SALES

VENDOR’S LIABILITY IN CASE OF EVICTION: (VICED)

SALES VS. BARTER:

 V – Value of the thing
 I – Income or fruits
1. Manifestation: (Ex. B sells his car to C)
 Cash: P1M (Sale)  C – Cost of suit which cause the eviction
 Trade-in: Cash-600 / TI-400 (sale)  E – Expenses of the contract
Cash-400 / TI-600 (sale)  D – Damages and Interest

2. Absence of Manifestation: (Ex. B transfers  If vendor acted in good faith

his car to C)
 Cash: P1M (Sale) IF VENDOR ACTED IN GOOD FAITH:
 Kind: P1M (Barter)
 Cash-600 / Kind-400 (Sale) 1. Value of the thing sold only
 Cash-400 / Kind-600 (Barter) *waiver consciente (without knowledge of
 Cash-500 / Kind-500 (Sale)
eviction)

SALES VS. CPW (Contract for a Piece of Work):

2. No liability
*waiver intencionada (with knowledge of
 MASSACHUSETTS: Object: Same with New York Rule
eviction)
 Available/Regular Stock (Sale)
 Specially/Manufactured (CPW)
TYPES OF WAIVER
English Rule:
Materials > Labor = Sale
1. Waiver Intentionada – seller not liable.
Labor > Materials = CPW
2. Waiver Consiente – seller liable up to
FMV @ the time of eviction.

OBLIGATIONS OF THE VENDOR (SELLER):

ANIMALS:

1. To effect DELIVERY
1. Disease:
2. To TRANSFER OWNERSHIP (TITLE) to buyer
 Contagious – VOID
 VOIDABLE: Can annul if third party is in
 NOT Contagious – VALID, VOID IF
bad faith.
dies within 3 Days from the date of
 VOID: Stolen
purchase and existed at that time.
3. To WARRANT
 EXPRESS: As stipulated
2. Defects: if hidden: BUYERS’ option:
 IMPLIED:
within 40 days.
o Against Eviction: Except if waived.
 Accion Redhibitoria – to annul,
 Buyer deprived of object:
because object is unfit for the use
 Right: existing @ the time sale
intended.
 Seller: given opportunity to  Accion Quanti Minoris – to reduce
defend title. price
o Against Hidden Defects:  NO WARRANTY: Caveat Emptor
 Defects NOT Hidden – caveat
 Fairs, public auction,
emptor (buyer beware)
livestock sold as
 Defects Hidden – caveat
condemned.
venditor (seller beware)
o Merchantability: within the commerce of
Seller: Defect “If waived”
man.
Aware (√) VOID o Fit for the purpose:
Not Aware (√) VALID Seller Liable
General: (√)
 Defects: If Seller: Good Faith – Specific, if stipulated: (√)
NOT liable for damages.

