Obligations and Contracts Notes.pdf

Obligations and Contracts Notes

AY 2012-2013

Compiled by MFLH – Exclusive for EH401

PRE-MIDTERMS

PRELIMINARY

Obligation- moral or legal; distinguish based on basis of consequence for non-compliance o Moral obligation- in case of non-compliance, there

will be no sanctions imposed at least from civil law authorities; only answerable to your conscience; you cannot be sued on the basis of this

o Legal obligation- there are legal sanctions for non-compliance such as being sued in court; aggrieved party can always go to court to compel you to perform obligation; you are answerable to the court

o Natural obligation- the middle ground; obligation which at the outset is not a source of a legal right, but in case the obligor voluntarily complies with the obligation, it authorizes the retention of what has been voluntarily delivered

Example: debt is due and demandable now. If creditor collects the debt within 10 years from now, that is a legal obligation because within that period, you can be sued for compliance. But if creditor fails to collect within that period and allow that to lapse (prescription period lapses), like he collect 15 years from now, debtor cannot be held liable anymore under the law because the debt has prescribed.

Next scenario: Debtor knows that he is no longer liable, and he still voluntarily complies with the obligation/pays the debt. Later he decides to file a case to recover the debt he paid since he alleges he was not already required to pay, he cannot recover anymore. He cannot recover what he voluntarily paid.

Natural obligation is given partial legal recognition. The court may order that you cannot recover what you voluntarily delivered.

Unlike natural obligation, the obligor can be sued in court even from the start if it is established the obligation was not complied with. It is a source of right from the very start. Moral obligation is not a source of legal right.

There is little law involved in natural obligations: only a part of the Civil Code

Not applicable when debtor does not know there is something demandable from him. It must be voluntary. If not, may be a quasi-contract.

Purely civil obligation- defined in 1156, juridical necessity to give, to do or not to do

Juridical necessity- in case of noncompliance, there is a legal sanction

Sanctions that may be imposed on non-complying party in the obligation- among many is “damages”; if you violate a contract you are required to pay the payment known as damages; other sanctions: specific performance (you can be under pain of contempt), contract can be declared without force and effect plus damages always

when there is a right, there is an obligation, there is corresponding duty to comply with the obligation, then there will be damages as sanction for noncompliance

Kinds of obligations under 1156: 3 kinds, to give, to do, not to do

Elements of obligations: the obligee/creditor, obligor/debtor, juridical tie (contract, law such as obligation arising from law on taxation), object/prestation

SOURCES OF OBLIGATIONS: law, contracts, quasi-delict, quasi-contracts, acts & omissions punished by law

1. Law- imposed by law itself. It must be categorical/clear enough as to create no doubt on the obligation

Example: no law requiring owners of big malls to provide free parking; law imposing taxes; also the case of Mangonon on support

2. Contracts- source of an obligation because when one agrees to a contract, he is binding himself to do/give something; meeting of the minds between two persons where one binds himself with respect to the other to render some service

3. Quasi-contract – it is similar to a contract; but here, the law only presumes there is a contract (but there really is no contract)

Types: a) negotiorum gestio- unauthorized management but

certain benefits go to one of the parties. The one benefitted has obligation to reimburse. Example: spending funeral expenses for someone who is not a relative; but he has right to be reimbursed by the persons responsible

b) Solutio indebiti- obligation to return what has been mistakenly delivered. Example: you forgot to return change

4. Delict- acts or omissions punished by law; made punishable by the RPC; source of the liability is crime; one criminally liable is also civilly liable but there are crimes where there is no civil liability,

e.g. rebellion, sedition sanction/criminal liability: imprisonment


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civil liability: damages (moral damages, actual damages, exemplary damages)

an act is criminal when there is a law which says it is criminal

Distinction: civil liability from quasi-delict is broader because civil liability arising from crime can only be punished when expressly said by the RPC. Quasi-delict covers all voluntary acts and results of negligent acts. Even if an act is not punished by the RPC (where there is no civil liability because there is no crime) 2 kinds of acquittals & civil liability: a) Acquittal based on reasonable doubt: there is still civil liability, though no criminal liability. The source of liability here is the crime (still). A crime was committed but the accused was not the one responsible, hence, no criminal liability for him. Here, you can even be charged twice for civil liability: from crime and quasi-delict. b) Acquittal because the fact on which the crime is based does not exist: no civil liability arising from crime because there was no crime committed at all. However, it does not follow that there is no civil liability at all. Still, even if there is no crime and there was damage that resulted, one can still be charged for civil liability arising from quasi-delict (as long as you can prove there was negligence)

Rule on reservation of civil actions: there is a need to reserve if it is a civil liability arising from crime, but if it is civil liability which is independent civil action, there is no need to reserve

5. Quasi-delict – obligation arising from voluntary acts and damage results because of negligence; not purely delict

this is also known as Tort

Example: the case in Crim where people brought a torch to an overturned bus and it burned

Civil liability arising from crime or quasi-delict (against same person) can be prosecuted simultaneously. This can be done with independent civil actions only, but not with dependent civil actions. In fact if civil action is filed ahead of a criminal action & it is not an independent one, it has to be suspended.

In independent civil actions, regardless of what the result of the criminal action is, it can be filed before, during or after that case. This does not violate also rule against forum-shopping

Distinguish civil liability arising from contract & from quasi-delict: in contract, there is a contract. In quasi-delict, there is no preexisting contractual relation.

Example: an obligation from contract & at the same time arising from quasi-delict, & other sources of obligation --- riding a taxi. There are many sources of civil liability here: -from contract: contract of carriage exists between the passenger & the operator; there would be a violation if you are not brought to your destination hence the source of the obligation for such violation is one arising from contract against the operator. The contract with the operator is that the passenger should be taken to his destination safely as far as human foresight would allow -from quasi-delict: driver drove negligently (there was damage to you/passenger), so if there is a crash from the negligence, there is an obligation arising from quasi-delict against the driver -from quasi-delict: against operator; there is negligence on his part to exercise due diligence/diligence of a good father of a family/ordinary diligence in the selection & supervision of his employees; you as operator are responsible for any negligent act committed by the employee (driver) -from crime: against the driver; reckless imprudence resulting to homicide/serious physical injuries/less serious/slight; may also be against the operator when the driver is insolvent; operator has subsidiary liability; there is no denial of due process to operator because operator is still given time to prove: 1) driver is employee; 2)damage was inflicted in the course of employee’s performance of functions. Driver should provide very good counsel to driver

Generally, there is no contract in obligations arising from quasi-delict. Any damage resulting if there is a contract can only be based on obligation arising from contract & not quasi-delict (PSBA vs CA). However, even when there is a contract, one can still file for quasi-delict if the act that breaks the contract is a negligent act or a tortous act, like an employee asking a passenger to vacate seat in a plane because he is colored

Distinction between cases for obligations arising from contract, or from quasi-delict: if liability is based on contract, the liability is limited to the conditions of the contract/the stipulations such as liquidated damages (damages in case of breach have already been agreed on). If it is quasi-delict, one can practically throw anything at the defendant such as several kinds of damages, and complainant may prove the damages and allege the amount


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Proving damages from contract is easy: only prove there was a) a contract, b) there was a breach. Hence, it is difficult for defendant to defend his case

Problem with quasi-delict, there are more defenses available to defendant: a) Defendant can claim it was an accident- it’s very

difficult here for complainant to prove that indeed there was negligence on part of driver

b) Operator can claim he exercised diligence of a good father of a family/ordinary diligence in the selection of his employees-- but in contract of carriage, extraordinary diligence is required

Example: Amadora vs CA, the parents were not given anything/damages. The school & teacher were not responsible; able to prove there was no negligence. There were many defenses here

Under jurisprudence: The list of sources is exhaustive.

If source is not among these, it is only probably a moral obligation and hence, cannot be a cause of action. It is not a legal obligation. Many criticisms have been given to this restrictive rule.

But if you are defense for a company (like Coca cola giving away promotions and not being true to the promotion), there may be a legal obligation but not under the civil code, it may be a violation of a DTI order only or the Consumer’s Act (case has not yet been decided). But in this example, cannot be a contract because there was no previous acceptance/meeting of minds (only unilateral)

When you file a case, you should have a cause of action/proper legal basis. Do not abuse your prerogative/right to file a case (Ayg pasagad ug file ug kaso na wai klaro!), you can be counterfiled (Uypitching case)

Do not equate contract with obligation, because contract is only one of the sources of an obligation. In obligations arising from contracts, parties can stipulate just about anything. These are valid, and the only condition is that the stipulations must not contravene law, public policy, morals, good customs

CLASSIFICATION OF OBLIGATIONS

Primary Classification o Pure – not subject to any condition; demandable at

once o Conditional – there are conditions attached to the

obligation; demandability depends on condition; future and uncertain event

Suspensive – suspends the demandability of the obligation; happens when condition happens

Resolutory – demandable at once but extinguished upon occurrence of obligation

o Obligation with a period or term – future but certain event; example: until the death of your father

o Alternative – there are several prestations available; example: you can deliver house or give amount of 1 million; many but can choose only one

o Facultative – one prestation available but capable of being substituted; here there is only one prestation but you can substitute

o Joint – there are several debtors and several creditors; each to his own -Each creditor is entitled to demand only the payment of his proportionate part of the credit, while each of the debtors is liable only for the payment of his proportionate part of the debt

o Solidary – there are several debtors and several creditors (still); all for one, one for all; debt of one, debt of all

Example: you become a co-maker and even if you do not get proceeds but your co-maker cannot pay, it’s as if you were the one who got the debt and you would be made liable for entire debt

-Each creditors is entitled to demand the payment of the entire credit, while each of the debtors is liable for the payment of the entire debt

o Divisible – susceptible of partial performance o Indivisible – not susceptible of partial performance;

full compliance o With Penal Clause – when there is a breach of the

obligation, there is already a built-in penalty clause

Secondary Classification o Legal o Conventional o Real – obligation to give; no obligation not to give o Personal – obligation to do or not to do o Determinate – specifically designated

-if fortuitous event happens, obligation is extinguished o Generic – not designated, only the kind and quality are

given -if fortuitous event happens, obligation not

extinguished o Positive/Negative o Unilateral – only one person is obliged o Bilateral – reciprocal obligations o Individual o Collective o Accessory – does not have a life of its own; example:

mortgage obligation cannot stand without a loan


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obligation (which is the principal obligation, does not depend on the mortagage)

o Principal – can stand by itself, like the loan obligation

NATURE AND EFFECT OF OBLIGATIONS

Obligation to deliver money- can be determinate (if designated with specific serial numbers) or generic (if only the amount is specified

Effect of loss due to fortuitous event: if determinate thing, absolved/obligation extinguished. If generic, not extinguished

Duties of the obligor if his obligation is to deliver a determinate thing:

To deliver the thing itself To preserve or take care of the thing due To deliver the fruits of the thing o Natural fruits, civil fruits such as rentals of a building

To deliver its accessions and accessories o Example of accession: the fruits of trees on a land to be

delivered (which is the principal) o A house is an industrial accession so it must be

delivered also along with the land (principal) – to exclude a house, it must be specified in the contract. If contract is silent, a thing is deemed included

o Accessions can be natural & industrial To answer for damages in case of non-fulfillment or

breach

(Basic) Remedies in case of breach:

Compel obligor to comply with obligation Debtor can be liable for damages

Duty if obligation is to deliver indeterminate/Generic

Deliver the thing itself o Guide: Art 1246, creditor cannot demand a thing of

superior quality neither can debtor deliver a thing of inferior quality

o Loss of thing here will not absolve obligor

In an obligation to do, in case of non-compliance, obligor cannot be forced to comply because this will violate constitutional right against involuntary servitude. However, there is still liability

If something is done poorly or not in accordance with the contract, it can be undone at his expense.

Always remember damages; damages can be given in either case

REMEDIES IN CASE OF BREACH/VIOLATION OF RIGHTS

1. Specific performance - Personal right creditor only has personal right over a thing pending

its delivery when case is filed, it is against the debtor Remedy: ask for specific performance, can only

compel debtor to deliver the thing. This is because thing has not yet been delivered & ownership has not yet transferred

Distinguished from Recovery of ownership - Real right

the right of the creditor over a thing becomes a real right when it is delivered & ownership is transferred; this is done through delivery of a public document

Example: Land- delivered when debtor gives to creditor the deed of sale

it is the right over the specific thing (do not use right against “whole world” because that is different)

Remedy: not limited to specific performance; you can file for recovery of ownership if there is a violation of your right

Land: if not yet delivered, you can only ask for specific performance; you cannot file for ejectment when there is no delivery yet.

when there was no delivery yet & the seller sold it to someone else (double sale), only feasible remedy is specific performance; not recovery of ownership because you do not have ownership in the first place

so make a distinction between specific performance & recovery of thing

2. Rescission Right to Rescind – putting an end to the contract but

there is duty to return Creditor must state in the contract that in case of non-

payment, previous payments are forfeited. If this is not stipulated, creditor would be obliged to return when there is rescission

there must be a judicial decision/court intervention, there is a need for the court to determine whether rescission is proper an individual cannot put the law in his hand for the benefit of creditor, so he can offer thing again

to another without breaching the contract Not necessary to go to court all the time for rescission,

there is Extra-judicial rescission –the contract is deemed rescinded unless the other party objects, then they have to go to court

3. Damages- an action solely for damages in case of

breach


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There are 3 Basic remedies: specific performance, rescission, damages, OR specific performance + damages, rescission + damages, damages

Would it be correct to say that if there is Literal/slightest Breach of Contract, cause of action automatically arises or it can result to rescission already? – No, it depends on the nature of the violation. o Slight breach- court here can still give the debtor a

period to comply with obligation; e.g. when 90% of payments have been paid & debtor was only in delay for 5 days, no rescission

o Substantial breach- this is the type that warrants rescission as a remedy plus damages; must be grave enough; not enough to say that there was a violation

(Sung Foo vs Hawaiian Philippines)

EFFECTS OF RESCISSION

Primary effect: contract is treated as if it did not exist o Why is it necessary for parties to go to court to ask

for declaration of rescission? Parties cannot decide for themselves the validity of the contract

Secondary effect ONLY: Mutual Restitution o EXCEPT: In the case of paying down payments,

restitution may be mutual if there was no stipulation in the contract on forfeiture. If there was a stipulation on forfeiture, the guilty party/debtor cannot recover what he paid. This is because it would be unfair to creditor when debtor had used the land already without paying full amount

o Even if there is no forfeiture, aside from rescission, you can always incorporate damages as additional remedy

o Actual cases, it is often rescission + damages only for substantial breach- “substantial” would

depend on the circumstances/decision of judge Sung Foo vs Hawaiian Philippines

o there was non-compliance with the consideration of the contract (the reason for entering into the contract)

o The buyer wanted to pay in another manner, and he imposed new conditions; but this cannot be done because when you impose new conditions, this amounts to a counter-offer; this is not compliance

o Court said there was breach on part of the buyer o Seller was entitled to rescission because there is a

violation and it was substantial o Issue on restitution here: forfeiture clause in the

contract is conditioned on the violation on the real

estate mortgage. However in the case, what was violated was the contract of sale because as a matter of fact, mortgage was not approved. Hence, forfeiture clause cannot be applied, so general rule was applied which is mutual restitution

o If seller failed to include a non-forfeiture clause in the contract, remedy could be in damages. In contracts, the remedy could also be rescission + damages and not solely rescission or damages

*Attorney’s fees does not belong to the lawyer; it belongs to client

DIFFERENCE BETWEEN CANCELLATION AND RESCISSION

Rescission – as if the contract did not exist, no legal effects no basis for claims, e.g. no basis on claiming

rentals in arrears because contract of lease was already rescinded; cannot claim for rentals for months before breach of contract because contract here is not recognized

Cancellation – giving partial effects to the contract; legal effects before the violation are recognized, only effects after that are not recognized If contract of lease is only cancelled, contract only

ceases to exist after demand is made; there is basis for claiming rentals in arrears because you just asked the contract to be partially void for the months following the breach

MODES OF BREACH OF CONTRACT

1. FRAUD Can be a mode of committing Estafa; done through

swindling

Kinds of Fraud:

Fraud in the Performance of obligation – this is the fraud referred to in 1170; presupposes there is already obligation arising from contract; nothing wrong in securing consent; contract is perfectly fine Remedy: Damages (and even criminal liabilities)

Fraud in the Execution/ Creation/ Birth of Contract – the fraud here is to secure consent/ so other party may enter into contract with you; no contract yet; makes contract voidable; can be causal or incidental fraud; affects existence of contract Remedy: Annulment of contract

Woodhouse vs Halili


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Fraud here was incidental fraud; did not prevent the meeting of minds

2. NEGLIGENCE Omission of that diligence which is required by the

nature of obligation and corresponds with the circumstances of the persons, time and place.

