October 2018 CPA Examination: New Topics in Business Laws

The following are the new topics in Regulatory Framework for Business Transactions

 Insolvency law
 Corporate rehabilitation
 Bouncing checks
 General banking law
 Anti-Money Laundering Act
 The New Central Bank Act
 Cooperatives
 PDIC Law
 Secrecy of bank deposits
 Unclaimed balances law
 Intellectual property law (except provisions under Part 1)

What kind of questions will be asked for new topics?

Per syllabi released by the Board of Accountancy, the examination is NOT intended to test
the examinees’ “expertise in legal matters so as to practice law but only to determine that
their knowledge is sufficient 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.”

How many questions will be asked from the new topics?

From the Table of Specifications released by the Board, a total of 36 questions will be
asked, or 36% of the total 100 questions for Regulatory Framework for Business
Transactions.

What is the breakdown of the topics for the 36 questions?

The 36 questions will be allocated to the following topics:

 5 questions – Insolvency law

 5 questions – Corporate rehabilitation
 3 questions – Bouncing checks
 10 questions – Cooperatives
 3 questions – PDIC law
 2 questions – Secrecy of bank deposits and unclaimed balances law
 2 questions – General banking law
 2 questions – AMLA law
 2 questions – New Central Bank Act
 2 questions – Intellectual Property Law

(Q&A) October 2018 CPA Exam New Business Law Topics: PDIC
(Philippine Deposit Insurance Corporation) Law
What specific points will be asked from this topic?

The following are of primary concern:

 Insurable deposits
 Maximum liability
 Requirements for claims

What is the relevant law on this topic?

Republic Act No. 3591 established the Philippine Deposit Insurance Corporation, and
defined its powers and duties.
 What is the main function of the PDIC?

PDIC is created to insure the deposits of all banks which are entitled to the benefits of
insurance.

What are the specific functions of the PDIC?

The PDIC serve the following functions:

 Deposit insurer
 Co-regulator of banks
 Receiver and liquidator of closed banks

What is an insured deposit?

The term insured deposit means the amount due to any bona fide depositor for legitimate
deposits in an insured bank net of any obligation of the depositor to the insured bank as of
date of closure, but not to exceed P500,000.

How shall joint accounts be insured?

A joint account shall be insured separately from any individually-owned deposit account.

What types of deposits are insured by the PDIC?

Deposits in the following banks are insured by the PDIC:

 Commercial banks
 Savings and mortgage banks
 Private development banks
 Cooperative banks
 Savings and loan associations
 Branches and agencies in the Philippines of foreign banks
 Other corporations authorized to perform banking functions in the Philippines

Are deposits in Philippine banks with branches outside the Philippines insured by
the PDIC?

Subject to the approval of the Board of Directors, any insured bank with branch outside the
Philippines may elect to include for insurance its deposit obligations payable at such
branch.

Are deposits in foreign currency insured?

Yes, foreign currency deposits are insured.

This is pursuant to Republic Act No. 6426 (An act instituting a foreign currency deposit
system in the Philippines, and for other purposes), and Central Bank Circular No. 1389.

Depositors may receive payment in the same currency in which the insured deposit is
denominated.

Which accounts or deposits will not have deposit insurance?

Republic Act No. 9576, amending Republic Act No. 3591, enumerates that the following
accounts or transactions on which the PDIC will not pay deposit insurance:

 Investment products such as bonds, securities and trust accounts

 Deposit accounts which are unfunded, fictitious or fraudulent
 Deposit products constituting or emanating from unsafe and unsound banking practices
 Deposits that are determined to be proceeds of an unlawful activity as defined under the
Anti-Money Laundering Law

What is the maximum liability of the PDIC for insured deposits?

 Effective June 1, 2009, the maximum deposit insurance coverage is P500,000 per
depositor.

What if the depositor has more than one account in one bank?

All deposit accounts by a depositor in a closed bank maintained in the same right and
capacity shall be added together.

Deposit insurance coverage is not determined on a per-account basis. The type of account
(whether checking, savings, time or other form of deposit) has no bearing on the amount of
insurance coverage.

What if the depositor has more than one account but in different banks?

Deposits in different banking institutions are insured separately.

What if the depositor has more than one account but in different branches of the
same bank?

If a bank has one or more branches, the main office and all branch offices are considered
as one bank.

Thus, if you have deposits at the main office and at one or more branch offices of the same
bank, the deposits are added together when determining deposit insurance coverage, the
total of which shall not exceed P500,000.

What are the requirements for claiming the insurance?

The following are the requirements in filing claims:

 Original evidence of deposits such as savings passbook, certificate of deposit, bank

statement, used or unused checks, or ATM card
 1 valid original photo-bearing ID with clear signature of depositor/claimant (bringing 2 valid
IDs is recommended in case of discrepancies)
 For depositor below 18 years old, photocopy of birth certificate and valid ID of the parent
 Original copy of a notarized Special Power of Attorney (SPA) for claimants who are not
signatories in the bank records (SPA executed by the parent, if minor)
 Claim form

Who are not required to file deposit insurance claims?

Depositors with valid deposit accounts with balances of P100,000 and below are not
required to file claims, provided they:

 have no obligations with the closed bank, or have not acted as co-makers of these
obligations, or are not spouses of the borrowers
 have complete mailing address found in the bank records or have updated their addresses
through the Mailing Address Update Form (MAUF) of PDIC before the start of the onsite
claims settlement operation
 have not maintained the account under the name of business entities

What happens to uninsured deposit in excess of P500,000?

The claim for the uninsured portion of the deposit is a claim against the assets of the closed
bank.

Question 1
Which of the following is not a function of the PDIC?
A. Deposit insurer
B. Co-regulator of banks
C. Receiver and liquidator of closed banks
D. Engage in the lending of funds obtained from the public
Answer: D. This is a function of banks or banking institutions.

Question 2
What is the amount of insured deposit?
A. Minimum of P500,000, gross
B. Maximum of P500,000, gross
C. Maximum of P500,000, net
D. Minimum of P500,000 net

Answer: C. The insured deposit is net of any obligation of the depositor to the insured bank
as of the date of closure, but not to exceed P500,000.

Question 3
True/False. Joint accounts shall be insured separately from any individually-owned deposit
account.

Answer: True.

Case 1 (for questions 4 to 8)

Juan dela Cruz has the following deposits in Bank 1:
– Individual account in his name: P600,000 savings deposit
– Joint account in his name AND Maria dela Cruz: P500,000 time deposit
– Joint account in his name OR Pedro dela Cruz: P800,000 demand deposit
Assume that for the joint accounts, there is equal sharing.
(Source: PDIC)

Question 4
What is the total insured deposit of Juan dela Cruz?
A. P500,000
B. P750,000
C. P1,000,000
D. P1,250,000

Answer: C. For the single/individual account = P500,000; for the AND joint account =
P250,000 (P500,000 maximum/2); for the OR joint account = P250,000 (P500,000
maximum/2)

Question 5
What is the total uninsured deposit of Juan dela Cruz?
A. P100,000
B. P250,000
C. P500,000
D. P600,000

Answer: B. For the single account = excess of P100,000; for the AND joint account = no
excess; for the OR joint account = excess of P150,000 (P300,000/2)

Question 6
What is the total insured deposit of Maria dela Cruz?
A. Zero
B. P250,000
C. P500,000
D. None of the choices

Answer: B. P500,000/2

Question 7
What is the total insured deposit of Pedro dela Cruz?
A. Zero
B. P250,000
C. P400,000
D. P500,000
Answer: B. Maximum P500,000/2

Question 8
What is the total uninsured deposit of Pedro dela Cruz?
A. Zero
B. P100,000
C. P150,000
D. P250,000

Answer: C. Excess of P300,000/2

Case 2 (questions 9 to 10)

In addition to the accounts in Case 1, assume that, the following joint account is also
maintained by Juan dela Cruz in the same bank:
– Joint account in his name or Maria dela Cruz or Pedro dela Cruz = P450,000 (equal
sharing)

Question 9
What is the total of insured deposit of Juan dela Cruz?
A. P500,000
B. P1,000,000
C. P1,150,000
D. None of the choices

Answer: B. The joint accounts will be insured separately from the individual account.
However, the share of Juan dela Cruz in the joint accounts shall not exceed P500,000 total
(which has been reached already in Case 1 Question 4). This means that the additional
P150,000 share (P450,000/3) will become uninsured deposit.

Question 10
What is the total of insured deposit of Pedro dela Cruz?
A. P250,000
B. P400,000
C. P500,000
D. P600,000

Answer: D. Share in joint OR account = P250,000 (maximum of P500,000/2); share in 3-

way joint OR account = P150,000 (P450,000/3)

Question 11
The portion of the deposit not insured shall
A. Be forfeited in favor of the bank
B. Be forfeited in favor of the Government
C. Become a claim against the asset of the closed bank
D. Be written off immediately by the depositor

Answer: C

Question 12
Deposits in which of the following banks are insured by the PDIC?
I. Commercial banks
II. Savings and mortgage banks
III. Private development banks
IV. Cooperative banks
V. Savings and loan associations
A. All except IV
B. All except V
C. All except IV and V
D. All banks enumerated above

Answer: D.

Question 13
True/False. Foreign currency deposits are also insured by the PDIC.
Answer: True. This is pursuant to RA No. 6426 and Central Bank Circular No. 1389.

Question 14
The PDIC will not pay deposit insurance on the following accounts or transactions.
Which is the exception?
A. Investments in bonds
B. Deposit products emanating from unsafe and unsound banking practices
C. Deposits from unlawful proceeds
D. Deposits in foreign currency

Answer: D.

Question 15
True/False. Deposits in different banks are added together for the purpose of the P500,000
maximum.
True/False. Deposits in different branches of the same bank are insured separately.
A. False, True
B. True, False
C. False, False
D. True, True

Answer: C. Deposits in different banks are separately insured. Deposits in different

branches of the same bank are considered as deposits in one bank.

Question 16
To file for claims on the insured deposits, which of the following is/are not required?
A. Original evidence of deposits such as savings passbook
B. Claim form
C. For all depositors, photocopy of birth certificate and valid ID of the parent
D. 1 valid original photo-bearing ID with clear signature of depositor

Answer: C. This is only required for depositors below 18 years old.

