RFBT: Law on Obligation

OBLIGATION juridical necessity to give REAL OBLIGATION

↓ to do POSITIVE PERSONAL OBLIGATION CIVIL
legally enforceable not to do NEGATIVE PERSONAL OBLIGATION
↓
remedy  court 
vs. ACTS RESULTS
Quasi-contract Lawful Benefit
NATURAL vs.
& not enforceable (conscience) Quasi-delict Lawful Damages
MORAL vs.
court  Delict Unlawful Damages
Prescription:
 Oral – 6 years Real Obligation  transferable right
 Writing – 10 years
DAMAGE – injury
*In natural obligation, the third person can recover if he is not aware. DAMAGES – compensation

”You are excuse for not knowing the facts.” Bilateral  ee & or  Contract of Lease

Subject Active  creditor  obligee  (COA)  BENEFIT

Passive  debtor  obligor  (OPD)  BURDEN
ELEMENTS Prestation Object (to give, to do, not to do)
(S.P.E.) Subject Matter
Efficient Cause Vinculum
Legal/Juridical Tie

CIVIL OBLIGATION Law Not presumed

There should be a law
Contract Meeting of minds  Offer express
Acceptance implied
SOURCES Quasi-contract No meeting of minds Negotiorum Gestio  Gestor  Officious Manager
Solutio Indebiti
Other Quasi-contract
Quasi-delict Culpa acquiliana/Torts

Delict Crimes, acts, omissions  punishable by law

lawful/unilateral

Page 1 of 28  LFA
DELICT  crime  PP vs. Accused
A if Convicted Criminal Liability = imprisonment
Civil Liability = damages

Acquitted Criminal Liability = 

guilt  without reasonable doubt = 
Civil Liability guilt  with reasonable doubt = 
POSITIVE
To give
REAL  delivery  object 1. Determinate = Specific (particularly designated/physically segregated)
↓
certain 2. Indeterminate = Generic (cannot be pointed out with particularity)

B only cow = DETERMINATE 2 RIGHTS

A to give C a horse = INDETERMINATE  REAL – enforceable against the whole world
D four legged animals =   INDETERMINABLE  PERSONAL – enforceable against another person

B demands delivery  “All owners can possess, but possessors are not all owners.”
Deliver = obligation  extinguished 
A Court  A to deliver  specific performance
Fails  B or &
To require another to deliver =  pay  damages  = delay

C demands delivery
Deliver obligation  extinguish  Superior
A neither Inferior = obligation  extinguish 
Fails  C court to require A to deliver  specific performance
or &
to require another to deliver  pay  damages  = delay

Positive LAW S sells land to B

To do Personal Title – Name – S
Law A  Reg. of Deeds B demands transfer of title
Source ↓ record title
Contract Obli. to transfer land

Transfer  Title  Name  B  Obligation = Extinguished 

A
Fails  B  Court  To require A to transfer  Title
Specific performance (mandamus)

Page 2 of 28  LFA
A to paint B portrait. B demands fulfillment.
Paints Obligation = Extinguish 
A Done properly = obligation  extinguish 
poorly = should be undone  at the expense of A
Fails  B Court to require A to paint = specific performance 
or damages   breach of contract
To require another to paint 

1. As required by law
DILIGENCE 2. As stipulated by parties
3. Absence of #1 and #2, diligence of a good father of a family = ordinary diligence

Agency Carriage  Carrier  Law – utmost care = extraordinary diligence

↓ (extension of the principal)
Agent Law  A good father of a family Stipulation = a good father of a family = void
↓ Stipulation  Extraordinary Diligence – Valid Transport passenger
Performance  Duty

Innately Improvements Better use = convenience VALID – according to law

attached (BEC) Embellishment = beautification VOID – in existence of null – against the law
Completion *“No one is above the law”
Unconscionable = shocking to the conscience
To give  determinate  accessions & accessories  even if not mention Right ≠ Ownership

Natural – spontaneous product

To give  determinate  fruits  KIND (NIC) Industrial – cultivation/labor
Civil – juridical relation

RIGHT Creditor time  obligation to deliver arises

(unilateral) Debtor when? suspensive condition  condition fulfilled
A to give B determinable With
only cow dies suspensive period  period arrives
on May 10, 2017 – due lightning  F.E.  no one is liable  with exceptions Obligation
Condition
June 1, 2017  no delay B right to demand Pure/Simple PERFECTION
If B  demand  A = legal delay Period
Obligation  Extinguish  Ordinary liable
Delay did not = “no demand, no delay”

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 SPECIFIC CIRCUMSTANCES AFFECTING OBLIGATIONS IN GENERAL

1. FORTUITOUS EVENT
 cannot be foreseen
 foreseeable are inevitable

Cause is dependent of the will of the debtor

ESSENTIAL Unforeseeable or unavoidable
CHARACTERISTICS Impossible for the debtor to fulfill the obligation in normal manner
The debtor must be free from any participation in aggravation to the creditor

GENERAL RULE: No person shall be liable for fortuitous events. (Obligation  Extinguished)

Expressly declared by the law

Expressly declared by stipulation
The nature of the obligation requires the assumption of risk
EXCEPTIONS: When The debtor has incurred delay/guilty of fraud/negligence/breach of contract
The debtor promised to deliver the same thing to two or more persons who do not have the same interest
The thing to deliver is indeterminate/generic
The obligation to deliver a specific thing arises from crime
The bailee in commodatum allows third person to use the thing borrowed

2. FRAUD (or Dolo)

 deliberate or intentional evasion
 must be present during the performance of the obligation
 not fraud at the time of the birth of the obligation
 Liable: direct & foreseeable

Causal Fraud
Vitiating consent / obtaining consent
Dolo Causante Consent would not have been given
The contract is voidable
Committed at the time of performance or after the contract is already perfected
KINDS OF FRAUD
Incidental Fraud
Giving rise to the right to demand damages
Dolo Incidente Consent would have still been given
The contract is valid
Committed at the time of performance or after the contract is already perfected

