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Regulatory Framework for Business Transactions Law on Obligation Definition of Obligation: Article 1156 of the Civil Code defines an obligation as a juridical necessity to give, to do or not to do. 2. Essential Elements or Requisites of an Obligationa. An active subject , who has the power to demand...

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Regulatory Framework for Business Transactions Law on Obligation

1. Definition of Obligation: Article 1156 of the Civil Code defines an obligation as a juridical necessity to give, to do or not to do. 2. Essential Elements or Requisites of an Obligation a. An active subject, who has the power to creditor. b. A passive subject, who is bound to debtor.

also known as the obligee or

, also known as the obligor or

c. Object or prestation, which is the promise or particular conduct to be performed in the performance of an obligation, and i. Requisites of an object or prestation of an Obligation are 1. It must be possible, physically and juridically. 2. It must be determinate, or, at least, determinable according to pre-established elements or criteria. 3. It must have possible equivalent in money. d. Efficient cause, the , also known as juridical tie or vinculum. i. Examples of juridical tie or vinculum 1. Relation established by law 2. Relation established by contract 3. Relation established by quasi-contract 4. Relation established quasi-delict or culpa aquiliania or tort 5. Relation established by crime or delict 3. Types of Obligation based on the definition a. Positive obligation refers to an obligation which consists of giving or doing something. b. Real obligation refers to an obligation which consists to the c. Personal obligation refers to an obligation which consists of d. Negative obligation refers to an obligation which consists of abstaining from some act. 4. Distinctions between Civil Obligation and Natural Obligation I. II.

Civil obligations derive their binding force from positive law or substantive law, while natural obligations derive their binding effect from equity and natural justice. Civil obligations can be enforced by court action or the coercive power of public authority, while the fulfilment of natural obligations cannot be compelled by court action but depends exclusively upon the good conscience of the debtor. However, voluntarily fulfilment of natural obligation by the debtor will preclude him from asking for reimbursement from the creditor of the amount he has voluntarily paid.

5. Sources of civil obligation demandable in a court of law a. Law refers to the principles and regulations established in a community by some authority and applicable to its people, whether in the form of legislation or of custom and policies recognized and enforced by judicial decision. i. Only obligations expressly determined in the Civil Code or in special laws are demandable. ii. The obligations derived from law are never presumed. iii. The law cannot exist as a source of obligations, unless the acts to which its principles may be applied exist. iv. The obligations and correlative rights arising from law shall be governed by the law by which they are created. b. Contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.

i. Obligations arising from contracts have the force of law between contracting parties. ii. Obligations arising from contracts should be complied with in good faith. Page 1 of 21

c. Quasi-contract is a juridical relation which arises from certain lawful, voluntary and unilateral acts, to the end that no one may be unjustly enriched or benefited at the expense of another. i. Two Types of Quasi-Contracts 1. Negotiorum Gestio refers to the voluntary management of the property or affairs of another without the knowledge or consent of the latter. i. Nature of Liability of Officious Managers in Negotiorum Gestio - The liability is generally solidary unless the officious management was done under imminent danger. 2. Solutio Indebiti refers to the juridical relation which is created when something is received when there is no right to demand it and it was unduly delivered through mistake. i. Nature of Liability of Payees in Solutio Indebiti - The liability is solidary. ii. Examples of Quasi-Contract 1. A person voluntary takes charge of the agency or management of business or property of another without authority or consent of the latter. 2. A person receives something when there is no right to demand it or it was unduly delivered through mistake. 3. A stranger gives support to a child of another person without the knowledge of the person obliged to give support. 4. A person saves the property of another person during fire, flood, storm or other calamity without the knowledge of the owner. d. Quasi-delict or culpa aquiliana or torts refers to a source of an obligation wherein a person by act or omission causes damage to another, there being fault or negligence. i. Nature of Liability joint tortfeasors - The liability is solidary. Requisites of Civil Action based on Tort or Quasi-Delict or Culpa-Aquiliana i. There is no pre-existing relation between the offender and offended parties. (Exceptional cases allow filing of civil action based on quasi-delict despite the presence of contractual relations if the act that violated the contract constitutes a tortuous act on itself.) ii. There exists a wrongful act or omission imputable o the defendant by reason of his fault or negligence. iii. There exists a damage or injury which must be proved by the person claiming recovery. iv. There must be a direct causal connection or a relation of cause and effect between the fault or negligence and the damage or injury, or that the fault or negligence be the cause of the damage or injury. e. Crime or delict refers to any act or omission which is punishable by law. i. Nature of Liability of Criminals - The liability is solidary. i. 1. 2. 3. 4.

