04 ObligationsandContracts

OBLIGATIONS & CONTRACTS
CIVIL LAW
Obligations and Contracts

TABLE OF CONTENTS
Title 1. Obligations I. General Provisions II. Effect of Obligations III. Different Kinds of Obligations IV. Extinguishment of Obligations Title 2. Contracts I. General Provisions II. Essential Requisites of a Contract III. Form of Contracts IV. Reformation of Instruments V. Interpretation of Contracts VI. Rescissible Contracts VII. Voidable Contracts VIII. Unenforceable Contracts IX. Void or Inexistent Contracts Title 3. Natural Obligations Title 4. Estoppel 121 121 122 128 141 148 148 149 155 157 158 159 161 162 163 166 166
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OBLIGATIONS & CONTRACTS TITLE I: OBLIGATIONS Chapter I: General Provisions

I. Concept Definition Art. 1156, NCC An obligation is a juridical necessity to give, to do or not to do. The legal relation established between one party and another, whereby the latter is bound to the fulfillment of a prestation which the former may demand of him. (Manresa) Elements Active subject (obligee/ creditor) - the one in whose favor the obligation is constituted - the person who is entitled to demand Passive subject (obligor / debtor) - the one bound to the fulfillment - the person who has the duty of giving, doing or not doing Prestation (object) - the conduct which has to be observed by the debtor/obligor - duties of the obligor Requisites: 1. it must be Licit 2. it must be Possible, physically and judicially 3. it must be Determinate or determinable; and 4. it must have a Possible equivalent in money Vinculum juris (efficient cause; juridical or legal tie) that which binds or connects the parties to the obligation. This can be easily known by knowing the sources of obligations. (de Leon Distinction between natural and civil obligations Civil Obligations (Art. 1156) Based on positive law Give a right of action to compel their performance Natural Obligations (Art. 1423) Based on equity and natural law Do not grant a right of action to enforce their performance; but after voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or rendered by reason thereof
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II. Sources (Art. 1157) Law Contracts Quasi-contracts Delicts Quasi-delicts LAW General Rule Obligations derived from law are not presumed; only those expressly determined in this Code or in special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book. (Article 1158) *Those imposed by the law itself. CONTRACTS Definition A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service (1305) General Rule The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to Law, Morals, Good customs, Public order and Public policy (1306) Contracts as force of law between parties obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith (1159) QUASI-CONTRACTS (LoVe yoU) Definition It is the juridical relation resulting from lawful, voluntary, and unilateral acts by virtue of which the parties become bound to each other to the end that no one shall be unjustly enriched or benefited at the expense of another (2142) Lawful Voluntary Distinguishing it from crimes Differentiating it from quasi-delict, which are based on fault and negligence Distinguishing it from contract which is based on agreement
Unilateral
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Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII of this Book (1160) Kinds of quasi-contracts 1. Negotiorum gestio (unauthorized management) 2. Solutio Indebiti (undue payment) 1. Negotiorum Gestio This takes place when a person voluntarily takes charge of anothers abandoned business or property without the owners authority (Article 2144) This juridical relation does not arise in either of these instances: a. When the property or business is not neglected or abandoned b. If in fact the manager has been tacitly authorized by the owner 2. Solutio Indebiti This takes place when something is received when there is no right to demand it, and it was unduly delivered thru mistake (2154) DELICTS (Obligations Ex Delicto) Governing Rules Pertinent provisions of the RPC and other penal laws subject to Art 2177 Civil Code Art. 100, RPC Every person criminally liable for a felony is also civilly liable Chapter 2, Preliminary Relations (Civil Code) title, on Human
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fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter. Governing Rules Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book, and by special laws (1162) Title XVIII on damages Articles 19-36 on human relations
Chapter II: Effect of Obligations

I. KINDS OF PRESTATION 1. Obligation to Give 2. Obligation to Do 3. Obligation Not to do OBLIGATION TO GIVE: Specific/ determinate thing It is identified by its individuality; hence, it cannot be substituted with another although the intended substitute is of the same kind and quality. Generic thing (1246) It is identified only by its specie. The debtor can give anything of the same class as long as it is of the same kind.
Title 18 of Book IV of the Civil Code - on damages What civil liability arising from a crime includes Restitution Reparation of damage caused Indemnity for consequential damages QUASI-DELICTS Definition An act or omission with fault or negligence causing damage to another; not a crime nor contract Article 2176, New Civil Code Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such
Creditor cannot demand a thing of superior quality; neither can the debtor deliver a thing of inferior quality. *Limited Generic thing when the generic objects are confined to a particular class, e.g., an obligation to deliver one of my horses (Tolentino) Specific/ Determinate Thing Duties of the obligor: 1. To preserve or take care of the thing due (1163) *Standard of care: that of a good father of a family unless the law or stipulation requires another standard of care 2. To deliver the thing itself (1244) 3. To deliver the fruits of the thing (Art. 1164, par. 1) *When does the right to the fruits begin to exist? From the time the duty to deliver arises: when there is no term/condition
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from the perfection of the contract when there is a term/condition from the moment the term or condition arises 4. To deliver the accessions and accessories of the thing (Art. 1166) *Accessories - those joined to or included with the principal for the latters better use, perfection or enjoyment *Accessions additions to or improvements upon a thing 5. To pay for damages in case of breach (1170) Generic Thing Duties of the obligor: 1. To deliver a thing which is of the quality intended by the parties taking into consideration the purpose of the obligation and other circumstances (1246) 2. To be liable for damages in casa of fraud, negligence, or delay, in the performance of his obligation, or contravention of the tenor itself (1170) Personal Right Before delivery Jus ad rem/ jus in personam a right enforceable only against a definite passive subject, the debtor Right pertaining to the person to demand from another, as a definite passive subject, the fulfillment of a prestation to give, to do or not to do Rights of a Creditor Specific To compel specific performance To recover damages in case of breach of the obligation, exclusive or in addition to specific performance Entitlement to
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fruits, interests from the time the obligation to deliver arises. OBLIGATION TO DO: To do it (1167) To shoulder the cost if someone else does it (1167) To undo what has been poorly done (1167) To pay damages (1170-1172, 2201-2202) damages in case of breach of obligation
If a person obliged to do something fails to do it, the same shall be executed at his cost. This same rule shall be observed if he does it is in contravention of the obligation. Furthermore, it may be decreed that what has been poorly done be undone. (1167) *The creditor may demand that the obligation be performed by the debtor himself or by a third person at the expense of the debtor. However, in cases where the personal qualifications of the debtor are taken into account, the only remedy of the creditor is an action for damages. In the Balane notes, there is no action for compliance for an obligation to do because such would be involuntary servitude which is prohibited by the constitution. OBLIGATION NOT TO DO: Not to do what should not be done To shoulder the cost to undo what should not have been done (1168) To pay damages (1170, 2201-2202)
Real Right After delivery jus in re a right enforceable against the world.
Right pertaining to a person over a specific thing, without a passive subject individually determined against whom such right may be personally enforced
*If undoing is not possible, either physically or legally, or because of rights acquired by third persons who acted in good faith, or for some other reason, his remedy is an action for damages caused by the debtors violation of his obligation. (Manresa) II. BREACH OF OBLIGATION Voluntary - the debtor, in the performance of the obligation is guilty of fraud, negligence, delay or contravention of the tenor of the obligation Involuntary debtor is unable to comply with his obligation because of a fortuitous event A. MODES OF BREACH (1170) 1. Fraud 2. Negligence 3. Delay 4. Contravention the tenor thereof
Generic To ask for performance of the obligation To ask that the obligation be complied with at the expense of the debtor
To recover
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FRAUD It is the deliberate or intentional evasion of the normal fulfillment of an obligation. (Manresa) It implies some kind of malice or dishonesty and it cannot cover cases of mistake and errors in judgment made in good faith. It is synonymous to bad faith. (Oleary v. Macondray & Co., Inc., G.R. No. 21383, March 25, 1924) *Responsibility arising from fraud is demandable in all obligations (fraud in the performance) *Waiver of action for future fraud is void for being contrary to law and public policy (Art. 1171) because the advance renunciation of the creditor would practically leave the obligation without effect. *Past fraud can be renounced. The fraud referred to is fraud in Article 1170, which is the malice or bad faith in the performance of the obligation. Kinds of Fraud Fraud in the Performance (Art. 1170) Fraud in the Execution Causal Fraud (dolo causante) (Art. 1338) Present during the perfection of a contract Purpose is to secure the consent of another to enter into the contract Incidental Fraud (dolo incidente) (Art. 1344) Present during the perfection of a contract Purpose is to secure the consent of the other party but the fraud was not the principal inducement in making the contract Does not result in the vitiation of consent Gives rise to a right of an innocent party to claim for damages Diligence Required NEGLIGENCE (fault or culpa)
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It is the absence of due diligence. It is any voluntary act or omission, there being no malice, which prevents the normal fulfillment of an obligation. (1173, 1174) Distinction between fraud and negligence Fraud There is deliberate intention to cause damage. Liability cannot be mitigated. Waiver for future fraud is void. Negligence There is no deliberate intention to cause damage. Liability may be mitigated. Waiver for future negligence may be allowed in certain cases: a) gross can never be excused in advance; against public policy b) simple may be excused in certain cases
Present during the performance of a pre- existing obligation Purpose is to evade the normal fulfillment of the obligation
1. That agreed upon by the parties 2. In the absence of stipulation, that required by law in the particular case 3. If both the contract and law are silent, diligence of a good father of a family *Deligence of a Good Father of a Family: That reasonable diligence which an ordinary prudent person would have had under the same circumstances. Test of Negligence Did the defendant in doing the alleged negligent act use the reasonable care and caution which an ordinary and prudent person would have used in the same situation? If not, then he is guilty of negligence. (Mandarin Villa, Inc. v. CA, 257 SCRA 538, 1996) The rule for measuring degree of care and vigilance is dependent upon the circumstances in which a person finds himself situated. (Cusi v. Phil. National Railways, 90 SCRA 357, 1979) Kinds of Culpa 1. Culpa Aquiliana (quasi-delict) wrong or negligence committed independent of contract and without criminal intent
Results in the breach of an obligation Gives rise to a right in favor of the creditor to recover damages
Results in vitiation of consent; voidable contract Gives rise to a right of an innocent party to annul the contract
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2. Culpa Contractual wrong or negligence in the performance of an obligation 3. Culpa Criminal wrong or negligence in the commission of a crime DELAY (mora) It is the non-fulfillment of an obligation with respect to time. 1st GENERAL RULE: Delay occurs from the time of creditors judicial or extrajudicial demand Exception: Demand is not necessary to incur in delay when: obligation or law expressly declares time is a controlling motive demand would be useless 2nd GENERAL RULE: In reciprocal obligations, delay happens from the moment one party fulfills his undertaking. (1169) If neither party performs his undertaking, neither incurs delay Kinds of delay 3. Compensatio Morae 1. Mora solvendi 2. Mora accipiendi 3. Compensatio morae the delay of the obligors in reciprocal obligations 1. Mora Solvendi There is a delay on the part of the debtor to fulfill his obligation (to give or to do) a) Mora Solvendi Ex re default in real obligations b) Mora Solvendi Ex persona default in personal obligations Requisites: The obligation must be liquidated, due and demandable. The debtor is guilty of non-performance. There was demand made judicially or extra-judicially. Effects when these elements are present: The creditor may ask for damages/ the debtor is liable for damages The debtor is liable even if the loss is due to fortuitous events. The debtor shall bear the risk of loss. Instance when there is no default or mora solvendi: a) In negative obligations, because one can never be late in not doing or not giving something b) In natural obligations, because the performance is optional or voluntary on the part of the debtor. 2. Mora Accipiendi
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There is a delay on the part of the creditor to accept the performance of the obligation Requisites: 1. Offer of performance by the debtor who has the required capacity. 2. Offer must be to comply with the prestation as it should be performed. 3. Creditor refuses the performance without just cause. Effects when these elements are present: 1. The responsibility of debtor is reduced to fraud and gross negligence. 2. The debtor is exempted from risk of loss of thing or the creditor bears risk of loss. 3. The expenses incurred by the debtor for the preservation of the thing after the mora shall be chargeable to the creditor. 4. If the obligation bears interest, the debtor does not have to pay from time of delay. 5. The creditor is liable for damages. 6. The debtor may relieve himself of obligation by consigning the thing.
It is the delay of the parties or the obligors in reciprocal obligations. The effect is that it is as if there is no default. Rules on Mora, Delay or Default Unilateral Obligations General Rule: No demand no delay. The mere expiration of the period fixed by the parties is not enough in order that the debtor may incur in delay. Reciprocal Obligations One party incurs in delay from the moment the other party fulfills his obligation, while he himself does not comply or is not ready to comply in a proper manner with what is incumbent upon him. The general rule is that fulfillment by both parties should be simultaneous. When different dates for the performance of obligation is fixed by the parties.
Exception: when the obligation or law expressly declares when time is of the essence in the contract when the demand would be useless when the debtor acknowledged
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that he is in default It is not enough that there is a specific date of performance, the words without the need of demand should appear in the face of the instrument.
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not possible. He made the first monthly installment but refused to make further payments until and unless GSIS completed the housing unit. GSIS cancelled the award and required Agcaoili to vacate the premises. Held: GSIS had no right to rescind sale. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. (1169, par. 6) CONTRAVENTION TO THE TENOR OF THE OBLIGATION This is the violation of the terms and conditions stipulated in the obligation. And such contravention must not be due to a fortuitous event or force majeure. In general, every debtor who fails in the performance of his obligation is bound to indemnify for the losses and damages caused thereby. The phrase in any manner contravenes the tenor means any illicit act, which impairs the strict and faithful fulfillment of the obligation, or every kind of defective performance. It is therefore immaterial whether or not the actor is in bad faith or negligent, what is required is that it is his fault or the act done contravenes their agreement. B. FORTUITOUS EVENTS DEFINITION Events which could not be foreseen, or which though foreseen are inevitable. (Article 1174) Act of God An act of God is defined as an accident, due directly and exclusively to natural causes without human intervention, which by no amount of foresight, pains or care, reasonably to have been expected, could have been prevented. (Nakpil v. CA) Act of Man In contrast, force majeure is a superior or irresistible force, which is essentially an act of man, such as wars, strikes, riots, acts of robbers, pirates, and brigands. *In our law, acts of man and acts of God are identical in so far as they exempt an obligor from liability because the events happened independent of the will of the obligor. (Republic v. Stevedoring Corp., 21 SCRA 279, 1967 and UST v. Descals, 38 Phil. 287, 1918)
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The demand is still necessary only when the respective obligations are to be performed on separate dates. If neither party complies with the prestation, the default on one compensates the default of another.
*Delay in payment of money is indemnified through interest unless a gratuitous mutuum or simple loan. If no stipulated interest, default interest is (6%) six percent. (2209) *If obligation consists in payment of a sum of money, and debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six percent per annum. (2209) *When there is delay, the injured party may ask for damages. But this benefit arising from Mora, default or delay may cease upon: - Renunciation of the creditor - Prescription of action - Extension of time for the fulfillment of the obligation Bragaza v. CA A contract was entered into for delivery of materials on Dec. 22, 1990 in time for the aggrieved partys wife who expressly wished that she be buried before Christmas day, and where, despite knowing this timetable and having been paid for the materials, the supplier failed to make the delivery despite pleas and earnest follow-ups by the widower. Supreme Court ruled that time was of the essence of such contract and the supplier should be liable for the delay and breach. N.B. Example of incurring delay without judicial or extrajudicial demand. (#2)Time is of the essence. Contract was entered into in view of burial before Christmas. Agcaoili v. GSIS The parties entered into a contract of sale of a government housing unit on the condition that Agcaoili should occupy the same within three days from the receipt of notice. Failure to immediately occupy contractually allowed GSIS to terminate the contract. Agcaoli upon receipt of notice, immediately went to the place and found a house in a state of incompleteness that civilized occupation was
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Kinds of Fortuitous Events 1. Ordinary those which are common and which the contracting parties could easily foresee. 2. Extraordinary those which are uncommon and which the contracting parties could not have reasonably foreseen. (see 1680) General Rule Except in cases expressly specified by law, or when it is otherwise declared by stipulation, or when the nature of the obligations requires assumption of risk, no person shall be responsible for those events which, could not be foreseen, or which though foreseeable, are inevitable. *When a debtor is unable to fulfill his obligation because of fortuitous events or force majeure, his obligation to comply is extinguished subject to the following exceptions: cases expressly specified by law (i.e., 552(2), 1165, 1268, 1942, 2147, 2148, 2159) declared by stipulation nature of the obligation requires the assumption of risk (1174) when the obligor is in default or has promised to deliver the same thing to two or more persons who do not have the same interests. (1165(3))
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failure to act, the whole occurrence is then humanized and removed from the rules applicable to the acts of God. (NAPOCOR v. CA, 211 SCRA 162, 1992) Herbosa v. CA 374 SCRA 578 (2002) PVE, a subsidiary of SD, Inc., was not able to cover the wedding celebration of EH and RH allegedly due to the gross negligence of the crew and the lack of supervision from PVEs general manager. Held: PVE or SD, Inc. cannot take refuge under Article 1280 of the New Civil Code. The defense that they exercised due care in the selection and supervision of their employees can only be availed of when the liability arises from culpa aquiliana and not from culpa contractual. C. REMEDIES OF CREDITORS GENERAL RULE Rights acquired by virtue of an obligation are transmissible in character. Exception a) when they are not transmissible by their very nature (Personal obligation) b) when there is Stipulation of the parties that they are not transmissible c) when they are not transmissible by operation of Law Rights of Creditor against Debtor (E-PAA, electronic paa/foot or e-foot) 1. Exact fulfillment to demand fulfillment of the obligation or specific performance either specific, substitute or equivalent performance 2. Pursue the leviable to attach the properties of the debtor, except those exempt by law, from execution. 3. Accion subrogatoria 4. Accion Pauliana Accion Subrogatoria
Requisites for exemption 1. cause of event or debtors failure independent of human will 2. impossible to foresee or avoid 3. impossible for debtor to fulfill his obligation in a normal manner 4. debtor free from participation in the aggravation of the injury to the creditor (Nakpil v. CA and Lasam v. Smith) *It must be the ONLY and SOLE cause, not merely a proximate cause. Effect of Concurrent Fault One who negligently creates a dangerous situation cannot escape liability for the natural and probable consequences thereof although an act of God intervened to precipitate the loss. There must be no fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation. (Nakpil v. CA) When the effect is found to be in part the result of the participation of man, whether due to his active intervention or neglect or
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Definition Novation via change of creditor (1291, par. 3); This involves the right of the creditor to exercise all of the rights and bring all of the actions which the debtor may have against third persons. Requisites 1. Creditor must have the right of return against debtor 2. The debt is due and demandable
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3. There is a failure of the debtor to collect his own debt from 3rd persons either through malice or negligence 4. The debtor's assets are insufficient 5. The right of account is not purely personal Accion Pauliana Definition Rescission, which involves the right of the creditor to attack or impugn by means of a rescissory action any act of the debtor which is in fraud and to the prejudice of his rights as creditor. Requisites 1. There is a credit in favor of plaintiff 2. The debtor has performed an act subsequent to the contract, giving advantage to other persons 3. The creditor has no other legal remedy 4. The debtor's acts are fraudulent 5. The creditor is prejudiced by the debtor's act which are in favor of 3rd parties and rescission will benefit the creditor
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Juridical quality and efficaciousness a. Civil obligations b. Natural obligations c. Mixed according to natural and civil law By the a. b. c. By the a. b. c. d. e. f. g. parties or subject Unilateral or Bilateral Individual or Collective Joint or Solidary object of the obligation or prestation Specific or Generic Positive or Negative Real or Personal Possible or Impossible Divisible or Indivisible Principal or Accessory Simple or Compound If compound: Conjunctive (demandable at the same time) Distributive (alternative or facultative)
By their juridical perfection or fulfillment a. Pure or Conditional b. With a Period I. PURE AND CONDITIONAL OBLIGATIONS PURE OBLIGATION The effectivity or extinguishment is not subject to any condition and no specific date is mentioned for its fulfillment and is, therefore, immediately demandable. (1179, par. 1) CONDITIONAL OBLIGATION The consequences are subject in one way or another to the fulfillment of a condition. Condition It is a future and uncertain event, upon the happening of which, the effectivity or extinguishment of an obligation (or rights) subject to it depends. Term A day certain is understood to be that which must necessarily come, although it may not be known when. *Difference between conditional and those with a term: There is uncertainty or certainty of day or time. If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be regulated by the rules of the preceding section. (1193)
Chapter III: Different Kinds of Obligations

