Business Law Reviewer

CHAPTER 1 OBLIGATIONS Chapter Objectives 1. Explain the sources and their concepts 2. Identify kinds of obligations 3. Explain the specific circumstances affecting obligations 4. Explain the duties of obligor 5. Enumerate and explain the extinguishment of obligations Lesson 1 General Provisions Definition- An obligation is a juridical necessity to give, to do or not to do. Juridical necessity- in case of non-compliance court of justice may be called. Essential Elements a) Juridical Tie/Vinculum/Legal Tie/Efficient Cause- the link which binds the contracting parties. The tie in the obligation can easily be determined by the knowing the source of obligation. b) Prestation/Object/Subject Matter of the obligation- the act of giving, doing or not doing. c) Passive Subject/Debtor/Obligor- the party obliged to perform or fulfill the obligation. d) Active Subject/Creditor/Obligee- who can demand the performance/fulfillment of the obligation. Example: X promised to design and create a computerized appliance controller system for Y for one million pesos by virtue of contract signed by them. Passive Subject- X Active Subject- Y Prestation-Creation of Computerized appliance controller system Legal Tie- Contract After the creation Passive- Y Active- X Note: The point of view used in determining the passive and active subject is based on who can go to court in case of non fulfillment. Sources of Obligation Page 1 of 190

1) Law- Obligations arising from law are not presumed (Ignorance of the law excuses no one from compliance therewith). Ex. Obligation to pay taxes; Obligation to support one’s family. 2) Contracts- arise from stipulation of the parties. Ex. The obligation to repay a loan or indebtedness by virtue of an agreement. Basic principle or Characteristics of a Contract: 1. Freedom (or liberty) to stipulate 2. Obligatory force and compliance in good faith 3. Perfection by mere consent 4. Both parties are mutually bound 5. Relatively: binding between the parties only, their assigns and hiers. 3) Quasi-Contracts- based on the maxim “No one shall enrich himself at the expense of another”. a) Negotiorum Gestio- voluntary management of an abandoned business or property without the latter’s knowledge or consent. b) Solution Indebiti- through honest mistake, delivers a thing to another who has no right to demand it, and the latter must return it with interest. 4) Acts or Omissions punishable by law/ Delict/ Crime- aside from criminal liability of a person found guilty of a crime, he has also a civil liability a) Restitution- return of the object of the crime plus allowances if any. b) Reparation-if cannot be returned, must pay an amount equivalent of the thing plus sentimental value plus damages as determined by the court. c) Indemnification-for consequential damages shall be paid to the injured party, it also includes the damages suffered by the family. 5) Quasi Delicts/ Tort/Culpa Aquilana-negligence committed in performance of an spontaneous act, outside of any preexisting contractual relationship, it caused lesion or injury to the offended party without any intent to cause such injury. Note: Culpa Aquiliana vs. Culpa Contractual. Culpa Contractual involves negligence committed by the debtor in performance of a valid existing contract. While Culpa Aquiliana is negligence committed without pre-existing contractual relationship.

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Lesson 2 Nature and Effects of Obligations Art. 1163-Standards of care in the preservation of the Object of the obligation pending delivery (for obligation to give only) a) As provided by Law b) As stipulated in the contract c) Proper diligence of a good father of a family. Art.1164-Rights to the Fruits and Ownership of a thing The creditor acquires the following rights: a) Personal Right/In personam to the fruits of the object when the obligation to deliver arises.. The right of the creditor to demand from the debtor. b) Real Right/In rem- a right of ownership from the time the object of the obligation is actually delivered to the creditor. Diff: Personal Right is binding or enforceable only against a particular person, while a real right is directed against the whole world. Art 1164 vs. Provisions on Sales As to Fruits- in sales fruits shall pertain to the vendee from the day of perfection. Kinds of Fruits 1) Natural Fruits 2) Civil Fruits- derived by virtue of a juridical relation. Ex. interest in money, rental income from lease of apartments or buildings, etc. 3) Industrial Fruits- those produced by lands of any kind through cultivation or labor. Ex. income form labor, such as wages or salaries, boundaries of jeepney and taxi drivers, etc. Art. 1166 Delivery of the principal prestation shall include delivery of its accessions and accessories a) Accessions- are the fruits of a thing or additions to or improvements upon the principal. b) Accessories- are things joined to or included with the principal thing for the latter’s embellishment, better use, or completion. Rules on failure to deliver and/or to perform the prestation 1) In an obligation to give a) Specific or determinate thing, the creditor may compel the debtor to make the delivery. b) Generic or indeterminate- the creditor may ask the obligation be complied with by a 3rd person at the expense of the debtor.

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2) In an obligation to do- if the debtor; a) Fails to do what he is obliged to do, it will be done at his expense. b) If the work is done in contravention of the tenor of the obligation, it will be re-done at the debtor’s expense. c) If the work is poorly done, it will be re-done at the debtor’s expense. 3) In an obligation not to do- if the debtor performs what he is forbidden to do, it shall be undone at his expense. Delay or Mora General Rule “No Demand, No Delay” Classifications 1) Mora Solvendi- delay on part of the debtor a) Mora Solvendi Ex Re- delay in giving or delivering the object b) Mora Solvendi Ex Personam- delay in performing prestation to do 2) Mora Accipiendi- delay or default of the creditor to accept delivery or acknowledge receipt of the object due. 3) Compensation Morae- delay of both parties in reciprocal obligations. Exception to the General Rule: 1) When the law expressly provides that the demand is not necessary 2) When the contract expressly stipulates 3) When time is the essence of the contract 4) When demand would be useless Sources of Liability -the following sources of liability will entitle the injured party to damages: 1) Delay/Default/Mora 2) Negligence/Culpa a) Culpa Contactual b) Culpa Aquiliana 3) Fraud/Dolo- dishonesty, malice or bad faith in the performance of an existing valid obligation a) Dolo Causante or Causal Fraud- used to induce a person to agree to a contract. Effect on contract-voidable. b) Dolo Incidente or Incidental Fraud- committed in the performance of the obligation already existing because of the contract. It gives rise to action for pecuniary reparation for the damages sustained by the injured party.

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4) Contarvention of the tenor of the Obligation- defective performance, contrary to the specifications, or any unlawful acts Kinds of Damages – MENTAL M – Moral and physical anguish E – Exemplary, corrective or to set an example N – Nominal, to vindicate a right T – Temperate, exact amount cannot be determined A – Actual losses and unrealized profit L – Liquidated, predetermined beforehand by agreement General Rule as to the Loss of the Specific/Determinate Thing Through Fortuitous Events Obligation Extinguished, Debtor not liable Exceptions; 1) When the object is generic for generic things never perish. 2) When debtor incurs delay or in default 3) When the debtor promised to deliver the same object to two or more persons who do not have the same interest. 4) When the nature of the obligation requires the assumption of risk. Ex. Contract of Insurance 5) When the law expressly provides 6) When the contract expressly stipulates Transmissibility of Rights General Rule- all right acquired by virtue of an obligation are transmissible, if there has been no stipulation to the contrary -heirs shall be liable only to the extent of what they stand to inherit Exception 1) When the law prohibits transmission of rights, as in a contract of Commodatum 2) When the contract stipulates no transmission of rights 3) When the nature of the obligation does not permit transmission of rights, as when the obligation is personal in nature. Lesson 3 Different Kinds of Obligations 1) Pure and Conditional Obligations 2) Obligations with a Period or Term 3) Alternative & Facultative Obligations 4) Joint & Solidary Obligations 5) Divisible and Indivisible Obligations 6) Obligations with a Penal Clause 7) Others a) Unilateral and Bilateral Page 5 of 190

b) Real and Personal c) Possible and Impossible d) Principal and Accessory Pure Obligation - Immediately demandable. Instances when a conditional obligation becomes pure 1) When the condition is a negatively legally impossible. Ex. Condition to kill 2) The condition is absolutely impossible. Ex. Condition if someone will rise from the dead. Conditional Obligations - Condition is any future and uncertain event which may or may not happen upon which the obligation is made to depend. Kinds; 1) Suspensive Condition/Condition Precedent- demandability or enforceability of the principal obligation is suspended until the suspensive condition is fulfilled. 2) Resolutory Condition/Condition Subsequent- immediately demandable. Fulfillment of the condition extinguishes the obligation. 3) Other a) Potestative Condition -fulfillment of the condition depends on the sole will of the debtor, effect: obligation is null and void. b) Casual Condition - depends upon chance, valid condition c) Impossible/Divisible Condition i) the whole obligation is null and void but if subsequent events will make it possible the nullity of the obligation will not be cured unless the parties mutually agree later on. ii) if principal obligation is dependent on alternative obligations-possible condition will be performed before it can be demandable iii) a condition not to do an impossible thing shall be considered as not having agreed upon. Obligation becomes demandable at once. d) Positive Condition e) Negative Condition f) Mixed Condition Rules on the Loss, Deterioration, or Improvement of the Thing Pending Fulfilment of the Condition LOSS a) Without debtor’s fault- extinguished, debtor not liable b) Through debtor ‘s fault- debtor liable for damages Page 6 of 190

Deterioration a) W/o debtor’s fault- creditor bears the impairment b) Through debtor’s fault- creditor has the following alternatives i) Demand fulfillment of the obligation, delivery the thing deteriorated plus damages ii) Recission plus damages Improvement a) By nature/time- benefit shall inure to the creditor without extra compensation or consideration b) At the expense of the debtor- debtor will have the same right as usufructuary, the debtor shall have the right to use principal object until condition is fulfilled. Obligation with Period -obligation becomes demandable upon arrival of the period or day certain. Kinds of Period or Term 1) Suspensive Period/Ex Die- from a day certain 2) Resolutory Period/In Diem- Up to the day certain 3) Legal Period- fixed by law 4) Judicial Period-fixed by court 5) Definite period-Christmas, New Year, Rizal Day, etc. 6) Indefinite period-an event which will certainly come but the exact date is not known. If what is uncertain is whether the event will happen or not then it is a condition not a period or term. 7) Voluntary Period- agreed upon by the parties Rules on Establishment of the Period General rule: Period or term is established for the benefit of both debtor and creditor, and neither off the party can alter or change the period without the knowledge and consent of the other. 2nd Rule: for the benefit of the debtor, then; 1) The creditor cannot compel the debtor to pay before the arrival of the period. 2) The debtor may voluntarily pay his obligation even before the arrival of the period. 3rd Rule: For the benefit of the creditor 1) Debtor cannot compel the creditor to accept payment before the arrival of the period. 2) The creditor may demand payment from the debtor even before the arrival of the period.

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Instances when Debtor Loses his right to the Period 1) When debtor becomes insolvent before maturity date, unless he gives a guaranty or security for the debt 2) When he does not furnish the creditor the guarantees or security which he has promised 3) When his own acts he has impaired said guarantees or securities after their establishment , and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactorily 4) When the debtor violates any undertaking in consideration of which the creditor agreed to the period 5) When the debtor tries to abscond Alternative Obligation -2 or more prestations are due, fulfillment of one is sufficient to extinguish the obligation. Rules: 1) Right of choice-Debtor, unless granted to creditor 2) Debtor cannot choose impossible/illegal prestation 3) Choice must be communicated to the creditor, otherwise it has no effect. Once communicated it will become simple oblgation. 4) Debtor must deliver only remaining practicable prestation even without notice to the creditor. 5) If through creditors acts. The debtor may rescind the contract plus damages. 6) If all prestations are lost thru fortuitous events before selection, obligation extinguished 7) If through fault of debtor- all lost before selection, the creditor shall have the right to indemnify for damages equivalent of the value of the last thing lost plus damages 8) If right of choice given to creditor a) Creditor must communicate choice b) If one thing is lost through fortuitous event, the creditor may choose from the remaining c) If only one is left, debtor must deliver even w/o notice d) If one is lost through debtor’s fault, creditor may choose from remaining or demand the value of the thing lost plus damages. e) If all lost through debtor’s fault, creditor may demand the value of any of the things lost. Facultative Obligation Only one the principal prestation is due, but the debtor may render another in substitute. RULES:

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1) If debtor intents to deliver the principal prestation no need to notify the creditor. 2) If principal is illegal or impossible, the whole obligation is void. 3) If principal is lost through fortuitous event before delivery date, obligation is extinguished. Creditor cannot also demand the substitute. 4) If debtor elects to deliver the substitute, he must notify the creditor first before delivering. 5) After notification, facultative obligation ceases to be simple 6) If substitute is lost through fortuitous event or through debtor’s fault before notification, the debtor will not be liable for such loss. He must still deliver the principal. The debtor bears the loss of the substitute under the Principle “res perit domino” Joint Obligation -each debtors is liable for a proportionate part of the debt, and each of the creditors is entitled to a proportionate part of the credit. Other terms used: a) Mancomunada b) Mancomunada simple c) Proportionately d) Pro rata e) “we promise to pay” signed by two or more persons Solidary Obligation -Each of the debtors is liable for the entire obligation or debt, and each of the creditors is entitled to the entire credit. Other terms used a) Jointly and/or severally b) Solidaria c) In solidum d) Together and/or separately e) Individuallt and/or collectively f) Juntos o seperadamente g) “I promise to pay” signed by two or more persons GENERAL RULE -if silent it is presumed to JOINT EXEMPTIONS: 1) Solidarity is expressly stipulated 2) Law expressly provides a. all partners in the partnership if the act complained of arises from crime or quasi-delict b. agency, if two or more persons have appointed an agent for common transaction Page 9 of 190

c. responsibility of two or more persons who are liable for quasi-delict d. responsibility of two or more payees, when there has been payment of what is not due 3) Solidarity is required from the nature of the obligation Divisible Obligations -capable of partial performance Indivisible Obligations -either by nature or by intent of the parties, cannot be susceptible of partial performance. Joint Indivisible Obligations -2 or more debtors who will perform an indivisible obligation Obligations with Penal Clause -the penalty shall substitute the indemnity for damages and the payment of interest in case of non-compliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. Lesson 4 Extinguishment of Obligations Modes of Extinguishing Obligations 1)Payment or Performance 2) Loss of the thing Due 3) Condonation or remission of the debt 4) Confusion or merger of the rights of creditor and debtor 5) Compensation 6) Novation Other modes 1) Annulment of contracts 2) Fulfillment of resolutory condition 3) Rescission of contract 4) Prescription 5) Death of one contracting party. Lesson 4.1 Payment 1) Delivery of money in payment of a debt 2) Delivery of the object 3) Performance or non-performance of the prestation in obligations to or not to do. Payment to be valid must be made to a) The creditor himself, or b) The creditors successors in interest (heirs, assigns) or Page 10 of 190

c) Any authorized person- who may be i) any person authorized by law to receive payment such as guardian, trustee, or a receiver, etc. ii) agent or representative authorized by the creditor Payment to a person who is incapacitated to administer the property shall be valid: a) If he keeps the thing paid or delivered, or b) To the extent of what has been beneficial to the creditor c) If paid to 3rd person-valid only to the extent that has been beneficial to creditor, debtor may recover from 3rd person the amount not redounded to benefit of creditor. Dation in Payment/Dation en Pago -conveyance of ownership as an accepted equivalent payment of a money debt w/c is already due and demandable. Note: Money debt should be paid in the currency stipulated, if not possible then should be paid using legal tender in PH. (check are not legal tender therefore considered unpaid until encashed) Legal Tender (PD No. 82, November 29, 1972) a) One (1) centavo and the 5 centavo coin up to Ps 20.00 b) Other coins (10, 25, 50, 1.00) are valid legal tender up to Ps 50.00 c) All bills are valid legal tender for any amount Place where obligation shall be paid 1. If there is a stipulation – at the place designated. 2. If there is no stipulation a. delivery of a specific or determinate thing – payment shall be made at the place where the thing was, at the time of perfection b. delivery of indeterminate thing – delivery or payment must be made at the domicile of the debtor (Art 1251) Application of Payment -given to the debtor to choose a debt, from among several debts he owes a single creditor, to w/c his payment to be applied. RULES: 1) Not to be applied on debts not yet due, except; i) stipulation,or ii) application is made by the party for whose benefit has been established. 2) 2 or more debts due. Applied to the older 3) If one debt is with interest, payment shall be applied first to the interest, the balance to the principal.

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4) if 2 or more are onerous, applied first to the most onerous one 5) if all debts due are of the same nature and burden, proportionately. Payment by Cession -abandonment of all property of the debtor for the benefit of his creditors in order that the latter may apply the proceeds thereof to the satisfaction of their credits. Requisites: 1) one debtor and 2 or more creditors 2) debtor is insolvent 3) debt is due and demandable 4) debtor to deliver his property to creditors 5) creditors must sell property and apply the proceeds proportionately. Tender of Payment -offer made by the debtor to make payment at or after maturity date. Consignation -delivery or deposit of the thing or the money due with a competent court after complying with certain formalities. GENERAL RULE: Debtor must first make a valid tender of payment, and if creditor unjustifiably refuses, debtor can make consignation. Lesson 4.2 Loss of the Thing Due See rules on determinate and generic objects. NOTE: If object is lost while in possession of debtor, law presumes it was lost through debtor’s fault, exception; a) Debtor can prove he exercised proper diligence b) If he can prove it was lost through fortuitous event Lesson 4.3 Condonation or Remission of the Debt REMISSION-gratuitous abandonment by the creditor of his right. Requisites: 1) Must be gratuitous 2) Obligation is due and demandable 3) Debtor must accept the remission. Lesson 4.4 Confusion or Merger of Rights -meeting of one person of the qualities of creditor and debtor with respect to the same obligation. Page 12 of 190

NOTES: 1) Merger in the person of creditor and the guarantor will not extinguish the principal obligation. 2) Confusion does not extinguish a joint obligation except as regards the share corresponding to the creditor or debtor in whom the two characters occur. Lesson 4.5 Compensation -shall take place when two persons, in their own right, are creditors and debtors of each other. Lesson 4.6 Novation -creation of new obligation to alter, substitute or replace an existing obligation, with the intention of extinguishing or modifying the latter. 1) REAL NOVATION i) change in principal prestation, or ii) change in principal condition note: if the 1st obligation is suspensive, the novating condition must likewise be suspensive. 2) PERSONAL NOVATION a) Substitution of the Debtor i) EXPROMISSION- 3rd person with consent of creditor, takes the place and assumes the obligation w/debtor’s knowledge and consent. ii)DELEGACION-debtor recommends a 3rd person and creditor accepts. b) Subrogation of a 3rd person to the rights of the creditor. i) LEGAL SUBROGATION- 3rd person acquires the rights of creditor by operation of law. ii) CONVENTIONAL SUBROGATION-by mutual agreement of the original parties. Self-Assessment Questions (SAQ) 1. “I promise to pay P or his order the sum of P10,000 30 days after the death of X.” This is an instrument payable: A. At a determinable future time B. On demand C. Upon the fulfillment of a condition D. At an indefinite time, hence, non-negotiable. 2. One of the following characteristics of dacion en pago is also a characteristic of a contract of sale. Which is it? A. There is a pre-existing credit. Page 13 of 190

B. Obligations are extinguished. C. There is less freedom in fixing the price. D. Ownership of the object transferred to the other party. 3. Mr. M entered into a contract with Mr. V by which Mr. M promised to deliver 1,000 cases of glasswares of the class and at the price stipulated in the contract. Such delivery was to be made during the months of February and March 2010 to be used as gift items in the reunions of their family and their classmates before the end of the said months respectively. In this case, no further demand or notice by Mr. V on Mr. M was necessary to put the latter in delay because: A. The demand would be useless B. Law so provides C. The obligation expressly so provides D. Time is of the essence of the contract. 4. D bound himself to deliver either specific object 1 or object 2 or object 3 to C. If two of the objects are lost due to fortuitous events and without the fault of D, the effect is: A. D may still choose which he shall deliver, only the value of any of the things lost if he chooses the same. B. D cannot choose because among the prestations whereby he is alternatively bound, only one is practicable. C. C may choose which of the objects he wants delivered. D. Obligation of D has been extinguished. 5. The designation of the debt to which should be applied a payment made by the debtor who owes several debts in favor of the same creditor: A. Dation in payment B. Application of payment C. Tender of payment D. Payment by cession. 6. There is compensation if A. A, in his capacity as guardian of M is a creditor of C. C, in turn is a creditor of A who owes him a personal debt. B. A, debtor of two partners is a creditor of the partnership. C. A owes B P10,000 payable May 31, 2019. B owes A P10,000 payable on June 30, 2019. Today is May 31, 2019. D. A owes B a fountain pen and B owes A also a fountain pen. Both debts are due. 7. C bought the only car of D on February 15,2002 and D agreed to deliver it to C on April 30,2002. They did not agree on the place of delivery. Where is the place of delivery? A. domicile of the debtor B. where the car is on February 15,2002 Page 14 of 190

C. where the car is on April 30,2002 D. domicile of the creditor 8. D obtained a loan of 100,000 from C. The loan agreement showed that the loan was payable within one year with interest at 6% per annum. However, there was no provision saying that the rights and obligations of the parties would be transmitted to their heirs or successors-in-interest. Before maturity, C died leaving his son S as heir. Which of the following statement is correct? A. S cannot collect from D because no mention was made in the agreement that the credit right would be transmitted to the heirs of C. B. S can collect from D although no mention was made in the agreement that the credit right would be transmitted to the heirs. C. S cannot collect from D because the credit right is personal to C. D. S cannot collect from D because the law prohibits the transmission of credit rights. 9. On a certain year, D was obliged under a contract executed on March 1 to deliver an agricultural land to C on April 1. D, however, actually delivered the land and the fruits thereof to C on May 1. C had the right to the fruits of the agricultural land beginning on: A. March 1 B. April 1 C. May 1 D. the period should be fixed by the court so that it can be determined when C is entitled to the fruits. 10. The right of C before the delivery, on one hand, and his right after the delivery, on the other hand, of the agricultural land and its fruits, are referred to as: A. Personal right and real right, respectively. B. Real right and personal right, respectively. C. Both are considered a personal right. D. both are considered real rights. 11. S sold his only horse to B for 10,000 cash. The parties agreed that S shall deliver the horse within one week from their agreement. Nothing is mentioned in the agreement on how the horse will be cared for by S before delivery. A. S must take care of the horse with the diligence of a good father of a family before delivery. B. S need not take care of the horse because nothing was mentioned in the agreement on how the horse will be cared for. C. S must take care of the horse with extraordinary diligence.

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D. the absence of a stipulation on how the horse must be cared for renders the sale void because such stipulation is an essential element of the contract. 12. In obligations with a penal clause, the creditor as a rule may recover from the debtor in case of breach the following: A. the penalty as agreed upon, plus damages and interest. B. the penalty and damages. C. the penalty and interest. D. only the penalty. 13. One of the distinctions between a facultative obligation and an alternative obligation is that in the latter: A. only one thing is principally due. B. the right of choice belongs to the debtor alone. C. if the obligation to give the principal thing is void, the obligation to give the substitute is also void. D. if all prestations except one is impossible, that which is possible must still be given. 14. Which of the following condonations will not extinguish the debtor’s obligation? A. The condonation is in a public instrument. The acceptance is made orally. The condonation involves a computer printer whose value is P4,000.00. B. The condonation and the acceptance are in a public instrument. The condonation involves a parcel of land. C. The condonation and the acceptance are made orally with the creditor delivering to the debtor simultaneously the promissory note amounting to P10,000.00. D. The condonation is in a public instrument. The acceptance is made in a private instrument. The condonation involves a television set worth P20,000.00. 15. A owes B P10,000. C, a friend of A approaches B and tells him “I will pay you what A owes you. From now on consider me your debtor, not A.” A is to be excused. If B agrees, there is a. novation b. subrogation c. delegacion d. expromission 16. If the obligation is payable in foreign currency, which is correct? a. The obligation is void b. The obligation is valid, but the stipulation is void c. The creditor can compel the debtor to pay in foreign currency as per agreement d. The stipulation and the obligation are void

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17. A owes B P10,000 dues on January 7 and guaranteed by C. B owes P8,000 due on January 7. On the same date, A is insolvent. How much is C’s liability? a. P10,000 b. P8,000 c. P2,000 d. nil 18. Statement 1: A solidary creditor cannot assign his rights without the consent of the other creditors. Statement 2: Payment of the debtor’s obligation may be made by a third person even without the knowledge of the debtor. a. true, true b. true, false c. false, true d. false, false 19. Statement 1: Condonation or remission is generally gratuitous. Statement 2: Proof of actual damages suffered by the creditor is not necessary in order that the penalty in an obligation with a penal clause may be demanded. a. true, true b. true, false c. false, true d. false, false 20. A and B are jointly liable to deliver a particular car valued at P200,000 to C on July 1, 2009. Which of the following is correct? a. The prestation is indivisible making the liability of A and B solidary b. If on July 1, 2009, A is willing to deliver the car but B is not, C may enforce the obligation against A. c. A is liable for a proportionate part of the obligation and will be liable also for damages if B is not ready to comply with his obligation, even if A is willing to deliver the car. d. The liability of A and B is joint and that damages may be assessed only against the debtor who violated the obligation 21. A wife was about to deliver a child. Her parents brought her in the hospital. Who should pay expenses for medical attendance? Statement 1: The husband, because it is his duty to support his wife and support includes medical attendance. Statement 2: The parents, because they were the persons who brought the “wife” to the hospital. a. b. c. d.

Both Both Only Only

statements are true statements are not correct statement 1 is correct statement 2 is correct

22. When does the obligation to deliver arise Statement 1: If there is no term or condition, then from the perfection of the contract Statement 2: If there is term or condition, then from the moment the term arrives or condition happens Page 17 of 190

a. true, true

b. true, false

c. false, true

d. false, false

23. A is obliged to give B 10 kilos of sugar, which of the following is not correct a. B can demand that A obtain the sugar and deliver it to him b. B can just buy 10 kilos of sugar and charge the expenses to A c. A can insist on just paying B damages or the monetary value of the sugar d. B may require another person to deliver the sugar and charge the expenses to A 24. Statement 1: If a person obliged to do something fails to do it, the same shall be executed at his cost. Statement 2: Those who in the performance of their obligations are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable for damages. a. true, true b. true, false c. false, true d. false, false 25. Statement 1: Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for fraud is void. Statement 2: If the law or contract does not state the diligence which is to be observed in the performance of an obligation, extra judicial care shall be required. a. true, true b. true, false c. false, true d. false, false 26. With regard to the right as to the fruits of the thing, which is not correct? a. If the obligation is subject to a suspensive condition, the obligation to deliver arises from the moment the condition happens. b. If the obligation is subject to a suspensive period, the obligation to deliver arises upon the expiration of the term or period. c. If there is no condition or term for its fulfillment, the obligation to deliver arises from the perfection of the contract or creation of the obligation. d. If the obligation arises from a contract of sale, the vendor has a right to the fruits of the thing from the time the obligation to deliver arises. Activity Instruction: Give a brief answer on the questions asking for an explanation. One sentence is enough as long as your answers are justified. Three points each. 1. A, B and C obliged themselves solidarily to give D a specific car valued at P240,000. On due date, D demanded delivery but the Page 18 of 190

debtors failed to deliver. The next day, while A was still in possession of the car, it was lost due to a fortuitous event. Is the obligation extinguished? Why?

2. A obliged himself to give B a specific car on June 12, 2009 with the stipulation that A is liable even if the thing is lost due to fortuitous event and without the need of a demand. On due date, the car got damage due to fortuitous event. Is the obligation extinguished? if not then how will the creditors fulfill their obligation? 3. A, B, and C executed a promissory note worded as follows: “We promise to pay X, Y and Z the sum of P90,000. Sgd. A, B, and C. How much can Y collect from C? show your computation. 4. A owes B P10,000. Later A paid B P7,000 leaving a balance of P3,000. C, a suitor of A and intending to surprise A, paid B the sum of P10,000 thinking that A still owed B that amount. C did this without the knowledge of A. How much can C recover from A? and why? 5. Statement 1: In delegacion, the insolvency of the new debtor will not revive the original debtor’s obligation. Statement 2: In expromission, the insolvency of the new debtor may at times revive the original debtor’s obligation If there is an incorrect statement, what made it incorrect? 6. Statement 1: An example of an obligation with a period is when A promises to pay B P10,000 one month from the death of C. Statement 2: A person is obliged to deliver a determinate thing including its accessories and accessions provided they have been mentioned in the agreement. If there is an incorrect statement, what made it incorrect? 7. A obliged himself to pay B P10,000 as soon as possible. Three months later, B demanded payment from A but the latter refuses to pay. B can a. File an action in court compelling A to pay the obligation b. Consider the obligation void because the phrase as soon as possible is indeterminable Page 19 of 190

c. Go to court so that the court will fix the date of payment d. Ask for damages because three months is considered too long for “as soon as possible’ 8. A executes in favor of B promissory note for P1,000,000 payable after two years, secured by a mortgage on a building valued at P2,000,000. One year after the execution of the note, the mortgaged building was totally burned. Can B demand from A the payment of the value of the note? Why?

9. Statement 1: A owes B P10,000, guaranteed by C. B assigns his credit to X. X assigns the credit to Y, Y assigns the credit to A. A’s obligation is extinguished and C is released from his obligation as guarantor. Statement 2: A owes B P10,000 guaranteed by C. B assigns his credit to X. X assigns his credit to Y, Y assigns his credit to C, the guarantor. A’s obligation is extinguished and C is released from his obligation as guarantor. If there is an incorrect statement, what made it incorrect?

10. A owes B two debts; both of which are already due. The first debt is secured by a mortgage while the second is not. A tells B that the payment he is now making should be applied to the second debt, instead of the first. Statement 1: B may refuse to accept such application on the ground that the first debt is more burdensome to the debtor. Statement 2: B cannot refuse such application because the preference of the debtor must be followed. If there is an incorrect statement, what made it incorrect?

11. XYZ is a cooperative store. On July 1, 2000, it paid the Government of the City of Manila certain taxes believing that it owed the same. After six months, XYZ learned that it was not subject to the said taxes. Accordingly, it sought to recover the said taxes it previously paid. The obligation of the Government of the City of Manila to return the said taxes paid is based on 12. X gets a loan of P3,000,000 from Y which becomes due on October 1, 2019 and mortgaged his house as security for the debt. On June 30, 2019, the mortgaged house was completely destroyed Page 20 of 190

by fire through the fault of C. A week later, B demanded payment from A. Is B’s demand valid? A. Yes B. No Explain: 13. The debtor shall lose the right to make use of the period in the following cases, except: A. when he becomes insolvent B. when he violates any undertaking in consideration of which the creditor agreed to the period C. when the debtor attempts to abscond D. when de does not furnish any guaranty or security to the creditor. What made the statement of your answer incorrect? 14. A, B, C, and D, joint debtors, are obliged to give V, W, X, Y, and Z, solidary creditors, P20,000. How much V may collect from B? show your computation: 15. An obligation ceases to be alternative and becomes a simple obligation in the following cases, except: A. when the debtor has communicated his choice to the creditor B. when the right of choice has been expressly granted to the creditor and his choice has been communicated to the debtor C. when among the several prestations that are due only one is practicable D. when three prestations are due but one of them is unlawful or impossible. What made the statement of your answer incorrect?

16. A bound himself to deliver his phone with model number SMJ700F to B and to repair the laptop of B. A did none of these things. Which obligation/s may B compel A to perform? And why?

17. N, R and J solidarily bound themselves to deliver to S a Honda motorcycle valued at P60,000. The obligation was not fulfilled through the fault of J. Thereupon, S filed an action in court against N and the court awarded P72,000 to S representing the value of the motorcycle plus damages. Who shall pay the damages? And how much will each debtor be liable to S? Page 21 of 190

18. A, B, and C are solidary debtors of X in the amount of P9,000.00. Subsequently, X renounced the share of A. A accepted the renunciation of his share. On due date, B paid X P6,000.00. B demanded reimbursement from C but C is insolvent. Can B ask reimbursement from A? If yes, how much?

19. D obtained a loan from V payable on or before December 31, 2002. For whom is the benefit stablished? 20. D borrowed P50,000 from C. C dies before he has collected the debt leaving S, his son as heir. Can S collect from D? What characteristic of contract is applicable? 21. A,B and C executed a promissory note binding themselves to pay P9,000.00 to X,Y and Z. The note is now due and demandable. Is the obligation joint or solidary? How much can X collect from A?

22. A brought a diamond ring to a jewelry shop for cleaning and the latter undertook to return the ring by February 1,2000. When the said date arrived, A required the return of the ring but the jewelry shop informed A that the job was not yet finished and they asked A to return five days after. On February 6,2000, A went to the shop to claim the ring but she was informed that the same was stolen by a thief the night before. Is the jewelry shop liable despite force majeure? Why?

23. D owes the following creditors: X for P20,000.00; Y for P30,000.00; and Z for P50,000.00. D is insolvent so he offers to assign all his properties (except those exempt from the execution) to his creditors in payment of his debts. The creditors accept the offer and are able to sell the debtor’s properties for P70,000.00. For how much is D released from his liability if there are no stipulations? How much will each creditor receive from the proceeds of sale?

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24. A owes B P10,000. When the debt matured, B told A that she need not to pay the debt since B condoning it. A in turn expressed her gratitude. The debt has been extinguished by? 25. A borrowed money from B payable on December 10, 2010. If A failed to pay on due date, will A be in delay? Why?

REFERENCES 1) Pasimio,R.,(2001). Effective CPA Reviewer in Business Law. Metro Manila: National Book Store. 2) De Leon,H., De Leon Jr,H. (2011). The Law on Obligations and Contracts. Manila: REX Book Store.

