Preweek Handouts In Business Law May 2014 Batch 2x114j

The Professional A Review School Main: 3F C. Villaroman Bldg. 873 P. Campa St. cor Espana, Sampaloc, Manila (032) 735 8901 / 735 9031 Branch: Rudel Bldg. V, Lower Mabini cor Diego Silang, Baguio City (074) 422-1440 email add: [email protected]

PRE-WEEK IN BUSINESS LAW

ATTY. MARY ANN R. SAGANA

OBLIGATIONS AND CONTRACTS RIGHT TO THE FRUITS

Requisite: Principal is SPECIFIC – even without stipulation 1. Ordinary Contracts/Obligations a. No condition imposed – creditor is entitled at the time the obligation to deliver the principal thing arises (personal right only) - Real right shall be acquired upon delivery b. With suspensive condition – debtor is entitled to the fruits unless stipulated 2. Contract of Sale – buyer / vendee is entitled as early as perfection 3. Contract of Pledge – debtor / pledgor is entitled but the fruits shall be subject to pledge unless stipulated

DON’T FORGET:

1. Action for future fraud cannot be waived 2. In facultative obligations, the right to choose between the original and substitute prestation is given by law to the debtor 3. In expromission, the insolvency of the new debtor shall not revive the obligation of the old debtor 4. In delegacion, the old creditor is always preferred in case of insolvency of the debtor

SOLIDARY obligations EXISTS: 1. law so provides or when 2. stipulation so requires 3. nature of the obligation requires solidarity Important: a. Guarantors - if stipulated b. Partners - for injuries and damages incurred by third persons as a result of a partnership act (pro rata / t only in case of partnership obligations/liability) c. Agents – only if there is a stipulation to that effect d. The responsibility of two or more persons who are liable for quasi-delict e. Directors who violated their three-fold duty f. When there are two or more bailees (borrowers in commodatum) to whom a thing is loaned in the same contract g. Payees who received payment under the principle of solutio indebiti h. gestors in negotiorum gestio KINDS OF OBLIGATIONS: 1. bilateral vs. commutative vs. onerous 2. simple vs. facultative vs. alternative vs. cont 3. real vs. personal 4. pure vs. conditional vs. with period 5. civil vs. natural vs. legal vs. conventional 6. t vs. solidary vs. divisible vs. indivisible

MODES OF EXTINGUISHING OBLIGATIONS: 1. payment or performance; 2. loss of the thing due; 3. condonation or remission of the debt; 4. confusion or merger of rights of the debtor and the creditor; 5. compensation; 6. novation; 7. other modes

FACTORS AFFECTING OBLIGATIONS: 1. Delay 2. Fraud 3. Negligence 4. Contravention of the tenor of the obligation 5. Fortuitous events

The following contracts are VOID if orally constituted: a. Donations of real estate – regardless of value b. Donations of movables – if > Php5,000; c. Stipulation to pay interest in loans – only the stipulation as to payment of interest; the contract of loan is still valid even if orally constituted d. Agency contract and consequently the contract of sale - sale of LAND through an agent e. Partnership to which immovables are contributed (an inventory is also necessary) f. Stipulation limiting carrier’s liability to less than extra-ordinary diligence; g. Contracts of antichresis

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The following are UNENFORCEABLE if orally constituted: a. Agreements not to be performed within one year from the making thereof; b. Promise to answer for the debt, default or miscarriage of another; c. Agreement in consideration of marriage other than a mutual promise to marry; d. Contracts of lease for a period longer than one year; e. Agreements for the sale of real property or interest therein; f. Representation as to the credit of a third person. MNEMONICS: 1. NIC

