COMMERCIAL LAW – SPECIAL LAWS
the ordinary course of business; and
Financial Rehabilitation and
Insolvency Act (FRIA) of 2010
1. WHO MAY PETITION?
(1) Voluntary Proceedings
1. Voluntary proceedings Initiated by the
debtor when approved by: a. Sole
proprietorship – owner; b. Partnership –
majority of the partners; c. Corporation – a
majority vote of the board of directors or
trustees and authorized by the vote of the
stockholders representing at least twothirds
(2/3) of the outstanding capital stock; or d.
Nonstock corporation – by the vote of at
least two-thirds (2/3) of the members, in a
stockholder's or member's meeting duly
called for the purpose (FRIA, Sec. 12).
2. Involuntary proceedings Any creditor or
group of creditors with a claim of, or the
aggregate of whose claims is, at least One
million pesos (Php1,000,000.00) or at least
twenty-five percent (25%) of the subscribed
capital stock or partners' contributions,
whichever is higher (FRIA, Sec. 13).
2. STAY ORDER
Rehabilitation proceedings shall commence
upon the issuance of the Commencement
Order which shall include a Stay or
Suspension Order which shall:
(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
(4) prohibit the debtor from making any
payment of its liabilities outstanding as of
the commencement date except as may be
provided herein.
3. WHAT ARE NOT COVERED BY THE
STAY ORDER?
Section 18. 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 quasi-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 non-disputed 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 of operation is economically feasible and its
participant or the appropriate regulatory creditors can recover by way of the present
agency or self-regulatory organization to value of payments projected in the plan,
pay or settle such claims or liabilities; more if the debtor continues as a going
concern than if it is immediately liquidated
(e) to the actions of a licensed broker or
[FRIA, Sec. 4 (gg)]
dealer to sell pledged securities of a debtor
pursuant to a securities pledge or margin
agreement for the settlement of securities
5. CRAM DOWN DOCTRINE
transactions in accordance with the
provisions of the Securities Regulation The cram-down refers to the power of the
Code and its implementing rules and rehabilitation court to approve and
regulations; implement a rehabilitation plan
notwithstanding the objection of the majority
(f) the clearing and settlement of financial
of creditors. (Bank of the Philippine Islands
transactions through the facilities of a
vs. Sarabia Manor Hotel Corporation, G.R.
clearing agency or similar entities duly
No. 175844, 29 July 2013)
authorized, registered and/or recognized by
the appropriate regulatory agency like the A restructuring/workout agreement or
Bangko Sentral ng Pilipinas (BSP) and the Rehabilitation Plan that is approved
SEC as well as any form of actions of such pursuant to an informal workout framework
agencies or entities to reimburse (out of court or informal restructuring
themselves for any transactions settled for agreements) shall have the same legal
the debtor; and effect as confirmation of a Plan under
Section 69 of FRIA. The notice of the
(g) any criminal action against individual
Rehabilitation Plan or restructuring
debtor or owner, partner, director or officer
agreement or Plan shall be published once
of a debtor shall not be affected by any
a week for at least three (3) consecutive
proceeding commend under this Act.
weeks in a newspaper of general circulation
in the Philippines. The Rehabilitation Plan or
restructuring agreement shall take effect
4. REHABILITATION PLAN
upon the lapse of fifteen (15) days from the
It refers to a plan by which the financial well- date of the last publication of the notice
being and viability of an insolvent debtor thereof (FRIA, Sec. 86).
can be restored using various means
including, but not limited to, debt
forgiveness, debt rescheduling, 6. OUTSIDE OF COURT
reorganization or quasi-reorganization, REHABILITATION
dacion en pago, debtequity conversion and
(???)
sale of the business (or parts of it) as a
going concern, or setting-up of new
business entity as prescribed in Section 62
hereof, or other similar arrangements as
may be approved by the court or creditors
[FRIA, Sec. 4(ii)]. NOTE: Rehabilitation
refers to the restoration of the debtor to a
condition of successful operation and
solvency, if it is shown that its continuance
SECURITIES REGULATION CODE which depends on the assets underlying
it. For investors, ABS are alternative to
1. Define Securities
investing in corporate debt. An ABS is
"Securities" are shares, participation or essentially the same thing as a
interests in a corporation or in a mortgage-backed security, except that
commercial enterprise or profit-making the securities backing it are assets such
venture and evidenced by a certificate, as loans, leases, credit card debt, a
contract, instruments, whether written or company’s receivables, royalty and so
electronic in character. It includes: on, and not mortgaged-based securities,
hence, the risk involved in ABS is
(a) Shares of stocks, bonds, greater.
debentures, notes evidences of
indebtedness, asset-backed securities; 2. Other instruments as may in the
future be determined by the SEC.
(b) Investment contracts, certificates of
interest or participation in a profit 3. Derivatives– options and warrants
sharing agreement, certifies of deposit Options– are contracts that give the
for a future subscription; buyer the right, but not the obligation, to
buy or sell an underlying security at a
(c) Fractional undivided interests in oil, predetermined price called the exercise
gas or other mineral rights; or strike price, on or before a
(d) Derivatives like option and warrants; predetermined date, called the expiry
(e) Certificates of assignments, date, which can only be extended in
certificates of participation, trust accordance with Exchange rules
certificates, voting trust certificates or (Sundiang Sr. & Aquino, 2014).
similar instruments 4. Equity instruments – Shares of stock,
(f) Proprietary or nonproprietary certificates of interest or participation in
membership certificates in corporations; a profit sharing agreement, certificates
and of deposit for a future subscription,
proprietary or non-proprietary
(g) Other instruments as may in the membership certificates in corporations.
future be determined by the
Commission. 5. Trust instruments – Certificates of
assignments, certificates of
participation, trust certificates, voting
2. KINDS OF SECURITIES trust certificates or similar instruments
[SRC, Sec. 3.1 (e)].
(DO DIET)
1. Debt instruments – bonds,
debentures, notes, evidence of 3. DEFINE INSIDER TRADING
indebtedness, assetbacked securities. A purchase or sale made by an insider,
Asset-backed securities (ABS) - These or such insider’s spouse or his relative
are financial securities the value of by affinity or consanguinity within the
second degree, legitimate or common-
law, shall be presumed to be effected
while in possession of material non-
public information if transacted after
such information came into existence
but prior to the public dissemination of
such information, and lapse of
reasonable time for the market to
absorb such information. (2015 Bar)
Dean: having access to material
information not generally available to
public.
Insider - A person who is in possession
of corporate material information not
generally available to the public.
CODAL- "Insider" means (a) the issuer;
(b) a director or officer (or any person
performing similar functions) of, or a
person controlling the issuer; gives or
gave him access to material information
about the issuer or the security that is
not generally available to the public; (d)
A government employee, director, or
officer of an exchange, clearing agency
and/or self-regulatory organization who
has access to material information about
an issuer or a security that is not
generally available to the public; or (e) a
person who learns such information by a
communication from any forgoing
insiders.
Who may be an insider:
1. The issuer;
2. A director or officer (or person
performing similar functions) of, or a
person controlling the issuer;
3. 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;
4. A government employee, or director ,
or officer of an exchange, clearing
agency and/or selfregulatory
organization who has access to material
information about an issuer or a security
that is not generally available to the
public; or
5. Constructive Insider – A person who
learns such information by a
communication from any of the
foregoing insiders (SRC, Sec. 3.8).
Other prohibited acts in an insider
trading
1. For an insider to communicate
material nonpublic information about the
issuer or the security to any person who
by virtue of the communication thereby
becomes an insider, where the original
insider communicating the information
knows or has reason to believe that
such person will likely buy or sell a
security of the issuer while in
possession of such information (SRC,
Sec. 27.3).
2. When a tender offer has commenced
or is about to commence, it is unlawful
for any person, other than the tender
offeror, who is in possession of material
non-public information relating to such
tender offer to buy or sell the securities
of the issuer that are sought or to be
sought by such tender offer, if such
person knows or has reason to believe
that the information is non-public and
has been acquired directly or indirectly
from the tender offer, or those acting on
its behalf, the issuer of the securities
sought or to be sought by such tender
offer, or any insider of such issuer
(SRC, Sec. 27.4 [a][i]).
3. When a tender offer has commenced
or is about to commence, it is also
unlawful for any tender offeror, or those
acting on its behalf, the issuer of
securities covered by such tender offer,
and any insider, to communicate
material nonpublic information to any
person relating to the tender offer which
would likely result in violation of
prohibition of the insider from trading
(SRC, Sec. 27.4 [a][ii]).
