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OBLIGATION

Obligation - is a juridical necessity to give, to


do or not to do.
Elements of Obligation
1. COA - power to demand the prestation
2. PDO - bound to perform the prestation
3. Prestation or Object - not a thing but a
particular conduct of the debtor, but always a
prestation
4. Efficient cause/juridical tie/vinculum juris
- relation between obligor and oblige which is
established by the sources of obligation
5. Form in which the obligation is manifested
Kinds of Prestation
a. TO GIVE consists in the delivery of a movable
or an immovable thing
b. TO DO all kinds of work or services
c. NOT TO DO consists in abstaining from some
act
POSITIVE - To give, to do
NEGATIVE - Not to do
REAL - To give
PERSONAL - To do, Not to do
Requisites of obligation
a. Physically and juridically possible
b. Determinate or at least determinable
according to pre-established elements or criteria
c. Possible equivalent in money
NATURAL
CIVIL OBLIGATION
OBLIGATION
Not by court action
By court action
Equity / natural justice
Positive law
*Moral obligation - cannot be enforced by action
Sources of obligation
1. LAW (Ex-Lege) - obligations derived from law
are NOT PRESUMED
2. CONTRACTS
- autonomy of will
- must not be contrary to law, moral and
good customs
* if part of a contract is void, the unaffected part
shall be enforced
3. QUASI-CONTRACTS
Certain
lawful,
voluntary and unilateral acts give rise to the
juridical relation of quasi-contract to the end that
no one shall be unjustly enriched or benefited at
the expense of another.
Kinds of Quasi-contracts
a. Negotiorum
gestio
voluntary
administration w/o consent or authority of
owner
b. Solutio indebiti - payment by mistake
4. ACTS or OMISSIONS PUNISHED BY LAW
- governed by Penal Laws
- criminally liable is also civilly liable

*GR: criminal liability is a necessary consequence


of civil liability
EXCEPTION: (crimes without civil liability)
1. Criminal contempt
2. Gambling
3. Traffic violations
*exempted to criminal liability but not civil
liability:
1. Imbecile or insane person, unless acting in a
lucid interval
2. Person under 9 years of age
3. Person over 9 years of age and under 15,
unless acting with discernment
4. Acting under compulsion of an irresistible force
5. Acting under impulse of an uncontrollable fear
of an equal or greater injury
*effect of acquittal in criminal case
1. When due to reasonable doubt no civil
liability
2. When due to exempting circumstances there
is civil liability
3. When there is preponderance of evidence
there is civil liability
*Extent of Civil Liability:
1. Restitution - thing itself is restored
2. Reparation - determines amount of damage
3. Indemnification - not only caused the 3rd
party but also those suffered by his family or by a
3rd person by reason of the crime
5. QUASI-DELICTS/TORT/CULPA AQUILIANA
- Whoever by act or omission causes damage
to another, there being fault or negligence, is
obliged to pay for the damage done.
- Such fault or negligence when there is no
pre-existing contractual relation between the
parties
QUASI-DELICTS
Private right
No criminal intent
Can be compromised
Preponderance
evidence
The actor is liable

of

Damages awarded to
injured party

CRIMES
Public right
Criminal intent
Cannot
be
compromised
Beyond
reasonable
doubt
No crime unless law is
penalizing it
Some violations will not
make a person liable

NATURE AND EFFECT OF OBLIGATION

TO GIVE

Obligatio
n
of
debtor

SPECIFIC
1. to deliver the
thing itself
2. to preserve
the thing with
due care
3. To deliver its
accessions an

GENERIC
1. To deliver the
thing which is
neither of superior
nor of inferior
quality
2. To pay damages
in case of breach

Rights of
creditor

accessories
4. To deliver the
fruits of the
thing
5. To pay
damages in case
of breach of the
obligation
1. To compel
delivery
2. Entitlement to
fruits
3. To demand for
damages

of the obligation

ACCESSORIES - those things which, destined for


embellishment, use or preservation of another
thing or more important, have for their object the
completion of the latter for which they are
indispensable or convenient.
*parties may stipulate if it should be excluded
from the obligation to deliver

1. Ask to be
complied at the
expense of the
debtor
2. Ask payment
for damages

TO DO
Obligati
1. To do it himself
on
of 2. To shoulder the expense if done by
debtor
3rd person
3. To undone what is poorly done
4. To pay for damages
Rights
1. Demand performance by debtor or
of
3rd party
creditor
2. Demand for damages
*in case of contravention of contract:
1. May ask that it be undone at
debtors expense
2. Demand for damages
*No action for compliance because that would be
involuntary servitude which is prohibited by the
constitution. (contract)
NOT TO DO
Obligati
1. Not to do what should not be done
on
of 2. To should the cost to undo what
debtor
should not have been done
3. To pay damages
Rights
*if debtor done what is forbidden:
of
debtor does what is forbidden
creditor
1. may ask that it be undone at
debtor's expense
2. demand damages for breach of
contract
DILIGENCE:
a) Provision
of
law:
EXTRAORDINARY
DILIGENCE
b) Stipulation: DILIGENCE OF A GOOD
FATHER OF A FAMILY
NOTE: Rule on Standard of Care
That which the law requires
That stipulated by the parties
In the absence of the two, diligence of a
good father of a family
*Debtor is not liable if his failure to deliver the
thing is due to fortuitous events or force majeure
without negligence or fault in his part.
ACCESIONS & ACCESSORIES:
ACCESSIONS - includes everything which is
produced by a thing, or which is incorporated or
attached thereto, either naturally or artificially.

FRUITS:
- creditor has a right to the fruits of the thing
from the
time the obligation to deliver
arises.
*GR: From the time of the perfection of the
contract (i.e. meeting of the minds between the
parties)
Conditional from the moment the condition
happens
With a term/period upon the expiration of the
term/period
Simple from the perfection of the contract
Kinds of Fruits:
a. Natural - w/o human intervention
b. Industrial - through cultivation / human labor
c. Civil - result of civilization / arising at juridical
relation
PERSONAL RIGHT (jus ad rem) - before the
delivery of the fruits; against a definite person
REAL RIGHT (jus in re)- after the delivery of the
fruits: against the whole world
BREACH OF OBLIGATION
Voluntary debtor in the performance of the
obligation is guilty of:
fraud (Dolo )
negligence (culpa)
delay (mora)
contravention of the tenor of the
obligation
NOTE: debtor is liable for damages
Involuntary debtor is unable to comply with his
obligation due to fortuitous event/s
NOTE: debtor is not liable for damages
1. DELAY, DEFAULT (MORA)
- delay or nonfulfillment of an obligation with
respect to time
Ordinary Delay failure to perform an obligation
on time
Legal Delay failure to perform an obligation on
time which failure constitutes a breach of the
obligation
Requisites of delay
1. Obligation must be due, demandable and
liquidated
2. Debtor fails to perform his positive obligation
on the date agreed upon
3. A demand (not merely a reminder or notice),

judicial or extra-judicial, made by the creditor


upon the debtor to fulfill, perform or comply with
his obligation otherwise, he will be in default
4. Failure of the debtor to comply with such
demand

*GR:
Fulfillment
of
parties
should
be
simultaneous EXCEPTION: Contrary stipulation
(e.g. installment plans)

Kinds of mora
a. Mora Solvendi - debtor
i.
EX RE referring to obligations to
give
ii. EX
PERSONA
referring
to
obligations to do

Cessation of effects of mora


a. Renunciation by the creditor

Express

Implied: when after delay has been


incurred, the creditor grants an extension
of time to the debtor or agrees to a
novation of the obligation
b. Prescription

Requisites:
1. Prestation
is
demandable
and
already
liquidated
2. That the debtor delays performance
3. That the creditor requires or demands the
performance extrajudicially or judicially
Effects:
1. debtor is liable for the damages
2. debtor is liable even if the loss is due to
fortuitous event
3. debtor shall bear the risk of loss (specific
thing)
*No delay/default
1. Negative obligation
2. Natural obligation
*GR: No demand, No delay
Exception: When demand is not required
1. Stipulation - without further notice clause
2. Law
3. Time / period - controlling motive
4. Demand would be useless - performance has
become impossible:
a. Caused by some act or fault of the debtor
b. Impossibility caused by fortuitous event
but
debtor bound himself liable in cases of
such
events
b. Mora Accipiendi - creditor
Requisites:
1. Offer of performance by the debtor
2. Offer must be to comply with the prestation
as it should be performed
3. Creditor refuses the performance without
just cause
Effects:
1. Responsibility of debtor is limited to fraud
and gross negligence.
2. creditor bears risk of loss
3. creditor bears the expenses for the
preservation
4. If obligation bears interest, debtor does not
have to pay from time of delay.
5. Creditor liable for damages.
6. Debtor may relieve himself of obligation by
consigning the thing
c. Compensatio Morae - both parties

