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Law on b usiness organization
- 1. ESSENTIALS OF PHILIPPINE BUSINESS LAW NOTESAND CASES Danny L. Chan Gilbert» F. Lauengeo Reginald Alberto B. Nolido Allan Verman Y. Ong Eduardo Victor J. Valdez and Joseph Sedfrey S. Santiago RE ATENEO DE MANILA UNIVERSITY PRESS
- 2. CONTENTS Preface xxi OBLIGATIONS ANDCONTRACTS TITLE ONE / Obligations Chapter One: General Provisions 3 Art. 1156 3 Elements ofan Obligation Juridical necessity Art. 1157 5 Art. 1158 7 Art. 1159 8 Art. 1160 8 Negotiorum gestio Solutio indebiti Other quasi-contracts Art. 1161 11 Damages Instances ofbad faith Art. 1162 14 Chapter Two: Nature and Effect of Obligations 16 Art. 1163 16 Art. 1164 17 Delivery of the fruits Art. 1165 18 Thing to be delivered Determinate thing V
- 3. Indeterminate thing Remedies ofthe Creditor/Obligee Failure to deliver determinate thing Failure to deliver indeterminate thing Liability ofdebtorforfortuitous event Art. 1166 Art. 1167 Art. 1168 Art. 1169 Elements of legal delayor default Demand on the debtor Exceptions to the generalrule Effects of delay Art. 1170 Fraud Negligence Delay Contravening the tenor of theObligation Damages Art. 1171 Art. 1172 Art. 1173 Two kinds of negligence Liability for employee's negligence Contributory negligence Art. 1174 General rule Elements of fortuitous event Exceptions Art. 1175 Art. 1176 Art. 1177 Art. 1178 Chapter Ihree: Different Kinds of Obligations Section 1.Pure and Conditional Obligations Art. 1179 22 23 24 25 30 32 33 33 37 41 41 42 43 44 44 44 vi
- 4. Pure obligations Conditional obligations Kindsof conditions Suspensive conditions Resolutory conditions Effects of the occurrence ofa suspensive condition Effects of the occurrence of a resolutory condition Art. 1180 Art. 1181 Art. 1182 Art. 1183 When conditional obligations are void Potestative conditions When potestative condition does not lead to contract's invalidity Impossible and illegal conditions When impossible condition does notlead to contract's invalidity Art. 1184 Art. 1185 Positive and negative suspensive conditions Art. 1186 Constructive fulfillment Art. 1187 Art. 1188 Retroactive effect of suspensive conditional obligations Rights of a creditor beforethe fulfillment ofa suspensive condition Art. 1189 Rules as to loss, deteriorationor improvement before the occurrence ofthe suspensive condition Art. 1190 Art. 1191 Reciprocal obligations Alternative remedies underArt 1191 Good faith asthe basis of the right torescind 50 50 51 51 56 56 57 57 59 61 64 65 vii
- 5. Extent ofthe breachoftheObligation to allow rescission Injuredparty mustgo to court to obtain rescission Effect of rescission Art. 1192 69 Section 2.Obligations with a Period 70 Art. 1193 70 Definition of a "period" Two kinds Art. 1194 71 Art. 1195 72 Art. 1196 72 Art. 1197 74 When courts can fix a period Art. 1198 75 Section 3.Alternative Obligation 78 Art. 1199 78 Art. 1200 78 Art. 1201 78 Art. 1202 78 Art. 1203 79 Art. 1204 81 Art. 1205 82 Art. 1206 84 Facultative obligations Section 4.Joint and Solidary Obligations 87 Art.1207 87 Art.1208 87 Art. 1209 87 Joint obligations Joint divisible obligations Nature of solidary obligations How todetermine whether theObligation issolidary Art. 1210 92 viii
- 6. Art. 1211 92 Art.1212 93 Art. 1213 93 Art. 1214 94 Art. 1215 95 Condonation/remission before payment Condonation at the request of one debtor Art. 1216 96 Art. 1217 96 Art. 1218 97 When a paying debtorcannot demandreimbursement Art. 1219 99 Art. 1220 99 Art. 1221 100 Art. 1222 100 Section 5. Divisible and Indivisible Obligations 102 Art. 1223 102 Art. 1224 102 Art. 1225 102 Section 6.Obligations with a Penal Clause 103 Art. 1226 103 Art. 1227 103 Art. 1228 104 Art. 1229 104 Art. 1230 104 Penalty does not take the place of the principal Obligation Other rules Chapter Four:Extinguishment of Obligations 107 Art. 1231 107 Section 1.Payment or Performance 107 Art. 1232 107 Art. 1233 107 ix