Page 4 of 28  LFA
 Cannot be renounced
Future Fraud
Waiver  cannot be made  void the debtor is liable for damages

Can be renounced
Past Fraud
Waiver  may be made  valid  act of liberality of creditor

3. NEGLIGENCE (or Culpa)

 Omission of that diligence
 Master-Servant Rule: The negligence of the servant is the negligence of the master.
 Test: Diligence of a good father of a family
 Liable: Direct consequence

Source: Contract
CULPA CONTRACTUAL Example: Breach of Contract of Carriage
(Contractual Negligence) (Even with the supervision, the employer may mitigate the liability)
Performance of contract
The master-servant rule applies

Source: Quasi-delict
Example: Reckless driving of the driver
KINDS OF CULPA AQUILIANA (With the supervision, the employer may escape the liability)
NEGLIGENCE (or Culpa) (Civil Negligence) Independence of contract & without criminal intent
The master-servant rule does not apply
Culpa extra-contractual

Source: Delict
CULPA CRIMINAL Example: Physical injuries through reckless imprudence
(Criminal Negligence) (The employee‟s guilt is automatically the employer‟s guilt if the
former is insolvent)
Commission of a crime

EXAMPLE:
A 
Contractual Demandable?
A – Driver Y  A  F 
B – Passenger Aquiliana Responsibility
C – Pedestrian A  Y  N 
Y - Operator Criminal
Y 

*COMMON CARRIER  presumed to be negligence

Page 5 of 28  LFA
4. DELAY (or Mora)
 Nonfulfillment of obligation with respect to time
 Effect of Delay: Liable for payment of damages
 Note: There is no delay in „obligation not do‟ as one cannot be delay for not doing something
 General Rule: “No demand, no delay”

(1) The law expressly so declares (e.g. Such in the case of taxes)
(2) The obligation itself so stipulates (Expressly declares: “without need of demand”)
EXCEPTIONS (3) Time is of the essence (Time was the controlling motive)
(to the General Rule) (4) Demand is useless (Demandable: Breach of Contract / Dolo / Culpa)
(5) When there is performance by a party in reciprocal obligation (Compensatio Morae)
(6) DEMAND

Delay on the part of the debtor

MORA SOLVENDI Ex re  real obligation  to give
Ex persona  personal obligation  to do
KINDS OF DELAY
MORA ACCIPIENDE Delay on the part of the creditor  refuses to accept

COMPENSATIO MORAE Delay on both parties (reciprocal obligation)

DAMAGES  harm done and sum of money that may be recovered

INJURY  legal wrong/unlawful/tortuous act

KINDS OF DAMAGES
MORAL Moral and physical anguish Proof is required
Court EXEMPLARY Corrective or to set an example
NOMINAL To vindicate right Proof is not required/
TEMPERATE Moderate or exact amount cannot determine Adjudicated
Receipt ACTUAL Compensatory or actual losses & unrealized profit
Parties LIQUIDATED Predetermined beforehand by agreement

(1) To demand payment or performance (EXACT PAYMENT)

RIGHT OF THE CREDITOR (2) To exhaust the property in the possession of the debtor, except those by law (ATTACHMENT)
AGAINST THE DEBTOR (3) To impugn the acts which the debtor may have done to defraud the creditors (ACCION PAULIANA)
(4) To exercise all the rights of the debtor except those personal to him (ACCION SUBROGATORIA)

Page 6 of 28  LFA
ACCION PAULIANA  the right to rescind or impugn fraudulent act
 the rights to set aside, revoke, or cancel the acts, which the debtor may have done to defraud him.

ACCION SUBROGATORIA  the right to be subrogated

 the creditor may exercise in the place of his debtor in order to preserve or recover the property lost or transferred so that he can satisfy
his own credit

TRANSMISSIBILITY OF RIGHTS
GENERAL RULE: All rights acquired by virtue of an obligation are transmissible.

(1) When the law prohibits the transfer of rights

EXCEPTIONS (2) When the stipulation of the parties prohibits the transfer of rights
(to the General Rule) (3) When the nature of the obligation does not permit transmission of rights

Note:
It is the right of a person that is transmissible not the obligation.
The creditor may assign a third person or such right is transmitted to the heirs upon death.

KINDS OF OBLIGATION

 Not subject to any condition

PURE/SIMPLE
 No specific date
1. DEMANDABLE AT ONCE
Resolutory Condition You may demand the delivery of the thing now but
With
Resolutory Period you must return it when the condition happened.

Yes = Period (1) Future and uncertain

CHARACTERISTICS/REQUISITES
Will it happen? (2) Past but unknown
OF CONDITION
Maybe = Condition (3) Must not be impossible

FULFILLMENT Law
Before Upon Moral
Suspensive ―  Contrary Good Custom
2. CONDITION
Resolutory  Ext. Public Order
CONDITION – not Public Practice

Impossible

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  Condition precedent/antecedent
 Will give rise to an obligation
SUSPENSIVE
 No fulfillment, no obligation
 CONDITION  OBLIGATION
PRINCIPAL KINDS OF CONDITION
 Condition subsequent
RESOLUTORY  Will extinguish an obligation
 OBLIGATION  CONDITION

POTESTATIVE
DEBTOR Kill C = 
 Suspensive = VOID A  ₱8M  B Sex A = 
 Resolutory = VALID If B will Slap faces of parents = 
CREDITOR Pose nude =  ; beside Rizal Monument = 
 Suspensive = VALID Draw rectangle with 4 sides = 
 Resolutory = VALID Draw circle with 4 sides = 

