0BLIGATIONS AND CONTRACT IN A CAPSULE November 21, 2008 (updated)BY RAY MARVIN FLORES, LLB,BPS

INTRODUCTION TO THE CAPSUALIZE BOOKS

Most writers of books are writen in a scholarly manner to give an impressin that they are the intellectual GIANTS OF THEIR FIELDS. But the author believes that professors are sentinels of education and that our mussion is to impart knowledge to the next generation.

This books has great respect to the Majestic scholars and the mission of the books is make a communication and bridge the gap between the professor and the student in the language by the latter. With the hope that they would spread the wisdom of the law.

“those WHO have LESS in life should have MORE IN LAW”

Reiterating Social Justice The author

BOOK IV 

OBLIGATIONS AND CONTRACTS 

Title. I. - OBLIGATIONS 

CHAPTER 1GENERAL PROVISIONS

  Art. 1156. An obligation is a juridical necessity to give, to do or not to do. (n)

OBLIGATION = is a juridical relationship. A party as creditor may demand from the debtor in a period. In case of breach any demand from the assets of the debtor

Essential requisites of a valid obligation: cause1. A passive subject – called the debtor or obligor2. An active subject – called creditor or obligee3. Object or prestation – subject matter of the obligation4. A juridical or legal tie – also called efficient cause

Kinds of obligation1. Real Obligation – obligation to give2. Personal Obligation – obligation to do or not to do

a. Positive personal obligationb. Negative personal obligation

Q: is the question of capacity, Nescessary?A: NO

Why the CAUSE EXIST → “Vindiculum Juris” Juridical tie or prestation

“De jesus vs. Sequia”

→ Breach of contract of promise to marry → not an actionable wrong PERSE. ↓ NOTE: a conceived child shall be Hermosisimo vs. CA considered born for all purposes favorable ↓ to it. Provided all requisites fol. Under sec.41ncc ↓TO PROTECT INNOCENT MEN FROM SCROPOLOUS WOMEN

→ acknowledgement of the child is conditionally valid

OBLIGATION - The requirement to do what is imposed by law, promise, or contract; a duty.

In its general and most extensive sense, obligation is synonymous with duty. In a more technical meaning, it is a tie which binds us to pay or to do something agreeably to the laws and customs of the country in which the obligation is made. The term obligation also signifies the instrument or writing by which the contract is witnessed. And in another sense, an obligation still subsists, although the civil obligation is said to be a bond containing a penalty, with a condition annexed for the payment of money, performance of covenants or the like; it differs from a bill which is generally without a penalty or condition though it may be obligatory. It is also defined to be a deed whereby a man binds himself under a penalty to do a thing. The word obligation, in its most technical signification imports a sealed instrument.

Obligations are divided into imperfect obligations and perfect obligations.

Imperfect obligations are those which are not binding on us as between man and man, and for the non-performance of

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which we are accountable to God only; such as charity or gratitude. In this sense an obligation is a mere duty.

A perfect obligation is one which gives a right to another to require us to give him something or not to do something. These obligations are either natural or moral, or they are civil.

A natural or moral obligation is one which cannot be enforced by action, but which is binding on the party who makes it, in conscience and according to natural justice. As for instance, when the action is barred by the act of limitation, a natural obligation is extinguished. Although natural obligations cannot be enforeed by action, they have the following effect: 1. No suit will lie to recover back what has been paid, or given in compliance with a natural obligation. A natural obligation is a sufficient consideration for a new contract.

A civil obligation is one which has a binding operation in law, vinculum juris, and which gives to the obligee the right of enforcing it in a court of justice; in other words, it is an engagement binding on the obligor.

Civil obligations are divided into express and implied, pure and conditional, primitive and secondary, principal and accessory, absolute and alternative, determinate and indeterminate, divisible and indivisible, single and penal, and joint and several. They are also purely personal, purely real, and both real and mixed at the same time. Express or conventional obligations are those by which the obligor binds himself in express terms to perform his obligation.

An implied obligation is one which arises by operation of law; for example, if I send you daily a loaf of bread without any express authority and you make use of it in your family, the law raises an obligation on your part to pay me the value of the bread.

A pure or simple obligation is one which is not suspended by any condition, either because it has been contacted without condition or having been contracted with one, it has been fulfilled.

A conditional obligation is one the execution of which is suspended by a condition which has not been accomplished and subject to which it has been contracted.

A primitive obligation, which in one sense may also be called a principal obligation, is one which is contracted with a design that it should, itself, be the first fulfilled.

A secondary obligation is one which is contrasted and is to be performed in case the primitive cannot be. For example, if I sell you my house, I bind myself to give a title but I find I cannot as the title is in another, then my secondary obligation is to pay you damages for my non-performance of my obligation.

A principal obligation is one which is the most important object of the engagement of the contracting parties.

An accessory obligation is one which is dependent on the principal obligation; for example, if I sell you a house and lot of ground, the principal obligation on my part is to make you a title for it; the accessory obligation is to deliver you all the title papers which I have relating to it; to take care of the estate till it is delivered to you and the like.

An absolute obligation is one which gives no alternative to the obligor, but he is bound to fulfil it according to his engagement. An alternative obligation is, where a person engages to do, or to give several things in such a manner that the payment of one will acquit him of all; as if A agrees to give B, upon a sufficient consideration, a horse or one hundred dollars.

In order to constitute an alternative obligation, it is necessary that two or more things should be promised disjunctively; where they are promised conjunctively, there are as many obligations as the things which are enumerated, but where they are in the alternative, though they are all due, there is but one obligation, which may be discharged by the payment of any of them.

The choice of performing one of the obligations belongs to the obligor, unless it is expressly agreed that all belong to the creditor. If one of the acts is prevented by the obligee, or the act of God, the obligor is discharged from both.

A determinate obligation, is one which has for its object a certain thing; as an obligation to deliver a certain horse named Bucephalus. In this case the obligation can only be discharged by delivering the identical horse.

An indeterminate obligation is one where the obligor binds himself to deliver one of a certain species; as to deliver a horse, the delivery of any horse will discharge the obligation.

A divisible obligation is one which being a unit may nevertheless be lawfully divided with or without the consent of the parties. It is clear it may be divided by consent, as those who made it, may modify or change it as they please. But some obligations may be divided without the consent of the obligor; as, where a tenant is bound to pay two hundred dollars a year rent to his landlord, the obligation is entire, yet, if his landlord dies and leaves two sons, each will be entitled to one hundred dollars; or if the landlord sells one undivided half of the estate yielding the rent, the purchaser will be entitled to receive one hundred dollars, and the seller the other hundred.

An indivisible obligation is one which is not susceptible of division; as, for example, if I promise to pay you one hundred dollars, you cannot assign one half of this to another, so as to give him a right of action against me for his share.

A single obligation is one without any penalty; as, where I simply promise to pay you one hundred dollars. This is called a single bill, when it is under seal.

A penal obligation is one to which is attached a penal clause which is to be enforeed, if the principal obligation be not performed. In general equity will relieve against a penalty, on the fulfilment of the principal obligation.

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A joint obligation is one by which several obligors promise to the obligee to perform the obligation. When the obligation is only joint and the obligors do not promise separately to fulfil their engagement they must be all sued, if living, to compel the performance; or, if any be dead, the survivors must all be sued.

A several obligation is one by which one individual or several individuals bind themselves separately to perform the engagement. In this case each obligor may be sued separately, and if one or more be dead their respective executors may be sued.

The obligation is, purely personal when the obligor binds himself to do a thing; as if I give my note for one thousand dollars, in that case my person only is bound, for my property is liable for the debt only while it belongs to me, and if I lawfully transfer it to a third person, it is discharged.

The obligation is personal in another sense, as when the obligor binds himself to do a thing, and he provides his heirs and executors shall not be bound; as, for example, when he promises to pay a certain sum yearly during his life and the payment is to cease at his death.

The obligation is real when real estate, and not the person, is liable to the obligee for the performance. A familiar example will explain this: when an estate owes an easement, as a right of way, it is the thing and not the owner who owes the easement. Another instance occurs when a person buys an estate which has been mortgaged, subject to the mortgage, he is not liable for the debt, though his estate is. In these cases the owner has an interest only because he is seised of the servient estate, or the mortgaged premises, and he may discharge himself by abandoning or parting with the property.

The obligation is both personal and real when the obligor has bound himself, and pledged his estate for the fulfilment of his obligation.

PARTIES:

OBLIGEE OR CREDITOR - contracts. The person in favor of whom some obligation is contracted, whether such obligation be to pay money, or to do, or not to do something.

Obligees are either several or joint, an obligee is several when the obligation is made to him alone; obligees are joint when the obligation is made to two or more, and, in that event, each is not a creditor for his separate share, unless the nature of the subject or the particularity of the expression in the instrument lead to a different conclusion.

OBLIGOR or DEBTOR - The person who has engaged to perform some obligation. The word obligor, in its more technical signification, is applied to designate one who makes a bond.

Obligors are joint and several. They are joint when they agree to pay the obligation jointly, and then the survivors only are liable upon it at law, but in equity the assets of a deceased joint obligor may be reached. They are several when one or more bind themselves each of them separately to perform the obligation. In order to become an obligor, the party must actually, either himself or by his attorney, enter into the obligation, and execute it as his own. If a man sign and seal a bond as his own and deliver it, he will be bound by it although his name be not mentioned in the bond. When the obligor signs between the penal part and the condition, still the latter will be a part of the instrument.

The execution of a bond by the obligor with a blank, and a verbal authority to fill it up, and it is afterwards filled up, does not bind the obligor unless it is redelivered or acknowledged or adopted.

Art. 1157. Obligations arise from:

(1) Law;

(2) Contracts;

(3) Quasi-contracts;

(4) Acts or omissions punished by law; and

(5) Quasi-delicts. (1089a)

Sources of Obligations1. Law – when they are imposed by law itself2. Contracts – when they arise from the stipulation of the parties3. Quasi-contracts – when they arise from lawful, voluntary and unilateral acts which are

enforceable to the end that no one shall be unjustly enriched or benefited at the expense o another.

4. Crimes or acts or omissions punished by law – when they arise from civil liability which is the consequence of a criminal offense

5. Quasi-delicts or torts – when they arise from damage caused to another through an act or omission, there being fault or negligence, but no contractual relation exists between the parties

“Polayo Vs. Heron”

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“Dela Cruz Vs. SECURITY”

CONTRACTS → Is the Law that governs over the Parties and shall have the force of Law among them.QUASI CONTRACTS → Voluntary unilateral act

→ Soluton Indebiti = Payment of something which is not due- obligation to return of what is not due→ Negotiorium Gestio = ADMINISTRATION is not in BAD Faith

DELICT → Actions which are criminal in nature:obligations to the state

QUASI - DELICT

Culpa aquiliana Culpa contractual

- No existing Contract - there is an existence of a contract- Negligence is never PRESUMED - Negligence is PRESUMED- Diligence in the selection of employees - NOT A DEFENSE IS A DEFENSE

Quasi- Delict is tort

Art. 1158. Obligations derived from law are not presumed. Only those expressly determined in this Code or in special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book. (1090)

Art. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. (1091a)

Contracts – a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.

Art. 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII, of this Book. (n)

Kinds of quasi-contracts1. Negotiorum gestio – is the voluntary management o the property of affairs of another without

the knowledge or consents of the latter.2. Solution indebiti – is the juridical relation which is created when something is received when

there is no right to demand it and it was unduly delivered through mistake

Art. 1161. Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the provisions of Article 2177, and of the pertinent provisions of Chapter 2, Preliminary Title, on Human Relations, and of Title XVIII of this Book, regulating damages. (1092a)

Scope of civil liability1. Restitution2. Reparation for the damaged caused; and3. Indemnification for consequential damages

Art. 1162. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book, and by special laws. (1093a)  

Requisites of quasi-delict(Before a person can be held liable for quasi-delict, the following requisites must be present)1. There must be an act of omission2. There must be fault or negligence3. There must be damage caused4. There must be a direct relation of cause and effect between the act or omission and the

damage; and 5. There is no pre-existing contractual relation between the parties

CHAPTER 2NATURE AND EFFECT OF OBLIGATIONS

  Art. 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care. (1094a)

A thing is said to be specific or determinate particularly designated or physically segregated others of the same class

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A thing is generic or indeterminate when it refers only to a class or genus to which it pertains and cannot be pointed out with particularity

Art. 1164. The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him. (1095)

Different kinds of fruits1. Natural fruits2. Industrial fruits3. Civil fruits

DELIVERY - The transferring of a deed from the grantor to the grantee in such a manner as to deprive him of the right to recall it, or the delivery may be made and accepted by an attorney. This is indispensably necessary to the validity of a deed except for the deed of a corporation, which must be executed under their common seal. But although, as a general rule the delivery of a deed is essential to its perfection, it is never averred in pleading.

As to the form, the delivery may be by words without acts; such as if the deed be lying upon a table, and the grantor says to the grantee, 'take that as my deed'; or it may be by acts without words, and therefore a dumb man may deliver a deed.

A delivery may be either absolute, as when it is delivered to the grantor himself; or it may be conditional, such as to a third person to keep until some condition shall have been performed by the grantee, and then it is called an escrow.

Contracts. The transmitting the possession of a thing from one person into the power and possession of another.

Originally, delivery was a clear and unequivocal act of giving possession, accomplished by placing the subject to be transferred in the hands of the buyer or his avowed agent, or in their respective warehouses, vessels, carts, and the like. This delivery was properly considered as the true badge of transferred property; as importing full evidence of consent to transfer; preventing the appearance of possession in the transferrer from continuing the credit of property unduly; and avoiding uncertainty and risk in the title of the acquirer.

However, the complicated transactions of modern trade render strict adherence to this simple rule impossible. It often happens that the purchaser of a commodity cannot take immediate possession and receive the delivery. The bulk of the goods; their peculiar situation, as when they are deposited in public custody for duties, or in the hands of a manufacturer for the purpose of having some operation performed upon them; the frequency of bargains concluded by correspondence between distant countries and many other obstructions, frequently render it impracticable to give or receive actual delivery. In such cases, something short of actual delivery has been considered sufficient to transfer the property.

In sales, gifts, and other contracts, where the party intends to transfer the property, the delivery must be made with the intent to enable the receiver to obtain dominion over it. The delivery may be actual, by putting the thing sold in the hands or possession of the purchaser; or it may be symbolical, as where a man buys goods which are in a room, the receipt of the keys will be sufficient.

There is sometimes considerable difficulty in ascertaining the particular period when the property in the goods sold passes from the vendor to the vendee; and what facts amount to an actual delivery of the goods. Certain rules have been established, and the difficulty is to apply the facts of the case.

Where goods are sold, if nothing remains to be done on the part of the seller as between him and the buyer before the article is to be delivered, the property has passed.

Where a chattel is made to order, the property therein is not vested in the quasi vendee until finished and delivered, though he has paid for it.

The criterion to determine whether there has been a delivery on a sale is to consider whether the vendor still retains, in that character, a right over the property.

Where a part of the goods sold by an entire contract has been taken possession of by the vendee, that shall be deemed a taking possession of the whole. Such partial delivery is not a delivery of the whole so as to vest in the vendee the entire property in the whole, where some act, other than the payment of the price, is necessary to be performed in order to vest the property.

Where goods are sent by order to a carrier the carrier receives them as the vendee's agent.

A delivery may be made in a very slight manner; as where one buys goods which are in a room, the receipt of the key is sufficient.

The vendor of bulky articles is not bound to deliver them, unless he stipulated to do so; he must give notice to the buyer that he is ready to deliver them.

A sale of bricks in a brick-yard, accompanied with a lease of the yard until the bricks should be sold and removed, was held to be valid against the creditors of the vendor, without an actual removal.

Where goods were contracted to be sold upon condition that the vendee should give security for the price, and they

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are delivered without security being given, but with the declaration on the part of the vendor that the transaction should not be deemed a sale until the security should be furnished; it was held that the goods remained the property of the vendor, notwithstanding the delivery. But it seems that in such cases the goods would be liable for the debts of the vendee's creditors, originating after the delivery; and that the vendee may, for a bona fide consideration, sell the goods while in his possession.

Where goods are sold to be paid for on delivery, if on delivery, the vendee refuses to pay for them, the property is not divested from the vendor.

If the vendor rely on the promises of the vendee to perform the conditions of the sale and deliver the goods accordingly, the right of property is changed; but where performance and delivery are understood to be simultaneous, possession obtained by artifice, will not vest a title in the vendee.

Where, on the sale of a chattel, the purchase money is paid, the property is vested in the vendee, and if he permit it to remain in the custody of the vendor he cannot call upon the latter for any subsequent loss or deterioration not arising from negligence.

Med. Jur. Child-birth. The act of a woman giving birth to her off-spring.

It is frequently of great importance to ascertain whether or not a delivery has taken place, and the time when it took place. Delivery may be considered with regard, 1. To pretended delivery. 2. To concealed delivery.

In pretended delivery, the female declares herself to be a mother, without being so in reality; an act always prompted by folly or fraud.

Pretended delivery may present itself in three points of view: 1. When the female who feigns has never been pregnant. When thoroughly investigated, this may always be detected. There are signs which must be present, and cannot be feigned. An enlargement of the orifice of the uterus, and a tumefaction of the organs of generation, should always be present, and if absent, are conclusive against the fact. 2. When the pretended pregnancy and delivery have been preceded by one or more deliveries. In this case, attention should be given to the following circumstances: the mystery, if any, which has been affected with regard to the situation of the female; her age; that of her hushand and particularly whether aged or decrepid. 3. When the woman has been actually delivered, and substitutes a living for a dead child. But little evidence can be obtained on this subject from a physical examination.

Concealed delivery generally takes place when the woman either has destroyed her offspring, or it was born dead. In suspected cases, the following circumstances should be attended to: 1. The proofs of pregnancy which arise in consequence of the examination of the mother. When she has been pregnant, and has been delivered, the usual signs of delivery, mentioned below, will be present. A careful investigation as to the woman's appearance, before and since the delivery, will have some weight, though such evidence is not always to be relied upon, as such appearances are not unfrequently deceptive. 2. The proofs of recent delivery. 3. The connexion between the supposed state of parturition, and the state of the child that is found; for if the age of the child does not correspond to that time, it will be a strong circumstance in favor of the mother's innocence. Whether the child was living at its birth, belongs to the subject of infanticide.

Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by Article 1170, may compel the debtor to make the delivery.

If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor.

If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. (1096)

Specific real obligation – obligation to deliver a determinate thingGeneric real obligation – obligation to deliver a generic thing

“Singson vs. BPI”

WHAT ARE THE OBLIGATIONS of in an obligation to give

Note- know the nature of the obligation to give.

- if GENERIC → give what he promise to give- If SPESIFIC THING → give the very thing promise- Give the accesions/accessoiries

Art. 1166. The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned. (1097a)

ACCESSION - are the fruits of a thing or additions to or improvements upon a thing (the principal). The right pertaining to the owner of a thing over its products and whatever is inseparably attached thereto as an accessory The ownership of a thing, whether it be real or personal, movable or immovable, carries with it the right to all that the thing produces, and to all that becomes united to it, either naturally or artificially; this is called the right of accession.

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The doctrine of property arising from accession, is grounded on the right of occupancy.

The original owner of any thing which receives an accession by natural or artificial means, as by the growth of vegetables, the pregnancy of animals; the embroidering of cloth, or the conversion of wood or metal into vessels or utensils, is entitled to his right of possession to the property of it, under such its state of improvement. But the owner must be able to prove the identity of the original materials; for if wine, oil, or bread, be made out of another man's grapes, olives, or wheat, they belong to the new operator, who is bound to make satisfaction to the former proprietor for the materials which he has so converted.

ACCESSORY - are things joined to or included with the principal thing for the latter’s embellishment, better use, or completion. Are things which are joined to another as an ornament, or to make it complete.

He who is not the chief actor in the perpetration of the offence, nor present at its performance, but is some way concerned therein, either before or after the fact committed.

An accessory before the fact, is one who being absent at the time of, the crime committed, yet procures, counsels, or commands another to commit it. It is, proper to observe that when the act is committed through the agency of a person who has no legal discretion nor a will, as in the case of a child or an insane person, the incitor, though absent when the crime was committed, will be considered, not an accessary, for none can be accessary to the acts of a madman, but a principal in the first degree.

An accessary after the fact, is one who knowing a felony to have been committed, receives, relieves, comforts, or assists the felon.

No one who is a principal can be an accessary.

In certain crimes, there can be no accessories; all who are concerned are principals, whether they were present or absent at the time of their commission. These are treason, and all offences below the degree of felony; such is the English Law. But whether it is law in the United States appears not to be determined as regards the cases of persons assisting traitors.

It is evident there can be no accessary when there is no principal; if a principal in a transaction be not liable under our laws, no one can be charged as a more accessary to him.

By the rules of the common law, accessaries cannot be tried without their consent, before the principals.