Question 17
Depositors with valid deposit accounts with balances of ___________________ are
not required to file claims, provided they meet other qualifications, as required.
A. P100,000 and below
B. P150,000 and below
C. P200,000 and below
D. P250,000 and below

Answer: A.

Question 18
A joint demand deposit account in the name of Juan dela Cruz and ABC Corporation
in the amount of P500,000 was held in Bank 1. What is the insured deposit of Juan
dela Cruz?
A. Zero
B. P250,000
C. P500,000
D. P100,000

Answer: A. The deposit is presumed to belong entirely to ABC Corporation, the juridical
person or entity in the joint account. Source.

(Q&A) October 2018 CPA Exam New Business Law Topics: General
Banking Law
 What specific topics will be asked from this law?

The following topics are of primary concern:

 Definition of banks
 Loans
 DOSRI
 SBL

What is the relevant statute on this topic?

Republic Act No. 337 is known as “The General Banking Act.”

What is a bank or a banking institution?

A bank or a banking institution is a person or entity duly authorized to engage in the lending
of funds obtained from the public through the receipt of deposits or the sale of bonds,
securities, or obligations of any kind, and any entity regularly conducting such operations.

What does the term bank or banking institution include?

The following are considered banks or banking institutions:

 Commercial banks
 Savings banks
 Mortgage banks
 Trust companies
 Building and loan associations
 Branches and agencies in the Philippines of foreign banks
 All other corporations, companies, partnerships, and associations performing banking
functions in the Philippines

What are specifically excluded from the provisions of Republic Act No. 337?

Persons and entities which receive deposits only occasionally shall not be considered as
banks.

Also, insurance companies are exempted from the provisions of RA No. 337.

How shall domestic banks be organized?

Domestic banking institutions, except building and loan associations, shall be organized in
the form of stock corporations.

What type of stocks may be issued by banks?

No banking institution shall issue no par value stock.

Can banks advertise the amount of their authorized or subscribed capital stock?

No, unless they also indicate, at the same time and with equal prominence, the amount of
their capital actually paid up.

What is the ownership requirement for banks’ stocks?

At least 60% of the capital stock of any banking institution shall be owned by citizens of the
Philippines.

What is the directorship requirement for banks?

At least 2/3 of the members of the Board of Directors of any bank or banking institution shall
be citizens of the Philippines.
 What is a commercial banking corporation?

A commercial banking corporation shall be any corporation which accepts or creates

demand deposits subject to withdrawal by check.

What is a savings and mortgage banks?

A savings and mortgage banks shall be any corporation organized primarily for the purpose
of accumulating the small savings of depositors and investing them, together with its capital,
in bonds or in loans secured by bonds, real estate mortgages, and other forms of security
provided in the Act.

What are building and loan associations?

Building and loan associations are all corporations whose capital stock is required or is
permitted to be paid in by the stockholders in regular, equal periodical payments and with
the following purposes:

 to accumulate the savings of its stockholders

 to repay to said stockholders their accumulated savings and profits upon surrender of their
shares
 to encourage industry, frugality, and home building among its stockholders
 to loan its funds, and funds borrowed for the purpose, to stockholders of the security of
unencumbered real estate and with the pledge of shares of the capital stock owned by such
stockholders as collateral security

What loan is prohibited for a building and loan association?

It shall be unlawful for any building and loan association to make any loan upon property
that is suitable for only as the following:

 theater
 public hall
 church
 convent
 school
 club
 hotel
 garage
 other public building

What is a trust corporation?

A trust corporation is any corporation formed or organized for the purpose of acting as
trustee or administering any trust or holding property in trust or on deposit for the use,
benefit, or behoof (advantage) of others.

Can a trust corporation engage in commercial banking?

Yes.

A trust company may, with the approval of the Monetary Board, do a commercial banking
business but such business must be kept separate and distinct from its trust business.

Can a commercial bank engage in the business of a trust company?

Yes.

A commercial banking corporation may, with the approval of the Monetary Board, be
authorized to engage in the business of a trust company, but shall be subject to the
provisions related to the trust corporations as regards its trust business.

What specific business cannot be entered into by banking institutions?

 Banking institutions shall not engage in insurance business as the insurer.

What is DOSRI?

DOSRI stands for Dealings of a bank with any of its Directors, Officers, Stockholders and
their Related Interests.

What is the general policy for DOSRI?

DOSRI should meet both of the following requisites:

 Dealings should be in the regular course of business

 Dealings should be upon terms not less favorable to the bank than those offered to others

What is the DOSRI rule?

The DOSRI rule limits the loans and guarantees that can be granted by a bank to a single
director, officer, stockholder or related interest to an amount equivalent to his
unencumbered deposits or the book value of his paid-in capital contribution to the bank.

What is a substantial stockholder?

Substantial stockholder shall mean a person, or group of persons whether natural or

juridical, owning such number of shares that will allow such person or group to elect at least
one (1) member of the board of directors of a bank or who is directly or indirectly the
registered or beneficial owner of more than ten percent (10%) of any class of its equity
security.

What is SBL?

SBL stands for Single Borrower’s Limit.

What is the single borrower’s limit?

Per Bangko Sentral ng Pilipinas Circular No. 425, series of 2004, consistent with national
interest, the total amount of loans, credit accommodations and guarantees that may be
extended by a bank to any person, partnership, association, corporation or other entity shall
at no time exceed twenty five percent (25%) of the net worth of such bank.

Can the single borrower’s limit be increased?

Yes. It can be increased by an additional 10%; provided, that the additional liabilities are
adequately secured by trust receipts, shipping documents, warehouse receipts or other
similar documents transferring or securing title covering readily marketable, non-perishable
goods which must be fully covered by insurance.

Question 1
Which of the following does not characterize a bank or banking institution?
A. Authorized to engage in lending of funds
B. Funds for lending are obtained mainly from private institutions
C. Funds are from receipt of deposits or sale of bonds
D. It conducts banking activities on a regular basis

Answer: B. The funds used by the bank from lending are mainly from the public through the
receipt of deposits or the sale of bonds, securities, or obligations of any kind.

Question 2
Which of the following is excluded from the term “banking institution”?
A. Building and loan association
B. Money changer
C. Trust company
D. Savings bank
Answer: B. Bank or banking institutions include commercial, savings and mortgage banks,
trust companies, savings and loan associations, Philippine branches and agencies of
foreign banks and all other corporations, companies, partnerships and associations
performing banking functions in the Philippines.

Question 3
True/False. Insurance companies are included in the provisions of Republic Act No. 337 or
the General Banking Law.

Answer: False. Insurance companies are exempted from the provisions of RA No. 337.

Question 4
Which of the following security cannot be issued by banks?
A. Preferred stock
B. Common stock
C. Bonded instrument
D. No par value stock

Answer: D. No banking institution shall issue no par value stock.

Question 5
At least what percent of the capital stock of any banking institution shall be owned
by citizens of the Philippines?
A. 50%
B. 60%
C. 75%
D. 90%

Answer: B.

Question 6
What type of banking institution is one which accepts or creates demand deposits
subject to withdrawal by check?
A. Trust company
B. Mortgage bank
C. Commercial bank
D. Building and loan association

Answer: C.

Question 7
Which of the following is not a purpose of a building and loan association?
A. to accumulate the savings of its stockholders
B. to repay to stockholders their accumulated savings and profits upon surrender of their
shares
C. to loan its funds to stockholders of the security of unencumbered real estate
D. to act as trustee or administer any trust or hold property in trust or on deposit for the
benefit of others

Answer: D. What is described here is the purpose of a trust corporation.

Question 8
True/False. Commercial banking institutions cannot engage in the business of a trust
company.

Answer: False. A commercial banking corporation may, with the approval of the Monetary
Board, be authorized to engage in the business of a trust company, but shall be subject to
the provisions related to the trust corporations as regards its trust business.

Question 9
What does the D in DOSRI represent?
A. Dividends
B. Directors
C. Discounts
D. Depreciation

Answer: D. DOSRI stands dealings with Directors, Officers, Stockholders and their Related
Interests.

Question 10
DOSRI should be in the regular course of business and the dealings should be upon
which terms?
A. Not more favorable to the bank than those offered to others
B. Not less favorable to the bank than those offered to others
C. Exactly similar to those offered to others
D. Double those offered to others

Answer: B. The dealings should be upon terms not less favorable to the bank than those
offered to others.

Question 11
A substantial stockholder shall mean a person, or group of persons whether natural
or juridical, owning such number of shares that will allow such person or group
to elect at least _______________ of the board of directors of a bank or who is
directly or indirectly the registered or beneficial owner of more than
_______________ of any class of its equity security.
A. 1 member; 20%
B. 2 members; 10%
C. 1 member; 10%
D. 2 members; 20%

Answer: C.

Question 12
What does SBL stand for?
A. Standard By Laws
B. Secured Banking Legislation
C. Single Borrower’s Limit
D. See Bottom Line

Answer: C.

Question 13
Per Bangko Sentral ng Pilipinas Circular No. 425, series of 2004, consistent with
national interest, the total amount of loans, credit accommodations and guarantees
that may be extended by a bank to any person, partnership, association, corporation
or other entity shall at no time exceed ______ of the net worth of such bank.
A. 10%
B. 20%
C. 25%
D. 40%

Answer: C.

Question 14
With certain requirements, SBL can be increased by what percent?
A. 5%
B. 10%
C. 15%
D. 20%

Answer: B. It can be increased by an additional 10%; Provided, That the additional

liabilities are adequately secured by trust receipts, shipping documents, warehouse receipts
or other similar documents transferring or securing title covering readily marketable, non-
perishable goods which must be fully covered by insurance.
 (Q&A) October 2018 CPA Exam New Business Law Topics: Insolvency
and Corporate Rehabilitation
What questions will be asked from this law?

The following points shall be asked from this topic:

 Definition of Insolvency Law

 Voluntary and involuntary insolvency
 Suspension of payments
 Corporate rehabilitation and definition of terms
 Stay order
 Receiver
 Rehabilitation plan
 Contents of petition
 Other types of rehabilitation

What is the relevant statute for this topic?

Republic Act No. 10142, also known as the Financial Rehabilitation and Insolvency Act
(FRIA) of 2010, governs this topic.

What is the State’s policy on rehabilitation and insolvency?

It is the policy of the State to encourage debtors, both juridical and natural persons, and
their creditors to collectively and realistically resolve and adjust competing claims and
property rights.

How shall rehabilitation or liquidation be facilitated?

