Pointers

Question 1

What are the requisites of contract of pledge and mortgage?

(3)

Answer 1

1. That they be constituted to secure the fulfillment of a principal obligation;
2. That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;
3. That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose.

Question 2

What is a PLEDGE?

Answer 2

It is a contract by virtue of which the debtor delivers to the creditor or to a third person movable (Art. 2094) or document evidencing incorporeal rights (Art. 2095) for the purpose of securing the fulfilment of a principal obligation with the understanding that when the obligation is fulfilled, the thing delivered shall be returned with all its fruits and accessions.

It it necessary that in order to constitute the contract of pledge, that the** thing pledged be placed in the possession of the creditor**, or a third person by common agreement.

Question 3

Characteristics of a Pledge

(4)

Answer 3

1. Real Contract - perfected by the delivery of the thing pledged
2. Accessory Contract - no independent existence of its own;
3. Unilateral - creates an obligation solely on the part of the creditor to return the thing;
4. Subsidiary - obligation incurred does not arise until the fulfillment of the principal obligation which is secured.

Question 4

What is the Degree of diligence required from the Pledgee?

Answer 4

The creditor shall take care of the thing pledged with the diligence of a good father of a family.

Question 5

What is the object of real estate mortgage?

Answer 5

Only the following property may be the object of a contract of mortgage:
1. Immovables;
2. Alienable real rights in accordance with the laws, imposed upon immovables.

Question 6

What is Pactum de non-aliendo?

Answer 6

The owner is allowed to alienate the immovable property mortgaged. A stipulation prohibiting/forbidding such right is called pactum de non-aliendo and is considered void.

Question 7

What is Pactum Commissorium?

Answer 7

The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contraty is null and void.

Question 8

Recovery of deficiency of judgment

Answer 8

Pledge: if the price of the sale is less, the creditor shall not be entitled to recover the deficiency, notwithstanding any stipulation to the contrary.

Real Estate Mortgage: the mortgagee shall be entitled to recover the deficiency. Exceptions: mortgagor is a third person unless there is stipulation making him liable.

Chattel Mortgage: Creditor can recover deficiency unless the sale is covered by the RECTO LAW (i.e. sale of personal property on installment)

Real estate mortgage: The generic treatment is that the mortgage is still a separate contract and merely stands as a means to recover the unpaid amount. That’s why any excess is returned to the mortgagor and any deficiency, the debtor remains liable thereto.

Question 9

What are the characteristics of a Cooperative similar to a Corporation?

Answer 9

Liability: A cooperative duly registered shall have limited liability.
Separate personality: A cooperative can be likened to a corporation with a personality separate and distinct from its owner-members.
Right of Succession: A cooperative likewise has a right of succession in the sense that heirs may inherit share capital subject to the requirement that they are qualified to be members and signifiy intent to become a member.
Term: for a period not exceeding 50 years from the date of registration; may be extended for periods not exceeding 50 years, but no extension can be made earlier than 5 years prior to the original or subsequent expiry date/dates unless there are justifiable reasons.

Note: Term is no longer a similarity since a corporation now, generally, has perpetual existence.

Question 10

What is the minimum paid-up share capital of a Cooperative?

Answer 10

25% of the total subscription but not less than P15,000.00 except for multipurpose cooperatives which should have at least P100,000 or as required by the feasibility study whichever is higher.

Registration of Secondary and Tertiary Cooperatives
Secondary:
1. Federation: P500,000 (now P1,000,000 or the amount required in the feasibility study, whichever is higher)
2. Union: not applicable

Tertiary:
1. Federation: P5,000,000 or feasibility study requirement whichever is higher
2. Union: not applicable

Question 11

Limitation on Auditor

Cooperative

Answer 11

Limitation on auditor as to familiarity: the external auditor, whether on his/her individual capacity or as partner of a firm, may undertake the external audit of the concerned cooperative for not more than 5 consecutive years, provided that the external auditor may be allowed to audit the same client after a gap of 2 years.

