THE CPA LICENSURE EXAMINATION SYLLABUS REGULATORY

FRAMEWORK for BUSINESS TRANSACTIONS

Effective May 2016

Examination

This subject covers the candidates’ knowledge of the regulatory framework governing business transactions and
business organizations/associations, and of business laws including their legal implications. Candidates should
know and understand the pertinent legal provisions, general principles, concepts, and underlying philosophy of
the laws applicable to commerce and business. The candidates must have sufficient knowledge to enable them
to recognize the legal implications of business situations or transactions and to know when to seek legal counsel
or recommend that it be sought.

The candidates must have a working knowledge to apply the various regulatory framework measures and the
pertinent provisions of the law relative to particular business scenarios.

The candidates must also be familiar with clients’ rights and remedies, with the handling of disputes on regulatory
issues. They must know the various regulatory offices that they will be interacting with and the basic regulations
that they will derive benefits from...

The candidates must also be able to communicate effectively matters pertaining to the regulatory work that will
be handled.

The knowledge of the candidates in the competencies cited above is that of an entry level accountant who can
address the fundamental requirements of the various parties that the candidates will be interacting professionally
in the future.
.
Only new laws, implementing rules and regulations, jurisprudences and other issuances shall be included in the
examinations if these are in effect for at least six (6) months at the date of the examination...

The examination shall have one hundred (100) multiple choice

questions. The syllabus for the subject is presented below.

1.0 LAW ON BUSINESS TRANSACTIONS

1.1 Obligations 10 items
1.1.1 Sources of obligations and their concepts
1.1.1.1 Law
1.1.1.2 Contracts
1.1.1.3 Quasi-contracts
1.1.1.4 Delicts
1.1.1.5 Quasi-delicts
1.2 Kinds of obligations in general under the Civil Code
1.3 Specific circumstances affecting obligations in general
1.3.1 Fortuitous events
1.3.2 Fraud
1.3.3 Negligence
1.3.4 Delay
1.3.5 Breach of contract
1.4 Duties of obligor in obligation to do or not to do
1.5 Extinguishment of obligation with special emphasis on
1.5.1 Payment of debts of money
1.5.2 Mercantile documents as means of payment
1.5.3 Special forms or modes of payment
 1.5.4 Remission or condonation, confusion, compensation and novation
1.5.5 Effect of insolvency and bankruptcy on extinguishment of obligation

2.0 Contracts
2.1 Concepts and classification
2.2 Elements and stages
2.3 Freedom from contract and limitation
 2.4 Persons bound
2.5 Consent
2.5.1 Capacitated persons
2.5.2 Requisites
2.5.3 Vices of consent
2.6 Objects of contracts
2.7 Considerations of contracts
2.8 Formalities of contracts
2.9 Interpretation and reformation of contract
2.10 Defective contracts
2.10.1 Rescissible
2.10.2 Voidable
2.10.3 Unenforceable
2.10.4 Void

3.0 Sales
3.1 Nature, forms and requisites
3.2 Earnest money as distinguished from option money
3.3 Rights/obligations of vendor and vendee
3.4 Warranties (in relation to consumer laws)
3.5 Installment sales
3.5.1 Personal property – Recto Law
3.5.2 Real Property – Maceda Law
3.5.3 PD 957 / Condominium Act

4.0 LAW ON CREDIT

TRANSACTIONS
4.1 Pledge, Real Mortgage and Chattel Mortgage
4.1.1 Nature and requisites
4.1.2 Requirements to bind the parties and third persons
4.1.3 Obligations and rights of pledgor and pledge
4.1.4 Obligations and rights of mortgagor and mortgagee
4.1.5 Effect of pactum commissorium
4.1.6 Modes of extinguishment
4.2 Insolvency Law *
4.2.1 Definition of insolvency
4.2.2 Suspension of payments
4.2.3 Voluntary insolvency
4.2.4 Involuntary insolvency
4.3 Corporate Rehabilitation *
4.3.1 Definition of Terms
4.3.2 Stay Order
4.3.3 Receiver
4.3.4 Rehabilitation Plan
4.3.5 Contents of Petition and other types of Rehabilitations