PRIMARY CLASSIFICATION (PaPA, Just Dont Preach) 1. Pure and conditional obligations (1179- 1192) 2. Obligations with a Period (1193-1198) 3. Alternative obligations (1199-1206) 4. Joint and solidary obligations (1207-1222) 5. Divisible and indivisible obligations (1223- 1225) 6. Obligations with a Penal clause (1226- 1230) SECONDARY CLASSIFICATION (U R D PoLiCe) 1. 2. 3. 4. 5. 6. Unilateral and bilateral Real and personal Determinate and indeterminate Positive and negative Legal and conventional Civil and natural
Classification according to Sanchez Roman: 1. Juridical quality and efficaciousness 2. By parties or subject 3. By the object of the obligation or prestation 4. By their juridical perfection and extinguishment
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Pay v. Viuda de Palanca The debtor issued a promissory note to the creditor to pay a sum of money payable upon receipt of a particular sum of money from the estate of a certain deceased person upon demand. The case for collection on the note was filed 15 years after its execution. The Supreme Court ruled that, since the prescriptive period for filing the action was 10 years and considering that the promissory notes payment constituted a pure obligation and therefore demandable at once, the action to collect could no longer prosper. It was deemed pure since satisfaction of credit could be realized either through the debtor sued receiving the cash payment from the estate of the deceased or upon demand. Classification of Conditions 1. As to effect a. Suspensive b. Resolutory 2. As to form a. Express the condition is clearly stated b. Implied the condition is merely inferred 3. As to possibility a. Possible b. Impossible 4. As a. b. c. to cause or origin Potestative Casual Mixed happening of the uncertain constitutes the condition. RESOLUTORY CONDITION (Condition subsequent)
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event which
It causes the extinguishment or loss of rights already acquired upon the fulfillment of the condition, that is, the happening of the event which constitutes the condition. In other words, the fulfillment of which will extinguish an obligation (or right) already existing. Suspensive When it is fulfilled, the obligation arises. When it takes place, the tie of law (juridical or legal tie) does not appear Until it takes place, the existence of the obligation is a mere hope Effect: The acquisition of rights (Manresa) Potestative, Casual and Mixed (1182) POTESTATIVE CONDITION (facultative condition) It is a condition which is suspensive in nature and which depends upon the sole will of one of the contracting parties. Suspensive condition Depends upon the will of the debtor The condition and obligation are void because the validity and compliance are left to the will of the debtor and it cannot, therefore, be legally demanded as it will cause the debtor not to fulfill the condition to escape liability. Except when the obligation is a pre- existing one; hence, only the
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Resolutory The obligation is extinguished. The tie of law is consolidated
Its effects flow, but over it, hovers the possibility of termination The loss (termination) of rights already acquired
5. As to mode a. Positive the condition consists in the performance of an act (1184) b. Negative the condition consists in the omission of an act 6. As to numbers a. Conjunctive there are several conditions and all must be fulfilled b. Disjunctive there are several conditions and only one or some of them must be fulfilled 7. As to divisibility a. Divisible the condition is susceptible of partial performance b. Indivisible the condition is not susceptible of partial performance Suspensive and Resolutory (1179) SUSPENSIVE CONDITION (Condition precedent or condition antecedent) It suspends the acquisition of rights until the conditions are fulfilled; that is, until the
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Resolutory condition The condition and obligation are still valid because the debtor is interested in the fulfillment of a condition which causes the extinguishment or loss of rights already acquired by the creditor.
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condition is void. Depends upon the will of the creditor The condition and obligation are valid because the creditor is interested in the fulfillment of the obligation as it will benefit him. CASUAL CONDITION The condition depends upon chance or the will of a third person. MIXED CONDITION The condition depends partly on the will of a party and partly on chance or the will of a 3rd person. The obligation is valid if the suspensive condition depends partly upon chance and partly upon the will of a third person. (Naga Telephone, Co., Inc. v. CA, 230 SCRA 351, 1994) Possible and Impossible Conditions (1183) *Applies to suspensive conditions. POSSIBLE CONDITIONS The condition is capable of fulfillment, legally and physically. IMPOSSIBLE CONDITIONS The condition is not capable of fulfillment, legally or physically. Two Kinds 1. Physically impossible conditions those, in the nature of things, cannot exist or cannot be undone. 2. Legally impossible conditions those which are contrary to law, morals, good customs, public order and public policy. General Rule They shall annul the obligation which depends upon them Exceptions 1. 2. 3. 4. pre-existing obligation divisible obligations simple or remuneratory donations testamentary dispositions
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5. in case of conditions impossible thing Effect It renders the conditional obligation void since the obligor knows that his obligation cannot be fulfilled; thus, showing that he has no intention to comply with his obligation. Effects of Impossible and Illegal Conditions If the condition is: 1. To do an impossible or illegal thing, the condition and the obligation are void. 2. Negative (not to do an illegal thing), the condition and the obligation are valid. 3. Negative (not to do the impossible thing), disregard the condition, however, the obligation remains. Positive and Negative Conditions POSITIVE CONDITION (suspensive) The obligation is extinguished: a) as soon as the time expires without the event taking place b) as soon as it has become indubitable that the event will not take place although the time specified has not yet expired (1184) NEGATIVE CONDITION (suspensive) The obligation becomes effective: a) from the moment the time indicated has elapsed without the event taking place; or b) from the moment it has become evident that the event cannot occur, although the time indicated has not yet elapsed (1185) Constructive Fulfillment (1186) For Suspensive Conditions Requisites 1. The condition is suspensive; 2. The obligor actually prevents fulfillment of the condition; and 3. He acts voluntarily. For Resolutory Condition This also applies to a resolutory condition when the debtor is bound to return what he has received upon fulfillment of the condition. Effects of Suspensive Conditions 1. Before the condition is fulfilled, the demandability and acquisition or effectivity
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of the rights arising from the obligation is suspended. 2. After the condition has been fulfilled, the obligation arises or becomes effective. 3. The effects of a conditional obligation to give, once the condition has been fulfilled shall retroact to the day the obligation was constituted. *The law allows retroactivity because the condition is not an essential requisite of an obligation. 1. When the obligation imposes reciprocal prestations upon the parties, the fruits and interests shall be deemed to have been mutually compensated (this assumes a simultaneous performance of prestations). *The fruits are mutually compensated for convenience. 2. In a unilateral obligation, the debtor shall appropriate the fruits and interests received unless the intention constituting such was different. 3. In obligations to do or not to do, the court shall determine the retroactive effect of the condition that has been complied with. Rights Pending Fulfillment of a Suspensive Condition Of the creditor He may take or bring appropriate actions for the preservation of his right, as the debtor may render nugatory the obligation upon the happening of the condition. Of the debtor He is entitled to recover what he has paid by mistake prior to the happening og the suspensive condition.
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1. Physical loss (the thing perishes) 2. Legal loss (the thing goes out of commerce) 3. Civil loss (the thing disappears and the existence is unknown or unrecoverable as a matter of fact or of law) Rules 1. When the thing is lost without the debtors fault, the obligation is extinguished. 2. When the thing is lost with the debtors fault, the debtor pays for damages. DETERIORATION Rules 1. When the thing deteriorates without the debtors fault, the creditor will suffer the deterioration of impairment. 2. When the thing deteriorates with the debtors fault, the creditor may choose between: a. Rescission (cancellation) of the obligation with indemnity for damages, or b. Fulfillment of the obligation also with damages IMPROVEMENT Rules 1. When the thing is improved by nature or by time, the improvement shall inure to the benefit of the creditor. 2. When the thing is improved at the expense of the debtor, the debtor shall have no other right than that granted to a usufructuary. Effect of the Fulfillment of Resolutory Conditions (1190) 1. Extinguishment of the obligation 2. Mutual restitution (the parties restore to each other what they have received including the fruits and interest) 3. Art. 1189 applies to whoever has the duty to return in case of loss, deterioration or improvement of the thing 4. If the obligation is to do or not to do, the courts determine the retroactivity of the fulfillment of the condition as stated in 1187 Kinds of Obligation Person Obliged according to the
Loss, Deterioration or Improvement Pending the Happening of the Condition (1189) Requisites for 1189 to apply 6. The obligation is a real obligation; 7. The object is a specific or determinate thing; 8. The condition is subject to a suspensive condition; 9. The condition is fulfilled; and 10. There is loss, deterioration, or improvement of the thing during the pendency of the the condition. LOSS Kinds of loss
UNILATERAL OBLIGATION It is when only one party is obliged to comply with a prestation.
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BILATERAL OBLIGATION It is when both parties are mutually bound to each other making them both the debtors and creditors of each other. It may be: reciprocal, or non-reciprocal Reciprocal Obligations Those which arise from the same cause and in which each party is debtor and creditor of the other. Implied Condition There must be compliance by the other with the duties incumbent upon him as party to the debt. In reciprocal obligations, a party cannot demand unless he complies or is ready to comply with obligations (inferred from 1169). *This is subject to same rules on interim obligations and interim remedies. Non-Reciprocal Obligations Those which do not impose simultaneous and correlative performance on both parties. The performance of one party does not depend upon the simultaneous performance of another. Remedies in Reciprocal Obligations RESCISSION IN ARTICLE 1191 The power to rescind means the right to cancel or to resolve the contract in case of non-fulfillment of the obligation on the part of one of the parties. It is the breach of faith committed by the person who is supposed to comply with obligation. It is not the rescission in 1380 which involves damage or lesion, or injury to the economic interest of a person. Characteristics 1. It only exists in reciprocal obligations. 2. It can be demanded only if the plaintiff is ready, willing and able to comply with his own obligation and the other is not. (Seva v. Berwia, 48 Phil. 581) General Rule Judicial approval is necessary for rescission, except: a. When the object is not yet delivered
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b. When, even if there has been delivery, the contract states that either party can rescind the same or take possession of the property upon non-fulfillment of the obligation by the other party. By one party: (1191) 1. Implied in reciprocal obligations, when the other does not comply 2. Power to rescind plus damages 3. Compel fulfillment and then rescind if such becomes impossible 4. The Court decrees rescission unless just cause for authorizing a period 5. Must be without prejudice to third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. By both parties: (1192) In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. 1. Rule against the first infractor, as tempered by courts 2. If first infractor cannot be determined, obligation extinguished *Rescission should be done judicially unless stipulated in the contract. Rescission will only be granted if breach of the obligation is substantial and not mere occasional malfunction of the machine without even an allegation of loss of income. (Philippine Amusement Enterprises, Inc. v. Natividad) *Injured party has the power to rescind but only through the courts in proper proceedings. (Ocejo v. International Banking Corp.) UP v. de los Angeles The parties stipulated rescission of logging agreements without the need for any judicial pronouncement. N.B. Judicial pronouncement of rescission was unnecessary as it was clearly expressed in their contract. No law prohibits parties from entering agreements wherein violation of the terms of contract would cause cancellation even without court intervention. Rescission on account of infractions by the other party by one of the parties must be made known to that other party who in turn can seek for judicial remedy should he feel that rescission is unjustified.
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Obligations Rendered Void By Certain Conditions Annulling conditions: a. Potestative only if suspensive condition is solely upon the will of the debtor (1182) b. Impossible Conditions (1183) c. those contrary to law, good customs, morals, public order or public policy (1183) d. Not to do an impossible thing not agreed upon (1183, par. 2) Lao Lim v. CA The stipulation that the lessee has the right to renew contract of lease as long as he needs the premises and he can pay for the same is invalid. It would leave the lessee, Dy, the sole power to determine whether the lease should continue or not. The lease contract is deemed extinguished at the end of a year, subject to renewal by means of a new agreement but since the lessor did not want to renew, there is no more lease. Romero v. CA This case shows that one cannot rescind a contract on account of ones own failure to fulfill an obligation. Ducusin v. CA Only that which is dependent on the sole will of the debtor is invalid. No one is supposed to have sole power. In this case, since the condition is dependent on the will of third persons, the condition was held to be valid. II. OBLIGATIONS WITH A TERM Those whose consequences are subjected in one way or another to the expiration of a period or term. (Manresa, Lirag Textiles, Inc. v. CA, 63 SCRA 374, 1975) PERIOD or TERM It is a future and certain event upon the arrival of which the obligation (or right) subject to it either arises or is terminated. *The demandability is suspended by the term, not the acquisition of the right or the effectivity of the obligation. *Fortuitous events do interrupt the running of the period. Distinguishing a period from a condition Period/ Term As to fulfillment Certain event As to time Refers only to the
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future As to influence on the obligation Merely fixes the time for the efficaciousness of the obligation. If suspensive, it cannot prevent the birth of the obligation in due time. If resolutory, it does not annul, even in fiction, the fact of its existence. As to effect, when left to the debtors will Depends upon the will of the debtor empowers the court to fix its duration As to retroactivity of effects Unless stipulated, the arrival of a period has no retroactive effect. unknown to parties
It causes an obligation to arise or be terminated.
Depends upon the sole will of the debtor, thus, invalidates the obligation
The happening of the condition has retroactive effect.
Classifications of Term/ Period 1. According to effect a. suspensive period (ex die) obligation becomes demandable only upon the arrival of a certain day b. resolutory period (in diem) obligation is valid up to a day certain and terminated upon the arrival of period. 2. According to source a. legal period provided for by law b. conventional/ voluntary period agreed to by the parties c. judicial period fixed by the court
Condition Uncertain event May also refer to a past event

