ATENEO DE DAVAO UNIVERSITY School of Business and Governance BUSINESS LAW REVIEW REVIEW ON LAW ON OBLIGATIONS (Articles 1156-1304 of the Civil Code) 1. Obligations - General Provisions 1. Meaning of "Law on Obligations and Contracts”? The law on obligations and contracts is the body of rules which deals with the nature and resources of obligations and rights and duties arising from agreements and contracts. 2. Source of the Law on Obligations and Contracts is the Civil Code of the Philippines (Republic Act No. 388) which took effect August 30, 1950. The Civil Code is derived from the of Spain of 1889. 3. Meaning of obligation: Code basis Article 1158 - obligation is juridical necessity to give to do ‘or not to do. 4. Criticism as to the definition of the Civil Code by Justice J.B.L. Reyes. It views obligation from the debit side. There is no debt with credit and the credit is an asset in the patrimony of the creditor just as the debt is the liability of the obligor. Better definition: the one given by Arias Ramos, one of the commentators of the Civil Code: An obligation is a juridical relation whereby a person (called creditor) may demand from another (called debtor) the observance of a determinative conduct (the giving, doing or not doing) and in case of breach, may demand satisfaction from assets of the latter. 5. Kinds of obligations based on its definition Real obligation - obligation to give Personal obligation - obligation to do or not to do ‘Two kinds of personal obligation a) Positive personal obligation - to do b) Negative personal obligation - not to do 6. _ Essential Requisites of obligation 1. Active Subject - the obligee or creditor - one who has the right and power to demand the performance of the obligation. 2. Passive Subject - the obligor or debtor - one who is obliged to perform the obligation. 3. Object or Prestation - subject matter of the obligation that consists of the prestation to give, to or not to do. The objects of contract are things, right or services. 4, Juridical or Legal Tie - It is also known as “efficient cause”, which binds the parties to the obligation. Another name is VINCULUM JURIS.Obligation is a juridical necessity because in case of non-compliance, the courts of justice may be called upon to enforce its fulfillment or in default thereof, the economic value that it represents. In a proper case, the debtor may be made liable for damages for the injury or harm suffered by the creditor for the violation of the latter's right. 8. Other Significant terms: a) Obligation - the act or performance that the law will enforce b) Right - The power which a person has under the law to demand from another any prestation. ¢) Wrong - (cause of action) an act or omission of one party in violation of the legal right INJURY (a right recognized by law) of another. It is also known as Operative Illustrations of an obligation |. By virtue of a contract, D obliged himself to ship the goods of C from Manila to Cebu for P10, 000. D is the passive subject while C is the active subject. The shipping of goods to Cebu is the prestation; the contract between D and C is the efficient cause or vinculum juris. |. (Obligation to give) Isaac Rimando and Moises Reyes signed a contract whereby Isaac Rimando obliged himself to deliver to Moises Reyes a Toyota Corolla 2008 model on November 12, 2008. Il, (Obligation to do) Robert Gonzales and Angel Filamor entered into a contract whereby, Robert Gonzales obliged himself to paint the car of Angel Filamor. IV. (Obligation not to do) Nicanor Castro insured himself with the Manila surety and Insurance Co. The parties agreed that Nicanor would not commit suicide during the existence of the insurance. 9. Kinds of Obligations: 1, Viewpoint of sanctions: a. Civil obligations - give a right of action to compel their performance, b, Natural obligations - not based on positive law but on equity and natural law. It does not grant a right of action to enforce their performance but after voluntary fulfillment by the obligor they authorize the retention of what has been delivered or rendered by reason thereof. ¢. Moral obligations - those that cannot be enforced by action but which is binding on The party who makes it in conscience and natural law. Under our law, moral obligations are not merged with natural obligations. 2. Viewpoint of performance a. Positive - to give or to do b. Negative - not to do 3. Viewpoint of subject matter a. Real obligation - to give b. Personal obligation - to do or not to do10 . Sources of obliga’ A-1. Law Contracts Quasi-contracts Act or omission punishable by law Quasi-delicts ns: ( Article 1157 of the Civil Code) vayn B. Law as source of obligations Obligations derived from law are presumed. Only those expressly determined in this code or by special laws are demandable and shall be regulated by the precepts of the law which established them; and as to that has not been foreseen, by the provisions of this book. (Art.1158) a) Obligation ex-lege (arising from law) not presumed b) Obligations arising from law are not presumed. To be demandable and enforceable, the obligation must be stayed by the law, which created the obligation. Such being the case the agreement of the parties under this obligation is no longer necessary because it is the law, which governs their obligation, ©) Law governing obligations derived from law. Obligations derived from law shall be governed by the law, which establishes them. In case of insufficiency, the provisions of the Civil Code shall supplement the same. Examples: a. The obligation of husband and wife to support each other. (Art.195, Civil