The Unofficial Cheat Sheet For The Ambiguous Subjects in Commercial Law

COMMERCIAL LAW
(Letters of Credit, Trust Receipts,

Nego, Banking, SecReg)
The Unofficial Cheat Sheet

for the Ambiguous Subjects in Commercial Law1
I. Letters of Credit
A. Definition and Nature of Letter of Credit
 Written instrument whereby the writer requests or authorizes the addressee to pay money or
deliver goods to a third person and assumes responsibility for payment of debt therefor to the
addressee. (Transfield v. Luzon)
 In commercial transactions: 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.
o Its use serves to reduce risk of nonpayment of the purchase price under contract of
sale of goods. (Transfield)
B. Parties to a Letter of Credit

1. Rights and Obligations of Parties
C. Basic Principles of Letter of Credit
1. Doctrine of Independence
2. Fraud Exception Principle
3. Doctrine of Strict Compliance
1
Only the following subjects are included:
1. Letters of Credit
2. Trust Receipts
3. Negotiable Instruments
4. Banking
5. Securities Regulation
Based on 2018 Bar Syllabus for Commercial Law, 2018 Syllabus of Justice RPL Hernando for Commercial Law Review for the
relevant codal provisions, Sundiang & Aquino (2017), some points from 2016 Magis Summer Reviewer for Commercial Law
Love, Colene Arcaina.
The Unofficial Cheat Sheet | 1

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II. Trust Receipts

A. Definition/Concept of a Trust Receipt Transaction
1. Loan/Security Feature
2. Ownership of the Goods, Documents, and Instruments under a Trust Receipt
B. Rights of the Entruster
1. Validity of the Security Interest as Against the Creditors of the Entrustee/Innocent
Purchasers for Value
C. Obligations and Liabilities of the Entrustee
1. Payment/Delivery of Proceeds of Sale/Disposition of Goods, Documents or Instruments
2. Return of Goods, Documents or Instruments in Case of Sale
3. Liability for Loss of Goods, Documents or Instruments
4. Penal Sanction if Offender is a Corporation
D. Remedies Available
E. Warehouseman’s Lien

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III. Negotiable Instruments Law

A. Forms and Interpretation
1. Requisites of Negotiability
Sec. 1. Form of negotiable instruments. – An instrument to be negotiable must conform to the following
requirements:
a. It must be in writing and signed by the maker or drawer;
- Includes printed, and “writing” includes print. (Sec. 191)
- Signature may be in one’s handwriting, printed, engraved, lithographed, or
photographed, so long as they are adopted as the signature of the signer;
important: m/drwr used what he affixed as his own signature for authentication
(Sundiang & Aquino, 15)
b. Must contain an unconditional promise or order to pay a sum certain in money;
i. “Unconditional” though coupled with:
- An indication of a particular fund out of which reimbursement is to be made/a
particular account to be debited with the amount; or
- A statement of the transaction which gives rise to the instrument.
- NOTE: An order/promise to pay out of a particular fund is NOT unconditional. (Sec.
3, NIL)
ii. “Sum certain” although paid:
- With interest; or
- By stated installments; or
- By stated installments, with a provision that, upon default in payment of any
installment or of interest, the whole shall become due; (aka acceleration clauses) or
- With exchange, whether at a fixed rate or at the current rate; or
- With costs of collection or an attorney’s fee, in case payment shall not be made at
maturity (Sec. 2, NIL)
c. Must be payable on demand or at a fixed or determinable future time;
i. “Payable on demand”
- When so expressed to be payable on demand, or at sight, or on presentation; or
- In which no time for payment is expressed (Sec.7)
ii. “Determinable future time”
- At a fixed period after date or sight; or
- On or before a fixed or determinable future time specified therein; or
- On or at a fixed period after the occurrence of a specified event which is certain to
happen, though the time of happening be uncertain
- NOTE: An instrument payable upon a contingency is not negotiable, and the
happening of the event does not cure the defect. (Sec. 4)
d. Must be payable to order or to bearer; and
i. “Payable to order” – when drawn payable to the order of a specified person or to him or
his order. May be drawn payable to the order of:
- A payee who is not maker, drawer, or drawee; OOOOOR
- The drawer/maker; or
- The drawee; or
- Two or more payees jointly; or
- One or some of the several payees; or
- The holder of an office for the time being
ii. “Payable to bearer”
- When expressed to be so payable; or
- When it is payable to a person named therein; or
- When payable to the order of a fictitious or non-existing person, and such fact was
known to the person making it so payable; or
- When the name of the payee does not purport to be the name of any person; or
- When the only or last indorsement is an indorsement in blank
e. Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty

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- NOTE: BoE may be addressed to more than one drawee jointly (but NOT in the
alternative or in SUCCESSION) (Sec. 128)
2. Kinds of Negotiable Instruments
Bill of Exchange (Sec. 126) Promissory Note (Sec. 184)

 Unconditional order in writing  Unconditional promise in writing
 Addressed by one person to another  Made by one person to another
 Signed by the person giving it  Signed by the maker
 Requiring the person to whom it is  Engaging to pay on demand, or at a fixed or
addressed to pay on demand or at a fixed or determinable future time
determinable future time  A sum certain in money to order or to
 A sum certain in money to order or to bearer bearer.
 NOTE: Where note is drawn to maker’s own
order, it is not complete until indorsed by
him
3 parties 2 parties
 Drawer – draws BoE and orders drawee to  Maker – one who makes a PN and
pay a sum certain in money promises to pay the amount
 Drawee – the person to whom the order to  Payee
pay is addressed to
 Payee – the person to receive payment
Drawer secondarily liable Maker primarily liable
Generally: two presentments: acceptance and for Only one presentment (for payment)
payment
NOTE:
Sec. 17 (e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note,
the holder may treat it as either at his election;
Sec. 130. When bill may be treated as promissory note. – Where in a bill the drawer and drawee are
the same person, or where the drawee is a fictitious person, or a person not having capacity to
contract, the holder may treat the instrument, at his option, either as a bill of exchange or as a
promissory note.
B. Completion and Delivery

1. Insertion of Date
Sec. 13. When date may be inserted – Where an instrument expressed to be payable at a fixed period
after date is issued undated, or where the acceptance of an instrument payable at a fixed period after
sight is undated, any holder may insert therein the true date of issue or acceptance, and the
instrument shall be payable accordingly. The insertion of a wrong date does not avoid the
instrument in the hands of a subsequent holder in due course; but as to him, the date so inserted is to
be regarded as the true date.
2. Completion of Blanks (Incomplete but Delivered [ID])
Sec. 14. Blanks; when may be filled. – Where the instrument is wanting in any material particular,

COMMERCIAL LAW
the person in possession thereof has a prima facie authority to complete it by filling up the
blanks therein. And a signature on a blank paper delivered by the person making the signature in
order that the paper may be converted into a negotiable instrument operates as a prima facie authority
to fill it up as such for any amount. In order, however, that any such instrument when completed may
be enforced against any person who became a party thereto prior to its completion, it must be filled
up strictly in accordance with the authority given and within a reasonable time. But if any such
instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all
purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance with the
authority given and within a reasonable time.
3. Incomplete and Undelivered Instruments (IU)
Sec. 15. Incomplete instrument not delivered. – Where an incomplete instrument has not been
delivered, it will not, if completed and negotiated without authority, be a valid contract in the hands of
any holder, as against any person whose signature was placed thereon before delivery.
4. Complete but Undelivered Instruments (CU)
Sec. 16. Delivery; when effectual; when presumed. – Every contract on a negotiable instrument is
incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As
between immediate parties, and as regards a remote party other than a holder in due course, the
delivery, in order to be effectual, must be made either by or under the authority of the party making,
drawing, accepting, or indorsing, as the case may be; and, in such case, the delivery may be shown to
have been conditional, or for a special purpose only, and not for the purpose of transferring the
property in the instrument. But where the instrument is in the hands of a holder in due course, a valid
delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed.
And where the instrument is no longer in the possession of a party whose signature appears thereon, a
valid and intentional delivery by him is presumed until the contrary is proved.
C. Signature
1. Signing in Trade Name
Sec. 18. …One who signs in a trade/assumed name will be liable to the same extent as if he had
signed in his own name.
2. Signature of Agent
Sec. 19. The signature of any party may be made by a duly authorized agent. No particular form of
appointment is necessary for this purpose; and the authority of the agent may be established as in
other cases of agency.
Sec. 20. …not liable on the instrument if he was duly authorized; but the mere addition of words
describing him as an agent, or as filling a representative character, without disclosing his principal,
does not exempt him from personal liability.
3. Indorsement by Minor or Corporation
Sec. 22. Indorsement/assignment by a corp/infant passes the property therein, notwithstanding that
from want of capacity, the corporation/infant may incur no liability thereon.
4. Forgery

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Sec. 23. Forged signature; effect of. – When a signature is forged or made without the authority of the
person whose signature it purports to be, it is wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to enforce payment thereof against any party
thereto, can be acquired through or under such signature,
Unless the party against whom it is sought to enforce such right is precluded from setting up the
forgery or want of authority.
NOTES (Sundiang, 38-39)

 Only forged signature is wholly inoperative; not instrument itself nor genuine signatures
 In case of forgery of an indorsement of an instrument payable to order, who are NOT liable?
o One whose signature was forged AND
o Also the parties prior to such person
 Who are precluded from setting up forgery?
o Those who warrants like the acceptors, indorsers;
o Those who ratified the forgery express or implied;
o Those who were negligent
 GR: in case of forgery of the indorsement of the payee of the check, drawee bank cannot debit the
drawer’s account and that loss shall be borne by the drawee bank. Depositary/collecting bank is
liable to drawee in case of forged indorsement because it guarantees all prior indorsement.
o Subject to Q that the drawee himself was not negligent or guilty of such conduct as would estop
him from asserting the forged character of indorsement as against drawer.
D. Consideration
Sec. 24. Presumption of Consideration. – Every negotiable instrument is deemed prima facie to
have issued for a valuable consideration; and every person whose signature appears thereon to
have become a party thereto for value.
Sec. 25. Value, what constitutes. – Value is any consideration sufficient to support a simple contract.
An antecedent or pre-existing debt constitutes value; and is deemed such whether the instrument is
payable on demand or at a future time.
Sec. 28. Effect of want of consideration. – Absence or failure of consideration is a matter of defense
as against any person not a holder in due course; and partial failure of consideration is a
defense pro tanto, whether the failure is an ascertained and liquidated amount or otherwise.
E. Accommodation Party
Sec. 29. Liability of accommodation party. – An accommodation party is one who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person. Such a person is liable on the instrument to a
holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only
an accommodation party.
NOTE:
A corporation cannot act as an accommodation party. ULTRA VIRES! (Crisologo v. CA)
F. Negotiation
1. Distinguished from Assignment

COMMERCIAL LAW
Assignment Negotiation
Pertains to contracts in general Pertains to negotiable instruments
One who takes instrument by assignment takes A person, who takes the instrument by
the instrument subject to the defenses obtaining negotiation, takes it free from personal defenses
among the original parties available among the parties
2. Modes of Negotiation
Sec. 30. What constitutes negotiation. – An instrument is negotiated when it is transferred from one
person to another in such manner as to constitute the transferee the holder thereof.
If payable to bearer, it is negotiated by delivery;

if payable to order, it is negotiated by the indorsement of the holder completed by delivery.
3. Kinds of Indorsements
SPECIAL BLANK RESTRICTIVE QUALIFIED CONDITIONAL

Specifies the Specifies NO Either: Constitutes the Where an
person to whom, indorsee, and an  Prohibits indorser a mere indorsement is
or to whose order, instrument so further assignor of the conditional, the
the instrument is indorsed is negotiation of title to the party required to
to be payable, and payable to bearer, the instrument. It may pay the instrument
the indorsement and may be instrument; or be made by may disregard the
of such indorsee negotiated by  Constitutes adding to the condition and
is necessary to delivery (Sec. 34) the indorsee indorser’s make payment to
the further the agent of signature the the indorsee or his
negotiation of the Sec. 35. Blank the indorser; words “without transferee
instrument indorsement; how or recourse” or any whether the
(Sec. 34) changed to  Vests the title words of similar condition has
special in the import. Such an been fulfilled or
indorsement. – indorsee in indorsement does not. But any
The holder may trust for or to not impair the person to whom
convert a blank the use of negotiable an instrument so
indorsement into a some other character of the indorsed is
special persons instrument. (Sec. negotiated will
indorsement by 38) hold the same, or
writing over the But the mere the proceeds
signature of the absence of words thereof, subject to
indorser in blank implying power to the rights of the
any contract negotiate does not person indorsing
consistent with the make an conditionally.
character of the indorsement (Sec. 39)
indorsement. restrictive. (Sec.
36)
Sec. 37. Effect of

restrictive
indorsement;
rights of indorsee.
– A restrictive
indorsement
confers upon the
indorsee the right
–
(a) To receive
payment on

COMMERCIAL LAW
the instrument;
(b) To bring any
action thereon
that the
indorser could
bring;
(c) To transfer his
rights as such
indorsee,
where the form
of the
indorsement
authorizes him
to do so.
But all subsequent

indorsees acquire
only the title of the
first indorsee
under the
restrictive
indorsement.
G. Rights of the Holder

1. Holder in Due Course
A holder in due course is a holder who has taken the instrument under the following conditions: (COFI)
(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice that it has been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument
or defect in the title of the person negotiating it. (Sec. 52)
Every holder is deemed prima facie to be a holder in due course; but when it is shown that the title of
any person who has negotiated the instrument was defective, the burden is on the holder to prove that
he or some person under whom he claims acquired the title as holder in due course. But the last-
mentioned rule does not apply in favor of a party who became bound on the instrument prior to the
acquisition of such defective title. (Sec. 59)
2. Defenses Against the Holder
Sec. 57. Rights of holder in due course. – A holder in due course holds the instrument free from any
defect of title of prior parties, and free from defenses available to prior parties among themselves, and
may enforce payment of the instrument for the full amount thereof against all parties liable thereon.
 Free from PERSONAL, but NOT REAL defenses.
Sec. 58. When subject to original defenses. – In the hands of any holder other than a holder in due
course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. But a
holder who derives his title through a holder in due course, and who is not himself a party to any fraud

COMMERCIAL LAW
or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior
to the latter.
REAL DEFENSES PERSONAL DEFENSES

1. Minority (available only to the minor) 1. Failure or absence of consideration
2. Forgery 2. Illegal consideration
3. Non-delivery of Incomplete instrument 3. Non-delivery of complete instrument
4. Material alteration 4. Conditional delivery of complete
5. Ultra vires acts of a corporation instrument
6. Fraud in factum or in esse contractus 5. Fraud in inducement
- Present when a person is induced to - The person who signs the instrument
sign an instrument not knowing its intends to sign the name as a
character as a note or a bill. negotiable instrument, but was
7. Illegality – if declared void for any purpose induced to do so only through fraud
8. Vicious force or violence 6. Filling up blank not within authority
9. Want of authority 7. Duress or intimidation
10. Prescription (10 years) 8. Filling up blank beyond reasonable time
11. Discharge of insolvency 9. Transfer in break of faith
10. Mistake
11. Insertion of wrong date
12. Ante-dating/post-dating for illegal or
fraudulent purpose
(Sundiang & Aquino, 36)
H. Liabilities of Parties
MAKER DRAWER ACCEPTOR

