oblicon

San Beda College of Law 85

MEMORY AID IN CIVIL LAW

OBLIGATIONS AND CONTRACTS

I. OBLIGATIONS

OBLIGATION A juridical necessity to give, to do, or

not to do (Article 1156), one impressed with the character of enforceability.

Requisites:a. juridical or legal tie or efficient

causeb. active subject (obligee or

creditor)c. passive subject (obligor or

debtor)d. fact, prestation or service

constituting the object of the obligation Requisites:

i) it must be licitii) it must be possible,

physically & juridicallyiii) it must be determinate or

determinableiv) it must have a possible

equivalent in money

Sources (Article 1157):1. Law2. Contracts3. Quasi-contracts4. Delicts5. Quasi-delicts

QUASI-CONTRACTS Those juridical relations arising from

lawful, voluntary and unilateral acts, by virtue of which the parties become bound to each other, based on the principle that no one shall be unjustly enriched or benefited at the expense of another.

Principal Kinds of Quasi-contracts:1. Negotiorum gestio - arises whenever

a person voluntarily takes charge of the agency or management of the business or property of another without any power or authority from the latter.

2. Solutio indebiti - arises whenever a person unduly delivers a thing

through mistake to another who has no right to demand it.

QUASI-DELICTS An act or omission by a person

(tortfeasor) which causes damage to another giving rise to an obligation to pay for the damage done, there being fault or negligence but there is no pre-existing contractual relation between the parties (Article 2176).

Requisites: 1. There must be an act or omission;2. There must be fault or negligence;3. There must be damage caused to the plaintiff;4. There must be a direct relation of cause and effect between the act or omission and the damage; and5. There is no pre-existing contractual relation between the parties.

NOTES: The same negligent act or omission

causing damage may produce civil liability arising from crime under Art. 100 of the RPC or create an action for quasi-delict under Article 2176.

While it is true that in order that a person may be liable for quasi-delicts, there must be no pre-existing contractual relationship between the parties, yet, “the act that breaks the contract may also be a tort.” (Air France vs. Carrascoso, 18 SCRA 155).

Nature of Obligations1. Personal Obligations - obligations to doa. Positive – obligation to dob. Negative – obligation not to do

2. Real Obligations - obligations to give

CIVIL LAW COMMITTEE CHAIRPERSON: Romuald Padilla ASST.CHAIRPERSON : Vida Bocar, Joyce Vidad EDP : Alnaiza Hassiman, Dorothy Gayon SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John StephenQuiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD), Ma. Ricasion Tugadi (Conflict of Laws)

86 2005 CENTRALIZED BAR OPERATIONS

a. Determinate or specific – object is particularly designated or physically segregated from all other of the same class

b. Generic – object is designated merely by its class or genus

c. Limited generic thing – when the generic objects are confined to a particular class, e.g. an obligation to deliver one of my horses (Tolentino, Volume IV, p. 91).

PERSONAL vs. REAL RIGHTPersonal Real

1. jus ad rem, a right enforceable only against a definite person or group of persons

1. jus in re, a right enforceable against the whole world

2. right pertaining to the person to demand from another, as a definite passive subject, the fulfillment of a prestation to give, to do or not to do.

2. right pertaining to a person over a specific thing, without a passive subject individually determined against whom such right may be personally enforced

RIGHTS OF A CREDITORDeterminate Generic

1. compel specific performance

1. ask for performance of the obligation

2. recover damages in case of breach of the obligation, exclusive or in addition to specific performance

2. ask that the obligation be complied with at the expense of the debtor

3. entitlement to fruits, interests from the time the obligation to deliver arises.

3. recover damages in case of breach of the obligation

Principle of Balancing of Equities as Applied in Actions for Specific Performance In decreeing specific performance,

equity requires not only that the contract be just and equitable in its provisions, but that the consequences of specific performance likewise be equitable and just. The general rule is that this equitable relief will not be

granted if, under the circumstances of the case, the result of the specific performance of the contract would be harsh, inequitable, oppressive or result in an unconscionable advantage to the plaintiff. The courts may adjust the rights of the parties in accordance with the circumstances obtaining at the time of rendition of judgment, when these are significantly different from those existing at the time of generation of those rights. (Agcaoili vs. GSIS, G.R. No. 30056, August 30, 1988)

OBLIGATIONS OF THE DEBTORDeterminate Generic

1. deliver the thing which he has obligated himself to give2. take care of the thing with the proper diligence of a good father of a family 3. deliver all accessions and accessories of the thing even though they may not have been mentioned 4. pay damages in case of breach of the obligation by reason of delay, fraud, negligence or contravention of the tenor thereof

1. deliver the thing which is neither of superior nor inferior quality 2. pay damages in case of breach of the obligation by reason of delay, fraud, negligence or contravention of the tenor thereof

EFFECTS OF BREACHPositive Personal

ObligationsNegative Personal

ObligationsThe creditor can: 1. have the obligation performed or executed at the expense of the obligor (except in cases where the personal qualifications of the debtor are taken into account in which case the only remedy is an action for damages)2. ask that what has been poorly done be undone

If the obligor does what has been forbidden him, the creditor can:1. have it undone at the expense of the obligor; and 2. ask for damages

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda Tolentino(VC-Acads), Jennifer Ang(VC- Secretariat), Joy Inductivo (VC-Finance), Elaine Masukat (VC-EDP), Anna Margarita Eres (VC-Logistics). Jonathan

Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law), Romuald Padilla (Civil Law), Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial Law), Jinky Ann Uy (Remedial Law), Jackie Lou Bautista (Legal Ethics)



3. recover damages because of breach of the obligation

Cases where the remedy granted under Article 1168 is not available:1. Where the effects of the act which is

forbidden, are definite in character, in which case, even if it is possible for the obligee to ask that the act be undone at the expense of the obligor, consequences contrary to the object of the obligation will have been produced which are permanent in character

2. Where it would be physically or legally impossible to undo what has been undone because of the very nature of the act itself or because of a provision of law, or because of conflicting rights of 3rd persons

NOTE: In either case, the remedy is to ask for damages.

BREACH OF OBLIGATIONS1. Voluntary - debtor, in the

performance of the obligation, is guilty of:a. default (mora)b. fraud (dolo)c. negligence (culpa)d. contravention of the tenor of the

obligation NOTE: debtor is liable for damages

2. Involuntary - debtor is unable to comply with his obligation because of fortuitous eventNOTE: debtor is not liable for damages

DEFAULT or DELAY Non-fulfillment of the obligation with

respect to time Requisites:1. Obligation is demandable and already

liquidated2. The debtor delays performance3. The creditor requires performance

judicially or extra-judicially

3 Kinds:

1. Mora solvendi - delay of the debtor to perform his obligation. It may be:a. Ex re – obligation is to

giveb. Ex persona – obligation is

to do2. Mora accipiendi - delay of the

creditor to accept the delivery of the thing w/c is the object of the obligation

3. Compensatio morae - delay of the parties or obligors in reciprocal obligation

When incurred:General Rule: There must be a demand

(judicial or extra-judicial) before delay may be incurred.

Exceptions: 1. obligation or law expressly so

declares2. time is of the essence of the

contract3. demand is useless as when obligor

has rendered beyond his power to perform

4. there is acknowledgment of default

NOTES:

There can be delay only in positive obligations (to give/to do). There can be no delay in negative obligations (not to give/not to do).

In reciprocal obligations one party incurs in delay from the moment the other party fulfills his obligation, while he himself does not comply or is not ready to comply in a proper manner with what is incumbent upon him. The general rule is that fulfillment by both parties should be simultaneous except when different dates for the performance of obligation is fixed by the parties.

Demand is still necessary if their respective obligations are to be performed on separate dates

FRAUD Deliberate and intentional evasion of

the fulfillment of an obligation



NOTE: Future fraud cannot be waived because it would result to illusory obligation.