DUTIES AND PENALTIES IN CASE OF
VIOLATION
Section 27. Insider’s Duty to Disclose
When Trading. – 27.1. It shall be
unlawful for an insider to sell or buy a
security of the issuer, while in
possession of material information with
respect to the issuer or the security that
is not generally available to the public,
unless: (a) The insider proves that the
information was not gained from such
relationship; or (b) If the other party
selling to or buying from the insider (or
his agent) is identified, the insider
proves: (I) that he disclosed the
information to the other party, or (ii) that
he had reason to believe that the other
party otherwise is also in possession of
the information. A purchase or sale of a
security of the issuer made by an insider
defined in Subsection 3.8, or such
insider’s spouse or relatives by affinity
or consanguinity within the second
degree, legitimate or common-law, 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: Provided,
however, That this presumption shall be
rebutted upon a showing by the
purchaser or seller that he was aware of
the material nonpublic information at the
time of the purchase or sale.
Section 61. Civil Liability on Account of
Insider Trading. – 61.1. Any insider who
violates Subsection 27.1 and any
person in the case of a tender offer who
violates Subsection 27.4 (a)(I), or any
rule or regulation thereunder, by
purchasing or selling a security while in
possession of material information not
generally available to the public, shall be
liable in a suit brought by any investor
who, contemporaneously with the
purchase or sale of securities that is the
subject of the violation, purchased or
sold securities of the same class unless
such insider, or such person in the case
of a tender offer, proves that such
investor knew the information or would
have purchased or sold at the same
price regardless of disclosure of the
information to him.
61.2. An insider who violates Subsection
27.3 or any person in the case of a
tender offer who violates Subsection
27.4 (a), or any rule or regulation
thereunder, by communicating material
nonpublic information, shall be jointly
and severally liable under Subsection
61.1 with, and to the same extent as,
the insider, or person in the case of a
tender offer, to whom the
communication was directed and who is
liable under Subsection 61.1 by reason
of his purchase or sale of a security.
4. DERIVATIVE SUIT
Neither the Corporation Code nor the
Securities Regulation Code expressly
grant the stockholder the right to
institute a derivative suit. It is impliedly
recognized when the said laws make
corporate directors or officers liable for
damages suffered by the corporation
and its stockholders for violation of their
fiduciary duties (Yu v. Yukayguan, 607
Phil. 581, 610, 2009).
Requisites for the existence of a
derivative suit (C-SENA)
1. Corporate cause of action: the cause
of action must devolve upon the
corporation itself; the wrongdoing or
harm having been caused to the
corporation and not to the particular
stockholder brining the suit (Reyes v.
Hon. RTC of Makati Br. 142, G.R. No.
165744, August 11, 2008).
2. Stockholder: the party bringing the
suit must be a stockholder a. At the time
the acts or transactions subject of the
action occurred; and b. at the time the
action was filed
NOTE: if the cause of action is
continuing in nature, the only requisite is
that the party is a stockholder at the
time the action was filed (Dean Divina’s
Lecture, April 29, 2015).
3. Exhaustion of all intra-corporate
remedies available under the AOI, By-
Laws, laws or rules governing the
corporation or partnership to obtain the
relief he desires. 4. Not a Nuisance or
Harassment suit. 5. Appraisal right is not
available (Rule 8 of the Interim Rules of
Procedure Governing IntraCorporate
Controversies, cited in Yu, et al., v.
Yukayguan, et al., G.R. No. 177549,
June 18, 2009
5. EXEMPT SECURITIES
The requirement of registration under
shall not as a general rule apply to any
of the following classes of securities:
(PC-RIBO)
1. Any security issued or guaranteed by
the Government of the Philippines, or by
any political subdivision or agency
thereof, or by any person controlled or
supervised by, and acting as an
instrumentality of said government.
2. Any security issued or guaranteed by
the government of any Country with
which the Philippines maintains
diplomatic relations, or by any state,
province or political subdivision thereof
on the basis of reciprocity. Provided,
that the SEC may require compliance
with the form and content of disclosures
the Commission may prescribe.
3. Certificates issued by a Receiver or
by a trustee in bankruptcy duly
approved by the proper adjudicatory
body.
4. Any security or its derivatives the sale
or transfer of which, by law, is under the
supervision and regulation of the Office
of Insurance Commission, Housing and
Land Use Regulatory Board, or the
Bureau of Internal Revenue.
5. Any security issued by a Bank except
its own shares of stock (which serves to
promote the sale of securities issued by
heavily regulated banks).
6. Other securities as determined by
the SEC by rule or regulation, after
public hearing (SRC, Sec. 9).
6. EXEMPT TRANSACTIONS
Section 10. Exempt Transactions. –The
requirement of registration under
Subsection 8.1 shall not apply to the
sale of any security in any of the
following transactions:
(JuDe ISCaRIOT’S Ex-20-QB’s)
1. Any JUdicial sale, or sale by an
executor, administrator, guardian,
receiver or trustee in insolvency or
bankruptcy.
2. Those sold by a pledge holder,
mortgagee, or any other similar lien
holder, to liquidate a bona fide debt a
security pledged in good faith as
security for such Debt.
3. Those sold or offered for sale in an
Isolated transaction for the owner’s
account and the owner not being an
underwriter.
4. Distribution by the corporation of
Securities to its stock holders or other
security holders as stock dividends or
distribution out of surplus.
5. Sale of CApital stock of a corporation
to its own stockholders exclusively
wherein no commission or remuneration
is paid or given directly or indirectly in
connection with the sale of such capital
stock.
NOTE: Also, this sale must not involve
an underwriter or financial advisor.
6. Bonds or notes secured by a
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.
7. Issue and delivery of any security in
exchange for any other security of the
same Issuer pursuant to the right of
conversion entitling the holder of the
security surrendered in exchange to
make such conversion.
8. Broker’s transactions executed upon
customer’s Orders, on any registered
Exchange or other Trading market.
9. Share Subscriptions in capital stock
prior to incorporation 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.
10. EXchange of securities by the issuer
with its existing security holders
exclusively, when no commission or
other remuneration is paid or given
directly or indirectly for soliciting such
exchange.
11. Sale by issuer to fewer than 20
persons in the Philippines during any 12
month period, otherwise known as
private placement transactions (19
Lender Rule).
Requisites:
1. Sale to not more than 19
noninstitutional retail investors;
2. The security is made payable to a
specific person;
3. Security is non-negotiable and
nonassignable; and
4. It is in an amount not exceeding fifty
(50) million pesos.
12. Sale of securities to any number of
the following Qualified Buyers:
a. banks;
b. registered investment houses;
c.insurance companies;
d. pension funds or retirement plans
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,
investment companies;
e. investment companies; and
f. other persons or entities ruled
qualified by the SEC on the basis of
such factors such as financial
sophistication, net worth, knowledge,
and experience in financial and
business matters, or amount of assets
under management (SRC, Sec. 10.1).
RATIONALE: Although the securities
themselves must still be registered, the
sale or issue need not be registered
because the investors involved herein
are considered as highly sophisticated
investors or specialized investors and as
such, have a greater risk tolerance or do
not need strict protection from the
Commission.
List of exempt transactions under SRC
is NOT exclusive
The list is not exclusive. The
Commission may exempt other
transactions, if it finds that the
requirements of registration under the
Code 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 (SRC, Sec. 10.02).
7. SPECIAL PURPOSE ENTITY (???)
8. FRAUDULENT TRANSACTIONS
The following are considered as fraudulent
transactions:
1. Employment of any device, scheme or
artifice to defraud investors;
2. Obtaining money or property by means of
any untrue statement of a material fact or
any omission to state a material fact
necessary in order to make the statement
made not misleading; and
3. Engaging in any act, transaction, practice
or course of business, which operates as a
fraud or deceit upon any person.
NOTE: Section 5, Rule 8 of the Revised
Rules of Court provides that in all
averments of fraud or mistake, the
circumstances constituting fraud or mistake
must be stated with particularity. These
rules find specific application to Section 5(a)
of P.D. No. 902-A which speaks of
corporate devices or schemes that amount
to fraud or misrepresentation detrimental to
the public and/or to the stockholders.
9. REPORTORIAL REQUIREMENTS
Section 17. Periodic and Other Reports of
Issuer.Every issuer satisfying the
requirements in Subsection 17.2 hereof
shall file with the Commission:
(a) Within one hundred thirty-five (135)
days, after the end of the issuer’s fiscal
year, or such other time as the Commission
may prescribe, an annual report which shall
include, among others, a balance sheet,
profit and loss statement and statement of
cash flows, for such last fiscal year, certified
public accountant, an a management
discussion and analysis of results of
operation; and
(b) Such other periodical reports for interim
fiscal periods and current reports on
significant developments of the issuer as
the Commission may prescribe as
necessary to keep current information on
the operation of the business and financial
condition of the issuer.
10. TENDER OFFER RULE
Tender offer means a publicly announced
intention by a person acting alone or in
concert with other persons to acquire equity
securities of a public company. It is also an
offer by the acquiring person to
stockholders of a public company for them
to tender their shares therein on the terms
specified in the offer (Cemco Holdings, Inc.
v. National Life Insurance Co, Inc. G.R. No.
171815, August 7, 2007).
It is an invitation by the acquirer of shares
of a company for other stockholders to
tender their shares to the acquirer so that
they may sell their shares in the same price
and conditions as the previously acquired
shares.
