-1-
TITLE I - OBLIGATIONS CHAPTER 1 – GENERAL PROVISIONS Obligation: Requisites 1. Passive Subject – debtor/obligor who is bound to the fulfilment of the obligation 2. Active Subject – creditor/obligee who is entitled to demand the fulfilment of the obligation (natural/juridical persons) 3. Prestation/Object – conduct required to be observed by the debtor 4. Vinculuum Juris – juridical/legal tie w/c binds or connects the parties to the obligation; enforceability of the obligation Object/Prestation: Kinds 1. to give – delivery of a movable/immovable thing 2. to do – work/service whether physical or mental 3. not to do – abstaining from some act Object/Prestation: Elements 1. possible 2. determinate/determinable 3. susceptible of pecuniary value 4. legal/licit CIVIL OBLIGATIONS Civil obligations are those which give a right of action to compel their performance
binding force from positive law can be enforced by court action or the coercive power of public authority
NATURAL OBLIGATIONS natural obligations are those which cannot be enforced by court action but which are binding on the party who makes them, in conscience and according to equity & natural justice equity and natural justice cannot be compelled by court action but depends exclusively upon the good conscience of the debtor
Legal Wrong: Elements 1. legal right in favour of the plaintiff 2. correlative legal obligation on the part of the defendant 3. an act or omission by the defendant in violation of said right w/ resulting damage to the plaintiff
Quasi Contracts: Elements 1. lawful 2. voluntary 3. unilateral Independent Civil Actions 1. obligations not arising from the act/omission claimed to be criminal 2. violations of constitutional rights & liberties of individuals 3. defamation, fraud or physical injuries 4. refusal/failure of members of a local police force to render protection to life/property Civil Liability: Scope 1. restitution 2. reparation for the damage caused 3. indemnification Quasi Delict: Requisites 1. act/omission 2. fault/negligence 3. damage caused 4. direct relation of cause & effect between the act or omission and the damage 5. no pre-existing contractual relation bet. the parties Test of Negligence 1. a duty on the part of the defendant to protect the plaintiff from the injury of w/c the latter complains 2. a failure to perform that duty 3. an injury to the plaintiff through such failure Negligence: Kinds 1. culpa aquilana – negligence as a source of obligation 2. culpa contractual – negligence in the performance of a contract 3. culpa criminal – negligence resulting in the commission of a crime QUASI-DELICT The obligation arises only when there is a breach It is the breach itself w/c gives
CONTRACT There is already an obligation w/c exists prior to or even w/o a breach The breach of the contract is
-2-
DETERMINATE/SPECIFIC - particularly designated - physically segregated fr. others of the same class - individualized - can be identified or distinguished from others of its kind - debtor cannot substitute it w/ another although it is of the same kind & quality w/o the consent of the creditor
INDETERMINATE/GENERIC - refers only to a kind class/genus to w/c it pertains - cannot be pointed w particularity - the object is determinable, but the moment it is delivered, it becomes determinate - debtor can give anything of the same class of the same kind/quality *Limited Generic – when the generic objects are confined to a particular class
Duties of Debtor in Obligation to Give a Determinate Thing 1. Preserve the thing – diligence of a good father of a family 2. deliver the thing itself 3. deliver the fruits of the things 4. deliver accessions and accessories 5. answer for damages in case of non-fulfilllment/breach Duties of Debtor in Obligation to Give a Generic Thing 1. deliver the thing w/c is of the quality intended by the parties 2. to be liable for damages in case of fraud, negligence, delay, or contravention of the tenor the obligation 3. in case of fortuitous event, debtor is still liable Fruits: Kinds 1. natural fruits – spontaneous products of the soil & the young & other products of animals 2. industrial fruits – produced by lands of any kind through cultivation of labor 3. civil fruits – derived by virtue or juridical relation PERSONAL RIGHT Right/power of a person to demand from another the fulfilment of the
latter’s obligation Definite active subject & definite passive subject Binding against a particular person
REAL RIGHT Right/interest of a person over a specific thing w/o a definite passive subject against whom the right may be enforced Definite active subject but no definite passive subject Binding against the whole world
Liability in case of Breach 1. in good faith – liable for necessary/normal damages 2. in bad faith – liable for all kinds of damages, including nominal, moral & exemplary Exemption from Liability: Kinds 1. a party to a contract is relieved from the effects effects of his fault or negligence by a 3 rd person (e.g. insurance) 2. one party to a contract renounces in advance the right to enforce liability arising from the fault/negligence of others Damages Moral Exemplary Nominal Temperate Actual Liquidated & attorney fees INCIDENTAL FRAUD (ART. 1171) Malice Subsequent fraud Fraud committed in the performance of an obligation already existing evades the normal fulfilment of an obligation
Does not vitiate consent Obligation/cont ract is valid Creditor has a right to damages because of breach SIMPLE NEGLIGENCE Lack of due diligence Waiver of future simple negligence is allowed FRAUD Deliberate intention damage or injury
to
CAUSAL FRAUD (ART. 1338) Deceit Antecedent Fraud Fraud employed in the execution of a contract uses insidious words or machinations to induce another to enter a contract, w/o them, he would have agreed Vitiates consent Contract is voidable Creditor may annul the obligation GROSS NEGLIGENCE So reckless as to amount to fraud Waiver of future gross negligence is void, as it is tantamount to waiving future fraud
cause
NEGLIGENCE No such intention
-3-
GR: contributory negligence of a creditor reduces/mitigates the damages w/c he can recover E: if the negligent act/omission of the creditor is the proximate cause of the event w/c led to the damage/injury complained of, the creditor cannot recover damages Delay: Kinds 1. Ordinary delay – failure to perform an obligation on time 2. Legal Delay/Default – failure to perform an obligation on time constitutes a breach of the obligation Default: 1. 2. 3.
Kinds Mora Solvendi – delay on the part of the debtor Mora Accipiendi – delay on the part of the creditor Compensatio Morae – delay of obligors in obligations
reciprocal
Mora Solvendi: Requisites 1. the obligation is due, demandable & liquidated 2. failure of the debtor to perform his positive obligation on the time agreed upon through his fault/negligence 3. creditor makes a judicial/extra-judicial demand upon the debtor to comply w/his obligation 4. failure to comply w/ demand Mora Solvendi: Effects 1. debtor guilty of breach 2. debtor is liable to the creditor for interest/damages 3. Fortuitous event a. Determinate thing – debtor still liable; but if the debtor can prove that the loss would have resulted just the same even if he had not been in default, the court may equitably mitigate/reduce the damages b. Indeterminate thing – debtor is not relieved from liability for loss & can still be compelled to deliver a thing of the same kind GR: Demand is necessary. No demand, no delay. Exceptions: 1. when the obligation so provides 2. when the law so provides 3. when the nature & circumstances of the obligation provides; designation of time was the controlling motive 4. demand would be useless, as when the obligor has rendered
Cessation of the Effects of Mora 1. renunciation by the creditor – express/implied 2. prescription FORTUITOUS EVENT Acts of man Independent of the will of the obligor but not of other human wills e.g. war, fire, robbery, murder
FORCE MAJEURE Acts of God Independent of the will of every man e.g. earthquake, flood, lightning
Fortuitous Event: Kinds 1. ordinary – events w/c are common & w/c the contracting parties could reasonably foresee 2. extraordinary – uncommon & w/c the parties could not reasonably foresee Fortuitous Event: Requisites 1. event must be independent of the human will or at least of the will of the debtor 2. even could not be foreseen, if foreseen, inevitable 3. event must be of such character as to render it impossible for the debtor to comply with his obligation in a normal manner 4. debtor must be free from any participation in the aggravation of the injury to the creditor GR: a person is not liable for loss or damage caused to another resulting from a fortuitous event Exceptions: 1. Expressly specified by law a. Debtor is guilty of fraud, negligence, delay or contravention of the tenor of the obligation b. Debtor has promised to deliver the same thing to 2 or more persons who do not have the same interests c. Obligation to deliver a specific thing arises from a crime d. The thing to be delivered is generic 2. declared by stipulation 3. nature of the obligation requires the assumption of risk Simple Loan/Mutuum: a contract whereby one of the parties delivers to another, money or other consumable thing, upon the condition that the same amount of the same kind & quality shall be paid Interests: income produced by money in relation to the amount &
-4-
Disputable Presumptions 1. Interest bearing debt – presumption that interest has been paid if the principal has been received w/o reservation re: interest 2. Debt payable in instalment – presumption that earlier instalments have been paid if the later instalment has been received w/o reservation re: the previous instalment When the Presumption Does not Apply 1. w/ reservation as to the interest 2. receipt w/o indication of particular instalment paid 3. payment of taxes 4. non-payment has been proven Creditor’s Remedies for Satisfaction of their Claims 1. Levy & execution of debtor’s non-exempt property 2. Accion subragatoria 3. Accion pauliana 4. Accion directa Accion Subragatoria: the action w/c the creditor may exercise in the place of his negligent debtor in order to preserve/recover for the patrimony of the debtor the product of such action & then obtain therefrom the satisfaction of his own c redit; the debtor of my debtor is my debtor Accion Subragatoria: Requisites 1. Debtor is indebted to the creditor 2. Debt is due & demandable 3. Failure of debtor to collect his own debt from a 3 rd person either through malice or negligence 4. creditor must be prejudiced by the inaction/failure of the debtor to proceed against the 3 rd person 5. creditor must have pursued 1st or exhausted all the properties 6. 7.
