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REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONSREVIEWER——————————————————————————————OBLIGATIONS AND CONTRACTS____________________________________________________OBLIGATIONS(Title I, Book IV, R. # 386 - Civil Code of the Philippines)ARTICLE 1156: An obligation is a juridical necessity to give, to do,...

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REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS REVIEWER —————————————————————————————— OBLIGATIONS AND CONTRACTS ____________________________________________________ OBLIGATIONS (Title I, Book IV, R.A. # 386 - Civil Code of the Philippines)! ARTICLE 1156: An obligation is a juridical necessity to give, to do, or not to do. (n) (civil code definition of obligation) • “obligatio” (latin) - tying/binding! ! " " " " " " "

REAL OBLIGATION" " -" obligation to give and deliver the subject matter to the obligee! PERSONAL OBLIGATION" -" obligation to do or not to do ! " > Positive Personal Obligation: " obligation to do or to render service! " > Negative Personal Obligation: " obligation not to do (also includes not to give) REQUISITES:" ! 1. PASSIVE SUBJECT " 2. ACTIVE SUBJECT" " 3. OBJECT / PRESTATION" 4. JURIDICAL / LEGAL TIE"

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debtor / obligor (with a correlative legal obligation)! creditor / obligee (with a legal right in favor of that person)! subject matter of the obligation (conduct required)! efficient cause; binds the parties of the obligation

ARTICLE 1157: Obligations arise from: (1) Law; (2) Contracts; (3) Quasi-contracts; (4) Acts or omissions punished by law; and (5) Quasi-delicts. (1089 a) • Law • Contracts Quasi-contracts • " • Crimes,etc. • Quasi-delicts/torts -

imposed by law itself (taxes, support one’s family, etc.)! arises from the stipulation of the parties! (quasi = “murag”) arises from voluntary/unilateral acts (still enforceable); ! no one shall be unjustly enriched or benefited at the expense of another.! civil liability; consequence of a criminal offense! damages because of negligence/fault without contractual relations.!

ARTICLE 1158: Obligations derived from law are not presumed. Only those expressly determined in this Code or in special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book. (1090) " " ! ! ! !

> Legal Obligations (those arising from law)" -" not presumed! " " " " " " " -" must be clearly set forth in the law! ! ***e.g.:!private schools have no legal obligation to provide clothing allowance ! ! employers have no obligation to furnish free legal assistance to the employees ! ! BUT a person who wins money in gambling has the duty to return his winnings to the loser ! ! ! because it is provided by law (art. 2014)???

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ARTICLE 1159: Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. > Contractual Obligations (contracts / voluntary agreements)" - should be valid and enforceable. - meeting of the minds between two persons with the law as a binding force same with laws! " " " - requires compliance in good faith (to perform obligations accdg. to stipulations/terms)! valid contract: not contrary to law, morals, good customs, public order, and public policy (otherwise, void)

ARTICLE 1160: Obligations derived from quasi-contracts shall be subject to the provisions of

Chapter 1, Title XVII of this Book. (n)

• Quasi-Contract - juridical relation resulting from lawful, voluntary, and unilateral acts by virtue of! " which the parties become bound to each other to the end that NO PARTIES WILL BE UNJUSTLY ENRICHED/BENEFITED AT THE EXPENSE OF ANOTHER!

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KINDS:! " ! " 1. NEGOTIORUM GESTIO" " " " " " " " " " " ! ! ! ! ! ! 2. SOLUTIO INDEBITI"" " " " " " " " " " "

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juridical relation ; created when something is received " when there is no right to receive it and it was unduly " delivered through mistake.!

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3. OTHER CASES" " " " " " "

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infinite variety ; when for some reasons recovery cannot " " be had on a true contract, recovery may be allowed on the basis of a quasi-contract. (implied contracts)!

