OBLIGATION

Delict
Obligation (Art. 1156) Arising from commission of crimes. (INTENTIONAL)
A juridical necessity to give, to do, and not to do Includes both:
1. Criminal Liability - proof beyond reasonable doubt
Civil Obligation 2. Civil Liability - preponderance of evidence (paramihan)
Has the right of action to compel performance Remedies:
1. Restitution
Natural Obligation 2. Reparation
3. Indemnification
No right of action to compel performance
Civil obligation that has prescribed is a natural obligation that when can
be voluntarily performed by the creditor and the debtor has the right to Quasi-delict
retain the consideration received. Requisites:
A third person, without the knowledge of the debtor , pays his debt. The 1. Act or omission
debtor is not legally bound to pay but when the debtor later pays the third 2. Fault/negligence
person, the debtor cannot recover it. 3. Damage caused
When the creditor losses in a civil obligation but the debtor voluntarily 4. Direct relation of cause and effect
pays the creditor, the debtor cannot demand return of the object 5. No existing contract
delivered or its value. Vicarious Liability
The debt of the heir is limited to the value of the property he receives. When the following commits quasi delict who are responsible?
When an heir voluntarily pays the debt of the deceased exceeding the Father, in case of death/incapacity,
property he receives, the heir cannot demand return of the object Minors who live in their company
mother
delivered. Minors/incapacitated Guardians
Employees Owners/Managers
Elements of Obligation Pupils and students, as long as they
Teachers/heads
Natural Obligation Description remain in their custody
Employees and household helpers
Favors the obligation; has the right Employers
Active Subject/Creditor/Obligee in doing their task
to compel
Special Agents The State
Passive Subject/Debtor/Obligor Who performs the obligation
The one responsible can defend themselves by proofing that they exercise
To give, to do, or not to do
diligence of a good father of a family.
1. Possible
Prestation
2. Determinable
3. With equivalent in money KINDS OF OBLIGATION
1. Law
2. Contracts
Legal Tie/ Vinculum Juris 3. Quasi-contracts Pure Obligation
4. Delicts immediately demandable, regardless of the presence of condition or a
5. Quasi-delicts term/period