Code) b. The obligation of a taxpayer to file his income tax return. (Title VI. Section 44, NLRC) c. The obligation of the legitimate ascendants and descendants to support each other. (Art 195, Civil Code) ILLUSTRATIVE CASE. SG, while employed as a guard of a movie house by O, shot and killed a gatecrasher, X who attacked SG with a knife after having been refused entrance without first providing himself with a ticket. SG was criminally charged with homicide but the trial court dismissed the case. For the expense incurred in his defense, SG demanded reimbursement from the owner. When the owner refused, he filed his action for the recovery of the amount paid to his lawyer plus moral damages. Held: The owner “O” is not liable because the giving legal assistance to the employee is not a legal obligation. While is may be true it may be considered as a moral obligation. It does not at present, count with the legal sanction of any man-made law. If the owner with is not legally obliged to give legal assistance to the employee. then the latter cannot recover the amount paid cannot be presumed, it must be stated before it become obligatory. C. Contract as a source of obligation Obligations arising from contracts have full force of law between the contracting parties and should be complied with in good faith. (Art.1159) a) Validity of Contract. In contract as to their general formation this is what we call freedom to contract or autonomy of will, the “contract” entered into between the parties shall have the force of law between the parties. Any violation by either party shall produce a cause of action against the violator. However, in order for acontract to be valid and enforceable it must not be contrary to law, morals, good customs, public order or public policy, otherwise the contract is void. (Art.1306, 1409, Civil Code) b) Effect if part of the contact is void. If part of the contract is void but the contract is susceptible of division, the part, which is not affected, may be enforced disregarding the part, which is void. Such that if the contract is falsified by the unauthorized insertion of additional stipulation, this falsified insertion shall be considered inexistent and part unaffected shall be enforced. D. Quasi-Contracts as source of contract. It is judicial 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, (Art, 2142 of the Civil Code) ‘Two principal kinds of Quasi-contracts. 1, _Negotiorum Gestio (unauthorized management) - voluntary administration of the property, business or affairs of a third person without the consent or authority of its owner. 2. Solutio Indebiti (undue payment) - payment by mistake of an obligation that was not due when paid Distinction between contract and quasi-contract: The distinction of a quasi-contract from contract is that in contract, there is consent of the parties while in quasi-contract, the obligation arises without a contract. What law governs Quasi-Contracts? Chapter 1, Title XVII of the Civil Code ( Arts. 2142-2175) as provided under Article 1160, CC. ‘Some examples of Quasi-Contract. 1) Art 2144, whoever voluntarily takes charge of the agency or management of the business or property of another, without any power from the latter is obliged to continue the same until the termination of the affair and its incidents or to require the person concerned to substitute him. If the owner is in a position to do 50. Examples of Quasi-Contracts: 1. Amerchant-farmer and owner of a ten-hectare agricultural land left for USA on a pleasure trip. While enroute to USA typhoon “dading” devastated the entire Philippines including the land owned by D. Before the typhoon reached our area of responsibility C, a neighbor of D employed six (6) farmers to harvest the palay planted on the obligation of D upon arrival is to reimburse C P600 because he must not be enriched at the expense of another. 2) Art.2154. If something is received when there is no right to demand it and it was unduly delivered through mistake he obligation to return it arises. 3) Art. 2164. When, without the knowledge of the person obliged to give ‘support, it is given by a stranger, the latter shall have a right to claim the same from the former, unless it appears that he gave it out of piety and without intention of being repaid. 4) Art. 2167. When, through an accident or other cause, a person is injured or become seriously ill, and he is treated or helped while he is not in a condition to give consent to a contract he shall be liable to pay for the services of thephysician or other person aiding him, unless the service has been rendered out of pure generosity. 5) Art. 2168. When, during a fire, flood, storm, or other calamity, property is saved from destruction by another person without knowledge of the owner, the latter is bound to pay the former just compensation. 