Roque, Raymond R.

06-78143

Part. I

1. In the case of Yujuico et. al. v. Quiambao, an intra-corporate

controversy is defined as a controversy which pertains to the relationship
between the corporation, partnership or association and the public or as
between the corporation, partnership or association and the State in so
far as its franchise, permit or license to operate is concerned or as
between the corporation, partnership or association and its stockholders,
partners, members or officers and among the stockholders, partners or
associates themselves. In the case of Speed Distributing Corp. v. CA, the
Supreme Court ruled that to determine whether a suit is an intra-
corporate controversy or not, two factors must be taken into
consideration. First factor to consider is the status or relationship of the
parties. A case is intra-corporate when it arises out of a dispute between
the board members, stockholders or management on one hand and
against the corporation, partnership or association to which they belong.
It may also arise in a dispute involving the corporation, partnership and
association as against the State insofar as the corporate franchise is
concerned, or it may arise in a dispute among the stockholders, board
and management themselves in that capacity. The second factor is the
nature of the question that is the subject of their controversy. This means
that the dispute must be intrinsically connected with the regulation of the
corporation, partnership or association as opposed to those disputes
which are purely civil in nature the resolution of which may be done by
resorting to the pertinent Civil Code provisions. In the same case as cited
above, the Supreme Court declared that by virtue of Sec. 5.2 of the
Securities Regulation Code, it is the proper Regional Trial Court which has
the exclusive original jurisdiction over intra-corporate disputes.

2. The 3 contractual relationships in a documentary sale are (1) the sales

contract, which is the agreement between the buyer and the seller for the
sale of goods; (2) the letter of credit, which is an agreement between the
buyer of the goods and its own bank; and (3) the bill of lading, which is an
agreement between the seller and the carrier of the goods wherein the
carrier or his agent acknowledges that the goods as indicated in such
document have been received for shipment to its agreed destination.

3. CONTRACTUAL OBLIGATIONS IN A LETTER OF CREDIT

a. The applicant, in a letter of credit transaction, undertakes to pay or

reimburse the bank which issued the letter of credit (plus a certain
fee) after the latter has paid the seller for purchase price of the goods
sold upon presentation of required documents while the issuing bank
obligates itself to honor the letter of credit it issued upon presentation
of the required set of documents and then pay the seller for amount
applied for by the applicant as indicated in the letter of credit.
b. The issuing bank, in a letter of credit transaction, undertakes to
reimburse the confirming bank (plus a certain fee) when the latter
paid the amount of credit to the seller (beneficiary) upon presentation
by the seller to the confirming bank of the required documents while
the confirming bank assumes the obligation that it would pay the
seller only if the seller-beneficiary presented to it the conforming
documents which would have triggered the payment otherwise, the
confirming bank would not be able to ask for reimbursement.

c. The advising bank undertakes to notify the seller-beneficiary, on behalf

of the issuing bank, regarding the opening of the letter of credit on the
latter’s favor as well as the terms of the credit while on the other
hand, issuing bank obligates itself to pay the advising bank a certain
fee based on their arrangement upon the performance of the advising
bank of its corresponding obligation.

d. In a letter of credit transaction, the beneficiary has no contractual

obligation in relation to the confirming bank and conversely, neither
the confirming bank has any contractual obligation in favor of the
seller-beneficiary.

e. In a letter of credit transaction, the beneficiary has no contractual

obligation in favor of the advising bank and neither the advising bank
has any contractual obligation in favor of seller-beneficiary.

