FOURTH EDITION

OBLIGATIONS

2020 FEATURES: Simplified Examples True Or False Questions Multiple Choice Questions Real-life Illustrative Cases

0 Preliminary Examination Midterm Examination ) Final Examination

COACHING FOR RESULTS ATTY. ANDRIX D DOMINGO. CPA. MBA

FOURTH EDITION

O_BLIGATIONS • CONTRACTS /os, {9hiniptes 6 gr@spructne

Philippine Copyright, 2020

by

ANDRIX D. DOMINGO

ISBN: 978-621-95242-9-2

&9 No part of this book may be reproduced in any form or any means

without the written permission of the author.

Any copy of this book without the signature of the author in colored pen on this page either proceeds from an illegitimate source or is in possession of one who has no authority to dispose of the same.

ALL RIGHTS RESERVED

Published by: COACHING FOR RESULTS PUBLISHING #02 Ampucao, Itogon, Benguet buslaw1234@gmail.com

ABOUT THE AUTHOR

ATTY. ANDRIX DANG-OWAN DOMINGO, CPA, MBA

Present and Former CPA Reviewer /Special Lecturer In REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS (RFBT)

The Review School of Accountancy, Inc. (ReSA), Manila Philippine Accountancy Review for Excellence, Manila Saint Paul School of Professional Studies, Palo, Leyte

University of Cebu, Cebu City University of San Carlos, Cebu City

University of San Jose-Recoletos, Cebu City University of the Visayas, Cebu City

St. Joseph College, Maasin City Far Eastern University, Silang, Cavite

Emilio Aguinaldo College, Dasmariras City University of Baguio, Baguio City

University of the Cordilleras, Baguio City Urdaneta City University, Urdaneta City

Collegio de Dagupan, Dagupan City ·'· University of Luzon, Dagupan City

University of Pangasinan, Dagupan City ' Nueva Ecija Training and Review Center, Cabanatuan City ,

Pampanga CPA Review, Angeles City CPA Review and Training Center, Urdaneta City Nation's Foremost CPA Review, Inc., Baguio City Dagupan Accountancy Review, Dagupan City King's College of the Philippines, Benguet

Southern Mindanao Academic Review & Training Services, Davao City General Santos City and Cagayan de Oro City

Center of Excellence for Review and Training Services, Davao City, Cebu City and Butuan City

Hearing Officer Legal Services Division, Civil Service Commission

Former School of Law Professor University of Baguio, Baguio City

Cordillera Career Development College, Benguet

Former Trial Lawyer Domingo Law Office, Baguio City

PREFACE (2020 edition)

This humble work is intended primarily for accountancy students, business students and Certified Public Accountant (CPA) board examination candidates. This work. however, could likewise provide a good material for students of law.

Simplified examples were incorporated and decisions of the Supreme Court were digested in a simple manner which serve as a tool for easier comprehension of the pertinent articles.

Definition of terms used in the different articles were incorporated to enable the readers to appreciate and comprehend well the meaning of the law.

This book Is published in the hope that this humble work will be of great help to readers.

True or False Questions and Multiple-Choice Questions were provided at the end of chapters for purposes of review.

I want to express my gratitude and appreciation for the valued persistent assistance and support rendered by my friends Sunshine, Anaflor, Irene, Amie, Albert, Floyd, Marie, and my brothers Atty. Warden, Christian and Ronaldo.

I want to express my heartfelt gratitude to my loving wife, Pinky, my lovely daughters, Xyanne and Xyra, Mama Conchita, my sisters-in-law, my friends, colleagues, students, and relatives who have helped me in writing this book.

Special thanks to Mama Lerina and Papa Francisco, my parents-in­ law, and to all relatives who played with Xyanne and Xyra while I was writing this book.

... and to God be the glory!

