Professional Documents
Culture Documents
Business Law (Oblicon) Notes
Business Law (Oblicon) Notes
LAW
- limits man’s actions & words
- chained to
o hands
o feet
o mouth
a) reasonable rule of conduct & action
b) just & obligatory
c) promulgated by competent authority – Philippine Congress
d) for common observance & benefit
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Law
Diligence of a good father of the family
Includes delivery of accessions & accessories unless stipulated
Excludes fruits that arise before maturity
Rights of person who paid:
Before Delivery - Personal - to demand delivery
(On or after maturity) - extra judicial (out of court)
- judicial (inside court)
After Delivery - Real - ownership
ii. Generic or Indeterminate Thing
Many of the same kind
Belongs to a group or class
Cannot be lost
Rights of person who paid:
Ask another person to deliver at the expense of the debtor
File a case in court
b) To Do (Positive Personal)
Debtor must do it properly in accordance w/ agreement
May be sued for damages
What is poorly done should be undone at the debtor’s expense
If debtor refuses to do, creditor cannot compel debtor to do nor
file in court
Reason - the law does not allow involuntary servitude
- law against slavery
Remedy - ask another person to perform, pay the person & demand payment from debtor
including damages
- if debtor still refuses to pay - SUE
c) Not To Do (Negative Personal)
Anything done shall be undone at the debtor’s expense
Debtor cannot be sued for doing what should have not been done
While still doing what should have not been done – can be sued
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NO DEMAND, NO DELAY, EXCEPT: (RTOLD)
Reciprocal obligation - performance of one is dependent upon the
performance by the other
- both are ready, NO DELAY
- when one is ready & the other is not, DELAY BEGINS
a. Time is the essential motive in the establishment of the obligation - ex: wedding
b. Obligation so provides - stipulated
c. Law declares - ex: tax
d. Demand would be useless
NO DELAY in obligation NOT TO DO
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PERIOD CONDITION
Certain Uncertain
Future May be past
Potestative period – obligation is valid Potestative condition – obligation is
void
d) Alternative - prestations are connected by “OR”
several prestations
complete performance of one is sufficient
generally, right of choice belongs to the debtor
o loss of alternative objects at debtor’s fault:
one or some are lost
debtor may choose from the remaining plus damages
all are lost
basis - value of last thing lost or last service w/c became impossible of performance
plus damages
right of choice may also be expressly granted to the creditor
one or some are lost
creditor may choose from the remaining plus damages
demand for the value of any of the lost things plus damages – also applicable when
all are lost due to debtor’s fault
if only one is left, debtor loses the right of choice
e) Facultative
Only one prestation has been agreed upon
Debtor is given right to render another in substitution
Only debtor has the right of choice
Right cannot be transferred to creditor
In ALTERNATIVE & FACULTATIVE obligation, CHOICE becomes EFFECTIVE only when
COMMUNICATED
After it has been communicated, obligation becomes SIMPLE
ALTERNATIVE FACULTATIVE
Several prestations Only one prestation
Complete performance of one is ok Debtor may render another in substitution
Right of choice – debtor or creditor Right of choice – debtor only
Right of choice may be transferred to Right of choice cannot be transferred
creditor
Effectivity of choice – upon communication
When choice has been communicated – no longer A/F but SIMPLE
f) Joint & solidary – refer to the PARTIES involved
Several debtors and/or creditors
One and the same obligation
Generally joint
o To each his own
Solidary only if SLN
o Act, benefit, misfortune of one is act, benefit, misfortune of all
o “I promise to pay” – signed by several persons
o jointly & severally
o any one solidary debtor can be compelled performance of the obligation
o If one is not ready and incurred delay and became liable for damages, the debtor in default
will be liable for damages to the other debtors.