Page 8 of 21
RIGHTS OF THE UNPAID VENDOR (SELLER):
1. Stoppage in transit
2. Possessory lien
3. Resale
4. Cancel
OBLIGATIONS OF THE VENDEE (BUYER):
1. To ACCEPT delivery
2. To PAY – terms
Ownership
TERMS: Risk of loss
AFTER on FE
delivery
A. On TRIAL or Satisfaction Seller Seller (RPD)
On SALE or Return Buyer Buyer (RPD)
B. LUMPSUM – no increase or decrease in price.
 Discrepancy (Estimate < Actual): Should not
exceed ¼.
 If seller insists delivery of excess between
actual and estimate: Buyer’s Option:
 Rescind/Cancel contract +
Damages
 Agree – Specific performance
C. INSTALLMENT
 PERSONAL PROPERTY – RECTO LAW
 DR default installment:
 1 or more – Seller – to exact
fulfillment.
 2 or more – Altern. Remedies
I. Exact fulfillment – S demands payment;
Seller – Ordinary CR – NO right to foreclose
 Public Sale: proceeds:
 Higher than debt: excess belong to
buyer.
 Lower than debt: deficiency –
Buyer pays.
II. Cancel Sale: B returns object/ Seller
returns payment.
III. Foreclose the Chattel Mortgage
- deficiency: no recovery, stip. – VOID
- excess: belongs to seller, stip. (B) –
VALID
 REAL PROPERTY (Realty Installment Buyer
Protection Act)
 RIBPA (MACEDA LAW)
 NOT applicable to:
 Sale or Financing – Industrial
Lots
 Sale or financing – Commercial
Buildings
 Sale to tenants – Land Reform
Code
 Applicable to: Residential Lots
DR default installment: Without
additional interest/penalty.
Grace Period:
 Payment: <2 years (60 days)
⪰ 2 years (1 mo. /yr.)
 Available once every 5 years
 Condominium: Residential,
Commercial, Industrial:
 SELLER: cancels – refund:
 50% amount paid
 + 5% per year after 5 yrs.
D. REDEMPTION
 CONVENTIONAL – based on stipulation
 Repossession Period:
 With Stipulation – max. of 10 yrs.
 Without Stipulation – 4 years
 Pacto de retro sale (death of seller), can heir
repurchase? – NO. The owner of the undivided
interest can sell his undivided interest.
 LEGAL
 Co-owners: (e.g. W, X, Y, Z > W, X –
absolute sale to Buyer can):
Proportionate:
 Y & Z repurchase what (√)
W & X sold?
 Y rep. what W & X sold? (√)
 Z rep. what W & X sold? (√)
 Adjacent/Ad joint Landowners
 RURAL: (Agricultural)
 Not > 1 hectare, &
 Buyer – already owns a rural
land
 Can A/AJLO repossess? (√)
 URBAN (City)
 So situated – majority part: no
practical use. EXCEPT: if
there is a right to be exercised.
 Acquired for speculation.
COURT - least injury to give
access.
 Right of Pre-emption – if not given: Right of
Redemption – 2 or more – most beneficial.
PRESUMTION OF EQUITABLE MORTGAGE NOT FOR
SALE:
 When place with right to repurchase is usually
inadequate.
 When buyer retains part = PP
 Buyer extends period of redemption.
 Seller retains possession
 Seller pays taxes
 Real intention – mortgage
 Traditio longa manu - mere pointing object.
 Traditio brevi manu - already in possession
of the vendee (buyer) at the time of sale.
Delivery, no longer required.
 Traditio constitutum possessiorium –
vendor (seller) continuous to have
possession of the thing not as owner but as
tenant or lessee.
 Emtio spei – hope, present thing, uncertain.
 Emtio re separate – future thing expected
to come in existence, certain.
 Absolutely Simulated Sale – VOID.
SALE OF REAL ESTATE:
(a) Actual < Stated Area
 Reduction of price if actual area <
1/10 of Stated
 Rescind the sale if actual area > 1/10
of stated
(b) Actual Area > Stated Area
 Accept and pay contract rate.
 Accept the stated area and reject the
excess.
(c) Actual Area is not of the quality specified
Page 9 of 21
  Reduction of price if the inferior
value not exceed 1/10 of the
price/rate agreed upon.
 Rescind if inferior value exceed 1/10
of the price/rate agreed upon.
DOUBLE SALE:
1. PERSONAL PROPERTY
 1 Possession in good faith
ST
 In public instrument (construction
delivery) – public instrument is
preferred over private instrument
(same rule with real property)
2. REAL PROPERTY
 1 register in good faith
st
 1 possession in good faith
st
 Present the oldest title
PERSONS NOT LIABLE FOR BREACH OF WARRANTY:
(SAMPO)
 S – Sheriff
 A – Auctioner
 M – Mortgagee
 P – Pledgee
 O – Other persons  to sell by virtue of
authority in fact/ in law.
AGENCY
- founded upon Trust and Confidence.
 By Operation of Law
 Express
 Implied
 Principal & Agent both present –
receipt of Power of Atty. Is without
objection.
 Principal & Agent both NOT present:
o Acknowledgement of receipt of
the Power of Atty.
o Failure to reply: (Acceptance)
 If required is to do act: the
agent: habitually engaged.
 Parties:
 Principal – capacitated party.
 Agent – presumed w/ compensation.
 2 or More:
 Principal – solidary.
 Agents – joint. EXCEPT: stipulated –
solidary. EXCEPT: acts of dominion
which needs Special Power of Atty.
NOTICE OF AGENCY’S APPOINTMENT:
 Newspaper (published) or Notice Letter –
another agent.
 Del Credere Agent – agent & surety at the
same time.
NOTICE OF REVOCATION:
rd
 Newspaper, to bind 3 parties: must be
done the same manner as Notice of
Appointment EXCEPT: if the parties to be
notified have actual knowledge.
OBLIGATIONS OF an AGENT:
1. To observe instruction of the Principal –
deemed not have exceeded authority.
2. To give everything to P, even if not owing
P.
3. To make accounting of transactions,
stipulation to the contrary: VOID
 If A exceeds authority, still binding to P,
object belongs to A = authorized to sell
 P’s option: Consider – A fulfilled his
authority or ratify.
4. To advance funds: (×)
EXCEPT: If stipulated: (√), except: if P
insolvent (×)
AGENT – if authorized:
 To sell → to mortgage (×)
 To mortgage → to sell (×)
 To lend money → to be borrower(×)
 To borrow money → to be lender int. = current
rate (√)
 To sell on credit → obligation to make list = of
ALL buyers on credit otherwise: ALL CASH
TO APPOINT SUB-AGENT:
1. With Stipulation: (√) & (P designates Agent)
or
2. If not prohibited:
 1&2: notorially, incompetent, insolvent.
If Prohibited, ALL actions of Sub-Agent is VOID.
Page 10 of 21
EXTINGUISHMENT OF AGENCY: (EDWARD)  BAILEE – leases to others.
 If object delivered – with appraisal
 E – Expiration of term
 D – Death of P or A: to sell goods = heirs SECURITY: collateral (Sangla) – things:
 Take care (GFF) & give notice to P
 Agency by operation of law Objects Possession
(necessity).  Pledge Movable CR/pledgee
Death – EXCEPT: constituted for the benefit of P or  Antichresis Immovable CR/
rd
A, or 3 person (stip pour autrui), Insolvency, Civil antichretic CR
Interdiction, and Insanity.  Mortgage
 Chattel Movable DR/ mortgagor
 Real Estate Immovable DR/ mortgagor
 W – Withdrawal by agent
 A – Accomplishment of purpose.
 R – Revocation of agency – (P) @ will, with
1. PLEDGE:
or without cause.
 Similar to Recto Law
EXCEPT: Valid Reason – must be with cause.
 D – Dissolution of the firm which
 Foreclosure then Public Sale → with
established the agency.
notice:
→ Deficiency or excess: belongs/ suffered
 Quasi Traditio – execution of Public
by CR.
Instrument.
 Pledge (CR) – use object = NO, EXCEPT:
If stipulated or necessary to preserve
value.
CREDIT TRANSACTIONS
 Bidders:
Ownership Purpose Highest Bidder(s)?
A. MUTUUM – simple DR To consume Only 1 nd
(×) EXCEPT: after 2 notice
loan
More than 2 (√)
B. COMMODATUM Bailor (CR) To use
Tie (bet. DR & (√) DR
3rd person)
Object Obligation Contracts Exp.