4. In the case of Cemco Holdings, Inc. v. National Life Insurance Co., the
Supreme Court defined tender offer as an offer made by a person
intending to acquire equity securities in a company to the stockholders of
such company so that the latter could tender their shares at the terms
specified in the offer. The making of tender offer is required in cases
when any person or group of person intends to acquire 35% or more of
equity securities, in a single instance, of a public company as defined
under the law. It is also required to make a tender offer in cases when the
acquisition of more than 35% equity securities is made thru several
transactions made within a 12-month period. It is likewise required in
cases when the acquisition of equity securities is for less than 35% but
the same would result in ownership of at least 51% stake in a public
company. An issuer tender offer means a tender offer made by the
company itself for the reacquisition of its own shares or the tender offer
made by an affiliate of such a company for the same shares. [SRC Rule
19 (1)(f)]

5. The term security refers to any instrument, either written or

electronic, representing ownership, rights to ownership or debt interest in
a corporation or any profit-making venture or enterprise, including but
not limited to, stocks, bonds, debentures, notes, evidence of
indebtedness, investment contracts, options and warrants. [Sec. 3.1,
SRC] On the other hand, investment contracts refers to contracts,
transactions or schemes whereby a person invests his money in a
common enterprise and is led to expect profits primarily from the efforts
of other persons. [Power Homes Unlimited v. SEC]
6. No. The Certificates of Membership involved in this problem cannot be
considered as included in the term security as it is now defined under the
Securities Regulation Code. It must first be noted that under the former
definition of security under the Revised Securities Act, it was expressly
included therein as security those contracts and investments even where
there is no tangible return on investments but an appreciation of capital
as well as enjoyment of particular rights and privileges. (SEC Opinion 10-
21-1982 Odyssey Park) But in the present definition of the term security
under the Securities Regulation Code, such a clause of broad coverage
was discarded. It can be reasonably inferred then due to such omission
that those contracts that are previously covered by the discarded clause
will no longer be considered as falling under the term security. One of
those contracts is what is involved in this case.

7. The Securities Regulation Code provides certain features for the

protection of the investing public. Among these are: (1) the prohibition
against insider trading and other manipulative practices; (2) the
requirement for the registration of securities; (3) reportorial requirements
for issuers; (4) the requirement pertaining to the registration of securities
market professionals; and (5) the prohibition against the use of
unregistered exchanges as well as the regulation of over-the-counter
markets.

8.
a. The 2-pronged legal test that the Supreme Court applies in
determining whether a foreign corporation is doing business in the
Philippines is the substance-continuity test first enunciated in the
case of Mentholatum Co. v. Mangaliman. The substance test provides
that a foreign corporation is doing business in the country when it is
found to be continuing the body or substance of the business or
enterprise for which it was organized while the continuity test states that
a foreign corporation is doing business in the country when its activity
herein shows a continuity of commercial dealings and arrangement and
that it perform acts in furtherance of the corporate purpose or objective.

b. Some corporate acts which indicates “doing business” in the

Philippines are the participation in bidding process for the operation of
waste management facility in line with the corporate purpose of the firm
(European Resources and Technologies, Inc. vs. Ingenieuburo Birkhahn),
the employment of an exclusive distributing agent in the Philippines
(Mentholatum Co. v. Mangaliman) and the granting and extension of 90-
day credit terms to a domestic corporation for every purchase made by
the latter. (Eriks v. CA)

c. A foreign corporation doing business in the Philippines without

license cannot maintain any suit or action before Philippine courts and
administrative agencies. (Sec. 133, Corporation Code) It may likewise be
required to pay a fine for violating the Corporation Code (Sec. 144
Corporation Code)

9. The Foreign Investments Act defines a Philippine National as a

citizen of the Philippines, or a domestic partnership or association wholly
owned by citizens of the Philippines or a corporation organized under
Philippine law with at least 60% of its outstanding capital stock with voting
rights are owned and held by Filipinos, or a corporation organized abroad
but registered with the SEC as doing business in the country and all of its
outstanding capital stock with voting rights are wholly owned by Filipinos
or a trustee of pension, retirement or separation benefits funds and the
trustee is a Filipino and at least 60% of the funds will accrue to the benefit
of the Filipinos. The grandfather rule is the stricter method of
determining the nationality of a corporation which states that if the
Filipino ownership in the corporation is less than 60% of the total
outstanding capital stock or when the 60-40 Filipino foreign equity
ownership is in doubt, the foreign component in the company is
aggregated to determine the total percentage of foreign ownership. On
the other hand, the control test states when at least 60% total
outstanding capital stock of a corporation is found to be of Filipino
ownership, further inquiry shall be dispensed with and that the entire
corporation shall be deemed a Philippine national. It is now the control
test which is the default test in determining the nationality of the
corporation as clearly mandated in the implementing rules of the Foreign
Investments Act.