o if already for delivery but due to fault of one solidary debtor, the thing is lost, solidary debtor
in fault carries the burden with respect to the other solidary debtors
o requires trust and confidence
o solidary debtor cannot transfer his share without the knowledge of the other solidary debtors
o ex: partners & partnership – solidarily liable in quasi-delict
Division of claim and/or liability is always based on the # of joint parties, whether debtor or
creditor
g) Divisible & indivisible – refer to the OBJECT or SUBJECT MATTER
Divisible - capable of partial performance
- services, as a general rule is divisible
Indivisible - not capable of partial performance
Even though divisible, may be indivisible if S/L
h) With a penal clause - debtor assumes accessory liability in case of non-performance of the principal
obligation
Purposes of penal clause (ESP)
Ensure performance of the obligation
Substitute as indemnity for damages or interest
Penalize debtor in case of non-performance
If PENAL CLAUSE is VOID, PRINCIPAL OBLIGATION remains VALID
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If PRINCIPAL OBLIGATION is VOID, PENAL CLAUSE is also VOID
Court shall reduce penalty agreed upon if:
Penalty is excessive or unconscionable
Principal obligation partly or irregularly complied with
Proof of actual damages not necessary to enforce penalty
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Debtor is insolvent
Several creditors
Transfers all properties
Debtor is released only up to the proceeds of the properties sold
iii. Dation in payment
Debt is money paid with property
Released only if accepted by the creditor
iv. Tender of payment & consignation
Deposit of payment in proper court
Always preceded by tender of payment EXCEPT when (TRIAL):
Two or persons are claiming the same debt
Receipt – creditor refuses to issue
Incapacitated creditor
Absent/unknown/missing creditor
Lost – title of obligation is lost
b) Condonation or Remission
Gratuitous abandonment of creditor’s right to collect
ESSENTIALLY gratuitous – essentially means NO EXEMPTION
May be express or implied; total or partial
Requires debtor’s consent
Examples:
i. Implied
Cancellation of promissory note
Return of negotiable instrument w/o collecting
i. Express
Legacy of 10,000 given by creditor to debtor who owes him the same amount
c) Confusion or Merger of Rights - one person becomes the debtor & creditor of one & the same
obligation
d) Compensation – “quits”
Two persons in their own rights are debtors & creditors of each other
May be legal or voluntary, total or partial
Requisites of legal compensation (Pb, Skq, Dad, Nc)
i. Each obligors are principally bound
ii. Both debts are in money or same kind and quality of thing (if stated)
iii. Both debts are due & demandable
iv. No controversy over the debts commenced by third persons
There can be no compensation in: (S, D, C, Cd)
i. Support
ii. Deposit
iii. Commodatum (hiram)
iv. Civil liability arising from crime or delict
e) Novation
Change of obligation by a new one resulting in its (old) extinguishment
Kinds of Novation (R, P)
i. Real - change of object or principal condition
ii. Personal - change of parties (see payment)
Creditor- subrogation
Debtor - substitution
Expromission - without knowledge or consent of debtor
Delegacion - with knowledge or consent of debtor
Partial payment - partially paid creditor preferred in case debtor becomes insolvent
If new obligation is VOID, original obligation SUBSISTS
If original obligation is VOID, new obligation is also VOID
If old obligation is subject to a CONDITION or PERIOD, new obligation shall be subject to the
SAME CONDITION or PERIOD, unless otherwise stipulated
f) Loss of Thing Due
Only SPECIFIC thing can be LOST
If SPECIFIC thing LOST W/O debtor’s fault or due to FORTUITOUS event, obligation is
EXTINGUISHED, except SLN
Thing is considered lost if:
i. It perishes
ii. Goes out of commerce
iii. Disappears, existence unknown or can no longer be recovered
g) Other causes of extinguishments (P A R Frc)
Prescription
Annulment
Recission
Fulfillment of resolutory condition
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II. CONTRACTS
NOT ALL AGREEMENTS are CONTRACTS
ALL CONTRACTS are AGREEMENTS
1) DEFINITION
Meeting of the minds b/w 2 or more persons whereby binds himself with respect of the other(s) to
give something or to deliver some service
2) ELEMENTS (N, E, A)
a) Natural - inherent in some contracts (ex: warranty against eviction & against hidden
defects – contract of sale)
b) Essential - must be present in order that there will be a valid contract (C, O, C)
Consent
Meeting of the offer and acceptance upon the thing and the cause
