Introduction to Law and Obligations

INTRODUCTION
INTRODUCTION TO LAW Law means any rule of action or any system of uniformity 2 General Groups Law (in the strict legal sense) promulgated and enforced by state Law (in the non-legal sense) not promulgated and enforced by state General Divisions of Law Divine Law o Law of religion and faith; concerns itself with the concept of sin and salvation o Divulged to mankind by direct revelation o Sanction lies in assurance of certain rewards and punishments in the present life or life to come Natural Law o Divine inspiration in man of the sense of justice, fairness & righteousness o Internal dictates of reason alone o Impressed in man as the core of his higher self o Regarded as reasonable basis of state law Moral Law o Mores or ways of life o Totality of norms of good and right conduct o No definite legal sanction for violation of purely moral law o Not absolute; shapes/influences state law Physical Law o Uniformities of actions and orders of sequence State Law o Only law promulgated and enforced by state o Also called: positive law, municipal law, civil law, imperial law
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Characteristics of (state) Law 1. It is a rule of conduct tells us what to do and what not to do. It dictates behavior 2. It is obligatory- a positive command imposing a duty to obey and involving a sanction which forces obedience 3. It is promulgated by legitimate authority 4. It is of common observance and benefit- intended by man to serve man Necessity and functions of law What would life be without law? Society has a need for internal order which is as constant as the need for external defense. What does law do? Law secures justice, resolves social conflict, orders society, protects interests, and controls social relations. No society can last and continue without means of social control, without rules of social order binding on its members. Ultimate end of the law is justice Sources of Law 1. Constitution a written instrument; highest law of the land 2. Legislation- declaration of legal rules by a competent authority. Acts passed are called: enacted or statute law. 3. Administrative or Executive orders, regulations and rulings- issued by administrative officials under legislative authority. Valid only when they are not contrary to the laws and Constitution 4. Judicial decisions or jurisprudence- decisions of the courts. 5. Custom- consists of habits and practices which through long and uninterrupted usage have become acknowledged and approved by society as binding rules of conduct. 6. Other sources Law compared with other means of social control Laws are made and administered by the only institutions in society authorized to act in behalf of the entire citizenry. Churches, for example, only act for their members Only legal institutions within the society can make rules, regulations and orders with which the entire citizenry must comply. Rules of social & economic organizations govern only limited members Citizens of state cannot free themselves from the impact of its rules and regulations unless they choose to leave the area which the state is sovereign. People can terminate their membership in organizations to do this. Sanctions or techniques of control through law are more varied and complex than that available to organizations. Before law operates on an individual, various procedural steps are required. Organization of Courts 1. Regular courts- Supreme courts, Court of Appeals, Regional Trial Courts, etc. 2. Special courts- special anti-graft court: Sandiganbayan, and Court of Tax Appeals doesnt entertain other cases 3. Quasi-judicial agencies- they involve also the settlement or adjudication of controversies or disputes Classification of Law As to its purpose: 1. Substantive law- portion of the body of law creating and defining rights and duties 2. Adjective law also called remedial or procedural law; portion of the body of law prescribing the manner or procedure by which rights may be enforced or their violations redressed As to its subject matter: 1. Public law- body of legal rules which regulates the rights and duties arising from the relationship of the state to the people 2. Private law- body of rules which regulates the relations of individuals with one another for purely private ends. Law on obligations and Contracts The law on obligations and contracts is the body of rules which deals with the nature and sources of obligations and the rights and duties arising from agreements and the particular contracts Civil Code of the Philippines When we speak of civil law, we refer to the law found primarily on our civil code. The Civil Code of the Philippines is based mainly on the Civil Code of Spain which took effect on December 7, 1889. Conclusive presumption of knowledge of law Ignorance of law excuses no one from compliance therewith Everyone, therefore, is conclusively presumed to know the law.
OBLIGATIONS
CHAPTER 1 Article 1156. An obligation is a juridical necessity to give, to do or not to do. (n) Obligation from Latin word obligation. It is a tie or bond recognized by law by virtue of which one is bound to in favor of another to render something: giving a thing, doing a certain act or not doing a certain act. Juridical necessity- in case of non-compliance, courts of justice can be called upon to enforce the obligations fulfillment. (* if an obligation cannot be enforced, it is a natural obligation) Essential Requisites of an obligation 1. A passive object (debtor or obligor)- he who has a duty 2. An active object (creditor or obligee)- he who has a right 3. Object or prestation (subject matter) conduct required to be observed by debtor: to do, not to do or to give 4. A juridical or legal tie (efficient cause)- binds or connects the parties to the obligation Forms of Obligations manner in which obligation is manifested. May be oral, or in writing, or partly oral and partly in writing. Obligation vs. Right vs. Wrong Obligation act or performance which law will enforce Right the power to demand from another any prestation Wrong- act or omission of one party in violation of the legal rights of another. Kinds of Obligation according to subject matter 1. Real obligation obligation to give; subject matter is a thing 2. Personal obligation obligation to do or not to do; subject matter is an act a. Positive personal obligation- obligation to do b. Negative personal obligation obligation not to do Article 1157. Obligations arise from: 1. Law; 2. Contracts; 3. Quasi-Contracts; 4. Acts or omissions punished by law; and 5. Quasi-delicts. (1089a) Sources of obligations 1. Law imposed by law itself 2. Contracts arise from stipulation of the parties 3. Quasi-Contracts- arise from lawful voluntary and unilateral acts which are enforceable to the end that no one shall be unjustly enriched or benefited at the expense of another. 4. Crimes or acts or omissions punished by law- arise from civil liability which is a consequence of a criminal offense 5. Quasi-delicts or torts- arise from damages caused by another through an act or omission with fault or negligence but no contractual relation exists between the parties Article 1158. 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 provision of this Book. (1090) Legal laws are not presumed because they are considered a burden to the obligor. *special laws all other laws not in contained in the Civil Code. Article 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. (1091a) *contracts or voluntary agreements are valid and enforceable Binding force- have the force of law Requirement of a valid contract- not contrary to law, morals, good customs, public order, and public policy. Compliance in good faith compliance or performance in accordance with the stipulations or terms of the contract or agreement. Article 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII of this Book. (n)
Quasi-Contractual obligations- A juridical relation resulting from lawful, voluntary, unilateral acts by virtue of which the parties become bound to each other to the end that no one will be unjustly enriched at the expense of another. Kinds of Quasi-contracts 1. Negotiorum gestio voluntary management of the property or affairs of another without the knowledge or consent of the latter. 2. Solutio indebiti- juridical relation which is created when something is received when there is no right to demand it and it was unduly delivered through mistake. Article 1161. Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the provisions of article 2177, nd of the pertinent provisions of Chapter 2, Preliminary Title, on Human Relations, and of Title XVIII of this Book, regulating damages. (1092a) *every person criminally liable for an act or omission is also civilly liable Restitution (return) Reparation for the damages caused and Indemnification for consequential damages Article 1162. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this book, and by special laws. (1093a) Quasi-delicts- an act or omission by a person (tort feasor) which causes damage to another giving rise to an obligation to pay for the damage done. Requisites of quasi-delict 1. There must be an act or omission 2. There must be fault or negligence 3. There must be damage caused 4. There must be a direct relation of cause and effect between the act or omission and the damage; and 5. There is no pre-existing contractual relation between the parties Crime VS. Quasi-delict
Criminal/ malicious intent or criminal negligence Punishment Affects public interest Criminal & civil liability Cannot be compromised Guilt must be proved beyond reasonable doubt
Negligence Indemnification of offended party Private interest Civil liability May be settled by the parties Fault or negligence proved by preponderance of evidence
CHAPTER 2: Nature and Effect of Obligations Article 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care. (1094a) Specific or determinate thing- Particularly designated or physically segregated others of the same class. It is identified by its individuality. The debtor cannot substitute it with another without the consent of the creditor Generic or indeterminate thing- Refers only to a class or genus which cannot be pointed out with particularity and is identified only by its specie. The debtor can give anything of the same class. Duties of debtor in obligation to give a determinate thing 1. Preserve the thing a. Diligence of a good father of a family. b. Another standard of care c. Factors to be considered - The diligence depends upon the nature of the obligation and corresponds with the circumstances of the person, of the time, and of the place. The debtor is not liable if his failure to preserve the thing is not due to his fault or negligence but to fortuitous events or force majeure. d. Reason for debtor's obligation. The debtor must exercise diligence to insure that the thing to be delivered would subsist in the same condition as it was when the obligation was contracted. 2. Deliver the fruits of the thing. 3. Deliver the accessions and accessories. 4. Deliver the thing itself 5. Answer for damages in case of non-fulfillment or breach.
Duties of debtor in obligation to deliver a generic thing 1. Deliver a thing which is the quality intended 2. Be liable for damages Article 1164. The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him. (1095) Different Kinds of fruits 1. Natural fruits- spontaneous products of the soil, the young & products of animals. 2. Industrial fruits - are produced by lands of any kind through cultivation or labor. 3. Civil fruits- are those derived by virtue of a relation. Right of creditor to the fruits The creditor is entitled to the fruits of the thing to be delivered from the time the obligation to make delivery arises. When obligation to deliver fruits arises 1. From the time of the perfection of the contract. 2. Upon the fulfillment of the condition or arrival of the term 3. Arises from the perfection of the contract even if the obligation is subject to a suspensive condition or a suspensive period where the price has been paid. 4. Determined by the specific provisional of the law applicable. Personal Right VS. Real Right
Power to demand another to give, do or not to do Active and Passive subject Against a particular person
Right over a specific thing without a definite passive object Active without a definite passive subject Against the world
Ownership acquired by delivery Creditor does not become the owner until the specific thing has been delivered to him. Hence, when there has been no delivery yet, the proper court action of the creditor is not one for recovery of possession and ownership but one for specific performance or rescission of the obligation Article 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by Article 1170, may compel the debtor to make the delivery. If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor. If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. (1096) Remedies of creditor in real obligation 1. In a specific real obligation (obligation to deliver a determinate thing), the creditor may exercise the following remedies or rights in case the debtor fails to comply with his obligation. a. demand specific fulfillment of obligation w/ a right to indemnity for damages; b. demand cancellation of the obligation w/ a right to recover damages;or c. demand payment of damages only where it is the only feasible remedy. *the very thing itself must be delivered and only debtor can comply 2. A generic real obligation (obligation to deliver a generic thing), can be performed by a third person since the object is expressed only according to its family or genus. Responsibility of debtor who delays/has promised delivery to separate creditors. Paragraph 3 gives two instances when a fortuitous event does not exempt the debtor from responsibility. It likewise refers to a determinate thing. An indeterminate thing cannot be the object of destruction by a fortuitous event because genus nunquam perit (genus never perishes). Article 1166. The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned. (1097a) Accessions - the fruits of a thing or additions to a thing Accessories- things joined to or included with the principal thing for the latter's embellishment, better use, or completion Right of creditor to accessions and accessories
The general rule is that all accessions and accessories are considered included in the obligation to deliver a determinate thing although they may not have been mentioned, unless otherwise stipulated Article 1167. 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 in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone. (1098) Situations in Article 1167 1. The debtor fails to perform an obligation to do; 2. The debtor performs an obligation to do but con-trary to the terms thereof; or 3. The debtor performs an obligation to do but poor manner. Remedies of creditor in positive personal obligation 1. If the debtor fails to comply with his obligation to do, the creditor has the right: a. to have the obligation performed by himself, or by another, unless personal considerations are involved, at the debtor's expense; b. to recover damages. 2. In case the obligation is done in contravention of the terms of the same or is poorly done, it may be ordered (by the court) that it be undone if it is still possible to undo what was done. Performance by a third person A personal obligation can be performed by a third person unless it is specific. Thus, remedy is indemnity for damages. Article 1168. When the obligation consists in not doing, and the obligor does what has been forbidden him, it shall also be undone at his expense. (1099a) Remedy of creditor in negative personal obligation undoing the forbidden act plus damages Article 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extra-judicially demands from them the fulfillment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: 1. When the obligation or the law expressly so declares; or 2. When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or 3. When demand would be useless, as when the obligor has rendered it beyond his power to perform. 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. From the moment one of the parties fulfills his obligation, delay by the other begins. (1100a) Delay Ordinary delay - merely the failure to perform an obligation on time. Legal delay or default - the failure to perform an obligation on time which failure constitutes a breach of the obligation. Kinds of delay or default Mora solvendi - the delay on me part of the debtor to fulfill his obligation (to give or to do); Mora accipiendi - the delay on the part of the credi-tor to accept the performance of the obligation; and Compensatio morae - the delay of the obligors in reciprocal obligations (like in sale) No delay in negative personal obligations Delay is impossible for the debtor fulfills by not doing Requisites of delay or default by the debtor 1. failure of the debtor to perform his (positive) obligation on the date agreed upon; 2. demand (not mere reminder or notice) made by the creditor upon the debtor to comply with his obligation which demand may be either judicial or extra-judicial; and 3. failure of the debtor to comply with such demand Effects of Delay 1. The following are the effects of mora solvendi: a. The debtor is guilty of breach or violation of the obligation; b. He is liable to the creditor for interest (in case of obligations to pay money) or damages. In the absence of extra-judicial demand, the interest shall commence from the filing of the complaint; and c. He is liable even for a fortuitous event when the obligation is to deliver a determinate thing. However, if the debtor can prove that the loss would have resulted just the same even if he had not been in default, the court may equitably mitigate or reduce the damages.
*In an obligation to deliver a generic thing, the debtor is not relieved from liability for loss due to a fortuitous event. He can still be compelled to deliver a thing of the same kind or held liable for damages. 2. The effects of mora accipiendi are as follows: a. The creditor is guilty of breach of obligation; b. He is liable for damages suffered, if any, by the debtor; c. He bears the risk of loss of the thing due; d. Where the obligation is to pay money, the debtor is not liable for interest from the time of creditor's delay; and e. The debtor may release himself from the obligation by the consignation or deposit in court of the thing or sum due. 3. In compensatio morae, the delay of the obligor cancels the delay of the obligee and vice, versa. The net result is that there is no default or delay on the part of both parties. *If the delay of one party is followed by that of the other, the liability of the first infractor shall be equitably tempered or balanced by the courts. If it cannot be determined which of the parties is guilty of delay, the contract shall be deemed extinguished and each shall bear his own damages. When demand is not necessary to put debtor in delay When the obligation so provides. When the law so provides. When demand would be useless. When there is performance by a party in reciprocal obligations. Article 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. (1101) Grounds for liability 1. Fraud (deceit or dolo). - it is the deliberate or intentional evasion of the normal fulfillment of an obligation. As a ground for damages, it implies some kind of malice or dishonesty and it cannot cover cases of mistake and errors of judgment made in good faith. It is synonymous to bad faith. 2. Negligence (fault or culpa). - It is any voluntary act or omission, there being no malice, which prevents the normal fulfillment of an obligation. 3. Delay (mora) 4. Contravention of the terms of the obligation. - This is the violation of the terms and conditions stipulated in the obligation. The contravention must not be due to a fortuitous event or force majeure. Fraud VS. Negligence
With deliberate intention to cause damage or injury Waiver for future fraud is void Must be clearly proved Liability cant be reduced or mitigated by courts
No malice Waiver are allowed Presumed from the violation of a contractual obligation Liability may be reduced according to circumstances
Article 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void. (1102a) *fraud is so serious and evil that its employment to avoid the fulfillment of ones obligation is discouraged *waiver of action for future fraud is void as being against the law and public policy *waiver of action for past fraud is valid and considered as an act of generosity and magnanimity of the aggrieved party. The effect of fraud is renounced Article 1172. Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances. (1103) *the debtor is also liable for damages resulting from his negligence. Validity of waiver of action arising from negligence An action for future negligence may be renounced except where the nature of the obligation requires the exercise of extraordinary diligence as in the case of common carriers. Where negligence shows bad faith, it is considered equivalent to fraud. Any waiver of an action for future negligence of this kind is, therefore, void.
Kinds of negligence according to source of obligation 1. Contractual negligence (culpa contractual) - negligence in contracts resulting in their breach. Article 1172 refers to culpa contractual. This kind of negligence is not a source of obligation. It merely makes the debtor liable for damages in view of his negligence in the fulfillment of a preexisting obligation.
2. Civil negligence (culpa aquiliana) - negligence which by itself is the source of an obligation between the parties not so related before by any preexisting contract. It is also called tort or quasi-delict; and 3. Criminal negligence (culpa criminal) - negligence resulting in the commission of a crime. The same negligent act causing damages may produce civil liability arising from a crime, or create an action for a quasi-delict. *In negligence cases, the aggrieved party may choose between a criminal action under Article 100 of the Revised Penal Code or a civil action for damages under Article 2176 of the Civil Code. What is prohibited under Article 2177 of the Civil Code is to recover twice for the same negligent act. Effect of negligence on the part of the injured party When the plaintiff's own negligence was the immediate and proximate cause of his injury, he cannot recover damages. But if his negligence was only contributory, the immediate and proximate cause of the injury being the defendant's lack of due care, the plaintiff may recover damages, but the courts shall mitigate the damages to be awarded. Article 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2, shall apply. If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required. (1104a) Fault or Negligence- negligence is the failure to observe for the protection of the interests of another person Factors to be considered 1. Nature of the obligation 2. Circumstances of the person 3. Circumstances of time 4. Circumstances of the place Measure of liability for damages In contract and quasi-contracts, obligor who acted in good faith is liable for damages of natural and probable consequences of the breach of obligations, and which parties have foreseen or reasonably could have foreseen at obligations constitution. For fraud, bad faith, malice or wanton attitude, obligor is responsible for all damages which may be reasonably attributed to the non-performance of the obligation Kinds of diligence required that agreed upon by the parties, orally or in writing; in the absence of stipulation, that required by law in the particular case if both the contract and law are silent; then the dili-gence expected of a good father of a family Article 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable. (1105a) Fortuitous event- any event which cannot be foreseen, or which, though foreseen, is inevitable Fortuitous event distinguished from force majeure 1. Acts of man. - Strictly speaking, fortuitous event is an event independent of the will of the obligor but riot of other human wills. 2. Acts of God -They refer to what is called manure or those events which are totally independent will of every human being. Kinds of fortuitous events 1. Ordinary fortuitous events - those events which are common and which the contracting parties could reasonably foresee 2. Extra-ordinary fortuitous events - those events which are uncommon and which the contracting parries could not have reasonably foreseen Requisites of a fortuitous event 1. The event must be independent of the human will or at least of the debtor's will 2. The event could not be foreseen, or if foreseen, is inevitable; 3. The event must be of such a character as to render it impossible for the debtor to comply with his obligation in a normal manner; 4. The debtor must be free from any participation in, or the aggravation of, the injury to the creditor, that is, there is no concurrent negligence on his part Rules as to liability in case of fortuitous event 1. When expressly specified by law a. The debtor is guilty of fraud, negligence, or delay, or contravention of the tenor of the obligation. b. The debtor has promised to deliver the same (specific) thing to two or more persons who do not have the same interest. c. The obligation to deliver a specific thing arises from a crime.
d. The thing to be delivered is generic 2. When declared by stipulation 3. When the nature of the obligation requires the assumption of risk Article 1175. Usurious transactions shall be governed by special laws. (n) Simple loan or mutuum - a contract whereby one of the parties delivers to another: money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid. It may be gratuitous or with a stipulation to pay interest. Usury - contracting for or receiving interest in excess of the amount allowed by law for the loan or use of money, goods, chattels or credits Requisites for recovery of interest 1. The payment of interest must be expressly stipulated; 2. The agreement must be in writing; and 3. The interest must be lawful *a stipulation for the payment of usurious interest is void, that is, as if there is no stipulation as to interest Article 1176. The receipt of the principal by the creditor, without reservation with respect to the interest, shall give rise to the presumption that said interest has been paid. The receipt of a later installment of a debt without reservation as to prior installments, shall likewise raise the presumption that such installments have been paid. (1110a) Presumption - meant the inference of a fact not actually known arising from its usual connection with another which is known. Two kinds of presumption 1. Conclusive presumption. - one which cannot be contradicted, like the presumption that everyone is conclusively presumed to know the law; 2. Disputable (or rebuttable) presumption. - one which can be contradicted or rebutted by presenting proof to the contrary, like the presumption established in Article 1176. When presumptions in Article 1176 do not apply 1. With reservation as the interest. - The presumptions established in Article 1176 do not arise where there is a reservation that no payment has been made as to interest or prior installments, as the case may be. 2. Receipt without indication of particular installment paid. - The presumption in paragraph 2 of Article 1176 is not applicable if the receipt does not recite that it was issued for a particular installment due as when the receipt is only dated. 3. Payment of taxes. - Article 1176 does not apply to payment of taxes. There is no presumption that previous taxes have been paid by the payment of later ones. 4. Non-payment proven. - Of course, Article 1176 is not applicable where the non-payment of prior obligations has been proven. A presumption cannot prevail over a proven fact. Article 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them. (1111) Remedies available to creditors for the satisfaction of their claims exact fulfillment with the right to damages; pursue the leviable property of the debtor; "after having pursued the property in possession of the debtor," exercise all the rights (like the right to redeem) and bring all the actions of the debtor (like the right to collect from the debtor of his debtor) except those inherent in or personal to the person of the latter (such as the right to vote, to hold office, to receive legal support, to revoke a donation on the ground of ingratitude, etc.); ask the court to rescind or impugn acts or contracts which the debtor may have done to defraud him when he cannot in any other manner recover his claim. Article 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary. (1112) Transmissibility of rights All rights acquired in virtue of an obligation are generally transmissible Exceptions Prohibited by law. - When prohibited by law like the rights in partnership, agency, and commodatum which are purely personal in character. o By the contract of partnership - two or more persons bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves o By the contract of agency - a person binds himself to render some service or to do something in repre-sentation or on behalf of another, with the consent or authority of the latter.
o By the contract of commodatum - one of the par-ties delivers to another something not consumable (e.g., car) so that the latter may use the same for a certain time and return it. Commodatum is essentially gratuitous. Prohibited by stipulation of the parties. - When prohibited by stipulation of the parties, like the stipulation that upon the death of the creditor, the obligation shall be extin-guished, or that the creditor cannot assign his credit to. an-other. Such stipulation, being contrary to the general rule, must be clearly proved, or, at the very least, clearly implied from the provisions of the contract itself.
CHAPTER 3; Sec.1: Pure and Conditional Obligations Article 1179. Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties, is demandable at once. Every obligation which contain in a resolutory condition shall also be demandable, without prejudice to the effects of the happening of the event. (1113) Pure Obligation- one which is not subject to any condition and no specific date is mentioned for its fulfillment and is, therefore, immediately demandable Conditional Obligation- one whose consequences are subject in one way or another for the fulfillment of a condition Condition- a future and uncertain event, upon happening of which, the effectively or extinguishment of an obligation (or right) subject to it depends Characteristics of a Condition Future and uncertain Past but unknown *a condition must not be impossible 2 principal kinds of condition: Suspensive VS. Resolutory
Condition precedent or condition antecedent One the fulfillment of which will give rise to an obligation (or right). If it does not take place, tie of the law does not appear Until it takes place, obligation is a mere hope
Condition subsequent One the fulfillment of which will extinguish an obligation (or right) already existing. If it does not take place, tie of the law is consolidated Until it takes place, obligations effects flow, but it hovers the possibility of termination
When obligation is demandable at once when it is pure; when it is subject to any resolutory condition; or when it is subject to a resolutory period. Past event unknown to the parties- a past event cannot be a condition. Only the knowledge to be acquired in the future of a past event which is at the moment uncertain to the parties can determine if an obligation will arise or not. Article 1180. When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with a period, subject to the provisions of article 1197. (n) Where duration of period depends upon the will of debtor *period is a future and certain event upon the arrival of which the obligation subject to it either arises or is extinguished 1. The debtor promises to pay when his means permit him to do so- The obligation shall be deemed to be one with a period. In this case, what depends upon the debtors will is not whether he should pay or not for indeed he binds himself to pay. What is left only to his will is the duration of the period. 2. Other Cases As when the debtor binds himself to pay: a. Little by Little b. as soon as possible c. from time to time d. at any time I have the money: e. in partial payments f. when I am in a position to pay Article 1181. In conditional obligations, the acquisition of rights as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. (1114)
Effect of Happening of Condition 1. Acquisition of Rights- In obligations subject to a suspensive condition, the acquisition of rights by the creditor depends upon the happening of the event which constitutes the condition 2. Loss of Rights already Acquired- In obligations subject to a resolutory condition, the happening of the event which constitutes the condition produces the extinguishment or loss of rights already acquired Article 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provision of this Code. (1115) Classifications of Conditions As to effect o Suspensive the happening of which gives rise to the obligatory; o Resolutory the happening of which extinguishes the obligation. As to form o Express the condition is clearly stated; and o Implied the condition is merely inferred. As to possibility o Possible the condition is capable of fulfillment, legally and physically; and o Impossible the condition is not capable of fulfillment, legally or physically. As to cause or origin o Potestative the condition depends upon the will of one of the contracting parties; o Casual the condition depends upon chance or upon the will of a third person; and o Mixed the condition depends partly upon chance and partly upon the will of a third person As to mode o Positive the condition consists in the performance of an act; and o Negative the condition consists in the omission of an act. As to numbers o Conjunctive there are several conditions and all must be fulfilled; o Disjunctive there are several conditions and only one or some of them must be fulfilled. As to divisibility o Divisible the condition is susceptible of partial performance; and o Indivisible the condition is not susceptible of partial performance When suspensive condition depends upon sole will of debtor Conditional obligation void- Where the potestative condition depends solely upon the will of the debtor, the conditional obligation shall be void because its validity and compliance is left to the will of the debtor and it cannot, therefore, be easily demanded. Only the condition void- If the obligation is a pre-existing one and, therefore, does not depend for its existence upon the fulfillment by the debtor of the potestative condition, only the condition is void leaving unaffected the obligation itself Where resolutory condition depends upon will of debtor The fulfillment of the condition merely causes the extinguishment or loss of rights already acquired. The debtor is naturally interested in its fulfillment. *The position of the debtor when the condition is resolutory is exactly the same as that of the creditor when the condition is suspensive When suspensive condition depends partly upon will of debtor Conditional obligations whose fulfillment depends partly upon the will of the debtor and partly upon the will of a third person, or upon chance are perfectly valid Article 1183. Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid. The condition not to do an impossible thing shall be considered as not having been agreed upon. (1116a) *applies only to cases where the impossibility already existed at the time the obligation was constituted