Incidental Fraud/dolo incidente

(Article 1170)

Causal Fraud/dolo causante

(Article 1338)

1. Present during the performance of a pre-existing obligation

1. Present during the time of birth or perfection of the obligation

2. Purpose is to evade the normal fulfillment of the obligation

2. Purpose is to secure the consent of the other to enter into a contract

3. Results in the non-fulfillment or breach of the obligation

3. Results in the vitiation of consent

4. Gives rise to a right of the creditor to recover damages from the debtor

4. Gives rise to a right of an innocent party to annul the contract

NEGLIGENCE Omission of that diligence which is

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

NOTE: Negligence can be waived unless the nature of the obligation or public policy requires extraordinary diligence as in common carrier.

Diligence Required1. That agreed upon by the parties2. In the absence of stipulation, that

required by law in the particular case3. If both the contract and law are

silent, diligence of a good father of a family

Concept of Diligence of Good Father of a Family

That reasonable diligence which an ordinary prudent person would have done under the same circumstances

Test of Negligence

The test of negligence can be determined by this standard: If the defendant, in committing or causing the negligent act, had used reasonable care and vigilance which a man of ordinary prudence would have employed under the same situation, he is not guilty of negligence. Otherwise, he is guilty.

Doctrine of Res Ipsa Loquitur as Applied in Negligence Cases

The thing or transaction speaks for itself

When the thing which caused injury, without fault of the injured person, is under the exclusive control of the defendant and the injury is such as in the ordinary course of things does not occur if he having such control use proper care, it affords reasonable evidence, in the absence of explanation from the defendant, that the injury arose from defendant’s want of care (Africa vs. Caltex, 16 SCRA 448 and Republic vs. Luzon Stevedoring, 21 SCRA 279).

FORTUITOUS EVENT An event which could not be foreseen

or which though foreseen was inevitable.

Requisites: 1. cause is independent of the will of

the debtor2. the event must be unforeseeable or

unavoidable3. occurrence must be such as to render

it impossible for the debtor to fulfill his obligation in a normal manner

4. debtor must be free from any participation in

5. the aggravation of the injury resulting to the creditor (Lasam vs. Smith, 45 Phil. 657)

NOTE: It must not only be the proximate cause but it must be the ONLY and SOLE CAUSE.





GENERAL RULE: No liability in case of fortuitous event.EXCEPTIONS:

1 When expressly declared by lawNOTE: e.g. Article 552(2), 1165(3), 1268, 1942, 2147, 2148 and 2159 of the Civil Code.

2 When expressly declared by stipulation or contract

3 When the nature of the obligation requires the assumption of risk

4 When the obligor is in default or has promised to deliver the same thing to 2 or more persons who do not have the same interest [Article 1165(3)].

EFFECT OF FORTUITOUS EVENTDeterminate Obligation

Generic Obligation

obligation is extinguished

obligation is not extinguished based on the rule that a genus never perishes (genus nunquam peruit)

PRINCIPLE UNDER ARTICLE 1176

Before the presumption that a prior installment had been paid may arise, the receipt must specify the installment for which payment is made.

REMEDIES OF CREDITOR TO PROTECT CREDIT:

1. Exhaustion of debtor’s property2. Accion subrogatoria - to be

subrogated to all the rights and actions of the debtor save those which are inherent in his person.

3. Accion pauliana - impugn all the acts w/c the debtor may have done to defraud them.

NOTE: 2nd & 3rd remedies are subsidiary to the first

GENERAL RULE: Rights acquired by virtue of an obligation are transmissible in character

EXCEPTIONS:

1. When they are not transmissible by their very nature e.g. purely personal right

2. When there is a stipulation of the parties that they are not transmissible

3. Not transmissible by operation of law

PURE OBLIGATION One whose effectivity or

extinguishment does not depend upon the fulfillment or non-fulfillment of a condition or upon the expiration of a term or period and is demandable at once.

CONDITIONAL OBLIGATION One whose effectivity is subordinated

to the fulfillment or non-fulfillment of a future AND uncertain fact or event

Kinds of conditions:1. Suspensive - fulfillment of the

condition results in the acquisition of rights arising out of the obligation

2. Resolutory - fulfillment of the condition results in the extinguishments of rights arising out of the obligation

3. Potestative - fulfillment of the condition depends upon the will of a party to the obligation

4. Casual - fulfillment of the condition depends upon chance and/or upon the will of a third person

5. Mixed - fulfillment of the condition depends partly upon chance and/or the will of a third person

6. Possible - condition is capable of realization according to nature, law, public policy and good customs

7. Impossible - condition is not capable of realization according to nature, law, public policy and good customs

8. Positive - condition involves the performance of an act

9. Negative - condition involves the omission of an act

10. Divisible - condition is susceptible of partial realization

11. Indivisible - condition is not susceptible of partial realization



12. Conjunctive - where there are several conditions, all of which must be realized

13. Alternative - where there are several conditions but only one must be realized

Rule in Potestative Conditionsa. If the fulfillment of the

potestative condition depends upon the sole will of the debtor, the condition as well as the obligation itself is void. It renders the obligation illusory. (Applicable only to a suspensive condition and to an obligation which depends for its perfection upon the fulfillment of the potestative condition and not to a pre-existing obligation.)

b. If the fulfillment depends exclusively upon the will of the creditor, both the condition and obligation is valid.

NOTE: In case of simple potestative condition, e.g. right of first refusal, such condition is valid.

Rule in Impossible ConditionsGENERAL RULE: They shall annul the

obligation which depends upon them.EXCEPTIONS:

1. pre-existing obligation2. if obligation is divisible3. in simple or renumeratory donations4. in testamentary dispositions5. in case of conditions not to do an

impossible thing

Effects of Suspensive Condition1. Before fulfillment of the condition,

the demandability as well as the acquisition or effectivity of the rights arising from the obligation is suspended

2. After the fulfillment of the condition, the obligation arises or becomes effective

3. The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation

4. When the obligation imposes reciprocal prestations upon the parties, the fruits & interests shall be

deemed to have been mutually compensated

5. If the obligation is unilateral, the debtor shall appropriate the fruits & interests received, unless from the nature & circumstances it should be inferred that the intention of the persons constituting the same was different

6. In obligations to do or not to do, the court shall determine the retroactive effect or the conditions that has been complied with

Constructive fulfillment of Suspensive Condition

The condition shall be deemed fulfilled when the obligor actually prevented the obligee from complying with the condition and such prevention must have been voluntary and willful in character.

Effects of Resolutory Condition1. Before the fulfillment of the

condition, the right which the creditor has already acquired by virtue of the obligation is subject to a threat of extinction.

2. If condition is not fulfilled, rights are consolidated; they become absolute.

3. Upon fulfillment of the condition, the parties shall return to each other what they received including the fruits

SUMMARY:SUSPENSIVE CONDITION

RESOLUTORY CONDITION

1. if fulfilled, obligation arises or becomes effective

2. if not fulfilled, no juridical relation is created

3. rights are not yet acquired, but there is hope or expectancy that they will soon be acquired

1. if fulfilled, obligation is extinguished

2. if not fulfilled, juridical relation is consolidated

3. rights are already acquired, but subject to the threat or danger of extinction

Effects of Loss, Deterioration and Improvement in real obligations (during the pendency of the condition)





1. Lossa. without debtor’s fault -

obligation is extinguishedb. with debtor’s fault - debtor pays

damages

2. Deteriorationa. without debtor’s fault -

impairment to be borne by the creditor

b. with debtor’s fault - creditor may choose between the rescission of the obligation and its fulfillment with indemnity for damages in either case

3. Improvementa. by the thing’s nature or by time -

improvement shall inure to the benefit of the creditor

b. at the debtor’s expense - debtor shall have no other right than that granted to a usufructuary

NOTE: Applies only to determinate things

A Thing is Lost when it:1. perishes2. goes out of commerce 3. disappears in such a way that its

existence is unknown or it cannot be recovered

RECIPROCAL OBLIGATIONS Those which are created or established at the same time, out of the same cause, and which result in mutual relationships of creditor & debtor between the parties

TACIT RESOLUTORY CONDITIONIf one of the parties fails to comply

with what is incumbent upon him, there is a right on the part of the other to rescind the obligation.