ACCESSORY AFTER THE FACT - Whoever, knowing that an offense has been committed, receives, relieves, comforts or assists the offender in order to hinder or prevent his apprehension, trial or punishment, is an accessory after the fact; one who knowing a felony to have been committed by another, receives, relieves, comforts, or assists the felon in order to hinder the felon's apprehension, trial, or punishment.

ACCESSORY BEFORE THE FACT. One who orders, counsels, encourages, or otherwise aids and abets another to commit a felony and who is not present at the commission of the offense.

ACCESSORY DURING THE FACT. One who stands by without interfering or giving such help as may be in his power to prevent the commission of a criminal offense.

RIGHT - This word is used in various senses: 1. Sometimes it signifies a law, as when we say that natural right requires us to keep our promises, or that it commands restitution, or that it forbids murder. In our language it is seldom used in this sense. 2. It sometimes means that quality in our actions by which they are denominated just ones. This is usually denominated rectitude. 3. It is that quality in a person by which he can do certain actions, or possess certain things which belong to him by virtue of some title. In this sense, we use it when we say that a man has a right to his estate or a right to defend himself.

In this latter sense alone, will this word be here considered. Right is the correlative of duty, for, wherever one has a right due to him, some other must owe him a duty.

Rights are perfect and imperfect. When the things which we have a right to possess or the actions we have a right to do, are or may be fixed and determinate, the right is a perfect one; but when the thing or the actions are vague and indeterminate, the right is an imperfect one. If a man demand his property, which is withheld from him, the right that supports his demand is a perfect one; because the thing demanded is, or may be fixed and determinate.

But if a poor man ask relief from those from whom he has reason to expect it, the right, which supports his petition, is an imperfect one; because the relief which he expects, is a vague indeterminate, thing.

Rights are also absolute and qualified. A man has an absolute right to recover property which belongs to him; an agent has a qualified right to recover such property, when it had been entrusted to his care, and which has been unlawfully taken out of his possession.

Rights might with propriety be also divided into natural and civil rights but as all the rights which man has received from nature have been modified and acquired anew from the civil law, it is more proper, when considering their object, to divide them into political and civil rights.

Political rights consist in the power to participate, directly or indirectly, in the establishment or management of government.

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These political rights are fixed by the constitution. Every citizen has the right of voting for public officers, and of being elected; these are the political rights which the humblest citizen possesses.

Civil rights are those which have no relation to the establishment, support, or management of the government. These consist in the power of acquiring and enjoying property, of exercising the paternal and marital powers, and the like. It will be observed that every one, unless deprived of them by a sentence of civil death, is in the enjoyment of his civil rights, which is not the case with political rights; for an alien, for example, has no political, although in the full enjoyment of his civil rights.

These latter rights are divided into absolute and relative. The absolute rights of mankind may be reduced to three principal or primary articles: the right of personal security, which consists in a person's legal and uninter-rupted enjoyment of his life, his limbs, his body, his health, and his reputation; the right of personal liberty, which consists in the power of locomotion, of changing situation, or removing one's person to whatsoever place one's inclination may direct, without any restraint, unless by due course of law; the right of property, which consists in the free use, enjoyment, and disposal of all his acquisitions, without any control or diminution, save only by the laws of the land.

The relative rights are public or private: the first are those which subsist between the people and the government, as the right of protection on the part of the people, and the right of allegiance which is due by the people to the government; the second are the reciprocal rights of hushand and wife, parent and child, guardian and ward, and master and servant.

Rights are also divided into legal and equitable. The former are those where the party has the legal title to a thing, and in that case, his remedy for an infringement of it, is by an action in a court of law. Although the person holding the legal title may have no actual interest, but hold only as trustee, the suit must be in his name, and not in general, in that of the cestui que trust. The latter, or equitable rights, are those which may be enforced in a court of equity by the cestui que trust.

Warranty

is an obligation that an article or service sold is as factually stated or legally implied by the seller, and that often provides for a specific remedy such as repair or replacement in the event the article or service fails to meet the warranty. A breach of warranty occurs when the promise is broken, i.e., a product is defective or not as should be expected by a reasonable buyer.

In business and legal transactions, a warranty is an assurance by one party to the other party that certain facts or conditions are true or will happen; the other party is permitted to rely on that assurance and seek some type of remedy if it is not true or followed.

In real estate transactions, warranty deed is a promise that the buyer's title to a parcel of land will be defended. 

Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone. (1098)

Art. 1168. When the obligation consists in not doing, and the obligor does what has been forbidden him, it shall also be undone at his expense. (1099a)

As a rule, the remedy of the obligee is the undoing of the forbidden thing plus damages.

Art. 1169. (Reciprocal Obligation) Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. (1100a)

NO DEMAND NO DELAY = CULPABLE delay ( or legal Delay)

Instances where demand is not nescessary1169ccOrdinary delay – is merely the failure to perform obligation on time

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Legal delay or default – is the failure to perform an obligation on time which failure constitutes a breach of the obligation

Kinds of delay or default1. Mora solvendi – or the delay on the part of the debtor to fulfill his obligation (to give or to do)2. Mora accipiendi – or the delay on the part of the creditor to accept the performance o the

obligation; and3. Compensatio morae – or the delay of the obligors in reciprocal obligations

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. (1101)

The above provision indicates the four sources of liability which may entitle the injured party to damages. They are:

1.) Fraud (deceit or dolo)– It is simply means the voluntary and deliberate act to evade the fulfillment of an obligation. Unlike negligence, it involves deliberate intent and dishonesty.

2.) Negligence (fault or culapa)– It is the failure to observe for the protection of the interest of another person, that degree of care, precaution and vigilance which the circumstances justly demand, whereby, such other person suffers injury.

3.) Delay(mora) – There is a need of demand, juridical or extrajudicial, in order that one party may be considered in delay or in default.

4.) Contravention of the tenor of the obligation - The phrase” in any manner contravenes the tenor” of the obligation includes any illicit act which impairs the strict and faithful fulfillment of the obligation, or every kind of defective performance.

1170(FRAUD) DOLO CAUSANTE – annullment of contracts

DOLO INCIDENTE – sources of damages

Art. 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void. (1102a)

Art. 1172. Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances. (1103)

Kinds of negligence according to source of obligation1. Contractual negligence (culpa contractual) or negligence in contracts resulting in their breach.2. Civil negligence (culpa aquiliana) or negligence which by itself is the source of an obligation

between the parties not so related before by any pre-existing contract.3. Criminal negligence (culpa criminal) or negligence resulting in the commission of a crime.

Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2, shall apply.

If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required. (1104a)

Fault or negligence – is the failure to observe for the protection of the interest of another person, that degree of care, precaution and vigilance which the circumstance justly demand, whereby such other persons suffers injury.

In determining the issue of negligence the following factors must be considered:1. Nature of the obligation2. Circumstances of the person3. Circumstances of time4. Circumstance of the place

Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable. (1105a)

Fortuitous event – is any event which cannot be foreseen, or which, though foreseen, is inevitable

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Fortuitous event distinguished from force majeure1. Acts of man – fortuitous event is an event independent of the will of the obligor but not of other

human wills.2. Acts of God – they refer to what is called majeure or those events which are totally independent

will of every human being.

De Jesus vs. Mallorca

NOTE: when an act of GOD is incurred with an act Men it becomes an act men

ACT OF GOD DOCTRINE Damage is cause to another cause, exclusively. Primarily. Entirely by the violence of nature.

Art. 1175. Usurious transactions shall be governed by special laws. (n)

1175 USURIOS TRANSACTIONS ↓

NO MORE CEILING ON INTEREST

ME DELLO VS GONZALES ENTERPRISES- Apply the legal rate only if stipulation is silent on the percent.

PHIL. RABBIT VS. JUDGE LEONARDO CRUZ - Obligation arising from loans is 12 forbearance of money = 12%EASTERN SHIPPING VS CA

- Case does not apply because it is not forbearance of them only is 6%- Note is judgment is Final and executary interest shall be come 12%

Denumetor –

Compensatory – per payment of

Accion poliana – possessing action against the debtor

“Recessisory action is an action in last resort”

Simple loan or mutuum - is 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 and quality shall be paid.

Usury – is contracting for or receiving interest in excess of the amount allowed by law for the loan or use of money, goods, chattels or credits.

Art. 1176. The receipt of the principal by the creditor without reservation with respect to the interest, shall give rise to the presumption that said interest has been paid.

Presumption – is meant the inference of a fact not actually known arising from its usual connection with another which is known.

Two kinds of presumption1. Conclusive presumption – one which cannot be contradicted, like the presumption that

everyone is conclusively presumed to know the law2. Disputable (or refutable) presumption – one which can be contradicted or rebutted by

presenting proof to the contrary.

The receipt of a later installment of a debt without reservation as to prior installments, shall likewise raise the presumption that such installments have been paid. (1110a)

Art. 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them. (1111)

Art. 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary. (1112)

Transmissibility of rights – all rights acquired in virtue of an obligation are generally transmissible. The exceptions to this rule are the ff:1. Prohibited by law – when prohibited by law like the rights in partnership, agency, and

commodatum which are purely personal character.2. Prohibited by stipulation of the parties – when prohibited by stipulation of the parties, like the

stipulation that upon the death of the creditor, the obligation shall be extinguished, or that the creditor cannot assign his credit to another.

CHAPTER 3

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DIFFERENT KINDS OF OBLIGATIONS 

SECTION 1. - Pure and Conditional Obligations  Art. 1179. Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties, is demandable at once.

Every obligation which contains a resolutory condition shall also be demandable, without prejudice to the effects of the happening of the event. (1113)

Pure obligation – one which is not subject to any condition and no specific date is mentioned for its fulfillment and is, therefore, immediately demandable.

Conditional obligation – is one whose consequences are subject in one way or another to the fulfillment of a condition.

Condition – is a future and uncertain event, upon the happening of which, the effectivity or extinguishment of an obligation (or right) subject to it depends.

Characteristics of a condition1. Future and uncertain2. Past but unknown

Two principal kinds of condition1. Suspensive condition – (condition precedent or condition antecedent) or one of the fulfillment of

which will give rise an obligation (or right). In other words, the demandability of the obligation is suspended until the happening of the uncertain event which constitutes the condition.

2. Resolutory condition – (condition subsequent) or one the fulfillment o which will extinguish an obligation (or right) already existing.

NATURE OF OBLIGATION Period = space of time or w/can ab

Pure obligation w/a term = future and certaintyCondition Term/ Period

- An event, future or uncertainty - futurity and uncertainty- Happening of the suspensive - suspensive period –arrival of the period Condition gives rise of the obligation does not effect obligation IT EFFECTS DEMANDABILITY- It retroacts to the time of the - no retroaction the commencement - Condition dependent on the debtor void - Period dependent on the debtor Valid until the court fix the period

“ When his means percent do so > obligation w/ a When his means improve > period ↓

What is uncertain is plate of payment ↓

NOTE: Change of period by the courtException: it can be change by the mutuallity of the Concent of the parties.

ARANETA VS. PHIL. SUGAR PEUPLOPING ESTATE

- Period that what is contemplated by the parties to be reasonable that item is to be fix by the court.

Art. 1180. When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with a period, subject to the provisions of Article 1197. (n)

Period – is a future and certain event upon the arrival of which the obligation subject to it either or is extinguished.

PERIOD - the completion of a cycle, a series of events, or a single action may designate an extent of time of any length

Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. (1114)

Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code. (1115)

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Classification of conditions1. As to effect

a. Suspensive – the happening of which gives rise to the obligationb. Resolutory – the happening of which extinguishes the obligation

2. As to forma. Express – the condition is clearly statedb. Implied – the condition is merely inferred

3. As to possibility a. Possible – the condition is capable of fulfillment, legally or physicallyb. Impossible – the condition is not capable of fulfillment, legally or physically

4. As to cause or origina. Potestative – the condition depends upon the will of one of the contracting partiesb. Casual – the condition depends upon chance or upon the will of a third personc. Mixed – the condition depends partly upon chance and partly upon the will of a third

person5. As to mode

a. Positive – the condition consist in the performance of an actb. Negative – the condition consists in the omissions of an act

6. As to numbersa. Conjunctive – there are several conditions and all must be fulfilledb. Disjunctive – there are several conditions and only must be fulfilled

7. As to divisibilitya. Divisible – the condition is susceptible of partial performanceb. Indivisible – the condition is not susceptible of partial performance

Art. 1183. Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid.

The condition not to do an impossible thing shall be considered as not having been agreed upon. (1116a)

Art. 1184. The condition that some event happen at a determinate time shall extinguish the obligation as soon as the time expires or if it has become indubitable that the event will not take place. (1117)

Art. 1185. The condition that some event will not happen at a determinate time shall render the obligation effective from the moment the time indicated has elapsed, or if it has become evident that the event cannot occur.

If no time has been fixed, the condition shall be deemed fulfilled at such time as may have probably been contemplated, bearing in mind the nature of the obligation. (1118)

Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. (1119)

Art. 1187. The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and interests received, unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different.

In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with. (1120)

Art. 1188. The creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his right.

The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition. (1121a)

Art. 1189. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition:

(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;

(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it perishes, or goes out of

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commerce, or disappears in such a way that its existence is unknown or it cannot be recovered;

(3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor;

(4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case;

(5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor;

(6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. (1122)

Requisites for application of Article 11891. The obligation is a real obligation2. The object is a specific or determinate thing;3. The obligation is subject to a suspensive condition 4. The condition is fulfilled5. There is loss, deterioration, or improvement of the thing during the pedency of the condition

Kinds of loss1. Physical loss – when a thing perishes as when a house is burned and reduced to ashes2. Legal loss – when a thing goes out of commerce or when a thing heretofore legal becomes

illegal3. Civil loss – when a thing disappears in such way that its existence is unknown or even known, it

cannot be recovered4.1189 – RULES IN CASE OF LOSS, DETERIORATION OR IMPROVEMENT- Contemplated item is a personal property- to give/not genus- must occurring the suspensive period

LOSS – actual loss, physical loss, statutory loss↓Actual about is unknown

Statatury- they goes out of commence – if the illegal the suspensive condition↓ └ obligation is made before it goes beyond the commence of Only by law men is void

Obligation is reciprocal - to rescind is no need to proud power

Obligation is unitateal – power to recind must be express

Art. 1190. When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have received.

In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return.

As for the obligations to do and not to do, the provisions of the second paragraph of Article 1187 shall be observed as regards the effect of the extinguishment of the obligation. (1123)

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. (1124)

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Kinds of obligation according to the person obliged1. Unilateral – when only one party is obliged to comply with a prestation2. Bilateral – when both parties are mutually bound to each other.

a. Reciprocal obligationsb. Non-reciprocal obligations

Limitations on right to demand rescission1. Resort to the courts2. Power of court to fix period3. Right of third person4. Substantial violation5. Waiver of right

Q : Does the law using recission means recession?Ans : No. Law cheat resolution = even if ground is establish it is not necessarily granted ↓

Only court preech of contract

Recission – ground is lession

REMEDY (1) specific performance (2) Recission & damage

UP VS. DELOS ANGELES

→ Contract allow Extrajudicially Recission according party

In case of Breach party need to go to court ↓

Party who questioning the recission is not the reciding party

Note : 1191 is alternative remedy ↓

Breach must be substantial to recindBreach is minimal only damages- There must be notice to other party- A choice of specific performance is not a → Note: specific performance Waiver of recession. But the choice of becomes impossibleRecession bans specific performance

Prescription 4 years counted from SP becomes impossible

ROQUE VS. CAPUZ

1191 = Q : Who may invoke ? (Reyes VS. CA)Ans: Available only to the injured party

Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. (n)  

SECTION 2. - Obligations with a Period  Art. 1193. Obligations for whose fulfillment a day certain has been fixed, shall be demandable only when that day comes.

Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain.

A day certain is understood to be that which must necessarily come, although it may not be known when.

If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be regulated by the rules of the preceding Section. (1125a)

Obligation with a period – is one whose consequences are subjected in one way or another to the expiration of said period or term.

Period – is a future and certain event upon the arrival of which the obligation (or right) subject to it either arises or is terminated. Kinds of period or term

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1. According to effect:a. Suspensive period – the obligation begins only from a day certain upon the arrival of

periodb. Resolutory period – the obligation is valid up to a day certain and terminates upon

arrival of the period.2. According to source

a. Legal period – when it is provided for by lawsb. Conventional or voluntary period – when it is agreed to by the parties c. Judicial period – when it is fixed by the court

3. According to definitenessa. Definite period – when it is fixed or it is known when it will comeb. Indefinite period – when it is fixed or it is not known when it will come

Art. 1194. In case of loss, deterioration or improvement of the thing before the arrival of the day certain, the rules in Article 1189 shall be observed. (n)

1194cc EXCEPTION TO FORTUITOUS EVENT1) Law provides2) Party provides3) Assumption of risk4) Party promise to be liable even in case to several partners( 1165)5) Debtor has incurred delay6) 1268civil liability arising from a penal event should the thing be lost. if creditor refuses without just cause7) Fortuitous event is concurred with negligence there will be liability for damages

Art. 1195. Anything paid or delivered before the arrival of the period, the obligor being unaware of the period or believing that the obligation has become due and demandable, may be recovered, with the fruits and interests. (1126a)

Art. 1196. Whenever in an obligation a period is designated, it is presumed to have been established for the benefit of both the creditor and the debtor, unless from the tenor of the same or other circumstances it should appear that the period has been established in favor of one or of the other. (1127)

Art. 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof.

The courts shall also fix the duration of the period when it depends upon the will of the debtor.

In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them. (1128a)

1197cc PATERTE VS. SUMAGA – General prayer can convert action to

CONCEPTION VS. PEOPLE enforce period to court to determine /fix period

SUPERSIVE CONDITION VS. RESOLUTARY CONDITON- immediate demandable

Positive / negative condition

-Failure of the debtor to make use of the period-Obligation to preserve starts from the beginning of the contract

Art. 1198. The debtor shall lose every right to make use of the period:

(1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt;

(2) When he does not furnish to the creditor the guaranties or securities which he has promised;

(3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory;

(4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the period;

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(5) When the debtor attempts to abscond. (1129a)

INSTANCES DEBTOR LOSES THE RIGHT TO USE HIS PERIOD

→Obligation becomes immediately demandable

1198cc ┌ insolvency1) debtor becomes insolvent unless he secures the loan2) Insolvency of debtor must come before his obligation is due

↓ Refers to judicial insolvency in fact

Note: That security is given in case of breach of promise.

→Attempt to abscond →mere attempt debtor looses his right of the period

NOTE : Q = if 5 elements is all present will 1198 automatically apply?

Ans = It dependsIf for the benefit of debtor all other elements 1198 will applyIf for the benefit of creditor 1198 No

SECTION 3. - Alternative Obligations  Art. 1199. A person alternatively bound by different prestations shall completely perform one of them.

The creditor cannot be compelled to receive part of one and part of the other undertaking. (1131)

Kinds of obligation according to object1. Simple obligation – one where there is only one prestation2. Compound obligation – one where there are two or more prestations

a. Conjunctive obligation – one where there are several prestations and all of them are dueb. Distributive obligation – one where one two or more of the prestations is due.

i. Alternative obligation – one where several prestations are due but the performance of one is sufficient

ii. Facultative obligation – one where only one prestation is due but the debtor may substitute another.

Alternative obligation – is one wherein various prestations are due but the performance of one of them is sufficient as determined by the choice which, as a general rule, belongs to the debtor.

ALTERNATIVE OBLIGATION

Plurality of objects

Either be conjunctive, alternative – quantitative →certain things →several things one thing due debtor reserves Due due-complain the right to→no right of one is - right of choice of debtor Of choice sufficient for - right corner transfer

Extinguishment

NOTE : That right of choice may be transfer to creditor by debtor

→ debtor cannot compel creditor except partial payment → he cannot pay the principal w/o paying interest→ in making a choice→ if contract provides how contract should be paid should be follow

→EFFECT OF MAKING A CHOICE

Choice must have been communicated↓

Come to the knowledge to other party

→debtor has not made a choiceCreditor must file an action of specific performance └ prayer must be in the alternative

Art. 1200. The right of choice belongs to the debtor, unless it has been expressly granted to the creditor.

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The debtor shall have no right to choose those prestations which are impossible, unlawful or which could not have been the object of the obligation. (1132)

Art. 1201. The choice shall produce no effect except from the time it has been communicated. (1133)

Art. 1202. The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only one is practicable. (1134)

Art. 1203. If through the creditor's acts the debtor cannot make a choice according to the terms of the obligation, the latter may rescind the contract with damages. (n)

Art. 1204. The creditor shall have a right to indemnity for damages when, through the fault of the debtor, all the things which are alternatively the object of the obligation have been lost, or the compliance of the obligation has become impossible.

The indemnity shall be fixed taking as a basis the value of the last thing which disappeared, or that of the service which last became impossible.

Damages other than the value of the last thing or service may also be awarded. (1135a)

Art. 1205. When the choice has been expressly given to the creditor, the obligation shall cease to be alternative from the day when the selection has been communicated to the debtor.