It is given to all stockholders by: 1. Filing
with the SEC a declaration to that effect,
and paying the filing fee; 2. Furnishing the
issuer a statement containing the
information required of the issuers as SEC
may prescribe, including subsequent or
additional materials; or 3. Publishing all
requests or invitations for tender, or
materials making a tender offer or
requesting or inviting letters of such
security.
Purpose of tender offer
Tender offer is in place to protect the
interest of minority stockholders of a target
company against any scheme that dilutes
the share value of their investments. It
affords such minority shareholders the
opportunity to withdraw or exit from the
company under reasonable terms or a
chance to sell their shares at the same price
as those of the majority stockholders.
Public company
1. Those listed on an exchange; 2. Those
with assets of at least PHP 50M and having
200 shareholders owning at least 100
shares each; or 3. Those companies that
have an effective registration statement
under Section 12 of the SRC.
Mandatory tender offer (2002 Bar)
Tender offer is required to be made when:
 1. Any person or group of persons acting in
concert, who intends to acquire fifteen
percent (15%) of equity securities in a public
company in one or more transactions within
a period of twelve (12) months.
2. Any person or group of persons acting in
concert, who intends to acquire thirty five
percent (35%) of the outstanding voting
shares or such outstanding voting shares
that are sufficient to gain control of the
board in a public company in one or more
transactions within a period of twelve (12)
months.
If the tender offer is oversubscribed, the
aggregate amount of securities to be
acquired at the close of such tender offer
shall be proportionately distributed across
selling shareholders with whom the acquirer
may have been in private negotiations and
other shareholders. For purposes of SRC
Rule 19.2.2, the last sale that meets the
threshold shall not be consummated until
the closing and completion of the tender
offer
NOTE: If the acquisition is made through
the Exchange trading system tender offer is
not required provided after acquisition
through the Exchange trading system, they
fail to acquire their target of thirty five
percent (35%) or such outstanding voting
shares that is sufficient to gain control of the
board.
3. Any person or group of persons acting in
concert, who intends to acquire thirty five
percent (35%) of the outstanding voting
shares or such outstanding voting shares
that are sufficient to gain control of the
board in a public company directly from one
or more stockholders.
The sale of shares pursuant to the private
transaction or block sale shall not be
completed prior to the closing and
completion of the tender offer.
4. Any acquisition that would result in
ownership of over fifty percent (50%) of the
total outstanding equity securities of a public
company.
NOTE: Tender offer shall be made at a
price supported by a fairness opinion
provided by an independent financial
advisor or equivalent third party. The
acquirer in such a tender offer shall be
required to accept all securities tendered
(2015 SRC Rules, Sec. 19.2).
Coverage of the application of tender offer
The mandatory tender offer rule covers not
only direct acquisition but also indirect
acquisition or “any type of acquisition.”
The legislative intent of Section 19 of the
Securities Regulation Code is to regulate
activities relating to acquisition of control of
the listed company and for the protection of
the minority stockholders of a listed
corporation. Whatever may be the method
by which control of a public company is
obtained, either through the direct purchase
of its stocks or through an indirect means,
mandatory tender offer applies. What is
decisive is the determination of the power of
control. The legislative intent makes clear
that the type of activity intended to be
regulated is the acquisition of control of the
listed company through the purchase of
shares. Control may be effected through a
direct and indirect acquisition of stock, and
when this takes place, irrespective of the
means, a tender offer must occur (Cemco
Holdings Inc. v. National Life Insurance
Co.Inc., G.R. No. 171815, August 7, 2007).
Obligations of person making a tender offer
1. Make an announcement of his intention
in a newspaper of general circulation, prior
to the commencement of the offer.
 2. At least (2) business days prior to the
date of the commencement of the tender
offer: a. File with the SEC a required form
for tender offer including all exhibits thereto
(and any amendments thereto), with the
prescribed filing fees; and b. Hand deliver a
copy of such form including all exhibits (and
amendments thereto) to the target company
and its principal executive office and to each
Exchange where such class of target
company’s securities are listed for trading.
3. Report the results of the tender offer by
filing with the SEC, not later than ten (10)
calendar days after the termination of the
tender offer, copies of the final amendments
to the form. (Sundiang Sr. & Aquino, 2014)
Unlawful and prohibited acts relating to
tender offers
It shall be unlawful for any person to:
1. Make any untrue statement of a material
fact or omit to state any material fact
necessary in order to make statements
made, in the light of the circumstances
under which they are made, not misleading;
or 2. Engage in any fraudulent, deceptive,
or manipulative acts or practices, in
connection with any tender offer or request
or invitation for tenders, or any solicitation of
security holders in opposition to or in favor
of any such offer, request, or invitation.
11. MARGIN TRADING (2009 BAR)
A kind of trading that allows a broker to
advance for the customer/investor part of
the purchase price of the security and to
keep the same security as collateral for
such advance.
Margin allowance standard
GR: The credit extended must be for an
amount not greater than, whichever is
higher of:
1. 65% of the current market price of the
security; or 2. 100% of the lowest market
price during the preceding 36 calendar
months, but not more than 75% of the
current market price.
XPN: The Monetary Board may increase or
decrease the above percentages, in order to
achieve the objectives of the Government
with due regard for promotion of the
economy and prevention of the use of
excessive credit.
Purposes of the margin requirements
They are primarily intended to achieve a
macroeconomic purpose – the protection of
the overall economy from excessive
speculation in securities. Their recognized
secondary purpose is to protect small
investors.
Burden of compliance with margin
requirements
The brokers and dealers have the burden
of compliance with margin requirements.
NOTE: In securities trading, the brokers are
essentially the counterparties to the stock
transactions at the Exchange. Since the
principals of the broker are generally
undisclosed, the broker is personally liable
for the contracts thus made. Brokers have a
right to be reimbursed for sums advanced
by them with the express or implied
authorization of the principal (Abacus
Securities Corp.v. Ampil, G.R. No. 160016,
February 27, 2006).
GENERAL BANKING ACT
1. DEFINE BANK
A bank is an entity engaged in the lending
of funds obtained from the public in the form
of deposits.
Elements for an entity to be considered
doing business as a bank --
1. The entity is engaged in the lending of
funds
2. Funds obtained from the public with at
least 20 depositors
3. Funds are in the form of deposits
2. KINDS OF BANK
Classifications of banks (2002, 2010
Bar)
1. Universal banks- Primarily governed
by the GBL. They can exercise the
powers of an investment house and
invest in non-allied enterprises and have
the highest capitalization.
2. Commercial banks - Ordinary banks
governed by the GBL which have a
lower capitalization requirement than
universal banks and can neither
exercise the powers of an investment
house nor invest in non-allied
enterprises.
3. Thrift banks – These are: a. Savings
and mortgage banks; b. Stock savings
and loan associations; and c. Private
development banks, which are primarily
governed by the Thrift Banks Act (RA
7906).
4. Rural banks – These are mandated to
make needed credit available and
readily accessible in the rural areas on
reasonable terms and which are
primarily governed by the Rural Banks
Act of 1992 (RA 7353).
5. Cooperative banks – Banks whose
majority shares are owned and
controlled by cooperatives primarily to
provide financial and credit services to
cooperatives. It shall include
cooperative rural banks. They are
governed primarily by the Cooperative
Code (RA 6938).
6. Islamic banks – Banks whose
business dealings and activities are
subject to the basic principles and
rulings of Islamic Shari’ a, such as the Al
Amanah Islamic Investment Bank of the
Philippines which was created by RA
6848.
7. Other classification of banks as
determined by the Monetary Board of
the BSP
SECTION 25. Equity Investments of a
Universal Bank in Financial Allied
Enterprises. — A universal bank can
own up to one hundred percent (100%)
of the equity in a thrift bank, a rural bank
or a financial allied enterprise. A
publicly-listed universal or commercial
bank may own up to one hundred
percent (100%) of the voting stock of
only one other universal or commercial
bank. (21-B; 21-Ca)
SECTION 26. Equity Investments of a
Universal Bank in Non-Financial Allied
Enterprises. — A universal bank may
own up to one hundred percent (100%)
of the equity in a non-financial allied
enterprise. (21-Ba)
SECTION 27. Equity Investments of a
Universal Bank in Non-Allied
Enterprises. — The equity investment of
a universal bank, or of its wholly or
majority-owned subsidiaries, in a single
nonallied enterprise shall not exceed
thirty-five percent (35%) of the total
equity in that enterprise nor shall it
exceed thirty-five percent (35%) of the
voting stock in that enterprise. (21-B)
3. LETTER OF CREDIT
Letter of Credit
It is any arrangement, however named or
described, whereby the issuing bank acting
at the request and on the instructions of a
customer (applicant) or on its own behalf,
binds itself to: (PAN)
1. Pay to the order of, or accept and pay
drafts drawn by a third party (Beneficiary);
2. Authorize another bank to pay or to
accept and pay such drafts; or 3. Authorize
another bank to Negotiate, against
stipulated documents.
Provided, the terms and conditions of the
credit are complied with (Art. 2, Uniform
Customs & Practice for Documentary
Credits).