POSSIBLE Capable of fulfillment, legally or physically

IMPOSSIBLE Not capable of fulfillment, legally or physically = VOID
POSITIVE An act is supposed to be performed = TO DO
OTHER KINDS OF CONDITION NEGATIVE An act is supposed to be omitted = NOT TO DO
POTESTATIVE Will of one of the contracting parties
CASUAL Chance or will of a third person
MIXED Partly upon chance and will of a third person

Suspensive  (void)
DEBTOR
Resolutory  (valid)
POTESTATIVE
Suspensive  (valid)
CREDITOR
Resolutory  (valid)
Chance
FULFILLMENT CONDITION CASUAL
Will  third persons
One person
(1) WILL
Third person
MIXED
Will  one person
(2)
Chance

Page 8 of 28  LFA
 Obligation = Extinguished
Fortuitous Event
June 8, 2017 B  bear loss
DIES
A only Horse  B Value If B fulfills condition 
Fault of A  liable
If B will pass CPA Damages
Before fulfillment Fortuitous Event  B bears impairment
condition ― HORSE IMPAIRED Damages
Fault of A B
Specific Performance
By nature  B gets improvement
IMPROVED
Effort of A  A ―― right to usufruct

June 9 ― B sells horse ― Y pays October 6 ―― A ―― food ―― drugs ―― sleep 12 hours

June 10 ― A sells horse ― W pays ate ―― 9pm
deliver wake up ―― 9am ―― October 7
October 30 ― B passed 9:01am arrived
1st day ― October 7 fulfilled condition

3. OBLIGATION WITH A PERIOD One whose consequences are subjected in one way or another to the
expiration of said period/term.
It is presumed that the period have been established for the benefit of both the
debtor and creditor.
PERIOD  future and certain event
CONCEPT
DAY CERTAIN  must necessarily come although it may not be known when

LEGAL Fixed by law

SOURCE VOLUNTARY Fixed by parties
JUDICIAL Fixed by court
Period with a suspensive effect
EX DIE
Demandable upon the lapse of period
KINDS OF PERIOD EFFECT
Period with a resolutory
IN DIEM
Extinguished upon the lapse of period
DEFINITE A fixed known date or time
DEFINITENESS
INDEFINITE An event which will necessary happen

Page 9 of 28  LFA
 DISTINGUISHMENT CONDITION PERIOD
1. As to FULFILLMENT May or may not happen Must necessarily come
2. As to TIME May refer to the future or to a past event Always refers to the future
3. As to INFLUENCE on the obligation Causes to arise or to cease Merely fixes the time for the efficaciousness of an
obligation

A ―― ₱100,000 ―― B
Debtor
BENEFIT  both
Creditor
“when my means permit” = period
Suspensive ― ex die
KINDS
Resolutory ― in diem

no means Court To require A to pay 

To fix  period
September 30
Court 
Change the period
Parties 

A ―― 8M ―― B, if B will marry C THE DEBTOR DEPRIVED THE BENEFIT OF PERIOD

2017 COP Obli. A ―― Ext.? 1. I  debtor ― insolvent, except for guaranty

July B ― vow ― Priest   2. G  debtor ― fails to give or furnish ― guaranty
September B ― marries Y   3. I  debtor ― impaired the guaranty (fault DR)
October C dies 
4. V  debtor ― violates any undertaking
Woman  Widow  remarry  300 days, unless bears a child 5. A  debtor ― attempts to abscond
Man  Widower  can remarry immediately

A ―― ₱100,000 ―― B Debtor  deprived ― period = Obli. – demandable?

secured ― race horse horse  runs  cliff leg = impaired ― fortuitous event 
due ― June 7, 2018 
head = dies  lost ― fortuitous event 
June 8, 2017 fell ― broken
lightning ― frightened leg = impaired  fault ― debtor 
A hits  horse  broken
head = dies  lost  fault ― debtor 

Page 10 of 28  LFA
4. ALTERNATIVE two or more Cow June 8 lightning
dies ― fortuitous event
fulfillment of one  obligation ― ext. 
Carabao June 9, AM A hits
dies ― fault of A
Cow or Horse June 9, PM collides ― bus
A ―――― B
Carabao dies ― fortuitous event
only or
Horse
Obligation ― Ext.?  The lost of the last thing is
June 12, 2017
due to fortuitous event
1 kilo shabu

5. CONJUCTIVE two or more A ―――― B Cow Obli – Ext? DAMAGES

only or A  
fulfillment of all are necessary Fortuitous Event
Horse C  
E ―――― F Cow 2 cows die A  
Alternative Fault  Debtor
only & C  
Horse

One prestation Cow Debtor 7. JOINT To each his own

C ―――― D
with substitute or
6. FACULTATIVE only Two or More
If C wants One for all
8. SOLIDARY
Right of debtor Horse Creditor All for one

Obligation A. Debtors – Joint, Creditors – Joint

Number of Debtors × Number of Creditors = No.
Credits
3 2 (1) W - ₱2000 A - ₱2000
A W B - ₱2000
Joint ― 3 × Joint ― 2 = 6
₱4000 Y - ₱2000 ₱6000 C - ₱2000
Joint ― 3 × Solidary ― 1 = 3
Solidary ― 1 × Joint ― 2 = 2
Solidary ― 1 × Solidary ― 1 = 1 (2) W - ₱1200 A - ₱1600
B Y B - ₱2400
Debtors, A-B-C ₱12,000 Creditors, W-Y ₱3600 Y - ₱2400 ₱8000 C - ₱4000
(1) Equal Equal
(2) 2:3:5 1:2