An imbecile or insane person. A person under 18 of age. Any person who acts under the compulsion of an irresistible force. Any person who acts under the impulse of an uncontrollable fear of an equal or greater injury.

ii. 1. Any person who acts in self-defense. 2. Any person who acts in the performance of his duties or obligations. 3. Any person suffering from battered woman syndrome. iii. Components of Civil Liability arising from Crime 1. Restitution refers to restoration of the thing itself even though it be found in the possession of a third person who has acquired it by lawful means. 2. Reparation of the damage caused shall be determined by the Court taking into consideration of the price of the thing and its sentimental value. 3. Indemnification for consequential damages shall include not only those caused the injured party but also those suffered by his family or by a third person by reason of the crime. 6. Distinctions between quasi-delict and crime

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a. The right violated by a quasi-delict is a private right while the right violated by a crime is a public right. b. Every quasi-delict gives rise to liability for damages to the injured party but there are crimes from which no civil liability arises. c. Criminal liability can never be compromised except in criminal negligence but liability from quasi-delict can be compromised. d. In quasi-delict, criminal intent is not necessary, while in crime, criminal intent is necessary except in criminal negligence. e.

7. Kinds of Thing or Object a. A generic or indeterminate thing is only indicated by its kind, without being designated and distinguished from others of the same kind. (Note: Generic thing never perishes.) b. A determinate or specific thing is one that is individualized and can be identified or distinguished from others of its kind. i. Note: Loss as a mode of extinguishing an obligation is applicable only to obligation to deliver a determinate or specific thing but not to obligation to deliver a generic or indeterminate thing because generic thing never perishes. 8. Incidental or accessory obligations in an obligation to deliver a determinate thing a. Obligation to preserve the determinate thing with due care. i. Degree of diligence to be exercised by the obligor or debtor in the preservation of determinate thing 1. Diligence required by law a. Contract of common carrier – Extraordinary diligence b. Contract of bank deposits – Extraordinary diligence 2. Diligence stipulated in the contract a. The stipulation must be valid. 3. Ordinary diligence or diligence of a good father of a family or diligence of a reasonably prudent person. b. Obligation to deliver the fruits of the determinate thing if the fruits occur after the obligation to deliver the determinate thing arises. i. Kinds of fruits under the Civil Code 1. Natural fruits are the spontaneous products of the soil, and the young and other products of animals. 2. Industrial fruits are those produced by lands of any kind through cultivation or labor. 3. Civil fruits are fruits as a result of civilization or fruit arising out of a juridical relation or contracts such as are the rents of buildings, the price of leases of lands and other property and the amount of perpetual or life annuities or other similar income. c. Obligation to deliver the accessions and accessories of the determinate thing. i. Accessories refer to those which destined for the use or their preservation of another thing or more importance, have for their object the completion of the latter for which they are indispensable or convenient. ii. Accessions , or which is incorporated or attached thereto,

9. Types of Rights of Creditor over the thing and its fruits (Moment the right is obtained) Page 3 of 21

a.

is the power belonging to a person over a specific thing, without a passive subject individually determined, against whom such right may be personally exercised. It refers to a right that can be exercised against the whole world thereby allowing an action to recover the ownership or possession of a specific thing regardless of the possessor of such thing. Real right over a determinate thing is acquired from the moment of its actual or constructive delivery. b. is the power belonging to one person to demand of another, as a definite passive subject, the fulfillment of a prestation to give, to do or not to do. It refers to a right that can be exercised only against a specific person thereby prohibiting an action to recover the ownership or possession of a specific thing if already with a third person but only allows action for damages against a specific person. Personal right over a determinate thing is acquired from the moment provided by the Civil Code or Special Law.

