CEBU CPAR CENTER Obligations and Contracts 1. Obligation is a juridical necessity to give, to do or not to do.

2. Essential Elements/Requisites

a.

Active Subject creditor/oblige, the party who has the right to demand performance of the obligation

b. Passive Subject debtor/obligor, the party who is obliged to perform the obligation c. Prestation the object or subject matter of the obligation. d. Efficient Cause juridical tie, vinculum juris, legal tie, the tie that binds the parties to an obligation. The efficient cause of an obligation may be any of the following: i. ii. iii. iv. v. Law Contracts Quasi-contracts Acts or omissions punished by law (delicts) Quasi-delicts or torts

3. Law is a rule of conduct, just and obligatory, promulgated by legitimate authority for common observance and benefit.

4. Contract is a meeting of the minds between two persons whereby one binds himself with respect to another to give something or to render some service.

5. Quasi-contract refer to certain lawful, voluntary and unilateral acts giving rise to a juridical relation to the end that no one shall be unjustly enriched at the expense of another.

a.

Negotiorum gestio refers to voluntary administration of the property, business or affairs of another without the consent or authority of the latter. It creates the obligation to reimburse the gestor or officious manager for necessary and useful expenses.

b. Solutio Indebiti refers to payment by mistake of an obligation which was not due when paid. It creates the obligation to return the payment.

6. Acts or omissions punished by law refer to crimes or felonies or delicts. All persons who are criminally liable is also civilly liable. Civil liability includes restitution, reparation of the damaged caused and indemnification of consequential damages.

7. Quasi-delicts refer to culpa aquiliana or torts, these are acts or omissions that cause damage to another, there being no contractual relation between the parties.

8. Kinds of obligation:

a.

Pure or Simple

b. With a period c. Conditional d. With a penalty clause e. Joint f. Solidary g. Divisible h. Indivisible i. j. Alternative Facultative

9. Kinds of things

a.

Generic or indeterminate genus nunquam perit (generic thing never perishes)

b. Specific or determinate when it is particularly designated or physically segregated from all others of the same class.

10.Obligations of debtor to give a specific thing

a.

Take care of the thing with the diligence of a good father of a family except SLN (stipulation of the parties, law or nature requires another standard of care)

b. Deliver the thing c. Deliver the fruits of the thing (natural, civil or industrial) d. Deliver its accessions (produced by a thing or incorporated or attached thereto) and accessories (joined to or included with the principal thing for the latters better use, perfection or enjoyment)

11.Grounds for imposition of damages (FNDC Art. 1170) a. Fraud (this fraud under Art. 1170 pertains to incidental fraud or dolo incidente)

b. Negligence c. Delay d. Contravention of the tenor of the obligation

12.Kinds of damages

a.

Actual or compensatory

b. Moral

c. Nominal d. Temperate or moderate e. Liquidated f. Exemplary

13.Fraud is the deliberate or intentional evasion by the debtor of the normal compliance of his obligation.

Kinds of fraud

a.

Causal fraud or dolo causante fraud in obtaining consent

b. Incidental fraud or dolo incidente fraud committed at the time of the performance of the obligation c. Fraud in pactum

14.Negligence is the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the person, of the time, and of the place.

Kinds of negligence:

a.

Contractual negligence (culpa contractual) example: the bus driver and his employer of an injured passenger

b. Civil negligence (culpa aquiliana or tort or quasi delict or culpa extracontractual example: employer of a bus driver of an injured pedestrian c. Criminal negligence (culpa criminal) example reckless imprudence resulting to damage to property

15.Delay is the non-fulfillment of an obligation with respect to time.

Kinds of delay: a. Ordinary delay

b. Legal delay this is what is contemplated by Art. 1170 i. ii. iii. Mora solvendi Mora accipiendi Compensatio morae

16.Rule on Delay NDND except RTOLD No demand, No delay Except: Reciprocal obligation Time is of the essence Obligation declares Law provides Demand is useless 17.Fortuitous events are those that cannot be foreseen or even if foreseen are inevitable.

Elements of Fortuitous event (ICIF)

a.

I independent of the debtors will

b. C cannot be foreseen or even if foreseen is inevitable c. I impossible for the debtor to perform the obligation in the normal manner d. F free from participation in or aggravation of the injury/damage sustained by the creditor

18.Rule on Fortuitous event General Rule - obligation is extinguished Except: SLN

a.

