4068616 Obligations and Contracts

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Week 1 – Welcome / Introduction to Law

I. Introduction to Law

1. Not Divine Law, law of religion and faith

2. Not Natural Law, justice, fairness and righteousness3. Not Moral Law, norms of good and right conduct4. Not Physical Law, order or regularity in nature

a. a. Sources of Lawi) i) Constitution – Fundamental Law of the land

ii) ii) Legislations – Passed by Senate and House of Representatives

iii) iii) Administrative issuances – Quasi Legislative

Functions

iv) iv) Jurisprudence – Decisions of the SupremeCourt (SCRA) Stare decisis

v) v) Treaties and Generally accepted principles of International Law - Art II Sec 2, Pacta sundservanda

vi) vi) Customs – habits and practices through longand accepted usage have become binding rules of conduct

vii) vii) Principles of Justice and Equity – common law jurisdiction

a. b. Characteristics of Law

- - Rule of Conduct- - Obligatory - - Promulgated by legitimate authority - - Of common observance and benefit

b. c. Organization of courts

- - Supreme Court- - Court of Appeals, Sandiganbayan, Court of

Tax Appeals- - Regional Trial Court



- - Metropolitan Trial Court, Municipal TrialCourt

- - Quasi Judicial Bodies1. 1. Comelec2. 2. NLRC

3. 3. LTFRC4. 4. ERB

c. d. Quantum of Evidence- - Criminal cases: Proof Beyond Reasonable

Doubt

- - Civil cases: Preponderance of Evidence-greater weight of all the evidence which as a wholeshows that the act sought to be proved is moreprobable than not.

- - Administrative cases: Substantial Evidence – Such evidence that a reasonable mind mightaccept as adequate to support a conclusion

d. e. Effects and Applications of law

- - Requirement for publication1. 1. 15 days after publication in OG or

newspaper2. 2. Ignorance of the law excuses no one

from compliance3. 3. Due Process

- - Law is prospective except:1. 1. If the law provides for retroactivity 2. 2. Penal law insofar as it favors the

accused3. 3. Remedial or curative law

- - Computing time1. 1. Year is 12 calendar months2. 2. Month is 30 days, except when it refers

to a calendar month3. 3. First day excluded, last day included

- - Conflict of Laws Provisionsi. ... i. Penal laws apply to all who sojourn to

Phils



ii. ..ii. Family Law and inheritance based onnational law of the party regardless of wherehe lives

iii. .iii. Forms and solemnities of contracts andother instrument based on the place where it

is executed

e. f. Obligations and Contracts Defined

The body of rules which deals with the nature andsources of obligations and the rights and duties arisingfrom agreements and the particular contracts.

Obligation – A Juridical relation whereby a person may demand from another the observance of a determinativeconduct (giving, doing, not doing), and in case of breach,

may demand satisfaction from the assets of the latter.

Contract – Meeting of the mind between two personswhereby one binds himself, with respect to the other, togive something or to render some service.

A contract necessarily gives rise to an obligation but anobligation does not always need to have a contract.

f. g. Corporation and Partnership Defined

Partnership – Two or more persons bind themselves tocontribute money, property, or industry to a commonfund, with the intention of dividing the profits amongthemselves.Corporation – Artificial being created by operation of law,having right of succession and the powers, attributes,properties expressly authorized by law or incident to itsexistence.

Weeks 2 to 4 – Obligations

I. General Provisions, Nature and Effects of Obligations

a. General Provision

- - Juridical Necessity – enforce compliance; seekdamages



- - To give, to do, and not to do – Examples

- - Four essential requisites of an obligation(i) (i) A passive subject (Debtor – to give; Obligor – to

do)

(ii) (ii) An active subject (Creditor/Obligee)(iii)(iii) Object (Prestation) – subject matter(iv) (iv) Juridical tie (Vinculum) – Source of Obligation

- - Form as a manifestation of intent; but no specificform unless required by law

(b) (b) Kinds of Obligations1. 1. According to subject matter

a. a. Real Obligation – to giveb. b. Personal Obligation – to do

i. ... i. Positive – to give or doii. ..ii. Negative - not to do or not to give

A borrower agreed to pay his debt in 60 days, andin case of non-payment to render free service asdriver/servant. When due date came, borrowerrefused to render free service. Decide.

2. 2. According to person obligeda. a. Unilateralb. b. Bilateral (Reciprocal or non-reciprocal)

(c) (c) Sources of Obligation1. 1. LAW – Imposed by law

- - A wife was about to deliver a child. Herneighbor brought her to hospital. Who shouldpay the hospital bill – Husband or Neighbor?

- - P.D. 1517 grants the right of first refusalto person who has leased for more than 10 yearsan urban land and who construct his housethereon. Lessee of a Condo in Manila now claimshis right of first refusal because he has beenliving in the unit for almost 15 years. Decide.

Obligations derived from law are not presumed.

- - In a newspaper ad, there was an offer toreplace 30 sachets of Tide for one Venetian cut



Glass until the end of the year. At the end of the year, you present your tide sachets, but Tiderefused to honor it anymore since the ad wasposted more than half a year ago. Decide. 657

a. a. Quasi-contracts – Juridical relations basedon the principle that no one shall be unjustly enriched or benefited at the expense of another.

i. ... i. Negotiorum Gestio – When a personvoluntarily takes charge of the managementof a business or property of another that hasbeen neglected or abandoned, without any power from the latter, as a consequence of which, he is obliged to continue the sameuntil the termination of the affair or to

require the owner to substitute him. Ex. NPAinfested area Fishpond

ii. ..ii. Solutio indebiti – When a personunduly delivers a thing through mistake toanother who has no right to demand it.(melon bank v. Javier)

b. b. Crimes (acts or omission punished by law)

If you commit a crime, you are liable bothcriminally and civilly for the consequence of youracts or omissions such as restitution, reparationfor damages caused and indemnification forconsequential damages.