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voluntary management of the property or affairs of another without the knowledge or consent of the latter.! (you benefited from the act, so you should reimburse) " "

ARTICLE 1161: Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the provisions of Art. 2177, and of the pertinent provisions of Chapter 2, Preliminary Title, on Human Regulations, and Title XVIII of this Book, regulating damages. (1092a) " " "

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CIVIL LIABILITY!!! for damages (because of crimes/delicts) aside from criminal liability! " (criminal liability doesn’t always equal to civil liability — it doesn’t always follow)! " (but, someone can be civilly liable even without criminal offenses)!

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SCOPE:" ! ! ! !

(1) Restitution (return the thing back) (2) Reparation (compensation) (3) Indemnification (for damages suffered by another person)!

ARTICLE 1162: Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book, and by special laws. (1093a) !

>> fault / negligence without pre-existing contractual relations, but causing damage to another in his ! ! ! person, property, or rights = PAY FOR THE DAMAGE DONE BECAUSE OF NEGLIGENCE!!!

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REQUISITES:" (1) act / omission" " " " (2) fault / negligence" " " " (3) damage was caused"

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(4) direct relation/connection of cause and ! " effect between (1) and (3)! (5) no pre-existing contractual relations

* * * DIFFERENCE BETWEEN CRIME AND QUASI DELICT * * * CRIME

QUASI - DELICT

criminal / malicious intent

negligence

purpose is punishment

indemnify the offended party

public interest

private interest

criminal and/or civil liability

civil liability only

cannot be compromised

can be compromised

accused must be proven guilty beyond reasonable doubt

fault/negligence only needs greater weight of evidence

NATURE AND EFFECT OF OBLIGATIONS

ARTICLE 1163: Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care.

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1. SPECIFIC / DETERMINATE THING " " " " " " " " " ! ! ! ! ! !

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particularly designated or segregared from others of ! the same class! >>cannot be substituted even if it’s the same kind ! ! ! without the consent of the creditor (obligee)

2. GENERIC / INDETERMINATE THING " " " " " " ! ! !

" " !

refers only to a class or genus wherein it cannot be! pointed out with particularity.! >>identified by its specie >>can be replaced with anything of the same class and same kind!

“DELIVER ONE OF HIS (CARS//) —> object is determinable without the need of a new contract of the parties ; object becomes determinate upon delivery

- what to do with a determinate thing?! " " "

" "

>> preserve with a diligence of a good father of a family! —> what a normal/average person does under normal circumstances (without bias!!) unless the " " law (or the stipulation of the parties) gives a different standard of care to be observed " " " " and such extraordinary care shall prevail. —> such diligence will depend upon the circumstances (person/place/time) —> GENERAL RULE: no liability if failure to preserve the thing is due to fortuitous events??? —> to ensure that the thing to be delivered will be in the same condition when the obligation " " " " was contracted >> deliver: fruits, accessions, accessories, the thing itself, and answer for: damages!

- what to do with a generic thing?! " !

>> deliver a thing of the quality intended by the parties (take note: purpose of the obligation) >> be liable for damages: fraud, negligence, delay contravention of tenor, in the performance!

ARTICLE 1164: The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him. NATURAL FRUITS

INDUSTRIAL FRUITS

spontaneous products of the soil, and the young, and other products of animals. (grass, tress and plants on lands without human intervention)

CIVIL FRUITS

produced by lands of any kinds those derived by virtue of a juridical through cultivation/labor. (intervention relation (rent, annuities, price of leases of man & labor; vegetables, rice, of lands, other similar income) products of land through human labor)

*** the creditor is entitled to the fruits of the thing to be delivered from the time the obligation to deliver it ARISES. —> to protect the cr. in cases of delay/non-fulfilment. GENERAL RULE:"

such obligation* arises from the perfection (birth) of the contract (meeting of minds)!

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!! exemptions:"" ! ! !

