OBLIGATIONS

OBLI0001: TEST OF DILIGENCE: Did the defendant in doing the alleged negligent act use reasonable care and caution which an
ordinarily prudent person would have used in the same situation?

OBLI0002: DOCTRINE OF CONSTRUCTIVE COMPLIANCE (OR FULFILLMENT): The condition shall be deemed fulfilled
when the obligor (or debtor) voluntarily prevents its fulfillment. To apply, two requisites must be present: (1) the intent of the debtor
to prevent fulfillment of the condition; and (2) actual prevention of compliance (or fulfillment). Hence, Mere intention of the debtor to
prevent the happening of the condition, or to place ineffective obstacles to its compliance, without actually preventing the fulfillment,
is insufficient.

OBLI0003: WHAT ARE THE EFFECTS OF POSITIVE/NEGATIVE CONDITIONS TO DO POSSIBLE/IMPOSSIBLE ON

OBLIGATIONS?
(1) Positive condition to do something possible: VALID condition and VALID obligation
(2) Positive condition to do something impossible: VOID condition and VOID obligation
(3) Negative condition not to do something possible: VALID condition and VALID obligation
(4) Negative condition not to do something impossible: VOID condition, but VALID obligation

OBLI0004: If any one of the debtors in a joint indivisible obligation should fail to comply with his undertaking, the obligation is
converted into one of indemnity for damages. For example, if A and B promised to give C a car worth P100,000, and A is willing and
ready to perform, but B is not, A shall be liable to pay C P50,000, while B shall be liable to pay C P50,000 plus damages. A is not
liable for damages since he did not commit a breach of obligation.

OBLI0005: OBLIGATIONS WHICH ARE NOT SUBJECT TO LEGAL COMPENSATION:

(1) Debts arising from contracts of deposit
(2) Debts arising from contracts of commodatum (gratuitous loan of a thing)
(3) Claims for support due to gratuitous title
(4) Obligations arising from criminal offenses
(5) Certain obligations in favor of the government, such as taxes, fees, duties, and others of a similar nature

OBLI0006: One of the requisites for compensation to be proper is that the two debts are due. Hence, if there are two debts and one is
not yet due, no compensation can take place.

OBLI0007: USUAL CAUSES OF CONFUSION (merger of the characters of creditor and debtor in one and same person by virtue of
which the obligation is extinguished:
(1) Succession: where the debtor-heir inherits from the creditor-deceased the credit owed
(2) Donation: where the creditor-donor donates to the debtor-donee the credit owed
(3) Negotiation of a negotiable instrument: where the instrument is indorsed or delivered to the drawer or maker making himself
the payee

OBLI0008: Dation in payment extinguishes the obligation up to the value of the thing delivered UNLESS the parties agree that the
entire obligation is extinguished.

OBLI0009: HOW DO WE DETERMINE WHETHER OR NOT THERE IS NOVATION? There is incompatibility when the two
obligations cannot stand together, each one having its independent existence. If the two obligations cannot stand together, the latter
obligation novates the first. Changes that breed incompatibility must be essential in nature and not merely accidental. The
incompatibility must affect any of the essential elements of the obligation, such as its object, cause or principal conditions thereof;
otherwise, the change is merely modificatory in nature and insufficient to extinguish the original obligation.

If there is extension of period of payment, there is no novation because the debtor remains liable to pay as originally agreed upon,
“inextend lang.”

If there is shortening of period of payment, there is novation because the debtor’s liability has changed, “hindi na sya as liable as he
originally was.”

OBLI0010: EFFECTS OF LOSS OF OBJECTS in ALTERNATIVE OBLIGATIONS:

When choice belongs to DEBTOR or CREDITOR and loss is due to FORTUITOUS EVENT:
- All are lost: debtor is released from the obligation
- Some but not all are lost: deliver that which he shall choose from among the remainder
- Only one remains: deliver that which remains

When choice belongs to DEBTOR and loss is due to DEBTOR’S FAULT:

- All are lost: creditor shall have a right to indemnify for damages based on the value of the last thing which disappeared or service
which becomes impossible
- Some but not all are lost: deliver that which he shall choose from among the remainder without damages
- Only one: deliver that which remains

When choice belongs to CREDITOR and loss is due to DEBTOR’S FAULT:

- All are lost: creditor may claim the price/value of any of them with indemnity for damages
- Some but not all are lost or only one remains: creditor may claim any of those subsisting without a right to damages or price/value of
the thing lost with right to damages

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When choice belongs to DEBTOR or CREDITOR and loss is due to CREDITOR’S FAULT: CREDITOR CANNOT BE ENTITLED
TO SOMETHING HE HAS LOST THROUGH HIS OWN FAULT. DEBTOR IS NO LONGER LIABLE TO CREDITOR.

OBLI0011: Acquittal of the defendant in a criminal case DOES NOT EXTINGUISH his liability for quasi-delict under Article 2176
of the New Civil Code, UNLESS (1) the acquittal is based on the ground that he did not commit the offense charged, or (2) the fact
from which the civil liability may arise did not exist.

If the acquittal is based on the ground that the guilt has not been proved beyond reasonable doubt, there may still be an action to
recover damages based on quasi-delict.

OBLI0012: While the civil liability (obligation) arising from crime is separate and independent from that arising from quasi-delict
under Article 2176 of the New Civil Code, Article 2177 PRECLUDES DOUBLE RECOVERY.

To illustrate, if in a prior civil case, 100,000 has been awarded to the plaintiff/claimant, and in a subsequent criminal case there is
another 100,000 award to the complainant, that second award may no longer be claimed. The same rule applies if the first case is a
criminal case and then followed by a civil case.

In case the awards involve two different amounts, the plaintiff/claimant is only entitled to the BIGGER AMOUNT.
Hence, if what was awarded in the first case is 100,000 and in the second case is 60,000, the plaintiff/claimant can only recover up to
100,000. If what was awarded first was the 60,000 and followed by 100,000, the plaintiff/claimant can only get the additional 40,000
out of the second award since he already received the 60,000.

EFFECT OF CONDITION TO
SOMETHING POSSIBLE SOMETHING IMPOSSIBLE
THE OBLIGATION
VOID Condition
VOID Obligation
VALID Condition
TO DO
VALID Obligation The debtor never really intended to
be bound at all, hence, no
obligation exists.
VOID Condition
VALID Obligation
VALID Condition
NOT TO DO The debtor never really intended to
VALID Obligation
make the obligation conditional,
hence, it is immediately
demandable.

TERM OR PERIOD
VERSUS TERM OR PERIOD CONDITION
CONDITION

REQUISITES Future and CERTAIN Future and UNCERTAIN

FULFILLMENT Must NECESSARILY come MAY OR MAY NOT happen

Upon the time of

DEMANDABILITY OR Upon the VERY EXISTENCE of
INFLUENCE ON OBLIGATION
EXTINGUISHMENT of an the obligation
obligation

RETROACTIVITY OF
NO retroactive effect Has retroactive effects
EFFECTS

EFFECT OF WILL OF Existence of the obligation is NOT Existence of the obligation is

DEBTOR affected affected

OBLI0013: WHEN DOES THE DEBTOR LOSE THE RIGHT TO MAKE USE OF THE PERIOD?
(1) When after the obligation has been contracted, he becomes insolvent, UNLESS he gives a guaranty or security for the debt
(2) When the debtor does not furnish to the creditor the guaranties or securities which he has promised
(3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous
event they disappear, UNLESS he immediately gives new ones equally satisfactory
(4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the period
(5) When the debtor attempts to abscond

OBLI0014: The act of a JOINT creditor which would ordinarily interrupt the period of prescription would NOT BE VALID because
the INDIVISIBLE character of the obligation requires COLLECTIVE action of the creditors to be effective.

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OBLI0015: Indivisibility DOES NOT necessarily give rise to solidarity. Solidarity DOES NOT imply indivisibility

INDIVISIBILITY
VERSUS INDIVISIBILITY SOLIDARITY
SOLIDARITY

Refers to the prestation which Refers to the legal tie or vinculum,

NATURE constitutes the OBJECT of the and consequently to the SUBJECTS
obligation OR PARTIES of the obligation

Plurality of subjects is NOT

REQUISITES Plurality of subjects is required
required

Converts the obligation into one of

indemnity for damages since the Solidarity among the debtors
EFFECT OF BREACH
indivisibility of the obligation is REMAINS
TERMINATED

OBLI0016: WHEN IS THE DEBTOR LIABLE FOR THE LOSS OF THE OBJECT OF THE OBLIGATION THROUGH
FORTUITOUS EVENT?
(1) When by law, the debtor is made liable even for fortuitous events
(2) When stipulated by the parties
(3) When the nature of the obligation requires the assumption of risk
(4) When the loss is partly due to the fault of the debtor
(5) When the loss occurs after the debtor has incurred in delay
(6) When the debtor promised to deliver the same thing to two or more person who do not have the same interest
(7) When the obligation to deliver arises from a criminal offense
(8) When the obligation is generic

OBLI0017: “Article 1249 of the Civil Code provides:

Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency,
then in the currency which is legal tender in the Philippines.

Although the Civil Code took effect on August 30, 1950, jurisprudence had upheld the continued effectivity of Republic Act No. 529,
which took effect earlier on June 16, 1950. Pursuant to Section 1 of Republic Act No. 529, any agreement to pay an obligation in a
currency other than the Philippine currency is void; the most that could be demanded is to pay said obligation in Philippine currency to
be measured in the prevailing rate of exchange at the time the obligation was incurred. On June 19, 1964, Republic Act No. 4100 took
effect, modifying Republic Act No. 529 by providing for several exceptions to the nullity of agreements to pay in foreign currency.

On April 13, 1993, Central Bank Circular No. 1389 was issued, lifting foreign exchange restrictions and liberalizing trade in foreign
currency. In cases of foreign borrowings and foreign currency loans, however, prior Bangko Sentral approval was required.

On July 5, 1996, Republic Act No. 8183 took effect, expressly repealing Republic Act No. 529 in Section 2 thereof. The same statute
also explicitly provided that parties may agree that the obligation or transaction shall be settled in a currency other than Philippine
currency at the time of payment.”
Source: Union Bank v. Spouses Tiu, GR 173090-93, September 7, 2011 [Per J. Leonardo-De Castro, First Division]

OBLI0018: AMONG SEVERAL DEBTS, WHICH IS MORE ONEROUS?

- Due and incurred at different dates: OLDEST
- With and without interest: WITH INTEREST
- Secured and not secured: SECURED
- Bound as principal and bound as guarantor or surety: AS PRINCIPAL
- Bound as solidary debtor and as the sole debtor: AS SOLIDARY
- For indemnity and for penalty: FOR INDEMNITY
- Liquidated and unliquidated: LIQUIDATED

OBLI0019: Payment to incapacitated persons is considered valid:

(1) if he has kept the amount or thing paid or delivered, OR
(2) insofar as the payment has been beneficial to him.

In order to be considered BENEFICIAL TO HIM, the thing delivered or money paid must be applied or spent for some RATIONAL,
NECESSARY, OR USEFUL PURPOSE for the incapacitated person’s benefit. Hence, if the incapacitated used the money to bet in
lotto, it is not a valid payment and the debtor may still be demanded to pay once again. Betting in lotto is not considered a rational,
necessary, or useful act that benefits a person EVEN IF he wins the lotto.

OBLI0020: NO SOLIDARITY: A, B, and C are JOINT CREDITORS. D, E, and F are JOINT DEBTORS. CREDIT or DEBT is
P90,000.
- A can only demand from D P10,000. If D pays, A can keep the entire P10,000.
- If A wants to collect his whole share in the credit, he has to demand payment from D, E, and F, for P10,000 each.
- A cannot demand from D the payment of the shares of his co-creditors, B and C.
- A cannot demand from D the payment of the shares of the other co-debtors, E and F.

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 - If A remits or condones D’s share in the debt, the remission shall only cover P10,000. A can still collect from E and F,
P10,000 each.
- If A waives his right to collect his share in the credit, it shall only cover P30,000. B and C can still collect from D, E, and F,
P10,000 each.
- If D is insolvent, E and F are not liable for his share.
- If D does not pay after demand, only D shall be liable for damages. E and F will not be in delay due to D’s failure to pay
upon demand. Separate demands must be made against E and F.
- In order for the entire obligation to be extinguished through payment, EACH creditor must demand from EACH debtor the
payment of P10,000 to EACH creditor.

