2014 BAR PRE-WEEK NOTES OBLIGATIONS AND CONTRACTS

Atty. Liza Lopez-Rosario

A PRAYER BEFORE STUDY by St. Thomas Aquinas

Lord, true source of light and

wisdom, give me a keen sense of understanding, a retentive memory

and the capacity to grasp things correctly. Grant me the grace to be accurate in my expositions and the

skill to express myself with thoroughness and clarity. Be with

me at the start of my work and study, guide its progress

and bring it to its completion. Grant this through Christ our Lord.

Amen.

St. Thomas, Pray for us.

OBLIGATIONS

(PART 1) Article 1156. An obligation is a juridical necessity to give, to do or not to do. (n)

DEFINITION: "Juridical" necessity to give, to do or not to do

a) Distinguishes civil from natural and moral b) Makes it enforceable in courts

Natural obligation 1423

a) No longer a "juridical" necessity b) Voluntary performance of debtor c) Debtor cannot demand return anymore

Reminder: Memorize examples given under 1424-1430

Moral obligation a) Same as natural obligation b) Cannot be enforced in court

Article 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.

Article 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.

Article 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.

Article 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 that he has not been benefited thereby, there

is no right to demand the thing or price thus returned.

Article 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)

Article 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.

Article 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.

Article 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.

ELEMENTS OF OBLIGATIONS:

1. Parties a. Active creditor

Q: Why is he the "active" subject? A: Because he has the right to go to court in case of non-performance

b. Passive debtor

2. Object

Note:

a) In Property: "object" is the thing (it is an element of a contract)

b) In Obligations: it is the prestation or the conduct to be performed (to give, to do, not to do)

c) Qualities of an object to be valid: (DULAP) 1) Determinate, 2) Useful, 3) Lawful, 4) Assessable, 5) Possible

d) In Contracts: if the object is unlawful, the contract is void

3. Sanction or juridical tie

Note: In case of non-performance, you can go to court and file an action for specific performance

KINDS OF OBLIGATIONS: 1. According to peculiarities of a prestation:

a. Pure b. With a condition c. With a period

2. According to number or plurality of parties: a. Joint b. Solidary

3. According to prestations to be rendered or number of prestations:

a. Individual b. Multiple

i. Alternative ii. Facultative

4. According to the quality of an object: a. Positive (to perform) or negative (prohibited) b. Specific (determinate) or generic

(indeterminate) c. Divisible or indivisible (whether it can be

performed partially or not) d. Principal or accessory (connect with contract as

a source of obligation) SOURCES OF OBLIGATION: 1157 Article 1157. Obligations arise from:

(1) Law;

(2) Contracts;

(3) Quasi-contracts;

(4) Acts or omissions punished by law; and

(5) Quasi-delicts. (1089a)

Law -to support, to pay taxes Quasi-contracts

1. Negotiorum gestio - managing the property of another. The one who benefitted has the obligation to pay damages

Q: Why is it called a quasi-contract? Answer: Because there is no meeting of minds, there is no consent

2. Solutio idebiti - unjust enrichment Note: In Property, 719: no finder's keeper

Q: Can you file an independent civil action without making any reservation? Answer: Sources of obligation is the key to the answer.

Note: a) See 29, 30, 31, 35 CC - arising from delict b) See also 32, 33, 34, 2177 CC - arising from quasi-

delict c) See also 100 RPC and Sec.1, Rule 111 RoC

1) 100 RPC – crime will give rise to damages or a civil obligation

2) 111 RoC – deemed instituted except i. Prior institution,

ii. Waiver, iii. Reservation

If the question does not state the source of obligation, you must qualify your answer:

a) If arising from law, contract, quasi-contract, quasi-delict or if the problem talks about 32, 33, 34, 2177: YES

b) If arising from delict: NO. Reservation is required Note: When must it be reserved? Before the prosecution presents evidence (thru a manifestation)

CASE: If accused dies during the pendency of the case, civil liability ex delicto is also extinguished BUT the victim may still pursue the civil liability provided, it will now be based on other sources

of obligation, e.g., those arising from quasi-delict (due to "negligence") like RIRI homicide or SPI. Note: The respondent, in such case, will be the estate of the accused (as a juridical person)

OBLIGATIONS OF THE OBLIGOR: Determine first what kind of prestation is involved:

1. Obligations in a prestation to give: Note: Involves money or property. Q: Is money generic or specific? Answer: In simple mutuum, you do not have to return the very same money. Money is fungible property. Hence, generic.