Andrix D. Domingo

CONTENTS

About the Author Preface

Title I - OBLIGATIONS

CHAPTER 1 GENERAL PROVISIONS What is obligation? What is a right? Meaning of Civil Action Meaning of Cause of action What is a complaint? What Is REAL OBLIGATION (obligation to give) What is PERSONAL OBLIGATION ( obligation to do and not to do) Essential elements of an obligation Sources of obligation What is law? What is a contract? What is quasi-contract? Kinds of Quasi-Contracts What is Delict or Acts or Omissions Punished by Law? Civil Liabilities In Delict Quasi-delicts Elements of Negligence Kinds of Negligence Good faith The Rules on Negotiorum Gestio The Rules on Solutia Indebiti The Rules on Other Quasi-Contracts What is "Diligence of a Good Father of a Family"? The Rules on Delicts The Rules on Quasi-Delicts Requisites of Quasi-Delict Negligence Definition of proximate cause True or false questions Multiple choice questions

CHAPTER 2 NATURE AND EFFECT OF OBLIGATIONS What is specific or determinate thing? What is generic or indeterminate thing Obligations of the Debtor or Obligor in Real Obligation Rights of the Creditor in Real Obligation What is diligence? What is extraordinary diligence?

Pages 1 1 1 2 2 2 3 3 4 s s 7 8 9 11 11 13 13 13 15 17 19 21 22 23 28 31 32 32 36 36

41 41 41 41 42 42 42

DILIGENCE REQUIRED IN REAL OBLIGATION (obligation to 42 give) Meaning ofdelivery 47 Kinds of delivery 47 Personal right vs. Real Right 48 Kinds of Fruits 48 What is the concept of Specific performance In specific real 49 obligation? What is reciprocal obligation? Accessions vs. Accessories Rights of the Creditor or Obligee in Personal Obligations When does delay begin? When is judicial or extrajudicial demand not necessary? What is meant by mora or delay? Kinds of Mora or Delay Injury vs. Damage vs. Damages Kinds of breach of the obligation Different Modes of Voluntary Breach of the Obligation Fraud Kinds of Fraud Dolo Causante vs. Dolo incidente Fraud and Bad Faith, Distinguished Fraud (Dolo) vs. Negligence (Culpa) Kinds of Negligence Culpa Contractual vs. Culpa Aqulliana Culpa Contractual vs. Culpa Aquiliana vs. Culpa Criminal Delay or Default or Mora Kinds of Delay Mora Solvendi Mora Accipiendi Compensatio Morae Contravention of the tenor of the obligation KINDS OF DAMAGES UNDER THE CIVIL CODE Actual or Compensatory Damages Moral Damages Nominal Damages Temperate or Moderate Damages Liquidated Damages Exemplary or Corrective Damages What is waiver? What is an action? What is NEGLIGENCE? What is Bad Faith? What is FORTUITOUS EVENT? Act of God distinguished from Act of Man Ordinary Fortuitous Event vs. Extraordinary Fortuitous Event Elements of Fortuitous Event

50 53 57 57 58 59 60 64 64 64 64 64 65 65 66 66 66 67 74 74 74 75 77 78 79 79 79 80 80 81 81 82 82 84 85 91 91 91 92

Exceptions to the Rule that no person shall be responsible for 98 fortuitous events What ls the doctrine of assumption ofrisk? 100 Meaning of Presumption 102 Kinds of Presumption 103 Disputable Presumption 103 Conclusive Presumption 106 True or false questions 109 Multiple choice questions 111

CHAPTER 3 DIFFERENT KINDS OF OBLIGATIONS Primary Classification of Obligations under the New Civil Code Secondary Classification of Obligations under the New Civil Code Section 1 Pure and conditional obligations Pure obligation Conditional obligation Condition Classification of Conditions Suspensive Condition Resolutory Condition Suspensive condition vs. Resolutory condition Potestative condition Casual condition .O Mixed condition What is the rule in a mixed conditional obligation? Possible condition Impossible condition Positive condition Negative condition Divisible condition Indivisible condition Conjunctive condition Alternative condition Express condition Implied condition Period Potestative condition Impossible condition KINDS OF IMPOSSIBLE CONDITIONS What is a positive condition What is a negative condition Doctrine of Constructive Fulfillment of Suspensive Condition Requisites of the doctrine of constructive fulfillment of suspensive condition Principle of retroactivity in suspensive condition Loss, explained