OFFER
may be made thru an agent
Advertisements are not definite offers but mere invitation to make an offer
May be withdrawn before perfection of the contract
If offeree is given option period, offeror cannot withdraw if offeree gives an option money
Option period – period of time given to the offeree within which to decide whether to
accept the offer or not
Option money – given for the exercise of the option period
Earnest money – given to show the buyer’s interest in the contract of sale
ACCEPTANCE
thru letter, telegram or correspondence perfects contract only upon acceptance reaches
knowledge of the offerer
VICES THAT MAKE CONSENT DEFECTIVE (IMVIFU) - VOIDABLE
Incapacity
o Deaf mute who do not know how to write
o Minors
o Insane
o Drunk
Incapacitated persons cannot validly give consent except if the objects involved are
necessaries such as food, clothing, shelter, medicine and education according to
economic standing of the family
Capacitated persons disqualified to enter into contract:
o Contract of sale or donation b/w husband and wife
o Contract of sale b/w guardian and ward involving property of the ward
Consent given in the state of drunkenness or under hypnotic spell is also defective -
VOIDABLE
Mistake
Violence
Intimidation
Fraud
Undue influence
Consent of one of the parties defective, contract is voidable; remedy, annulment
Object (T R S)
May be
Things
Rights
Services
Future things may be the object of a contract but NOT FUTURE INHERITANCE
Future things
o Emptio rei esperati – future things
o Emptio spei - hope or expectancy
Cannot be the object of a contract
Things or services outside the commerce of men
Future inheritance
Things & services contrary to LAW, MORALS, GOOD CUSTOMS, PUBLIC ORDER & PUBLIC
POLICY
Impossible service – physical or illegal
Intransmissible rights
Cause or consideration
Essential or impelling reason why the parties enter into a contract
Prestation to be performed by one in favor of the other
Thing/service already delivered or rendered, or the liberality of the benefactor
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Distinctions b/w motive & cause:
CAUSE MOTIVE
Essential reason why parties enter into Indirect and remote reason why a party
a contract gives consent
Always known Not always known
Essential element of a contract Not an essential element of a contract
Affects the validity of a contract Does not affect the validity of a
contract
c) Accidental - matters stipulated by the parties such as payment of interest in a contract of loan.
5) CHARACTERISTICS OF CONTRACT
a) Consensual or real
i. Consensual - perfected by mere consent
ii. Real - perfected by delivery
b) Principal, accessory or preparatory
i. Principal - not dependent to any other contract
ii. Accessory - dependent to a principal contract
iii. Preparatory - other contracts will follow (agency & partnership)
c) Nominate or innominate
i. Nominate - with a name in the law
ii. Innominate - no particular designation under the law (memorandum)
d) Commutative or aleatory
i. Commutative - demandable, not dependent on chance
ii. Aleatory - performance depends on chance
e) Onerous, gratuitous or remuneratory
i. Onerous - there is exchange of compensation
ii. Gratuitous - for free
iii. Remuneratory - payment for services rendered
) Unilateral or bilateral
i. Unilateral - only one party has obligation
. Bilateral - both parties have obligation for each other
g) Oral or written
i. Oral - perfected orally
ii. Written - formality is required to be perfected
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6) KINDS OF DEFECTIVE CONTRACTS
a) Rescissible contracts
No defects in the essential elements
Damage or injury is suffered by another person such as:
B/w guardian & ward – lesion of >1/4
B/w administrator & absentee – lesion of > ¼
Debtor who defrauds creditor
Defendant sells property w/c is the subject of a case to the disadvantage of the plaintiff
Subsidiary remedy – RECISSION
Cancellation of contract as if no contract has occurred
Can be done only if there is no other available remedy
Requires restoration of properties
Cannot be allowed if
Party seeking recission can no longer return what must be returned
Property is already in the possession of a third person who acted in good faith
b) Voidable contracts (IMVIFU)
Consent of one of the parties is defective because of:
i. Incapacity
ii. Mistake
iii. Violence
iv. Intimidation
v. Fraud – CAUSAL (dolo causante)
vi. Undue influence – youngest daughter, who knows that her father cannot refuse whatever she
asks for, threatens her father that she will elope if her father doesn’t sign a contract giving all
his properties to her as inheritance.
