PILACAN, KARYL VIC P.

JUNE 9, 2020

SPECIAL COMMERCIAL LAW EXAM

UNIVERSITY OF THE CORDILLERAS

1. What is the rationale for the prohibition on the issuance of restraining order enjoining the
BSP from examining institution/s subject to its supervisory or examination powers?

The rationale for the prohibition on the issuance of restraining order enjoining the BSP from
examining institution/s subject to its supervisory or examination powers is so that the purpose
of its creation won’t be hindered.

Under a case decided by the Supreme court, it ruled that operations and activities of banks shall
be subjected to the supervision of the Bangko Sentral ng Pilipinas. Thereupon, an issuance of
restraining order enjoining the Bangko Sentral ng Pilipinas from examining institutions is a
violation on the primary purpose of its creation.

Such purpose being to promote and maintain the monetary stability and convertibility of peso
and that upon such primary objective is the power to supervise and examine over all banks and
non-banking financial institutions performing quasi-banking functions.

2. Ana and Berto are both employees of the BSP. Ana works as a lawyer for the Office of the
General Counsel and Legal Services, while Berto is a bank examiner tasked to conduct regular
examination of ABC Bank. May Ana and/or Berto secure borrowings from ABC Bank?

Both Ana and Berto may secure borrowings from ABC Bank provided that they comply with the
requisites provided for by the new central bank act.

The law provides that personnels of the Bangko Sentral are hereby prohibited from borrowing from any
institution subject to supervision or examination by the Bangko Sentral unless said borrowing is
transacted on an arm’s length basis, fully disclosed to the Monetary Board, and shall be subject to such
rules and regulations as the Monetary Board may prescribe.

Since both Ana and Berto are both employees of BSP, they are prohibited from borrowing from ABC
bank because it is a bank subject to examination by the BSP. However, they may secure borrowings from
such bank provided that; the loan should be upon terms not less favourable to the bank than those
offered to others, and that both of them, specially Berto who conducts the regular examination and
deals directly with the bank, must fully disclose to the Monetary Board the fact that they borrowed from
such bank. Furthermore, such borrowings shall be subject to such further rules and regulations as the
Monetary Board may prescribe.
3. What is the judicial remedy from an administrative decision of the Monetary Board?

The remedy is to appeal or file a verified petition for review with the Court of appeals

In a case decided by the Supreme Court, it ruled that the BSP Monetary Board is a quasi-judicial agency
exercising quasi-judicial powers or functions.

Since the Monetary Board is a quasi-judicial agency and the appellate jurisdiction of the Court of
Appeals generally refers to quasi-judicial agencies, instrumentalities, boards or commissions, then the
Monetary Board is subject to the appellate jurisdiction of the Court of appeals, and any decision it
makes may be appealed directly with such court.

4. What is the rationale for the difference in the redemption period of an individual mortgagor
and juridical entity mortgagor?

The rationale for the difference in the treatment of juridical persons and natural persons was based on
the nature of the properties foreclosed whether these are used as residence, for which the more liberal
one-year redemption period is retained, or used for industrial or commercial purposes, in which case a
shorter term is deemed necessary to reduce the period of uncertainty in the ownership of property and
enable mortgagee-banks to dispose sooner of these acquired assets.

While a natural person is given one year redemption period to give the mortgagor ample time to
reacquire the property foreclosed. The shorter redemption period of three months is an incentive which
mortgagee-banks may use to encourage prospective assignees to accept the assignment of credit for a
consideration. If the redemption period under R.A. No. 8791 would be extended upon the assignment
by the bank of its rights under a mortgage contract, then it would be tedious for banks to find willing
parties to be subrogated in its place.

5. Can the senate sitting as an impeachment court compel the production of the records
pertaining to foreign currency deposits?

No, the senate cannot compel the production of the records pertaining to foreign currency deposits
even if sitting as an impeachment court

The law provides that all foreign currency deposits are hereby declared as and considered of an
absolutely confidential nature and, except upon the written permission of the depositor, in no instance
shall foreign currency deposits be examined, inquired or looked into by any person, government official,
bureau or office whether judicial or administrative or legislative.
 The only exception to the protection granted by the foreign currency deposit is the written permission
of the depositor. The senate sitting as an impeachment court is not an exception. The law even expressly
stated that any person person, government official, bureau or office whether judicial or administrative
or legislative is prohibited, leaving no room for other interpretation.

Also, allowing production of records involving a foreign currency deposit every time the senate sits as an
impeachment court would defeat the purpose of such law which is” to encourage the inflow of foreign
currency deposits into the banking institutions to properly channel the same to loans and investments in
the Philippines”

6. Distinguish covered from suspicious transactions. Cite examples.

A covered transaction is a transaction in cash or other equivalent monetary instrument involving a total
amount in excess of Five hundred thousand pesos (P500,000.00) within one (1) banking day.

