OBLIGATIONS (Civil Obligations) It is a juridical necessity to give, to do or not to do Requisites of obligation o Active Subject (a.k.a.

creditor or obligee) person who has the right to demand performance of the obligation o Passive Subject (a.k.a. debtor or obligor) person who has the duty to perform the obligation o Prestation (a.k.a. object or subject matter) the obligation to give, to do or not to do o Efficient Cause (a.k.a. vinculum juris or juridical tie) it is the reason why the obligation exist; refers to the five sources of an obligation. EXAMPLE: Abet bought Adis laptop for P21, 500 payable in 5 monthly equal payments, supported by a contract of sale. Active Subject: Adi, Passive Subject: Abet, Prestation: Laptop worth for P21, 500 payable in 5 monthly equal payments, Efficient Cause: Contract of Sale (unilateral obligation) Kinds of Obligation According to: o Subject matter y Real Obligation to give y Personal Obligation to do or not to do o Affirmativeness or Negative y Positive or Affirmative to give or to do y Negative not to do o Person Obliged y Unilateral only one of the party is to perform the obligation y Bilateral both parties are to perform the an obligation  Reciprocal  Non-reciprocal performance of one does not depend on the other Sources of the obligation o Law (ex lege): only obligations mentioned in the new civil code and other special laws are demandable and shall be regulated of the percepts of the law which established them. EXAMPLE: Obligations to pay taxes (National Internal revenue Code) o Contracts (ex contractu): obligations from contracts should be valid and are enforceable by law and should be complied with good faith. Thus, it will be further discuss on the succeeding topics. Quasi-Contracts (ex quasi-contractu): lawful, voluntary and unilateral act that creates an obligation because no one shall unreasonably benefit from the expense of the other.

Negotiorum gestio (unauthorized management): When a third person without an agreement managed the property or business that was abandoned or neglected by its owner. Third person has the right to reimburse from the owner. EXAMPLE: Abet owns a sari-sari store and hired April to take charge. August 15, 2011, its pay day, and Abet went out on a 3 day trip without knowing its pay day. On the said date, Adi visited the store, who founds out that April was still unpaid and Abet was out on a vacation so she paid April in the absence of Abet. Thus, Adi has the right to reimburse to Abet for the salary of April.

Solution Indebiti (unauthorized payment): When something was received but there is no right to demand or undue payment/delivery by mistake EXAPMPLE: Adi buys 45 choc-nuts at Abets Sari-sari store worth P45.00 and gave Abet P50.00. Abet gave Adi a change of ten (10) peso coin believing he gave a five (5) peso coin, thus Adi will be bound to return P5.00 to Abet in excess of the change. ** A quasi-contract is not an implied contract because there is no actual meeting of minds. Other example of quasi-contracts:  When by accident or other fortuitous event, movables separately pertaining to two or more persons are commingled or confused, the rules on co-ownership are applicable. (Art. 2170)  When the government upon failure of any person to comply with health or safety regulations concerning property, undertakes to do necessary work, even over his objection, he shall be liable to pay expense. (Art. 2169) y Acts or Omissions punished by Law or delicts (ex maleficio or ex delicto) y Governed by:  Pertinent provisions of the Revised Penal Code and other Penal Laws, subject to the provisions of Article 2177, Civil Code.  Chapter 2, Preliminary Title, on Human Relations of the Civil Code  Title 18 of book IV of the Civil Code y Governed by:  Restitution  Reparation of damages caused  Indemnification for consequential damages ** If only civil action was committed, preponderance of evidence is enough proof; if criminal case with it is a civil case, the guilty party must proof beyond reasonable doubt. ** Any person who is criminally liable is also civilly liable if damage was material. o o Quasi-delicts or culpa aquiliana or tort (ex quasi-maleficio or ex quasi-delicto) Negligence as a source of obligation EXAMPLE: Abet and Adi are neighbors playing race of bike at their street, someone pass by and hit by Abet causing an injury, Abet shall be liable to the person who pass by.

Requisites: y Act or omission due to fault or negligence y There was damage or injury y Direct relation of cause and effect between fault or negligence and the damage or injury. y No pre-existing relation between the offended party and offender. Nature and Effect of Obligations Delivery of Fruits o Rights of the creditor y Personal Right (jus in personam or jus ad re): the right to demand delivery to a person y Real Right (jus in re): right over specific thing and is enforceable against the whole world. o Kinds of Delivery y Actual Delivery (or tradition) physical transfer or property changes hands. y Constructive Delivery implied physical transfer  Traditio symbolica symbolic tradition  Traditio longa manu pointing out the object  Traditio brevi manu short hand; possessor not the owner attains onwership  Tradition constitutum possesorium possessor as the owner, retains possession but not the ownership.  Traditio by the execution of legal forms and solemnitie example. Public instrument in selling the land. o Obligation to deliver arises y If obligation is pure without conditions, from the perfection of contract y If obligation is subject to a suspensive period or condition, upon the arrival of the term or condition EXAMPLE: o Kinds of fruits (NIC) y Natural products of soil and products of animals. Example: Naturally grown trees y Industrial produced by land through cultivation or labor. Example: Rice, Corns y Civil result of a juridical relation. Example: Rent of a building Determinate Thing (obligations to give) It is capable of particular designation, debtors obligations are: o To take care with the diligence of the good father of a family unless the law or stipulation requires another standard of care. Thus, whichever has the higher degree of diligence prevails. ** Failure to do so will make him liable for damages even on fortuitous events.

o o o

To deliver the thing To deliver the fruits of the thing, however, the creditor acquires only personal right before delivery and acquires real right when the thing was delivered to him. To deliver its accessions and accessories even if not mentioned. y Accessions included everything that is produced by a thing or incorporated ar attached thereto, either naturally or artificially y Accessories joined or included to the principal for better use, perfection or enjoyment. Example: headphones of a cell phone To be liable in case of breach of obligation

Remedied of the creditor when debtor fails to deliver o To compel specific performance o To demand rescission or cancellation in some cases o To demand for damages o In cases of delay and guilty for promising to deliver the same thing to two or more person who does not have any interest., debtor shall be responsible for fortuitous events until delivery ** Fortuitous events extinguishes obligations to deliver Generic Thing (obligations to give) Refers to a class (genus) and cannot be pointed out particularly, debtors obligations are: o To deliver the thing with quality o To be liable in case of breach of obligation Remedied of the creditor when debtor fails to deliver o To ask for performance o To ask the obligation complied at the expense of debtor o To recover damages ** Fortuitous events does not extinguishes obligations to deliver Breach of Obligations Damages refers to harm done and the sum of money can be recovered. Injury refers to wrongful, unlawful or tortuous act. Involuntary Breach due to fortuitous events General Rule: No one s liable to events could not be foreseen or even if foreseen is inevitable. o Requisites are: (1) cause must be independent of the will of debtor; (2) impossibility of foreseeing or avoiding; (3) occurrence rendered the obligation impossible to fulfill by the debtor in a normal manner Exceptions are: o When expressly declared by law ( possessor in bad faith or in delay) o When expressly declared by the stipulation or contract

When the nature of obligation requires the assumption of risk

Voluntary Breach guilty by reason of the following shall be liable to damages: (DFNC) o Delay (default or mora) EXAMPLE: Abet owes April P500.00, payable at November 26, 2011. Date after due date, Abet was still unpaid thus he already incurred delay. y Requisites of Delay  A positive obligation  Obligation and demandable and liquidated  There must be judicial or extrajudicial demand Kinds of Delay y Mora solvendi delay on debtors part  Mora solvendi ex re - delay on real obligations  Mora solvendi ex persona - delay on personal obligations ** No delay occurs in negative obligations ** Effects: (1) liable for damages; (2) bears the risk of loss; (3) liable even on fortuitous events: If generic, debtor may still be compelled to comply y Mora accependi delay on creditors part ** The creditor unjustifiably refuses to accept payment or performance y Compensatio Morae delay on reciprocal obligations EXAMPLE-reciprocal obligation: In contract of sale the buyer must pay and the seller must deliver. ** Both parties are at default, like no delay exist, however when one party already comply, delay of the other begins General Rule: No demand, No delay Exemptions are: y When the obligation or law expressly so declares EXAMPLE: Unpaid utility bills on maturity date. y When time of essence of the contract EXAMPLE: Adi rented chairs and tables from Abets Party Shop for her daughters birthday needed 6:00 in the morning, November 16, 2011 to be delivering at their residence. If the delivery of the said things came after the said time, they already incurred delay. y When the demand would be useless, as when the obligor has rendered it beyond hi power to perform EXAMPLE: When the thing obliged to deliver was lost ore destroyed by his fault or has delivered it to another person. Fraud (dolo) Conscious and intentional proposition to evade the normal fulfillment of an obligation y Fraud in the performance of the obligation ** There is a deliberate intention to cause damage or prejudice