Until then the responsibility of the debtor shall be governed by the following rules:

(1) If one of the things is lost through a fortuitous event, he shall perform the obligation by delivering that which the creditor should choose from among the remainder, or that which remains if only one subsists;

(2) If the loss of one of the things occurs through the fault of the debtor, the creditor may claim any of those subsisting, or the price of that which, through the fault of the former, has disappeared, with a right to damages;

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

The same rules shall be applied to obligations to do or not to do in case one, some or all of the prestations should become impossible. (1136a)

Art. 1206. When only one prestation has been agreed upon, but the obligor may render another in substitution, the obligation is called facultative.

The loss or deterioration of the thing intended as a substitute, through the negligence of the obligor, does not render him liable. But once the substitution has been made, the obligor is liable for the loss of the substitute on account of his delay, negligence or fraud. (n)

Facultative obligation – is one where only one prestation has been agreed upon but the obligor may render another substitution. 

SECTION 4. - Joint and Solidary Obligations  Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. (1137a)

Kinds of obligations according to the number of parties1. Individual obligation – one where there is only obligor or one obligee2. Collective – obligation – one where there are two or more debtors and/or two or more creditors.

It maybe joint or solidary

Joint obligation – or one where the whole obligation is to be paid or fulfilled proportionately by the different debtors and/or is to be demanded proportionately by the different creditors. Solidary obligation – or one where each one of the debtors is bound to render, and/or each one of the creditors has a right to demand from any of the debtors, entire compliance with the prestations.

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JOINT AND SOLIDARITY

→ Requires a plurality of parties or both sides

SOURCES OF SOLIDARITY (Test of Solidarity)

- law- parties stipulation- nature of the obligation

Ronquillo case → A - B - C ] CreditorParak Vs. Hemea ∕ ۸ ∕ / ↓ \

∕ x y z ] debtor Right to collect

↓ ↓Right is derive from one who complies under the Mutual agency doctrine of mutual guaranty

Q : X pays in full to A does is make xc creditorAns : Yes only as provided to their respective obligation

Q : Y;Z agreed that X will not be liable for the debtAns : Valid as to Y and Z but not to the creditors

Art. 1208. If from the law, or the nature or the wording of the obligations to which the preceding article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits. (1138a)

Art. 1209. If the division is impossible, the right of the creditors may be prejudiced only by their collective acts, and the debt can be enforced only by proceeding against all the debtors. If one of the latter should be insolvent, the others shall not be liable for his share. (1139)

Art. 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. (n)

Art. 1211. Solidarity may exist although the creditors and the debtors may not be bound in the same manner and by the same periods and conditions. (1140)

Kinds of solidary obligation according to the legal tie1. Uniform – when the parties are bound by same stipulations2. Non-uniform or varied – when the parties are not subject to the same stipulations

Art. 1212. Each one of the solidary creditors may do whatever may be useful to the others, but not anything which may be prejudicial to the latter. (1141a)

Art. 1213. A solidary creditor cannot assign his rights without the consent of the others. (n)

Art. 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or extrajudicial, has been made by one of them, payment should be made to him. (1142a)

Art. 1215. Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of Article 1219.

The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them. (1143)

Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected. (1144a)

Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept.

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He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded.

When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each. (1145a)

Art. 1218. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is made after the obligation has prescribed or become illegal. (n)

Art. 1219. The remission made by the creditor of the share which affects one of the solidary debtors does not release the latter from his responsibility towards the co-debtors, in case the debt had been totally paid by anyone of them before the remission was effected. (1146a)

Art. 1220. The remission of the whole obligation, obtained by one of the solidary debtors, does not entitle him to reimbursement from his co-debtors. (n)

Art. 1221. If the thing has been lost or if the prestation has become impossible without the fault of the solidary debtors, the obligation shall be extinguished.

If there was fault on the part of any one of them, all shall be responsible to the creditor, for the price and the payment of damages and interest, without prejudice to their action against the guilty or negligent debtor.

If through a fortuitous event, the thing is lost or the performance has become impossible after one of the solidary debtors has incurred in delay through the judicial or extrajudicial demand upon him by the creditor, the provisions of the preceding paragraph shall apply. (1147a)

Art. 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible. (1148a)  

SECTION 5. - Divisible and Indivisible Obligations  Art. 1223. The divisibility or indivisibility of the things that are the object of obligations in which there is only one debtor and only one creditor does not alter or modify the provisions of Chapter 2 of this Title. (1149)

Divisible obligation – is one the object of which, in its delivery or performance, is capable of partial fulfillment.Indivisible obligation – is one the object of which, in its delivery or performance, is not capable of partial fulfillment.

Art. 1224. A joint indivisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not comply with his undertaking. The debtors who may have been ready to fulfill their promises shall not contribute to the indemnity beyond the corresponding portion of the price of the thing or of the value of the service in which the obligation consists. (1150)

Art. 1225. For the purposes of the preceding articles, obligations to give definite things and those which are not susceptible of partial performance shall be deemed to be indivisible.

When the obligation has for its object the execution of a certain number of days of work, the accomplishment of work by metrical units, or analogous things which by their nature are susceptible of partial performance, it shall be divisible.

However, even though the object or service may be physically divisible, an obligation is indivisible if so provided by law or intended by the parties.

In obligations not to do, divisibility or indivisibility shall be determined by the character of the prestation in each particular case. (1151a)  

SECTION 6. - Obligations with a Penal Clause

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  Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.

Principal obligation – is one which can stand by itself and does not depend or its validity and existence upon another obligation.

Accessory obligation – is one which is attached to a principal obligation and, therefore, cannot stand alone.

Obligation with a penal clause – is one which contains an accessory undertaking to pay a previously stipulated demnity in case of breach.

Penal clause – is an accessory undertaking attached to an obligation to assume greater liability in case of breach, the obligation is not fulfilled, or is partly or irregularly complied with.

Kinds of penal clause1. Legal penal clause – when it is provided by law2. Conventional penal clause – when it is provided for by stipulation of the parties3. Compensatory penal clause – when the penalty takes the place of damages4. Punitive penal clause – when the penalty is imposed merely as punishment for breach5. Subsidiary or alternative penal clause – when only the penalty can be enforced6. Join or cumulative penalty clause – when both the principal obligation and the penal clause can

be enforced

OBLIGATION W/ A PENAL CLAUSE └ Accessory undertaking made by the parties to

Assume greater responsibility is case of breach

Purpose: Is a substitute for the damages is case of breach ∕

∕Exception, be entitled damages inspite penalty

1) So stipulation2) Debtor refuses to pay penalty

Note : Pay of actual damages is not necessary └ should breach be committed regardless of the damage, it is immaterial

Basis of Breach

When payment of penal can be reduce1. partial performance2. irregular performance3. unconsionable penalty

COLLECTION CREDIT CORP. VS. CA

If the penal clause is the subject of a court litigation

Q : Can creditor claim the principal obligation plus penaltyAns : Yes, in cases of debtor it must be express

The penalty may be enforced only when it is demandable in accordance with the provisions of this Code. (1152a)

Art. 1227. The debtor cannot exempt himself from the performance of the obligation by paying the penalty, save in the case where this right has been expressly reserved for him. Neither can the creditor demand the fulfillment of the obligation and the satisfaction of the penalty at the same time, unless this right has been clearly granted him. However, if after the creditor has decided to require the fulfillment of the obligation, the performance thereof should become impossible without his fault, the penalty may be enforced. (1153a)

Art. 1228. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded. (n)

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. (1154a)

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Art. 1230. The nullity of the penal clause does not carry with it that of the principal obligation.

The nullity of the principal obligation carries with it that of the penal clause. (1155)  

CHAPTER 4EXTINGUISHMENT OF OBLIGATIONS

  GENERAL PROVISIONS

  Art. 1231. Obligations are extinguished:

(1) By payment or performance:

(2) By the loss of the thing due:

(3) By the condonation or remission of the debt;

(4) By the confusion or merger of the rights of creditor and debtor;

(5) By compensation;

(6) By novation.

Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and prescription, are governed elsewhere in this Code. (1156a)

Prescription:

DBP VS. JUDGE AQUINO

└ Prescription does not extinguish obligation. What is extinguish is the right To enforce the obligation.

ACTION IN WRITING PRESCRIBES IN 10 YEARS __________________________________________________

Prescription → what is extinguish is the civil nature of the obligationDeath →in succession estate shall inactivate rights and obligation not

Extinguish by death

ESTATE OF PEDRO FERNANTE└ By necessity the estate is given a juridical personality

WHO MAY DIE└ Nature of obligation must determine personal

  SECTION 1. - Payment or Performance

  Art. 1232. Payment means not only the delivery of money but also the performance, in any other manner, of an obligation. (n)

PAYMENT - Delivery of money shall include performance of the obligation in any Manner

Q: Who can made payment?

A: by anyone

Payment by a 3rd Person = creditor Must First accept

REQUISITE CHARACTERISTICS- NECESSARY to the validity of payment - descriptive of how payment should be Made

Iwtship vs. MSP

“SPECIAL FORMS OF PAYMENT”

1. application of payment2. dation of payment 3. payment by cession 4. tender of payment/consignation

CHARACTERISTICS OF PAYMENT21

1. Application of payment2. identity of payment3. indivisibilty of payment

LEGAL TENDER

Cashiers check/managers check/certified check/secured check

 Art. 1233. A debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be. (1157)

Art. 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee. (n)

Art. 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with. (n)

Art. 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.

Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. (1158a)

Art. 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the latter, cannot compel the creditor to subrogate him in his rights, such as those arising from a mortgage, guaranty, or penalty. (1159a)

Art. 1238. Payment made by a third person who does not intend to be reimbursed by the debtor is deemed to be a donation, which requires the debtor's consent. But the payment is in any case valid as to the creditor who has accepted it. (n)

Art. 1239. In obligations to give, payment made by one who does not have the free disposal of the thing due and capacity to alienate it shall not be valid, without prejudice to the provisions of Article 1427 under the Title on "Natural Obligations." (1160a)

Art. 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. (1162a)

Art. 1241. Payment to a person who is incapacitated to administer his property shall be valid if he has kept the thing delivered, or insofar as the payment has been beneficial to him.

Payment made to a third person shall also be valid insofar as it has redounded to the benefit of the creditor. Such benefit to the creditor need not be proved in the following cases:

(1) If after the payment, the third person acquires the creditor's rights;

(2) If the creditor ratifies the payment to the third person;

(3) If by the creditor's conduct, the debtor has been led to believe that the third person had authority to receive the payment. (1163a)

Art. 1242. Payment made in good faith to any person in possession of the credit shall release the debtor. (1164)

Art. 1243. Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the debt shall not be valid. (1165)

Art. 1244. The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value as, or more valuable than that which is due.

In obligations to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the obligee's will. (1166a)

Art. 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales. (n)

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APPLICATION OF PAYMENT = act of pointing to which obligation your payment to be applied

Q: who can make an application of paymentA: DEBTOR

NOTE: creditor can object to an application of payment made by the debtor if1. payment is made partial2. payment is first to the interest of the principal3. payment will not apply to unliquidated interest

 Art. 1246. When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and circumstances have not been stated, the creditor cannot demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be taken into consideration. (1167a)

Art. 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the payment shall be for the account of the debtor. With regard to judicial costs, the Rules of Court shall govern. (1168a)

Art. 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the prestations in which the obligation consists. Neither may the debtor be required to make partial payments.

However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and the debtor may effect the payment of the former without waiting for the liquidation of the latter. (1169a)

Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines.

The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be held in the abeyance. (1170)

Art. 1250. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary. (n)

Art. 1251. Payment shall be made in the place designated in the obligation.

There being no express stipulation and if the undertaking is to deliver a determinate thing, the payment shall be made wherever the thing might be at the moment the obligation was constituted.

In any other case the place of payment shall be the domicile of the debtor.

If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by him.

These provisions are without prejudice to venue under the Rules of Court. (1171a)

Q: Where Must Demand be madeA: Law is silent. Must be in the PROPER PLACE OF PAYMENT(1251CC)

1) Contract provives where payment should be made( terms of the contract)2) If specific place where obligation is constituted –except in travel

If GENERIC, domicile of the debtor

SUBSECTION 1. - Application of Payments  Art. 1252. He who has various debts of the same kind in favor of one and the same creditor, may declare at the time of making the payment, to which of them the same must be applied. Unless the parties so stipulate, or when the application of payment is made by the party for whose benefit the term has been constituted, application shall not be made as to debts which are not yet due.

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If the debtor accepts from the creditor a receipt in which an application of the payment is made, the former cannot complain of the same, unless there is a cause for invalidating the contract. (1172a)

DATION IN PAYMENT 1245 ┌ = law on sales that governs ↓ = purpose is to extinguish the obligation ↓ ↓Deprivation in law = deprivation by final judgementDeprivation in fact = no final judgement/eviction

↓ Remedy

Art. 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered. (1173)

Art. 1254. When the payment cannot be applied in accordance with the preceding rules, or if application can not be inferred from other circumstances, the debt which is most onerous to the debtor, among those due, shall be deemed to have been satisfied.

If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately. (1174a)  

SUBSECTION 2. - Payment by Cession  Art. 1255. The debtor may cede or assign his property to his creditors in payment of his debts. This cession, unless there is stipulation to the contrary, shall only release the debtor from responsibility for the net proceeds of the thing assigned. The agreements which, on the effect of the cession, are made between the debtor and his creditors shall be governed by special laws. (1175a)

PAYMENT BY CESSION- debtor does not sell his properties- he only transfer the right to sell his property- all creditors must agree if not debtor must file proceeding to declare him insolvency

  SUBSECTION 3. - Tender of Payment and Consignation

  Art. 1256. If the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due.

Consignation alone shall produce the same effect in the following cases:

(1) When the creditor is absent or unknown, or does not appear at the place of payment;

(2) When he is incapacitated to receive the payment at the time it is due;

(3) When, without just cause, he refuses to give a receipt;

(4) When two or more persons claim the same right to collect;

(5) When the title of the obligation has been lost. (1176a)

Obligation is extinguish when order of d is change

┌ Tender of PAYMENT/consignation ↓ ↓ ↓ ↓ an offer to pay and in civil →judicial consignation ↓ creditor accept ↓ ↓ / thing due is put under judicial disposal ↓ ← / ↓ creditor unjustly refused to ┘ Extradudicial consignation (BP 25) ↓ accept →the must be deposit w/ the bank ↓ →in the name of the creditor ↓ Exception in prior tender of payment

(LOREA VS. CA ) → Failure to give notice is a fatal defect

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Q = Creditor/withdraw is upon the consign debtor

Q = Can debtor stop creditor to withdraw

WITHDRAWAL W/ RESERVATION

= Creditor reserves the right to collect the difference between consignation amount and principal amount.

Note = Payment should be made in the proper plan of payment

Q = when is consignation not proper ?

Option ┐ threre is no debt due, what is Redemption ┘ involve is an exercise of a right

NEW PACIFIC TIMBER

Q = Payment by means of a check

Ans = if a certified check from a reputable bank it is good as cash

Now = check must be encash to effect payment

Art. 1257. In order that the consignation of the thing due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation.

The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment. (1177)

Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom the tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases.

The consignation having been made, the interested parties shall also be notified thereof. (1178)

Art. 1259. The expenses of consignation, when properly made, shall be charged against the creditor. (1178)

Art. 1260. Once the consignation has been duly made, the debtor may ask the judge to order the cancellation of the obligation.

Before the creditor has accepted the consignation, or before a judicial declaration that the consignation has been properly made, the debtor may withdraw the thing or the sum deposited, allowing the obligation to remain in force. (1180)

Art. 1261. If, the consignation having been made, the creditor should authorize the debtor to withdraw the same, he shall lose every preference which he may have over the thing. The co-debtors, guarantors and sureties shall be released. (1181a)  

SECTION 2. - Loss of the Thing Due  Art. 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or destroyed without the fault of the debtor, and before he has incurred in delay.

When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not extinguish the obligation, and he shall be responsible for damages. The same rule applies when the nature of the obligation requires the assumption of risk. (1182a)

LOSS OF THE THING DUE

→ Thing due must be specific Exception: delimited generic object generic yet source of w/c is specific

Art. 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation. (n)

Art. 1264. The courts shall determine whether, under the circumstances, the partial loss of the object of the obligation is so important as to extinguish the obligation. (n)

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Art. 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed that the loss was due to his fault, unless there is proof to the contrary, and without prejudice to the provisions of article 1165. This presumption does not apply in case of earthquake, flood, storm, or other natural calamity. (1183a)

Art. 1266. The debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible without the fault of the obligor. (1184a)

Art. 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in part. (n)

IMPOSSIBILITY OF PERFORMANCEDIFFICULTY OF PERFORMANCE

Loss in reciprocal obligation→ loss shall be burn by the creditors→ extinguish of an obligation does not extinguish another obligation

Art. 1268. When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not be exempted from the payment of its price, whatever may be the cause for the loss, unless the thing having been offered by him to the person who should receive it, the latter refused without justification to accept it. (1185)

Art. 1269. The obligation having been extinguished by the loss of the thing, the creditor shall have all the rights of action which the debtor may have against third persons by reason of the loss. (1186)  

SECTION 3. - Condonation or Remission of the Debt

 CONDONATION/REMISSION→ In what form (in the form of donation)If express = in the form of donationIf implied = in any form (private document)

Art. 1270. Condonation or remission is essentially gratuitous, and requires the acceptance by the obligor. It may be made expressly or impliedly.

One and the other kind shall be subject to the rules which govern inofficious donations. Express condonation shall, furthermore, comply with the forms of donation. (1187)

Art. 1271. The delivery of a private document evidencing a credit, made voluntarily by the creditor to the debtor, implies the renunciation of the action which the former had against the latter.

If in order to nullify this waiver it should be claimed to be inofficious, the debtor and his heirs may uphold it by proving that the delivery of the document was made in virtue of payment of the debt. (1188)

Art. 1272. Whenever the private document in which the debt appears is found in the possession of the debtor, it shall be presumed that the creditor delivered it voluntarily, unless the contrary is proved. (1189)

Art. 1273. The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter shall leave the former in force. (1190)

Art. 1274. It is presumed that the accessory obligation of pledge has been remitted when the thing pledged, after its delivery to the creditor, is found in the possession of the debtor, or of a third person who owns the thing. (1191a)  

SECTION 4. - Confusion or Merger of Rights  Art. 1275. The obligation is extinguished from the time the characters of creditor and debtor are merged in the same person. (1192a) CONFUSION OR MERGER

Q : 4 creditor Vs 1 debtorAns : Yes, reason credit is required to give the respective shares of other creditors

SAME CASE IN CONDONATIONA/REMISSION

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CONFUSION OR MERGER-CREDITOR AND DEBTOR becomes one

1 creditor = 1 debtorMany creditor =1 debtor

↓If Joint = 1 debtorIf Solidary = whole

Art. 1276. Merger which takes place in the person of the principal debtor or creditor benefits the guarantors. Confusion which takes place in the person of any of the latter does not extinguish the obligation. (1193)

Art. 1277. Confusion does not extinguish a joint obligation except as regards the share corresponding to the creditor or debtor in whom the two characters concur. (1194)  

SECTION 5. - Compensation

 COMPENSATION = extinguishment is to the concurrent amount

1279 = LEGAL COMPENSATION = takes operation by law = parties be bound in their own right

Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. (1195)

Art. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. (1196)

Art. 1280. Notwithstanding the provisions of the preceding article, the guarantor may set up compensation as regards what the creditor may owe the principal debtor. (1197)

1280 = exception to 1279 = guarantor may set up legal compensatio to principal creditor

Obligation in part of money and in part of fruit→ what will apply is DATION E PAGO

X Q : X condones the share of A ↓ ↓ ↓ A B C A: if joint debt is reduced

If solidary debt is reduced = diffrence is the manner of collection

Q: what are the COMPENSABLE OBLIGATIONS → as long elements of compensation What are the NON-COMPENSABLER OBLIGATIONS(1287 – 1288)

1. commodatum → NC2. depositary → NOT COMPENSABLE3. support → NC4. obligation arising from a penal clause

NOTE RELATIVE PROHIBITION ON COMPENSATION

Commodatum - Bailee who Claims = NO compensation- Bailor who claims = There is Compensation

Depositary- Depositor = Yes- Depositary = NO

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SupportFuture - Not compensated?no matter who claimAccrued-

PENAL OFFENSES Offender = NOOffended party = Yes

FACULTATIVE → when set up or claim the other party may object

Note: TAXES (Francia vs . IAC) = tax not an ordinary obligation without which the ↓ the government cannot exist. Back pay certificates

: Taxes cannot be subject of compensation

Art. 1281. Compensation may be total or partial. When the two debts are of the same amount, there is a total compensation. (n)

Art. 1282. The parties may agree upon the compensation of debts which are not yet due. (n)

Art. 1283. If one of the parties to a suit over an obligation has a claim for damages against the other, the former may set it off by proving his right to said damages and the amount thereof. (n)

Art. 1284. When one or both debts are rescissible or voidable, they may be compensated against each other before they are judicially rescinded or avoided. (n)

Art. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a third person, cannot set up against the assignee the compensation which would pertain to him against the assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he reserved his right to the compensation.