RIGHT TO RESCIND (ART 1191)GENERAL RULE: The right to rescind

needs judicial approval.EXCEPTIONS:

1. If there is an express stipulation of automatic rescission

2. When the debtor voluntarily returned the thing

NOTES:

Article 1191 refers to judicial rescission. It does not apply if there is an express stipulation to rescind, in which case such stipulation must prevail. There is nothing in the law which prohibits the parties from entering into an agreement that violation of the terms of the contract would cause its cancellation without court intervention. Said stipulation is in the nature of facultative resolutory condition (Angeles vs. Calasanz, 135 SCRA 323).

Rescission will be ordered only where the breach is substantial as to defeat the object of the parties in entering into the agreement.

The injured party may choose between fulfillment and rescission of the obligations, with the payment of damages in either case. These remedies are alternative, not cumulative. However, should fulfillment become impossible, the injured party may also seek rescission.

The right to rescind belongs exclusively to the injured party.

OBLIGATION WITH A PERIOD Those whose demandability or

extinguishment is subject to the expiration of a term or period

Requisites: 1. future2. certain3. possible, legally and physically

CLASSIFICATION OF TERM OR PERIOD1. a. suspensive (ex die) – obligation

becomes demandable only upon arrival of a day certain

b. resolutory (in diem) – arrival of day certain terminates the obligation

2. a. legal – granted by law



b. conventional – stipulated by parties

c. judicial – fixed by courts3. a. definite – date/time is know

beforehandb. indefinite – the date/time of day certain is unknown

TERM CONDITION1. interval of time w/c is future & certain

1. fact or event w/c is future and uncertain

2. interval of time w/c must necessarily come, although it may not be known when

2. future and uncertain fact or event w/c may or may not happen

3.exerts an influence upon the time of demandability or extinguishment of an obligation

3. exerts an influence upon the very existence of the obligation itself

4. does not have any retroactive effect unless there is an agreement to the contrary

4. has retroactive effect

5. when it is left exclusively to the will of the debtor, the existence of the obligation is not affected

5. when it is left exclusively to the will of the debtor, the very existence of the obligation is affected

GENERAL RULE: When a period is designated for the performance or fulfillment of an obligation, it is presumed to have been established for the benefit of both creditor and debtor.

EXCEPTION: When it appears from the tenor of the obligation or other circumstances that the period has been established in favor of one or of the other.

When court may fix period:1. if the obligation does not fix a period,

but from its nature and circumstances it can be inferred that a period was intended by the parties

2. if the duration of the period depends upon the will of the debtor; and

3. If the debtor binds himself when his means permit him to do so (Article 1180)

NOTE: The only action that can be maintained is an action to ask the court to fix the duration of the term or period. The fulfillment of the obligation itself cannot be demanded until after the court has fixed the period for compliance therewith, and such period has arrived. However, such technicality need not be adhered to when a prior and separate action would be a mere formality and would serve no other purpose than to delay (Borromeo vs. CA, 47 SCRA 65).

Reason for Fixing the Period (ART 1197) There can be no possibility of any

breach of contract or failure to perform the obligation unless the period is fixed by courts.

When debtor loses right to make use of period: (IGIVA)

1. when after the obligation has been contracted, he becomes insolvent, unless he gives guaranties or securities for the debt (the insolvency need not be judicially declared)2. when he does not furnish to the creditor the guaranties or securities he promised3. when by his own act he has impaired said guaranties or securities after their establishment, and when through fortuitous event they disappear, unless he gives new ones equally satisfactory when debtor violates any undertaking, in consideration of which the creditor agreed to the period or4. when debtor attempts to abscond

FACULTATIVE Obligations

ALTERNATIVE Obligations

1. comprehends only one object or prestation which is due, but it may be complied with by the delivery of another object or performance of another prestation in substitution

1. comprehends several objects or prestations which are due but may be complied with by the delivery or performance of only one of them

2. fortuitous loss extinguishes the

2. fortuitous loss of all prestations will





obligation extinguish the obligation

3. culpable loss obliges the debtor to deliver substitute prestation without liability to debtor

3. culpable loss of any object due will give rise to liability to debtor

4. choice pertains only to debtor

4. choice may pertain to creditor or even third person

NOTES:

In alternative obligations, choice takes effect only upon communication of the choice to the other party and from such time the obligation ceases to be alternative.

The debtor cannot choose those prestations or undertakings which are impossible, unlawful or w/c could not have been the object of the obligation.

EFFECT OF LOSS OF OBJECT OF OBLIGATION:1. If right of choice belongs to debtor

a. If through a fortuitous event - debtor cannot be held liable for damages

b. If 1 or more but not all of the things are lost or one or some but not all of the prestations cannot be performed due to the fault of the debtor, creditor cannot hold the debtor liable for damages because the debtor can still comply with his obligation.

2. If right of choice belongs to the creditora. If 1 of the things is lost through a

fortuitous event, the debtor shall perform the obligation by delivering that which the creditor should choose from among the remainder, or that which remains if only 1 subsists

b. If the loss of 1 of the things occurs through the fault of the debtor, the creditor may claim any of those subsisting, or the price of that which, through the

fault of the former, has disappeared with a right to damages

c. If all the things are lost through the fault of the debtor, the choice by the creditor shall fall upon the price of any 1 of them, also with indemnity for damages

JOINT AND SOLIDARY OBLIGATIONSGENERAL RULE: Obligation is presumed

joint if there is concurrence of two or more debtors and/or creditors.

EXCEPTIONS:1. when expressly stated that there is solidarity2. when the law requires solidarity 3. when the nature of the obligation requires solidarity

JOINT DIVISIBLE OBLIGATIONS Each creditor can demand for the

payment of his proportionate share of the credit, while each debtor can be held liable only for the payment of his proportionate share of the debt.

A joint creditor cannot act in representation of the other creditors while a joint debtor cannot be compelled to answer for the acts or liability of the other debtors.

JOINT INDIVISIBLE OBLIGATIONS1. If there are 2 or more debtors, the fulfillment of or compliance with the obligation requires the concurrence of all the debtors, although each for his own share. Consequently, the obligation can be enforced only by proceeding against all of the debtors.2. If there are 2 or more creditors, the concurrence or collective act of all the creditors, although each for his own share, is also necessary for the enforcement of the obligation.

Effect of breach – If one of the joint debtors fails to comply with his undertaking, the obligation can no longer be fulfilled or performed. Consequently, it is converted into one of indemnity for damages. Innocent joint debtors shall not



contribute to the indemnity beyond their corresponding share of the obligation.

Effect of insolvency of a debtor – If one of the joint debtors should be insolvent, the others shall not be liable for his share.

INDIVISIBILITY SOLIDARITY1. refers to the prestation which constitutes the object of the obligation

1. refers to the legal tie or vinculum juris & consequently to the subjects or parties of the obligation

2. plurality of subjects is not required

2. plurality of subjects is indispensable

3. in case of breach, obligation is converted into 1 of indemnity for damages because of breach, indivisibility of the obligation is terminated

3. when there is liability on the part of the debtors because of the breach, the solidarity among the debtors remains

KINDS OF SOLIDARITY1. Active solidarity solidarity of creditors each creditor is empowered to

exercise against the debtor not only the rights which correspond to him, but also all the rights which correspond to the other creditors, with the consequent obligation to render an accounting of his acts to such creditors

creates a relationship of mutual agency among solidary creditors

2. Passive solidarity solidarity of debtors liability of each debtor for the

payment of the entire obligation, with the consequent right to demand reimbursement from the others for their corresponding shares once payment has been made

3. Mixed solidarity solidarity among creditors and

debtorsEffect of Assignment by Solidary Creditor Without Consent of Others1. assignee is co-creditor – no violation

of Article 1213 because there can be

no invasion of the personal or confidential relationship

2. assignee is third person – co-creditors and debtors are not bound by the assignment

Effect of Novation upon Solidary Obligation1. If the novation is prejudicial, the

solidary creditor who effected the novation shall reimburse the others for damages incurred by them

2. If it is beneficial and the creditor who effected the novation is able to secure performance of the obligation, such creditor shall be liable to the others for the share which corresponds to them, not only in the obligation, but also in the benefits

3. If the novation is effected by substituting another person in place of the debtor, the solidary creditor who effected the novation is liable for the acts of the new debtor in case the is deficiency in performance or in case damages are incurred by the other solidary creditors as a result of the substitution.