OBLI0021: PASSIVE SOLIDARITY: A, B, and C are JOINT CREDITORS. D, E, and F are SOLIDARY DEBTORS. CREDIT or
DEBT is P90,000.
- A can only demand from D P30,000. If D pays, he can ask for reimbursement from E and F, P10,000 each.
- If A wants to collect his whole share in the credit, he can demand payment from any of D, E and F.
- A cannot demand from D the payment of the shares of his co-creditors, B and C.
- If A remits or condones D’s share in the debt, the remission shall only cover P10,000. A can still collect from E or F,
P20,000. If E pays A P20,000, F must reimburse his share which is P10,000. B or C can still demand from D, E, or F
payment of P30,000, with right of reimbursement in favor of the paying co-debtor.
- If A waives his right to collect his share in the credit, it shall only cover P30,000. B and C can each collect P30,000 from
either D, E, or F. The one who pays is entitled to reimbursement.
- If D is insolvent, E and F are liable for D’s share, even if E or F’s share has been remitted or condoned by any of the
creditors.
- If D does not pay after demand, D, E, and F shall be liable for damages. D’s delay is imputable against E and F.
- In order for the entire obligation to be extinguished through payment, ALL creditors must demand from ANY of the debtors
the payment of P30,000 to each of the creditors.

OBLI0022: ACTIVE SOLIDARITY: A, B, and C are SOLIDARY CREDITORS. D, E, and F are JOINT DEBTORS. CREDIT or
DEBT is P90,000.
- A can only demand from D P30,000. If D pays, A has to give B and C P10,000 each.
- If A wants to collect his whole share in the credit, he has to demand payment from D, E, and F, for P10,000 each.
- A can demand from D P20,000 as payment for the shares of B and C (P10,000 each).
- A cannot demand from D the payment of the shares of the other co-debtors, E and F.
- If A remits or condones D’s share in the debt, the remission shall only cover P30,000. A can still collect from E and F,
P10,000 each. Also, A shall be liable to B and C for P10,000 each since such remission is prejudicial to B and C.
- If A remits or condones the entire debt, the entire obligation is extinguished but A shall be liable to B and C for P30,000
each, since such remission is prejudicial to B and C.
- If D is insolvent, E and F are not liable for his share.
- If D does not pay after demand, only D shall be liable for damages. E and F will not be in delay due to D’s failure to pay
upon demand. Separate demands must be made against E and F.
- D may pay A, B, or C, but if A made a demand from D, payment must be made A only.
- In order for the entire obligation to be extinguished through payment, ANY of the creditors must demand from EACH debtor
the payment of P30,000 to ANY creditor.

OBLI0023: MIXED SOLIDARITY: A, B, and C are SOLIDARY CREDITORS. D, E, and F are SOLIDARY DEBTORS. CREDIT
or DEBT is P90,000.
- A can demand from D the entire P90,000. If D pays, A has to give B and C P30,000 each, while D can seek reimbursement
from E and F for P30,000 each.
- If A remits or condones D’s share in the debt, the remission shall only cover P30,000. A can still collect P60,000 from E or F.
- If A remits or condones the entire debt, the entire obligation is extinguished but A shall be liable to B and C for P30,000
each, since such remission is prejudicial to B and C.
- If D is insolvent, E and F are liable for his share.
- If D does not pay after demand, D, E, and F shall be liable for damages. D’s delay is imputable against E and F.
- In order for the entire obligation to be extinguished through payment, ANY of the creditors must demand from ANY of the
debtors the payment of P90,000.

COMPENSATION
VERSUS COMPENSATION CONFUSION
CONFUSION

2 persons, who are creditors and 1 person in whom is merged the

NUMBER OF PERSONS
debtors of each other qualities of creditor and debtor

NUMBER OF OBLIGATIONS At least 2 Only 1

EVERYTHING RFBT 4
 COMPENSATION
VERSUS COMPENSATION PAYMENT
PAYMENT
Persons, who may pay and to whom
payment may be made
Two parties who, in their own right,
Thing or object in which payment
are principal creditors and debtors
must consist
of each other.
Both debts must consist in money,
The cause thereof
or if fungibles (or consumables),
must be of the same kind and
The mode or form thereof
quality.
REQUISITES
Both debts must be due.
The place and the time in which it
Both debts must be liquidated and
must be made
demandable.
No retention or controversy
The imputation of expenses
commenced by third persons and
occasioned by it
communicated to the debtor.
It must not be prohibited by law.
The special parts which may
modify the same and the effects
they generally produce
HOW IT TAKES EFFECT By operation of law By act of the parties
CAPACITY TO GIVE AND
Not necessary Essential
ACQUIRE

REVIVAL OF
KINDS OF CREDITOR’S ORIGINAL
ORIGINAL NEW EFFECT OF
SUBSTITUTION CONSENT OBLIGATION IN
DEBTOR’S DEBTOR’S PAYMENT BY NEW
(PERSONAL (indispensable CASE OF NEW
CONSENT CONSENT DEBTOR
NOVATION) requirement) DEBTOR’S
INSOLVENCY
No revival, UNLESS
Right to reimbursement
the insolvency was
(how much was paid by
DELEGACION Yes Yes Yes already existing and of
the new debtor) and
public knowledge or
subrogation
known to the debtor
Right to BENEFICIAL
reimbursement (how
EXPROMISION Yes No Yes No revival
much was beneficial to
the original debtor)
NOTES:
- Novation is NEVER presumed. The creditor must clearly agree that the original debtor will be released from the original
obligation.
- While the extinguishment of the principal obligation results to the extinguishment of accessory obligations, those accessory
obligations which are BENEFICIAL TO THIRD PERSONS who did not consent to the novation may still subsist.
- If the new obligation is void, there is no novation, and the original one shall subsist.
- A void obligation cannot be novated; but a VOIDABLE obligation may be novated.
- If the original obligation is subject to a suspensive or resolutory condition, the new obligation is deemed subject to the
SAME CONDITION unless there is a contrary stipulation.

OBLI0024: A TAXI OWNED BY X AND DRIVEN BY Y FIGURED IN AN ACCIDENT DUE TO THE NEGLIGENCE OF Y,
CAUSING INJURY TO PASSENGER D AND PEDESTRIAN E. WHAT ARE THE RESULTING OBLIGATIONS?
1. D may sue X for breach of CONTRACT due to the injury sustained during transport. A contract of carriage is between D,
being the passenger, and X, being the operator of the taxi.
2. D cannot sue Y for breach of CONTRACT because Y is not a party to the contract of carriage. Y is just an employee of X.
3. D may sue X and/or Y based on QUASI-DELICT. Y’s liability with X is solidary being the employer. If X proves exercise of
due diligence over Y, X is excused from liability. If X pays, X may seek reimbursement from Y.
4. D may sue Y only based on DELICT because Y’s negligence resulting to injury to D constitutes criminal negligence as well.
If Y is convicted and is insolvent, X is subsidiarily liable. If X pays, X may seek reimbursement from Y when Y becomes
solvent.
5. D cannot sue X and/or Y based on QUASI-CONTRACT, since the accident does not constitute any form of negotiorum
gestio or solutio indebiti.
6. E cannot sue X for breach of CONTRACT, since there is no contractual relationship existing between E and X.
7. E cannot sue Y for breach of CONTRACT, since there is no contractual relationship existing between E and X.
8. E may sue X and/or Y based on QUASI-DELICT. Y’s liability with X is solidary being the employer. If X proves exercise of
due diligence over Y, X is excused from liability. If X pays, X may seek reimbursement from Y.
9. E may sue Y only based on DELICT because Y’s negligence resulting to injury to E constitutes criminal negligence as well.
If Y is convicted and is insolvent, X is subsidiarily liable. If X pays, X may seek reimbursement from Y when Y becomes
solvent.
10. E cannot sue X and/or Y based on QUASI-CONTRACT, since the accident does not constitute any form of negotiorum
gestio or solutio indebiti.
11. X is not criminally liable (DELICT) to either D or E since X is not the one who committed the criminal act of negligence.

EVERYTHING RFBT 5
 12. D and E cannot sue each other based on CONTRACT (because there is no contract between D and E), QUASI-DELICT
(because neither of the two is at fault or negligent), DELICT (because neither of the two is criminally at fault or negligent),
and QUASI-CONTRACT (because nothing constitutes any form of negotiorum gestio or solutio indebiti).
Hence:
1. D’s causes of action against X are based on contract and quasi-delict.
2. D’s causes of action against Y are based on quasi-delict and delict.
3. E’s cause of action against X is based on quasi-delict only.
4. E’s causes of action against Y are based on quasi-delict and delict.
5. If D or E files a criminal action (based on delict) against Y, and Y is insolvent upon conviction, X is subsidiarily liable for
Y’s civil liability to D or E.
6. D and E have no cause of action against X and/or Y based on quasi-contract.

CONTRACTS

CON0001: EXAMPLES OF VOID STIPULATIONS:

(1) Pactum commissorium: automatic appropriation of the things given by way of pledge or mortgage, in case of non-payment of
principal obligation
(2) Pactum de non alienado: forbidding the owner from alienating the immovable mortgaged
(3) Pactum leonina: excluding one or more partners from any share in the profits or loss
Should any of the foregoing is stipulated, it is considered as if not written at all.

CON0002: EXAMPLES OF FORMAL CONTRACTS:

(1) Donation of personal property valued in excess of P5,000
(2) Donation of immovable property regardless of value (must be in a public instrument)
(3) Contract of partnership where an immovable property is contributed thereto (must be in a public instrument)
(4) Antichresis
(5) Contract of agency authorizing an agent to sell a piece of land or any interest therein (in order for the sale to be valid)
(6) Chattel mortgage
(7) Sale of large cattle

CON0003: In a reciprocal contract, the period must be deemed to have been agreed upon for the benefit of both parties, absent
language showing that the term was deliberately set for the benefit of one party alone. The continuance, effectivity, and fulfillment of
a reciprocal contract cannot be made to depend exclusively upon the free and uncontrolled choice of only one party. Mutuality does
not obtain in a reciprocal contract and no equality exists between the contracting parties since the life of the contract would be dictated
solely by just one party.

CON0004: WHAT IS THE ‘PLAIN MEANING RULE’? WHAT IS THE ‘FOUR CORNERS RULE’? HOW SHOULD COURTS
INTERPRET A CONTRACT? The "plain meaning rule" as applied by Pennsylvania courts, assumes that the intent of the parties to an
instrument is "embodied in the writing itself, and when the words are clear and unambiguous the intent is to be discovered only from
the express language of the agreement".

The "four corners rule”, on the other hand, allows courts in some cases to search beneath the semantic surface for clues to meaning.

A court's purpose in examining a contract is to interpret the intent of the contracting parties, as objectively manifested by them. The
process of interpreting a contract requires the court to make a preliminary inquiry as to whether the contract before it is ambiguous. A
contract provision is ambiguous if it is susceptible of two reasonable alternative interpretations. Where the written terms of the
contract are not ambiguous and can only be read one way, the court will interpret the contract as a matter of law. If the contract is
determined to be ambiguous, then the interpretation of the contract is left to the court, to resolve the ambiguity in the light of the
intrinsic evidence. (Pioneer Insurance v. APL Co. Pte. Ltd., GR 226345, August 2, 2017 [Per J. Mendoza, Second Division])

CON0005: WHEN MAY A CONTRACT PRODUCE EFFECT ON THIRD PERSONS? As a general rule, contracts take effect only
between the contracting parties, as well as their assigns and heirs. However, such rule admits the following exceptions:
(1) Where the contract contains a stipulation in favor of a third person;
(2) Where the third person comes into possession of the object or a contract creating a real right;
(3) Where the contract is entered into in order to defraud a third person; and
(4) Where the third person induces a contracting party to violate his contract.