10. Company Y should file a case contesting the election before the
Regional Trial Court and not with the SEC pursuant to the recent ruling of
the Supreme Court in GSIS v. CA. In the present case, the dispute is
undoubtedly connected with the election of board of directors. The dispute
directly deals with the manner and validity of the election within the
purview of Sec. 2, Rule 6 of the Interim Rules on Intra-Corporate
Controversies since the ground to be cited is the propriety of the
appreciation and/or counting of the ballots. Clearly, the RTC has the
jurisdiction over the same.

11.
a. The term insider trading refers to the act of buying or selling
securities by a person having possession of material nonpublic
information with respect to the company which issued the securities or
with respect to the securities itself. (Sec. 27.1, SRC) Persons guilty of
insider trading is civilly liable for damages in an amount not exceeding
triple the amount of the transactions plus actual damages for any civil
suit brought by investor who were prejudiced by their acts. (Sec. 61.1 in
relation to Sec. 63, SRC) They will likewise be criminally liable for their
acts. (Sec. 73, SRC)

b. The term insider applies to the company which issued the

securities as well to any person who, by virtue of his/her professional
position or capacity and/or personal relationship, was able to have
access to material nonpublic information about the issuer of the
security and/or the security itself. The term also covers any person who
learns such information from the aforementioned persons. (Sec. 3.8,
SRC)

c. The term material nonpublic information refers to any

information concerning the issuer of the security or the security itself,
 which is not generally disclosed to the public and would likely affect the
securities’ market price when the said information is disseminated to
the public and after the lapse of reasonable time for the market to
absorb the information, or when such information would be significant
to a reasonable man in deciding whether to buy, hold or sell such
security. (Sec. 27.2, SRC)

d. Short swing profits refers to those profits earned by a director,

officer or a beneficial owner of more than 10% equity securities of a
reporting company (as defined under the law) from the purchase and/or
sale of equity securities of the reporting company within a 6-month
period excluding those securities acquired in good faith by these
persons in connection with a previously contracted debt. (Sec. 23.2,
SRC) Short swing profits are not allowed and must be remitted by these
persons to the reporting company.

12. First, it must be noted that Acme is a mass media entity falling under
the List A of the 7th Negative List or companies in which the Constitution
does not allow any foreign equity and an entity which enjoys franchise
granted by the State. The hiring of Mr. Joe Black is illegal and in direct
violation of Sec. 2-A of the Anti-Dummy Law. It is clear that Mr. Black, an
American, cannot be hired as a CEO because he would be the head of the
management of the company. This provision does not allow a foreigner to
intervene in the management or control of companies such as Acme.
Black’s position is not shown to be technical and it was not stated that he
was authorized by the Secretary of Justice. The same prohibition will apply
to the Mr. Fo. Although it may argued that his job is technical, it was
shown that his employment was authorized by the Secretary of Justice.
Therefore, his employment is illegal. Mr. T cannot sell his shares to Mr.
Yin, a Chinese. The fact that his shares are non-voting preferred shares is
immaterial because the same are still included in the computation of the
total outstanding capital stock of the company and the same will be the
basis for the determination of the corporation’s nationality. If Mr. Yin will
be allowed to buy the shares, Acme will then be in violation of the
Constitution and the Foreign Investments Act.