4. If the novation is effected by subrogating a third person in the rights of the solidary creditor responsible for the novation, the relation between the other creditors not substituted and the debtor or debtors is maintained.

Effect of Compensation and Confusion upon Solidary Obligation1. If the confusion or compensation is

partial, the rules regarding application of payment shall apply. This is without prejudice to the right of other creditors who have not caused the confusion or compensation to be reimbursed to the extent that their rights are diminished or affected.

2. If the confusion or compensation is total, the obligation is extinguished, what is left is the ensuing liability for reimbursement within each group:a. The creditor causing the

confusion or compensation is obliged to reimburse the other creditors





b. The debtors benefited by the extinguishments of the obligation are obliged to reimburse the debtor who made the confusion or compensation possible.

Effect of Remission upon Solidary Obligation1. If the remission covers the entire

obligation, the obligation is totally extinguished and the entire juridical relation among the debtors is extinguished all together.

2. If the remission is for the benefit of one of the debtors and it covers his entire share in the obligation, he is completely released from the creditors but is still bound to his co-debtors.

3. If the remission is for the benefit of one of the debtors and it covers only a part of his share in the obligation, his character as a solidary debtor is not affected.

Effect of Payment by Solidary Debtor1. Whole or partial extinguishment of

debt2. Right to recover against co-debtor3. Right to recover interest from time

the obligation becomes due

Effect of Loss or Impossibility of Performance1. If it is not due to the fault of the

solidary debtors, the obligation is extinguished.

2. If the loss or impossibility is due to the fault of one of the solidary debtors or due to a fortuitous event after one of the solidary debtors had already incurred in delay, the obligation is converted into an obligation of indemnity for damages but the solidary character of the obligation remains.

Defenses available to a Solidary Debtor1. Defenses derived from the very nature of the obligation2. Defenses personal to him or pertaining to his own share3. Defenses personal to the others, but only as regards that part of the

debt for w/c the latter are responsible

DIVISIBLE OBLIGATIONS Those which have as their object a

prestation which is susceptible of partial performance without the essence of obligation changed.

INDIVISIBLE OBLIGATIONS Prestation is not susceptible of partial

performance, otherwise, the essence of the obligation will be changed

NOTES: Divisibility or indivisibility of the

obligation refers to the performance of the prestation and not to the thing which is the object thereof.

Intention of parties should be taken into account to determine whether obligation is divisible or not.

GENERAL RULE: The creditor cannot be compelled partially to receive the prestation in which the obligation consists; neither may the debtor be required to make partial payments.

EXCEPTIONS:1. When the obligation expressly

stipulates the contrary;2. When the different prestations

constituting the objects of the obligation are subject to different terms and conditions; and

3. When the obligation is in part liquidated and in part unliquidated.

OBLIGATIONS WITH A PENAL CLAUSE One to which an accessory

undertaking is attached for the purpose of insuring its performance by virtue of which the obligor is bound to pay a stipulated indemnity or perform a stipulated prestation in case of breach.

Purpose of Penalty:1. To insure the performance of the

obligation;2. to liquidate the amount of

damages to be awarded to the injured party in case of breach of



the principal obligation (compensatory); and

3. in certain exceptional cases, to punish the obligor in case of breach of the principal obligation (punitive).

GENERAL RULE: The penalty fixed by the parties is a compensation or substitute for damages in case of breach.

EXCEPTIONS:1. when there is a stipulation to the

contrary;2. when the debtor is sued for

refusal to pay the agreed penalty; and

3. when debtor is guilty of fraud

NOTE: Article 1228 does not apply to these exceptions; there must be proof of actual damages.

NOTES:

The debtor cannot exempt himself from the performance of the principal obligation by paying the stipulated penalty unless when the right has been expressly reserved for him.

The creditor cannot demand the fulfillment of the principal obligation and the satisfaction of the stipulated penalty at the same time unless the right has been clearly granted him.

When penalty may be reduced1. If the principal obligation has been

partly complied with;2. If the principal obligation has been

irregularly complied with; and3. If the penalty is iniquitous or unconscionable even if there has been no performance.

MODES OF EXTINGUISHMENT OF OBLIGATIONS (LFC3NARP2)

1. l oss of the thing due2. f ulfillment of resolutory condition3. c ompensation4. c ondonation or remission of the debt5. c onfusion or merger of rights of the

creditor and debtor6. n ovation7. a nnulment8. r escission9. p rescription

p ayment or performance

Payment or Performance Means not only the delivery of money

but also the performance, in any other manner, of an obligation.

Integrity of PaymentGENERAL RULE: A debt shall not

be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be.

EXCEPTIONS:1. When the obligation has been substantially performed in good faith;2. When the obligee accepts performance, knowing its incompleteness or irregularity & w/out expressing any protest or objection;3. When there is an express stipulation; and4. When the debt is in part liquidated and in part unliquidated.

Identity of Payment requires that the very thing, service

or forbearance, as the object of the prestation, must be performed or observed

Persons who may pay the obligation:1. the debtor himself or his legal

representative2. any third person

GENERAL RULE: Creditor is not bound to accept payment or performance by a third person.

EXCEPTIONS:1. when made by a third person who

has an interest in the fulfillment of the obligation;

2. when there is a stipulation to the contrary.

Rights of 3rd person who paid the obligation:

1. If payment was made with knowledge and consent of the debtor:

a. can recover entire amount paid





b. can be subrogated to all the rights of the creditor.

2. If payment was made without knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor.

To whom payment must be made:1. The person in whose favor the

obligation has been constituted;2. His successor in interest; or3. Any person authorized to receive it.

GENERAL RULE: If payment is made to a person other than those enumerated, it shall not be valid.

EXCEPTIONS:1. Payment made to a 3rd person,

provided that it has redounded to the benefit of the creditor. Such benefit to the creditor is presumed in the following cases:

• If after the payment, the third person acquires the creditor’s rights;

• If the creditor ratifies the payment to the third person;

• If by the creditor’s conduct, the debtor has been led to believe that the third person had authority to receive the payment.

2. Payment made to the possessor of the credit, provided that it was made in good faith.

Obligation to Deliver a Generic Thing If the quality and circumstances have not been stated, the creditor cannot demand a thing of superior quality; neither can the debtor deliver a thing of inferior quality.

Rules in Monetary Obligations:1. Payment in cash - must be made in the currency stipulated; if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines.2. Payment in check or other negotiable instrument - not

considered payment; not considered legal tender and may be refused by the creditor. It shall only produce the effect of payment:a. when it has been cashed or b. when it has been impaired

through the fault of the creditor.

LEGAL TENDER Such currency which may be used for the payment of all debts, whether private or public. The kind of currency which a debtor can legally compel a creditor to accept in payment of a debt in money when tendered by the debtor in the right amount. Legal tender of the Philippines would be all notes and coins issued by the Central Bank. Section 52, R.A. No. 76531. 25c and above, legal tender up to

P502. 10c and below, legal tender up to

P20

Extraordinary inflation or deflation unusual or beyond the common fluctuation in the value of currency, which the parties could not have reasonably foreseen or which was manifestly beyond their contemplation at the time the obligation was established. Applies only to contractual obligations Requisites:a. The decrease in the value of the

currency could not have been reasonably foreseen by the parties or beyond their contemplation at the time the obligation was established ;

b. There must be a declaration of such extraordinary inflation or

deflation by the Bangko Sentral. Without such declaration, the creditors cannot demand an increase, and debtors a decrease, of what is due to or from them. (Ramos vs. CA, 275 SCRA 167 and



Mobil Oil Phils. vs. CA, 180 SCRA 651)

Place of payment1. Place stipulated by the parties.2. No stipulation and the obligation is to deliver a determinate thing, payment shall be made at the place where the thing might be at the time the obligation was constituted.3. In any other case, the payment shall be made at the domicile of the debtor.