CDA MC 2014-02 further clarifies that the 5-consecutive-year limit shall apply to the accredited cooperative external auditor, either as individual CPA or as partnership/auditing firm. For partnership/auditing firm, accreditation is an authority vested to them as an organization per se and that all the partners and associates are part of the organization.

Question 12

Tax Exemption of Cooperatives

Answer 12

Duly registered cooperatives which do not transact any business with non-members or the general public are tax-exempt

Notwithstanding the provisions of any law or regulation to the contrary, such cooperatives dealing with non-members shall enjoy the following tax exemptions:
a. Cooperatives with accumulated reserves and undivided net savings of not more than Ten million pesos (P10,000,000.00) shall be exempt from all national, city, provincial, municipal or barangay taxes of whatever name and nature.

All tax free importations shall not be sold nor the beneficial ownership thereof be transferred to any person until after five (5) years, otherwise, the cooperative and the transferee or assignee shall be solidarily liable to pay twice the amount of the imposed tax and / or duties.

b. Cooperatives with accumulated reserves and undivided net savings of more than Ten million pesos (P10,000,000.00) shall pay the following taxes at the full rate:
i. Income Tax - On the amount allocated for interest on capitals: Provided, That the same tax is not consequently imposed on interest individually received by members: Provided, further, That cooperatives regardless of classification, are exempt from income tax from the date of registration with the CDA;
ii. Value-Added Tax – On transactions with non-members: Provided, however, That cooperatives duly registered with the Authority are exempt from the payment of value-added tax subject to exemptions under Section 109 of the Tax Code.
iii. All other taxes; and
iv. Donations to charitable, research and educational institutions and reinvestment to socioeconomic projects within the area of operation of the cooperative may be tax deductible.

c. All cooperatives, regardless of the amount of accumulated reserves and undivided net savings shall be exempt from payment of local taxes and taxes on transactions with banks and insurance companies: Provided, That all sales or services rendered for non-members shall be subject to the applicable percentage taxes sales made by producers, marketing or service cooperatives.

Question 13

What are the Types of Cooperatives?

(5) descriptive definitions

Answer 13

1. Advocacy Cooperative is a primary coooperative which promotes and advocates cooperativism among its members and the public through socially-oriented projects, education and training, research and communication, and other similar activities to reach out to its intended beneficiaries;
2. Dairy Cooperative is one whose members are engaged in the production of fresh milk which may be processes and/or marketed as dairy products;
3. Fishermen Cooperative is one organized by marginalized fishermen in localities whose products are marketed either as fresh or processes products;
4. Multipurpose Cooperative is one which combines two (2) or more of the business acitivities of these different types of cooperatives;
5. Workers Cooperative is one organized by workers, including self-employed, who are at the same time the members and owners of the enterprise. Its principal purpose is to provide employment and business opportunities to its members and manage it in accordance with cooperative principle.

Question 14

Other types of Cooperative

(8)

Answer 14

1. Agriculture Cooperative refers to a primary cooperative which or whose members are involved/engaged in raising/culture of plants, animals, fungi, and other living organism for productive and economic purpose and in related activities that lead to the reduction of cost and/or value addition of outputs;
2. Agrarian Reform Cooperative is one organized by marginal farmers majority of which are agrarian reform beneficiaries for the purpose of developing an appropriate system of land tenure, land development, land consolidation or land management in areas covered by agrarian reform;
3. Consumers Cooperative is one of the primary purpose of which is to procure and distribute commodities to members and non-members;
4. Marketing Cooperative is one which engages in the supply of production inputs to members and markets their products;
5. Producers Cooperative is one that undertakes joint production whether agricultural or industrial. It is formed and operated by its members to undertake the production and processing of raw materials or goods produced by its members into finished or processed products for sale by the cooperative to its members and non-members. Any end product or its derivative arising from the raw materials produced by its members, sold in the name and for the account of the cooperative, shall be deemed a product of the cooperative and its members;
6. Cooperative Bank: provides a wide range of financial services to coooperatives and their members.
7. Credit Cooperative: Provides savings and lending services to its members;
8. Financial Service Cooperative: Provides savings, credit, and other financial services.