Remedy – RATIFICATION or ANNULMENT
Once ratified - cleansed of all its defects & becomes VALID
Only the injured party can ask for annulment w/in FOUR (4) YEARS except when there is mutual
mistake
c) Unenforceable contracts (A,SF,BPI)
Cannot file a case in court
1. Entered into w/o authority or in excess of authority
2. Violates statute of fraud – agreements which MUST BE IN WRITING
i. Agreement NOT TO BE PERFORMED w/in one year
ii. Guaranty or special promise to answer for the debt or miscarriage of another
iii. Agreement made in consideration of marriage other than mutual promise to marry
iv. Agreement for the sale of goods, chattels or things in action at a price = or > P500
v. Lease for > one year
vi. Sale of real property or an interest therein
vii. Representation as to the credit of a third person
Refer to PURELY EXECUTORY contracts
PARTIALLY PERFORMED obligations – NOT COVERED BY STATUTES OF FRAUD
3. Both parties are incapable of giving consent
May be ratified & once ratified, is cleansed of all defects & becomes valid
d) Void contracts (or INEXISTENT CONTRACTS)
1. OBJECT or CAUSE is DEFECTIVE
2. ONE or SOME or ALL of the ESSENTIAL ELEMENTS of a contract is MISSING
Cannot be assailed by third persons – can be brought to court only by directly affected parties
Cannot be ratified
No prescriptive period
Right to defense cannot be waived
PARI DELICTO – BOTH GUILTY
Cannot file a case in court against each other because both will be persecuted
Land acquired thru CARP cannot be sold
Illegal but not criminal
Sale is VOID
7) SIMULATION
a) Absolutely Simulated
Purely fictitious
Parties do not intend to be bound by the agreement
Cannot be reformed
b) Relatively Simulated
Parties hide/conceal the true agreement
Contract is valid as to the true agreement
May be caused by
Fraud
Accident
Mistake
Inequitable conduct
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REMEDY - REFORMATION
The process of changing the instrument when what is embodied therein is different from the
intention of the parties
Allowed only before the contract has been enforced by the party who has the right to ask for
reformation
Contracts that cannot be reformed:
Wills
Simple donation inter vivos when no condition is imposed
Void contracts
III. SALES
1) DEFINITION
2) CHARACTERISTICS
a) Consensual - perfected by mere consent
b) Bilateral - both parties have obligations to perform
c) Commutative - values exchanged are generally equivalent to each other
d) Principal - existence does not depend upon another contract
e) Onerous – requires an exchange of valuable consideration
f) Nominate – has a name provided in the civil code
g) Generally reciprocal – the performance of the obligation by one party is dependent upon the
performance of the other’s obligation
6) IMPORTANT DISTINCTIONS
Sale Dation in Payment Contract for a Barter Sale or Return Sale on Trial,
Piece of Work Approval or
Satisfaction
No pre-existing W/ pre-existing
credit credit
Cause – price Extinguishment of
existing obligation
Obligations are Obligation is
created extinguished
Greater freedom in Lesser freedom in
determining the determining the
price price
Goods Goods
manufactured for manufactured
sale to the general especially for the
market customer & upon
his special order
Consideration is Consideration is
money another thing
C>O C<O
C=O
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Subject to Subject to
resolutory suspensive
condition condition
8) OFFER TO SELL
May be withdrawn before acceptance even if there is period given to buyer to decide EXCEPT:
e) When there is OPTION MONEY
Distinctions b/w OPTION MONEY & EARNEST MONEY
OPTION MONEY EARNEST MONEY
Given for the exercise of period Given to show buyer’s interest in the contract
of sale
Given before perfection of the contract of sale Given after the perfection of the contract of
sale
Separate & distinct from the purchase price Part of the purchase price – down payment
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3. Traditio longa manu (mere pointing at the object) – new owner bears the loss
4. Traditio brevi manu (buyer is already in possession, no need to deliver)
5. Traditio constitutum possessorium (no delivery because seller will continue in possession
c) Quasi-delivery
i) Object is intangible or incorporeal
Placing of title of ownership in the name of the buyer
Allowing the buyer to exercise right
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a) Buyer may suspend payment when what has been stipulated is not followed by the seller
b) Developer/seller cannot rescind contract for such non-payment
c) Buyer may withdraw all payments + interest
In case of non-payment of the buyer w/o fault on the seller, follow MACEDA LAW
22) ANTICHRESIS
Antichresis, in civil law, is a contract whereby a person borrowing money of another, hands over his
property to the creditor, allowing the use and occupation thereof, for the interest on the money lent.