It is an instrument issued by a bank that
guarantees its client’s ability to pay for
imported goods or services, by authorizing a
person to draw drafts on the bank or its
correspondents for the bank’s account,
under conditions specified in the L/C.
(Prudential Bank V. IAC, 216 SCRA 257)
PURPOSE OF LETTER OF CREDIT
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 satisy 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 in
control of the goods before paying. The use
of credits in commercial transactions serves
to reduce the risk of nonpayment of the
purchase price under the contract of sale of
the goods and to reduce the risk of non-
performance of an obligation in a non-sale
setting. (Transfield Philippines, Inc. vs.
Luzon Hydro Corp., GR. No. 146717,
November 22, 2004).
Non-payment of the buyer of its obligation
under the Letter of Credit does not give the
bank the right to take possession of the
goods covered by the Letter of Credit
The opening of a L/C does not vest
ownership of the goods in the bank in the
absence of a trust receipt agreement. A
letter of credit is a mere financial
device developed by merchants as a
convenient and relatively safe mode of
dealing with the 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
(Transfield Philippines, Inc. v. Luzon Hydro
Corp., supra).
LAWS GOVERNING LETTERS OF
CREDIT
Letter of credit is governed by the Uniform
Customs and Practice for documentary
Creditsissued by the International Chamber
of Commerce. Letters of credit are in effect
absolute undertakings to pay the money
advanced or the amount for which credit is
given on the faith of the instrument. They
are primary obligations and not accessory
contracts and while they are security
arrangements, they are not converted
thereby into contracts of guaranty
(Metropolitan Waterworks vs. Daway, G.R.
No. 160723, July 21, 2004).
NOTE: The law on contracts and damages
shall also apply to provide remedies to the
party aggrieved by the breach of the main
contract although such breach will not affect
the obligation of the bank to pay the
beneficiary or its right to obtain
reimbursement from the applicant of the
letter of credit if the terms of the letters of
credit have been complied with.
DURATION OF LETTERS OF CREDIT
1. Upon the period fixed by the parties; or 2.
If none is fixed, one year from the date of
issuance.
NOTE: An issuing bank which paid the
beneficiary upon an expired LC can recover
the payment from the applicant which
obtained the goods from the beneficiary to
prevent unjust enrichment (Rodzssen
Supply Co. v. FEBTC, G.R. No. 109087,
May 9, 2001).
Incidents in the life of a Letter of Credit
(CAppIsSExReRe)
1. Contract of Sale between the buyer and
seller 2. Application for L/C by the buyer
with the bank 3. Issuance of L/C by the
bank 4. Shipping of goods by the seller 5.
Execution of draft and tender of documents
by the seller 6. Redemption of draft
(payment) and obtaining of documents by
the issuing bank 7. Reimbursement to the
bank and obtaining of documents by the
buyer.
ESSENTIAL CONDITIONS OF A LETTER
OF CREDIT
(DeLi)
1. It must be issued in favor of a definite
person; and
2. Limited to a fixed or specified amount, or
to one or more indeterminate amounts, but
all within a maximum sum the limit of which
must be exactly stated.
NOTE: If any of these essential conditions is
not present, the instrument is merely
considered as a letters of recommendation
(Art. 568, Code of Commerce).
Other Kinds of L/C
Revocable L/C can be cancelled or
amended at any time by either the buyer or
the issuing bank without any formal
notification
Irrevocable L/C- issuing bank may not
without the consent of the beneficiary
(seller) and the applicant (buyer) revoke his
undertaking under the letter. The issuing
bank is precluded from revoking the credit.
Revolving L/C- it provides for renewed
credit to become available as soon as the
opening bank has advised the negotiating or
paying bank that the draft drawn by the
beneficiary have already been reimbursed
to the opening bank by the buyer.
Back-to-back L/C- a credit with identical
documentary requirements and covering the
same merchandise as another letter of
credit, except for a difference in the price of
the merchandise as shown by the invoice
and the draft. The second L/C can only be
negotiated ONLY after the first is
negotiated. Confirmed L/C- the
correspondent bank gives an absolute
assurance to the beneficiary that it will
undertake the issuing bank’s obligation as
its own according to the terms and
conditions of the credit. An Unconfirmed L/C
is the other way around.
Q: When does an Irrevocable Letter of
Credit become a consummated contract?
A: An irrevocable letter of credit becomes a
consummated contract when the agent or
correspondent bank or any bank in the
country of the creditor pays or delivers to
the latter the amount in foreign currency, as
authorized by the bank in the country of the
debtor in compliance with the letter of credit
granted by it. It is the date of the payment of
the amount in foreign currency to the
creditor in his country by the agent or
correspondent bank of the bank in the
country of the debtor that turns from is not
the date of payment by the debtor to the
bank in his country of the amount of foreign
exchange sold that makes the contract
executed or consummated, because the
bank may grant the debtor extension of time
to pay such debt (Belman Inc. v. Central
Bank, G.R. No. L-10195, November 29,
1958 .).
Courts cannot order the release to the
applicant of the proceeds of an Irrevocable
Letter of Credit without the consent of the
Beneficiary
Such order violates the irrevocable nature of
the L/C. The terms of an irrevocable letter of
credit cannot be changed without the
consent of the parties, particularly the
beneficiary thereof (Phil. Virginia Tobacco
Administration v. De Los Angeles, G.R. No.
L27829, August 19, 1988).
PARTIES TO A LETTER OF CREDIT
Parties to a Letter of Credit transaction
(ABaBe)
1. Applicant/Buyer/Importer/Account Party –
procures the letter of credit and purchases
the goods and obliges himself to reimburse
the issuing bank upon receipt of the
documents of title.
GR: The applicant has no obligation to
reimburse the issuing bank if the latter pays
without the stipulated documents or in case
of discrepant documents
XPN: The applicant waives the discrepancy.
He has the right to have the marginal
deposit deducted from the principal
obligation under the L/C and to have the
interest computed only on the balance and
not on the face value thereof.
2. Issuing Bank – one which, whether a
paying bank or not, issues the L/C and
undertakes to pay the seller upon receipt of
the draft and proper documents of title from
the seller and to surrender them to the
buyer upon reimbursement. After due
payment, issuing bank is entitled to
reimbursement as a matter of right.
Reimbursement includes debiting the bank
account of the applicant, if any.
NOTE: The failure of the beneficiary to
present the draft to the applicant does not
affect the right of the issuing bank to
reimbursement. Presentment for
acceptance to the
customer/applicant is not a condition sine
qua non for reimbursement.
3. Beneficiary/Seller/Exporter – is the one in
whose favor the instrument is executed.
One who delivers the documents of title and
draft to the issuing bank to recover
payment. He has a prestation to do under
the main contract.
NOTE: Failure of the beneficiary to fulfill his
obligation under the main contract does not
negate his right to payment from the issuing
bank as long as he is able to submit the
required documents and comply with the
terms of the credit. This is without prejudice
to his liability against the account party
under the law on contracts and damages
(DOCTRINE OF INDEPENDENCE).
In commercial transactions involving letters
of credit, the functions assumed by a
correspondent bank are classified according
to the obligations taken up by it. The
correspondent bank may be called a
notifying bank, a negotiating bank, or a
confirming bank
4. DEPOSITS
NATURE OF BANK FUNDS AND BANK
DEPOSITS
Deposit function of banks
The function of the bank to receive a thing,
primarily money, from depositors with the
obligation of safely keeping it and returning
the same.
Kinds of deposits between a bank and its
depositors
1. As debtor-creditor:
2. Special Kinds of Deposits
a. Demand deposits – all those liabilities of
banks which are denominated in the
Philippine currency and are subject to
payment in legal tender upon demand by
representation of checks.
b. Savings deposits – the most common
type of deposit and is usually evidenced by
a passbook.
NOTE: The requirement of presentation of
passbooks is required by the Manual of
Regulations for Banks. A bank is negligent if
it allows the withdrawal without requiring the
presentation of passbook (BPI v. CA, GR
No. 112392, February 29, 2000).
c. Negotiable order of withdrawal account
(NOWA) – Interest-bearing deposit
accounts that combine the payable on
demand feature of checks and investment
feature of saving accounts. d. Time deposit
– an account with fixed term; payment of
which cannot be legally required within such
a specified number of days.
3. As trustee-trustor:
Trust account – a savings account,
established under a trust agreement
containing funds administered by the bank
for the benefit of the trustor or another
person or persons.
4. As agent-principal: a. Deposit of checks
for collection b. Deposit for specific purpose
c. Deposit for safekeeping
Types of deposit accounts
1. Savings 2. Current 3. Time
Deposit accounts may also be classified as:
1. Individual; or
2. Joint:
a. “And” account – the signature of both co-
depositors are required for withdrawals.
b. “And/or” account – either one of the
codepositors may deposit and withdraw
from the account without the knowledge
consent and signature of the other.
