RFBT REVIEWER

Except:
CONTENTS a. By nature
b. By stipulation
c. By provision of law
• LAW ON OBLIGATION & CONTRACTS
• LAW ON INSURANCE SOURCES OF OBLIGATIONS
• GOVERNMENT PROCUREMENT LAW 1. LAW
• LAW ON CREDIT TRANSACTIONS Art. 1158. Obligations derived from law are not
• LAW ON SALES presumed. Only those expressly determined in this
• REVISED CORPORATION Code or in special laws are demandable, and shall be
• ELECTRONIC COMMERCE ACT OF 2000 regulated by the precepts of the law which establishes
• ANTI- MONEY LAUNDERING ACT them; and as to what has not been foreseen, by the
• BANK SECRECY LAW provisions of [Civil Code].
• BOUNCING CHECKS LAW 2. CONTRACTS
• DATA PRIVACY ACT A contract is a meeting of minds between two persons
• EASE OF DOING BUSINESS AND EFFICIENT whereby one binds himself, with respect to the other,
GOVERNMENT SERVICE DELIVERY ACT to give something or to render some service. (Art.
• FOREIGN INVESTMENT ACT 1305)
• FRIA Obligations arising from contracts have the force of
law between the contracting parties and should be
• GENREAL BANKING LAW
complied with in good faith. (Art. 1159)
• INTELLECTUAL PROPERTY LAW
3. QUASI-CONTRACTS
• NEW CENTRAL BANK ACT
The juridical relation resulting from lawful, voluntary
• PDIC LAW
and unilateral acts by virtue of which the parties
• SECURITY REGULATION CODE become bound to each other to the end that no one
• UNCLAIMED BALANCES LAW will be unjustly enriched or benefited at the expense of
another.
A. NEGOTIORUM GESTIO– abandoned business or
LAW ON OBLIGATION
property whose gestor take over with no tacit
An obligation is a juridical necessity to give, to do or authority
not to do. (Art. 1156) B. SOLUTIO INDEBITI – payment by mistake with no
right to retain
KINDS OF OBLIGATIONS AS TO BASIS AND 4. DELICT
ENFORCEABILITY Delict is an act or omission punishable by law which
Civil obligations give a right of action to compel their may be governed by the Revised Penal Code, other
performance penal laws, or the Title on Human Relations under the
Natural obligations, not being based on positive law Civil Code.
but on equity and natural law
PROOF NECESSARY
ESSENTIAL ELEMENTS OF OBLIGATION A. Criminal- beyond reasonable doubt
a. Active subject (creditor/obligee) B. Civil- substantial evidence
b. Passive subject (debtor/obligor) Acquittal
c. Prestation (or Object) a. Did not do the act- no civil liability
d. Vinculum Juris/Efficient Cause/Juridical Tie b. Reasonable doubt- civil liability
5. QUASI- DELICT
Transmissibility of Obligation: Art. 2176. Whoever by act or omission causes damage
General Rule: all rights acquired in virtue of an to another, there being fault or negligence, is obliged
obligation are transmissible to pay for the damage done. Such fault or negligence,
if there is no pre-existing contractual relation between
the parties, is called a quasi-delict and is governed by Impossible - can't be fulfilled physically or legally when
the provisions of this Chapter. contrary to law, condition is, void - positive, always
a. an act or omission fulfilled/disregard - negative)
b. fault or negligence
GENERAL RULE: Once condition is fulfilled, it shall retroact
c. damage caused
to the day of the constitution of the obligation.
d. direct relation of cause and effect EXCEPTION: 1. Fruits or interests
a. Bilateral obligations - mutually compensated
Vicarious Liability (who is responsible)
b. Unilateral obligations - debtor is entitled to the
1. Minor children – father, if dead or fruit, unless contrary intention appears
incapacity, the mother 2. Prescription period - from the time the condition
2. Minor & incapacitated persons- guardians is fulfilled
3. Employees in service of the branches –
Rules as to obligation to give specific thing with suspensive
owners & managers
condition or obligations with a period.
4. Employees & household helpers- LOSS:
employers Fortuitous event- 0bligation is extinguished
5. Special agents- the state Fault of debtor – debtor is liable of damages
6. Pupils/Students/Apprentices- teachers or DETORIATION:
head of establishment Fortuitous event - impairment born by creditor
Defense: all the diligence of a good father of a family Fault of debtor - creditor can either ask for exact
to prevent damage. For the employer, to prove due fulfilment and damages, or for rescission and damages
diligence in the selection and supervision of the IMPROVEMENT:
employee. Bu nature or time – inure to the benefit of creditor
Expense of debtor - no right of reimbursement, only
Kinds of Civil Obligations usufructuary, he may remove improvement if it will not
cause damage.
1. Perfection & Extinguishment
Obligations with a period/term - a certain length of time
a. Pure obligations – no conditions, that is certain to arrive even if not known when.
demandable at once
b. Conditional Obligations – depend upon KINDS OF TERM
happening of the event
1. Definite – specific date, Dec. 31, end of the year this year,
Kinds of Conditions within 6 months
2. Indefinite – period may arrive upon the fulfilment of a
WHEN: certain event which is certain to happen. Ex. death.
Suspensive - Give rise 3. Legal – imposed or provided by law, Ex. filing of taxes
Resolutory - extinguish obligation to give support – within the first 5 days of the
WHOM: month.
Potestative - depends on will 4. Voluntary – agreed upon by the parties.
of one of the party), void if dependent on debtor and is 5. Judicial – those fixed by courts.
suspensive.
Casual - depends on chance As to effect, a term/period may be:
Mixed - partly on will or chance 1. Ex die – a period with a suspensive effect.
CAPACITY: 2. In diem – a period with a resolutory effect.
Divisible - can be performed
in parts, impossible conditions are invalid GENERAL RULE: If period is designated, it is presumed to
Indivisible - can’t be performed in parts have been established for the benefit of both the creditor or
NUMBER: the debtor
Conjunctive - all must be performed EXCEPTION: From the tenor of the obligation or other
Alternative - only I must be performed circumstances, the period shall appear to be established in
NATURE: favor of one or the other.
Positive – act Consequences: Debtor/Creditor can’t be made to
Negative - omission pay/accept payment before the period
KNOWN:
Express – stated Debtor's loss of right to make use of the period when:
Implied - merely inferred A. He becomes insolvent, unless there is guarantee of
FULFILLMENT: the debt
Possible - can be fulfilled B. He does not furnish the guarantee
 C. He voluntarily impaired said guarantee, r if creditors is entitled only to a proportionate part of
through fortuitous event is disappear unless he the credit. Each debt/credit is considered
give satisfactory replacement. independent of each other.
D. He violates any under taking C. Disjunctive - Not covered by New Civil Code. There
E. He attempts to abscond or run away (intent is are 2 or more creditors and 2or more debtors but
material) they are named disjunctively as debtors and
creditors in the alternative. Rule on solidary
2. PLURALITY OF PRESTATION obligation applies.
a. Conjunctive - usually use the word "and' ,all 4. PERFORMANCE OF PRESTATION
prestation must be complied
b. Alternative - usually use the word Indivisibly does not necessarily connote solidarity. If there is
“or", one prestation must be complied multiple parties, rules on solidarity and joint are still
1. Several objects are due - one is sufficient observed.
2. Right of choice – GENERAL RULE: debtor. Divisible obligation
EXCEPTION: expressly granted to creditor, or 1. Number of days of work
given to third party 2. Measured by metrical units
3. Prestation must not be impossible or unlawful 3. Instalment payments
4. The choice, to toke effect, must be 4. Susceptible to partial performance
communicated. Indivisible obligation
5. Choice can't be part of one or of another 1. Definte things
6. If only one chance is practicable, debtor loss 2. Not susceptible to partial performance.
the right of choice 3. Capable of partial performance, but law or the
7. Effect of loss of thing intention treats as indivisible.
DEBTOR a. Joint Indivisible - division is impossible, insolvency
All things Fortuitous Event- extinguished of I debtor will not make the other liable for his
were lost Fault of debtor - value of the share
lost and damages b. Solidary Indivisible - innocent debtor or any who is
Some were Fortuitous Event/Fault of debtor- deliver ready to comply with his part can be made liable
lost remaining for damages but is given right for reimbursement
Fault of creditor - rescission and damages from debtor at fault
or perform and damages
5. OBLIGATION WITH PENAL CLAUSE
CREDITOR GENERAL RULE: The penalty shall substitute the indemnity
All things Fortuitous Event- extinguished for damages and payment of interests in case of non-
were lost Fault of debtor - value of the compliance.
lost and damages EXCEPTION: If the contrary is stipulated, if debtor refuses to
Some were Fortuitous Event/Fault of debtor- pay penalty, or is guilty of fraud
lost demand from remaining Reduction of penalty: Court can reduce penalty if principal
Fault of creditor – price of which was lost obligation is partly/regularly complied, or if penalty is
and damages of demand from remaining confiscatory.
and damages
c. Facultative - only one prestation, but debtor may NATURE AND EFFECT OF OBLIGATIONS
render substitution.
Concurrent Obligations in Obligations to Give a
What is lost through fortuitous event, obligation is:
determinate thing: To deliver the thing, which may be
BEFORE SUBSITUTION:
either actual or constructive.
Principal - extinguished
1. To take care of it with the proper diligence of a
Substitute - not extinguished
good father of a family (bonus pater familia),
AFTER SUBSITUTION:
unless there is stipulation or the law requires
Principal - not extinguished
another standard of care.
Substitute -extinguished
2. To deliver the fruits of the thing from the time the
3. RIGHTS AND OBLIGATION OF MULTPLE PARTIES obligation to deliver it arises Kinds of Fruits:
a. Natural - spontaneous product of the soil, young and
A. Solidary obligation - each debtor /creditor is other products of animals
liable/entitled to demand for the entire obligation b. Industrial - those derived from human intervention,
Arises when, stipulated, law requires, or by nature cultivation or labor
of obligation c. Civil - those derived from the juridical relation of parties.
B. Joint obligation - each of the debtors is liable only
for a proportionate part of the debt or each
 3. To deliver al accessions and accessories, even Negligence: consists in the omission of that
though they may not have been mentioned diligence which is required by the nature of the
Accessories - those joined to or included with the principal obligation and corresponds with the circumstances
for the latter's better use, perfection, or enjoyment. of the persons, of the time and of the place
Accessions - additions or improvements upon a thing which Degree of care required:
may include an alluvium and whoever is built, planted or 1. As a rule
sown on parcel of land a. That required by law
b. That agreed upon by the parties.
REMEDIES FOR BREACH OF OBLIGATIONS 2. In the absence of the two above, diligence of a
Obligations to give: good father of a family’
1. Determinate thing - specific performance only if it
Kinds of Negligence as to source:
is legally and physically possible. Substitute
1. Culpa Contractual – contractual negligence – or that
performance is not possible.
which results in a breach of contract.
2. Generic thing - specific or substitute performance.
2. Culpa Aquiliana – civil negligence or quasi-delict
The creditor can have another person to have such
3. Culpa Criminal – criminal negligence – or that which
kind of thing be delivered of the cost of the debtor
results in the commission of a crime or a delict.
plus damages.
Negligence on the part of the supposed creditor:
Obligations to do: substitute performance only, since
1. If his negligence was the immediate and proximate cause
forcing the obligor to comply would violate the constitution
of the injury, there is no recovery for damages.
prohibition against involuntary servitude.
2. If his negligence was only contributory – he may still
Obligations not to do: and the obligor does it, the creditor
recover damages, BUT the courts can mitigate or reduce the
may have it undone at the expense of the debtor.
same.
c. DELAY
KINDS OF RESCISSION AS A REMEDY:
1. Mora Solvendi – delay on the part of the debtor, which
1. Rescission in reciprocal obligations, which may either be:
should've been properly termed as "resolution", is a. Mora solvendi ex re: in real obligations
a primary remedy where the cause of action is b. Mora solvendi ex persona: in personal obligations
substantial or fundamental breach or non- 2. Mora Accipiendi – delay on the part of the creditor;
compliance. 3. Compensatio Morae – delay on the part of both parties.
2. Rescission under Art. 1301/1303 in rescissible General Rule: upon demand, which may be judicial or extra-
contracts is a remedy of last resort where the judicial.
cause would normally be lesion or economic injury EXCEPTION:
to a party. 1. When stipulated
2. When the law so declares
KINDS OF DAMAGES (MENTAL) 3. When from the nature and the circumstances of the
Moral - for mental and physical anguish obligation it appears that the designation of the time when
Exemplary - corrective or to set an example the thing is to be delivered or the service is to be rendered
Nominal - to vindicate a right when no other kind of was a controlling motive for the establishment of the
damages may be recovered contract
Temperate - when the exact amount of damages cannot be 4. When demand would be useless
determined 5. In reciprocal obligations, where the respective obligations
Actual - actual losses incurred. This is the only type of must be performed simultaneously, and one party was not
damage that would require proof. ready
Liquidated - predetermined beforehand d. ANY OTHER MANNER OF CONTRAVENTION
(VIOLATIO)
SPECIFIC CIRCUMSTANCES AFFECTING In general, every debtor who fails in performance of his
OBLIGATIONS IN GENERAL obligations is bound to indemnify for the losses and
damages caused thereby. The phrase "any manner
a. FRAUD contravene the tenor" of the obligation includes any illicit
1. Dolo Causante- or fraud in obtaining consent, act which impairs the strict and faithful fulfillment of the
is applicable only to contracts where consent obligation or every kind or defective performance.
is necessary and thus affects the validity of the FORTUITOUS EVENT: is an excuse for non-performance.
contract, making it voidable. Fortuitous events by definition are extraordinary events not
2. Dolo Incidente- or fraud in the performance of foreseeable or avoidable. It is therefore, not enough that
the obligation and applicable to obligations the event should not have been foreseen or anticipated, as
arising from any source is commonly believed but it must be one impossible to
foresee or to avoid.
b. NEGLIGENCE
MODES OF EXTINGUISHMENT OF OBLIGATIONS
Art. 1231. Obligations are extinguished: 1. At the time the check or other mercantile documents
(1) By payment or performance: have been encashed;
(2) By the loss of the thing due: 2. Its value becomes impaired.
(3) By the condonation or remission of the debt; Extraordinary inflation or deflation: of the currency
(4) By the confusion or merger of the rights of creditor and stipulated should supervene, the value of the currency at
debtor; the time of the establishment of the obligation shall be the
(5) By compensation; basis of payment, unless there is an agreement to the
(6) By novation. contrary.
1. PAYMENT OR PERFORMANCE d. PLACEMENT of PAYMENT
a. Provisions as to the PAYOR 1. Payment shall be made in the place designated in the
With interest Without obligation.
interest 2. If there was no stipulation and the obligation consists in
Compel the creditor to Yes No the delivery of a determinate thing, the payment shall be
accept payment made wherever the thing might be at the moment the
Subrogation to the rights Yes No obligation was constituted.
of the creditor 3. In any other case the place of payment shall be the
Amount of reimbursement Full Beneficial domicile of the debtor.
If third party payor does not intend to be reimbursed: the 4. If the debtor changes his domicile in bad faith or after he
payment may be treated as a donation. As such it is has incurred in delay, the additional expenses shall be borne
necessary that the debtor accept the same for validity. by him.
If the debtor did not consent, there would be no valid
donation, and the third party-payor can seek SPECIAL FORMS OF PAYMENT
reimbursement from the debtor. Dation in payment is the delivery or transmission of
b. Provisions as to the PAYEE ownership of a thing by the debtor to the creditor as an
Payment may be made to: accepted equivalent of the performance of the obligation.
1. Person in whose favor the obligation has been
constituted GENERAL RULE: to the extent of the value of the thing
2. His successor in delivered as agreed upon or as may be proved.
3. Any person authorized to receive it EXCEPTION: if the parties consider the thing as equivalent
4. Third party to the obligation through an express or implied agreement
Payment to an incapacitated person: is valid only if the or by silence.
incapacitated person kept the thing delivered or insofar as
it was beneficial to him. Application of Payment: is the designation of the debt
c. THING to be paid or delivered which is being paid by a debtor who has several obligations
Delivery of a specific thing: The debtor of a thing cannot of the same kind in favor of the creditor to whom payment
compel the creditor to receive a different one, although the is made.
latter may be of the same value as, or more valuable than 1. There is only one debtor;
that which is due. 2. There are several debts;
Delivery of a generic thing: whose quality and 3. The debts are of the same kind;
circumstances have not been stated, the creditor cannot 4. There is only one and the same creditor.
demand a thing of superior quality. Neither can the debtor
deliver a thing of inferior quality. The purpose of the Cession - when the debtor delivers to all his creditors all his
obligation and other circumstances shall be taken into properties for the purpose of selling and applying the
consideration. proceeds to settle his obligations to them.
Obligations to do or not to do: an act or forbearance KINDS:
cannot be substituted by another act or forbearance 1. Voluntary – Under Art. 1255, the debtor may cede or
against the obligee's will. assign his property to his creditors in payment of his debts;
LEGAL TENDER: refers to payment which the creditor can be extent of extinguishment is only upto the amount of the
compelled to accept. However, for coins, the following are proceeds.
the limits: 2. Judicial – under the Financial Rehabilitation and
1. P1 coins and above - shall be legal tender in amounts not Insolvency Act.
exceeding P1,000 Tender of Payment - the manifestation made by the debtor
2. Coins below P1 – legal tender not exceeding P100. to the creditor of his desire to comply with his obligation,
Negotiable Instruments and Checks: are not considered with the offer of immediate performance. It is a
legal tender and their acceptance is dependent on the PREPARATORY ACT to consignation and in itself DOES NOT
creditor. However, should the creditor accept the same, extinguish the obligation.
they do not produce the effect of payment, or extinguish Consignation - the deposit of the object of the obligation in
the obligation, until: a competent court in accordance with rules prescribed by
law, AFTER the tender of payment has been refused or
because of circumstances which render direct payment to 2. As to whom impossibility refers:
the creditor impossible. It extinguishes the obligation. a. Objective – impossibility of the act or service itself
Applies only to extinguish of obligation not to exercise a without considering the person of the debtor
right. b. Subjective - impossibility refers to the fact that the act or
Requisites: service can no longer be done by the debtor but may still be
1. There exists a valid debt that is due; performed by another person
2. There is legal cause to consign, that is there has been a 3. As to extent: Partial or Total
valid tender of payment and the creditor unjustly refuses, or 4. As to period of impossibility: Permanent or Temporary.
even without tender of payment in the following cases:
a. When the creditor is absent or unknown, or does not CONDONATION OR REMISSION OF THE DEBT
appear at the place of payment; Condonation/Remission - an act of liberality, by virtue of
b. When he is incapacitated to receive the payment at the which, without receiving any equivalent, the creditor
time it is due; renounces the enforcement of an obligation, which is
c. When, without just cause, he refuses to give a receipt; extinguished in its entirety or in that part or aspect of the
d. When two or more persons claim the same right to same to which the remission refers.
collect; Gratuitous: If not gratuitous, it will be considered:
e. When the title of the obligation has been lost. 1. Dation in payment – when the creditor receives a thing
3. There is previous notice to consign to the persons having different from that stipulated;
interest in the fulfilment of the obligation; 2. Novation – when the subject or principal conditions of the
4. The amount or thing due is deposited in court. obligation should be changed;
3. Compromise – when the matter renounced is in litigation
Withdrawal as a matter of right: debtor withdraws before or dispute and in exchange of some concession which the
acceptance by the creditor or before judicial declaration of creditor receives.
propriety of consignation. In this case, no extinguishment Kinds of Condonation:
yet of the obligation. As such, no revival since the obligation 1. Form: Express or Implied
has not been extinguished to begin with. 2. Extent: Total or Partial
Withdrawal after acceptance or declaration: only with the 3. Manner of remission: inter vivos or
consent of the creditor. In this case, the obligation is Mortis causa
revived.
CONFUSION OR MERGER OF RIGHTS
LOSS OF THE THING DUE OR IMPOSSIBILITY OF
PERFORMANCE Merger/Confusion: the meeting in one person of the
qualities of the creditor and debtor with respect to the same
Loss: means when the thing goes out of commerce, perishes obligation.
or disappears in such a way that its existence is unknown or Requisites:
that it cannot be recovered. a. Must take place between the credit and the principal
GENERAL RULE: If the loss is due to fortuitous event: debtor;
generally, the debtor is not liable for damages if the thing is b. Must involve the very same obligation;
lost due to fortuitous event. c. Must be total.
EXCEPTION:
1. When the law so provides; COMPENSATION
2. When stipulation so provides;
3. When the nature of the obligation requires the the obligations of those persons who in their own right,
assumption of risk. are reciprocally creditors and debtors of each other.
4. Obligations arising from a criminal offense, unless the Kinds of Compensation:
creditor is in mora accipiendi. 1. As to effects/extent:
5. Obligations to give a generic thing, except in cases of a. Total – when the two obligations are of the same
limited generic. amount;
Partial Loss: Partial loss may be determined by the court as b. Partial – when the amounts are not equal. This is total as
so important to extinguish the obligation. In doing so, intent to the debt with lower amount.
of the parties must necessarily be considered. 2. As to origin/cause:
Presumptions of fault: Whenever the thing is lost in the a. Legal – takes effect by operation of law because all the
possession of the debtor, it shall be presumed that the loss requisites are present;
was due to his fault, unless there is proof to the contrary. b. Facultative – can be claimed by one of the parties who,
however, has the right to object to it
Loss of the thing may likewise cover impossibility of c. Conventional – when the parties agree to compensate
performance their mutual obligations even if some of the requisite are
Types of Impossibility: lacking.
1. As to nature: Physical (by reason of its nature); and Legal d. Judicial – decreed by the court in a case where there is a
(through some subsequent law) counterclaim.
 NOVATION a. NEGOTIATION (PREPARATION OR CONCEPTION OR
GENERACION)
Requisites:
b. PERFECTION (OR BIRTH)
1. Previous valid obligation – if the original obligation is
c. CONSUMMATION (OR DEATH OR TERMINATION
void, the novation is likewise void. But if it is voidable,
novation is valid except when annulment has been claimed. ESSENTIAL ELEMENTS OF CONTRACTS
2. Agreement of all parties to a new contract
3. Extinguishment of old obligation CONSENT OF CONTRACTING PARTIES
4. Validity of the new obligation - If the new obligation is Consent: the meeting of the offer and the acceptance upon
void, the original one shall subsist, unless the parties the thing and the cause which are to constitute the
intended that the former relation should be extinguished in contract.
any event. Offer and Acceptance:
Kinds of Novation: a. The offer must be certain
NATURE: b. The acceptance must be absolute.
a. Subjective/ Personal c. A qualified acceptance constitutes a counter-offer.
b. Objective/ Real d. An acceptance may be express or implied.
c. Mixed e. The person making the offer may fix the time, place, and
FORM: manner of acceptance, all of which must be complied with.
a. Express
b. Implied Cognition Theory – follows that the acceptance takes effect
EXTENT: from the time the offeror knew (or has knowledge) of the
a. Total acceptance of the offeree.
b. Partial Manifestation Theory – on the other hand, follows that the
Subjective Novation: changing the subject: acceptance will take effect once it is manifested by the
1. Active (SUBROGATION) offeree.
2. Passive (SUBSTITUTION) Intervening events: An offer becomes ineffective upon the
a. Expromision - without knowledge or consent death, civil interdiction, insanity, or insolvency of either
of the original debtor party before acceptance is conveyed.
b. Delegacion – with consent of the original
debtor. SITUATIONS CONCERNING CONSENT OF THE
PARTIES
Objective or Real Novation a. Both parties gave consent their consent as to the
1. Change in the object essential elements of the contract – the contract is valid.
2. Change in the principal conditions of the obligation, b. Simulation: when one or both the parties did not intend
which may either be: to be bound by the contract (absolute simulation), the same
a. Express – when so expressed in unequivocal terms; is void. Otherwise, if the parties merely conceal their true
b. Implied - the old and the new obligations be on every agreement (relative simulation), they shall be bound by
point incompatible with each other. their real agreement.
c. Incapacity of one of the parties:
GENERAL RULE: extinguished as a consequence of novation. Kinds of Capacity:
EXCEPTION: insofar as pour atrui is concerned and the third i. Juridical capacity - is the fitness to be the subject of legal
person for whose benefit the obligation was constituted did relations, is inherent in every natural person and is lost only
not give his consent. through death. If incapacity pertains to juridical capacity
the contract is void.
ii. Capacity to act (or legal capacity) - is the power to do
LAW ON CONTRACTS acts with legal effect, is acquired and may be lost.
If incapacity pertains to capacity to act or legal capacity, it
ELEMENTS can be:
Absolute Incapacity – the party cannot give consent in any
a. ESSENTIAL - those without which the contract cannot contract, with anyone, in whatever capacity, over
exist, i.e., Consent, object, consideration. In some contracts, anything.
form and delivery is essential too. The following cannot give consent to a contract:
b. NATURAL - those which exist as part of the contract even a. Unemancipated minors
if the parties do not stipulate it because the law is deemed b. Insane or demented persons (except if consent is given
written therein. during lucid interval)
c. ACCIDENTAL - those which are agreed upon by the c. Deaf-mutes who do not know how to write
parties and which cannot exist without being stipulated. d. Drunks or hypnotized.
Those who are “incompetent” under the Rules of Court who
STAGES OF A CONTRACT may be placed under guardianship
Relative Incapacity – a person may be prohibited from Requisites:
entering specific contracts or that in a contract, he may be a. The thing, right or service must be within the commerce
prohibited in a certain capacity. of man;
d. Both are incapacitated: the contract is unenforceable. b. It must be transmissible;
e. Both parties gave their consent, but such consent was c. It must not be contrary to law, morals, good customs,