Two Kinds of Impossible Conditions 1. Physically impossible conditions- when they, in nature of things, cannot exist or cannot be done 2. Legally impossible conditions- when they are contrary to law, morals, good customs, public order, or public policy. Effects of Impossible Conditions Conditional Obligation Void- Impossible conditions annul the obligation which depends upon them. Conditional obligation valid- If the condition is negative, that is, not to do an impossible thing, it is disregarded and the obligation is rendered pure and valid Only the affected obligation void- If the obligations is divisible, the part thereof not affected by the impossible condition shall be valid.
Only the condition void- If the obligation is a pre-existing obligation, therefore, does not depend upon the fulfillment of the condition which is impossible, for its existence, only the condition is void. Article 1184. The condition that some event happen at a determinate time shall extinguish the obligation as soon as the time expires or if it has become indubitable that the event will not take place. (1117) Positive condition *The above article refers to positive (suspensive) condition happening of an event at a determinate time. The obligation is extinguished: As soon as the time expires without the event taking place; or As soon as it has become indubitable that the event will not take place although the time specified has not expired. Article 1185. The condition that some event will not happen at a determinate time shall render the obligation effective from the moment the time indicated has elapsed, or if it has become evident that the event cannot occur. If no time has been fixed, the condition shall be deemed fulfilled at such time as may have probably been contemplated, bearing in mind the nature of the obligation. (1118) Negative condition *The above provision speaks of a negative condition that an event will not happen at a determinate time. The obligation shall become effective and binding: From the moment the time indicated has elapsed without the event taking place; or From the moment it has become evident that the event cannot occur, although the time indicated has not yet elapsed. **If no time is fixed, the circumstances shall be considered to arrive at the intention of the parties. This rule may also be applied to a positive condition. ARTICLE 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. (1119) Constructive Fulfillment of Suspensive Condition: 3 Requisites 1. The condition is suspensive 2. The obligor actually prevents the fulfillment of the condition 3. He acts Voluntarily *The law does not require that the obligor acts with malice or fraud as long as his purpose is to prevent fulfillment of the condition. He should not be allowed to profit from his own fault or bad faith Constructive Fulfillment of Resolutory Condition Art 1186 applies also to an obligation subject to a resolutory condition with respect to the debtor who is bound to return what he has received upon the fulfillment of the condition Article 1187. The effects of a conditional obligation to give, once the condition has been fulfilled shall retroact to the day of the constitution of the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and interests received, unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different. In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with. (1120) Retroactive effects of fulfillment of suspensive condition In obligation to give- An obligation to give subject to a suspensive condition becomes demandable only upon the fulfillment of the condition In obligations to do or not to do- With respect to the retroactive effect of the fulfillment of a suspensive condition, in obligations to do or not to do, no fixed rule is provided
Retroactive effects as to fruits and interests in obligations to give In reciprocal obligations- There is no retroactivity because the fruits and interests received during the pendency of the condition are deemed to have been mutually compensated In unilateral obligations- There is usually no retroactive effect because they are gratuitous. The debtor receives nothing from the creditor Article 1188. The creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his right. The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition. (1121a) Rights pending fulfillment of suspensive condition
1. Rights of 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 2. Rights of debtor He is entitled to recover what he has paid by mistake prior to the happening of the suspensive condition Article 1189. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules shall be observed in case of improvement, loss or deterioration of the thing during the pendency of the condition: 1. If the thing is lost without the fault of the debtor, the obligation shall be extinguished; 2. If the thing is lost through the fault of the debtor, he shall be obliged to pay the damages; it is understood that a thing is lost when it perishes, or goes out of commerce, or disappears in a way that its existence is unknown or it cannot be recovered 3. When the thing deteriorates without the fault of the debtor; 4. 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 other damages in either case; 5. if the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor; 6. if it is Improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. (1122) *Usufruct is the right to enjoy the use and fruits of a thing belonging to another Requisites of Application of Article 1189 1. The obligation is a real obligation; 2. The object is a specific or determinate thing; 3. The obligation is subject to a suspensive condition; 4. The condition is fulfilled; and 5. There is loss, deterioration, or improvement of the thing during the pendency of the condition 3 kinds of losses 1. Physical loss- when a thing perishes 2. Legal loss- thing goes out of commerce 3. Civil loss- a things existence becomes unknown Rules in case of loss deterioration,or improvement of a thing during pendency of a suspensive condition 1. Loss of a thing without the debtors fault- as a general rule, a person is not liable for a fortuitous event 2. Loss of thing through debtors fault- the creditor will be entitled to demand damages 3. Deterioration of a thing without debtors fault- creditor will have to suffer the deterioration or impairment 4. Deterioration of a thing through debtors fault- rescission of the obligation with damages or fulfillment of the obligation with damages 5. Improvement of thing by nature or time- improvement shall inure to the benefit of the creditor 6. Improvement of thing at the expense of the debtor- the debtor will have the right granted to a usufructuary with respect to improvements made on the thing held in usufruct Article 1190. When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have received. In case of loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return. As for obligations to do and not to do, the provisions of the second paragraph of Article 1187 shall be observed as regards the effect of the extinguishment of the obligation. (1123) Effects of fulfillment of resolutory condition 1. In obligations to give when the resolutory condition in an obligation to give is fulfilled, the obligation is extinguished and the parties are obliged to return to each other what they have received under the obligation. 2. In obligations to do or not to do the courts shall determine the retroactive effect of the fulfillment of the resolutory condition. *The fulfillment of the resolutory condition converts the creditor into debtor and the debtor into creditor. Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of the damages in either case. He may also seek rescission even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and1388 and the Mortgage Law. (1124)
Kinds of obligation according to the person obliged 1. Unilateral when only one party is obliged to comply with a prestation 2. Bilateral when both parties are mutually bound to each other a. Reciprocal obligation those which arise from the same cause and in which each party is a debtor and creditor of the other, such that the performance of one is designed to be the equivalent and the condition of the performance of the other b. Non-reciprocal obligation those which do not impose simultaneous and correlative performance on both parties Remedies in reciprocal obligations Action for specific performance (fulfillment) of the obligation with damages; or Action for rescission of the obligation also with damages Court may grant guilty party term for performance Applies only where the guilty party is willing to comply with his obligation but needs time to do so and not where he refuses to perform Remedies are alternative Aggrieved party is privileged to choose only one of the remedies, and not both Limitation on right to demand rescission *The right to rescind by the injured party is not absolute thus: Resort to the courts Power of court to fix period Rights of third person Substantial violation Waiver of right Rescission without previous judicial decree 1. Where automatic rescission expressly stipulated- Where the contract itself contains such stipulation, the right to rescind is not implied but expressly recognized 2. Where contract still executory- when there is no performance yet by both parties, but one is ready and willing to comply with what is incumbent upon him and the other is not, the willing party may, by his own declaration, rescind the contract without a previous judicial decree of rescission Article 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. (n) Where both parties are guilty of breach 1. First infractor known- In this case, the liability of the first infractor should be equitably reduced 2. First infractor cannot be determined- The rule is that the contract shall be deemed extinguished and each shall bear his own damages. In effect, the court shall not provide remedy to either of the parties, who must suffer the damages allegedly sustained by them
CHAPTER 3; Sec.2: Obligations with a Period Article 1193. Obligations for whose fulfillment a day certain has been fixed, shall be demandable only when that day comes. Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain. A day certain is understood to be that which must necessarily come, although it may not be known when. 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. (1125a) Obligations with a period- one whose consequences are subjected in one way or another to the expiration of said period or term. Period or Term- a future and certain event upon the arrival of which the obligation (or right) subject to it either arises or is terminated. Period VS. Condition
Certain event Uncertain event Future May be unknown past event If it depends on debtors will, it If it depends on the debtors will, empowers the court to fix the obligation is invalidated duration thereof Unless there is an agreement to the Happening of a condition has a retroactive effect contrary, arrival of a period does not PROPERTY OF BMS. UNOFFICIAL OBLICON REVIEWER. NOTE: have a retroactive effect THIS SPECIAL PRIVILEGE IS STRICTLY FOR BMS MEMBERS ONLY!!!
Kinds of Period or Term According to effect a. Suspensive Period (ex die)- obligation begins only from a day certain upon the arrival of the period b. Resolutory Period (in diem)- obligation is valid up to a day certain and terminates upon arrival of the period According to source a. Legal Period- provided for by laws b. Conventional or voluntary Period- agreed to by parties c. Judicial Period- fixed by the court According to definiteness a. Definite Period- it is fixed or it is known when it will come b. Indefinite Period- not fixed or not known when it will come Article 1194. 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. (n) Effect of loss, deterioration, or improvement before arrival of period *see comments under Article 1189 Article 1195. Anything paid or delivered before the arrival of the period, the obligor being unaware of the period, or believing that the obligation has become due and demandable, may be recovered, with the fruits, and interests. (1126a) *applies only to obligations to give. It allows recovery of what has been paid by mistake. Debtor presume aware of period Debtor has the burden of proving that he was unaware of the period. Obligor may no longer recover once the period arrives but he may still recover the fruits and interests. No Recovery in Personal Obligations It is physically impossible to recover the service rendered Article 1196. Whenever in an obligation a period is designated, it is presumed to have been established for the benefit of both the creditor and the debtor, unless from the tenor of the same or other circumstances, it should appear that the period has been established in favor of one or of the other. (1127) Presumption as to benefit of Period Period is to be presumed to have been established for the benefit of both the creditor and the debtor; this presumption however, is rebuttable. Exceptions to the general rule 1. Term is for the benefit of the debtor alone- he cannot be compelled to pay prematurely, but he can, if he desires to do so. 2. Term is for the benefit of the creditor- he may demand fulfillment even before the arrival of the term but the debtor cannot require him to accept payment before the expiration of the stipulated period. Computation of Period or Term Year = 365 days Month = 30 days Day = 24 hours Nights = from sunset to sunrise If months are designated by name, days are computed respective to the month In computing a period, 1st day is excluded and last day is included If the last day is a Sunday or Legal holiday, time shall not run until the end of the next day Article 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof. The courts shall also fix the duration of the period when it depends upon the will of the debtor. In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them. (1128a) Court generally without Power to fix a Period If obligation does not state a period and no period is intended, the court is not authorized to fix a period. The courts have no right to make contracts for the parties.
Exceptions to the General Rule 1. No period is fixed but a period was intended 2. Duration of the period depends upon the will of the debtor Period fixed cannot be changed by courts 1. If there is a period agreed upon and it has already lapsed, the court cannot fix another period 2. From the very moment the parties give their acceptance and consent to the period fixed by the court, said period acquires the nature of a contract. Article 1198. The debtor shall lose every right to make use of the period: 1. 2. 3. 4. 5. When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt; When he does not furnish to the creditor the guaranties or securities which he hs promised; When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory; When the debtor violates any undertaking, in consideration of which the creditor agreed to the period; When the debtor attempts to abscond. (1129a)
When obligations can be demanded before the lapse of period *obligation becomes pure and immediately demandable 1. When debtor becomes insolvent 2. When debtor does no furnish guaranties or securities promised 3. When guaranties or securities given have been impaired or disappeared 4. When debtor violates an undertaking 5. When debtor attempts to abscond CHAPTER 3; Sec.3: Alternative Obligations Article 1199. A person alternatively bound by different prestations shall completely perform one of them. The creditor cannot be compelled to receive part of one and part of the other undertaking. (1131) Kinds of Obligation according to object 1. Simple Obligation- one where there is only one prestation 2. Compund 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, two or more of the prestations is due i. Alternative Obligations- one where several prestations are due but the performance of one is sufficient ii. Facultative Obligations- one where only one prestation is due but the debtor may substitute another Article 1200. The right of choice belongs to the debtor, unless it has been expressly granted to the creditor. The debtor shall have no right to choose those prestations which are impossible, unlawful, or which could not have been the object of the obligation. (1132) * Right to choose the prestation belongs to the debtor except when it is expressly granted to the creditor Right of choice of debtor not Absolute 1. Debtor cannot choose prestations which are: impossible, unlawful, or which could not have been the object of the obligation. These prestations are VOID 2. Debtor has no more right when- among the prestations whereby he is alternatively bound, only one is practicable. Article 1201. The choice shall produce no effect except from the time it has been communicated. (1133) Communication of notice that choice has been made 1. Effect of notice- until the choice is made and communicated, the obligation remains alternative. Once it is properly communicated, it is irrevocable and cannot be changed by one party without the consent of the other. 2. Proof and form of notice- the burden of proving that such communication has been made is upon him who made the choice. It may be orally, in writing, expressly or impliedly. Article 1202. The debtor shall lose the right of choice when among the prestations whereby he is lternatively bound, only one is practicable. (1134) *If only one is practicable, obligation is converted into a simple one.
Article 1203. If through the creditors acts, the debtor cannot make a choice according to the terms of the obligation, the latter may rescind the contract with damages. (n) When debtor may rescind the contract Rescission creates the obligation to return the thigs which were the object of the contract together with their fruits, and the price with its interest. If through the creditors fault, debtor cannot make a choice according to the terms of the obligation, he may rescind the contract. *the debtor, however, is not bound to rescind Article 1204. The creditor shall have a right to indemnity for damages when, through the fault of the debtor, all the things which are alternatively the object of the obligation have been lost, or the compliance of the obligation has become impossible. The indemnity shall be fixed taking as a basis the value of the last thing which disappeared, or that of the service which last became impossible. Damages other than the value of the last thing or service may alos be awarded. (1135a) Effect of Loss of objects of the obligation 1. Some of the objects- debtor is not liable since he has the right of choice and the obligation can still be performed 2. All of the objects- If it is through his fault, the creditor shall have the right to indemnity for damages since the obligation can no longer be complied with. If the loss is through a fortuitous event, the obligation is extinguished Basis of Indemnity The indemnity shall be fixed taking as a basis the value of the last thing which disappeared or that service which last became impossible. Article 1205. When the choice has been expressly given to the creditor, the obligation shall cease to be alternative from the day when the selection has been communicated to the debtor. Until then the responsibility of the debtor shall be governed by the following rules: 1. If one of the things is lost through a fortuitous event, he shall perform the obligation by delivering that which the creditor should choose from among the remainder, or that which remains if oly one subsists; 2. If the loss of one of the things occurs through the fault of the debtor, the creditor may claim any of those subsisting, or the price of that which, through the fault of the former, has disappeared, with a right to dmages; 3. If all the things are lost through the fault of the debtor, the choice by the creditor shall fall upon the price of any one of them, also with indemnity for damages. The same rules shall also be applied to obligations to do or not to do in case one, some or all of the prestations should become impossible. (1136a) *before the creditor makes the selection, the debtor cannot incur in delay Rules in case of loss before creditor has made choice 1. When a thing is lost through a fortuitous event- creditor can choose from among the remainder 2. When a thing is lost through debtors fault- creditor may claim from among the remainder with a right to damages or the price of the item lost also with a right to damages 3. When all the things are lost through debtors fault- creditor can demand the payment of any of the items with a right to indemnity for damages 4. When all the things are lost through a fortuitous event- the obligation shall be extinguished Article 1206. When only one prestation has been agreed upon, but the obligor may render another in substitution, the obligation is called facultative. The loss or deterioration of the thing intended as substitute, through the negligence of the obligor, does not render him liable. But once the substitution has been made, the obligor is liable for the los of the substitute on account of his delay, negligence or fraud. (n) Facultative obligation- one where only one prestation has been agreed upon but the obligor may render another in substitution. Effect of Loss 1. Before substitution- if the principal thin is lost through a fortuitous event, the obligation is extinguished; otherwise, the debtor is liable for damages. The loss of the intended substitute, with or without the debtors fault, does not make him liable. 2. After substitution- if the principal thing is lost, with or without the debtors fault, he is not liable. If the substitute is lost, his liability depends upon whether or not the loss was due to his fault. Alternative VS. Facultative
Several prestations are due nut Only one prestation is due but compliance with one is sufficient debtor is allowed to substitute it Right of choice may be debtor, Right of choice belongs only to NOTE: PROPERTY OF BMS. UNOFFICIAL OBLICON REVIEWER. creditor or third person debtor THIS not Loss of thing due (because of Loss of some of alternatives does SPECIAL PRIVILEGE IS STRICTLY FOR BMS MEMBERS ONLY!!! render obligation extinguished fortuitous event) renders obligation (through fortuitous event) extinguished If it depends on debtors choice, loss Loss of thing due through debtors
CHAPTER 3; Sec.4: Joint and Solidary Obligations Article 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. (1137a) Article 1208. If from the law, or the nature or the wording of the obligations to which the preceding article refers, the contrary does not appear, the credit or debt shall be presumed to be divided into as many equal share as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits. (1138a) Kinds of obligations according to the number of parties 1. Individual obligation one where there is only one obligor or one obligee; and 2. Collective Obligation one where there are two or more debtors OR two or more creditors. It may be joint or solidary. Joint obligation - one where the whole obligation is to be paid or fulfilled proportionately by the different creditors Solidary Obligation - one where each one of the debtors is bound to render, and/or each one of the creditors has a right to demand from any of the debtors, entire compliance with the prestation. Collective obligation presumed to be joint 1. If A is liable to B for P9,000.00 there can be no problem regarding the determination of the following: a. the person liable to pay b. the person entitled to demand payment c. the extent of the liability of the debtor; and d. the extent of the right of the creditor 2. Where there is a plurality of parties (two or more debtors and/or two or more creditors) and the share of each in the obligation specified, the correlative rights and obligations of the parties are known. 3. On the other hand, let us suppose that in the same obligation, the share of each debtor (or the share of each creditor, if there are two or more creditors) is not specified. In such case, the presumption is that the obligation is joint, and as consequence: a. There are as many debts as there are debtors b. There are as many credits as there are creditors c. The debts and/or credits are considered distinct and separate from one another d. Each debtor is liable only for a proportionate part of the debt e. Each creditor is entitled only to a proportionate part of the credit The presumption established in Article 1208 is, however, rebuttable. * Presumption subject to rules on multiplicity of suits Words used to indicate joint liability Mancomunada Mancomunadamente Pro rata Proportionately We promise to pay. signed by two or more persons When obligation solidary *There is solidary liability only when: 1. the obligation expressly so states 2. the law requires solidarity 3. the nature of the obligation requires solidarity *Solidary liability also exists when it is imposed in a final judgment
against several defendants. Words used to indicate solidary liability jointly and/or severally solidaria in solidum together and/or separately individually and/or collectively juntos o separadamente I promise to pay signed by two or more persons Kinds of solidarity According to parties bound: o Passive solidarity solidarity on the part of the debtors, where any one of them can be made liable for the fulfillment of the entire obligation. It is in the nature of a mutual guaranty. o Active solidarity solidarity on the part of the creditors, where any one of them can demand the fulfillment of the obligation. Its essential feature is that of mutual representation among the solidary creditors with powers to exercise the rights of others in the same manner as their rights. o Mixed solidarity solidarity on the part of the debtors and creditors, where each one of the debtors is liable to render, and each one of the creditors has a aright to demand, entire compliance with the obligation. According to source: o Conventional solidarity where solidarity is agreed upon by the parties. If nothing is mentioned in the contract relating to solidarity, the obligation is only joint. o Legal solidarity where solidarity is imposed by the law. o Real solidarity where solidarity is imposed by the nature of the obligation *Solidarity not presumed because solidary obligations are very burdensome for they create unusual rights and liabilities. Article 1209. If the division is impossible, the right of the creditors may be prejudiced only by their collective acts, and the debt can be enforced only by proceeding against all debtors. If one of the latter should be insolvent, the others shall not be liable for his share. (1139) Joint indivisible obligation the obligation is joint because the parties are merely proportionately liable. the obligation is indivisible because the object or subject matter is not physically divisible into different parts. it is joint as to liabilities of debtors and rights of creditors it is indivisible as to compliance the obligation constitutes the middle ground between a joint and solidary obligation Joint debtors VS. Joint Creditors
if one of the debtors refuses to comply, he can be liable for damages if the other debtors suffered damages due to the non-compliance of another debtor, they may recover from him if one of the debtors become insolvent, the other debtors are not liable for his share
if one of the creditors refuse to accept the obligation jointly with the other creditors, the debtor may deposit the obligation in court by way of consignation creditors can only recover their respective shares in an indemnity creditors cannot do anything which may be prejudicial to the other creditors
Article 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. (n) *a liability in an indivisible obligation may either be joint or solidary *in a solidary obligation, the subject matter may be divisible or indivisible o o o o joint indivisible obligation: prestation is indivisible but liability is joint solidary indivisible obligation: prestation is indivisible but liability is solidary solidary divisible obligation: prestation is divisible but liability is solidary joint divisible obligation: prestation is divisible but liability is solidary
Indivisibility VS. Solidarity
refers to prestation (subject matter of obligation) only the debtor guilty of breach of obligation is liable for damages
refers to the judicial or legal tie which binds the obligation all debtors are liable for the breach of the obligation comamitted by a NOTE: PROPERTY OF BMS. UNOFFICIAL OBLICON REVIEWER. debtor THIS SPECIAL there must be at least two debtors PRIVILEGE IS STRICTLY FOR BMS MEMBERS ONLY!!! can exist although there is only one debtor and one creditor and two creditors other debtors are not liable for other debtors are proportionately insolvency of one debtor liable for insolvency of one debtor
Article 1211. Solidarity may exist although the creditors and the debtors may not be bound in the same manner and by the same periods and conditions. (1140) Kinds of solidary obligation according to legal tie 1. Uniform: parties are bound by same stipulations 2. Non-uniform or varied: parties are not subject to same prestations Solidarity not affected by diverse stipulations solidarity consists in: o the right of each creditor to enforce the rights of all o the liability of each debtor to answer for the liabilities of all a solidary obligation may exist although parties may not be bound in the same manner and by the same periods and conditions the creditor may bring his action in toto (as a whole) against any of the solidary debtors less the shares of the other debtors with unexpired terms or unfulfilled conditions who are entitled to defenses under Article 1222 upon expiration of the term or fulfillment of the condition, the creditor will have the right to demand the payment of the remainder the parties may stipulate that any solidary debtor already bound may be made liable for the entire obligation Article 1212. Each one of the solidary creditors may do whatever may be useful to the others, but not anything which may be prejudicial to the latter. (1141a) Act of solidary creditor prejudicial to others A solidary creditor may do any act beneficial or useful to the others but he cannot perform any act prejudicial to them. If he performs such act and as a result the obligation is extinguished, he shall be responsible to the others for damages. As far as the debtor or debtors are concerned, the act shall be valid and binding. The rule is based on the theory of mutual agency among the solidary creditors. Article 1213. A solidary creditor cannot assign his rights without the consent of the others. (n) Assignment by solidary creditor of his rights a solidary creditor cannot assign his rights to a third person If the assignee is made to a co-creditor, the consent of the other creditors is not necessary Article 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or extrajudicial, has been made by one of them, payment should be made to him. (1142a)
Payment to any of the solidary creditors the debtor may pay any one of the solidary creditors. But when a demand, judicial or extrajudicial, has been made by one of them, to avoid confusion, as well as prejudice to the more diligent creditor, payment should be made to him Article 1215. Novation,compensation, confusion or remission of the debt, made by any of the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of Article 1219. The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them. (1143) Liability of solidary creditor in case of novation, compensation, confusion, or remission This extinguishes the obligation It is but logical that the creditor who executed any of these acts should be liable to the others for their corresponding shares considering that such acts are prejudicial to them Effect of novation, etc. where obligation is joint