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CHAPTER 2 CONTRACTS

Chapter Objectives 1. Explain the concepts and classifications of contracts 2. Explain reformation and interpretation of contracts 3. Identify, explain and differentiate defective contracts Lesson 1 General Provisions CONTRACT - A meeting of the minds between two persons whereby one binds himself, with respect to the other, to give something or render some service. ESSENTIAL REQUISITES: 1) CONSENT 2) OBJECT OR SUBJECT MATTER-must be specified and determinate 3) CAUSE OR CONSIDERATION-must be just and equitable STAGES OF A CONTRACT 1) PREPARATION/CONCEPTION/NEGOTIATION 2) PERFECTION OR BIRTH 3) CONSUMMATION/DEATH/TERMINATION KINDS OF INNOMINATE CONTRACTS -have no special or specific designation in the Civil Code, but valid contracts governed by; 1) agreement of the parties 2) Law on OBLICON 3) rules governing the most analogous nominate contracts 4) customs of the place where the contract is constituted 4 TYPES 1) Do ut des/barter- I give that you give 2) Do ut facias- I give that you make 3) Facio ut des- I make that you give 4) Facio ut facias- I make that you make Basic principle or Characteristics of a Contract: 1. Freedom (or liberty) to stipulate 2. Obligatory force and compliance in good faith 3. Perfection by mere consent 4. Both parties are mutually bound 5. Relatively: binding between the parties only, their assigns and hiers. Page 24 of 190

Liberty to contract - the contracting parties may establish such stipulation, clauses, terms, and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. This is otherwise known as the “PRINCIPLE OF AUTIONOMY”. Exceptions to the “rule of Relativity”: 1. Obligation arising from contract which are not transmissible by their nature, stipulation or provision of law (Art 1311) 2. Stipulation Pour Autrui” (Art 1311) Requisites: a) Stipulation is clearly conferred a favor upon a 3rd person b) 3rd person must communicate his acceptance before revocation c) Stipulation in favor of 3rd person should be part, not the whole, of the contract d) Should not be conditioned or compensated by any kind or obligation whatever e) Neither of the contracting parties bears the legal representation/ authorization of the 3rd party otherwise rules on agency will apply 3. When e third person induces another to violate his contract (Art 1314) 4. The right of a creditor to sue on a contract entered into by his debtor (Art 1313) Contract of Adhesion - it is ready made form of contract, which the other party may accept or reject, but he cannot modify. The other name is “take it or leave it” contract. (Insurance contract) NOTES: a) Absolute Simulated contracts made to defraud creditors are VOID. b) Consensual Contract- perfected by mere consent. Ex. Contract of sale c) Real contracts- perfected by actual delivery. Ex. Contract of Deposit, Pledge and Commodatum d) Solemn Contract- should be in a form required by law to be valid. Ex. Donation of Real Property

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Lesson 2 Essential Requisites of a Valid Contract Lesson 2.1 Consent Defined- meeting of the offer and the acceptance as to the object, consideration and the terms and conditions of the contract. RULES ON OFFER AND ACCEPTANCE 1) Acceptance is valid and contract is perfected only from the time the offeror HAS KNOWLEDGE of such acceptance. 2) Offeror has the right to withdraw his offer at any time before receipt of Offeree’s acceptance. 3) Offeror can not withdraw once he has knowledge of the offeree’s ABSOLUTE acceptance. 4) Offeror may withdraw even before expiration of option period. Exception if there is an option money. Notes: 1) Offer becomes ineffective upon death, civil interdiction, insanity or insolvency BEFORE acceptance is conveyed. 2) Option money vs. Earnest Money No perfected contract Perfected contract Not part of the amount to Partial be paid payment/downpayment 3) Offeree’s acceptance to authorized agent is equivalent to acceptance given to principal. Lesson 2.2 Objects of the Contract 1) THINGS a) Within the commerce of man b) Shall include future things with potential existence c) Must be specific or determinate as to it’s kind d) Must not be legally or physically impossible 2) RIGHTS- only rights that are transmissible 3) SERVICES NOTES: 1) Future inheritance cannot be a valid object. 2) Future things with potential existence example a) Expected crop b) Sugar to be produced from sugar plantation c) Milk which cows may produce d) Young animals still to be born, etc. 3) Goods still to be manufactured, or raised, or to be acquired after perfection are valid objects. 4) If absolute impossibility- VOID 5) If relative impossibility- not void but effective only from the tine the relative impossibility ceases or only to the extent of what the obligor is capable of performing.

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Lesson 2.3 Cause of the Contract CONSIDERATION-something of value given or promised to induce one of the parties to make the contract. NOTES: 1) Contracts w/o cause, or with unlawful cause, produce no effect. 2) There is a disputable presumption of law that a contract is presumed to have an existing and lawful consideration, the debtor has the burden to prove that there is no consideration. 3) Lesion or inadequacy of cause shall not invalidate the contract, unless there has been fraud and mistake or undue influence. Lesson 3 Forms of Contract GENERAL RULE: Contracts are binding and enforceable in whatever form. Exceptions; 1) When a special form is required for the validity of contract, must be in public instrument. 2) When special form is necessary for enforceability, must be in any form of writing. KINDS OF CONTRACTS WHICH MUST BE IN A PUBLIC INSTRUMENT TO BE VALID 1) Donation of Immovable Property-both donation by donor and Acceptance by donee must be in public instrument 2) Donation of personal property-if 5,000 or more. Donation and acceptance must be in PI. 3) Sale of real property- contract of sale of real property must be PI before can be registered to Register of Deeds. 4) A contract of partnership where: a) Immovable property or real rights are contributed b) When capital contribution is P3,000 or more in money or property 5) Sale of large cattle KINDS OF CONTRACTS WHICH MUST BE IN ANY FORM OF WRITING TO BE ENFORCEABLE UNDER STATUTE OF FRAUDS 1)Contract of performance of which will not be made until or w/n 1 year from the death of contract 2) A special promise to answer for debt, miscarriage or default of another 3) An agreement made in consideration of marriage other than a mutual promise to marry 4) An agreement for sale of goods or chattels worth P500.00 or more and Page 27 of 190

5) A lease of immovable for more than one year or sales of immovable Lesson 4 Reformation of Contracts REQUISITES 1) The contracting parties have already a meeting of the minds as to: a) The object b) Consideration c) Terms and conditions 2) True intention of the parties is not expressed in the contract as written 3) Failure to express the true intention is due to mistake, fraud, inequitable conduct, or accident Reformation is also proper in the following cases: 1) When mutual mistake of the parties causes the failure of the instrument to disclose their real agreement 2) Contract does not express true intent, one acted through mistake made in good faith, while the other party a) Acted fraudulently b) Knowledgeable that the contract does not express true agreement but concealed the same. The party in good faith may ask for reformation. 3) When through ignorance, lack of skill, negligence or bad faith on the part of the person drafting the instrument, or the clerk or the typist, the instrument does not express the true information of the parties, the courts may order that the instrument be reformed. 4) Where the parties agree upon the mortgage or pledge of real or personal property, but the instrument states that the property is sold absolutely or with right of repurchase, reformation is the proper remedy. 5) There shall be no reformation in the following cases; a) Simple donations inter vivos wherein no condition is imposed b) Wills c) Contracts void ab initio Lesson 5 Rescissible Contracts RESCISSION -remedy granted by law to contracting parties and even to 3rd persons, to secure the reparation of damages caused to them by the contract, even if the same should be valid, by the means of the

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restoration of things to the condition prior to the celebration of the contract. KINDS OF RESCISSIBLE CONTRACTS 1) Contract entered into by a guardian whenever the ward whom he represents suffers lesion by more than ¼ of the value of the thing which is the object thereof. 2) Contract agreed upon in representation of an absence, if the latter suffers lesion by more than ¼ of the value of the thing which is the object thereof. 3) Contract undertaken in fraud of creditors when the latter cannot in any manner collect the claims due to them. 4) Contract which refers to things under litigation if it has been entered into by the defendant without the knowledge and approval of the litigants or of competent juridical authority. 5) All other contracts especially declared by law to be subject to rescission. NOTES: 1) Requisites for rescissible payment a) The debtor must be in a state of insolvency at the time of his payment b) The debt he paid is not yet due and demandable 2) The creditor must exhaust first all available legal remedies before he can file action for rescission. Rescission is a subsidiary remedy only. 3) Rescission is the remedy to secure reparation of damages caused by the contract by: a) Restoring things to their former status or condition before the contract, and b) Returning to each other what each has received under the contract, plus fruits and interest. 4) Prescriptive period a) w/n 4 years from celebration of the contract b) in guardianship, w/n 4 years from the time guardianship ceases c) in absentee, w/n 4 years from the date the absentee reappears or when his domicile becomes known again. Lesson 6 Voidable Contracts -where consent of one of the contracting parties is vitiated: 1) by incapacity of one of the contracting parties, such as: a) unemancipated minor b) insane or demented person c) deaf/mute who does know how to write d) persons under intoxication Page 29 of 190

e) persons under hypnotic spell 2) consent of one party is secured through a) mistake b) violence c) intimidation d) undue influence e) fraud The party whose consent is vitiated may have the following alternative remedies a) annulment, or b) ratify NOTES: 1) Prescriptive period for annulment a) w/n 4 years, period shall begin: i) Intimidation, undue influence, or violence- starts from the time the defect ceases ii) Mistake or fraud- time of discovery iii) Unemancipated minors- from the time the minor reaches age of majority(generally at the age of 18 but for contracting marriage age of majority is 21, parents and guardians are liable for quasi-delicts of persons who are already 18 until he reaches 21) iv) Incapacitated persons-when guardianship ceases 2) Ratification cleanses the contract of all of its defect, once ratified it cannot be annulled anymore. 3) Ratification may be effected: i) Expressly- written/oral ii) Tacitly/implied-the person who has right to annul performs an act w/c tends to imply that he has chosen to waive his right to annul. 4) Ratification may be effected by the guardian of the incapacitated person. 5) Ratification does not require the conformity of the contracting party who has no right for annulment. 6) Who may file annulment? a) Party whose consent is vitiated b) Subsidiary party-parents, successors in interest or assigns 7) After annulment parties should return to each other what they have received. 8) In case of incapacitated person whose consent is vitiated- he is required to return only what has been beneficial to him. 9) What if after annulment the object cannot be returned because it was lost through the fault of the person who should return the object? He shall return: Page 30 of 190

a) Fruits of the things plus b) Value of the thing at the time of loss, with interest. 10) If the person who has right for annulment lost the object through his fault, he losses right for annulment. But if lost through fortuitous event and incapacity of the other is the reason for voidability then, the incapacitated person may still ask for annulment. Lesson 7 Unenforceable Contracts -cannot be enforced in court unless ratified KINDS: 1) Contract entered into by one person for and on behalf of another, w/o the latter’s consent and authority or the former acts beyond the scope of the authority given to him. (Contract of Agency) 2) Contract which do not comply with Statute of Frauds 3) Contract entered into by 2 incapacitated persons NOTES: 1) if the parent, or legal guardian of one of the incapacitated parties ratifies, effect-voidable. If ratified by both parents/guardian, effect-valid and enforceable. 2) Unenforceable contracts cannot be assailed or contested by 3rd persons who are total strangers to the unenforceable contract. 3) Only applicable to Executory Contracts. Lesson 8 Void or Inexistent Contracts KINDS: 1) Objects, cause or purpose is contrary to law, morals, good customs, public order, or public policy 2) Absolutely simulated or fictitious contract 3) Cause or object does not exist at the time of transaction 4) Objects outside the commerce of men 5) Impossible service 6) Where the intention of the parties relative to the principal object of the contract cannot be ascertained 7) Those expressly prohibited by Law. NOTES: 1) Cannot be ratified 2) When contract is illegal but does not constitute criminal offense; a) Both parties guilty i) Neither one can demand the return of what he has given ii) Neither may demand performance Page 31 of 190

b) Only one is guilty i) Guilty party cannot demand fulfillment/return of what he has given ii) Party not at fault may demand return of what he has given iii) Party not at fault cannot be obliged to comply with his promise 3) Interest paid in excess of the interest allowed by the Usury Law may be recovered by the debtor, w/ interest thereon from the date of payment. (6% per annum effective July 1, 2013)

Self-Assessment Questions A. Valid B. Rescissible C.Voidable D.unenforceable E.Void 1. Oral contract of sale of a transistor radio for Php500. 2. Contract undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them. 3. Deed of sale involving Taal Volcano. 4. Oral lease of land for 6 months. 5. Contract which is entered into the name of another person by one who has given no authority. 6. Contract which does not comply with the Stature of Fraud. 7. An absolutely simulated or fictitious contract. 8. An oral contract of sale involving a land. 9. Valid until annulled unless there has been a ratification. 10. Contracts that cannot be sued upon unless ratified. 11. The least defective contract. 12. A kind of contract which is defective because it contains all the essential requisites prescribed by law, but it causes injury or damage to the contracting parties or to a third person. 13. Arnold and Bart who are both unemancipated minors entered into a contract. 14. Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. 15. Those whose object is outside the commerce of man. 16. Those where both parties are incapable of giving consent to a contract. 17. Contract in writing contemplating and asking for impossible service. 18. Oral authority given to an agent in sale of land. Page 32 of 190

19. Oral partnership agreement where immovable property is contributed. 20. Alfonso sold his ward’s house worth P1m for only P500,000. 21. Contract wherein a 16 years old, sold his house worth P1M for only P500,000. 22. Contract where one party is incapable of giving consent. 23. Contracts entered into during lucid interval. 24. Contracts entered into during a state of drunkenness or during a hypnotic spell. 25. Absolute Deed of Sale entered into between 16 years old and a 36-year old. 26. Contract of sale where consent was vitiated by fraud. 27. Oral promise to form a partnership 1 year and 1 month from today. MULTIPLE CHOICE: 1. Which of the following contacts is rescissible? a. Contracts entered into during a hypnotic spell b. Contracts entered into in a state of drunkenness c. Contracts entered into to defraud creditors when the latter cannot collect the claims due them d. Contracts where both parties are incapable of giving consent 2. Which among the following contracts is void? a. A contract of barter between S, insane, and B, 17 years old b. A contract of sale where B, the buyer, twisted the arm of S, the seller, so that S would sign the deed of sale c. A contract of sale where B, the buyer, aimed a gun at the wife of S, so that S would sign the deed of sale d. A contract for the sale of a cow which is suffering from a contagious disease 3. Which of the following contracts is enforceable even if not reduced in writing? a. Representation as to the credit of a third person. b. Agreement for the sale of immovable property c. Contract executed by one of the parties in a contract d. Lease of immovable period longer than one year. 4. L, entered into a contract of lease with X. T, the clerk of L, typed the document. Due to T’s negligence, the document made was that of sale instead of lease. a. The remedy is annulment b. Parties may go to court for interpretation c. Parties may enforce their right because it is enforceable d. None of the above. (the remedy is reformation)

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5. D is indebted to C in the sum of P10,000. For the purpose of avoiding the claims of C, D donated all his properties worth the same amount to X. a. The contract is absolutely simulated b. The contract is merely voidable c. The contract is rescissible d. The contract is void. 6. Statement No. 1: When the fulfillment of the suspensive or resolutory condition depends upon the sole will of the debtor, the conditional obligation shall be void. Statement No. 2: If the original obligation is subject to a suspensive or resolutory condition and the contract is novated the new obligations shall be under the same conditions unless otherwise stipulated. a. Both are true c. No. 1 is true; No. 2 is false b. Both are false d. No. 1 is false; No. 2 is true 7. Statement No. 1: “I will give you specific cars if you will not marry X this year (2015). If by the end of 2015, both parties are alive and no marriage has taken place, my obligation is extinguished.” Statement No. 2: “I will give you P10,000 if you cannot make a dead man alive. This is impossible condition obligation not demandable”. a. Both are true c. No. 1 is true; No. 2 is false b. Both are false d. No. 1 is false; No. 2 is true 8. The contract is not perfected until delivery. This is an attribute of? a. Consensual contract c. Solemn contract b. Real contract d. Formal contract 9. Contracting parties are free to enter into all kinds of pacts, terms or stipulations provided they are not contrary to law, morals, good customs, public policy or public order. The above is a description of the characteristic of a contract known as: A. Obligatory force of contracts; B. Mutuality of contracts; C. Autonomy of contracts; D. Consensuality of contracts; 10. This is not always an essential element of contract: A. Form B. Consent C. Object D. Cause 11. The period when the minds of the seller and the buyer have met on the subject matter and cause of the sale is called: A. Consummation of the sale; B. Perfection of the sale; C. Generacion of the sale; D. Negotiation of the sale. 12. Contracts are effective and binding only between the parties, their assigns and their heirs. Three of the following enumerations are exceptions as provided by law. Which does not belong to the exceptions? Page 34 of 190

A. Where one of the parties to the contract dies and thereafter a suit is filed on the basis of the contract; B. Where the obligations arising from the contract are not transmissible by stipulation or by provision of law; C. Where the obligations arising from contract are not transmissible by their nature; D. Where there is a stipulation in favor of a third party. 13. When there is concurrence of the offer and acceptance, there is: A. Payment B. Revocation C. Consent D. Acceptance. 14. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. Which of the following constitutes an offer: A. Advertisement for bidders B. Business advertisement of things for sale C. An offer made through an agent D. Classified ads in the newspaper. 15. It takes place when the parties do not intend to be bound at all by their agreement: A. Apparent contract B. Deed of assignment C. Relatively simulated D. Absolutely simulated contract. 16. D borrowed a sum of money from C with a certain rate of interest. C now wants to increase the rate of interest without the consent of D. What principle in contracts prohibits C from doing so? A. Autonomy of contracts B. Relativity of contracts C. Mutuality of contracts D. Consensuality of contracts 17. When his father died but before the delivery of the property to him, a son sold his share of the property inherited. Is the sale valid? A. No, because future inheritance cannot be sold; B. Yes, because future inheritance can be the object of the contract; C. Yes, because what has been sold is present inheritance; D. No, because the son was not the owner due to lack of delivery to him. 18. Three of the following contracts are void. Which one is not? A. Agent’s authority to sell real property given orally. B. Oral contract of Partnership where real estate is contributed as capital. C. Written contract contemplating impossible services.

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D. Contract entered into the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers. 19. Bunso, a minor entered into a contract with Waley, an insane, in connection with the sale of Rizal Park for P300,000. Said contract is: A. void B. unenforceable C. voidable D. rescissible 20. Boy Kanto entered into a contract of sale wherein Boy Kanto will buy a knife from Jun for P3,000. However, Boy Kanto bought the knife to kill Karding, his mortal enemy. The contract between Boy Kanto and Jun is: A. Rescissible B. Valid C. Voidable D. Unenforceable 21. A sent B a letter wherein the former offered to sell his car to the latter for Php 1M. B signified his intention that he may buy the same. In A’s letter, he gave B two weeks to raise the amount. After one week A raised the price to Php 1.5M. Can B compel A to accept the Php 1M first offered by A and deliver to him the car? A. Yes, since there was already offer acceptance B. Yes, because A cannot change his offer without the consent of B. C. Yes, because A cannot withdraw the offer within two weeks as he is under estoppel. D. No, because there was no acceptance yet of the offer. 22. A sold to B a genuine bottle of Fundador brandy. However, upon delivery the former substituted a fake, B now wants to annul the sale. Decide: A. The contract is void ab initio therefore it can be annulled. B. The contract can be annulled since it is voidable due to fraud. C. The contract cannot be annulled because it is only incidental fraud. D. There is dolo incidente therefore it can be annulled. 23. Which of the following contracts is valid and enforceable? A. A contract where a party gave his consent in a moment of drunkenness. B. A contract where a party gave his consent because the other party threatened to sue him for an unpaid debt. C. A contract where a party gave his consent because the other party threatened to kill the first party’s spouse. D. None of the foregoing. 24. The following contracts are rescissible, except: A. Those entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which are the object of the contract.

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B. Those entered into in representation of absentees, if the latter suffer lesion by more than one-fourth of the value of the things which are the object of the contract. C. Those undertaken in fraud of creditors but the latter can still collect the claims due them through other means. D. Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority. 25. S and B entered into a contract where they made it appear that S was mortgaging his lot and building to B to secure a contract of loan. The truth, however, was that S was selling his lot and building to B. Which of the following statement is true? A. The parties are bound by the contract of sale. B. The parties are bound by the contract of loan and mortgage. C. The parties are not bound at all. D. The parties are bound by the contract of sale only when third persons are affected. 26. A contract where the parties contemplate a real fulfilment, hence, equivalent values are given is known as: A. commutative contract. B. gratuitous contract. C. onerous contract. D. aleatory contract. 27. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient provided they are not contrary to law, morals, good customs, public order or public policy. This is known as the principle of: A. liberty of contract. B. mutuality of contract. C. relativity of contract. D. obligatory force of contract. 28. Which of the following contracts is valid and enforceable? A. A contract where a party gave his consent in a moment of drunkenness. B. A contract where a party gave his consent because the other party threatened to sue him for an unpaid debt. C. A contract where a party gave his consent because the other party threatened to kill the first party’s spouse. D. None of the foregoing. 29. Mistake in three of the following will make a contract voidable. Which one will not? A. Mistake as to the substance of the thing which is the object of the contract. B. Mistake as to the principal conditions which principally moved one of the parties to enter into the contract. C. Mistake as to the identity or qualifications of one of the parties, which identity or qualifications has been the principal cause of the contract. Page 37 of 190

D. Simple mistake of account. 30. The following are the requisites of a rescissible payment, except: A. the debt is already due. B. the debtor is insolvent. C. the debtor pays the debt. D. the payment is not yet due. 31. Rescission of contract can take place in this case: a. When the things, which are the object of the contract, are legally in the possession of third persons who acted in good faith. b. When he demands rescission can return whatever he may be obliged to restore. c. When the party seeking resolution can perform only as to part and rescind as to remainder. d. When the seller cannot return the installment paid to him by the buyer. 32. S makes an offer to B on January 1, 2010. B makes known his acceptance in a letter sent on January 2, and received by S on January 10. Meantime, on January 5, S becomes insane. a. The contract is voidable because one party is insane b. There is already a meeting of minds, the contract is perfected c. The contract is not binding because there is no meeting of minds d. Contract is unenforceable. 33. In a contract, as written, D promises to pay C P10,000 on September 15, 2010. The consideration received by D is not stated in the contract. a. The contract is valid because the cause is always presumed to exist. b. The contract is valid so long as it in writing c. The contract is valid because cause is not essential to a contract d. The contract is void because the cause is not stated. 34. S entered into a contract with B by threatening B that if B does not agree to make the contract, S would publish defamatory matter concerning B’s sexy wife. a. The contract is valid because the defamatory matter to be published does not relate to B, the contracting party. b. The contract is voidable because such publication when carried out whether true or not will cause serious harm to B and his wife c. The contract is unenforceable but B is entitled to damages the moment the publication is made. d. Contract is void. 35. Statement No.1: If the cause is not stated in the contract it is presumed that it is unlawful. Statement No. 2: The action for rescission is subsidiary; it cannot be instituted except when there is no other legal means to obtain reparation for damages suffered. Page 38 of 190

a. Both are true b. Both are false

c. No.1 is true; No. 2 is false d. No.1 is false; No. 2 is true

Activity 1. A with violence in her eyes intimidated her husband B to sell his exclusive property to her. The contract of sale is: 2. G sold and delivered her diamond ring to P. It was agreed upon that after ten days, P will name and fix the price. On the 10th day, P called up by G by telephone and stated the price at P10,000. G agreed. Is it valid if only one of the contracting parties fix the price? Justify your answer. 3. A offered 20 Tamiya cars to B for P1,000 each. B answered by letter that he was willing to purchase not 20 but 30 pieces of said price of P1,000 each. Is the contract perfected? Why? 4. It is a remedy in equity by means of which a written instrument is made or constructed so as to express or conform to the real intention of the parties when some error or mistake has been committed: 5. Frank owes Ellise P100,000. Frank knows that on maturity date, he will not be able to pay Ellise, and in order to prevent attachment of his property by Ellise, Frank, before maturity of his debt, executes a contract pretending to sell to Alexander his property. Is the contract between Frank and Alexander binding? Can Ellise ask for Rescission? Justify your answer.

6. Kokey, a minor entered into a contract with Baby, also a minor, in connection with the sale of Laptop computer Vios dual core for P50,000. The parent’s of both parties ratified the contract. The contract is? Justify your answer.

7. On January 1, 2011, Sunshine borrowed from Mercedes P1M payable on December 31, 2011. As security therefore, Sunshine pledged her car to Mercedes with an agreement that Mercedes could use it. On June 1, 2011, Sunshine offered to pay the loan in full and asked for the return of the car. Can Sunshine compel Mercedes to accept payment of the loan and return the car? Reason? Page 39 of 190

8. A sold in writing to B his stereo set for Php600. there is no delivery from A and no payment of the price from B. Contract is? Justify your answer. 9. S made an offer to B for the sale of his car which was received by the latter on January 2, 2001. On January 2, 2001 B sent a letter of acceptance by mail. On January 3, 2001 S sent another letter to B withdrawing his offer. S received the letter of acceptance on January 5, 2001. Is there a perfected sale? If yes, when? If no, why?

10. D borrowed P500,000.00 from C. D died without having paid his loan obligation to C. He left S, his son and heir, properties worth P400,000.00. Is S liable for his father’s debt? If yes, for how much? If no, why?

11. X company published an advertisement in the newspaper which reads as follows “INVITATION TO BID: Construction of the company’s warehouse located at 123 Luzon Street, Sta. Quiteria, Quezon City.” The advertisement also included the specifications of the warehouse to be constructed. Three companies submitted their bids: ABC Company, with a bid price of P4,500,000.00; DEF Company with a bid price of P4,750,000.00; and GHI Company with a price of P5,000,000.00. After considering the financial capability, reputation and experience of the bidders, the kind and quality of materials to be used, and other factors, X Company accepted the bid of DEF Company. ABC Company, the lowest bidder, now questions the award made by X Company to DEF Company which submitted a higher bid. Does ABC company have the right to question the decision of X company? Why?

12. S sold his only car for P100,000.00 to B. Unknown to S, B bought the car from him so that he could use the same in a bank robbery. What is the status of the sale? Justify your answer. 13. Example No. 1: The husband, by intimidation, was able to obtain the consent of his wife, with regards to the sale of a piece of

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land to him belonging to the wife for P1 million. The contract is voidable because there was intimidation. Example No. 2: In the above example, the right of the wife is to go to court and file a motion for annulment within four (4) years from the time of perfection of contract. If there is a false statement, what made it incorrect?

14. Statement No.1: The interpretation of obscure words or stipulation in a contract shall not favor the party who caused the obscurity. Statement No. 2: Gross inadequacy of the price does not affect the validity of contracts even if there was fraud, force or violence, error or mistake, undue influence, or threat or intimidation attending the execution thereof. If there is a false statement, what made it incorrect?

15. In a contract of sale executed by S and B, it appears S sold his motor vehicle to B and B bought it for P50,000. It turned out however, S has three motor vehicles. Gallant valued P80,000: HiAce van valued P70,000; and a Jeep valued P60,000. Is there a valid contract? Justify your answer. Which of the following is correct?

16. Statement No.1: Ratification of voidable contract is necessary for its validity. Statement No.2: One can ask for the annulment of a contract based on dolo incidente. If there is a false statement, what made it incorrect?

17. Statement No. 1: A stipulation in a contract of lease, which provides that the tenant shall have the right to continue in possession of the leased premises so long as he pays monthly rentals thereon, is a valid stipulation. Statement No. 2: The seller sold to a minor some necessaries in the amount of P600. The goods were delivered to the minor who, in turn paid the purchase price therefore. The contract is unenforceable. If there is a false statement, what made it incorrect?

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18. S and B orally agree that S would sell and B would buy S’s radio for P400, two years from the date of the agreement. At the end of the two-year period, S refused to deliver the radio although B was willing to pay. What is the status of the contract? Justify your answer.

19. A, a bachelor lawyer, raped W twice. Upon learning this, “F” the father of W, was able to force A to marry W under pain of being sued in court and debarred from the practice of his law profession. Is the contract of marriage valid? Why?

20. S owns an oil painting. Being in need of money, S sold the painting to B for P1, 000. After the sale it was discovered that the painting was valuable and worth P5, 000. Is the sale valid? Justify your answer. 21. D forced C to lend him P10, 000. The promissory note is in writing. Is the contract valid? Why?

22. Statement No.1: The action for annulment on the ground of fraud shall be bought within 4 years from the time fraud was discovered. Statement No.2: If a valid contract is novated to a void contract, both contracts are considered void. If there is a false statement, what made it incorrect?

23. One of the stipulations contained in the contract between M Company and its employees is that the company shall pay a bonus to employees of the company who shall continue its employment for at least 2 consecutive years, unless he quits or is discharged before the expiration of the period of 2 years. X, an employee of the company was discharged without just cause one week before the completion of the two-year period. Is X entitled for bonus? Justify your answer. 24. Example No.1- W 16 years old, sold his house valued at P1M for P500,000 or a lesion by more than one-fourth of the value of the said house. Page 42 of 190

Example No.2- S sold his house valued at P1M for only P400,000 because S did not know the true value thereof. Which of the contracts is/are valid and binding? Justify.

26. X, a former government employee, suffered from severe paranoia and was confined in the mental hospital in 1989. After his release he was placed under the guardianship of his wife to enable him to get his retirement pay. In 1992, he became a mining prospector and sold some mining camps. In 1995 he sue to annul the sale claiming that he was not mentally capacitated at the time of sale. The status of the sale in question was? Justify.

REFERENCES 1) Pasimio,R.,(2001). Effective CPA Reviewer in Business Law. Metro Manila: National Book Store. 2) De Leon,H., De Leon Jr,H. (2011). The Law on Obligations and Contracts. Manila: REX Book Store.

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CHAPTER 3 SALES Chapter Objectives 1. Explain the nature, forms, and requisites 2. Distinguish earnest money from option money 3. Explain the rights/obligations of vendor and vendee 4. Describe warranties in relation to customer laws 5. Explain installment sales, rights and remedies of parties Lesson 1 Nature and Form of the Contract Contract of Sale - By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing and the other to pay thereof a price certain in money or its equivalent. ESSENTIAL ELEMENTS 1) CONSENT 2) OBJECT 3) CAUSE OR CONSIDERATION CHARACTERICTICS 1) CONSENSUAL 2) BILATERAL-reciprocal rights and obligations 3) COMMUTATIVE-both parties give and receive equivalent values 4) NOMINATE-“Contract of Sale” 5) PRINCIPAL 6) ONEROUS-rights acquired are in exchange for a valuable consideration NOTES: 1) The sole owner of a thing may sell an undivided interest thereon. Ex. Usufruct 2) Contract of Sale vs. Contract for a Piece of Work CONTRACT OF SALE PIECE OF WORK Goods are manufactured for Goods are specially general consumption, manufactured upon whether existing or not. customers order. Lost w/ debtors fault-vendor If thing is lost before shall pay damages delivery, contractor bears w/o fault- extinguished the loss. 3) Sale vs. Barter

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-if consideration consist of partly in money and partly in another thing, it should be characterized by MANIFEST INTENTION of the parties. If intention cannot be determined; a) Thing given is more valuable than money-BARTER b) thing given is less valuable than money given- SALE c) if equal- SALE 5) Stipulation to retain ownership even after delivery until fully paid is valid. 6) Sale through letters or telegrams is deemed perfected only when the acceptance of the buyer has been received by or has come to the knowledge of the seller 7) Ownership of the thing sold shall be transferred to the vendee: a) actual or b) constructive delivery 8) Stipulation that the buyer will pay at some future date, but delivery will be made at the time of contract is valid. 9)Effect of Reciprocal Promises If one party fails to comply with his promise, the injured party have the following alternative remedies; a) Seek rescission plus damages,or b) Demand fulfillment plus damages, or c) If injured party choose fulfillment but subsequently becomes impossible, the injured party may revert to rescission. 10) POLICITATION- unilateral promise to buy or sell -mere offer and not binding unless an acceptance is given to offeror. 11) Injury or Benefit from the thing sold, after perfection but before delivery shall inure to the vendee ( re read Art 1163 to 1165, and 1262) -All fruits shall pertain to the vendee from the time of perfection. 12) Sale by Installment of Personal Property (RECTO LAW) In the event the vendee fails to pay, vendor has the following alternative remedies; a) Exact fulfillment of the Obligation, should vendee fail to pay b) Cancel the sale, should the vendee fail to pay two or more installments - it may be stipulated that upon rescission, the seller may forfeit whatever amount the buyer has paid so far, valid only if the amount is not unconscionable. c) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee fail two pay 2 or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any Page 45 of 190

agreement to the contrary shall be void. (if after foreclosing the chattel mortgage there is still a deficiency the seller cannot recover anymore) 13) A contract of lease of personal property with option to buy is considered contract of sale by installments. Lesson 2 Capacity to Buy or Sell - Persons capacitated to enter into contracts can enter into contract of sale - Necessaries sold to minor and other incapacitated persons are valid sales. DEGREE OF INCAPACITY 1) Absolute Incapacity 2) Relative incapacity Husband and wife- they cannot sell property to each other, contract of sale is null and void ab initio. Exception: i) When there is a separation of property agreed upon in the marriage settlements(prenup agreement) ii) When there is judicial separation of property - it may take place after celebration of marriage upon petition of either spouse under certain circumstances ( see Art. 191) Other restrictions of the Spouses i) They cannot donate property to each other during the period of marriage. ii) Cannot enter into Universal Partnership during their marriage. Lesson 3 Effect of the Contract when the Thing Sold has been Lost EFFECT OF THE THINGS LOST BEFORE OR AT THE TIME OF PERFECTION OF SALE 1) In case of Total Loss- if lost at the time of perfection of saleVOID. 2) Partial loss- vendee has the following alternatives; a) Vendee may withdraw, or b) May demand partial fulfillment by requiring delivery of the remaining portion and pay the proportionate price. NOTE: Lost after perfection but before delivery- risk of loss or benefit is with the buyer. Lesson 4 Obligations of the Vendor

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Lesson 4.1 General Provisions 1) 2) 3) 4)

To To To To

transfer Ownership of the object of Sale deliver the object warrant the object of sale exercise diligence of a good father of a family

Lesson 4.2 Delivery of the thing sold KINDS OF DELIVERY/ TRADITION 1) ACTUAL/REAL 2) LEGAL/CONSTRUCTIVE a) Legal formalities- execution of deed of sale of Real Property in PI b) Symbolic Delivery- giving the key c) Longa Manu- pointing the object d) Brevi manu- object is already at the possession of the vendee. Ex. Rent to own e) Constitution Possesorium- when the owner of the thing sells it to the vendee, but continues to have occupation of the thing not as owner, but as a tenant or lease. Ex. Sale and leaseback 3) Quasi-traditio- delivery of incorporeal/intangible property(ex. Patent, lease,mortgage) through: i) Execution of dead of sale in PI ii) Placing the title of ownership in the hands of vendee iii) Transferring the use of vendor’s right to the vendee DIFFERENT TYPES OF SALE 1) SALE OR RETURN BASIS-ownership passes to the buyer upon delivery although price may not have been paid. Ownership will revert back to the seller if buyer returned the object. 2) SALE ON A TRIAL OR APPROVAL OR SATISFACTION BASISownership remains with the seller during the trial period. Buyer acquires ownership when; a) He signifies his approval before trial expires; or b) He retained the object after the trial period w/o notifying the seller whether to buy it or not. WHEN TITLE OF GOODS PASSES TO BUYER General Rule 1) Actual or constructive delivery 2) Delivery is made by seller to the carrier for transmission to the buyer. Exception: When the seller reserved his right to ownership until certain conditions are met.