EXAMPLE: Adi ordered and paid a diamond ring to April a jewelry vendor who agreed to deliver it the next day. If on the next day the ring was only made out of glass, such act was employed with fraud. Fraud According to time of commission  Past Fraud can be waived by the creditor, such action is forgiving the debtor and disregarding fraud.  Future Fraud cannot be waived by the debtor. y Fraud in obtaining consent (will be discuss exclusively under contracts) ** Responsibility from fraud is demandable in all obligations. Negligence (culpa) Voluntary act or omission there being no malice, which prevents normal fulfillment of an obligation Different Kinds of Negligence Culpa Aquiliana *civil negligence/tort/quais-delict It is negligence that caused damaged to a third person without pre-existing obligation EXAMPLE: A pedestrian was hit by a taxi and suffered physical injuries. The taxi driver was negligent and was responsible for injury. Can be proven according to preponderance of evidence

Culpa Contractual *result a breach of contract It is negligence in the performance of the obligation

Culpa Criminal *result of crime/ delict act It is negligence that results a commission of crime EXAMPLE: A pedestrian was hit by a taxi and suffered physical injuries. The taxi driver was negligent and was responsible for injury. Physical injury through reckless imprudence Must be proven beyond reasonable doubt

EXAMPLE: Contract of carriage between the passenger and the owner of the taxi-cab company. Can be proven according to preponderance of evidence

** Includes omission of diligence required by the nature of the obligation. Contravention of the tenor Violation of terms of the obligation, unless excused in proper cases of fortuitous events. Exemptions are: y Increase in cost of performance y Poverty y War between subject of a neutral country Positive Personal Obligations (obligations to do) EXAMPLE: Abet went to to the repairshop of Adi, to have his desktop fixed for three days. Three days after the desktop was still unrepaired. The owner may have the following remedies: Remedies of the creditor if debtor failed to do o Have the obligation executed by himself or a third person at debtors cost o To demand for damages

** Debtor cannot be compelled to comply because it would be contrary to his liberty. Remedies of the creditor if poorly done o May ask it to be undone at debtors expense o To demand for damages Negative Personal Obligations (obligations no to do) EXAMPLE: If on the preceeding example Abet told Adi not to put designs or any paraphernalia on the paper and she did, he may also ask for remedies stated below. Remedies of a creditor if debtor does what was forbidden o To ask It be undone at the expense of debtor o If it is impossible to undo, creditor may demand for damages Usurious Transactions Usury is the exaction of excessive interest Governed by Usury Law Lawful rates are: *Unsecured loans: 14% per annum *Secured loans with registered real estate as security: 12% per annum *Pawnshops: 2 % a month if loan is less than P500; 2% a month if loan is P500 to P2000; 14% per annum if loan is more than P2000.00 Presumption on receipt of principal or latter installments o The receipt of principal without reservation of the interest is assumed that the interest is paid. EXAMPLE: A.E. Lending Companies Date 11/26/1992 Description P5, 000. with 5% interest; payable in 5 equal payments O.R. no. 1 Amount

TOTAL Received by: April Enriquez

P1, 050.00

The receipt of later installment without reservation to prior installments is assumed that previous installments are paid. EXAMPLE: A.E. School Friendly Dormitory O.R. no. 1

Date Description 11/26/1992 4th Monthly Rental

Amount

TOTAL Received by: April Enriquez

P5, 000.00

Rights of the creditor o o o To demand complete fulfillment or specific performance of the obligation Pursue the property in the possession of the debtor, except those exempt by law Exercise all rights and bring all the actions of the debtor except those personal to him (accion subrogatoria) EXAMPLE: Adi owes April who owes Abet. If Abet filed an action to the court against April, it may ask Adi not to pay April. Moreover, if the court favors Abet, Adi will be required to pay Abet excising the rights of April to collect from Adi. Impugn the acts which the debtor may have done to defraud them (accion pauliana)

Transmissibility of Rights General Rule: All rights are transmissible but not the obligation Exceptions are: o If the law prohibits the transmission o If the parties agreed against transmission o If the right is by nature not transmissible Different Kinds of Obligations Pure and Conditional Obligation Pure Obligation obligations without conditions or terms, it is demandable at once Conditional Obligation obligations with conditions or terms o Classifications of Conditions y (1) Suspensive As soon as the condition happens, obligation becomes effective (a.k.a. condition antecedent or condition precedent). Cannot demand performance until condition happen. y Upon fulfillment of condition, it shall retroact from the day the obligation was constituted, but not with the fruits and interest EXAMPLE: Aunty obliges himself to give her niece Adi an Innova if she reaches the age of majority.

In unilateral obligations, fruits and interest are presumed as mutually compensated. y In reciprocal obligations, debtors keeps the fruits and interest before fulfillment of condition ** Rules in cases of Loss, Deterioration or Improvement of determinate thing after condition is fulfilled y Loss occurs when it perishes; it goes out of commerce; existence is unknown; cannot be recovered. Without debtors fault the obligations extinguishes With debtors fault the debtor is liable for damages y Deterioration occurs when the value of a thing was reduced or partially impaired Without debtors fault the creditor shall bear deterioration With debtors fault the creditor can choose rescission or specific performance, plus damages y Improvement By nature or by time it shall inure to the benefit of the creditor At the expense of the debtor the debtor can have the right granted to a usufructuary (2) Resolutory As soon as the condition happens, the obligation ends (a.k.a. condition subsequent). Obligation is demandable until the condition happen. EXAMPLE: Adi allows Abet to use her laptop until he finish working on his thesis. y y (1) Potestative depends on the will of one of the parties Potestative on part of Debtor  Potestative Suspensvie both condition and obligation are void. EXAMPLE: Adi will pay her debt if she goes to Hong Kong.  Potestative Resolutory - both condition and obligation valid EXAMPLE: Abet allowed April to use his guitar until she return from her gig. Potestative on part of Creditor is valid whether suspensive or resolutory EXAMPLE (1): Adi will pay her debt if her debtor goes to Hong Kong. EXAMPLE (2): Abet will allow April to use his guitar until he return from his gig. (2) Casual depends on chance or hazard or will of a third person EXAMPLE (1): Adi will pay her debt if the she wins 2 tickets of going to Hong Kong as the promo of Philippine Air Lines. EXAMPLE (2): Abet will allow April to use his guitar until his friend from his gig. (3) Mixed depends partly on one of the party and on chance EXAMPLE: Adi will treat Abet if he will be the Mr. Pogi 2011. (1) Possible it has the capability of fulfillment in nature and in law (2) Impossible it does not have the capability of fulfillment in nature and in law Physically example: make dead man live Logically example: make a circle at the same time square Illegal Condition: to kill someone

**If condition is to do an impossible and illegal thing: Both condition and obligation is void. ** If not to do the impossible thing, disregard the condition but the obligation remains. ** If not to do an illegal thing, both condition and obligation is valid. y (1) Positive to perform upon condition with a certain period; when the time lapse and the condition is not fulfilled the obligation extinguishes or when the event is sure not to happen EXAMPLE: Adi will give her car to Abet if he goes back to the Philippines before March 31, 2011. If Abet came on or before the said date, Adi will be required to give her car. If on the said date, he didnt arrive obligation is extinguished. (2) Negative not to perform upon with a certain period; when the time lapse and the condition is not fulfilled the obligation arises or when the event is sure not to happen EXAMPLE: Adi will support by sending allowance to Abet if he does not go back to the Philippines before March 31, 2011. If Abet came on or before the said date, Adis obligation will extinguish. If Abet stayed there for two more years after the said date, obligation of Adi to send allowance is demandable. (1) Divisible it is capable of partial performance (2) Indivisible it is not capable of partial performance (1) Conjuctive all conditions must be performed (2) Alternative only a few of conditions have to be performed (1) Express the condition is clearly stated, orally or written (2) Implied the condition is merely inferred

y y y

When obligor voluntarily prevent fulfillment of condition the condition is deemed fulfilled. EXAMPLE: Adi promised to buy Abet a laptop if he will join the singing contest. However, day before the contest she ask Abet top pack up and they will go to Boracay to be back the day after tomorrow. As soon as they came back, Adi must buy Abet a laptop since it was her idea of going to Boracay. Rights before the fulfillment of conditions y Creditor bring action to preserve their rights y Debtor right to recover what was paid by mistake

Obligations with a Period Obligations that is demandable when the day certain comes. Period Condition It is sure to happen but unknown when It may or may not happen Always refer to future May refer to future or past Fixed time for effectiveness It cause an obligation to rise or extinguish ** A period must refer to the future, certain and physically and legally possible.