IV. AGENCY
1) PARTIES TO A CONTRACT OF AGENCY
a) Principal
b) Agent
3) KINDS OF AGENCY
a. Express
Oral – general rule, except when immovables or real property is involved
Written
b. Implied
i. Acts of the principal
ii. Principal’s silence
iii. Principal’s lack of action
iv. Principal’s failure to repudiate agency
4) HOW CREATED
a. By CONTRACT
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b. By OPERATION OF LAW
Son temporarily taking over the agency after death of father
c. By ESTOPPEL
Thru acts of the agent
Estoppel – barring from denying what you have said w/c others have relied upon
d. By RATIFICATION
Validation by principal
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Must notify principal
Must give the principal reasonable opportunity to take necessary steps to meet the situation
Agent shall be liable if the principal shall suffer damages by reason of agent’s withdrawal unless
it is impossible to continue agency w/o detriment to agent
FILING A CASE AGAINST THE PRINCIPAL FOR MONETARY CLAIM is EQUIVALENT TO
WITHDRAWAL
d) Accomplishment of the purpose of agency
e) Revocation by the PRINCIPAL
REQUISITES OF VALID REVOCATION
Must be done in good faith
Must be brought to the attention of specified third persons
WHEN AGENCY IS IRREVOCABLE
Coupled with interest
A bilateral contract depends on the agency
It is a means of fulfilling an obligation already contracted
f) Dissolution of the firm (if one of the parties is a firm)
2) DISTINCTIONS
PLEDGE CHATTEL MORTGAGE REAL ESTATE
MORTGAGE
a) Object Personal or movable Personal or movable Real or immovable
property property property
b) Right to sell Can be sold even w/o Cannot be sold w/o Can sell even w/o the
pledgee’s consent. To consent of creditor. consent of the
transfer ownership to Must be in writing & mortgagee. (any
buyer requires consent, annotated on the prohibition not to sell is
written or oral instrument VOID – pactum
commissorium
c) Effect to third Description of thing There must be an Must be recorded in the
persons pledged must appear in affidavit of good faith & OFFICE OF THE
a public document must be recorded in REGISTRY OF DEEDS
CHATTEL MORTGAGE
REGISTRY
d) Effect of sale Proceeds > debt – Proceeds > debt – Proceeds > debt –
creditor is entitled to creditor not entitled to creditor not entitled to
excess UNLESS excess excess
otherwise STIPULATED
Proceeds > debt – Proceeds > debt –
Proceeds < debt – creditor can recover creditor can recover
creditor cannot recover deficiency deficiency
the deficiency EVEN IF
there is STIPULATION
3) PLEDGE
Real contract – if thing pledged is NOT DELIVERED - VOID
Subject matter
a) Movable property
b) Within the commerce of man
c) Capable of possession
Extinguishment of pledge (does not include extinguishments of debt)
a) Payment
b) Destruction of thing pledged
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c) Return of thing pledged
d) Renunciation of the thing pledged
e) Other forms of extinguishments of obligation
4) MORTGAGE
In case of auction, mortgagor can participate. If same w/ highest bidder, preferred
By-bidder or puffer – bids for & on behalf of the seller; public must be notified
TIPO OR UPSET PRICE- FIXED AMOUNT agreed upon for w/c the property mortgaged shall be sold -
VOID
a) CHATTEL MORTGAGE
b) REAL MORTGAGE
Involves real property (binds the property & third persons if registered)
Real right (can be sold or assigned)
Accessory contract
A limitation on ownership (a lien but does not transfer ownership)
Inseparable from the property
Indivisible (cannot be partially extinguished by partial payment)
VI. PARTNERSHIP
1) DEFINITION
By the contract of partnership, two or more persons binds themselves to contribute money, property
or industry with the intention of dividing the profit among themselves
2) CHARACTERISTICS
a) Consensual
b) Nominate
c) Onerous
d) Bilateral
e) Principal
f) Preparatory
3) ESSENTIAL REQUISITES
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b. Conjugal partnership of gains
c. Joint accounts
. Joint venture
e. Voluntary association
f. Business trust
g. Syndicate
h. Tenancy
Partnership HAS A SEPARATE JURIDICAL PERSONALITY, all of the above do not have
6) KINDS OF PARTNERSHIP
A. As to object
a) UNIVERSAL PARTNERSHIP
i. Universal partnership of ALL PRESENT PROPERTY
ALL PROPERTIES belonging to the partners at the time of constitution of the partnership
become COMMON PROPERTY including ALL PROFITS w/c they may acquire therewith
Properties subsequently acquired by inheritance, legacy or donation, not included,
FRUITS from SUCH PROPERTIES ARE ALSO INCLUDED
ii. Universal partnership of ALL PROFITS
Comprises what the partners may acquire thru industry or work
Properties are not contributed
Only the usufructs of such properties are contributed
If the nature of universal partnership is not specified, considered of ALL PROFITS
