignment*Agreement*or* be!approved!by!the!Department!of!National!
Deed*of*Assignment*is*not*doing*business*in*the* Defense);!and!
Philippines* 3.! the!country!or!state!of!the!applicant!must!also!
* allow!Filipino!citizens!and!corporations!to!do!
business!therein!(Oath*of*Reciprocity)!
MR*Holdings,*Ltd.*v.*Bajar,*G.R.*No.*138104,*[April*11,*
!
2002]*
!NonJPhilippine! nationals! qualified! to! do! business! per!
!
paragraph!(a)!above,!but!who!will!engage!in!more!than!
The! expression! "doing! business"! should! not! be! given!
one!investment!area,!one!or!more!of!which!is!the!FINL,!
such!a!strict!and!literal!construction!as!to!make!it!apply!
may! be! registered! under! the! Act.! However,! said! nonJ
to! any! corporate! dealing! whatever.! At! this! early! stage!
Philippine!national!will!not!be!allowed!to!engage!in!the!
and!with!petitioner's!acts!or!transactions!limited!to!the!
investment!areas!which!are!in!the!FINL.!
assignment! contracts,! it! cannot! be! said! that! it! had!
!
performed! acts! intended! to! continue! the! business! for!
Existing!enterprises,!which!are!nonJPhilippine!nationals!
which!it!was!organized.!It*may*not*be*amiss*to*point*out*
at!the!time!of!effectivity!of!the!Act!and!which!intend!to!
that* the* purpose* or* business* for* which* petitioner* was*
increase! the! percentage! of! foreign! equity! participation!
organized*is*not*discernible*in*the*records.*No*effort*was*
under!the!Act,!beyond!that!previously!authorized!by!SEC,!
exerted* by* the* Court* of* Appeals* to* establish* the* nexus*
shall!be!governed!by!the!qualifications!in!item!(a)!above.!
between* petitioner's* business* and* the* acts* supposed* to*
Thus,! existing! enterprises! shall! be! allowed! to! increase!
constitute*"doing*business.*"*Thus,*whether*the*assignment*
the! percentage! share! of! foreign! equity! participation!
contracts*were*incidental*to*petitioner's*business*or*were*
continuation*thereof*is*beyond*determination.!We!cannot! beyond! current! equity! holdings! only! if! their! existing!
investment! area! is! not! in! the! FINL.! Similarly,! existing!
apply!the!case!cited!by!the!Court!of!Appeals,!Far*East*Int'l*
enterprises! engaged! in! more! than! one! (1)! investment!
Import*and*Export*Corp.*vs.*Nankai*Kogyo*Co.,*Ltd.,!which!
area! shall! be! allowed! to! increase! percentage! of! foreign!
held!that!a!single!act!may!still!constitute!"doing!business"!
equity!participation!if!none!of!the!investment!areas!they!
if! "it! is! not! merely! incidental! or! casual,! but! is! of! such!
are!engaged!in!is!in!the!FINL.!
character!as!distinctly!to!indicate!a!purpose!on!the!part!
!
of! the! foreign! corporation! to! do! other! business! in! the!
Existing! foreign! corporations! shall! be! allowed! to!
state."!In!said!case,!there!was!an!express!admission!from!
increase!capital!even!if!their!existing!investment!area!is!
an!official!of!the!foreign!corporation!that!he!was!sent!to!
in!the!FINL.!
the! Philippines! to! look! into! the! operation! of! mines,!
!
thereby! revealing! the! foreign! corporation's! desire! to!
continue!engaging!in!business!here.!But!in!the!case!at!bar,!

LABAN NOTES ABRIL 84

 SPECIAL COMMERCIAL LAWS FOREIGN INVESTMENTS ACT

Transfer! of! ownership! from! one! foreign! company! to!

another!shall!be!allowed!even!if!the!enterprise!is!engaged!
in!an!area!in!the!FINL!as!long!as!there!is!the!percentage!
share! of! foreign! equity.!(Implementing* Rules* and*
Regulations*of*RA*7042,*IRRWRA*7042,*[July*9,*1996])!
!
! !

LABAN NOTES ABRIL 85

 SPECIAL COMMERCIAL LAWS FOREIGN INVESTMENTS ACT

Promulgating*the*Tenth*Regular*Foreign*Investment*
Negative*List,*Executive*Order*No.*184,*[May*29,*
2015])*
* 15.! Contracts! for! the! construction! of! defenseJ
Tenth*Regular*Foreign*Investment*Negative*List*
! !
List!A:!Foreign!Ownership! is! Limited! by! Mandate! of!
the!Constitution!and!Specific!Laws!
! Constitution)!
No*Foreign*Equity*
! Up*to*Forty*Percent*(40%)*Foreign*Equity**
1.! Mass!media!except!recording!(Art.!XVI,!Sec.!11!
of!the!Constitution;!Presidential!Memorandum!
dated!05!May!1994)!
2.! Practice!of!professions!1!(Art.!XII,!Sec.!14!of!the!
Constitution,! Sec.! 1! of!RA! 5181,! Sec.! 7.j! of!RA!
8981)!
a.!Pharmacy!(RA!5921)!
b.!Radiologic!and!xJray!technology!(RA!7431)!
c.!Criminology!(RA!6506)!
d.!Forestry!(RA!6239)!
e.!Law! (Art.! VIII,! Section! 5! of!the! Constitution;!
Rule! 138,! Sec.! 2! of! the!Rules! of! Court!of! the!
Philippines)!
3.! Retail!trade!enterprises!with!paidJup!capital!of!
less!than!US$2,500,000!(Sec.!5!of!RA!8762)!
4.! Cooperatives!(Ch.!III,!Art.!26!of!RA!6938)!
5.! Private!security!agencies!(Sec.!4!of!RA!5487)!
6.! SmallJscale!training!(Sec.!3!of!RA!7076)!
7.! Utilization!of!marine!resources!in!archipelagic!
waters,!territorial!sea,!and!exclusive!economic!
zone!as!well!as!smallJscale!utilization!of!natural!
resources! in! rivers,! lakes,! bays,! and! lagoons!
(Art.!XII,!Sec.!2!of!the!Constitution)!
8.! Ownership,! operation! and! management! of!
cockpits!(Sec.!5!of!PD!449)!
9.! Manufacture,! repair,! stockpiling! and/or!
distribution!of!nuclear!weapons!(Art.!II,!Sec.!8!
of!the!Constitution)!!
10.! Manufacture,! repair,! stockpiling! and/or!
distribution! of! biological,! chemical! and!
radiological!weapons!and!antiJpersonnel!mines!
(various! treaties! to! which! the! Philippines! is! a!
signatory! and! conventions! supported! by! the!
Philippines)!!!
11.! Manufacture! of! firecrackers! and! other!
pyrotechnic!devices!(Sec.!5!of!RA!7183)!
! Up*to*Forty*Percent*(40%)*Foreign*Equity*
Up*to*Twenty*Percent*(20%)*Foreign*Equity*
12.! Private! radio! communications! network! (RA!
3846)!
! clearance:!
Up*to*Twenty>Five*Percent*(25%)*Foreign*Equity*
13.! Private! recruitment,! whether! for! local! or!
overseas!employment!(Art.!27!of!PD!442)!
14.! Contracts! for! the! construction! and! repair! of!
locallyJfunded! public! works! (Sec.! 1!
of!Commonwealth! Act! No.! 541,Letter! of!
Instruction!No.!630)!except:!
a.!Infrastructure/development! projects!
covered!in!RA!7718;!and!
b.!Projects!which!are!foreign!funded!or!assisted!
and! required! to! undergo! international!
competitive!bidding!(Sec.!2!(a)!of!RA!7718)!
related!structures!(Sec.!1!of!CA!541)!
Up*to*Thirty*Percent*(30%)*Foreign*Equity*
16.! Advertising! (Art.! XVI,! Sec.! 11! of!the!
!
17.! Exploration,! development! and! utilization! of!
natural! resources! (Art.! XII,! Sec.! 2! of!the!
Constitution)!5!
18.! Ownership! of! private! lands! (Art.! XII,! Sec.! 7!
of!the!Constitution;!Ch.!5,!Sec.!22!of!CA!141;!Sec.!
4!of!RA!9182)!
19.! Operation! of! public! utilities! (Art.! XII,! Sec.! 11!
of!the!Constitution;!Sec.!16!of!CA!146)!6!7!
20.! Educational! institutions! other! than! those!
established! by! religious! groups! and! mission!
boards!(Art.!XIV,!Sec.!4!of!the!Constitution)!8!
21.! Culture,! production,! milling,! processing,!
trading! except! retailing,! of! rice! and! corn! and!
acquiring,! by! barter,! purchase! or! otherwise,!
rice!and!corn!and!the!byJproducts!thereof!(Sec.!
5!of!PD!194)!9!
22.! Contracts!for!the!supply!of!materials,!goods!and!
commodities! to! governmentJowned! or!
controlled! corporation,! company,! agency! or!
municipal!corporation!(Sec.!1!of!RA!5183)!
23.! Facility! operator! of! an! infrastructure! or! a!
development! facility! requiring! a! public! utility!
franchise! (Art.! XII,! Sec.! 11! ofthe! Constitution;!
Sec.!2!(a)!of!RA!7718)!
24.! Operation! of! deep! sea! commercial! fishing!
vessels!(Sec.!27!of!RA!8550)!
25.! Adjustment! companies! (Sec.! 332! of!RA!
10607!amending!PD!612)!
26.! Ownership!of!condominium!units!(Sec.!5!of!RA!
4726)!
!
!
List!B:!Foreign!Ownership! is! Limited! for! Reasons! of!
Security,! Defense,! Risk! to! Health! and! Morals! and!
Protection!of!SmallJ!and!MediumJScale!Enterprises!
!
1.! Manufacture,! repair,! storage,! and/or!
distribution! of! products! and/or! ingredients!
requiring! Philippine! National! Police! (PNP)!
a.!Firearms! (handguns! to! shotguns),! parts! of!
firearms! and! ammunition! therefore,!
instruments!or!implements!used!or!intended!to!
be!used!in!the!manufacture!of!firearms!
b.!Gunpowder!
c.!Dynamite!
d.!Blasting!supplies!
e.!Ingredients!used!in!making!explosives!
i.!Chlorates!of!potassium!and!sodium!

LABAN NOTES ABRIL 86

 SPECIAL COMMERCIAL LAWS FOREIGN INVESTMENTS ACT
ii.!Nitrates! of! ammonium,! potassium,!
sodium! barium,! copper! (11),! lead!
(11),!calcium!and!cuprite!
iii.!Nitric!acid!
iv.!Nitrocellulose!
v.!Perchlorates! of! ammonium,!
potassium!and!sodium!
vi.!Dinitrocellulose!
vii.!Glycerol!
viii.!Amorphous!phosphorus!
ix.!Hydrogen!peroxide!
x.!Strontium!nitrate!powder!
xi.!Toluene!
f.!Telescopic! sights,! sniper! scope! and! other!
similar! devices!
! 6.! Domestic! market! enterprises! with! paidJin!
However,! the! manufacture! or! repair! of! these!
items!may!be!authorized!by!the!Chief!of!the!PNP!
to! nonJPhilippine! nationals;! Provided! that! a!
substantial! percentage! of! output,! as!
determined! by! the! said! agency,! is! exported.!
Provided! further! that! the! extent!
of!foreign!equity! ownership! allowed! shall! be!
specified! in! the! said! authority/clearance! (RA!
7042!as!amended!by!RA!8179).!
! !
2.! Manufacture,! repair,! storage! and/or!
distribution!of!products!requiring!Department!
of!National!Defense!(DND)!clearance:!
a.! Guns!and!ammunition!for!warfare!
b.! Military! ordnance! and! parts! thereof!
(e.g.,! torpedoes,! depth! charges,!
bombs,!grenades,!missiles)!
c.! Gunnery,! bombing! and! fire! control!
systems!and!components!
d.! Guided! missiles/missile! systems! and!
components!
e.! Tactical! aircraft! (fixed! and! rotaryJ
winged),! parts! and! components!
thereof!
f.! Space! vehicles! and! component!
systems!
g.! Combat! vessels! (air,! land! and! naval)!
and!auxiliaries!
h.! Weapons! repair! and! maintenance!
equipment!
i.! Military!communications!equipment!
j.! Night!vision!equipment!
k.! Stimulated! coherent! radiation!
devices,!components!and!accessories!
l.! Armament!training!devices!
m.! Others! as! may! be! determined! by! the!
Secretary!of!the!DND!
! The!grandfather!rule!is!used!to!determine!the!nationality!
However,! the! manufacture! or! repair!
of! these! items! may! be! authorized! by!
the! Secretary! of! National! Defense! to!
nonJPhilippine! nationals;! Provided!
that! a! substantial! percentage! of!
output,! as! determined! by! the! said!
agency,!is!exported.!Provided!further!
LABAN NOTES ABRIL
that! the! extent! of!foreign!equity!
ownership!allowed!shall!be!specified!
in! the! said! authority/clearance! (RA!
7042!as!amended!by!RA!8179).!
!
3.! Manufacture! and! distribution! of! dangerous!
drugs!(RA!7042!as!amended!by!RA!8179)!
4.! Sauna! and! steam! bathhouses,! massage! clinics!
and! other! like! activities! regulated! by! law!
because! of! risks! posed! to! public! health! and!
morals!(RA!7042!as!amended!by!RA!8179)!
5.! All! forms! of! gambling! (RA! 7042!as! amended!
by!RA! 8179)! except! those! covered!
by!investment!agreements! with! PAGCOR! (PD!
1869!as!amended!by!RA!9487)!
equity! capital! of! less! than! the! equivalent! of!
US$200,000! (RA! 7042!as! amended! by!RA!
8179)!
7.! Domestic! market! enterprises! which! involve!
advanced! technology! or! employ! at! least! fifty!
(50)! direct! employees! with! paidJin! equity!
capital! of! less! than! the! equivalent! of!
US$100,000! (RA! 7042!as! amended! by!RA!
8179)!
!
!
Corporate*Layering*and*the*use*of*the*Grandfather*
Rule*in*determining*nationality*of*a*corporation*
*
*
*
*
*
*
Discussion:*
of!the!investee!corporation.!Here.!you!do!not!only!take!a!
look! at! the! nationality! of! the! investor! corporation,! but!
also!the!shareholders!of!that!investor!corporation.!So!you!
‘grandfather’!it.!Consider!the!investing!layers.!
!
Under! this! rule,! you! trace! back! the! nationality! of! an!
investee! corporation! up! to! the! nationality! of! the!
87
 SPECIAL COMMERCIAL LAWS FOREIGN INVESTMENTS ACT

shareholders!of!the!investor!corporation.!So!in!this!case,!
your! investor! corporation! has! 40%! foreign!
shareholdings.! Now,! this! 40%! alien! shareholdings! own!
60%!of!A!corporation,!so!alien!shareholders!own!40%!of!
60%!=!(0.4!x!0.6)!=!24%.!!
!
So,!basically!and!indirectly,!the!alien!shareholdings!own!
24%!of!A!corporation.!!!
!
Question:!Given!the!illustration!above,!if!A!corporation’s!
stocks! are! 24%! alienJowned! through! indirect!
shareholdings! and! 40%! alienJowned! through! direct!
shareholdings,!is!the!corporation!considered!a!Philippine!
national?!!
!
No,* because* A* Corporation’s* stocks* are* technically*
64%* alien>owned* and* 36%* Filipino>owned.* It* does*
not* meet* the* 60>40* Filipino>Foreigner* equity*
ownership*requirement*of*public*utilities.*

LABAN NOTES ABRIL 88

 SPECIAL COMMERCIAL LAWS FINANCIAL REHABILITATION AND INSOLVENCY ACT

Introductory*Concepts* This) simply) means) that) there) exists) no) viable) business)
* concern) to) be) restored.) Perforce,) the) remedy) of)
Governing*Law* corporate)rehabilitation)is)improper,)thus)rendering)the)
Republic)Act)No.)10142)or)Financial)Rehabilitation)and) dispositions)of)the)courts)a%quo%infirm.)
Insolvency)Act)(FRIA))of)2010) *
) )
Financial)Rehabilitation)Rules)of)Procedure)(2013),)A.M.) Nature*of*a*Corporate*Rehabilitation*proceeding*
No.)12D12D11DSC,)[August)27,)2013])) )
) It*is*an*action*in*rem.*
State*policy* The) proceedings) under) this) Act) shall) be) in) rem.)
It) is) the) policy) of) the) State) to) encourage) debtors,) both) Jurisdiction)over)all)persons)affected)by)the)proceedings)
juridical) and) natural) persons,) and) their) creditors) to) shall)be)considered)as)acquired)upon)publication)of)the)
collectively) and) realistically) resolve) and) adjust) notice) of) the) commencement) of) the) proceedings) in) any)
competing) claims) and) property) rights.) In) furtherance) newspaper)of)general)circulation)in)the)Philippines)in)the)
thereof,)the)State)shall)ensure)a)timely,)fair,)transparent,) manner) prescribed) by) the) rules) of) procedure) to) be)
effective) and) efficient) rehabilitation) or) liquidation) of) promulgated)by)the)Supreme)Court.)(sec.%3))
debtors.)The)rehabilitation)or)liquidation)shall)be)made) *
with) a) view) to) ensure) or) maintain) certainly) and) It*is*summary*and*nonNadversarial.*
predictability) in) commercial) affairs,) preserve) and) The) proceedings) in) corporate) rehabilitation) cases) are)
maximize) the) value) of) the) assets) of) these) debtors,) also) summary) and) nonDadversarial) (Town% and% Country%
recognize)creditor)rights)and)respect)priority)of)claims,) Enterprises,% Inc.% v.% Quisumbing,% Jr.,% G.R.% No.% 173610,%
and) ensure) equitable) treatment) of) creditors) who) are) 174132,%[October%1,%2012],%696%PHIL%1X20)%
similarly)situated.)When)rehabilitation)is)not)feasible,)it) %
is) in) the) interest) of) the) State) to) facilities) a) speedy) and) Its)end)goal)is)to)secure)the)approval)of)a)rehabilitation)
orderly) liquidation) of) these) debtor's) assets) and) the) plan)to)facilitate)the)successful)recovery)of)the)corporate)
settlement)of)their)obligations.)(sec.%2)) debtor.18)It)does)not)seek)relief)from)an)injury)caused)by)
* another) party.) (Golden% Cane% Furniture% Manufacturing%
Rehabilitation,*definition* Corp.%v.%Steelpro%Philippines,%Inc.,%G.R.%No.%198222,%[April%4,%
the)restoration)of)the)debtor)to)a)condition)of)successful) 2016])%
operation)and)solvency,)if)it)is)shown)that)its)continuance) %
of)operation)is)economically)feasible)and)its)creditors)can) It*is*a*special*proceeding.*
recover) by) way) of) the) present) value) of) payments) A)corporate)rehabilitation)case)is)a)special)proceeding%in%
projected)in)the)plan,)more)if)the)debtor)continues)as)a) rem)wherein)the)petitioner)seeks)to)establish)the)status)
going) concern) than) if) it) is) immediately) liquidated) [sec.% of) a) party) or) a) particular) fact,%i.e.,) the) inability) of) the)
4(gg))) corporate) debtor) to) pay) its) debts) when) they) fall)
) due.)) (Golden% Cane% Furniture% Manufacturing% Corp.% v.%
In) other) words,)rehabilitation) assumes) that) the) Steelpro%Philippines,%Inc.,%G.R.%No.%198222,%[April%4,%2016])%
corporation)has)been)operational)but)for)some)reasons) )
like) economic) crisis) or) mismanagement) had) become) Prohibited*pleadings*
distressed)or)insolvent,)i.e.,)that)it)is)generally)unable)to) (A))motion)to)dismiss;)
pay) its) debts) as) they) fall) due) in) the) ordinary) course) of) (B))motion)for)a)bill)of)particulars;)
business) or) has) liability) that) are) greater) than) its) (C))petition)for)relief;)
assets%(BPI% Family% Savings% Bank,% Inc.% v.% St.% Michael% (D))motion)for)extension;)
Medical%Center,%Inc.,%G.R.%No.%205469,%[March%25,%2015])% (E))motion) for) postponement) and) other) motions) of)
% similar)intent;)
Not* a* viable* business,* remedy* of* rehabilitation* is* (F))reply;)
improper* (G))rejoinder;)
) (H))intervention;)and)
BPI*Family*Savings*Bank,*Inc.*v.*St.*Michael*Medical* (I))any) pleading) or) motion) that) is) similar) to) or) of) like)
Center,*Inc.,*G.R.*No.*205469,*[March*25,*2015]* effect)as)any)of)the)foregoing.)
) )
In) this) case,) it) cannot) be) said) that) the) petitioning) For) stated) and) fully) supported) compelling) reasons,) the)
corporation,)SMMCI,)had)been)in)a)position)of)successful) court) may) allow) the) filing) of) motions) for) extension) or)
operation) and) solvency) at) the) time) the) Rehabilitation) postponement,)provided,)the)same)shall)be)verified)and)
Petition) was) filed) on) August) 11,) 2010.) While) it) had) under)oath.)
indeed)"commenced)business")through)the)preparatory) (Financial%Rehabilitation%Rules%of%Procedure%(2013),%A.M.%
act)of)opening)a)credit)line)with)BPI)Family)to)finance)the) No.%12X12X11XSC,%[August%27,%2013])%
construction) of) a) new) hospital) building) for) its) future) *
operations,)SMMCI)itself)admits)that)it)has)not)formally) Verified*petition*
operated)nor)earned)any)income)since)its)incorporation.)

LABAN NOTES ABRIL 89

 SPECIAL COMMERCIAL LAWS FINANCIAL REHABILITATION AND INSOLVENCY ACT

Any)pleading,)motion,)or)other)submission)submitted)by) )
any) interested) party) shall) be) supported) by) verified) Principal*feature*of*corporate*rehabilitation*
statements)that)the)affiant)has)read)the)submission)and) A)principal)feature)of)corporate)rehabilitation)is)the)Stay)
its)factual)allegations)are)true)and)correct)of)his)personal) Order) which) defers) all) actions) or) claims) against) the)
knowledge) or) based) on) authentic) records,) and) shall) corporation) seeking) corporate) rehabilitation) from) the)
contain)supporting)annexes,)which)the)submitting)party) date)of)its)issuance)until)the)dismissal)of)the)petition)or)
shall)attest)as)faithful)reproductions)of)the)originals.)An) termination)of)the)rehabilitation)proceeding.))(Town%and%
unverified)submission)shall)be)considered)as)not)filed.)An) Country% Enterprises,% Inc.% v.% Quisumbing,% Jr.,% G.R.% No.%
improperly) verified) submission) may) be) considered) as) 173610,%174132,%[October%1,%2012],%696%PHIL%1X20))
not)filed,)at)the)discretion)of)the)judge.)Upon)motion,)the) )
originals) of) the) annexes) to) a) submission) may) be) TwoNpronged*purpose*of*rehabilitation*
produced) in) court) for) examination) or) comparison) by) a) (1)! To) efficiently) and) equitably) distribute) the)
party)to)the)proceedings.|%(Financial%Rehabilitation%Rules% assets) of) the) insolvent) debtor) to) its) creditors;)
of% Procedure% (2013),% A.M.% No.% 12X12X11XSC,% [August% 27,% and)
2013])) (2)! To)provide)the)debtor)with)a)fresh)start)
) )
Order*issued*is*immediately*executory* Corporate*rehabilitation*case,*where*filed*
Any) order) issued) by) the) court) under) these) Rules) is) Regional)Trial)Court)(sec.%5.2,%RA%8799))
immediately)executory.)Review)of)any)order)of)the)court) )
shall) be) in) accordance) with) Rule) 6) of) these) Rules.) Corporate*life*continues*even*during*rehabilitation*
Provided,)however,)that)the)reliefs)ordered)by)the)trial)or) Corporate) rehabilitation) is) a) remedy) for) corporations,)
appellate) courts) shall) take) into) account) the) need) for) partnerships,) and) associations) "who) [foresee]) the)
resolution) of) the) proceedings) in) a) just,) equitable,) and) impossibility) of) meeting) [their]) debts) when) they)
speedy) manner.|(Financial% Rehabilitation% Rules% of% respectively) fall) due.")) A) corporation) under)
Procedure% (2013),% A.M.% No.% 12X12X11XSC,% [August% 27,% rehabilitation) continues) with) its) corporate) life) and)
2013])) activities) to) achieve) solvency,)) or) a) position) where) the)
) corporation)is)able)to)pay)its)obligations)as)they)fall)due)
) in) the) ordinary) course) of) business.) Solvency) is) a) state)
Corporate*Rehabilitation1* where) the) businesses') liabilities) are) less) than) its)
) assets.)) (Viva% Shipping% Lines,% Inc.% v.% Keppel% Philippines%
Corporate*rehabilitation,*definition* Mining,%Inc.,%G.R.%No.%177382,%[February%17,%2016]))
the)restoration)of)the)debtor)to)a)position)of)successful) *
operation)and)solvency,)) Factors*to*consider*in*determining*the*feasibility*of*a*
) corporation’s*rehabilitation*
if)it)is)shown)that)its)continued)operation)is)economically) 1.! Financial)capability)to)undergo)rehabilitation)
feasible)and)its)creditors)can)recover)more,)by)way)of)the) 2.! Ability)to)have)sustainable)profits)over)a)period)
present)value)of)payments)projected)in)the)rehabilitation) of)time)
plan,)if)the)corporation)continues)as)a)going)concern)than) 3.! Interests)of)the)creditors)are)wellDprotected)
if) it) is) immediately) liquidated.) It) contemplates) a) *
continuance)of)corporate)life)and)activities)in)an)effort)to) Liquidation*or*Insolvency*is*not*an*issue*in*corporate*
restore) and) reinstate) the) corporation) to) its) former) rehabilitation*
position) of) successful) operation) and) solvency,) the) )
purpose)being)to)enable)the)company)to)gain)a)new)lease) Phil.*Bank*of*Communications*v.*Basic*Polyprinters*
on)life)and)allow)its)creditors)to)be)paid)their)claims)out) and*Packaging*Corp.,*G.R.*No.*187581*[October*20,*
of)its)earnings.)(Panlilio%v.%RTC%of%Manila,%G.R.%No.%173846,% 2014]*
Feb%2%2011)) )
) The)petitioner)contends)that)the)sole)issue)in)corporate)
Recognizing) the) volatile) nature) of) every) business,) the) rehabilitation) is) one) of) liquidity;) hence,) the) petitioning)
rules) on) corporate) rehabilitation) have) been) crafted) in) corporation)should)have)sufficient)assets)to)cover)all)its)
order) to) give) companies) sufficient) leeway) to) deal) with) indebtedness) because) it) only) foresees) the) impossibility)
debilitating) financial) predicaments) in) the) hope) of) of) paying) the) indebtedness) falling) due.) It) claims) that)
restoring)or)reaching)a)sustainable)operating)form)if)only) rehabilitation) became) inappropriate) because) Basic)
to) best) accommodate) the) various) interests) of) all) its) Polyprinters) was) insolvent) due) to) its) assets) being)
stakeholders,) may) it) be) the) corporation's) stockholders,) inadequate)to)cover)the)outstanding)obligations.)))
its) creditors) and) even) the) general) public.)|(Bank% of% the% )
Philippine% Islands% v.% Sarabia% Manor% Hotel% Corp.,% G.R.% No.% We)disagree)with)the)contention)of)the)petitioner.)
175844,%[July%29,%2013],%715%PHIL%420X443)) Under)the)Interim)Rules,)rehabilitation)is)the)process)of)
) restoring)"the) debtor) to) a) position) of) successful)