The rehabilitation or liquidation shall be made with the following views:

 to ensure or maintain certainly and predictability in commercial affairs

 to preserve and maximize the value of the assets of these debtors
 to recognize creditor rights and respect priority of claims
 to ensure equitable treatment of creditors who are similarly situated

What do you mean by insolvent?

Insolvent shall refer to the financial condition of a debtor that is generally unable to pay its
or his liabilities as they fall due in the ordinary course of business or has liabilities that are
greater than its or his assets.

What is the main difference between voluntary and involuntary proceeding?

Voluntary proceedings shall refer to proceedings initiated by the insolvent debtor while
involuntary proceedings shall refer to proceedings initiated by creditors.

What is the approval requirement for voluntary proceeding?

An insolvent debtor may initiate voluntary proceeding by filing a petition for rehabilitation
with the court only if with the prior approval of the following:

 the owner in the case of a sole proprietorship

 the majority of the partners in the case of a partnership
 in the case of a stock corporation, the majority of the vote of the board of directors or
trustees and authorized by the vote of the stockholders representing at least 2/3 of the
outstanding capital stock, in a stockholder’s meeting duly called for the purpose
 in the case of a nonstock corporation, the vote of at least two-thirds (2/3) of the
members, in a member’s meeting duly called for the purpose

How is involuntary proceeding initiated?

 Any creditor or group of creditors with a claim of, or the aggregate of whose claims is, at
least One Million Pesos (P1,000,000.00) or at least twenty-five percent (25%) of the
subscribed capital stock or partners’ contributions, whichever is higher, may initiate
involuntary proceedings against the debtor by filing a petition for rehabilitation with the
court.

What are the requirements before involuntary proceeding petition for rehabilitation
can be filed with the court?

Either of the following must be present:

 There is no genuine issue of fact on law on the claim/s of the petitioner/s, and that the due
and demandable payments thereon have not been made for at least sixty (60) days or that
the debtor has failed generally to meet its liabilities as they fall due; or
 A creditor, other than the petitioner/s, has initiated foreclosure proceedings against the
debtor that will prevent the debtor from paying its debts as they become due or will render it
insolvent

What is suspension of payment?

An individual debtor who, possessing sufficient property to cover all his debts but foreseeing
the impossibility of meeting them when they respectively fall due, may file a
verified petition that he be declared in the state of suspension of payments by the court of
the province or city in which he has resides for six (6) months prior to the filing of his
petition.

What should be attached in the petition for declaration of the state of suspension of
payments?

As a minimum, the petition shall have the following attachments:

 A schedule of assets and liabilities

 An inventory of assets
 A proposed agreement with creditors

What is rehabilitation?

Rehabilitation shall refer to the restoration of the debtor to a condition of successful

operation and solvency.

When is rehabilitation possible?

Rehabilitation is possible if it is shown that the debtor’s continuance of operation is

economically feasible and its creditors can recover by way of the present value of
payments projected in the plan, more if the debtor continues as a going concern than if it is
immediately liquidated.

What is a rehabilitation plan?

Rehabilitation Plan shall refer to a plan by which the financial well-being and viability of an
insolvent debtor can be restored using various means including, but not limited to, the
following:

 debt forgiveness
 debt rescheduling
 reorganization or quasi-reorganization
 dacion en pago
 debt-equity conversion
 sale of the business (or parts of it) as a going concern
 setting-up of new business entity as prescribed in the Act
 other similar arrangements as may be approved by the court or creditors
 What is a stay order or suspension order?

A stay or suspension order has the following effects:

 It suspends all actions or proceedings, in court or otherwise, for the enforcement of claims
against the debtor
 It suspends all actions to enforce any judgment, attachment or other provisional remedies
against the debtor
 It prohibits the debtor from selling, encumbering, transferring or disposing in any manner
any of its properties except in the ordinary course of business
 It prohibits the debtor from making any payment of its liabilities outstanding as of the
commencement date except as may be provided in the Act

What is a receiver?

Rehabilitation receiver shall refer to the person or persons, natural or juridical, appointed as
such by the court pursuant to the Act and which shall be entrusted with such powers and
duties as set forth therein.

Question 1
It shall refer to the financial condition of a debtor that is generally unable to pay its or
his liabilities as they fall due in the ordinary course of business or has liabilities that
are greater than its or his assets.
A. Bankrupt
B. Insolvent
C. Indebted
D. Dissolved

Answer: B.

Question 2
Voluntary proceeding differs from involuntary proceeding in that it is initiated by the
A. Court
B. Insolvent debtor
C. Creditors
D. Receiver

Answer: B.

Question 3
Involuntary proceedings are initiated by the
A. Court
B. Insolvent debtor
C. Creditors
D. Receiver

Answer: C.

Question 4
An insolvent debtor may initiate involuntary proceeding by filing a petition for
rehabilitation with the court only if with the prior approval of the following (choose
the incorrect one):
A. the owner in the case of a sole proprietorship
B. the majority of the partners in the case of a partnership
C. the vote of at least 2/3 of the members of a nonstock corporation, in a member’s meeting
called for the purpose
D. the the majority of the vote of the board of directors or trustees and authorized by the
vote of the stockholders representing at least majority of the outstanding capital stock, in a
meeting called for the purpose

Answer: D. For the stockholders, the required vote is at least 2/3 of the outstanding capital
stock.
Question 5
Which of the following creditor or group of creditors may initiate involuntary
proceeding against the debtor by filing a petition for rehabilitation with the court?
A. A creditor with a claim of P500,000
B. Group of creditors with aggregate claim of P750,000
C. A creditor with a claim of P800,000
D. Group of creditors with aggregate claim of P1,000,000

Answer: D. Any creditor or group of creditors with a claim of, or the aggregate of whose
claims is, at least P1,000,000. or at least twenty-five percent (25%) of the subscribed capital
stock or partners’ contributions, whichever is higher, may initiate involuntary proceedings
against the debtor by filing a petition for rehabilitation with the court.

Question 6
An individual debtor who, possessing sufficient property to cover all his debts
but foreseeing the impossibility of meeting them when they respectively fall due, may
file a verified petition that he be declared in the state of __________________ by the
court of the province or city in which he has resides for six (6) months prior to the
filing of his petition.
A. bankruptcy
B. suspension of payments
C. insolvency
D. liquidation

Answer: B.

Question 7
In a petition for declaration for the state of suspension of payments, which of the
following is not required as a minimum attachment?
A. A schedule of assets and liabilities
B. An inventory of assets
C. A proposed agreement with creditors
D. A list of all loans in the last 5 years

Answer: D.

Question 8
It refers to the restoration of the debtor to a condition of successful operation and
solvency.
A. Reorganization
B. Rehabilitation
C. Reconditioning
D. Liquidation

Answer: B.

Question 9
Which of the following is least likely included as a rehabilitation plan?
A. Debt-equity conversion
B. Quasi-reorganization
C. Liquidation
D. Dacion en pago

Answer: C. Liquidation is the process of realizing the assets of the company, distributing the
proceeds to rightful claimants and bringing an end to the business, a process opposite to
rehabilitation.

Question 10
Which of the following is not an effect of a stay order or suspension order?
A. It suspends all actions or proceedings, in court or otherwise, for the enforcement of
claims against the debtor.
B. It suspends all actions to enforce any judgment, attachment or other provisional
remedies against the debtor.
C. It prohibits the debtor from selling, encumbering, transferring or disposing in any manner
 any of its properties even if it is in the ordinary course of business.
D. It prohibits the debtor from making any payment of its liabilities outstanding as of the
commencement date except as may be provided in the Act.

Answer: C. A stay order or suspension order prohibits the debtor from selling, encumbering,
transferring or disposing in any manner any of its properties except in the ordinary course of
business.

(Q&A) October 2018 CPA Exam New Business Law

Topics: Bouncing Checks
What specific points will be asked from this topic?

The following points will be asked:

 Checks without sufficient funds

 Evidence of knowledge of insufficient funds
 Duty of drawee
 Credit construed

What is the relevant law on this topic?

Batas Pambansa Blg. 22 is known as the “Anti-Bouncing Check Law.”

What is a bounced check?

A bounced check is a worthless check.

What does the law say on checks without sufficient funds?

A check without sufficient fund is a check:

 Upon presentment for payment, is dishonored by the bank for insufficiency of funds, and the
issuer knows at the time of issue that he does not have sufficient funds in or credit with the
drawee bank
 Which would have been dishonored for insufficiency of funds, had the drawer not ordered
his bank to stop the payment of the check, without a valid reason for such order
 When presented for payment within 90 days from issue, is dishonored by the bank for
insufficiency of funds, even if the issuer has sufficient funds in or credit with the bank at the
time of issue

What does credit mean?

Credit, as used in this Law, shall be construed to mean an arrangement or understanding

with the bank for the payment of such check.

Who shall be liable?

Any person making, drawing and issuing a check without sufficient fund is liable.

Who shall be liable in case the check is issued by a corporation?

Where the check is drawn by a corporation, company or entity, the person or persons who
actually signed the check in behalf of such drawer (i.e. the corporation, company or entity)
shall be liable. This means that the officers signing the check for the corporation will be the
ones liable.

What is the punishment?

The punishment shall be either or both of the following:

 Imprisonment of not less than 30 days but not more than 1 year
 Fine of not less than but not more than double the amount of the check, but shall not
exceed P200,000

Given that no person shall be imprisoned for non-payment of debt, is Batas

Pambansa Blg. 22 constitutional?

Yes, it is constitutional. What is punished by this law is the act of making and issuing of a
worthless check or a check that is dishonored upon its presentation for payment, and NOT
the non-payment of the obligation.

What is the evidence of knowledge of insufficient funds?

The making, drawing and issuance of a check payment of which is refused by the drawee
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.

Is there an exception to the presumption above?

Yes. The presumption does not apply when the maker or drawer pays the holder of the
check the amount due, or makes arrangement for payment in full by the drawee of such
check within 5 banking days after receiving notice that such check has not been paid by the
drawee.

What is the duty of the drawee of a bounced check?

When refusing to pay the check to its holder upon presentment, it is the drawee’s (e.g.
bank) duty to cause to be written, printed, or stamped on the check, in plain language, or
attached thereto, the reason for its dishonor or refusal to pay. 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.

(Q&A) October 2018 CPA Exam New Business Law Topics: Anti-Money
Laundering Act
What specific points will be asked from this topic?

