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Business Law Cpa Board Exam Lecture Notes: (CO, NO)
Business Law Cpa Board Exam Lecture Notes: (CO, NO)
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
Deligence of a good father of the family
Includes delivery of accessions & accessories unless stipulated
Excludes fruits that arise before maturity
Rights of person who paid:
Before Delivery - Personal - to demand delivery
(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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ii. Mora accipiendi - delay of creditor
iii. Compensatio morae - delay in both debtor and creditor
NO DEMAND, NO DELAY, EXCEPT: (RTOLD)
a. Reciprocal obligation - performance of one is dependent upon
the performance by the other
- both are ready, NO DELAY
- when one is ready & the other is
- not, DELAY BEGINS
b. Time is the essential motive in the establishment of the obligation
- ex: wedding
c. Obligation so provides - stipulated
d. Law declares - ex: tax
e. Demand would be useless
NO DELAY in obligation NOT TO DO
d) Contravention of the tenor of the obligation
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b) Depends upon the sole will of the debtor
c) Debtor binds to pay when his means permits him to do so
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
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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
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
To
whom should the payment be made (C, SII, AP, TP)
i.
Creditor
ii.
Successors in interest – heirs & assigns
iii.
Authorized person - agent
iv.
Third person – valid only if:
Inured to the benefit of the creditor
Ratified by the creditor
Third person acquired the right
Change in creditor- subrogation
Payment to incapacitated persons - NOT VALID(VOIDABLE)
Valid only if:
He kept the thing paid
He is benefited by it
What should be paid - what has been agreed upon
- creditor cannot be compelled to accept a different thing
even though it is more valuable
- if object is indeterminate & the quality has not been
stipulated, purpose & circumstances of the obligation
shall be considered
- average quality depends on P & C
Where should the payment be made
Place agreed upon
No place agreed upon if the object is:
Indeterminate - debtor’s domicile
Determinate - place where the thing is at time of constitution of
the contract
- when debtor is prevented by fortuitous event, deliver to
a place nearest the agreed place
Who should shoulder the expenses - general rule: debtor
How should you pay - completely
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- if incomplete or irregular but creditor accepted w/o
protest – valid & obligation is paid & extinguished
Payment by incapacitated person is not valid
SPECIAL FORMS OF PAYMENT: (Aop, Pbc, Dep Top)
i. Application of payment
several debts to one creditor are due & demandable
if no application specified, apply to most onerous debt
one debtor – incomplete payment to one creditor – debtor has right of
application
if one/two (but not all) creditors are paid, unpaid creditor can demand for
cancellation of payment & compel application to all creditors proportionately –
usually, partial only
ii. Payment by cession
Debtor is insolvent
Several creditors
Transfers all properties
Debtor is released only up to the proceeds of the properties sold
iii. Dation in payment
Debt is money paid with property
Released only if accepted by the creditor
iv. Tender of payment & consignation
Deposit of payment in proper court
Always preceded by tender of payment EXCEPT when TRIAL:
Two or persons are claiming the same debt
Receipt – creditor refuses to issue
Incapacitated creditor
Absent/unknown/missing creditor
Lost – title of obligation is lost
b) Condonation or Remission
Gratuitous abandonment of creditor’s right to collect
ESSENTIALLY gratuitous – essentially means NO EXEMPTION
May be express or implied; total or partial
Requires debtor’s consent
Examples:
i. Implied
Cancellation of promissory note
Return of negotiable instrument w/o collecting
i. Express
Legacy of 10,000 given by creditor to debtor who owes him the same amount
c) Confusion or Merger of Rights - one person becomes the debtor & creditor of one
& the same obligation
d) Compensation – “quits”
Two persons in their own rights are debtors & creditors of each other
May be legal or voluntary, total or partial
Requisites of legal compensation (Pb, Skq, Dad, Nc)
i. Each obligors are principally 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 PRERIOD, unless otherwise stipulated
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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
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 oferree within which to decide whether to accept the offer or
not
Option money – given for the
exercise of the option period
Earnest money – given to show the
buyer’s interest in the contract of sale
ACCEPTANCE
thru letter, telegram or correspondence perfects contract only upon