Trasmissibility of an Obligation
Conditional Obligation
General Rule
All rights acquired in virtue of an obligation is transmissible subject to a condition- a future and uncertain event including acquisition of
Exception to the General Rule knowledge of a past event unknown to the parties
1. Nature of obligation is not transmissible
2. By stipulation
3. By provision of law Obligation arises when the
condition happens
Suspensive
Sources of Obligation Debtor’s will = VOID
As to when the
Creditor’s will = VALID
Law obligation should
Obligation ceases when the
be performed
Not presumed and should be expressly determined in the NCC condition happens
Resolutory
Ex. duty of support, duty to pay taxes Debtor’s will = VALID
Creditor’s will = VALID
Contracts Potestative Depends on the will of one part
Depends on chance/ will of a
Have the force of law between contracting parties and should be complied in As to whom it Casual
third person
good faith Depends
Partly on parties, partly on third
Mixed
person/chance
Quasi-contracts Divisible Can be performed in parts
As to Divisibility
No one shall be unjustly enriched at the expense of another. There is a Indivisible Cannot be performed in parts
lawful, voluntary and unilateralact. All must be performed to
As to number of Conjunctive
Negotiorum Gestio Solutio Indebiti comply with the obligation
obligation in
Requisites: Something has been unduly Only one must be performed to
multiple obligation Alternative
1. Voluntary Action delivered through mistake OR comply
2. Abandoned/neglected something was received by when Positive Act (condition to do)
As to nature
3. No authorization by the owner there was no right to demand it Negative Omission (condition not to do)
Remedy: Remedy: As t o how made Express stated
Owner shall pay the amount spent Return the thing; OR pay its value known to the other
Implied Merely inferred
by the gestor. party
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 Whether the Possible Can be fulfilled Creditor’s Choice
obligation can be Fortuitous Event Debtor’s Fault
Impossible Cannot be fulfilled
fulfilled All are loss Extinguished Value of last lost +
Damages
Constructive Fulfillment Some are lost Any of the remaining Any of the remaining +
When the debtor voluntarily prevents the fulfillment of the condition, the Damages/ value of the
condition is deemed fulfilled. lost
One remains The one remains The one remains +
Impossible Condition Damages
1. Physically Impossible - cannot exist or cannot be done
2. Legally Impossible - contrary to law, morals, good customs, public order FACULTATIVE OBLIGATION
or public policy What is lost is the Obligation is
If divisible, only the part unaffected is VALID. Before Substitution Principal Extinguished
If obligation is pre-eixisting, only the condition is VOID. Substitute Not Extinguished
After Substitution Principal Not Extinguished
Effect of Fulfillment of an Obligation Substitute Extinguished
General Rule
RETROACTIVE, as if it happens on the day of the constitution of the JOINT VS SOLIDARY
obligation JOINT SOLIDARY
Exception: Presumed by law Not presumed but should be
1. Fruits expressly stated
2. Period of Prescription Each debtor is liable only for a Each debtor is obliged to pay the
proportionate part of the entire debt. entire obligation.
Loss, Deterioration and Improvement of a specific thing during the Each creditor, if there are several, is Each creditor has the right to
pendency of a suspensive condition. entitled only to a proportionate part demand from any of the debtors,
Not debtor’s fault Extinguished of the credit. payment or fulfillment of the entire
Loss
Debtor’s Fault Damages obligation
Not debtor’s fault Loss of Creditor
Deterioration 1. Fulfillment +Damages DIVISIBILITY TEST OF PRESTATION
Debtor’s Fault
2. Rescission + Damages If a thing could be divided into parts and as divided, its value is impaired
By nature/time Gain to Creditor disproportionately, that thing is indivisible. If Indivisible, partial performance
The debtor can only remove is tantamount to non-performance.
Improvement
By effort of Debtor the improvement
(usufructuary) OBLIGATION WITH A PENAL CLAUSE
General Rule
Effect of Happening of Resolutory Condition Penalty fixed by parties is a compensation or substitute for damages in case
When the resolutory condition happens, the should be a mutual restitution or of breach.
both parties shall go back as if the obligation never happened.
Nullity of Penal Clause = Not Nullity of the Principal Obligation
Obligation with a Period Nullity of the Principal Obligation = Nullity of the Penal Clause
certain event which must happen sooner or later at a date known
Penalty may be reduced when:
beforehand
1. Partial Performance is made
Ex. When a person dies, when his means permits him to do so
2. Penalty is unconscionable
Exception:
When may court fix the period
Damages shall still be paid even if there is a penal clause if:
1. Instead of recission, the court fixed a period
a. there is a stipulation to the contrary;
2. Nature of obligation requires a period
b. the debtor refuses to pay the agreed penalty;
3. The duration depends on the debtor’s will
c. the debtor is guilty of fraud in the fulfillment of the obligation.
The debtor losses the right to make use of the period
1. Insolvency
2. Non delivery of guarantee provided
3. Loss/impairment of the guarantee provided, unless he provided new
NATURE AND EFFECT OF OBLIGATION
guarantee
4. Violation of the undertaking Obligation to Give a Determinate Thing
5. He abscond
Standard of Care:
Conjuctive vs. Alternative vs Faculatative 1. What the law provides, or stipulation agreed by parties
Conjucntive Alternative Facultative 2. Ordinary Care: Diligence of a Good Father of a Family
Two or more Two or more Two or more
prestations are due; prestations; fulfillment prestation, principal or Obligation of Debtor Rights of Creditor
requires performance of one extinguishes the substitute; debtor has 1. Take care of the thing 1. Compel delivery
of all obligation the right to substitute 2. Deliver the thing 2. To the fruit
3. Deliver the fruits 3. To the accessories and accesions
Loss of object in an alternative obligation 4. Deliver the accessories and 4. To refuse to receive a different
Debtor’s Choice - DEFAULT accessions one
5. Pay damages 5. Right to Damages
Fortuitous Event Debtor’s Fault
All are loss Extinguished Value of last lost +
Damages
Some are lost Any of the remaining Any of the remaining
One remains The one remains The one remains
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 Kind of Fruits NEGLIGENCE (CULPA)
Natural Industrial Civil When diligence required isnot exercised.
Product soil, young those derived from those derived from the Contractual
Civil Negligence Criminal Negligence
other products of human intervention juridical relation of Negligence
Culpa Aquiliana Culpa Criminal
animals cultivation or labor parties. Culpa Contrcatual
There is an existing There is no existing Criminal Act is
Right to the fruit: contract contract between the committed
1. Personal Right: When the time to deliver the obligation arises parties involved
2. Real Rights: When the obligation is delivered Ex. A driver to a Ex. The passenger
passenger Ex. A bystander bit by died.
Accessories vs. Accesions a driver
Accessories Accessions
Included in the principal; the Improvements in the principal, Negligence on the part of the Creditor
principal cannot function without it excluding fruits Creditor’s negligence is the Creditor’s negligence is only
immediate and proximate cause contributory
Obligation to Give a Generic Thing
Obligation of Debtor Rights of Creditor Not entitled to damages Damages may be reduced
1. Take care of the thing 1. Compel delivery
2. Deliver the agreed quality 2. Make a third person comply at the DELAY (MORA)
3. Not deliver a superior or inferior expense of the debtor
quality 3. Not to be compelled to receive a Requisites of Delay
4. Pay damages different one although same value or 1. Failure to perform an obligation due and demandable
higher 2. Failure to comply to judicial or extrajudicial demand
4. Right to Damages
General Rule
Obligation to do No demand, No delay
Obligation of Debtor Rights of Creditor Exception to the General Rule
1. Do it 1. Have it done at the expense of 1. Law/stipulation expressly dictates
2. Shoulder the cost of doing it the debtor 2. Time is of the essence
3. Undo poor work 2. Right to damages
4. Pay Damages Cannot compel performance Mora Solvendi Mora Accipiendi Compensatio Morae
because it will violate the provision Delay on part of debtor Delay on part of Delay on part of both
on involuntary servitude. creditor parties