CON0006: WHAT ARE THE DIFFERENT THEORIES ADVANCED IN ORDER TO PIN-POINT THE EXACT MOMENT OF
PERFECTION?
(1) MANIFESTATION THEORY: The contract is perfected from the moment the acceptance is DECLARED OR MADE.
(2) EXPEDITION THEORY: The contract is perfected from the moment the offeree TRANSMITS THE NOTIFICATION of
acceptance to the offeror.
(3) RECEPTION THEORY: The contract is perfected from the moment that the notification of acceptance is IN THE HAND OF
THE OFFEROR.
(4) COGNITION THEORY: The contract is perfected from the moment the acceptance COMES TO THE KNOWLEDGE OF
THE OFFEROR. (This is the theory followed by the New Civil Code.)

SALES

SALES0001: A contract of sale is a consensual contract. It requires no form to be valid. However, the following must be in writing in
order to be enforceable:
(1) Sale of personal property at a PRICE (not value) not less than P500.00
(2) Sale of real property or an interest therein (REGARDLESS OF VALUE OR PRICE)
(3) Sale of property (real or personal) not to be performed within a year from the date thereof

EVERYTHING RFBT 6
 (4) When an applicable statute requires that the contract of sale be in a certain form (example: sale of large cattle)

SALES0002: PERFECTION OF SALE:

(1) Face to face: upon UNCONDITIONAL ACCEPTANCE
(2) Through phone: as if negotiated face to face
(3) Through correspondence or telegram: when the offeror HAS KNOWLEDGE of the unconditional acceptance
(4) Subject to a suspensive condition: upon FULFILLMENT of the condition
(5) Subject to a resolutory condition: (1), (2), or (3)

SALES0003: MANNER OF PAYMENT must be agreed upon for there to be a price certain.

SALES0004: POLICITACION is an unaccepted unilateral promise to buy or sell. It produces no juridical effect and creates no legal
bond.

SALES0005: Take note of the difference between perfection of sale and transfer of ownership. Sale is perfected by consent, but
ownership is transferred only upon delivery, whether actual or constructive, UNLESS there is reservation of ownership or when the
law provides for when the ownership is transferred.

SALES0006: WHY DOES THE BUYER SUFFER THE RISK OF LOSS AFTER PERFECTION AND BEFORE DELIVERY?
There seems to be a conflict between Article 1480 (buyer's risk) and Article 1504 (seller's risk). As explained by Hector de Leon in his
book on Law on Sales, Article 1480 states the correct rule considering the following:
1. Article 1504 refers to "goods", while Article 1480 refers to "things". "Goods" only refers to those defined in Article 1636, while
"things" which cannot be called "goods" include real estate. Hence, Article 1480 is the general rule, while Article 1504 is the
exception, in order to harmonize the two conflicting provisions.
2. Article 1189 is in consonance with Article 1480. Under Article 1189, if the thing is improved or deteriorates without the fault of the
debtor (seller), the improvement or deterioration shall inure or be borne by the creditor (buyer).
3. Under Article 1537, the fruits shall pertain to the buyer from the perfection of the contract.
4. Under Article 1165(3), if the obligor (seller) delays, or has promised to deliver the same thing to 2 or more persons who do not have
the same interest, he shall be responsible for any fortuitous event until he has effected delivery. By implication, if the seller is not in
delay, or has not promised to deliver the same thing to 2 or more persons, it is the buyer who will be responsible for any fortuitous
event before the thing is delivered to the buyer.
5. Under Articles 1262(1) and Article 1269, when the obligation to deliver a determinate thing is lost or destroyed without the fault of
the debtor (seller), the obligation to deliver is extinguished and the creditor (buyer) shall have the right of action the seller may have
against third persons by reason of the loss. Hence, the buyer only gets to sue the responsible third persons because the buyer suffered a
loss which he has paid or which the law requires him to pay.
Taken altogether, it supports the rule that the buyer bears the risk of loss after perfection and before delivery, as an exception to the
rule of res perit domino.

SALES0007: EXCEPTIONS TO EXCEPTION TO THE RES PERIT DOMINO RULE. In the following cases, the seller bears the
risk of loss after perfection and before delivery:
1. the thing is lost through the fault of the seller (Article 1538 and 1189(2)) or when the seller delays (Article 1165(3) and 1262);
2. the thing lost is a generic thing (Article 1263);
3. the things lost are fungible things sold for a price fixed according to weight, number, or measure (Article 1480(3)); and
4. the thing lost falls under the definition of "goods" (Article 1504 and 1636).

SALES0008: No sale or transfer of large cattle shall be valid unless it is duly registered, and a certificate of transfer is secured.

SALES0009: A deed of sale where the stated consideration HAD NOT IN FACT BEEN PAID is NULL AND VOID.

SALES0010: Effect of FAILURE TO DETERMINE the price:

(1) Where the contract is EXECUTORY: The contract is INEFFICACIOUS.
(2) Where the thing has been DELIVERED to and APPROPRIATED by the buyer: The buyer must pay a REASONABLE
PRICE therefor.

SALES0011: In case of SALE OF REAL PROPERTY FOR A LUMP SUM, there is no increase or decrease of the price, although the
actual area is greater or lesser than what is stated in the contract.

SALES0012: The actions for price reduction (ACCION QUANTI MINORIS) or rescission (ACCION REDHIBITORIA) provided
under Article 1539 (sale of real estate at the rate of certain price for a unit of measure) and 1542 (sale of real estate for a lump sum)
prescribe in SIX MONTHS, counted from the DATE OF DELIVERY (not date of sale).

SALES0013: There is TECHNICAL RESCISSION when the following requisites concur:

(1) Goods have not yet been delivered.
(2) Buyer has repudiated the sale or manifested his inability to perform his obligations or committed a breach thereof.
(3) Notice to rescind is given to the buyer.

SALES0014: There is AUTOMATIC RESCISSION in the interest of the seller, with respect to movable property, when:
(1) The buyer, upon expiration of the period fixed for the delivery of the thing, should not have appeared to receive it; OR
(2) The buyer, having appeared, should not have tendered the price at the same time, UNLESS, a longer period has been
stipulated for its payment.

SALES0015: In case of CONVENTIONAL REDEMPTION, when the seller reacquires the property sold, he is obliged to:
(1) Return:
a. Price of the sale;

EVERYTHING RFBT 7
 b. Expenses of the contract; and
c. Any other legitimate payments made therefor, the necessary and useful expenses made on thing sold; and
(2) Fulfill other stipulations agreed upon.
NOTE: Interest is not included in those which are required to be returned, BUT it may be included if it’s part of the “other
stipulations” agreed upon and must be fulfilled.

SALES0016: PERIOD OF REDEMPTION:

(1) No period agreed upon: 4 years from date of contract
(2) Period agreed upon: should not exceed 10 years, if exceeded, valid only for the first 10 years
(3) When a period has expired and there has been a previous suit on the nature of the contract: 30 days from final judgment on
the basis that the contract was a sale with pacto de retro
(4) “As soon as he has established a certain business”: 4 years from date of contract
(5) “At any time”: 10 years
(6) “At any time after 10 years: contrary to law, hence as if no period has been agreed upon (1)

SALES0017: If the parties to a contract of sale are husband and wife who are LEGALLY SEPARATED, the contract is VALID, since
those who are legally separated had a judicial separation of properties.

CREDIT TRANSACTIONS

CREDIT0001: DISTINGUISHING PLEDGE FROM CHATTEL MORTGAGE:

PLEDGE CHATTEL MORTGAGE

Delivery of the thing pledged is
necessary
Registration not necessary for
its validity
The procedure for sale is found
under Article 2112 of the NCC
Debtor is not entitled to excess
unless otherwise agreed or
except in case of legal pledge
If there is deficiency, creditor is
not entitled to recover
notwithstanding any stipulation
to the contrary, but there is
recovery in case of legal pledge
Subject matter of both is movable property
Delivery of the personal
property to the mortgagee is not
necessary
Registration in the Chattel
Mortgage Registry is necessary
for its validity
The procedure for sale is found
under Section 14 of Act No.
1508, as amended
If property is foreclosed, the
excess over the amount due
goes to the debtor
If there is deficiency after
foreclosure, creditor is entitled
to recover the deficiency from
the debtor, except under Article
1484

CREDIT0002: EXAMPLES OF LEGAL PLEDGE UNDER THE NEW CIVIL CODE:

- Article 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until
he has been reimbursed therefor.
- Article 1731. He who has executed work upon a movable has a right to retain it by way of pledge until he is paid.
- Article 1914. The agent may retain in pledge the things which are the object of the agency until the principal effects the
reimbursement and pays the indemnity set forth in the two preceding articles (for expenses necessary for the execution of the agency
advanced by agent plus interest and for damages suffered by the agent without fault or negligence on his part).
- Article 1994. The depositary may retain the thing in pledge until the full payment of what may be due him by reason of the deposit.
- Article 2004. The hotel-keeper has a right to retain the things brought into the hotel by the guest, as a security for credits on account
of lodging, and supplies usually furnished to hotel guests.

CREDIT0003: EQUITY OF REDEMPTION VS. RIGHT OF REDEMPTION: There is a right of redemption in EJF, which is one
year from the date of sale. If the mortgagor is a juridical person (e.g. partnerships or corporations) the redemption period is until, but
not after, the registration of the certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more
than three (3) months after the EJF, whichever is earlier. In JF, there is no right of redemption but only equity of redemption,
UNLESS the mortgagee is a bank or financial institution. In the latter instance, the redemption period shall be one (1) year from the
date of sale.

CREDIT0004: PERMISSIBLE STIPULATIONS (EXCEPTIONS TO PACTUM COMMISSORIUM):

1. Subsequent modification of original contract
2. Subsequent voluntary cession of property
3. Promise to assign or sell

CREDIT0005: While the sale of the thing pledged must be public, sale of a property mortgaged under a chattel or real estate mortgage
may be public or private. The conduct of a private sale may be made as long as such is stipulated and agreed upon by the parties in the
chattel mortgage contract.

CREDIT006: (AFTER-INCURRED OBLIGATIONS) MAY PARTIES STIPULATE THAT THE PLEDGE OR MORTGAGE ALSO
SECURES THOSE OBLIGATIONS WHICH WILL BE INCURRED SUBSEQUENT TO THE CONSTITUTION OF PLEDGE OR
MORTGAGE?
1. Pledge: VALID, if future debts are accurately described
2. Chattel Mortgage: VOID, due to the affidavit of good faith

EVERYTHING RFBT 8
 3. Real Estate Mortgage: VALID, if future debts are accurately described
CREDIT0007: (AFTER-ACQUIRED PROPERTIES) MAY PARTIES STIPULATE THAT THE PLEDGE OR MORTGAGE
INCLUDES THOSE PROPERTIES WHICH WILL BE ACQUIRED SUBSEQUENT TO THE CONSTITUTION OF PLEDGE OR
MORTGAGE?
1. Pledge: INEFFECTIVE, since delivery is essential
2. Chattel Mortgage: VOID, except for stores open to the public for retail business where the goods are constantly sold and
substituted with new stock
3. Real Estate Mortgage: VALID, if stipulated

CREDIT0008: WHEN IS A HOUSE CONSIDERED PERSONAL PROPERTY? A house is considered a personal property under the
following instances:
(1) if built using mixed materials, which by its very nature is considered personal property;
(2) if intended to be demolished, since what were really mortgaged are the materials used;
(3) if built on rented land, since an object placed on a land by one who only had temporary right to the same, does not become
immobilized by attachment; and
(4) if built using strong materials, expressly considered as personal property by the parties, and no innocent third parties will be
prejudiced thereby.
Note: If considered a personal property, it may be subject of a CHATTEL MORTGAGE, instead of a REAL MORTGAGE.

CREDIT0009: RACHEL OWES MONICA P10,000 AND PLEDGED HER GOLD NECKLACE. LATER, RACHEL AGAIN
BORROWED P5,000. IF RACHEL PAYS MONICA P10,000.00, CAN MONICA RETAIN THE NECKLACE SINCE RACHEL
STILL OWES HER P5,000? No, Monica’s right to retain the pledged gold necklace is limited only to the fulfillment of the secured
obligation which is the payment of the first loan of P10,000. The second loan of P5,000 is not secured by the pledge of Rachel’s gold
necklace. Hence, upon payment of the P10,000, Rachel can demand the return of her gold necklace.