Joint accounts may be subject of a
survivorship agreement whereby the
codepositors agree to permit either of them
to withdraw the whole deposit during their
lifetime and transferring the balance to the
survivor upon the death of one of them
(Vitug v. CA, G.R. No. 82027, March 29,
1990).
Nature of a bank deposit
All kinds of bank deposits are loan. The
bank can make use as its own the money
deposited. Said amount is not being held in
trust for the depositor nor is it being kept for
safekeeping (Tang Tiong Tick v. American
Apothecaries, G.R. No. 43682, March 31,
1938).
Mandamus will not lie in the enforcement of
obligations concerning deposit

All kinds of deposit are loans. Thus, the
relationship being contractual in nature,
mandamus cannot be availed of because
mandamus will not lie to enforce the
performance of contractual obligations
(Lucman v. Alimatar Malawi, G.R. No.
159794, Dec. 19, 2006).
Contract between banks and depositors is
not a trust agreement
The fiduciary nature of the bank-depositor
relationship does not convert the contract
between banks and depositors to a trust
agreement. Thus, failure by the bank to pay
the depositor is failure to pay simple loan,
and not a breach of trust (Consolidated
Bank and Trust Corp. v. CA, G.R. No.
138569, September 11, 2003).
Nature of safety deposit box
(hybrid contract, depositary and lease)
The contract for the use of a safety deposit
box should be governed by the law on
lease.
In the case of Sia v. CA and Security Bank
and Trust Company and under the old
banking law, a safety deposit box is a
special deposit. However, the new General
Banking Law, while retaining the renting of
safe deposit box as one of the services that
the bank may render, deleted reference to
depository function (Divina, Handbook on
Philippine Commercial Law).
Q: After procuring a checking account, the
depositor issued several checks. He was
surprised to learn later that they had been
dishonored for insufficient funds.
Investigation disclosed that deposits made
by the depositor were not credited to its
account. Is the bank liable for damages?
A: YES, the depositor expects the bank to
treat his account with utmost fidelity,
whether such account consist only of a few
hundred pesos or of millions. The bank
must record every single transaction
accurately, down to the last centavo, and as
promptly as possible. This has to be done if
the account is to reflect at any given time
the amount of money the depositor can
dispose of as he sees fit, confident that the
bank will deliver it as and to whomever he
directs. A blunder on the part of the bank,
such as the dishonor of the check without
good reason, can cause the depositor not a
little embarrassment if not also financial loss
and perhaps even civil and criminal litigation
(Simex Intl. v. CA, G.R. No. 88013, March
19, 1990).
5. MINIMUM CAPITALIZATION
SECTION 82. Minimum Capitalization. — A
trust entity, before it can engage in trust or
other fiduciary business, shall comply with
the minimum paid-in capital requirement
which will be determined by the Monetary
Board.
Universal Bank
1. Head office only – 3B
2. Up to 10 branches – 6B
3. 11 – 100 branches – 15B 4. More than
100 branches – 20B (BSP Circular No. 854,
Oct. 9, 2014)
Commercial Bank
1. Head office only – 2B
2. Up to 10 branches – 4B
3. 11 – 100 branches – 10B 4. More than
100 branches – 15B
Thrift Bank
Head office in NCR
1. Head office only – 500M
 2. Up to 10 branches – 750M
3. 11 to 50 branches – 1B
4. More than 50 branches – 2B
Head office outside NCR
1 Head office only – 200M
2. Up to 10 branches – 300M
3. 11 to 50 branches – 400M
4. More than 50 branches – 800M
Equity
6. DILIGENCE REQUIRED OF BANKS
Nature of banking business and
responsibility of banks
The banking system is an indispensable
institution in the modern world and plays a
vital role in the economic life of every
civilized nation. Whether as mere passive
entities for the safekeeping and saving of
money or as active instruments of business
and commerce, banks have become an
ubiquitous presence among the people, who
have come to regard them with respect and
even gratitude and, most of all, confidence.
Thus, even the humble wage-earner has not
hesitated to entrust his life’s savings to the
bank of his choice, knowing that they will be
safe in its custody and will even earn some
interest for him. The ordinary person, with
equal faith, usually maintains a modest
checking account for security and
convenience in the settling of his monthly
bills and the payment of ordinary expenses.
As for business entities, the bank is a
trusted and active associate that can help in
the running of their affairs, not only in the
form of loans when needed but more often
in the conduct of their day-to-day
transactions like the issuance or
encashment of checks.
In every case, the depositor expects the
bank to treat his account with the utmost
fidelity, whether such account consists only
of a few hundred pesos or of millions. The
bank must record every single transaction
accurately, down to the last centavo and as
promptly as possible. This has to be done if
the account is to reflect at any given time
the amount of money the depositor can
dispose of as he sees fit, confident that the
bank will deliver it as and to whomever he
directs.
The point is that as a business affected with
public interest and because of the nature of
its functions, the bank is under obligations
to treat the accounts of its depositors with
meticulous care, always having in mind the
fiduciary nature of their relationship (Simex
International Inc. v. CA, G.R. No. 88013
March 19, 1990 as cited in the case of Land
Bank of the Philippines vs. Oñate, G.R. No.
192371, January 15, 2014).
Degree of diligence required of banks in
handling deposits
Banks are expected to exercise
extraordinary diligence in its dealings with
depositors. Consequently, the diligence
required of banks is more than that of a
Roman pater familias or a good father of a
family (PCI Bank v Balcameda G.R. No.
158143, September 21, 2011).
Degree of diligence required of banks with
its other dealings
The diligence more than that of a Roman
pater familias only applies only to cases
where banks act under their fiduciary
capacity, that is, as depositary of the
deposits of their depositors. The same
degree of diligence is not expected to be
exerted by banks in commercial
transactions (Reyes v CA G.R. No. 118492.
August 15, 2001).
7. RESERVES (New Central Bank Act)
ARTICLE VII - BANK RESERVES
SECTION 94. Reserve Requirements. — In
order to control the volume of money
created by the credit operations of the
banking system, all banks operating in the
Philippines shall be required to maintain
reserves against their deposit liabilities:
Provided, That the Monetary Board may, at
its discretion, also require all banks and/or
quasi-banks to maintain reserves against
funds held in trust and liabilities for deposit
substitutes as defined in this Act. The
required reserves of each bank shall be
proportional to the volume of its deposit
liabilities and shall ordinarily take the form of
a deposit in the Bangko Sentral. Reserve
requirements shall be applied to all banks of
the same category uniformly and without
discrimination.
Reserves against deposit substitutes, if
imposed, shall be determined in the same
manner as provided for reserve
requirements against regular bank deposits,
with respect to the imposition, increase, and
computation of reserves.
The Monetary Board may exempt from
reserve requirements deposits and deposit
substitutes with remaining maturities of two
(2) years or more, as well as interbank
borrowings.
Since the requirement to maintain bank
reserves is imposed primarily to control the
volume of money, the Bangko Sentral shall
not pay interest on the reserves maintained
with it unless the Monetary Board decides
otherwise as warranted by circumstances.
SECTION 95. Definition of Deposit
Substitutes. — The term "deposit
substitutes" is defined as an alternative form
of obtaining funds from the public, other
than deposits, through the issuance,
endorsement, or acceptance of debt
instruments for the borrower's own account,
for the purpose of relending or purchasing
of receivables and other obligations. These
instruments may include, but need not be
limited to, bankers acceptances, promissory
notes, participations, certificates of
assignment and similar instruments with
recourse, and repurchase agreements. The
Monetary Board shall determine what
specific instruments shall be considered as
deposit substitutes for the purposes of
Section 94 of this Act: Provided, however,
That deposit substitutes of commercial,
industrial and other non-financial companies
for the limited purpose of financing their own
needs or the needs of their agents or
dealers shall not be covered by the
provisions of Section 94 of this Act.
SECTION 96. Required Reserves Against
Peso Deposits. — The Monetary Board may
fix and, when it deems necessary, alter the
minimum reserve ratios to peso deposits, as
well as to deposit substitutes, which each
bank and/or quasi-bank may maintain, and
such ratio shall be applied uniformly to all
banks of the same category as well as to
quasi-banks.
SECTION 97. Required Reserves Against
Foreign Currency Deposits. — The
Monetary Board is similarly authorized to
prescribe and modify the minimum reserve
ratios applicable to deposits denominated in
foreign currencies.
SECTION 98. Reserves Against Unused
Balances of Overdraft Lines. — In order to
facilitate Bangko Sentral control over the
volume of bank credit, the Monetary Board
may establish minimum reserve
requirements for unused balances of
overdraft lines.
The powers of the Monetary Board to
prescribe and modify reserve requirements
against unused balances of overdraft lines
shall be the same as its powers with respect
to reserve requirements against demand
deposits.
SECTION 99. Increase in Reserve
Requirements. — Whenever in the opinion
of the Monetary Board it becomes
necessary to increase reserve requirements
against existing liabilities, the increase shall
be made in a gradual manner and shall not
exceed four percentage points in any thirty-
day period. Banks and other affected
financial institutions shall be notified
reasonably in advance of the date on which
such increase is to become effective.
