Define:

1. Conservatorship

The process of the Monetary Board in placing a bank or a quasibank under a

conservator to take charge of its assets, liabilities, and the management, and
exercisepowersnecessarytorestoreitsviability.Theconservatorshipshallnot
exceedone(1)year.

2. Watered Stock

A stock issued for a consideration less than its par or issued value or for a
considerationinanyformotherthancash,valuedinexcessofitsfairvalue.

3. Receivership

The process of the MB in placing a bank or a quasi- bank under a receiverwhenever,

uponreportoftheheadofthesupervisingorexaminingdepartment,theMonetary
Boardfindsthatabankorquasibankisunabletopayitsliabilitiesastheybecome
due in the ordinary course of business; cannot continue in business without
involvingprobablelosses,orhaswillfullyviolatedaceaseanddesistorderunder
SEC37.

4. Right of First Refusal

Mortgagor has the obligation to notify the mortgagee of his intention to sell the property
and to give him priority over other buyers.

5. Demand Deposit

All those liabilities of the Bangko Sentral and of other banks which are
denominatedinPhilippinecurrencyandaresubjecttopaymentinlegaltender
upondemandbythepresentationofchecks.

6. Covered Transaction (AMLA)

'Covered transaction' is a transaction in cash or other equivalent monetary

instrumentinvolvingatotalamountinexcessofP500,000.00withinonebanking
day.

7. Underwriter

In the securities industry an underwriter is a company, usually an

investment bank, that helps companies introduce their new securities
to the market.

In the insurance business, an underwriter is a company liable for

insured losses in return for a fee (premium).

8. Unrestricted Retained earnings

Unrestrictedretainedearningswhichmaybeamorepreciseterminplaceof
surplusarisingfromitsbusinessintheformerlaw.Thus,thedeclarationof
dividends is dependent upon the availability of surplus profit or unrestricted
retainedearnings,asthecasemaybe.

9. Fit and Proper Rule (General banking Law of 2000)

TheMonetaryBoardshallprescribe,passupon andreviewthequalificationsand
disqualificationsofindividualselectedorappointedbankdirectorsorofficersand
disqualifythosefoundunfit.

10.DOSRI Rule

Nodirectororofficerofanybankshall,directlyorindirectly,forhimselforasthe
representativeoragentofothers,borrowfromsuchbanknorshallhebecomea
guarantor,indorserorsuretyforloansfromsuchbanktoothers,orinanymanner
beanobligororincuranycontractualliabilitytothebankexceptwiththewritten
approvalofthemajorityofallthedirectorsofthebank,excludingthedirector
concerned:Provided,Thatsuchwrittenapprovalshallnotberequiredforloans,
other creditaccommodations and advances granted to officers under a fringe
benefitplanapprovedbytheBangkoSentral.

Distinction/Enumeration

1. Universalbanksorcommercialbanksandotherbanks

Universal and commercial banks represent the largest single group, resource-
wise, of financial institutions in the country. They offer the widest variety of
banking services among financial institutions. In addition to the function of
an ordinary commercial bank, universal banks are also authorized to engage
in underwriting and other functions of investment houses, and to invest in
equities of non-allied undertakings.

Other banks such as savings and mortgage banks, private development

banks, stock savings and loan associations and rural cooperative banks
provide basic financial services like accumulating savings of depositors and
investing them

2. Classandaseriesofshares

3. Merger and consolidation

MERGER CONSOLIDATION

(1) Union of two or more existing

corporationstoformanewcorporation
calledtheconsolidatedcorporation.Itis
(1) Union whereby one or more existing a combination by agreement between
corporations are absorbed by another two or more corporations by which
corporation which survives and continues their rights, franchise, privileges and
thecombinedbusiness. propertiesareunitedandbecomethose
ofasingle,newcorporation,composed
generally, although not necessarily, of
theSHsoftheoriginalcorporations.

(2) All constituent corporations are

(2)Allconstituentcorporationsexceptthe
dissolved and absorbed by the new
survivingoneisdissolved.
consolidatedenterprise.

