Obligations and Contracts
Bar material on Obligations and Contracts...
Week 1 – Welcome / Introduction to Law I.
Introduction to Law 1. 2. 3. 4.
Not Not Not Not
Divine Law, law of religion and faith Natural Law, justice, fairness and righteousness Moral Law, norms of good and right conduct Physical Law, order or regularity in nature
Sources of Law i) i) Constitution – Fundamental Law of the land ii) ii) Legislations – Passed by Senate and House of Representatives iii) iii) Administrative issuances – Quasi Legislative Functions iv) iv) Jurisprudence – Decisions of the Supreme Court (SCRA) Stare decisis v) v) Treaties and Generally accepted principles of International Law - Art II Sec 2, Pacta sund servanda vi) vi) Customs – habits and practices through long and accepted usage have become binding rules of conduct vii)vii) Principles of Justice and Equity – common law jurisdiction
Characteristics of Law -
Rule of Conduct Obligatory Promulgated by legitimate authority Of common observance and benefit
Organization of courts -
Supreme Court Court of Appeals, Sandiganbayan, Court of Tax Appeals Regional Trial Court
c. d. -
Metropolitan Trial Court, Municipal Trial Court Quasi Judicial Bodies 1. 1. Comelec 2. 2. NLRC 3. 3. LTFRC 4. 4. ERB Quantum of Evidence Criminal cases: Proof Beyond Reasonable Doubt
Civil cases: Preponderance of Evidencegreater weight of all the evidence which as a whole shows that the act sought to be proved is more probable than not.
Administrative cases: Substantial Evidence – Such evidence that a reasonable mind might accept as adequate to support a conclusion
Effects and Applications of law -
Requirement for publication 1. 1. 15 days after publication in OG or newspaper 2. 2. Ignorance of the law excuses no one from compliance 3. 3. Due Process
Law is prospective except: 1. 1. If the law provides for retroactivity 2. 2. Penal law insofar as it favors the accused 3. 3. Remedial or curative law
Computing time Year is 12 calendar months Month is 30 days, except when it refers a calendar month First day excluded, last day included
1. 1. 2. 2. to 3. 3. -
Conflict of Laws Provisions i. i. Penal laws apply to all who sojourn to Phils
ii. ii. Family Law and inheritance based on national law of the party regardless of where he lives iii. iii. Forms and solemnities of contracts and other instrument based on the place where it is executed e. f.
Obligations and Contracts Defined
The body of rules which deals with the nature and sources of obligations and the rights and duties arising from agreements and the particular contracts. Obligation – A Juridical relation whereby a person may demand from another the observance of a determinative conduct (giving, doing, not doing), and in case of breach, may demand satisfaction from the assets of the latter. Contract – Meeting of the mind between two persons whereby one binds himself, with respect to the other, to give something or to render some service. A contract necessarily gives rise to an obligation but an obligation does not always need to have a contract. f. g.
Corporation and Partnership Defined
Partnership – Two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. Corporation – Artificial being created by operation of law, having right of succession and the powers, attributes, properties expressly authorized by law or incident to its existence. Weeks 2 to 4 – Obligations I.
General Provisions, Nature and Effects of Obligations a. General Provision -
Juridical Necessity – enforce compliance; seek damages
To give, to do, and not to do – Examples
(i) (i) do) (ii) (ii) (iii)(iii) (iv)(iv)
Four essential requisites of an obligation A passive subject (Debtor – to give; Obligor – to
An active subject (Creditor/Obligee) Object (Prestation) – subject matter Juridical tie (Vinculum) – Source of Obligation
Form as a manifestation of intent; but no specific form unless required by law
Kinds of Obligations 1. 1. According to subject matter a. a. Real Obligation – to give b. b. Personal Obligation – to do i. i. Positive – to give or do ii. ii. Negative - not to do or not to give A borrower agreed to pay his debt in 60 days, and in case of non-payment to render free service as driver/servant. When due date came, borrower refused to render free service. Decide. 2. 2. According to person obliged a. a. Unilateral b. b. Bilateral (Reciprocal or non-reciprocal)
Sources of Obligation 1. 1. LAW – Imposed by law -
A wife was about to deliver a child. Her neighbor brought her to hospital. Who should pay the hospital bill – Husband or Neighbor?
P.D. 1517 grants the right of first refusal to person who has leased for more than 10 years an urban land and who construct his house thereon. Lessee of a Condo in Manila now claims his right of first refusal because he has been living in the unit for almost 15 years. Decide. Obligations derived from law are not presumed.
In a newspaper ad, there was an offer to replace 30 sachets of Tide for one Venetian cut Glass until the end of the year. At the end of the year, you present your tide sachets, but Tide refused to honor it anymore since the ad was posted more than half a year ago. Decide. 657
a. a. Quasi-contracts – Juridical relations based on the principle that no one shall be unjustly enriched or benefited at the expense of another. i. i. Negotiorum Gestio – When a person voluntarily takes charge of the management of a business or property of another that has been neglected or abandoned, without any power from the latter, as a consequence of which, he is obliged to continue the same until the termination of the affair or to require the owner to substitute him. Ex. NPA infested area Fishpond ii. ii. Solutio indebiti – When a person unduly delivers a thing through mistake to another who has no right to demand it. (melon bank v. Javier) b. b.