1
See Matrix A: Court Action on Petition for Rehabilitation on the last
page

LABAN NOTES ABRIL 90

 SPECIAL COMMERCIAL LAWS FINANCIAL REHABILITATION AND INSOLVENCY ACT
operation)and)solvency,)if)it)is)shown)that)its)continuance)
of)operation)is)economically)feasible)and)its)creditors)can)
recover) by) way) of) the) present) value) of) payments)
projected)in)the)plan)more)if)the)corporation)continues)
as)a)going)concern)that)if)it)is)immediately)liquidated."))It)
contemplates) a) continuance) of) corporate) life) and)
activities) in) an) effort) to) restore) and) reinstate) the)
corporation)to)its)former)position)of)successful)operation)
and)solvency.)))
) case) may) be.) Where) the) principal) office) of) the)
In)Asiatrust) Development) Bank) v.) First) Aikka)
Development,) Inc.,)) we) said) that) rehabilitation)
proceedings)have)a)twoDpronged)purpose,)namely:)(a))to)
efficiently) and) equitably) distribute) the) assets) of)
the)insolvent) debtor) to) its) creditors;) and)(b))to) provide)
the)debtor)with)a)fresh)start,)viz.:)
) A) petition) for) voluntary) or) involuntary) rehabilitation)
Rehabilitation) proceedings) in) our) jurisdiction) have)
equitable)and)rehabilitative)purposes.)On)the)one)hand,)
they) attempt) to) provide) for) the) efficient) and) equitable)
distribution)of)an)insolvent)debtor's)remaining)assets)to)
its)creditors;)and)on)the)other,)to)provide)debtors)with)a)
"fresh) start") by) relieving) them) of) the) weight) of) their)
outstanding) debts) and) permitting) them) to) reorganize)
their)affairs.)The)purpose)of)rehabilitation)proceedings)is)
to) enable) the) company) to) gain) a) new) lease) on) life) and)
thereby)allow)creditors)to)be)paid)their)claims)from)its)
earnings.))
) CourtNSupervised*Rehabilitation*Proceedings*
Consequently,) the) basic) issues) in) rehabilitation)
proceedings) concern) the) viability) and) desirability) of)
continuing) the) business) operations) of) the) petitioning)
corporation.)The)determination)of)such)issues)was)to)be)
carried) out) by) the) courtDappointed) rehabilitation)
receiver,)who)was)Cacho)in)this)case.)
)
Moreover,)Republic) Act) No.) 10142)(Financial)
Rehabilitation)and)Insolvency)Act)(FRIA))of)2010),)a)law)
that)is)applicable)hereto,))has)defined)a)corporate)debtor)
as) a) corporation) duly) organized) and) existing) under)
Philippine) laws) that)has) become) insolvent.)The)
term)insolvent)is) defined) in)Republic) Act) No.) 10142)as)
"the) financial) condition) of) a) debtor) that) is) generally)
unable)to)pay)its)or)his)liabilities)as)they)fall)due)in)the)
ordinary) course) of) business) or) has) liabilities) that) are)
greater) than) its) or) his) assets.")) As) such,) the) contention)
that)rehabilitation)becomes)inappropriate)because)of)the)
perceived)insolvency)of)Basic)Polyprinters)was)incorrect.)
) under) this) Rule) when) (1)) one) or) more) of) its) members)
)
Types*of*Rehabilitation*Proceedings*2*
) likely) adversely) affect) the) financial) condition) and/or)
Forms*of*debt*relief*available*to*a*corporate*debtor*
in*financial*distress*
1.! OutDofDcourt)restructuring)agreements)
2.! PreDnegotiated)rehabilitation))
3.! CourtDsupervised)rehabilitation)
2
See Matrix B: Proceedings covered by FRIA and persons who will file
and/or approve on the last page.
LABAN NOTES ABRIL
4.! Liquidation)(voluntary)and)involuntary)
)
Venue*of*proceedings*
All)petitions)pursuant)to)these)Rules)shall)be)filed)in)the)
Regional) Trial) Court) which) has) jurisdiction) over) the)
principal) office) of) the) debtor) alleged) to) be) insolvent) as)
specified)in)its)articles)of)incorporation)or)partnership)or)
in)its)registration)papers)with)the)Department)of)Trade)
and)Industry)(DTI))in)cases)of)sole)proprietorship,)as)the)
corporation,)partnership)or)association)as)registered)in)
the) Securities) and) Exchange) Commission) (SEC)) is) in)
Metro) Manila,) the) action) must) be) filed) in) the) Regional)
Trial) Court) of) the) city) or) municipality) where) the) head)
office)is)located.)
)
involving)a)group)of)debtors)shall)be)filed)in)the)Regional)
Trial) Court) which) has) jurisdiction) over) the) principal)
office) of) any) of) the) debtors) alleged) to) be) insolvent,) as)
specified) in) its) articles) of) incorporation) or) partnership,)
or) registration) papers) with) the) DTI) in) cases) of) sole)
proprietorship,) as) the) case) may) be.) (Financial%
Rehabilitation%Rules%of%Procedure%(2013),%A.M.%No.%12X12X
11XSC,%[August%27,%2013])%
)
)
)
)
Voluntary*Proceedings*
)
Voluntary*proceedings,*definition*
proceedings)initiated)by)the)debtor)
)
VP,*when*and*who*may*petition*
An)insolvent)debtor)may)initiate)voluntary)proceedings)
by)filing)a)petition)for)rehabilitation)when)approved)by:)
1.! The)owner,)in)case)of)a)sole)proprietorship;)
2.! A) majority) of) the) partners,) in) case) of) a)
partnership;)or)
3.! A)majority)of)vote)of)the)board)of)directors)or)
trustees) and) authorized) by) the) vote) of) the)
stockholders) representing) at) least) 2/3) of) the)
OCS) or) at) least) 2/3) of) the) members) in) a) nonD
stock)corporation,)in)case)of)a)corporation.)
)
A)group)of)debtors)may)file)a)petition)for)rehabilitation)
foresee) the) impossibility) of) meeting) debts) when) they)
respectively)fall)due,)and)(2))the)financial)distress)would)
operations) of) the) other) members) of) the) group) or) the)
participation) of) the) other) members) of) the) group) is)
essential)under)the)terms)and)conditions)of)the)proposed)
Rehabilitation) Plan.) (Financial% Rehabilitation% Rules% of%
91
 SPECIAL COMMERCIAL LAWS FINANCIAL REHABILITATION AND INSOLVENCY ACT

Procedure% (2013),% A.M.% No.% 12X12X11XSC,% [August% 27,% PreNNegotiated*Rehabilitation*Proceedings*

2013])% *
% Who*may*petition*
What*may*be*alleged*(verified*petition)* An) insolvent) debtor,) by) itself) or) jointly) with) any) of) its)
1.! Insolvency)of)the)debtor;)and) creditors,)may)file)a)verified)petition)with)the)court)for)
2.! The)viability)of)its)rehabilitation) the)approval)of)a)PreDNegotiated)Rehabilitation)Plan)
) )
Involuntary*Proceedings* The) petition) shall) comply) with) Section) 2) (A),) Rule) 2) of)
) these) Rules,) where) applicable,) and) be) supported) by) an)
Involuntary*Proceedings,*definition* affidavit)showing)the)written)approval)or)endorsement)
proceedings)initiated)by)creditors) of)creditors)holding)at)least)twoDthirds)(2/3))of)the)total)
) liabilities) of) the) debtor,) including) secured) creditors)
IP,*who*may*petition* holding) more) than) fifty) percent) (50%)) of) the) total)
Any)creditor)or)group)of)creditors)with)a)claim)of,)or)the) secured) claims) of) the) debtor) and) unsecured) creditors)
aggregate)of)whose)claims)is)at)least)One)Million)Pesos) holding) more) than) fifty) percent) (50%)) of) the) total)
(P1,000,000.00))or)at)least)twentyDfive)percent)(25%))of) unsecured)claims)of)the)debtor.)(Financial%Rehabilitation%
the) subscribed) capital) stock) or) partners') contributions,) Rules%of%Procedure%(2013),%A.M.%No.%12X12X11XSC,%[August%
whichever) is) higher,) may) initiate) involuntary) 27,%2013])%
proceedings) under) this) Rule) by) filing) a) petition) for) **
rehabilitation) of) a) debtor) with) the) court) and) on) the) *
grounds) hereinafter) specifically) provided.) (Financial% Out*of*Court*or*Informal**Rehabilitation*Proceedings*
Rehabilitation%Rules%of%Procedure%(2013),%A.M.%No.%12X12X )
11XSC,%[August%27,%2013])% OutDofDCourt) or) Informal) Restructuring) Agreements) or)
) Rehabilitation) Plan.)—) An) outDofDcourt) or) informal)
Grounds*to*initiate*involuntary*proceedings* restructuring/workout)agreement)or)rehabilitation)plan)
(A)! there)is)no)genuine)issue)of)fact)or)law)on)the) (OCRA)) under) the) Act) shall) comply) with) both)
claim/s) of) the) petitioner/s,) and) that) the) due) requirements:)
and) demandable) payments) thereon) have) not) (A))Approval)by)the:)
been)made)for)at)least)sixty)(60))days;)or) (1)! debtor;)
(B)! the) debtor) has) failed) generally) to) meet) its) (2)! creditors) representing) at) least) sixtyDseven)
liabilities)as)they)fall)due;)or) percent)(67%))of)the)secured)obligations)of)the)
(C)! at) least) one) creditor,) other) than) the) debtor;)
petitioner/s,) has) initiated) foreclosure) (3)! creditors) representing) at) least) seventyDfive)
proceedings) against) the) debtor) that) will) percent)(75%))of)the)unsecured)obligations)of)
prevent) the) debtor) from) paying) its) debts) as) the)debtor;)and,)
they) become) due) or) will) render) it) insolvent.) (4)! creditors) holding) at) least) eightyDfive) percent)
(Financial% Rehabilitation% Rules% of% Procedure% (85%)) of) the) total) liabilities,) secured) and)
(2013),%A.M.%No.%12X12X11XSC,%[August%27,%2013])) unsecured,)of)the)debtor;)and,)
* )
CSRP,*purpose* (B))Publication)of)the)notice)of)the)OCRA)once)a)week)for)
Corporate) rehabilitation) is) one) of) many) statutorily) at) least) three) (3)) consecutive) weeks) in) a) newspaper) of)
provided) remedies) for) businesses) that) experience) a) general) circulation) in) the) Philippines,) as) prescribed) in)
downturn.) Rather) than) leave) the) various) creditors) Section)4)of)this)Rule.) (Financial%Rehabilitation%Rules%of%
unprotected,) legislation) now) provides) for) an) Procedure% (2013),% A.M.% No.% 12X12X11XSC,% [August% 27,%
orderly)procedure) of) equitably) and) fairly) addressing) 2013])%
their)concerns.)Corporate)rehabilitation)allows)a)courtD *
supervised) process) to) rejuvenate) a) corporation.) .) .) .) It) Standstill*period,*definition*
provides) a) corporation's) owners) a) sound) chance) to) reD period) agreed) upon) by) the) debtor) and) its) creditors) to)
engage) the) market,) hopefully) with) more) vigor) and) enable)them)to)negotiate)and)enter)into)an)outDofDcourt)
enlightened) services,) having) learned) from) a) painful) or) informal) restructuring/workout) agreement) or)
experience.) rehabilitation) plan) pursuant) to) Rule) 4) of) these) Rules.)
) (Financial%Rehabilitation%Rules%of%Procedure%(2013),%A.M.%
Necessarily,) a) business) in) the) red) and) about) to) incur) No.%12X12X11XSC,%[August%27,%2013])%
tremendous) losses) may) not) be) able) to) pay) all) its) )
creditors.) Rather) than) leave) it) to) the) strongest) or) most) )
resourceful) amongst) all) of) them,) the) state) steps) in) to)
Commencement*Order*
equitably)distribute)the)corporation's)limited)resources.)
)
(Viva%Shipping%Lines,%Inc.%v.%Keppel%Philippines%Mining,%Inc.,%
Effectivity*and*Duration*of*Commencement*Order.*)
G.R.%No.%177382,%[February%17,%2016]))
The) Commencement) Order) shall) be) effective) for) the)
)
duration) of) the) rehabilitation) proceedings,) unless) (a))
)

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 SPECIAL COMMERCIAL LAWS FINANCIAL REHABILITATION AND INSOLVENCY ACT

earlier) lifted) by) the) court,) (b)) the) rehabilitation) plan) is) the) duties) and) obligations) of) a) rehabilitation)
seasonably) confirmed) or) approved,) or) (c)) the) receiver;)
rehabilitation) proceedings) are) ordered) terminated) by) 6.! He) has) not) been) earlier) dismissed) as) a)
the)court)pursuant)to)Section)73)of)this)Rule.)%(Financial% rehabilitation) receiver) pursuant) to) Section) 27)
Rehabilitation%Rules%of%Procedure%(2013),%A.M.%No.%12X12X of)this)Rule;)
11XSC,%[August%27,%2013])% 7.! He)has)no)conflict)of)interest)as)defined)in)this)
% Rule;)and)
The)rehabilitation)proceedings)shall)be)deemed)to)have) 8.! He) is) willing) and) able) to) file) a) bond) in) such)
commenced) from) the) date) of) filing) of) the) amount)as)may)be)determined)by)the)court.)
petition.|||%(Financial% Rehabilitation% Rules% of% Procedure% )
(2013),%A.M.%No.%12X12X11XSC,%[August%27,%2013])) (B))The) rehabilitation) receiver,) which) is) a) juridical)
% person,) must) comply) with) the) following) qualifications)
Retroactive*effect*of*the*Commencement*Order** and)requirements:)
The)effects)of)the)commencement)order)shall)retroact)to) 1.! It) is) duly) authorized) to) do) business) in) the)
the) date) of) filing) of) the) petition) for) voluntary) or) Philippines)for)at)least)six)(6))years)prior)to)its)
involuntary)proceedings.)(Financial%Rehabilitation%Rules% appointment;)
of% Procedure% (2013),% A.M.% No.% 12X12X11XSC,% [August% 27,% 2.! It) is) of) good) standing) as) certified) by) the)
2013])) appropriate)regulatory)agency/ies;)
* 3.! It) has) no) conflict) of) interest) as) defined) in) this)
) Rule;)
Rehabilitation*Receiver** 4.! It) has) not) been) earlier) dismissed) as) a)
) rehabilitation) receiver) pursuant) to) Section) 27)
Rehabilitation*receiver,*definition* of)this)Rule;)
the)person)or)persons,)natural)or)juridical,)appointed)as) 5.! It) must) submit) the) name) of) the) person)
such)by)the)court)pursuant)to)this)Act)and)which)shall) designated) to) discharge) the) responsibilities)
be)entrusted)with)such)powers)and)duties)as)set)forth) and)powers)of)a)rehabilitation)receiver)and)the)
herein)[sec.%4(hh)]) names) of) the) employees) and) other) persons)
) authorized) to) assist) the) designated)
Who*may*serve*as*a*Rehabilitation*Receiver* representative,) together) with) a) sworn)
Any)qualified)natural)or)juridical)person)may)serve)as)a) certification) that) these) persons) possess) the)
rehabilitation)receiver.)A)rehabilitation)receiver)who)is)a) qualifications)and)none)of)the)disqualifications)
juridical) entity) must) designate,) as) its) representative,) a) enumerated)above;))
natural)person)who)possesses)all)the)qualifications)and) 6.! It) must) submit) a) sworn) undertaking,) duly)
none) of) the) disqualifications) under) this) Rule.) The) approved)in)accordance)with)law,)binding)itself)
juridical) entity) and) the) representative) are) solidarily) to) be) solidarily) liable) with) the) persons)
liable) for) all) the) obligations) and) responsibilities) of) a) designated)by)it)to)discharge)the)functions)and)
rehabilitation)receiver.)(Financial%Rehabilitation%Rules%of% responsibilities)of)a)rehabilitation)receiver;)
Procedure% (2013),% A.M.% No.% 12X12X11XSC,% [August% 27,% 7.! It) is) willing) and) able) to) file) a) bond) in) such)
2013])% amount)as)may)be)determined)by)the)court;)
) 8.! It)is)not)disqualified)to)discharge)the)duties)of)a)
Qualifications*of*a*Rehabilitation*Receiver* rehabilitation) receiver) under) the) Constitution)
(A))The) rehabilitation) receiver) who) is) a) natural) person) and)other)relevant)laws;)
must)comply)with)the)following)minimum)qualifications) )
and)requirements:) (C))In) addition,) the) designated) representative) of) the)
) juridical) person) must) comply) with) the) following)
1.! He)is)a)citizen)of)the)Philippines)or)a)resident)of) requirements:)
the) Philippines) for) at) least) six) (6)) months) 1.! The) representative) must) be) duly) designated)
immediately)preceding)his)nomination;) and) authorized) to) act) for) and) on) behalf) of) the)
2.! He) is) of) good) moral) character) and) with) juridical)entity;)
acknowledged) integrity,) impartiality) and) 2.! The) designated) representative) must) be) a)
independence;) director,) officer,) stockholder) or) partner) of) the)
3.! As) far) as) practicable,) he) has) expertise) and) juridical)entity;)and)
acumen) to) manage) and) operate) a) business) 3.! The) designated) representative) must) submit) a)
similar) in) size) and) complexity) to) that) of) the) sworn) undertaking) that) he) shall) be) solidarily)
debtor;) liable) with) his) firm) for) all) the) obligations) and)
4.! He) has) an) operating) knowledge) in) responsibilities) of) a) rehabilitation) receiver.)
management,) finance) and) rehabilitation) of) (Financial% Rehabilitation% Rules% of% Procedure%
distressed)companies;) (2013),%A.M.%No.%12X12X11XSC,%[August%27,%2013])%
5.! He) has) a) general) familiarity) with) the) rights) of) *
creditors)subject)to)suspension)of)payments)or) )
rehabilitation) and) a) general) understanding) of)

LABAN NOTES ABRIL 93

 SPECIAL COMMERCIAL LAWS FINANCIAL REHABILITATION AND INSOLVENCY ACT

When* rehabilitation* receiver* deemed* to* have* a*
conflict*of*interest;*enumeration,*not*exclusive*
Without) limiting) the) generality) of) the) following,) a)
rehabilitation)receiver)may)be)deemed)to)have)a)conflict)
of)interest)if:)
(A)! he)is)a)creditor,)owner,)partner)or)stockholder)
of)the)debtor;)
(B)! he) is) engaged) in) a) line) of) business) which)
competes)with)the)debtor;)
(C)! he)is,)or)was)within)five)(5))years)from)the)filing)
of) the) petition,) a) director,) officer,) owner,)
partner,) or) employee) or) the) auditor) or)
accountant)of)the)debtor;)
(D)! he)is,)or)was)within)two)(2))years)from)the)filing)
of) the) petition,) an) underwriter) of) the)
outstanding)securities)of)the)debtor;)
(E)! he)is)related)by)consanguinity)or)affinity)within)
the) fourth) civil) degree) to) any) individual)
creditor,) owner/s) of) a) sole) proprietorshipD
debtor,)partners)of)a)partnershipDdebtor,)or)to)
any)stockholder,)director,)officer,)employee,)or)
underwriter)of)the)corporationDdebtor;)or)
(F)! he) has) any) other) direct) or) indirect) material)
interest) in) the) debtor) or) any)
creditor.)(Financial% Rehabilitation% Rules% of%
Procedure%(2013),%A.M.%No.%12X12X11XSC,%[August%
27,%2013]))
) recover)its)property)from)an)errant)lessee.|||))
Immunity*from*suit*
The) rehabilitation) receiver,) the) members) of) the)
management) committee,) and) all) persons) they) engage)
shall) not) be) subject) to) any) action,) claim) or) demand) for)
any)act)or)omission)in)good)faith)in)the)exercise)of)their)
powers)and)functions)under)the)Act,)these)Rules,)or)other)
actions)approved)by)the)court.)(Financial%Rehabilitation%
Rules%of%Procedure%(2013),%A.M.%No.%12X12X11XSC,%[August%
27,%2013])%
* of)rehabilitation)does)not)restrict)this)particular)power,)
) save) for) the) caveat) that) all) its) actions) are) monitored)
The* corporation* is* not* barred* from* filing* suit* by*
reason*of*rehabilitation*
) entered)into)by)the)officers)of)the)debtor)corporation)
Umale*v.*ASB*Realty*Corp.,*G.R.*No.*181126,*[June*15,*
2011]*
* Management*Committee*
What) petitioners) argue) is) that) the) corporate) officer) of)
ASB)Realty)is)incapacitated)to)file)this)suit)to)recover)a)
corporate) property) because) ASB) Realty) has) a) dulyD
appointed) rehabilitation) receiver.) Allegedly,) this)
rehabilitation) receiver) is) the) only) one) that) can) file) the)
instant)suit.)
) responsibilities)under)the)law.)(Financial%Rehabilitation%
As) a) creature) of) law,) the) powers) and) attributes) of) a)
corporation)are)those)set)out,)expressly)or)impliedly,)in)
the)law.)Among)the)general)powers)granted)by)law)to)a)
corporation) is) the) power) to) sue) in) its) own) name.)) This)
power) is) granted) to) a) dulyDorganized) corporation,)
unless)specifically)revoked)by)another)law.)The)question)
becomes:) Do) the) laws) on) corporate) rehabilitation) —)
particularly) PD) 902DA,) as) amended,)) and) its)
corresponding)rules)of)procedure)—)forfeit)the)power)to)
sue) from) the) corporate) officers) and) Board) of)
Directors?))The)intention)of)the)law)is)"to)effect)a)feasible)
and) viable) rehabilitation) by)preserving)a) floundering)
business) as) a)going) concern,) because) the) assets) of) a)
business) are) often) more) valuable)when) so)
maintained)than) they) would) be) when) liquidated."))This)
concept) of) preserving) the) corporation's) business) as) a)
going) concern) while) it) is) undergoing) rehabilitation) is)
called) debtorDinDpossession) or) debtorDinDplace.) This)
means) that) the) debtor) corporation) (the) corporation)
undergoing) rehabilitation),) through) its) Board) of)
Directors)and)corporate)officers,)remains)in)control)of)its)
business)and)properties,)subject)only)to)the)monitoring)
of)the)appointed)rehabilitation)receiver.))The)concept)of)
debtorDinDpossession,)is)carried)out)more)particularly)in)
the) SEC) Rules,) the) rule) that) is) relevant) to) the) instant)
case.))It) states) therein) that) the) interim) rehabilitation)
receiver) of) the) debtor) corporation) "does)not)take) over)
the) control) and) management) of) the) debtor)
corporation."))Likewise,) the) rehabilitation) receiver) that)
will) replace) the) interim) receiver) is) tasked) only) to)
monitor) the) successful) implementation) of) the)
rehabilitation) plan.))There) is) nothing) in) the) concept) of)
corporate) rehabilitation) that) would)ipso)
facto)deprive))the) Board) of) Directors) and) corporate)
officers) of) a) debtor) corporation,) such) as) ASB) Realty,) of)
control) such) that) it) can) no) longer) enforce) its) right) to)
)
To) be) sure,) corporate) rehabilitation) imposes) several)
restrictions) on) the) debtor) corporation.) The) rules)
enumerate) the) prohibited) corporate) actions) and)
transactions)64)(most) of) which) involve) some) kind) of)
disposition)or)encumbrance)of)the)corporation's)assets))
during) the) pendency) of) the) rehabilitation) proceedings)
but) none) of) which) touch) on) the) debtor) corporation's)
right)to)sue.)The)implication)therefore)is)that)our)concept)
closely) by) the) receiver,) who) can) seek) an) annulment) of)
any) prohibited) or) anomalous) transaction) or) agreement)
)
)
Management*Committee,*definition*
composed)of)persons,)natural)or)juridical,)appointed)by)
the)court,)pursuant)to)Section)32,)Rule)2)of)these)Rules.)It)
shall) take) the) place) of) the) management) and) governing)
body)of)the)debtor,)and)assume)their)powers,)rights)and)
Rules%of%Procedure%(2013),%A.M.%No.%12X12X11XSC,%[August%
27,%2013]))
)
Conflict* of* Interest* bars* one* from* becoming* a*
member*of*ManCom*
No) person) may) be) appointed) as) a) rehabilitation)
receiver)or)as)a)member)of)a)management)committee,)

LABAN NOTES ABRIL 94

 SPECIAL COMMERCIAL LAWS FINANCIAL REHABILITATION AND INSOLVENCY ACT
or) be) engaged) by) the) rehabilitation) receiver) or) the)
management)committee)if)he)has)a)conflict)of)interest.)
An) individual) shall) be) deemed) to) have) a) conflict) of)
interest) if) he) is) so) situated) as) to) be) materially)
influenced) in) the) exercise) of) his) judgment) for) or)
against) any) party) to) the) proceedings.) A) conflict) of)
interest) of) an) individual) employed) or) contracted) by)
the) rehabilitation) receiver) or) the) management)
committee) or) its) members) shall) be) deemed) to) be) a)
conflict)of)interest)of)the)rehabilitation)receiver)or)the)
management) committee.) (Financial% Rehabilitation%
Rules% of% Procedure% (2013),% A.M.% No.% 12X12X11XSC,%
[August%27,%2013]))
* Code)on)concurrence)and)preference)of)credits)
) and)other)applicable)laws;)
Rehabilitation*Plan*
)
Rehabilitation*plan,*definition*
a)plan)by)which)the)financial)wellDbeing)and)viability)of)
an)insolvent)debtor)can)be)restored)using)various)means)
including,) but) not) limited) to,) debt) forgiveness,) debt)
rescheduling,) reorganization) or) quasiDreorganization,)
dacion) en) pago,) debtDequity) conversion) and) sale) of) the)
business)(or)parts)of)it))as)a)going)concern,)or)settingDup)
of)new)business)entity)as)prescribed)in)Section)62)hereof,)
or)other)similar)arrangements)as)may)be)approved)by)the)
court)or)creditors.)[sec.%4(ii)])
)
Contents*of*a*Rehabilitation*Plan*
SECTION) 61.)Contents) of) a) Rehabilitation) Plan.)—) The)
Rehabilitation)Plan,)as)a)minimum,)shall:)
(A)! specify) the) underlying) assumptions,) the)
financial) goals) and) procedures) proposed) to)
accomplish)these)goals,)including)the)duration)
and)coverage)of)the)rehabilitation;)
(B)! contain) a) liquidation) analysis) setting) out) for)
each) creditor) or) each) class) of) creditor,) as)
applicable,)the)amounts)they)expect)to)receive)
under) the) Rehabilitation) Plan) and) those) that)
they) will) receive) if) liquidation) ensues) within)
one)hundred)twenty)(120))days)after)the)filing)
of)the)petition;)
(C)! contain) information) sufficient) to) give) the)
various)classes)of)creditors)a)reasonable)basis)
for)determining)whether)supporting)the)Plan)is)
in)their)financial)interest)when)compared)to)the)
immediate)liquidation)of)the)debtor,)including)
any) reduction) of) principal) interest) and)
penalties)payable)to)the)creditors;)
(D)! establish)classes)of)voting)creditors;)
(E)! establish)subclasses)of)voting)creditors)if)prior)
approval)has)been)granted)by)the)court;)
(F)! indicate) how) the) insolvent) debtor) will) be)
rehabilitated,) among) others,) through:) debt)
forgiveness;)debt)rescheduling;)reorganization)
or)quasiDreorganization;)dacion)en)pago;)debtD
toDequity) conversion;) payment) of) unpaid)
subscriptions) by) shareholders;) sale) of) the)
business)as)a)going)concern;)settingDup)of)a)new)
LABAN NOTES ABRIL
business)entity)or)other)similar)arrangements,)
to)restore)the)financial)wellDbeing)and)viability)
of)the)insolvent)debtor;)
(G)! specify)the)treatment)of)each)class)or)subclass)
described)in)subsections)(D))and)(E);)
(H)! provide)for)equal)treatment)of)all)claims)within)
the)same)class)or)subclass,)unless)a)particular)
creditor)agrees)to)a)less)favorable)treatment;)
(I)! ensure) that) the) payments) made) under) the)
Rehabilitation) Plan) (which) shall) include)
proposed) dates) of) payment) and) specific)
amounts)on)such)dates)to)be)paid)to)each)and)
every) creditor)) will) follow) the) priority)
established) under) the) provisions) of) the)Civil)
(J)! maintain) the) security) interest) of) secured)
creditors)and)preserve)the)liquidation)value)of)
the) security) unless) this) has) been) waived) or)
modified)voluntarily;)
(K)! include) relevant) foreign) ownership) limits) or)
information,)if)any;)
(L)! disclose) all) payments) to) creditors) for) preD
commencement) debts) made) during) the)
proceedings) and) the) justifications) for) these)
payments;)
(M)! describe) the) disputed) claims) and) the)
provisioning) of) funds) to) account) for)
appropriate) payments) should) the) claim) be)
ruled)valid)or)its)amount)adjusted;)
(N)! identify)the)debtor's)role)in)the)implementation)
of)the)Rehabilitation)Plan;)
(O)! state) any) rehabilitation) covenants) of) the)
debtor,) whose) breach) shall) be) considered) a)
material)breach)of)the)Rehabilitation)Plan;)
(P)! identify) those) responsible) for) the) future)
management)of)the)debtor)and)the)supervision)
and)implementation)of)the)Rehabilitation)Plan,)
their) affiliation) with) the) debtor) and) their)
remuneration;)
(Q)! address) the) treatment) of) claims) arising) after)
the)confirmation)of)the)Rehabilitation)Plan;)
(R)! require) the) debtor) and) its) counterDparties) to)
adhere) to) the) terms) of) all) contracts) that) the)
debtor)has)chosen)to)confirm;)
(S)! arrange) for) the) payment) of) all) outstanding)
administrative) expenses) as) a) condition) to) the)
Rehabilitation) Plan's) approval) unless) such)
condition) has) been) waived) in) writing) by) the)
creditors)concerned;)
(T)! arrange) for) the) payment) of) all) outstanding)
taxes)and)assessments,)or)an)adjusted)amount)
pursuant)to)a)compromise)settlement)with)the)
BIR)or)other)applicable)tax)authorities;))
(U)! include) a) certified) copy) of) a) certificate) of) tax)
clearance) or) evidence) of) a) compromise)
settlement)with)the)BIR;)
(V)! include) a) valid) and) binding) resolution) of) a)
meeting) of) the) debtor's) stockholders) to)
increase)the)shares)by)the)required)amount)in)
cases) where) the) Rehabilitation) Plan)
95
 SPECIAL COMMERCIAL LAWS FINANCIAL REHABILITATION AND INSOLVENCY ACT

contemplates) an) additional) issuance) of) shares) Philippine*Asset*Growth*Two,*Inc.*v.*Fastech*Synergy*

