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RFBT: Law on Obligation - Study Notes, Exercises of Business Finance

Law on Obligation and Contract Reviewer

Typology: Exercises

2019/2020

Available from 11/07/2022

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RFBT: Law on Obligation
OBLIGATION
juridical necessity
to give
REAL OBLIGATION
to do
POSITIVE PERSONAL OBLIGATION
CIVIL
legally enforceable
not to do
NEGATIVE PERSONAL OBLIGATION
remedy court
vs.
NATURAL
&
MORAL
not enforceable (conscience)
court
Prescription:
Oral 6 years
Writing 10 years
*In natural obligation, the third person can recover if he is not aware.
”You are excuse for not knowing the facts.”
ACTS
RESULTS
Lawful
Lawful
Unlawful
Benefit
Damages
Damages
Real Obligation transferable right
DAMAGE injury
DAMAGES compensation
Bilateral ee & or Contract of Lease
CIVIL OBLIGATION
ELEMENTS
(S.P.E.)
SOURCES
Subject
Prestation
Efficient Cause
Law
Contract
Quasi-contract
Quasi-delict
Delict
Active creditor obligee (COA) BENEFIT
Passive debtor obligor (OPD) BURDEN
Object (to give, to do, not to do)
Subject Matter
Vinculum
Legal/Juridical Tie
Not presumed
There should be a law
Meeting of minds Offer express
Acceptance implied
No meeting of minds Negotiorum Gestio Gestor Officious Manager
Solutio Indebiti
Other Quasi-contract
Culpa acquiliana/Torts
Crimes, acts, omissions punishable by law
lawful/unilateral
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pfe
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RFBT: Law on Obligation

OBLIGATION juridical necessity to give REAL OBLIGATION to do POSITIVE PERSONAL OBLIGATION CIVIL legally enforceable not to do NEGATIVE PERSONAL OBLIGATION remedy  court  vs.

NATURAL & MORAL

not enforceable ( conscience )

court  Prescription:  Oral – 6 years  Writing – 10 years

*In natural obligation, the third person can recover if he is not aware.

”You are excuse for not knowing the facts.”

ACTS RESULTS

Quasi-contract vs. Quasi-delict vs. Delict

Lawful

Lawful

Unlawful

Benefit

Damages

Damages

Real Obligation  transferable right

DAMAGE – injury DAMAGES – compensation

Bilateral  ee & or  Contract of Lease

CIVIL OBLIGATION

ELEMENTS

(S.P.E.)

SOURCES

Subject

Prestation

Efficient Cause

Law

Contract

Quasi-contract

Quasi-delict

Delict

Active  creditor  obligee  (COA)  BENEFIT Passive  debtor  obligor  (OPD)  BURDEN Object (to give, to do, not to do) Subject Matter Vinculum Legal/Juridical Tie

Not presumed There should be a law Meeting of minds  Offer express Acceptance implied No meeting of minds Negotiorum Gestio  Gestor  Officious Manager Solutio Indebiti Other Quasi-contract Culpa acquiliana/Torts

Crimes, acts, omissions  punishable by law lawful/unilateral

DELICT  crime  PP vs. Accused A if Convicted

Acquitted

Criminal Liability = imprisonment Civil Liability = damages

Criminal Liability =  guilt  without reasonable doubt =  Civil Liability guilt  with reasonable doubt =  POSITIVE To give REAL  delivery  object certain

  1. Determinate = Specific (particularly designated/physically segregated)
  2. Indeterminate = Generic (cannot be pointed out with particularity)

B only cow = DETERMINATE A to give C a horse = INDETERMINATE D four legged animals =   INDETERMINABLE

2 RIGHTS

 REAL – enforceable against the whole world  PERSONAL – enforceable against another person

B demands delivery  “All owners can possess, but possessors are not all owners.” Deliver = obligation  extinguished  A Court  A to deliver  specific performance Fails  B or & To require another to deliver =  pay  damages  = delay

C demands delivery Deliver obligation  extinguish  Superior

A neither Inferior = obligation  extinguish 

Fails  C court to require A to deliver  specific performance or & to require another to deliver  pay  damages  = delay

Positive To do Personal Law Source Contract

LAW

A  Reg. of Deeds record title Obli. to transfer land

S sells land to B Title – Name – S B demands transfer of title

Transfer  Title  Name  B  Obligation = Extinguished  A Fails  B  Court  To require A to transfer  Title Specific performance ( mandamus )