Stipulation

b. Law c. Nature

19.Period vs. condition

Period certainly arrives while condition may or may not happen

20.Kinds of Condition a. Suspensive the happening of which gives rise to an obligation

b. Resolutory the happening of which extinguishes an obligation c. Potestative depends upon the will one of the contracting parties

c.1 potestative on the part of the debtor:

a.

Suspensive the obligation is void

b. Resolutory the obligation is valid

c.2 potestative on the part of the creditory:

a.

Suspensive the obligation is valid

b. Resolutory the obligation is valid

d. Casual depends upon chance or upon the will of a third person e. Mixed depends partly upon the will of one of the parties and partly upon chance or the will of a third person f. Possible g. Impossible physical or legal impossibility. The obligation and the condition are void h. Positive a condition that some even will happen at a determinate time, the obligation is extinguished as soon as the time expires or has become indubitable that event will not happen (Art. 1184) i. Negative a condition that some event will not happen at a determinate time, the obligation becomes effective as soon as the time indicated has elapsed or has become evident that the event will not occur (Art. 1185) Divisible and indivisible

j.

21.Rule in case of Loss, Deterioration or Improvement of Specific Thing before delivery or fulfillment of condition

a.

Loss without the fault of the debtor extinguished

b. Loss through the fault of the debtor pay damages c. Deterioration without the fault of the debtor impairment shall be borne by the creditor (no liability for damages on the part of the debtor) d. Deterioration through the fault of the debtor: i. ii. Rescission plus damages or Fulfillment plus damages Note: if creditor chose rescission, he cannot later on demand fulfillment, but if creditor chose fulfillment, he can still demand for rescission if fulfillment becomes impossible. e. Improvement by nature or time improvement shall inure to the benefit of the creditor

f. Improvement at the expense of the debtor the debtor has the right granted to a usufruct (right to use the thing).

22.Obligation with a period a. When a period is fixed, it is fixed for the benefit of both the debtor and the creditor except if it can be established that it was fixed for the benefit of one of the parties only. b. The debtor has the right to use the period except: i. When after the obligation has been constituted, the debtor becomes insolvent, unless he give a guaranty or security for the debt When the debtor fails to furnish the guaranties or securities that he has promised When the debtor impairs the said guaranties or securities by his own acts, or when through a fortuitous event the said guaranties or securities disappear, unless the debtor gives new guaranties or securities equally satisfactory When the debtor violates the undertaking in consideration of which the creditor agreed to the period When the debtor attempts to abscond.

ii. iii.

iv. v.

23.Alternative obligation is one where several prestations are due but the complete performance of one of them is sufficient to extinguish the obligation.

Right of choice belongs to the debtor, unless it has been expressly given to the creditor.

Limitations on debtors right of choice:

a.

Complete performance. NO PARTIAL PERFORMANCE.

b. Debtor cannot choose those which are impossible, illegal, or which could not have been the object of the obligation Rule in case of loss: If right of choice belongs to the debtor a. If one or some but not all are lost without the fault or even through the fault of the debtor debtor may deliver any of the remainder

b. If all are lost without the fault of the debtor extinguish c. If all are lost through the fault of the debtor indemnity for damages based on the value of the last thing that was lost If right of choice belongs to the creditor a. If one or some but not all are lost without the fault of the debtor debtor may deliver any of the remainder depending on the choice of the creditor b. If all are lost without the fault of the debtor extinguish c. If one or some but not all are lost through the fault of the debtor creditor may claim any of the subsisting object or the price of any of those which were lost plus damages d. If all are lost through the debtors fault creditor may claim the price of any of the objects plus damages

24.Facultative obligation is one where only one prestation is due but the debtor may render another in substitution.