Crimes (acts or omission punished by law)
If you commit a crime, you are liable both criminally and civilly for the consequence of your acts or omissions such as restitution, reparation for damages caused and indemnification for consequential damages. Ex. Support for impregnated rape victim; loss of earning capacity of murder victim c. c. Quasi delict or Torts – The fault or negligence of a person who, by his act or omission, independent from any contractual relation, causes damage to another person
A 3-year-old child was bitten by a dog of her neighbor. As a result, she got infected
by rabies and died. Can the neighbor be held liable for the acts of the dog?
A signboard of hanging out of a building dropped on a car resulting in total wreck of the car. The car owner sues the building owner and demand to replace the car. Building owner cites the strong wind as force majeure condition indicating no fault on his part. Decide.
Have the force of law between the contracting parties and should be complied with in good faith. Sincerity and Honesty
Nature and Effect of Obligations (a) (a)
Specific v. Generic Thing 1. 1. Specific is designated or physically segregated from others of the same class. 2. 2. Generic refers to a class or genus and cannot be determined with particularity.
Duties of debtor in delivery of generic thing 1. 1. To delivery a thing which must neither be of superior nor inferior quality (1246) 2. 2. To pay damages in case of breach (1170)
Duties of debtor in delivery of specific thing 1. 1. To deliver the thing which he has obligated himself to give 2. 2. To take care of the thing with the proper diligence of a good father of a family ♦ The ordinary care that an average or reasonably prudent person exercises over his property ♦ Another standard of c are may be required by law or by stipulation of the parties 3. 3. To deliver all the accessions and accessories 4. 4. To pay damages in case of breach
Remedies of Creditors in breach of obligation 1. 1. To Give Determinate Thing a. a. To compel specific performance b. b. To recover damages 2. 2. To Give Indeterminate Thing a. a. To ask for performance of the obligation b. b. To ask that obligation be complied with by another at expense of debtor c. c. To recover damages 3. 3. To Do a. a. To have the obligation performed at debtor’s expense b. b. To recover damages 4. 4. Not to Do a. a. Undone at his expense b. b. To recover damages
Rules on Fruits 1. 1. Kinds of fruits a. a. Natural – product of the soil, young and other products of animals b. b. Industrial – produced thru cultivation or labor c. c. Civil – derived by juridical relations 2. 2. Creditor has rights to the fruits from the time the obligation to deliver arises 3. 3. Real rights acquired only when delivered to him a. a. Real rights - right over a specific thing without any passive subject, directed against the whole word. b. b. Personal rights – right to demand from another debtor the fulfillment of the latter’s obligation
Accessions and accessories ♦ Accessions – fruits of a thing or additions to or improvement upon a thing ♦ Accessories – joined to or included with the principal thing for better use or completion.
1. 1. Even if not mentioned, accessories follow the principal 2. 2. But obligation to deliver accessions or accessories does not include the principal (g) (g)
Legal Delay 1. 1. From the time obligee judicially or extrajudicially demand fulfillment; not mere notice 2. 2. No demand from creditor necessary in following cases: a. a. When obligation or law expressly so declares b. b. Time is of the essence (controlling motive) c. c. When demand would be useless 3. 3. In reciprocal obligation, from the moment one party fulfills his obligation, delay by the other begins. 4. 4. Kinds of Delay a. a. Mora solvendi – delay on the part of debtor b. b. Mora acccipiendi – delay of creditor c. c. Compensatio more – delay in reciprocal obligation 5. 5. Effects of Delay a. a. Liable for interest and damages b. b. Liable even for fortuitous event when the obligation is to delivery a determinate thing
Fortuitous Events 1. 1. Any event which cannot be foreseen or which though foreseen is inevitable, independent of the will or from aggravation of the debtor, render impossible the fulfillment of obligation 2. 2. No person shall be responsible for fortuitous events, except: a. a. Where expressly specified by law or stipulated in contract b. b. When nature of the obligation requires assumption of risk c. c. When debtor incurs delay
d. d. When debtor promises to deliver same thing to two or more persons e. e. When obligation to deliver arises from criminal offense f. f. When obligation is generic (i) (i) Fraud (deceit or dolo) Deliberate or intentional evasion of the normal fulfillment of an obligation; 1. 1. Dolo incidente (Incidental Fraud) - committed in the performance of pre-existing obligation, remedy is damages 2. 2. Dolo causante (Causal Fraud) – Fraud employed at the time of the execution of a contract in order to secure consent, remedy is annulment bec of vitiation of consent 3. 3. Demandable in all obligations 4. 4. Waiver of future fraud is void (j) (j) Negligence (culpa) Omission of that diligence which is required by the nature of the obligation, but no malice 1. 1. Culpa contractual – Negligence in the performance of contractual obligation, a. a. Pre-existing contract b. b. Liable for damages based on breach of contract c. c. Proof of contract and breach is enough for recovery of damage d. d. Negligence of employee conclusive presumption of employer’s negligence e. e. Proof of due diligence in the selection of employee not a defense 2. 2. Culpa aquiliana – Negligence between parties not so related by any pre-existing contract, a. a. Obligation for damages based on quasi delict b. b. No pre existing contract c. c. Negligence must be proved for recovery of damage d. d. Negligence of employee prima facie presumption of employer’s negligence e. e. Due diligence in the selection and supervision of employee is a valid defense
3. 3. Can be regulated by the Court depending on circumstance 4. 4. Waiver of future negligence allowed (k) (k)
Presumptions 1. 1. Receipt of principal without reservation as to interest = presumption of interest paid 2. 2. Receipt of later installment of debt without reservation of prior ones = presumption that prior ones paid
Remedies to satisfy claim 1. 1. Exhaust property of debtor 2. 2. Subrogated to rights and actions of debtors, except those inherent to person 3. 3. Impugn all of acts by debtor done to defraud creditor
Different Kinds of Obligations (a) (a)
Pure and Conditional Obligations 1. 1. Pure Obligation – One whose effectivity or extinguishments does not depend upon the fulfillment or nonfulfillment of a condition or upon the expiration of a term or period. Characterized by Immediate Demandability. 2. 2. Conditional Obligation – Effectivity is subordinated to the fulfillment or non-fulfillment of a future or uncertain fact or event Future and uncertain event or Past event and unknown to the
parties a. a.