SPECIFIC CIRCUMSTANCES AFFECTING OBLIGATIONS IN GENERAL

1. FORTUITOUS EVENT

 cannot be foreseen  foreseeable are inevitable

ESSENTIAL

CHARACTERISTICS

Cause is dependent of the will of the debtor Unforeseeable or unavoidable Impossible for the debtor to fulfill the obligation in normal manner The debtor must be free from any participation in aggravation to the creditor

GENERAL RULE: No person shall be liable for fortuitous events. ( ObligationExtinguished )

EXCEPTIONS: When

Expressly declared by the law Expressly declared by stipulation The nature of the obligation requires the assumption of risk The debtor has incurred delay/guilty of fraud/negligence/breach of contract The debtor promised to deliver the same thing to two or more persons who do not have the same interest The thing to deliver is indeterminate/generic The obligation to deliver a specific thing arises from crime The bailee in commodatum allows third person to use the thing borrowed

  1. FRAUD (or Dolo )  deliberate or intentional evasion  must be present during the performance of the obligation  not fraud at the time of the birth of the obligation  Liable : direct & foreseeable

KINDS OF FRAUD

Dolo Causante

Dolo Incidente

Causal Fraud Vitiating consent / obtaining consent Consent would not have been given The contract is voidable Committed at the time of performance or after the contract is already perfected

Incidental Fraud Giving rise to the right to demand damages Consent would have still been given The contract is valid Committed at the time of performance or after the contract is already perfected

Future Fraud

Past Fraud

Cannot be renounced Waiver  cannot be made  void the debtor is liable for damages

Can be renounced Waiver  may be made  valid  act of liberality of creditor

  1. NEGLIGENCE (or Culpa )  Omission of that diligence  Master-Servant Rule: The negligence of the servant is the negligence of the master.  Test: Diligence of a good father of a family  Liable: Direct consequence

CULPA CONTRACTUAL

( Contractual Negligence )

Source: Contract Example: Breach of Contract of Carriage (Even with the supervision, the employer may mitigate the liability) Performance of contract The master-servant rule applies

KINDS OF

NEGLIGENCE (or Culpa )

CULPA AQUILIANA

( Civil Negligence )

Source: Quasi-delict Example: Reckless driving of the driver (With the supervision, the employer may escape the liability) Independence of contract & without criminal intent The master-servant rule does not apply Culpa extra-contractual

CULPA CRIMINAL

( Criminal Negligence )

Source: Delict Example: Physical injuries through reckless imprudence (The employee‟s guilt is automatically the employer‟s guilt if the former is insolvent) Commission of a crime

EXAMPLE:

A – Driver B – Passenger C – Pedestrian Y - Operator

Contractual

Criminal

A 

Y 

A 

Y 

Aquiliana

A 

Y 

Responsibility

F

N

Demandable? 

*COMMON CARRIER  presumed to be negligence

ACCION PAULIANA  the right to rescind or impugn fraudulent act  the rights to set aside, revoke, or cancel the acts, which the debtor may have done to defraud him.

ACCION SUBROGATORIA  the right to be subrogated  the creditor may exercise in the place of his debtor in order to preserve or recover the property lost or transferred so that he can satisfy his own credit

TRANSMISSIBILITY OF RIGHTS

GENERAL RULE : All rights acquired by virtue of an obligation are transmissible.

EXCEPTIONS

(to the General Rule)

(1) When the law prohibits the transfer of rights (2) When the stipulation of the parties prohibits the transfer of rights (3) When the nature of the obligation does not permit transmission of rights

Note: It is the right of a person that is transmissible not the obligation. The creditor may assign a third person or such right is transmitted to the heirs upon death.

KINDS OF OBLIGATION

1. DEMANDABLE AT ONCE

PURE/SIMPLE ^ Not subject to any condition  No specific date

With Resolutory Condition Resolutory Period^ You may demand the delivery of the thing now but you must return it when the condition happened.

Will it happen?

Yes = Period

Maybe = Condition

CHARACTERISTICS/REQUISITES

OF CONDITION

(1) Future and uncertain (2) Past but unknown (3) Must not be impossible

2. CONDITION Suspensive Resolutory

FULFILLMENT

CONDITION – not

Contrary

Impossible

Law Moral Good Custom Public Order Public Practice

Before ― 

Upon  Ext.