Obligation not to do Involuntary Breach due to Fortuitous Event

Obligation of Debtor Rights of Creditor Fortuitous Event Force Majeure
1. Not do it 1. Have it undone at the expense of Acts of God Acts of Man, other than the debtor
2. Shoulder the cost of undoing it the debtor General Rule
3. Pay Damages 2. Damages, if impossible to undo Creditor cannot demand damages
Exception to the General Rule
Remedies for Breaches 1. Allowed by law/by stipulation
1. Specific Performance (To give a specific thing) 3. Nature of obligation requires assumption of risk
2. Rescission/Cancellation (Reciprocal Obligation) 4. Debtor, guilty of dolo, malice or bad faith, promised the same thing to
2/more persons who does not have same interest
KINDS OF DAMAGES = MENTAL 5. Debtor contributed to loss
Moral For mental and physical anguish 6. Debtor is guilty of fraud, negligence or delay
Exemplary Corrective or to set an example
Nominal Vindicate a right when no other kind of damages
may be recovered. May right na na violate PAYMENT/PERFORMANCE
Temperate Exact amount of damages cannot be determined
Actual Damages Actual losses incurred and requires actual proof Who should pay?
Liquidated Predetermined beforehand 1. Debtor/Agent
2. Heir
FRAUD (DOLO) 3. Third person interested*
There is fraud when, through insidious words or machinations of one of the To whom: Creditor/Agent
contracting parties, the other is induced to enter into contract which, without Where:
them, he would not have agreed to. 1. As stipulated
2. Specific thing: Where the object is when the obligation is established
Waiver for Future Fraud = VOID 3. Domicile of the debtor
Waiver for Past Fraud = VALID When: Upon demand/as stipulated
How:
1. In currency agreed
Causal Fraud Incidental Fraud 2. In legal tender
Dolo Causante Dolo Incidente
The party would not have entered Fraud is commitment during the Rights of third person who paid the debt
into the contract were it not for the performance of the obligation. With Knowledge and Consent of Without Knowledge and Consent
fraud Debtor of Debtor
1. Absolute reimbursement 1. Reimbursement insofar the
VOIDABLE VALID 2. Subrogation of the rights of the benefits of the debtor
creditor
Remedy: Remedy:
Annulment Damages
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General Rule
Payment/Performance should always be in full Partial Condonation/Remission
Exception to the General Rule Condonation of principal debt = extinguish accessory obligations
1. Substantial Compliance - debtor substantially paid/performed in good Condonation of accessory obligations = principal debt still exist
faith the obligation
2. Estoppel - creditor accepts payment/performance knowing its
incompleteness or irregularity without protest or objection Confusion
The debtor and the creditor becomes the same person.
SPECIAL FORMS OF PAYMENT OR PERFORMANCE
Payment by Dacion Payment by Cession Elements:
1. Only one creditor 1. Two or more creditor 1. must take place between the principal debtor and creditor;
2. Does not have to be insolvent 2. Insolvent 2. must be complete and definite;
3. Transfer of Ownership to creditor. 3. Does not transfer the ownership, 3. same obligation is involved
4. Only specific property (1) but creditors will be agent for selling.
4. Includes all the property Compensation
Extent of Extinguishment: 5. The proceeds from the sale of the There are two debts, where both parties are principal debtor and creditors of
GR: As to the extent of the amount property is applied based on priority. another.
agreed by the parties
EXC: Full extingishment through Extinguishment: 1. Must be mutual principal debtor and creditors of each other
express or implied agreement, or if Voluntary: To the extent of the 2. Both debts are due
silent. amount of the proceeds 3. Both are liquidated (not if under court litigation)
Judiciary: Full extinguishment of all 4. Sum of money, if consumable, must be same kind and quality
debts 5. No controversy as to the 3rd person

Application of Payment Pertinent Kinds:

GR: Application is depending on the Debtor TOTAL- when 2 debts are of same amount
EXC: Application is transferred to creditor if debtor make payment but does PARTIAL- 2 debts with different amounts where compensation is total as to
not make application. smaller debt and partial in relation to larger debt

1. Applied as agreed When compensation is not possible:

2. If no agreement, the payment is for the interest first. The remaining should 1. Depositary
be payment with interest as it is the most burdensome. 2. Bail
3. If cannot be determined which is most onerous, the payment is applied 3. Support
proportionate to all the debt.
Novation
Tender of Payment and Consignation Requisites:
Tender of Payment: Action expressing desire to fulfill the obligation 1. Valid Obligation
Consignation: Deposit of object in court 2. Agreement of all parties
Requisites 3. Extinguishment of Existing Obligation
1. Debt that is due and demandable 4. Valid New ObligationThere are two debts, where both parties are principal
2. Tender of Payment* debtor and creditors of another.
3. Unjust refusal of tender of payment
4. Notice of Consignation to interested parties before cogsignation If new obligation is VOID = Old obligation subsist
5. Depositing the object to the court Forms of Novation:
6. Notice of consignation after depositing the object 1. Changing the object
2. Substitution
Intances when tender of payment is not necessary* A. Expromision - 3rd person of his own initiative and without
a. creditor is absent or unknown, or doesn’t appear at place of payment; knowledge or against original debtor’s will assumes debtor’s
b. creditor is incapacitated to receive payment at the time it is due; obligation with creditor’s consent
c. creditor refuses to issue a receipt without just cause; Reimbursement: Beneficial Reimbursement
d. 2/more persons claim the right to collect; or
e. title of obligation has been lost B. Delegation - creditor accepts 3rd person to take place of debtor at
initiative of debtor. With consent of all.
Reimbursement: Full Reimbursement
Loss of a Thing Due 3. Subrogation - 3rd person is substituted to creditor’s rights
Specific Thing Generic Thing
GR: Obligation is extinguish GR: Obligation is not extinguish NOVATION IS NEVER PRESUMED.
EXC: (Same with involuntary It must be proven as a fact either by:
breach) 1. Explicit declaration – declared in unequivocal terms; or
2. Material incompatibility – old and new obligations be on every point
WHEN IS THE THING CONSIDERED LOST: incompatible with each other.
1. It disappears in such a way that its existence is unknown, or if known, it
cannot be recovered
2. It goes out of commerce NOT A NOVATION
3. It perishes 1. Waiver of an interest in a loan;
2. Extension of term/ period of payment;
Condonation/Remittance of Debt 3. Acceptance of partial payment by creditor before maturity of loan;
Requisites: 4. Reduction of amount of loan
1. Demandable Debt
2. Gratuitous Novation is not a mode of extinguishing criminal liability.
3. Acceptance of Debtor It may prevent the rise of criminal liability as long as it occurs prior to the
4. Inofficious filing of criminal information in court.
5. Complied req. on law on donations
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 CONTRACTS 1.
Special Cases of Offers
The person making the offer may fix the time, place, and manner of
acceptance, all of which must be complied with.
Contracts (Art. 1305) 2. An offer made through an agent is accepted from the time
Contracts is a meeting of minds between two parties whereby one binds acceptance is communicated to him.
himself, with respect to the other, to give something or to render some 3. An offer becomes ineffective upon the death, civil interdiction,
service. insanity, or insolvency of either party before acceptance is
conveyed
Type of Elements of a Contract 4. Advertisement for bidders are simply invitations to make offers.
Essential Elements Natural Elements Accidental Elements
Consent, Object, those granted by the those the parties Elements of Valid Offer and Acceptance:
Cause law, even if parties do stipulate. Ex. Interest 1. Definite/unequivocal
not stipulate 2. Intentional
3. Complete/unconditional
Stages of the Contract
Preparation/ Perfection/ Consummation/ Consent
Negotiation Birth Death/Termination The parties should be in necessary binding capacity
Exchanges of offers Parties come to an Parties perform their Absolute Incapacity Relative Incapacity
and Counter-offers agreement; all obligations under the Incapacitated to enter any kinds of Cannot enter in some kind some
essential elements contract contract contracts
No binding effect must exist VOIDABLE VOID
1. Unemancipated minor 1. Under Civil Interdiction
Fundamental Characteristics of a Contract Exc: 2. Undischarged Insolvent
Obligatory Force 1. Contracts involving necessity 3. Husband and wife cannot donate
Once contract is perfected, it shall have obligatory force upon both parties. 2. Minor misrepresented his age to each other
Autonomy
GR: Parties are free to enter into contract and establish stipulations, terms 2. Insane or demented person
and conditions as they may deem convenient. Exc. Lucid intervals

