Regulatory Framework for Business Transactions (RF8T)_ ‘countaney 5 Floor MEFIBulaing 813 Cor R Papa and S Loyola Sts Sampaloc, Manila 8735.9807 1 734.3989 /(0910) 439-1320 resarenew@hotmal cor: ‘Atty. R. Rosales « Atty. J. Domingo Atty. N. Valderrama RFBT - 01: OBLIGATIONS Definition - an obligation is a juridical necessity to give, to do or not to do. (Art 1156 of the Civil Code of the Phitixpine: Requisites/elements of an obligation: 9. Active Subject (creditor or obligee) » the party who has the right te demand performance of the obligation b. Passive Subject (debtor a obligor) ~ she party who 1s obliged to perform ihe obligation; ©. Prestation - the object or subject matter of the obligation; it may consist of giving, doing or not doing something; d. Efficient Cause - The vincukin: juris or legal te which binds the parties to an obligation; the legal tie may be any of the five sources of obligation. Sources of Obligation: a. Law ~ a rule of conduct, just and obligatory, laid down by’ leaitimate authority for common observance and benefit (Sanchez Raman). b. Contracts ~ a contract is ¢ meeting ot the minds between two or more pers whereby one binds himself with :espec to the other, to give something or to render some service; obligations have the force of law between the parties and must be complied with in good faith c. Quasi-contracts ~ they reier to certain lawful, voluntary and unitateral acts giving rise to a juridical relation to the end thet no one shail be unyist'y enriched at the expense of another Contracts. + Nominate Qua: 1. Negotiorum Gestin - this refers to the voluntary administration of the property, business or affairs of another without his con ext oF authority. What is the obhaation created? - the obligation to reimburse the gestor/inofficious manager for necessary and useful ‘expenses 2. Solutio indebiti - this refers to the payment by mistake of an obligation, in excess of what should have been paid or payment to a person not due to receive it. . Delicts ~ acts or omissions punishable by law; this refer to crimes or felonies defined under the law to be punishable as such. yasi-delict (also known as tort or culpa aquiliana) ~ these are acts or omissions that cause damage to another there being fault or negligence but without any existing contractual relation between the parties; what is the obligation created? ‘The obligation to pay for damages. Nature and effect of Obligations: ‘a. Determinate thing and generic thing ~ when is a thing a determinate thing? When it is particularly designated and physically segregated from all other ‘objects of the same class (Art. 1460). b, What is the importance of knowing whether a thing is determinate or genene? 1. To know concurrent obligations of the debtor; 2. To know the rights and remedies of the creditor in case the debtor fails to comply; and 3. To know the consequences in case the thing is lost due to a fortuitous event. What are the obligations of a debtor obliged to give a determinate thing? 1, To take good care of the thing with the diligence of a good father of a Family untess the law or agreement of the parties requires another standard. of care, 2. To deliver the thing To deliver the fruits of the thing, © Kinds of Frui 1. Natural Fruits = they are the spontaneous products of the soi! and the young and other products of animals.i. Industrial Fruits — they reter to those produced hy land of any kind through cultivation or labor i, Civil Frints = they refer to fruits that are the ‘esult of a Juridical relation 4. To deliver its accessions and accessories even if they nave not been mentioned, 2. Accessions - they are everything that is incorporated or attached to a thing, either naturally or artificially b. Accessories ~ those joined to ot included with the prineipal thing for the latter's better use, perfection or enjoyment. Grounds for lability to pay damages/Sources, of Damages. Damages vis-a-vis injury - Damages refer to the harm done and the suin of money that may be recovered in reparation for the harm doue;Injury refers to the wrongful, unlawful or tortuous act which causes loss or harm to another. It is the legal wrong to be redressed. Kinds of damages 1. Actual/Compensatory Damages these refer.to the pecuniary loss that was actually incurred by the plaintiff It includes the actual value of the loss suffered and profits not realize: 2. Moral Damages - they include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, morat shock and social humiltation; 3. Nominal Damages Samages awarded to a party whose right has been violated: 4. Temperate or moderate Damages ~ they are more than nominal but less than actual damages; The court may award temperate damages if the court finds some pecuniary loss ha been suffered but its amount cannot from the nature of the case, be proved with certainty; 5, liquidated Damages - damages agreed upon by the parties to a contract, to be paid in case of breach: RFBT - 01 6. Exemplary