by)the)debtor;) Philippines,*Inc.,*G.R.*No.*206528,*[June*28,*2016]*
(W)!state)the)compensation)and)status,)if)any,)of)the) )
rehabilitation) receiver) before) and) after) the) In) the) present) case,) however,) the) Rehabilitation) Plan)
approval)of)the)Rehabilitation)Plan;) failed) to) comply) with) the) minimum)
(X)! contain) provisions) for) conciliation) and) requirements,)i.e.:)(a)material)financial)commitments)to)
mediation)as)a)prerequisite)to)court)assistance) support) the) rehabilitation) plan;) and)(b))a) proper)
or)intervention;) liquidation)analysis,)under)Section)18,)Rule)3)of)the)2008)
(Y)! include) material) financial) undertakings) or) Rules) of) Procedure) on) Corporate)
commitments) to) support) the) Rehabilitation) Rehabilitation)80)(Rules),) which) Rules) were) in) force) at)
Plan;) the)time)respondents')rehabilitation)petition)was)filed)on)
(Z)! contain) provisions) for) monitoring) the) April)8,)2011:)
implementation) of) the) Rehabilitation) Plan,) )
including,)requiring)the)rehabilitation)receiver) Section% 18.%Rehabilitation% Plan.%—% The% rehabilitation%
and/or) debtor) to) make) reports) from) time) to) plan%shall%include%(a)%the%desired%business%targets%or%goals%
time;) and% the% duration% and% coverage% of% the% rehabilitation;% (b)%
(AA)! contain) the) manner) of) its) the%terms%and%conditions%of%such%rehabilitation%which%shall%
implementation,) giving) due) regard) to) the) include% the% manner% of% its% implementation,% giving% due%
interests)of)secured)creditors)such)as)the)nonD regard%to%the%interests%of%secured%creditors%such%as,%but%not%
impairment)of)their)security)liens)or)interests;) limited,% to% the% nonXimpairment% of% their% security% liens% or%
and) interests;% (c)%the% material% financial% commitments% to%
(BB)!contain) such) other) relevant) information) to) support% the% rehabilitation% plan;% (d)% the% means% for% the%
enable) a) reasonable) investor) to) make) an) execution% of% the% rehabilitation% plan,% which% may% include%
informed) decision) on) the) feasibility) of) the) debt% to% equity% conversion,% restructuring% of% the%
Rehabilitation) Plan.% (Financial% Rehabilitation% debts,%dacion% en% pago%or% sale% or% exchange% or% any%
Rules%of%Procedure%(2013),%A.M.%No.%12X12X11XSC,% disposition% of% assets% or% of% the% interest% of% shareholders,%
[August%27,%2013])% partners%or%members;%(e)%a%liquidation%analysis%setting%out%
) for% each% creditor% that% the% present% value% of% payments% it%
) would% receive% under% the% plan% is% more% than% that% which% it%
Reliefs*available* would% receive% if% the% assets% of% the% debtor% were% sold% by% a%
* liquidator% within% a% sixXmonth% period% from% the% estimated%
Relief* from* any* order* issued* prior* to* approval* of* date% of% filing% of% the% petition;% and% (f)% such% other% relevant%
Rehabilitation*Plan* information% to% enable% a% reasonable% investor% to% make% an%
A) party) may) file) a) motion) for) reconsideration) of) any) informed% decision% on% the% feasibility% of% the% rehabilitation%
order) issued) by) the) court) prior) to) the) approval) of) the) plan.%(Emphases%supplied)%
Rehabilitation) Plan.) No) relief) can) be) extended) to) the) )
party) aggrieved) by) the) court's) order) on) the) motion) The)Court)expounds.)
through)a)special)civil)action)for)certiorari)under)Rule)65) )
of) the) Rules) of) Court.)(Financial% Rehabilitation% Rules% of% A.) Lack) of) Material) Financial) Commitment)
Procedure% (2013),% A.M.% No.% 12X12X11XSC,% [August% 27,% to)Support)the)Rehabilitation)Plan.)
2013])% A)material)financial)commitment)becomes)significant)in)
) gauging) the) resolve,) determination,) earnestness,) and)
Relief* from* any* order* issued* after* the* approval* of* good)faith)of)the)distressed)corporation)in)financing)the)
Rehabilitation*Plan* proposed) rehabilitation) plan.) This) commitment) may)
An)order)issued)after)the)approval)of)the)Rehabilitation) include) the)voluntary) undertakings)of) the) stockholders)
Plan)can)be)reviewed)only)through)a)special)civil)action) or) the) wouldDbe) investors) of) the) debtorDcorporation)
for) certiorari)under) Rule) 65) of) the) Rules) of) indicating) their) readiness,) willingness,) and) ability) to)
Court.)(Financial% Rehabilitation% Rules% of% Procedure% contribute)funds)or)property)to)guarantee)the)continued)
(2013),%A.M.%No.%12X12X11XSC,%[August%27,%2013])% successful) operation) of) the) debtorDcorporation) during)
% the)period)of)rehabilitation.)81)
Review*of*Decision*or*Order*on*Rehabilitation*Plan* )
An)order)approving)or)disapproving)a)rehabilitation)plan) In)this)case,)respondents')Chief)Operating)Officer,)Primo)
can)only)be)reviewed)through)a)petition)for)certiorari)to) D.)Mateo,)Jr.,)in)his)executed)Affidavit)of)General)Financial)
the)Court)of)Appeals)under)Rule)65)of)the)Rules)of)Court) Condition)82)dated) April) 8,) 2011,) averred) that)
within) fifteen) (15)) days) from) notice) of) the) decision) or) respondents)will) not)require) the) infusion) of) additional)
order.% (Financial% Rehabilitation% Rules% of% Procedure% capital) as) he,) instead,) proposed) to) have) all) accrued)
(2013),%A.M.%No.%12X12X11XSC,%[August%27,%2013])% penalties,)charges,)and)interests)waived,)and)a)reduced)
) interest) rate) prospectively) applied) to) all) respondents')
Effect* of* the* Rehabilitation* Plan’s* failure* to* comply* obligations,) in) addition) to) the) implementation) of) a) two)
with*the**minimum*requirements* (2)Dyear) grace) period.83)Thus,) there) appears) to) be) no)
) concrete) plan) to) build) on) respondents') beleaguered)

LABAN NOTES ABRIL 96

 SPECIAL COMMERCIAL LAWS FINANCIAL REHABILITATION AND INSOLVENCY ACT
financial)position)through)substantial)investments)as)the)
plan) for) rehabilitation) appears) to) be) pegged) merely) on)
financial) reprieves.) Anathema) to) the) true) purpose) of)
rehabilitation,) a) distressed) corporation) cannot) be)
restored) to) its) former) position) of) successful) operation)
and) regain) solvency) by) the) sole) strategy) of) delaying)
payments/waiving)accrued)interests)and)penalties)at)the)
expense)of)the)creditors.)
) by) respondents) fails) to) convince) the) Court) of) the)
The) Court) also) notes) that) while) respondents) have)
substantial) total) assets,) a) large) portion) of) the) assets) of)
Fastech) Synergy)84)and) Fastech) Properties)85)is)
comprised)of)noncurrent)assets,)86)such)as)advances)to)
affiliates) which) include) Fastech) Microassembly,)87)and)
investment) properties) which) form) part) of) the) common)
assets) of) Fastech) Properties,) Fastech) Electronique,) and)
Fastech) Microassembly.)88)Moreover,) while) there) is) a)
claim) that)unnamed)customers) have) made) investments)
by) way) of) consigning) production) equipment,) and)
advancing) money) to) fund) procurement) of) various)
equipment) intended) to) increase) production)
capacity,)89)this) can) hardly) be) construed) as) a) material)
financial) commitment) which) would) inspire) confidence)
that) the) rehabilitation) would) turn) out) to) be) successful.)
Case) law) holds) that) nothing) short) of) legally) binding)
investment)commitment/s)from)third)parties)is)required)
to) qualify) as) a) material) financial) commitment.)90)Here,)
no)such)binding)investment)was)presented.)
) statements) for) the) year) 2010,) and) the) months) of)
B.)Lack)of)Liquidation)Analysis.)
Respondents) likewise) failed) to) include) any) liquidation)
analysis)in)their)Rehabilitation)Plan.)The)total)liquidation)
assets) and) the) estimated) liquidation) return) to) the)
creditors,) as) well) as) the) fair) market) value) visDàDvis) the)
forced) liquidation) value) of) the) fixed) assets) were) not)
shown.) As) such,) the) Court) could) not) ascertain) if) the)
petitioning)debtor's)creditors)can)recover)by)way)of)the)
present)value)of)payments)projected)in)the)plan,)more)if)
the) debtor) continues) as) a) going) concern) than) if) it) is)
immediately) liquidated.) This) is) a) crucial) factor) in) a)
corporate) rehabilitation) case,) which) the) CA,)
unfortunately,)failed)to)address.)
) opposed)to)this)objective,)the)revised)Rehabilitation)Plan)
C.)Effect)of)NonDCompliance.)
The) failure) of) the) Rehabilitation) Plan) to) state) any)
material)financial)commitment)to)support)rehabilitation,)
as)well)as) to) include) a) liquidation) analysis,) renders) the)
CA's) considerations) for) approving) the) same,)i.e.,)
that:)(a))respondents) would) be) able) to) meet) their)
obligations)to)their)creditors)within)their)operating)cash)
profits) and) other) assets) without) disrupting) their)
business) operations;)(b))the) Rehabilitation) Receiver's)
opinion) carries) great) weight;) and)(c)rehabilitation) will)
be) beneficial) for) respondents') creditors,) employees,)
stockholders,) and) the) economy,)91)as) actually)
unsubstantiated,) and) hence,) insufficient) to) decree) the)
feasibility) of) respondents') rehabilitation.) It) is) well) to)
emphasize) that) the) remedy) of) rehabilitation) should) be)
denied) to) corporations) that) do) not) qualify) under) the)
Rules.) Neither) should) it) be) allowed) to) corporations)
LABAN NOTES ABRIL
whose)sole)purpose)is)to)delay)the)enforcement)of)any)of)
the)rights)of)the)creditors.)
)
Even) if) the) Court) were) to) set) aside) the) failure) of) the)
Rehabilitation) Plan) to) comply) with) the) fundamental)
requisites) of) material) financial) commitment) to) support)
the) rehabilitation) and) an) accompanying) liquidation)
analysis,)a)review)of)the)financial)documents)presented)
feasibility)of)the)proposed)plan.))
)
xxx)
)
A)perusal)of)the)2009)audited)financial)statements)shows)
that) respondents') cash) operating) position)96)was) not)
even)enough)to)meet)their)maturing)obligations.)Notably,)
their) current) assets) were) materially) lower) than) their)
current) liabilities,)97)and) consisted) mostly) of) advances)
to)related)parties)in)the)case)of)Fastech)Microassembly,)
Fastech) Electronique,) and) Fastech)
Properties.)98)Moreover,) the) independent) auditors)
recognized)the)absence)of)available)historical)or)reliable)
market)information)to)support)the)assumptions)made)by)
the) management) to) determine) the) recoverable) amount)
(value) in) use)) of) respondents') properties) and)
equipment.))
)
)On) the) other) hand,) respondents') unaudited) financial)
February)and)March)2011)were)unaccompanied)by)any)
notes)or)explanation)on)how)the)figures)were)arrived)at.)
Besides,)respondents')cash)operating)position)remained)
insufficient) to) meet) their) maturing) obligations) as) their)
current) assets) are) still) substantially) lower) than) their)
current) liabilities.)100)The) Court) also) notes) the) RTCD
Makati's) observation) that) respondents) added) new)
accounts) and/or) deleted/omitted) certain)
accounts,)101)but)failed)to)explain)or)justify)the)same.)
)
Verily,) respondents') Rehabilitation) Plan) should) have)
shown) that) they) have) enough) serviceable) assets) to) be)
able) to) continue) its) business) operation.) In) fact,) as)
still) requires) "front) load) Capex) spending") to) replace)
common) equipment) and) facility) equipment) to) ensure)
sustainability) of) capacity) and) capacity)
robustness,)102)thus,) further) sacrificing) respondents')
cash) flow.) In) addition,) the) Court) is) hardDpressed) to) see)
the) effects) of) the) outcome) of) the) streamlining) of)
respondents')manufacturing)operations)on)the)carrying)
value)of)their)existing)properties)and)equipment.)
)
In) fine,) the) Rehabilitation) Plan) and) the) financial)
documents)submitted)in)support)thereof)fail)to)show)the)
feasibility)of)rehabilitating)respondents')business.))
)
Two*(2)*Tests*in*evaluating*economic*feasibility*of*a*
Rehabilitation*Plan*
Economic)Feasibility)Test)
In) order) to) determine) the) feasibility) of) a) proposed)
rehabilitation) plan,) it) is) imperative) that) a) thorough)
97
 SPECIAL COMMERCIAL LAWS FINANCIAL REHABILITATION AND INSOLVENCY ACT
examination)and)analysis)of)the)distressed)corporation's)
financial) data) must) be) conducted.) If) the) results) of) such)
examination) and) analysis) show) that) there) is) a) real)
opportunity)to)rehabilitate)the)corporation)in)view)of)the)
assumptions) made) and) financial) goals) stated) in) the)
proposed)rehabilitation)plan,)then)it)may)be)said)that)a)
rehabilitation)is)feasible.)In)this)accord,)the)rehabilitation)
court) should) not) hesitate) to) allow) the) corporation) to)
operate)as)an)onDgoing)concern,)albeit)under)the)terms)
and) conditions) stated) in) the) approved) rehabilitation)
plan.) On) the) other) hand,) if) the) results) of) the) financial)
examination)and)analysis)clearly)indicate)that)there)lies)
no) reasonable) probability) that) the) distressed)
corporation)could)be)revived)and)that)liquidation)would,)
in)fact,)better)subserve)the)interests)of)its)stakeholders,)
then) it) may) be) said) that) a) rehabilitation) would) not) be)
feasible.) In) such) case,) the) rehabilitation) court) may)
convert) the) proceedings) into) one) for) liquidation.)
(Philippine% Asset% Growth% Two,% Inc.% v.% Fastech% Synergy%
Philippines,%Inc.,%G.R.%No.%206528,%[June%28,%2016]))
* be)binding)upon)the)debtor)and)all)persons)who)
Present)Value)Recovery)Test)
Present) value) recovery) acknowledges) that,) in) order) to)
pave)way)for)rehabilitation,)the)creditor)will)not)be)paid)
by) the) debtor) when) the) credit) falls) due.) The) court) may)
order) a) suspension) of) payments) to) set) a) rehabilitation)
plan) in) motion;) in) the) meantime,) the) creditor) remains)
unpaid.)By)the)time)the)creditor)is)paid,)the)financial)and)
economic)conditions)will)have)been)changed.)Money)paid)
in)the)past)has)a)different)value)in)the)future.)It)is)unfair)
if)the)creditor)merely)receives)the)face)value)of)the)debt.)
Present)value)of)the)credit)takes)into)account)the)interest)
that) the) amount) of) money) would) have) earned) if) the)
creditor)were)paid)on)time.)
) continuing) to) apply) to) the) extent) that) they) do)
Trial) courts) must) ensure) that) the) projected) cash) flow)
from)a)business')rehabilitation)plan)allows)for)the)closest)
present)value)recovery)for)its)creditors.)If)the)projected)
cash)flow)is)realistic)and)allows)the)corporation)to)meet)
all)its)obligations,)then)courts)should)favor)rehabilitation)
over) liquidation.) However,) if) the) projected) cash) flow) is)
unrealistic,) then) courts) should) consider) converting) the)
proceedings) into) that) for) liquidation) to) protect) the)
creditors.) (Philippine% Asset% Growth% Two,% Inc.% v.% Fastech%
Synergy%Philippines,%Inc.,%G.R.%No.%206528,%[June%28,%2016]))
* Purpose*of*CramNdown*clause*
* to) curb) the) majority) creditors') natural) tendency) to)
Characteristics* of* an* economically* feasible*
rehabilitation*plan*
(a)! the)absence)of)a)sound)and)workable)business)
plan;)
(b)! )baseless)and)unexplained)assumptions,)targets)
and)goals;)
(c)! speculative) capital) infusion) or) complete) lack)
thereof)for)the)execution)of)the)business)plan;)
(d)! cash)flow)cannot)sustain)daily)operations;)and)
(e)! negative)net)worth)and)the)assets)are)near)full)
depreciation) or) fully) depreciated.) (Philippine%
Asset% Growth% Two,% Inc.% v.% Fastech% Synergy%
Philippines,% Inc.,% G.R.% No.% 206528,% [June% 28,%
2016]))
LABAN NOTES ABRIL
*
*
*
Cram*Down*Effect*
)
CramNdown*effect,*concept*
A) restructuring/workout) agreement) or) Rehabilitation)
Plan)that)is)approved)pursuant)to)an)informal)workout)
framework) referred) to) in) this) chapter) shall) have) the)
same)legal)effect)as)confirmation)of)a)Plan)under)Section)
69) hereof.) The) notice) of) the) Rehabilitation) Plan) or)
restructuring)agreement)or)Plan)shall)be)published)once)
a) week) for) at) least) three) (3)) consecutive) weeks) in) a)
newspaper)of)general)circulation)in)the)Philippines.)The)
Rehabilitation)Plan)or)restructuring)agreement)shall)take)
effect)upon)the)lapse)of)fifteen)(15))days)from)the)date)of)
the)last)publication)of)the)notice)thereof.)(sec.%86))
)
Effects*of*an*approved*Rehabilitation*Plan*
(a)! The)Rehabilitation)Plan)and)its)provisions)shall)
may) be) affected) by) it,) including) the) creditors,)
whether)or)not)such)persons)have)participated)
in) the) proceedings) or) opposed) the)
Rehabilitation) Plan) or) whether) or) not) their)
claims)have)been)scheduled;)
(b)! The)debtor)shall)comply)with)the)provisions)of)
the)Rehabilitation)Plan)and)shall)take)all)actions)
necessary)to)carry)out)the)Plan;)
(c)! Payments) shall) be) made) to) the) creditors) in)
accordance) with) the) provisions) of) the)
Rehabilitation)Plan;)
(d)! Contracts)and)other)arrangements)between)the)
debtor)and)its)creditors)shall)be)interpreted)as)
not) conflict) with) the) provisions) of) the)
Rehabilitation)Plan;)
(e)! Any)compromises)on)amounts)or)rescheduling)
of) timing) of) payments) by) the) debtor) shall) be)
binding) on) creditors) regardless) of) whether) or)
not)the)Plan)is)successfully)implement;)and)
(f)! Claims) arising) after) approval) of) the) Plan) that)
are) otherwise) not) treated) by) the) Plan) are) not)
subject)to)any)Suspension)Order.)(sec.%69))
)
dictate) their) own) terms) and) conditions) to) the)
rehabilitation,) absent) due) regard) to) the) greater) longD
term) benefit) of) all) stakeholders.) Otherwise) stated,) it)
forces)the)creditors)to)accept)the)terms)and)conditions)of)
the) rehabilitation) plan,) preferring) longDterm) viability)
over) immediate) but) incomplete) recovery.) (Bank% of% the%
Philippine% Islands% v.% Sarabia% Manor% Hotel% Corp.,% G.R.% No.%
175844,%[July%29,%2013],%715%PHIL%420X443))
Stay*or*Suspension*Order*
)
Stay*or*suspension*order,*definition*
an)order)issued)in)conjunction)with)the)commencement)
order) that) shall) suspend) all) actions) or) proceedings,) in)
98
 SPECIAL COMMERCIAL LAWS FINANCIAL REHABILITATION AND INSOLVENCY ACT
court)or)otherwise,)for)the)enforcement)of)claims)against)
the)debtor;)suspend)all)actions)to)enforce)any)judgment,)
attachment) or) other) provisional) remedies) against) the)
debtor;) prohibit) the) debtor) from) selling,) encumbering,)
transferring) or) disposing) in) any) manner) any) of) its)
properties)except)in)the)ordinary)course)of)business;)and)
prohibit) the) debtor) from) making) any) payment) of) its)
liabilities) outstanding) as) of) the) commencement) date)
except) as) may) be) provided) herein.|(Financial%
Rehabilitation%Rules%of%Procedure%(2013),%A.M.%No.%12X12X
11XSC,%[August%27,%2013]))
) receiver)to)effectively)exercise)its/his)powers)free)from)
) any) judicial) or) extrajudicial) interference) that) might)
Effects*of**Stay*or*Suspension*Order*
) company.)(Panlilio%v.%Regional%Trial%Court,%Manila,%G.R.%No.%
(1)! suspend)all)actions)or)proceedings,)in)court)or)
otherwise,) for) the) enforcement) of) claims)
against)the)debtor;)
(2)! suspend) all) actions) to) enforce) any) judgment,)
attachment) or) other) provisional) remedies)
against)the)debtor;)
(3)! prohibit)the)debtor)from)selling,)encumbering,)
transferring)or)disposing)in)any)manner)any)of)
its)properties)except)in)the)ordinary)course)of)
business;)and)
(4)! prohibit)the)debtor)from)making)any)payment)
of) its) liabilities) outstanding) as) of) the)
commencement) date) except) as) may) be)
provided)herein.)[sec.%16(q)])
) )
The)issuance)of)a)stay)order)does)not)affect)the)right)to)
commence) actions) or) proceedings) in) order) to)
preserve)ad% cautelam%a) claim) against) the) debtor) and) to)
toll) the) running) of) the) prescriptive) period) to) file) the)
claim.) For) this) purpose,) the) plaintiff) may) file) the)
appropriate) court) action) or) proceeding) by) paying) the)
amount)of)One)Hundred)Thousand)Pesos)(P100,000.00))
or) oneDtenth) (1/10)) of) the) prescribed) filing) fee,)
whichever) is) lower.) The) payment) of) the) balance) of) the)
filing) fee) shall) be) a) jurisdictional) requirement) for) the)
reinstatement) or) revival) of) the) case.|||%(Financial%
Rehabilitation%Rules%of%Procedure%(2013),%A.M.%No.%12X12X
11XSC,%[August%27,%2013]))
) Section%47.%Foreclosure%of%Real%Estate%Mortgage.%—%.%.%.%
Where*filed*
In) January) 2004,)Republic) Act) No.) 8799)(RA) 8799),)
otherwise) known) as) the)Securities) Regulation) Code,)
amended) Section) 5) of)PD) 902DA,) and) transferred) to) the)
Regional) Trial) Courts) the) jurisdiction) of) the) Securities)
and) Exchange) Commission) (SEC)) over) petitions) of)
corporations,)partnerships)or)associations)to)be)declared)
in)the)state)of)suspension)of)payments)in)cases)where)the)
corporation,) partnership) or) association) possesses)
property) to) cover) all) its) debts) but) foresees) the)
impossibility)of)meeting)them)when)they)respectively)fall)
due) or) in) cases) where) the) corporation,) partnership) or)
association)has)no)sufficient)assets)to)cover)its)liabilities,)
but)is)under)the)management)of)a)rehabilitation)receiver)
or) a) management) committee.% (Express% Investments% III%
Private,%Ltd.%v.%Bayantel,%Inc,%G.R.%Nos.%174457X59,%175418X
20,%177270,%[December%5,%2012],%700%PHIL%225X289))
LABAN NOTES ABRIL
*
*
Claim,*definition*
refer)to)debts)or)demands)of)a)pecuniary)nature,)or)the)
assertion)to)have)money)paid%(Panlilio%v.%Regional%Trial%
Court,% Manila,% G.R.% No.% 173846,% [February% 2,% 2011],% 656%
PHIL%453X463)%
%
Purpose*for*suspending*actions*for*claims*against*a*
corporation*in*a*rehab*proceeding*
to) enable) the) management) committee) or) rehabilitation)
unduly) hinder) or) prevent) the) rescue) of) the) debtor)
173846,%[February%2,%2011],%656%PHIL%453X463))
)
Suspension* of* claims* does* not* contemplate*
suspension* of* criminal* charges* filed* against*
corporate*officers*
The) Stay) or) Suspension) Order) shall) not) apply) to) any)
criminal) action) against) individual) debtor) or) owner,)
partner,) director) or) officer) of) a) debtor) shall) not) be)
affected)by)any)proceeding)commend)under)this)Act.)[sec.%
18(g)])
)
Suspension* of* claims* against* a* debtor* corporation*
whose* ownership* over* its* properties* were* already*
acquired*by*its*creditor*
Town* and* Country* Enterprises,* Inc.* v.* Quisumbing,*
Jr.,*G.R.*No.*173610,*174132,*[October*1,*2012]*
)
The)dearth)of)merit)in)petitioners')position)is,)however,)
evident) from) the) fact) that,) Metrobank) had) already)
acquired)ownership)over)the)subject)realties)when)TCEI)
commenced)its)petition)for)corporate)rehabilitation)on)1)
October)2002.)Although)Metrobank)concededly)invoked)
Act)No.)3135)in)seeking)the)extrajudicial)foreclosure)of)
the)mortgages)executed)by)TCEI,)the)second)paragraph)
of)Section)47)of)RA)8791)—)the)law)in)force)at)said)time)
—)specifically)provides)as)follows:)
)
Notwithstanding% Act% 3135,% juridical% persons% whose%
property% is% being% sold% pursuant% to% an% extrajudicial%
foreclosure,%shall%have%the%right%to%redeem%the%property%in%
accordance% with% this% provision% until,% but% not% after,% the%
registration%of%the%certificate%of%foreclosure%sale%with%the%
applicable%Register%of%Deeds%which%in%no%case%shall%be%more%
than% three% (3)% months% after% foreclosure,% whichever% is%
earlier.% Owners% of% property% that% has% been% sold% in% a%
foreclosure% sale% prior% to% the% effectivity% of% this% Act% shall%
retain%their%redemption%rights%until%their%expiration.%
%
Having) purchased) the) subject) realties) at) public) auction)
on)7)November)2001,)Metrobank)undoubtedly)acquired)
ownership)over)the)same)when)TCEI)failed)to)exercise)its)
right) of) redemption) within) the) threeDmonth) period)
prescribed) under) the) foregoing) provision.) With)
ownership) already) vested) in) its) favor) as) of) 6) February)
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 SPECIAL COMMERCIAL LAWS FINANCIAL REHABILITATION AND INSOLVENCY ACT
2002,) it) matters) little) that) Metrobank) caused) the)
certificate) of) sale) to) be) registered) with) the) Cavite)
Provincial) Registry) only) on) 10) April) 2002) and/or)
executed) an) affidavit) consolidating) its) ownership) over)
the) same) properties) only) on) 25) April) 2003.) The) rule) is)
settled) that) the) mortgagor) loses) all) interest) over) the)
foreclosed) property) after) the) expiration) of) the)
redemption) period) and) the) purchaser) becomes) the)
absolute) owner) thereof) when) no) redemption) is)
made.)36)By)the)time)that)the)Rehabilitation)Court)issued)
the)8)October)2002)Stay)Order)in)SEC)Case)No.)023D02,)it)
cannot,) therefore,) be) gainsaid) that) Metrobank) had) long)
acquired)ownership)over)the)subject)realties.)
) )
Viewed) in) the) foregoing) light,) the) CA) cannot) be) faulted)
for)upholding)the)RTC's)grant)of)a)writ)of)possession)in)
favor)of)Metrobank)on)11)January)2005.)If)the)purchaser)
at) the) foreclosure) sale,) upon) posting) of) the) requisite)
bond,)is)entitled)to)a)writ)of)possession)even)during)the)
redemption) period) under) Section) 7) of) Act) 3135,)37)as)
amended,)it)has)been)consistently)ruled)that)there)is)no)
reason)to)withhold)said)writ)after)the)expiration)of)the)
redemption) period) when) no) redemption) is) effected) by)
the)mortgagor.)Indeed,)the)rule)is)settled)that)the)right)of)
the) purchaser) to) the) possession) of) the) foreclosed)
property)becomes)absolute)after)the)redemption)period,)
without) a) redemption) being) effected) by) the) property)
owner.)Since)the)basis)of)this)right)to)possession)is)the)
purchaser's)ownership)of)the)property,)the)mere)filing)of)
an)ex) parte)motion) for) the) issuance) of) the) writ) of)
possession)would)suffice,)and)no)bond)is)required.)38)
) discharge)his)functions)as)mandated)by)law.))
Considering) that) Metrobank) acquired) ownership) over)
the) mortgaged) properties) upon) the) expiration) of) the)
redemption)period)on)6)February)2002,)TCEI)is)also)out)
on) a) limb) in) invoking) the) Stay) Order) issued) by) the)
Rehabilitation)Court)on)8)October)2002)and)the)approval)
of)its)rehabilitation)plan)on)29)March)2004.)An)essential)
function) of) corporate) rehabilitation) is,) admittedly,) the)
Stay) Order) which) is) a) mechanism) of) suspension) of) all)
actions) and) claims) against) the) distressed) corporation)
upon)the)due)appointment)of)a)management)committee)
or) rehabilitation) receiver.)39)The) Stay) Order) issued) by)
the)Rehabilitation)Court)in)SEC)Case)No.)023D02)cannot,)
however,) apply) to) the) mortgage) obligations) owing) to)
Metrobank)which)had)already)been)enforced)even)before)
TCEI's)filing)of)its)petition)for)corporate)rehabilitation)on)
1)October)2002.)
* sue_no%5D=186976.&q%5Bponente%5D=&q%5Bsyllabu
* s%5D=&q%5Btitle%5D=&q%5Butf8%5D=%E2%9C%93
Panlilio* v.* Regional* Trial* Court,* Manila,* G.R.* No.*
173846,*[February*2,*2011]*
* rehabilitation) court,) the) Court) of) Appeals) effectively)
A) criminal) action) has) a) dual) purpose,) namely,) the)
punishment) of) the) offender) and) indemnity) to) the)
offended)party.)The)dominant)and)primordial)objective)
of)the)criminal)action)is)the)punishment)of)the)offender.)
The)civil)action)is)merely)incidental)to)and)consequent)to)
the)conviction)of)the)accused.)The)reason)for)this)is)that)
criminal) actions) are) primarily) intended) to) vindicate) an)
outrage) against) the) sovereignty) of) the) state) and) to)
LABAN NOTES ABRIL
impose)the)appropriate)penalty)for)the)vindication)of)the)
disturbance) to) the) social) order) caused) by) the) offender.)
On) the) other) hand,) the) action) between) the) private)
complainant) and) the) accused) is) intended) solely) to)
indemnify) the) former.|||) Petitioners) are) charged) with)
violations)of)Section)28)(h))of)the)SSS)law,)in)relation)to)
Article)315)(1))(b))of)the)Revised)Penal)Code,)or)Estafa.)
The)SSS)law)clearly)"criminalizes")the)nonDremittance)of)
SSS) contributions) by) an) employer) to) protect) the)
employees) from) unscrupulous) employers.) Therefore,)
public) interest) requires) that) the) said) criminal) acts) be)
immediately) investigated) and) prosecuted) for) the)
protection)of)society.)
The) rehabilitation) of) SIHI) and) the) settlement) of) claims)
against) the) corporation) is) not) a) legal) ground) for) the)
extinction)of)petitioners')criminal)liabilities.)There)is)no)
reason) why) criminal) proceedings) should) be) suspended)
during)corporate)rehabilitation,)more)so,)since)the)prime)
purpose)of)the)criminal)action)is)to)punish)the)offender)
in) order) to) deter) him) and) others) from) committing) the)
same) or) similar) offense,) to) isolate) him) from) society,)
reform) and) rehabilitate) him) or,) in) general,) to) maintain)
social)order.)
)
The)prosecution)of)the)officers)of)the)corporation)has)no)
bearing)on)the)pending)rehabilitation)of)the)corporation,)
especially) since) they) are) charged) in) their) individual)
capacities.)Such)being)the)case,)the)purpose)of)the)law)for)
the)issuance)of)the)stay)order)is)not)compromised,)since)
the) appointed) rehabilitation) receiver) can) still) fully)
)
)
Effect*when*Stay*Order*is*reversed*and*set*aside*by*
the*Court*of*Appeals*
)
Pryce* Properties* Corp.* v.* Spouses* Octobre,* G.R.* No.*
186976,*[December*7,*2016]*
)
When) the) stay) order) being) invoked) by) Pryce) was)
reversed)and)set)aside)at)the)first)instance)by)the)Court)
of)Appeals)in)CADG.R.)SP)No.)88479,)that)stay)order)was)
automatically) deemed)
vacated.)https://cdasiaonline.com/jurisprudences/62317?hit
s%5B%5D%5Bid%5D=62317&hits%5B%5D%5Btype%5
D=Jurisprudence&path=%2Fjurisprudences%2Fsearch&q
%5Bcitation_finder%5D=&q%5Bfull_text%5D=&q%5Bis
&q%5Byear_end%5D=&q%5Byear_start%5D= -
footnote40_0)By) reversing) the) stay) order) of) the)
enjoined) the) execution) of) such) order) as) allowed) by)
the)2000) Interim) Rules) of) Procedure) on) Corporate)
Rehabilitation)41)(which)was)then)in)effect)when)Pryce)
filed)its)petition)for)rehabilitation)in)2004).)We)affirmed)
the)Court)of)Appeals')decision)to)set)aside)the)stay)order)
in) the) Decision) dated) February) 4,) 2008)42)and)
Resolution) dated) June) 16,) 2008.)43)Although) we) later)
reconsidered)the)Decision)on)February)18,)2014,)44)the)
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 SPECIAL COMMERCIAL LAWS FINANCIAL REHABILITATION AND INSOLVENCY ACT
same) does) not) affect) the) validity) of) the) proceedings)
already) conducted) before) the) HLURB,) Office) of) the)
President,)and)Court)of)Appeals)during)the)intermediate)
period) that) the) stay) order) was) vacated.) Neither) does) it)
affect)our)resolution)of)this)petition)for)review)because)
under)the)Financial)Rehabilitation)and)Insolvency)Act)of)
2010)45)(FRIA),) the) stay) order) shall) not) apply) to) cases)
already)pending)appeal)in)the)Supreme)Court.)46)Section)
146) of) the)FRIA)expressly) allows) the) application) of) its)
provisions)to)pending)rehabilitation)cases,)except)to)the)
extent) that) their) application) would) not) be) feasible) or)
would)work)injustice,)
) )
) Liquidation*
Exceptions*to*the*Stay*or*Suspension*Order*
The)Stay)or)Suspension)Order)shall)not)apply:)
(a)! to)cases)already)pending)appeal)in)the)Supreme)
Court) as) of) commencement)
date:)Provided,)That) any) final) and) executory)
judgment) arising) from) such) appeal) shall) be)
referred)to)the)court)for)appropriate)action;)
(b)! subject) to) the) discretion) of) the) court,) to) cases)
pending)or)filed)at)a)specialized)court)or)quasiD
judicial) agency) which,) upon) determination) by)
the)court,)is)capable)of)resolving)the)claim)more)
quickly,) fairly) and) efficiently) than) the)
court:)Provided,)That) any) final) and) executory)
judgment) of) such) court) or) agency) shall) be)
referred)to)the)court)and)shall)be)treated)as)a)
nonDdisputed)claim;)
(c)! to) the) enforcement) of) claims) against) sureties)
and) other) persons) solidarily) liable) with) the)
debtor,) and) third) party) or) accommodation)
mortgagors) as) well) as) issuers) of) letters) of)
credit,)unless)the)property)subject)of)the)third)
party)or)accommodation)mortgage)is)necessary)
for) the) rehabilitation) of) the) debtor) as)
determined) by) the) court) upon)
recommendation) by) the) rehabilitation)
receiver;)
(d)! to)any)form)of)action)of)customers)or)clients)of)
a) securities) market) participant) to) recover) or)
otherwise) claim) moneys) and) securities)
entrusted)to)the)latter)in)the)ordinary)course)of)
the) latter's) business) as) well) as) any) action) of)
such) securities) market) participant) or) the)
appropriate) regulatory) agency) or) selfD
regulatory) organization) to) pay) or) settle) such)
claims)or)liabilities;)
(e)! to)the)actions)of)a)licensed)broker)or)dealer)to)
sell)pledged)securities)of)a)debtor)pursuant)to)a)
securities)pledge)or)margin)agreement)for)the)
settlement) of) securities) transactions) in)
accordance) with) the) provisions) of)the)
Securities) Regulation) Code)and)
its)implementing) rules) and)
regulations;)SETAcC))
(f)! the) clearing) and) settlement) of) financial)
transactions)through)the)facilities)of)a)clearing)
agency) or) similar) entities) duly) authorized,)
registered) and/or) recognized) by) the)
LABAN NOTES ABRIL
appropriate)regulatory)agency)like)the)Bangko)
Sentral)ng)Pilipinas)(BSP))and)the)SEC)as)well)
as) any) form) of) actions) of) such) agencies) or)
entities) to) reimburse) themselves) for) any)
transactions)settled)for)the)debtor;)and)
(g)! any) criminal) action) against) the) individual)
debtor)or)owner,)partner,)director)or)officer)of)
a)debtor)shall)not)be)affected)by)any)proceeding)
commenced) under) this) Act.% (Financial%
Rehabilitation% and% Insolvency% Act% (FRIA)% of%
2010,%Republic%Act%No.%10142,%[July%18,%2010])%
)
)
When*rehabilitation*is*no*longer*feasible,*liquidation*
is*proper*
The) public's) interest) lies) in) the) court's) ability) to)
effectively)ensure)that)the)obligations)of)the)debtor,)who)
has) experienced) severe) economic) difficulties,) are) fairly)
and)equitably)served.)The)alternative)might)be)a)chaotic)
rush) by) all) creditors) to) file) separate) cases) with) the)
possibility)of)different)trial)courts)issuing)various)writs)
competing)for)the)same)assets.)Rehabilitation)is)a)means)
to)temper)the)effect)of)a)business)downturn)experienced)
for) whatever) reason.) In) the) process,) it) gives)
entrepreneurs)a)second)chance.)Not)only)is)it)a)humane)
and) equitable) relief,) it) encourages) efficiency) and)
maximizes)welfare)in)the)economy.)
)
Clearly) then,) there) are) instances) when) corporate)
rehabilitation) can) no) longer) be) achieved.) When)
rehabilitation) will) not) result) in) a) better) present) value)
recovery)for)the)creditors,))the)more)appropriate)remedy)
is)liquidation.%%
%
It)does)not)make)sense)to)hold,)suspend,)or)continue)to)
devalue) outstanding) credits) of) a) business) that) has) no)
chance)of)recovery.)In)such)cases,)the)optimum)economic)
welfare)will)be)achieved)if)the)corporation)is)allowed)to)
wind) up) its) affairs) in) an) orderly) manner.) Liquidation)
allows) the) corporation) to) wind) up) its) affairs) and)
equitably)distribute)its)assets)among)its)creditors.)
)(Viva% Shipping% Lines,% Inc.% v.% Keppel% Philippines% Mining,%
Inc.,%G.R.%No.%177382,%[February%17,%2016])%
*
Liquidation*v.*Rehabilitation*
Liquidation) is) diametrically) opposed) to) rehabilitation.)
Both) cannot) be) undertaken) at) the) same) time.) In)
rehabilitation,)corporations)have)to)maintain)their)assets)
to) continue) business) operations.) In) liquidation,) on) the)
other)hand,)corporations)preserve)their)assets)in)order)
to) sell) them.) Without) these) assets,) business) operations)
are)effectively)discontinued.)The)proceeds)of)the)sale)are)
distributed) equitably) among) creditors,) and) surplus) is)
divided) or) losses) are) reDallocated.)|||%(Viva% Shipping%
Lines,% Inc.% v.% Keppel% Philippines% Mining,% Inc.,% G.R.% No.%
177382,%[February%17,%2016]))
)
)
101
 SPECIAL COMMERCIAL LAWS FINANCIAL REHABILITATION AND INSOLVENCY ACT