(3) No liquidation occurs and the

(3)Noliquidationoccursandthesurviving
survivingcorporationassumesipsojure
corporationassumesipsojuretheliabilities
the liabilities of the dissolved
of the dissolvedcorporation, regardless of
corporation, regardless of whether the
whetherthecreditorshaveconsentedornot.
creditorshaveconsentedornot.

4. Giveinstanceswhenadissentingstockholderloseshisrightofappraisal.

Section84(CorporationCode)Whenrighttopaymentceases.Nodemandfor
payment under this Title may be withdrawn unless the corporation consents
thereto.If,however,suchdemandforpaymentiswithdrawnwiththeconsentof
thecorporation,oriftheproposedcorporateactionisabandonedorrescindedby
thecorporationordisapprovedbytheSecuritiesandExchangeCommissionwhere
such approval is necessary, or if the Securities and Exchange Commission
determinesthatsuchstockholderisnotentitledtotheappraisalright,thentheright
ofsaidstockholdertobepaidthefairvalueofhissharesshallcease,hisstatusasa
stockholder shall thereupon be restored, and all dividend distributions which
wouldhaveaccruedonhissharesshallbepaidtohim.

Essay

1. AjudgmentbydefaultwasrenderedagainstXCorporation,Ycorp
andJuanCruzinanactionfrothecollectionofasumofmoney.To
satisfythejudgment,thejudgmentcreditorsoughtthegarnishmentof
abankdepositofYcorporationwithChinaBankingCorporation.The
bankrefusedthegarnishmentbasedbasedonRA1405ortheSecrecy
ofDepositsAct.Decide.

AbankinginstitutionlikeChinaBankcannotvalidlyrefusetocomplywithacourt
process garnishing the bank deposit of a judgment debtor, by invoking the
provisionsofRepublicActNo.1405.

NItwasnottheintentionofthelegislaturetoplacebankdepositsbeyondthereach
ofexecutiontosatisfyafinaljudgment.Thereisnorealinquiryinanorderfor
garnishmentandiftheexistenceofthedepositweredisclosed,thedisclosurewas
purelyincidentaltotheexecutionprocess.(ChinaBankingCorporationv.Ortega)

2. AistheregisteredownerofStockcertificateno.000011.Heentrusted
thepossessionofsaidcertificatetohisfriendBwhoborrowedthesaid
certificatetosupportBsapplicationforpassport(orforpurposeother
thantransfer).ButBsoldthecertificatetoX,abonafidepurchaser
who relied on the endorsed certificates and believed him to be the
ownerthereof.

CanAclaimthesharesofstocksfromX?Explain.

No.SincetheshareswerealreadytransferredtoB,Acannotclaimthesharesof
stock from X. The certificate of stock covering said shares have been duly
endorsedbyAandentrustedbyhimtoB.Byhisacts.Aisnowestoppedfrom
claimingsaidsharesfromX,abonafidepurchaserwhoreliedontheendorsement
byAofthecertificateofstock.
 3. AA,aminoritystockholder,filedasuitagainstBB,CC,DDandEE,
the holders of majority shares of MOP Corp, for alleged
misappropriation of corporate funds. The complaint averred, inter
alia,thatMOPcorpisthecorporationinwhosebehalfandforwhose
benefitthederivativesuitisbrought.Intheircapacityasmembersof
theBOD,themajoritystockholdersadoptedaresolutionauthorizing
MOP Corp to withdraw the suit. Pursuant said resolution, the
corporatecounselfiledaMotiontoDismissinthenameofMOPCorp.
Shouldthemotionbegrantedordenied?ReasonBriefly.

Denied.Therequisitesforavalidderivativesuitexistinthiscase.First,AA
wasexemptfromexhaustinghisremedieswithinthecorporationanddidnot
haveademandontheBoardofDirectorsforthelattertosue.Here,sucha
demand would be futile, since the directors who comprise the majority
(namelyBB,CC,DDandEEaretheonesguiltyofthewrongcomplained
of. Second, AA appears to be a stockholder at the time of the alleged
misappropriationofcorporatefunds.Third,thesuitisbroughtonbehalfand
forthebenefitofMOPCorporation.