6) Art. 2174. When, in a small community a majority of the inhabitants of age decided upon a measure for protection against lawlessness, fire, flood, storm or other calamity, anyone who objects to the plan and refuses to contribute to the expenses shall be liable to pay his share of said expenses. Difference between Quasi-contract and Natural Obligation: Quasi-contracts are certain lawful, voluntary and unilateral acts which give rise to the juridical relations of the party to the end that no person shall be unjustly enriched or benefited at the expense of another while natural obligations are those not based on positive law but on equity and natural law. They are not demandable in the courts of justice however when they are voluntarily performed or fulfilled, they can already be retained and the debtor cannot recover what has been paid or performed. Example: If the debtor pays by mistake or not knowing that the condition or period has not yet arrived, he can recover based on undue payment (quasi- contract). A debtor paid his creditor knowing that his obligation to pay has already expired cannot anymore recover what he paid by reason of natural obligation, . Deli a source of obligation This is an act or omission punishable by law. The principle is that if a person committed an act or omitted to do an act and the act or omission is punishable by law he is civilly-liable. (Art. 1161) a) Felony or crime: It is an act or omission punishable by law. A violation of the Revised Penal Code is called a felony while violation of any penal statutes including the Revised Penal Code is called a crime, b) Rules governing Delicts: 1) Philippine revised Penal code and other penal laws subject to the provisions of Article 2177 of the Civil Code. 2) Chapter Il, Preliminary Title, on Human Relations of the Civil Code. 3) Civil Code on damages, Title 18 of Book IV 1g from Delicts or Acts or Omissions Punishable by a. Restitution - The thing itself shall be restored. b. Reparation of the damage caused- The court determines the amount of damage taking into consideration the value of the thing, improvements and fruits and reparation shall be made accordingly. c. Indemnification for Consequential Damages- It shall include not only those suffered by the injured party but also those suffered by his family and third person by reason of the crime d) Commission of a crime as a source of an obligation. Every person who is criminally liable is also civilly liable under Art. 100 of the Revised Penal Code. If a person therefore is guilty of the crime charged he must not only be imprisoned but he shall also answer for damages as a civil obligation. Such civil obligation is a necessary consequence of a criminal responsibility and it to be declared and enforced in the same criminalproceeding except when the injured party reserved his right to file the civil action independently from the criminal action. (Sec. |, Rule Il, Revised Rules of Court) ) Enforcement of Civil liability arising from crimes or delicts: Ordinarily, when the offended party files the criminal action, he is deemed to have filed simultaneously the civil action for the civil liability of the offender unless he reserves his right to institute a separate civil action of the civil liability of the offender. Meaning the civil liability shall be heard separately from the criminal action F Quasi-delict or culpa aquiliana or tort as a source of obligation ‘One which causes damage to another, there being fault or negligence, but there is no pre-existing contractual relation between the parties. (Art. 1162) A) Meaning of Culpa - Negligence (Culpa Aqulliana, torts) - omission of that diligence required by the circumstances of person, place and time. Negligence is @ question of FACT. The failure of a person to exercise or observe for the protection of the interests of another person the degree of care, precaution & vigilance which circumstances justify demand whereby such person suffers injury. B.) Requisites of Quasi-Delicts a) There must be act or omission; b) There must be fault or negligence; ¢) There must be damage caused d) There must be direct relation of cause and effect: between act or omission and the damage. ) There is no pre-existing contractual relation between the parties. C.) Meaning of Proximate Cause: Adequate and efficient cause which in the natural order of events necessarily produces the damage or injury complained of D.) What are the different kinds of Culpa (Negligence)? a) Culpa contractual (Contractual negligence)- negligence in the performance of the contract. Example: A passenger in a taxi who was not able to bring the passenger to his destination due to the malicious act of the driver which caused the delay or damage to the vehicle. This is culpa contractual because of the existence of contract of carriage between the owner of the taxi and the passenger. b) Culpa Aquiliana (Civil Negligence) - wrong or negligence committed independent of a contract and without criminal intent. Example: A pedestrian was hit by an over speeding taxi and suffered physical injuries. This is an example of culpa aquiliana because of the absence of any contractual relation between the pedestrian and owner of the taxi ¢) Culpa Criminal (Criminal negligence) - Those resulting to the commission of the crime punishable under Article 365 of the Revised Penal Code) Il, NATURE AND EFFECT OBLIGATIONS (ARTS. 1163-1178) 1. Duty to preserve the thing.Classification of the thing ( subject matter) in a real obligation. a) Specific or determinate thing - when the thing is particularly designated or segregated from all others of the same class. b) Generic or indeterminate thing -when it is not particularly designated or segregated, Hence, it still belongs to the class or genus. A) Duty to exercise di determinate thing. ence in obligation to deliver specific or Article 1163 provides, “every person obliged to give something is obliged to take care of ence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care.” 2™ paragraph of Article 1173 also provides, “if the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of family shall be required.” In other words Diligence required is: a. The one stipulated by the parties or required by law and in the absence thereof, b. Diligence of a good father of the family. Meaning of Diligence of a Good father of the Family a. That which is required by