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Notes in Regulatory Framework in Business Transactions (RFBT)
Prepared by: Dominador B
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This is limited to, in so far as for educational purposes
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A
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(Art
...

It is a juridical necessity because in case of non-compliance, the courts of justice may be
called upon by the aggrieved party to enforce its fulfillment or, in default thereof, the
economic value that it represents
...
1156 refers only to civil obligations which are enforceable in court when breached
...

GR: the law does not require any form in obligations arising from contract for their
validity or binding force
...
1356)
XPNs:
o When the form is essential to the validity of the contract as required by law (Art
...
1403
...
g
...
Billones III, BS Accountancy
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8293, otherwise known as Intellectual
Property Code of the Philippines
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General Principles
Elements of an Obligation
1
...
Active subject
3
...
Object or prestation
To be valid; it must be:
a
...
Possible, physically and
judicially;
c
...
Pecuniary value or possible
equivalent in money
...


OBLIGATION EX LEGE: Obligations derived from law are not presumed
...
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Binding force of obligation ex contractu – obligations arising from contracts have the
force of law between the parties and should be complied with in good faith (Principle of
Obligatory of Contracts)
...
2142)
• Characteristics of a quasi-contract (LUV):
– It must be LAWFUL
– It must be UNILATERAL
– It must be VOLUNTARY
• Principal Forms of Quasi-Contracts
– Negotiorum gestio (inofficious manager) - Arises when a person voluntarily
takes charge of the management of the business or property of another without
any power from the latter (NCC, Art
...
2154)
...


There is no consent, but the same is supplied
by fiction of law; to prevent injustice
...
100 of the RPC provides: “Every person criminally liable for a felony is
also civilly liable”
– XPN: crimes of treason, rebellion, espionage, contempt and others wherein no
civil liability arises on the part of the offender either because there are no
damages to be compensated or there is no private person injured by the crime
Implied institution of the civil action in a criminal case
– GR: When a criminal action is instituted, the civil action for the recovery of the
civil liability arising from the offense charged shall be deemed instituted with the
criminal action
– XPN: when the offended party
o Waives the civil action;
o Reserves the right to institute it separately; and
o Institutes the civil action prior to the criminal action
...
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OBLIGATION EX QUASI-DELICTO: An act or omission arising from fault or
negligence which causes damage to another, there being no pre-existing contractual
relations between the parties (NCC, Art
...
2176)
...

Existence of burden or condition
– Pure – not burdened by any condition or term; immediately demandable
– Conditional – subject to a condition which may be suspensive or resolutory
...
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– Facultative – only one prestation has been agreed upon, but the obligor may
render one in substitution of the first one
Imposition of penalty
– Simple – there is no penalty imposed for violation of the terms thereof
– Obligations with a penal clause – obligation which imposes a penalty for
violation of the terms thereof
Sanction
– Civil – gives a right of action to compel their performance
– Natural – not based on positive law but on equity and natural law; does not
grant a right of action to enforce their performance
Specific v
...
g
...

Duties of debtor in obligation to give a generic thing
– To deliver a thing which is of the quality intended (no particular brand) by
parties taking into consideration the purpose of the obligation and other
circumstances; and
– To be liable for damages in case of fraud, negligence, or delay, in the
performance of his obligation, or contravention of the tenor thereof
...

When obligation to deliver fruits arises
– GR: the obligation to deliver the thing due and, consequently, the fruits
thereof, if any, arises from the time of the perfection of the contract
– If the obligation is subject to a suspensive condition or period, it arises upon
the fulfillment of the condition or arrival of the term
...
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– In a contract of sale, the obligation arises from the perfection of the contract
even if the obligation is subject to a suspensive condition or a suspensive
period where the price has been paid
...

Accessions v
...

Right of creditor to accessions and accessories
– GR: all accession and accessories are considered included in the obligation to
deliver a determinate thing although they may not have been mentioned
...

Breaches of Obligations
Forms of breach of obligations
– Voluntary – debtor is liable for damages if he is guilty of:
• Default (mora)
• Fraud (dolo)
• Negligence (culpa)
• Breach through contravention of the tenor thereof (NCC, Art
...
1167)
– When the obligation consists in not doing and the obligor does what has been
forbidden him, it shall also be undone at his expense (NCC, Art
...