Page 11 of 28  LFA
B. Debtors – Joint; Creditors – Solidary C. Debtors – Solidary; Creditors – Solidary
(1) W - ₱4000 A - ₱4000 (1) W - ₱6000 A - ₱6000
C W B - ₱4000 B or
₱4000 Y - ₱4000 ₱12000 C - ₱4000 ₱12000 Y - ₱6000 W B - ₱6000
₱6000 or
C - ₱6000
(2) W - ₱2400 A - ₱2400 (2) W - ₱4000
A - ₱8000
A or Y B - ₱3600 C
or
₱2400 Y - ₱2400 ₱12000 C - ₱6000 ₱12000 Y - ₱8000
Y B - ₱8000
₱8000 or
C - ₱8000

D. Debtors – Solidary; Creditors – Solidary (2:3:5) Debtors – Solidary; (1:2) Creditors – Solidary
(1) & (2) A - ₱12000 Y demands payment from A
W - ₱12000 or (1) A pays Y – ₱12000 (2) Minor  C
A W B - ₱12000
 B - ₱3600 A pays Y – ₱6000
₱12000 Y - ₱12000 ₱12000 or
R 
C - ₱12000
C - ₱6000 R  B – ₱3600

(3) B – Insolvent (4) B – Insolvent; C – Minor

A pays Y – ₱12000 A pays Y – ₱6000
 B - ₱3600 A 2/7  A
R Insolvent R  B - ₱3600 Insolvent
C - ₱6000 C 5/7 A

Y condones the obligation of A: Y condones the obligation of B: Y condones the obligation of C: Y condones the obligation of A, B, C:
A pays Y ₱9600 A pays Y ₱8400 A pays Y ₱6000 A pays Y ₱-0-
B - ₱3600 R = C ₱6000 R = B ₱3600 B - ₱-0-
R A 2/5 A 2/7 R
If insolvent If insolvent
C - ₱6000 B 3/5 C 5/7 C - ₱-0-

With prescription:
A pays Y ₱9600
B - ₱3600
R
C - ₱6000

Page 12 of 28  LFA
 A ― ₱2400 A pays Y ₱6000 SITUATIONS ()VALID/VOID()
 R B - ₱-0- 1. A ₱8M B, if B kills C 
June 15, 2017 C - ₱6000 2. D ₱8M E, if F dies of TB 
Y demand 3. G ₱8M H or G sex H 
payment or B pays Y ₱6000 4. J sex K or J 8M K 
B ― ₱3600 R A - ₱-0- P S
 C - ₱6000 5. L ₱8M M or if L wants sex M 
P S
or C pays Y ₱6000 6. N sex O or if N wants sex O 
C ― ₱6000 R A - ₱-0- P PC
due  B - ₱-0- 7. P ₱8M Q and if P fails sex Q 
P PC
8. R sex S and if R fails ₱8M S 

A and B obliged to give Y A and B solidary, obliged to give Y

Bn Ms 1.5M  100 sacks of wagwag rice 
750000 7000 demands demands
delivers 50 sacks 
Failed to deliver delay delay
A delivers 50 socks  A
Ready damages B  damages B
Both 1 sack Both 
Solidary
9. INDIVISIBLE failed to deliver
Joint 
10. DIVISIBLE Joint
Solidary 

11. OBLIGATION WITH A PENAL CLAUSE

A ₱100,000 B demands Interest

due June 15, 2017 delay in lieu & Except if Stipulated refuses to give  penalty
if A fails to pay Damages Debtor fully of fraud  fulfillment  obligation

A will give  Cow  With penal clause To deliver  Cow 

Obligation of A Interest 
Penalty
To pay Damages 
A fails to pay ₱100,000 

Page 13 of 28  LFA
 To whom
PAYMENT By whom
EXTINGUISHMENT OF OBLIGATION or When
Where
PERFORMANCE How
Special Form

Creditor Ratification
Representative/Agent Subrogation
TO WHOM Estate Executor burden to prove  Debtor Except Estoppel
Administrator 
Third Person  If  redownded  benefit  Creditor ― Ext.  presumed  benefit  Creditor

YES Interested in the fulfillment of obligation

If debtor cannot pay, is third person liable?
NO Not interested in the fulfillment of obligation

B ― ₱100,000 accepts LEGAL SUBROGATION (1) Previous ― partial payment ₱60,000

With consent of A  (2) Due and demandable ₱100,000
G ― guarantor pays If A fails to reimburse,
Without consent of A 
A can S declare? 
C ― ₱100,000 accepts With consent of A 
Without consent of A 
S ― Suitor of A pays Beneficial Reimbursement

at Legal Tender  stipulation

Maturity
WHEN after CHECKS refuse  except if exercise  right
before?  Can creditor Cr. ― encashed
accepts  = Obligation ― Extinguished  Yes IF
Only cow Impaired
B June 15, 2017 June 16, 2017  Bank pays = Obligation ― Ext. 
A ₱100,000
On June 15, 2018 PRESENTMENT Fault Cr. Injury Dr.
FOR (stale)
June 15, 2017 PAYMENT February 14, 2017  Bank Dishonored = Obligation ― Extinguish 
A deliver Cow B Closed = Obligation ― Extinguished ― PDIC
₱100,000 
Accepts Up to ₱500,000
Obligation  Extinguished 

Page 14 of 28  LFA
 Aware ― Not due  Cow
Can A recover? If A Not aware ― Not due Before June 15, 2018 Fruits  June 15, 2017 – May 10, 2018 
May 10, 2018 ₱100,000 
Interest  June 15, 2017 – May 10, 2018 
On or after June 15, 2018 Cow 
If A seeks to recover July 4, 2018 Fruits  June 15, 2017 – June 14, 2018 
₱100,000 
Interest  June 15, 2017 – June 14, 2018 

If with stipulation  place as stipulated

WHERE
If without stipulation Determinate = Location of Object  Time the obligation is constituted

Indeterminate / Generic
 Domicile / Residence  Debtor
Money

If with stipulation = Currency as stipulated

HOW  Money Note/Bill
Except
If without stipulation = Currency  Legal Tender  Philippine Peso < ₱1 = ₱100
DEMONETIZED
Coins ₱1 or > = ₱1000
Denomination