These does not extinguish or modify the obligation except with respect to the creditor or debtor affected Article 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected. (1144a) Right of the creditor to proceed against any solidary debtor Not applicable to a joint obligation. It reiterates the rule hat in a solidary obligation (passive solidarity), any one or some or all of the solidary debtors may simultaneously, may be made to pay the debt so long as it has not been fully collected. Article 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept. He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded. When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each. (1145a) Effects of payment by a solidary debtor 1. Between the solidary debtors and creditor(s) payment made by one of the solidary debtor extinguishes the obligation. However, the creditor for his protection is given the right to choose which offer to accept if two or more solidary debtors offers to pay 2. Among the solidary debtors after payment of the debt, the paying solidary debtor can demand reimbursement from his co-debtors for their proportionate shares with (legal) interest only from the time of payment. Their liability is based upon the payment made by the co-debtor which creates a joint obligation of reimbursement on the part of the others. However, in case of insolvency of any solidary debtors, the others assume the share of the insolvent one pro rata. 3. Among the solidary creditors the receiving creditor is jointly liable to the others for their corresponding shares. Article 1218. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is made after the obligation has prescribed or become illegal. (n) Effect of payment after obligation has prescribed or become illegal When the obligation has already prescribed or become illegal, the obligation is extinguished. Hence, there is no more obligation to be complied with. Prescriptive periods of actions *By prescription, one acquires ownership and other rights through the lapse of time in the manner and under the conditions laid down by law. In the same way, rights and actions are lost by prescription. The following actions must be brought within ten years from the time the right of action accrues: o Upon an obligation created by law o Upon a judgment. The following actions must be commenced within six years: o Upon an oral contract o Upon a quasi-contract. The following actions must be instituted within four years: o Upon an injury to the rights of the plaintiff o Upon a quasi-delict. **The statute of limitations, *however, may be superseded or modified by a contract between parties. Article 1219. The remission made by the creditor of the share which affects one of the solidary debtors does not release the latter from his responsibility towards the co-debtors, in case the debt had been totally paid by anyone of them before the remission was effected. (1146a) Effect of remission of share after payment If payment is made first, the remission or waiver is of no effect. If remission is made previous to the payment and payment is made, solution indebiti arises. Article 1220. The remission of the whole obligation obtained by one of the solidary debtors, does not entitle him to reimbursement from his co-debtors. (n) No right to reimbursement in case of remission The debtor who obtains remission pays nothing to the creditor. Remission is essential gratuitous. It is really a donation In case of novation, compensation, or confusion (see art. 1215.), the debtor with whom it is effected is entitled to recover from his co-debtors their corresponding shares of the obligation.
Article 1221. If the thing has been lost or if the prestation has become impossible without the fault of the solidary debtors, the obligation shall be extinguished. If there was fault on the part of any one of them, all shall be responsible to the creditor, for the price and the payment of damages and interest, without prejudice to their action against the guilty or negligent debtor. If through a fortuitous event, the thing is lost or the performance has become impossible after one of the solidary debtors has incurred in delay through the judicial or extra-judicial demand upon him by the creditor, the provisions of the preceding paragraph shall apply. (1147a) Rules in case thing has been lost or prestation has become impossible *If the thing is lost due or the prestation becomes impossible, the liability of the solidary debtors depends upon whether or not there is fault or delay. 1. Loss is without fault and before delay- obligation shall be extinguished 2. Loss is due to fault on the part of a solidary debtor- as far as creditor is concerned, fault or delay of one solidary debtor shall be the fault or delay of all the solidary debtors 3. Loss is without fault but after delay- default by one debtor makes all solidary debtors responsible even for fortuitous event Article 1222. . A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible. (1148a) Defenses available to a solidary debtor *In actions filed by the creditor, a solidary debtor may avail himself of the following defenses: 1. Defenses derived from the nature of the obligation 2. Defenses personal to, or which pertain to share of, debtor sued 3. Defenses personal to other solidary debtors CHAPTER 3: Sec.5: Divisible and Indivisible Obligations Article 1223. The divisibility or indivisibility of the things that are the object of obligations in which there is only one debtor and only one creditor does not alter or modify the provisions of Chapter 2 of this Title. (1149) Divisible obligations - The object of these obligations, in its delivery or performance, is capable of partial fulfillment Indivisible Obligations- The object of these obligations in its delivery or performance, is not capable of partial fulfillment Test for the Distinction *factors to be considered in determining whether an obligation is divisible or indivisible: 1. The nature of the obligation; 2. The provision of law affecting the prestation; 3. The will or intention of the parties, either express or tacit; 4. The end or purpose of the obligation. Applicability of Article 1223 While article 1223 appears to be limited to real obligations because it speaks of things, the word is used in its broad sense as referring to the object or prestation of the obligation, which may be to deliver a thing or to render some service. Kinds of Division 1. Qualitative Division- Based on quality, not on number or quantity of the things which are the object of the obligation 2. Quantitative Division- Based on quantity rather than on quality 3. Ideal or Intellectual Division- Exists only in the minds of the parties Kinds of Indivisibility 1. Legal Indivisibility- Where a specific provision of law declares as indivisible, obligations which, by their nature are divisible 2. Conventional Indivisibility- Where the will of the parties makes as indivisible, obligations which, by their nature, are divisible. 3. Natural Indivisibility- Where the nature of the object or prestation does not admit of division Where There is Only One Creditor and One Debtor Since divisibility or indivisibility refers to the object or prestation, it does not alter or modify said provisions. When there is only one creditor and debtor, the latter has to perform the obligation in its totality, whether or not the prestation is divisible. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the prestations in which the obligation consists; and in accordance with Article 1232, an obligation is not deemed paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be.
Article 1224. A joint divisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not comply with his undertaking. The debtors who may have been ready to fulfill their promises shall contribute to the indemnity beyond the corresponding portion of the price of the thing or of the value of the service in which the obligation consists. (1150) Effect of non-compliance by a debtor in a joint indivisible obligation If any of the debtors does not comply, the obligation is converted into one for damages. The creditor cannot ask for specific performance or rescission because there is no action against the other debtors Article 1225. For the purpose of the preceding articles, obligations to give definite things and those which are not susceptible of partial performance shall be demed to be indivisible. When the obligation has for its object the execution of a certain number of days of work, the accomplishment of work by metric units, or analogous thing which by their nature are susceptible of partial performance, it shall be divisible. However, even though the object or service may be physically divisible, an obligation is indivisible if so provided by law or intended by the parties. In obligations not to do, divisibility or indivisibility shall be determined by the character of the prestation in each particular case. (1151a) Obligations Deemed Indivisible 1. Obligations to give definite things 2. Obligations which are not susceptible of partial performance 3. Obligations provided by law to be indivisible even if thing or service is physically divisible. 4. Obligations intended by the parties to be indivisible even if the thing or service in physically divisible. Obligations Deemed Divisible 1. Obligations which have for their object the execution of a certain number of days of work. 2. Obligations which have for their object the accomplishment of work by metrical units. 3. Obligations which by their nature are susceptible of partial performance. Divisibility or Indivisibility in Obligations Not to Do Indivisible Obligation o A obliged himself to B not to sell cigarettes in his store for one year. Here, the obligation should be fulfilled continuously during a certain period. Divisible Obligation o If the obligation of A is not to sell cigarettes only during Sundays and holidays, the obligation is divisible because the forbearance is not continuous. CHAPTER 3; Sec.6: Obligations with a Penal Clause Article 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. The penalty may be enforced only when it is demandable in accordance with the provisions of this Code. (1152a) Principal obligation- One which can stand by itself and does not depend for its validity and existence upon another obligation. Accessory obligation- One which is attached to a principal obligation and, therefore cannot stand alone Obligation with a penal clause- One which contains an accessory undertaking to pay a previously stipulated indemnity in case of breach. Penal Clause- An accessory undertaking attached to an obligation to assume greater liability in case of breach, i.e., the obligation is not fulfilled, or is partly or irregularly complied with. Penal Clause VS. Condition
Constitutes an obligation although accessory May become demandable in default of unperformed obligation and sometimes, jointly with it
Purposes of penal clause
Does not constitute an obligation Is never demandable
1. To insure their performance by creating an effective deterrent against breach, making the consequences of such breach as onerous as it may be possible. This is the general purpose of a penal clause; and 2. To substitute a penalty for the indemnity for damages and the payment of interests in case of non-compliance; or to punish the debtor for the nonfulfillment or violation of his obligation. In the first case, the purpose is reparation; in the second, punishment. Kinds of penal clause As to its origin: a. Legal penal clause. when it is provided by law; and b. Conventional penal clause. when it is provided for by stipulation of the parties. As to its purpose: a. Compensatory penal clause. when the penalty takes the place of damages; and b. Punitive penal clause. when the penalty is imposed merely as punishment for breach. As to its demandability or effect: a. Subsidiary or alternative penal clause. when only the penalty can be enforced; and b. Joint or cumulative penal clause. when both the principal obligation and the penal clause can be enforced. Penalty substitutes for damages and interests Penalty takes the place of the indemnity for damages and the payment of interests in case of non-compliance. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be enforced. When creditor may recover damages 1. When so stipulated by the parties; 2. When the obligor refuses to pay the penalty, in which case the creditor may recover legal interest thereon; or 3. When the obligor is guilty of fraud in the fulfillment of the obligation, in which case the creditor may recover damages caused by such fraud. When creditor may be enforced When it is demandable in accordance with the provisions of the Civil Code. If the obligation cannot be fulfilled due to a fortuitous event, the penalty is not demandable. Article 1227. The debtor cannot exempt himself from the performance of the obligation by paying the penalty, save in the case where this right has been expressly reserved for him. Neither can the creditor demand the fulfillment of the obligation and the satisfaction of the penalty at the same time, unless the right has been clearly granted him. However, if after the creditor has decided to require the fulfillment of the obligation, the performance thereof should become impossible without his fault, the penalty may be enforced. (1153a) Penalty not substitute for performance The penalty is to secure compliance with the obligation; if debtor is allowed to pay penalty, the obligation would become an alternative one. This is unless the right has been expressly reserved for him Penal Clause presumed Subsidiary 1. When there is performance- Once the obligation is fulfilled, there is no need to demand penalty. Unless this right has been clearly granted to the creditor. 2. When there is no performance- Creditor may ask for the penalty or require specific performance. If there was fraud, creditor may recover penalty with damages for non-fulfillment.
When penal clause joint The debtor has the right to pay penalty in lieu of performance only when this right has been expressly reserved for him (supra) The creditor has the right to demand performance and payment of penalty jointly when this right has been clearly granted him. (supra) Article 1228. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded. (n) Penalty demandable without proof of actual damages All the creditor has to prove to enforce penalty is the violation of the obligation by the debtor. He can recover penalty whether or not he suffered damages. But, he cannot recover more than the stipulate penalty even if he proves that his damages exceeds the penalty. *Damages recoverable in addition to penalty must be proved Article 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. (1154a) When penalty may be reduce by the Courts 1. When there is partial or irregular performance- since the creditor is benefitted by the partial performance, the penalty of the debtor must be reduced. 2. When the penalty agreed upon is iniquitous or unconscionable
Article 1230. The nullity of the penal clause does not carry with it that of the principal obligation Thu nullity of the principal obligation carries with it that of the penal clause (1155) Effect of nullity of the Penal Clause The principal obligation remains valid and demandable. The penal clause is disregarded and injured party may recover indemnity for damages as if no penalty has been stipulated Effect of nullity of the Principal Obligation The penal clause is likewise void because it cannot stand alone without the principal obligation to which it is subrogated. But if nullity of principal obligation is due to the fault of the debtor who acted in bad faith, and the creditor suffered damages, penalty may be enforced.
CHAPTER 4: Extinguishment of Obligations Article 1231. Obligations are extinguished: 1. By payment or performance; 2. By the loss of the thing due; 3. By the condonation or remission of the debt; 4. By the confusion or merger of the rights of creditor and debtor; 5. By compensation; 6. By novation. Other such cases of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and prescription, are goverened elsewhere in this Code. (1156a) Causes of Extinguishment of Obligations 1. Death of a party in case the obligation is a personal one; 2. Mutual desistance or withdrawal 3. Arrival of resolutory period 4. Compromise 5. Impossibility of fulfillment 6. Happening of a fortuitous event CHAPTER 4; Sec1: Payment or Performance Article 1232. Payment means not only the delivery of money but also the performance, In any other manner of obligation. (n) Payment- in law, may consist not only in the delivery of money but also the giving of a thing, the doing of an act, or not doing of an act. *In law, payment and performance are synonymous Article 1233. A debt shall not be under stood to have been paid unless the thing or service in which the obligation consist has been completely delivered or rendered, as the case may be. (1157) * partial or irregular performance will not produce the extinguishment of an obligation as a general rule. Article 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee. (n) *Recovery allowed in case of substantial performance in performance in good faith: the oblige is benefited so the obligor should be allowed to recover Requisites for the application of Article 1234 1. There must be substantial performance; and 2. The obligor must be in good faith Article 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with. (n) * Recovery allowed when incomplete or irregular performance is waived. If the payment is incomplete or irregular, the creditor may reject it; but if he accepts, the law considers tha he has waived his rights. Requisites for the application of Article 1235 1. The obligee knows that the performance is incomplete or irregular; and
2. He accepts the performance without expressing any protest or objection Article 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. (1158a) Persons from whom the creditor must accept payment 1. The debtor 2. Any person who has an interest in the obligation (like a guarantor); 3. A third person who has no interest in the obligation when there is stipulation that he can make payment *creditor may refuse payment by a third person because he may not have confidence in the honesty of the third person Effect of payment by third person 1. If made without the knowledge or against the will of the debtor- the payer can recover from the debtor only insofar as the payment has been beneficial to the latter. 2. If made with the knowledge of the debtor- the payer shall have the right to recover what he has paid and to acquire all the rights of the creditor Article 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the latter, cannot compel the creditor to subrogate him in his rights, such as those arising from the mortgage, guaranty or penalty. (1159a) Right of a third person to subrogation Whoever pays on behalf of the debtor with the consent of the latter is entitled to subrogation. But the third person cannot compel the creditor to subrogate him in the latters rights of mortgage, guaranty or penalty Subrogation VS. Reimbursement
There is no real extinction of the obligation, but only a change of the creditor
The right to be refunded to the extent that the payment benefited the creditor
Article 1238. Payment made by a third person who does not intend to be reimbursed by the debtor is deemed to be donation, which requires the debtors consent. But the payment is any case valid as to the creditor who has accepted it. (n) *no one should be compelled to accept the generosity of another Article 1239. In obligations to give, payment made by one who does not have the free disposal of the thing due and capacity to alienate it shall not be valid, without prejudice to the provisions of article 1427 under the title on Natural Obligation. (1160a) Free disposal of the thing due- the thing to be delivered must not be subject to any claim lien or encumbrance Capacity to alienate- the person is not incapacitated to enter into contracts and for that matter, to make a thing due *in obligations to give, payment by one who does not have the free disposition of the thing due and capacity to alienate it is not valid. Thus the thing paid can be recovered. Article 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. (1162a) Person to whom payment shall be made 1. The creditor or oblige 2. His successor in interest 3. Any person authorized to receive it Article 1241. Payment to a person who is in capacitated to administer his property shall be valid if he has kept the thing delivered, or insofar as the payment has been beneficial to him. Payment made to a third person shall also be valid insofar as it has redounded to the benefit of the creditor. Such benefit to the creditor. Need not be proved in the following cases: 1. 2. 3. If after the payment, the third person acquires the creditor rights; If the creditor ratifies the payment to the third person; If by the creditors conduct, the debtor has been led to believe that the third person had authority to receive payment. (1163a)
Effect of payment to an incapacitated person It is not valid unless the incapacitated person kept the thing paid or delivered or was benefited by the payment. In the absence of these, the debtor may be made to pay again the creditors guardian. Proof of such benefit is incumbent upon the debtor who paid. Effect of payment to a third person It is not valid except insofar as it has redounded to the benefit of the creditor When benefit to the creditor need not be proved by debtor 1. Subrogation of the payer in the creditors rights; 2. Ratification by the creditor; or 3. Estoppels on the part of the creditor Article 1242. Payment made in good faith to any person in possession of the credit shall release the debtor. (1164) * Possession of the credit itself and not merely of the document or instrument evidencing the credit Article 1243. Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the debt shall not be valid. (1165) Article 1244. The debtor of a thing cannot compel the creditor to receive a different one although the latter may be of the same value as, or more valuable than that which is due. In obligation to do or not to do, an act or forbearance substituted by another act or forbearance against the oblegees will. (1166a) * Prestation may be substituted if the oblige consents Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money shall be governed by the law of sales. (n) Special Forms of Payment 1. Dation in payment 2. Application of payments 3. Payment by cession 4. Tender of payment and consignation Daton in payment (adjudication or dacion en pago)- the conveyance of ownership of a thing as an accepted equivalent of performance Article 1246. When the obligation consists in delivery of an indeterminate and generic thing, whos quality and circumstances have not been stated, the creditor cannot demand a thing of superior quality. Neither can then debtor deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be taken. (1167a) Article 1247. Unless it is otherwise stipulated the extrajudicial expenses required by the payment shall be for the account of the debtor. With regard to judicial costs, rules of court shall govern. (1168a) *debtor pays extrajudicial expenses because when obligation is extinguished and payment is made, debtor is primarily benefited Judicial costs- statutory amounts allowed to a party to an action for his expenses incurred in the action. The cost of an action, as a rule, shall be paid by the losing party. Article 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the prestrations in which the obligation consists. Neither may the debtor be required to make partial payments. However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and the debtor may affect the payment of the former without waiting for the liquidation of the latter. (1169a) When partial performance allowed 1. When there is an express stipulation to that effect; 2. When the debt is in part liquidated (definitely determined and computed), and in part liquidated; 3. When the different prestations in which the obligations consists are subject to different terms or conditions which affect some of them. Article 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then the currency which is legal tender in the Philippines. 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 thay have been impaired.
In the meantime, the action derived from the original obligation shall be held in abeyance. (1170) Legal tender- that currency which a debtor can legally compel a creditor to accept in payment of a debt in money when tendered by the debtor in the right amount Legal tender in the Philippines Coins are legal tender for amounts not exceeding P50.00 for denominations of P0.25 and above For amounts not exceeding P20.00, for denominations of P0.10 or less All coins and bills above P1.00 are, therefore, valid legal tenders for any amount Payment by means of instruments of credits 1. Right of creditor to refuse or accept creditor cannot be compelled to accept them since they are not legal tenders 2. Effect on obligation- payment by means of mercantile document does not extinguish the obligation, a. Until they have been cashed; b. Unless they have been impaired through the fault of the creditor Article 1250. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of establishment of the obligation shall be the basis of payment, unless there is an agreement of the contrary. (n) Inflation- a sharp sudden increase of money or credit or both without a corresponding increase in business transactions Deflation- reduction in volume and circulation of the available money or credit *the purchasing value of the currency at the time of the establishment of the obligation shall be the basis of payment Article 1251. Payment shall be made in the place designated in the obligation. There being no express stipulation and if the undertaking is to deliver a determinate thing, the payment shall be made whenever the thing might be at the moment the obligation was constituted. In any other case the place of payment shall be the domicile of the debtor If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by him. These provisions are without prejudice to venue under the Rules of Court. (1171a) Place where obligation shall be paid 1. If there is a stipulation, the payment shall be made in the place designated 2. If there is no stipulation and object is specific, payment shall be made at the place where thing was at the perfection of the contract 3. If there is o stipulation and object is generic, payment shall be the domicile of the debtor. creditor bears the expenses in going to debtors place o accept payment Subsection 1: Application of Payments Article 1252. He who has various debts of the same kind in favor of one and the same creditor may declare at the time of making the payment to which of them the same must be applied. The parties so stipulate, or when the application of payment is made by the party for whose benefit the term has been constituted, application shall be made to them as to debts which are not yet due. If the debtor accepts from the creditor a receipt in which an application of the payment is made, the former cannot complain of the same, unless there is a cause for invalidating the contract. (1172a) Application of payments- the designation of the debt to which should be applied the payment made by a debtor who has various debts of the same kind in favor of one and the same creditor Requisites of Application of Payments 1. There must be one debtor and one creditor; 2. There must be two or more debts; 3. The debts must be of the same kind; 4. The debts to which payment made by the debtor has been applied must be due; and 5. The payment made must not be sufficient to cover all the debts. Application as to debts not yet due *(cannot be made unless) 1. There is a stipulation that the debtor may so apply; or 2. It is made by the debtor or the creditor, as the case may be, for whose benefit the period has been constituted
Rules on application of payments 1. The debtor has the first choice; he must indicate at the time of making payment, and not afterwards, which particular debt is being paid. If, in making use of his right, the debtor applied the payment to a debt. The right to make the application once exercised is irrevocable unless the creditor consents to the change; 2. If the debtor does not apply payment, the creditor may make the designation by specifying in the receipt which debt is being paid 3. If the creditor has not also made the application, or if the application is not valid, the debt, which is most onerous to the debtor among those due, shall be deemed to have been satisfied and; 4. If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately Article 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made until the interest have been covered. (1173) *payment maid must be applied to the interest first and whatever balance left is credited to the principal Article 1254. When the payment cannot be applied in accordance with the preceding rules, or if application cannot inferred from the circumstances, the debt which is most onerous to the debtor, among those due, shall be deemed to have been satisfied. If the debts due are of the same nature and burden, the payment shall been applied to all of them proportionately. (1174a) *In case no application of payment has been made by the debtor and the creditor, then the payment shall be applied to the most onerous debt, and if the debts are of the same nature or burden, to all of them proportionately When a debt more onerous than another 1. An interest bearing debt is more onerous than a non interest bearing debt even if the latter is an older one 2. A debt as a sole debtor is more onerous than as a solidary debtor 3. Debts secured by a mortgage or by pledge is more onerous than unsecured debts 4. Of two interest bearing debts, the one with a higher rate is more onerous 5. An obligation with a penalty clause penalty clause is more burdensome than one without a penalty clause Subsection 2: Payment by Cession Article 1255. The debtor may cede or assign his property to his creditors in payment of his debts. This cession, unless there is a stipulation to the contrary, shall only release the debtor from responsibility for the net proceeds of the thing assigned. The agreements which, on the effect of the cession, are made between the debtor and his creditors shall be governed by special laws. (1175a) Payment by cession- another special form of payment; it is the assignment or abandonment of all the properties of the debtor for the benefit of his creditors in order that the latter may sell the same and apply the proceeds thereof to the satisfaction of their credits. Requisites of payment by cession 1. There must be two or more creditors; 2. The debtor must be (partially) insolvent; and 3. The cession must be accepted by the creditors * Assignment does not make creditors the owners of the property and debtor is only released up to the net proceeds of the sale of the property assigned. Dation is payment VS Cession
There are several creditors Debtor is insolvent at the time of the assignment Extends to all the property of the debtor subject to execution Creditors only acquire the right to sell the thing and apply the proceeds to their credits proportionately Subsection 3: Tender of Payment and Consignation Not an act of novation Usually only one creditor Does not presuppose the insolvency of the debtor Does not involve all the property of the debtor Creditor becomes the owner of the thing given by debtor An act of novation
Article 1256. If the creditor to whom tender of payment has been refused without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due. Consignation alone shall produce the same effect in the following cases: 1. When the creditor is absent or unknown, or does not appear at the place of payment; 2. When he is incapacitated to receive the payment at the time it is due; 3. When, without just cause, he refuses to give a receipt;
4. 5.
When two or more persons claim the same right to collect; When the title of the obligation has been lost. (1176a)
Tender of payment- the act, on the part of the debtor, of offering to the creditor the thing or amount due Consignation- the act of depositing the thing or amount due with the proper court Requisites of a valid consignation 1. Existence of a valid debt which is due 2. Tender of payment by the debtor and refusal withour justifiable reason by the creditor to accept it 3. Previous notice of consignation to persons interested in the fulfillment of the obligation 4. Consignation of the thing or sum due 5. Subsequent notice of consignation made to the interested parties Requirement for valid tender of payment 1. Tender of payment must comply with the rules on payment 2. It must be unconditional and for the whole amount 3. It must actually be made Article 1257. In order that the consignation of the thing due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation. The consignation shall be ineffectual if it is not made in consonance with the provisions which regulate payment. (1177) *in the absence of prior notice to persons interested in the fulfillment of the obligation, the consignation as payment is void Article 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom the tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases. The consignation having been made, the interested parties shall also be notified thereof. (1178) * Consignation must be made with proper judicial authority. * Interested parties must also be notified after the consignation has been made Article 1259. The expenses of consignation, when properly made, shall be charged against the creditor. (1179) *creditor bears the expenses because it is through his fault and unjust refusal that consignation is made necessary
When consignation deemed properly made When the creditor accepts the thing or sum deposited, without objection, as payment of the obligation; or When the creditor questions the validity of the consignation, and the court, after hearing, declares that it has been properly made; or When the creditor neither accepts nor questions the validity of the consignation, and the court after hearing, orders the cancellation of the obligation Article 1260. Once the consignation has been made, the debtor may ask the judge to order the cancellation of the obligation. Before the creditor has accepted the consignation, or before a judicial declaration that the consignation has been properly made, the debtor may withdraw the thing or sum deposited, allowing the obligation to remain in force. (1180) Article 1261. If, the consignation having been made, thecreditor should authorize the debtor to withraw the same, he shall lose every preference which he may have over the thing. The co-debtors, guarantors and sureties shall be released. (1181a) * as far as the creditor and debtor are concerned, their relations will remain as they were before acceptance or cancellation
CHAPTER 4; Sec2: Loss of the Thing Due Article 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or destroyed without the fault of the debtor, and before he has incurred in delay. When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not extinguish the obligation, and he shall be responsible for damages. The same rule applies when the nature of the obligation requires the assumption of risk. (1182a) Thing is lost- when it perishes, or goes out of commerce or disappears in such a way that its existence is unknown or it cannot be recovered.