If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may set up the compensation of debts previous to the cession, but not of subsequent ones.

If the assignment is made without the knowledge of the debtor, he may set up the compensation of all credits prior to the same and also later ones until he had knowledge of the assignment. (1198a)

Art. 1286. Compensation takes place by operation of law, even though the debts may be payable at different places, but there shall be an indemnity for expenses of exchange or transportation to the place of payment. (1199a)

Art. 1287. Compensation shall not be proper when one of the debts arises from a depositum or from the obligations of a depositary or of a bailee in commodatum.

Neither can compensation be set up against a creditor who has a claim for support due by gratuitous title, without prejudice to the provisions of paragraph 2 of Article 301. (1200a)

Art. 1288. Neither shall there be compensation if one of the debts consists in civil liability arising from a penal offense. (n)

Art. 1289. If a person should have against him several debts which are susceptible of compensation, the rules on the application of payments shall apply to the order of the compensation. (1201)

Art. 1290. When all the requisites mentioned in Article 1279 are present, compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation. (1202a)  

SECTION 6. - Novation

NOVATION → you extinguish the old obligation by a new obligation

1. a change in the object2. a change in the cause 3. a change in the principal condiotions of the obligations

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sustitution of the personality of the debtor

EXPROMISSION DELEGACION- Initiative of change comes from a third - initiative comes from the debtorPerson - req. req.Consent of creditor/ 3rd person consent of the creditr. Debtor and the new

Debtor

Q: if the new detor becomes after the substitution. Will it receive the liability of the new debtor?

A: By EXPROMISSION- insolvency of the new debtor liability of the new debtor will not be revived

IN DELEGACION – LIABILITY of the old debtor will not be revived

Except: 1 if the insolvency already subsisting known to the old debtor – liability will revived

Reason: EVIDENCE OF BAD FAITH

BY SUBROGATION

- subrogation of the right of the debtor

CONVENTIONAL - LEGAL SUBROGATION

-by contract - by law- never presumed - not presumed- established by competent proof - except

1. creditor pay another creditor2. 3rd person pays with the consent of

the principal debtor3. 3rd personhas interest in the fulfillment of the obligation with the consent of the debtor.

  Art. 1291. Obligations may be modified by:

(1) Changing their object or principal conditions;

(2) Substituting the person of the debtor;

(3) Subrogating a third person in the rights of the creditor. (1203)

Art. 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. (1204)

Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237. (1205a)

Art. 1294. If the substitution is without the knowledge or against the will of the debtor, the new debtor's insolvency or non-fulfillment of the obligations shall not give rise to any liability on the part of the original debtor. (n)

Art. 1295. The insolvency of the new debtor, who has been proposed by the original debtor and accepted by the creditor, shall not revive the action of the latter against the original obligor, except when said insolvency was already existing and of public knowledge, or known to the debtor, when the delegated his debt. (1206a)

Art. 1296. When the principal obligation is extinguished in consequence of a novation, accessory obligations may subsist only insofar as they may benefit third persons who did not give their consent. (1207)

Art. 1297. If the new obligation is void, the original one shall subsist, unless the parties intended that the former relation should be extinguished in any event. (n)

Art. 1298. The novation is void if the original obligation was void, except when annulment may be claimed only by the debtor or when ratification validates acts which are voidable. (1208a)

Art. 1299. If the original obligation was subject to a suspensive or resolutory condition, the new obligation shall be under the same condition, unless it is otherwise stipulated. (n)

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Art. 1300. Subrogation of a third person in the rights of the creditor is either legal or conventional. The former is not presumed, except in cases expressly mentioned in this Code; the latter must be clearly established in order that it may take effect. (1209a)

Art. 1301. Conventional subrogation of a third person requires the consent of the original parties and of the third person. (n)

Art. 1302. It is presumed that there is legal subrogation:

(1) When a creditor pays another creditor who is preferred, even without the debtor's knowledge;

(2) When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor;

(3) When, even without the knowledge of the debtor, a person interested in the fulfillment of the obligation pays, without prejudice to the effects of confusion as to the latter's share. (1210a)

Art. 1303. Subrogation transfers to the persons subrogated the credit with all the rights thereto appertaining, either against the debtor or against third person, be they guarantors or possessors of mortgages, subject to stipulation in a conventional subrogation. (1212a)

Art. 1304. A creditor, to whom partial payment has been made, may exercise his right for the remainder, and he shall be preferred to the person who has been subrogated in his place in virtue of the partial payment of the same credit. (1213)  

Title II. - CONTRACTS 

CHAPTER 1GENERAL PROVISIONS

  Art. 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. (1254a)

ELEMENT OF CONTRACT:1. Essential elements

a) consent of the partiesb) object or subject matterc) cause or consideration

Note: Without these elements, a valid contract cannot exist.2. Natural elements

Are those the existence of which is presumed by law unless is an agreement to the contrary.3. Accidental elements They consist of unusual stipulation of the parties such as conditions, terms, etc.

STAGES OF CONTRACT:1. Preparation or conception2. Perfection or birth3. consummation or termination

CLASSIFICATION OF CONTRACT:1. Express and implied contract Express contract is one wherein the intents of the parties is shown by words, oral or written.

Implied contract is one wherein the intent of the parties is shown by conduct, as where (without mentioning compensation) 2. Executed and executory contracts

An executed contract is one that has already been performed; an executory contract is one not yet performed. If one party has performed and the other not, or if both have partly performed, the contract is partly executed and partly executory.

3. Nominate and innominate contracts Nominate (nominados) contracts are those with special name or designation in the Civil Code; innominate contracts do not have any special designation or name (innominados).

4. Consensual and real contracts A consensual contract is one perfected by mere consent, such as a contract of sale. A real contract is one perfected by the delivery of the thing which is the object of the contract. Thus, in contract of deposit, the deliver of the thing to be deposited is essential for the perfection of the contract.5. Unilateral and bilateral contracts

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In a unilateral contract only one of the parties has an obligation such as in commodatum or gratuitous deposit. A bilateral contract creates reciprocal obligation as in a contract of sale where the seller is bound to deliver the thing sold and the buyer to pay the purchase price.

CONTRACT = needs 2 or more persons

Note: plurality of parties is what the law requires

Q: who can enter into a contractA: anyone unless disqualified by law

Q: MINOR generally NO, except , what he buys are for nescessities

Q: husband and wife to sell each other A: NO

Q: Husband and wife to donate to each other?A: NO< except moderate gifts of family rejoicing

Q: insane represented by the ward?A: yes

Q: insane by himself?A: NO, rule is absolute because LUCIDITY is not INSANITY

Q: elements of a contractA: ESSENTIAL

1. consent2. object3. consideration

NATURALMatters

ACCIDENTALMATTERS that are made part of the party

POLICITACION

Charactheristics of a Contract1. autonomy of the will2. obligatory force of contract 3. mutuallity4. relativity

autonomy of the will = freedom of the mind as well as freedom to stipulate

Obligatory force of the contract = parties to a contract are bound including the natural consequences of the contract

MUTUALITY Validity willnever be left to only one party

RELATIVITY OF CONTRACTSException : pour atroui- binding upon the heirs and assigns provided what is involved is transmissable rights.

↓1. by law2. by stip[ulation of Parties3by its nature

Pour atroui = parties confer a 3rd person benefits a known beneficiary

Note: 77 can be revoke only by both partiesQ: what govens innominate contracts?A: stipulations of contracts, provisions of the code

Q: May a person contract in the name of another?A: Yes. Provided he is authorized amd capacitated

STAGES OF EXECUTION OF CONTRACTS

1. preparation2. perfection3. consumation

perfectionCONSENSUAL – mere consentREAL – deliveryFORMAL OR SOLEMN –execution of instrument provided by law

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ESSENTIAL CONSENT – intelligent, legalconsent ↓ OFFER – can be made in form ↓ ACCEPTANCE –unless the offeror requires a form it can be in any form

Communication

Q: if offer made can it be withdrawn?A: Yes provided the offeree had not accepted

Q: Option period given. Can offeror withdraw?A: YES

Q: Offeror withdraw during the option period can he be liableA: NO, provided he did not act arbitrarily

Q: offeror gives a security together with the option contract can he be liableA: YES

Q: who benefits?A: option contract is for the benefit of the offeree

Q: Effect of the consideration in option contract

Note: OPTION CONTRACT is a PREPARATORY CONTRACT

Q: Principal Contract did not push through is option money refundable?A: NO

Q: Earnest moneyA: is part of the consideration given in the principal contract

Q: can it be withdrawn?A: Yes

Q: AMPLIFIED ACCEPTANCEA: Acceptance accompanied by a con ter offer

Q: will the acceptance of the counter offer perfect the contract?A: NO

Lautico vs. arias= crossing of the withdrawal /offer

Q: who cannot give consent to a contractA: 1327, an emancipated minors, insane, demented persons death, deaf, doesn’t how to read and write

Q: may a deaf mute, cannot write be disqualified in entering into a contractA: YES, provided he can read and write

Q: 3rd person who induced another to violate his contractA: Mere inducement, there is no liability but if there is bad faith there IS LIABILITY

Q: what is the measure of the liability if inducer is in Bad faith?A: up to the damage a person who violated his contract

VICES OF CONSENT

a) MISTAKE = mistake in fact must be substantial 1) must refer to the fact2) mistake is unilateral

mutual in agreement→ purpose of the partiesex.

Testator 1) does not know how to read and write2) knows how to read and written a dialect not known to him

b) violence = external physical force must be irresistible c) intimidation = force be mentald) undue influence = improper advantage, imposition of ones will over another

not all fraud will vitiate consent

a) rendition of a mere opinion will not constitute fraudb) opinion comes from a EXPERT it becomes FRAUDc) EXAGERATIONS in trade but buyer is given the chance to know all the truth in the product = NO FRAUD

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SIMULATION OF CONTRACTS ↓ a) if simulation is absolute contract is = no real agreementDECLARATION b) if simulation is relative contract is = conceal their true Of a force will agreement c) if simulation is to defeat public policy as = VOID

OBJECT OF CONTRACTS

1) things2) rights 3) services

Q: thing: does it need to be present at the perception of the contract?A: NO. must be present at the consummation

Q: Future thing to be an object?A: Must have a Potential existence ↓capability of something to come to existence as something to existence as something to in existence

RIGHTS = as long as not UNLAWFULL

SERVICES = as long as not impossible

CAUSE OF CONTRACTS = reasons for the existence of the contract ↓presume to be a valid cause not the same as motive ↓ reason of person to enter the contract

Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. (1255a)

LIMITATION UPON THE RIGHT TO CONTRACT:1. Contrary to law The parties to a contract cannot agree to an object to purpose which is against the law.2. Against moral No contract may be entered into which is against virtuous conduct and ethical precept.3. Contrary to good custom The contracting parties are prohibited from entering into contracts which conflict with good and established practice or customs. 4. Contrary to public order Public order does not mean the actual keeping of the public peace, but signifies the public weal which is permanent and essential in institutions.5. Contrary to public policy This is broader than public order. Public policy refers not only to “public safety but also to considerations which are moved by the common good.”

Art. 1307. Innominate contracts shall be regulated by the stipulations of the parties, by the provisions of Titles I and II of this Book, by the rules governing the most analogous nominate contracts, and by the customs of the place. (n)

KINDS OF INNOMINATE CONTRACTS:1. Do ut des ( I give that you give)2. Do ut facias ( I give that you make)3. Facio ut des ( I make that you give)4. Facio ut facias ( I make that you make)

Note: Innominate contracts shall be governed by (1) the agreement of the parties (2) the provisions of obligations and contracts (3) the rules governing the most analogous nominate contracts; and (4) the customs of the place.

Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. (1256a)

Note: This article lays emphases upon the mutuality of contracts in order that it can be enforced against ether and furthermore, so that the parties shall have equal standing before the law as an added guaranty that one of the parties or both shall not disavow his or their own acts.Art. 1309. The determination of the performance may be left to a third person, whose decision shall not be binding until it has been made known to both contracting parties. (n)

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Note: The compliance with a contract cannot be left to the will of one of the contracting parties; however, the determination of the performance under this article may be left to a third person.

Art. 1310. The determination shall not be obligatory if it is evidently inequitable. In such case, the courts shall decide what is equitable under the circumstances. (n)

Note: The contracting parties may not comply with the determination of the third person if it is evidently inequitable. That is, it is not fair or just. In this case, the court shall decide what is equitable having due regard to the circumstances present.

Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent.

If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. (1257a)

Note: The force and effect of contracts extend only between the parties, their assigns and heirs. A contract cannot impose contractual obligations or persons who are stranger thereto.Art. 1312. In contracts creating real rights, third persons who come into possession of the object of the contract are bound thereby, subject to the provisions of the Mortgage Law and the Land Registration Laws. (n)

Art. 1313. Creditors are protected in cases of contracts intended to defraud them. (n)

Art. 1314. Any third person who induces another to violate his contract shall be liable for damages to the other contracting party. (n)

Note: This provision recognizes a situation where a stranger to a contract can be used by reason of his unwarranted interference in the contract. The injured party may bring an action for damages.

Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. (1258)

Note: This provision refers to consensual contracts which are perfected by mere consent. Unlike real contracts, no delivery is necessary in order to that it may be perfected. There being a meeting of minds of the parties, they are liable not only as to what has been agreed upon expressly, but also as to the consequences thereof which are in keeping with good faith, usage and law.

Art. 1316. Real contracts, such as deposit, pledge and Commodatum, are not perfected until the delivery of the object of the obligation. (n)

ELEMENTS OF REAL CONTRACT:1. Consent2. Object cause3. Delivery

Art. 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him.

A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party. (1259a)

BREACH of CONTRACT-even if there is performance if not in tenor

Note: This article expresses a cardinal principle of agency that no one may bind another unless he is authorized by the person for whose account the contract is entered into or unless he has a lawful right to represent the other. Otherwise, a contract of such kind is unenforceable unless ratified.

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CHAPTER 2

ESSENTIAL REQUISITES OF CONTRACTS 

GENERAL PROVISIONS  Art. 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established. (1261)

Note: This article refers to the essential requisites of a valid contract; namely consent, object and cause. If any of these requisites is wanting, no contract exists.

SECTION 1. - Consent  Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer.

Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made. (1262a)

Art. 1320. An acceptance may be express or implied. (n)

Art. 1321. The person making the offer may fix the time, place, and manner of acceptance, all of which must be complied with. (n)

Art. 1322. An offer made through an agent is accepted from the time acceptance is communicated to him. (n)

Art. 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed. (n)

Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised. (n)

Art. 1325. Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an offer. (n)

Art. 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears. (n)

Note: The adviser, such as one advertising in the newspaper, is not under obligation to accept the highest or lowest bidder because advertisements for bidders are simply invitations to make proposals. This is so because in reality the one making the offer of the bidder, the advertiser merely accepts the offer made.

Art. 1327. The following cannot give consent to a contract:

(1) Unemancipated minors;

(2) Insane or demented persons, and deaf-mutes who do not know how to write. (1263a)

Art. 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of drunkenness or during a hypnotic spell are voidable. (n)

Note: The law recognizes the situation where an insane may have a lucid interval. A lucid interval is a temporary period of sanity. Where a contract has been into during a lucid interval, such contract is valid. However, when a contract is entered into a state of drunkenness or during a hypnotic spell, the law considers the same viodable for the reason that “these conditions impair the capacity of a person to give an intelligent consent.

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Art. 1329. The incapacity declared in Article 1327 is subject to the modifications determined by law, and is understood to be without prejudice to special disqualifications established in the laws. (1264)

Note: The rule regarding the incapacity of unemancipated minors; insane or demented persons, and deaf-mutes who do not know how to write may be modified or changed in special cases provided by law. To illustrate: Under Art. 1327, an unemancipated minor cannot give consent to a contract. “Where necessaries are sold and delivered to a minor or other person without capacity to act, he must pay a reasonable price therefore.”

Art. 1330. A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable. (1265a)

Note: This article enumerates five cause by which consent may be vitiated or rendered

defective so as to make the contract voidable. A voidable contract is a valid contract but may be annulled by reason of a defect in the consent.

Art. 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract.

Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such identity or qualifications have been the principal cause of the contract.

A simple mistake of account shall give rise to its correction. (1266a)

Art. 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former. (n)

Note: This article designed to protect the illiterates and of a party who “ is at disadvantaged on account of his ignorance, mental weakness or other handicap.

Art. 1333. There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract. (n)

Art. 1334. Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated, may vitiate consent. (n)

Art. 1335. There is violence when in order to wrest consent, serious or irresistible force is employed.

There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear of an imminent and grave evil upon his person or property, or upon the person or property of his spouse, descendants or ascendants, to give his consent.

To determine the degree of intimidation, the age, sex and condition of the person shall be borne in mind.

A threat to enforce one's claim through competent authority, if the claim is just or legal, does not vitiate consent. (1267a)

Art. 1336. Violence or intimidation shall annul the obligation, although it may have been employed by a third person who did not take part in the contract. (1268)

Art. 1337. There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice. The following circumstances shall be considered: the confidential, family, spiritual and other relations between the parties, or the fact that the person alleged to have been unduly influenced was suffering from mental weakness, or was ignorant or in financial distress. (n)

Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. (1269)

Note: The fraud referred to in this article is not the fraud mentioned under Article 1170 and 1171. This article refers to a fraud in the contract and takes place before or at the time 36

the contract is entered into between the parties. The fraud referred to in Article 1170 and 1171 takes place after the perfection of the contract (fraud in obligation).

Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud. (n)

Note: It is an elementary postulate of law that parties to a contract must disclose in good faith facts within their knowledge, especially so when there is a duty to reveal them, as when they are bound by confidential relationship like existing between principal and agent, attorney and client, physician and patient, priest and penitent and other bound by fiduciary relations. When a party fails to do so under the circumstances mentioned, he commits fraud.

Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent. (n)

Note: It is a usual practice among merchants and traders to exaggerate the wares they sell. These are not in themselves fraudulent as long as the other party has had sufficient opportunity to know the facts. Persons dealing with such merchants or traders should act on his independent judgment. Article 1340 further stresses the rule of caveat emptor (let the buyer beware).

Art. 1341. A mere expression of an opinion does not signify fraud, unless made by an expert and the other party has relied on the former's special knowledge. (n)

Note: The rule has been stated that the constitute fraud under this article the “misinterpretation must be one of fact, and ordinarily a mere expression of opinion cannot constitute such fraud. Representation respecting matters obviously not susceptible of approximately accurate knowledge by the speaker will be classed as expressions of opinion for the inaccuracy of which annulment cannot be had.

Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and the same is mutual. (n)

Art. 1343. Misrepresentation made in good faith is not fraudulent but may constitute error. (n)

Note: The misrepresentation under this article is one made without fraudulent intent. As such, it is merely considered error because it is made in good faith.

Meaning of good faith. Good faith consists in an honest intention of abstain from taking

any unconscientious advantage of another

Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties.

Incidental fraud only obliges the person employing it to pay damages. (1270)

Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound at all; the latter, when the parties conceal their true agreement. (n)

Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement. (n)  

SECTION 2. - Object of Contracts  Art. 1347. All things which are not outside the commerce of men, including future things, may be the object of a contract. All rights which are not intransmissible may also be the object of contracts.

No contract may be entered into upon future inheritance except in cases expressly authorized by law.

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All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object of a contract. (1271a)

Note: An object certain is the second essential requisites of a valid contract. The object of

contracts may be things, rights and services.

Art. 1348. Impossible things or services cannot be the object of contracts. (1272)

Note: If the thing or service, object of the contract, is impossible the contract is void and inexistent for lack of an essential requisite. As to service, however, impossible the contract is void and inexistent for lack of an essential requisite. As to service however, impossibility may be absolute or relative. Absolute impossibility renders the contract void. “Relative impossibility, if temporary, does not annul the contract, such as when a partner agrees to contribute to the

Art. 1349. The object of every contract must be determinate as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties. (1273)

Meaning of determinate. Lexicographers give the equivalent of determinate as having definite limits; not uncertain or arbitrary; established; definite.

SECTION 3. - Cause of Contracts  Art. 1350. In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other; in remuneratory ones, the service or benefit which is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor. (1274)

Meaning of cause of contracts. Cause is “the essential or more proximate purpose which the contracting parties have in view at the time entering into the contract.” In other words, the cause is the is the immediate, direct and proximate reason which justifies the creation of an obligation thru the will of the contracting parties.

Cause of contract classified. The different kinds of contract as to its cause are (1) onerous contract

In this kind of contract, the cause is the mutual undertaking or promise of either of the contracting parties.

(2) remuneratory contractThe cause in remuneratory contract is the service or benefits for which the

remuneration is given.(1) gratuitous contract

In a gratuitous contract, the cause id the pure liberality of the giver.

Requisition of a valid cause or consideration. (1) The cause must be existence(2) That the cause must be lawful and not contrary to law, morals, good customs, public order

or public policy(3) The cause must be true because the statement of a false cause renders the contract void.