124 124 125 127 127 127 127 128 128 130 130 131 131 131 131 131 131 132 132 132 132 132 132 132 132 132 136 140 140 142 144 145 145

148 154

Rules In case of loss, deterioration, or Improvement of the thing 155 pending the happening of the condition in obligation to give Usufruct, explained 156 Usufructuary, explained 157 Rights of the usufructuary 157 WHAT IS RESCISSION? 161 Reciprocal obligation, explained 162 What is mutual restitution? 163 ALTERNATIVE REMEDIES OF INJURED PARTY 166 Section 2 Obligations with a Period 172 Obligation with a Period 172 Day certain, meaning 172 Term or Period 172 CONDITION VS. TERM OR PERIOD 173 Kinds of Period or Term 173 Suspensive period (Ex Die) 173 Resolutory period (In Diem) 173 Period has been established in favor of the debtor 179 Period has been established in favor of the creditor 179 When debtor loses the right to make use of period? 181 Section 3 Alternative obligations 183 Simple Obligation ~ • 183 Compound Obligation -' 183 Kinds of Compound Obligation ~ 183 Conjunctive obligation 183 Distributive obligation 183 Kinds of Distributive Obligation 183 Alternative Obligation 183 Facultative Obligation 184 Effects of loss of objects of alternative obligation when choice 187 belongs to debtor Effects of loss of objects of alternative obligation when choice 189 belongs to creditor Facultative obligation 191 ALTERNATIVE VS. FACULTATIVE OBLIGATION 192 Section 4 Joint and Solidary Obligations 193 Joint obligation 193 Effects of Joint obligation 194 Solidary obligation 195 JOINT OBLIGATION VS. SOLIDARY OBLIGATION 196 SOLIDARY DEBTOR VS. GUARANTOR 196 Joint Indivisible Obligation 200 Characteristics of Joint Indivisible Obligation 201 INDIVISIBILITY AND SOLIDARITY DISTINGUISHED 202 Kinds of Solidarity 203 Effects of beneficial acts and prejudicial acts of a solidary 206 creditor

Effect of demand against one of the solldary debtors Effects of payment by a solidary debtor What is suretyship contract? Solidarity and Surety distinguished Effect of payment by a solidary debtor after the obligation has prescribed or become illegal Rule in case the thing has been lost or If the prestation has become impossible without the fault of one of the solidary debtors Rule in case the thing has been lost or If the prestatfon has become impossible through the fault of the solidary debtors Rule in case the thing has been lost of if the performance has become impossible through fortuitous event but after one of the solidary debtors has incurred legal delay Defenses available to a solidary debtor Section 5 Divisible and Indivisible Obligations Divisible obligations Indivisible obligations Kinds of Divisions Effect of breach of a joint indivisible obligation Obligations deemed indivisible Divisibility or indivisibility in obligations not to do Section 6 Obligations with a Penal Clause Penal clause What is an accessory obligation? When is the penalty demandable? Penalty in relation to the concept of mora or delay Purposes of penal clause Functions of penal clause KINDS OF PENALTY Effect of Penalty Is there a distinction between a penalty and liquidated damages? Limitation on the part of the debtor In obligations with a penal clause Limitation on the part of the creditor In obligations with a penal clause Penalty may be reduce by the courts Effect of nullity of the penal clause Effect of nullity of the principal obligation True or false questions Multiple choice questions

CHAPTER 4 EXTINGUISHMENT OF OBLIGATIONS General provisions Section 1 Payment or performance Payment Receipt and voucher, distinguished