10.

available to creditor when the debtor fails to comply with his obligation a. Action for specific performance with damages b. Action to rescind the obligation with damages c. Action for damages

11. Remedies of the creditor in the case the debtor fails to comply with his obligation to deliver a determinate or specific thing a. Action for specific performance in addition to damages under Article 1170 b. Action for damages if action for specific performance becomes legally impossible 12. Remedies of the creditor in the case the debtor fails to comply with his obligation to deliver an indeterminate or generic thing a. Action for specific performance with damages b. He may ask the obligation to be complied with by a third person at the expense of the debtor with damages. 13. Remedy of the creditor if the debtor fails to do the prestation in obligation to do a. in a proper manner at the expense of the debtor. 14. In an obligation to do whereby only the debtor can do the thing, remedy of the creditor if the debtor fails to do the prestation a. Action for indemnification for damages 15. In case a public official or officer of a private corporation refuses to perform his ministerial duty, remedy of the injured person a. Special civil action of mandamus 16. In an obligation to do, remedy of the creditor in case the debtor did it in contravention of the tenor of the obligation or did it poorly a. The creditor or third person may do it in a proper manner or it may be decreed that

17. In an obligation consisting in not doing, remedy of the creditor in case the debtor does what has been forbidden him a. It shall be undone at the expense of debtor with indemnification for damages. 18. Definition of Delay – Default – Mora 19. Requisites in order that the debtor may be in default or for debtor’s delay or mora to exist a. The obligation must be demandable and already liquidated. b. The debtor delays performance of the obligation. c. The creditor demands the performance either judicially or extrajudicially.

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However, the following are the cxceptional instances when demand by the creditor shall not be necessary in order that delay may exist a. When the obligation expressly so declares that demand is excused or waived. b. When the law expressly so declares that demand is excused or waived. c. 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 is to be rendered was a controlling motive for the establishment of the contract. d. When demand would be useless, as when the obligor has rendered it beyond his power to perform. 21. Moment of delay in reciprocal obligation a. 22. Types of Delay or Default (Mora) a. Mora solvendi – Debtor’s delay i. Effects of delay on the part of the debtor 1. The debtor becomes liable for damages for the delay. 2. When it has for its object a determinate thing, the delay places the risk of the thing on the debtor. b. Mora accipiendi – Creditor’s delay i. Effects of the delay on the part of the creditor 1. The creditor becomes liable for damages. 2. The debtor may relieve himself of the obligation by the consignation of the thing. 3. The creditor bears the risk of the loss of the thing. 4. The responsibility of the debtor for the thing is reduced and limited to fraud and gross negligence. 5. All expenses for the preservation of the thing after the mora shall be chargeable to the creditor. c. Compensatio morae – Delay of both parties i. Effect of compensatio morae 1.

a. Fraud – Dolo refers to the deliberate and intentional evasion of the normal fulfilment of obligations. b. Negligence - Fault – Culpa is the failure to observe for the protection of the interests of another person, that degree of care, precaution and vigilance which the circumstances justly demand, c. Delay – Default – Mora refers to the non-fulfilment of the obligation with respect to time. d. Contravention of the tenor of obligation refers to or every kind of defective performance. 24. Types of civil damages that may be awarded by Court (MENTAL) I. Mutually exclusive damages a. Liquidated damages are damages agreed upon by the parties to a contract, to be paid in case of breach thereof. It refers to the type of damages that is not assessed by the court but merely It refers to the penalty in an obligation with a penal clause. b. Actual damages or compensatory damages are those pecuniary losses suffered and duly proved by the plaintiff. (Legal interest of 6% per annum starting July 1, 2013 and 12% before July 1, 2013) c. Temperate damages or moderate damages are more than nominal but less than compensatory damages. They may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be provided with certainty d. Nominal damages are damages adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and

not for the purpose of indemnifying the plaintiff for any loss suffered by him. Page 5 of 21

II.