Art. 1351. The particular motives of the parties in entering into a contract are different from the cause thereof. (n)

Meaning of motives. Motives consist of the special reasons which a party may have in entering into a contract without affecting the existence of a true and distinct consideration.

Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good customs, public order or public policy. (1275a)

Note: If the contract is without cause or if it is with a cause but the same is unlawful, it cannot produce any legal effect because of lack of an essential element.

Art. 1353. The statement of a false cause in contracts shall render them void, if it should not be proved that they were founded upon another cause which is true and lawful. (1276)

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Art. 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary. (1277)

Note: It is fundamental rule in contracts that although the cause or consideration is not expressly stated, yet it is presumed that it exists and that the same is lawful. Whoever allege want of consideration, or that it does not exist or that it is unlawful shall have the burden of proof to establish the same.

Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence. (n)

Meaning of lesion. Lesion is any damage caused by the fact that the price is unjust and inadequate.

CHAPTER 3

FORM OF CONTRACTS  Art. 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present. However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable. In such cases, the right of the parties stated in the following article cannot be exercised. (1278a)

Note: This article states the rule that contracts shall be obligatory in whatever form they may be found as long as the essential requisites for their validity are present. The form, however, is essential in the following cases: (1) when the law requires that a contract be in some form in order that it may be valid; (2) that a contract be proved in a certain way; and (3) when the law requires a special form for convenience.

FORMS OF CONTRACTSCc 1356,57,58 ↓unless the law requires a form a either formability or enforceability a contract may come in any form

cc 1358- Must appear in a public instrument- agreement should exceed in 500 should be in writing enen n a priveate one

Q: if the form prescribe in 1358 not followed?

Maden Laure Vs. Judge delos Santos= in an actions brought in 1358 should it become necessary party may compel to comply in form under 1357.= it does make the transaction void

NEED OF FORM

1) for validity 2) for enforceability3) to make binding to 3rd persons4) for registration/ or make the contract registriable

Art. 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in the following article, the contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be exercised simultaneously with the action upon the contract. (1279a)

Note: When form is required by law for convenience or for a special purpose only and the contract is not in the form, the contracting parties may compel each other to observe the form required by law. But, if the form is essential for the validity or for the enforceability of the contract, then this article cannot be made apply.

Art. 1358. The following must appear in a public document:

(1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein a governed by Articles 1403, No. 2, and 1405;

(2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains;

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(3) The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person;

(4) The cession of actions or rights proceeding from an act appearing in a public document.

All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of goods, chattels or things in action are governed by Articles, 1403, No. 2 and 1405. (1280a)

Note: This article enumerates the cases when a contract must appear in a public document. This is an exception to the general rule that contracts are obligatory in whatever form they may be, provided the essential requisites are present. The requirement under the article that a contract be in public document is only for convenience, so the execution of a public document may be demanded by one or both contracting parties if the contract is not in, that form.

  CHAPTER 4

REFORMATION OF INSTRUMENTS (n) Meaning of reformation. “Reformation is that remedy in equity by means of which a written instrument is made or constructed so as to express or conform to the real intention of the parties when some error or mistake has been committed.”

REFORMATIONS OF INSTRUMENTS= to change only the instrument not the contract

purpose: to make it clear so as to reflect the true intentions of the parties

Note: agreement itself BE VALID

GROUNDS FOR REFORMATION

1. MISTAKE = must be mistake in fact lot of law, mistake is unilateral2. FRAUD3. ACCIDENT4. EXCUSABLE NEGLIGENCE

Mistake = if mistake is mutual either one of the parties may reform the instrument.

If mistake is unilateral. There must be a showing that the other party must be fraud? bad faith

Q: who should commit the mistake?A: it can also be a mistake of a third party

Q: when all reformation, NOT LIEA: 1. in case of simple donations involve gratuitous acts

2. in case of wills3.when the agreement is void.4. when a party to the instrument brings an action to enforce

Art. 1359. When, there having been a meeting of the minds of the parties to a contract, their true intention is not expressed in the instrument purporting to embody the agreement, by reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed.

If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties, the proper remedy is not reformation of the instrument but annulment of the contract.

Note: If mistake, fraud inequitable conduct, or accident has prevented a meeting of the minds if the parties, the proper remedy is not reformation if the instrument but annulment of the contract.

Requisites of reformation:1. There is a valid contract.2. The contract is in writing.3. The written contract fails to express the true intention of the parties; and4. The failure of the written contract to express the true intention is due to mutual mistake,

fraud, inequitable conduct, or accident.

Art. 1360. The principles of the general law on the reformation of instruments are hereby adopted insofar as they are not in conflict with the provisions of this Code.

Art. 1361. When a mutual mistake of the parties causes the failure of the instrument to disclose their real agreement, said instrument may be reformed.

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Note: Under this article, there must be mutual mistake of the parties justify reformation. Mutual mistake “consists in misunderstanding, reciprocal and common to both the contracting parties, when each alike labored under the same misconception in respect to the terms of a written instrument, intending at the time of the execution of the instrument to say one thing and by mistake expressing another.

Art. 1362. If one party was mistaken and the other acted fraudulently or inequitably in such a way that the instrument does not show their true intention, the former may ask for the reformation of the instrument.

Art. 1363. When one party was mistaken and the other knew or believed that the instrument did not state their real agreement, but concealed that fact from the former, the instrument may be reformed.

Note: Under this article, “mistake on the part of one party is not sufficient for the reformation of an instrument. There must be knowledge and concealment on the part of the other party in order that reformation may be availed of. That one party has failed to notice a stipulation contained in their instrument which was not caused by concealment of the other party is not ground for relief.

Art. 1364. When through the ignorance, lack of skill, negligence or bad faith on the part of the person drafting the instrument or of the clerk or typist, the instrument does not express the true intention of the parties, the courts may order that the instrument be reformed.

Art. 1365. If two parties agree upon the mortgage or pledge of real or personal property, but the instrument states that the property is sold absolutely or with a right of repurchase, reformation of the instrument is proper.

Art. 1366. There shall be no reformation in the following cases:

(1) Simple donations inter vivos wherein no condition is imposed;

(2) Wills;

(3) When the real agreement is void.

Note: This article enumerates the causes when no reformation may be had. Donation inter vivos is one which takes effect during the lifetime of the donor. It is distinguished from donation mortis causa in that this latter kind of donation takes effect after the death pf the donor. On the other hand, a will is an act whereby a person is permitted, with the formalities prescribed by law, to control to a certain degree the disposition of his estate to take effect after death. Whether it is a simple donation inter vivos or will, there is no reason why the instrument should be reformed. In case of donation, it is an act of liberality, and in the case of a will, the intention of the testator should be determined from the words of the will itself and may not be changed after the death of the testator and besides, a will is not a contract. When the real agreement is void, there is no instrument that can be the subject of reformation.

Art. 1367. When one of the parties has brought an action to enforce the instrument, he cannot subsequently ask for its reformation.

Note: The reason for this article is that when a party brings an action to enforce the contract he admits its validity and, also, that it express the true intention of the contracting parties. The enforcement of an instrument is inconsistent with reformation.

Art. 1368. Reformation may be ordered at the instance of either party or his successors in interest, if the mistake was mutual; otherwise, upon petition of the injured party, or his heirs and assigns.

Art. 1369. The procedure for the reformation of instrument shall be governed by rules of court to be promulgated by the Supreme Court.  

CHAPTER 5INTERPRETATION OF CONTRACTS

Rule in interpretation. The cardinal rule in the interpretation pf contracts is to the effect that the intention of the contracting parties should always prevail because their will has the force of law between them.  Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control.

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If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. (1281)

Art. 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered. (1282)

Art. 1372. However general the 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 the parties intended to agree. (1283)

Art. 1373. 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. (1284)

Art. 1374. The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. (1285)

Art. 1375. Words which may have different significations shall be understood in that which is most in keeping with the nature and object of the contract. (1286)

Meaning of “exact the payment by legal means.” It has been held by the Supreme Court that the clause to “exact the payment” of sum of money “legal means” connotes the power to exact the payment of debts due to creditor by means of institutions of suits for their recovery.

Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established. (1287)

Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. (1288)

Art. 1378. When it is absolutely impossible to settle doubts by the rules established in the preceding articles, and the doubts refer to incidental circumstances of a gratuitous contract, the least transmission of rights and interests shall prevail. If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests.

If the doubts are cast upon the principal object of the contract in such a way that it cannot be known what may have been the intention or will of the parties, the contract shall be null and void. (1289)

Art. 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be observed in the construction of contracts. (n)

Note: The Rules of Court concerns itself with evidence which is the means of ascertaining in a judicial proceeding the truth respecting a matter of fact. Rules of evidence, especially the principles of interpretation thereof, shall also be observed in the construction of contracts.

DEFECTIVE CONTRACTSThe defective contracts in the order of their defectiveness are as follows:

1. Rescissible contract Has all the essential requisites of a contract and the contract itself is valid, but by

reason of injury or damage to third persons, such as creditors, the contract may be rescinded.

2. Voidable contractIs a valid contract and like a rescissible contract it has all the essential requisite but it

may be annulled for the reason that there is a defect in the consent.

3. Unenforceable contractIs one which cannot be sued upon or enforced in a court of law unless it is ratified.

4. Void or inexistent contractsThey lack one or some of the elements of a valid contract. They are absolutely null

and void.

CHAPTER 6RESCISSIBLE CONTRACTS

 RESCISSIBLE CONTRACTS

Meaning of rescission. Rescission is a remedy granted by law to the contracting parties and even to third persons, in order to secure reparation of damages caused them by a contract, even it

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is be valid, by means of the restoration of things to their condition prior to the celebration of the said contract.

Art. 1380. Contracts validly agreed upon may be rescinded in the cases established by law. (1290)

Requisites for rescission.1. There must be a case specially provided by law 2. There is no other legal remedy3. The party asking for rescission must be able to restore what he may have received by

reason of the contract4. The object of the contract must not be legally in the possession of a third person who

acquired it in good faith.

RECISSIBLE CONTRACTS→NOT DEFECTIVE CONTRACTS →NO PROVISIONs on ratifications

GROUNDS FOR RECISSION

1. lesion or damage2. fraud

Q: what kind of remedy is rescission? A: rescission is a subsidiary remedy(remedy of last resort) remedy of recission is vested with public interest because the law protects 3rd person

REQUISITES OF RECISSION

1. Before you can recind, there must be a recissible contract →1381, 1382cc2. party seeking recission must have no other legal means to3. object must not have pass into the hands of a 3rd personwho had acquire it in good faith → good faith MUST BE PRESENT IN THE 1ST transferee 4. party seeking recission must be able to return what they have received.(mutual restitution) ↓IS NOT ABSOLUTE

1.you violate quasi – contractsex. Contract of lease

2recission of a 3rd person = 3rd person must have suffered damage/lesion by reason of the contract

RECISSION VS. RESOLUTION

5. Action to recind must be brought w/in the prescription (4yrs from the time of execution sought to be recinded) exception 1191 → implied power to recind in reciprocal obligation. If specific performance becomes impossible he has the right recind. 4yrs shall be counted he choses the right to specific performance.

Art. 1381. The following contracts are rescissible:

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

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

(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them;

(4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority;

(5) All other contracts specially declared by law to be subject to rescission. (1291a)

1381 RECISSIBLE

AN AGREEMENT ENTERED INTO A GUARDIAN inbalf of his ward- in behalf of an absentee- - in behalf of an administrator

NOTE: entered into a contract of representation

NOTE: that the contract is one of con tract of administration.- if act is act of ownership it need judicial approval- lack of judicial approval is unenforceable

LEASE? = contract of administration of contract of ownership

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Roxas vs. CA = leasing is an act of encumbrance therefore will require judicial approval

Q: is the amount of damage of lesion material?A: NO

-A contract for the purpose of defrauding a CREDITOR is recissible

Q: is restitution required by law?A: NO, creditor didn’t receive anything. The contract of payment is that is rcissible

- existence of the right of First refusal - → offer to sell

Art. 1382. Payments made in a state of insolvency for obligations to whose fulfillment the debtor could not be compelled at the time they were effected, are also rescissible. (1292)

Art. 1383. The action for rescission is subsidiary; it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. (1294)

Art. 1384. Rescission shall be only to the extent necessary to cover the damages caused. (n)

Art. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore.

Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith.

In this case, indemnity for damages may be demanded from the person causing the loss. (1295)

Art. 1386. Rescission referred to in Nos. 1 and 2 of Article 1381 shall not take place with respect to contracts approved by the courts. (1296a)

Art. 1387. All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered into in fraud of creditors, when the donor did not reserve sufficient property to pay all debts contracted before the donation.

Alienations by onerous title are also presumed fraudulent when made by persons against whom some judgment has been issued. The decision or attachment need not refer to the property alienated, and need not have been obtained by the party seeking the rescission.

In addition to these presumptions, the design to defraud creditors may be proved in any other manner recognized by the law of evidence. (1297a)

Art. 1388. Whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify the latter for damages suffered by them on account of the alienation, whenever, due to any cause, it should be impossible for him to return them.

If there are two or more alienations, the first acquirer shall be liable first, and so on successively. (1298a)

Art. 1389. The action to claim rescission must be commenced within four years.

For persons under guardianship and for absentees, the period of four years shall not begin until the termination of the former's incapacity, or until the domicile of the latter is known. (1299)  

CHAPTER 7VOIDABLE CONTRACTS

VOIDABLE CONTRACTS

- action has prescribe- defect lies in the consent of the parties- when will an action to annul

1. action has prescribe2. contract has been ratified

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3. object of the contract has been lost by the person who has the right to annul4. if minor represents his age, he is barred by estoppel

→ only those who is primarily involve has the right to recind]

→ an action to annul shall preswcribe in 4 yrs( will depend on the ground)

- if violence, intimidation, duress, undue influence = from the time the cease to exist be cause its inly the time. - IF MISTAKE = from the date of discovery of mistake- IF FRAUD = from the date of discovery of fraud

exception = if the fraudulent instrumentwas recorded from the date it was recorded- IT INCAPACITY = from the time of guardianship/in capacity ceases

Kind of Misrepresentation of age

1. PASSIVE Misrepresentation = Minor can still annul2. ACTIVE Misrepresentation = minor is estopped from denying the truth

  Art. 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties:

(1) Those where one of the parties is incapable of giving consent to a contract;

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.

These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification. (n)

Art. 1391. The action for annulment shall be brought within four years.

This period shall begin:

In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases.

In case of mistake or fraud, from the time of the discovery of the same.

And when the action refers to contracts entered into by minors or other incapacitated persons, from the time the guardianship ceases. (1301a)

Art. 1392. Ratification extinguishes the action to annul a voidable contract. (1309a)

Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right. (1311a)

Art. 1394. Ratification may be effected by the guardian of the incapacitated person. (n)

Art. 1395. Ratification does not require the conformity of the contracting party who has no right to bring the action for annulment. (1312)

Art. 1396. Ratification cleanses the contract from all its defects from the moment it was constituted. (1313)

Art. 1397. The action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily. However, persons who are capable cannot allege the incapacity of those with whom they contracted; nor can those who exerted intimidation, violence, or undue influence, or employed fraud, or caused mistake base their action upon these flaws of the contract. (1302a)

Art. 1398. An obligation having been annulled, the contracting parties shall restore to each other the things which have been the subject matter of the contract, with their fruits, and the price with its interest, except in cases provided by law.

In obligations to render service, the value thereof shall be the basis for damages. (1303a)

Art. 1399. When the defect of the contract consists in the incapacity of one of the parties, the incapacitated person is not obliged to make any restitution except insofar as he has been benefited by the thing or price received by him. (1304)

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Art. 1400. Whenever the person obliged by the decree of annulment to return the thing can not do so because it has been lost through his fault, he shall return the fruits received and the value of the thing at the time of the loss, with interest from the same date. (1307a)

Art. 1401. The action for annulment of contracts shall be extinguished when the thing which is the object thereof is lost through the fraud or fault of the person who has a right to institute the proceedings.

If the right of action is based upon the incapacity of any one of the contracting parties, the loss of the thing shall not be an obstacle to the success of the action, unless said loss took place through the fraud or fault of the plaintiff. (1314a)

Art. 1402. As long as one of the contracting parties does not restore what in virtue of the decree of annulment he is bound to return, the other cannot be compelled to comply with what is incumbent upon him. (1308)  

CHAPTER 8UNENFORCEABLE CONTRACTS (n)

  UNENFORCEABLE CONTRACT

- not actionable in court- 1370 based on lack of authority- 1403 = one that does not comply with the statute of frauds

= both parties lack consent to the contract = certain contracts should be in writingEFFECT: failure to comply → cannot prove oral contract

Q: when will it apply?A: under the 6 condition under 1403 enumeration is exclusive

NOTE: STATUTE of FRAUD applies only for SP or breach contract

Q: does it require all in writing?A: (paredes vs. espino) only essentials of contract be in writing

→ defect can never be cured by lapsed of timeda) if act to be performed w/in one (partially) and Beyond one year(covered by the

statute of fraudsNOTE: statute of frauds does not cover real contracts

Non performance of one year is by agreement of the parties

b) contract of personal; guarantyc) contract in consideration of marriage refer to marriage settlement, donation propter

nuptiasd) sales of personal property, chattels and goods if the price is at least 500pesos

exception = in cases of auction, entries in the auction book shall be considerede) leasing for a period of beyond 1yr is covered( object is real property) sale of real

property regardless of the price( writing the sale)NOTE: sale of agent must be in writing. Writing must be one of the AUTHORITY OF AGENT TO SALE.

Fernandes → statute of frauds covers only real property in sale or lease over one year

“a right of 1st refuasal is not covered by statute of frauds”

right of way = NOT coveredPartition = NOT covered

RATIFICATION OF CONTRACTS1. failure to object in the presentation of evidence2. receiving fruits3. cross examination

Art. 1403. The following contracts are unenforceable, unless they are ratified: (1) 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;

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents:

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(a) An agreement that by its terms is not to be performed within a year from the making thereof;

(b) A special promise to answer for the debt, default, or miscarriage of another;

(c) An agreement made 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 five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum;

(e) An agreement of the leasing for a longer period than one year, or for the sale of real property or of an interest therein;

(f) A representation as to the credit of a third person.

(3) Those where both parties are incapable of giving consent to a contract. Art. 1404. Unauthorized contracts are governed by Article 1317 and the principles of agency in Title X of this Book.

Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefit under them.

Art. 1406. When a contract is enforceable under the Statute of Frauds, and a public document is necessary for its registration in the Registry of Deeds, the parties may avail themselves of the right under Article 1357.

Art. 1407. In a contract where both parties are incapable of giving consent, express or implied ratification by the parent, or guardian, as the case may be, of one of the contracting parties shall give the contract the same effect as if only one of them were incapacitated.

If ratification is made by the parents or guardians, as the case may be, of both contracting parties, the contract shall be validated from the inception.

Art. 1408. Unenforceable contracts cannot be assailed by third persons.  

CHAPTER 9VOID AND INEXISTENT CONTRACTS

  Art. 1409. The following contracts are inexistent and void from the beginning:

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

(2) Those which are absolutely simulated or fictitious;

(3) Those whose cause or object did not exist at the time of the transaction;

(4) Those whose object is outside the commerce of men;

(5) Those which contemplate an impossible service;

(6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained;

(7) Those expressly prohibited or declared void by law.

These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived. VOID CONTRACTS

- are non-existing contracts ying-yao vs CA

- if contract is void

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Q: is judicial declaration necessary ?A: if contrast is executory on both side, it is not necessary

Exception: 1. if purpose is to recover what is given2 art 40 of the family code

1409pari-delicto – parties cannot bring an action to another and contract from each other

Q: when does pari delicto does not apply?A: (torres. Vs. ventura) pari delicto does not apply

Velasco vs. velasco= pari delicto does not apply to declaration of nullityof marriage of psychological capacity

Art. 1410. The action or defense for the declaration of the inexistence of a contract does not prescribe.

Art. 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no action against each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code relative to the disposal of effects or instruments of a crime shall be applicable to the things or the price of the contract.

This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he has given, and shall not be bound to comply with his promise. (1305)

Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed:

(1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other's undertaking;

(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply his promise. (1306)

Art. 1413. Interest paid in excess of the interest allowed by the usury laws may be recovered by the debtor, with interest thereon from the date of the payment.

Art. 1414. When money is paid or property delivered for an illegal purpose, the contract may be repudiated by one of the parties before the purpose has been accomplished, or before any damage has been caused to a third person. In such case, the courts may, if the public interest will thus be subserved, allow the party repudiating the contract to recover the money or property.

Art. 1415. Where one of the parties to an illegal contract is incapable of giving consent, the courts may, if the interest of justice so demands allow recovery of money or property delivered by the incapacitated person.

Art. 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is designated for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered.

Art. 1417. When the price of any article or commodity is determined by statute, or by authority of law, any person paying any amount in excess of the maximum price allowed may recover such excess.

Art. 1418. When the law fixes, or authorizes the fixing of the maximum number of hours of labor, and a contract is entered into whereby a laborer undertakes to work longer than the maximum thus fixed, he may demand additional compensation for service rendered beyond the time limit.