or corrective Damages - ‘These are imposed by way of example or correction for public good, in addition to the moral, temperate, liquidated or compensatory damages. Fraud 1. Definition - Fraud is the deliberate or intentional evasion by the debtor of the normal compliance of his obligation (Art. 1170) Art. 1170 ~ refers to the fraud committed by the debtor at the time of the performance of the obligation. Art. 1338 ~ 1344 ~ refers to fraud employed in obtaining consent (Through insidious words or machinations of one of the contracting parties, the other is Induced to enter’ into contract, without which, he would not have agreed to.) 2. Kinds of Fraud ‘2. Fraud in obtaining consent i. Causal Fraud or Dolo Causante - fraud of a serious kind, without which, consent would not have been given: it renders the contract, voidable for it is a defect in one of the essential elements of a contract—CONSENT. ii, Incidental Fraud or Dolo Incidente - this refers to fraud without which consent would have still been given but the Person giving such consent would “have agreed on. different terms. Tt would not render the contract void but the party committing the fraud shall be able for damages. b. Fraud in the performance of the obligation ~ this is the deliberate act of evading fulfillment of an obligation in a normal manner The party committing fraud shall be liable for damages 3. Rules in waiver of Fraud @. Past Fraud or fraud committed in the past can be waived; such act 4s considered as liberality on the Part of the creditor; b. Future Froud or fraud still to be committed cannot be waived even if there is an agreement to Page 2 of 8that effect; such stipuration void for being contrary te publr policy, Negligenc 1. Definition — itis the ome ath diligence winch is required by tt nature of the oblig ind corresponds with the circuinstance of the person, of the time, and of the place; it is the failure ty observe the required degree of care, precaution and vigilance that the creunsiance justly demand. he aw Diligence to be observed ~ « ato the or contract. does sot diligence which 1s to be observed 1 the performance of the obligation the debtor must observe the diligence of a good father of a fateviy a8 required by the nature of the obligation and which correspond: with the circumstances of the perscn, of the time or of the place: 3._kinds of Negligence a. Culpa Contractual - negligence the performance of a contract; it supposes a preexisting, contractual relationship b the parties; negligence performance of the 6 arising from a contract results « damages. b. Culpa Aguiiana (ew egligence, or tort or quasi-celick for culpa extra contractual) ~ this fs quasi delict where the eghgence itsef isthe independent source of the obligation (the obligation te poy damages). Culpa Criminal (Crnminar Negligence) = this «5 neghgen c that results in the commission of a crime (Reckless ienprudence resulting to.) Delay or Default or Mora 1. Definition ~ the non-fulfiliment of ai obligation with respect to ine ur delay in the fulfilinent of on obligation, contrary to what was agreed upon 2. Kinds a. Mora Solvendi ~ delay on the part of the debtor; b. Morra Accipiendi - delay on ine part of the creditor; it ext» when RFBT - 01 the creditor unjustly refuses to accept the thing: & Compensatio Morae ~ Delay in obligations, both reciprocal ault; it 1s. as if parties are i de there 1s no delay. When is there delay? (In obligations to give or to do; there is NO delay in obligations NOT TO DO) As a rule, the debtor incurs delay from the time the creditor demands fulfillment of the obligation (either judicially or extra judicially) and the debtor fails to comply with such demand. Hence, no demand, no delay. Exceptions to the no demand, no delay rule: When the law or the obligation so provides; + When there is an express provision of the law or stipulation by the parties that there is no need for a demand for the performance of the obligation. b. When the time 1s of the essence of the contract; + When the designation of the ume for the performance of the obligation isthe controlling motive for the establishment of — the. obtigation. ©. When demand would be useless as when the obligor has rendered It beyond his power to perform. 