Rules:

a. If the principal object is lost, before substitution, without the fault of the debtor extinguish b. If the principal object is lost, before substitution, through the fault of the debtor damages c. If the substitute is lost, before substitution, with or without the fault of the debtor extinguish

d. If the principal object is lost, after substitution, with or without the fault of the debtor extinguish e. If the substitute is lost, after substitution, without the fault of the debtor extinguish f. If the substitute is lost, after substitution, through the fault of the debtor damages

25.Distinctions:

Alternative Several objects are due but performance of one is sufficient to extinguish the obligation If one or some but not all objects are void, the obligation remains to be valid, Right of choice belongs to the debtor unless it is expressly given to the creditor If one or some but not all objects are impossible, the possible object must be delivered

Facultative Only one object is due (the principal) If the principal object is void, there is no need to substitute because the obligation is void. (accessory follow the principal) Right of choice to substitute belongs to the debtor only. If the principal object is impossible, no need to deliver the substitute

Note: Once the choice is communicated by the debtor to the creditor or by the creditor to the debtor in case the right of choice is given to the creditor, the alternative obligation becomes simple. Same rule applies to facultative obligation in case the substitution has been communicated by the debtor to the creditor.

26.Joint and Solidary obligation

General Rule: All obligations are JOINT except: SLN (Stipulation, Law, Nature)

27.Other terms to remember

Joint:

a.

Proportionately

b. Pro rata c. Mancomunada d. Mancomunada simple Solidary: a. Jointly and severally

b. Individually and collectively c. In solidum d. Mancomunada solidaria e. Juntos o separadamente

28.Kinds of Solidarity

a.

Passive solidarity on the part of the debtors

b. Active solidarity on the part of the creditors c. Mixed solidarity on the part of both debtors and creditors

29.Divisible object is capable of partial performance

Indivisible object is not capable of partial performance

30.Obligation with a penal clause penalty takes the place of the damages and interest in case of non-compliance.

However, damages and interest may also be charged:

a.

if there is a stipulation for that purpose

b. when the debtor refuses to pay the penalty c. when the debtor is guilty of dolo incidente or causal fraud

Note: the nullity of the principal obligation carries with it the nullity of the penalty but the nullity of the penalty does not carry with it the nullity of the principal obligation. (accessory follow the principal)

31.Modes of extinguishment of obligations

a.

Payment or performance

b. Loss of the thing due (only if the object is specific or determinate) c. Condonation or remission d. Confusion or merger e. Compensation f. Novation g. Annulment h. Rescission i. j. Fulfillment of resolutory condition Prescription

k. Others: i. ii. iii. iv. v. Compromise Withdrawal Death of one of the parties Arrival of resolutory period Art. 1184 (positive suspensive condition)

32.Application of payment

a. Debtors choice b. Creditors choice c. Most onerous d. Proportionately

33.Place of payment

a. Stipulation b. If no stipulation and the object is specific, the place of payment is the place where the specific object is located at the time of the constitution of the obligation c. If no stipulation and the object is generic, the place of payment is the domicile of the debtor

34.Dacion en pago (dation in payment, adjudicacion en pago, dation in solutum) payment in kind

35.Payment by cession assignment of all the property of the debtor in favor of all his creditors so that the creditors may sell the property and apply the proceeds thereof to the outstanding obligation of the debtor

36.Distinctions Dacion No plurality of creditors (may be one or some but not all) Debtors insolvency is not an issue but only liquidity Creditor becomes the owner of the Cession All creditors Debtors insolvency is an issue Creditor becomes the assignee of the

property Debtor is released from his obligation Does not affect all the property of the debtor

property Debtor is not released from his obligation Affects all the property of the debtor

37.Loss of the thing due as a mode of extinguishment of obligation is applicable only in case the object is specific except:

a.

The loss is through the fault of the debtor

b. Debtor has incurred legal delay c. Debtor has promised to deliver the same thing to two or more persons who do not have the same interest d. Stipulation e. Law f. Nature

Generic thing never perishes genus nunquam perit

38.Condonation or remission the gratuitous abandonment by the creditor of his right.

Presumptions as to condonation:

a.

When private document evidencing the obligation is found in the custody of the debtor unless the contrary is proved.

b. When the thing pledged after its delivery to the creditor or pledgee is found in the custody or possession of the debtor or the pledgor

39.Confusion or merger of rights of the creditor and debtor in one and the same obligation

40.Compensation where parties in an obligation, in their own right, are principal debtors and creditors of each other.

41.Novation is the modification or extinction of an obligation by the creation of a new obligation.

How Novation is made:

a.

Changing the principal object or condition

b. Substitution the person of the debtor c. Subrogating the rights of the creditor

42.Substitution of the person of the debtor

a.

Expromission substitution without the knowledge or against the will of the debtor

b. Delegacion substitution initiated by the original debtor

43.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.