of the debtor w/ aren’t exempt from execution debtor’s assets are insufficient to satisfy his claims right of account is not purely personal
CHAPTER 3 – DIFFERENT KINDS OF OBLIGATIONS Different Kinds of Obligations 1. According to Demandability a. Pure b. Conditional c. w/ a term 2. According to Plurality of Object a. Simple b. Multiple i. Alternative ii. facultative 3. According to Plurality of Subjects a. Single b. Multiple i. Joint ii. Solidary 4. According to Performance a. Divisible b. Indivisible 5. According to Sanction for Breach a. No penal Clause b. w/ penal clause Section 1
Pure Obligation: has neither a condition nor a term attached to it; it is subject to no contingency Obligations Demandable at Once 1. pure 2. subject to a resolutory condition 3. subject to a resolutory period Condition: Characteristics 1. Future & Uncertain 2. Past but U nknown
Accion Pauliana: right of creditors to rescind alienations by debtor w/c are prejudicial to them to the extent of the prejudice Accion Pauliana: Requisites 1. credit in favour of the plaintiff 2. debtor has performed an act subsequent to the contact,
Pure & Conditional Obligations
–
Condition fulfilled
KINDS OF CONDITION SUSPENSIVE RESOLUTORY Obligation arises Obligation extinguished
-5-
Preservation of Creditor’s Rights 1. To prevent the loss or deterioration of the things which are the object of the obligations by enjoining or restraining acts of alienation or destruction by the debtor himself or by third persons 2. To prevent concealment of the debtors properties which constitute the guarantee in case of non performance of the obligation 3. To demand security if the debtor becomes insolvent 4. To compel the acknowledgement of the debtors signature on a private document or the execution of the proper public documents for registration so as to affect third persons 5. To register the deeds of sale or mortgages evidencing the contract 6. To set aside fraudulent alienations made by the debtor 7. To interrupt the period of prescription, by actions against adverse possessors of the things which are the objects of the obligation Resolutory Condition: Effects 1. Obligation to give – mutual restitution (includes fruits); return to status quo; return to each other what they received 2. Obligation to do/not to do – discretion of the courts Obligation: Kinds Accdg. to Persons Obliged 1. Unilateral – only 1 party is obliged to comply w/ a prestation 2. Bilateral – both parties mutually bound to each other; both are debtors/creditors of each other Bilateral Obligations: Kinds 1. Reciprocal – 2 prestations arise from the same cause; each prestation is designed to be the counterpart of the other; mutual debtor/creditor 2. Non-Reciprocal – not arising from the same cause;
obligations aren’t dependent upon each other Reciprocal Obligations: Remedies 1. Specific Performance & Damages 2. Resolution & Damages Summary of Rulings on Resolution 1. Right to resolve is inherent in reciprocal obligations 2. Breach must be substantial & not slight & there must be proof
RESCISSION IN RECIPROCAL OBLIGATIONS ARTICLE 1191: RESOLUTION ARTICLE 1381: RESCISSION Principal remedy Subsidiary remedy Need not show that there is no Must show that there is no other other remedy remedy May be demanded only by a May be demanded by a 3 rd party party to the contract prejudiced by the contract May be denied by the court when Such reason doesn’t affect the there is sufficient reason to right to ask for rescission justify extension of time to the defendant in w/c to perform Non performance is the only There are various grounds of ground for the right to rescission equity provided as grounds for rescission (economic prejudice) Applies only to reciprocal Applies w/n the contract produces obligations where 1 party has unilateral/reciprocal obligations & not performed even when the contract has been fully fulfilled SIMILARITIES 1. Both presuppose contracts validly entered into and existing 2. both require mutual restitution when declared proper CONTRACT OF SALE Ownership transferred upon delivery of the thing sold Reciprocal obligations: buyer – pay sum of money seller – deliver the thing, transfer ownership Remedies: - Specific performance + damages - rescission + damages Conditional contract of sale – upon fulfilment of condition, may compel to transfer ownership Non-payment of purchase price is resolutory condition
CONTRACT TO SELL Ownership reserved in the vendor & does not pass until full payment of the purchase price Separate obligation to do which is to execute a deed of absolute sale
Remedies: - restitution Note: there can be no rescission because obli. to execute a deed of sale never arose; obli. is non-existent Execution of DOS is another and separate action Ownership is retained by vendor Positive suspensive condition – non payment of the purchase price is not a breach, but an event which prevents
-6-
Impossible Conditions: Kinds 1. Physical – cannot exist/cannot be done 2. Legal – contrary to laws, morals, good customs, public order, public policy Effect of Impossible Condition: GR : the whole obligation is void Exceptions: 1. Obligation not to do an impossible thing 2. If the obligation is divisible, that part of the obligation not affected by the impossible condition is valid 3. Pre-existing obligation 4. Simple/Remuneratory donations 5. Testamentary Dispositions Positive condition to do something impossible Negative condition not to do something impossible Negative condition not to do something illegal
Void condition Void obligation Disregard condition Valid obligation Valid condition Valid obligation
Other Kinds of Conditions 1. Positive - condition involves the performance of an act 2. Negative - condition involves the non-performance of an act 3. Divisible – condition is susceptible of partial realization 4. Indivisible – condition is not susceptible of partial realization 5. Conjunctive – there are several conditions, all of w/c must be realized 6. Alternative – there are several conditions, only 1 must be realized 7. Express – condition is s tated expressly 8. Implied – condition is tacit Application of 1189: Requisites 1. obligation to give 2. determinate thing 3. suspensive c ondition 4. condition fulfilled 5. there is loss, deterioration, improvement of the thing during pendency of condition LOSS
DETERIORATION
IMPROVEMENT
Section 2
Obligations with a Period
–
Period/Term: length of time which, exerting an influence on an obligation as a consequence of its juridical acts, suspends its demandability or determines its extinguishment Period: 1. 2. 3.
Requisites Future Certain Possible
Types of Periods: 1. Suspensive (ex die) – obligation begins from a day certain, upon the arrival of the period 2. Resolutory (in diem) – obligation is valid up to a day certain; terminates upon arrival of period 3. Legal – granted by law 4. Voluntary – stipulated by the parties 5. Judicial – fixed by the courts 6. Express – specifically stated 7. Tacit – when a person undertakes to do some work w/c can be done only during a particular season 8. Original 9. Grace – an extension fixed by the parties or by the court 10. Definite – refers to a fixed known date or time 11. Indefinite – refers to an event w/c will necessarily happen but the date of its happening is unknown
Fulfilment As to influence on the obligation Time
Left to the will of the debtor Retro-
PERIOD Certain event which must happen sooner or later at a date beforehand, Has no effect upon the existence of obligations but only their demandability or performance Refers only to the future
Depends upon the will of the debtor – court to fix duration Unless there is an agreement
CONDITION An uncertain event
Gives rise to an obligation or extinguishes one already existing May refer also to a past event unknown to the parties Depends upon the sole will of the debtor – invalidates obligation Happening of condition
-7-
Debtor Loses Right to Make Use of Period 1. debtor becomes insolvent, unless he gives a guaranty/security for the debt 2. debtor doesn’t furnish the guaranty/security promised 3. debtor by his own acts has impaired the guaranty/security after their establishment or through a fortuitous event they disappear, unless he immediately gives a new one equally satisfactory 4. debtor violates any undertaking in consideration of w/c the creditor agreed to the period 5. debtor attempts to abscond 6. creditor is deceived on the substance/quality of the thing pledged, the creditor may either claim another thing in its stead, or demand immediate payment of the principle obligation (Art. 2109) Steps involved in an Action for Fixing a Period 1. court should determine that the obligation does NOT fix a period but it can be inferred that a period is intended due to
GR : in alternative obligations, the right of choice belongs to debtor Exceptions: 1. When expressly granted to the creditor 2. When agreed upon by the parties that a 3 rd person shall make the choice Debtor’s Right of Choice: Limitations 1. Debtor can’t choose prestations that are impossible, unlawful, or couldn’t have been the object of the obligation 2. debtor can’t choose part of 1 & part of another prestation 3. only 1 is p racticable; loss of right of choice Concentration: the act of making the choice Notice of Choice: Form 1. Orally 2. Writing 3. Tacitly/Impliedly 4. Other Unequivocal Means
the circumstances OR the period is dependent on the debtor’s 2.