The following are of primary concern:

 Covered transactions
 Suspicious transactions
 Reportorial requirement

What is the relevant law on this topic?

Republic Act No. 9160 is known as the “Anti-Money Laundering Act of 2001.”

What is the State’s policy regarding this law?

It is the policy of the State to protect and preserve the integrity and confidentiality of bank
accounts and to ensure that the Philippines shall not be used as a money laundering site for
the proceeds of any unlawful activity.

What is money laundering?

Money laundering is a crime whereby the proceeds of an unlawful activity are transacted,
thereby making them appear to have originated from legitimate sources.
 How is money laundering committed?

Money laundering is committed by the following:

 Any person knowing that any monetary instrument or property represents, involves, or
relates to, the proceeds of any unlawful activity, transacts or attempts to transact said
monetary instrument or property.
 Any person knowing that any monetary instrument or property involves the proceeds of any
unlawful activity, performs or fails to perform any act as a result of which he facilitates the
offense of money laundering referred to in paragraph above.
 Any person knowing that any monetary instrument or property is required under this Act to
be disclosed and filed with the Anti-Money Laundering Council (AMLC), fails to do so.

What is a covered transaction?

A covered transaction is a single, series, or combination of transactions of more than

P4,000,000 or an equivalent amount in foreign currency based on the prevailing exchange
rate within 5 consecutive banking days.

It likewise refers to a single, series or combination or pattern of unusually large and complex
transactions of more than P4,000,000 especially cash deposits and investments having no
credible purpose or origin, underlying trade obligation or contract.

Are there changes to the definition of covered transactions?

Yes.

Republic Act No. 9194 amends the definition of a covered transaction as follows:

A covered transaction is a transaction in cash or other equivalent monetary instrument

involving a total amount of more than P500,000 within 1 banking day.

This is now the new definition of covered transaction.

What are suspicious transactions?

RA No. 9194 further amends RA No. 9160 to define what a suspicious transaction is.

Suspicious transactions are transactions with covered institutions, regardless of the

amounts involved, where any of the following circumstances exist:

 there is no underlying legal or trade obligation, purpose or economic justification

 the client is not properly identified
 the amount involved is not commensurate with the business or financial capacity of the
client
 taking into account all known circumstances, it may be perceived that the client’s
transaction is structured in order to avoid being the subject of reporting requirements under
the Act
 any circumstances relating to the transaction which is observed to deviate from the profile of
the client and/or the client’s past transactions with the covered institution
 the transaction is in a way related to an unlawful activity or offense under this Act that is
about to be, is being or has been committed
 any transactions that is similar or analogous to any of the foregoing

Who shall report suspicious transactions?

Suspicious transactions shall be reported by covered persons.

Who are covered persons?

Covered persons, natural or juridical, refer to:

 banks, non-banks, quasi-banks, trust entities, foreign exchange dealers, pawnshops,

money changers, remittance and transfer companies and other similar entities and all other
 persons and their subsidiaries and affiliates supervised or regulated by the Bangko Sentral
ng Pilipinas
 insurance companies, pre-need companies and all other persons supervised or regulated
by the Insurance Commission
 (i) securities dealers, brokers, salesmen, investment houses and other similar persons
managing securities or rendering services as investment agent, advisor, or consultant, (ii)
mutual funds, close-end investment companies, common trust funds, and other similar
persons, and (iii) other entities administering or otherwise dealing in currency, commodities
or financial derivatives based thereon, valuable objects, cash substitutes and other similar
monetary instruments or property supervised or regulated by the Securities and Exchange
Commission
 jewelry dealers in precious metals, who, as a business, trade in precious metals, for
transactions of more than P1,000,000
 jewelry dealers in precious stones, who, as a business, trade in precious stones, for
transactions of more than P1,000,000
 company service providers which, as a business, provide any of the following services to
third parties:
o acting as a formation agent of juridical persons
o acting as (or arranging for another person to act as) a director or corporate secretary of
a company, a partner of a partnership, or a similar position in relation to other juridical
persons
o providing a registered office, business address or accommodation, correspondence or
administrative address for a company, a partnership or any other legal person or
arrangement
o acting as (or arranging for another person to act as) a nominee shareholder for another
person
 persons who provide any of the following services:
o managing of client money, securities or other assets
o management of bank, savings or securities accounts
o organization of contributions for the creation, operation or management of companies
o creation, operation or management of juridical persons or arrangements, and buying
and selling business entities.

Are there exceptions to the definitions of covered persons?

Yes.

Notwithstanding the definitions above, covered persons shall not include lawyers and
accountants acting as independent legal professionals in relation to information concerning
their clients or where disclosure of information would compromise client confidences or the
attorney-client relationship.

When should covered persons report suspicious transactions?

Per Republic Act No. 9160

Covered institutions shall report to the AMLC all covered transactions within 5 working
days from occurrence thereof, unless the Supervising Authority concerned prescribes a
longer period not exceeding 10 working days.

Per Republic Act No. 10365 (amending RA No. 9160)

Covered persons shall report to the AMLC all covered transactions and suspicious
transactions within 5 working days from occurrence thereof, unless the AMLC prescribes a
different period not exceeding 15 working days.

Question 1
As to the character of the offense, “Money Laundering” is
A. Civil
B. Criminal
C. Political
D. Natural
Answer: B. Money laundering is a crime whereby the proceeds of an unlawful activity are
transacted, thereby making them appear to have originated from legitimate sources.

Question 2
What is the threshold figure for a “covered transaction”?
A. at least P500,000
B. more than P500,000
C. at least P4,000,000
D. more than P4,000,000

Answer: B. A covered transaction is a transaction in cash or other equivalent monetary

instrument involving a total amount of more than P500,000 within 1 banking day. (Note: the
more than P4,000,000 threshold was before the amendments made under RA No. 9194).

Question 3
True/False. The “more than P500,000” threshold applies to “suspicious transactions”.

Answer: False. Suspicious transactions are transactions with covered institutions,

regardless of the amounts involved, where any of the circumstances enumerated in the law
exist.

Question 4
Suspicious transactions are transactions with covered institutions, regardless of the
amounts involved, where any of the following circumstances exist (choose the
exception):
A. there is no underlying legal or trade obligation, purpose or economic justification
B. the client is not properly identified
C. the amount involved is commensurate with the business or financial capacity of the client
D. the transactions is in a way related to an unlawful activity or offense under the Act that is
about to be, is being or has been committed

Answer: C. The phrase should read as: “not commensurate”.

Question 5
Suspicious transactions shall be reported by covered persons. Which of the
following is least likely considered as a covered person?
A. Bank or banking institution
B. Insurance company
C. Jewelry dealer in precious metal
D. Lawyer acting as independent legal counsel

Answer: D. Covered persons shall not include lawyers and accountants acting as
independent legal professionals in relation to information concerning their clients or where
disclosure of information would compromise client confidences or the attorney-client
relationship.

Question 6
To which specific body shall covered persons report the occurrence of suspicious
transactions?
A. COA – Commission on Audit
B. BSP – Bangko Sentral Ng Pilipinas
C. AMLC – Anti-Money Laundering Council
D. PDIC – Philippine Deposit Insurance Commission

Answer: C. Covered persons shall report to the AMLC all covered transactions and
suspicious transactions.

Question 7
Within how many days shall covered persons report to the AMLC the occurrence of
suspicious transactions?
A. 1 working day
B. 3 working days
C. 5 working days
D. 7 working days
 Answer: C. Covered persons shall report to the AMLC all covered transactions and
suspicious transactions within 5 working days from occurrence thereof, unless the AMLC
prescribes a different period not exceeding 15 working days.

(Q&A) October 2018 CPA Exam New Business Law Topics: The New
Central Bank Act
What specific points will be asked from this topic?

The following are of primary concern:

 Legal tender power over coins and notes

 Conservatorship
 Receivership and closures

What is the relevant law on this topic?

Republic Act No. 7653 is known as “The New Central Bank Act”.

What is the legal tender power of the Bangko Sentral ng Pilipinas?

All notes and coins issued by the Bangko Sentral shall be fully guaranteed by the
Government of the Republic of the Philippines and shall be legal tender in the Philippines
for all debts, both public and private.

What does the “legal tender power” of a currency mean?

Legal tender power means that when the currency is offered in payment of a debt, public or
private, the same must be accepted.

Is there a limit to the legal tender power of Philippine currency notes and coins?

Philippine currency notes have no limit to their legal tender power. This means that bills, in
any denomination (P20, P50, P100, P200, P500, P1,000) must be accepted up to any
amount.

In the case of coins, their legal tender power shall have the following limits:

 25-centavo coins and above – acceptable up to P50

 10-centavo coins or less – acceptable up to P20

However, pursuant to BSP Circular No. 537, series of 2006, the new limits to the legal
tender power of coins are:


o P1, P5 and P10 – acceptable up to P1,000
o All centavo (sentimo) coins – acceptable up to P100

Under what authority does the BSP issue currency?

Per RA No. 7653, the Bangko Sentral ng Pilipinas is the sole government
institution mandated by law to issue notes and coins for circulation in the Philippines.

What is conservatorship?

Broadly defined, conservatorship is an attempt to save the bank from bankruptcy and
eventual liquidation. Doing so entails appointment of a conservator who will take steps such
as management reforms and infusion of additional capital.

What is a conservator?

A conservator is person appointed by the Monetary Board to perform the following

functions:
 Take charge of the assets, liabilities and management of a bank or quasi-bank
 Reorganize the management
 Collect all monies and debts due to it
 Exercise all powers necessary to restore the bank or quasi-bank’s viability

When is a conservator needed?

A conservator is appointed whenever a bank or a quasi-bank is in a state of continuing

inability or unwillingness to maintain a condition of liquidity deemed adequate to protect the
interest of depositors and creditors.

Who appoints the conservator?

The Monetary Board appoints the conservator.

For under what duration shall the conservatorship be?

The conservatorship shall not exceed 1 year.

What is receivership?

Receivership is the summary closure of the bank by the Bangko Sentral ng Pilipinas without
the need of prior notice and hearing.

When is a bank or quasi-bank placed under receivership?

Receivership happens upon finding by the Monetary Board that continuance in business of
the bank or quasi-bank will involve probable loss to its depositors and creditors.

What specific findings of the Monetary Board serve as bases for receivership?