a. To give a specific thing: i. To deliver/return a determinate or

specific thing ii. Other accessory obligations –

1) Preserve the thing

Note: Exercise of due diligence of a good father is required except:

a) In case of common carriers: in relation to goods, extraordinary diligence; in relation to passengers, utmost diligence

b) In necessary deposits: innkeepers are required to exercise more than ordinary diligence

Q: Can parties change the degree of diligence? Answer: Generally, parties may stipulate on the kind of diligence to be exercised except (1) 2003 on necessary deposit, and (2) 1757 on common carrier

Note: In torts: In case of a vehicular accident, if driver was drunk or there was a violation of traffic rules, he is presumed negligent

2) Deliver accessions and

accessories

Accession: Anything that is attached, produced, incorporated (API) Note: "Attached" - if removal will cause injury (e.g., removal of cap from a water bottle does not cause injury, although it is attached BUT if you remove the board from the foam of a board eraser, it will cause injury and if the original obligation is to deliver the foam, and someone attached the board to the foam,

Q: Do you have the right to claim the whole? A: In property, if two things are put together, the identity of each being retained, there is adjunction. If the removal will cause injury, who will have a better right? What is the principal and what is the accessory? Applying the rule of importance, the foam is the principal. Hence, the owner of the foam has the right to claim the whole.

Note also: a) Confusion, commixtion, spe-

cification

b) In case of real property, accession here is either:

1) "Accession discreta – fruits" or (DFA): Natural, industrial, and civil E.g.: Apartment for lease, rents will also be delivered; lot with fruit-bearing trees, fruit-bearing trees included; pregnant dog, include puppies In the following examples, the fruits must be delivered PROVIDED THAT, it is existing at the time the obligation to deliver arises (1164)

Article 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)

See also: Alluvion and Avulsion

2) "Accession continua - internal forces" or (CIA): BPS

Accessory: In Property, accessory refers to: a) Accessory, as an ornament

(although attached, removal will not cause injury)

b) Accessory, in relation to a principal

See also 1164, a reiteration of the obligation to deliver accession

b. To give a generic thing (Note: genus do not

perish) i. Deliver a thing of the quality specified

Note: In property, it is a fungible property

ii. No obligation to deliver accessory

2. Obligations in a prestation to do Note:

a) Just simply perform it as promised and not to substitute it except if there is a stipulation to the contrary

b) Substitute performance at the expense of the obligor except if personal qualifications of the obligor is considered. Something that is "personal"

3. Obligations in a prestation not to do

Note: Not to perform the conduct prohibited. Otherwise, must be undone, at the expense of the debtor

Reminder: Exercise of diligence of a good father and delivery of accessories and accessions, material in PRESTATION TO GIVE only DELAY (mora): failure to perform obligation in due time

1. If arising from contract – time agreed upon 2. If arising from – provision of the law (e.g., payment of

taxes) Reminder: If asked in the bar, it will be in relation to obligation arising from a contract

KINDS OF DELAY 1. Mora solvendi - of the debtor (MSD) 2. Mora accipiendi - of the creditor (MAC) 3. Compensatio morae - of both

Rule: No demand, no delay except:

1. Obligation (contract) expressly declares it "even without demand" OR law expressly declares it (e.g., April 15 for payment of income tax)

2. Time is the controlling motive (time is of the essence) (e.g., obligation of a lecturer in review classes before the bar exams)

3. When demand is useless Delay in reciprocal obligations: There is delay on the part of one of the parties from the moment the other has fulfilled his obligation

(PART 2) FORTUITOUS EVENT

1. Act of God 2. Act of man

Q: What is the relevance of the fortuitous event in relation to the obligation? Answer: It might affect the performance of the obligation. Generally, a debtor is released from his liability (in a prestation to give or to do) as long as there is no fault, negligence or delay on the debtor's part. Reminder: The kind of property involved in a prestation to give is also important. If specific, obligation is extinguished. If generic, since genus does not perish, it can still be substituted.

