BUSINESS LAWCPA BOARD EXAM LECTURE NOTES

LAW- limits man’s actions & words- chained to

o handso feeto mouth

a) reasonable rule of conduct & actionb) just & obligatoryc) promulgated by competent authority – Philippine Congressd) for common observance & benefit

I. OBLIGATIONS (CO, NO)1) Kinds of Obligation

a) Civil (1156-1304) - a JURIDICAL NECESSITY TO GIVE, TO DO or NOT TO DO- creditor has right of action to enforce performance- creditor has right to file a case in court/to sue

b) Natural (1423-1430)- no right of action/file a case in court- voluntary fulfillment/performance

benefited person has right of retention what has been paid or delivered

- NOT based on POSITIVE LAW- based on EQUITY & NATURAL LAW

2) 4 Elements of Obligation (AS, PS, P, JT)a) active subject - creditor/obligorb) passive subject - debtor/obligeec) prestation - the conduct to be observed in the performance of the obligation

to give - real (thing) to do - - positive not to do - - negative

d) juridical tie/vinculum juris - reason why obligation exists

3) Sources of Obligation (L, C, QC, D, QD)a) Law - cannot be presumed, always w/basis

- non-performance or erroneous/wrong performance of an obligation prescribed by law (taxes, licenses)

b) Contract - with meeting of the minds- have the force of law b/w contracting parties- should be complied w/ in good faith

c) Quasi-contract - no pre-existing contract (SI, NG)- he who is benefited by the act of another MUST PAY to prevent unjust enrichment

Solutio indebeti - return what is not due to you- sense of gratitude

Negotiorum Gestio - voluntary management of abandoned property - officious manager has right to reimbursement

d) Delict/crime - criminal liability (vs. people of the Philippines) – source of civil liability- imprisonment - civil liabilities: (R, R, I)

Restitution - return the thing Reparation - pay the value of the thing Indemnification - pay damages

e) Quasi-delict - cause damage without intention- without contract- damage done not intentional but due to NEGLIGENCE- pay damages- ex: CULPA AQUILIANA

4) Prestations (OBLIGATIONS) (TG, TD, NTD)a) To Give (Real Obligation) (S,G)

i. Specific or Determinate Thing only one ONLY SPECIFIC THING CAN BE LOST Creditor may compel debtor to deliver Debtor must take care of the thing before delivery. HOW?

Stipulation

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Personal(act or service)

Law Deligence of a good father of the family

Includes delivery of accessions & accessories unless stipulated Excludes fruits that arise before maturity Rights of person who paid:

Before Delivery - Personal - to demand delivery- extra judicial (out of court)- judicial (inside court)

After Delivery - Real - ownershipii. Generic or Indeterminate Thing

Many of the same kind Belongs to a group or class Cannot be lost Rights of person who paid:

Ask another person to deliver at the expense of the debtor File a case in court

b) To Do (Positive Personal) Debtor must do it properly in accordance w/ agreement May be sued for damages What is poorly done should be undone at the debtor’s expense If debtor refuses to do, creditor cannot compel debtor to do nor file in court

Reason - the law does not allow involuntary servitude- law against slavery

Remedy - ask another person to perform, pay the person & demand payment from debtor including

damages- if debtor still refuses to pay - SUE

c) Not To Do (Negative Personal) Anything done shall be undone at the debtor’s expense Debtor cannot be sued for doing what should have not been done While still doing what should have not been done – can be sued

5) Sources of liability for damages(F, N, D)a) Fraud (DOLO) (DC, DI)

i. Dolo causante (causal fraud) - to induce another to enter into Contract- voidable contract

Remedy - ANNULMENTii. Dolo incidente - fraud in the performance

Remedy - demand for DAMAGES ANY WAIVER OF AN ACTION FOR FUTURE FRAUD IS VOID

b) Negligence (CULPA) - omission of diligence required by the (CA, CC) NATURE OF THE OBLIGATION

- corresponds w/ the circumstances of the Person Time Place

i. Culpa aquilliana - no contract- quasi-delict

ii. Culpa contractual - arise in the performance of a contract FORTUITOUS EVENT

NO LIABILITY FOR FORTUITOUS EVENT, EXCEPT: (SLN)i. Stipulationii. Lawiii. Nature of obligation

EVEN IF THE DEBTOR HAS NO FAULT/DUE TO FORTUITOUS EVENT, DEBTOR IS LIABLE WHEN:i. He is already in delayii. Me made several promises to several personsiii. The thing lost is a proceed of a crime IF ALREADY DELIVERED BUT CREDITOR REFUSES TO ACCEPT AND LOST DUE TO

FORTUITOUS EVENT, OBLIGATION IS EXTINGUISHED ONLY SPECIFIC THING CAN BE LOST

c) Delay/Default (MORA) (MS, MA, CM)i. Mora solvendi - delay of debtor

MS ex re - to give MS ex persona - to do

ii. Mora accipiendi - delay of creditor

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(On or after maturity)

iii. Compensatio morae - delay in both debtor and creditor NO DEMAND, NO DELAY, EXCEPT: (RTOLD)

a. Reciprocal obligation - performance of one is dependent upon the performance by the other

- both are ready, NO DELAY- when one is ready & the other is - not, DELAY BEGINS

b. Time is the essential motive in the establishment of the obligation- ex: wedding

c. Obligation so provides - stipulated d. Law declares - ex: taxe. Demand would be useless

NO DELAY in obligation NOT TO DOd) Contravention of the tenor of the obligation

6) KINDS OF OBLIGATIONS (PCPAFJSDIP)a) Pure - not subject to a condition

- demandable at once Also DEMANDABLE AT ONCE if SUBJECT TO A RESOLUTORY CONDITION OR

PERIODb) Conditional - subject to a FUTURE and UNCERTAIN EVENT or

PAST EVENT unknown to both parties KINDS OF CONDITIONS (S, R, P, C, M, I)

i. Suspensive - demandability of obligation is DEPENDENT upon The FULFILLMENT of the condition- ex: I WILL PAY you if you pass the CPA board exam in May 2007

OBLIGATION TO GIVE - RETRO effect - Fruits and interests DEEMED COMPENSATED

ii. Resolutory - DEMANDABLE AT ONCE- upon FULFILLMENT of the condition, obligation is EXTINGUISHED- ex: I WILL NOT PAY you if you pass the CPA board exam in May 2007

iii. Potestative - dependent upon the SOLE WILL OF THE DEBTOR- condition makes the OBLIGATION VOID- ex: I will pay you if I jump in Pasig River

iv. Causal - dependent upon CHANCEv. Mixed - dependent upon CHANCE and WILL of THIRD

PERSONSvi. Impossible - physical - to fly to the moon

- legal - to kill somebody- OBLIGATION is VOID

condition NOT TO DO AN IMPOSSIBLE THING - disregarded- OBLIGATION becomes PURE and DEMANDABLE AT ONCE

c) With a period - depends upon the arrival of the term Definite Indefinite

o Statutory - taxeso Potestative - “when his means permits him to do so”

- dependent upon the capacity of the debtor- VALID, UNLIKE in POTESTATIVE CONDITION

PERIOD GENERALLY for the benefit of both CREDITOR & DEBTOR

BEFORE MATURITY - debtor cannot compel acceptance- creditor cannot demand payment

Debtor shall lose right to the period if: (IGIVA)a) Debtor is insolventb) Debtor failed to furnish the promised guarantyc) Guaranty is impaired

Due to his fault Even due to fortuitous even, unless he furnishes a new 1

d) Debtor violates any undertaking agreed upone) Debtor attempts to abscond

May be for the benefit of the DEBTOR - “on or before” Court shall fix the period if:

a) Not fixed by the partiesb) Depends upon the sole will of the debtor

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c) Debtor binds to pay when his means permits him to do soPERIOD CONDITION

Certain UncertainFuture May be pastPotestative period – obligation is valid Potestative condition – obligation

is voidd) Alternative - prestations are connected by “OR”

several prestations complete performance of one is sufficient generally, right of choice belongs to the debtor

o loss of alternative objects at debtor’s fault: one or some are lost

debtor may choose from the remaining plus damages all are lost

basis - value of last thing lost or last service w/c became impossible of performance plus damages

right of choice may also be expressly granted to the creditor one or some are lost

creditor may choose from the remaining plus damages demand for the value of any of the lost things plus damages – also

applicable when all are lost due to debtor’s fault if only one is left, debtor loses the right of choice

e) Facultative Only one prestation has been agreed upon Debtor is given right to render another in substitution Only debtor has the right of choice Right cannot be transferred to creditor