Suspensive v. Resolutory In suspensive condition, fulfillment give rise to an obligation – acquisition of rights In resolutory condition, fulfillment extinguishes obligation – loss of rights acquired Casual, Potestative, Mixed Casual – Depends on chance or will of third party (Valid) Potestative – Depends on the will of one of the contracting parties (1) (1) If suspensive condition depends on will of debtor, the obligation is void (2) (2) If resolutory condition depends on will of debtor, the obligation is valid (3) (3) If depends on will of creditor, it is valid.
Mixed – Depends partly upon the will of a party and partly upon chance or third party (Valid)
c. c. -
Impossible Conditions Physically Impossible or legally impossible If “to do”, whole obligation is void If “not to do”, obligation is valid, as if not written If divisible, part not affected by impossible condition is valid.
Positive v. Negative
i. i. Positive Condition (event will happen) extinguished:
As soon as time expires without the event taking place As soon as it becomes indubitable that the event will not take place
ii. ii. Negative Condition (event will not happen) effective: e. e.
As soon as time expired without event taking place As soon as it becomes evident the event cannot occur Reciprocal v. Unilateral
i. i. If reciprocal, the fruits are deemed mutually compensated ii. ii. If unilateral, fruits and interest belongs to debtor 3. 3. Condition deemed fulfilled when obligor prevents its fulfillment
4. 4. Creditor may before the fulfillment of the condition bring appropriate actions for the preservation of the rights. 5. 5. Debtor may recover what he has paid by mistake before the fulfillment of condition. 6. 6. Effects of the fulfillment of a condition retroacts to the day of the constitution of the obligation. 7. 7. Rule on loss or deterioration, improvements before the fulfillment of condition
Lost – when perished, go out of commerce, or disappear in such a way that its existence unknown or cannot be recovered
a. a. If without the fault of debtor, the obligation is extinguished b. b. If lost thru fault of debtor, obliged to pay damages c. c. When deteriorate without fault of debtor, creditor bores the impairment d. d. When deteriorate with fault of debtor, creditor may rescind or fulfillment with damages e. e. When improved by nature, or by time, inure to the benefit of creditor f. f. When improved by debtor, no right to be indemnified, but may remove such improvement, or set off against damage 8. 8.
Remedies in reciprocal obligation
Specific Performance or Rescission
With damages in either case
c. c. Alternative remedy not cumulative – can choose one but not both d. d. After action for specific impossible, option for rescission
e. e. Injured party must resort to judicial rescission, i. i. Except where automatic rescission expressly stipulated ii. ii. Or where there is no performance yet f. f.
Power of the court to fix period
Subject to right of good faith third party
Substantial breach not slight breach
i. i. Where both parties have breach, liability of first infractor equitably tempered; where first infractor not know, both parties bear own damages (b) (b)
Obligations with a Period 1. 1. Demandability or extinguishments subject to expiration of a term or period 2. 2.
Term or period – future and certain event
3. 3. Rules on loss, deterioration, improvements of conditional obligation applicable 4. 4. If paid or delivered before period arrives, debtor may recover the thing, with fruits and interests. 5. 5. Established for the benefit of both debtor and creditor, unless otherwise stated 6. 6.
Court may fix period
a. a. b. b.
If obligation does not fix a period Depends on will of debtor “When means permit” not condition, but period Period fixed by court cannot be changed 7. 7.
Debtor loses right to make use of the period
a. a. Debtor becomes insolvent, unless he gives guaranty or security b. b. When debtor does not furnish guaranties or securities promised c. c. When guaranties or securities impaired or disappear d. d. When debtor violates an undertaking e. e. When debtor attempts to abscond (c) (c)
Alternative – several objects or prestations but performance of one sufficient Facultative – One object or prestation but debtor may substitute.
Must completely perform one of them
2. 2. Right of choice to debtor, unless expressly granted to creditor Except those impossible, unlawful, which could not have been the object of the obligation or only one prestation is practicable 3. 3. Choice no effect until irrevocable once communicated
4. 4. Debtor may rescind the contract with damages if thru creditor’s acts debtor cannot make a choice 5. 5. If lost due to fortuitous event, a. a. If two or objects remain, the obligation subsists b. b. If only one object remain, it becomes simple obligation c. c. If none remains, obligation is extinguished 6. 6.