4. In reciprocal obligations, from the moment one of the parties fulfills his obligation, delay by the other begins notwithstanding the absence of a demand. Effects of Delay a. On the part of the debtor: . The debtor shail be liable for the payment of damages; hf the obligation consists 1m the delivery of a determinate thing, he shall be liable even if the thing 15 lost du fortuttous event On the part of the creditor Page 3 of 81. HE shall bear the risk of loss and shall shoulder the expenses for the preservation of the thing; li, The debtor may resort 1o the consignation of the thing due = Contravention of ths tenor of the obligation » thus is an encompassing source of damages that covers all ‘other cases of total breach or non-compliance to certain stipulations in an obligation or the defective performance. of ah obligation. Fortuitous Events Concept - those events that could not be foreseen or which, though foreseen ace inevitable. It is not enough that the event should not been foreseen or anticipate: but it must be one impossible to foresee or avoid. Requisites of fortuitous event ts be accepted as a justification for te non performance of an obligation to deliver a determinate thing: 1. The cause must be independent of the debtor's will; 2. There must be impossibility of foreseeing the event or if it can be foreseen, it must be impossible to avoid; 3. The occurrence must be of such magnitude as to render it impossible for the debtor to perform his obligation; 4, The debtor must be free from participation in the non-performance, damage or loss of the property brought about by the fortuitous event. © GENERAL RULE: If the foregoing requisites are present ini a case, ten the debtor shall not be liable for nor: performance of the obligation duc to a fortuitous event; his obligation 15 extinguished. + Exceptions: + When the debtor is in delay When the debtor promised the same thing to two or “nore persons who do not have the same interest; When the parties stipulate or agree that the debtor «ill not 9c ‘exempted from liability even it a -01 non-performance ofthe obligation is due to a fortuitous event When the nature of the obligation requires the assumption of risk; When the thing to be delivered 1s generic. Presimptions on receipt of principal and installment payments (Art. 1176) ‘The receipt of the principal without reservation as to interest, shall give rise to the presumption that the interest has been paid; The receipt of a later installment without reservation as to prior installments, shall give nse to the presumption that prior installments have been paid. The foregoing are mere presumptions and the creditor may rebut such with clear and convincing evidence to the contrary, Different remedies of the creditor to enforce payment of his claims against the debtor (art. 1177) Specific performance: exact fulfillment of the obligation by specific or substitute performance with a right to damages in either case Rescission obligations) Damages (in any event) Subsidiary remedies of creditors: a. Accion —subrogatorta: tobe subrogated to all the rights and actions of the debtor save those which are inherent in his person b. Accion paultana: asking the court to rescind or to impugn all the acts which the debtor may done to defraud the creditors, ©. Accion directa: right of the lessor to go directly to sublessee for unpaid rents of the lessee; right of the laborers or persons who furnish materials for a piece of work undertaken by a contractor to go directly to the owner for any unpaid clams due to the contractor (resolution in reciprocat Relativity of Contracts: A contract can only bind the parties who had entered into st or thew successors who have assumed their Personality or their juridical position und that, as a consequence, such contract can neither favor nor prejudice a third person Exceptions: intransmissible rights and obligations, a. By their nature as when the special or personal qualification of the obligor Constitutes one of the principal motives for the establishment of the contract Page 4 of 8b._ By stipulation of the parties, a. whew thu contract expressty provides that the ‘obligor shall perform an act by hieisel! and not through another By provision of aw, as i the ca those arising from a contrac. of partnership or of agency Kinds of Obligations: @. Pure Obligation - is one without tera’ oF condition and 15 deniendabie immediately b. Conditional Obligation - an ublig:ticn where its demandability or creation Jepends on the fulfillment of a condition, + Classifications of Condition: 1. Suspensive — a condition where the happening of which sl! give rise to the abligation, also known a5 condition antecedent ar condition precedent 2. Resolutory ~ a condstion where the happening of -— which extinguishes the obligation, also known as condition subsequent. The obligation 1s deman:table immediately but shall be: extinguished upon the hapenin of the Resolutory condit-an. 3. Potestative - a condition thet depends upon the wil! of one of the contracting parties, 4. Casual - a condition that depends upon chance or upon the will of a third person. 5, Mixed ~ a condition that dene: partly upon the will of one ot *he parties and partly upon chance or Upon the will of a third person 6. Possible - one that is capable of fulfillment by nature or lave 7. Impossible - one that 15 sot capable of fulfliment in sts ature, or impossible an law; the effect would be to nullify both the condition and the obligation. 8. Positive - a condition that 19 supposed to happen or occur or something that niust be done. 9. Negative a constivon characterized by an eur not supposed to happen or something that must not be done RFBT - 01 10, Divisible ~ one that is capable of partial performance. 