Requisites:

1) Independent of the human (debtor's) will 2) Impossible to foresee, or even if it can be foreseen, it is

something that cannot be avoided 3) Because of such event, it is impossible for the debtor to

fulfil his obligation in a normal way 4) Debtor has no concurrent fault (not in delay, not

negligent. Otherwise, will not be relieved from liability) Reminder: If asked in the bar, it will be in relation to obligation arising from a contract or any credit transaction EXCEPTIONS: (Fortuitous event will not extinguish the liability of the debtor)

1) Law provides (See 1942; 2001 except when there is use of arms; 2147 in case of officious manager)

2) Expressly stipulated by the parties (in a contract) Note: If you are the lawyer for the plaintiff, invoke this exception to the fortuitous event. If you are the lawyer for the defendant, ask for the deletion of the provision (contract of adhesion) and invoke the general rule that fortuitous event extinguishes the liability of the defendant provided there is no fault, negligence or delay on his part

3) Assumption of risk Note: Construction contract (1717, 1724) CASE HANDLED BY ATTY. LIZA: Collapse of a wall during a fortuitous event. However, there was non-compliance with easement of intermediate distance in case of planting of trees and easement of drainage of buildings which cause the collapse of the wall.

4) Debtor in delay Note: Rule of no demand, no delay. See also exceptions.

5) Debtor is negligent or in default REMEDIES GIVEN TO A CREDITOR IN CASE OF BREACH OF OBLIGATION:

1. Prestation to deliver a specific thing a. Action for specific performance with damages b. Action for rescission of a contract with damages

2. Prestation to deliver a generic thing a. Ask a third person to act as a substitute

(Substituted performance) with damages (1165, par.2)

3. Prestation to do a. Ask a third person to act as a substitute

(Substituted performance) with damages except if personal qualities are in consideration. Hence, ask for damages instead

b. If improperly done, ask that it be undone at the expense of the obligor with damages

4. Prestation not to do a. Action for damages b. Ask that it be undone at the expense of the

obligor with damages Note: In relation to Torts and Damages, damages must be proved OTHER SUBSIDIARY REMEDIES:

1. Accion subrogatoria – when creditor steps into the shoes of the debtor, if the latter fails to run after his own debtors Note: Action is still filed in the name of the debtor against the debtor's debtor

2. Accion pauliana – remedy given to creditor to question the validity of the contracts entered into by his debtor with the intention of avoiding attachment of his properties

Compare with: Accion publiciana – remedy given to the owner for the recovery of the possession of his property. If the 1-year period for filing the ejectment case had lapsed Note: In Property, one of the remedies given to the owner is accion interdictal (forcible entry or unlawful detainer). It is filed within the 1-year period from unlawful dispossession or the demand to vacate. The other remedy is accion publiciana

3. Action to declare the nullity of simulated contract

Note: Applies only to an absolutely simulated contract because there is no intention to enter into a contract. In a relatively simulated contract, there is still intention to be bound.

KINDS OF OBLIGATIONS: (discussed) 1. According to peculiarities of a prestation:

a. Pure – demandable at once b. With a condition c. With a period

Q: Why peculiarity of the prestation? Answer: Existence or termination is dependent upon the happening or non-happening of an event Note: The condition and period are separate and distinct from the obligation. They are events

CONDITION PERIOD

Future and uncertain (may or may not happen)

Future and certain to happen

Suspensive – since the event is not sure to happen, the happening of the event will give rise to the obligation, not yet to the demandability

Suspensive – since the event is sure to happen, the happening of the event will give rise to the demandability of the obligation. Here, obligation is already existing

Resolutory – the happening of which will extinguish the obligation

Resolutory – the happening of which will extinguish the obligation

Q: What happens if there is loss or deterioration or improvement of a thing in a prestation to give, during the pendency or before the happening of a condition? Note: "Loss" is not only limited to physical loss, but also includes property that goes out of commerce of men (it ceases to be a property, it becomes a thing) or its existence becomes unknown Reminder: A thing becomes a property if: (USA)

1) Utility 2) Substantivity 3) Capable of being appropriated

Answer:

1) In case of loss: (material only in physical loss) a) If there is fault of the debtor – liable for

damages b) If there is without the fault of the debtor –

obligation is extinguished Note: If loss refers to a property that goes out of commerce of men, it is dependent upon the State to declare it as such

2) In case of deterioration: (usually if property involved is consummable)

a) If there is fault of the debtor – option of creditor i. Rescission with damages

ii. Fulfillment with damages b) If there is without the fault of the debtor –

creditor bears impairment

3) In case of improvement: (accession) a) By nature – benefit the creditor b) At the expense of the debtor – apply the rules

governing Usufruct

Note: Right of the usufructuary – removal of the improvement

Note: These rules are applicable also to an obligation subject to a suspensive period Reminder: Like in fortuitous event, the kind of property involved in a prestation to give is also important. If specific thing is loss pending or before the happening of the condition, obligation is extinguished. If generic, since genus does not perish, it can still be substituted