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3. According to definiteness a. definite period fixed or the coming of which is known b. indefinite period not fixed or the coming of which is not known (usually, the law empowers the courts to fix the period)
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Requisites of Period/ Term It must refer to the future. It must be certain. It must be possible. Effect of payment before the arrival of the period The debtor may recover what he has paid including the fruits and interest if he is unaware of the period or believed that the obligation has become due and demandable (1195). If he paid voluntarily knowing that the obligation is not yet due, he cannot recover what he has paid. General Rule The period attached to the obligation is for the benefit of both parties. Exception When it appears from the tenor of the obligation or other circumstances that the period has been established in favor of one or the other subject to an express stipulation of the parties, the period may be benefit the debtor or the creditor alone. Period for the benefit of the debtor alone: The debtor cannot be compelled to pay prematurely, however, he may renounce the benefit of the period by performing his obligation in advance. (Manresa) Period for the benefit of the creditor alone: The creditor may demand fulfillment even before the arrival of the term but the debtor cannot compel him to accept before the expiration of the period (i.e., on demand). Interim obligations In case of loss, deterioration or improvement of the thing before the arrival of the day certain, the rules in article 1189 shall be observed. i. Exercise due diligence; otherwise, responsibility for loss, deterioration (1189) ii. Improvement inures to creditor, if at expense of debtor only usufructuary right (1189) iii. Recover payment or delivery before due and demandable ABESAMIS V. WOODCRAFT WORKS, INC. THE CONTRACT PROVIDED THAT THE APPELLANT SHALL MAKE SHIPMENT BEFORE THE END OF JULY, BUT WILL NOT COMMENCE EARLIER THAN APRIL
WITH THE OPTION TO MAKE PARTIAL SHIPMENT DEPENDING ON THE AVAILABILITY OF LOGS AND VESSELS.
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THE SUPREME COURT, IN DECIDING
WHO WAS TO BEAR THE LOSS AS A RESULT OF THE TYPHOON IN A CONTRACT FOR DELIVERY OF LOGS, RULED THAT THE QUOTED PROVISION PROVIDES FOR A PERIOD. CALCULATED TO AVOID TYPHOONS.
THE DESIGNATED TIME WAS ON MAY 5,
1951 THE APPELLANT FAILED TO SEND A VESSEL TO PICK UP THE LOGS, WHICH WERE CONSEQUENTLY SWEPT AWAY BY A TYPHOON. SINCE THE SAID DATE WAS WITHIN THE PERIOD PRESCRIBED, NONE OF THE PARTIES COULD INCUR DELAY NOR DEMAND PERFORMANCE. THE LOSS
SHOULD BE SHOULDERED BY THE APPELLEE OR THE LOGGER.
FIXING OF A PERIOD The Court May Fix a Period When: 1. There is no express stipulation, but a period is intended by the parties as can be inferred from the nature and circumstances of the obligation. 2. If the duration of the period depends upon the will of the debtor. 3. If the debtor promises to pay when his means permit him to do so. (1197) The Court May NOT Fix a Period When: 1. When no term has been specified by the parties because no term was ever intended, in which case it is considered a pure obligation. 2. When the obligation is payable on demand. 3. When specified period is provided by law. Araneta, Inc. v. Philippine Sugar Estates Development Co., Ltd. The parties in the case intended to defer performance of obligations until after the squatters were duly evicted. Although it was indefinite, such was the intention of the parties and courts could not just assign a period out of thin air. The requisite and guideline for setting a period is when there is no period specified but such was intended, courts should just fix a period, which the parties could have intended. Reasons for Fixing a Period 1. There can be no possibility of any breach of contract or failure to perform the obligation unless the period is fixed by the courts. 2. When the court has not yet fixed the period, it is premature to collect. A Debtor Loses the Right to Make Use of a Period (when the creditor can demand even when the obligation is not yet due) (1198)
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1. When after contracting the obligation, the debtor suffers from insolvency, unless he gives guaranties or securities for the debt 2. When the debtor does not furnish promised guaranties or securities he promised 3. When by his own act, the debtor has impaired established guaranties or securities and when through a fortuitous event they disappear, unless he gives new ones equally satisfactory when the debtor violates any undertaking in consideration of which the creditor agreed to the period 4. When the debtor attempts to abscond. *IN ALL THE CASES ABOVE, DESPITE THE FACT THAT THE PERIOD HAS NOT YET LAPSED, THE
OBLIGATION SHALL BECOME IMMEDIATELY PAYABLE OR DEMANDABLE.
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ALTERNATIVE OBLIGATION It is one wherein various prestations are due but the performance of one of them is sufficiently determined by the choice which, as a general rule, belongs to the debtor. (Manresa) FACULTATIVE OBLIGATION It one where only one prestation has been agreed upon but the obligor may render another in substitution. Distinguising Alternative and Facultative Obligations Alternative Number of prestations Several prestations are due but compliance with one is sufficient Right of choice May be given to the creditor or to a third person Loss through a fortuitous event The loss of one or more of the alternatives does not extinguish the obligation Loss through fault of debtor a) Does not render the debtor liable b) Where the choice belongs to the creditor, the loss of one alternative gives rise to liability Nullity of prestation a) The nullity of one prestation does not invalidate the others b) the debtor or creditor should choose from among the remainder Facultative Only one prestation is due although the debtor is allowed to substitute another The right to make the substitution is given only to the debtor The loss of the thing due extinguishes the obligation.
*THE WORD INSOLVENT DOES NOT REQUIRE A JUDICIAL DECREE OF INSOLVENCY. IT SHOULD BE
UNDERSTOOD IN ITS ORDINARY MEANING WHICH MAY EMBRACE DIFFERENT DEGREES OF FINANCIAL EMBARRASSMENT. OCCURRED CONSTITUTED.
THE INSOLVENCY MUST HAVE

THE OBLIGATION WAS
AFTER
Gaite v. Fonacier Payment of obligation was secured by two surety bonds: one from a mining company and its stockholders and the other from a bonding company. The obligor was obliged to pay the indebtedness from the time it received the proceeds of the sale of iron ore, the Supreme Court ruled that the obligor in this case lost its right to the period. Failure to renew an expired surety with the bonding company constituted an impairment of the securities or guaranties. Thus, Fonacier lost his right to the period, i.e. time to sell the iron ore, unless he immediately gives new ones equally satisfactory. III. ALTERNATIVE OBLIGATIONS Kinds of Obligation according to Object 1. Simple obligation one where there is only one prestation 2. Compound obligation one where there are two or more prestations a. Conjunctive obligation one where there are several prestations and all of them are due b. Distributive obligation one where one of two or more of the prestations is due *A distributive obligation may be alternative (1199), or facultative (1206)
a) The debtor is liable b) The loss of the substitute before the substitution does not render the debtor liable a) The nullity of the prestation agreed upon invalidates the obligation b) the debtor is not bound to choose the substitute
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Right of Choice General Rule The right of choice belongs to the debtor. Except: When expressly granted to the creditor, or When expressly granted to a third person *A right of choice becomes a simple obligation when a person who has a right of choice has communicated his choice and that one choice is the only practicable one (i.e., the others may have become illegal or impossible). (1202) Limitations on the Debtors Right of Choice 1. The debtor cannot choose those prestations which are impossible, unlawful or which could not have been the object of the obligation. (1200) The debtor has no more right of choice when among the prestations whereby he is alternatively bound, only one is practicable. The debtor cannot choose the part of one prestation and part of another.
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Rules in Facultative Obligations Before After Substitution Substitution Loss of the Principal Fortuitous Event The debtor is not The obligation is liable whatever may extinguished be the cause Fault of Debtor The debtor is liable for damages Loss of the Substitute The debtor is not Fortuitous Event liable whether The obligation is the loss is due to extinguished the fault of the Fault of Debtor debtor or to a The debtor is liable fortuitous event. for damages IV. JOINT AND SOLIDARY OBLIGATIONS JOINT OBLIGATIONS Obligacion Mancomunada It is an obligation where the whole liability is to be paid or fulfilled proportionately by the different debtors; and/or is to be demanded proportionately by the different creditors. SOLIDARY OBLIGATION Obligacion Solidaria It is an obligation where each one of the debtors is bound to render, and/ or each one of the creditors has a right to demand compliance with the prestation. (1207) *In a joint obligation, each debtor shall be liable only for his part of the debt presumed to be equal with the other debtors. The above provision is consistent with the rule that a joint obligation is presumed in case of plurality of debtors or creditors for solidary obligation exists only when the law so provides, when expressly stipulated by the parties or when called for by the nature of the obligation. (Jurado) (see 1208) General Rule By default, collective obligations are presumed to be joint if there is concurrence of two or more debtors and/ or creditors. Solidarity exists only 1. When Stipulated by the parties using such words like jointly and severally, in solidum, I promise to pay in a note signed by two or more debtors, or similar words. (conventional solidarity) 2. When solidary liability is provided by Law, hence, civil liability arising from crimes,
2.
3.
The Right of Choice belongs to the Debtor As a general rule, in alternative obligations, the right of choice belongs to the debtor. However, the debtor may expressly give the right of choice to the creditor. Rules in Alternative Obligations Debtors Creditors choice choice Due to a Fortuitous Event All Extinguish Extinguish Some Deliver any of Deliver any of the remaining the remaining One Deliver Deliver Debtors Fault All Value of the Value of any of last thing lost the things and and damages damages Some Deliver any of Value of the the remaining, thing lost, no damages damages or any of the remaining One Deliver, no damages Loss of Last Thing Extinguish Value of any of the things lost due to the creditors fault and damages
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negotiorum gestio, commodatum or quasi- delict shall be solidary. (legal solidarity) 3. When the Nature of the obligation requires solidarity. 4. When a charge or condition is imposed upon heirs or legatees, and the Testament expressly makes the charge or condition in solidum. 5. When a solidary responsibility is imputed by a Final judgment upon several defendants. Some Features of Joint Liability 1. Insolvency of one debtor does not make the others liable. 2. Vitiated consent on the part of one debtor does not affect the others. 3. Demand made to one of the debtors is not a demand to all because the debt of one is distinct from the others. *In a given contract, wherein a party signs as a surety but the agreement states joint and several liabilities, there is a solidary obligation. (Jaucian v. Querol) Kinds of Solidarity (PAMela Anderson) 1. Passive Solidarity 2. Active Solidarity 3. Mixed Solidarity creditors and debtors Passive Solidarity Solidarity of debtors Any one of the debtors can be made liable for the fulfillment of the entire obligation, with the consequent right to demand from the others their corresponding shares in the liability. It is in the nature of a mutual guaranty. Indivisible obligations solidary (1210) Indivisibility Refers to prestation the
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between the parties is joint, that is, liable only to a proportionate share. (1209) *In a joint indivisible obligation, the liabilities of the debtors or the rights of the creditors are joint, but they are indivisible as to compliance. (1224) The concurrence of all the creditors is necessary for demanding compliance due to the indivisibility of the obligation. The same is inversely true as regards the debtors. The concurrence of all the creditors is also necessary for acts which are prejudicial. But an act beneficial to all like interruption of prescription may be performed by one of the creditors. are not necessarily Solidarity Refers to the legal or juridical tie binding the parties All of the debtors are liable for the breach of obligation committed by any one of the debtrs. Can only exist when there is at least two debtors or creditors The others are proportionately liable in case of insolvency of one debtor
solidarity
among
Active Solidarity Solidarity of creditors Any one of the creditors may demand fulfillment of the entire obligation.
Only the debtor who is guilty of breach of obligation is liable for damages, thereby terminating the agency. Can exist even if there is only one debtor or one creditor The others are not liable in case of insolvency of one debtor Characteristics
Its essential feature is that of mutual representation.
Joint Indivisibility A joint indivisible obligation is one in which the object or prestation is indivisible, not susceptible of division; while the tie
1. Demand must be made to all the joint debtors. 2. The creditor must proceed against all the joint debtors, because the compliance of the obligation is possible only if all of the joint debtors would act together. 3. If one of the debtors is insolvent, the other(s) shall not be liable for his share. 4. If one of the debtors cannot comply, the obligation is converted into monetary consideration. One who is ready and willing to comply will pay his proportionate share, and the other not willing shall pay his share plus damages when his financial condition improves. 5. If there is more than one creditor, delivery must be made to all, unless one is authorized to receive for the others.
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RULES 1. GIVES RISE TO INDEMNITY FOR DAMAGES: NON-COMPLIANCE WITH UNDERTAKING (1224) 2. DEBTORS READY TO FULFILL SHALL NOT BE LIABLE (1224) *AS ALREADY STATED, IN A JOINT INDIVISIBLE OBLIGATION, A SUIT FOR SPECIFIC PERFORMANCE
MUST BE DIRECTED AGAINST ALL THE DEBTORS AND IF ANY ONE OF THEM IS NOT WILLING TO FULFILL, THE ACTION SHALL BE CONVERTED INTO ONE FOR DAMAGES WHERE THE DEBTORS SHALL BE LIABLE FOR THEIR RESPECTIVE SHARES WHILE THE UNWILLING DEBTOR SHALL PAY HIS SHARE PLUS DAMAGES FOR HE ALONE SHALL BE LIABLE FOR DAMAGES, THE OTHER DEBTORS BEING WILLING TO DELIVER.
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observed. In such case the contract is called a suretyship. (2047) Distinguishing Solidarity Suretyship from
1. A surety does not have an actual loan of his own, solidary debtor is also liable for his own debt in addition to that of others. 2. After paying the debt, a surety has right to collect from principal debtor, while a solidary debtor has right to collect from solidary co-debtor. 3. Most importantly, an extension of time would benefit the surety and such would not benefit solidary co-debtors who did not know or consent to an extension of time. (Villa v. Garcia Bosque) (Jurado) Rights of solidary creditor/s 1. Do only what is useful to others, nothing prejudicial to co-creditors. (1212) 2. There is no assignment without the consent of others (1213) *The consent of the other co-solidary creditors is necessary because they may not trust the new creditor who would thereby be entitled to collect the entire debt. (Jurado) 3. Anyone has right to receive the payment; but the first one to demand receives the payment. (1214) *Payment made by the debtor to any one of the solidary creditors extinguishes the obligation. If one of the solidary creditors demands payment of the debt, he has the right to do so and payment must be made to him. (Jurado) Quiombing v. CA Only one of the solidary creditors filed a suit for collection against the solidary debtors. The debtors moved for the dismissal of the suit on the ground that the other solidary creditors should have been included in the case. The Supreme Court rejected the dismissal of the suit invoking Art. 1212 and stated that recovery of the contract price was surely a useful act and can be done even by one solidary creditor. Furthermore, the question as to who should sue was a personal issue among the solidary creditors. N.B. As to who sues for recovery of the obligation should not matter to the debtors as they are wholly obligated to either one of the solidary creditors. 4. Action against and payment by solidary debtor.
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3. Prejudiced only by collective acts of ALL creditors / enforced against ALL debtors (1209) *Article 1209 contemplates an obligation which is joint as to the parties but indivisible as to compliance. The concurrence of all the creditors is necessary for demanding compliance due to the indivisibility of the obligation. The same is inversely true as regards the debtors. The concurrence of all the creditors is also necessary for acts which are prejudicial. But an act beneficial to all like interruption of prescription may be performed by one of the creditor. Inchausti & Co. v. Yulo Six brothers and sisters admitted solidary liability. Gregorio Yulo was sued for payment of entire indebtedness. However, solidary debtors Francisco, Manuel and Carmen entered into a compromise agreement with plaintiff. Gregorio was ordered to pay the part of the reduced indebtedness, only insofar as such is demandable. Greg Yulo was solidarily liable, he benefited from the remission, but not the extension of the period for payment, thus there was partial demandability. Debtor/ Passive Solidarity Distinguished From Suretyship By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. A solidary guaranty is suretyship. Suretyship If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be
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a. Proceed against anyone, some, or all of them simultaneously (1216) b. Demand against one: not obstacle for demand against another, unless paid (1216) Effect of Loss or Impossibility 1. Without any fault of any of the debtors: Extinguishment (1221) 2. With fault of any of the debtors: all are responsible but co-debtors have a right against negligent debtor 3. Due to a fortuitous event, but with delay: all are responsible with right of action against the negligent debtor Rules of Payment in Solidary Obligations 1. The creditor may proceed against any one of the solidary debtors or some or all of them as long as the debt has not been fully collected. (1316) 2. Payment made by one of the solidary debtors extinguishes the obligation. (1217) 3. If two or more debtors offer to pay, the creditor may choose which offer to accept. (1217) 4. The paying debtor may ask for reimbursement with interest from his co- debtors. (1217) 5. The share of the insolvent debtor shall be borne by all his co-debtors, pro-rata. (1217) 6. There shall be no reimbursement if the solidary debtor paid AFTER the obligation has prescribed or has become illegal. (1218) Rights of Solidary Debtor 1. Set-up all defenses 2. Right of action against solidary co-debtors Set-up Defenses (1222) a. Defenses derived from the nature of the obligation available to all debtors as a defense to compliance with the entire obligation; b. Defenses personal to the debtor like minority, insanity, civil interdiction, etc. not available to the other debtors so as to free the latter from their liability for their own shares in the obligation; c. Defenses that pertain to his co- debtor(s), like the existence of a period or condition available only as regards the share of such co-debtor(s) for solidarity may exist even if the debtors are bound under different periods or conditions.
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Imperial Insurance, Inc. v. David Husband and wife bound themselves solidarily in favor of obligee for a sum of money and when the husband died, the obligee demanded payment from the wife who resisted payment, claiming that the obligees claim is barred by its failure to file a claim in the intestate proceeding of the deceased husband. The Supreme Court ruled that the obligee can properly claim from the wife as the nature of the obligation is solidary. N.B. If obligation were solidary, the entire obligation is demandable from anyone of the solidary obligors. Right of action against solidary co-debtors The payor of the obligation may claim from each co-debtor his share of the debt with interest, unless paid before debt is due or demandable (with no interest). (1217) V. DIVISIBLE OBLIGATIONS & INDIVISIBLE
The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. (1210) DIVISIBLE OBLIGATIONS Those obligations whose objects are capable of partial performance in their delivery or performance. INDIVISIBLE OBLIGATIONS Those obligations whose objects are not capable of partial fulfillment in delivery or performance. Test for Distinction The determining factor is the purpose of the obligation or the intention of the parties and NOT the possibility or impossibility of partial prestation. (1225) Presumptions 1. INDIVISIBLE: DEFINITE THINGS, NOT PARTIAL
PERFORMANCE
2. DIVISIBLE: PARTIAL PERFORMANCE; BY DAYS OF WORK, METRICAL UNITS, OR ANALOGOUS