Failed to exercise the prudence demanded by the circumstances

Difference: Source of liability here from negligence is contract; in quasi-delict, source of negligence is not contract but the quasi-delict

2 kinds of negligence: o Negligence in Quasi-Delict/culpa aquiliana:

there is no contract that binds the parties & negligence happens Defense of good father available All damages attributable to the incident may

be asked; relief is broader; includes everything such as actual, moral, exemplary damages

o Negligence in the performance of an obligation/ contractual negligence/culpa contractual: there is a contract here but the negligence is the same negligence in culpa aquiliana Defense of good father is not available here Damages grounded only on the natural and

probable; can include actual damages e.g. loss of earning capacity

Sarmiento vs Spouses Cabrido

Case of negligence on the part of a jeweler in dismounting diamond from a ring

Negligence here is culpa contractual, because there was a contract; negligence arising from contract; damage suit from culpa contractual

Duty of plaintiff to prove negligence; show industry standard in how to dismount diamond

Crisostomo vs CA

Case of culpa contractual Plaintiff contended that the agency was a common

carrier; significance of this lies in the degree of diligence required

Common Carrier – business engaged with the public in transporting goods to a specific destination; extraordinary diligence is necessary (periodic maintenance, seminars, etc.)

Travel Agency – not a common carrier; only diligence of a good father (basta mudagan lang ang sakyanan!)

She wanted to allege that agency had to exercise extraordinary diligence, but it was not a common carrier

How to determine type of diligence required

Determine how the others observe diligence; the nature of the obligation

Defense in Negligence Cases:

The proximate cause of the accident/negligence is the act of the plaintiff himself

Show cause of damage was negligence of plaintiff himself

3 types of Stipulations with regard to negligence (Contractual only) which are illegal

not liable for any negligence under any circumstance limiting the amount that may be recovered contract of adhesion if the conditions are too onerous

which leave the contracting party with no choice *when asked if contract of adhesion is valid or not – make a qualification (if the contract is onerous or with choice)

3. DELAY

2Kinds of Delay

Ordinary Delay – failure to perform an obligation on time

Legal Delay – failure to perform an obligation on time which failure, constitutes a breach of obligation; need to prove that there was demand

General Rule: There must be a demand. No demand, no delay.

Exceptions:

Time is of the essence – time is the controlling motive o the debtor knows what the obligation is for and

time is a factor o example: a wedding gown not delivered on time

When the law so provides/ When the obligation so provides o example of law expressly stating: law on taxation

setting date of payment o example of obligation expressly stating: there is a

specific: “without need of prior demand” o not enough that you put date/deadline; there

must be “without need of prior demand”. If no such phrase, debtor can only be in ordinary delay

When demand would be useless o Fortuitous event


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if Specific Thing - demand is useless because the specific thing is lost already; debtor is excused

o When debtor already gave the thing to another person who is innocent

RECIPROCAL OBLIGATION – in 1169

Neither party incurs delay when the other is not ready to comply with what is incumbent upon him

Both can be in delay here (compensation morae): How to show readiness (in complying with his

corresponding obligation) – file for specific performance o Need not literally bring money to the court to

show that you are ready to comply with your obligation; just state on the record that you are ready

Who can be guilty of delay?

Debtor (discussed above) Creditor

o Fails to accept the performance of the obligation Remedy: (1) tender of payment then (2)

consign the money in court Purpose: To be absolved from the obligation Consequence if you will not follow is that you

will keep paying interest

Valid reasons for the Creditor not to accept:

Manager’s Check is not legal tender o creditor is justified not to accept something that is

not a legal tender No payment in full

o Payment must be made in full.

BP22 – when the check bounced

the debtor can inform the creditor – no delay yet delay only after the creditor demands debtor has 5 days

Ejectment – can only be had if there is a failure to pay after the demand within the period given (Cetus Case)

If there is payment within the period, there is no cause of action

If payment is still given after the period given - invalid

Compensatio Morae: both creditor and debtor are at fault or delay

4. CONTRAVENTION OF THE TENOR (terms of contract) – violation in any manner; any kind of defective performance

any illicit act, which impairs the strict and faithful fulfillment of the obligation or every kind of defective performance

Malicious or negligent violation of the terms and conditions stipulated in the obligation

Must not be due to fortuitous event or force majeure, otherwise there would be no liability

Immaterial whether or not the debtor is in bad faith or negligent, what is required is that it is his fault or the act done contravenes their agreement

Fixing a period to comply with obligation is not always necessary; period can be determined by the nature of the obligation since there is no express standard here; go by the industry standard; reasonable time (so it is not practical to go to court just to fix period for a typewriter) (Chavez)

CATCH-ALL PHRASE: if you are not sure if breach was delay, negligence, fraud, contravention can be used as ground

Examples: Telefast vs Castro Telegram company did not send telegram on time;

family was not able to attend the burial Example of contravention Arrieta vs NARIC There was a requirement that before bank approved

letter of credit, there must be a marginal deposit, which was not complied and import quota was not also released

SC ruled that it was the fault of NARIC since it did not comply with marginal deposit

[difficult case to understand but if you can’t understand, then I’m sorry! – Atty G]

REMEDIES OF CREDITOR IN CASE OF BREACH 1. Principal Remedies – can be availed of by aggrieved creditor a. Action for Specific Performance (obligation to give specific thing)- ask the court to compel the debtor to comply with this obligation/make the delivery Qualification: Only available in Obligation to Give

(cannot be availed in Obligation to Do); might amount to involuntary servitude

Remedies if specific performance not available: action for substituted performance (may be in the form of reimbursement) and damages/ damages only o Substituted performance– a third person can

do the obligation for the creditor, e.g. another


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architect can do the design but at the expense of the first architect

Action for undoing of poor work o Undo what was poorly done o To compel debtor to undo what was poorly

done; but if he refuses, he cannot be coerced (involuntary servitude); then you can resort to other possibilities (discussed below)

o How to undo a poor work? Ask the court for an order of undoing poor

work at expense of debtor, then execute the order like destroying a poor house in totality and build another one (money is not a question!)

Another possibility of undoing, engage the services of another person to do the task of the previous debtor (contractor), so new contractor will build another house; commission another person at the expense of the debtor

b. Action for Damages c. Action for Rescission – to put an end to the contract;

as if contract did not exist; available in a Reciprocal Obligation (parties are both creditor and debtor to each other) There must be a violation of the contract before

rescission can be availed of – the creditor may choose: Rescission with damages Fulfillment of the obligation with damages

Guidelines in rescission 1. Nature of breach must be substantial; not merely

slight Contract will remain if there is just slight breach When there is no substantial breach, remedy is

that the court may fix a period for debtor to still comply with obligation

2. there must be readiness to restitute when there is a manifestation that you are

ready, you can ask for rescission, provided other qualifications are met

3. can only be availed of by the aggrieved party 4. must be preceded by a court order

There can be a PARTIAL SPECIFIC PERFORMANCE AND PARTIAL RESCISSION (Central Bank vs CA)

2. Subsidiary Remedies – can’t be immediately availed of Scenario: there is a writ of execution issued by the court, executed by the sheriff, debtor has no assets to satisfy judgment, subsidiary remedies can now be availed by filing in court

(have to avail first of principal remedies and they failed) a. Accion Subrogatoria - step into the shoes of your debtor; you “exercise all the rights and bring all the actions” of the debtor Creditor is vested with right to collect from the

debtor of his debtor; e.g. accounts receivable Condition: insolvency of the debtor SO the Rights of Creditors are:

o Levy by attachment and execution all the property of the debtor, except those exempt by law from execution, OR

o Exercise all the rights and actions of the debtor, except such as are inherently personal to him (need to file a motion in court)

Exceptions/Limitations o Inherent Rights o Personal Rights

b. Accion Pauliana – the creditor has no other legal remedy; issued by the court to satisfy claim While case was pending, debtor was (fraudulently)

transferring/disposing his properties so creditor’s claim cannot be satisfied; fraudulent transfers

So as a creditor, do accion pauliana- given the right to set aside and declare as void all those contracts because they were entered into with fraud. However, you must establish you have exhausted the properties of the debtor/ you have availed of principal remedies and you cannot get anything from the debtor

Prescription: when the right of the action accrues – time of discovery of the fraud

(read Khe Hong Cheng)

3. Accion Derecta


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MIDTERMS

PURE OBLIGATIONS – 1179, an obligation not subject to any condition and is demandable at once CONDITIONAL OBLIGATIONS – subject to conditions before they are demandable; one whose consequences are subject in one way or another to the fulfillment of a condition *Conditions modify the demandability of obligations; may be suspend or may put end to an already effective obligation 2 Kinds of Conditional Obligations OBLIGATION WITH A SUSPENSIVE CONDITION –

fulfillment of the condition will give rise to an obligation; suspends the demandability of an obligation; if condition has not yet been fulfilled you cannot demand --so at outset, not yet immediately due and demandable o “I will give you house and lot if you par bass

exam.” You cannot file for specific performance since you did not pass bar yet

o Practical example: purchase of property on installment basis -if you are owner, you do not want to part with property when condition is not yet fulfilled -seller will ask buyer that in meantime buyer has not yet fully paid, security is that ownership of the property shall be transferred only upon payment of purchase price -seller has obligation to transfer ownership but subject to condition only when full payment of purchase price has been done by seller

RESOLUTORY CONDITION – with regard to

demandability, Resolutory is same with pure obligation, immediately demandable; but Resolutory obligation ends and obligation when the condition happens “I will give you monthly support until you reach

age of 18”. This is immediately demandable from time you agree to be bound but the moment you reach 18, obligation is extinguished; condition must not be fulfilled for continuing demandability of obligation

*When can you say there is delay? There has been a demand; necessary requisite as a general rule Term vs Condition

-demandability is the same, but term is specific -“I will give you monthly support until you die” – obligation with a Resolutory term -term is future and certain; passing the Bar is a condition -future and certain even upon the arrival of which the obligation (or right) subject to it either arises or in terminated *Distinguish Condition and Terms (p 176) Demandability, obligation with Resolutory term is

same with an obligation with a Resolutory condition where it is demandable at once

Fulfillment o Condition is an uncertain event o Term is a certain even which must happen sooner

or later at a date known beforehand

As to Time o Condition may refer to a past event unknown to

the parties -example: I will give you house and land if you can establish that the number of victims in typhoon Pablo reached 50 (condition); not a future event because typhoon already passed -so why is it allowed to be a condition? It really is not the event itself, it is the knowledge of the event (which is in a way future)

o Period refers only to the future -birthday is term; but depends on how it is used in obligation -“If you reach age of 25”, condition

Parks vs Province of Tarlac -effects of conditions; donation immediately took effect so you had to first revoke it before you can sell it Rights of the Creditor in an Obligation with SUSPENSIVE CONDITION (and condition has not yet happened) *1188 *Example: I will give this piece of land to you but you must pass first Obli Con *cannot ask to execute deed of sale since condition did not happen yet *are you going to wait first to pass Oblicon before you exercise any right? –answer is 1188: To bring appropriate actions for the preservation of

his rights (while condition is not yet fulfilled) *What is this right to preserve? How should this be done?

o go to court to prevent the alienation or concealment of the property of the debtor


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o have his right annotated in the registry of property – the document – not the land title Can you prevent the creditor from

selling property (pending the condition)? No you cannot stop. But as long as you annotated your right, the seller is subject to your right because your right is superior. There was already annotation of right. If condition happens, your right is superior. But you cannot stop me (seller) from selling. The creditor is subject also to action for specific performance and rescission with damages if condition happens.

Your right as a buyer is superior to the subsequent buyer if you annotated your right.

What is the legal consequence if it is superior? The subsequent contract can be rescinded as against that third person because of your superior right

You cannot stop seller from selling to another because that is in effect giving enforceability to an obligation which cannot be enforced yet.

RESOLUTORY CONDITION --there are already legal effects here *Deed of Donation of a parcel of land with condition to build a chapel, playground or school, etc. What if you cannot comply, what is the status of donation? – It can be revoked. *Would it be correct for donor after determining there is no compliance, is he justified in selling again on the ground that donation never took effect because condition was not fulfilled? *What is effect on subsequent sale assuming that condition was not fulfilled? GR: there must be a revocation first before selling the property to other party (or a second transaction)

What if it was sold prior to the revocation, assuming the condition is not fulfilled?

o Subsequent sale can be ratified *read Parks vs Province of Tarlac and Central Phil Univ vs CA

POTESTATIVE CONDITION -condition suspensive in nature and which depends upon the sole will of one of the contracting parties -something that is dependent upon the will of EITHER parties *what is the effect is obligation dependent on sole will of the debtor? – It is void.