Kinds of Periods y Ex die (suspensive period) period that creates an obligation upon the arrival of the day certain y In diem (resolutory period) period that extinguishes an obligation upon the arrival of the day certain y Legal period granted under provisions of law y Voluntary/Conventional period agreed or stipulated by the parties y Judicial period fixed by the courts. In cases of Loss, Deterioration and Improvement, the rules under the preceding topics are also effective The debtor may recover what he has paid or delivered with its fruits and interest if he is ignorant of the period and believing obligation is du and demandable. ** Applicable only in obligations to give, period is for the benefit of both parties and the debtor is in good faith. Periods are expected to benefit both parties unless it appears that it is infavor of the debtor or the creditor. y In favor of debtor cannot be compelled to perform unless he wants before expiration. y In favor of creditor cannot be compelled to accept performance unless he demands before expiration The court may fix the period if it depends upon the will of the debtor or when not stated but it shows a period was intended The court may not fix a period if it was not stated because no period was intended, obligation is payable on demand, or when specific period are provided by law. Debtor loses the right to make use of the period due to the following: y When after he becomes insolvent unless he gives warranty or security y When he does not give the guaranties or securities which he promised. y When he impaired the guaranties or securities after establishment and when due to fortuitous event it disappears, unless he immediately replaces it. y When the debtor violates any undertaking in consideration which creditor agreed of the period. y When debtor attempts abscond

Alternative Obligations Several prestations are given but only one is to be performed.

o o o o

The right to choose which prestation to perform belongs to the debtor unless granted to the creditor. ** Shall not chose prestations which are impossible, unlawful or which could not have been the object of the obligation As soon as the choice was already communicated, obligation becomes pure and demandable. The debtor will lose the right to choose if only one becomes practicable among the prostrations. Debtor may rescind contract if through creditors act he cannot make choice. In cases of Loss or Impossibility of Performance before selection. y When the right belongs to debtor EXAMPLE: Abet promise to give Adi his cell phone, laptop or ipad. ** If the cell phone and laptop was lost at Abets fault or fortuitous event, he is not liable for damages but obligation becomes pure and he shall deliver the ipad. (Whichever is the remainder at time of loss) ** If all are lost due to fortuitous event, obligation extinguishes. ** If all are lost at Abets fault, he shall pay the value of the last thing that was lost plus damages. ** If the cell phone and laptop was lost at his fault, and the ipad subsequently lost due to fortuitous event, the obligation also extinguishes. y When then right belongs to creditor EXAMPLE: Abet is obliged to give Adi his cell phone, laptop or ipad. They both agreed Adi has the right of choice. ** If the cell phone was lost due to fortuitous event, he shall deliver the laptop or ipad, whichever is the choice of Adi. ** If all are lost due to fortuitous event, obligation extinguishes. ** If the cell phone and laptop was lost due to fortuitous event, he shall deliver the ipad. (Whichever is the remainder at time of loss). However, if the ipad was subsequently lost due to Abets fault, he shall be liable for damages. ** If all are lost at Abets fault, he shall pay the value of the last thing that was lost plus damages.

Facultative Obligations Only one prostration is due but debtor may render substitution. EXAMPLE: Abet is obliged to give Adi his cell phone, and Adi agreed that he may also give an ipad. y Rules in cases of loss Before substitution Due to fortuitous event obligation extinguished Due to debtors fault liable for damages Loss at any reason does After substitution Loss at any reason makes the obligation pure and makes substitute demandable Due to fortuitous event

Principal Thing Substitute Thing

not carry the obligation to deliver the principal

obligation extinguished Due to debtors fault liable for damages

Joint and Solidary Obligations Plurality of Debtors and/or Creditors in an obligation Joint Obligations Mancomunada, Mancomunada Simple, Proportionate, Pro rata Solidary Obligations Joint and Several, In Solidum, Mancomunada Solidaria, Juntos o Seperadante, Individually and Collectively, Each will pay the whole value Each debtor is liable for the whole obligation and each creditor is entitled to demand for the whole obligation. Debtor may demand reimbursement and Creditor must give the share of his co-creditors.

Other Terms

Debt Sharing Each debtor is liable for his part on the obligation, as the creditors are entitled only for his share on the obligation

Generally speaking plurality of debtors and/or creditors are joint obligation, however the following cases give rise to a solidary obligation: y When stated under the contract that the obligation is solidary y When th nature of the obligation requires solidarity y When the law stated Examples on Joint and Solidary Obligations L, M, N are joint debtors owes P6 000  O, P, Q are joint creditors  O, P, Q are solidary creditors L(50%), M(30%), N(20%) are joint debtors owes P6 000 Each debtor is liable only for P2 000 O, P, Q are to received P2 000 each O, P or Q may collect the whole P6 000 but since the debtors are joint he may only collect P2 00 from each debtor. After collection he must give the other creditors their share of P2 000 each L is liable for P3 000, M is liable for P1 800 and N is liable for P1 200. a. O may only collect P1 200. From L 600 (50% of P1 200), M 360(30% of P1 200) and N 240 (20% of P1 200) b. P may only collect P2 400. From L 1 200 (50% of P2 400), M 720(30% of P2 400) and N 480 (20% of P2 400) c. Q may only collect P2 400. From L 1 200 (50% of P2 400), M 720(30% of P2 400) and N 480 (20% of P2 400)

 O(20%), P(40%), Q(40%) are joint creditors

 O(20%), P(40%), Q(40%) are solidary creditors L, M, N are solidary debtors owes P6 000  O, P, Q are joint creditors

O, P or Q may collect the whole P6 000 but since the debtors are joint he may only collect L for P3 000, M for P1 800 and N for P1 200. After collection he must give the other creditors their share(20-40-40). Any one is liable for P6 000 L, M or N may pay the whole obligation and demand reimbursement from his co debtors but since O, P, Q are joint creditors, each can only collect P2 000, L, M or N may pay the whole obligation and demand reimbursement from his co debtors for P2 000 each and O, P or Q may collect the whole P6 000 and must give his co creditors P2 000 each. Any one is liable for P6 000 L, M or N may pay the whole obligation but the creditors may only collect up to the following. a. O may only collect P1 200 b. P may only collect P2 400 c. Q may only collect P2 400 After collection, who ever paid may reimburse. L, M or N may pay the obligation as O, P and Q may demand for the payment. The debtor who paid may reimburse and creditor who collected must reimburse.

O, P, Q are solidary creditors L(50%), M(30%), N(20%) are solidary debtors owes P6 000

 O(20%), P(40%), Q(40%) are joint creditors

 O(20%), P(40%), Q(40%) are solidary creditors

Joint Obligation y Features  Debtors are not affected if one is insolvent since they are only liable for their share.  Debtors are not affected if the consent of one was vitiated since they are only liable for their share.  Demand made to one debtor does not necessarily demand all debtors. y Indivisible (object) Joint(tie between parties) Obligations EXAMPLE: Adi, Abet and April jointly owes Ana a photocopying machine worth P78 000. Ana must demand to all debtors the photocopying machine. If on demand, April becomes insolvent it will become a monetary obligation, Adi and Abet will be liable for P26 000 each. ** Indivisibility refers to the object of the obligation, not to be confused with solidarity because it refers to the tie between the parties. Solidary Obligation y Kinds  Active Solidary among creditors  Passive - Solidary among debtors

y y

y y

 Mixed Solidary on both creditor and debtor It may exist even if debtors and/or creditors are to perform the obligation at different manner, period and condition. EXAMPLE: A solidary creditor cannot assign his right without the consent of the others. Payment must be made to a solidarity creditor who demands it. EXAMPLE: Adi and Abet solidarily owes April and Ana solidary creditors P7 000. ** Ana may demands payment from Adi. If she paid April instead the obligation is not extinguish. ** If Ana demands payment from Adi and Abet paid April, the obligation is also extinguished. Creditor is allowed to choose which offer to accept if two or more solidary debtors offer to pay If one of the solidary debtors is insolvent his share shall be borne by his codebtors.