If lost due to fault of debtor,
When right of choice belongs to debtor
a. a. If 2 or more objects remain, debtor can choose from remaining, not liable for damages
b. b. If only one remain, simple obligation to deliver remaining c. c. If none remains, debtor indemnify damages based on value of last object When right of choice belongs to
a. a. If alternative object still remain, creditor can choose the one lost and ask value of object lost and damages; if creditor choose the remaining object, debtor cannot be liable for damages b. b. If none remains, debtor to indemnify for damages based on the price of the object chosen by the creditor plus consequential damages 7. 7.
a. a. Right of choice only to debtor b. b. If lost before substitution, debtor not liable. c. c. Debtor liable for loss due to his fault once substitution has been made d. d. If after substitution, it is lost thru fortuitous event, obligation extinguished, debtor not liable (d) (d)
Joint and Solitary Obligations 1. 1. Joint Obligation – Each of creditor has right to demand, and each debtor is bound to render compliance, with his proportionate part of the prestation a. a.
Default rule is obligation is JOINT
b. b. Joint creditor cannot act in representation of the other creditors c. c. Joint debtor cannot be compelled to answer for liability of other debtors d. d. “Jointly”, “We promise to pay”, “Pro rata”, “proportionately”
2. 2. Solidary Obligation – Each creditor has a right to demand, and each debtor is bound to render compliance, with the entire prestation; but as to co-debtor he is liable only for his share a. a. i. i. ii. ii.
Instances when obligation is solidary: When obligation expressly states so When law requires solidarity: 1. 1. If 2 or more heirs take possession of estate 2. 2. Partners in partnership 3. 3. If principal allowed agent to act as though he has full power 4. 4. If 2 or more appointed an agent for common undertaking or transaction 5. 5. 2 or more bailees to whom a thing is loaned 6. 6. 2 or more officious managers, unless management was assumed to save thing from imminent danger 7. 7. 2 or more persons liable for quasi delict 8. 8. 2 or more payees when there has been payment of what is not due 9. 9. Principal, accomplices, and accessories of a felony.
iii. iii. When nature of obligation requires solidarity 1. 1. Ex. Accident fr “Kabit” system b. b. “Solidarily”, “Jointly and severally”, in solidum, together and/or separately, “I promise to pay” c. c. Creditors and debtors need not be bound in the same manner and by the same periods and conditions
Not same as indivisible obligation
i. i. Solidary refers to Indivisibility refers to prestation ii. ii.
Solidary requires plurality of subjects
iii. iii. In solidary, all debtors liable for breach of obligation; In indivisibility, only debtor guilty of breach of obligation is liable for damage iv. iv. In indivisible obligation, other debtors not liable for insolvency; if solidary debtor becomes insolvent, the co-debtors bore his debt in proportion e. e. Solidary creditors may do whatever may be useful to others, but not anything which may be prejudicial to the others f. f. A solidary creditor cannot assign his rights without the consent of the others, except if to co-creditors g. g. Debtor must pay to the creditor who made demand, if none demanded, then he may pay any one of the solidary creditor h. h. Novation, compensation, confusion or remission of a solidary creditor shall extinguish the obligation but the creditor who did these acts shall be liable to the other creditors i. i. No re-imbursement if payment made after obligation prescribed or illegal j. j. Remission of the whole obligation obtained by a solidary debtor does not entitle him to reimbursement from his co-debtors k. k. i. i.
Defenses available to solidary debtors Derived from nature of obligation
ii. ii. iii. iii.
Payment, fraud, prescription, remission, illegality, non performance of condition Personal to the debtor Insanity, incapacity, violence, minority
Personal to the other solidary debtors Partial defense
Obligations with a Penal Cause 1. 1. With accessory undertaking in case of breach of obligation a. a. To insure performance b. b. To liquidate the amount of damage to be awarded c. c. To punish the obligor in case of breach 2. 2.
No need to prove actual damage
3. 3. Shall substitute for damages and interest, except a. a. When there is stipulation to the contrary b. b. When obligor is sued for refusal to pay agreed penalty c. c. When obligor is guilty of fraud 4. 4.
When court may reduce penalty
a. a. If principal obligation partly complied with b. b. If principal obligation irregularly complied with c. c. If penalty is iniquitous or unconscionable
Weeks 5 to 7 - Extinguishments of Obligations Modes of Extinguishing Obligations 1. Payment or performance 2. Loss of the thing due 3. Condonation or remission 4. Confusion or merger of the rights of creditor and debtor 5. Compensation 6. Novation 7. Death of a party in personal obligation 8. Annulment or Rescission of contract 9. Arrival of Resolutory period or fulfillment of resolutory conditon 10.Impossibility of fulfillment 11.Prescription I.