-just because it is dependent on sole will of ONE, doesn’t mean it is automatically void REASON WHY VOID: its validity and compliance is left to the will of the debtor – the condition is abhorrent, this will void the obligation -because of principle that a contract must be binding between both contracting parties -if we allow this on part of debtor, we are sanctioning existence of Usury obligation (no seriousness, murag dula dula na obligation. Pa-utanga ko part pero bayad kog ganahan ko mubayad. When can you file case here? No case) -you practically have no source of right here, no cause of action, no basis (if potestative on debtor allowed); you have no legal right to be protected because 1162 says void obligations impose no rights and impose no responsibilities -effect of annulling the obligation EXCEPTION: Donation -potestative because depends on sole will of donor -if with condition, taken to be a contract (Central Phil Univ case); donation with condition is contract because there is a burden -purely gratuitous donation (because of love and affection) *What if A loan to B a certain amount of money, he executed an acknowledgement of the loan with a condition that HE WILL PAY IF HE FEELS LIKE PAYING. Can B file a collection suit? Is this potestative? Yes potestative. But cannot file collection suit because obligation is void. If you follow logic of it, you cannot collect because your cause of action is founded on that document and it is void. -Is this now void and therefore you cannot file for a collection against A? Unjust enrichment/equity is a reason, but there is more specific reason. To impress, more specific reason is that you have to make distinction: 1. Only void if potestative condition is factor in birth/perfection of obligation. No delivery yet, we’re just agreeing. 2. if obligation is already pre-existing (obligation is already there), being potestative does not have any effect -“Bayran tika kung mahalin akong balay na ako ibaligya”- selling is not wholly dependent on will of debtor; realization of proceeds not dependent on will of debtor kay what if walay mupalit “I WILL pay you if I CAN sell my house” – valid because does not solely depend on debtor’s will but also other factors; obligation here is valid from text of agreement, but specific period of compliance not there * What will you do as a creditor? Go to court to FIX THE PERIOD when it should be demanded.


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*are you going to court and ask judge just to fox period? YES *action for specific performance is suspended because you asked for period *after period, you can now file action for specific performance -Is this general rule? That before compliance you have to fix period? Addressed in case of CPU General Rule: fix the period first before you file specific performance.

Only after the arrival of the period and no compliance, you can file another case for specific performance of the obligation.

BUT in CPU Case: if the fixing of period becomes unreasonable (50 years without compliance) then there is no need to fix the period. *Mutuality of contracts principle: contract must bind both parties, not only one. If potestative, obligation is dependent on one. But be careful in saying that if dependent on one, void automatically. If potestative on part of creditor, valid. Potestative Obligation on the part of the Creditor – VALID

If you sell your property but you do not want to part with your property, you can have right to repurchase property. You are creditor here, but this is not void. This is valid even if right belongs to you

Potestative Obligation on the part of the Debtor – VOID *In multiple choice: do not conclude that if potestative, it is already void. Make a distinction; void only on part of debtor. *In a sale transaction where proceeds realized are made the mode of payment, this is not solely dependent on will of debtor. Debtor may have desire to sell, but this also depends on who is willing to buy. Actually a mixed condition OBLIGATION WITH A TERM -“I will pay you when I CAN successfully sell my house” -- there is already desire to sell but you do not know when -Remedy – go to court and fix the period, except when there is no point in fixing period such as CPU case -decide case on basis of factual circumstances General Rule: In matters of Contracts, the courts will not intervene on the wisdom of entering the contract. -if you realized that nalugi ka, the court will not aid the stupid

Exceptions: if there is violation of a law; or when a period has been intended by the parties RETROACTIVITY What is extent of effect on obligation of condition is fulfilled? Retroactive effect -seller is supposed to deliver also the fruits upon happening of condition; debtor is obliged to account the value -contention: not retroact to benefit of buyer but also to seller, so pay interest from time parties agreed—NO -there is rule on mutual compensation, benefits and fruits are deemed to be mutually compensated -if you ask buyer for accounting of produce, then you must also pay for interest. For practicality, lisod na ayo magkwentahay pa pila na ka-tuig ni-agi. So mutually compensate is rule -kinds of fruits: natural fruits (spontaneous products of soil or animals); industrial fruits (produced through application of human labor); civil fruits (rentals, dividends) LOSS/IMPROVEMENT of thing PENDING HAPPENING OF CONDITION -Loss: it perishes or goes out of commerce or disappears in such a way that its existence is unknown or it cannot be recovered Rules in case of loss, deterioration, or improvement pending happening of the condition (Art. 1189)

Lost without the fault of the debtor – obligation is extinguished

Lost through the fault of the debtor – obliged to pay the damages

Deteriorates without the fault of the debtor – impairments to be borne by the creditor

If it deteriorates through the fault of the debtor – creditor may choose between:

o Rescission with damages o Fulfillment with damages

If thing is improved by its nature – inure to the benefit of the creditor

If thing is improved at the expense of the debtor – no other right than that granted to the usufructuary

Usufructuary – right to enjoy the property of another with the obligation of preserving its form and substance – unless the title constituting it or the law otherwise provides *During pendency of condition, debtor improved the land, made some constructions and augmented value of land.


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When condition happens, can he be reimbursed? No, only has right to that of usufruct When condition has not yet occurred and there is change in property *Land is adjacent to a river – two possibilities; either the area increases or decreases -This is important if there is a significant addition of area. Are you owner here? You are owner of additional area provided it is caused by natural process and it is bordered by river. You are called the riparian owner *Land is adjacent to the sea

increase in area– unlike in land adjacent to a river, you will not be the owner here but you can apply for a foreshore lease since you have a preferential right over the property; called a lease because seashore could not be owned by private person; it is land of public dominion

RECIPROCAL OBLIGATION - RESCISSION -Power to Rescind the Obligation – best example is the Contract of Sale

the seller is obliged to deliver and buyer is obliged to pay in the same transaction

*in one transaction A loaned to B then in another transaction B loaned to A

this is not reciprocal since this does not arise from same transaction though this is a mode of extinguishing obligation known as compensation

-if buyer cannot pay, parties can rescind -Assuming seller has not delivered title yet, or either buyer or seller has complied yet, is there a necessity for seller to rescind contract, or he can just offer the property to another buyer?

there is a need to rescind the contract first o WHY? What’s the whole point of

rescinding before you enter another transaction? – to treat the contract as if it did not exist – to put the parties to their original position before the transaction– YOU CANNOT TAKE THE LAW INTO YOUR OWN HANDS; IT IS NOT FOR YOU TO DETERMINE WHETHER RESCISSION IS PROPERLY EXERCISED OR NOT, You need first declaratory judgment that it was rescinded because the judgment is a license for you to enter into another transaction

Song Fo Case – Doctrine here: Nature of non-compliance must be a SUBSTANTIAL BREACH of contract for the aggrieved party to invoke rescission

If there is non-compliance but not substantial enough to warrant rescission, the court will FIX A PERIOD FOR THE COMPLIANCE

*Is it necessary that for rescission to be effective, it always has to be in pursuance of a judicial order? – General Rule: need declaratory judgment; cannot take law into your own hands Exception: in case there is a violation, one party is entitled to extrajudicially rescind if it is provided for in their contract, except if the defendant questions the extrajudicial rescission then the Court will have to determine

There is nothing in the law that prevents the parties from agreeing that they can extrajudicially rescind the contract

RESCISSION OF A CONTRACT IS NOT NECESSARY IF THE CONTRACT PROVIDES THAT IT MAY BE REVOKED AND CANCELLED FOR VIOLATION OF ANY OF ITS TERMS AND CONDITIONS

-What is effect of extrajudicial rescission? Justified by SC that there is nothing in law that prevents; but refutation is that this is giving other party the power to take law into his own hands; SC held this as valid -What are probable grounds that questioning party may raise before the court?

Party may question and say yes that is admitted that rescission may be exercised but not here because degree of noncompliance is not substantial enough. And it is not automatic that rescission will be done; it is not ministerial. The right of revolting party is to ask Court to fix period for compliance. If court allows this, court is not sustaining rescission.

Debtor was prevented by fortuitous event There was no demand, or demand was defective Maceda Law: if you have already paid at least two

years installments, you are entitled to 30 days per year that you haven’t paid before rescission can be made

-RISK INVOLVED IN EXTRAJUDICIAL RESCISSION: if you are second buyer and contract has been extrajudicially rescinded (seller may be justified in selling again property). Then here you are as a prospective buyer then the first questioned the rescission. What if Court sustains the objection of the first buyer, the risk is on part of second buyer. Other risk which pertains to seller is that he might be liable for damages because rescission may be improperly exercised. -It is true that extrajudicial rescission is valid, but this can be a problem. But it is always better, like contract of lease, if you want to be justified in retaking possession, there must always be an express


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stipulation there that retaking is allowed sans any court intervention. If there is notm you are not allowed to rescind. Only remedy is to go to court.

If the Contract is rescinded – Obligation of parties is MUTUAL RESTITUTION -Mutual restitution - required in rescission – to return what you received in the contract; this is the effect of rescission -both parties may be restored to original position Vs. Termination/Cancellation – contract is given a partial effect, example asking for back rentals. Source of your right here is the lease contract. So this cannot be rescission because it will treat contract as if it did not exist (read Pryce vs PAGCOR) CONSTRUCTIVE (ACTUAL) FULFILLMENT OF A SUSPENSIVE CONDITION -when the obligor is responsible for non-compliance of obligation; it is as if condition is deemed to have been complied already

Example: I sell to you a parcel of land at discounted price but there is condition that you will improve the road which is adjacent to that parcel of land I sold. I also own the land where road is constructed. In this transaction of selling, in so far as deliver yof land is concerned, I am the obligor, from aspect of obligation to deliver land. And this obligation is subject to condition that you will improve the land by putting a road. But before you had chance, what I did was I sold the land so you cannot anymore comply with putting road because I voluntarily prevented you from complying

Effect: condition is deemd complied. Thefore, if I cannot comply with deliver for property, I will be liable for: rescission, damages, specific performance I cannot disclaim liability because I was the one

responsible OBLIGATIONS WITH A PERIOD -“I’ll pay you when sun rises in the east”- period or condition? Period (even if very cloudy and there was no sun for that day. LOL) – period is that which must necessarily come -For whose benefit is the period? For both the debtor and creditor

Creditor’s benefit: interest

Debtor’s benefit: no action can be filed against you in the meantime when the date does not arrive yet

What if “on or before Jan 31”, is this still for benefit of both? Here, debtor can choose any day even before Jan 31 because it is on or before -here, there is no benefit to creditor -benefit we refer to is the interest -so if on or before, this is for benefit of debtor only because debtor can always choose to cut short accrual of interest

Right of creditor while period does not arrive yet -preservation of rights (see above) When can creditor demand for the fulfillment of the obligation even when the period has not yet arrived/expired? (1198) – Debtor shall lose every right to make use of the period: Creditor is justified in filing case in court

after the obligation has been contracted, he became insolvent

o there is a proceeding for declaration of insolvency; resorted to by shrewd debtors; prove you really are insolvent and a court declaration is made absolving you from debt

o BUT HERE, insolvency does not need prior court declaration

when he does not furnish to the creditor the guaranties and securities

in his own acts, he has impaired said guaranties or securities after their establishment and when through a fortuitous even they disappear

o unless he can give new ones equally satisfactory

debtor violates any undertaking, in consideration of which the creditor agreed to the period

debtor attempts to abscond

*How about if creditor wants to enforce compliance but period did not arrive yet. Is there a way to stop creditor from enforcing early? Furnish guaranties, securities; but there is still possibility that creditor asks for additional securities -ikaw for example nai nangutang nimo, you can always demand for security to ensure compliance with debt. If he cannot comply, obligation will be enforced Mortgage –Real Estate Mortgage -if your mortgage your property, you can still sell property. If in the mortgage, there is stipulation that property cannot be sold, that is illegal


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-but take not, if you sell, you are in effect impairing the security. If your impair security, bank will be justified in enforcing obligation even before arrival of period; an instance where debtor loses right to make use of period -Is there a case where only cause of action is to fix period? Yes. -Would it make sense if you file fixing of period then specific performance? Would this violate multiplicity of suits principle? Recall case of CPU that court may not fix a period anymore because from the circumstances of case that prerogative to ask period is a mere technicality; serve no other purpose than to delay. More than sufficient time has been given. This is dependent on circumstances January 16 discussion below (tun-I nalang nig maayo kay d jud muplay ako recording sorry) ALTERNATIVE OBLIGATIONS -various prestations are due but the performance of one of them is sufficiently determined by the choice which is a general rule, belongs to the debtor

right to choose – debtor o also in case of default

Creditor may exercise the right if expressly granted to him

*If there is already a choice – it will become SIMPLE OBLIGATION

Creditor must be notified – but this does not need consent, just for the sake of notifying – TO INFORM ONLY

*What if the thing chosen lost due to fortuitous event? – 2 different answers

1. The obligation is extinguished – since it became pure obligation, the rule is that if the lost is due to fortuitous event – obligation is extinguished

2. There are still other prestations – since there are still other prestations existing, if still possible to be delivered, the debtor shall choose which to deliver.

FACULTATIVE OBLIGATION -only one prestation has been agreed upon but the obligor may render another in substitution - Principle of “ACCESSORY ALWAYS FOLLOW THE PRINCIPAL” -- mortgage is an accessory to the loan contract

choice by the debtor *Why is it not a right of the creditor? – Law favors

the debtor in an obligation *If there is already a choice – it will become SIMPLE OBLIGATION There is no choice yet – BEFORE SUBSTITUTION (p209)

if lost through a fortuitous event, the obligation is extinguished

if item 1 is lost through the fault of debtor, he is liable for damages

if item 2 is lost with/without the fault of debtor, he is still liable to deliver item 1; he is not liable for damage for the loss of item 2 as it is not due

There is already a choice – AFTER SUBSTITUTION

if item 1 is lost with or without the fault of debtor, he is not liable for its loss since his obligation is to deliver item 2

if item 2 is lost through a fortuitous event, the obligation of debtor is extinguished

if item two is lost through the fault of debtor, debtor is liable for damages

JOINT AND SOLIDARY OBLIGATIONS Solidary Obligation each one of the debtor is bound to render and or each one of the creditors has a right to demand entire compliance with the prestation

What is the requirement for it to be Solidary? It must be stipulated in the contract that it is Solidary, by the law, and by its nature

Contract – words: o Jointly and/or Severally o Severally o Solidaria o In solidum o Solidarily o Together and/or separately o Individually and/or collectively o Juntos o suparadamente o “I promise to pay”

Joint Obligation –the whole obligation is to be paid or fulfilled proportionately by the different debtors and / or is to be demanded proportionately by the different creditors

each to his own as many credits as there are creditors and as

many debts as there are debtors the default in the stipulation of the contract – joint

obligation “We promise”

*Solidary Creditor and Joint Debtor – (p227) *Surety vs Guarantor *Solidary debtors– one for all, all for one -if joint or solidary, there are two or more parties involved.