210 213 214 214 217

220

220

220

221 222 222 222 222 223 224 225 225 225 225 226 226 227 227 227 228 228 229

229

231 233 233 234 236

255 255 256 256 256

Requisites of payment Principle of Integrity Substantial performance doctrine To whom payment must be made Effect of payment to an Incapacitated person What is dacion en pago? Requisites of dacion en pago When is a debt liquidated? Rules in payment of debts in money What is legal tender? What is inflation? Requisites of extraordinary Inflation Place of payment of the obligation SPECIAL FORMS OF PAYMENT Subsection 1 Application of payments What is application of payment? Requisites of application of payment Rules on application of payments Subsection 2 Payment by cession What is payment by cession? Requisites of payment by cession ~ , Effect of payment by cession DATION IN PAYMENT AND PAYMENT DISTINGUISHED

257 261 262 269 272 277 278 280 281 282 283 284 286 287 288 288 289 289 297 297 297 297

BY CESSION, 298

Subsection 3 Tender of Payment and Consignation 298 What is tender of payment? 299 Consignation 299 Requisites of consignation 300 Rationale for consignation 301 Tender of payment distinguished from consignation 303 Effect if Consignation has been duly made 307 Effects if after consignation, the debtor withdraws with the 309 authority of the creditor Section 2 Loss of the thing due 310 Effect of fortuitous loss in a generic obligation 312 What is the doctrine of unforeseen events? 315 Effect if obligation proceeds from a criminal offense 317 Section 3 Condonation or Remission of the Debt 318 Condonation or remission 318 Requisites of condonation or remission 319 Kinds of Remission or Condonation 320 Section 4 Confusion or Merger of Rights 326 Confusion or merger 326 Requisites of confusion or merger 326 Section S Compensation 328 Compensation distinguished from confusion 328 Kinds of Compensation 328

Debt vs. claim Right of guarantor to set up compensation Kinds of compensation as to effect Conventional or voluntary compensation Requisites of conventional compensation Legal compensation vs. Conventional compensation Judicial compensation DEBTS WHICH CANNOT BE COMPENSATED Section 6 Novation What is novation? Is there a form required in Novation? Novation is not presumed Kinds of Novation Test of Incompatibility Total Novation vs. Partial Novation Kinds of Personal Novation Kinds of Substitution Expromision Delegacion Effect of novation of a principal obligation on accessory obligations Effect of novation where the new obligation is void Effect of novation where the old obligation is void Subrogation Kinds of Subrogation Conventional subrogation and assignment of rights, distinguished What is legal subrogation? True or false questions Multiple choice questions

333 335 336 338 338 339 339 342 347 347 348 348 348 350 351 355 356 356 356 361

361 362 363 363 363

365 367 370

TITLE II CONTRACTS

CHAPTER 1 GENERAL PROVISIONS Essential Elements of a Contract Classification of contracts Contract of Adhesion What is autonomy of contracts or freedom of contract? What is nominate contract? What is innominate contract? Kinds of innominate contract Rules on innominate contracts Principle of mutuality of contracts Purpose of mutuality principle Relativity of contracts Four Exceptional cases to the principle of relativity of contracts Requisites of stipulation pour autrui

386 386 387 390 392 395 395 395 396 398 399 404 405 408

What is tort interference? 411 Elements of tort interference 412 Stages in the life of a contract 414 Effect of judicial approval of a contract 415 CLASSIFICATION OF CONTRACTS ACCORDING TO THEIR 416 PERFECTION Consensual contract Real contract Formal Contract or Solemn Contract Effects of perfection of the contract Effect of an unauthorized contract True or false questions Multiple choice questions

CHAPTER 2 ESSENTIAL REQUISITES OF CONTRACTS General Provisions Elements of a contract Essential elements Natural elements Accidental elements Section 1 Consent Consent Offer Policitacion Counter-offer Acceptance by letter or telegram Consent of Corporation What is option? Persons incapacitated to give consent What is lucid interval? Vices of consent Characteristics of Consent Vice of consent in a compromise agreement approved by the court What is mistake? Effect of simple mistake of account Mistake of Fact and Mistake of Law, distinguished Violence Requisites of violence Intimidation Requisites of intimidation Elements to consider in determining the degree of intimidation Threat to enforce one's just or legal claim Violence or intimidation employed by a third person What is undue influence? What is Fraud? What is Dolo causante or causal fraud?