2. BEC 3. MENTAL 4. IGIVA

5. SLN 6. COC 7. PPP 8. PHA 9. PDC 10. AMOR 11. DWV

Natural, Industrial and Civil (Fruits/Accessions) Natural fruits – offspring of animals, spontaneous product of soil Industrial fruit – with human intervention Civil fruit – product of a contract e.g. Interest, rent, dividends Better Use, Embellishment, Completion (Accessories) Moral, Exemplary, Nominal, Temperate, Actual, Liquidated (Damages) Insolvent, Guaranty promised but not furnished, Guaranty furnished but was Impaired, Violation of undertaking, Attempt to Abscond (Debtor losses right to the period) Stipulation, Law, Nature of the obligation (solidary liability exists) Consent, Object, Cause/Consideration (Elements of a contract) Preparation, Perfection, Performance (Stages of a contract) Parties, Heirs, Assigns (Relativity rule) Pledge, Deposit, Commodatum (Real contracts) Autonomy, Mutuality, Obligatoriness, Relativity (Characteristics of contracts) Donations (simple and unconditional), Wills, Void contracts (Not Susceptible of Ratification)

NUMBERS TO : >1yr. – statute of frauds 4 yrs

4 yrs 6 yrs 6 yrs 10 yrs

any contract not to be performed within a year must be in writing otherwise the contract will be unenforceable –- to annul voidable contract -from discovery of fraud or mistake - from stoppage or cessation of intimidation or undue influence - from attainment of capacity - to sue for damages arising from quasi-delicts – to enforce an oral contract – to enforce an action arising from quasi-contract – to enforce a written contract

SALES AGENCY AND BAILMENTS 1. Guardians cannot buy the properties of the ward 2. DLSU - VOID if entered into by persons guilty of adultery/concubinage; guilty of committing the same offense; and public officers and employees by reason of public office. Husband and wife – general rule 3. The responsibility of two or more agents, even though they have been appointed simultaneously, is t Solidary liability must be stipulated 4. Pledge and real mortgage-oral-valid but not binding to third persons unless: Pledge- PI+DD Real Mortgage- PI+reg. 5. Chattel mortgage-oral-void For validity and binding effect as to third persons- PI+reg. 6. If the thing pledged will be returned by the pledgee, the contract of pledge is extinguished FORECLOSURE RULES Sale of movables on installment basis (RECTO LAW Art. 1484) 1. Specific performance (JUDICIAL foreclosure) 2. Foreclosure by the seller Conventional Pledge

Legal Pledge Chattel Mortgage Real Mortgage

In case of DEFICIENCY Recoverable ABSOLUTE RULE - Not recoverable (any stipulation to the contrary is void) ABSOLUTE RULE - Not recoverable (any stipulation to the contrary is void) Recoverable Recoverable Recoverable

In case of EXCESS Law is silent – goes to the owner Law is silent- practice--goes to the seller unless stipulated Goes to Pledgee / Creditor unless stipulated

Goes to Pledgor / Debtor Goes to Mortgagor / Debtor Goes to Mortgagor / Debtor

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IMPORTANT: a. Sale Php499.99 – movable –oral - valid b. Sale Php500.00 – movable –oral – unenforceable (WI is required) c. Sale -------------- – immovable –oral – unenforceable (WI is required) MNEMONICS: 1. ENA 2. CBON

Essential, Natural, Accidental (Elements of a contract of sale) Consensual, Bilateral, Onerous, Commutative, Principal Nominate (Characteristics)

3. LSRR

Lien, Stoppage in transitu, Resale, Rescission (Rights of an unpaid seller of goods)

4. ARM

Goods yet to be Acquired, Raised or Manufactured (Future goods as object of a contract of sale) Donation, Sale, Lease, Universal Partnership (void if entered into by persons relatively incapacitated (NOTE: spouses – general rule) Revocation, Withdrawal of the agent, Death, civil interdiction, insanity or insolvency of the principal or of the agent, Expiration of the period for which the agency was constituted, Accomplishment of the object or purpose of the agency, Dissolution of the firm or corporation which entrusted or accepted the agency (Modes of extinguishing agency contract) Right of redemption – in case of extra-judicial foreclosure Equity of redemption – in case of judicial foreclosure Public Instrument showing Date and Description of the thing