When a loss of a thing will extinguish an obligation to give 1. The obligation is to deliver a specific or determinate thing; 2. The loss of the thing occurs without the fault of the debtor; and 3. The debtor is not guilty of delay. When loss of thing will not extinguish liability 1. When the law so provides 2. When the stipulation so provides 3. When the nature of the obligation requires the assumption of risk 4. When the obligation to deliver a specific thing arises from a crime Article 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation. (n) * Based on the principle that a generic thing never perishes (genus nunquam perit) the debtor can still be compelled to deliver a thing of the same kind Article 1264. The courts shall determine whether, under the circumstances, the partial loss of the object of the obligation is so important as to extinguish the obligation. (n) * There is partial loss when only a portion of the thing is lost or destroyed. In such case, the courts is given discretion to determine whether it is so important as to extinguish the obligation. Article 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed that the loss was due to his fault, unless there is proof to the contrary, and without prejudice to the provisions of article 1165. This presumption does not apply in case of earthquake, flood, storm or other natural calamity. (1183a) *The disputable presumption is that the debtor is liable because he has the custody and care of the thing and can easily explain the circumstances of the loss. *In case of natural calamities the presumption of fault does not apply. Article 1266. The debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible without the fault of the obligor. (1184a) *The impossibility of performance will result in the extinguishment of the obligation. It must take place after the constitution of the obligation, else the obligation is void and there is no need to extinguish it.
Kinds of impossibility Physical Impossibility- when the personal qualifications of the obligor are involved Legal impossibility- occurs when the obligation cannot be performed because it is rendered impossible by provision of law. Article 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in part. (n) *When the obligation has become so difficult as to be manifestly beyond the contemplation of both parties, the court is authorized to release the debtor in whole or in part Article 1268. When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not be exempted from the payment of its price, whatever may be the cause of the loss, unless the thing having been offered by him to the person who should receive it, the latter refused without justification to accept it. (1185) *This is another instance where a fortuitous event does not exempt the debtor from liability. The obligation subsists except when the creditor refused to accept it without justification after it was offered to him Article 1269. The obligation having been extinguished by the loss of the thing, the creditor shall have all the rights of action which the debtor may have against the third persons by reason of the loss. (1186) *The creditor has the right to proceed against the third person responsible for the loss. The debtors obligation is extinguished and is no longer liable. CHAPTER 4; Sec.3: Condonation or Remission of Debt Article 1270. Condonation or remission is essentially gratuitous, and requires the acceptance by the obligor. It may be made expressly or impliedly.
One and the other kind shall be subject to the rules which govern inofficious donations. Express condonation shall, furthermore, comply with the forms of donation. (1187) Condonation or Remission- the gratuitous abandonment by the creditor of his right against the debtor Requisites of Condonation or Remission 1. It must be gratuitous; 2. It must be accepted by the obligor; 3. The parties must have capacity; 4. It must not be inofficious; and 5. If made expressly, it must comply with the forms of donations Kinds of Remission As to its extent a. Complete- when it covers the entire obligation b. Partial- when it does not cover the entire obligation As to its form a. Express- when it is made either verbally or in writing b. Implied- when it can only be inferred from conduct As to its date of effectivity a. Inter vivos- when it will take effect during the lifetime of the donor b. Mortis causa- when it will become effective upon the death of the donor. (must comply with the formalities of will) *Testamentary dispositions which impair the legitime shall be reduced on petition of the heirs. Article 1271. The delivery of a private document evidencing a credit, mae voluntarily by the creditor to the debtor, implies the renunciation of the action which the former had against the latter. If in order to nullify this waiver it should be claimed to be inofficious, the debtor and his heirs may uphold it by proving that the delivery of the document was made in the virtue of payment of the debt. (1188) *if the creditor delivers the document evidencing the credit, it is presumed (implied) that he has waived his rights against the debtor. This does not apply in case of a public document which is easy to obtain a copy of. *it is presumed that the debtor has paid (not remitted) Article 1272. Whenever the private document in which the debt appears is found in the possession of the debtor, it shall be presumed that the creditor delivered it voluntarily, unless the contrary is proved. (1189) * If it is known that the debtor has not yet paid the creditor, then it is presumed that the obligation was delivered. Article 1273. The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter shall leave the former in force. (1190) * The accessory follows the principal. The accessory obligations cannot exist without the principal obligation, but the latter may exist without the former. Article 1274. It is presumed that the accessory obligation of the pledge has been remitted when the thing pledged, after its delivery to the creditor, is found in the possession of the debtor, or of a third person who owns the thing. (1191a) *Only the accessory obligation of pledge if remitted and not the obligation itself.
CHAPTER 4; Sec.4: Confusion or Merger of Rights Article 1275. The obligation is extinguished from the time the characters of creditor and debtor are merged in the same person. (1192a) Confusion or Merger- the meeting in one person o the qualities of creditor and debtor with respect to the same obligation Reason or basis for confusion If a debtor is his own creditor, the enforcement of the obligation becomes absurd since a person cannot claim payment from himself When there is confusion of rights, the purposes for which the obligation may have been created are deemed realized Requisites for Confusion 1. It must take place between the principal debt and creditor; and 2. It must be complete
Article 1276. Merger which takes place in the person of the principal debtor or creditor benefits the guarantors. Confusion which takes place in the person of any of the latter does not extinguish the obligation. (1193) *Merger in the person of the principal debtor or creditor extinguishes the obligation as well as accessory obligations. * Merger which takes place in the person of the guarantor extinguishes the guaranty but not the principal obligation Article 1277. Confusion does not extinguish a joint obligation except as regards the share corresponding to the creditor or debtor in whom the two characters concur. (1194) *in joint obligations, debts and credits are considered distinct and separate. Thus, the confusion will extinguish only the share corresponding to the creditor or debtor in whom the two characters concur *in solidary obligations, merger in the person of any of the solidary debtors will extinguish the entire obligation. However, he may claim reimbursement from his co-debtors for the share which corresponds to them.
CHAPTER 4; Sec.5: Compensation Article 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. (1195) Compensation- the extinguishment to the concurrent amount of the debts of two persons who, in their own right, are debtors and creditors of each other. Compensation VS. Confusion
Two persons are involved, each of whom is a creditor and debtor of each other. Two obligations Indirect payment
Only one person who is both a creditor and debtor of himself. One obligation Impossibility of payment
Kinds of Compensation According to its effect or extent: a. Total- When both obligations are of equal amount and are entirely extinguished. b. Partial- When the two obligations are of different amounts and a balance remains. The extinctive effect of compensation will be partial only as regards the larger debt. According to its cause or origin: a. Legal- When it takes place by operation of law even without the knowledge of the parties. b. Voluntary- When it takes place by agreement of the parties. c. Judicial- When it takes place by order from a court in a litigation. Facultative- When it can be set up only by one of the parties. Article 1279. In order that compensation be proper, it is necessary that: 1. That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; 2. That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; 3. That the two debts be due; 4. That they be liquidated and demandable; 5. That over neither of them be any retention or controversy, commenced by third persons and communicated in due time to the debtor. (1196) Requisites of Legal Compensation 1. The parties are principally creditors and principal debtors of each other. 2. Both debts consists in a sum of money, or of consumable things of the same kind. 3. The two debts are due or demandable. 4. The two debts are liquidated. 5. No retention or controversy commenced by a third person. Article 1280. Notwithstanding the provisions of the preceding article, the guarantor may set up compensation as regards to what the creditor may owe the principal debtor. (1197) *Guarantor is given the right to set up compensation because the extinguishment of principal obligation through compensation carries with it the accessory obligations. Article 1281. Compensation may be total or partial. When two debts are of the same amount, there is a total compensation. (n)
Total Compensation results when the two debts are equal or the same amount. Partial Compensation when the two obligations are of the different amounts and a balance remains. The extinctive effect of the compensation will be partial only as regards the larger debt. Article 1282. The parties may agree upon the compensation of debts which are not yet due. (n) Voluntary or Conventional Compensation- includes any compensation which takes place by agreement of the parties even if all the requisites for egal compensation are not present. Article 1283. If one of the parties to a suit over an obligation has a claim for damages against the other, the former may set it off by proving his right to said damages and the amount thereof. (n) * Compensation may also take place when so declared by final judgment of a court in a suit Article 1284. When one or both the debts are rescissible or voidable, they may be compensated against each other before they are judicially rescinded or avoided. (n) * Prior to rescission or annulment, the debts may be compensated aginst each other. Article 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a third person, cannot set up against the assignee the compensation which would pertain to him against the assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he reserved his right to the compensation. If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may set up the compensation of debts previous to the cession, but not of subsequent ones. If the assignment is made without the knowledge of the debtor, he may set up the compensation of all credits prior to the same and also later ones until he had knowledge of the assignment. (1198a) Where compensation has taken place before assignment When compensation takes effect by operation of law or automatically, the debts are extinguished to the concurrent amount. If the extinguished debt is assigned to a third person, the debtor can raise the defense of compensation and the remedy of the assignee is against the assignor. Where compensation has taken place after assignment 1. Assignment with the consent of debtor- The debtor cannot set up consignment but has the right to collect from the original creditor, unless he has reserved hi right to compensation. 2. Assignment with the knowledge but without the consent of the debtor- There is partial compensation depending upon the maturity of the debts. 3. Assignment without the knowledge of the debtor- the crucial time is when the debtor acquired the knowledge of assignment. If he learned after the debts have matured, he can raise the defense of compensation, otherwise, he cannot. Article 1286. Compensation takes place by operation of law, even though the debts may be payable at different places, but there shall be an indemnity for expenses of exchange or transportation to the place of payment. (1199a) *the indemnity shall be paid by the person who raises the defense of compensation Foreign Exchange- the conversion of an amount of money or currency of one country into an equivalent amount of money or currency of another. Exchange Rate- the price of one currency expressed or quoted in relation to another currency. Article 1287. Compensation shall not be proper when one of the debts arises from a depositum or from the obligations of a depositary or of a bailee in commodatum. Neither can compensation be set up against a creditor who has a claim for support due by gratuitous title, without prejudice to the provisions of paragraph 2 of Article 301. (1200a) Article 1288. Neither shall there be compensation if one of the debts consists in civil liability arising from a penal offense. (n) Instances when legal compensation is not allowed by law 1. Where one of the debts arises from a depositum- a depositum is constituted from the moment a person receive a thing belonging to another with the obligation of safely keeping it and of returning the same. However, a bank has the right to set-offs deposits in its hands for the payment of any indebtedness to it on the part of the depositor. 2. Where one of the debts arises from a commadatum- a commodatum is a gratuitous contract whereby on of the parties delivers to another something not consumable so that the latter may use the same for a certain time and return it. 3. Where one of the debts arises from a claim of support due by gratuitous title
4. Where one of the debts consists in civil liability arising from a penal offense- compensation would be improper because the satisfaction of such obligation is imperative. Article 1289. If a person should have against him several debts which are susceptible of compensation, the rules on the application of payments shall apply to the order of the compensation. (1201) Rules on application of payments apply to order of compensation The rules on application of payments apply where there are several debts capable of being compensated. Debtor must inform the creditor on which object shall be the object of compensation. If the debtor fails to inform the creditor, the compensation would be applied to the most onerous obligation. Article 1290. When all the requisites mentioned in Article 1279 are present, compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation. (1202a) * Legal compensation is automatic. It is not required that the parties have full legal capacity to give or to receive, as the case may be.
CHAPTER 4; Sec.6: Novation Article 1291. Obligations may be modified by: 1. Changing their object or principal conditions; 2. Substituting the person of the debtor; 3. Subrogating a third person in the rights of the creditor. (1203) Novation- extinction of an obligation through the creation of a new one which substitutes it. Kinds of Novation According to origin: a. Legal-that which takes place by operation of law; or b. Conventional-that which takes place by agreement of the parties. According to how it is constituted: a. Express-when I is so declared in unequivocal terms; or b. Implied- when the old and the new obligations are essentially incompatible with ach other. According to extent or effect: a. Total or extinctive-when the old obligation is completely extinguished; or b. Partial or modificatory- when the old obligation is merely modified. According to the subject: a. Real or objective- when the object (or cause) or principal conditions of the obligation are changed; b. Personal or subjective-when the person of the debtor is substituted and/or when a third person is subrogated in the rights of the creditor; or c. Mixed- when the object and/or principal conditions of the obligations and the debtor or the creditor, or both the parties, are changed. It is a combination of real and personal novations. Article 1292. In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. (1204) Requisites of Novation 1. A previous valid obligation; 2. Capacity and Intention of the parties to modify or extinguish the obligation; and 3. The modification or extinguishment of the obligation; and 4. The creation of a new valid obligation. *Novation is no presumed, it must be clearly and unmistakably established either by the express agreement of the parties or acts equivalent import or by incompatibility of the two obligations with each other in every material respect Article 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him the rights mentioned in articles 1236 and 1237. (1205a) Kinds of Personal Novation 1. Substitution- When the person of the debtor is substituted.; 2. Subrogation- When a third person is subrogated in the rights of the creditor. Kinds of Substitution
1. Expromision- That which takes place when a third person of his own initiative and without the knowledge or against the will of the original debtor assumes the latters obligation with the consent of the creditor. It is essential that the old debtor be released from his obligation. 2. Delegacion- That which takes place when the creditor accepts a third person to take place of the debtor at the instance of the latter. The creditor may withhold approval. *In Delegacion, all the parties must agree. Right of new debtor who pays In expromision, the new debtor has a right to beneficial reimbursement In delegacion, the new debtor is entitled to reimbursement and subrogation Article 1294. If the substitution is without the knowledge or against the will of the debtor, the new debtors insolvency or non-fulfillment of the obligation shall not give rise to any liability on the part of the original debtor. (n) * in expromision, the new debtors insolvency or non-fulfillment will not revive the action of the creditor against the old debtor whose obligation is already extinguished. Article 1295. The insolvency of the new debtor, who has been proposed by the original debtor and accepted by the creditor, shall not revive the action of the latter against the original obligor, except when said insolvency was already existing and of public knowledge, or known to the debtor, when he delegated his debt. (1206a) Effect of new debtors insolvency or non-fulfillment of the obligation in delagacion *old debtor is not liable in non-fulfillment of the new debtor. As a general rule, old debtor is not liable for insolvency of new debtor EXCEPT: 1. The said insolvency was already existing and of public knowledge at the time of delegacion 2. The insolvency was alreaduye existing and known to the debtor at the time of delegacion. Article 1296. When the principal obligation is extinguished in consequence of a novation, accessory obligations may subsist only insofar as they may benefit third persons who did not give their consent. (1207) * the extinguishment of the principal obligation carries with it the extinguishment of the accessory unless it was created in favor of a third person. The accessory will be extinguished if the third person gives his consent Article 1297. If the new obligation is void, the original one shall subsist, unless the parties intended that the former relation should be extinguished in any event. (n) *the general rule is that there is no novation if the new obligation is void and original obligation shall subsist. Unless the parties intended the original obligation to be extinguished in any event *if the new obligation is voidable, novation an take place. But once it is annulled, novation is considered to not have taken place and original obligation is enforced, unless the parties intended otherwise. Article 1298. The novation is void if the original obligation was void, except when annulment may be claimed only by the debtor, or when ratification validates acts which are voidable. (1208a) *if the old obligation is void, it cannot be novated. If it is voidable, it can be novated until it is annulled by courts. Article 1299. If the original obligation was subject to a suspensive or resolutory condition, the new obligation shall be under the same condition, unless it is otherwise stipulated. (n) *if the first obligation is subject to condition, the new obligation is deemed subject to the same conditions. Article 1300. Subrogation of a third person in the rights of the creditor is either legal or conventional. The former is not presumed, except in cases expressly mentioned in this Code; the latter must be clearly established in order that it may take effect. (1209a) Kinds of Subrogation 1. Conventional- When it takes place by express agreement of the original parties (the debtor and the original creditor) and the third person (the new creditor); or 2. Legal- When it takes place without agreement but by operation of law. Article 1301. Conventional subrogation of a third person requires the consent of the original parties and of the third person. (n) Consent of all parties required in conventional subrogation *In conventional subrogation, the consent of all the parties is an essential requirement. The debtor- because he becomes liable under the new obligation to a new creditor. The old creditor- because his right against the debtor is extinguished. The new creditor- because he may dislike or distrust the debtor.
Article 1302. It is presumed that there is legal subrogation: 1. When a creditor pays another creditor who is preferred, even without the debtors knowledge; 2. When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor; 3. When, even without the knowledge of the debtor, a person interested in the fulfillment of the obligation pays, without prejudice to the effects of confusion as to the latters share. (1210a) Cases of Legal Subrogation 1. When the creditor pays another creditor who is preferred. 2. When a third person without interest in the obligation pays with the approval of the debtor. 3. When a third person with interest in the obligation pays even without the knowledge of the debtor. Article 1303. Subrogation transfers to the person subrogated the credit with all the rights thereto appertaining, either against the debtor or against third persons, be they guarantors or possessors of mortgages, subject to stipulation in a conventional subrogation. (1212a) *the effect of legal subrogation is to transfer to the new creditor the crdit and all the rights and actions that could have been exercised by the former creditor either against the debtor or against third persons. Article 1304. A creditor, to whom partial payment has been made, may exercise his right for the remainder, and he shall be preferred to the person who has been subrogated in his place in virtue of the partial payment of the same credit. (1213) *the creditor to whom partial payment has been made by the new creditor remains a creditor to the extent of the balance of the debt.
CONTRACTS
CHAPTER 1: General Provisions Article 1305. 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. (1254a) Meaning of Contract meeting of 2 minds, which takes place when an offer by one party is accepted by the other. must be at least 2 persons or parties Contract VS. Obligation
one of the sources of an obligation there is no contract without an obligation enforceable through legal proceedings all contracts are agreements
Contract VS. Agreement
the legal tie that exists after the contract has been entered into there can be an obligation without a contract moral or social agreements cannot be enforced in the courts of justice not all agreements are contracts
Article 1306. 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 or public policy. (1255a) *an individual does not have an absolute right to enter into any kind of contract. *but since to enter a contract is a right, courts move with the necessary caution in voiding contracts. Limitations on Contractual Stipulations law must be in accordance with the law police power (power of state to enact laws to promote public welfare) when law is silent, the will of contracting parties will prevail unless they are contrary to morals, good customs, public order or policy. When this happens, contractual obligations are subject to the possible exercise of police power of the state.
Contracts must not be contrary to law o rule of conduct, just, obligatory, promulgated by legitimate authority and of common observance and benefit o law is superior to a contract o anything against law is void except when law itself authorizes it morals o deal with norms of goot and right conduct customs o habits and practices which through long usage have been followed and enforced by society or some part of it as binding rules of conduct public order o public safety and public weal public policy o considerations which are moved by the common good Article 1307. Innominate contracts shall be regulated by the stipulations of the parties, by the provisions of Titles I and II of this Book, by the rules governing the most analogous nominate contracts and by the customs of the place. (n) Classification of contracts according to its name or designation 1. nominate contract has a specific name or designation in law 2. innominate has no specific name or designation in law do ut des (I give that you may give) no longer an innominate contract because it is known as barter or exchange 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) *since not all contracts can be anticipated, innominate are valid as long as they have the elements of a valid contract
Rules Governing Innominate Contracts
1. agreement of parties 2. provisions of Civil Code on obligations and contracts 3. rules governing similar contracts 4. customs of the place Article 1308. The contract must bind both contracting parties, its validity or compliance cannot be left to the will of one of them. (1256a) *must be enforceable to both parties or else there is no force of law between them *one party cannot violate the law of the contract without consent of the other Article 1309. The determination of the performance may be left to a third person, whose decision shall not be binding until it has been made known to both contracting parties. (n) *since determination of performance cannot be left to one of the contracting parties alone, it can be left to a third person. Article 1310. The determination shall not be obligatory if it is evidently inequitable. In such case, the courts shall decide what is equitable under the circumstances. (n) *when 3rd persons decision is unjust due to bad faith or mistake, it will not be binding. Courts will decide what is equitable under the circumstances. Article 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent. If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. (1257a) Persons Affected by a Contract 1. General rule only the parties, assigns and heirs have the rights and obligation under the contract. Heir is not liable beyond the value of the property he received. 2. exceptions cases where contract are effective only between the parties and rights and obligation are not transferable: by their nature (involving personal qualifications) by stipulation (freedom to contract) provision of law (as in agency, partnership, commodatum where death extinguished legal relationships) *Third person who has not taken part in a contract is a stranger to the contract and has no rights to demand enforcement or question validity. However, they can be affect by a contract in the following: 1. stipulation in favor of a third person (stipulation pour autrui) stipulations in a contract which clearly confers a favor upon a 3rd person to demand fulfillment as long as he communicates his acceptance to the obligor before its revocation a. Stipulation intended for the sole benefit of such person rules of donations must govern as it confers a gift. 3rd party called donee benficiary b. Obligation is due from the promisee to the 3rd person, which the promisee seeks to discharge by means of stipulation. 3rd person is creditor beneficiary. 2. contracts creating real rights 3. contracts entered to defraud creditors 4. contracts which have been violated at the inducement of a third person Requisites of Stipulation Pour Autrui 1. contracting parties by their stipulation must have clearly and deliberately conferred a favor upon a 3 rd person 2. 3rd person must have communicated his acceptance to the obligor before its revocation by the obligee or the original parties 3. stipulation is favor of 3rd person should be a part, not the whole of the contract 4. the favorable stipulation should not be conditioned or compensated by any kind of obligation 5. neither of the contracting parties bears the legal representation or authorization of the 3rd party for otherwise, rules of agency will apply Article 1312. In contracts creating real rights, third persons who come into possession of the object of the contract are bound thereby, subject to the provisions of the Mortgage Law and the Land Registration laws. (n) *exception to the rule that a contract binds only the parties * 3rd persons who come into possession of the object of a contract which there is a real right, are bound thereby even if they are not parties to the contract
Article 1313. Creditors are protected in cases of contracts intended to defraud them. (n)
*the creditor is given the right to impugn the contracts of his debtor to defraud him Article 1314. Any third person who induces another to violate his contract shall be liable for damages to the other contracting party. (n) *a stranger can be sued for damages when he interferes with a valid contract Article 1315. 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 keeping with good faith, usage and law. (1258) Article 1316. Real contracts such as deposit, pledge and commodatum are not perfected until the delivery of the object of the obligation. (n) *contracts are created by mere consent and from that time on, they are bound to fulfill what was stipulated and the consequences of it that may be keeping with good faith, usage and law. Classification of Contracts according to perfection 1. consensual contract perfected by mere consent 2. real contract perfected by the delivery of thing subject matter of the contract 3. solemn contract- requires compliance with certain formalities prescribed by law (donation of real property which must be in a public instrument) Stages in a Life of a Contract 1. preparation or negotiation includes all the steps taken by the parties leading to the perfection of the contract 2. perfection or birth parties have come to a definite agreement or meeting of the minds regarding the subject matter and cause of the contract 3. consummation or termination parties have performed their respective obligations resulting in termination How Contracts are Perfected 1. consensual contract contracts are perfected by mere consent of the parties regarding subject matter and cause of the contract. When there is no delivery, no transfer of title or create real rights but there is already an obligation between the parties. 2. real contracts perfected not merely by consent but by actual or constructive delivery of the object of the obligation 3. Solemn contracts- contracts required to be in some form for their validity when law requires that contract be in some form for it to be valid, this special form is necessary for its perfection Perfection of the contract binds parties to the fulfillment of what was stipulated to all the consequences which may be keeping with good faith, usage and law Article 1317. No one may contract in the name of another without being authorized by the latter or unless he has by law a right to represent him. A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party. (1259a) *a contract entered into in the name of another without his consent or knowledge is unenforceable unless expressly ratified by him Requisites for a person to be bound by a contract by another person entering into the contract must be duly authorized by the person in whose name he contracts person must act within his power CHAPTER 2: Essential Requisites of Contracts Article 1318. There is no contract unless the following requisites concur: 1) 2) 3) Consent of the contracting parties Object certain which is the subject matter of the contract Cause of the obligation which is established. (1261)
Classes of Elements of a Contract 1. essential elements - those without which contract cannot validly exist a. common those present in all contracts (object, consent, cause) b. special not common to all contracts form public instrument in donation of immovable property, delivery in real contracts subject matter real property in antichresis, personal property in pledge consideration or cause price in sale, liberality in commodatum 2. natural elements those presumed to exist in certain contracts unless contrary is stipulated (ex. warranty in a sale)