SECTION 100. Computation on Reserves.
— The reserve position of each bank or
quasi-bank shall be calculated daily on the
basis of the amount, at the close of
business for the day, of the institution's
reserves and the amount of its liability
accounts against which reserves are
required to be maintained: Provided, That
with reference to holidays or non-banking
days, the reserve position as calculated at
the close of the business day immediately
preceding such holidays and non-banking
days shall apply on such days.
For the purpose of computing the reserve
position of each bank or quasi-bank, its
principal office in the Philippines and all its
branches and agencies located therein shall
be considered as a single unit.
SECTION 101. Reserve Deficiencies. —
Whenever the reserve position of any bank
or quasi-bank, computed in the manner
specified in the preceding section of this
Act, is below the required minimum, the
bank or quasi-bank shall pay the Bangko
Sentral one-tenth of one percent (1/10 of
1%) per day on the amount of the deficiency
or the prevailing ninety-one-day treasury bill
rate plus three percentage points,
whichever is higher: Provided, however,
That banks and quasi-banks shall ordinarily
be permitted to offset any reserve deficiency
occurring on one or more days of the week
with any excess reserves which they may
hold on other days of the same week and
shall be required to pay the penalty only on
the average daily deficiency during the
week. In cases of abuse, the Monetary
Board may deny any bank or quasi-bank the
privilege of offsetting reserve deficiencies in
the aforesaid manner.
If a bank or quasi-bank chronically has a
reserve deficiency, the Monetary Board may
limit or prohibit the making of new loans or
investments by the institution and may
require that part or all of the net profits of
the institution be assigned to surplus.
The Monetary Board may modify or set
aside the reserve deficiency penalties
provided in this section, for part or the entire
period of a strike or lockout affecting a bank
or a quasi-bank as defined in the Labor
Code, or of a national emergency affecting
operations of banks or quasi-banks. The
Monetary Board may also modify or set
aside reserved deficiency penalties for
rehabilitation program of a bank.
SECTION 102. Interbank Settlement. —
The Bangko Sentral shall establish facilities
for interbank clearing under such rules and
regulations as the Monetary Board may
prescribe: Provided, That the Bangko
Sentral may charge administrative and other
fees for the maintenance of such facilities.
The deposit reserves maintained by the
banks in the Bangko Sentral in accordance
with the provisions of Section 94 of this Act
shall serve as basis for the clearing of
checks and the settlement of interbank
balances, subject to such rules and
regulations as the Monetary Board may
issue with respect to such operations:
Provided, That any bank which incurs on
overdrawing in its deposit account with the
Bangko Sentral shall fully cover said
overdraft, including interest thereon at a rate
equivalent to one-tenth of one percent (1/10
of 1%) per day or the prevailing ninety-one-
day treasury bill rate plus three percentage
points, whichever is higher, not later than
the next clearing day: Provided, further,
That settlement of clearing balances shall
not be effected for any account which
continues to be overdrawn for five (5)
consecutive banking days until such time as
the overdrawing is fully covered or
otherwise converted into an emergency loan
or advance pursuant to the provisions of
Section 84 of this Act: Provided, finally, That
the appropriate clearing office shall be
officially notified of banks with overdrawn
balances. Banks with existing overdrafts
with the Bangko Sentral as of the effectivity
of this Act shall, within such period as may
be prescribed by the Monetary Board, either
convert the overdraft into an emergency
loan or advance with a plan of payment, or
settle such overdrafts, and that, upon failure
to so comply herewith, the Bangko Sentral
shall take such action against the bank as
may be warranted under this Act.
SECTION 103. Exemption from Attachment
and Other Purposes. — Deposits
maintained by banks with the Bangko
Sentral as part of their reserve requirements
shall be exempt from attachment,
garnishments, or any other order or process
of any court, government agency or any
other administrative body issued to satisfy
the claim of a party other than the
Government, or its political subdivisions or
instrumentalities.
INTELLECTUAL PROPERTY CODE
1. What are patentable?
Patentable Inventions. - Any technical
solution of a problem in any field of human
activity which is new, involves an inventive
step and is industrially applicable shall be
patentable. It may be, or may relate to, a
product, or process, or an improvement of
any of the foregoing. (Sec. 7, R.A. No.
165a)
The following are non-patentable inventions
(IPC as amended by R.A. 9502, Sec. 22)
(TrAP A SAD2)
1. Methods for treatment of the human or
animal body by surgery or therapy and
diagnostic methods practiced on the human
or animal body. This provision shall not
apply to products and composition for use in
any of these methods;
2. Aesthetic creations
3. Plant varieties or animal breeds or
essentially biological process for the
production of plants or animals. This
provision shall not apply to microorganisms
and non-biological and microbiological
processes
4. Schemes, rules and methods of
performing mental acts, playing games or
doing business, and programs for
computers 5. Anything which is contrary to
public order or morality
6. In the case of drugs and medicines, mere
discovery of a new form or new property of
a known substance which does not result in
the enhancement of the efficacy of that
substance or the new use for a known
substance, or the mere use of a known
process unless such known process results
in a new product that employs atleast one
new reactant
7. Discoveries, scientific theories and
mathematical methods
2. PATENT VS. COPYRIGHT (see table sa
UST notes , five lang akong gibutang
dire)
As to definition

P: The right granted to an inventor by a
State, or by a regional office acting for
several States, which allows the inventor to
exclude anyone else from commercially
exploiting his invention for a limited period.
C: Literary and artistic works which are
original intellectual creations in the literary
and artistic domain protected from the
moment of their creation.
As to registered intellectual rights
P: Technical solution of a problem in any
field of human activity which is new (novel
invention) and industrially applicable.
C: Literary and artistic works
As to term of protection
P: 20 years from filing date of application
C: It depends on the type of work.
As to prescriptive period for filing of an
action for damages due to infringement
P: 4 years from time of commission of
infringement
C: 4 years from the time the cause of action
arose.
As to remedies available against infringers
P: Civil action for infringement, Criminal
action for infringement, Administrative
remedy , Destruction of infringing material
C:
1. Injunction
2. Damages, including legal costs and other
expenses, as he may have incurred due to
the infringement as well as the profits the
infringer may have made due to such
infringement
3. Impounding during the pendency of the
action sales invoices and other documents
evidencing sales
4. Destruction without any compensation all
infringing copies
5. Moral and Exemplary damages (IPC,
Sec. 216.1); or
6. Seizure and impounding of any article,
which may serve as evidence in the court
proceedings.
3. PARIS CONVENTION
Summary of the Paris Convention for the
Protection of Industrial Property (1883)
The Paris Convention applies to industrial
property in the widest sense, including
patents, trademarks, industrial designs,
utility models (a kind of "small-scale patent"
provided for by the laws of some countries),
service marks, trade names (designations
under which an industrial or commercial
activity is carried out), geographical
indications (indications of source and
appellations of origin) and the repression of
unfair competition.
The substantive provisions of the
Convention fall into three main categories:
national treatment, right of priority, common
rules.
(1) Under the provisions on national
treatment, the Convention provides that, as
regards the protection of industrial property,
each Contracting State must grant
the same protection to nationals of other
Contracting States that it grants to its own
nationals. Nationals of non-Contracting
States are also entitled to national treatment
under the Convention if they are domiciled
or have a real and effective industrial or
commercial establishment in a Contracting
State.
(2) The Convention provides for the right of
priority in the case of patents (and utility
models where they exist), marks and
industrial designs. This right means that, on
the basis of a regular first application filed in
one of the Contracting States, the applicant
may, within a certain period of time (12
months for patents and utility models; 6
months for industrial designs and marks),
apply for protection in any of the
other Contracting States. These subsequent
applications will be regarded as if they had
been filed on the same day as the first
application. In other words, they will have
priority (hence the expression "right of
priority") over applications filed by others
during the said period of time for the same
invention, utility model, mark or industrial
design. Moreover, these subsequent
applications, being based on the first
application, will not be affected by any event
that takes place in the interval, such as the
publication of an invention or the sale of
articles bearing a mark or incorporating an
industrial design. One of the great practical
advantages of this provision is that
applicants seeking protection in several
countries are not required to present all of
their applications at the same time but have
6 or 12 months to decide in which countries
they wish to seek protection, and to
organize with due care the steps necessary
for securing protection.
(3) The Convention lays down a
few common rules that all Contracting
States must follow. The most important are:
(a) Patents. Patents granted in different
Contracting States for the same invention
are independent of each other: the granting
of a patent in one Contracting State does
not oblige other Contracting States to grant
a patent; a patent cannot be refused,
annulled or terminated in any Contracting
State on the ground that it has been refused
or annulled or has terminated in any other
Contracting State.
 The inventor has the right to be named as
such in the patent.
The grant of a patent may not be refused,
and a patent may not be invalidated, on the
ground that the sale of the patented
product, or of a product obtained by means
of the patented process, is subject to
restrictions or limitations resulting from the
domestic law.