the nature of the obligation and corresponds with the circumstances of person, time and place (Art. 1173, Civil Code). This is also called as Ordinary Diligence or Diligence of a Good Father of the family or Diligence of a Prudent Man, b. However, if the law or contract provides for a different standard of care, said law or stipulation must prevail (Art. 1163) Other names for Diligence of a Good Father of the Family - a) Ordinary Diligence b) Diligence of a Prudent Man ) Diligence that depends on the nature of the obligation and corresponds with the circumstances of person, of time and of the place. When EXTRAORDINARY DILIGENCE IS REQUIRED? If it is stipulated or required by law Example of a case where the law requires extraordinary care (not merely that of a prudent man): “A common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of a very cautious Persons, with due regard for all the circumstances.” Art. 1755 of the Civil Code. B) Duty of a person obliged to give generic thing a) To deliver a thing which is of the quality intended by the parties taking into consideration the purpose of the obligation and other circumstances (Art. 1246) Rule on Medium Quality Liability:To be liable for damages in case of fraud, negligence or delay, in the performance of his obligation or contravention of the tenor thereof (Art. 1170) 2. Duty to deliver the thing and the fruits of the si (article 1164) thing to be delivered. a. When creditor is entitled to the fruits? The rule is the creditor has a right to the fruits from the time the obligation to deliver arises. Meaning the creditor is entitled to the fruits of the thing to be delivered from the time the obligation to make delivery arises. The intention of the law is to protect the interest of the creditor should the debtor commits delay purposely or otherwise, in the fulfillment of the obligation In Article 1537 specifically in a contract of law, the right to the fruits begins “ from the day on which the contract was perfected”. It clearly defined the meaning of obligation to deliver arises as far as the contract of sale is involved. The vendor is bound to deliver the thing sold and its accessions and accessories in the condition in which they were upon the perfection of the contract. All the fruits shall pertain to the vendee from the day on which the contract was perfected b. When does the obligation to deliver arises? - if there is no term or condition, from the perfection of the contract. - If there is a term or condition, from the moment the term arrives or the condition happens. . Personal right (jus in personam) - power demandable by one [person to another - to give, to do or not to do. 4d. Real right (jus in re) - power over a specific thing. Kinds of fr a. Natural. fruits - spontaneous product of nature without human intervention. b. Civil fruits (like rents) a result of civilization arising from juridical transactions. ¢. Industrial fruit - products of nature bolstered with human intervention. 3. Duty to deliver the accessories and accessions (Art. 1166) - The obligation to give a determine thing includes: a) Accessories- Those joined to or included with the principal for the latter's better use, perfection, or enjoyment. b) Accessions - additions to or improvements upon a thing As a rule, accessories and accessions are included in the delivery of the thing even if they are not mentioned. Effect of stipulation: If there is a stipulation and accessories are not included, such stipulations are valid and binding upon the parties. 4. Deliver of the thing itself (Article 1165): Kinds of Delivery: Delivery may be either actual or constructive.|. Actual delivery (tradition) - where physically the property changes hands. Example: If A sells to B a fountain pen, the giving of the fountain pen by A to Bis actual tradition. Il, Constructive Delivery - That where the physical transfer is implied. This may be done by: a. Traditio symbolica (symbolic tradition) - as when the keys of a bodega are given. b. Traditio longa manu (delivery by mere consent or the pointing of the object. . Traditio brevi manu - (delivery by short hand; that kind of delivery whereby a possessor of a thing not as an owner becomes the Possessor as an owner. Example: when a tenant already in possession of the house buys the house from the owner. d. Traditio Constitutom Possessorium - the opposite of brevi manu; thus the delivery whereby a possessor of a thing as an owner retains possession no longer as an owner, but in some other capacity (like a house owner who sells a house but remains in possession as tenant of the same house) e. Tradition by the execution of legal forms and solemnities. 5. Answer for damages in case of non-fulfillment of the obligation: Under the Civil Code, what are the different acts or omissions of the obligor or debtor that will result in the breach of the obligation for he can be held liable for damages? a. Default (Mora) - delay on the part of the debtor ( See discussions of mora below) b. Fraud (Dolo) in the performance of the obligation. Kind of Dolo: a) Incidental Fraud (dolo incidente) - referred to under Article 1170. b) Causal Fraud ( dolo causante) -fraud employed in the execution of the contract under Article 1338 which vitiate consent. Note: The law refers to incidental fraud only as reiterated in Article 1344, 2" paragraph, “incidental fraud obliges the person employing it to pay damages.” Illustration D is obliged to deliver 5 bags of powder soap to C 7 days from their agreement. On. due date, D delivered 5 bags of powder soap mixed with chalk. What is the status of the agreement between