Delay (Mora)
Those obliged to deliver or to do something incur in delay from the time the obligee
(creditor) judicially or extrajudicially demands from them the fulfillment of their
obligations
...
From the
moment one of the parties fulfills his obligations, delay by the other begins (NCC,
Art
...
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Kinds of Legal Delay or Default
– Mora solvendi – default on the part of the debtor/obligor
– Mora accipiendi – default on the part of the creditor/obligee
– Compensatio morae – default on the part of both the debtor and creditor in
reciprocal obligations
...

GR: Demand is necessary
...

Exceptions:
– The obligation or the law expressly so declares; or
– From the nature and the circumstances of the obligation it appears that the
designation of 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; (e
...

wedding gown has to be ready before the wedding) or
– Demand would be useless, as when the obligor has rendered it beyond his
power to perform
...
1169 (2)]
Effects of Mora Solvendi:
– Debtor may be liable for damages or interests; and
– When the obligation has for its object a determinate thing, the debtor may bear
the risk of loss of the thing even if the loss is due to fortuitous event;
– Rescission or resolution
...

Mora Accipiendi
Requisites:
– Offer of performance by the capacitated debtor;
– Offer must be to comply with the prestation as it should be performed; and
– Refusal of the creditor without just cause
Effects of Mora Accipiendi
– Responsibility of debtor is limited to fraud and gross negligence;
– Debtor is exempted from risk of loss of thing, creditor bears risk of loss;
– Expenses by debtor for preservation of thing after delay is chargeable to
creditor;
– If the obligation bears interest, debtor does not have to pay it from time of
delay;
– Creditor liable for damages; and
– Debtor may relieve himself of obligation by consigning the thing
...
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Delay on both sides in reciprocal obligations, cancel each other out
...

Rules on Compensatio Morae

Time of delay

XPNs:

Unilateral Obligations

Reciprocal Obligations

Default or delay begins from
extrajudicial or judicial
demand – mere expiration of
the period fixed is not enough
in order that the debtor may
incur delay
...


1
...
Time is of the essence;
3
...
Debtor has
acknowledged that he
is in default
...


Fraud (Deceit or Dolo)
As used in Art
...

Effects of Fraud
– Creditor may insist on proper substitute or specific performance
– Rescission or resolution (Art
...


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Notes in Regulatory Framework in Business Transactions (RFBT)
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A
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1170

Art
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S obliged himself to deliver to B 20 bottles of
wine, of a particular brand
...


B bought the 20 bottles of wine on the false
representation of S that the wine is that as
represented by the labels
...
)

Remedy: claim damages

Remedy: annulment of contract

Waiver of action for future fraud
– A waiver of an action for future fraud is void (no effect, as if there is no
waiver) as being against the law and public policy
...

Waiver of action for past fraud
– A waiver of an action for past fraud is valid
– A past fraud can be subject of a valid waiver because the waiver can be
considered as an act of generosity and magnanimity on the part of the party
who is the victim of the fraud
...

Negligence
Negligence – any voluntary act or omission, there being no malice, which prevents
the normal fulfillment of an obligation; it is the absence of due diligence
Like fraud, negligence results in improper performance
...
1163
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Notes in Regulatory Framework in Business Transactions (RFBT)
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1233)
– Rescission or resolution (Art
...
1170)
Example: a taxi runs into an accident as a result of entering a one-way street
...

Kinds of negligence according to source of obligation
– Contractual negligence (culpa contractual) – negligence arising from
contracts resulting in their breach
...
It merely makes the debtor liable for damages in view of his
negligence in the fulfillment of a pre-existing obligation
...

Operator/owner only)
– Civil negligence (culpa aquiliana) – negligence which by itself is the source of
an obligation between the parties not so related before by any pre-existing
contract
...
(Passenger vs
...

– Criminal negligence (culpa criminal) – negligence resulting in the
commission of a crime
...
100 of the RPC, or create an
action for quasi-delict under Art
...
(Passenger vs
...