416 417 417 419 419 422 423

431 431 431 431 431 432 435 435 435 435 436 436 436 437 439 441 441 441 442

443 443 445 451 451 451 452 452 452 452 453 455 455

Dolo incidente or Incidental fraud Dolo causante or causal fraud and Dolo Incidente or Incidental fraud, distinguished Requisites of Causal Fraud Principle of concealment What is fraud? The Degree of Evidence Needed to Prove the Existence of Fraud Fraud and Bad faith, distinguished What is absolute simulation? What is relative simulation? Section 2 Object of Contracts Kinds of object of contracts What is future inheritance? Section 3 Cause of Contracts What is Cause? Cause and Consideration, distinguished Cause and motive, distinguished True or false questions Multiple choice questions

CHAPTER 3 FORM OF CONTRACTS Form for validity of contract ~ Form for enforceability of contract Form for greater efficacy or convenience of contract What is a pubic document? Multiple choice questions ~

CHAPTER 4 REFORMATION OF INSTRUMENTS What is reformation? Requisites of reformation Interpretation and reformation, distinguished Instruments that cannot be reformed Multiple choice questions

CHAPTER 5 INTERPRETATION OF CONTRACTS What is interpretation? Plain meaning rule and Four corners rule Intention of the parties The whole and every part of a contract must be considered Complementary contracts construed together doctrine or No­ segregation principle True or false questions Multiple choice questions

CHAPTER 6 RESCISSIBLE CONTRACTS What is Rescission? Effect of Rescission

455 455

456 458 462 462 463 463 463 465 465 466 470 470 470 471 476 476

487 487 487 487 490 492

49 4 49 4 495 495 498 499

502 502 502 504 508 511

518 518

523 523 523

Cancellation of a contract and its rescission, distinguished 524 Rescission in Article 1191 and Rescission in Article 1381, 526 distinguished Who is award? 528 Who is an absentee? 528 What is subsidiary remedy? 530 What is mutual restitution? 533 To rescind, meaning 533 What is accion pauliana? 535 Presumption of fraud is not conclusive 537 Badges of fraud, explained 537 Prescriptive Period for Action for Rescission 541 True or false questions 543 Multiple choice questions 543

CHAPTER 7 VOIDABLE CONTRACTS 550 What are voidable contracts? 550 Void and voidable contracts, distinguished 550 Vices of consent 551 What is ratification? 553 Requisites of Ratification or Confirmation 553 RESCISSION VS. ANNULMENT 554 Action for annulment of contract and action for nullity of 554 contract, distinguished Effects of Ratification • 557 True or false questions ~ 565 Multiple choice questions 565

CHAPTER 8 Unenforceable contracts 569 What are unenforceable contracts? 569 What are unauthorized contracts? 570 Why does the law require that a contract be in some form? 570 Effect when the required form is for enforceability 570 What is statute of frauds 570 Purpose of statute of frauds 571 Statute of frauds is applicable only to executory contracts 571 Right of first refusal not among those listed under the Statute of 574 Frauds Oral partition not among those listed under the Statute of Frauds 574 What is parol evidence? 576 True or false questions 581 Multiple choice questions 581

CHAPTER 9 VOID AND INEXISTENT CONTRACTS 587 Void or inexistent contract, defined 587 Rescissible contract and void contract, distinguished 587 Void contract and voidable contract, distinguished 588

Simulated contract, explained 589 Absolutely simulated contract 589 Relatively simulated contract 590 Effect of contracts expressly prohibited or declared void by law 593 Action for annulment of contract and action for declaration of 595 nullity of contract, distinguished What is the principle ofin parl dellcto or In equal fault 598 Exceptions to the rule on In paridelicto 599 True or false questions 612 Multiple choice question 613 PRELIMINARY EXAMINATION 621 MIDTERM EXAMINATION 639 FINAL EXAMINATION 659