Inthisconnection,itwasheldinConmart(Phils.)Inc.v.SecuritiesandExchange
Commission,198SCRA73(1991)thattogranttothecorporationconcernedthe
right of withdrawing or dismissing the suit, at the instance of the majority
stockholdersanddirectorswhothemselvesarethepersonsallegedtohave
committedthebreachoftrustagainsttheinterestsofthecorporationwouldbeto
emasculatetherightofminoritystockholderstoseekredressforthecorporation.
Filingsuchactionasaderivativesuitevenbyalonestockholderisoneofthe
protections extended by law to minority stockholders against abuses of the
majority.

4. Astockholderclaimedthathisstockcertificatewaslost.Aftergoing
throughwiththeprocedurefortheissuanceoflostcertificate,andno
contest was presented within 1 year from the last publication, the
corporationissuedanewcertificateofstockinlieuofthesupposedlost
certificate.Thestockholderimmediatelysoldhissharesandendorsed
thereplacementcertificatetoabuyer.Itturnedoutthattheoriginal
certificatewasnotlost,butsoldandendorsedtoanotherperson.

A. Maythecorporationbemadeliablebytheaggrievedparty?Explain
 No,thecorporationcannotbemadeliable.Exceptincasesoffraud,bad
faith,ornegligenceonthepartofthecorporationanditsofficers,noaction
maybebroughtagainstanycorporationwhichhaveissuedcertificatesof
stockinlieuofthoselost,stolen,ordestroyedpursuanttotheprocedure
prescribedbylaw.

B. Who will have a better right over the shares, the endorser of the
original certificate or the endorser of the replacement certificate?
Explain

Endorsee of the replacement certificate has a better right to the shares. After
expirationof1yearformhedateofthelastpublication,andnocontesthasbeen
presentedtosaidcorporationregardingsaidcertificate,therighttomakesuch
contesthasbeenbarredandsaidcorporationalreadycancelledinitsbooksthe
certificatewhichhavebeenlost.

5. XYZCorporationenteredintoacontractofleasewithABC,Inc.,overa
pieceofrealestateforatermof20years,renewableforanother20years,
providedthatXYZ'scorporatetermisextendedinaccordancewithlaw.Four
yearsafterthetermofXYZCorporationexpired,butstillwithintheperiod
allowedbytheleasecontractfortheextensionoftheleaseperiod,XYZCorp.
notifiedABC,Inc.,thatitisexercisingtheoptiontoextendthelease.ABC,
Inc.,objectedtotheproposedextension,arguingthatsincethecorporatelife
ofXYZ hadexpired,itcouldnolongeropttorenewthelease.XYZCorp.
counteredthatwithstandingthelapseofitscorporatetermitstillhasthe
righttorenewtheleasebecausenoquowarrantoproceedingsforinvoluntary
dissolutionofXYZCorp.hasbeeninstitutedbytheOfficeoftheSolicitor
General.IsthecontentionofXYZCorp.meritorious?Explainbriefly.

XYZ Corporation's contention is not meritorious. Based on the ruling of the

SupremeCourtinPhilippineNationalBankvs.CFIofRizal,209SCRA(1992).
XYZCorp.wasdissolvedipsofactoupontheexpirationofitsoriginalterm.It
ceasedtobeabodycorporateforthepurposeofcontinuingthebusinessforwhich
it was organized, except only for purposes connected with its winding up or
liquidation.ExtendingtheleaseisnotanacttowinduporliquidateXYZCorp.'s
affairs.Itiscontrarytotheideaofwindinguptheaffairsofthecorporation.

6.ArticleXIIoftheConstitutionprovidesthatNofranchise,certificate,or
anyotherformofauthoritiesfrotheoperationofapublic utilityshallbe
grantedexcepttocitizensofthePhilippinesatleast80percentrumofwhose
capitalisownedbysuchcitizens.ExplainthetermCapitalasusedinthis
provision.