(primary liability) (secondary liability) (and drawee who pays without
accepting the instrument
primary liability;)
Sec. 60. Liability of maker. – Sec. 61. Liability of drawer. – Sec. 62. Liability of acceptor. –
The maker of a negotiable The drawer by drawing the The acceptor, by accepting the
instrument, by making it, instrument admits the existence instrument, engages that he will
engages that he will pay it of the payee and his then pay it according to the tenor of
according to its tenor, and capacity to indorse; and his acceptance; and admits:
admits the existence of the engages that, on due (a) The existence of the drawer,
payee and his then capacity to presentment, the instrument will the genuineness of his
indorse. be accepted or paid, or both, signature, and his capacity and
according to its tenor, and that if authority to draw the instrument;
it be dishonored and the and
necessary proceedings on (b) The existence of the payee
dishonor be duly taken, he will and his then capacity to indorse.
pay the amount thereof to the
holder or to any subsequent
indorser who may be compelled
to pay it. But the drawer may
insert in the instrument an
express stipulation negativing or
limiting his own liability to the

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holder.
INDORSER
Sec. 63. When a person deemed indorser. – A person placing his signature upon an instrument
otherwise than as maker or acceptor, is deemed to be an indorser, unless he clearly indicates by
appropriate words his intention to be bound in some other capacity.
Sec. 68. Order in which indorsers are liable. – As respects one another, indorsers are liable prima facie
in the order in which they indorse; but evidence is admissible to show that, as between or among
themselves, they have agreed otherwise. Joint payees or joint indorsees who indorse are deemed to
indorse jointly and severally.
Sec. 64. Liability of irregular indorser. – Where a Sec. 67. Liability of indorser where paper
person, not otherwise a party to an instrument, negotiable by delivery. – Where a person places
places thereon his signature in blank before his indorsement on an instrument negotiable by
delivery, he is liable as indorser, in accordance delivery, he incurs all the liability of an indorser.
with the following rules:
(a) If the instrument is payable to the order of a

third person, he is liable to the payee and to all
subsequent parties.
(b) If the instrument is payable to the order of the
maker or drawer, or is payable to bearer, he is
liable to all parties subsequent to the maker or
drawer.
(c) If he signs for the accommodation of the
payee, he is liable to all parties subsequent to the
payee.
WARRANTIES
Sec. 65. Warranty; where negotiation by delivery Sec. 66. Liability of general indorser. – Every
and so forth. – Every person negotiating an indorser who indorses without qualification,
instrument by delivery or by a qualified warrants, to all subsequent holders in due course:
indorsement, warrants:
(a) That the instrument is genuine and in all (a) The matters and things mentioned in
respects what it purports to be; subdivisions (a), (b), and (c) of the next preceding
(b) That he has a good title to it; section; and
(c) That all prior parties had capacity to contract; (b) That the instrument is, at the time of his
(d) That he has no knowledge of any fact which indorsement, valid and subsisting;
would impair the validity of the instrument or And, in addition, he engages that, on due
render it valueless. presentment, it shall be accepted or paid, or both,
But when the negotiation is by delivery only, the as the case may be, according to its tenor, and
warranty extends in favor of no holder other than that if it be dishonored and the necessary
the immediate transferee. proceedings on dishonor be duly taken, he will
pay the amount thereof to the holder, or to any
The provisions of subdivision (c) of this section do subsequent indorser who may be compelled to
not apply to persons negotiating public or pay it.
corporation securities, other than bills and notes.
I. Presentment for Payment

1. Necessity of Presentment for Payment

COMMERCIAL LAW
Sec. 70. Effect of want of demand on principal debtor. – Presentment for payment is not necessary in
order to charge the person primarily liable on the instrument; but if the instrument is, by its terms,
payable at a special place, and he is able and willing to pay it there at maturity, such ability and
willingness are equivalent to a tender of payment upon his part. But, except as herein otherwise
provided, presentment for payment is necessary in order to charge the drawer and indorsers.
Sec. 79. When presentment not required to charge the drawer. – Presentment for payment is not
required in order to charge the drawer where he has no right to expect or require that the drawee
or acceptor will pay the instrument.
Sec. 80. When presentment not required to charge the indorser. – Presentment is not required in
order to charge an indorser where the instrument was made or accepted for his accommodation
and he has no reason to expect that the instrument will be paid if presented.
2. Parties to whom Presentment for Payment should be made
Sec. 76. Presentment where principal debtor is dead. – Where the person primarily liable on the
instrument is dead and no place of payment is specified, presentment for payment must be made to his
personal representative, if such there be, and if, with the exercise of reasonable diligence, he can be
found.
Sec. 77. Presentment to persons liable as partners. – Where the persons primarily liable on the
instrument are liable as partners, and no place of payment is specified, presentment for payment may
be made to any of them, even though there has been a dissolution of the firm.
Sec. 78. Presentment to joint debtors. – Where there are several persons not partners, primarily liable
on the instrument, and no place of payment is specified, presentment must be made to them all.
3. Dispensation with Presentment for Payment
Sec. 82. When presentment for payment is excused. – Presentment for payment is excused:
(a) Where after the exercise of reasonable diligence, presentment as required by this Act, cannot be
made;
(b) Where the drawee is a fictitious person;
(c) By waiver of presentment, expressed or implied.
4. Dishonor by Non-Payment
Sec. 83. When instrument dishonored by non-payment. – The instrument is dishonored by non-
payment when:
(a) It is duly presented for payment and payment is refused or cannot be obtained; or
(b) Presentment is excused and the instrument is overdue and unpaid.
Sec. 84. Liability of person secondarily liable, when instrument dishonored. – Subject to the provisions
of this Act, when the instrument is dishonored by non-payment, an immediate right of recourse to all
parties secondarily liable thereon accrues to the holder.

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J. Notice of Dishonor
1. Parties to be notified
Sec. 89. To whom notice of dishonor must be given. – Except as herein otherwise provided, when a
negotiable instrument has been dishonored by non-acceptance or non-payment, notice of dishonor
must be given to the drawer and to each indorser, and any drawer or indorser to whom such notice is
not given is discharged.
2. Parties who may give notice and dishonor
Sec. 90. By whom given. – The notice may be given by or on behalf of the holder, or by or on behalf of
any party to the instrument who might be compelled to pay it to the holder, and who, upon taking it up,
would have a right to reimbursement from the party to whom the notice is given.
NOTE: So (1) holder; (2) agent or rep of holder; (3) any party who may be compelled to pay like
indorsers; and (4) agent of any party who may be compelled
Sec. 91. Notice given by agent. – Notice of dishonor may be given by an agent either in his own name
or in the name of any party entitled to give notice, whether that party be his principal or not.
3. Effect of Notice
Sec. 92. Effect of notice given on behalf of holder. – Where notice is given by or on behalf of the
holder, it inures to the benefit of all subsequent holders and all prior parties who have a right of
recourse against the party to whom it is given.
Sec. 93. Effect where notice is given by party entitled thereto. – Where notice is given by or on behalf
of a party entitled to give notice, it inures to the benefit of the holder and all parties subsequent to the
party to whom notice is given.
4. Form of Notice
Sec. 96. Form of notice. – The notice may be in writing or merely oral, and may be given in any terms
which sufficiently identify the instrument, and indicate that it has been dishonored by non-acceptance
or non-payment. It may in all cases be given by delivering it personally or through the mails.
5. Waiver
Sec. 109. Waiver of notice. – Notice of dishonor may be waived either before the time of giving notice
has arrived or after the omission to give due notice, and the waiver may be expressed or implied.
6. Dispensation with Notice
Sec. 112. When notice is dispensed with. – Notice of dishonor is dispensed with when, after the
exercise of reasonable diligence, it cannot be given to or does not reach the parties to be charged.
Sec. 113. Delay in giving notice; how excused. – Delay in giving notice of dishonor is excused when
the delay is caused by circumstances beyond the control of the holder and not imputable to his default,
misconduct, or negligence. When the cause of delay ceases to operate, notice must be given with
reasonable diligence.
Sec. 114. When notice need not be given to drawer. – Notice of dishonor is not required to be given to

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the drawer in either of the following cases:

(a) Where the drawer and drawee are the same person;
(b) When the drawee is fictitious person or a person not having capacity to contract;
(c) When the drawer is the person to whom the instrument is presented for payment;
(d) Where the drawer has no right to expect or require that the drawee or acceptor will honor the
instrument;
(e) Where the drawer has countermanded payment.
Sec. 115. When notice need not be given to indorser. – Notice of dishonor is not required to be given to
an indorser in either of the following cases:
(a) When the drawee is a fictitious person or a person not having capacity to contract, and the indorser
was aware of that fact at the time he indorsed the instrument;
(b) Where the indorser is the person to whom the instrument is presented for payment;
(c) Where the instrument was made or accepted for his accommodation.
7. Effect of Failure to Give Notice
Sec. 117. Effect of omission to give notice of non-acceptance. – An omission to give notice of dishonor
by non-acceptance does not prejudice the rights of a holder in due course subsequent to the omission.
K. Discharge of Negotiable Instrument

1. Discharge of Negotiable Instrument
Sec. 119. Instrument; how discharged. – A negotiable instrument is discharged:
(a) By payment in due course by or on behalf of the principal debtor;

(b) By payment in due course by the party accommodated, where the instrument is made or accepted
for his accommodation;
(c) By the intentional cancellation thereof by the holder;
(d) By any other act which will discharge a simple contract for the payment of money;
(e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right.
2. Discharge of Parties Secondarily Liable

Sec. 120. When persons secondarily liable on the instrument are discharged. – A person secondarily
liable on the instrument is discharged:
(a) By any act which discharges the instrument;
(b) By the intentional cancellation of his signature by the holder;
(c) By the discharge of a prior party;
(d) By a valid tender or payment made by a prior party;
(e) By a release of the principal debtor, unless the holder’s right of recourse against the party
secondarily liable is expressly reserved;
(f) By any agreement binding upon the holder to extend the time of payment, or to postpone the
holder’s right to enforce the instrument, unless made with the assent of the party secondarily liable, or
unless the right of recourse against such party is expressly reserved.
3. Right of Party who Discharged Instrument
Sec. 121. Right of party who discharges instrument. – Where the instrument is paid by a party
secondarily liable thereon, it is not discharged; but the party so paying it is remitted to his former rights
as regard all prior parties, and he may strike out his own and all subsequent indorsements and against

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negotiate the instrument, except:
(a) Where it is payable to the order of a third person and has been paid by the drawer; and
(b) Where it was made or accepted for accommodation and has been paid by the party
accommodated.
4. Renunciation by Holder
Sec. 122. Renunciation by holder. – The holder may expressly renounce his rights against any party to
the instrument before, at, or after its maturity. An absolute and unconditional renunciation of his rights
against the principal debtor made at or after the maturity of the instrument discharges the instrument.
But a renunciation does not affect the rights of a holder in due course without notice. A renunciation
must be in writing, unless the instrument is delivered up to the person primarily liable thereon.
L. Material Alteration
1. Concept
Sec. 125. What constitutes a material alteration. – Any alteration which changes:
(a) The date;

(b) The sum payable, either for principal or interest;
(c) The time or place of payment:
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be made;
Or which adds a place of payment where no place of payment is specified, or any other change or
addition which alters the effect of the instrument in any respect is a material alteration.
Q: Is alteration of the serial number of a check a material alteration?

A: No. It does not change any of the items required to be stated under Section 1, NIL (PNB v. CA)
2. Effect of Material Alteration

Sec. 124. Alteration of instrument; effect of . – Where a negotiable instrument is materially altered
without the assent of all parties liable thereon, it is avoided, except as against a party who has himself
made, authorized, or assented to the alteration and subsequent indorsers.
But when an instrument has been materially altered and is in the hands of a holder in due course not a
party to the alteration, he may enforce payment thereof according to its original tenor
M. Acceptance
1. Definition
2. Manner
Sec. 132. Acceptance; how made and so forth. – The acceptance of a bill is the signification by the
drawee of his assent to the order of the drawee. The acceptance must be in writing and signed by the
drawee. It must not express that the drawee will perform his promise by any other means than the
payment of money.

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3. Time for Acceptance
Sec. 136. Time allowed drawee to accept. – The drawee is allowed twenty-four hours after
presentment in which to decide whether or not he will accept the bill; the acceptance, if given, dates as
of the day of presentation.
4. Rules Governing Acceptance
Sec. 138. Acceptance of incomplete bill. – A bill may be accepted before it has been signed by the
drawer, or while otherwise incomplete, or when it is overdue, or after it has been dishonored by a
previous refusal to accept, or by non-payment. But when a bill payable after sight is dishonored by non-
acceptance and the drawee subsequently accepts it, the holder, in the absence of any different
agreement, is entitled to have the bill accepted as of the date of the first presentment.
Sec. 139. Kinds of acceptance. – An acceptance is either general or qualified. A general acceptance
assents without qualification to the order of the drawer. A qualified acceptance in express terms varies
the effect of the bill as drawn.
Sec. 140. What constitutes a general acceptance. – An acceptance to pay at a particular place is a
general acceptance unless it expressly states that the bill is to be paid there only and not elsewhere.
Sec. 141. Qualified acceptance. – An acceptance is qualified which is:

(a) Conditional; that is to say, which makes payment by the acceptor dependent on the fulfillment of a
condition therein stated;
(b) Partial; that is to say, an acceptance to pay part only of the amount for which the bill is drawn;
(c) Local; that is to say, an acceptance to pay only at a particular place;
(d) Qualified as to time;
(e) The acceptance of some, one or more of the drawees but not of all.
Sec. 142. Rights of parties as to qualified acceptance. – The holder may refuse to take a qualified
acceptance and if he does not obtain an unqualified acceptance, he may treat the bill as dishonored by
non-acceptance. Where a qualified acceptance is taken, the drawer and indorsers are discharged from
liability on the bill, unless they have expressly or impliedly authorized the holder to take a qualified
acceptance, or subsequently assent thereto. When the drawer or an indorser receives notice of a
qualified acceptance, he must, within a reasonable time, express his dissent to the holder or he will be
deemed to have assented thereto.
N. Presentment for Acceptance

1. Time/Place/Manner of Presentment
Sec. 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.
NOTE (Sundiang & Aquino): Not necessary to present a check for acceptance because it is not one of
those required to be presented for acceptance under Section 143.
Sec. 145. Presentment; how made. – Presentment for acceptance must be made by or on behalf of the
holder at a reasonable hour, on a business day and before the bill is overdue, to the drawee or some
person authorized to accept or refuse acceptance on his behalf; and
(a) Where a bill is addressed to two or more drawees who are not partners, presentment must be made

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to them all, unless one has authority to accept or refuse acceptance for all, in which case presentment
may be made to him only;
(b) Where the drawee is dead, presentment may be made to his personal representative;
(c) Where the drawee has been adjudged a bankrupt or an insolvent, or has made an assignment for
the benefit of creditors, presentment may be made to him or to his trustee or assignee.
Sec. 146. On what days presentment may be made. – A bill may be presented for acceptance on any
day on which negotiable instruments may be presented for payment under the provisions of Sections
72 and 85 of this Act. When Saturday is not otherwise a holiday, presentment for acceptance may be
made before twelve o’clock, noon, on that day.
2. Effect of Failure to Make Presentment
Sec. 144. When failure to present releases drawer and indorser. – Except as herein otherwise
provided, the holder of a bill which is required by the next preceding section to be presented for
acceptance must either present it for acceptance or negotiate it within a reasonable time. If he fails to
do so, the drawer and all indorsers are discharged.
3. Dishonor by Non-Acceptance
Sec. 149. When dishonored by non-acceptance. – A bill is dishonored by non-acceptance:
(a) When it is duly presented for acceptance and such an acceptance as is prescribed by this Act is
refused or can not be obtained;
(b) When presentment for acceptance is excused, and the bill is not accepted.
O. Promissory Notes (see above, Sec. 184)