 Pledge is indivisible (on > 1 object)

MM Money To pay Onerous DR
Fungible To replace Gratuitous applicable even to heirs.
CM Non- To return Essentially Ord.  Accessory follows Principal.
fungible Gratuitous (bailee)
If fungible Ex-Ord. 2. CHATTEL MORTGAGE (Movable)
(display/exhibi Actual use  Foreclosure: from loan:
tion)
(50% →Deficiency: DR pays
bailee/ →Excess: Mortgagor (DR) owns
50% bailor)

 Guaranty – insurer of debt, subsidiary

LOSS WHO SUFFERS? liable, with benefit of excussion,
EXCEPT if waived.
1. In mutuum: Res Perit Domino = DR
2. In Commodatum: RPD = Bailor EXCEPT:  Surety – insurer of prompt payment,
 BAILEE – guilty of delay solidarily liable, no benefit of
 BAILEE – uses object of CM: excussion.
purpose – different from what was
agreed upon.
 Deposit – safe keeping.
 BAILEE – guilty of ingratitude –
 Judicial – movable or
able to save.
immovable.
 BAILEE – allows others to use,
 Extra-judicial – movable,
EXCEPT: members of household if
agreement.
not prohibited.

Page 11 of 21
  Necessary – in compliance 3. By Estoppel
with law. (e.g. guest-hotels, 4. Life
passengers-common carrier)  At will – if partners agree → continue
 Fixed Term – dissolved, if partnership
Real Estate Antichresis continues, it will be converted into
Mortgage
partnership at will.
 Possession DR CR/pledgee
 Fruits/Income DR CR-to be applied
LIABILITY:
DR’s obligation.
 Taxes/expenses DR CR-to be charged
1. Unlimited – General: ALL partners.
to DR
 Original – up to separate property.
3. REAL ESTATE MORTGAGE  Newly Admitted:
 Accessory contract, mortgagor can sell  Existing at the time of
the object even without consent of the admission – up to Contributed
mortgagee. Cap. EXCEPT: stipulation.
 Arising after admission – up to
separate property.
2. Limited – at least 1 general partner; at least
PARTNERSHIP
1 limited partner.
 Limited Partner – up to Contri.Cap.,
 2 or more persons bind to contribute money,
EXCEPT: Liable up to Separate Prop. If:
property or industry to a common fund with
intention of earning profit.
 Participate in management
 2 or more persons – exercise same profession  Allow your partnership to use
(GPP) your name in the Partnership’s
firm name, EXCEPT:
NO PRESUMPTION OF PARTNERSHIP: o Such name is also name of
the general partner.
rd
1. 3 persons – not partners to each other, o Name is already used when
rd
nor parties to 3 person, EXCEPT: estoppel: he joined the partnership.
 In pais – silence, declarations, made
others believe. SHARE IN THE CONTRIBUTION: (As to Object)
 By Deed – with documents.
 By Laches – by passage of time.  Universal – not allowed to husband & wife
2. Co-ownership/Co-possession → guilty of concubinage/adultery.
→Purpose: enjoyment/preservation 1. Universal Partnership of Present
3. Sharing of gross returns Property (UP-PP) – contributed to the
4. Prima Facie presumption – sharing of net partnership.
returns, EXCEPT: (GAWID)
 Fruits – accessory follows the
 G – Payment of Goodwill
principal – partnership.
 A – Annuity (widow or representative)
 Future Property:
of a partner.
→without stipulation – partners
 W – Wage: employee or Rent: landlord
→with stipulation – ownership:
 I – Interest to loan.
Partnership (Others) = VALID,
 D – Debt by installment.
EXCEPT: Inheritance, Legacy,
Donation, EXCEPT: fruits = VALID
PERSONALITY:

2. Universal Partnership of Profits (UP-P)

1. De jure – exist in fact and in law, contract:
Highest Bidder(s)?
 P3000 or more – P.I. & reg. SEC,
Contribution Ownership: Partner
otherwise: De Facto
Right to Use: Partnership
 Immovable – description, signed by
Future Property Ownership: Partnership
parties, P.I., registered to SEC,
Gratuitous: Partner
otherwise: VOID *if through industry, FP will go to
2. De Facto – exist in fact, not in law partnership

Page 12 of 21
  Preference:
 Particular (General Partnership) – allowed → Partnership CRs – partnership’s assets.
to husband & wife →Separate CRs – separate assets
 Receipt of payment (partner and
LOSS due to FORTUITOUS EVENT – “Res Perit Domino” partnership creditors):
LOSS borne by PARTNERSHIP:
1. If the thing contributed is fungible. APPLICATION OF PAYMENT
2. Contributed for the purpose of selling.  If DR assigns application of
3. If the thing can’t be kept without payment.
deterioration.  If DR waives AOP, if partner:
 Managing partner
 Partnership Credit (√)
CLASSIFICATIONS OF PARTNERS:
 Proportionate (√)
 Not managing partner
1. Contribution
 Partnership Credit (√)
 To effect delivery; day agreed upon/
 Own Credit (√)
without need-demand.
 Proportionate (√)
 To warrant the thing – against eviction.
EXCEPT:
 Make additional contribution –
 Onerous due to Partners.
imminent loss or/& contribution
 Due to Partnership is not yet due.
necessary to save partnership.
 Partner when received payment
 Capitalist: YES, EXCEPT:
not a managing partner.
stipulation or insolvent.
Otherwise – can be compelled
PROPERTY RIGHTS:
to sell his interest.
 Industrial: NO, EXCEPT:
1. To specific partnership profit.
stipulation.
2. Interest – surplus – profit/loss:
 Make Alterations – Immovable
 If with stipulation:
 Minor (not important) –
→ if VALID as stipulated:
administration – YES
(a) Share in P/L
 Major (important) – NO, even
(b) Share in profit – stipulation.
beneficially, EXCEPT: stip.
→ALL Partners (√)
→ Share in loss – w/out stipulation
2. To engage in another business
(c) Exempting – partner:
 Capitalist
→ Profit (×)
→ Not similar: YES
→ Loss (×)
→similar: NO EXCEPT: stipulated.
→ EXCEPT: industrial
Otherwise: – profit: partnership
 If without stipulation:
– Loss: partner
 Capitalist: Capital Contribution
 Industrial
 Industrial
→similar or not: NO EXCEPT: stipulated
→ Profit – interest or just equitable
Otherwise: Partner’s option:
share (JES)
(Expulsion or profit=Partnership) + Damages
→ Loss – exempt
rd
→ if silent: Share of Capital – Partner
3. Liability – 3 person, RULE: Joint ; EXCEPT
with least Capital Contribution.
(SOLIDARY):
 Capitalist-Industrial Partner – 2
 Partner: course of business, receive
different rights in the share.
money = misappropriation
 Partnership: course of business,
3. To participate in management – Who will
receive money = misappropriation
be managing partners?
 Commit torts: Quasi-delict (d) One – appointment
* Article of Partnership – power is
rd
 In the eyes of the 3 persons, partners are irrevocable without just cause.
equally liable (joint)