2. FRAUD (DOLO)
- voluntary execution of a wrongful act, or a
willful omission, knowing and intending the
effects which naturally and necessarily arise from
such act or omission.
DOLO CAUSANTE
Before or at the time of
the
perfection
of
contract

DOLO INCIDENTE
After the perfection of
contract
(performance) MOM - F

(consent) F - MOM
Vitiation of contract
(voidable)

No vitiation of contract

Annulment / damages
Serious
Cause

damages
Not serious
Not the cause

Past fraud - Can be renounced / waived


Future fraud - Cannot be renounced / waived
3. NEGLIGENCE (CULPA)
- absence of due diligence
Kinds of negligence
1. Culpa aquilana - negligence as a source of
obligation
2. Culpa contractual - negligence in the
performance of a contract
3. Culpa criminal - criminal negligence
Culpa aquilana
No
contractual
relationship
Substantive
and
independent

Culpa contractual
Contractual
relationship
Incident
in
the
performance
of
an
obligation
Omission
Breach of contract
Negligence must be Proof of contract and
proved
the breach is sufficient
to warrant recovery
*respondiat superior (master-servant rule) negligence of the servant is the negligence of the
master
Negligence
No intention
Liability
can
be
mitigated
Waiver
for
future
negligence is valid

fraud
With intention
Liability
cannot
be
mitigated
Waiver for future fraud
is void

4. CONTRAVENTION OF TENOR
- any illicit act which impairs the strict and
faithful fulfillment of the obligation or every kind
of defective performance
DAMAGES:
Kinds of Damages:
1. Moral - moral and physical anguish
2. Exemplary - corrective or set as an example
3. Nominal - to vindicate a right
4. Temperate - exact amount cannot be
determined
5. Actual - actual losses and unrealized profit
6. Liquidated - predetermined beforehand by
agreement
DAMAGE - harm done and what may be
recovered
INJURY - wrongful act or unlawful act
FORTUITOUS EVENT (CASO FORTUITO)
- events which cannot be foreseen or which
though foreseeable are inevitable.

Act of God - by nature

Act of Man(force majeure) - by acts of


man

Includes unavoidable accidents, even if


there has been intervention of human
element, provided that the fault or
negligence cannot be imputed to the
debtor
Requisites:
1. The cause of the breach of the obligation
must be independent of the will of the debtor
2. The event must be either unforeseeable or
unavoidable
3. The event must be such as to render it
impossible for the debtor to fulfill his
obligation in a normal manner
4. The debtor must be free from any
participation in or aggravation of injury to
the creditor

money, goods or chattels or credits than the law


allows.
Interest - income produced by money in relation
to its amount and to the time that it cannot be
utilize by its owner

MORATORY - paid in contractual obligations


to pay a sum of money, either as price for the
use of the money OR as stipulated advanced
determination of the damages due to the
delay in the fulfillment of the obligation.

COMPENSATORY - interests on obligations


which have an extra-contractual or delictual
origin
Obligation is breached

payment in money
- stipulated interest + 12% of (principal debt
+
stipulated interest) - date judicial
demand
- no stipulation: 12% - date judicial or
extrajudicial
demand

Other than money - did court imposed


interest?

Yes
- liquidated - 6% - judicial or extrajudicial demand
- unliquidated - 6% - from the date of courts
judgment

No
Payment Presumptions in payment of
interests and installments

Receipt of principal without reservation with


respect to the interest - shall give rise to the
presumption that interest has been paid.

receipt of a later installment of a debt without


reservation as to prior installments - shall likewise
raise the presumption that such installments
have been paid.
*GR: If the debt produces interests, payment of
the principal shall not be deemed to have been
made unless the interests have been covered.
*PRESUMPTIONS are rebuttable by evidence

*GR: No liability for fortuitous event


EXCEPTIONS:
1. By law ( bad faith,generic things, debtor is
in delay )
2. by stipulation or contract
3. assumption of risk
4. When the obligor is in default or has
promised to deliver the same thing to two or
more persons who do not have the same
interest

TRANSMISSIBILITY OF RIGHTS
- Subject to the laws, all rights acquired in
virtue of an obligation are transmissible, if there
has been no stipulation to the contrary.

*ST - obligation is extinguished


GT - obligation is not extinguished

*if the debtor dies, the heirs are not liable


*if creditor dies, the heirs can demand for the
obligation

USURIOUS TRANSACTION (Usury Law)


Usury - contracting for or receiving something in
excess of the amount allowed by the law for the
loan or forbearance of money, good or chattels.
It is also taking more interest for the use of

EXCEPTIONS:
1. Not transmissible by their very nature
2. Stipulation by parties that it
transmissible
3. Not transmissible by law

is

KINDS OF OBLIGATION
1. PURE AND CONDITIONAL OBLIGATION
Pure obligation - w/o condition/term

not

- demandable at once:

Pure

Resolutory condition
Conditional Obligation - there is a condition
imposed
Condition - future or uncertain / past but
unknown
- must be possible of performance
Period - future and certain event
*if PDO will pay when his means permit him to do
so.
*to be demandable, COA should go to court and
let the court fixed the date for payment
Kinds of condition
1. As to effect:
a) Suspensive
suspends
the
effectiveness of the obligation until the
condition is fulfilled
b) Resolutory - extinguishes the obligation
upon happening of the condition
*in every resolutory condition there is a
suspensive condition
2. As to cause or origin:
a) Potestative - depends on the sole will
of one of the parties. (Facultative
condition)
P - S - PDO = VOID
P - R - PDO = VALID
P - R/S - COA = VALID
b)
Casual - depends exclusively upon
chance and/ or
will of the 3rd person
c) Mixed - depends upon the will of one of
the parties
and partly upon chance or will of
the 3rd party

a. pre-existing obligation
b. if obligation is divisible
c. in simple or remuneratory donations
d. testamentary dispositions
e. conditions not to do an impossible thing
4. As to mode:
a) Positive condition (suspensive) - some
event happen at a determinate time shall
EXTINGUISH the obligation as soon as the
time expires OR if it has become
indubitable that the event will not take
place.
b) Negative condition (suspensive) some event will not happen at a
determinate time shall render the
obligation EFFECTIVE from the moment
the time indicated has elapsed OR if it
has become evident that the event
cannot occur.
* the condition shall be deemed fulfilled when the
debtor
voluntarily prevents its fulfillment
(CONSTRUCTIVE FULFILLMENT)
*rules
on
loss,
deterioration,
&
improvement
- After obligation is constituted but before the
fulfillment of condition (suspensive condition)
- to deliver specific things
w/o debtors
fault
Debtors
fault

Loss
obligation
is
extinguish
ed
impairmen
t borne by
creditor

*loss - perishes,
disappears

Deterioration
pay damages

rescission
plus
damages
or
fulfillment
plus
damages
goes out of commerce,

3. As to possibility:
a) Impossible condition - those contrary
to good customs or public policy and
those prohibited by law
* If the obligation is DIVISIBLE, that part thereof
which is not affected by the impossible or
unlawful condition shall be valid.
* The condition not to do an impossible thing
shall be considered as not having been agreed
upon.

Improvement
By nature or by
time
At the expense of
the debtor

Effects:

Annuls only obligations which are POSITIVE


and SUSPENSIVE.