The banking institution is placed under receivership upon finding of the Monetary Board of
the following:

 Inability to pay liabilities

 Insufficiency of realizable assets to meet its liabilities
 Inability to continue business without involving probable loss to depositors and creditors
 Wilful violation of cease and desist order under Sec. 37 of RA No. 7653 that has become
final involving acts or transactions which amount to fraud or dissipation of assets of the
institution

Who shall function as the receiver?

For banks, the Monetary Board designates the Philippine Deposit Insurance Corporation as
the receiver.

For quasi-banks, any person of recognized competence in banking or finance may be

designated as the receiver.

What are the functions of the receiver?

Once appointed, the receiver shall perform the following functions:

 Immediately gather and take charge of all the assets and liabilities of the institution
 Administer the assets and liabilities for the benefit of its creditors
 Exercise the general powers of a receiver under the Revised Rules of Court

Is the receiver tasked to pay the claims of creditors and other liabilities?

No.

With the exception of administrative expenditures, the receiver shall not pay or commit any
act that will involve the transfer or disposition of any asset of the institution.
However, the receiver may deposit or place the funds of the institution in non-speculative
investments.

For under what duration shall the receivership be?

The receivership shall not exceed 90 days.

What happens during or after the 90 days of receivership?

The receiver shall determine as soon as possible, but not later than 90 days from take over,
whether the institution may be rehabilitated or otherwise placed in such a condition so that
it may be permitted to resume business with safety to its depositors and creditors and the
general public.

What if the receiver determines that the bank or quasi-bank can no longer be
rehabilitated?

If the receiver determines that the institution cannot be rehabilitated or permitted to resume
business, the Monetary Board shall notify in writing the Board of Directors of its findings and
direct the receiver to proceed with the liquidation of the institution.

What happens during liquidation of a bank or quasi-bank?

In liquidation, the claims of the bank’s creditors are determined and paid, as the bank can
no longer be rehabilitated.

When does liquidation take place?

Liquidation may be voluntary, pursuant to Sec. 68 of the General Banking Law, or, as earlier
answered, upon determination by the receiver that the bank or quasi-bank can no longer be
rehabilitated and cannot continue business after the 90-day receivership period.

For under what duration shall the liquidation be?

The law does not state a specified period. Since this involves payments of liabilities, it may
take as much time as needed to determine and pay all claims of creditors.

Question 1
It means that, when a currency is offered in payment of a debt, public or private, the
same must be accepted.
A. Purchasing power
B. Negotiability of instrument
C. Legal tender power
D. Liquidity of money

Answer: C.

Question 2
Which of the following does not constitute legal tender?
A. 1,000 pieces of P20-bill
B. 100 pieces of P20-bill and 100 pieces of P10-coin
C. 300 pieces of P5-coin
D. Centavo coins worth P100

Answer: C. Philippine currency notes (bills) have no limit to their legal tender power. For
coins, centavos are acceptable up to P100, while other coins (P1, P5, P10) are acceptable
up to P1,000.
Question 3
Which of the following has legal tender power?
I. Checks representing demand deposit
II. Negotiable promissory note
A. I only
B. II only
C. Both I and II
D. Neither I nor II

Answer: D. Checks representing demand deposits do not have legal tender power and their
acceptance in the payment of debts, both public and private, is at the option of the creditor:
Provided, however, That a check which has been cleared and credited to the account of the
creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the
amount credited to his account. Negotiable instruments do not have legal tender power.

Question 4
Which government institution has the sole authority to issue notes and coins for
circulation in the Philippines?
A. Bureau of Treasury
B. Bureau of Internal Revenue
C. Bangko Sentral Ng Pilipinas
D. Landbank of the Philippines

Answer: C.

Question 5
It is an attempt to save the bank from bankruptcy and eventual liquidation.
A. Liquidation
B. Conservatorship
C. Receivership
D. Dissolution

Answer: B. Broadly defined, conservatorship is an attempt to save the bank from

bankruptcy and eventual liquidation. Doing so entails appointment of a conservator who will
take steps such as management reforms and infusion of additional capital.

Question 6
Who appoints the conservator?
A. Monetary Board
B. Commission on Audit
C. Depositor
D. Court

Answer: A.

Question 7
Which of the following is not one of the functions of the conservator?
A. Take charge of the assets, liabilities and management of a bank or quasi-bank
B. Reorganize the management
C. Collect all monies and debts due to the bank
D. Administer the bank’s assets and liabilities for the benefit of its creditors

Answer: D. Administering the bank’s assets and liabilities for the benefit of creditors is a
function of a receiver, not conservator.

Question 8
The conservatorship shall be for a period
A. Of at least 1 year
B. Of at least 2 years
C. Not to exceed 1 year
D. Not to exceed 2 years

Answer: C. The conservatorship shall not exceed 1 year.

 Question 9
It is the summary closure of the bank by the Bangko Sentral ng Pilipinas without the
need of prior notice and hearing.
A. Conservatorship
B. Receivership
C. Liquidation
D. Rehabilitation

Answer: B.

Question 10
The bank or banking institution is placed under receivership upon finding of the
Monetary Board of the following (choose the exception):
A. Inability to pay liabilities
B. Insufficiency of realizable assets to meet its liabilities
C. Inability to continue business without involving probable loss to depositors and creditors
D. Inability to declare dividends

Answer: D.

Question 11
Who among the following has the task of paying the claims of creditors and other
liabilities of the bank?
A. Conservator
B. Receiver
C. Liquidator
D. President

Answer: C.

Question 12
Receivership shall not exceed
A. 30 days
B. 90 days
C. 120 days
D. 60 days

Answer: B.

Question 13
Which of the following is not a function of a receiver?
A. Gather and take charge of all the assets and liabilities of the bank
B. Administer the assets and liabilities for the benefit of its creditors
C. Exercise the general powers of a receiver under the Revised Rules of Court
D. Pay or commit any act that will involve the transfer or disposition of any asset of the bank

Answer: D. With the exception of administrative expenditures, the receiver shall not pay or
commit any act that will involve the transfer or disposition of any asset of the
institution. However, the receiver may deposit or place the funds of the institution in non-
speculative investments.

(Q&A) October 2018 CPA Exam New Business Law Topics: Secrecy of
Bank Deposits
What is the relevant law on this topic?

Republic Act No. 1405 is entitled “An Act Prohibiting Disclosure Of or Inquiry Into, Deposits
with Any Banking Institution and Providing Penalty Therefor”.

What are the purposes of the Bank Secrecy Deposit Act?

The Bank Deposit Secrecy Law was created for the following purposes:

 To encourage people to deposit their money in banking institutions

 To discourage private hoarding of money so that the same may be utilized by banks in
authorized loans

What is covered by the law on bank secrecy?

The law states that all deposits of whatever nature with banks or banking institutions in the
Philippines including investments in bonds issued by the Government of the Philippines, its
political subdivisions and its instrumentalities are considered absolutely confidential.

Does the law on secrecy also apply to foreign currency deposits?

Yes.

Republic Act No. 6426, known as the “Foreign Currency Deposit Act of the Philippines”,
Sec. 8 states that all foreign currency deposits are also considered of an absolutely
confidential nature.

Are there exceptions to the confidentiality rule on deposits?

Yes.

In the following cases, the deposits may be examined, inquired or looked into by any
person, government official, bureau or office:

 With written permission of the depositor

 In cases of impeachment
 Upon order of a competent court in cases of bribery or dereliction of duty of public officials
 In cases where the money deposited or invested is the subject matter of litigation
 During special or general examination of a bank, as authorized by the Monetary Board to
investigate bank fraud or a serious irregularity

On the part of the auditor on the audit of bank’s financial statements, does it mean
that the auditor can no longer inquire into or examine bank deposits because of the
law on secrecy?

Not necessarily.

Presidential Decree No. 1792, amending Republic Act No. 1405 states that, during a regular
audit of a bank by an independent auditor, the auditor may inquire, examine or look into
deposits, provided that the following conditions are satisfied:

 The examination is for audit purposes only

 The results of the examination shall be for the exclusive use of the bank

What are the sanctions for violations of the Bank Secrecy Law?

Any violation of this law will subject offender upon conviction, to either or both of the
following (upon the discretion of the court):

 Imprisonment of not more than 5 years

 Fine of not more than P20,000

 Question 1
Which of the following are covered by the bank secrecy law?
A. Only demand deposits
B. All deposits of whatever nature
C. Investments in bonds issued by the Philippine Government
D. B and D
 Answer: D. The law states that all deposits of whatever nature with banks or
banking institutions in the Philippines including investments in bonds issued by
the Government of the Philippines, its political subdivisions and its
instrumentalities are considered absolutely confidential.
  Question 2
True/False. Foreign currency deposits are excluded from the protection of bank
secrecy laws.

 Answer: False. Republic Act No. 6426, known as the “Foreign Currency Deposit
Act of the Philippines”, Sec. 8 states that all foreign currency deposits are also
considered of an absolutely confidential nature.

 Question 3
In all of the following cases, the deposits may be examined, inquired or looked
into by any person, government official, bureau or office. Choose the
exception.
A. When permitted (written) by the depositor
B. In cases of impeachment
C. When the depositor is a public official
D. In cases where the money deposited or invested is the subject matter of litigation

 Answer: C. Being a public official does not automatically waive the right to bank
secrecy. The deposit may only be examined, inquired or looked into upon order of
competent court in cases of bribery or dereliction of duty of public officials.

 Question 4
Can independent external auditors inquire into or examine bank deposits
during the course of the audit?
A. Yes, anytime.
B. Yes, in the regular audit of the bank, with conditions
C. No, because of the absolute nature of secrecy
D. No, unless the auditor has reason to believe that bank fraud exists

 Answer: B. Presidential Decree No. 1792, amending Republic Act No. 1405
states that, during a regular audit of a bank by an independent auditor, the auditor
may inquire, examine or look into deposits, provided that the following conditions
are satisfied: a) the examination is for audit purposes only, and b) the results of
the examination shall be for the exclusive use of the bank.

 Question 5
Violations of the bank secrecy law subjects the offender, upon conviction, to
which of the following?
A. Imprisonment of not more than 2 years or fine of not more than P20,000 or both
B. Imprisonment of not more than 5 years or fine of not more than P20,000 or both
C. Imprisonment of not more than 2 years or fine of not more than P40,000 or both
D. Imprisonment of not more than 5 years or fine of not more than P40,000 or both
 Answer: B.