will court shall decide what period was probably contemplated by the parties
Instances When Courts Can Fix a Period 1. no period fixed but a period was intended 2. duration of period depends upon will of the debtor 3. debtor binds himself to pay when his means permits him to do so 4. in reciprocal obligations when there’s a just cause for fixing a period 5. no period for lease, monthly rent paid, and lessee occupies premises for over a year; if the rent is weekly, the courts may determine a longer period after lessee’s posses sion for over 6 months; if rent is daily, the courts may fix a longer
period after lessee’s possession for over 1 month GR : if the obligation does not fix a period, but from its nature & the circumstances it can be inferred that a period is intended, the courts may fix the duration thereof Exceptions: 1. Lease of rural land (Art. 1682 & 1687, 1 st sentence) – when its duration has not been fixed, it shall be for the time necessary for the gathering of the fruits w/c the whole estate
Effect of Notice 1. Ceases to be alternative & becomes simple 2. choice is irrevocable & cannot be changed by either party w/o consent of the other
As to the content
Number of prestations Right of choice Loss thru a fortuitous event As to nullity
ALTERNATIVE There are various prestation all of w/c constitute parts of the obligation Several are due but compliance of one is sufficient May be given to the creditor or third person Loss of one or more of
the alternatives doesn’t extinguish the obligation The nullity of one prestation does not invalidate the obligation
FACULTATIVE Only the principal constitute the obligation, the accessory being only a means to facilitate payment Only one prestation is due although the debtor is allowed to substitute it Right to make substitution – debtor only Loss of the thing due extinguishes the obligation Nullity of the principal obligation invalidates the obligation & the creditor cant demand the substitute even when this is valid
-8-
FAULT Debtor
Creditor Fortuitous Event
RIGHT OF CHOICE: CREDITOR LOSS OF ONE/SOME LOSS OF ALL Creditor may choose: Choice by the 1. Claim any of those creditor shall fall subsisting upon the price of 2. Price of the thing any one of them which disappeared + damages Deliver remaining Obligation is extinguished Creditor may choose from Obligation is those subsisting extinguished Section 4
Joint & Solidary Obligations
–
Obligations: Kinds Accdg. to # of Parties 1. Single/Individual – 1 creditor & 1 debtor 2. Collective – 2 or more debtors and/or 2 or more debtors a. Joint – There are as many obligations as there are creditors multiplied by as many debtors b. Solidary – any of the debtors can be held liable for the entire obligation, and any of the creditors is entitled to demand the entire obligation GR : The obligation is joint since joint obligations are less onerous Exceptions (When Solidarity Exists): 1. obligation expressly states 2. law requires solidarity 3. nature of the obligation 4. imposed in a final judgment against several defendants 5. a large condition is imposed upon heirs & the testament expressly makes the condition in solidum 6. quasi delicts 7. employer-employees 8. partners in partnerships 9. principal-agent 10. 2 bailees in a loan JOINT - mancommunada - mancommunadamente - pro rata - proportionately
“we promise to pay”
-
SOLIDARY solidaria in solidum jointly and/or severally together and/or separately individually and/or collectively
JOINT DIVISIBLE Each can demand/is liable only for proportionate share Cannot act in representation or cannot be compelled to answer for others
JOINT INDIVISIBLE Fulfillment requires concurrence of all debtors, but each for his own share only Proceed against all debtors; concurrence of all creditors necessary for enforcement of obligation
GR: The debtor may pay any of the solidary creditors E: If any of the solidary creditors make a demand upon a debtor, the latter must pay only to the one demanding payment, otherwise it will treated as payment to a 3 rd person, and the debtor can still be made to pay the one who made the demand on him (the debtor can still recover from the paid creditor) Active Solidarity: Effects 1. Since it is a reciprocal agency the death of a solidary creditor does not transmit the solidarity to each of his heirs but to all of them taken together 2. Each creditor represents the others in the act of receiving payment and in all other acts which tend to secure the credit or make it more advantageous. a. If he receives only a partial payment he must divide it among the other creditors b. He can interrupt the period of prescription c. He may render the debtor in default for the benefit of all other c reditors d. bring suit so the obligation would produce interest 3. One creditor does not represent the others in such acts as novation, compensation, and remission. 4. The creditor and its benefits are divided equally among the creditors unless there is an agreement among to divide differently 5. The debtor may pay to an solidary creditor, but if a judicial demand is made he must pay only to the plaintiff 6. Each creditor may renounce his right even against the will of the debtor and the layer need not thereafter pay the obligation to the former Passive Solidarity: Effects 1. Each debtor can be required to pay the entire obligation but after payment he can recover from the co-debtors their respective shares 2. The debtor who required to pay may set up by way of
-9-
Acts Prejudicial by Solidary Creditor: Effects 1. among co-creditors – obligation extinguished w/ respect to
debtors, but doesn’t prejudice the right of other creditors to 2.
recover their shares from the creditor who effected the act among co-debtors – co-debtor to whom obligation was extinguished cant recover from his co-debtors
Payment by a Solidary Debtor: Effects 1. bet. solidary debtors & creditors – full payment extinguishes the obligation 2. among solidary debtors – paying debtor may demand reimbursement from others for their proportionate share; in case of insolvency of 1, others assume the share proportionately 3. among solidary creditors – receiving creditor is jointly liable to others for their corresponding share Non-Performance/Loss/Impossibility: Effects 1. Loss w/o fault & before delay – obligation extinguished 2. Loss by fault of 1 of solidary debtors or through FE after debtor incurred in delay – all shall be responsible to the creditor, for the price & payment of damages & interest w/o prejudice to their action against the guilty debtor 3. No loss but there’s breach (delay, fraud, negligence) – creditor may recover from any of the solidary debtors; the guilty debtor cannot be made to shoulder the hare of the codebtors in the original obligation Defenses Available to Solidary Debtors 1. Real defenses - derived from the nature of the obligation; benefits all the debtors (total) 2. Personal defences - personal to, or w/c pertain to the share of the debtor sued (total/partial) 3. defenses personal to other solidary debtors – the debtor can only avail himself of the these defenses only w/ regard to the part of the debt to w/c his co-debtors are liable for (partial)
10 years
6 years 4
PRESCRIPTIVE PERIOD - written contract - obligation created by law - upon a judgment - oral-contact - quasi-contract - inquiry to the rights of the plaintiff
GR: obligations are indivisible Exceptions (divisible obligations): 1. The parties provide otherwise 2. The law so provides 3. The nature of the obligation necessarily entails the performance of the obligation in parts; when the obligation has for its object the: a. execution of a certain number of days of work b. accomplishment of work by metrical units c. analogous things w/c are by their nature susceptible of partial performance Exception to the Exception: Even though the object/service may be physically divided, an obligation is indivisible if: 1. intended by the parties 2. so provided by law Divisible Thing vs. Indivisible Thing 1. Divisible – each 1 of the parts forms a homogenous & analogous object to the other parts as well as the thing itself 2. Indivisible – if divided into parts, its value is diminished disproportionately; if the object is physically indivisible or service is not susceptible of partial performance, obligation is always indivisible Kinds of Division 1. Qualitative 2. Quantitative 3. Ideal/Intellectual Kinds of Indivisibility 1. Legal 2. Conventional 3. Natural DIVISIBLE OBLIGATION Capable of partial fulfilment 1. Execution of certain # of days of work 2. Expressed by metrical units 3. Nature of obli. susceptible of partial fulfilment INDIVISIBLE JOINT Debtors ready to perform
INDIVISIBLE OBLIGATION Not capable of partial fulfillment 1. To give definite things
2. Presumption when there’s only 1 debtor & 1 c reditor 3. Provided by law 4. Intention of parties
INDIVISIBLE SOLIDARY Every debtor liable for losses
&
- 10 -
Function of Penal Clause 1. provide for liquidated damages 2. strengthen coercive force Purpose of Penal Clause 1. Reparation - substitutes damages suffered 2. Punishment - right to damages besides penalty Kinds of Penal Clause 1. As to its Origin a. Legal b. Conventional 2. As to its Purpose a. Compensatory b. Punitive 3. As to its Demandability/Effect a. Subsidiary/Alternative b. Joint/Cumulative Characteristics of a Penal Clause 1. Subsidiary/Alternative GR : upon breach of the obligation, the creditor must choose whether to demand principal or penalty Exceptions: - Both the principal obligation & the penalty can be demanded when the penal clause is joint & cumulative; this occurs when the creditor has been clearly granted such right expressly/impliedly - creditor has demanded fulfilment of the principal obligation but it cannot be performed 2. Exclusive GR : penalty clause takes place of other damages E: Both the penalty & actual damages can be reovered if: - there is an express stipulation - debtor refuses to pay penalty - debtor guilty of fraud When Courts May Reduce Penalty 1. partial/irregular performance 2. iniquitous/unconscionable penalty (contrary to good customs) Principal Obligation vs. Accessory Obligation 1. Principal – can stand by itself; does not on another obligation for its validity/existence
OBLIGATIONS W/ A PENAL CLAUSE Payment of the penalty in lieu of the principal obligation can be made only in express stipulation Creditor may be granted right to demand both prestations
FACULTATIVE OBLIGATIONS Power of debtor to make substitution is absolute Creditor can never demand both prestations
OBLIGATIONS W/ A GUARANTY PENAL CLAUSE Obligation to pay the penalty is Object of the obligations of the diff. from the principal principal debtor & guarantor is obligation the same Principal obligation & penalty Principal debtor can’t be the can be assumed by the same guarantor of the same person obligation GR : Penalty extinguished by Guaranty subsists even when nullity of principal obligation the principal obligation is E: penal clause assumed by 3rd voidable/unenforceable or is a person natural one Similarities 1. both to insure performance of principal obligation 2. both accessory & subsidiary obligations CHAPTER 4 – EXTINGUISHMENT OF OBLIGATIONS Modes of Extinguishment of Obligations 1. payment/performance 2. loss of the thing due 3. condonation/remission 4. confusion/merger 5. compensation 6. novation 7. annulment 8. rescission 9. fulfillment of resolutory condition/period 10. prescription 11. death of a party in case of personal obligations 12. renunciation by the creditor 13. mutual desistance/withdrawal 14. mutual/unilateral dissents 15. change of civil status 16. compromise
- 11 -
7.