THINGS
3. PHYSICALLY DIVISIBLE: SUBJECT TO LAW OR

WHAT IS INTENDED BY THE PARTIES
4. NOT TO DO: DETERMINED BY CHARACTER OF

PRESTATION
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KINDS OF INDIVISIBILITY OF AN OBLIGATION a. LEGAL INDIVISIBILITY - BY LAW, AS WHEN
TAXES ARE TO BE PAID IN FULL BECAUSE THE LAW DOES NOT PERMIT PAYING THE SAME BY INSTALLMENTS
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Purposes of Penalty 1. Funcion coercitiva or de garantia - to ensure performance of the obligation 2. Funcion liquidatoria - to substitute a penalty for the indemnity of damages and the payment of interest in case of non- compliance. 3. Funcion estrictamente penal - to punish the debtor for the non-fulfillment of his obligation. Penalty as a Substitute for Damages General Rule
b. CONVENTIONAL
BY THEM TO
INDIVISIBILITY
TREAT THE
BY AS
STIPULATION OF THE PARTIES OR INTENTION THINGS INDIVISIBLE EVEN IF THEY ARE ACTUALLY DIVISIBLE
c. NATURAL INDIVISIBILITY - BY THE NATURE

OF THE OBLIGATION
Quantum Meruit Principle Divisible Obligation If only partially performed, the obligor can enforce his right in proportion to the services performed. Indivisible Obligation If obligor fails to perform the work completely, he cannot recover on this principle because in indivisible obligations, partial performance is equivalent to non- performance. This principle allows recovery of the reasonable value of the work done regardless of any agreement as to the value. It entitles the party to as much as he reasonably deserves as distinguished from quantum valebant or to as much as what is reasonably worth. The sellement of claim under this principle requires application of judgment and discretion and cannot be adjusted by simple arithmetical process. (F.F. Manocop v. CA, GR 122196, Jan. 15, 1997) VI. OBLIGATIONS WITH A PENAL CLAUSE In an obligation with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interest in case of non-compliance, if there is no stipulation to the contrary. A penal clause is an accessory undertaking to assume greater liability in case of breach. Principal and Accessory Obligations PRINCIPAL OBLIGATION That which can stand by itself and does not depend upon other obligations for its validity and existence. ACCESSORY OBLIGATION That which contains an accessory undertaking to pay a previously stipulated indemnity in case of breach of the principal prestation intended primarily to induce its fulfillment. The penalty fixed by the parties is a compensation or substitute for damages in case of breach. Exceptions 1. When there is a stipulation to the contrary 2. When the debtor is sued for refusal to pay the agreed penalty 3. When the debtor is guilty of fraud Distinguishing a Penal Clause from a Condition Penal Clause There is obligation through an accessory May become demandable in default of an unperformed obligation and sometimes jointly with it (Manresa) Kinds of Penal Clause As to origin Legal penal clause provided by law Conventional penal clause provided for by stipulation of the parties As to its purpose Compensatory penal clause the penalty takes the place of damages Punitive penal clause the penalty is imposed merely as a punishment for breach As to its dependability or effect Subsidiary or alternative penal clause only the penalty can be enforced Joint or cumulative penal clause both the principal obligation and the penal clause can be enforced (Manresa) Condition No obligation through an accessory Is never demandable
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Effect of Nullity of the Penal Clause If only the penal clause is void, the principal obligation remains valid and demandable. (1230) Nullity of the Principal Obligation If the principal is void, the penal clause is also void because the penal clause cannot stand along without the principal obligation to which it is subordinated. However, if the nullity of the principal obligation is due to the debtors fault who acted in bad faith, and by reason of which the creditor suffered damages on equitable grounds, the penalty may be enforced. With respect to parties
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This must be made by the proper party to the proper party (1) Payor (a) Payor - the one performing, he can be the debtor himself or his heirs or assigns or his agent, or anyone interested in the fulfillment of the obligation; can be anyone as long as it is with the creditor's consent (b) 3RD person pays/performs - only the creditor's consent; If performance is done also with debtor's consent - he takes the place of the debtor. There is subrogation except if the 3rd person intended it to be a donation (c) 3rd person pays/performs with consent of creditor but not with debtor's consent, the repayment is only to the extent that the payment has been beneficial to debtor (2) Payee (a) payee - creditor or obligee or successor in interest of transferee, or agent (b) 3rd person - if any of the ff. concur: i. it must have redounded to the obligee's benefit and only to the extent of such benefit
Chapter IV: Extinguishment of Obligations