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1. In cases where the obligation is subject to a suspensive condition ! ! - arises upon arrival/fulfilment of term 2. In contracts of sale, upon perfection of contract (regardless of conditions) ! - all fruits shall pertain to vendee from the day the contract’s perfected ! - vendor can have a right to the fruit if it was born or existed before the ! ! ! ! obligation to deliver the thing arises and unpaid purchase price. 3. In obligations to give, quasi-contracts, (quasi)-delicts ! - performance dependent on specific provisions of the law

PERSONAL RIGHT right/power of a person (creditor) to demand from another (debtor), as a definite passive subject, the fulfilment of the debtor’s obligation to give, to do, or not to do.

REAL RIGHT the right or interest of a person over a specific thing, without a definite passive subject against whom the right may be personally enforced

PERSONAL RIGHT

REAL RIGHT

there’s a definite ACTIVE and PASSIVE subjects

there’s ONLY a definite active subject (no definite passive subject)

binding or enforceable against a particular person

directed against the whole world

** DELIVERY >> real rights are transmitted because of traditio / delivery >> mere agreement on terms does not effect transfer of ownership of the thing sold without delivery " " " " (actual / constructive)! " >> “he shall acquire no real right over it until the same has been delivered to him” >> no delivery = proper court action —> remedy: specific performance or rescission!

ARTICLE 1165: When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by Article 1770, may compel the debtor to make the delivery. If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor. If the obligor delays, or has promised to deliver the same to two or more persons who do not have the same interest, he shall be responsible for fortuitous events until he has effected the delivery. REMEDIES OF CREDITORS (in real obligations - to give)

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1. Specific Real Obligation (obligation to give or deliver a determinate thing) (alternative, not cumul.) >> to demand specific performance (excluding force/violence) —> go to proper courts! " >> demand rescission or cancellation, in certain cases (+ damages)! ! ! ! — return to each other what they’ve received " >> demand payment for damages only (when it is only the feasible remedy)! **the very thing itself must be delivered **only the debtor can comply with the obligation because creditor can compel the delivery

" ! ! "

2. Generic Real Obligation (obligation to deliver a generic thing) (Art. 1246)! **can be performed by a 3rd person (object is only expressed through a genus), then recover **not necessary for the creditor to compel the debtor to make the delivery, but can ask for perform..! ! >> in either case, the creditor has the right to recover damages under Art. 1170 (in cases or " " " " breach or violation of the obligation)

DEBTOR DELAYS or PROMISED DELIVERY TO SEPARATE CREDITORS ! —> debtor is still responsible even if the thing is lost through fortuitous events!!!

ARTICLE 1166: The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned. ACCESSIONS

ACCESSORIES

fruits of a thing or additions/improvements upon a thing (principal) e.g. house/trees on land, rents of bldg., aircon in a car, etc.

things joined to or included with the principal thing for the thing’s embellishment, better use, or completion e.g. key of a house, frame of a picture, bracelet of a watch, machinery in factory, bow of a violin, etc.

not necessary; but can exist only in relation to the principal;

must go together with the principal; also exist only in relation to the principal

GENERAL RULE: ALL accessions and accessories are considered included in the obligation to deliver a determinate thing although they may not have been mentioned. STIPULATE TO EXCLUDE! ! ! " ::> obligation to DELIVER THE ACCESSIONS/ACCESSORIES does not include the principal thing it is related with (does not convey title over the principal thing, only the accessions/accessories + its related fruits.

ARTICLE 1167: If a person obliged to do something fails to do it, the same shall be executed at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone. Cases:""

1. Failure of debtor to perform obligation TO DO (positive personal obligation) 2. Performance is contrary to the terms.! 3. Performance was in a poor manner.!

