LECTURE AID OBLIGATIONS OBLIGATION a juridical necessity to give, to do or not to do Personal vs. Real Obligation Personal vs.

s. Real Right Personal vs. Real Defense Personal vs. Real Property SOURCES OF OBLIGATIONS 1. Law (obligation ex lege) 2. Contracts (obligation ex contractu) 3. Quasi-contracts a. Negotiorum gestio voluntary management of the property or affairs of another without the knowledge or consent of the latter b. Solutio indebiti juridical relationship which is created when something is received when there is no right to demand for it and it was delivered through mistake 4. Delicts (crimes or acts or omissions punishable by law) 5. Quasi-delicts (culpa aquiliana or torts) REQUISITES 1. Passive subject known as the obligor or debtor 2. Active subject known as the obligee or creditor 3. The fact, prestation or service constituting the object of the obligation 4. juridical or legal tie RELATED TERMS: 1. Specific or determinate thing a thing which is particularly designated or physically segregated from all of the same class. 2. Generic or indeterminate thing a thing which refers only to a class or genus to which it pertains and cannot be pointed out with particularity. 3. Accessions fruits of a thing or anything produced by it, attached or incorporated thereto as an addition or improvement. Kinds: Natural, Industrial and Civil 4. Accessories things joined to the principal thing for its Better use, Embellishment or Completion RULE: The creditor shall be entitled to the fruits of the thing at the time the obligation to the principal thing arises. However the creditor will acquire real right or ownership over the fruit only after the same has been delivered to him. OBLIGATIONS OF THE DEBTOR: In obligation to give determinate things: 1. specific performance; 2. take care of the thing with the proper diligence of a good father of a family; (unless another degree of diligence will be required by law or stipulation of the parties) 3. deliver all accessions and accessories of the thing even though they may not have been mentioned; 4. pay damages in case of breach of the obligation by reason of delay, fraud, negligence or contravention of the tenor thereof. In generic obligations: 1. deliver the thing which is neither of superior nor inferior quality; 2. to pay damages in case of breach of the obligation by reason of delay, fraud, negligence or contravention of the tenor thereof. CIRSUMSTANCES AFFECTING OBLIGATIONS RULE: A person in the performance of his obligation will be liable to pay DAMAGES in case he will be guilty of: Delay. Fraud, Negligence or Contravention of the tenor of the obligation (breach of obligation) DELAY (Mora) Kinds: a. Mora Solvendi delay on the part of the debtor b. Mora accipiendi delay on the part of the creditor c. Compensatio morae delay on the part of both parties in reciprocal obligations GENERAL RULE: Demand (judicial/extra-judicial) is necessary before one incurs in delay.

EXCEPTIONS: 1. the law expressly so declares; 2. the obligation itself so stipulates; 3. time if of the essence; 4. demand is useless as when obligor has rendered it beyond his power to perform; 5. when there is performance by a party in reciprocal obligations FRAUD (Dolo) must be present during the performance of the obligation and not fraud at the time of the birth of the obligation. Kinds of Dolo: 1. Dolo Causante casual fraud, vitiating consent 2. Dolo incidente incidental fraud, giving rise to the right to demand damages NEGLIGENCE (Culpa) Consists in the omission of that diligence which is required by the nature of the obligation corresponding to the circumstances of the person, of the time and of the place. TEST: Diligence of a good father of a family. Kinds of Negligence: 1. Culpa contractual 2. Culpa criminal 3. Culpa aquiliana FRAUD 1. Deliberate intention to cause damage or injury 2. Waiver of the liability for future fraud void 3. Must be clearly proven 4. Liability cannot be mitigated or reduced by courts NEGLIGENCE 1. No such intention exists 2. Waiver of future negligence may be allowed in certain cases 3. Can be presumed from the violation of a contractual obligation 4. Liability may be reduced according to the circumstances