Each Contracting State that takes legislative
measures providing for the grant of
compulsory licenses to prevent the abuses
which might result from the exclusive rights
conferred by a patent may do so only
under certain conditions. A compulsory
license (a license not granted by the owner
of the patent but by a public authority of the
State concerned), based on failure to work
or insufficient working of the patented
invention, may only be granted pursuant to
a request filed after three years from the
grant of the patent or four years from the
filing date of the patent application, and it
must be refused if the patentee gives
legitimate reasons to justify this inaction.
Furthermore, forfeiture of a patent may not
be provided for, except in cases where the
grant of a compulsory license would not
have been sufficient to prevent the abuse.
In the latter case, proceedings for forfeiture
of a patent may be instituted, but only after
the expiration of two years from the grant of
the first compulsory license.
(b) Marks. The Paris Convention does not
regulate the conditions for the filing and
registration of marks which are determined
in each Contracting State by domestic law.
Consequently, no application for the
registration of a mark filed by a national of a
Contracting State may be refused, nor may
a registration be invalidated, on the ground
that filing, registration or renewal has not
been effected in the country of origin. The
registration of a mark obtained in one
Contracting State is independent of its
possible registration in any other country,
including the country of origin;
consequently, the lapse or annulment of the
registration of a mark in one Contracting
State will not affect the validity of the
registration in other Contracting States.
Where a mark has been duly registered in
the country of origin, it must, on request, be
accepted for filing and protected in its
original form in the other Contracting States.
Nevertheless, registration may be refused in
well-defined cases, such as where the mark
would infringe the acquired rights of third
parties; where it is devoid of distinctive
character; where it is contrary to morality or
public order; or where it is of such a nature
as to be liable to deceive the public.
If, in any Contracting State, the use of a
registered mark is compulsory, the
registration cannot be canceled for non-use
until after a reasonable period, and then
only if the owner cannot justify this inaction.
Each Contracting State must refuse
registration and prohibit the use of marks
that constitute a reproduction, imitation or
translation, liable to create confusion, of a
mark used for identical and similar goods
and considered by the competent authority
of that State to be well known in that
State and to already belong to a person
entitled to the benefits of the Convention.
Each Contracting State must likewise refuse
registration and prohibit the use of marks
that consist of or contain, without
authorization, armorial bearings, State
emblems and official signs and hallmarks of
Contracting States, provided they have
been communicated through the
International Bureau of WIPO. The same
provisions apply to armorial bearings, flags,
other emblems, abbreviations and names of
certain intergovernmental organizations.
Collective marks must be granted
protection.
(c) Industrial Designs. Industrial designs
must be protected in each Contracting
State, and protection may not be forfeited
on the ground that articles incorporating the
design are not manufactured in that State.
(d) Trade Names. Protection must be
granted to trade names in each Contracting
State without there being an obligation to
file or register the names.
(e) Indications of Source. Measures must be
taken by each Contracting State against
direct or indirect use of a false indication of
the source of goods or the identity of their
producer, manufacturer or trader.
(f) Unfair competition. Each Contracting
State must provide for effective protection
against unfair competition.
The Paris Union, established by the
Convention, has an Assembly and an
Executive Committee. Every State that is a
member of the Union and has adhered to at
least the administrative and final provisions
of the Stockholm Act (1967) is a member of
the Assembly. The members of the
Executive Committee are elected from
among the members of the Union, except
for Switzerland, which is a member ex
officio. The establishment of the biennial
program and budget of the WIPO
Secretariat – as far as the Paris Union is
concerned – is the task of its Assembly.
The Paris Convention, concluded in 1883,
was revised at Brussels in 1900, at
Washington in 1911, at The Hague in 1925,
at London in 1934, at Lisbon in 1958 and at
Stockholm in 1967, and was amended in
1979.
The Convention is open to all States.
Instruments of ratification or accession must
be deposited with the Director General of
WIPO.
Obligations under the Paris Convention
In view of the obligations under the Paris
Convention, the Philippines is obligated to
assure nationals of the signatory-countries
that they are afforded an effective protection
against violation of their intellectual property
rights in the Philippines in the same way
that their own countries are obligated to
accord similar protection to Philippine
nationals. "Thus, under Philippine law, a
trade name of a national of a State that is a
party to the Paris Convention, whether or
not the trade name forms part of a
trademark, is protected "without the
obligation of filing or registration. Thus, the
applicant for registration of trademark is not
the lawful owner thereof and is not entitled
to registration if the trademark has been in
prior use by a national of a country which is
a signatory to the Paris Convention (Ecole
De Cuisine Manille Inc. v. Renaud
Cointreau & Cie and Le Condron Bleu Int’l
B.V., GR 185830, June 5, 2013, in Divina,
2014).
5. Doctrine of Secondary Meaning
This doctrine is to the effect that a word or
phrase originally incapable of exclusive
appropriation with reference to an article on
the market, because geographically or
otherwise descriptive, might nevertheless
have been used so long and so exclusively
by one producer with reference to his article
that, in that trade and to that branch of the
purchasing public, the word or phrase has
come to mean that the article was his
product (Ang vs. Teodoro, G. R. No. 48226,
December 14, 1942).
6. WELL-KNOWN BRAND
It refers to a mark considered well-known by
the competent authority of the country
where the protection for the mark is sought.
TEST TO DETERMINE CONFUSING
WELL-KNOWN MARKS
This is used in determining whether an
international mark is well-known for the rule
on non-registrable marks under Sec. 123(e)
to operate (Gepty, 2018)
The scope of protection initially afforded by
the Paris Convention has been expanded
via a nonbinding recommendation that a
well-known mark should be protected in a
country even if the mark is neither
registered nor used in that country
(Sehwani, Incorporated vs. In-N-Out Burger,
Inc., G. R. No. 171053, October 15, 2007).
A junior user of a well-known mark on
goods or services which are not similar to
the goods or services, and are therefore
unrelated, to those specified in the
certificate of registration of the well-known
mark is precluded from using the same on
the entirely unrelated goods or services,
subject to the following requisites, to wit:
1. The mark is well-known internationally
and in the Philippines;
2. The use of the well-known mark on the
entirely unrelated goods or services would
result to the likelihood of confusion of origin
or business or some business connection or
relationship between the registrant and the
user of the mark; and
3. The interests of the owner of the well-
known mark are likely to be damaged (246
Corporation, doing business under the
name and style of Rolex Music Lounge v.
Hon. Reynaldo B. Daway, in his capacity as
Presiding Judge of RTC Branch 90, Quezon
City, G.R. No. 157216, November 20,
2003).
Internationally well-known mark
1. Considered by the competent authority of
the Philippines to be “well-known”
internationally and in the Philippines as the
mark of a person other than the applicant or
registrant; 2. Need not be used or registered
in the Philippines; and 3. Need not be
known by the public at large but only by
relevant sector of the public.
Rules regarding internationally-well known
marks
A mark cannot be registered if it is identical
with, or confusingly similar to, or constitutes
a translation of a mark which is considered
by the competent authority of the
Philippines to be well known internationally
and in the Philippines, whether or not it is
registered here, as being already the mark
of a person other than the applicant for
registration, and used for identical or similar
goods or services: Provided, That in
determining whether a mark is well-known,
account shall be taken of the knowledge of
the relevant sector of the public, rather than
of the public at large, including knowledge in
the Philippines which has been obtained as
a result of the promotion of the mark.
A mark cannot be registered if it is identical
with, or confusingly similar to, or constitutes
a translation of a mark considered well-
known in accordance with the preceding
paragraph, which is registered in the
Philippines with respect to goods or
services which are NOT similar to those
with respect to which registration is applied
for: Provided, That use of the mark in
relation to those goods or services would
indicate a connection between those goods
or services, and the owner of the registered
mark: Provided further, That the interests of
the owner of the registered mark are likely
to be damaged by such use (Sec. 123.IPC).
Section 123. Registrability. –
1. A mark cannot be registered if it:
(e) Is identical with, or confusingly similar to,
or constitutes a translation of a mark which
is considered by the competent authority
of the Philippines to be well-known
internationally and in the Philippines,
whether or not it is registered here, as
being already the mark of a person other
than the applicant for registration, and
used for identical or similar goods or
services: Provided, That in determining
whether a mark is well-known, account shall
be taken of the knowledge of the relevant
sector of the public, rather than of the public
at large, including knowledge in the
Philippines which has been obtained as a
result of the promotion of the mark;
(f) Is identical with, or confusingly similar to,
or constitutes a translation of a mark
considered well-known in accordance with
the preceding paragraph, which is
registered in the Philippines with respect to
goods or services which are not similar to
those with respect to which registration is
applied for: Provided, That use of the mark
in relation to those goods or services would
indicate a connection between those goods
or services, and the owner of the registered
mark: Provided further, That the interests of
the owner of the registered mark are likely
to be damaged by such use;
7. DISTINGUISHABILITY TEST
(sa corpo among gibutang, wala makita
lain)
SEC. 17. Corporate Name. – No corporate
name shall be allowed by the Commission if
it is not distinguishable from that already
reserved or registered for the use of another
corporation, or if such name is already
protected by law, or when its use is contrary
to existing law, rules and regulations. A
name is not distinguishable even if it
contains one or more of the following:
(a) The word “corporation”, “company”,
“incorporated”, “limited”, “limited liability”, or
an abbreviation of one of such words; and
(b) Punctuations, articles, conjunctions,
contractions, prepositions, abbreviations,
different tenses, spacing, or number of the
same word or phrase.