P. Checks
1. Definition
Sec. 185. Check, defined. – A check is a bill of exchange drawn on a bank payable on demand. Except
as herein otherwise provided, the provisions of this Act applicable to a bill of exchange payable on
demand apply to a check.
2. Kinds (Sundiang & Aquino, 66-69)
Cashier’s Certified Crossed Memorandum Traveler’s

A BoE drawn by a One drawn by a Done by writing Check on which Instruments
bank upon itself, depositor upon two (2) parallel the word purchased from
and is accepted funds to his credit lines diagonally on “memorandum” is banks, express
by its issuance. in a bank which a the left top portion written, signifying companies, or the
proper officer of of the checks. The that the drawer like, in various
Manager’s check the bank certifies crossing is special engages to pay denominations,
is of the same will be paid when where the name the bona fide which can be
nature, although duty of a bank or a holder absolutely used like cash
instead of being business and not upon a upon second
signed by the (From Magis 2016 institution is condition to signature by the
cashier, it is Summer written between pay upon purchaser.
signed by the Reviewer) two (2) parallel presentment or
manager who lines, which non-payment. Has the
signs the same for A check on which means that the characteristics of

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the bank the drawee bank drawee should Such a check is a cashier’s check
has written an pay only with the evidence of debt of the issuer.
agreement intervention of that against the
whereby it company. The drawer, and Requires the
undertakes to pay crossing is although it may signature of the
the check at any general where the not be intended to purchaser at the
future time when words written be presented, has time he buys it
presented for between two (2) the same effect as and also at the
payment, such parallel lines are an ordinary check, time he uses it –
as by stamping on “and Co.” or “for and if passed to a when he obtains
the check the payee’s account third person, will the check from the
word “certified” only” (Associated be valid in his bank and when he
and underneath it Bank v. CA) hands like any delivers the same
is written the other check. to the
signature of the (From Magis 2016 (People v. establishment that
cashier. Summer Nitafan) will be paid
Reviewer) thereby.
EFFECTS OF
CERTIFICATION: EFFECTS:
a. Equivalent to
acceptance and is • The check may
the operative act not be encashed
that makes the but
drawee bank only deposited in
liable the bank
b. It operates as • The check may

an assignment of be negotiated only
the funds of once
the drawer in the – to one who has
hands of the an account with a
drawee bank bank
c. If obtained by • The act of

the holder, it crossing the
discharges the check serves as
persons warning to the
secondarily liable holder that the
check has
been issued for a
definite purpose
so that he must
inquire if he has
received the
check pursuant to
that purpose,
otherwise, he is
not a holder in
due course
OTHER NOTES:
• A holder of
crossed-checks is
obliged to

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inquire as to the
purpose for which
the checks were
issued. (Bataan
Cigar v. CA,
G.R. No. 93048,
March 3, 1994)
• The law does not

require the payee
to be interested in
the obligation in
consideration
for which the
check was issued.
The cause
or reason of
issuance is
inconsequential
(in connection
with BP 22) in
determining
criminal liability.
(Ngo v. People,
G.R. No.
155815, July 14,
2004)
• When a payee of
a crossed check
issued with the
notation ”for
payee’s account
only” the proceeds
of the said check
belong only
to the payee.
Failure of the
collecting bank
to follow said
notation will make
it liable in case it
allows it to be
withdrawn by an
unauthorized
individual.
(Associated Bank
v. CA, G.R. No.
89802, May 7,
1992)
3. Presentment for Payment

i. Time

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Sec. 186. Within what time a check must be presented. – A check must be presented for payment
within a reasonable time after its issue or the drawer will be discharged from liability thereon to the
extent of the loss caused by the delay.
ii. Effect of Delay

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VIII. Banking Laws
A. The New Central Bank Act ( R.A. No. 7653)
1. State Policies
- Sec. 1, New Central Bank Act (NCBA)
Section 1. Declaration of Policy. - The State shall maintain a central monetary authority that shall
function and operate as an independent and accountable body corporate in the discharge of its
mandated responsibilities concerning money, banking and credit. In line with this policy, and
considering its unique functions and responsibilities, the central monetary authority established under
this Act, while being a government-owned corporation, shall enjoy fiscal and administrative autonomy.
2. Responsibility and Primary Objective
- Sec. 3, NCBA
Section 3. Responsibility and Primary Objective. - The Bangko Sentral shall provide policy
directions in the areas of money, banking, and credit. It shall have supervision over the operations of
banks and exercise such regulatory powers as provided in this Act and other pertinent laws over the
operations of finance companies and non-bank financial institutions performing quasi-banking
functions, hereafter referred to as quasi-banks, and institutions performing similar functions.
The primary objective of the Bangko Sentral is to maintain price stability conducive to a
balanced and sustainable growth of the economy. It shall also promote and maintain monetary stability
and the convertibility of the peso.
- Functions as Banker and Financial Advisor of the Government – Secs.

110-115, Sec. 123, NCBA
Section 110. Designation of Bangko Sentral as Banker of the Government. - The Bangko Sentral
shall act as a banker of the Government, its political subdivisions and instrumentalities.
Section 111. Representation with the International Monetary Fund. - The Bangko Sentral shall
represent the Government in all dealings, negotiations and transactions with the International Monetary
Fund and shall carry such accounts as may result from Philippine membership in, or operations with,
said Fund.
Section 112. Representation with Other Financial Institutions. - The Bangko Sentral may be
authorized by the Government to represent it in dealings, negotiations or transactions with the
International Bank for Reconstruction and Development and with other foreign or international financial
institutions or agencies. The President may, however, designate any of his other financial advisors to
jointly represent the Government in such dealings, negotiations or transactions.
Section 113. Official Deposits. - The Bangko Sentral shall be the official depository of the
Government, its political subdivisions and instrumentalities as well as of government-owned or
controlled corporations and, as a general policy, their cash balances should be deposited with the
Bangko Sentral, with only minimum working balances to be held by government-owned banks and
such other banks incorporated in the Philippines as the Monetary Board may designate, subject to
such rules and regulations as the Board may prescribe: Provided, That such banks may hold deposits
of the political subdivisions and instrumentalities of the Government beyond their minimum working

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balances whenever such subdivisions or instrumentalities have outstanding loans with said banks.
The Bangko Sentral may pay interest on deposits of the Government or of its political
subdivisions and instrumentalities, as well as on deposits of banks with the Bangko Sentral.
Section 114. Fiscal Operations. - The Bangko Sentral shall open a general cash account for
the Treasurer of the Philippines, in which the liquid funds of the Government shall be deposited.
Transfers of funds from this account to other accounts shall be made only upon order of the
Treasurer of the Philippines.
Section 115. Other Banks as Agents of the Bangko Sentral. - In the performance of its
functions as fiscal agent, the Bangko Sentral may engage the services of other government-owned and
controlled banks and of other domestic banks for operations in localities at home or abroad in which
the Bangko Sentral does not have offices or agencies adequately equipped to perform said operations:
Provided, however, That for fiscal operations in foreign countries, the Bangko Sentral may engage the
services of foreign banking and financial institutions.
Section 123. Financial Advice on Official Credit Operations. - Before undertaking any credit
operation abroad, the Government, through the Secretary of Finance, shall request the opinion, in
writing, of the Monetary Board on the monetary implications of the contemplated action. Such opinions
must similarly be requested by all political subdivisions and instrumentalities of the Government before
any credit operation abroad is undertaken by them.
The opinion of the Monetary Board shall be based on the gold and foreign exchange resources
and obligations of the nation and on the effects of the proposed operation on the balance of payments
and on monetary aggregates.
Whenever the Government, or any of its political subdivisions or instrumentalities, contemplates

borrowing within the Philippines, the prior opinion of the Monetary Board shall likewise be requested in
order that the Board may render an opinion on the probable effects of the proposed operation on
monetary aggregates, the price level, and the balance of payments.
- No Injunction Rule on Supervisory Powers of BSP – Sec 25, NCBA
Section 25. Supervision and Examination. - The Bangko Sentral shall have supervision over, and
conduct periodic or special examinations of, banking institutions and quasi-banks, including their
subsidiaries and affiliates engaged in allied activities.
For purposes of this section, a subsidiary means a corporation more than fifty percent (50%) of
the voting stock of which is owned by a bank or quasi-bank and an affiliate means a corporation the
voting stock of which, to the extent of fifty percent (50%) or less, is owned by a bank or quasi-bank or
which is related or linked to such institution or intermediary through common stockholders or such
other factors as may be determined by the Monetary Board.
The department heads and the examiners of the supervising and/or examining departments are
hereby authorized to administer oaths to any director, officer, or employee of any institution under their
respective supervision or subject to their examination and to compel the presentation of all books,
documents, papers or records necessary in their judgment to ascertain the facts relative to the true
condition of any institution as well as the books and records of persons and entities relative to or in
connection with the operations, activities or transactions of the institution under examination, subject to
the provision of existing laws protecting or safeguarding the secrecy or confidentiality of bank deposits
as well as investments of private persons, natural or juridical, in debt instruments issued by the
Government.

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No restraining order or injunction shall be issued by the court enjoining the Bangko Sentral from
examining any institution subject to supervision or examination by the Bangko Sentral, unless there is
convincing proof that the action of the Bangko Sentral is plainly arbitrary and made in bad faith and the
petitioner or plaintiff files with the clerk or judge of the court in which the action is pending a bond
executed in favor of the Bangko Sentral, in an amount to be fixed by the court. The provisions of Rule
58 of the New Rules of Court insofar as they are applicable and not inconsistent with the provisions of
this section shall govern the issuance and dissolution of the restraining order or injunction
contemplated in this section.
3. Monetary Board - Powers and Functions
- Secs. 6-16, NCBA
Section 6. Composition of the Monetary Board. - The powers and functions of the Bangko Sentral
shall be exercised by the Bangko Sentral Monetary Board, hereafter referred to as the Monetary Board,
composed of seven (7) members appointed by the President of the Philippines for a term of six (6)
years.
The seven (7) members are:
(a) the Governor of the Bangko Sentral, who shall be the Chairman of the Monetary Board. The
Governor of the Bangko Sentral shall be head of a department and his appointment shall be subject to
confirmation by the Commission on Appointments. Whenever the Governor is unable to attend a
meeting of the Board, he shall designate a Deputy Governor to act as his alternate: Provided, That in
such event, the Monetary Board shall designate one of its members as acting Chairman;
(b) a member of the Cabinet to be designated by the President of the Philippines. Whenever the
designated Cabinet Member is unable to attend a meeting of the Board, he shall designate an
Undersecretary in his Department to attend as his alternate; and
(c) five (5) members who shall come from the private sector, all of whom shall serve full-time:
Provided, however, That of the members first appointed under the provisions of this subsection, three
(3) shall have a term of six (6) years, and the other two (2), three (3) years.
No member of the Monetary Board may be reappointed more than once.
Section 7. Vacancies. - Any vacancy in the Monetary Board created by the death, resignation,
or removal of any member shall be filled by the appointment of a new member to complete the
unexpired period of the term of the member concerned.
Section 8. Qualifications. - The members of the Monetary Board must be natural-born citizens
of the Philippines, at least thirty-five (35) years of age, with the exception of the Governor who should
at least be forty (40) years of age, of good moral character, of unquestionable integrity, of known
probity and patriotism, and with recognized competence in social and economic disciplines.
Section 9. Disqualifications. - In addition to the disqualifications imposed by Republic Act No.

6713, a member of the Monetary Board is disqualified from being a director, officer, employee,
consultant, lawyer, agent or stockholder of any bank, quasi-bank or any other institution which is
subject to supervision or examination by the Bangko Sentral, in which case such member shall resign
from, and divest himself of any and all interests in such institution before assumption of office as
member of the Monetary Board.
The members of the Monetary Board coming from the private sector shall not hold any other
public office or public employment during their tenure.

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No person shall be a member of the Monetary Board if he has been connected directly with any
multilateral banking or financial institution or has a substantial interest in any private bank in the
Philippines, within one (1) year prior to his appointment; likewise, no member of the Monetary Board
shall be employed in any such institution within two (2) years after the expiration of his term except
when he serves as an official representative of the Philippine Government to such institution.
Section 10. Removal. - The President may remove any member of the Monetary Board for any
of the following reasons:
(a) If the member is subsequently disqualified under the provisions of Section 8 of this Act; or
(b) If he is physically or mentally incapacitated that he cannot properly discharge his duties and
responsibilities and such incapacity has lasted for more than six (6) months; or
(c) If the member is guilty of acts or operations which are of fraudulent or illegal character or which
are manifestly opposed to the aims and interests of the Bangko Sentral; or
(d) If the member no longer possesses the qualifications specified in Section 8 of this Act.
Section 11. Meetings. - The Monetary Board shall meet at least once a week. The Board may
be called to a meeting by the Governor of the Bangko Sentral or by two (2) other members of the
Board.
The presence of four (4) members shall constitute a quorum: Provided, That in all cases the
Governor or his duly designated alternate shall be among the four (4).
Unless otherwise provided in this Act, all decisions of the Monetary Board shall require the
concurrence of at least four (4) members.
The Bangko Sentral shall maintain and preserve a complete record of the proceedings and
deliberations of the Monetary Board, including the tapes and transcripts of the stenographic notes,
either in their original form or in microfilm.
Section 12. Attendance of the Deputy Governors. - The Deputy Governors may attend the
meetings of the Monetary Board with the right to be heard.
Section 13. Salary. - The salary of the Governor and the members of the Monetary Board from
the private sector shall be fixed by the President of the Philippines at a sum commensurate to the
importance and responsibility attached to the position.
Section 14. Withdrawal of Persons Having a Personal Interest. - In addition to the

requirements of Republic Act No. 6713, any member of the Monetary Board with personal or pecuniary
interest in any matter in the agenda of the Monetary Board shall disclose his interest to the Board and
shall retire from the meeting when the matter is taken up. The decision taken on the matter shall be
made public. The minutes shall reflect the disclosure made and the retirement of the member
concerned from the meeting.
Section 15. Exercise of Authority. - In the exercise of its authority, the Monetary Board shall:
(a) issue rules and regulations it considers necessary for the effective discharge of the
responsibilities and exercise of the powers vested upon the Monetary Board and the Bangko Sentral.
The rules and regulations issued shall be reported to the President and the Congress within fifteen (15)
days from the date of their issuance;
(b) direct the management, operations, and administration of the Bangko Sentral, reorganize its