5. DSLU 6. RWDEAD?

7. REX 8. JEQ 9. PI-DD

NUMBERS TO : 1yr. – from sale - right of redemption may be exercised – in case or extra-judicial foreclosure (in case of real mortgage) -right to rescind the sale based on hidden encumbrance or servitude 1 hectare or less -area of rural land-shall give rise to the right of legal pre-emption/redemption on the part of adjacent owners of land 4 yrs –- conventional redemption – reservation of right to repurchase was made but no period was fixed for the exercise of the right 6 months - from - of the movable thing - to discover hidden defects – then file rescission / accion delivery redhibitoria/quanti minoris 6 months – from – to file reduction of the price or cancellation of the contract of sale of a land in delivery case the deficiency is at least 10% 10 yrs max. –conventional redemption – reservation of right to repurchase was made and period was fixed 30 days – from – sale under Maceda Law - cancelled receipt of notice of cancellation 30 days – from - to exercise the right of legal pre-emption / redemption notice 40 days from - of the animals - to discover hidden defects – then file rescission / accion delivery redhibitoria/accion quanti minoris

PARTNERSHIPS 1. Unlawful partnership is void ab initio 2. Partnership contract where immovable property is contributed must appear in writing and an inventory of the property must be attached to the public instrument, otherwise, if orally constituted, the contract of partnership is void 3. A stipulation in a contract of partnership excluding a partner to share in the profits is void 4. A stipulation in a contract of partnership excluding a partner to share in the losses is void (in so far as third persons are concerned) 5. Persons who are prohibited by law to enter into a contract of donation cannot form universal partnerships IMPORTANT: a. Partnership capital Php2,999.99 no immovable contributed – oral-valid b. Partnership capital Php3,000.00 or > and no immovable contributed - (PI required) if oral – still valid c. Partnership to which immovables are contributed – P.I. –if oral =void (an inventory necessary)

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Consent of all partners necessary: 1. Assign the partnership property in trust for creditors or on the assignee's promise to pay the debts of the partnership; 2. Dispose of the good-will of the business; 3. Do any other act which would make it impossible to carry on the ordinary business of a partnership; 4. Confess a judgment; 5. Enter into a compromise concerning a partnership claim or liability; 6. Submit a partnership claim or liability to arbitration; 7. Renounce a claim of the partnership. MNEMONICS:

1. CBONP

Consensual, Bilateral, Onerous, Commutative, Principal Nominate, Preparatory (Characteristics)

2. UPPP 3. UPAP 4. ASA 5. RIDICi

Universal Partnership of all Present Property Universal Partnership of ALL Profits Associate, Sub-partner, Assignee Retirement, Insanity, Death, Insolvency, Civil interdiction of a General Partner (modes of dissolutionlimited partnership) Act, Insolvency, Death of a partner (effects-contract perfected after dissolution)

6. AID

NUMBERS TO : – from date of promise to form a partnership up to actual perfection of the contract >1yr – agreement must be in writing to be enforceable – unenforceable if oral – from the designation of profits and losses sharing – made by a third person – any 3 months partner may impugn or question the same – for being inequitable

CORPORATIONS LIMITATIONS ON THE RIGHT TO VOTE: 1. Preferred or redeemable shares may be deprived of the right to vote (EXCEPT MCAIAI 2S) 2. Fractional shares of stock cannot be voted unless they constitute at least one full share. 3. Treasury shares have no voting rights as long as they remain in the treasury 4. Holders of stock declared delinquent by the board of directors for unpaid subscription are not entitled to vote or a representation at any stockholder's meeting. 5. A transferee of stock cannot vote if his transfer is not ed in the stock and transfer book of the corporation RIGHT TO VOTE BY PROXY: 1. election of the board of directors or trustees 2. voting in case of t ownership of stock 3. voting by trustee under voting agreement 4. pledged or mortgaged share 5. as provided for in its by-laws WHEN APPRAISAL RIGHT MAY BE EXERCISED: 1. extension of duration of corporate term; 2. change in the rights of shareholder, authorize preferences superior to those of the shareholders, or restrict the right of any shareholder; 3. shareholders authorized the board to invest corporate funds in another corporation; 4. shareholders authorized board to engage in a purpose other than main purposes stated in the Articles; 5. corporation decides to sell or dispose of all or substantially all assets of corporation; 6. in case of merger or consolidation INCORPORATORS 1. natural person 2. not less than 5 but not more than 15 3. of legal age 4. majority must be resident of the Phils. 5. each must own or subscribe to at least 1 share