b) PARTICULAR PARTNERSHIP
B. As to liability of partners
a) General - With one or more general partners
b) Limited
With one or more limited partners & one or more general partners
Cannot be oral
Must be written & registered with SEC
Must always be written as limited, otherwise considered as general (under the statutes of
fraud)
C. As to duration
a. Partnership at will
b. Partnership with a fixed term
D. As to representation to others
a. Ordinary
b. Partnership by estoppel
E. As to legality of existence
a. De jure – complied with all the requirements
b. De facto – failed to comply with all requirements
F. As to publicity
a. Secret
b. Open
8) KINDS OF PARTNER
A. As to contributions
a) Capitalist – money or property
b) Industrial - industry
B. As to liability
a) General – liability to third persons extends to separate property
b) Limited - liability to third persons extends only to his contribution, as if an outsider to the
partnership
C. As to management
a) Managing – manages & actively participates in the business of the partnership
b) Silent partner – does not actively participate in the management of the partnership
D. Other classifications
a) Partner by estoppel
b) Nominal partner – specified in the articles of partnership
c) Secret partner – NOT KNOWN to third persons as a partner
d) Dormant partner – SILENT + SECRET
e) General/limited partner
General in all respects
Limited only as to return of capital
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f) Substituted limited partner – assigned w/ the interest of a deceased limited partner
g) Liquidating partner – in charge of liquidation, winding up & termination
h) Sub-partner – no right to interfere in the business of the partnership, has right against the partner
only
9) PARTNERSHIP/PARTNER BY ESTOPPEL
One which is not really a partner or a partnership but because of representation which had been relied
upon by others
Considered a partnership/partner for the protection of third persons
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THE SAME TIME
If issued a receipt in the name of the partnership – must apply payment to partnership credit
If issued receipt applying payment to his own account, must divide payment proportionately b/w
the managing partner & partnership
If debt to managing partner is more onerous, apply to debt to managing partner
If managing partner applied payment to his own account, & debtor becomes insolvent, must remit
to the partnership what he has collected
) DEATH OF PARTNERS
1) General partner – may dissolve the partnership
b) Limited partner – does not dissolve the partnership
VII. CORPORATION
1) DEFINITION
Artificial being created by operation of law, having the RIGHT OF SUCCESSION & the POWERS,
ATTRIBUTES & PROPERTIES EXPRESSLY AUTHORIZED BY LAW or INCIDENT TO ITS EXISTENCE
Existence begins from the issuance of CERTIFICATE OF INCORPORATION by the SEC
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Capacitated
Majority are residents of the Philippines
Subscriber of at least one share
c) REGISTRATION WITH SEC
If not registered cannot even be considered a DE FACTO corporation
d) CAPITAL STOCK
25% of authorized must be subscribed
25% of subscribed must be paid
Minimum paid up should not be less than P5,000
e) BY LAWS
Generally simultaneous with ARTICLES OF INCORPORATION
May be filed before incorporation or within 30 days from issuance of certificate of incorporation
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1) DISADVANTAGES OF CORPORATION COMPARED TO PARTHERSHIP
Subservience of the minority stockholders to the wisher of the controlling interest
3) KINDS OF CORPORATION
4) MANAGEMENT OF A CORPORATION
Managed by BOD
5) SHARES OF STOCKS
a) Promotion stocks
Issued to persons who rendered services for the promotion of the corporation
b) Watered stocks
Illegal but contract is not void
Subscriber may be compelled to pay the balance
Directors consenting to such are SOLIDARILY LIABLE with the subscriber
c) Treasury shares
Not part of the outstanding capital stock
No voting right
Not entitled to dividends
Cannot be issued as stock dividend
Can be issued as property dividend only
Can be sold for less than par or issued value
d) Unpaid shares
Entitled to all the rights unless declared delinquent
When declared delinquent
Failure to pay on the due date based on contract or call
Declared delinquent
30 day grace period to pay in full
Subscription amount + interest
e) Delinquent shares
All rights are suspended EXCEPT RIGHT TO DIVIDENDS
If cash dividends are issued, shall be applied to the balance
If stock dividends are issued, withheld until fully paid
If offered at public auction, shall be sold to the HIGHEST BIDDER
HIGHEST BIDDER – he who offers the FULL AMOUNT for the LEAST NUMBER OF SHARES
Remedy on delinquent shares