LOAN DUE INFLATION

2017 2032 ― VALUE ORDINARY DEFLATION EXTRA-ORDINARY INFLATION/DEFLATION = VALUE
4M 10M 25M
10M
Time  Obligation  Constituted
40M 10M 2.5M

Application of payment (not a special form) One Creditor

APPLICATION
SPECIAL FORMS Dation in payment Two or more obligation = due
OF PAYMENT
OF PAYMENT Payment by cession One Debtor Payment not enough
Tender of payment and Consignation Right to choose where to apply payment

Page 15 of 28  LFA
EXAMPLE: ₱8,000 = Application of payment 
2017 June 15  A pays ₱10,000
10k  June 4 ₱20,000 = Application of payment  ₱15,000
15k  June 8 Due ₱20,000
AB
20k  June 14 If the debtor waives,
30k  June 30 application of payment  right  Creditor Issue  Receipt Onerous
If silent  Mortgage Equal burden = Proportionately

A  ₱1,000,000  B B ― ₱2M
Due on June 15, 2017 offers to pay A C ― ₱3M proportionately
D ― ₱4M to sell = proceeds
Cash – ₱400,000 Possession
B (INSOLVENT) Creditor possession
Cars – 8 – BMW Last yr.   3M Ownership
Assets Assets = ₱5M  deliver
Planes – 8
Ownership = Debtor
Vessels – 8
Extinguished   up to the proceeds  PAYMENT BY CESSION
Extinguished  = DATION IN PAYMENT (*debtor is solvent)

A  Tender of Payment  B ― refused

ADDITIONAL REMINDERS:

Deposit ₱ Notice to Creditor  On mere suspicion, you cannot sacrifice the Bill of Rights
Court  if approved *Search Warrant
Object Obligation ― Ext. 
*Warrant of Arrest
Consignation  notice  Creditor  If the act is illegal, anything you get out of an illegal act is illegal
 No need of search warrant / warrant of arrest:
Can the debtor withdraw? 1. About to commit the crime
Before approval = Yes 2. Committing the crime
Court 3. Have just committed the crime
After approval = Yes, IF creditor  consents
4. Prisoner who escaped from detention
Revived
If debtor withdraws  Obligation of A 
Co-debtors  IF they TENDER OF PAYMENT is necessary before consignation, except in five (5) cases.
Guarantor will consent Consignation is allowed even without prior tender of payment = TIRAT
Surety

(1) Two or more persons claiming the right

Creditor (2) Incapacitated to receive payment
C Interpleader TRO
O Injunction  to restrain PRO
Kept
U Certiorari  abuse of right
Obligation  Extinguish
R Quo-warantu  what is your right
Benefited
T Mandamus  to compel performance

Page 16 of 28  LFA
EXAMPLE: Creditor refuses to issue (3) RECEIPT without just cause.
2017
Debtor Creditor BF  dies Creditor (4) ABSENT
due 2020 2019
 Loss of the
crying (5) Title Obligation lost thing
Creditor refuse to eat due
crying Determinate/Specific

Insane not applicable  Generic/Indeterminate

EXAMPLE:
(1) Perishes A  only Carabao  B
June 30, 2017
LOSS OF THE (2) Goes out of commerce Carabao dies fortuitous event
THING DUE Extinguished  perishes
Existence unknown
(3) Disappears A  buys 2 pigs  B Obligation ― B  Ext.?
Cannot be recovered pays deliver ― July 4 10  
June 15 10 A did not choose July 1-4 6 
2 pigs  generic – limited 9  partial

A  only car  B car napped  lost  existence unknown

₱100,000 A  only necklace  B USA
No engine (₱100,000) demands

June 15  A sells ½  B Europe Rose

TITANIC Disappears = cannot be recovered
Obligation ― Ext.? 
B to pay ₱100,000 ― June 16  sunk in Atlantic Ocean
Obligation Extinguished 
A upon receipt to buy engine 
payment 

Essentially gratuitous
CONDONATION Essential
(Remission) Nature: Donation REQUISITES
Formal

Page 17 of 28  LFA
EXAMPLE:
Husband & Wife:
Obligation ― Extinguished?
Birthday Greeting
FBF Letter ₱8M W ― accepts
Condones 
FGF Letter Condones ₱7M H ― accepts 
H Letter Condones ₱7M W ― accepts 
₱5k F ― accepts 
H ― cellphone ― calls Condones ₱8k G ― accepts 

1. There must be an agreement

2. The parties must be capacitated
3. There must be a subject matter
ESSENTIAL
4. The cause or consideration is generosity
REQUISITES OF CONDONATION 5. Obligation is demandable at the time of remission
6. Remission must be inofficious
7. Must be accepted by the obligor
FORMAL
8. If made expressly, it must be comply with formal donation

AMOUNT/ TOTAL When the total obligation is remitted

EXTENT
PARTIAL When only a part/accessory obligation is remitted
KINDS OF CONDONATION
(1) Immovable property must be in public instrument
EXPRESS (2) Personal/movable ― ↑₱5,000 = Writing ― Public/Private
FORM Personal/movable ― ↓₱5,000 = Oral/Writing ― Public/Private

IMPLIED One inferred from the conduct of the parties

AMOUNT/ TOTAL When the debts are of the same amount

EXTENT PARTIAL When the debts are of different / not equal amount
COMPENSATION
 LEGAL Takes place by operation of law
Two person CAUSE/ CONVENTIONAL Takes place by agreement of the parties (voluntary)
 ORIGIN FACULTATIVE One party can claim compensation the other cannot
Debtor and creditor JUDICIAL Ordered/decreed by the court, in case where there is counterclaim
of each other

Page 18 of 28  LFA
 Arises from the obligations of a bailee in commodatum
Arises from a deposit
INSTANCES OF FACULTATIVE COMPENSATION
Arises because of a claim for support by gratuitous title
Consists in civil liability arising from a penal offense