To do an impossible or illegal thing - both


condition and obligation is VOID

Condition is negative and not to do an illegal


thing - both condition and obligation is VALID

Condition is negative and not to do an


impossible thing - disregard condition but
obligation remains

Rescission - the power to rescind means the


right to cancel or to resolve the contract of nonfulfillment of the obligation on the part of one of
them. (substantial breach)
- implied and requires judicial approval

*GR: They shall annul the obligation which


depends upon them
*EXCEPTIONS:

inure to the benefit of the


creditor
debtors
right
is
that
granted to a usufructuary

RECIPROCAL OBLIGATION - obligation arising


out of the same cause and to be fulfilled at the
same time

Remedy of the injured party:


1. Rescission plus damages or
2. Fulfillment plus damages
Requisites:

a. One of the creditors failed to comply with what


is incumbent upon him
b. Obligor who performed chose rescission over
fulfillment or performance is impossible
c. The breach is substantial so as to defeat the
object of the parties in making the agreement be
granted in slight or casual breach
effects:
a. Obligatory relation is extinguished
b. Mutual restitution
2. WITH A PERIOD OR TERM
Kinds of Period/Term
1. As to effect:
a) SUSPENSIVE (Ex die) - a period which
must lapse before the obligation can be
demanded
b) RESOLUTORY (In diem) - a period after
which thee obligation is extinguished
2. As to expression:
a) IMPLIED - when parties intended a
period
b) EXPRESS - when specifically stated
3. As to definiteness:
a) DEFINITE - refers to a fixed known date
or time
b) INDEFINITENESS - event which will
necessarily happen but the date of its
happening is unknown
4. As to source
a) CONVENTIONAL/VOLUNTARY - fixed
by the parties
b) LEGAL - fixed by law
c) JUDICIAL - set by the courts in case of
implied and indefinite periods
Requisites:
1. Future
2. Possible
3. Certain
*rules
on
loss,
improvement
- same rules in
obligation

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
3. In case of reciprocal obligations, when there is
a just cause for fixing a period
4. If the debtor binds himself when his means
permit him to do so
*benefit of a period:
*GR: 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 the
other
credito
r
debtor

May demand performance anytime, but


not compelled to accept before period
expires
May oppose a premature demand, but
may validly pay any time before period
expires

*when debtor loses right to period:


Insolvency, unless security provided
Did not deliver security promised
Impaired security through his own acts or
through fortuitous event unless he gives new
securities equally satisfactory
Violates undertaking in consideration of
extension of period
Attempts to abscond
3. ALTERNATIVE OBLIGATION
ALTERNATIVE OBLIGATION bound by different
prestations but only one is due.
right of choice:
*GR: PDO unless granted to COA

deterioration,
pure

and

&

conditional

*effect of payment in advance:

Only applies to obligations to give

PDO may recover what he has paid including


the fruits and interest if he was unaware of
the period
*good faith/bad faith of the creditor in
accepting the premature payment:

Manresa: immaterial

Tolentino: In accordance with solutio indebiti,


good faith of creditor makes him liable to
restore the fruits and interests insofar as it
benefited him
*when courts may fix period:

limitation on right of choice:


- Right to choose is indivisible (cannot choose
part of one and part of the other)
- Cannot choose prestations which are impossible,
unlawful or could not have been the object of the
obligation
effect of notice of choice: orally/writing
- remains alternative from the date the promise
was made
- when PDO made a choice and communicated to
the COA - pure and simple obligation
*if there is a delay in making a choice
- court will make the choice for him or
- choice given to creditor
coversion to simple obligation
- debtors choice is communicated to the creditor
- creditors choice is communicated to the debtor,

if given the right to choose


- only one prestation is practicable

*GR: an obligation is joint unless stated that it is


a solidary.

*rules on loss

JOINT OBLIGATION - Each of the debtors is


liable only for a proportionate part of the debt,
and each creditor is entitled only to a
proportionate part of the credit.
- Each creditor can recover only his share of the
obligation and each debtor can be made to pay
only his part.

Choice belongs to the debtor:


all are lost
2 or more
remains
fortuitou extinguishe
deliver
s event
d
any of the
two
Debtors monetary
deliver
fault
consideratio any of the
n as
two
indemnity
for
damages
plus
damages
Choice belongs to the creditor
all are lost
2 or more
remains
fortuitou extinguishe
deliver
s event
d
any of the
two
Debtors monetary
Creditor
fault
consideratio can
n as
choose
indemnity
any of the
for
two
damages
*if he
plus
chooses
damages
the lost
object,
debtor is
liable plus
damages

Only 1
remain
pure/simpl
e
obligation
pure/simpl
e
obligation

some features of joint liability:


- insolvency of one debtor does not make the
other liable
- vitiated consent on the part of one debtor does
not affect the others
-demand made to one of the debtors is not
demand to all
*obligation may be joint on the side of PDO and
solidary in the side of COA or vice-versa

Only 1
remain
pure/simpl
e
obligation
pure/simpl
e
obligation
*if he
chooses
any of the
two,
debtor is
liable plus
damages

FACULTATIVE
OBLIGATION
only
one
prestation has been agreed upon but another
may be given in substitution
*If it is impossible to give the principal, the
substitute does not have to be given; if it is
impossible to give the substitute, the principal
must still be given.
The right of choice: only to the debtor
*rules on loss
Before substitution:

fortuitous event - extinguished

Debtors fault - PDO is liable for damages

if substitute is loss (w/ or w/o PDOs fault) to deliver the substitute is extinguished
After sustitution:

If principal is lost - debtor is no longer liable

if substitute is loss due to:


fortuitous event - extinguished
Debtors fault - PDO is liable for
damages
4. JOINT AND SOLIDARY OBLIGATION

Joint indivisible obligation - prestation is not


susceptible to division while the tie between the
parties are joint.
Characteristics:
1. Creditors prejudiced only by their collective
acts
2. Co-debtors not liable for the share of the
insolvent debtor
3. Creditor must proceed against all the joint
debtors
4. If one of the debtors cannot comply, the
obligation
is
converted
into
monetary
consideration (liability for losses and damages).
One who is ready and willing to comply will pay
his proportionate share plus damages when his
financial condition improves.
5. Debtor must deliver to all the creditors. If he
delivers to only one, liable for non-performance
as to other creditors.
SOLIDARY OBLIGATION
- Each of the debtors is liable for the entire
obligation, and each creditor is entitled to
demand the whole obligation.
- Each creditor may enforce the entire
obligation and each debtor may be obliged to
pay it in full.
Obligation is solidary when:
- stipulated
- stated by law
- nature of the obligation requires it
Kinds of solidary obligation
1. Active - amog COA
2. Passive - among PDO
3. Mixed - COA and PDO
*instances that requires solidarity:
-Two or more person liable for a quasi-delict
- Two or more principals appointed an agent for
common transaction, solidarily liable to agent
- Two or more bailees to whom a thing is loaned in

the same contracts (commodatum)


- Joint payees in solutio indebiti (payment is not
due)
Effects of solidary obligation:
SOLIDARY CREDITOR in relation to:
i. Common debtor
Right to demand:

Debtor may pay to any solidary creditor, but


if a judicial demand is made against him, he
must pay only to the plaintiff.

The creditor may proceed against ANY ONE


of the solidary debtors or SOME or ALL of
them simultaneously.

Payment made by one of the solidary


debtors extinguishes the obligation. If two or
more solidary debtors offer to pay, the
creditor may choose which to accept

Each creditor may renounce his right even


against the will of the debtor, and the latter
need not thereafter pay the obligation to the
former.
In case of novation, compensation, confusion,
remission by a creditor: extinguish the obligation
ii. Solidary co-creditor/s
In case of novation, compensation, confusion,
remission: liable to others for the share in the
obligation corresponding to them
Prejudicial acts prohibited: Each one of the
solidary creditors may do whatever is useful to
the others, but not anything which may be
prejudicial to the latter.
Assignment of rights not allowed: Solidary
creditor cannot assign his rights without the
consent of others
SOLIDARY DEBTOR in relation to:
i. Common creditor
Obligation to perform: each one of the solidary
co-debtor is bound to render entire compliance
with the prestations
In case of novation, compensation, confusion,
remission by a creditor: Extinguishes the
obligation
ii. Solidary co-debtor:
In case of payment by a co-debtor

Payment - extinguishes the obligation.

May reimburse from his co-debtors only the


share which corresponds to each, with the
interest for the payment already made

Insolvent and cannot reimburse, borne by all


his co-debtors

Prescribed payment - no reimbursement

Remission - does not release the latter from


his responsibility towards the co-debtors

The remission of the whole obligation - does


not entitle him to reimbursement from his
co-debtors.
*Rules
on
loss
or
impossibility
of
prestation:
1. If without fault extinguished
2. If with fault all liable for damages plus
interest
3. 3. Loss due to fortuitous event after default

all liable for damages plus interests


5. DIVISIBLE AND INDIVISIBLE OBLIGATION
Divisible - capable of division or partial
performance
Execution of certain no of days work
Expressed by metrical units
Nature of obligation susceptible of partial
fulfillment
Indivisible - not capable of division or partial
performance
To give definite things
Not susceptible of partial performance
Provided by law
Intention of parties
Kinds of indivisibility:
1. NATURAL - Obligation to give definite things
- Not susceptible of partial performance
2. LEGAL - indivisible if so provided by law
3. CONVENTIONAL - indivisible if so provided by
the parties, although by nature is divisible
test of divisibility:
- Will or intention of the parties
- Objective or purpose of the stipulated prestation
- Nature of the thing
- Provisions of law affecting the prestation
Cessation of Indivisibility:
1. Natural
Indivisibility:
conversion of the
obligation to pay damages
2. Conventional/Legal
Indivisibility:
novation,
death of creditor (division among heirs)
6. OBLIGATION WITH PENAL CLAUSE
with Penal Clause/Penalty - an accessory
undertaking to assume greater liability in case of
breach