BREACH OF OBLIGATIONS: Kinds: 1. Voluntary debtor or obligor is liable for damages if the debtor or obligor in the performance of his obligation is guilty of: a. Default (mora) b. Fraud (dolo) c. Negligence (culpa) d. In any manner contravene the nature thereof RIGHTS OF THE CREDITOR: In determinate obligations: 1. ask for specific performance; 2. damages, exclusive or in addition to specific performance. In generic obligations: 1. ask for specific performance; 2. ask that the obligation be complied with at the debtors expense; 3. damages. 2. Involuntary debtor is not liable for damages. FORTUITOUS EVENT events that cannot be foreseen or although foreseeable are inevitable Essential characteristics: 1. cause is independent of the will of the debtor; 2. the event must be unforeseeable or unavoidable; 3. occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; 4. the debtor must be free from any participation in the aggravation of the injury resulting to the creditor.

GENERAL RULE: No liability in case of fortuitous event EXCEPTIONS: 1. when expressly declared by law; 2. when expressly declared by stipulation; 3. when the nature of the obligation requires the assumption of risk 4. when the debtor has incurred in delay or is guilty of fraud, negligence or contravention of the tenor of the obligation 5. when he has promised to deliver the same thing to 2 or more different persons who do not have the same interest; 6. when the thing to be delivered is indeterminate/generic 7. when the obligation to deliver a specific thing arises from a crime. RELATED RULES: 1. all rights acquired by virtue of an obligation are transmissible Exceptions: a. when the law prohibits the transfer of rights b. when the stipulation of the parties prohibits the transfer of rights 2. the creditor has the following remedies to satisfy his claims against his debtor: a. exact fulfillment b. pursue the leviable properties of the debtor c. accion subrogatoria exercise all rights and actions of the debtor except those which are inherent in his person d. accion pauliana rescind contracts entered into by the debtor to defraud the creditor PRESUMPTIONS: (disputable) 1. when the creditor received the principal amount of an obligation without reserving his right with respect to the interest, it is presumed that said interest has been paid. 2. when the creditor received a later installment of a debt without reserving his right as to the prior installments, it is presumed that such prior installments have been paid KINDS OF OBLIGATIONS unilateral and bilateral determinate and generic civil and natural

real and personal positive and negative legal and conventional

PRIMARY CLASSIFICATION - an obligation which is not subject to any condition, no specific Pure obligation date is mentioned for its fulfillment; demandable at once. RULE: an obligation is demandable at once a. when it is pure b. when it is subject to a resolutory condition c. when it is subject to a resolutory period Conditional obligation An obligation which is subject to the fulfillment of a condition Characteristics of a condition: a. future and uncertain b. past but unknown c. must not be impossible Two principal kinds of condition: 1. Suspensive condition (condition precedent or condition antecedent) or one the fulfillment of which will give rise to an obligation. 2. Resolutory condition (condition subsequent) or one the fulfillment of which will extinguish an obligation. Suspensive Condition 1. If fulfilled, obligation arises or becomes effective 2. If NOT fulfilled, NO juridical relation is created 3. Rights are not yet acquired, but there is hope or expectancy that they will soon Resolutory Condition 1. If fulfilled, obligation is extinguished 2. If NOT fulfilled, juridical relation is consolidated 3. Rights are already acquired, but subject to the threat or danger of