3. accidental elements particular stipulations, clauses, terms and conditions established by the parties in their contract, exist only when stipulated by the parties (ex. conditions, period, interest) CHAPTER 2; Sec.1: Consent Article 1319. 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. Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made. (1262a) Definitions Consent conformity or concurrence of wills (offer and acceptance) agreement of the will of one contracting party with that of another Offer proposal made by one party to another to enter into a contract promise to act or to refrain from acting on condition that the terms are accepted by other person offer must be certain or definite (will you buy ths watch for 500? certain; I am willing to buy your car. uncertain, no price) Acceptance manifestation by the offeree of his approval to the terms of the offer. No acceptance, no meeting of minds acceptance must be absolute and unqualified. Meaning it must be accepted on all its terms, if not, it is a counter offer and is considered a rejection of the original offer Article 1320. An acceptance may be express or implied. (n) Express oral or written Implied based from act or conduct; when he accepts services of another whether solicited or not Article 1321. The person making the offer may fix the time, place and the manner of acceptance, all of which must be complied with. (n) *All terms must be complied with. If not, it is a counter offer which has the effect of extinguishing the original offer. It means making a new offer which the original offerer may accept or reject. Article 1322. An offer made through an agent is accepted from the time acceptance is communicated to him. (n) Agent- considered an extension of the personality of his principal. If he is duly authorized, his acts are the acts of the principal *if offer made through the agent, acceptance will be valid if communicated through him (agent). If principal made offer and acceptance communicated to agent, not valid unless agent has authority to receive the acceptance. Article 1323. An offer becomes ineffective upon the death, civil interdiction, insanity or insolvency of either party before acceptance is conveyed. (n) *offer can be withdrawn when not yet accepted. After acceptance, contract is perfected. When Offer becomes Ineffective death civil interdiction (prohibition) insanity insolvency of either party before conveyance of acceptance. failure to comply with terms time, place, manner of payment expiration of period fixed in the offer destruction of the thing due before acceptance rejection of the offer
Article 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon consideration, as something paid or promised. (n) Definitions
option contract one giving a person for a consideration a certain period within which to accept the offer of the offerer. Option - refers to the privilege given to the offeree to accept an offer within a certain period option period period given within which the offeree must accept the period option money money paid or promised to be paid in consideration for the option; not to be confused with earnest money which is like downpayment
*when offerer gives offeree a period to accept offer, offerer can withdraw anytime unless offeree paid or promised to pay offerer for giving offeree the period. *when promise to buy or sell a determinate thing, even if offeree accepted offer of offerer, offerer can withdraw offer if offeree did not give option money Article 1325. Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an offer. (n) *unless it contains all specifics, not an offer. Article 1326. 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. *bidder is the one making offer which the advertiser may accept or reject *in judicial sales, sheriff or auctioneer is bound to accept the highest bid Article 1327. The following cannot give consent to a contract: 1) Unemancipated minors 2) Insane or demented persons and deaf mutes who do not know how to write. (1263a) *burden of proof is on the party who claims incapacity *contract entered where one is incapacitated is voidable and susceptible to ratification *reason for this is they can easily be the victims of fraud Persons who cannot give consent 1. unemancipated minors not yet reached the age of majority (18 years) and subject to parental authority; can be emancipated by coming of age, marriage, or allowed by parents 2. insane or demented insanity must exist at time of contracting 3. deaf-mutes anyone who does not know how to write, does not know how to read; one who knows how to read necessarily knows how to write therefore deaf mute who knows how to read is valid Article 1328. Contracts entered during a lucid interval are valid. Contracts agreed to in a state of drunkenness or during a hypnotic spell are voidable. (n) *contracts entered by a insane person in a temporary period of sanity is valid *drunkenness and hypnotic spell impair the capacity of a person to give intelligent consent so these are voidable. Article 1329. 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. (1264) Incapacitated people may give their consent when necessities such as food are sold to a minor, he must pay a reasonable price a minor can contract for insurance provided insurance is taken on his life and beneficiaries are of his estate (family) entered through a guardian or legal representative minor misrepresented himself minor between 18-21 years old voluntarily pays or delivers something in fulfillment of obligation and the obligee consumed it in good faith. Other Special disqualifications may be provided by law *Under Rules of Court, following are incompetent and must be placed under guardianship: persons suffering the accessory penalty of civil interdiction hospitalized lepers prodigals (spendthrifts) deaf and dumb who are unable to read and write those who are of unsound mind even though they have lucid intervals by reason of age, disease, weak minds cannot take care of themselves Article 1330. A contract where consent is given through mistake, violence, intimidation, undue influence or fraud is voidable. (1265a)
Characteristics of Consent 1. it is intelligent there is capacity to act 2. free and voluntary no violence or intimidation 3. conscious or spontaneous no mistakes, undue influence or fraud Vices of Consent 1. error or mistake 2. violence or force 3. intimidation or threat or pressure 4. undue influence 5. fraud or deceit Causes Vitiating Consent VS. Causes of Incapacity
Temporary Refers to the contract itself
More or less permanent Refers to a person entering into the contract
Article 1331. 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. 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. A simple mistake of account shall give rise to its correction. (1266a) Mistake false notion of a thing or a fact material to the contract may be of fact or of law. In this article, refers to mistake of fact. It arises from ignorance or lack of knowledge mistake of law is substantial mistake of fact. Party would not have given consent if he had known of the mistake. Not all mistake will make a contract voidable. Mistake of fact to which law refers *In order for mistake to vitiate consent, must refer to: substance of the thing which is object of contract those conditions which have principally moved one or both to enter into contract identity or qualifications of one of the parties which was the principal cause of the contract Mistake of Fact which does not vitiate consent 1. error as to incidents of a thing or accidental qualities (accessibility, maximum speed of car) that were not the principal reasons for the contract unless caused by fraud 2. mistake as to quantity or amount, only gives rise to correction, not voiding, unless it is the essence of the contract 3. error as to motives of the contract unless it was the essence of the contract 4. mistake as to identity or qualifications because mostly contracts are entered based on things or services, not people unless identity is principal cause of contract like in personal qualifications *mistake in account or calculation does not make contract void because it can be corrected Article 1332. When one of the parties is unable to read or if the contract is in a language bit understood by him and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former. (n) *burden of proof is on the person who signs a contract because it is presumed that he signed with full knowledge of the contents of the contract *exception is when the parties are unable to read or in a foreign language. Burden of proof is on the person enforcing the contract that he explained the contents to the signee and that there is no fraud or mistake intended. Article 1333. There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract. (n) *if a party knew beforehand of the risk affecting the object of the contract, he cannot claim mistake since it is understood he was willing to take the chances. Article 1334. Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated, may vitiate consent. (n) Mistake of law arises from an ignorance of some provision of law, from a wrong interpretation of its meaning, or from a wrong conclusion as to the legal effect of an agreement *mistake of law does not normally vitiate consent unless the mistake is due to a mistake on a doubtful question of law or the construction and application of law
Requisites for the Application of Article 1334 1. error must be mutual 2. must be as to legal effect of an agreement 3. must frustrate the real purpose of the parties Article 1335. There is violence when in order to wrest consent, serious or irresistible force is employed. 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. To determine the degree of the intimidation, the age, sex and condition of the person shall be borne in mind. A threat to enforce ones claim through competent authority, if the claim is just or legal does not vitiate consent. (1267a) Violence or force employment of physical (serious or irresistible) force to vitiate consent Nature of Intimidation or threat 1. produces a reasonable and well-grounded fear of an evil 2. evil must be imminent and grave 3. evil must be upon person or property or family (spouse, descendants, ascendants) 4. evil is the reason why he entered into the contract *whether or not evil or threat is reasonable depends on the age, sex, and condition of the person *if contract signed out of reverential fear, contract valid unless undue influence has been exercised *if threat of a court action, contract is valid Article 1336. Violence or intimidation shall annul the obligation, although it may have been employed by a third person who did not take part in the contract. (1268) *violence of a third person who did not take part in the contract vitiates consent Article 1337. 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. The following circumstances shall be considered: the confidential, family, spiritual and other relations between the parties or the fault that the person alleged to have been unduly influenced was suffering from mental weakness or was ignorant or in financial distress. (n) undue influence- must be of a kind that it overpowers the mind of a party as to destroy his free will and make him express the will of another, rather than his own. Circumstances to be considered 1. confidential, family, spiritual and other relations between the party 2. mental weakness 3. ignorance 4. financial distress of the person alleged to have been unduly influenced Article 1338. There is fraud when, through insidious (sinister) 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. (1269) Causal Fraud -fraud used by a party to induce the other to enter into a contract without which the latter would not have agreed to; committed through insidious (sinister) words or set-ups or by concealment Requisites of Casual Fraud 1. there must be misrepresentation or concealment 2. must be serious 3. must have been employed by only one of the contracting parties (fraud by 3rd person does not vitiate consent unless other party is involved) 4. must be made in bad faith or with intent to deceive other party 5. must have induced the consent of the other contracting party 6. must be alleged and proved by clear and convincing evidence Article 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud. (n) Concealment neglect or failure of one party to communicate what the other ought to know *if intentional, fraud and injured party can annul or rescind *if unintentional, basis for annulment is mistake or error
*if intentional but fact is not important to the contract, the contract is valid Article 1340. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent. (n) *law allows considerable exaggerations, customers are expected to rely on their own judgment dealers talk or traders talk - representations which do not appear on the face of the contract and do not bind either parties Article 1341. A mere expression of an opinion does not signify fraud, unless made by an expert and the other party has relied on the formers special knowledge. (n) Requisites so that an opinion may amount to fraud: 1. must be made by an expert 2. other party relied on the experts opinion 3. opinion turned out to be false Article 1342. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and the same is mutual. (n) *if misrepresentation has created a big mistake to both parties, contract may be annulled but on the grounds of mistake *if 3rd party is in connivance with other party, fraud *if force or intimidation was used, contract is voidable because vitiated consent Article 1343. Misrepresentation made in good faith is not fraudulent but may constitute error. (n) *misrepresentation is unintentional but made in good faith, it is considered mere mistake or error. Article 1344. In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties. Incidental fraud only obliges the person employing it to pay for damages. (1270) Kinds of Fraud in the making of contract causal fraud ground for annulment of contract although may also give rise to damages incidental fraud only renders the party who employed it liable for damages because fraud was not the principal inducement to enter contract Casual fraud must be serious and unilateral *the ff. are requisites for casual fraud to vitiate consent: 1. it should be serious 2. should not have been employed by both parties 3. should not have been known by other party Article 1345. Simulations of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound at all; the latter, when the parties conceal their true agreement. (n) Article 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement. (n) Simulation of a contract the act of deliberately deceiving others by pretending the existence of a contract o absolute simulation when the contract does not really exist and the parties do not intend to be bound by it; contract is inexistent and void o relative simulation when contract entered is different from true agreement
CHAPTER 2; Sec.2: Object of Contracts Article 1347. All things which are not outside the commerce of men, including future things, may be the object of a contract. All rights which are not intransmissible may also be the object of contracts. No contract may be entered into upon future inheritance except in cases expressly authorized by law. All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object of a contract. (1271a)
Article 1348. Impossible things or services cannot be the object of contracts. (1272) Definitions Object of contract subject matter o may be things in sale o rights assignment of credit o services in agency *Since every contract cannot exist without an obligation, object of the obligation is object of the contract future inheritance any property or right not yet in existence and cannot be determined at the time contract was made that a person may inherit in the future. *except when authorized by law, contract concerning future inheritance is void Requisites of Things as object of contract 1. thing must be within the commerce of men (it can legally be the subject of commercial transaction) 2. must not be impossible, legally or physically 3. must be in existence or capable of coming into existence 4. must be determinate or determinable without need of new contract from parties Requisites of Services as object of contract 1. service must be within commerce of men 2. must not be impossible, legally or physically 3. must be determinable and capable of determination Rights as object of contract *as a general rule, all rights can be object of contract except intransmissible ones 1. outside the commerce of men those of public ownership or common to everybody 2. impossible, physically or legally prohibited drugs, get soil from Jupiter 3. determinable things all eggs in this basket, watch I am wearing 4. future things or rights things to be manufactured after perfection of contract, young animals not yet in existence, royalty to be received by author 5. intransmissible rights right to vote, public office Validity of contracts upon future inheritance in case of donations by reason of marriage between spouses of their future property that will only take effect upon death of one, to the extent that is allowed by testamentary succession in case of division of property by a person to take effect upon his death Kinds of Impossibility 1. physical in the very nature cannot exist or be performed. As to performance, can be a. absolute when act cannot be done by anybody in any case (fly like a bird) b. relative when arises from special circumstances of the case (drive a car in flooded highway or paint by a blind person) 2. legal when thing or service contrary to law, morals, good customs, public order or public policy Article 1349. The object of every contract must be determinate as to its kind. The fact that the quantity is not determinable shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties. (1273) *object matter must be determinate or capable of being determined without need to make a new contract. Quantity must also be the same. *when obligation consists in delivery of generic thing, purpose of obligation must be taken into consideration.
CHAPTER 2; Sec.3: Cause of Contracts Article 1350. In onerous contracts, the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other, in remuneratory ones, the service or benefit which is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor. (1274) Cause (causa) or consideration the essential or more immediate purpose which the parties have in view at the time of entering the contract Cause VS. Object
Ex. I sold a watch to Maria for 2000. For me, cause is the price, subject matter is the watch. For Maria, cause is the watch and subject matter is the price. OR Cause for me is delivery of price, for Maria, delivery of watch but watch is subject matter of both. Classification of contracts according to cause 1. onerous where the cause for each contracting party is the prestation or promise of thing/service. Parties are reciprocally obligated to each other. 2. remuneratory or remunerative cause is the service or benefit which is compensated. Purpose is to reward the service that had been rendered by the party compensated. 3. gratuitous cause is the mere kindness of the benefactor or giver Article 1351. The particular motives of the parties in entering into a contract are different from the cause thereof. (n) Motive purely personal or private reason of a party in entering a contract Cause VS. Motive
Immediate or direct reason Always known to other party Essential element of a contract Illegality of cause makes contract void
Remote or indirect reason May be unknown Not essential element Illegality of ones motives does not make contract void
Article 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good customs, public order or public policy. (1275a) Article 1353. The statement of a false cause in contracts shall render them void, if it should not be proved that they were founded upon another cause which is true and lawful. (1276) Requisites of Cause 1. must exist at time contract is entered into 2. must be lawful 3. must be true or real Absence of cause there is a total lack of any valid consideration for the contract and produces no legal effect and therefore is inexistent and void **Absence of cause vs inadequacy of cause (not ground for relief) vs failure of cause (does not render contract void) Ex. not paying price after execution of contract does not convert contract into one without cause. But contract of sale saying amount has been paid when in fact, not yet paid is void. Illegality of cause there is a cause but is unlawful or illegal. These contracts are null and void. Falsity of cause - contract states a valid consideration but such statement is not true, may be erroneous or simulated erroneous makes contract void simulated, may still be valid when hidden but true or when parties can show that cause is true and lawful Article 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary. (1277) *cause need not be expressly stated, law presumes there is a cause unless debtor proves otherwise. Burden of proof is on the debtor. Article 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence. (n) Lesion any damage caused by the fact that the price is inadequate or unjust injury suffered because of inequality of situation by one party who does not receive full equivalent for what he gave Effects of Lesion or inadequacy of cause 1. general rule lesion does not invalidate a contract because the courts cannot look after the welfare of every single person. Each person must be liable for his own decisions and mistakes. 2. exceptions lesion will invalidate when: a. there has been fraud, mistake, undue influence b. in cases specified by law CHAPTER 3: Form of Contracts
Arctile 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present. However, when the law requires that a contract be in some form in order that it may be valid or enforceable or that a contract be proved in a certain way, that requirement is absolute and indispensable. In such cases, the right of the parties stated in the following article cannot be exercised. (1278a) Form of contract manner in which a contract is executed or manifested, oral, written or partly oral and written Considered to be: Written when all its term is in writing Oral all orally or part oral, part writing Classification of contracts according to form 1. informal or common entered into in whatever form provided all essential requisites for validity are present; may be oral or written 2. formal or solemn required by law to be in a specified format Rules regarding form of contracts 1. general rule binding and enforceable to parties whatever form as long as 3 essential requisites (consent, object, cause) are present 2. exceptions a. when required by law that it be in a certain form to be valid b. when law requires contract be in some form to be enforceable or proved in certain way c. when law requires it to be in some form for the convenience of party or purpose of affecting 3rd persons. Form for validity of contract 1. donation of real property must be in public instrument 2. donation of personal property which exceeds 5000 donation and acceptance must be in writing 3. sale of land through agent authority of agent must be in writing or else sale is void 4. stipulation to pay interest must be in writing or else no interest is due 5. contract of partnership if immovables are contributed, must be in a public instrument and attached a signed inventory *by the statute of frauds, law requires contracts be in writing. If contract is not in writing, contract is valid as long as requisites are there but cannot be proved and enforced unless ratified. Article 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in the following article, the contracting parties may compel each other to observe that form, one the contract has been perfected. This right may be exercised simultaneously with the action upon the contract. (1279a) *some cases require a certain form of contracts for convenience of parties so contract can be registered in the proper registry to make effective the rights under the contract *parties can compel each other to observe the proper form as long as the contract is valid and enforceable. Article 1358. The following must appear in a public document: 1) 2) 3) 4) 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 are governed by articles 1403, No. 2 and 1405 The cession, repudiation, or renunciation of hereditary rights or those of the conjugal partnership of gains The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document or should prejudice a third person The cession of actions or rights proceeding from an act appearing in a public document
All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of goods, chattels or things in action are governed by articles 1403, No.2 and 1405. (1280a) *contracts are valid even if not contained in public document or instrument or in writing. Public document is only for convenience and protection of parties against 3rd parties. CHAPTER 4: Reformation of Instruments (n) Arctile 1359. When, there having been a meeting of the minds of the parties to a contract, their intention is not expressed in the instrument purporting to embody the agreemtn, by reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of th parties, the proper remedy is not reformation of the instrument but annulment of the contract. Reformation- remedy by means of which a written instrument is amended or rectified as to express or conform to the real agreement or intention of the parties when by reason of mistake, fraud, inequitable conduct, or accident, the instrument fails to express such agreement or intention
*it would be unjust and inequitable to allow the enforcement of a written instrument which does not reflect or disclose the real meeting of minds of the parties Requisites for Reformation 1. There is a meeting of the minds of the parties to the contract; 2. The written instrument does not express the true agreement or intention of the parties; 3. The failure to express the true intention is due to mistake, fraud, inequitable conduct, or accident; 4. The facts upon which relief by way of reformation of the instrument is sought are put in issue by the pleadings; and 5. There is a clear and convincing evidence of the mistake, fraud, inequitable conduct, or accident. Reformation VS. Annulment There has been a meeting of the minds of the parties A contract exists but written document does not express the true intention of the parties There is no meeting of minds The consent of one is vitiated by mistake, etc. Article 1360. The principles of the general law on the reformation of instruments are hereby adopted insofar as they are not in conflict with the provisions of this Code. *The provisions of the New Civil Code prevails over the principles of the general law on reformation. The latter will only have suppletory effect. Article 1361. When a mutual mistake of the parties causes the failure of the instrument to disclose their real agreement, said instrument may be reformed. Requisites to justify reformation by Mutual Mistake 1. The mistake must be of fact; 2. Such mistake must be proved by clear and convincing evidence; 3. The mistake must be mutual, that is, common to both parties to the instrument; and 4. The mistake must cause the failure of the instrument to express their true intention *if the mutual mistake is of law, the remedy is annulment Article 1362. 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. * the right to ask reformation is granted only to the party who was mistaken in good faith Article 1363. When one party was mistaken and the other knew or believed that the instrument did not state their real agreement, but concealed that fact from the former, the instrument may be reformed * the remedy of reformation may be availed of the party who acted in good faith. The concealment of mistake by the other party constitutes fraud Article 1364. When through 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. *Neither party is responsible for the mistake; thus, either may ask for reformation Article 1365. 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. *such true intention must prevail for the contract must be complied with good faith Article 1366. There shall be no reformation in the following cases: 1) 2) 3) Simple donations inter vivos wherein no condition is imposed; Wills; When the real agreement is void.
Article 1367. When one of the parties has brought an action to enforce the instrument, he cannot subsequently ask for the reformation. Cases when reformation is not allowed 1. Simple donations inter vivos where no condition is imposed- when donor intends that the donation shall take effect during his lifetime, it is a donation intervivos. a. A donation is essentially gratuitous and the done has no just cause for complaint. The donor is not bound (but may ask for reformation) to correct a mistake or defects in the deed of donation which in the first place, he was not bound to make
b. If the donation is conditional or onerous, the deed may be reformed so the true conditions imposed by the donor or the real intention of the parties might be expressed. 2. Wills- a will is a personal and free act, thus the right to reformation is lost upon the testators death. 3. When the real agreement is void- there is nothing to reform 4. When one party has brought an action to enforce the instrument- the bringing of an action is inconsistent with ratification Article 1368. 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.
Party entitled to reformation 1. Either of the parties if the mistake is mutual 2. In all other case, the injured party 3. The heirs and successors in interest, in lieu of the entitled party *the effect of reformation I retroactive from the time of the execution of the original contract. Article 1369. The procedure for the reformation of the instruments shall be governed by rules of court to be promulgate by the Supreme Court. *The Rules of court governs procedure. The Supreme Court has not as yet promulgated the procedure for the reformation of instruments
CHAPTER 5: Interpretation of Contracts Arctile 1370. 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. If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. (1281) Interpretation of a contract- the determination of the meaning of the terms or words used by the parties in their contract *contracts should be fulfilled according to the literal sense of their stipulations, if the terms of the contract are clear and unequivocal. * a cardinal rule is that interpretation of the contacting parties should always prevail because their will has the force of law between them. Article 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered. (1282) * such interpretation may be considered by the court in determining the meaning and ascertaining the intention of the parties Article 1372. 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. (1283) *special intent prevails over general intent because it is assumed that the particular matter expresses their intent Article 1373. 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. (1284) *when an agreement is susceptible of several meanings, one of which would render it effectual, it should be given that interpretation. (if one interpretation makes it illegal, and the other makes it valid, the latter is warranted) Article 1374. 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. (1285) *a contract is interpreted as a whole and the intention of the parties is gathered from entire instrument. Article 1375. Words which may have different significations shall be understood in that which is most in keeping with the nature and object of the contract. (1286) *if a word is susceptible of 2 or more meanings, it is to be understood in that sense which is most in keeping with the nature and object of the contract in line with the cardinal rule that the intention of the parties must prevail. Article 1376. 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. (1287)
*the usage or custom of the place may explain what is doubtful or ambiguous. It is however, necessary to prove the existence and this burden is upon the party alleging it. Article 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who cause the obscurity (1288) *a written agreement should, in case of doubt, be interpreted against the party who has drawn it. Generally, the party who causes the obscurity acts with ulterior motives Article 1378. 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 interest shall prevail. If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests. 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. (1289) Rules in case doubts impossible to settle 1. Gratuitous contract- interpretation should be made which would result in the least transmission of rights and interests 2. Onerous contracts- the doubts shall be settled in fevor of the greatest reciprocity of interests 3. Principal object of the contract- the contract shall be null and void. Article 1379. The principles of Interpretation stated in Rule 123 of the Rules of Court shall likewise be observed in the constitution of contracts. (n)
INTRODUCTION: To Chapters 6, 7, 8, and 9 Kinds of Defective Contracts 1. rescissible valid because all essential requisites of a contract exist but because of injury or damage to one of the parties or to 3rd persons, contract may be annulled. 2. voidable- valid until annulled unless there has been a ratification. Defect is caused by vice of consent 3. unenforceable cannot be sued or enforced unless they are ratified. This occupies middle ground between voidable and void contracts. 4. void or inexistent absolutely null and void. They have no effect at all and cannot be ratified. CHAPTER 6: Rescissible Contracts Arctile 1380. Contracts validly agreed upon may be rescinded in the cases established by law. (1290) Definitions Rescissible contracts validly agreed upon because all requisites exist therefore legally effective but by reason of external facts (damage or prejudice to one party or to 3rd persons) its enforcement would cause injustice. Rescission remedy granted by law to parties or third persons to secure reparation of damages caused by a valid contract by restoring things to previous condition Requisites of Rescission a. Contract must be validly agreed upon b. There must be lesion or financial prejudice to one of the parties or 3rd person c. Rescission must be based on a case especially provided by law d. There must be no other legal remedy to obtain compensation for damages e. Party asking for rescission must be able to return what he is obliged to restore by reason of contract f. Object of contract must not legally be in possession of 3rd person who did not act in bad faith g. Period for filing for rescission must not have lapsed Article 1381. The following contracts are rescissible: 1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-forth of the value of the things which are the object thereof; 2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number; 3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims 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 or of competent judicial authority; 5) All other contracts specially declared by law to be subject to rescission. (1291a) Cases of Rescissible Contracts 1. contracts entered in behalf of wards ward is person under guardianship because of some incapacity