Divisible and Indivisible Obligations Divisible obligations are capable of partial performance Examples are: y If the obligation involves certain number of days to work y If the obligation involves accomplishment of work by metrical units y Payment by installment y When the object is susceptible of partial performance Indivisible Obligations are not capable of partial performance Examples are: y Obligation to give definite things y Those objects are not susceptible for partial performance y If physically divisible but indivisible according to law y If physically divisible but stipulated as indivisible Obligations with a Penal Clause Penal Clause an accessory attached to an obligation to provide greater liability and insure performance. EXAMPLE: Adi rented 3 VCD at the Video City good for three days, when not returned on time she is to pay P16 per day. o o o Proof of penal clause is not necessary to demand penalty. Penalty maybe reduced by the court if there was partial performance or irregular compliance, penalty is iniquitous or unconscionable even if no performance. If principal obligation is void, penal clause is also void. Whereas, when the penal clause is void it does not carry with it the nullity of the principal obligation.

Extinguishment of Obligations Payment or Performance Payment is an act to extinguish an obligation. It can be done by delivery of money for payment or performance of the obligation. It must be completely paid or fulfilled to consider a valid payment. y For monetary obligation : delivery of money in full It should be in currency stipulate or if not stated the currency which is legal tender of the Philippines. Notes, Bills, Checks and other instruments should be encashed before to produce payment. y For delivery of thing/s : delivery of the thing/s y For obligations to do : performance of the sad obligation y For obligations not to do : non performance of what is forbidden Exceptions for Completeness requirement y Substantial performance of the debtor in good faith allows him to recover as if the obligation was fulfilled less the damage suffered by the creditor. y If the creditor, accepted the payment or performance with its incompleteness or irregularity without any objection, the obligation is deemed fulfilled. o o Payment by a third person shall not be accepted by the creditor unless stipulated. Dation In Payment (dacio en pago) - Property are given as payment to the creditor.

Application of Payment : The assignment which debt to apply payment. The right to choose belong to the debtor. Requisites: (1) There are two or more debts (2)of the same kind when only (3) one debtor and creditor are involve on (4) both debts due and (5) tender of payment is not sufficient to extinguish all obligations. o When debt is with interest, payment must cover first the interest, balance applied to the principal. o If application cannot be interfered from other circumstance, the most onerous debt shall be satisfied first. If debts are due having the same nature and burden, it shall be applied proportionately. Payment by Cession : The transfer of right to the creditor to sell properties (not ownership for it will be dation in payment) and the proceeds will be the payment. Requisites: (1) There are two or more debt having (2) more than one creditor when (3) debtor is completely or partially insolvent but (4) abandonment of properties does not except him from execution of sale. Tender of Payment and Consignation

: Tender of Payment is the act of debtor offering the payment to his creditor. Consignation is depositing the payment to the court with due process when the creditor does not desire to receive it. Requisites (tender of payment): It must be (1) in legal tender or lawful currency (2) with the interest due if applicable, (3) unconditional and (4) obligation is already due. Requisites (consignation): (1) A valid obligation was due but (2) the creditor refuses to accept it without justifiable reason. (3) A previous notice of consignation to persons interested in the fulfillment of obligation, (4) proper consignation and (5) subsequent notice of consignation made to interested parties. o Properly made consignation shall be expensed by the creditor. o Cancellation of the obligation maybe effected by the debtor before acceptance of creditor or juridical declaration. o Consignation is enough to extinguish obligation when: y The creditor is absent or unknown, or does not appear on the place of payment. y Creditor is incapacitated to receive the payment at the time it is due. y When, without just cause, the creditor refuses to give a receipt. y When two or more person claims the same right to collect. y When the title of the obligation has been lost.

A thing is considered loss when it perishes goes out of commerce and disappears in such a way that its existence is unknown or it cannot be recovered. It also includes physical, legal or moral impossibility of performance. Like payment, it also requires total loss, if only partial, the court shall determine the materiality of loss if to be declared total loss. o In obligations to give y If the loss thing is generic, it does not extinguish the obligation because things of genus never perish (genus nunquam perit). However, if its delimited or already set aside the obligation is extinguish. y If the loss thing is specific, the general rule is the obligation will extinguish. However, obligation is not extinguish if the loss is due to debtors fault or liable to fortuitous events due to stipulation, law and nature. o In obligations to do y If the obligation is already impossible to do, legally or physically and without the fault of the debtor, the obligation is extinguish. y When the obligations would be difficult that it was manifestly beyond the contemplation of both parties, the obligation is extinguish. o Loss at the possession of debtor is assumed to be at his fault. o A loss due to a third person, the creditor has the right of action against him. EXAMPLE: Abet is obliged to deliver a 18 flat screen t.v. to Adi. Before delivery, April destroyed the t.v. Here Adi has the right to sue April, not Abet. It is because Abet will unfairly gain at the expense of Adi, since his obligation will be extinguished plus he may ask for damages to April.

oss of the thing due

Condonation or Remission Is like a donation, where the creditor abandons all his rights against a debtor. EXAMPLE: April owes Abet P2 000. When April was to pay Abet, she was told no need to pay for the debt for Abet was condoning it. o Remission and acceptance for immovable property must be in public document. For movable or personal property, value that exceeds P5 000 must be in writing (public or private) and less may be in any form. o When a private document in evidence of a credit was delivered by the creditor it shows an implied remission. However, the debtor and his heirs must prove that it was indeed for a payment. Moreover, if debtor is already found in possession of the private document, it is assumed to be voluntarily delivered by the creditor. o Renunciation of the principal is always followed its accessory but never the accessory to follow the principal. Confusion or Merger of rights of creditor and debtor It happens when the characteristic of a debtor and creditor combined in one person. It must take place between the principal debtor and creditor and benefits its guarantors. But merger in place of guarantors does not release them from the obligation, only the guaranty was extinguish. EXAMPLE: Abet owes P5 000 and gave a promissory note to April, guaranteed by Carol. April endorsed the note to Adi, Adi to Ana, Ana to Ian, Ian to Abet. ** Carol will be released also from her obligation. ** If the note was endorsed to Carol not to Abet, obligation of Abet remains but Carols extinguishes. o Merger in joint obligations does not extinguish the whole obligation, only to the person who experiences it. Compensation There is compensation when two persons become creditor and debtor of each other. Legal Compensation requisites are: y Both are principal debtor and creditor of each other. y Debts consist sum of money, or if not it is of the same kind and quality. y Both debts are due. y Debts are liquidated and demandable. EXAMPLE: Adi owes Abet P4 000. At the same time, Abet owes Adi P4 000. Both debts are due on March 22, 2011. o Kinds of Compensation y According to Effect or Extent  Total obligations are extinguish because they have the same and equal amount.  Partial when a debt is larger than the other.

According to Origin or Cause  Legal take place in the operation of law and need not to be pledge.  Voluntary and Conventional due to agreement or stipulation of the parties.  Judicial effective only by order of court  Facultative one of the party my claim or oppose compensation because some requisites are missing.

Both parties may agree which undue debt to compensate. When both debts are rescissible and voidable, compensation is possible before they are rescind or declared void. o Assignment on Compensation of Debts y When the creditor assigns his credit with the debtors consent, debtor cannot set up compensation through his assignee unless he reserves his right. y When the creditor assigns his credit with knowledge but without consent the debtors consent, debtor can set up compensation only to debts matured before assignment. y When the creditor assigns his credit without consent the debtors consent, debtor can set up compensation to debts maturing prior to his knowledge on assignment. o Compensation arising from depositum and commodatum are not allowed. o o Novation The extinguishment of obligation when the old obligation was substituted by a new one by: (1) Changing their object or principal condition (Real Novation) (2) Substituting the debtor (always with creditors consent) Expromission the third person volunteers to assume the obligation even without the consent or knowledge of debtor. Deligacion the debtor endorsed the third person who assumes the obligation. (3) Subrogating a third person in the rights of the creditor There is Legal Subrogation when  When a creditor pays another creditor who is preferred, even without the knowledge of debtor.  When a third person, not interested in the obligation, pays with the consent of the debtor.  When without the knowledge of the debtor, a person interested pays without prejudice to the effects of confusion as to the latters share. y Express Novation novation is declared in unequivocal terms. y Implied Novation obligations are incompatible with one another. Requisites of Novation y Previous valid obligation y Parties modified and agreed how to extinguish the obligation y Old obligation is extinguished y The creation of a new and valid obligation

o o

If old obligation is void, novation is void or not possible since there is nothing to extinguish. Same if the new obligation is void, novation is also void. If old obligation is subject to suspensive or resolutory condition, the new one shall also have the same.