File in court based on contract of subscription
Sell to public – highest bidder
If no highest bidder, reacquire
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6) SUBSCRIPTION
Contract for the acquisition of unissued shares from an existing corporation or an corporation
still to be formed
7) DIVIDENDS
Issued out of SURPLUS PROFIT OR UNRESTRICTED RETAINED EARNINGS
Corporation is compelled to pay dividends once UNRESTRICTED RETAINED EARNINGS EXCEEDS
100% of its PAID UP CAPITAL
Kinds of dividends
Cash – declared only by the BOD
Stock – require approval of SH – do not increase authorized capital of the corporation nor the
controlling interest of the stockholders
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Need not be a stockholder
Must be a resident
c) Treasurer
d) Director
Must be a stockholder
Must have not been convicted of a crime with imprisonment of > 6 years
15) PROXY
Power
Person
Document
Authority
For a particular power, date & meeting only
Revocable any time
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Restrictively indorsed
Discharged
b) Accumulation of secondary contracts
It makes as many secondary contracts as the number of times negotiated
3) REQUISITES (DEFINITION)
a) In writing & signed by maker or drawer
PN - maker
BOE - drawer
b) Unconditional promise or order to pay a sum certain in money
PN - unconditional promise
BOE - unconditional order
If not payable in money – negotiable document
May indicate particular fund out of which reimbursement is to be made or particular account
to be debited
If payable out of a particular fund – NOT NEGOTIABLE – becomes conditional
Sum is certain even if w/ interest, w/ fixed or current exchange rate or payable by stated
installments
Payable in four equal installments – NOT STATED INSTATALLMENT – NOT
NEGOTIABLE
Must state beginning or exact dates of installments
A promise to do an act other than payment of money is not negotiable except if it is the
HOLDER’S OPTION – alternative w/ the use of OR
c) Payable on demand or at fixed or determinable future time
On demand
When so expressed
No time for payment is expressed
Instrument is issued, accepted or indorsed when overdue as regards the person so issuing,
accepting or indorsing it
At a fixed time
After date of NI
After sight – after presentment – if this is the basis of maturity, count from date of presentment &
not on date accepted
Payable on or before Christmas - not determinable – NOT NEGOATIABLE - must indicate year
On or after the occurrence of a specified event which is certain to happen even though the time of
happening is uncertain
5 days after you pass the CPA board examination
Before the occurrence of a specified event which is certain to happen even though the time of
happening is uncertain – NOT NEGOTIABLE
5 days before you pass the CPA board examination
d) Payable to order or bearer – Instruments payable to a specified person is not negotiable
Pay to Juan dela Cruz
Payable to ORDER(ORDER INSTRUMENT)
Payable to the order of a specified person
Payee who is not maker, drawer or drawee
Pay to the order of P
Pay to P or order
Drawer or maker
I promise to pay to the order of myself
Drawee
Pay to the order of yourself
Two or more payees jointly
Pay to the order of P & A
One or more of several payees
Pay to the order of P, A or B
Pay to the order of P, A or B or any one of them
Pay to the order of P, A or B or any two of them
Holder of an office of the time being
Pay to the president of the Philippines
If indorsed in blank, becomes a bearer instrument
Payable to BEARER (BEARER INSTRUMENT)
When expressed to be so payable
Pay to bearer
Pay to bearer, P – NOT NEGOTIABLE
Payable to a person named therein or bearer
Pay to P or bearer
Payable to the order of a fictitious person & such fact is known to the person making it so
payable
Pay to the order of Tarzan
Payee does not purport to be the name of a person
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Pay to blackboard or order
Only or last indorsement is blank
Pay to P or order, signed M, indorsed as follows
Pay to A
(Sgd) P
y to C
(Sgd) B
Re (Sgd) C
mains a bearer instrument no matter how indorsed
e) Drawee must be named or indicated with reasonable certainty
b) BILL OF EXCHANGE
1. Drawer – person who draws the bill
2. Drawee – party upon whom bill is drawn, becomes the acceptor upon acceptance (usually a
bank)
3. Payee – party in whose favor the bill is drawn or is payable
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Delivery – transfer of possession, actual or constructive from one person to another
c) Negotiation
Methods of Transfer of a Negotiable Instrument
1. By assignment
2. By operation of law
3. By negotiation
Transfer of a negotiable instrument from one person to another in such a manner as to constitute
the transferee the HOLDER thereof.
