ObliCon Paras Post Midterms

8/13/2019 ObliCon Paras Post Midterms

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ObliCon Paras - summarized Maki Falgui1

Post Midterms: Good luck, Mak.

Section 2: Loss of the thing due

Lossimpossibility of performance

When is there a loss:

1. When the object perishes2. When it goes out of commerce3. When it disappears in such a way that:

a.

Its existence is unknownb. It cannot be recoveredImpossibility of a performance:

1. Physical impossibility2. Legal impossibility

a. Prohibited by law (directly caused)b. (indirectly caused)

3. Moral impossibility

Article 1262.An obligation which consists in the delivery of a

determinate thing shall be extinguished if it should be lost or

destroyed without the fault of the debtor, and before he has

incurred in delay.

When by law or stipulation, the obligor is liable even forfortuitous events, the loss of the thing does not extinguish the

obligation, and he shall be responsible for damages. The same

rule applies when the nature of the obligation requires the

assumption of risk.

Two kinds of obligations to give:1. Generic thing

is NOT extinguished by loss or by a fortuitous

2. Specific thingEffect of Loss on an Obligation to Deliver a Specific Thing:

1. General rule: obligation is extinguished loss mustbe after the obligation has incurred

Loss of the thing mortgaged does not extinguish

principal debt, even if the mortgaged property was

specific

2. Exceptions:a. Debtor is at faultb. Debtor is made liable of a fortuitous event

because of:

i. Provision of law- Fortuitous event

a. Debtor is in default

b. Debtor is in bad faith

c. Obligation arises from

crime

ii. Contractual stipulationiii. Nature of the obligation requiresthe assumption of risk on the part

of the debtor

c. Conversion of the obligation to moneyClaim of loss must be made after information of discovery of

shortage of or damage to goods.

Article 1263. In an obligation to deliver a generic thing, theloss or destruction of anything of the same kind does not

extinguish the obligation.

Effect of Loss of a Generic Thing obligation to deliver stillexists

Exceptions:

1. If the generic thing is delimited (eg 3 dogs from thisbirth)

2. If the generic thing has already been segregated or setaside (becomes specific)

Article 1264. The courts shall determine whether, under the

circumstances, the partial loss of the object of the obligation is

so important as to extinguish the obligation.

Effect of partial loss:1. May be equivalent to a complete loss2. May be insignificant, thus judicial determination is

needed

Article 1265. Whenever the thing is lost in the possession of

the debtor, it shall be presumed that the loss was due to hisfault, unless there is proof to the contrary, and without

prejudice to the provisions of article 1165. This presumption

does not apply in case of earthquake, flood, storm, or other

natural calamity.

Qualified fortuitous event

Generally: Presumption that loss was due to debtors fault

BUT no presumption if natural calamity or if accidental

Article 1266. The debtor in obligations to do shall also be

released when the prestation becomes legally or physically

impossible without the fault of the obligor.

Loss in Personal Obligations:Without fault of the debtor

1. Legal impossibility2. Physical impossibility

Loss through a fortuitous event in Reciprocal Obligations:General Rule: Obligation that was not extinguished by the

fortuitous event remains.

Exceptions: As provided by law.

Examples:

1. Lease if the object is destroyed, both lease andobligation to pay rent is destroyed.

2. Contracts for piece of workImpossibility must be AFTER the constitution of the obligation

If the act is subjectively impossible (for the debtor himself) but

otherwise objectively possible, usually the obligation exists,

unlesspersonal considerations are involved.

Article 1267.When the service has become so difficult as to be

manifestly beyond the contemplation of the parties, the obligor

may also be released therefrom, in whole or in part.


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Obligations to do; moral impossibility or impracticability

If beyond their contemplation, it was not their intention, and

therefore, not part of the contract.

Article speaks of SERVICE personal obligation; realobligations are not included

Requisites for 1267 to apply:a. Service must become so difficult that it was manifestlybeyond the contemplation of BOTH parties. Thedifficulty could not possibly be anticipated or

foreseen.

b. One of the parties must ask for relief.c. Object must be a future service with future unusual

change in conditions.