Ex. Support for impregnated rape victim; loss of earning capacity of murder victim

c. c. Quasi delict or Torts – The fault ornegligence of a person who, by his act oromission, independent from any contractualrelation, causes damage to another person

A 3-year-old child was bitten by a dogof her neighbor. As a result, she got infectedby rabies and died. Can the neighbor be heldliable for the acts of the dog?



A signboard of hanging out of abuilding dropped on a car resulting in totalwreck of the car. The car owner sues thebuilding owner and demand to replace thecar. Building owner cites the strong wind as

force majeure condition indicating no fault onhis part. Decide.

2. 2. Contracts

Have the force of law between thecontracting parties and should be compliedwith in good faith.

Sincerity and Honesty

II. Nature and Effect of Obligations

(a) (a) Specific v. Generic Thing1. 1. Specific is designated or physically segregated

from others of the same class.2. 2. Generic refers to a class or genus and cannot

be determined with particularity.

(b) (b) Duties of debtor in delivery of generic thing1. 1. To delivery a thing which must neither be of

superior nor inferior quality (1246)2. 2. To pay damages in case of breach (1170)

(c) (c) Duties of debtor in delivery of specific thing1. 1. To deliver the thing which he has obligated

himself to give2. 2. To take care of the thing with the proper

diligence of a good father of a family The ordinary care that an average or

reasonably prudent person exercises over hisproperty

Another standard of c are may be requiredby law or by stipulation of the parties

3. 3. To deliver all the accessions and accessories4. 4. To pay damages in case of breach

(d) (d) Remedies of Creditors in breach of obligation1. 1. To Give Determinate Thing

a. a. To compel specific performance



b. b. To recover damages

2. 2. To Give Indeterminate Thinga. a. To ask for performance of the obligationb. b. To ask that obligation be complied with by

another at expense of debtorc. c. To recover damages

3. 3. To Doa. a. To have the obligation performed at

debtor’s expense b. b. To recover damages

4. 4. Not to Doa. a. Undone at his expenseb. b. To recover damages

(e) (e) Rules on Fruits1. 1. Kinds of fruits

a. a. Natural – product of the soil, young andother products of animals

b. b. Industrial – produced thru cultivation orlabor

c. c. Civil – derived by juridical relations

2. 2. Creditor has rights to the fruits from the timethe obligation to deliver arises

3. 3. Real rights acquired only when delivered tohima. a. Real rights - right over a specific thing

without any passive subject, directed against thewhole word.

b. b. Personal rights – right to demand fromanother debtor the fulfillment of the latter’sobligation

(f) (f) Accessions and accessories Accessions – fruits of a thing or additions to

or improvement upon a thing Accessories – joined to or included with the

principal thing for better use or completion.

1. 1. Even if not mentioned, accessories follow theprincipal



2. 2. But obligation to deliver accessions oraccessories does not include the principal

(g) (g) Legal Delay 1. 1. From the time obligee judicially or extra-

judicially demand fulfillment; not mere notice

2. 2. No demand from creditor necessary infollowing cases:a. a. When obligation or law expressly so

declaresb. b. Time is of the essence (controlling motive)c. c. When demand would be useless

3. 3. In reciprocal obligation, from the moment oneparty fulfills his obligation, delay by the other

begins.

4. 4. Kinds of Delay a. a. Mora solvendi – delay on the part of debtorb. b. Mora acccipiendi – delay of creditorc. c. Compensatio more – delay in reciprocal

obligation

5. 5. Effects of Delay a. a. Liable for interest and damagesb. b. Liable even for fortuitous event when the

obligation is to delivery a determinate thing

(h) (h) Fortuitous Events1. 1. Any event which cannot be foreseen or which

though foreseen is inevitable, independent of thewill or from aggravation of the debtor, renderimpossible the fulfillment of obligation

2. 2. No person shall be responsible for fortuitousevents, except:a. a. Where expressly specified by law or

stipulated in contractb. b. When nature of the obligation requires

assumption of riskc. c. When debtor incurs delay d. d. When debtor promises to deliver same

thing to two or more personse. e. When obligation to deliver arises from

criminal offensef. f. When obligation is generic



(i) (i) Fraud (deceit or dolo) Deliberate or intentional

evasion of the normal fulfillment of an obligation;1. 1. Dolo incidente (Incidental Fraud) - committed

in the performance of pre-existing obligation,

remedy is damages2. 2. Dolo causante (Causal Fraud) – Fraudemployed at the time of the execution of a contractin order to secure consent, remedy is annulmentbec of vitiation of consent

3. 3. Demandable in all obligations4. 4. Waiver of future fraud is void

(j) (j) Negligence (culpa) Omission of that diligence whichis required by the nature of the obligation, but no malice

1. 1. Culpa contractual – Negligence in the

performance of contractual obligation,a. a. Pre-existing contractb. b. Liable for damages based on breach of

contractc. c. Proof of contract and breach is enough for

recovery of damaged. d. Negligence of employee conclusive

presumption of employer’s negligencee. e. Proof of due diligence in the selection of

employee not a defense

2. 2. Culpa aquiliana – Negligence between partiesnot so related by any pre-existing contract,a. a. Obligation for damages based on quasi

delictb. b. No pre existing contractc. c. Negligence must be proved for recovery of

damaged. d. Negligence of employee prima facie

presumption of employer’s negligence e. e. Due diligence in the selection and

supervision of employee is a valid defense

3. 3. Can be regulated by the Court depending oncircumstance

4. 4. Waiver of future negligence allowed

(k) (k) Presumptions1. 1. Receipt of principal without reservation as to

interest = presumption of interest paid



2. 2. Receipt of later installment of debt withoutreservation of prior ones = presumption that priorones paid

(l) (l) Remedies to satisfy claim

1. 1. Exhaust property of debtor2. 2. Subrogated to rights and actions of debtors,except those inherent to person

3. 3. Impugn all of acts by debtor done to defraudcreditor



II. Different Kinds of Obligations

(a) (a) Pure and Conditional Obligations

1. 1. Pure Obligation – One whose effectivity orextinguishments does not depend upon thefulfillment or nonfulfillment of a condition or uponthe expiration of a term or period. Characterized by Immediate Demandability.