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Positive Personal Obligation (Creditor Remedies):! " a. have the obligation performed by himself/another (unless personal considerations are ! ! ! ! involved) and such must be at the debtor’s expense. —> a specific performance cannot be ordered in a positive personal obligation " " " " " " (tantamount to involuntary servitude - against the const.)! " " —> hence, in no case can the debtor with the personal obligation to do be compelled " " " " " against his will to comply with his obligation should he refuse to do so. b. recover from damages (art. 1170)! " " —> if the obligation involves personal qualifications of the debtor, such is considered " " " " " the determining motive for the obligation, thus cannot be performed by another " " " since it would result to being different, thus obligation cannot be performed! " " —> only feasible remedy is indemnification for damages! c. if performance is case 2 & 3, the court may order that it be undone, if possible (complaint) " ! ! —> debtor may be asked to redo or undo what has been performed, OR! " " " creditor may ask a 3rd person to redo or undo, but at the expense of the debtor

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ARTICLE 1168: When the obligation consists in not doing, and the obligor does what has been forbidden him, it shall also be undone at his expense. "

Remedies of Creditor:""

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>> UNDO + DAMAGES! - if undoing is not possible, then remedy is damages only - expenses borned by the debtor who violated the obligation

ARTICLE 1169: Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfilment of their obligation. However, demand by the creditor shall not be necessary in order that delay may exist: 1) When the obligation or the law expressly declares 2) When from the nature and the circumstances of the obligation, it appears that the designation of the time when the thing is to be delivered or the service to be rendered was a controlling motive for the establishment of the contract 3) When demand would be useless, as when the obligor has rendered it beyond his power to perform In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. DELAY - ordinary: mere failure to perform on time" ; legal (default/mora): ordinary but breach of obligation! " ! !

mora solvendi - delay on the part of the debtor (to give/to do) (no delay in oblig. not to do) mora accipiendi - delay on the part of the creditor (in accepting the performance of the obligation) compensatio morae - delay of obligors in a reciprocal obligation (net result: no actionable default)

REQUISITES OF DELAY BY THE DEBTOR 1. failure of performance on agreed date (presumption: oblig. is DUE AND DEMANDABLE)! " 2. demand (not mere reminder or notice) —> judicial (court complaint) OR extrajud. (oral/writing)! ! 3. failure to comply with the demand (creditor has burden of proof to show that demand was made) !

***payment of damages will start when the judicial/extrajud. demand was made.

EFFECTS OF DELAY:

MORA SOLVENDI

MORA ACCIPIENDI

1. debtor is guilty or breach/violation! 2. liable for interest (if monetary) or damages (for other oblig) from the date of demand! 3. liable for delays even if because of a fortuitous event (may be reduced if justfiable)! 3a. if it is a generic thing, obligation is not extinguished.

1. creditor is guilty of breach of obligation! 2. liable for damages to debtor! 3. bears the risk of loss! 4. debtor will have no liability for interest ! 5. consignation/deposit in court of the thing or sum due may be done by the debtor to release him from the oblitation.

COMPENSATIO MORAE the delay of the obligor cancels the delay of the obligee and vice versa; hence NO DELAY.! **if the delay of 1 is followed by the other, the liability of the first infractor shall be equitably tempered or balanced by the courts.

2ND PARAGRAPH OF ARTICLE: DEMAND NOT NECESSARY IN DELAY (exemption to general rule of “no demand, no delay”)! " ! " 1. obligation so provides; stipulation of the parties; must be expressly stated! " 2. provided by law! " 3. time is of the essence; debtor is aware that performance of the obligation after the designated time "" " " would no longer benefit the creditor; if time of performance is not fixed (or is stated in general " " " " terms), then performance is expected within a reasonable time (question of fact)! " 4. when demand would be useless —> impossibility in performing the obligation! " 5. performance by a party in reciprocal obligations! " " - neither party incurs in delay if the other does not comply or is not ready to comply in a proper " " " manner with what is incumbent upon him! " " - from the moment a party fulfills his obligation, delay by the other begins, subject to conditions " " " or stipulations made by the parties regarding the dates of performance!

ARTICLE 1170: Those who in the performance of their obligations are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable for damages.! 1. FRAUD / DECEIT / DOLO - deliberate intentional evasion of normal obligation performance! " ! " >> incidental fraud - fraud committed in the performance of an obligation already existing because " " " " " " of a contract (art. 1170) (remedy: claim damages)! " ! " >> causal fraud - fraud employed in the execution of a contracc...