(If risk is foreseen, does not come under the scope)

Article 1268.When the debt of a thing certain and determinate

proceeds from a criminal offense, the debtor shall not be

exempted from the payment of its price, whatever may be the

cause for the loss, unless the thing having been offered by him

to the person who should receive it, the latter refused without

justification to accept it.

Fortuitous event does NOT extinguish the obligation, except

when the creditor is in MORA ACCIPIENDI.

If the creditor refuses to accept the thing due from the criminal,

the criminal may either consign the thing or else keep the thing

in his possession.

Article 1269. The obligation having been extinguished by the

loss of the thing, the creditor shall have all the rights of action

which the debtor may have against third persons by reason of

the loss.

Rights of action exercised must stem from the loss.

Example: A should deliver his car to B. S destroys As car. B is

given the right to go after S.

(If the right be given to A, A would unduly profit in that he will

gain two things: (1) obligation to give car has been

extinguished, and (2) allowed to recover from S.)

SECTION 3Condonation or Remission of the DebtArticle 1270. Condonation or remission is essentially

gratuitous, and requires the acceptance by the obligor. It maybe made expressly or impliedly.

One and the other kind shall be subject to the rules which

govern inofficious donations. Express condonation shall,

furthermore, comply with the forms of donation.

Remission or condonation gratuitous abandonment by the

creditor of his right

essentially a donation

Essential requisites:

1. An agreement2. Parties must be capacitated and must consent (beyond

power of the courts and congress)

3. Subject matter (object of the remission)4. Cause or consideration must be liberality (as in walang

kapalit)

5. Obligation remitted must have been demandable at thetime of remission

6. Remission must not have been inofficious (must notimpinge on the legitime of the compulsory heirs)

grounds used for revoking donations are all

applicable to revocation of remissions

7. Formalities of a donation are required in the case of anEXPRESS remission.

An express remission defective in form can NOT be

considered an implied remission.

for a defective express remission to be

considered an implied remission, other acts

must be done which ratify the remission and

therefore create implied remission.

8. Waivers or remission are NOT to be presumed generally.They must be CLEARLY and CONVINCINGLY shown, either

by express stipulation, or by acts admitting of no other

reasonable explanation.

Classes of remission:a. As regards its effect or extent

i. Totalii. Partial

b. As regards its date and effectivityi. Inter vivos(during life)

ii. Mortis causa(after death)This must have the formalities of a will and the will

must be probated.

c. As regards its formi. Implied or tacit conduct is sufficient

ii. Express or formal formalities requiredIf remission is not accepted by the debtor, this would NOT beremission. HOWEVER, if the creditor does not collect within the

statute of limitations (period of prescription), debt may be said

to have been extinguished by PRESCRIPTION.

Mere failure to file an MR does not necessarily result in waiver

or abandonment.

Article 1271.The delivery of a private document evidencing a

credit, made voluntarily by the creditor to the debtor, implies

the renunciation of the action which the former had against the

latter.

If in order to nullify this waiver it should be claimed to be

inofficious, the debtor and his heirs may uphold it by provingthat the delivery of the document was made in virtue of

payment of the debt.

If a creditor delivers the document of creditvoluntarily to the debtor, there is a presumption of

waiver.

If it is claimed to be inofficious, meaning the remissionmade impinged on the legitimes of the creditor heirs,

the only way the debtor can uphold the presumption

is actual payment. You cannot claim waiver.


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Note however that claiming inofficiousness is not theonly way to overturn presumption.

Private Document not public document.Implied remission.

If the debtor has in his possession, the instrument evidencing

the credit,

first: presumption of remission

then: presumption of payment

Article 1272. Whenever the private document in which the

debt appears is found in the possession of the debtor, it shall be

presumed that the creditor delivered it voluntarily, unless the

contrary is proved.

*Voluntary delivery is essential for the presumption in 1271 to

apply.

Presumption of voluntary delivery:a. Presumption of voluntary deliveryb. Private documentc.

Presumption is disputable or prima facie

If the instrument of credit is still in the creditors hands, this is

evidence that the debt has not yet been paid, UNLESS the

contrary be fully proved.

If joint obligation, and private document is found with A (joint

debtor), presumed that only As debt has been remitted.

If solidary obligation, and private document is found with A

(solidary debtor), presumed that whole obligation is remitted.