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RULES ON RES PERIT DOMINO(The thing perishes with the owner) - If seller retains ownership then he bears the loss in case of fortuitous event. If ownership is transferred to the buyer then buyer bears the loss. Exceptions: 1) The seller retained ownership solely to secure payment by buyer. Buyer now assumes risk in case of loss from the time of delivery. 2) Actual delivery has been delayed through the fault of either the buyer or seller, the party in fault shall bear the risk or loss. EFFECT IF SELLER SOLD OBJECT HE DO NOT OWN General Rule: buyer acquires no better title than the seller Exception: a) Owner of the object ratified the sale b) By the owners conduct he is precluded or stopped from denying the seller’s authority c) Law enables the apparent owner to dispose of them as if he were the true owner thereof. d) Sale is made in accordance with a statutory power of sale or under the order of a competent court. e) When the purchase is made in a merchant’s store, or in fairs, or markets. RULES GOVRNING DELIVERY OF GOODS Where qty delivered is less than agreed upon a) Buyer may reject; b) Buyer may accept the qty delivered and pay at contract price if he has knowledge that the seller can no longer deliver the balance. c) Buyer may pay only the FV of the goods delivered if he has used or disposed of them before he has knowledge that the balance will no longer be delivered. Where qty delivered is more than that agreed upon; 1) Buyer may accept only the contract qty and reject the excess 2) Buyer may accept the whole and pay the excess 3) Buyer may reject all if indivisible and seek damages Where goods delivered are of Different Description -seller delivers mixed goods different from description 1) buyer may accept only the goods w/c are in accordance with contract and reject the rest; or 2) buyer may accept all and pay corresponding adjustments or 3) may reject all if indivisible

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WHEN DELIVERY TO CARRIER IS DELIVERY TO BUYER General rule: Delivery to carrier is delivery to Buyer Exceptions: 1) Seller reserves the right of ownership 2) Seller reserves the right when the document of title(bill of lading) is deliverable to him or his authorized agent 3) Although the goods are deliverable to the buyer, the seller retains possession of the bill of lading. WHEN SELLER IS DEEMED AN UNPAID SELLER 1) Whole purchase price has not been paid or tendered; 2) For the unpaid balance of the purchase price; 3) When the negotiable instrument has been received as a conditional payment and subsequently dishonored by nonacceptance or by non-payment RIGHTS OF AN UNPAID SELLER 1) RIGHT OF POSSESSORY LIEN- the right to retain possession of good. Can be exercised only as long the goods are in his possession. When not in possession his remedy is to sue the buyer for payment of purchase price plus damages. When seller can exercise possessory lien? a) When there is no stipulation as to credit b) When the term of Credit has expired c) Where the buyer becomes insolvent Right of Possessory Lien vs. Right to withhold In possessory ownership has already been transferred to buyer while in the Right to withhold, ownership of the goods is not yet transferred and seller will not make delivery unless buyer pays first. 2) RIGHT OF STOPPAGE IN TRANSIT 3) RIGHT OF RESALE a) When goods are perishable in nature; or b) When unpaid seller expressly reserves his right of resale in case of buyer’s default, or c) When buyer has been in default in his payment for an unreasonable length of time. Effects: a) Seller is entitled to profit realized during resale b) Seller may recover deficiency from buyer plus expenses of public or private sale c) 2nd buyer acquires better right than original buyer. 4) RIGHT TO RESCIND THE CONTRACT OF SALE SELLER NOT BOUND TO DELIVER IF BUYER LOSES HIS RIGHT TO THE PERIOD - See obligations

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RULES ON SALE OF REAL PROPERTY When rescission is proper: a) If the deficiency of the area is at least 1/10 th of the total area stated in the contract. b) If there is a deficiency in the quality and the inferior value exceeds 1/10th of the agreed price c) If the vendee would not have bought the property had he known of the smaller area or the inferior quality of the land. When greater area is delivered 1) Accept the area stipulated in the contract and reject the rest; or 2) Accept the whole and pay the excess. When sale of real property is for Lump Sum There shall be no increase or decrease of the purchase price, although there be a greater or lesser area. RULES IN CASE OF DOUBLE SALE 1) Movable Property a) 1st possessor in good faith b) Buyer with older title 2) Immovable Property a) 1st registrant in good faith b) 1st possessor in good faith c) Buyer with older title Lesson 4.3 Conditions and Warrants *if the contract of sale is subject to a suspensive condition, and the party bound to perform did not fulfil it, the other party may; a) refuse to proceed with the contract; or b) waive performance of the condition and proceed with the sale. WARRANTY A promise or undertaking, either express or implied, by the seller of property that the property is as represented to the buyer. WARRANTY IN CASE OF EVICTION EVICTION- judicial process whereby the vendee is deprived of the object of the sale, totally or partially, by virtue of final judgment based a) On a prior right b) By an act imputable to the vendor KINDS OF WAIVER OF WARRANTY IN CASE OF EVICTION a) Waiver Conciente-voluntary waive w/o knowledge of the risks of eviction. Vendee can recover the value of the thing at the time of eviction. Page 50 of 190

b) Waiver Intencionada- voluntary waiver of his right to warranty with full knowledge of the risks. Vendor will not be liable. Extent of Vendors liability a) Return purchase price b) Income or fruits c) Cost of suit d) Expenses of the contract e) Damages, interest, and ornamental expenses WARRANTY AGAINST HIDDEN DEFECTS OF OR ENCUMBRANCES UPON, THE THING SOLD REDHIBITORY DEFFECTS- not discernible to an ordinary buyer VENDOR IS NOT LIABLE WHEN a) Defects are visible, or b) Vendee is an expert who, by reason of his trade or profession, should have known the hidden defects ACTION BY VENDEE 1) Redhibitory Action-nullify the sale 2) Action Quanti Minoris- reduction in price Lesson 5 Extinguishment of Sale 1) By the same causes of extinguishment of obligations. 2) By the following a) Rescission b) Right of stoppage in transit c) Sale of real property in case of difference in area or quality d) Sale of real property when greater area is delivered e) Sale of real property in lump sum f) Loss by eviction of important part of the thing. g) Sale of the immovable with non-apparent easement h) Breach of warranty i) When vendor fears loss of immovable sold in price 3) By Conventional and Legal Redemption Lesson 5.1 CONVENTIONAL REDEMPTION - By stipulation, seller may re-acquire or purchase the object sold after a certain period of time agreed upon. Vendor may redeem upon reimbursement of: 1) Purchase price 2) Expenses of the co rntract 3) Refund necessary and useful expenses made;and 4) Legitimate expenses and fulfillment of other conditions agreed upon NOTES:

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1) In case of doubt, a contract purporting to be sale with right to repurchase shall be construed as an equitable mortgage. 2) If it can be proven that the Pacto de Retro Sale is intended to be an equitable mortgage, the proper remedy is reformation. 3) Period of Right of Redemption 1. If no stipulation – within four years 2. If there is stipulation – the stipulation will control but not to exceed ten years, over and above the ten-year period is void. 3. If there is a prohibitive period – exclude the prohibitive period and begin counting the four-year period. If the prohibitive period and the four-year period exceed 10 years, over and above the ten-year period is void. 4) Right of redemption is considered a real right(binding against the whole world) but it should be properly annotated to the Registry of Deeds. If not annotated and vendee sold the property to a 3rd person in good faith then the vendor a retro can no longer redeem the property. 5) In pacto de retro sale, ownership is transferred to the vendee a retro. 6) Creditors of vendor a retro can exercise the latter’s right of redemption only after all the properties of the vendor has been exhausted. 7) If there are fruits at the time of sale, the following rules will apply; a) Buyer may keep them w/o paying for them. The rule says the accessions and accessories is included in the sale. b) If buyer pays for them, he may be reimbursed. 8) If there are no fruits at the time of sale and there are fruits at the time of redemption. It should be divided proportionately. Lesson 5.2 Legal Redemption - It is the right to be subrogated, upon the same terms and conditions stipulated in the contract, in the place of one who acquires a thing by purchase or dation in payment, or by other transaction whereby ownership is transferred by onerous title. It takes place by operation of law. INSTANCES WHEN LEGAL REDEMPTION MAY BE EXERCISED 1) CO-OWNERS RIGHT OF LEGAL REDDEMPTION Rules in case several co-owners sells his share to 3rd person a) One co-owner may exercise his right of redemption b) If purchase price is grossly excessive, redemptioner may pay only the reasonable price c) If two or more co-owners desire to exercise their right, they may redeem it proportionately based on their shares. d) Co- owners shall have no right of legal redemption against each other. Page 52 of 190

2) LEGAL REDEMPTION BY ADJACENT OWNERS OF RURAL LANDS a) Adjacent owner may exercise the right to redeem, provided: i) the land to be redeemed should not exceed one hectare; ii) buyer is already the owner of some other rural land b) If two more adjoining landowners desire to exercise the right of legal redemption at the same time i) adjacent owner with smaller area shall be preferred ii) if both with the same area, the first to request the redemption is preferred 3) RIGHTS OF ADJACENT OWNERS OF URBAN LANDS a) RIGHT OF PRE-EMPTION- the right to buy something before it can be sold to someone else. b) RIGHT OF REDEMPTION The right of pre-emption or redemption may be exercised by the adjacent owner of urban land under the following conditions: a) The land is so small that it cannot be used for practical purposes b) The land is bought for speculation purposes only c) If it is to be re-sold the owner should give the adjacent owner the right to exercise his right of pre-emption at reasonable price d) If the owner sold the land w/o notice to the adjacent owner, the latter may redeem the property at reasonable price. e) If 2 or more wish to exercise the right at the same time, the one who has more reasonable purpose shall be preferred. 4) Adjacent owner may exercise his right w/n 30 days from the time a written notice of sale is given by the owner. NOTE: 1) The sale cannot be registered to the Registry of Deeds unless accompanied by the affidavit certifying that the owner gave notice to the adjacent owners or other redemptioners. 2) Right of redemption by co-owners shall be preferred than those by adjacent owners.

Self-Assessment Questions 1. A warranty inherent in a contract of sale to transfer ownership, whether or not mentioned in it, is known as the a. Warranty on quality b. Warranty against hidden detects Page 53 of 190

c. Warranty against eviction d. Warranty in merchantability. 2. In a true pacto de retro sale, the title and ownership of the property sold are immediately vested in the vendee a retro subject only to the resolutory condition of repurchase by the vendor a retro within the stipulated period. This is known as a. Equitable mortgage b. Conventional redemption c. Legal redemption d. Equity of redemption 3. The contract shall be presumed to be an equitable mortgage, in one of the following: a. The price of the sale is unusually inadequate b. The vendee remains in possession c. The vendor retains for himself a part of the purchase price d. The vendee binds himself to pay the taxes on the thing sold 4. Which of the following is not a right of the unpaid seller? a. A lien on the goods while in his possession b. Right of stoppage of goods in transit even if buyer is solvent c. Right to rescind the sale d. Right of resale. 5. I. The seller must be the owner of the property he sells but his ownership need not exist on perfection but upon delivery of the thing. II. A contract of sale may be absolute; conditional, either suspensive or resolutory; or the subject to a contingency; or undivided interest in property, either present or future including future inheritance. a. Both are false statements. b.Both are true statements. c. First is true, second is false. d.First is false, second is true. 6. S offered his land to B with the understanding that the latter shall fix the price. B, as agreed upon fixed the price at P2M, although the land's market value was P1.5M. It is clear, therefore, that S is to benefit from the transaction. Was there a sale? a. No perfected sale as there was no consent on the price. b. There was a perfected sale, fixed by buyer and accepted by the seller c. There's valid sale since the buyer was authorized to fix the price. d. Voidable sale at the option of the buyer due to mistake in the fixing of the price 7. The following are the alternative remedies, except one available to the buyer in case of breach of warranty by the seller a. Keep the good and ask for damages b. Refuse to accept the goods and ask for damages c. Rescind the sale and retain the goods d. Keep the goods and set up against the seller by way of recoupment in price. Page 54 of 190

8. Quasi-tradition is equivalent to a. Longa manu b.Execution of a public instrument c. Symbolical delivery d. Brevi-manu 9. S sold to B a specific "fighting cock" by pointing it to B. What kind of delivery is effected? a. Brevi manu b. Quasi tradition c. Constitutum possessorium d. Longa Manu e. None of the above 10. Ownership of incorporeal property is transferred to the buyer, except: a. Execution of the sale in a public instrument b. Placing the titles of ownership in the possession of the buyer c. Use the buyer of his right, without the seller's consent d. None of the above 11. A offered to sell his lot to B for P100,000. In his offer to sell it was stated that B is given 60 days to prepare the P100,000, and as soon as B is ready with the money, A will execute a deed of sale. Before the end of 60 days, A informed B that the price of the lot was increased to P120,000. May B compel A to accept P100,000 offered previously by A and make him execute the deed of sale? a. Yes, because A is already estopped by his signal letter b. No, for B never signified his acceptance of A's offer. c. Yes, because there was actual meeting of minds of the parties d. Answer not any of the above. 12. I. The vendor is bound to deliver the thing sold and its accessions and accessories in the condition in which they were upon the perfection of the contract. All fruits shall pertain to the vendee from the day which the contract was perfected. II. Whenever option money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract. a.True, true b.False, True c.True, false d.False, false 13.I. A statement in writing by the pledgee that he renounces or abandons the pledge will extinguish the pledge only if accepted by the pledgor or owner and the thing pledged is returned. II. At the public auction, the pledgee may also bid and his offer shall be valid even if he is the only bidder. a.Both are true b.Both are false c.Only the first is true d.Only the second is tru 14. Which of the following contracts of sale is void? a. Sale of EGM’s car by KRP. EGM’s agent, whose authority is not reduced into writing b. Sale of EGM’s piece of land by KRP, EGM’s agent, whose authority is not reduced into writing c. Sale of EGM’s car by KRP, a person stranger to EGM, without EGM’s consent or authority

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d. Sale of EGM’s piece of land by KRP, a person stranger to EGM, without EGM’s consent or authority. 15. A, offered to sell to B 100 cartons of sardines at a specified price who was accepted by B and subsequently delivered his letter of acceptance. In view of the shortage of the catch of sardines A failed to deliver the commodities it had offered for sale. B decided to sue A. Which is correct? a. The acceptance of the offer ably created an option to buy. b. The absence of consideration distinct from the price makes the contract without any obligatory force. c. The acceptance of the offer to sell by showing the intention to buy for a price certain creates a bilateral contract to sell and buy. d. The acceptance of the offer to sell constitute a binding contract of sale provided the option was supported by a sufficient consideration. 16. The vendor a. Is liable to the vendee for hidden fault or defect of the thing sold even if he is not aware thereof b. Is not liable to the vendee for hidden fault or defect of the thing sold if he is not aware thereof. c. Is liable to the vendee for hidden fault or defect of the thing sold if he is not aware thereof if stipulated. d. None of the above 17. I. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. II. Emptio Speratae is the sale of a thing which is expected to come into existence, the quality and quantity of which are unknown. a. True, true b. False, True c. True, false d. False, false 18. I. In the consummation of a contract of sale, the earnest money given by the buyer to the seller is not deductible from the purchase price. II. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. a. True, true b. False, True c. True, false d. False, false 19. S sold his car to B with agreement that he will pay the price one week after the sale on January 10, 2019. In this case: a. The time and place of delivery shall be at the time and place of payment of the price. b. The time and place of deliver and payment not having been agreed upon, the sale shall be void. c. The seller may demand payment first before delivery of the thing sold. d. The buyer may demand delivery first before payment of the price. Page 56 of 190

20. When two persons contract with regard to the same immovable thing, one of them with the agent, and the other with the principal, and the contracts are incompatible with each other, ownership shall be transferred to a. The first purchaser in good faith. b. The first who completed the payment of the price in good faith. c. The first who will register in good faith the transaction. d. The one who presents the oldest title who must be in good faith. 21. In case of breach of warranty against eviction, which of the following shall be returned by the seller? a. Costs of the suit which brought about the eviction and the suit against the seller b. Value of the thing at the time of the sale c. Damages if the seller was in bad faith d. Expenses of the contract borne by the buyer 22. A, a manufacturer and B, a distributor agreed to a contract where A will deliver 2,000 units of A’s products to B every month and B will sell the products at A’s suggested prices plus 15%. All unsold units at the end of the year shall be bought back by A at the same time the products were ordered. A shall hold B free from any claim for defects in the units. The contract between A and B is a. Contract of sale b. Sale with right to repurchase c. Contract of lease d. Agency to sell 23. S, a minor, sold her bracelet to B for P8,000. Later, B, needing money to pay her daughter’s tuition fee, borrowed P15,000 from C and as a security, pledged the bracelet to the latter. B failed to pay C resulting into the auction sale of the bracelet in favor of D for P10,000 only. Which of the following statements is correct? a. The title of B over the bracelet is not valid, hence the pledge, as well as the sale of said bracelet is likewise defective. The pledgor must be the owner of the thing pledged. b. The deficiency of P5,000 may still be recovered by C from B if there is a stipulation to this effect. c. C can no longer recover the deficiency of P5,000 from B. the pledge, together with the sale is valid. The voidable title of B is valid because it is not yet annulled. d. If D was a purchaser in bad faith as he knew of the defective title of B over the bracelet from S, ownership will not pass to him D.. 24. It is the right of the mortgagor to redeem the property that was mortgaged after it was sold a. Equity of redemption c. Right of subrogation b. Right of redemption d. Right of pre-emption

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25. A seller sold to a buyer a piece of jewelry at a price of P20,000. The contract provides that the buyer will pay the seller cash of P15,000 and for the balance, the buyer will give the seller a microwave oven worth P5,000. What is the nature of the contract? a. Barter b. Sale c. Partly sale and partly barter d. Commodatum 26. When delivery takes place by the mere consent of contracting parties as when the vendor merely points to the thing sold which shall thereafter be at the control and disposal of the vendee, if the thing sold cannot be transferred to the possession of the vendee at the time of the sale, delivery is effected: a. by traditio constitutum possessorium b. by traditio brevi manu c. by traditio longa manu d. by traditio symbolica 27. Which of the following statements is not correct? a. Actual delivery of the thing or payment of the price is not required for the perfection of the sale b. A stipulation that even when the object is delivered to the buyer, ownership will not pass until the price is fully paid is not valid c. A sale is consummated upon delivery of the thing and the payment of the purchase price d. Sales through letters or telegrams are deemed perfected only when the seller has received acceptance by the buyer 28. Which statement is not true? a. Warranty against hidden defects is an accidental element of a contract of sale b. In sale the obligation of the buyer is not only the payment of the price c. In dacion en pago, an obligation is extinguished while in contract of sale, obligation arise d. In sale or return ownership is transferred to the buyer upon delivery 29. Which of the following obligations of the vendor cannot be waived? a. To allow the buyer to examine the goods sold b. To pay the expenses of the deed of sale c. To warrant the things sold d. To transfer ownership to the buyer 30. The buyer is obliged to pay interest on the price from the time of delivery of the thing sold up to the time of payment in three of the following instances, except: A. should it have been stipulated; B. should the thing produce fruits or income; C. should the vendee be in default in the payment of the price; D. should the vendee be insolvent.

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31. Where the seller of goods has voidable title thereto, but his title has not been avoided at the time of the sale, the buyer acquires title to the goods. Such acquisition of title has the following requisites, except: A. The buyer must have bought the goods in good faith; B. The buyer must have bought them for value; C. The buyer bought them without notice of the seller’s defect of title; D. The seller is in good faith. 32. A sold his car to B binding himself not to sell the same to another person. On the following day, A sold the same car to C who immediately took possession in good faith. In the case at bar, the proper remedy of B is to: A. Institute an action for the annulment of the sale against C. B. Institute an action for the recovery of the car. C. Institute an action for damages against A D. Institute an action for recovery of the car plus damages against C. Activity 1. B orally authorized S, his sister, to sell his parcel of land. The land was purchased by X, but S did not forward the money to B. Now, B wants to recover the parcel of land. What is the sale valid? If yes, what is the remedy of B? If no, what made the sale not valid? 2. P authorized A, B, and C to sell his car with the agreement that the latter shall be solidarily liable. However, after delivery of the car to them, it was lost through the fault of A only. P can claim damages from? Justify your answer. 3. S sold to B a specific car for P200,000 payable in four equal installments. S delivered the car to B but required B to mortgage it back to S to answer for the unpaid installments. B paid the 1st and 2nd installments but he failed to pay the balance. S foreclosed the mortgaged property and sold it at public auction for P80,000. Can S recover the deficiency? Reason? 4. A sold his land to B. the sale was made orally. B paid the agreed price. B wanted to have the sale registered but he needs a public instrument. Which is the status of the contract? Can be compel A to execute the public instrument? Justify your answers.

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5. S sold a car for P300,000 to B. Unknown to B, the car then had a cracked engine block, the replacement of which would cost P75,000. Despite his knowledge of this defect, S obtained a waiver from B of the latter's right under the warranty against hidden defects. Subsequently, the car was wrecked due to the recklessness of B who only then discovered the defects. What kind of waiver was given to S by B? Is S liable? If yes, for how much? 6. S sold to B his car on January 10, 2001. On January 15, an absolute deed of sale was executed and notarized. On January 20, the sale was registered with the LTO. On January 25, B took actual possession of the car. When did B acquire the title to the car? What mode of delivery was made ? 7. P, who was abroad, learned that F was interested in buying his lot located in Quezon City. To take advantage of the opportunity, he made an overseas call to A, who was in Manila, to sell the lot in his behalf, to F, for P1M. A thus sold the lot promptly to F. The contract of sale is in public instrument which was signed by A in behalf of P as seller, and F as buyer. The said contract of sale is? Justify your answer. 8. Without authority from P, A sold P’s car in A’s name. What is the status of the contract? Reason: 9. Mr. Marcial Bonifacio orders for his workers 1,000 pieces of tshirts ranging in size from small to large from the Magellan Garments Manufacturing Corp. The specified sizes, although not then available, are manufactured by said corporation and consigned to its sales outlets regularly. The contract entered into by Mr. Bonifacio with the Magellan Garments Mfg. corp. is a: a. A contract of sale; or b. Contract for a piece of work? Justify your answer. 10. A sold his only car to B for P300,000 to be paid as follows: P150,000 upon delivery of the car to B and the balance at P10,000 per month until full payment of the purchase price. Later, the car gets burned in the possession of B through fortuitous event before full payment of the balance. Is B obliged to pay the balance?

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11. A sold her specific car to B for P200,000 payable in 5 equal instalments. A delivered the car to B but a mortgage was constituted on the car to answer for the unpaid instalments. B paid the first two instalments but failed to pay the last 3 instalments. A foreclosed the mortgaged property and sold it at public auction for P100,000. Can A recover the deficiency? Reason? 12.B bought on installment a car and executed a chattel mortgage on the same in favour of the seller S as security for the unpaid balance of the price. They agreed that B shall be liable for any deficiency that may arise after foreclosure of mortgage. B failed to pay two instalments. What is/are the remedy/ies of S?

13.B purchased a pair of leather shoes from the store of S. Shortly after leaving the store, B decided to return and requested S, the owner, to place a protective rubber covering on the sole of each shoe. Since the job required at least 30 minutes to complete, B left the store of S to shop at the neighboring stores. When he returned to the store of S after 30 minutes, the pair of shoes was nowhere to be found. It turned out that C, a sales clerk, had sold the pair of shoes that B bought to X, another customer. Who acquired ownership of the shoes? Justify your answer. 14.B purchased from S a laptop computer worth P100,000. The terms of the sale provide for a downpayment of P20,000 with the balance payable in 8 equal installments. To secure the balance, S required B to execute a chattel mortgage on the laptop computer and a real mortgage on B’s lot. B complied with all the requirements but defaulted in the payment of the third and fourth installments. What are the available remedies for S?

15.T stole a ring belonging to O. Subsequently, the ring was offered for sale at a public auction where X, who was not aware that the ring was stolen, bought it. A few weeks later, O saw the ring and recognized it as his. Based on the foregoing information, Can O recover the ring? Reason? 16. A, B, C and D are co-owners of an undivided parcel of land. A sold his 1/4 interest to D, absolutely. Can B exercise his right of redemption? What if B and C wants to exercise their rights, how will they divide the property? Page 61 of 190

17. After the death of Carl, Allan, Carl’s son, sold his inheritance though its amount has not yet been determined to Ben for a consideration of P1,000,000. Is there a valid sale? Explain. 18.A took the diamond ring of B without the latter’s consent. A subsequently sold the same to C who had no knowledge about the circumstances that happened between A and B. C thereafter sold the same ring to E, the latter was likewise bereft of any knowledge during the sale about the fact that the ring was stolen from B by A. B proceeded against E to recover the ring. E contended that he was in good faith when he bought the ring from C. Who has the better right over the ring? Reason?

19. A sold to B a parcel of land for P1M. The sale was evidenced by an agreement of sale written in Cebuano dialect. One week later, A sold the same parcel of land to C for P2M which was evidenced by a formal deed of sale. C, who was aware of the previous sale, immediately took possession and registered the sale in his favor. Who is the rightful owner? Justify your Answer.

20. A sold to B his car and promised to deliver ten days later. The next day, after the sale to B, A sold the same car to C and immediately effected delivery. On the agreed day of delivery, B did not deliver the car to A. Who is the rightful owner? What is the remedy of the one deprived from ownership? 21. S sold to A in a memorandum of agreement of sale his parcel of land. After a week, S sold the same land to B in a formal deed of sale. Upon buying the land, B who was aware of the sale to A, immediately took possession thereof and registered the sale in his favor. When informed of the second sale, A subsequently registered an adverse claim with the Registry of Deeds. The parcel of land shall belong to? Reason? 22. A husband and his wife were living together under a conjugal partnership of gains. Later, because of a quarrel, the wife left the husband without judicial approval. They have thus been living apart for more than ten years. The wife later sold her land to the said husband. Is the sale valid? Justify your answer. Page 62 of 190

23. S sold his cat to B for P2,000.00. No payment has been made and the sales document does not provide for the date of delivery. Before delivery and payment, the cat gave birth to a kitten. Who is the owner of the kitten? Reason? 24. A seller sold to a buyer a piece of jewelry at a price of Php 1M. The contract provides that the buyer will pay the seller cash of Php.4M and deliver the buyer’s car worth Php.6M. The contract is A. Barter B. Partly sale and partly barter C. Sale D. Commodatum Explain your answer.

REFERENCES Pasimio,R.,(2001). Effective CPA Reviewer in Business Law. Metro Manila: National Book Store.

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CHAPTER 4 Contract of Agency, Pledge, Real Mortgage, And Chattel Mortgage Chapter Objectives 1. Explain the nature, form and kinds of agency 2. Explain the obligations of the agent 3. Explain the obligations of principal 4. Identify the obligations and rights of pledger and pledgee 5. Identify the obligations and rights of mortgagor and mortgagee 6. Describe and explain the effect of pactum commissorium Lesson 1 Contract of Agency Agency – a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. Agency may be created: By the consent of the principal and the agent By operation of law By estoppel By ratification Essential elements and Characteristics of agency: The express or implied consent of the parties establishing the agency The object is the execution of a juridical act in favor of a third person The agent acts as a representative of the principal The agent must act within the scope of his authority Nature – the relationship of the principal and the agent is fiduciary based on utmost trust and confidence under the legal maxim that the agent’s personality is an extension of that of the principal. Agency by necessity – is an agency whereby the authority of the agent is enlarged in order to meet an impending emergency for the protection of the principal or that of a third person Page 64 of 190

Condition: There is a real emergency Inability to communicate with the principal Execution of an additional authority by the agent Termination of this additional authority when there is no more emergency Kinds: According to manner of constitution Express Implied According to the extent of the business covered General – comprises all the business of the principal Special – comprises one or more specific transactions Forms Written - authority to sell the land through agent must be in writing otherwise void Oral Fundamental obligation of an agent (most) To carry out the agency To act within the scope of his authority To act on behalf of his principal Fundamental obligation of the agent To carry out the contract of agency and act in accordance with the instructions of the principal If he declines the agency, he must preserve the goods with a diligence of a good father of the family Shall not carry out the agency if its execution would manifestly results in loss or damage to the principal Sacrifice his interest and give it to the principal if there is a conflict Can be lender if he authorized to borrow but cannot be the borrower if he is authorized to lend except with the consent of the principal To render an accounting of the transactions To pay interest on the sum he has applied to his own use from the day on which he did so. Guaranty Commission Agent (known as “Agente del credere”) – agent receiving guarantee commission aside from ordinary commission, and guarantees the payment of the buyer. if the buyer does not pay, the agent is liable to the principal Modes of extinguishing an agency: EDWARD E – Expiration Page 65 of 190

D – Death, civil interdiction, insanity, insolvency W – Withdrawal A – Accomplishment R – Revocation D – Dissolution Cases agency cannot revoked: When a bilateral contract depends on the agency When agency is a means of fulfilling an obligation already contracted If a partner is appointed manager in a contract of partnership, his removal is unjustifiable Lesson 2 Pledge Contract of pledge – It is real contract whereby personal or movable properties are delivered by the debtor to the creditor as a security for the fulfillment of a principal obligation Essential requisites: 1. That they constituted to secure the fulfillment of a principal obligation; 2. That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged; 3. That the person constituting the pledge or mortgage have the free of disposal of their property, and in the absence thereof, that they be legally authorized for the purpose; 4. Thing or object may be alienated for the payment of the principal obligation. 5. The thing pledged must be placed in the in the possession of the creditor, or of a third person by common agreement. Kinds: Pledged may be either, 1. Voluntary or conventional or one which is created by agreement of the parties. 2. Legal or one which is created by operation of law. Object: 1. All movables within the commerce of men, provided they are susceptible of possession. 2. Incorporeal rights, evidence by negotiable instrument, bills of lading, share of stock, bonds, warehouse receipts and similar documents may also be pledge. The instrument proving the right pledged shall be delivered to the creditor and if negotiable, must be indorsed. Page 66 of 190

Pactum Commissorium – it is null and void, the pledgor can only alienate the object to answer the obligation, the creditor can only sell but cannot appropriate. Effectivity of pledge against third person; 1. A public instrument must be made 2. It must contain the description of the thing pledged and the date of the pledge. Rights of the pledgor-debtor 1. The right to demand the return of the thing pledged after payment of the obligation; 2. To extinguish the pledge partially if several things pledged guaranty to determinate portion of the credit 3. To have the fruits or income of the thing pledged be applied to the interest, if any, and the excess to the principal obligation; 4. To be notified of the sale in public auction if he cannot pay the obligation in due time; 5. In the auction sale, he shall have a better right if he offers the same terms as the highest bidder Obligation of the debtor-pledgor 1. To deliver the thing pledged to the pledge; 2. To pay the principal obligation upon maturity 3. To execute the contract of pledge in a public instrument with description of the thing pledged and the date it was pledged; 4. To notify the pledgee of any flaws or defects of the thing pledged; 5. To respect the creditor’s right in bringing a court action which pertains to him (pledgor), in defending the thing pledged against third person. Rights of the pledgee-creditor 1. To retain the thing pledged so long as the obligation remains unpaid; 2. To sell the thing pledged if the debtor cannot pay, to satisfy the principal obligation; 3. Before the due date of the obligation, the creditor is given a right to sell the property if there are damages or destruction, impairment or diminution in value; 4. The right to be reimbursed of the expenses of the thing pledged for its preservation; Page 67 of 190

5. Creditor may bring action which pertains to the owner of the thing pledged to recover it from, or defend it against, a third person. Obligation of the creditor-pledgee 1. To take good care of the thing pledged with a diligence of a good father of a family; 2. Answerable to the pledgor-debtor if he deposited the thing pledge to a third person; 3. To apply the fruits of the thing pledged to the principal obligation if the thing produces fruits or income; 4. Liable for any damages caused if he misused the property pledged; 5. To notify the debtor if the thing pledged is to be sold at public auction. Lesson 3 Chattel Mortgage Chattel Mortgage – by a chattel mortgage, personal property is recorded in the Chattel Mortgage Register as a security for the performance of an obligation. If the movable, instead of being recorded, is delivered to the creditor or a third person, the contract is a pledge and not a chattel mortgage. (Art 2140) Essential requisites: 1. Constituted to secure the fulfillment of a principal obligation. 2. The mortgagor must be the absolute owner of the thing mortgage 3. The persons constituting the mortgage must have the free disposal of the property, and in the absence thereof, they be legally authorized for that purpose. 4. The object must be personal or movable. 5. To be binding against third persons, it must be recorded in the Chattel Mortgage Register. Object of Chattel Mortgage 1. 2. 3. 4. 5.