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personnel, and issue such rules and regulations as it may deem necessary or convenient for this
purpose. The legal units of the Bangko Sentral shall be under the exclusive supervision and control of
the Monetary Board;
(c) establish a human resource management system which shall govern the selection, hiring,
appointment, transfer, promotion, or dismissal of all personnel. Such system shall aim to establish
professionalism and excellence at all levels of the Bangko Sentral in accordance with sound principles
of management.
A compensation structure, based on job evaluation studies and wage surveys and subject to the
Board's approval, shall be instituted as an integral component of the Bangko Sentral's human resource
development program: Provided, That the Monetary Board shall make its own system conform as
closely as possible with the principles provided for under Republic Act No. 6758: Provided, however,
That compensation and wage structure of employees whose positions fall under salary grade 19 and
below shall be in accordance with the rates prescribed under Republic Act No. 6758.
On the recommendation of the Governor, appoint, fix the remunerations and other emoluments,
and remove personnel of the Bangko Sentral, subject to pertinent civil service laws: Provided, That the
Monetary Board shall have exclusive and final authority to promote, transfer, assign, or reassign
personnel of the Bangko Sentral and these personnel actions are deemed made in the interest of the
service and not disciplinary: Provided, further, That the Monetary Board may delegate such authority to
the Governor under such guidelines as it may determine.
(d) adopt an annual budget for and authorize such expenditures by the Bangko Sentral as are in
the interest of the effective administration and operations of the Bangko Sentral in accordance with
applicable laws and regulations; and
(e) indemnify its members and other officials of the Bangko Sentral, including personnel of the
departments performing supervision and examination functions against all costs and expenses
reasonably incurred by such persons in connection with any civil or criminal action, suit or proceedings
to which he may be, or is, made a party by reason of the performance of his functions or duties, unless
he is finally adjudged in such action or proceeding to be liable for negligence or misconduct.
In the event of a settlement or compromise, indemnification shall be provided only in connection

with such matters covered by the settlement as to which the Bangko Sentral is advised by external
counsel that the person to be indemnified did not commit any negligence or misconduct.
The costs and expenses incurred in defending the aforementioned action, suit or proceeding
may be paid by the Bangko Sentral in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of the member, officer, or employee to repay the amount
advanced should it ultimately be determined by the Monetary Board that he is not entitled to be
indemnified as provided in this subsection.
Section 16. Responsibility. - Members of the Monetary Board, officials, examiners, and
employees of the Bangko Sentral who willfully violate this Act or who are guilty of negligence, abuses
or acts of malfeasance or misfeasance or fail to exercise extraordinary diligence in the performance of
his duties shall be held liable for any loss or injury suffered by the Bangko Sentral or other banking
institutions as a result of such violation, negligence, abuse, malfeasance, misfeasance or failure to
exercise extraordinary diligence.
Similar responsibility shall apply to members, officers, and employees of the Bangko Sentral
for: (1) the disclosure of any information of a confidential nature, or any information on the discussions
or resolutions of the Monetary Board, or about the confidential operations of the Bangko Sentral,
unless the disclosure is in connection with the performance of official functions with the Bangko
Sentral, or is with prior authorization of the Monetary Board or the Governor; or (2) the use of such

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information for personal gain or to the detriment of the Government, the Bangko Sentral or third parties:
Provided, however, That any data or information required to be submitted to the President and/or the
Congress, or to be published under the provisions of this Act shall not be considered confidential.
4. How BSP Handles Banks in Distress

o Note: Dean Hofi says read the following provisions from new PDIC Charter (RA 10846):
Sections 8-16), coupled with Section 29 of the NCBA.
o Note: “Resolution” is a new thing under the PDIC Charter where PDIC is going to try to
sell the bank (Sec 11, PDIC Charter)
o Note: under PDIC Charter, if you’re put under Receivership: CLOSED ka na (Sec 12),
NO MORE REHABILITATION, unlike Sec 30 of the NCBA. See also: Sec 13.
o For summarized version of everything: SEE Dean Hofi’s flowchart for Banks in
Distress below.
 Context: your first step: look at “Corrective Measures (MB).” GR: Things start
there; XPN: you voluntarily go straight to LIQUIDATION. Liquidation is your
WORST CASE SCENARIO.
4.1. No Injunction Rule on Conservatorship, Receivership

and Liquidation - Sec. 30, NCBA
Conservatorship – remedy of the BSP when you don’t have the “ready money”

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Section 30. Proceedings in Receivership and Liquidation. - Whenever, upon report of the head of
the supervising or examining department, the Monetary Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided,
That this shall not include inability to pay caused by extraordinary demands induced by financial panic
in the banking community;
(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or
(c) cannot continue in business without involving probable losses to its depositors or creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has become final, involving
acts or transactions which amount to fraud or a dissipation of the assets of the institution; in which
cases, the Monetary Board may summarily and without need for prior hearing forbid the institution from
doing business in the Philippines and designate the Philippine Deposit Insurance Corporation as
receiver of the banking institution.
For a quasi-bank, any person of recognized competence in banking or finance may be

designed as receiver.
The receiver shall immediately gather and take charge of all the assets and liabilities of the
institution, administer the same for the benefit of its creditors, and exercise the general powers of a
receiver under the Revised Rules of Court but shall not, with the exception of administrative
expenditures, pay or commit any act that will involve the transfer or disposition of any asset of the
institution: Provided, That the receiver may deposit or place the funds of the institution in non-
speculative investments. The receiver shall determine as soon as possible, but not later than ninety
(90) days from take over, whether the institution may be rehabilitated or otherwise placed in such a
condition so that it may be permitted to resume business with safety to its depositors and creditors and
the general public: Provided, That any determination for the resumption of business of the institution
shall be subject to prior approval of the Monetary Board.
If the receiver determines that the institution cannot be rehabilitated or permitted to resume
business in accordance with the next preceding paragraph, the Monetary Board shall notify in writing
the board of directors of its findings and direct the receiver to proceed with the liquidation of the
institution. The receiver shall:
(1) file ex parte with the proper regional trial court, and without requirement of prior notice or any
other action, a petition for assistance in the liquidation of the institution pursuant to a liquidation plan
adopted by the Philippine Deposit Insurance Corporation for general application to all closed banks. In
case of quasi-banks, the liquidation plan shall be adopted by the Monetary Board. Upon acquiring
jurisdiction, the court shall, upon motion by the receiver after due notice, adjudicate disputed claims
against the institution, assist the enforcement of individual liabilities of the stockholders, directors and
officers, and decide on other issues as may be material to implement the liquidation plan adopted. The
receiver shall pay the cost of the proceedings from the assets of the institution.
(2) convert the assets of the institutions to money, dispose of the same to creditors and other
parties, for the purpose of paying the debts of such institution in accordance with the rules on
concurrence and preference of credit under the Civil Code of the Philippines and he may, in the name
of the institution, and with the assistance of counsel as he may retain, institute such actions as may be
necessary to collect and recover accounts and assets of, or defend any action against, the institution.
The assets of an institution under receivership or liquidation shall be deemed in custodia legis in the
hands of the receiver and shall, from the moment the institution was placed under such receivership or
liquidation, be exempt from any order of garnishment, levy, attachment, or execution.
The actions of the Monetary Board taken under this section or under Section 29 of this Act shall

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be final and executory, and may not be restrained or set aside by the court except on petition for
certiorari on the ground that the action taken was in excess of jurisdiction or with such grave abuse of
discretion as to amount to lack or excess of jurisdiction. The petition for certiorari may only be filed by
the stockholders of record representing the majority of the capital stock within ten (10) days from
receipt by the board of directors of the institution of the order directing receivership, liquidation or
conservatorship.
The designation of a conservator under Section 29 of this Act or the appointment of a receiver
under this section shall be vested exclusively with the Monetary Board. Furthermore, the designation of
a conservator is not a precondition to the designation of a receiver.
a. Conservatorship
- Sec. 29, NCBA
Section 29. Appointment of Conservator. - Whenever, on the basis of a report submitted by the
appropriate supervising or examining department, the Monetary Board finds that a bank or a quasi-
bank is in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed
adequate to protect the interest of depositors and creditors, the Monetary Board may appoint a
conservator with such powers as the Monetary Board shall deem necessary to take charge of the
assets, liabilities, and the management thereof, reorganize the management, collect all monies and
debts due said institution, and exercise all powers necessary to restore its viability. The conservator
shall report and be responsible to the Monetary Board and shall have the power to overrule or revoke
the actions of the previous management and board of directors of the bank or quasi-bank.
The conservator should be competent and knowledgeable in bank operations and

management. The conservatorship shall not exceed one (1) year.
The conservator shall receive remuneration to be fixed by the Monetary Board in an amount not
to exceed two-thirds (2/3) of the salary of the president of the institution in one (1) year, payable in
twelve (12) equal monthly payments: Provided, That, if at any time within one-year period, the
conservatorship is terminated on the ground that the institution can operate on its own, the conservator
shall receive the balance of the remuneration which he would have received up to the end of the year;
but if the conservatorship is terminated on other grounds, the conservator shall not be entitled to such
remaining balance. The Monetary Board may appoint a conservator connected with the Bangko
Sentral, in which case he shall not be entitled to receive any remuneration or emolument from the
Bangko Sentral during the conservatorship. The expenses attendant to the conservatorship shall be
borne by the bank or quasi-bank concerned.
The Monetary Board shall terminate the conservatorship when it is satisfied that the institution
can continue to operate on its own and the conservatorship is no longer necessary. The
conservatorship shall likewise be terminated should the Monetary Board, on the basis of the report of
the conservator or of its own findings, determine that the continuance in business of the institution
would involve probable loss to its depositors or creditors, in which case the provisions of Section 30
shall apply.
b. Closure
- “Close Now-Hear Later” Scheme – Vivas v. Monetary Board of

BSP and PDIC, GR No. 191424, Aug. 7, 2013
c. Receivership

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- Sec. 30, NCBA
Under PDIC Charter: closed ka na. Section 12 of the PDIC Charter (no more rehabilitation, unlike Section
30 of NCBA); check also Section 13
d. Liquidation
- Sec. 30, NCBA
5.2 Effects of Receivership/Liquidation
- Lipana v. Development Bank of Rizal. GR No. 73884, Sept. 24, 1987

- Manalo v. CA, GR No. 141297, Oct. 8, 2001
5.3. Judicial Review
- Sec. 30, NCBA
6. How the BSP Handles Exchange Crisis
a. Legal Tender Power
- Sec. 52, NCBA
Section 52. Legal Tender Power. - All notes and coins issued by the Bangko Sentral shall be fully
guaranteed by the Government of the Republic of the Philippines and shall be legal tender in the
Philippines for all debts, both public and private: Provided, however, That, unless otherwise fixed by the
Monetary Board, coins shall be legal tender in amounts not exceeding Fifty pesos (P50.00) for
denominations of Twenty-five centavos and above, and in amounts not exceeding Twenty pesos
(P20.00) for denominations of Ten centavos or less
- Sec. 50, NCBA - “Exclusive Issue Power”
Section 50. Exclusive Issue Power. - The Bangko Sentral shall have the sole power and authority to
issue currency, within the territory of the Philippines. No other person or entity, public or private, may
put into circulation notes, coins or any other object or document which, in the opinion of the Monetary
Board, might circulate as currency, nor reproduce or imitate the facsimiles of Bangko Sentral notes
without prior authority from the Bangko Sentral.
The Monetary Board may issue such regulations as it may deem advisable in order to prevent
the circulation of foreign currency or of currency substitutes as well as to prevent the reproduction of
facsimiles of Bangko Sentral notes.
The Bangko Sentral shall have the authority to investigate, make arrests, conduct searches and
seizures in accordance with law, for the purpose of maintaining the integrity of the currency.
Violation of this provision or any regulation issued by the Bangko Sentral pursuant thereto shall
constitute an offense punishable by imprisonment of not less than five (5) years but not more than ten
(10) years. In case the Revised Penal Code provides for a greater penalty, then that penalty shall be
imposed.
 Peso can be used to settle debt;

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 Only BSP can issue notes and coins.

 Legal tender power is also tool of BSP as to inflation by issuing debt
instruments.
 (PART 6 FOREIGN EX OP)
o Engagement in purchase and sell of foreign exchange
o Only with banks, government, international financial entities,
foreign govt, other authorized exchange entities
o BSP has emergency powers as to FoRex (Sec 72 of NCBA);
restriction of forex; ex: use of dollar not allowed
b. Rate of Exchange
- Sec. 74, NCBA
Section 74. Exchange Rates. - The Monetary Board shall determine the exchange rate policy of the
country.
The Monetary Board shall determine the rates at which the Bangko Sentral shall buy and sell
spot exchange, and shall establish deviation limits from the effective exchange rate or rates as it may
deem proper. The Bangko Sentral shall not collect any additional commissions or charges of any sort,
other than actual telegraphic or cable costs incurred by it.
The Monetary Board shall similarly determine the rates for other types of foreign exchange
transactions by the Bangko Sentral, including purchases and sales of foreign notes and coins, but the
margins between the effective exchange rates and the rates thus established may not exceed the
corresponding margins for spot exchange transactions by more than the additional costs or expenses
involved in each type of transactions.

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B. Secrecy of Bank Deposits (R.A. No. 1405, as amended)
1. Purpose
- Sec. 1, RA No. 1405
SECTION 1. It is hereby declared to be the policy of the Government to give encouragement to the
people to deposit their money in banking institutions and to discourage private hoarding so that the
same may be properly utilized by banks in authorized loans to assist in the economic development of
the country.
2. Prohibited Acts
- Secs. 2 and 3, RA No. 1405
SECTION 2. 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 upon
written permission of the 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.
SECTION 3. It shall be unlawful for any official or employee of a banking institution to disclose to any
person other than those mentioned in Section two hereof any information concerning said deposits.
3. Deposits Covered
- Sec. 2, RA No. 1405
Q: Is a trust account covered?

A: Yes, applies to all sorts of bank deposits including trust accounts. (Case)
4. Exceptions
4.1 Sec. 2, RA No. 1405
- Dona Adela Export International, Inc. v. Trade and

Industry Investment Dev. Corp. and BPI, GR No. 201931,
Feb. 11, 2015
- Ejercito v. Sandiganbayan, GR Nos. 157294-95, Nov.