Classification of the Modes of Extinguishment of Obligations 1. Novation 2. Compensation 3. Merger or confusion 4. Remission or condonation 5. Payment or performance 6. Loss of the thing due 7. Prescription 8. Rescission 9. Fulfillment of the Resolutory condition 10. Annulment I. PAYMENT OR PERFORMANCE The delivery of money, the delivery of the thing (other than money), the doing of an act, or not doing of an act. Elements The elements of payment are analyzed into: 1. persons- who may pay to whom payment may be made 2. thing or object in which the payment must consist 3. the cause thereof 4. the mode or form thereof 5. the place and time in which it must be made 6. the imputation of expenses occasioned by it 7. the special parts which may modify the same and the effects they generally produce Requisites for Valid Payment With respect to prestation itself: (1) identity (2) integrity or completeness (3) indivisibility
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ii. it falls under art 1241, par 1,2,3 - the benefit is total so, performance is total (c) anyone in possession of the credit - but will apply only if debt has not been previously garnished Payment made to an Incapacitated Person It is valid when: 1. The incapacitated person kept the thing delivered, or 2. Insofar as the payment has been beneficial to him Payment to a 3rd party not authorized, valid if proved & only to the extent of benefit Presumed if: 1. After payment, 3rd person acquires the creditors rights 2. Creditor ratifies payment to 3rd person 3. By creditors conduct, debtor has been led to make the payment (estoppel)
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Payment made in good faith to a person in possession of credit shall release debtor Requisites: 1. Payment by debtor must be made in good faith 2. Creditor must be in possession of the credit & not merely the evidence of indebtedness With respect to time and place of payment Where payment should be made 1. In the place designated in the obligation 2. If there is no express stipulation and the undertaking is to deliver a specific thing at the place where the thing might be at the moment the obligation was constituted 3. In other cases in the place of the domicile of the debtor Time of payment This is the time stipulated by the parties. Effect of payment The obligation is extinguished. Except in an order to retain the debt. Substantial Performance 1. Attempt in Good Faith to perform without willful or intentional departure 2. Deviation is slight 3. Omission/Defect is technical or unimportant 4. Must not be so material that intention of parties is not attained Effect of Substantial performance in good faith 1. Obligor may recover as though there has been strict and complete fulfillment, less damages suffered by the obligee 2. Right to rescind cannot be used for slight breach Currency Stipulated (1249) Philippine legal tender The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. (1249)
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Mercantile documents, payable to order: only when cashed or impaired by creditor. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. (1249) *Impairment contemplates an issuance by a third party, otherwise, creditor can just ask from creditor again but without interest as there was no delay. (Jurado, Balane) During encashment: action in abeyance. In the meantime, the action derived from the original obligation shall be held in the abeyance. (1170) Extraordinary inflation/ deflation Stipulation (1250) Currency value at time of agreement. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary. (1250) Expenses: Unless it is otherwise stipulated, extrajudicial expenses required by payment shall be for the account of debtor. With regard to judicial costs, Rules of Court shall govern. (1247) Special Rules/Forms Of Payment Application of Payments the designation of the debt which payment shall be made, out of 2 or more debts owing the same creditor: 1. May be made according to the stipulation of the parties or application of party given benefit of period; 2. For the application to be valid, it must be debtors choice or w/ consent of debtor Requisites for the Application of payment 1. Various debts of the same kind 2. Same debtor 3. Same creditor 4. All debts must be due Exception: there may be application of payment even if all debts are not yet due if: a) parties so stipulate b) when application of payment is made by the party for whose benefit the term has been constituted
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5. Payment is not enough to extinguish all debts How the application is made: 1. Debtor makes the designation 2. If not, creditor makes it by so stating in the receipt that he issues, unless there is cause for invalidating the contract 3. If neither the debtor nor creditor has made the application or if the application is not valid, then application, is made by operation of law Who makes the application: General Rule: Debtor Exception: Creditor a) Debtor without protest accepts receipt in which creditor specified expressly and unmistakably the obligation to which such payment was to be applied *The debtor in this case renounced the right of choice b) When monthly statements were made by the bank specifying the application and the debtor signed said statements approving the status of her account as thus sent to her monthly by the bank In case no application has been made 1. Apply payment to the most onerous 2. If debts are of the same nature and burden, application shall be made to all proportionately Dacion en Pago The mode of extinguishing an obligation whereby the debtor alienates in favor of the creditor property for the satisfaction of monetary debt; extinguish up to amount of property unless w/ contrary stipulation; A special form of payment because 1 element of payment is missing: IDENTITY. *Governed by the law on sales Conditions for a valid dacion: 1) If creditor consents, for a presupposes the consent of parties sale both
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Cession/Assignment in Favor of creditors The process by which debtor transfer all the properties not subject to execution in favor of creditors is that the latter may sell them and thus, apply the proceeds to their credits; extinguish up to amount of net proceeds ( unless w/ contrary stipulation ) Kinds 1. Legal governed by the insolvency law 2. Voluntary agreement of creditors Requisites for voluntary assignment a) b) c) d) More than 1 debt More than 1 creditor Complete or partial insolvency of debtor Abandonment of all debtors property not exempt from execution e) Acceptance or consent on the part of the creditors Effects a) Creditors do not become the owner; they are merely assignees with authority to sell b) Debtor is released up to the amount of the net proceeds of the sale, unless there is a stipulation to the contrary c) Creditors will collect credits in the order of preference agreed upon, or in default of agreement, in the order ordinarily established by law Consignation Tender -the act of offering the creditor what is due him together with a demand that the creditor accept the same (When creditor refuses w/o just cause to accept payment, he becomes in mora accepiendi & debtor is released from responsibility if he consigns the thing or sum due) Consignation the act of depositing the thing due with the court or judicial authorities whenever the creditor cannot accept or refuses to accept payment; generally requires prior tender of payment Requisites of valid consignation: 1. Existence of valid debt 2. Consignation was made because of some legal cause - previous valid tender was unjustly refused or under circumstances making previous tender exempt. 3. Prior Notice of Consignation had been given to the person interested in performance of obligation (1st notice) 4. Actual deposit/Consignation with proper judicial authorities
2) If dacion will not prejudice the other creditors 3) If debtor is not judicially declared insolvent
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5. Subsequent notice) notice of Consignation (2nd
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In obligations to deliver a generic thing General Rule: Not extinguished Exceptions: a) if the generic thing is delimited b) if the generic thing has already been segregated c) monetary obligation In obligations to do General Rule: Debtor is released when prestation becomes legally or physically impossible without fault on part of debtor EFFECT OF PARTIAL LOSS
Effects: Extinguishment of obligation (1) Debtor may ask judge to order cancellation of obligation (2) Running of interest is suspended (3) Before creditor accepts or before judge declares consignation has been properly made, obligation remains (debtor bears risk of loss at the meantime, after acceptance by creditor or after judge declares that consignation has been properly made risk of loss is shifted to creditor) Consignation w/o prior tender
Judicial determination of extent is necessary. This is allowed when: a. creditor absent or unknown/ does not appear at the place of payment b. incapacitated to receive payment at the time it is due c. refuses to issue receipt w/o just cause d. 2 or more creditor claiming the same right to collect e. title of obligation has been lost II. LOSS OF THE THING DUE This is partial or total which includes the impossibility of performance. CONCEPT Meaning of loss of the thing 1) When the object perishes (physically) 2) When it goes out of commerce 3) When it disappears in such a way that its existence is unknown or it cannot be recovered When is there impossibility of performance 1) Physical impossibility 2) Legal impossibility : EFFECT OF TOTAL LOSS In obligations to deliver a specific thing General Rule: Extinguished Exceptions: a) Debtor is at fault b) Debtor is made liable for fortuitous event because of a provision of law, contractual stipulation or the nature of the obligation requires assumption of risk on part of debtor a) when loss is significant may be enough to extinguish obligation b) when loss insignificant not enough to extinguish obligation WHEN THING IS LOST IN THE POSSESSION OF THE DEBTOR Presumption: Loss due to debtors fault (disputable) Exception: natural calamity, earthquake, flood, storm REBUS SIC STANTIBUS A doctrine which holds that an agreement is valid only if the same conditions prevailing at time of contracting continue to exist at the time of performance. Effect of Difficulty Beyond Parties Contemplation Rule: The obligor may be released in whole or in part. Requisites: (a) The event or change could not have been foreseen at the time of the execution of the contract (b) The performance is extremely difficult, but not impossible (because if it is impossible, it is extinguished by impossibility) (c) The event was not due to the act of any of the parties (d) The contract is for a future prestation III. CONDONATION/REMISSION OF THE DEBT An act of pure liability by virtue of which the obligee, without receiving any price or equivalent, renounces the enforcement of the obligation, as a result of which it is
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extinguished in its entirety or in part or aspect of the same to which the remission refers. *It is the gratuitous abandonment of the creditor of his rights. Requisites a. There must be an agreement b. There must be a subject matter (object of the remission, otherwise there would be nothing to condone) c. Cause of consideration must be liberality Essentially gratuitous, an act of liberality d. Parties must be capacitated and must consent; requires acceptance by obligor- implied in mortis causa & express inter vivos e. Formalities of a donation are required in the case of an express remission f. Revocable subject to rule on inofficious donation (excessive, legitime is impaired) & ingratitude & condition not followed g. Obligation remitted must have been demandable at the time of remission h. Waivers or remission are not to be presumed generally Forms Express formalities of donation Implied conduct is sufficient Extent total Kinds Principal accessory also condoned accessory principal still outstanding accessory obligation of pledge condoned; presumption only, rebuttable Implied Condonation 1. voluntary delivery presumption; when evidence of indebtedness is w/ debtor presumed that it is a voluntary delivery by creditor; rebuttable 2. effect of delivery of indebtedness: conclusion condoned evidence of that debt is
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IV. CONFUSION OR MERGER OF RIGHTS It is the merger of the characteristics of the creditor and the debtor in one and the same person by virtue of which the obligation is extinguished. Requisites a. It must take place between the principal debtor & the principal creditor only b. The merger must be clear & definite c. The obligation involved must be the same & identical one obligation only d. Revocable, if for any reason the confusion ceases, the obligation is revived V. COMPENSATION Extinguishment in the concurrent amount of the obligation of those persons who are reciprocally debtors and creditors of each other. Requisites 1. Both parties must be mutually creditors and debtors - in their own right and as principals 2. Both debts must consist in sum of money or if consumable, of the same kind or quality 3. Both debts are due 4. Both debts are liquidated & demandable 5. Neither debt must be retained in a controversy commenced by 3rd person & communicated w/ debtor (neither debt is garnished) Kinds 1. Legal by operation of law; as long as 5 requisites concur- even if unknown to parties & if payable in diff places; indemnity for expense of exchanges; even if not equal debts only up to concurring amount 2. Conventional agreement of parties is enough, forget other requirement as long as both consented 3. Facultative one party has choice of claiming/opposing one who has benefit of period may choose to compensate - not all requisites are present - depositum; commodatum; criminal offense; claim for future support; taxes 4. Judicial set off; upon order of the court; needs pleading & proof; all requirements must concur except liquidation 5. Total when 2 debts are of the same amount 6. Partial when 2 debts are not of the same amount
partial
Voluntary Delivery of Private Document 1. if in the hands of joint debtor only his share is condoned 2. if in the hands of solidary debtor - whole debt is condoned Tacit: Voluntary destruction of instrument by creditor; made to prescribe w/o demanding
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Effect of assignment of credit to 3rd person; can there still be compensation 1. if made after compensation took place no effect; compensation already perfected 2. if made before compensation took place depends a) with consent of debtor debtor is estopped unless he reserves his right & gave notice to assignee b) with knowledge but w/o consent of debtor compensation may be set up as to debts maturing prior to assignment c) w/o knowledge compensation may be set-up on all debts prior to his knowledge VI. NOVATION The substitution or change of an obligation by another, resulting in its extinguishment or modification, either by changing its object or principal conditions, or by substituting another in place of the debtor, or by subrogating a 3rd person in the rights of the creditor. It is the total or partial extinction of an obligation through the creation of a new one which substitutes it. Requisites 1. The existence of a previous valid obligation 2. The intention or agreement and capacity of the parties to extinguish or modify the obligation 3. The extinguishment or modification of the obligation 4. The creation of a valid new obligation (Tiu Siuco v. Habana, 45 Phil. 707, 1924) Purpose of Novation 1. The original obligation is extinguished 2. A new obligation is created Kinds of Novation 1. As to essence a. Objective/ Real This refers to the change in either the cause, object or principal b. Subjective/ Personal This refers to the substitution of the person of the debtor or to the subrogation of the 3rd person in the rights of the creditor c. Mixed 2. As to its form/ constitution a. Express When it is declared in unequivocal terms that the old obligation is extinguished by a new one which substitutes the same
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b. Implied When the old and new obligation are incompatible with each other on every point Forms of Substitution by Debtors 1. Expromision 2. Delegacion EXPROMISION It is effected with the consent of the creditor at the instance of the new debtor even without the consent or even against the will of the old debtor. Requisites 1. Initiative for substitution must emanate from the new debtor 2. Consent of the creditor to the substitution Kinds 1. Substitution with the knowledge and consent of the old debtor 2. Substitution without the knowledge or against the will of the old debtor (Jurado) Effect of Payment by the New Debtor 1. Substitution with the knowledge consent of the old debtor and
The new debtor is entitled to reimbursement of the entire amount paid and subrogation. 2. Substitution without the knowledge or against the will of the old debtor The new debtor is entitled to reimbursement in so far as beneficial to the old debtor with no right if subrogation Effect of Insolvency of the New Debtor There are two prevailing views: 1. The new debtors insolvency or non- fulfillment of the obligation shall not revive the original debtors liability to the creditor whether the substitution is effected with or without the knowledge or against the will of the original debtor. (Tolentino) 2. If the substitution was effected with the knowledge and consent of the original debtor, the new debtors insolvency or non-fulfillment of the obligation shall revive the original debtors liability to the creditor.
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DELEGACION It is effected with the consent of the creditor at the instance of the old debtor, with the concurrence of the new debtor. Requisites 1. Initiative for substitution must emanate from the old debtor 2. Consent of the new debtor 3. Acceptance by the creditor Effect of Payment by the New Debtor The new debtor is entitled to reimbursement of the entire amount paid and subrogation. Effect of Insolvency of the New Debtor The creditor can sue the old debtor when the insolvency was prior to the delegation and publicly known or when the old debtor knew of such insolvency at the time he delegated the obligation. Effects of Novation to Accessory When the principal obligation is extinguished in consequence of a novation, accessory obligation must subsist only insofar as they may benefit 3rd persons who did not give consent. Effects of Condition in Novation 1. If the original obligation was subject to condition, the new obligation shall be under the same condition, unless it is otherwise stipulated. 2. If the new obligation and the old obligation are subject to different conditions: a. If the conditions are compatible, both must be fulfilled otherwise there is nothing to novate. b. If the conditions are incompatible, the latter should be fulfilled. Kinds of Subrogation 1. Conventional 2. Legal CONVENTIONAL That which takes place by agreement of parties. This kind of subrogation requires intervention and consent of 3 persons: original creditor, the new creditor and debtor. LEGAL That which takes place without the agreement but by operation of law because of certain acts.
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General Rule Legal subrogation cannot be presumed. Exception 1. The creditor pays another creditor who is preferred, without the debtors knowledge 2. A third person is not interested in the obligation pays with the express or tacit approval of the debtor 3. Even without the debtors knowledge, a person interested in the fulfillment of the obligation pays without prejudice to the effects of confusion as to the latters share Magdalena Estates, Inc. v. Spouses Rodriguez The mere fact that the creditor accepts payments from a third person who agreed to assume the obligation, when there is no agreement that the first debtor shall be released from the responsibility does not constitute obligation. Kabankalan Sugar Co., Inc v. Josefa Pacheco When an easement of right of way is one of the principal conditions of a contract, and the duration of said easement is specified, the reduction of said period in a subsequent contract, wherein the same obligation is one of the principal conditions, constitutes a novation and to that extent extinguishes the former contract. Aquintey v. Spouses Tibong (511 SCRA 414, G.R. No. 166704, 2006) The transfer of rights takes place upon perfection of the contract, and ownership of the right, including all appurtenant accessory rights, is acquired by the assignee who steps into the shoes of the original creditor as subrogee of the latter from that amount, the ownership of the right is acquired by the assignee. The law does not require any formal notice to bind the debtor to the assignee, all that the law requires is knowledge of the assignment. Even if the debtor had not been notified, but came to know of the assignment by whatever means, the debtor is bound by it. If the document of assignment is public, it is evidence even against a third person of the facts which gave rise to its execution and of the date of the latter. The transfer of the credit must therefore be held valid and effective from the moment it is made to appear in such instrument, and third persons must recognize it as such, in view of the authenticity of the document, which precludes all suspicion of fraud with respect to the date of the transfer or assignment of the credit.
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OBLIGATIONS & CONTRACTS TITLE II: CONTRACTS Chapter I: General Provisions

Definition A contract is a meeting of the minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. (1305) A contract is a juridical convention manifested in legal form, by virtue of which, one or more persons bind themselves in favor of another or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do. Principal Characteristics (AMOR = love) 1. 2. 3. 4. Autonomy Mutuality Obligatory Force and Consensuality Relativity
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2. Stipulation Pour Autrui a stipulation in favor of a third person Requisites a. The stipulation must only be a part of the contract; it must not be the whole of the contract. b. The contracting parties clearly and deliberately conferred the favor to the third person. c. The 3rd person must have communicated his acceptance to the obligor before its revocation by the original parties. d. Neither of the contracting parties bears the legal representation or authorization of a 3rd party. e. The favorable stipulation should not be conditioned or compensated by any kind of obligation. 3. When a third person induces another to violate his contract. (1314) Requisites Existence of a valid contract Knowledge of the contract by a 3rd person Interference by the 3rd person without legal justification or excuse 4. Accion Directa - the right of a creditor to sue on a contract entered into by his debtor. (1313) 5. Third persons who come into possession of the object of the contact creating real rights (1312) 6. Accion Pauliana (see Obligations > Breach of Obligation > Remedies of Creditors) Kinds of Contracts 1. According to perfection Consensual a contract that is perfected by agreement of the parties Real a contract that is perfected by delivery Formal/ Solemn a contract perfected by conformity to essential formalities, e.g., donation 2. According to degree of importance a. Principal a contract that can stand alone b. Accessory a contract that is dependent upon another contract for its existence and validity c. Preparatory means through which other (future) contracts may be made; not an end in itself, e.g. Agency
AUTONOMY This is the freedom or liberty to stipulate. General Rule The parties are free to stipulate anything they may deem convenient. Except As 1. 2. 3. 4. 5. long as the stipulation are not contrary to: Law Morals Good Customs Public Order Public Policy (1306)
MUTUALITY Performance or validity of the contract binds both parts and it cannot be left to the will of one of them. (1308) OBLIGATORY FORCE & CONSENSUALITY Contracts are perfected by mere consent and from that moment, the parties are bound, not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. RELATIVITY General Rule Contracts take effect only between parties, their assigns and their heirs. Exceptions 1. Obligations arising from contract which are not transmissible by their nature, stipulation, or provision of law.
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3. According to subject matter a. Involving things, such as sale or barter b. Involving rights or credits, such as usufruct or assignment of credits c. Involving services such as agency, carriage, etc. 4. According to name a. Nominate a contract that has its own individuality and id regulated by a special provision of law, i.e., pledge, mortgage, etc. b. Innominate a contract that lacks individuality and is not regulated by a special provision of law - 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 *facio/ facias do *do - give 5. According to cause a. Onerous a contract with an exchange of valuable considerations b. Gratuitous a contract with no consideration received in exchange for what has been given c. Remuneratory a contract in which something (a prestation) is given for a benefit or service performed without any legal obligation to do so 6. According to nature of obligation produced or number of parties obligated a. Unilateral a contract with only one party with an obligation, e.g. Commodatum and Mutuum b. Bilateral a contract in which both parties are required to render reciprocal prestations 7. According to risk a. Commutative a contract where equivalent values are given by both parties, i.e., sale, barter and lease b. Aleatory a contract where fulfillment is dependent upon chance, such as insurance Stages of a Contract (PPC) 1. Preparation or conception bargaining point, negotiation 2. Perfection or birth the meeting of minds regarding the subject matter and the cause of the contract. 3. Consummation or death parties have performed their respective obligations and the contract is put to an end
CIVIL LAW Chapter II: Essential Requisites