PRINCIPAL KINDS OF CONDITION

SUSPENSIVE

RESOLUTORY

 Condition precedent/antecedent  Will give rise to an obligation  No fulfillment, no obligation  CONDITION  OBLIGATION

 Condition subsequent  Will extinguish an obligation  OBLIGATION  CONDITION

DEBTOR

CREDITOR

POTESTATIVE

 Suspensive = VOID  Resolutory = VALID

 Suspensive = VALID  Resolutory = VALID

A  ₱8M  B

If B will

Kill C =  Sex A =  Slap faces of parents =  Pose nude =  ; beside Rizal Monument =  Draw rectangle with 4 sides =  Draw circle with 4 sides = 

OTHER KINDS OF CONDITION

POSSIBLE

IMPOSSIBLE

POSITIVE

NEGATIVE

POTESTATIVE

CASUAL

MIXED

Capable of fulfillment, legally or physically Not capable of fulfillment, legally or physically = VOID An act is supposed to be performed = TO DO

An act is supposed to be omitted = NOT TO DO Will of one of the contracting parties Chance or will of a third person

Partly upon chance and will of a third person

FULFILLMENT CONDITION

POTESTATIVE

DEBTOR

CREDITOR

Suspensive Resolutory Suspensive Resolutory

 (void)  (valid)  (valid)  (valid)

CASUAL

Chance Will  third persons

MIXED

(1) WILL

One person Third person

Will  one person Chance

DISTINGUISHMENT CONDITION PERIOD

  1. As to FULFILLMENT
  2. As to TIME
  3. As to INFLUENCE on the obligation

May or may not happen

May refer to the future or to a past event Causes to arise or to cease

Must necessarily come

Always refers to the future Merely fixes the time for the efficaciousness of an obligation

A ―― ₱100,000 ―― B

BENEFIT  both

Debtor Creditor “when my means permit” = period

KINDS

Suspensive ― ex die Resolutory ― in diem

no means Court To require A to pay  To fix  period September 30 Change the period

Court  Parties 

A ―― 8M ―― B , if B will marry C (^) THE DEBTOR DEPRIVED THE BENEFIT OF PERIOD

  1. I  debtor ― insolvent , except for guaranty
  2. G  debtor fails to give or furnish ― guaranty
  3. I  debtor ― impaired the guaranty (fault DR)
  4. V  debtor ― violates any undertaking
  5. A  debtor attempts to abscond

2017 COP Obli. A ―― Ext.? July September October

B ― vow ― Priest B ― marries Y C dies

Woman  Widow  remarry  300 days, unless bears a child Man  Widower  can remarry immediately

A ―― ₱100,000 ―― B

secured race horse due June 7, 2018 June 8, 2017 lightning frightened

horse  runs  cliff  fell broken

A hits  horse  broken

Debtordeprived ― period = Obli. – demandable? leg = impaired ― fortuitous event head = dies  lost ― fortuitous event

leg = impaired  fault ― debtor head = dies  lost  fault ― debtor

4. ALTERNATIVE two or more

fulfillment of one  obligation ― ext. 

Cow June 8 dies fortuitous event

lightning

Carabao June 9, AM dies fault of A

A hits

A ―――― B

only June 12, 2017

Cow Carabao Horse

1 kilo shabu

Horse June 9, PM dies fortuitous event

collides bus

Obligation ― Ext.?  The lost of the last thing is due to fortuitous event

5. CONJUCTIVE two or^ more

fulfillment of all are necessary

A ―――― B

only

Alternative

Cow or Horse 2 cows die

Fortuitous Event

Fault  Debtor

A

C

A

C

Obli – Ext?    

DAMAGES

E ―――― F Cow only & Horse

6. FACULTATIVE

One prestation with substitute

Right of debtor

C ―――― D

only

Cow or If C wants Horse

Two or More

Debtor

Creditor

7. JOINT

8. SOLIDARY

To each his own

One for all All for one

Number of Debtors 3

× Number of Creditors 2

= No. Obligation Credits

A. Debtors – Joint, Creditors – Joint (1) W - ₱ 2000 A ₱ 4000 Y - ₱ 2000

A - ₱ 2000

W B - ₱ 2000

Joint ― (^3) ₱ 6000 C - ₱ 2000 Joint ― 3 Solidary ― 1 Solidary ― 1

×

×

×

×

Joint ― 2 Solidary ― 1 Joint ― 2 Solidary ― 1

= 1 (2)^ W -^ ₱^1200

B

₱ 3600 Y - ₱ 2400

A - ₱ 1600

Y B - ₱ 2400

₱ 8000 C - ₱ 4000

Debtors, A-B-C Equal 2:3:

₱12,000 Creditors, W-Y Equal 1:

or or

June 15, 2017 Y demand payment

A ― ₱ 2400

or B ― ₱ 3600 

or C ― ₱ 6000 due 

A pays Y ₱ 6000 R B - ₱- 0 - C - ₱ 6000

B pays Y ₱ 6000 R A - ₱- 0 - C - ₱ 6000

C pays Y ₱ 6000 R A - ₱- 0 - B - ₱- 0 -

SITUATIONS

  1. A ₱8M B, if B kills C
  2. D ₱8M E, if F dies of TB
  3. G ₱8M H or G sex H
  4. J sex K or J 8M K P S
  5. L ₱8M M or if L wants sex M P S
  6. N sex O or if N wants sex O P PC
  7. P ₱8M Q and if P fails sex Q P PC
  8. R sex S and if R fails ₱8M S

(  )VALID/VOID(  )

A and B obliged to give Y Bn Ms 1.5M  750000 7000 demands

Failed to deliver delay A Ready damages B  Both Solidary

9. INDIVISIBLE Joint 

A and B solidary, obliged to give Y 100 sacks of wagwag rice  demands delivers 50 sacks  delay delivers 50 socks  A   damages B  1 sack Both 

failed to deliver

10. DIVISIBLE Joint Solidary 

11. OBLIGATION WITH A PENAL CLAUSE

A ₱ 100 , 000 B demands Interest due June 15, 2017 delay in lieu & Except if Stipulated refuses to give  penalty if A fails to pay Damages Debtor fully of fraud  fulfillment  obligation

A will give  Cow  With penal clause Penalty A fails to pay

Obligation of A

To deliver  Cow  Interest  To pay Damages  ₱100,000 

Estate

B

Maturity

EXTINGUISHMENT OF OBLIGATION

PAYMENT

or

PERFORMANCE

To whom

By whom

When

Where

How

Special Form

Creditor Ratification Representative/Agent Subrogation TO WHOM Executor burden to prove  Debtor Except Estoppel Administrator  Third Person  If  redownded  benefit  Creditor ― Ext.  presumed  benefit  Creditor

If debtor cannot pay, is third person liable?

YES

NO

Interested in the fulfillment of obligation Not interested in the fulfillment of obligation

A

B ― ₱100,000 accepts

G ― guarantor pays

C ― ₱100,000 accepts

S ― Suitor of A pays

LEGAL SUBROGATION

With consent of A  Without consent of A  With consent of A  Without consent of A 

(1) Previous ― partial payment ₱60, (2) Due and demandable ₱100, If A fails to reimburse, can S declare? 

Beneficial Reimbursement

at WHEN after before? 

Only cow A ₱100, On June 15, 2018

June 15, 2017 A deliver Cow B ₱100,000  Accepts Obligation  Extinguished 

Legal Tender  stipulation CHECKS refuse  except if exercise  right Can creditor Cr. ― encashed accepts  = Obligation ― Extinguished  Yes IF Impaired June 15, 2017 June 16, 2017  Bank pays = Obligation ― Ext.  PRESENTMENT Fault Cr. Injury Dr. FOR (stale) PAYMENT February 14, 2017  Bank Dishonored = Obligation ― Extinguish  Closed = Obligation ― Extinguished ― PDIC

Up to ₱500,

Court  if approved

C O U R T

EXAMPLE:

A  B

10k  June 4 15k  June 8 Due 20k  June 14 30k  June 30

₱8,000 = Application of payment  June 15  A pays ₱10, ₱20,000 = Application of payment  ₱15, ₱20, If the debtor waives, application of payment  right  Creditor Issue  Receipt Onerous If silent  Mortgage Equal burden = Proportionately

A  ₱1,000,000  B

Due on June 15, 2017 offers to pay

Assets

Cash ₱400, Cars 8 BMW Planes 8 Vessels 8

Possession Last yr.   3M Ownership

B

Extinguished  = DATION IN PAYMENT (*debtor is solvent)

B ― ₱2M

A C ― ₱3M proportionately D ― ₱4M to sell = proceeds (INSOLVENT) Creditor possession Assets = ₱5M  deliver Ownership = Debtor

Extinguished   up to the proceeds  PAYMENT BY CESSION

ATender of PaymentB ― refused  Deposit ₱ Notice to Creditor Object Obligation Ext. 