30, 2006
4.2 Other Exceptions
1. Anti-Graft and Corrupt Practices Act
- Bangko Filipino v. Purisima, No. L-56429, May 28,

1988
2. National Internal Revenue Code (NIRC)
- Sec. 6 [f], NIRC

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SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for
Tax Administration and Enforcement. -
(F) Authority of the Commissioner to Inquire into Bank Deposit Accounts and Other Related information
held by Financial Institutions. [4] - Notwithstanding any contrary provision of Republic Act No. 1405,
Republic Act No. 6426, otherwise known as the Foreign Currency Deposit Act of the Philippines, and
other general or special laws, the Commissioner is hereby authorized to inquire into the bank deposits
and other related information held by financial institutions of:
(1) A decedent to determine his gross estate; and
(2) Any taxpayer who has filed an application for compromise of his tax liability under Section 204(A)(2) of
this Code by reason of financial incapacity to pay his tax liability.
In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his
financial position demonstrates a clear inability to pay the tax assessed, his application shall not be
considered unless and until he waives in writing his privilege under Republic Act No. 1405, Republic Act
No. 6426, otherwise known as the Foreign Currency Deposit Act of the Philippines, or under other
general or special laws, and such waiver shall constitute the authority of the Commissioner to inquire into
the bank deposits of the taxpayer.
(3) A specific taxpayer or taxpayers subject of a request for the supply of tax information from a foreign
tax authority pursuant to an international convention or agreement on tax matters to which the Philippines
is a signatory or a party of: Provided, That the information obtained from the banks and other financial
institutions may be used by the Bureau of Internal Revenue for tax assessment, verification, audit and
enforcement purposes.
In case of a request from a foreign tax authority for tax information held by banks and financial
institutions, the exchange of information shall be done in a secure manner to ensure confidentiality
thereof under such rules and regulations as may be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner.
The Commissioner shall provide the tax information obtained from banks and financial institutions
pursuant to a convention or agreement upon request of the foreign tax authority when such requesting
foreign tax authority has provided the following information to demonstrate the foreseeable relevance of
the information to the request:
(a) The identity of the person under examination or investigation;
(b) A statement of the information being sought, including its nature and the form in which the said foreign
tax authority prefers to receive the information from the Commissioner;
(c) The tax purpose for which the information is being sought;
(d) Grounds for believing that the information requested is held in the Philippines or is in the possession
or control of a person within the jurisdiction of the Philippines;
(e) To the extent known, the name and address of any person believed to be in possession of the
requested information;
(f) A statement that the request is in conformity with the law and administrative practices of the said
foreign tax authority, such that if the requested information was within the jurisdiction of the said foreign
tax authority then it would be able to obtain the information under its laws or in the normal course of
administrative practice and that it is in conformity with a convention or international agreement; and

COMMERCIAL LAW
(g) A statement that the requesting foreign tax authority has exhausted all means available in its own
territory to obtain the information, except those that would give rise to disproportionate difficulties.
The Commissioner shall forward the information as promptly as possible to the requesting foreign tax
authority. To ensure a prompt response, the Commissioner shall confirm receipt of a request in writing to
the requesting tax authority and shall notify the latter of deficiencies in the request, if any, within sixty (60)
days from receipt of the request.
If the Commissioner is unable to obtain and provide the information within ninety (90) days from receipt of
the request, due to obstacles encountered in furnishing the information or when the bank or financial
institution refuses to furnish the information, he shall immediately inform the requesting tax authority of
the same, explaining the nature of the obstacles encountered or the reasons for refusal.
The term "foreign tax authority," as used herein, shall refer to the tax authority or tax administration of the
requesting State under the tax treaty or convention to which the Philippines is a signatory or a party of.
3. Anti-Money Laundering Act (AMLA)
- Sec. 2, AMLA
SEC. 2. Declaration of Policy. – It is hereby declared the policy of the State to protect and preserve the
integrity and confidentiality of bank accounts and to ensure that the Philippines shall not be used as a
money laundering site for the proceeds of any unlawful activity. Consistent with its foreign policy, the
State shall extend cooperation in transnational investigations and prosecutions of persons involved in
money laundering activities wherever committed.
4. Unclaimed Balances Act (UBA)
- Sec. 2, UBA
Sec. 2. Immediately after the taking effect of this Act and within the month of January of every odd year,
all banks, building and loan associations, and trust corporations shall forward to the Treasurer of the
Philippines a statement, under oath, of their respective managing officers, of all credits and deposits held
by them in favor of persons known to be dead, or who have not made further deposits or withdrawals
during the preceding ten years or more, arranged in alphabetical order according to the names of
creditors and depositors, and showing:
"(a) The names and last known place of residence or post office addresses of the persons in whose favor
such unclaimed balances stand;
"(b) The amount and the date of the outstanding unclaimed balance and whether the same is in money or
in security, and if the latter, the nature of the same;
"(c) The date when the person in whose favor the unclaimed balance stands died, if known, or the date
when he made his last deposit or withdrawal; and
"(d) The interest due on such unclaimed balance, if any, and the amount thereof.
"A copy of the above sworn statement shall be posted in a conspicuous place in the premises of the
bank, building and loan association, or trust corporation concerned for at least sixty days from the date of
filing thereof: Provided, That immediately before filing the above sworn statement, the bank, building and
loan association, and trust corporation shall communicate with the person in whose favor the unclaimed
balance stands at his last known place of residence or post office address.

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"It shall be the duty of the Treasurer of the Philippines to inform the Solicitor General from time to time the
existence of unclaimed balances held by banks, building and loan associations, and trust corporations.
5. Foreign Currency Deposits Act (FCDA)
6. New Central Bank Act (NCBA)
- Sec. 25, NCBA
Section 25. Supervision and Examination. - The Bangko Sentral shall have supervision over, and conduct
periodic or special examinations of, banking institutions and quasi-banks, including their subsidiaries and
affiliates engaged in allied activities.
For purposes of this section, a subsidiary means a corporation more than fifty percent (50%) of
the voting stock of which is owned by a bank or quasi-bank and an affiliate means a corporation the
voting stock of which, to the extent of fifty percent (50%) or less, is owned by a bank or quasi-bank or
which is related or linked to such institution or intermediary through common stockholders or such other
factors as may be determined by the Monetary Board.
The department heads and the examiners of the supervising and/or examining departments are
hereby authorized to administer oaths to any director, officer, or employee of any institution under their
respective supervision or subject to their examination and to compel the presentation of all books,
documents, papers or records necessary in their judgment to ascertain the facts relative to the true
condition of any institution as well as the books and records of persons and entities relative to or in
connection with the operations, activities or transactions of the institution under examination, subject to
the provision of existing laws protecting or safeguarding the secrecy or confidentiality of bank deposits as
well as investments of private persons, natural or juridical, in debt instruments issued by the Government.
No restraining order or injunction shall be issued by the court enjoining the Bangko Sentral from
examining any institution subject to supervision or examination by the Bangko Sentral, unless there is
convincing proof that the action of the Bangko Sentral is plainly arbitrary and made in bad faith and the
petitioner or plaintiff files with the clerk or judge of the court in which the action is pending a bond
executed in favor of the Bangko Sentral, in an amount to be fixed by the court. The provisions of Rule 58
of the New Rules of Court insofar as they are applicable and not inconsistent with the provisions of this
section shall govern the issuance and dissolution of the restraining order or injunction contemplated in
this section.
7. In-Camera Inspection by Ombudsman
- Marquez v. Desierto, GR No. 135882, June 27, 2001
8. Human Security Act (R.A. No. 9372)
- Sec. 27, R.A. No. 9372
SEC. 27. Judicial Authorization Required to Examine Bank Deposits, Accounts, and Records. - The
provisions of Republic Act No. 1405 as amended, to the contrary notwithstanding, the justices of the
Court of Appeals designated as a special court to handle anti-terrorism cases after satisfying themselves
of the existence of probable cause in a hearing called for that purpose that: (1) a person charged with or
suspected of the crime of terrorism or, conspiracy to commit terrorism, (2) of a judicially declared and
outlawed terrorist organization, association, or group of persons; and (3) of a member of such judicially
declared and outlawed organization, association, or group of persons, may authorize in writing any police
or law enforcement officer and the members of his/her team duly authorized in writing by the anti-
terrorism council to: (a) examine, or cause the examination of, the deposits, placements, trust accounts,
assets and records in a bank or financial institution; and (b) gather or cause the gathering of any relevant

COMMERCIAL LAW
information about such deposits, placements, trust accounts, assets, and records from a bank or financial
institution. The bank or financial institution concerned, shall not refuse to allow such examination or to
provide the desired information, when so, ordered by and served with the written order of the Court of
Appeals.
5. Garnishment of Deposits, including Foreign Deposits
- Sec. 8, R.A. No. 1405 (???)

- Salvacion v. Central bank, GR No. 94723, Aug. 21, 1997
o allowed the attachment of the foreign currency deposits of
an American tourist who kidnapped and raped a twelve-year
old Filipino child.
IMPT: As to foreign currency deposits:

 Deposits are also absolutely confidential. Only one exception:
o Written consent of depositor

COMMERCIAL LAW
C. General Banking Law (GBL) of 2000 (R.A. No. 8791)
1. Definition and Classification of Banks
- Sec. 3, GBL
3.1. "Banks" shall refer to entities engaged in the lending of funds obtained in the form of
deposits. (MEMORIZE); visualize: money going in and money going out. Take money by deposits and
lend them out. This is the business model.
(2a)
3.2. Banks shall be classified into:
1. (a) Universal banks;
2. (b) Commercial banks;

3. (c) Thrift banks, composed of: (i) Savings and mortgage banks, (ii) Stock savings and loan
associations, and (iii) Private development banks, as defined in Republic Act No. 7906
(hereafter the "Thrift Banks Act");
4. (d) Rural banks, as defined in Republic Act No. 7353 (hereafter the "Rural Banks Act");
5. (e) Cooperative banks, as defined in Republic Act No. 6938 (hereafter the "Cooperative
Code");
6. (f) Islamic banks as defined in Republic Act No. 6848, otherwise known as the "Charter of Al
Amanah Islamic Investment Bank of the Philippines"; and
7. (g) Other classifications of banks as determined by the Monetary Board of the Bangko Sentral
ng Pilipinas. (6-Aa)
 ON ONE SIDE: DEPOSIT

o 10 wealthy individuals form affordable lending business; lends
by subscription – NOT BANKING! No deposits. Deposits must
be in nature of loans under NCC.
o Take deposits from the PUBLIC (20 or more people).
 LENDING under Civil Code. REMEMBER!
- Universal Bank - Secs. 23-28, GBL
SECTION 23. Powers of a Universal Bank. — A universal bank shall have the authority to exercise,
in addition to the powers authorized for a commercial bank in Section 29, the powers of an investment
house as provided in existing laws and the power to invest in non-allied enterprises as provided in this
Act. (21-B)
SECTION 24. Equity Investments of a Universal Bank. — A universal bank may, subject to the
conditions stated in the succeeding paragraph, invest in the equities of allied and non-allied enterprises
as may be determined by the Monetary Board. Allied enterprises may either be financial or non-

COMMERCIAL LAW
financial.
Except as the Monetary Board may otherwise prescribe:
1. 24.1. The total investment in equities of allied and non-allied enterprises shall not exceed fifty
percent (50%) of the net worth of the bank; and
2. 24.2. The equity investment in any one enterprise, whether allied or non-allied, shall not
exceed twenty-five percent (25%) of the net worth of the bank.
As used in this Act, "net worth" shall mean the total of the unimpaired paid-in capital including paid-in
surplus, retained earnings and undivided profit, net of valuation reserves and other adjustments as may
be required by the Bangko Sentral.
The acquisition of such equity or equities is subject to the prior approval of the Monetary Board which
shall promulgate appropriate guidelines to govern such investments. (21-Ba)
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 non- allied
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)
SECTION 28. Equity Investments in Quasi-Banks. — To promote competitive conditions in financial

markets, the Monetary Board may further limit to forty percent (40%) equity investments of universal
banks in quasi-banks. This rule shall also apply in the case of commercial banks. (12-E)
UNIVERSAL BANKS = Commercial Banks Plus. (JMGH)
Two things that differentiate universal banks from Commercial bank:
 Universal bank has the power of investment houses (i.e. entities allowed to engage in the
business of underwriting securities; they are able to engage in the business of guara nteeing
distrubition of securities)
 Universal banks are allowed to invest in equity of non-allied enterprises; if commercial: only in
allied enterprise (an entity which has a business related to banking)
INVESTMENT IN ALLIED AND NON-ALLIED (Limits)
 In GENERAL BANKING LAW.

COMMERCIAL LAW
ALL BANKS CAN EXERCISE POWER UNDER SECTION 53.
- Commercial Bank - Secs. 29-32, GBL
SECTION 29. Powers of a Commercial Bank. — A commercial bank shall have, in addition to the
general powers incident to corporations, all such powers as may be necessary to carry on the business
of commercial banking, such as accepting drafts and issuing letters of credit; discounting and
negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; accepting or
creating demand deposits; receiving other types of deposits and deposit substitutes; buying and selling
foreign exchange and gold or silver bullion; acquiring marketable bonds and other debt securities; and
extending credit, subject to such rules as the Monetary Board may promulgate. These rules may
include the determination of bonds and other debt securities eligible for investment, the maturities and
aggregate amount of such investment. (21a)
SECTION 30. Equity Investments of a Commercial Bank. — A commercial bank may, subject to the
conditions stated in the succeeding paragraphs, invest only in the equities of allied enterprises as may
be determined by the Monetary Board. Allied enterprises may either be financial or non-financial.
Except as the Monetary Board may otherwise prescribe:
30.1. The total investment in equities of allied enterprises shall not exceed thirty-five percent (35%) of
the net worth of the bank; and
30.2. The equity investment in any one enterprise shall not exceed twenty-five percent (25%) of the net
worth of the bank.
The acquisition of such equity or equities is subject to the prior approval of the Monetary Board which
shall promulgate appropriate guidelines to govern such investments. (21A-a; 21-Ca)
SECTION 31. Equity Investments of a Commercial Bank in Financial Allied Enterprises. — A

commercial bank may own up to one hundred percent (100%) of the equity of a thrift bank or a rural
bank.
Where the equity investment of a commercial bank is in other financial allied enterprises, including
another commercial bank, such investment shall remain a minority holding in that enterprise. (21-Aa;
21-Ca)
SECTION 32. Equity Investments of a Commercial Bank in Non-Financial Allied Enterprises. — A

commercial bank may own up to one hundred percent (100%) of the equity in a non- financial allied
enterprise. (21-Aa)
- Foreign Equity Rule – Sec. 11, GBL
SECTION 11. Foreign Stockholdings. — Foreign individuals and non-bank corporations may own or
control up to forty percent (40%) of the voting stock of a domestic bank. This rule shall apply to
Filipinos and domestic non-bank corporations. (12a; 12-Aa)
The percentage of foreign-owned voting stocks in a bank shall be determined by the citizenship of the
individual stockholders in that bank. The citizenship of the corporation which is a stockholder in a bank
shall follow the citizenship of the controlling stockholders of the corporation, irrespective of the place of
incorporation. (n)

COMMERCIAL LAW
2. Distinction of Banks from Quasi-Banks and Trust Entities (***)
Banco de Oro case.
QB: There is also money flowing in,not by way of deposits but by way of deposit sub stitutes; and entity
lends it out or invests it in other receivables.
Deposit substitutes – evidence of indebtedness; securities; bank issues a promissory note or bank might
negotiate a note of some other person. Ex: San Miguel bond; when bank sells it to someone else and
bank gets money for that, that’s a form of deposit substitute because it’s not deposit per se, but the
money coming in is because the “buyer” wants to acquire the San Miguel bond. In deposit substitutes,
bank is also liable as if in deposit. “With recourse”
Definition is in GBL, in relation to NCBA.
- Quasi-Bank – Secs. 4.6, 95, GBL
SECTION 4. Supervisory Powers. — The operations and activities of banks shall be subject to
supervision of the Bangko Sentral. "Supervision" shall include the following:
4.6. Enforcing prompt corrective action. (n)
SECTION 95. Repealing Clause. — Except as may be provided for in Sections 34 and 94 of this Act,
the General Banking Act, as amended, and the provisions of any other law, special charters, rule or
regulation issued pursuant to said General Banking Act, as amended, or parts thereof, which may be
inconsistent with the provisions of this Act are hereby repealed. The provisions of paragraph 8, Section
8, Republic Act No. 3591, as amended by Republic Act No. 7400, are likewise repealed. (90a)
- Trust Entity – Secs. 79-80, 83, GBL
SECTION 79. Authority to Engage in Trust Business. — Only a stock corporation or a person duly
authorized by the Monetary Board to engage in trust business shall act as a trustee or administer any
trust or hold property in trust or on deposit for the use, benefit, or behoof of others. For purposes of this
Act, such a corporation shall be referred to as a trust entity. (56a; 57a)
SECTION 80. Conduct of Trust Business. — A trust entity shall administer the funds or property
under its custody with the diligence that a prudent man would exercise in the conduct of an enterprise
of a like character and with similar aims.
No trust entity shall, for the account of the trustor or the beneficiary of the trust, purchase or acquire
property from, or sell, transfer, assign or lend money or property to, or purchase debt instruments of,
any of the departments, directors, officers, stockholders, or employees of the trust entity, relatives
within the first degree of consanguinity or affinity, or the related interests, of such directors, officers and
stockholders, unless the transaction is specifically authorized by the trustor and the relationship of the
trustee and the other party involved in the transaction is fully disclosed to the trustor or beneficiary of
the trust prior to the transaction.
The Monetary Board shall promulgate such rules and regulations as may be necessary to prevent
circumvention of this prohibition or the evasion of the responsibility herein imposed on a trust entity.
(56)
 May be a separate or a smaller entity in the bank.