Kinds*of*Debtors* *
) Voluntary)Liquidation)
An)insolvent)debtor)may)apply)for)liquidation)by)filing)a)
Who*are*debtors*
petition)for)liquidation)with)the)court.)The)petition)shall)
*
be) verified,) shall) establish) the) insolvency) of) the) debtor)
Debtor,*definition*
and)shall)contain,)whether)as)an)attachment)or)as)part)of)
•! A)sole)proprietorship)duly)registered)with)the) the)body)of)the)petition;)
DTI;) (a)! a)schedule)of)the)debtor's)debts)and)liabilities)
•! A)partnership)duly)registered)with)the)SEC;)) including) a) list) of) creditors) with) their)
•! A) corporation) duly) organized) and) existing) addresses,)amounts)of)claims)and)collaterals,)or)
under)Philippine)laws;)and)) securities,)if)any;)
•! An)individual)debtor)who)has)become)insolvent) (b)! an) inventory) of) all) its) assets) including)
(Financial% Rehabilitation% and% Insolvency% Act% receivables) and) claims) against) third) parties;)
(FRIA)%of%2010,%Republic%Act%No.%10142,%[July%18,% and)
2010])) (c)! the)names)of)at)least)three)(3))nominees)to)the)
* position)of)liquidator.)
Individual*debtor,**definition* )
A) natural) person) who) is) a) resident) and) citizen) of) the) At)any)time)during)the)pendency)of)courtDsupervised)or)
Philippines) that) has) become) insolvent) (Financial% preDnegotiated) rehabilitation) proceedings,) the) debtor)
Rehabilitation%and%Insolvency%Act%(FRIA)%of%2010,%Republic% may) also) initiate) liquidation) proceedings) by) filing) a)
Act%No.%10142,%[July%18,%2010])) motion) in) the) same) court) where) the) rehabilitation)
) proceedings) are) pending) to) convert) the) rehabilitation)
Group*of*debtors,*definition* proceedings) into) liquidation) proceedings.) The) motion)
This)covers)only)the)following:) shall) be) verified,) shall) contain) or) set) forth) the) same)
•! Corporations)that)are)financially)related)to)one) matters)required)in)the)preceding)paragraph,)and)state)
another)as)parent)corporation.)Subsidiaries)or) that) the) debtor) is) seeking) immediate) dissolution) and)
affiliates;)) termination)of)its)corporate)existence.)
•! Partnerships)that)are)owned)more)than)50%)by) )
the)same)person;)and) If) the) petition) or) the) motion,) as) the) case) may) be,) is)
•! Single) proprietorships) that) are) owned) by) the) sufficient)in)form)and)substance,)the)court)shall)issue)a)
same) person) (Financial% Rehabilitation% and% Liquidation)Order)mentioned)in)Section)112)hereof.)(sec.%
Insolvency%Act%(FRIA)%of%2010,%Republic%Act%No.% 90))
10142,%[July%18,%2010])) )
) Involuntary)Liquidation)
Insolvent,*definition* Three) (3)) or) more) creditors) the) aggregate) of) whose)
the) financial) condition) of) a) debtor) that) is) generally) claims) is) at) least) either) One) million) pesos)
unable)to)pay)its)or)his)liabilities)as)they)fall)due)in)the) (Php1,000,000,00))or)at)least)twentyDfive)percent)(25%0)
ordinary) course) of) business) or) has) liabilities) that) are) of)the)subscribed)capital)stock)or)partner's)contributions)
greater) than) its) or) his) assets|||(Financial% Rehabilitation% of) the) debtor,) whichever) is) higher,) may) apply) for) and)
and%Insolvency%Act%(FRIA)%of%2010,%Republic%Act%No.%10142,% seek) the) liquidation) of) an) insolvent) debtor) by) filing) a)
[July%18,%2010])% petition)for)liquidation)of)the)debtor)with)the)court.)The)
% petition)shall)show)that:)
Liabilities,*definition* (a)! there)is)no)genuine)issue)of)fact)or)law)on)the)
monetary) claims) against) the) debtor,) including) claims/s) of) the) petitioner/s,) and) that) the) due)
stockholder's) advances) that) have) been) recorded) in) the) and) demandable) payments) thereon) have) not)
debtor's) audited) financial) statements) as) advances) for) been) made) for) at) least) one) hundred) eighty)
future) subscriptions|%(Financial% Rehabilitation% and% (180)) days) or) that) the) debtor) has) failed)
Insolvency% Act% (FRIA)% of% 2010,% Republic% Act% No.% 10142,% generally)to)meet)its)liabilities)as)they)fall)due;)
[July%18,%2010])) and)
) (b)! there) is) no) substantial) likelihood) that) the)
Ordinary*course*of*business,*definition* debtor)may)be)rehabilitated.)
transactions)in)the)pursuit)of)the)individual)debtor's)or) )
debtor's) business) operations) prior) to) rehabilitation) or) At) any) time) during) the) pendency) of) or) after) a)
insolvency) proceedings) and) on) ordinary) business) rehabilitation) courtDsupervised) or) preDnegotiated)
terms|||(Financial% Rehabilitation% and% Insolvency% Act% rehabilitation) proceedings,) three) (3)) or) more) creditors)
(FRIA)%of%2010,%Republic%Act%No.%10142,%[July%18,%2010])) whose) claims) is) at) least) either) One) million) pesos)
) (Php1,000,000.00))or)at)least)twentyDfive)percent)(25%))
) of)the)subscribed)capital)or)partner's)contributions)of)the)
Juridical*Debtors* debtor,)whichever)is)higher,)may)also)initiate)liquidation)
* proceedings)by)filing)a)motion)in)the)same)court)where)
Liquidation*of*Insolvent*Juridical*debtors* the)rehabilitation)proceedings)are)pending)to)convert)the)

LABAN NOTES ABRIL 102

 SPECIAL COMMERCIAL LAWS FINANCIAL REHABILITATION AND INSOLVENCY ACT

rehabilitation)proceedings)into)liquidation)proceedings.) )
The)motion)shall)be)verified,)shall)contain)or)set)forth)the) If)a)motion)is)filed,)it)must)be)served)on)the)debtor)and)
same)matters)required)in)the)preceding)paragraph,)and) the)rehabilitation)receiver)in)a)manner)that)will)ensure)
state) that) the) movants) are) seeking) the) immediate) its) receipt) at) least) three) (3)) days) before) the) hearing,)
liquidation)of)the)debtor.) unless)the)court,)for)good)reason)shown,)sets)the)hearing)
) on) shorter) notice.) If) a) creditors') committee) has) been)
If) the) petition) or) motion) is) sufficient) in) form) and) formed,)the)motion)shall)also)be)served)on)the)creditors')
substance,)the)court)shall)issue)an)Order:) committee.) (Financial% Rehabilitation% Rules% of% Procedure%
(1)! directing) the) publication) of) the) petition) or) (2013),%A.M.%No.%12X12X11XSC,%[August%27,%2013])%
motion) in) a) newspaper) of) general) circulation) %
once)a)week)for)two)(2))consecutive)weeks;)and) Suspension*of*payments*v.*Liquidation*
(2)! directing)the)debtor)and)all)creditors)who)are) *
not)the)petitioners)to)file)their)comment)on)the) Suspension*of* Rehabilitation**
petition)or)motion)within)fifteen)(15))days)from) Payments*
the)date)of)last)publication.) Applies)to)individual) Applies)to)business)
) debtor) organizations)–)sole)
If,) after) considering) the) comments) filed,) the) court) prop.,)partnership,)corps.)
determines)that)the)petition)or)motion)is)meritorious,)it) The)debtor)has)sufficient) The)debtor)is)insolvent.)
shall) issue) the) Liquidation) Order) mentioned) in) Section) assets)to)cover)its)
112)hereof.) liabilities.)
) Secured)debtors)are)not) Secured)debtors)are)
Individual*Debtors* affected.) affected)by)stay)order.)
) Filed)by)the)debtor.) may)be)initiated)by)the)
Suspension*of*payments,*who*may*petition* debtor)(voluntary)
An)individual)debtor)who,)possessing)sufficient)property) rehabilitation))or)by)the)
to)cover)all)his)debts)but)foreseeing)the)impossibility)of) creditors)(involuntary)
meeting)them)when)they)respectively)fall)due,)may)file)a) rehabilitation))
verified) petition) that) he) be) declared) in) the) state) of) There)is)no)minimum) The)claim)of,)or)the)
suspension)of)payments)by)the)court)of)the)province)or) requirement)for)the) aggregate)of)claims)
city)in)which)he)has)resided)for)six)(6))months)prior)to) amount)of)claims.) against)the)debtor)is)at)
the)filing)of)his)petition.)He)shall)attach)to)his)petition,)as) least)P1,000,000)or)at)
a)minimum:)(a))a)schedule)of)debts)and)liabilities;)(b))an) least)25%)of)the)
inventory)of)assets;)and)(c))a)proposed)agreement)with) subscribed)capital)stock)
his) creditors.|%(Financial% Rehabilitation% and% Insolvency% or)partners’)
Act% (FRIA)% of% 2010,% Republic% Act% No.% 10142,% [July% 18,% contributions,)whichever)
2010])% is)higher.)
% *
When* a* creditor* is* deemed* to* lack* adequate* %
protection* Suspension*of*payments*v.*Rehabilitation*
If)it)can)be)shown)that:) %
1.! the) debtor) fails) or) refuses) to) honor) a) preD Suspension*of* Liquidation*
existing) agreement) with) the) creditor) to) keep) Payments*
the)property)insured;) Debtor)is)not)insolvent.)–) Debtor)is)insolvent.)–)His)
2.! the)debtor)fails)or)refuses)to)take)commercially) The)debtor)has)sufficient) assets)are)insufficient.)
reasonable)steps)to)maintain)the)property;)or) assets)to)cover)its)
3.! the)property)has)depreciated)to)an)extent)that) liabilities.)
the)creditor)is)underDsecured.)) Payment)of)obligations)is) The)obligations)are)
) stayed.) discharged.)
Upon) showing) of) the) creditor's) lack) of) protection,) the) Applies)only)to) Proceedings)can)cover)
court)shall)order)the)debtor)or)the)rehabilitation)receiver) individual)debtor) juridical)persons)and)
to) make) arrangements) to) provide) for) the) insurance) or) individual)debtors)
maintenance) of) the) property,) or) to) make) payments) or) May)be)filed)by)the) May)be)initiated)by)the)
otherwise) provide) additional) or) replacement) security) debtor) debtor)(voluntary)
such) that) the) obligation) is) fully) secured.) If) such) insolvency))or)by)the)
arrangements)are)not)feasible,)the)court)may)modify)the) creditors)(involuntary)
Stay) Order) to) allow) the) secured) creditor,) lacking) insolvency))
adequate)protection,)to)enforce)its)security)claim)against) There)is)no)minimum) It)is)required)that)the)
the)debtor:)Provided,)however,)That)the)court)may)deny) amount)of)liabilities) debt)of)the)individual)
the) creditor) the) remedies) in) this) paragraph) if) the) prescribed.) debtor)is)not)less)than)
property)subject)of)the)enforcement)is)required)for)the) P500,000.)
rehabilitation)of)the)debtor.))

LABAN NOTES ABRIL 103

 SPECIAL COMMERCIAL LAWS FINANCIAL REHABILITATION AND INSOLVENCY ACT

The)rules)on) Apply)articles)2236)and) mentioned) in) Section) 112) hereof.||%(Financial%

concurrence)and) 2251)(NCC))on)rules)on) Rehabilitation%and%Insolvency%Act%(FRIA)%of%2010,%Republic%
preference)under)the) concurrence)and) Act%No.%10142,%[July%18,%2010]))
New)Civil)Code)do)not) preference)of)credit.) )
apply.) Liquidation*Order*
% )
% Upon)the)issuance)of)the)Liquidation)Order:)
Voluntary*liquidation*(VI)*v.*Involuntary*liquidation* (a)! the)juridical)debtor)shall)be)deemed)dissolved)
(IL)*of*Individual*Debtor* and) its) corporate) or) juridical) existence)
* terminated;)
VL* IL** (b)! )legal)title)to)and)control)of)all)the)assets)of)the)
Debtor)is)insolvent.) Debtor)is)insolvent.) debtor,)except)those)that)may)be)exempt)from)
Acts)of)insolvency)need) Creditors)must)prove) execution,) shall) be) deemed) vested) in) the)
not)be)alleged.) acts)of)insolvency.) liquidator) or,) pending) his) election) or)
The)debts)must)be)at) The)debts)must)be)at) appointment,)with)the)court;)
least)P500,000.) least)P500,000.) (c)! all) contracts) of) the) debtor) shall) be) deemed)
The)individual)debtor) A)creditor)or)group)of) terminated) and/or) breached,) unless) the)
files)the)Petition.) creditors)files)the) liquidator,) within) ninety) (90)) days) from) the)
Petition.) date) of) his) assumption) of) office,) declares)
Posting)of)bond)by) Posting)of)bond)is) otherwise)and)the)contracting)party)agrees;)
creditors)is)not)required.) required.) (d)! no) separate) action) for) the) collection) of) an)
Liquidation)Order)is) Liquidation)Order)is) unsecured)claim)shall)be)allowed.)Such)actions)
issued)without)trial)(sec.% issued)after)trial)(sec.% already) pending) will) be) transferred) to) the)
104)) 107).) Liquidator) for) him) to) accept) and) settle) or)
* contest.) If) the) liquidator) contests) or) disputes)
* the) claim,) the) court) shall) allow,) hear) and)
Involuntary* Liquidation* of* Individual* Debtor* v.* resolve) such) contest) except) when) the) case) is)
Involuntary*Liquidation*of*business*organizations* already)on)appeal.)In)such)a)case,)the)suit)may)
) proceed) to) judgment,) and) any) final) and)
IDs* BOs** executor) judgment) therein) for) a) claim) against)
At)least)3)creditors)are) There)can)be)one)or) the)debtor)shall)be)filed)and)allowed)in)court;)
required) more)creditors.) and)
The)debts)must)be)at) The)debt)or)aggregate)of) (e)! no)foreclosure)proceeding)shall)be)allowed)for)
least)P500,000.) debts)must)be)at)least) a)period)of)one)hundred)eighty)(180))days.)(sec.%
P1,000,000)or)equivalent) 113))
to)25%)of)subscribed) )
capital)stock)or)partner’s) )
contribution)whichever) Individual*Effects*of*the*Liquidation*Order*
is)higher.) )
The)individual)can) The)BO)will)be)dissolved.) Upon)the)issuance)of)the)Liquidation)Order:)
continue)his)business.) (a)! the)juridical)debtor)shall)be)deemed)dissolved)
There)must)be)an)act)of) Act)of)insolvency)is)not) and) its) corporate) or) juridical) existence)
insolvency.) required.) terminated;)
) (b)! legal)title)to)and)control)of)all)the)assets)of)the)
) debtor,)except)those)that)may)be)exempt)from)
) execution,) shall) be) deemed) vested) in) the)
Liquidation*Procedure* liquidator) or,) pending) his) election) or)
appointment,)with)the)court;)
)
(c)! all) contracts) of) the) debtor) shall) be) deemed)
Conversion*of*Rehabilitation*Proceedings*to* terminated) and/or) breached,) unless) the)
Liquidation*Proceedings* liquidator,) within) ninety) (90)) days) from) the)
) date) of) his) assumption) of) office,) declares)
During) the) pendency) of) courtDsupervised) or) preD otherwise)and)the)contracting)party)agrees;)
negotiated) rehabilitation) proceedings,) the) court) may) (d)! no) separate) action) for) the) collection) of) an)
order) the) conversion) of) rehabilitation) proceedings) to) unsecured)claim)shall)be)allowed.)Such)actions)
liquidation)proceedings)pursuant)to:)(a))Section)25)(c))of) already) pending) will) be) transferred) to) the)
this)Act;)or)(b))Section)72)of)this)Act;)or)(c))Section)75)of) Liquidator) for) him) to) accept) and) settle) or)
this)Act;)or)(d))Section)90)of)this)Act;)or)at)any)other)time) contest.) If) the) liquidator) contests) or) disputes)
upon)the)recommendation)of)the)rehabilitation)receiver) the) claim,) the) court) shall) allow,) hear) and)
that) the) rehabilitation) of) the) debtor) is) not) feasible.) resolve) such) contest) except) when) the) case) is)
Thereupon,) the) court) shall) issue) the) Liquidation) Order)

LABAN NOTES ABRIL 104

 SPECIAL COMMERCIAL LAWS FINANCIAL REHABILITATION AND INSOLVENCY ACT

already)on)appeal.)In)such)a)case,)the)suit)may) Act)%(Financial%Rehabilitation%and%Insolvency%Act%(FRIA)%of%
proceed) to) judgment,) and) any) final) and) 2010,%Republic%Act%No.%10142,%[July%18,%2010]))
executory)judgment)therein)for)a)claim)against) )
the)debtor)shall)be)filed)and)allowed)in)court;) Secured*creditor,*definition*
and) a)creditor)with)a)secured)claim|(Financial%Rehabilitation%
(e)! no)foreclosure)proceeding)shall)be)allowed)for) and%Insolvency%Act%(FRIA)%of%2010,%Republic%Act%No.%10142,%
a) period) of) one) hundred) eighty) (180)) [July%18,%2010])%
days.%% (Financial% Rehabilitation% and% Insolvency% %
Act%(FRIA)%of%2010,%Republic%Act%No.%10142,%[July% Secured*claim,*definition*
18,%2010])% a)claim)that)is)secured)by)a)lien)%(Financial%Rehabilitation%
% and%Insolvency%Act%(FRIA)%of%2010,%Republic%Act%No.%10142,%
) [July%18,%2010]))
Rights*of*Secured*Creditors* )
) Lien,*definition*
The) Liquidation) Order) shall) not) affect) the) right) of) a) a)statutory)or)contractual)claim)or)judicial)charge)on)real)
secured) creditor) to) enforce) his) lien) in) accordance) with) or) personal) property) that) legally) entitles) a) creditor) to)
the)applicable)contract)or)law.)A)secured)creditor)may:) resort)to)said)property)for)payment)of)the)claim)or)debt)
(a)! waive)his)right)under)the)security)or)lien,)prove) secured) by) such) lien) %(Financial% Rehabilitation% and%
his) claim) in) the) liquidation) proceedings) and) Insolvency% Act% (FRIA)% of% 2010,% Republic% Act% No.% 10142,%
share) in) the) distribution) of) the) assets) of) the) [July%18,%2010]))
debtor;)or) )
(b)! maintain)his)rights)under)the)security)or)lien:) )
) Limitation*to*the*creditor’s*right*of*foreclosure*
If) the) secured) creditor) maintains) his) rights) under) the) A)secured)creditor,)however,)is)subject)to)the)temporary)
security)or)lien:) stay)of)foreclosure)proceedings)of)180)days,)upon)the)
(1)! the) value) of) the) property) may) be) fixed) in) a) issuance)of)the)Liquidation)Order.%(Metropolitan%Bank%
manner) agreed) upon) by) the) creditor) and) the) and%Trust%Company%v.%S.F.%Naguiat%Enterprises,%Inc.,%G.R.%
liquidator.) When) the) value) of) the) property) is) No.%178407,%[March%18,%2015]))
less) than) the) claim) it) secures,) the) liquidator) )
may) convey) the) property) to) the) secured) A* secured* creditor* has* the* right* to* foreclose*
creditor) and) the) latter) will) be) admitted) in) the) mortgages*in*its*favor*during*liquidation*of*a*debtor*
liquidation) proceedings) as) a) creditor) for) the) corporation*
balance.)If)its)value)exceeds)the)claim)secured,) )
the)liquidator)may)convey)the)property)to)the) Yngson,* Jr.* v.* Philippine* National* Bank,* G.R.* No.*
creditor) and) waive) the) debtor's) right) of) 171132,*[August*15,*2012]*
redemption)upon)receiving)the)excess)from)the) )
creditor;) Did)the)SEC)then)err)in)ruling)that)PNB)was)not)barred)
(2)! the)liquidator)may)sell)the)property)and)satisfy) from) foreclosing) on) the) mortgages?) We) answer) in) the)
the) secured) creditor's) entire) claim) from) the) negative.)
proceeds)of)the)sale;)or) In) the) case) of)Consuelo) Metal) Corporation) v.) Planters)
(3)! the) secure) creditor) may) enforce) the) lien) or) Development)Bank,))which)involved)factual)antecedents)
foreclose) on) the) property) pursuant) to) similar)to)the)present)case,)the)court)has)already)settled)
applicable)laws.)(sec.%114)) the)above)question)and)upheld)the)right)of)the)secured)
) creditor)to)foreclose)the)mortgages)in)its)favor)during)the)
Creditor,*definition* liquidation) of) a) debtor) corporation.) In) that) case,)
a)natural)or)juridical)person)which)has)a)claim)against)the) Consuelo)Metal)Corporation)(CMC))filed)with)the)SEC)a)
debtor) that) arose) on) or) before) the) commencement) petition) to) be) declared) in) a) state) of) suspension) of)
date|||(Financial%Rehabilitation%and%Insolvency%Act%(FRIA)% payment,)for)rehabilitation,)and)for)the)appointment)of)a)
of%2010,%Republic%Act%No.%10142,%[July%18,%2010])% rehabilitation)receiver)or)management)committee)under)
% Section)5)(d))of)P.D.)No.)902DA.)On)April)2,)1996,)the)SEC,)
Commence*date,*definition* finding) the) petition) sufficient) in) form) and) substance,)
the)date)on)which)the)court)issues)the)Commencement) declared)that)"all)actions)for)claims)against)CMC)pending)
Order,)which)shall)be)retroactive)to)the)date)of)filing)of) before) any) court,) tribunal,) office,) board,) body) and/or)
the) petition) for) voluntary) or) involuntary) commission) are) deemed) suspended) immediately) until)
proceedings|(Financial%Rehabilitation%and%Insolvency%Act% further) orders") from) the) SEC.) Then) on) November) 29,)
(FRIA)%of%2010,%Republic%Act%No.%10142,%[July%18,%2010])) 2000,) upon) the) management) committee's)
) recommendation,) the) SEC) issued) an) Omnibus) Order)
General*unsecured*debtor,*definition* directing) the) dissolution) and) liquidation) of) CMC.)
a) creditor) whose) claim) or) a) portion) thereof) is) neither) Thereafter,) respondent) Planters) Development) Bank)
secured,) preferred) nor) subordinated) under) this) (Planters)Bank),)one)of)CMC's)creditors,)commenced)the)
extrajudicial)foreclosure)of)CMC's)real)estate)mortgage.)