Payment (a) (a) General Provisions Payment (i) (i) Complete Delivery of performance of obligation
(ii) (ii) If substantially performed in good faith, obligor may recover as though there had been complete fulfillment less damages (iii)(iii) Third party cannot compel creditor to accept payment or performance, except a. a. When there is stipulation to the contrary b. b. When third person has an interest in the fulfillment of obligation (iv)(iv) Rights available to third party who pays: a. a. If payment made with the consent of the debtor i. i. Recover from debtor the entire amount
ii. ii. Subrogated to all the rights of creditor b. b. If payment made without the knowledge or against the will of debtor, he can recover only insofar as payment has been beneficial to the debtor (v) (v) To whom payment must be made (1240) a. a. To the person in whose favor obligation has been constituted b. b. His Successor in interest c. c. Any person authorized to receive it
d. d. Third person provided it has redounded to benefit of creditor. (1241, 1242) Presumption of benefit in the following case: If after payment, third person acquires creditor’s rights If creditor ratifies payment to third party If creditor’s conduct let debtor to believe that the third person had authority to receive payment e. e.
Possessor of the credit
(vi)(vi) Payment must be in Legal Tender a. a. Foreign currency may be used as currency of contract b. b. Promissory notes, bills of exchange, checks not legal tender. They produce effect of legal tender only when encashed or impaired thru the fault of creditor (1249) c. c. In case of extraordinary inflation or deflation, the basis is
the value of currency at the time obligation is established. (1250) (b) (b)
Applications of Payments 1. 1. The right belongs to the debtor, but if he does not exercise it, creditor may do it 2. 2. If creditor issues a receipt designating the debt to be applied, debtor can accept or reject 3. 3. Where neither debtor nor creditor made a choice, it shall be applied on the debt which is most onerous a. a. Older debts more onerous than newer ones b. b. One bearing interest more onerous than one that is not c. c. Secured debt more onerous than unsecured d. d. Debt as principal more onerous than debt as guarantor e. e. Solidary obligation more onerous than sole debtor 4. 4. If similar nature and burden, payment shall be applied proportionately
(c) (c) Payment by Cession Assignment or abandonment of all the properties of the debtor for the benefit of his creditors in order that the latter may sell same and apply proceeds thereof to 1. 1. Cession does not make the creditors owners of the property 2. 2. Unless stipulation to contrary, debtor still required to pay balance 3. 3. Requires two or more creditors, debtors insolvent, cession accepted by creditors (d) (d)
Dacion en pago
Dation in payment is the transmission of the ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of an obligation. Governed by law on sales 1. 1. Difference between Dacion and Cession a. a. Dacion usually only one creditor b. b. Dacion does not require insolvency c. c. Dacion does not involve all the property of debtor d. d. Dacion makes creditor owner of the property e. e. Dacion is a novation
(e) (e) Tender of Payment and Consignation Tender of payment – The act of the debtor of offering to the creditor the thing or amount due Consignation – Deposit of the object or the amount due with the proper court after refusal or inability of the creditor to accept the tender of payment 1. 1. Requisites of Consignation a. a. Debt Due b. b. Tender of payment by debtor and refusal by creditor to accept it without justifiable reason c. c. Previous notice of the consignation had been given to persons interested in fulfillment of obligation d. d. Thing or amount due has been deposited with judicial authority e. e. Subsequent notice of consignation to interested parties 2. 2. Exception to requirement for tender of payment: a. a. When creditor is absent or unknown or does not appear at place of payment
b. b. When he is incapacitated to receive payment c. c. When he refuses to give receipt, without just cause d. d. When two or more persons claim same right to collect e. e. When title of the obligation has been lost 3. 3. Expenses of consignation for Creditor’s account a. a. If creditor allows debtor to withdraw the consignation, creditor lose preference over the thing. Co-debtor, guarantors, sureties shall be released. II.
Loss of the Thing Due (a) (a) Lost – when perished, go out of commerce, or disappear in such a way that its existence unknown or cannot be recovered Or becomes legally or physically impossible to perform, or so difficult as to be manifestly beyond the contemplation of the parties (b) (b) The obligation to deliver specific extinguished if 1. 1. Without the fault of debtor, and 2. 2. Debtor not in delay
(c) (c) No person shall be responsible for fortuitous events, except: 1. 1. Where expressly specified by law or stipulated in contract 2. 2. When nature of the obligation requires assumption of risk 3. 3. When debtor is at fault, partly 4. 4. When debtor incurs delay 5. 5. When debtor promises to deliver same thing to two or more persons 6. 6. When obligation to deliver arises from criminal offense 7. 7. When obligation is generic
(d) (d) In case of partial loss the court shall determine whether it is so important as to extinguish the obligation (e) (e) In case lost when the thing is in the possession of debtor, presumption is it is his fault Except earthquake, flood, storm or other natural calamity (f) (f) Creditor shall have right to go against any third person responsible for the loss.
Condonation or Remission of Debt
g. h. Act of liberality by virtue of which creditor abandons his right Gratuitous Accepted by debtor Obligation must be demandable Parties must be capacitated Donation not inofficious Forms in express condonation h. i.