Art. 1419. When the law sets, or authorizes the setting of a minimum wage for laborers, and a contract is agreed upon by which a laborer accepts a lower wage, he shall be entitled to recover the deficiency.

Art. 1420. In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced.

Art. 1421. The defense of illegality of contract is not available to third persons whose interests are not directly affected.

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Art. 1422. A contract which is the direct result of a previous illegal contract, is also void and inexistent.  

Title III. - NATURAL OBLIGATIONS

NATURAL OBLIGATIONS

- what has been paid voluntarily cannot be recovered?- Payer cannot be compelled to pay still pays

  Art. 1423. Obligations are civil or natural. Civil obligations give a right of action to compel their performance. Natural obligations, not being based on positive law but on equity and natural law, do not grant a right of action to enforce their performance, but after voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or rendered by reason thereof. Some natural obligations are set forth in the following articles.

Art. 1424. When a right to sue upon a civil obligation has lapsed by extinctive prescription, the obligor who voluntarily performs the contract cannot recover what he has delivered or the value of the service he has rendered.

Art. 1425. When without the knowledge or against the will of the debtor, a third person pays a debt which the obligor is not legally bound to pay because the action thereon has prescribed, but the debtor later voluntarily reimburses the third person, the obligor cannot recover what he has paid.

Art. 1426. When a minor between eighteen and twenty-one years of age who has entered into a contract without the consent of the parent or guardian, after the annulment of the contract voluntarily returns the whole thing or price received, notwithstanding the fact the he has not been benefited thereby, there is no right to demand the thing or price thus returned.

Art. 1427. When a minor between eighteen and twenty-one years of age, who has entered into a contract without the consent of the parent or guardian, voluntarily pays a sum of money or delivers a fungible thing in fulfillment of the obligation, there shall be no right to recover the same from the obligee who has spent or consumed it in good faith. (1160A)

Art. 1428. When, after an action to enforce a civil obligation has failed the defendant voluntarily performs the obligation, he cannot demand the return of what he has delivered or the payment of the value of the service he has rendered.

Art. 1429. When a testate or intestate heir voluntarily pays a debt of the decedent exceeding the value of the property which he received by will or by the law of intestacy from the estate of the deceased, the payment is valid and cannot be rescinded by the payer.

Art. 1430. When a will is declared void because it has not been executed in accordance with the formalities required by law, but one of the intestate heirs, after the settlement of the debts of the deceased, pays a legacy in compliance with a clause in the defective will, the payment is effective and irrevocable.  

Title IV. - ESTOPPEL (n)  Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon.

Art. 1432. The principles of estoppel are hereby adopted insofar as they are not in conflict with the provisions of this Code, the Code of Commerce, the Rules of Court and special laws.

Art. 1433. Estoppel may be in pais or by deed.

Art. 1434. When a person who is not the owner of a thing sells or alienates and delivers it, and later the seller or grantor acquires title thereto, such title passes by operation of law to the buyer or grantee.

Art. 1435. If a person in representation of another sells or alienates a thing, the former cannot subsequently set up his own title as against the buyer or grantee.

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Art. 1436. A lessee or a bailee is estopped from asserting title to the thing leased or received, as against the lessor or bailor.

Art. 1437. When in a contract between third persons concerning immovable property, one of them is misled by a person with respect to the ownership or real right over the real estate, the latter is precluded from asserting his legal title or interest therein, provided all these requisites are present:

(1) There must be fraudulent representation or wrongful concealment of facts known to the party estopped;

(2) The party precluded must intend that the other should act upon the facts as misrepresented;

(3) The party misled must have been unaware of the true facts; and

(4) The party defrauded must have acted in accordance with the misrepresentation.

Art. 1438. One who has allowed another to assume apparent ownership of personal property for the purpose of making any transfer of it, cannot, if he received the sum for which a pledge has been constituted, set up his own title to defeat the pledge of the property, made by the other to a pledgee who received the same in good faith and for value.

Art. 1439. Estoppel is effective only as between the parties thereto or their successors in interest.  

Title V. - TRUSTS (n) 

CHAPTER 1GENERAL PROVISIONS

  Art. 1440. A person who establishes a trust is called the trustor; one in whom confidence is reposed as regards property for the benefit of another person is known as the trustee; and the person for whose benefit the trust has been created is referred to as the beneficiary.

Art. 1441. Trusts are either express or implied. Express trusts are created by the intention of the trustor or of the parties. Implied trusts come into being by operation of law.

Art. 1442. The principles of the general law of trusts, insofar as they are not in conflict with this Code, the Code of Commerce, the Rules of Court and special laws are hereby adopted.  

CHAPTER 2EXPRESS TRUSTS

  Art. 1443. No express trusts concerning an immovable or any interest therein may be proved by parol evidence.

Art. 1444. No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended.

Art. 1445. No trust shall fail because the trustee appointed declines the designation, unless the contrary should appear in the instrument constituting the trust.

Art. 1446. Acceptance by the beneficiary is necessary. Nevertheless, if the trust imposes no onerous condition upon the beneficiary, his acceptance shall be presumed, if there is no proof to the contrary.  

CHAPTER 3IMPLIED TRUSTS

  Art. 1447. The enumeration of the following cases of implied trust does not exclude others established by the general law of trust, but the limitation laid down in Article 1442 shall be applicable.

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Art. 1448. There is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by another for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is the beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child.

Art. 1449. There is also an implied trust when a donation is made to a person but it appears that although the legal estate is transmitted to the donee, he nevertheless is either to have no beneficial interest or only a part thereof.

Art. 1450. If the price of a sale of property is loaned or paid by one person for the benefit of another and the conveyance is made to the lender or payor to secure the payment of the debt, a trust arises by operation of law in favor of the person to whom the money is loaned or for whom its is paid. The latter may redeem the property and compel a conveyance thereof to him.

Art. 1451. When land passes by succession to any person and he causes the legal title to be put in the name of another, a trust is established by implication of law for the benefit of the true owner.

Art. 1452. If two or more persons agree to purchase property and by common consent the legal title is taken in the name of one of them for the benefit of all, a trust is created by force of law in favor of the others in proportion to the interest of each.

Art. 1453. When property is conveyed to a person in reliance upon his declared intention to hold it for, or transfer it to another or the grantor, there is an implied trust in favor of the person whose benefit is contemplated.

Art. 1454. If an absolute conveyance of property is made in order to secure the performance of an obligation of the grantor toward the grantee, a trust by virtue of law is established. If the fulfillment of the obligation is offered by the grantor when it becomes due, he may demand the reconveyance of the property to him.

Art. 1455. When any trustee, guardian or other person holding a fiduciary relationship uses trust funds for the purchase of property and causes the conveyance to be made to him or to a third person, a trust is established by operation of law in favor of the person to whom the funds belong.

Art. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes.

Art. 1457. An implied trust may be proved by oral evidence.  

I. CONCEPT

Definition

Art. 1156, NCCAn obligation is a juridical necessity to give, to do or not to do.

The legal relation established between one party and another, whereby the latter is bound to the fulfillment of a prestation which the former may demand of him. (Manresa)

Elements

Active subject (obligee / creditor) the one in whose favor the obligation is constituted the person who is entitled to demand

Passive subject (obligor / debtor) the one bound to the fulfillment the person who has the duty of giving, doing or not doing

Prestation (object) the conduct which has to be observed by the debtor / obligor duties of the obligor

Requisites:1. it must be Licit2. it must be Possible, physically and judicially3. it must be Determinate or determinable; and

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4. it must have a Possible equivalent in money

Vinculum juris(efficient cause; juridical or legal tie)

- that which binds or connects the parties to the obligation. This can be easily known by knowing the sources of obligations. (de Leon)

Distinction between Natural And Civil Obligations(Art.1423)

Natural Obligations

Based on equity and natural law Do not grant a right of action to enforce their performance; but after voluntary fulfillment by the

obligor, they authorize the retention of what has been delivered or rendered by reason thereof.

Civil Obligations (Art.1156)

Based on positive law Give a right of action to compel their performance

II. SOURCES (ART. 1157)

LawContractsQuasi-contractsDelictsQuasi-delicts

LAW

General Rule

Obligations derived from law are not presumed; only those expressly determined in this Code or in special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book. (Article 1158)

*Those imposed by the law itself.

CONTRACTS

Definition

A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service (1305)

General Rule

The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to Law, Morals, Good customs, Public order and Public policy (1306)

Contracts as force of law between parties

- Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith (1159)

QUASI-CONTRACTS (LoVe yoU) Definition

- It is the juridical relation resulting from lawful, voluntary, and unilateral acts by virtue of which the parties become bound to each other to hte end that no one should be unjustly enriched or benefited at the expense of another (2142)

Lawful Distinguishing it from crimes.

Voluntary Differentiating it from quasi-delict, which are based on fault and

negligence.

Unilateral Distinguishing it from contract which is based on agreement.

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Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII of this Book (1160)

Kinds of quasi-contracts

1. Negotiorum Gestio (unauthorized management) - This takes place when a person voluntarily takes charge of another’s abandoned business or property

without the owner’s authority. (Article 2144)

This juridical relation does not arise in either of these instances:

a. When the property or business is not neglected or abandoned b. If in fact the manager has been tacitly authorized by the owner

2. Solutio Indebiti (undue payment) - This takes place when something is received When there is no right to demand it, and It was unduly delivered thru mistake (2154)

DELICTS (Obligations Ex Delicto)

Governing Rules

Pertinent provisions of the RPC and other penal laws subject to Art 2177 Civil Code

Art. 100, RPC- Every person criminally liable for a felony is also civilly liable

What civil liability arising from a crime includes

RestitutionReparation of damage causedIndemnity for consequential damages

QUASI-DELICTS

Definition

An act or omission with fault or negligence causing damage to another; not a crime nor contract

Article 2167, New Civil Code- Whoever by act or omission causes damage to another, there being fault or negligence, is

obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.

Governing Rules

Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book, and by special laws (1162)

Title XVII on damages Articles 19-36 on human relations

Chapter II: Effect of Obligations

I. KINDS OF PRESENTATION

1. Obligation to Give2. Obligation to Do3. Obligation Not to do

OBLIGATION TO GIVE: Specific/determinate thing

- It is identified by its individuality; hence, it cannot be substituted with another although the intended substitute is of the same kind and quality.

Generic thing (1246)- It is identified only by its specie. The debtor can give anything of the same class

as long as it is of the same kind.

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- Creditor can’t demand a thing of superior quality; neither can the debtor deliver a thing of inferior quality.

SPECIFIC/ DETERMINATE THING

Duties of the obligor:

1. To preserve or take care of the (1163)

*Standard of care: - that of a good father of a family unless the law or stipulation requires another standard of care

2. To deliver the thing itself (1244)

3. To deliver the fruits of the thing (Art. 1164, par. 1)

*When does the right to the fruits begin to exist?

- From the time the duty to deliver arises: when there is no term/condition

- from the perfection of the contract when there is a term/condition

- from the moment the term and condition arises

4. To deliver the accessions and accessories of the thing (Art. 1166)

*Accessories – those joined to or included with the principal for the latter’s better use, perfection or enjoyment

*Accessions – additions to or improvements upon a thing

5. To pay for damages is case of breach (1170)

GENERIC THING

Duties of the obligor:

1. To deliver a thing which is of the quality intended by the parties taking into consideration the purpose of the obligation and other circumstances (1246)

2. To be liable for damages in casa of fraud, negligence, or delay, in the performance of his obligation, or contravention of the tenor itself (1170)

Personal right(Before Delivery)

o Jus ad rem/ jus in personam - a right enforceable only against a definite passive subject, the debtor.

- right pertaining to the person to demand from another, as a definite passive subject, the

fulfillment of a prestation to give, to do or not to do.

Real right(After Delivery)

o Jus in re - a right enforceable against the world. - right pertaining to a person over a specific thing, without a passive

subject individually determined against whom such right may be personally enforced.

Rights of a Creditor:

Specific to compel specific performance to recover damages in case of breach of the obligation, exclusive or in

addition to specific performance entitlement to fruits, interests from the time the obligation to deliver

arises.

Generic To ask performance of the obligation To ask that the obligation be compiled with at the expense of the debtor To recover damages in case of breach of obligation.

OBLIGATION TO DO:

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To do it (1167)

To shoulder the cost if someone else does it (1167) To undo what has been poorly done (1167) To pay damages (1170-1172,2201-2202)

If a person obliged to do something fails to do it, the same shall be executed at his cost.

This same rule shall be observed if he does it is in contravention of the obligation. Furthermore, it may be degreed that what has been poorly done be undone. (1167)

* The creditor may demand that the obligation be performed by the debtor himself or by a third person at the expense of the debtor. However, in cases where the

personal qualifications of the debtor are taken into account, the only remedy of the creditor is an action for damages. In the Balane notes, there is no action for compliance for an obligation to do because such would be

involuntary servitude which is prohibited by the constitution.

OBLIGATION NOT TO DO:

Not to do what should not be done To shoulder the cost to undo what should not have been done (1168) To pay damages (1170, 2201-2202)

* If undoing is not possible, either physically or legally, or because of rights acquired by third persons who acted in good faith, or for some other

reason, his remedy is an action for damages caused by the debtor’s violation of his obligation. (Manresa)

II. BREACH OF OBLIGATION

Voluntary - the debtor, in the performance of the obligation is guilty of fraud, negligence, delay or contravention of the tenor of obligation

Involuntary - debtor is unable to comply with his obligation because of a fortuitous event

A. MODES OF BREACH (1170)

1. Fraud2. Negligence3. Delay4. Contravention the tenor thereof

FRAUD

- It is the deliberate or intentional evasion of the normal fulfillment of an obligation. (Manresa)

- It implies some kind of malice or dishonesty and it cannot cover cases of mistakes and errors in judgment made in good faith. It is synonymous to bad faith. (O’leary v.

Macondray & Co., Inc., G.R. No. 21383, March 25, 1924)

* Responsibility arising from fraud is demandable in all obligations (fraud in the performance)

* Waver of action for future fraud is void for being contrary to law and public policy (Art. 1171) because the advance renunciation of the creditor would

practically leave the obligation without effect.

* Past fraud can be renounced. The fraud referred to is fraud in Article 1170, which is the malice or bad faith in the performance of the obligation.

NEGLIGENCE (fault or culpa)

It is the absence of due diligence.

It is any voluntary act or omission, there being no malice, which prevents the normal fulfillment of an obligation. (1173, 1174)

Distinction between fraud negligence

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TABLE

Diligence Required

1. That agreed upon the parties2. In the absence of stipulation, that required by law in the particular case3. If both the contract and law are silent, diligence of a good father of a family

*Diligence of a Good Father of a Family: That reasonable diligence which ordinary prudent person would have had under the same circumstances.

Test of Negligence

Did the defendant in doing the alleged negligent act use the reasonable care and caution which an ordinary and prudent person would have use in the same situation? If not, then he is guilty of negligence.(Madarin Villa, Inc. v. CA, 257 SCRA 538, 1996)

The rules of measuring degree of care and vigilance is dependant upon the circumstances in which a person finds himself situated. (Cusi v. Phil. National Railways, 90 SCRA 357, 1979)

Kinds of Culpa

1. Culpa Aquillana (quasi-delict) – wrong or negligence committed indefendent of contract and without criminal intent

2. Culpa Contractual – wrong or negligence in the performance of an obligation

3. Culpa Criminal – wrong or negligence in the commission of a crime

DELAY (mora)

It is the non-fulfillment of an obligation with respect to time.

1 st GENERAL RULE: Delay occurs from the time of creditor’s judicial or extrajudicial demand

Exception: Demand is not necessary to incur in delay when:

obligation or law expressly declares time is controlling motive demand would be useless

2 nd GENERAL RULE: In reciprocal obligations, delay happens from the moment one party fulfills his undertaking. (1169) If neither party performs his undertaking, neither incurs delay

Kinds of Delay

1. Mora solvendi2. Mora accipiendi3. Compensatio morae – the delay of obligors in reciprocal obligations

1. Mora Solvendi

There is a delay on the part of the debtor to fulfill his obligation (to give or to do)

a) Mora Solvendi Ex re – default in real obligationsb) Mora Solvendi Ex persona – default in personal obligations

Requisites: The obligation must be liquidated, due and demandable The debtor is guilty of non-performance. There was demand made judicially or extra-judicially.

Effects when these elements are present:The creditor may ask for damage/ the debtor is liable for damagesThe debtor is liable even if the loss is due to Fortuitous events.The debtor shall bear the risk of loss.

Instance when there is no default or mora solvendi:a) In negative obligations, because one can never be late in not doing or not giving something

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b) In natural obligations, because the performance is optional or voluntary on the part of the debtor.

2. Mora Accipiendi

There is a delay on the part of the creditor to accept the performance of the obligation

Requisites:1. Offer of performance by the debtor who has the required capacity2. Offer must be comply with the prestation as it should be performed.3. Creditor refuses the performance without just cause.

Effects when these elements are present:1. The responsibility of debtor is reduced to fraud and gross negligence.2. The debtor is exempted from risk of loss of thing or the creditor bears risk of loss.3. The expenses incurred by the debtor for the preservation of the thing after the mora shall be chargeable

to the creditor.4. If the obligation bears interest, the debtor does not have to pay from time of delay.5. The creditor is liable for damages.6. The debtor may relieve himself of obligation by consigning the thing.

3. Compensatio MoraeIt is the delay of the parties or the obligors in reciprocal obligations. The effect is that it is as if there is no default.

Rules on Mora, Delay or Default

TABLE

*Delay in payment of money is indemnified through interest unless a gratuitous mutuum or simple loan. If no stipulated interest, default interest is (6%) six percent.(2209)

*If obligation consists in payment of a sum of money, and debtor incurs in delay, the indemnity for damages, there being no stipulation, to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six percent per anuum.(2209)

*When there is delay, the injured party may asked for damages. But this benefit arising from Mora,Default or delay may cease upon:

Renunciation of the creditor Prescription of action Extension of time for the fulfillment of the obligation

Bragaza v. CAA contract was entered into for delivery of materials on Dec. 22, 1990 in time for the aggrieved party’s wife who expressly wished that she be buried before Christmas day, and where, despite knowing this timetable and having been paid for the materials, the supplier failed to make the delivery despite pleas and earnest follow-ups by the widower. Supreme Court ruled that time was of the essence of such contract and the supplier should be liable for the delay and breach.

N.B. Example of incurring delay without judicial or extrajudicial demand. (#2)Time is of the essence. Contract was entered into in view of burial before Christmas.

Aqcaoili v. GSIThe parties entered into a contract of sale of a government housing unit on the condition that Agcaoili should occupy the same within three days from the receipt of notice. Failure to immediately occupy contractually allowed GSIS to terminate the contract. Agcaoili upon receipt of notice immediately went to the place and found a house in a state of incompleteness that civilized occupation was not possible. He made the first monthly installment but refused to make further payments until and unless GSIS completed the housing unit. GSIS cancelled the award and required Agcaoili to vacate the premises.

Held: GSIS had no right to rescind sale. In Reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in proper manner with what is incumbent upon him. (1169, par. 6)

CONTRVENTION TO THE TENOR OF THE OBLIGATIONThis is the violation of the terms and conditions stipulated in the obligation. And such contravention must not be due for a fortuitous event or force majeure.

In general, every debtor who fails in the performance of his obligation is bound to indemnify for the losses and damages caused thereby.

The phrase “in any manner contravenes the tenor” means any illicit act, which impairs the strict and faithful fulfillment of the obligation, or every kind of defective performance.

It is therefore immaterial whether or not the actor is in bad faith or negligent, what is required is that it is his fault or the act done contravenes their agreement.

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B. FORTUITOUS EVENTS

DEFINITION

Events which could not be foreseen, or whichthough foreseen are inevitable. (Article 1174)

Act of God

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An act of God is defined as an accident, due directly and exclusively to natural causes without human intervention, which by no amount of foresight, pains or care, reasonably to have been expected, could have been prevented. (Nakpil v.CA)

Act of Man

In contrast, force majeure is a superior or irresistible force, which is essentially an act of man, such as wars, strikes, riots, acts of robbers, pirates and brigands.

*In our law, acts of man and acts of God are identical in so far as they exempt an obligor from liability because the event happened independent of the will of the obligor. (Republic v. Stevedoring Corp., 21 SCRA 279, 1967 and UST v. Descals, 38 Phil. 287, 1918)Kinds of Fortuitos Events

1. Ordinary – those which are common and which the contracting parties could easily foresee.

2. Extraordinary – those which are uncommon and which the contracting parties could not have reasonably foreseen. (see 1680)

General Rule

Except in cases expressly specified by law, or when it is otherwise declared by stipulation, or when the nature of the obligations requires assumption of risk, no person shall be responsible for those events which, could not be foreseen, or which though foreseeable, are inevitable.