2. According to number or plurality of parties: a. Joint – creditor can only demand from him his

own share; he cannot be compelled to perform the entire obligation

b. Solidary – only one can be compelled to perform the entire obligation, e.g., under the Family Code, Parental authority between the school, teacher and administrator; in Torts and Damages, with regard vicarious liability; under the Revised Penal Code, regarding the liability of co-principals, co-accomplices, and co-accessories; under 1945, liability of the bailees Rule: Unless expressly stipulated or when the law provides otherwise, presumption is joint (PRO-DEBTOR PROVISION)

Note:

a) Joint & indivisible obligation: To be fulfilled, there must be a common desire to perform their obligation. If one refuses, it will be converted into an indemnity for damages, so that the obligation may be quantified

b) In case of insolvency: If the obligation is joint, the other debtors will not be liable for the insolvent debtor's share

c) In case of remission or condonation: If the obligation is solidary, total remission will benefit all debtors; while, partial remission will only be reduce the amount of the obligation. Hence, the balance remains a solidary credit

3. According to prestations to be rendered or number of prestations:

a. Individual b. Multiple

i. Alternative ii. Facultative

ALTERNATIVE FACULTATIVE

There are several prestations due

Only one prestation due

Fulfilment of one prestation will extinguish the obligation

The debtor has the right not to perform the prestation that is due but to substitute it with another prestation

If one of the prestation becomes impossible, the obligation is not extinguished as long as there are other prestations available

If the substitute becomes impossible, it becomes an individual obligation

Note: In both, there is a choice to be exercised primarily by the debtor. If he does not exercise, the creditor or a third person may exercise the choice. In facultative, the choice only belongs to him. He cannot be compelled by the creditor to make a substitution (PRO-DEBTOR PROVISION)

4. According to the quality of an object: a. Positive (to perform) or negative (prohibited) b. Specific (determinate) or generic (indeterminate) c. Divisible or indivisible (whether it can be

performed partially or not) d. Principal or accessory (connect with contract as a

source of obligation) e. Obligation with a penal clause (usually

applicable in obligations arising from law and contracts) – serves as damages, but does not mean you are prohibited to claim additional damages

Rule: The law presumes that the obligation is indivisible (1233, 1248) except partly liquidated 1248, instalment contracts 1720, partially illegal

(PART 3) No record. Part 3 is copied from:

OUTLINE IN OBLIGATIONS AND CONTRACTS © J.TARROZA0809UST

MODE OF EXTINGUISHING AN OBLIGATION:

1. Payment/performance: 1232, 1236, 1237, 1238, 1240, 1241 Special forms of payment:

a. Dacion en pago 1245 - See ART1249. Conveyance of ownership of a thing as an accepted equivalent performance; not an ordinary way of extinguishing an obligation; payment by way of alienation of a property Read RA 8183: repealed RA529 “An Act to Assure the Uniform Value of Philippine Coin and Currency”

b. Application of payment 1252, 1254

Persons from whom creditor must accept payment (1236)

Persons to whom payment by debtor shall be made (1240)

DEBTOR CREDITOR

Any third person who has an interest

His successor in interest (heirs)

Any third person who has NO interest

Any person authorized to receive it

Requisites: 1) ONE debtor and ONE creditor 2) Two or more debts 3) Debts must be the same kind 4) The debts to which payment made by

the debtor has been applied must be due

5) Payment made must not be sufficient to cover all the debts

c. Payment by cession 1255 - it is the assignment

or abandonment of all the properties of the debtor for the benefit of the creditors Requisites:

1) TWO or more CREDITORS 2) Debtor must be (partially) INSOLVENT 3) The cession must be accepted by the

creditors

Effect: The debtor is still liable if there is a balance

DATION IN PAYMENT (1245) CESSION (1255)

Usually ONE creditor SEVERAL creditors

Does not presuppose insolvency of debtor

Insolvency of debtor is known

Does not involve ALL the property of debtor

Extends to all the property of the debtor subject to execution

Creditor becomes to owner of thing given by the debtor

Creditor only acquire rights to sell the thing

Act of novation Not an act of novation

d. Tender of payment and consignation 1256

Tender of payment: offering to the creditor the thing or amount due; always extrajudicial

Requisites for a valid tender of payment: 1) Tender of payment must comply with

the rules on payment 2) It must be unconditional and for the

whole amount. 3) It must be actually made

Consignation: the act of depositing the thing amount due with the proper court when the creditor does not desire or cannot receive it; always judicial