5.0 NEGOTIABLE INSTRUMENTS AND BOUNCING CHECKS

LAW
5.1 Negotiable Instruments
5.1.1 Negotiability of instrument
1) The instrument must be in writing. — The term "instrument “indicates a writing. The
instrument must be in writing or reduced in tangible form; otherwise, nothing could be negotiated
or passed from hand to hand.
a) Writing includes not only that which has been written on paper and with a pen or pencil but
also that which is in print. (Sec. 191.) Or has been typed. The writing may be made upon
leather, doth or any other substitute for paper as long as it is movable in nature. Such
materials, however, are no longer used in the usual exercise of business. The usual way is to
have the instrument written or printed in durable paper. There is no such thing as an oral
 negotiable instrument. An oral promise can make it difficult to determine liability and create
the danger of fraud.
b) The accepted rule is that the negotiability or non- negotiability of an instrument is determined
from the writing that is from the face of the instrument itself. While the writing may be read
in the light of surrounding circumstances in order to more perfectly understood the
intent of the parties, yet as they have constituted the writing to be the only outward
expression of their meaning, no other words are to be added to it or substituted in its
stead. The duty of the court in such case is to ascertain not what the parties may have secretly
intended as contradistinguished from what their words express, but what the meaning of the
words they have used is. (Caltex [Phils.], Inc. vs. Court of Appeals, 212 SCRA 448 [1992].)
2) The instrument must be signed by the maker or drawer. —Although the signature of the maker or
drawer as a general rule is placed at the lower right hand corner of the instrument, it may
appear in any part thereof whether at the top, middle or bottom or at the margin.
a) A handwritten statement on the body of the instrument, such as "I, Juan dela Cruz, promise
to pay Maria dela Cruz . . ." Will be considered as Juan’s signature. It will be valid and
binding as long as it appears that a person intended to make the instrument his own.
His signature is prima facie evidence of his intention to be bound as either maker or
drawer. However, if the signature is so placed upon the instrument that it is not clear
in what capacity the person intended to sign, he is deemed an indorser (Sec. 17[f].) and
not a maker or a drawer.
b) The signature of the maker or drawer is usually written in longhand. It is preferable
that the full name or at least the surname should appear. But initials or any mark will
be sufficient, provided that such signature be used as a substitute and the maker or drawer
intends to be bound by it. The name may be written in script or Roman letters with a pen or
pencil, or made by rubber stamp by one having authority. It may be printed, type-
written, engraved, photographed or lithographed. What is important is that the
signer has intended to adopt the signature on the instrument as his own and to
obligate himself for its payment. However, an unusual signature may limit the acceptability
of an instrument. The use of a pencil is undesirable as it is easy to tamper the writing.
c) Where the genuineness of the signature of the maker or drawer is denied, the signature
is nevertheless presumed valid. The maker or drawer must provide some evidence of
the signature's invalidity.
3) The instrument must contain an unconditional promise or order to pay. — See comments under
Section 3.
4) The instrument must be payable in a sum certain in money. —The promise or order must call for
the payment of a sum certain in money.
a) The reason for the requirement that negotiable instruments must be payable in money is
that money is the one standard of value in actual business. All other commodities may
rise and fall in value but in theory, at least, money always measures this rise and
fall, and remains the same. The chattel which is used as means of payment may fluctuate
in value. (Norton on Bills and Notes, 4th ed., p. 66.) But the promise or order may
designate "a particular kind of current money in which payment is to be made." (Sec.
6[e].)With the requirement, negotiable instruments acquire a uniform standard of
value enabling them to pass freely in lieu of money in the business world.
b) The term money properly includes all legal tender, (see Sec. 6[e].) Legal tender is that
sort of money in which a debt, or other obligation calling for money, may be
lawfully paid, if the contract does not specify the medium of payment. (18 R.C.L.
1276-1278; Ballantine’s Law Dictionary, p. 738.) Thus, gold and silver and bank notes are
not money. See comments under Sections 2 and 6.
5) The instrument must be payable at a fixed or determinable future time or on demand. — See
comments under Sections 4 and 7.
6) The instrument must be payable to order or bearer. — See comments under Sections 8
and 9.
7) The drawee must be named. — This provision applies only to bills and checks. Obviously, an order
which is not addressed to any person cannot be a bill, (see Sec. 14.) A bill is an order. But
the bill would be sufficient if the drawer is indicated therein with reasonable certainty though he is
not named. Thus, where a bill is addressed to the "treasurer" of a corporation, the drawee
is sufficiently indicated, (see Sees. 128, 129, 17[e].) The trade name may be used as in the case
of the payee. The reason for this last element of negotiability is to enable the payee or holder
to know upon whom he is to call for acceptance or payment. A promissory note has no drawee.
Like the drawee, the payee must be named with reasonable certainty, (see Sec. 8, par. 2.)