13. Mr. L’Opera’s plans are allowed under pertinent Philippine investment
law. It must be noted that the company, L’Opera Solano NV Co. is
classified as a domestic market enterprise falling under Category B of the
Sec. 5 of the Retail Trade Liberalization Law since its capitalization is
USD$3 Million. Under that law, the company will be allowed to operate as
a 100% Foreign-owned for the first 2 years but for the succeeding years,
the foreign equity must be limited to 60% only. Because the amount
capitalization, the company is not barred under the 7th Negative List as
well as the Foreign Investments Act. The However, before they implement
their investment plan, they must seek registration first with the SEC as
well as the DTI. It must also be noted that the plan of Mr. L’Opera and his
son acting as CEO and General Manager respectively is allowed since
strictly speaking, they are not practicing a profession reserved only for
Filipinos.
14. The Anti-Dummy Law will be applicable to Widget Co. since it is an
entity enjoying a franchise granted by the State by virtue of its being a
telecommunications company. Its management, operation, administration
and control must be reserved only to Filipino citizens from the highest
official down to its lowly laborers as the law was interpreted in the case of
King v. Hernaez. The company cannot hire any foreigner into its payroll
although it could be argued and proved to the Secretary of Justice that a
particular position in the company is technical in nature. In that case, it
can be advised to the in-house counsel to show to the Secretary of Justice
that a certain position is technical and he should then apply for an
authorization and if the same is granted by the Justice Secretary, the
employment of a foreigner to such a position will not be violative of the
Anti-Dummy Law anymore.

15. An over-the-counter market refers to a decentralized market of

securities not listed on an exchange where market participants trade over
the telephone, fax or electronic network, the counter of banks, instead of
a physical trading floor. This is as opposed to an exchange which has a
fixed meeting place. On the other hand, an Alternative Trading System
is one that is not regulated as an exchange but is a venue for matching
the buy and sell orders of the subscribers of securities such as
professional traders or investors, usually in large quantities.

16. If I were to advise Mr. Bondarenko about his queries, I would advise
him that he could receive the capital, dividends, principal and interest in
US Dollars provided that his inward investment to the Philippines is duly
registered with the Bangko Sentral ng Pilipinas. This is indicated under
Sec. 40 of the Manuals of Regulations on Foreign Exchange Transactions
as issued by the BSP. It must be noted that the inward investment to be
made by Mr. Bondarenko insofar as the loan is concerned does not require
prior approval from the BSP. (Sec. 24.6, Manual of Regulations) But his
investment insofar as the purchase of redeemable preferred shares are
concerned which will involve the bringing in of US Dollars within the
country, the same shall be declared in writing and that the information as
to the source of such currency as well as the purpose of its transport be
given to the BSP when the amount of the currency involved exceeds
US$10,000. (Sec. 4.2 Manual of Regulations)

17.
a. As per Sec. 38 of the Securities Regulation Code in relation to
Rule 38.1 of the SRC Implementing Rules, an independent director is
any person other than an officer or employee of the corporation, its
parent company or subsidiaries, or any other person having a
relationship with the corporation which would interfere with the exercise
of his independent judgment in performing his functions as such. He
must not own more than 2% of shares of the company and related
entities or any of its substantial stockholders but must own at least 1
share of such company. Neither must he be acting as a nominee or
representative of any director or substantial stockholder pursuant to a
Deed of Trust or similar arrangements nor worked in an executive
capacity in such company, parent company or subsidiaries within the
 past 5 years. He must be at least a college graduate, of good moral
character and must not be convicted criminal.

b. The classes of companies that are required to have independent

directors are: (1) those companies with securities listed in an exchange;
(2) those companies having assets exceeding 50 million pesos with at
least 200 or more holders at least 200 of which holds at least 100 equity
shares; and (3) companies which issues registered securities (Sec. 38,
SRC)

c. Covered companies mentioned above must have at least 2

independent directors or at least 20% of the total number of board of
directors, whichever is lesser. [SRC Rule 38.1 (7) (a)]

d. The rationale for requiring public companies to have independent

directors is rooted from the delicate position that these companies
occupy vis-à-vis the investing public. Since these companies source
their funding from the investing public, it is just proper that the public
would somehow have a safeguard in place by means of requiring them
to have independent directors that are expected to squeal in case when
these public companies behave purely for the sake of their own
interests and to the prejudice of the public’s welfare.