vitiated: public order or public policy;
Vices of consent: would render the contract voidable. d. It must not be impossible;
a. Mistake e. It must be determinate as to its kind or determinable
The following mistakes will make the contract voidable: without the need of a new contract or agreement.
i. If the mistake pertains to the object of the contract;
ii. If the mistake pertains to the conditions which have CAUSE
principally moved one or both parties to enter into the Cause- the essential or impelling reason why a party
contract. assumes an obligation.
iii. Mistake as to the identity or qualifications of one of the a. Onerous – for each contracting party, the prestation r
parties when such identity or qualifications have been the promise of a thing or service by the other;
principal cause of the contract. b. Gratuitous – mere liberality of the benefactor
iv. Mutual error as to the legal effect of an agreement when c. Remuneratory – service or benefit already rendered.
the real purpose of the parties is frustrated, may vitiate
consent. Rules on Cause:
a. Contracts without cause, or with unlawful cause, produce
Mistake does NOT vitiate consent: no effect whatever
i. Mistake or error as to motive b. The statement of a false cause in contracts shall render
ii. A simple mistake of account – which shall give rise to its them void, if it should not be proved that they were founded
correction only upon another cause which is true and lawful.
iii. If the party alleging it knew the doubt, contingency or c. Although the cause is not stated in the contract, it is
risk affecting the object of the contract. presumed that it exists and is lawful, unless the debtor
proves the contrary.
b. Violence - when in order to wrest consent, serious or d. As a rule, inadequacy of the price will not affect the
irresistible force is employed. contract. Except:
(1) When expressly provided by law, e.g., rescissible
c. Intimidation - when one of the contracting parties is contracts;
compelled by a reasonable and well-grounded fear of an (2) When there has been fraud, mistake or undue influence.
imminent and grave evil upon his person or property, or e. The particular motives of the parties in entering into a
upon the person or property of his spouse, descendants or contract are different from the cause thereof.
ascendants, to give his consent. Exception: if it predominates the purpose of the party to
enter into a contract.
To determine the degree of intimidation, the age, sex and
condition of the person shall be borne in mind. OTHER ESSENTIAL ELEMENTS
A threat to enforce one's claim through competent
authority, if the claim is just or legal, does not vitiate Real Contracts: are those which are perfected by delivery,
consent. thus, delivery is an essential element to its perfection. Real
contracts include:
d. Undue Influence - when a person takes improper 1. Deposit
advantage of his power over the will of another, depriving 2. Pledge
the latter of a reasonable freedom of choice. 3. Commodatum
4. Simple Loan or Mutuum
e. Fraud - when, through insidious words or machinations Formal Contracts: where the execution of the required
of one of the contracting parties, the other is induced to formality is also an essential element for perfection.
enter into a contract which, without them, he would not
have agreed to. In order that fraud may make a contract FORMS OF CONTRACT
voidable, it should be serious and should not have been GENERAL RULE: no form is required for the validity or
employed by both contracting parties. Incidental fraud only perfection of a contract.
obliges the person employing it to pay damages. EXCEPTIONS: Formalities required for VALIDITY:
1. Donations of real property which requires a public
OBJECT CERTAIN WHICH IS THE SUBJECT MATTER instrument.
Object (Subject Matter) of the Contract: is really to create 2. Donations of personal property which exceeds P5,000
or to end obligations, which, in turn, may involve things, which requires that the donation be written.
rights 3. Stipulation to pay interests on loans or for the use of
or services. money, which must be in writing.
4. Sale or transfer of large cattle which requires that it be in If mistake is mutual, either party or his successor can ask for
a public instrument, registered and that there should be a reformation Otherwise, the injured party, his heirs and
certificate of transfer. assigns.
5. Contribution of real property in a partnership, which
requires that there be an inventory attached to a public FUNDAMENTAL CHARACTERISTICS/ PRINCIPLES OF
instrument. CONTRACTS
Formalities required for ENFORCEABILITY (STATUTE OF
1. CONSENSUALITY OF CONTRACTS
FRAUDS)
Perfection of a contract: is generally by the meeting of the
1. An agreement that by its terms is not to be performed
minds or consensual, save for some cases where delivery or
within a year
form is required for its perfection.
2. A special promise to answer for the debt, default, or
Contract entered into by an unauthorized person: is
miscarriage of another
unenforceable since the rule is that no one may contract in
3. An agreement made in consideration of marriage, other
the name of another without being authorized by the latter,
than a mutual promise to marry
such as an agent, or unless he has by law a right to
4. An agreement for the sale of goods, chattels or things in
represent him, such as a guardian.
action, at a price not less than five hundred pesos
CONTRACT OF ADHESION - one where there is already a
5. An agreement of the leasing for a longer period than one
prepared form containing the stipulations desired by one
year, or for the sale of real property or of an interest therein
party whereby the latter only asks the other party to agree
6. A representation as to the credit of a third person.
to them if he wants to enter into a contract.
Formalities required for CONVENIENCE: to bind third
Consent is necessary for there to be a contract
persons, the following are required to appear in a public
instrument: AUTONOMY OF CONTRACTS (FREEDOM OR LIBERTY
1. Acts and contracts which have for their object the
TO CONTRACT)
creation, transmission, modification or extinguishment of
real rights over immovable property; sales of real property The contracting parties may establish such stipulations,
or of an interest therein a governed by the Statute of clauses, terms and conditions as they may deem
Frauds. convenient, provided they are not contrary to law, morals,
2. The cession, repudiation or renunciation of hereditary good customs, public order, or public policy.
rights or of those of the conjugal partnership of gains; a. Waiver for future fraud.
3. The power to administer property, or any other power b. Partnership: Pactum Leonina – a stipulation which
which has for its object an act appearing or which should excludes one or more partners from any share in the profits
appear in a public document, or should prejudice a third or losses
person; c. Mortgage/Pledge: Pactum Commissorium – a stipulation
4. The cession of actions or rights proceeding from an act where the creditor appropriates the things given by way of
appearing in a public document. pledge or mortgage, or dispose of them.
Remedy to require a specific form: if the law requires a d. Mortgage/Pledge: Pactum de non aliendo – a stipulation
document or other special form if the contract is VALID and forbidding the owner from alienating the immovable
ENFORCEABLE, as in the acts and contracts required to mortgaged.
appear in a public instrument for convenience (where the Contrary to Public Policy:
requirement that they must be in writing for validity, if a. Refund of tuition fees during the time a student is
applicable, is met), the contracting parties may compel covered by a scholarship if such student transfers schools.
each other to observe that form, once the contract has been Scholarships are granted not to attract and to keep brilliant
perfected. students in school for their propaganda mine but to reward
merit or help gifted students in whom society has an
REFORMATION OF INSTRUMENTS established interest or a first lien. (Cui vs. Arellano)
b. Prohibiting a losing candidate in a convention to run as
Reformation: is the remedy by means of which a written
an independent candidate is contrary to constitutionality
instrument is made or construed so as to express or
protected right to be elected in public office and the right of
conform to the
the electorate to choose. (Saura vs. Sindico)
true intention of the parties when some error or mistake
Contrary to Morals: in a contract of loan, where the
has been committed.
interest rate is 50%, is void (and reduced) for being contrary
Requisites:
to morals, the same being unconscionable, confiscatory,
1. There is a meeting of the minds;
exorbitant, excessive or inequitable, not because of it is
2. There is a written instrument; and
usurious.
3. The written instrument does not reflect the true intention
of the parties.
Done if there is disparity of either mutual, one
MUTUALITY
party, third party, or equitable mortgage.
a. The contract must bind both contracting parties;
b. its validity or compliance cannot be left to the will of one Accion Directa: is the action of a creditor to sue on a
of them. contract entered into by his debtor, whenever authorized by
Consequences of Mutuality: law.
a. One party cannot revoke or renounce a contract without c. Third persons may be liable under a contract
the consent of the other, nor have it said aside on the Malicious interference by third persons: A third person who
ground that he had made a bad bargain. induces another to violate his contract shall be liable for
b. Potestative suspensive conditions dependent upon the damages to the other contracting party.
sole will of the debtor voids the obligation. If the potestative d. Third persons may be benefited by a contract-
condition is resolutory, it would not affect the validity of the Stipulation pour atrui: is a stipulation in favor of a third
contract, as such, extinguishment can be left to the will of person conferring a clear and deliberate favor upon him,
one of the parties. and which stipulation is merely part of a contract entered
c. The determination of the performance may be left to a into by the parties, neither of whom acted as agent of the
third person: third person.
(1) Whose decision shall not be binding until it has been Communication of acceptance to the obligor is required. No
made known both contracting parties form is required. It can even be implied from the acts of the
(2) The determination shall not be obligatory if it is third person.
evidently inequitable. In such case, the courts shall decide Revocation: cannot be done by one party alone. The
what is equitable under the circumstances. Supreme Court has held that if this revocation is a unilateral
act of one of the parties, it is void for violation of the
ESCALATION CLAUSE: where one increases/decreases principle of mutuality of contracts. For a revocation to take
compensation of one of the parties. effect, it must be with consent of both parties (obligor and
When Void: when the increase is dependent solely upon the oblige) and should be done before the communication of
will of one of the parties. acceptance to the obligor.
When Valid: when the increase/decrease is dependent on
valid and reasonable standards, independent of the parties’ CLASSIFICATION OF CONTRACTS
will. 1. ACCORDING TO DEGREE OF DEPENDENCE
Contract for a piece of work: where the compensation of a. PRINCIPAL – a contract which can stand on its own, such
the contractor may be increased on the basis of minimum as a contract of sale, barter, lease, loan.
wage or as to materials, based on the consumer price index. b. ACCESSORY – those which cannot stand on its own and
Contract of Lease: where the rental would be increased or are dependent upon other contracts for its validity. E.g.,
decreased based on the movement (increase or guaranty, suretyship, mortgage and antichresis.
devaluation) of foreign exchange – valid. c. PREPARATORY – a contract is a means to achieving an
end, such as an option contract, a contract of partnership
OBLIGATORY FORCE OF CONTRACTS
and that of agency.
Art. 1159. Obligations arising from contracts have the force 2. ACCORDING TO PERFECTION
of law between the contracting parties and should be a. CONSENSUAL – are those perfected by mere consent.
complied with in good faith. b. REAL – those which are perfected only upon delivery of
the thing subject of the contract. E.g., deposit, pledge,
RELATIVITY OF CONTRACTS commodatum and mutuum.
RELATIVITY (OR PRIVITY) OF CONTRACTS: means that the c. FORMAL – those which require a certain form for its
contract takes effect only between the parties, their assigns validity. E.g., antichresis
and heirs which are referred to as privies. 3. ACCORDING TO PURPOSE
Third Parties: as a general rule do not have a cause of a. TRANSFER OF OWNERSHIP – Donation, Sale and Barter
action to enforce or annul a contract nor are they bound by b. CONVEYANCE OF USE – Usufruct, Lease and Loan
the terms thereof. c. RENDITION OF SERVICE – Lease and Agency
4. ACCORDING TO NATURE OF OBLIGATION PRODUCED
EXCEPTIONS: a. BILATERAL – where both parties are reciprocally
a. Third person may be bound by the contract: In contracts obligated, e.g., lease (where the lessor is obliged to allow
creating real rights, third persons who come into possession the use of the thing and the lessee is obliged to pay rent)
of the object of the contract are bound thereby, subject to and sale (where the buyer is obliged to pay the price and
the provisions of the Mortgage Law and the Land the seller obliged to deliver the thing) (ARTS. 1642, 1458)
Registration Laws b. UNILATERAL – only one party is obliged. E.g., guaranty
b. A creditor may initiate an action against the contracting and pledge. (ARTS. 2047, 2093)
parties. Creditors are protected in cases of contracts 5. ACCORDING TO CAUSE
intended to defraud them. a. ONEROUS – such as a contract of sale, barter, lease and
Accion Pauliana: is the action of the creditor to rescind the simple loans or mutuum with stipulation for interest.
contract entered into by the debtor to defraud him. b. GRATUITOUS OR LUCRATIVE – such as a donation and
commodatum.
c. REMUNERATORY – where one prestation is given for a When it is absolutely impossible to settle doubts by the
benefit or service that had been rendered previously. rules established in the preceding articles, and the doubts
6. ACCORDING TO RISK refer to incidental circumstances of:
a. COMMUTATIVE – where the parties contemplate real 1. a gratuitous contract - the least transmission of rights
fulfillment, therefore, equivalent values (presumably) are and interests shall prevail.
given, such as sales (where the price is presumably the 2. If the contract is onerous, the doubt shall be settled in
equivalent of the thing to be delivered) or lease (where the favor of the greatest reciprocity of interests.
rental payments is presumably the value of the use of the
thing) DEFECTIVE CONTRACTS
b. ALEATORY – where the fulfillment of the cause as to one 1. RESCISSIBLE CONTRACTS
party is dependent upon chance, such as an insurance Rescission: is a process designated to render inefficacious a
contract (where the payment will depend on the happening contract validly entered into and normally binding, by
of the event insured against) reason of external conditions, causing an economic
7. ACCORDING TO NAME prejudice to a party or his creditors.
a. NOMINATE – those contracts for which a particular name Resolution: is the proper term for “rescission” which is a
has been designated and rules particular to them are remedy under Art. 1911 in reciprocal obligations. Unlike the
applicable such as sales, commodatum, partnership, proper rescission for rescissible contracts, resolution is a
agency, deposit, etc. primary remedy which can be availed of by the parties and
b. INNOMINATE – those which do not have particular does not require lesion as a ground therefor but will require
designation, such as do ut des (I will give that you may non-performance or non-fulfillment of the obligation or
give), do ut facias (I will give that may do), facio ut des (I when there is substantial breach.
will do that you may give) and facio ut facias (I will do that Kinds Rescissible Contracts:
you may do). (1) Those which are entered into by guardians whenever the
8. ACCORDING TO SUBJECT MATTER wards whom they represent suffer lesion by more than
a. THING one-fourth of the value of the things which are the object
b. RIGHT thereof;
c. SERVICE (2) Those agreed upon in representation of absentees, if the
latter suffer the lesion stated in the preceding number;
INTERPRETATION OF CONTRACTS (3) Those undertaken in fraud of creditors when the latter
Primordial Consideration: is the intention of the parties. cannot in any other manner collect the claims due them;
Such that even if the terms of the contract are clear, but (4) Those which refer to things under litigation if they have
does not reflect the intention of the parties, it is the been entered into by the defendant without the knowledge
intention which would prevail. and approval of the litigants or of competent judicial
Contemporaneous and Subsequent Acts: may be authority;
considered to determine if the parties’ intentions are (5) All other contracts specially declared by law to be
different from the clear words of the agreement. subject to rescission.
Specific rules in interpretation of contracts: Lesion – is the damage or injury to the party asking for
1. However general the terms of a contract may be, they rescission, which represents the difference between the
shall not be understood to comprehend things that are price and the actual value of the property. Lesion, as a
distinct and cases that are different from those upon which ground for rescission must be MORE THAN ONE-FOURHT of
the parties intended to agree. the value.
2. If some stipulation of any contract should admit of In fraud of creditors: which is properly termed “accion
several meanings, it shall be understood as bearing that pauliana,” through which the creditor can interfere and
import which is most adequate to render it effectual. have the contract entered into by the debtor rescinded.
3. The various stipulations of a contract shall be interpreted Things under litigation: is rescissible whenever entered into
together, attributing to the doubtful ones that sense which without the knowledge and approval of:
may result from all of them taken jointly. a. The litigants; or
4. Words which may have different significations shall be b. Competent judicial authority (such as the court under
understood in that which is most in keeping with the nature which the thing is subject to litigation).
and object of the contract. Other contract subject to rescission under the law:
5. The usage or custom of the place shall be borne in mind a. Rights of an unpaid seller;
in the interpretation of the ambiguities of a contract, and b. In obligations to deliver a specific thing, where the same
shall fill the omission of stipulations which are ordinarily deteriorates with the fault of the debtor before the
established. suspensive condition is fulfilled (or suspensive term arrives);
6. The interpretation of obscure words or stipulations in a c. Lesion of at least one-fourth in partition.
contract shall not favor the party who caused the obscurity d. In sale of real estate for a certain price per unit of
measure and the real estate delivered is deficient by more
When none of the above rules will apply: than 1/10 or when the buyer would not have entered into
the contract knowing the actual area of the real estate.
e. Payments made in a state of insolvency for obligations b. It does not require the conformity of the contract party
whose fulfillment the debtor could not be compelled at the who has no right to bring the action for annulment.
time they were effected. c. It cleanses the contract from all the defects from the
Rescission as a remedy: moment it was constituted.
a. The action for rescission is subsidiary; it cannot be d. It may be done:
instituted except when the party suffering damage has no i. Expressly – either oral or written; or
other legal means to obtain reparation for the same ii. Tacitly (impliedly) – when the reason which renders the
b. Rescission shall be only to the extent necessary to cover contract voidable has ceased, the person who has a right
the damages caused to invoke annulment should execute an act which
c. Restitution - rescission creates the obligation to return necessarily implies an intention to waive such right.
the things which were the object of the contract, together Annulment: renders the contract non-existing, as if it was
with their fruits, and the price with its interest. never entered into.
d. It can be carried out only when he who demands a. Only the injured party (the victim, whether principal or
rescission can return whatever he may be obliged to restore subsidiary party) may ask for annulment.
e. Rescission shall not take place when the things which are b. Creditors of the injured party cannot ask for the
the object of the contract are legally in the possession of annulment of the contract for they are not parties thereto.
third persons who did not act in bad faith. In which case, c. In case of minority, and the minor misrepresents his age,
indemnity for damages may be demanded from the person and the other party was led to believe the same, there can
causing the loss. be no annulment, for here, the minor would be estopped.
f. If the sale of the property of the guardian or the absentee d. Those who are capacitated cannot allege the incapacity
is approved by courts, rescission is not an available remedy. of those with whom they contracted with nor those who
Presumption of Fraud: exerted intimidation, violence or undue influence, or
a. Alienations by gratuitous title: presumed to have been employed fraud, or caused mistake.
entered into in fraud of creditors, when the donor did not e. Effects of loss of the thing:
reserve sufficient property to pay all debts contracted i. The action for annulment of contracts shall be
before the donation. extinguished when the thing which is the object thereof is
b. Alienations by onerous title: presumed fraudulent when lost through the fraud or fault of the person who has a right
made by persons against whom some judgment has been to institute the proceedings.
issued. The decision or attachment need not refer to the ii. If the right of action is based upon incapacity, the loss of
property alienated, and need not have been obtained by the the thing shall not be an obstacle to the success of the
party seeking the rescission. action, unless said loss took place through the fraud or fault
Prescriptive Period: the action to claim rescission must be of the incapacitated person.
commenced within 4 years. For persons under guardianship f. Effects of annulment:
and for absentees, such four year period shall begin upon i. Generally, the parties are obliged to restore to each other
termination of the ward’s incapacity or when the absentee’s the things which have been the subject matter of the
domicile is known. contract, with their fruits and the price with its interest.
ii. In obligations to render service, the value thereof shall be
VOIDABLE CONTRACTS the basis for damages.
Voidable Contracts: are those which are valid until they iii. In case of incapacity, the person incapacitated is not
have been annulled by proper action in court. However, obligated to make any restitution except insofar as he has
they are likewise subject to ratification to cure the defect. been benefited by the thing or price received by him.
The following are voidable contracts: iv. Whenever the person who is obliged to return the thing
a. Those where one of the parties is incapable of giving cannot do so because it has been lost through his fault, he
consent; shall return:
b. Those where the consent is vitiated by mistake, violence, 1) the fruits received and
intimidation, undue influence or fraud. 2) the value of the thing at the time of loss
c. Those entered into by those hypnotized or under a state 3) with interest from the same date.
of drunkenness v. When one party does not return what is due him by virtue
Prescriptive Period: shall be four years. of the annulment, he cannot compel the other to comply
what is incumbent upon him.
Ground Counted from
Intimidation, violence or The defect of the consent
UNENFORCEABLE CONTRACTS
undue influence ceases
Mistake or fraud Discovery Unenforceable contracts – are those which have no effect
Minority or incapacity Guardianship ceases until they are ratified.
Ratification: extinguishes the action to annul a voidable Kinds of Unenforceable Contracts:
contract. a. Unauthorized contracts – those entered into in the name
a. Ratification may be effected by the guardian of the of a person by one who has been given no authority or
incapacitated person legal representation, or who has acted beyond his powers.ill
b. Those that do not comply with the Statute of Frauds – (6) Those where the intention of the parties relative to the
these are agreements that are required to be in writing in principal object of the contract cannot be ascertained;
order to avoid fraud. (7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to
Statute of Frauds: in order to be enforceable, the following set up the defense of illegality be waived.
must be in writing, or in some note or memorandum: Rules Applicable:
i. An agreement that by its terms is not to be performed a. The action or defense for the declaration of the contract
within a year from the making thereof. as inexistent does not prescribe.
ii. A special promise to answer for the debt, default, or b. The contract cannot be ratified.
miscarriage of another; c. The defense of illegality of contract is not available to
iii. An agreement made in consideration of marriage, other third persons whose interests are not directly affected
than a mutual promise to marry;
iv. An agreement for the sale of goods, chattels or things in GENERAL RULE: It cannot give rise to valid subsequent
action, at a price not less than five hundred pesos, unless contracts if the same are based on it. Generally, produces
the buyer accept and receive part of such goods and no effect and no action to declare them void is needed.
chattels, or the evidences, or some of them, of such things EXCEPTIONS:
in action or pay at the time some part of the purchase a. When money is paid or property delivered for an illegal
money; but when a sale is made by auction and entry is purpose, the contract may be repudiated by one of the
made by the auctioneer in his sales book, at the time of the parties before the purpose has been accomplished, or
sale, of the amount and kind of property sold, terms before any damage has been caused to a third person. In
of sale, price, names of the purchasers and person on whose such case, the courts may, if the public interest will thus be
account the sale is made, it is a sufficient subserved, allow the party repudiating the contract to
memorandum; recover the money or property.
v. An agreement of the leasing for a longer period than one b. Where one of the parties to an illegal contract is
year, or for the sale of real property or of an interest incapable of giving consent, the courts may, if the interest
therein. of justice so demands allow recovery of money or property
vi. A representation as to the credit of a third person. delivered by the incapacitated person.
Rules Applicable to Statute of Frauds: c. When the agreement is not illegal per se but is merely
a. It applies only to executory contracts, and not those prohibited, and the prohibition by the law is designated for
which have been partially or completely executed. the protection of the plaintiff, he may, if public policy is
b. The list is exclusive, that is, it applies only to the thereby enhanced, recover what he has paid or delivered.
agreements or contracts enumerated above. d. In case of a divisible contract, if the illegal terms can be
c. The defense of Statute of Frauds may be waived. separated from the legal ones, the latter may be enforced.
d. The Statute of Frauds is a personal defense, that is, an Illegal Contracts: can either be that which involves a
agreement infringing it cannot be assailed by third persons. criminal offense or where there is no criminal offense.
e. If oral evidence is presented to prove the agreement, and
the other does not object thereto, there is deemed a
waiver of the defense of Statute of Frauds. The same is true LAW ON INSURANCE
if the other party has already accepted the benefits
of the contract. A contract of insurance is an agreement whereby one who
undertakes, for a consideration, to indemnify another
c. Those where both parties are incapable of giving against loss, damage, or liability arising from an unknown
consent. or contingent event.