(1) Both the debtor and creditors are principally bound

(EXCEPTION: A guarantor may set up compensation as regards what the creditor may owe the
principal debtor)
consist in a sum of money
(2) Both debts
REQUISITES OF LEGAL COMPENSATION the things due are consumable  same quality & same kind
(3) The two debts be due  Maturity date of both debts must have arrived
(4) Both debts be liquidated and demandable
(5) No retention or controversy commenced by third persons and communicated in due time
to the debtor

CONFUSION/MERGER (1) It must take place between the principal debtor and creditor

One person REQUISITES FOR VALID MERGER (2) The merger must be clear and definite

Debtor and creditor of himself (3) Obligations are the same or identical

EXAMPLE: OBLIGATION – EXTINGUISHED

Debtor  A CREDITOR
A  Principal A 
A―B―C―D―A
G  Guarantor A
 
G
Extinguished 
A―B―C―D
G 
G
A 
NOVATION
 modification or extinguishment of an obligation by another.

Page 19 of 28  LFA
 AS TO OBJECT/ REAL (objective) Novation by changing the object or principal condition
PURPOSE PERSONAL (subjective) Novation by change of the parties (debtor/creditor)

AS TO EXPRESS Novation declared in unequivocal terms

KINDS OF NOVATION
FORM IMPLIED Old and new obligation are incompatible with each other

AS TO TOTAL/EXTINCTIVE The old obligation is totally extinguished

EXTENT
PARTIAL/MODIFICATORY The old obligation still remains in force except as it has been modified

(1) Substituting the person of the debtor
(always with the creditor’s consent)
PERSONAL NOVATION
(2) Subrogating a third person in the
rights of the creditor
EXPROMISION  initiated by new debtor
DELEGACION  initiated by original debtor
CONVENTIONAL  by the agreement of the parties
LEGAL  by operation of law
MIXED  change of object and parties of obligation

PRESUMPTION OF LEGAL SUBROGATION:

(1) When a creditor pays another creditor who is preferred, even without the debtor‟s knowledge.
(2) When a third person, not interested in the obligation pays with the express/tacit approval of debtor.
(3) 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.

Page 20 of 28  LFA
 RFBT: Law on Contract

CONTRACT ACCIDENTAL ELEMENTS

 Meeting of minds  Particular stipulations of the parties
 Two person  Incident
 One bind himself  Examples: terms of payment, interest rate, place of payment
 To give something / to render some services
CLASSIFICATION OF CONTRACTS
ESSENTIAL ELEMENTS (1) According to PERFECTION/FORMATION
 Without which there will be no contract
 One is missing = void (a) CONSENSUAL
 perfection  COC
 COC:  Perfected by mere consent
(1) Consent  Examples: Sale, Lease
(2) Object (b) REAL
(3) Cause  COC + Delivery
 Perfected by delivery of the object of the contract
NATURAL ELEMENT  Examples: Depositum, Pledge, Commodatum
 Found in certain contracts (c) FORMAL/SOLEMN
 Already included  COC + Public Instrument
 Examples: (1) Warranty against eviction  Must be in the form proved by law
(2) Warranty against hidden defects  Example: Donation of an immovable

STAGES OF A CONTRACT (2) According to DEGREE OF DEPENDENCE

(1) Preparation (a) PREPARATORY

 negotiations are in progress  Means by which other contracts may be entered into
 Examples: Agency, Partnership
(2) Perfection/Birth
 meeting of minds (b) PRINCIPAL
 meeting of offer and acceptance  Can stand by itself
 Examples: Sale, Loan
(3) Performance/Death
 execution (c) ACCESSORY
 consummation  Depends upon another contract
 termination  Examples: Pledge, Mortgage

Page 21 of 28  LFA
 (3) According to the PARTIES OBLIGATED
(a) UNILATERAL
 One of the parties obligated
 Examples: Commodatum, Gratuitous Deposit
(b) BILATERAL (or reciprocal)
 Both parties are obligated
 Examples: Sale, Barter
(4) According to CAUSE
(a) ONEROUS
 There is an exchange of valuable consideration
 Examples: Sale, Barter, Lease
(b) GRATUITOUS
 No equivalent consideration
 Examples: Donation, Commodatum, Remission
(c) REMUNERATORY
 Service or benefit remunerated
(5) According to NAME/DESIGNATION
(a) NOMINATE
 Name under the law
 Examples: Sale, Loan, Barter
(b) INNOMINATE
 Without any name under the law
 Different kinds:
 Do ut des = “I give that you may give”
 Do ut facias = “I give that you may do”
 Facio ut des = “I do that you may give”
 Facio ut facias = “I do that you may do”
Page 22 of 28
CHARACTERISTICS OF CONTRACT
 Mutuality  bind both contracting parties
 Autonomy  liberty/freedom to stipulate
 Consensuality  perfected by mere consent
 Relativity  take effect only between the parties, their
assigns and heirs, except where the rights
and obligations are not transmissible by law,
stipulations, or nature
 Obligatoriness  obligatory force of contract and compliance
in good faith
CONSENT
 Manifestation of the meeting of the offer and acceptance
upon the thing and the cause.
RULES ON OFFER
(1) The offer must be certain.
(2) An offer becomes ineffective upon death, insolvency, civil
interdiction, and insanity. (DICI)
(3) When the offerer has allowed the offeree a certain period to
accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except when
the option is founded upon a consideration as something paid
or promised.
OPTION MONEY Option Contract
Down payment
EARNEST MONEY
Part of the Purchase Price
 LFA
RULES ON ACCEPTANCE VICES OF CONSENT (VIMFU)