Page 13 of 21
 → can EXECUTE ALL acts of admin. = GOOD  Direct Attack – office of the Solicitor
FAITH, despite objection of other partners General
* Not Article of Partnership – power is
 Collateral Attack - (×)
revocable.
(e) 2 or more
4. Legislative Act – if Congress possess a law
* With stipulation –should act as 1, can’t be
alleged. EXCEPT: grave/ irreparable injury to which makes business of partnership illegal.
partnership.
* Without stipulation – should act as 1, 5. Loss of the thing
anyone can act, EXCEPT:  To be contributed – RPD = LOSS
o If managing partner objects – →UP-PP: (√)
majority of partners, if tie. →UP-P: (√)
o Controlling interest, if tie.
 Contributed only usufructuary, LOSS =
o Majority of ALL partners if tie.
Partner, EXCEPT:
o Controlling interest.
o Fungible
o To be sold
→ No one Appointed – Mutual Agency
RULE: o Can’t be kept without
 Every partner/ agent/ partnership, deterioration
anyone can act EXCEPT: →UP-PP: (×)
 A partner objects – majority →UP-P: (√)
of all partners, tie – C.I.
 Unusual Acts: Acts of 6. D – Death, I – Insolvency, C – Civil
Dominion, requires consent
Interdiction, I – Insanity, J Judicial (DICI-J)
of ALL partners, EXCEPT:
 A partner has been
authorized.
 Bus. Of Partnership was LIQUIDATION: Winding Up?
abandon.
(a) With Stipulation – as stipulated
UNUSUAL ACTS: must be presented to ALL partners (b) Without Stipulation – not guilty. All dead-
(SACRED.D) legal rep of last surviving partner.
 S – Submit partnership claims/
liability to arbitration. General Limited
 A – Assign partnership property – *Outside CR *Outside CR
trust = CRs *Inside CR *Limited
 C – Confess judgment -obligation
-share in profits, if any
 R – Renounce / Abandon
-return on contri. cap.
partnership claims.
*Return on *General
 E – Enter into compromise. Contributed Cap. -obligation
 D – Dispose goodwill. -share in profits, if any
 D – Do any act = impossible= -return on contri. cap.
partnership continue business. *Share in Profit, if any

DISSOLUTION:
CORPORATION
1. Without Violation of partnership
agreement.  artificial being created by operation of law
 Term expires with the right of succession and powers (express,
 By will – one, some, or all partners implied, incidental), attributes and properties
 Expulsion – a partner expressly authorized by law incidental to its
 Fulfillment – purpose existence.

2. With Violation – partnership agreement Artificial being = person = citizenship = THEORIES:

3. Quo Warranto – de facto

Page 14 of 21
Liquidation

General (No P/L) Limited (No P/L)

A 20 Obligation to A General 10 Obligation to

B 30 Y 50 B General 20 Y 50
C 50 B 30 C Limited 30 B 30
D Industry C 20 D General 40 C 20

Assumption 1: Assets 300 Assumption 1: Assets 230 (230=200+30)

Liabilities Capital Profit Assets 230
Y 50 A 20 20/120 x 100 = 16.67 Liabilities:
B 30 B 30 30/120 x 100 = 25 Y 50
C 20 C 50 50/120 x 100 = 41.67 C 20
D 0 20/120 x 100 = 16.66 C, capital 30
Total 100 100 100 C, profit 9 (30/100 x 30)
B, liabilities 30
Assumption 2: Assets 150 Total 139
Liabilities Capital Loss 91
Y 50 A 20 2/10 x 50 = 10 Profit
B 30 B 30 3/10 x 50 = 15 A 10/100 x 30 = 3
C 20 C 50 5/10 x 50 = 25 B 20/100 x 30 = 6
D 0 exempt D 40/100 x 30 = 12
Total 100 100 50 Total (21)
70
Assumption 3: Assets 10 Capital
Liabilities A 10
Y 10 A 10 B 20
B 10 D 40
Deficiency 40 Total 70
C 10
Assumption 2: Assets 130 (130=200+(70))
D 10
Loss: 10 = 100+100 Assets 130
= (190) Liabilities:
Capital Y 50
A 2/10 x 190 = (38) + 20 = (18) + 10 = (8) C 20
B 3/10 x 190 = (57) + 30 = (27) + 10 + 30 Off set = 13 C, capital 30
C 5/10 x 190 = (95) + 50 = (45) + 10 + 20 Off set = (15) C, loss (21) (30/100 x 70)
D + 10 reimbursement B, liabilities 30
Total 109
Additional contribution: Pay to: 21
A 8 B 13 Loss
C 15 D 10 A 10/100 x 70 = 7
Total 23 23 B 20/100 x 70 = 14
D 40/100 x 70 = 28

Capital
A 10 – 7 = 3
B 20 – 14 = 6
D 40 – 28 = 12
Total 21
Liquidation

Limited (No P/L)

