1.

What are the ways in which the Securities Regulations Code (SRC) protects the public
from unsound, fraudulent and worthless securities? (10)

The Securities Regulation Code protects the public from unsound, fraudulent and
worthless securities through ensuring full and fair disclosure about securities from the
registration to guaranteeing and upholding the stockholders’ or interested parties’ right to
inspection of company records. Also, the law tries to combat and eliminate manipulative and
fraudulent devices such as insider trading, wash sales, boiler room, hype and dump, etc. Lastly
SRC lays down definitive instructions on filing of documents for different transactions that
includes tender offers making sure there is prompt processing of the same to determine early
discrepancies if there are and prevent damage to various stakeholders.

2. What is another term for SRC? Why is it termed as such? (5)

The other term for Securities Regulation Code is the Blue Sky Law. It is termed as such
because entities engaging in fraudulent transactions usually involving speculative schemes have
"no more basis than so many feet of 'blue sky. It means that these individuals do not follow the
market movement or do not have any other basis than their intent to deceive and manipulate
for example the prices of securities.

3. Nala entered into a contract for the purchase of certain office supplies. The goods were
shipped. While in transit, the goods were insured by Nala. Does she have an insurable
interest over the goods even before delivery of the same to her? Explain. (5)

Yes, Nala has an insurable interest even before delivery of the purchased supplies to her. The
law provides that every interest in property, whether real or personal, that might directly
damnify the insured, is an insurable interest. Since the purchase contract was perfected,
therefore the ownership of the goods has already transferred to Nala even during transit. It is
already an existing interest that constitutes an insurable interest.

4. Arla, a businesswoman, borrowed Php500,000.00 from her friend, Bambi. To pay the
loan, Arla issued a post-dated check to be presented for payment 30 days after the
transaction. Two days before maturity date of the check, Arla called Bambi and told
her not to deposit the check on the date stated on the face thereof. At that time, Arla
had not deposited in the drawee bank the amount needed to cover the check.
Nevertheless, Bambi deposited the check and the same was dishonored due to insufficiency
of funds. Arla failed to settle the amount with Bambi in spite of the latter’s demands.

Is Arla guilty of violating BP Blg 22, otherwise known as the Bouncing Checks Law?
Explain your answer. (5)

Yes, Arla is guilty of violating BP Blg. 22 as according to the law not being able to cover the
check amount within 3 days from the receipt of notice of dishonor shall be prima facie evidence
of deceit. Arla was notified by Bambi and was still not able to pay her what was owed. Although

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5. A single issuance of a bum check can give rise to what kind of criminal offense(s)? Discuss
your answer. (10)

It can give rise to a violation of BP Blg. 22 or the Bouncing Checks Law only and shall not be
deemed to cause Estafa unless there is explicit intent to defraud and it resulted to damage to
the creditor. Given that there is no other statement in this number that shows there is malice in
the act, it shall be construed only as having gone against the Bouncing Checks Law also in
consideration of the law provision that an accused has in his favor the presumption of
innocence which the Bill of Rights guarantees. Therefore it is only right that the act of issuance
of a bum check be construed a violation by its very act, Malum prohibitum, and shall not extend
to constitute Estafa unless proven beyond reasonable doubt.

6. Will an insurance policy be binding even if the premium is unpaid? State the rules. (5)

No. The law says that the general rule is that no insurance policy shall be binding until the
premium has been paid. However there are exceptions such as for the case when grace period is
applicable for life and industrial life policy. Secondly, when there is acknowledgement of
payment in a contract disregarding whether the premium really has been paid in which case the
mere acknowledgement becomes conclusive evidence of receipt of payment. Another exception
is when the parties have agreed to payments in installments and the loss occurred after partial
payment of the premium. Fourth exception is where the insurer gave the insured a credit term
for the payment of the premium, and loss happens before the expiration of the term and (5)
where the insurer is in estoppel as when it has consistently granted a 60 to 90-day credit term
for the payment of premiums.

7. In the course of a voluntary boxing contest, Manny who had an accident insurance policy,
slid and slipped. This enabled Floyd, his opponent boxer, to hit him with a blow that
threw him to the ropes, hitting his head against the canvass, causing Manny’s eventual
death. There is nothing in the insurance contract appertaining to boxing. Is the
insurance company liable to his beneficiary? (5)

Yes the insurance company is liable to his beneficiary. The law provides that there is no
accident when a deliberate act is performed unless some additional, unexpected, unforeseen
happening transpires which produces the result of injury or death. In Manny’s case although it
was voluntary action to participate in boxing, his death resulted from an accidental slip.
Although there is always a risk to boxing, when one engages in it, it is not expected to result in

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8. Agnes is engaged in the grocery business. She obtained from Primary Insurance an
insurance policy for Php5M to fully cover her stocks-in-trade form the risk of fire.

Three months later, a fire of accidental origin broke out and completely destroyed the
grocery including the stock-in-trade. This prompted Agnes to file with Primary Insurance
a claim for Php5M representing the full value of the goods.

Primary Insurance denied the claim because it discovered that at the time of the loss, the
stocks-in-trade were mortgaged to a creditor who, likewise, obtained from Secondary
Insurance fire insurance coverage for the stocks at their full value of Php5M.

a) May the businessman and the creditor obtain separate insurance coverage over the
same stocks-in-trade? Explain (5)

Yes, the businessman, as the owner of the stock-in-trade as well as the creditor to whom the
stock-in-trade was mortgaged to can both obtain separate insurance coverage for the loss. The
law provides that unless the policy provides, where a mortgagor of property effects insurance in
his own name providing that the loss shall be payable to the mortgagee,, the mortgagor does
not cease to be a party to the original contract. Therefore he or she is entitled to the coverage.
The other entity who is the mortgagee is also entitled given he or she has entered into a
different insurance policy in which he or she has an insurable interest regarding the stock-in-
trade.

b) Suppose you are the Judge, how much would you allow the businessman and the
creditor to recover from their respective insurers? Explain (5)
Well, I would allow them to recover the amounts as stated in their separate contracts which are
both 5M for each. It is as the law states that simply that mere act of mortgaging an object of
insurance does not make the insured not a party to the insurance contract unless there is an
explicit provision in the same that he or she transfers the right to receive claims to the
mortgagee. Also the mortgagee has right to his or her own claim of 5M as he or she entered in
a different contract where he gains a separate interest in.

9. Grand Gas Corporation, a publicly listed corporation, discovered after extensive drilling a
rich and deposit of natural gas along the coast of Surigao City. For five (5) months, the
corporation did not disclose the discovery so that it could quietly and cheaply acquire
neighboring land and secure mining rights to the land.

Between the discovery and its disclosure of the information to the SEC, all the directors
and key officers of the company bought shares in the company at very low prices. After
the disclosure, the price of the shares went up. The directors and officers sold their
shares at huge profits.

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It violates the provisions of Section 23 of the Securities Regulation Code that states that to
prevent unfair use of information gotten by directors and officers because of their position or
relationship to the issuer before it has been made public, any profit gained from sale or
purchase of securities within six months unless done in good faith shall be recoverable by the
issuer. It is clearly violated as the directors and key officers bought the shares between the
discovery of information and its dissemination to the public and sold it once the shares’ price
went up. So it is made clear that they had the intent to gain profit from acquiring material
nonpublic information and their action therefore constitutes insider trading.

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