CREDIT0010: When it comes to sale of pledged property, in case the proceeds are insufficient to satisfy the principal obligation and
there is a deficiency, RECOVERY OF DEFICIENCY IS PROHIBITED.

In chattel mortgage, the general rule is deficiency may be recovered EXCEPT WHEN THE CHATTEL MORTGAGE IS
CONSTITUTED OVER A PROPERTY SOLD INSTALLMENTS (RECTO LAW).

Please take note that the recovery of deficiency is prohibited when the insufficient proceeds came from a public auction (in case of
conventional or voluntary pledge) and a foreclosure sale (in case of chattel mortgage covered by Recto Law).

If the deficiency results from an execution sale which happens when the creditor sues the debtor for collection of payment, the rules
prohibiting recovery of deficiency do not apply anymore and DEFICIENCY MAY BE RECOVERED.

This is because in an ordinary action for collection (or when the creditor chooses to sue the creditor), the right of the creditor is based
on the main or principal obligation and not on the accessory contracts of pledge or chattel mortgage.

CREDIT0011: PLEDGE vs. CHATTEL MORTGAGE vs. REAL ESTATE MORTGAGE

REAL ESTATE
ATTRIBUTE PLEDGE CHATTEL MORTGAGE
MORTGAGE

Perfection Delivery Consent Consent

Things placed as security Movable Movable Immovable

Cannot be included, except by

stipulation, those replacement
After-acquired properties
Cannot be included goods in retail stores and those Can be included by stipulation
included as security
acquired using the proceeds of
the goods mortgaged

After-incurred obligations to Can be secured if stipulated Can be secured if stipulated

Cannot be secured
be secured and once determined and once determined

Conduct of sale Public only Public or private (if stipulated) Public or private (if stipulated)

Entitlement to the excess in Pledgee, unless stipulated or

Mortgagor Mortgagor
the proceeds legal pledge

Not allowed, even if Allowed, unless covered by

Recovery of deficiency Allowed
stipulated, unless legal pledge Recto Law
Equity of redemption only
None, but pledgor can prevent
(pay the principal obligation Equity of redemption and right
Redemption the public auction by paying
plus costs to prevent the of redemption
the principal obligation
foreclosure sale)

EVERYTHING RFBT 9
 NEGOTIABLE INSTRUMENTS

NEGO0001: If an instrument is NOT NEGOTIABLE in accordance with the negotiable instruments law, it shall be governed by the
New Civil Code and other pertinent special laws.

NEGO0002: PROMISSORY NOTE (PN) vs. BILL OF EXCHANGE (BOE):

(1) PN: unconditional promise; BOE: unconditional order
(2) PN: involves 2 parties; BOE: involves 3 parties
(3) PN: maker is primarily liable; BOE: drawer is secondarily liable
(4) PN: only one presentment necessary (for payment); BOE: at least 2 presentments (for acceptance and payment)

NEGO0003: NEGOTIABLE OR NON-NEGOTIABLE:

(1) Crossed check: usually negotiable but can only be negotiated once
(2) Trade acceptance: negotiable
(3) Money order: non-negotiable
(4) Warehouse receipt: non-negotiable
(5) Pawn ticket: non-negotiable
(6) Treasury warrant: non-negotiable
(7) Bill of lading: non-negotiable
(8) Trust receipt: non-negotiable

NEGO0004: An instrument is STILL NEGOTIABLE although the amount to be paid is expressed in FOREIGN CURRENCY that is
not legal tender so long as it is expressed in money.

NEGO0005: In case of promise to pay money or deliver a thing:

(1) If at the option of the MAKER: NON-NEGOTIABLE
(2) If at the option of the HOLDER: NEGOTIABLE

NEGO0006: An instrument is NOT NEGOTIABLE if “payable in 3 installments of P10,000 per installment” without stating the dates
of each installment. BUT, if the last installment has maturity date, it is NEGOTIABLE, with the prior installments being payable ON
DEMAND.

NEGO0007: “WITHIN __ DAYS FROM DEATH OF __” is a determinable future time.

NEGO0008: NEGOTIABLE OR NON-NEGOTIABLE:

(1) Not dated: negotiable, since date of issuance is not a requisite for negotiability
(2) Day and month but not the year of maturity is given: non-negotiable, since time of payment is not determinable
(3) Two alternative drawees: non-negotiable, since there is no certainty as to whom the instrument may be presented for payment
(4) Place of issuance or payment not stated: negotiable, since such place is not a requisite for negotiability

NEGO0009: A BEARER instrument even though specially indorsed after issuance, may still be negotiated by mere delivery.

NEGO0010: MAGANDA ISSUED A PROMISSORY NOTE IN FAVOR MALAKAS OR ORDER PAYABLE ON FEBRUARY 28,
2018 AND LEFT THE AMOUNT BLANK BUT WITH THE SPECIFIC INSTRUCTION GIVEN TO PLACE AN AMOUNT NOT
EXCEEDING P10,000. HOWEVER, MALAKAS PLACED THE AMOUNT OF P100,000 AND NEGOTIATED THE
INSTRUMENT TO MABAIT. CAN MABAIT GO AGAINST MAGANDA?
(1) Yes, if Mabait is a holder in due course, because the instrument is valid and effectual for all purposes in his hands, and he may
enforce the PN as if it had been filled up strictly in accordance with the authority given and within a reasonable time. Hence, Mabait
can go against Maganda for P100,000. Maganda and Mabait are both innocent parties, but as between two innocent parties, the party
who made possible the commission of the wrong shall bear the loss.
(2) No, if Mabait is not a HIDC, because to hold Maganda liable, it must be shown that the PN was filled up strictly in accordance
with the authority given and within a reasonable time. Here, the instrument was not filled up in accordance with the authority given.
Hence, Mabait cannot go against Maganda as the PN is not valid and effectual in the hands of Mabait.

NEGO0011: ANDRES EXECUTED A PROMISSORY NOTE IN FAVOR OF BERTO OR ORDER BUT LEFT THE AMOUNT
BLANK AND KEPT THE INSTRUMENT IN HIS CABINET. BERTO STOLE THE NOTE, ENTERED THE SUM OF P50,000
AND NEGOTIATED THE INSTRUMENT TO CARDING; CARDING TO DIEGO; DIEGO TO ERNESTO, THE LAST HOLDER.
CAN ERNESTO GO AGAINST ANDRES? Ernesto cannot go against Andres, even if Ernesto is a holder in due course because the
law says that the instrument is not a valid contract in the hands of any holder as against Andres whose signature was placed thereon
prior to its delivery. However, Ernesto can go against Berto (who must face the consequences of his wrongdoing), and Carding and
Diego whose signatures were placed on the instrument after its delivery, because as general indorsers they warrant that the instrument
is valid and subsisting and, as such, therefore they are estopped to deny the validity of the instrument.

NEGO0012: FACUNDO, MAKER, EXECUTED A PROMISSORY NOTE PAYABLE TO THE ORDER OF GRACE, PAYEE,
WHO IS A MINOR. GRACE INDORSES THE NOTE TO HAROLD; HAROLD TO IRENE, THE LAST HOLDER. CAN IRENE
GO AGAINST FACUNDO? Although Grace is a minor, her indorsement passes title over the note to Harold, and Harold can
negotiate the same to Irene, as holder. Irene cannot enforce payment against Grace, who is a minor and cannot be held liable on the
note as the instrument is voidable. Irene can go against Facundo (maker) and Harold (indorser) because they cannot put the defense of
Grace's minority due to their warranties (maker: the existence of the payee, and his then capacity to indorse; indorser: the instrument is
valid and subsisting).

NEGO0013: WHAT ARE THE EFFECTS OF CROSSING A CHECK? Jurisprudence dictates that the effects of crossing a check
are:
(1) that the check may not be encashed but only deposited in the bank;

EVERYTHING RFBT 10
(2) that the check may be negotiated only once - to one who has an account with a bank; and
(3) that the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that he
must inquire if he has received the check pursuant to that purpose.
The effects of crossing a check, thus, relate to the mode of payment, meaning that the drawer had intended the check for deposit only
by the rightful person, i.e., the payee named therein.

NEGO0014: A holder for value is not always a holder in due course, but a holder in due course is always a holder for value.

NEGO0015: WHO ARE PRECLUDED FROM SETTING UP THE DEFENSE OF FORGERY?

(1) Indorsers of order instruments: as general indorsers, they warrant that the instrument is genuine, and that the instrument is valid
and subsisting
(2) Indorsers of bearer instrument: since forged indorsement is not necessary to the title of the holder as bearer instruments are
negotiable by mere delivery
(3) Acceptor in a bill of exchange: as acceptor, he/she warrants the genuineness of the signature
(4) Forger: as he/she is deemed to have signed in an assumed name and therefore, has the same warranties as a general indorser
(5) Those under estoppel: one who has acknowledged the forged signature as valid cannot later deny it.

NEGO0016: ANDREW (DRAWER) SIGNED A CHECK PAYABLE TO BRENT (PAYEE), DRAWN AGAINST RCBC BANK,
AS DRAWEE BANK. CHARLIE FRAUDULENTLY OBTAINED SAID CHECK AND FORGED THE BRENT'S SIGNATURE
AS INDORSER TO HIMSELF (CHARLIE). CHARLIE THEN PERSONALLY SIGNS THE CHECK AND DEPOSITS THE
CHECK TO HIS BDO ACCOUNT. BDO THEN INDORSED THE CHECK TO RCBC WHICH PAID THE AMOUNT AND
CONSEQUENTLY CHARGED THE ANDREW'S ACCOUNT.
(1) RCBC cannot charge Andrew's account, because as a depositary bank, RCBC has contractual obligation to Andrew to pay only the
person designated by the drawer as payee or his order and no other.
(2) Since Andrew's account cannot be charged, Andrew's obligation to Brent is still subsisting.
(3) BDO, as collecting bank, is liable as an indorser to RCBC.
(4) BDO's remedy is to go against Charlie, the forger.
(5) Andrew cannot go against BDO since there is no privity of contract between them.

NEGO0017: DANIEL STOLE A BPI CHECK OF EDWIN. DANIEL THEN PLACED HIS NAME ON THE CHECK AS PAYEE
AND THEREAFTER SIGNED AS EDWIN. AFTER PERSONALLY SIGNING HIS NAME AT THE BACK OF THE CHECK,
DANIEL ENCASHED THE CHECK AT BPI WHICH PAID AND CHARGED THE AMOUNT TO EDWIN'S ACCOUNT. WAS
BPI CORRECT IN CHARGING EDWIN'S ACCOUNT?
BPI cannot charge Edwin's account, since BPI is bound to know the signatures of its customers. If it pays a forged check, it must be
considered as making the payment out of its funds, and cannot ordinarily charge the amount so paid to the account of the depositor
whose signature was forged.

NEGO0018: ANNA ISSUED A PROMISSORY NOTE TO BEN OR ORDER AS A BIRTHDAY GIFT. BEN NEGOTIATED IT
FOR VALUE TO CARLA; CARLA TO DENNIS; DENNIS TO EDITH, HOLDER.
(1) If Edith is a HNIDC, Anna can put up the defense of want of consideration and Edith cannot enforce the instrument against Anna.
(2) If Edith is a HIDC, Edith can go against Anna because want or absence of consideration is only a personal defense which cannot
be put up against a HIDC.

NEGO0019: IN A BEARER INSTRUMENT WHERE THE MAKER DELIVERED IT TO AMY, THEN AMY NEGOTIATED TO
BEA; BEA TO CARLO; CARLO TO DARIO, HOLDER, ALL BY SPECIAL INDORSEMENTS COMPLETED BY DELIVERY.
Here, Dario (holder) can go against Carlo, Bea, and Amy because he can trace his title to all of them through an unbroken chain of
indorsements.
ON THE OTHER HAND, IF AMY NEGOTIATED THE SAME BEARER INSTRUMENT TO BEA BY SPECIAL
INDORSEMENT COMPLETED BY DELIVERY, AND BEA NEGOTIATED TO CARLO ONLY BY DELIVERY; CARLO TO
DARIO BY SPECIAL INDORSEMENT COMPLETED BY DELIVERY:
(1) Dario can go against Carlo since he can trace his title to Carlo through an unbroken chain of indorsements.
(2) Dario cannot go against Amy because Dario cannot trace his title to Amy through an unbroken chain of indorsements, since Bea
did not indorse to Carlo, the chain has been broken.
(3) Dario cannot go against Bea since Bea negotiated the instrument by mere delivery and her warranties extends only to her
immediate transferee Carlo.
(4) Carlo is the only one who can make Bea liable on the instrument.
*Take note that Dario can go against the maker, who is the one primarily liable, whether there is an unbroken chain of indorsements or
not.