DIRECTORS 1. must own at least one (1) share of the capital stock; 2. share of stock held must be ed in the books of the corporation; 3. must continuously own at least a share of stock during his term 4. majority must be residents of the Philippines

Additional qualifications - - BOD: a. Rural Banks – BOD 100% Filipino citizens b. Private development bank - BOD 100% Filipino citizens c. ed investment company - BOD 100% Filipino citizens

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d. Domestic bank banking institutions and common carriers - BOD 2/3 Filipino citizens Disqualifications - - BOD/BOT/OFFICER: a. CONVICTION by final judgment of an offense punishable by imprisonment for a period exceeding six years, (>6 yrs.) b. Violation of the Code, committed within five (5) years prior to the date of his election or appointment Corporate Act Amendment of AOI Elect directors Call a special meeting to remove directors Removal of BOD Extend or shorten corporate term

Votes Required Majority BOD + 2/3 OCS v&nv (written assent allowed) Majority OCS-voting Majority OCS-voting 2/3 OCS voting Majority BOD + 2/3 OCS v&nv

Ratify a contract of a director/trustee/officer with the corporation Increase or decrease the capital stock Incur, create or increase bonded indebtedness Sale or other disposition of assets

2/3 OCS voting

Invest corporate funds in another corporation or business or for any purpose other than the primary purpose Declaration of dividends

Majority BOD + 2/3 OCS v&nv

Enter into management contract

Adopt By-Laws Amend or repeal the by-laws or adopt new by-laws Delegate to the board of directors or trustee the power to amend or repeal the by-laws or adopt new by- laws Revoke the preceding power delegated to the board of directors or trustees Fix the issued price of no par value shares Effect or amend a plan of merger or consolidation Deny pre-emptive right Dissolve the corporation Adopt a plan of distribution of assets of a non-stock corporation

NOTE Appraisal Right available

If extension of term – Appraisal Right available

Majority BOD + 2/3 OCS v&nv Majority BOD + 2/3 OCS v&nv Majority BOD + 2/3 OCS v&nv

Appraisal Right available Appraisal Right available

Majority BOD Majority BOD + 2/3 OCS v -if stock dividends Majority BOD + Maj OCS v (managing corp.) Majority BOD + 2/3 OCS v (to be managed corp.) Majority OCS v&nv Majority BOD + Maj OCS v&nv 2/3 OCS v&nv

Majority OCS v&nv Majority of BOD if authorized by AOI If not – Maj. of OCS v Majority BOD + 2/3 OCS v&nv

Appraisal Right available

2/3 OCS v Majority BOD + 2/3 OCS v&nv Majority BOT + 2/3 v

NUMBERS TO : 1 centavo 1 yr

2yrs 3 3 yrs 3 yrs Php5 5 5 5 yrs 5 yrs– prior to expiration of the

- min. issued price of a par value share - term of directors -from discovery of the hidden servitude/encumbrance if 1 yr after the sale –to bring an action for damages – to formally commence business from issuance of certificate of incorporation – otherwise the corporation will be dissolved – minimum # of directors composing the executive committee – prescriptive period of claims and cases that can be filed against a corporation upon its dissolution - term of office of board of trustees – minimum issued price of a no-par value share – minimum # of incorporators/corporators – minimum # of directors/trustees – continuous inoperation of a corporation – ground for suspension /cancellation of certificate of registration - filing of amended articles of incorporation to extend corporate term

CRC-ACE: BUSINESS LAW – PREWEEK (MAY 2014) corporate term5 yrs 5 yrs 5 yrs 5 yrs

Php5,000 6 months >6yrs 10% 15 >15 20 >20% Stockholdings 25% 25% 30 days after AOI 30 days– from call 50 yrs MNEMONICS: 1. CBONP 2. UPPP 3. UPAP 4. ASA 5. RIDICi 6. AID 7. BIC 8. PEFECCA