D and C? * The agreement is valid. The fraud was committed during the performance of the obligation and not during the agreement of the parties. This is a case of incidental fraud (dolo incidente) not causal fraud (dolo causante). . Negligence (Culpa) d. Contravention of the tenor of the obligation (Art. 1170) Concept of Damage and Damages:Damages - Monetary equivalent of the legal wrong or injury sustained. Damage, wrong of Injury - the result of the violation of a right recognized by law. KINDS OF DAMAGES M - Moral damages referring to mental and physical anguish; E - Exemplary - corrective or to set example NN - Nominal -to vindicate a right -when no other kind of damages may be recovered T - Temperate - when the exact amount of damage cannot be determined A- Actual losses as well as unrealized profit LL - Liquidated (predetermined beforehand - by agreement) Measure of liability for damages. Article 2201 of the Civil Code states: In contracts and quasi-contracts, the damages fir which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of obligation and which the parties have foreseen or could have reasonably foreseen at the time obligation was constituted. In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non- performance of the obligation REMEDIES OF THE CREDITOR AGAINST DEBTOR: In obligations to give what are the different rights, which are available to the creditor? If the obligation is an obligation that is determinate, the creditor may: 1. Compel specific performance (Art. 1165) 2. To recover damages in case of breach of the obligation (Art 1170) If the obligation is indeterminate or generic, the creditor may: a. Ask for the performance of the obligation (Art. 1246) b. To ask that the obligation be complied with at the expense of the debtor (Art. 1165, par. 2 CC) c. To recover damages in case of breach of obligations. (Art. 1170) If obligation is to do and debtor fails to perform it, the creditor may a. Ask another person to perform the obligation at the expense of the debtor (Art. 1167) unless act is personal in character and/or b. He may also demand damages from the debtor. Damages only when obligation is personal in character. If debtor performs it but in contravention of the tenor of the obligation or done in a poor manner, creditor may: ‘a. Have the same be undone at the debtor’s expense (Art. 1167) and b. Demand damages from the debtor (Art. 1170) If debtor does what has been forbidden, creditor may a. Demand what has been done be undone.b, Demand damages from the debtor What is the requirement before a debtor is liable of delay? Under Article 1169 of the Civil Code, demand (judicial or extra-judicial) is required before a debtor is considered in legal delay or mora. Judicial demand - is when a complaint is filed in court. Extrajudicial demand - when oral or written demand was conveyed or sent to the debtor. What is the meaning of Mora? Default or mora signifies the idea of delay in the fulfillment of an obligation In other words, it is the non-fulfillment of an obligation with respect to time. ‘The different kinds of default or mora: A. Mora solvendi - or delay of the obligator or debtor to perform his obligation. This delay is called mora solvendi ex re when the obligation is an obligation to give or mora solvendi ex persons when the obligation is an obligation to do. 8. Mora Accipiendi - or delay of the obligee or creditor to accept the delivery of the thing, which is the object of the obligation. C. Compensatio Morae, or delay of the parties or obligors or debtor incur in delay. In obligations to give or to do, when does the obligor or debtor incur in delay? The debtor incurs in delay from the time the creditor judicially or extra judicially demands from him the fulfillment of the obligation. And in spite of demand, he is unable to observe the obligation. (rt. 1189 par. 1, CC) When is demand by the creditor not necessary in order that delay may exist? a. When the obligation or the law expressly so declares; b. When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract. ¢. When demand was be useless, as when the obligor has rendered it beyond his power to perform (Art 1169 par. 2) In reciprocal obligations when does one of the parties incur in delay? 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 time one of the parties fulfills his obligation, delay by the other begins. (Art 1169, par 3) Effect of waiver of fraud or negligence in an obligation: a) If fraud is present in the obligation, the same is immediately demandable. WAIVER OF FUTURE FRAUD IS VOID. Waiver of past fraud is allowed. (Art. 1171) Reason: Fraud is absolutely not encouraged by the law because of its evil effects, Past fraud because the act was already done. Such waiver is an act of liberality on the part of the creditor.b) If negligence is present in the obligation, it is likewise demandable. Waiver of future negligence may be allowed except where the nature of the obligation requires exercise of extraordinary diligence as in the case of common carriers and also where negligence shows bad faith. (art. 1172) What is fortuitous event? A fortuitous event is an event, which cannot be foreseen, or which though foreseen, is inevitable (Art 1174 CC). Ordinarily, the terms “fortuitous event and force majeure” are used interchangeably. There is however a technical difference. “Force majeure” is a term that is applicable only to those fortuitous events which are dependent upon human intervention, such as wars, strikes, riots, etc., while fortuitous event” is the general term that is applicable regardless of whether the event is independent