NEGO0020: KINDS OF INDORSEMENTS:

(1) Special or specific: one where the indorser identifies the person to whom the instrument is transferred as holder thereof
(2) Blank: one where the indorser merely signs his name without identifying the person to whom the instrument is transferred as
holder thereof
(3) Restrictive: one where the transferee of the instrument does not acquire the full rights of the owner of the instrument as holder
thereof
(4) Qualified: by merely adding the following words to the indorser's signature: "without recourse" or "sans recourse" or words of
similar import like "at your own risk".
(5) Conditional: one which is dependent upon a contingent event that may or may not happen

NEGO0021: MAY A CORPORATION BE AN ACCOMMODATION PARTY? Unless the articles of incorporation expressly states
that the corporation is authorized to be an accommodation party, if an officer acts for the corporation to make the corporation an
accommodation party, such act shall be considered ULTRA VIRES. In case of an ultra vires act, it is the OFFICER OR DIRECTOR
who signed for the corporation who shall be PERSONALLY LIABLE for the instrument.

EVERYTHING RFBT 11
NEGO0022: In CONDITIONAL INDORSEMENT, what is conditional is the indorsement, not the promise or order to pay. If what is
conditional is the promise or order to pay, the instrument is non-negotiable. When a negotiable instrument is indorsed conditionally,
the party required to pay MAY DISREGARD the condition simply because he is not a party thereto.

NEGO0023: ANJO ISSUED A PROMISSORY NOTE PAYABLE TO THE ORDER OF BIEN. BIEN INDORSED THE NOTE TO
CARLA ON THE CONDITION THAT SHE PASSES THE CPA BOARD EXAMS. If the note became due and demandable before
Carla passes the CPA Board Exams, Anjo can disregard the condition and already pay Carla because Anjo is not a party to the
agreement between Bien and Carla. While the CPA Board Exams results are yet to be released, Carla holds the amount paid in trust
for Bien. Carla does not own the amount yet. If Carla passes the CPA Board Exams, the money becomes hers. If she failed, she would
have to give the money to Bien.

NEGO0024: SHELTER RULE: One who is not himself a holder in due course who acquires the instrument from a holder in due
course, will acquire all the rights of the latter with respect to all parties prior to that party.

NEGO0025: If the note says “I promise to pay bearer Alvin P1,000 on December 31, 2018.”, it is not a bearer instrument because the
word “bearer” is merely descriptive of Alvin, the payee.

NEGO0026: While MINORITY and ULTRA VIRES ACT OF A CORPORATION are REAL DEFENSES, it can only be invoked or
raised as a defense by the minor or incapacitated person.

NEGO0027: CUT-OFF RULE: In case of forged indorsements, the indorser who signature was forged and all parties prior to him
cannot be held liable.

BANKING

BANKING0007: P1, P5, and P10 coins are considered legal tender up to P1,000, while P0.01, P0.05, P0.10, and P0.25 are up to
P100.00.

BANKING0008: It is NOT UNLAWFUL for a PRIVATE PERSON to disclose to any person any information concerning bank
deposits.

BANKING0009: Any information regarding FOREIGN CURRENCY DEPOSITS may only be inquired into when:
(1) EXPRESSLY PERMITTED by the depositor;
(2) there is probable cause that the deposit is related to an unlawful activity or MONEY LAUNDERING; and
(3) there is probable cause in ANTI-TERRORISM cases.

BANKING0010: It is obligatory of every bank to report, in a SWORN STATEMENT, to the TREASURER of the Philippines (who
will, in turn, inform the SOLICITOR GENERAL) of deposit that have not been touched for a period of 10 years or held in favor of
persons known to be dead.

BANKING0011: In servicing their depositors, the diligence required of banks is HIGH STANDARDS OF INTEGRITY AND
PERFORMANCE.

BANKING0015: If a deposit is determined to be the proceeds of an unlawful activity as defined under AMLA, it is not covered by
PDIC insurance.

BANKING0016: The depositor of insured deposit may claim from PDIC within 2 YEARS from ACTUAL TAKEOVER of the closed
bank. If the depositor failed to make a claim within the said period, he or she shall proceed DIRECTLY against the closed bank and its
stockholders, or receiver.

BANKING0017: It is the COURT OF APPEALS that can issue a TRO, preliminary injunction, or preliminary mandatory injunction
against PDIC for any action under the PDIC Act. BUT, if it is a matter of EXTREME URGENCY involving a constitutional issue, the
SUPREME COURT may issue such TRO or preliminary injunction.

BANKING0018: Lawyers and accountants shall be considered COVERED PERSONS if they engaged in the following services:
(1) Managing of client money, securities, or other assets;
(2) Management of bank, savings, or security accounts;
(3) Organization of contributions for the creation, operation, or management of companies; and
(4) Creation, operation, or management of juridical persons or arrangements, and buying and selling business entities.

BANKING0020: The AMLC has to discharge its functions UNANIMOUSLY.

BANKING0021: Any FREEZE ORDER issued by the COURT OF APPEALS shall be EFFECTIVE IMMEDIATELY for a period of
20 DAYS, unless extended but shall not exceed a TOTAL PERIOD OF 6 MONTHS.

BANKING0022: Should a transaction be determined to be both a covered and a suspicious transaction, it shall be reported as a
SUSPICIOUS transaction.

BANKING0023: When bank accounts are GARNISHED by the creditors of the depositors, the amount of deposit is NOT
ACTUALLY DISCLOSED. Hence, NO VIOLATION of the Bank Secrecy Law.

BANKING0024: Only an official or employee of a bank or an independent auditor hired by a bank to conduct regular audit may be
held liable for violation of Bank Secrecy Law. Hence, the following persons cannot be held liable for violation of Bank Secrecy Law:
1. Any private person who just happens to see another person’s bank account information

EVERYTHING RFBT 12
 2. Any private person who receives any information from a bank official or employee
3. An independent auditor who is not hired by a bank
4. An independent auditor who is hired by a bank but not for regular audit

PARNTERSHIP

PARTNERSHIP0001: A professional partnership is NOT a business undertaking nor an enterprise for profit, but a joint pursuit and
mutual help.

PARTNERSHIP0002: A partnership acquires juridical personality at the moment of creation, UNLESS otherwise stipulated.

PARTNERSHIP0003: Partnerships can form partnerships, since there is no prohibition of such. But, corporations cannot be a partner
in a partnership, since it is against public policy.

PARTNERSHIP0004: In case of unlawful partnerships (which do not have legal personality), when dissolved by judicial decree, the
court shall order the confiscation of the PROFITS in favor of the State. However, the CONTRIBUTIONS must be returned to the
partners.

PARTNERSHIP0005: If the partners did not reduce into writing their agreement that they are entering into a universal partnership of
ALL PRESENT PROPERTY, they may ask for reformation of their contract to indicate such kind of universal partnership.
Take note that there is universal partnership of PROFITS under the following scenarios ONLY:
(1) When specifically agreed upon by the partners; or
(2) When partners agreed to enter into a universal partnership but did not specify what kind of universal partnership.
If the agreement does not concur with what was reduced into writing, the agreement shall prevail and the contract must be reformed.

PARTNERSHIP0006: When a partnership WITH A FIXED TERM is dissolved due to expiration of the term and continues the
partnership without liquidating the partnership, it becomes a partnership AT WILL.

PARTNERSHIP0007: An example of a DE FACTO PARTNERSHIP is where a husband continues to manage the conjugal properties
after and despite the death of the wife (which actually dissolves the conjugal partnership). The partnership is now composed of the
husband and the common children who are the co-owners of the conjugal properties left by the wife.

PARTNERSHIP0008: As an exception to Article 1792 of the New Civil Code, a managing partner may apply a debtor’s payment in
full to his credit, if the DEBTOR CHOOSES to pay the managing partner in full whose credit is more onerous (i.e. solidary liability,
secured, or with interest) to the debtor.

PARTNERSHIP0009: While it is required under Articles 1789 and 1808 that industrial and capitalist partners need EXPRESS
AUTHORITY to engage in prohibited businesses, if ALL OTHER PARTNERS IMPLIEDLY AUTHORIZED such engagement, it
will have the same effect as express authority under the principle of estoppel.

PARTNERSHIP0010: If a partner buys a property using partnership funds, the property acquired shall be owned by the partnership,
and the partner who bought the property shall be regarded as a mere trustee.

PARTNERSHIP0011: When a managing partner was designated by agreement in the Articles of Partnership, he may be removed:
(1) with cause by a vote of partner/s having controlling interest; or
(2) without cause by unanimous vote of partners since it amounts to a change of will of the partners.

PARTNERSHIP0012: In case no managing partner is designated to manage the partnership, ALL the partners shall be considered
agents of the partnership and may act for the partnership alone without consent of the other partners, EXCEPT when it involves an
alteration of IMMOVABLE PROPERTY of the partnership where UNANIMITY is required.
If alteration refers to MOVABLE property, unanimity is NOT required.

PARTNERSHIP0013: Characteristics of a contract of partnership:

(1) consensual;
(2) bilateral;
(3) nominate;
(4) principal;
(5) onerous; and
(6) preparatory.

COOPERATIVES

COOP0001: A single-purpose cooperative may transform into a MULTI-PURPOSE cooperative or may create SUBSIDIARIES only
AFTER TWO (2) YEARS of operations.

COOP0002: The minimum subscription shall be 25% of the authorized share capital and shall only apply to COMMON SHARE
CAPITAL ONLY (excluding preferred share capital).
Note: In corporations, the authorized capital stock includes capital allocated for issuance of preferred shares.

COOP0003: A cooperative may only issue preferred shares if provided for in the bylaws, and if ever allowed, it shall not exceed 25%
of the total authorized share capital.
Note: In corporations, issuance of preferred shares must be provided for in the articles of incorporation without any limitation as to
how much of the authorized capital stock can be allocated to preferred shares.

EVERYTHING RFBT 13
COOP0004: While the minimum paid-up share capital in terms of value is P15,000, the minimum paid up share capital when it comes
to multi-purpose cooperatives is P100,000. Nevertheless, both amounts must be at least 25% of the subscribed share capital.
Note: In corporations, the minimum paid-up capital is 25% of the subscribed capital which must not be lower than P5,000.

COOP0005: The Cooperative Development Authority shall periodically assess the required paid-up share capital and may INCREASE
(never "decrease") it every FIVE (5) YEARS when necessary upon consultation with the cooperative sector and NEDA.

COOP0006: While a division of a cooperative is allowed under the Cooperative Code, if it is done in fraud of creditors, it is VOID.

COOP0007: HOUSING COOPERATIVE is the type of cooperative co-owned and controlled by its members.

COOP0008: Any end product or its derivative arising from the raw materials produced by members of a producers cooperative, sold in
the name and for the account of the cooperative, shall be deemed a product of the COOPERATIVE AND ITS MEMBERS.

COOP0009: A LABORATORY COOPERATIVE has no juridical personality.

COOP0010: APPOINTIVE officials of the government are eligible to become officers and directors of cooperatives. Only ELECTIVE
officials of the government are ineligible. BUT, any official, elective or appointive, can be a MEMBER in any cooperative.

COOP0011: In case of vacancy in the board of directors by REMOVAL, a vote of at least a majority of the remaining directors, if still
constituting majority may fill the vacancy.

COOP0012: The act of ILLEGALLY USING CONFIDENTIAL INFORMATION CANNOT be ratified.