COMMERCIAL LAW
 Trust entity also receives money/property as a trustee. Instead of debtor-creditor, there is a

trustor-trustee relationship. No transfer of ownership. (NEW CIVIL CODE!!!!)
 Assets of trust entity must be separated from assets of the bank.
 So, when creditors run after the bank, they cannot run after trust property because such does not
belong to the bank.
 Directed trust – “please invest the trust property in x”; directs how the trusted money/property is to
be utilized
 Discretionary trust – trustor leaves it to the bank, subject to limits, to a prudential measure.
 Foreign Currency deposit unit of banks (important rule in Secrecy of Deposits)
3. Bank Powers and Liabilities
a. Corporate Powers Note: banks have to be stock corporations; note further: note in
case of merger of banks: up to 21 directors; banks cannot buy back own shares; dividend restrictions:
URE + others; business judgment: higher standard for Board, a lot of area for BSP to intervene in
business judgment.
Who can own banks?

 Foreign ownership: if foreign investor in itself a bank, under FBL Act, 100% (voting stock); if not a
bank, up to 40% only.
 Filipino individuals: up to 40%
Banks cannot engage in insurance!

Banks cannot own real estate, unless necessary for bank use; paid to the bank (dacion en pago); or
acquires land as a result of foreclosure.
- For dacion en pago and foreclosure; banks must sell within 5 years.
Banks are not allowed to outsource inherent banking functions:

 Again definition!
 Lending and the deposit functions.
Note: under Foreign Bank Liberalization Act, foreign banks can “win” foreclosure cases, but title cannot
transfer. WEIRD CASE, they have to sell it.
- Secs. 23, 29, GBL
SECTION 23. Powers of a Universal Bank. — A universal bank shall have the authority to exercise,
in addition to the powers authorized for a commercial bank in Section 29, the powers of an investment
house as provided in existing laws and the power to invest in non-allied enterprises as provided in this
Act. (21-B)
SECTION 29. Powers of a Commercial Bank. — A commercial bank shall have, in addition to the
general powers incident to corporations, all such powers as may be necessary to carry on the business
of commercial banking, such as accepting drafts and issuing letters of credit; discounting and
negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; accepting or
creating demand deposits; receiving other types of deposits and deposit substitutes; buying and selling
foreign exchange and gold or silver bullion; acquiring marketable bonds and other debt securities; and
extending credit, subject to such rules as the Monetary Board may promulgate. These rules may
include the determination of bonds and other debt securities eligible for investment, the maturities and
aggregate amount of such investment. (21a)
b. Banking and Incidental Powers
4. Diligence Required of Banks

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Section 2 of GBL: highest standard of integrity and performance in exercise of functions; fiduciary!!!
SECTION 2 ANSWERS THINGS. Highest standard of care owed to its clients and to those who transact
with it
Note: Banks cannot rely on titles (higher standard compare to mortals like us) to
be mortgagees in good faith.
Relevant Jurisprudence:
- PNB v. Santos; Aguilar v. Santos, GR Nos. 208293 and 208295, Dec.

10, 2014
- Metrobank v. Rosales and Yo Yuk To, GR No. 183204, Jan. 13, 2014
- PCB v. Balmaceda, GR No. 158143, Sept. 21, 2011
5. Nature of Bank Funds and Bank Deposits (Note: Civil Code;

loan; MUTUUM!!!!)
- Consolidated Bank and Trust Corp. v. CA, GR No. 138569, Sept. 11,
2003
- Citibank, N.A. v. Sabeniano, GR No. 156132, Feb. 6, 2007
6. Stipulation on Interests THANKS JUSTICE HERNANDO
- Escalation/De-Escalation Clause – Silos v. PNB, GR No. 181045,

July 2, 2014
- Sec. 43, GBL
SECTION 43. Authority to Prescribe Terms and Conditions of Loans and Other Credit
Accommodations. — The Monetary Board may, similarly, in accordance with the authority granted to
it in Section 106 of the New Central Bank Act, and taking into account the requirements of the
economy for the effective utilization of long-term funds, prescribe the maturities, as well as related
terms and conditions for various types of bank loans and other credit accommodations. Any change by
the Board in the maximum maturities shall apply only to loans and other credit accommodations made
after the date of such action.
The Monetary Board shall regulate the interest imposed on microfinance borrowers by lending
investors and similar lenders, such as, but not limited to, the unconscionable rates of interest collected
on salary loans and similar credit accommodations. (78a)
7. Grant of Loans and Security Requirements
 If there’s misrepresentation, bank can recall.

 If purpose not stated, bank can recall.
 If maturity of loan less than 5 years, pwede one payment. (bullet payment; lump sum when due)
 If exceeds 5 years, annual amortization required (not necessarily equal)
o XPN: if for project that does not generate income right away.
 Another prudential measure is the amount bank can lend out vis-à-vis collateral.
 Possible question: redemption (difference with Rules of Court)
o Banking Law: judicial – 1 year redemption
o Extrajudicial – if juridical person, redeem 3 months or up to registration of certificate of
sale.

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 Truth in Lending Act: disclose banking fees to borrower!
7.1. Loan Function of Banks – Sec. 40, GBL
SECTION 40. Requirement for Grant of Loans or Other Credit Accommodations. — Before
granting a loan or other credit accommodation, a bank must ascertain that the debtor is capable of
fulfilling his commitments to the bank.
Toward this end, a bank may demand from its credit applicants a statement of their assets and
liabilities and of their income and expenditures and such information as may be prescribed by law or by
rules and regulations of Monetary Board to enable the bank to properly evaluate the credit application
which includes the corresponding financial statements submitted for taxation purposes to the Bureau of
Internal Revenue. Should such statements prove to be false or incorrect in any material detail, the bank
may terminate any loan or other credit accommodation granted on the basis of said statements and
shall have the right to demand immediate repayment or liquidation of the obligation.
In formulating rules and regulations under this Section, the Monetary Board shall recognize the peculiar
characteristics of microfinancing, such as cash flow-based lending to the basic sectors that are not
covered by traditional collateral. (76a)
a. Ratio of Net Worth to Total Risk Assets – very technical; banks are subject to
“fit and proper” rule; that your directors must be fit and proper
- Sec. 34, GBL
SECTION 34. Risk-Based Capital. — The Monetary Board shall prescribe the minimum ratio which
the net worth of a bank must bear to its total risk assets which may include contingent accounts.
For purposes of this Section, the Monetary Board may require that such ratio be determined on the
basis of the net worth and risk assets of a bank and its subsidiaries, financial or otherwise, as well as
prescribe the composition and the manner of determining the net worth and total risk assets of banks
and their subsidiaries: Provided, That in the exercise of this authority, the Monetary Board shall, to the
extent feasible, conform to internationally accepted standards, including those of the Bank for
International Settlements (BIS), relating to risk-based capital requirements: Provided, further, That it
may alter or suspend compliance with such ratio whenever necessary for a maximum period of one (1)
year: Provided, finally, That such ratio shall be applied uniformly to banks of the same category.
In case a bank does not comply with the prescribed minimum ratio, the Monetary Board may limit or
prohibit the distribution of net profits by such bank and may require that part or all of the net profits be
used to increase the capital accounts of the bank until the minimum requirement has been met. The
Monetary Board may, furthermore, restrict or prohibit the acquisition of major assets and the making of
new investments by the bank, with the exception of purchases of readily marketable evidences of
indebtedness of the Republic of the Philippines and of the Bangko Sentral and any other evidences of
indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic
of the Philippines, until the minimum required capital ratio has been restored.
In case of a bank merger or consolidation, or when a bank is under rehabilitation under a program
approved by the Bangko Sentral, the Monetary Board may temporarily relieve the surviving bank,
consolidated bank, or constituent bank or corporations under rehabilitation from full compliance with
the required capital ratio under such conditions as it may prescribe.
Before the effectivity of the rules which the Monetary Board is authorized to prescribe under this
provision, Section 22 of the General Banking Act, as amended, Section 9 of the Thrift Banks Act, and
all pertinent rules issued pursuant thereto, shall continue to be in force. (22a)

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b. Single Borrower's Limit – you cannot lend everything to just one borrower.
- Sec. 35, GBL
SECTION 35. Limit on Loans, Credit Accommodations and Guarantees. —
35.1. Except as the Monetary Board may otherwise prescribe for reasons of national interest, the total
amount of loans, credit accommodations and guarantees as may be defined by the Monetary
Board that may be extended by a bank to any person, partnership, association, corporation or
other entity shall at no time exceed twenty percent (20%) of the net worth of such bank. The
basis for determining compliance with single-borrower limit is the total credit commitment of the bank to
the borrower.
35.2. Unless the Monetary Board prescribes otherwise, the total amount of loans, credit
accommodations and guarantees prescribed in the preceding paragraph may be increased by an
additional ten percent (10%) of the net worth of such bank provided the additional liabilities of any
borrower are adequately secured by trust receipts, shipping documents, warehouse receipts or other
similar documents transferring or securing title covering readily marketable, non-perishable goods
which must be fully covered by insurance.
35.3. The above prescribed ceilings shall include: (a) the direct liability of the maker or acceptor of
paper discounted with or sold to such bank and the liability of a general indorser, drawer or guarantor
who obtains a loan or other credit accommodation from or discounts paper with or sells papers to such
bank; (b) in the case of an individual who owns or controls a majority interest in a corporation,
partnership, association or any other entity, the liabilities of said entities to such bank; (c) in the case of
a corporation, all liabilities to such bank of all subsidiaries in which such corporation owns or controls a
majority interest; and (d) in the case of a partnership, association or other entity, the liabilities of the
members thereof to such bank.
35.4. Even if a parent corporation, partnership, association, entity or an individual who owns or
controls a majority interest in such entities has no liability to the bank, the Monetary Board may
prescribe the combination of the liabilities of subsidiary corporations or members of the partnership,
association, entity or such individual under certain circumstances, including but not limited to any of the
following situations: (a) the parent corporation, partnership, association, entity or individual guarantees
the repayment of the liabilities; (b) the liabilities were incurred for the accommodation of the parent
corporation or another subsidiary or of the partnership or association or entity or such individual; or (c)
the subsidiaries though separate entities operate merely as departments or divisions of a single entity.
35.5. For purposes of this Section, loans, other credit accommodations and guarantees shall
exclude:
(a) loans and other credit accommodations secured by obligations of the Bangko Sentral or of
the Philippine Government; (b) loans and other credit accommodations fully guaranteed by the
government as to the payment of principal and interest; (c) loans and other credit
accommodations covered by assignment of deposits maintained in the lending bank and held
in the Philippines; (d) loans, credit accommodations and acceptances under letters of credit to
the extent covered by margin deposits; and (e) other loans or credit accommodations which the
Monetary Board may from time to time, specify as non-risk items.
35.6. Loans and other credit accommodations, deposits maintained with, and usual guarantees by a
bank to any other bank or non-bank entity, whether locally or abroad, shall be subject to the limits as
herein prescribed.

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35.7. Certain types of contingent accounts of borrowers may be included among those subject to
these prescribed limits as may be determined by the Monetary Board. (23a)
c. Restrictions on Bank Exposure to DOSRI (Directors, Officers, Stockholders and

their Related Interests)
- Sec. 36, GBL
SECTION 36. Restriction on Bank Exposure to Directors, Officers, Stockholders and Their
Related Interests. — No director or officer of any bank shall, directly or indirectly, for himself or as the
representative or agent of others, borrow from such bank nor shall he become a guarantor, indorser or
surety for loans from such bank to others, or in any manner be an obligor or incur any contractual
liability to the bank except with the written approval of the majority of all the directors of the bank,
excluding the director concerned: Provided, That such written approval shall not be required for loans,
other credit accommodations and advances granted to officers under a fringe benefit plan approved by
the Bangko Sentral. The required approval shall be entered upon the records of the bank and a copy of
such entry shall be transmitted forthwith to the appropriate supervising and examining department of
the Bangko Sentral.
Dealings of a bank with any of its directors, officers or stockholders and their related interests shall be
upon terms not less favorable to the bank than those offered to others.
After due notice to the board of directors of the bank, the office of any bank director or officer who
violates the provisions of this Section may be declared vacant and the director or officer shall be
subject to the penal provisions of the New Central Bank Act.
The Monetary Board may regulate the amount of loans, credit accommodations and guarantees that
may be extended, directly or indirectly, by a bank to its directors, officers, stockholders and their related
interests, as well as investments of such bank in enterprises owned or controlled by said directors,
officers, stockholders and their related interests. However, the outstanding loans, credit
accommodations and guarantees which a bank may extend to each of its stockholders, directors, or
officers and their related interests, shall be limited to an amount equivalent to their respective
unencumbered deposits and book value of their paid-in capital contribution in the bank: Provided,
however, That loans, credit accommodations and guarantees secured by assets considered as non-
risk by the Monetary Board shall be excluded from such limit: Provided, further, That loans, credit
accommodations and advances to officers in the form of fringe benefits granted in accordance with
rules as may be prescribed by the Monetary Board shall not be subject to the individual limit.
The Monetary Board shall define the term "related interests."
The limit on loans, credit accommodations and guarantees prescribed herein shall not apply to loans,
credit accommodations and guarantees extended by a cooperative bank to its cooperative
shareholders. (83a)
As to INTEREST:
Even if there is no usury law, that doesn’t mean lender can impose unconscionable rates. Courts can
reduce the rate.
Interest can be fixed or floating. A floating rate must always have a reference rate.