The Commission, upon determination that
the corporate name is: (1) not
distinguishable from a name already
reserved or registered for the use of another
corporation; (2) already protected by law; or
(3) contrary to law, rules and regulations,
may summarily order the corporation to
immediately cease and desist from using
such name and require the corporation to
register a new one. The Commission shall
also cause the removal of all visible
signages, marks, advertisements, labels,
prints and other effects bearing such
corporate name. Upon the approval of the
new corporate name, the Commission shall
issue a certificate of incorporation under the
amended name. If the corporation fails to
comply with the Commission’s order, the
Commission may hold the corporation and
its responsible directors or officers in
contempt and/or hold them administratively,
civilly and/or criminally liable under this
Code and other applicable laws and/or
revoke the registration of the corporation.
8. CAN A WELL KNOWN BRAND BE
INFRINGED IF IT IS NOT REGISTERED?
Only a registrant of a mark can file a case
for infringement. Upon the finality of an
order of cancellation of a mark, the right of a
registrant to file a case for infringement
terminates as well.
Factors to be considered in determining
well-known marks
1. Duration, extent and geographical area of
any use of the mark; in particular, the
duration, extent and geographical area of
any promotion of the mark, including
advertising or publicity and the presentation,
at fairs or exhibitions, of the goods and/or
services to which the mark applies; 2.
Market share, in the Philippines and in other
countries, of the goods and/or services to
which the mark applies; 3. Degree of the
inherent or acquired distinction of the mark;
4. Quality image or reputation acquired by
the mark; 5. Extent to which the mark has
been registered in the world; 6. Exclusivity
of registration attained by the mark in the
world; 7. Extent to which the mark has been
used in the world; 8. Exclusivity of use
attained by the mark in the world; 9.
Commercial value attributed to the mark in
the world; 10. Record of successful
protection of the rights in the mark; 11.
Outcome of litigations dealing with the issue
of whether the mark is a well-known mark;
and 12. Presence or absence of identical or
similar marks validly registered for or used
on identical or similar goods or services and
owned by persons other than the person
claiming that his mark is a well-known mark.
Provided, further, that the mark is well-
known both internationally and in the
Philippines (Sec. 2, Rule 18, A.M. No. 10-3-
10-SC, October 18, 2011).
NOTE: Account shall be taken of the
knowledge of the relevant sector of the
public, rather than of the public at large,
including knowledge in the Philippines
which has been obtained as a result of the
promotion of the mark. The following criteria
or any combination thereof may be taken
into account in determining whether a mark
is wellknown.
In Fredco Manufacturing Corp. vs. President
and Fellows of Harvard College, GR No.
185917, June 1, 2011, Fredco
Manufacturing Corp. (Fredco) filed before
the IPO a Petition for Cancellation of
Registration issued to Harvard University for
the mark “Harvard Veritas Shield Symbol”.
Fredco claims that as early as 1982 the
mark was already used in the Philippines by
its predecessor-ininterest. Harvard
University, on the other hand, claimed that
the name and mark “Harvard” was adopted
in 1639 as the name of Harvard College of
Cambridge, Massachusetts, USA. The mark
had been used in commerce since 1872,
and was registered in more than 50
countries.
The Supreme Court ruled that "Harvard" is
the trade name of the world famous Harvard
University, and it is also a trademark of
Harvard University. Under Article 8 of the
Paris Convention, as well as Section 37 of
R.A. No. 166, Harvard University is entitled
to protection in the Philippines of its trade
name "Harvard" even without registration of
such trade name in the Philippines. This
means that no educational entity in the
Philippines can use the trade name
"Harvard" without the consent of Harvard
University. Likewise, no entity in the
Philippines can claim, expressly or impliedly
through the use of the name and mark
"Harvard," that its products or services are
authorized, approved, or licensed by, or
sourced from, Harvard University without
the latter's consent.
To be protected under the two directives of
the Ministry of Trade, an internationally well-
known mark need not be registered or used
in the Philippines. All that is required is that
the mark is well-known internationally and in
the Philippines for identical or similar goods,
whether or not the mark is registered or
used in the Philippines. Section 123.1(e) of
R.A. No. 8293 now categorically states that
"a mark which is considered by the
competent authority of the Philippines to be
wellknown internationally and in the
Philippines, whether or not it is registered
here," cannot be registered by another in
the Philippines. Section 123.1(e) does not
require that the well-known mark be used in
commerce in the Philippines but only that it
be well-known in the Philippines.
Division of application
Any application referring to several goods or
services, hereafter referred to as the "initial
application," may be divided by the
applicant into two (2) or more applications,
hereafter referred to as the "divisional
applications," by distributing among the
latter the goods or services referred to in the
initial application. The divisional applications
shall preserve the filing date of the initial
application or the benefit of the right of
priority (Sec. 129, IPC).
Priority right
An application for registration of a mark filed
in the Philippines by a person referred to in
Section 3 of the IPC, and who previously
duly filed an application for registration of
the same mark in one of those countries,
shall be considered as filed as of the day
the application was first filed in the foreign
country. No registration of a mark shall be
granted until such mark has been registered
in the country of origin of the applicant (Sec.
131, IPC).
The owner of a mark seeking priority right is
not entitled to sue for acts committed prior
to the date on which his mark was
registered in the Philippines: except in the
case of an owner of a well-known mark.
9. WHAT DO YOU UNDERSTAND BY A
SECONDARY MEANING IN TRADEMARK
LAW?

This doctrine is to the effect that a word or
phrase originally incapable of exclusive
appropriation with reference to an article on
the market, because geographically or
otherwise descriptive, might nevertheless
have been used so long and so exclusively
by one producer with reference to his article
that, in that trade and to that branch of the
purchasing public, the word or phrase has
come to mean that the article was his
product (Ang vs. Teodoro, G. R. No. 48226,
December 14, 1942).
AMLA
1. WHAT ARE COVERED
TRANSACTIONS?
A transaction in cash or other equivalent
monetary instrument involving a total
amount in excess of Five hundred thousand
pesos (PhP 500,000.00) within one (1)
banking day (RA 9160, Sec. 3 [b]), as
amended by RA 9194).
2. WHAT ARE THE COVERED
INSTITUTIONS?
Covered “Institutions” was changed to
Covered “Persons” under RA 10365.
Covered persons, natural or juridical, refer
to:
1. Banks, non-banks, quasi-banks, trust
entities, foreign exchange dealers,
pawnshops, money changers, remittance
and transfer companies and other similar
entities and all other persons and their
subsidiaries and affiliates supervised or
regulated by the Bangko Sentral ng
Pilipinas (BSP);
2. Insurance companies, pre-need
companies and all other persons supervised
or regulated by the Insurance Commission
(IC);
3. (i) Securities dealers, brokers, salesmen,
investment houses and other similar
persons managing securities or rendering
services as investment agent, advisor, or
consultant,
(ii) Mutual funds, close-end investment
companies, common trust funds, and other
similar persons, and
(iii) Other entities administering or otherwise
dealing in currency, commodities or
financial derivatives based thereon,
valuable objects, cash substitutes and other
similar monetary instruments or property
supervised or regulated by the Securities
and Exchange Commission (SEC);
4. Jewelry dealers in precious metals, who,
as a business, trade in precious metals, for
transactions in excess of One million pesos
(P1,000,000.00);
5. Jewelry dealers in precious stones, who,
as a business, trade in precious stones, for
transactions in excess of One million pesos
(P1,000,000.00);
6. Company service providers which, as a
business, provide any of the following
services to third parties:
a) Acting as a formation agent of juridical
persons;
b) 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;
c) 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
d) Acting as (or arranging for another
person to act as) a nominee shareholder for
another person; and
7. Persons who provide any of the following
services:
i. Managing of client money, securities or
other assets;
ii. Management of bank, savings or
securities accounts;
iii. Organization of contributions for the
creation, operation or management of
companies; and
iv. Creation, operation or management of
juridical persons or arrangements, and
buying and selling business entities.
(RA 10365, Sec. 1, amending RA 9160,
Sec. 3[a]).

3. WHAT ARE THE EXCEPTIONS UNDER

THE BANK SECRECY LAW?
All deposits of whatever nature with banks
or banking institutions in the Philippines
including investments in bonds issued by
the Government of the 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, bureau or
office, EXCEPT:
1. upon written permission of the depositor,
or
2. in cases of impeachment, or
3. upon order of a competent court in cases
of bribery or dereliction of duty of public
officials, or
4. in cases where the money deposited or
invested is the subject matter of the
litigation.