be acquired

extinction

Other kinds: a. Possible capable of fulfillment, legally or physically b. Impossible if the condition is not capable of fulfillment, legally or physically c. Positive an act is supposed to be performed d. Negative an act is supposed to be omitted e. Potestative the condition depends upon the will of one of the contracting parties f. Casual the condition depends upon chance or upon the will of a third person g. Mixed the condition depends partly upon chance and partly upon the will of a third person Rules in case of imposition of impossible conditions 1. suspensive positive impossible condition shall annul the obligation Exceptions: a. pre-existing obligations; b. if obligation is divisible; c. in simple and remuneratory donation; d. in testamentary disposition; e. in case of conditions not to do an impossible thing 2. suspensive negative impossible condition obligation is valid, implied fulfillment of condition. Retroactive effect of the fulfillment of a condition: 1. LOSS a. Without debtors fault obligation is extinguished b. With debtors fault debtor pays damages There is loss when the thing: a. Perishes; b. Goes out of commerce; c. Disappears in such a way that its existence is unknown or it cannot be recovered 2. DETERIORATION a. Without debtors fault impairment to be borne by the creditor b. With debtors fault creditor may choose between the rescission of the obligation and its fulfillment with indemnity for damages in either case 3. IMPROVEMENT a. By the things nature or by time improvement shall inure to the benefit of the creditor b. At the debtors expense debtor shall have no other right than that granted to a usufructuary Obligation with a period An obligation with a period is one whose consequences are subjected in one way or another to the expiration of said period or term. A period is a future and certain event upon the arrival of which the obligation subject to it either arises or is terminated. In an obligation with a period, it is presumed that the period have been established for the benefit of both the debtor and the creditor unless from the tenor or other circumstances of the obligation, it should appear that the period was established in favor of either the debtor or the creditor. PERIOD 1. Certain event 2. Refers to the future 3. Merely fixes the time for the efficaciousness of an obligation 4. Arrival of a period does not have any retroactive effect, absent any agreement to the contrary 5. If the period depends upon the will of the debtor, the court will fix the duration of the obligation CONDITION 1. Uncertain event (it may or may not happen) 2. Refers to a future event and an unknown past event 3. Causes an obligation to arise or cease 4. The happening of a condition has a retroactive effect 5. If the fulfillment of the condition depends upon the sole will of the debtor, the obligation is void

WHEN THE DEBTOR LOSES THE RIGHT TO MAKE USE OF THE PERIOD 1. debtor becomes Insolvent unless he gives a guaranty or a surety for the debt; 2. debtor fails to furnish creditor the Guaranties promised; 3. debtors own acts has Impaired said guaranties, or when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory 4. debtor Violates any undertaking, in consideration of which the creditor agreed to the period 5. debtor attempts to Abscond Alternative obligation an obligation where several prestations are due but the performance of one is sufficient General rule: the right to choose the prestation belongs to the debtor Exceptions: 1. it may be exercised by the creditor but only when it was expressly granted to him; 2. by a third person when the right is given to him by common agreement of the parties. Limitations: 1. the debtor cannot choose those prestations which are: a. impossible; b. unlawful; c. which could not have been the object of the obligation 2. the debtor has no more right to choose when, among the prestations whereby alternatively bound, only one is practicable. 3. the debtor cannot choose part of one prestation and part of another prestation. Facultative obligation an obligation where only one prestation has been upon but the obligor may render another in substitution. Effect of loss in facultative obligations: 1. before substitution if the principal thing is lost through a fortuitous event, the obligation is extinguished; otherwise the debtor is liable for damages. The loss of the thing intended as a substitute with or without the fault of the debtor does not render him liable. 2. after substitution if the principal thing is lost, the debtor is not liable whatever may be the cause of the loss, because it is no longer due. If the substitute is lost, the liability of the debtor depends upon whether or not the loss is due to his fault. Facultative obligations 1. Only one object is due 2. May be complied with any substitution of one that was due 3. Choice pertains only to the debtor 4. Fortuitous loss of prestation extinguishes the obligation 5. Culpable loss of the original obliges the debtor to deliver substitute prestation without liability to the creditor Alternative obligations 1. Several objects are due 2. May be complied with by fulfilling any of those alternately due 3. Choice pertain even to the creditor or a 3rd person 4. Fortuitous loss of all prestations will extinguish the obligation 5. Culpable loss of any object due will give rise to liability to the creditor

Joint obligation An obligation where the whole obligation is to be paid or fulfilled proportionately by the different debtors and/or is to be demanded proportionately by the different creditors. Words used to indicate joint liability: Mancomunada; mancomunadamente; pro rata; proportionately; separately; we promise to pay signed by two or more persons RULES: 1. insolvency of one debtor does not make the others liable for his share 2. vitiated consent on the part of one debtor does not affect consent of the others