Requisites of a valid consignation:

1) Existence of a valid debt 2) Tender of payment by the debtor and

refusal w/o justifiable reason by the creditor

3) Previous notice of consignation to persons interested in the fulfillment of the obligation

4) Consignation of the thing or sum due 5) Subsequent notice of consignation made

to the interested parties Note:

a) tender of payment not necessary before the debtor can consign the thing due with the court

b) prior notice to persons interested is required otherwise it is void (ART 1257)

c) consignation, by depositing the thing/sum due with the proper judicial authority, is necessary to effect payment.

d) consignation is for the benefit of the creditor

e) See New Rent Control Law

2. Loss of the thing due 1262 - when it PERISHES, goes out of commerce, disappears & its existence is unknown

Loss of thing due extinguished an obligation to give 1) Thing to be delivered is a specific or determinate

thing 2) Loss of the thing occurs w/o the fault of the

debtor 3) Debtor is not guilty of delay

Loss of thing will not extinguish liability

1) When the law so provides (generic thing never perishes, genus nunquam perit)

2) When the stipulation so provides 3) When the nature of the obligation requires the

assumption of risk 4) When the obligation to deliver a specific thing

arises from a crime Note:

a) partial loss of a specific thing, the court is given the discretion in case of disagreement between the parties

b) presumption of fault in case of loss of thing in possession of debtor, except in natural calamities.

c) IMPOSSIBILITY: Legal impossibility (1266); and physical impossibility (1267)

(PART 4)

3. Condonation 1270

a. Gratuitous or an act of liberality. Hence, must comply with the formalities required for a donation

i. Personal property not more than P5,000 – oral or in writing coupled with delivery

ii. Personal property more than P5,000 – in writing; otherwise, void

iii. Real property – in a public instrument (necessary for the validity, not enforceability); otherwise, void

b. Requisites to be valid: i. Gratuitous – no consideration

ii. Accepted by the obligor iii. Due and demandable obligation

c. Total or partial – i. Total – benefits everybody

ii. Partial – principal obligation will be reduced and the balance spread out to solidary debtors

Note: Joint? No effect to the other co-joint debtors

4. Confusion – in the context of obligation, is the merger of personalities of the creditor or debtor into one person

a. Requisites: i. Merger in the person of the principal

creditor or principal debtor ii. Complete and definite

b. No partial confusion c. Not applicable in joint obligations

5. Compensation (legal) a. Requisites: PRI-MO-D-L-S

i. Principal debtors and creditors of each other

ii. Sum of money, or if consummable, are of the same kind and quality [fungible]

iii. Both debts are due iv. Debts are liquidated (determined or

certain) v. Neither subject to retention or

controversy

Q: Isn't is that money is already liquidated? Answer: It depends. If there is interest or penalty imposed, it is not yet certain unless such interest or penalty is already determined

b. In conventional compensation, it need not comply with all the requisites as it will be based on the agreement of the parties.

c. In judicial compensation, involves a case wherein there is another case involving the same parties and damages is awarded. Parties involved need not be aware of it

d. Cases where compensation is prohibited: i. Obligation arising from a deposit

Deposit: Delivery of property for safekeeping

ii. Obligation arising from commodatum Commodatum: Transfer of use and possession over a property. Bailee has the obligation to deliver or return the same property

iii. In cases of support by gratuitous title iv. In cases of civil liability ex delicto v. Damage caused to a partnership by a

partner vi. Obligation in favor of the government

Q: Is it possible for a creditor to assign his interest to a third person and still there can be compensation? Answer: 1285 contemplates three cases: (effect)

1) Assignment with the consent of the debtor – debtor cannot set up compensation unless he reserves the right at the time he gave his consent

2) Assignment with the objection of the debtor – compensation will be applicable to those that were due prior to the assignment

3) Assignment without the knowledge of the debtor – may set up compensation of all credits prior to the assignment and also later ones until he had knowledge of the assignment

Note: Reckoning point is acquisition of knowledge

6. Novation –

a. Change in the: (any of the three) i. Object or the principal condition

ii. Debtor iii. Creditor

b. Strictly speaking, it does not totally extinguish an obligation: one obligation is terminated, another obligation is created

c. Requisites: i. Old obligation

ii. New obligation iii. Substantial difference between the old

and the new obligation iv. Capacity of the parties v. Intention to extinguish

d. Novation is not presumed. Must be in unequivocal terms

e. Kinds: i. Real novation: There is a change in the

object (e.g., dacion en pago) ii. Personal novation: There is a change in

party 1) Of the debtor

a) expromission – without the knowledge and consent of the debtor

b) delegacion – with the consent of the debtor

Note: Important to know in cases when the new debtor is insolvent. In delegacion: if the insolvency of the new debtor happens prior to novation, it will give rise to the revival of the liability of the old debtor.

