Regulatory Framework and Legal Issues in Business Module Midterms PDF

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Warning: TT: undefined function: 32REGULATORYFRAMEWORKAND LEGALISSUES INBUSINESSMidterm ModuleCONTENTSThe Law on Sales and Credit Transactions.Evince Earl C. Columnas, CPAREGULATORY FRAMEWORK AND ACCOUNTING STANDARDSRepublic of the Philippines JOSE RIZAL MEMORIAL STATE UNIVERSITY The Premier Univers...

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CONTENTS The Law on Sales and Credit Transactions.

Evince Earl C. Columnas, CPA

REGULATORY FRAMEWORK AND LEGAL ISSUES IN BUSINESS Midterm Module

REGULATORY FRAMEWORK AND ACCOUNTING STANDARDS

Republic of the Philippines JOSE RIZAL MEMORIAL STATE UNIVERSITY The Premier University in Zamboanga del Norte Main Campus, Dapitan City Registration No. 62Q17082 JRMSU- CBA-DEAN-006

Program: BS- Accountancy College: College of Business and Accountancy Instructor/Professor: Mr. Evince Earl C. Columnas, CPA Pre-Requisites: Unit Credit: 3 units Lecture: 3 units / Laboratory: ____ No. of Hours: 54 hours PHILOSOPHY

VISION

MISSION

GOALS

COURSE DESCRIPTION

AEACC15

Course Title

REGULATORY FRAMEWORK AND ACCOUNTING STANDARDS

Date & Time: Room: __________ Consultation Hours:

Jose Rizal Memorial State University adheres to the principle of dynamism and cultural diversity in building a just and humane society.

A dynamic and diverse internationally recognized University.

Jose Rizal Memorial State University pledges to deliver effective and efficient services along research, instruction, production and extension. It commits to provide advanced professional, technical and technopreneurial training with the aim of producing highly competent, innovative and self-renewed individuals.

Jose Rizal Memorial State University focuses on developing graduates who are exemplars of Rizal’s ideas that can: E X C E L L E N C E

QUALITY POLICY STATEMENT

Course Code

-

xhibit relevant and responsive competencies across disciplines towards enial delivery of services; ommunicate ideas proficiently in both written and spoken form; ngage in lifelong learning; ead effectively and efficiently amidst socio-cultural diversity; ive up the challenges of global community; mbody professional, social and ethical responsibilities; urture a harmonious environment; onserve and promote Filipino cultural heritage; and valuate their contribution to the local and global communities.

Jose Rizal Memorial State University, a believer of holistic human development, excellence and quality service, provides quality training and development to students. It shall commit to provide adequate, suitable and relevant sources and services with continuing quality management system for clients and customers’ satisfaction through an efficient and effective quality system which conforms with national and international statutory and regulatory requirements. This course is the third in the series of three courses that cover the topic on regulatory framework governing business transactions and business organizations/associations, and of business laws including their legal implications. The courses provide the students an understanding of the pertinent legal provisions, general principles, concepts, and underlying philosophy of the laws applicable to commerce and business. The students are given working knowledge to apply the various regulatory framework measures and the pertinent provisions of the law relative to particular business scenarios. They are also familiarized with clients’ rights and remedies, with the handling of disputes on regulatory issues. The various regulatory offices that they will be interacting with are discussed including basic regulations that they will derive benefit from. This course deals with the law on sales, its nature, form and requisites. It discusses the rights and obligations of the vendor and vendee including remedies in case of defaults. It also covers applicable laws on installment sales. The course also provides the students an understanding of the law on credit transactions such as pledges, real mortgages and chattel mortgages.