LABAN NOTES ABRIL 105

 SPECIAL COMMERCIAL LAWS FINANCIAL REHABILITATION AND INSOLVENCY ACT
Planters) Bank) extrajudicially) foreclosed) on) the) real)
estate) mortgage) as) CMC) failed) to) secure) a) TRO.) CMC)
questioned)the)validity)of)the)foreclosure)because)it)was)
done) without) the) knowledge) and) approval) of) the)
liquidator.) The) Court) ruled) in) favor) of) the) respondent)
bank,)as)follows:)
) secured)creditor's)entire)claim)from)the)proceeds)of)the)
In)Rizal) Commercial) Banking) Corporation) v.)
Intermediate) Appellate) Court,)we) held) that) if)
rehabilitation)is)no)longer)feasible)and)the)assets)of)the)
corporation)are)finally)liquidated,)secured)creditors)shall)
enjoy)preference)over)unsecured)creditors,)subject)only)
to) the) provisions) of) the) Civil) Code) on) concurrence) and)
preference) of) credits.)Creditors) of) secured) obligations)
may) pursue) their) security) interest) or) lien,) or) they) may)
choose)to)abandon)the)preference)and)prove)their)credits)
as)ordinary)claims.)
) Rehabilitation* proceedings* protect* both* the* debtor*
Moreover,)Section)2248)of)the)Civil)Code)provides:)
"Those) credits) which) enjoy) preference) in) relation) to)
specific)real)property)or)real)rights,)exclude)all)others)to)
the)extent)of)the)value)of)the)immovable)or)real)right)to)
which)the)preference)refers.")
) aboveDmentioned,) the) purpose) of) rehabilitation)
In)this)case,)Planters)Bank,)as)a)secured)creditor,)enjoys)
preference)over)a)specific)mortgaged)property)and)has)a)
right)to)foreclose)the)mortgage)under)Section)2248)of)the)
Civil) Code.)The) creditorDmortgagee) has) the) right) to)
foreclose) the) mortgage) over) a) specific) real) property)
whether) or) not) the) debtorDmortgagor) is) under)
insolvency) or) liquidation) proceedings.) The) right) to)
foreclose)such)mortgage)is)merely)suspended)upon)the)
appointment) of) a) management) committee) or)
rehabilitation) receiver) or) upon) the) issuance) of) a) stay)
order) by) the) trial) court.) However,) the) creditorD
mortgagee) may) exercise) his) right) to) foreclose) the)
mortgage) upon) the) termination) of) the) rehabilitation)
proceedings) or) upon) the) lifting) of) the) stay)
order.)Emphasis)supplied)))
) in) favor) of) BPI) Family) and) hereby) dismiss) SMMCI's)
It) is) worth) mentioning) that) under)Republic) Act) No.)
10142,)otherwise)known)as)the)Financial)Rehabilitation)
and)Insolvency)Act)(FRIA))of)2010,)the)right)of)a)secured)
creditor) to) enforce) his) lien) during) liquidation)
proceedings) is) retained.) Section) 114) of) said) law) thus)
provides:)
) )
SEC.)114.)Rights)of)Secured)Creditors.)—)The)Liquidation)
Order) shall) not) affect) the) right) of) a) secured) creditor) to)
enforce) his) lien) in) accordance) with) the) applicable)
contract)or)law.)A)secured)creditor)may:)
(a))waive)his)rights)under)the)security)or)lien,)prove)his)
claim) in) the) liquidation) proceedings) and) share) in) the)
distribution)of)the)assets)of)the)debtor;)or)
(b))maintain)his)rights)under)his)security)or)lien;)
If) the) secured) creditor) maintains) his) rights) under) the)
security)or)lien:)
(1))the) value) of) the) property) may) be) fixed) in) a) manner)
agreed)upon)by)the)creditor)and)the)liquidator.)When)the)
value)of)the)property)is)less)than)the)claim)it)secures,)the)
liquidator) may) convey) the) property) to) the) secured)
LABAN NOTES ABRIL
creditor)and)the)latter)will)be)admitted)in)the)liquidation)
proceedings) as) a) creditor) for) the) balance;) if) its) value)
exceeds)the)claim)secured,)the)liquidator)may)convey)the)
property)to)the)creditor)and)waive)the)debtor's)right)of)
redemption)upon)receiving)the)excess)from)the)creditor;)
(2))the) liquidator) may) sell) the) property) and) satisfy) the)
sale;)or)
(3))the)secured)creditor)may)enforce)the)lien)or)foreclose)
on)the)property)pursuant)to)applicable)laws.)(Emphasis)
supplied))
)
In)this)case,)PNB)elected)to)maintain)its)rights)under)the)
security) or) lien;) hence,) its) right) to) foreclose) the)
mortgaged)properties)should)be)respected,)in)line)with)
our)pronouncement)in)Consuelo)Metal)Corporation.))
)
corporation*and*its*creditors*
While)the)Court)recognizes)the)financial)predicaments)of)
upstart) corporations) under) the) prevailing) economic)
climate,)it)must)nonetheless)remain)forthright)in)limiting)
the)remedy)of)rehabilitation)only)to)meritorious)cases.)As)
proceedings)is)not)only)to)enable)the)company)to)gain)a)
new) lease) on) life) but) also) to) allow) creditors) to) be) paid)
their) claims) from) its) earnings,) when) so) rehabilitated.)
Hence,) the) remedy) must) be) accorded) only) after) a)
judicious)regard)of)all)stakeholders')interests;)it)is)not)a)
oneDsided)tool)that)may)be)graciously)invoked)to)escape)
every)position)of)distress.)
)
In)this)case,)not)only)has)the)petitioning)debtor)failed)to)
show) that) it) has) formally) began) its) operations) which)
would)warrant)restoration,)but)also)it)has)failed)to)show)
compliance)with)the)key)requirements)under)the)Rules,)
the) purpose) of) which) are) vital) in) determining) the)
propriety) of) rehabilitation.) Thus,) for) all) the) reasons)
hereinabove)explained,)the)Court)is)constrained)to)rule)
Rehabilitation) Petition.) With) this) pronouncement,) it) is)
now) unnecessary) to) delve) on) the) other) ancillary) issues)
raised)herein.)
(BPI% Family% Savings% Bank,% Inc.% v.% St.% Michael% Medical%
Center,%Inc.,%G.R.%No.%205469,%[March%25,%2015]))
)
Powers,*Duties,*and*Responsibilities*of*the*
Liquidator*
)
The)rehabilitation)receiver)shall)be)deemed)an)officer)of)
the) court) with) the) principal) duty) of) preserving) and)
maximizing)the)value)of)the)assets)of)the)debtor)during)
the)rehabilitation)proceedings,)determining)the)viability)
of) the) rehabilitation) of) the) debtor,) preparing) and)
recommending) a) Rehabilitation) Plan) to) the) court,) and)
implementing)the)approved)Rehabilitation)Plan.))
)
106
 SPECIAL COMMERCIAL LAWS FINANCIAL REHABILITATION AND INSOLVENCY ACT
To) this) end,) and) without) limiting) the) generality) of) the)
foregoing,) the) rehabilitation) receiver) shall) have) the)
following)powers,)duties)and)responsibilities:)
(A))to)verify)the)accuracy)of)the)petition,)and)correct,)if)
necessary,)the)annexes)such)as)the)Schedule)of)Debts)and)
Liabilities) and) the) Inventory) of) Assets) submitted) in)
support)to)the)petition;)
(B))to) accept) and) incorporate,) when) justified,)
amendments)to)the)Schedule)of)Debts)and)Liabilities;)
(C))to)evaluate)the)validity,)genuineness)and)true)amount)
of)all)the)claims)against)the)debtor)and)to)recommend)to)
the) court) the) disallowance) of) claims) and) rejection) of)
amendments)to)the)Schedule)of)Debts)and)Liabilities)that)
lack)sufficient)proof)and)justification;)
(D))to) submit) to) the) court,) and) make) available) for) the)
creditors') review,) a) revised) Schedule) of) Debts) and)
Liabilities;)
(E))to)investigate)the)acts,)conduct,)properties,)liabilities)
and)financial)condition)of)the)debtor,)the)operation)of)its)
business)and)the)desirability)of)the)continuance)thereof,)
and)any)other)matter)relevant)to)the)proceeding)or)to)the)
formulation)of)a)Rehabilitation)Plan;)
(F))to)sue)and)recover,)with)the)approval)of)the)court,)all)
amounts) owed) to,) and) all) properties) pertaining) to) the)
debtor,) including) all) property) or) money) of) the) debtor)
paid,)transferred)or)disbursed)in)fraud)of)the)debtor)or)
its) creditors,) or) which) constitute) undue) preference) of)
creditor/s;)
(G))to) examine) under) oath) the) directors) and) officers) of)
the) debtor) and) any) other) witnesses) that) he) may) deem)
appropriate;)
(H))to)make)available)to)the)creditors)the)documents)and)
notices) necessary) for) them) to) follow) and) participate) in)
the)proceedings;)
(I))to)report)to)the)court)any)fact)ascertained)by)him)to)
pertain) to) the) causes) of) the) debtor's) problems,) fraud,)
preferences,) dispositions,) encumbrances,) misconduct,)
mismanagement) and) irregularities) committed) by) the)
stockholders,) directors,) management,) or) any) other)
person)against)the)debtor;)
(J))to) employ) such) specialized) professionals) and) other)
experts) such) as) lawyers,) accountants,) auditors,)
appraisers) and) staff,) with) the) approval) of) the) court,)
whose) services) are) necessary) in) assisting) the)
rehabilitation) receiver) in) performing) his) duties) and)
functions)in)accordance)with)Section)37)of)this)Rule;)
(K))to) monitor) the) operations) of) the) debtor) and) to)
immediately) report) to) the) court) any) material) adverse)
change)in)the)debtor's)business;)
(L))to)evaluate)the)existing)assets)and)liabilities,)earnings)
and)operations)of)the)debtor;)
(M))to)determine)and)recommend)to)the)court)the)best)
way)to)salvage)and)protect)the)interests)of)the)creditors,)
stockholders)and)the)general)public;)
(N))to) study) the) Rehabilitation) Plan) proposed) by) the)
debtor)or)any)Rehabilitation)Plan)submitted)during)the)
proceedings,) together) with) any) comments) made)
thereon;))
(O))to)prohibit)and)report)to)the)court)any)encumbrance,)
transfer)or)disposition)of)the)debtor's)property)outside)
LABAN NOTES ABRIL
of)the)ordinary)course)of)business)or)what)is)allowed)by)
the)court;)
(P))to) prohibit) and) report) to) the) court) any) payments)
made) by) the) debtor) outside) of) the) ordinary) course) of)
business;)
(Q))to)have)unlimited)access)to)the)debtor's)employees,)
premises,)books,)records)and)financial)documents)during)
business)hours;)
(R))to) inspect,) copy,) photocopy) or) photograph) any)
document,)paper,)book,)account)or)letter,)whether)in)the)
possession)of)the)debtor)or)other)persons,)that)pertain)to)
the)business)of)the)debtor;)
(S))to)gain)entry)into)any)property)owned)by)the)debtor)
for) the) purpose) of) inspecting,) measuring,) surveying) or)
photographing) it) or) any) designated) relevant) object) or)
operation)thereon;)
(T))to) take) possession,) control) and) custody,) and) to)
preserve)the)value)of)all)of)the)debtor's)assets;)
(U))to)notify)counterparties)and)the)court)as)to)contracts)
that) the) debtor) has) decided) to) confirm,) pursuant) to)
Section)56)of)this)Rule;)
(V))to) be) notified) of) and) to) attend) all) meetings) of) the)
board)of)directors)and)stockholders)of)the)debtor;)
(W))to) recommend) any) modification) of) an) approved)
Rehabilitation)Plan)as)he)may)deem)appropriate;)
(X))to) bring) to) the) attention) of) the) court) any) material)
change) affecting) the) debtor's) ability) to) meet) the)
obligations)under)the)Rehabilitation)Plan;)
(Y))to) recommend) the) appointment) of) a) management)
committee)in)the)cases)provided)for)under)Section)31)of)
this)Rule;)
(Z))within)the)soonest)possible)time,)to)submit)a)report)
to) the) management) committee,) if) one) has) been)
constituted) pursuant) to) Section) 31) of) this) Rule,) on) the)
status) and) condition) of) the) debtor) and) on) the) actions)
taken)by)the)receiver)with)regard)to)the)proceedings;)
(AA))to)recommend)the)termination)of)the)proceedings)
and) the) dissolution) of) the) debtor) if) he) determines) that)
the)debtor's)continuance)in)business)is)no)longer)feasible)
or) profitable) or) no) longer) works) to) the) best) interest) of)
the) stockholders,) partiesDlitigants,) creditors) or) the)
general)public;)
(BB))to)apply)to)the)court)for)any)order)or)directive)that)
he) may) deem) necessary) or) desirable) to) aid) him) in) the)
exercise)of)his)powers)and)performance)of)his)duties)and)
functions;)
(CC))to) make) quarterly) reports) on) the) status) and)
progress) of) the) rehabilitation,) or) as) often) as) may) be)
required)by)the)court;)and)
(DD))to)exercise)such)other)powers)as)may)from)time)to)
time)be)conferred)upon)him)by)the)court.))
The) court) may) limit) the) powers) and) functions) of) the)
rehabilitation)receiver,)as)may)be)appropriate.)
(Financial%Rehabilitation%Rules%of%Procedure%(2013),%A.M.%
No.%12X12X11XSC,%[August%27,%2013])%
)
Determination*of*Claims*
)
SECTION) 44.)Registry) of) Claims.)—) Within) twenty) (20))
days) from) his) assumption) into) office,) the) rehabilitation)
receiver)shall)establish)a)preliminary)registry)of)claims)
107
 SPECIAL COMMERCIAL LAWS FINANCIAL REHABILITATION AND INSOLVENCY ACT

based)on)the)schedule)of)debts)and)liabilities)provided)in) name)of)the)said)insolvent)debtor,)and)the)time)and)place)
the) petition.) The) rehabilitation) receiver) shall) make) the) appointed)for)the)hearing)of)such)application,)and)shall)
registry)available)for)public)inspection)and)give)notice)to) briefly)indicate)the)homestead)sought)to)be)exempted)or)
the) debtor,) creditors) and) stakeholders) on) where) and) the)property)sought)to)be)set)aside;)and)the)decree)must)
when) they) may) inspect) it) by) causing) the) publication) of) show)that)such)proof)was)made)to)the)satisfaction)of)the)
the) place/s) and) date/s) of) inspection) in) a) newspaper) of) court,)and)shall)be)conclusive)evidence)of)that)fact.)
general) circulation) in) the) Philippines) once) every) week) )
for)two)(2))consecutive)weeks.)The)period)of)inspection) SECTION) 131.)Sale) of) Assets) in) Liquidation.)—) The)
shall) not) exceed) fifteen) (15)) days) from) the) last) liquidator) may) sell) the) unencumbered) assets) of) the)
publication.)All)claims)included)in)the)registry)of)claims) debtor)and)convert)the)same)into)money.)The)sale)shall)
must)be)duly)supported)by)sufficient)evidence.) be)made)at)public)auction.)However,)a)private)sale)may)
) be)allowed)with)the)approval)of)the)court)if:)(a))the)goods)
SECTION) 45.)Opposition) or) Challenge) of) Claims.)—) to) be) sold) are) of) a) perishable) nature,) or) are) liable) to)
Within)thirty)(30))days)from)the)expiration)of)the)period) quickly) deteriorate) in) value,) or) are) disproportionately)
to) inspect) the) registry) of) claims,) the) debtor,) creditors,) expensive)to)keep)or)maintain;)or)(b))the)private)sale)is)
stakeholders)and)other)interested)parties)may)submit)to) for)the)best)interest)of)the)debtor)and)his)creditors.)
the) court) a) challenge) to) the) claim/s,) as) listed) in) the) )
registry) of) claims) serving) a) certified) copy) on) the) With)the)approval)of)the)court,)unencumbered)property)
rehabilitation) receiver) and) the) creditor) holding) the) of) the) debtor) may) also) be) conveyed) to) a) creditor) in)
challenged)claim/s.) satisfaction)of)his)claim)or)part)thereof.)
) )
Upon) the) expiration) of) the) thirty) (30)Dday) period,) the) SECTION)132.)Manner)of)Implementing)the)Liquidation)
rehabilitation) receiver) shall) submit) to) the) court) the) Plan.)—)The)liquidator)shall)implement)the)Liquidation)
registry)of)claims.)The)registry)of)claims)shall)include)the) Plan)as)approved)by)the)court.)Payments)shall)be)made)
following)lists)of)(1))claims)that)have)not)been)subject)to) to)the)creditors)only)in)accordance)with)the)provisions)of)
challenge;)) the)Plan.))
(2)) claims) resolved) by) the) rehabilitation) receiver) after) )
these)have)been)challenged;)and)) SECTION)133.)Concurrence)and)Preference)of)Credits.)—)
(3))disputed)but)unresolved)claims.) The) Liquidation) Plan) and) its) implementation) shall)
) ensure)that)the)concurrence)and)preference)of)credits)as)
SECTION) 46.)Appeal.)—) The) aggrieved) party) may) seek) enumerated)in)the)Civil)Code)of)the)Philippines)and)other)
the)review)of)the)decision)of)the)rehabilitation)receiver) relevant) laws) shall) be) observed,) unless) a) preferred)
on)a)claim)by)filing)a)motion)with)the)rehabilitation)court) creditor) voluntarily) waives) his) preferred) right.) For)
within) five) (5)) days) from) receipt) of) the) rehabilitation) purposes)of)this)chapter,)credits)for)services)rendered)by)
receiver's) assailed) decision,) which) shall) be) decided) by) employees) or) laborers) to) the) debtor) shall) enjoy) first)
the) court) at) the) soonest) possible) time.) (Financial% preference) under) Article) 2244) of) the) Civil) Code,) unless)
Rehabilitation%Rules%of%Procedure%(2013),%A.M.%No.%12X12X the)claims)constitute)legal)liens)under)Articles)2241)and)
11XSC,%[August%27,%2013])% 2242)thereof.)
) )
) SECTION)134.)Order)Removing)the)Debtor)from)the)List)
Liquidation*Plan* of) Registered) Entities) at) the) Securities) and) Exchange)
) Commission.)—) Upon) determining) that) the) liquidation)
SECTION)129.)The)Liquidation)Plan.)—)Within)three)(3)) has)been)completed)according)to)this)Act)and)applicable)
months) from) his) assumption) into) office,) the) Liquidator) law,)the)court)shall)issue)an)Order)approving)the)report)
shall) submit) a) Liquidation) Plan) to) the) court.) The) and) ordering) the) SEC) to) remove) the) debtor) from) the)
Liquidation)Plan)shall,)as)a)minimum,)enumerate)all)the) registry)of)legal)entities.)
assets)of)the)debtor,)all)the)claims)against)the)debtor)and) )
a)schedule)of)liquidation)of)the)assets)and)payment)of)the) SECTION) 135.)Termination) of) Proceedings.)—) Upon)
claims.) receipt) of) evidence) showing) that) the) debtor) has) been)
) removed)from)the)registry)of)legal)entities)at)the)SEC,)the)
SECTION) 130.)Exempt) Property) to) be) Set) Apart.)—) It) court)shall)issue)an)Order)terminating)the)proceedings.)
shall) be) the) duty) of) the) court,) upon) petition) and) after) )
hearing,)to)exempt)and)set)apart,)for)the)use)and)benefit) (F))Liquidation)of)a)Securities)Market)Participant.)
of)the)said)insolvent,)such)real)and)personal)property)as) SECTION) 136.)Liquidation) of) a) Securities) Market)
is)by)law)exempt)from)execution,)and)also)a)homestead;) Participant.)—) The) foregoing) provisions) of) this) chapter)
but)no)such)petition)shall)be)heard)as)aforesaid)until)it)is) shall)be)without)prejudice)to)the)power)of)a)regulatory)
first)proved)that)notice)of)the)hearing)of)the)application) agency)or)selfDregulatory)organization)to)liquidate)tradeD
therefor)has)been)duly)given)by)the)clerk,)by)causing)such) related) claims) of) clients) or) customers) of) a) securities)
notice)to)be)posted)in)at)least)three)(3))public)places)in) market) participant) which,) for) purposes) of) investor)
the) province) or) city) at) least) ten) (10)) days) prior) to) the) protection,)are)hereby)deemed)to)have)absolute)priority)
time) of) such) hearing,) which) notice) shall) set) forth) the)

LABAN NOTES ABRIL 108

 SPECIAL COMMERCIAL LAWS FINANCIAL REHABILITATION AND INSOLVENCY ACT

over)all)other)claims)of)whatever)nature)or)kind)insofar)
as)tradeDrelated)assets)are)concerned.)
)
For)purposes)of)this)section,)tradeDrelated)assets)include)
cash,)securities,)trading)right)and)other)assets)owned)and)
used)by)the)securities)market)participant)in)the)ordinary)
course) of) its) business.) (Financial% Rehabilitation% and%
Insolvency% Act% (FRIA)% of% 2010,% Republic% Act% No.% 10142,%
[July%18,%2010])%
)
CrossNBorder*Insolvency*
)
The) FRIA) adopted) the) Model) Law) on) CrossDBorder)
Insolvency)of)the)United)Nations)Center)for)International)
Trade)and)Development)as)part)thereof.)
)
SECTION) 140.)Initiation) of) Proceedings.)—) The) court)
shall) set) a) hearing) in) connection) with) an) insolvency) or)
rehabilitation) proceeding) taking) place) in) a) foreign)
jurisdiction,) upon) the) submission) of) a) petition) by) the)
representative)of)the)foreign)entity)that)is)the)subject)of)
the)foreign)proceeding.))
)
SECTION)141.)Provision)of)Relief.)—)The)court)may)issue)
orders:)
(a)! suspending)any)action)to)enforce)claims)against)
the) entity) or) otherwise) seize) or) foreclose) on)
property) of) the) foreign) entity) located) in) the)
Philippines;)
(b)! requiring) the) surrender) of) property) of) the)
foreign)entity)to)the)foreign)representative;)or)
(c)! providing)other)necessary)relief.)
)
SECTION) 142.)Factors) in) Granting) Relief.)—) In)
determining) whether) to) grant) relief) under) this)
subchapter,)the)court)shall)consider:)
(a)! the) protection) of) creditors) in) the) Philippines)
and)the)inconvenience)in)pursuing)their)claims)
in)a)foreign)proceeding;)
(b)! the) just) treatment) of) all) creditors) through)
resort)to)a)unified)insolvency)or)rehabilitation)
proceeding;)
(c)! whether) other) jurisdictions) have) given)
recognition)to)the)foreign)proceeding;)
(d)! the) extent) that) the) foreign) proceeding)
recognizes) the) rights) of) creditors) and) other)
interested)parties)in)a)manner)substantially)in)
accordance)with)the)manner)prescribed)in)this)
Act;)and)
(e)! the) extent) that) the) foreign) proceeding) has)
recognized) and) shown) deference) to)
proceedings) under) this) Act) and) previous)
legislation.) (Financial% Rehabilitation% and%
Insolvency%Act%(FRIA)%of%2010,%Republic%Act%No.%
10142,%[July%18,%2010])%
% %

LABAN NOTES ABRIL 109

 SPECIAL COMMERCIAL LAWS FINANCIAL REHABILITATION AND INSOLVENCY ACT

Matrix)A:)Court)action)on)petition)for)rehabilitation) Corporation) VR) (1))Majority)of)

) (Corp)) directors)or)
Court*Action* Required*Court*Findings* trustees;)
Give)due)course)to) 1.! the)debtor)is) (2))SHs)
the)petition) insolvent;)and) representing)2/3)
2.! there)is)substantial) of)OCS)or)2/3)of)
likelihood)for)the) members)of)nonD
debtor)to)be) stock)corp.)
successfully) SP,)Pr,)and) Involuntary) Creditor)or)group)
rehabilitated) Corp) Rehabilitation) of)creditors)with)a)
Dismiss)the)petition) 1.! the)debtor)is)not) (IR)) claim)of,)or)the)
insolvent;) aggregate)of)
2.! the)petition)is)a) whose)claims)is,)
sham)filing) at)least)
intended)only)to) P1,000,000)or)at)
delay)the) least)25%)of)the)
enforcement)of)the) subscribed)capital)
rights)of)the) stock)of)partners’)
creditor/s)or)any) contributions,)
group)of)creditors;)) whichever)is)
3.! the)petition,)the) higher.)
Rehabilitation)Plan,) SP,)Pr,)and) PreD Insolvent)debtor)
and)the) Corp) Negotiated) and)the)
attachments) Rehabilitation) Rehabilitation)
thereto)contain)any) (Petition)for) Plan)is)endorsed)
materially)false)or) Approval)of) or)approved)by)
misleading) PN)Rehab.) creditors)holding)
statements;)or) Plan)) at)least)2/3)of)the)
4.! the)debtor)has) total)liabilities)of)
committed)acts)of) the)debtor)
misrepresentation) including)secured))
or)in)fraud)of) creditors)holding)
creditors/s)or)a) more)than)50%)of)
group)of)creditors.) the)total)secured)
Convert)the) 1.! the)debtor)is) claim)and)
proceedings)into) insolvent;)and) unsecured)
Liquidation) 2.! there)is)no) creditors)holding)
Proceedings) substantial) more)than)50%)of)
likelihood)for)the) unsecured)claims.)
debtor)to)be) SP,)Pr,)and) Voluntary) Insolvent)debtor)
successfully) Corp) Liquidation)
rehabilitated)) SP,)Pr,)and) Involuntary) (a))three)or)more)
) Corp) Liquidation) creditors,)and)
) (b))the)aggregate)
Matrix)B:)Proceedings)covered)by)FRIA)and)persons) of)whose)claims)is)
who)will)file)and/or)approve) at)least)either)
% P1,000,000)or)at)
% least)25%)of)the)
Type*of* Type*of* Who*Will* subscribed)capital)
Business* Proceeding* Approve*or*File* stock)or)partner’s)
Organization* Petition* contributions)of)
Sole) Voluntary) Owner/Proprietor) the)debtor,)
proprietorship) Rehabilitation) whichever)is)
(SP)) (VR)) higher)
Partnership) VR) Majority)of) Individual) Suspension)of) Individual)debtor)
(Pr)) partners) debtor) Payment3)

3
Only an individual debtor may file a petition for suspension of
payment (Sec. 94, FRIA)

LABAN NOTES ABRIL 110

 SPECIAL COMMERCIAL LAWS FINANCIAL REHABILITATION AND INSOLVENCY ACT

Individual) Voluntary) Individual)debtor)

Debtor) Liquidation) with)at)least)
P500,000)which)
does)not)have)
sufficient)assets)to)
cover)his)
liabilities.)
Individual) Involuntary) Any)creditor)or)
Debtor) Liquidation) group)of)creditors)
(Petition)for) with)a)claim)of,)or)
Acts)of) with)claims)
Insolvency)) aggregating)at)
least)P500,000.)
)
)