Solidary obligation an obligation where each one of the debtors is bound to render, and/or each one of the creditors has a right to demand from any of the debtors, entire compliance with the prestation Words to indicate solidary liability: Solidaria; in solidum; together and/or separately; individually and/or collectively; jointly and/or severally; I promise to pay signed by two or more persons General rule: obligation is presumed to be joint if there is concurrence of two or more debtors and/or two or more creditors in the same obligation. Exception: there is solidarity only when: 1. the stipulation of the parties expressly so states; 2. the law requires solidarity; 3. the nature of the obligation requires solidarity Kinds of Solidarity: 1. active creditors 2. passive debtors 3. mixed creditors and debtors RELATED RULES: 1. the insolvency of one of the debtors will obligate the others to shoulder his share in proportion to their respective obligation 2. a solidary debtor paying the entire obligation shall be entitled to reimbursement plus interest computed as follows: a. if paid at or after maturity, interest shall run from the date of payment until reimbursement is made. b. If paid before maturity, interest shall run from the date of maturity until reimbursement is made 3. remission or condonation of the share of one of the creditors will not affect his liability as a solidary debtor 4. remission of the entire obligation in favor of one of the creditors shall NOT give rise to the right to demand reimbursement from the other debtors 5. remission that will take place after payment was made by one of the debtors will not bar the debtor who made the payment from demanding reimbursement 6. payment made by one of the debtors after the prescription of the obligation shall NOT give rise to the right to demand reimbursement Divisible obligation an obligation where the object in its delivery or performance, is capable of partial fulfillment Indivisible obligation an obligation where the object in its delivery or performance, is not capable of partial fulfillment TEST: the purpose of the obligation or the intention of the parties. Joint indivisible obligation where the parties are merely proportionately liable but the object or subject matter thereof is not physically divisible in different parts INDIVISIBILITY 1. It refers to the prestation or object of the contract 2. It does not require plurality of subjects or parties 3. It is converted into one of indemnity for damages. As a result, indivisibility of the obligation is terminated and so each debtor is liable only for his part of the indemnity 4. The heirs of the debtor remain bound to perform the same prestation SOLIDARITY 1. It refers to the vinculum or tie existing between the subjects or parties to the obligation 2. It requires plurality of subjects or parties 3. When there is breach of the obligation, the liability of the solidary debtors although converted into one of indemnity for damages shall remain solidary 4. The debt of the solidary debtor terminates the solidary tie or vinculum being intransmissible to the heirs

Obligation with a penal clause An obligation which contains an accessory undertaking to pay a previously stipulated indemnity in case of breach. GENERAL RULE: the penalty fixed by the parties is a compensation or substitute for damages in case of breach of obligation. EXCEPTIONS: (oblige can recover penalty plus damages) 1. stipulation to the contrary; 2. obligor is sued for refusal to pay the agreed penalty; 3. obligor is guilty of fraud. When penalty may be reduced: a. if the principal obligation has been partly complied with; b. if the principal obligation has been irregularly complied with; c. if the penalty is iniquitous or unconscionable even if there has been no performance. MODES OF EXTINGUISHING AN OBLIGATION: 1. payment or performance; 2. loss of the thing due; 3. condonation or remission of the debt; 4. confusion or merger of rights of the debtor and the creditor; 5. compensation; 6. novation; 7. annulment; 8. rescission; 9. fulfillment of a resolutory condition; 10. prescription; 11. death in personal obligations; 12. mutual desistance/withdrawal; 13. arrival of resolutory period; 14. compromise; 15. impossibility of fulfillment; 16. happening of fortuitous event. PAYMENT OR PERFORMANCE General rule: creditor is not bound to accept payment or performance by a third person. Exceptions: 1. when made by a third person who has an interest in the fulfillment of the obligation; 2. contrary stipulation. Rights of the third party who paid the obligation of another: 1. payment with the knowledge and consent of the debtor a. can recover entire amount paid; b. can be subrogated to all of the rights of the creditor 2. payment without the knowledge or against the will of the debtor can recover only insofar as payment has been beneficial to the debtor. Rules in Monetary obligations: 1. payment in cash must be made in the currency stipulated, if not possible, then in the legal tender in the Philippines. 2. payment in check or other negotiable instrument not considered payment, they are not considered legal tender and may be refused by the creditor. Exceptions: a. when the document has been cashed; b. when it had been impaired through the fault of the creditor. APPLICATION OF PAYMENT designation of the debt to which the payment must be applied when the debtor has several obligations of the same kind in favor of the same creditor. Requisites: 1. one debtor and one creditor 2. two or more debts of the same kind 3. all debts must be due 4. amount paid by the debtor must not be sufficient to cover all debts