Implied remission Delivery of private document evidencing credit - If thing pledge is found in the possession of debtor or owner of thing - Renunciation of principal extinguish accessory obligation -
Confusion or Merger of Rights Creditor and Debtor merged in the same person 1. 1. Between principal debtor and principal creditor 2. 2. Complete and definite merger a. a. Merger of debtor and creditor benefits the guarantor b. b. Extinguish only the portion of the joint obligation corresponding to the creditor and debtor merged c. c. Merger of one solidary debtor with creditor extinguishes obligation
Compensation a. a. Persons who in their own rights are debtors and creditors of each other extinguishes the debts to the concurrent amount b. b. Guarantor can set up compensation of what principal debtor may owe creditor c. c. Compensation may be total or partial d. d. Parties may agree to compensate debts not yet due
e. e. When one or both debts are rescissible or voidable, they may be compensated before they are judicially rescinded or avoided f. f. Requisites of legal compensation (by operation of law ): 1. 1. Parties are principal creditors and debtors of each other 2. 2. Both debts consist in sum of money or consumable of same kind and quality 3. 3. Both debts are due and demandable 4. 4. Two debts are liquidated (amount is certain) 5. 5. No retention or controversy commenced by 3rd party b. g. Compensation after assignment i. Assignment made with consent of debtor Debtor cannot set up compensation against previous creditor ii. Assignment with knowledge but without consent Debtor can set up compensation for debts before the notification Debtor cannot set up compensation with respect to debts which matured after notification iii.
without knowledge of debtor Debtor can set up compensation for debts maturing before he learned of assignment c. h. Compensation cannot take place in following case: i. Debts from Contracts of Depositum (A person receives a thing belonging to another for safekeeping and of returning the same; not bank deposits) ii. Debts from Commodatum (One person delivers to another something for him to use and return it) iii. Claims for support due by gratuitous title iv. Debts from Criminal offense v. Taxes
Novation – extinction of an obligation through the creation of a new one which substitutes it a. a. Requisites: i. ii. iii.
Previous valid obligation Agreement to enter new obligation Extinguishments of old
iv. Creation of new valid obligation b. b. Must be declared in unequivocal terms c. c. Or incompatible on every point – Test: Whether old and new contract can stand together each having its own independent existence d. d. Substitution of Debtor i. Expromision – Without the knowledge or consent of debtor, at the instance of the new debtor 1. 1. Payment by new debtor gives him right to beneficial reimbursment 2. 2. Insolvency or non fulfillment of obligation by new debtor will not give rise to liability of old debtor ii. Delegacion – Substitution made at the instance of old debtor 3. 1. Payment by new debtor entitles him to reimbursement and subrogation 4. 2. Non fulfillment of obligation by new debtor will not give rise to liability of old debtor 5. 3. Insolvency of new debtor will revive action against old debtor if insolvency was already existing and of public knowledge, or known to the debtor when he delegated his debt e. e. If new obligation is void, the original one shall subsists f. f. If original obligation is void, novation is void; except when annulment may be claimed only by debtor or when voidable acts have been ratified g. g. Subrogation – Substitution of Debtor
i. Conventional – By express agreement of the old creditor, debtor and the new creditor ii. Legal –Without agreement, by operation of law 1. 1. When creditor pays another creditor who is preferred, even without the debtor’s knowledge 2. 2. When a third person, not interested in the obligation, pays with the express or tacit approval of debtor 3. 3. When a third person interested in the fulfillment of obligation pays, even without the knowledge of debtor
Definition of a Contract
A meeting of the minds Between two persons Whereby one binds himself, with respect to the other To give something or to render some service
Different phases or stages in the life of a contract 1. 1. Preparation – Preliminary to formation 2. 2. Perfection – birth of the contract 3. 3. Consummation - fulfillment Essential characteristics of Contracts 1. 1. Obligatory force – must be complied with in good faith 2. 2. Autonomy – parties are free to enter such stipulations, clauses, terms and conditions –– Clauses and condtions must not be contrary to:
LAW Morals Good Customs Public Order Public Policy Mutuality – contract must bind both parties Determination can be left to third party, whose decision shall be binding only when communicated to both parties Unless such determination be evidently inequitable
4. 4. Relativity – takes effect only bet parties, their assigns and heirs
Stipulation pour autrui accepted by third party Where third persons comes into possesion of the object of contract creating real rights Where contract is to defraud a third person Where third person induces a contracting party to violate his contract a. a.