Parties to a contract of Insurance

VOID OR INEXISTENT 1. Insured- the person whose loss is the occasion for the
Void Contracts are those which are either inexistent (as payment of the insurance proceeds by the insurer. He must
when the required formalities are not complied with for its have the capacity to enter into a contract and he must not
perfection, which produces no legal effects), or illegal or be a public enemy.
illicit. 2. Insurer – the person who assumes the risk of loss and
Art. 1409. The following contracts are inexistent and void undertakes for a consideration to indemnify the insured
from the beginning: upon the happening of the designated peril. Any person
(1) Those whose cause, object or purpose is contrary to law, may be an insurer provided he obtains a certificate of
morals, good customs, public order or public policy; authority to transact insurance business from the Insurance
(2) Those which are absolutely simulated or fictitious; Commission.
(3) Those whose cause or object did not exist at the time of 3. Assured – the insured is also the assured when the
the transaction; proceeds are payable to him.
(4) Those whose object is outside the commerce of men; 4. Beneficiary – the third person designated by the insured
(5) Those which contemplate an impossible service; to receive the proceeds
 Characteristics and nature of insurance contracts Insurable interest- It is that interest which the law requires
the owner of an insurance policy to have in the person or
1. Uberrimae Fides Contract
thing insured. A person is deemed to have an insurable
The contract of insurance is one of perfect good faith, not
interest in the subject matter insured where he has a
for the insured alone, but equally so for the insurer. In fact,
relation or connection with or concern in it that he will
it is more so for the latter since the insurer’s dominant
derive pecuniary benefit or advantage from its preservation
bargaining position carries with it stricter responsibility.
and will suffer pecuniary loss or damage from its
2. Contract of Indemnity
destruction, termination, or injury by the happening of the
The insured is entitled to recover only the amount of total
event insured against.
loss sustained, and the burden is upon him to prove the
Perfection of the contract of insurance- As a consensual
amount of such loss.
contract, the contract of insurance is perfected from the
3. Risk Distributing Device
moment there is a meeting of the minds with respect to the
The risk of economic loss is distributed among a large group
object and the cause or consideration. Under the Cognition
of people bearing the same risk.
Theory, an insurance contract is perfected only when the
4. Aleatory
applicant-insured has knowledge of the acceptance and
The obligation of the insurer to pay the proceeds of the
approval by the insurer of his application.
insurance arises only upon the happening of an event which
Premium- It is a consideration paid to an insurer for
is uncertain. It does not depend upon some contingent
undertaking to indemnify the insured against a specified
event.
peril. As a rule, no policy or contract of insurance is valid
5. Contract of Adhesion
and binding unless and until the premium thereof has been
An insurance contract is a ready-made form of contract,
paid. This is the “cash and carry rule” under the Insurance
which the other party may accept or reject, but which the
Code. The payment of the premium is imperative for
latter cannot modify.
the validity of the policy.
6. Personal
Rescission/Cancellation of insurance contracts
The law presumes that the insurer considered the personal
The following are grounds for the cancellation of a non-
qualification of the insured in approving the insurance
life policy insurance:
application. The insured cannot assign, before the
1. Non-payment of premium
happening of the loss, his rights under a property policy
2. Fraud or material misrepresentation
without the consent of the insurer.
3. Physical changes in the property insured which result in
7. Voluntary
the property becoming uninsurable
A contract of insurance is not compulsory, and the parties
4. Conviction of a crime arising out of acts increasing the
may incorporate such terms and conditions as they may
hazard insured against
deem convenient. This is allowed provided that they do not
5. Willful or reckless acts or omissions increasing the risk
contravene any provision of law and are not against public
insured against.
policy.
6. Determination by the Insurance Commissioner that the
8. Synallagmatic
policy would violate the Insurance Code.
Both the insured and insurer have reciprocal obligations of
The following are the requisites for a valid cancellation of
equal value to each other.
an insurance policy:
1. Prior notice of cancellation, in writing, is given to the
Classes/Types of Insurance
insured.
1. Life insurance contracts 2. Notice must be based on any of the grounds mentioned
a. Individual life in Sec. 64 of the Insurance Code
b. Group life 3. Upon request of the insured, the insurer must furnish
c. Industrial life facts on which cancellation is based.
2. Non-life insurance contracts Claims settlement and subrogation- In life insurance, the
a. Marine proceeds shall be paid immediately upon the maturity of
b. Fire the policy if there is such a maturity date. If the policy
c. Casualty matures by the death of the insured, the proceeds shall be
3. Contracts of suretyship paid within 60 days from filing of the claim and upon the
proof of the death of the insured.
Variable contracts- any policy or contract on either a group
or on an individual basis issued by an insurance company In property insurance, the proceeds must be paid within 30
providing for benefits or other contractual payments or days after proof of loss is received by the insurer and
values thereunder to vary so as to reflect investment results ascertainment of the loss or damage is made. If no such
of any segregated portfolio of investments or of a ascertainment is made within 60 days after receipt by the
designated separate account in which amounts received in insurer of the proof of loss, the proceeds shall be paid
connection with such contracts shall have been placed and within 90 days from such receipt.
accounted for separately and apart from other investments
and accounts. Subrogation is the substitution of one person in the place of
another with reference to a lawful claim or right, so that he
who is substituted succeeds to the rights of the other in these contracts are performed strictly according to
relation to a debt or claim, including itsremedies or specifications.
securities. This right attaches upon payment by the insurer
of the insurance claims of the assured.As subrogee, the SCOPE AND APPLICATION:
insurer steps into the shoes of the assured and may exercise
only those rights that assured may have against the 1. Procurement of Infrastructure Projects
wrongdoer who caused the damage. Payment by the 2. Goods and Consulting Services
insurer to the assured operates as an equitable assignment
of all remedies the assured my have against the third party PREPARATION OF BIDDING DOCUMENTS
who caused the damage. FORM AND CONTENTS OF BIDDING
Prescriptive period- Actions arising from insurance DOCUMENTS: The Bidding Documents shall be
contracts prescribe in 10 years. However, the parties may
prepared by the Procuring Entity following the
validly stipulate on a shorter period provided it is not less
standard forms and manuals prescribed by the GPPB.
than one year from the time the cause of action accrues.
The prescriptive period commences from the final rejection The Bidding Documents shall include the following:
of the claim. a) Approved Budget for the Contract;
b) Instructions to Bidders, including criteria for
eligibility, bid evaluation and post-qualification, as
GOVERNMENT PROCUREMENT LAW well as the date, time and place of the pre-bid
Conference (where applicable), submission of bids and
DECLARATION OF POLICY: It is the declared policy
opening of bids;
of the State to promote the ideals of good governance
c) Terms of Reference;
in all its branches, departments, agencies,
d) Eligibility Requirements;
subdivisions, and instrumentalities, including
e) Plans and Technical Specifications;
government-owned and/or -controlled corporations
f) Form of Bid, Price Form, and List of Goods or Bill of
and local government units.
Quantities;
GOVERNING PRINCIPLES: All procurement of the
g) Delivery Time or Completion Schedule;
national government, its departments, bureaus,
h) Form and Amount of Bid Security;
offices and agencies, including state universities and
i) Form and Amount of Performance Security and
colleges, government -owned and/or-controlled
Warranty; and,
corporations, government financial institutions and
j) Form of Contract, and General and special
local government units, shall, in all cases, be governed
Conditions of Contract.
by these principles:
a) Transparency in the procurement process and
Specifications for the Procurement of Goods shall be
in the implementation of procurement contracts.
based on relevant characteristics and/or performance
b) Competitiveness by extending equal
requirements. Reference to brand names shall not be
opportunity to enable private contracting parties who
allowed.
are eligible and qualified to participate in public
bidding.
Procuring entity shall ensure equal access to
c) Streamlined procurement process that will
information. Prior to their official release, no aspect of
uniformly apply to all government procurement. The
the Bidding Documents shall be divulged or released
procurement process shall simple and made adaptable
on any prospective bidder or having direct or indirect
to advances in modern technology in order to ensure
interest in the project to be procured.
an effective and efficient method.
d) System of accountability where both the public INVITATION TO BID
officials directly or indirectly involved in the
procurement process as well as in the implementation PRE-PROCUREMENT CONFERENCE: Prior to the
of procurement contracts and the private parties that issuance of the Invitation to Bid, the BAC is mandated
deal with government are, when warranted by to hold a pre-procurement conference on each and
circumstances, investigated and held liable for their every procurement, except those contracts below a
actions relative thereto. certain level or amount specified in the IRR, in which
e) Public monitoring of the procurement process case, the holding of the same is optional.
and the implementation of awarded contracts with The pre-procurement conference shall assess the
the end in view of guaranteeing that these contracts readiness of the procurement in terms of confirming
are awarded pursuant to the provisions of this Act and the certification of availability of funds, as well as
its implementing rules and regulations, and that all reviewing all relevant documents and the draft
Invitation to Bid, as well as consultants hired by the
agency concerned and the representative of the end - provide for fair and equal access to all prospective
user. bidders. The prospective bidder shall certify under
oath as to the correctness of the statements made,
ADVERTISING AND CONTENTS OF THE INVITATION and the completeness and authenticity of the
TO BID documents submitted.
ALL invitation to bid contracts under competitive
SUBMISSION AND RECEIPT OF BIDS
bidding shall be advertised by the Procuring Entity.
such as posting in Procuring entity's premises: COMPONENTS
1) In newspapers of general circulation 1. The technical components; and
2)PHILGEPS 2. The financial components
3)website of the Procuring Entity Subject to the following rules:
1. The bids’ components should be in separate
Contents: The Invitation to Bid shall contain, among others: sealed envelopes, and which shall be submitted
a) A brief description of the subject matter of the simultaneously.
Procurement; 2. The bids shall be received by the BAC on such
b) A general statement on the criteria to be used by the date, time and place specified in the invitation to bid.
Procuring entity for the eligibility check, the short listing
3. The deadline for the receipt of bids shall be
of prospective bidders, in the case of the Procurement of
Consulting Services the examination and evaluation fixed by the BAC, giving the prospective bidders
of Bids, and post-qualification; sufficient time to study and prepare their bids.
c) The date, time and place of the deadlines for the
submission and receipt of the eligibility requirements, the MODIFICATION OF BIDS: A bidder may modify his bid,
pre-bid conference if any, the submission and receipt of provided that this is done before the deadline for the
bids, and the opening of bids; receipt of bids. The modification shall be submitted in
d) The Approved Budget for the Contract to be bid; a sealed envelope duly identified as a modification of
e) The source of funds; the original bid and stamped received by the BAC.
f) The period of availability of the Bidding Documents, and
the place where these may be secured and;
WITHDRAWAL OF BIDS: A bidder may, through a
g) The contract duration; and
h) Such other necessary information deemed relevant by letter, withdraw his bid or express his intention not to
the Procuring Entity. participate in the bidding before the deadline for the
receipt of bids. In such case, he shall no longer be
Pre-bid Conference: At least one pre-bid conference allowed to submit another Bid or the same contract
shall be conducted for each procurement, unless either directly or indirectly.
otherwise provided in the IRR. Subject to the approval BID SECURITY: All Bids shall be accompanied by a Bid
of the BAC, a pre-bid conference may also be security, which shall serve as guarantee that, after
conducted upon the written request of any prospective receipt of the Notice of Award, the winning bidders
bidder. shall enter into contract with the Procuring Entity
within the stipulated time and furnish the required
RECEIPT AND OPENING OF BIDS performance security.
ELIGIBILITY REQUIREMENTS FOR THE PROCUREMENT
BID VALIDITY: Bids and Bid securities shall be valid for
OF GOODS AND INFRASTRUCTURE PROJECTS: The
such reasonable period of time indicated in the
BAC or, under special circumstances specified in IRR,
Bidding Documents. The duration for each
its duly designated organic office shall determine the
undertaking shall take into account the time involved
eligibility of prospective bidders for the procurement
in the process of Bid evaluation and award of
of Goods and Infrastructure Projects, based on the
contract.
bidders' compliance with the eligibility requirements
BID OPENING: the BAC shall publicly open all bids at
within the period set forth in the Invitation to Bid.
the time, date, and place specified in the bidding
documents. The minutes of the bid opening shall be
ELIGIBILITY REQUIREMENTS AND SHORT LISTING FOR
made available to the public upon written request and
CONSULTING SERVICES: The Eligibility of prospective
payment of a specified fee.
bidders for the Procurement of Consulting Services
shall be determined by their compliance with the
eligibility requirements prescribed for the competitive BID EVALUATION
Bidding concerned, within the period stated in the
Invitation to bid. The eligibility requirements shall
PRELIMINARY EXAMINATION OF BIDS: Prior to Bid 2. the "Highest Rated Responsive Bid," in the case of
evaluation, the BAC shall examine first the technical Consulting Services.
components of the bids using "pass/fail" criteria to If the bidder with the second Lowest Calculated
determine whether all required documents are Bid or Highest Rated Bid is post-disqualified, the same
present. procedure shall be repeated until the Lowest
CEILING FOR BID PRICES: The ABC shall be the upper Calculated Responsive Bid or Highest Rated
limit or ceiling for the Bid prices. Bid prices that exceed Responsive Bid is finally determined.
this ceiling shall be disqualified outright from further FAILURE OF BIDDING: there shall be a failure of
participating in the bidding. There shall be no lower bidding if:
limit to the amount of the award. a. No bids are received;
BID FOR THE PROCUREMENT OF GOODS AND b. No bid qualifies as the Lowest Calculated
INFRASTRUCTURE PROJECTS: For the procurement of Responsive Bid; or,
Goods and Infrastructure Projects, the BAC shall c. Whenever the bidder with the highest
evaluate the financial component of the bids. The bids rated/lowest calculated responsive bid refuses,
that passed the preliminary examination shall be without justifiable cause to accept the award of
ranked from lowest to highest in terms of their contract, as the case may be.
corresponding calculated price shall be referred to as Under any of the above instances, the contract
the "Lowest Calculated Bid". shall be re-advertised and re-bid. The BAC shall
BID EVALUATION OF SHORT-LISTED BIDDERS FOR observe the same process and set the new periods
CONSULTING SERVICES: For the Procurement of according to the same rules followed during the first
Consulting Services, the Bids of the short-listed bidders bidding. After the second failed bidding, however, the
shall be evaluated and ranked using numerical ratings BAC may resort to negotiated procurement, as
in accordance with the evaluation criteria stated in the provided below.
Bidding Documents, which shall include factors such SINGLE CALCULATE/RATED AND RESPONSIVE BID
as, but not limited to: SUBMISSION: A single calculated/rated and
1. Experience responsive bid shall be considered for award if it falls
2. Performance under of the following circumstances:
3. Quality or Personnel a. If after advertisement, only one prospective
4. Price and bidder submits a Letter of Intent and/or applies for
5. Methodology eligibility check, and meets the eligibility requirements
When negotiations with first-in-rank bidder fails, or criteria, after which it submits a bid, which is found
the financial proposal of the second rank bidder shall to be responsive to the bidding requirements;
opened for negotiations: Provided, that the amount b. If after the advertisement, more than one
indicated in the financial envelope shall be made as prospective bidder applies for eligibility check, but only
the basis for negotiations and the total contract one bidder meets the eligibility requirements or
amount shall not exceed the amount indicated in the criteria, after which in submits a bid which is found to
envelope and the ABC. Whenever necessary, the same be responsive to the bidding requirements; or
process shall be repeated until the bid awarded to the c. If after the eligibility check, more than one
winning bidder. bidder meets the eligibility requirements, but only one
bidder submits a bid, and its bid is found to be
POST-QUALIFICATION responsive to the bidding requirements.
OBJECTIVE AND PROCESS OF POST-QUALIFICATION: In all instances, the Procuring Entity shall ensure
Post-qualification is the stage where the bidder with that the ABC reflects the most advantageous
the Lowest Calculated Bid, in the case of Goods and prevailing price for the government.
Infrastructure Projects, or the Highest Rated Bid, in
AWARD, IMPLEMENTATION AND TERMINATION OF
the case of Consulting Services, undergoes verification
THE CONTRACT
and validation whether he has passed all the
requirements and conditions as specified in the NOTICE AND EXECUTION OF AWARD: Within a period
Bidding Documents. not exceeding fifteen (15) calendar days from the
If the bidder with the Lowest Calculated Bid or Highest determination and declaration by the BAC of the
Rated Bid passes all the criteria for post-qualification, Lowest Calculated Responsive Bid or Highest Rated
his Bid shall be considered: Responsive Bid, and the recommendation of the
1. The "Lowest Calculated Responsive Bid,” in the case award, the Head of the Procuring Entity or his duly
of Goods and Infrastructure or
authorized representative shall approve or disapprove SPLITTING OF GOVERNMENT CONTRACTS: Splitting of
the said recommendation. Government Contracts is not allowed. Splitting of
Notice of Award: In case of approval, the Head of the Government Contracts means the division or breaking
Procuring Entity or his duly authorized representative up of government of the Philippine contracts into
shall immediately issue the Notice of Award to the smaller quantities and amounts, or dividing contract
bidder with the Lowest Calculated Responsive Bid or implementation into artificial phases or sub-contracts
Highest Rated Responsive Bid. Entering into the for the purpose of evading or circumventing the
contract: requirements of law and its IRR, particularly the
1. Within ten (10) calendar days from receipt necessity of competitive bidding and the requirements
2. maximum of twenty (20) calendar days to for the alternative methods of procurement.
approve or disapprove it. Infrastructure Projects: for Infrastructure Projects to
3. In the case of government-owned and/or - be implemented by phases, the Procuring Entity shall
controlled corporations, the concerned board shall ensure that there is a clear delineation of work for
take action on the said recommendation within thirty each phase, which must be usable and structurally
(30) calendar days from receipt thereof. sound.
Notice to Proceed: The Procuring Entity shall issue the GROUNDS FOR TERMINATION
Notice to Proceed to the winning bidder not later than
seven (7) calendar days from the date of approval of A. Termination for Default
the contract by the appropriate authority. All notices 1. In contracts for Goods:
called for by the terms of the contract shall be a. when outside of force majeure the supplier fails
effective only at the time of receipt thereof by the to deliver/perform any or all of the Goods w/n
contractor. specified period, and such amounts to at least 10% of
PERIOD OF ACTION ON PROCUREMENT ACTIVITIES: the contract price
The procurement process from the opening of bids up b. as a result of force majeure, the supplier is
to the award of contract shall not exceed three (3) unable to deliver/perform Goods of at least 10% of the
months, or a shorter period to be determined by the contracts price for a period of not LESS than 60
procuring entity concerned. The different procurement calendar days after receipt thereof
activities shall be completed within reasonable periods c. when supplier fails to perform any other
to be specified in the IRR. obligation under the contract.
PERFORMING SECURITY: Prior to the signing of the 2. In contracts for Infrastructure Projects:
contract, the winning bidder shall, as a measure of a) contractor incurred 15% negative slippage
guarantee for the faithful performance of an while the project tis on-going
compliance with his obligations under the contract b) contractor incurred 10% or more
prepared in accordance with the Bidding Documents, negative slippage after the contract time has
be required to post a performance security in such expired
form and amount as specified in the Bidding c)The contractor
Documents. 1) Abandons contract works, fails to comply, fails
RESERVATION CLAUSE: The Head of the Agency To proceed despite written notice by the procuring
reserves the right to entity
(1) reject any and all Bids 2) Does NOT have minimum essential
(2) declare a failure of bidding requirements
(3) not award the contract in the following situations: 3) Does NOT execute the Works in accordance
a. If there is prima facie evidence of collusion with the contract neglects o refuses to remove
b. If the BAC is found to have failed in following materials or to perform a new work that has been
the prescribed bidding procedures; or rejected as defective or unsuitable
c. For any justifiable and reasonable ground where 4) Sub-lets any part of the contract works w/o
the award of the contract will not redound to the approval by the Procuring entity
benefit of the government as defined in the IRR. 3) Consulting Services:
CONTRACT IMPLEMENTATION AND TERMINATION: a) Outside of force majeure, the consultant fails to
The rules and guidelines for the implementation and deliver/perform the Outputs and Deliverables w/n the
termination of contracts awarded pursuant to the specified period In the contract
provisions of this Act shall be prescribed in the IRR. b) As a result of force majeure, the consultant is
The rules and guidelines shall include standard general unable to deliver or perform a material portion of NOT
and special conditions for contracts. less than 60 calendar days after the receipt Thereof
c)The consultant fails to perform any obligation under b. The prosecution of the work is disrupted by the
the contract adverse peace and order situation, as certified by the
Armed Forces of the Philippines Provincial
B. Termination for Convenience: Commander and approved by the Secretary of
the Procuring Entity may terminate the Contract, in National Defense.
whole or in part, at any time for its convenience. The 2. In contracts for Consulting Services: the
Head of the Procuring Entity may terminate a contract Consultant may terminate its agreement with the
for the convenience of the Government if he has Procuring Entity if the latter is in material breach of its
determined the existence of conditions that make obligations pursuant to the contract and has not
Project Implementation economically, financially or remedied the same within sixty (60) calendar days
technically impractical and/or unnecessary, such as, following its receipt of the Consultant’s notice
but not limited to, fortuitous event(s) or changes in specifying such breach.
law and national government policies. DISCLOSURE OF RELATIONS: all bidding
documents shall be accompanied by a sworn affidavit
C. Termination for Insolvency: of the bidder that he or she or any officer of their
The Procuring Entity shall terminate the contract if the corporation in not related to the Head of the Procuring
Supplier/Contractor/Consultant is declared bankrupt Entity by consanguinity or affinity up to the third civil
or insolvent as determined with finality by a court of degree. Failure to comply with the aforementioned
competent jurisdiction. In this event, termination will provision shall be a ground for the automatic
be without compensation to the disqualification of the bid.
Supplier/Contractor/Consultant, provided that such
termination will not prejudice or affect any right of
action or remedy which has accrued or will accrue ALTERNATIVE METHODS: Subject to the prior
thereafter to the Procuring Entity and/or the approval of the Head of the Procuring Entity or his
Supplier/Contractor/Consultant. duly authorized representative, and whenever justified
by the conditions provided in this Act, the Procuring
D. Termination for Unlawful Acts: Entity may, in order to promote economy and
efficiency, resort to any of the following alternative
the Procuring Entity may terminate the contract in
methods of Procurement:
case it is determined prima facie that the
Supplier/Contractor/Consultant has engaged, before
A. LIMITED SOURCE BIDDING, otherwise known
or during the implementation of the contract, in
as SELECTIVE BIDDING A method of Procurement that
unlawful deeds and behaviors relative to contract
involves direct invitation to bid by the Procuring Entity
acquisition and implementation. Unlawful acts
from a set of pre- selected suppliers or consultants
include, but are not limited to, the following:
with known experience and proven capability relative
a. Corrupt, fraudulent, collusive and coercive
to the requirements of a particular contract. Limited
practices;
Source Bidding may be resorted to only in any of the
b. Drawing up or using forged documents;
following conditions:
c. Using adulterated materials, means or methods, or
a. Procurement of highly specialized types of
engaging in production contrary to rules of science or
Goods and Consulting Services which are known to be
the trade; and
obtainable only from a limited number of sources
d. Any other act analogous to the foregoing.
b. Procurement of major plant components where
E. Termination by Contractor/Consultant it is deemed advantageous to limit the bidding to
known eligible bidders
1. In contracts for Infrastructure Projects: the B. DIRECT CONTRACTING, otherwise known as
Contractor may terminate its contract with the SINGLE SOURCE PROCUREMENT A method of
Procuring Entity if the works are completely stopped Procurement that does not require elaborate Bidding
for a continuous period of at least sixty (60) calendar Documents because the supplier is simply asked to
days through no fault of its own, due to any of the submit a price quotation or a pro-forma invoice
following reasons: together with the conditions of sale, which offer may
a. Failure of the Procuring Entity to deliver, within be accepted immediately or after some negotiations.
a reasonable time, supplies, materials, right-of-way, Direct Contracting may be resorted to only in any of
or other items it is obligated to furnish under the the following conditions:
terms of the contract; or a. Procurement of Goods of propriety nature,
 b. When the Procurement of critical components E. NEGOTIATED PROCUREMENT - a method of
from a specific manufacturer, supplier, or distributor Procurement that may be resorted under the
c. exclusive dealer or manufacturer extraordinary circumstances provided for in Section 53
C. REPEAT ORDER - a method of Procurement that of this Act and other instances that shall be specified
involves a direct Procurement of Goods from the in the IRR, whereby the Procuring Entity directly
previous winning bidder, whenever there is a need to negotiates a contract
replenish Goods procured under a contract previously Negotiated Procurement shall be allowed only in
awarded the following instances:
a. The unit price must be equal to or lower than a. In case of two (2) failed biddings
that provided in the original contract; b. In case of imminent danger to life or property
b. The repeat order does not result in splitting of during a state of calamity, or when time is of the
requisitions or purchase orders; essence arising from natural or man-made calamities
c. Except in special circumstances defined in the or other causes where immediate action is necessary
IRR the repeat order shall be availed of only within six c. Take-over of contracts
(6) months from the date of the Notice to Proceed d. Where the subject contract is adjacent or
arising from the original contract; and, contiguous to an on-going infrastructure project, as
d. The repeat order shall not exceed twenty-five defined in the IRR, subject to the following:
percent (25%) of the quantity of each item of the i. The original contract is the result of a
original contract. Competitive Bidding;
D. SHOPPING - a method of Procurement whereby ii. The subject contract to be negotiated has
the Procuring Entity simply requests for the similar or related scopes of work;
submission of price quotations for readily available iii. Tt is within the contracting capacity of the
off-the-shelf Goods or ordinary/regular equipment to contractor;