2. 2. Conditional Obligation – Effectivity issubordinated to the fulfillment or non-fulfillment of a future or uncertain fact or event

Future and uncertain event or

Past event and unknown to theparties

a. a. Suspensive v. Resolutory

In suspensive condition, fulfillmentgive rise to an obligation – acquisition of rights

In resolutory condition, fulfillmentextinguishes obligation – loss of rightsacquired

b. b. Casual, Potestative, Mixed

Casual – Depends on chance or will of third party (Valid)

Potestative – Depends on the will of one of the contracting parties

(1) (1) If suspensive conditiondepends on will of debtor, theobligation is void

(2) (2) If resolutory condition dependson will of debtor, the obligation isvalid

(3) (3) If depends on will of creditor, itis valid.

Mixed – Depends partly upon the willof a party and partly upon chance or thirdparty (Valid)



c. c. Impossible Conditions

- - Physically Impossible or legally impossible

- - If “to do”, whole obligation is void- - If “not to do”, obligation is valid, as if not written

- - If divisible, part not affected by impossible condition is valid.

d. d. Positive v. Negative

i. ... i. Positive Condition (event will happen)extinguished:

As soon as time expires withoutthe event taking place

As soon as it becomes indubitablethat the event will not take place

ii. ..ii. Negative Condition (event will nothappen) effective:

As soon as time expired withoutevent taking place

As soon as it becomes evident theevent cannot occur

e. e. Reciprocal v. Unilateral

i. ... i. If reciprocal, the fruits are deemedmutually compensated

ii. ..ii. If unilateral, fruits and interest belongsto debtor

3. 3. Condition deemed fulfilled when obligorprevents its fulfillment

4. 4. Creditor may before the fulfillment of thecondition bring appropriate actions for thepreservation of the rights.

5. 5. Debtor may recover what he has paid by mistake before the fulfillment of condition.



6. 6. Effects of the fulfillment of a condition

retroacts to the day of the constitution of theobligation.

7. 7. Rule on loss or deterioration, improvementsbefore the fulfillment of condition

Lost – when perished, go out of commerce, or disappear in such a way that its existence unknown or cannot berecovered

a. a. If without the fault of debtor, the obligationis extinguished

b. b. If lost thru fault of debtor, obliged to pay

damagesc. c. When deteriorate without fault of debtor,

creditor bores the impairmentd. d. When deteriorate with fault of debtor,

creditor may rescind or fulfillment with damagese. e. When improved by nature, or by time,

inure to the benefit of creditorf. f. When improved by debtor, no right to be

indemnified, but may remove suchimprovement, or set off against damage

8. 8. Remedies in reciprocal obligation

a. a. Specific Performance or Rescission

b. b. With damages in either case

c. c. Alternative remedy not cumulative – canchoose one but not both

d. d. After action for specific performanceimpossible, option for rescission

e. e. Injured party must resort to judicialrescission,i. ... i. Except where automatic rescission

expressly stipulatedii. ..ii. Or where there is no performance yet

f. f. Power of the court to fix period



g. g. Subject to right of good faith third party

h. h. Substantial breach not slight breach

i. i. Where both parties have breach, liability of first infractor equitably tempered; where firstinfractor not know, both parties bear owndamages

(b) (b) Obligations with a Period

1. 1. Demandability or extinguishments subject toexpiration of a term or period

2. 2. Term or period – future and certain event

3. 3. Rules on loss, deterioration, improvements of conditional obligation applicable

4. 4. If paid or delivered before period arrives,debtor may recover the thing, with fruits andinterests.

5. 5. Established for the benefit of both debtor andcreditor, unless otherwise stated

6. 6. Court may fix period

a. a. If obligation does not fix a periodb. b. Depends on will of debtor

“When means permit” not condition,but period

Period fixed by court cannot be changed

7. 7. Debtor loses right to make use of the period

a. a. Debtor becomes insolvent, unless he givesguaranty or security

b. b. When debtor does not furnish guarantiesor securities promised

c. c. When guaranties or securities impaired ordisappear

d. d. When debtor violates an undertakinge. e. When debtor attempts to abscond



(c) (c) Alternative Obligations

Alternative – several objects or prestationsbut performance of one sufficient

Facultative – One object or prestation but

debtor may substitute.

1. 1. Must completely perform one of them

2. 2. Right of choice to debtor, unless expressly granted to creditor Except those impossible, unlawful, which

could not have been the object of the obligationor only one prestation is practicable

3. 3. Choice no effect until communicated,

irrevocable once communicated

4. 4. Debtor may rescind the contract withdamages if thru creditor’s acts debtor cannot makea choice

5. 5. If lost due to fortuitous event,a. a. If two or objects remain, the obligation

subsistsb. b. If only one object remain, it becomes

simple obligationc. c. If none remains, obligation is extinguished

6. 6. If lost due to fault of debtor,

When right of choice belongs to debtor

a. a. If 2 or more objects remain, debtor canchoose from remaining, not liable for damages

b. b. If only one remain, simple obligation todeliver remaining

c. c. If none remains, debtor indemnify damages based on value of last object

When right of choice belongs tocreditor

a. a. If alternative object still remain, creditorcan choose the one lost and ask value of objectlost and damages; if creditor choose the



remaining object, debtor cannot be liable fordamages

b. b. If none remains, debtor to indemnify fordamages based on the price of the object chosenby the creditor plus consequential damages