To ensure performance

To substitute the indemnity for damages


and the payment of interests in case of
non-compliance

To punish the debtor for non-fulfillment of


his obligation

To provide liquidated damage


*enforced only when it is demandable with the
provisions of the code
Kinds of Penalties:
1. Subsidiary - only the penalty is demandable
2. Joint or cumulative - both principal and
penakty may be demanded
Effects of penal clause:
1. Substitute for indemnity for damages and
payment of interest, unless there is a stipulation
to the contrary
2. Not exempt debtor from performance penalty
is not a defense for leaving obligation unfulfilled
3. Creditor cannot demand both performance and
penalty at the same time, unless this right has

been clearly granted him


4. Creditor cannot collect other damages in
addition to penalty, unless:
a) There is an express provision to that
effect
b) Debtor refuses to pay the penalty
c) Debtor is guilty of fraud in the nonfulfillment of the obligation
5. When penalty shall by equitably reduced

performance by a third person who has no


interest in the fulfillment of the obligation, unless
there is a stipulation to the contrary.

Effects of Nullity of Principal Obligation or


Penalty
*GR: if principal obligation is void, the penalty is
also void. If the penalty is void, the principal
remains to subsist

d. Third person who is NOT AN INTERESTED


PARTY and WITHOUT THE KNOWLEDGE OR
AGAINST THE WILL OF THE DEBTOR

causes for reduction of penalty:


1. Partial/irregular performance
2. Penalty provided is iniquitous/unconscionable

EXTINGUISHMENT OF OBLIGATIONS
PAYMENT OR PERFORMANCE
- delivery of money and performance, in any
other manner of the obligation

How payment is made:

Monetary - by delivery of money in full

Thing - delivery of the thing or object

To do - by performance

No to do - refrain from doing it


Who can pay:
a. In general
1. Debtor
2. Anyone acting on his behalf a.
a. Duly
authorized
agent/representatives
b. Heirs
c. Successors
in
interest
and
assignees
b. Third person who is an INTERESTED PARTY
1. Co-debtors
2. Guarantors
3. Sureties
4. Owners of mortgaged property or pledge
Effects
of
Payment
by
3rd
Person
Interested
1. Valid payment; obligation extinguished
2. Debtor to reimburse fully 3rd person
interested
3. 3rd person subrogated to the rights of the
COA
c. Third person who is NOT AN INTERESTED
PARTY but WITH CONSENT of debtor
-When a third person, not interested in the
obligations, pays with the express or tacit
approval of the creditor.
- The creditor is not bound to accept payment or

Effects of Payment by 3rd Person Not


Interested With Debtors Consent:
1. 3rd person is entitled to full reimbursement
2. Legal subrogation (novation)
3. COA may refuse to accept payment

Effects of Payment by 3rd Person Not


Interested Without Knowledge or Against
the Will
1. 3rd person can only be reimbursed insofar
as
payment has been beneficial to debtor
2. 3rd person cannot compel creditor to
subrogate
him in the latter s rights
e. Third person who does NOT INTEND TO BE
REIMBURSED DEBTOR MUST GIVE CONSENT
Effects of Payment by 3rd person Interested
or not Does not intend to be reimbursed
1. Payment is deemed as a donation
2. Donation must be in proper form
f. In obligation to give
Effect of Incapacity of the payor
1. No free disposal and no capacity to
alienate
2. Minor who entered contract without
consent of parent/guardian - No right to recover
fungible thing delivered to the creditor who spent
or consumed it in good faith
g. In case of active solidarity
-The debtor may pay any one of the solidary
creditors, but if any demand, judicial or
extrajudicial has been made by one of them,
payment should be made to him.
To whom payment can be made:
a. In general
1. Creditor/person in whose favor obligation
was
constituted
2. His successor in interest
3. Any person authorized to receive it
b. Payment to a wrong third party
*GR: Not valid, obligation is not extinguished,
even if in good faith of the debtor
EXCEPTION:
1. Extinguished if the mistake is imputable to
the
fault or negligence of the creditor
2. Payment in good faith to person in
possession
of credit
c. Incapacitated person
*GR: Payment not valid
EXCEPTION - When payment to an incapacitated
person is valid:

a) If creditor has kept the thing delivered


b) b)Insofar as payment benefited creditor
d. Third person
*GR: VALID if 3rd person proves that it redounded
to creditor s benefit; otherwise VOID
EXCEPTION: When proof of benefit not required
also applicable to INCAPACITATED PERSONS
e. In case of active solidarity
- if no demand is made, debtor may pay to
any of the solidary creditors
- If any judicial/extrajudicial demand is made
by any of the creditors who made the demand
What is to be paid ( identity )
a. TO GIVE a specific thing
- The debtor of a thing cannot compel the
creditor to receive a different one, although the
latter may be of the same value as, or more
valuable than which is due.
b. TO GIVE a generic thing
*GR: COAcannot demand a superior quality; PDO
cannot deliver a thing of inferior quality
EXCEPTION: Unless quality and circumstances
have
been
stated,
purpose
and
other
circumstances of obligation considered.
c. Pay money
*GR:made in the currency stipulated, if not then
in the currency which is the legal tender in the
Philippines.
EXCEPTION: Foreign currency if agreed to by
parties
*extraordinary inflation or deflation - the value of
the currency at the time of the establishment of
the obligation shall be the basis of the payment,
unless there is an agreement to the contrary.
d. TO DO or NOT TO DO
- an act or forbearance cannot be substituted
by another act or forbearance against the COAs
will.
MODES OF PAYMENT:
1. Application of payment - the designation of
the debt which payment shall be made, out of 2
or more debts owing the same creditor
Requisites:
a. Various debts of the same kind
b. Same debtor
c. Same creditor
d. All debts must be due
Exception:
- stipulation
- made by the parties for whose
benefit the period/term is constituted
e. Tendered payment is not sufficient to
extinguish
all obligation
Right to choose:
- debtor unless agreed upon

Rules on application of payment:


1. Right to apply must be exercised at the time of
the payment
2. Creditor may undertake application, subject to
the debtor s approval. Once the latter accepts
receipt of application, he cannot complain
UNLESS there is a cause for invalidating the
contract.
3. Payment must be applied to the interest before
the principal
Rules if no application of payment:
1. Apply it to the most onerous, in case the debt
are of different nature
2. If same nature, apply it proportionately
2. Cession payment - Debtor transfers all the
properties not subject to execution in favor of
creditors that the latter may sell them and thus
apply the proceeds to their credits.
Requisites:
1. Plurality of debts
2. Plurality of creditors
3. Complete or partial insolvency of the debtor
4. Abandonment of all debtors property not
subject to execution
5. Acceptance or consent on the part of the
creditors
Effects of Payment by Cession:
1. Creditors do not become the owner; they are
merely assignees with authority to sell
2. Debtor is released up to the amount of the net
proceeds of the sale, unless there is a stipulation
to the contrary not total extinguishment
3. Creditor will collect credits in the order of
preference agreed upon, or in default of
agreement, in order ordinarily established by law.
3. Dation in Payment (Dacion en Pago) property is alienated to the creditor in satisfaction
of a debt in money (law on sales)
DATION IN PAYMENT
Transfers
ownership

the

May totally extinguish


the
obligation
and
release the debtor

PAYMENT BY
CESSION
Transfer
of
the
possession
and
administration only
Only extinguishes the
credits to the extent of
the amount realized
from the properties
assigned,
unless
otherwise agreed upon
involves
ALL
the
property of the debtor
There are various,
plurality of creditors

Cession of only some


specific thing
Transfer is only in favor
of one creditor to
satisfy a debt
Both are substituted performances of obligations
4. Tender of payment and Consignation

Tender of payment - The act of offering the


creditor what is due him together with a demand
that the creditor accept the same
Requisites:
1. Made in lawful currency
2. Should include interest due
3. Must be unconditional
4. Obligation must already be due
Consignation - The act of depositing the thing
due with the court or judicial authorities
whenever the creditor cannot accept or refuses
to accept payment.
Requisites:
1. There is a debt due
2. Tender of payment by the debtor and refusal
w/o justifiable cause by the creditor to accept it
3. Prior notice of consignation had been given to
the person interested in the obligation (1st
notice)
4. Consignation of the thing or sum due
5. Subsequent notice of consignation (2nd
notice)
*when tender and refusal are not required:
1. Creditor is absent or unknown or does not
appear at place of payment
2. Incapacitated to receive payment at the time
it is due need not be legally declared
3. Without just case, he refuses to give a receipt
4. Two or more persons claim the same right to
collect 5. Title of the obligation has been lost
*expenses of consignation are charged against
the creditor

a) obligation remains
b) Co-debtors, guarantors, and sureties are
released
c) The creditor loses the preference over the
thing