Contravention of the terms of obligation: This is the violation of the terms and conditions
stipulated in the obligation
...

Fortuitous event
Fortuitous event – any event which cannot be foreseen, or which, though forseen, is
inevitable
...
g
...
g
...


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Notes in Regulatory Framework in Business Transactions (RFBT)
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His obligation is EXTINGUISHED
...
(e
...
S is obliged to deliver a horse to B on
August 10
...
If, on August 11,
the horse died because it was hit by lightning, S is not liable IF NO
DEMAND was made by B
...
If the horse
died AFTER A DEMAND WAS MADE by B, S is liable for damages
because he is guilty of delay)
o The debtor has promised to deliver the same (specific) thing to two or
more persons who do not have the same interest
...
g
...
)
o The obligation to deliver a specific thing arises from a crime
...
g
...
S has the obligation, arising from the crime, to
return the carabao
...
(e
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loss of the thing such as rice
or corn does not extinguish an obligation)
...
g
...
Later, the
house was destroyed by accidental fire
...

Kinds of Obligations
Pure and Conditional Obligations
Pure obligation – not subject to any condition and no specific date is mentioned for its
fulfillment and is, therefore, immediately demandable
Conditional obligation – one whose consequences are subject in one way or another to
the fulfillment of a condition
CONDITION – future and uncertain event, upon the happening of which, the
effectivity or extinguishment of an obligation (or right) subject to it depends
...
g
...
)
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Notes in Regulatory Framework in Business Transactions (RFBT)
Prepared by: Dominador B
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This is limited to, in so far as for educational
purposes
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A
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g
...
)
Conditional Obligation
Classification of conditions:
As to effect:
– Suspensive – the happening of which gives rise to the obligation; the
demandability of the obligation is suspended until the happening of the
condition
...
00 if it will not rain for one year in the
Philippines”
– “I will pay you P1,000
...
00 if you kill X” (against the law)
– “I will give you P1,000,000
...
00 if you slap your father” (against
good customs)
– “I will give you P1,000,000
...
00 if you will not appear as witness
in a criminal case against me” (against public policy)
...
Billones III, BS Accountancy
Disclaimer: The whole contents of this material were grasp from the excerpt of the books
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Moreover, the contents of this material are protected by the Fair Use guidelines mentioned in the R
...
8293, otherwise known as
Intellectual Property Code of the Philippines
...


As to divisibility:
– Divisible – condition is susceptible of partial performance
o “I will give you a car if you finish your law course and P1,000,000
...
“D is to give C a car if D goes to Baguio”, “D is
to allow the use of his car by C until D returns from Baguio”
– Casual – condition depends upon chance or upon the will of a third person;
“D is to give C P1,000,000
...
00 if X goes to Baguio”
– Mixed - condition depends partly upon chance and partly upon the will of a
third person; “D is to give C P1,000,000
...

Rules in case of loss, deterioration or improvement of determinate thing before the
fulfillment of the suspensive condition
Loss of the thing
– Without debtor’s fault – obligation is extinguished
– With debtor’s fault – debtor is obliged to pay damages
Example: D is to give C his only ring if C passes the CPA Board examination
...
However, if the ring is lost through D’s fault, he is to pay
damages should C pass the Board
...
If the car
deteriorated due to wear and tear before C passes the Board, the deterioration will be borne
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Notes in Regulatory Framework in Business Transactions (RFBT)
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purposes
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A
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However, if the car is damaged due to D’s fault and C
later passes the Board, C may choose to rescind the contract and ask for damages, or ask D to
still deliver the car in its deteriorated condition plus damages
...
If the improvement cannot be removed without causing
damage to the principal, the thing and the improvement shall be delivered to
the creditor without any right on the part of the debtor to indemnity
...

Obligations with a Period
One whose demandability or extinguishment is subjected to the expiration of the term
which must necessarily come
...

A future and certain event upon the arrival of which the obligation subject to it either
arises or is extinguished
Kinds of period
o Ex die – a period with suspended effect
...
“D is to give C his car on May 1, 2021”
o In diem – a period with a resolutory effect
...
“D allowed C to use his
car until May 1, 2021”
o Legal – a period that is fixed by law
o Voluntary – fixed by the parties
o Judicial – fixed by the court
Alternative Obligations v
...