be procured directly from suppliers of known iv. The contractor uses the same prices or lower
qualification. unit prices as in the original contract less mobilization
a. there is an unforeseen contingency requiring cost;
immediate purchase, the amount shall not v. The amount involved does not exceed the
exceed: amount of the ongoing project; and,
i. For NGAs, GOCCs, GFIs, SUCs, and Autonomous vi. The contractor has no negative slippage.
Regional Government, P200,000 Provided, that negotiations for the procurement
ii. For LGUs, in accordance with the following are commenced before the expiry of the original
schedule: contract.
Wherever applicable, the principle shall also
govern consultancy contract, where the consultants
have unique experience and expertise to deliver the
required service; or,
e. Subject to the guidelines specified in the IRR,
purchases of Goods from another agency of the
government, such as the Procurement Service of the
DBM, which is tasked with a centralized procurement
b. Procurement of ordinary or regular office
of commonly used Goods for the government in
supplies and equipment not available in the DBM-PS,
accordance with Letters of Instruction No. 755 and
in the amount not to exceed the following:
Executive Order No. 359, series of 1989.
i. For NGAs, GOCCs, GFIs, SUCs, and Autonomous
f. Scientific, Scholarly or Artistic Work, Exclusive
Regional Government, P1,000,000.
Technology and Media Services. Where Goods,
ii. For LGUs, in accordance with the following
Infrastructure Projects and Consulting Services can be
schedule:
contracted to a particular supplier, contractor or
consultant and as determined by the HoPE, for any of
the following:
1. The requirement is for:
a. Work of art; commissioned work or services of
an artist for a specific artist skill (e.g., Singer, poet,
writer, painter, sculptor, etc.);
 b. Scientific, academic, scholarly work or research, j. Lease of Real Property and Venue for official
or legal services; use
c. Highly-specialized life-saving medical k. NGO Participation: When an appropriation law
equipment, as certified by the Department of Health or ordinance earmarks an amount to be specifically
(DOH); contracted out to Non-Governmental Organizations
d. Scientific, technical, economic, business, trade (NGOs), the Procuring Entity may enter into a
or legal journal, magazine, paper, subscription, or Memorandum of Agreement with an NGO
other exclusive statistical publications and references; l. Community Participation: Where, in the interest
or of project sustainability or to achieve certain specific
e. Media documentation, advertisement, or social objectives, it is desirable in selected
announcement through television, radio, newspaper, projects, or its components, to call for participation of
internet, and other communication media. local communities in the delivery of goods, including
Due to the nature of the information to be non-consulting services, and simple infrastructure
disseminated, alongside principles of transparency, projects, subject to the Community Participation
efficiency and economy, award to more than one (1) Procurement Manual (CPPM) issued by the GPPB
supplier may be made by the Procuring Entity. m. United Nations Agencies, International
2. The construction or installation of an Organizations or International Financing Institutions
infrastructure facility where the material, equipment, - Procurement from specialized agencies of the United
or technology under a proprietary right can only be Nations, International Organizations or International
obtained from the same contractor. Financing Institutions
g. Highly Technical Consultants. In the case of n. Direct Retail Purchase of Petroleum Fuel, Oil and
individual consultants hired to do work that is (i) Lubricant (POL) Products and Airline Tickets
highly technical or proprietary; or (ii) primarily
confidential or policy determining, where trust and
confidence are the primary consideration for the
hiring of the consultant: Provided, however, That the
term of the individual consultants shall, at the most,
be on a six-month basis, renewable at the option of
the appointing HoPE, but in no case shall exceed the
term of the latter.
h. Defense Cooperation Agreement; Defense
Inventory-Based Items-The DND may directly
negotiate with an agency or instrumentality of
another country with which the Philippines has
entered into a defense cooperation agreement or
otherwise maintains diplomatic relations when the
procurement involves major defense equipment or
materiel and/or defense-related consultancy services
i. Small Value Procurement: Procurement of (a)
goods not covered by Shopping under (b)
infrastructure projects, and (c) consulting services,
where the amount involved does not exceed the
following threshold:
1. For NGAs, GOCCs, GFIs, SUCs, and Autonomous
Regional Government, P1,000,000.
2. For LGUs, in accordance with the following
schedule:
LAW ON CREDIT TRANSACTIONS
PLEDGE REAL ESTATE MORTGAGE CHATTEL MORTGAGE
Object Personal property susceptible of Real property but extends to the natural Personal property subject
possession including incorporeal rights accessions, improvements, growing fruits, thereof
and the rents or income not yet received
when the obligation becomes due, and to
the amount of indemnity from insurance or
from expropriation
And may include after acquired properties
as per stipulation.
Perfection Delivery Consensual but covered by the statute of Formal
frauds Affidavit of Good Faith
Public instrument required to bind third registered in the Chattel Mortgage Registry
parties Public instrument that is registered in the in the Registry of Deeds required to bind
Registry of deeds is required to bind third third parties. Absence of which, however,
parties makes the contract still binding
between the parties.
For vessels – registration is
with the MARINA
For motor vehicles - + report to the LTO
Possession Transferred to the pledgee Retained by the mortgagor Retained by the mortgagor
Return of the thing pledged by the
pledgee to the pledgor shall result in
extinguishment of the contract of
pledge.
Principal That which is existing at the time of the Generally, covers only that which is stated in Those indicated in the Affidavit of Good
Obligation pledge the deed even if less than the amount of Faith unless there is stipulation as to
covered loan. Exception: if there is stipulation to increase in coverage which will be binding
cover future advancements. but the security itself arises only after
amending the old
contract.
Sale of the thing Valid as long as with consent of the Valid – any stipulation to the Mortgagor-owner cannot sell the property
during the creditor/pledgee who shall continue in contrary is void. mortgaged otherwise he can be criminally
pendency of the possession even if the ownership is liable under Art. 319 of the RPC: Removal of
contract transferred to the buyer. Mortgaged Property.
Sale of the thing Done by notary public – public auction – Extrajudicial (Act No. 3135) or Extrajudicial (Act No. 1508)
to answer for always extrajudicial – no intervention judicial (Rule 68)
the debt of the courts.
Notice of sale to Required – stating the amount due Extrajudicial – not required, unless Required 10 days prior to sale
the mortgagor/ In a legal pledge, a demand stipulated. Posting in two or more public places 10
pledgor for the amount is required and Judicial Posting in 3 public places at least 20 days before
foreclosure must be made within 30 days prior to sale and publication of the auction
days from such demand. notice of sale in a newspaper of general
circulation
Creditor’s right to The creditor is entitled to the Creditor is not entitled to the Creditor is not entitled to the
excess of selling excess EXCEPT: excess excess
price 1. There is stipulation to the contrary;
over unpaid and
obligation 2. In case of legal pledges
Creditor is not The creditor is NOT entitled to recover Creditor can recover deficiency except if the Creditor can recover deficiency unless the
entitled to the any deficiency mortgagor is a third person (unless there is sale is covered by the RECTO LAW (i.e., sale
excess stipulation making him liable) of personal property on installment)
Redemption No right of redemption EXTRAJUDICIAL FORECLOSURE: No right of redemption after
1 year from date of foreclosure, foreclosure sale.
except:
1. Creditor is a bank
2. Debtor is a juridical person
In which case the redemption
period is until the registration of
the foreclosure sale, not
exceeding 3 months.
JUDICIAL FORECLOSURE:
Equity of redemption is until the
confirmation of sale by the court
LAW ON SALES Thing transferred Thing transferred
already existed and can existed due to the order
` By the contract of sale one of the contracting parties
be a subject of sale to of the party desiring it
obligates himself to transfer the ownership and to
other persons
deliver a determinate thing, and the other to pay
Within the statutes of Not within the statues of
therefor a price certain in money or its equivalent.
fraud fraud
(Art. 1458)
D. DACION EN PAGO
CHARACTERISTICS OF A CONTRACT OF SALE Sale Dacion en Pago
No pre-existing debt Pre-existing debt
1)Consensual- perfected by mere consent
Creates an obligation Extinguishes an
2)Principal - capable of standing alone without
obligation
the need o f another contract
Freedom in determining Price is value of the
3)Bilateral- there is a reciprocal obligation
price thing given
between the parties
4) Onerous- valuable consideration is given by The cause or Cause is the
both parties consideration is the extinguishment of the
5)Commutative the consideration exchange are of price and the delivery of obligation and the
equivalent values the object delivery of the object
6)Nominate- has a name given by law E. CONTRACT TO SELL
Contract of Sale Contract to sell
OBLIGATIONS & RIGHTS OF PARTIES Ownership is transferred Ownership is transferred
upon delivery upon full payment
A) Vendor/Seller
a) To take care of the thing after the sale has been Non-payment is a Full payment is a
perfecter, prior to delivery resolutory condition positive suspensive
b) To deliver condition
c) To warrant the thing against eviction, hidden Sales is already No perfected sale yet
defects, merchantability, fitness of goods perfected
d) To transfer ownership Vendor loses and cannot Title remains in the
e) To pay taxes and incidents of the sale recover ownership of the vendor if the vendee
B) Vendee/Buyer thing sold until contract does not comply with
a) Payment (with terms) of sale is resolved and the conditions
1. On installment ( personal & real set aside of the contract
property) F. AGENCY TO SELL
2. With redemption Sale Agency to sell
(Conventional & legal) Buyer receives goods as Agent receives goods of
b) To accept delivery an owner the principal who retains
ownership
DISTINGUISHMENT FROM OTHER FORMS Buyer pays the price Agent delivers the price
A. DONATION which he got from his
Sale Donation buyer
Onerous Gratuitous Buyer, as a general rule, Agent can return the
Perfected by mere Perfected by donee’s cannot return the object goods
consent acceptance sold
B. BARTER Seller warrants the thing Agent makes no
sold warranty
Sale Barter
Buyer can deal with the Agent can deal with the
Cause or considerations Cause or considerations
thing sold thing received as long as
is in money is another thing
it is within his authority
C. CONTRACT FOR PIECE OF WORK
given by the principal
Sale Contract for piece of
G. KINDS OF CONTRACT OF SALE
work
1)Absolute- sale is not subjected to any condition and
Ordered in the ordinary Made specially for the
the title immediately passes to the purchaser upon
course of the business customer upon his
delivery
special order
2) Conditional- ownership of the object remains with 2) Third person acted ni bad faith or by mistake,
vendor until fulfillment of conditions. courts may fix the price.
Conditional contract of Contract to sell 3) Third person is prevented from fixing the price
Sale or terms by fault of the seller or the buyer, the party
Sale is already perfected Sale is not perfected not in fault have such remedies against the party in
Upon fulfillment of Upon fulfilment of fault.
condition, ownership condition, ownership b. Gross inadequacy of price does not affect
automatically transfers does not automatically contract of sale, EXCEPTION: indication of a defect in
to the buyer transfers to the buyer the consent, or that the parties really intended a
H. LEASES donation or some other act or contract.
Sale Lease c. Price of securities, grain, liquids, and other
Ownership transferred No transfer of things shall also be considered certain, when the price
by delivery ownership fixed is that which the thing sold would have:
Seller must be the owner Lessor need not be The .i On a definite day, or
at the time of delivery owner ii. In a particular exchange or market, or
iii. Amount is fixed above or below the price on
such day, or in such exchange or market, provided said
ELEMENTS OF A CONTRACT OF SALE amount be certain.
d. Fixing of the price cant be left to the discretion
1)Essential Elements
of one of the contracting parties.
a. Consent
3) Object - is the subject matter which may be
b. Determinate object
things or rights. Rules as to objects:
c. Price certain in money
a. For Things:
2) Natural Elements
1. Licit/lawful
a. Warranty against eviction
2. Should not be impossible
b. Warranty against hidden defects and
3. Determinate or determinable
encumbrances
b. For Rights:
3 )Accidental Elements - refer to the stipulations of
1. Transmissible
the contracting parties
2.Licit
Object must be within the commerce of men. If
ESSENTIAL ELEMENTS OF A CONTRACT OF SALE the subject is illicit, contract is VOID and cannot be
ratified.
1) Consent of the contracting parties Goods which form the subject may either be:
Incapacity: consent may have been given, but the one 1 Existing
giving it is incapacitated. 2)Goods to be manufactures, raise or acquired by the
a. Absolute Incapacity - contract is voidable or void. seller
Minors and those without capacity to act: may enter 3)Things having potential existence
into a valid contract of sale of "necessaries" as 4) Sale of specific things
provided under Art. 1489. 5) Fungible goods
b. Relative Incapacity - prohibited from entering some 6) Undivided inferest
specific transactions with some persons or specific c. Future goods
things.
Emptio Rei Speratae Emptio Spei
2) Cause- as to each contracting party is the
Sale of an expected Sale of the hope itself
prestation or promise to be performed by the other
Thing
party. For the buyer, it is the delivery of the object,
Subjected to the Sale produces effect
while for the seller, it is the payment of the price.
condition that the thing even if the thing does
Rules as to PRICE:
will come into existence not come into existence
a. It must be certain.
Uncertain with regard to Uncertain with the
i. With reference to another thing certain
quantity and quality of existence of the thing
ii. Determination is left to the judgment of a
the thing
special person or persons.
Object is a future thing Object is a present thing
1) Inability or unwillingness to fix it, makes the
contract inefficacious, the parties subsequently agree
upon the price.
 PERFECTION OF A CONTRACT OF SALE vendee's failure to pay cover wo or more
installments.
Consensual Contract
If seller invoked one, he can no longer invoke any of
Sale is perfected by mere consent as ot the object of
the two remaining remedies.
the contract and upon the price.
Transfer of Ownership FORFEITURE OF INSTALLMENTS IN CASE OF
GENERAL: happens only after delivery, either actual or CANCELLATION:
constructive.
EXCEPTION: Parties agreed that ownership wil not GENERAL RULE: Seller is allowed to refrain a
pass until full payment of the price. reasonable amount of the purchase price already paid
Sale by Auction as compensation for the use of the thing (rent), or AL
Perfected when auctioneer announces its perfection of the amount paid only if there is a forfeiture clause
by the fall of the hammer, or in other customary which entitles him to the purchase price already paid
manner. at the time of cancellation.
Option Agreement and Contract EXCEPTION: the retention of ALL the purchase
An accepted unilateral promise to buy or to sell a price would be unconscionable.
determinate thing for a price certain is binding upon FORECLOSURE OF THE CHATTEL MORTGAGE:
the promisor if the promise is supported by a Foreclosed mortgage is the mortgage on the
consideration distinct from The price, known as option personal property itself, in case of deficiency of the
money. foreclosure sale proceeds, the seller is NOT entitled to
EARNEST MONEY recover such, since recovery of the deficiency falls
Forms part of the purchase price and is proof of under option .1 However, if what is foreclosed is
perfection of a contract of sale. Option Money is a another security or a mortgage on different property,
separate consideration to give the offeree a definite the prohibition to collect the deficiency would not
period within which to decide whether or not to apply, since foreclosure of a mortgage of a different
accept an offer, there is no perfected contract of sale thing precisely falls under option 1also.
yet and does not form part of the purchase brice.
SALE OF GOODS BY DESCRIPTION OR SAMPLE: the MACENDA LAW
contract may be rescinded if the bulk of the goods Or the Realty Installment Buyer Act (RA No. 6552),
delivered do not correspond with the description or applies to a contract of sale of residential realty on
the sample. installments, where the buyer is given protection in
SALE OF GOODS BY DESCRIPTION AND SAMPLE: if the case of failure to pay installments. Does not apply to
contract be by sample as well as description, it is not sales "on credit" only ones in installment.
sufficient that the bulk of goods correspond with the
sample if they do not also correspond with the RIGHTS OF THE BUYER UNDER THE MACEDA LAW
description. 1. If installments already paid are less than 2
years equivalent:
INSTALLMENT SALES a. Grace Period – pay within 60 days.
RECTO LAW b. Buyer may sell or assign his interest;
c. Pay the entire balance.
Applies to a contract of sale of personal property the
2. After 2 years' worth of installment, the buyer
price of which is payable in installments. Does not
will have the following additional rights:
apply to sales "on credit, only sales in “installment."
a. In addition to the 60 day grace period,
It likewise applies to contracts purporting to be leases
the buyer shall have additional 1 month grace
of personal property with option to buy, when the
period for every year of installment payments
lessor has deprived the lessee of the possession or
after the first 2 years installments;
enjoyment of the thing.
b. If the seller will exercise his right to
ALTERNATIVE REMEDIES OF THE SELLER: rescind the contract, he is required to first give
the Cash Surrender Value
1. Exact fulfillment of the obligation, should
i. Minimum of 50% of al payments
the vendee fail to pay;
(including downpayment) plus
2. Cancel the sale, should the vendee's failure to
ii. 5% after five years (55% after
pay cover two or more installments;
6years of payment); and
3. Foreclose the chattel mortgage on the thing
sold, if one has been constituted, should the
 iii. 5% for every additional year b. Seller had statutory or judicial authority to sell
thereafter up to a maximum of 90% or c. In cases of estoppel:
14years of instalment). i As to the owner: estoppel in pais - owner led the
buyer to believe that the seller had authority to sell.
VOID STIPULATIONS il. As to the seller: estoppel by deed- the seller
1. Stipulation as to interest or damages or acquired ownership after sale, such ownership
penalty during the grace period automatically passes to the buyer as to the thing
2. Forfeiture clause already delivered
3 .Automatic cancellation or rescission upon d. Sale of an Apparent Owner:
default of the buyer REQUISITES:
i There is apparent ownership
RESCISSION REQUIREMENTS: ii. Buyer in good faith and for value
the rescission will take effect only after 30 days from iii. There must be a law from which apparent
complying with both: ownership may be had, such as:
1. Notice to be given to the buyer as to the intention 1) PD 1529
to rescind 2)Factor's Act (agency)
2. Payment of the cash surrender value 3) Art. 1518
e. Purchase from a Merchant Store, Market or Fair
PD No 957 or the THE SUBDIVISION AND in good faith and for value. One who has lost any
CONDOMINIUMBUYERS' PROTECTIVE DECREE movable or has been unlawfully deprived thereof, may
covers the sale of condominium units, among others. recover if from the person in possession of the same.
Rules affecting installment purchases of
MODES OF DELIVERY THING
Condominiums:
1. Non-forfeiture payments: No installment a. Actual Delivery: The actual and physical
payment made by a buyer is forfeited in favor of the transfer of the thing to the buyer.
owner developer due to the failure to develop the b. Constructive Delivery
project according to the plans and within the time i. By Legal Formalities - sale is made through
limit. Buyer may be reimbursed the total amount paid public instrument. Gives rise only to a prima facie
including amortization interests but excluding presumption of delivery.
delinquency interests, with interest thereon at the ii. Symbolic Delivery (tradition simbolica) -
legal rate. delivery of keys or depository where the movable is
2. Failure to pay instalments: The rights of the kept or stored.
buyer in the event of this failure to pay the il. Traditio Longa Manu - delivery of a movanio
installments due for reasons other than the failure of mere consent agreement. Pointing at the thing
the owner or developer to develop the project shall be vi. Traditio Brevi Manu - buyer simply continues
governed by RA 6552 (Maceda Law). in possession of the thing but under ownership.
Applies to movables only. Happens when buyer
OBLIGATIONS OF THE VENDOR already has possession of the thing sold before the
1) Transfer ownership sale.
2) Deliver the thing, with its accessions and v. Traditio Constitutum Posessorium - seller
accessories, if any continues to be in possession of the property sold but
3) Warrant against eviction and against hidden not as a owner but in some other capacity.
defects c. Delivery to a common carrier: GENERAL:
4) To take care of the thing, pending delivery, with Delivery to carrier is deemed to be delivery to the
proper diligence buyer. EXCEPTION
5) To pay the expenses of the deed of sale, unless i. Ownership is reserved by the seller
there is stipulation to the contrary ii. The seller reserved possession
iii. A Bill of Exchange is drawn by the seller against
Seller need not be the owner for validity of the the buyer and the latter dishonors the same.
contract. GENERAL RULE: the buyer acquires no better
RIGHTS
title to the goods than the seller had EXCEPTION:
Buyer acquires GOOD TITLE to the object even if the a. By execution of an instrument;
seller is not the owner. b. Quasi Traditio:
a. Seller is authorized by the owner
 i. When the title of ownership is placed in the A. CONVENTIONAL REDEMPTION: Also called
possession of the vendee the right to redeem or repurchase, takes place when
ii. By the use of the vendee of his rights with the the vendor reserved the right to reacquire the thing
vendor's consent. sold, provided that he:
1. Return to the vendee:
PLACE OF DELIVERY
a. The price paid
1) Where there is an agreement: Place specified b. Expenses of the contract and other legitimate
2) Where there is no agreement: Place of delivery payments made thereof
determined by usage of trade c. Necessary a n d useful expenses made on the
3)Where there is no agreement and no prevalent thing sold.
usage: seller's place of business 2. Comply with other stipulations
4) In any other case: seller's residence The sale, with a right of repurchase, is also known as
pacto de retro sale. The seller a retro must pay for
PAYMENT OF THE PURCHASE PRICE useful improvements introduced by the buyer a retro;
GENERAL RULE: Seller is not bound to deliver unless otherwise, the latter may retain possession of the land
the purchase price has been paid. until reimbursement is made.
EXCEPTION: The Seller is bound to deliver even if Amount to be paid at the time the right is exercised:
the price has not been paid, is a period of payments 1. The purchase price;
has been fixed. 2. The expenses of the contract, and any other
legitimate payments made by reason of the sale; and
GOODS DELIVERED LESS THAN QUANTITY AGREED 3. Useful and necessary expenses leg., fencing of the
1 Buyer may reject; or land)
2) Buyer may accept and pay at the contract B. EQUITABLE MORTGAGED: a sale with a right
rate of repurchase is presumed to be an equitable
mortgage in the following cases:
QUANTITY MORE THAN AGREED UPON 1. Unusually inadequate purchase price
1) Buyer may reject all; or 2. Vendor remains in possession as lessee or otherwise
2) Buyer may accept the goods agreed upon 3. Extension for period of right to repurchase
and reject the rest; or 4. Purchases retains for himself a part of the purchase
3) Buyer may accept al and must pay for them at price
the contract rate 5.Vendor binds himself to pay the taxes of the thing
sold
GOODS MIXED WITH GOODS OF DIFFERENT 6. When the real intention of the parties is to secure
DESCRIPTION the payment of an obligation.
Period of Redemption
Buyer may accept the goods which are in
accordance with the contract and reject the rest. a. No agreement: 4 years from date of
contract
DIVISIBLE GOODS b. There is agreement: should not exceed 10 years.
The time in excess of 10 years shall be null and VOID.
If the subject is indivisible, in case of delivery of a large
c. Civil Action between the parties: 30 days after
quantity of goods or a mixed goods, the buyer may
final judgement was made, provided that the
reject the whole of the goods.
contracts was a true sale with a right to repurchase.
Right of rejecting the whole of the goods delivered is
No Redemption/Repurchase was made:
given only if the subject matter is indivisible.
1. In case of real property, the consolidation of
RIGHTS OF VENDEE TO THE FRUITS ownership in the vendee by virtue of the failure of the
vendor to pay the required amounts shall not be
Vendee has the right to the fruits of the thing sold recorded in the Registry of Property without a judicial
from the time obligation to deliver arises. Generally at order, after the vendor has been duly heard.
time of perfection, however parties may modify it by 2. In case of personal property, t h e consolidation of
agreement. ownership is by operation of law.
By consolidation of ownership, it means that the
ownership of the vendee becomes absolute and the
resolutory condition is removed.
Who may Exercise the right to Repurchase 5. The right must be exercised within the period
1 Vendor a retro provided;
a. Vendee, who acquired the whole undivided interest, 6. Vendee must be reimbursed for the price of the
may compel the vendor, who only sold part thereof, to sale.
redeem the whole property.
b. Property sold by co-owners jointly and in the same Amount ot be paid for redemption: is the purchase
contract may exercise the right in respect to his share price, unless the price of alienation is grossly
only. excessive, in which case, the redemptioner shall pay
c. In the case above (b), vendee cannot be compelled only a reasonable one.
to consent to a partial redemption, he may demand al
vendors or co-heirs to agree to repurchase the whole Right of Legal Redemption of Adjacent Owners of
thing sold. RURAL Lands
2. Creditors of the Vendor The following are the requisites for the right to
a. They cannot make use of the right exist:
b. of redemption until after they 1. The land must be rural;
c. have exhausted the property of the 2. Land must be adjacent;
vendor. 3. There must be alienation;
Multiple Parties 4. Rural land alienates must not exceed 1 hectare;
1. SALE OF UNDIVIDED IMMOVABLE - vendee 5. Vendee must already own some rural land; and
eventually acquires the whole; may compel the vendor 6. Rural land sold must not be separated by
to redeem the whole property. brooks, drainage, ravines, roads and other apparent
2. SEVERAL PERSONS JOINTLY AND IN THE SAME servitudes from the adjoining lands.
CONTRACT: sell undivided immovable with a right of If two or more adjoining owners desire to exercise
repurchase: the right of redemption
a. SELLERS - can only redeem their share b. BUYER- 1. Owner of the smaller area shall be preferred.
can compel redemption of the entire property; cannot 2. If both lands have same area, the one who first
be compelled to agree to a partial redemption requested the redemption shall be preferred.
3. CO-OWNERS SOLD SEPARATELY- each can exercise
his own right of redemption and cannot be compelled Rights of Adjacent Owner of URBAN Lands
to redeem the whole property. The owners may exercise two (2) rights, right of pre-
emption or right of redemption. The following are the
C. LEGAL REDEMPTION: The right to be requisites in order to exercise such right:
subrogated, upon the same terms and conditions 1 Land must be urban;
stipulated in the contract, in the place of one who 2. One exercising the right must be an adjacent
acquires a thing by: owner
1. purchase or 3. The land sold must be so small and so situated
2. dation in payment, or that a major portion thereof cannot be used for any
3.by any other transaction whereby ownership is practical purpose within a reasonable time
transferred by onerous file. 4. Such urban land was bought by its owner
merely for speculation
May be effected against movables or immovables. 5. It is about to be resold, or that its resale has
It must be exercised within 30 days from the notice in been perfected.
writing by the vendor. If two or more owner wish to exercise their
Written notice under is mandatory for the right of rights, the one whose intended use of the land
redemption to commence. appears best justified shall be preferred. Co-owners
are preferred over adjacent owners.
Pre-emption
Right of Legal Redemption of Co-owners It is the act of purchasing before others. If exercised,
The following are the requisites for the right to exist: they will have preference over other potential buyers.
1. There must be co-ownership Pre-emption Redemption
2. There must be alienation of all or any of the Arises before the sale Arises after sale
shares of the other co-owners No rescission because no There can be rescission
3. The sale must be to a third person or stranger; sale as yet exist of the original sale
4. The sale must be before partition;
 Actin is directed against Action is directed He's not liable of credit was sold as doubtful.
the prospective buyer against the buyer 2. There is no warranty as to the solvency of the
May attach to the Always relate to the debtor unless:
seller’s duty to deliver or subject matter or the a.There is a stipulation; or
some other seller’s obligations b. The insolvency was already existing and of public
circumstances knowledge at the time of sale.