(Q&A) October 2018 CPA Exam New Business Law Topics: Cooperatives
(Part 1 of 2)
What specific points will be asked from this topic?

The following points will be considered:

 Organization and registration of cooperatives

 Types and categories of cooperatives
 Administration
 Responsibilities, rights and privileges of cooperatives
 Capital, property of funds
 Audit, inquiry and members’ right to examine
 Allocation and distribution of funds
 Dissolution of cooperatives

This Q&A shall answer the first half of the points enumerated above.
 What is the relevant law on this topic?

Republic Act No. 9520 is known as the “Philippine Cooperative Code of 2008”.

What is a cooperative?

A cooperative is an autonomous and duly registered association of persons, with a common

bond of interest, who have voluntarily joined together to achieve their social, economic, and
cultural needs and aspirations by making equitable contributions to the capital required,
patronizing their products and services and accepting a fair share of the risks and benefits
of the undertaking in accordance with universally accepted cooperative principles.

What are the essential characteristics of cooperatives?

The following shall characterize a cooperative:

 Autonomy and due registration

 Voluntary membership
 Equitable capital contributions of members
 Patronizing by members of the products and services of the cooperative
 Share in the risks and benefits

On Organization and registration of cooperatives

What is a primary cooperative?

A primary cooperative is a cooperative whose members are natural persons.

As to membership, the other categories are:

 Secondary cooperative – the members of which are primary cooperatives

 Tertiary cooperative – the members of which are secondary cooperatives

Who may organize a primary cooperative?

Fifteen (15) or more natural persons who have the following requisites may organize a
primary cooperative:

 Filipino citizens
 Of legal age
 Have a common bond of interest
 Actually residing or working in the intended area of operation

Can a primary cooperative be registered as a multi-purpose cooperative?

Any newly organized primary cooperative may be registered as multi-purpose cooperative

only after compliance with the minimum requirements for multipurpose cooperatives to be
set by the Cooperative Development Authority (CDA).

Can a single-purpose cooperative become a multi-purpose cooperative?

Yes.

A single-purpose cooperative may transform into a multipurpose or may create subsidiaries

but only after at least 2 years of operations.

What is the extent of the liability of a cooperative?

A duly registered cooperative shall have limited liability.

What is the legal life of a cooperative?

 A cooperative shall exist for a period not exceeding 50 years from the date of registration
unless sooner dissolved or unless said period is extended.

What is the rule on extension of cooperative life?

The cooperative term, as originally stated in the articles of cooperation, may be extended
for periods not exceeding 50 years in any single instance by an amendment of the articles
of cooperation.

However, no extension can be made earlier than 5 years prior to the original or subsequent
expiry date unless there are justifiable reasons for an earlier extension.

What is the capital requirement to register a cooperative?

No cooperative, other than a cooperative union, shall be registered unless the Articles of
Cooperation is accompanied with the bonds of the accountable officers and a sworn
statement of the treasurer elected by the subscribers showing that:

 at least 25% of the authorized share capital has been subscribed; and
 at least 25% of the total subscription has been paid

However, the paid-up share capital must be at least P15,000.

When does a cooperative acquire juridical personality?

A cooperative formed and organized under the Code acquires juridical personality from the
date the CDA issues a certificate of registration under its official seal.

What is the legal power of a certificate of registration?

A certificate of registration issued by the CDA under its official seal shall be conclusive
evidence that the cooperative therein mentioned is duly registered, unless it is proved that
the registration has been cancelled.

On types of cooperatives

What are the different types of cooperatives?

Cooperatives may fall under any of the following types:

 Credit Cooperative – one that promotes and undertakes savings and lending services
among its members. It generates a common pool of funds in order to provide financial
assistance to its members for productive and provident purposes.
 Consumers Cooperative – one the primary purpose of which is to procure and distribute
commodities to members and non-members.
 Producers Cooperative – 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.
 Marketing Cooperative – one which engages in the supply of production inputs to members
and markets their products.
 Service Cooperative – one which engages in medical and dental care, hospitalization,
transportation, insurance, housing, labor, electric light and power, communication,
professional and other services.
 Multi-purpose Cooperative – one which combines two (2) or more of the business activities
of these different types of cooperatives.
 Advocacy Cooperative – a primary cooperative 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.
 Agrarian Reform Cooperative – 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.
 Cooperative Bank – one organized for the primary purpose of providing a wide range of
financial services to cooperatives and their members.
 Dairy Cooperative – one whose members are engaged in the production of fresh milk which
may be processed and/or marketed as dairy products.
 Education Cooperative – 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.
 Electric Cooperative – one organized for the primary purposed of undertaking power
generations, utilizing renewable energy sources, including hybrid systems, acquisition and
operation of subtransmission or distribution to its household members.
 Financial Service Cooperative – one organized for the primary purpose of engaging in
savings and credit services and other financial services.
 Fishermen Cooperative – one organized by marginalized fishermen in localities whose
products are marketed either as fresh or processed products.
 Health Services Cooperative – one organized for the primary purpose of providing medical,
dental and other health services.
 Housing Cooperative – 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.
 Insurance Cooperative – one engaged in the business of insuring life and poverty of
cooperatives and their members.
 Transport Cooperative – 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 the Code.
 Water Service Cooperative – one organized to own, operate and manage waters systems
for the provision and distribution of potable water for its members and their households.
 Workers Cooperative – one organized by workers, including the self-employed, who are at
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 principles.

What is a laboratory cooperative?

A laboratory cooperative is one organized by minors. It shall be governed by special

guidelines to be promulgated by the CDA.

On membership and administration of cooperatives

What are the types of members in a cooperative?

A cooperative may have 2 types of members:

 Regular members
 Associate members

What is a regular member?

A regular member is one who has complied with all the membership requirements and
entitled to all the rights and privileges of membership.

What is an associate member?

An associate member is one who has no right to vote nor be voted upon and shall be
entitled only to such rights and privileges as the bylaws may provide.

However, an associate who meets the minimum requirements of regular membership, and
continues to patronize the cooperative for 2 years, and signifies his/her intention to remain a
member shall be considered a regular member.

Who are disqualified to become members or elected as officers of a cooperative?

 Any officer or employee of the CDA shall be disqualified to be elected or appointed to any
position in a cooperative.

All elective officials of the Government shall be ineligible to become officers and directors of
cooperatives.

What is the extent of a member’s liability?

A member shall be liable for the debts of the cooperative to the extent of his contribution to
the share of the cooperative.

Unlike in partnership, and like in corporations, a member’s personal assets shall not answer
for the debts of the cooperative.

May a member withdraw his membership from the cooperative?

Yes.

A member of a cooperative may, for any valid reason, withdraw his membership from the
cooperative by giving a 60 day notice to the Board of Directors.

Will a withdrawing member receive a refund of his capital contribution?

Yes, with qualifications.

Subject to the bylaws of the cooperative, the withdrawing member shall be entitled to a
refund of his share capital contribution and all other interests in the cooperative.

However, the refund shall not be made if upon such payment the value of the assets of the
cooperative would be less than the aggregate amount of its debts and liabilities exclusive of
his share capital contribution.

Can a member be removed from the cooperative?

Yes.

Membership in the cooperative may be terminated by a vote of the majority of all the
members of the BOD for any of the following causes:

 When a member has not patronized any of the services of the cooperative for an
unreasonable period of time as may be previously determined by the BOD
 When a member has continuously failed to comply with his obligations
 When a member has acted in violation of the bylaws and the rules of the cooperative
 For any act or omission injurious or prejudicial to the interest or the welfare of the
cooperative

What is the composition of a cooperative’s General Assembly?

The General Assembly shall be composed of such members who are entitled to vote under
the Articles of Cooperation and bylaws of the cooperative

What are the powers of the General Assembly?

The General Assembly shall be the highest policy-making body of the cooperative and shall
exercise such powers as are stated in the Code.

Specifically, the following powers of the General Assembly cannot be delegated:

 To determine and approve amendments to the articles of cooperation and bylaws

 To elect or appoint the members of the board of directors, and to remove them for cause.
However, in the case of the electric cooperatives registered under the Code, election of the
members of the board shall be held in accordance with its bylaws or election guideline of
such electric cooperative
 To approve developmental plans of the cooperative
When should general meetings of a cooperative be held?

A regular meeting shall be held annually by the General Assembly on a date fixed in the
bylaws.

What if the bylaws do not fix a period for the regular meeting?

If not fixed in the bylaws, the regular meeting shall be on any date within 90 days after the
close of each fiscal year.

What constitutes a quorum in cooperative meetings?

A quorum shall consist of at least 25% of all the members entitled to vote.

Is the quorum the same for all types of cooperatives?

No, there are exceptions.

In the case of electric cooperatives, a quorum, unless otherwise provided in the bylaws,
shall consist of 5% of all the members entitled to vote.

In the case of cooperative banks, the quorum requirement for General Assembly meetings,
whether special or regular, shall be 1/2 plus one of the number of voting shares of all the
members in good standing.

In the meetings of the BOD, whether special or regular, the quorum requirement shall be
1/2 plus one of all the members of the BOD.

Each director shall only have 1 vote.

What is the voting system in meetings of cooperatives?

The voting system depends upon the category of cooperative.

For primary cooperatives, each member shall have 1 vote.

For secondary or tertiary cooperatives, each member shall have 1 basic vote and as many
incentive votes as provided for in the bylaws but not to exceed 5 votes.

What is the composition of the BOD of cooperatives?

Like regular corporations, the BOD of cooperatives shall be composed of not less than 5 but
not more than 15 members.

Who elects the members of the BOD?

The members of the BOD are elected by the General Assembly.

What is the term of office of the members of the BOD?

BOD members shall be elected for a term of 2 years and shall hold office until their
successors are duly elected and qualified, or until duly removed for cause.

What are the powers and functions of the BOD?

The direction and management of the affairs of the cooperative shall be vested in the BOD.

Also, the BOD shall be responsible for the strategic planning, direction-setting and policy-
formulation activities of the cooperative.

What is the prohibition for BOD members on voting?

Directors cannot attend or vote by proxy at board meetings.

 Who shall elect the officers of the cooperative?

The BOD shall elect from among themselves the chairperson and vice-chairperson, and
elect or appoint other officers of the cooperative from outside of the board in accordance
with their bylaws.