5.1.2 Abnormal negotiable Instruments

Incomplete but delivered instruments
Two (2) Kinds:
a) Incomplete instrument but delivered.
b) A signature and a blank piece of paper signed by the person for the purpose of
converting it into a negotiable instrument.
Two (2) requisites to bind the person who signed the instrument before delivery:
a. It must be filled-up strictly with the authority given; and
b. Within a reasonable time.
Effects to a holder in due course (HIDC)
It is valid and effectual for all purpose as though it was filled up strictly in accordance
with the authority given and within reasonable time.
Rules where instrument is incomplete but delivered:
a) Authority to fill-up the blanks - the holder or the person in possession has prima facie
authority to complete an incomplete instrument by filling up the blanks therein.
b) Authority to put up any amount - a signature on a blank paper delivered in order that
may be converted into a Negotiable Instrument operates as a prima facie authority to fill
it up as such for any amount.
c) Right against party prior to completion - the instrument may be enforced only against a
party prior to completion if filled up strictly in accordance with the authority given and
within reasonable time.
Defense:
Sec. 14 raises a Personal Defense - if the last holder is a holder in due course (HIDC), Maker is
liable to pay.
Incomplete and undelivered instruments
a) Before delivery, an incomplete and undelivered instrument which is COMPLETED AND
NEGOTIATED WITHOUT AUTHORITY is not a valid contract in the hands of ANY holder as
against the person who signed the instrument.
b) After delivery, persons who signed the instrument can be held liable to HIDC.
Persons liable:
General Indorsers are liable because they warrant that the instrument is genuine and
valid; thus, they are estopped to deny the validity of the instrument.
Defense:
Sec. 15 raises a Real Defense - even if the last holder is a holder in due course (HIDC), Maker is
not liable to pay.
(Indorsers are liable because they warrant that the instrument is genuine and in all respects what
it purports to be. As their signatures appear on the instrument after delivery, the instrument is
valid as to them.)
5.1.5 Complete but undelivered instruments
Effects to a holder in due course (HIDC):
If a complete instrument is in the hands of a holder in due course, a valid delivery thereof
by all parties prior to him is CONCLUSIVELY presumed.
Defense:
Sec. 16 raises a Personal Defense - if the last holder is a holder in due course, Maker is liable to
pay.
 5.1.6 Instruments with forged signature
Two (2) Kinds:
a) Forged signature; and
b) Signature made without authority.
Effects:
a) no right to retain;
b) no right to give a discharge; and
c) no right to enforce payment can be acquired.
• It is only the forged signature or unauthorized signature that is declared to be
inoperative.
• The instrument or other signatures which are genuine may still exist and be enforced.
Persons precluded from setting up the defense of forgery:
1) The forger himself.
2) Those who warrant or admit the genuineness of the signature in question (indorsers,
persons negotiating by delivery, and acceptors of BofE).
3) Those who, by their acts, silence or negligence, are estopped from setting up the
defense of forgery.
Rights of parties in cases of forged indorsements:
1) Payable to order (PN) - the party whose signature was forged is not liable to any holder,
even to a HIDC. The indorsement, being forged is inoperative.
2) Payable to bearer (PN) - the party whose signature is forged is liable to a HIDC, but not
to the one who is not a HIDC. The reason is that the instrument being originally payable
to bearer, it can be negotiated by mere delivery. Hence, even if the indorsement is
forged, the forgery may be disregarded.
3) Payable to order (BofE) - the party whose signature was forged is not liable to any holder,
even to a holder in due course (HIDC). The indorsement, being forged is inoperative.
4) Payable to bearer (BofE) - when the bill is originally payable to bearer, the drawee may
debit the drawer's account in spite of the forged indorsement. The reason is that the
forged indorsement is not necessary to the title of the holder.
Defense:
Forgery is a Real Defense.
5.2 Bouncing Checks *
5.2.1 Checks without sufficient funds)
1) Making or drawing and issuing any check to apply on account or for value, knowing at the
time of issue that the drawer does not have sufficient funds in or credit with the drawee
bank.
2) Having sufficient funds in or credit with the drawee bank shall fail to keep sufficient funds
or to maintain a credit to cover the full amount of the check if presented within a period
of 90 days from the date appearing thereon, for which reason it is dishonored by the
drawee bank.
In the first paragraph, the drawer knows that he does not have sufficient funds to cover the
check at the time of its issuance, while in the second paragraph, the drawer has sufficient
funds at the time of issuance but fails to keep sufficient funds or maintain credit
within ninety (90) days from the date appearing on the check. In both instances, the offense
is consummated by the dishonor of the check for insufficiency of funds or credit. The check involved
in the first offense is worthless at the time of issuance since the drawer had neither sufficient funds
in nor credit with the drawee bank at the time, while that involved in the second offense is good
when issued as drawer had sufficient funds in or credit with the drawee bank when issued. Under
the first offense, the 90-day presentment period is not expressly provided, while such period is an
express element of the second offense.
5.2.2 Evidence of knowledge of insufficient funds