Special Forms of Payment:a. Application of paymentb. Dation in Paymentc. Payment by Cessiond. Tender of payment and

Consignation a. Application of Payment Designation of the debt to which the payment must be applied when the debtor has several obligations of the same kind in favor of the same creditor. Requisites:a. there must be only 1 debtor &

only 1 creditor;b. there must be 2 or more debts of

the same kind;c. all of the debts must be due;

except: if there’s stipulation to the contrary; or application of payment is made by the party for whose benefit the term has been constituted; and

d. amount paid by the debtor must not be sufficient to cover the total amount of all the debts.

GENERAL RULE: The right to designate the debt to which the payment shall be applied primarily belongs to the debtor.

EXCEPTION: If the debtor does not avail of such right and he accepts from the creditor a receipt in which the application is made.

Legal Application of Payment (ART1254)1. If neither the debtor nor the creditor

makes any application of payment, or if it cannot be inferred from other circumstances, the debt which is

most onerous to the debtor, among those which are due, shall be deemed to have been satisfied.

2. If the debts due are of the same nature and burden, payment shall be applied to all of them proportionately.

b. Dation in Payment (DACION EN PAGO) Delivery and transmission of

ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation.

Requisites:a. existence of a money obligationb. alienation to the creditor of a

property by the debtor with the consent of the former

c. satisfaction of the money obligation of the debtor

c. Payment by Cession Debtor abandons all of his property

for the benefit of his creditors in order that from the proceeds thereof, the latter may obtain payment of their credits.

Requisites:a. plurality of debtsb. partial or relative insolvency of

the debtorc. acceptance of the cession by the

creditors

DATION IN PAYMENT

PAYMENT BY CESSION

1. one creditor 1. plurality of creditors

2. not necessarily in state of financial difficulty

2. debtor must be partially or relatively insolvent

3. thing delivered is considered as equivalent of performance

3. universality of property of debtor is what is ceded

4. payment extinguishes obligation to the extent of the value of the thing delivered as agreed upon, proved or implied from the

4. merely releases debtor for net proceeds of things ceded or assigned, unless there is contrary intention





conduct of the creditor

d. Tender of Payment and ConsignationTender of Payment Manifestation of he debtor to the

creditor of his decision to comply immediately with his obligation.

It is the preparatory act and extrajudicial in character.

Consignation Deposit of the object of the

obligation in a competent court in accordance with the rules prescribed by law, after the tender of payment has been refused or because of circumstances which render direct payment to the creditor impossible or inadvisable.

It is the principal act and judicial in character.

Special Requisites:a. The debt sought to be paid must

be due;b. There must be a valid and

unconditional tender of payment or any of the causes stated by law for effective consignation without previous tender of payment exists;

c. The consignation of the thing due must first be announced to the persons interested in the fulfillment of the obligation;

d. Consignation shall be made by depositing the things due at the disposal of judicial authority; and

e. The consignation having been made, the interested parties shall also be notified thereof.

Effects of consignation:1. If the creditor accepts the thing or amount deposited without contesting the validity or efficacy of the consignation, the obligation is extinguished.2. If the creditor contests the validity or efficacy of the consignation or if the creditor is not interested or

unknown or is absent, the result is a litigation. If the debtor complied with all the requisites, the obligation is extinguished.

GENERAL RULE: Consignation shall produce effects of payment only if there is a valid tender of payment.

EXCEPTIONS: (TIRAT or TRAIT)1. creditor is absent or unknown, or

does not appear at the place of payment

2. creditor incapacitated to receive payment at the time it is due

3. when two or more persons claim the right to collect

4. when the title of the obligation has been lost

5. when without just cause creditor refuses to give a receipt

NOTES:

It is the consignation which constitutes a form of payment and must follow, supplement or complete the tender of payment in order to discharge the obligation.

A valid tender of payment has the effect of exempting the debtor from payment of interest and/or damages.

If tender is made by means of a check, such tender is valid because it is an exercise of a right. Article 1249 is not applicable.

LOSS OF THE THING DUEIn Determinate Obligations to Give

GENERAL RULE: Obligation is extinguished. Requisites:

1. The thing which is lost is determinate;2. The thing is lost without the fault of the debtor; and3. The thing is lost before the debtor has incurred in delay.

EXCEPTIONS:1. when by law, obligor is liable

even for fortuitous event;



2. when by stipulation, obligor is liable even for fortuitous event;

3. when the nature of the obligation requires the assumption of risk;

4. when the loss of the thing is due partly to the fault of the debtor;

5. when the loss of the thing occurs after the debtor incurred in delay;

6. when the debtor promised to deliver the same thing to two or more persons who do not have the same interest; and

7. when the debt of a certain and determinate thing proceeds from a criminal offense

In Generic Obligations to Give

GENERAL RULE: Obligation is not extinguished because the genus of a thing cannot perish.

EXCEPTION: In case of generic obligations whose object is a particular class or group with specific or determinate qualities (Limited Generic Obligations)

In Obligations to Do

Obligation is extinguished when prestation becomes legally or physically impossible.

Effect of Relative Impossibility or Doctrine of Unforeseen Events (ART 1267) When the service has become

difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in part.

Requisites:1. The event or change in circumstances could not have been foreseen at the time of the execution of the contract;2. It makes the performance of the contract extremely difficult but not impossible;3. The event must not be due to the act of any of the parties; and4. The contract is for a future prestation.

Principle of Subjective Impossibility When there is no physical or legal loss

but the thing object of the obligation belongs to another, the performance by the debtor of the obligation undoubtedly becomes impossible. Failure of performance is imputable to the debtor. Thus, the debtor must indemnify the creditor for the damages suffered by the latter. (Tolentino, Volume IV, p. 336)

Effect of Loss on Reciprocal Obligations First view (Tolentino, Volume IV, pp.

337-338) – If an obligation is extinguished by the loss of the thing or impossibility of performance through fortuitous events, the counter-prestation is also extinguished. The debtor is released from liability but he cannot demand the prestation which has been stipulated for his benefit. He who gives nothing has no reason to demand anything.

Second View (JBL Reyes) – The loss or impossibility of performance must be due to the fault of the debtor. In this case, the injured party may ask for rescission under Article 1191 plus damages. If the loss or impossibility was due to a fortuitous event, the other party is still obliged to give the prestation due to the other.

CONDONATION OR REMISSION OF THE DEBT An act of pure liberality by virtue of

which the obligee, without receiving any price or equivalent, renounces the enforcement of the obligation, as a result of which it is extinguished in its entirety or in that part or aspect of the same to which the remission refers.

It is the gratuitous abandonment by the creditor of his right.

Requisites:a. It must be gratuitousb. It must be accepted by the

debtorc. The obligation must be

demandable





NOTE: Express condonation or remission must comply with the formalities of donation.

CONFUSION OR MERGER OF RIGHTS Merger of the characters of the

creditor and the debtor in one and the same person by virtue of which the obligation is extinguished.

Requisites:a. that the characters of creditor &

debtor must be in the same person;

b. that it must take place in the person of either the principal creditor or the principal debtor; and

c. it must be complete & definite

COMPENSATION

Extinguishment in the concurrent amount of the obligation of those persons who are reciprocally debtors and creditors of each other.

Requisites:a. there must be 2 parties, who, in

their own right, are principal creditors & principal debtors of each other (except in case of guarantor, Article 1280);

b. both debts must consist in money, or if the things due are fungibles, they must be of the same kind & quality;

c. both debts must be due;d. both debts must be liquidated &

demandable;e. there must be no retention or

controversy commenced by 3rd persons over either of the debts & communicated in due time to the debtor; and

f. compensation must not be prohibited by law.

Compensation Confusion1. two persons who are mutual debtors and creditors of each other

1. one person where qualities of debtor and creditor are merged

2. there must be at least two obligations

2. only one obligation

Compensation Payment

1. The requisites prescribe by law for compensation are different from those prescribed by law for payment.2. Takes effect by operation of law

2. Takes effect by act of the parties

3. Capacity to give and to acquire is not necessary

3. Capacity to give and to acquire is essential

4. As a rule, it is partial

4. As a rule, complete and indivisible

Compensation Counterclaim

1. Requires 2 debts must consist in money or if fungibles, same kind and quality

1. Not necessary

2. Both debts must be liquidated

2. Does not require that debts be liquidated

3. Need not be pleaded

3. Must be pleaded to be effectual

Kinds of Compensation1. Legal – takes effect by operation

of law2. Voluntary – agreed upon by the

parties3. Judicial – takes effect by judicial

decree4. Facultative – when it can be

claimed by one of the parties who, however, has the right to object to it

Debts not subject to Compensation:1. debts arising from contracts of

deposit2. debts arising from contracts of

commodatum3. claims for support due by

gratuitous title4. obligations arising from criminal

offenses5. certain obligations in favor of

governmentNOTE: Taxes are not subject to set-off or legal compensation because the government & taxpayers are not mutually creditors & debtors of each other (Francia vs. IAC, 162 SCRA 753).