Period which right may be exercised Duration of Assignor's Warranty

The period shall be exercised within 30 days from the 1. Period Stipulated
notice in writing by the prospective vendor, or by the 2. If no period stipulated, 1year from date
vendor. of maturity or assignment, which ever
If notice is not given, the 30-day period has not even comes later.
begun to run. However, no specific form of written Lega redemption in sale of credit or other
notice is required. rights in litigation. Requisites before the right can
The 30-day notice in writing should be counted from be exercised:
notice, not of the perfected sale, but of the actual 1. There must be a sale or assignment of a credit
execution and delivery of the document of sale. 2. There must be a pending litigation at the time
of assignment
ASSIGNMENT OF CREDITS AND OTHER 3. Debtor must pay the assignee:
INCORPOREAL RIGHTS a. Price paid by him
Assignment of credit is a contract where one person b. Judicial cost incurred.
(creditor/assignor) transfers to another his rights and c. Interest on the price from the date of payment
actions against a third person (debtor) to another 4. Right must be exercised 30 days from the date
person (assignee) in consideration of a price certain in assignee demands payment from him.
money.
An assignment of credit not only entitles the assignee
ELECTRONIC COMMERCE ACT OF 2000 (RA 10846)
to the credit, but also the power to enforce ti against
the debtor of the assignor.
OBJECTIVES
FORMS OF ASSIGNMENT OF CREDIT ✓ To facilitate domestic and international
1. Between parties dealings, transactions, etc. through the
a. May be in any form, oral or written. So long as the utilization of electronic, optical, and similar
law does not require a specific form for its validity. medium, mode, instrumentality, and
2. To be binding against 3rd persons technology
a. If personal property: public instrument ✓ To recognize authenticity and reliability of
b.If real property: public instrument must be recorded electronic data messages/electronic
in the Registry of Property documents
✓ To promote universal use of electronic
Effects of payment by debtor to creditor/assignor transactions in government & by the public
after assignment
COVERAGE
1. No knowledge of assignment: Released
from obligation. - Any kind of electronic document used in the context
2. With knowledge of assignment: not of commercial & non-commercial activities to include
released. domestic and international:
The assignment of a credit does not only includes the
credit but also all accessory thereto. o Dealings & Transactions
o Arrangements & Agreements
Warranties of Assignor(art.1628) o Contracts & Exchanges
1 When a creditor assigns his credit, he warrants o Storage of Information
only at the perfection of the contract the:
a. Existence; and
b. Legality of the credit.
 DEFINITION OF TERMS or logically associated with the electronic data
message/electronic document
Computer – any device or apparatus capable of
receiving, recording, transmitting, storing, processing. Electronic Key – secret code which secures and
retrieving, and/or producing information, data, defends sensitive information that cross over public
figures, symbols, etc. channels into a form decipherable only with a
matching electronic key
Information & Communication System (I&C System)
– system intended for and capable of LEGAL RECOGNITION
generating/sending or receiving/storing/processing
electronic data messages/docu LEGAL RECOGNITION OF EDM
- EDM shall not be denied validity/enforceability
Addressee – person intended by originator to receive solely that it is in form of EDM purporting to give rise
the electronic data message/electronic document to legal effect
Originator – person by whom the electronic document LEGAL RECOGNITION OF ED
purports to have been created, generated and/or sent;
does not include a person acting as intermediary - For evidentiary purposes, EDs shall be the functional
equivalent of a written document
Intermediary – person who on behalf of another
person and with respect to a particular electronic - EDs shall have the legal effect, validity, or
document sends, receives and/or stores provides other enforceability as any other document/legal writing,
services in respect of that electronic data and:
message/electronic document
1) Where the law requires a document to be in
Service Provider – refers to a provider of: writing, that requirements are met by an ED if the said
ED:
o On-line services or network access
o Necessary technical means by which electronic • maintains its integrity & reliability; and
documents of originator may be stored and • can be authenticated, in that:
made accessible to designated (or not) third o such has remained complete,
party; to which service providers shall have no unaltered apart from addition of any
authority to: endorsement and any authorized
change, or any change which arises in
- modify or alter the content of electronic the normal course of communication;
document received and to make no entry therein on and
behalf of originator, addressee, or 3rd party unless o is reliable in light of the purpose for
authorized to do so which it was generated & in light of all
relevant circumstances
- retain electronic document in accordance with the
specific request or as necessary for purpose of 2) Number (1) applies whether requirement is in the
performing services it was engaged to perform form of an obligation or whether the law simply
provides consequences for the document not being
Electronic Data Message (EDM) – information presented or retained in its original form
generated, sent, received, or stored by
electronic/optical/similar means 3) Where the law requires that a document be
presented or retained in its original form, that
Electronic Document (ED)– information by which a requirement is met by an ED if:
right is established, or obligation extinguished, or by
which fact may be proved/affirmed, which is received, • there exists a reliable assurance as to the
recorded, transmitted, stored, processed, retrieved, or integrity of the document from the time when
produced electronically it was first generated in its final form; and
• that document is capable of being displayed
Electronic Signature – any distinctive mark,
to the person to whom it is to be presented
characteristic and/or sound in electronic form,
representing the identity of a person and attached to LEGAL RECOGNITION OF ELECTRONIC SIGNATURES
 - An electronic signature on ED shall be equivalent to 3) For the purpose of number (1)
the signature of a person on a written document if:
• criteria for assessing integrity shall be
1) Signature is an electronic signature; and whether information has remained complete
and unaltered
2) Proved by showing that a prescribed procedure, • standard of reliability required shall be
not alterable by the parties in the electronic assessed in light of purpose for which info was
document, existed under which: generated
• a method is used to identify the party sought AUTHENTICATION
to be bound and to indicate said party’s
access to the electronic document necessary - Until Supreme Court shall have provided, electronic
for his consent or approval through the
documents, data messages and signatures, shall be
electronic signature
• said method is reliable and appropriate authenticated by demonstrating, substantiating,
• it is necessary for the party sought to be validating a claimed identity of a user, device, or
bound, to proceed further with the transaction another entity is aN info or communication, among
to have executed or provided the electronic other ways as follows:
signature
• the other party is authorized and enable to 1) Electronic signatures shall be authenticated by
verify the electronic signature and to make proof representing the persons named in and
decision to proceed with transaction attached to or logically associated with electronic
authenticated by same data message, with the intention of authenticating or
approving in EDM/ED
PRESUMPTION ON ELECTRONIC SIGNATURES
2) Electronic document shall be authenticated by
a) electronic signature is the signature of the proof that and appropriate security procedure, when
person to whom it correlates applicable, was adopted and employed for purpose of:
b) electronic signature was affixed by that person
• verifying the originator; or
with the intention of signing or approving the ED
• detecting error or alteration
unless:
BURDEN OF PROOF
• the person relying on the electronically
designed electronic document knows or has - Person seeking to introduce an EDM or ED in any
notice of defects in or unreliability of the legal proceeding has burden of proving its
signature; or authenticity
• reliance on electronic signature is not
INTEGRITY OF INFORMATION & COMMUNICATION
reasonable
SYSTEM
ORIGINAL DOCUMENTS - In absence of evidence to contrary, integrity of I&C
1) Where the law requires information to be system in which an EDM/ED is recorded/stored may
presented or retained in its ORIGINAL FORM, that be established in any legal proceeding:
requirement is met by:
1) by evidence that:
• integrity is shown by evidence aliunde or
• at all material times I&C system was
otherwise
operating in manner that didn’t affect
• where it is required that information be
integrity of EDM/ED; and
presented, the information is capable of being
• there are no other reasonable grounds to
displayed to the person whom it is to be
doubt integrity of I&C system
presented
2) by showing that electronic data message or
2) Number (1) applies whether requirement is in
document was recorded or stored by a party to the
form of an obligation or whether law simply provides
proceedings who is in adverse in interest to party
consequences for information not being presented or
using it
retained in its original form
 3) by showing that electronic data message or - A deponent of an affidavit that has been introduced
document was recorded or stored in the usual & in evidence may be cross-examined as of right by a
ordinary course of business by a person who is not a party to the proceedings who is adverse in interest to
party to proceedings & who did not act under control the party who has introduced the affidavit or has
of the party using the record caused the affidavit to be introduced

ADMISSIBILITY & EVIDENTIAL WEIGHT EDM/ED - Any party to proceedings has the right to cross-
examine a person who’s not a party to the
- In any legal proceedings, nothing in application of
proceedings and who did not act under control of
rules on evidence shall deny admissibility of EDM/ED
party using the record proving that electronic data
in evidence
message/document was recorded or stored in the
1) on the sole ground that it is in electric form; or usual ordinary course of business

2) on the ground that it’s not in the standard COMMUNICATION OF EDM/ED

written form
FORMATION OF VALIDITY OF ELECTRONIC
- In assessing the evidential weight of an electronic CONTRACT
data message/document, following shall be given due 1) An offer, acceptance of offer and such other
regard: elements required under existing laws for formation of
contracts may be expressed in, demonstrated, and
1) reliability of way it’s
proved by means of EDM/ED
generated/stored/communicated
2) Electronic transactions made through networking
2) reliability of way its originator was identified
among banks or linkages with other entities or
3) other relevant factors networks:

RETENTION OF EDM/ED - shall be deemed consummated upon actual

dispensing of cash or debit of one account and the
- The law requirement that certain documents be
corresponding credit to another
retained in their original form is satisfied by retaining
them in the form of an electronic data - obligation of one bank, entity, or person similarly
message/document which situated to another arising therefrom shall be
considered absolute and shall not be subjected to
1) remains accessible to use for subsequent
process of preference of credits
references
RECOGNITION BY PARTIES OF EDM/ED
2) is retained in the format in which it was
generated, sent or received - a declaration of will or other statement shall not be
denied legal effect, validity or enforceability as
3) enables identification of its originator and between originator and addressee of an EDM/ED
addressee, as well as the determination of date & time
it was sent or received ATTRIBUTION OF EDM
1) The EDM/ED is that of the originator:
- Previous paragraph is satisfied by using the services
of a third party, provided that 3 conditions set are also a. if it was sent by originator himself
met
b. as between originator & addressee, it is
PROOF OF AFFIDAVIT deemed be that of the originator it was sent:
- Matters referred on admissibility and on the
- by a person authorize to act on behalf of originator
presumption of integrity, may be presumed to have
been established by an affidavit given to the best of - by information system programmed by originator
the deponent’s knowledge subject to the rights of
parties in interest as defined in the cross-examination 2) As between the originator and addressee,
provided below addressee is entitled to regard EDM/ED as being that
of originator, and to act on that assumption IF:
CROSS-EXAMINATION
 a. in order to ascertain whether EDM/ED was that - there is a designated an info system, BUT originator
of originator, addressee properly applied a procedure & addressee are both participants in the designated info
previously agreed to by originator for that purpose system; or
- EDM/ED enters info system of address that is NOT
b. EDM/ED as received by addressee resulted the designated info system
from the actions of a person whose relationship with 3) upon entry in the info system of addressee
- parties DID NOT designate an info system
the originator or with any agent of originator enabled
that person to gain to a method used by originator to PLACE OF DISPATCH
identify EDM/ED as his own
- ff rules shall apply even if originator or addressee had
3) Addressee is entitled to regard each EDM/ED and to used a laptop or other portable device to transmit or
act on that assumption, except: receive EDM/ED and to determine tax situs of transaction:
1) place agreed upon
- to the extent that it duplicates another EDM/ED 2) if no agreement, place shall be deemed to be:
- dispatched at the place where originator has its place
- addressee knew or should have known, had of business AND received at place where addressee has its
addressee exercised reasonable care or used agreed place of business
procedure, that EDM/ED was a duplicate
CHOICE OF SECURITY METHODS
ERROR ON EDM/ED - parties to any electronic transaction shall be free to:
- addressee is entitled to regard the EDM/ED received a. determine type of level of EDM/ED security needed
b. select & use or implement appropriate technological
as that which the originator intended to send and to
methods that suit their need
act on that assumption, UNLESS addressee knew or
should have known (had addressee exercised ELECTRONIC COMMERCE IN CARRIAGE OF GOODS
reasonable care or used appropriate procedure)
a. transaction resulted in any error; or ACTIONS RELATED TO CONTRACTS OF
b. EDM/ED is sent to an information system which CARRIAGE OF GOODS
is not so designated by addressee for the purposes - applies to any action in connection with, or in
ACKNOWLEDGEMENT OF RECEIPT pursuance of, contract of carriage of goods, including
but not limited to:
GR: no acknowledgment of receipt is necessary
Exceptions: a. (i) furnishing the marks/number/quantity/weight
- If parties agree to it of goods
- originator requested in the message/document (ii) stating/declaring the nature or value of goods
Modes of acknowledgment: (iii) issuing a receipt for goods
- any agreement as to particular method; or (iv) confirming that goods have been loaded
- if no agreement: any communication by addressee b. (i) notifying a person of terms & conditions of
or any conduct of addressee sufficient to indicate contract
receipt (ii) giving instructions to a carrier
c. (i) claiming delivery of goods
TIME OF DISPATCH (ii) authorizing release of goods
GR: when it enters an information system outside the (iii) giving notice of loss of, or damage to goods
control of the originator or of the person who sent the d. giving any other notice or statement in connection
EDM/ED on behalf of originator with the performance of the contract
e. undertaking to deliver goods to a named person
Except: when otherwise agreed upon or a person authorized to claim delivery
f. granting, acquiring, renouncing, surrendering,
TIME OF RECEIPT transferring or negotiating rights in goods
- the ff rules shall apply notwithstanding that the place g. acquiring or transferring rights and obligations
where info system is located may be different from place under the contract
where EDM/ED is deemed to be received
1) upon entry in designated information system TRANSPORT DOCUMENTS
- if parties designated an info system to receive such
2) upon retrieval by addressee 1) Where law requires that any action referred to
contract of carriage of goods be carried out in writing
or by using a paper document, that requirement is
met if the action is carried out by using one or more infringement or other unlawful act and/or
EDM/ED doesn’t benefit financially

2) If (a) a right is to be granted to OR (b) an Exceptions:

obligation is to be acquired by, one person and no 1) Obligations & liabilities of parties under EDM/ED
person, and if the law requires that to effect such, the 2) Any obligation founded on contract
right/obligation must be conveyed to that person by 3) Obligation of a service provider as such under a
the transfer/use of a paper document, that licensing or other regulatory regime established under
requirement is met if right/obligation is conveyed by written law
using one or more EDM/ED provided that a reliable 4) Any obligation imposed under any written law
method is used to render such EDM/ED unique 5) Civil liability of any party to the extent that such
liability forms the basis for injunctive relief issued by a
3) Where one or more EDM/ED are used to effect any court under any law requiring that service provider
action in items (f) and (g) above, no paper document take or refrain from action necessary to remove, block,
used to effect any such action UNLESS use of EDM/ED or deny access to any material, or to preserve
has been terminated & replaced using paper evidence of a law violation
documents (a paper document issued in these
circumstances shall contain a statement of such LAWFUL ACCESS
termination) - access to an electronic file, or an electronic
signature of an EDM/ED shall only be authorized and
4) If rule of law is compulsorily applicable to such
enforced in favor of individual or entity having a legal
contracts which are evidenced by a paper document,
right to the possession or the use of plaintext,
that rule shall not be inapplicable to such contracts
electronic signature or file solely for the authorized
which is evidenced by one or more EDM/ED by reason
purposes
of the fact that such contracts are evidenced by such
- the electronic key for identity or integrity shall not
EDM/ED instead of by paper documents
be made available to any person/party without
ELECTRONIC TRANSACTIONS IN GOVERNMENT consent of individual or entity in lawful possession of
that electronic key
- main point here is that government offices,
departments and agencies may accept and transact OBLIGATION OF CONFIDENTIALITY
any documents in the form of EDM/ED
- except for purposes authorized under this Act, any
OBLIGATIONS UNDER THE E-COMMERCE ACT person who obtained access to any electronic key,
EDM/ED, book, register, correspondence,
EXTENT OF LIABILITY OF A SERVICE PROVIDER information, or other material pursuant to any
powers conferred under the Act, shall not convey the
GR: No person/party shall be subject to any civil or
criminal liability on respect of EDM/ED for which same with any other person
person/party acting as service provider, merely UNLAWFUL ACTS AND PENALTIES
provides access if such liability is founded on; including
the making, publication, dissemination, or distribution 1) Hacking or Crackling
of such material including possible infringement of - unauthorized access into or interference in a
any right subsisting in or in relation to such material, computer system/server or I&C System
- FINE: 100,000 minimum up to maximum amount
PROVIDED THAT: of damages incurred
✓ service provider does not have actual - IMPRISONMENT: 6 months to 3 yrs
knowledge, or isn’t aware of the facts or 2) Piracy
circumstances from which it is apparent, that - unauthorized copying, reproduction,
such act(s) are unlawful or infringes any rights dissemination, or distribution, importation, use,
✓ service provider does not knowingly receive a removal, alteration, substitution, modification,
financial benefit directly attributable to the storage, uploading, downloading, communication,
unlawful or infringing activity; and making available to the public, or broadcasting of
✓ service provider does not directly commit any protected material, electronic signature or copyrighted
infringement or other unlawful act and does works in a manner that infringes intellectual property
not cause person/party to commit any rights
 2Doctrineof piercing the veil of corporate fiction as an
- FINE: 100,000 minimum up to maximum amount
of damages incurred exception to doctrine of separate personality:
- IMPRISONMENT: 6 months to 3 yrs
a) Fraud cases – when corporate fiction is used to
3) Violations of Consumer Act of RA 7394 & other relevant
commit fraud
to pertinent law through transactions or using b) Alter ego cases – when corporation is a mere
EDM/ED instrumentality or alter ego of stockholders or
- FINE: penalties provided in those laws owners
4) Other violations of provisions of E-Commerce Act c) Defeat public convenience cases –corporate
- FINE: 1,000,000 maximum fiction is used to commit tax evasion or to
- IMPRISONMENT: 6 yrs maximum justify/defend crime
d) Equity cases – in case of labor cases in order to
RECIPROCITY promote social justice
- same rules of this Act shall also apply to parties STATUS OF ULTRA VIRES ACTS
whose country origin grants the same to Filipino
citizens BY THE CORPORATION
Those illegal per Null and void
se
REVISED CORPORATION
Failure to Null and void
ATTRIBUTES OF A CORPORATION comply w/
a) Corporate Entity Theory voting formality but declaration of nullity maybe
b) Piercing the Veil of Corporate Entity2: required by law barred by estoppel
Artificial
subject to equitable limitations to
being1
prevent its being used as a cloak/cover For being
for fraud/illegality or to work injustice outside primary
Voidable on the part of the other
Commencement of corporate existence: and secondary
party
upon issuance of COI except: purposes of
Corporations by estoppel corporation
Those created by special laws
Corporation sole: from filing of verified BY THE CORPORATE OFFICERS IN BEHALF OF
articles CORPORATION
Commencement of business: upon COI
Created by
issuance must formally organize & Those illegal per Null and void
operation of
commence business se
law
Organization meeting of SH to elect BOD
Adoption of by-laws Unenforceable but they may become
Organizational meeting of BOD to elect enforceable on the basis of:
Those
officer, adoption of corporate seal,
unauthorized or - Express or implied
accepting pre-incorporation
when corporate ratification by corporation
subscriptions, establishing principal
officers exceed - Doctrine of estoppel
office, etc.
their authority - Doctrine of apparent
Death, incapacity or civil interdiction of
Right of authority of the corporate
one or more of its SH does not result in
succession officers
its dissolution
Implications of corporation for being artificial being:
FORMING A COPORATION
- Corporation cannot be held criminally liable
particularly imprisonment, but it may be held liable ADVANTAGES DISADVANTAGES
for fines for corporate crimes. Corporate officers
Continuity of existence High cost of formation
who approve particular corporate crime will be
held criminally liable Limited liability on the Little voice of stockholders in
- As a GR, a corporation is not entitled to moral part of investors management
damages except when a corporation has
reputation that is debased, resulting in its Strong juridical
humiliation in business real case of civil action for personality
damages for libel/defamation
- Corporation is not entitled to constitutional right
against self-incrimination
Legal capacity to act as a Weakened credit rating appearance can’t be permitted to
distinct unit because of limited liability deny its existence in action under said
feature contract

Centralized management A corporation organized in

DE JURE
Being subject to greater accordance with requirements of law
Ease in transferability of degree of governmental
shares of stocks (stock regulation A corporation where there exists a
corp.) flaw in its incorporation. The
requisites:
Ease in raising funds More taxes
DE FACTO a) There exists a valid law under
which it may be
REMEDIAL RIGHT OF A STOCKHOLDER incorporated;
INDIVIDUAL SUIT For direct violation of his b) An attempt in good faith to
contractual rights (SH vs incorporate;
Corporation) c) Use of corporate powers
Formed for some private purpose,
PRIVATE/CIVIL
REPRESENTATIVE In his own behalf or on behalf of benefit, aim or end
SUIT all similarly situated (Association
of SH vs Corporation) Formed for gov’t and which have for
PUBLIC their purpose are the general good
DERIVATIVE SUIT Brought by one or more and welfare
stockholders or members in the
name and on behalf of Owned by private individuals but
corporation to redress wrongs QUASI-PUBLIC performing an essential governmental
committed against it or to protect function
or vindicate corporate rights,
Organized for spiritual purposes or for
whenever officials of corporation
ECCLESIASTICAL administering properties held for
refuse to sue or are ones to be
religious ones
sued or hold control of
corporation (SH in behalf of
Organized for purposes other than
corporation vs Board of Directors
religion. They may further be
of Corporation)
classified as:

LAY a. ELEEMOSYNARY: created for

TYPES OF CORPORATIONS
charitable purposes
Authorized to distribute to SH
STOCK dividends or allotment of surplus b. CIVIL: organized for benefit of its
profits on basis of shares held members

Not authorized to distribute surplus Composed of no. of individuals vested

NON-STOCK AGGREGGATE
profits with corporate powers.

Public corporation created by special Created by special law for public

MUNICIPAL law for governance of a particular GOCC purpose but performing proprietary or
local territory commercial functions

formed under any laws other than

FOREIGN
those of Philippines

Whose shares of stock are held by

limited number of persons like family
CLOSE or another closely-knit group.
Shareholders are active in the conduct
of corporate affairs

BY ESTOPPEL Group of persons which hold itself out

as a corp. which enter into contract
(OSTENSIBLE) with 3rd persons on strength of such
 BOD BOT Notes OFFICERS NOTES
Term 1 year 3 years President Must be a director
Not Maybe
Treasurer Must be a resident
Composition more more
than 15 than 15 Secretary Must be a resident citizen
Majorit Majorit Each Composi Compliance Only if corp. is vested with public
y of y of stockholder/memb tion Officer interest
OSC1 member er shall have right
s to nominate any Person may hold 2 or more positions
entitled director/trustee concurrently
to vote2 except when
exclusive right is except no one shall act as president-secretary
Election
reserved for or as president-treasurer at same time
In holders of
person/proxy/remo founder’s shares; Liability Same with that of the board
te
communication/in no delinquent
absentia stock shall be MEETINGS OF BOARD
voted
BOD BOT
Only reasonable
per diems in Time Monthly unless Anytime upon
Corporations with
absence of a by- bylaws provide call of
public interest
laws provision president or
submit to their SH
Compensati bylaws
and SEC an annual
on Limit: Total yearly
report of total
compensation not Place Anywhere Within PH only
compensation of
to exceed 10% of in/out PH
the board
NI before taxes of unless bylaws
preceding year provide
1SH may: 2 days prior meeting unless longer
a) Vote such number of shares for as many period in bylaws is provided
persons as there are directors to be elected Notice
b) Cumulate said shares and give one candidate May be waived by a D/T expressly
as many votes as number of directors to be or impliedly
elected multiplied by number of shares owned
c) Distribute them Quorum Majority
Subject to limit: # of shares owned X # of directors to be
Manner of In person or remote
elected
voting/attending communication
2 (videoconferencing, etc.);
May cast as many votes as there are trustees to be elected
but may not cast more than 1 vote for 1 candidate NO PROXY
1) Jointly and severally 2) As a trustee, he
for all damages resulting must account for Vote needed for a Majority of quorum
therefrom the profits which valid corporate
GROUNDS: would’ve accrued act except for election of officers
Willfully and knowingly to the corporation (majority of all board in this case)
vote for patently GROUND:
Liability
unlawful acts acquiring an Note: if D/T has potential interest in any related party
Guilty of gross interest adverse transaction: he must recuse from voting on approval of
negligence/bad faith in to the corporation such
directing affairs
c. Acquire any personal or
pecuniary interest
MEETINGS OF SH/M
REGULAR SPECIAL
When fixed in bylaws or if not fixed, any date after Anytime deemed necessary
Date
April 15 of every year determined by board called by SH/M
Principal office of corporation set in AOI or if not practicable, in the city/municipality
Place
where principal office is located
(a) In person, (b) through a proxy,
(c) though remote communication, (d) in absentia
Manner of voting/attending (c) and (d) shall be allowed when authorized in bylaws or by majority vote of board
provided votes are received before corporation finishes tally of votes and they shall
be deemed present for quorum purposes
21 days prior 1 week
Notice May be waived expressly or impliedly provided
general waivers of notice in AOI/bylaws NOT BE ALLOWED
Closing of stock and transfer book 20 days 7 days
Quorum Majority of OSC/M unless provided in bylaws
2 weeks prior meeting -
Postponement
unless different period in bylaws
Who may propose an inclusion to the SH/M and board provided SH/M
agenda? FS shall be presented always
Whenever there is no person SEC, upon petition of SH/M upon showing of good cause, may issue order directing
authorized or person authorized petitioning SH/M to call meeting by giving proper notice and petitioning SH/M
unjustly refuses to call meeting shall preside until majority of SH/M present have chosen from among themselves
Note: All proceedings and any business transacted, if within the powers or authority of the corporation, shall be valid even if
the meeting is improperly held or called provided, all SH/M are present or duly represented at meeting and not one of them
expressly states at beginning of meeting that purpose of their attendance is to object to the transaction of any business
because meeting is not lawfully called or convened

OFFENSES and PENALTIES

FINE
WITH COURT
OFFENSE Not Detrimental OTHER PENALTIES
DISCRETION
detrimental to public
Any person, w/o justifiable
cause, fails/refuses to comply Contempt plus P1,000 daily if refusal
with any lawful order or P30,000 amounts to clear and open defiance
decision or subpoena issued by until it is complied with
SEC
a) P5,000 to P2M AND not more than P1,000 for each day of continuing
SEC finds any RCC provision has violation but not to exceed 2M
been violated b) Issuance of permanent cease-and-desist order
(Any or all of ff) c) Suspension or revocation of COI
d) Dissolution of corporation and forfeiture of its assets
Unauthorized use of corporate P10,000 to
name P200,000
When, despite knowledge of
existence of ground for disquali. Permanent disqualification from being
YES
(from being D/T/O), he willfully D/T/O
P10,000 to P20,000 to
conceals disqualification
P200,000 P400,000
Violation of duty to maintain
records, to allow their inspection YES
or reproduction
Willful certification of
P20,000 to P40,000 to
incomplete, inaccurate, false or
P200,000 P400,000
misleading statements/reports
P80,000 to P100,000 to
Independent auditor collusion
P500,000 P600,000
 Those responsible for formation
of corporation through fraud or P200,000 to P400,000 to
who assisted directly or P2M P5M
indirectly
Corporation conducts its P200,000 to P400,000
business through fraud P2M to P5M
Notes:
The ff. be prima facie evidence of if D/T/O or agents or representatives
Corporation used for fraud, for
are engaged in it:
concealing graft and corrupt
Failure to install
practices
a) safeguards for transparent & lawful discovery of services
b) policies, code of ethics & procedures against graft & corruption
Any person who, knowingly and
with intent to retaliate, commit P100,000 to Note: such as interfering with lawful employment or YES
acts detrimental to P1M livelihood of whistleblower
whistleblower
Other violations of other RCC Dissolution Note: dissolution won’t preclude institution of
provisions (if corp.) appropriate action against D/T/O
NOTE: Liability for any of the foregoing offenses shall be separate from any other administrative, civil or criminal liability
under RCC and other laws