of or dependent upon human intervention. GENERAL RULE: No liability for FORTUITOUS EVENT (CASO FORTUITO, ACT OF GOD, FORCE MAJEURE & UNAVIODABLE ACCIDENT) if obligation refers to give a determinate thing and debtor acted without fault. Exceptions: - When expressly declared by stipulation or contract; - When the nature of the obligation requires the assumption of risk (the doctrine of Created Risk) = When the law expressly provides: a. When the object of the obligation is lost and the loss occurs after the debtor has incurred in delay. (Art. 1165) b. When the debtor promises to deliver the same thing to two or more persons at the same time who do not have common interest; (Art. 1165) c. When debtor is guilty of fraud, negligence, delay and contravention of the tenor of the obligation ( Article 1170) d. When the obligation to deliver arises from a criminal offense (Article 1268); and e. When the obligation is generic (Art. 1263) Essential Characteristics of a Fortuitous Event: a) The cause must be independent of the will of the debtor; b) _ Impossibility of foreseeing or impossibility of avoiding it, even if foreseen; c)_ The occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner. Usury Law governed by special law. The law governing usurious transactions is Act No. 2655 otherwise known as the Usury Law as amended by Act Nos. 3291, 3998, 4070, Commonwealth Act No. 339. However, the Monetary Board of the Central Bank is empowered to change the rates of interest from time to time “whenever economic and social conditions warrant or may eliminate, exempt or suspend the same. The ceiling of interest may not be uniform. Central Bank circular 905-A dated December 10, 1982, suspended application of the Usury law when it provided that rate of interest and other charges in loan or forbearance of money, goods or credits, regardless of maturity and whether secured or unsecured, that may be charged or collected shall not be subject to any ceiling prescribed under the Usury law.Note: Usury law has not been repealed but merely suspended. Only Congress can repeal laws, Rules on interest payments: The rule is “no interest” shall be due unless it has been expressly stipulated in writing. There being a stipulation as to interest but the rate is not fixed, then the creditor may only recover the legal rate. Meaning of legal Rate: Legal rate of interest is that rate which will prevail in the absence of any special agreement as to the rate of interest between the parties to a contract. Central Bank Circular on Interest Rates. Previously the Monetary Board of the Central Bank issued December 3, 1982, Circular No. 905, fixing the rates of interest on loans or forbearance of money goods or credit. Section 1 of the circular provides as follows: “The rate of interest, including commissions, premiums, fees and other charges on a loan or forbearance of any money, goods or credits, regardless of maturity and whether secured or unsecured that may be charged or collected by any person, whether natural or juridical shall not be subject to any ceiling prescribed under or pursuant to the Usury Law as amended.’ New Rule on Legal Interest: The Bangko Sentral Issued Circular No. 799 Series of 2013 dated July 1, 2013. It provides: The Monetary Board in its Resolution No. 796 dated May 16, 2013 approved the following revisions governing the rate of interest in the absence of stipulation in loan contracts, thereby amending Section 2of Circular No. 905, Series of 1982: Section 1. The Rate of interest for the loan or forebearance of any money, goods or credit and the rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3, and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions are hereby amended accordingly. This Circular shall take effect on July 1, 2013 Applicable Presumptions: Meaning of Presumption - By presumption is meant the inference as to the existence of certain facts which if not contradicted is considered true.‘Two kinds of Presumption a) Conclusive - one which cannot be contradicted b) Disputable (Rebuttable) - one which may be contradicted by presenting satisfactory proof to the contrary. Presumptions: A. Receipt of the Principal without Reservation would give rise to a presumption that interest has been paid. (Art. 1176) B. Receipt of the later installment without reservation as to prior installment shall likewise raise the presumption that the prior installments have been paid. (1176) Remedies which are available to the creditors in order to protect his rights against the debtor act defrauding the former: (Art. 1177) a) Exact payment (specific performance) with right of damages b) Exhaust or pursue debtor's properties generally by attachment (except properties exempted by law) ) after having pursued the property in possession, exercise all rights and be subrogated by all the rights and actions of the debtor save those that are inherent his person (accion subrogatoria) What are the requisites of Accion Subrogatoria? 1. The debtor's assets must be insufficient to satisfy claims against him 2. The creditor must have pursued all properties of the debtor subject to execution 3. The right of action must not be purely personal 4. The debtor whose right of action is exercised must be indebted to the creditor. d) To ask the court to rescind or impugn all acts which the debtor may have done to defraud the creditor (accion pauliana) What are the requisites of Accion Pauliana? 