LABAN NOTES ABRIL 111

 SPECIAL COMMERCIAL LAWS LETTERS OF CREDIT
Introductory*Concepts*
! [December$8,$1992])$
Governing*Laws*
! Nature*of*operation*of*a*letter*of*credit*
Articles!567-572,!Code!of!Commerce!
! goods!described!in!those!documents.!
UCP! 600! /! 2007! Revision! of! Uniform! Customs! and!
Practice! of! Documentary! Credits! of! the! International!
Chamber!of!Commerce!
! and!not!to!order.!
Application* of* the* UCP* to* the* Philippine* Code* of*
Commerce*
Being! a! product!of!international! commerce,! the!
impact!of!this! commercial! instrument! transcends!
national!boundaries,!and!it!is!thus!not!uncommon!to!find!
a!dearth!of!national!law!that!can!adequately!provide!for!
its! governance.! This! country! is! no! exception.! Our! own!
Code!of!Commerce!basically!introduces!only!its!concept!
under! Articles! 567-572,! inclusive,! thereof.! It! is! no!
wonder! then! why! great! reliance! has! been! placed! on!
commercial!usage!and!practice,!which,!in!any!case,!can!be!
justified! by! the! universal! acceptance!of!the!
autonomy!of!contracts! rule.! The! rules! were! later!
developed! into! what! is! now! known! as! the! Uniform!
Customs!and!Practice!for!Documentary!Credits!("U.C.P.")!
issued! by! the! International! Chamber!of!Commerce.! It! is!
by! no! means! a! complete! text! by! itself,! for,! to! be! sure,!
there! are! other! principles,! which,! although! part!of!lex$
mercatoria,! are! not! dealt! with! in! the! U.C.P.!
In!FEATI$Bank$and$ Trust$ Company$v.$ Court$of$Appeals,!
(G.R.!No.!94209,!prom.!30!April!1991;!196!SCRA!576)!the!
Supreme! Court! have! accepted,! to! the! extent!of!their!
pertinency,! the! application! in! our! jurisdiction!of!this!
international! commercial! credit! regulatory! set!of!rules.!
In!Bankof$Phil.$ Islands$v.$ De$ Nery,! (G.R.! No.! L-24821,! 16!
October!1970;!35!SCRA!256)!the!Court!has!said!that!the!
observance!of!the! U.C.P.! is! justified! by! Article! 2!of!the!
Code!of!Commerce! which! expresses! that,! in! the!
absence!of!any! particular! provision! in! the!
Code!of!Commerce,! commercial! transactions! shall! be!
governed! by! usages! and! customs! generally! observed.!
The! Court! have! further! observed! that! there! being! no!
specific! provisions! which! govern! the! legal! complexities!
arising! from! transactions! involving! letters!of!credit! not!
only! between! or! among! banks! themselves! but! also!
between! banks! and! the! seller! or! the! buyer,! as! the! case!
may! be,! the! applicability!of!the! U.C.P.! is!
undeniable.||(Bank$ of$ America,$ NT$ &$ SA$ v.$ Court$ of$
Appeals,$G.R.$No.$105395,$[December$10,$1993])!
* when! the! buyer! reimburses! the! issuing!bank!and!
Letter*of*Credit,*definition*
an! engagement! by! a!bank!or! other! person! made! at! the!
request!of!a!customer!that!the!issuer!will!honor!drafts!or!
other! demands! for! payment! upon! compliance! with! the!
conditions! specified! in! the! credit.! Through! a! letter! of!
credit,! the!bank! merely! substitutes! its! own! promise! to!
pay!for!the!promise!to!pay!of!one!of!its!customers!who!in!
return! promises! to! pay! the!bank!the! amount! of! funds!
mentioned! in! the! letter! of! credit! plus! credit! or!
commitment! fees! mutually! agreed! upon.|(Prudential$
LABAN NOTES ABRIL
Bank$ v.$ Intermediate$ Appellate$ Court,$ G.R.$ No.$ 74886,$
!
The!bank!involved!deals!only!with!documents!and!not!on!
!
Essential*conditions*of*letters*of*credit*
1.! To! be! issued! in! favor!of!a! determined! person!
2.! To!be!limited!to!a!fixed!and!specified!amount,!
or!to!one!or!more!indeterminate!amounts,!but!
all! included! in! a! maximum! sum! the!
limit!of!which!must!be!exactly!stated.!
!
Letters!of!credit!which!do!not!have!one!of!these!
conditions! shall! be! considered! simply! as!
letters!of! recommendation.! (Art.$ 568,$ Code$ of$
Commerce,$[December$1,$1988])!
!
!
Understanding*a*letter*of*credit*transaction;*how*the*
transaction*is*completed*
A! letter!of!credit! is! a! financial! device! developed! by!
merchants! as! a! convenient! and! relatively! safe!
mode!of!dealing! with! sales!of!goods! to! satisfy! the!
seemingly! irreconcilable! interests!of!a! seller,! who!
refuses! to! part! with! his! goods! before! he! is! paid,! and! a!
buyer,! who! wants! to! have! control!of!the! goods! before!
paying.!To!break!the!impasse,!the!buyer!may!be!required!
to!contract!a!bank!to!issue!a!letter!of!credit!in!favor!of!the!
seller! so! that,! by! virtue!of!the! letter!of!credit,! the!
issuing!bank!can!authorize!the!seller!to!draw!drafts!and!
engage! to! pay! them! upon! their! presentment!
simultaneously! with! the! tender!of!documents! required!
by!the!letter!of!credit.!The!buyer!and!the!seller!agree!on!
what! documents! are! to! be! presented! for! payment,! but!
ordinarily! they! are! documents!of!title! evidencing! or!
attesting!to!the!shipment!of!the!goods!to!the!buyer.!Once!
the!credit!is!established,!the!seller!ships!the!goods!to!the!
buyer!and!in*the!process!secures!the!required!shipping!
documents!or!documents!of!title.!To!get!paid,!the!seller!
executes! a! draft! and! presents! it! together! with! the!
required! documents! to! the! issuing!bank.! The!
issuing!bank!redeems! the! draft! and! pays! cash! to! the!
seller! if! it! finds! that! the! documents! submitted! by! the!
seller! conform! with! what! the! letter!of!credit! requires.!
The!bank!then! obtains! possession!of!the! documents!
upon! paying! the! seller.! The! transaction! is! completed!
acquires!the!documents!entitling!him!to!the!goods.!Under!
this!arrangement,!the!seller!gets!paid!only!if!he!delivers!
the! documents!of!title! over! the! goods,! while! the! buyer!
acquires!the!said!documents!and!control!over!the!goods!
only!after!reimbursing!the!bank.|(Bank$of$America,$NT$&$
SA$ v.$ Court$ of$ Appeals,$ G.R.$ No.$ 105395,$ [December$ 10,$
1993])!
*
Letter*of*Credit*v.*Trust*Receipt*
A! letter! of! credit! is! a! separate! document! from! a! trust!
receipt.!While!the!trust!receipt!may!have!been!executed!
112
 SPECIAL COMMERCIAL LAWS LETTERS OF CREDIT

as! a! security! on! the! letter! of! credit,! still! the! two! the!letter.!The!issuing!bank!does!not!reserve!the!right!to!
documents! involve! different! undertakings! and! revoke!the!credit.!On!the!other!hand,!a!confirmed!letter!
obligations.!A!letter!of!credit!is!an!engagement!by!a!bank! of! credit! pertains! to! the! kind! of! obligation! assumed! by!
or!other!person!made!at!the!request!of!a!customer!that! the!correspondent!bank.!In!this!case,!the!correspondent!
the! issuer! will! honor! drafts! or! other! demands! for! bank!gives!an!absolute!assurance!of!the!beneficiary!that!
payment!upon!compliance!with!the!conditions!specified! it!will!undertake!the!issuing!bank's!obligation!as!its!own!
in!the!credit.!Through!a!letter!of!credit,!the!bank!merely! according! to! the! terms! and! conditions! of! the! credit.!
substitutes!its!own!promise!to!pay!for!the!promise!to!pay! (Agbayani,! Commercial! Laws! of! the! Philippines,! Vol.! 1,!
of!one!of!its!customers!who!in!return!promises!to!pay!the! pp.!81-83)!Hence,!the!mere!fact!that!a!letter!of!credit!is!
bank! the! amount! of! funds! mentioned! in! the! letter! of! irrevocable! does! not! necessarily! imply! that! the!
credit! plus! credit! or! commitment! fees! mutually! agreed! correspondent!bank!in!accepting!the!instructions!of!the!
upon.! By! contrast,! a! trust! receipt! transaction! is! one! issuing! bank! has! also! confirmed! the! letter! of!
where! the! entruster,! who! holds! an! absolute! title! or! credit.!!(Feati$Bank$&$Trust$Co.$v.$Court$of$Appeals,$G.R.$No.$
security! interests! over! certain! goods,! documents! or! 94209,$[April$30,$1991],$273$PHIL$832W855)!
instruments,! released! the! same! to! the! entrustee,! who! !
executes! a! trust! receipt! binding! himself! to! hold! the! Guarantee*visFàFvis*irrevocable*LC*
goods,! documents! or! instruments! in! trust! for! the! The! concept! of! guarantee!vis-à-vis!the! concept! of! an!
entruster!and!to!sell!or!otherwise!dispose!of!the!goods,! irrevocable! letter! of! credit! are! inconsistent! with! each!
documents!and!instruments!with!the!obligation!to!turn! other.!The!guarantee!theory!destroys!the!independence!
over!to!the!entruster!the!proceeds!thereof!to!the!extent! of!the!bank's!responsibility!from!the!contract!upon!which!
of!the!amount!owing!to!the!entruster,!or!as!appears!in!the! it! was! opened! and! the! nature! of! both! contracts! is!
trust! receipt,! or! return! the! goods,! documents! or! mutually! in! conflict! with! each! other.! In! contracts! of!
instruments! themselves! if! they! are! unsold,! or! not! guarantee,!the!guarantor's!obligation!is!merely!collateral!
otherwise!disposed!of,!in!accordance!with!the!terms!and! and! it! arises! only! upon! the! default! of! the! person!
conditions! specified! in! the! trust! receipt.! (Bank$ of$ primarily! liable.! On! the! other! hand,! in! an! irrevocable!
commerce$ v.$ Serrano,$ G.R.$ No.$ 151895,$ [February$ 16,$ letter! of! credit,! the! bank! undertakes! a! primary!
2005],$491$PHIL$661W668)! obligation.! (Metropolitan$ Waterworks$ and$ Sewerage$
! System$ v.$ Daway,$ G.R.$ No.$ 160732,$ [June$ 21,$ 2004],$ 476$
! PHIL$659W678)!
! !
! !
Kinds*of*Letters*of*Credit* !
! Revolving*LC*
1.! Confirmed! !
2.! Irrevocable!! One! that! provides! for! renewed! credit! to! become!
3.! Revolving! available! as! soon! as! the! opening! bank! has! advised! that!
4.! Back-to-back! the! negotiating! or! paying! bank! has! advised! that! the!
5.! Standby! drafts! already! drawn! by! the! beneficiary! have! been!
! reimbursed!to!the!opening!bank!by!the!buyer.!
Confirmed*LC* !
! BackFtoFBack*LC*
Whenever!the!beneficiary!stipulates!that!the!obligation! !
of!the!opening!bank!shall!also!be!made!the!obligation!of! A! credit! with! identical! documentary! requirements! and!
another!bank!(also!bank!that!notifies)!to!himself.! covering! the! same! merchandise! as! another! letter! of!
! credit,! except! for! a! different! price! in! the! price! of! the!
Irrevocable*LC* merchandise!as!shown!by!the!invoice!and!the!draft;!the!
! second! letter! of! credit! can! be! negotiated! only! after! the!
A!definite!undertaking!on!the!part!of!the!issuing!bank!and! first!is!negotiated.!
constitutes! the! engagement! of! that! bank! to! the! !
beneficiary!and!bona!fide!holders!of!drafts!drawn!and!or! Standby*LC*
documents!presented!thereunder,!that!the!provisions!for! !
payment,! acceptance,! or! negotiation! contained! in! the! A! security! arrangement! for! the! performance! of! certain!
credit!will!be!duly!fulfilled,!provided!that!all!terms!and! obligations;! it! can! be! drawn! against! only! if! another!
conditions!of!the!credit!are!complied!with.! business!transaction!is!not!performed;!may!be!issued!in!
! lieu!of!a!performance!bond.!
Irrevocable*LC*v.*Confirmed*LC* !
An!irrevocable!credit!refers!to!the!duration!of!the!letter! Standby*LC*v.*Ordinary*commercial*credit*
of!credit.!What!it!simply!means!is!that!the!issuing!bank! In! an! ordinary! commercial! credit,! the! beneficiary! will!
may! not! without! the! consent! of! the! beneficiary! (seller)! recover!if!he!can!show!that!he!performed!his!obligation!
and!the!applicant!(buyer)!revoke!his!undertaking!under!

LABAN NOTES ABRIL 113

 SPECIAL COMMERCIAL LAWS LETTERS OF CREDIT

while!in!a!Standby!LC,!the!beneficiary!will!prove!that!the! negotiable!instrument,!because!it!is!not!payable!to!order!
obligor!failed!to!perform!the!secured!obligation.! or! bearer! and! is! generally! conditional,! yet! the! draft!
! presented! under! it! is! often! negotiable.! (Transfield$
There! are! three! significant! differences! between! Philippines,$ Inc.$ v.$ Luzon$ Hydro$ Corp.,$ G.R.$ No.$ 146717,$
commercial! and! standby! credits.! First,! commercial! [November$22,$2004],$485$PHIL$699W731)!
credits!involve!the!payment!of!money!under!a!contract!of! !
sale.!Such!credits!become!payable!upon!the!presentation! !
by!the!seller-beneficiary!of!documents!that!show!he!has! Correspondent*Banks*
taken! affirmative! steps! to! comply! with! the! sales! !
agreement.! In! the! standby! type,! the! credit! is! payable! Number*of*parties*may*be*increased;*Correspondent*
upon! certification! of! a! party's! nonperformance! of! the! banks*
agreement.! The! documents! that! accompany! the! The! number!of!the! parties,! not! infrequently! and! almost!
beneficiary's! draft! tend! to! show! that! the! applicant! has! invariably! in! international! trade! practice,! may! be!
not! performed.! The! beneficiary! of! a! commercial! credit! increased.! Thus,! the!
must!demonstrate!by!documents!that!he!has!performed! services!of!an!advising!(notifying)!bank!may! be! utilized!
his!contract.!The!beneficiary!of!the!standby!credit!must! to! convey! to! the! seller! the! existence!of!the! credit;!
certify! that! his! obligor! has! not! performed! the! contract.! or,!of!a!confirming!bank!which!will!lend!credence!to!the!
(Transfield$Philippines,$Inc.$v.$Luzon$Hydro$Corp.,$G.R.$No.$ letter! of!credit! issued! by! a! lesser! known! issuing!bank;!
146717,$[November$22,$2004],$485$PHIL$699W731)! or,!of!a!paying!bank!which! undertakes! to! encash! the!
! drafts!drawn!by!the!exporter.!Further,!instead!of!going!to!
! the!place!of!the!issuing!bank!to!claim!payment,!the!buyer!
! may! approach! another!bank,! termed!
Parties*to*a*Letter*of*Credit* the!negotiating!bank,!to!have!the!draft!discounted.!$(Bank$
! of$America,$NT$&$SA$v.$Court$of$Appeals,$G.R.$No.$105395,$
Indispensable*Parties*involved* [December$10,$1993])$
(a)! the!buyer,!who!procures!the!letter!of!credit!and! !
obliges! himself! to! reimburse! the! issuing!bank! !
upon!receipt!of!the!documents!of!title;! Types*of*Correspondent*banks*
! The! following! are! banks! which! are! not! indispensable!
(b)! the!bank$issuing!the! letter!of!credit,! which! parties!to!the!letter!of!credit!transaction;!however,!their!
undertakes!to!pay!the!seller!upon!receipt!of!the! obligations!depend!on!the!role!each!undertakes:!
draft! and! proper! documents!of!titles! and! to! !
surrender! the! documents! to! the! buyer! upon! 1.! Confirming$bank!–!confirms!the!genuineness!of!
reimbursement;!and,! a! letter! of! credit;! incurs! liability! because! it!
! confirms!the!document;!basically!undertakes!to!
(c)! the!seller,! who! in! compliance! with! the! pay!on!the!letter!of!credit!in!place!of!the!issuing!
contract!of!sale! ships! the! goods! to! the! buyer! bank;! is! normally! required! when! the! issuing!
and!delivers!the!documents!of!title!and!draft!to! bank!is!a!lesser!known!bank,!i.e.$when!the!seller!
the! issuing!bank!to! recover! payment$(Bank$ of$ does!not!trust!the!issuing!bank,!the!former!will!
America,$ NT$ &$ SA$ v.$ Court$ of$ Appeals,$ G.R.$ No.$ contract!the!services!of!a!confirming!bank!that!
105395,$[December$10,$1993])! will! in! turn! undertake! the! obligation! of! the!
! issuing!bank;!
Relationship* between* the* issuing* bank* and* !
beneficiary* or* seller* is* not* contractual;* LC,* not* a* 2.! Advising$bank$–!relays!the!information!that!the!
negotiable* instrument,* a* thirdFparty* beneficiary* issuing! bank! has! opened! a! letter! of! credit! in!
contract*nor*a*contract*of*surety*or*guaranty* favor!of!the!beneficiary!or!seller;!does!not!incur!
The!letter!of!credit!evolved!as!a!mercantile!specialty,!and! any! liability! on! the! letter! of! credit! by! mere!
the!only!way!to!understand!all!its!facets!is!to!recognize! informing! the! seller! the! availability! of! the!
that!it!is!an!entity!unto!itself.!The!relationship!between! document;!
the!beneficiary!and!the!issuer!of!a!letter!of!credit!is!not! !
strictly!contractual,!because!both!privity!and!a!meeting! 3.! Negotiating$ bank$ –! an! independent! bank,!
of! the! minds! are! lacking,! yet! strict! compliance! with! its! independent!of!the!letter!of!credit;!comes!into!
terms! is! an! enforceable! right.! Nor! is! it! a! third-party! play! when! the! seller! negotiates! a! bill! of!
beneficiary! contract,! because! the! issuer! must! honor! exchange! or! draft;! discounts! and! accepts! the!
drafts! drawn! against! a! letter! regardless! of! problems! draft;!prior!to!the!discounting,!no!relationship!
subsequently! arising! in! the! underlying! contract.! Since! is!formed!between!the!negotiating!bank!and!the!
the! bank's! customer! cannot! draw! on! the! letter,! it! does! seller;!
not! function! as! an! assignment! by! the! customer! to! the! !
beneficiary.! Nor,! if! properly! used,! is! it! a! contract! of! 4.! Paying$ bank$ –! has! the! obligation! from! the!
suretyship! or! guarantee,! because! it! entails! a! primary! issuing!bank!to!make!payments!to!the!seller!or!
liability! following! a! default.! Finally,! it! is! not! in! itself! a! beneficiary!of!the!letter!of!credit!

LABAN NOTES ABRIL 114

 SPECIAL COMMERCIAL LAWS LETTERS OF CREDIT
! expressly! stated! that! "[t]he! enclosure! is!solely! an!
When*correspondent*banks*are*needed*
Owing!to!the!complexity!of!these!contracts,!there!may!be!
a! correspondent! bank! which! facilitates! the! ease! of!
completing!the!transactions.!A!correspondent!bank!may!
be!a!notifying!bank,!a!negotiating!bank!or!a!confirming!
bank! depending! on! the! nature! of! the! obligations!
assumed.!! A! notifying! bank! undertakes! to! inform! the!
seller-beneficiary!that!a!letter!of!credit!exists.!It!may!also!
have!the!duty!of!transmitting!the!letter!of!credit.!As!its!
obligation!is!limited!to!this!duty,!it!assumes!no!liability!to!
pay!under!the!letter!of!credit.!!A!negotiating!bank,!on!the!
other! hand,! purchases! drafts! at! a! discount! from! the!
seller-beneficiary!and!presents!them!to!the!issuing!bank!
for!payment.!Prior!to!negotiation,!a!negotiating!bank!has!
no! obligation.! A! contractual! relationship! between! the!
negotiating! bank! and! the! seller-beneficiary! arises! only!
after! the! negotiating! bank! purchases! or! discounts! the!
drafts.! Meanwhile,! a! confirming! bank! may! honor! the!
letter!of!credit!issued!by!another!bank!or!confirms!that!
the!letter!of!credit!will!be!honored!by!the!issuing!bank.!A!
confirming! bank! essentially! insures! that! the! credit! will!
be! paid! in! accordance! with! the! terms! of! the! letter! of!
credit.! It! therefore! assumes! a! direct! obligation! to! the!
seller-beneficiary.! (The$ Hongkong$ &$ Shanghai$ Banking$
Corp.,$ Limited$ v.$ National$ Steel$ Corp.,$ G.R.$ No.$ 183486,$
[February$24,$2016])!
* beneficiary*is*done*an*act*of*a*notifying*bank*
! In!this!case,!the!letter!merely!provided!that!the!petitioner!
Advising*or*notifying*bank*not*liable*to*the*the*seller*
or*beneficiary*of*a*letter*of*credit;*confirming*bank,*
liable*
! indubitable! that! the! petitioner! is! only! a! notifying! bank!
Bank*of*America,*NT*&*SA*v.*Court*of*Appeals,*G.R.*No.*
105395,*[December*10,*1993]*
! between!the!buyer!and!the!seller,!its!relationship!is!only!
The!crucial!point!of!dispute!in!this!case!is!whether!under!
the! "letter!of!credit,"!Bank!of!America!has! incurred! any!
liability!to!the!"beneficiary"!thereof,!an!issue!that!largely!
is! dependent! on! the!bank's! participation! in! that!
transaction;! as! a! mere! advising! or! notifying!bank,! it!
would! not! be! liable,! but! as! a! confirming!bank,! had! this!
been!the!case,!it!could!be!considered!as!having!incurred!
that!liability.!Bank!of!America!has,!only!been!an!advising,!
not! confirming,!bank,! and! this! much! is! clearly! evident,!
among! other! things,! by! the! provisions!of!the!
letter!of!credit! itself,! the! petitioner!bank's!
letter!of!advice,! its! request! for! payment!of!advising! fee,!
and! the! admission!of!Inter-Resin!that! it! has! paid! the!
same.! That! Bank!of!America!has! asked!Inter-Resin!to!
submit! documents! required! by! the! letter!of!credit! and!
eventually! has! paid! the! proceeds! thereof,! did! not!
obviously!make!it!a!confirming!bank.!The!fact,!too,!that!
the! draft! required! by! the! letter!of!credit! is! to! be! drawn!
under! the! account!of!General! Chemicals! (buyer)! only!
means! that! the! same! had! to! be! presented!
to!Bank!of!Ayudhya! (issuing!bank)! for! payment.! It! may!
be! significant! to! recall! that! the! letter!of!credit! is! an!
engagement!of!the! issuing!bank,! not! the! advising!bank,!
to! pay! the! draft.! No! less! important! is!
that!Bank!of!America's! letter!of!11! March! 1981! has!
LABAN NOTES ABRIL
advise!of!credit! opened! by! the! abovementioned!
correspondent!and!conveys!no!engagement!by!us."!This!
written! reservation! by! Bank!of!America!in! limiting! its!
obligation! only! to! being! an! advising!bank!is! in!
consonance!with!the!provisions!of!U.C.P.!As!an!advising!
or! notifying!bank,!Bank!of!America!did! not! incur!
any!obligation! more! than! just! notifying!Inter-
Resin!of!the!letter!of!credit!issued!in!its!favor,!let!alone!to!
confirm! the! letter!of!credit.! Bringing! the! letter!of!credit!
to!the!attention!of!the!seller!is!the!primordial!obligation!
of!an! advising!bank.! The! view!
that!Bank!of!America!should! have! first! checked! the!
authenticity!of!the!letter!of!credit!with!Bank!of!Ayudhya,!
by! using! advanced! mode!of!business! communications,!
before!dispatching!the!same!to!Inter-Resin!finds!no!real!
support! in! U.C.P.! Article! 18!of!the! U.C.P.! states! that:!
"Banks! assume! no! liability! or! responsibility! for! the!
consequences! arising! out!of!the! delay! and/or! loss! in!
transit!of!any! messages,! letters! or! documents,! or! for!
delay,! mutilation! or! other! errors! arising! in! the!
transmission!of!any! telecommunication! .! .! ."! As!
advising!bank,!Bank!of!America!is! bound! only! to! check!
the!"apparent!authenticity"!of!the!letter!of!credit,!which!
it!did.|
*
Act* of* forwarding* enclosed* original* credit* to* the*
"forward!the!enclosed!original!credit!to!the!beneficiary."!
Considering!the!aforesaid!instruction!to!the!petitioner!by!
the!issuing!bank,!the!Security!Pacific!National!Bank,!it!is!
and!not!a!confirming!bank!as!ruled!by!the!courts!below.!
A! notifying! bank! is! not! privy! to! the! contract! of! sale!
with!that!of!the!issuing!bank!and!not!with!the!beneficiary!
to!whom!he!assumes!no!liability.!It!follows!therefore!that!
when!the!petitioner!refused!to!negotiate!with!the!private!
respondent,!the!latter!has!no!cause!of!action!against!the!
petitioner! for! the! enforcement! of! his! rights! under! the!
letter.!(Feati$Bank$&$Trust$Co.$v.$Court$of$Appeals,$G.R.$No.$
94209,$[April$30,$1991],$273$PHIL$832W855)!
!
*
Negotiating*bank;*discounting*arrangement*
!
Bank*of*America,*NT*&*SA*v.*Court*of*Appeals,*G.R.*No.*
105395,*[December*10,*1993]*
!
May!Bank!of!America!then! recover! what! it! has! paid!
under!the!letter!of!credit!when!the!corresponding!draft!
for! partial! availment! thereunder! and! the! required!
documents! therefor! were! later! negotiated! with! it!
by!Inter-Resin?! The! answer! is! yes.! This!
kind!of!transaction!is!what!is!commonly!referred!to!as!a!
discounting! arrangement.! This! time,!Bank!of!America,!
has! acted! independently! as! a! negotiating!bank,! thus!
saving!Inter-Resin!from! the! hardship!of!presenting! the!
documents! directly! to!Bank!of!Ayudhya! to! recover!
payment.! (Inter-Resin,!of!course,! could! have! chosen!
115
 SPECIAL COMMERCIAL LAWS LETTERS OF CREDIT
other! banks! with! which! to! negotiate! the! draft! and! the!
documents.)!As!a!negotiating!bank,!Bank!of!America!has!
a! right!of!recourse! against! the! issuer!bank!and! until!
reimbursement! is! obtained,!Inter-Resin,! as! the!
drawer!of!the! draft,! continues! to! assume! a! contingent!
liability!thereon.!
!!
While!Bank!of!America!has! indeed! failed! to! allege!
material!facts!in!its!complaint!that!might!have!likewise!
warranted!the!application!of!the!Negotiable!Instruments!
Law! and! possibly! then! allowed! it! to! even! go! after! the!
indorsers!of!the! draft,! this! failure,!32!nonetheless,! does!
not! preclude! petitioner! bank's! right! (as! a!
negotiating!bank)!of!recovery! from!Inter-
Resin!itself.!Inter-Resin!admits! having! received!
P10,219.093.20! from!Bank!of!America!on! the!
letter!of!credit! transaction! and! in! having! executed! the!
corresponding! draft.! That! payment! to!Inter-Resin!has!
given,! as! aforesaid,!Bank!of! America!the!
right!of!reimbursement! from! the!
issuing!bank,!Bank!of!Ayudhya!which,!in!turn,!could!then!
seek! indemnification! from! the! buyer! (the! General!
Chemicals!of!Thailand).! Since!Bank!of! Ayudhya!
disowned! the! letter!of!credit,!
however,!Bank!of!America!may! now! turn! to!Inter-
Resin!for!restitution.!
* drafts.!Presentment!for!acceptance!is!necessary!only!in!
* the! cases! expressly! provided! for! in!Section! 143! of!
Correspondent*bank,*when*deemed*confirming*bank*
In! order! to! consider! a! correspondent! bank! as! a!
confirming! bank,! it! must! have! assumed! a! direct!
obligation! to! the! seller! as! if! it! had! issued! the! letter! of!
credit!itself.!!We!said!that!"[i]f!the![correspondent!bank]!
was! a! confirming! bank,! then! a! categorical! declaration!
should! have! been! stated! in! the! letter! of! credit! that! the!
[correspondent! bank]! is! to! honor! all! drafts! drawn! in!
conformity! with! the! letter! of! credit."! (Marphil$ Export$
Corp.$v.$Allied$Banking$Corp.$,$G.R.$No.$187922,$[September$
21,$ 2016]).$ Absent! any! definitive! proof! that! it! has!
confirmed!the!letter!of!credit!or!has!actually!negotiated!
with!the!private!respondent,!the!refusal!by!the!petitioner!
to!accept!the!tender!of!the!private!respondent!is!justified.!
(Feati$Bank$&$Trust$Co.$v.$Court$of$Appeals,$G.R.$No.$94209,$
[April$30,$1991],$273$PHIL$832W855)!
* Obviously!then,!sight!drafts!do!not!require!presentment!
! for!acceptance.!
Rights*and*Obligations*of*the*Parties*
!
Presentment* for* acceptance* of* drafts* is* not*
indispensable*to*make*the*buyer*liable*on*a*letter*of*
credit*
* !
Prudential* Bank* v.* Intermediate* Appellate* Court,*
G.R.*No.*74886,*[December*8,*1992]*
!
Both!the!trial!court!and!the!public!respondent!ruled!that!
Philippine! Rayon! could! be! held! liable! for! the! two! (2)!
drafts,!Exhibits!"X"!and!"X-1",!because!only!these!appear!
to! have! been! accepted! by! the! latter! after! due!
presentment.! The! liability! for! the! remaining! ten! (10)!
LABAN NOTES ABRIL
drafts! (Exhibits! "X-2"! to! "X-11"! inclusive)! did! not! arise!
because!the!same!were!not!presented!for!acceptance.!In!
short,! both! courts! concluded! that! acceptance! of! the!
drafts! by! Philippine! Rayon! was! indispensable! to! make!
the!latter!liable!thereon.!We!are!unable!to!agree!with!this!
proposition.!The!transaction!in!the!case!at!bar!stemmed!
from! Philippine! Rayon's! application! for! a! commercial!
letter! of! credit! with! the! petitioner! in! the! amount! of!
$128,548.78!to!cover!the!former's!contract!to!purchase!
and! import! loom! and! textile! machinery! from! Nissho!
Company,! Ltd.! of! Japan! under! a! five-year! deferred!
payment!plan.!Petitioner!approved!the!application.!|||!
!
A! letter! of! credit! is! defined! as! an! engagement! by!
a!bank!or!other!person!made!at!the!request!of!a!customer!
that! the! issuer! will! honor! drafts! or! other! demands! for!
payment!upon!compliance!with!the!conditions!specified!
in!the!credit.!Through!a!letter!of!credit,!the!bank!merely!
substitutes!its!own!promise!to!pay!for!the!promise!to!pay!
of! one! of! its! customers! who! in! return! promises! to! pay!
the!bank!the!amount!of!funds!mentioned!in!the!letter!of!
credit! plus! credit! or! commitment! fees! mutually! agreed!
upon.!In! the! instant! case! then,! the! drawee! was!
necessarily!the!herein!petitioner.!It!was!to!the!latter!that!
the!drafts!were!presented!for!payment.!In!fact,!there!was!
no! need! for! acceptance! as! the! issued! drafts! are! sight!
the!Negotiable! Instruments! Law!(NIL).! The! said! section!
reads:!
!
"SECTION!143.!When!presentment!for!acceptance!must!
be!made.!—!Presentment!for!acceptance!must!be!made:!
(a)!Where!the!bill!is!payable!after!sight,!or!in!any!other!
case,!where!presentment!for!acceptance!is!necessary!in!
order!to!fix!the!maturity!of!the!instrument;!or!
(b)!Where! the! bill! expressly! stipulates! that! it! shall! be!
presented!for!acceptance;!or!
(c)!Where!the!bill!is!drawn!payable!elsewhere!than!at!the!
residence!or!place!of!business!of!the!drawee.!
!
In!no!other!case!is!presentment!for!acceptance!necessary!
in!order!to!render!any!party!to!the!bill!liable."!
!
!
The!acceptance!of!a!bill!is!the!signification!by!the!drawee!
of!his!assent!to!the!order!of!the!drawer;!this!may!be!done!
in!writing!by!the!drawee!in!the!bill!itself,!or!in!a!separate!
instrument.!!
Issuing*bank*entitled*to*reimbursement*after*it*pays*
under*the*letter*of*credit*
It!is!true!that!ordinarily,!in!a!letter!of!credit!transaction,!
the!bank!merely!substitutes!its!own!promise!to!pay!for!
the!promise!to!pay!of!one!of!its!customers,!who!in!turn!
promises!to!pay!the!bank!the!amount!of!funds!mentioned!
in!the!letters!of!credit!plus!credit!or!commitments!fees!
mutually!agreed!upon.!Once!the!issuing!bank!shall!have!
paid!the!beneficiary!after!the!latter's!compliance!with!the!
116
 SPECIAL COMMERCIAL LAWS LETTERS OF CREDIT