Consignation  notice  Creditor

Can the debtor withdraw? Before approval = Yes After approval = Yes, IF creditor  consents

Revived If debtor withdraws  Obligation of A  Co-debtors  IF they Guarantor will consent Surety

ADDITIONAL REMINDERS:

 On mere suspicion, you cannot sacrifice the Bill of Rights *Search Warrant *Warrant of Arrest  If the act is illegal, anything you get out of an illegal act is illegal  No need of search warrant / warrant of arrest:

  1. About to commit the crime
  2. Committing the crime
  3. Have just committed the crime
  4. Prisoner who escaped from detention

TENDER OF PAYMENT is necessary before consignation, except in five (5) cases. Consignation is allowed even without prior tender of payment = TIRAT

(1) (^) T wo or more persons claiming the right

Interpleader TRO Injunction  to restrain PRO Certiorari  abuse of right Quo-warantu  what is your right Mandamus  to compel performance

Creditor (2)^ I ncapacitated to receive payment

Kept Obligation  Extinguish Benefited

Court

EXAMPLE:

Debtor Creditor BF  dies due 2020 2019  crying Creditor refuse to eat crying

Insane

Creditor refuses to issue (3)^ R ECEIPT without just cause.

Creditor (4)^ A BSENT

Loss of the (5) (^) T itle Obligation lost thing due Determinate/Specific

not applicable  Generic/Indeterminate

LOSS OF THE

THING DUE

(1) Perishes

(2) Goes out of commerce

Existence unknown (3) Disappears Cannot be recovered

EXAMPLE:

A  only Carabao  B June 30, 2017 Carabao dies fortuitous event Extinguished  perishes

A  buys 2 pigs  B pays deliver ― July 4 June 15 A did not choose 2 pigs  generic – limited

Obligation ― B  Ext.? 10   July 1- 4 6   9  partial

A  only car  B car napped  lost  existence unknown ₱100, No engine (₱100,000)

June 15  A sells ½  B

A  only necklace  B USA demands

Europe Rose TITANIC Disappears = cannot be recovered  sunk in Atlantic Ocean Obligation Extinguished 

B to pay ₱100,000 ― June 16

A upon receipt to buy engine payment

Obligation ― Ext.? 

 

CONDONATION

(Remission)

Essentially gratuitous

Nature: Donation

Essential

Formal

REQUISITES

INSTANCES OF FACULTATIVE COMPENSATION

Arises from the obligations of a bailee in commodatum Arises from a deposit Arises because of a claim for support by gratuitous title Consists in civil liability arising from a penal offense

REQUISITES OF LEGAL COMPENSATION

(1) Both the debtor and creditors are principally bound (EXCEPTION: A guarantor may set up compensation as regards what the creditor may owe the principal debtor) consist in a sum of money (2) Both debts the things due are consumable  same quality & same kind (3) The two debts be due  Maturity date of both debts must have arrived (4) Both debts be liquidated and demandable (5) No retention or controversy commenced by third persons and communicated in due time to the debtor

CONFUSION/MERGER

One person  Debtor and creditor of himself

REQUISITES FOR VALID MERGER

(1) It must take place between the principal debtor and creditor

(2) The merger must be clear and definite

(3) Obligations are the same or identical

EXAMPLE:

Debtor  A A ― B ― C ― D ― A  Extinguished 

A  Principal G  Guarantor

A ― B ― C ― D

CREDITOR

A

G

A

G

G

A

OBLIGATION – EXTINGUISHED

NOVATION

 modification or extinguishment of an obligation by another.

KINDS OF NOVATION

AS TO OBJECT/

PURPOSE

AS TO

FORM

AS TO

EXTENT

REAL (objective) PERSONAL (subjective)

EXPRESS IMPLIED

TOTAL/EXTINCTIVE PARTIAL/MODIFICATORY

Novation by changing the object or principal condition Novation by change of the parties (debtor/creditor)

Novation declared in unequivocal terms Old and new obligation are incompatible with each other

The old obligation is totally extinguished The old obligation still remains in force except as it has been modified

PERSONAL NOVATION

(1) Substituting the person of the debtor (always with the creditor’s consent)

(2) Subrogating a third person in the rights of the creditor

EXPROMISION  initiated by new debtor DELEGACION  initiated by original debtor

CONVENTIONAL  by the agreement of the parties LEGAL  by operation of law MIXED  change of object and parties of obligation

PRESUMPTION OF LEGAL SUBROGATION:

(1) When a creditor pays another creditor who is preferred, even without the debtor‟s knowledge. (2) When a third person, not interested in the obligation pays with the express/tacit approval of debtor. (3) When, even without the knowledge of the debtor, a person interested in the fulfillment of the obligation pays, without prejudice to the effects of confusion as to the latter‟s share.