Interest in business Growing crops Certificate of stock Vessels (MARINA) or common carrier (LTO) Certificate of public convenience

Methods of foreclosure of Chattel Mortgage Page 68 of 190

1. Judicially 2. Extra-judicially a. by the sheriff b. a notary public c. mortgagee, if stipulated Place of sale 1. In the municipality where the mortgagor lives; or 2. Where the mortgaged property is situated Application of the proceeds of the foreclosure sale 1. 2. 3. 4. 5.

cost expenses of keeping payment of the principal obligation claims of persons holding subsequent mortgage in their order If there is excess after above are all paid , shall be paid to the mortgagor or person holding under him on demand.

Lesson 4 Real Estate Mortgage Real Estate Mortgage – It is a contract in which the debtor guarantees to the creditor the fulfillment of a principal obligation, subjecting for the faithful compliance therewith a real property in case of non-fulfillment of the obligation at the time stipulated Characteristics features: 1. 2. 3. 4. 5. 6.

It is a real right It is an accessory contract It is indivisible and inseparable It secure all kinds of obligations The property cannot be appropriated The mortgage is a lien

Object: 1. Immovables 2. Alienable rights in accordance with the laws, imposed upon immovables Kinds: 1. Legal mortgage 2. Voluntary or conventional 3. Equitable mortgage Page 69 of 190

Essential requisites 1. constituted to secure the fulfillment of a principal obligation; 2. mortgagor is the absolute owner of the thing mortgage; 3. person constituting the mortgage has the free disposal of thing being mortgage, and in the absence thereof, he is legally authorized for that purpose; 4. the document in which it appears must be recorded in the Registry of Property (Art 2085 and 2125) Equity of redemption – the right of the mortgagor to redeem the property mortgaged after his default in payment but before the sale. Right of redemption – the right of the mortgagor to redeem the mortgaged property within a certain period after it was sold to a third person.

ELEMENTS (PLEDGE – CHATTEL MORTGAGE – REAL ESTATE MORTGAGE)

Pledge

Chattel

1. Accessory contract as security 2. Pledgor- absolute owner 3. Pledgor has free disposal of the thing pledged 4. Thing pledged may be alienated, if debtor cannot pay 5. Thing pledge must be delivered to the creditor or the creditor must be in possession

Real Estate

Same Same

Same Same

Same

Same

Same

Same

None

None

DISTINCTIONS Pledge 1. Object

Personal or movable property

Chattel Mortgage Personal or movable property

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Real Estate Mortgage Real or immovable property and interest

2. Right to sell

Cannot be sold except with the consent of the pledgee – written or oral

Cannot sell without the consent of the creditor, which must be in writing and annotated on the instrument

Can sell even without the consent of the mortgagee

3. Effect to third person

Description of the thing pledged and the date of pledge must appear in a public instrument

There must be an affidavit of good faith and must be recorded in the chattel mortgage registry

Recorded in the Registry of property

 If it is more: creditor is entitled to the excess unless otherwise stipulated  If it is less: creditor cannot recover the deficiency even if there is stipulation* *the stipulation is void

 More: creditor not entitled to excess  Less: can recover the deficiency

 More: not entitled to the excess  Less: can recover the deficiency

4. Effect of sale

Self-Assessment Questions 1. Recording in the Registry of Property in the appropriate book is required for the validity of the contract of: A. Chattel mortgage C. Conventional pledge B. Real mortgage D. Antichresis

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2.Chattel mortgage as distinguished from pledge: A. the excess over the amount due after foreclosure goes to the debtor B. the sale over the object in an auction extinguishes the obligation C. the delivery of the personal property is necessary D. the registration of the property in the Registry of Property is not necessary. 3. The following are essential requisites common to pledge and mortgage except one: A. they are constituted to secure the fulfillment of a principal obligation B. the pledgor or mortgagor is the absolute owner of the thing pledged or mortgaged C. the contract of pledge or mortgage is registered with Register of Deeds D. the person constituting the pledge or mortgage has the free disposal of the thing or he is legally authorized for the purpose. 4.Andy pledged his Toyota car to Ben for a loan of ₱ 1M. Andy was unable to pay the loan and therefore Ben sold the car in a public auction but it was sold only for ₱ .5M. Can be recover the deficiency from Andy? A. No, he cannot recover the deficiency in the absence of contrary stipulation B. No, he cannot even if there is an agreement that he can C. Yes, he can even in the absence of stipulation allowing him D. No, because recovery can be had only in legal pledge. 5. Stmt 1: If the agent contracts in the name of the principal and the principal does not ratify the contract, the contract shall be void if the party with whom the agent contracts is aware of the limits of the agent’s authority. Stmt 2: A third person cannot set up the fact that the agent exceeded his authority if the principal has ratified or has signified his willingness to ratify the agent’s acts. A. Both statements are true B. Both are false C. First is false, second is true D. First is true, second is false. 6.This is a mode of extinguishing an agency: A. Death of the principal, but the agency is for the interest of the principal and agent B. Partial accomplishment of the agency C. Upon withdrawal of the principal D. Insanity of principal or agent

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7.Papa appointed Anak to manage his business before leaving for abroad. While abroad Anak wrote Papa that he was withdrawing from the agency due to health reasons and that he appointed Bez as his substitute and that Papa should extend an appointment to Bez. Bez took over the administration but Papa did not make the necessary appointment. When required to account for his transactions, Bez alleged that he is not the agent of Papa due to lack of appointment from the latter. Decide the kind of agency: A. Implied agency B. Express agency C. Agency by necessity D. Agency by estoppels 8.The agent is responsible for the acts of a substitute which he appoints in the following instances. Which is not included? A. When he was not given the power to appoint one B. When he was prohibited from appointing one C. When he was given the power to appoint one, but without designating the person, and he appointed incompetent one in good faith D. When the principal designated the person to be appointed. 9.The following is required in order that a chattel mortgage will bind third persons. A. The chattel mortgage must be accompanied by an affidavit of good faith and recorded in the Chattel Mortgage Register. B. The chattel mortgage must be in a public instrument showing a description of the thing mortgaged and the date of the chattel mortgage. C. It is sufficient that the chattel mortgage be in writing, public or private. D. The thing mortgaged must be delivered to the creditor. 10.The following may be the object of pledge, except: A. All movables within the commerce of men which are susceptible of possession B. Bills of lading C. Shares of stocks D. Parcels of land 11.A pledge is extinguished through any of the following, except: A. Sale of the thing pledged B. Appropriation of the thing pledged after the thing is not sold at one public auction C. Written abandonment of the pledge in writing D. Return of the thing pledged. 12.In order for a contract of antichresis to be valid: A. It must be in writing, whether public or private Page 73 of 190

B. It must be in a public instrument C. It may be in any form, whether oral or written D. May be inferred from the conduct of the parties. 13.In a contract of pledge, the pledge/creditor may do the following, except to A. Use the thing pledged for the purposes of preservation. B. Retain the thing pledged until the principal obligation is satisfied. C. Ask for a substitute if he was deceived on the substance or quality of the thing pledged D. Sell the thing pledged without notice to the pledgor/debtor. 14.D pledged his diamond ring and gold watch to C to secure a debt of P10,000. A. If D defaults and the ring and watch are sold at a public auction, C may recover any deficiency if the proceeds of sale amounts to less than P10,000. B. If D defaults, C may automatically appropriate for himself the ring and the watch. C. If D pays C P5,000, D may demand either the return of the ring or the watch. D. If C renounces the pledge in writing, the pledge is extinguished although C continues to possess the ring and the watch. 15.A contract of agency has the following characteristics except that it is not A. A consensual contract B. An accessory contract C. A nominate contract D. A bilateral contract. 16.One of the following acts may be delegated by a principal to his agent. Which is it? A. Vote during the meeting of stockholders of a corporation where the principal is a stockholder. B. Attend meetings of the board of directors of a corporation where the principal is a director. C.Purchase land in the Philippines of which the principal is an alien D. Represent the principal in a marriage ceremony where the principal is a party to the marriage contract. 17.One of the following acts requires a special power of attorney granted by the principal to his agent. Which is it? A. To make gifts to employees in the business managed by the agent. B. To borrow money which is urgently needed to preserve the property of the principal under the administration of the agent. C. To make payments for purchases in the ordinary course of the business. Page 74 of 190

D. To lease the real property of the principal to another person for more than one year. 18. The following are characteristics of a contract of real mortgage except one: a It Is a real right. c. it is indivisible b It can secure all kinds of obligation d. It is principal contract 19. The following are essential to the contracts of pledge except one: a The pledgor must be the absolute owner of the thing pledged. b The pledged was constituted to secure the fulfillment of a principal obligation. c Persons constituting the pledge must have the free disposal of their property or legally authorized to pledge a thing in favor of a principal. d The principal obligation must be free from any defect. 20. Which of the following is common requisite for pledge, chattel, mortgage and antichresis? a The amount of principal and interest must be in writing. b The property must be in the possession of the creditor. c To bind third person they must be duly recorded in the office of the Register of Deeds. d It is constituted to secure the fulfillment of the principal obligation. 21. Agreement giving a person the right to enjoy the thing as well as its fruits a b

Quantum meruit Quantum valebant

c d

22. This is an accessory contract a. Sales b. Mutuum 23. These are real contracts, except a. Commodatum b. Deposit

Usufruct Pacto de retro sale

c. Commodatum d. Mortgage c. Pledge d. Chattel Mortgage

24. Ownership is retained despite delivery, except a. Commodatum b. Mutuum c. Universal partnership of profits d. On trial or satisfaction 25.

Which of the following statements is true? Page 75 of 190

a. If a principal appoints an agent in writing with respect to the sale of a piece of land and the latter sold it to a buyer orally, the contract between the agent and the buyer is void b. A contract of agency is generally gratuitous c. To lease personal property to another person for more than one year does not require a special power of attorney d. The insolvency of the principal but not the agent shall extinguish the agency 26. The “power to sell” includes three of the following. Which is the exception? a. The power to execute the necessary transfer documents b. The power to sell on credit c. The power to receive the price, unless he was authorized to solicit orders only d. The power to fix the place, time and mode of delivery 27. The principal in not liable for the expenses incurred by the agent a. If the agent acted in contravention of the principal’s instruction b. Expenses were due to the fault of the agent c. Agent incurred them knowing that an unfavourable result would ensue, and the principal was not aware thereof d. All of the above 28. A commission agent a. Has the option to act in his own name b. Generally, cannot sell on credit c. May be an agente del credere if he receives guaranty commission d. All of the above 29. Three of the following requires a special power of attorney. Which is the exception? a. Accept inheritance b. To waive obligation gratuitously c. To bond the principal in a contract of partnership d. Making a reasonable gift 30. a. b.

Bears risk of collecting from the buyer the price of the sale Commission agent c. Delegation Quasi-tradition d. Agente del credere

Activity Page 76 of 190

1. Eugene borrowed money from Ai and gave a piece of land as security by way of mortgage. It was agreed between the parties that upon non-payment of the loan, the land would already belong to Ai. If Eugene failed to pay the debt, would Ai now become the owner of the land? Justify your answer. 2.Natalie mortgaged her residential land to Zach as a guarantee for the payment of ₱400,000 obligations to Zach. They agreed that Natalie should not sell the land while the obligation exists. Before the maturity of the mortgage, Maria offered to buy the land from Natalie. Can Natalie sell the land despite the agreement? Why? 3. A uses a savings account with a bank. The contract between A and the bank is one of a Agency c. Deposit b Commodatum d. Mutuum 4. A contract of mortgage involving an immovable property extends to the following, except one: a Future properties of the mortgagee. b Natural accessions of the property mortgaged. c Improvements on the property mortgaged d Rents or income of the property mortgaged not yet received when the obligation becomes due. 5. A sold a b

void stipulation fixing the price at which the property will be at a foreclosure sale. Auction price c. upset price Option money d. contract price

6. A pledged his watch to Mr. Tambunting for P 10,000. On due date, A failed to redeem his watch. The pawnshop sold the watch at a public auction to the highest bidder at P 9,000. Can the pawnshop recover the deficiency? Explain. 7. If the proceeds of the sale of the thing pledged sold at public auction is less than the principal obligation, can the creditor recover the deficiency from the debtor? 1st answer: Yes, the creditor is entitled to recover the deficiency from the debtor. 2nd answer: No, unless there is a stipulation to that effect in the contract of pledge. If there is an incorrect answer, what made it wrong? Page 77 of 190

8. A creditor, through a contractual arrangement made within Mr. Benitez, is to receive the rental of the Benitez apartment buildings in Quezon City with the obligation to apply them to the payment of the interest and thereafter to the principal of his credit. This contract is a valid: a Pledge c. Antichresis b Mortgage d. Guaranty 9. Annie, Elsie and Tess are solidarily liable for P6,000 to Buknoy, payable in 6 months’ time with interest of 10% a month. Elsie gave in pledge a P10,000 diamond ring as security for the amount borrowed. How much can buknoy collect from Elsie? Reason? 10. If in the situation given above, the diamond ring is returned by agreement to Elsie. a The total principal obligation is extinguished. b Only P2,000 of the obligation is extinguished. c Only P3,000 of the obligation is extinguished. d Principal obligation is not extinguished at all. 11. A borrowed from B P50,000. A offered his house by way of mortgage. It was expressly stipulated that upon non-payment of the debt on time, the house would belong to B. this forfeiture clause, which has traditionally not been allowed is called a a b c d

Caveat emptor Pactum commissorium Dacion en pago d. Pacto de Recto

12. A owes B the sum of P10,000. A pledged his laptop as a security. Later, A borrowed an additional sum of P5,000 from B. A paid B the P10,000 and demands the return of the laptop which was the property pledged. B refused. Can A compel B to return the laptop? Explain. 13. Which of the following statement is(are) false? Explain on what made the statement false. a Any stipulation in a contract of pledge authorizing the pledge to sell the thing pledge if the pledger cannot pay is void.

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b In mortgage, the mortgagee is entitled to the entire proceeds of the sale of the thing mortgaged. c In mortgaged, title of the property which is the subject matter of the of the contract is transferred to other party. 14. A borrowed P30, 000 from B, as a security, he pledge his ring, pair of earrings and necklace. On due date, A paid P20, 000. Can A demand the return of any of the thing pledged? Explain. 15. A borrowed P100, 000 from B, and as a security, A pledge his ring to B. After the obligation falls due, A goes to B relinquishing ownership of the ring in favor of B. This is: a cavear emtor b. dacion en pago b pactum comisorio d. pacto de retro 16. Min Co. wrote a circular letter to its customers introducing a certain Arco as its duly authorized agent. Cruz, a customer dealt or transacted business with Arco. Later, Arco’s authority was revoked and was published in a newspaper of general circulation. Not withstanding his knowledge of such revocation, Cruz continues to transact business with Min Co. thru Arco. Is Min Co. still liable for the agent’s act even after revocation? Explain. 17. Paul appointed Ado his agent to sell his specific car in cash for P100,000 with 10% commission. Ado using persuasive skills was able to sell it for P150,000 on credit. After the sale but before payment of the buyer a. Ado must give P100,000 only b. Ado must give P100,000 minus the commission c. Ado must give the P150,00 minus the commission d. Ado must give P150,000 and in turn is to give Ado P50,000 as commission Justify your answer. 18. Phil appointed Abel as his agent to borrow P50,000 from Carlo, Abel borrowed P50,000 but acted in his name. Upon maturity, who is liable? And why? 19. Without Paul’s authority, Ado (agent), sold Paul’s car to Felix in Paul’s behalf. The contract is a. Unauthorized c. Unenforceable Page 79 of 190

b.

Subject to ratification

d. All of the above

20. Pablo appointed Abe as his special agent to sell a specific land for P100,000. Pablo sends Abe his papers of appointment including a letter addressed to Zen notifying the latter of the appointment of Abe as his agent. Ten days after, Pablo revoked the agency and published it in a newspaper of general circulation. Zen did not read the newspaper publication, but has got actual knowledge of the revocation. Later, Abe and Zen transacted business. Is the act of Abe binding against Pablo? a. Yes, because Abe and Zen are in good faith b. No, Zen having knowledge of the revocation is considered in bad faith c. Yes, because Zen was not given a special notice of revocation d. Yes, the appointment of Abe is by special information, the revocation must also be by special information 21. An agent with general powers of administration given to him by the principal in writing, desirous of improving the financial condition of this principal, sold two parcels of rice land, one for less than the price appearing in the inventory prepared by the principal, and the other for double the price that appeared in the said inventory a. The sale for double the price appearing in the inventory is binding upon the principal b. The two contracts cannot be enforced against the principal c. The sale for less than the price appearing in the inventory is binding upon the principal d. Both contracts are binding upon the principal 22. Pablo appointed Arnold to sell to the former’s car for P300,000. Arnold sold the car to Juan for P200,000 but Arnold acted in his own name. After delivery Juan inspected the car and he found hidden defects in the car. Can Juan file an action against Pablo even when Arnold acted in his own name? a. No, under “caveat emptor” let the buyer beware b. Yes, because this is a contract involving property belonging to the principal c. No, because Arnold acted in his own name not of the principal d. No, because the contract of sale is already perfected REFERENCES Pasimio,R.,(2001). Effective CPA Reviewer in Business Law. Metro Manila: National Book Store.

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CHAPTER 5 PARTNERSHIP Chapter Objectives 1. Distinguish the nature from Corporation 2. Explain the formalities required 3. Identify the rules of management 4. Explain the distribution of profits and losses 5. Explain the sharing of losses and liabilities 6. Describe the modes and retirement requirements 7. Explain limited partnership Lesson 1 General Provisions Contract of Partnership – two or more persons bind themselves to contribute money, property, or industry to a common fund, with an intention of dividing the profit among themselves. Essential features of a partnership - VIMP 1. VALID contract 2. INTENT to engage in lawful business, trade or profession 3. MUTUAL contribution of Money, property or industry to common fund 4. Purpose is to secure PROFIT and to divide the same among the partners Art 1769 – Receipts of a share of the profit of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profit received in payment of – WADIG 1. W – WAGES of an employer 2. A – Annuity to a widow of a deceased partner 3. D – Debt by installment or otherwise 4. I – Interest on loan 5. G – consideration for sale of GOODWILL of a business Estoppel – Art 1431 of the Civil Code defines estoppel as a condition or state by virtue of which an admission or representation is rendered conclusive upon the parties making it, and cannot be denied or disapproved as against the person relying thereon. Kinds of estoppel: Page 81 of 190

- Estoppel in pais or by conduct – representation or admission to induce another to believe certain fact to exist when in fact they do not exist is not permitted later on to deny the existence of such fact. - Estoppel by deed – arises when a party to a deed is precluded from asserting as against the other party - Estoppel by laches (lapse of time) – arises when a person for an unreasonable length of time failed or neglected to assert a right which rightfully belongs to him. (stale demand or sleeping on your right). Exception to the rule that a contract of partnership may be entered into in any form: 1. Immovable property or real rights are contributed 2. Capital is 3K or more, it must be in public instrument and must be recorded with SEC. Art 1772 3. Contract of partnership is void whenever immovable property is contributed thereto and an inventory of said property is not made, signed by the parties and attached in public instrument. Art 1773 Kinds of Partnership According to object: 1) Universal partnership a) Universal partnership of all present property – whatever is contributed become part of the partnership fund b) Universal partnership of profit – whenever is contributed, the contributing partner is the owner, What passes to the partnership is the use and usufruct of the thing 2) Particular partnership – has for its object determinate things, their use or fruits, or a specific undertaking or the exercise of a profession or vocation. (example: General Professional Partnership or GPP) According to duration: 1. Fixed term or particular undertaking 2. No definite period According to liability: 1. General – all partners are liable to the extent of their separate property 2. Limited – the limited partners are liable only to the extent of their personal contribution. Kinds of Partners: 1. Capitalist – furnishes the capital 2. Industrial – furnishes industry or labor 3. General – liable beyond the extent of contribution 4. Limited – liable only to the extent of contribution Page 82 of 190

5. Managing – one who actively manages the affairs of the firm 6. Silent – one who does not participate in the management though he shares in the profit and losses 7. Liquidating – one who liquidates or winds up the affairs of the firm after it has been dissolved 8. Ostensible – who whose connection is public and open 9. Dormant – one who is both a secret (hidden) and silent (not managing) partner 10. Secret – one whose connection is concealed or kept a secret 11. Nominal – one who is not really a partner but may become liable as such insofar as third persons are concerned. He is otherwise known as partner by estoppel Lesson 2 Obligation of a Partner to the partnership 1. To give his contribution (Art 1786, 1788) 2. Not to engage in unfair competition with own firm (Art 1808) 3. Pay damages due to his fault (Art 1788) 4. To hold as trustee unauthorized personal profit 5. Duty to credit to the firm payment made by the debtor who owned him and the firm (Art 1792) Rights of a Partner: 1. Right to associate another person to his share (Art 1804) 2. Right to inspect and copy partnership books (Art 1805) 3. Right to demand formal account (Art 1809) 4. Right to ask dissolution of the firm at the proper time (Art 1803) 5. Right to receive profit from the partnership Art 1809 – When partners entitled to formal accounting – CAWA 1. C – other CIRCUMSTANCES rendering it just and reasonable 2. A – AGREEMENT of partners 3. W – WRONGFULLY excluded from partnership business 4. A – Article 1807 Three important duties of every partner contributing a specific thing 1. The duty to contribute what he promised to contribute 2. The duty to deliver the fruits of what should have been delivered 3. The duty to warrant the thing delivered Lesson 3 Property Rights of a Partner Property rights of partners – SIM 1. S – right in SPECIFIC partnership property 2. I – INTEREST in the partnership 3. M – right to participate in the MANAGEMENT

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Art 1818 – Except when authorized by the other partners or unless they have abandoned the business, one or more but less than all the partners have no authority to – RIC GACA 1. R – RENOUNCE acclaim of the partnership 2. I – do acts would make it IMPOSSIBLE to carry on the ordinary business 3. C – COMPROMISED partnership claim or liability 4. G – dispose of GOODWILL of business 5. A – ASSIGN partnership property 6. C – CONFESS judgment against partnership 7. A – submit claim or liability to ARBITRATION 1. 2. 3. 4.

CAPITALIST INDUSTRIAL PARTNER Contribution Prohibition to engage in other business Profit Losses Money or property

Cannot engage in the same or similar kind of business unless permitted by the other partner. According to the agreement; if none, pro-rata to his contribution Stipulation Profit sharing Pro-rata to contribution Industry Cannot engage in any kind of business unless permitted to do so. Just and equitable share Industrial partner is exempted from losses as between partners. Liable to third persons, with the right to ask for reimburse form capitalist partner Can demand information of partnership affairs: 1. Any partner 2. Legal representative of a dead partner 3. Legal representative of any partner under legal disability Property rights of a partner in a partnership 1. Right to the specific partnership property 2. Interest in the partnership 3. Right to participate in the management of the partnership Lesson 4 Dissolution and Winding Up of Partnership Art 1830 – Some causes for dissolution (automatic) of partnership – DIC LU Page 84 of 190

1. D – DEATH of a partner 2. I – INSOLVENCY of a partner or partnership 3. C – CIVIL INTERDICTION of any partner 4. L – LOSS of thing promised to be given before its delivery to the partnership; or its loss before or after delivery to the partnership where ownership is reserved by the partner 5. U – it is UNLAWFUL for the business of the partnership to be carried on or for the partners to carry it on in partnership. Art 1831 – Judicial dissolution – BIG LIE 1. B – BREACH of agreement persistently committed by a partner that it is not practicable to carry on the business with him 2. I – INSANITY of the partner 3. G – partner GUILTY of conduct prejudicial to partnership business 4. L – LOSS to be suffered if the business is continued 5. I – partner becoming INCAPABLE of performing his part of their partnership contract 6. E – EQUITABLE circumstances requiring dissolution Causes of dissolution of a limited partnership - DRICI 1. D – death 2. R – retirement 3. I – insanity 4. C – civil interdiction 5. I – insolvency Note: the instances enumerated are applicable only to general partners. Order of preference, liquidation of a limited partnership 1. Outside creditors 2. Limited partner’s share in the profit 3. Limited partner’s return of capital contribution 4. General partner’s aside from profits and capital 5. General partner’s profit 6. General partner’s return of capital contribution Art 1839 – How obligation of insolvent partner paid – SPC 1. S – SEPARATE creditor 2. P – PARTNERSHIP creditor 3. C – owning to the partner by way of CONTRIBUTION Art 1850 – Acts which cannot be perform by general partners without consent or ratification by all limited partners – PACICAC 1. P – POSSES partnership property or assigned their right in specific partnership purpose Page 85 of 190

2. A – ADMIT a general partner 3. C – do any act in CONTRAVENTION of a certificate 4. I – do any act which would make it IMPOSSIBLE to carry on the ordinary business of the partnership 5. C – CONFESS judgment against the partnership 6. A – ADMIT a limited partner unless empowered by the certificate 7. C – CONTINUE business on the death Art 1851 – Right of a limited partner: 1. To have partnership books kept in the principal place of business 2. To demand true and full information of all things affecting the partnership 3. To have dissolution and winding up by decree of the court 4. To receive profits from partnership 5. To demand return of his contribution when such right exists Art 1857 – When limited partner may rightfully demand return of his capital contribution – DAD 1. D – DISSOLUTION of partnership 2. A – AFTER giving 6 months notice in writing to all members asking return of his contribution or dissolution of partnership 3. D – DATE fixed for return of contribution has arrived

Self-Assessment Questions 1. One of the following is not a characteristic of contract of partnership. A. Real, in that the partners must deliver their contributions in order for the partnership contract to be perfected B. Principal, because it can stand by itself C. Preparatory, because it is a means by which contracts will be entered into D. Onerous, because the parties contribute money, property, industry to the common fund 2. Three of the following are the effects if immovable property is contributed in a partnership but the contract did not appear in a public instrument. Which is the exemption? A. A partnership has no judicial personality. B. The parties may compel each other to observe the required form. Page 86 of 190

C. The parties may request the return of their capital contribution. D. The contract of partnership is void. 3. A substituted limited partner is: A. a person admitted as a partner by the other partners. B. a buyer of right of the deceased partner. C. an assignee admitted to all the rights of a limited partner. D. all of the above. 4. A and B are capitalist partners with C as industrial partner. A and B contributed P20,000 each to the capital of the partnership. A contractual liability of P50,000 was incurred by the partnership in favor of X. The assets of the partnership has been exhausted still leaving an unpaid liability of P12,000. What are the rights and obligation of the partner, if any? A.A and B only B. C only C. A, B and C are liable to X and C after giving his share may ask reimbursement D.C has no right for reimbursement from A and B unless stipulated. 5. Which of the following is false when no one among the partners was appointed as manager? A. each partner will be considered as agent of the partnership B. any one may take an important alteration in the immovable property of the partnership without the consent of the others provided it is useful to the partnership C. In case the act of one partner is opposed by another, the decision of the majority of the partners will prevail. D. In case of a tie in the voting, the tie shall be resolved by the vote of the partner owning the controlling interest. 6. The partnership will bear the risk of the loss of three of the following things. Which is the exception? A. things contributed to be sold. B. fungible things C. things contributed so that only their use and fruits will be for the common benefit. D. things brought and appraised in the inventory. 7. Which of the following statements is incorrect?

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A. partnership creditors are preferred as to partnership assets. B. partnership creditors are preferred as to each partner’s separate assets. C. a partner’s separate creditors are preferred as to the partner’s separate assets. D. a partner’s separate creditors may attach a partner’s share in the partnership assets 8. Which of the following is not correct? A. A – cash (Ltd.); B – cash (Gen.); C – service (Gen.) B. A – property (Ltd.); B – cash (Gen.); C – service (Gen.) C. A – service (Ltd.); B – cash (Gen.); C – service (Gen.) D. A – cash (Ltd.); B – property (Gen.); C – service (Gen.) 9. A, B and C are partners in a partnership. A and B contributed P10,000.00 each while C contributed his service. After payment of the partnership liabilities to creditors, only P6,000.00 remains. In the absence of stipulation to the contrary, the share of C shall be: A. Equal to the share of A. B. P2,000.00 C. Equal to the share of B D. Nothing 10. The following are disqualified to form a universal partnership except one: A. Brother and sister B. Husband and wife C. Those guilty of adultery or concubinage D. Those guilty of the same offense, if the partnership is entered into a consideration of the same. 11. A is the capitalist partner and B the industrial one. A engaged personally in the same kind of business as that of partnership: A. If there are losses, the partnership will bear the losses. B. If there are profits, they will be shared by A and the partnership. C. If there are profits, A shall give them to the partnership. D. A may be excluded from the partnership with damages. 12. A and B orally entered into a partnership with each of them contributing P3,000.00 each and some personal properties in the amount of P1,000.00 each. The partnership contract is:

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A. Unenforceable because the amount involved exceeds P500.00. B. Void because it is not in public instrument. C. Valid. D. Void because it is not registered with SEC. 13. Which of the following statements is not correct: A. A partnership contract is not covered by the statue of frauds. B. A limited partner shall not be bound by the obligation of the partnership. C. A limited partner who takes part in the control of the business shall be liable as a general partner. D. A stipulation which excludes a partner from sharing in the profits or loss is void. 14. A Universal Partnership is void except: A. An inventory is not made when an immovable property is contributed. B. If the purpose or object is against the law, morals, public order, public policy and custom. C. When made by persons who are prohibited in giving each other donation. D. When there is no agreement as to profits and losses. 15. M, T, and E decided to form a universal partnership of all present property. The contract of partnership was executed on October 10, 2010 but they commenced business on October 18, 2011. One of the following is incorrect. a. If the partnership is for 15 years, but one of the partners withdraws from the partnership on the 12 th year, the firm is dissolved b. The partnership began its existence on October 10, 2010 c. If after the expiration of its term, the partners continue to transact business, the partnership is converted to a partnership at will d. In the absence of any partnership agreement specifically covering the division of losses among the partners, they will be deemed to share the losses in accordance with their capital contributions 16. Partners A, B, and C met a tragic accident. A and B instantly died on the spot, while C was brought to the hospital but died a few hours later. Who may wind-up partnership affairs? Page 89 of 190

a. b. c. d.

Legal representative of A Legal representative of B Legal representative of C The court should appoint a representative who will wind-up the affairs.

17. Partners A, B and C agreed to form Y Partnership. It was orally agreed that A would contribute P20, 000, B P15, 000, and C P5, 000. It was also orally agreed that in the event the venture proved to be a financial loss, all losses above the amounts of capital contributed would be assumed by A. there were no other express agreement. Under these circumstances, which of the following is correct? a. Profits are to be divided in accordance with the wish of A being the major contributor b. Profits are to be divided equally c. The partnership is a nullity because the agreement is not contained in a signed writing d. Partnership is valid notwithstanding failure to put the agreement in a public instrument 18. In the preceding question if after exhausting the partnership capital of P40, 000, there is still a liability to X in the amount of P40, 000 the liability of the partners to X will be: a. A, P20, 000; B P15, 000; and C P5, 000 b. A will shoulder all P40, 000 because that was their agreement c. Another agreement will be executed as to who will answer losses d. All of them will be liable to X 19. Which of the following is true with respect to a limited partner? a. Must not own limited-partnership interests in other competing limited partnership b. Is automatically an agent for the partnership with apparent authority to bind the limited partnership in contract c. Has no liability to creditors even if he takes part in the control of the business as long as he is held out as being a limited partner d. Should not contribute industry

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20. A, B, and C formed a Universal Partnership of profits. The partners contributed the following: A – 20 sewing machines B – 14 Furniture and Fixtures C – 4storey building The parties agreed that only the use and fruits of the objects contributed shall pertain to the partnership. Which of the following statements is true? a. The partnership upon delivery shall be the owner of the objects contributed b. Upon dissolution, the objects shall be converted into cash and the proceeds shall be divided equally among the partners including the fruits c. During the term of the partnership, the contributing partner remains to be the naked owner of the object contributed but upon dissolution all objects contributed are to be converted into cash and proceeds shall be divided equally among the three partners d. During the term of the partnership, the loss of the objects contributed shall be borne by the partners concerned. 21. If a partner assigns his interest in the partnership to his personal creditor or to a third person for value, the assignee acquires the right to a. Demand an accounting of partnership affairs b. Inspect the books and records of the partnership c. Receive the partner – assignor’s share of the profits d. Interfere in the management of the partnership 22. The partners agreed that only the use and fruits of the of the object contributed shall pertain to the partnership (Universal partnership of profits). Which of the following statements is true? a. The partnership upon delivery shall be the owner of the objects contributed b. Upon dissolution, the object shall be converted into cash and the proceeds shall be divided equally among the partners including the fruits c. During the term of the partnership, the contributing partner remains to be the naked owner of the object contributed thereto but upon dissolution, all objects contributed are to be converted into cash and proceeds shall be divided equally among the partners

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d. During the term of the partnership, the loss of the objects contributed due to fortuitous events shall be borne by the partner concerned except if the objects contributed is fungible

Activity 1. 1st statement: A person admitted as a partner into an existing partnership is not liable for obligations of the partnership contracted before his admission. 2nd statement: The designation of losses and profits may be entrusted to one of the partners. If there is a false statement, what made is wrong?

2. 1st statement: The general partners may continue the business of the limited partnership with the partnership property on the death, retirement, civil interdiction or insolvency of another general partner. 2nd statement: The sharing of gross returns is prima facie evidence that one is a partner in the business. If there is a false statement, what made is wrong?

3. 1st statement: One of the partners in a proposed partnership is a multi-millionaire. The stipulation in the contract of partnership that this partner shall be exempted from sharing in the profit earned by the partnership is valid. 2nd statement: A person may be a general partner and a limited partner in the same partnership at the same time. If there is a false statement, what made is wrong?

4. 1st statement: A stipulation which excludes one or more partners from any share in the profits or losses is void. 2nd statement: A partnership may not enter into another partnership with another person or another partnership. If there is a false statement, what made is wrong? Page 92 of 190

5. 1st statement: A partnership may be established for charity. 2nd statement: Persons who are prohibited from giving each other any donation or advantage cannot enter into universal partnership. If there is a false statement, what made is wrong?