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-Problem: if it is joint on side of debtors, and solidary on part of creditors

Go by the rules. If you are solidary creditor, you want to collect from debtors who are only joint, you cannot insist that whole obligation be collected

-Aside from amount that may be collected, take note of effects of acts that may be performed by a solidary creditor or debtor

What is effect if one solidary creditor will renounce entire obligation even without consent of other solidary creditors? Would it extinguish obligation? Yes. Any act that they commit whether for benefit or disadvantage to other co-creditors affects them all, even if without consent, there is effect in so far as debtor is concerned, his obligation is extinguished.

But the problem has to be resolved among the solidary creditors (new controversy); ask that they be given share of the credit; the renouncing solidary creditor must reimburse the others for their corresponding share

-two conflicting provisions: “no solidary creditor may do something that will prejudice other creditors” vs “etc etc which is performed by solidary creditor will extinguish obligation -harmonize: in so far as debtor is concerned, obligation is extinguished; that creditor must be held answerable to his co-solidary creditors *if one solidary debtor becomes insolvent – his share of the obligation will be shouldered by other debtors - to pay in proportionate share; increase liability of other solidary debtors (never forget: solidary is one for all, all for one) -In joint, different situation. If you are insolvent, others willn not shoulder Important rules: 1. Solidarity is not presumed. In absence of specific

stipulation in agreement, you cannot presume that debtor is solidarilly liable. You can only be solidary debtor when provided by law, stipulation, or nature of obligation provides otherwise -What are instances by law which impose solidary liability? Tort/Culpa Aquiliana between for example operator and driver; co-perpetrators of felonies (conspiracy) -Terms: “joint” is joint but “joint and several” is solidary

2. Solidary creditor cannot assign his rights without consent of the others

-no problem here if source of right is contract because you can stipulate -but if it does not arise from contract, such as culpa aquiliana case, will I be prohibited from assigning my rights to you? Okay for contract. But not here without consent because in solidary, there is closer intimacy among creditors

3. Each one of solidary debtors may do what is useful to others but not prejudicial to other -qualified: good rule in so far as creditors or debtors are concerned; do not affect other side

4. Novation, compensation, remission of debt made by solidary creditor shall extinguish obligation without prejudice to article 1219 -novation, etc. are modes of extinguishing obligation -Novation: extinguish obligation but give rise to a new obligation. Example, you loan and you really cannot pay, but you have property. Then creditor accepts, you make a new agreement now based on property. Obligation 1 is extinguished but it gives rise to obligation 2. It may be change in subject matter, or change in personality of creditors -Compensation: many transactions, in one I am debtor and you are creditor, then in another you are debtor I am creditor, pa-utangay ta; so we have concept of mutual set-off/compensation. Example is outstanding loans in banks. Absurd if you withdraw from bank then you deposit again to pay them. It extinguishes obligation of debtor, but other debtors have to be compensated -Confusion:

o example is promissory notes which are negtotiobale. I pay to the order of A. A can endorse and say pay to the order of B as payment of his own obligation. Then B can endorse again, pay to the order of C. C then endorses again, then it happens that it becomes “pay to the order of A”. The last negotiation is pay to the order of make of instrument through subsequent negotiation. He cannot pay himself. Personality of debtor and creditor is merged in one

o another example: right of way; you are given right to pass through portion of land which does not belong to you. If you who asked right of way can establish that you have no other way to access a public highway, you can compel owners of surroundings to grant you right of way. However, you are not owner, only a privilege to pass through. You are in effect the creditor. The other one compelled to grant right of way is debtor. Then the debtor decides to sell the lot because he can get bigger profit, so you buy the lot. This


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is not right of way anymore since you are already owner. You are not creditor here anymore. The personalities are gone and merged into one in you

5. If one of the solidary debtors cannot, because of his insolvency to the debtor paying the obligation, such share shall be borne by other solidary co-debtors

6. If thing is lost/prestation has become impossible without fault of solidary debtors, obligation is extinguished. If there is fault on part of any one of them, all shall be responsible -whatever the negative maldito kauban does, it will affect you -example: you are obliged to deliver specific thing with the others; one solidary debtor does not contribute and the obligation cannot be performed. You are adversely affected. You can be liable for the value of thing and damages. All of you will shoulder damages but the non-guilty have a cause against the guilty

7. Solidary debtor may avail himself of all defenses which are derived from the nature of the obligation, or those which are personal to him, or pertain to his own share -if solidary debtor is sued and as long as debt is not fully paid, you can be liable; not a defense to say you paid more than your share. -DEFENSES to avoid liability: a. total defense- total extinguishment of liability will result -contract is founded on illegal consideration; or obligation is unenforceable (total defect) b. partial defense- personal to one of solidary debtors; only to reduce liability -one of solidary debtors is minor. Contract entered into by minor is voidable. There must be court declaration that contract is void (valid til annulled) -one of solidary debtors is insane -effect of reducing liability Read Ynchausti vs Yulo – does defense here have effect of modifying obligation? There was partial defense. Why? Because it did not totally ABSOLVE the debtors. It merely reduced the obligation. Partial defense because the extension given may be invoked by debtor whom demand was made

*Quiombing case: There is question on procedure but in resolving this issue, the SC has to discuss the nature of solidary liability -Indispensable party—a party who should be included in the case so that there would be complete and final determination of the case. -General rule: (why this rule should matter) all persons who would be affected should be included as parties to the case. If you are not included, that would violate right to

due process. If there is judgment and you will be bound without you knowing, due process violated. Also, so that persons will be bound and there will be complete determination -As regards to solidary co-creditor, he is affected no doubt. But because there is a law that solidary creditor can do anything that is beneficial to others, it is not necessary to implead him in the case because one for all, all for one. Whatever judgment would benefit you who is not impleaded. And if there is adverse judgment, you are also affected. You can file the case alone JOINT INDIVISIBLE OBLIGATIONS -Indivisible obligation: by very nature of the thing, such as car -If contract is silent, from very nature of thing, may be divisible or indivisible -if one of the obligors not ready to comply, you are creditor, are you going to sue all of them? -additional damages may be imposed on guilty debtor -remedy if one of joint debtors does not comply: remedy of creditor is indemnification of damages; this becomes a forced novation. Instead na thing ideliver, compute nalang nalang ang value of the thing then divide among them the value, then the guilty debtor bears the damages OBLIGATION WITH A PENAL CLAUSE -if you contravene a contract by fraud, negligence, contravention of tenor, etc., you are liable for damages PURPOSE: two-fold 1. ensure compliance 2. provide additional sanction to violator -apply the deterrent principle, for prevention; so that an individual would think twice before he violates -an accessory undertaking -becomes due and demandable when there is breach of obligation LEGAL EFFECTS 1. Penalties substitute indemnity for damages and payment of interest in case of noncompliance

-if you prove damages like actual damages, not easy matter to prove; prove actual damages by receipts -also allowed to prove loss of earning capacity (expected income, etc.) -if there is a penal clause, you will do away with all those things because it substitutes UNLESS there is a contrary stipulation -so if contract says without prejudice to damages, you are liable for both penalty and damages -the penalty has to be liquidated: accounted already; specified

2. Debtor is not exempt from performance of obligation by paying the penalty; not allowed because


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that will defeat the purpose of the penalty (two-fold purpose) -neither can creditor demand fulfillment of obligation and satisfaction of penalty at same time Best illustration: contract of lease says that failure to pay any monthly rental due shall subject the lessee to a penalty of 2 M. On 3rd year of lease contract, no monthly rental was made. Because of violation, contract is cancelled. Also because of violation, lessor entitled to collect the penalty of 2 M. But aside from 2 M, lessor also wants to collect rentals corresponding to 2 year period (na wala nabayran). This is not allowed because this is in effect a demand to fulfill obligation. Creditor cannot demand fulfillment of obligation and satisfaction of penalty UNLESS this right has been expressly granted to him (explain during exam)

3. Debtor can be exempt from performance if right is expressly granted to him Illustration: in rescission, there is duty to mutually restitute. So put there a forfeiture clause; in case of violation the other cannot get back. This is example of right expressly granted

4. Proof of actual damages not necessary because penalty substitutes 5. Court has reserved power to reduce penalty if it is iniquitous or unconscionable General Rule: Court will not interfere with private individual’s right to freedom to contract (unless you are in civil interdiction) including the fixing of penalty, but court has reserved power to reduce -What is unconscionable? Addressed to discretion of judge -case on imposition of interest on credit card debts: usury law is suspended. 12% only comes when there is not agreement. Parties can stipulate more than 12% interest; but this would not mean you stipulate big amounts like 30% interest. To avoid abuse, Court has reserved power especially when there has been already partial performance (a defense) 6. Nullity of the penalty clause does not carry with it that of principal obligation, but nullity of principal obligation carries with it that of penalty -penal clause only accessory undertaking *Creditor cannot demand performance and fulfillment of penalty at same time, except if this right has been expressly granted to him. Although the creditor is given this right, it is also not correct as a legal postulate to assert that he has this unbridled discretion to stipulate or fix the rate at any rate he wants because the court has this reserved power to reduce if unconscionable. EXTINGUISHMENT OF OBLIGATIONS

1. Payment

2. Loss of thing due -fortuitous event

3. Condonation or remission of debt -forgive and forget the debt

4. Confusion or merger 5. Compensation 6. Novation

-there is new obligation -consuelo de bobo

-these modes can be ground in a motion to dismiss -law enumerates the modes, but not exhaustive because there are other causes of extinguishment such as annulment, rescission, fulfillment of Resolutory condition, prescription Prescription 1. Acquisitive prescription

-you acquire rights by the lapse of time -unregistered land, nobody questioned and you are there for 30 years already

2. Extinctive prescription -he who sleeps on his right will not be aided by the

court -example you are a creditor in a promissory note which is already due and demandable and executed more than 10 years ago, don’t have cause of action anymore

-another mode is death; heirs inherit rights and liabilities; obligations are transmitted except in personal obligations -another is insolvency; court will discharge you from all obligations PAYMENT -delivery of money and performance of an obligation -normally, payment extinguishes obligation but there are instances when there are still juridical relations that exist:

o Subrogation- step into shoes of creditor; insured gets out of picture and insurer steps into shoes of the insured and collects from guilty party

o Dation in payment Rules in Payment 1. Identity of payment

-the very thing/service contemplated must be the one delivered or performed -provision: even if thing of superior quality is offered, creditor is not bound to accept because of this rule on identity of payment

2. Integrity of payment -payment must be complete -creditor cannot be compelled to receive partial payments, nor debtor be required to pay partially -but for practicality, one can pay partially if there is stipulation


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-there is a problem if you do not know what you are supposed to do if an offer of partial performance is made to you. So what do you do?

o There must be reservation; put in receipt that this payment is without prejudice to the remaining balance

o Reservation important because there is also provision that creditor who knows of partial payment without objecting will amount to estoppel; apply also to payment of installments

o So you should accept or else zero ka, basta make reservation

-Who will prove that he paid? Debtor’s burden; he who asserts payments must prove -How? Show receipt. If creditor refuses to issue receipt, make consignation in court. This is a ground, where prior tender of payment is not required Exceptions to integrity of payment: 1. Substantial compliance

-court can absolve you if you can prove 2. Obligee accepts performance knowing irregularity and

without objection – estoppel 3. When there is express stipulation 4. When debt is in part liquidated and unliquidated

-cannot pay unliquidated since you do not know how much

Who shall pay 1. The debtor To whom shall you pay 1. Creditor 2. Successor in interest

-when creditor dies, successors are the heirs such as wife, children, collateral relatives -if single who died and no known relatives, state will inherit

3. Person authorized by creditor General rule: Debtor shall pay creditor -if payment is made by debtor or his successor or agent, obligation is extinguished -Can 3rd person pay the obligation? YES Distinguish into: 1. 3rd person interested in the fulfillment of the

obligation -guarantors, sureties -how to determine that there are no assets: there is a return of writ of execution and it is established that there are no outstanding properties -such 3rd persons can pay but cannot compel creditor to accept because debt is not yet due and demandable. If already due and demandable, 3rd person can compel

-if principal debtor paid without knowledge and surety paid again, can surety recover amount? (yes, there is right to reimbursement) -SURE: 3rd person with interest pays, he is entitled to subrogation o Example is right to the mortgage o Real estate mortgage is accessory obligation to

loan contract o If 3rd person pays and he is interests in fulfillment,

his right will not only be under loan obligation but also under real estate mortagage

o Your right if you are mortgagee: you can foreclose (right to which 3rd person may be subrogated)

2. 3rd person not interested -creditor here is not bound to accept, but not prohibited from accepting -if such 3rd person pays, he has right to seek reimbursement from principal debtor but only to extent that he has been benefitted -3rd person who pays without consent of debtor cannot compel creditor to subrogate him in the creditor’s rights under the mortgage (unlike in case if he was given consent) -Can 3rd person who does not want to be reimbursed pay? Yes he can. Creditor cannot be compelled to accept but he may. Legal complication here especially if the person who doesn’t want to be reimbursed has heirs because this is deemed to be a donation; cannot donate everything if he has compulsory heir. -So if your father donates everything, you do not have right yet because he is not yet dead. Your right is only inchoate until he dies -Donation to be effective needs consent or acceptance of done, so inform debtor and he must expressly accept

*Payment shall be made to creditor, successors (heirs) or authorized persons (with special power of attorney, attorney-in-fact) -take note of principle that presence of descendants excludes ascendants. If there are no children, then go to parents, if there are none, then collateral relatives until 2nd cousin (Atty G. not sure) -no relatives, state inherits -if creditor becomes insane and you have not yet paid, pay to the guardian -institute petition for guardianship and court will appoint guardian -in case of parents representing the minor children, they are legal guardians; there is no need for a court appointment; what is needed is to file a verified petition for approval of a bond; summary proceeding