- 7. Complete delivery Determinate thing Indeterminatething Money Complete Performance Complete non-performance Exceptions to the integrityor completeness rule Art. 1234 110 SubstantialPerformance in goodfaith Art. 1235 112 Obligee's acceptance of incomplete or irregulär Performance PartialPerformance agreed upon Debt is partlyliquidated and unliquidated Art. 1236 113 Art. 1237 113 Art. 1238 113 Who pays Payment by a third person with interest Third person without interest What third person can collect Third party's right to Subrogation When third person does not intend to be paid Art. 1239 117 When payment is not valid Art. 1240 118 To whom payment is made Art. 1241 119 Defective payments Payment to an incapacitatedperson Payment made to a third person Instances when benefitto creditor need not be proven Art. 1242 122 Art. 1243 123 When payment tocreditor is not valid Art. 1244 124 Art. 1245 124 x
- 8. Art. 1246 125 Art.1247 125 Art. 1248 125 Art. 1249 126 What is legal tender Payment with check Cashier's check Stale check is not impaired check Impaired mercantile document Art. 1250 128 Art. 1251 129 Special ways ofmakingpayments Art. 1252 130 Art. 1253 131 Art. 1254 131 Application of Payments Art. 1255 132 Payment by cession Dation in payment Art. 1256 134 Tender of payment and consignation Instances when no tender is necessary Art. 1257 137 Art. 1258 138 Art. 1259 138 Art. 1260 138 Art. 1261 139 Section 2. Loss of the Thing Due 139 Art. 1262 139 Complete loss of determinate thing Partial lossof the determinate thing Exceptions to the "loss ofthe thing" rule Art. 1263 140 Loss of indeterminate thing Art. 1264 141 Art. 1265 142 xi
- 9. Art. 1266 142 ImpossibilityofPerformance Art. 1267 143 Difficulty beyond parties contemplation Art. 1268 143 Art. 1269 144 Section 3. Condonation or Remission of the Debt Art. 1270 145 Art. 1271 146 Art. 1272 146 Art. 1273 147 Art. 1274 147 Section 4. Confusion or Merger of Rights Art. 1275 148 Art. 1276 148 Art. 1277 150 Section 5.Compensation Art. 1278 151 Kinds of compensation Art. 1279 151 Legal compensation Elements Art. 1280 155 Art. 1281 155 Art. 1282 155 Voluntary compensation Art. 1283 156 Judicial compensation Facultative compensation Art. 1284 157 Art. 1285 157 Effects of assignment on compensation Art. 1286 157 Art. 1287 159 xii
- 10. Art. 1288 160 Whencompensation not proper Art. 1289 160 Art. 1290 162 Section 6. Novation Art. 1291 162 Art. 1292 164 Art. 1293 165 Art. 1294 165 Art. 1295 166 Substituting the debtor Ifthe new debtor is insolventor does notfulfill the Obligation Art. 1296 167 Art. 1297 168 Art. 1298 168 Voidable obligations Art. 1299 169 Subrogation Art. 1300 169 Art. 1301 170 Art. 1302 170 Art. 1303 170 Art. 1304 170 Effects of Subrogation TITLE TWO / Contracts 173 Chapter One: General Provisions Art. 1305 173 Art. 1306 174 Invalid terms and conditions Employment contracts Credit cards Art. 1307 176 Art. 1308 178 xiii
- 11. Art. 1309 178 Art.1310 178 Art.1311 179 Only contracting partiesare bound to contracts Transmission of rights and obligations to heirs Exception to the rule thatcontracts bind onlythe contracting parties Art. 1312 182 Art. 1313 183 Art. 1314 184 Art. 1315 186 Obligatory force of contracts Consequences which attach to the contract Art. 1316 187 Art. 1317 188 Chapter Two: Essential Requisites of Contracts Art. 1318 189 Section 1.Consent 189 Art. 1319 189 Certain offer Absolute acceptance Qualified acceptance Expression of agreement Manner ofmaking the acceptance Art. 1320 193 Art.1321 194 Art. 1322 194 Art.1323 194 Art. 1324 195 Difference from right of first refusal Art. 1325 197 Art. 1326 198 Capacity to give consent Art. 1327 199 Art. 1328 200 xiv
- 12. Art. 1329 200 Art.1330 200 Art. 1331 202 Mistake Art. 1332 205 Art. 1333 207 Art. 1334 207 Art. 1335 208 Art. 1336 208 Violence Intimidation Art. 1337 211 Undue influence Contracts of adhesion Art. 1338 213 Fraud Art. 1339 217 Art. 1340 218 Art. 1341 219 Art. 1342 219 Art. 1343 220 Extent of the fraud Mutual fraud Incidental fraud Art. 1344 220 Art. 1345 221 Art. 1346 221 Section 2.Object of Contracts 225 Art. 1347 225 Things within commerce of men Existence of object andfiiturethings Rights as object of contracts Future inheritance Service Art. 1348 227 Art. 1349 228 XV