6. A is managing partner of A and B Company. X is debited to A for P20,000 and to the partnership for P60,000. When both debts mature, X pays A for P20,000 and the latter issues a receipt for his personal credit. The payment for P20,000 shall be applied:

7. XYZ partnership composed of three (3) capitalist partners and one industrial partner suffered business losses. Its remaining assets amounting to P100,000. The partnership is indebted to its supplier in the amount of P160,000. How can the suppliers recover the P60,000?

8. A and B formed the limited partnership with A as general partner, B as limited partner and C as industrial partner. A and B contributed P50,000 each. The partnership failed and after disposing all its assets to pay partnership debts there still remains a note payable in the sum of P30,000. How much is the liability of each partners?

9. A limited partnership formed in 2009 by X as general partner and Y and Z as limited partners. In 2010, X and Z got married. Did the marriage dissolve or change the form of the partnership? 10. A, B and C are partners in a joint venture engaged in real estate and land development. A without the knowledge of B and C offered to sell to D all remaining unsold lots at a price very much higher than the prevailing market prices. Later, A bought out B and C from the partnership and thereafter finally sold out the lots at a very big profit. 1st conclusion – when A bought out B and C from the partnership, the partnership was dissolved so B and C have no more share in the profit of the sale. 2nd conclusion – the sale of the lots between A and D is void because it was without the knowledge and consent of B and C. Which conclusion is correct? Why? Page 93 of 190

11. X, Y and Z are partners and contributed to the partnership P40,000, P3,000 and services, respectively. The partnership was later liquidated and after payment of the partnership indebtedness, only P20,000 worth of assets remained. How much is the share of Z? How did you come up with your answer? 12. A, B and C are partners engaged in retail business. Their contribution is P20,000 each. D is admitted as new partner with a contribution of P8,000. At the time of his admission, the partnership has an outstanding obligation to E in the amount of P80,000. In this case, who is/are liable to pay the obligation? How will they divide the liability?

13. J, A, and W are partners in JAW Enterprises. The partners requested S, a well-known businessman, to help them negotiate a loan from C, a money lender. With the consent of J, A, and W, S represented himself as a partner of JAW enterprises. Thereafter, C granted a loan of 150,000 to JAW enterprises. Assuming JAW was unable to pay the loan on due date at which time the assets of the partnership amounted to 120,000, from whom may C collect the payment? 14. P enterprises, a partnership engaged in the business of renting out video films, is owned by P, A, T, O, and K, with K as the manager. D owes P enterprise 6,000 and O for 4,000. Both debts are unsecured and are already due. D pays O 4,000 for which O issues her own receipt. To whom will the payment will be applied? And how?

15. A and B orally agreed to form a partnership two years from today, each one to contribute P10,000. At the arrival of the said, if one refuses to go ahead with the agreement, can the other enforce the agreement? Reason?

16. X, Y and Z are partners in Ace & Co. W represented himself as a partner in the said partnership to A, who, on the faith of such representation, granted P1M loan to the partnership. Assuming only

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X and Y consented to such representation, who shall be liable to A? How will they share the liability? Explain. 17. A, B and C are general partners in merchandising firm. Having contributed equal amounts to the capital, they also agreed on equal distribution of whatever profits is realized per fiscal period. After two years of operation however, C conveys her whole interest in the partnership to D, without the knowledge and consent of A and B. In case of dissolution, is C’s consent needed? Why?

18. Spouses A and B formed a limited partnership to engage in real estate business and A contributed P1M only. Is the partnership between the spouses valid? Explain.

19. W, X, Y and Z organized a general partnership with W and X as industrial partners and Y and Z as capital partners. Y contributed P.5M and Z contributed P.2M to the common fund. By a unanimous vote of the partners, W and X were appointed managing partners, without specification of their duties and powers. A applied as secretary and B applied as secretary and B applied as accountant of the partnership. Suppose the hiring of B was decided upon by W and Z, but was opposed by X and Y, whose decision shall prevail? Explain.

20. A and B are capitalist partners while C is industrial partner. Both A and B equally contributed P15,000.00 each to the capital. A contractual liability in favor of X was incurred in the amount of P40,000.00. After exhausting partnership assets there is a balance recoverable from? And how much from each partners?

21. A, B and C are partners in a partnership in retail with each contributing P20,000.00 each. D is admitted as a new partner with a contribution of P8,000.00. At the time of his admission, the partnership has a pre-existing obligation to E in the amount of P80,000.00. How much is D’s Liability?

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22. CPs are capitalist partners while IP in industrial partner, who in addition to his services also contributed capital to the partnership. There is no agreement as to the profits and losses. The partnership realized profit in the amount of P21,000.00. The share of IP as CP in the profits shall be:

23. I. A universal partnership of present property shall include the profits which the partners may acquire therewith such as properties to be acquired through legacy, donation or inheritance. II. After dissolution, the partners may still enter into contracts in the name of the dissolved partnership if for purpose of winding-up. If there is a wrong statement, what made it incorrect?

24. A, B and C as partners contributed the P6,000.00; B – P4,000.00 and C – service. They profits and losses shall be distributed as follows, to – 25% and C – 40%. How shall the loss of distributed? What is the rule?

following: A – agreed that the wit: A – 35%; B P10,000.00 be

25. A, B and C were partners. While acting within the scope of his authority in the conduct of business, A committed a tort against X, a third person. Who shall be liable and to what extent?

26. A and B are partners in buying and selling cars. A, by the partners’ agreement, was authorized to buy only in cash. One day, A bought on credit a car from X, a client, who did not know of A’s lack of authority. A’s purchase was made in the name of the partnership. Is the partnership bound in the sale? Justify your answer.

27. A and B entered into a universal partnership of profits. Subsequently A became a professor in a university. Will A’s salary belong to the partnership? Reason?

28. A and B agreed on a profit sharing ration in their partnership. A, being the industrial partner and B as capitalist partner. It was also Page 96 of 190

stipulated that A shall also share in the same ratio as to the losses. Is A liable for losses? Why

REFERENCES Pasimio,R.,(2001). Effective CPA Reviewer in Business Law. Metro Manila: National Book Store

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CHAPTER 6 CORPORATION Chapter Objectives 1. Describe the nature and classes of corporation 2. Describe the incorporation and organization of Private Corporation 3. Enumerate the powers of a corporation 4. Identify the Board of Directors/Corporate officers 5. Distinguish the classes of stocks 6. Describe the powers, duties, rights and obligations of stockholders 7. Distinguish majority and minority control 8. Describe the By-laws 9. Explain the meetings 10. Explain corporate reorganization 11. Describe non-stock corporation 12. Explain the modes of dissolution and liquidation 13. Describe and identify foreign corporations 14. Explain the kinds and availability of books 15. Identify and describe the difference between old Corpo Code and Revised Corpo Code Lesson 1 General Provisions Corporation – it is an artificial being created by operations of law, having the right of succession, and the powers, and properties expressly authorized by law or incident to its existence. Philippine Corporation Law 1. 2. 3. 4. 5.

Provides for the formation and organization of corporation Defines the power Fixes the duties of directors and other officers Declares the right and liabilities of shareholders and members Provides the conditions under which corporations may transact business; and 6. Repeals all laws and parts of laws inconsistent with the provision of this act Sec. 2

Attributes of Corporation - CAPS

1. C – CREATED by operation of law 2. A – ARTIFICIAL being Page 98 of 190

3. P – has POWERS, attributes and properties expressly authorized by law or incident to its existence 4. S – has right of SUCCESSION Tests of determining the nationality of a corporation 1. Incorporation test – the nationality of a corporation is determined by the place of incorporation 2. Control test – the nationality id determined by the place of the controlling stockholders 3. Domicile test – the nationality is determined by the place of business Sec 2 Grounds for piercing the veil of corporate entity – SCOPA 1. 2. 3. 4.

S – to prevent evasion of STATUTE C – where corporate entity being used to defend CRIME O – all shares of stock OWNED by one person P – when corporate entity is being used to defect PUBLIC CONVINIENCE 5. A – AVOIDANCE or redress of fraud Classification of Corporation 1. Public corporation – are those formed or organized for the government of a portion of the state (example: provincial, city and municipality) 2. Private corporation – are those formed for some private purposes, benefit, aim, or end Kinds: a) Stock corporation – when capital of the corporation is divided into shares b) Non-stock – when not divided into share (minimum issue 5.00) 3. Quasi-public corporation – are private corporation performing public functions (PLDT, Phitranco, Meralco) Other classification of Corporation: 1. Close corporation – limited to selected persons; not exceed 20 stockholders 2. Open corporation – open to any person who may wish to become stockholders or members 3. Parent or holding or subsidiary corporation – related to another corporation such that it has the power, either directly or Page 99 of 190

indirectly, to elect the majority of the directors of such other corporation 4. Migratory corporation – organized under the laws of the state other than of the incorporators’ residence for the purpose of doing all or a greater part of their business in another state 5. Trading corporation – commercial engage in buying and selling 6. Tramp corporation – chartered in one state without any intention of doing business therein but in some other state 7. Ecclesiastical corporation – organized for religious purposes 8. Eleemosynary corporation – established for charitable purposes 9. Government Owned or Controlled Corporation (GOCC) – created or organized by the government or of which the government is the majority stockholder 10. Corporation by prescription – which has exercised corporate powers for an indefinite period without interference on the part of the sovereign powers and which by the fiction of law is given the status of a corporation 11. Corporation by estoppel – reality not a corporation because it is defectively formed, but is considered a corporation by reason of acts or omissions 12. Corporate sole – a corporation consisting of one person or member only, and his successors 13. Aggregate corporation – a corporation consisting of more than one member Lesson 2 Organization of Private Corporations Sec 5 Persons interested in Corporation – MPS–CIS 1. M – MEMBERS – corporators of corporation which has no capital stock 2. P – PROMOTERS – persons who understakes the formation and organization of a corporation 3. S – STOCKHOLDERS – owners of shares of a stock corporation 4. C – CORPORATORS – those compose the corporations whether stockholders or members 5. I – INCOPORATORS – stockholders or members mentioned in the articles or incorporation as originally forming and composing the corporation and who are signatories thereof 6. S – SUBCRIBERS – persons who agreed to take stocks from the corporation on the original issue of such stocks Qualification of Incorporator 1. Must be natural person 2. Must be capacitated to contract 3. Must own at least 1 share of stock Page 100 of 190

4. Majority of the incorporators must be residents of the Philippines Note: Citizenship is not a requirement except in cases provided by law Corporation be an Incorporators in a corporation

 Only natural person can be incorporator except: 1. Rural Bank 2. Stock corporation can be incorporator of a non-stock corporation Sec 6 CLABS

When even non-voting shares may be voted – MID

1. M – MERGER or consolidation of 2 or more corporators 2. I – INVESTMENT of corporate funds in another corporation or business 3. D – DISSOLUTION 4. C – increase or decrease of CAPITAL STOCK 5. L – adoption or amendment of by-LAWS 6. A – amendment of the ARTICLES of incorporation 7. B – incurring, creating or increasing BONDED indebtedness 8. S – SALE, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property Sec 6 1. 2. 3. 4. 5.

May not issue non-voting shares – BITAP

B – BANKS I – INSURANCE companies T – TRUST companies A – building and loan ASSOCIATION P – PUBLIC entities

Sec 17 PATO

When articles of incorporation may rejected by SEC –

1. P – PURPOSE or purposes of the corporation are patently illegal, unconstitutional, immoral or contrary to government rules and regulations 2. A – ARTICLES or incorporation or amendment there to is not substantially according to the form prescribed by the law 3. T – TREASURER’S affidavit concerning the amount of capital stock subscribed and or paid is false 4. O – required percentage of Filipino OWNERSHIP of capital stock has not been complied with Page 101 of 190

Sec 28

Requisites of DE FACTO CORPORATION – VEA

1. V- VALID law providing for creation of corporation 2. E – actual EXERCISES of corporate powers 3. A – bona fide ATTEMPTS to organized under existing law Sec 29 When vacancies in the board must filled by election at meeting of stockholders – LIER 1. L – whatever be the cause of the vacancy, if the remaining directors are LESS than the numbers needed to constitute a quorum 2. I – number of directors INCAPACITATED 3. E – vacancy in the board results from EXPIRATION of the term of office directors 4. R – vacancy in the board results from REMOVAL of directors Powers of the Board of Directors (BOD) 1. To exercise the powers of the corporation 2. To conduct the business of the corporation 3. To hold and control the property of the corporation Qualifications of the BOD 1. Must own at least 1 share of the capital stock 2. It must be recorded in the book of the corporation 3. Must continuously own this 1 share of stock, otherwise he ceases to be director 4. At least majority of them are residents of the Philippines Note: number of members of BOD is not < 5 but not > 15 Sec 31

Duties of directors to the corporation – DOL

1. D – duty to DILIGENCE 2. O – duty to OBEDIENCE 3. L – duty to LOYALTY Corporate Officers in a corporation 1. President – must be a director 2. Treasurer – may or may not be a director 3. Secretary – may or may not be director but must be a resident and citizen of the Philippines Page 102 of 190

Requisite for Board meeting before it will be considered as a corporate act 1. 2. 3. 4.

Notice of the time and place of meeting Meeting of directors duly assembled as a corporate board Presence of quorum (majority of the board) Decision of the majority of the quorum (corporate act)

Sec 31 When directors liable for payment of damages – GAV 1. G – guilty of GROSS negligence or bad faith in directing the affairs of the corporation 2. A – ACQUIRING personal pecuniary interest in conflict with his duty as such director 3. V – willfully and knowingly VOTING for or assenting to patently unlawful acts of the corporations Sec 32 Contract of director with corporation is not voidable when the following conditions are present – Q-FAO 1. Q – the presence of such director in the board meeting in which the contract was approved was not necessary for in constitute a QUORUM for such meeting 2. F – contract is FAIR and reasonable 3. A – vote of such director was not necessary for the APPROVAL of the contract 4. O – in the case of an OFFICER, the contract with the OFFICER has been previously authorized by the BOD Sec 36 1. 2. 3. 4. 5.

Implied powers of corporation – DIECU

D – embarking in DIFFERENT business I – acts to INCREASE its business E – acts intended to protect or aid EMPLOYEES C – acts to protect debts owing to the CORPORATION U – acts in the USUAL course of the business

Sec 36

Express powers of corporation – SLID-SAC-PROS

1. S – to SUE and to be sued 2. L – to adopt, amend or repeal by-LAW 3. I – ISSUE or sell stock in case of stock corporation and to admit member, if non-stock 4. D - make reasonable DONATION for charity, hospital, etc. 5. S – power of SUCCESSION 6. A – to amend ARTICLES of incorporation 7. C – enter into CONSOLIDATION or merger with other corporation Page 103 of 190

8. P – PURCHASE, hold, convey, sell, lease, pledge, mortgage PROPERTY real or personal, which may reasonably and necessarily required by the corporation 9. R – establish RETIREMENT, pension and other plans for the benefit of the directors, officers, and employees 10. O – to exercise OTHER powers essential or necessary to carry out its purposes as stated in the articles of incorporation 11. S – adopt use of corporate SEAL Note: incidental powers of the corporation (1S, 2L, 5S, 11S)

Ultra vires – is one not within the express, implied and incidental powers of a corporation (can be ratified) Valid ratification: The act must be totally or partially executed, that is, not executory  No creditors are prejudice, or they have given their consent  Right of the public or the State are not involved  Consented by all stockholders Intra vires – are acts within the legitimate power of a corporation 

Illegal acts – are contrary to law, moral, good custom, public order or public policy

Sec 39

When pre-emptive right not available – DEAP

1. D – shares to be issued in good faith with the approval of the stockholders representing ⅔ of the outstanding capital stock in payment of corporate DEBT 2. E – shares to be issued in good faith with approval of the stockholding representing ⅔ of the outstanding capital stock in EXCHANGE for property needed for corporate purposes 3. A – when right is denied by the ARTICLE of incorporation 4. P – shares required by law to be issued to the PUBLIC Sec 41 Among others the corporation may require its own share of stock for the purpose of – WREC 1. W – to pay WITHDRAWING, dissenting stockholders entitled to payment of their shares 2. R – REDEMPTION for redeemable shares 3. E – to ELIMINATE fractional shares arising out of stock dividends 4. C – to collect or compromise indebtedness to the corporation arising out of unpaid subscription

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Sec 74 1. 2. 3. 4.

Books and records to be kept by the corporation – BSDS

B – records of all BUSINESS transactions S – minutes of STOCKHOLDERS meeting D – minutes of DIRECTORS meeting A – STOCK and transfer book

Sec 81

Appraisal right – MISA

1. M – when there is MERGER or consolidation 2. I – INVESTMNET of corporate fund in any other corporation or business or purposes other then primary purpose 3. S – SALE, lease, exchange, mortgage, pledge or transfer of all or substantially all assets of the corporation 4. A – AMENDMENT of the ARTICLES of incorporation, changing or restricting the rights of the stockholders or of authorizing preferences in any respect superior to those outstanding shares of any class, or shortening the term of the corporation Sec 84 When right to payment of dissenting stockholders ceases – WADE 1. W – demand for payment of WITHDRAWN with consent of the corporation 2. A – when proposed corporation action is abandoned or rescinded by the corporation 3. D – proposed corporate action is DISAPPROVED by the SEC where such approval is necessary 4. E – where SEC determines that the dissenting stockholder is not entitled to the appraisal rights Sec 96

Close corporation – LER

1. L – stockholders LIMITED to 20 2. E – not listed in the stock EXHANGE 3. R – right to transfer shares severely RESTRICTED Sec 96 Corporation, which may not be, organized as close corporation – PIPE-S-MOB 1. 2. 3. 4. 5. 6. 7.

P – PUBLIC utilities I – INSURANCE companies P – corporation vented with PUBLIC INTEREST E – EDUCATIONAL institutions S – STOCK exchange M – Mining corporation O – OIL companies Page 105 of 190

8. B – BANKS Sec 117 1. 2. 3. 4. 5.

Involuntary dissolution – EL-JOF

E – EXPIRATION of its period of existence L – LEGISLATIVE enactment J – by JUDICIAL decree of forfeiture O – ORDER of SEC F – FAILURE in formally organized and commence business transaction within two years from date of incorporation

Sec 117

Corporate liquidation – RTC

1. R – by RECEIVERSHIP 2. T – by TRUSTEESHIP 3. C – by CORPORATION itself Order of Priority in the distribution of the assets of a corporation 1. Creditors of the corporation 2. Preferred stockholders as to assets distribution 3. The excess must be distributed to the stockholders proportionately Effects of dissolution 1. The corporate power shall cease for the purpose for which it was establish 2. The corporation continues for the purpose of winding-up for a period of 3 years 3. After 3 years, the corporation shall cease to exist for all intent and purposes and as a rule it can no longer sue or be sued in court (Sec 122) Requisite of valid meeting 1. 2. 3. 4. 5.

Must be at the proper place Must be at the stated date and time Must be called by the proper person Notice must be given There must be quorum

Place and time of meeting of stockholders and directors 1. Stockholders’ meetings – whether regular or special shall be held in the city or municipality where the principal office is located, Page 106 of 190

and if practicable in the principal office of the corporation. Any meeting held outside is invalid, except if all stockholders are present and represented, and if within powers of the corporation. 2. Directors’ meetings – shell be held anywhere in or outside of the Philippines, unless the by-laws provide otherwise. (Sec 51, 52) Acts requiring majority vote of the board of directors and the vote of the stockholders representation ⅔ of the outstanding capital stock – MISIADIE 1. 2. 3. 4. 5. 6. 7.

M – MEGER or consolidation I – INCREASE or decrease of capital stock S – SALE of all assets I – INCURRING or creating or increasing bonded indebtedness A – AMENDMENT of articles of incorporation D – voluntary DISSOLUTION I – INVESTMENT in any other corporation or business or purpose other than the primary purpose 8. E – EXTENDING or shortening the life of the corporation 

 

Votes required in management contract – majority of the directors of both the managed and the managing corporation and approved by majority of the outstanding capital stock of both corporations Elections of directors – majority of the outstanding capital stock or members entitled to vote Removal of directors - ⅔ of outstanding capital stock entitled to vote

Lesson 3 By-Laws of a Corporation BY-LAWS 1. Adoption a) Before incorporation – approved by all incorporators b) After incorporation – majority of the outstanding capital stock 2. Amendment, Alteration, Repeal, etc. a) Majority of the directors and the owners of majority of the outstanding capital stock or members 3. Delegation of the power of amending by laws to Directors a) ⅔ of the outstanding capital stock or members 4. Revoking authority delegated to the BOD to amend by-laws Page 107 of 190

a) Majority of the outstanding capital stock or members ISSUANCE OF STOCK DIVIDENDS a) Declared by the BOD and approved by ⅔ of the outstanding capital stock Elements of valid By-laws a) b) c) d) e)

Consistent with existing laws Consistent with public policy Must not impair obligation and contracts General and uniform in operation Consistent with Articles of Incorporation

Minimum Capital Stock for Stock Corporation At least 25% of the authorized must be subscribed and at least 25% of the total subscription must be paid upon subscription, the balance to be paid on a dates fixed in the contract of subscription without need of a call, or in the absence of a fixed date or dates, upon call for payment by the BOD. In no case shall the paid-up capital be less than 5K (Sec 31)  Exception on minimum capital requirement for corporate formation  Pawnshop corporation – must have a paid-up at least 100K  Investment house – must have a paid-up capital of at least 20M  Insurance companies – must have a paid-up of at least 5M Computation of the 25% if it is no-par value shares 

Compute the 25% on the number of share. (Example: authorized capital is fixed at 1,000 share, at 250 no-par value must be subscribed) Requiring Filipino ownership on corporate capital 

1. Public service corporation – at least 60% must be owned by the citizen of the Philippines 2. Education corporation – at least 60% must be owned by citizen of the Philippines, except those established by religious orders, mission board and charitable institutions. 3. Corporation engage in retail trade – the capital must be wholly owned by citizen of the Philippines 4. Corporation engaged in pawnshop business – at least 70% shall be owned by citizen of the Philippines Definition of Terms Page 108 of 190

Classes of shares in general 1. Par value – there is a specific amount fixed in the article of incorporation 2. No Par value – one without any stated value on the face of the certificate of stock. The issuance must not be less than 5.00 per share 3. Voting share – share with right to vote 4. Non – voting share – share without right to vote 5. Common share – entitles the holder to an equal pro-rata division of profits without any preference 6. Preferred share – entitles the holder to certain preference over the holders of common stock 7. Cumulative preferred shares – are shares which entitle the holder thereof to payment not only of current dividends but also of back dividends not previously paid, when if dividends are declared, to the extent agreed upon, before holders of common share are paid 8. Non-cumulative preferred shares – are those which entitle the holders merely to the payment of current dividend, but not to back dividend when and if dividend are paid to the extent agreed upon before the holders of common share are paid 9. Participating preferred stock – are those that entitle the holders to participate with the holders of common shares in the surplus profits after the amount of the stipulated dividend has been paid to both classes 10. Non-participating preferred shares – are those that entitle the holders only to the stipulated preferred dividend and no more 11. Promotion share – issued to promoters as compensation in promoting the incorporation of a corporation, or for services rendered in launching or promoting the welfare of the corporation 12. Treasury stock – a stock which has been issued by the corporation as fully paid and later reacquired by it either by donation or purchase 13. Share in escrow – agreement that the share is deposited with third person to be kept by the depositary until performance of a certain condition 14. Convertible stock – a stock which is convertible or changeable from one class to another class Kinds of Special Share 1. Founders share – is a share issues by the corporation to incorporator who founded and organized the corporation. These incorporators are given certain rights and privileges not enjoyed by owners of other stock, provided that where the exclusive right Page 109 of 190

to vote and be voted for in the election of directors is granted, it must be for a limited period not to exceed 5 years 2. Redeemable share – is usually preferred, which by its term is redeemable at a fixed date or at the option of either the corporation or stockholder or both at a certain redemption price. This is otherwise known as callable share (Sec 8). Note: Redeemable shares may be purchase by the corporation regardless of the existence of unrestricted retained earnings 3. Treasury share – is a share of stock issued and fully paid for, but subsequently reacquired by the issuing corporation by purchase, redemption, donation, or through some other lawful means. Such share may again be disposed of for a reasonable price fixed by the BOD (Sec 9) Classes of Dividend 1. Cash – payable in cash 2. Property – payable in form of property, such as warehouse receipts, share of stock of another corporation 3. Stock – payable in unissued or increased or additional shares instead of cash or property 4. Optional – gives the stockholder the option to receive cash or stock dividend 5. Composite – partly in cash and partly in stocks 6. Script – a written certificate issued to a stockholder entitling him to the payment of money because at the time of declaration there was no cash 7. Bond – distributed in bonds of the corporation 8. Liquidating – distribution of the assets of the corporation upon dissolution or winding up Classes of Bonds 1. Guaranteed bonds – secured by the guaranty of a corporation other than the one issuing it 2. Debenture bonds – not secured by any specific mortgage, lien or pledge or corporate property but by the general credit of the corporation 3. Income bonds – may or may not be secured by a mortgage, but the interest is payable only out of the net profits 4. Coupon bonds – those to which are attached a sheet of dated, numbered and similarly printed coupons which the bondholder may cut-off when due 5. Redeemable bonds – those that give the privilege to the issuing corporation to pay off the bonds even before the date of maturity.

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Others: 1. Individual – a suit filed by a stockholder against the corporation in his own name to redress a violation of his rights as a stockholder 2. Derivatives – suit filed by the stockholders against a third person in behalf of the corporation to redress a wrong committed against the corporation for which the directors refused to sue. This suit may also be instituted by a stockholder in behalf of the corporation to redress a wrong committed directly against the corporation and indirectly against the stockholders Requisites:  There must be cause of action, a wrong done as when the directors waste the corporate funds, or dispose of corporate fraudulently or perform ultra vires act.  Complaining stockholders must be a stockholder of record at the time the cause of action occurred  The action must be filed for and behalf of the corporation 3. Representative – s suit filed by the stockholders against the corporation to redress a wrong committed against them. In this suit, the stockholder is suing on behalf of himself and all other stockholders similarly situated. This is otherwise known as a “class suit”

Lesson 4 Comparison of the Old Code and Revised Corporation Code

Revised Corporation Code  

Old Code 1. Number of Incorporators (Sec. 10)

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The required number of incorporators in organizing a corporation is at least five (5) but not more than fifteen (15) incorporators.    

  – The requirement as to minimum number of incorporators has been removed and retaining the maximum. Thus, ONE PERSON CORPORATION (which is governed by Section 115 – 132) is now allowed.

2. Corporate Term (Sec. 11)   – PERPETUAL EXISTENCE of a Corporation is now allowed unless its Articles of Incorporation provides otherwise. The only limitation as to the existence of a Corporation is its Articles of Incorporation. Thus, the Articles of Incorporation may limit the term of the Corporate term for a period not exceeding 70 years or 20 years etc. It is the Articles of Incorporation that controls the corporate term. If the       –  Corporations are allowed to exist for Articles of Incorporation a period not exceeding fifty (50) years does not provide, or is silent from the date of incorporation unless as to the Corporate term, sooner dissolved or unless said period is the RCC allows PERPETUAL extended.   EXISTENCE. (Sec. 11)   3.    Amount of Capital Stock to be subscribed and paid for the purpose of incorporation (Sec. 13)   – It requires that at least 25% of the authorized capital stock must be subscribed, and at least 25% of the total subscription must be paid by the stockholders, provided that the minimum Page 112 of 190

  – Stock corporations are NOT REQUIRED to have a minimum capital stock, EXCEPT when provided by special law.

paid-up capital shall not be lower than Php5,000.00.  

(Sec. 12)

4.  Arbitration Clause   – It does not provide for the Arbitration of disputes. However, under Sec. 104 regarding Deadlocks, the Securities and Exchange Commission has the power to arbitrate, notwithstanding any contrary provision in the articles of incorporation or by-laws or agreement of stockholders of a close corporation, if the directors or stockholders are so divided respecting the management of the corporation’s business and affairs that the votes required for any corporate action cannot be obtained.  

  Under Sec. 13, An Arbitration Agreement may now be included in the Articles of Incorporation or its by-laws pursuant to Sec. 181   Deadlocks may now be a subject for Arbitration EXCEPT when it involves criminal offenses or interests of third parties.

5. Non-use of Corporate Charter (Sec.22)

  – A corporation must formally organize and commence the transaction of its businesses or the construction of its works within two (2) years from the date of its incorporation, otherwise, the corporation shall be deemed DISSOLVED.  

  – Sec. 21 provides a longer period of five (5) years, otherwise the certificate of incorporation shall be deemed REVOKED as of the day following the end of the 5-year period.

6. Continuous inoperation of a Corporation (Sec. 22)   – If a corporation has commenced the transaction of its business but subsequently becomes inoperative for a period of at least five (5) years, the same shall be a ground for the SUSPENSION or REVOCATION of its corporate franchise or certificate of incorporation except when the failure to commence is due to causes beyond the control of the corporation as may be determined by the Securities and Page 113 of 190

  – Sec. 21 provides that if the corporation becomes inoperative for a period of at least five (5) consecutive years, the Commission may, after due notice and hearing,  place the corporation under DELINQUENT STATUS. The delinquent corporation has two (2)

years within which to resume after complying with all the requirements the Commission has prescribed.

Exchange Commission.   7. Corporations vested with public interest

  – Section 96 mentioned corporations vested with public interest.

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  Sec. 22 provides a better understanding of what corporations are vested with public interest. They are the following:   a. Corporations listed with an exchange or with assets of at least Fifty Million Pesos (50,000,000) and having two hundred (200) or more holders of shares, each holding at least one hundred (100) shares of a class of its equity shares;   b. Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in money service business, pre-need, trust and insurance companies, and other financial intermediaries; and   c. Other corporations engaged in businesses vested with public interest similar to the above, as may be determined by the Commission.   The above enumerated corporations shall have independent directors constituting at least twenty percent (20%) of said corporation’s board of directors. 

8. Use of technology or electronic means.

  – Please note that the Old Code was signed into law way back in May 1, 1980 where the use of technology or electronic means was not perceived.  

  Written notices of stockholders meeting may now be sent through electronic mail or such other manner as the Commission shall allow under its guidelines (Section 49).  Voting may also be done through remote communication like videoconferencing or teleconferencing or the like if allowed by the by-laws.   Note: the SEC shall develop and implement an electronic filing and monitoring system (Section 180).

9. Treasurer

  – Sec. 23 is silent as to the residency of the Treasurer

  Sec. 24 expressly provides that a Treasurer must be a resident. Meaning, a resident of the Philippines  

10.  Disqualification of Directors, Trustees, or Officers (Sec. 27)   – persons convicted by final judgment of an offense punishable by imprisonment for a period exceeding (6) years; or – violated this Old code   Such conviction or violation must have occurred within five (5) years prior to the date of his election or appointment

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  Sec. 26 provides for an enumeration of grounds for disqualification from being a director, trustee or officer of any corporation if, within five (5) years prior to the election or appointment as such, the person was:   a. Convicted by final judgment:  –of an offense punishable by imprisonment

for a period exceeding six (6) years; -for violating this Code; and -for violating Republic Act No. 8799, otherwise known as “The Securities Regulation Code”;   b. Found administratively liable for any offense involving fraudulent acts; and   c) By a foreign court or equivalent foreign regulatory authority for acts, violations or misconduct similar to those enumerated in paragraphs A. and B. above.   11. Reasonable Donations (Sec.36 [9])

  – Domestic or Foreign Corporations are NOT allowed to give donations in aid of any political party or candidate or for purposes of partisan political activity.    

  Sec. 35(i) – Only Foreign corporations are not allowed to give such donations. The prohibition against Domestic Corporations is now omitted. Thus, Domestic Corporations may now make reasonable donations in aid of any political party or candidate or for purposes of partisan political activity.  

12. Shares of stock in another corporation   Sec. 61 now allows Shares of stock in another corporation as one among the considerations for stocks

  

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13.  Inspection of Corporate Books. Sec. 74   – Any officer or agent of the corporation CANNOT refuse any director, trustees, stockholder or member of the corporation to examine the Corporate Books and copy excerpts from its records or minutes, otherwise, such person shall be punishable under Sec. 144.   Question 1: What if said refusal made by such person was pursuant to a resolution or order of the board of directors or trustees?   Answer 1: The liability provided for by the Old Code shall now be imposed upon the directors or trustees who voted for such refusal.   Question 2: Is there any defense to any action under this section?   Answer 2: Yes. A request for examination of corporate books may be refused the person requesting for such examination: – HAS IMPROPERLY USED any information secured through prior examination of the records or minutes of such corporation or any other corporation, or – was NOT acting in good faith or for legitimate purpose in making his demand  

  Sec. 73 provides for penalties to be imposed upon a stockholder in case there is ABUSE OF RIGHTS as to Inspection of Corporate Books.   He shall be penalized under Sec. 158 without prejudice to liabilities under other related laws such as:   – Republic Act No. 8293, otherwise known as the “Intellectual Property Code of the Philippines”, as amended, and    – Republic Act No. 10173, otherwise known as the “Data Privacy Act of 2012”.

Self-Assessment Questions 1. A. B. C.