LOSS OF THE THING DUE

Loss:
- the the perishes
- goes out of commerce
- Disappears in such a way that its existence
is
unknown or it cannot be recovered
Presumption of loss:
- loss was due to debtors fault, except in
cases of natural calamities
Requisites:
1. Loss or destroyed without the fault of the
debtor
2. Before the debtor incurs in delay
3. After the obligation is constituted
Effects:
A. To give:
1. Specific things:
- obligation is extinguished without fault of
debtor AND before he incurs in delay
Exception:
- fault of the debtor
- liable for fortuitous event, by law or
stipulation or it requires the assumption of
risk
2. Generic things
- obligation is extinguished
Exception: delimited generic things

Effects of proper Consignation:


1. the debtor may ask the judge to order the
cancellation of the obligation
2. Interest is suspended
3. Before the creditor accept/judge declare, the
obligation remains to subsists

3. Partial loss
- the loss is material and the remaining
portion of the object is immaterial

Effects of proper Consignation:


1. Obligation remains
2. Debtor is in default

B. To do:
- releases debtor from obligation if prestations
has become legally or physically impossible
- releases debtor if performance has become so
difficult to be so manifestly beyond the
contemplation of the parties
- Impossibility due to fortuitous events does not
extinguish obligation if:

By law

By stipulation

Nature
of
the
obligation
requires
assumption of risk

Withdrawal of the thing consigned:


1. As a right:
a) Before acceptance of the creditor
b) Before judicial declaration
Effect:
a) obligation remains
b) Co-debtors, guarantors, and sureties
cannot
object
2. As a privilege:
a) After acceptance of the creditor
b) After judicial declaration
Effect:
a) obligation remains
b) Co-debtors, guarantors, and sureties are
released
Effect of Withdrawal after consignation:

4. Action against 3rd person


- right of subrogation

CONDONATION OR REMISSION
- gratuitous abandonment by the creditor of
his rights

Requisites:
1. Agreement
2. Capacitated parties

3. Subject matter
4. Cause and consideration is generosity
5. Obligation is demandable at the
remission is made
6. Must not be inofficious

time

Kinds of condonation:
1. As to effect/extent:
a) Total
b) Partial
2. Date of effectivity:
a) Intervivos - lifetime
b) Mortis causa - after death
3. As to from:
a) Implied or tacit
b) Express or formal
Presumptions of condonation:
1. Voluntary delivery of private documents by the
creditor implies the renunciation of the action
2. private document in which the debt appears is
in the POSSESSION of the debtor, the creditor
delivered it voluntarily
3. accessory obligations of pledge is remitted if
found in the possession of the debtor, or a third
person who owns the thing.
Effects:
1. Extinguishes totally or partially
2. In case of joint or solidary obligations affects
the share corresponding to the debtor in whose
benefit the remission was given
CONFUSION OR MERGER
- characterof debtor and creditor is merged
in same person with respect to same obligation

Requisites:
1. It must take place between principal debtor
and principal creditor only
2. Merger must be clear and definite
3. The obligation are the same and identical
one obligation only
4. Revocable, if reason for confusion ceases,the
obligation is revived
Effects:
1. Obligation is extinguished
2. In case of:
a) Joint obligations - obligation is not
extinguished EXCEPT as regards the
share corresponding to the creditor or
debtor in whom the two characters
concur.
b) Solidary obligations - obligation is
extinguished

b) Partial - not equal


As to origin:
a) Legal by operation of law
Requisites:
Each one of the obligors be bound
principally and that at the same time
a principal creditor of the other
That both debts consists in a sum of
money, or if the things due are
consumable, they be of the same kind
and also of the same quality if the
latter has been stated
That the two debts are due
That
they
be
liquidated
and
demandable
that over neither of them there be
any
retention
or
controversy,
commenced by third persons and
communicated in due time to the
debtor
b) Conventional agreement of the parties
c) Facultative one party has choice of
claiming
/opposing one who has benefit of
period may
choose to compensate:

Not all requisites are present

Depositum; commodatum; criminal


offense; claim for future support;
taxes
d) Judicial decreed by court, in case where
there
is counterclaim
2.

When compensation is not allowed:


1. Depositum
2. 2. Commodatum
3. Support due gratuitous title
4. Civil liability arising from a penal offense
Effect of assignment of credit to 3rd person:
1. AFTER compensation - no effect; compensation
already perfected
2. BEFORE compensation depends:

With consent of debtor debtor is


estopped unless he reserves his right and
gave notice to assignee

With knowledge but w/o consent of


debtor compensation may be set up a
sto debts maturing prior to assignment

W/o knowledge compensation may


beset-up on all debts prior to his
knowledge

NOVATION
- creation of new obligation which substitute
the old one

Changing object or principal conditions

Substituting person of debtor

Subrogating a 3rd person in right of


creditor

Kinds of compensation:
1. As to their effect:
a) Total - same amount

Requisites:
1. Previous valid obligation
2. Intent to extinguish old obligation
3. Capacity and consent of parties to the new
obligation
4. Valid new obligation

COMPENSATION
- extinguishment to the concurrent amount
of the debts of two persons who, in their own
rights are debtors and creditors of each other

Effects:
1. extinguishment of the original obligation and
creation of a new one
2. When accessory obligation may subsist only
insofar as they may benefit third person who did
not give the consent to the novation
Effect of the Status of the Original / the
New Obligation
1. Nullity of the original obligation new
obligation is VOID
2. Voidability of the original obligation
- new obligation is VALID if ratified before
novation
- new obligation is VALID even if not
ratified, but voidable at the instance of the
debtor
3. Nullity of the new obligation - original
SUBSISTS, UNLESS intends extinguishment of
former in any event
4. Voidability of the new obligation
- new obligation is VALID
- BUT if new obligation is annulled and
set aside, original SUBSISTS
5. Suspensive or resolutory condition of original
obligation
- New is pure
- If intention is merely to suppress the
condition, no novation
- If intention is extinguish the original
obligation itself by the creation of a new
obligation, the novation does not arise
except from fulfillment of the condition from
original obligation.
6. Original obligation is pure - New obligation is
conditional

2.
3.

creditor)
Knowledge or consent of the debtor is
not required
Initiative comes from the 3rd person

Delegacion - the creditor accepts a 3rd


person to take the place of the debtor at the
instance of the latter
Requisites:
1. Consent of the new debtor
2. Acceptance by the creditor
3. Initiative comes from the debtor

Subrogating 3rd person to rights of creditor:

Conventional - agreement and consent of all


parties; clearly established

Legal - takes place by operation of law; no


need for consent; not presumed except as
provided for in law when:
- Creditor pays another preferred creditor
even w/o debtors knowledge
- 3rd person not interested in obligation
pays
w/ approval of debtor
- Person interested in fulfillment of
obligation pays debt even w/o knowledge of
debtor

Kinds of Novation:
1. As to form:
a) Express - declared in an unequivocal
form
b) Implied
both
obligations
are
incompatible w/ each other

Changing the object

Changing the cause

Changing the principal


term / condition
2. As to object or purpose:
a) Real/objective - change of object or
principal condition
b) Personal/subjective - change of the
subject

Passive - substitution of debtor

Active - Subrogating a 3rd


person in right of creditor
c) Mixed - change of parties and object or
principl condition
Substitution of debtor:

Expromission - the 3rd person on his own


initiative and w/o the knowledge or against
the will of the original debtor assumes the
obligation.
Requisites:
1. Consent of two parties (new debtor and