Program Outcomes Addressed by the Course

COURSE LEARNING OUTCOMES

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This course also provides basic knowledge on the laws on other business transactions, to wit: PDIC Law, Secrecy of Bank Deposits and Unclaimed Balances Law, General Banking Law with emphasis on loans, AMLA Law with emphasis on covered transactions, suspicious transactions and reportorial requirements, the New Central Bank Act with emphasis on legal tender power over coins and notes, conservatorship and receivership and closures, and the Intellectual Property Law (except provisions under part I) with emphasis on the Law on Patents, the Law on Trademark, Service Marks and Trade Names, and the Law on Copyright. BSA01. Resolve business issues and problems, with a global and strategic perspective using knowledge and technical proficiency in the areas of financial accounting and reporting, cost accounting and management, accounting and control, taxation, and accounting information system. BSA02. Conduct accountancy research through independent studies of relevant literature and appropriate use of accounting theory and methodologies. BSA03. Employ technology as a business tool in capturing financial and non-financial information, generating reports and making decisions. BSA04. Apply knowledge and skills to successfully respond to various types of assessments; and (including professional licensure and certifications). BSA05. Confidently maintain a commitment to good corporate citizenship, social responsibility and ethical practice in performing functions as an accountant. At the end of the course, the students should be able to: 1. Demonstrate dynamism needed in various situations to apply the attributes of the VMGO. 2. Define a contract of sale and enumerate its elements and formalities. 3. Summarize the rights and obligations of the vendor and vendee in a contract of sale. 4. Explain the remedies of the vendor and vendee in case of breach. 5. Explain the rights and remedies of the parties in installment sales. 6. Prepare a contract of sale with all the required elements and formalities. 7. Define, compare and contrast a contract of pledge, mortgage, and chattel mortgage, along with their elements and formalities. 8. Prepare a contract of pledge, mortgage and chattel mortgage, with their elements and formalities. 9. Generalize the pertinent provisions of the law on other business transactions.

THE LAW ON SALES1

CHAPTER 1 Nature and Form of the Contract Article 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional. (1445a) NOTES: • •

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This article provides the definition of a contract of sale. Parties to a contract of sale: o Vendor/Seller – one who obligates himself to transfer the ownership and to deliver a determinate thing o Vendee/Buyer – one who obligates himself to pay a price certain in money or its equivalent Characteristics of a contract of sale: o Consensual – perfected by mere consent of the parties o Bilateral – both contracting parties are bound to fulfill reciprocal obligations to each other o Onerous – the thing sold is given in consideration of the price o Commutative – the thing sold is considered equivalent of the price paid o Nominate – it is given a special name in the Civil Code i.e. “Sale” o Principal – it does not depend for its existence and validity upon another contract Essential requisites of contract of sale – without which there can be no contract of sale o CONSENT o OBJECT/SUBJECT MATTER – the determinate thing which is the object of the contract of sale ▪ Thing must be DETERMINATE or at least CAPABLE OF BEING MADE DETERMINATE ▪ Subject matter may be real property (e.g. land) or personal/movable property (e.g. car) o CAUSE OR CONSIDERATION – the price certain in money or its equivalent Natural elements of a contract of sale – deemed to exist in the absence of any contrary stipulations (e.g. warranty against eviction or warranty against hidden defects) Accidental elements of a contract of sale – those which may be present or absent depending on the stipulations of the parties (e.g. conditions, interest, penalty, time or place of payment, etc.) Two Kinds of a Contract of Sale, as to presence or absence of conditions: o Absolute – not subject to any condition whatsoever; title or ownership passes to the buyer upon delivery of the thing sold o Conditional – sale contemplates a contingency; subject to certain conditions. Here, the delivery of the thing sold does not transfer ownership until the condition is fulfilled

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NOTE: Main reference for this topic is THE LAW ON SALES, AGENCY, AND CREDIT TRANSACTIONS by De Leon and De Leon, Jr. It would be of utmost help for you to obtain a copy of this book. Page | 3