A corporation acquires juridical personality Upon the filing of the articles of incorporation Upon the filing of the by-laws Upon the issuance of the certificate of incorporation Page 117 of 190

D. Within 30 days from receipt of notice of the issuance of the certificate of incorporation 2. A delinquent stockholder is not entitled to the following rights, except the right: A. To be voted B. To vote or be represented in the meetings of stockholders C. To dividends D. He is not entitled to all the rights of a stockholder 3. Which of the following will qualify as incorporator in a corporation? A. a minor; B. a corporation; C. partnership; D. foreigner. 4. The Corporation Code requires that: A.At least a majority of the directors are residents of the Philippines; B.All of the directors or trustees are residents of the Philippines; C. All of the directors or trustees are citizens of the Philippines; D. Majority of the directors are citizens of the Philippines. 5. The voting proportion required to enable a corporation to invest its fund in any other corporation or business or for any purpose other than its primary purpose – A. 2/3 vote of the board of directors and ratified by majority of the outstanding capital stock; B. Majority vote of the BOD and ratified by majority of the outstanding capital stock; C.Majority vote of the BOD and ratified by 2/3 of the outstanding capital stock; D. Majority vote of the BOD and ratified by 2/3 of the stockholders. 6. A corporate doctrine which the stockholders are not personally liable for corporate debts is: A. Piercing the veil of corporate fiction; B. Separate and legal entity; C. Trust fund doctrine; D. Corporate opportunity. 7. I. The by-laws of a corporation may provide that the stockholders or trustees meeting may be outside of the Philippines. II. The by-laws may be filed with the SEC either before or after incorporation. A. Both statements are false. B. Both are true. C. First is false, second is true D. First is true, second is false. 8. One of the following does not require stockholders’ approval: A. Change of corporate name; Page 118 of 190

B. Merger or consolidation; C. Declaration of cash dividend; D.Investment of corporate funds outside main purpose of the corporation. 9. In a corporation, two or more positions may be held concurrently by the same person, except that no person shall act as – A. president and chairman of the board; B.president and secretary; C.secretary and treasurer; D.treasurer and director. 10. One of the characteristics of treasury shares is that – A.They may be reissued or sold again; B. They have status of outstanding shares; C. They may participate in the meeting of corporation as voting shares; D. They are entitled to dividends. 11. 1st statement: The by-laws may provide that the holders of a majority of the outstanding capital stock may elect all the members of the board of directors. 2nd statement: That it may also provide that no officer of the corporation shall be required to be a stockholder. A. Both statements are true. B. First is true, second is false. C. Both are false. D. First is false, second is true. 12. Which of the following is not a requisite for a close corporation? A. The number of stockholders shall not exceed twenty. B. That no close corporation is a stockholder thereof owning at least 2/3 of the voting stocks. C. There is a restriction in the transfer of shares. D. There is no public offering of shares. 13. 1st statement: The declaration of dividends out of the capital and not surplus profits is violation of the doctrine of piercing the veil of corporate fiction. 2nd statement: When the corporation is used as an alter ego or conduit to avoid the performance of an obligation is violation of the trust fund doctrine. A. Both statements are false. B. First is false, second is true. C. Both statements are true. D. First is true, second is false. 14. Majority of the following must residents of the Philippines, except: A. Members of the board of directors. B. Incorporators. Page 119 of 190

C. Members of the board of trustees.

D.

Officers.

15. 1st statement: Stockholders’ meeting must be in the city or municipality where the principal office is located while members’ meeting of non-stock corporation may be outside thereof. 2nd statement: The secretary of the corporation must generally be a citizen and resident of the Philippines. A. Both are true. B. First is true, second is false. C. Both are false. D. First is false, second is true. 16. 1st statement: The doctrine of corporate opportunity rests on the unfairness of an officer or director of a corporation taking advantage of an opportunity for his own personal benefit adverse to the corporation. 2nd statement: The by-laws must be filed with the SEC for the corporation to acquire juridical personality. A. Both statements are false. B. First is true, second is false. C. Both statements are true. D. First is false, second is true. 17. Private corporations have the following attributes, except: A. It is created by law as a juridical person. B. It has the right of succession. C. It may be formed, organized and existing under a special law or charter. D. It has the powers, attributes and properties expressly authorized by the law or incident to its existence. 18. In three of the following instances, shares with or without voting rights can be voted, except: A. Increase or decrease of capital stock. B. Dissolution of the corporation. C. Election of directors or trustees. D. Merger or consolidation with other corporation. 19. One of the following does not have voting rights: A. Preferred shares B. Treasury shares C. Redeemable shares D. Common shares. 20. The power to deny pre-emptive rights to stockholders is: A.Incidental power B. Implied power C. Express power D. Discretionary power 21. This is the equitable right of the stockholders to subscribe to all issues of shares in proportion to their shareholdings to maintain their equity participation in the corporation: A. Right of firm in close corporation B.Right to dividends date entity C. Pre-emptive right D. Appraisal right of dissenting stockholder Page 120 of 190

22. Under this doctrine, the separate personality of a corporation may be disregarded if it is used for fraudulent or illegal purpose or to escape the faithful compliance of an obligation: A. Trust fund doctrine. B. Doctrine of piercing the veil of corporate fiction. C. Doctrine of corporate opportunity. D. Doctrine of limited capacity. 23. The right of a stockholder to demand payment of the fair value of his shares when he dissents from certain corporate acts. A. Pre-emptive right. B. Appraisal right. C. Redemption right. D. Appreciation right. 24. A non-voting stock may vote in the following, except: A. approval of compensation of the board. B. merger or consolidation. C. increase of capital stock. D. sale of all company assets. 25. One of the distinctions between a partnership and corporation is that a partnership: A. is managed by board of partners. B. is characterized by the principle of delectus personae. C. has the right of succession. D. may be dissolved only with the consent of the state. 26. One of the distinctions between a proxy and a voting trust agreement is that in a voting trust agreement: A. the representative acquires legal title to the shares to be voted. B. the exercise of the right to vote is limited to a particular meeting. C. the representative cannot vote if the stockholder is present during the meeting. D. the agreement need not be recorded with the Securities and exchange commission 27. Under this doctrine, the separate personality of a corporation may be disregarded if it is used for fraudulent or illegal purpose or to escape the faithful compliance of an obligation: A. trust fund doctrine B. doctrine of piercing the veil of corporate fiction C. doctrine of corporate opportunity D. doctrine of limited capacity. 28. Three of the following are not authorized to issue no-par shares. Which one of the exception? A. Industrial companies B. Trust companies C. Insurance companies D. Public utilities Page 121 of 190

29. The corporation has a nine-member board. Two of the members have sold their shares while two others are abroad. To have a quorum the number required is: A. Seven B. Three C. Five D. Four 30. Which of the following corporate acts requires the approval of the majority of the outstanding capital stock or of the members? A. To invest corporate funds in another corporation or business B. To adopt, amend or repeal by-laws C. To dissolve the corporation D. To amend the articles of incorporation. 31. They are issued to those who helped in incorporating the corporation or for services rendered in launching the welfare of the same. A. Preferred stock B. Founders shares C. Stock in escrow D. Promotion stock 32. A director of a corporation may be removed from the office by a vote of the stockholders holding representing: A. Majority of the outstanding capital stock B. 2/3 of the stockholder C. 2/3 of the outstanding capital stock D. Majority of the stockholder 33. This is the written acknowledgement of the interest of the stockholder in the corporation. A. Proxy B. Voting trust agreement C. Share of stock D. Certificate of stock 34. They provide and regulate the internal matters of the corporation: A. Articles of incorporation B. Certificate of incorporation C. By-laws of the corporation D. Certificate of filing of by-laws 35. This is a public instrument giving authority to vote for stockholder A. Proxy B. Stock certificate C. Voting trust agreement D. Voting trust certificate 36. A gratuitous reissue of treasury shares will result in: A. Capital surplus B. Watered stock C. Stock dividend D. Property dividend 37. A certificate of stock is not a negotiable instrument because it lacks the requirement of: Page 122 of 190

A. The instrument must be in writing and signed by the maker or drawer. B. It must contain an unconditional order or promise to pay a sum certain in money. C. It must be payable to order or to bearer. D. It must be payable on demand or at fixed or determinable future time 38. Which of the following is a limitation on proxy? A. The proxy acquires legal titles to the shares of the stockholder. B. The proxy may not attend the meeting even in the presence of the stockholder C. The proxy as a rule for the meeting for the meeting only for which it is issued D. The proxy is not revocable at will of the stockholder.

Activity 1. A subscribed to 1,000 shares of stock of X Corporation. She paid 25% of the said subscription. During the stockholders meeting, can A vote all her subscribed shares? A. No, because the subscription has not yet been fully paid. B. No, because A’s shares have become delinquent which cannot be voted. C.No as to the unpaid percentage of subscription. D. Yes, because unpaid shares not delinquent can be voted. 2. X Corporation posted a P1M profit in its reality business and its real estate has appreciated in value to the tune of P4M. The board the declared dividends to its stockholders computed on the basis of representing profits and appreciated in value of its real estate. Is the dividend declaration valid? A. Not valid because there was no approval of 2/3 of the outstanding capital stock. B. Valid because it was based on profit and increment in the value of the corporate assets. C. Not valid because dividends must only come from the unrestricted retained earnings. D.Valid if no creditors shall be prejudiced and approved by the required votes if the directors and stockholders. 3. A, B, C, D, E, and F, Filipino citizens, X, Y, Z, American citizens, and R and S Japanese citizen agreed from a domestic corporation with an authorized capital stock of P1,000,000.00 divided into one hundred thousand (100,000) shares with a par value of P10.00 per share. B subscribed for 2,000 shares and he paid P12,000.00. X Page 123 of 190

subscribed for 5,000 shares and he issued a promissory note in the amount of P30,000.00. F joined the group but he did not subscribed for any number shares. Can the aforementioned persons validly from a domestic corporation? A. Yes, provided majority of them are resident of the Philippines. B. Yes, because majority of them are Filipino citizens C. Yes, provided they will subscribed for at least 25% of the authorized capital stock. D.No, because foreigners cannot be incorporators of a domestic corporation. 4. A,B,C,D,E,F, and G are duly elected directors of Zap Corporation whose Articles of Incorporation provide for 7 Board of Directors. A year after, directors A, B, C, D, and E met to fill two vacancies in the board brought about by the valid removal of F for disloyalty to the corporation and the death of G. In the said meeting, the remaining directors voted for X to replace F, and Y to replace G. Both X and Y are owners of at least one share of stock of the corporation. The election of X and Y by the remaining directors is: A. Valid for both X and Y. B. Not valid for both. C. valid with respect to X; not valid with respect to Y. D. Not valid for X; valid for Y. 5. In the meeting of the board of directors of Canyon corporation, a construction company, held on March 31, 2010, directors A, B, C, D, and E were present among the 9 directors. The meeting had for its agenda the appointment of a new treasurer and the approval of a contract for the purchase of cement worth 50,000 from supplier. When the voting took place, directors A, B, C, and D voted for the election of Y as the new treasurer; and the directors A, B, and C voted for the approval of the contract with supplier. A. Both acts are valid. B. Both acts are not valid. C. The election of Y is valid; The approval of contract is not valid. D. The election of Y is not valid; the approval of contract is valid. 6. S1: Directors or trustees may attend or vote by proxy at board meetings. S2: The Articles of incorporation or the by-laws of a corporation may provide for a greater majority for its quorum during meetings of the board. A. Both are true. B. Both are false. C. Only S1 is true. D. Only S1 is false. 7. One of the following acts may be performed by the executive committee of a corporation. Which is it? Page 124 of 190

A. Declaration of stock dividends. B. Filling of vacancies in the board. C. Amendment of by-laws. D. approval of contracts in the ordinary course of business. 8. Which of the following by-laws is valid? A. By-law providing that one need not be the owner of a share of stock to become a director. B. By-law that provides that one must be the owner of at least one share of stock to become a director. C. By-law that provides that one can continue to be a director throughout his term although he has disposed all his shares in the corporation. D. By-law that provides a greater number of directors than that stated in the Articles. 9. A corporation may acquire its own shares for a legitimate purpose provided that it has unrestricted retained earnings. In which of the following acquisitions is the requirement of unrestricted retained earnings not imposed? A. To eliminate fractional shares. B. Delinquent shares are acquired. C. Redeemable shares are repurchased. D. Stockholders are exercising right of appraisal. 10. A corporation may acquire its own shares for a legitimate purpose provided it has unrestricted retained earnings. In which of the following acquisitions is the requirement of unrestricted retained earnings not imposed? A. when the acquisition is made to eliminate fractional shares. B. when delinquent shares are acquired in a delinquency sale C. when redeemable shares are repurchased in accordance with the terms provided in the articles of incorporation D. when shares are acquired from stockholders who exercise their appraisal right. 11. At the annual meeting of ABC Corporation for the election of five directors, A, B, C, D, E, F and G were nominated. A, B, C, D and E received the highest number of votes and proclaimed elected. F received ten votes less than E. Subsequently, E sold his shares to F. Who between A and F has the right to attend as director in the board meeting? The transfer of shares having been registered with the corporation. A. E is the director because his term is one year until his successor is elected and qualified. B. F is the director for he has acquired all the shares of E. C. Either of them shall be director. Page 125 of 190

D. Neither of them shall be director. 12. ABC Corporation has an authorized stock of P1M dividend into 50,000 common shares and 50,000 preferred shares. At its inception, the corporation offered for subscription all the common shares. However, only 40,000 shares were subscribed. Recently, the directors thought of raising additional capital and decided to offer to the public all the authorized shares of the corporation at their market value. Would Mr. X, a stockholder holding 4,000 shares have pre-emptive rights to the remaining 10,000 shares? A. Yes, because all stockholders have pre-emptive rights to all issues or dispositions of share of any class in proportion to shareholding. B. No, because he did not subscribe to them when offered at incorporation C. Yes, if approved by 2/3 of the outstanding capital stock D. No, because pre-emptive right applies only in case of increase in the capital stock. 13. Juan was a stockholder of X Corporation who sold his shares to Pedro and delivered properly indorsed the Stock Certificate No. 1001 to the latter. The following day, Juan went to the offices if the corporation and claimed the loss of his stock certificate. The formalities prescribed by law having been complied with, the corporation issued Stock Certificate No. 2002 in substitution of the “lost” certificate. Juan forthwith transferred for valuable consideration the new certificate to Jose who knew nothing of the prior sale to Pedro. Whom shall the corporation recognize as rightful stockholder? A. Both Pedro and Jose are rightful stockholderS. B. Pedro shall be the rightful stockholders. C. Jose shall be rightful owner being the indorsee if the most recent stock certificate. D. Pedro shall be the rightful stockholder because the stock certificate delivered to Jose was null and void. 14. When the preferred shares are issued by a corporation with a fixed interest on the face thereof, the effect is: A. The contract of subscription subsists. B. The said stockholder is a creator of the corporation. C. The said shares of stocks become negotiable instruments. D. The stockholder is a plain investor who may benefit or suffer with financial success or failure of the corporation. 15. Subscriber Zai Zai has a total 1,000 delinquent shares at P10 par value, to be sold at public auction sale. Total amount recoverable includes: total amount of the delinquent shares Page 126 of 190

P10,000 and total expenses of the sale P5,000. Who will be declared the highest bidder among the following bidders in the public sale? A. M, who is willing to pay the P15,000 at 920 shares; B. A, who is willing to pay the P15,000 at 950 shares; C. N, who is willing to pay the P15,000 at 970 shares; D. G, who is willing to pay the P15,000 at 900 shares. 16. X corporation and Y corporation were owners of a 62 hectare land in Nueva Ecija. Eventually, AA corporation acquired the property from X and Y and the new title was issued in its name. When AA corporation was issued an order of possession of the property, X, Y and a certain Z filed a petition to recall the possession for some reasons. After a long battle, possession was restored to X, Y, and Z in 2000. Subsequently, however, AA filed a motion to suspend the enforcement of the order of both X and Y corporations having purchased the controlling stocks of both. Is AA corporation entitled to the possession of the 62-hectare land? a. Yes because it became the owner of X and Y corporations. b. In part only because it became the owner of the controlling interest only of both X and Y corporations. c. No because ownership of the controlling interest of X and Y does not become owner of a corporate asset. d. answer is not given. 17. Which is not an attribute of a corporation? a. an artificial being b. may be created by operation of law, by consent of the parties, by implication, or by ratification c. having the right of succession d. having the powers, attributes and properties expressly authorized by law or incident to its existence 18. Which is not correct? A. Corporations formed or organized under the Corporation Code may be stock or non-stock corporations. b. Stock corporations have capital stock divided into shares and are authorized to distribute to the holders of such share dividends c. The general incorporation law covers stock and non-stock private and public. d. Non-stock corporations do not have capital stock and are not authorized to distribute dividends. 19. The articles of incorporation shall substantially contain the following. Which is not correct? a. The term for which the corporation is to exist if it has not elected perpetual existence Page 127 of 190

b. the names, nationalities and residences of the incorporators c. the names, nationalities and residences of board of directors d. the names, nationalities and residences of all stockholders 20. In the articles of incorporation of a stock corporation, the following must be shown. Which is not a correct answer? a. amount of its authorized capital stock b. the number of shares into which it is divided, and in case the share are par value shares, the par value of each c. the names, nationalities and residences of the original subscriber, and the amount subscribed and paid by each on his subscription d. Shares without par value need not be stated. 21. For the purpose of interlocking director, his interest is said to be substantial, if his stockholdings a. Exceed ten percent of the outstanding capital stock b. exceeds twenty percent of the outstanding capital stock c. is equal to or greater than twenty percent of the outstanding capital stock d. is equal to or greater that ten percent of the outstanding capital stock 22. Which among the contents of the articles of incorporation may not be amended by a majority vote of the board of directors or trustees and the vote or written assent of the stockholders representing at least two-thirds of the outstanding capital stock a. the term of corporate life b. the authorized capital stock c. the incorporators of the corporation d. the corporate name 23. Which of the following is the minimum requirement for the primary corporate officers under the Revised Corporation Code? a. the treasurer must be financially possessed with mathematical skills b. the treasurer shall be a director c. the secretary shall be a resident or citizen of the Philippines d. the secretary shall be a resident Filipino citizen 24. Where the articles of incorporation sets forth that the quorum in board meetings shall be greater majority which is 2/3 of the number of the directors as fixed in the articles of incorporation, what is the required quorum for the transaction of corporate business of a corporation consisting of a 15-member board of directors where 2 of them are currently indisposed? a. 8 b. 7. c. 10 d. 9

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25. On October 20,2013, A obtained a loan in the amount of P300,000 from B payable on December 20,2013. B required him to issue a check for that amount to be dated on December 19,2013. Since, he does not have any checking account, A, with the knowledge of B, requested his friend C, president of the X Banking Corp, to accommodate him which C agreed. He signed a check for the aforesaid amount, drawn by X Banking Corp, with the GHI Commercial Banking Corp. as drawee. The by-laws of X Banking requires the signature of the president, treasurer or vice-president on any checks that it will issue. Since the treasurer is not around, C asked E, the vice-president, to also sign the check, which he did. Upon presentment, the check was dishonored on the due date due to insufficiency of funds. Can the corporation be held liable? a. Yes, because they have the power to enter into any contracts through its board or any authorized representatives b. Yes because there is nothing in the problem which indicates in their by-laws that they are prohibited from doing so c. No, because it is ultra vires since it is outside the powers of a corporation to accommodate another not in line with its own business. d. Both a and b e. None of the above 26. A director of a corporation may be removed by: a. Vote of majority of the outstanding capital stock b. 2/3 of the stockholders c. Majority of the stockholders d. 2/3 of the outstanding capital stock 22. Shall constitute a quorum for the transaction of corporate business a. 2/3 of the number of directors or trustees b. Majority of the directors or trustees present c. Majority of the number of directors or trustees as fixed in the articles of incorporation d. ¾ of the number of directors or trustees 27. The Board of Directors of a corporation consists of 9 members, where two have died during their term or office and one is abroad, the quorum would be? a. 5 b. 6 c. 4 d. 7 28. Required vote to invest corporate funds in another corporation or business for any purpose other than for primary purpose. a. Majority of the quorum of the board and 2/3 of the outstanding capital stock or of the members. b. 2/3 of the outstanding capital stock or of the members. Page 129 of 190

c. majority of the outstanding capital stock or of the members d. Majority vote of the board of directors or trustee and 2/3 of the outstanding capital stock or of the members 29. Required to issue stock dividends a. majority vote of the board or 2/3 of the outstanding capital stock b. 2/3 of the outstanding capital stock c. majority of the outstanding capital stock d. Majority of the quorum of the board and 2/3 of the outstanding capital stock 30. Contracts between a corporation and third persons must be made or under the authority of its a. BOD b. Stockholders c. President and chief operating officer d. General Manager 31. Which does not require stockholders approval? a. Merger or consolidation b. Change in corporate name c. Investment of corporate funds for a purpose outside the main purpose of the corporation d. Declaration of cash dividends 32. Directors or trustees committing any of the following acts shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons, except: a. willfully and knowingly voting for or assenting to patiently unlawful acts of the corporation b. aggressive exercise of business judgment rule c. guilty of gross negligence or bad faith in directing the affairs of the corporation d. acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees 33. The following are grounds for involuntary dissolution of a corporation, except? a. failure to organize within 5 years from issuance of the Certificate of Registration b. Continuous inoperation for 5 years without valid reason c. Shortening of term by amendment of the Articles d. Upon receipt of a lawful court order dissolving the corporation 34. South China Airlines is a foreign airline company. South China Airlines tickets are sold in the Philippines though Philippine Airlines as their general agent. South China Airlines is not registered to do

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business as such with the Philippine Securities and Exchange Commission. Which statement is most accurate? a. Although unlicensed to do business in the Philippines, South China Airlines can sue before the Philippine courts and can also be sued b. South China Airlines can sue but cannot be sued c. South China Airlines cannot be sued and cannot also sue. d. South China Airlines can be sued in the Philippine courts but cannot sue. REFERENCES 1) Pasimio,R.,(2001). Effective CPA Reviewer in Business Law. Metro Manila: National Book Store. 2) Unknown.(2018). Revised Corporation Code of the Philippines.

Retrieved July 27,2020, from https://www.officialgazette.gov.ph/downloads/2019/02feb/20 190220-RA-11232-RRD.pdf.

CHAPTER 7 NEGOTIABLE INSTRUMENT

Chapter Objectives 1. Describe the negotiability of instruments 2. Explain abnormal negotiable instruments 3. Explain incomplete but delivered instruments Page 131 of 190

4. Explain incomplete but undelivered instruments 5. Explain complete but undelivered instruments 6. Identify instruments with forged signatures Most common form of Negotiable Instrument – PBC 1. P – PROMISSORY note – unconditional promise in writing made by the person to another, signed by the maker, engaging to pay on demand or a fixed or determinable future time a certain sum in money to order or to bearer. 2. B – BILL of exchange – unconditional order in writing addresses by one person to another, signed by the person giving it, requiring person to whom it so addressed to pay on demand or at a determinable future time a sum certain in money to order or bearer. 3. C – CHECK – bill of exchange drawn on a bank payable on demand Sec. 1 – Requisites of negotiability – SUPOD 1. S – must be in writing and SIGNED by the maker or drawer 2. U – must contain UNCONDITIONAL promise to pay a sum certain in money 3. P – must be PAYABLE on demand or at fixed or determinable future time 4. O – must be payable to ORDER or bearer 5. D – where the instrument is addressed to DRAWEE, he must be named or otherwise indicated therein with reasonable certainty Sec. 2 – Sum payable is sum certain although it is to be paid – ASICE 1. 2. 3. 4.

A – by stated installments, with ACCELERATION clause S – by STATED installment I – with INTEREST C – with COST of collection or attorney’s fee, if instrument not paid at maturity date 5. E – with EXCHANGE, whether at a fixed or at the current rate Sec. 3 – Order or promise to pay in unconditional although couple with – FAT 1. F – indication of particular FUND out of which reimbursement 2. A – indication of particular ACCOUNT to be debited with the amount 3. T – statement of TRANSACTION giving rise to the instrument

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Sec. 5 – Additional provision not affecting negotiability – SWAG 1. S – authorized the SALE of collateral securities if instrument not paid on maturity 2. W – WAIVES the benefit of any law intended for the advantage or protection of the obligor 3. A – AUTHORIZED confession of judgment if instrument not paid at maturity 4. G – GIVES the holder an election to require something to be done in lieu of payment of money Sec. 6 – Omission not affecting negotiability – DVSPM 1. D – not DATED 2. V – does not specify the VALUE given, or that any value has been given 3. S – bears a SEAL 4. P – does not specify the place where it is drawn or the place where it is payable 5. M – designated a particular kind of current MONEY in which payment is to be used Sec. 9 – When payable to bearer – BENOF 1. B – when payable to person named or BEARER 2. E – when EXPRESSED to be payable to bearer 3. N – NAME of the payee does not purport to be the name of any person 4. O – ONLY ob last endorsement in blank 5. F – payable to the order of a FICTITIOUS or non-existing person and such fact was known to be person in so payable Sec. 33 – Kinds of endorsement – Q-CRABS 1. Q – QUALIFIED – where endorser constituted a mere assignor of the title of the instrument 2. C – CONDITIONAL – one by which endorser receives some other condition to his liability 3. R – RESTRICTIVE – one which restrains the negotiability of the instrument to a particularly person or for a particular purpose 4. A – ABSOLUTE – one by which the endorser binds himself to pay upon no other condition then the failure of the parties to do so and of the due notice to time of such failure 5. B – BLANK – endorsement which specifies no endorsee 6. S – SPECIAL – endorsement which specifies the person to whom or to whose order the instrument is to be payable.

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Sec. 36 – Restrictive endorsement – PAT 1. P – PROHIBITS further negotiation of the instrument 2. A – bring ACTION that the endorsee could bring 3. T – TRANSFER his right where form of endorsement authorizes him to do so Sec. 52 – Holders in due course is the one who has taken the instrument under the following conditions – COFI 1. C – it is COMPLETE and regular upon its face 2. O – he became the holder before it was OVERDUE and without notice that it had been previously dishonored if such was the fact 3. F – he took it in good FAITH and for value 4. I – at the time it was negotiated to him, he had no notice of any INFIRMITY in the instrument or defects in the title of the person negotiating it Sec. 57 – Rights of holder in due course – SEDD 1. S – may SUE in his own name 2. E – may ENFORCE payment of the full amount of the instrument against all parties 3. D – hold the instrument free from any defect of title of prior parties 4. D – hold the instrument free form DEFENSE available to prior parties among themselves Sec. 65 – Liability or warranty of a qualified indorser or a person negotiating by delivery – GEGO - CANO 1. GE – GENUINENESS of instrument and in all respect what it purport to be 2. GO – has GOOD title to it 3. CA – CAPACITY of all prior parties 4. NO – NO knowledge of any fact which would impair the validity of the instrument or render it valueless Sec. 66 – Warranties of general endorsers – GECO – CAVA 1. GE – GENUINENESS of instrument and in all respect what it purport to be 2. GO – has GOOD title to it 3. CA – CAPACITY of all parties 4. VA – instrument VALID and subsisting at the time of endorsement Page 134 of 190

5. That the instrument must be paid or accepted when presented for payment or acceptance Sec. 72 – Presentment for payment to be sufficient must made – HRPP 1. 2. 3. 4.

H – by the HOLDER or by some person authorized by him R – at a REASONABLE hour on a business day P – at a PROPER place P – to a person PRIMARILY liable or if absent or inaccessible, to any person found at the place where presentment is made,

Sec. 73 – Place of presentment – SAUL 1. S – place SPECIFIED in the instrument 2. A – ADDRESS given, where no place of payment id specified 3. U – USUAL place of business or residence of one required to pay, where no place of payment is specified and no address is given 4. L – LAST known place of business or residence Sec. 82 – When presentment for payment dispensed with – FEW 1. F – FICTITOUS drawee 2. E – after EXISTENCE of reasonable diligence, presentment cannot be made 3. W – WAIVER of presentment Sec. 114 – Notice need not be given to drawee – SPECF 1. S – drawer and drawee are the SAME person 2. P – drawer the person whom the instrument is PRESENTED for payment 3. E – drawer without right to EXPECT or require that the drawee will honor the instrument 4. C – drawer COUNTERMANDED payment 5. F – drawee a FICTITIOUS person, or a person without capacity to contract Sec. 115 – Notice to Endorser not required to be given – FEA 1. F – drawee FICTITIOUS person or with no capacity to contract and endorser aware of that at the time of endorsement 2. E – instrument presented for payment to ENDORSER 3. A – instrument made or accepted for his ACCOMMODATION

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Sec. 119 – Discharges of negotiable instrument – DRIPP 1. D – any act DISCHARGING a simple contract for payment of money 2. R – REACQUISITION of instrument by principal debtor at or after maturity in his own right 3. I – INTENTIONAL cancellation of instrument by the holder 4. P – PAYMENT in due course by or behalf of principal debtor 5. P – PAYMENT in due course by party accommodated Sec. 120 - When party secondarily liable discharged – D – STRAP 1. D – any act DISCHARGING a simple contract for payment of money 2. S – SIGNATURE of that party intentionally cancelled by the holder 3. T – valid TENDER of payment made by prior party 4. R – RELEASE of principal debtor by the holder unless right of holder against party secondarily liable is expressly reserved 5. A – AGREEMENT where holder postpone or extend the time of payment, unless made with the consent of party secondarily liable 6. P – PRIOR party discharged Sec. 125 – Material alteration – DN – STM 1. 2. 3. 4. 5.

D – change in DATE N – change in NUMBER or relations of the parties S – change in SUM payable, either principal or interest T – change in TIME or place of payment M – change in MEDIUM or currency in which payment id to be made

Sec. 130 – Where bill of exchange may be treated a promissory note – SIFA 1. 2. 3. 4.

S – drawer and drawee the SAME person I – drawee INCAPACITATED F – drawee FICTITIOUS A – instrument AMBIGUOUS, there is doubt whether bill of exchange or promissory note

Sec. 141 – Qualified acceptance – QC – PAL 1. Q – QUALIFIED as to time 2. C – CONDITIONAL payment by acceptor dependent upon fulfillment of condition’ Page 136 of 190

3. P – PARTIAL acceptance for part only 4. A – ACCEPTANCE of someone or more of the drawee 5. L – LOCAL acceptance to pay at a particular place Sec. 143 – When bill of exchange required to be presented for acceptance – SEA 1. S – where bill expressly STIPULATES that it shall be presented for acceptance 2. E – payable ELSEWHERE than residence or place of business of the drawee 3. A – when payable AFTER sight, or in any other case where presentment for acceptance is necessary to fix date of maturity Sec. 148 – When presentment for acceptance excused – DOC 1. D – drawee DEAD, or has abscond, or is fictitious, or person without capacity to contract by bill 2. O – presentment irregular but acceptance refused on some OTHER ground 3. C – after exercise of reasonable diligence presentment CANNOT be made Self-Assessment Questions TRUE OR FALSE: 1. Indorsers are liable prima facie in the order in which they indorse. 2. Joint payees or joint indorsees are deemed to indorse jointly and severally. 3. Payment in good faith before maturity which is made by the principal debtor to the holder and without notice that his title is defective discharges the instrument. 4. The cancellation of a negotiable instrument which is made by the holder is presumed to have been made intentionally. 5. When the principal debtor becomes the holder in his own right before maturity, the instrument is discharged by confusion or merger. 6. An absolute and unconditional renunciation made by the holder before, at or after maturity in favor of the principal debtor discharges the instrument. 7. A bill of exchange does not operate as an assignment of funds in the hands of the drawee and the drawee is not liable until the same accepts.

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8. The certification of a check by a bank is equivalent to acceptance, and when procured by the holder, the drawer and indorsers are discharged. 9. A check is always payable on demand. 10. The drawer of a bill of exchange need not have funds with the drawee except in the case of a check. Activity MULTIPLE CHOICE 1. An instrument which is not dated will be considered dated as at the time of: a. Acceptance b. first indorsement c. last indorsement d. issuance 2. “I promise to pay P or his order the sum of P10,000.00 30 days after the death of X”. This is an instrument payable: a. at a determinable future time b. on demand c. upon the fulfillment of a condition d. at an indefinite time, hence, non-negotiable 3. Who among the following is the holder of a negotiable instrument originally payable to order? a. The original payee who has negotiable instrument b. The indorsee who is in possession of the instrument c. The possessor of the instrument to whom the instrument was delivered without any indorsement d. The Indorsee who has negotiable the instrument 4. An instrument payable to bearer mat be negotiated through any of the following means, except: a. special indorsement plus delivery b. mere delivery c. blank indorsement plus delivery d. No delivery is required as long as there is an indorsement, whether blank or special. 5. The following instrument were presented to you for evaluation: I. “Payable to the order of Pablo Patricio P20,000.00” II. “Pay to the order of Pablo Patricio P20,000.00 or deliver to him a computer of the same value at this option.” III. “Pay to the order of Pablo Patricio P20,000.00 or deliver to him a computer of the same value.” Page 138 of 190

IV. “Pay to the order of Pablo Patricio a Computer worth P20,000.00 Assuming all the other requisites of negotiability are present, which of the foregoing instrument are negotiable? a. Instrument I and II b. Instrument I and III c. Instrument II and III d. Instrument III and IV 6. The separate paper attached to an instrument on which an indorsement or acceptance of the instrument is written is called: a. Allonge b. Memorandum c. Enclosure d. attachment 7. Assuming all the other requisites of negotiability are present, which of the following instrument is not payable to bearer? a. “Pay to the order of cash” b. “Pay to the order of Jose Rizal, national hero.” c. “Pay to Pedro Padernal, bearer d. “Pay to Pedro Padernal or bearer 8. Consider these two statements: I. An instrument originally payable to order may be converted into a bearer instrument. II. An instrument originally payable to bearer may be converted into an order instrument. a. b. c. d.

Both statements are true. Both statements are false. Statement I is true; Statement II is false. Statement I is false; Statement II is true.