Additional damages to any of the mutually exclusive damages a. Moral damages are damages awarded by reason of physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury b. Exemplary damages or corrective damages are damages imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages.

25. Waiver of fraud a. Future Fraud (Waiver of an action for future fraud is void.) b. 26. Degree of Diligence to be observed by Contracting Parties in the Performance of Obligation a. Diligence Required by Law i. Contract of common carrier – Extraordinary diligence ii. Contract of bank deposits – Extraordinary diligence b. Diligence Stipulated by the Contracting parties i. The stipulation must be valid. Waiver of future fraud or future gross negligence is null and void. c. Ordinary diligence or diligence of a good father of a family or diligence of a reasonably prudent person

a. The receipt of the principal by the creditor, without reservation with respect to the interest, shall give rise to rebuttable presumption that said interest has been paid. b. The receipt of a later installment of a debt without reservation as to prior installments, shall raise rebuttable presumption that such prior installments have been paid. 28. In order to satisfy their claims against the debtor, the unpaid creditor has the following successive rights in order of priority after prevailing in the civil action for exact fulfillment a. To levy by attachment and execution upon all the property of the debtor including garnishment of bank deposits, except such as exempt by law from execution. b. To exercise all rights and actions of the debtor, except such as are inherently personal to him. (Accion subrogatoria) c. To ask for the rescission of the contracts made by the debtor in fraud of his rights. (Accion pauliana) d. To file an action for damages against the third person who acquired the property of debtor in bad faith.

a. Subject to the provisions of laws, they are transmissible unless there is stipulation to the contrary. 30. Types of Obligations as to Demandability a. Pure obligation refers to an obligation which contains no term or condition whatever upon which depends the fulfillment of the obligation contracted by the debtor. b. Conditional obligation refers to an obligation subject to a condition. c. Obligation with a period refers to an obligation subject to a space of time which is certain to happen. 31. Obligations demandable at once a. Pure obligation b. Obligation in c. Obligation with a

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32. Obligations not demandable at once a. Obligation ex die or obligation with a b. Obligation when the debtor's means permit him to do so c. Obligation with a 33. Distinctions between suspensive condition and resolutory condition a. If the suspensive condition happens, the obligation arises while if the resolutory condition happens, the rights and obligations already existing are extinguished. b. In suspensive condition, the rights and obligations do not exist before the happening of the condition while in resolutory condition, the rights and obligation already exist even before the happening of the condition. c. Obligation subject to a suspensive condition is not demandable at once while obligation subject to resolutory condition is demandable at once. d. Suspensive condition is known as condition precedent while resolutory condition is condition subsequent. 34. Types of conditions a. Potestative Condition is one which depends upon the will of one of the contracting parties. If the suspensive condition is potestative upon debtor, the obligation that depends upon it is void while if the suspensive condition is potestative upon creditor, the obligation that depends upon it is valid. b. Casual Condition is one which depends exclusively upon chance or other factors, and not upon will of the contracting parties. c. Mixed Condition is one which depends upon the will of the contracting parties and other circumstances, including the will of a third person. 35. Conditions that annul the obligation which depends upon them for their existence a. Impossible conditions b. Suspensive conditions which depend upon sole will of debtor c. Conditions contrary to good customs or public policy d. Conditions prohibited by law 36. Effect if the obligor voluntarily prevented the fulfillment of the condition of an obligation subject to a suspensive condition a. The suspensive con...