DATION IN PAYMENT property alienated by the debtor to the creditor in satisfaction of the debt in money; the transmission of the ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. Governed by the law on Sales PAYMENT BY CESSION Debtor abandons all of his properties for the benefit of his creditors in order that from the proceeds thereof the latter may obtain payment of their credits. DATION IN PAYMENT One creditor Not necessarily in state of financial difficulty Thing delivered which is considered as equivalent of performance Payment extinguishes obligation to the extent of the value of the thing delivered as agreed upon, proved or implied from the conduct of the creditor PAYMENT IN CESSION Plurality of creditors Debtor must be partially or relatively insolvent Universality of property of debtor is what is ceded Merely releases debtor for net proceeds of things ceded or assigned, unless there is contrary intention

1. 2. 3. 4.

1. 2. 3. 4.

CONSIGNATION Deposit of the object of the obligation in a competent court in accordance with the rules prescribed by law after refusal or inability of the creditor to accept the tender of payment. Rule: Consignation shall produce effects of payment only if there is a valid tender of payment. Exceptions: 1. creditor is absent or unknown, or does not appear at the place of payment; 2. creditor is incapacitated to receive payment at the time it is due; 3. when two or more persons claim the right to collect; 4. when the title of the obligation has been lost; 5. when without just cause the creditor refuses to give a receipt. LOSS OF THE THING DUE A thing is considered loss when: 1. it perishes; 2. goes out of commerce; 3. disappears in such a way that its existence is unknown or it cannot be recovered EFFECT OF LOSS 1. In determinate obligations to give: will extinguish the obligation if the thing is lost. Except: a. When by law, obligor is liable even for fortuitous event b. When by stipulation, obligor is liable even for fortuitous event c. When the nature of the obligation requires the assumption of risk d. When the loss of the thing is due partly to the fault of the debtor e. When the loss of the thing occurs after the debtor incurred in delay f. When the debtor promised to deliver the same thing to two or more persons who do not have the same interests g. When the debt of a certain and determinate thing proceeds from a criminal offense 2. in generic obligations to give: obligation is not extinguished; the genus of the thing cannot perish. Exception: in case of a generic obligation whose object is a particular class or group with specific or determinate qualities (limited generic obligations) 3. in obligations to do: obligation is extinguished when the prestation becomes legally or physically impossible REMISSION OR CONDONATION the gratuitous abandonment by the creditor of his right against the debtor. It is thus a form of donation.

Requisites: 1. there must be an agreement 2. the parties must be capacitated 3. there must be a subject matter 4. the cause or consideration is generosity/gratuitous 5. obligation is demandable at the time of remission 6. remission must not be inofficious 7. must be accepted by the obligor 8. if made expressly, it must comply with the forms of donation CONFUSION OR MERGER OF RIGHTS merger of the characteristics of the creditor and the debtor in one the same person by virtue of which the obligation is extinguished COMPENSATION extinguishment in the concurrent amount of the obligation of those persons who are reciprocally debtors and creditors of each other Requisites of compensation: 1. that each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; 2. that both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been sated; 3. that the debts be due; 4. that they be liquidated and demandable; 5. that over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. Compensation Takes effect by operation of law Capacity to give and to acquire not necessary Compensation Two or more persons who are mutual creditors of each other There must be at least two obligations Payment Takes effect by action of the parties Capacity to give and to acquire essential Confusion One person where qualities of debtor and creditor are merged Only one obligation

1. 2.