Facultative Compensation This is compensation which can be set

up only at the option of a creditor, when legal compensation cannot take place because of want of some legal requisites for the benefit of the creditor. The latter can renounce his right to oppose the compensation and he himself can set it up. It differs from conventional compensation because it is unilateral while the latter depends upon the agreement of both parties. (Tolentino, Volume IV, p. 367)

NOVATION Substitution or change of an

obligation by another, resulting in its extinguishment or modification, either by changing its object or principal conditions, or by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor.

Requisites:a. a previous valid obligation;b. agreement of the parties to the

new obligation;c. extinguishment of the old

obligation; andd. validity of the new obligation.

Kinds:1. As to its essence

a. Objective/Real - refers to the change either in the cause, object or principal conditions of the obligations

b. Subjective/Personal - refers to the substitution of the person of the debtor or to the subrogation of a 3rd person in the rights of the creditor

c. Mixed2. As to its form/constitution

a. Express - when it is declared in unequivocal terms that the old obligation is extinguished by a new one w/c substitutes the same.

b. Implied - when the old & new obligation are incompatible w/ each other on every point.

Test of Incompatibility

Whether or not the old and new obligations can stand together, each having its own independent existence. If they can stand together, there is no incompatibility; consequently, there is no novation. If they cannot stand together, there is incompatibility; consequently, there is novation.

Forms of Substitution of Debtors:Expromision - effected with the consent of the creditor at the instance of the new debtor even without the consent or even against the will of the old debtor.

Requisites:a. Initiative for substitution must

emanate from the new debtorb. Consent of the creditor to the

substitutionDelegacion - effected with the consent of the creditor at the instance of the old debtor, with the concurrence of the new debtor.

Requisites:a. Initiative for substitution must

emanate from the old debtorb. Consent of the new debtorc. Acceptance by the creditor

Effect of insolvency of new debtorExpromision – the new debtor’s insolvency or nonfulfillment of the obligation shall not revive the original debtor’s liability to the creditor whether the substitution is effected with or without the knowledge or against the will of the original debtor.Delegacion – the creditor can sue the old debtor only when the insolvency was prior to the delegation and publicly known or when the old debtor knew of such insolvency at the time he delegated the obligation.

NOTE: A change in the incidental elements of, or an addition of such elements to an obligation, unless otherwise expressed by the parties, will not result in its extinguishment.

CONVENTIONAL SUBROGATION

ASSIGNMENT OF RIGHTS

1. governed by Arts. 1300 to 1304

1. governed by Arts. 1624 to 1627





2. debtor’s consent is required

2. debtor’s consent is not required

3. extinguishes the obligation and gives rise to a new one

3. transmission of right of the creditor to third person without modifying or extinguishing the obligation

4. defects and vices in the old obligation are cured

4. defects and vices in the old obligation are not cured

5. takes effect upon moment of novation or subrogation

5. as far as the debtor is concerned, takes effect upon notification

Kinds of Subrogation1. Conventional – takes place by

agreement of the parties; this kind of subrogation requires the intervention and consent of 3 persons: the original creditor, the new creditor and the debtor.

2. Legal – takes place without agreement but by operation of law because of certain acts (Article 1302).

GENERAL RULE: Legal subrogation cannot be presumed.

EXCEPTIONS:1. Creditor pays another creditor who is preferred, without debtor’s knowledge;2. A third person not interested in the obligation pays with the express or tacit approval of the debtor; or3. Even without debtor’s knowledge, a person interested in the fulfillment of the obligation pays without prejudice to the effects of confusion as to the latter’s share.

II. CONTRACTS

CONTRACT 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 (Article 1305).

Elements

1. Essential – those without which there can be no contract.a. Consentb. Object or Subject Matterc. Cause or Consideration

2. Natural – those derived from the nature of the contract and ordinarily accompany the same.

3. Accidental – those which exist only when the parties expressly provide for them for the purpose of limiting or modifying the normal effects of the contract.

Nominate contracts Those which have their own

distinctive individuality and are regulated by special provisions of law.

Innominate contracts Those which lack individuality and

are not regulated by special provisions of law.

Regulated by the stipulations of the parties, by the general provisions of the Civil Code on obligations and contracts, by rule governing the most analogous nominate contracts and by the customs of the place.

Kinds:a. Do ut des - I give that you giveb. Do ut facias - I give that you doc. Facio ut des - I do that you give d. Facio ut facias - I do that you do

NOTE: According to some authorities. do ut des in no longer an innominate contract. It has already been given a name of its own, i.e. barter or exchange (Article 1638).

Characteristics of Contracts: (ROMA)1. R elativity (ART 1311)2. O bligatory Force and Consensuality

(ART 1315)3. M utuality (ART 1308)4. A utonomy (ART 1306) Relativity

GENERAL RULE: Contracts take effect only between parties, their assigns and heirs.

EXCEPTIONS:



1. Stipulation pour atrui - stipulation in favor of a third person. Requisites:

a. the stipulation must be a part, not the whole of the contract;b. the contracting parties must have clearly and deliberately conferred a favor upon a third person, not a mere incidental benefit or interest;c. the third person must have communicated his acceptance to the obligor before its revocation; d. the favorable stipulation should not be conditioned or compensated by any kind of obligation whatever; ande. neither of the contracting parties bears the legal representative or authorization of the third person.

Test of Beneficial Stipulation – the fairest test to determine whether the interest of a 3rd person in a contract is a stipulation pour atrui or merely an incidental interest is to rely upon the intention of the parties as disclosed by their contract. Determine whether the contracting parties desired to tender him such an interest (Uy Tam vs. Leonard, 30 Phil. 471).

2. When a third person induces a party to violate contract (ART1314) Requisites:

a. Existence of a valid contract;b. knowledge of contract by

third person; andc. interference by third person

without legal justification or excuse.

3. Third persons who come into possession of the object of the contract creating real rights

4. Contracts entered into in fraud of creditors

Mutuality The contract must bind both parties;

its validity or compliance must not be left to the will of one of them. (ART 1308)

The contract cannot have any stipulation authorizing one of the contracting parties (a) to determine whether or not the contract shall be valid, or (b) to determine whether or not the contract shall be fulfilled.

Autonomy The parties are free to stipulate

anything they deem convenient provided that they are not contrary to law, morals, good customs, public order and public policy. (ART 1306)

Consensuality Contracts are perfected by mere

consent and from that moment, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all consequences which, according to their nature may be in keeping with good faith, usage and law.

CONSENT Manifested by the concurrence of the

offer and acceptance upon the thing and the cause which are to constitute the contract.

Requisites:a. Legal capacity of the contracting partiesb. Manifestation of the conformity of the contracting partiesc. The parties’ conformity to the object, cause, the terms and conditions of the contract must be intelligent, spontaneous and free from all vices of consentd. The said conformity must be real and not simulated or fictitious

Offer A proposal made by one party to

another to enter into a contract.





It must be certain or definite, complete and intentional.

NOTE: Offer/proposal may be withdrawn so long as the offeror has no knowledge of acceptance by offeree. Acceptance Manifestation by the offeree of his

assent to the terms of the offer. It must me absolute. A qualified acceptance constitutes

counter-offer.

NOTE: Acceptance may be revoked before it comes to the knowledge of the offeror.

Amplified Acceptance Under certain circumstances, a mere

amplification on the offer must be understood as an acceptance of the original offer, plus a new offer which is contained in the amplification. (Tolentino, Volume IV, p. 452)

Rule on Complex offers1. Offers are interrelated – contract is perfected if all the offers are accepted.2. Offers are not interrelated – single acceptance of each offer results in a perfected contract unless the offeror has made it clear that one is dependent upon the other and acceptance of both is necessary.