9. Which of the following is a valid address to a drawee so as to make the instrument negotiable? a. “To Walter Wenceslao or Wilfredo Wycoco.” b. “To Walter Wenceslao, or in his absence, Wilfredo Wycoco.” c. “To Walter Wenceslao and Wilfredo Wycoco.” d. “To Walter Wenceslao and another drawee named Wilfredo. 10. M signs a promissory note payable to the order of P which is blank as to amount. M delivers the note to P with instruction to type the amount of P20,000 on the blank. P, however, types the Page 139 of 190

amount of P50,000 and negotiates the same to A, A to B, B to C, and C to H, a holder in due course. A, B, C and also H had no knowledge of the wrongful completion of the blank. a. H may collect from M nothing because P violated M’s instructions. b. H may collect from M P20,000 the amount M instructed P to place on the space for the amount. c. H may collect from M P50,000 the amount actually placed by P. d. H may collect from A, B or C P20,000 since they had no knowledge of the wrongful completion. 11. R signs a check amounting to P50,000 but which is blank as to the name of the payee. He keeps the check in his drawer but S, his secretary, steals it, places her name as payee on the blank, and negotiates it to A, A to B, B to C, and C to H, holder. A, B, and C have no knowledge of the theft of the check and its unauthorized completion by S. Based on the foregoing, which of the following statements is incorrect? a. H may enforce payment of the check against R if H is a holder in due course. b. H may enforce payment of the check against S, whether H is a holder in due course or not. c. H may enforce payment of the check against A, B, or C, whether H is a holder in due course or not. d. H may not enforce payment of the check against R, whether H is a holder in due course or not. 12. M makes a note payable to the order of P. He delivers the note to P with the instruction that P should keep the same until M has obtained the proceeds of his loan from the bank. P, however, disregarded the instruction of M and indorsed the note to A, A to B, B to C, and C to H, holder. A, B, and C have no knowledge of P’s defective title. Based on the foregoing, which of the following statements is incorrect? a. H may enforce payment against M if H is a holder in due course. b. H may not enforce payment against M if H is not a holder in due course. c. H may not enforce payment against A, B, and C, whether H is a holder in due course or not. Page 140 of 190

d. H may enforce payment against P, whether H is a holder in due course or not. 13. One of the following can set up the defense of forgery in an instrument payable to order. Who is it? a. An indorser if the maker’s signature is forged. b. The acceptor, if the drawer’s signature is forged. c. A person negotiating by mere delivery if a prior party’s signature is forged. d. The, maker if an indorser’s signature is forged. 14. M makes a note payable to P or bearer and delivers the note to P. P indorses the note to A. A keeps the note in his drawer but it is stolen by F who negotiates the same to B by forging A’s signature, B indorses the note to C, C indorses the note to H, a holder in due course. Who among the following can set up the defense of forgery? a. M, maker. b. P, payee. c. A, indorser. d. Forgery is not available as defense to any party to the instrument. 15. One of the following is not a restrictive indorsement. Which is it? a. An indorsement that prohibits the further negotiation of the instrument. b. An indorsement that constitutes the indorser a mere assignor of the title to the instrument. c. An indorsement that constitutes the indorsee an agent of the indorser. d. An indorsement that vests title in the indorsee in trust for some other person. 16. M makes a note payable to the order of P in the amount of P10,000. P indorses the note to A as follows “Pay to A if he passes the 2004 Bar Examination.” a. M must wait for the condition to be fulfilled before he can pay A. b. M may pay A even if the condition has not been fulfilled but A has to hold the proceeds subject to the rights of P. c. M cannot be compelled to pay even if the condition is fulfilled because the conditional indorsement renders the instrument nonnegotiable. d. M may pay A even if the condition has not been fulfilled. The fulfillment of the Page 141 of 190

condition becomes immaterial and A becomes the absolute owner of the proceeds of the note. 17. In order that a person may be held liable as an accommodation party, the following requisites must concur, except: a. He has signed the instrument as maker, drawer, acceptor or indorser. b. He has not received any value for such making, drawing, accepting or indorsing the instrument. c. His purpose of signing the instrument is to lend his name or credit to some other person. d. The holder must have no knowledge that such person signed the instrument as an accommodation party. 18. An indorsement where the indorser signs only his name at the back of the instrument is a: a. special indorsement. b. blank indorsement. c. qualified indorsement. d. restrictive indorsement. 19. An indorsement where the indorser waives the benefits of any law intended for his protection is known as: a. an absolute indorsement. b. a facultative indorsement. c. a conditional indorsement. d. a successive indorsement. 20. M makes a note payable to the order of P. P specially indorses the note to A, A specially indorses the note to B, B indorses the note in blank and delivers it to C, C specially indorses the note to D, D specially indorses the note to H, holder. Which of the following indorsements may H strike out? a. The special indorsement of P to A. b. The blank indorsement of B to C. c. The special indorsement of C to D. d. The special indorsement of D to H. REFERENCES Pasimio,R.,(2001). Effective CPA Reviewer in Business Law. Metro Manila: National Book Store.

CHAPTER 8 COOPERATIVES Page 142 of 190

Chapter Objectives: 1. Describe organization and registration of cooperatives 2. Describe the responsibilities, Rights and Privileges of Cooperatives 3. Explain membership, rights and obligations 4. Explain Audit, inquiry and Member’s right to examine 5. Describe Allocation and Distribution of Funds 6. Explain merger and consolidation of Cooperatives 7. Explain dissolution of cooperatives Definition  is an autonomous and duly registered association of persons with a common bond of interest, who have voluntary joined together to achieve a lawful common social or economic end, making equitable to contribution to the capital required and accepting a fair share of the risk and benefits of the undertaking in accordance with universally accepted cooperative principle. Organization and Registration HOW TO REGISTER? 1. Get organized (at least 15 members) – determine the common problems you would want to solved and basic needs you would want provided for through you cooperative – Include increasing your production, marketing your produce, credit assistance, power generation, banking or insurance and similar needs. 2. Prepare a general statement called an economic survey. – this will help you measure your cooperative’s chances of success. 3. Draft the cooperative’s by-laws – The by-laws contain the rules and regulations governing the operation of the cooperative. 4. Draft the Articles of Cooperative - Name - Purpose/s and scopes of business - The term of existence

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Area of registration and postal addresses of the registrantcooperators - Common bond of membership - Names of directors who will manage - Amount of share capital - Names and residences of contributors - Type of cooperative 5. Secure bond for accountable officer/s - Normally the Treasurer and the Manager - The amount of bond to be decided upon the BOD based on initial net worth of the cooperative (paid-up capital, membership fees and other assets at the time of registration) 6. Register your Cooperative with the Cooperative Development Authority (CDA) - Four (4) copies of the Economic Survey, Articles of Cooperative and By-laws duly notarized. - Bonds of accountable officer/s - Sworn statement of the Treasurer duly notarized showing at least 25% of the authorized share capital has been subscribed and at least 25% of the total subscription has been paid Administration General Assembly - Composed of all the members entitled to vote - Duly assembled and constituting a quorum (25% of all the members are entitled to vote, 5% if Electric Cooperative) and is the highest policy- making body of the Cooperative Notice of Meetings 1. Regular Meeting - Annually/ within 90 days after the close of each fiscal year 2. Special Meeting - At any time by majority vote - Shall be called by the BOD after compliance with required notice within from at least 10% of total members entitled to vote 3. Special general assembly - Called in case of a newly approved cooperative - Within 90 days from such approval Order of Business General meeting shall be a. Call to order b. Roll call c. Proof of due notice d. Declaration of presence of quorum e. Consideration of presence of quorum -

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f. Reading and approval of the previous minutes of meeting g. Matters of arising from the minutes h. Consideration of the consolidated report of the BOD, officers and committees including audited FS of the Cooperative i. Unfinished business j. Election of directors and committee members k. Approval of Development Plan and Budget l. New business m. Other matters; and n. Adjournment Voting System - Only members entitled to vote shall be qualified to participate and vote in general assembly meeting. - Each member of primary cooperative shall have 1 vote, secondary and tertiary cooperative shall have 1 basic vote up to 5 incentive votes Responsibilities, Rights and Privileges of Cooperatives • Address- shall be registered with the CDA • Books to be kept open • Annual Reports • Register of members as Prima Facie Evidence • Probative Value of Certified Copies of Entries • Bonding of accountable officers • Preference of Claims • Instrument for Salary or Wage Deduction • Primary lien • Tax Treatment of Cooperatives • Tax and other exemption Books to be kept: - Copy of this code and all other laws - Copy of regulations of the CDA - Copy of the Articles of Cooperative and by-laws of cooperative - Registered members - Books of the minutes of the meetings of general assembly, BOD and committees - Share books, where applicable; - Financial Statements - Such other documents may be prescribed by laws or the bylaws Privileges 1. Tax exemptions (All national, city, provincial, municipal or barangay taxes)

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2. Whenever 2 or more public service entities have competing interests with respect to the granting and renewal of CPC and one is a Water Service Cooperative duly registered with the CDA , the NWRB shall accord preference to the cooperative over any type of public service entity. Membership of Cooperatives Becoming a member Governed through the by-laws and application base in accordance with those by-laws - Voting rights of delegates and membership of persons under the age of 18 are addressed - Cessation of Membership - Membership with withdrawal, including redemption of membership shares and loans, termination of membership by the directors, a member’s right of appeal and appeal to membership Readmission and Transfer of membership - Readmission of terminated members by the directors - Member terminated by members can only be readmitted by a special resolution of the members - Transfer of member’s interest is valid if approved by the directors and the transferee meets the requirements of the articles and by-laws Capital, Property of Funds Capital Sources 1. Member’s share capital 2. Loans and borrowings including deposits 3. Revolving capital (deferred payment of patronage refunds, or interest on share capital) 4. Subsidies, donations, legacies, grants, aids and such assistance from any local or foreign institution whether public or private Limitation on Share Capital Holdings - No matter of cooperative other than cooperative shall own or hold more than 20% share capital - If member dies, heirs shall be entitled to the shares but shall not exceed 20% of share capital Assignment of Share Capital Contribution or Interest 1. Held such share capital contributions or interest for not less than 1 year 2. Assignment is made within the field of membership of the cooperatives and CDA 3. BOD has approved such assignment Interest on Share Capital Page 146 of 190

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• -

1. 2. 3. 4. 5. -

a. b.

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1.

Shall not exceed the normal rate of return on investment Shares Unit of capital the par value of which may be fixed at any figure but not less than 1 peso Interest on Share Capital Shall not exceed the normal rate of return on investment Shares Unit of capital the par value of which may be fixed at any figure but not less than 1 peso Fines May prescribed a fine on unpaid subscribed share capital subject to the guidelines which the CDA may issue Investment of Capital In share or debentures or securities of any other cooperative In any reputable bank in the locality In securities issued or guaranteed by the government In real estate primarily for the use of the cooperative or its members In any other manner authorized in the by-laws Revolving Capital The general assembly of any cooperative may authorized the BOD to raise a revolving capital to strengthen its capital structure by deferring the payment of patronage refunds and interest on share capital Authorized deductions of a percentage of products sold or per unit of product handled Audit, Inquiry and Member’s Right to Examine Annual audit Cooperatives under this Code shall be subject to an annual audit by an auditor who satisfies all the following qualifications: He is independent of the cooperative being audited and of any subsidiary of the cooperative; and He is a member of any recognized professional accounting or cooperative auditors' association with similar qualifications. Audit Report. The auditor shall submit to the audit committee a report of the audit which shall contain a statement of the assets and liabilities of the cooperative, including earnings and expenses, amount of net surplus as well as losses and bad debts, if any. Nonliability for Defamation

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-

-

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a. b. c. d. e.

An auditor is not liable to any person in an action for defamation based on any act done, or any statement made by him in good faith in connection with any matter he is authorized or required to do pursuant to this Code Right to Examine A member shall have the right to examine the records required to be kept by the cooperative under Article 51 of this Code Safety of Records Every cooperative shall, at its principal office, keep and carefully preserve the records required by this Code to be prepared and maintained. It shall take all necessary precaution to prevent its loss, destruction or falsification. Allocation and Distribution Net Surplus shall be determined in accordance with its bylaws. Every cooperative shall determine its surplus at the close of every fiscal year and at such other time as may be prescribed by the bylaws The net surplus shall not be construed as profit but as excess of payments made by the members Reserve Fund At least 10 % of net surplus shall be set aside Used for the stability of UAFCOOP Shall no be utilized for investment Shall not be distributed among the members in case of dissolution Established a usufruct fund Donate, contribute or otherwise dispose the amount of benefit of the community where the cooperative operates Cooperative Estates Landholdings like plantations, estates or haciendas acquired by the State for the benefit of the workers in accordance with the Comprehensive Agrarian Reform Program shall be owned collectively by the workers-beneficiaries who shall form a cooperative at their option Infrastructure- the Government shall grant to agrarian reform cooperatives preferential treatment, if necessary, the authority to construct, maintain, and manage with government funding roads, bridges, canals, wharves, ports, reservoirs, irrigation systems, waterworks systems, and other infrastructures. Education and Training Fund- at least 5 % of net surplus shall be set aside Page 148 of 190

a. ½ of 50% of total amount transferred annually for education purposes, while the other ½ may be remitted to a union or federation chosen by the cooperative b. The unexpected balance shall be credited to the cooperative education and training fund of the above mentioned apex organization c. Optional Fund- not exceeding 2% for land and building development and other necessary improvements d. Community Fund Development- at least 3% for projects and activities that will benefit the community where AUFCOOP operates e. Interest on Share Capital and Patronage Refunds- the remaining 80% shall be made available to members in the form of share capital Categories of Cooperative 1. In terms of membership a. Primary- members are natural persons b. Secondary- members are primaries c. Tertiary- members are secondary 2. In terms of territory - Categorized according to areas of operations which may or may not coincide with the political subdivision of the country Merger and Consolidation Merger- contract and statutory process by which one corporation acquires all of the asset and liabilities of another corporation Consolidation- a contractual and statutory process which a. Two or more corporations jointly become new corporation b. The original corporations cease to exist and do business c. The successor corporation acquires all of the assets and liabilities of the original corporation Procedure: 1. Approval of merger by the BOD of each (original) corporation 2. Approval of the merger and consolidation plan by vote of shareholders of each (original) corporation 3. The approved plan must be filed with the appropriate state officials 4. Issuance of Certificate of Merger or Certificate of Consolidation to the surviving and the successor corporation Short- Form Merger - merger between a parent and a subsidiary (at least 90% owned by the parent) which can be accomplished without the shareholder’s approval WHY? Page 149 of 190

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- The sub is already the parent due to the very high ownership percentage Dissolution Receivers and receiver-managers The appointment, duties and obligations of a receiver or a receiver-manager including Court ordered and related directions

Self-Assessment Questions 1. It means the full membership of a body of representatives elected by each of the sectors, chapter or district, or the cooperative duly assembled for the general assembly in accordance with its by-laws a. Officers of the cooperative b. Member of the cooperative c. Representative assembly d. Social audit 2. I. A member shall be liable for the debts of the cooperative to the extent of his contribution to the share capital of the cooperative. II. A member of the cooperative may, for any valid reason, withdraw his membership from the cooperative by giving a 60 day notice to the board of directors. Subject to the bylaws of the cooperative, the withdrawing member shall be entitled to a refund of his share capital contribution and all other interests in the cooperative. a. Only I is true b. Only II is true c. Both are true d. Both are false 3. Is one who has complied with all membership requirements and entitled to all the rights and privileges of membership. a. Regular Member b. Irregular member c. Principal Member d. Associate member 4. It is a procedure wherein the cooperative assesses its social impact and ethical performance vis-à-vis its stated mission, vision, goals, and code of social responsibility for cooperatives to be established by the CDA in consultation with the cooperative sector. It enables the cooperative to develop a process whereby it can account for its social performance and

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evaluate its impact in the community and be accountable for its decisions and actions to its regular members. a. Performance Audit b. Regular Audit c. Annual Audit d. Social Audit 5. I. 15 or more juridical or natural persons who are Filipino citizens, of legal age, having common bond of interest and are actually residing or working in the intended area of operation, may organize a primary cooperative. II. A prospective member of primary cooperative must have completed a Pre-Membership Education Seminar (PMES). a. Only I is true b. Only II is true c. Both are true d. Both are false 6. I. A cooperative duly registered shall have limited liability II. A cooperative shall exist for a period not exceeding 50 years from the date of registration unless sooner dissolved or unless said period is extended. a. Only I is true b. Only II is true c. Both are true d. Both are false 7. It means that body of cooperative principles adhered to worldwide by cooperatives. a. Universally accepted principles b. International accounting standards c. Generally accepted principles d. Transitional Principles 8. I. A certificate of registration issued by the CDA under its official seal shall be prima facie evidence that the cooperative therein mentioned is duly registered unless it is proved that the registration thereof has been cancelled. II. Any provision or matter stated in the articles of cooperation and by laws may be amended by 2/3 vote of all the members with voting rights, without prejudice to the right of the dissenting members to exercise their right to withdraw their membership. a. Only I is true b. Only II is true c. Both are true Page 151 of 190

d. Both are false 9. A cooperative registered under this Code shall have the following powers, rights and capacities: a. To the exclusive use of its registered name, to sue and be sued. b. Of succession c. To amend its articles of cooperation d. All of the above 10. I. All amendments to the article of cooperation and/or bylaws shall be submitted to the CDA. II. The amendments shall take effect upon its approval by the CDA or within 30 days from the date of filling thereof if not acted upon by the CDA for a cause not attributable to the cooperative. a. Only I is true b. Only II is true c. Both are true d. Both are false

Activity 1. A person, either natural or juridical. Who adhering to the principles set forth in the Philippine Cooperative Code and in the Articles of Cooperative, has been admitted by the cooperative as member. a. Member b. Stockholder c. Shareholder d. Partner 2. I. No merger or consolidation shall be valid unless approved by the 3,4 vote of all the members with voting rights, present and constituting a quorum of each of the constituent cooperatives at separate general assembly meetings. The dissenting members shall have no rights to withdraw their membership. II. The merger or consolidation shall be effective upon the issuance of the certificate of merger or consolidation by the CDA. a. Only I is true b. Only II is true c. Both are true Page 152 of 190

d. Both are false 3. Is one who has no right to vote nor be voted upon and shall be entitled upon only to such rights and privileges as the bylaws may provide: Provided, that an associate who meets the minimum requirements of regular membership, continues to patronize the cooperative for 2 years, and signifies his/her intention to remain a member shall be considered a regular member. a. Regular Member b. Irregular member c. Principal Member d. Associate member 4. I. An applicant for membership shall be deemed a member after approval of hos membership by the board of directors and shall exercise the rights of member after having made such payments to the cooperative in respect to membership or acquired interest in the cooperative as may be prescribed in the bylaws. II. in case membership is refused or denied by the board of directors, an appeal may be made to the general assembly and the latter’s decision shall be final. a. Only I is true b. Only II is true c. Both are true d. Both are false 5. I. The death or insanity of a member in a primary cooperative, and the insolvency or dissolution of a member in a secondary or tertiary cooperative may be considered valid grounds for the termination of membership. II. In case of death or insanity of an agrarian beneficiarymember of a cooperative, the next-of-kin may assume the duties and responsibilities of the original member. a. Only I is true b. Only II is true c. Both are true d. Both are false 6. It includes the members of the board of directors, members of the different committee created by the general assembly, general manager or chief officer, secretary, treasurer and members holding other positions as may be provided for in the bylaws. a. Officers of the cooperative b. Member of the cooperative c. Representative assembly Page 153 of 190

d. Social audit 7. I. The general assembly shall be composed of such members who are entitled to vote under the articles of cooperation and bylaws of the cooperative. II. The general assembly shall be the highest policy-making body of the cooperative and shall exercise such powers as are stated in the Philippine Cooperative Code, in the articles of cooperation and in the bylaws of the cooperative. a. Only I is true b. Only II is true c. Both are true d. Both are false 8. I. A quorum shall consist of at least 25% of all the members entitled to vote. II. In the case of electric cooperatives registered under the Philippine Cooperative Code, a quorum, unless otherwise provided in the bylaws, shall consist of 5% of all the members entitled to vote. a. Only I is true b. Only II is true c. Both are true d. Both are false 9. I. Each member of a primary cooperative shall have only 1 vote. II. In the case of members of secondary or tertiary cooperatives, they shall have 1 basic vote and as many incentive votes as provided for in the bylaws but not to exceed 5 votes. a. Only I is true b. Only II is true c. Both are true d. Both are false 10. I. Any member of a cooperative who are under the bylaws of the cooperative, has the right to vote and who possesses all the qualifications and none of the disqualifications provided in the laws or bylaws shall be eligible for election as director. II. The members of the board of directors shall not hold any other position directly involved in the day to day operation and management of the cooperative. a. Only I is true b. Only II is true c. Both are true d. Both are false Page 154 of 190

11. No member shall transfer his shares or interest in the cooperative or any part thereof unless: a. He has held such share capital contribution or interest for not less than 1 year. b. The assignment is made to the cooperative or to a member of the cooperative or to a person who falls within the field of the membership of the cooperative. c. The board of directors has approved such assignment. d. All of the above. 12. I. Any member shall have the right to examine the records required to be kept by the cooperative during reasonable hours on business days and he may demand, in writing, for a copy of excerpts from said records without charge except the cost of production. II. Any officer of the cooperative who shall refuse to allow any member of the cooperative to examine and copy excerpts from its records shall be liable to such member for damages, if such refusal is pursuant to a resolution or order of the board of directors, the liability under this article shall be imposed upon the directors who voted for such refusal. a. Only I is true b. Only II is true c. Both are true d. Both are false 13. Cooperatives registered under the Cooperative Code may derive their capital from any or all of the following sources: a. Members share capital b. Loans and borrowings including deposits c. Revolving capital which consists of the deferred payment of patronage refunds, or interest on share capital. d. All of the above 14. I. No member of primary cooperative other than cooperative itself shall own or hold more than 10% of the share capital of the cooperative II. Where a member of cooperative dies, his heir shall be entitled to the shares of the decedent. a. Only I is true b. Only II is true c. Both are true d. Both are false

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15. It means the operative act granting juridical personality to a proposed cooperative and is evidenced by a certificated of registration. a. Incorporation b. Dissolution c. Registration d. Winding Up 16. It includes cooperative undertaking activities which are related to its main line of business or purpose a. Subsidiary Cooperative b. Single line or purpose coop c. Service coop d. Social Audit 17. I. Any newly organized primary cooperative may be registered as multipurpose cooperative only after compliance with the minimum requirements for multipurpose cooperatives to be set by the CDA. II. A single purpose cooperative may transform into a multipurpose or may create subsidiaries only after at least 3 years of operation. a. Only I is true b. Only II is true c. Both are true d. Both are false 18. I. A cooperative formed and organized acquires juridical personality from the CDA issues a certificate of registration under its official seal. II. all applications for registration shall be finally disposed of by the CDA within a period of 60 days from the filling thereof, otherwise the application is deemed approved, unless the cause of the delay is attributable to the applicant. a. Only I is true b. Only II is true c. Both are true d. Both are false 19. Are those provides any type of service to its members, including but not limited to, transport, information and communication, insurance, housing, electric, health services, education, banking, and savings and credit. a. Subsidiary Cooperative b. Single line or purpose coop c. Service coop d. Social Audit

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20. I. Contracts executed between private persons and cooperatives prior to the registration of the cooperative is void. II. Any registered cooperative may, by resolution approved by a vote of ¾ of all members with voting rights, present and constituting a quorum, resolve to divide itself into 2 or more cooperatives. a. Only I is true b. Only II is true c. Both are true d. Both are false References: 1) Pasimio,R.,(2001). Effective CPA Reviewer in Business Law. Metro Manila: National Book Store. 2) Unknown.(2008). Cooperative Code of the Philippines.

Retrieved July 27,2020, from https://www.gppb.gov.ph/laws/laws/RA_6938.pdf.

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CHAPTER 9 LAWS ON OTHER BUSINESS TRANSACTIONS

Chapter Objectives 1. 2.

Identify covered institutions/persons Distinguish suspicious transactions from covered transactions 3. Enumerate the record keeping requirements 4. Explain law on patents 5. Explain law on trademark, service mark and trade names 6. Explain the law on copyright 7. Explain the processing and security of personal information 8. Explain the rights of the data subject 9. Describe and explain the security of sensitive personal information in government 10. Describe the penalties for violation of data privacy act 11. Describe the legal recognition and communication of electronic data messages and electronic documents Lesson 1 The Anti-Money Laundering Law Money Laundering (SEC. 4.) – Money laundering is a crime whereby the proceeds of an unlawful activity as herein defined are transacted, thereby making them appear to have originated from legitimate sources. It is committed by the following: A. Any person knowing that any monetary instrument or property represents, involves, or relates to, the proceeds of any unlawful activity, transacts or attempts to transact said monetary instrument or property. B. Any person knowing that any monetary instrument or property involves the proceeds of any unlawful activity, performs or fails to perform any act as a result of which he facilitates the offense of money laundering referred to in paragraph A. above. C. Any person knowing that any monetary instrument or property is required under this Act to be disclosed and filed with the Anti-Money Laundering Council (AMLC), fails to do so. Page 158 of 190

Penalties (Sect. 14) A. Penalties for the Crime of Money Laundering. The penalty of imprisonment ranging from seven (7) to fourteen (14) years and a fine of not less than Three million Philippine pesos (Php 3,000,000.00) but not more than twice the value of the monetary instrument or property involved in the offense, shall be imposed upon a person convicted under Section 4A. of this Act. The penalty of imprisonment from four (4) to seven (7) years and a fine of not less than One million five hundred thousand Philippine pesos (Php1,500,000.00) but not more than Three million Philippine pesos (Php3,000,000.00), shall be imposed upon a person convicted under Section 4B. of this Act. The penalty of imprisonment from six (6) months to four (4) years or a fine of not less than One hundred thousand Philippine pesos (Php100,000.00) but not more than Five hundred thousand Philippine pesos (Php500,000.00), or both, shall be imposed on a person convicted under Section 4C. of this Act. B. Penalties for Failure to Keep Records. The penalty of imprisonment from six (6) months to one (1) year or a fine of not less than One hundred thousand Philippine pesos (Php100,000.00) but not more than Five hundred thousand Philippine pesos (Php500,000.00), or both, shall be imposed on a person convicted under Section 9B. of this Act. C. Malicious Reporting. Any person who, with malice, or in bad faith, reports or files a completely unwarranted or false information relative to money laundering transaction against any person shall be subject to a penalty to six (6) months to four (4) years imprisonment and a fine of not less than One hundred thousand Philippine pesos (Php100,000.00) but not more than Five hundred thousand Philippine pesos (Php500,000.00), at the discretion of the court: Provided, That the offender is not entitled to avail the benefits of the Probation Law. D. Breach of Confidentiality. The punishment of imprisonment ranging from three (3) to eight (8) years and a fine of not less than Five hundred thousand Philippine pesos (Php500,000.00) but not more than One million Philippine pesos (Php1,000,000.00) shall be imposed on a person convicted for a violation under Section 9C.. In the case of a breach of confidentiality that is published or reported by media, the responsible reporter, writer, president, publisher, manager and editor-in-chief shall be liable under this Act Requirements: Page 159 of 190

Customer Identification Requirements; Record Keeping; and Reporting of Covered Transactions. Covered institutions shall establish and record the true identity of its clients based on official documents. Record Keeping. - All records of all transactions of covered institutions shall be maintained and safely stored for five (5) years from the dates of transactions. Reporting of Covered and Suspicious Transactions. - Covered institutions shall report to the AMLC all covered transactions and suspicious transactions within five(5) working days from occurrences thereof, unless the Supervising Authority prescribes a longer period not exceeding ten (10) working days. Exempt from Bank Secrecy Law Covered Transactions is a transaction in cash or other equivalent monetary instrument involving a total amount in excess of Five hundred thousand pesos (PhP 500,000.00) within one (1) banking day. Suspicious Transactions are transactions with covered institutions, regardless of the amounts involved, where any of the following circumstances exist: 1. there is no underlying legal or trade obligation, purpose or economic justification; 2. the client is not properly identified; 3. the amount involved is not commensurate with the business or financial capacity of the client; 4. taking into account all known circumstances, it may be perceived that the client's transaction is structured in order to avoid being the subject of reporting requirements under the Act; 5. any circumstances relating to the transaction which is observed to deviate from the profile of the client and/or the client's past transactions with the covered institution; 6. the transactions is in a way related to an unlawful activity or offense under this Act that is about to be, is being or has been committed; or 7. any transactions that is similar or analogous to any of the foregoing. Unlawful Activities: refers to any act or omission or series or combination thereof involving or having relation to the following: Page 160 of 190

1. 2. 3. 4. 5. 6. 7. 8.

Kidnapping Drugs Plunder Robbery and Extortion Jueteng and Masioa Piracy Qualified Theft Swindling

9. Smuggling 10. E-Commerce 11. Highjacking 12. SEC violations 13. Graft and Corrupt Practices 14. Other Similar Offenses

Covered institutions 1. Banks, non-banks, quasi-banks, trust entities, and all other institutions and their subsidiaries and affiliates supervised or regulated by the Bangko Sentral ng Pilipinas (BSP); 2. Insurance companies and all other institutions supervised or regulated by the Insurance Commission; and 3. (i) securities dealers, brokers, salesmen, investment houses and other similar entities managing securities or rendering services as investment agent, advisor, or consultant, (ii) mutual funds, closeend investment companies, common trust funds, pre-need companies and other similar entities, (iii) foreign exchange corporations, money changers, money payment, remittance, and transfer companies and other similar entities, and (iv) other entities administering or otherwise dealing in currency, commodities or financial derivatives based thereon, valuable objects, cash substitutes and other similar monetary instruments or property supervised or regulated by Securities and Exchange Commission and Exchange Commission Lesson 2 Bank Secrecy Law RA 1405 Approved: September 9, 1955 It is hereby declared to be the policy of the Government to give encouragement to the people to deposit their money in banking institutions and to discourage private hoarding so that the same may be properly utilized by banks in authorized loans to assist in the economic development of the country. Coverage: All deposits of whatever nature with banks or banking institutions in the Philippines including investments in bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities, are hereby considered as of an absolutely confidential nature and may not be examined, inquired or looked into by any person, government official, bureau or office. Page 161 of 190

Exception: Written permission of the depositor, Cases of impeachment, Order of a competent court in cases of bribery or dereliction of duty of public officials, 4. Cases where the money deposited or invested is the subject matter of the litigation; 5. NIRC (Determination of Gross Estate). Prohibited act: 1. It shall be unlawful for any official or employee of a banking institution to disclose to any person other than those mentioned in Section two hereof any information concerning said deposits. PENALTY: Imprisonment of not more than 5 years or a fine of not more than twenty thousand pesos or both, in the discretion of the court. 1. 2. 3.

Lesson 3 Intellectual Property Rights Code RA 8293 Jan. 1, 1998 State Policy: The State recognizes that an effective intellectual and industrial property system is vital to the development of domestic and creative activity, facilitates transfer of technology, attracts foreign investments, and ensures market access for our products. It shall protect and secure the exclusive rights of scientists, inventors, artists and other gifted citizens to their intellectual property and creations, particularly when beneficial to the people, for such periods as provided in this Act. The use of intellectual property bears a social function. To this end, the State shall promote the diffusion of knowledge and information for the promotion of national development and progress and the common good. It is also the policy of the State to streamline administrative procedures of registering patents, trademarks and copyright, to liberalize the registration on the transfer of technology, and to enhance the enforcement of intellectual property rights in the Philippines. Protected rights 1. Copyright and related rights; 2. Trademarks and service marks; 3. Geographic indications; 4. Industrial designs; Page 162 of 190

5. Patents; 6. Layout designs [topographies] of integrated circuits; and 7. Protection of undisclosed information. Agencies of government enforcing the IPR Code Bureaus under the IPRO: [1] Bureau of Patents; [2] Bureau of Trademarks; [3] Bureau of Legal Affairs; [4] Documentation, Information and Technology Transfer Bureau; [5] Management Information System and EDP Bureau; and [6] Administrative, Financial and Personnel Services Bureau. Patentable inventions? Any technical solution of a problem in any field of human activity which is new, involves an inventive step and is industrially applicable shall be patentable. It may be, or may relate to, a product, or process, or an improvement of any of the foregoing. Non patentable inventions? 1. Discoveries, scientific theories and mathematical methods; 2. Schemes, rules and methods of performing mental acts, playing games or doing business, and programs for computers; 3 Methods for treatment of the human or animal body by surgery or therapy and diagnostic methods practiced on the human or animal body. This provision shall not apply to products and composition for use in any of these methods; 4. Plant varieties or animal breeds or essentially biological process for the production of plants or animals. This provision shall not apply to micro-organisms and non-biological and microbiological processes. Provisions under this subsection shall not preclude Congress to consider the enactment of a law providing sui generis protection of plant varieties and animal breeds and a system of community intellectual rights protection: 5. Aesthetic creations; and 6. Anything which is contrary to public order or morality. Rights in relation to patent Once granted: The term of a patent shall be twenty (20) years from the filing date of the application. The Law outlines the processes that needs to be undertaken before approval of the application.

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Rights of patent owner 1. A patent shall confer on its owner the following exclusive rights: A. Where the subject matter of a patent is a product, to restrain, prohibit and prevent any unauthorized person or entity from making, using, offering for sale, selling or importing that product; B. Where the subject matter of a patent is a process, to restrain, prevent or prohibit any unauthorized person or entity from using the process, and from manufacturing, dealing in, using, selling or offering for sale, or importing any product obtained directly or indirectly from such process. Limitations on said Rights The owner of a patent has no right to prevent third parties from performing, without his authorization, the acts referred to in Section 71 hereof in the following circumstances: 1 Using a patented product which has been put on the market in the Philippines by the owner; 2. Where the act is done privately and on a non-commercial scale or for a non-commercial purpose; 3. Where the act consists of making or using exclusively for the purpose of experiments that relate to the subject matter of the patented invention; 72.4. Where the act consists of the preparation for individual cases, in a pharmacy or by a medical professional, of a medicine in accordance with a medical prescription or acts concerning the medicine so prepared; 72.5. Where the invention is used in any ship, vessel, aircraft, or land vehicle of any other country entering the territory of the Philippines temporarily or accidentally: Provided, That such invention is used exclusively for the needs of the ship, vessel, aircraft, or land vehicle and not used for the manufacturing of anything to be sold within the Philippines. (Secs. 38 and 39, R. A. No. 165a) 4. Where the act consists of the preparation for individual cases, in a pharmacy or by a medical professional, of a medicine in accordance with a medical prescription or acts concerning the medicine so prepared; 5. Where the invention is used in any ship, vessel, aircraft, or land vehicle of any other country entering the territory of the Philippines temporarily or accidentally: Provided, That such invention is used exclusively for the needs of the ship, vessel, aircraft, or land vehicle and not used for the manufacturing of anything to be sold within the Philippines.