EXC: They cannot enter to contracts contrary to law, morals, good 3. Deaf-mute who do not know
customs, public order or public policy. how to write
Mutuality
Validity or compliance of contract cannot be left to the will of one of them FORMALITIES OF CONTRACTS
Relativity General Rule
GR: Contract can bind only the parties, their assigns or successors No form necessary for contracts to be valid
Exception to the General Rule
EXC: 1. Donation of movable property
1. Stipulation Pour Autrui (as per stipulation, a third person is entitled to more than 5000
interest) Must be in writing 2. Contract of Agency of an agent
2. Third person in possession of property creating real rights (Two person selling a land
claiming a land) 3. Agreement on interest
3. Third person induces a party to violate contracr (he can also be sued) 1. Donation of immovable property
4. Contracts entered into to defraud creditors (Sold a land that can be 2. Donation of immovable property
repurchased, in order to not pay creditor) Must be in public Instrument
to a partnership (inventory of
immovables)
Classification of Contracts Must be registered 1. Sale/transfer of large cattles
As to Perfection As relation to other As to cause
contracts Interpretation of Contract
1. Consensual - COC 1. Preparatory - 1. Onerous – with
preliminary step exchange of correlative If terms of a contract are clear and
2. Real - COC + values leave no doubt upon intention of
Delivery 2. Principal - 1. Literal Meaning Governs
contracting parties, literal meaning
standalone 2. Gratuitous- of its stipulations shall control.
3. Solemn - COC liberality like kindness,
+Delivery +Formality 3. Accessory - love without any
depends on the exchange If the words appear to be contrary to
principal the evident intention of the parties,
the intention shall prevail over the
literal words.
2. Spirit of the Contract (Intent
Essential Elements of Contracts over Literal Interpretation)
Consent Object Cause To determine intention of contracting
1. With concurrence of 1. Within commerce of 1. Exists at the time parties, their contemporaneous and
offer and acceptance men the contract is entered subsequent acts shall be principally
into considered.
2. Legal capacity of 2. Not legally or
contracting parties physically impossible 2. Lawful Interpretation against Party Causing
Obscurity- The interpretation of
3. must be intelligent, 3. Determinate or 3. True or real Interpretation against Party
obscure words or stipulations in a
free, spontaneous, determinable Causing Obscurity-
contract shall not favor party who
and real caused the obscurity.

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 REFORMATION
Requisites: VOIDABLE CONTRACTS
1. Consent of parties as to object and cause Concept: Valid and obligatory unless annulled or set aside by a proper
2. Their true intention is not expressed in the instrument; action (ANNULMENT) in court; action for annulment is with prescription or
3. Such failure to express their true intention is due to mistake, fraud, prescriptible.
inequitable conduct, or accident; and
4. There is clear and convincing proof of mistake, fraud, inequitable conduct, Types:
or accident 1. Those where one of the parties is incapable of giving consent to a
contract
Remedy
GR: As remedy in equity, the written instrument is made so as to express A. Deaf‐mutes who do not know how to read and write (illiterates)
or conform to the real intention of parties B. Insane or demented persons
EXC: Contract entered into during lucid interval
EXC: C. Minors
1. Will EXC:
2. Void Contracts A. Minor actively misrepresents his age
B. 7-year old minor who is able to read and write opens a savings
DEFECTIVE CONTRACTS account without assistance of his parents
VALID BINDING ENFORCEABLE
Rescissible Yes Yes Yes
Voidable Yes Yes Yes 2. Those where the consent is vitiated by mistake, violence, intimidation,
Enforceable Yes No No undue influence or fraud;
Void No No No
Vices of Consent
Why Can be Remedy 1. Mistake - must be substantial and not merely accidental; mistake as to
Defective? Ratified? identity or qualifications of one of parties will vitiate consent only when such
Rescissible Causes damage Yes Rescission identity or qualifications have been principal cause of contract.
to 3rd person
Voidable Defective Yes Annulment 2. Intimidation/Undue influence - internal moral force operating in the will
consent and inducing performance of an act. (Valid if the threat is legal)
Enforceable Lack of form Yes N/A
3. Violence – external, serious or irresistible physical force exerted upon a
Void Missing COC No N/A
person to prevent him from doing something or to compel him to do an act.
(Irresistible)
RESCISSIBLE CONTRACTS
Pertinent Instances: 4. Fraud/Dolo – use of insidious words or machinations in inducing another
1. Those entered into by guardians whenever the wards whom they party to enter into the contract, which without them, he would not have
represent suffer lesion/injury by more than one-fourth of the value of agreed.
object of contract