NOTES:

Consensual contracts are perfected from the moment there is a manifestation of concurrence between the offer and the acceptance regarding the object and the cause.

Real contracts like deposit, pledge and commodatum requires delivery of object for perfection.

Solemn contracts are those which requires compliance with certain formalities prescribed by law, such prescribed form being an essential element (i.e., donation of real property).

An offer made inter praesentes must be accepted IMMEDIATELY. If the parties intended that there should be

an express acceptance, the contract will be perfected only upon knowledge by the offeror of the express acceptance by the offeree of the offer. An acceptance which is not made in the manner prescribed by the offeror is NOT EFFECTIVE BUT A COUNTER-OFFER which the offeror may accept or reject. (Malbarosa vs. CA, et al., G.R. # 125761, April 30, 2003)

Contracts under the Civil Code generally adhere to the Cognition Theory (contract is perfected from the moment the acceptance comes to the knowledge of the offeror), while transactions under the Code of Commerce use the Manifestation Theory (it is perfected from the moment the acceptance is declared or made).

PERSONS INCAPACITATED TO GIVE CONSENT:1. Minors

EXCEPTIONS:• Contracts where the minor is estopped to raise minority as a defense through his own misrepresentation• Contracts for necessaries• Contracts by guardians or legal representatives• Voluntary fulfillment of a natural obligation provided that the minor is between 18-21 years of age• Contracts of life, health or accident insurance taken on the life of the minor

2. Insane or demented persons, unless the contract was entered into during a lucid interval

3. Deaf-mutes who do not know how to read and write

Effect of Misrepresentation of Age by the Minor Misrepresentation by minors with

regard to their age when entering into a contract shall bind them in the sense that they are estopped subsequently from impugning the validity of the contract on the ground of minority. It is necessary that the



misrepresentation must be active (e.g. when minors specifically stated in a contract that they were of age), not merely constructive.

VICES OF CONSENT (VIMFU)1. V iolence - when in order to wrest

consent, serious or irresistible force is employed.

2. I ntimidation - when 1 of the contracting parties is compelled by a reasonable & well-grounded fear of an imminent & grave evil upon his person or property, or upon the person or property of his spouse, descendants or ascendants, to give his consent.

3. M istake - should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contact. Must be mistake of fact and not of law, except under Article 1334. Requisites under Article 1334:

a. Mistake must be with respect to the legal effect of an agreementb. Mistake must be mutualc. Real purpose of the parties must have been frustrated.

4. F raud - when, through insidious words or machinations of 1 of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to.

5. U ndue influence - when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice.

Reluctant Consent

A contract is valid even though one of the parties entered into it against his wishes and desires or even against his better judgment. Contracts are also valid even though they are entered into by one of the parties without hope of advantage or profit.

(Martinez vs. Hongkong and Shanghai Bank, 15 Phil. 252)

Simulation of Contracts1. Absolute – when the contracting

parties do not intend to be bound by the contract at all. Thus, an absolutely simulated contract is VOID.

2. Relative – when the contracting parties conceal their true agreement. A relatively simulate contract binds the parties to their real agreement, 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.

OBJECT The thing, right or service which is

the subject matter of the obligation arising from the contract.

Requisites:a. It must be w/in the commerce of

manb. It must be licit or not contrary

law, morals, good customs, public order or public policy

c. It must be possibled. It must be determinate as to its

kind

Things which Cannot be the Object of Contract

1. Things which are outside the commerce of men2. Intransmissible rights3. Future inheritance, except in cases expressly authorized by law4. Services which are contrary to law, morals, good customs, public order or public policy5. Impossible things or services6. Objects which are not possible of determination as to their kind

CAUSE The immediate, direct and most proximate reason which explains and justifies the creation of obligation.





Requisitesa. Cause should be in existence at

the time of the celebration of the contract

b. Cause should be licit or lawfulc. Cause should be true

Rules:1. In onerous contracts, the cause is

understood to be, for each contracting party, the prestation of promise of a thing or service by the other.

2. In remuneratory contracts, the service or benefit w/c is remunerated.

3. In contracts of pure beneficence, the mere liberality of the donor or benefactor.

4. In accessory contracts (mortgage or pledge), the cause is identical with the cause of the principal contract, that is, the loan from which it derives its life and existence.

CAUSE EFFECT

1. Absence of causethe contract confers no right and produces no legal effect

2. Failure of causedoes not render the contract void

3. Illegality of causethe contract is null and void

4. Falsity of causethe contract is void, unless the parties show that there is another cause which is true and lawful

5. Lesiondoes not invalidate the contract, unless (a) there is fraud, mistake or undue influence; or (b) when the parties intended a donation or some other contract

FORM OF CONTRACTSGENERAL RULE: Contracts shall be

obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present.

EXCEPTIONS:

1. When the law requires that a contract be in some form in order that it may be valid

2. When the law requires that a contract be in some form in order that it may be enforceable

NOTES:

Parties may compel each other to comply with the form required once the contract has been perfected. (Article 1357)

Contracts under Art 1358 which are required to be in some specific form is only for the convenience of parties and does not affect its validity and enforceability as between them.

RA 8792 (E- COMMERCE ACT) provides that the formal requirements to make contracts effective as against third persons and to establish the existence of a contract are deemed complied with provided that the electronic document is unaltered and can be authenticated as to be usable for future reference.

REFORMATION OF INSTRUMENTS Requisites:

a. meeting of the minds to the contract

b. true intention is not expressed in the instrument by reason of mistake, accident, relative simulation, fraud, or inequitable conduct

c. clear and convincing proof of mistake, accident, relative simulation, fraud, or inequitable conduct

Instances when there can be no reformation:

1. Simple unconditional donations inter vivos;

2. Wills;3. When the agreement is void;

When one of the parties has brought an action to enforce the instrument, no subsequent reformation can be asked.



COMPARATIVE TABLE OF DEFECTIVE CONTRACTS

VOID VOIDABLE RESCISSIBLE UNENFORCEABLE

1. Defect is caused by lack of essential elements or illegality

Defect is caused by vice of consent

Defect is caused by injury/ damage either to one of the parties of to a 3rd person

Defect is caused by lack of form, authority, or capacity of both parties not cured by prescription

2. Do not, as a general rule produce any legal effect

Valid and enforceable until they are annulled by a competent court

Valid and enforceable until they are rescinded by a competent court

Cannot be enforced by a proper action in court

3. Action for the declaration or nullity or inexistence or defense of nullity or inexistence does not prescribe

Action for annulment or defense of annulability may prescribe

Action for rescission may prescribe

Corresponding action for recovery, if there was total or partial performance of the unenforceable contract under No. 1 or 3 of Article 1403 may prescribe

4. Not cured by prescription

Cured by prescription Cured by prescription Not cured by prescription

5. Cannot be ratified Can be ratified Need not be ratified Can be ratified

6. Assailed not only by a contracting party but even by a third person whose interest is directly affected

Assailed only by a contracting party

Assailed not only by a contracting party but even by a third person who is prejudiced or damaged by the contract

Assailed only by a contracting party

7. Assailed directly or collaterally

Assailed directly or collaterally

Assailed directly only Assailed directly or collaterally

RESCISSIBLE CONTRACTS Contracts validly agreed upon but, by

reason of lesion or economic prejudice may be rescinded in cases established by law.

