Module 1: Results and Discussion

At the end of the module, you should be able to:

➢ Understand the basic principles governing certain civil laws in the Philippines.

➢ Acquaint and substantially comprehend the basis of Law on Obligations

applicable in the Philippines

➢ Acquaint and substantially comprehend the basis of Law on Contracts applicable

in the Philippines

➢ Appreciate the prerequisites sections and articles governing the Law on Sales

and Other Credit Transactions

Introduction

Business Law is one of the most complex law that safeguards the activity and

commerce of men. Within this subject is a network of interrelated articles and legislations

that intertwined to function as a definite resolution to address any conflict in the society.

The Law of the Land is created to establish order among the civil society. It impugns

disarray and forms equality among citizens of the state.

The module discusses legislations, theories, and concepts to help you grasp the

fundamental elements that is needed throughout the entire course. This would include

Laws on Obligation and Laws on Contracts. It is an essential requisite in discussing Laws

applicable to Sales and Other business transaction as it is generally the basic concept

governing the modern legislation to business transactions.

 Module 1: law on obligations

Unit 1: general principles

UNIT LEARNING OUTCOMES

• Identify the basis of resulting obligations from the outcomes of different situations
and cases under the civil code and related legislations.
• Identify and analyzed the bounds of validity and errors governing contract
between individuals.
• Able to create definite legal insights governing civil disputes limited to the topics
included.

CONTENT:
A. DEFINITION
Obligation is a juridical necessity to give, to do or not to do. (Art. 1156)
Requisites of obligation:
a. Active - creditor or obligee.
subject
b. Passive - debtor or obligor.
subject
c. Prestation - subject matter or the promise to be observed in the
performance of obligation.
d. Efficient - juridicaltie(vinculum juris) which binds the parties to the
cause obligation.

B. SOURCES OF OBLIGATION (Art. 1157)

a. Law - when imposed by the law itself and is not presumed.
b. Contracts - arise from the stipulation of the parties as a virtue of
their agreement.
c. Quasi- - arise from lawful, voluntary and unilateral acts giving
contracts rise to a juridical relation to the end that no one shall
 be unjustly enriched or benefited at the expense of
another.
d. Delict or act - arising from civil liability which is a consequence of a
punishable by criminal offense.
law

e. Quasi-delict, - arising from damage caused to another through an act

tort or culpa or omission, there being fault or negligence, but no
aquiliana contractual relation exists between the parties.

C. KINDS OF QUASI-CONTRACTS
a. NegotiorumGestio - voluntary administration of the property, business
or affairs of a third person without the consent or
authority of its owner.
b. SolutioIndebiti - payment by mistake of an obligation which was
not due when paid.
c. Others
D. DELICT OR ACT PUNISHABLE BY LAW
Note:Any person criminally liable is also civilly liable.(Art. 100 of the Revised Penal
Code)
But it does not mean that commission of crime is always make a person civilly
liable.
Included in the civil liability:
a. Restitution.
b. Reparation of the damaged caused.
c. Indemnification for consequential damages.

E. QUASI-DELICT, TORT OR CULPA AQUILIANA

Requisites of liability:
a. Due to fault or negligence of the offending party.
b. It causes damage or injury.
 c. There is a direct relation of cause and effect between (a) and (b).
d. No pre-existing relation between the offender and the offended parties.
Note to (d): Otherwise it is a culpa contractual – negligence in the performance of an
obligation.

F. GROUNDS FOR LIABILITY TO PAY DAMAGES

a. Culpa (Negligence)
Kinds of negligence:
1. Culpa contractual
2. Culpa aquiliana (tort) – master-servant rule does not apply here.
3. Culpa criminal

b. Dolo (Fraud)
Kinds of fraud:
1. Dolocausante(Voidable) – fraud in obtaining consent.
2. Doloincidenti(Valid but liable for damages) – fraud in performing a contract.

c. Mora (Delay)
Kinds of Delay:
1. Mora solvendi – debtor’s part.
2. Mora accipiendi – creditor’s part.
3. Compensatiomorae – both parties defaulted
Requisites of morasolvendi:

a. Obligation must be liquidated, due and demandable.

b. Debtor is guilty of non-performance.
c. There was demand made judicially (court) or extrajudicially (stipulation of the
parties).

Effects when there is morasolvendi:

a. Creditor may ask for damages.
 b. Debtor is liable even if the loss is due to fortuitous event.
c. Debtor shall bear the risk of loss.