1. 2.

1. 2.

1. 2.

Debts not susceptible of compensation: 1. debts arising from contract of deposit 2. debts arising from contract of commodatum 3. claims for support due by gratuitous title 4. obligations arising from criminal offense 5. certain obligations in favor of government NOVATION substitution or change of an obligation by another, resulting in the extinguishment or modification either by: a. changing the object or principal conditions (objective) b. substituting another in place of debtor (passive subjective) c. by subrogating a third person in the rights of the creditor (active subjective) Requisites: 1. a previous valid obligation 2. capacity and intention of the parties to modify or extinguish the obligation 3. the modification or extinguishment of the obligation 4. the creation of a new and valid obligation Kinds of novation: a. legal or conventional b. real, personal or mixed Two forms of subrogating a third person in the rights of the creditor: 1. Expromission substitution of the old debtor by a third person without the knowledge or against the will of the old debtor but the third person acts on his own initiative to assume the debtors obligation with the consent of the creditor. It is essential that rthe old debtor be released from his obligation.

2. Delegacion substitution of the old debtor when the creditor accepts a third person to take the place of the debtor at the instance of the latter. The creditor may withhold approval. All parties, the old debtor, the new debtor and the creditor must agree. General rule: subrogation cannot be presumed Except: 1. creditor pays another creditor who is preferred, without debtors knowledge 2. a third person not interested in the obligation, pays with the express or tacit approval of the debtor 3. when even without the debtors knowledge, a person interested in the fulfillment of the obligation pays, without prejudice to the effects of confusion as to the latters share. **********************************The End*********************************

10

LECTURE AID CONTRACTS CONTRACT 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. Essential elements: 1. consent 2. object 3. cause 4. delivery in real contracts 5. formalities required by law in solemn contracts 6. price certain in a contract of sale Stages in the life of a contract: 1. preparation/generation (negotiations are in progress) 2. perfection/birth (meeting of the minds/meeting of offer and acceptance) 3. performance/death (execution/consummation/termination) Characteristics of contracts: 1. Autonomy (Liberty or freedom to stipulate) As long as not contrary to law, morals, good customs, public order or public policy 2. Mutuality Both parties must be bound Parties cannot revoke or renounce a contract without the consent of the other 3. Obligatoriness Obligations arising from contract have the force of law between the contracting parties and should be complied with in good faith 4. Relativity General rule: a contract is binding only between the parties, their assigns and heirs Exceptions: a. Obligations arising from contracts are not transmissible by nature, stipulation or by provision of law b. Stipulation pour autrui (in favor of a third person) c. Third person includes another to violate his contract, the third person will be liable for damages d. In some other case, third persons may be adversely affected by a contract where they did not participate e. Law authorizes creditor to sue on a contract entered into by his debtor Classification of contracts 1. according to perfection or formation: a. consensual b. real c. formal or solemn 2. according to degree of dependence: a. preparatory b. principal c. accessory 3. according to the parties obligated: a. unilateral b. bilateral or reciprocal 4. according to cause or equivalence of value of prestation: a. onerous b. gratuitous c. remunerative or remuneratory 5. according to risk involved: a. commutative b. aleatory 6. according to name or designation: a. nominate b. innominate 7. according to time of performance:

11

a. executed b. executory c. partially executory STIPULATION POUR AUTRUI (stipulation in favor of a third party) Requisites: 1. the stipulation must be part, not whole of the contract 2. the contracting parties must have clearly and deliberately conferred a favor upon a third person 3. the third person must have communicate his acceptance 4. neither of the contracting parties bears the legal representation of the third party CONSENT meeting of minds between parties on the subject matter and the cause of the contract, even if neither one has been delivered GENERAL RULE: contracts (except real contracts) are perfected from the moment there is a manifestation of concurrence between the offer and the acceptance regarding the object and the cause EXCEPT: acceptance by letter or telegram which does not bind the offeror except from the time it came to his knowledge (Cognition theory) Persons incapacitated to give consent: 1. unemancipated minors Except: a. contracts for necessaries b. contracts by guardians or legal representatives c. contracts where the minor is estopped to urge minority through his own mmisrepresentation d. contracts of deposit with the postal Savings Bank provided that the minor is over seven years of age 2. insane or demented persons unless the contract was entered into during lucid interval 3. deaf-mutes who do not know how to write Rule: if the offeror has allowed the offeree a certain period to accept, offer may be withdrawn at any time before acceptance of the thing offered by communicating such withdrawal Exception: When option is founded upon a consideration as something paid or promised VICES OF CONSENT: 1. mistake or error 2. violence or force 3. intimidation or threat or duress 4. undue influence 5. fraud or deceit SIMULATION OF CONTRACTS 1. absolute no real transaction is intended Effect: simulated contract is inexistent 2. relative the real transaction is hidden Effect: the apparent contract is void, but the hidden contract is valid if it is lawful has the necessary requisites As to third persons without notice the apparent contract is valid on the principle of estoppel OBJECT OF CONTRACTS Requisites: a. within the commerce of men b. transmissible c. not contrary to law, morals, good customs, public order or public policy d. not impossible thing or service e. determinate as to its kind or determinate without the need of a new contract CAUSE OF CONTRACTS must be present at the time the contract was entered into, otherwise the contract is void must be true and lawful

12

NOTE: cause is always presumed to exist in a contract Effect of: Absence of cause Failure of cause Illegality of cause Falsity of cause The contract confers no right and produces no legal effect Does not render the contract void The contract is null and void The contract is void unless the parties can show that there is another cause which is true and lawful Does not invalidate the contract unless: there is fraud, mistake or undue influence when the parties intended a donation or some other contract

Lesion

FORM OF CONTRACTS: 1. contracts shall be obligatory, in whatever form they may have been entered into, provided all the requisites for their validity are present. 2. contracts must be in a certain form when the law requires that a contract be in some form to be: a. valid b. enforceable c. for the convenience of the parties 3. the parties may compel each other to reduce the verbal agreements to writing Except: 1. solemn contracts such as the following: a. donations of real estate or of movables if exceeding Php5,000 b. transfer of large cattle c. stipulation to pay interest in loans d. sale of land through an agent (authority must be in writing) e. partnership to which immovable are contributed f. stipulation limiting carriers liability to less than extra-ordinary diligence g. contracts of antichresis h. sale of vessels Note: in such case, if the contract is not in writing it is void 2. real contracts that require delivery for perfection 3. in contracts under the Statute of Frauds where the party sued makes a timely objection to the absence of a written memorandum. REFORMATION OF INSTRUMENTS Requisites: 1. simple, unconditional donations inter vivos 2. wills 3. when the agreement is void INTERPRETATION OF CONTRACTS a. terms/wordings of the contract must be followed b. in case of conflict between the wordings and the intent of a contract, the latter shall prevail c. if some stipulation of any contract should admit of several meanings, it shall be understood as a bearing that import which is most adequate to render it effectual d. stipulations shall be read together e. interpretation must be in keeping with the object and nature of the contract f. usage or custom shall be borne in mind CLASSES OF DEFECTIVE CONTRACTS: 1. rescissible 2. voidable 3. unenforceable 4. void RESCISSIBLE CONTRACTS 1. those entered into by guardians where the ward suffers lesion of more than of the things which are objects thereof 2. those agreed upon in representation of absentees, if the latter suffer lesion by more than of the value of the things which are subject thereof