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-payment to 3rd person valid in so far as it redounded to creditor’s benefit; but benefit to creditor may not be proved in some instances Payment in good faith to any person in possession of the credit shall release the debtor -somebody comes up and shows you deed of assignment; prudent thing to do is ask creditor -But if you pay, will the payment be credited? Yes if you acted in good faith, problema nana sa creditor na wala siya nagpahibaw na rescinded na ang deed of assignment if ever dili nato agent na taw. So if you are creditor, make a formal notice to the public like in newspapers and the better thing to do is send a letter individually to debtor/s -bad faith if you knew that it was already rescinded -but with deed of assignment, you have right to rely on representation especially if creditor did not make any announcement -if you pay despite that announcement, then you are not covered under this article When your creditor is debtor if another person (1243) -Your creditor is a debtor of another person and that person filed a case against your creditor and he was able to secure an order. You are known to be the debtor, and you are told that do not pay because your creditor has debt to me (the person), but you disregarded it even if there is a court order (writ of garnishment) -disregard of a court order, but issue here is What is effect of your payment, which you paid in disregard of court order? Not valid if in that suit the creditor won. Valid if he did not win -Example: usually in case of banks

I will file a case against person who is a depositor in this bank. This is to secure whatever monetary judgment I will obtain, I will file a motion for issuance of writ of garnishment so that court will issue an order to bank not to release anything to this person because there is a pending litigation

Purpose: this is legal strategy. When you file monetary claim, do not wait for judgment. Pagsugod sa kaso, secure na dayon ug writ of attachment kay kung magpa abot ka mahuman ang kaso, wala nakai makolekta. Lain sad ayu ilaminate ang decision (LOL)

Legal strategy then is upon filing of case, ask for issuance of writ of attachment from court. Writ of garnishment is a specie of attachment. This is allowed but you have to have valid reason. E.g. the creditor is about to abscond or slowly disposing of properties (like situation in accion pauliana)

Is it true wai mapreso sa utang? There is criminal offense for this, e.g. BP 22 or estafa

Debtor cannot compel creditor to receive a different one even though it is more valuable (1244) Exceptions: 1. Dation in payment

-payment of a thing other than money; property is alienated -payment in kind other than money

2. debt to equity -you have debt and you are stock holder

*Law says that Dation in payment is subject to law on sales -What if ang imong gihatag na parcel of land as payment was in fact previously mortgaged or was already sold to another person, although there was no transfer of ownership? In so far as debtor is concerned, did transfer extinguish obligation? -What is the effect if there is a violation of warranty against eviction vis a vis extinguishment? What is sanction? Does it invalidate the sale? -YES it extinguishes the obligation but without prejudice to seller being liable for damages. In the real scenario, erase the effects of dation in payment so you will return to square one or rescind the dation in payment since this is a contract of sale SO DILI NI NATO IMEMORIZE ANG LIBRO. WA MANI SA LIBRO? NAA DHA? WALA. MAO NA PAMINAW MOG MAAYO Article 1246: When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and circumstances have not been stated, the creditor cannot demand a thing of superior quality…. -We now allow transactions in foreign currency, but problem is what is the rate? There is ruling that it should be rate at time of payment Place of payment -examine first the contract whether there is stipulation of payment -BE CAREFUL: ayaw pasagad ingon na mao ni rules. In Oblicon, we are governed by what is agreed by the parties. Law comes into play only when parties do not agree on a specific matter. This should be the attitude Why are there special forms of payment? Because they are governed by special rules. APPLICATION OF PAYMENTS

1. there are several debts


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-money you have is not enough 2. owed by one debtor to a single creditor

Rules 1. Who decides to which debt applies? Debtor has

preferential right to choose where his payment is applied -not absolute -subject to rules on payment -If you have to debts, one is 50 and another is 100, you cannot apply to 100 if you only have 50 because creditor cannot be compelled to accept partial payments; must comply with rule on integrity of payment -another rule, must pay interest first before the principal

2. Debtor may declare at time of payment to which payment should be applied READ FACUNDO vs REGALADO 3. If payment cannot be applied according to the rules, then

apply to most onerous -e.g. as principal debtor is more onerous than being guarantor or surety, oldest debts more onerous than newer debts -debt with encumberance more burdensome than those without collateral Regalado case -mere silence is not tantamount to consent of application -even if debtor is given the right, application has to be made to debts which are already due, but there are exceptions to due and demandable rule--- debtor is insolvent, etc. PAYMENT BY CESSION -Dation in payment is specific like what land is being transferred, payment by cession may involve many properties -you sell the property and whatever proceeds you realize will be the payment to the debt -there is no transfer of ownership here -dation in payment, even if property is less than debt then there is agreement that it is equivalent, obligation extinguished. But in payment by cession, you are liable for balance -payment by cession, there are various creditors unlike dation in payment TENDER OF PAYMENT and CONSIGNATION -remedy if creditor does not accept for any justifiable

reason -Why is tender of payment important? To inform creditor

to give him chance to think about accepting the payment since he bears expenses

-consignation is the act that will extinguish the debt, not the mere tender of payment

-if creditor refuses to accept without just cause.. so what are just causes?

Partial payments, because of principle of integrity Not yet due and demandable Payment made not in legal tender --but this will only apply if offered as payment of a debt. You can refuse if check is paid as payment of debt but not when debtor is exercising a right or privilege -example: foreclosure (embargo for lack of better word) of real property which you offered as mortgage -the sheriff will have a public auction and you the owner of land are given 1 year to redeem (buy back) your property. The one who buys has only inchoate right; must wait for 1 year where he can say that he has consolidated right; becomes absolute owner. Within one year redemption period, debtor went to sheriif and tendered check as redemption money. Will the sheriff be justified in rejecting check because it is not legal tender? NO. this is not payment of debt but owner-mortgagor is just exercising a privilege, which is to redeem -You still have to fund check, you are merely preserving right to redeem -If check becomes stale, does it discharge you from obligation? [Check can be used as payment if accepted by creditor. If objection of creditor is regards to sufficiency of amount of check, he is estopped from complaining whether it is legal tender] Go back to requisites. Ask from relief from court that you will be released from obligation: cancellation of debt -tender of payment and consignation will not apply for exercise of rights and privilege--- also apply to right of repurchase

-When does running of interest stop?... Can you withdraw thing consigned? YES, but how about if Court says you cannot since it is already under custodia legis? [Better be sure] Court in grave abuse of discretion -Remember requisites/acts required of tender of payment and consignation -but generally, for effective extinguishment, there must be consigation. Wa pa nahutabo na tender of payment lang -but there are instances where there is no tender of payment needed -How shall tender of payment be made? It would appear that oral tender of payment is valid, but for purposes of proving, make it in writing


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-What is effect in relation to dation in payment, if there is foreclosure and thing is sold during foreclosure but proceeds realized in auction sale insufficient, will there be dation in payment? Is debtor-mortgagor discharged since this is same as dation in payment? -corollary question: can the creditor and debtor just agree that the thing mortgages be the one made as payment? Di nako kabayad, imo nalang nang collateral, Ok? NO, DILI OK -automatic appropriation of things mortgaged is prohibited; this will be detrimental to debtor. If less, bayran ang deficiency. But what if more than? iuli jud. THIS IS PROHIBITED ARRANGEMENT -so rescind first mortgage contract and then do the contract of sale then it will be a dation in payment this made FIND A WAY AND MAKE IT LEGAL

PRE-FINALS

CONTRACTS

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

Requisites: 1318—Consent, Object certain which is the subject

matter of the contract, Cause of the obligation which is

established

Elements: Essential, Natural and Accidental

Essential- those without which there can be no contract;

necessary and indispensable; subdivided into common, special

and extraordinary.

-If any essential element is absent, can file an action to declare

inexistence of contract; no contract

-only 3 essential elements that matter: consent, object,

consideration

-defective consent--- this is voidable; have it declared annulled

-absence of consent--- cause of action is declaration of

inexistence of contract

Natural- derived from the nature of the contract, not expressly

stated in the contract

-example: warranty against hidden defects. Not stated in the

contract but just because it is not stated doesn’t mean you

don’t have right. They are deemed to exist in the contract

-Parole Evidence Rules: every agreement, terms of condition,

stipulation you agree is reduced into writing; if not expressly

stated, they are deemed not agreed upon. Exception to this are

natural elements like warranty against eviction, hidden defects,

and the law which is deemed incorporated into the contract

Accidental- exist only when the parties provide for them; needs

to be stipulated for it to be binding, unlike natural elements

-parole evidence rule applies here

Example: contract of lease over a parcel of land and allows the

lessee to build a building there

-from the text of the contract, there is nothing there that

provides ownership of building after termination of contract, so

there is now problem on who will be owner of building after

-apply principle that accessory follows principal? NO. Article

415 of the Civil Code on Property places a building as a real

property itself independent of the land.

-so we now have an element not agreed upon. So how should

this be solved? Resolution should be in accordance with law on

property; there would be two owners now. Owner of the land

is not necessarily owner of building. The basis is that under

Article 415, building is treated as property separate and distinct

from the land. The principle that accessory follows the principal


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is a general principle and in case of conflict between specific

and general principle, the specific prevails under rules of

statutory construction. But there is still problem because you

are creating a forced ownership

Obligations are very broad because they can arise from various

sources. Contract is just one of the sources.

Meeting of minds: agreement of parties on object, cause

No meeting of minds on those two, no contract to speak of

When can there be a contract? When the three essential elements

are present --- consent, object, cause

Characteristics of Contracts

Obligatory force of contract

1308: The contract must bind both contracting parties; its validity

or compliance cannot be left to the will of one of them

-rationale why contract is void when it is potestative: because you

are creating an illusory contract; wala mai sabot na usa rai magbuot

-not just one party can withdraw without the consent of the other

Example: case on Rustan Pulp; delivery of paper and the other said

they had right to stop deliveries; it was a violation of obligatory

force

Example: lease contract where it says that lessee can stay as long as

he is able to pay the rental; because lessor has no option in that

case; lessor will then just have to wait for the lessee since as long as

he is able to pay, contract cannot terminate

Mutuality of Contracts

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

-Mutuality is similar with obligatory force

-law does not have to state mutuality; what is provided is the

exception:

1309- there is no violation if the determination of performance is

left to third person

-the contracting parties must be bound, but there are instances

where certain matters are left to determination of third persons

Example: parties agreed on a compromise agreement where one will

send land to other and other agreed he will buy; problem is they

have not determined what the purchase price is; so they have to

constitute a committee to determine the fair price

-this should be part of the contract that determination would be left

to a committee

-can contract be invalidated since determination is left to

committee? No because of 1309

Example: arbitration such as that in barangay where there is pangkat

tagapagkasundo under lupong tagapamayapa that will resolve

disputes or arbitrate

Read GSIS vs CA 228 SCRA 183: this is example of violaion of

mutuality principle

-there is provision granting seller right to unilaterally make upward

adjustment of the purchase prince depending on final cost of

construction of house and lot

-subject to adjustment to be mutually agreed –this is the proper way

Example of violation: subject to adjustment of interest without prior

notice/subject to adjustment based on market forces. This is

contract of adhesion (which is valid) but this defense is on a case to

case basis

Relativity

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.

Exceptions to relativity

1. not transmissible by nature: purely personal obligations;

obligations to do; example singer imong papa lain sad kayu ug

ikaw mupuli

2. stipulation or provision by law:

contract of agency

-your father is attorney in fact and father died, you cannot

assume as an attorney in fact

contract of partnership

-you pool your resources together for business purposes

-vs. corporation: if stockholder dies, his heir replaces him. In

partnership, his heirs cannot step into his shoes

3. Parties agree on something but object is to benefit a third person;

stipulation pour atrui

1311: 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

-GR: not a party, cannot ask for enforcement; exc. this third person

even if not a party has legal right to ask for enforcement

-before filing for enforcement, communicate acceptance to obligor

-Required: third person must communicate his acceptance. Form of

acceptance may be implied or express; not even required that it be

in writing.

-Unlike in donation where acceptance should always be express, it

can be implied in pour atrui. In donation, there are only two parties.

In pour atrui, there is a third party. In both, acceptance must be


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made known before its revocation or before the one conferring it

becomes incapacitated.

Cases:

Florentino vs Encarnacion

-stipulation that fruits will be used on religious activities

Coquia vs Fieldmen’s

-third party liability insurance (TPL)

-there was insurance contract between insurance company and

owner. Here, there are only two parties, the company and owner.

However, in the provisions of the TPL, insurance is to benefit a

third party injured. Then the third party was injured. Third party

filed case against company. Company cannot ask for dismissal of

case on ground that its contract is only between company and

owner. This is exception to rule on relativity of contracts

Constantino vs Espiritu

4. Third person induces another to violate his contract under 1314

1314: Any third person who induces another to violate his

contract shall be held liable for damages to the other

contracting party.

Example: Ang katabang na nilayas, nibalhin silingan kay mas dakog

sweldo, giingnan sa lain maid na ali dri nndot sweldo dri

-In pour atrui, example the TPL, your source of action is the

contract between company and owner. Here, the source is a

quasi-delict, a source other than the contract. So this provision

should not have been an exception. The framers committed a

blatant error. Because when we say that it is exception to

relativity of contracts, then the source must be a contract. This

provision is out of place

[read Bun vs CA 314 SCRA 75, Lagon vs CA GR 119107]

Lagon Ruling: there would be no tortous interference if the alleged

interferer did not know of existence of contract. Example the other

maind will say na wa ko kibaw oy na naa kai agalon. So there may be

no tortous interference

Another example: case of movie stars where Viva induces artists in

Regal Films; or case of Pacquiao while he had contract with Bob

Arum he wanted to have contract with Golden Boy. Bob Arum

threatened him for violating contract and Golden Boy for inducing

5. Instance where third person can set aside a contract: accion

pauliana

-you may not be a party but you can question the contract meant to

defraud you if you are creditor

Note: Outside these exceptions, you as third person has no right to

seek for any relief arising from the contract. Not even the court can

interfere with contractual relations. This is part of constitutional

right to freedom to contract

PARTIES TO A CONTRACT

Can you contract with yourself? Yes

-Can you sign as representative of corporation as seller and the

other corporation as buyer? Yes, no conflict of interest because

you are not buying it for yourself

Except when prohibited by law.

-Under law on sales, you cannot as guardian buy property of your

ward; prevent undue influence

-also if you are lawyer, you cannot represent the two parties as

discussed in legal ethics

FREEDOM TO CONTRACT

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, or

public policy

Examples/ Situations:

1. Cannot stipulate with spouse that you will have paramours since

this is contrary to public policy, law

2. Contrary to law; employer cannot give wage lower than the

minimum wage

3. Contrary to morals, but how do we determine morals? This is

difficult to prove. The problem is that society is evolving and there

are borderline cases like live-ins. Is that immoral? We can’t tell

4. Agreement where you pay family of victim in a criminal case, and

in exchange, they will not file against accused anymore. This is

contrary to public policy. This is illegal.