The Supreme Court ruled that capital under the 1987 Constitution and the
ForeignInvestmentsActof1991referstoshareswithvotingrights,aswellasfull
beneficialownership,andnottothetotaloutstandingcapitalstock.Simplyput,the
6040 ownership requirement in favor of the Filipino citizens must apply
separately to each class of shares, whether common, preferred nonvoting,
preferredvotingoranyotherclassofshares.

Insider

WhatdoestheterminsidermeanasusedintheRevisedSecuritiesact?

Insidermeans1)theissuer,2)adirectororofficerof,orapersoncontrolling,
controlled by, or under common control with, the issuer, 3) a person whose
relationshiporformerrelationshiptotheissuergivesorgavehimaccesstoafact
of special significance about the issuer or the security that is not generally
available,or4)apersonwholearnssuchafactfromanyoftheforegoinginsiders
withknowledgethatthepersonfromwhomhelearnsthefactissuchaninsider
(Sec30b,RSA)

WhenisafactconsideredtobeofspecialsignificanceunderthesameAct?

Itisonewhich,inadditiontobeingmaterial,wouldbelikelytoaffectthemarket
priceofasecuritytoasignificantextentonbeingmadegenerallyavailable,orone
which a reasonable person would consider especially important under the
circumstancesindetermininghiscourseofactioninthelightofsuchfactorsasthe
degreeofitsspecificity,theextentofitsdifferencefrominformationgenerally
availablepreviously,anditsnatureandreliability.(Sec.30c,RSA)

Whataretheliabilitiesofapersonwhoviolatesthepertinentprovisionsof
theRevisedSecuritiesActregardingtheunfairuseofinsideinformation?

Thepersonmaybeliableto1)afineofnotlessthanP5thnormorethanP500thor
2)imprisonmentofnotlessthan7yearsnormorethan21years,3)orbothsuch
fineandimprisonmentinthediscretionofthecourt.
Ifthepersonisacorporation,partnership,associationorotherjuridicalentity,the
penaltyshallbeimposedupontheofficersofthecorporation,etc.responsiblefor
the violation. And if such an officer is an alien, he shall, in addition to the
penalties prescribed, be deported without further proceedings after service of
sentence.

TenderOffer

Whatisatenderoffer?

Tender offer is a publicly announced intention of a person acting alone or in

concertwithotherpersonstoacquireequitysecuritiesofapubliccompany.Itmay
alsobedefinedasamethodoftakingoveracompanybyaskingstockholdersto
selltheirsharesatapricehigherthanthecurrentmarketpriceandonaparticular
date.

Inwhatinstancesisatenderofferrequiredtobemade?

a) Thepersonintendstoacquire15%ormoreoftheequityshareofapublic
companypursuanttoanagreementmadebetweenoramongthepersonandone
ormoresellers.
b) Thepersonintendstoacquire30%ormoreoftheequitysharesofapublic
companywithina
periodof12months.
c) Thepersonintendstoacquireequitysharesofapubliccompanythatwould
resultinownershipofmorethan50%ofthesaidshares.

Exemptfrommandatorytenderofferrequirement
a. any purchase of shares from the unissued capital stock, which acquisition will
not result to a 50 % or more ownership of shares
b. any purchase of shares from an increase in authorized capital stock
c. any purchase of shares in connection to foreclosure proceedings
d. any purchase of shares in connection with privitazation
e. any purchase of shares in connection with corporate rehabilitation
f. any purchase through an open market
g. meger or consolidation

DOSRI (Acquisition of real estate by any bank)

SEC51.CeilingonInvestmentsinCertainAssets.Anybankmayacquire
realestateasshallbenecessaryforitsownuseintheconductofitsbusiness:
Provided,however,Thatthetotalinvestmentinsuchrealestateand
improvementsthereof,includingbankequipment,shallnotexceedfiftypercent
(50%)ofcombinedcapitalaccounts:Provided,further,Thattheequityinvestment
ofabankinanothercorporationengagedprimarilyinrealestateshallbe
consideredaspartofthebank'stotalinvestmentinrealestate,unlessotherwise
providedbytheMonetaryBoard.(25a)

PDICRehabilitationreceiverofbanks

ThePDICasreceivershallcontrol,manageandadministertheaffairsofthe
closedbank.Effectiveimmediatelyupontakeoverasreceiverofsuchbank,the
powers,functionsandduties,aswellasallallowances,remunerationsand
perquisitesofthedirectors,officers,andstockholdersofsuchbankaresuspended,
andtherelevantprovisionsoftheArticlesofInPDICandBylawsoftheclosed
bankarelikewisedeemedsuspended.