KINDS OF HOLDER
1. Holder
Whoever holds, in general
2. Holder for value
Holds & gave a valuable consideration in exchange
3. Holder in due course
One who has taken the instrument under the ff conditions
a) It is complete & regular upon its face
b) He became the holder of it before it was overdue, & w/o notice that it had been
dishonored if such was the fact
c) He took it in good faith & for value
d) At the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it
DEFENSES
1. Personal or equitable
Available against parties who are NOT HOLDERS IN DUE COURSE
) Filling of wrong date
b) Filling up of blanks not in accordance with authority given & within reasonable time
c) Want of delivery of a complete instrument
d) Absence or failure of consideration
e) Simple fraud
f) Acquisition of instrument (not signature) by duress, or force & fear
) Acquisition of instrument by unlawful means
h) Acquisition of instrument for an illegal consideration
i) Negotiation in breach of faith
j) Negotiation under circumstances that amount to fraud
k) Innocent alteration or spoliation
Spoliation – alteration made by a stranger to an instrument
l) Set-off between immediate parties
m) Discharge of party secondarily liable by discharge of prior party
n) Discharge by payment or renunciation or release before maturity
o) Usury, because the contract of loan itself is not void but only the agreed interest
p) Want of authority but agent has apparent authority
2. Real or Absolute
Available against ALL parties
a) Incapacity
b) Insolvency
c) Illegality of contract when declared by law
d) Material alteration
e) Want of delivery of incomplete instrument
f) Forgery
g) Want of authority, apparent & real
h) Duress amounting to forgery as where one takes the hands of another & forces him to
sign his name
i) Fraud in factum or fraud in esse contractus
j) Fraudulent alteration by holder
k) Prescription
l) Other infirmities appearing on the face of the instrument
m) Discharge at or after maturity
How Negotiated
a. BEARER instrument
By mere delivery
2. ORDER instrument
By indorsement plus delivery
Kinds of Indorsement
. Restrictive
Prohibits further negotiation
Negotiable character of an instrument is terminated
a) Pay to H only
) Pay to H for collection only
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c) Pay to H in trust for M
3. Qualified
Transfers the right without guaranteeing payment
Indorser does not guarantee payment in case maker becomes insolvent
a) Sans recourse
b) Without recourse
4. Facultative
Waives any right
a) Right to notice
b) Right to presentment
5. Anomalous or irregular
Indorsement in blank by a person who is not the payee before delivery
Liable to the payee & all subsequent persons
6. Conditional
Payer may:
a) Honor the condition
The person paid holds the money subject to the condition
If condition is not fulfilled, must return the money
b) Disregard the condition
Assignment is NOT negotiation & transferee does not become a holder
Indorsement must be for the entire amount unless partially paid
An NI cannot be indorsed severally,
Indorsement cannot be in the alternative or in succession
Signature by Procuration (Per Procuration, P.P., pp, Per Proc)
Operates as notice that the agent has but limited authority to sign
Principal is bound only when agent acted within the limits of his authority
d) Presentment for acceptance
Not necessary before presentment for payment
Necessary only when:
Bill is payable after sight or presentment is necessary to fix maturity
o Reason: to give advance notice that such instrument is to be paid at a fixed/determinable
future time
Expressly stipulated
Payable elsewhere than the residence or place of business of drawee
Requisites of proper presentment
Must be made by or on behalf of the holder
Must be made at a reasonable hour
Must be made on a business day
Must be made before the bill is overdue & within a reasonable time
Must be made to the drawee or some person authorized to accept or refuse acceptance on
his behalf
Dishonor by non-acceptance
When duly presented for acceptance & acceptance is refused or cannot be obtained
When presentment for acceptance is excused & the bill is not accepted
o Duty of holder
Treat as dishonored or he looses the right of recourse against drawer & indorsers
o Right of holder
Give notice of dishonor & protest when required
Immediately proceed against the drawer & indorsers w/o waiting for the date of
maturity
o Reason: payment cannot be expected after acceptance is refused. Hence,
presentment for payment is not necessary unless the bill is subsequently
accepted
e) Acceptance
Drawee has 24 hours to decide w/in w/c to accept the bill or not
Deemed accepted when drawee:
Destroys it
Refuses to return it w/in the required period
If accepted, the drawee-acceptor is primarily liable according to the tenor of his acceptance
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Accommodated party – not discharged in case of payment by accommodation party because
the accommodation party can demand reimbursement from him
g) Dishonor by non-payment
When drawee refuses to pay
h) Notice of dishonor
When NOT NECESSARY
Er & ee are the same person
Ee is fictitious or incapacitated person
Er is the person to whom it is presented
Er has no right to expect that ee will honor the instrument
Er has countermanded payment
Notice to prior parties benefits subsequent parties
j) Discharge
Negotiable instrument may be discharged by:
Payment in due course by or on behalf of the principal debtor
IN DUE COURSE - @ or after maturity in good faith
Payment in due course by accommodated party
Intentional cancellation by the holder
Any act which may discharge a contract for the payment of money (NOCOMEREPALO)
When principal debtor becomes holder at or after maturity
When holder intentionally cancels the signature of an indroser, such indorse is discharged
Subsequent parties are discharged when prior parties are discharged
Refusal to accept a valid tender of payment made by a prior party also discharges subsequent
parties
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