2. Those in representation of absentees, if the latter suffer injury stated REMEDY:

in No. 1; ANNULMENT - will render the contract void
EXC:
3. Those undertaken in fraud of creditors when the latter cannot in any 1. The object is lost through the fault of the person who can annul
other manner collect the claims due them; 2. When it is ratified
4. Those which refer to things under litigation if they have been entered RATIFICATION: will make the contract valid
into by the defendant without knowledge and approval of the litigants or of 1. Knowledge why the contract is voidable
competent judicial authority. 2. The reason has ceased
3. An act which necessarily expresses or implies an intention to waive his
REMEDY: right
RECISSION - only SUBSIDIARY, when there is no other means
Effect: Mutual Restitution
UNENFORCEABlE CONTRACTS
Concept: Lack of Authority/Form
EXC:
Ratification: Render the contract valid, binding, and enforceable
a. Person who demands rescission cannot return what he is obliged to
restore under the contract; or
Statutes of Fraud: (should be in writing, unenforceable if oral)
b. Subject property is legally in possession of a 3rd person who acted in
1. Contracts not to be performed within a year
good faith
2. A special promise to answer for the debt, default, or miscarriage of
another
3. Agreement in consideration of marriage
VOID CONTRACT
4. Sale of personal property for 500 pesos or more
Pertinent Instances 5. Lease of real property for more than 1 year
1. Those which cause, object or purpose is contrary to law, morals, good 6. A representation as to the credit of a third person
customs, public order or public policy; 7. Sale of real property (Art. 1358)
2. Those absolutely simulated or fictitious;
3. Those whose object is outside the commerce of men;
4. Those which contemplate an impossible service;
UNFAMILIAR TERMS
5. Those expressly prohibited or declared void by law
1. Pari delicto - in equal fault
LACHES 2. Pacto de retro - sale with right to repurchase
failure or neglect for an unreasonable and unexplained length of time to
do that should have been done earlier warranting a presumption that the
party entitled to assert it either has abandoned it or declined to assert it.
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 PARTNERSHIP 2. As wages of an employee or rent to a landlord
3. As interest on a loan, though the amount of payment vary with the profits
of the business
Partnership (Art. 1767) 4. As the consideration for the sale of a goodwill of a business or other
Two or more person bind themselves to contribute money, property, and property by installments or otherwise
industry to a common fund with the intention of dividing the profit among
themselves.
Partnership Term
A partnership begins from the moment of the execution of the contract,
KINDS OF PARTNERSHIP AS TO OBJECT unless it is otherwise stipulated.
Universal Partnership
All Present Property All Profits Fixed Term/ At will
Include all properties at the time include all those the partners may Particular Undertaking
of the constitution of the acquire by their industry or work The contract states the date and The dissolution of partn. depends on
partnership during the existence of the time when the partn. ends. the mutual desire and consent of the
partnership. parties.
EXC:
Properties subsequently acquired
by inheritance, legacy or donation GENERAL PROFESSIONAL PARTNERSHIP (GPP)
formed by persons for the sole purpose of exercising their common
Particular Partnership profession, no part of the income of which is derived from engaging in any
Its object may be determinate things, their use or fruits, or specific trade or business.
undertaking, or the exercise of a profession or vocation.
GPP VS Ordinary Partnership
WHEN OBJECT IS UNLAWFUL GPP Ordinary
1. Partnership is void ab initio Not taxable Taxable
2. Once dissolved by judicial decree: Income tax is imposed on the Income tax is imposed on the entity
A. Profits shall be confiscated by favor of the State; partners themselves itself
B. Instruments or tools and proceeds of the crime shall also be Files ITR to determine the share of Files ITR to determine the tax
forfeited in favor of the State tax of each partner payable of the entity
3. The contributions of partners shall not be confiscated unless they are
instruments or tools of the crime KINDS OF PARTNERS
extending to his separate properties when
FORMALITIES As to General
partnership properties had been exhausted
General Rule Liability
Limited only to the extent of his contribution
No required form for a contract of partnership is necessary. Money/Property
Exception to the General Rule
Immovable/Real Public Instrument + GR: Prohibited from engaging in other
NONCOMPLIANCE:
Rights is Inventory signed by the business with same kind
VOID
contributed parties EXC: Stipulation
Capital in Capitalist
Public Instrument NONCOMPLIANCE:
money/property is Effect:
+Registration in SEC VALID
Php. 3,000 or more (1) Bring to the common funds any profits
(2) suffer the losses
CHARACTERISTICS OF PARTNERSHIP
General As to
Industry
1. Principal – independent from other contracts; Contribution
2. Preparatory – a means to an end; GR: Prohibited from engaging in any
3. Commutative – undertaking of each one is considered equal with others; business for himself
4. Consensual – perfected by mere consent; EXC: Stipulation
5. Bilateral – entered by two or more persons; Industrial
6. Onerous – contributions have to be made Effect:
7. Nominate – has a special designation in law. (1) Exclude him from the partnership;
Specific (2) Demand the benefits received from other
1. Informal/Consensual and Weak Juridical Personality business
2. Mutual Agency
3. Delectus Personae
DUTIES OF PARTNERS AS TO CONTRIBUTION
PARTNER BY ESTOPPEL/OBSTENSIBLE PARTNER
1. A person who, by words spoken or written or by conduct represents
himself as a partner 1. Contribute what has been promised
2. Consents to another representing him to anyone as a partner 2. Be bound for warranty against eviction
3. GR: Contribute EQUALLY
CONSEQUENCE: EXC: Contrary stipulation; purely industrial partner
A partner by estoppel is liable to the persons to whom such representation
has been made. Additional Contribution:
Scenario: There is an imminent loss of the business of the partnership and
majority of capitalist partners are of the opinion that an additional
PRIMA FACIE EVIDENCE
contribution to the common fund would save the business BUT capitalist
General Rule
partner refuses deliberately to contribute additional share.
receipt of a share in the profits of a business is prima facie evidence that he
is a partner.
EFFECT: The partner who refuses EXCEPT an industrial partner shall be
Exception to the General Rule obliged to sell his interest to the other partners unless otherwise stipulated.
1. As a debt by installments
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LIABILITIES OF PARTNERS FOR PARTNER’S ACT CAUSES OF DISSOLUTION
GR: Every partner may execute acts with binding WITHOUT VIOLATION of Partner’s Agreement
Within the ordinary effect even if he has no authority 1. Termination of the definite term or particular undertaking specified in the
course of business EXC: 3rd person has knowledge of such lack of agreement;
authority
2. Express will of any partner, who must act in good faith, when no definite
Not within the term/undertaking is specified. If bad faith, subject to damages
Do not bind the partnership unless authorized by
ordinary course of WITH VIOLATION of Partner’s Agreement
other partners
business
If the cause is not justified or no cause was given, the withdrawing partner is
GR: Do not bind the partnership liable for damages but cannot be compelled to remain in the firm.
Strict Dominion EXC: All other partners authorized the same or BY OPERATION OF LAW
abandoned the business 1. Any event which makes it unlawful for the business of the partnership to
be carried on;
2. Partner’s death;
LOSSES AND LIABILITIES OF INDUSTRIAL PARTNER 3. Partner’s or Partnership’s insolvency;
Loss Liability 4. Partner’s Civil Interdiction
Exempt Not exempt. Liable pro rata but can BY COURT DECREE
seek reimbursement to the other 1. Partner’s insanity
partners 2. Partner’s permanent incapacity to perform partnership business
3. Partner’s willful OR persistent commission of a breach of partnership
COLLECTION OF DEBT FROM COMMON DEBTOR agreement
Two Debt One debt
(1) Partnership (1) Partnership Order of Application of Marshaling of Asset
(2) Managing Partner Partnership Asset
When a managing partner received When 1 partner receives initial 1. Outside Creditors 1. Partnership creditors have priority
payment: payment from a debtor and the 2. Inside Creditors on partnership property;
debtor becomes insolvent and other 3. Capital 2. Separate creditors have priority
GR: Apply the payment pro-rata to partner have not received their 4. Profit on individual property;
the two debts credit: 3. Anything left from either shall be
EXC: If the payment is for the applied to satisfy the other
partnership alone, apply only to the GR: The partner who received
partnership payment shall bring the payment to LIMITED PARTNERSHIP
the partnership capital 1. Formed by compliance with the statutory requirements.
A. Sign and swear to a certificate
LIABILITIES OF PARTNERS FOR PARTNERSHIP OBLIGATIONS B. File for record the certificate in the SEC.
Subsidiary Solidary
All partners are subsidiary liable pro- All partners are solidary liable to the 2. Should have at least one general partner that would be the managing
rata when all of the partnership liabilities arising from wrongful act or partner. Obligations or debts are paid out of the partnership assets and the
asset is exhausted for the omission or misappropriation of individual property of the general partners.
contractual obligation of the money of by any partner acting in
partnership the ordinary course of business EFFECTS OF NON-COMPLIANCE WITH SEC
1. As to 3rd persons the partnership is general, unless they recognized that
Any stipulation against subsidiary With right to reimbursement from the the firm is limited
liability shall be VOID except as guilty partner 2. As between partners partnership remains limited, since they are bound by
among the partners. their agreement