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VII. Securities Regulation Code

(Rep. Act No. 8799)
Perspectives: Are you the investor? Are you the issuer (Corp)?
Questions:
Is it a security?
Is it a public offering?
Is it exempt?
 If it is an exempt security (Section 9), I don’t have to bother with registration, I can issue and re-issue
 If it is an exempt transaction (Section 10), it’s just the transaction that’s exempt. If I make another
transaction, I have to make sure it’s exempt. Otherwise, I have to register.
QIBs (Qualified Institutional Buyers) – EXEMPT no matter how many they are
ITEMS TO REMEMBER:
1. SEC (jurisdiction, functions, insurance commission & BSP) – primary regulator as to public offering of
securities
SEC has no more jurisdiction over intracorporate controversies.
2. Self-regulatory organization (SRO)

- SEC delegating regulatory functions to groups of persons/association
“Public corporation” – publicly listed corporation OR (P50M assets, 200 or more stockholders, each with at least
100 shares); if you’re not publicly listed, you can be a public corporation
SRC Disclosure regime – FULL Disclosure

- Material information; any information which will be considered by buyer or seller in the decision to
buy or sell the securities
- Prospectus: the Agreement
Registration (sec 8, SRC)

What is a Security?
 per se securities (by the very fact they are enumerated);
 investment contracts under 2015 IRR. “contract where you part with money, in a common enterprise,
where there’s reasonable expectation of profits to be generated through the efforts of third parties”
A. State Policy, Purpose
- Sec. 2, Securities Regulation Code (SRC) -
Section 2. Declaration of State Policy. – The State shall establish a socially conscious, free market that
regulates itself, encourage the widest participation of ownership in enterprises, enhance the democratization
of wealth, promote the development of the capital market, protect investors, ensure full and fair disclosure
about securities, minimize if not totally eliminate insider trading and other fraudulent or manipulative devices
and practices which create distortions in the free market. To achieve these ends, this Securities Regulation
Code is hereby enacted.
 SRC an example of a “blue sky law”

 Abacus Securities Corp. v. Ampil, GR No. 160016, Feb. 27, 2006
 Regulatory Body – Securities and Exchange Commission (SEC).
 Note jurisdiction of SEC under Sec. 5.1, SRC.
 Sec. 5.2: SEC's jurisdiction under Sec. 5, PD No. 902-A has been transferred

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to courts of general jurisdiction (Regional Trial Court). - 5.2. The

Commission’s jurisdiction over all cases enumerated under section 5 of
Presidential Decree No. 902-A 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 the cases. The
Commission shall retain jurisdiction over pending cases involving intra-
corporate disputes submitted for final resolution which should be resolved
within one (1) year from the enactment of this Code. The Commission shall
retain jurisdiction over pending suspension of payment/rehabilitation cases
filed as of 30 June 2000 until finally disposed.
B. Definition of Securities
– shares, participation, or interests in a corporation or in a commercial

enterprise or profit-making venture and evidenced by a certificate, contract
or instrument, whether written or electronic in character (Sec. 3.1, SRC)
Section 3. Definition of Terms. - 3.1. "Securities" are shares, participation or interests in a corporation or in a
commercial enterprise or profit-making venture and evidenced by a certificate, contract, instruments, whether
written or electronic in character. It includes:
(a) Shares of stocks, bonds, debentures, notes evidences of indebtedness, asset-backed securities;
(b) Investment contracts, certificates of interest or participation in a profit sharing agreement, certifies of
deposit for a future subscription;
(c) Fractional undivided interests in oil, gas or other mineral rights;
(d) Derivatives like option and warrants;
(e) Certificates of assignments, certificates of participation, trust certificates, voting trust certificates or similar
instruments
(f) Proprietary or nonproprietary membership certificates in corporations; and
(g) Other instruments as may in the future be determined by the Commission.
C. Kinds of Securities
1. Exempt Securities
- Sec. 9, SRC
Section 9. Exempt Securities. – 9.1. The requirement of registration under Subsection 8.1 shall not as a
general rule apply to any of the following classes of securities:
(a) Any security issued or guaranteed by the Government of the Philippines, or by any political subdivision or
agency thereof, or by any person controlled or supervised by, and acting as an instrumentality of said
Government.
(b) Any security issued or guaranteed by the government of any country with which the Philippines maintains
diplomatic relations, or by any state, province or political subdivision thereof on the basis of reciprocity:
Provided, That the Commission may require compliance with the form and content for disclosures the

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Commission may prescribe.
(c) Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper adjudicatory
body.
(d) Any security or its derivatives the sale or transfer of which, by law, is under the supervision and regulation
of the Office of the Insurance Commission, Housing and Land Use Rule Regulatory Board, or the Bureau of
Internal Revenue.
(e) Any security issued by a bank except its own shares of stock.
9.2. The Commission may, by rule or regulation after public hearing, add to the foregoing any class of
securities if it finds that the enforcement of this Code with respect to such securities is not necessary in the
public interest and for the protection of investors.
2. Exempt Transactions
- Sec. 10, SRC
Section 10. Exempt Transactions. – 10.1. The requirement of registration under Subsection 8.1 shall not
apply to the sale of any security in any of the following transactions:
(a) At any judicial sale, or sale by an executor, administrator, guardian or receiver or trustee in insolvency or
bankruptcy.
(b) By or for the account of a pledge holder, or mortgagee or any of a pledge lien holder selling of offering for
sale or delivery in the ordinary course of business and not for the purpose of avoiding the provision of this
Code, to liquidate a bonafide 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
therefore, or by his representative for the owner’s account, such sale or offer for sale or offer for sale,
subscription or delivery not being made in the course of repeated and successive transaction of a like
character by such owner, or on his account by such representative and such owner or representative not
being the underwriter of such security.
(d) The distribution by a corporation actively engaged in the business authorized by its articles of
incorporation, of securities to its stockholders or other security holders as a stock dividend or other
distribution out of surplus.
(e) The sale of capital stock of a corporation to its own stockholders exclusively, where no
commission or other remuneration is paid or given directly or indirectly in connection with the sale of
such capital stock.
(f) The issuance of bonds or notes secured by mortgage upon real estate or tangible personal property, when
the entire mortgage together with all the bonds or notes secured thereby are sold to a single purchaser at a
single sale.
(g) The issue and delivery of any security in exchange for any other security of the same issuer pursuant to a
right of conversion entitling the holder of the security surrendered in exchange to make such conversion:
Provided, That the security so surrendered has been registered under this Code or was, when sold, exempt
from the provision of this Code, and that the security issued and delivered in exchange, if sold at the
conversion price, would at the time of such conversion fall within the class of securities entitled to registration
under this Code. Upon such conversion the par value of the security surrendered in such exchange shall be
deemed the price at which the securities issued and delivered in such exchange are sold.
(h) Broker’s transaction, executed upon customer’s orders, on any registered Exchange or other trading

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market.
(i) Subscriptions for shares of the capitals stocks of a corporation prior to the incorporation thereof or
in pursuance of an increase in its authorized capital stocks 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
subscription 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 increase.
(j) The exchange of securities by the issuer with the existing security holders exclusively, where no
commission or other remuneration is paid or given directly or indirectly for soliciting such exchange.
(k) The sale of securities by an issuer to fewer than twenty (20) persons in the Philippines during any
twelve-month period.
(l) The sale of securities to any number of the following qualified buyers:
(i) Bank;
(ii) Registered investment house;
(iii) Insurance company;
(iv) Pension fund or retirement plan maintained by the Government of the Philippines or any political
subdivision thereof or manage 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 rule by 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.
10.2. The Commission may exempt other transactions, if it finds that the requirements of registration under
this Code is not necessary in the public interest or for the protection of the investors such as by the reason of
the small amount involved or the limited character of the public offering.
10.3. Any person applying for an exemption under this Section, shall file with the Commission a notice
identifying the exemption relied upon on such form and at such time as the Commission by the rule may
prescribe and with such notice shall pay to the Commission fee equivalent to one-tenth (1/10) of one percent
(1%) of the maximum value aggregate price or issued value of the securities.
3. Non-Exempt
- Sec. 8.1, SRC
Section 8. Requirement of Registration of Securities.– 8.1. Securities shall not be sold or offered for sale or
distribution within the Philippines, without a registration statement duly filed with and approved by the
Commission. Prior to such sale, information on the securities, in such form and with such substance as the
Commission may prescribe, shall be made available to each prospective purchaser.
D. Procedure for Registration of Securities
- Sec. 12, SRC

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Section 12. Procedure of Registration Securities. - 12.1. All securities required to be registered under
Subsection 8. I shall be registered through the filing by the issuer in the main office of the Commission, of a
sworn registration statement with the respect to such securities, in such form and containing such information
and document as the Commission prescribe. The registration statement shall include any prospectus required
or permitted to be delivered under Subsections 8.2, 8.3, and 8.4.
12.2. In promulgating rules governing the content of any registration statement (including any prospectus
made a part thereof or annex thereto), the Commission may require the registration statement to contain such
information or documents as it may, by rule, prescribe. It may dispense with any such requirements, or may
require additional information or documents, including written information from an expert, depending on the
necessity thereof or their applicability to the class of securities sought to be registered.
12.3. The information required for the registration of any kind, and all securities, shall include, among others,
the effect of the securities issue on ownership, on the mix of ownership, especially foreign and local
ownership.
12.4. The registration statement shall be signed by the issuer’s executive officer, its principal operating officer,
its principal financial officer, its comptroller, its principal accounting officer, its corporate secretary, or persons
performing similar functions accompanied by a duly verified resolution of the board of directors of the issuer
corporation. The written consent of the expert named as having certified any part of the registration statement
or any document used in connection therewith shall also be filed. Where the registration statement shares to
be sold by selling shareholders, a written certification by such selling shareholders as to the accuracy of any
part of the registration statement contributed to by such selling shareholders shall be filed.
12.5. (a) Upon filing of the registration statement, the issuer shall pay to the Commission a fee of not more
than one-tenth (1/10) of one per centum (1%) of the maximum aggregate price at which such securities are
proposed to be offered. The Commission shall prescribe by the rule diminishing fees in inverse proportion the
value of the aggregate price of the offering.
(b) Notice of the filing of the registration statement shall be immediately published by the issuer, at its own
expense, in two (2) newspapers of general circulation in the Philippines, once a week for two (2) consecutive
weeks, or in such other manner as the Commission by the rule shall prescribe, reciting that a registration
statement for the sale of such securities has been filed, and that aforesaid registration statement, as well as
the papers attached thereto are open to inspection at the Commission during business hours, and copies
thereof, photostatic or otherwise, shall be furnished to interested parties at such reasonable charge as the
Commission may prescribe.
12.6. Within forty-five (45) days after the date of filing of the registration statement, or by such later date to
which the issuer has consented, the Commission shall declare the registration statement effective or rejected,
unless the applicant is allowed to amend the registration statement as provided in Section 14 hereof. The
Commission shall enter an order declaring the registration statement to be effective if it finds that the
registration statement together with all the other papers and documents attached thereto, is on its face
complete and that the requirements have been complied with. The Commission may impose such terms and
conditions as may be necessary or appropriate for the protection of the investors.
12.7. Upon affectivity of the registration statement, the issuer shall state under oath in every prospectus that
all registration requirements have been met and that all information are true and correct as represented by the
issuer or the one making the statement. Any untrue statement of fact or omission to state a material fact
required to be stated herein or necessary to make the statement therein not misleading shall constitute fraud.
- “GUN JUMPING” – no person is allowed to sell/offer to sell securities before

the effectivity date of registration
E. Prohibitions on Fraud, Manipulation and Insider Trading

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1. Manipulation of Security Prices
- Sec. 24, SRC
Section 24. Manipulation of Security Prices; Devices and Practices. – 24.1 It shall be unlawful for any
person acting for himself or through a dealer or broker, directly or indirectly:
(a) To create a false or misleading appearance of active trading in any listed security traded in an Exchange of
any other trading market (hereafter referred to purposes of this Chapter as "Exchange"):
(i) By effecting any transaction in such security which involves no change in the beneficial ownership thereof;
(ii) By entering an order or orders for the purchase or sale of such security with the knowledge that a
simultaneous order or orders of substantially the same size, time and price, for the sale or purchase of any
such security, has or will be entered by or for the same or different parties; or
(iii) By performing similar act where there is no change in beneficial ownership.
(b) To affect, alone or with others, a securities or transactions in securities that: (I) Raises their price to induce
the purchase of a security, whether of the same or a different class of the same issuer or of controlling,
controlled, or commonly controlled company by others; or (iii) Creates active trading to induce such a
purchase or sale through manipulative devices such as marking the close, painting the tape, squeezing the
float, hype and dump, boiler room operations and such other similar devices.
(c) To circulate or disseminate information that the price of any security listed in an Exchange will or is likely to
rise or fall because of manipulative market operations of any one or more persons conducted for the purpose
of raising or depressing the price of the security for the purpose of inducing the purpose of sale of such
security.
(d) To make false or misleading statement with respect to any material fact, which he knew or had reasonable
ground to believe was so false or misleading, for the purpose of inducing the purchase or sale of any security
listed or traded in an Exchange.
(e) To effect, either alone or others, any series of transactions for the purchase and/or sale of any security
traded in an Exchange for the purpose of pegging, fixing or stabilizing the price of such security; unless
otherwise allowed by this Code or by rules of the Commission.
24.2. No person shall use or employ, in connection with the purchase or sale of any security any manipulative
or deceptive device or contrivance. Neither shall any short sale be effected nor any stop-loss order be
executed in connection with the purchase or sale of any security except in accordance with such rules and
regulations as the Commission may prescribe as necessary or appropriate in the public interest for the
protection of investors.
24.3. The foregoing provisions notwithstanding, the Commission, having due regard to the public interest and
the protection of investors, may, by rules and regulations, allow certain acts or transactions that may otherwise
be prohibited under this Section.
1.1. Short Sales – Are these prohibited? NO, but subject to regulation under
SRC implementing rules. See Sec. 1, SRC Rule 24.2-2
- Sec. 4, ibid. - No short sale of registered/listed security in securities exchange if
seller has no intention to deliver security
- Sec. 6, ibid. - directors, officers or principal stockholders are prohibited from
making short sales in their own corporations
1.2. “Put”/”Call”/”Straddle”/”Option”/”Privilege” - members of an exchange are

COMMERCIAL LAW
prohibited from directly or indirectly indorsing or guaranteeing the performance of a PUT,

CALL, STRADDLE, OPTION or PRIVILEGE in relation to any security registered on a
securities exchange (Sec. 25, SRC)
Section 25. Regulation of Option Trading. – No member of an Exchange shall, directly or indirectly endorse
or guarantee the performance of any put, call, straddle, option or privilege in relation to any security registered
on a securities exchange. The terms "put", "call", "straddle", "option", or "privilege" shall not include any
registered warrant, right or convertible security.
2. Fraudulent Transactions
- Sec. 26, SRC
Section 26. Fraudulent Transactions. – It shall be unlawful for any person, directly or indirectly, in connection
with the purchase or sale of any securities to:
26.1. Employ any device, scheme, or artifice to defraud;
26.2. Obtain money or property by means of any untrue statement of a material fact of any omission to state a
material fact necessary in order to make the statements made, in the light of the circumstances under which
they were made, not misleading; or
26.3. Engage in any act, transaction, practice or course of business which operates or
would operate as a fraud or deceit upon any person.
3. Insider Trading
- Who is an “insider”? - Sec. 3.8; Sec. 30 (b), SRC
3.8. "Insider" means (a) the issuer; (b) a director or officer (or any person performing similar functions) of, or a
person controlling the issuer; gives or gave him access to material information about the issuer or the security
that is not generally available to the public; (d) A government employee, director, or officer of an exchange,
clearing agency and/or self-regulatory organization who has access to material information about an issuer or a
security that is not generally available to the public; or (e) a person who learns such information by a
communication from any forgoing insiders.
- Misuse of non-public, undisclosed information (a material fact) is the gravamen

of illegal conduct; Materiality Concept. See SEC v. Interport Resources Corp., GR No.
135808, Oct. 6, 2008
- See “fact of special significance” under Sec. 30 (c), SRC
Section 30. Transactions and Responsibility of Brokers and Dealers. – 30.1 No brokers or dealer shall
deal in or otherwise buy or sell, for its own account or for its own account or for the account of customers,
securities listed on an Exchange issued by any corporation where any stockholders, director, associated
person or salesman, or authorized clerk of said broker or dealer and all the relatives of the foregoing within the
fourth civil degree of consanguinity or affinity, is at the same time holding office in said issuer corporation as a
director, president, vice-president, manager, treasurer, comptroller, secretary or any office trust and
responsibility, or is a controlling of the issuer.
30.2. No broker or dealer shall effect any transaction in securities or induce or attempt to induce the purchase
or sale of any security except in compliance with such rules and regulations as the Commission shall
prescribe to ensure fair and honest dealings in securities and provide financial safeguards and other
standards for the operations of brokers and dealers, including the establishments of minimum net capital
requirements, the acceptance of custody and use of securities of customers, and the carrying and use of
deposits and credit balances of customers.