CONTRACTS
Contracts - 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.
Elements:
1. Essential elements - w/o them a contract
cannot exist
a. Consent
b. Object
c. Cause
2. Natural elements - exist as part of the
contract even if the parties do not provide for
them, because the law, creates them.
3. Accidental elements - agreed upon by the
parties and which cannot exist without being
stipulated
Stages in the life of a contract:
1. Preparation/conception - preparatory step
taken leading to the perfection of the contract
2. Perfection/birth - meeting of the minds
3. Consummation/death/termination - parties
have performed their obligations and is put to an
end
Characteristics:
1. Autonomy of wills/freedom/liberty
2. Mutuality
3. Obligatory Force and compliance in good faith
4. Perfection by mere consent
5. Relativity
Kinds:
1. As to perfection or formation
a) Consensual perfected by mere
consent
b) Real perfected by delivery
c) Formal/solemn

perfected
by
conformity to essential formalities
2. As to cause
a) Onerous with valuable consideration
b) Gratuitous no consideration
c) Remunerative prestation is given for
service previously rendered not as
obligation
3. As to importance
a) Principal can stand alone
b) Accessory depends on another
contract for its existence; may not exist
on its own
c) Preparatory not an end by itself; a
means through which future contracts
may be made
4. As to nature
a) Unilateral only one of the parties
b) Bilateral both parties
5. As to name or designation
a) Nominate - w/ a special name
b) Innominate - w/o a name
i.
Do ut des I give that you may give
ii. Do ut facias I give that you may do
iii. Facio ut des I do that you may give
iv. Facio ut facias I do that you may
do
6. As to risk
a) Commutative - equivalent values are

b)

given by both parties


Aleatory - fulfillment of the contract is
dependent upon chance

Relativity - contracts takes affect only between


the parties, their assigns and heirs
Exception to relativity:
1. Accion pauliana
2. Accion directa
3. Stipulation pour autrui
Requisites of stipulation POUR AUTRUI
1. Parties must have clearly and deliberately
conferred a favor upon a 3rd Person
2. The stipulation in favor of a 3rd person
3. That the favorable stipulation should not be
conditioned or compensated by any kind of
obligation whatsoever
4. Neither of the contracting parties bears the
legal representation or authorization of 3rd Party
5. The third person communicates his acceptance
to the parties
ESSENTIAL CHARACTERISTICS OF CONTRACT

CONSENT - meeting of minds between


parties on subject matter and cause of
contract;
concurrence
of
offer
and
acceptance

Requirements:
1. Plurality of subject
2. Capacity
3. Intelligence and free will
4. Manifestation of intent of parties
Offer - unilateral proposition made by one party
to another to enter into a contract
1. Must be certain, definite, or specific so that the
liability or right of the parties can be determined.
2. The oferror can fix the time, place and manner
of acceptance
3. Offer made through an agent is accepted from
the time acceptance is communicated to him
4. It becomes ineffective upon the death, civil
interdiction, insanity or solvency of either party
before acceptance is conveyed
5. Business advertisement - not a definite offer
but mere invitation
6. Advertisement for bidders - simply an invitation
Acceptance - an unaccepted offer does not give
rise to a consent; must be absolute
Kinds of acceptance:

Express - written or oral words

Implied - acts
1. Must be absolute
2. Acceptance made by letter or telegram does
not bind the offeror except from the time it came
to his knowledge.
3. May be revoked before reaching the knowledge

of the offeror
4. Period of acceptance:
a) Stated fixed period
b) No stated fixed period
i.
If present - made immediately
ii. If absent - must be made w/in such
time that an answer can be received
Option - may be withdrawn anytime before
acceptance is communicated but not when
supported by a consideration other than
purchase price
*option contract - one giving a person certain
period w/n which to accept the offer
*option money - money paid/promised to be
paid in consideration of the option; included in
the purchase price
Persons who cannot give consent:.
1. Unemancipated minors
2. Insane or demented persons
3. Deaf-mutes who do not know how to write
Rules on contract entered by minor:
*GR: voidable
EXCEPTION:

Upon reaching age of majority - ratification

entered unto by a guardian

Contract for necessities but the guardian will


pay

Minor is estopped for misinterpretation of


age and misleading the other parties
When offer and/ acceptance is made:
1. During lucid intervals - VALID
2. In state of drunkenness - VOIDABLE
3. During hypnotic spell - VOIDABLE
Vices of consent:
1. Mistake or error - a wrong or false notion
about such matter, a belief in the existence of
some circumstance, fact or event which in reality
does not exist.
Requisites:
1. Substantial regarding:
a) Object
b) Conditions w/c principally moved one or
both parties to enter a contract
c) Identity/qualification of a person
2. Must be excusable, not caused by negligence
3. must be a mistake of fact and not of law
*simple mistake/error - correction

3. Intimidation - one of the contracting parties is


compelled by a reasonable and well-grounded
fear of an imminent and grave evil upon his
person or property, or upon the person or
property of his spouse, descendants or
ascendants, to give his consent.
Requisites:
1. Threatened act is unjust and unlawful
2. Reasonable and well ground fear
3. Of an imminent grave evil
*violence or intimidation caused by a 3 rd person VOIDABLE
4. Undue influence - takes improper advantage
of his power over the will of another depriving the
latter of a reasonable freedom of choice
5. Fraud - any kinds of deception
Requisites:
1. Must be serious
2. Must not be in pari-delicto
3. Deliberate intent to deceive
4. Other party relied on untrue statement
Does not constitute a fraud:
1. Failure to disclose facts
2. Usual exaggeration on trade
3. Mere expression of opinion
4. Misrepresentation by a 3rd person
5. Misrepresentation made in good faith - error
Simulation of Contracts - declaration of a
fictitious will, deliberately made by agreement of
the parties in order to produce, for the purposes
of deception the appearance of a juridical act
which does not exist or is different from that
which was really executed.
*GR: simulation is VOID
Kinds of Simulated Contracts:
ABSOLUTE
RELATIVE
No intention to be Intention to be bound
bound
but concealed
VOID
from
the VOID except when not
beginning
prejudicial to 3rd person
or does not have an
illicit purpose

OBJECT - all things which are not outside the


commerce of men, including future things

Mistake/error that does not invalidate a


consent:
1. Quantity or amount - correction
2. Qualities
3. Motives: condition/cause

Requirements:
1. Within the commerce of en
2. Transmissible
3. Licit
4. Possible
5. Determinate

2. Violence/force - serious or irresistible force is


employed
Requisites:
1. irresistible physical force
2. Prevent an act from being done

Things which cannot be the object of


contract:
1. outside the commerce of men:
a) Personal rights, the status and capacity

of
persons,
honorary
titles
and
distinctions
b) Public offices
c) Political rights or right of suffrage
d) Public property
e) Sacred or common things
2. Intransmissibe rights
3. Contrary to law, morals, good customs, public
policy
4. Future inheritance, except when authorized by
law
5. Impossible things or services
6. Indeterminable as to their kind

CAUSE - why of the contract, the essential


reason which impels the contracting parties
to enter the contract

Requisites:
1. It must exist
2. It must be real, that is true
3. It must be licit or lawful
Kinds:
1. Onerous - parties are reciprocally obligated to
each other
2. Remunatory - one where a party gives
something to another because of some service or
benefit given or rendered by the latter
3. Gratuitous - mere liberality of the donor or
benefactor
Motive - the psychological, individual and
personal reason which induces a party to enter a
contract
*GR: motive does not affect the validity of the
contract
CAUSE
Immediate, direct and
proximate reason
Objective and intrinsic
reason
Always known
Always be lawful

MOTIVE
Indirect and remote
reason
Individual and purely
personal reason
May be unknown
May
be
lawful
or
unlawful

*unlawful cause - VOID


Unlawful motive but the cause is lawful - VALID
Falsity of cause:
- voidable contract if proven, otherwise void
Lesion - insufficiency or inadequacy of cause
*GR: contract is VALID
EXCEPT when there is:
1. Fraud
2. Mistake
3. Undue influence
FORMS OF CONTRACTS
FORM - a manner in which a contract is
manifested or executed

*GR: contracts shall be obligatory, in whatever


form they may have been entered into, provided
all the essential requisites for their validity is
present
EXCEPT: when the law requires that a contract be
in some other form in order that it may be valid or
enforceable:

Validity

Enforceability

convenience
Kinds:
1. Informal - may be entered in whatever form
as long as there is a consent, object and cause
2. Formal - required by law to be in certain
specified form

Donation of real property

Donation of personal property exceeding


P5000.00

Immovable prop. contributed to the


partnership

Sale of land thru an agent

Contract of antichresis

Chattel mortgage

Interest for using someones money


REFORMATION OF CONTRACT
Reformation - remedy to conform to real
intention of the parties when some error or
mistake has been committed
Requisites for Reformation of Instruments
1. Meeting of the minds upon the contract
2. The true intention of the parties is not
expressed in the instrument
3. The failure of the instrument to express the
true agreement is due to mistake, fraud,
inequitable conduct or accident
4. There must be clear and convincing proof
Causes for reformation:
1. Mutual mistake - instrument includes
something w/c should not be there or omit what
should be there
a. Mutual
b. Mistake of fact
c. clear and convincing proof
d. causes failure of instrument to express
true intention
2. Unilateral mistake
a. one party was mistaken
b. other either acted fraudulently or
inequitably or
knew but concealed
c. party in good faith may ask for reformation
3. Mistake by 3rd persons due to ignorance,
lack of skill, negligence, bad faith of drafter, clerk,
typist
4. Others specified by law to avoid frustration
of true intent
When reformation not available:
1. Simple donation inter vivos
2. Wills