Essential Requisites of a Contract (Always COCa-Cola) 1. Consent of the contracting parties; 2. Object certain which is the subject matter of the contract; 3. Cause of the obligation which is established. (1318) I. CONSENT Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. (1319) Requisites 1. 2. 3. 4. 5. 6. Plurality of subject Capacity Intelligence and free will Manifestation of intent of parties Cognition by the other party Conformity of manifestation and cognition
*We follow the theory of cognition and not the theory of manifestation. Under our civil law, the offer and acceptance concur only when the offeror comes to know, and not when the offeree merely manifests his acceptance Auto Contract A contract made by a person acting in anothers name in one capacity and his own name or that of another in another capacity. Collective Contract A contract where the law authorizes that the will of the majority binds a minority to an agreement, notwithstanding the opposition of the latter. Contract of Adhesion A contract in which one party has already prepared a form of a contract, containing stipulations desired by him and he simply asks the other party to agree to them if he wants to enter into the contract. Offer and Acceptance OFFER A proposal made by one party to another to enter into a contract.
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Elements of Valid Offer 1. Definite 2. Complete 3. Intentional Mode of acceptance as stipulation The person making the offer may fix the time, place, and manner of acceptance, all of which must be complied with. (1321) Agent as offerer An offer made through an agent is accepted from the time acceptance is communicated to him. (1322) Withdrawal of Offer (1324) General Rule: An offer or proposal may be withdrawn as long as the offeror has no knowledge that the offeree has already accepted the offer. Exception: When the option is founded upon a consideration, as something paid or promised, the offer cannot be withdrawn. When does the offer become ineffective? 1. Death, civil interdiction, insanity or insolvency of either party before acceptance is conveyed 2. Express or implied revocation of the offer by the offeree 3. Qualified or conditional acceptance of the offer 4. Subject matter becomes illegal or impossible before acceptance is communicated Rule on Complex Offers 1. When offers are interrelated - the contracted can only be perfected if all the offers are accepted. 2. When offers are not interrelated the single acceptance of each offer results in a perfected contract unless the offeror has made it clear that one is dependent upon the other and acceptance of both is necessary *An Offer inter praesentes must be accepted immediately. If the parties intended that there should be an express acceptance, the contract will be perfected only upon knowledge by the offeror of the express acceptance by the offeree of the offer. An acceptance which is not made in the manner prescribed by the offeror is not effective, but it takes the form of a counter-offer which the offeror may accept or reject. (Malbarosa vs. CA, G.R. No. 12576, 2003)
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Advertisements as Offers Business advertisements of things for sale are not definite offers, but mere invitations to make an offer, unless it appears otherwise. (1325) Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears. (1326) ACCEPTANCE The manifestation by the offeree of his assent to the terms of the offer. Elements of Valid Acceptance 1. Unequivocal 2. Unconditional *If qualified, constitutes a counter-offer. Forms of Acceptance (1320) 1. Express Acceptance - may be oral or written. 2. Implied Acceptance - may be inferred from the act or conduct of the offeree. Period for Acceptance 1. stated fixed period in the offer 2. no stated fixed period a) offer is made to a person present acceptance must be made immediately b) offer is made to a person absent acceptance may be made within such time that, under normal circumstances, an answer can be received from him *Acceptance may be revoked offeror finds out about it. before the
*Amplified Acceptance - under certain circumstances, a mere amplification on the offer must be understood as an acceptance of the original offer, plus a new offer which is contained in the amplification. Withdrawal of Acceptance 1. First View (Manresa): It is to be observed that although the offeror is not bound until he learns of the acceptance, the same thing can not be said of the offeree who, from the moment he accepts, loses the power to retract such acceptance since the right to withdraw between the time of the acceptance and its communication is a right which is expressly limited by law to the offeror.
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*To justify the inequality between the contracting parties, Manresa said that since the offeree is the first to know about the concurrence of will if the parties, as a consequence, the obligation, as far as he is concerned, must also commence earlier. 2. Second View (Tolentino): Acceptance may be revoked before it comes to the knowledge of the offeror because in such a case, there is still no meeting of minds, since the revocation has cancelled or nullified the acceptance which thereby ceased to have any legal effect. Acceptance by Letter or Telegram (1319) When is it binding? Acceptance is binding only from the time the offerer had knowledge of it. Where is it binding? he contract is presumed to have been entered into in the place where the offer was made. Theories on Acceptance of an Offer by Telegram 1. Manifestation Theory a contract is perfected from the moment the acceptance is declared or made 2. Expedition Theory contract is perfected from the moment the acceptance is declared or made even if not made known to the offeror 3. Cognition Theory perfected from the moment the acceptance comes to the knowledge of the offeror; adopted in Philippines 4. Reception Theory the contract is perfected from the moment the offeror receives the letter *Revocation of Acceptance: The acceptance by the offeree may be revoked before reaching the knowledge of the offeror. If it is revoked, the contract is not perfected if the notice of revocation reaches the offeror before the letter of acceptance is received. *In unilateral promises, when offer is made to the public, specific acceptance is not required to bind the obligor. OPTION It is a preparatory contract in which one party grants to the other, for a fixed period to decide whether or not to enter into a principal contract. *An option may be withdrawn anytime before acceptance is communicated but not when supported by a consideration other than purchase price: option money
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*A unilateral promise to buy or sell, if not supported by a distinct consideration, may be withdrawn but may not be done whimsically or arbitrarily; the right of the grantee here is damages and not specific performance. (Ang Yu v. CA, 1994) *An option clause in order to be valid and enforceable must indicate the definite price at which the person granting the option is willing to sell, contract can be enforced and not only damages. (Equatorial v. Mayfair, 24 SCRA 483) *The right of first refusal may be enforced by specific performance. (Paranaque Kings v. CA, 1997) Persons Who Cannot Give Valid Consent to a Contract 1. Unemancipated Minors 2. Insane or demented persons 3. Deaf-mutes or illiterates who do not know how to write 4. Intoxicated persons and hypnotized persons 5. A person under Mistake since a mistake may deprive one of intelligence. (1331) 6. A person induced by Fraud (dolo causante) (1338) *Dolus bonus (usual exaggerations in trade) are not in themselves fraudulent Article 1330 A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable. Rule on Contracts Entered into By Minors General Rule These contracts are considered voidable. Exceptions 1. Minor is Estopped for having misrepresented his age and misled the other party (when age is close to age of majority as in the Mercado v. Espiritu & Sia Suan v. Alcantara cases) 2. They were contracts for Necessities such as food, but here the persons who are bound to give them support should pay therefor Upon reaching age of majority they ratify the same 3. They were entered unto by a Guardian and the court having jurisdiction had approved the same right of first refusal may be enforced by specific performance 4. Voluntary fulfillment of a natural obligation provided that the minor is between 18-21 years of age. 5. Contracts of Life, health or accident insurance taken on the life of the minor.
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Rule on Contracts Entered into by Insane or Demented Persons or Those Who Were Intoxicated or Hypnotized Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of drunkenness or during a hypnotic spell are voidable. (1328) The incapacity declared in article 1327 is subject to the modifications determined by law, and is understood to be without prejudice to special disqualifications established in the laws. (1329) Rule on Contracts Entered into under Mistake In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract. (1331) As to identity or qualifications: Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such identity or qualifications have been the principal cause of the contract. Correction only if: A simple mistake of account shall give rise to its correction. (1331) - Error must be excusable, not caused by negligence - Error must be a mistake of fact, not of law Exceptions on Mistake: 1. Illiterate party (1332) 2. Knowledge of doubt, contingency, risk affecting the object of the contract (1333) 3. Mutual error (1334) Disqualified to Enter into Contracts Contracts consented into by the following are void: 1. those under civil interdiction 2. hospitalized lepers 3. prodigals 4. deaf and dumb who are unable to read and write 5. those who by reason of age, disease, weak mind and other similar causes, cannot without outside aid, take care of themselves and manage their property, becoming an easy prey for deceit and exploitation
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Distinguishing Incapacity from Disqualification Incapacity Restrains the exercise of the right to contract May still enter into contract through parent, guardian or legal representative Based upon subjective circumstance of certain person Contracts entered into are merely voidable Disqualification Restrains the very right itself Absolutely disqualified
Based upon public policy and morality Contracts entered into are void
Causes which Vitiate Freedom to Consent 1. 2. 3. 4. 5. Violence Intimidation Mistake Fraud Undue Influence
VIOLENCE There is violence when in order to wrest consent, serious or irresistible force is employed. Requisites a. Irresistible physical force b. Such force is the determining cause for giving consent INTIMIDATION There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear of an imminent and grave evil upon his person or property, or upon the person or property of his spouse, descendants or ascendants, to give his consent. (1335) Requisites a. One of the parties is compelled to give his consent by a reasonable and well- grounded fear of an evil b. The evil must be imminent and grave. c. The evil must be unjust. d. The evil must be the determining cause for the party upon whom it is employed in entering into the contract. Reluctant Consent A contract is valid even though one of the parties entered into it against his wishes and desires or even against his better judgment. Contracts are also valid even though they are entered into by one of the parties without hope of advantage or profit. (Martinez v. Hongkong and Shanhai Bank, 15 Phil 252)
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MISTAKE It is not only a wrong conception of the thing but also the lack of knowledge with respect to it. (Manresa) General Rule Mistake does not vitiate consent. Exception: Mutual error as to the effect of an agreement when the real purpose of the parties is frustrated. Requisites: a. Mistake must be with respect to the legal effect of an agreement b. It must be mutual c. The real purpose of the parties must have been frustrated FRAUD There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. (1338) (Dolo Causante) Failure to disclose facts When there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud. (1339) Kinds of Fraud Fraud in the perfection of the contract 1. Dolo Causante (1338) renders the contract voidable 2. Dolo Incidente (1344) holds the guilty party liable for damages (see Obligations > Effect of Obligations > Breach of Obligation > Fraud) Fraud in the performance of an obligation (1170) Requisites of Fraud a. Insidious words or machinations are employed b. It must be serious c. It induced another party to enter into a contract d. It is not employed by both parties nor by 3rd parties Exceptional Cases These are not fraud unless Dolo Causante or substantial/ principal condition: i. Usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent. (1340)
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*Caveat Emptor dealers talk, buyer beware ii. Opinions: A mere expression of an opinion does not signify fraud, unless made by an expert and the other party has relied on the former's special knowledge. (1341) iii. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and the same is mutual. (1342) iv. Misrepresentation made in good faith is not fraudulent but may constitute error. (1343) General Rule on Fraud In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties. (1344) 1. There must be a deliberate intent to deceive or to induce 2. The other party relied on this untrue statement. 3. Incidental fraud only obliges the person employing it to pay damages. (1344) Fraud by Third Persons General Rule: Fraud by a 3rd person does not vitiate consent and merely gives tise to action for damages. Except when: 1. There is collusion by one of the parties o fthe contract with the 3rd person. 2. There is misrepresentation that has created a substantial mistake and the same is mutual. UNDUE INFLUENCE There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice. (Coso v. Fernandez Deza, 42 Phil. 595) Simulated Contracts SIMULATION Simulation is the declaration of a fictitious intent manifested deliberately and by agreement by the parties in order to produce, for the purpose of deceiving others, the appearance of a transaction which does not exist or which is different from the true agreement.
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Kinds of Simulated Contracts a. Absolute There is no intention on the part of the contracting parties to be bound by the contract at all. The contract is merely fictitious making it void from beginning b. Relative There is an intention by the parties to be bound but they conceal their true agreement *Relative simulated contracts are binding when: i. It does not prejudice 3rd persons ii. It is not contrary to law, morals, good customs, public order or public policy. II. OBJECT The thing, right or service which is the subject matter of the obligation arising from the contract. Requisites (PLDT-Ctc) a) The prestation must be within the Commerce of man, either existing or in potency b) It must be Licit or not contrary to law, morals, good customs, public order, or public policy. c) It must be Possible or real. d) It must be Determinate as to its kind or determinable without the need to enter into a new contract. (1349) e) It must be Transmissible. Those which Cannot be the Object of a Contract (Fruits In Cream IOI) 1. Future inheritance (1347) 2. Impossible things or services cannot be the object of contracts. (1348) 3. Contrary to law morals, good customs, public order, and public policy. 4. Indeterminable as to their kind. 5. Outside the commerce of men 6. Intransmissible rights Future Things May be interpreted in two ways (Manresa): 1. Conditional Contract the thing must come into existence otherwise the contract is void. 2. Aleatory Contract One of the parties bears the risk of loss that the thing might not come into existence. III. CAUSA
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It is the why of the contract, the essential reason which impels the parties to enter into the contract. Requisites 1. It must Exist at the time of the celebration of the contract. 2. It must be Real (true). 3. It must be Licit or lawful. Distiguishing Cause from Motive Cause Direct and most proximate reason of a contract Objective and juridical reason Cause is always same for each contracting party The legality or illegality of cause affects the existence or validity of the contract Motive Indirect and remote reason Psychological or purely personal reason Motive differs for each contracting party The legality or illegality of motive does not affect the existence or validity of the contract.
Causes according to type of contract a. In onerous contracts: the cause is understood to be, for both parties, the prestation or promise of a thing or service by the other. b. In remuneratory contracts: the cause is the service or benefit remunerated c. Of Pure beneficence: liberality of donor or benefactor (1350) d. In accessory contracts: the cause is identical with the cause of the principal contract, that is the loan from which it derives lide and existence. Effects of Cause When Cause Renders Contract Void: 1. Absence of cause/ unlawful cause (1352) 2. False unless to prove another cause (1353) Want of Cause There is a total lack or absence of consideration. Illegal Cause The cause is contrary to law, morals, good custom, public order, or public policy. False Cause The cause is stated but that cause is not true.
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When Cause Renders Contract Voidable: Unless specified by law, lesion or inadequacy will not invalidate a contract as long as there has been no fraud, mistake or undue influence. (1355) Cause Absence of causa Illegality of causa Falsity of causa Effect VOID - produce no legal effect VOID - produce no legal effect VOIDABLE party must prove that cause is untruthful; presumption of validity but rebuttable PRESUMED TO EXIST - burden of proof is on the person assailing its existence DOES NOT INVALIDATE CONTRACT PER SE Exceptions: 1. when there is fraud, mistake or undue influence, or 2. when the parties intended a donation or some other contract EXCEPTION
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1. Law requires contract to be in some form for validity - donation and acceptance of real property 2. Law requires contract to be in some form to be enforceable - Statute of Frauds; contract is valid but right to enforce cannot be exercised; need ratification to be enforceable 3. Law requires contract to be in some form for convenience - contract is valid and enforceable, needed only to bind 3rd parties Ex: public documents needed for the ff: a. Contracts w/c object is creation, transmission or reformation of real rights over immovables b. Cession, repudiation, renunciation of hereditary rights/CPG c. Power to administer property for another d. Cession of action of rights proceeding from an act appearing in a public inst. e. All other docs where amount involved is in excess of 500 ( must be written even private docs ) When is Form Important
Causa not stated in contract Inadequacy of causa
Chapter III: Form of Contracts