18. Risk Based Capital Adequacy Requirement or Ratio imposed on

broker/dealers simply states that the level of capital that these firms
should maintain would be determined by considering the firm size,
complexity and risk of business. These requirements exist for the
protection of investors who hold an interest in these types of businesses.
Governing bodies place reserve requirements upon these institutions
based on the premise that stakeholders will still receive limited payment
should insolvency occur. [Rule 28.1 (1) (e)(2)]

19. In this case, Teriyaki Corp. is not doing business in the Philippines. The
factual circumstances surrounding the relationship between PhilCo and
Teriyaki Corporation is similar to facts of a case decided by the Supreme
Court entitled Agilent Technologies v. Integrated Silicon. The Supreme
Court held in this case that Agilent, by maintaining a stock of goods in the
Philippines solely for having the same processed by IS and consignment of
equipment with the latter to be used in the processing of products for
export are not indicia of doing business. The Supreme
Court further held therein that to constitute doing business, the activities
must be, by and large, for profit-making. Here, as to the relationship
between Teriyaki and PhilCo, the former may not be said to be doing
business for the same reason stated in the Agilent case. On the other
hand, Panama may be considered as doing business in the Philippines
without a license. By virtue of entering into a distributor agreement
characterized by its exclusivity, under which PhilCo is prohibited from
distributing similar products being sold by Panama, the former was, in
effect, constituted as Panama’s conduit in the country in furtherance of
Panama’s business of selling computer hardware. The doctrine of
Mentholatum Co. v. Mangaliman applies.
 20. There is no Philippine law that particularly governing letter of credit
transaction. Nevertheless, in the international sphere, it is the Uniform
Customs and Practices for Commercial Documentary Credits which is the
set of rules that governs the letter of credit transactions in many areas
around the world including the Philippines. It is a compilation of trade
practices made by the International Chamber of Commerce in order to
harmonize the international mercantile rules dealing with common
questions regarding letter of credits. In fact, the Supreme Court, in the
case of BPI v. De Reny Fabrics adopted these rules as part of the
customary international law binding on the Philippines by virtue of the
Incorporation Clause of the Philippine Constitution as well as by virtue of
Article 2 of the Code of Commerce. However, it can readily be observed
that the Court seems to have a confused characterization of these rules
because it declared in one part of the decision that these rules are binding
on the Philippines by being a signatory nation to it when it fact, these
rules were not treaties. On the other hand, the Court did not care to
elucidate how these rules evolved as being a customary norm binding on
all States within the international community. As to how it became a
customary law, one can only speculate.

21.
i. Alemay’s refusal to pay for the purchase price of the books lost during
the typhoon has no legal basis as they have agreed to use FOB
Singapore (Incoterms) in their transaction. The facts shown that the
books were lost when the ship carrying it was lost during the typhoon, it
is then evident that the books already passed the ship’s rail at the
named port of shipment which is Singapore. (Incoterms, FOB B5) The
obligation of the seller as to risks of loss already ceases and the same
was passed on to the buyer which was Alemay in this case. In short,
Alemay should pay.

ii. In this case, Bass Corp. can sue Alemay before the RTC in the Philippines
despite not having license to do business here since based on the facts
given, it may be considered that their transaction is an isolated one.
Under the law, a foreign corporation not having license to do business in
the Philippines can sue nonetheless for an isolated transaction. (Agilent
Technologies v. Integrated Silicon)

22. In this case, Ace is not doing business here in the Philippines hence,
Clover’s argument of lack of legal capacity to sue must fail. This is the
ruling made by the Supreme Court in the case of Agilent Technologies v.
Integrated Silicon. Ace’s acts of consigning raw materials to Clover to be
processed by the same for export backed to Ace and the transportation of
equipment to be used by Clover in manufacturing the goods pursuant to
the Service Agreement are not enough consideration for declaring Ace to
be doing business in the country. It cannot be said that these acts are
undertaken within the country for profit-making purposes.

23. In the case of Schmidt & Oberly v. RJL Martinez, the Supreme Court
described an indentor as a person who, for compensation, acts a
middleman in bringing about a purchase and sale of goods between a
foreign supplier and a local purchaser. The Supreme Court resorted to this
general description because of the lack a statutory definition of the term
within Philippine jurisdiction. The Supreme Court arrived with such a
general description because the term indentor was grouped together with
commission merchants and brokers in the implementing rules of Omnibus
Investments Code. Therefore, applying the rule of ejusdem generis, they
came up with that description. As a rule, it is the indentor itself and not
the foreign entity it is representing that is deemed to be the one doing
business in the Philippines. This is clear from the provision of Rule 1, Sec.
1 (g)(1) of the Omnibus Investments Code Implementing Rules.