In ALTERNATIVE & FACULTATIVE obligation, CHOICE becomes EFFECTIVE only when COMMUNICATED

After it has been communicated, obligation becomes SIMPLEALTERNATIVE FACULTATIVE

Several prestations Only one prestationComplete performance of one is ok Debtor may render another in substitutionRight of choice – debtor or creditor Right of choice – debtor onlyRight of choice may be transferred to creditor

Right of choice cannot be transferred

f) Joint & solidary – refer to the PARTIES involved Several debtors and/or creditors One and the same obligation Generally joint

o To each his own Solidary only if SLN

o Act, benefit, misfortune of one is act, benefit, misfortune of allo “I promise to pay” – signed by several personso jointly & severallyo any one solidary debtor can be compelled performance of the obligationo If one is not ready and incurred delay and became liable for damages, the debtor

in default will be liable for damages to the other debtors.o if already for delivery but due to fault of one solidary debtor, the thing is lost,

solidary debtor in fault carries the burden with respect to the other solidary debtorso requires trust and confidenceo solidary debtor cannot transfer his share without the knowledge of the

other solidary debtorso ex: partners & partnership – solidarily liable in quasi-delict

Division of claim and/or liability is always based on the # of joint parties, whether debtor or creditor

g) Divisible & indivisible – refer to the OBJECT or SUBJECT MATTER Divisible - capable of partial performance

- services, as a general rule is divisible Indivisible - not capable of partial performance Even though divisible, may be indivisible if S/L

h) With a penal clause - debtor assumes accessory liability in case of non-performance of the principal obligation

Purposes of penal clause (ESP) Ensure performance of the obligation Substitute as indemnity for damages or interest

Effectivity of choice – upon communicationWhen choice has been communicated – no longer A/F but SIMPLE

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Penalize debtor in case of non-performance If PENAL CLAUSE is VOID, PRINCIPAL OBLIGATION remains VALID If PRINCIPAL OBLIGATION is VOID, PENAL CLAUSE is also VOID Court shall reduce penalty agreed upon if:

Penalty is excessive or unconscionable Principal obligation partly or irregularly complied with

Proof of actual damages not necessary to enforce penalty

7) Extinguishment of Obligation (PLCCCN) or (NoCoMeRePaLo) + othersa) Payment - refers not only to payment of money

Who should pay (D, SII, AP, IP, TP)i. Debtorii. Successors in interest

Heirs - cannot be compelled to pay more than the value of inheritance- rights & obligations are inherited unless:

Prohibited by law Rights & obligations are purely personal

assignsiii. Authorized person - agentiv. Interested personv. Third person, provided accepted by creditor – has right to demand reimbursement

Change in debtor Delegacion - With knowledge & consent of the debtor

- right to reimbursement in full Expromission - W/o knowledge & consent of the debtor

- right to reimbursement only up to the amount beneficial to the debtor- no subrogation- all guarantees & securities are extinguished

Payment by incapacitated person is not valid

To whom should the payment be made (C, SII, AP, TP)i. Creditorii. Successors in interest – heirs & assignsiii. Authorized person - agentiv. Third person – valid only if:

Inured to the benefit of the creditor Ratified by the creditor Third person acquired the right

Change in creditor- subrogation Payment to incapacitated persons - NOT VALID(VOIDABLE)

Valid only if: He kept the thing paid He is benefited by it

What should be paid - what has been agreed upon- creditor cannot be compelled to accept a different thing even though it is more valuable- if object is indeterminate & the quality has not been stipulated, purpose & circumstances of the obligation shall be considered- average quality depends on P & C

Where should the payment be made Place agreed upon No place agreed upon if the object is:

Indeterminate - debtor’s domicile Determinate - place where the thing is at time of constitution of

the contract- when debtor is prevented by fortuitous event, deliver to a place nearest the agreed place

Who should shoulder the expenses - general rule: debtor How should you pay - completely

- if incomplete or irregular but creditor accepted w/o protest – valid & obligation is paid & extinguished

Payment by incapacitated person is not valid SPECIAL FORMS OF PAYMENT: (Aop, Pbc, Dep Top)

i. Application of payment several debts to one creditor are due & demandable if no application specified, apply to most onerous debt

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one debtor – incomplete payment to one creditor – debtor has right of application

if one/two (but not all) creditors are paid, unpaid creditor can demand for cancellation of payment & compel application to all creditors proportionately – usually, partial only

ii. Payment by cession Debtor is insolvent Several creditors Transfers all properties Debtor is released only up to the proceeds of the properties sold

iii. Dation in payment Debt is money paid with property Released only if accepted by the creditor

iv. Tender of payment & consignation Deposit of payment in proper court Always preceded by tender of payment EXCEPT when TRIAL:

Two or persons are claiming the same debt Receipt – creditor refuses to issue Incapacitated creditor Absent/unknown/missing creditor Lost – title of obligation is lost

b) Condonation or Remission Gratuitous abandonment of creditor’s right to collect ESSENTIALLY gratuitous – essentially means NO EXEMPTION May be express or implied; total or partial Requires debtor’s consent Examples:

i. Implied Cancellation of promissory note Return of negotiable instrument w/o collecting

i. Express Legacy of 10,000 given by creditor to debtor who owes him the same amount

c) Confusion or Merger of Rights - one person becomes the debtor & creditor of one & the same obligation

d) Compensation – “quits” Two persons in their own rights are debtors & creditors of each other May be legal or voluntary, total or partial Requisites of legal compensation (Pb, Skq, Dad, Nc)

i. Each obligors are principally boundii. Both debts are in money or same kind and quality of thing (if stated)iii. Both debts are due & demandableiv. No controversy over the debts commenced by third persons

There can be no compensation in: (S, D, C, Cd)i. Supportii. Depositiii. Commodatum (hiram)iv. Civil liability arising from crime or delict

e) Novation Change of obligation by a new one resulting in its (old) extinguishment Kinds of Novation (R, P)

i. Real - change of object or principal conditionii. Personal - change of parties (see payment)

Creditor - subrogation Debtor - substitution

Expromission - without knowledge or consent of debtor Delegacion - with knowledge or consent of debtor

Partial payment - partially paid creditor preferred in case debtor becomes insolvent

If new obligation is VOID, original obligation SUBSISTS If original obligation is VOID, new obligation is also VOID If old obligation is subject to a CONDITION or PERIOD, new obligation shall be

subject to the SAME CONDITION or PRERIOD, unless otherwise stipulatedf) Loss of Thing Due

Only SPECIFIC thing can be LOST If SPECIFIC thing LOST W/O debtor’s fault or due to FORTUITOUS event,

obligation is EXTINGUISHED, except SLN Thing is considered lost if:

i. It perishesii. Goes out of commerceiii. Disappears, existence unknown or can no longer be recovered

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g) Other causes of extinguishments (P A R Frc) Prescription Annulment Recission Fulfillment of resolutory condition

II. CONTRACTS NOT ALL AGREEMENTS are CONTRACTS ALL CONTRACTS are AGREEMENTS1) DEFINITION

Meeting of the minds b/w 2 or more persons whereby binds himself with respect of the other(s) to give something or to deliver some service

2) ELEMENTS (N, E, A)a) Natural - inherent in some contracts (ex: warranty against eviction &

against hidden defects – contract of sale)

b) Essential - must be present in order that there will be a valid contract (C, O, C) Consent

Meeting of the offer and acceptance upon the thing and the cause OFFER

may be made thru an agent Advertisements are not definite offers but mere invitation to make an

offer May be withdrawn before perfection of the contract If offeree is given option period, offeror cannot withdraw if offeree gives an

option money Option period – period of time

given to the oferree within which to decide whether to accept the offer or not

Option money – given for the exercise of the option period

Earnest money – given to show the buyer’s interest in the contract of sale

ACCEPTANCE thru letter, telegram or correspondence perfects contract only upon

acceptance reaches knowledge of the offerer VICES THAT MAKE CONSENT DEFECTIVE (IMVIFU) - VOIDABLE