Article 1273. The renunciation of the principal debt shallextinguish the accessory obligations; but the waiver of the latter

shall leave the former in force.

Renunciation of principal extinguishes accessory, but NOT vice-

versaaccessory follows the principal.

Article 1274. It is presumed that the accessory obligation of

pledge has been remitted when the thing pledged, after its

delivery to the creditor, is found in the possession of the debtor,

or of a third person who owns the thing.

*Special rule for a specific accessory obligation..

Remission of Pledge

1.

Only the accessory obligation of pledge is presumedremitted. The principal obligation remains in force.

2. The presumption is only disputable.Reason for Presumption: it is essential in pledge that the thing

be delivered to the creditor, or third person by common

agreement.

Possession by a third person if the third person does notown the thing, the presumption does NOT arise.

SECTION 4Confusion or Merger of RightsArticle 1275.The obligation is extinguished from the time the

characters of creditor and debtor are merged in the same

person.

Merger or Confusion the meeting in one person of the

qualities of creditor and debtor with respect to the same

obligation

One cannot claim against himself.

Requisites of a valid merger:1. Between principal debtor and creditor.2. Clear and definite.3. The same or identical debt.

*Not immediately applicable to estate proceedings for othercreditors may be prejudiced.

Effect of transfer of rights

Mere transfer to a third person of rights belonging to both the

debtor and the creditor BUT not the credit as against the debt

does not result in merger. it must be the credit that is

transferred.

Extinction of real rightsReal rights may be extinguished by merger when the naked

owner himself becomes the usufructuary.

Revocability of confusion or mergerIf the reason for the confusion ceases the obligation is revived.

*Merger with regards to accessory obligations does not

extinguish the principal debt.

Article 1276. Merger which takes place in the person of the

principal debtor or creditor benefits the guarantors. Confusion

which takes place in the person of any of the latter does not

extinguish the obligation.

- If there is merger with respect to the principal debt,the guaranty is extinguished.

- If merger happens between creditor and guarantor,the guarantee is extinguished, but the debtors original

debt still exists.

- If the creditor becomes owner of part of the land, themortgage is extinguished with regards to that part.

- If there is a period, debtor can still make use of it, aslong as the securities impairment was not caused by

his own acts.

- If the obligation is extinguished, there is nothing left toguarantee.

Article 1277. Confusion does not extinguish a joint obligation

except as regards the share corresponding to the creditor or

debtor in whom the two characters concur.

In a joint obligation, the debts are distinct and separate from

each other.

If solidary obligation, the debtor where confusion happened can

collect, because it is as if he paid the entire thing.


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SECTION 5Compensation Article 1278. Compensation shall take place when two

persons, in their own right, are creditors and debtors of each

other.

Simplified or abbreviated payment

Definition:a. sort of balancing weighing two obligation

simultaneouslyb. Extinguishment in the concurrent amount of the

obligation of those persons who are reciprocally

debtors and creditors of each other.*Unlike confusion or merger, we are not talking about the

same debt.

Compensation Payment

Partial extinguishment is

always permitted.

Takes place by operation of

law.

Must be complete and

indivisible, as a rule.

Involves action or delivery.

*Legal compensation is automatic and even if partial, is

allowed to happen.

Compensation Merger/ Confusion

There must be two persons

who are mutually creditor

and debtor to each other.

There must be two different

obligations.

There is only ONE person in

whom is merged the qualities

of creditor and debtor.

There is only one obligation.

Compensation Counter-claim/set-off

Takes place by operation of

law; extinguishes

reciprocally the two debts as

soon as they exist

simultaneously, to the

amount of their respective

sums.

Must be pleaded to be

effectual.

Judicial compensation.

Kinds or classes of compensation:1. According to its effector extent

a. Total both obligations are completelyextinguished because they are of the same or

equal amounts

b. Partial - when a balance remains2. According to its origin or cause

a. Legaltakes place by operation of law, neednot be pleaded

b. Voluntary or conventional due to anagreement of parties

c. Judicial aka set-off; must be pleaded; can bemade effective only by order from the court.

d. Facultative one of the parties has thechoice of claiming the compensation or of

opposing it

- Compensation is like paying thus, you can only claimwhen your debt is due.