Holders of nonvoting shares shall be entitled to • Pawnshops

vote on ff matters (others will need voting rights): • Non-stock savings and loan associations (NSSLAS)
IIIAMSAD
Contents of AOI
• Investment of corporate funds
• Increase/decrease of authorized capital stock • Name of corporation
• Incurring, creating or increasing bonded • Specific purpose(s) for which it is being formed (if
indebtedness more than one, state primary and secondary)
• Amendment of AOI • Principal office within Philippines
• Merger/consolidation • Corporate term, if not elects perpetual existence
• Sale, lease and other disposition of • Number of directors (not more than 15) or trustees
all/substantially all corporate property (may be more than 15)
• Adoption and amendment of by-laws • Names, nationalities, residences and addresses of
• Dissolution acting directors/trustees until are elected
• Details of SC & subscribers (stock corporation)
Corporations not permitted to issue no-par value • Amount of capital and details of contributors
shares of stock BLTBPIPuCo (nonstock corporation)
• Arbitration agreement may also be provided
• Building and Loan associations • Such other matters necessary and convenient
• Trust companies
• Banks Form of AOI (changes due to RCC) 2A2R
• Preneed companies
• Addition of OPC to the name of corp. (OPCs)
• Insurance companies
• Addition of an undertaking that incorporators
• Public utilities
change the corporate name in case it is already
• Corporations authorized to obtain/access public
taken, or it is not distinguishable, or it is contrary
funds, whether publicly listed or not
to law, public morals, good customs or public
Corp. needing favorable recommendation of appropriate policy
govt agency for (revival, board w/ independent directors at • Removal of 25-25-5000 rule
least 20% of board, adoption of bylaws): • Removal of treasurer’s affidavit

BBQTCOP-NSSLAs Ground when AOI/its amendment may be

disapproved
• Banks
• Banking and Quasi-banking institutions • Not substantially in accordance with form
• Trust companies prescribed
• Corporations engaged in money service business
• Other financial intermediaries
 • Purpose(s) of corporation are patently • Contract is fair and reasonable
unconstitutional, illegal, immoral or contrary to • In case of corps vested with public interest, 2/3
govt rules and regulations entire board membership plus majority of
• Certification concerning the amount of capital independent directors
stock subscribed/paid is false • In case of an officer, contract has been previously
• Required % of Filipino ownership of capital stock authorized by board
under existing laws/Constitution not complied with
Note: where any of the first 3 is absent, can be ratified
No corporate name shall be allowed if: DPC by vote of 2/3 of OSC/members also provided full
disclosure of adverse interest of D/T involved is made
• Not Distinguishable from that already reserved or at such meeting and contract is fair and reasonable
registered for use of another corporation under circumstances
• Such name is already Protected by law
• Its use is Contrary to existing law, rules and This also applies to contracts between corporations
regulations with interlocking directors provided

Corporation is not distinguishable even if it contains • Contract is fair and reasonable

one/more of ff: • Interest of interlocking director in one
corp. is substantial (>20% of OSC) and in
• Word “corporation”, “company”, “incorporated”, other is merely nominal
“limited”, “limited liability” or an abbreviation of Contract is invalidated in cases of fraud
one of such words
• Punctuations, articles, conjunctions, contractions,
prepositions, abbreviations, different tenses, 2If bylaws provide, board may create executive committee
spacing or number of same word or phrase (3 directors) which may act on such specific matters
delegated by board (majority vote of ALL members)
Board of ff corporation vested with public interest shall
EXCEPT: FA D
3

have independent directors at least 20% of board

• Filling of vacancies in board
• Corporations whose securities are registered with
• Adoption/amendment/repeal of bylaws
SEC, listed with an exchange or with assets of at
• Approval of any action for which shareholders’
least P50M and having 200/more shareholders
approval is also required
with at least 100 shares of class of its equity shares
• Amendment/repeal of any board resolution (which
• Those corporations needing a favorable
by express terms are not amenable and
recommendation of appropriate government
repealable)
agency (BBQTCOP-NSSLAs)
• Distribution of cash dividends
• Other corps engaged in business with public
interest Express Powers of corporation
Ground for disqualification from being elected as D/T/O: • To sue and be sued in its corporate name
(w/o prejudice to qualifications & disqualifications SEC or • To have perpetual existence unless COI provides
Philippine Competition Commission may impose) otherwise
If within 5 years prior to election/appointment, person was: • To adopt and use a corporate seal
• To amend its AOI
• Convicted by final judgment • To adopt bylaws and to amend/repeal same
o Of offense punishable by imprisonment • To issue or sell stocks, in case of stock corporations
for period exceeding 6 years • To purchase, receive, sell, lease, deal etc. such real
o For violating RCC and personal property
o For violating SRC • To enter into partnership, joint venture, merger,
• Found administratively liable for any offense consolidation etc.
involving fraud acts • To establish pension, retirement, other plans, etc.
• By foreign court/authority for acts, violations • To make reasonable donation provided NO foreign
similar to (a) and (b) above corporation shall give donations in aid of any
political party/candidate OR for purposes of
A contract of the corporation with its D/T/O or their
partisan political activity
spouses and relatives within 4 civil degree consanguinity or
th

• To exercise such other powers essential or

affinity is VOIDABLE unless ALL are present:
necessary
• Presence of such D/T in board meeting in which 1Certificate must be signed by secretary, in
contract was approved was not necessary to
increasing/decreasing capital stock OR
constitute quorum
• Vote of such D/T wasn’t necessary for its approval
incurring/creating/increasing bonded • when corp. is prohibited under any loan agreement
indebtedness, setting forth: with financial institutions or creditors (local or
foreign) from declaring dividends w/o their
• Requirements have been complied with (voting consent
rule) • when it can be clearly shown retention is necessary
• Amount of increase or decrease of capital stock (ex: special reserve for probable contingencies)
• In case of increase of capital stock, amount of
capital stock actually subscribed and details of Implied Powers of corporation ISEO
subscribers
• Any bonded indebtedness to be incurred, created • To Issue checks or promissory note or bill of
or increased exchange or mercantile documents
• Amount of stock represented at the meeting • To Sell, supply or manage advertising materials
(advertising company)
• Vote authorizing the action
• To Establish a local post office (mining company)
Notes: In case of decrease of capital stock, shall not be • To Operate power plant (cement factory company)
approved if it shall prejudice rights of corporate
creditors. In case of increase in capital stock, in Contents of bylaws
applying to SEC, accompany certificate with sworn • Time, place and manner of calling and conducting
statement of corporate treasurer showing that at regular or special meetings of board
least 25% of increase in capital stock has been • Time and manner of calling and conducting regular
subscribed and 25% has been paid in actual cash or or special meetings and mode of notifying
property in that its valuation is equal to 25% of
• Required quorum in SH/M meetings & voting
subscription
manner
Power to deny preemptive right • Modes by which SH/M/D/T may attend meetings
and cast their votes
• All SH shall enjoy this right unless denied by AOI • Form for proxies of SH/M & manner of voting them
• Such right shall not extend • Board qualifications, duties and responsibilities,
o to shares issued in compliance with laws guidelines for setting compensation of D/T/O, and
requiring stock offerings or minimum maximum number of other board representations
stock ownership by public that an independent D/T may have which shall, in
o to shares issued in good faith with no case, be more than the number prescribed SEC
approval of stockholders representing 2/3 • Time for holding annual election of directors of
of OSC in exchange for property needed trustees and mode or manner of giving notice
for corporate purposes OR in payment of • Manner of election or appointment and term of
previously contracted debt office of all officers other than D/T
Incidental Powers of corporation • Penalties for violation of bylaws
• For stock corporations, manner of issuing stock
• Right of succession certs
• Right to have corporate name • An arbitration agreement may also be provided
• Right to make by-laws for its governance • Such other matters as may be necessary
• Right to sue and be sued
Each notice of meeting shall be accompanied by ff:
• Right to acquire and hold properties for the
purposes authorized by charter • Agenda for meeting
Power to acquire own shares provided corporation has • Proxy form which shall be submitted to corporate
unrestricted RE for a legitimate corporate purpose(s) secretary within reasonable time prior to meeting
including: • When attendance, participation, and voting are
allowed by remote communication or in absentia,
• to eliminate fractional shares the requirements and procedures to be followed
• to collect/compromise indebtedness to corp., when SH/M elects either option
arising out of unpaid subscription, in a delinquency • When meeting is for board election, the req’ts and
sale procedures for nomination and election
• to pay dissenting/withdrawing stockholders
Matters to be presented by board in SH/M regular
Stock corps are prohibited from retaining surplus profits in meeting:
excess of 100% of paid-in capital stock except:
• Minutes of most recent regular meeting w/c
• when justified by definite corporate expansion include:
projects/programs approved by board o Description of voting and vote tabulation
procedures used in previous meeting
 o Description of opportunity given to SH/M • Shares of stock in another corporation
to ask questions and a record of questions • Other generally accepted form of consideration
asked and answers given
o Matters discussed, and resolutions Note: Where consideration is other than actual
reached cash or consists of intangible property such as
o Record of voting results for each agenda patents or copyrights, valuation thereof shall
item initially be determined by stockholders or the
o List of D/T/O/SH/M who attended board of directors, subject to the approval of SEC.
meeting Shares of stock shall not be issued in exchange for
o Such other items that the SEC may promissory notes or future service.
require Issued price of no-par value shares may be fixed: ABS
• Members’ list for non-stock corporations and, for
stock corporations, material information on • in the AOI
current stockholders, and their voting rights • by the Board of directors pursuant to authority
• Detailed, descriptive, balanced and conferred by AOI or bylaws
comprehensible assessment of corporation’s • if not so fixed, by the SH representing at least a
performance, which shall include information on majority of the outstanding capital stock
any material change in corporation’s business,
strategy, and other affairs Every corporation shall keep and carefully preserve at its
• Financial report for preceding year (FS, a principal office all information relating to the corporation
statement on adequacy of corporation’s internal including, but not limited to:
controls or risk management systems, and a • AOI and by-laws of corporation and all
statement of all external audit and non-audit fees) amendments;
• Explanation of dividend policy and the fact of • Stock and transfer book
payment of dividends or reasons for nonpayment
• Current ownership structure and voting rights of
• D/T profiles corporation, including lists of SH/M, group
• D/T attendance report, indicating attendance of structures, intra-group relations, ownership data,
each D/T at each of board meetings, its and beneficial ownership
committees and in regular or special SH meetings • Names and addresses of all members of board of
• Appraisals and performance reports for board and D/T and executive officers
criteria and procedure for assessment • Record of all business transactions
• D/T compensation report prepared in accordance
• Record of resolutions of board and of SH/M
with this Code and rules SEC may prescribe
• Latest reportorial req’ts copies submitted to SEC
• Director disclosures on self-dealings and related
• Minutes of all meetings of SH/M, or of board. Such
party transactions
minutes shall set forth in detail, among others:
• Profiles of D/T nominated or seeking (re)election
• time and place of meeting held
No voting trust agreement be entered into for purposes of: • how it was authorized
• notice given
• circumventing laws against anti-competitive • agenda
agreements • whether meeting was regular or special
• abuse of dominant position • its object if special
• anti-competitive mergers and acquisitions • those present and absent
• violation of nationality and capital requirements • every act done or ordered done at meeting
• perpetuation of fraud
Note: Upon demand of a D/T/SH/M: ff must be noted:
Consideration for stocks:
• time when any D/T/SH/M entered or left
• Actual cash paid to the corporation the meeting
• Property, tangible or intangible, actually received • records of yeas and nays must be taken
by corporation and necessary or convenient for its on any motion or proposition
use and lawful purposes at a fair valuation equal • records of protest of a D/T/SH/M on any
to the par or issued value of the stock issued action or proposed action
• Labor performed for or services actually rendered
to corporation Note: corporate records shall be open to
• Previously incurred indebtedness of corporation inspection by any D/T/SH/M in person or by
• Amounts transferred from unrestricted RE to representative ONLY at reasonable hours on
stated capital business day. A demand in writing may be made
• Outstanding shares exchanged for stocks in event by such at their expense for copies. The inspecting
of reclassification or conversion and reproducing party shall remain bound by
 confidentiality rules under prevailing laws • Provisional or pro-forma values, as merged or
(Intellectual Property Code, Data Privacy Act, SRC) consolidated, using accounting method
in which he may be penalized under Sec 158 • Such other information as may be prescribed by
without prejudice to provisions of IPC and DPA. SEC
Any agent or officer of corporation who shall
refuse to allow inspection and/or reproduction When the appraisal right may be exercised (right of first
shall be liable for damages + guilty of Sec 161 refusal can be observed first) AIM-CSC
EXCEPT if such refusal is made pursuant to a
• Amendment to AOI has effect of
board resolution/order in which liability shall be
changing/restricting stockholder rights or
imposed on the board who voted for such refusal.
authorizing preference shares in any respect
Following are proper defenses by corporation on any superior to outstanding shares
action by person demanding to examine and copy excerpts • Investment of corporate funds for any other
from corporation’s records and minutes: GLIC purpose other than primary purpose of corp.
• Merger or consolidation
• not acting in Good faith • Changing corporate term (shortening or extending)
• not for a Legit purpose • Sale, disposition, etc. of all/substantially all of
• he has Improperly used any info secured corporate property and assets
• is a Competitor, director, officer, controlling SH or • In a Close corporation, SH may for any reason,
otherwise represents interests of competitor compel corporation to purchase his shares when
the corporation has sufficient assets in its books to
Aggrieved party may report to SEC if corporation
cover its debts and liabilities exclusive of capital
denies or doesn’t act on the demand
stock
Stock and transfer agent be allowed to operate upon:
Following cannot be close corporations: I COME BSP
• securing license from SEC
• Insurance companies
• payment of a fee fixed by SEC
• Corporations vested with public interest
Note: SEC may require stock corporations, which • Oil companies or Mining
transfer and/or trade stocks in secondary markets, to • Educational institutions
have an independent transfer agent • Banks
• Stock exchanges
Board of each corporation, party to merger or • Public utilities
consolidation, shall approve a plan of merger or
consolidation setting forth ff: AOI of a close corporation:
• Names of corporations proposing to merge or • Classification of shares or rights, qualifications for
consolidate (constituent corporations) holding the same and restrictions on their transfers
• Terms of merger or consolidation and mode of • Classification of directors into 1 or more classes
carrying same into effect • Greater quorum or voting requirements
• Statement of changes, if any, in AOI of surviving • May provide that corporate business be managed
corporation in case of merger; and, in case of by SH rather than by BOD (in which no meeting of
consolidation, all statements required to be set SH needs to be called to elect directors) in which
forth in AOI for corporations organized under RCC they will be liable as directors also
• Such other provisions deemed necessary or • May provide that all officers or employees shall be
desirable elected or appointed by SH instead of by the BOD
After approval by SH/M, articles of merger/consolidation Issuance of shares where preemptive right is not available
shall be executed by each of the constituent corporations • Shares to be issued to comply with laws requiring
setting forth: stock offering or minimum stock ownership by the
public such in the case of initial public offering (IPO)
• Plan of merger or plan of consolidation
• To shares that are being reoffered by corporation
• As to stock corporations, number of shares
after they were initially offered together with all the
outstanding, or in case of non-stock corporations,
shares to existing SH who initially refused them
the number of members
• Shares issued in good faith with approval 2/3 of OSC
• As to each corporation, number of shares or
in exchange for property needed for corp. purposes
members voting for or against such plan
• Shares issued, with approval of 2/3 of OSC, in
• Carrying amounts and FV of assets and liabilities of
payment of previously contracted debts of corp
respective companies as of agreed cut-off date
• Waiver of the right by the SH
• Method to be used in merger or consolidation of
• In case of non-stock corporation
accounts of companies
 • In so far as assignee is concerned, where assignors Effects of issuance/transfer of stock in breach of qualifying
have previously exercised their pre-emptive rights conditions in a close corporation
to subscribe to new shares
• When pre-emptive right is denied in AOI or • If stock is issued or transferred to any person who
amendment thereto is not eligible under any provision of AOI and if the
Rules of distribution undergoing process of dissolution: certificate for such stock conspicuously shows
qualifications of persons entitled to be holders of
• all liabilities and obligations shall be paid record, such person is conclusively presumed to
• assets held upon condition requiring return and have notice of the fact of the ineligibility to be a
which condition occurs by reason of dissolution stockholder
shall be returned • If AOI states number of persons, not exceeding
• assets received and held subject to limitations twenty (20), who are entitled to be SH of record
permitting their use only for charitable, religious, and if certificate for such stock conspicuously
benevolent, educational or similar purposes but states such number and issuance or transfer of
not held upon condition requiring return shall be stock to any person would cause stock to be held
transferred to 1 or more by more than 20, person to whom such stock is
corporations/societies/organizations engaged in issued or transferred is conclusively presumed to
activities in PH substantially similar to that of have notice of this fact
dissolving corp. • If stock certificate conspicuously shows a
• Assets other than in (c) shall be distributed in restriction on transfer of corporation’s stock and
accordance with AOI/bylaws transferee acquires stock in violation of such
• Assets may be distributed to such persons, restriction, transferee is conclusively presumed to
societies, orgs or corps whether or not organized have notice of the fact that stock was acquired in
for profit violation of restriction
• Whenever a person to whom stock has been issued
Agreements by stockholders in a close corporation or transferred has, or is conclusively presumed to
have notice of:
• Agreements duly signed and executed by and
o the person’s ineligibility to be a
among all SH before formation and organization
stockholder of the corporation, or
of a close corporation shall survive incorporation
o that the transfer of stock would cause the
and shall continue to be valid and binding
stock of the corporation to be held by
between such SH, if such be their intent, to the
more than the number of persons
extent that such agreements are consistent with
permitted under its articles of
AOI, irrespective of where provisions of such
incorporation; or
agreements are contained
o that the transfer violates a restriction on
• Written agreement signed by two (2) or more SH
transfer of stock
may provide that in exercising any voting right,
shares held by them shall be voted as provided as Corporation may, at its option, refuse to register
agreed, or in accordance with a procedure agreed transfer in the name of transferee
upon by them
• No provision in written agreement signed by SH, • Provisions in #4 shall not be applicable if transfer
relating to any phase of corporate affairs, shall be of stock, though contrary to #1, 2 or 3, has been
invalidated between parties on ground that its consented to by all SH of close corporation, or if
effect is to make them partners among themselves close corporation has amended its AOI
• Written agreement among some/all of SH in a • Term “transfer” is not limited to a transfer for
close corp. shall not be invalidated on ground that value.
it relates to conduct of the business and affairs of • Provisions of this section shall not impair any right
corporation as to restrict or interfere with which the transferee may have to either rescind
discretion or powers of BOD: Provided, such the transfer or recover the stock under any
agreement shall imposed on SH who are parties express or implied warranty.
thereto liabilities for managerial acts imposed on
Any action taken by directors of a close corporation without
directors
a meeting called properly and with due notice shall be
• SH actively engaged in management or operation
deemed valid if:
of business and affairs of a close corporation shall
be held to strict fiduciary duties to each other and • Before or after such action is taken, written
among themselves. The SH shall be personally consent is signed by all D
liable for corporate torts unless the corporation • All SH have actual or implied knowledge of the
has obtained reasonably adequate liability action and make no prompt objection in writing
insurance • Directors are accustomed to take informal action
with express or implied acquiescence of all SH
 • All directors have express or implied knowledge of • compel its dissolution, by written petition to SEC,
action in question and none of them makes a of such corporation whenever any of acts of
prompt objection in writing directors, officers, or those in control of
corporation is illegal, fraudulent, dishonest,
An action within the corporate powers taken at a oppressive or unfairly prejudicial to corporation
meeting held without proper call or notice, is or any stockholder, or whenever corporate assets
deemed ratified by a director who failed to are being misapplied or wasted
attend, unless after having knowledge, the
director promptly files his written objection with Contents AOI of corporation sole:
the secretary of the corporation.
• That applicant chief archbishop, bishop, priest,
In cases of deadlocks in close corporations (D/SH are so minister, rabbi, or presiding elder represents
divided on management of corporation’s business and religious denomination, sect, or church who desires
affairs that votes required for a corporate action cannot be to become a corporation sole
obtained, with consequence that corporate business and • That rules, regulations and discipline of religious
affairs can no longer be conducted to the advantage of SH denomination, sect or church are consistent with
generally), SEC, upon written petition by any SH, shall becoming a corporation sole and do not forbid it
have power to arbitrate the dispute. SEC shall have • That such chief archbishop, bishop, priest, minister,
authority to make appropriate orders such as: rabbi, or presiding elder is charged with
administration of temporalities and management
• cancelling or altering any provision contained in
of affairs, estate and properties of religious
AOI, bylaws, or any stockholder’s agreement
denomination, sect, or church within territorial
• cancelling, altering or enjoining a resolution or act jurisdiction, so described succinctly in AOI
of corporation or its BOD/SH/O
• directing or prohibiting any act of corporation or • Manner by which any vacancy occurring in office of
its BOD, SH, O, or other persons party to the chief archbishop, bishop, priest, minister, rabbi, or
action; presiding elder is required to be filled, according to
• requiring purchase at their fair value of shares of the rules, regulations or discipline of the religious
any stockholder, either by the corporation denomination, sect, or church
regardless of the availability of unrestricted RE in • Place where principal office of the corporation sole
its books, or by other SH is to be established and located, which place must
• appointing a provisional director be within territory of the Philippines
• dissolving the corporation • May include any other provision not contrary to
• granting other relief as circumstances may law for regulation of the corporate affairs
warrant
AOI shall be submitted to SEC, accompanied by
A provisional director shall be an impartial person who certificate of election/commission or letter of
is neither a stockholder nor a creditor of corporation or appointment
any of its subsidiaries or affiliates. A provisional
director is not a receiver of corporation and does not A corporation sole may:
have title and powers of a custodian or receiver. A • purchase and hold real estate and personal
provisional director shall have all the rights and property for its church. Charitable, benevolent or
powers of a duly elected director, including right to be educational purposes
notified of and to vote at meetings of directors until • may receive bequests/gifts for such purposes
removed by order of SEC or by all the stockholders.
• may sell/mortgage real property by obtaining an
Compensation of the provisional director shall be order for that purpose from RTC of province
determined by agreement between such director and where property is situated upon proof that
the corporation, subject to approval of SEC, which may application for leave to sell/mortgage has been
fix the compensation made through publication. Application for leave to
• absent an agreement sell/mortgage (alienation of property) must be
• in the event of disagreement between provisional made by petition by presiding elder
director and corporation A corporation sole may be dissolved, and its affairs settled
Any SH of a close corp. may, for any reason, compel corp. voluntarily by submitting to the Commission a verified
declaration of dissolution, setting forth:
• to purchase shares held at fair value, which shall
not be less than par or issued value, when corp. • Name of corporation
has sufficient assets in its books to cover its debts • Reason for dissolution and winding up
and liabilities exclusive of capital stock • Authorization for dissolution of the corporation by
particular religious denomination, sect or church
 • Names and addresses of persons who are to • Exercise supervision and jurisdiction over all
supervise corporations and persons acting on their behalf,
except as otherwise provided under this Code
Contents of AOI of religious societies • Retain jurisdiction over pending cases involving
• That religious society/district organization is a intracorporate disputes submitted for final
religious organization of a religious denomination, resolution. The SEC shall retain jurisdiction over
sect or church pending suspension of payment/rehabilitation
• That at least two-thirds (2/3) of its membership cases filed as of 30 June 2000 until finally disposed
has given written consent or has voted to • Impose sanctions for the violation of this Code, its
incorporate at a meeting implementing rules, and orders of SEC
• That incorporation of religious society/district • Promote corporate governance and protection of
organization is not forbidden by competent minority investors through issuance of rules and
authority or by Constitution, rules, regulations or regulations consistent w/ international best
discipline of religious denomination of which it practices
forms part • Issue opinions to clarify the application of laws,
• That religious society/district organization desires rules, and regulations
to incorporate for administration of its affairs, • Issue cease and desist orders ex parte to prevent
properties and estate imminent fraud or injury to the public
• Place within PH where principal office of • Hold corporations in direct and indirect contempt
corporation is to be established and located • Issue subpoena duces tecum and summon
• Names, nationalities, and residence addresses of witnesses to appear in proceedings before the
trustees, not less than five (5) nor more than Commission
fifteen (15), elected by religious society/district • In appropriate cases, order the examination,
organization to serve for first year or such other search and seizure of documents, papers, files and
period as may be prescribed by laws of religious records, and books of accounts of any entity or
society/district organization person under investigation necessary for proper
disposition of cases, subject to provisions of
Visitorial powers of SEC existing laws
• Suspend or revoke the certificate of incorporation
• examination and inspection of records
after proper notice and hearing
• regulation and supervision of activities
• Dissolve or impose sanctions on corporations, upon
• enforcement of compliance final court order, for committing, aiding in the
• imposition of sanctions commission of, or in any manner furthering
Note: refusal of which may result to SEC revoking the securities violations, smuggling, tax evasion,
corporation’s COI money laundering, graft and corrupt practices, or
other fraudulent or illegal acts
All interrogatories propounded by SEC and answers thereto, • Issue writs of execution and attachment to enforce
as well as any examination results made shall be kept payment of fees, administrative fines, and other
strictly confidential EXCEPT dues collectible under this Code
• Prescribe the number of independent directors and
• when law requires same to be made public
the minimum criteria in determining the
• when necessary for SEC to take action to protect independence of a director
public or to issue orders in exercise of powers
• Impose or recommend new modes by which a
• where such are necessary to be presented as SH/M/D/T may attend meetings or cast their
evidence votes, as technology may allow, taking into
Upon receipt of a withdrawal of request for dissolution, SEC account the company’s scale, number of
shall withhold action on request/petition for dissolution and shareholders or members, structure, and other
shall, after investigation: factors consistent with the basic right of corporate
suffrage
• make a pronouncement that the request for • Formulate and enforce standards, guidelines,
dissolution is deemed withdrawn policies, rules, and regulations to carry out the
• direct joint meeting of board & SH/M for purpose provisions of this Code
of ascertaining whether to proceed with • Exercise such other powers provided by law or
dissolution those, which may be necessary or incidental to
• issue such other orders as it may deem appropriate carrying out, powers expressly granted to SEC
SEC shall have the power and authority to:
 REPUBLIC ACT NO. 11232: Revised Corporation Code
2 Notice to regular/special meeting of BOARD Period to fill vacancy in board other than
45 days
days term expiration and removal
3 Notifying SEC from creation of emergency Decision by BOD to sell delinquent stocks or
30-60d
days board not
SEC conducts investigation upon denial of a
5 Specifying new date for election from date of
corp. to a party from inspection/reproduction 60 days
days scheduled election date
of corporate records from receipt of report
Notice for SH/M special meeting Effectivity of AOI amendment if not acted
upon by SEC
Application in increasing/decreasing share
Report of a D/T/O of his death/resignation to
7 capital OR incurring/increasing bonded
SEC by secretary or his respective heirs in case
days 6 indebtedness from approval w/c maybe
of death in writing
months extended for justifiable reasons
Closing of stock and transfer book before Irrevocability of shares subscription in a
special SH/M meeting corporation still to be formed
Period when delinquency sale may be
questioned, and complaint may be filed
10 Furnish SH/M its most recent FS from receipt of
days written request
Submission of withdrawal of dissolution from Period to resume operations after it
15 SEC receipt of corp’s dissolution commenced business but subsequently
2 years
days became inoperative, or COI be revoked; from
being placed as delinquent status
Closing of stock and transfer book before Extension of corporate term prior
regular SH/M meeting original/subsequent expiry date
Period dissenting stockholder submits Corporate liquidation period, after effective
3 years
20 certificate of stocks after demanding payment date of dissolution, in w/c upon expiration,
days for shares held; failure to do so, his rights be juridical personality of corp. ceases & it can
terminated at option of corp. no longer sue & be sued
Notice of meeting for corporate dissolution
approval
Founder’s share exclusive right to vote and
be voted for
21 Notice for SH/M regular meeting Period for proxy validity and effectivity at
days any one time
Max period where mgt contract can be
entered into for any (1) term
5 years
Submission to SEC of details of elected D/T/O Period a person may be disqualified from
after election being D/T/O prior to election
30 Report to SEC non-holding of elections from Period to formally organize and commence
days date of scheduled election business or else COI be revoked ff end of 5-yr
Payment of subscription with interest until it period; from date of incorporation
becomes delinquent