Incapacityo Deaf mute who do not know how to writeo Minorso Insaneo Drunk

Incapacitated persons cannot validly give consent except if the objects involved are necessaries such as food, clothing, shelter, medicine and education according to economic standing of the family

Capacitated persons disqualified to enter into contract:o Contract of sale or donation b/w husband and wifeo Contract of sale b/w guardian and ward involving property of the

ward Consent given in the state of drunkenness or under hypnotic spell is also

defective - VOIDABLE Mistake Violence Intimidation Fraud Undue influence

Consent of one of the parties defective, contract is voidable; remedy, annulment

Object (T R S) May be

Things Rights Services

Future things may be the object of a contract but NOT FUTURE INHERITANCE Future things

o Emptio rei esperati – future things

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o Emptio spei - hope or expectancy Cannot be the object of a contract

Things or services outside the commerce of men Future inheritance Things & services contrary to LAW, MORALS, GOOD CUSTOMS, PUBLIC

ORDER & PUBLIC POLICY Impossible service – physical or illegal Intransmissible rights

Cause or consideration Essential or impelling reason why the parties enter into a contract Prestation to be performed by one in favor of the other Thing/service already delivered or rendered, or the liberality of the benefactor Distinctions b/w motive & cause:

CAUSE MOTIVEEssential reason why parties enter into a contract

Indirect and remote reason why a party gives consent

Always known Not always knownEssential element of a contract Not an essential element of a

contractAffects the validity of a contract Does not affect the validity of a

contract

c) Accidental - matters stipulated by the parties such as payment of interest in a contract of loan.

3) IMPORTANT DISTINCTIONS B/W OBLIGATION & CONTRACTOBLIGATION CONTRACT

Effect of the contract Cause/juridical tie of an obligationThere can be an obligation w/o a contract

There can be no contract w/o an obligation

4) BASIC PRINCIPLES OF CONTRACT (F, OF, PC, M, R)a) Freedom or liberty to contract

Not absolute Subject to limitations on law, morals, good customs, public order & public policy

b) Obligatory force & compliance in good faithc) Perfection by mere consent

General rule – consensual contract Contracts perfected by delivery – real contracts

Pledge Commodatum – hiram (for free) Deposit Loan

d) Mutuality of contract Both parties are mutually bound by what they have agreed upon

e) Relativity of contract Binding b/w the parties, their heirs & assigns In some cases, even third persons are bound such as:

Stipulation pour atrui agreement b/w 2 persons whereby a favor is given to a third person & third

persons accepted it if the third person accepted & debtor fails to fulfill, third person has right to

demand payment for the principal obligation creditor is defrauded by the debtor third person who induced to violate the contract third persons who acquired rights over immovable properties – must respect

existing contracts involving such immovable property

5) CHARACTERISTICS OF CONTRACTa) Consensual or real

i. Consensual - perfected by mere consentii. Real - perfected by delivery

b) Principal, accessory or preparatoryi. Principal - not dependent to any other contractii. Accessory - dependent to a principal contractiii. Preparatory - other contracts will follow (agency & partnership)

c) Nominate or innominatei. Nominate - with a name in the lawii. Innominate - no particular designation under the law (memorandum)

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d) Commutative or aleatoryi. Commutative - demandable, not dependent on chanceii. Aleatory - performance depends on chance

e) Onerous, gratuitous or remuneratoryi. Onerous - there is exchange of compensationii. Gratuitous - for freeiii. Remuneratory - payment for services rendered

f) Unilateral or bilaterali. Unilateral - only one party has obligationii. Bilateral - both parties have obligation for each other

g) Oral or writteni. Oral - perfected orallyii. Written - formality is required to be perfected

6) KINDS OF DEFECTIVE CONTRACTSa) Rescissible contracts

No defects in the essential elements Damage or injury is suffered by another person such as:

B/w guardian & ward – lesion of >1/4 B/w administrator & absentee – lesion of > ¼ Debtor who defrauds creditor Defendant sells property w/c is the subject of a case to the disadvantage of the

plaintiff Subsidiary remedy – RECISSION

Cancellation of contract as if no contract has occurred Can be done only if there is no other available remedy Requires restoration of properties Cannot be allowed if

Party seeking recission can no longer return what must be returned Property is already in the possession of a third person who acted in good faith

b) Voidable contracts (IMVIFU) Consent of one of the parties is defective because of:

i. Incapacityii. Mistakeiii. Violenceiv. Intimidationv. Fraud – CAUSAL (dolo causante)vi. Undue influence – youngest daughter who knows that her father cannot refuse

whatever she asks for, threatens her father that she will elope if her father doesn’t sign a contract giving all his properties to her as inheritance.

Remedy – RATIFICATION or ANNULMENT Once ratified - cleansed of all its defects & becomes VALID Only the injured party can ask for annulment w/in FOUR (4) YEARS except when

there is mutual mistakec) Unenforceable contracts (A,SF,BPI)

Cannot file a case in court1. Entered into w/o authority or in excess of authority2. Violates statute of fraud – agreements which MUST BE IN WRITING

i. Agreement NOT TO BE PERFORMED w/in one yearii. Guaranty or special promise to answer for the debt or miscarriage of anotheriii. Agreement made in consideration of marriage other than mutual promise to marryiv. Agreement for the sale of goods, chattels or things in action at a price = or > P500v. Lease for > one yearvi. Sale of real property or an interest thereinvii. Representation as to the credit of a third person

Refer to PURELY EXECUTORY contracts PARTIALLY PERFORMED obligations – NOT COVERED BY STATUTES OF

FRAUD3. Both parties are incapable of giving consent May be ratified & once ratified, is cleansed of all defects & becomes valid

d) Void contracts (or INEXISTENT CONTRACTS)1. OBJECT or CAUSE is DEFECTIVE2. ONE or SOME or ALL of the ESSENTIAL ELEMENTS of a contract is MISSING Cannot be assailed by third persons – can be brought to court only by directly affected

parties Cannot be ratified No prescriptive period Right to defense cannot be waived PARI DELICTO – BOTH GUILTY

Cannot file a case in court against each other because both will be persecuted

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Land acquired thru CARP cannot be sold Illegal but not criminal Sale is VOID

7) SIMULATIONa) Absolutely Simulated

Purely fictitious Parties do not intend to be bound by the agreement Cannot be reformed

b) Relatively Simulated Parties hide/conceal the true agreement Contract is valid as to the true agreement May be caused by

Fraud Accident Mistake Inequitable conduct

REMEDY - REFORMATION The process of changing the instrument when what is embodied therein is different

from the intention of the parties Allowed only before the contract has been enforced by the party who has

the right to ask for reformation Contracts that cannot be reformed:

Wills Simple donation inter vivos when no condition is imposed Void contracts

III. SALES1) DEFINITION

2) CHARACTERISTICSa) Consensual - perfected by mere consentb) Bilateral - both parties have obligations to performc) Cummutative - values exchanged are generally equivalent to each otherd) Principal - existence does not depend upon another contracte) Onerous – requires an exchange of valuable considerationf) Nominate – has a name provided in the civil codeg) Generally reciprocal – the performance of the obligation by one party is dependent

upon the performance of the other’s obligation

3) STAGES OF A CONTRACT OF SALE (same w/ contract)a) Conception or birthb) Perfectionc) Consummation or death

4) OBJECT OF SALE – never servicesa) Things

Things with potential existence - VALID Future things – emptio rei esperati Hope – emptio spei

Sale of VAIN HOPE OR EXPECTANCY - VOIDb) Rights

5) CONTRACT OF SALE REQUIRED TO BE WRITTENa) Real property – notarized (public document)b) Sale to be performed beyond one yearc) => P500 – must be in writing to be enforceable

6) IMPORTANT DISTINCTIONSSale Dation in

PaymentContract for a Piece of Work

Barter Sale or Return

Sale on Trial,

Approval or Satisfaction

No pre-existing credit

W/ pre-existing credit

Cause – price Extinguishment of existing obligation

Obligations are created

Obligation is extinguished

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Greater freedom in determining the price