Question 15

What are service cooperatives?

(7)

Answer 15

Service Cooperative is one which engages in medical and dental care, hospitalization, transportation, insurance, housing, labor, electric light and power, communciation, professional and other services.

1. Electric Cooperative is one organized for the primary purpose of undertaking power generations, utilizing renewable energy sources, including hybrid systems, acquisition and operation of subtransmission or distribution to its household members;
2. Health Services Cooperative is one organized for the primary purpose of providing medical, dental and other health services;
3. Housing Cooperative is one organized to assist or provide access to housing for the benefit of its regular members who actively participate in the savings program for housing. It is co-owned and controlled by its members;
4. Insurance Cooperative is one engaged in the business of insuring life and property of cooperatives and their members;
5. Transport Cooperative is one which includes land and sea transportation, limited to small vessels, as defined or classified under the Philippine maritime laws, organized under the provisions of this Code;
6. Education Cooperative is one organized for the primary purpose of owning and operating licensed educational institutions notwithstanding the provisions of Republic Act No. 9155, otherwise known as the Governance of Basic Education Act of 2001;
7. Water Service Cooperative is one organized to own, operate and manage waters systems for the provision and distribution of potable water for its members and their households;

Question 16

What are the kinds of Partners according to Contribution?

(3)

Answer 16

1. Capitalist partners - contributes capital; and
2. Industrial partner - furnishes industry or labor;
3. Capitalist-industrial partners - furnishes both.

Question 17

Kinds of Partners as to Liability

(2)

Answer 17

1. General Partner - liable up to his personal assets;
2. Limited partners - liable up to his capital contributions only

Question 18

Other kinds of partners

(7)

Answer 18

1. Silent partner - one who does not participate in the management of the partnership
2. Secret Partner - one who is not known to third persons as a partner
3. Dormant Partner - one who is both a silent and secret partner
4. Ostensible Partner - direct opposite of a dormant partnet or one who participates in the management and is known to third parties as a partner
5. Managing partner - one who undertakes the management of the partnership
6. Liquidating partner - one who undertakes the winding-up of partnership affairs after its dissolution
7. Incoming partner - one who is admitted to the partnership after it has already been constituted.

Question 19

Rules on Distribution of Losses in a Partnership

Answer 19

1. In accordance with agreement as to distribution of losses;
2. If there was no agreement as to losses, same proportion as to the agreement as to profits;
3. If no agreement as to losses and profits, in proportion to contribution but industrial partner shall not be liable for losses.

An industrial partner may be made liable for losses ONLY if there was stipulation to that effect.
Void Stipulation: A stipulation excluding one or more partners from any share in the profits or losses is void, this is otherwise known as Pactum Leonina.

Question 20

When does the right of a partner to demand an accounting of the partnership business prescribes?

Answer 20

4 years upon the dissolution of the partnership when the final accounting is done.

Question 21

Order of Payment

General Partnership

Answer 21

1. Creditors other than partners;
2. Partners other than for capital and profits;
3. Partners in respect of capital;
4. partners in respect of profits

Question 22

Order of Payment

Limited Partnership

Answer 22

1. Creditors, in the order of priority as provided by law, except those limited partners on accounts of their contributions, and to general partners;
2. Limited partners in respect to their share of the profits and other compensation by way of income on their contributions;
3. Limited partners in respect to the capital of their contributions;
4. General partners other than for capital and profits;
5. General partners in respect to profits; and
6. General partners in respect to capital

Question 23

What are the causes of Dissolution?