terms!of!the!letter!of!credit,!the!issuing!bank!is!entitled! herself! to! reimburse! the! issuing! bank! for! the! payment!
to!reimbursement!for!the!amount!it!paid!under!the!letter! made.!In!addition,!this!transaction!may!also!include!a!fee!
of! credit.! (Galvez$ v.$ Court$ of$ Appeals,$ G.R.$ No.$ 187919,$ for! the! issuing! bank's! services.!! This! transaction!
187979,$188030,$[April$25,$2012],$686$PHIL$924W944)! constitutes!an!obligation!on!the!part!of!the!issuing!bank!
* to! perform! a! service! in! consideration! of! the! buyer's!
Indispensable*essentials*for*the*system*of*letters*of* payment.! The! obligations! of! the! parties! and! their!
credit*in*facilitating*commerce* remedies!in!cases!of!breach!are!governed!by!the!letter!of!
The!value!of!letters!of!credit!in!commerce!hinges!on!an! credit!itself!and!by!our!general!law!on!obligations,!as!our!
important! aspect! of! such! a! commercial! transaction.! civil! law! finds! suppletory! application! in! commercial!
Through!a!letter!of!credit,!a!seller-beneficiary!is!assured! documents.!!!
of! payment! regardless! of! the! status! of! the! underlying! !
transaction.! International! contracts! of! sales! are! The!third!transaction!takes!place!between!the!seller!and!
perfected! and! consummated! because! of! the! certainty! the! issuing! bank.! The! issuing! bank! issues! the! letter! of!
that!the!seller!will!be!paid!thus!making!him!or!her!willing! credit!for!the!benefit!of!the!seller.!The!seller!may!agree!to!
to!part!with!the!goods!even!prior!to!actual!receipt!of!the! ship!the!goods!to!the!buyer!even!before!actual!payment!
amount!agreed!upon.!The!legally!demandable!obligation! provided!that!the!issuing!bank!informs!him!or!her!that!a!
of!an!issuing!bank!to!pay!under!the!letter!of!credit,!and! letter!of!credit!has!been!issued!for!his!or!her!benefit.!This!
the!enforceable!right!of!the!seller-beneficiary!to!demand! means! that! the! seller! can! draw! drafts! from! the! issuing!
payment,!are!indispensable!essentials!for!the!system!of! bank!upon!presentation!of!certain!documents!identified!
letters!of!credit,!if!it!is!to!serve!its!purpose!of!facilitating! in! the! letter! of! credit.! The! relationship! between! the!
commerce.! Thus,! a! touchstone! of! any! law! or! custom! issuing! bank! and! the! seller! is! not! strictly! contractual!
governing! letters! of! credit! is! an! emphasis! on! the! since! there! is! no! privity! of! contract! nor! meeting! of! the!
imperative!that!issuing!banks!respect!their!obligation!to! minds! between! them.!!It! also! does! not! constitute! a!
pay,!and!that!seller-beneficiaries!may!reasonably!expect! stipulation!pour! autrui!in! favor! of! the! seller! since! the!
payment,! in! accordance! with! the! terms! of! a! letter! of! issuing! bank! must! honor! the! drafts! drawn! against! the!
credit.!(The$Hongkong$&$Shanghai$Banking$Corp.,$Limited$ letter!of!credit!regardless!of!any!defect!in!the!underlying!
v.$ National$ Steel$ Corp.,$ G.R.$ No.$ 183486,$ [February$ 24,$ contract.!!Neither!can!it!be!considered!as!an!assignment!
2016])! by! the! buyer! to! the! seller-beneficiary! as! the! buyer!
! himself! cannot! draw! on! the! letter.!! From! its! inception,!
* only!the!seller!can!demand!payment!under!the!letter!of!
! credit.!It!is!also!not!a!contract!of!suretyship!or!guaranty!
Three*(3)*Contracts*or*Transactions*involved*in*a* since! it! involves! primary! liability! in! the! event! of!
Letter*of*Credit*Transaction* default.!!Nevertheless,! while! the! relationship! between!
! the!seller-beneficiary!and!the!issuing!bank!is!not!strictly!
Three*(3)*Contracts* contractual,!strict!payment!under!the!terms!of!a!letter!of!
1.! Contract! of! Sale! between! the! buyer! and! the! credit! is! an! enforceable! right.!! This! enforceable! right!
seller;! finds!two!legal!underpinnings.!First,!letters!of!credit,!as!
2.! Contract! between! the! issuing! bank! and! the! will! be! further! explained,! are! governed! by! recognized!
buyer;!and! international!norms!which!dictate!strict!compliance!with!
3.! Letter!of!credit!proper! its! terms.! Second,! the! issuing! bank! has! an! existing!
* agreement!with!the!buyer!to!pay!the!seller!upon!proper!
Contracts/Transactions,*explained* presentation! of! documents.! Thus,! as! the! law! on!
A! letter! of! credit! generally! arises! out! of! a! separate! obligations! applies! even! in! commercial! documents,! the!
contract! requiring! the! assurance! of! payment! of! a! third! issuing! bank! has! a! duty! to! the! buyer! to! honor! in! good!
party.!In!a!transaction!involving!a!letter!of!credit,!there! faith!its!obligation!under!their!agreement.!As!will!be!seen!
are!usually!three!transactions!and!three!parties.!The!first! in! the! succeeding! discussion,! this! transaction! is! also!
transaction,! which! constitutes! the! underlying! governed!by!international!customs!which!this!Court!has!
transaction! in! a! letter! of! credit,! is! a! contract! of! sale! recognized!in!this!jurisdiction.!!
between! the! buyer! and! the! seller.! The! contract! may! !
require! that! the! buyer! obtain! a! letter! of! credit! from! a! In!simpler!terms,!the!various!transactions!that!give!rise!
third!party!acceptable!to!the!seller.!The!obligations!of!the! to! a! letter! of! credit! proceed! as! follows:! Once! the! seller!
parties!under!this!contract!are!governed!by!our!law!on! ships! the! goods,! he! or! she! obtains! the! documents!
sales.! required!under!the!letter!of!credit.!He!or!she!shall!then!
! present!these!documents!to!the!issuing!bank!which!must!
The!second!transaction!is!the!issuance!of!a!letter!of!credit! then!pay!the!amount!identified!under!the!letter!of!credit!
between! the! buyer! and! the! issuing! bank.! The! buyer! after!it!ascertains!that!the!documents!are!complete.!The!
requests! the! issuing! bank! to! issue! a! letter! of! credit! issuing!bank!then!holds!on!to!these!documents!which!the!
naming!the!seller!as!the!beneficiary.!In!this!transaction,! buyer! needs! in! order! to! claim! the! goods! shipped.! The!
the! issuing! bank! undertakes! to! pay! the! seller! upon! buyer! reimburses! the! issuing! bank! for! its! payment! at!
presentation!of!the!documents!identified!in!the!letter!of! which!point!the!issuing!bank!releases!the!documents!to!
credit.!The!buyer,!on!the!other!hand,!obliges!himself!or! the! buyer.! The! buyer! is! then! able! to! present! these!

LABAN NOTES ABRIL 117

 SPECIAL COMMERCIAL LAWS LETTERS OF CREDIT

documents!in!order!to!claim!the!goods.!At!this!point,!all! intended.! As! beneficiary! of! the! letter! of! credit,! LHC!
the! transactions! are! completed.! The! seller! received! asserts!it!is!entitled!to!invoke!the!principle.!
payment!for!his!or!her!performance!of!his!obligation!to! !
deliver!the!goods.!The!issuing!bank!is!reimbursed!for!the! As!discussed!above,!in!a!letter!of!credit!transaction,!such!
payment! it! made! to! the! seller.! The! buyer! received! the! as! in! this! case,! where! the! credit! is! stipulated! as!
goods! purchased.$ (The$ Hongkong$ &$ Shanghai$ Banking$ irrevocable,!there!is!a!definite!undertaking!by!the!issuing!
Corp.,$ Limited$ v.$ National$ Steel$ Corp.,$ G.R.$ No.$ 183486,$ bank!to!pay!the!beneficiary!provided!that!the!stipulated!
[February$24,$2016])! documents!are!presented!and!the!conditions!of!the!credit!
! are!complied!with.!Precisely,!the!independence!principle!
! liberates!the!issuing!bank!from!the!duty!of!ascertaining!
! compliance! by! the! parties! in! the! main! contract.! As! the!
Basic*Principles** principle's!nomenclature!clearly!suggests,!the!obligation!
! under! the! letter! of! credit! is! independent! of! the! related!
and! originating! contract.! In! brief,! the! letter! of! credit! is!
Doctrine*of*Independence*
separate!and!distinct!from!the!underlying!transaction.!
*
!
Independence*Principle,*concept*
Given! the! nature! of! letters! of! credit,! petitioner's!
The! so-called! "independence! principle"! assures! the!
argument! —! that! it! is! only! the! issuing! bank! that! may!
seller!or!the!beneficiary!of!prompt!payment!independent!
invoke!the!independence!principle!on!letters!of!credit!—!
of! any! breach! of! the! main! contract! and! precludes! the!
does! not! impress! this! Court.! To! say! that! the!
issuing! bank! from! determining! whether! the! main!
independence! principle! may! only! be! invoked! by! the!
contract! is! actually! accomplished! or! not.! Under! this!
issuing! banks! would! render! nugatory! the! purpose! for!
principle,!banks!assume!no!liability!or!responsibility!for!
which! the! letters! of! credit! are! used! in! commercial!
the!form,!sufficiency,!accuracy,!genuineness,!falsification!
transactions.!As!it!is,!the!independence!doctrine!works!to!
or! legal! effect! of! any! documents,! or! for! the! general!
the!benefit!of!both!the!issuing!bank!and!the!beneficiary.!
and/or!particular!conditions!stipulated!in!the!documents!
!
or! superimposed! thereon,! nor! do! they! assume! any!
Letters!of!credit!are!employed!by!the!parties!desiring!to!
liability! or! responsibility! for! the! description,! quantity,!
enter!into!commercial!transactions,!not!for!the!benefit!of!
weight,! quality,! condition,! packing,! delivery,! value! or!
the!issuing!bank!but!mainly!for!the!benefit!of!the!parties!
existence!of!the!goods!represented!by!any!documents,!or!
to!the!original!transactions.!With!the!letter!of!credit!from!
for! the! good! faith! or! acts! and/or! omissions,! solvency,!
the!issuing!bank,!the!party!who!applied!for!and!obtained!
performance! or! standing! of! the! consignor,! the! carriers,!
it! may! confidently! present! the! letter! of! credit! to! the!
or! the! insurers! of! the! goods,! or! any! other! person!
beneficiary! as! a! security! to! convince! the! beneficiary! to!
whomsoever.!!!
enter! into! the! business! transaction.! On! the! other! hand,!
!
the! other! party! to! the! business! transaction,!i.e.,! the!
The!independent!nature!of!the!letter!of!credit!may!be:!(a)!
beneficiary!of!the!letter!of!credit,!can!be!rest!assured!of!
independence!in! toto!where! the! credit! is! independent!
being! empowered! to! call! on! the! letter! of! credit! as! a!
from!the!justification!aspect!and!is!a!separate!obligation!
security! in! case! the! commercial! transaction! does! not!
from!the!underlying!agreement!like!for!instance!a!typical!
push!through,!or!the!applicant!fails!to!perform!his!part!of!
standby;! or! (b)! independence! may! be! only! as! to! the!
the!transaction.!It!is!for!this!reason!that!the!party!who!is!
justification!aspect!like!in!a!commercial!letter!of!credit!or!
entitled! to! the! proceeds! of! the! letter! of! credit! is!
repayment! standby,! which! is! identical! with! the! same!
appropriately!called!"beneficiary."!
obligations! under! the! underlying! agreement.! In! both!
cases!the!payment!may!be!enjoined!if!in!the!light!of!the! Independence*of*the*three*(3)*contracts*in*a*Letter*of*
purpose! of! the! credit! the! payment! of! the! credit! would! Credit*Transaction*
constitute! fraudulent! abuse! of! the! credit.! (Transfield$ In! a! letter! of! credit,! there! are! three! distinct! and!
Philippines,$ Inc.$ v.$ Luzon$ Hydro$ Corp.,$ G.R.$ No.$ 146717,$ independent!contracts:!(1)!the!contract!of!sale!between!
[November$22,$2004],$485$PHIL$699W731)! the! buyer! and! the! seller,! (2)! the! contract! of! the! buyer!
* with!the!issuing!bank,!and!(3)!the!letter!of!credit!proper!
* in!which!the!bank!promises!to!pay!the!seller!pursuant!to!
the!terms!and!conditions!stated!therein.!"Few!things!are!
Beneficiary*may*invoke*independence*principle*
more! clearly! settled! in! law! than! that! of! the! three!
!
contracts!which!make!up!the!letter!of!credit!arrangement!
Transfield*Philippines,*Inc.*v.*Luzon*Hydro*Corp.,*G.R.* are!to!be!maintained!in!a!state!of!perpetual!separation."!
No.*146717,*[November*22,*2004]*
A!transaction!involving!the!purchase!of!goods!may!also!
!
require,! apart! from! a! letter! of! credit,! a! contract! of!
Petitioner! insists! that! the! independence! principle! does!
transportation! specially! when! the! seller! and! the! buyer!
not!apply!to!the!instant!case!and!assuming!it!is!so,!it!is!a!
are! not! in! the! same! locale! or! country,! and! the! goods!
defense!available!only!to!respondent!banks.!LHC,!on!the!
purchased! have! to! be! transported! to! the! latter.! Hence,!
other! hand,! contends! that! it! would! be! contrary! to!
the!contract!of!carriage,!as!stipulated!in!the!bill!of!lading!
common! sense! to! deny! the! benefit! of! an! independent!
in!the!present!case,!must!be!treated!independently!of!the!
contract! to! the! very! party! for! whom! the! benefit! is!
contract!of!sale!between!the!seller!and!the!buyer,!and!the!

LABAN NOTES ABRIL 118

 SPECIAL COMMERCIAL LAWS LETTERS OF CREDIT

contract!for!the!issuance!of!a!letter!of!credit!between!the! Fraud*Exception,*when*applied*
buyer! and! the! issuing! bank.! Any! discrepancy! between! This!is!the!exception!to!the!Independence!principle.!This!
the! amount! of! the! goods! described! in! the! commercial! exists!when!the!beneficiary,!for!the!purpose!of!drawing!
invoice!in!the!contract!of!sale!and!the!amount!allowed!in! on! the! credit,! fraudulently! presents! to! the! confirming!
the! letter! of! credit! will! not! affect! the! validity! and! bank,! documents! that! contain,! expressly! or! by!
enforceability!of!the!contract!of!carriage!as!embodied!in! implication,! material! representations! of! fact! that! to! his!
the!bill!of!lading.!As!the!bank!cannot!be!expected!to!look! knowledge! are! untrue.! (Transfield$ Philippines,$ Inc.$ v.$
beyond! the! documents! presented! to! it! by! the! seller! Luzon$Hydro$Corp.,$G.R.$No.$146717,$[November$22,$2004],$
pursuant!to!the!letter!of!credit,!neither!can!the!carrier!be! 485$PHIL$699W731)$
expected!to!go!beyond!the!representations!of!the!shipper! !
in! the! bill! of! lading! and! to! verify! their! accuracy!vis-a- !
vis!the!commercial!invoice!and!the!letter!of!credit.$(Keng$ Doctrine*of*Strict*Compliance*
Hua$ Paper$ Products$ Co.$ Inc.$ v.$ Court$ of$ Appeals,$ G.R.$ No.$ !
116863,$[February$12,$1998],$349$PHIL$925W942)! Strict*Compliance*Rule*
* It!is!a!settled!rule!in!commercial!transactions!involving!
* letters! of! credit! that! the! documents! tendered! must!
Letter*of*credit*v.*accessory*contracts;*Independence* strictly!conform!to!the!terms!of!the!letter!of!credit.!The!
principle* tender! of! documents! by! the! beneficiary! (seller)! must!
What! characterizes! letters!of!credit,! as! distinguished! include! all! documents! required! by! the! letter.! A!
from!other!accessory!contracts,!is!the!engagement!of!the! correspondent!bank!which!departs!from!what!has!been!
issuing!bank!to! pay! the! seller! once! the! draft! and! the! stipulated!under!the!letter!of!credit,!as!when!it!accepts!a!
required!shipping!documents!are!presented!to!it.!In!turn,! faulty! tender,! acts! on! its! own! risks! and! it! may! not!
this!arrangement!assures!the!seller!of!prompt!payment,! thereafter! be! able! to! recover! from! the! buyer! or! the!
independent!of!any!breach!of!the!main!sales!contract.!By! issuing!bank,!as!the!case!may!be,!the!money!thus!paid!to!
this! so-called! "independence! principle,"! the!beneficiary.!Thus!the!rule!of!strict!compliance.!(Feati$
the!bank!determines!compliance!with!the!letter!of!credit! Bank$&$Trust$Co.$v.$Court$of$Appeals,$G.R.$No.$94209,$[April$
only!by!examining!the!shipping!documents!presented;!it! 30,$1991],$273$PHIL$832W855)!
is! precluded! from! determining! whether! the! main! !
contract! is! actually! accomplished! or! not.! (Bank$ of$ !
America,$ NT$ &$ SA$ v.$ Court$ of$ Appeals,$ G.R.$ No.$ 105395,$ !
[December$10,$1993])! !
!
When*letter*of*credit*is*payable*on*sight*
In! transactions! where! the! letter! of! credit! is! payable! on!
sight,! as! in! this! case,! the! issuer! must! pay! upon! due!
presentment.! This! obligation! is! imbued! with! the!
character! of! definiteness! in! that! not! even! the! defect! or!
breach! in! the! underlying! transaction! will! affect! the!
issuing! bank's! liability.! This! is! the! Independence!
Principle!in!the!law!on!letters!of!credit.!Article!17!of!UCP!
400! explains! that! under! this! principle,! an! issuing! bank!
assumes! no! liability! or! responsibility! "for! the! form,!
sufficiency,! accuracy,! genuineness,! falsification! or! legal!
effect! of! any! documents,! or! for! the! general! and/or!
particular! conditions! stipulated! in! the! documents! or!
superimposed! thereon.! .! ."! Thus,! as! long! as! the! proper!
documents! are! presented,! the! issuing! bank! has! an!
obligation!to!pay!even!if!the!buyer!should!later!on!refuse!
payment.! Hence,! Klockner's! refusal! to! pay! carries! no!
effect!whatsoever!on!HSBC's!obligation!to!pay!under!the!
Letter! of! Credit.! To! allow! HSBC! to! refuse! to! honor! the!
Letter!of!Credit!simply!because!it!could!not!collect!first!
from! Klockner! is! to! countenance! a! breach! of! the!
Independence! Principle.! (The$ Hongkong$ &$ Shanghai$
Banking$ Corp.,$ Limited$ v.$ National$ Steel$ Corp.,$ G.R.$ No.$
183486,$[February$24,$2016])$
$
$
$
Fraud*Exception*Principle*
!

LABAN NOTES ABRIL 119

 SPECIAL COMMERCIAL LAWS TRUST RECEIPT

Introductory*Concepts* under" the" obligation" to" deliver" it"(entregarla)"to" the"

* owner"of"the"merchandise"sold."The"second"is"covered"by"
Trust*receipt,*definition* the" provision" referring" to" merchandise" received" under"
a" security" transaction" intended" to" aid" in" financing" the"obligation"to"return"it"(devolvera)"to"the"owner.""
importers" and" retail" dealers" who" do" not" have" sufficient" "
funds"or"resources"to"finance"the"importation"or"purchase" In"all"trust"receipt"transactions,"both"obligations"on"the"
of"merchandise,"and"who"may"not"be"able"to"acquire"credit" part"of"the"trustee"exist"in"the"alternative"—"the"return"of"
except" through" utilization," as" collateral," of" the" the"proceeds"of"the"sale"or"the"return"or"recovery"of"the"
merchandise"imported"or"purchased"(Samo%v.%People)" goods," whether" raw" or" processed." When" both" parties"
* enter"into"an"agreement"knowing"that"the"return"of"the"
Trust*Receipts*Law,*purpose* goods" subject" of" the" trust" receipt" is" not" possible" even"
to"aid"in"financing"importers"and"retail"dealers"who"do" without" any" fault" on" the" part" of" the" trustee," it" is" not" a"
not" have" sufficient" funds" or" resources" to" finance" the" trust" receipt" transaction" penalized" under" Section" 13"
importation"or"purchase"of"merchandise,"and"who"may" of"P.D."115;"the"only"obligation"actually"agreed"upon"by"
not"be"able"to"acquire"credit"except"through"utilization," the" parties" would" be" the" return" of" the" proceeds" of" the"
as"collateral,"of"the"merchandise"imported"or"purchased" sale"transaction."This"transaction"becomes"a"mere"loan,"
" where" the" borrower" is" obligated" to" pay" the" bank" the"
" amount"spent"for"the"purchase"of"the"goods."(Land%Bank%
Trust*Receipt*Transaction* of%the%Phils.%v.%Perez,%G.R.%No.%166884,%[June%13,%2012],%687%
* PHIL%106S125)"
Trust*receipt*transaction,*nature*
"
The"true"nature"of"a"trust"receipt"transaction"can"be"found" Intent*to*defraud,*presumed*
in"the""whereas""clause"of"PD"115"which"states"that"a"trust" Thus,"under"the"Trust"Receipts"Law,"intent"to"defraud"is"
receipt"is"to"be"utilized""as"a"convenient"business"device" presumed"when"(1)"the"entrustee"fails"to"turn"over"the"
to" assist" importers" and" merchants" solve" their" financing" proceeds"of"the"sale"of"goods"covered"by"the"trust"receipt"
problems."" Obviously," the" State," in" enacting" the" law," to"the"entruster;"or"(2)"when"the"entrustee"fails"to"return"
sought"to"find"a"way"to"assist"importers"and"merchants"in" the" goods" under" trust," if" they" are" not" disposed" of" in"
their" financing" in" order" to" encourage" commerce" in" the" accordance" with" the" terms" of" the" trust" receipts." (Land%
Philippines.""
Bank%of%the%Phils.%v.%Perez,%G.R.%No.%166884,%[June%13,%2012],%
A" trust" receipt" is" considered" a" security" transaction"
687%PHIL%106S125)%
intended"to"aid"in"financing"importers"and"retail"dealers"
"
who"do"not"have"sufficient"funds"or"resources"to"finance"
*
the" importation" or" purchase" of" merchandise," and" who"
may" not" be" able" to" acquire" credit" except" through" Loan*and*Security*Features*of*TR*
utilization,"as"collateral,"of"the"merchandise"imported"or" "
purchased." (Hur% Tin% Yang% v.% People,% G.R.% No.% 195117% A"letter"of"creditRtrust"receipt"arrangement"is"endowed"
(Resolution),%[August%14,%2013])% with" its" own" distinctive" features" and" characteristics."
% Under"that"setRup,"a"bank"extends"a"loan"covered"by"the"
Trust*receipt*is*a*security*agreement* Letter"of"Credit,"with"the"trust"receipt"as"a"security"for"the"
A" trust" receipt," therefore," is" a" security" agreement," loan." In" other" words," the" transaction" involves" a" loan"
pursuant"to"which"a"bank"acquires"a""security"interest"" feature"represented"by"the"letter"of"credit,"and"a"security"
in"the"goods.""It"secures"an"indebtedness"and"there"can" feature"which"is"in"the"covering"trust"receipt."
be" no" such" thing" as" security" interest" that" secures" no" "
obligation."""As"defined"in"our"laws:" A" trust" receipt," therefore," is" a" security" agreement,"
(h)""Security" Interest" means" a" property" pursuant"to"which"a"bank"acquires"a""security"interest""
interest"in"goods,"documents"or"instruments"to" in"the"goods.""It"secures"an"indebtedness"and"there"can"
secure"performance"of"some"obligations"of"the" be" no" such" thing" as" security" interest" that" secures" no"
entrustee" or" of" some" third" persons" to" the" obligation."|||"(Spouses" Vintola" v." Insular" Bank" of" Asia"
entruster" and" includes" title," whether" or" not" and" America," G.R." No." 73271," [May% 29,% 1987],% 234% PHIL%
expressed"to"be"absolute,"whenever"such"title"is" 562S570)%
in" substance" taken" or" retained" for" security" %
only."%% Ownership*of*the*Goods,*Documents,*and*
% Instruments*under*a*Trust*Receipt*
(Spouses%Vintola%v.%Insular%Bank%of%Asia%and%America,%G.R.% *
No.%73271,%[May%29,%1987],%234%PHIL%562S570)" Development* Bank* of* the* Phils.* v.* Prudential* Bank,*
" G.R.*No.*143772,*[November*22,*2005],*512*PHIL*267S
% 280*
Two* obligations* in* a* TR* transaction:* Obligation* "
entregarla*and*obligation*devolvera* Litex"was"not"engaged"in"the"business"of"selling"spinning"
There"are"two"obligations"in"a"trust"receipt"transaction." machinery," its" accessories" and" spare" parts" but" in"
The"first"is"covered"by"the"provision"that"refers"to"money"