A General 10,000 Obligation to

B General 20,000 Y 50,000
C Limited 30,000 B 30,000
D General 40,000 C 20,000

Assumption 3: Assets 30
Liabilities
Y 30k A 6.67k

B 6.67k
Deficiency 20k
C0
D 6.66k
Loss: 30,000=100,000+100,000
= (170,000)

C 30/100 x 170 = (51,000) + 30,000 = (21,000) absorption

A 10/100 x 170 = (17,000) + 10,000 + (10/70 x (21,000)) + 6.67k = (3,333)
B 20/100 x 170 = (34,000) + 20,000 + (20/70 x (21,000)) + 6.67k + 30,000 Off set = 16,667
D 40/100 x 170 = (68,000) + 40,000 + (40/70 x (21,000)) + 6.66k = (33,334)

Additional contribution: Pay to:

A 3,333 C 20,000
D 33,334 B 16,667
Total 36,667 36,667
Additional Important Notes

Corporation
Authorized Capital Stock Min. Subscription Actual Subscription Min. Paid
80M x 25% 20M 60M x 25% 15M
20M x 25% 5M
60K x 25% 15K 60K x 25% 15K
15K 5K- set by law

Election for Directors:

Assumption: 1,000 outstanding shares

Min. no. to win

Shares: (Outstanding shares / no. of directors + 1) +1 Votes: (Total votes / no. of directors + 1) +1
(1,000/5+1) +1= 167 shares (1000 x 5 / 5+1) +1= 835 votes

Members of Board = 9
Quorum: MOB/2 + 1
Present/2 + 1 MOB/2 + 1
Present Favor Pass Resolution Election of officers
9 7 ✓ ✓
5 ✓ ✓
4 x x

7 5 ✓ ✓
4 ✓ x
3 x x

5 5 ✓ ✓
3 ✓ x
2 x x
4 (no quorum)

To enter contracts:

MOB are ABCDEFG (7)

No. of present to be in quorum: (7/2) + 1 = 4 No. of present to be in quorum: (6/2) + 1 = 4
No. of votes to be approved: (no. of present/2) + 1 No. of votes to be approved: (no. of present/2) + 1
Presence and votes of A is not counted

Supplier Y (3rd party) Supplier A (Director)

Present Quorum Favor Approved Present Quorum Favor Approved
ABCDEFG ✓ ABCDE ✓ BCDEFG ✓ BCDE ✓
✓ ABCD ✓ ✓ BCD x
ABCDE ✓ ABCD ✓ BCDE ✓ BCD ✓
✓ ABC ✓ ✓ BC x
ABCD ✓ ABCD ✓ BCD X
  Incorporation – laws observed in
companies
 Philippine Laws = Domestic
 Foreign Laws
 Resident: E.T.B.
 Non-resident: N.E.T.B.
 Control test – citizenship of owners.
 Domiciliary – principal office.
NOT ALLOWED to HAVE NO PAR: (BITPuB)
 B – Banks
 I – Insurance companies
 T – Trust companies
 Pu – Public institutions
 B – Buildings and loan associations

KINDS of CORPORATION: TO VOTE: with or without voting rights, they can

1. Public vote in: (A-ASIIMID)
2. Quasl-public: “as if”
3. Private  MAJORITY of B.O.D & MAJORITY of Sh./M;

INCORPORATORS: A – Amendment/Adoption: by laws;

EXCEPT: power to amend by laws is
1. Of legal age already delegated to the B.O.D by 2/3
2. At least 5 but not more than 15 (natural votes of Sh. /M.
person)
3. Majority: Resident of the Philippines  MAJORITY of B.O.D & 2/3 Sh./M:

Primary Franchise: right to organize a corporation. A – Amendment of articles in Incorporation

S – SLEMP of all or substantially all of
ARTICLES OF INCORPORATION: corporate profits property.
I – Incurring/creating/increasing bonded
1. Name: neither similar, nor confusingly indebtedness.
similar to existing corps I – Increase/decrease of capital stock
2. Purpose: principal and secondary M – Merger or consolidation
3. Principal office I – Investment to another company
4. Incorporators: names, nationality and D – Dissolution
residence
S – Sales / B – Lease / E – Exchange / M – Mortgage / P – Pledge
5. Capital: Profit = stocks/shares
6. Board of Directors: Names, Nationality &  Of all or substantially all corporate
Residence. property.

KINDS OF SHARES:  Treasurer’s Affidavit: at least 25% of:

 Authorized Cap. Stock = par /
1. Capital shares ACS = no par
2. Founder’s share – exclusive right  Subs. Paid = money/property
3. Redeemable shares (Callable Shares) – (@FMV)
with or without RE, provided such
redemption will not result to: SECURITY of EXCHANGE and COMMISSION:
 Insolvency of the corporation
 Difficulty in paying maturing  REJECTS:
obligations 1. Purpose: unconstitutional, illegal/
4. Preferred shares immoral, contrary to gov’t.
 Dividends – CP, C/NP, NC/P, NC/NP 2. Treasury’s Affidavit: False
 Assets 3. Failure to meet minimum Filipino
5. Common shares (Gambler’s Shares) – ownership.
below par (x) 4. Failure to observe form
6. Promoter share prescribed.
5. Failure to submit: favourable
recommendation from the
appropriate gov’t agency in charge
of the activity you are proposing.

Page 15 of 21
  ACCEPTS: (Approved)  to exercise such power as may be
 Then issue “Certificate of delegated by B.O.D
Incorporation” (birth of Corp.)
 Exercise Secondary franchise EXCEPT:
 To commence operation within 2  Acts that require shareholders’
years; otherwise automatically approval
dissolve.  Amend by laws
 Distribute cash dividends (Impliedly
COMMENCE OPERATIONS: include stock dividends)
 Fill up vacant seat in the B.O.D
ELECTION:
VACANCIES: Grounds:
1. BOARD:
 Directors – by stockholders  Removal, expiration of terms,
(Cumulative or straight (√)) increase in # of BOD = SHs
 Not convicted by final judgment =  Others: remaining members of
imprisoned: more than 6 years BOD:
 Not violated corporate code within 5  With quorum = BOD
years prior to election.  Without quorum = SHs
 Must own at least 1 share, EXCEPT:
 by-laws require greater or other  Amend acts previously approved by the
number otherwise. B.O.D.