7. 7. Facultative Obligation

a. a. Right of choice only to debtorb. b. If lost before substitution, debtor not

liable.c. c. Debtor liable for loss due to his fault once

substitution has been maded. d. If after substitution, it is lost thru

fortuitous event, obligation extinguished, debtornot liable

(d) (d) Joint and Solitary Obligations

1. 1. Joint Obligation – Each of creditor has rightto demand, and each debtor is bound to rendercompliance, with his proportionate part of theprestation

a. a. Default rule is obligation is JOINT

b. b. Joint creditor cannot act in representationof the other creditors

c. c. Joint debtor cannot be compelled toanswer for liability of other debtors

d. d. “Jointly”, “We promise to pay”, “Pro rata”,“proportionately”

2. 2. Solidary Obligation – Each creditor has aright to demand, and each debtor is bound torender compliance, with the entire prestation; butas to co-debtor he is liable only for his share

a. a. Instances when obligation is solidary:

i. ... i. When obligation expressly states so

ii. ..ii. When law requires solidarity:



1. 1. If 2 or more heirs take possession

of estate

2. 2. Partners in partnership

3. 3. If principal allowed agent to actas though he has full power4. 4. If 2 or more appointed an agent

for common undertaking or transaction5. 5. 2 or more bailees to whom a

thing is loaned6. 6. 2 or more officious managers,

unless management was assumed tosave thing from imminent danger

7. 7. 2 or more persons liable for quasidelict

8. 8. 2 or more payees when there hasbeen payment of what is not due

9. 9. Principal, accomplices, andaccessories of a felony.

iii. .iii. When nature of obligation requiressolidarity 1. 1. Ex. Accident fr “Kabit” system

b. b. “Solidarily”, “Jointly and severally”, insolidum, together and/or separately, “I promiseto pay”

c. c. Creditors and debtors need not be boundin the same manner and by the same periodsand conditions

d. d. Not same as indivisible obligation

i. ... i. Solidary refers to vinculum;Indivisibility refers to prestation

ii. ..ii. Solidary requires plurality of subjects

iii. .iii. In solidary, all debtors liable for breachof obligation; In indivisibility, only debtorguilty of breach of obligation is liable fordamage



iv. .iv. In indivisible obligation, other debtorsnot liable for insolvency; if solidary debtorbecomes insolvent, the co-debtors bore hisdebt in proportion

e. e. Solidary creditors may do whatever may beuseful to others, but not anything which may beprejudicial to the others

f. f. A solidary creditor cannot assign his rightswithout the consent of the others, except if to co-creditors

g. g. Debtor must pay to the creditor who madedemand, if none demanded, then he may pay any one of the solidary creditor

h. h. Novation, compensation, confusion orremission of a solidary creditor shall extinguishthe obligation but the creditor who did theseacts shall be liable to the other creditors

i. i. No re-imbursement if payment made afterobligation prescribed or illegal

j. j. Remission of the whole obligation obtainedby a solidary debtor does not entitle him toreimbursement from his co-debtors

k. k. Defenses available to solidary debtors

i. ... i. Derived from nature of obligation Payment, fraud, prescription,

remission, illegality, non performance of condition

ii. ..ii. Personal to the debtor Insanity, incapacity, mistake,

violence, minority

iii. .iii. Personal to the other solidary debtors Partial defense



(e) (e) Obligations with a Penal Cause

1. 1. With accessory undertaking in case of breachof obligation

a. a. To insure performanceb. b. To liquidate the amount of damage to beawarded

c. c. To punish the obligor in case of breach

2. 2. No need to prove actual damage

3. 3. Shall substitute for damages and interest,except

a. a. When there is stipulation to the contrary

b. b. When obligor is sued for refusal to pay agreed penalty

c. c. When obligor is guilty of fraud

4. 4. When court may reduce penalty

a. a. If principal obligation partly complied withb. b. If principal obligation irregularly complied

withc. c. If penalty is iniquitous or unconscionable



Weeks 5 to 7 - Extinguishments of Obligations

Modes of Extinguishing Obligations

1. Payment or performance2. Loss of the thing due3. Condonation or remission4. Confusion or merger of the rights of creditor and debtor5. Compensation6. Novation7. Death of a party in personal obligation8. Annulment or Rescission of contract9. Arrival of Resolutory period or fulfillment of resolutory conditon10. Impossibility of fulfillment

11. Prescription

I. Payment(a) (a) General Provisions Payment

(i) (i) Complete Delivery of money,performance of obligation

(ii) (ii) If substantially performed in goodfaith, obligor may recover as thoughthere had been complete fulfillmentless damages

(iii)(iii) Third party cannot compel creditorto accept payment or performance,except

a. a. When there is stipulation tothe contrary

b. b. When third person has aninterest in the fulfillment of obligation

(iv) (iv) Rights available to third party whopays:

a. a. If payment made with theconsent of the debtori. .. i. Recover from debtor the

entire amountii. . ii. Subrogated to all the

rights of creditor



b. b. If payment made without

the knowledge or against the willof debtor, he can recover only insofar as payment has been

beneficial to the debtor

(v) (v) To whom payment must be made(1240)

a. a. To the person in whosefavor obligation has beenconstituted

b. b. His Successor in interestc. c. Any person authorized to

receive it

d. d. Third person provided ithas redounded to benefit of creditor. (1241, 1242)Presumption of benefit in thefollowing case:

If after payment, third personacquires creditor’s rights

If creditor ratifies payment to thirdparty

If creditor’s conduct let debtor tobelieve that the third person had authority toreceive payment

e. e. Possessor of the credit

(vi) (vi) Payment must be in Legal Tendera. a. Foreign currency may be

used as currency of contractb. b. Promissory notes, bills of

exchange, checks not legaltender. They produce effect of legal tender only when encashedor impaired thru the fault of creditor (1249)

c. c. In case of extraordinary inflation or deflation, the basis isthe value of currency at the timeobligation is established. (1250)



(b) (b) Applications of Payments1. 1. The right belongs to the

debtor, but if he does not exercise it,creditor may do it

2. 2. If creditor issues a receipt

designating the debt to be applied,debtor can accept or reject3. 3. Where neither debtor nor

creditor made a choice, it shall beapplied on the debt which is mostonerousa. a. Older debts more onerous

than newer onesb. b. One bearing interest more

onerous than one that is notc. c. Secured debt more

onerous than unsecuredd. d. Debt as principal more

onerous than debt as guarantore. e. Solidary obligation more

onerous than sole debtor4. 4. If similar nature and burden,

payment shall be appliedproportionately

(c) (c) Payment by Cession Assignment or abandonment of all the

properties of the debtor for the benefit of his creditorsin order that the latter may sell same and apply proceeds thereof to

1. 1. Cession does not make thecreditors owners of the property

2. 2. Unless stipulation to contrary,debtor still required to pay balance

3. 3. Requires two or morecreditors, debtors insolvent, cessionaccepted by creditors

(d) (d) Dacion en pago Dation in payment is the transmission of the

ownership of a thing by the debtor to the creditor asan accepted equivalent of the performance of anobligation.

Governed by law on sales



1. 1. Difference between Dacion

and Cessiona. a. Dacion usually only one

creditor

b. b. Dacion does not requireinsolvency c. c. Dacion does not involve all

the property of debtord. d. Dacion makes creditor

owner of the property e. e. Dacion is a novation

(e) (e) Tender of Payment and Consignation Tender of payment – The act of the debtor of

offering to the creditor the thing or amount due

Consignation – Deposit of the object or theamount due with the proper court after refusal orinability of the creditor to accept the tender of payment

1. 1. Requisites of Consignationa. a. Debt Dueb. b. Tender of payment by

debtor and refusal by creditor toaccept it without justifiablereason

c. c. Previous notice of theconsignation had been given topersons interested in fulfillmentof obligation

d. d. Thing or amount due hasbeen deposited with judicialauthority

e. e. Subsequent notice of consignation to interested parties

2. 2. Exception to requirement fortender of payment:a. a. When creditor is absent or

unknown or does not appear atplace of payment

b. b. When he is incapacitated toreceive payment

c. c. When he refuses to givereceipt, without just cause

d. d. When two or more personsclaim same right to collect



e. e. When title of the obligationhas been lost

3. 3. Expenses of consignation forCreditor’s account

a. a. If creditor allows debtor to withdraw the consignation, creditorlose preference over the thing. Co-debtor, guarantors, sureties shallbe released.

II. Loss of the Thing Due(a) (a) Lost – when perished, go out of commerce, or

disappear in such a way that its existence unknown orcannot be recovered

Or becomes legally or physically impossible to perform, or

so difficult as to be manifestly beyond the contemplationof the parties

(b) (b) The obligation to deliver specific thing isextinguished if

1. 1. Without the fault of debtor, and2. 2. Debtor not in delay

(c) (c) No person shall be responsible for fortuitous events,except:

1. 1. Where expressly specified by law or stipulatedin contract

2. 2. When nature of the obligation requiresassumption of risk

3. 3. When debtor is at fault, partly 4. 4. When debtor incurs delay 5. 5. When debtor promises to deliver same thing

to two or more persons6. 6. When obligation to deliver arises from

criminal offense7. 7. When obligation is generic

(d) (d) In case of partial loss the court shall determinewhether it is so important as to extinguish the obligation

(e) (e) In case lost when the thing is in the possession of debtor, presumption is it is his fault

Except earthquake, flood, storm or othernatural calamity



(f) (f) Creditor shall have right to go against any thirdperson responsible for the loss.



III. III. Condonation or Remission of Debt

g. h. Act of liberality by virtue of which creditor

abandons his right Gratuitous Accepted by debtor Obligation must be demandable Parties must be capacitated Donation not inofficious Forms in express condonation

h. i. Implied remission- - Delivery of private document evidencing

credit

- - If thing pledge is found in the possessionof debtor or owner of thing

- - Renunciation of principal extinguishaccessory obligation

IV. Confusion or Merger of Rights Creditor and Debtor merged in the same

person1. 1. Between principal debtor and principal

creditor2. 2. Complete and definite merger

a. a. Merger of debtor and creditor benefits theguarantor

b. b. Extinguish only the portion of the jointobligation corresponding to the creditor and debtormerged

c. c. Merger of one solidary debtor with creditorextinguishes obligation

V. Compensationa. a. Persons who in their own rights are debtors and

creditors of each other extinguishes the debts to theconcurrent amount

b. b. Guarantor can set up compensation of whatprincipal debtor may owe creditor

c. c. Compensation may be total or partiald. d. Parties may agree to compensate debts not yet due



e. e. When one or both debts are rescissible or voidable,they may be compensated before they are judicially rescinded or avoided

f. f. Requisites of legal compensation (by operation of law ):

1. 1. Parties are principal creditors and debtorsof each other2. 2. Both debts consist in sum of money or

consumable of same kind and quality 3. 3. Both debts are due and demandable4. 4. Two debts are liquidated (amount is

certain)5. 5. No retention or controversy commenced by

3 rd party g. g. Compensation after assignment

i.