acceptance reaches knowledge of the offerer
VICES THAT MAKE CONSENT DEFECTIVE (IMVIFU) - VOIDABLE
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
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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
Distinctions b/w motive & cause:
CAUSE MOTIVE
Essential reason why parties enter Indirect and remote reason why a
into a contract party 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
5) CHARACTERISTICS OF CONTRACT
a) Consensual or real
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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
f) Unilateral or bilateral
i. Unilateral - only one party has obligation
ii. 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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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
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) Cummutative - 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
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Sale Dation in Contract for a Barter Sale or Sale on
Payment Piece of Work Return Trial,
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 Lesser freedom
in determining in determining
the price the price
Goods Goods
manufactured for manufactured
sale to the especially for
general market the customer &
upon his
special order
Consideration is Consideration
money is another thing
C>O C<O
C=O
Ownership is Ownership
transferred is retained
upon delivery by the seller
but w/ option even though
to return delivered
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 Given after the perfection of the
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of sale contract of sale
Separate & distinct from the purchase Part of the purchase price – down
price payment
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15) RECTO LAW
Applicable to PERSONAL PROPERTY sold
INSTALLMENT BASIS
Property is mortgaged to the seller to secure payment of the price
Applicable upon failure of buyer to pay one or more installments
Analogous to Lease w/ Option to Buy
Remedy of seller:
a) 1 or more unpaid installments
i. Demand specific performance
b) 2 or more unpaid installments
i. Demand specific performance
ii. Rescind the contract
iii. Foreclose property
c) If immediately foreclosed & proceeds are less than the outstanding obligation, buyer
has no more obligation on the balance or deficiency & seller has no right to demand
for the balance or deficiency
d) Any stipulation to the contrary is VOID
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b) ADJACENT OWNERS
1. Rural Land < 1 hectare
Priority redemption to adjacent owner with SMALLEST AREA
Reason: to foster agricultural development
2. Urban Land – no practical use
Priority redemption to adjacent owner with the most justified or most important use
Reason: to discourage impractical use of urban land
22) ANTICHRESIS
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
b. By OPERTATION OF LAW
Son temporarily taking over the agency after death of father
c. By ESTOPPEL
Thru acts of the agent
Estoppe – barring from denying what you have said w/c others have relied upon
d. By RATIFICATION
Validation by principal
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7) APPOINTMENT OF AGENT THRU LETTER/TELEGRAM
Agent’s silence is not considered an implied acceptance, EXCEPT:
a. When he acknowledged receipt of the letter/telegram
b. Letter/telegram entrusting to him power with respect to a business he is
habitually engaged
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cannot pay
e) Thing pledged must be delivered to the No delivery No delivery
creditor
2) DISTINCTIONS
PLEDGE CHATTEL REAL ESTATE
MORTGAGE 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 annotated on the prohibition not to sell
consent, written or instrument is VOID – pactum
oral commissorium)
c) Effect to third Description of thing There must be an Must be recorded in
persons pledged must appear affidavit of good faith the OFFICE OF THE
in a public document & must be recorded REGISTRY OF
in CHATTEL DEEDS
MORTGAGE
REGISTRY
d) Effect of sale Proceeds > debt – Proceeds > debt – Proceeds > debt –
creditor is entitled creditor not creditor not
to excess UNLESS entitled to excess entitled to excess
otherwise
STIPULATED Proceeds > debt – Proceeds > debt –
creditor can creditor can recover
Proceeds < debt – recover deficiency deficiency
creditor cannot
recover 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
c) Return of thing pledged
d) Renunciation of the thing pledged
e) Other forms of extinguishments of obligation
4) MORTGAGE
In case of auction, mortagor can participate. If same w/ highest bidder, preferred
By-bidder or puffer – bids for & on behalf of the seller; public must be notified
TIPO OR UPSET PRICE- FIXED AMOUNT agreed upon for w/c the property mortgaged
shall be sold - VOID
a) CHATTEL MORTGAGE
b) REAL MORTGAGE
Involves real property (binds the property & third persons if registered)
Real right (can be sold or assigned)
Accessory contract