*When a debtor is unable to fulfill his obligation because of fortuitous events or force majeure, his obligation to comply is extinguished subject to the following exceptions:

Cases expressly specified by law (i.e., 552 (2), 1165, 1268, 1942, 2147, 2148, 2159) Declared by stipulation Nature of the obligation requires the assumption of risk (1174) When the obligor is in default or has promised to deliver the same thing to two or more

persons who do not have the same interests. (1165(3))

Requisites for exemption

1. cause of event or debtor’s failure independent of human will2. impossible to foresee or avoid3. impossible for debtor to fulfill his obligation in a normal manner4. debtor free from participation in the aggravation of the injury to the creditor (Nakpil v. CA and Lasam v. Smith)

*It must be the ONLY and SOLE cause, not merely a proximate cause.

Effect of Concurrent Fault

One who negligently creates a dangerous situation cannot escape liability for the natural and probable consequences thereof although an act of God intervened to precipitate the loss. There must be no fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation. (Nakpil v. CA)

When the effect is found to be in part the result of the participation of man, whether due to his active intervention or neglect or failure to act, the whole occurrence is then humanized and removed from the rules applicable to the acts of God (NAPOCOR v. CA, 211 SCRA 162, 1992)

Herbosa v CA374 SCRA 578 (2002)PVE, a subsidiary of SD, Inc., was not able to cover the wedding celebration of EH and RH allegedly due to the gross negligence of the crew and the lack of supervision from PVE’s general manager. Held: PVE or SD, Inc. cannot take refuge under article 1280 of the new Civil Code. The defense that they exercised due care in the selection and supervision of their employees can only be availed of when the liability arises from culpa aquiliana and not from culpa contractual.

C. REMEDIES OF CREDITORSGENERAL RULE

Rights acquired by virtue of an obligation are transmissible in character.

Exception

a) when they are not transmissible by their very nature (Personal obligation)

b) when there is Stipulation of the parties that they are not transmissible

c) when they are not transmissible by operation of Law

Rights of Creditor against Debtor (E-PAA, electronic paa/foot or e-foot)

1. Exact fulfillment – to demand fulfillment of the obligation or specific performance – either specific, substitute or equivalent performance

2. Pursue the leviable – to attach the properties of the debtor, except those exempt by law, from execution.

3. Accion subrogatoria

4. Accion Pauliana

Accion Subrogatoria

Definition

Novation via change of creditor (1291, par.3);

This involves the right of the creditor to exercise all of the rights and bring all of the actions which the debtor may have against third persons.

Requisites (Rescission)

1. Creditor must have the right of return against debtor.

2. The debt is due and demandable.

3. There is a failure of a debtor to collect his own debt from 3 rd persons either through malice or negligence.

4. The debtor assets are insufficient.

5. The right of account is not purely personal.

Accion Pauliana

Definition

Rescission, which involves the right of the creditor to attack or impugn by means of a rescissory action any act of debtor which is in fraud and to the prejudice of his right as creditor.

Requisites

1. There is a credit in favor of plaintiff

2. The debtor has performed a n act subsequent to the contract, giving advantage to other persons.

3. The creditor has no other legal remedy.

4. The debtor acts are fraudulent.

5. The creditor is prejudiced by the debtor’s act which are in favor of 3rd parties and rescission will benefit the creditor.

CHAPTER III: Different Kinds of Obligations

PRIMARY CLASSIFICATION(Papa, Just Don’t Preach)

1. Pure and conditional obligations (1179-1192)2. Obligations with a Period (1193-1198)3. Alternative obligations (1199-1206)4. Joint and solidary obligations (1207-1222)5. Divisible and indivisible obligations (1223-1225)6. Obligation with a Penal clause (1226-1230)

SECONDARY CLASSIFICATION(U R D Police)

Unilateral and bilateral Real and personal Determinate and indeterminate Positive and negative Legal and conventional Civil and natural

Classification according to Sanchez Roman:

Juridical quality and efficaciousness

By parties or subject By the object of the obligation or prestation By their juridical perfection and extinguishment

Juridical quality and efficaciousness a. Civil obligationsb. Natual obligationsc. Mixed – according to natural and civil law

The parties or subject a. Unilateral or Bilateralb. Individual or Collectivec. Joint or Solidary

The object of the obligation or prestation a. Specific or Genericb. Positive or Negativec. Real or Personald. Possible or Impossiblee. Divisible or Indivisiblef. Principal or Accessoryg. Simple or Compound

I. PURE AND CONDITIONAL OBLIGATIONS

PURE OBLIGATION

The affectivity or extinguishment is not subject to any condition and no specific date is mentioned for its fulfillment and is, therefore, immediately demandable. (1179, par.1)

CONDITIONAL OBLIGATION

The consequences are subject in one way or another to the fulfillment of a condition.

Condition

It is a future and uncertain event, upon the happening of which, the effectivity or extinguishment of an obligation (or rights) subject to it depends.

Term

A day certain is understood to be that which must necessarily come, although it may not be known when.

*Difference between conditional and those with a term: There is uncertainty or certainty of day or time.

If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be regulated by the rules of the preceding section, (1193)

Pay v. Viuda de Palanca

The debtor issued a promissory note to the creditor to pay a sum of money payable upon receipt of a particular sum of money from the estate of a certain deceased person upon demand. The case for collection on the note was filled 15 years after its execution. The Supreme Court ruled that, since the prescriptive period for filling the action was 10 years and considering that the promissory note’s payment constituted a pure obligation and therefore demandable at once, the action to collect could no longer

prosper. It was deemed pure since satisfaction of credit could be realized either through the debtor sued receiving the cash payment from the estate of the deceased or “upon demand”.

Suspensive and Resolutory (1179)

SUSPENSIVE CONDITION(Condition precedent or condition antecedent)

It suspends the acquisition of rights until the conditions are fulfilled; that is, until the happening of the uncertain event which constitutes the condition.

RESOLUTORY CONDITION(Condition subsequent)

It causes the extinguishment or loss of rights already acquired upon the fulfillment of the condition, that is, the happening of the event which constitutes the condition. In other words, the fulfillment of which will extinguish an obligation (or right) already existing.

Potestative, Casual and Mixed (1182)

POTESTATIVE CONDITION(facultative condition)

It is a condition which is suspensive in nature and which depends upon the sole will of one of the contracting parties.

CASUAL CONDITION The condition depends upon chance or the will of a third person.

MIXED CONDITION

The condition depends party on the will of a party and party on chance or the will of a third person.

The obligation is valid if the suspensive condition depends party upon chance and party upon the will of a third person. (Naga Telephone, co., Inc. v. CA, 230 SCRA 351, 1994)

Possible and Impossible Conditions (1183)

*Applies to suspensive conditions.

POSSIBLE CONDITIONS

The condition is capable of fulfillment, legally and physically.

IMPOSSIBLE CONDITIONS

The condition is not capable of fulfillment, legally or physically.

Two Kinds:

1. Physical impossible conditions – those, in the nature of things, cannot exist or cannot be undone.

2. Legally impossible conditions –those which are contrary to law, morals, good customs, public order and public policy.

Effect of Impossible and Illegal Conditions

If the condition is:

1. To do an impossible or illegal thing, the condition and the obligation are void.2. Negative (not to do an illegal thing), the condition and the obligation are valid.3. Negative (not to do the impossible thing), disregard the condition, however, the

obligation remains.

Positive and Negative Conditions

POSITIVE CONDITION(suspensive)

The obligation is extinguished:

a) as soon as the time expires without the event taking placeb) as soon as it has become indubitable that the event will not take place although the

time specified has not yet expired (1184)

NEGATIVE CONDITION(suspensive)

The obligation becomes effective:

a) form the moment the time indicated has elapsed without the event taking place; orb) form the moment it has become evident that the event cannot occur, although the

time indicated has not yet elapsed (1185)

Constructive Fulfillment (1186)

For Suspensive Conditions

Requisites:

1. The condition is suspensive;2. The obligor actually prevents the fulfillment of the condition; and3. He acts voluntarily.

For Resolutory Condition

This also applies to a resolutory condition when the debtor is bound to return what he has received upon fulfillment of the condition.

Effects of Suspensive Conditions

1. Before the condition is fulfilled, the demandability and acquisition or affectivity of the rights arising form the obligation is suspended.

2. After the condition has been fulfilled, the obligation arises or becomes effective.

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

♥ The law allows retroactivity because the condition is not an essential requisite of an obligation.

1. When the obligation imposes reciprocal prestations upon the parties, the fruits and interests shall be deemed to have been mutually compensated (this assumes a simultaneous performance of prestations).

♥ The fruits are mutually compensated for convenience.

2. In a unilateral obligation, the debtor shall appropriate the fruits and interests received unless the intention constituting such was different.

3. In obligations to do or not to do, the court shall determine the retroactive effect of the condition that has been complied with.

Loss, Deterioration of Improvement Pending the Happening of the Condition (1189)

Requisites for 1189 to apply

1. The obligation is a real obligation;2. The object is a specific or determinate thing;3. The condition is subject to a suspensive condition;4. The condition is fulfilled; and5. There is loss, deterioration, or improvement of the thing during the pendency of the

condition.

LOSS

Kinds of loss:

1. Physical loss (the thing perishes)2. Legal loss (the thing goes out of commerce)3. Civil loss (the thing disappears and the existence is unknown or unrecoverable as a

matter of fact or of law)

Rules:

6. When the thing is loss without the debtor’s fault, the obligation is extinguished.7. When the thing is lost with the debtor’s fault, the debtor pays for damages.

DETERIORATION

Rules:

1. When the thing deteriorates without the debtor’s fault, the creditor will suffer the deterioration of impairment.

2. When the thing deteriorates with the debtor’s fault, the creditor may choose between:

a. Rescission (cancellation) of the obligation with indemnity for damages, orb. Fulfillment of the obligation also with damages

IMPROVEMENT

Rules1. When the thing is improved by nature or by time, the improvement shall inure to the benefit of the

creditor.2. When the thing is improved at the expense of the debtor, the debtor shall have no other right than

that granted to a unsufructory.

Effect of the Fulfillment of Resolutory Conditions(1190)

1. Extingiushment of the obligor2. Mutual restutor the parties restore of each other what they have received including the fruits and

interests.3. Art. 1189 applies to whoever has the duty to return incase of loss, deteriotion or improvement of

the thing4. If the obligation is to do or not to do, the courts determine the retroactivity of the fulfillment of the

condition as stated in 1187

Kinds of Obligation according to the Person Obliged

UNILATERAL OBLIGATION

It is when only one party is obliged to comply with a prestation.

BILATERAL OBLIGATION

It is when both parties are mutually bound to each other making them both the debtors and creditors of each other.

It may be:-reciprocal, or-non-reciprocal

Reciprocal Obligations

Those which arise from the same cause and in which each party is debtor and creditor of the other.

Implied Condition

There must be compliance by the other with the duties incumbent upon him as party to the debt.

In reciprocal obligations, a party cannot demand unless he complies or is ready to comply with obligations (inferred from 1169).

.This is subject to same rules on interim obligations and interim remedies٭

Non-Reciprocal Obligations

Those which do not impose simultaneous and correlativeperformance on both parties. The performance of one party does not depend upon the simultaneous performace of another.

Remedies in Reciprocal Obligations

RESCISSION IN ARTICLE 1191

The power to rescind means the right to cancel or to resolve the contract case of non-fulfillment of the obligation on the part of one of the parties.

It is the breach of faith committed by the person who is supposed to comply with obligation. It is not the rescission in 1380 which involves damage or lesion, or injury to the economic interst of a person.

Characteristics

1. It only exists in reciprocal obligations2. It can be demanded of the plaintiff is reach,

General Rule

Judicial approval is necessary for rescission except:a. When the object is not yet deliveredb. When, even if there has been delivery, the contract states that either party can rescind the same

or take possession of the property upon non-fulfillment of the obligation by the other party.

By one party: (1191)

1. Implied in reciprocal obligations, when the other does not comply2. Power to rescind plus damages3. Compel fulfillment and then rescind if such becomes impossible4. The court decrees rescission unless just cause for authorizing a period5. Must be without prejudice to third persons who have acquired the thing, in accordance with

articles 1385 and 1388 and the Mortgage Law.

By both parties: (1192)

In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages.

1. Rule against the first infractor, as tempered by courts2. If first infractor cannot be determined, obligation extinguished

Rescission should be done judicially unless stipulated in the contract. Rescission will only be granted if٭ breach of the obligation is substantial and not mere occasional malfunction of the machine without even an allegation of loss of income, (Philippine Amusement Enterprises, Inc. v. Natividad)

Injured party has the power to rescind but only through the courts in proper proceedings. ( Ocejo٭v. International Banking Corp.)

UP v. de los Angeles

The parties stipulated rescission of logging agreements without the need for any judicial pronouncement.

N. B. Judicial pronouncement of rescission was unnecessary as it was clearly expressed in their contract. No Law prohibits parties from entering agreements wherein violation of the terms of contract would cause cancellation even without court intervention. Rescission on account of infractions by the other party by one of the parties must be made known to that other party who in turn can seek for judicial remedy should he feel that rescission is unjustified.

Obligations Rendered Void By Certain Conditions

Annulling conditionsa. Potestative – only if suspensive condition is solely upon the will of the debtor (1182)b. Impossible Conditions (1183)c. Those contrary to law, good customs, morals, public order or public policy (1183)d. Not to do an impossible thing – not agreed upon (1183, par. 2)

Lao Lim v. CA

The stipulation that the lessee has the right to renew contract of lessee as long as he needs the premises and he can pay for the same is invalid. It would leave the lessee, Dy, the sole power to determine whether the lease should continue or not. The lease contract is deemed extinguished at the end of the year, subject to renewal by means of a new agreement but since the lessor did not want to renew, there is no more lease.

Romero v. CA

This case shows that one cannot rescind a contract on account of one’s own failure to fulfill an obligation.

Ducusin v. CA

Only that which is dependent on the sole will of the debtor is invalid. No one is supposed to have sole power. In this case, since the condition is dependent on the will of third persons, the condition was held to be valid.

II. OBLIGATIONS WITH A TERM

Those whose consequences are subjected in one way or another to the expiration of a period or term. (Manresa, Lirag Textiles, Inc. v. CA, 63 SCRA 374, 1975)

PERIOD or TERM

It is a future and certain event upon the arrival of which the obligation ( or right) subject to it either arises or is terminated.

The demandability is suspended by the term, not the acquisition of the right or the effectivity of the obligation.

Fortuitous events do interrupt the running of the period.

Distinguished a period from a condition

Period/ Term Condition

-As to fulfillment uncertain eventCertain event-As to time May also refer to a past Refers only to the event unknown toFuture parties

-As to influence on the Obligation

- Merely fixes the it causes an obligation Time for the to arise or beEfficaciousness of terminated.The obligation.

-If suspensive, it Cannot prevent theBirth of the Obligation – dueTime

-If necessary, it Does not annul,Even in fiction, the Existence.

As to effect, when leftTo the debtor’s will Depends upon the sole

- Depends upon the will of the debtor, thus,Will of the debtor invalidates theCourt to fix its obligationDuration

As to retroactivity ofEffects

- Unless stipulated, The happening of the The arrival of a condition hasPeriod has no retroactive effect.Retroactive effect.

Classification of Term/ Period

1. According to effecta. Suspensive period (ex die) – obligation becomes demandable only upon the arrival of a

certain dayb. Resolutory period (in diem) – obligation is valid up to a day certain and terminated upon the

arrival of period.2. According to source

a. Legal period – provided for by lawb. Conventional/ voluntary period – agreed to by the partiesc. Judicial period – fixed by the court

3. According to definitenessa. Definite period – fixed or the coming of which is knownb. Indefinite period – not fixed or the coming of which is not known (usually, the law empowers

the courts to fix the period)

Requisites of period/ Term

It must refer to the future.It must be certain.It must be possible.

Effect of payment before the arrival of the period

The debtor may recover what he has paid including the fruits and interest if he is unaware of the period or believed that the obligation has become due and demandable (1195). If he paid voluntarily knowing that the obligation is not yet due, he cannot recover what he has paid.

General Rule

The period attached to the obligation is for the benefit f both parties.

Exception

When it appears from the tenor of the obligation or other circumstances that the period has been established in favor of one or the other subject to an express stipulation of the parties, the period may be benefit the debtor or the creditor alone.

Period for the benefit of the debtor alone:

The debtor cannot be compelled to pay prematurely, however, he may renounce the benefit of the period by performing his obligation in advance. (Manresa)

Period for the benefit of the creditor alone:

The creditor may demand fulfillment even before the arrival of the term but the debtor cannot compel him to accept the expiration of the period (i.e., “on demand”).

Interim Obligation

In case of loss, deterioration or improvement of the thing before the arrival of the day certain, the rules in article 1189 shall be observed.

I. Exercise due diligence; otherwise, responsibility for loss, deterioration (1189)II. Improvement inures to creditor, if at expense of debtor only unsufructuary right (1189)III. Recover payment or delivery before due and demandable

ABESAMIS V. WOODCRAFT WORKS, INC.

THE CONTRACT PROVIDED THAT THE APPELLANT SHALL MAKE SHIPMENT BEFORE THE END OF JULY, BUT WILL NOT COMMENCE EARLIER THAN APRIL WITH THE OPTION TO MAKE PARTIAL SHIPMENT DEPENDING ON THE AVAILABILITY OF LOSS AND VESSELS. THE SUPREME COURT, IN DECIDING WHO WAS TO BEAR THE LOSS AS A RESULT OF THE TYPHOON IN A CONTRACT FOR DELIVERY OF LOGS, RULED THAT THE QUOTED PROVISION PROVIDES FOR A PERIOD. THE DESIGNATED TIME WAS CALCULATED TO AVOID TYPHOONS. ON MAY 5, 1951 THE APPELLANT FAILED TO SEND A VESSEL TO PICK UP THE LOGS, WHICH WERE CONSEQUENTLY SWPEPT AWAY BY A TYPHOON. SINCE THE SAID DATE WAS WITHIN THE PERIOD PRESCRIBED, NONE OF THE PARTIES COULD INCUR DELAY NOR DEMAND PERFORMANCE. THE LOSS SHOULD BE SHOULDERED BY THE APPELLEE OR THE LOGGER.

FIXING OF A PERIOD

The Court May Fix a Period When:

1. There is no express stipulation, but a period is intended by the parties as can be inferred from the nature and circumstances of the obligation.

2. If the duration of the period depends upon the will of the debtor.3. If the debtor promises to pay when his means permit him to do so. (1197)

The Court May Not Fix a Period when:

1. When no term has been specified by the parties because no term was ever intended, in which case it is considered a pure obligation.

2. When the obligation is payable on demand.3. When specified period is provided by law.

Araneta, Inc. v. Philippine Sugar Estates Development Co., Ltd.

The parties in the case intended to defer performance of obligations until after the squatters were duly evicted. Although it was indefinite, such was the intention of the parties and courts could not just assign a period out of thin air. The requisite and guideline for setting a period is when there is no period specified but such was intended, courts should just fix a period, which the parties could have intended.Reasons for Fixing a Period

1. There can be no possibility of any breach of contract or failure to perform the obligation unless the period is fixed by the courts.

2. When the court has not yet fixed the period, it is premature to collect.

A Debtor loses the Right to Make Use of a Period (when the creditor can demand even when the obligation is not yet due) (1198)

1. When after contracting the obligation, the debtor suffers from insolvency unless he gives guaranties or securities from the debt.

2. When the debtor does not furnish promised guaranties or securities he promised.3. When by his own act, the debtor has impaired established guaranties or securities and when

through a fortuitous event they disappear, unless he gives new ones equally satisfactory when the debtor violates any undertaking in consideration of which the creditor agreed to the period.

4. When the debtor attempts to abscond.

IN ALL THE CASES ABOVE, DESPITE THE FACT THAT THE PERIOD HAS NOT YET LAPSED, THE OBLIGATION SHALL BECOME IMMEDIATELY PAYABLE OR DEMANDABLE.

THE WORD “INSOLVENT” DOES NOT REQUIRE A JUDICIAL DECREDD OF INSOLVENCY. ITSHOULD BE UNDERSTOOD IN ITS ORDINARY MEANING WHICH MAY EMBRACE DIFFERENT DEGREES OF FINANCIAL EMBARRASSMENT. THE INSOLVENCY MUST HAVE OCCURRED AFTER THE OBLIGATION WAS CONSTITUTED.

Gaite v. Fonacier

Payment of obligation was secured by two surety bonds: one from a mining company and its stockholders and the other from a bonding company. The obligor was obliged to pay the indebtedness from the time it received the proceeds of the sale of iron ore, the Supreme Court ruled the obligor in this case lost its right to the period. Failure to renew an expired surety with the bonding company constituted an impairment of the securities or guaranties. Thus, Fonacier lost his right to the period, i. e. time to sell the iron ore, unless he immediately gives new ones equally satisfactory.

III.ALTERNATIVE OBLIGATIONS

Kinds of Obligations according to Object

1. Simple obligation – one where is only one prestation2. Compound obligation – one where there are two or more prestations.

a. Conjunctive obligation – one where there are several prestations and all of them are dueb. Distributive obligation – one where one of two or more of the prestations is due

→A distributive obligation may be- Alternative (1199), or- Facultative (1206)

ALTERNATIVE OBLIGATION

It is one wherein various prestations are due but the performance of one of them is sufficiently determined by the choice which, as a general rule belongs to the debtor. (Manresa)

FACULTATIVE OBLIGATION

It one where only one prestation has been agreed upon but the obligor may render another in substitution.