Theassetsoftheclosedbankunderreceivershipshallbedeemedincustodialegis
inthehandsofthereceiver.Fromthetimetheclosedbankisplacedundersuch
receivership,itsassetsshallnotbesubjecttoattachment,garnishment,execution,
levyoranyothercourtprocesses.

BULKSALESLAW

Whenisasaleconsideredinbulk?

Sec.2

1)Anysale,transfer,mortgageorassignmentofastockofgoods,wares,
merchandise,provisions,ormaterialsotherwisethanintheordinarycourseof
tradeandtheregularprosecutionofthebusinessofthevendor,mortgagor,
transferor,orassignor;or

2)sale,transfer,mortgageorassignmentofall,orsubstantiallyall,ofthebusiness
ortradetheretoforeconductedbythevendor,mortgagor,transferor,orassignor,or

3)ofall,orsubstantiallyall,ofthefixturesandequipmentusedinandaboutthe
businessofthevendor,mortgagor,transferor,orassignor,shallbedeemedtobea
saleandtransferinbulk,incontemplationofthisAct.

Dutiesofapersonselinginbulk

Sec3,4,5and9

1)Deliveraswornwrittenstatementofthenamesandaddressesofallcreditorsto
whomthevendorormortgagormaybeindebted,indicatingtheamountof
indebtednessdueorowing,ortobecomedueorowing(Sec.3);

2)Toapplytheproceedsofthesaleormortgageproratatocreditors(Sec.4);

3)Atleast10daysbeforesale/transfer/executionofmortgage,makedetailed
inventoryandtopreservethesameshowingthequantityand,totheextent
possible,thecostpricetothevendor,etc.ofeacharticletobeincludedinthesale,
etc.(Sec.5);

4)Givenoticetoeverycreditoratleast10daysbeforethesaleortransfer(Sec.5);

5)RegistrationofthedocumentsinBureauofTradeRegulationandConsumer
Protection(Sec.9).

WhenLawnotApplicable

1)Allcreditorsgivewrittenwaiver(Sec.2);

2)Judicialsales(Sec.8)

AMLAWhataresuspicioustransactions

1.Thereisnounderlyinglegalortradeobligation,purposeoreconomic
justification

2.Theclientisnotproperlyidentified

3.Theamountinvolvedisnotcommensuratewiththebusinessorfinancial
capacityoftheclient
4.Takingintoaccountallknowncircumstances,itmaybeperceivedthatthe
client'stransactionisstructuredinordertoavoidbeingthesubjectofreporting
requirementsundertheAct

5.Anycircumstancesrelatingtothetransactionwhichisobservedtodeviatefrom
theprofileoftheclientand/ortheclient'spasttransactionswiththecovered
institution

6.Thetransactionsisinawayrelatedtoanunlawfulactivityoroffenseunderthis
Actthatisabouttobe,isbeingorhasbeencommitted

7.Anytransactionsthatissimilaroranalogoustoanyoftheforegoing

Formalitiesinforeclosureofmortgage(realandchattel)

REALESTATEMORTGAGES
Procedure

Wheretofile

>ApplicationshouldbefiledwiththeExecutiveJudgethroughtheClerkof
Court.

>Afterthereceiptoftheapplication,theClerkofCourtshall:

1)examinethesametoensurethatthespecialpowerifattorneyauthorizingthe
EJFofthereal

propertyiseitherinsertedorattachedtothedeedofrealestatemortgage.

2)raffletheapplicationamongtheSheriffs

3)causethepostingand/orpublicationofthenoticeofsale

FRIA