1. Defendant must be indebted to plaintiff 2. The fraudulent act performed by the debtor subsequent to the contract gives advantage to another 3. The creditor is prejudiced by such act. 4. The creditor must have pursued all properties of the debtor subject to execution 5. The creditor has no other legal remedy. Principle of Transmissibility of Rights (Article 1178) General Rule: Subject to the laws, all rights acquired in virtue of an obligation are transmissible if there has been no stipulation to the contrary. Principle of Transmissibility of Rights to be read together with Article 1311 on the Principle of Relativity of Contracts. (“Contracts bind only the contracting parties, their heirs and assigns”) INTANCES WHERE PRINCIPLE OF TRANSMISSIBILITY WILL NOT APPLY (Exceptions): a) If the law provides otherwise In contract of partnerst transmissibility of rights. b) If the contract provides otherwise ) If the obligation is purely personal , agency & commodatum, there is no Ill, DIFFERENT KINDS OF OBLIGATIONS (Arts. 1179-1230)1. A. Primary Classes of Obligations: a) Pure b) Condition c) With a term or a period d) Alternative e) Facultative f) Joint g) Solidary h) Divisible i) Indivisible j) With a Penal Clause PURE OBLIGATION Pure Obligation is defined as one whose performance does not depend on a future or uncertain event, or upon a past event unknown to the parties, hence demandable at once. (Art.1179) In other words, this is one, which contains neither period nor a condition; hence the obligation is effective immediately. Examples: “r'l pay you P20,000 on demand.” “r'l pay you P20,000.” CONDITIONAL OBLIGATION Conditional obligation is one where there is a condition imposed. Meaning of condition - It is an uncertain event, which wields an influence on alegal relationship. Characteristics of condition: A. It refers to future and uncertain event. B. It may also refer to past event but unknown to the parties. A condition is either: a)) Suspensive - the happening of the condition give rise to an obligation. Example : I'll buy you a land for P 1M if you pass the CPA Board Exam in October 2009. (This is suspensive for the result has to be awaited) See Article 11g1 b) Resolutory - the happening of the condition extinguishes the obligation Example : I'll give you my land now, but should you fall in the CPA Board this coming October 2009, your ownership will cease and it shall revert back to me, (Article 1181) ‘Therefore, there are three (3) instances when an obligation and demandable at once thu: a) When itis a pure obligation and b) When the obligation has a resolutory condition. c) When the obligation is subject to a resolutory period. ICATION OF CONDITIONSAs to effect: 1, Suspensive - the happening of the condition give rise to the obligation. 2. Resolutory - the happening of the condition extinguishes the obligation. As to cause or origi 1. Potestative - depends upon the will of the one of the contracting parties. a) If it is suspensive and dependent on the will of the debtor (Example: I'll sell you my car if | like), both the condition and obligation are VOID. (Article 1182) b) Where the condition depends upon will of creditor, obligation is valid. Example: | will pay you upon your demand. ©) Where resolutory condition depends upon the will of the debtor, the obligation is valid. Example is pacto de retro sale. The position of the debtor when the condition is resolutory is exactly the same as of the creditor when the condition is suspensive. 2. Casual - depends on chance or hazard or the will of third person - VALID Example; I'll give you P 10,000 if | win 1* prize in the lotto. 3. Mixed - depends party on the will of one of the parties and party on chance or will of the 3” person (If | pass the bar) VALID Example: | will give you P 10,000 if you marry Miss Black or if | win the lotto. - capable of partial performance ible - not capable of partial performance because of the nature of because of the intention of parties. As to mode: 1. Positive - an act is to be performed. The condition that some event happen at a determinate time shall extinguish the obligation as soon as the time expires or it has become indubitable that he event will not take place. (Art. 1184) 2. Negative - something will be omitted, If condition is negative which means the event will not happen at a determinate time. The obligation shall become effective and binding from the moment the time indicated has lapsed without the event taking plac from the moment it has become evident that the event cannot occur, although the time indicated has not yet elapsed. (art. 1185) As to form: 1, Express - the condition is stated. 2. Implied - the condition is merely inferred.As to possibility: 1. Possible - capable of fulfillment in nature and in law 2. Impossible - not capable of fulfillment due to nature or due to the operation of the law or morals or public policy; or due to a contradiction in its terms, Note is condition is impossible, legally or physically obligation is also void. If condition is negative, that is not to do an impossible thing, the condition is, disregarded and the obligation is rendered pure and valid. As to numbers: 1. Conjunctive - if all the conditions must be performed 2. Alternative - if only a few of the conditions have to be performed Constructive Fulfillment of a Condition If the debtor prevents voluntarily the fulfillment of the condition the said act would result to CONSTRUCTIVE FULFILLMENT SAID CONDITION UNDER Art. 1186. Note: It is not even required that debtor is in bad faith. Itis sufficient that he prevented the happening of the condition. Effect if suspensive condition takes place: Rule is retroactive effects of fulfillment of suspensive condition. In an obligation to give subject to @ suspensive condition becomes demandable