Article 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered. (n) NOTES: •

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Requisites Regarding Object of Contract of Sale: (object of sale may be (a) things or (b) rights) – absence of any of the following will make the contract VOID/INEXISTENT and cannot be ratified o (a) Things – must be within the commerce of men ▪ Determinate ▪ Licit or lawful • Things may be illicit (illegal) o per se – by its nature (e.g. decayed food) o per accidens – because some provision of law declares it illegal (e.g. illegal drugs) ▪ Not be impossible o (b) Rights – must be transmissible (i.e. capable of being transmitted to other persons; not strictly personal) ▪ Examples of transmissible rights – right to usufruct, right of conventional redemption ▪ Examples of intransmissible rights – right to vote, right to custody over children, marital rights ▪ Services cannot be the subject of a contract of sale (not a determinate THING) Right of vendor to transfer ownership o One can only sell what he owns – seller must be the owner or at least authorized by the owner of the thing sold o Sufficient if right exists at time of delivery – not required that the vendor must have the right to transfer ownership at the perfection of the contract.

Article 1460. A thing is determinate when it is particularly designated or physical segregated from all others of the same class. The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new or further agreement between the parties. (n) NOTES: •

Subject matter must be DETERMINATE (first paragraph Art. 1460) or DETERMINABLE (Second paragraph Art. 1460). Otherwise, contract is VOID.

Article 1461. Things having a potential existence may be the object of the contract of sale. The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence. The sale of a vain hope or expectancy is void. (n) NOTES: •

Future things not existing at the time the contract has been entered into may be the subject of a contract of sale PROVIDED: o It is reasonable certain that the thing will come into existence; and o The title will vest in the buyer the moment the thing comes into existence

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Example: The sale of all the rice that may be harvested from the seller’s ricefield within a given period of time is a valid sale Sale of hope or expectancy – 2nd par. Art. 1461 o The sale of hope or expectancy itself is valid even if the thing hoped or expected does not come into existence, unless the hope or expectancy is in vain, in which case, the sale is void ▪ Example: If Berto buys a lotto ticket in the hope of winning the grand prize, the object of the contract is not the prize, but the hope itself. Thus, the sale is valid even if Berto does not win the prize. However, if Berto buys an expired lotto ticket in the hope of winning the prize, the hope is in vain, and thus, the sale is void.

Article 1462. The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or goods to be manufactured, raised, or acquired by the seller after the perfection of the contract of sale, in this Title called "future goods." There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency which may or may not happen. (n) NOTES: •

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A sale of future goods even though the contract is in the form of a present sale, is valid only as an executory contract to be fulfilled by the acquisition and delivery of the goods specified. Hence, no actual sale and transfer of ownership has yet taken place as long as the future goods are not yet in the hands of the seller. Upon acquisition by the seller of the goods, either party then acquires the right to demand the execution of the contract of sale. The first paragraph of the above article does not apply if the goods are to be manufactured especially for the buyer and not readily saleable to others in the manufacturer’s ordinary course of business. This is a contract for a piece of work, and not a contract of sale (see Art. 1467)

Article 1463. The sole owner of a thing may sell an undivided interest therein. (n) NOTES: •

Example: Sidro, the sole owner of a one-hectare parcel of land located in Dipolog City, sells one-half thereof to Brenda, without specifying which particular part of the parcel of land is being sold. Here, Sidro is selling an undivided interest in the thing (the ½ share of the parcel of land). The sale is valid, and the effect thereof is to make the buyer a coowner in the thing sold. o If Sidro specifies which particular part (by metes and bounds) of his one-hectare parcel of land is to be sold to Brenda, the sale is not of an undivided interest of the land. Hence, there is no co-ownership between Sidro and Brenda. Sidro becomes the full owner of his portion while Brenda becomes the absolute owner of her portion of the land.

Article 1464. In the case of fungible goods, there may be a sale of an undivided share of a specific mass, though the seller purports to sell and the buyer to buy a definite number, weight or measure of the goods in the mass, and though the number, weight or measure of the goods in the mass, and though the number, weight or measure of the goods in the mass is undetermined. By such a sale the buyer becomes owner in common of such a share of the mass as the number, weight or measure bought bears to the number, weight or measure of the mass. If the mass contains less than the number, weight or measure bought, the buyer becomes the owner of the whole mass and the seller is bound to make good the deficiency from goods of the same kind and quality, unless a contrary intent appears. (n) Page | 5

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Fungible goods as used in this article is meant to be synonymous to “consumable” goods of which any unit is, from its nature or by mercantile usage, treated as the equivalent of any other unit Example: In a stock of rice, the exact number of sacks of which is still unknown, Jose buys 100 sacks. If there are really 150, Jose becomes the co-owner of the whole lot, his own share being 2/3 thereof. If it turns out that there were really only 90 sacks of rice in the stock, Jose becomes the sole owner of the whole lot, and the seller is bound to make good the deficiency of 10 sacks to Jose.