Exemptions to “No demand, no delay” rule:

a. Stipulated by the parties.
b. Provision of law.
c. Time is of the essence.
d. Demand would be useless.
Note: Neither incurs delay in a delay in reciprocal obligations. (It is mutually
compensated.
d. Contravention of the term of agreement.

G. KINDS OF DAMAGES
a. Moral - refer to emotional injury.
b. Exemplary - way of example or correction as an additional to
other damages except nominal damages.
c. Nominal - refer to vindicate a right..
d. Temperate - refers to pecuniary loss but cannot be proved
certain.
e. Actual - refer to pecuniary loss.
f. Liquidated - stipulation of the parties to be paid in case of breach.

H. OBLIGATIONS TO GIVE
a. Preserve and take good care of the thing.
b. Deliver the thing including its fruits, if any.
c. Deliver the accessions and accessories.
Obligation to do: (in case of failure to perform an obligation; performance in the
contravention of the agreement; obligation poorly done.)
Obligation not to do:
a. To be undone at the expense of the debtor.
b. Damages for breach of contract
I. KINDS OF FRUITS
a. Natural
b. Industrial
c. Civil

J. FORTUITOUS EVENT OR FORCE MAJEURE (Art.1174)

General Rule: Obligation to comply is extinguished.
Exceptions:
a. Stipulated by the parties.
b. Law expressly provides.
c. Nature of the agreement requires assumption of risk. (Ex. Insurance contracts)

K. RIGHTS OF CREDITOR
a. Demand fulfillment of obligation or specific performance.
b. Attach the properties of the debtor. (a notice only)
c. Exercise all rights of the debtor (accionsubrogatoria).
d. Ask for rescission of contract intended to defraud him (accionpauliana).

L. KINDS OF OBLIGATIONS

a) Primary classification of obligation

1. Pure obligation

2. Conditional obligation

3. Obligation with a period

4. Alternative obligation

5. Facultative obligation

6. Joint obligation

7. Solidary obligation
 8. Divisible obligation

9. Indivisible obligation

10. Obligation with penal clause

b) Secondary classification of obligation:

1. Unilateral and bilateral

2. Real and personal

3. Determinate and generic

4. Legal, conventional and penal

5. Civil and natural

M. PURE AND CONDITIONAL OBLIGATIONS

a. Pure and conditional obligation
Pure obligation is one which is not subject to any condition and no specific
date is mentioned for its fulfillment by the debtor and is, therefore,
immediately demandable by the creditor.
Conditional obligation is one which is subject to a condition. Condition is a
future and uncertain (it may not happen) event upon the happening of which
the effectivity or ineffectivity of the obligation subject to it depends.

b. Kinds of condition
Principal kinds:
1. Suspective – the fulfillment of which will give rise to obligation.
2. Resolutory – the fulfillment of which will extinguished the obligation.
Conditions that annul or invalidate the obligation which depends upon them:
1. Potestative – a suspensive condition which depends upon the sole will
of the debtor.
 When the debtor binds himself to pay when his means permit him to do
so, the obligation shall be deemed to be one with a period.
2. Impossible – a condition which cannot, in the nature of things, exist or
be done; or which is contrary to law, morals, good customs, public order
or public policy.

c. Effects of fulfillment of suspensive condition

The obligation becomes effective on the day the obligation is
constituted. The effect is retroactive.
Retroactive effects as to the fruits:
A. If unilateral, the debtor as a rule, will get the fruits and interests.
B. If reciprocal, the fruits and interests during the pendency of the condition
are deemed mutually compensated although unequal.

d. Rules in case of loss, deterioration or improvement of the thing to be delivered

during the pendency of a suspensive condition.
1. If the thing is lost
a. Without the fault of debtor, the obligation is extinguished;
b. With the fault of debtor, the latter shall be obliged to pay damages.
A thing is lost when it perishes physical loss, or goes out of
commerce legal loss, or disappears in such a way that its existence is
unknown or it cannot be recovered (civil loss).
2. If the thing deteriorates
a. Without the fault of the debtor, the impairment is borne by the creditor.
b. Through the fault of the debtor, the creditor may choose between
rescission with damages and fulfillment also with damages.
3. If the thing is improved by its nature or by time, the improvements shall inure
to the benefit of the creditor.
4. If the thing is improved at the expense of the debtor, the latter has the same
rights as a usufructuary as follows:
 a. To remove the improvement should it be possible to do so without
damage to the property, but he shall have no right to be indemnified
therefore.
b. To reimbursed for necessary expenses incurred by him.
c. To set off the improvements he may have made on the property against
any damage to the same.
e. Obligation demandable at once
1. When it is pure.
2. When it is subject to a resolutory condition.
3. When it is subject to a resolutory period.