CONTRACT It is the meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. Elements of Contracts 1. Essential - contract none exists without this elements. Common elements are consent, cause and consent. Moreover, delivery and form may be essential to certain contracts. 2. Natural - presumed to exist in contacts, unless set aside by the parties. Examples are warranty against eviction and hidden defects in contracts of sale. 3. Accidental - may or may not exist, if the parties so stipulated. Examples are terms, condition, and modes. Stages of Contracts 1. Preparation - The bargaining point; preliminary offers are made but no final agreement. (also known as Conception, Generation or Negotiation) 2. Perfection - The meeting of minds; definite subject and valid cause are agreed by both parties. (also known as Birth) 3. Termination The fulfillment of obligation; terms of contracts are fulfilled or performed which extinguishes the contract. (also known as Consummation or Death) EXAMPLE: Today, Adi offers to sell his Laptop with the mouse and charger for P35, 000 to Adi, payments to be deposited on his bank account. Tomorrow, Abet agreed and accepted the offer. Day after tomorrow, Abet delivered the Laptop with the charger and Adi deposited the payment. o Elements: Essential-Laptop, Price, Delivery; Natural-charger; AccidentalPayment to be deposited to Abets account o Stages: Preparation-Today; Perfection-Tomorrow; Termination-Day after tomorrow. Classifications of Contracts According to: 1. Perfection or formation o Consensual perfected by mere consent o Real perfected by delivery o Formal or Solemn perfected when formalities required are met 2. Cause o Onerous exchange of valuable consideration

3.

4.

5.

6.

7.

8.

Gratuitous or Lucrative one party receives no equivalent consideration; cause is liberty of benefactor o Remuneratory cause is benefit or service performed without legal obligation to do so. Independence or Dependence o Principal can stand alone; examples are loan and sales o Accessory existence and validity depends on certain contracts; examples are warranty(principal is Sale) and mortgage(principal is Loan) o Preparatory cannot stand by itself; examples are Contract of Partnership and Contract of Agency Name o Nominate given particular or specific name under the Law o Innominate without any name under the Law. (contratos innominados) y Do ut des I give that you may give y Do ut facias I give that you may do y Facio ut des I do that you may give y Facio ut facias I do that you may do Governed by: (1) stipulation and/or (2) Provisions of the New Civil Code on Obligations and Contracts and/or (3) Rules on most ANALOUGOUS contracts and/or (4) customs of place Risk of fulfillment o Commutative real fulfillment; equivalent values are given by both parties o Aleatory fulfillment depends upon chance; example is insurance contract Time of Performance or Fulfillment o Executed has been performed; fulfilled upon entering the contract o Executory not yet been performed; to be fulfill after entering the contract Parties obligated o Unilateral only one party is bound; such as commodatum and gratuitous mutuum o Bilateral or Synalagmatic both parties are bound to give or to do something Number of persons who participated in the drafting and preparation of the contract o Ordinary both parties participated o Contract of Adhesion only one party drafted; a ready-made contract where the other may accept or reject. o

Principles or Characteristics of Contracts (MACRO) 1. Mutuality o The contracts must bind both parties. o One cannot cancel or revoke the contract without the consent of the other. o In cases suspensive condition, and is potestative on part of debtor, the obligation is void. EXAMPLE: An agreement that Abet will deliver his car to April if he wants.

Performance may be left to a third person, given that (1) it is made known to both contracting parties and (2) it is not inequitable. (the court decides what is equitable under situations)

2. Autonomy (Liberty or Freedom) to stipulate / to contract o Limitations: Not contrary to Law, Moral, Good Customs, Public order and Public Policy Moral and Good Customs - deals with right or wrong, human conscience and decency acknowledge by the society. Public Order - the consideration of public weal, peace, safety and health. Public Policy depends according to the culture of the country. 3. Consensuality o As a general rule, contracts are perfected by mere consent. When there was meeting of minds upon the object and cause. o However, the following requires additional requirements aside from consensuality; o Real Contracts (perfected after delivery); Examples are deposits, pledge, or commodatum, consensual contracts of which when delivery was performed, becomes real contracts. Contract of deposit is given to the creditor, with an obligation of keeping it and returning the same. Contract of Pledge is delivery of personal property as a secure for a debt. o and Formal or Solemn Contracts (perfected after formalities are met) 4. Relativity o Contracts are effective between the parties, their heirs and assigns only. o Heirs are only liable to the extent of what was inherited. o Exceptions; effectiveness to a third person (stipulation pour autri) y It must be in favor of a third person y Acceptance of the third person must be known to both parties EXAMPLE: Abet owes Adi P10, 000 plus 5% interest payable monthly for one year. The interest will be given to April. April must communicate to both parties of the acceptance otherwise she will not benefit. 5. Obligatory Force and Compliance in Good Faith o As an effect of consensuality, both parties are required to fulfill their obligations and must be complied in good faith. Creditors are protected in cases of contracts intend to defraud them. (Refer to Rescissible contracts)

A third person who induces another to violate his contracts shall be liable for damages. No one shall enter into a name of another if unauthorized. (Refer to Unenforceable contracts) Essential Requisites of a Contract Consent meeting of the offer and acceptance o Elements: y There must be two or more parties (plurality) y Both parties must be capacitated ** The following cannot give consent y Unemancipated Minor: Emancipation takes place in consideration of marriage, attainment of age of majority and parental or judicial authority. y Insane or Demented Person However, contracts entered under Lucid Intervals of the above mentioned are valid. y Deaf mutes who does not know how to write. y No vitiation of consent exist o ** Vice of Consent are employed through; (VIMFU) y Violence (physical coercion) - when there is a serious, irresistible force employed. May exist even if employed by a third person. y Intimidation (moral coercion) ** It validates consent when compelled with well grounded fear of an imminent and grave evil. It May exist even if employed by a third person. Factors to consider are: age, sex and condition of the person ** No intimidation exists when it is just and legal. Mistake ** Invalidates consent y If it refers to the substance of the thing. EXAMPLE: Adi bought hens for the purpose poultry rising. Mistake will occur if she was given a rooster, because rooster does not lay egg y Conditions which moved one party or both parties to enter the contract. EXAMPLE: If Adi sold the eggs to Abet from her poultry for cash to urgently pay lease. The document signed showed, Abet would pay installments. Mistake refers to condition. y Refers to identity or qualifications (of one party) which have been principal cause of contract. EXAMPLE: Abet hired Adi to sing on a wedding but Abet soon found out that Adi was in fact a dancer not a singer.

Refers to legal effect of agreement is mutual and frustrates the real purpose of the parties. ** Does not invalidates consent y A simple mistake of account with possible correction. y Party alleging knew the doubt, contingency, risk affecting the object ** If one party was unable to read or didnt understand the language of the contract. The burned of proving it was clearly explained to the former arises and person who alleges must prove the same. y y Fraud Kinds of Fraud y Fraud in the performance of the obligation (was discussed exclusively under obligations) y Fraud in obtaining consent  Causal Fraud (dolo causante) Fraud used to get consent, thus contract is voidable: Requisites: Must be material and Serious; Employed by one of the parties; deliberate intent  Incidental Fraud (dolo incidente) there was a different term agreed upon, thus contract is valid but party employing fraud is liable for damages. Requisites of fraud y Must be serious y Parties must not be in pari delicto (mutual guilt) ** Incidental fraud should not be confused with causal fraud, thus it does not requires annulment. ** It invalidates consent (Causal Fraud) y Active Fraud - The use of insidious words and machinations by one of the parties to induce the other party to enter the contract. EXAMPLE: Adi induced Abet to buy her laptop saying its operating system was Windows 7. However, the laptop was only Windows 2003. Here, contract can be annulled by Abet. y Passive Fraud Failure to disclose facts when there is a duty to reveal them. EXAMPLE: An agent persuaded his manager to sell certain properties to himself at lower prices. The agent didnt tell his manager that a big company was interested on the said property for higher prices. Thus, such act is fraudulent on disclosure. ** When no fraud exists y Usual exaggerations in trade, when the other party had an opportunity to know the facts. y Mere expression of an opinion unless made by an expert and the other party relies on the knowledge of the former.

y y y

Misrepresentation by a third person unless it creates substantial mistake and mutual. Misrepresentation in good faith Simulated Contracts  Absolutely Simulated parties do not intend to be bound at all. Thus, contract is void. EXAMPLE: Abet after his breakup with his last girlfriend was always teased by his friends. He made an agreement with Danna, his childhood friend show up and pretends to be his girlfriend. Such agreement is absolutely simulated since they are only to pretend to be lovers.  Relatively Simulated Parties intended to bound but obscure their real agreement provided it does not prejudice a third person and is not contrary to law, morals, good customs, public order or public policy. EXAMPLE: Adi signed a deed of sale to Abet although she did not actually receive anything for exchange.