44.Essential elements or requisites of contract

a.

Consent

b. Object c. Cause or consideration

45.Natural elements are those found in certain contracts unless set aside or suppressed by the parties like warranty against eviction or warranty against hidden defects in a contract of sale.

46.Accidental elements are those that refer to particular agreements of the parties like mode of payment, place of payment)

47.Characteristics:

a. Consensual perfected by mere consent b. Real perfected by delivery c. Solemn perfected by the execution of public instrument d. Onerous valuable consideration is given in exchange e. Gratuitous only one party gives valuable consideration (the giver is prompted by his pure beneficence, compassion, liberality, kindness) f. Remuneratory the cause is the service or benefit remunerated g. Principal can stand by itself h. Accessory its existence depends upon another contract i. j. Preparatory a means by which another contract maybe executed Nominate with name specially given by law

k. Innominate without a name: i. ii. iii. iv. Do ut des I give that you may give (this is actually barter, therefore, nominate) Do ut facias I give that you may do Facio ut des I do that you may give Facio ut facias I do that you may do

48.Consent is the meeting of the minds as to the object and the cause

Essential elements of a valid consent:

a.

Intelligently

b. Freely, and c. Voluntarily given

49.Vices of consent

a.

Mistake

b. Violence or physical coercion c. Intimidation or moral/mental coercion d. Undue influence e. Fraud (dolo causante)

50.Objects - all things which are NOT outside of the commerce of men (thus, within the commerce of men) including future things

Requisites:

a.

Within the commerce of men

b. Transmissible c. Not contrary to Law, Morals, Public Order, Public Policy, and Good Customs d. Not impossible e. Must be determinate AS TO ITS KIND

51.Cause is the reason for which parties enter into a contract

52.Cause of Contracts

a.

Onerous contract the prestations or object or service by the each other

b. Remuneratory contract the service being remunerated c. Gratuitous contract liberality of the benefactor, kindness, pure beneficence of the giver

53.Rescissible Contracts are those which have all the essential elements or a contract but which may be set aside by reason of equity on account of damage to one of the parties or on third person.

Kinds:

a.

Those entered into by guardians whenever the ward whom they represent suffer lesion by MORE than of the value of the things which are the object of the contract

b. Those agreed to in representation of absentees, if the latter suffer lesion by MORE than of the value of the things which are the object of the contract c. Those entered into in fraud of creditors d. Those which refer to things under litigation if entered into without the knowledge and approval of litigants or competent court e. All others specifically declared by law to be rescissible

54.Voidable Contracts are those that are defective by reason of the incapacity or vitiated consent of one of the parties.

Kinds:

a.

Those where ONE of the parties is incapable of giving consent

b. Those where consent is vitiated c. Those entered into in state of drunkenness d. Those entered into under hypnotic spell

55.Unenforceable Contracts are those that cannot be enforced unless ratified

Kinds: a. Those entered into in the name of another without the authority of the latter b. Those that do not comply with the Statute of Frauds c. Those where BOTH parties are incapable of giving consent

The following MUST be in writing, otherwise, unenforceable (Statute of Frauds) a. Agreement that by its terms is not to be performed within a year from the making thereof

b. Special promise to answer for the debt, default or miscarriage of another (guaranty) c. Agreement in consideration of marriage, other that mutual promise to marry d. Sale of goods, chattels or things in action at a price NOT LESS THAN P500.00 e. Agreement for the leasing of a real property or of an interest therein for MORE than one year f. Sale of real property or an interest therein g. Representation as to the credit of a third person

56.Void Contracts are those that has no force and effect from the very beginning (void ab initio)

Kinds:

a.

Those whose cause, object or purpose is contrary to law, m orals, good customs, public order, or public policy

b. Simulated or fictitious contracts c. Those whose object or cause DID NOT EXIST at the time of the transaction d. Those whose object is outside of the commerce of men e. Those which contemplate impossible service f. Those where the intention of the parties pertaining to the principal object CANNOT BE ASCERTAINED g. Those expressly prohibited or declared VOID by law: 1. Donation between spouses during the existence of marriage except moderate ones on occasion of family rejoicing 2. Sale between spouses except if there is separation of property 3. Household service WITHOUT compensation 4. Contract upon future inheritance except in marriage settlements

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