11 Indivisible - one that is not capable of partial performance based on the nature of the obligations or by law or by agreement of the parties. Effect of fulfillment of Suspensive condition (Art. 1187) As a tule, the effect of fulfilment of a ‘Suspensive condition retroacts to the day ‘of the constitution of the obligation. Rights of the parties before the fulfilment of a condition (Art. 1188) + Creditor - he may bring appropriate actions for the preservation of his right, such as registering his claim with the Registry of Deeds, if appropriate, to notify all third persons, or asking the debtor to provide 'a security if the debtor 1s about to become insolvent; + Debtor - he may recover what he has paid by mistake, + Fffect when the debtor voluntarily prevents the fulfillment of the condition ~ the condition is deemed fae if the debtor voluntarily wents its fulfillment; hence, the Gbligation becomes demandable at once. + Rules in case of loss, deterioration or Improvement of determinate thing before the fulfillment of a Suspensive condition (Art. 1189) Obligations with a period - An obtigation with a period is one whose demandability ‘or extinguishment depends on the arrival of a period that is certain to come + If a condition is a future and uncertain event, a period 1s @ future and CERTAIN event + Kinds of Period 1. Suspensive or Ex die - a period with a Suspensive effect or the obligation becomes demandable upon the arrival of the period. 2. Resolutery oF In diem 3 period with 9 Resolutory effect. Here {he obligation 1% demandabie upon perfection but ts extinquished pon the lapse of the period Page Sof B+ Instances when the court may th e period 1. If the obligaton does not fix 2 period but from its nature a circumstances, it ran bo .merred that a period was intendes 2. When the duration of the period depends upon the will of the deb Alternative Obiigations = s one where several prestations are due hu’ the complete perfarmance of one of thern is sufficient to extinguish the obtqation The right to choose peiongs to the DEBTOR, unless it has been expressly given to the creditor. (Art. 1199) Facultative Obligation - an obligation where only one prestation is cut but th debtor may render another substitute. The right of chaice holongs to the, debtor only; Mf the priacipal obligation is impossible or vow, the debtor is not required to perierm ine substitute obligation Joint and Solidary Obligations =A joint or solidary obligation is characterized by a concurrence of two or more debtors and/or two or ‘more creditors in one an the same obligation; + Joint Obligation - an obligation where each debtor. is table only for a proportionate portion of the debi and each creditor is entitled only to a proportionate part of the credit; febt shall be divided into as many debtors and creditors. + Other terms for joint ob: proportionately, prorat mancomunada or mancomurads simple; + Solidary Obligation - an obiigation where each 15 liable for the whole obligation and each creditor 15 entitled to demand payinent of the entire obligation. = Other terms = jowtly and severally, individually and collectively, in sohidurn, mancomunada —solidaria nc Juntos o separadamente. + Kinds of Solidary Obligation. . REBT - 01 1, Passive Solidarity - this 1s solidarity on the part of the debtors; 2. Active Solidarity - Solidarity fon the part of the creditors; and 3. Mixed Solidarity - on the part of both the debtors and creditors. g. Divisible and Indivisible Obligations + A divisible obligation is one that is capable of partial performance. The following are deemed divisible: When the obligation has for its object theexecution of a certain number of days of work such as an obligation to work for one month: When the obligation has for its object the accomplishment of ‘work by metrical units such as an obligation to construct a 20 meter-long and 2-meter wide wall; Analogous things which by their nature are susceptible partial performance. * An indivisibie obligation is one that is not capable of partial performance. The following obligations are deemed indivisible: Obligations to give definite things such as obligation to deliver a specific cat; Those not susceptible of partial performance such as. an obligation to sing in a wedding; Those where the object or service ‘S physically divisible but it 1s indivisible by provision of law such as the obligation to pay certain taxes. h. Obiigation with a penal clause ~ an obligation with a penal clause is one which provides for a greater tiabitty on the part of the debtor in case of non compliance; the accessory undertaking ‘on the part of the debtor 1s called a penal clause; the penal clause is generally undertaken to insure performance and works as either, or both, punishment and reparation; there is no need to present proof of actuat damages in order for the penalty to be demanded (Art. 