(1) The acceptance must be absolute. (1) VIOLENCE

(a) If the acceptance is qualified, it constitutes a counteroffer.  Serious
(b) If the offer fixes the time, place, and manner of or FORCE
acceptance, all must be complied with.  Irresistible
 Physical pain
(2) Acceptance made by letter or telegram does not bind the
offerer except from the time it came to his knowledge. (2) INTIMIDATION
 Well-grounded fear
(3) Acceptance may be express or implied.  Imminent pain
 EXPRESS  oral or writing  Mental pain
 IMPLIED  actions or inferred from the conduct of the parties  Threatening is unlawful
(3) MISTAKE
(4) An offer made through an agent is accepted from the time it is  Should be serious
communicated to him.  If not serious ― Remedy: REFORMATION
(4) FRAUD
 Insidious word
RULES ON CONSENT and
(1) Incapacitated to give consent:  Machination
(a) Unemancipated Minors (18 yrs. old below)  Failure to disclose facts, if there is duty to reveal
(b) Insane or Demented Persons VOIDABLE
concealment
(c) Deaf-mutes who do not know how to write NO FRAUD
(2) State of drunkenness (a) Failure to disclose facts res ipsa loquitur
VOIDABLE if no duty to disclose
Hypnotic Spell
Example:
(3) VICES CONSENT A marries B  big fat  > 6 mos. pregnant  not disclosed
(a) Mistake/Error July 6   Annulment 
(b) Violence/Force miscarriage Sept. 14  gives birth  A 
(c) Intimidation/Threat VOIDABLE > 2 mos. Fraud 
(d) Undue Influence (2017)
(e) Fraud/Deceit July 17  C marries D  thin & slim  > 1 mo. pregnant  not disclosed
  Annulment 
Premature Feb. 14, 2018  gives birth  C 
> 7 mos. Fraud

Page 23 of 28  LFA
 (b) Mere exaggeration if given  opportunity to know KINDS OF SIMULATION
in trade dealer‟s talk
(1) ABSOLUTE
(c) Mere expression of opinion  EXCEPT: Expert  The parties do not intend to be bound, void from the
beginning.
(5) UNDUE INFLUENCE
 When a person takes improper advantage of his power (2) RELATIVE
over the will of another  Parties conceal their true agreement, yet they are bound.
 Depriving the latter of reasonable freedom of choice

Doctor  Patient OBJECTS OF CONTRACTS

Professional Lawyer  Client
Relation Teacher  Student
(1) Within the commerce of men
INFLUENCE (2) Transmissible
Consanguinity/ Auntie Nephew (3) LICIT  not contrary to law, good customs, public order or public
Affinity Uncle Niece policy
(4) Not be impossible = Possible
(5) Determinate as to its kind or without the need of new contract
*NOTE:
1. REFORMATION  correction of the contract
2. RATIFICATION  cleanses the defect Should be existing  present
3. A threat to enforce one‟s claim through competent THINGS Should come into existence
authority, if the claim is just and legal does not vitiate Future 
consent. Retroact  perfection  contract
4. In determining the degree of intimidation, the sex, age Emptio rei speratae
and condition of the person intimidating and intimidated
should be taken into consideration.
5. Violence or intimidation shall annul the obligation although With   emptio spei
HOPE
it may have been employed by a third person who did not Without   vain hope = void
take part in the contract.
6. When fraud exists = DOLO CAUSANTE
Present = Hereditary right 
INHERITANCE
Future 
SIMULATION (Simulated Contract)
 The parties do not really want the contract they have executed Transmissible 
to produce the legal effects expressed by its wordings. RIGHT Not transmissible 
 Vices of declaration. The right of creditor is transmissible

Page 24 of 28  LFA
CAUSE OF CONTRACTS INTERPRETATION OF CONTRACTS
 The determination of the meaning of the terms or words used
Always presumed to exist in a contract.
by the parties in their contract
CAUSE The essential reason, which impels the  To give effect to the true intention
contracting parties to enter into the contract.
 RULES:
The “why of the contract”.
(1) WORDS
(a) Provision
(1) It must exist.  Printed
REQUISITES OF CAUSE (2) It must be lawful.  Writing   later intention
(3) It must be real or true. (b) Two or more
 “I”  solidary
 “We”  joint
CAUSE
(c) Conflict
 Inadequacy of cause = LESION  Mistake, Fraud, Undue Influence
 Fictitious/Simulated
 Amount
(a) Absolute  void ― Words
(b) Relative  give effort true agreement ― Figures (if ambiguous)
 False  stated but not true  ― Other documents available, if absent
 Want of cause  total lack or absence of consideration  Intention
 Illegal cause  contrary to law, moral, good custom, public order, (d) Clear and unambiguous  literal meaning
and public policy (e) Conflict
Oral  Words
 Forms  Any Writing  Intention   shall prevail
Public Instruments
(2) ACTS
EXCEPT, if forms required:  Contemporaneous shall be taken
Donation ― ₱5,000 ↑  Subsequent into consideration
(1) VALIDITY ― Failure = Void  Example Agent ― authority
(3) CUSTOMS and USAGE shall be borne in mind.
Valid
(2) ENFORCEABILITY ― Failure = Unenforceable Without effect, Example:
unless written Possession V
Annulment
Valid July 6, 2017 Use I
or
(3) CONVENIENCE ― Failure Enforceable = inconvenience 5 yrs. Acts Fruits A M
Specific
July 5, 2022 RPT F
Performance
Title U

Page 25 of 28  LFA
 F – fraud Annulment (b) A  made by representative  property  Absentee
A – accident Heir of Reformation   lesion > ¼ value 
M – mistake A Option or  7 years
I – inequitable Specific 2 years missing = Absentee without  any news
conduct Performance, 
Agent  5 years Presumed Death
if chosen
Estoppel PRESUMPTIVE DEATH (Old–4years; New–3 years = Missing):
1. He boarded an airplane then the latter is missing.
REFORMATION IS NOT ALLOWED 2. He boarded a vessel then the latter is missing.
(1) Will  except by testator
3. He was sent to war then he was missing in action.
(2) Simple donation inter vivos, if no condition imposed
4. He was lost and he was endanger of death
(3) Real agreement  void
Go to court  File a declaration of presumptive death