CONTRACTS

(PART 5) DEFINITION: 1305

1. Meeting of the minds 2. Whereby one or both of them would bind themselves 3. To give or to render service

Note: Connect to the definition of an obligation

Article 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)

STAGES IN THE FORMATION OF A CONTRACT:

1. Preparatory stage 2. Perfection or birth 3. Consummation

DIFFERENT KINDS OF CONTRACTS:

1. According to their perfection: 1315 a. Consensual – perfected by the meeting of the

minds with regard the object that is involved (e.g., sale)

Q: A offered to sell his land to B. After inspection, A and B agreed on the price. The next day, A received a better offer from C and sold it to him. Can B sue A? Answer: Yes. Sale is a consensual contract. When A and B agreed on the property and the purchase price, even if not reduced into writing, there is a sale that is perfected. Note, however, under property registration: the first registrant will have a better right. Property Registration Law, a special law, will prevail over the Civil Code, a general law

b. Real – perfected by the delivery of the property (e.g., commodatum, pledge)

c. Solemn – there is a formal requirement (e.g., deed of donation of a real property)

2. According to importance: a. Principal – can exist by itself b. Accessory – existence is dependent upon a

principal contract Note: If the principal contract is void, the accessory contract is also void. But not vice versa

3. According to the party obligated to perform or to render service:

a. Unilateral – only one of the parties have the obligation to perform (e.g., commodatum)

b. Bilateral (or reciprocal) -

4. According to equivalence of prestation: a. Gratuitous (e.g., commodatum, donation) b. Onerous – exchange of equivalent prestation c. Remuneratory -

ELEMENTS OF A CONTRACT:

1. Essential – without which there can be no contract 2. Natural – presumed existing (e.g., in sale, warranties in a

contract of sale) 3. Accidental – will only exist upon stipulation of the parties

E.g., In a sale of a real property in installments, instead of a contract to sell, it becomes a contract of sale. Note the distinction:

CONTRACT TO SELL CONTRACT OF SALE

Ownership will be dependent upon the fulfilment of the obligation, i.e., payment of purchase price

Ownership is transferred immediately

Q: Is the contract valid? Answer: Check first what kind of contract, whether consensual, real or formal: (elements for the validity of contracts)

If consensual contract: a) Consent b) Subject matter c) Cause of consideration

If real contract:

a) Consent b) Subject matter c) Cause of consideration d) Delivery of the thing

If formal contract:

a) Consent b) Subject matter c) Cause of consideration d) Formality required by law

BASIC PRINCIPLES APPLICABLE ON CONTRACTS:

1. Autonomy or liberty of contracts – parties are free to stipulate the terms and conditions of the contract provided, they are not contrary to law, public moral, good customs, public order, public policy

Note: This principle is NOT applicable in a contract of marriage except during an anti-nuptial agreement and only with respect to their property relations

2. Consensuality of contracts – perfected by mere consent

except real and formal contracts 3. Mutuality – must bind both parties and its validity and

compliance cannot be left to the will of one of the parties

4. Obligatoriness of contracts – obligations arising from contract have the force of law between the parties (1159). Thus, in case of amendment, both parties must

agree. Also, if one does not perform his obligation, the other can go to court and ask for specific performance

5. Relativity of contracts – the contract takes effect only between the parties, their assigns and heirs except stipulation pour atrui or stipulation in favor of a third person who is not an assignee or heir, but a stranger (Note that it is not the main focal point of the contract) Note:

a) Distinguish between real right and personal right b) In Succession, as a "mode of acquiring

ownership over property rights and obligations upon the death of the deceased." Property rights there refer to real rights

c) In a lease contract: Unless otherwise stipulated, the death of lessee is not a ground for pre-termination of the lease contract. Lease is a real right that is attached to the property

d) In usufruct: Unless otherwise stipulated, the death of usufructuary will not terminate the usufruct. It will be transferred to the heirs of the usufructuary

