Regulatory Framework for Business Transactions
Part 6 of 6 - Business Law, Contracts & Corporate Regulations
📜Obligations and Contracts
Essential Elements of a Contract
Consent
Meeting of minds between parties
Must be free from vices: mistake, violence, intimidation, undue influence, fraud
Object
Subject matter of the contract
Must be within commerce of man, determinate, licit
Cause
Essential reason for contracting
Must exist, true, and lawful
Classification of Contracts
| Validity | Effect |
|---|---|
| Valid | Has all essential elements; enforceable |
| Voidable | Binding until annulled; one party can rescind |
| Unenforceable | Cannot be enforced until ratified (e.g., unauthorized agent) |
| Void | No legal effect from the beginning; cannot be ratified |
Modes of Extinguishing Obligations
- Payment: Fulfillment of obligation
- Loss of the thing due: Without fault of debtor
- Condonation/Remission: Gratuitous waiver by creditor
- Confusion/Merger: Same person becomes creditor and debtor
- Compensation: Mutual debts are extinguished
- Novation: Substitution of new obligation
🤝Partnership Law
Types of Partners
General Partner
- Unlimited liability
- Can participate in management
- Agent of partnership
Limited Partner
- Liability limited to contribution
- Cannot participate in management
- Not an agent
Industrial Partner
- Contributes services only
- Cannot engage in competing business
- Exempt from losses (unless agreed)
Capitalist Partner
- Contributes capital/property
- May engage in other business (with consent)
- Shares in profits and losses
Partnership Characteristics
- Mutual Agency: Each partner is an agent of the partnership
- Co-ownership of Property: Partnership property owned by partnership
- Limited Life: Dissolved by death, incapacity, withdrawal of partner
- Unlimited Liability: General partners liable beyond contribution
🏢Corporation Code (Revised Corporation Code - RCC)
Key Features under RCC
Incorporators
Minimum: 2 (was 5 under old code); maximum: 15
One Person Corporation (OPC) allowed
Subscription
At least 25% of authorized capital stock must be subscribed
At least 25% of subscribed capital must be paid-up
Corporate Term
Perpetual existence (unless limited by AOI)
Directors
5-15 members for stock corporations
At least 1 resident director required
Types of Corporations
Stock Corporation
Has capital stock divided into shares; distributes dividends
Non-Stock Corporation
No capital stock; no dividends; for charitable, educational, etc.
Close Corporation
Max 20 stockholders; shares not publicly offered
One Person Corporation
Single stockholder; must be natural person or trust
Corporate Powers (Sec. 35)
- Sue and be sued
- Adopt and use corporate seal
- Amend articles of incorporation
- Adopt by-laws
- Issue shares of stock
- Declare dividends
- Enter into contracts
💵Negotiable Instruments Law (NIL)
Requirements for Negotiability (Sec. 1)
- Must be in writing and signed by maker/drawer
- Must contain unconditional promise/order to pay
- Must be for a sum certain in money
- Must be payable on demand or at a determinable future time
- Must be payable to order or to bearer
- Where addressed to drawee, must be named or indicated with certainty
Types of Negotiable Instruments
Promissory Note
Unconditional promise to pay
Two parties: Maker, Payee
Bill of Exchange (Check)
Unconditional order to pay
Three parties: Drawer, Drawee, Payee
Holder in Due Course (HDC)
A holder who takes an instrument:
- Complete and regular on its face
- Before it was overdue
- In good faith and for value
- Without notice of defect in title
HDC takes instrument free from personal defenses (not real defenses)
Key Reminders
Contracts
- Consent + Object + Cause
- Void = No effect, cannot ratify
- Voidable = Valid until annulled
Corporation
- Min 2 incorporators (RCC)
- 25% subscribed, 25% paid-up
- OPC allowed (1 person)