2. contracts agreed upon in representation of absentees absentee is person who disappears from his home, his whereabouts unknown and without leaving an agent to administer his property. Lesion must also be greater than of value of thing/property *general rule lesion does not invalidate contract unless specified by law 3. contracts undertaken in fraud of creditors the following requisites must also be present: a. there must be a credit prior to the contract to be rescinded although not yet due b. there must be fraud on part of debtor which may be presumed or proved c. creditor cannot recover his credit in any other manner, not required that debtor be insolvent *when fraud charged is not the one used to obtain consent, it can only be fraud of creditors that gives rise to a rescission of the offending contract 4. contracts which refer to things under litigation 5. other instances a. judicial or extrajudicial partition may be rescinded on account of lesion when any one of co-heirs received less than of the share which he is entitled b. lessor or lessee should not comply with obligations in article 1654 (obligations of lessor) and 1657 (lessee), aggrieved party can ask for rescission and indemnification or only indemnification and contract will still remain in force c. vendee may rescind when lack in the area of real estate sold be not less than 1/10 of that stated or when inferior value of thing sold exceeds 1/10 of price agreed upon Article 1382. Payments made in a state of insolvency for obligations to whose fulfillment the debtor could not be compelled at the time they were effected are also rescissible. (1292) *when insolvent debtor pays for obligations that are not yet demandable, payment is rescissible. *debtor is insolvent when he does not have sufficient properties to meet his obligations, need not be judicially declared Article 1383. The action for rescission is subsidiary; it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. (1294) *rescission can only be availed when there is no other legal means to obtain compensation for damage received *if damage is repaired, as in lesion suffered by ward or absentee, rescission cannot take place Article 1384. Rescission shall be only to the extent necessary to cover the damage caused. (n) *policy of law is only to preserve or respect contract, not extinguish it. Thus, if partial rescission can cover damage, then only partial rescission will take place. Article 1385. 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. Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith. In this case, indemnity for damages may be demanded from the person causing the loss. (1295) *rescission takes place to restore the parties to original situation, thus, parties must return to each other object of contract with fruits, and the price with legal interest. *he who demands rescission also applies to 3rd persons but if he has nothing to return, then article does not apply. Rescission is not allowed 1. if party who demands rescission cannot return what he is obliged to restore under the contract 2. if property is legally in the possession of 3rd person who acted in good faith. Remedy would be indemnity for damages from person who caused the loss. Article 1386. Rescission referred to in Nos 1 and 2 of article 1381 shall not take place with respect to contracts approved by the courts. (1296) *when approved by courts, rescission cannot take place because it is assumed that court is acting in the interest of the ward or absentee. Article 1387. 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. Alienation by onerous title are also presumed fraudulent when made by persons against whom some judgment has been rendered in any instance or some writ of attachment 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. (1297a) When alienation presumed in fraud of creditors
*established prima facie presumptions of fraud in case of alienation by debtor of his property 1. Alienation by gratuitous title when debtor donates property to another after which his remaining property is no longer enough to pay for his debts 2. alienation by onerous title instead of donation, there is contract of sale. Sale by debtor is not fraudulent unless proven by creditors that sale will prejudice their rights. However, if there is some judgment issued against debtor, sale is considered fraudulent. Circumstances denominated as badges of fraud 1. consideration of the conveyance is fictitious or inadequate 2. transfer made by debtor after suit has been begun and while pending against him 3. sale upon credit by an insolvent debtor 4. transfer of all property by debtor, especially if insolvent 5. transfer is made between father and son, when there are present some or any of the above 6. failure of vendee to take exclusive possession of all the property 7. vendee knows that the vendor had no properties other than that sold to him Article 1388. Whoever acquires in bad faith the things alienated in fraud of creditors shall indemnify the latter for damages suffered by them on account of the alienation, whenever, due to any cause, it should be impossible for him to return them. If there are two or more alienations, the first acquirer shall be liable first, and so on successively. (1298a) *purchaser in bad faith must return the object if sale is rescinded and if he is unable to return thing due to any cause, he must indemnify the former. *the first acquirer is liable and so on. Article 1389. The action to claim rescission must be commenced within four years. For persons under guardianship and for absentees, the period of four years shall not begin until the termination of the formers incapacity, or until the domicile of the latter is known. (1299) Exceptions for period of filing action 1. when person is under guardianship, period shall start from end of incapacity 2. for absentees, from time when domicile is known Persons entitled to bring action 1. injured party or defrauded creditor 2. heirs, assigns, successors in interest 3. creditors of the above entitled to subrogation
CHAPTER 7:Voidable Contracts Arctile 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties; 1) those where one of the parties is incapable of giving consent to a contract; 2) those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. These contracts are binding unless they are annulled by a proper action in court. They are susceptible of ratification. (n) Voidable or annullable those which possess all requisites of a valid contract but one of the parties is incapable of giving consent, or consent is vitiated by mistake, violence, intimidation, undue influence or fraud *valid and binding unless annulled by courts. Once ratified, it is absolutely valid and cannot be annulled anymore. Annulment remedy provided by law for reason of public interest, declaration of the inefficacy of a contract based on a defect in the consent of one of the parties Article 1391. The action for annulment shall be brought within four years. This period shall begin: In case of intimidation, violence or undue influence, from the time the defect of the consent ceases. In case of mistake or fraud, from the time of the discovery of the same. And when the action refers to contracts entered into by minors or other incapacitated persons, from the time the guardianship ceases. (1301a)
Period for filing action for annulment 1. from the time intimidation, violation, or undue influence ceases; because before time, consent is still being vitiated, thus victim cannot be expected to bring an action in court 2. in cases of mistake or fraud, from the time it is discovered because innocent party is unaware of the reason which makes the contract voidable. 3. in contracts entered into by minors, from the time guardianship stops because incapacitated person has no capacity to sue. Article 1392. Ratification extinguished the action to annul a voidable contract. (1309a) *subsequent approval cleanses contracts of all defects. Contract thus become valid. Article 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right. (1311a) Kinds of Ratification 1. express manifested in words or writing 2. implied or tacit by silence, compliance, by showing approval of contract or acceptance of benefits Requisites of ratification 1. implied ratification a. must be knowledge of reason which makes contract voidable b. such reason must have stopped c. injured party must have executed an act which implies an intention to waive his right 2. express same as above except expressly made Article 1394. Ratification may be effected by the guardian of the incapacitated person. (n) Who may Ratify 1. contract entered into by an incapacitated person my be ratified by: a. guardian b. injured party as long as he is already capacitated c. guardians of wars may also ratify contracts since they have power to contract on their behalf 2. in case of a contract voidable by ground of mistake, ratification can be made by party whose consent is vitiated Article 1395. Ratification does not require the conformity of the contracting party who has no right to bring the action for annulment. (1312) *ratification is unilateral act. Consent of guilty party is not required Article 1396. Ratification cleanses the contract from all its defects from the moment it was constituted. (1313) *it extinguished right to annul, contract is valid from its initiation subject to the prior rights of 3rd persons. Article 1397. The action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily. However, persons who are capable cannot allege the incapacity of those who exerted intimidation, violence or undue influence or employed fraud or caused mistake base their action upon these flaws of the contract. (1302a) Requisites to bring an action to annul 1. claimant must have an interest in the contract 2. victim and not the party responsible for the defect is the person who asserts annulment *one who is not a party to the contract or does not represent those who took part has no legal capacity to challenge validity of contract *strangers are without right to bring action unless they can show loss which would result from the contract in which they had no participation *quilty party cannot ask for annulment, he who comes to court must come with clean hands Article 1398. An obligation having been annulled, the contracting parties shall restore to each other the things which have been the subject matter of the contract, with their fruits and the price with its interest, except in cases provided by law. In obligations to render service, the value thereof shall be the basis for damages. (1303a) Duty of Mutual Restitution upon annulment parties must restore to each other the subject matter of the contract with fruits and price with legal interest in personal obligations, value of service plus interest is basis for damages Article 1399. When the defect of the contract consists in the incapacity of one of the parties, the incapacitated person is not obliged to make any restitution except insofar as he has been benefited by the thing or price received by him. (1304)
*exception to the general rule of mutual restitution *only when object is beneficial to the incapacitated person will he return what he has received. If he was not benefited, he is not obliged to restore/return what he received but other party is still bound to return. Article 1400. Whenever the person obliged by the decree of annulment to return the thing can not do so because it has been lost through his fault, he shall return the fruits received and the value of the thing at the time of the loss, with interest from the same date. 1307a Effect of Loss of thing to be returned 1. if thing to be returned is lost without fault of person obliged to return, there is no longer any obligation to return such thing. 2. if lost through his fault, obligation to return is converted to indemnity for damages consisting of value of thing, interest and fruits Article 1401. The action for annulment of contracts shall be extinguished when the thing which is the object thereof is lost through the fraud or fault of the person who has a right to institute the proceedings. If the right of action is based upon the incapacity of any one of the contracting parties, the loss of the thing shall not be an obstacle to the success of the action, unless said loss took place through fraud or fault of the plaintiff. (1314a) Extinguishment of action for annulment 1. if a person who has right to annul will not be able to return what he is obliged to return because of fraud or his fault, his right to have contract annulled is extinguished 2. the right of action is based on the incapacity of any one of the parties. Same rule as above. Article 1402. As long as one of the contracting parties does not restore what in virtue of the decree of annulment, he is bound to return, the other cannot be compelled to comply with what is incumbent upon him. (1308) *when contract is annulled, reciprocal obligation of restitution is created. *unless one complies with his part, the other cannot be compelled to comply with his part. CHAPTER 8: Unenforceable Contracts (n) Arctile 1403. The following contracts are unenforceable, unless they are ratified: 1) Those entered into the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers; 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 thereof, of the agreement cannot be received without the writing or a secondary evidence of its contents: a. b. c. d. An agreement that by its terms is not to be performed within a year from the making thereof; A special promise to answer for the debt, default or miscarriage of another; An agreement made in consideration of marriage, other than a mutual promise to marry; 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 sufficient memorandum; An agreement for 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
2)
e. f. 3)
Those where both parties are incapable of giving consent to a contract.
Unenforceable contracts those that cannot be enforced in court or sued upon by reason of defects provided by law unless they are ratified according to law *while rescissible and voidable contracts are valid until they are annulled, unenforceable contracts, while valid, cannot be enforced until they are ratified. Kinds of Unenforceable Contracts 1. those entered into the name of another by one acting without or in excess of authority 2. those that do not comply with Statute of Frauds 3. those where both parties are incapable of giving consent
Unauthorized contracts those entered into the name of another by one who has been given no authority or legal representation or acted beyond his powers. (governed by article 1317 and the principles of agency) Statute of Frauds 1. history 1677, English Parliament enacted laws to counter the evil practice of giving false testimony. 2. purpose Statute of Frauds has been enacted to not only prevent fraud but also guard against the mistakes of honest men by requiring certain agreements be in writing, otherwise, unenforceable in court because there is no hard evidence other than witnesses who may be unreliable. 3. application fundamental principles are: a. SOF applicable only in actions for damages because of a violation of contract or for the specific performance b. Applicable only to executory contracts (where no performance of both parties) and not to contracts which are totally or partially performed because partial performance implies the existence of the contract. Injustice to the one who already performed his part because the other would keep the benefits and evade his part of the obligation. c. Not applicable where the contract is admitted expressly/impliedly by failure to deny its existence d. Applicable only to agreements enumerated above. An agreement creating an easement of right of way is not covered by SOF since it is not a sale of property or of interest. e. Not applicable where writing does not express true agreement of parties since SOF cannot be used as a shield for fraud f. Does not declare that contracts breaking it are void but merely unenforceable g. Defense of SOF may be waived h. Defense of SOF is personal to parties and cannot be introduced by strangers to contract Agreements within the scope of the Statute of Frauds *agreements that must be in writing to be enforceable 1. agreement not to be performed within one year from the making thereof if I entered an oral contract with you that you will build my house one year from now, it should be in writing to be enforceable. 2. promise to answer for the debt, default or miscarriage of another if you owe Maria and I am your guarantor, our agreement should be in writing to be enforceable. If my promise is to pay Maria without your failure to pay, then I am no longer just guarantor but a principal party in the obligation to Maria. No need for written contract to be enforceable. 3. agreement in consideration of marriage other than a mutual promise to marry if I promise to build your house if you marry me, then there must be written agreement unless you ratify it. if we both agreed to marry, no need for written agreement even if marriage is to be celebreated beyond one year. a. Marriage settlement pre-nuptial entered by people who are about to get married for the purpose of fixing conditions of their relations b. Donations propter nuptias or donations by reason of marriage agreements made before marriage in consideration of the same and in favor of one or both spouses 4. agreement for sale of goods at a price not less than 500 if what I am selling is more than 500, contract must be in writing. If less than 500, oral evidence of sale is enough 5. agreement for leasing for a longer period than one year if period is more than a year, must be in writing. 6. agreement for sale of real property or of an interest therein sale of property or anything related to the property (usufructuary) must be in writing to be enforceable or if there is partial performance. 7. representation as to the credit of a third person if Maria is trying to borrow from me and you represent Maria as having a good credit standing and I loan to Maria money who is actually insolvent, your representation of Maria must be in writing to be enforceable. Article 1404. Unauthorized contracts are governed by article 1317 and the principles of agency in Title X of this Book. Article 1405. Contracts infringing the Statue of Frauds, referred to in No. 2, article 1403 are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefits under them. Modes of Ratification under the Statute 1. failure to object to the presentation of oral evidence to prove the contract. Failure to object means waiver and makes contract binding. 2. by acceptance of benefits under the contract, one who enjoyed benefits must not be allowed to repudiate (reject) its burdens Article 1406. When a contract is enforceable under the Statute of Frauds, and a public document is necessary for its registration in the registry of Deeds, the parties may avail themselves of the right under article 1357. (n) RIGHT OF PARTY WHEN CONTRACT IS ENFORCEABLE *there must be valid agreement and agreement must not infringe the SOF 1. a party to an oral sale of real property cannot compel the other to put the contract in a public document for purposes of registration because if is unenforceable unless it was ratified. 2. right one party to have the other execute a public document is not available in a donation of realty when it is in a private instrument because the donation is void. Article 1407. In a contract when both parties are incapable of giving consent, express or implied ratification by the parent or guardian, as the case may be, of one of the contracting parties shall give the contract the same effect as if only one of them were incapacitated.
If ratification is made by the parents or guardians, as the case may be, of both contracting parties, the contract shall be validated from the inception. *where both parties are incapable of giving consent, contract is unenforceable. However, if one guardian or one party who has gained capacity ratifies the contract, contract becomes voidable. *if both parties (guardian or both gains capacity) ratifies the contract, contract is valid and retroacts from the day it was entered into. Article 1408. Unenforceable contracts cannot be assailed by third persons. *strangers to a voidable contract cannot bring action to annul the contract. Neither can they question a contract because of its unenforceability. The SOF can only be claimed by one who is a party to the oral contract. It is a personal defense. CHAPTER 9: Void or Inexistent Contracts Article 1409. The following contracts are inexistent and void from the beginning: 1) 2) 3) 4) 5) 6) 7) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy Those which are absolutely simulated or fictitious Those whose cause or object did not exist at the time of the transaction Those whose object is outside the commerce of men Those which contemplate an impossible service Those where the intention of the parties relative to the principal object of the contract cannot be ascertained Those expressly prohibited or declared void by law
These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived. Definitions Void contracts because of certain defects, produce no effect at all, inexistent from the very beginning Inexistent contracts refer to agreements which lack one or more of the elements (object, cause, consent) or do not comply with requirements for the existence of contract Illegal contract may produce effects under certain circumstances where the parties are not of equal guilt Characteristics of Void or Inexistent Contracts 1. generally produces no effect whatsoever 2. cannot be ratified 3. set up the defense of illegality cannot be waived 4. action or defense for the declaration of its inexistence does not prescribe 5. defense of illegality is not available to third persons whose interests are not directly affected 6. it cannot give rise to a valid contract Instances of Void or Inexistent Contracts 1. contracts whose cause, object or purpose is contrary to law 2. contracts which are absolutely simulated or fictitious 3. contracts without cause or object 4. contracts whose object is outside the commerce of men 5. contracts which contemplate an impossible service 6. contracts where the intention of the parties relative to the object cannot be determined 7. contracts expressly prohibited by the law a. upon future inheritance unless allowed by law b. sale of property between spouses unless there is separation of property c. purchase of property by persons disqualified by law because of their relation with the person under their care (guardian-ward, lawyer-judge, mayor-city) d. donation between spouses during marriage shall be void except gifts which spouses may give to each other on some occasion. e. A testamentary provision in favor of disqualified person even if under the guise of onerous contract or made through an intermediary f. Household service without compensation is void g. Members of congress are prohibited from being financially interested in any contract with the government Article 1410. The action or defense for the declaration of the inexistence of a contract does not prescribe. *a person can always raise the defense of nullity even with passage of time *generally do not need court to say it is void but it is better to do that than to take the law into their own hands Article 1411. When the nullity proceeds from the illegality of the cause of object of the contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no action against each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code relative to the disposal of effects or instruments of a crime shall be applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty, but the innocent one may claim what he has given, and shall not be bound to comply with his promise. (1305) Rules where contract is illegal and the act constitutes a criminal offense 1. where both parties are in pari delicto both are guilty because cause or object constitutes a criminal offense a. parties shall have no action against each other b. both shall be prosecuted c. thing or price of the contract shall be confiscated in favor of the government 2. where only one party is guilty both parties are not equally guilty (in delicto) rule applies only to more guilty party and innocent party may claim what he has given and not be bound to comply with his promise Article 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: 1) 2) when the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract or demand the performance of the others undertaking when only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise. (1306)
Rules where Contract is Illegal but the act does not constitute a criminal offense 1. where both parties are in pari delicto is cuase is unlawful but does not mean criminal offense a. neither party may recover what he has given b. neither party may demand the performance of the other *ex. common law wife immoral but not illegal 2. when only one party is guilty a. guilty party loses what he has given by reason of contract b. guilty party cannot ask for fulfillment of the other c. innocent party may demand the return of what he has given d. innocent party cannot be compelled to comply with his promise Article 1413. Interest paid in excess of the interest allowed by the usury laws may be recovered by the debtor, with interest thereon from the date of payment. *payment of usurious interest can be recovered. Not only those that exceeded the legal interest but the whole interest plus interest from date of payment. Article 1414. When money is paid or property delivered for an illegal purpose, the contract may be repudiated by one of the parties before the purpose has been accomplished, or before the damage has been caused to a third person. In such case, the courts may, if the public interest will thus be subserved, allow the party repudiating the contract to recover the money or property. Requisites for recovery where contract entered into for illegal purpose 1. contract is for an illegal purpose 2. contract is rejected before the purpose has been accomplished or before any damage has been caused to a third person 3. court considers that public interest will be subserved by allowing recovery Article 1415. Where one of the parties to an illegal contract is incapable of giving consent, the courts may, if the interest of justice so demands, allow recovery of money or property delivered by the incapacitated person. *exception to the in pari delicto *recovery can be allowed if one of the parties is incapacitated and the interest of justice demands it. *not necessary that illegal purpose has not been accomplished or that no damage has been caused to a 3rd person Article 1416. When the agreement is not illegal per se, but is merely prohibited, and the prohibition by the law is designed for the protection of the plaintiff, he may, public policy is thereby enhanced, recover what he has paid or delivered. *exception to the in pari delicto Recovery where contract is not illegal per se 1. the agreement is not illegal per se but merely prohibited 2. prohibition is designed for the protection of plaintiff 3. public policy would be enhanced by allowing plaintiff to recover what he has paid
Article 1417. When the price of any article or commodity is determined by statute, or by authority of law, any person paying any amount in excess of the maximum price allowed may recover such excess. ceiling law statute fixing max price of any article or commodity to curb blackmarketing Article 1418. When the law fixes, or authorizes the fixing of the maximum number of hours of labor, and a contract is entered into whereby a laborer undertakes to work longer than the maximum thus fixed, he may demand additional compensation for the service rendered beyond the time limit. *Labor Code says normal working hours of any employee shall not exceed 8 hours a day. Exceptions to this Law 1. govt employees 2. managerial employees 3. field personnel 4. members of family of employers who are dependent on him for support 5. domestic helpers 6. persons in the personal service of another 7. workers who are paid by results Article 1419. When the law sets, or authorizes the setting of a minimum wage for laborers and a contract is agreed upon by which a laborer accepts a lower wage, he shall be entitled to recover the deficiency. *when an employee receives less than the minimum wage, he can recover deficiency with legal interest and the employer is criminally liable. Article 1420. In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced. Effect of Illegality where Contract is Indivisible/ Divisible 1. when consideration is entire and single, the contract is indivisible so that if part of consideration is illegal, the whole contract is void 2. when contract is divisible, consideration is made up of several parts, illegal ones can be separated from the legal portions, the legal ones may be enforced. Divisible Contract VS. Divisible Obligation Divisibility of cause (refers to cause) Susceptible to partial fulfillment (refers to object) Article 1421. The defense of illegality of contracts is not available to third persons whose interests are not directly affected. *in voidable and unenforceable contracts, 3rd person has no right to annul or assail contracts. However, if void and illegal contract, 3rd person can set up nullity as defense as long as his interest is directly affected by the contract. Article 1422. A contract which is the direct result of a previous illegal contract is also void and inexistent. *an illegal contract is void and inexistent and cannot give rise to a valid contract
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 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 Concept of Natural Obligations Originated in the Roman law where they grew in importance in ordert to temper with equity and justice the severity of jus civile Could no be enforced by civil action but has certain juridical consequences Civil Obligations VS. Natural Obligations Arise from law, contracts, quasi-contracts, delicts and quasi delicts Give a right of action to compel their performance
Based not on positive law but on equity and natural law Do not grant such right of action to enforce their performance
Article 1424. When a right to sue upon a civil obligation has lapsed by extinctive prescription, the obligor who voluntarily performs the contract cannot recover what he has delivered or the value of the service he has rendered. * by prescription, one acquires ownership and other real rights through the lapse of time in the manner and under the conditions laid down by law. Also, rights and actions are lost by prescription Article 1425. When without the knowledge or against the will of the debtor, a third person pays a debt which the obligor is not legally bound to pay because the action thereon has prescribed, but the debtor later voluntarily reimburses the third person, the obligor cannot recover what he has paid. * the debtor cannot recover when he voluntarily reimburses the third person Article 1426. When a minor between eighteen and twenty-one years of age who has entered into a contract without the consent of the parent or guardian, after the annulment of the contract voluntarily returns the whole thing or price received, notwithstanding the fact that he has not been benefited thereby, there is no right to demand the thing or price thus returned. * As long as the minor is 18-21 yrs of age (law considers he already has a conscious idea of what is morally just or unjust) , he cannot recover what he has returned Article 1427. When a minor between eighteen and twenty-one years of age, who has entered into a contract without the consent of the parent or guardian, voluntarily pays a sum of money or delivers a fungible thing in fulfillment of the obligation, there shall be no right to recover the same from the oblige who has spent or consumed in good faith. (1160a) *by the decree of annulment, both parties as a general rule are obliged to make mutual restitution. But the oblige who consumes in good faith is not liable to do so. Article 1428. When, after am action to enforce a civil obligation has failed, the defendant voluntarily performs the obligation, he cannot demand the return of what he has delivered or the payment of the value of the service he has rendered. *debtor cannot recover nor ask for payment since it is deemed that he must have considered it his moral duty to fulfill his obligation Article 1429. When a testate or intestate heir voluntarily pays a debt of the descendent exceeding the value of the property which he has received by will or by the law of intestacy from the estate of the decreased, the payment is valid and cannot be rescinded by the payer. *an heir has a moral duty to perform or pay obligation legally contracted by his dead relatives Article 1430. When a will is declared void because it has not been executed in accordance by the formalities required by law, but one of the intestate heirs, after the settlement of the debts of the deceased, pays a legacy in compliance with a clause in the defective will , the payment is effective and irrevocable. Legacy- act of disposition by the testator in separating from the inheritance for definite purposes, things, rights or a definite portion of his property. *the purpose of the legacy is to reward friends, servants and others for services they have rendered, to give alms, etc. *if a will is disallowed for non-compliance with the formalities prescribed by law, the legacy made in the will is also void. But if the heir pays the legacy, it is effective and irrevocable. * It was the intention of the testator to give the legacy; it is the moral duty of the heir to carry it out.
STUDY GUIDE OBLIGATIONS