24. Joint ventures in the Philippines are governed by the applicable law on
contracts as well as the law on partnerships under the Civil Code. The
prevailing notion in the country according to Cesar Villanueva of Ateneo
Law School is that joint venture is specie of partnership. In the case of
Kilosbayan v. Guingona, the Supreme Court defined a joint venture as an
association of persons or companies jointly undertaking some commercial
enterprise-generally contribute assets and share risks.

25. The Anti-Money Laundering Law penalizes any person who transacts
monetary instruments or properties knowing the same are involved in
unlawful activities. It also punishes the act of facilitating the transaction of
monetary instruments or properties involved in unlawful activities knowing
the same are involved therein and failure of any person to disclose that
any monetary instruments or properties are involved in unlawful activities
after knowing such fact of involvement. (Sec. 4, AMLA) Unlawful
transactions are acts or omissions connected with certain criminal
activities as penalized under criminal laws of the country. Suspicious
transactions are those that contains some indicia that would alert a
reasonable person that there is a possibility that the transaction is
connected with an unlawful activity punished by law including but not
limited to, the lack of underlying legal or trade justification for the amount
involved, the client is not indentified, the amount involved is not
commensurate to the financial capacity of the client and the like. Covered
transactions are those that involve amounts in excess of 500,000 pesos in
a single banking day. Covered institutions include those institutions
supervised by BSP, Insurance Commission and SEC. Covered institutions
are obliged to make reports regarding records of their customer’s
identification, account files and correspondence as well as the record of
the proof of legal existence and organizational structure of the corporate
clients.

26. Yes. The French Consortium, by participating in the bidding process for
the operation of waste-water treatment plant is considered as doing
business in the Philippines. By participating in such bidding process, the
French consortium has shown its intention to transact business in the
country. The performance by a foreign corporation of acts for which it was
created is what determines whether it is doing business in the country
without the required license. This is the same ruling enunciated by the
Court in the case of European Resources and Technologies Inc. v.
Ingenieuburo Birkhahn.
27. The independence principle in letter of credit transactions states that
the letter of credit is a distinct undertaking from the sales contract. It shall
be honored and be paid by the issuing bank upon presentation of
conforming documents under its terms independent of any issues which
may beset the underlying sales transaction. The independence principle is
applicable even in case of standby letter of credit. This is the ruling of the
Supreme Court in the case of Transfield Philippines v. Luzon Hydro Corp.
Under the Philippine law, the Supreme Court likewise adopted the fraud
exception in the independence principle in the Transfield case and the
same is applicable as to both the commercial and standby letter of credit.
In case when a negotiating bank has made payment pursuant to the letter
of credit and complete supporting documents, the fraud exception may
not be applied anymore because in this scenario, the principles of
Negotiable Instruments Law may be expected to operate. If the
negotiating bank is deemed to be a holder in due course of the letter of
credit instrument, then the issuing bank will not have any other choice but
to pay. The strict compliance rule states that the required documents that
should trigger payment of the letter of credit must strictly comply with its
description as appearing on the letter of credit itself otherwise, the issuing
bank will not be under any obligation to pay.