DEFECTIVE CONTRACTS EXAMPLE:

A  missing = Absentee
(1) RESCISSIBLE W  wife  representative of A
 Valid until rescinded
FMV ₱ 1M
 Least defect among the others Seller  W
SP (700k)
 Defect = Lesion/Damage Owner  A
Lesion ₱300k
 Parties  creditor  return what they received
>¼
To rescind w/in 4 yrs. at time the whereabouts known
The following are rescissible contracts: (GACTS)
(a) G  made by guardians  property  ward
(c) C  undertaken to defraud the creditors
 lesion > ¼ value
 deprive the right to enforce claim  accion pauliana
NOTE: Rescission will not take place if the object of the
EXAMPLE:
contract is in the possession of a third person who acted in
G – guardian
good faith.
M – ward  incapacitated  minor  16 years old
FMV ₱ 1M OWNER SELLER = RESCISSIBLE? (d) T  things in litigation
SP (700k) G G 
Litigant
Lesion ₱300k M M 
 if made without consent or = RESCISSIBLE
>¼ G M 
Court
M G 
To rescind within 4 yrs. at the time the incapacity ceases  18 y/o
(e) S  specially declared by law to be subject to rescission

Page 26 of 28  LFA
RESCISSION
 The right to rescind in case of deterioration of the thing to be
delivered. (ARTICLE 1189)
 The right to rescind given to an unpaid seller. (ARTICLE 1526)
 The right to rescind given to a vendee in sale of real property per
unit measure or lump sum price.
STATUTE OF FRAUD
― A law which required that certain contracts must be in
writing otherwise unenforceable
― Not applicable  executed = has been performed
― Applicable  executory = has not yet been performed

Contracts covered by Statute of Fraud (SALSAR):

(2) VOIDABLE (a) S ― A special promise to answer for the debt, default, or
 Valid until annulled. miscarriage of another.
 Defects Incapacity of one to *NOTE: If there is guaranty or surety, put them in writing.
Vitiated consent the parties
 Annullable unless ratified (b) A ― An agreement by its terms is not be performed within a
year from the making thereof.
The following are voidable or annullable contracts: *NOTE: From the time of commencement.
(a) One of the contracting parties is incapable of giving
consent. To annul within four (4) years from the time the (c) L ― Leasing for a longer period than one year of sale of real
incapacity ceases. property or an interest therein.
(b) The consent is vitiated by: INTANCES COVERED:
 VIMFU  to annul  within 4 years  VIMFU ceases  Lease  1 yr. or less  real/personal  oral – enforceable
 F&M  to annul  within 4 years  F&M discovered  Lease  > 1 year  immovable  writing – enforceable
 Sale  immovable  irrespective of price  writing – enforceable
 except, marriage  5 years
(d) S ― Sale of good, chattel, or things in action at a price of
(3) UNENFORCEABLE ₱500 or more.
 Cannot be enforced unless ratified
(e) A ― an agreement made in consideration of marriage other
 Defect = without effect
than mutual promise to marry. This must be in writing
 “Validable” contract
otherwise unenforceable.
EXCEPTION:
The following are unenforceable contracts:  A mutual promise to marry between the parties is an
(a) Both parties are incapable of giving consent. enforceable even if orally entered into.
(b) Contracts made without authority or in excess of such  One of the parties do not comply, the injured party cannot
authority. (Unauthorized Contract) comply the other party. His only right is to ask for damages
(c) Do not comply with the Statute of Fraud. because of the breach promise.

(f) R ― A representation as to the credit of a third person.

Page 27 of 28  LFA
(4) VOID (or Inexistent) In marriage,
 Most defective  Bigamous or Polygamous = VOID
 No force and without effect  Direct ascendants/descendants = VOID
 Inexistent from the beginning
 Collateral  within fourth degree of consanguinity = VOID
 MAXIM: “No contract at all”
 Cannot be validated either by time or ratification  Parent and surviving spouse of his child = VOID
  To question period  imprescriptible  Civil Code: Step brothers/sisters = VOID
third person  if right  affected  Amendment – Family Code: Step brothers/sisters = VALID
 Donation  H & W = VOID except, family Rejoicing
 Celebration
The following are some characteristics of a void contract:
Guilty of adultery/concubinage = VOID
(a) A void contract cannot be ratify.
 Sale  H & W = VOID except Separation of property
(b) The defense of illegality cannot be waived.
Juridical separation
(c) The action or defense for the declaration of the inexistence
Separation of Property
of a contract does not prescribe.
Example: Pre-nuptial Agreement
(d) The defense of illegality of contacts is not available to third
persons whose interests are not directly affected. Juridical Separation
(e) A contract is void / inexistent if it is the direct result of a Example: Legally separated by court  separation in bed & board
previous illegal contract.

*ADDITIONAL NOTE:
The following contracts are void from the very beginning  Rescission  remedy allowed by law to repair damages
(O3ICAD): cause by a contract.
(a) Object, cause or purpose is illicit.  Annulment  action brought to set aside a voidable
(Illicit  contrary to law, morals, good customs, public order contract.
or public policy)
(b) Object is outside the commerce of men.
(c) Object or cause did not exist at the time of the transaction.
(d) Intention of the parties relative to the principal object of the
contract cannot be ascertained.
(e) Contemplate an impossible service.
(f) Absolutely simulated or fictitious.
(g) Declared void by law. Atty. Dante O. Dela Cruz, CPA
Reviewer
CPA Review School of the Philippines

Page 28 of 28  LFA