Assignment made with consent of debtor Debtor cannot set up compensation againstprevious creditor

ii. Assignmentwith knowledge but without consent Debtor can set up compensation for debts

before the notification Debtor cannot set up compensation with

respect to debts which matured after notification

iii. Assignmentwithout knowledge of debtor Debtor can set up compensation for debts

maturing before he learned of assignmenth. h. Compensation cannot take place in following case:

i. Debtsfrom Contracts of Depositum (A person receives athing belonging to another for safekeeping and of returning the same; not bank deposits)

ii. Debts fromCommodatum (One person delivers to anothersomething for him to use and return it)

iii. Claims forsupport due by gratuitous title

iv. Debts fromCriminal offense

v. Taxes



VI. Novation – extinction of an obligation through the creation of a new one which substitutes it

a. a. Requisites:

i. Previous valid obligation

ii. Agreement to enter new obligation

iii. Extinguishments of old

iv. Creation of new valid obligationb. b. Must be declared in unequivocal termsc. c. Or incompatible on every point – Test: Whether

old and new contract can stand together each havingits own independent existence

d. d. Substitution of Debtor

i. Expromision – Without the knowledgeor consent of debtor, at the instance of the newdebtor

1. 1. Payment by new debtor gives himright to beneficial reimbursment

2. 2. Insolvency or non fulfillment of obligation by new debtor will not give riseto liability of old debtor

ii. Delegacion – Substitution made at theinstance of old debtor

3. 1. Payment by new debtor entitles himto reimbursement and subrogation

4. 2. Non fulfillment of obligation by newdebtor will not give rise to liability of olddebtor

5. 3. Insolvency of new debtor will reviveaction against old debtor if insolvency wasalready existing and of public knowledge,or known to the debtor when he delegatedhis debt

e. e. If new obligation is void, the original one shallsubsists

f. f. If original obligation is void, novation is void;except when annulment may be claimed only by debtor or when voidable acts have been ratified

g. g. Subrogation – Substitution of Debtor



i. Conventional – By express agreement

of the old creditor, debtor and the new creditor

ii. Legal – Without agreement, by

operation of law1. 1. When creditor pays another creditorwho is preferred, even without the debtor’sknowledge

2. 2. When a third person, not interestedin the obligation, pays with the express ortacit approval of debtor

3. 3. When a third person interested inthe fulfillment of obligation pays, evenwithout the knowledge of debtor



DD ee f f iinn iitt iioo nn oo f f aa CC oo nn tt rr aa cc tt

A meeting of the minds Between two persons Whereby one binds himself, with respect to the other

To give something or to render some service

DD iif f f f ee rr ee nn tt pp hh aa ss ee ss oo rr ss tt aa ggee ss iinn tt hh ee lliif f ee oo f f aa cc oo nn tt rr aa cc tt 1. 1. Preparation – Preliminary to formation 2. 2. Perfection – birth of the contract3. 3. Consummation - fulfillment

EE ss ss ee nn tt iiaa ll cc hh aa rr aa cc tt ee rr iiss tt iicc ss oo f f CC oo nn tt rr aa cc tt ss 1. 1. Obligatory force – must be complied with in good faith

2. 2. Autonomy – parties are free to enter such stipulations,

clauses, terms and conditions – – Clauses and condtions must not be contrary to:

LAW Morals Good Customs Public Order Public Policy

3. 3. Mutuality – contract must bind both parties

Determination can be left to third party, whose decisionshall be binding only when communicated to both parties

Unless such determination be evidently inequitable

4. 4. Relativity – takes effect only bet parties, their assigns andheirs

Stipulation pour autrui accepted by third party Where third persons comes into possesion of the object of

contract creating real rights Where contract is to defraud a third person Where third person induces a contracting party to violate his

contracta.

DD iif f f f ee rr ee nn tt CC llaa ss ss ee ss oo f f CC oo nn tt rr aa cc tt ss

According to perfection – – Consensual – Perfected by mere agreement of the parties



– – Real – Requires not only consent, but also the delivery of the object

According to form – – Common – Do not require particular form

– – Formal – Those which require particular form, likedonation, mortgage

According to nature of vinculum – – Unilateral – Obligation of one party only – – Bilateral – Reciprocal obligations for both parties

According to cause – – Onerous – Giving of an equivalent or compensation – – Gratuitous – Given without compensation, just pure

liberality

According to risks involved – – Commutative – Prestation is pecuniarily appreciable and

determined at the moment of celebration of contract – – Aleatory – Pecuniarily appreciable but not yet determined

at the moment of celebration, since it depends upon thehappening of an uncertain event. Ex. Insurance

According to name – – Nominate – with specific names or designation in law – – Innominate – no specific name

EE ss ss ee nn tt ii aa ll RR ee qq uu ii ss ii tt ee ss oo f f CC oo nn tt rr aa cc tt ss

Consent of the contracting parties Object certain subject matter of the contract Cause of the obligation which is established

EE llee mm ee nn tt ss oo f f CC oo nn ss ee nn tt

Concurrence of the offer and the acceptanceo Definite Offer that may be exactly fixedo Assent to the terms without qualifications or conditionso Conveyed before the death, civil interdiction, insanity, or

insolvency



o Qualified acceptance is a counter offero Perfected when acceptance comes to knowledge of offeroro Offer can be withdrawn anytime before acceptance, unless

option is founded on considerationo If offer made thru agent, accepted when communicated to

the agent By parties with legal capacity to contract

o Not minors, insane or demented, deaf-mutes who do notknow how to write, incompetents under guardianship, civilinterdiction

o Minor can be liable if he misrepresents his ageo Prohibited by law from entering into contracts