3. When real agreement is void


4. Estoppel when party has brought suit to
enforce it
Who may ask for reformation?
Mutual mistake - either party or successor in
interest
If not mutual - injured party, heirs or assigns
INTERPRETATION OF CONTRACTS
Interpretation of contract determination of
the meaning of the terms or words used by the
parties of the contracts.
Rules:
1. Conflict between the words used in the
contract and that of the intentions of the
parties intention must prevail
2. Stipulations that admit of several meanings it shall be understood as bearing that import
which is most adequate to render it
effectual.
3. Contains various stipulations, some of which
are doubtful it shall be interpreted
together, attributing to the doubtful ones
that sense which may result from all of them
taken jointly.
4. Contains words that have different
significations it shall be understood in that
which is most in keeping with the nature and
object of the contract.
5. Contains ambiguities and omission of
stipulations it shall be borne in mind in the
interpretation of the ambiguities of a
contract, and shall fill the omission of
stipulations which are ordinarily established.
6. With respect to the party who caused the
obscurity it shall not favor the party who
caused the obscurity.
7. When it is absolutely impossible to settle
doubts by the rules above - the least
transmission of rights and interests shall
prevail.
a) In gratuitous contracts, incidental
circumstances least transmission of rights
and interests
b) In onerous contracts greatest reciprocity
of interests
8. When the doubts are cast upon the principal
objects so that the intention cannot be
known - the contract shall be null and void.
DEFECTIVE CONTRACTS

RESCISSIBLE CONTRACTS - valid until


rescinded. The defect is extrinsic defect
consisting of an economic damage or lesion.

Rescission - a relief to protect one of the parties


or a third person from all injury and damages
which the contract may cause, to protect some
preferential right
Requisites:
1. Contracts that are rescissible:

a. Those which are entered into by


guardians whenever the wards whom
they represent suffer lesion by more than
1/4 of the value of the things which are
the object thereof
b. Those agreed upon in the representation
of absentees, if the latter suffer the
lesion stated in the preceding number
c. Those undertaken in fraud of creditors
when the latter cannot in any other
manner collect the claims due them
d. Those which refer to things under
litigation if they have been entered into
by the defendants without the knowledge
and approval of the litigants or of
competent judicial authority
e. All other contracts specially declared by
law to be subject of rescission
i.
Deterioration of the thing to be
delivered
ii.
Right to rescind given to an Unpaid
seller
iii.
Right to rescind given to a vendee in
a sale of real property per unit/lump
sum price
f. Payment made in a state of insolvency
2. The party asking for rescission has no legal
means to obtain reparation
3. He is able to return whatever he may obliged
to restore - object, fruits and price w/interest
4. The object of the contract has not passed
legally to the possession of the 3rd person
acting in good faith
*no rescission if acted in bad faith
5. The action for rescission is within the
prescriptive period of 4 years by:
Injured party
Heirs
Creditor, if the transaction is
fraudulent
Rescission of contracts in fraud of creditors:
1. Existence of a credit
2. The said credit must be prior to the
contract
3. Existence of fraud or bad faith on the part
of the debtor which can either be
presumed or proved
4. Creditors cannot recover their credits in
any other manner
Badges of fraud:
1. consideration of the conveyance is
inadequate or fictitious
transfer was made by a debtor after a suit
has been begun and while it is pending
against him
2. sale upon credit by an insolvent debtor
3. evidence of indebtedness or complete
insolvency
4. Transfer of all his property by a debtor
when he is financially embarrassed or
insolvent

5. transfer made between father and son


where there is present any of the above
circumstances
6. failure of the vendee to take exclusive
possession of the property
7. Gross disparity between price and real
value of the property

1. Those executed by one in the name of


another w/o any authority or in excess of such
authority
2. Those that do not comply w/ the statues of
fraud
3. Those were both parties are incapable of
giving consent

VOIDABLE CONTRACTS - valid until


annulled. Annullable unless ratified. If
ratified, the contract is cleansed of its defect.
The contract is effective now, but may be
invalidated

Statutes of Fraud it is a law which requires


that certain contracts must be in writing,
otherwise, unenforceable
a. Not to be performed within 1 year from
the making
b. Special promise to answer for the debt,
default or miscarriage of another
c. Agreement made in consideration of
marriage other than mutual promise to
marry
d. Agreement for the sale of goods, chattels
or things in action at a price of P500.00 or
more
e. Leasing for period longer than one year
OR sale of real property or of an interest
therein
f. Representation to the credit of a 3rd
person

Contracts that are voidable:


1. One of the parties is incapable of giving
consent
2. Consent is vitiated by mistake, violence,
intimidation, undue influence, or fraud
Causes of extinction of action to annul:
a. Prescription - Period to bring an action for
Annulment
i. Intimidation, violence, undue influence 4 years from time defect of consent
ceases
ii. Mistake, fraud 4 years from time of
discovery
iii. Incapacity - From time guardianship
ceases
b. Ratification cures the defect of the
contracts celebrated in the name of another w/o
authority or in excess of authority
Kinds of ratification:
1. Express
2. Implied
Requisites of ratification:
1. Contract is voidable
2. The person ratifying knew the reason why the
contract is voidable
3. It must have been made expressly or impliedly
It is made by the injured party
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: Object is lost through a 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.
Ratification cleanses the contract of its defects
from the moment it was constituted

UNENFORCEABLE CONTRACTS - cannot


be sued upon or enforced unless ratified.
These are validable contracts. No effect now,
but may be effective upon ratification

Contracts that are unenforceable:

Ratification of contracts falling under


Statute of Frauds:
1. Failure to object to the presentation of oral
evidence
2. Acceptance of benefits under them. Hence if
the contract is partially or totally executed.
Statute of frauds will not apply.

VOID CONTRACTS - no effect at all.it cannot


be ratified or validated.

Contracts that are void:


1. Those whose cause, object or purpose is
contrary to law, morals, good customs, public
order, or public policy
w/ criminal
offense
Both

parties
are in
pari

delicto

Only
one
party
is
guilty

w/o criminal offense


but is illegal or
unlawful
No
action Neither party may
against
each
recover what he
other
has given
BOTH will be Neither party may
prosecuted
demand
performance of the
Effects/instrum
others
ent of the crime
undertakings
will
be
confiscated in
favor of the
government
Innocent party Innocent
party
can claim what
may demand the
he has given
return of what he
has given without
The guilty party
obligation
to
will
be
comply
with
his
prosecuted
promise
Property sold as

Party
at
fault
the instrument

of the crime will


be confiscated
in favor of the
government

cannot
recover
what he has given
by reason of the
contract
PARTY AT FAULT
cannot ask for the
fulfillment of what
has been promised
to him

2. Those which are absolutely simulated or


fictitious
3. Those whose cause or object did not exist at
the time of transaction
4. Those whose object is outside the commerce
of men
5. Those which contemplate an impossible
service
6. Those where the intention of the parties
relative to the principal object of the contract
cannot be ascertained
7. Those expressly prohibited or declare void by
law
Exception to pari delicto rule: If purpose has
not yet been accomplished and if damage has
not been caused to any 3rd person
Other exceptions:
a. Payment of Usurious interest
b. 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
c. payment of money or delivery of property
made by an incapacitated person
d. agreement or contract which is not illegal
perse and the prohibition is designed for the
protection of the plaintiff
e. payment of any amount in excess of the
maximum price of any article or commodity fixed
by law or regulation by competent authority
f. contract whereby a laborer undertakes to work
longer than the maximum number of hours fixed
by law
g. one who lost in gambling because of
fraudulent schemes practiced on him is allowed
to recover his losses even if gambling is
prohibited

DEFECTIVE
CONTRACT

AS TO NATURE OF
DEFECT

RESCISSIBLE
CONTRACT

Those which are entered


into by guardians
whenever the wards
whom they represent
suffer lesion by more
than 1/4 of the value of
the things

VOIDABLE
CONTRACT

EFFECT
ON
CONTRAC
T
VALID until
rescinded

Those agreed upon in


the representation of
absentees, if the latter
suffer the lesion by
more than 1/4 of the
value of the things

VALID until
rescinded

fraud of creditors when


the latter cannot in any
other manner collect the
claims due them

VALID until
rescinded

things under without the


knowledge and approval
of the litigants or of
competent judicial
authority
All other contracts
specially declared by
law
Want of capacity
- age
- insanity

VALID until
rescinded

Contract entered into


name of another without

WHO CAN
ASSAIL?