Lesser freedom in determining the price

Goods manufactured for sale to the general market

Goods manufactured especially for the customer & upon his special order

Consideration is money

Consideration is another thing

C > O C < OC = O

Ownership is transferred upon delivery but w/ option to return

Ownership is retained by the seller even though delivered

Subject to resolutory condition

Subject to suspensive condition

7) PACTO DE RETRO SALE Upon sale, buyer becomes unconditional owner If seller does not repurchase, buyer becomes absolute owner Sale with right of redemption

With prohibitive period – redemption period begins after the prohibitive period No agreed period – period to redeem is within 4 YEARS from date of contract In either case, redemption period MUST NOT EXCEED 10 YEARS FROM DATE OF

CONTRACT Agreement to repurchase as soon as the seller has the money to redeem is one

with a period (indefinite) Distinctions b/w Mortgage

PACTO DE RETRO SALE MORTGAGENo foreclosure With foreclosure if obligation is not paidNo pre-existing contract With pre-existing contractPrincipal contract Accessory contract What MUST BE RETURNED to the buyer in case of redemption in pacto de retro sale

a) Price of the saleb) Expenses of the contractc) Other legitimate expenses made by reason of the saled) Necessary & useful expenses made on the thing sold

What MUST NOT BE RETURNED to the buyer in case of redemption in pacto de retro sale INTEREST Reason: DEEMED MUTUALLY COMPENSATED

Seller – by the use of the price paid by the buyer Buyer – by the use of the thing sold by the seller

8) OFFER TO SELL May be withdrawn before acceptance even if there is period given to buyer to decide

EXCEPT:e) When there is OPTION MONEY

Distinctions b/w OPTION MONEY & EARNEST MONEYOPTION MONEY EARNEST MONEY

Given for the exercise of period Given to show buyer’s interest in the contract of sale

Given before perfection of the contract of sale

Given after the perfection of the contract of sale

Separate & distinct from the purchase price

Part of the purchase price – down payment

9) OBLIGATIONS OF THE SELLERa) Deliver the thing soldb) Transfer ownership – CANNOT BE WAIVED BY THE BUYER, all others can be waivedc) Warrant the thing sold against

f) Eviction – seller warrants that he is the legal owner of the thing sold In case of eviction, recoverable value is the value at the time of eviction

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Legal owner of the thing can get back the thing from the buyer even without compensation except when buyer acquired it from:1. The public market2. Public auction

g) Hidden defects Must be substantial Even though the seller is not aware of the defect In case of hidden defects, remedy of buyer:

1. Cancel the contract of sale2. Proportionate reduction of price

d) Take care of the thing pending delivery

10) OBLIGATIONS OF THE BUYERa) Accept the thingb) Pay the price – a sum certain in money

11) KINDS OF DELIVERY OR TRADITIONa) Actual or real

h) Thing is placed in the possession & control of the buyerb) Constructive

1. Execution of a public document (legal formalities) – in sale of RP2. Symbolic delivery or traditio symbolica (delivery of the key) – sale of a car3. Traditio longa manu (mere pointing at the object) – new owner bears the loss4. Traditio brevi manu (buyer is already in possession, no need to deliver)5. Traditio constitutum possessorium (no delivery because seller will continue in

possessionc) Quasi-delivery

i) Object is intangible or incorporeal Placing of title of ownership in the name of the buyer Allowing the buyer to exercise right

12) TRANSFER OF OWNERSHIP OWNERSHIP IS TRANSFERRED ONLY UPON DELIVERY

13) RIGHTS OF UNPAID SELLERa) Right of possessory lien – seller retains the goods until payment of the price

j) Once delivered, seller has no more right to possessory lienb) Right of stoppage in transitu – stop delivery while in transit when buyer becomes

insolventc) Right of resale

k) When stipulatedl) When perishable in naturem) When debtor is in default for an UNREASONABLE LENGTH OF TIME

If resold at HIGHER PRICE, SELLER RETAINS EXCESS If resold at LOWER PRICE, BUYER MUST PAY DEFICIENCY

d) Right to rescind or cancel contract of salen) If buyer is already in possession of the thing sold, rescission may only be done thru

court or judicial proceedingse) Right to demand payment of the price – specific performance

o) Judicialp) Extra judicial

14) RIGHT OF BUYERa) Buyer may suspend payment of the price when there is valid ground that he will be

deprived of his right on the property by a third personb) Before payment of the price

i. Inspectii. Examine

c) In COD sale – buyer has no right under (b)

15) RECTO LAW Applicable to PERSONAL PROPERTY sold INSTALLMENT BASIS Property is mortgaged to the seller to secure payment of the price Applicable upon failure of buyer to pay one or more installments Analogous to Lease w/ Option to Buy Remedy of seller:

a) 1 or more unpaid installmentsi. Demand specific performance

b) 2 or more unpaid installments

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i. Demand specific performanceii. Rescind the contractiii. Foreclose property

c) If immediately foreclosed & proceeds are less than the outstanding obligation, buyer has no more obligation on the balance or deficiency & seller has no right to demand for the balance or deficiency

d) Any stipulation to the contrary is VOID

16) MACEDA LAW Applicable to PARCEL OF LAND or REAL PROPERTY sold INSTALLMENT BASIS

a) @ Least 2 installments paid 30-day grace period to pay for every year without interest

b) @ Least 5 years paid If rescinded – CASH SURRENDER VALUE=

50% (of all payments) refund + 5% for every year in excess of 5 years not to exceed 90% of all payments

If rescission is stipulated & rescinded:a) Notice of rescission MUST BE NOTARIZED, to be validb) If not notarized, buyer CAN COMPEL SELLER TO ACCEPT PAYMENT even after

maturity date

17) PD 957 – CONDOMINIUM LAW RULES WHEN SELLER/DEVELOPER DOES NOT FOLLOW WHAT HAS BEEN

STIPULATED IN THE DEVELOPMENT OF THE PROJECTa) Buyer may suspend payment when what has been stipulated is not followed by the

sellerb) Developer/seller cannot rescind contract for such non-paymentc) Buyer may withdraw all payments + interest

In case of non-payment of the buyer w/o fault on the seller, follow MACEDA LAW

18) SALE OF REAL PROPERTY THRU AGENT Must be in writing to be valid If AUTHORITY is ORAL – sale executed by the agent is VOID Under the STATUTES OF FRAUD

SALE of LAND or REAL PROPPERTY must be in writing to be VALID & ENFORCEABLE (even not thru agent)

19) DEFECTIVE CONTRACTS OF SALEa) Rescissibleb) Voidablec) Unenforceabled) Void

20) DOUBLE OR MULTIPLE SALES – OWNERSHIP BELONGS TO:a) REAL PROPERTY

1. First registered in good faith2. First possessed in good faith, if there is no registration3. Buyer who possesses OLDEST TITLE, if there is no registration or possession

b) PERSONAL PROPERTY1. First possessed in good faith, if there is no registration2. Buyer who possesses OLDEST TITLE, if there is no registration or possession

21) LEGAL REDEMPTION OF PROPERTIES SOLD TO OTHER PERSONSa) CO-OWNERS

Redemption proportionate to the share of co-ownership Within 30 days from WRITTEN NOTICE from seller Seller cannot hide the sale because the REGISTRY of DEED requires the written notice

to co-owners before registration REASON: to discourage co-ownership

b) ADJACENT OWNERS1. Rural Land < 1 hectare

Priority redemption to adjacent owner with SMALLEST AREA Reason: to foster agricultural development

2. Urban Land – no practical use Priority redemption to adjacent owner with the most justified or most important use Reason: to discourage impractical use of urban land

22) ANTICHRESIS

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Antichresis, in civil law, is a contract whereby a person borrowing money of another, hands over his property to the creditor, allowing the use and occupation thereof, for the interest on the money lent.