Manner/Performance 1.
IDENTITY – the very prestation must be performed; the very thing or service due must be delivered
8. 9.
GR: debtor of a (specific) thing cannot compel creditor to receive a different one, although the latter may be of the same value as, or more valuable than that w/c is due Exceptions the Requirement of Identity: 1. when the obligee consents 2. in case of waiver 3. in facultative obligations – debtor is given the right to render another prestation in substitution 4. substitution is allowed by stipulation w/ consent of creditor 5. Dacion en Pago 6. Novation
if the work to be delivered partially, the price or compensation for each part having been fixed in case of several guarantors who demand the right of division in case of impossibility or extreme difficulty of a single performance Who Pays? (PAYOR)
Creditor May be Compelled to Accept Payment From: 1. the debtor, his heirs, assigns or agents 2. any person who has an interest in the obligation (e.g. guaranty/surety) 3. a 3rd person who has no interest in the obligation when there is a stipulation that he can make payment Donation: no intention of reimbursement & requires acceptance if by 3rd person w/o interest – can’t compel acceptance if debtor did not accept, but creditor accepted, rules of reimbursement apply
Rule of Medium Quality: if the obligation is the delivery of a generic thing, whose quality & circumstances have not been stated: the creditor cannot demand a thing of superior quality the debtor cannot deliver a thing of inferior quality the court shall take into consideration the purpose & other circumstances of the obligation
2.
INTEGRITY – the completeness
entire
prestation
must
be
performed;
Exceptions to the Requirement of Integrity: 1. Substantial Compliance in Good Faith (POV of Debtor) 2. Waiver (POV of Creditor) 3. In application of payments, if the debts are equally onerous Substantial Compliance in Good Faith: Requisites 1. there must be substantial compliance a. deviation is slight b. omission/defect is technical or unimportant c. must not be so material that intention of parties is not attained 2. obligor must be in good faith a. attempt in good faith to perform w/o wilfull or intentional departure When it will not apply:
WHO PAYS Debtor 3r Person in Interest 3rd Person w/o Interest w/ stipulation 3rd Person w/o Interest w/o stipulation MINOR Minor as creditor Minor as debtor
COMPELLABILITY Can compel receipt Can compel receipt Can compel receipt
Cannot compel receipt; if accepted, obli. extinguished
REIMBURSEMENT No reimbursement Reimbursement & subrogation (E: if intended to be a donation) Reimbursement & subrogation
w/ knowledge & consent : - reimbursement & subrogation no knowledge & no consent : - beneficial reimbursement only
EFFECTS Valid Payment to Incapacitated Person: 1. Kept the thing delivered 2. Redounded to his benefit GR: VOID – he doesn’t have capacity to alienate Exception: Art. 1427 To Whom? (PAYEE)
To Whom Payment Shall be Made:
- 12 -
When Benefit to Creditor need not be Proved: 1. subrogation of the payer in the creditor’s rights 2. ratification by the creditor 3. estoppel on the part of the creditor Valid if: To a 3rd person - payment to debtor was made in good faith in possession of - creditor was in possession of the credit & not credit merely the evidence of indebtedness *mere possession of the instrument does not entitle the holder to a payment nor does payment release the debtor When & Where Payment Shall be Made When? 1. payment should be made when it is due 2. even if payment is due, the general rule is that demand is still necessary Where? 1. with s tipulation – at the place designated 2. no stipulation & delivery of specific thing – place where the thing was at the perfection of the contract a. exception: when its existence at the place when the obligation was constituted was temporary, the performance must be made at the debtor’s domicile 3. no stipulation & delivery of generic thing – domicile of the
debtor & creditor bears expenses in going to the debtor’s 4. 5.
place to accept payment obligations of sum of money – creditor is obliged to collect from the debtor in the debtor’s domicile if debtor changes his domicile in bad faith or after he has incurred in delay, additional expenses shall be borne by him Special Rules on Monetary Obligations
Legal Tender: the currency which a debtor can legally compel a creditor to accept in payment of a debt in money when tendered by the debtor in the right amount Legal Tender in the Philippines: all coins & notes issued by the Bangko Sentral ng Pilipinas coins are legal tender for amounts not exceeding P50 for
Loss of Value: So long as the notes were legal tender at the time they were paid/delivered, the person accepting them must suffer the loss if they become valueless Inflation: a sharp sudden increase of money/credit w/o a corresponding increase in business transactions. It causes a drop in the value of money, resulting in the rise of the general price level. This is not based on the exchange rate, but on the Consumer Price Index. Deflation: reduction in volume & circulation of the available money or credit, resulting in a decline of the general price level. Extraordinary Inflation/Deflation: that w/c is unusual or beyond the common fluctuation in the value of the currency, w/c the parties could not have reasonably foreseen, or w/c was manifestly beyond their contemplation at the time the obligation was made. GR: Inflation or deflation will not affect the obligation. Exception: in cases of extraordinary inflation or deflation, to be determined by the courts.
- 13 DACION EN PAGO - Property is alienated by the debtor to the creditor in satisfaction of a debt in money - transmission of the ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of an obligation Requisites Conditions for a Valid Dacion: 1. if creditor consents, for a sale presupposes the consent of both parties 2. if dacion will not prejudice the other creditors 3. if debtor is not judicially declared insolvent Definition
Effects
Other Notes
APPLICATION OF PAYMENTS The designation of the debt to w/c payment must be applied when the debtor has several obligations of the same kind in favour of the same creditor
1. 2. 3. 4. 5.
one debtor & one creditor 2 or more debts debts must be of the same kind all of the debts must be due payment made must not be sufficient to cover all the debts
PAYMENT BY CESSION Assignment/abandonment of all the properties of the debtor for the benefit of his creditor in order that the latter may sell the same & apply the proceeds thereof to the satisfaction of their credits
TENDER OF PAYMENT Manifestation of the debtor to the creditor of his decision to comply immediately w/ his obligation **extrajudicial **preparatory act 1. two or more creditors 1. tender of payment 2. 2 or more debts must comply w/ the 3. debtor is partially insolvent rules of payment 4. all of the properties of the debtor 2. lawful currency 3. must be unconditional are to be aliented 5. cession accepted by creditors & for the whole 6. Creditors agree who will be paid amount 1st or the to the proportioning of 4. must actually be payment among themselves made 5. fusion of intent, ability & capability to make good such offer Effects: 1. Creditors don’t become the owner, they are merely assignees w/ authority to sell 2. the debtor is released from his obligation only up to the net proceeds of the sale of the property assigned 3. the debtor is still liable if there is a balance 4. creditors will collect credits in the order of preference agreed upon, or in the order ordinarily established by law 2 Kinds of Insolvency: 1. Legal – judicial, governed by insolvency law (total extinguisment) 2. Voluntary of – agreement creditors (generally liable for the balance left)
Exceptions: Applications as to debts not yet due: 1. parties so stipulate 2. made by the party for whose benefit the period was constituted Effect : Limitations: -extinguishes obligation to the extent 1. creditor cannot be compelled to of the value of the thing delivered, accept partial payment unless the parties agree that the 2. if there is only 1 obligation entire obligation is extinguished bearing stipulated interest, he must 1st apply the payment to interest before the principal 3. debtor cannot apply the payment to the debt that is not yet liquidated 4. he cannot choose a debt w/ a period for the benefit of the creditor, when the period has not yet arrived - governed by the law on sales Rules in application of payment: 1. apply accdg. to the agreement - may be partial or full dation 2. if there is no agreement, debtor Traditional view: it is a sale has the right to apply 3. if the debtor does not choose, the Modern view: it is a novation creditor can choose 4. if the creditor has not also made application, or if application is not valid, apply to the most onerous Property Exempt 1. debtor must reserve amount debt (legal application) 5. if the debts due are of the same needed for support in case of nature & burden, apply donations 2. assignment cannot include family proportionately home More Onerous Obligations: 1. bound as principal than as surety 2. solely bound than in solidary ones 3. oldest debt of various debts 4. one w/ interest than w/o interest 5. one w/ higher interest rate 6. unsecured debt w/ interest than secured one w/o interest 7. liquidated than unliquidated debt **Does not comply w/ the requisite 8. one w/ a penal clause **There is no completeness of 9. Secured than one unsecured of identity. performance – integrity.