A limitation on ownership (a lien but does not transfer ownership)
Inseparable from the property
Indivisible (cannot be partially extinguished by partial payment)
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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
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
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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
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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Since not liable for losses, CAN DEMAND REIMBURSEMENT from the other partners
Cannot engage in any kind of business – if he does so, he can be (alternative
remedies)
Excluded from the partnership OR
He may be compelled to turn over his income to the partnership with damages in
either case
c) Capitalist partner
Liability to third persons – prorata (interpreted as equal-only as to third persons)
Cannot engage in the same line of business w/o the consent of the other
partners
If he does so, he must bring to the partnership the profits gained from such
business
If he suffers losses, he must suffer alone
d) Limited partner
Who takes active part in the management of the partnership business shall be liable as
a general partner
e) Newly admitted partner
Liable for the partnership liabilities incurred before his admission ONLY UP TO
THE EXTENT OF HIS CONTRIBUTION
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16) CAUSES OF DISSOLUTION
a) Voluntary
i. Express will of a partner or all of the partners or expulsion of a partner
ii. Termination of the term of a particular undertaking
b) Involuntary
i. Business becomes unlawful
ii. Specific thing to be contributed perished before delivery
iii. Death of any partner, insolvency or civil interdiction of any partner
iv. Insolvency of the partnership
v. By decree of court
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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a) Control test
Nationality of controlling stockholders
b) Incorporation test
Laws of the country under which it is incorporated
c) Domicile test
Place where it is conducting business
Where principal office is located
9) KINDS OF CORPORATION
12) SUBSCRIPTION
Contract for the acquisition of unissued shares from an existing corporation or an
corporation still to be formed
13) DIVIDENDS
Issued out of SURPLUS PROFIT OR UNRESTRICTED RETAINED EARNINGS
Corporation is compelled to pay dividends once UNRESTRICTED RETAINED
EARNINGS EXCEEDS 100% of its PAID UP CAPITAL
Kinds of dividends
Cash – declared only by the BOD
Stock – require approval of SH – do not increase authorized capital of
the corporation nor the controlling interest of the stockholders
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Expressly stated in the articles of incorporation
b) Implied
Implied in the purpose expressed in the articles
c) Intra vires
Within the powers of the corporation
d) Ultra vires
Not within the powers of the corporation
Voidable if not illegal per se
Can be ratified by the approval of ALL stockholders or members
expressly or impliedly
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May be exercised only in the following cases:
a) Amendment of articles
b) Disposition of all or substantially all of the corporate assets
c) Merger or consolidation
d) Investment of corporate funds in another corporation or business
All rights of the share are suspend except the right to appraisal
Dissenting stockholder must:
a) Make a written demand within 30 days
b) Present shares within 10 days from date of demand
c) Such shares are stamped as dissenting shares
d) Failure of the corporation to pay within 30 days revives all the rights of the
dissenting rights
If right is sold to another buyer, can no longer exercise the appraisal right of the seller
21) PROXY
Power
Person
Document
Authority
For a particular power, date & meeting only
Revocable any time
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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
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
Pay to B
(Sgd) A
Pay to C
(Sgd) B
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(Sgd) C
Remains 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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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
a) 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
g) 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
1. BEARER instrument
By mere delivery
2. ORDER instrument
By indorsement plus delivery
Kinds of Indorsement
2. Restrictive
Prohibits further negotiation
Negotiable character of an instrument is terminated
a) Pay to H only
b) Pay to H for collection only
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
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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
g) Dishonor by non-payment
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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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