On the other hand, suspicious transaction is a transaction with covered institutions, regardless of the
amounts involved, where any of the following circumstances exist:

a) there is no underlying legal or trade obligation, purpose or economic justification;

b) the client is not properly identified;

c) the amount involved is not commensurate with the business or financial capacity of the client;

d) taking into account all known circumstances, it may be perceived that the client’s transaction is
structured in order to avoid being the subject of reporting requirements under the Act;

e) any circumstance relating to the transaction which is observed to deviate from the profile of the
client and/or the client’s past transactions with the covered institution;

f) the transaction is in any way related to an unlawful activity or offense under this Act that is
about to be, is being or has been committed; or

g) any transaction that is similar or analogous to any of the foregoing.

As an example, transferring cash from your bank account to another account online, or depositing with
your bank an amount of P500,000 or more than, the transfer or deposit of such amount being made in a
single day is a covered transaction.

While for suspicious transactions, the amount transacted is not important. An example is when a
person, considered as a minimum wage earner and no other source of income other than the job
offering minimum wage, was able to deposit an amount of 100,000 in his bank account for three straight
days. The amount involved here is less than 500,000 and the transaction was not even made in a single
 banking day, but the amount involved is not commensurate with the business or financial capacity of the
banking client, therefore making it a suspicious transaction.

7. Are there instances where the AMLC can directly issue a freeze order without filing an ex-
parte petition for freeze order with the Court of Appeals?

There are no instances. The AMLC must always file an ex-parte petition with the Court of Appeals.

The law provides that before a freeze order is to be issued by the Court of appeals and such court will
issue a freeze order only upon the filing verified ex parte petition by the AMLC and after determination
that probable cause exists that any monetary instrument or property is in any way related to an
unlawful activity.

Therefore, the AMLC cannot directly issue a freeze order because it must first file an ex-parte
application before it is issued by the Court of appeals.

8. Under what instances may the court, on motion or motu proprio, may terminate, modify or
set conditions for the continuance of suspension of payments, or relieve a claim from the coverage
of the Stay or Suspension Order?

The Financial Rehabilitation and Insolvency Act provides that the court, on motion or motu
proprio, may terminate, modify or set conditions for the continuance of suspension of
payments, or relieve a claim from the coverage of the Stay or Suspension.

Order is upon motion filed by the individual debtor or motu proprio. In here, the court may
issue an order suspending any pending execution against the individual debtor in the following
instances:

a) Properties held as security by secured creditors shall not be the subject of such suspension
order.

b) The suspension order shall lapse when three (3) months shall have passed without the
proposed agreement being accepted by the creditors or as soon as such agreement is denied.

c) No creditor shall sue or institute proceedings to collect his claim from the debtor from the
time of the filing of the petition for suspension of payments and for as long as proceedings
remain pending.
The following creditors are not affected by the Stay Order. (1) those creditors having claims for
personal labor, maintenance, expense of last illness and funeral of the wife or children of the
debtor incurred in the sixty (60) days immediately prior to the filing of the petition; an (2)
secured creditors.
9. What is the controversy test as applied in intra-corporate controversy?

As applied in intra-corporate controvery, under the nature of the controversy test, the incidents of that
relationship must also be considered for the purpose of ascertaining whether the controversy itself is
intra-corporate.

The controversy must not only be rooted in the existence of an intra-corporate relationship, but must as
well pertain to the enforcement of the parties' correlative rights and obligations under the Corporation
Code and the internal and intra-corporate regulatory rules of the corporation. If the relationship and its
incidents are merely incidental to the controversy or if there will still be conflict even if the relationship
does not exist, then no intra-corporate controversy exists.

10. Is the question on proxy validation fall under the jurisdiction of the RTC or the SEC?

The question on proxy validation falls under the jurisdiction of the RTC

In a case decided by the Supreme Court, it ruled that before, the SEC has the power to adjudicate
controversies relating not only to proxy solicitation, but also to proxy validation because included in the
cases within its Jurisdiction as provided for by Sec 5 of the SRC are controversies in the election or
appointments of directors, trustees, officers or managers of such corporations, partnerships or
associations."

However the cases referred to in Section 5 which includes jurisdiction over controversies in the election
or appointments of directors, trustees, officers or managers of such corporations, partnerships or
associations were transferred from the jurisdiction of the SEC to the regular courts or the Regional Trial

11. What is the “Serious Situation Test” as applied in corporate rehabilitation cases?

As applied in corporate rehabilitation cases, the serious situations test states that the
suspension of claims is counted only upon the appointment of a rehabilitation receiver, and
certain situations serious in nature must be shown to exist before one is appointed.