SIENNA A. FLORES
OBLIGATIONS & CONTRACTS
CONSIGNATION deposit of the object of the obligation in a competent court in accordance w/ the rules prescribed by law after refusal or inability of the creditor to accept the tender of payment **judicial **principal act 1. there is a debt due 2. the consignation has been made because the creditor refused, w/o just cause, to accept it 3. prior notice of the consignation to the person interested in the performance of the obligation 4. actual deposit; amount due was placed at the disposal of the court 5. subsequent notice was made after consignation **(absence of any requisites - void) Effects: 1. debtor may ask judge to order cancellation of obligation 2. running of interest is suspended 3. deterioration, loss of the thing/amount consigned w/o fault of debtor is borne by the creditor 4. increase in value inures to benefit of creditor 5. creditor bears expenses of consignation 6. before creditor accepts or before judge declares consignation has been properly made, obligation remains Consignation deemed properly made: 1. creditor accepts the thing/sum deposited, w/o objection, as payment 2. creditor questions its validity & the court, after hearing, declares that it has been properly made 3. creditor neither accepts nor questions its validity & the court, after hearing, orders the cancellation of the obligation **anytime beforehand, debtor may withdraw Consignation w/o Prior Tender: 1. creditor absent or unknown/does not appear at the place of payment 2. incapacitated to receive payment at the time it is due 3. refuses to issue receipt w/o just cause 4. 2 or more creditors claiming the same right to collect 5. Title of obligation has been lost
**payment is made not to the creditor but to the court
- 14 -
Definition of Terms
Requisites
Kinds
LOSS OF THE THING DUE - The thing w/c constitutes the obligation perishes, goes out of commerce, or disappears in such a way that existence is unknown or it cannot be recovered - impossibility of compliance w/ the obligation through any cause 1. the thing w/c is lost is determinate 2. the thing is lost w/o any fault of the debtor (If lost through fault of debtor, its becomes an obligation to indemnify the creditor for damages) 3. the thing is lost before the debtor has incurred in delay
Physical: the obligor is not physically capacitated to perform the obligation Legal: obligation is rendered impossible by provision of law As to Time: 1. Original – impossibility already exited when the contract was made; the result is not extinguishment but inefficacy of the obligation; the contract is void 2. Supervening – impossibility must be subsequent to the execution of the contract to extinguish the obli. As to Nature: 1. Objective – the act cannot be done by anyone; extinguishes the obligation 2. Subjective – obligation is impossible only w/ respect to the obligor
When Not Allowed
When Debtor is still liable: 1. when by law, the obligor is liable for fortuitous event 2. when by stipulation, the obligor is liable for fortuitous events 3. when the nature of the obligation requires the assumption of risk 4. when the loss of the thing is due partly to the fault of the debtor 5. when the loss of thing occurs after the debtor has incurred in delay 6. when the debtor promised to deliver the same thing to 2 or more persons
who don’t have the same interest 7. when the obligation is generic 8. when the obligation to deliver a specific thing arises from a crime
SIENNA A. FLORES
CONDONATION/ REMISSION An act of liberality of the obligee, who w/o receiving any equivalent, renounces the enforcement of the obligation, as a result of w/c it is extinguished in its entirety or in part-; gratuitous abandonment by the creditor of his right 1. debt must be existing 2. it must be gratuitous 3. must be accepted by the obligor 4. parties must have capacity 5. must not be inofficious (infringes on the legitime of the compulsory heirs) 6. formalities of donation are required in express remission As to Form: 1. express – donation - Art. 748: movables - Art. 749: immovables 2. implied – waiver As to Extent: 1. total – covers entire obligation 2. partial – does not cover entire obligation As to Constitution: 1. inter vivos/agreement – takes effect during lifetime of donor 2. mortis cause/will – takes effect upon death of donor
Inofficious Donation: infringes on the legitime of the heirs of the donor. No on can give more than that which he can give by will. The excess shall be reduced by the court accordingly.
CONFUSION/ MERGER Meeting in one person of the qualities of creditor & debtor w/ respect to the same obligation
1. must take place bet. creditor & principal debtor 2. merger must be clear & definite 3. the very same obligation must be involved 4. confusion must be total Confusion in Joint Obligations: - confusion taking place in the person of any debtor does not affect the others Confusion in Solidary Obligations: - merger in the person of one of the solidary debtors shall extinguish the entire obligation
COMPENSATION
NOVATION
Mode of extinguishing in their concurrent amount those obligations of persons who in their own right are creditors & debtors of each other
Substitution/change of an obligation by another, resulting in its extinguishment/modification, either by changing its principal conditions, or by substituting another in place of the debtor, or by subrogating a 3rd person in the rights of the creditor 1. previous valid obligation 2. agreement of all the parties to the new contract 3. capacity & intention of the parties to modify/extinguish the obligation 4. modification or extinguishment of old obligation 5. new valid obligation
1. 2 parties, who are principal creditors/ debtors of each other in their own right 2. both debts consist in money, or if the things due are fungibles, they are of the same kind/quality 3. both debts must be due 4. both debts liquidated & demandable 5. no retention/controversy commenced by 3rd person (neither debt is garnished) 6. compensation not be prohibited by law As to Cause: 1. Legal – operation of law; when all requisites concur 2. Voluntary/Conventional/Contractual – agreement of the parties is enough 3. Judicial – set off; final judgement of the court (e.g. counterclaim) 4. Facultative – claimable by only 1 of the parties but not of the other Facultative: 1. Commodatum – by the bailor 2. Depositary – by the depositor 3. Future support (support in arrears can be compensated) 4. Civil liability fr. a penal offense – offended party
As to Essence: 1. objective/real – change in the object or principal conditions 2. subjective/personal – change of the subjects a. Subrogation – change of creditor - Legal – operation of law - Conventional – all parties agree b. Substitution – change of debtor - Expromision –initiative fr new debtor - Delegacion –initiative fr old debtor 3. mixed – combination of subjective & objective novation As to Form/Constitution: 1. express – declared in unequivocal terms 2. tacit – the old & new obligation are incompatible w/ each other
As to Effect: 1. Total – 2 debts are of the same As to Extent/Effect: 1. total – obli. extinguished amount 2. Partial – 2 debts are not of the same 2. partial – obli. merely modified amount When Compensation shall not take place: GR: No novation where new obligation is void 1. the law prohibits it E : parties stipulate to extinguish the old 1 in 2. debts arising from contracts of any event depositum 3. debts arising from contracts of GR: novation can take place where new commadatum obligation is voidable 4. claims for support due by gratuitous title E : when it is annulled, novation is considered 5. obligations arising from criminal as not having taken place offenses 6. certain obligations in favour of the govt Old Obligation has a condition: 7. there is renunciation of the effects of - resolutory & it occurred: old obligation is extinguished; no new obligation since there’s compensation 8. there is a period w/c has not yet arrived nothing to novate 9. there is a suspensive condition w/c has - suspensive & it never occurred: no not yet happened obligation arises; also nothing to novate 10. obligation cannot be sued upon (natural obli.)
OBLIGATIONS & CONTRACTS
- 15 -
Effects
Rules
Other Notes
LOSS OF THE CONDONATION/ THING DUE REMISSION Effect of Impossibility in obli. to do: Effect of Partial Remission: - debtor is released if impossibility was 1. renunciation of the principal not due to his fault & it took place debt shall extinguish the before he was in delay (supervening & accessory obligations 2. renunciation of the accessory not original impossibility) obligation shall leave the Effect of Partial Loss: principal in force - Loss significant: enough to extinguish 3. obligation of guarantor is the obligation extinguished at the same time - Loss insignificant: not enough to as that of the debtor 4. guarantors are released from extinguish obli. their obligation whenever by Effect of Loss on Creditor’s Rights: some act of the creditor they - creditor shall have all the rights of cannot be subrogated to the action w/c the debtor may have rights of the latter against the 3rd person by reason of the loss
CONFUSION/ MERGER Effect in the person of principal debtor or creditor : - extinguishes the obligation as well as the accessory obligation
Requisites: 1. the event/change could not have been foreseen at the time of execution of contract 2. performance is extremely difficult, but not impossible 3. event was not due to the act of any of the parties 4. contract is for a future prestation
SIENNA A. FLORES
Effect of Total Subrogation: transfer to the new creditor the credit & all the rights & actions that could have been exercised by the former creditor, either against the debtor or 3rd persons
doesn’t carry w/ it that of the principal obligation
**Pledge: a contract where the Usual Causes: debtor delivers to the creditor or 1. succession rd to a 3 person a movable or 2. donation instrument evidencing incorporeal 3. negotiation of rights for the purpose of securing negotiable the fulfilment of the principal instrument obligation; the thing delivered shall be returned w/ all its fruits & accessions
NOVATION
1. both debts are extinguished to the 1. if old obligation has condition, must be concurrent amount compatible w/ new obligation; if new is 2. interests stop accruing w/o condition – deemed attached to new 3. period of prescription stops 2. if new obligation has condition 4. all accessory obligations of the principal - if resolutory: valid obligation are also extinguished - if suspensive & didn’t materialize, old obligation is enforced
Effect in the person of guarantor : - extinguishment of accessory obligation