What contracts are rescissible

1. those entered into by guardians where the ward suffers lesion of more than ¼ of the value of the things which are objects thereof;

2. those agreed upon in representation of absentees, if the latter suffer lesion by more than ¼ of the value of the things which are subject thereof;

3. those undertaken in fraud of creditors when the latter cannot in any manner claim what are due them;

4. those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants and the court;

5. all other contracts especially declared by law to be subject to rescission; and

6. payments made in a state of insolvency on account of obligations not yet enforceable

Requisites:a. the contract must be rescissible





b. the party asking for rescission must have no other legal means

c. to obtain reparation for the damages suffered by him

d. the person demanding rescission must be able to return whatever he may be obliged to restore if rescission is granted

e. the things w/c are the object of the contract must not have passed legally to the possession of a 3rd person acting in good faith

f. the action for rescission must be brought w/in the prescriptive period of 4 years

BADGES OF FRAUD:1. Consideration of the conveyance

is inadequate or fictitious;2. Transfer was made by a debtor

after a suit has been begun and while it is pending against him;

3. Sale upon credit by an insolvent debtor;

4. Evidence of indebtedness or complete insolvency

5. Transfer of all his property by a debtor when he is financially embarrassed or insolvent;

6. Transfer made between father & son, where there is present any of the above circumstances

7. Failure of the vendee to take exclusive possession of all the property

Rescission in Article 1191

Rescission Proper in Article 1381

1. It is a principal action retaliatory in character.

1. It is a subsidiary remedy.

2. The only ground is non-performance of one’s obligation/s or what is incumbent upon him.

2. There are 5 grounds to rescind. Non-performance by the other party is not important.

3. It applies only to reciprocal obligation

3. It applies to both unilateral and reciprocal obligations.

4. Only a party to the contract may demand fulfillment or seek the rescission of the contract.

4. Even a 3rd person who is prejudiced by the contract may demand the rescission of the contract.

5. Court may fix a period or grant extension of time for the fulfillment of the obligation.

5. Court cannot grant extension of time for fulfillment of the obligation.

6. Its purpose is to cancel the contract.

6. Its purpose is to seek reparation for the damage or injury caused, thus allowing partial rescission of the contract.

VOIDABLE CONTRACTS Those in which all of the essential

elements for validity are present, although the element of consent is vitiated either by lack of capacity of one of the contracting parties or by VIMFU.

What contracts are voidable

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

Causes of extinction of action to annul:1. PRESCRIPTION the action must be commenced

within 4 years from:a. the time the incapacity ends;b. the time the violence,

intimidation or undue influence ends; or

c. the time the mistake or fraud is discovered.

NOTE: Discovery of fraud must be reckoned to have taken place from the time the document was registered in the office of the register of deeds. Registration constitutes constructive notice to the whole world. (Carantes vs. CA, 76 SCRA 514)

2. RATIFICATION Requisites:

a. there must be knowledge of the reason which renders the contract voidable

b. such reason must have ceased and

c. the injured party must have executed an act which



expressly or impliedly conveys an intention to waive his right

3. By loss of the thing which is the object of the contract through fraud or fault of the person who is entitled to annul the contract.

NOTE: If the object is lost through fortuitous event, the contract can still be annulled, but the person obliged to return the same can be held liable only for the value of the thing at the time of the loss, but without interest thereon.

UNENFORCEABLE CONTRACTS Those which cannot be enforced by

proper action in court unless they are ratified

What contracts are unenforceable

1. those entered into in the name of another by one without or acting in excess of authority;2. those where both parties are incapable of giving consent; and3. those which do not comply with the Statute of Frauds

Agreements within the scope of the Statute of Frauds (EXCLUSIVE LIST):1. Agreements not to be performed

within one year from the making thereof;

2. Special promise to answer for the debt, default or miscarriage of another;

NOTE: This does not refer to the original or independent promise of the debtor to his own creditor. It refers rather to a collateral promise.

3. Agreement in consideration of marriage other than a mutual promise to marry;

4. Agreement for the sale of goods, etc. at a price not less than P500.00;

5. Contracts of lease for a period longer than one year;

6. Agreements for the sale of real property or interest therein; and

7. Representation as to the credit of a third person.

NOTES:

The contracts/agreements under the Statute of Frauds require that the same be evidenced by some note, memorandum or writing, subscribed by the party charged or by his agent, otherwise, the said contracts shall be unenforceable.

The statute of frauds applies only to executory contracts, not to those that are partially or completely fulfilled.

Ratification of contracts in violation of the Statute of Frauds1. Failure to object to the presentation

of oral evidence to prove such contracts

2. Acceptance of benefits under these contracts

VOID CONTRACTS Those where all of the requisites of a

contract are present but the cause, object or purpose is contrary to law, morals, good customs, public order or public policy, or contract itself is prohibited or declared void by law.

What contracts are void

1. Those whose cause, object or purpose is contrary to law, morals good customs, public order or public policy;

2. Those whose object is outside the commerce of men;

3. Those which contemplate an impossible service;

4. Those where the intention of the parties relative to the principal object of the contract cannot be ascertained; and

5. Those expressly prohibited or declared void by law.

INEXISTENT CONTRACTS Those where one or some or all of the

requisites essential for the validity of a contract are absolutely lacking.

What contracts are inexistent

1. Those which are absolutely simulated or fictitious; and





2. Those whose cause or object did not exist at the time of the transaction.

NOTE: The principle of In Pari Delicto is applicable only to void contracts and not as to inexistent contracts.Principle of In Pari Delicto

GENERAL RULE: When the defect of a void contract consists in the illegality of the cause or object of the contract and both of the parties are at fault or in pari delicto, the law refuses them every remedy and leaves them where they are.

EXCEPTIONS:1. Payment of usurious interest2. Payment of money or delivery of

property for an illegal purpose, where the party who paid or delivered repudiates the contract before the purpose has been accomplished, or before any damage has been caused to a 3rd person.

3. Payment of money or delivery of property made by an incapacitated person

4. Agreement or contract which is not illegal per se & the prohibition is designed for the protection of the plaintiff

5. Payment of any amount in excess of the maximum price of any article or commodity fixed by law or regulation by competent authority.

6. Contract whereby a laborer undertakes to work longer than the maximum # of hours fixed by law.

7. Contract whereby a laborer accepts a wage lower than the minimum wage fixed by law.

8. One who lost in gambling because of fraudulent schemes practiced on him is allowed to recover his losses [(Art. 315, 3 (b), RPC] even if gambling is a prohibited one.

Rules when only one of the parties is at fault:1. Executed Contracts:

a. Guilty party is barred from recovering what he has given to the other party is barred from

recovering what he has given to the other party by reason of the contract.

b. Innocent party may demand for the return for the return of what he has given.

2. Executory Contracts - Neither of the contracting parties can demand for the fulfillment of any obligation from the contract nor may be compelled to comply with such obligation

NATURAL OBLIGATIONS They are real obligations to which the

law denies an action, but which the debtor may perform voluntarily.

It is patrimonial, and presupposes a prestation.

The binding tie of these obligations is in the conscience of man, for under the law, they do not have the necessary efficacy to give rise to an action.

Examples of natural obligations enumerated under the Civil Code:1. Performance after the civil obligation

has prescribed;2. Reimbursement of a third person for

a debt that has prescribed;3. Restitution by minor after annulment

of contract;4. Delivery by minor of money or

fungible thing in fulfillment of obligation;

5. Performance after action to enforce civil obligation has failed;

6. Payment by heir of debt exceeding value of property inherited; and

7. Payment of legacy after will have been declared void.

ESTOPPEL A condition or state by virtue of

which an admission or representation is rendered conclusive upon the person making it and cannot be denied or disproved as against the person relying thereon.

Kinds:1. Estoppel in Pais (by conduct)

a. Estoppel by silence b. Estoppel by acceptance of

benefits2. Technical Estoppel



a. Estoppel by deed b. Estoppel by record c. Estoppel by judgment d. Estoppel by laches

LACHES or “STALE DEMANDS” Failure or neglect, for an

unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier; it is negligence or omission to assert a right within reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it.

Elements:a. Conduct on part of the

defendant, or of one under whom he claims, giving rise to the situation of which complaint is made and for which the complaint seeks a remedy

b. Delay in asserting the complainant’s rights, the complainant having knowledge or notice, of the defendant’s conduct and having been afforded the opportunity to institute a suit

c. Lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit

d. Injury to the defendant in the event relief is accorded tot the complainant, or the suit in not held to be barred

LACHES PRESCRIPTION

1. concerned with effect of delay

1. concerned with fact of delay

2. question of inequity of permitting the claim to be enforced

2. question or matter of time

3. not statutory 3. statutory

4. applies in equity 4. applies at law

5. not based on a fixed time

5. based on a fixed time



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