IV. AGENCY1) PARTIES TO A CONTRACT OF AGENCY

a) Principalb) Agent

2) CAPACITY OF THE PARTIESa) Principal – must be capacitatedb) Agent – may or may not be capacitated as long as the principal is capacitated

3) KINDS OF AGENCYa. Express

Oral – general rule, except when immovables or real property is involved Written

b. Implied i. Acts of the principalii. Principal’s silenceiii. Principal’s lack of actioniv. Principal’s failure to repudiate agency

4) HOW CREATEDa. By CONTRACT

b. By OPERTATION OF LAW Son temporarily taking over the agency after death of father

c. By ESTOPPEL Thru acts of the agent Estoppe – barring from denying what you have said w/c others have relied upon

d. By RATIFICATION Validation by principal

5) INTERPRETATION OF THE AGENT’S POWERa. POWER TO SELL – for CASH ONLY unless stipulated or subsequently ratified

If not authorized to sell on installment: Agent may be required to pay the principal on cash basis but agent is entitled

to the benefits of the contract Principal may ratify the sale on credit

If authorized to sell on installment Agent must inform principal of the sale w/ the statement of the names of

the buyers & amount due from them Otherwise, principal may demand payment in cash

b. POWER TO SELL – does not include power to barter, mortgage or pledgec. POWER TO MORTGAGE – does not include power to sell or secure a second mortgaged. POWER TO COMPROMISE – does not authorize submission for arbitration

6) DIFFERENCES B/W AUTHORITY & INSTRUCTIONSAUTHORITY INSTRUCTIONS

Affects third persons Does not affect third personsMust be verified by third persons Need not be verifiedViolations make acts of the agent not valid (unenforceable)

Does not affect validity of the contract of agency but agent is liable to the principal for damages

a. General – all business of the principalb. Specific – particular business only

7) APPOINTMENT OF AGENT THRU LETTER/TELEGRAM Agent’s silence is not considered an implied acceptance, EXCEPT:

a. When he acknowledged receipt of the letter/telegramb. Letter/telegram entrusting to him power with respect to a business he is

habitually engaged

8) APPOINTMENT OF A SUBSTITUTE OR SUB-AGENT All substitutes APPOINTED AGAINST THE PROHIBITION OF THE PRINCIPAL - VOID Agent may appoint a substitute unless EXPRESSLY PROHIBITED

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Agent is liable for the acts of the substitute if:a. He is not given the power to appointb. Though given, the substitute is not designated & he appointed a notoriously

incompetent & insolvent person If appointed by the principal, no liability on the part of the agent

9) LIABILITIES OF SEVERAL AGENTS/PRINCIPALS Several Agents – JOINTLY LIABLE, unless SOLIDARITY has been STIPULATED Several Principals – JOINT, except when agent is appointed for a common

transaction

10) ADVANCES MADE BY THE AGENT General rule: all advances made by agent for the execution of the agency must be

REIMBURSED + INTEREST from the day on w/c advances were made EVEN IF THE BUSINESS IS UNSUCCESSFUL provided AGENT is FREE from FRAUD or FAULT

Exceptions: Principal is not liable for expenses incurred by agent if:a. Agent violated the instructions of the principal unless the principal wants to

avail of the benefits derived from the contractb. Expenses were due to the agent’s faultc. Agent incurred them with knowledge that unfavorable result would ensued. Stipulated that the agent would bear the expenses

11) MODES OF EXTINGUISHMENT OF THE CONTRACT OF AGENCYa) Expiration of the contractb) Death of one of the partiesc) Withdrawal by the AGENT

May withdraw anytime Must notify principal Must give the principal reasonable opportunity to take necessary steps to meet the

situation Agent shall be liable if the principal shall suffer damages by reason of agent’s

withdrawal unless it is impossible to continue agency w/o detriment to agent FILING A CASE AGAINST THE PRINCIPAL FOR MONETARY CLAIM is

EQUIVALENT TO WITHDRAWALd) Accomplishment of the purpose of agencye) Revocation by the PRINCIPAL

REQUISITES OF VALID REVOCATION Must be done in good faith Must be brought to the attention of specified third persons

WHEN AGENCY IS IRREVOCABLE Coupled with interest A bilateral contract depends on the agency It is a means of fulfilling an obligation already contracted

f) Dissolution of the firm (if one of the parties is a firm)

12) DEL CREDERE AGENT Commission agent with guarantee commission to collect when due Even if not collected, agent is obliged to remit what is due

V. PLEDGE & MORTGAGE1) COMMON CHARACTERISTICS

PLEDGE CHATTEL MORTGAGE

REAL ESTATE

MORTGAGEa) Accessory contract as security Same Sameb) Pledgor must be absolute owner Same Samec) Plegor must be authorized or has free

disposal of the thing pledgedSame Same

d) Thing pledged may be alienated, if debtor cannot pay

Same Same

e) Thing pledged must be delivered to the creditor

No delivery No delivery

2) DISTINCTIONSPLEDGE CHATTEL

MORTGAGEREAL ESTATE MORTGAGE

a) Object Personal or movable property

Personal or movable property

Real or immovable property

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b) Right to sell Can be sold even w/o pledgee’s consent. To transfer ownership to buyer requires consent, written or oral

Cannot be sold w/o consent of creditor. Must be in writing & annotated on the instrument

Can sell even w/o the consent of the mortgagee. (any prohibition not to sell is VOID – pactum commissorium)

c) Effect to third persons

Description of thing pledged must appear in a public document

There must be an affidavit of good faith & must be recorded in CHATTEL MORTGAGE REGISTRY

Must be recorded in the OFFICE OF THE REGISTRY OF DEEDS

d) Effect of sale Proceeds > debt – creditor is entitled to excess UNLESS otherwise STIPULATED

Proceeds < debt – creditor cannot recover the deficiency EVEN IF there is STIPULATION

Proceeds > debt – creditor not entitled to excess

Proceeds > debt – creditor can recover deficiency

Proceeds > debt – creditor not entitled to excess

Proceeds > debt – creditor can recover deficiency

3) PLEDGE Real contract – if thing pledged is NOT DELIVERED - VOID Subject matter

a) Movable propertyb) Within the commerce of manc) Capable of possession

Extinguishment of pledge (does not include extinguishments of debt)a) Payment b) Destruction of thing pledgedc) Return of thing pledgedd) Renunciation of the thing pledgede) Other forms of extinguishments of obligation

4) MORTGAGE In case of auction, mortagor can participate. If same w/ highest bidder, preferred By-bidder or puffer – bids for & on behalf of the seller; public must be notified TIPO OR UPSET PRICE- FIXED AMOUNT agreed upon for w/c the property mortgaged

shall be sold - VOID

a) CHATTEL MORTGAGE

b) REAL MORTGAGE Involves real property (binds the property & third persons if registered) Real right (can be sold or assigned) Accessory contract A limitation on ownership (a lien but does not transfer ownership) Inseparable from the property Indivisible (cannot be partially extinguished by partial payment)

5) PACTUM COMMISSORIUM – VOID A stipulation for the automatic ownership of the property by the creditor-mortgagee in

case of non-payment of the obligation. An agreement prohibiting the debtor-mortgagor to sell the property while the obligation

remains unpaid

VI. PARTNERSHIP1) DEFINITION

By the contract of partnership, two or more persons binds themselves to contribute money, property or industry with the intention of dividing the profit among themselves

2) CHARACTERISTICSa) Consensualb) Nominatec) Onerousd) Bilateral

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e) Principalf) Preparatory

3) ESSENTIAL REQUISITES

4) DISTINGUISHED FROM CORPORATIONPARTNERSHIP CORPORATION

Creation By contract By operation of lawExistence Indefinite Not more than 50 yearsManagement Managed by all partners if there is

no managing partnerManaged by BOD

Liability of partners /stockholders

General partners’ liability extends to separate properties

Stockholders’ liability does not extend to separate properties

Right against partnership or corporation

Partners may bind the partnership Stockholders cannot bind the corporation

Dissolution Death of a general partner may dissolve the partnership (if there are no other general partners)

Death of a stockholder does not dissolve the partnership

5) DISTINGUISHED FROM OTHER FORMS OF ORGANIZATIONa. Co-ownershipb. Conjugal partnership of gainsc. Joint accountsd. Joint venturee. Voluntary associationf. Business trustg. Syndicateh. Tenancy Partnership HAS A SEPARATE JURIDICAL PERSONALITY, all of the above do not have

6) KINDS OF PARTNERSHIPA. As to objecta) UNIVERSAL PARTNERSHIP

i. Universal partnership of ALL PRESENT PROPERTY ALL PROPERTIES belonging to the partners at the time of constitution of the

partnership become COMMON PROPERTY including ALL PROFITS w/c they may acquire therewith

Properties subsequently acquired by inheritance, legacy or donation, not included, FRUITS from SUCH PROPERTIES ARE ALSO INCLUDED

ii. Universal partnership of ALL PROFITS Comprises what the partners may acquire thru industry or work Properties are not contributed Only the usufructs of such properties are contributed