Presumption: then the thing is lost in GR: waivers aren’t to be the possession of debtor, it is due to presumed his fault (res perit domino) E: Presumptions: 1. if a private document is found in - natural calamity, earthquake, flood - debtor not in possession of thing lost the possession of the debtor, it - there is proof to the contrary is presumed that the creditor voluntarily delivered it to him GR: debtor still liable for loss of 2. since the creditor voluntarily generic thing delivered the private document, E : then there is a presumption of - delimited generic thing remission 3. it - the thing becomes illegal is presumed that the accessory obligation of pledge GR: impossibility of performance has been remitted when the releases the obligor thing pledged, after its delivery - service has become so difficult as to to the creditor, is found in the be manifestly beyond contemplation of possession of the debtor, or of parties 3rd person who owns the thing Rebus Sic Stantibus/Doctrine of Extreme Difficulty : agreement is valid only if the same conditions prevailing at the time of contracting continue to exist at the time of performance
COMPENSATION
Rules on Assignment of Credit to 3rd Person: 1. assignment after compensation: - no effect because obligation has already extinguished 2. assignment before compensation: - w/ consent of debtor: debtor is estopped unless he reserves his right & gave notice to assignee - w/ knowledge but w/o consent: compensation may be set up as to debts maturing prior to assignment - w/o knowledge: compensation may be set-up on all debts prior to his knowledge
Effect of Partial Subrogation: the creditor to whom partial payment has been made by the new creditor remains a creditor to the extent of the balance of the debt GR: Novation is never presumed E (legal subrogation presumed) 1. the creditor pays another creditor who is preferred, even w/o the debtor’ s knowledge 2. a 3rd person, not interested in the obligation, pays w/ the express/tacit approval of debtor 3. w/o knowledge of the debtor, a person interested in the fulfilment of the obligation pays, w/o prejudice to the effects of confusion as the latter’s share GR: Extinguishment of the principal carries w/ it that of accessory obligations E : those created in favour of a 3rd person unless the latter gives consent to the novation; in active subjective novation, the guarantors/pledgors/mortgagors are not released
Novation by Substitution: Novation by Substitution: rd 1. Expromision: a 3rd person of his own 2. Delegacion: a creditor accepts a 3 person to take the place of the debtor at the initiative & w/o knowledge or against instance of the latter the will of the old debtor assumes the
latter’s obli. w/ consent of creditor - initiative from 3rd person/new debtor - w/ consent of creditor & new debtor - w/o knowledge/against will of old debtor - old debtor released fr. obligation - beneficial reimbursement - if new debtor is insolvent, not responsible since w/o his consent
OBLIGATIONS & CONTRACTS
- initiative/with consent of old debtor - all parties must consent - reimbursement & subrogation - GR: if new debtor insolvent, old debtor not responsible because obli. extinguished - E : - insolvency already existing & of public knowledge or known to him at time of delegacion - new debtor is only secondarily liable - 3rd person is only an agent of the debtor - new debtor is bound solidarily w/ old debtor
- 16 -
TITLE II - CONTRACTS CHAPTER 1 – GENERAL PROVISIONS Contract: Meeting of the minds between 2 contracting parties w/c takes place when an offer by one party is accepted by the other. One or more persons bind himself/themselves w/ respect to another, or reciprocally, to the fulfilment of a prestation to give, to do or not to do. Contracts: Essential Elements 1. Consent 2. Object 3. Cause CONTRACT One of the sources of obligations There can be no contract if there is no obligation CONTRACT Agreements enforceable through proceedings Elements: consent, object, cause All contracts are agreements
OBLIGATION The legal tie/relation itself that exists after a contract has been entered into An obligation may exist even w/o a contract
AGREEMENT Agreements which cannot be enforced by action in the courts of justice are not contracts but merely moral / social agreements An agreement is broader than a contract because the former may not have all the elements of a contract Not all agreements are contracts
CONTRACT Establishes & determines the obligations arising therefrom
PROMISE Tends only to assure and pave the way for the celebration of a contract in the future Until the contract is actually made, the rights and obligations are not yet determined. An imperfect promise also constitutes a mere unaccepted offer.
Characteristics of Contracts 1. Autonomy - The contracting parties may establish such stipulations as they may deem convenient, as long as they
Degree of Dependence
Perfection
Form
CLASSIFICATION OF CONTRACTS Preparatory: its object is the establishment of a condition in law w/c is necessary as a preliminary step towards the celebration of another subsequent contract Principal: can subsist independently from other contracts Accessory: can exist only as a consequence or, or in relation w/, another prior contract Consensual: perfected by mere consent Real: perfected by the delivery of the thing Common/Informal: does not require some particular form Special/Formal: requires some particular form Transfer of Ownership Conveyance of Use
Purpose Rendition of Service Things SubjectMatter
Nature of Obligation
Cause
Service Bilateral: gives rise to reciprocal obligations for both parties Unilateral: gives rise to an obligation for only 1 of the parties
Onerous: each of the parties aspires to procure for himself a benefit through the giving of an equivalent Gratuitous: one of the parties proposes to give to the other a benefit w/o any equivalent Remuneratory: purpose is to reward the service that had been previously
Agency Partnership
Lease, Sale Pledge, mortgage, Suretyship Purchase, sale Commodatum Loan, lease Donation, chattel mortgage Sale Commodatum Deposit, pledge Agency Sale, pledge, mortgage Deposit, agency, Purchase, sale Commodatum, gratuitous deposit Purchase, sale
Commodatum
- 17 -
Persons Affected by a Contract GR : Principle of Relativity - contracts take effect only bet. the parties, their assigns & heirs Exception: the contract is effective only between the parties when the rights & obligations arising from a contract are not transmissible 1. By their nature (contract involving personal qualifications) 2. By stipulation (principle of freedom to contract) 3. By provision of law (agency, partnership, commodatum, when death extinguishes the legal relationships) Cases when a Stranger/3 rd Persons are Affected by a Contract 1. Stipulation pour autrui: contracts containing a stipulation in favour of a 3rd person 2. contracts containing real rights 3. contracts entered into to defraud creditors (accion pauliana) 4. contracts w/c have been violated at the inducement of a 3 rd person 5. accion directa Stipulation Pour Autrui: a stipulation in a contract clearly & deliberately conferring a favour upon a 3 rd person who has a right to demand its fulfilment provided he communicates his acceptance to the obligor before its revocation Stipulation Pour Autrui: Requisites 1. a stipulation in favour of a 3 rd person 2. which should be a part, not the whole, of the contract 3. the contracting parties must have clearly & deliberately conferred a favour upon a 3 rd person, not a mere incidental benefit 4. the favourable stipulation should not be conditioned or compensated by any kind of obligation 5. the 3rd person must have communicated his acceptance to the obligor before its revocation 6. neither of the contracting parties bears the legal representation or authorization of the 3rd party, otherwise the rules on agency will apply Liability of a 3rd Person for Breach of Contract: Requisites 1. existence of a valid contract 2. knowledge of by the 3 rd person of the existence of the contract 3. interference by the 3rd person in the contractual relation w/o legal justification
Offer: unilateral proposition w/c 1 party makes to the other for the celebration of the contract Offer: Requisites 1. definite 2. complete 3. intentional Requisites for Silence to Produce Effect of Tacit Acceptance 1. There is a duty or possibility to express oneself 2. The manifestation of the will cannot be interpreted in any other way 3. There is a clear identity in the effect of the silence & the undisclosed will Acceptance of Offer: Forms 1. express – oral or written 2. implied – inferred from act or conduct Matters 1. 2. 3. 4. 5.
That May be Fixed by the Offeror time place manner of acceptance terms conditions
When Offer becomes Ineffective 1. death 2. civil interdiction 3. insanity 4. insolvency 5. express/implied revocation of the offer by the offeree 6. qualified/conditional acceptance of the offer (counter offer) 7. subject matter becomes illegal/impossible 8. expiration of the period fixed in the offer for acceptance Rule on Advertisements as Offers 1. business advertisements – not a definite offer, but a mere invitation to make an offer unless it appears otherwise 2. advertisements for bidders – only invitation to make proposals & advertiser is not bound to accept the highest or lowest bidder, unless it appears otherwise Option Contract: giving a person for a consideration a certain period
- 18 -
Amplified Acceptance: an acceptance of the original offer, plus a new offer w/c is contained in the amplification Persons 1. 2. 3. 4. 5. Special 1. 2. 3. 4. 5. 6.
Who Cannot Give Consent minors insane/demented persons deaf/mutes who do now know how to write intoxicated under hypnotic spell
Disqualifications: Incompetents persons suffering the accessory penalty civil interdiction hospitalized lepers prodigals (spendthrifts) deaf & dumb who are unable to read and write those of unsound mind even though they have lucid intervals those who, by reason of age, disease, weak mind and other similar causes, cannot w/o outside aid, take care of themselves & manage their property, becoming thereby an easy prey for deceit & exploitation
INCAPACITY TO GIVE CONSENT Restriction upon the exercise of a right Renders the contract voidable Based upon subject circumstances of certain persons Contracts entered into are voidable
SPECIAL DISQUALIFICATIONS Restriction upon the very right itself Makes the contract void Based upon public policy & morals Contracts entered into are void
GR : contracts entered into by incapacitated persons are voidable Exceptions: 1. 1. when necessaries such as food, are sold & delivered to a minor or other person w/o capacity to act, he must pay a reasonable price therefore 2. a minor 18 years old or above may contract for life, health and accident insurance, provided the insurance is taken on
his life & the beneficiary appointed is the minor’s estate or the minor’s father, mother, husband, wife, child, brother or 3.
sister valid if entered into through a guardian/legal rep.