Undue Influence ** It invalidates consent when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice. EXAMPLE: Abet, a president of the organization, regularly confides Adi a member of the organization to sell some of her properties for the organizational fund. Factors to consider are: confidential, family, spiritual and other relations of the parties; mental weakness; ignorance or financial distress of the person alleged to have been unduly influenced.

y o

No conflict between expressly declared and really intended ** Contracts entered into state of drunkenness or during hypnotic spells are voidable. Consent here is not given freely and intelligently. Intent was declared properly (express or implied)

Rules on Offers y Offer must be certain y It becomes ineffective upon death, civil interdiction, insanity or insolvency of either party before acceptance. y Other instance when offer becomes ineffective: express or implied rejection; a counter-offer; before acceptance object becomes illegal or impossible; period given to accept lapsed; offer is revoked in due time. y Offer with a period may be withdrawn anytime before acceptance by communication ** Offer with Option Money is not withdraw able since it is an option with consideration. The period must lapse before withdrawal.

Nature of Advertisements: Business advertisements are merely invitations to make an offer. Advertisements for bidders are merely invitation to make proposals.

Rules on Acceptance y Acceptance must be unqualified and absolute; thus if acceptance is qualified it institutes a counter-offer, and may be accepted or rejected. y If the offer have affixed time, place and manner of acceptance, all must be complied with, otherwise no meeting of mind. y Acceptance made be letter or telegram must be binding at the time it came to offerors knowledge. ** Crossing of letters: happens when one party of the same date receives an offer to sell as he sent an offer to buy. EXAMPLE: Abet wrote a letter buying Adis laptop for P25, 000 at the same time received a letter from Adi selling her laptop for P25, 000. y Acceptance may be express or implied. y An offer made through an agent must be binding at the time it is communicated to him. Because agent are only extension of the principal.

Object o Requisites:  Must be within the commerce of man ** Future Inheritance as an object is void except in cases of marriage settlements and partition of inter vivos by deceased. ** Future things under a contract of sale having potential existence are possible. However, if it did not materialize sale is void. ** Sale of hope (emptio spei) is void.  Must be transmissible  Must not be contrary to law, morals, good customs, public policy and public order.  Must be possible  Must be determinate as to its kind or determinable without the need of a new contract or agreement. EXAMPLE: Abet promised to gave his (____________) to April. Object is unknown. o Human Internal Organs can be the object only for voluntary donors but not a minor for the purpose of transplant subject to World Health Organization. o Sale of body parts of a deceased is valid for studying medical purposes. Cause Essential reason why parties enters into a contract o Onerous exchange of valuable consideration EXAMPLE: Adi bought the Lamborghini of Abet for 5 million pesos to boast her luxury. Abet: Cause: payment of 5 million pesos, Object: Lamborghini Adi: Cause: delivery of Lamborghini, Object: 5 million pesos, Motive: to boast luxury

Gratuitous or Lucrative one party receives no equivalent consideration; cause is liberty of benefactor (ex. Pure Donation or Commodatum) o Remuneratory cause is benefit or service performed without legal obligation to do so. o Requisite: y Must exist ** Presumed to exist even if not stated unless debtor proves the contrary. y Must be lawful ** Unlawful cause produces no effect, like the object it must not be contrary to law, morals, good customs, public policy and public order. y Must be true ** False cause in a contract makes it void unless proved to be true and lawful. o Cause Essential Reason Void if illegal Always known to both parties Motive Private, Secret or Particular Reason Does not affect validity of contract illegal or not May not be known to the other party

o Lesion does not invalidate the contract except in cases with fraud, mistake, undue influence or provided by law. Forms of Contracts Form is important for the following reasons: o Validity some contracts must be in the form required by law to be valid. CONTRACT FORMALITY REQUIRED Donation of Real Property Public Instrument Donation of Personal Property Must be in writing exceeding P5000.00 Stipulation that interest should be paid Must be in writing on loans Agency to sell land Must be in writing A signed inventory must be attached to Partnership where real property is the public instrument that evidence the contributed partnership contracts An agreement limiting the diligence of Must be in writing common carriers over goods to less than extraordinary diligence The principal amount and the interest Contract of Antichresis to be paid must be in writing o o Enforceability (refers to Statute of Fraud under Unenforceable Contracts) Convenience

A contract that is valid and enforceable but certain form is required by the law; both parties may compel each other to observe the form convenience. Thus, necessity for public document is only for convenience not for validity and enforceability. The following are required to appear in Public Document: y Acts and Contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sale of real property over immovable property. y The cession, repudiation, or renunciation of hereditary rights or of those conjugal partnership of gains y The power to administer property, or any other power which has for its object an act appearing or which should appear in public document, or should prejudice a third person. y The cession of actions or rights proceeding from an act appearing in public document y Any writing, public or private Reformation of Contracts Remedy in order to show real or true intention of the parties when some error or mistake has been committed. Requisites of Reformation o There must be meeting of the minds between parties o Instrument does not shows true intention of the parties o Failure is due to mistake, fraud, inequitable conduct, or accident o There must be clear and evidencing proof. EXAMPLE: Adi sold her laptop to April who agreed to pay P25, 000 on credit. However, the contract signed showed the amount is to be paid in cash error committed by Adi. ** April has the right to ask reformation, including her heirs and assigns. Whereas, mistake is mutual either party may ask including their heirs and assigns. Thus, Adi cannot ask for reformation so as to her heirs and assigns. ** If April paid in cash, she is showing an enforcement of the instrument and cannot ask for reformation. Cases of contracts to be reformed o o o When mistake is mutual this caused not to show the real agreement. When mistake is committed by one of the party and the other act fraudulently or inequitably caused not to show the real agreement. When one party was mistaken and the other was in good faith caused not to show the real agreement, only the party in good faith may ask reformation.

When the person drafting the contracts or the clerk or typist was ignorant, lack of skill, negligent or in bad faith caused not to show the real agreement, the court may order reformation. If both parties upon the mortgage or pledge of real or personal property, but the instrument states that the property was absolutely sold or with right of purchase.

Reformation is not applicable on the following cases o Simple donation inter vivos without condition Donations are essentially gratuitous, however if conditionally reformations is applicable as to the true condition of the donor. Wills Wills are personal act and free. However, when the testator died the errors or imperfections may be corrected but not the manner of disposal. When real agreement is void, because nothing is to be reformed.

Note: Fraud, Mistake, Inequitable Conduct or Accident committed is different in case of Reformation and Annulment. In reformation, there was a meeting of mind but didnt show tru intention because of the stated reasons above. While in annulment, those are reasons to prevent meeting of minds or consent was vitiated which renders the contract voidable. Reformation must be filed within 10 years from execution of the contract. Interpretation of Contracts Contracts must be interpreted not to replace the existing ones nor is creating new ones but the law clarifying what is the true intention of both parties. Rules concerning interpretation of contracts o o If terms are clear and unambiguous, the literal meaning of terms shall take effect. If words used are obviously contrary to the intent, the latter shall prevail. In judging the intention, principal considerations are the contemporaneous and subsequent acts of both parties. However, general terms of a contract may be, they shall not be understood to comprehend things that are distinct and cases that are different from those upon which parties intended to agree. EXAMPLE: If all books included in the study room are for sale, such books which do not belong to the owner of the study room are not included. If some stipulation of any contract should admit of several meanings, it shall be understood as bearing that import which is most adequate to render it effectual. The principal contracts and accessory contract should be interpreted together so as to harmonize them. Words have different meaning shall be understood which is most related to the nature and object of the contract.

o o o

o o

When words are omitted usage and customs shall be used to supply the omission. Interpretation of obscure words should not favor a party who caused obscurity.

Settling Doubts o Doubts as to the principal object; the contract is void. EXAMPLE: Abet promised to gave his (____________) to April. The object is unknown; hence no meeting of minds occurred. Doubts as to incidental circumstances y If Gratuitous; apply rule of least transmission of rights and interest EXAMPLE: Instances where an object was left undetermined whether donated or merely lent (commodatum), it would be interpreted that it was commodatum because lesser rights of ownership. y If Onerous; apply rule of greatest reciprocity of interest. EXAMPLE: In a contract of sale on credit with 5% interest, undetermined payable with in 3 or 6 years, it would be interpreted at 6 years because the creditor will earn more interest.