Only one prestation, the principal obligation,
is due
...

the delivery of any of the three articles will
extinguish the obligation
...


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Notes in Regulatory Framework in Business Transactions (RFBT)
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If the principal obligation is void, the debtor
is not required to give the substitute
...


The right of choice belongs to the debtor
only
...


If the principal obligation is impossible, the
debtor is not required to give the substitute
...
Solidary Obligations
...


Each debtor is liable for the whole obligation,
and each creditor is entitled to demand
payment of the whole obligation
...
00
...
00; B
is liable only for P5,000
...


Example: A and B are solidary debtors, are
indebted to X for P10,000
...
X can demand
payment of P10,000
...
if
A pays X P10,000
...
A can demand reimbursement
of P5,000
...


Other terms:
Proprtionately, Pro rata, Mancomunada,
Mancomunada simple

Other terms:
Jointly and severally, Individually and
collectively, In solidum, Macomunada
solidaria, Juntos o separadamente

Rule: if there is a concurrence of two or more debtors and/or two or more creditors in one and
the same obligation
GR: the obligation is presumed to be joint
XPNs:
– When the obligation expressly so states
– When the law requires solidarity (Example: where the instrument containing
the word “I promise to pay” is signed by two or more persons, they are
deemed to be jointly and severally liable thereon
...
The heirs of AA demanded
compensation under Workmen’s Compensation Law for the whole amount
from B
...
The court ruled that the

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Notes in Regulatory Framework in Business Transactions (RFBT)
Prepared by: Dominador B
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This is limited to, in so far as for educational
purposes
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A
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All rights reserved to the copyright owners
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The evident intention of WCL is to give full protection to workers
...
There must be delivery of the thing or rendition of the service that was contemplated
a
...

b
...

c
...
Neither
can the debtor deliver a thing of inferior quality
...
If the obligation is monetary obligation, the payment must be in legal tender
...
The payment or performance must be complete
...
If the obligation has been substantially performed in good faith, the obligor
may recover as though there had been strict and complete fulfillment, less
damages suffered by the obligee;
b
...

Who must make the payment?
Payment must be made by the debtor who must possess the following:
1
...
Capacity to alienate the thing (debtor must be capable of giving consent)
Payment by a third person – creditor is not bound to accept payment or performance by a
third person except:
1
...
When the third person has an interest in the fulfillment of the obligation such as a
guarantor or a co-debtor
Rights of a third person who makes the payment
1
...
Right to reimbursement
b
...
Payment without the knowledge or against the will of the debtor
a
...

He is not entitled to subrogation
...
Billones III, BS Accountancy
Disclaimer: The whole contents of this material were grasp from the excerpt of the books
...

Moreover, the contents of this material are protected by the Fair Use guidelines mentioned in the R
...
8293, otherwise known as Intellectual
Property Code of the Philippines
...


To whom shall payment be made
1
...
To the creditor’s successors in interest
Payment to an incapacitated person – NOT valid, except:
1
...
g
...
00 was paid to C who became insane
...
00 and threw away the rest
...
00)
2
...
g
...
00 to buy his
food and lost the remaining balance
...
00, the
amount beneficial to him)
Payment to unauthorized person – NOT valid, except
1
...
If the payment is made in good faith to a third person in possession of the credit
Where payment must be made
1
...
If there is no stipulation
a
...
If the obligation is to give a generic thing or an obligation to do, then at the
domicile of the debtor
...
Dacion in payment (Dacion en pago)
2
...
Application of payment
4
...


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There must be two or more debts
2
...
The debts are owned by the same debtor to the same creditor
4
...
When the parties have stipulated that payment may be applied to a debt not yet
due, or
b
...
The debtor who is given the preferential right to apply the payment designates the debt to
be paid
2
...
If neither the debtor nor creditor makes the designation, or application cannot be inferred
from the circumstances, payment shall be applied by operation of law as follows:
a
...
If the debts are of the same nature and burden, payment shall be applied to all due
debts proportionately
...