Undue Influence (even if employed by 3rd person)
Fraud (if employed by 3rd person, remedy is damages)
When a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice False representation of a material fact made by word or conduct w/ knowledge of its falsehood or reckless disregard of its truth, in order to induce another to execute an act
CAUSES VITIATING CONSENT Temporary Refers to the contract itself
1. misrepresentation or concealement 2. must be serious 3. employed by only 1 of the parties 4. made in bad faith or w/ intent to deceive 5. induced the consent of the other 6. resulted in damage/injury 7. proved by clear & convincing evidence
CAUSES OF INCAPACITY More or less permanent Refers to the person entering into the contract
Both make a contract “voidable” only, and not void IGNORANCE Complete absence of any notion about a particular thing
MISTAKE wrong/false notion about such a matter, a belief in the existence of some circumstance, fact or
even w/c in reality doesn’t exist There is a lack of full & correct knowledge about the thing Juridically, they produce the same effect Mistake of Fact Which Vitiates Consent 1. Substance of the thing w/c is the object of the contract 2. mistakes re: the nature of the contract, in w/ case is an essential mistake, because it is one w/c has determining influence upon the will of the party 3. principal condition of the thing as its essential/substantial character, w/o w/c the thing ceases to be what it is 4. Identity/qualifications of 1 of the parties provided the same was the principal cause of the contract
- 19 -
Factors 1. 2. 3.
to Determine Degree of Intimidation age sex condition
Undue Influence: Circumstances to be Considered 1. confidential/family/spiritual, & other relations bet. the parties 2. mental weakness 3. ignorance 4. financial distress of the person unduly influenced Causal Fraud: How Committed 1. insidious words or machinations 2. concealing/omitting facts where there is a duty to reveal them, as when the parties are bound by confidential relations 3. opinion of an expert & the other party relied on the former’s special knowledge Requisites for an Opinion to Amount to Fraud 1. must be made by an expert 2. the other contracting party has relied on the expert’s opinion 3. the opinion turned out to be false/erroneous FRAUD
Doesn’t annul the contract unless it
VIOLENCE/ INTIMIDATION Contract is annulled
produces a substantial mutual mistake on the part of both contracting parties The party has nothing to do w/ fraud by Can easily be more a 3rd person & cannot be blamed for it resisted than fraud It has been advocated that both fraud & violence nullify the consent, whoever may have employed the same. Where there is the same necessity, the remedy must likewise be the same. Simulation of a Contract: The act of deliberately deceiving others, by feigning or pretending by agreement, the appearance of a contract w/c is neither non-existent or concealed. Simulation: Kinds 1. Absolute/Simulados – Void because he contract doesn’t really exist and the parties do not intend to be bound at all 2. Relative/Disimulado - When the contract entered into by the parties is different from their true agreement; The parties are bound by their real agreement provided it does not prejudice
Objects: Kinds 1. things – not outside the commerce of man 2. rights – not intransmissible 3. services – not contrary to law, morals, good customs, public order or public policy Things Which cannot be the Object of the Contract 1. things outside the commerce of man 2. services w/c are contrary to law, morals, good customs, public order or public policy 3. impossible things/services (original & not supervening) 4. objects w/c are not possible of determination as to their kind 5. intransmissible rights 6. future inheritance Things Outside the Commerce of Man 1. Services w/c imply an absolute submission by those who render them, sacrificing their liberty, their independence or beliefs, or disregarding in any manner the equality & dignity of persons (e.g. perpetual servitude/slavery) 2. Personal rights (e.g. patria potestas or marital authority, the status & capacity of persons, & honorary titles & distinctions) 3. Public offices, inherent attributes of the public authority, & political rights of individuals (e.g. right of suffrage) 4. Property while they pertain to the public domain (e.g. roads, plazas, squares, & rivers 5. Sacred things, common things (e.g. the air, the sea, and res
nullius, as long as they haven’t been appropriated) EMPTIO REI SPERETAE Conditional sale; there is a suspensive condition If the condition does not come into existence, there is not contract of sale
EMPTIO SPEI Sale of hope Even if the future thing does not materialize, the buyer must pay since the buyer is taking a chance (e.g. sale of lotto ticket)
Impossibility: Kinds 1. physical – the thing/service in the very nature of things cannot exist or be performed a. Absolute: the act cannot be done in any case so that no one can perform it; nullifies the contract b. Relative: it arises from the special circumstances or special conditions/qualifications of the obligor; if
- 20 -
CAUSE The why of contracts, the essential reason w/c impels the contracting parties to celebrate the contract Need not be material at all, & may consist in a moral satisfaction of the promissor
CONSIDERATION The reason, motive, or inducement, by w/c a man is moved to bind himself by an agreement Requires a legal detriment to the promise w/c must be more than a moral duty
CHAPTER 4 – REFORMATION OF INSTRUMENTS Reformation: That remedy by means of w/c a written instrument is amended/rectified so as to express or conform to the real agreement/intention of the parties when by reason of mistake, fraud, inequitable conduct, or accident, the instrument fails to express such agreement or intention Effect of Reformation: takes effect from it original execution
CAUSE Proximate why Objective, intrinsic & juridical reason for the existence of the contract itself Essential or more proximate purpose w/c the contracting parties have in view at the time of entering into the contract The cause of each kind of contract is always the same Immediate/direct reason Always known to the other contracting party Essential element of a contract Its illegality affects the validity of a contract
MOTIVE Ultimate why Psychological, individual or personal purpose of a party to the contract Purely personal/private reason which a party has in entering into a contract Motive differs w/ each person Remote/indirect reason May be unknown Not an essential element Its illegality does not render the contract void
Motive Affects the Contract if: 1. motive becomes a suspensive condition 2. realization of the motive is the cause for the contract & there is an intervening serious mistake of fact When Motives of a Party may Affect the Juridical Act 1. rescissible – when the motive of a debtor in alienating property is to defraud creditors 2. voidable – when the motive of a person in giving his consent is to avoid a threatened injury, (i.e. intimidation), 3. voidable – when the motive of a person induced him to act on the basis of fraud or misrepresentation by the other party Absence of Cause Illegality
Reformation: Requisites 1. meeting of the minds of the parties to the contract 2. written instrument doesn’t express the true agreement/intention of the parties 3. the failure to express the true intention is due to mistake, fraud, inequitable conduct (i.e. any act/omission w/c is unjust/unfair), or accident 4. the facts upon w/c relief by way of reformation of the instrument is sought are put in issue by the pleadings 5. clear & convincing evidence of the mistake, fraud, inequitable conduct, or accident REFORMATION There has been a meeting of the minds of the parties A contract exists but the written instrument purporting to embody the
contract doesn’t express the true intention of the parties by reason of mistake, fraud, inequitable conduct or accident Gives life to it upon certain corrections
Cases Where Reformation is Proper 1. when mutual mistake of the parties causes the failure of the instrument to disclose the real agreement 2. if one party was mistaken & the other acted fraudulently or inequitably in such a way that the instrument doesn’t show the true intention 3. when one party was mistaken & the other knew or believed
that the instrument didn’t state their real agreement, but
Void – produces no legal effect Void – produces no legal effect
ANNULMENT There has been no meeting of the minds The consent of one of the parties was vitiated by mistake, fraud, violence, intimidation Complete nullification of the contract
4.