9. PSBA 10. MSRRR 11. SITMAW

12. BLTBPI 13. SOMEotherBPI

14. OLD 15. MCAIAI2S

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– disqualification of stockholders to be elected director from violation of the corporation code – term of management contract – term of a proxy agreement if not limited to one meeting – term of a voting trust agreement unless premised upon a loan agreement, in which case it could be longer than 5 yrs but will automatically be revoked upon payment or satisfaction of the debt – minimum paid-up capital -from submission/filing-amendment to the AOI-deemed approved by SEC – conviction of a crime by final judgment – disqualification to be director net corporate income before tax of the previous year (max. compensation of the of the board if provided for in the by laws of the corporation) – max number of directors in a stock corporation - no. of trustees in a non-stock corporation – maximum owners of a close corporation - of the outstanding capital stock shall be considered substantial for purposes of interlocking directors. - of the authorized capital stock must be subscribed - of the subscribed shares must be paid – filing of by-laws after issuance of the certificate of incorporation – to pay subscribed stocks – maximum lifetime of a corporation subject to extensions

Consensual, Bilateral, Onerous, Commutative, Principal Nominate, Preparatory (Characteristics) Universal Partnership of all Present Property Universal Partnership of ALL Profits Associate, Sub-partner, Assignee Retirement, Insanity, Death, Insolvency, Civil interdiction of a General Partner (modes of dissolutionlimited partnership) Act, Insolvency, Death of a partner (effects-contract perfected after dissolution) Business Domicile, Incorporation, Control TESTS (to determine nationality of a corporation) 60% Filipino owned Corporations a. Public utilities d. Coastwise shipping b. Educational institutions e. Civil aeronautics (except if established by f. Financing companies religious orders or charitable org.) g. Atomic energy c. Exploitation of natural resources 70% Filipino owned corporations: Pawnshops; Savings and loan associations (voting stocks); Banking institutions (voting stocks); Advertising firms 100% Filipino owned corporations: Mass media; Security agencies; Rural banks; Retail trade; Rice and corn industry Cannot be amended in the AOI: 1. names of original subscribers to the capital stock of the corporation and their subscribed and paid up capital 2. names of incorporators 3. treasurer elected by the original subscribers 4. who contributed to the initial capital of a non-stock corporation 5.date and place of execution of the articles of incorporation (acknowledgment) 6. witnesses Corporations which cannot issue NO PAR value shares: 1. building and loan association 3. banks, 2. trust companies 4. public utilities 5. insurance companies Corporations which cannot be CLOSE: 1. stock exchanges 5. other corporation vested w/ public interest 2. oil companies 6. banks 3. mining companies 7. public utility 4. educational institutions 8. insurance companies Obedience, Loyalty, Diligence (three-fold duty of directors) NON-VOTING stocks may also vote: 1. merger or consolidation of corporation 2. corporate dissolution 3. adoption and amendment of by-laws; 4. increase or decrease of bonded indebtedness; 5. amendment of Articles of Incorporation; 6. increase or decrease of capital stock; 7. investments of funds in another corporation or another business purpose; and

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8. sale or disposition of all or substantially all of corporate property

NEGOTIABLE INSTRUMENTS REQUISITES FOR NEGOTIABILITY: 1. It must be in writing and signed by the maker/drawer; 2. It must contain an unconditional promise/order to pay a sum certain in money; 3. It must be payable on demand, or at a fixed or determinable future time; 4. It must be payable to order or bearer. 5. Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. REQUISITES -- HOLDER IN DUE COURSE 1. The instrument is complete and regular upon its face; 2. That he became the holder of it before it was overdue AND without notice that it had been previously dishonored, if such was the fact, 3. That he took it in good faith and for value; 4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument OR defect in the title of the person negotiating it. REQUISITES -- PAYMENT FOR HONOR: 1. The bill has been dishonored by non-payment; 2. It has been protested for non-payment; 3. Payment supra protest is made by any person, even a party thereto; 4. The payment is attested by a notarial act of honor which must be appended to the protest or form an extension of it; 5. The notarial act must be based on the declaration made by the payee for honor or his agent of his intention to pay the bill for honor and for whose honor he pays. REQUISITES -- ACCEPTANCE FOR HONOR: 1. The bill must have been protested for dishonor by non-acceptance or for better security; 2. The acceptor for honor must be a person not a party already liable thereon; 3. The bill must not be overdue at the time of the acceptance for honor; 4. The acceptance for honor must be with the consent of the holder of the instrument. 5. The acceptance for honor must be in writing; 6. It must indicate that it is an acceptance for honor; 7. It must be signed by the acceptor for honor, 8. It must contain an express or implied promise to pay money; 9. The accepted bill for honor must be delivered to the holder. BILL may be treated a NOTE: 1. When the drawer and the drawee are the same person 2. When the drawee is a fictitious person 3. When the drawee has no capacity to contract 4. When the instrument is so ambiguous that there is doubt whether it is a bill or note. EFFECTS OF: 1. Transfer without indorsement of an order instrument 2.