Answer 23

Extrajudicial causes (w/o intervention of the court)
1. W/o violation of the agreement between the partners:
a. Termination
b. Express will of any partner, who must act in good faith
c. Express will of all the partners
d. Expulsion
2. In contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision, by the express will of any partner at any time;
3. By operation of law:
a. any event which makes it unlawful for the business to be carried on
b. When a specific thing which a partner had promised to contribute, perishes BEFORE the delivery
c. Death of any partner;
d. Insolvency of any partner
e. Civil interdiction of any partner

Judicial Causes:
1. partner has been declared insane
2. A partner becomes incapable of performing his part
3. A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business;
4. willfully or persistently commits a breach
5. business can only be carried on at a loss;
6. Other circumstances render a dissolution equitable.

Question 24

What are the powers of a corporation?

(3)

Answer 24

a. Express Power - those expressly authorized by the Corporation code and other laws, and its Articles of Incorporation;
b. Implied Powers - those that can be inferred from or necessary for the exercise of EXPRESS powers;
c. Incidental powers - those that are incidental to the existence of the corporation

Question 25

What are the different classes of corporation? | (15)

Answer 25

1. **STOCK CORPORATIONS** – Corporations with capital stock divided into shares, authorized to distribute dividends based on shareholdings. 2. **NON-STOCK CORPORATIONS** – Corporations not authorized to distribute surplus profits. 3. **DOMESTIC CORPORATION** – Corporations organized under Philippine laws, by legislative act or under the General Corporation Law. 4. **FOREIGN CORPORATION** – Corporations formed under laws outside the Philippines. 5. **CLOSE CORPORATIONS** – Corporations with shares held by a limited, closely-related group, with no public investors; shareholders are active in operations. 6. **OPEN CORPORATIONS** – Corporations that accept outsiders as stockholders, offer shares publicly, and are often publicly listed. 7. **CORPORATION BY ESTOPPEL** – A group presenting itself as a corporation and contracting with third parties cannot later deny its corporate existence. 8. **DE JURE CORPORATION** – A corporation properly organized according to legal requirements. 9. **DE FACTO CORPORATION** – A corporation with incorporation flaws but meets these: valid law exists, good faith attempt to incorporate, and exercise of corporate powers. 10. **PRIVATE CORPORATIONS** – Corporations formed for private benefit or purposes, enjoyed as privileges granted by the State. 11. **PUBLIC CORPORATIONS** – Corporations organized for governance and public welfare of a state portion or political subdivision. 12. **ECCLESIASTICAL CORPORATIONS** – Corporations composed of individuals for **religious or spiritual purposes** and property administration for religious use. 13. **LAY CORPORATIONS** – Corporations organized for **non-religious** purposes, classified as: **(1) ELEEMOSYNARY** – For **charitable and benevolent** purposes like hospitals or homes for the poor. **(2) CIVIL** – For **private benefit**, not necessarily charitableck divided into shares, authorized to distribute dividends based on shareholdings. 14. **AGGREGATE CORPORATIONS** – Corporations composed of **multiple individuals vested with corporate powers**. 15. **CORPORATION SOLE** – Corporations consisting of **one religious leader** to grant them legal capacity for property and other purposes.

Question 26

Classes of Shares of Stocks | Corporation

Answer 26

Shares of Stock designate the units into which the proprietary interest in a corporation is divided. They represent the proportionate untis, the sum of which consitutes the capital stock of the corporation. 1. **Common Stocks** - entitles its owner to an equal or pro-rata division of profits, if there are any, but without any preference or advantage in that respect over any other stockholder or class of stockholders. 2. **Founder's Shares** - shares issued to the founders of the corporation which are granted certain right and privileges such as the exclusive right to vote and be voted for in the election of directors, for a period not to exceed 5 years. 3. **PREFERRED STOCKS** is a stock that gives the holder **preference over the holder of common stocks** with respect to the payment of dividends and/or with respect to distribution of capital upon liquidation. 4. **Par Value Shares** are those whose **values are fixed** in the Articles and shown on the certificate. The par value is the minimum subscription or original issue price of the shares. 5. **No Par Value Shares** are those whose **issued price are not stated in the certificate of stock** but may be fixed in the AOI, or by the BOD when so authorized the articles or the by-laws, or in the absence thereof, the stockholders themselves. 6. **Watered Stocks** - shares are **issued at less than its par** value or issue price. 7. **Redeemable shares** - those subject to **redemption**, as indicated in the contract. This type of shares grants the corporation the **right to repurchase the shares** at its option or at the option of the holder based on the face or issued value plus a specified premium. The redemption may be optional or mandatory at a fixed future date. 8. **Treasury shares** - have been issued and fully paid for, but **subsequently reacquired** by the issuing corporation by purchase, redemption, donation or through some other lawful means.