LIMITED PARTNER
SUBPARTNERSHIP 1. has no right to manage
Every partner may associate another person with him in his share, but the 2. cannot contribute industry
associate shall not be admitted into the partnership without the consent of all 3. not prohibited to engage in any kind of business
the other partners, even if the partner having an associate should be a
manager. WHEN CAN A LIMITED PARTNER WITHDRAW OR REDUCE HIS
CAPITAL
DISTRIBUTION OF PROFIT AND LOSS 1. All partnership liabilities (OUTSIDE) have been paid or there remains
1. AGREEMENT property of the partnership sufficient to pay them
2. Agreement in Profit but no agreement for loss = SAME 2. With consent of all members, except when return is a matter of right
3. Agreement on Loss but no agreement for profit = CAPITAL CONT. 3. Certificate is cancelled or so amended as to set forth the withdrawal or
4. CAPITAL CONTRIBUTION reduction.
5. Industrial Partner - JUST AND EQUITABLE
SETTLEMENT OF ACCOUNTS
Excluding any capitalist partners from share of profits or losses = VOID 1. All creditors, including outside and limited partner
Excluding industrial partners from losses = VALID 2. Share in profit of LP
3. Contribution of LP
4. Liability to GP
Dissolution Winding Up Termination
5. Share in profit of GP
change in the relation settling of business consummation of
6. Contribution of GP
of partners caused by affairs settling business
any partner ceasing to affairs ADDITIONAL NOTES FROM ATTY. SORIANO
be associated in 1. Fiduciary Relationship - partnership is based on trust and confidence
partnership business 2. Affectio Societatis - the desire to formukate an ACTIVE union
Who cannot enter a Universal Partnership
1. Husband and Wife
2. Guilty of Adultery and Concubinage
3. Those guilty of same criminal offense
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 CORPORATION As to Nationality
Domestic Incorporated under PH laws
Incorporated under Foreign
Foreign
laws
Corporation (Sec 2, RCC)
Created under general law,
A corporation is an artificial being created by operation of law, having the Private
As to Creation generally for profit
right of succession and the powers, attributes, and properties expressly
and Purpose Created by special laws, for
authorized by law or incidental to its existence. GOCC
gevernment
Common No preference
Art No. 1459 Batas Pambansa 68 RA 11232
As to Preference With preference as to dividend
Corporation Law Corporation Code of Revised Corporation Preference
and asset in liquidation
April 1, 1906 the Philippines Code
May 1, 1980 February 23, 2019 Voting Common
As to voting Preference
Non-voting
Redeemable
Particulars Corporation
with fixed value stated in AOI
Persons Involved Not more than 15 Par Value
and COS
Birth Issuance of COI As to Par Value
No fixed value
with the approval/consent of board of No par value
Dissolution Minimum Value: P5
directors, stockholders and State
- with rights not enjoyed by other stockholders; if it’s with
Effect of death, insolvency,
Does not affect Founder’s right to vote and be voted during election of directors,
insanity and civil interdiction
shares said right must be for a limited period not to exceed 5
even without other stockholder’s consent years from date of incorporation.
Admission
Redeemable may be purchased by the corpo upon expiration of a
shares fixed period when provided by the AO
AMENDMENTS IN RCC
issued and fully paid by corpo but subsequently
BP 68 RA 11232 Treasury shares reacquired by issuing corpo by purchase, redemption,
Who can be an Natural Person Natural Person, Partnership, donation or other lawful means.
incorporator Corporation, Association
Watered issued as a bonus or without consideration or for a less
Minimum number of 5 No minimum req stock/Fictitious sum of money than the par value or for labor or property
Incorporator stock at a fair valuation less than the par value
Residence of allowed Majority: PH No residency req
incorporator residents SIGNIFICANT POINTS IN CORPORATION AND INCORPORATION
Directors 5 No minimum req 1. Each incorporator must own at least 1 stock
Director’s Residence Majority: PH No residency req 2. A corporation CANNOT be formed for practice of profession.
residents 3. Documents to be submitted to SEC: a. AOI; b. Treasurer’s Affidavit;
Corporation Name Include OPC,if OPC c. Verification Slip from SEC.
Corporation Term 50 years Perpetual Existence 4. Articles of incorporation may be filed with the SEC electronically.
Subscribed/Paid-in 25% - 25% No minimum req 5. Domicile of corporation: place where principal office of the corporation
Capital Rule 6. Grandfather rule: used in determining the nationality of corporation
A: Capital > 60% is owned by Filipinos: Wholly FILIPINO
INCIDENTAL POINTS IN RCC B: Capital < 60% is owned by Filipinos: PRO RATA, only the
1. Partnership may form a corporation with any person or corporation shares owned by FILIPINO are FILIPINO