 Trustees – non-stock (Cumulative(x))  B.O.D declares cash dividends while stock

 Not convicted by final judgment = dividends needs 2/3 of shareholder’s
imprisoned: more than 6 years approval.
 Not violated corporate code within 5
years 4. To ENTER CONTRACTS:
 Must be a member of the corp.  Regular/Ordinary:
rd
 With 3 person:
2. OFFICERS:  with quorum = BOD
 President – member of B.O.D  without quorum = SHs
 Presides meeting of  With own Directors:
shareholders & B.O.D Except: if  Fair and reasonable
in the By-Laws.  Presence of such Director
 Secretary – resident citizen of the not necessary to
Philippines. constitute quorum
 Treasurer – no requirement.  Vote of such D does not
necessary or approval
 Incompatible OFFICE: one person: Otherwise: needs SHs
P&S / P&T approval – 2/3
 Management:
1. Managing
BOARD OF DIRECTORS:
2. Managed;
1. QUORUM – as required by laws  Majority of BOD and majority of SHs:
 Absence: ½ + 1 (Majority) EXCEPT:
 Interlocking Directors
2. COMPENSATION – reasonable (per diem &  Shareholders:
allowances) o Substantial = 20% of
 if given – max 10% of NI before IT of outstanding Sh.
preceding year o 1/3 Outstanding Sh.

3. To Create EXECUTIVE COMMITTEE  Max of 5 years, EXCEPT: natural resources.

 If allowed – by laws
 at least majority: B.O.D 5. To ACQUIRE OWN SHARES:
 Provided corporation has RE, EXCEPT:
redeemable.

Page 16 of 21
  To remove DELIQUENT subscription:
Subscriber:
 Not delinquent: rights
o vote (√)
o dividends (√)
 Delinquent: rights
o vote (x)
o dividends (√)
 Cash – to be applied to
unpaid subscription.
 Stock – to be withheld
until full payment of
subscription.
To qualify as BIDDER, pay:
 unpaid subscription, unpaid
expenses, interest
 HIGHEST bidder – least # of shares
 NO bidders – corporation
 To remove FRACTIONAL shares
 To pay DISSENTING shares
 Appraisal right – payment = FV
of shares
o Options:
 To accept will = 1/3
 To exercise appraisal right,
EXCEPT:
* Act=abandoned by corp.
/ rejected-SEC
o APPRAISAL COMMITTEE – 3 members,
Chosen BY:
 (1) By SHs (Dissenting)
 (1) By Corp.
 (1) By rep. of both Corp and SHs
o Who bears expense of Committee?
- recorded amount:
 1M = SHs
 more than 1M = Corporation
6. To ISSUE NEW SHARES – from unissued
shares.
 SHs given PRE-EMPTIVE right, EXCEPT:
 In compliance with law  required
public offering of shares.
 To acquire property needed by
corporation.
 To pay creditors.
7. To OBSERVE:
 Threefold duties: (OLD)
 O – Obedience to by laws
 L – Loyalty to the Corporation
 D – Diligence
 Underlying Doctrines:
 Trust Fund Doctrine: capital
stock = separated by assets
 Do not issue shares until
fully paid.
 to be not liable on
watered shares:
 object in writing – send
to secretary
 Piercing the Veil of Corporate
Functions: SH’s CRs – can’t
collect from corp. EXCEPT:
using corp. to commit fraud.
 Special Circumstances
Doctrine – Duty of Disclosure
to SHs what’s happening to
the Corporation.
 Doctrine of Bus. / Corp.
Opportunity – related to
loyalty to the Corporation.
 Doctrine of Limited Capacity –
all acts must be within:
(express, implied, incidental) =
intra-vires
outside = ultra-vires

(a) Legal
 executed – can be
ratified by
stockholder
 executory – should
be abandoned
(b) Illegal – cannot be ratified
 those involved;
liable (members of
BOD)
SUITS: (Corporation can sue and can be sued)

rd
Corporation (de jure) vs. 3 person or SHs
 SHs:
 Derivative: SHs vs. Board
 Individual: SHs vs. Corp
 Representative: SHs vs. Corp

rd
3 party vs. Corporation
 2 or more – same class = class suit
MEETINGS:
1. BOARD:
 Regular – once a month
 Special – as need arises
Page 17 of 21
  Place – anywhere
 Attendance – personal (√) proxy (x)
NEGOTIABLE INSTRUMENT
2. SHAREHOLDERS:
 Regular – once a year, as fixed in by PURPOSE:
laws, if silent, any day in April
 Facilitate exchange
 Special – as need arises
 Substitute money
 Place – within city / municipality of
 Accommodation of Secondary Contracts
Principal Office
 Increase credit circulation
 If practicable: Principal Office
 Attendance – personal (√), proxy (√) PARTIES:

Promissory Note Bill of Exchange

Foreign With Without
 Primary Liable Maker Acceptor
Corporations License License
 Secondary Indorser Drawer
1. Sue? (√) (x), EXCEPT: Liable
Violation of
property rights
REQUISITES:
2. Be sued? (√) (√)
Intellectual property rights: 1. In writing & signed by maker or drawer.
 Trade Name/Mark  True Name: complete/
 Copyright
abbreviation/ misspelled
 Patent
 Assumed Name: trade/ business/
alias
DISSOLUTION:  Symbols/signature