Consignation – the act of depositing the sum or thing due with the judicial authorities whenever
the creditor refuses without just cause to accept the same, or in cases when the creditor cannot
accept it
...
There must be a valid tender of payment (the payment being tendered must be the
thing contemplated, in legal tender, complete, among other requisites for a valid
payment);
b
...
The persons interested in the fulfillment of the obligation must be notified by the
debtor of his intention to deposit the sum or thing due with the judicial authorities;
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The sum or thing due is deposited with judicial authorites; and
e
...

Effect of consignation duly made – if the consignation has been duly made, the debtor may ask
the judge to order the cancellation of the obligation
When consignation, without a previous tender of payment, will produce the same effect
1
...
When he is uncapacitated to receive the payment at the time is due
3
...
When two or more persons claim the same right to collect
5
...
1189, par
...
It
includes physical or legal impossibility of the service in which the obligation consists
...
When loss is due to the fault of the debtor;
2
...
When so provided by law (e
...
when the debtor has promised to deliver the same
thing to two or more persons who do not have the same interest)
4
...
When the nature of the obligation requires assumption of risk;
6
...

Loss of a generic thing
GR: Obligation is NOT extinguished
XPN: In the case of a “delimited generic thing”, such as “100 cavans of rice from my
harvest this year” when such harvest is completely destroyed
Loss in personal obligations
1
...

2
...


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Notes in Regulatory Framework in Business Transactions (RFBT)
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A
...
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If the value of the property exceeds P5,000
...
If the value of the property is P5,000
...
g
...

Effect of Remission of Principal Obligation on the Accessory Obligation and vice-versa
1
...
The remission of the accessory obligation does not carry with it that of the principal
debt
...
Merger which takes place in the principal debtor or creditor benefits the guarantors
...
Merger which takes place in the person of the guarantor does NOT extinguish the
obligation
...

Merger in a joint obligation – extinguishes only the share of the joint debtor or creditor in
whom the characters of debtor or creditor concur
Merger in a solidary obligation – extinguishes the whole obligation
...

Novation, concept – the modification or extinguishment of an obligation by another, either
by changing the object or principal condition (e
...
D owes C P10,000
...
Later they agree
that D should give instead a ring to C), substituting the person of the debtor, (parties agree
that T shll take the place of D as debtor) or subrogating a third person in the rights of the
creditor (parties later agree that X shall take the place of C as the new creditor
...
Billones III, BS Accountancy
Disclaimer: The whole contents of this material were grasp from the excerpt of the books
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8293, otherwise known as
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Requisites of Novation
1
...
There must be an agreement between the parties to modify or extinguish the
obligation;
3
...
There must be validity of the new obligation
...
In such a case, the original one shall
subsist, unless the parties intended that the former relation will be extinguished in any event
...
If the original obligation is void,
there is no obligation to extinguish since it is non-existent
...
The
novation here cures whatever defects present in the original obligation
...
1299)
...
According to object or purpose
A
...
1291)
B
...

Substituting the person of the DEBTOR (always with the creditor’s
consent)
a
...

Rights of the new debtor if he makes payment – if the
substitution was without the knowledge or against the
will of the original debtor, the new debtor can only
recover insofar as the payment has been beneficial to
the debtor
...
Effect if new debtor is insolvent or does not fulfill
obligation – the new debtor’s insolvency or nonfulfillment of the obligation shall not give rise to any
liability on the part of the original debtor
...
1294)
The original debtor is released from liability
...
Delegacion – here, it is the debtor who initiates the
substitution, which requires the consent of all parties (original
debtor, creditor, new debtor)

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ii
...

(Arts
...
Subrogating a third person in the rights of the creditor
...

Kinds of subrogation
a
...
Legal subrogation – subrogation by operation of law
...

When a creditor pays another creditor who is preferred,
even without the debtor’s knowledge
...
When a third person, not interested in the obligation,
pays with the express or tacit approval of the debtor
...
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
...
Mixed – change of object and parties to the obligation
...
g
...
00
...

◼ To be continued…

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