Distinguishing Alternative and Facultative Obligations

Alternative Facultative

-Number of prestationsSeveral prestations -Only one prestation is Are due but due although the debtorCompliance with one is allowed to substituteIs sufficient another

-Right of choicemay be given to the -The right to make thecreditor or to a third substitution is givenperson only to the debtor

-Loss through a fortuitous event The loss of one or -The loss of the thingMore of the due extinguishes the Alternatives does not obligationExtinguish theObligation

-Loss through the fault of debtorA) Does not render A) The debtor is liableThe debtor liableB) Where the choice B) The loss of the Belongs to the substitute before theCreditor, the loss of substitution does notOne alternative gives render the debtor liableRise to liability

-Nulity of prestationA) The nulity of one A) The nulity of thePrestation does not prestation agreed uponInvalidate the others invalidates the

ObligationB) the debtor or B) the debtor is notCreditor should bound to choose the Choose from among substituteThe remainder

Right of Choice

General Rule

The right of choice belongs to the debtor

Except:

When expressly granted to the creditor, orWhen expressly granted to a third person

→ A right of choice becomes a simple obligation when a person who has right of choice has communicated his choice and that one choice is the only practicable one (i. e., the others may have become illegal or impossible).( 1202)

Limitations on the Debtor’s Right of Choice

1. The debtor cannot choose those prestations which are impossible, unlawful or which could not have been the object of the obligation. (1200)

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2. The debtor has no more right of choice when among the prestations whereby he is alternatively bound, only one is practicable.

3. The debtor cannot choose the part of one prestation and part of another.

The Right of Choice belongs to the Debtor

As a general rule, in alternative obligations, the right of choice belongs to the debtor. However, the debtor may expressly give the right of choice to the creditor.

Rules in Alternative Obligations

Debtor’s choice Creditor’s choiceDue to a Fortuitous Event

All Extinguish ExtinguishSome Deliver any of the remaining Deliver any of the remainingOne Deliver DeliverDebtor’s FaultAll Value of the last Value of any of the

Thing lost and damages things and damagesSome Deliver any of the remaining, Value of the thing lost, damages

no damages or any of the remainingOne Deliver, no damagesLoss of Last Thing

Extinguish Value of any of the Things lost due to the Creditor’s fault and damages

Rules in Facultative Obligations

Before AfterSubstitution Substitution

Loss of the PrincipalFortuitous EventThe obligation is The debtor is not liableExtinguished whatever may be the causeFault of DebtorThe debtor is liable for damagesLoss of the SubstituteThe debtor is not Fortuitous EventLiable whether the the obligation is extinguishedLoss is due to the Fault of the debtor or Fault of DebtorTo a fortuitous event. The debtor is liable for damages

IV. JOINT AND SOLIDARY OBLIGATIONS

JOINT OBLIGATIONSObligacion Mancomunda

It is an obligation where the whole liability is to be paid or fulfilled proportionately by the different debtor’s; and/or is to be demanded proportionately by the different creditors.

SOLIDARY OBLIGATIONObligacion Solidaria

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It is an obligation where each one of the debtors is bount to render, and/or each one of the creditors has a right to demand compliance with the prestation. (1207)

→ In a joint obligation, each debtor shall be liable only for his part of the debt presumed to be equal with the other debtors. The above provision is consistent with the rule that a joint obligation is presumed in case of plurality of debtors or creditors for solidary obligation exists only when the law so provides, when expressly stipulated by the parties or when called for by the nature of the obligation.(Jurade) (see 1208)

General rule

1. When Stipulated by the parties using such words like “jointly and severality,” “in solidum,” “I promise to pay” in a note signed by two or more debtors, or similar words. (conventional solidarity)

2. When solidary liability is provided by Law, hence, civil liability arising from crimes, negotiorum gestio, commodatum or quasi-delict shall be solidary.(Legal solidarity)

3. When the Nature of the obligation requires solidarity.4. When a charge or condition is imposed upon heirs or legatees, and the Testament expressly

makes the charge or condition “in solidum”.5. When a solidary responsibility is imputed by a Final judgment upon several defendants.

Some Features of Joint Liability

1. Insolvency of one debtor does not make the others liable.2. Vitiated consent on the part of one debtor does not affect the others.3. Demand made to one of the debtors is not a demand to all because the debt of one is distinct

from the others.

→ In a given contract, wherein a party signs as a surety but the agreement states joint and several liabilities, there is a solidary obligation. (Jaucian v. Querol)

Kinds of Solidarity (PAMELA Anderson)

1. Passive Solidarity2. Active Solidarity3. Mixed Solidarity – solidarity among creditors and debtors

Passive Solidarity Active Solidarity-Solidarity of debtors -Solidarity of creditorsAny one of the any one of the creditorsDebtors can be made may demand fulfillmentLiable for the of the entire obligation.Fulfillment of the Entire obligation, withThe consequent right To demand from the Others theirCorresponding shares in the liability

-It is in the nature of a -Its essential feature isMutual guaranty. That of mutual

Representation.

Joint Indivisibility

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A joint indivisible obligation is one in which the object or prestation is indivisible, not Susceptible of division; while the tie between the parties is joint, that is, liable only to a

Proportionate share. (1209)

→In a joint indivisible obligation, the liabilities of the debtors or the rights of the creditors are joint, but they are indivisible as to compliance. (1224) The concurrence of all the creditors is necessary for demanding compliance due to the indivisibility of the obligation. The same is inversely true as regards the debtors. The concurrence of all the creditors is also necessary foracts which are prejudicial. But an act beneficial to all like interruption of prescription may be performed by one of the creditors.

Indivisible obligations are not necessarily solidary(1210)

Indivisibility Solidarity-Refers to the prestation -Refers to the legal or

Juridical tie binding the Parties

-Only the debtor who -All of the debtors areIs guilty of breach of liable for the breach ofObligation is liable for obligation committed Damages, thereby terminating by any one of the The agency debtors.

-Can exist even if -Can only exist whenThere is only one there is at least twoDebtor or one creditor debtors or creditors

-The others are not -The others areLiable in case of proportionately liable in

Characteristics1. Demand must be made to all the joint debtors.2. The creditor must proceed against all the joint debtors, because the compliance of the obligation

is possible only if all of the joint debtors would act together.3. If one of the debtors is insolvent, the other(s) shall not be liable for his share.4. If one of the debtors cannot comply, the obligation is converted into monetary consideration. One

who is ready and willing to comply will pay his proportionate share, and the other not willing shall pay his share plus damages when his financial condition improves.

5. If there is more than one creditor, delivery must be made to all, unless one is authorized to receive for the others.

Rules1. Gives rise to indemnity for damages: noncompliance with undertaking (1224)2. Debtors ready to fulfill shall not be liable (1224)3. Prejudiced only by collective acts of all creditors / enforced against all debtors (1209)

Inchausti & Co. v. YuloSix brothers and sisters admitted solidary liability. Gregorio Yulo was sued for payment of entire indebtedness. However, solidary debtors Francisco, Manuel and Carmen entered into a cpmromise

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agreement with plaintiff. Gregorio was ordered to pay the part of the reduced indebtedness, only insofar as such is demandable. Greg Yulo was solidarily liable, he benefited from the remission, but not the extension of the period for payment, thus there was partial demandability.Debtor / Passive Solidarity Distinguished From SuretyshipBy guaranty a person, called the guarantor, bind himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. A solidary guaranty is suretyship. If a person binds himself solidarily with the principal debtor, the provisions of section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship. (2047)

Distinguishing Suretyship from Solidarity1. A surety does not have an actual loan of his own, solidary debtor is also liable for his own debt in

addition to that of others.2. After paying then debt, a surety has right to collect from principal debtor, while a solidary debtor

has right to collect from solidary co-debtor.3. Most importantly, an extension of time would bednefit the surety and such would not benefit

solidary co-debtors who did not know ord dconsent to an extension of time. (Villa v. Garcia Bosque) (Jurado)

Rights of solidary creditor/s

1. Do only what is useful to others, nothing prejudicial to co-cdreditors. (1212)2. There is no assignment without the consent of others (1213)3. Anyone has right to receive the payment; but the first one to demand receives the payment

(1214)

Quiombing v. CAOnly one of the solidary creditors filed a suit for collection against the solidary debtors. The

debtors moved for the dismissal of the suit on the ground that the other solidary creditors should have been included in the case. The Supreme Court rejected the dismissal of the suit invoking Art. 1212 and stated that recovery of the contract price was nsurely a useful act and can be done even by one solidary creditor. Furthermore, the question as to who should sue was a personal issue among the solidary creditors.

N.B. As to who sues for recovery of the obligation should not matter to the debtors as they are wholly obligated to either one of the solidary creditors.

4. Action against and payment by solidary debtor. a. Proceed against anyone, some, or all of them simultaneously (1216)b. Demand against one: not obstacle for demand against another, unless paid (1216)

Effect of Loss or Impossibility1. Without any fault of any of the debtors: Extinguioshment (1221)2. With fault of any of the debtors: all are responsible but co-debtors have a right against negligent

debtor.3. Due to a fortuitous event, but with delay: all are responsible with right of action against the

negligent debtor.

Rules of Payment in Solidary Obligations1. The creditor may proceed against any one of the solidary debtors or some or all of them as long

as the debt has not been fully collected. (1316)2. Payment made by one of the solidary debtors extinguishes the obligation. (1217)3. If two or more debtors offer to pay, the creditor may choose which offer to accept. (1217)

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4. The paying debtor may ask for reimbursement with interest from his co-debtors. (1217)5. The share of the insolvent debtor shall be borne by all his co-debtors, pro-rata (1217)6. There shall be no reimbursement if the solidary debtor paid AFTER the obligation has prescribed

or has become illegal. (1218)

Rights of Solidary Debtor1. Set-up all defenses2. Right of acion against solidary co-debtors

Set-up Defenses (1222)

a. Defenses derived from the nature of the obligation available to all debtors as a defense to compliance with the entire obligation;

b. Defenses personal to the debtor like minority, insanity, civil interdiction, etc. not available to the other debtors so as to free the latter from their liability for their own shares in the obligation]

c. Defenses that pertain to his co-debtor(s), like dthe existence of a period or condition available only as regards the share of such co-debtor(s) for solidarity may existeven if the debtos are bound under different periods or conditions.

Imperial Insurance, Inc. v. David

Husband and wife bound themselves solidarily in favor of oblige for a sum of money and when the husband died, the oblige demanded payment from the wife who resisted payment claiming that the obligee’s claim barred by it’s failure to file a claim in the intestate proceeding of the deceased husband. The supreme court ruled that the oblige can properly claim from the wife as the nature of the obligation is solidary.

N.b. if obligation were solidary the entire obligation is demandable from anyone of the solidary obligors.

RIGHT OF ACTION AGAINST SOLIDARY CO-DEBTORS

The payor of the obligation may claim from each co-debtor his share of the debt with interest unless paid before debt is due or demandable (with no interest).(1217)

V.DIVISIBLE & INDIVISIBLE OBLIGATION

The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. (1210)

DIVISIBLE OBLIGATIONS

Those obligation whose objects are capable of partial performance in their delivery or performance.

INVISIBLE OBLIGATIONS

Those obligations whose objects are not capable of partial fulfillment in delivery or performance.

Test for distinctionThe determining factor is the purpose of the obligation or the intention of the parties and NOT the possibility or impossibility of partial prestation. (1225)

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Presumptions1. Indivisible: Definite things, not partial performance2. Divisible: Partial performance; by days of work, metrical units, or analogous things3. Physically Divisible: Subject to law or what is intended by the parties4. Not to do: Determined by character or prestation

Quantum Mercuit Principle

Divisible ObligationIf only partially performed, the obligor can enforce his right in proportion to the services

performed.

Indivisible ObligationIf obligor fails to perform the work completely, he cannot recover on this principle because in

indivisible obligations, partial performance is equivalent to non-performance.

This principle allows recovery of the reasonable value of the work done regardless of any agreement as to the value. It entitles the party to “as much as he reasonably deserves” as distinguished from quantum valebant or “to as much as what is reasonably worth”. The sellement of claim under this principle requires application of judgment and discretion and cannot be adjusted by sampled arithmetical process. (F.F Manocop v. CA, GR 122196, Jan. 15, 1997)

VI. OBLIGATION WITH A PENAL CLAUSE

In an obligation with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interest in cases of non-compliance, if there is no stipulation to the contrary. A penal clause is an accessory undertaking to assume greater liability in case of breach.

Principled and Accessory ObligationsPrinciple ObligationThat which can stand by itself and does not depend upon other obligations for its validity and existence.

ACCESSORY OBLIGATIONThat which contains an accessory undertaking to pay a previously stipulated indemnity in case of breach of the principal prestation intented primarily to induce its fulfillment.

Purposes of Penalty1. Funcion coercitiva or de garantia – to ensure performance of the obligation2. Function liquidatoria – to substitute a penalty for the indemnity of damages and the payment of

interest in case of non-cpmliance.3. Function estrictemente penal – to punish the debtor for the non-fulfillment of his obligation.

Penalty as a Substitute for Damages General RuleThe penalty fixed by the parties is a compensation or substitute for damages in case of breach.

Exceptions1. When there is a stipulation to the contrary 2. When the debtor is sued for refusal to pay the agreed penalty3. When the debtor is guilty of fraud

Distinguishing a Penal Clause from a Condition

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Penal Clause ConditionThere is obligation through an accessory No obligation through an accessoryMay become demandable in default of an unperformed obligation and sometimes jointly with it

Is never demandable

Kinds of Penal Clause As to origin

Legal penal clause – provided by lawConventional penal clause – provided for by stipulation of the parties

As to its purposePunitive penal clause – the penalty is imposed merely as a punishment for breach

As to its dependability or effectSubsidiary or alternative penal clause – only the penalty can be enforcedJoint or cumulative penal clause – both the principal obligation and the penal clause can be enforced

Effect of Nullity of the Penal ClauseIf only the penal clause is void, the principal obligation remains valid and demandable. (1230)

Nullity of the Principle ObligationIf the principal is void, the penal clause is also void because the penal clause cannot stand along without the principal obligation to which it is subordinated.

However, if the nullity of the principal obligation is due to the debtor’s fault who acted in bad faith, and by reason of which the creditor suffered damages on equitable grounds, the penalty may be enforced.

Chapter IV: Extinguishment of Obligations

Classification of the modes of Extinguishment of Obligations1. Novation2. Compensation3. Merger or confusion4. Remission or condonation5. Payment or performance6. Loss of the thing due7. Prescription8. Rescission9. Fulfillment of the resolutory condition10. Annulment

I. Payment or PerformanceThe delivery of money, the delivery of the thing (other than money), the doing of an act, or not doing of an act.

ElementsThe elements of payment are analyzed into:1. Persons – who may pay to whom payment may be made2. Thing or subject in which the payment must consist3. The cause thereof4. The mode or form thereof

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5. The placed and time in which it must be made6. The imputation of expenses occasioned by it7. The special parts which may modify the same and the effects they generally produce

Requisites for Valid PaymentWith respect to prostration itself:

(1) Identity(2) Integrity or completeness(3) Indivisibility

With respect to partiesThis must be by the proper party to the proper party.

1. Payora. Payor- the on performing, he can be he debtor himself or his heirs or assign his agent, or

anyone interested in the fulfillment of the obligation; can be anyone as long as it is with the creditors consent

b. 3rd person pays/performs – only the creditor’s consent;If the performance is done also with debtor’s consent – he takes the place of the debtor. There is subrogation except if the 3rd intended it to be a donation

c. 3rd person pays/perform with consent of creditor but not with debtor’s consent the repayment is only to the extent that the payment has been beneficial to debtor

2. Payeea. Payee – creditor or oblige or successor in interest of transferee, or agentb. 3rd person – if any of the ff. concur:

i. It must have redounded to the obligee’s benefit and only to the extent of such benefitii. It falls under art 1241, par 1,2,3 – the benefit is total so, performance is total

c. Anyone in possession of the credit – but will apply only if debt has not been previously garnished

Payment made to an Incapacitated PersonIt is valid when:

1. The incapacitated person kept the thing delivered, or2. Insofar as the payment has been beneficial to him

Payment to a 3rd party not authorized, valid if proved & only to the extent of benefitPresumed if:

1. After payment, 3rd person acquires the creditor’s right2. Creditor ratifies payment to 3rd person3. By creditor’s conduct, debtor has been led to make the payment (estoppels)

Payment made in good faith to a person in possession of credit shall release debtorRequisites:

1. Payment by debtor must be made in good faith2. Creditor must be in possession of the credit & not merely the evidence of indebtedness

With respect to time and place of paymentWhere payment should be made

1. In the placed designated in the obligation2. If there is no express stipulation and the undertaking is to deliver a specific thing – at the place

where the thing might be at the moment the obligation was constituted3. In other cases – in the place of the domicile of the debtor

Time of paymentThis is the stipulated by the parties

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Effect of paymentThe obligation is extinguished.

Except in an order to retain the debt.

Substantial Performance1. Attempt in Good Faith to perform without willful or intentional departure2. Deviation is slight3. Omission/Deffect is technical or unimportant4. Must not be so material that intention of parties is not attained

Effect of Substantial performance in good faith1. Obligor may recover as though there has been strict and complete fulfillment, less damages

suffered by the oblige2. Right to rescind cannot be used for slight breach

CurrencyStipulated (1249)Philippine legal tenderThe payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. (1249)

Mercantile documents, payable to order: only when cashed or impaired by creditor.The delivery of promissory notes payable to order, or bills of exchange other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. (1249)

During encashment: action in abeyance.In the meantime, the action derived from the original obligation shall be held in the abeyance. (1170)

Extraordinary inflation/ deflationStipulation (1250)Currency value at time of agreementIn case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary. (1250)

Expenses:Unless it is otherwise stipulated, the extrajudicial expenses required by the payment shall be for

the account of the debtor. With regard to judicial costs, the Rules of Court shall govern. (1247)

Special Rules/Forms of PaymentApplication of Payments – the designation of the debt which payment shall be made, out of 2 or more debts owing the same creditor:

1. May be madeaccording to the stipulation of the parties or application of party given benefit of period;

2. For the application to be valid, it must be debtor’s choice or w/ consent of debtor.3.

Requisites for the Application of Payment1. Various dcebts of the same kind2. Same debtor3. Same creditor4. All debts must be due

Exception: there may be application of payment even if all debts are not yet due if:

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a) Parties so stipulateb) When application of payment is made by the party for whose benefit the term has been

constituted5. Payment is not enough to extinguished all debts

How the application is made:1. Debtor makes the designation2. If not, creditor makes it by so stating the receipt that he issues, unless there is cause for

invalidating the contract3. If neither the debtor nor creditor has made the application or if the application is not valid,

then application, is made by operation of lawWho makes the applicationGeneral rule: DebtorException: Creditor

a) Debtor without protest accepts receipt in which creditor specified expressly and unmistakably the obligation to which such payment was to be applied

b) When monthly statements were made by the bank specifying the application and the debtor signed said statements approving the status of her account as thus sent to her monthly by the bank

In case no application has been made1. Apply payment to the most onerous2. If debts are of the same nature and burden, application shall be made to all proportionately. The

mode of extinguishing an obligation whereby the debtor alienates in favor of the creditor property for the satisfaction of monetary debt; extinguish up to amount of property unless/ contrary stipulation;

3. A special form of payment because 1 element of payment is missing: IDENTITY

Conditons for a valid dacion:1) If creditor consents, for a sale presupposes the consent of both parties2) If dacion will not prejudice the other creditors3) If debtor is not judicially declared insolvent

Cession/Assignment in Favor of creditorsThe process by which debtor transfer all the propwerties not subject to execution in favor of creditors is that the latter may sell them and thus, apply the proceeds to their credits; extinguish up to amount of net proceeds ( unless w/ contrary stipulation)

Kinds1. Legal – governed by the insolvency law2. Voluntary – agreement

Requisites for Voluntary assignmenta) More than 1 debtb) More than 1 creditorc) Complete or partial insolvency of debtord) Abandonment of all debtor’s property not exempt from executione) Acceptance or consent on the part of the creditors

Effectsa) Creditors do not become the owner; they are merely assignees with authority to sell

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b) Debtor is released up to the amount of the net proceeds of the sale, unless there is a stipulation to the contrary

c) Creditors will collect credits in the olrder of preference3 agreed upon, or in default of agreement, in the order ordinarily established by law

Consignation

Tender- the act of offering the creditor what is due him together with a demand that the creditor accept the same (When creditor refuses w/o just cause to accept payment, he becomes in mora accepiendi & dentor is released from responsibility if he consigns the thing or sum due)

Consignation – the act of depositing the thing due with the court ore judicial authorities whenever the creditor cannot accept or refuses to accept

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