If the nature of universal partnership is not specified, considered of ALL PROFITS

b) PARTICULAR PARTNERSHIPB. As to liability of partners

a) General - With one or more general partnersb) Limited

With one or more limited partners & one or more general partners Cannot be oral Must be written & registered with SEC Must always be written as limited, otherwise considered as general (under the

statutes of fraud)C. As to duration

a. Partnership at willb. Partnership with a fixed term

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D. As to representation to othersa. Ordinary b. Partnership by estoppel

E. As to legality of existencea. De jure – complied with all the requirementsb. De facto – failed to comply with all requirements

F. As to publicitya. Secretb. Open

7) PERSONS PROHIBITED TO ENTER INTO A UNIVERSAL PARTNERSHIPa) Husband & wife during their marriageb) Persons guilty of adultery or concubinage at the time of donationc) Person found guilty of the same criminal offense in consideration thereofd) Public officer or his wife with another person by reason of his office

8) KINDS OF PARTNERA. As to contributions

a) Capitalist – money or propertyb) Industrial - industry

B. As to liabilitya) General – liability to third persons extends to separate propertyb) Limited - liability to third persons extends only to his contribution, as if an outsider to

the partnershipC. As to management

a) Managing – manages & actively participates in the business of the partnershipb) Silent partner – does not actively participate in the management of the partnership

D. Other classificationsa) Partner by estoppelb) Nominal partner – specified in the articles of partnershipc) Secret partner – NOT KNOWN to third persons as a partnerd) Dormant partner – SILENT + SECRETe) General/limited partner

General in all respects Limited only as to return of capital

f) Substituted limited partner – assigned w/ the interest of a deceased limited partnerg) Liquidating partner – in charge of liquidation, winding up & terminationh) Sub-partner – no right to interfere in the business of the partnership, has right against

the partner only

9) PARTNERSHIP/PARTNER BY ESTOPPEL One which is not really a partner or a partnership but because of representation which had

been relied upon by others Considered a partnership/partner for the protection of third persons

10) CONTRIBUTIONS OF PARTNERSa) Capitalist partner – money or property

Cannot engage in business similar to the partnership’s businessb) Capitalist industrial partner – money or property & industryc) Industrial partner – industry

Cannot engage in any other business d) Limited partner – money or property only

11) LIABILITIES OF PARTNERSa) General partner

Separate properties are liable for partnership liabilities in case properties have already been exhausted

Liability to third persons – prorata (interpreted as equal-only as to third persons)b) Industrial partner

Also liable to partnership creditors Since not liable for losses, CAN DEMAND REIMBURSEMENT from the other partners Cannot engage in any kind of business – if he does so, he can be (alternative

remedies) Excluded from the partnership OR He may be compelled to turn over his income to the partnership with damages in

either casec) Capitalist partner

Liability to third persons – prorata (interpreted as equal-only as to third persons) Cannot engage in the same line of business w/o the consent of the other

partners

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If he does so, he must bring to the partnership the profits gained from such business

If he suffers losses, he must suffer aloned) Limited partner

Who takes active part in the management of the partnership business shall be liable as a general partner

e) Newly admitted partner Liable for the partnership liabilities incurred before his admission ONLY UP TO

THE EXTENT OF HIS CONTRIBUTION

12) NON-REGISTRATION OF GENERAL PARTNERSHIP Valid even though

Capital > P3,000, not in writing & not registered with SEC When immovables are contributed

Must be in wriring Must have inventory of the immovables attached to the document Otherwise, VOID

13) SHARE IN THE PROFITS & LOSSES Based on agreement In the absence of agreement – proportionate to capital contribution When only share in profits has been agreed upon - share in losses shall be the same

proportion with share in profits INDUSTRIAL PARTNER

Entitled to a just & reasonable share in the PROFITS if his share has not been agreed upon

Not liable for losses of the partnership If he pays a creditor, HAS RIGHT TO REIMBURSEMENT

14) MANAGEMENT OF THE PARTNERSIP No managing partner

All partners are agents of the partnership With managing partner

Appointed in the articles of partnership Can execute all acts of administration despite opposition of other partners Power is irrevocable without just cause Revocation requires the consent of the partner with controlling interest

Appointed after establishment of the partnership May be removed any time with or without cause

MANAGING PARTNER COLLECTS FROM HIS DEBTOR WHO IS A DEBTOR OF THE PARTNERSHIP AT THE SAME TIME If issued a receipt in the name of the partnership – must apply payment to partnership

credit If issued receipt applying payment to his own account, must divide payment

proportionately b/w the managing partner & partnership If debt to managing partner is more onerous, apply to debt to managing partner

If managing partner applied payment to his own account, & debtor becomes insolvent, must remit to the partnership what he has collected

15) ORDER OR PREFERENCE OF DISTRIBUTION OF PARTNERSHIP ASSETS Out of partnership assets – partnership creditors Out of separate assets – separate creditors

GENERAL PARTNERSHIP LIMITED PARTNERSHIPOutside creditors Outside creditorsPartners as creditors Limited partners’ profitsPartners’ capital Limited partners’ capitalPartners’ profit General partner as creditors

General partners’ profitsGeneral partners’ capital

16) CAUSES OF DISSOLUTIONa) Voluntary

i. Express will of a partner or all of the partners or expulsion of a partnerii. Termination of the term of a particular undertaking

b) Involuntaryi. Business becomes unlawfulii. Specific thing to be contributed perished before deliveryiii. Death of any partner, insolvency or civil interdiction of any partneriv. Insolvency of the partnership

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v. By decree of court

17) DEATH OF PARTNERSa) General partner – may dissolve the partnershipb) Limited partner – does not dissolve the partnership

VII. CORPORATION1) DEFINITION

Artificial being created by operation of law, having the RIGHT OF SUCCESSION & the POWERS, ATTRIBUTES & PROPERTIES EXPRESSLY AUTHORIZED BY LAW or INCIDENT TO ITS EXISTENCE

Existence begins from the issuance of CERTIFICATE OF INCORPORATION by the SEC

2) CREATION OF PRIVATE CORPOTATION By operation of law

3) DOCTRINE OF SEPARATE ENTITY

4) PIERCING THE VEIL OF CORPORATE ENTITY

5) TRUST FUND DOCTRINE6) CORPORATE FORMATION

a) STAGES OF FORMATIONi. Promotionii. Incorporation

iii. Commencement of business Commenced

If commenced within TWO YEARS, but STOPPED OPERATIONS & REMAINED IDLE for at least FIVE YEARS, GROUND FOR DISSOLUTION

Not commenced If not commenced within TWO YEARS, DISSOLVED

b) INCORPORATORS – MUST BE Natural persons Capacitated Majority are residents of the Philippines Subscriber of at least one share

c) REGISTRATION WITH SEC If not registered cannot even be considered a DE FACTO corporation

d) CAPITAL STOCK 25% of authorized must be subscribed 25% of subscribed must be paid Minimum paid up should not be less than P5,000

e) BY LAWS Generally simultaneous with ARTICLES OF INCORPORATION May be filed before incorporation or within 30 days from issuance of

certificate of incorporation

7) DISADVANTAGES OF CORPORATION COMPARED TO PARTHERSHIP Subvervience of the minority stockholders to the wisher of the controlling interest

8) TEST OF NATIONALITY OF A CORPORATIONa) Control test

Nationality of controlling stockholdersb) Incorporation test

Laws of the country under which it is incorporatedc) Domicile test

Place where it is conducting business Where principal office is located

9) KINDS OF CORPORATION

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10) MANAGEMENT OF A CORPORATION Managed by BOD

11) SHARES OF STOCKSa) Promotion stocks

Issued to persons who rendered services for the promotion of the corporationb) Watered stocks

Illegal but contract is not void Subscriber may be compelled to pay the balance Directors consenting to such are SOLIDARILY LIABLE with the subscriber

c) Treasury shares Not part of the outstanding capital stock No voting right Not entitled to dividends Cannot be issued as stock dividend Can be issued as property dividend only Can be sold for less than par or issued value

d) Unpaid shares Entitled to all the rights unless declared delinquent When declared delinquent

Failure to pay on the due date based on contract or call Declared delinquent 30 day grace period to pay in full