COOP0013: Capitalization requirements per type of cooperative (PAID-UP):

Insurance: 500,000,000 (RA 10607)
Financial Service: 10,000,000 (IRR)
Electric: 5,000,000 (MC 2013-05)
Multi-purpose: 100,000 (IRR)
Transport/Transportation Service: 15,000 (MC 2018-04)
Agricultural: 15,000 (MC 2015-05)
Mining: 15,000 (MC 2012-14)
Health Service: 15,000 (MC 2012-13)
Labor Service and Workers: 15,000 (MC 2012-12)
Professional: 15,000 (MC 2012-11)
Housing: 15,000 (IRR)
Agrarian Reform: 15,000 (IRR)
Water Service: 15,000 (IRR)
Dairy: 15,000 (IRR)
Credit Surety Fund: 5,000 (MC 2018-05)

Any other cooperative: 15,000 (Cooperative Code)

EVERYTHING RFBT 14
 Availability
Power of the CooperativeLEGAL Vote Required from the
BASIS IN CC or IRR Vote Required from the Members of Right to
Board of Directors
Withdraw30
¾ of all members with voting rights,
Merger or consolidation77 NONE PRESENT AND CONSTITUTING A Yes
QUORUM
Amendment of articles of 2/3 of ALL members with voting
NONE Yes
cooperation18 rights
2/3 of ALL members with voting
Amendment of bylaws18 NONE Yes
rights
¾ of all members with voting rights,
Division20 NONE PRESENT AND CONSTITUTING A No
QUORUM
¾ of all members with voting rights,
Voluntary dissolution where no
Majority of ALL members PRESENT AND CONSTITUTING A No
creditors are affected118
QUORUM
¾ of all members with voting rights,
Voluntary dissolution where
Majority of ALL members PRESENT AND CONSTITUTING A No
creditors are affected119
QUORUM
Filling up a vacancy, other than by Majority of ALL members with voting
expiration of term, in the board of Majority of the rights, PRESENT AND
directors41 REMAINING directors (if CONSTITUTING A QUORUM No
(e.g. death, resignation, withdrawal, still constituting majority) (if the remaining directors do not
removal) constitute majority)
Upon recommendation of
majority of all members Majority of all members with voting
Deferment of payment of inters on
PRESENT AND rights, PRESENT AND No
share capital12, IRR
CONSTITUTING A CONSTITUTING A QUORUM
QUORUM
Removal of a member for cause30 Majority of ALL members NONE No
Delegation of powers to an executive
Majority of ALL members NONE No
committee43
Placing an elected officer under
preventive suspension pending the
Majority of ALL members NONE No
resolution of the investigation on his
removal50
Majority of all members
Filling up a vacancy in the PRESENT AND
NONE No
committees CONSTITUTING A
QUORUM
Majority of all members
Allocation of interest on share PRESENT AND
NONE No
capital12, IRR CONSTITUTING A
QUORUM
Majority of all members
Recommending to the general
PRESENT AND
assembly the removal of an elected NONE No
CONSTITUTING A
officer50
QUORUM
¾ of all members with voting rights,
Delegation of the delegable powers
NONE PRESENT AND CONSTITUTING A No
of the general assembly33
QUORUM
Ratification of contracts with self- ¾ of all members with voting rights,
dealing directors, officers, or NONE PRESENT AND CONSTITUTING A No
committee members47 QUORUM
¾ of all members with voting rights,
Ratification of a director’s act of
NONE PRESENT AND CONSTITUTING A No
disloyalty48
QUORUM
Removal of an elected officer upon ¾ of all members with voting rights,
recommendation of the board of NONE PRESENT AND CONSTITUTING A No
directors50 QUORUM
Filling up a vacancy due to
Majority of ALL members with voting
expiration of term or resignation of a
NONE rights, PRESENT AND No
holdover director in the board of
CONSTITUTING A QUORUM
directors41
Granting the directors any Majority of ALL members with voting
NONE No
compensation other than per diems46 rights
NOTE:
1. In cooperatives, the highest policy-making is the General Assembly. There are powers of the cooperative that are exercised
without the need of action coming from the board of directors.
2. Quorum (Members)35: at least 25% except cooperative banks (at least 50%+1) and electric cooperatives (at least 5%)

EVERYTHING RFBT 15
 CORPORATIONS

CORP0001: A corporation is said to be have a STRONG JURIDICAL PERSONALITY because of its inherent attribute that it has the
RIGHT OF SUCCESSION. This means it continues to exist despite the death of its stockholders or members. Its personality is
separate and distinct from that of its individual stockholders and members; and remains even if there has been a change in its
stockholders and members.

CORP0002: The doctrine of piercing the corporate veil applies only in 3 basic areas, namely:
(1) "Defeat of public convenience", as when the corporate fiction is used as a vehicle for the evasion of an existing obligation
(EQUITY PIERCING);
(2) "Fraud cases", as when the corporation is used to justify a wrong, protect fraud, or defend a crime (FRAUD PIERCING); or
(3) "Alter ego cases", where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit, or
adjunct of another corporation (ALTER EGO PIERCING or the INSTRUMENTALITY TEST).

CORP0003: The doctrine of piercing the corporate veil is an equitable doctrine developed to address situations where the separate
corporate personality of a corporation is abused or used for wrongful purposes. Hence:
(1) It is a remedy of last resort, and is not available when other remedies are still available (e.g. annulment of contract based on
vitiation of consent);
(2) The wrongdoing must be proven clearly and convincingly;
(3) The burden is on the party who seeks its application; and
(4) It must be done with caution.

CORP0004: The test in determining the applicability of the doctrine of piercing the veil of corporate fiction are as follows:
(1) CONTROL, not mere majority or complete stock control, but COMPLETE DOMINATION, not only of finances but of policy and
business practice in respect to the transaction attacked;
(2) Such control must been USED by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust acts; and
(3) Such control and breach of duty is the PROXIMATE CAUSE of the injury or unjust loss complained of.

CORP0005: WHAT ARE THE TESTS IN DETERMINING THE NATIONALITY OF A CORPORATION?

(1) Primary Place of Incorporation Test: The corporation is a national of the country under whose laws it is organized or incorporated.
(2) Control Test: The nationality of a corporation is determined by the nationality of the controlling stockholders.
(3) Grandfather Rule: The percentage of Filipino equity in a target corporation engaged in nationalized and/or partly nationalized areas
of activities, is computed by attributing the nationality of second or even subsequent tier ownership to determine the nationality of the
corporate shareholder.

CORP0006: WHAT ARE THE SUB-TESTS UNDER THE CONTROL TEST IN DETERMINING A CORPORATION'S
NATIONALITY?
(1) DOJ-SEC Control Test: Shares belonging to corporations at least 60% of the capital of which is owned by Filipino citizens shall be
considered as of Philippine nationality.
(2) Grandfather Rule: If the percentage of Filipino ownership in the corporation is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine nationality.
(3) FIA Test of Philippine National: For purposes of investment, a "Philippine national" as a corporation organized under the laws of
the Philippines of which at least 60% of the capital stock outstanding and entitled to vote is owned and held by citizens of the
Philippines, or a trustee of funds for pension or other employee retirement or separation benefits.
(4) SEC Control Test: In observance of the constitutional or statutory requirement, the required percentage of Filipino ownership shall
be applied to both (a) the total number of outstanding shares of stock entitled to vote in the election of directors, and (b) the total of
number of outstanding shares of stock, whether or not entitled to vote in the election of directors.

CORP0007: Corporations are entitled to the following constitutional rights:

(1) DUE PROCESS;
(2) EQUAL PROTECTION; and
(3) Protection against UNREASONABLE SEARCH AND SEIZURE.

CORP0008: CAN A CORPORATION PRACTICE A PROFESSION? Corporate practice of any profession is not sanctioned based on
the policy that the ethics of any profession is based upon the individual responsibility, personal accountability, and independence,
which are all lost where one acts as a mere agent, or alter ego, of unlicensed persons or corporations. However, under RA 9266,
architectural professional corporations are allowed to be registered.

CORP0009: A corporation sole has NO nationality.

CORP0010: WHAT ARE THE WAYS TO DETERMINE THE VALUE OF NO-PAR VALUE SHARES?
(1) By majority vote of the outstanding shares in a meeting called for that purpose;
(2) By Board of Directors pursuant to authority conferred upon it by the articles of incorporation; or
(3) By amendment of articles of incorporation

CORP0011: ESCROW SHARES are those specifically segregated and to be issued subject to a condition.

CORP0012: When the seats in the board are increased, the additional director/s or trustee/s can ONLY be elected by the stockholders
or members in a regular or special meeting called for the purpose, or in the same meeting authorizing the increase, if so stated in the
notice of the meeting.

EVERYTHING RFBT 16
CORP0013: Concurrent positions:
❌ President and Secretary
❌ President and Treasurer
✅ Secretary and Treasurer

CORP0014: Types of ULTRA VIRES ACTS:

(1) First Type: which are outside of the express, implied, or incidental powers of the corporation
(2) Second Type: which are effected by corporate representatives who act without authority (though the contract is within the powers
of the corporation)
(3) Third Type: which are contrary to laws or public policy

CORP0015: DOCTRINE OF APPARENT AUTHORITY: If a corporation knowingly permits one of its officers, or any other agent,
to act within the scope of apparent authority, it holds him out to the public as possessing the power to do those acts; and thus, the
corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent’s
authority.

CORP0016: Stock transactions covered by pre-emptive right:

(1) increase in the authorized capital stock
(2) opening for subscription the unissued portion of existing capital stock
(3) disposition of treasury shares
When NOT available:
(1) issuance to comply with laws requiring minimum public ownership
(2) issued in good faith in exchange for property needed for corporate purposes
(3) issuance for payment of previously contracted debts
(4) when denied in the articles of incorporation

CORP0017: The proper venue for derivative suit would be in the RTC which has jurisdiction over the principal office of the
corporation.

CORP0018: Holders of delinquent stocks are entitled to cash and property dividends, but it would be applied to the unpaid balance on
the subscription plus cost and expenses. They are likewise entitled to stock dividends, but its issuance will be withheld from the
delinquent holder until the latter pays his unpaid subscription.

CORP0019: WHEN CAN A STOCKHOLDER EXERCISE HIS RIGHT OF APPRAISAL?

(1) Extension or shortening of corporate term
(2) Restriction of rights or privileges or shares through the amendment of the articles of incorporation
(3) Sale of all or substantially all of corporate assets
(4) Equity investment in non-primary purpose business enterprise
(5) Merger or consolidation
NOTES:
- All of the above instances require the 2/3 vote of the outstanding capital stock.
- The appraisal right pertains only to stockholders who have actually dissented from the enumerated transaction.

CORP0020: WHEN IS THE RIGHT OF APPRAISAL LOST?

(1) Failure to make written demand within 30 days after the vote was taken on the corporate act
(2) Failure to surrender certificate of stock within 10 days from demand for notation
(3) Non-existence of unrestricted profit to cover the fair value of dissenting shares within 30 days from date of award
(4) Subsequent transfer of the annotated shares when new certificates of stock are issued
(5) When the corporation consents to the withdrawal of the demanding stockholder of the exercise of appraisal right
(6) Abandonment of corporate act
(7) Disapproval of SEC of the corporate act

CORP0021: WHO BEARS THE COST OF APPRAISAL?

CORPORATION:
- where the value determined by appraisers is higher than what the corporation offered to the dissenting stockholder
- if action is filed to recover share’s fair value and the stockholder’s refusal to receive payment is justified
DISSENTING STOCKHOLDER:
- if the value determined by appraisers is approximately the same as the price offered by the corporation
- where an action to recover is filed and refusal of such stockholder to receive payment is unjustified

CORP0022: DOCTRINE OF EQUALITY OF SHARES: All stocks issued by the corporation are presumed equal with the same
privileges and liabilities, provided that the articles of incorporation is silent on such differences.

CORP0023: ADVANCES FOR FUTURE SUBSCRIPTION are not covered within the ambits of the trust fund doctrine. It is not the
payment of shares that constitutes one a stockholder, but rather the act of subscribing to shares of stock which may only be done when
the certificate of increase is issued by SEC. Prior to said issuance, those who paid in advance are not yet stockholders of the
corporation and may still withdraw the money they advanced.