Husband and Wife to each othero o Insolventso o Persons prohibited from giving donationso o Adultery, concubinageo o In consideration of criminal offenseo o Made to public officer, spouse, by reason of

officeo o Persons with fiduciary relationso o Guardian, for property under his

guardianshipo o Agents, for property entrusted to themo o Executor/administratoro Public officers, judges, for property under their

jurisdictiono

Intelligently, freely given, consciously - - Vices of the will

Mistake - False notion of a thing or a factmaterrial to the contract

Simple mistake gives rise to correction Render voidable in following cases:

Mistake as to object of the contracto Identity of thing, Substance, Condition, Quantity only if principal reason o

Mistake of Lawo Will not make it voidable except: Mutual

error as to the legal effect of an agreement when the real purpose of theparties is frustrated

Mistake as to person



o If such identity or qualification is principalcause of contract

Violence – Employment of external physical

force, irresistible and serious to wrest consent

Intimidation – Moral compulsion to influenceanother to give his consent thru fear of imminent orgrave evil

o o Force employed must be serious orirresistible

o o Determining cause for the party inentering into the contract

Undue Influence – Improper advantage of hispower over the will of another depriving the latter of

reasonable freedom of choice

Confidential, Family, Spiritual and otherrelations or

Person influenced suffering from mentalweakness, ignorant, financial distress

Fraud – Insidious words or machinations of oneof the contracting parties induced the other to enterinto a contract, which without them he would not haveagreed; Failure of one party to disclose facts to otherparty when there is a duty to reveal them

Dolo incidente (Incidental Fraud) - committed inthe performance of pre-existing obligation,remedy is damages

Dolo causante (Causal Fraud) – Fraud employed at thetime of the execution of a contract in order to secureconsent, remedy is annulment bec of vitiation of consent

o o Must be employed by one of thecontracting parties,

o o but not by both or by third partieso o Must be Seriouso Must have induced the other party to

enter into the contract



- - Vices of Declaration Simulated Contracts

11 .. AAbb ss oo lluu tt ee

– Contracting parties do not intend to be boundby the contract at all – – Void

2. Relative – Contracting parties conceal their trueintentions

– Real agreement binding on the parties if it doesnot prejudice third person

OO bb j j ee cc tt ss

Thing, right or service which is the subject matter of the obligationcreated or established Thing or service must be within the commerce of man

o o The law prohibits future inheritance as object of contract

o o Transmissible and can be appropriatedo o Not contrary to Law Moral Good Conduct Public

Order Public Policy o o Real or possibleo o Determinate or determinable

CC aa uu ss ee

Essential reason why the parties enter into the contracto Cause should be in existenceo Licit or lawfulo True Interchangeable with consideration, but not same as motive

o General rule: Particular motive of the party in enteringinto a contract are not material. Except: When itpredetermines the purpose of the contract



FF oo rr mm

Whatever may be the form, Contract shall be obligatory on allprovided all the essential requisites are present

Two exceptions: When Law requires a certain form for validity When Law requires form for enforcement

Must appear in Writing to be valid:o o Donation exceeding P 5,000o o Sale of piece of land or interest therein by an agento o Antichresis - Creditor acquires rights to fruits of

immovable but applying to payment of interesto o Agreement regarding payment of interest

Must appear in Public Instrument to be valid: Donations of immovable property Partnership where immovable or real rights are

contributed Must appear in Public Instrument for Enforcement Creation, transmission, modification, sales or

extinguishments of real rights over immovable properties Cession, repudiation, or renunciation of hereditary

rights, or those of conjugal partnership of gains Power to administer property Cession of actions or rights proceeding from an act

appearing in a public document

RR ee f f oo rr mm aa tt iioo nn

When the true intention of the parties are not expressed in theinstrument, one of the party may ask for the instrument to bechanged so that true intention may be expressed.

Requisities

Must be a meeting of the minds of the parties True intention is not expressed in the instrument Failure due to mistake, fraud, inequitable conduct or

accident



What may be reformed Mutual mistake of parties cause failure to disclose real

agreements One party mistaken and the other acted fraudulently

or inequitably

One party was mistaken and the other knew thatinstrument did not state real agreement, yet concealed it Ignorance, lack of skill,, negligence or bad faith on the

part of person drafting it Where parties agree on mortgage, but instrument states

property is sold absolutely or with right to repurchase

o o What may not be reformedo o Simple Donations with no conditiono o Willso o Those where real agreement is void

DD ee f f ee cc tt iivvee CC oo nn tt rr aa cc tt ss

o o As to defect o o Rescissible - Injury or damageo o Voidable - Vitiation of consent or legal capacityo o Unenforceable - In excess of authority or do not

complyy with S of Fraudo o Void - Lack of an element of a valid contract

o o As to effecto o Rescissible and Voidable - Valid until annulledo o Unenforceable - Cannot be enforced by action in

courto o Void - No legal effects at all

o o As to parties who can file actiono o Rescissible and Void – May be attack directly By

contracting parties or by third partieso o Voidable and Unenforceable - Cannot be

attacked by third persons

Resolution (Rescission of reciprocal obligationo Party who may institute action

For resolution, only party to the contract



o Causes Failure of one party to comply w/ obligation

o Kind of contract Reciprocal obligation only

o Power of the courts

Can grant extension for performance Rescissible Contracts

Guardian who represent ward, lession of more than ¼of the value of the thing

In representation of absentee, lession of ¼ In fraud of creditor who is unable to collect Things under litigation, entered into by defendant

without approval of litigants and court Payment made in state of insolvency where debt not

yet dueo Those which may be declared by law

Partition (1098) Result of deterioration (1189) Unpaid seller (1526 and 1534)