Different Classes of Contracts
According to perfection –– Consensual – Perfected by mere agreement of the parties –– Real – Requires not only consent, but also the delivery of the object
According to form –– Common – Do not require particular form –– Formal – Those which require particular form, like donation, mortgage
According to nature of vinculum Unilateral – Obligation of one party only Bilateral – Reciprocal obligations for both parties
According to cause Onerous – Giving of an equivalent or compensation Gratuitous – Given without compensation, just pure liberality –– ––
According to risks involved –– Commutative – Prestation is pecuniarily appreciable and determined at the moment of celebration of contract –– Aleatory – Pecuniarily appreciable but not yet determined at the moment of celebration, since it depends upon the happening of an uncertain event. Ex. Insurance
According to name –– Nominate – with specific names or designation in law –– Innominate – no specific name Essential Requisites of Contracts
Consent of the contracting parties Object certain subject matter of the contract Cause of the obligation which is established
Elements of Consent
Concurrence of the offer and the acceptance o Definite Offer that may be exactly fixed o Assent to the terms without qualifications or conditions o Conveyed before the death, civil interdiction, insanity, or insolvency o Qualified acceptance is a counter offer o Perfected when acceptance comes to knowledge of offeror o Offer can be withdrawn anytime before acceptance, unless option is founded on consideration o If offer made thru agent, accepted when communicated to the agent
By parties with legal capacity to contract o Not minors, insane or demented, deaf-mutes who do not know how to write, incompetents under guardianship, civil interdiction o Minor can be liable if he misrepresents his age o Prohibited by law from entering into contracts o o o o o o o o o o o
Husband and Wife to each other Insolvents Persons prohibited from giving donations Adultery, concubinage In consideration of criminal offense Made to public officer, spouse, by reason of
o o o o o office o Persons with fiduciary relations o Guardian, for property under his guardianship o Agents, for property entrusted to them o Executor/administrator Public officers, judges, for property under their jurisdiction o
Intelligently, freely given, consciously - Vices of the will
Mistake - False notion of a thing or a fact materrial to the contract • Simple mistake gives rise to correction •
Render voidable in following cases:
Mistake as to object of the contract
o Identity of thing, Substance, Condition ,
Quantity only if principal reason o o Mistake of Law
o Will not make it voidable except: Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated
Mistake as to person o If such identity or qualification is principal cause of contract
Violence – Employment of external physical force, irresistible and serious to wrest consent Intimidation – Moral compulsion to influence another to give his consent thru fear of imminent or grave evil o o Force employed must be serious or irresistible o o Determining cause for the party in entering into the contract
Undue Influence – Improper advantage of his power over the will of another depriving the latter of reasonable freedom of choice • •
Confidential, Family, Spiritual and other relations or Person influenced suffering from mental weakness, ignorant, financial distress
Fraud – Insidious words or machinations of one of the contracting parties induced the other to enter into a contract, which without them he would not have agreed; Failure of one party to disclose facts to other party when there is a duty to reveal them
Dolo incidente (Incidental Fraud) - committed in the performance of pre-existing obligation, remedy is damages Dolo causante (Causal Fraud) – Fraud employed at the time of the execution of a contract in order to secure consent, remedy is annulment bec of vitiation of consent o o Must be employed by one of the contracting parties, o o but not by both or by third parties o o Must be Serious o Must have induced the other party to enter into the contract -
Vices of Declaration Simulated Contracts 1. Absolute – Contracting parties do not intend to be bound by the contract at all ––Void 2. Relative – Contracting parties conceal their true intentions – Real agreement binding on the parties if it does not prejudice third person
Thing, right or service which is the subject matter of the obligation created or established
Thing or service must be within the commerce of man
o o The law prohibits future inheritance as object of contract o o Transmissible and can be appropriated o o Not contrary to Law Moral Good Conduct Public Order Public Policy o o Real or possible o o Determinate or determinable Cause
Essential reason why the parties enter into the contract
o Cause should be in existence o Licit or lawful o True Interchangeable with consideration, but not same as motive o General rule: Particular motive of the party in entering into a contract are not material. Except: When it predetermines the purpose of the contract
Whatever may be the form, Contract shall be obligatory on all provided all the essential requisites are present
Two exceptions: When Law requires a certain form for validity When Law requires form for enforcement
Must appear in Writing to be valid: o o
Donation exceeding P 5,000
o o Sale of piece of land or interest therein by an agent o o Antichresis - Creditor acquires rights to fruits of immovable but applying to payment of interest o o Agreement regarding payment of interest
Must appear in Public Instrument to be valid:
Donations of immovable property Partnership where immovable or real rights are contributed
Must appear in Public Instrument for Enforcement Creation, transmission, modification, sales or extinguishments of real rights over immovable properties Cession, repudiation, or renunciation of hereditary rights, or those of conjugal partnership of gains Power to administer property Cession of actions or rights proceeding from an act appearing in a public document
When the true intention of the parties are not expressed in the instrument, one of the party may ask for the instrument to be changed so that true intention may be expressed.
Must be a meeting of the minds of the parties True intention is not expressed in the instrument Failure due to mistake, fraud, inequitable conduct or accident What may be reformed
Mutual mistake of parties cause failure to disclose real agreements One party mistaken and the other acted fraudulently or inequitably One party was mistaken and the other knew that instrument did not state real agreement, yet concealed it Ignorance, lack of skill,, negligence or bad faith on the part of person drafting it Where parties agree on mortgage, but instrument states property is sold absolutely or with right to repurchase
What o o o o o o
may not be reformed Simple Donations with no condition Wills Those where real agreement is void Defective Contracts
o o o o o o
As to defect o Rescissible - Injury or damage o Voidable - Vitiation of consent or legal capacity o Unenforceable - In excess of authority or do not complyy with S of Fraud o Void - Lack of an element of a valid contract
As to effect o o Rescissible and Voidable - Valid until annulled o o Unenforceable - Cannot be enforced by action in court o o Void - No legal effects at all
As to parties who can file action o o Rescissible and Void – May be attack directly By contracting parties or by third parties o o Voidable and Unenforceable - Cannot be attacked by third persons
Resolution (Rescission of reciprocal obligation o Party who may institute action For resolution, only party to the contract o Causes Failure of one party to comply w/ obligation o Kind of contract Reciprocal obligation only o Power of the courts Can grant extension for performance
Guardian who represent ward, lession of more than ¼ of the value of the thing In representation of absentee, lession of ¼ In fraud of creditor who is unable to collect Things under litigation, entered into by defendant without approval of litigants and court Payment made in state of insolvency where debt not yet due
o Those which may be declared by law • • •
Partition (1098) Result of deterioration (1189) Unpaid seller (1526 and 1534)
Badges of Fraud
o Cause or consideration is inadequate o Transfer made after suit has begun or pending o Sale on credit by an insolvent debtor o Evidence of large indebtedness or complete insolvency o o Transfer of all or nearly all of debtor properties o o Between father and son, with any of above circumstances o o Failure of vendee to take exclusive possession o o o o
Voidable Contracts Where one party is incapable of giving consent to a contract
Where the consent is vitiated by mistake, violence, intimidation, fraud, undue influence
Convalidation Prescription (Four years) From time incapacity ceases From discovery of such fraud or mistake Ratification or confirmation Loss of the thing by thru the fault of the person who has right to annul Effects of annulment of Voidable Contract –– If not consummated, then parties are released from obligation –– If consummated, parties are to restore to each other what they have given, with fruits and interests, plus damages –– If to do or not to do, there will be apportionment of damages ––Incapacitated party not obliged to make restitution except for what he was benefited Unenforceable Contracts 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
Those not complying with Statute of Frauds.