- 13. Section 3. Causeof Contracts 229 Art. 1350 229 Art. 1351 230 Cause of contracts Cause distinguished from motive Cause in different types of contracts Art. 1352 233 Absence or want of cause Unlawful clause Art. 1353 233 Art. 1354 234 Art. 1355 234 Chapter Three: Form of Contracts 236 Art. 1356 236 Art. 1357 236 Art. 1358 236 General rule on the form of contracts Exceptions to the rule Form required for validity Form needed for enforceability Contracts that need to be in public instrument Chapter Four: Reformation of Instruments 242 Art. 1359 242 Art. 1360 242 Art. 1361 242 Art. 1362 243 Art. 1363 243 Art. 1364 243 Art. 1365 243 Art. 1366 243 Art. 1367 243 Art. 1368 243 Art. 1369 244 Distinguishedfrom annulment xvi
- 14. Chapter Five: Interpretationof Contracts 246 Art. 1370 246 Art. 1371 246 Art. 1372 246 Art. 1373 246 Art. 1373 246 Art. 1374 246 Art. 1375 246 Art. 1376 246 Art. 1377 247 Art. 1378 247 Art. 1379 247 Chapter Six: Rescissible Contracts 249 Art. 1380 249 Requisites for the rescissionofa contract Art. 1381 252 Art. 1382 252 Lesion Proving lesion Badges or signs of fraud Art. 1383 258 Art. 1384 259 Rescission as a subsidiaryremedy Beneficiary and extent ofthe rescission Art. 1385 260 Art. 1386 260 Effects of rescission When rescission isnot an option Art. 1387 262 Art. 1388 263 Art. 1389 264 Chapter Seven: Voidable Contracts 264 Art. 1390 264 As distinguishedfrom rescissible contract xvii
- 15. Causes for defectiveconsent Art.1391 266 Art. 1392 267 Art. 1393. 268 Art. 1394. 269 Art. 1395 269 Art. 1396 269 Who can make ratification Art. 1397 269 Art. 1398 270 Art. 1399 270 Art. 1400 271 Art. 1401. 271 Art. 1402 272 Effects ofloss ofthing to be returned Chapter Eight: Unenforceable Contracts 273 Art. 1403 273 Kinds of unenforceable contracts Contract entered into onbehalf of someone without authority orin excess ofauthoritygranted Power of attorney defined Sample ofa special power of attorney Contracts violating the Statute ofFrauds Type of memorandum required Contracts under the Statute ofFrauds A contract entered into when both partiesare incapacitated Art. 1404 287 Art. 1405 287 Art. 1406 287 Art. 1407 287 Art. 1408 287 Chapter Nine: Void Contracts 288 Art. 1409 288 Art. 1410 291 xviii
- 16. Art. 1411 292 Art.1412 292 Restitution in void contracts Art. 1413 294 Art. 1414 294 Art. 1415 295 Art. 1416 295 Art. 1417 297 Art. 1418 297 Art. 1419 297 Art. 1420 298 Art. 1421 298 Art. 1422 298 BUSINESS ORGANIZATION TITLE ONE / SoleProprietorship 301 TITLE TWO / Partnership 305 A. Requisites of a partnership 305 B. When a written public Instrument is required 306 Effect of non-registration with SEC C. Distinct personalityof the partnership 307 D. Who may be a partner 308 Industriell and capitalistpartners E. Rights and obligations of partners 309 F. Management of the partnership 310 G. Advantages and disadvantages of partnerships 311 TITLE THREE / Corporation 313 A. Legal Attributes of Corporations 313 1. Artificial being 2. Created by Operationoflaw 3. Right of succession xix
- 17. 4. Powers andattributes and properties author- ized by law or incidental to its existence 5. Advantages and disadvantages of corporations B. Corporate Finance 319 Capital Kinds ofshares C. Procedures and requirements for incorporation 322 1. Subscription stage 2. Drafting of the Articles 3. Other Pre-Incorporation Arrangements 4. Filing of Documentary Requirements. 5. Indorsement to Regulatory Agencies 6. Issuance of Certificate of Incorporation D. Kinds of Corporations 328 1. Based on place of incorporation 2. Based on legal status 3. Based on nature E. Governance of the Corporation 330 F. Powers and duties of the corporations directors 331 Directors'fiduciary duty G. Rights of shareholders 335 1.Voting rights 2. Right to receive dividends 3. Pre-emptive rights 4. Information rights 5. Appraisal rights 6. Rightto file derivative suit 7. Rught to choose directors H. Dissolution and winding up of a corporation 338 I. Close corporations 339 TITLE FOUR / Cooperatives 341 References 343 About the Authors 365 XX