Subscription amount + intereste) Delinquent shares

All rights are suspended EXCEPT RIGHT TO DIVIDENDS If cash dividends are issued, shall be applied to the balance If stock dividends are issued, withheld until fully paid If offered at public auction, shall be sold to the HIGHEST BIDDER HIGHEST BIDDER – he who offers the FULL AMOUNT for the LEAST NUMBER OF

SHARES Remedy on delinquent shares

File in court based on contract of subscription Sell to public – highest bidder If no highest bidder, reacquire

12) SUBSCRIPTION Contract for the acquisition of unissued shares from an existing corporation or an

corporation still to be formed

13) DIVIDENDS Issued out of SURPLUS PROFIT OR UNRESTRICTED RETAINED EARNINGS Corporation is compelled to pay dividends once UNRESTRICTED RETAINED

EARNINGS EXCEEDS 100% of its PAID UP CAPITAL Kinds of dividends

Cash – declared only by the BOD Stock – require approval of SH – do not increase authorized capital of

the corporation nor the controlling interest of the stockholders

14) POWERS OF THE CORPORATIONa) Express

Expressly stated in the articles of incorporationb) Implied

Implied in the purpose expressed in the articlesc) Intra vires

Within the powers of the corporationd) Ultra vires

Not within the powers of the corporation Voidable if not illegal per se Can be ratified by the approval of ALL stockholders or members

expressly or impliedly

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15) RULES ON VOTING REQUIREMENTS BOD

ALWAYS MAJORITY of those present constituting a quorum STOCKHOLDERS

2/3 of outstanding shares OR Majority votes of the outstanding shares

MAJORITY = 50% + 1 GENERALLY majority = quorum Any action decided w/o a quorum = VOID VOTING REQUIREMENTS

a) Majority of the BOD constituting a quorum1. Resolution of the Board

b) Majority of the votes of the outstanding capital stock1. Adoption, amendment or repeal of BY-LAWS2. Revocation of power delegated to BOD to adopt, amend or repeal by-laws3. Election of directors (cumulative voting)

Cumulative voting may be done bya. Lump sumb. Straightc. Distribution

4. Grant of compensation to directors5. Approval of management contract with another corporation

c) 2/3 of the outstanding shares of stocks – MAS MABIGAT NA DECISION1. Adoption, amendment or repeal of ARTICLES2. Authorizing the board to amend, revise or adopt by-laws3. OTHERS

16) VACANCY IN THE BOARD May be filled up by REMAINING DIRECTORS constituting a QUORUM, EXCEPT the ff

w/c can ONLY BE FILLED UP BY STOCKHOLDERSa) Vacancy caused by removal b) Vacancy caused by expiration of termc) Vacancy the filling up of w/c is referred to by the BOD to the stockholdersd) Vacancy caused by the increase in number of directors which means an amendment of

the articles DIRECTOR representing MINORITY INTEREST CANNOT BE REMOVED WITHOUT JUST CAUSE

17) OFFICERS OF THE CORPORATIONa) President

Must be a director, therefore must also be a stockholder Cannot be secretary or treasurer at the same time

b) Secretary Need not be a stockholder Must be a resident

c) Treasurerd) Director

Must be a stockholder Must have not been convicted of a crime with imprisonment of > 6 years

18) PRE-EMPTIVE RIGHT

19) APPRAISAL RIGHT Right of a dissenting stockholder to DEMAND FOR THE FMV of his shares May be exercised only in the following cases:

a) Amendment of articlesb) Disposition of all or substantially all of the corporate assetsc) Merger or consolidationd) Investment of corporate funds in another corporation or business

All rights of the share are suspend except the right to appraisal Dissenting stockholder must:

a) Make a written demand within 30 daysb) Present shares within 10 days from date of demandc) Such shares are stamped as dissenting shares

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d) Failure of the corporation to pay within 30 days revives all the rights of the dissenting rights

If right is sold to another buyer, can no longer exercise the appraisal right of the seller

20) LEGAL EFFECTS OF MERGER OR CONSOLIDATION All properties, rights, powers & liabilities of the constituent corporations are transferred to

the surviving corporation

21) PROXY Power Person Document Authority For a particular power, date & meeting only Revocable any time

22) VOTING TRUST AGREEMENT Exercises not only voting right but all rights of the shares Not limited to a particular meeting, date or power Should not exceed 5 years unless provided in the agreement A means of disposing of the shares yet retaining interest

23) FOREIGN CORPORATION Incorporated under laws other than the that of the Philippines The law of that country allows Filipinos to form a corporation in their country License to do business in the Philippines Bond of P100,000 Business in the Philippines is a continuous activity Appoint resident agent

VIII. NEGOTIABLE INSTRUMENTS1) FUNCTIONS & IMPORTANCE

a) Substitute for moneyb) Media of exchange for most commercial transactionsc) Media of credit transactionsd) Increases purchasing power

Negotiable instruments are NOT LEGAL TENDER Delivery of a negotiable instrument DOES NOT EXTINGUISH an obligation

2) CHARACTERISTICSa) Negotiability

Quality or attribute whereby a NI passes or may pass from hand to hand similar to money as to give the holder in due course the right to hold the instrument & collect the sum payable for himself free from defenses.

NEGOTIABILITY is TERMINATED when: Restrictively indorsed Discharged

b) Accumulation of secondary contracts It makes as many secondary contracts as the number of times negotiated

3) REQUISITES (DEFINITION)a) In writing & signed by maker or drawer

PN - maker BOE - drawer

b) Unconditional promise or order to pay a sum certain in money PN - unconditional promise BOE - unconditional order

If not payable in money – negotiable document May indicate particular fund out of which reimbursement is to be made or

particular account to be debited If payable out of a particular fund – NOT NEGOTIABLE – becomes conditional Sum is certain even if w/ interest, w/ fixed or current exchange rate or payable by

stated installments Payable in four equal installments – NOT STATED INSTATALLMENT – NOT

NEGOTIABLE Must state beginning or exact dates of installments

A promise to do an act other than payment of money is not negotiable except if it is the HOLDER’S OPTION – alternative w/ the use of OR

c) Payable on demand or at fixed or determinable future time On demand

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When so expressed No time for payment is expressed Instrument is issued, accepted or indorsed when overdue as regards the person

so issuing, accepting or indorsing it At a fixed time After date of NI After sight – after presentment – if this is the basis of maturity, count from date of

presentment & not on date accepted Payable on or before Christmas - not determinable – NOT NEGOATIABLE - must

indicate year On or after the occurrence of a specified event which is certain to happen even

though the time of happening is uncertain 5 days after you pass the CPA board examination

Before the occurrence of a specified event which is certain to happen even though the time of happening is uncertain – NOT NEGOTIABLE 5 days before you pass the CPA board examination

d) Payable to order or bearer – Instruments payable to a specified person is not negotiable

Pay to Juan dela Cruz Payable to ORDER(ORDER INSTRUMENT)

Payable to the order of a specified person Payee who is not maker, drawer or drawee

Pay to the order of P Pay to P or order

Drawer or maker I promise to pay to the order of myself

Drawee Pay to the order of yourself

Two or more payees jointly Pay to the order of P & A

One or more of several payees Pay to the order of P, A or B Pay to the order of P, A or B or any one of them Pay to the order of P, A or B or any two of them

Holder of an office of the time being Pay to the president of the Philippines

If indorsed in blank, becomes a bearer instrument Payable to BEARER (BEARER INSTRUMENT)

When expressed to be so payable Pay to bearer Pay to bearer, P – NOT NEGOTIABLE

Payable to a person named therein or bearer Pay to P or bearer

Payable to the order of a fictitious person & such fact is known to the person making it so payable Pay to the order of Tarzan

Payee does not purport to be the name of a person Pay to blackboard or order

Only or last indorsement is blank Pay to P or order, signed M, indorsed as follows

Remains a bearer instrument no matter how

indorsede) Drawee must be named or indicated with reasonable certainty

4) COMMON TYPES OF NEGOTIABLE INSTRUMENTSa) Promissory notes

Unconditional promise to pay If drawn to the maker’s own name, INCOMPLETE UNTIL INDORSED BY HIM