1. Automatic: 2. Contain unconditional promise or order to

 Expiration of term as fixed in the pay sum certain in money.
Articles of Incorporation
 Max. term = 50 years EXCEPT: if  Subsequent events does not cure
intended, max of 50 years per non-negotiability of Non-
extension. negotiable Instrument.
 Non-use  Sum Certain:
 failure to commence within 2  With interest
years from issuance of Certificate  Installment: stated, with
of Incorporation acceleration clause
 If silent: choice: holder
2. Grounds: (N) / DR (NN)
 Non-use  With dollar exchange rate
 Failure to resume operation within whether fixed or current
5 years from Stoppage of  With cost of collection or
Operation. Atty.’s Fee
 Legislative Enactment
 Quo-Warranto – Office of the Solicitor 3. Payable to:
General/ direct attack.  Order - of a specific person
 Amendment of Aol – shortening life of - Specific person or order
corporation.  PAYEE:
 Judicial – by order of the court. - (√) B
- (√) B & C (both should
indorse)
LIQUIDATION: winding up = 3 years - (√) B or C (either can
indorse)
 ALL actions for/against Corporation – be filed
 INDORSEE:
 After 3 years - pending actions – receiver
- (√) L / L 60.00 (×) / L
 To reserve enough funds to meet pending
40.00 remaining unpaid
act, EXCESS: Shareholders.
- (√) L & M

Page 18 of 21
 - (×) L 50.00 & M 50.00  Incomplete but delivered
- (√) L or M  Complete but Undelivered
 Bearer  Absence or failure of Consideration
- so expressed bearer  Illegal Consideration
- Specified person or  Fraud Inducement
bearer.  Insertion of wrong date/ discharge by
- Order of fictitious payment before maturity.
person.
- Does not purport to 2. Real Defense – can be used against any
name any person. holder (HIDC/HFV)
- Only or last  Incomplete and undelivered
indorsement: Blank  Minority or other form of incapacity
 Forgery
4. Payable on:  Fraud in Factum or in Esse Contractus
 Demand – expressed, no date,  Discharge at or after maturity
overdue  Illegality of contract
 Fixed Date  Material Alteration (if silent: Personal)
 Determinable Future time – time
certain to come. TO NEGOTIATE:
 Time
- KNOWN:  Order – indorsement + delivery
before/at/upon/after  Bearer – delivery
- UNKOWN: at/after  A person who negotiated through
delivery is only liable to the party
5. Bill of Exchange (B.of.E) whom he presented the note.
- Drawee must be named or indicated with
INDORSEMENT:
reasonable certainty.
1. Special Pay to C (B)
DRAWEE:
2. Qualified Pay to C, w/o recourse (@ your own risk) (B)
- (√) W 3. Blank __________ (B)
- (√) W and Y 4. Conditional Pay to C, If….. (B)
- (×) W or Y (alternative) Pending fulfilment of the condition:
- (×) W, in his absence Y (succession)
 Maker – option to disregard condition
 AGENT: to be not liable: and pays:
 Sign within scope of authority  Obligation extinguished
 Disclose-principal  Without incurring any liability
 Indicate in what capacity  C holds money in trust of B
until C fulfills condition
 Agent with limited authority:
 Sgd. Name: Per Procuration / Per Proc.  Maker – may honor/respect condition
/ P.P. / p.p.  Maker can refuse to pay, such refusal
is not a dishonor, C has no recourse.
DEFENSES:
5. Facultative Pay to C, notice of Dishonor waived, (B)
1. Personal Defense
(a) Can be used against:
 WAIVER:
 HFV whose title did not come
(a) face of instrument: binds all parties
from a HIDC
(b) indorsement: binds indorser
 HFV whose title come from a
 Waiver of protest/presentment/notice
HIDC, but he is party to the
of dishonor/ Protest
defect.
(b) Cannot be used against:
6. Restrictive
 HIDC
 Prohibits further negotiation of
 HFV whose title came from a
Instrument: Pay to C only (B)
HIDC not a party to the defect.

Page 19 of 21
  Constitute Indorsee as mere Agent: WARRANTIES (Liabilities)
Pay to C for collection (B)
 Vest title to the Indorsee in trust for Indorsers Qualified General
(Special)
Another: Pay to C in trust for D (B)
 Indorsement is genuine (√) (√)
in all aspect it purports
to be
INTERVENING PARTIES: (there is Compensation)  Good title (√) (√)
 Capacity of primary (√) (√)
 Discharged = compensation parties
 Can be revived (negotiation):  No (√) -
knowledge/defect/value
(√) new party
less
(√) prior party  Instrument is valid & - (√)
(×) intervening party – in order to subsisting
avoid multiplicity of suits  If presented  accepted - (√)
 paid  if dishonored
– “I will pay.”
STRIKE OUT (INDORSERS):
- Only allowed if:

(a) No prior parties (new parties only)
 Never strike out the PAYEE
 Only if the last indorsement is blank.
EXCEPTION: Renegotiation
(b) Prior parties
 Intervening parties not liable
anymore.
PRESENTMENT FOR ACCEPTANCE (B.of.E)
- Unless stipulated.
(a) Payable elsewhere other than the
usual place/business of Drawee
(b) Fix maturity – payable after sight.

KINDS OF ACCEPTANCE:
 A party primary liable can collect from a
party secondarily liable if he is an (a) Absolute
accommodation party. (b) Qualified – accepted
 Payable @: place
 Payable if: condition
ADMISSION:

 MAKER – admits:
DISHONORED BY NON-ACCEPTANCE:
 Existence & Capacity of the Payee
 I will pay according to the tenor of 1. To give Notice of Dishonor by N.A. to PSL
the instrument. within 24 hours;
EXCEPT: N.O.D. not required
 DRAWEE/ACCEPTOR – admits: On due date: PFP (×) / collect from PSL (√)
 Existence & Capacity of the Payee
 Existence, Capacity, and Authority of  PFP  accepted  due date:
the Drawer o PFP (×)
 Signature of the drawer genuine o Collect from PSL (√)
 “I will pay according to tenor of  Dishonored by Nonpayment:
acceptance.” o Collect from PSL (×)
o Give N.O.D. by NP to PSL (√)
 DRAWER – admits:
 Evidence and Capacity of the Payee. 2. To protest
 If Presented Accepted  Paid: a. Notary Public (NP)
If Dishonored  Necessary b. Absence of NP – rep. & 2 witnesses
Procedures Observed  “I will pay.”