Defective Contracts Rescissible Lesion; defraud of creditors; payment made in state of insolvency Valid until rescind Voidable One party is incapable of giving consent or vitiated consent Valid and enforceable until annulled; can be ratified Unenforceable Lack of authority, form and both parties are incapable of giving consent Not enforceable unless ratified

Cause of defect

Effect

Rescissible Contracts Rescission is the remedy allowed to protect one party or third persons in cases of damages and injury. It is only up to what is necessary to recover. EXAMPLE: If a debtor owes his creditor P 80, 000 and he sold his properties worth P 100, 000 on third person in bad faith, came due date he is insolvent and in any manner cannot pay, rescission is only up to P 80, 000. Requisites of Rescission: o o Presence of a rescissible contract Applicable only when the debtor in any manner cannot collect the debt because rescission in only subsidiary.

Mutual Restitution; parties must be able to return the object with its fruits and price with its interest if granted for rescission. ** If the contract requires delivery of property and action for to rescind for nondelivery was brought, no rescission shall take place. This is because the right takes place only when the delivery of thing was made. Moreover, the fruits of the property need not to be given. The object must not be in legal possession of third person who is in good faith. (example of legal possession: object is registered in the Registry of Property) Case a: Object not in legal possession and bad faith: rescission is proper Case b: Object in legal possession and good faith: no rescission Remedy: demand indemnity for damages from person who cause the lost Case c: Object in legal possession and bad faith: rescission is proper Four years of prescription from the time; Wards became capacitated Absentees domicile was known Discovery of fraud In certain contracts of sale;

The following are rescissible contracts: 1. Those entered into by guardians whenever the ward whom they represent suffer lesion by more than one-fourth (1/4) of the value of the things which are object thereof; 2. Those agreed upon in representation of absentees, if the latter suffered the lesion stated in the preceding number; EXAMPLE: Abet was appointed by the court as a guardian of Adi. Abet sold Adis laptop worth P35, 000 for P25, 000. Sale is rescissible because lesion of P10, 000 was more than of the original price which is P8, 750. ** If on the preceding example the guardian was unauthorized, sale becomes unenforceable. Case a. if act of ownership (example: sale); requires courts approval with lesion or not, otherwise unenforceable. The guardian/representative will be unauthorized who acted beyond his power will make the contract unenforceable. Case b. if act of administration (example: buying materials for repair) with courts approval; valid regardless of lesion Case c. if act of administration without courts approval; rescissible, if lesion is more than one-fourth. 3. Those undertaken in fraud of creditors when the latter cannot in any manner collect his claims due to them; accion pauliana (action to rescind in cases of

fraud) entering the contracts, alienation of property, and no other means of collecting debt. EXAMPLE: Adi owes Abet P 350, 000 due on February 14, 2011. Adi owns a land worth the same and sold the land to April, knowing she cannot pay her debt. Came due date, she is already insolvent. Abet can ask rescission of the sale between Adi and April, if the third person is in bad faith, else not rescissible. ** If on due date, somebody lent Adi enough money, it is not rescissible because Abet can claim the debt. ** If Adi has 2 or more land more than enough with the value of debt, sale is not also rescissible unless a writ of attachment was issued to the properties. 4. Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of litigants or of competent judicial authority; Plaintiff must register his claim for protection: real property-notice of lis pendens: personal property-writ of preliminary attachment. EXAMPLE: Adi filed a case for the recovery of a laptop to Abet. Abet sold the laptop, without the knowledge of the plaintiff and courts approval, to April, who is in bad faith, sale is rescissible. ** If the court decides in favor of Abet, and he sold the object after decision of court, sale is not rescissible. 5. All other contracts specially declared by the law to be subject to rescission. 6. Payment made in state of insolvency whose debt was not yet due. Who may rescind a contract? o o The injured party or defrauded creditors His heirs and successors

Alienations to defraud creditors o Gratuitous Contracts presumed when the debtor did not reserve any property to pay debts before donation. ** This presumption may be rebutted by adequate proof. ** If donation was made before incurrence of debt even if debtor becomes insolvent, donation is not rescissible. Onerous Contracts presumed when judgment was rendered even not yet final continuous to sell the property.

EXAMPLE: April filed a case to Abet, her debtor. After winning the case, Abet sold his property to Adi. Sale is presumed to be fraudulent. ** If on the given example, another creditor of Abet interfered, but it was April who won the judgment, it becomes immaterial. Because it is also stated that judgment need not refer to party seeking rescission. presumed when a writ of attachment was issued and continues to sell the property. Writ of Attachment need not refer to property alienated. EXAMPLE: Abet owns a Swift, Lancer and an Innova. His Lancer was attached by the court and sold his Swift to Adi. April, her creditor now says that the sale was fraudulent. Though the Lancer was the property attached by court, sale is still fraudulent because the writ of attachment need not refer to property alienated. Alienations in bad faith; he shall return the things he acquired, if impossible to return he is liable for damages even on fortuitous events. Subsequent transfer was made; first acquirer shall be liable first and so on, provided all are in bad faith. Alienations in good faith: he is not liable thus rescission is not applicable. Subsequent transfer was made; next transferee whether in good faith or bad faith is immaterial.

Badges of Fraud This are acts or instances believed are intended to defraud creditors. o o o o o o o The fact that the consideration of conveyance is fictitious or inadequate A transfer made by debtor after suit has been begun and while it is pending against him A sake upon credit by an insolvent debtor The transfer of all or nearly all of his properties by a debtor, especially when he is insolvent or greatly embarrassed financially Evidence of a large indebtedness or insolvency The fact that a transfer is made between a father and son The failure of a vendee to take exclusive possession of all the property

Notes: The said rescission does not refer rescission in Art. 1191. Art. 1191 refers to rescission when defected by non-compliance of an obligation. Moreover, when both parties agreed to cancel the contract, it refers to mutual withdrawal not rescission. Voidable Contracts The following are voidable contracts;

o o o

One of the parties is incapable to give consent y Unemancipated Minors y Insane or Demented y Deaf-mute who does not know how to write State of Drunkenness Consent given during hypnotic spell Vitiated Consent (VIMFU) y Violence y Intimidation y Mistake y Fraud y Undue Influence

EXAMPLE-Incapacitated: On January 29, 2011 Adis birthday, Abet sold his Mercedes Benz to Adi who was 16 years old that time worth three million pesos payable P300, 000 annually every January 29 starting 2011. Concept of Annulment o Persons who may ask for annulment Generally the victim, principally or subsidiary may ask for annulment not the guilty person or his successor. y The guardian of an incapacitated or the capacitated after attaining capacity y The party whose consent is vitiated ** Creditors of the victim cannot annul the contract or any third person who is not bound principally or subsidiary. ** One of the parties is capacitated knowing the incapacity of the other cannot ask for annulment. Same goes with the one who induced vice of consent. ** Right to annul is transmissible to the heirs of who has the right. ** If a minor misrepresents himself, he cannot ask for annulment for he is guilty of estoppel. Prescriptive Period is four years, action must be brought otherwise contract cannot be annulled. y Four years from:  Time became capacitated or guardianship ceases.  Time when violence, intimidation, and undue influence ceases.  Time of discovering fraud or mistake  Mutual Restitution parties must restore (the thing with fruits and the price with interest) what they receive if the contract is executed. If the contract is executory, they are excuse from restoration. ** In personal obligations, the value of service shall be the basis for damages.

** If defect is incapacity, the incapacitated is not obliged for restitution ** If one of the parties cannot restore, the other cannot be compelled to comply with restoration except in so far he has been benefited. o Loss of the object for annulment y If loss of the thing to be returned by the plaintiff At fault action for annulment extinguished Fortuitous event annulment is still possible. y If loss of the thing to be returned by the defendant At fault return the fruits, the value of thing lost and interest form time of loss Fortuitous event return fruits and value of thing lost

EXAMPLE (Annulment-Incapacitated): On January 29, 2011 Adis birthday, Abet sold his Mercedes Benz to Adi who was 16 years old that time worth three million pesos payable P300, 000 annually every January 29 starting 2011. o The guardian of Adi can ask for annulment. o Adi herself may ask for annulment four years from January 29, 2012 after attaining capacity. o If the contract was annulled between years 2012 to 2016, Adi should return the car with its accessories and Abet must return the amount receive with interest. Concept of Ratification Requisites: y Contract is voidable y Reason or Cause for ratification must be known y Cause not must not exist or continue to exist at time of ratification y Express or Implied waiver to annul y Person ratifying must be the injured party y o It extinguishes the right to annul and cleanses the defect from the very beginning. o Express or Implied Ratification y Express: Oral or Written y Implied/Tacit: acts of waiving o Who may ratify? Generally the victim or injured party: y The guardian of an incapacitated or the capacitated after attaining capacity y The party whose consent is vitiated ** The consent of the guilty party is not needed for he may find an excuse in getting out of the contract by refusing to ratify. o

EXAMPLE (Ratification-Incapacitated): On January 29, 2011 Adis birthday, Abet sold his Mercedes Benz to Adi who was 16 years old that time worth three million pesos payable P300, 000 annually every January 29 starting 2011. o The guardian of Adi may ask ratification. o Adi herself may ask for ratification four years from January 29, 2012 after attaining capacity. o If the contract was ratified between years 2012 to 2016 it would be as if there was no defect on the contract entered last January 29, 2011. o If on 2012 Adi continuous to pay the remaining installment, she implied a ratification of a contract. Unenforceable Contracts The following are unenforceable contract: o Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers EXAMPLE: April sold the laptop of her sister Adi worth P 38, 000 for cash to Abet. y If April sold the laptop without the knowledge or authority of Adi sale is unenforceable. y If April was authorized but sold the laptop for credit, sale is rescissible. y If April sold the laptop without the knowledge or authority of Adi but April gave the cash to Adi who accepted, it implies ratification thus sale is enforceable. y Assuming that April a minor, was a daughter of Adi but authorized to sell the laptop, the sale was enforceable because April would act as an agent or an extension of Adi given authority.