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Enforcement Civil action for Infringement Criminal Action for Infringement Damages-assessed by two assessor Imprisonment for the period of not less than six (6) months but not more than three (3) years and/or a fine of not less than One hundred thousand pesos (P100,000) but not more than Three hundred thousand pesos (P300,000), at the discretion of the court. Three (3) years prescription from date of the commission of the crime. Law on trademark Important Terms:  "Mark" means any visible sign capable of distinguishing the goods (trademark) or services (service mark) of an enterprise and shall include a stamped or marked container of goods; "Collective mark" means any visible sign designated as such in the application for registration and capable of distinguishing the origin or any other common characteristic, including the quality of goods or services of different enterprises which use the sign under the control of the registered owner of the collective mark; "Trade name" means the name or designation identifying or distinguishing an enterprise; REGISTRABILITY Any mark can be registered if not inconsistent with those prohibited by the Law on Trademarks NOT – immoral, deceptive, scandalous, name of a living individual, identical with a registered mark, among others. term A certificate of registration shall remain in force for ten (10) years: Provided, That the registrant shall file a declaration of actual use and evidence to that effect, or shall show valid reasons based on the existence of obstacles to such use, as prescribed by the Regulations, within one (1) year from the fifth anniversary of the date of the registration of the mark. Otherwise, the mark shall be removed from the Register by the Office. Rights of owner 1. The owner of a registered mark shall have the exclusive right to prevent all third parties not having the owner’s consent from using in the course of trade identical or similar signs or containers for goods or services which are identical or similar to those in Page 165 of 190

respect of which the trademark is registered where such use would result in a likelihood of confusion. 2. May extend to other goods of owner Remedies in case of breach 1. Damages and Injunction for Infringement. Power of Court to Order Infringing Material Destroyed. 2. Criminal Action. What is Copyright Literary and artistic works which are original intellectual creations in the literary and artistic domain protected from the moment of their creation.

1. 2. 3. 4. 5. 6. 7.

Rights conferred Exclusive right to carry out, authorize or prevent the following acts: Reproduction of the work or substantial portion Dramatization, translation, etc First public distribution Rental of the original copy Public display Public Performance Other mode of communication of the work Term protection of the right In general, 50 years Joint authorship – 50 years after death applied arts – 25 years Photographic Works – 50 years from publication Audio Visual – 50 years from publication

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Remedies for breach Action for Damages Criminal Action Payment of actual damages and expenses, prohibition of entry, destruction of the goods. Imprisonment ranges from 6 years and 1 day to 9 years and fine from 500K to 1 million. What are copyrightable? Original Works -Literary and Artistic Works A. Books, pamphlets, articles and other writings; B. Periodicals and newspapers;

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C. Lectures, sermons, addresses, dissertations prepared for oral delivery, whether or not reduced in writing or other material form; D. Letters; (e) Dramatic or dramatico-musical compositions; choreographic works or entertainment in dumb shows; (f) Musical compositions, with or without words; (g) Works of drawing, painting, architecture, sculpture, engraving, lithography or other works of art; models or designs for works of art; (h) Original ornamental designs or models for articles of manufacture, whether or not registrable as an industrial design, and other works of applied art; (i) Illustrations, maps, plans, sketches, charts and threedimensional works relative to geography, topography, architecture or science; (j) Drawings or plastic works of a scientific or technical character; (k) Photographic works including works produced by a process analogous to photography; lantern slides; (l) Audiovisual works and cinematographic works and works produced by a process analogous to cinematography or any process for making audio-visual recordings; (m) Pictorial illustrations and advertisements; (n) Computer programs; and (o) Other literary, scholarly, scientific and artistic works. (g) Works of drawing, painting, architecture, sculpture, engraving, lithography or other works of art; models or designs for works of art; (h) Original ornamental designs or models for articles of manufacture, whether or not registrable as an industrial design, and other works of applied art; (i) Illustrations, maps, plans, sketches, charts and threedimensional works relative to geography, topography, architecture or science; (j) Drawings or plastic works of a scientific or technical character; (k) Photographic works including works produced by a process analogous to photography; lantern slides; (l) Audiovisual works and cinematographic works and works produced by a process analogous to cinematography or any process for making audio-visual recordings; (m) Pictorial illustrations and advertisements; (n) Computer programs; and (o) Other literary, scholarly, scientific and artistic works. Derivative Works Page 167 of 190

(a) Dramatizations, translations, adaptations, abridgments, arrangements, and other alterations of literary or artistic works; and B. Collections of literary, scholarly or artistic works, and compilations of data and other materials which are original by reason of the selection or coordination or arrangement of their contents.

Lesson 4 Data Privacy Act “Data Privacy Act of 2012” Approved August 15, 2012 September 9, 2016 IRR effectivity STATE POLICY It is the policy of the State to protect the fundamental human right of privacy, of communication while ensuring free flow of information to promote innovation and growth. The State recognizes the vital role of information and communications technology in nation-building and its inherent obligation to ensure that personal information in information and communications systems in the government and in the private sector are secured and protected. The national privacy commission Administer and implement the provisions of this Act, and to monitor and ensure compliance of the country with international standards set for data protection. Penalties for violations: Imprisonment ranges from 6 months to 7 years depending on the violations. Fine ranges from 500K to 2 million. *both at the same time Processing of personal information General Data Privacy Principles. – The processing of personal information shall be allowed, subject to compliance with the requirements of this Act and other laws allowing disclosure of information to the public and adherence to the principles of transparency, legitimate purpose and proportionality. Criteria for lawful processing Page 168 of 190

1. 2. 3. 4. 5. 6.

Criteria for Lawful Processing of Personal Information. – The processing of personal information shall be permitted only if not otherwise prohibited by law, and when at least one of the conditions provided for by law. (In general allowed unless prohibited by law and when conditions provided by law exists) SENSITIVE PERSONAL INFOMATION As defined by said law: Any personal information. Processing of which is prohibited except: Consented Mandated by law Protection of life and health of another person Lawful non-commercial purose of public organizations Medical Treatment Court proceedings

RIGHTS OF THE DATA SUBJECT To be informed: (In sum) 1. Information being processed; 2. Extent of the information being processed; 3. The processes to be undertaken in the processing of data Note: Right to removal of information on the system; Indemnified for damages sustained due inaccuracy, incomplete, false, unauthorized use. Sensitive personal information in government All sensitive personal information maintained by the government,, with the use of the most appropriate standard xx. The head of each government agency or instrumentality shall be responsible for complying with the security requirements to be monitored by the National Privacy Commission. *each agency was mandated to come-up with their respective procedure in processing data. Basic requirements 1. Appointing a Data Protection Officer 2. Conducting a privacy impact assessment 3. Creating a privacy knowledge management program 4. Implementing a privacy and data protection policy 5. Exercising a breach reporting procedure

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Lesson 5 ELECTRONIC COMMERCE ACT "Electronic Commerce Act of 2000” Approved: June 14, 2000 September 9, 2016 IRR effectivity

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State policy The State recognizes the vital role of information and communications technology (ICT) in nation-building; the need to create an information-friendly environment which supports and ensures the availability, diversity and affordability of ICT products and services; the primary responsibility of the private sector in contributing investments and services in telecommunications and information technology; the need to develop, with appropriate training programs and institutional policy changes, human resources for the information technology age, a labor force skilled in the use of ICT and a population capable of operating and utilizing electronic appliances and computers; its obligation to facilitate the transfer and promotion of technology; to ensure network security, connectivity and neutrality of technology for the national benefit; and the need to marshal, organize and deploy national information infrastructures, comprising in both telecommunications network and strategic information services, including their interconnection to the global information networks, with the necessary and appropriate legal, financial, diplomatic and technical framework, systems and facilities. OBJECTIVES This law aims to facilitate domestic and international dealings, transactions, arrangements agreements, contracts and exchanges and storage of information through the utilization of electronic, optical and similar medium, mode, instrumentality and technology to recognize the authenticity and reliability of electronic documents related to such activities and to promote the universal use of electronic transaction in the government and general public. Admissibility as evidence Information shall not be denied validity or enforceability solely on the ground that it is in the form of an electronic data message purporting to give rise to such legal effect, or that it is merely incorporated by reference in that electronic data message. Electronic documents shall have the legal effect, validity or enforceability as any other document or legal writing subject to the conditions relating to its authenticity. Page 170 of 190

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An electronic signature on the electronic documents shall be equivalent to the signature of a person on a written document if the signature is an electronic signature and proved by showing that a prescribed procedure, not alterable by the parties interested in the electronic document, existed under the conditions relating to its authencity. Confidentiality Except for the purposes authorized under the E-Commerce Act, any person who obtained access to any electronic key, electronic data message or electronic document, book, register, correspondence, information, or other material pursuant to any powers conferred under this Act, shall not convey to or share the same with any other person Penalties A. Hacking or crackling system -minimum fine of P 100,000.00 and a maximum commensurate to the damage incurred and a mandatory imprisonment of six (6) months to three (3) years; B. Piracy same penalties above; C. Violations of the Consumer Act of covered by or using electronic data messages or electronic documents, shall be penalized with the same penalties as provided in those laws; D. Other violations of the provisions of the E-commerce Act.

Lesson 6 Philippine Deposit Insurance Corporation Law REPUBLIC ACT NO. 3591 THE PHILIPPINE DEPOSIT INSURANCE CORPORATION LAW AMENDED BY Republic Act No. 9576 April 29, 2009 What is PDIC? -insure the deposits of all banks which are entitled to the benefits of insurance. What is PDIC’S maximum insurance coverage? -P500,000 per depositor - All deposit accounts by a depositor in a closed bank maintained in the same right and capacity shall be added together. What is an insured deposit?

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-the amount due to a bona fide depositor for legitimate depositors in an insured bank net of any obligation of the depositor to the insured bank as of date of closure, but not to exceed P500,000. - a joint account regardless of whether the conjunction ‘and’, ‘or’, ‘and/or’ is used, shall be insured separately from any individuallyowned deposit account, provided: 1) if the account is held jointly by two or more natural persons, or by two or more juridical persons or entities, the maximum insured deposit shall be divided into as many equal shares as there are individuals, juridical persons or entities, unless a different sharing is stipulated in the document of deposit, and 2) if the account is held by a juridical person or entity jointly with one or more natural persons, the maximum insured deposits shall be presumed to belong entirely to such juridical person or entity. Provided, further, that the aggregate of the interest of each coowner over several joint accounts, shall likewise be subject to maximum insured deposit of P500,000. Foreign Currency Deposits are also insured by PDIC Account name per Bank Records Juan De La Cruz& Maria De La Cruz XYZ Corp. Juan De La Cruz and ABC Corp. Total Insured Deposit s

Computation for Insured Deposits Type of Acc. Balance Juan Deposit Numbe r Savings

1

P500,000

Time Deposit Deman d Deposit

2

500,000

3

600,000

1,600,00 0

250,00 0

Maria

XYZ Corp.

ABC Corp.

250,00 0

500,00 0 500,00 0 250,00 0 250,00 0

250,00 0 250,00 0

500,00 0 500,00 0

500,00 0 500,00 0

What is splitting of deposits or creation of fictitious loans or deposit accounts?

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Account with an outstanding balance or more than the statutory maximum amount of insured deposit is broken down and transferred into 2 or more accounts w/n 120 days immediately preceding or during a bank-declared bank holiday, or immediately upon a closure order issued by the Monetary Board of the BSP for the purpose of availing of the maximum deposit insurance coverage.

Are all banks members of PDIC? -Yes, it is mandatory What specific risks to a bank does PDIC cover? -PDIC covers only the risk of a bank closure ordered by Monetary Board.(Insolvency only) Shall depositor pay any insurance premium to PDIC? -NO How is insurance coverage determined? -The outstanding balance of each account is adjusted, such that interests are updated, withholding taxes are deducted. Accounts maintained by a depositor in the same right and capacity are added together; and whether applicable, unpaid loans and other obligations of the depositor are deducted; and in no case shall insured deposit exceed P500,000. Can PDIC insurance coverage be increased by having several accounts in the same name in an insured bank? -No. Deposit insurance coverage is not determined on a per account basis. The type of account (whether checking, savings, time or other form of deposit) has no bearing on the amount of insurance coverage. If I have deposits in several different insured banks, will they be added together for insurance purposes? -No. Deposits in different banking institutions are insured separately. However, if a bank has one or more branches, the main office and all branch are considered one bank. Is there a need for a depositor to file his claim for insured deposit with PDIC? - YES. When should the depositor of a closed insured bank file his claim with PDIC? - 24 months from the date of bank takeover to file his deposit insurance claim. Page 173 of 190

Depositors with valid deposit accounts with balance of P100,000 and below are not required to file claims, provided they: a) Have no obligations with the closed bank, or have not acted as co-makers of these obligations, or are not spouses of the borrowers; b) Have complete mailing address found in the bank records or have updated their addresses through Mailing Address Update Form of PDIC before the start of the onsite claims settlement operation; and c) Have not maintained the account under the name of business entities Who are required to file claims? Depositors: a) With valid deposit accounts with balances of more than P100,000.00 b) a-c above c) With accounts not eligible for early payment, regardless of type of account and account balance per advice of PDIC; and d) Who are deceased whose filling of claim is thru the legal heirs. -

What happens when the depositor of a closed bank fails to file his claim within 24- month period? - All rights of the depositor with respect to the insured deposit shall no longer be honored. But he may still make a claim against the assets of the closed bank. How long does it take PDIC to settle a claim for insured deposit? - w/n 6 months from the date of filling provided all requirements are met but the claim must be filled 24 months after bank takeover. May PDIC terminate the insured status of a bank? - Yes if the bank is involved or is about to be involved in unsafe and unsound bank practices and there have been a “ cease and desists’ order from PDIC or corrective action imposed by a Monetary Board and bank fails to comply w/ 30 days. - The deposit of a depositor as of the effective date of termination less all subsequent withdrawals shall continue to be insured up to the maximum insurance coverage for 180 days. All deposits after the effective date of termination of insured status of the bank are no longer considered insured.

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Lesson 7 Unclaimed Balance Law RA 3936 UNCLAIMED BALANCES LAW - Dormant deposits for a period of 10 years may be escheated in favor of the government. - Initial notice to the depositor of the unclaimed balance; - Publication or a list of unclaimed balances also required; - Includes credits or deposits of money, bullion, security or other evidence of indebtedness of any kind; - Covers banks, buildings and loan associations, and trust corporations.

Self-Assessment Question 1. A single common site or location, or a single online website or portal designated for the Business Permit and Licensing System of an LGU to receiver and process applications, receive payments, and issue approved licenses, clearances, permits, or authorizations. a. Business one-stop-shop b. One stop shop Business c. Common site Business d. Common Location Business 2. The Anti-Money Laundering Law is a law that seeks to prevent money laundering activities by providing for more transparency in the Philippine Financial System, hence the following institutions are covered by the law, except: a. Bank and any financial institutions; b. Pawnshops; c. Casino operators; d. All of the above. 3. I. The PDIC shall insure the deposits of all banks. II. The PDIC shall promote and safeguard the interests of the depositing public by providing insurance coverage on all insured deposits and helping maintain a sound and stable banking system. a. Only I is true c. Both are true b. Only II is true d. Both are false 4. It refers to the judicial process in which the State, by virtue of its sovereignty, steps in and claims abandoned, left vacant, or unclaimed property, w/o there being an interested person having a legal claim thereto. a. Eviction Proceedings b. Escheat Proceedings Page 175 of 190

c. Nullity Proceedings d. Annulment Proceeding 5. Under the Intellectual Property Code, lectures, sermons, addresses or dissertations prepared for oral delivery, whether or not reduced in writing or other material forms, are regarded as A. non-original works. C. derivative works. B. original works. D. not subject to protection. 6. Apart from economic rights, the author of a copyright also has moral rights which he may transfer by way of assignment. The term of these moral rights shall last A. during the author's lifetime and for 50 years after his death. B. forever. C. 50 years from the time the author created his work. D. during the author's lifetime. 7. X, an amateur astronomer, stumbled upon what appeared to be a massive volcanic eruption in Jupiter while peering at the planet through his telescope. The following week, X, without notes, presented a lecture on his findings before the Association of Astronomers of the Philippines. To his dismay, he later read an article in a science journal written by Y, a professional astronomer, repeating exactly what X discovered without any attribution to him. Has Y infringed on X's copyright, if any? A. No, since X did not reduce his lecture in writing or other material form. B. Yes, since the lecture is considered X’s original work. C. No, since no protection extends to any discovery, even if expressed, explained, illustrated, or embodied in a work. D. Yes, since Y’s article failed to make any attribution to X. 8. It refers to an individual whose personal information is processed a. Data object c. Data prestation b. Data subject d. None of the above 9. . Under the Anti-Money Laundering Law, a covered institution is required to maintain a system of verifying the true identity of their clients as well as persons purporting to act on behalf of A. those doing business with such clients.. B. unknown principals. C. the covered institution. D. such clients. 10. "Eagleson Refillers, Co.," a firm that sells water to the public, opposes the trade name application of "Eagleson Laundry, Co.," on the ground that such trade name tends to deceive trade circles or confuse the public with respect to the water firm’s registered trade name. Will the opposition prosper? A. Yes, since such use is likely to deceive or confuse the public. Page 176 of 190

B. Yes, since both companies use water in conducting their business. C. No, since the companies are not engaged in the same line of business. D. No, since the root word "Eagle" is a generic name not subject to registration. 11. T, an associate attorney in XYZ Law Office, wrote a newspaper publisher a letter disputing a columnist’s claim about an incident in the attorney’s family. T used the law firm’s letterhead and its computer in preparing the letter. T also requested the firm’s messenger to deliver the letter to the publisher. Who owns the copyright to the letter? A. T, since he is the original creator of the contents of the letter. B. Both T and the publisher, one wrote the letter to the other who has possession of it. C. The law office since T was an employee and he wrote it on the firm’s letterhead. D. The publisher to whom the letter was sent. 12.These are diamond, ruby, emerald, sapphire, opal, amethyst, beryl, topaz, and garnet that are used in jewelry making including those formerly classified as semi-precious stones. a. Precious metals c. Precious gems b. Precious stones d. None of the above. 13. The Bank Secrecy Law (RA 1405) prohibits disclosing any information about deposit records of an individual without court order except a. In an examination to determine gross estate of a decedent. b. In an investigation for violation of Anti-Graft and Corrupt Practices. c. In an investigation by the Ombudsman. d. In an impeachment proceeding. 14. X works as a research computer engineer with the Institute of Computer Technology, a government agency. When not busy with his work, but during office hours, he developed a software program for law firms that will allow efficient monitoring of the cases, which software program is not at all related to his work. Assuming the program is patentable, who has the right over the patent? a. X; b. Institute of Computer Technology; c. Neither X nor the Institute of Computer Technology can claim patent right over the invention; d. X and the employer of X will jointly have the rights over the patent. Page 177 of 190

15. The "test of dominancy" in the Law on Trademarks, is a way to determine whether there exists an infringement of a trademark by a. Determining if the use of the mark has been dominant in the market. b. Focusing on the similarity of the prevalent features of the competing marks which might create confusion. c. Looking at the mark whether they are similar in size, form or color. d. Looking at the mark whether there is one specific feature that is dominant. Activity 1. X's painting of Madonna and Child was used by her mother to print some personalized gift wrapper. As part of her mother's efforts to raise funds for Bantay Bata, the mother of X sold the wrapper to friends. Y, an entrepreneur, liked the painting in the wrapper and made many copies and sold the same through National Bookstore. Which statement is most accurate? a. Y can use the painting for his use because this is not a copyrightable material. b. X can sue Y for infringement because artistic works are protected from moment of creation. c. Works of art need to be copyrighted also to get protection under the law. d. Y can use the drawing even though not copyrighted because it is already a public property having been published already. 2.Compulsory Licensing of Inventions which are duly patented may be dispensed with or will be allowed exploitation even without agreement of the patent owner under certain circumstances, like national emergency, for reason of public interest, like national security, etc. The person who can grant such authority is a. the Director General of the Intellectual Property Office; b. the Director of Legal Affairs of the Intellectual Property Office; c. the owner of the Patent right; d. Any agent of the owner of the Patent right. 3. For purposes of determining violation of the provisions of Anti-Money Laundering Law, a transaction is considered as a "Suspicious Transaction" with "Covered Institutions" regardless of the amount involved, where which the following circumstances exist/s? a. the amount involved is not commensurate with the client's business or financial capacity;

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b. there is no underlying legal or trade obligation, purpose or economic justification; c. client is not properly identified; d. All of the above. 4. X is being charged for violation of Anti-Graft and Corrupt Practices because he is suspected of having accumulated unexplained wealth. X maintains deposit accounts with ABC Bank. The Ombudsman filed criminal cases against X before the Sandiganbayan. Can the Court issue subpoenas against ABC Bank to produce all documents pertaining to all the deposit accounts of X? a. Yes, because there is already a pending case and provided the subpoena must be specific as to which account. b. Yes, it is enough that the specific bank is identified. c. No, because the issuance of the subpoena has no real legal basis. d. Even without a subpoena, information about the deposit accounts of X can be submitted to the Sandiganbayan because it will be used in a pending case. 5. X, a private individual, maintains a dollar deposit with ABC Bank. X is suspected to be the leader of a Kidnap for Ransom Gang and he is suspected of depositing all ransom money in said deposit account which are all in US Dollars. The police want to open said account to know if there are really deposits in big amounts. Which statement is most accurate? a. The same rules under Secrecy of Bank Deposit Act will apply. b. An approval from the Monetary Board is necessary to open the account. c. Because the deposit is in US Dollars, it is covered by the Foreign Currency Deposit Act which allows disclosure only upon the written permission of the depositor. d. Approval from the Court is necessary to order disclosure of the account. 6. Samsung invented a cellular phone that can also play digital music or MP3s. It applied for the issuance of letters patent. a. The invention is not patentable because it is a combination of old functions which does not produce a new result. b. The invention is patentable because it is a new product which is beneficial to the public. c. The invention is not patentable because Samsung is a foreign corporation and it should file its application in its home country. d. The invention is patentable because it combines existing elements, a cellular phone and a digital music player, and produces

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a new and useful result, namely, the convenience of having two gadgets in one. 7. Lucky Me registered its trademark, “Ang Sarap Pancit Palabok” with the Intellectual Property Office.Nissin subsequently introduced its new product, “Ang Sarap Pinoy Ramen”. Lucky Me sued for trademark infringement. a. Nissin is not guilty of trademark infringement because the trademark“Ang Sarap” is descriptive, hence not capable of exclusive appropriation. b. Nissin is not guilty of trademark infringement because its product, Pinoy Ramen, belongs to a different category from Lucky Me’s product, Pancit Palabok. c. Nissin is guilty of trademark infringement because it did not register its trademark “Ang Sarap Pinoy Ramen”. d. Nissin is guilty of trademark infringement because the trademark “Ang Sarap” is fanciful and arbitrary, hence capable of exclusive appropriation. 8. Center Book Store is the publisher of the book Legal Journal. It donated one copy to the Library of the U.E. College of Law. The Library, in order to preserve the original book, reproduced one copy of the Journal for lending to the University’s students for room use. Is the U.E. Law Library liable for copyright infringement? a. No. The reproduction is consistent with fair use. b. Yes. Only the National Library is allowed to reproduce books and other works. c. No. The copy of the Journal is marked “For Room Use Only” and is therefore not made available to the public outside of the Library. d. Yes. The law only allows a library to photocopy a book if it is fragile or rare. 9. I. A joint account regardless of the conjunction used , shall be insured separately from any individually owned deposit account. II. The aggregate of the interest of each co-owner over several joint accounts, whether owned by the same or different combinations of individuals, juridical persons or entities, shall likewise be subject to the maximum insured deposit of P500,000. a. Only I is true c. Both are true b. Only II is true d. Both are false 10. I. Whenever a bank is ordered closed by the Monetary Board, the PDIC shall be designated as receiver and it shall proceed with the takeover and liquidation of the closed bank. II. The receiver is authorized to adopt and implement, w/o need of consent of the stockholders, BOD, creditors or depositors of the closed bank, any or a combination of the modes of liquidation. a. Only I is true b. Only II is true Page 180 of 190

c. Both are true d. Both are false 11.T is the registered trademark owner of "CROCOS" which he uses on his ready-to-wear clothes. Banking on the popularity of T's trade mark, B came up with his own "CROCOS" mark, which he then used for his "CROCOS" burgers. T now sues B for trademark infringement but B argues that his product is a burger, hence, there is no infringement. Is B correct? A. No, since the owner of a well-known mark registered in the Philippines has rights that extends even to dissimilar kinds of goods. B. Yes, since the right of the owner of a well-known mark registered in the Philippines does not extend to goods which are not of the same kind. C. Yes, as B was in bad faith in coming up with his own "CROCOS" mark. D. No, since unlike T, he did not register his own "CROCOS" mark for his product. 12. X, a newspaper columnist, while having a bank transaction, overheard a bank teller informing a co-employee that Y, the municipal mayor, has just P10,000 in his bank account and that the next check might probably bounce. X wrote this information in his newspaper column. Thus, Y filed a complaint against X for violation of Bank Secrecy Act. Decide: A. X, who merely overheard the remark of the bank teller to a co-employee and writing the same in his newspaper column is nether the inquiry or disclosure contemplated by law. B. X is liable because bank deposits are absolutely confidential. C. X is liable because bank deposits must not be examined, inquired or looked into by any person. D. X is not liable because he was in good faith when he overheard the remark of the bank teller to a co-employee. 13. The following are the requisites in order to exclude lawyers and accountants in the term “covered persons”, except: a. They are acting as independent legal professionals b. They are authorized to practice in the Philippines. c. The disclosure of information would compromise client confidence or the attorney – client relationship. d. None of the above 14. X invented a device which, through the use of noise, can recharge a cellphone battery. He applied for and was granted a patent on his device, effective within the Philippines. As it turns out, a year before the grant of X's patent, Y, also an inventor, invented a similar device which he used in his cellphone business in Manila. But

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X files an injunctive suit against Y to stop him from using the device on the ground of patent infringement. Will the suit prosper? A. No, since the correct remedy for X is a civil action for damages. B. No, since Y is a prior user in good faith. C. Yes, since X is the first to register his device for patent registration. D. Yes, since Y unwittingly used X’s patented invention. 15. It refers to a business authorized by the appropriate government agency to engage in gaming operations a. Casino c. Ship-based casino b. Internet based casino d. None of the above 16. One method of preventing money laundering is customer identification. The following are the rules with regard to Customer Identification Except: a. Covered institutions shall establish true identity of clients based on official documents b. Maintain a system of verifying true identity of clients c. Anonymous accounts, those under fictitious names and similar accounts are not prohibited d. Peso and foreign currency non-checking numbered accounts are allowed. 17.I. The right to a patent belongs to the inventor only. II. When 2 or more persons have jointly made an invention, the right to a patent shall belong to them jointly. a. Only I is true c. Both are true b. Only II is true d. Both are false 18. X is a depositor of AAA Bank. She has three (3) deposit accounts all under her name. One, in checking account, one in saving account and another one in time deposit account. Each account has a balance of Php250,000. AAA Bank became insolvent. Philippine Deposit Insurance Corporation closed the Bank. X therefore is unable to withdraw from all of the accounts. She then filed her claims with the Philippine Deposit Insurance Corporation. Which statement is most accurate? a. X can claim a total of Php500,000 for all the three (3) accounts. b. X can only claim from one (1) account of Php250,000. c. X can claim a total of Php750,000 from all the three (3) accounts. d. X cannot claim anything from any of the deposit accounts. 19. I. A certificate of registration of a mark shall be conclusive evidence of the validity of the registration, the registrant’s ownership of the mark, and of the registrant’s exclusive right to use the same. Page 182 of 190

II. A certificate of registration shall remain in force for 15 years. a. Only I is true c. Both are true b. Only II is true d. Both are false 20. In the case of work created by an author during and in the course of his employment, the copyright shall belong to: I. The employer, if the creation of the object of copyright is not a part of his regular duties but the employee uses the time, facilities, and materials of the employer. II. The employee, if the work is the result of the performance of his regularly assigned duties, unless there is an agreement, express, or implied, to the contrary. a. Only I is true b. Only II is true c. Both are true d. Both are false 21. I. A personal information may subcontract the processing of personal information III. Personal Information controllers may not invoke the principle of privileged communication over privileged information that they lawfully control or process. a. Only I is true b. Only II is true c. Both are true d. Both are false 22. Where the law requires information to be presented or retained in its original form, that requirement is met by an electronic data message or electronic document if; I. The integrity of the information from the time when it was first generated in its final form, as an electronic date message or electronic document is shown by evidence aliunde or otherwise;and II. Where it is required that the information be presented, that the information is capable of being displayed to the person to whom it is to be presented. a. Only I is true b. Only II is true c. Both are true d. Both are false

References: 1) Unknown.(2003). The Anti-Money Laundering Act of 2001.

Retrieved July 27,2020, from http://www.bsp.gov.ph/regulations/laws/RA9194_IRR.pdf. Page 183 of 190

2) Unknown.(1997). Intellectual Property Code of the

Philippines. Retrieved July 27,2020, from https://www.wipo.int/edocs/lexdocs/laws/en/ph/ph001en.pdf.

3) Unknown.(2011). Data Privacy Act of 2012. Retrieved July

27,2020, from https://www.privacy.gov.ph/wpcontent/uploads/DPA-of-2012.pdf.

4) Unknown.(2000). Electronic Commerce Act of 2000. Retrieved

July 27,2020, from http://www.bsp.gov.ph/downloads/laws/RA8792.pdf.

5) Unknown.(2016). Anti-Red Tape Act of 2007. Retrieved July 27,2020, from http://arta.gov.ph/pages/downloads/EODB_Act_Briefer.pdf.

APPENDICES Chapter 1 1 2 3 4 5 6 7 8 9 1 0

A D D B A D B B B A

11 12 13 14 15 16 17 18 19 20

A D D C D C C A A D

21 22 23 24 25 26

C A C A D D

Chapter 2 SAQ-1 1 D 2 B 3 E 4 A 5 D 6 D 7 E 8 D 9 C 10 D

11 12 13 14 15 16 17 18 19 20

B B D C E D E E E B

21 22 23 24 25 26 27

C C A C C C D

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SAQ-2 1 C 2 D 3 C 4 D 5 C 6 D 7 B 8 B 9 C 10 A

11 12 13 14 15 16 17 18 19 20

B D C C D C C D A B

21 22 23 24 25 26 27 28 29 30

D C D C A A A B D A

31 32 33 34 35

Chapter 3 1 C 2 B 3 A 4 B 5 C 6 A 7 C 8 B 9 D 10 C

11 12 13 14 15 16 17 18 19 20

B C B B C A A B A C

21 22 23 24 25 26 27 28 29 30

B D C B B C B A D D

31 D 32 C

Chapter 4 1 A 2 B 3 C 4 B 5 A 6 D 7 A 8 D 9 A 10 D

11 12 13 14 15 16 17 18 19 20

B A D D B A D D D D

21 22 23 24 25 26 27 28 29 30

C D D B C B D D D A

Chapter 5 1 A 2 B 3 C 4 C 5 B 6 C

11 12 13 14 15 16

C C A D D C

21 C 22 D

Page 185 of 190

B A A B D

7 8 9 10

B C D A

17 18 19 20

D D D D

Chapter 6 1

C

11

B

21 C

2

C

12

B

22 B

3

D

13

A

23 B

4

A

14

D

24 A

5

C

15

A

25 B

6

B

16

B

26 A

7

C

17

C

27 B

8

C

18

C

28 A

9 1 0

B A

19 20

B C

29 C 30 B

Chapter 7 TRUE OR FALSE 1 2 3 4 5

True True False True False

6 7 8 9 10

False True True True True

Chapter 8 1 2 3 4 5

C C A D B

6 7 8 9 10

C A B D C

6

A

Chapter 9 1

A

11 A Page 186 of 190

3 1 3 2 3 3 3 4 3 5 3 6 3 7 3 8

D C D C C B B C

2 3 4 5

D C B B

7 8 9 10

C B D C

12 13 14 15

B C A B

REFERENCES 1) Pasimio,R.,(2001). Effective CPA Reviewer in Business Law. Metro Manila: National Book Store. 2) De Leon,H., De Leon Jr,H. (2011). The Law on Obligations and Contracts. Manila: REX Book Store. 3) Unknown.(2008). Cooperative Code of the Philippines.

Retrieved July 27,2020, from https://www.gppb.gov.ph/laws/laws/RA_6938.pdf. 4) Unknown.(2003). The Anti-Money Laundering Act of 2001.

Retrieved July 27,2020, from http://www.bsp.gov.ph/regulations/laws/RA9194_IRR.pdf. 5) Unknown.(1997). Intellectual Property Code of the

Philippines. Retrieved July 27,2020, from https://www.wipo.int/edocs/lexdocs/laws/en/ph/ph001en.pdf.

6) Unknown.(2011). Data Privacy Act of 2012. Retrieved July

27,2020, from https://www.privacy.gov.ph/wpcontent/uploads/DPA-of-2012.pdf.

7) Unknown.(2000). Electronic Commerce Act of 2000. Retrieved

July 27,2020, from http://www.bsp.gov.ph/downloads/laws/RA8792.pdf.

8) Unknown.(2016). Anti-Red Tape Act of 2007. Retrieved July 27,2020, from http://arta.gov.ph/pages/downloads/EODB_Act_Briefer.pdf. 9)

Unknown.(2018). Revised Corporation Code of the Philippines. Retrieved July 27,2020, from Page 187 of 190

https://www.officialgazette.gov.ph/downloads/2019/02feb/20 190220-RA-11232-RRD.pdf.

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