Express waiver of notice of dishonor

3.

BILL is paid for honor

4.

Certification of a check

a. The transfer vests in the transferee such title as the transferor had therein; b. The transferee acquires the right to have the indorsement of the transferor. a. Where the waiver is embodied in the instrument it self —it is binding upon all parties. b. Where it is written above the signature of an indorser —it binds him only. a. All parties subsequent to the party for whose honor it is paid are discharged; b. The payer for honor is subrogated for and succeeds to both the rights and duties of the holder as regards the party for whose honor he pays and all parties liable to the latter. 1. It is equivalent to acceptance 2. It discharges persons secondarily liable if procured by the holder 3. It operates as an assignment of the funds of the drawer in the hands of the drawee bank 4. The payee or holder, for all intents and purposes, becomes the depositor of the drawee bank 5. The bank becomes the primary debtor and cannot thereafter refuse to pay it 6. The drawer may not issue a stop payment order on the certified check

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1. 2. 3. 4. 5.

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when PRESENTMENT FOR ACCEPTANCE NECESSARY EXCUSED 1. Where the bill is payable after sight or 1. When the drawee is dead in any other case, where presentment 2. When the drawee has absconded for acceptance is necessary in order to 3. When the drawee is a fictitious person fix the maturity of the instrument. 4. When the drawee is a person not having 2. Where the bill expressly stipulates that capacity to contract by Will it shall be presented for acceptance. 5. When, after the exercise of reasonable 3. Where the bill is drawn payable diligence, presentment cannot be made elsewhere than at the residence or 6. Where, although presentment has been place of business of the drawee. irregular, acceptance has been refused on some other ground

NOT NECESSARY the bill is payable on demand payable at sight payable on a fixed day payable at a certain number of days after a fixed event payable at a certain number of days after date

WARRANTIES PERSON NEGOTIATING BY DELIVERY OR BY QUALIFIED INDORSEMENT 1. That the instrument is genuine and in all respect what it purports to be 2. That he has a good title to it 3. That all prior parties have capacity to contract 4. That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless.

MNEMONICS: 1. SAFI

2. IdOdCrGv

GENERAL OR UNQUALIFIED INDORSER

DRAWER

ACCEPTOR

1. That the instrument is genuine and in all respects what it purports to be 2. That he has good title to it 3. That all prior parties had capacity to contract 4. That the instrument is at the same time of his indorsement valid and subsisting 5. That on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it.

1. its the existence of the payee and his then capacity to indorse

1. its the existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument

2. Engages that on due presentment the instrument will be accepted or paid, or both, according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it.

When the holder may treat a bill as a note: 1. When the drawer and the drawee are the same person 2. When the instrument is so ambiguous that there is doubt whether it is a bill or note. 3. When the drawee is a fictitious person 4.When the drawee is incapacitated to enter into contracts Requisites for a holder of an instrument to be a holder in due course: 1. That at the time it was negotiated to him he had no notice of any infirmity in the instrument OR defect in the title of the person negotiating it; 2. That he became the holder of it before it was overdue AND without notice that it had been previously dishonored, if such was the fact, 3. That it is complete and regular upon its face; 4. That he took it in good faith and for value

“Lucrum Malum Aequale Dispendio” (An Evil Gain is Equals to Loss) THANK YOU!

GOODLUCK!! GOD BLESS YOU ALL!!!

/mrs

2. The existence of the payee and his then capacity to indorse.