Question 27

Term of Corporation

Answer 27

* Generally: Perpetual Existence * Definite Term: If the corporation would opt to have a definite term for its existence, any extension thereof can be made no earlier than 3 years (from 5 years) prior to expiry date, unless there are justifiable reasons to allow earlier extension

Question 28

Modes to Amend the by-laws of a Corporation | (2)

Answer 28

1. By a **majority vote of the directors or trustees** and the **majority vote of the outstanding capital stock or members**, at a regular or special meeting called for that purpose; or 2. By the board of directs alone when delegated by stockholders owning **2/3 of the outstanding capital stock or 2/3 of the members**. This power, however, is considered revoked, when so voted by a majority of the outstanding capital stock or members in a regular or special meeting. ## Footnote AMENDMENTS: Section 46(d) of the RCC now includes “The modes by which a stockholder, member, director, or trustee may attend meetings and cast their vote.” It likewise includes that an arbitration agreement may be provided in the bylaws. The submission of the amended by-laws no longer requires that it be filed with the SEC attached to the original articles of incorporation and original bylaws.

Question 29

Qualifications of a Director/Trustee

Answer 29

Must own at least 1 share in their own names or a member (in the case of trustees). ## Footnote A director who ceases to own at least 1 share or a trustee who ceases to be a member of the corporation shall cease to be as such.

Question 30

What is the required quantum of evidence or proof necessary for criminal and civil liability to attach?

Answer 30

a. Criminal liability - proof beyond reasonable doubt b. Civil liability - preponderance of evidence

Question 31

What are Conditional Obligations?

Answer 31

In conditional obligations, the acqusition of rights, as well as the extinguishment or loss of those already acquired, shall **depend upon the happening of the event which constitutes the condition.** **Conditions**: are uncertain events which wileds an influence on a legal relationship. **Potestative condition**: a condition dependent solely on the will of one of the parties.

Question 32

Place of Payment of obligations | (4)

Answer 32

1. Payment shall be made in the **place designated in the obligation**. 2. If there was **no stipulation** and the **obligation consists in the delivery** of a determinate thing, the payment shall be made **wherever the thing might be at the moment the obligation was constituted**. 3. In any other case, the place of payment shall be the **domicile of the debtor**. 4. If the debtor **changes his domicile in bad faith** or after he has incurred in delay, the **additional expenses shall be borne by him**.

Question 33

Order of application of payments | Obligation

Answer 33

If the **debtor did not designate**, to which debt shall payment apply? That which was **chosen by the creditor** as reflected in the receipt which is accepted by the debtor without protest. if **debtor and creditor did not designate**: 1. if the debts are of **different nature and burden** - to that debt which is **most onerous to the debtor**; 2. If the debts are of the **same nature and burden** - applied **proportionately**.

Question 34

What is an Earnest Money?

Answer 34

Earnest Money - forms part of the purchase price and is proof of perfection of a contract of sale.

Question 35

What is an Option Money?

Answer 35

Option Money is a separate consideration to give the offeree a definite period within which to decide whether or not to accept an offer, there is no perfected contract of sale yet and does not form part of the purchase price.

Question 36

What are the rights of an unpaid seller? | (4)

Answer 36

1. Possessory lien - right to retain the goods or right to withhold delivery of the goods. 2. Stoppage in transitu - right to stop the goods while in transit. 3. Resale 4. Rescission