- The time when compensation can be claimed is thesame time when payment should be made.

When compensation cannot exist:- A debtor of a corporation cannot compensate his debt

with his share of stock in the corporation, since the

corporation is not considered his debtor.

- Money outside of the worth of shares becomes a debtof the corporation.

- Government and taxpayer are not mutually creditorsof each other. There can be no offsetting in taxes.

- The person claiming compensation must actually havedebt or credit.

Article 1279. In order that compensation may be proper, it is

necessary:

(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 stated;

(3) That the two 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.

Affirmative requisites for legal compensation:1. Principally bound as creditors and debtors.

a. Creditor-debtor relationshipb. Two debts and two creditsc. Generally be bound as principals

2. Money or debt of same kind (consumable or fungible).3. Debts are due.

a. Due period has arrived or condition hasbeen fulfilled

4. Liquidated and demandable.a. If one of the debts has prescribed, there can

be no compensation for the said debt is no

longer demandable.

*No requisite of consent or agreement.

Negative requisites for legal compensation:There must be no:

1. Controversy over property involved2. Waiver of compensation3. Must not have been prohibited by law:

Prohibitted by law:

a. Debts arising from depositum (except bankdeposits)

b. Debts arising from obligations of a depositoryc. Debts arising from a bailee in commodatumd. Debts arising from a claim for future support

due by gratuitous title

e.

Debts consisting in civil liability arising froma penal offense

f. Damages suffered by a partnership thru thefault of a partner cannot be compensated

with profits and benefits which he may have

earned for the partnership by his industry

Requisite for voluntary compensation: no requisite exceptthat agreement be voluntarily and validly entered into.

- If the creditor owes the debtor anything, and thecreditor goes after the guarantor, the guarantor can


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plead compensation, whether total or partial. If the

creditor owes the guarantor anything, however, and

the creditor goes after the debtor, the debtor CANNOT

use what is owed to the guarantor to plead

compensation.

- Unliquidated damages cannot be said to be debtsowing to the government.

- Compensation takes place only if both obligations areliquidated.

Article 1280.Notwithstanding the provisions of the precedingarticle, the guarantor may set up compensation as regards what

the creditor may owe the principal debtor.

Guarantor may set up compensation with respect to

principal debtexception to article 1279 because a guarantoris SUBSIDIARILY, not principally, bound

Reason: Extinguishment (partial or total) of principal obligation

extinguishes (partially or totally) the guaranty (which is merely

an accessory obligation).

Article 1281.Compensation may be total or partial. When thetwo debts are of the same amount, there is a total

compensation.

True for all different kinds of compensation.

Article 1282.The parties may agree upon the compensation of

debts which are not yet due.

Conventional or Voluntary Compensation

a. Applies to conventional or voluntary obligation.b. Requisite in 1279 do not apply.c. Sufficient that the agreement or contract which

declares the compensation should itself be valid:a. Legal capacityb. Freely give their consent

Article 1283. If one of the parties to a suit over an obligation

has a claim for damages against the other, the former may set it

off by proving his right to said damages and the amount thereof.

Judicial Compensation or Set-offa. Pleading and proof of the counterclaim must be made.b. Requisites of 1279.c. Unless pleading and proof are made, the court

CANNOT of its own accord declare the compensation.

Jurisdiction of the Court regarding the value of the demand:General rule: Jurisdiction of the court depends on the totality of

the demand in all causes of action, irrespective of whether the

plural cases arose out of the same or different transactions.

Exceptions:

a. Where the claim joined under the same complaint areseparately owed by, or due to, different parties, in

which case each separate claim furnishes the

jurisdictional test.

b. Where not all the causes of action joined aredemandable or claims for money.

Note: Consequential damages and attorneys fees are notexcluded from the jurisdictional amount.

- Contemplates a situation where you are being sued fora debt you owe, but you are correspondingly owed

damages.

- Once you prove damages, you can petition the court toset it off against your original debt.

Article 1284. When one or both debts are rescissible orvoidable, they may be compensated against each other before

they are judicially rescinded or avoided.

Compensation in the case of rescissible or voidable debts:Valid until rescinded or voided; hence compensation is allowed.