28.
a. Wash Sale involves the buying and selling of shares in which
there is no actual transfer of beneficial ownership. The aim is to create
an impression of heavy trading to lure investors to come in and push the
prices up. This is prohibited under Sec. 24 (1)(a)(i) of the SRC.

b. Matched Orders are manipulative acts which involves an order

placed with a broker to buy a specified stock at a price above the market
price with the intention of immediately selling the stock through another
broker at the same price. It is designed to give the appearance of active
trading in the stock. This is prohibited under Sec. 24. 1 (a) (ii) of the SRC.

c. Market Rigging refers broadly to the practice of creating a false

or misleading appearance of active trading in any listed security in an
exchange or any other trading market. This is prohibited under Sec. 24.1
(a) of the SRC.

d. Marking the close refers to the act of attempting to influence the

closing price of a stock by executing purchase or sale orders at or near
the close of the market. This is prohibited under Sec. 24.1 (b) (iii) of the
SRC.

e. Painting the tape refers to an illegal action by a group of market

manipulators, acting in concert, whereby they buy and/or sell a security
among themselves to create artificial trading activity, which,
when reported on the ticker tape, lures in unsuspecting investors as they
perceive an unusual volume. This is prohibited under Sec. 24.1 (b) (iii) of
the SRC.
 f. Squeezing the float refers to the act of taking advantage of a shortage
of securities in the market by controlling the demand side and exploiting
market congestion during such shortages in a way as to create artificial
prices. This is prohibited under Sec. 24.1 (b) (iii) of the SRC.

g. Hype and dump refers to a scheme that attempts to boost the

price of a stock through recommendations based on false, misleading or
greatly exaggerated statements. The perpetrators of this scheme, who
already have an established position in the company's stock, sell their
holdings after the hype has led to a higher share price. This is prohibited
under Sec. 24.1 (b) (iii) of the SRC.

h. Churning refers to the excessive buying and selling of securities

by a broker in an investor’s account, for the purpose of generating
commissions and without regard to the investor’s investment objectives.
It is also prohibited under Sec. 24.1 (b) (iii) of the SRC.

i. Boiler room operation refers to a scheme involving the sale by

telephone of risky, valueless or otherwise suspect securities. Aggressive
salespeople target lists of potential investors and contact them out of
the blue - a practice termed “cold-calling” - to attempt to persuade them
to buy a particular stock. This is also prohibited under Sec. 24.1 (b)(iii) of
the SRC.

29.

Joaquin Cunanan & Co.