2. Corporation may enter into partnership with other corporation if: 7. The due incorporation of any corporation and its right to exercise
A. All corporate partners are managing partners and not limited corporate power cannot be attacked collaterally. These may be
B. AOI expressly allows attacked only in a quo warranto proceeding by the Solicitor-General.
3. Corporation cannot be arrested or imprisoned, but can be summoned or 8. Does not commence 5 years from date of incorporation= COI will be
fined REVOKED
9. Continuously inoperative for at least 5 years = Delinquent Status
General Rule = DOCTRINE OF LEGAL ENTITY 10. Mass media corporation and rural bank = wholly owned by Filipinos;
1. Stockholders are not personally liable for the debts of the corporation 11. Advertising industry = at least 70% owned by FILIPINO
and vice-versa. 12. Other banks = 70% voting stock owned by Filipinos.
2. Stockholders are not the owners of corporate properties and assets.
Exception to the General Rule = DOCTRINE OF PIERCING THE VEIL OF DIRECTOR, TRUSTEES AND OFFICERS
CORPORATE FICTION BOARD POWER
The corporation and the stockholders are treated as one and the same if General Rule:
corporation is used for: All corporate powers including conduct of business and management of
1. Evasion of obligation corporate properties
2. Fraud, to justify a wrong or defend a crime EXC: Acts of strict dominion
3. Corp. is a mere conduit of a person
Who has the power to sue?
*Mere interlocking directorate is not a sufficient ground to disregard the 1. BOD/T Chairperson
corporate fiction 2. President
3. General Manager
CLASSES OF CORPORATION 4. Personnel Officer
5. Employment Specialist in labor case
capital stock divided into
shares and authorized to TERM OF OFFICE
As to Existence Stock
distribute dividends
of Stock Director Trustees
(STOCKHOLDERS
Non-stock all other corpo. (MEMBERS) Term 1 year At most 3 years
One-person One incorporator Number Not more than 15 Can be more than 15
As to Corporation Sole Religious groups
Composition Corporation
Incorporated by more than 1
Aggregate
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 QUALIFICATIONS DERIVATIVE SUIT
1. Natural Person 1. Complainant is a stockholder or member cat the time the acts
2. Owns at least 1 stock/ member of NSC complained of occurred and at the time the complaint was filed;
3. Not convicted by final judgment of an offense with imprisonment 2. He exerted all reasonable efforts to exhaust all remedies
exceeding 6 years 3. No appraisal rights are available
4. Not committed a violation of RCC within 5 years prior to the date of his 4. Complaint/suit was not a nuisance or harassment suit;
election 5. Complaint/suit must be in the name of the corporation.
5. Prescribed by law and by-laws
6. Not disqualified by law or by-laws SIGNIFICANT POINTS
INDEPENDENT DIRECTOR 1. Increase of authorized capital stock- certificate to such PLUS
Sworn Statement of Corpo’s Treasurer stating that:
INDEPENDENT DIRECTOR - person/shareholder who independent of A. At least 25% of the increase in capital stock has been subscribed
management and free from business or other relationship which could B. At least 25% of subscription has been paid
materially interfere with exercise of independent judgment as a director;
required in corpos. which are engaged in business vested with public 2. Nell Doctrine
interest GR: transfer of all assets of corpo. to another shall not render the transferee
liable to transferor’s liabilities.
Qualifications EXC:
1. Owner of at least 1 share of corpo 1. Buyer expressly or impliedly agrees to assume such debts
2. At least a college graduate or engaged or exposed to corporate business 2. Merger or consolidation of corporations
for at least 5 years 3. Buyer-corpo is merely continuation of seller-corpo
3. Possesses integrity/probity 4. Transaction is fraudulently to escape liability
4. Assiduous
3. Power to acquire its own shares - Such Corpo’s power is limited by
Number of Independent Directors in a Corpo: at least 20% of the board “trust fund doctrine”
QUORUM REQUIRED
4. GR: Board CANNOT be compelled to declare dividend
Stock Corporation: Majority of outstanding capital stock
EXC: Stock corpo. is PROHIBITED from retaining surplus profits in
Non-stock Corporation: Majority of members entitled to vote
excess of 100% of paid-in capital stock
EXC. To the EXC:
CUMULATIVE VOTING OF SHAREHOLDERS 1. Corporate expansion projects
Number of Votes = no. of shares x no. Directors to be elected 2. Loan agreement
A. Straight Voting = Equal number of votes to number of directors to be 3. Special reserve for probable contingencies
elected
B. Cumulative Voting for One - All the votes to one person 5. Place of Meeting: (1) principal office (2) city or municipality where
C. By Distribution - Shareholder has the discretion to distribute principal office is located. Directors can attend via videoconferencing,
respective votes teleconferencing or other alternative modes of communication.