CORP0024: RIGHTS OF A FOREIGN CORPORATION (FC) TO SUE IN PHILIPPINE COURTS:

(1) If a FC DOES BUSINESS in the Philippines WITHOUT a license, it CANNOT sue before the Philippine courts;
(2) If a FC is NOT DOING BUSINESS in the Philippines, it NEEDS NO LICENSE to sue before Philippine courts on an isolated
transaction or on a cause of action entirely independent of any business transaction;
(3) If a FC DOES BUSINESS in the Philippines WITHOUT a license, a Philippine citizen or entity which has contracted with said FC

EVERYTHING RFBT 17
may be estopped from challenging the FC’s personality in a suit brought before the Philippine courts; and
(4) If a FC DOES BUSINESS in the Philippines with the required license, it CAN sue before the Philippine courts on any transaction.

CORP0025: DISTINGUISH TERM FROM TENURE. Term is distinguished from tenure in that an officer's "tenure" represents the
term during which the incumbent actually holds office. The tenure may be shorter (or, in case of holdover, longer) than the term for
reasons within or beyond the power of the incumbent. When Section 23 of the Corporation Code declares that "the board of directors x
x x shall hold office for one (1) year until their successors are elected and qualified", it is construed to mean that the term of the
members of the board of directors shall be only for one year; their term expires one year after election to the office. The holdover
period - that time from the lapse of one year from a member's election to the Board and until his successor's election and qualification
- is not part of the director's original term of office, nor is it a new term; the holdover period, however, constitutes part of his tenure.
Corollary, when an incumbent member of the board of directors continues to serve in a holdover capacity, it implies that the office has
a fixed term, which has expired, and the incumbent is holding the succeeding term.

CORP0026: ON WHAT MATTERS CAN HOLDERS OF NON-VOTING SHARES ARE ENTITLED TO VOTE?
(1) Amendment of the articles of incorporation;
(2) Adoption and amendment of by-laws;
(3) Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property;
(4) Incurring, creating or increasing bonded indebtedness;
(5) Increase or decrease of capital stock;
(6) Merger or consolidation of the corporation with another corporation or other corporations;
(7) Investment of corporate funds in another corporation or business in accordance with this Code; and
(8) Dissolution of the corporation.

EVERYTHING RFBT 18
 Vote Required Right of
Availability of
from the Vote Required from the Holders of
Power of the Corporation Appraisal
Board of Stockholders/Members Non-Voting
Right
Directors Shares to Vote
Extend or shorten corporate Yes, by
Majority 2/3 Yes81
term37 implication6
Yes, if it
changes or
restricts the right
of shareholders
Amendment of articles of or shares, or
Majority 2/3 Yes6
incorporation16 authorizes
preferences
superior to
outstanding
shares81
Sale or other disposition of
all or substantially all of its Majority 2/3 Yes6 Yes81
assets40
Investment of corporate
funds in another corporation
Majority 2/3 Yes6 Yes42
or business or for any other
purpose42
Merger or consolidation77 Majority 2/3 Yes6 Yes81
Increase or decrease capital
Majority 2/3 Yes6 No
stock38
Incur, create or increase
Majority 2/3 Yes6 No
bonded indebtedness38
Voluntary dissolution where
Majority 2/3 Yes6 No
no creditors are affected118
Voluntary dissolution where
Majority 2/3 Yes6 No
creditors are affected119
Declare stock dividends43 Majority 2/3 No No
Amendment to the plan of
Majority 2/3 No No
merger or consolidation77
2/3, in case of good faith
issuance of shares in
exchange for property needed
Deny pre-emptive right39 Majority No No
for corporate purposes or in
payment of a previously
contracted debt
Yes, including
Amendment of by-laws48 Majority Majority No
adoption6
Majority; or

2/3, ((1) where a stockholder

Enter into management
contract44
Acquire own shares41
Declare cash or property
dividends43
or stockholders representing
the same interest of both the
managing and the managed
corporations own or control
more than 1/3 of the total
Majority outstanding capital stock in No No
the managing corporation; or
(2) where a majority of the
members of the board of
directors of the managing
corporation also constitute a
majority of the members of
the board of directors of the
managed corporation)
Majority None N/A N/A
Majority None N/A N/A

NOTE: Corporations ALWAYS exercise its powers through at least majority of its board of directors or trustees

EVERYTHING RFBT 19
 Vote Required Right of
Availability of
from the Vote Required from the Holders of
Power of the Corporation Appraisal
Board of Stockholders/Members Non-Voting
Right
Directors Shares to Vote
Extend or shorten corporate Yes, by
Majority 2/3 Yes81
term37 implication6
Yes, if it
changes or
restricts the right
of shareholders
Amendment of articles of or shares, or
Majority 2/3 Yes6
incorporation16 authorizes
preferences
superior to
outstanding
shares81
Sale or other disposition of
all or substantially all of its Majority 2/3 Yes6 Yes81
assets40
Investment of corporate
funds in another corporation
Majority 2/3 Yes6 Yes42
or business or for any other
purpose42
Merger or consolidation77 Majority 2/3 Yes6 Yes81
Increase or decrease capital
Majority 2/3 Yes6 No
stock38
Incur, create or increase
Majority 2/3 Yes6 No
bonded indebtedness38
Voluntary dissolution where
Majority 2/3 Yes6 No
no creditors are affected118
Voluntary dissolution where
Majority 2/3 Yes6 No
creditors are affected119
Declare stock dividends43 Majority 2/3 No No
Amendment to the plan of
Majority 2/3 No No
merger or consolidation77
2/3, in case of good faith
issuance of shares in
exchange for property needed
Deny pre-emptive right39 Majority No No
for corporate purposes or in
payment of a previously
contracted debt
Yes, including
Amendment of by-laws48 Majority Majority No
adoption6
Majority; or

2/3, ((1) where a stockholder

Enter into management
contract44
Acquire own shares41
Declare cash or property
dividends43
or stockholders representing
the same interest of both the
managing and the managed
corporations own or control
more than 1/3 of the total
Majority outstanding capital stock in No No
the managing corporation; or
(2) where a majority of the
members of the board of
directors of the managing
corporation also constitute a
majority of the members of
the board of directors of the
managed corporation)
Majority None N/A N/A
Majority None N/A N/A

NOTE: Corporations ALWAYS exercise its powers through at least majority of its board of directors or trustees

EVERYTHING RFBT 20
CORP0027: MATTERS WHERE OWNERS OF 2/3 OF THE OUTSTANDING CAPITAL STOCK OR 2/3 OF THE MEMBERS
DECIDE:
(1) Delegating to the board of directors or trustees the power to amend or repeal any by-laws or adopt new by-laws (can be
revoked by owners of majority of the outstanding capital stock or majority of members);
(2) Removal of director or trustee from office (no removal without cause to deprive minority stockholders or members the right
of representation);
(3) Ratification of a contract of the corporation with one or more of its directors, trustees, or officers where the presence or vote
of the director or trustee is necessary for quorum or approval of the contract;
(4) Ratification of a contract between corporations with interlocking directors where the interest of the interlocking director in
one corporation is substantial and merely nominal in the other corporation;
(5) Ratification of a director’s acquisition of a business opportunity which should belong to the corporation;
(6) Incorporation of religious societies; and
(7) Amendment of articles of incorporation of a close corporation which seeks to delete or remove provisions required to be
contained in the articles of incorporation or to reduce a quorum or voting requirement stated therein.

CORP0028: OUTSTANDING CAPITAL STOCK means the total shares of stock issued under binding subscription agreements to
subscribers or stockholders, whether fully or partially paid, EXCEPT treasury shares.

CORP0029: A stockholder to be qualified as a director must have a LEGAL TITLE (his name appears in the books of the corporation)
to the shares. Beneficial or equitable ownership is not material.

CORP0030: HOW ARE CORPORATE OFFICERS ELECTED OR APPOINTED?

(1) Stock corporations: unless otherwise provided in the Articles or Bylaws, BOARD OF DIRECTORS
(2) Non-stock: unless otherwise provided in the Articles or Bylaws, MEMBERS
(3) Close: unless otherwise provided in the Articles or Bylaws, STOCKHOLDERS

CORP0031: If a director is to be disqualified on account of his violation of the Corporation Code committed within 5 years prior to
the date of his election, a conviction by final judgment is NOT NECESSARY. Conviction by final judgment is only necessary if the
ground for disqualification is on account of an offense punishable by imprisonment for a period exceeding 6 years.

CORP0032: A SELF-DEALING director is one who enters or transacts business with his own corporation. An INTERLOCKING
director is a director of a corporation which transacts business with another corporation of which he is also a director.

CORP0033: A contract with SELF-DEALING director is GENERALLY VOIDABLE, while a contract with another corporation
where there is an INTERLOCKING director is GENERALLY VALID.

CORP0034: TERMS OF OFFICE OF DIRECTORS/TRUSTEES:

(1) Stock: 1 YEAR
(2) Non-stock: 3
(3) Educational: 5
(4) *COOPERATIVE: 2

CORP0035: The 10% (of prior year’s net income before taxes) ceiling limiting the compensation given to directors in their capacity as
directors does not apply to compensation given to them in other capacity (e.g. when the director is also a Vice President with
compensation, his compensation as VP is not considered for purposes of computing the 10% ceiling.)

CORP0036: A corporation may acquire its own shares for the following purposes:
(1) To eliminate fractional shares arising out of stock dividends;
(2) To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription, in a delinquency sale, and to
purchase delinquent shares sold during said sale;
(3) To pay dissenting or withdrawing stockholders entitled to payment for their shares;
(4) To redeem redeemable shares;
(5) In case of deadlocks in close corporations where the stockholder may be compelled to transfer his share to the corporation;
and
(6) To acquire the shares of a withdrawing stockholder in a close corporation.
NOTE: Under (1), (2), and (3), the corporation must have unrestricted retained earnings, while under (4), (5), and (6), the corporation
may still acquire its own shares even if it does not have unrestricted retained earnings.

CORP0037: SOLIDARY LIABILITY OF STOCKHOLDERS TO WHOM WATERED STOCKS ARE ISSUED:

- YES, if watered stocks issued are par value shares. (They are liable with the directors who authorized its issuance and those
who had knowledge but did not object.)
- NO, if they are no-par value shares because under Corporation Code, once they are issued, they are deemed fully paid and
non-assessable. (Hence, those liable will be the directors who authorized its issuance and those who had knowledge but did
not object.)

CORP0038: Generally, a purchaser of all or substantially all of the assets of a corporation is NOT LIABLE for the debts and liabilities
of the selling corporation by virtue of the Corporate Entity Theory (“A corporation has a separate and distinct personality of its
own.”). However, it admits the following exceptions:
(1) Where the purchaser expressly or impliedly agreed to assume such debts;
(2) Where the transaction amounts to a merger or consolidation;
(3) Where the purchasing corporation is a mere continuation of the selling corporation; and
(4) Where the transaction is entered into fraudulently in order to escape liability for such debts.
This principle is also known as the NELL DOCTRINE.

EVERYTHING RFBT 21
CORP0039: An INDEPENDENT DIRECTOR is a person who, apart from his fees and shareholdings, is independent of management
and free from any business or other relationship which could, or could reasonably be perceived to, materially interfere with his
exercise of independent judgment in carrying out his responsibilities as a director.

CORP0040: The following companies must have at least two (2) independent directors in its Board of Directors:
(1) Issuers of registered securities to the public whether or not listed in the Philippine Stock Exchange (PSE);
(2) PUBLIC COMPANIES or those with assets of at least P50,000,000.00 or such other amount as the Commission shall
prescribe, and having 200 or more holders each holding at least 100 shares of a class of its equity securities;
(3) Finance companies;
(4) Investment houses;
(5) Brokers and dealers of securities;
(6) Investment companies;
(7) Pre-need companies;
(8) Subsidiaries or branches of foreign corporations which operate in the Philippines and are listed in the PSE; and
(9) Stock and other securities exchange/s.