WHEN TO
ASSAIL?

CURABLE?
HOW?

WHO CAN
CURE?

WHEN TO
CURE?

YES but only through


DIRECT action for
rescission
No rescission if:
a. plaintiff has other
legal means to obtain
reparation (subsidiary)
b. plaintiff cannot
return what must be
restored
c. object in the hands
of 3rd persons in good
faith
d. Contract approved
by court
YES but only through
DIRECT action for
rescission
No rescission if:
a. plaintiff has other
legal means to obtain
reparation (subsidiary)
b. plaintiff cannot
return what must be
restored
c. object in the hands
of 3rd persons in good
faith

By ward
By guardian ad
litem of ward
during incapacity
of ward in action
against original
guardian
By absentee

W/in 4 years from


gaining (minor) or
regaining (insane)
capacity

YES
By ratification
(Confirmation by
the ward)

By ward

W/in 4 years
from (re)gaining
capacity

W/in 4 years from


knowledge of
domicile of
absentee

YES
By prescription

By absentee

W/in 4 years
from knowledge
of domicile or
knowledge of
fraudulent
contract

By plaintiffcreditor
By heirs of
creditor
BY creditors of
creditors injured
By other third
parties
prejudiced by the
contract
By party litigant

W/in 4 years from


knowledge of
fraudulent
contract

YES
By prescription

By creditor

W/in 4 years
from knowledge
of fraudulent
contract

W/in 4 years from


knowledge of
fraudulent
contract

YES
By prescription

By party
litigant

W/in 4 years
from knowledge
of fraudulent
contract

YES. Both through


direct and collateral
attacks.

All who are


obliged principally
or subsidiarily
Incapacitated
party; not the
party with
capacity
Victim; not the
party who cause
the defect

Within 4 years
from cessation of
(re)gaining
capacity
Within 4 years
from:
- cessation of
intimidation,
violence, undue
influence
- discovery of
mistake or fraud
At any time one
party attempts to

YES
By ratification By
prescription

By parties
themselves

Within 4 years
from cessation of
(re)gaining
capacity
Within 4 years
from:
- cessation of
intimidation,
violence, undue
influence
- discovery of
mistake or fraud

VALID until
rescinded
VALID until
annulled
by court
action

Action for annulment

Consent is vitiated by:


- mistake or error
- violence and
intimidation
- undue influence
- fraud,
misrepresentation
UNENFORCE
ABLE

ASSAILABLE?
HOW?

VALID
but cannot

YES. Not by direct


action but by DEFENSE

By owner of
property

YES 1 By
ratification
- Express
- Implied

By ratification

By guardian
in behalf of
an
incapacitate
d party
during
existence of
incapacity
Person in
whose name

CONTRACT

VOID
CONTRACT

authority or in excess of
authority

be
ENFORCED
by a
proper
action in
court

of unenforceability of
contract through
motion to dismiss
complaint on the
ground that contract is
unenforceable

enforce contract
against the other
through a court
action

Contracts covered by
Statute of Frauds and
not complying with
requirement of a written
memo

VALID
but cannot
be
ENFORCED
by a
proper
action in
court

YES. Not by direct


action but by DEFENSE
of unenforceability of
contract either through:
1. motion to dismiss
complaint on the
ground that contract is
unenforceable
2. objection to
presentation of oral
evidence to prove
contract

By other party
By his privies
(heirs,
representatives
and assigns)

At any time one


party attempts to
enforce contract
against the other
through a court
action

Both parties are legally


incapacitated to act

VALID
but cannot
be
ENFORCED
by a
proper
action in
court

YES. Not by direct


action but by DEFENSE
of unenforceability of
contract through
motion to dismiss
complaint on the
ground that contract is
unenforceable

By other party
By his privies
(heirs,
representatives
and assigns)
By guardian

At any time one


party attempts to
enforce contract
against the other
through a court
action

Cause, object or
purpose of contract
contrary to law, good
customs, morals, public
order or public policy

Does not
create
rights and
cannot
impose
obligation

YES. By an action for


declaration for nullity
By defense of nullity

One or some of essential


requisites of valid
contract lacking in fact
or in law:
a. Absolutely simulated
b. Those whose cause or
object did not exist
c. Object outside the
commerce of man
d. Contemplate an

Does not
create
rights and
cannot
impose
obligation

YES. By an action for


declaration for nullity
By defense of nullity

By innocent party
By 3rd persons
whose interest are
directly affected
(If in pari delicto,
neither has an
action against
each other)
By any of the
contracting
parties
By 3rd persons
whose interests
are directly
affected

the contract
was entered
into

By
acknowledgeme
nt
By performance
of oral contract
By failure to
object
seasonably to
presentation of
oral evidence
By acceptance
of benefits
under the
contract
By confirmation

By parties
against
whom the
contract is
being
enforced

By parents
or
guardians
of both
parties

Imprescriptible

Cannot be cured

Both
parties
after
(re)gaining
capacity to
act
--

Imprescriptible

Cannot be cured

--

impossible service
e. Where intention of
parties re: principal
object of contract
cannot be ascertained
Contracts expressly
prohibited by law

Does not
create
rights and
cannot
impose
obligation

YES. By an action for


declaration for nullity
By defense of nullity

By party whose
protection the
prohibition of the
law is designed
By 3rd party
whose interests
are directly
affected

Imprescriptible

Cannot be cured

--

PARTNERSHIP
CONTRACT OF PARTNERSHIP two or more
person bind themselves to contribute money,
property, or industry to a common fund, with
the intention of dividing the profits among
themselves
Characteristics:
1. Consensual perfected by mere consent
2. Nominate has a designated name
3. Preparatory its organization/formation is
followed by other contracts to carry out its
purpose
4. Onerous involves consideration in the form
of contributions by the partner
5. Bilateral/multilateral entered by two or
more person
6. Principal it can stand alone
Elements:
1. valid contract
2. mutual contribution of money, property, or
industry to a common fund
3. intent to engage in lawful business, trade or
profession
4. intention of dividing the profits among
themselves
5. objective must be lawful
6. two or more persons who have the legal
capacity to contract
PARTNERSHIP
Created by Voluntary
agreement of the
parties
Indefinite period of
time
Managed by All
partners / managing
partner
Partners liability
extend Beyond
capital contribution
Can bind his copartners
Death of general
partner dissolves the
partnership
PARTNERSHIP
Created by Voluntary
agreement of the
parties
Purpose is to make
profits
May not sell interest
w/o consent of all
other partners
It has juridical
personality
Indefinite period of
time

CORPORATION
Created by Law
Not more than 50 years
(subject to extension)
Managed by BOD / BOT
Stockholders liability
does Not extend beyond
interest/investment
Cannot bind the
corporation
Death of stockholder
does not dissolve the
corporation
CO-OWNERSHIP
Created by Law /
agreement of the parties
Purpose is common
enjoyment
May sell interest w/o
consent of all other coowners
It has no juridical
personality
May not generally exist
for more than 10 years /
if imposed by the donor,

Death of general
partner dissolves the
partnership
PARTNERSHIP
It has juridical
personality
Partners are agents
for the partnership; a
partner is a principal
for his own
Partner is the owner
w/ his co-partners w/
respect to
partnerships
property
No need for a power
of attorney

it must not exceed 20


years
Death of co-owner does
not dissolve the
corporation
AGENCY
It has no juridical
personality
Agent acts for his
principal, in not a
principal himself
Agent is not a co-owner
w/ respect to principals
property
Needs a power of
attorney

A partnership is JURIDICAL PERSON, separate


and distinct from the partners composing it.
Effects:
1. Can possess or acquire property of all kinds
2. Can incur obligation, that is, it can enter
into contract
3. Can sue or can be sued
4. May be adjudge insolvent uneven if the
partners are solvent
5. Death of partners would not warrant the
dismissal of the case against the
partnership
6. Summons upon the managing partner will
bind the partnership it not being necessary
to summon th partner
EXISTENCE OF PARTNERSHIP
GR: persons who are NOT partners as to each
other are not partners as to 3rd person
EXCEPTION: partnership by Estoppel

Co-ownership an co-possesion does not


establish a partnership
Shares in gross returns does NOT establish
a partnership
the receipt by a person of a

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