What is the status of dealings of directors and officers with the cooperative?

A contract entered into by the cooperative with 1 or more of its directors, officers, and
committee members is voidable, at the option of the cooperative, unless all the following
conditions are present:

 That the presence of such director in the board meeting wherein contract was approved
was not necessary to constitute a quorum for such meeting
 That the vote of such director was not necessary for the approval of the contract
 That the contract is fair and reasonable under the circumstances
 That in the case of an officer or committee member, the contract with the officer or
committee member has been previously authorized by the General Assembly or by the
BOD

On responsibilities, rights and privileges of cooperatives

What cooperative books shall be kept open for inspection?

Every cooperative shall have the following documents ready and accessible to
its members and representatives of the CDA for inspection during reasonable office hours
at its official address:

 A copy of the Cooperative Code and all other laws pertaining to cooperatives
 A copy of the regulations of the CDA
 A copy of the articles of cooperation and bylaws of the cooperative
 A register of members
 The books of the minutes of the meetings of the General Assembly, BOD and committee
 Share books, where applicable
 Financial statement
 Such other documents as may be prescribed by laws or the bylaws

The accountant or the bookkeeper of the cooperative shall be responsible for the
maintenance of the cooperative records in accordance with generally accepted accounting
practices.

He shall also be responsible for the production of the same at the time of audit or
inspection.

The audit committee shall be responsible for the continuous and periodic review of the
books and records of account to ensure that these are in accordance with generally
accepted accounting practices.

He shall also be responsible for the production of the same at the time of audit or
inspection.

For up to what period shall cooperatives keep its records?

A cooperative may dispose by way of burning or other method of complete destruction any
document, record or book pertaining to its financial and nonfinancial operations which are
already more than 5 years old except those relating to transactions which are the subject of
civil, criminal and administrative proceedings.

Which cooperative members need to be bonded?

Every director, officer, and employee handling funds, securities or property on behalf of any
cooperative shall be covered by a surety bond to be issued for a duly registered insurance
or bonding company for the faithful performance of their respective duties and obligations.
 Are cooperatives required to pay tax?

Duly registered cooperatives which do not transact any business with non-members or the
general public shall not be subject to any taxes and fees imposed under the internal
revenue laws and other tax laws.

What if the cooperatives have transaction with both members and non-members?

Cooperatives transacting business with both members and non-members shall not be
subjected to tax on their transactions with members.

What privileges do cooperatives have?

Cooperatives enjoy the following privileges:

 The privilege of depositing their sealed cash boxes or containers, documents or any
valuable papers in the safes of the municipal or city treasurers and other government
offices free of charge
 Cooperatives organized among government employees enjoy the free use of any available
space in their agency, whether owned or rented by the Government
 Cooperatives rendering special types of services and facilities such as cold storage, ice
plant, electricity, transportation shall secure a franchise therefore, and such cooperatives
shall open their membership to all persons qualified in their areas of operation
 In areas where appropriate cooperatives exist, the preferential right to supply government
institutions and agencies rice, corn and other grains, fish and other marine products, meat,
eggs, milk, vegetables, tobacco and other agricultural commodities produced by their
members shall be granted to the cooperatives concerned
 Preferential treatment in the allocation of fertilizers, including seeds and other agricultural
inputs and implements, and in rice distribution
 Preferential and equitable treatment in the allocation or control of bottomries of commercial
shipping vessels in connection with the shipment of goods and products of cooperatives
 Preferential rights in the management of public markets and/or lease of public market
facilities, stalls or spaces for cooperatives and their federations, such as farm and fishery
producers and suppliers, market vendors and such other cooperatives, which have for their
primary purpose the production and/or the marketing of products from agriculture, fisheries
and small entrepreneurial industries and federations thereof
 Cooperatives engaged in credit services and/or federations shall be entitled to loans credit
lines, rediscounting of their loan notes, and other eligible papers with the Development
Bank of the Philippines, the Land Bank of the Philippines and other financial institutions
except the Bangko Sentral ng Pilipinas
 A public transport service cooperative may be entitled to financing support for the
acquisition and/or maintenance of land and sea transport equipment, facilities and parts
through the program of the government financial institutions. It shall have the preferential
right to the management and operation of public terminals and ports whether land or sea
transport where the cooperative operates and on securing a franchise for active or potential
routes for the public transport.
 Cooperatives transacting business with the Government of the Philippines or any of its
political subdivisions or any of its agencies or instrumentalities, including government-
owned and controlled corporations shall be exempt from prequalification bidding
requirements
 The privilege of being represented by the provincial or city fiscal or the Office of the Solicitor
General, free of charge, except when the adverse party is the Republic of the Philippines
 Preferential right in the management of the canteen and other services related to the
operation of the educational institution where they are employed for Cooperatives organized
by faculty members and employees of educational institutions.
 The appropriate housing agencies and government financial institutions shall create a
special window for financing housing projects undertaken by cooperatives, with interest
rates and terms equal to, or better than those given for socialized housing projects. This
financing shall be in the form of blanket loans or long-term wholesale loans to qualified
cooperatives, without need for individual processing.
Cooperative Code
Question 1
Which of the following does not necessarily characterize a cooperative?
A. Autonomy
B. Common bond of interest
C. Voluntary involvement
D. Absence of capital

Answer: D.

Question 2
A cooperative whose members are natural persons is called
A. Primary
B. Natural
C. Parent
D. De jure

Answer: A.

Question 3
Which of the following is not a qualification for membership to a primary
cooperative?
A. Natural born resident citizen
B. Of legal age
C. Common bond of interest
D. Actually residing or working in the intended area of operation

Answer: A. The law only requires citizenship.

Question 4
A single-purpose cooperative may transform into a multi-purpose cooperative only
after at least how many years of operations?
A. 2
B. 3
C. 4
D. 5

Answer: A.

Question 5
Multi-purpose cooperatives must have a minimum paid-up capital of
A. P15,000
B. P50,000
C. P100,000
D. P250,000

Answer: C. With the exception of agricultural and agrarian reform cooperatives, only those
cooperatives with a minimum paid-up capital of P100,000 may be allowed to transform into
a multi-purpose cooperative.

Question 6
Duly registered cooperatives shall have what extent of liability?
A. Unlimited
B. Limited
C. None at all
D. To the extent fixed by its by-laws

Answer: B.

Question 7
Cooperatives have maximum legal life of 50 years. This period may be extended for
periods not exceeding 50 years in any single instance by an amendment of the
articles of cooperation. However, no extension can be made earlier than ______ prior
to the original or subsequent expiry date unless there are justifiable reasons for an
earlier extension.
A. 3 years
B. 5 years
C. 7 years
D. 10 years

Answer: B.

Question 8
The preferred share capital of a cooperative shall not exceed what percent of its total
authorized share capital?
A. 5%
B. 10%
C. 20%
D. 25%

Answer: D.

Question 9
No member shall own more than what percent of the subscribed share capital of a
cooperative?
A. 5%
B. 10%
C. 15%
D. 20%

Answer: B.

Question 10
When does a cooperative acquire juridical personality?
A. From the formation of all its members
B. From the transfer of funds to the cooperatives
C. From the issuance of certificate of registration by the CDA
D. From the assumption of offices by its directors

Answer: C. In addition, the certificate is conclusive evidence that the cooperative therein
mentioned is duly registered, unless it is proved that the registration has been cancelled.

Question 11
Which type of cooperative has the primary purpose of procuring and distributing
commodities to its members and non-members?
A. Credit
B. Consumers
C. Service
D. Producers

Answer: B.

Question 12
This type of cooperative undertakes joint production whether agricultural or
industrial.
A. Producers
B. Multi-purpose
C. Consumers
D. Marketing

Answer: A. 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.
 Question 13
This type of cooperative is organized for the primary purpose of engaging in savings
and credit services and other financial services.
A. Cooperative bank
B. Financial service cooperative
C. Lending cooperative
D. Commercial cooperative

Answer: B.

Question 14
A laboratory cooperative is one organized by
A. Scientists
B. People of scientific background
C. Minors
D. Researchers

Answer: C.

Question 15
What type of cooperative member has no right to vote or be voted upon and shall
only be entitled to any such rights and privileges as the bylaws may provide?
A. Regular member
B. Associate member
C. Loyal member
D. Disloyal member

Answer: B.

Question 16
It is the highest policy-making body of the cooperative.
A. Board of Directors
B. Board of Trustees
C. General Assembly
D. Cooperative Governance

Answer: C.

(Q&A) October 2018 CPA Exam New Business Law Topics: Unclaimed
Balances Law
What is the relevant law on this topic?

Act No. 3936, as amended by Presidential Decree No. 679, requires banks, trust
corporations, and building and loans associations, to transfer unclaimed balances held by
them to the Treasurer of the Philippines and for other purposes.

What is the meaning of “unclaimed balances”?

Unclaimed balances shall include credits or deposits of the following:

 money
 bullion
 security
 other evidence of indebtedness of any kind, and interest thereon

with banks, buildings and loan associations, and trust corporations, in favor of the following:

 any person known to be dead

 any person who has not made further deposits or withdrawals during the preceding 10
years or more
 Note: the credit or deposit must be in covered institutions (i.e. banks, buildings and loan
associations or trust corporations).

What will happen to unclaimed balances?

Unclaimed balances, together with the increase and proceeds thereof, shall be deposited
with the Treasurer of the Philippines to the credit of the Government of the Republic of the
Philippines to be used as the National Assembly may direct after reclassification and
procedures provided by law.

What is an escheat proceeding?

Escheat proceedings refer to the judicial process in which the state, by virtue of its
sovereignty, steps in and claims abandoned, left vacant, or unclaimed property, without
there being an interested person having a legal claim thereto.

In the case of dormant accounts, the state inquires into the status, custody, and ownership
of the unclaimed balance to determine whether the inactivity was brought about by the fact
of death or absence of or abandonment by the depositor.

If after the proceedings the property remains without a lawful owner interested to claim it,
the property shall be reverted to the state to forestall an open invitation to self-service by the
first comers.

What happens if interested parties have come forward and lain claim to the
unclaimed balance?

If interested parties have come forward and lain claim to the property, the courts shall
determine whether the credit or deposit should pass to the claimants or be forfeited in favor
of the state.

What is the duty of the covered institution on unclaimed balances?