only upon the fulfillment of the condition. However, once the condition is fulfilled, its effects shall retroact to the day when the obligation is constituted. Reason: condition is mere accidental element of the contract. If obligation is reciprocal, there is no retroactivity because the fruits and interests received during the pendency of the condition are deemed to have been mutually compensated. In unilateral obligation, there is usually no retroactive effect because they are gratuitous. The debtor receives nothing from the creditor unless from the nature and other circumstances it can be inferred that the intention is to apply retroactivity. In obligation to do or not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with. (Article 1187) Rights of creditor /debtor pending fulfillment of suspensive condition: Creditor may bring appropriate actions of preservation of his right. Debtor may recover what has been paid by mistake in case of a suspensive condition. (Article 1188)If subject to a period and there is payment by mistake Article 1195 provides that aside from recovery of what was paid by mistake, debtor can also recover fruits and interests, if any. LOSS DETERIORATION AND IMPROVEMENT DURING THE PENDENCY OF CONDITION. (The same rule applies for both obligations with suspensive and resolutory condition and obligation with a period) Article 1189 a. For conditional obligation, if suspensive, it is required that condition is fulfilled and the object is specific. For resolutory condition, the happening of the condition extinguishes the obligation, hence mutual restitution follows. b. The above rules also apply to suspensive and resolutory period except that in a period, it will necessarily come, a) The object may be lost: 1. without the fault of the debtor - extinguishes obligation 2. with the fault of the debtor - require debtor payment of damages. b) The object deteriorates without the fault of the debtor, the impairment is borne by the Creditor. If it deteriorates thru the fault of the debtor, creditor may choose either rescission of the contract or of the fulfillment, with claim for damages. either of the selected remedy. ) If the object improves by nature, the improvement inures to the benefit of the creditor and if the debtor at his expense improve it, the debtor’s right is merely of a usufructuary. RECIPROCAL OBLIGATIONS: The power to rescind obligations implied in reciprocal ones, in case one of the obligors should not comply what is incumbent upon him. (Art. 1181, par. 1) Remedies of the injured party in reciprocal obligations: . Action for specific performance of the obligation with damages; or g. Action for rescission of the obligation also with damages. The above remedies are alternative. He may however choose rescission if after he has chosen fulfillment, the latter become impossible. RESCISSION contemplated by the law is JUDICIAL RESCISSION Further, the court in some instance may instead grant the party a term for performance instead of ordering rescission such as in case when the breach is slight or when right of third person is affected. Hence court may deny rescission. When it is the court rescinds the obligation, this is known as JUDICIAL RESCISSION, which is initiated upon the filing of complaint in court by the injured party. Rescission under Article 1381 vs Rescission under Article 1191 (Resolution)An action for rescission can proceed from either Article 1191 or Article 1381, It has been held that Article 1191 speaks of rescission in reciprocal obligations within the context of Article 1124 of the Old Civil Code which uses the term “resolution.” Resolution applies only to reciprocal obligations such that a breach on the part of one party constitutes an implied resolutory condition which entitles the other party to rescission. Resolution grants the injured party the option to pursue, as principal actions, either a rescission or specific performance of the obligation, with payment of damages in either case. Rescission under Article 1381, on the other hand, was taken from Article 1291 of the Old Civil Code, which is a subsidiary action, not based on a party's breach of obligation.“"The four-year prescriptive period provided in Article 1389 applies to rescissions under Article 1381 Rule when both parties are guilty of breach ‘Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. Application of the “pari delicto rule” Obligation with a Term or Period A space of time which has an influence on obligations as a consequence of a juridical act and either suspends their demandability or produces their extinguishment. Itis one that arises upon the arrival of the term or period agreed upon, hence demandable only on that instance. Term or Period is that time or event which necessarily must come, whether the parties know when it would happen/come or not Day certain - means one, which must necessarily come although it may not be known when. Examples: 1) “I'll pay you P20,000 on the 25” of December next year.” 2) “Ill pay you P20,000 if Imelda Marcos dies”. Death is certain even if we cannot really ascertain when it will come. But this one is conditional: “'ll pay you P20,000 if Imelda Marcos dies of malaria " Reason: She might die of “bangungot”. NOTE: When the debtor binds himself to pay when his means permit him to do so, the obligation is deemed to be one with a Term or Period (Article 1180). Example: “I'll pay you P10,000 when my means permit me to do so. I pay you P10,000 little by little I pay you P10,000 as soon as possible. “t'll pay you as soon as | have the money. Kinds of Period- 1) Legal - period fixed by law