N. OBLIGATION WITH A PERIOD

a. Obligation with a period defined
An obligation with a period is one for whose fulfillment a period or term has
been fixed
A period is certain event upon the arrival of which the obligation subject to it
either arises or is extinguished.
b. Kinds of periods
1. Suspensive (ex die) – a day certain the arrival of which makes the obligation
demandable.
2. Resolutory (in diem) – a day certain the arrival of which terminates the
obligation.
c. When the court may fix a period
1. When the obligation does not fix a period but it can be inferred from its
nature and circumstances that a period was intended.
2. When the duration of the period depends upon the will of the debtor.

In the case of potestative condition, it is actually the fulfillment of the obligation

that depends upon the will of the debtor. The obligation is void.
O. ALTERNATIVE AND FACULTATIVE OBLIGATIONS
a. Alternative and facultative obligations defined
An alternative obligation is one where several prestationshas been agreed upon
but the performance of one is sufficient to extinguish the obligation.
A facultative obligation is one where only one prestation has been agreed upon
but the obligor may render another in substitution.
b. Right of choice / effect
The right of choice belongs to the debtor, unless it has been expressly granted to
the creditor.
The choice shall produce effect only the time has been communicated to the
creditor. Until the election is made and communicated, the obligation remains
alternative.
c. When alternative obligation is converted into a simple obligation.
1. When the debtor’s choice is communicated to the creditor.
2. When the creditor communicated his choice to the debtor, if given the right
to choose.
3. When only one of the prestations due is practicable.

P. JOINT AND SOLIDARY OBLIGATIONS

1. Joint and solidary obligations defined
A joint obligation is one where the whole obligation is to be paid or fulfilled
proportionately by the different debtors and / or to be demanded
proportionately by the different creditor.
A solidary obligation in one where each of the debtors is bound to render,
and / or each of the creditors has a right to demand entire compliance with
the prestations.
2. Presumption
- The obligation is joint.
Solidary liability exists when:
1. The obligation expressly so states
2. The law requires solidarity
 3. The nature of the obligation requires solidarity
In a solidary obligation, there is only one debt and one credit regardless of
the number of debtors and creditors. A solidary creditor cannot assign or
transfer his rights without the consent of the others.

3. Features of joint liability

1. Insolvency of one debtor does not make the others liable
2. Vitiated consent on the part of one debtor does not affect the others
3. Demand made to one of the debtors is not a demand to all because the
debt of one is distinct from the others.

Q. DIVISIBLE AND INDIVISIBLE OBLIGATIONS

a. Divisible and indivisible obligations defined
A divisible obligation is one the object of which in its delivery or performance is
capable of fulfillment by parts.
An indivisible obligation is one the object of which in its delivery or performance
is not capable of fulfillment by parts.
b. Test for the distinction
The controlling circumstance is the purpose of the obligation or the intention of
the parties. Hence, even though the obligation or service may be physically
divisible, an obligation is indivisible if so provided by law or intended by the
parties.
However, if the object is not physically divisible or the service is not susceptible
of partial performance, the obligation is always indivisible, the intention of the
parties to the contrary notwithstanding.

c. Joint indivisible obligation

A joint indivisible obligation is one where the parties are merely proportionately
liable but the object or subject matter thereof is not physically divisible into
different parts.
Obligation deemed indivisible:
 1. Obligations to give definite things
2. Obligations which are not susceptible of partial performance
3. Obligations provided by law to be indivisible
4. Obligations intended by the parties to be indivisible
Obligations deemed divisible.
1. Obligations which have for their object the execution of certain number
of days of work
2. Obligations which have for their object the accomplishment of work by
metrical units
3. Obligations which by their nature are susceptible of partial performance
If the obligation is divisible nut only partially performed, the obligor can enforce
his right in proportion the services performed. – Quantum meruit principle.

R. OBLIGATION WITH A PENAL CLAUSE

a. Obligation with a penal clause defined
An obligations with penal clause is one which contains an accessory
undertaking (penal clause) to pay a previously stipulated indemnity (penalty)
in case of breach.
There is no fundamental difference between a penalty and liquidated
damages.
b. Concept and nature of penalty
In an obligation with a penal clause, the penalty shall substitute the indemnity
for damages and the payment of interest in case of non-compliance, if there
is no stipulation to the contrary. A penal clause is an accessory undertaking to
assume greater liability in case of breach.
c. Damages and interest may be demanded by the creditors.
1. When it is stipulated
2. When the debtor is guilty of fraud
3. When the debtor refuses to pay the penalty
EXERCISES:
*Practice set will be given online.