13

3. those undertaken in fraud of creditors when the latter cannot in any matter claim what are 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 and the court 5. all other contracts especially declared by law to the subject to rescission VOIDABLE CONTRACTS 1. those where one of the contracting parties is incapable of giving consent 2. those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud NOTE: contracts entered into during sate of drunkenness or hypnotic spell are voidable Causes of extinction of action to annul: 1. prescription the action must be commenced within four years from: the time the incapacity ends the time the violence, intimidation, undue influence ends the time the mistake or fraud was discovered 2. ratification requisites: a. voidable b. such reason there must be knowledge of the reason which renders the contract must have ceased c. the injured party must have executed an act which expressly or impliedly conveys an intention to waive his right 3. by loss of the thing which is the object of the contract through fraud or fault of the person who is entitled to annul the contract UNENFORCEABLE CONTRACTS 1. Those entered into in the name of another by one without or acting in excess of authority 2. those where both parties are incapable of giving consent 3. those which do not comply with the Statute of Frauds Agreements within the scope of the Statute of Frauds: a. agreements not to be performed within one year from the making thereof b. promise to answer for the debt, default or miscarriage of another c. agreement in consideration of marriage other than a mutual promise to marry d. contracts of lease for a period longer than one year e. agreements for the sale of real property or interest therein f. representation as to credit of a third person Modes of ratification: 1. for contracts infringing the Statute of Frauds: expressly impliedly by failure to object to the presentation of oral evidence to prove the contract, or by the acceptance of benefits under the contract 2. if both parties are incapacitated, ratification by their parents or guardian shall validate the contract retroactively VOID OR INEXISTENT CONTRACTS 1. those whose cause, object or purpose is contrary to law, morals, good customs, public policy or public order 2. those whose object is outside the commerce of men 3. those which contemplate an impossible service 4. those where the intention of the parties relative to the principal obkect of the contract cannot be ascertained 5. those expressly prohibited or declared void by law The following contracts are INEXISTENT: 1. those which are absolutely simulated or fictitious 2. those whose cause or object did not exist at the time of the transaction COMPARATIVE TABLE OF DEFECTIVE CONTRACTS BASIS RESCISSIBLE VOIDABLE UNENFORCEABLE VOID

14

CONTRACTS CONTRACTS 1. Origin of the 1. economic 1. incapacity defect damage or of one of the lesion to one of the contractin parties or to g parties a third to give person consent 2. a special 2. vitiated declaration consent by law that due to the vices of the contract consent is subject to rescission

CONTRACTS 1. it was entered into in behalf of another person a. without authority b. in excess of authority 2. noncompliance with the Statute of Frauds 3. incapacity of both contracting parties to give consent 2. Damage or There must be Damage or Damage or prejudice damage/lesion prejudice to prejudice is not or prejudice to the other necessary one of the party is not contracting necessary parties or third person 3. Legal effect They are They are They are considered considered inoperative until valid and valid, binding ratified. They are legally and not enforceable in enforceable enforceable court without proper until judicially until judicially ratification rescinded annulled

CONTRACTS Absence of any of the essential requisites of a contract (consent, object, cause)

Damage or prejudice is not necessary

4. Remedy/action Rescission or Annulment of rescissory contract action

5. Persons who Contracting can file the party. action Exception: creditors who are defrauded

6. Susceptibility of ratification 7. susceptibility of prescription

Gen. Rule: contracting party principally or subsidiary obliged under the contract Exception: a third person who is prejudiced Need not be Susceptible of Susceptible ratified ratification ratification

Generally, they do not produce legal effects; there are few exceptions (e.g. void marriages under Art. 36 and Art. 53, Family Code, produce legitimate children (See Art. 165 Family Code) This is just a Declaration of personal defense nullity of the when the plaintiff contract pursues a specific performance case or complaint for damages based on breach of contract Contracting party. Third persons Third persons cannot assail cannot assail it. the contract unless his interests are directly affected.

of Not susceptible of ratification Action for Action for Action for recovery Action for rescission annulment or action for specific declaration of prescribes also performance or for nullity or the after four prescribes damages for breach putting of the years after four of contract, also defense of

15

years

prescribe. There nullity of the being no specified contract does period, it could be not prescribe. 10 years if the basis of the action is a written contract; or 6 years if unwritten.

16