I promise to pay myself or order

Pay to A (Sgd) P

Pay to B (Sgd) A

Pay to C (Sgd) B

(Sgd) C

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Mere acknowledgement of debt – NOT PROMISE TO PAY Examples:

Certificate of deposit Bond Bank note Due bill

b) Bills of exchange Unconditional order to pay Example(s):

Certificate of depositc) Checks

Always payable on demand Bank may refuse payment if:

a. Bank becomes insolventb. Drawer has insufficient funds or no accountc. Drawer dies or becomes insolvent & notice is received by the bankd. Drawer has countermanded payment – drawer orders bank not to paye. Holder refuses to identify himselff. Check is believed to be a forgeryg. Check is staled or postdated

5) ORIGINAL PARTIES TO A NEGOTIABLE INSTRUMENTa) PROMISSORY NOTE

1. Maker – person who makes the promise & signs the instrument2. Payee (order instrument) or bearer (bearer instrument) – the party to whom the

promise is made or the instrument is payable

b) BILL OF EXCHANGE1. Drawer – person who draws the bill2. Drawee – party upon whom bill is drawn, becomes the acceptor upon acceptance

(usually a bank)3. Payee – party in whose favor the bill is drawn or is payable

6) LIABILITIES OF THE PARTIESa) PRIMARILY LIABLE

1. Maker2. Acceptor (drawee)3. Certifier of a check

b) SECONDARILY LIABLE1. Drawer2. Indorsers

c) NOT LIABLE1. Drawee, until he accepts

7) INCIDENTS IN THE LIFE OF A NEGOTIABLE INSTRUMENTa) Preparation

Writing of the instrumentb) Issue

First delivery of an instrument, complete in form to a person who takes it as holder Delivery – transfer of possession, actual or constructive from one person to another

c) Negotiation Methods of Transfer of a Negotiable Instrument

1. By assignment2. By operation of law3. By negotiation

Transfer of a negotiable instrument from one person to another in such a manner as to constitute the transferee the HOLDER thereof.

KINDS OF HOLDER1. Holder

Whoever holds, in general2. Holder for value

Holds & gave a valuable consideration in exchange

3. Holder in due course One who has taken the instrument under the ff conditions

a) It is complete & regular upon its faceb) He became the holder of it before it was overdue, & w/o notice that it

had been dishonored if such was the factc) He took it in good faith & for value

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d) 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

DEFENSES1. Personal or equitable

Available against parties who are NOT HOLDERS IN DUE COURSEa) Filling of wrong dateb) Filling up of blanks not in accordance with authority given & within

reasonable timec) Want of delivery of a complete instrumentd) Absence or failure of consideratione) Simple fraudf) Acquisition of instrument (not signature) by duress, or force & fearg) Acquisition of instrument by unlawful meansh) Acquisition of instrument for an illegal considerationi) Negotiation in breach of faithj) Negotiation under circumstances that amount to fraudk) Innocent alteration or spoliation

Spoliation – alteration made by a stranger to an instrumentl) Set-off between immediate partiesm) Discharge of party secondarily liable by discharge of prior partyn) Discharge by payment or renunciation or release before maturityo) Usury, because the contract of loan itself is not void but only the agreed

interestp) Want of authority but agent has apparent authority

2. Real or Absolute Available against ALL parties

a) Incapacityb) Insolvencyc) Illegality of contract when declared by lawd) Material alteratione) Want of delivery of incomplete instrumentf) Forgeryg) Want of authority, apparent & realh) Duress amounting to forgery as where one takes the hands of another &

forces him to sign his namei) Fraud in factum or fraud in esse contractusj) Fraudulent alteration by holderk) Prescriptionl) Other infirmities appearing on the face of the instrumentm) Discharge at or after maturity

How Negotiated1. BEARER instrument

By mere delivery2. ORDER instrument

By indorsement plus delivery Kinds of Indorsement

2. Restrictive Prohibits further negotiation Negotiable character of an instrument is terminated

a) Pay to H onlyb) Pay to H for collection onlyc) Pay to H in trust for M

3. Qualified Transfers the right without guaranteeing payment Indorser does not guarantee payment in case maker becomes insolvent

a) Sans recourseb) Without recourse

4. Facultative Waives any right

a) Right to noticeb) Right to presentment

5. Anomalous or irregular Indorsement in blank by a person who is not the payee before delivery Liable to the payee & all subsequent persons

6. Conditional Payer may:

a) Honor the condition The person paid holds the money subject to the condition If condition is not fulfilled, must return the money

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b) Disregard the condition Assignment is NOT negotiation & transferee does not become a holder Indorsement must be for the entire amount unless partially paid An NI cannot be indorsed severally, Indorsement cannot be in the alternative or in succession Signature by Procuration (Per Procuration, P.P., pp, Per Proc)

Operates as notice that the agent has but limited authority to sign Principal is bound only when agent acted within the limits of his authority

d) Presentment for acceptance Not necessary before presentment for payment Necessary only when:

Bill is payable after sight or presentment is necessary to fix maturityo Reason: to give advance notice that such instrument is to be paid at a

fixed/determinable future time Expressly stipulated Payable elsewhere than the residence or place of business of drawee

Requisites of proper presentment Must be made by or on behalf of the holder Must be made at a reasonable hour Must be made on a business day Must be made before the bill is overdue & within a reasonable time Must be made to the drawee or some person authorized to accept or refuse

acceptance on his behalf Dishonor by non-acceptance

When duly presented for acceptance & acceptance is refused or cannot be obtained

When presentment for acceptance is excused & the bill is not acceptedo Duty of holder

Treat as dishonored or he looses the right of recourse against drawer & indorsers

o Right of holder Give notice of dishonor & protest when required Immediately proceed against the drawer & indorsers w/o waiting for the

date of maturityo Reason: payment cannot be expected after acceptance is refused.

Hence, presentment for payment is not necessary unless the bill is subsequently accepted

e) Acceptance Drawee has 24 hours to decide w/in w/c to accept the bill or not Deemed accepted when drawee:

Destroys it Refuses to return it w/in the required period

If accepted, the drawee-acceptor is primarily liable according to the tenor of his acceptance

f) Presentment for payment PN payable on demand – must be within a reasonable time from DATE OF ISSUE BOE payable on demand – must be within reasonable time from DATE OF LAST

NEGOTIATION PN or BOE not presented within the time provided by law discharges the

parties secondarily liable Delay in the presentment for payment does not discharge the drawer but holder shall

suffer the loss caused by the delay Payment in due course discharges the instrument Payment by accommodation party does not discharge the accommodated

party Accommodation party – lends his name without consideration Accommodated party – not discharged in case of payment by accommodation

party because the accommodation party can demand reimbursement from him

g) Dishonor by non-payment When drawee refuses to pay

h) Notice of dishonor When NOT NECESSARY

Er & ee are the same person Ee is fictitious or incapacitated person Er is the person to whom it is presented Er has no right to expect that ee will honor the instrument Er has countermanded payment

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Notice to prior parties benefits subsequent parties

i) Protest in certain cases Necessary only in case of dishonored foreign bills May be for non-acceptance or non-payment Must be in writing & notarized Must be done on the day instrument was dishonored Must be done @ the place of dishonor Acceptance for honor

REQUISITESa) Bill must have been protested for non-acceptance or non-paymentb) Acceptor for honor must be a stranger to the billc) Bill must not be overdue at the time of acceptanced) Must be with the consent of the holder

Acceptor for honor is secondarily liable on the instrument If not specified for whose honor he is accepting, must be for honor of the drawer

Payment for honor Any person whether party to the bill or not Not secondarily liable on the instrument Does not require consent of the holder Refusal to accept payment for honor discharges the party for whose honor

payment was offered & subsequent parties When TWO OR MORE PERSONS offered payment for honor for different parties, the

person whose payment will discharge most parties will be given preference

j) Discharge Negotiable instrument may be discharged by:

Payment in due course by or on behalf of the principal debtor IN DUE COURSE - @ or after maturity in good faith

Payment in due course by accommodated party Intentional cancellation by the holder Any act which may discharge a contract for the payment of money

(NOCOMEREPALO) When principal debtor becomes holder at or after maturity

When holder intentionally cancels the signature of an indroser, such indorse is discharged

Subsequent parties are discharged when prior parties are discharged Refusal to accept a valid tender of payment made by a prior party also discharges

subsequent parties

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