CORP0041: QUALIFICATIONS OF AN INDEPENDENT DIRECTOR:

(1) He shall have at least one (1) share of stock of the corporation;
(2) He shall be at least a college graduate or he shall have been engaged or exposed to the business of the corporation for at least
five (5) years;
(3) He shall possess integrity/probity; and
(4) He shall be assiduous (meaning: showing great case and perseverance; careful; thorough).

CORP0042: USE OF TELECONFERENCE OR VIDEOCONFERENCE IN MEETINGS:

In STOCKHOLDERS’ OR MEMBERS’ meetings, it is NOT ALLOWED. Section 51 of the Corporation Code provides that
“stockholders’ or members’ meetings, whether regular or special, shall be held in the city or municipality where the principal office of
the corporation is located, and if practicable in the principal office of the corporation.” This provision presupposes that the attendees to
a stockholders’ or members’ meeting are in the same place during the meeting. This is in contrast to teleconferencing, where the
participants are in different places although their communication with each other is facilitated through an electronic medium, making
their presence in the meeting merely “virtual” or electronic. (SEC Opinion 16-01)
In DIRECTORS’ OR TRUSTEES’ meetings, it is ALLOWED. Under Section 53 of the Corporation Code, the meeting of the board
of directors or trustees may be held anywhere in or outside the Philippines. The same provision does not limit the attendees to such
meeting be in different places. In fact, under Section 47, the place of the directors’ or trustees’ meeting may be stipulated in the
bylaws, but not in case of stockholders’ meetings. (SEC MC 15-2001)

CORP0043: A share is considered ISSUED SHARE upon subscription regardless if such is fully paid or not. It is different from an
ISSUED CERTIFICATE OF SHARE, because what is issued here is a mere certificate which can only happen after full payment of
the subscription price. Out of the authorized capital, shares are issued, and out of said issued shares are outstanding shares which do
not include treasury shares.

CORP0044: For purposes of Section 76 of the Corporation Code, the words MERGE and CONSOLIDATE are distinct from one
another. Hence, the following statements are FALSE:
- Two or more corporations may CONSOLIDATE into a single corporation which shall be one of the constituent corporations.
- Two or more corporations may MERGE into a new single corporation which shall be the consolidated corporation.
In addition, CONSTITUENT is not synonymous with CONSOLIDATED. Hence, the following statements are likewise FALSE:
- Two or more corporations may merge into a single corporation which shall be one of the CONSOLIDATED corporations.
- Two or more corporations may consolidate into a new single corporation which shall be the CONSTITUENT corporation.

CORP0045: The corporation can transact business by a MAJORITY vote of the directors PRESENT and constituting a QUORUM in
a meeting. However, in ELECTING CORPORATE OFFICERS, it requires the MAJORITY VOTE OF ALL directors.
Hence, in a meeting of the corporation’s directors who has 9 directors fixed in its articles of incorporation, 5 directors are sufficient to
constitute a quorum and the board can transact business by an affirmative vote of at least 3 directors out of 5 who are present.
But if in the same meeting, a corporate officer will be elected, it shall require at least 5 votes (which is the majority out of 9 directors).
If there are 6 directors present, 4 votes are needed to transact business; and 5 votes are still needed to elect a corporate officer.
If there are 7 directors present, 4 votes are needed to transact business; and 5 votes are still needed to elect a corporate officer.
If there are 8 directors present, 5 votes are needed to transact business; and 5 votes are still needed to elect a corporate officer.
If all the 9 directors are present, 5 votes are needed to transact business; and 5 votes are still needed to elect a corporate officer.
If there are only 4 (or less) directors present, there is NO QUORUM. The board cannot transact any business (even if all the directors
present shall vote in favor) nor elect any corporate officer. Take note: NO QUORUM, NO MEETING.

CORP0046: A foreign company that merely imports goods from a Philippine exporter, without opening an office or appointing an
agent in the Philippines, is not doing business in the Philippines.

CORP0047: A holdover director is one whose original term has already expired but needs to remain as director since the replacement
has not been elected yet. When said holdover director resigns, his replacement must be elected by the stockholders or members
because it is not his resignation that created the vacancy but the expiration of his original term. And when a director's term has expired, the
stockholders or members must elect a new director.
CORP0048: A CLOSE CORPORATION is one whose articles of incorporation provide that: (1) All the corporation's issued stock of
all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not exceeding twenty
(20); (2) all the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this Title; and
(3) The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class. This is the
definition under Section 96 of the Corporation Code.

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A CLOSELY-HELD CORPORATION is a domestic corporation in which at least 50% in value of the outstanding capital stock or of
the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by not more than 20 individuals
(20 or less). This is the definition by implication in BIR RR 2-2001 which sets the rule on improperly accumulated earnings tax.
A PUBLICLY-HELD CORPORATION is a domestic corporation in which at least 50% in value of the outstanding capital stock or of
the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by more than 20 individuals (21
or more). This is the definition in BIR RR 2-2001 which sets the rule on improperly accumulated earnings tax.
***A close corporation under the Corporation is a closely-held corporation for purposes of BIR RR 2-2001. But a closely-held
corporation under BIR RR 2-2001 is not necessarily a close corporation for purposes of the Corporation Code. A closely-held
corporation can have not more than 20 individual stockholders and yet not have any of the conditions in its articles of incorporation as
required under Section 96 of the Corporation Code.

INTELLECTUAL PROPERTY

IP0001: WHAT IS THE DOMINANCY TEST? The dominancy test focuses on the similarity of the prevalent features of the
competing trademarks that might cause confusion and deception. If the competing trademark contains the main, essential, and
dominant features of another, and confusion or deception is likely to result, likelihood of confusion exists. The question is whether the
use of the marks involved is likely to cause confusion of mistake in the mind of the public or to deceive consumers.

IP0002: WHAT IS THE HOLISTIC TEST? The holistic test entails a consideration of the entirety of the marks as applied to the
products, including the labels and packaging, in determining confusing similarity. The discerning eye of the observer must focus not
only on the predominant words but also on the other features appearing on both marks in order that the observer may draw his
conclusion whether one is confusingly similar to the other.
IP0003: IS PUREGOLD’S MARK “COFFEE MATCH” CONFUSINGLY SIMILAR WITH NESTLE’S MARK “COFFEE-MATE”?
The word "COFFEE" is the common dominant feature between Nestle's mark "COFFEE-MATE" and Puregold's mark "COFFEE
MATCH." However, following Section 123, paragraph (h) of RA 8293 which prohibits exclusive registration of generic marks, the
word "COFFEE" cannot be exclusively appropriated by either Nestle or Puregold since it is generic or descriptive of the goods they
seek to identify. Generic or descriptive words are not subject to registration and belong to the public domain. Consequently, we must
look at the word or words paired with the generic or descriptive word, in this particular case "-MATE" for Nestle's mark and
"MATCH" for Puregold's mark, to determine the distinctiveness and registrability of Puregold's mark "COFFEE MATCH.” Here, the
distinctive features of both marks are sufficient to warn the purchasing public which are Nestle's products and which are Puregold's
products. While both "-MATE" and "MATCH" contain the same first three letters, the last two letters in Puregold's mark, "C" and
"H," rendered a visual and aural character that made it easily distinguishable from Nestle's mark. Also, the distinctiveness of
Puregold's mark with two separate words with capital letters "C" and "M" made it distinguishable from Nestle's mark which is one
word with a hyphenated small letter "-m" in its mark. In addition, there is a phonetic difference in pronunciation between Nestle's "-
MATE" and Puregold's "MATCH." As a result, the eyes and ears of the consumer would not mistake Nestle's product for Puregold's
product. Hence, the likelihood of confusion between Nestle's product and Puregold's product does not exist.
IP0004: WHAT IS THE DOCTRINE OF SECONDARY MEANING? The doctrine of secondary meaning means that a word or
phrase originally incapable of exclusive appropriation with reference to an article in the market has, through its long and exclusive use
by one entity has effectively been distinguished and identified as that representing the user and its products.

IP0005: WHAT CONSTITUTES INFRINGEMENT OF AN UNREGISTERED TRADE NAME?

(1) The trademark being infringed is registered in the Intellectual Property Office; however, in infringement of trade name, the same
need not be registered;
(2) The trademark or trade name is reproduced, counterfeited, copied, or colorably imitated by the infringer;
(3) The infringing mark or trade name is used in connection with the sale, offering for sale, or advertising of any goods, business or
services; or the infringing mark or trade name is applied to labels, signs, prints, packages, wrappers, receptacles, or advertisements
intended to be used upon or in connection with such goods, business, or services;
(4) The use or application of the infringing mark or trade name is likely to cause confusion or mistake or to deceive purchasers or
others as to the goods or services themselves or as to the source or origin of such goods or services or the identity of such business;
and
(5) It is without the consent of the trademark or trade name owner or the assignee thereof.
(Coffee Partners, Inc. v. San Francisco Coffee & Roastery, Inc., GR 169504, March 3, 2010 [Per J. Carpio, Second Division])

IP0006: IS TRADEMARK REGISTRATION WITH THE INTELLECTUAL PROPERTY OFFICE (IPO) REQUIRED BEFORE AN
INFRINGEMENT SUIT CAN BE FILED? A trade name need not be registered with the IPO before an infringement suit may be filed
by its owner against the owner of an infringing trademark. All that is required is that the trade name is previously used in trade or
commerce in the Philippines. Section 22 of Republic Act No. 166, as amended, required registration of a trade name as a condition for
the institution of an infringement suit. However, RA 8293, which took effect on 1 January 1998, has dispensed with the registration
requirement. (Coffee Partners, Inc. v. San Francisco Coffee & Roastery, Inc., GR 169504, March 3, 2010 [Per J. Carpio, Second
Division])

IP0007: WHAT IS THE GRAVAMEN OF TRADEMARK INFRINGEMENT? It is the likelihood of confusion that is the gravamen
of infringement. But there is no absolute standard for likelihood of confusion. Only the particular, and sometimes peculiar,
circumstances of each case can determine its existence. Thus, in infringement cases, precedents must be evaluated in the light of each
particular case. In determining similarity and likelihood of confusion, our jurisprudence has developed two tests: the dominancy test
and the holistic test. [Per J. Carpio, Second Division])

IP0008: SFCRI ENGAGED IN THE WHOLESALE AND RETAIL SALE OF COFFEE AND REGISTERED WITH THE SEC IN
1995, REGISTERED THE BUSINESS NAME "SAN FRANCISCO COFFEE & ROASTERY, INC." WITH DTI IN THE SAME
YEAR. IN 2001, CPI OPENED A COFFEE SHOP UNDER THE NAME "SAN FRANCISCO COFFEE" WHICH IS REGISTERED
WITH THE IPO. DOES CPI'S USE OF "SAN FRANCISCO COFFEE" INFRINGE ON SFCRI'S TRADE NAME? Applying either
the dominancy test or the holistic test, CPI’s "SAN FRANCISCO COFFEE" trademark is a clear infringement of SFCRI’s "SAN
FRANCISCO COFFEE & ROASTERY, INC." trade name. The descriptive words "SAN FRANCISCO COFFEE" are precisely the
dominant features of SFCRI’s trade name. Both are engaged in the same business of selling coffee, whether wholesale or retail. The

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likelihood of confusion is higher in cases where the business of one corporation is the same or substantially the same as that of another
corporation. In this case, the consuming public will likely be confused as to the source of the coffee being sold at CPI’s coffee shops.
An argument that "San Francisco" is just a proper name referring to the famous city in California and that "coffee" is simply a generic
term, is untenable. SFCRI has acquired an exclusive right to the use of the trade name "SAN FRANCISCO COFFEE & ROASTERY,
INC." since the registration of the business name with the DTI in 1995. Thus, SFCRI’s use of its trade name from then on must be free
from any infringement by similarity. Of course, this does not mean that SFCRI has exclusive use of the geographic word "San
Francisco" or the generic word "coffee." Geographic or generic words are not, per se, subject to exclusive appropriation. It is only the
combination of the words "SAN FRANCISCO COFFEE," which is SCFRI’s trade name in its coffee business, that is protected
against infringement on matters related to the coffee business to avoid confusing or deceiving the public. (Coffee Partners, Inc. v. San
Francisco Coffee & Roastery, Inc., GR 169504, March 3, 2010 [Per J. Carpio, Second Division])

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