--but there are also things which appear to be legal but illegal

such as when the mortgaged thing can be automatically

appropriated o mortgagee; this is illegal; property should be

opened to public auction and not automatic appropriation

(pactum commissorium)

5. You cannot prohibit one from selling his land while giprenda niya

nimo, under 2130. He should not be prohibited from selling

6. Shipper limits his liability arising from agreement; only 100K no

matter what cause or value is; illegal

7. Cui vs Arellano case

8. In regard to status of persons; like husband and wife agree na

kana siya d na anak nako

9. In regard to jurisdiction; cannot stipulate the jurisdiction on

courts. But you can stipulate on venue, not the jurisdiction

10. Bustamante vs Rosel Nov 29, 1999

-case of pactum commissorium

-“in case of failure to pay, lender has option to buy….”

CLASSIFICATION OF CONTRACTS

Can there be contract involving intangibles? Yes such as contract

over sales of stock, assignment of credits

According to subject matter: Things and services can be subject

of contract; also intangibles


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Nominate Contracts: Contracts can also have specific name under

the law such as sale, commodatum (gratuitous use of a non-

consumable thing), contract of agency

Innominate Contracts -- basta assoShit ka, imong buhaton tawn

kay maghimo ug contract nya waka kibaw unsai ngalan. Hala pakli

diha Civil Code, unsa kaha ngan ani na contract. But don’t worry

because there are innominate contracts

1. do ut des- I give that you give

2. do ut facias- I give that you do

3. facio ut des- I do that you give

4. facio ut facias- I do that you do

[naa pai lain kanang do ut do ut, wa lang ma apil diri. There is a

situation kanang madakpan mo ga do ut do ut unsa mai una

tabunan, ang nawong o katong lain? Depende na kung naa kai

ikapanaghambug. Kung wala, aw dagan nalng oy! Lolololollll]

Consensual contracts- generally contracts are perfected by mere

consent; there is now a cause of action

Example: contract of sale

--but there are contracts not perfected by mere consent, such as

when delivery is required like contract of deposit, pledge (you run

out of money and go to pawnshop), commodatum

Formal contracts- requires formalities such as when made in

writing; or must appear in a public document

-but there can be a contract even if there is nothing in writing;

there are only certain contracts which need to be made in

contract and made in a public document

-validity and formality are different

Examples:

1. donation where value of donated property exceed 5k, it must

be in writing to be valid

2. contract of partnership and there are immovables contributed,

it must be in public document

3. agreement in regard to interest, it must be in writing

4. donation of a real estate; must accept in a public document;

otherwise void

---if not in these cases, contracts are perfected by mere consent

Unilateral and bilateral contracts

Onerous, gratuitous contracts

STAGES OF CONTRACTS

1. Preparation

-is there cause of action here? Like in case na nakagasto naka

unya wa diay gidayon ang contract, pasakay sakay rato

-violation of article 19: abuse of rights

2. Perfection

3. Consummation

-contract is deemed fulfilled already

ESSENTIAL REQUISITES

Object, consent and consideration

Signature is manifestation of consent but not necessarily

conclusive

Consideration is the reason why you entered into contract; from

viewpoint of seller is the money; viewpoint of buyer is the thing

CONSENT

1319: Consent is manifested by the meeting of the offer and

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.

In business advertisement, you are manifesting that you are ready

to make an offer; but there is no offer yet. You are just inviting to

make the definite offer

When you sell something, it is not required that you state all

particularities; it is enough that object is identifiable

1321: Person making the offer may fix the time, place and manner

of acceptance all of which must be complied with

-if manner of acceptance is that you must do it in writing and you

just used a telephone to accept offer contrary to the agreement,

then there is no valid acceptance

1322: An offer made through an agent is accepted from time

acceptance is communicated to him

-this is an offer made through an agent

Question: Agent can make offer for and in behalf of owner, but if

you want to communicate the acceptance, to whom would you

communicate it? What if you made the acceptance through the

agent and there is this other buyer who made communication

directly to owner, kinsa man nakapalit ani na situation? Assuming

nagdungan ug communicate, kinsa man? Who has superior right?

-It would depend. When you deal with agent, examine the extent

of authority of agent. He may be authorized to make offer but not

authorized to make acceptance. Power of agent to sell must be in

a Special Power of Attorney. Here his duties are enumerated; if

acceptance is not one among enumerated, he has no authority to

make the acceptance. Before determining who has superior right,

determine first extent of authority of agent

Case: Malbarossa vs CA

-When can there be consent when acceptance is made on another

date?

-Example I made an offer to you and you did not immediately

accept. You accepted it but before I knew of acceptance, I already

withdrew the offer; no meeting of minds

-Just like in donation; acceptance must be made to donee during

his lifetime or before he becomes incapacitated


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-what if offer was made and you made a counter-offer? I was the

offerer but now you become the offerer, the original offerer must

accept the counter-offer

-Acceptance must be made known to offerer before his

withdrawal; this also applies when offerer dies before he knew of

acceptance, like in donation. If he became insane and he had no

knowledge of acceptance, there is no meeting of minds

Instances when offer becomes ineffective

1323: An offer becomes ineffective upon the death, civil

interdiction, insanity, or insolvency of either party before

acceptance is conveyed

-this means before acceptance is made known to offerer

-problem when withdrawal and acceptance done simultaneously;

framers did not anticipate this

Other rules in making an offer:

1325: Unless it appears otherwise, business advertisements of

things for sale are not definite offers, but mere invitations to

make an offer

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

-you then have no vested right just because you are the lowest

bidder; such as when a bidding is made by the government. With

the advent of Government Procurement Act, just because you are

lowest bidder doesn’t mean you would be accepted; there are

other post-qualifications. Pananglitan ikaw lowest bidder pero usa

ra imong pison, ang driver sa bulldozer mao pud driver sa pison.

Di jud ka dawaton ana

1319: Acceptance must be absolute

-meaning there must be no further questions since those make a

counter-offer

-offerer must accept also the counter-offer

As to the form of offer and acceptance, offeror may prescribe the

manner of acceptance

1320: Acceptance may be express or implied

-express through clear terms; implied through acts

1319: 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

-we follow the cognition theory: when you accept by letter, make

sure acceptance must come to knowledge of offerer before his

death or before he becomes incapacitated

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 a consideration, as something paid or

promised.

Example: I give you 15 days to decide on property worth 1 million.

But on 10th day, someone comes and offers to buy at 2million, so

the other person and I signed a deed of sale. Now you complain

because I did not comply with my undertaking to give you 15 days

to manifest acceptance of offer. Who now has the preferred right

over the property? You who was given 15 days or the other

person? It depends (relate with option contract)

-Option Money is the consideration in a contract of option

CONTRACT OF OPTION

is a contract wherein the one given the option is given the

privilege to choose to buy or not to buy within the given period of

time. It is a contract in itself

there is no contract of sale here; what has been paid is only the

option which is a contract distinct and separate from the contract

of sale which will be entered into later

but you have to pay consideration for the option contract;

otherwise, if you did not pay separate consideration for the

option of 15 days, I can withdraw the offer even tomorrow and

you can’t complain

but just because you paid option money, it does not follow there

is already contract of sale

if option contract not supported by consideration, it is not binding

option money vs earnest money

-earnest money is part of the purchase price. This presupposes

that there is already contract of sale, unlike option money

in sum, if there is consideration, I cannot withdraw the offer for

15 days since I will be liable. The obligation of offeree is to

manifest acceptance within the 15 day period. You can accept on

16th day basta wai naka una or wa pa gi withdraw

1479 (law on sales)

-this presents a contradictory provision

-gives us the impression that even if the promise to buy or to sell

has already been accepted but if the promise is not supported by

a consideration, it is not binding on the promisor

-on the other hand, 1324 tells us that even if the option is not

supported by a consideration, but once accepted, it is already

binding

-clarified in Sanchez vs Rigos: they abandoned the Southwestern

ruling

[I do not know what your discussion will be later in sales. Some

would content that katong gi accept promise raman, not really

the sale, so lahi na sila. Even if promise is accepted, it doesn’t

follow that there is perfected contract of sale. Some say if

promise is accepted, there arises a bilateral contract of sale. So

tagaan tikag option basta gi accept na nimo bisag walai


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consideration, dili na pede ma withdraw. I think this is the better

rule. Contract of sale na pag-accept nimo]

RIGHT OF FIRST REFUSAL

In Equatorial: Option contract vs right of first refusal

Right of first refusal does not need independent consideration

because it is deemed to be built in the contract. We can find this

in a contract of lease. You are given the privilege to refuse first.

This is a right that is enforceable; this means there is a second

contract which violated your right; the status of the second

contract is that it is rescissible. Why rescissible? There are 3 types

of rescissible contracts. One is a contract entered into in fraud of

creditors (similar with accion pauliana)

If you are holder of a right of first refusal, you are likened to a

creditor; if there is violation, you can ask court that second

contract be rescinded

In Equatorial: SC said that if right of first refusal is violated, the

second is rescissible. If you do not contest, that the second

contract will be perfectly valid

In order of defect: 1st is rescissible, meaning dili grabi ang defect,

2nd is voidable which is valid until annulled, 3rd is unenforceable,

pinaka-defective ang void

Right of first refusal does not need independent consideration

because the consideration is actually what the lessee paid by way

of rentals. On the other hand, option is a separate and distinct

contract

Confusing because of Eulogio vs Apeles

SC said in this case that this is an example of option contract and

therefore it needs consideration to be valid

Par 3 of the contract: “this would be effective… and shall remain

binding for 3 years. The lessor hereby gives lessee an option to

buy subject house..”

Difference with Equatorial? Nothing, but Equatorial was held as

right of first refusal but here it is an option contract

So how do you determine? Maybe the guiding principle is that in

an option contract, there must already be a decision to sell on

part of owner. Whereas in right of first refusal, no decision to sell

yet. Only states that “in the event”; only a hypothetical statement

Person who cannot give consent

1327: unemancipated minors; insane or demented persons, and

deaf-mutes who do not know how to write

Remedy: institute guardianship proceeding

Article 225: Legal guardianship over property of minor child; only

thing requires is to file verified petition for approval of bond not

less than 10% of value of property; relief is not that you be

appointed as guardian since you are already guardian as parent by

operation of law; you are only require to put up a bond

Instances that affect free giving of consent

Insane- generally cannot give consent by may during a lucid

interval; but there is a presumption of sanity; go to court and

have him declared insane then have a guardian appointed by

court

Hypnotic spell-; state of drunkness

VICES OF CONSENT [consent is not intelligent, free, spontaneous]

1330: A contract where consent is given through mistake,

violence, intimidation, undue influence or fraud is voidable

Consent is defective because of the circumstances

Status: voidable; valid until annulled; contract may be validated

-default period: 4 years; remedy is annulment

1. Mistake

may be made in good faith

may be mistake of fact, substance, principal conditions,

identity, qualification in obligation to do

example of mistake in principal conditions: purchase parcel of

land and it was formerly kainginized

-you cannot have a title over a timber or forest land

-check first the classification of the land

-principle: obtaining land title is not a mode of acquiring

ownership; it simply confirms ownership; so if you really do not

own, then there is nothing to confirm

-never buy timberland, mangrove

-if palit ka, goodbye to your millions

there are mistakes which merely pertain to incidental and

accessory provisions; they do not invalidate the contract

mistake of qualifications: applicable in obligations to do; such

as person says he is a doctor and he has land to sell; when after

you bought you found out he is not, it won’t prosper since it

has nothing to do with prestation; but lahi natong case sa

singer; depend on nature of contract

you buy real estate and representation was that this is the area

but what was there is lesser area; 1542 gives the guide

boundary prevails over the area: if you purchase land and

boundaries are stated but when there was survey and

boundaries were changed, is owner entitled to additional land?

No, seller only bound to deliver those mentioned in the

contract within the boundaries; boundaries already delineated

Can you cancel a sale on the ground that you were mistaken in

purchasing property? No basis to invalidate if based on motive

which is immaterial

Mistake must refer to the substance of the thing and those

conditions which have principally moved the parties to a

contract

Substance of the thing which principally moved one or both to

enter the contract

Alcasid Case: Representation did not invalidate consent

because she could have checked first the realities (no mistake)


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Note/Rule in Property: Under the Torrens system, when you buy

a property that is registered / covered by transfer certificate

title, one purchasing it doesn’t have to go beyond that title

generally. This is for easier transactions involving real estate.

Every time one deals with the property, tatakan na sa likod. Ipa-

lease, tatak. Naai claim, tatak sa likod. If you deal with the land

and naai mga tatak dha na encumberance noted there, you are

buying at your own risk. So if there is nothing noted there, title

is said to be a clean title

Problem: If you buy relying only based on the face of the title,

you are buyer in good faith. But in reality, the land was actually

water, can you invalidate contract because you were mistaken?

Problem: There is a title which voters a parcel of land but it

turned out that parcel of land is classified as a forest land and

you purchased it. Would that vitiate consent? If you purchase it

by mistake, can you recover what you paid?

-If title covers a land classified as forest land, that title is void.

You are entering a contract of sale where subject matter is

illegal, beyond commerce of man. If beyond commerce of man,

contract is not only voidable but VOID. Can you recover money

on ground of mistake considering it is a void contract? SO

JUST RESOLVE BY YOURSELF (patay na!)

Mistake of law

-Ignorance of the law excuses no one

-When you seek to annul contract, do not stop there. Ultimate

object is to recover what you gave

-in Kasilag vs Rodriguez, SC ruled that mistake upon a doubtful

provision of law may be a basis of good faith

-this involved sale of land covered by free patent then there

was a sale.

-SC made an exceptional ruling here that even if there is a

mistake but linked with interpretation of the law; nature of

interpretation is in regard to a difficult question of law; highly

exceptional because we have to stick with ignorance of law

excuses no one

1332: When one of the parties is unable to read, or if the

contract is in a language not 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

1333: There is no mistake if the [arty alleging it knew the

doubt, contingency or risk affecting the object of the

contract

-case of estoppel

2. Violence

Often intimidation happens, not violence kay karaan nani

siya

Prove the specific facts and make sure there was really

intimdation that affected free exercise of consent

That’s why law says condition of person shall be borne in

mind

Example: wala siguro intimidation kung dako kayo ka na taw

nya si Ramoneda imong kontra, wa siguro intimidation diha.

Maybe capable lang siya ug persuading (charbaki haha)

1335 : A threat to enforce one’s claim through competent

authority, if the claim is just and legal, does not vitiate

consent

-this is intimidation that is not a ground

-case when person threatens to sue another person for

sexual harassment if he does not sign contract

-Consideration to take account: is the threat related to the

contract? What I understand is that there must be a

reasonable nexus between the threat and the contract. For

me here, there is a doubtful validity because there is no

connection. This is blackmailing pure and simple

-More practical example: You had loan with bank and you

defaulted. You have other properties. Then bank says we

are willing to restructure your loan but you have to put up a

security through a mortgage. Will you agree under threat

that you will be sued for collection, violation of law? Then

can you later say that you will annul contract because there

was intimidation? Here is there is no question that this does

not vitiate consent

DBP vs CA

Reverential fear: fear of a superior

-generally, this will not vitiate consent

-when employee separates, hatagaan nimog pabaon. Pero

you also ask employee to sign a waiver. Then the employee

files a case. Sadly, our labor laws are partial to the laborer.