concealed that fact from the former when through the ignorance, lack of skill, negligence or bad
- 21 -
CHAPTER 7 – VOIDABLE CONTRACTS
DEFECTIVE CONTRACTS: MORE NOTES CHAPTER 6: RESCISSIBLE CONTRACTS RESCISSION There is real alienation, but its fraudulent Can be alleged only by creditors prior to the act Impossibility of satisfying
SIMULATION There is in fact no alienation but a mere pretense that one has been made Can be alleged by all creditors, before or after the simulation
the
claim is NOT required
plaintiff’s
claim
is
required Accion pauliana – an action to set aside a valid contract
Due to his Fault or Fraud
Impossibility of satisfying the plaintiff’s
LOSS OF THING BY PLAINTIFF he cannot ask for annulment & the action is extinguished, even if at the time of the loss the plaintiff was still a minor or was insane
Does not seek to set aside the simulated contract, but merely to declare its inexistence
Right of Transferee
1. Gratuitous - the creditor will have a better right than the transferee who has given nothing & would unjustly be enriched at the expense of the creditor if the transfer were upheld A. Good faith: o transferee obliged to restore the thing o
Due to a Fortuitous Event
but he isn’t obliged to pay the fruits received by him
he is entitled to reimbursement for necessary & useful expenses incurred on the thing he returns the thing in the condition that it may be found o o he isn’t liable for losses or deteriorations, except in cases in w/c its proved that he has acted w/ fraudulent intent or negligence after judicial summons B. Bad faith: Transferee isn’t entitled to indemnity for damages from the debtor, in the even that rescission is decreed o
2. Onerous - the transferee in good faith is protected; as between 2 persons who both stand to suffer loss, the possessor of the property should be preferred in that possession, the ownership having been transferred by delivery Badges of Fraud: 1. consideration of the conveyance is inadequate/fictitious 2. transfer was made by a debtor after a suite has begun & while its pending against him 3. sale upon credit by an insolvent debtor
action for annulment isnt extinguished but the defendant cannot be obliged to make restitution to the plaintiff until annulment of the contract, it is valid & produces legal effect res perit domino(owner bears the loss): plaintiff who was in possession of the object at the time of its loss, must still be considered the owner thereof & must bear the loss by fortuitous event Since the plaintiff cannot return what he is bound to restore, the defendant cannot be compelled to make restitution But if the plaintiff offers to pay the value of the thing as a substitute for the thing itself, the defendant should be obliged to make restitution, except plaintiff need not pay interest
LOSS OF THING BY DEFENDANT he must return the fruits received, the value of the thing at the time of its loss, w/ interest fr. the same date Action for annulment cannot be extinguished for any event not imputable to the fault/fraud of the plaintiff Defendant required to pay the value of the thing at the time of the loss by fortuitous event, but w/o interest because the loss
wasn’t due to his
fault Defendant must suffer the loss because he is still the owner at the time of the loss
- 22 -
Defect
Kinds
RESCISSIBLE VOIDABLE Defect consists in injury/damage either to Defect consists in the vitiation of consent or rd 1 of the contracting parties or to 3 in the legal incapacity of 1 of the persons; may be set aside in whole/part, to contracting parties the extent of the damage caused - (defect is in the effects) 1. those entered into by guardians 1. those where 1 of the contracting parties is whenever the wards whom they incapable of giving his consent to a represent suffer lesion by more than ¼ contract of the value of the things w/c are the a. minors object thereof b. insane/demented persons 2. those agreed upon in representation of c. deaf/mutes who do not know how to absentees, if the latter suffer the lesion write stated in the preceding # d. intoxicated 3. those undertaken in fraud of creditors e. under hypnotic spell when the latter cannot in any other 2. those where the consent is vitiated by manner collect the claims due them mistake, violence, intimidation, undue 4. those w/c refer to things under litigation influence or fraud if they have been entered into by the defendant w/o the knowledge & approval of the litigants or of competent judicial authority 5. contracts specifically declared by law to be subject to rescission 6. payments made in a state of insolvency for obligations whose fulfillment the debtor could not be compelled at the time they were effected Note: No rescission is allowed if contract/transaction is approved by court
Validity/ Effectivity
the the
Before rescission, they are valid & effective Prescription only, not by ratification
Convalidation
Prescriptive Period
GR: the action to claim rescission must be commenced w/in 4 years fr. the date the contract was entered into Exceptions: - for persons under guardianship, the period shall begin from the termination of incapacity - for absentees, from the time the domicile is known - for creditors, from the time of discovery of fraud & after all means are exhausted - for litigants, from the time of knowledge of transaction
SIENNA A. FLORES
Valid & binding until they are annulled by a competent court 1. prescription 2. confirmation: express/tacit-retroactive 3. loss of the thing w/c is the object of the contract through fraud/fault of the person entitled to annul the contract GR: the action for annulment must be commenced w/in 4 years fr. the date the contract was entered into Exceptions: - for incapacitated persons, from the the guardianship ceases - in case of intimidation, violence or undue influence, from the time the defect of consent ceases - in case of mistake or fraud, from the time of its the discovery ***prescriptive period not interrupted by extra-judicial demand
UNENFORCEABLE Defect consists in the fact that they were entered into in excess or w/o any authority, or they do not comply w/ Statute of Frauds, or both contracting parties are legally incapacitated 1. Unauthorized or no sufficient authority: a) no authority conferred b) in excess of authority conferred 2. Curable by Acknowledgement: Those that do not comply with the Statute of Frauds a) agreement is not to be performed w/in a year from the making thereof b) special promise to answer for the debt/default/miscarriage of another c) agreement in consideration of marriage other than a mutual promise to marry d) An agreement for the sale of goods, chattels or things in action, at a price not less than P500 e) agreement for leasing for a period longer than one year, or for the sale of real property or of an interest therein f) representation as to the credit of a 3rd person 3. Curable by ratification: both parties are incapable of giving consent to a contract ***Statute of Frauds: statute w/c requires certain classes of contracts to be in writing to prevent fraud applicable only to executory contracts (where no performance has yet been made by both parties) 4. Express trusts over immovables Valid but cannot be enforced by a proper action in court, unless ratified Ratification only, not by prescription
VOID All requisites prescribed by law are present, but the cause/object/purpose is contrary to law, morals, good customs, public order or public policy, or are prohibited by law, or are declared by law to be void - (defect is inherent) 1. cause, object or purpose is contrary to law, morals, good customs, public order or public policy 2. absolutely simulated or fictitious 3. cause/object did not exist at the time of the transaction 4. object is outside the commerce of men 5. contemplate an impossible service 6. intention of the parties relative to the principal object of the contract cannot be ascertained 7. expressly prohibited/declared void by law i. Contracts upon future inheritance expect in cases expressly authorized by law ii. Sale of property bet. husband & wife except when there is a separation of property iii. Purchase of property by persons who are specifically disqualified by law because of their position/relation w/ the person/property under their care iv. Every donation bet. spouses during the marriage shall be void except moderate gifts w/c the spouses may give each other on the occasion of any family rejoicing v. A testamentary disposition in favour of a disqualified person, even though made under the guise of an onerous contract, or made through an intermediary, shall be void vi. Any stipulation that household service is w/o compensation is void vii. Congressmen are prohibited fr. being financially interested, directly/indirectly, in any contract w/ the govt or any subdivision/instrumentality Void from the beginning; produces no effect No susceptible of convalidation, either by ratification or prescription; cannot give rise to a valid contract *** validity cannot be given to it by estoppel or by reason of equity
Imprescriptible
OBLIGATIONS & CONTRACTS
- 23 RESCISSIBLE
Ratification
Attack of Contract/ Who may Institute an Action
Effects/ Restitution/ Recovery
When Not Applicable
Other Notes
VOIDABLE UNENFORCEABLE Requisites of Confirmation: Modes of Ratification 1. contract is voidable/annulable 1. failure to object to the presentation 2. confirmation should be effected by the of oral evidence to prove the person who is entitled to do so contract (waiver) 3. it should be effect w/ knowledge of the 2. acceptance of benefits under the reasons w/c render the contract voidable contract 4. the reason w/c renders the contract voidable have already disappeared **Directly & not collaterally **Directly ** Cannot be attacked - the injured party/defrauded creditor - Cannot be attacked by 3 rd persons Cannot be assailed by 3rd persons - his heirs/assigns/successors in interest - plaintiff must have an interest in the ***The defense of the Statute of - the creditors of the above entitled to contract & the victim must be the 1 who Frauds is personal to the parties subrogation must assert it ***The defense may be waived - person capacitated cant allege the incapacity of those he contracted with Effect of Rescission Effect of Annulment (prospective) GR: Mutual Restitution GR: Mutual Restitution - things w/ its fruits - things w/ its fruits - Price w/ interest - Price w/ interest Exceptions: - value of service as amount of damages - creditor did not receive anything from the Exceptions: contract - Incapacitated person: restitution only to - thing is already in possession of a party the extent that he was benefited in good faith - loss of thing w/ fault
When Rescission Shall Not Take Place: 1. if the party who demands rescission cannot return what he is obliged to restore under the contract 2. the property is legally in the possession of a 3rd persons who acted in good faith; he acquired the property & registered it under the Torrens System of Registry of Property unaware of the flaw in his title or mode of acquisition Requisites: 1. contract must be validly agreed upon 2. lesion or pecuniary prejudice to 1 of the parties or to a 3 rd person 3. rescission must be based upon a case especially provided by law 4. there must be no other legal remedy to obtain reparation for the damage 5. the object of the contract must not legally be in the possession of 3rd persons who did not act in bad faith 6. the period for filing the action for rescission must not have prescribed 7. the party asking for rescission must be able to return what he is obliged to restore by reason of the contract (required only if a party to the contract & NOT if a 3rd person) - based on equity & private interest
SIENNA A. FLORES
Action for Annulment will not prosper: tatute of Frauds does Not Apply: 1. the contract has been confirmed 1. Actions w/c are neither for damages 2. the action to annul has prescribed because of violation of a contract, 3. the thing w/c is the object of the contract nor for specific performance is lost through the fault/fraud of the 2. Contracts totally/partially performed person who has right to institute the 3. When the contract is admitted proceedings expressly/impliedly by the failure to 4. estoppel deny specifically its existence . Where a writing doesn’t express the true agreement of the parties - Direct influence of the public interest
VOID
** Collaterally or directly - Can be attacked/assailed by a contracting party or by a 3rd person whose interest is directly affected *** judgment of nullity would be merely declaratory
GR: they produce no legal effects Exceptions: when recovery may be made: 1. if performed 2. payment of usurious interest 3. contract was entered into for illegal purpose but was repudiated before the purpose was accomplished, so that public interest is subserved 4. incapacitated person in the interest of justice 5. contract is not illegal per se but merely prohibited for protection of the plaintiff 6. amount paid in excess of ceiling price 7. addt’l compensation for service rendered beyond time limit 8. recovery of amount of wages less than min. fixed The right to set up the defense of absolute nullity or inexistence cannot be renounced ***In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced
Constitutes a criminal offense 1. both parties in pari delicto - neither may demand specific performance - neither party may ask for restitution - the things/price of the contract shall be confiscated - both shall be prosecuted 2. only one party is guilty - only the innocent party can demand specific performance - only the innocent party may ask for restitution Does NOT constitutes a criminal offense 1. both parties are in pari delicto - neither party may ask for restitution - neither may demand specific performance 2. only one party is guilty - only innocent party may ask for restitution - only the innocent party can demand specific performance
OBLIGATIONS & CONTRACTS