29th Floor Philamlife Tower
8767 Paseo De Roxas
1226 Makati City

This refers to the question of whether or not Johnson and Johnson PTE
Limited should be considered as doing business in the Philippines.
Johnson and Johnson PTE Limited (JJS) is a corporation organized and
existing under the laws of Singapore with its principal place of business
therein. It is not registered either as a corporation or as a partnership as
evidenced of Certificate of Non-Registration issued to it by the Securities and
Exchange Commission dated December 30, 2003. It is a resident of
Singapore and is a wholly owned subsidiary of Johnson & Johnson, a United
States multinational corporation (JJUS).
JJS acts as the Regional Entrepreneur in the Asia-Pacific Region and is
the owner and/or licensor of the manufacturing rights, trademarks, patents,
technical know-how and is the legal owner of all imported and locally
produced goods. In this capacity, JJS sells and distributes its products in each
country in the region through an independent agent. In the Philippines,
Johnson & Johnson Philippines, Inc. (JJPI) a corporation organized and existing
under Philippine laws with its principal place of business in Paranaque City.
JJPI act as the independent agent of JJS. JJPI assists JJS with the introduction of
and/or marketing of the products in the Philippine market as well as to assist
with the roll out of marketing programs and strategies developed and
approved by JJS. JJPI will have the sole discretion in choosing its own
operational marketing activities although it may consult JJS and will be
responsible for the day-to-day identification and management of local
marketing initiatives.
The flow of their transaction in the Philippines is as follows: JJS will
export to the Philippines, finished products and raw materials for
manufacture into finished goods by third party full service and toll
manufactures. It will likewise acquire finished goods from local
suppliers in the Philippines. These finished goods will be sold and
distributed to the Philippine customers with the assistance of an
independent agent. JJS shall retain ownership of the goods manufactured
by independent local third party toll manufacturers and the finished goods it
exported to the independent agent until they are sold by the latter.
JJS will have ultimate control and responsibility for the
marketing and promotion of the products it distributes in the region.
In this regard, JJS will have all the legal rights in respect of the marketing and
related tangible assets associated with the products it distributes in the
Philippines. A SERVICE PROVIDER AGREEMENT will be entered into between
JJS and JJPI wherein, JJPI will be responsible for selling and distributing the
products of JJS in the Philippines in its own name but for the account and risk
of JJS. JJPI will sell JJS’s goods in its capacity as consignee-independent agent.
As such JJPI will act as principal in the transaction covering the sale of the
goods but it will not have legal title over the goods, the ownership of which
will remain with JJS until these are sold to the customers of JJPI. JJPI will have
no power or authority to legally bind JJS since the customers will transact
business with JJPI only and not with JJS regarding the goods that they
purchase. JJPI shall assume all the obligations and warranties of a seller. Any
and all claims, whether from tort or contract, arising from the buyer’s
purchase of goods shall be filed, solely against JJPI. Customers will pay JJPI but
JJPI will account for the proceeds of sale and remit the same less expenses to
JJS. JJPI will maintain separate books of accounts for the sale of JJS goods in
the Philippines. For the services rendered by JJPI, JJS will pay the former at
arms’s length service fee. JJPI as an independent agent, has no exclusive
contract with JJS can enter into similar arrangements with third parties in the
pursuit of ordinary course of business.
It is respectfully submitted that based on the facts above, JJS should be
considered as doing business in the Philippines. Although there are some
facts which would tend to negate that it was doing business here in the
Philippines, but the thing is that there are still some facts which cannot be
ignored because these facts, standing alone, would establish the conclusion
that JJS is doing business in the Philippines. First, it must be pointed out that
as stated above that JJS acquires finished goods from local suppliers in the
Philippines and these finished goods are in turn, sold and distributed to the
Philippine customers albeit, with the assistance of an independent agent. JJS
will not be able to do this thing if it will not establish presence here. This
activity is clearly intended for profit-making purposes. (Agilent Technologies
v. Integrated Silicon) The fact that an independent agent, in the presence of
JJPI, is helping it in the sale and distribution of the locally acquired goods is
immaterial because what is important its participation in the activity is
positively shown.
 Another factor to consider in concluding the “doing business” of JJS
here in the country is the fact that, even though it was repeatedly
emphasized that JJPI is an independent agent in helping JJS in the marketing
and promotion of its product within the country, the obvious fact is that it is
still JJS which has the ultimate control and responsibility for the marketing
and promotion of the products it distributes in the region. Although it was
claimed that JJPI, as an independent agent will have the sole discretion in
choosing its own operational marketing activities although it may consult JJS
and will be responsible for the day-to-day identification and management of
local marketing initiatives, it was not stated whether this discretion will
prevail over the disagreement of JJS. The characterization of JJPI as an
independent agent must be somehow cast with a shadow of doubt by the
ultimately authority lodged with JJS.

30. In the present problem, the Buyer should bear the loss of the books. In
this problem, it was stated that the carrier nominated by the buyer fails to
arrive on time. Although the books were not able to pass the ship’s rail,
the risk nevertheless transferred to the buyer by virtue of the second
paragraph under B5 of FOB Incoterms. As to the storage, it would still be
the buyer that should be held liable. Under 2nd paragraph of B6 of the FOB
Incoterms, the buyer shall be held liable for any additional costs incurred
when the vessel nominated by him fails to arrive on time. And as to inland
passage, the seller should bear it. Under A3 of the FOB Incoterms, the
seller is obligated to deliver the goods to the named port of shipment,
hence the inland passage should imputed to him. Nonetheless, I
personally believe that the designation of the term FOB herein together
with the word seller factory is erroneous and that FCA should have instead
been used.

31. Yes. The sell must submit a negotiable bill of lading to the buyer since
the latter has expressly requested that the same be negotiable. This is
indicated under 2nd paragraph of A8 of CIF Incoterms. This will not only
apply when otherwise agreed by the parties. It is the seller who must
arrange and pay for the cost of carriage of the goods as indicated under
A3 of CIF Incoterms. As to insurance, it is also the seller as per A3 of CIF
Incoterms. As to the risk of loss, it the buyer who should bear it since the
goods already passed the ship’s rail when it got lost.