LABAN NOTES ABRIL 120

 SPECIAL COMMERCIAL LAWS TRUST RECEIPT
manufacturing" and" producing" textile" and" various" kinds"
of" fabric." The" articles" were" not" released" to" Litex" to" be"
sold."Nor"was"the"transfer"of"possession"intended"to"be"a"
preliminary" step" for" the" said" goods" to" be" ultimately" or"
subsequently" sold." Instead," the" contemporaneous" and"
subsequent" acts" of" both" Litex" and" Prudential" Bank"
showed"that"the"imported"articles"were"released"to"Litex"
to"be"installed"in"its"textile"mill"and"used"in"its"business."
DBP"itself"was"aware"of"this."
" "
In"a"trust"receipt"transaction,"the"goods"are"released"by"
the" entruster" (who" owns" or" holds" absolute" title" or"
security"interests"over"the"said"goods)"to"the"entrustee"
on"the"latter's"execution"and"delivery"to"the"entruster"of"
a"trust"receipt."The"trust"receipt"evidences"the"absolute"
title"or"security"interest"of"the"entruster"over"the"goods."
As" a" consequence" of" the" release" of" the" goods" and" the"
execution" of" the" trust" receipt," a" twoRfold" obligation" is"
imposed" on" the" entrustee," namely:" (1)" to" hold" the"
designated"goods,"documents"or"instruments"in"trust"for"
the"purpose"of"selling"or"otherwise"disposing"of"them"and"
(2)" to" turn" over" to" the" entruster" either" the" proceeds"
thereof" to" the" extent" of" the" amount" owing" to" the"
entruster"or"as"appears"in"the"trust"receipt,"or"the"goods,"
documents"or"instruments"themselves"if"they"are"unsold"
or" not" otherwise" disposed" of," in" accordance" with" the"
terms"and"conditions"specified"in"the"trust"receipt."In"the"
case" of" goods," they" may" also" be" released" for" other"
purposes"substantially"equivalent"to"(a)"their"sale"or"the"
procurement" of" their" sale;" or" (b)" their" manufacture" or"
processing" with" the" purpose" of" ultimate" sale," in" which"
case" the" entruster" retains" his" title" over" the" said" goods"
whether" in" their" original" or" processed" form" until" the"
entrustee" has" complied" fully" with" his" obligation" under"
the"trust"receipt;"or"(c)"the"loading,"unloading,"shipment"
or" transshipment" or" otherwise" dealing" with" them" in" a"
manner"preliminary"or"necessary"to"their"sale."Thus,"in"a"
trust"receipt"transaction,"the"release"of"the"goods"to"the"
entrustee," on" his" execution" of" a" trust" receipt," is"
essentially"for"the"purpose"of"their"sale"or"is"necessarily"
connected"with"their"ultimate"or"subsequent"sale.|||""
" entruster"or"as"appears"in"the"trust"receipt"or"to"return"
Trustee*ex*maleficio*
No"one"can"transfer"a"right"to"another"greater"than"what"
he"himself"has."Nemo"dat"quod"non"habet."Hence,"Litex"
could" not" transfer" a" right" that" it" did" not" have" over" the"
disputed"items."Corollarily,"DBP"could"not"acquire"a"right"
greater" than" what" its" predecessorRinRinterest" had." The"
spring" cannot" rise" higher" than" its" source." DBP" merely"
stepped"into"the"shoes"of"Litex"as"trusteeof"the"imported"
articles"with"an"obligation"to"pay"their"value"or"to"return"
them"on"Prudential"Bank's"demand."By"its"failure"to"pay"
or" return" them" despite" Prudential" Bank's" repeated"
demands"and"by"selling"them"to"Lyon"without"Prudential"
Bank's" knowledge" and" conformity," DBP" became"
a"trustee"ex"maleficio.|||%(Development%Bank%of%the%Phils.%
v.%Prudential%Bank,%G.R.%No.%143772,%[November%22,%2005],%
512%PHIL%267S280)"
" Jurisprudence" provides" that" the"Trust" Receipts" Law"is"
Entruster*and*Entrustee*
LABAN NOTES ABRIL
*
Entrustee*
*
Entrustee,*definition*
An"entrustee"is"one"having"or"taking"possession"of"
goods,"documents"or"instruments"under"a"trust"receipt"
transaction,"and"any"successor"in"interest"of"such"
person"for"the"purpose"of"payment"specified"in"the"trust"
receipt"agreement."
Obligations*of*an*entrustee*
The"entrustee"is"obliged"to""
1.! hold"the"goods,"documents"or"instruments"in"
trust"for"the"entruster"and"shall"dispose"of"
them"strictly"in"accordance"with"the"terms"and"
conditions"of"the"trust"receipt;""
2.! receive"the"proceeds"in"trust"for"the"entruster"
and"turn"over"the"same"to"the"entruster"to"the"
extent"of"the"amount"owed"to"the"entruster"or"
as"appears"on"the"trust"receipt;"
3.! insure"the"goods"for"their"total"value"against"
loss"from"fire,"theft,"pilferage"or"other"
casualties;""
4.! keep"said"goods"or"the"proceeds"therefrom"
whether"in"money"or"whatever"form,"separate"
and"capable"of"identification"as"property"of"the"
entruster;""
5.! return"the"goods,"documents"or"instruments"in"
the"event"of"nonRsale"or"upon"demand"of"the"
entruster;"and""
6.! observe"all"other"terms"and"conditions"of"the"
trust"receipt"not"contrary"to"the"provisions"of"
the"decree.""
(Metropolitan%Bank%&%Trust%Co.%v.%Gonzales,%G.R.%
No.% 180165,% [April% 7,% 2009],% 602% PHIL% 1000S
1015)%
%
PD*115*and*Art.*315,*par.*1(b)*of*RPC*(Estafa)*
The"failure"of"an"entrustee"to"turn"over"the"proceeds"of"
the"sale"of"the"goods,"documents"or"instruments"covered"
by"a"trust"receipt"to"the"extent"of"the"amount"owing"to"the"
said" goods," documents" or" instruments" if" they" were" not"
sold"or"disposed"of"in"accordance"with"the"terms"of"the"
trust" receipt" shall" constitute" the" crime" of" estafa,"
punishable" under" the" provisions" of" Article" Three"
hundred"and"fifteen,"paragraph"one"(b)"of"Act"Numbered"
Three"thousand"eight"hundred"and"fifteen,"as"amended,"
otherwise" known" as" the" Revised" Penal" Code." If" the"
violation" or" offense" is" committed" by" a" corporation,"
partnership," association" or" other" juridical" entities," the"
penalty" provided" for" in" this" Decree" shall" be" imposed"
upon"the"directors,"officers,"employees"or"other"officials"
or" persons" therein" responsible" for" the" offense," without"
prejudice"to"the"civil"liabilities"arising"from"the"criminal"
offense."(sec.%13,%PD%115)"
"
When*entrustee*is*liable*for*Estafa*
violated" whenever" the" entrustee" fails" to:" (1)" turn" over"
the"proceeds"of"the"sale"of"the"goods"(failure*to*remit),"
121
 SPECIAL COMMERCIAL LAWS TRUST RECEIPT

or"(2)"return"the"goods" covered"by"the"trust"receipts"if" any" other" indebtedness" of" mine/ours" to" ASIATRUST"

the" goods" are" not" sold" (failure* to* return)."" The" mere" DEVELOPMENT"BANK.""(Emphasis"supplied.)"
failure"to"account"or"return"gives"rise"to"the"crime"which" "
is"malum"prohibitum."There"is"no"requirement"to"prove" Clearly," petitioner" was" only" obligated" to" turn" over" the"
intent" to" defraud."(United% Coconut% Planters% Bank% v.% proceeds"as"soon"as"he"received"payment."However,"the"
Looyuko,%G.R.%No.%156337,%[September%28,%2007],%560%PHIL% evidence"reveals"that"petitioner"experienced"difficulties"
581S598)% in" collecting" payments" from" his" clients" for" the"
% communication" towers." Despite" this" fact," petitioner"
Goods"Were"Not"Received"in"Trust" endeavored"to"pay"his"indebtedness"to"Asiatrust,"which"
The" first" element" of"Estafa"under" Art." 315," par." 1" (b)" of" payments"during"the"period"from"September"1997"to"July"
the"RPC"requires"that"the"money,"goods"or"other"personal" 1998" total" approximately" PhP1,500,000." Thus," absent"
property"must"be"received"by"the"offender"in"trust"or"on" proof" that" the" proceeds" have" been" actually" and" fully"
commission," or" for" administration," or" under" any" other" received" by" petitioner," his" obligation" to" turn" over" the"
obligation" involving" the" duty" to" make" delivery" of," or" to" same"to"Asiatrust"never"arose."
return"it."But"as"we"already"discussed,"the"goods"received" %
by"petitioner"were"not"held"in"trust."They"were"also"not" %
intended"for"sale"and"neither"did"petitioner"have"the"duty" Penal* sanction* if* violation* is* committed* by* a*
to"return"them."They"were"only"intended"for"use"in"the" corporation,* partnership,* association* or* other*
fabrication"of"steel"communication"towers." juridical*entities*
" "
No"Misappropriation"of"Goods"or"Proceeds" Crisologo* v.* People,* G.R.* No.* 199481,* [December* 3,*
The" second" element" of"Estafa"requires" that" there" be" 2012]*
misappropriation" or" conversion" of" such" money" or" Section"13"of"the"Trust"Receipts"Law"explicitly"provides"
property" by" the" offender," or" denial" on" his" part" of" such" that" if" the" violation" or" offense" is" committed" by" a"
receipt." corporation," as" in" this" case," the" penalty" provided" for"
" under" the" law" shall" be" imposed" upon" the" directors,"
This"is"the"very"essence"of"Estafa"under"Art."315,"par."1" officers," employees" or" other" officials" or" person"
(b)."The"words""convert""and""misappropriated""connote" responsible"for"the"offense,"without"prejudice"to"the"civil"
an"act"of"using"or"disposing"of"another's"property"as"if"it" liabilities"arising"from"the"criminal"offense."
were" one's" own," or" of" devoting" it" to" a" purpose" or" use" "
different"from"that"agreed"upon."" In" this" case," petitioner" was" acquitted" of" the" charge" for"
" violation"of"the"Trust"Receipts"Law"in"relation"to"Article"
To" misappropriate" for" one's" own" use" includes" not" only" 315" 1" (b)" of" the" RPC." As" such," he" is" relieved" of" the"
conversion" to" one's" personal" advantage," but" also" every" corporate"criminal"liability"as"well"as"the"corresponding"
attempt"to"dispose"of"the"property"of"another"without"a" civil" liability" arising" therefrom." However," as" correctly"
right." found"by"the"RTC"and"the"CA,"he"may"still"be"held"liable"
" for" the" trust" receipts" and" L/C" transactions" he" had"
Ng*v.*People,*G.R.*No.*173905,*[April*23,*2010]* entered"into"in"behalf"of"Novachem."
Petitioner"argues"that"there"was"no"misappropriation"or" "
conversion" on" his" part," because" his" liability" for" the" Settled" is" the" rule" that" debts" incurred" by" directors,"
amount"of"the"goods"subject"of"the"trust"receipts"arises" officers," and" employees" acting" as" corporate" agents" are"
and" becomes" due"only"upon" receipt" of" the" proceeds" of" not" their" direct" liability" but" of" the" corporation" they"
the"sale"and"not"prior"to"the"receipt"of"the"full"price"of"the" represent,"except"if"they"contractually"agree/stipulate"or"
goods." assume" to" be" personally" liable" for" the" corporation's"
" debts,"as"in"this"case."
Petitioner" is" correct." Thus," assuming"arguendo"that" the" "
provisions" of"PD" 115"apply," petitioner" is" not" liable" The"RTC"and"the"CA"adjudged"petitioner"personally"and"
for"Estafa" because" Sec." 13" of"PD" 115"provides" that" an" solidarily" liable" with" Novachem" for" the" obligations"
entrustee"is"only"liable"for"Estafa"when"he"fails""to"turn" secured"by"the"subject"trust"receipts"based"on"the"finding"
over"the"proceeds"of"the"sale"of"the"goods"."."."covered"by" that" he" signed" the" guarantee" clauses" therein" in" his"
a"trust"receipt"to"the"extent"of"the"amount"owing"to"the" personal" capacity" and" even" waived" the" benefit" of"
entruster" or" as" appears" in" the" trust" receipt" ." ." ."in" excussion."However,"a"review"of"the"records"shows"that"
accordance"with"the"terms"of"the"trust"receipt."" petitioner"signed"only"the"guarantee"clauses"of"the"Trust"
" Receipt" dated" May" 24," 1989"and" the" corresponding"
The" trust" receipt" entered" into" between" Asiatrust" and" Application" and" Agreement" for" Commercial" Letter" of"
petitioner"states:" Credit" No." L/C" No." 89/0301."" With" respect" to" the" Trust"
" Receipt"dated"August"31,"1989"and"Irrevocable"Letter"of"
In"case"of"sale"I/we"agree"to"hand"the"proceeds"as"soon" Credit"No." L/C" No." DOMR33041" issued" to" SMC" for" the"
as" received"to" the" BANK" to" apply" against" the" relative" glass" containers," the" second" pages" of" these" documents"
acceptance"(as"described"above)"and"for"the"payment"of" that" would" have" reflected" the" guarantee" clauses" were"
missing"and"did"not"form"part"of"the"prosecution's"formal"

LABAN NOTES ABRIL 122

 SPECIAL COMMERCIAL LAWS TRUST RECEIPT
offer" of" evidence." In" relation" thereto," Chinabank"
stipulated"before" the" CA" that" the" second" page" of" the"
August"31,"1989"Trust"Receipt"attached"to"the"complaint"
before"the"court"a"quo"would"serve"as"the"missing"page."
A" perusal" of" the" said" page," however," reveals" that" the"
same"does"not"bear"the"signature"of"the"petitioner"in"the"
guarantee"clause."Hence,"it"was"error"for"the"CA"to"hold"
petitioner" likewise" liable" for" the" obligation" secured" by"
the"said"trust"receipt"(L/C"No."DOMR33041)."Neither"was"
sufficient" evidence" presented" to" prove" that" petitioner"
acted"in"bad"faith"or"with"gross"negligence"as"regards"the"
transaction"that"would"have"held"him"civilly"liable"for"his"
actions"in"his"capacity"as"President"of"Novachem."
" receipt."."."."Furthermore,"any"doubt"as"to"the"import"or"
When*return*of*the*goods*is*not*possible*thus*not*a*
trust*receipt,*not*liable*for*estafa**
Nonetheless,"when"both"parties"enter"into"an"agreement"
knowing"fully"well"that"the"return"of"the"goods"subject"of"
the"trust"receipt"is"not"possible"even"without"any"fault"on"
the"part"of"the"trustee,"it"is"not"a"trust"receipt"transaction"
penalized"under"Sec."13"of"PD"115"in"relation"to"Art."315,"
par." 1" (b)" of" the"RPC," as" the" only" obligation" actually"
agreed" upon" by" the" parties" would" be" the" return" of" the"
proceeds" of" the" sale" transaction."This" transaction"
becomes"a"mere"loan,"where"the"borrower"is"obligated"to"
pay" the" bank" the" amount" spent" for" the" purchase" of" the"
goods." (Hur% Tin% Yang% v.% People,% G.R.% No.% 195117%
(Resolution),%[August%14,%2013])"
" Security*Bank*Corp.*v.*Great*Wall*Commercial*Press*
" Co.,*Inc.,*G.R.*No.*219345,*[January*30,*2017]*
Corporate* offices* signing* jointly* and* severally* with*
the* corporation* in* a* trust* receipt* contract* is* liable*
only*as*guarantor*
" agreement"and"the"continuing"suretyship"agreement"do"
Tupaz* IV* v.* Court* of* Appeals,* G.R.* No.* 145578,*
[November*18,*2005]*
" to"the"violation"of"the"trust"receipts"agreements."
In"Prudential"Bank"v."Intermediate"Appellate"Court,"the"
Court" interpreted" a" substantially" identical" clause" in" a"
trust" receipt" signed" by" a" corporate" officer" who" bound"
himself"personally"liable"for"the"corporation's"obligation."
The"petitioner"in"that"case"contended"that"the"stipulation"
"we"jointly"and"severally"agree"and"undertake""rendered"
the" corporate" officer" solidarily" liable" with" the"
corporation." We" dismissed" this" claim" and" held" the"
corporate" officer" liable" as" guarantor" only." The" Court"
further" ruled" that" had" there" been" more" than" one"
signatories" to" the" trust" receipt," the" solidary" liability"
would"exist"between"the"guarantors."We"held:"Petitioner"
[Prudential" Bank]" insists" that" by" virtue" of" the" clear"
wording" of" the" ." ." ." clause" "." ." ." we" jointly" and" severally"
agree"and"undertake".".".,""and"the"concluding"sentence"on"
exhaustion," [respondent]" Chi's" liability" therein" is"
solidary."."." ."Our" ."."." reading"of" the"questioned" solidary"
guaranty"clause"yields"no"other"conclusion"than"that"the"
obligation" of" Chi" is" only" that" of" a" guarantor." This" is"
further" bolstered" by" the" last" sentence" which" speaks" of"
waiver"of"exhaustion,"which,"nevertheless,"is"ineffective"
in"this"case"because"the"space"therein"for"the"party"whose"
property"may"not"be"exhausted"was"not"filled"up."Under"
Article"2058"of"the"Civil"Code,"the"defense"of"exhaustion"
LABAN NOTES ABRIL
(excussion)"may"be"raised"by"a"guarantor"before"he"may"
be" held" liable" for" the" obligation." Petitioner" likewise"
admits" that" the" questioned" provision" is" a" solidary"
guaranty"clause,"thereby"clearly"distinguishing"it"from"a"
contract"of"surety."It,"however,"described"the"guaranty"as"
solidary"between"the"guarantors;"this"would"have"been"
correct" if" two" (2)" guarantors" had" signed" it." The" clause"
"we"jointly"and"severally"agree"and"undertake""refers"to"
the"undertaking"of"the"two"(2)"parties"who"are"to"sign"it"
or" to" the" liability" existing" between" themselves." It" does"
not"refer"to"the"undertaking"between"either"one"or"both"
of"them"on"the"one"hand"and"the"petitioner"on"the"other"
with" respect" to" the" liability" described" under" the" trust"
true" intent" of" the" solidary" guaranty" clause" should" be"
resolved" against" the" petitioner." The" trust" receipt,"
together"with"the"questioned"solidary"guaranty"clause,"is"
on"a"form"drafted"and"prepared"solely"by"the"petitioner;"
Chi's"participation"therein"is"limited"to"the"affixing"of"his"
signature"thereon."It"is,"therefore,"a"contract"of"adhesion;"
as" such," it" must" be" strictly" construed" against" the" party"
responsible"for"its"preparation."
*
*
*
*
Civil*fraud*
*
*
While" the" Court" agrees" that" mere" violations" of" the"
warranties" and" representations" contained" in" the" credit"
not" constitute" fraud" under" Section" 1" (d)" of" Rule" 57" of"
the"Rules"of"Court,"the"same"cannot"be"said"with"respect"
"
A"trust"receipt"transaction"is"one"where"the"entrustee"has"
the"obligation"to"deliver"to"the"entruster"the"price"of"the"
sale," or" if" the" merchandise" is" not" sold," to" return" the"
merchandise"to"the"entruster."There"are,"therefore,"two"
obligations"in"a"trust"receipt"transaction:"the"first"refers"
to" money" received" under" the" obligation" involving" the"
duty" to" turn" it" over"(entregarla)"to" the" owner" of" the"
merchandise" sold," while" the" second" refers" to" the"
merchandise" received" under" the" obligation" to" "return""
it(devolvera)"to" the" owner." The" obligations" under" the"
trust"receipts"are"governed"by"a"special"law,"Presidential"
Decree" (P.D.)" No." 115," and" nonRcompliance" have"
particular"legal"consequences.*
*
Failure"of"the"entrustee"to"turn"over"the"proceeds"of"the"
sale" of" the" goods," covered" by" the" trust" receipt" to" the"
entruster" or" to" return" said" goods" if" they" were" not"
disposed" of" in" accordance" with" the" terms" of" the" trust"
receipt"shall"be"punishable"asestafa"under"Article"315"(1)"
of"the"Revised"Penal"Code,"without"need"of"proving"intent"
to"defraud.""The"offense"punished"under"P.D."No."115"is"in"
the"nature"of"malum"prohibitum."Mere"failure"to"deliver"
the" proceeds" of" the" sale" or" the" goods," if" not" sold,"
123
 SPECIAL COMMERCIAL LAWS TRUST RECEIPT

constitutes"a"criminal"offense"that"causes"prejudice"not" goods"were"not"being"held"for"sale"but"were"to"be"used"
only"to"another,"but"more"to"the"public"interest."* for" the" fabrication" of" steel" communication" towers" in"
* accordance"with"his"contracts"with"Islacom,"Smart,"and"
The"present"case,"however,"only"deals"with"the"civil"fraud" Infocom."In" these" contracts," he" was" commissioned" to"
in"the"nonRcompliance"with"the"trust"receipts"to"warrant" build,"out"of"the"materials"received,"steel"communication"
the"issuance"of"a"writ"of"preliminary"attached."A"fortiori," towers,"not"to"sell"them."
in" a" civil" case" involving" a" trust" receipt," the" entrustee's" "
failure" to" comply" with" its" obligations" under" the" trust" The" true" nature" of" a" trust" receipt" transaction" can" be"
receipt"constitute"as"civil"fraud"provided"that"it"is"alleged," found" in" the" "whereas"" clause" of"PD" 115"which" states"
and" substantiated" with" specificity," in" the" complaint," its" that" a" trust" receipt" is" to" be" utilized" "as" a" convenient"
attachments"and"supporting"evidence.* business"device"to"assist"importers"and"merchants"solve"
* their" financing" problems."" Obviously," the" State," in"
Security" Bank's" complaint" stated" that" Great" Wall," enacting"the"law,"sought"to"find"a"way"to"assist"importers"
through" its" Vice" President" Fredino" Cheng" Atienza," and"merchants"in"their"financing"in"order"to"encourage"
executed"various"trust"receipt"agreements"in"relation"to" commerce"in"the"Philippines."
its" loan" transactions." The" trust" receipts" stated" that" in" "
consideration" of" the" delivery" to" the" entrustee" (Great" As" stressed" in"Samo" v." People,"14"a" trust" receipt" is"
Wall)"of"the"possession"of"the"goods,"it"obligates"itself"to" considered" a" security" transaction" intended" to" aid" in"
hold"in"trust"for"the"bank"the"goods,"to"sell"the"goods"for" financing"importers"and"retail"dealers"who"do"not"have"
the"benefit"of"the"bank,"to"turn"over"the"proceeds"of"the" sufficient"funds"or"resources"to"finance"the"importation"
sale"to"the"bank,"and"to"return"the"goods"to"the"bank"in" or"purchase"of"merchandise,"and"who"may"not"be"able"to"
the" event" of" nonRsale." By" signing" the" trust" receipt" acquire"credit"except"through"utilization,"as"collateral,"of"
agreements," respondents" fully" acknowledged" the" the" merchandise" imported" or" purchased." Similarly,"
consequences"under"the"law"once"they"failed"to"abide"by" American"Jurisprudence"demonstrates"that"trust"receipt"
their" obligations" therein." The" said" trust" receipt" transactions" always" refer" to" a" method" of" "financing"
agreements"were"attached"to"the"complaint.* importations" or" financing" sales.""15"The" principle" is" of"
* course" not" limited" in" its" application" to" financing"
Upon"the"maturity"date,"however,"respondents"failed"to" importations,"since"the"principle"is"equally"applicable"to"
deliver" the" proceeds" of" the" sale" to" Security" Bank" or" to" domestic" transactions."16"Regardless" of" whether" the"
return"the"goods"in"case"of"nonRsale."Security"Bank"sent"a" transaction"is"foreign"or"domestic,"it"is"important"to"note"
final" demand" letter" to" respondents," which" was" also" that" the" transactions" discussed" in" relation" to" trust"
attached" to" the" complaint," but" it" was" unheeded." receipts"mainly"involved"sales.""
Curiously," in" their" letter," dated" January" 23," 2013," Following"the"precept"of"the"law,"such"transactions"affect"
respondents" did" not" explain" their" reason" for" nonR situations" wherein" the" entruster," who" owns" or" holds"
compliance" with" their" obligations" under" the" trust" absolute"title"or"security"interests"over"specified"goods,"
receipts;"rather,"they"simply"stated"that"Great"Wall"was" documents"or"instruments,"releases"the"subject"goods"to"
having" a" sudden" drop" of" its" income." Such" the" possession" of" the" entrustee." The" release" of" such"
unsubstantiated" excuse" cannot" vindicate" respondents" goods"to"the"entrustee"is"conditioned"upon"his"execution"
from" their" failure" to" fulfill" their" duties" under" the" trust" and"delivery"to"the"entruster"of"a"trust"receipt"wherein"
receipts.* the" former" binds" himself" to" hold" the" specific" goods,"
* documents" or" instruments" in" trust" for" the" entruster"
The"Court"is"of"the"view"that"Security"Bank's"allegations" and"to"sell"or"otherwise"dispose"of"the"goods,"documents"
of" violation" of" the" trust" receipts" in" its" complaint" was" or" instruments" with" the" obligation" to" turn" over" to" the"
specific" and" sufficient" to" assert" fraud" on" the" part" of" entruster"the"proceeds"to"the"extent"of"the"amount"owing"
respondents."These"allegations"were"duly"substantiated" to"the"entruster"or"the"goods,"documents"or"instruments"
by"the"attachments"thereto"and"the"testimony"of"Security" themselves"if"they"are"unsold."Similarly,"we"held"in"State"
Bank's"witness.* Investment" House" v." CA," et" al." that" the" entruster" is"
" entitled" "only" to" the" proceeds" derived" from" the" sale" of"
Entrustee*bears*the*Risk*of*Loss* goods"released"under"a"trust"receipt"to"the"entrustee.""
The"risk"of"loss"shall"be"borne"by"the"entrustee."Loss"of" "
goods,"documents"or"instruments"which"are"the"subject" "
of"a"trust"receipt,"pending"their"disposition,"irrespective" Entruster*
of"whether"or"not"it"was"due"to"the"fault"or"negligence"of" "
the" entrustee," shall" not" extinguish" his" obligation" to" the" Entruster,*definition*
entruster"for"the"value"thereof."(sec.%10,%PD%115)" the" person" holding" title" over" the" goods," documents," or"
" instruments" subject" of" a" trust" receipt" transaction," and"
When*goods*are*not*held*for*sale* any"successor"in"interest"of"such"person"
" "
Ng*v.*People,*G.R.*No.*173905,*[April*23,*2010]* Rights*of*an*entruster*(sec.*7,*PD*115)*
It"must"be"remembered"that"petitioner"was"transparent"
to" Asiatrust" from" the" very" beginning" that" the" subject"

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The"entruster"shall"be"entitled"to"the"proceeds"from"the" The"proceeds"of"any"such"sale,"whether"public"or"private,"
sale" of" the" goods," documents" or" instruments" released" shall"be"applied:*
under"a"trust"receipt"to"the"entrustee"to"the"extent"of"the" a.! to"the"payment"of"the"expenses"thereof;""
amount"owed"to"the"entruster"or"as"appears"in"the"trust" b.! to" the" payment" of" the" expenses" of" reRtaking,"
receipt;" or" to" the" return" of" the" goods," documents" or" keeping" and" storing" the" goods," documents" or"
instruments"in"case"of"nonRsale;"and"to"the"enforcement" instruments;""
of"all"other"rights"conferred"on"him"in"the"trust"receipt," c.! to" the" satisfaction" of" the" entrustee’s"
provided"these"are"not"contrary"to"the"provisions"of"the" indebtedness" to" the" entruster." The" entrustee"
document."A" violation" of" any" of" these" undertakings" shall"receive"any"surplus"but"shall"be"liable"to"
constitutes"estafa"defined"under"Article"315"(1)"(b)"of"the" the"entruster"for"any"deficiency.*
Revised" Penal" Code," as" provided" by" Section" 13" of" If"there"is"an"excess"from"the"sale,"the"entrustee"shall"be"
Presidential"Decree"No."115" entitled"to"the"surplus"of"the"sale."*
|||"(Metropolitan% Bank% &% Trust% Co.% v.% Gonzales,% G.R.% No.% "
180165,%[April%7,%2009],%602%PHIL%1000S1015)% Entruster*not*responsible*on*sale*by*entrustee*
" The" entruster" holding" a" security" interest" shall" not,"
Validity* of* Entruster’s* security* interest* as* against* merely" by" virtue" of" such" interest" or" having" given" the"
creditors* entrustee"liberty"of"sale"or"other"disposition"of"the"goods,"
The"entruster's"security"interest"in"goods,"documents,"or" documents"or"instruments"under"the"terms"of"the"trust"
instruments" pursuant" to" the" written" terms" of" a" trust" receipt" transaction" be" responsible" as" principal" or" as"
receipt" shall" be" valid" as" against" all" creditors" of" the" vendor" under" any" sale" or" contract" to" sell" made" by" the"
entrustee"for"the"duration"of"the"trust"receipt"agreement." entrustee."(sec.%8,%PD%115)"
(sec.%12,%PD%115)* "
* Rights*of*purchaser*for*value*and*in*good*faith*
Remedies*of*an*Entruster* Any"purchaser"of"goods"from"an"entrustee"with"right"to"
The"entruster"may"cancel"the"trust"and"take"possession" sell," or" of" documents" or" instruments" through" their"
of" the" goods," documents" or" instruments" subject" of" the" customary" form" of" transfer," who" buys" the" goods,"
trust"or"of"the"proceeds"realized"therefrom"at"any"time" documents," or" instruments" for" value" and" in" good" faith"
upon" default" or" failure" of" the" entrustee" to" comply" with" from" the" entrustee," acquires" said" goods," documents" or"
any"of"the"terms"and"conditions"of"the"trust"receipt"or"any" instruments" free" from" the" entruster's" security" interest."
other" agreement" between" the" entruster" and" the" (sec.%11,%PD%115)*
entrustee,"and"the"entruster"in"possession"of"the"goods,"
documents"or"instruments"may,"on"or"after"default,"give"
notice"to"the"entrustee"of"the"intention"to"sell,"and"may,"
not" less" than" five" days" after" serving" or" sending" of" such"
notice," sell" the" goods," documents" or" instruments" at"
public"or"private"sale,"and"the"entruster"may,"at"a"public"
sale,"become"a"purchaser."The"proceeds"of"any"such"sale,"
whether" public" or" private," shall" be" applied" (a)" to" the"
payment"of"the"expenses"thereof;"(b)"to"the"payment"of"
the"expenses"of"reRtaking,"keeping"and"storing"the"goods,"
documents"or"instruments;"(c)"to"the"satisfaction"of"the"
entrustee's"indebtedness"to"the"entruster."The"entrustee"
shall" receive" any" surplus" but" shall" be" liable" to" the"
entruster" for" any" deficiency." Notice" of" sale" shall" be"
deemed" sufficiently" given" if" in" writing," and" either"
personally"served"on"the"entrustee"or"sent"by"postRpaid"
ordinary" mail" to" the" entrustee's" last" known" business"
address."(sec.%7,%PD%115)"
"
Remedies*of*entruster*when*there*is*a*breach*of*the*
trust*receipt*contract*
•! He"may"demand"for"a"return"of"the"goods;"
•! He"may"sell"the"goods"in"a"public"or"private"sale"
and"apply"the"proceeds"to"the"amount"covered"
by"the"trust"receipt;"or"
•! If"the"proceeds"are"still"insufficient,"he"may"still"
demand"for"the"deficiency"from"the"entrustee."
"
Proceeds*of*the*sale,*where*applied*

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