The making, drawing and issuance of a check payment of which is refused by the drawee bank
because of insufficient funds in or credit with such bank, when presented within ninety (90) days
from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of
funds or credit, unless such maker or drawer pays the holder thereof the amount due thereon, or
makes arrangements for payment in full by the drawee of such check within five (5) banking days
after receiving notice that such check has not been paid by the drawee.

The second element of the offense is the knowledge of the accused about the
insufficiency of funds. It must be shown beyond reasonable doubt that the accused
knew of the insufficiency of funds at the time the check was issued. Section 2
provides that the accused must be notified of the dishonor. The prosecution must
establish that the accused was actually notified that the check was dishonored, and
 that he or she failed, within five banking days from receipt of the notice, to pay the
holder of the check the amount due thereon or to make arrangement for its payment. The
notice of dishonor of a check to the maker must be in writing. A mere oral notice to
the drawer or maker of the dishonor of his check is not enough. It’s true that Section 2
does not state that the notice of dishonor be in writing. This, however, should be
taken in conjunction with Section 3, which provides “that where there are no sufficient
funds in or credit with such drawee bank, such fact shall always be explicitly stated
in the notice of dishonor or refusal.” This is consistent with the rule that penal statutes have
to be construed strictly against the State and liberally in favor of the accused.
Without a written notice of dishonor of the checks, there is no way of
determining when the 5-day period prescribed in Section 2 would start and end. (Box
vs. People, G.R. No. 149858, 5 September 2007, citing Rico vs. People, G.R. No. 137191, 18
November 2002,392 SCRA 61)
In other words, the prima facie presumption arises when a check is issued. But the law also provides
that the presumption does not arise when the issuer pays the amount of the check or makes
arrangement for its payment “within five banking days after receiving notice that such check has
not been paid by the drawer.” Verily, BP 22 gives the accused an opportunity to satisfy the amount
indicated in the check and thus avert prosecution. (King vs. People, G.R. No. 131540, 2 December
1999)
5.2.3 Duty of Drawee
It shall be the duty of the drawee of any check, when refusing to pay the same to the holder
thereof upon presentment, to cause to be written, printed, or stamped in plain language
thereon, or attached thereto, the reason for drawee’s dishonor or refusal to pay the same:
Provided, That where there are no sufficient funds in or credit with such drawee bank, such
fact shall always be explicitly stated in the notice of dishonor or refusal. In all prosecutions
under this Act, the introduction in evidence of any unpaid and dishonored check, having the
drawee’s refusal to pa y stamped or written thereon or attached thereto, with the reason
there for as aforesaid, shall be prima facie Not withstanding receipt of an order to stop payment,
the drawee shall state in the no tice that there were no sufficient funds in or credit with
such bank for the payment in full of such check, if such be the fact.
5.2.4 Credit Construed
The word “credit” as used herein shall be construed to mean an arrangement or understanding
with the bank for the payment of such check.