CONSENT – accord or coincidence of the desires and intent of the parties to the contract upon the subject matter and the cause (Castan) Note: How is consent manifested? Concurrence of offer and acceptance Contract by correspondents: 1319, par.2

a) Rule: As soon as offeror learns of acceptance of offeree b) Apply this rule even if the question uses text messaging

or electronic mail as means of expressing acceptance

Requisites of a valid offer (which, once accepted, will give rise to a perfected contract):

1. Definite 2. Complete 3. Intention on the part of the offeror to be bound

Example: In case of flyers of condominium units for sale: Although there is an intention on the part of the offeror to be bound, the first two requisites, however, are not yet met. The flyers are merely an invitation to make an offer to buy

Requisites of an acceptance (which will give rise to a perfected contract):

1. Unqualified or unconditional 2. Communicated to the offeror

Nature and effect of advertisement: If it involves a sale of a real or personal property, it is simply an invitation to make an offer Note: A counter-offer is a qualified or conditional acceptance Option money

1) Does not give rise to a contract of sale, but simply a perfected option contract Note: An option contract provides for a reasonable period within which to make a final decision, whether you will push thru with the buying of the property or not

2) It is a consideration for the waiting time of the seller Note: The Code is silent as to the amount, thus, P1 will be enough

3) Seller has no right to offer the same product to a third person within the agreed period

Earnest money 1) Gives rise to a perfected contract of sale 2) It forms part of the contract price

Note: Both option money and earnest money involve a delivery of money

(PART 6) VICES OF CONSENT: (grounds for annulment of contract)

1. Affecting cognition (intellectual faculty) a. Incapacity (e.g., 37, 38) b. Error or mistake 1331 c. Fraud 1338

2. Affecting volition (faculty of the will) a. Violence 1335 b. Intimidation 1335 c. Undue influence 1337

Error or mistake – inadvertent and excusable disregard of a circumstance material to the contract Note:

a) Mistake of fact, not mistake of law b) Good faith between the contracting parties

Fraud – insidious words or machinations whereby the other is induced to execute a contract

a) Fraud in the celebration of the contract (dolo causante) – the party would not have given his consent have he been aware of the fraud (ground for annulment)

b) Fraud in the execution of the contract or of the obligation (dolo incidente) (ground for damages)

Violence – in order to wrest consent, serious or irresistible force is employed (not limited to physical violence) Intimidation – grave threat Undue influence – improper advantage of one's power

Simulation of a contract – declaration of non-existent will made deliberately and by agreement by the parties (1345, 1346)

1. Absolutely simulated – no real intention to enter into a contract

2. Relatively simulated – parties intend to be bound to each other but the real intention is not reflected in the instrument

SUBJECT MATTER OR OBJECT 1347

1) Per se refers to the property (in a prestation to give) 2) It may also refer to the prestation (to give, to do, not to

do) which must be, among others, lawful and possible. Otherwise, debtor is relieved from his obligation

To be a valid object of a contract

1. It must be a property (USA) 2. Must be within the commerce of men

CAUSE OR CONSIDERATION – compelling reason that compelled you to enter into a contract Motive: Something that is incidental; it has nothing to do with the perfection or validity of the contract Note: Inadequacy of the cause will not invalidate the contract FORMALITIES OF A CONTRACT: (in case of formal contracts) Reminder: Memorize the enumerations under the Statute of Fraud Examples of formal contracts:

1) Donation of a real property 2) Donation of a personal property more than P5,000 3) Payment of interest 1956 4) Sale of a real property through an agent 1874 5) Antichresis 6) Contribution of a partner of a real property in a

partnership

Note: Formality is an essential element, without which, the contract is void

(PART 7) Contracts which must appear in a public document, not because it is necessary for validity but for enforceability – 1358 Article 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 are 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;

(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)

Article 1358 discussed

A. Contracts that need to be in a public instrument: 1) (CMET) "Real rights" – In relation to Property:

Real rights are those rights attached to real property (e.g., right to usufruct, to lease) exception under the Statute of Fraud 1403(2)(e): "The following shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing x x x" (not in a public instrument): If the lease contract is for more than one year, or for the sale of real property or of an interest therein Note: The law speaks of real right not real property

2) (WAR) waiver, assignment, repudiation of hereditary right or those of the conjugal partnership of gains Re: Waiver of hereditary rights – connect with Article 6

a. Right actually existing b. Knowledge c. Voluntary waiver

Hence, if made prior to the death of decedent. Waiver is not valid because the right is not yet actually existing

3) Power to administer property – SPA or GPA 4) E.g., accion subrogatoria

B. Contracts that need not be in a public instrument, but

shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing

Article 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:

(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 for 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.