Form is a manner in which a contract is executed or manifested Forms of Contracts a. Informal may be entered into whatever form as long as there is consent, object & cause b. Formal required by law to be in certain specified form such as: donation of real property, stipulation to pay interest, transfer of large cattle, sale of land thru agent, contract of antichresis, contract of partnership, registration of chattel mortgage, donation of personal prop in excess of 5,000 c. Real creation of real rights over immovable property must be written General Rule SPIRITUALITY PRINCIPLE Contracts are valid and enforceable in whatever form, even if orally entered into, as long as all essential requisites are present. (1356)
1. When form is required for Validity 2. When form is required for Enforceability 3. When form is required for Convenience FOR VALIDITY (formal/solemn contracts) 1. Donation of real property must be in a public instrument, otherwise, void. 2. Donation of personal property exceeding P5,000 must be in writing, otherwise void. 3. Contribution of a partner of immovable property in a partnership, must be in writing, otherwise void. 4. Authority of agent to sell land must be in writing, otherwise sale is void. Dievas v. Acuna Articles 1357 and 1358 do not require a particular form to validate or enforce a contract, only to ensure its efficacy, so that after its existence have been admitted, the party bound may be compelled to execute necessary document. Solis v. Barroso Even where the contract has not been reduced to the required form, it is still valid and binding as far as contracting parties are concerned. Consequently both presuppose the existence of a valid and enforceable contract.
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FOR ENFORCEABILITY (Statute of Frauds) (1403, par. 2, in relation to 1405) Those that do not comply with the Statute of Frauds as set forth in this number.
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other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person; 4. Cession of actions from public documents - The cession of actions or rights proceeding from an act appearing in a public document.
In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or Private Document memorandum, thereof, be in writing, and subscribed by the party charged, or by his 1. All other contracts where the amount agent; evidence, therefore, of the agreement involved exceeds five hundred pesos must cannot be received without the writing, or a appear in writing, even a private one. But secondary evidence of its contents: sales of goods, chattels or things in action are governed by articles, 1403, No. 2 and 1. An agreement that by its terms is not to 1405. (1358) be performed within a year from the 2. Donations exceeding five thousand pesos making thereof; (Art. 748) 2. A special promise to answer for the debt, 3. Giving authority to an agent for the Sale default, or miscarriage of another; of land. (Art. 1874) 3. An agreement made in consideration of 4. Agreements on payment of interests on marriage, other than a mutual promise to contracts of loan (art. 1956) marry; 5. Antichresis (Art. 2134) 4. An agreement for the sale of goods, chattels or things in action, at a price not Electronic Commerce Act (RA 8792) less than five hundred pesos, unless the buyer accept and receive part of such 1. Amends Art. 1403 by including computers goods and chattels, or the evidences, or and their networks as means against some of them, of such things in action or frauds and proof of contracts pay at the time some part of the purchase money; but when a sale is made by 2. Expressly provides for the application of auction and entry is made by the the same principles as normal contracts auctioneer in his sales book, at the time of but adds more presumptions wherein such the sale, of the amount and kind of should be known by both parties. property sold, terms of sale, price, names of the purchasers and person on whose Presumptions from rules of court and account the sale is made, it is a sufficient doctrines as applied to e-mail, internet, memorandum; and networks 5. An agreement of the leasing for a longer period than one year, or for the sale of Receipt of letter presumed to come to real property or of an interest therein; knowledge regardless of actual reading 6. A representation as to the credit of a third Regular functions have been carried out person. regularly FOR CONVENIENCE Public Document The following must appear in a public document: (1358) 1. Real rights over immovable property, sales of real property - Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein a governed by articles 1403, No. 2, and 1405; 2. Hereditary rights and conjugal property of gains -The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains 3. Power to administer property, other powers to act, prejudice 3rd persons - The power to administer property, or any
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*However, special presumptions for computers were made into law by the e- commerce act. In IBM v. Sec. of Labor, the Supreme Court ruled that Local Area Network or LAN is not sufficient notice for firing an employee since there was still no law providing for such presumptions. Remember that presumptions facilitate transactions and rules of evidence by being pragmatic about it. Otherwise, proving the propositions as found in the presumptions would be impossible and uncertain. E.g. no one can really prove that person A read his e- mail, thus it is more practical to presume that he had done so given proof of his receiving such e-mail.
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Provisions of the E-commerce Act 1. Present laws apply; electronic documents are valid like ordinary ones. 2. In using ATM of network banks, transaction is final at actual debiting; presumption of authority upon the holder of the ATM card. 3. Electronic devices are valid 4. Message from originator presumed to be made by the owner thereof regardless of who actually typed it. There must be express statement that he (owner) would be held liable for that ID. Receiver has right to assume his actual authorship. 5. On agreements of acknowledgement of receipt, such as actual reply of the receiver, or notice by the server. If no reply or acknowledgement, presumption that it was not sent. 6. As to time, presumption is at the time such was received by the designated information system or server, or that of the receiver. This also requires a system of acknowledgement of receipt. 7. Web sites require proof or acknowledgement of visiting the site. This is usually done by pre-program procedure like requirement of registration before being given access. 8. On security of signature electronic imprints, identification systems, and codes Tip: Always have a hard copy back-up Acts Required for the Perfection of Certain Contracts REGISTRATION Chattel Mortgages (art. 2140) b. Sales or Transfers of Large Cattle (Cattle Registration act) DELIVERY OF THE THING (for Real contracts) Pledge - In addition to the requisites prescribed in article 2085, it is necessary, in order to constitute the contract of pledge, that the thing pledged be placed in the possession of the creditor, or of a third person by common agreement. (2093) Deposit- A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and of returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract. (1962)
CIVIL LAW Chapter IV: Reformation of Contracts

(Arts.1359-1369) Reformation is that remedy in equity by means of which a written instrument is made or construed so as to express or conform to the real intention of the parties when some error or mistake has been committed. Requisites for Reformation 1. Meeting of minds. 2. True intention not expressed within the instrument by reason of mistake, fraud, inequitable conduct, or accident. 3. There is clear and convincing proof of mistake, accident, fraud, simulation or inequitable conduct. Causes for Reformation (MUMO ghost) 1. Mutual: instrument includes something w/c should not be there or omit what should be there a. Mutual b. Mistake of fact c. clear and convincing proof d. causes failure of instrument to express true intention 2. Unilateral a. one party was mistaken b. other either acted fraudulently or inequitably or knew but concealed c. party in good faith may ask for reformation 3. Mistake by 3rd persons due to ignorance, lack of skill, negligence , bad faith of drafter, clerk, typist 4. Others specified by law frustration of true intent Special Cases 1. Mutual mistake - When a mutual mistake of the parties causes the failure of the instrument to disclose their real agreement, said instrument may be reformed. 2. Mistaken party, not fraudulent - If one party was mistaken and the other acted fraudulently or inequitably in such a way that the instrument does not show their true intention, the former may ask for the reformation of the instrument. 3. Mistaken party, other knew of mistake and non-conformity of instrument When one party was mistaken and the other knew or believed that the instrument did not state to avoid
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their real agreement, but concealed that fact from the former, the instrument may be reformed. 4. Ignorance, lack of skill, negligence, or bad faith of drafter, clerk, typist of instrument - When through the ignorance, lack of skill, negligence or bad faith on the part of the person drafting the instrument or of the clerk or typist, the instrument does not express the true intention of the parties, the courts may order that the instrument be reformed. 5. Agreement on pledge or mortgage but with instrument on sale If two parties agree upon the mortgage or pledge of real or personal property, but the instrument states that the property is sold absolutely or with a right of repurchase, reformation of the instrument is proper. Prescriptive period: 10 years from the date of the execution of the instrument. When No Reformation Is Allowed (SWV- E, Sisters With Voices-E) (Arts. 1366-1367) 1. Simple donations inter vivos wherein no condition is imposed; 2. Wills; 3. When the real agreement is Void. 4. Estoppel When one of the parties has brought an action to enforce the instrument, he cannot subsequently ask for its reformation. Standing: Reformation may be ordered at the instance of: either party or his successors in interest, if the mistake was mutual; otherwise, upon petition of the injured party, or his heirs and assigns. (1368)
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EVIDENT INTENTION PREVAILS OVER LETTER If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. CONTEMPORANEOUS AND SUBSEQUENT ACTS CONSIDERED In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered. GENERAL TERMS IN ACCORDANCE TO INTENTION However general the terms of a contract may be, they shall not be understood to comprehend things that are distinct and cases that are different from those upon which the parties intended to agree. INTERPRET TO EFFECTUATE If some stipulation of any contract should admit of several meanings, it shall be understood as bearing that import which is most adequate to render it effectual. READ AS A WHOLE The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. (1374) IN KEEPING WITH NATURE AND OBJECT OF CONTRACT Words which may have different significations shall be understood in that which is most in keeping with the nature and object of the contract. CUSTOMS FACILITATE INTERPRETATION The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established. OBSCURE WORDS FOR NON-OBSCURERS The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. DOUBTS 1. Doubts with circumstances: regard to incidental
Chapter V: Interpretation of Contracts

(Arts. 1370-1379) LITERAL MEANING OF CLEAR TERMS If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control.
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When it is absolutely impossible to settle doubts by the rules established in the preceding articles, and the doubts refer to incidental circumstances of a gratuitous contract, the least transmission of rights and interests shall prevail. If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests. 2. Doubts with regard to principal object: If the doubts are cast upon the principal object of the contract in such a way that it cannot be known what may have been the intention or will of the parties, the contract shall be null and void. *Principles of interpretation under ROC also observed (Rule 140 B (4)) the contract may demand fulfillment or seek the rescission of the contract Court may fix a period or grant extension of time for the fulfillment of the obligation Its purpose is to cancel the contract
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who is prejudiced by the contract may demand the rescission of the contract. Court cannot grant extension of time for fulfillment of the obligation Its purpose is to seek reparation for the damage or injury caused, thus allowing partial rescission of the contract
Requisites of Rescission *DEFECTIVE CONTRACTS Kinds of Defective Contracts (VURV, The VURV Pipe or, a VURV an action word) 1. 2. 3. 4. Rescissible Contracts Voidable Contracts Unenforceable Contracts Void or Inexistent Contracts 1. Contract is essentially valid. 2. There is lesion or pecuniary prejudice. 3. Plaintiff has no other means to obtain reparation. 4. Plaintiff must be able to return whatever he may be obliged to return due to rescission. The things must not have been passed to 3rd parties who did not act in bad faith. It must be made within the prescribed period. Grounds for Rescission (1381) The following (FLAG) contracts are rescissible:
Chapter VI: Rescissible Contracts

Rescission is a process to render inefficacious a contract validly entered into, and normally binding, by reason of external conditions, causing an economic prejudice to a party or his creditor. *According to the SC, it is a relief to protect one of the parties or a third person from all injury and damages which the contract may cause, to protect some preferential right. Rescission in 1191 It is a principal action retaliatory in character Only ground is non- performance of ones obligation or what is incumbent upon him Applies only to reciprocal obligation Only a party to
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Rescission Proper in 1381 It is a subsidiary remedy There are 5 grounds to rescind. Non- performance by the other is not important It applies to both unilateral and reciprocal obligations Even a third person
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1. Those entered into by Guardians where the ward suffers lesion of more than of the value of the things which are the objects thereof 2. Those agreed upon in representation of Absentees, of the latter suffers lesion by more than of the value of things which are the subject thereof 3. Those undertaken in Fraud of creditors when the latter cannot in any manner claim what are due them 4. Those which refer to things under Litigation if they have been entered into by the defendant without the knowledge and approval of the litigants of the court 5. All other contracts especially declared by law to be subject to rescission and payments made in the state of insolvency. a. Payment made by insolvent b. Partition with lesion to heirs by at least (1098) c. Deterioration because suspensive condition debtors fault d. When the conditions have been imposed with the intention of
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suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition (1198) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case Unpaid seller may rescind (1534) Sale of object which is inferior by more than 10% (1539) Sale of land for lack of measurement (1542) Sale because of loss of important part through eviction (1556) Sale of animals w/ redhibitory defects warranty vs. Hidden faults & defects (1567) Lease (1659) Mutual Restitution
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Things w/c are the objects of the contract and their fruits Price with interest When Mutual Restitution is not Applicable a. When the creditor did not receive anything from the contract. b. When the thing is already in possession of the party in good faith; subject to indemnity only; if there are 2 or more alienations, it is the liability of the 1st infractor When Contracts can be Rescinded on the Ground of Lesion 1. The contract must have been entered into by a guardian in behalf of his ward or by a legal representative in behalf of an absentee. 2. The ward or absentee must have suffered lesion of more than of the value of the property which is the object of the contract. 3. The contract must have been entered into without judicial approval. (court approval) 4. There must be no other legal means of obtaining separation for the lesion. (subsidiary character of rescission) 5. The person bringing the action must be able to return whatever he may be obliged to restore. (mutual restitution) 6. The object of the contract must not be legally in the possession of a third person who did not act in bad faith. When Contracts can be Rescinded on the Ground of Fraud (Accion Pauliana) 1. There must be credit existing prior to the celebration of the contract. 2. There must be fraud or, at least, the intent to commit fraud to the prejudice of the creditor seeking rescission. 3. The creditor cannot, in any legal manner, collect his credit. 4. The object of the contract must bot be legally in possession of a 3rd person who did not act in bad faith. Presumptions of Fraud By Gratuituous Title All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered into in fraud of creditors, when the donor did not reserve sufficient property to pay all debts contracted before the donation.
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f. g. h. i. j. k.
Obligation to Return in Rescission Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. (1385) Extent Necessary Rescission shall be only to the extent necessary to cover the damages caused. (1384) When is Rescission NOT Allowed 1. When there are other means (1383) 2. When he who demands rescission has no ability to restore. (1385) 3. In possession of a 3rd person in good faith (1385) 4. Rescission referred to in Nos. 1 and 2 of article 1381 shall not take place with respect to contracts approved by the courts. (1386) Who Can Bring Action for Rescission the injured party; his heirs; the creditor, if the transaction is fraudulent. Effect of Rescission 1. As to the parties Mutual restitution together with the fruits and interest. 2. As to 3rd persons a. If he acted in bad faith or he was not legally in possession, he is obliged to return. b. If he legally possess the object in good faith, he is not obliged to return.
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By Onerous Title Alienations by onerous title are also presumed fraudulent when made by persons against whom some judgment has been issued. The decision or attachment need not refer to the property alienated, and need not have been obtained by the party seeking the rescission. *In addition to these presumptions, the design to defraud creditors may be proved in any other manner recognized by the law of evidence. (1387) Badges of Fraud 1. Consideration of the conveyance is inadequate or fictitious 2. Transfer was made by a debtor after a suit has been begun and while it is pending against him 3. Sale upon credit by an insolvent debtor 4. Evidence of indebtedness or complete insolvency 5. Transfer of all his property by a debtor when he is financially embarrassed or insolvent 6. Transfer made between father and son where there is present any of the above circumstances 7. Failure of the vendee to take exclusive possession of the property Reliefs 1. Grant rescission only to extent necessary; no other means; ability to restore; no acquirer in good faith; nos. 1 and 2 are not court approved 2. Order return ability to restore; object of contract or its price, together with fruits, plus interests 3. Damages: Who are liable? a. Art. 1189 rules on improvement, loss, or deterioration b. Acquirer in bad faith (1388) *If there are two or more alienations, the first acquirer shall be liable first, and so on successively. (1388) c. One who alienates to acquirer in good faith (1385, par. 3) Prescriptive Period General Rule Within four (4) years from the date it was entered into: a. If the person is under guardianship, within 4 years from the time the guardianship ceases b. In case of absentees, within 4 years from the time domicile is known
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c. In case of alienation in fraud of creditor, things under litigation and payment of the state of insolvency, within 4 yeas from the time of discovery of fraud. Exception In certain contracts of sale which are specially declared by law to be rescissible, the period is 6 months or even 40 days, counted from the day of deliver. (1542, 1571, 1577)
Chapter VII: Voidable Contracts