COMMERCIAL LAW
“Tipper/Tippee Theory” - both “tipper” and “tippee” are responsible. A person

who acquires material non-public information from an insider is also engaged in
insider trading (Aquino, T., Phil. Corporate Law Compendium, 2014 ed., at p. 726).
- Sec. 27, SRC re Insider's duty to disclose when trading.
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.
27.2. For purposes of this Section, information is "material nonpublic" if: (a) It has not been generally disclosed
to the public and would likely affect the market price of the security after being disseminated to the public and
the lapse of a reasonable time for the market to absorb the information; or (b) would be considered by a
reasonable person important under the circumstances in determining his course of action whether to buy, sell
or hold a security.
27.3. It shall be unlawful for any insider to communicate material nonpublic information about the issuer or the
security to any person who, by virtue of the communication, becomes an insider as defined in Subsection 3.8,
where the insider communicating the information knows or has reason to believe that such person will likely
buy or sell a security of the issuer whole in possession of such information.
27.4. (a) It shall be unlawful where a tender offer has commenced or is about to commence for:
(i) Any person (other than the tender offeror) who is in possession of material nonpublic 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 nonpublic and has been acquired directly
or indirectly from the tender offeror, 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; and
(ii) Any tender offeror, those acting on its behalf, the issuer of the securities sought or to be sought by such
tender offer, and any insider of such issuer to communicate material nonpublic information relating to the
tender offer to any other person where such communication is likely to result in a violation of Subsection 27.4
(a)(I).
(b) For purposes of this subsection the term "securities of the issuer sought or to be sought by such tender
offer" shall include any securities convertible or exchangeable into such securities or any options or rights in
any of the foregoing securities.
F. Protection of Investors
1. Tender Offer Rule

Ask: Are there any exemptions I can invoke?
* When there is change in control, those in current control have the option to who(m) you
will sell your control???; “you have to be given a way out”
- Sec. 19, SRC
Section 19. Tender Offers. – Any person or group of persons acting in concert who intends to acquire at least

COMMERCIAL LAW
15% of any class of any equity security of a listed corporation of any class of any equity security of a
corporation with assets of at least fifty million pesos (50,000,000.00) and having two hundred(200) or more
stockholders at least one hundred shares each or who intends to acquire at least thirty percent(30%) of such
equity over a period of twelve months(12) shall make a tender offer to stockholders by filling with the
Commission a declaration to that effect; and furnish the issuer, a statement containing such of the information
required in Section 17 of this Code as the Commission may prescribe. Such person or group of persons shall
publish all request or invitations or tender offer or requesting such tender offers subsequent to the initial
solicitation or request shall contain such information as the Commission may prescribe, and shall be filed with
the Commission and sent to the issuer not alter than the time copies of such materials are first published or
sent or given to security holders.
(a) Any solicitation or recommendation to the holders of such a security to accept or reject a tender offer or
request or invitation for tenders shall be made in accordance with such rules and regulations as may be
prescribe.
(b) Securities deposited pursuant to a tender offer or request or invitation for tenders may be withdrawn by or
on behalf of the depositor at any time throughout the period that tender offer remains open and if the securities
deposited have not been previously accepted for payment, and at any time after sixty (60) days from the date
of the original tender offer to request or invitation, except as the Commission may otherwise prescribe.
(c) Where the securities offered exceed that which person or group of persons is bound or willing to take up
and pay for, the securities that are subject of the tender offers shall be taken up us nearly as may be pro data,
disregarding fractions, according to the number of securities deposited to each depositor. The provision of this
subject shall also apply to securities deposited within ten (10) days after notice of increase in the consideration
offered to security holders, as described in paragraph (e) of this subsection, is first published or sent or given
to security holders.
(d) Where any person varies the terms of a tender offer or request or invitation for tenders before the
expiration thereof by increasing the consideration offered to holders of such securities, such person shall pay
the increased consideration to each security holder whose securities are taken up and paid for whether or not
such securities have been taken up by such person before the variation of the tender offer or request or
invitation.
19.2. It shall be lawful for any person to make any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made in the light of the circumstances under which
they are made, not mis-leading, or to engaged to any fraudulent, deceptive or manipulative acts or practices,
in connection with any tender offer or request or invitation for tenders, or any solicitation for any security
holders in opposition to or in favor of any such favor of any such offer, request, or invitation. The Commission
shall, for the purposes of this subsection, define and prescribe means reasonably designed to prevent, such
acts and practices as are fraudulent, deceptive and manipulative.
- CEMCO Holdings, Inc. v. National Life, GR No. 171815, Aug. 7, 2007
2. Rules on Proxy Solicitation
- Sec. 20, SRC
Section 20. Proxy solicitations. - 20.1. Proxies must be issued and proxy solicitation must be made in
accordance with rules and regulations to be issued by the Commission;
20.2. Proxies must be in writing, signed by the stockholder or his duly authorized representative and file before
the scheduled meeting with the corporate secretary.
20.3. Unless otherwise provided in the proxy, it shall be valid only for the meeting for which it is intended. No
proxy shall be valid only for the meting for which it is intended. No proxy shall be valid and effective for a
period longer than five (5) years at one time.

COMMERCIAL LAW
20.4. No broker or dealer shall give any proxy, consent or any authorization, in respect of any security carried
for the account of the customer, to a person other than the customer, without written authorization of such
customer.
20.5. A broker or dealer who holds or acquire the proxy for at least ten percent (10%) or such percentage as
the commission may prescribe of the outstanding share of such issuer, shall submit a report identifying the
beneficial owner of ten days after such acquisition, for its own account or customer, to the issuer of security, to
the exchange where the security is traded and to the Commission.
3. Disclosure Rule
- Sec. 23, SRC
Section 23. Transactions of Directors officers and Principal Stockholders. – 23.1. Every person who is
directly or indirectly the beneficial owner of more than ten per centum (10%) of any class of any equity security
which satisfies the requirements of subsection 17.2, or who is a director or an officer of the issuer of such
security, shall file, at the time either such requirement is first satisfied or after ten days after he becomes such
a beneficial owner, director, or officer, a statement form the Commission and, if such security is listed for
trading on an exchange, also with the exchange of the amount of all the equity security of such issuer of which
he is the beneficial owner, and within ten days after the close of each calendar month thereafter, if there has
been a change in such ownership at the close of the calendar month and such changes in his ownership as
have occurred during such calendar month.
23.2. For the purpose of preventing the unfair use of information which may have been obtained by such
beneficial owner, director or officer by reason of his relationship to the issuer, any profit realized by him from
any purchase or sale, or any sale or purchase, of any equity security of such issuer within any period of less
than (6) months unless such security was acquired in good faith in connection with a debt previously
contracted, shall inure to and be recoverable by the issuer, irrespective of any intention of holding the security
purchased or of not repurchasing the security sold for a period exceeding six (6) months. Suit to recover such
profit may be instituted before the Regional Trial Court by the issuer, or by the owner of any security of the
issuer in the name and in behalf of the issuer if the issuer shall fail or refuse to bring such suit within sixty (60)
days after request or shall fail diligently to prosecute the same thereafter, but not such shall be brought more
than two years after the date such profit was realized. This Subsection shall not be construed to cover any
transaction were such beneficial owner was not such both time of the owner or the sale, or the sale of
purchase, of the security involved, or any transaction or transactions which the Commission by rules and
regulations may exempt as not comprehended within the purpose of this subsection.
23.3. It shall be unlawful for any such beneficial owner, director or officer, directly or indirectly, to sell any
equity security of such issuer if the person selling the principal: (a) Does not own the security sold: or (b) If
owning the security, does not deliver not deliver it against such sale within 20 days thereafter, or does not
within five days after such sale deposit in the mails or the unusual channels of transportation; but no person
shall be deemed to have violated this subsection if he proves not withstanding the exercise of good faith he
was unable to make such delivery in such time, or that to do so would cause undue inconvenience or
expense.
23.4. The provisions of subsection 23.2 shall not apply to any purchase and sale, or sale and purchase, and
the provisions of Subsection 23.3 shall not apply to any sale, of an equity security not then or thereafter held
by him and an investment account, by a dealer in the ordinary course of his business and incident to the
establishment or maintenance by him of a primary or secondary market, otherwise than on an Exchange, for
such security. The Commission may, by such rules and regulations as it deems necessary or appropriate in
the public interest, define and prescribe terms and conditions with respect to securities held in an investment
account and transactions made in the ordinary course of business and incident to the establishment or
maintenance of a primary or secondary market.
- Mandatory Close-Out Rule – Abacus Securities Corp. v. Ampil, supra.

COMMERCIAL LAW
G. Civil Liability
- Secs. 56-61, SRC
Section 56. Civil Liabilities on Account of False Registration Statement. 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 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 twelve (12) months beginning from the
effective date of 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 statement by such
person.
Section 57. Civil Liabilities Arising in Connection With Prospectus, Communications and Reports. 57.1.
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.

COMMERCIAL LAW
57.2. 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 as 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
statement shall have purchased or sold a security at a price which was affected by such statement, for
damages caused by such reliance, unless the person sued shall prove that he acted in good faith and had no
knowledge that such statement was false or misleading.
Section 58. Civil Liability of Fraud in Connection with Securities Transactions. – Any person who
engages in any act or transaction in violation of Sections 19.2, 20 or 26, or any rule or regulation of the
Commission thereunder, shall be liable to any other person who purchases or sells any security, grants or
refuses to grant any proxy, consent or authorization, or accepts or declines an invitation for tender of a
security, as the case may be, for the damages sustained by such other person as a result of such act or
transaction.
Section 59. Civil Liability for Manipulation of Security Prices. – Any person who willfully participates in any
act or transaction in violation of Section 24 shall be liable to any person who shall purchase or sell any
security at a price which was affected by such act or transaction, and the person so injured may sue to
recover the damages sustained as a result of such act or transaction.
Section 60. Civil Liability with Respect to Commodity Futures Contracts and Pre-need Plans. – 60.1.
Any person who engages in any act or transactions in willful violation of any rule or regulation promulgated by
the Commission under Section 11 or 16, which the Commission denominates at the time of issuance as
intended to prohibit fraud in the offer and sale of pre-need plans or to prohibit fraud, manipulation, fictitious
transactions, undue speculation, or other unfair or abusive practices with respect to commodity future
contracts, shall be liable to any other person sustaining damages as a result of such act or transaction.
60.2. As to each such rule or regulation so denominated, the Commission by rule shall prescribe the elements
of proof required for recovery and any limitations on the amount of damages that may be imposed.
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.
- Sec. 62, SRC re limitation of actions.
Section 62. Limitation of Actions. – 62.1. No action shall be maintained to enforce any liability created under
Section 56 or 57 of this Code unless brought within two (2) years after the discovery of the untrue statement or
the omission, or, if the action is to enforce a liability created under Subsection 57.1 (a), unless, brought within
two (2) yeas after the violation upon which it is based. In no event shall an such action be brought to enforce a
liability created under Section 56 or Subsection 57.1 (a) more than five (5) years after the security was bona
fide offered to the public, or under Subsection 57.1 (b0 more than five (5) years after the sale.

COMMERCIAL LAW
62.2. No action shall be maintained to enforce any liability created under any other provision of this Code
unless brought within two (20 years after the discovery of the facts constituting the cause of action and within
five (5) years after such cause of action accrued.
- Sec. 63 re amount of damages and exclusive jurisdiction of RTC
Section 63. Amount of Damages to be Awarded. – 63.1. All suits to recover damages pursuant to Sections
56, 57, 58, 59, 60 and 61 shall be brought before the Regional Trial Court, which shall have exclusive
jurisdiction to hear and decide such suits. The Court is hereby authorized to award damages in an amount not
exceeding triple the amount of the transaction plus actual damages.
Exemplary damages may also be awarded in cases of bad faith, fraud, malevolence or wantonness in the
violation of this Code or the rules and regulations promulgated thereunder.
The Court is also authorized to award attorney’s fees not exceeding thirty percentum (30%) of the award.
63.2. The persons specified in Sections 56, 57, 58, 59, 60 and 61 hereof shall be jointly and severally liable for
the payment of damages. However, any person who becomes liable for the payment of such damages may
recover contribution from any other person who, if sued separately, would have been liable to make the same
payment, unless the former was guilty of fraudulent representation and the latter was not.
63.3. Notwithstanding any provision of law to the contrary, all persons, including the issuer, held liable under
the provisions of Sections 56, 57, 58, 59, 60 and 61 shall contribute equally to the total liability adjudged
herein. In no case shall the principal stockholders, directors and other officers of the issuer or persons
occupying similar positions therein, recover their contribution to the liability from the issuer. However, the right
of the issuer to recover from the guilty parties the amount it has contributed under this Section shall not be
prejudiced.
Others:
Are these investment contracts/securities?
 Crypto-currencies
 Crowdfunding
 Short sales
Independent directors?

The Unofficial Cheat Sheet For The Ambiguous Subjects in Commercial Law

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COMMERCIAL LAW

(Letters of Credit, Trust Receipts,

The Unofficial Cheat Sheet

 In commercial transactions: a letter of credit is a financial device developed by merchants as

B. Parties to a Letter of Credit

Love, Colene Arcaina.

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II. Trust Receipts

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III. Negotiable Instruments Law

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2. Kinds of Negotiable Instruments

Bill of Exchange (Sec. 126) Promissory Note (Sec. 184)

Drawer secondarily liable Maker primarily liable

B. Completion and Delivery

2. Completion of Blanks (Incomplete but Delivered [ID])

The Unofficial Cheat Sheet | 4

3. Incomplete and Undelivered Instruments (IU)

4. Complete but Undelivered Instruments (CU)

3. Indorsement by Minor or Corporation

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NOTES (Sundiang, 38-39)

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If payable to bearer, it is negotiated by delivery;

SPECIAL BLANK RESTRICTIVE QUALIFIED CONDITIONAL

Sec. 37. Effect of

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But all subsequent

G. Rights of the Holder

(a) That it is complete and regular upon its face;

2. Defenses Against the Holder

 Free from PERSONAL, but NOT REAL defenses.

The Unofficial Cheat Sheet | 8

REAL DEFENSES PERSONAL DEFENSES

(Sundiang & Aquino, 36)

MAKER DRAWER ACCEPTOR

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(a) If the instrument is payable to the order of a

I. Presentment for Payment

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2. Parties to whom Presentment for Payment should be made

3. Dispensation with Presentment for Payment

(b) Where the drawee is a fictitious person;

(c) By waiver of presentment, expressed or implied.

The Unofficial Cheat Sheet | 11

2. Parties who may give notice and dishonor

6. Dispensation with Notice

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the drawer in either of the following cases:

7. Effect of Failure to Give Notice

K. Discharge of Negotiable Instrument

Sec. 119. Instrument; how discharged. – A negotiable instrument is discharged:

(a) By payment in due course by or on behalf of the principal debtor;

2. Discharge of Parties Secondarily Liable

3. Right of Party who Discharged Instrument

The Unofficial Cheat Sheet | 13

negotiate the instrument, except:

(a) The date;

Q: Is alteration of the serial number of a check a material alteration?

2. Effect of Material Alteration

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3. Time for Acceptance