Those who does not comply in Statute of Fraud Statute of Fraud a law requiring certain contracts to be in writing. It applies only to executory contracts. Reasons: Memory is sometimes unreliable and oral agreement may sometimes result injustice. y An agreement that by its terms is not to be performed within a year from the making thereof; EXAMPLE: On September 26, 2010 Adi and April entered into a contract where Adi will deliver her laptop and April will pay on November 26, 2011. Contracts will be unenforceable on November 26, 2011 if orally entered into. o y A special promise to answer for the debt, default, o miscarriage of another;

EXAMPLE: April borrowed money from Adi with Abet who said I will pay you if she does not. Adi cannot sue Abet for it was orally done. ** Oral special promise is enforceable on above example if April guarantees to pay her debt. y An arrangement made in consideration of marriage, other than mutual promise to marry; EXAMPLE: Mom had a daughter April and Dad had a son JC. On December 25, 2010 four of them agreed that JC will marry April on November 26, 2011. The agreement was oral. ** If JC had spent necessary wedding preparations and April refuse to marry, JC may claim for damages even if contract was oral because of mutual promise but cannot compel April to marry him. ** Mom and Dad must not interfere since they are not the one who mutually promises to marry each other, however they should make the contract in writing because it was in consideration of marriage; however on the above example marriage is still unenforceable. An agreement for sale of goods, chattels or things in action, at a price not less than P500.00 EXAMPLE: Abet orally sold his cell phone worth P2, 500 to Adi. The agreement was Abet will deliver the cell phone tomorrow and Adi will pay it. The sale is unenforceable unless made in writing because it exceeds P500.00. An agreement of leasing for a longer period than one year or for the sale of a real property or of an interest therein EXAMPLE: Abet is a lessee of a farm at Quezon City. ** If Abet is only leasing for 1 to 12 months, the contract may be oral since it does not exceed the span of 1 year. ** If the object is a personal property, lease is enforceable regardless of lease period. ** If the above example is a sale of farm between Abet and the owner, it must be in writing regardless of price. A representation of a credit of a third person EXAMPLE: April wants to buy Abets Mazda3 in credit. When Adi was asked by Abet, she told him that April was able to pay her previous debts and owns lots of property. Thus, Abet sold the car on credit. If Adis representation was false, Abet cannot ask Adi for damages since it was not in writing.

Where both parties are incapable of giving consent

Minors: If one is emancipated contract is voidable, if both emancipated contract is valid y Insane or Demented: If one is under lucid interval contract is voidable, if both under lucid interval contract is valid. y Deaf-mute who does not know how to write Ratification of one party or guardian makes the contract voidable. Ratification of both parties the contract will be valid from inception. y Note: Unenforceable contracts cannot be assailed by third persons. VOID/INEXISTENT CONTRACTS Void Contracts refers to 1, 3, 4, 5, 6, and 7 Inexistent Contracts refers to 2 and 3 o (1) Those cause, object, or purpose is contrary to law, morals, good customs, public order or public policy; o (2) Those which are absolutely simulated or fictitious; o (3) Those whose cause or object did not exist at the time of the transaction; However, future things could still be object of contract. ** If the future thing came into existence, contract will retroact and becomes valid. ** If the future thing did not come into existence, contract is void. o (4) Those whose object is outside the commerce of men; o (5) Those which contemplate an impossible service; o (6) Those where intention of both parties relative to the principal object of the contract cannot be ascertained o (7) Those expressly prohibited or declared void by law. Kind of illegal contracts o With Criminal Offenses y Both parties are guilty (in pari delicto = in equal guilt) Effects of in pari delicto; both parties have no action against each other; both shall be prosecuted. y Only one party is guilty or one is less guilty Effects: the guilty party will be prosecuted and the innocent party has the right to claim what he has given and cannot be compelled to comply with his promise. Without Criminal Offenses y Both parties are guilty: both parties cannot compel performance and recover what was given by virtue of the contract

Only one party is guilty or one is less guilty: the guilty party cannot recover what he has given and cannot ask for performance, the other can recover and is not required to comply with the obligation.

Cases of recovery y y The debtor may recover interest paid in excess of interest allowed by the usury law with the interest from date of payment. Recovery of what has been paid or delivered in pari delicto if the purpose has not yet been accomplish or if damage has not yet cause any person. EXAMPLE: April paid Abet to kill Adi. ** Before Abet could kill Adi, April renounce the contract and recover upon the discretion of the court what she paid. ** If Adi was already killed then April renounced, the act is invalid and they will both guilty. Recovery of what has been paid or delivered if one of the parties entered into illegal contract is incapacitated if the interest of justice so demands. ** If on the preceding example, April was a minor he may recover also. But if the act was already executed Abet will be prosecuted and April a minor is not liable. Recovery of what has been paid or delivered when contracts are not forbidden because of public interest and merely prohibited. Recovery of amount paid in excess of the price fixed by law for any article or commodity. Demand additional payment if a laborer worked longer than maximum numbers fixed or authorized by law. A laborer may recover the deficiency where he accepts a wage lower than minimum wage set by law.

y y y y

Illegal divisible and indivisible y If the contract is indivisible, it is void. y If the contract is divisible, the legal terms may be enforced and the illegal terms are void. Note: We declare contract for purpose of convenience and avoid taking the law in our own hands, and action of declaration is imprescriptible. Defense of illegality cannot be waived and available only to persons directly affected. Moreover, another contract entered as a result of a previous void contract is also void. EXAMPLE: Abet will pay Adi P500, 000 to kill April. After April was killed, Abet instead will give his only car to Adi as payment. The second contract is void.

GLOSSARY y y y y y y Abscond to escape Absentee - a person who disappears from his domicile, his whereabouts are unknown and without leaving an agent to administer his property. Alienation - transfer of property or title Breach non compliance; non fulfillment Condition A provision in a written instrument which is to take effect upon the occurrence of an uncertain contingency. Commodatum Contract of loan; unilateral obligation to deliver something not consumable so the latter may use the same at a certain period of time and return it. Essentially, gratuitous. Day certain Sure to come but unknown when Defendant tha party against which action is brought Domicile residency Exaction Unauthorized demanding of fees or taxes by an officer or one impersonating Fraudulent deceitful; engaging in fraud Gestor - Agent Heirs one who inherits property Inequitable unjust; unfair Lesion inadequacy/insufficiency of cause Lucid Intervals temporary sanity of an insane person Mutuum Contract of loan; unilateral obligation to deliver money or other consumable thing upon condition so the same kind and quality shall be paid Plaintiff the party who brought the action to the court Public Weal The welfare of the community Remunerate synonyms. pay, reward, compensate, reimburse

y y y y y y y y y y y y y y

REFERENCES y y y y y y Suarez, Carlos B. & Alexander Q. 2006.The Law on Obligations and Contracts. GIC ENTERPRISES & CO., INC. Austria, Salvador E. and Timoteo B. Aquino. 2005. Fundamentals of Obligations and Contracts. CENTRAL BOOK SUPPLY, INC. Soriano, Fidelito R. 2011. Notes in Business Law. GIC ENTERPRISES & CO., INC. Paras, Edgardo C. . Civi Code of the Philippines.vol.4 book 4. Legal Dictionary. 1968. Ottenheimer Publishers, Inc. http://www.thefreedictionary.com/