BILLS IN SET – 2 or more parts  bill

- Every part accepted in the hands of a

HIDC is considered bill.

Page 20 of 21
PRESENTMENT FOR PAYMENT

PRESENTMENT OF CHECK

PRESENTMENT OF BILL OF EXCHANGE

NOT COVERED BY NEGOTIABLE INSTRUMENTS LAW

(NIL):

(a) Warehouse receipt: not sum certain in

money. (delivery of goods)
(b) Bill of Lading: goods not money
(c) Letter of Credit: Payable to specified
person.
(d) Postal Money Order: Payable to specified
person.
(e) Certificate of Stock: not sum certain in
money with condition # of Shares.
(f) Quedan: sweet
(g) Treasury Warrant: Subject to Condition.

DISCHARGE OF NEGOTIABLE INSTRUMENT:

1. Instrument (PP-IPO)
 Payment in due course by/on
behalf of Principal DR.
 Payment in due course by
accommodated party.
 Intentional Cancellation of the
Instrument.
 Principal DR becomes the holder
@/after maturity
 Other means: discharge-simple
obligation

2. Person secondary liable (DD-IVER)

 Discharge of instrument
 Discharge of Prior Party/ Payment
made by prior party
 By a valid tender of payment –
prior party
 Intentional cancellation of his
signature
 Release of the Principal DR
 By extension of the time payment.

-NRBF

Page 21 of 21
Additional Important Notes

Negotiable Instruments Bearer Instrument

Order Instrument s b d d
s s s ABCDEF
ABCDE A- maker, Insolvent.
A- maker, Insolvent. Can C ask for payment from B? Yes
Can C ask for payment from B? Yes Can D ask for payment from C? Yes
Can D ask for payment from C? Yes Can D ask for payment from B? Yes
Can E ask for payment from D? No
Can D ask for payment from B? Yes
Can E ask for payment from C? No
Can E ask for payment from D? Yes
Can E ask for payment from C? Yes Can E ask for payment from B? No
Can E ask for payment from B? Yes Can F ask for payment from D? No
Can F ask for payment from C? No
Bearer Instrument Can F ask for payment from B? No
d d d
Order Instrument
ABCDE
d d
A- maker, Insolvent. ABCDEF

Can C ask for payment from B? No Is E a holder in due course? No.

Can D ask for payment from C? No An order instrument requires indorsement + delivery.
Can D ask for payment from B? No
Can E ask for payment from D? No Bearer Instrument
Can E ask for payment from C? No d d
Can E ask for payment from B? No ABCDEF

Persons negotiating a bearer instrument by mere delivery Is E a holder in due course? Yes.
is only secondary liable. In that case maker or acceptor is A bearer instrument does not require indorsement.
still the primary liable.
They are liable only to their immediate transferee once Order Instrument
there are violations of their warranties. All indorser except qualified and for those who negotiated
by delivery are liable if the instrument is
Order Instrument • Order
s b d d • All new parties
ABCDEF • No defect
A- maker, Insolvent.
s b d d s q f c b d s q r
Can C ask for payment from B? Yes ABCDEFGHIJKLMNO
Can D ask for payment from C? Yes ✓ =
Can D ask for payment from B? Yes ✓ ✓ =
Can E ask for payment from D? No ✓ ✓ x =
Can E ask for payment from C? Yes ✓ ✓ x x =
Can E ask for payment from B? Yes ✓ ✓ x x ✓ =
Can F ask for payment from D? No ✓ ✓ x x ✓ x =
Can F ask for payment from C? Yes ✓ ✓ x x ✓ x ✓ =
Can F ask for payment from B? Yes ✓ ✓ x x ✓ x ✓ ✓ =
✓ ✓ x x ✓ x ✓ ✓ ✓ =
✓ ✓ x x ✓ x ✓ ✓ ✓ x =
✓ ✓ x x ✓ x ✓ ✓ ✓ x ✓ =
✓ ✓ x x ✓ x ✓ ✓ ✓ x ✓ x =
✓ ✓ x x ✓ x ✓ ✓ ✓ x ✓ x ✓ =
Bearer Instrument
If the indorsement of the instrument is negotiated by
delivery, all prior parties are not liable provided by the ff:
• Order
• All new parties
• No defect
* qualified indorsement is still not liable but it has no
effect to prior parties.

s b d d s q f c b d s q r
ABCDEFGHIJKLMNO
✓ =
✓ ✓ =
x x x =
x x x x =
x x x x ✓ =
x x x x ✓ x =
x x x x ✓ x ✓ =
x x x x ✓ x ✓ ✓ =
x x x x ✓ x ✓ ✓ ✓ =
x x x x x x x x x x =
x x x x x x x x x x ✓ =
x x x x x x x x x x ✓ x =
x x x x x x x x x x ✓ x ✓ =

Order Instrument

s b d d s q f c b d s q r
ABCDEFGHIJKLMNO
✓ ✓ x x ✓ x ✓ ✓ ✓ x ✓ x ✓ =

Strike out after the blank indorsement but negotiation by

delivery is not included.

All special
ABCDEFGHE
FGH- compensation

ABCDEFGHEJ
FGH- obligation revived because the new holder is new
party.

ABCDEFGHEG

G- cannot be negotiate to the intervening parties (FGH)