1228) Page 6 of 8Extinguishment of Obtigations, ‘efuses or in cases when the creditor cannot accept it 2. Payment or Performance — payment Sequence of events in Tender of extinguishment of obugatiens rerer act : only to the delivery of money b, Payment and Consignation Performance of an obligation .9 any ‘manner. a. There must be 2 valid tender of payment - must possess all the b. Datton in Payment elements of 2 valid payment; +A special form of payment wnave thee b. The creditor unjustly refuses to ownership of property is trars receive payment; to his creditor to pay 3 debt in money. In effect, Dation in Pavment c. The debtor shalt notify the 1s an objective novation and 2 sate of creditor or any person interested the debtor's pronerty with the aeDt os in the fulfillment of the obligation is umps tant of his (the debtor's) intention to the purchase price. st is, that both debtor and creditor consent deposit the sum or thing due with the judicial authorities; to such arrangement 4d. ‘The sum or thing due is deposited Application of Payment in court/Judicial authorities; + His the designation of "he ven! which payment shall be anplic’ when the debtor owes several debts favor of the same credito e, The debtor shall AGAIN notify the persons interested in’ the fulfillment of the obligation that consignation has been made. + Requisites of application of payment f Loss of the thing due - A thing is considered lost when it penshes or goes ‘ut of commerce or disappears in such 2 way that its existence is unknown or it cannot be recovered; t be two or more aebts; must be of the sam* a. There my a. The debt kind c. The debts are owe debtor to the same crea d. All debts are due, except by the same Condonation or remission - It 1s known 25 the gratuitous abandonment by the Ccrediter of his right to go after the debtor 1. When the parties have stipulatea that payment may for the fulfiliment of the latter's be applied to a debi not yet obligation to the former. due or; i. When the appheation is mage 1 Kinds of Condonation by the party for show ber the term has bee 2. As to amount or extent: constituted. 4. Total When the entire 4. Payment by Cession — 1S obligation is remitted; Partial - When only a part of the abandonment or assignment by the 0 debtor of all his property 1n favor of his obligation or on obligation 1s remitted ‘accessory creditors so that the latter may sel! them ‘and recover their clans out uf the proceeds. b. As to form: rates 1. Express Expressly made by oniy to authorize the crediturs !9 59 the creditor either orally or in the debtor's properly, hence writing although the required ownership 1s nol transferred to them formalities for donation must be observed: + The cession or assignment 91 fe. Tender of Payment and Consranation 1 When the —condonation volves the immovable/ra! property, the condonation and the acceptance must ": ina pubic instrument * Acceptance can be made nthe dead of danation + Tender of payment 1s the sc! of in debtor offering to his creditor tw performance of an tuys Consignation ss the act of u the sum or the thing due whenever the credit: RFBT - 01 Page 7 of 8tseif or ina separate public document 2. When the — condonatian involves. movable/ pe property nal a. if the value ot the property EXCEEDS 5,000, the condonaticn and the accept be in writing (pubbe or private) b. If the value of the property 1s P5.000 or less, the condonstion and the acceptance may be in any form If the condonation is snade orally, it requir. the mutaneous drtivery of the aocurrent representing the debt and the acceptanc: 4, Implied ~ one where it can be inferred from the conduct of th: parties, h. Confusion or Merger - Confusion or merger is the meeting in one person of the characters of the creditor ard dette: (Art, 1275) 1. Compensation - Compensation shall take place when two persons, in thelr own Fight are creditors and debtors of each other. 1. Kinds of Compensation a. Asto extent 1. Total ~ debts are of the same amount, li, Partial ~ debts are of different amounts; b. As to cause or origin 1. Legal compensation by operation of law; i, Voluntary or convenuionat when the parties agree {> compensation wher, devts are not yet due. i, Judicial ~ this compensation ordered by the court hike when one party has a claim for damages over another. iv. Facultative this 5 compensation that may be claimed by only one of the parties. 2. Compensation in Soldary Cbiiyaions it would result to the sobdary RFBT - 01 creditor, who exercised compensation, a liability to give to the other solidary creditors their respective shares, Novation - Novation is the modification or extinguishment of an obligation by another, either by changing the object of the obligation or by substituting the person of the debtor or subrogating a hird person in the rights of the creditor. Novation has two functions - one is to extinguish an existing obligation, the other is to substitute a new one in its place. Page B of B