Article 1465. Things subject to a resolutory condition may be the object of the contract of sale. (n) NOTES: • •

Resolutory condition – an uncertain event upon the happening of which the obligation (or right) subject to it is extinguished. Example: Susan (vendor a retro) sold a parcel of land to Bugoy (vendee a retro) subject to the condition that Susan can repurchase the land within two years from the date of sale. If within the said two-year period, Bugoy sells the land to Charlie, who knows of Susan’s right to repurchase, and Susan exercises her right to repurchase, Charlie is bound to respect Susan’s right.

Article 1466. In construing a contract containing provisions characteristic of both the contract of sale and of the contract of agency to sell, the essential clauses of the whole instrument shall be considered. (n) NOTES: •

Distinctions Between a ‘Contract of Sale’ and an ‘Agency to Sell’ (like a Consignment for Sale): (a) In sale, the buyer pays the price; the agent delivers the price which in turn he got from his buyer. (b) In sale, the buyer after delivery becomes the owner; the agent who is supposed to sell does not become the owner, even if the property has already been delivered to him. (c) In sale, the seller warrants; the agent who sells assumes no personal liability as long as he acts within his authority and in the name of the principal.

Article 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work. (n) NOTES: • Contract for a piece of work – here, the contractor binds himself to execute a piece of work for the employer, in consideration of a certain price or compensation. • Distinctions between a Contract for a Piece of Work and a Contract of Sale: o In the former, the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it; while in the latter, the thing transferred is one which would have existed and been the subject of sale to some other person, even if the order had not been given. Page | 6

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Example: o Juan buys a pair of size 11 Nike Air Force One shoes from a Jose, whose business it is to sell Nike shoes. But at the moment, Jose does not have the shoes of Juan’s size. Thus, Jose orders size 11 Nike Air Force One shoes from his supplier to sell to Juan. This order will still be considered a contract of sale, as Jose would have otherwise ordered and sold the same shoes regardless of Juan’s intention to buy. o Pedro’s feet are deformed, such that he cannot wear normal shoes. He goes to Penduko, a local shoemaker, to order shoes that will particularly fit his feet. This is a contract of a piece of work, as Penduko would not have otherwise made the special shoes had it not been for Pedro’s order.

Article 1468. If the consideration of the contract consists partly in money, and partly in another thing, the transaction shall be characterized by the manifest intention of the parties. If such intention does not clearly appear, it shall be considered a barter if the value of the thing given as a part of the consideration exceeds the amount of the money or its equivalent; otherwise, it is a sale. (1446a) NOTES: •

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Barter or exchange – one of the parties binds himself to give one thing in consideration of the other’s promise to give another thing. o On the other hand, in sale, the vendor gives a thing in consideration for a price in money. Rules to Determine Whether Contract is One of Sale or Barter (a) First Rule — Intent. (The manifest intention of the parties shall prevail. Thus, if the parties intend the transaction to be one of SALE, then regardless of whether the value of the thing given exceeds the amount of the money or equivalent, the transaction will be considered a sale.) (b) If intent does not clearly appear — 1) if thing is more valuable than money — BARTER 2) if 50-50 — SALE 3) if thing is less valuable than the money — SALE

Article 1469. In order that the price may be considered certain, it shall be sufficient that it be so with reference to another thing certain, or that the determination thereof be left to the judgment of a special person or persons. Should such person or persons be unable or unwilling to fix it, the contract shall be inefficacious, unless the ...