Statute of Fraud ––Purpose is to prevent fraud, not to aid the commission of fraud –– Basic and fundamental principles Applies only to executory contracts Cannot apply if action is not for damage bec of violation of agreement or for specific performance Exclusive May be waived Personal defense Contracts are not void Rule of exclusion Concerns admissibility of evidence, not credibility Does not apply if action is to claim reformation ––
Following must be in writing or in some notes or memorandum: –– Agreement not to be performed within a year from the making thereof
A special promise to answer for debt, defaults or miscarriage of another –– Agreement in consideration of marriage –– Sales of goods, chattels, things above P500 –– Lease of more than one year ––Representation as to credit of another
Void Contracts –– No concurrence of offer/acceptance –– Cause, object, purpose contrary to law, morals, good customs, public order, or public policy –– Absolutely simulated or fictitious –– Cause or object did not exist at the time of the transaction –– Object outside commerce of men –– Impossible service –– Intention of the parties relative to principal object cannot be ascretained –– Prohibited or declared void by law Estoppel Estoppel in pais - by one’s conduct or acts, representatioons, admissions or silence, culpable negligience induces another to believe certain facts to exist and such other rightfully relies and acts on such belief.
Estoppel by Deed - A party to a deed, are precluded from aasserting against the other party to the deed any right or title in derogation of the deed, or from denying any material fact asserted therein.
Estoppel by Record - A party precluded from denying the truth of matters set forth in a record, whether judicial or legislative.
Estoppel by Laches Estoppel by Laches Failure or neglect to enforce a right for an Unreasonable and unexplained length of time Despite knowledge or notice EXTINCTIVE PRESCRIPTION (Arts. 1139-1155)
40 days 6 months
2 years 3 years 4 years
Redhibitory action based on defects of animals. (a) (a) Action for reduction of price for rescission in case of breach of sale of real estate, either with a statement of its area at a certain price for a unit of measure or number. (b) (b) Action for warranty against hidden defects of thing sold. (a) (a) Action by husband against wife to impugn child’s legitimacy if husband is in the same place as wife. (b) (b) Action for revocation of donation for acts of ingratitude. (c) (c) Action for forcible entry or unlawful detainer. (d) (d) Action for defamation. (e) (e) Action for rescission or for damages if immovable sold is encumbered with non-apparent burden or servitude. Action to impugn child’s legitimacy if husband is in the Philippines but not in same place as wife. Action to impugn child’s legitimacy if husband is abroad. (a) (a) Action for revocation or reduction of donation based on supervening birth, appearance or adoption of a child. (b) (b) Action for revocation of donation based on fulfillment of condition. (c) (c) Action for recovery of movable (replevin) if possessor is in good faith. (d) (d) Action upon injury to rights of plaintiff. (e) (e) Action upon a quasi-delict. (f) (f) Action for rescission of rescissible contracts. (g) (g) Action for annulment of voidable contracts. (a) (a) Action for legal separation. (b) (b) Action for annulment of marriage
6 years 8 years 10 years
based on 1. Lack of parental consent. 2. Fraud. 3. Force, intimidation or undue influence. 4. Physical incapacity and afflicted with a sexuality transmissible disease. (c) (c) Action to claim legitimacy if child should die during minority or in state of insanity. (d) (d) Action for declaration of incapacity of heir. (e) (e) Action for warranty of solvency of debtor if credit is assigned to co-heir during partition. (f) (f) All other actions whose periods are not fixed by law. (a) (a) Action upon oral contract. (b) (b) Action upon a quasi-contract. Action for recovery of movables (replevin) if possessor is in bad faith. (a) (a) Action for recovery of possession of immovables (accion publiciana) if real right of possession is lost. (b) (b) Action for recovery of ownership of immovables (accion reinvindicatoria) if possessor is in good faith. (c) (c) Action upon a mortgage contract. (d) (d) Action upon a written contract. (e) (e) Action upon an obligation created by law. (f) (f) Action upon a judgment. (a) (a) Action to claim legitimacy. (b) (b) Action to obtain declaration of illegitimate filiation.