Immediately after the taking effect of the Act and within the month of January of every odd
year, all banks, building and loan associations, and trust corporations shall forward to the
Treasurer of the Philippines a statement, under oath, of their respective managing officers,
of all credits and deposits held by them in favor of persons known to be dead, or who have
not made further deposits or withdrawals during the preceding ten years or more, arranged
in alphabetical order according to the names of creditors and depositors, and showing:

 The names and last known place of residence or post office addresses of the persons in
whose favor such unclaimed balances stand
 The amount and the date of the outstanding unclaimed balance and whether the same is in
money or in security, and if the latter, the nature of the same
 The date when the person in whose favor the unclaimed balance stands died, if known, or
the date when he made his last deposit or withdrawal
 The interest due on such unclaimed balance, if any, and the amount thereof

A copy of the above sworn statement shall be posted in a conspicuous place in the
premises of the bank, building and loan association, or trust corporation concerned for at
least sixty days from the date of filing thereof: Provided, That immediately before filing the
above sworn statement, the bank, building and loan association, and trust corporation
shall communicate with the person in whose favor the unclaimed balance stands at his last
known place of residence or post office address.

What is the duty of the Treasurer of the Philippines?

It shall be the duty of the Treasurer of the Philippines to inform the Solicitor General from
time to time the existence of unclaimed balances held by banks, building and loan
associations, and trust corporations.
 (Q&A) October 2018 CPA Exam New Business Law Topic: Intellectual
Property Code

What is the relevant law on this topic?

Republic Act No. 8923 is known as the Intellectual Property Code of the Philippines.

What specific items will be asked in the exam?

The following points are of primary concern:

 Patents
 Trademark, service marks, trade names
 Copyright

Which inventions are patentable?

Any technical solution of a problem in any field of human activity which:

 is new;
 involves an inventive step; and
 is industrially applicable shall be patentable.

It may be, or may relate to, a product, or process, or an improvement of any of the
foregoing.

Which items shall be excluded from patent protection?

The following shall be excluded from patent protection:

 Discoveries, scientific theories and mathematical methods

 Schemes, rules and methods of performing mental acts, playing games or doing business,
and programs for computers
 Methods for treatment of the human or animal body by surgery or therapy and diagnostic
methods practiced on the human or animal body (except products and composition for use
in any of these methods)
 Plant varieties or animal breeds or essentially biological process for the production of plants
or animals (except micro-organisms and non-biological and microbiological processes)
 Aesthetic creations
 Anything which is contrary to public order or morality.

To whom does the right to a patent belong?

The right to a patent belongs to the inventor, his heirs, or assigns.

When two (2) or more persons have jointly made an invention, the right to a patent shall
belong to them jointly.

If the patent is created pursuant to a commission, the person who commissions the work
shall own the patent, unless otherwise provided in the contract.

Who owns the patent for an invention made by the employee in the course of his
employment contract?

In case the employee made the invention in the course of his employment contract, the
patent shall belong to:

A. The EMPLOYEE – if the inventive activity is not a part of his regular duties even if the
employee uses the time, facilities and materials of the employer.

B. The EMPLOYER – if the invention is the result of the performance of his regularly-
assigned duties, unless there is an agreement, express or implied, to the contrary.
 What is the “first to file rule”?

If 2 or more persons have made the invention separately and independently of each other,
the right to the patent shall belong to the person who filed an application for such invention.

Where two or more applications are filed for the same invention, to the applicant who has
the earliestfiling date or, the earliest priority date.

When does a patent take effect?

A patent shall take effect on the date of the publication of the grant of the patent in the IPO
(Intellectual Property Office) Gazette.

What is the legal life of a patent?

The term of a patent shall be 20 years from the filing date of the application.

What rights are given to a patent owner?

A patent shall confer on its owner the following exclusive rights:

 Where the subject matter of a patent is a product, to restrain, prohibit and prevent any
unauthorized person or entity from making, using, offering for sale, selling or importing that
product
 Where the subject matter of a patent is a process, to restrain, prevent or prohibit any
unauthorized person or entity from using the process, and from manufacturing, dealing in,
using, selling or offering for sale, or importing any product obtained directly or indirectly from
such process
 The right to assign, or transfer by succession the patent, and to conclude licensing
contracts for the same

What is a trademark or service mark?

A “mark” means any visible sign capable of distinguishing the goods or service of an
enterprise and shall include a stamped or marked container of goods.

What is the difference between a trademark and service mark?

Trademark refers to goods while service mark refers to service.

What is a trade name?

“Trade name” means the name or designation identifying or distinguishing an enterprise.

How are rights to a trademark or service mark acquired?

The rights in a mark shall be acquired through registration made validly in accordance with
the provisions of this law.

In what cases is the registration of a trademark or service mark not allowed?

A mark cannot be registered if it:

 Consists of immoral, deceptive or scandalous matter, or matter which may disparage or

falsely suggest a connection with persons, living or dead, institutions, beliefs, or national
symbols, or bring them into contempt or disrepute
 Consists of the flag or coat of arms or other insignia of the Philippines or any of its political
subdivisions, or of any foreign nation, or any simulation thereof
 Consists of a name, portrait or signature identifying a particular living individual except by
his written consent, or the name, signature, or portrait of a deceased President of the
Philippines, during the life of his widow, if any, except by written consent of the widow
 Is identical with a registered mark belonging to a different proprietor or a mark with an
earlier filing or priority date, in respect of
o The same goods or services, or
 o Closely related goods or services, or
o If it nearly resembles such a mark as to be likely to deceive or cause confusion
 Is identical with, or confusingly similar to, or constitutes a translation of a mark which is
considered by the competent authority of the Philippines to be well-known internationally
and in the Philippines, whether or not it is registered here, as being already the mark of a
person other than the applicant for registration, and used for identical or similar goods or
services
 Is identical with, or confusingly similar to, or constitutes a translation of a mark considered
well-known in accordance with the preceding paragraph, which is registered in the
Philippines with respect to goods or services which are not similar to those with respect to
which registration is applied for
 Is likely to mislead the public, particularly as to the nature, quality, characteristics or
geographical origin of the goods or services
 Consists exclusively of signs that are generic for the goods or services that they seek to
identify
 Consists exclusively of signs or of indications that have become customary or usual to
designate the goods or services in everyday language or in bona fide and established trade
practice
 Consists exclusively of signs or of indications that may serve in trade to designate the kind,
quality, quantity, intended purpose, value, geographical origin, time or production of the
goods or rendering of the services, or other characteristics of the goods or services
 Consists of shapes that may be necessitated by technical factors or by the nature of the
goods themselves or factors that affect their intrinsic value
 Consists of color alone, unless defined by a given form
 Is contrary to public order or morality

What is the legal life of a trademark or service mark?

A certificate of registration shall remain in force for 10 years.

What rights does the owner of a registered trademark or service mark have?

The owner of a registered mark shall have the exclusive right to prevent all third parties not
having the owner’s consent from using in the course of trade identical or similar signs or
containers for goods or services which are identical or similar to those in respect of which
the trademark is registered where such use would result in a likelihood of confusion.

In case of the use of an identical sign for identical goods or services, a likelihood of
confusion shall be presumed.

What are the rules on assignment and transfer of application and registration of
trademark and service mark?

The following rules are observed:

1. An application for registration of a mark, or its registration, may be assigned or transferred

with or without the transfer of the business using the mark.
2. The assignment of the application for registration of a mark, or of its registration, shall be in
writing and require the signatures of the contracting parties. Transfers by mergers or other
forms of succession may be made by any document supporting such transfer.
3. Assignments and transfers shall have no effect against third parties until they are recorded
at the Office.

What is the prohibition on the use of trade names?

A name or designation may not be used as a trade name if by its nature or the use to which
such name or designation may be put:

 it is contrary to public order or morals

 if, in particular, it is liable to deceive trade circles or the public as to the nature of the
enterprise identified by that name
 What is a copyright or economic right?

Copyright or economic rights shall consist of the exclusive right to carry out, authorize or
prevent the following acts:

 Reproduction of the work or substantial portion of the work

 Dramatization, translation, adaptation, abridgment, arrangement or other transformation of
the work
 The first public distribution of the original and each copy of the work by sale or other forms
of transfer of ownership
 Rental of the original or a copy of an audiovisual or cinematographic work, a work embodied
in a sound recording, a computer program, a compilation of data and other materials or a
musical work in graphic form, irrespective of the ownership of the original or the copy which
is the subject of the rental
 Public display of the original or a copy of the work
 Public performance of the work
 Other communication to the public of the work

Which works are not protected by copyright?

No protection shall extend, under this law, to:

 any idea, procedure, system, method or operation, concept, principle, discovery or mere
data as such, even if they are expressed, explained, illustrated or embodied in a work
 news of the day and other miscellaneous facts having the character of mere items of press
information
 any official text of a legislative, administrative or legal nature, as well as any official
translation thereof

Who owns the rights to a copyright if:

The work is literary and artistic?

In the case of original literary and artistic works, copyright shall belong to the author of the
work.

There is joint authorship?

In the case of works of joint authorship, the co-authors shall be the original owners of the
copyright and in the absence of agreement, their rights shall be governed by the rules
on co-ownership.

If, a work of joint authorship consists of parts that can be used separately and the author of
each part can be identified, the author of each part shall be the original owner of the
copyright in the part that he has created.

Pursuant to a commission?

In the case of a work commissioned by a person other than an employer of the author and
who pays for it and the work is made in pursuance of the commission, the person who so
commissioned the work shall have ownership of the work, but the copyright thereto shall
remain with the creator, unless there is a written stipulation to the contrary.

The work is an audiovisual like movies?

In the case of audiovisual work, the copyright shall belong to the producer, the author of the
scenario, the composer of the music, the film director, and the author of the work so
adapted.

The author is an employee?

In the case of work created by an author during and in the course of his employment, the
rules stated on patent above apply.
Who owns the rights to a letter sent to someone?

In respect of letters, the copyright shall belong to the writer subject to the provisions of
Article 723 of the Civil Code.

What does Article 723 of the Civil Code say on letters?

Letters and other private communications in writing are owned by the person to whom they
are addressed and delivered, but they cannot be published or disseminated without the
consent of the writer or his heirs.

However, the court may authorize their publication or dissemination if the public good or the
interest of justice so requires.

What is the legal duration of copyright?

Copyright protection for artistic, literary and derivative works lasts for the life of the author
plus 50 years after the author’s death.