Prevention of unfairness, if rescission or annulment is later

on decreed by the court, it is as if NO compensation ever took

place. RETROACTIVE!

Article 1285.The debtor who has consented to the assignmentof rights made by a creditor in favor of a third person, cannot

set up against the assignee the compensation which would

pertain to him against the assignor, unless the assignor was

notified by the debtor at the time he gave his consent, that he

reserved his right to the compensation.

If the creditor communicated the cession to him but the debtor

did not consent thereto, the latter may set up the compensation

of debts previous to the cession, but not of subsequent ones.

If the assignment is made without the knowledge of the debtor,

he may set up the compensation of all credits prior to the same

and also later ones until he had knowledge of the assignment.

Case 1: Debtor consented to assignment of rights no morecompensation which would have been available against original

creditor. (waiver)

Example: A owes B 10M. B owes A 2M. Compensation

takes place, thus making A owe B only 8M. However, if

B assigns his right to C with As consent, then A owes C10M. But A has a right to collect 2M from B, because

they become 2 non-compensating debts.

Case 2: Debtor consented to assignment but reserved the right

to compensationcompensation available

Case 3: Debtor did not consent

- Compensation re debts due prior to assignment? Yes!- Compensation re debts due after assignment? No!

Case 4: Debtor did not know

- Compensation re debts due prior to knowledge ofassignment? Yes!

- Compensation re debts due after knowledge ofassignment? No!

Essential is the time of knowledge.

Article 1286. Compensation takes place by operation of law,

even though the debts may be payable at different places, but

there shall be an indemnity for expenses of exchange or

transportation to the place of payment.


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Compensation by operation of law

Indemnity for expenses of transportationtransportation of the

goods or the object

Indemnity for expenses of exchange money debts

Article 1287. Compensation shall not be proper when one ofthe debts arises from a depositum or from the obligations of a

depositary or of a bailee in commodatum.

Neither can compensation be set up against a creditor who has

a claim for support due by gratuitous title, without prejudice to

the provisions of paragraph 2 of article 301.

When legal compensation CANNOT take place:

When one debt arises from:

a. Depositum- It is the depository who cannot claim compensation.

The depositor is allowed to claim.

b. Obligations of a depositary* Depository cannot use the thing deposited without

the express permission of the depositor.

c. Obligations of a bailee in commodatum (borrower ofproperty who pays nothing for the loan)- Lender may claim compensation; borrower is NOT

allowed to do so.

d. Because of a claim for supportdue togratuitous title- Support in arrears may be compensated but not

future support.

Compensation where only one party can claim compensation

but not the other is referred to as facultative compensation.

- A savings bank deposit may be subtracted withoutasking permission if there is a loan because the

relationship between the bank and the creditor is that

of debtor and creditor.

- If you ask someone to keep money for you, it is notsubject to compensation.

Article 1288.Neither shall there be compensation if one of the

debts consists in civil liability arising from a penal offense.

Criminal cannot claim compensation, but victim may do so.

Article 1289.If a person should have against him several debts

which are susceptible of compensation, the rules on the

application of payments shall apply to the order of the

compensation.

Article 1290.When all the requisites mentioned in article 1279

are present, compensation takes effect by operation of law, and

extinguishes both debts to the concurrent amount, even though

the creditors and debtors are not aware of the compensation.

Automatic compensation if all the requisites are presenta. Legal compensation takes place automatically unless

there has been valid waiver thereof.

b. Compensation which extinguishes principalobligations also extinguishes accessory obligations.

*Only principal obligations (and not accessory ones)

need to be compensated.

c. To the concurrent amount means that if one debt islarger than the other, the balance subsists as a debt.

*There can be no compensation for as long as one of the debts is

disputed.

SECTION 6

NovationArticle 1291.Obligations may be modified by:

(1) Changing their object or principal conditions;

(2) Substituting the person of the debtor;

(3) Subrogating a third person in the rights of the creditor.

Novationsubstitution or change of an obligation by another,which extinguishes or modifies the first, either changing its

object or principal condition, or substituting another in place of

the debtor, or subrogating a third person in the right of the

creditor.