Labor laws are oppressive to the employer. Here, employee

contends there was intimidation in signing the waiver. This

usually prospers because employers are careless. If you ask

an employee to sign that waiver, make sure it is notarized

before the Department of Labor, not the company lawyer

because there will be presumption that it was not

voluntarily signed by the employee

3. Undue Influence

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 fact

that the person alleged to have been unduly influenced was

suffering from mental weakness or was ignorant or in financial

distress

Financial distress example: employee separated but was forced

by employer to sign that he will not engage in similar job for 5

years. But the person also has other expenses


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DBP vs CA: Saying financial distress mi mao gi-force mig sign sa

mortgage contract; not valid argument because bank has

legitimate claim

Undue influence is common in Contract of adhesion

-contracts of adhesion are not entirely prohibited; cannot say

there is violation of mutuality of contract principle

-do not make sweeping conclusion

-you must allege invalidity with circumstances that prove it

Stipulations in transportation contract which are incorporated

in a contract of adhesion; just because you sign it doesn’t mean

you accede to it because they are illegal 1745

4. Fraud

Fraud in the performance of an obligation vs. fraud in securing

the consent of a party

Fraud in the performance: initially, the contract is valid; no vice

of consent but there is fraud because what was delivered Is not

the one agreed upon; fraud in 1176

Fraud in securing the consent

-1335: There is fraud, when, through insidious words or

machinations of one of the contracting parties, the other is

induced to enter into a contract which, without them, he would

not have agreed to

-Specific example: insurance contract; you wanted a health

insurance but since you are sick, you ask your friend to submit

his medical certificate; but then you die, the insurance

company then was defrauded; had insurance company knew of

your real medical condition, three would have been no

insurance contract (p.446 Jurado)

Fraud is not just bad judgment or negligence; there is malice

here. It connotes a dishonest a dishonest purpose or there is

conscious doing of a wrong

Fraud in securing consent has two kinds: dolo incidente and

dolo causante (do not equate dolo incidente with fraud in the

performance of obligation)

-Woodhouse vs Halili: manufacture of softdrinks and the other

contended that there is fraud because the other represented

that he is a grantee of a franchise; the other said that he did

not represent but merely said he will secure franchise

-SC said: this is not dolo causante kind of fraud (which is the

one required) because even without the representation, the

contract will proceed. But the other’s share in the partnership

profits should be reduced because he was not the one who

gave effort to secure the franchise

-Geraldez vs CA: fraud here was dolo causante

Situations which do not vitiate/not fraudulent

a. 1340: usual exaggerations in trade, when the other party

had an opportunity to know the facts, are not in themselves

fraudulent

-Trinidad vs IAC: case sa house na ga sigi ug baha; reklamo

siya na fraudulent ang sale because sigi ug baha

-SC noted some circumstances here

-problem here was that she was a real estate broker so she

should have known; knowledge here is aggravating

circumstance; she only has her own negligence to blame

b. 1341: a mere expression of opinion does not signify fraud,

unless made by an expert and the other party has relied on

the former’s special knowledge

- so relying on mere expression, if fraudulent, depends if you

relied on the expert (camera example)

5. Misrepresentation

1342: Misrepresentation by a third person does not vitiate

consent, unless such misrepresentation has created substantial

mistake and the same is mutual

One made in good faith may constitute only error; fraudulent if

made in bad faith

Even if honest mistake, it can be a ground to set aside contract

Point here is that vices of consent may be actuated by good

faith but if it is a vice of consent, still, the contract may be set

aside

Bad/good faith is really not a factor; not correct to say there is

no basis to void contract just because other party is in good

faith. Example, error or mistake. Kung masayop ka sa

apprehension of facts, not necessarily bad faith but vice

Examples is that both parties thought a mortgage will transfer

ownership; or entered in a contract of sale but they thought if it

is a case of sale, they can retain possession over sold property.

Different if both parties agreed that it is a sale, they understood

it was a sale, they knew the legal effects but the contract that

reduced the agreement into writing did not reflect what they

agreed

-Remedy here is not annulment because there was meeting of

minds, no vice of consent kay nagkasinabot sila; proper remedy

is reformation because there is only a problem in the written

instrument

Simulation of Contracts

May be absolute or relative

Absolute simulation: parties have no intention to be bound at all

Example: I ask you to make deed of sale as requirement of my

subject; you make it appear that you are selling but I have no

intention to be bound by it and you have no intention to sell it,

but the deed purports to be genuine; VOID

Relative simulation: parties agree but conceal their true

agreement (1345)

-resorted to for tax purposes

-example: if mag donate ka, bayad kag donor’s tax. If mag baligya

ka, capital gains tax. When computed, mas dako ang tax sa sale


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kesa sa donation. So with that, they agree that it will be a sale

instead of donation. They make it appear it was a sale, they

conceal

-not necessarily void

-1346: Relative simulation, when it does not prejudice a 3rd 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

-so the simulation of the sale instead of donation is not

necessarily illegal; this is called tax avoidance; you found a way to

have lesser tax. Tax evasion is the one that is illegal

-Suntay case

Case of absolute simulation or fraudulent alienation

-absolute simulation is fraudulent but there are cases where you

alienate properties but not necessarily void as in the case of

accion pauliana. If you do not do anything in accion pauliana, the

other contract will still be valid; the party defrauded is given the

right to rescind that; susceptible to cure

-in absolute simulation, not susceptible to cure; void; cannot be

ratified; action here is not accion pauliana but declaration of

inexistence of contract

-in fraudulent alienation, contract is perfectly valid except the

circumstances when we entered the contract. Unlike absolute

simulation, there is deed of sale but there was no payment as

consideration

Manila Banking vs Silverio

-It is one thing to allege, it is another thing to prove. So if you say

fraudulent alienation intended to defraud, what are the specific

allegations that you have to make or prove? Factual

circumstances that this is case of absolute simulation? Contract

was already determined and its notarization

Suntay vs CA

In proving absolute simulation, check the circumstances; very

difficult to prove, the burden is upon you

OBJECT OF CONTRACTS (1:03:00) What may be the object of contracts 1. All things not outside the commerce of man

2. All rights not intransmissible

3. All services not contrary to law, morals, good customs,

public policy

Requisite: must be determinate as to its kind What may not be the object of contracts 1. Future inheritance, except when authorized by law

Exceptions: marriage settlement, partitions inter vivos 1080 2. Impossible things/services

What does “Outside the commerce of man” mean: cannot

be appropriated or capable of being owned

State can own properties which are capable of being

appropriated, so are we saying state properties can be

within commerce of man?

Aside from not being capable of appropriation, such

objects are not capable of being objects of commercial

transactions

Regalian doctrine: all properties which are not titled are

owned by the state including lands you currently possess

but not titled in your name. Ownership of minerals,

seashore, forest; they can be appropriated not by private

individuals but only by the state

Future things: no contract involving future inheritance;

your right is only inchoate

But other future things can be object of contract like

furniture or contracts involving sale of things that would

still be manufactured, like “made to order”

Current laws allow contracts to be entered into by the state

and some private investors like roads, highway

Why is it every time we go to Baguio we pay toll fees? That

is a public highway but why do we pay private people? We

have law called Build Operate Transfer (BOT law). Not all

projects can be funded by public funds, so we invite private

investors. We have to give them time to operate the facility

and allow them to recover expenses. After some time, it

will be turned over to the state, like the NAIA. It is public

facility, but it is object of contract because there is a special

law. It is not really just because it is outside commerce of

man, it cannot be an object. It can be when there is a law


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But why can’t we sell City Hall but we can sell SRP? Because

there are properties held by state in its proprietary

capacity. City hall is not held in proprietary capacity

Rights can also be object, but must be not intransmissible

Art 1347: All services which are not contrary to law,

morals, good customs, public order or public policy may

likewise be the object of a contract-- contract of services

involving legal services. Not allowed are contracts involving

prostitution

Escort service, is that allowed? Not yet allowed here in

Phils

Objects outside the commerce of men:

Article 420. The following things are property of public dominion: (1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character; (2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth. (339a) --so a patrol car cannot be subject of lease, nor a firetruck. D pede ipagamit adto silag Portofino. Or ang ambulance pang joyride

Rights which are not transmissible: cannot be object, like

right to vote. So ayaw pag kontrata diha sa imong right to

vote samot nag mapildi imo kandidato diha, patay ka,

transfer jud imo birthday to November 1

Article 1349. The object of every contract must be

determinate as to its kind. The fact that the quantity is not

determinate 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.

Example: I will enter into a contract that I will sell all the

harvest of coconut plantation. At that point, not yet

determinate pila jud harvest, but will not violate rule that

object must be determinate. But if I say I will sell to you my

coconut plantation and I have many coconut plantations,

there is no specific object here, contract is void

Art 1347: No contract may be entered into upon future

inheritance except in cases expressly authorized by law---

there are exceptions to this rule, there are agreements

recognized by law as valid even when future inheritance is

the object like partition inter vivos

-while the parents are still alive, heirs can enter into partition inter vivos; any agreement they enter into is valid,

provided mamatay sah ang parents before effective ang agreement -this is even advisable; an act which does not have effect of transferring the property because it is future inheritance, the parent can still revoke; but the moment he dies, partition will be respected under ART 1080. -Article 1080. Should a person make partition of his estate by an act inter vivos, or by will, such partition shall be respected, insofar as it does not prejudice the legitime of the compulsory heirs. A parent who, in the interest of his or her family, desires to keep any agricultural, industrial, or manufacturing enterprise intact, may avail himself of the right granted him in this article, by ordering that the legitime of the other children to whom the property is not assigned, be paid in cash. -this qualifies the rule that there can be no object of contract involving future inheritance (“TAKE NOTE OF THIS HA!” ---like saying mugawas jud nis exam)

CAUSE OF CONTRACTS

The “why” in a contract; reason why party assumed

obligation

Types of contracts in 1350: Onerous, Remuneratory,

Contracts of pure beneficence

1. Onerous: contract where one gives an equivalent value

2. Remuneratory: services which do not constitute a demandable debt or no obligation. -example: we were together in Basilan then I saved your life. When we got back to Cebu, to show your gratitude, I transferred my property to you. The service I rendered is not a demandable debt. Not also a donation, not pure liberality because I did something to you 3. Contracts of pure beneficence: liberality; love and affection

Cause is different depending on whose viewpoint you

adopt. In sale, cause for buyer is the things to be acquired

and for seller, the money to be received

Article 1351. The particular motives of the parties in

entering into a contract are different from the cause

thereof

-motive does not generally affect the contract -example: you buy condo to house your paramour. That is illegal but it does not invalidate the sale. As a rule, motive is irrelevant -motive is always unknown to the other, unlike the cause which is always known -there are however cases where the motive may predetermine contract. It affects the contract


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-Uy vs CA GR No. 120465 Sept 9, 1999: land was for housing purposes but here comes the two agents saying some lands are not suitable for housing. Motive is for housing. SC said practically there is no cause -Olegario vs CA: motive here was illegal; sold to deprive the heirs; predetermining the cause; as rule, motive will not affect but this is exceptional case where motive predetermined the contract. It affected the contract -Liguez vs CA: an old man donated to 16 y.o. minor for her to cohabit with him; illegal donation because the cause is illegal; it is illegal but you cannot recover property; you cannot invoke your own illegality or guilty/illegal act to benefit yourself; a case of motive predetermining the cause; void contract

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

Lesion or inadequacy of cause: Q: Is Php 1 consideration

VOID? not necessarily void. There must be evidence that

there was undue influence. 1 peso consideration is

perfectly fine unless 1 peso was because of undue

influence, fraud or mistake.

Defective causes and their effects: 1. Absence of cause/unlawful cause: produce no effect

whatever (1352)

2. Statement of a false cause in contract: void (1353)

3. Lesion/inadequacy of cause (insufficient price of the thing

sold): not invalidate a contract unless there has been fraud,

mistake or undue influence.

FORMS OF CONTRACTS (Recording #2, 26:00)

GENERAL RULE: Article 1356. Contracts shall be obligatory,

in whatever form they may have been entered into,

provided all the essential requisites for their validity are

present.

Generally, contracts are valid and perfected by mere

consent. GR: Contracts do not really require that they be in writing.

They are valid and obligatory in whatever form they are

entered into. Even if contract is perfected orally, still, it is

binding.

But there are classifications of contracts: voidable,

rescissible, unenforceable, void

Obligatory in whatever form provided that all essential

requisites are present. In other words, what cannot be

compromised are the three essential elements of

contracts: (1) consent, (2) cause, (3) object—if any of these

elements is not present, there is no contract whether oral

or written

There are exceptions to the GR; situations where on top of

the three essential requisites, the law requires that a

contract be in some form in order that it may be valid or

enforceable (form must be observed strictly)

a) those that require for validity: form is required for

validity; law requires something in writing

1. requires something in writing for validity

-this is the critical one -if not observed, affects the validity of transaction -may mean notarized or not notarized as long as in writing -even if not notarized, as long as in writing, that is already compliance; but notarization is desirable -not even specified on what material it should be written -pede pud sa kahoy, hilig ta ana, kanang naai arrow bitaw, naa pa ang ngalan sa laki ug bayi naa dayon heart heart, porbida anang styla (bitter raka sir) -examples:

donation (especially personal property

where value exceeds 5thousand pesos)

donation of real estate which MUST be in a

public document for validity

-if not in public document, void -if it is void, even if parties would validate it, it would never be validated

Article 1874. When a sale of a piece of land

or any interest therein is through an agent,

the authority of the latter shall be in

writing; otherwise, the sale shall be void. -this is contract of agency; wherein one sells as an agent. The agents authority must be in writing otherwise the sale is void.

Stipulation in regard to interest

Contract of partnership

-no written document, binding as long as no immovable is contributed -if real estate is the business and there is immovable contributed, there must be public document otherwise void. -Article 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument.