Voidable Contracts are those which possess all the essential requisites of a valid contract but either on of the grounds under 1390 is present. These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification. Characteristics 1. Effective until set aside 2. May be assailed or attacked only in an action for that purpose 3. Can be confirmed ( NOTE: confirmation is the proper term for curing the defect of a voidable contract) 4. Can be assailed only by the party whose consent was defective or his heirs or assigns Grounds 1. One of the parties is incapable of giving consent to a contract 2. The consent is vitiated by mistake, violence, intimidation, undue influence or fraud (Art 1390) Contracts are voidable when entered into by: a. Minors ( below 18 ) b. Insane persons unless they acted in lucid interval c. Deaf mutes who cannot read or write d. Persons who are specially disqualified, i.e., due to civil interdiction e. Intoxicated persons f. Hypnotized persons The Person who has the Right to Annul a Voidable Contract General Rule The party prejudiced has the right to annul a voidable contract. Exception
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If a 3rd person is prejudiced in his rights with respect to one of the contracting parties, and can show detriment which would positively result to him from the contract in which he has no intervention. (Teves v. Peoples Homesite and Housing Corp., 23 SCRA 1141) Causes of Extinction of an Action to Annul 1. Prescription 2. Ratification 3. Loss of the thing due to default of the plaintiff and loss of the thing during the plaintiffs incapacity or after he had acquired incapacity PRESCRIPTION The action must be commenced within 4 years from: a. the time the incapacity ends b. the time the violence, intimidation or undue influence ends c. the time the mistake or fraud is discovered *The discovery of fraud must be reckoned to have taken place from the time the document was registered in the office of the registrar of deeds. Registration constitutes constructive notice to the whole world. (Carantes v. CA, 76 SCRA 514) RATIFICATION Requisites a. The contract should be tainted with a vice which is susceptible of being cured b. The confirmation should be effected by the person who is entitled to do so under the law c. The cause of the nullity or defect should have already disappeared d. It should be effected with the knowledge of the vice or defect of the contract. Restitution between Parties Obligation of Mutual Restitution 1. Obligation to do or not to do there will be apportionment of damages based onteh value of such prestation with corresponding interests. (Jurado) 2. Obligation to give Restoe to each other the things which have been the subject matter of the contract with fruits and the price with interest, except in cases provided by law. *Articles 1398-1402 are not applicable to consummated contracts
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*The incapacitated person is not obliged to make restitution except insofar as he has been benefited by the thing or price received by him. (1399) *It is presumed in the absence of proof that no such benefit has accrued to the incapacitated person. (Manresa) Effect of a Failure to make a Restitution When the thing is lost: 1. Due to the fault of the defendant, he shall be obliged to pay the value of the thing at the same time of the loss including the interest from the same date. 2. Due to the fault of the plaintiff, there is no restitution, annulment cannot be made 3. Due to a fortuitous event, the person obliged to return shall pay the value of the thing at the time of loss, but without interest thereon 4. Due to the fault of an incapacitated person, no restitution can be made.
Chapter VIII: Unenforceable Contracts

They are contracts which cannot be enforced in court or sued upon by reason of defects provided by law until and unless they are ratified according to law. It is considered valid but one cannot compel its execution unless ratified due to the extrinsic defect of the contract. It produces legal effects only after ratified. Kinds 1. Unauthorized or No sufficient authority entered into in the name of another when: a. No authority conferred b. In excess of authority conferred (ultra vires) 2. Curable by Ratification - Both parties incapable of giving consent -2 minor or 2 insane persons 3. Curable by Acknowledgment - Failure to comply with Statute of Frauds a. Agreement to be performed within a year after making contract b. Special promise to answer for debt, default or miscarriage of another c. Agreement made in consideration of promise to marry d. Agreement for sale of goods, chattels or things in action at price not less than 500; exception: auction when recorded sale in sales book e. Agreement for lease of property for more than one year and sale of real property regardless of price f. Representation as to credit of another
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Grounds for Unenforceable Contracts (1403) 1. Those contracts which are entered into in the name of another by one without or acting in excess of authority. 2. Those which do not comply with the Statute of Frauds 3. Those contracts in which both parties are incapable of giving consent. WITHOUT OR IN EXCESS OF AUTHORITY Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers. STATUTE OF FRAUDS Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: - An agreement that by its terms is not to be performed within a year from the making thereof (executory contracts) - A special promise to answer for the debt, default, or miscarriage of another; - Propter nuptias - An agreement made in consideration of marriage, other than a mutual promise to marry; - Sale of at least Php 500, unless partial compliance / Auction entry in sales book sufficient - An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum; - An agreement of the leasing for a longer period than one year, or for the sale of real property or of an interest therein; - A representation as to the credit of a third person. *The contact or agreement under the Statute of Frauds require that the same be evidenced by some note, memorandum or writing, subscribed by the party charged or by his
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agent, otherwise, the said contract shall be unenforceable. Curing Unenforceable Contracts 1. Failure of defendant to object in time, to the presentation of parole evidence in court, the defect of unenforceability is cured 2. Acceptance of benefits under the contract. If there is performance in either part and there is acceptance of performance, it takes it out of unenforceable contracts; also estoppel sets in by accepting performance, the defect is waived
Chapter IX: Void & Inexistent Contracts

These are contracts which have absolutely no force and effect and are inexistent from the beginning. The maxim is no contract at all. VOID CONTRACTS Those where all the requisites of a contract are present but the cause, object or purpose is contrary to law, morals, good customs, public order or public policy; or the contract itself is prohibited or declared void by law. INEXISTENT CONTRACTS Those where one or some or all of the requisites essential for the validity of a contract are absolutely lacking. Grounds (Art.1409) Void Contracts 1. The cause, object or purpose is contrary to law, morals, good customs, public order or public policy; (1347 par. 3, 1352) 2. The object is outside the commerce of men; (1347, par. 1) 3. It contemplates an impossible service; (1348) 4. The intention of the parties relative to the principal object of the contract cannot be ascertained; (1378) 5. Those expressly prohibited or declared void by law. (1347, par. 3) Inexistent Contracts 6. It is absolutely simulated or fictitious; (1346) 7. The cause or object did not exist at the time of the transaction; (1318)
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Characteristics 1. It produces no effect whatsoever either against or in favor of anyone 2. There is no action for annulment necessary as such is ipso jure. A judicial declaration to that effect is merely a declaration 3. It cannot be confirmed, ratified or cured. 4. If performed, restoration is in order, except if pari delicto will apply 5. The right to set up the defense of nullity cannot be waived 6. Imprescriptible 7. Anyone may invoke the nullity of the contract whenever its juridical effects are asserted against him Illegal Contracts Kinds of Illegal Contracts In Pari Delicto Doctrine *Only applicable to void contracts and not to inexistent contracts. General Rule When the defect of a void contract consists in the illegality of the cause or object of the contract and both of the parties are at fault or in pari delicto, the law refuses them every remedy and leaves tehm where they are. Contract constitute criminal offense Contract does not constitute criminal offense but is illegal or unlawful per se No action for specific performance No action for restitution on either side. No confiscation will be confiscated in favor of the governement
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Exception 1. If the purpose has not yet been accomplished and if the damage has not been cause to any 3rd person 2. Payment of usurious interest (1413) 3. Payment of money or delivery of property for an illegal purpose, where the party who paid or delivered repudiates the contract before the purpose has been accomplished, or before any damage has been caused to a 3rd person (1415) 4. Payment of money or delivery of property made by an incapacitated person (1416) 5. Agreement or contract which is not illegal in itself and the prohibition is designed for the protection of the plaintiff (1416) 6. Payment of any amount in excess of the maximum price of any article or commodity fixed by law or regulation by competent authority (1417) 7. Contract whereby a laborer undertakes to work longer than the maximum number of hours fixed by law. (1418) 8. Contract whereby a laborer accepts a wage lower than the minimum wage fixed by law. (1419) 9. One who lost in gambling because of fraudulent schemes practiced on him is allowed to recover losses even if the gambling is prohibited. (315, RPC) Requisites of illegal contracts 1. Contract is for an illegal purpose 2. Contract must be repudiated by any of the parties before purpose is accomplished or damage is caused to 3rd parties 3. The court believes that public interest will be served by allowing recovery (discretionary upon the court ) based on remorse; illegality is accomplished when parties entered into contract; before it takes effect party w/c is remorseful prevents it Where Laws Are Issued To Protect Certain Sectors 1. Consumer protection 2. Labor 3. Usury law Consumer protection if price of commodity is determined by statute, any
The parties are in pari delicto No action for specific performance No action for restitution on either side. Both shall be prosecuted Thing/price to be confiscated in favor of government Only One Party is guilty No action for specific performance Innocent party is entitled to restitution Guilty party is not entitled to restitution Guilty party will be prosecuted Instrument of crime
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No action for specific performance Innocent party is entitled to restitution Guilty party is not entitled to restitution
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person paying an amount in excess of the maximum price allowed may recover such excess Labor if the law sets the minimum wage for laborers, any laborer who agreed to receive less may still be entitled to recover the deficiency; if law set max working hours and laborer who undertakes to work longer may demand additional compensation Interest paid in excess of the interest allowed by the usury law may be recovered by debtor with interest from date of payment Effects of Illegal Contracts If one party is incapacitated, courts may allow recovery of money, property delivered by incapacitated person in the interest of justice; pari delicto cannot apply because an incapacitated person does not know what he is entering into; unable to understand the consequences of his own action If agreement is not illegal per se but merely prohibited and prohibition is designated for the protection of the plaintiff may recover what he has paid or delivered by virtue of public policy Mutual Restitution in Void Contracts General Rule The parties should return to each other what they have given by virtue of the void contract in case Where nullity arose from defect in essential elements return object of contract and fruits return price plus interest Exception No recovery can be had in cases where nullity of contract arose from illegality of contract where parties are in pari delicto; except: a. incapacitated not obliged to return what he gave but may recover what he has given b. other party is less guilty or not guilty Angeles v. CA A sale of homestead within five year prohibitive period is void but in pari delicto does not apply because of public policy. However, recovery does not extend to products or fruits of the land, and the improvements made by the other party. The unjust enrichment principle must apply as to the recovery of the price paid.
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Philippine Banking Corp. v. Lui She A virtual sale through a very long-term lease of 50 years was deemed void for its contravention to the prohibition on foreign ownership. However, since the prohibition was only for protection and security of Filipino ownership of land, applying article 1416, pari- delicto does not apply.
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OBLIGATIONS & CONTRACTS TITLE III: NATURAL OBLIGATIONS

Article 1423. Obligations are civil or natural. Civil obligations give a right of action to compel their performance. Natural obligations, not being based on positive law but on equity and natural law, do not grant a right of action to enforce their performance, but after voluntary They are real obligations to which the law denies an action, but which the debtor may perform voluntarily. They are patrimonial, and presupposes a prestation. The binding tie of these obligations is in the conscience of man, for under the law, they do not have the necessary efficacy to give rise to an action. Features 1. no positive law giving right of action 2. no right of action to enforce performance 3. voluntary fulfillment of obligation by obligor 4. authorize retention of what has been fulfilled; 5. no right to recover, or demand return of what has been fulfilled fulfillment by the obligor, they authorize the retention of what has been delivered or rendered by reason thereof. Some natural obligations are set forth in the following articles. The following are natural obligations 1. Prescribed action of obligee. (1424) 2. Prescribed action of 3rd person payor who pays without knowledge and consent of debtor against the latter. (1425) 3. Annulled contract of minor without consent of parents. (1426, 1427) a. returns whole thing or price he has received (Relate to Art. 1241, only insofar benefited) b. fulfills obligation, and good faith consummation and spending of what has been delivered (Relate to Art. 1327, unemancipated minors cannot give consent to contracts) 4. Voluntary performance after failed action to enforce contract (Art. 1428) 5. Succession a. Heirs paying decedents debt beyond what he has received (1429) b. The will is voided by lack of formalities, intestate heir pays a legacy (1430)
CIVIL LAW TITLE IV: ESTOPPEL

It is the admission or representation conclusive upon person making such; cannot be denied or disproved. General Rule Effective only between parties thereto or successors in interest. (1439) Types of Estoppel 1. By Conduct (in pais) intentional and culpable negligence Elements a. acts inducing another to believe certain facts to exist b. with intent or culpable negligence c. the other party rightfully relies and acts on such belief d. other party would be prejudiced if the guilty party is allowed to deny facts first represented by him Types: a. by silence b. by acceptance of benefits c. by acts representations admissions
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2. By Deed - cannot question admission in document or deeds 3. By Record cannot question executive and legislative records 4. By Judgment no denial of adjudicated facts by competent court 5. By Laches Failure or neglect, for an unreasonable and unexplainable length of time, to do that which, by exercising due diligence, could or should have been done earlier; it is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it. Distinguishing Laches from Prescription Laches Prescription Concerned with Concerned with the effect of delay the fact of delay Question of Question or inequity of matter of time permitting the claim to be enforced Not statutory Statutory Applies in equity Applies at law Not based on a Based on a fixed fixed time time
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Elements 1. Conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation of which complaint is made and for which the complaint seeks a remedy. 2. Delay in asserting the complainants rights, the complainant having knowledge or notice, of the defendants conduct and having been afforded the opportunity to institute a suit 3. Lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit 4. Injury to the defendant in the event relief is accorded to the complainant The following are estopped Ownership transfers to the buyer (in Sales) 1. Seller or grantor who is not owner at time of sale but he later acquires ownership of such (1434) 2. Seller represents owner in a sale; cannot contest title of ownership of buyer (1435) Lessee or bailee cannot claim ownership of thing leased or received against lessor or bailor (1436) Misleader in 3rd party contracts on immovable property Requisites 1. fraudulent representation or wrongful concealment of facts known to the party estopped; 2. intent by party precluded that the other should act upon the facts as misrepresented; 3. party misled must have been unaware of the true facts; and 4. party defrauded must have acted in accordance with the misrepresentation. Owner allowing another to feign ownership, cannot claim ownership as defense against pledge. (In pledge) (1438)
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04 ObligationsandContracts

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OBLIGATIONS & CONTRACTS

Obligations and Contracts

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OBLIGATIONS & CONTRACTS TITLE I: OBLIGATIONS Chapter I: General Provisions

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OBLIGATIONS & CONTRACTS

Chapter II: Effect of Obligations

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Chapter III: Different Kinds of Obligations

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Resolutory The obligation is extinguished. The tie of law is consolidated

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OBLIGATIONS & CONTRACTS

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It causes an obligation to arise or be terminated.

The happening of the condition has retroactive effect.

Condition Uncertain event May also refer to a past event

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OBLIGATIONS & CONTRACTS

THE DESIGNATED TIME WAS ON MAY 5,

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THE INSOLVENCY MUST HAVE

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Its essential feature is that of mutual representation.

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OBLIGATIONS & CONTRACTS

2. DIVISIBLE: PARTIAL PERFORMANCE; BY DAYS OF WORK, METRICAL UNITS, OR ANALOGOUS

3. PHYSICALLY DIVISIBLE: SUBJECT TO LAW OR

4. NOT TO DO: DETERMINED BY CHARACTER OF

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OBLIGATIONS & CONTRACTS

c. NATURAL INDIVISIBILITY - BY THE NATURE

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Chapter IV: Extinguishment of Obligations

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OBLIGATIONS & CONTRACTS

the the the the

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OBLIGATIONS & CONTRACTS