CORPORATE ACTS WHICH REQURE AT LEAST MAJORITY VOTE OF THE BOD ALONE (OVAF)
Corporate Act Salient Points
Election of Officers Majority vote of all BOD
 Vacancies in BOD if NOT due to removal, Majority vote of remaining • If the directors do not constitute a
expiration of the term or increase in directors if quorum still quorum, SH have the right to elect
number of directors exists (majority)
• Provided that there is unrestricted RE
Power to Acquire own shares Majority vote
• Only for legislative purposes
Fixing the issued Price of No-par value
Majority of quorum of BOD • If authorized by AOI or by-laws
shares
CORPORATE ACTS WHICH REQUIRE AT LEAST MAJORITY VOTE OF THE BOD AND VOTE OF THE STOCKHOLDERS
REPRESENTING AT LEAST MAJORITY OF THE OSC (MA)
Corporate Act Salient Points
2/3 of OSC if:
• SH representing same interest of both
managing and managed corporation
Majority vote of BOD Majority of OSC/M of
own/control more than 1/3 of total OSC
Management of both managing both managing and
entitled to vote of managing
Contract and managed managed
corporation
corporation corporation
• Majority of BOD of managing
corporation also constitute majority of
managed corporation
Adoption,
Amendment may be made by Board only
amendment or Majority vote Majority of OSC
after due delegation by the SH
repeal of by-laws
CORPORATE ACTS WHICH REQUIRE VOTE OF THE STOCKHOLDERS REPRESENTING AT LEAST MAJORITY OF THE OSC
ALONE (FEAR)
Corporate Act Salient Points
• Reasonable per diems may be given
Fixing of compensation of Majority of OSC/M excluding • By-laws may provide for compensation
D/T D/T concerned • Limit: not more than 10% of NI before income
tax
• Candidates with the highest number of votes
get elected
Election of board of D/T Majority of OSC/M • Cumulative voting: No. shares x No. of
directors to be elected
• Non-voting shares cannot vote
Adoption of By-laws Majority of OSC/M • Non-voting shares can vote
Retaining specific
Majority of OSC
corporate term
CORPORATE ACTS WHICH REQUIRE VOTE OF THE STOCKHOLDERS REPRESENTING AT LEAST 2/3 OF THE OSC
ALONE (DPARIS)
Corporate Act Salient Points
Ratification of act of Disloyal 2/3 of
director OSC
• Only if AOI or amendment denies pre-emptive right
2/3 of • Denial extends to shares issued in good faith in exchange for
Denial of Pre-emptive right
OSC property needed for corporate purposes or in payment of
previously contracted debts
Delegation of the power to
2/3 of • Delegation can be revoked by majority OSC
Amend, Repeal or Adopt New By-
OSC • Non-voting shares cannot vote
laws to BOD
• Notice and statement of purpose are necessary
2/3 of
Removal of D/T • Removal without cause cannot be used to deprive minority SH
OSC/M
of their right of representation
 2/3 of • Unless forbidden by authority, Constitution or discipline of
Incorporation of religious societies
OSC/M religious denomination, etc.
• The contract must be fair and reasonable under the
circumstances
Ratification of a contract of Self- 2/3 of
• Full disclosure of adverse interest of D/T involved is necessary
dealing directors OSC/M
• Presence of D/T must NOT be necessary to constitute quorum
OR vote of D/T must NOT be necessary for approval of contract
CORPORATE ACTS WHICH REQUIRE OTHER SPECIFIED VOTING REQUIREMENT (EVA)
Corporate Act Salient Points
Actions allowed for Majority vote of ALL
• See (enum2)
Executive board executive board directors
• Temporary filling among corporate officers for
Vacancy in board prevents
emergencies but limited only to emergency action
board from constituting a Unanimous vote of
necessary and shall cease with reasonable time
quorum and emergency remaining D/T
from termination of emergency or upon election of
action is required
replacement, whichever is earlier
Approval of contract Majority vote of 2/3 of
• ONLY in case of corporations vested with public
between corporation and independent entire
interest
D/T/O concerned directors board
CORPORATE ACTS WHICH REQUIRE AT LEAST MAJORITY VOTE OF THE BOD AND VOTE OF STOCKHOLDERS
REPRESENTING AT LEAST 2/3 OF THE OSC (ADAM-LI³ES)
Corporate Act Salient Points
• Effective upon approval by SEC,
Amendment of AOI Majority vote 2/3 of OSC/M or date of filing if not acted upon
within six months
• Where creditors are not
Dissolution of Corporation where
Majority vote 2/3 of OSC/M affected, SH ratification can only
creditors are affected
be majority
2/3 of members
Adoption of plan of distribution of Majority vote of
having voting
assets of non-stock corporation trustees
rights
Majority of BOD 2/3 of OSC/M of • Appraisal right is available,
Merger or Consolidation plan and its
of constituent constituent except when the plan is
amendment
corps. corps. abandoned
• Majority of the board is
sufficient if the transaction does
Sale, Lease, Exchange, Mortgage, not cover all or substantially all
Pledge, Dispose of all or substantially Majority vote 2/3 of OSC/M of the assets of the corporation
all of corporate assets • If sale is abandoned, director’s
action is sufficient, no need for
ratification by SH
• Prior approval of the SEC is
necessary
Increase or decrease of capital stock • Treasurer’s sworn statement is
Majority vote 2/3 of OSC/M
(enum1) necessary (25-25 rule)
• No decrease of SC if it will
prejudice right of creditors
Incur, Create, Increase Bonded • Registration of bonds with the
Majority vote 2/3 of OSC/M
Indebtedness (enum1) SEC is necessary
Investment of Corporate Funds in
another Corporation or Business or for • Investment in the secondary
Majority vote 2/3 of OSC/M
any other purpose other primary purpose is covered
purpose
 • SH ratification is not necessary if
the investment is incidental to
primary purpose
Extension/shortening of corporate • Effected through an amendment
Majority vote 2/3 of OSC/M
term of AOI
• Existence of unrestricted RE
• Delinquent stocks: cash
Issuance of Stock Dividends Majority vote 2/3 of OSC/M dividends (applied to
subscription first); stock
dividends (withheld until paid)

✔️BY-LAWS ✔️AOI ✔️AOI

✔️AOI
General Other Matters ✔️BY-LAWS ✖️ BY-LAWS
1. Name of corporation 1. Time, place and 1. Designation of 1. Providing for 1. Classification
manner of calling time when voting cumulative voting of shares of stock
and conducting rights may be in nonstock and preferences
regular and special exercised by SH of corporations granted to PS
meetings of D/T record
2. Purpose clause 2. Time and manner 2. Providing for 2. Providing for 2. Provisions on
including primary and of calling and additional officers higher quorum founder’s shares
secondary purpose which conducting regular for the corporation requirement for a
may be unrelated and special valid board
meetings of the meeting
SH/M
3. Place of principal office 3. Required quorum 3. Provisions for the 3. Limiting, denial 3. Providing for
within the Philippines in meetings of SH compensation of or broadening of redeemable
and the manner of directors right to vote shares
voting.
4. Term of existence 4. Form for proxies 4. Creation of an 4. Transferability 4. Provisions on
of SH/M and executive of membership in a the purposes of
manner of voting committee nonstock the corporation
corporation
5. Names, nationalities 5. Qualifications, 5. Date of annual 5. Termination of 5. Providing for
and residences of duties and meeting or membership in the corporate
incorporators compensation of D, provisions of special nonstock term of existence
T, officers and meetings of SH/M corporation
employees
6. Number of D/T 6. Time for holding 6. Quorum on 6. Manner of 6. Capitalization
annual election of meeting of SH/M election and term of stock
D/T, mode and of office of T/O in corporations
manner of giving nonstock corp.
notice
7. Names, nationalities & 7. Manner of 7. Providing for the 7, Manner of 7. Corporate
residences of temporary election or presiding officer at distribution of name
D/T until election appointment and meetings of the D or assets in nonstock
term of office of all T as well as of SH/M corps. upon
officers except D/T dissolution
8. Amount of authorized 8. Penalties for 8. Procedure for 8. Providing for 8. Denial of pre-
capital stock, # of shares, violation of by-laws issuance of staggered board in emptive rights
par value of shares, issue certificate of shares educational
price of no-par value of stock institutions
shares, orig. subscribers &
 amount paid by each
(stock corporations)
9. Manner of issuing 9. Providing for
stock certificates interest on unpaid
subscriptions
10. Such other 10. Entries to be
matters necessary made in the stock
for the proper and transfer book
means of corporate 11. Providing for
business and affairs. meetings of
members in a
nonstock corp.
outside of principal
office of corp.

• Observed to deviate from profile of client

• Related to an unlawful activity or any money laundering activity
ANTI-MONEY LAUNDERING LAW or offense
(RA 10365) • Similar, analogous/identical to any above
COVERED PERSONS (natural or juridical persons)
Money Laundering: proceeds of unlawful activity making them appear to INSURANCE
BSP OTHERS
originate from lawful source COMMISSION
- banks - insurance co - covered dealers > 1M
- non-banks - agent/broker - casino transact > 5M
- quasi-banks - holding co. - Land Reg.
PURPOSE - trust entities - reinsurers Authority>500k
- pawnshops SEC - service providers
• to protect and preserve integrity and confidentiality of bank - remittance co.
accounts - dealer/broker
- FOREX dealers - inv. houses
• to ensure that PH shall not be used as money laundering site for - money - mutual funds
proceeds of unlawful acts changers
NOT COVERED PERSONS
PUNISHABLE ACTS AS MONEY LAUNDERING
• Lawyers and CPAs if acting as independent legal professionals
• transacts said property or proceeds
• converts/transfers/uses said proceeds
JURISDICTION OVER MONEY LAUNDER CASES
• conceals/disguises true nature/source/ location of proceeds
• attempt/conspire to commit first 3 acts 1) Sandiganbayan – those w/ salary grade 27 above
2) RTC – those not covered by Sandiganbayan
• assists/aids to first 3 acts
• performs/fails to perform any act as result of w/c he facilitates
first 3 acts
ANTI-MONEY LAUNDERING COUNCIL (AMLC)
• fails to report malicious transaction by bank officers or • Composed of three:
covered persons o Chairperson (BSP Governor)
o Member (Insurance commish)
REPORTABLE TRANSACTIONS TO AMLC o Member (SEC Chairperson)
1) Covered Transaction – breached the threshold • Shall act unanimous in all its decisions
2) Suspicious Transaction – no breach but still to be reported because
suspicious RECORD KEEPING
- customer identification and transaction documents
COVERED TRANSACTIONS - 5 yrs from date of transaction
• Transaction > P500,000
• Transaction > P1M (jewelry dealers, dealers in precious metals
TRANSACTION REPORTING
and stones) - w/in 5 working days but not to exceed 15 working days (as maybe
• Single Casino cash transaction involving an amount of in excess prescribed by AMLC)
of P5M - for suspicious transactions, not to exceed 10 calendar days to determine
suspicious nature
SUSPICIOUS TRANSACTIONS
FREEZE ORDER
• No legal or economic justification
- Upon verified ex parte petition by AMLC and upon probable cause, it is
• Unidentified client issued by Court of Appeals
• Not commensurate w/ client’s fin’l capacity • Freezing of Related Accounts & Materially linked Accounts
• Structured to avoid being subjected to reporting • Period to resolve petition: 24 hrs from filing
 • Effectivity of Freeze Order: < 6 months • Presidential Commission on Good Government (ill-gotten
wealth)
BANK INQUIRY BY AMLC
WHO CAN BE LIABLE
1) Without Court order
• Upon order by CA (24 hrs to resolve) and based on ex parte • Inquirer (official or any person)
petition by AMLC • Discloser (Bank employee, etc.)
• Predicate crimes that may authorize AMLC to inquire even
without court order: AUTHORIZED DISCLOSURE BY BANK OFFICIAL
Kidnapping Felonies
Comprehensive Dangerous Drugs Hijacking, destructive arson, • Reporting of unclaimed balances
Act murder • Turnover to CIR of amount to collect tax
Terrorism & conspiracy Financing terrorism
2) WITH Court order
• Pursuant to writ of garnishment

• AMLC shall issue resolution when probable cause exists

• Court order

PREDICATE CRIMES OF MONEY LAUNDERING PENALTY FOR VIOLATION

Kidnapping Terrorism & Hijacking • Imprisonment < 5 years; or
Drug trafficking, etc. Forgeries & Counterfeiting • Fine < 20,000; or both
Graft and Corruption Carnapping
Plunder Child Porn or Prostitution
Robbery & Extortion Swindling or Estafa
Jueteng and Masiao Violation of IPC
BOUNCING CHECKS LAW (BP 22)
Piracy & Smuggling Violation of E-commerceA An act penalizing the making/drawing and issuance of a check without
sufficient funds/credit

PUNISHABLE ACTS
BANK SECRECY LAW (RA 1405)
1) Person who draws and issues check knowing at time of issue that he
GENERAL RULE does not have sufficient funds or credit in which subsequently dishonored
by bank
- Absolute confidentiality of bank deposits and investment in government 2) Person who having sufficient funds/credit, when he issues a check, fails
bonds to keep sufficient funds to cover full amount of check if presented within
90 days from date appearing for which reason is dishonored by the drawee
EXCEPTIONS bank
• If it bounces within 90 days from date of check, there is prima
1) Bank Secrecy Law facie evidence that he has issued check with knowledge of NSF
• Written permission/consent by depositor unless he pays holder within 5 banking days from dishonor
• Payment of estate taxes notice
• Money deposited is the subject matter of a litigation
(suspicious) DUTY OF DRAWEE BANK
• Order of competent court in cases of bribery or dereliction of
duty • Written notice of dishonor

• Impeachment cases of President, VP, members of SC, • Indicating reason for dishonor or refusal to pay provided there
Ombudsman and members of Constitutional Commissions is NSF with such bank and such fact shall always be explicitly
(COMELEC, CSC, COA) stated in notice
2) Tax Code
• CIR: determining decedent’s gross estate PENALTY FOR VIOLATION
• Compromise of tax liability • Imprisonment > 30 days but < 1 yr; or
3) Anti-graft and Corrupt Practices
4) Unsafe or unsound banking practices
• Fine > Double of check’s amount not to exceed 200K; or both

• PDIC or BSP may inquire if there is funding

5) Unclaimed Balances Law EVIDENCE REQUIRED FOR VIOLATION
• Disclosure to PH Treasurer of dormant deposits (at least 10 yrs)
6) New Central Bank Act
To prove violation of BP22 or for Proof beyond reasonable
• DOSRI who contract a loan crime conviction doubt
7) Anti-money Laundering Act To prove civil damages on civil
• With court order by AMLC action (BP22)
Preponderance of evidence
• Without court order (probable cause) To sue or file a case for violation of Probable cause or Prima facie
• BSP: to ensure compliance with AMLA BP22 evidence
8) Jurisprudence
• Court cases
9) Others ESTAFA BP 22
• Court of Appeals (anti-terrorism) Fraudulent No fraud or deceit
• COA (Audit) Postdated or issued check in payment Issuance of check to apply on
of oblig. At check issuance account or for value
 Insufficiency of funds to cover the Insufficiency of funds & ORGANIZATIONAL STRUCTURE OF NPC
check subsequent dishonor
COMPOSITION: attached to DICT and headed by Privacy Commissioner
(Chairman) and 2 Deputy Privacy Commissioners (Policies and Planning;
Data Processing Systems)
APPOINTMENT: the 2 Deputies shall be appointed by President of
Philippines
DATA PRIVACY ACT OF 2012 (RA 10173) TERM: 3 yrs & maybe reappointed for another 3 yrs
DATA PRIVACY – refers to the right
DATA PROTECTION – means to implement right PROCESSING OF PERSONAL INFORMATION
>> GENERAL DATA PRIVACY PRINCIPLES
DEFINITION OF TERMS - Personal info must be:
Consent of Data Subject: any freely given, specific, informed indication of • Collected for specified and legit purposes
will, whereby data subject agrees to collection and processing of personal • Processed fairly and lawfully
info relating to him
Data Subject: individual whose personal info is processed
• Accurate, relevant and where necessary, kept up to date;
inaccurate or incomplete data must be rectified
Sensitive Personal Info: personal info about ff:
• Individual’s race, ethnic origin, marital status, age, color, and
• Adequate and not excessive
religious, philosophical or political affiliations • Retained only for as long as necessary
• Individual’s health/education, genetic/sexual life • Kept in form w/c permits identification of data subject for no
longer than necessary
• Issued by govt agencies peculiar to an individual (ex: SSS #, etc)
>> CRITERIA FOR LAWFUL PROCESSING
• Specifically established by exec. order or act of Congress to be
- permitted only if not prohibited by law and when at least one of the ff.
kept classified
conditions exists:
Personal Information Controller: person/org. who controls
collection/holding/processing/use of personal info • Has consent
Privileged Information: any and all forms data which constitute privileged • Processing is necessary and related to the fulfillment of a
communication contract
Personal Information Processor: any natural or juridical person qualified • Processing is necessary for compliance with a legal obligation
to act to whom personal info controller outsources the processing
• Processing is necessary to protect vitality important interests of
data subject
COVERAGE OF DATA PRIVACY • Processing is necessary in order to respond to national
emergency
• To all types of personal info & to any natural or juridical person
involved in pers. info processing • Processing is necessary for purposes of legit interests
• Affords protection to journalists and sources >> SENSITIVE PERSONAL & PRIVILEGED INFO
- processing of info shall be prohibited, except:
EXCEPTIONS TO THE COVERAGE • Data subject has given his consent
• Processing of such is provided by law
• Info about any individual who is/was an officer/employee of • Processing is necessary to protect life and health of data subject
govt institution
• Processing is necessary to achieve lawful & noncommercial
• Info about an individual who is/was performing service under objectives of public org.
contract for a government institution
• Processing is necessary for purposes of medical treatment
• Info relating to any discretionary benefit of a financial nature
• Processing is necessary for protection of lawful rights and
• Personal info for journalistic, literary or research purposes interests of natural or legal persons in court proceedings
• Info necessary in order to carry out functions of public authority >> SUBCONTRACT OF PERSONAL INFO
• Info necessary for banks and other financial institutions - a personal information controller may subcontract the processing of
• Personal info originally collected from residents of foreign personal information
jurisdictions - ensure the proper safeguards are in place
>> EXTENSION OF PRIVILEGED COMMUNICATION AND
EXTRATERRITORIAL APPLICATION INADMISSIBILITY OF PRIVILEGED INFO AS EVIDENCE
- personal information controllers may invoke principle of privileged
The law applies to an act done or practice engaged in and outside of communication over privileged information that they lawfully control or
Philippines by an entity IF: process
• Relates to personal info about PH citizen/ resident
• Entity has link with Philippines, such as: RIGHTS OF DATA SUBJECT
o Contract is entered
o Central mgmt. and control • Right to be informed
o Parent/affiliate of PH entity has access to personal • Right to be furnished information before the entry of his
info personal information ff:
• Entity has other links in PH such as: o Description
o Carries on business o Purposes
o It was collected by a PH entity o Scope and method
o Recipients
o Automated access
o Personal info controller identity and details
NATIONAL PRIVACY COMMISSION (NPC) o Period will be stored
- independent body which refers to the govt agency entrusted to o Existence of their rights
administer and implement Data Privacy and ensure compliance with • Right to have reasonable access
international standards
 • Right to dispute inaccuracy or error EXPEDITED BUSINESS PERMIT & LICENSES
• Right to suspend, withdraw or order the blocking, removal or
destruction • Unified Application Form (single application for business
permits and renewals)
• Right to be indemnified for damages
• Preliminary Evaluation (all business applications allow
applicants to correct any deficiencies before submitting actual
TRANSMISSIBILITY OF DATA SUBJECT’S RIGHT application)
- lawful heirs and assigns of data subject may invoke rights of data subject • Fewer Transactions (all related
license/clearance/permit/authorization will be issued
RIGHT TO DATA PORTABILITY concurrently with business permit)
• One-stop shop (all agencies engaged in starting a business will
- to obtain from personal information controller a copy of date undergoing be housed in one facility
processing
DEADLINES FOR GOVERNMENT TRANSACTIONS
NON-APPLICABILITY OF RIGHTS OF DATA SUBJECT
Simple Transactions 3 business days
1. The rules on rights, its transmissibility and portability are not Complex Transaction 7 business days
applicable if processed personal information are used only for
Highly Technical 20 business days
scientific and statistical research – strict confidentiality and
used only for declared purposes.
2. Investigations in relation to any criminal, administrative or tax
liabilities. ONLINE REGISTRATION FOR BUSINESSES
PENALTIES FOR VIOLATION • All forms will be moved online, and documents can be scanned
and submitted electronically
PERSONAL SENSITIVE
INFO • Licenses and permits can be printed from home or office and
I F I F shall have same authority as a hard copy
Unauthorized 1-3 3-6 500k –
500k – 2M
Processing yrs yrs 4M
CITIZEN’S CHARTER
6 mo.
100k – 1-3 100k –
Improper Disposal –
500k yrs 1M • Complete checklist of requirements for each application or
2 yrs request
• Steps to obtain a particular service
I: Imprisonment • Person responsible for each step
F: Fine
• Maximum time to complete a request
• Documents required
• Fees required
EASE OF DOING BUSINESS AND EFFICIENT • Procedure for filing complaints
GOVERNMENT SERVICE DELIVERY ACT
(RA 10173) ANTI-CORRUPTION POLICY
• Until all systems are brought online, government will institute
zero-contact policy between business applicants & government
employees
DEFINITION OF TERMS
Boss One Stop Shop: single common site or location or single online ACCOUNTABILITY
website or portal for Business Permits and Licensing System of LGU
To ensure compliance, law prescribes administrative and criminal liability
to officials and employees acting improperly. Violations include:
Business-related Transactions: set of regulatory requirements a business • Refusal to accept an application
entity must comply with to engage or continue to operate a business
• Imposition of requirements or fees not listed in Citizen’s Charter
• Missed deadlines
Complex Transactions: applications or requests which necessitate
evaluation in resolution of complicated issues
First offense: ADMINISTRATIVE PENALTY
(6-month suspension)
Fixer: any individual who has access to people working, whether or not in Second offense: CRIMINAL LIABILITY
collusion with them, facilitates speedy completion of transactions for
pecuniary gain or any advantage/consideration ANTI-RED TAPE AUTHORITY (ARTA)
Nonbusiness Transaction: all other government transactions • Responsible for enforcing Ease of Doing Business Law in the
Highly technical application: application which requires use of technical Philippines
knowledge, specialized skills in processing or evaluation

Red Tape: any regulation or rule or system that is ineffective or

detrimental in achieving its intended objectives, and as a result, produces
ELECTRONIC COMMERCE ACT OF 2000 (RA 8792)
slow, suboptimal and undesirable social outcome
OBJECTIVE
Simple Transactions: applications or requests which only require • To facilitate domestic, int’l dealings to recognize authenticity &
ministerial actions on part of public officer/employee or which present only reliability of electronic documents
inconsequential issues for resolution
 COVERAGE EFFECT OF NON-COMPLIANCE WITH MINIMUM
• Any data message and electronic documents used in
FILIPINO OWNERSHIP
commercial and non-commercial activities to include domestic • corp is considered de facto corp
and int’l dealings
• automatic ground for dissolution

DEFINITION OF TERMS
EFFECT OF ENGAGING IN BUSINESS BY FOREIGN
Electronic Key: secret code which secures and defends sensitive CORP. WITHOUT LICENSE
information that cross over public channels into a decipherable form
Intermediary: any person sends, receives and/or stores of electronic data • not permitted to intervene in any action/suit/court proceeding
message
• may be sued before PH courts