Chapter 2, Sec.1: Consent Study Guide I. Definitions 1. Consent the conformity or concurrence of wills (offer & acceptance) 2. Acceptance- the manifestation by the offeree of his assent to the terms of the offer. 3. Natural Elements- those that are presumed to exist in certain contracts unless the contrary is expressly stipulated by the parties, like warranty against eviction, or warranty against hidden defects in sale 4. Option Contract- one giving a person for a consideration a certain period within which to accept the offer of the offerer 5. Mistake of Law- that which arises from an ignorance of some provision of law, or from an erroneous conclusion as to the legal effect of an agreement, on the part of one of the parties.
II. Discussions 1. When is a contract voidable or annulable? According to Art.1330, a contract is voidable when consent is given through mistake, violence, intimidation, undue influence or fraud. 2. Is it always required that he who alleges fraud or mistake in entering into a contract, must prove his allegation? Explain. No. According to Art.1332, when one of the parties is unable to read or if the contract is in a language not understood by him, it is the party enforcing the contract who is duty-bound to show that there has been no fraud or mistake and the terms of the contract have been fully explained to the former. 3. Give the requisites in order that intimidation may vitiate or annul consent of a party to a contract. According to Art.1335, the requisites are that (1) it must produce a reasonable and well-grounded fear of an evil, (2) the evil must be imminent and grave, (3) the evil must be upon his person or property, or that of his spouse, descendants, or ascendants, and (4) it is the reason why he enters into the contract. 4. May fraud be committed by a party to a contract though there is no misrepresentation on his part? Explain. Yes. According to Art.1339, concealment is equivalent to misrepresentation when there is a neglect or failure to communicate that which a party to a contract knows and ought to communicate. 5. Will the acceptance of a business advertisement of a thing for sale produce the perfection of a contract? Explain. No. According to Art.1325, business advertisements of things for sale are not definite offers, acceptance of which will perfect a contract, but are merely invitations to the reader to make an offer. III. Problems 1. In a contract containing an option period, when is the offeree not allowed to withdraw his offer even before acceptance by offeree? When is the offeree allowed to withdraw his offer even after acceptance? According to Art.1324, the offeree may not withdraw his offer even before acceptance if the option is founded upon a consideration, as something paid or promised. According to Art.1479, the offeree is allowed to withdraw the offer even after the acceptance if it is a unilateral promise to buy or sell a determinate thing not supported by any consideration distinct from the price for which the thing was intended to be sold by or to the promisee. 2. Can S legally withdraw from the contract on the ground of mistake? Yes. According to Art.331, mistake as to the identity of or qualifications of one of the parties will vitiate consent only when such identity or qualifications have been the principal cause of the contract. 3. Can B ask the court to annul the contract on the ground of fraud? No. According to Art.1344, the fraud should be serious for it to make a contract voidable. In this situation, there is only incidental fraud which only obliges S to pay B damages. 4. Is S liable to B for misrepresentation? No. According to Art.1340, usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent 5. Has B the right to have the sale annulled? No. According to Art.1339, there is fraud only when there is a failure to disclose facts when there is a duty to reveal them. S was not bound to make disclosure of his reasons for his belief so B may not annul the sale which is valid. Chapter 2, Sec.2: Object of Contracts Study Guide I. 6. 7. Definitions Future Inheritance any property or right, not in existence or capable of determination at the time of the contract, that a person may inherit in the future Physical Impossibility- when the thing or service in the very nature of things cannot exist or be performed.
IV. Discussions 1. Give the requisites of things as object of a contract.
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According to Art.1347, the requisites of things as object of a contract are: (1) the thing must be within the commerce of men, that is, it can legally be the subject of commercial transaction, (2) it must not be impossible, legally or physically, (3) it must be in existence or capable of coming into existence, and (4) it must be determinate or determinable without the need of a new contract between the parties. Give the requisites of service as object of a contract. According to Art.1347, the requisites of service as object of a contract are: (1) the service must be within the commerce of men, (2) it must not be impossible, physically or legally, and (3) it must be determinate or capable of being made determinate May a contract be entered upon future inheritance? According to Art.1347, no contract may be entered into upon future inheritance except in cases expressly authorized by law.
V. Problems 1. Is the sale valid? No. According to Art.1349, the object of every contract must be determinate. Since S did not specify the exact location and area of the land, the sale is void since the particular land sold cannot be determined without a new or further agreement between the parties. 2. State the binding effect of the sale. According to Art.1349, the contract is valid but not perfected until the quantity (weight) agreed upon has been selected and is capable of being physically designated and distinguished from all the other pigs. The contract is merely an executor contract to sell. Chapter 2, Sec.3: Cause of Contracts Study Guide I. 1. 2. 3. Definitions Cause (causa) the essential or more proximate purpose which the contracting parties have in view at the time of entering into the contract Motive- purely personal or private reason which a party has in entering into a contract Inadequacy of Cause- not a ground for relief;
II. Discussions 1. Give the requisites of cause in a contract. According to Arts.1352 & 1353, the requisites of cause in a contract are: (1) it must exist at the time the contract is entered into, (2) it must be lawful and (3) it must be true or real 2. State the effect if the cause of a contract is found to be false. According to Art.1353, the statement of a false cause in contracts shall render them void, if it should not be proved that they were founded upon another cause which is true and lawful 3. What is the object and what is the cause in a contract of sale? In a contract of sale, the cause for one is the subject matter or object for the other, and vice versa. III. Problems 1. Is the contract of sale illegal? No. According to Art.1351, the particular motives are different from the cause and the illegality of ones motive does not render the contract void. 2. Has C the right to have the sale declared void by the court on the ground of absence of cause for non-payment of the price? No. According to Arts.1352 & 1409 (3), the cause must exist at the time the contract is entered into which is true for this case. There is no absence of cause just because B is unable to pay. 3. Is Y bound to return the P10 000? No. According to Art.1354, the cause is presumed to exist and is lawful. Unless the debtor proves the contrary, since it is not proven otherwise, it is lawful. 4. Has S the right to have the sale annulled? No. According to Art.1355, except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract. Chapter 3: Form of Contracts Study Guide I. 1. 2. Definitions Form of Contract refers to the manner in which a contract is executed or manifested Informal Contract- that which may be entered into in whatever form provided all the essential requisites for their validity are present.
II. Discussions 1. What may be the form of a contract? According to Art.1356, the contract may be oral, or in writing, or partly oral and partly in writing 2. If the law requires a contract to be in writing, will the contract be invalid if it is not in writing? According to Art.1356, when the law requires that a contract be in some form in order that it may be valid and enforceable, that requirement is absolute and indispensable. Thus it will be invalid if it isnt in writing III. Problems 1. Is the sale valid?
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Yes. According to Art.1358, the contracts covered by that article are valid and enforceable though not contained in a public document. The public document is required only for convenience and greater protection of the parties and to make the contract binding as against third persons. What rights if any, are acquired by the contracting parties? According to Art.1356, the contract of sale is valid and binding although it is still executory.
Chapter 4: Reformation of Instruments Study Guide I. 1. Definitions Reformation that remedy by means of which a written instrument is amended or rectified so as to express or conform to the real agreement or intention of the parties when by reason of mistake, fraud, inequitable conduct, or accident, the instrument fails to express such agreement or intention. Mutual Mistake- a mistake that is common to both parties of the instrument.
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II. Discussions 1. What is the reason why the law in certain cases permits a written instrument to be reformed or corrected? According to Art.1359, it would be unjust and inequitable to allow the enforcement of a written instrument which does not reflect or disclose the real meeting of minds of the parties 2. In what way is reformation of written instrument distinguished from the annulment of a contract? In reformation, there is a meeting of minds, thus a contract exists but the true intention of the parties is not expressed in the written instrument; in annulment, there is no meeting of minds and consent of one parties is vitiated by mistake etc. III. Problems 1. Can S ask for the reformation of the contract against the objection of B who is agreeable to the sale of horse X? No. According to Art.1361, the mistake must be mutual for the contract to be reformed. Here, only B thought the horse was Y. 2. Give the 3 cases when he can ask for the reformation of the contract Yes. According to Arts.1362, 1363, & 1364, he can ask for reformation when: (1) one party was mistaken and the other acted fraudulently or inequitably, in such a way that the instrument does not show their true intention, (2) when one party was mistaken and the other knew or believed that the instrument did not state their real agreement, but concealed that fact from the former, and (3) when through ignorance, lack of skill, negligence or bad faith on the part of the person drafting the instrument or the clerk or typist, the instrument did not express the true intention of the parties. Chapter 5: Interpretation of Contracts Study Guide I. 1. 2. Definitions Interpretation of Contract the determination of the meaning of the terms or words used by the parties in their contract. Contract of Adhesion- most of the terms of which do not result from mutual negotiation between the parties as they are usually prescribed in printed forms prepared by one party to which the other may adhere if he chooses but which he cannot change.
II. Discussions 1. What should be followed in the interpretation of a contract, its terms or the intention of the parties? Explain. According to Art.1370, the evident intention of the parties prevails over the terms of the contract because their will has the force of law between them. 2. Suppose a stipulation or word in a written contract is susceptible of various interpretations, what interpretation or meaning should be given to it? According to Arts.1373 & 1375, the meaning to be taken is that which most adequately renders it effectual and those that is most in keeping with the nature and object of the contract. 3. State the rule of interpretation where there are various stipulations of a contract. According to Art.1374, 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. III. Problems 1. Is the chair to be included in the sale of the unit? No. According to Art.1372, 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. Since it was not intended that the chair be included, then it isnt. 2. How much is Y bound to pay X? According to Arts.1371 & 1376, the payment Y is bound to make to X is determined, with consideration to their contemporaneous and subsequent acts, and the usage or customs of the place. 3. How much is Y liable to pay? According to Art.1377, Y is liable to pay the lesser amount since it was Xs fault that an obscurity occurred and the interpretation should not favor the person who caused the obscurity.
Chapter 6: Rescissible Contracts Study Guide I. 1. 2. Definitions Rescissible Contract those validly agreed upon because all the essential elements exist and, therefore, legally effective, but in the cases established by law, the remedy of rescission is granted in the interest of equity. Rescission- a remedy granted by law to the contracting parties and sometimes even to third persons in order to secure reparation of damages caused them by a valid contract, by means of the restoration of things to their condition in which they were prior to the celebration of said contract.
II. Discussions 1. State the rule on the liability of the acquires in bad faith of property alienated in fraud of creditors. According to Art.1388, the acquires should indemnify the creditor for damages suffered by them on account of the alienation, whenever, due to any cause, it should be impossible for him to return them. 2. In what cases is rescission not allowed although the contract is found to be rescissible under the law? According to Art.1385 remedy of rescission cannot be availed if the party who demands rescission cannot return what he is obliged to restore under the contract or if the property is legally in the possession o a third person who acted in good faith. III. Problems 1. Has C the right to ask for rescission of the sale? Yes. According to Arts.1381 (3) & 1383, C can demand for rescission since the sale was made in order to defraud him. 2. If rescission of the sale is demanded, what possible defense under the law can B present to avoid rescission? According to Art.1386, B could use the defense that the contract is approved by the courts, thus the contract is valid whether there is lesion or not Chapter 7: Voidable Contracts Study Guide I. 1. 2. Definitions Voidable Contract those which possess all the essential requisites of a valid contract but one of the parties is incapable of giving consent, or consent is vitiated by mistake, violence, intimidation, undue influence or fraud Annulment- a remedy provided by law, for reason of public interest, for the declaration of the inefficacy of a contract based on a defect or vice in the consent of one of the contracting parties in order to restore them to their original position in which they were before the contract was executed Ratification- one voluntarily adopts some defective or unauthorized act or contract which, without his subsequent approval or consent, would not be binding on him
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II. Discussions 1. Give the requisites for the ratification of a voidable contract. According to Art.1393, the requisites for ratification are: (1) there must be knowledge of the reason which renders the contract voidable, (2) such reason must have ceased, (3) the injured party must have executed an act which necessarily implies an intention to waive his right 2. State the rule on the right of strangers to a contract to bring an action for its fulfillment According to Art.1397, strangers do not have a right to bring the action for they are not obliged by the contract, unless they show detriment which would positively result to them from the contract in which they have no intervention or participation 3. Under the law, what contracts are voidable or annullable? According to Art.1390, contracts where one of the parties is incapable of giving consent and those where the consent is vitiated by mistake, violence, intimidation, undue influence, or fraud are voidable/ annullable. III. Problems 1. Is S bound to return the price received by him? No. According to Art.1399, S is only obliged to return to the extent of his benefit. If S was not benefited, he is not bound to return anything. 2. Has B the right to refuse the ratification and demand mutual restitution of the property and the price? No. According to Art.1395, ratification is a unilateral act and does not require the conformity of the contracting party who has no right to bring the action for annulment. 3. What are the rights of the parties if the property was lost or destroyed: (According to Art. 1400) a. Without the fault of B? There is no more obligation to return such thing. Also, the other cannot be compelled to return what he is bound to do so. b. Through the fault of B? The obligation is not extinguished but converted into an indemnity for damages consisting of the value of the thing at the time of the loss with interest from the same date and the fruits received from the time the thing was given to him to the time of its loss Chapter 8: Unenforceable Contracts Study Guide I. Definitions
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Unenforceable Contract those that cannot be enforced in court or sued upon by reason of defects provided by law until and unless they are ratified according to law Statute of Frauds- enacted to not only prevent fraud but also guard against the mistakes of honest men by requiring certain agreements be in writing, otherwise, unenforceable in court because there is no hard evidence other than witnesses who may be unreliable. Unauthorized Contracts- those entered into the name of another by one who has been given no authority or legal representation or acted beyond his powers
II. Discussions 1. What are the kinds of unenforceable contracts? According to Art.1403, the kinds of unenforceable contracts are: (1) those entered into the name of another by one acting without or in excess of authority, (2) those that do not comply with Statute of Frauds, (3) those where both parties are incapable of giving consent 2. How many contracts violating the Statute of Frauds be ratified? According to Art.1405, the ratification of contracts infringing the Statute of Frauds may be effected in 2 ways: (1) failure to object to the presentation of oral evidence to prove the contract. Failure to object means waiver and makes contract binding or; (2) by acceptance of benefits under the contract, one who enjoyed benefits must not be allowed to repudiate its burdens 3. State the purpose of the Statute of Frauds. Statute of Frauds has been enacted to not only prevent fraud but also guard against the mistakes of honest men by requiring certain agreements be in writing, otherwise, unenforceable in court because there is no hard evidence other than witnesses who may be unreliable. III. Problems 1. What is the effect of ratification (according to Art.1407) a. By either; and if both parties are incapable of giving consent, contract is unenforceable. However, if one guardian or one party who has gained capacity ratifies the contract, contract becomes voidable b. By both, after becoming incapacitated? if both parties ratifies the contract, contract is valid and retroacts from the day it was entered into 2. Can the promise of T be proved by the testimony of a witness who was present when T made the same? No. According to Art.1403 (2, b), a special promise to answer for the debt, default or miscarriage of another has to be evidenced in writing to be enforceable. 3. Can B enforce the sale considering that the contract was oral and the price was more the P500.00? No. According to Art.1403 (2, d), if what I am selling is more than 500, contract must be in writing. If less than 500, oral evidence of sale is enough. Chapter 9: Void or Inexistent Contracts Study Guide I. 1. 2. 3. Definitions Void Contract because of certain defects, produce no effect at all, inexistent from the very beginning Inexistent Contract- refer to agreements which lack one or more of the elements or do not comply with requirements for the existence of contract Indivisible Contract - when consideration is entire and single
II. Discussions 1. What are the characteristics of a void or inexistent contract? According to Art.1409, the characteristics of a void contract are: (1) generally produces no effect whatsoever, (2) cannot be ratified, (3) set up the defense of illegality cannot be waived, (4) action or defense for the declaration of its inexistence does not prescribe, (5) defense of illegality is not available to third persons whose interests are not directly affected, (6) it cannot give rise to a valid contract. 2. Give the rules where the contract is unlawful and the act constitutes a crime, and both parties are equally guilty. According to Art.1411, the rules are: (1)where both parties are in pari delicto: a. parties shall have no action against each other, b. both shall be prosecuted, c. thing or price of the contract shall be confiscated in favor of the government, (2)where only one party is guilty both parties are not equally guilty (in delicto) rule applies only to more guilty party and innocent party may claim what he has given and not be bound to comply with his promise 3. Give the rules where the contract is unlawful but the act does not constitute a criminal offense and only one party is guilty or both parties are not equally guilty. According to Art.1412, the rules are: (1) where both parties are in pari delicto is cause is unlawful but does not mean criminal offense: a. neither party may recover what he has given, b. neither party may demand the performance of the other, (2) when only one party is guilty: a. guilty party loses what he has given by reason of contract, b. guilty party cannot ask for fulfillment of the other, c. innocent party may demand the return of what he has given, d. innocent party cannot be compelled to comply with his promise III. Problems 1. Is it correct for the court to dismiss the action because of the long lapse of time? No. According to Art.1410, the action or defense for the declaration of the inexistence of a contract does not prescribe. Thus, even if it took S 20 years, his action should not be dismissed because of the duration of the time. 2. Is X entitled to recover from Y?
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Yes. According to Art.1414, the courts may allow the party repudiating the contract to recover the money or property. Thus X can recover his money from Y. Is Y entitled to recover from M? No. According to Art.1412 (1), neither may recover what he has given by virtue of the contract or demand the performance of the others undertaking. Thus since it is an illegal contract, W cannot recover from M.
TITLE III: Natural Obligations Study Guide I. 1. 2. Definitions Natural Obligation Originated in the Roman law where they grew in importance in order to temper with equity and justice the severity of jus civile; Could no be enforced by civil action but has certain juridical consequences Civil Obligation- arise from law, contracts, quasi-contracts, delicts, quasi-delicts; give a right of action to compel their performance
II. Discussions 1. What is the effect of the voluntary performance of a natural obligation? According to Art.1423, after voluntary fulfillment by the obligor, the natural obligation authorizes the retention of what has been delivered or rendered by reason thereof. 2. Give 2 examples of natural obligations under the law. According to Art.1424, the two examples of natural obligations are acquisitive and extinctive. III. Problems 1. Decide. D can no longer recover what he has voluntarily paid. According to Art.1428, when, after am action to enforce a civil obligation has failed, the defendant voluntarily performs the obligation, he cannot demand the return of what he has delivered or the payment of the value of the service he has rendered. 2. Give the situation by reason of which M cannot recover the P2000 from N. According to Art.1427, M cannot recover from N if he voluntarily pays; and if N has consumed it in good faith.
STUDY GUIDE - CONTRACTS