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2. require in writing to make it effective as against third

persons

-does not affect validity of transaction; still valid as between the parties; source of legal rights -on issue of validity, valid; on issue if binding as against 3rd persons, not binding if do not appear in a public document/writing -examples:

sale of a parcel of land

-we meet at a coffee shop. We agree on object, price, is this perfected contract? YES -taken out of statute of frauds as long as you pay even small amount, already executed contract; or you have it in writing -but before an actual transfer be made in your favor, you must execute a public document/ a duly notarized deed of sale signed by the seller and have it registered in register of deeds so that once it is already registered, it is binding as against 3rd persons (RECORDING #3 & 4) -agreement you had is valid, but cannot be registered -what if dili muexecute public document imo kasabot, unsaon mana nimo? File a case where relief you ask is to compel the person to execute the deed of sale duly notarized - 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, once the contract has been perfected. This right may be exercised simultaneously with the action upon the contract. -if person does not voluntarily comply, there are other remedies: court may just direct clerk of court to draft the deed of sale in favor of plaintiff (validity and registrability are different concepts) -but before the right in 1357 be availed of, the contract must be perfected, valid and enforceable under statute of frauds:

can you compel me to execute a deed

of donation if there was nothing in

writing? No, it was invalid/void

contract must be enforceable: sale

must be in writing to be enforceable, so

if it wasn’t in writing, cannot exercise

right in 1357 to compel seller to

execute deed of sale

-so yes you can compel, except if contract is void

3. require in writing for purpose of proving existence of

contract

-presupposes that contract is at its inception is valid but when parties sue each other, the party cannot proceed/it is unenforceable; but not void contract. It is valid but the party just cannot enforce it -statute of frauds

when you transact with register of deeds, you cannot bring

an instrument there that is not notarized

public document means that it is notarized by notary public

authorized in his jurisdiction (otherwise, administrative

offense of the notary public)

REFORMATION OF INSTRUMENTS (9:00)

implies correction; make the instrument reflect what the

parties agreed

Article 1359. When, there having been a meeting of the

minds of the parties to a contract, their true intention is

not expressed in the instrument purporting to embody the

agreement, 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.

Requisites: 1. Meeting of the minds upon the contract

2. True intention of the parties is not expressed in the

instrument

3. Failure of the instrument to express the true agreement is

due to mistake, fraud, inequitable conduct, or accident

Reformation of instrument is a remedy, but this remedy

presupposes that there is meeting of the minds, but the

problem is that the written instrument does not reflect

what they agreed

Example: what parties agreed is mortgage only (Prenda),

but then the other party wrote that it was a sale with right

to repurchase. Mortgage does not transfer ownership,

unlike sale. Right to repurchase is only Consuelo de bobo.


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This is fraud. There was meeting of minds, but the

document later executed did not reflect real intention.

Here, reformation is a proper remedy; not annulment

because there was meeting of minds here and consent was

not vitiated.

When you file case for reformation, you are asking court to

reform instrument. (directing the court na mugama og

laing agreement to conform to what you agreed) Court is

not making a contract for parties

Important rule: Court as a rule should not interfere with

private contractual relations

In reformation, courts do not make another contract for

the parties. They merely inquire into the intention of the

parties and having found it, reform the written instrument

What is reformed is not the contract itself but the

instrument embodying the contract

Article 1366. There shall be no reformation in the

following cases:

(1) Simple donations inter vivos wherein no condition is imposed; (2) Wills; (3) When the real agreement is void.

Donation inter vivos, why not allowed? It is gratuitous,

there is no valuable consideration

But take note of Article 789: When there is an imperfect

description, or when no person or property exactly answers

the description, mistakes and omissions must be corrected,

if the error appears from the context of the will or from

extrinsic evidence, excluding the oral declarations of the

testator as to his intention; and when an uncertainty arises

upon the face of the will, as to the application of any of its

provisions, the testator's intention is to be ascertained

from the words of the will, taking into consideration the

circumstances under which it was made, excluding such

oral declarations.

Action to reform is in the nature of specific performance

Last will and testament: it must be probated by the court

-probate: determine here if it was voluntarily signed, if there were witnesses; can be done after death or during lifetime of one making will -advisable if probated during the lifetime because issues can be better answered by one making the will -but the actual transfer will only be after death -not allowed to be reformed; while 1366 does not allow reformation, 789 actually allows correction; so it may still be corrected under 789

-if testator still alive, “will” can always be reformed especially when he changes his mind, or bisag ganahan lang jud xa na hasulon ka, pero kung matay na xa, d na pede ireform

No reformation if the real agreement is void; there is

nothing to reform if the agreement is void.

Article 1367. When one of the parties has brought an

action to enforce the instrument, he cannot subsequently

ask for its reformation. (implied reformation)

Cannot ask for reformation if you are attacking the validity

of the contract; you cannot reform an otherwise void

transaction

Interpretation of contracts, (we won’t deal with this

anymore)

Just read section 9 of rule 130 of rules of court on parol

evidence

Parol Evidence Rule Section 9. Evidence of written agreements. — When the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written instrument/agreement. However, a party may present evidence to modify, explain or add to the terms of written agreement if he puts in issue in his pleading: (a) An intrinsic ambiguity, mistake or imperfection in the written agreement; (b) The failure of the written agreement to express the true intent and agreement of the parties thereto; (c) The validity of the written agreement; or (d) The existence of other terms agreed to by the parties or their successors in interest after the execution of the written agreement. The term "agreement" includes wills. ---SO if we agreed and did not deduce it into writing, it is as if they did not agree on that.

Article 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 terms are clear enough, there is no need for interpretation.

How to determine intention? Intention only matters when terms are susceptible of two or more interpretations

Article 1374. The various stipulations of the contract shall be interpreted together.

Article 1378. When it is absolutely impossible to settle doubts by the rules established in the preceding articles,


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and the doubts refer to incidental circumstances of a gratuitous contract, the least transmission of rights and interests shall prevail. If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests. -gratuitous contracts have transmission of rights -take note again that there is no need to apply this if terms are clear enough -only when there are doubts -reiterated again in rule 123 sec 10 & 19 on rules of evidence

There is reason for order in civil code: rescissible, unenforceable, voidable, void—from the least to most defective contract

DEFECTIVE CONTRACTS

RESCISSIBLE CONTRACTS (RECORDING #5, 3:20)

Least defective contract 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-fourth 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. ---example of number 5: partition among heirs where one was deprived of his share by more than ¼, the partition agreement may be rescinded.

the remedy here is to file an “action for rescission”

contrast this with rescission in reciprocal contracts (1191)

in the former civil code, it was referred in 1191 as resolution, not rescission

TAKE NOTE: distinguish rescission in 1191 vs rescission here: they are based on different grounds -rescission in 1191 is noncompliance; rescission in 1380 is predicated upon economic damage -in 1191, rescission can only be asked by party to a contract; whereas rescission in 1380 may be asked for even by a 3rd person; e.g. a creditor who was defrauded, may not be a party to the contract but since he is prejudiced ha can ask the contract entered into by his debtor be rescinded.

TAKE NOTE! Rescissible contract is not a void contract; this is a valid contract; rescission only a subsidiary remedy; must first prove that all other remedies have been exhausted. Valid before it has been rescinded.

1. Those which are entered into by guardians whenever the wards whom they represent suffer lesion (damage) by more than one-fourth of the value of the things which are the object thereof

Contracts can be entered into by a guardian on behalf of a ward, demented person, person is sick in the ICU, a spendthrift (gasto didto, gasto dira)

With exception of parents who are legal guardians by operation of law, in cases if not minor children you have to go to court and file a special proceeding to be appointed as guardian

Special proceeding = guardianship proceeding wherein guardian will be appointed who will manage; first establish that ward is suffering from incapacity which may be insanity, spendthrift, etc.; have him declared incompetent

With respect to contract involving property entered into by guardian of ward, have to seek first authority of the guardianship court like selling of properties; file a motion

When given already the authorization, it is possible a ward may suffer damage

Question: What if authority is already given to you by court and enter contract to sell property of ward, then ward suffers economic damage more than ¼ as a result by the contract entered by you in your capacity as guardian, is that a rescissible contract? NOT rescissible because there was authorization given by court, it is perfectly valid. The proposed deed of sale is examined by the court first.

Question: if guardian just sold property without authorization by court? NOT rescissible, this is unenforceable

So what is a rescissible contract referred to by 1381? “Mere Act of Administration”, Ordinary expenses pertaining to administration of property (Recurring expenses); contract where you do not need authority from court but ward suffered damage more than ¼; recurring expenses such as hospitalization; if out of the ordinary transactions, not anymore acts of mere administration

So even if with authority of court, ward suffered damage, not rescissible

Even inadequate consideration will not make this rescissible especially when there was authority from court


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Acts of administration vs acts of state ownership: (RECORDING #6, 6:30) Criterion will be recurring expenses but still not determinative; take guidance from those acts enumerated in 1878 for which SPA is required: Article 1878. Special powers of attorney are necessary in the following cases: (1) To make such payments as are not usually considered as acts of administration; (2) To effect novations which put an end to obligations already in existence at the time the agency was constituted; (3) To compromise, to submit questions to arbitration, to renounce the right to appeal from a judgment, to waive objections to the venue of an action or to abandon a prescription already acquired; (4) To waive any obligation gratuitously; (5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration; (6) To make gifts, except customary ones for charity or those made to employees in the business managed by the agent; (7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are under administration; (8) To lease any real property to another person for more than one year; (9) To bind the principal to render some service without compensation; (10) To bind the principal in a contract of partnership; (11) To obligate the principal as a guarantor or surety; (12) To create or convey real rights over immovable property; (13) To accept or repudiate an inheritance; (14) To ratify or recognize obligations contracted before the agency; (15) Any other act of strict dominion. --- there are 15 transactions here and if performed by guardian, they are not merely acts of administration, they are acts of state ownership. If guardian performs any one of these acts, he must have authority from court otherwise it will be an unenforceable contract. Outside these, they are “mere acts of administration”. Kanang usual ba like pilay kwarta irelease for utilities kung manager kag company. So if in ani and the guardian suffers lesion more than ¼, that is rescissible

2. Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number

Same rules apply (the ones in guardian-ward)

3. Those undertaken in fraud of creditors when the latter

cannot in any manner collect the claims due them

Ex. Accion pauliana

Contract entered into by a debtor in fraud of creditors is prima facie valid but if the creditor can show that they are entered into in fraud of his rights, that is the only time they may be declared rescinded

So how do you prove transfer is made in fraud of creditors? Would it suffice to show that pending the case against the debtor, transfer was made? Is it enough? NO

before you can ask setting aside of contract on ground that it was entered into in fraud of creditors, it must be established that there was no other means by which claim of creditor can be satisfied

kay kung naa lain paagi, contract is perfectly valid

to help us determine what fraudulent transfers are, law gives us what we term as BADGES OF FRAUD, but do not take these simply a) fact that cause or consideration of the conveyance is

fictitious or inadequate -case of Oria vs McMicking: SC here said that if your theory is that there was contract in fraud of creditors, you can prove through the badges of fraud

b) transfer made by debtor after suit has been begun and while it is pending against him

However, this by itself is not conclusive. Just because there is case against you, does not mean you cannot deal with your property. That will be height of injustice if you are stopped from selling your property.

When there is writ of attachment issued against you and annotated at back of title, does not mean you cannot sell property. Injunction is different, this means you are prohibited. But if attachment lang, you are not prohibited from selling. There’s room for a stupid buyer to buy your property despite a writ of attachment. Naa man pud buyer na mutake advantage na dugay mahuman ang kaso. Paliton niya, recover niya iyang expense plus profit. Ig human sa kaso pildi ka. Uli rapud niya. Ka recover naman siya

But of course, ordinary individuals will not normally buy property with writ of attachment annotated therein. Because you will be bound in whatever result of the decision

c) a sale on credit by an insolvent debtor insolvent naka, nagpa utang pa jud ka! Clear badge of fraud but sometimes this is

explainable


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Mu ingon mansad ka na magpa utang raman jud ko kay d man jud madala ang bahandi sa langit

d) evidence of large indebtedness or complete insolvency

e) transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed financially

f) fact that the transfer is made between father and son, when there are present others of the above circumstances

g) failure of the vendee to take exclusive possession of all the property remember Silverio case and case involving a

lawyer and an uncle it may mean that transfer is simulated or

fraudulent transfer usually if mupalit ka, take jud ka possession so purportedly naay transfer but no possession,

this may be good indicator that transfer was fraudulent or simulated

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.

This is one of the similarities between rescission here and rescission in 1191

Take note of the prescriptive period (4 years) because that is defense.

Other defense is that when subject matter is already in the hands of a 3rd person who is in good faith

we start with the presumption that every person is presumed to have acted in good faith

how will establish person is in bad faith? This is very difficult because this is state of mind. D pud ka kaingon na maldito ayug nawng your honor oh, bad faith na

take note, the law allows inadequacy of consideration.

bad faith: one who buys property when there is already a writ of attachment at back of property

you must annotate your claim over property to preserve your rights para ang sunod na mutransact will be made aware that property is involved in litigation. Therefore if person still buys, he cannot claim he is in good faith. But he must have actual knowledge, which is still difficult to prove. Easier said than done. In actual practice, very difficult to prove. Best proof that the person is in bad faith is when he purchases even when there is already an annotation that that is involved in litigation

a writ of attachment was issued against you on a specific property lot A (otherwise defective if not specific). But you sold lot B. Is that rescissible assuming all other requisites to make you in fraud of creditors are present? Can you contend that it was not in fraud because what you sold was lot B? NO. Law is very clear in 1387, decision or attachment need not refer to the property alienated and need not have been obtained by the party seeking rescission

What is liability if you acquire things in bad faith and which transaction was in fraud? Pay damages whenever it is impossible to return (1388)

By the way, there is another defense for suit of rescission. If you can offer to restitute or repair damage allegedly suffered by the creditor, rescission will not prosper.

Ex. Like if you really love this property very much, you plan to just offer to pay him/creditor defrauded the alleged damage. Kato sad nag file rescission, d sad musugot kay kita pud siya nay opportunity ang property, valuable ang property. Kinsa man ang paboran sa court karun? Let us assume 2nd buyer is in bad faith. Of course understand the nature of rescission. Before contract is rescinded, it is valid. Rescission is only subsidiary remedy. Formulate argument on nature of rescission, and status of contract before rescinded. So the one who will be favored is 2nd buyer. If damage can be repaired since rescission only subsidiary, no cause of action. No damage here anymore But now ikaw napud lawyer sa usa, katong 2nd buyer. Aw ig finals nalang ni [pangita namo ug answer daan!!!]

REMEMBER! Right of first refusal clause violated, 2nd contract is rescissible because it is taken into a contract in fraud of creditors

VOIDABLE/ANNULABLE CONTRACTS (39:00)

Valid until annulled

Ground in 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.

Voidable vs rescissible: Contract is voidable regardless of damage done

Obligations and Contracts Notes.pdf

Documents

Transcript of Obligations and Contracts Notes.pdf