Receivers may be appointed whenever:

1. necessary in order to preserve the rights of the parties-litigants; and/or
2. protect the interest of the investing public and creditors.
 The situations contemplated in these instances are serious in nature. There must exist a
clear and imminent danger of losing the corporate assets if a receiver is not appointed.
Absent such danger, such as where there are sufficient assets to sustain the rehabilitation
plan and both investors and creditors are amply protected, the need for appointing a
receiver does not exist. Simply put, the purpose of the law in directing the appointment of
receivers is to protect the interests of the corporate investors and creditors.

12. What is the remedy of an aggrieved party against a Freeze Order?

The remedy of an aggrieved party against a freeze order is to file a Petition for review on
certiorari.

Under Section 57 of the Rules in Civil Forfeiture Cases providing for the remedy available in
cases involving freeze orders issued by the Court of appeals, it states that Any party aggrieved
by the decision or ruling of the court may appeal to the Supreme Court by petition for review
on certiorari under Rule 45 of the Rules of Court.

In this case, any aggrieved party may file a petition for review on certiorari under rule 45 with
the Supreme Court.

13. Distinguish Rehabilitation from Suspension of Payment.

a. As to who may avail of the remedy

The Remedy of rehabilitation applies to both insolvent juridical and individual debtors

While suspension of payments applies only to individual debtors.

b. As to how jurisdiction is acquired over the persons affected

In rehabilitation in cases of a) Voluntary liquidation proceedings of both juridical and

individual debtors, jurisdiction over all persons affected by the proceedings is acquired
upon publication of the Liquidation Order as provided in Republic Act No. 10142; b)
Involuntary liquidation proceedings of juridical debtors, jurisdiction over all persons
affected by the proceedings is acquired upon publication of the petition or motion; and
in case of Involuntary liquidation proceedings of individual debtors, jurisdiction over the
person of the debtor is acquired upon service of summons; whereas jurisdiction over all
other persons affected by the proceedings is acquired upon publication of the
Liquidation.
 While, in suspension of payments proceedings, jurisdiction over all persons affected by
the proceedings is acquired upon publication of the Suspension of Payments Order as
provided in these Rules.

c. As to Venue

In rehabilitation, in cases of Voluntary and Involuntary liquidation proceedings of an

insolvent juridical debtor, venue lies in the principal office as specified in its articles of
incorporation or partnership or where the principal office of the corporation or
partnership as registered with the Securities and Exchange Commission (SEC) is in Metro
Manila, the petition must be filed in the Regional Trial Court of the city or municipality
where the head office is located.

While, in suspension of payments, venue lies in the court having jurisdiction over the
province or city where he has resided for six (6) months prior to the filing of the petition.

d. As to the action of the court on the petition or motion filed

In rehabilitation, if the court finds the petition or motion to be sufficient in form and
substance, it shall issue a Liquidation Order. Otherwise, the court shall dismiss the
petition or deny the motion.

While in suspension of payments, within five (5) working days from the filing of the
petition, the court issues a Suspension of Payments Order.

14. How are the relationships of the parties in a letter of credit governed?

RELATIONSHIP OF THE PARTIES is governed by:

1.) Issuing bank and applicant – the relationship is governed by the terms of the application and
agreement for the issuance of the LC by the bank.

2.) Issuing bank and the Beneficiary – the relationship is governed by the terms of the LC issued by
the bank

3.) Applicant and beneficiary – the relationship is governed by the contract they entered into.

15. Distinguish an Ordinary Corporation from Banking Corporation.

a. As to governing law
 Ordinary Corporations are governed by the Revised Corporation Code

While a Banking corporation is governed by the General Banking Law

b. As to definition

A corporation is an artificial being created by operation of law, having the right of

succession and the powers, attributes and properties expressly authorized by law or
incident to its existence.

While a Banking corporation refers to entities engaged in the lending of funds obtained
in the form of deposits.

c. As to the number of Directors

For Ordinary Corporation, the number of directors must not be more than fifteen

While for banking corporations, there shall be at least five (5), and a maximum of fifteen
(15) members of the board of directors of bank, two (2) of whom shall be independent
directors.
d. As to regulation
For ordinary corporations, it is subject to the regulation of the SEC

While for banking corporations, it is subject to the regulation of Monetary Board.

e. As to degree of diligence required

For ordinary corporations, unless impressed with public interest, is required to exercise
ordinary diligence

While for banking corporations, it is required to exercise extraordinary diligence as it is

impressed with public interest.