Chapter 1: General Provision Study Guide I. 1. 2. Definitions Obligation is a tie or bond recognized by law where one person is bound in favor of another to give something, do a certain or act, or not do a certain act. Quasi-contract is a juridical relation caused by lawful, voluntary and unilateral acts because of which, the parties become bound to each other so that no one will be unjustly enriched or benefited at the expense of the other. The law considers the parties to have entered a contract, even if they havent really and regardless of their intention, to prevent injustice. Compliance in good faith means conformity to the conditions or terms of the contract or agreement. Wrong- an act or omission of one party which violates the legal right(s) of another. Solution indebiti- is a juridical relation created when something is received without a right to demand it and it was unduly delivered through mistake.
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II. Discussions 1. What are the essential requisites of an obligation? Give an example to illustrate. The 4 essential requisites of an obligation are a passive subject, an active subject, an object or prestation, and a juridical or legal tie. The passive subject is the debtor or the one who has a duty, the active subject is the creditor or the one who is demanding, the object is the condition for the fulfillment of the obligation and the legal tie binds the parties to the obligation. For example, if John and Michael signed a contract stating that John would pay Michael 5000 pesos for the repair of his car, Michael is the passive subject, John is the active subject, repairing Johns car is the object, and their written contract is the legal tie. 2. Why are obligations under the Civil Code a juridical necessity? Explain. Obligations under the Civil Code are a juridical necessity because they are based on positive laws. This means that noncompliance of the obligation entitles the creditor to call upon the courts of justice to enforce the fulfillment of the debtors obligations. The debtor can also be held liable for damages to compensate for the harm caused by his noncompliance. 3. What are the elements or requisites in order that a person may acquire a right of action in court against another to enforce the performance of the latters obligation? Right is the power a person has under the law to demand from another any prestation. A person may acquire a right of action in court to enforce the performance of anothers obligation if the obligation is a civil obligation, that is, it is based on positive law. 4. May a person incur obligations even without entering into any contract or voluntary agreement? Explain. Yes because obligations do not only arise from contracts. They can be imposed by law, arise from quasi-contracts, from crimes or acts or omissions punished by law and from quasi-delicts or torts. You can have an obligation so that no one will be unjustly benefited or enriched at the expense of someone else, or if you commit a crime, or if you cause damage due to fault or negligence. III. Problems 1. Is X entitled to be reimbursed by Y for the amount of P150? Yes, because on the principle of quasi-contract, Y is liable to X even if she did not give her consent. X fed Ys child and incurred expenses and this should be reimbursed by X to prevent anyone being unjustly enriched or benefited at the others expense. 2. Under the circumstances, does it follow that Y is liable to X for the damage? Yes because even if there is no pre-existing contractual relation between them, Xs car was damaged due to the negligence of Y. If Y did not bump Xs car, Xs car would not have been damaged. Thus, Y is liable to X for the damages 3. Has X the right to ask indemnity from R, employer of X, on the ground that the accident occurred when X was on his way to transact business with a client of R? X doesnt have a right to ask for indemnity from R because there is no law that requires this. 4. Is D legally justified to refuse to pay C? No, because when D loaned from C, he entered a voluntary agreement and he was willing and the contract is valid. Thus, D should comply with their agreement in good faith and does not have a legal justification to refuse payment to C. Chapter 2: Nature & Effect of Obligations Study Guide VI. Definitions 1. Generic/ Indeterminate thing a thing that refers only to a class or genus to which it pertains and cannot be pointed out with particularity. 2. Personal Right power of a person to demand from another the fulfillment of the latters obligation.
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Legal delay or Default failure to perform an obligation on time which failure constitutes a breach of the obligation. Fortuitous event- any event which cannot be foreseen, or which, though foreseen, is inevitable. Diligence of a good father of a family - ordinary care or diligence which an average person exercises over his own property.
VII. Discussions 1. Give the rules as to the liability of a person for loss or damage resulting from a fortuitous event. A person is not responsible for loss or damage resulting from a fortuitous event. Thus, his obligation will be extinguished. (Except when expressly specified by law, declared by stipulation, or when nature of obligation requires assumption of risk.) 2. What rights are given by law to the creditor in case the debtor fails to comply with his obligation to deliver a specific thing? The creditor can demand specific performance or fulfillment of the obligation with indemnity for damages, OR demand rescission or cancellation of the obligation with a right to indemnity for damages, OR demand payment for damages only when it is the only feasible remedy. 3. What are included to be delivered in an obligation to give a definite thing? Explain them. The obligation includes the delivery of all its accessions and accessories. Accessions are the fruits of a thing or additions to or improvements upon a thing. Accessories are things joined to or included with the principal thing for the latters embellishment, better use, or completion. 4. Suppose the obligation of the debtor is to do something and he fails to do it or performs it in contravention of the agreement, what are the remedies available to the creditor? If the debtor fails to comply, the creditor has the right to have the obligation performed by himself, or by another, (unless personal considerations are involved) at the debtors expense and to recover damages. If the debtor performs contrary to terms, it may be ordered by court that it be undone (if still possible to undo what was done) 5. Can a debtor be put in delay and consequently, incur liability even without demand from creditor? Explain. No. If the creditor does not demand, then it is presumed that he is giving the debtor an extension of time and the latter in not liable for damages. 6. May an action arising from fraud be waived? Explain. Yes. If the creditor, with full knowledge of the fraud committed by the debtor, decides to waive his right to indemnity, then it is considered as an act of forgiveness by the former to the latter. Waiver is void only when it is a waiver of an action for future fraud. 7. May an action arising from negligence be waived? Explain. Yes. An action for future negligence may be renounced except where the nature of the obligation requires the exercise of extraordinary diligence as in the case of common carriers and when the negligence shows bad faith. VIII. 1. Problems Who has a better right to Silver? B has a better right to Silver because he had a right to Silver the moment his contract with S was perfected, which was on July 5. This is before Ts contract with S was perfected. Thus, B has a better right. Is S guilty of legal delay? No. S is only guilty of ordinary delay since B has not yet demanded. Suzie gave birth to a colt on July 5 a. What are the obligations of S? S is obliged to preserve Suzie, Deliver its fruits, Deliver its accessions and accessories, deliver Suzie, and answer for damages in case of non-fulfillment or breach. b. Who has a right to the colt? B has a right to the colt since it is a fruit of Suzie, which is part of what S has to deliver to B. c. Who is the lawful owner of Suzie in case it was sold and delivered by S to T on July 8? T will be the lawful owner of Suzie if he acted in good faith. S will now be obliged to answer to B for damages. Is D liable to pay interest? D is not liable to pay interest since the payment of the interest was not stipulated in his contract with C. Can R still collect from E the rents for January & February 2003? R can collect from E the rents for January and February if he can show proof that the latter has not yet paid for the said months. If R cannot do so, then it is presumed that E has paid for the rent for January and February.
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Chapter 3, Sec.1: Pure and Conditional Obligations Study Guide IX. Definitions 1. Condition a future and uncertain event, upon the happening of which, the effectivity or extinguishment of an obligation subject to it arises. 2. Civil loss a thing disappears in such a way that its existence is unknown, or even if known, it cannot be recovered, whether as a matter or fact or of law. 3. Reciprocal obligations those which arise from the same cause where each party is a debtor and creditor to the other. 4. Pure obligation- obligation not subject to any condition and
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no specific date is mentioned for its fulfillment (immediately demandable). Potestative condition - a condition suspensive in nature and which depends upon the sole will of one of the contracting parties.
X. Discussions 1. Illustrate an obligation subject to: (a suspensive condition, (b)resolutory condition. (A) A will give B P100 if DLSU will beat ADMU in the game. (B) A will give B P100 until DLSU beats ADMU in the game. What is the effect of the fulfillment of the condition in a conditional obligation? (A) As obligation to B will arise (B) As obligation to B will be extinguished 2. Give 2 cases when the conditional obligation is valid although the condition depends entirely upon the will of the debtor. Explain (1) If the obligation is a pre-existing one and does not depend for its existence upon the fulfillment of the obligation. If the debtor already has an obligation, only the condition will be void because the obligations existence does not depend upon the conditions fulfillment. (2) If the condition is resolutory, and depends upon the debtor, it is valid. It is the same as a suspensive condition that depends upon the creditors will. 3. May an obligor be liable under an obligation subject to a suspensive condition although the condition has not yet been fulfilled? Explain . Yes. If the condition is suspensive, and the obligor actually prevents the fulfillment of the condition, and he does this voluntarily, he can be held liable. The obligor is liable because he prevented the condition from happening to avoid his obligations. 4. In an obligation to give a parcel of land subject to a suspensive condition, who is entitled to the fruits that accrued during the pendency of the condition once said condition is fulfilled? The debtor is entitled to the fruits of the land unless their stipulations clearly states otherwise. 5. State the rules in case the thing to be delivered: a. Is lost with the debtors fault; without his fault If w/ debtors fault, creditor is entitled to demand damages plus incidental damages, if any. If w/o debtors fault, obligation is extinguished and debtor has no liability to the creditor. b. Deteriorates with the debtors fault; without his fault If w/ debtors fault, creditor may choose between rescission of obligation with damages OR fulfillment of obligation with damages. If w/o debtors fault, creditor will suffer the deterioration. XI. Problems 1. Can C insist that B pay not later than August 30? No. C cannot insist that B pay earlier because the condition is if B wants. The obligation is void. 2. Is the obligation valid? The obligation is valid because the suspensive condition does depend upon the sole will of D. 3. What are the remedies of S? S can EITHER demand action for specific performance (fulfillment) of the obligation with damages, OR demand action for rescission of the obligation with damages. 4. If you were the judge, would you grant the rescission? No. I will not grant rescission because B is willing to pay the balance and only needs more time. I will grant B a term for performance instead. 5. Give the 3 cases when the obligation of D is demandable at once by C. (1) If Ds obligation does not depend upon a future or uncertain event. (2) If Ds obligation does not depend upon a past event unknown to the parties (3) If the obligation depends upon a resolutory condition. Chapter 3, Sec.2: Obligations with a period Study Guide I. 1. 2. 3. Definitions Obligations with a period one whose consequences are subjected in one way or another to the expiration of said period or term. Period a future and certain event upon the arrival of which the obligation subject to it either arises or is terminated A day certain which must necessarily come although it may not be known when. Indefinite period when it is not fixed or it is not known when it will come.
II. Discussions 1. Has the debtor the right to recover what he has paid to the creditor before the arrival of the period agreed upon? Explain. Yes, if the debtor paid, unaware of the period, believing that it is already due and demandable, he can recover. The debtor paid by mistake (solutio indebiti) 2. If an obligation does not state a period for its performance, has a party the right to ask a court to fix a period or the duration thereof? Explain . No. If the obligation does not state a period and no period is intended, the court is not authorized to fix a period. The courts have no right to make contracts for the parties. 3. Give the cases when the obligee can demand the performance of an obligation even before the arrival of the period agreed upon. (1) when debtor becomes insolvent.
(2) when debtor does no furnish the guaranties or securities promised. (3) when guaranties or securities given have been impaired or have disappeared (4) when the debtor violates an undertaking (5) when debtor attempts to abscond III. Problems 1. Can D require C to accept payment before December 31? No. It is presumed that the period designated is established for the benefit of both. An earlier payment by D may be inconvenient for C to accept. 2. Is the obligation of D conditional or one with a period? It is one with a period because it is a future and certain event. Even if it is not known exactly when Ds father will D, it is known that that day will indeed come. 3. What rights, if any, does C have under the law? May C demand payment from D even before August 10? C can demand payment from D and ignore the period. This is due to the impairment of Ds guaranty or security. Chapter 3, Sec.3: Alternative Obligations Study Guide I. 1. 2. 3. Definitions Alternative obligation one wherein various prestations are due but the performance of one of them is sufficient as determined by the choice which, as a general rule, belongs to the debtor. Facultative obligation one where only one prestation is due but the debtor may substitute another. Conjunctive obligation one where there are several prestations and all of them are due.
II. Discussions 1. What are the limitations on the right of choice of the debtor in alternative obligations? Illustrate one such limitation. Debtor cannot choose prestations which are impossible, unlawful, or which could not have been the object of the obligation. Also, debtor cannot choose if only one prestation is practicable or choose part of one prestation and part of another. (EX: If the prestations are to pay P250000, give a diamond ring or kill Pedro, debtor cannot choose to kill Pedro because it is unlawful) 2. Give the situation when the debtor is given the option either to exercise his right of choice or to rescind the contract with damages . If through the creditors acts, the debtor cannot make a choice, the latter may rescind the contract with damages. 3. State the legal effects in case: a. Some of the objects of the obligation are lost through the fault of the debtor who has the right of choice; The creditor may claim a different item with a right to damages or may pick the price of the one lost with a right to damages. b. All are lost through his fault. The creditor may demand payment of the price of any of the prestations with a right to indemnity for damages. III. Problems 1. Can D still change his period considering that he was given the right of choice? No. D can only change his period with Cs consent because he has already communicated his choice thus it is irrevocable. 2. What is the liability of X in case, through hi fault: a. Item two is lost or destroyed; If Y chooses item two, he will the price of which and be liable for damages OR if Y chooses the other items, he will still be liable for damages. b. All the items are lost or destroyed? X will be liable for damages and will pay the price of the item which Y chooses. 3. Is S liable to B in case the TV is lost through Ss fault? No, S is not liable because he can still perform his obligation by delivering his refrigerator instead. Chapter 3, Sec.4: Joint and Solidary Obligations Study Guide I. 1. 2. 3. 4. 5. Definitions Joint obligation one where the whole obligation is to be paid or fulfilled proportionately by different debtors and/or is to be demanded proportionately be different creditors Solidary obligation one where each one of the debtors is bound to render, and/or each one of the creditors has a right to demand from any of the debtors, entire compliance with the prestation. Active Solidarity- solidarity on the part of the creditors where any one of them can demand the fulfillment of the entire obligation. Joint indivisible obligation- the obligation is joint because the parties are merely proportionately liable but indivisible because the object or subject matter is not physically divisible into different parts. Solidary divisible obligation- the obligation is solidary because the parties can be compelled to fulfill the entire obligation and divisible because the subject matter can be divided
II. Discussions 1. If there are two or more debtors in one and the same obligation, is their liability joint or solidary? It would depend. According to Art.1207, the concurrence of two or more debtors in one and the same obligation does not make them liable to comply with the whole obligation. Unless the obligation expressly so states, or the law or nature of obligation requires solidarity, the obligation is a joint obligation. 2. In case of active solidarity, to whom shall the debtor or debtors make the payment? According to Art.1214, the debtors may choose which creditor to pay; however, if a creditor makes a demand, then the payment shall be made to him. 3. Give the effect of the condonation or remission of a debt by one of the several creditors where: a. The obligation is joint; According to Art.1215, the condonation will only affect the share of the certain debtor. The obligation will not be extinguished and the other co-debtors will still have to comply with their proportionate shares. b. The obligation is solidary According to Art.1215, the part of the obligation which is condoned or remitted shall be extinguished. It is now the responsibility of the creditor who made the condonation/remission to be liable to his co-creditors for their corresponding shares. 4. In case a remission is made by a creditor of the share of one of the solidary debtors, is the said debtor released from responsibility to his codebtors? Explain. According to Art.1219, the debtor is not released from his responsibility to his co-debtors. If one of the co-debtors would become insolvent, he still has the responsibility to share in the payment of the insolvent debtor. 5. Suppose a solidary debtor obtained remission of the whole obligation, is he entitled to reimbursement from his co-debtors? Explain. According to Art.1220, the debtor is not entitled to reimbursement from his co-debtors. The remission of the entire obligation is essentially gratuitous and he paid nothing, thus, he shall not be reimbursed. III. Problems 1. Has W the right to demand the full payment of P30000 from Z alone? No. According to Art.1207, if the obligation does not state solidarity, then it is a joint obligation. And if it is a joint obligation, Z is only liable up to his proportionate share of P10000; thus, W cannot demand from Z the whole P30000. 2. According to Article 1217: a. How much can X collect from Y and Z? X can collect from Y and Z only the share which corresponds to them, which is P10000 each. b. May X collect interest from Y and Z? X cannot collect interest because payment was made before the debt was due. c. Suppose Z turns out to be insolvent, how much can X collect from Y? If Z becomes insolvent, X can collect from Y his share plus half of Zs share, which is P15000 3. A owes B and C, solidary creditors, the sum of P20000: a. Can C condone the debt without the consent of B? According to Art.1212, C can condone the debt without Bs consent, however, he shall be liable to B and has to reimburse Bs share. b. Can C assign his rights without the consent of B? According to Art 1213, C cannot assign his rights to another person without Bs consent. However, if there are 3 creditors, (B, C, and D) C can assign his rights to D even without Bs consent. 4. Has C the right to demand that A and B be also included as party defendants? According to Art.1216, C has no right to demand from D to include A and B as party defendants because C, as a solidary debtor can be compelled to pay for the entire obligation. 5. Give the rights and obligations of the parties. According to Art.1221, as far as D is concerned, A, B and C are all liable for the price of the printing equipment as well as damages. A and B can recover from C since it was through his fault that the object was destroyed. If C paid for the price and damages, he cannot ask for reimbursement from A or B. Chapter 3, Sec.5: Divisible and Indivisible Obligations Study Guide I. 1. 2. 3. Definitions Divisible obligation one, the object of which, in its delivery or performance, is capable of partial fulfillment. Indivisible obligation one, the object of which, in its delivery or performance, is not capable of partial fulfillment. Legal Indivisibility- where a specific provision of law declares as indivisible, obligations which, by their nature, are divisible.
II. Discussions 1. Explain: The divisibility of an obligation is different from the divisibility of the thing which is the object thereof. According to Art.1223, the obligations divisibility or indivisibility is not determined by the divisibility or indivisibility of its object. Even if the object is divisible but the law or the parties intend the obligation to be indivisible, then it is indivisible. But if the object is indivisible, the obligation is always indivisible as well.
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What obligations are deemed indivisible? According to Art.1225, obligations to give definite things and those which are not susceptible of partial performance shall be deemed indivisible. What obligations are deemed divisible? According to Art.1225, when the obligation has for its object the execution of a certain number of days work, the accomplishment of work by metrical units, or analogous things which by their nature are susceptible of partial performance shall be deemed divisible.
III. Problems 1. Is the obligation divisible or indivisible? Indivisible. According to Art.1225, even though money is divisible the obligation may still be indivisible if the parties intend it to be. Since A and B intend to pay the loan on a certain date, the intention is that it will be paid at one time and as a whole. 2. State the rights and obligations of the parties. According to Art 1224, the failure of B to comply with his share shall give rise to indemnity for damages. A and C has the obligation to pay only up to their share of the price of the horse. B has the obligation to pay for his share plus the indemnity. D has a right to collect the price of the horse plus indemnity for damages. 3. Is the obligation of D divisible or indivisible? Divisible. According to Art.1225, loans to be paid by installments are deemed divisible obligations. However, each installment of P2500 is indivisible. Chapter 3, Sec.6: Obligations with a Penal Clause Study Guide I. 1. 2. 3. Definitions Obligations with a penal clause one which contains an accessory undertaking to pay a previously stipulated indemnity in case of breach. Penal clause an accessory undertaking attached to an obligation to assume greater liability in case of breach. Joint penal clause- both the principal obligation and the penal clause can be enforced.
II. Discussions 1. What are the purposes of incorporating a penal clause to an obligation? According to Art.1226, penal clauses are incorporated to obligations to insure their performance (to make the consequence of breach as onerous as possible) and to substitute penalty for indemnity for damages and payment of interests in non-compliance. The main purposes are reparation and punishment. 2. In an obligation with a penal clause, may the creditor still recover damages and interests in addition to the stipulated penalty? According to Art.1226, the creditor may still do so if it is stipulated by the parties, the obligor refuses to pay the penalty (in which case the creditor may recover legal interest thereon), or the obligor is guilty of fraud in the fulfillment of the obligation (in which case the creditor may recover damages caused by such fraud). 3. In what cases may the debtor validly object to the enforcement of the stipulated penalty? According to Art.1227, debtor may object the enforcement of penalty if there is performance on his part or if the creditor already required fulfillment of obligation. III. Problems 1. Has Y the right to refuse to accept the penalty in lieu of the horse? Yes. According to Art.1227, X cannot exempt himself from delivering the horse by paying the penalty, unless this right was reserved for him. 2. Can Y still enforce the penalty? Yes. According to Art 1228, Y does not have to prove that he suffered damages in order to demand the penalty. Since X violated the obligation, Y can enforce the penalty. 3. Is X liable for damages in addition to the penalty? No. According to Art.1226, X will only be liable for damages if the stipulations so states, if X refuses to pay the penalty, or when there is fraud on Xs part. Since there is only negligence and not fraud, Y cannot demand for damages in addition to the penalty and X is only liable for the penalty. Chapter 4, Sec.2: Loss of the Thing Due Study Guide I. 1. 2. 3. Definitions Legal impossibility occurs when the obligation cannot be performed because it is rendered impossible by provision of law, although physically it may still be possible of performance. Loss of thing occurs when the object perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered. Difficulty of performance- performance has become so difficult as to be manifestly beyond the contemplation of both parties.
II. Discussions 1. Give two cases when a person may be released from an obligation validly entered into. According to Art.1266, a person may be released from an obligation if the prestation becomes legally or illegally impossible without the fault of the obligor. Another case is when (according to Art.1267) the service has become so difficult, as to be manifestly beyond the contemplation of both parties, the obligor may be released in whole or part 2. Give the cases when loss of the specific thing to be delivered will not exempt the obligor from liability even in the absence of fault or delay. According to Art.1262, the obligor will not be exempt from liability if it is stated by law or stipulation. This also applies when the nature of the obligation requires the assumption of risk. 3. Will partial loss of the specific thing to be delivered extinguish the obligation? Explain According to Art.1264, the courts will determine if the partial loss of the object of the obligation is so important as to extinguish the obligation. III. Problems 1. Is X liable to Y? Yes. According to Art.1265, if the object is lost in the possession of the debtor, it shall be presumed that the loss was due to his fault, unless there is proof to the contrary. Thus, X is still liable to Y unless he proves the contrary. 2. Does it mean that X is already exempt from liability? Yes. According to Art 1262, the obligation which consists in the delivery of a specific thing shall be extinguished if it should be lost without the fault of the debtor, and before he has incurred in delay. Since the thing was lost without Xs fault and he is not yet in delay, then he is already exempt from his liability. 3. State the effects of loss as far as X, Y, and Z are concerned. According to Art.1269, the creditor shall have the rights of action which the debtor may have against the third persons by reason of the loss. Thus the obligation of X is extinguished and he is no longer liable to Y. However, Y has the right to bring an action against Z to recover the price of the thing with damages. Chapter 4, Sec.3: Condonation or Remission of Debt Study Guide I. 1. 2. Definitions Condonation or remission of debt the gratuitous abandonment by the creditor of his right aginst the debtor. It is thus a form of donation Inofficious remission when the remission given is more than that which the creditor can give by will.
II. Discussions 1. Give the requisites in order that a condonation or remission of debt may be valid. According to Art.1270, the requisites of remission or condonation are: (1) it must be gratuitous, (2) it must be accepted by the obligor, (3) the parties must have capacity, (4) it must not be inofficious, and (5) if made expressly, it must comply with the forms of donations. 2. When is the condonation or remission of debt considered inofficious? What is the remedy of the party adversely affected thereby? According to Art.1270, the condonation or remission of the debt is considered inofficious if it is more than that which the creditor can give by will. The remedy is that the testamentary dispositions which impair the legitime shall be reduced on petition of the heirs. III. Problems 1. D borrowed money rom C evidenced by a promissory note signed by D. a. What presumption arises if: 1. The promissory note is voluntarily given by C to D? According to Art.1271, the delivery of a private credit evidencing a credit, made voluntarily br the creditor to the debtor, implies the renunciation of the action which the former had against the latter. Thus the presumption is that C has renounced his rights against D and a remission of debt occurred. 2. It is found in the possession of D? According to Art.1272, whenever the private document in which the debt appears is found in the possession of the debtor, it shall be presumed that the creditor delivered it voluntarily. Thus it is presumed that C delivered the promissory note to D and the debt has been remitted. b. When will the presumption of remission arise? The presumption of remission will arise when the private document in which the debt appears is found in the possession of the debtor. 2. What presumption arises if: a. The debt is condoned by C? According to Art.1273, the renunciation of the principal debt shall extinguish the accessory obligations. Thus, if C condoned the debt, then the guaranty and security is likewise extinguished. b. The certificate is later found in the possession of D? According to Art.1274, it is presumed that the accessory obligation of pledge has been remitted when the thing pledged, after its delivery to the creditor, is found in the possession of the debtor. Thus, it is presumed that Ds pledge of shares of stock has been remitted. Chapter 4, Sec.4: Confusion or Merger of Rights
Study Guide I. 1. 2. Definitions Confusion meeting in one person of the qualities of creditor and debtor with respect to the same obligation Merger when the creditor is in itself his own debtor.
II. Discussions 1. What is the rationale behind confusion or merger as a mode of extinguishing an obligation? According to Art.1275, the obligation is extinguished if the roles of creditor and debtor are merged into the same person. This is so because it becomes absurd since a person cannot claim payment from himself. 2. Give the effect of merger when it takes place: a. In the person of the principal debtor or creditor According to Art.1276, merger in the person of the principal debtor or creditor extinguishes the obligation. b. .in the person of the gurantor of the principal obligation. According to Art.1276, confusion which takes place in the person of the guarantor does not extinguish the obligation. It only extinguishes the guaranty. III. Problems 1. Give the effect of the assignment. According to Art.1277, confusion does not extinguish a joint obligation. Since C, who is originally a joint debtor, becomes the creditor, then A and B are now liable to him for their share of P5000 each. 2. Assuming the obligation of A, B and C is solidary, distinguish the effect of the assignment from the first problem. According to Art.1277, merger in the person of one of the solidary debtors shall extinguish the entire obligation. Thus, the solidary obligation of A, B, and C to D is extinguished. However, C can still ask for reimbursement from A and B of their share in the obligation of P5000 each. Chapter 4, Sec.5: Compensation Study Guide I. 1. 2. 3. Definitions Compensation the extinguishment to the concurrent amount of the debts of two persons, who, in their own right, are debtors and creditors of each other. Legal compensation when it takes place by operation of law even without the knowledge of the parties Facultative compensation- when it can be set up only by one of the parties.
II. Discussions 1. What are the distinctions between confusion and compensation as modes for extinguishing an obligation? According to Art.1278, there is compensation when TWO persons are creditors and debtors of each other. Confusion occurs when ONE person is his own creditor and debtor. 2. In what way is compensation similar to payment? According to Art.1289, compensation and payment is similar in way due to the fact that application of payments can be applied to compensation. 3. May there be compensation although the things due are not consumable? Explain. According to Art.1279, there will be no compensation if both debts are NOT in the form of sums of money or consumable things of the same kind and quality. 4. When may compensation take place when only one of the debts is due? According to Art.1279, compensation may take place when A has not yet paid B on the date that Bs obligation is due. III. Problems 1. Has the bank the right to apply the deposit to the payment of Ds debt? Yes. According to Art.1287, since the other party is a bank deposit, it may apply the deposit to the payment of Ds debt. 2. Can compensation also take place although the debts are not payable on the same debt? According to Art.1282, the parties may agree upon the compensation of debts which are not yet due. Thus, if C and D would agree, compensation can take place. It can also happen if by Oct20, D hasnt paid C yet. 3. Illustrate compensation which can be set up by one of the parties. According to Arts.1287,1288, If A deposited an object to B, B the depository cannot claim compensation. However, A can set up his deposit as a compensation to B. Also If B borrowed the thing, only A can set up the compensation. 4. Assuming that both obligations are now due, may the two debts be compensated against each other? What is the effect if the debt of C is later annulled in court at the instance of D? According to Art.1284, they may be compensated. However, when Cs debt is later annulled, D is still liable to C because the annulment will make it seem like as if there had been no compensation.
Chapter 4, Sec.6: Novation Study Guide I. 1. 2. 3. Definitions Novation the extinction of an obligation through the creation of a new one which substitutes it. Mixed novation when the object and/or principal conditions of the obligation and the debtor or creditor, or both parties, are changed. Expromission- that which takes place when a third person of his own initiative and without the knowledge or against the will of the original debtor assumes the obligation of the latter with the consent of the creditor. Delegacion- that which takes place when the creditor accepts a third person to take place of the debtor at the instance of the latter.
4.
II. Discussions 1. Give the requisites of novation. According to Art.1292, the requisites of novation are (1) a previously valid obligation, (2) capacity and intention of the parties to modify or extinguish the obligation, (3) the modification or extinguishment of the obligation and (4) the creation of a new valid obligation. 2. When there is subrogation, what rights are acquired by the new creditor? According to Art.1303, subrogation transfers all the rights, either against the debtor of against third persons, subject to stipulation in a conventional subrogation. 3. In novation, give the effect where: a. The new obligation is voidable According to Art.1297, if the new obligation is void, the original one shall subsist, unless the parties intended that the former relation should be extinguished in any event b. The old obligation is voidable. Explain According to Art.1298, the novation is void if the original obligation is void, except hen annulment may be claimed only by the debtor or when ratification validates acts which are voidable 4. In novation, are accessory obligations necessarily extinguished? Explain. According to Art.1296, when the principal obligation is extinguished in consequence of a novation, accessory obligations may subsist only insofar as they may benefit third persons who did not give their consent. Thus if a third person is affected by the accessory in the original obligation, it will not be extinguished without his consent. III. Problems 1. Is D released from his obligation to C? Yes. According to Art.1293, there is expromission only if D is released from his obligation to C. If T and C didnt agree as to such, D is not liable because T paid without his knowledge or consent. 2. Is D still liable to C in case of insolvency of T? No. According to Art.1295, the insolvency of the new debtor will not revive the creditors actions against the original one. 3. What are the rights of T? According to Art.1302, T has the all the previous rights that C had. 4. Illustrate a mixed novation. Jo will deliver to Jacq a sundae cone. In the agreement of the parties, Jo will instead deliver a tetra pack of jungle juice to Nix.

Introduction to Law and Obligations

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Introduction to Law and Obligations

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INTRODUCTION

Indivisibility VS. Solidarity

Does not constitute an obligation Is never demandable

Contract VS. Agreement

Rules Governing Innominate Contracts

Temporary Refers to the contract itself

More or less permanent Refers to a person entering into the contract

Those where both parties are incapable of giving consent to a contract.

STUDY GUIDE OBLIGATIONS

IV. Discussions 1. Give the requisites of things as object of a contract.

STUDY GUIDE - CONTRACTS

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