6.0 LAW ON BUSINESS ASSOCIATIONS
6.1 Partnership
6.1.1 Nature and as distinguished from corporation
6.1.2 Elements and kinds
 6.1.3 Formalities required
6.1.4 Rules of management
6.1.5 Distribution of profits and losses
6.1.6 Sharing of losses and liabilities
6.1.7 Modes and retirement requirements
6.1.8 Limited partnership
6.2 Corporations
6.2.1 Nature and classes of corporation
6.2.2 Incorporation and organization of Private Corporation
6.2.3 Powers of a corporation
6.2.3.1 Expressed
6.2.3.2 Implied
6.2.3.3 Incidental
6.2.4 Board of Directors/Corporate Officers
6.2.4.1 Qualifications
6.2.4.2 Election and removal
6.2.4.3 Powers and fiduciary duties
6.2.5 Classes of stocks
6.2.5.1 Concepts
6.2.5.2 Subscriptions
6.2.6 Powers, duties, rights and obligations of stockholders
6.2.7 Majority and minority control
6.2.8 By Laws
6.2.9 Meetings
6.2.10 Corporate reorganization
6.2.10.1 Mergers
6.2.10.2 Consolidations
6.2.10.3 Other business combinations
6.2.11 Non-stock corporation
6.2.12 Modes of dissolution and liquidation
6.2.12.1 Retirement Requirements
6.2.13 Foreign corporations
6.2.13.1 License to do business
6.2.13.1.1 Purpose of the license
6.2.13.2 Requirements for application/issuance of license
6.2.13.3 Consequence of doing business without a license
6.2.14 Definition and rights of foreign corporations
6.2.15 Definition of doing business and its relation to foreign investments
6.2.16 Purpose and qualifications of Resident agent
6.2.17 Suits against foreign corporations
6.2.18 Suspension or revocation of license
6.2.19 Withdrawal from business
6.2.20 Kinds and availability of corporate books
6.2.21 Securities Regulation Code
6.2.21.1 Kinds of
securities
6.2.21.2 Protection of investors, private tender offer and Insider
Trading
6.2.21.3 SEC Circulars and Issuances
6.2.21.4 Code of Corporate Governance
6.2.21.5 Filing of General Information Sheet
6.2.21.6 Filing of Annual Audited Financial Statements
6.3 Cooperatives *
6.3.1 Organization and Registration of Cooperatives
6.3.2 Administration
6.3.3 Responsibilities, Rights and Privileges of Cooperatives
6.3.4 Capital, Property of Funds
6.3.5 Audit, Inquiry and Members’ Right to Examine
6.3.6 Allocation and Distribution of Funds
 6.3.7 Types and Categories of Cooperatives
6.3.8 Merger and Consolidation of Cooperatives
6.3.9 Dissolution of Cooperatives

7.0 Law on other Business Transactions

 7.1 PDIC Law *
7.1.1 Insurable
7.1.2 d
Maximum
li bili
7.1.3 Requirements for Claims
7.2 Secrecy of Bank Deposits and Unclaimed Balances Law *
7.3 General Banking Law *
7.3.1 Definition of Banks
7.3.2 Loans
7.3.2.1 SBL
7.3.2.2 DOSRI
7.4 AMLA Law *
7.4.1 Covered transactions
7.4.2 Suspicious
transactions
7.4.3 Reportorial Requirement
7.5 The New Central Bank Act *
7.5.1 Legal tender power over coins and note
7.5.2 Conservatorship
7.5.3 Receivership and Closures
7.6 Intellectual Property Law (except provisions under
Part 1 (Intellectual Property Office) *
7.6.1 The Law on Patents
7.6.2 The Law on Trademark, Service Marks and Trade Names
7.6.3 The Law on Copyright

*- Effective October 2017 CPA Board Exam

NOTES:

1. The following items can be incorporated in the syllabus of Partnership and Corporation:

a. Securities Regulation Code

b. SEC Circulars and Issuances
c. Cooperatives

2. The Insolvency Law and Corporate Rehabilitation can be incorporated in the syllabus of Pledge &
Mortgage.

3. The Bouncing Checks Law and Banking Laws can be taught in the Negotiable Instruments Law.

4. Intellectual Property Law can be discussed in Financial Reporting re: Intangible Assets