Article 1403(2) discussed

b) "Guaranty" c) Ante nuptial agreements

Note: Connect the formal requirements of ante-nuptial agreement under the FC with the 1950 Civil Code provision which states that it is covered by the Statute of Fraud (the requirement that it be in writing is necessary only for enforceability) If asked in the bar, your answer may either be:

1) Option 1: Tolentino: Even if the FC does not anymore have a provision that expressly provides that such ante-nuptial agreement will be governed by the Statute of Fraud, it is still covered by the Statute of Fraud

2) Option 2: Sta. Maria: Since the FC provides that the ante-nuptial agreement SHALL be in writing to affect third persons, non-compliance therewith will render the ante-nuptial agreement void

C. Contracts where the amount involved exceeds five

hundred pesos must appear in writing, even a private one

REFORMATION OF AN INSTRUMENT: Remedy given to the parties so that the real intention, which is not expressed because of mistake, fraud, inequitable conduct or accident, will now be appearing in the contract that is reformed

Note: Applicable also to relatively simulated contract, but not to an absolutely simulated contract Cases where reformation is not applicable: 1366 (DWV) Article 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.

RESCISSIBLE CONTRACTS: 1381 (CGLAD) Article 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)

1191 1381

Person who can file: limited to the injured party (the one who performed his obligation)

Not limited to the parties to the contract but even a third person

Grounds: Non-fulfilment of the obli-gation

Lesion or Fraud of creditors

There is a period for compliance

No period for compliance

Note: 1191 refers to reciprocal obligations (performance of one will give rise to the delay on the part of the other). 1380 may be a unilateral or a reciprocal obligation Prescriptive period: 4 years from the celebration of the contract except 1389

1. 1381(1): from termination of incapacity 2. 1381(2): from the time the domicile of the absentee is

known Effect of rescission:

1. 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 Note: The obligation to deliver includes the delivery of the accessories and accessions

2. If the return is not possible, pay indemnity for damages. Such indemnity for damages shall be "in lieu of the fruits and the interest which cannot be returned"

3. If there are several alienations, the first acquirer shall be liable first

VOIDABLE CONTRACTS:

VOID VOIDABLE

Can be assailed by the parties or third persons

Can only be assailed only the parties

Cannot be ratified/confirmed Can be ratified/confirmed

Does not prescribe Prescribes, generally, in 4 years

Violation of public policy Presence of a vice of consent: Threat, intimidation, undue influence, fraud

Void ab initio or from the very beginning, there was no contract

Valid until annulled

Note: These are the general distinctions; if there is a special law governing such contract, the latter shall prevail Grounds for annullment: (Ate VI)

1. Vitiated consent 2. Incapacity

Note: Prescribes in 4 years from cessation of duress, from discovery of fraud, from removal of incapacity not from the perfection of contract Effects of annulment of contracts:

1. Contract not yet performed: Parties are just released from their obligations

2. Contract already performed: Mutual restitution Note: "Mutual restitution" –

a) To give – return of property with fruits or of payment

b) To do – in the form of damages Ratification: Retroacts from the time the contract was entered into and purges the contract from any defect UNENFORCEABLE CONTRACTS: Contract is valid but it is only unenforceable (cannot go to court) Remedy: To compel the other party to reduce into writing Classes: 1403

1. Those covered under the Statute of Frauds 2. Those in excess of authority (applicable in contract of

agency) 3. Those where both parties are incapacitated (37, 38 CC)

VOID CONTRACTS: 1409 Imprescriptible except if laches or estoppel has set in Note: Under the FC, the absence of any of the essential or formal requisites will make the contract of marriage void SUMMARY OF FOUR DEFECTIVE CONTRACTS

VOID V R U

As to Cause:

Absence of any essential or formal elements

Vice of con-sent

Lesion or da-mage suffered

Lack of for-mality, failure to comply with the statute of fraud, lack of authority, lack of capacity of the parties

Prescription:

Imprescrip-tible

4 years in general; 5 years in marriage

4 years No prescrip-tion because there is no right to go to court

Ratification:

Cannot be ra-tified

Can be ra-tified

Need not be ratified

Can be ra-tified

Not valid and binding

Valid and binding until annulled

Valid and binding unless rescinded

Valid although unenforceable, thus binding

(PART 8)

No record. Refer to other topics in: OUTLINE IN OBLIGATIONS AND CONTRACTS

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