LEGAL RECOGNITION
1) of Electronic Data Messages FRIA OF 2010: GENERAL PROVISIONS (RA 10142)
• Info shall not be denied legal effect or validity
2) of Electronic Documents
• Legal effect or validity as any other document
COVERED BY FRIA OF 2010
OTHER NOTES
• Insolvent Debtor
• The place which has closest relationship to underlying • Corporations (PH Laws)
transaction is the place of dispatch if originator has more than
one place of business • SEC-registered Partnerships
• The Department of Trade and Industry is empowered to • DTI-registered sole proprietorships
promulgate rules and regulation for implementation of this Act • GOCCs

NOT COVERED BY FRIA OF 2010

FOREIGN INVESTMENTS ACT (RA 7042) • Banks subject under the New Central Bank
- to attract foreign investments by non-PH nationals Act
• Insurance companies subject under the
PHILIPPINE NATIONALS Insurance Code
• PH citizens • Pre-need companies (any corporations
• Domestic partnerships by PH citizens authorized to sell pre-need plans)
• Dom. corps. (60% owned by PH citizens) • National government agencies –
• Foreign corps. doing business in PH (100% owned by PH presumed to be always solvent
citizens) • Local government agencies and units –
presumed to be always solvent
NATIONALITY REQUIREMENT IN CERTAIN
INDUSTRY RESERVED FOR PH NATIONALS
a. Mass Media – 100% INSOLVENCY LAW (FRIA of 2010 – RA 10142)
b. Advertising – 70%
c. Public Utility – 60% GROUNDS FOR INSOLVENCY
d. Educational Institution – 60%
e. Exploration and development of natural resources – 60% • Assets > Liabilities but unable to pay liabilities
f. Ownership of land – 60% Remedy: file petition for suspension of payments
REQUIREMENT BEFORE ENGAGING IN BUSINESS (by non-PH • Liabilities > Assets
national) Remedy: file for insolvency
• Must register before appropriate govt agencies
• For sole proprietor, register with DTI SUSPENSION OF PAYMENTS
• For partnership/corporation, with SEC
- Sufficient property to pay debts
- Postponement by court order
TESTS FOR DETERMINING CORP. NATIONALITY DURATION: 3 months
EFFECT: No creditor shall sue/demand payment except:
1. Incorporation Test
• whether domestic or foreign • Fully secured creditors

• i.e: where registered

• Claims for labor, expenses of last illness & funeral of wife or
children incurred 60 days prior filing
2. Control Test
• nationality of majority of shareholders PROCEDURES
3. Grandfather Rule Test (a control test) IFAPPROVED: Parties are all bound
• true PH ownership is traced all the way to individual SH of IF DEBTOR FAILED TO PERFORM
corp A owning shares in another corp B by multiplying PH • Creditor rights are re-vested
ownership of A to corresponding ownership of B
• Debtor may be made subject to liquidation
• applies to those which require whole/partial PH ownership
LIQUIDATION (filed for insolvency)
1. VOLUNTARY LIQUIDATION
 • Initiated by debtor 1. Issuance of Liquidation Order
- No foreclosure proceeding for 180 days
• Debts > P500k
2. Appointment of Liquidator
• Liquidation order issued w/in 5 working days G.R: Creditor(s) shall appoint liquidator
2. INVOLUNTARY LIQUIDATION Exception: The Court may appoint liquidator
• Initiated by creditor or group of creditors 3. Oath-taking and filing of bond by liquidator
• Any group of creditors who have claim > 500k 4. Preliminary registry of claims of creditors
5. Submission of liquidation plan (within 3 months)
• Creditor(s) must post a bond
6. Sale of Assets in liquidation
• If debtor is not insolvent, they’ll be liable G.R: Sale be made at a public auction
• Orders the Court may issue: Exception: Private sale for perishable of nature or for the
o Show Cause order: require debtor to show interests of debtor and creditors
cause 7. Payment of claims (preference: services by employees and
o Forbidding debtor to transfer property or to laborers)
make payments
PROCEDURES

CORPORATE REHABILITATION (FRIA of 2010 – RA 10142)

COURT-SUPERVISED PRE-NEGOTIATED OUT-OF-COURT RESTRUCTURING

Voluntary OR Involuntary Pre-negotiated by debtor & creditors REQUISITES
REHABILITATION RECEIVER ENDORSED/APPROVED BY • Debtor must agree to it
- PH citizen or resident (6 mos. prior) • 2/3 of total debts (including secured CR) • 67% approved (secured CR)
- appointed by court or creditors
- Compensation: quantum merit
holding > 50% • 75% approved (unsecured CR)
• Sec + Unsec CR > 50% • 85% approved (sec + unsec)
VOLUNTARY COURT SUPERVISED INVOLUNTARY COURT SUPERVISED
• REQUIRED VOTE • REQUIRED VOTE (higher)
o Majority of partners o Creditor claims of AT LEAST ₱1,000,000
(Partnership) or
o Majority of BOD and 2/3 o 25% of subscribed capital stock or
Stockholders (Corporation) partner’s contribution
o 2/3 of members (Nonstock)

• GROUNDS
• GROUNDS o No issue with creditors’ claims. Claim is
o Debtor unable to pay due and demandable, payments have
o Total liabilities > total assets not been made for AT LEAST 60 days
o A creditor, other than petitioners, has
initiated foreclosure proceedings

• MINIMUM ALLEGATIONS
o Establish the insolvency
o Establish viability of
rehabilitation

1) Commercial bank – general

2) Universal bank – general + powers of investment house; expanded
commercial bank
3) Thrift bank – savings/mortgage/stock savings; under Thrift Bank Act
GENERAL BANKING LAW (RA 8791) 4) Rural bank – normal credit needs of farmers, cooperatives; under Rural
Bank Act
5) Cooperative Bank – under Cooperative Act
ORGANIZATION OF A BANK 6) Islamic Bank – under Shariah Law
7) Government-owned bank – for public purpose
• Is a stock corporation BANKS QUASI-BANKS
• Funds are obtained from public Function Lend funds Borrow funds
(at least 20 persons) Sources of funds BANK DEPOSITS DEPOSIT SUBSITUTES
• Minimum capital req’ts are met
BOARD OF DIRECTORS
STOCKHOLDINGS IN A BANK
• 5-15 members with 2 of them: independent director (other than
• - Individuals and corporations may own or control up to 40% of bank official/employee)
bank’s stockholdings • Monetary board may disqualify, suspend or remove any
director (fit and proper rule)
TYPES OF BANKS
 LOANS MADE BY BANK PENALTY FOR VIOLATION
• shall not apply to a cooperative bank to its cooperative • Imprisonment for 1-5 years; or
shareholders • Fine > 5,000 but < 25,000; or both
1) Risk-based capital
• Minimum ratio: net worth of a bank must bear to its total risk
assets
• 10% but 8% recommended internationally INTELLECTUAL PROPERTY CODE (RA 8293)
2) Single Borrower’s Limit (SBL)
• Maximum limit to a single borrower LAW ON PATENTS, UTILITY MODEL AND
o Per law: ≤ 20% of net worth INDUSTRIAL DESIGN
o Per circular: ≤ 25% of net worth
Patent: exclusive right granted for a product, process or an improvement
• Additional limit (if adequately secured)
of a product or a process which is new, inventive and useful
o 10% of bank’s net worth Utility Model: protection option designed to protect innovations not
sufficiently innovative to meet for standard patent applications
RESTRICTIONS ON BANK EXPOSURE TO DOSRI Industrial Design: lines/colors or any 3D form that gives special
appearance to and can serve as pattern for industrial product or handicraft
G.R: No bank D/O shall borrow from such bank nor shall become a
TERM
guarantor/indorser/surety for loans
PATENT 20 yrs, no renewal
Exception: Written approval of majority of BOD excluding D concerned
UTILITY MODEL 7 yrs, no renewal
LOAN LIMIT TO DOSRI: limited to unencumbered deposits and BV of Paid-
In bank contribution 5 yrs, renewable
INDUSTRIAL DESIGN
LOAN LIMITS AGAINST REAL ESTATE for 2 consecutive 5 yrs
< 75% of appraised value of RE MODE OF CREATION OF RIGHT: register to IPO
+ 60% of appraised value of insured improvements REQUISITES OF PATENTABLE INVENTIONS
LOAN LIMITS AGAINST SECURITY OF CHATTELS AND INTANGIBLE • Must be a technical solution to a problem in any field of human
PROPERTIES activity
< 75% of appraised value of the security • Must be new (not part of a prior art)
INVESTMENT IN REAL ESTATE/ASSET BY BANKS
• Must involve inventive step (not obvious)
• Allowed if total investment < 50% of combined capital accounts • Must be industrially applicable
FIRST TO FILE RULE
MINIMUM DEPOSIT RESERVE RATIO OF A BANK TO - right to patent shall belong to the person who filed application for such
THE BSP invention (earliest between filing date and priority date)
RIGHT TO PRIORITY
• At least 19% of its total deposit liabilities - for foreign-local patent application
OTHER NOTES - considered as filed as of date of filing foreign application provided:
>> A bank shall not directly engage in insurance business as the insurer • Local application expressly claims priority
>> DILIGENCE REQUIRED: • Filed within 12 months from date earliest foreign application
• Extra-ordinary for deposits (demand, savings and time deposit) was filed
• Ordinary for other services/contracts • Certified copy of foreign application is filed within 6 months
>> LIMITATION OF FOREIGN OWNERSHIP from date of filing in PH
• Up to 40% of voting stock RIGHT TO THE PATENT
• To the inventor, his heirs or assigns
• In case of joint invention, belonged jointly, if one of them dies:
FOREIGN CURRENCY DEPOSIT ACT o Economic rights: co-ownership
o Patent ownership: one remains
(RA 6426)
INVENTIONS CREATED PURSUANT TO A
GENERAL RULE COMMISSION
- All FCDs are absolutely confidential and cannot be examined
G.R: one who commissions the work owns it
- All FCDs are exempt from attachment, garnishment or any other order of
Exception: (in case of employee in course of work)
Court
• Employee if not part of regular duties
EXCEPTIONS • Employer if part of regular duties unless agreed upon by them
Patent Infringement: unauthorized making, using or selling any patented
1) Foreign Currency Deposit Act invention/products of patented invention without consent from patent
• Written permission of depositor holder
2) Jurisprudence on grounds of equity
• Account of NRA TESTS OF PATENT INFRINGEMENT
• Account of co-payee of a check 1) Literal Infringement – resort must be had, in the first instance, to the
3) Other Laws (same with Bank Secrecy) words of the claim
• New Central Bank Act for DOSRI who contract a loan 2) Doctrine of Equivalents Infringement – when a device appropriates
• CIR prior invention by incorporating its innovative concept with modifications
PRESCRIPTIVE PERIOD FOR FILING A CASE FOR PATENT INFRINGEMENT
• AMLC
- 4 years after act of patent infringement
• BSP NON-PATENTABLE INVENTIONS
• COA • Discoveries, scientific theories and mathematical methods
• PCGG • Methods of performing mental acts, playing games/doing
business, computer programs
 • Treatment of human or animal body by surgery or therapy but • Photographic Works
shall not apply to products and composition for use o Published: 50 yrs from publication
• Plant varieties/animal breed or essentially bio process for o Unpublished: 25 yrs from making
production of plants/animal but shall not apply to micro-
organisms, non-bio and micro-bio processes RIGHTS UNDER A COPYRIGHT
• Aesthetic creations 1) Economic Rights – to obtain remuneration from exploitation of his
• Anything contrary to public order/morality works by 3 parties
rd

• Reproduction, distribution or transformation

LAW ON TRADEMARKS, SERVICE MARKS AND • Public display or performance
TRADE NAMES • Other communication to the public
2) Moral Rights – to protect personal connection between himself and his
Trademark: visible sign (marked container of goods) work
Service mark: visible sign (for services)
Collective mark: visible sign (distinguishing origin) • Right of attribution
Tradename: name or designation distinguishing an enterprise • Right of alteration
MODE OF CREATION OF RIGHT • Right of integrity
1) For TM, SM and CM – register to the IPO • Right to restrain use of his name
2) For Tradename – need not be registered
TERM: 10 yrs with unlimited renewal
SUBSEQUENT REGISTRATION: every 5 yrs, submit to IPO proof of actual OWNERSHIP OF COPYRIGHT
use of mark G.R: The natural person who created the work owns the copyright to the
NON-REGISTRABLE MARKS same
• Immoral, deceptive, scandalous or misleading to the public Exceptions:
• Coat of arms or Philippine flag 1) Work created during course of employment
• Name, portrait or signature except by written consent • Employee if work not part of regular duties
• Identical with a registered mark • Employer if work part of regular duties unless agreed upon by
• Generic signs, customary or trade practice them
2) For commissioned works
• Shapes or colors alone
• Owner: one who commissioned the work
• Contrary to public order or morality
Trademark Infringement: use without consent of a mark and reproduce or • Copyright: creator unless contrary appears
3) For audiovisual works
imitate such
• Producer, author, composer, film director
TESTS OF TRADEMARK INFRINGEMENT
COPYRIGHT INFRINGEMENT
1) Dominancy Test – likely to cause confusion or deceit; competing
trademark contain essential features of another - following are prejudice rights to copyright owner:
2) Holistic Test – confusing similarity in its entirety (includes labels and • Selling/letting for hire
packaging) • Distributing for purpose of trade
Unfair Competition: passing off to public the goods or business of one
person as the goods of another • Trade exhibit in public
TRADEMARK INFRINGEMENT
VS DOCTRINE OF FAIR USE
UNFAIR COMPETITION
- privilege to use copyrighted material in a reasonable manner w/o consent
Trademark Infringement Unfair Competition
of copyright owner
Unauthorized use of trademark Passing off of one’s goods - factors to be considered:
Fraudulent intent is not necessary Fraudulent intent is
essential • Purpose and character of use
(ex: for profit or not)
Prior registration of mark is a Registration is not
prerequisite necessary • Nature of copyrighted work
No claiming of Product claiming is present • Amount and substantiality of portion used in relation to work
products • Effect of use of copyrighted work
(ex: loss of profits)

COPYRIGHTABLE NON-COPYRIGHTABLE
- - mere data, idea or procedure
books/pamphlets/letters - news of the day and other miscellaneous
LAW ON COPYRIGHTS - periodicals/newspapers facts having character of mere items of
- lectures/sermons press info
Copyright: legal protection extended to owner of the rights in an original
- computer programs - official text of legislative, administrative
work
- or legal nature including its translation
Original Work: every production in literary, scientific and artistic domain drawings/maps/painting
(books, musical, films, paintings, computer programs) - musical compositions
MODE OF CREATION OF RIGHT
- photographic works
- from the moment of creation - audiovisual works
- no need for registration - pictorial illustrations
TERM OF COPYRIGHTS - advertisements
G.R: life of author + 50 yrs after death
Exceptions:
• Anonymous works: 50 yrs from its first publication
• Applied Arts: 25 yrs from date of making
NEW CENTRAL BANK ACT (RA 7653) • Notes and coins issued are BSP’s liabilities and full guaranteed
by government

CHARACTERISTICS OF BSP • Its holdings of OWN notes and coins shall not form part of its
assets and liabilities
• Public corporation (special law) • Interconvertibility of peso, upon demand and for no charge
• Full GOCC (50B capital stock) • Replacement of currency unfit for circulation
• Governed by Monetary Board (7) G.R: withdraw it from circulation, demonetize and replace with
adequate notes and coins
• Fiscal and administrative autonomy
Exception: no replacement for ff:
• 5-yrs exempt from taxes
• Identification which is impossible
• Import-export of notes, coins, etc: fully exempt from Customs
• Filed, clipped, or perforated coins
• Notes which lost more than 2/5 of its surface or all
DON’TS (BSP) of signatures inscribed
• Take part in election except to vote • Mutilated conditions shall be withdrawn from
circulation and demonetized without compensation
• Acquire shares
to bearer
• Participate in management of any enterprise
• Retirement of old notes and cons
• Development banking and financing
• Calling in for replacement:
Notes: more than 5 years old
PRIMARY OBJECIVES OF BSP Coins: more than 10 years old

• Policy directions
• Those called in for replacement shall remain legal
tender for 1 year from date of call
• Supervision of banks
• After expiration of 1 year, such shall be demonetized
• Maintain price stability and replaced
• Promote and maintain monetary stability and convertibility of
peso SUPERVISION OF BANKS AND QUASI-BANKS
MONETARY BOARD - BSP (supervision and examining department) shall examine books at
every banking institution
COMPOSITION • Once every 12 months
- 7 members appointed by President
• Other times by affirmative vote of 5 members
• BSP Governor (chairman)
• 12-month interval between examinations
• Another Cabinet member
• 5 members from private sector ADMINISTRATIVE SANCTIONS
TERM: 6 years
QUALIFICATIONS GROUNDS
• Natural-born citizens • Willful violation of banking laws
• BSP Governor: 40 years old • Willful delay of reports to BSP
• All other members: 35 years old • Refusal to permit examination
• Good moral character • False or misleading statements
• With recognized competence • Commission of irregularities
INHIBITIONS AND DISQUALIFICATIONS • Conducting business in an unsafe or unsound manner
• Members coming from private sector shall not hold any other SANCTIONS
public office during their tenure • Fines < P30k per day for each violation
• Has substantial interest in any private bank within 1-yr prior his • Suspension of rediscounting privileges or access to BSP credit
appointment facilities
• Has substantial interest in any private bank within 2-yrs after • Suspension of lending or FOREX operations or authority to
expiration of term except when serving as official accept new deposits or make new investments
representative of PH Government to such institution
• Suspension of interbank clearing privileges
OTHERS
- with President’s approval, the board shall prescribe the notes and coins’: • Revocation of quasi-banking license
• Denomination
• Designs or inscriptions
• Weight or fineness PHILIPPINE DEPOSIT INSURANCE CORPORATION or
• Printing or minting of coins PDIC LAW (RA 10846)
PDIC – agency of Department of Finance; membership of banks is
LEGAL TENDER mandatory; 5 members; covers only risk of bank closure ordered by
Monetary Board
• 5/10/25 cents: up to P100 only
1/5/10 pesos: up to P1,000 only • Deposit insurer
For paper bills: unlimited • Co-regulator of banks
• Checks: not legal tender • Receiver/liquidator of closed banks
Insured deposit – net of obligation of depositor
EXCLUSIVE ISSUE POWER OF BSP
INSURABLE DEPOSITS
• Sole power to issue currency
• Savings Deposit
 • Special Savings • Fractional undivided interests in oil, gas or other mineral rights
• Demand/Checking Account • Derivatives like option and warrants
• Negotiable Order of Withdrawal • Certificates of assignments, certificates of participation, trust
• Certificate of Time Deposits certificates, voting trust certificates or similar instruments
• Foreign Currency Deposit • Proprietary or nonproprietary membership certificates in
corporations; and
NOT COVERED BY PDIC INSURANCE • Other instrument as maybe determined by SEC

• Investment product (bonds/security/trust) EXEMPTED SECURITIES FROM REGISTRATION

• Unfunded/fictitious/fraudulent accounts
• Those issued by the Government of PH or of any country
• From unsafe/unsound banking practices
(observe reciprocity clause)
• From unlawful activities
• Certificates issued by a receiver/trustee in bankruptcy
• Bank deposits in foreign bank or in foreign branch of a domestic
bank operating outside Philippines
• Those under supervision and regulation of Office of the
Insurance Commission or BIR
• Those issued by a bank except its own shares
MAXIMUM INSURANCE COVERAGE
• Ordinary deeds of instruments (contract of lease, sale or real
• P500,000 per depositor of closed bank estate mortgage)
• P1M for those with single & joint account
REGISTRATION REQUIREMENTS
REQUISITES FOR CLAIM OF INSURED DEPOSIT FEE: < 1/10 of 1% securities maximum offer price
APPROVAL PERIOD: 45 days upon filing
WHEN: 2 yrs from PDIC’s takeover to file claims
WHEN PAID: 6 months from date of filing
WHO ARE REQUIRED TO FILE CLAIMS: GROUND FOR REJECTION OR REVOCATION OF
• Those with more than P100k balances SECURITIES REGISTRATION
• Those with outstanding obligations with the closed bank 1) Issuer:
regardless of balances
• Has been judicially declared insolvent
• Those with no updated addresses
• Violated any provision of the Code
• Those under name of business entities
• Been engaged or about to engage fraud
• Those not eligible for early payment
• Made any false or misleading representation of material facts

NOTES • Failed to comply with SEC requirements

2) Registration statement is incomplete on its face or includes any untrue
>> Whether ‘and’, ‘or’, ‘and/or’ is used: joint account be insured separately statements
from single accounts 3) Issuer has been convicted by competent judicial or administrative body
>> Divided equally unless diff sharing is stipulated upon plea of guilty of an offense involving moral turpitude or fraud
>> Joint account, of natural and juridical person, shall be presumed belong
solely to juridical entity
>> ‘Ana by Ben’ – Ana is the depositor
>> ‘Ana in trust for Ben’ – Ben is the depositor PROTECTION OF SHAREHOLDERS INTEREST
>> ‘Ana for the account of Ben’ – Ben is depositor A. TENDER OFFER – publicly announced intention by a person acting alone
>> Different banks: P500k per bank or in concert with other persons to acquire outstanding equity securities of
>> Different branches: considered 1 bank a public company
>> PDIC shall be legally subrogated to all rights of depositor against closed Tender offer by an issuer (buy-back)
bank to extent of payment
• If issuer has unrestricted RE
• Undertaken for the ff purposes:
o Implement stock option/purchase plan
SECURITIES REGULATION CODE (RA 8799) o Meet short-term obligations
o Pay dissenting or withdrawing shareholders entitled
SECURITIES AND EXCHANGE COMMISSION to payment
Expiration period of a tender offer
• Protection and supervision of juridical entities • 20 business days from commencement; offer must be
• Consists of a Chairperson + 4 Commissioners completed within 60 business days from date intention to make
• 4 principal departments: offer
o Markets and Securities Regulation • 10 business days from date notice of a change in percentage of
o Corporate Governance and Finance securities is first published
o Company Registration and Monitoring Prohibited acts in any tender offer
o Enforcement and Investor Protection • To employ device or scheme to defraud anyone
• To make any untrue statement of material fact
SECURITIES REQUIRED TO BE REGISTERED • To engage in act w/c operates as fraud or deceit
B. INSIDER TRADING
• Shares of stocks - it shall be unlawful for an insider to buy/sell securities of issuer while in
• Bonds, debentures, notes, evidences of indebtedness, asset- possession of material information that is not generally available yet to the
backed securities public unless:
• Investment contracts, certificates of interest or participation in • Insider proves information was not gained from such
a profit-sharing agreement, certifies of deposit for a future relationship
subscription;
 • If other party selling to/buying from insider is identified, insider Covered Institutions – all banks, trusts, savings, mortgage, mutual building
proves: and loan associations which reported to Treasurer of PH as unclaimed the
o That he disclosed info to other party account being applied for reactivation
o He had reason to believe that other party is also in
possession of the info ACT REQUIRING COVERED INSTITUTIONS TO
TRANSFER UNCLAIMED BALANCES HELD BY THEM
CORPORATE GOVERNANCE TO TREASURER OF PHILIPPINES
- framework of rules in a corporation that governs performance by BOD
and management of their duties • Duty of treasurer to inform SOLGEN
Companies covered • For escheat proceedings, it is filed, thru petition, by SOLGEN in
• Those that sell equity or debt securities required to be Court of First Instance where deceased last resided or in which
he had estate if he resided out of the Philippines
registered with SEC
Affidavit of Undertaking – sworn statement by a bank officer absolving
• Those that have assets > 50M and at least 200 shareholders Bureau of Treasury from any liability that may arise due to granting of
who own at least 100 shares each applicants’ request for reactivation
• Whose equity securities are listed in stock exchanges
• Those grantees of secondary SEC licenses PROCEDURE FOR REACTIVATION OF UNCLAIMED
Establishment of Audit Committee
- The committee shall assist the Board in performance of its oversight
BALANCES
responsibility for financial reporting process A. Letter request of depositor/creditor
- Consist of at least 3 directors, who preferably have accounting and B. Authentication
financing background, one of whom shall be an independent director and C. Letter request of covered institution
another with audit experience
Appointment of Compliance Officer • Depository bank 🡪 BOT
- appointed by the Board who shall report directly to Chairman of the D. Deed of undertaking
Board • BOT free from any liability
E. Letter of authority to reactivate
PERIOD FOR FILING ANNUAL FS • Issued by BOT
F. Entity requirements
a. Corporation whose fiscal year ends on a date other than Dec.
• Requesting party is a juridical person/entity:
31
corresponding board resolutions and/or Secretary’s
o Within 120 calendar days from end of fiscal year certificate showing signatory for reactivation
b. Corporation whose fiscal year ends on Dec. 31 G. Approving authority
o SEC issues specific schedule or date Division Chief or Head Law & Litigation Division Legal
<100k
Service
PERIOD FOR FILING ANNUAL GENERAL 100K-
Director, Legal Service
INFORMATION SHEET 500K
Deputy Treasurer of PH <500K-1M
a. Stock Corporation Treasurer of Philippines <1M
• Date of annual shareholders meeting
b. Non-stock Corporation
• Date of annual members meeting
c. Foreign Corporation
o Anniversary date of SEC license issuance
SRC RULE 68 (Reportorial Requirements)
Covered entities
• Stock corporation with paid-up capital of ≥ 50k
• Non-stock corporation with total assets ≥ 500k or gross annual
receipts of ≥ 100k
• Branch offices of stock foreign corporations with assigned
capital of ≥ 1M
• Branch offices of non-stock foreign corporations with total
assets of ≥ 1M
• ROHQs of foreign corporations with total revenues of ≥ 1M
Applicable Financial Reporting Framework
• FULL PFRS (large or publicly accountable firm)
• PFRS for SMEs (medium-sized entities)
• PFRS for Small Entities (small entities)
• FULL or PFRS for SMEs or PFRS for Small Entities or Tax/Cash
basis (micro entities)

UNCLAIMED BALANCES LAW (PD 679)

Unclaimed Balances (dormant deposits)
- credits or deposits of any person known to be dead or who has not made
further deposits for at least 10 years