OFFICERS OF THE CORPORATION 6. The secretary of the corporation acts in purely ministerial capacity. If
BOD vote and elect officers of the corporation the corporation refuses, it may be compelled by mandamus

1. President - must be a director 7. Delinquent Share - no payment within 30 days from date of payment
2. Treasurer - must be a resident Remedies:
3. Secretary - must be a resident and secretary 1. File an action in court for collection of payment + interest
4. Other Officers - as provided by the by-laws 2. Public Auction
5. Compliance Officer* -required for corpo vested with public interest Highest Bidder: one who offers to pay the full amount of the
subscription balance with accrued interest, costs of advertisement,
GR: Any person can hold two or more psitions and expenses of sale for the smallest number of shares
EXC:
President and Treasurer cannot be the same person 8. Appraisal Rights - Right to withdraw from the corporation and
President and Secretary cannot be the same person demand payment of the fair value of his shares after dissenting from
certain corporate acts involving fundamental changes in corporate
REMOVAL OF DIRECTOR/TRUSTEES structure
1. At a regular meeting or a special meeting
2. Notice of removal to stockholders given by the secretary;
3. Approved by a vote of stockholders holding 2/3 of the outstanding capital Cash Dividend Stock Divided
stock or 2/3 of members entitled to vote; 1. Declared by the board 1. Declared by the board and
4. Without cause, it should NOT deprive minority stockholders of 2. Cannot be revoked approved by shareholders
representation in board 3. Taxable 2. May be rescinded before
issuance
DIRECTOR IS LIABLE FOR DAMAGES SUFFERED BY CORPORATION 3. Not Taxable
1. They approve to patently unlawful act of corpo, or guilty of bad faith or
gross negligence Proxy Voting Trust Agreement
2. They agree to hold himself personally liable with corpo; 1. In writing. 1. In writing and notarized
3. They are made by specific provision of law to personally be liable 2. Agent of Shareholder 2. Votes as the owner
3. Does not become a shareholder. 3. Becomes the sole shareholder
DOCTRINE OF CORPORATE OPPORTUNITY 4. Must vote in person 4. May vote in person or by proxy
Director or trustee cannot be allowed to profit personally by acquiring 5. Presence of shareholder 5. Presence of shareholder does not
property that he knows the corporation will need or intends to acquire. terminates proxy. terminate the right to vote
6. Cannot be elected as director 6. Can be elected as director

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 Merger Consolidation Acts requiring:
Only one corporation remains which Both corporation is dissolved and Majority = BOD
acquires all the assets, liabilities and new corporation is established 2/3 = SHAREHOLDERS/MEMBERS
capital stock of all constituent which acquires all of assets, ADAM LI3ES
corporations liabilities and capital stock of 1. Amendment of AOI
dissolved corporations. 2. Dissolution, when creditors are affected
Employees are not automatically transferred. Surviving corporation becomes 3. Adoption of plan of distribution of assets in NSC
bound by the employment contracts.
4. Merger or Consolidation
ONE PERSON CORPORATION
5. Lease, Sale, Exchange, Mortgage, Pledge, Dispose of
substancially all asset
Who can be a single stockholder? 6. Increase or decrease of capital stock
1. Natural person 7. Incur bonded indebtedness
2. Trust 8. Investment in corporate funds
3. Estate 9. Extension or shortening of corporate terms
10. Stock Dividend Issuance
Who are not allowed to form an OPC
1. Banks, trust, insurance companies Acts requiring:
2. Non-chartered GOCC Majority = BOD
3. A licensed natural person to exercise a profession for the purpose of Majority = SHAREHOLDERS/MEMBERS
exercising such profession D’ FAM
1. Dissolution, if creditors are not affected
Officers of OPC
1. President 2. Fixing the issued price of No-par value shares
2. Treasurer 3. Amendment of by-laws
3. Secretary 4. Management Contracts

 The single stockholder shall be the sole director and president of the Acts requiring:
One Person Corporation Majority = BOD
 Within 15 days from the issuance of its certificate of incorporation, the EVP
One Person Corporation shall appoint a treasurer, corporate secretary, 1. Election of officers
and other officers and notify the Commission thereof within 5 days from 2. Vacancies in BOD
appointment 3. Power to acquire own shares
Liability of Single Stockholder of an OPC
Acts requiring:
Doctrine of legal entity is applicable to an OPC, provided that the sole
Majority SHAREHOLDERS
shareholder claiming limited liability has the burden of affirmatively showing
FAD
that the corporation was adequately financed.
1. Fixing the compensation of directors
2. Adoption of by laws
Methods of Dissolution of Corporation 3. Directors’ Election
VOLUNTARY
A. If no creditors are affected, the ff. should be complied with: Acts requiring:
1. Majority vote of the board 2/3 of SHAREHOLDERS
2. Affirmative vote of the stockholders PARDS
3. A verified request of the dissolution shall be filed 1. Pre-emptive rights’ denial
4. Commission shall approve the request and issue the certificate of 2. Act of disloyal director - ratification
dissolution. 3. Removal of Director/Trustees
5. Dissolution shall take effect upon the issuance of Certificate of 4. Delegation of the power to amend, repeal, or adopt new by laws to
Dissolution BOD
B. If Creditors are Affected, dissolution must be done by filing a petition for
5. Self-dealing Director - Ratification of Contract
dissolution with the Securities and Exchange Commission

INVOLUNTARY
A. Non-use of corporate charter
B. Continuous inoperation of a corporation
C. Lawful court order dissolving the corporation’
D. Finding by final judgement that the corporation procured its incorporation
through fraud

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