Badges of Fraud

o o Cause or consideration is inadequateo o Transfer made after suit has begun or pendingo o Sale on credit by an insolvent debtoro o Evidence of large indebtedness or complete

insolvency o o Transfer of all or nearly all of debtor propertieso o Between father and son, with any of above

circumstanceso o Failure of vendee to take exclusive possession

VVoo iidd aa bb llee CC oo nn tt rr aa cc tt ss Where one party is incapable of giving consent to a contract

Where the consent is vitiated by mistake, violence,intimidation, fraud, undue influence

CC oo nn vvaa ll iidd aa tt iioo nn Prescription (Four years)

From time incapacity ceases From discovery of such fraud or mistake



Ratification or confirmation Loss of the thing by thru the fault of the person who has right

to annul

EE f f f f ee cc tt ss oo f f aa nn nn uu llmm ee nn tt oo f f VVoo iidd aa bb llee CC oo nn tt rr aa cc tt

– – If not consummated, then parties are released from obligation – – If consummated, parties are to restore to each other what theyhave given, with fruits and interests, plus damages

– – If to do or not to do, there will be apportionment of damages – – Incapacitated party not obliged to make restitution except forwhat he was benefited

UU nn ee nn f f oo rr cc ee aa bb llee CC oo nn tt rr aa cc tt ss Those entered into in the name of another person by one who

has been given no authority or legal representation or who hasacted beyond his powers

Those not complying with Statute of Frauds.

SS tt aa tt uu tt ee oo f f FF rr aa uu dd – – Purpose is to prevent fraud, not to aid the commission of fraud – – Basic and fundamental principles

Applies only to executory contracts Cannot apply if action is not for damage bec of violation of

agreement or for specific performance Exclusive May be waived Personal defense Contracts are not void Rule of exclusion Concerns admissibility of evidence, not credibility Does not apply if action is to claim reformation

– – Following must be in writing or in some notes or memorandum: – – Agreement not to be performed within a year from the

making thereof – – A special promise to answer for debt, defaults or

miscarriage of another – – Agreement in consideration of marriage – – Sales of goods, chattels, things above P500 – – Lease of more than one year – – Representation as to credit of another



VVoo iidd CC oo nn tt rr aa cc tt ss – – No concurrence of offer/acceptance – – Cause, object, purpose contrary to law, morals, good customs,

public order, or public policy – – Absolutely simulated or fictitious

– – Cause or object did not exist at the time of the transaction – – Object outside commerce of men – – Impossible service – – Intention of the parties relative to principal object cannot be

ascretained – – Prohibited or declared void by law

EE ss tt oo pp pp ee ll

Estoppel in pais - by one’s conduct or acts, representatioons,admissions or silence, culpable negligience induces another to

believe certain facts to exist and such other rightfully relies andacts on such belief.

Estoppel by Deed - A party to a deed, are precluded fromaasserting against the other party to the deed any right or title inderogation of the deed, or from denying any material fact assertedtherein.

Estoppel by Record - A party precluded from denying thetruth of matters set forth in a record, whether judicial orlegislative.

EE ss tt oo pp pp ee ll bb y y L L aa cc hh ee ss Estoppel by Laches

Failure or neglect to enforce a right for an Unreasonable and unexplained length of time Despite knowledge or notice

EXTINCTIVE PRESCRIPTION(Arts. 1139-1155)

40 days Redhibitory action based on defectsof animals.

6 months (a) (a) Action for reduction of price forrescission in case of breach of sale of real estate, either with a statementof its area at a certain price for aunit of measure or number.

(b) (b) Action for warranty against



hidden defects of thing sold.1 year (a) (a) Action by husband against wife

to impugn child’s legitimacy if husband is in the same place aswife.

(b) (b) Action for revocation of donationfor acts of ingratitude.

(c) (c) Action for forcible entry orunlawful detainer.

(d) (d) Action for defamation.(e) (e) Action for rescission or for

damages if immovable sold isencumbered with non-apparentburden or servitude.

2 years Action to impugn child’s legitimacy if husband is in the Philippines butnot in same place as wife.

3 years Action to impugn child’s legitimacy if husband is abroad.

4 years (a) (a) Action for revocation orreduction of donation based onsupervening birth, appearance oradoption of a child.

(b) (b) Action for revocation of donationbased on fulfillment of condition.

(c) (c) Action for recovery of movable(replevin ) if possessor is in goodfaith.

(d) (d) Action upon injury to rights of plaintiff.

(e) (e) Action upon a quasi-delict.(f) (f) Action for rescission of

rescissible contracts.(g) (g) Action for annulment of voidable

contracts.5 years (a) (a) Action for legal separation.

(b) (b) Action for annulment of marriagebased on

1. Lack of parental consent.2. Fraud.3. Force, intimidation or undueinfluence.4. Physical incapacity and afflicted witha sexuality transmissibledisease.



(c) (c) Action to claim legitimacy if childshould die during minority or instate of insanity.

(d) (d) Action for declaration of incapacity of heir.

(e) (e) Action for warranty of solvency of debtor if credit is assigned to co-heirduring partition.

(f) (f) All other actions whose periodsare not fixed by law.

6 years (a) (a) Action upon oral contract.(b) (b) Action upon a quasi-contract.

8 years Action for recovery of movables(replevin ) if possessor is in bad faith.

10 years (a) (a) Action for recovery of possessionof immovables ( accion publiciana ) if real right of possession is lost.

(b) (b) Action for recovery of ownershipof immovables ( accion reinvindicatoria ) if possessor is ingood faith.

(c) (c) Action upon a mortgage contract.(d) (d) Action upon a written contract.(e) (e) Action upon an obligation

created by law.(f) (f) Action upon a judgment.

Lifetime (a) (a) Action to claim legitimacy.(b) (b) Action to obtain declaration of

illegitimate filiation.

4068616 Obligations and Contracts

Documents

Transcript of 4068616 Obligations and Contracts