1. Extinguishes an obligation.2. Creates another.

Kinds of novation:A. According to its Object or Purpose1. Real or objective2. Personal or subjective

i. Substituting the person of the debtor(expromission or delegacion)

ii. Subrogating a third person in the rights ofthe creditor (conventional subrogation or

legal subrogation)

3. Mixed (change of object and parties)B. According to the Form of its constitution

1. Express2. Implied (when two obligation are essentially

incompatible with each other)

- Intent must be clearly displayed by otherthings

- Implied novation necessitates that the oldobligation is completely superseded by the

new one

- Test of incompatibility: whether they canstand together, each one having

independent existence. If they cannot and

are irreconcilable, the subsequent

obligation would also extinguish the first.

C. According to its extent or effect1. Total or extinctive (when the old obligation is

completely extinguished)

- Never presumed; there must be an expressintention to novate

-

Requisites of extinctive novation:i. Previous valid obligationii. Agreement of all parties

concerned

iii. Extinguishment of old obligationiv. Birth of valid obligation

2. Partial or modificatory (imperfect or impropernovation)

- Where the change brought about by anysubsequent agreement is merely incidental

to the main obligation


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- Old obligation remains in force exceptinsofar as it has been modified.

- Should there be any doubt as to whetherthe novation be total or partial, it shall be

presumed to be merely modificatory.

Requisite for novation (in General):1. VALID previous obligation2. Intent to extinguish or annul3.

Capacity and consent (except in expromission)4. Valid new obligation

- Raising the issue of novation for the first time whenthe case is already in the Court of Appeals does not

deserve consideration.

- Once criminal liability is established, you cannot usenovation to extinguish it.

Article 1292. In order that an obligation may be extinguishedby another which substitute the same, it is imperative that it be

so declared in unequivocal terms, or that the old and the new

obligations be on every point incompatible with each other.

Express and Implied novation

1. Express declared in unequivocal terms2. Implied complete or substantial incompatibility

SUBSTANTIAL CHANGES

a. In the object or subject matter of the contract Delivery of car instead of diamond ring

b. In the cause or consideration of the contract Upward change in price (downward change

= remission)

c. In the principal terms or conditions of thecontract

Debt subject to condition is made an absoluteone without a condition

Reduction of the term or period originallystipulated

Cases:

- One who subscribes for stock of a proposedcorporation is relieved of his obligation, if, without his

consent, the authorized capitol stock of the

corporation is increased.

- The first lease and subsequent lease are notincompatible.

- For as long as it was express, there is novation, even ifotherwise the two contracts are compatible.

- Change from mortgage to surety is substantial change.No extinctive novation when:

1. Only slight alterations or modifications in theconstruction plan of the building.2. New contract merely contains supplementary

agreement.

3. Additional interest is agreed upon.4. Additional security is given.5. After a final judgment, a contract was entered into

precisely to provide a method of payment other than

that stated in the judgment.

6. Guarantor enters into an agreement with the creditorthat he will also be a principal debtor.

7. When the creditor in the meantime refrains formsuing the debtor, or when the creditor extends the

period of payment.

8. Place of payment is changed or there is a variation inthe amount of partial payments.

9. Public instrument is executed to confirm a validcontract.

10. There is execution of a promissory note for said price.*The mere circumstance of the creditor receiving payment froma third party who acquiesced to assume the obligation of the

debtor when clearly there is no agreement to release the debtor

from the responsibility does not constitute novation.

Article 1293. Novation which consists in substituting a new

debtor in the place of the original one, may be made even

without the knowledge or against the will of the latter, but not

without the consent of the creditor. Payment by the new debtor

gives him the rights mentioned in articles 1236 and 1237.

Personal or Subjective Novation

a. Change of debtor passivea.

Expromission initiative comes from a thirdperson

- Essential that the old debtor be releasedfrom his obligation

REQUISITES:

(1) Initiative must come from a third person.(2) New debtor and new creditor must

CONSENT.

(3) Old debtor must be released from hisobligation. (*Old debtors consent orknowledge is not required)

b. Delegacioninitiative comes from the debtor- Generally, the old debtor will not be held

liable if the new debtor is unable pay,

exceptif done in bad faith.

Parties in Delegacion:1. Delegante original debtor2. Delegatoria creditor3. Delegado new debtorREQUISITES:

(1) Initiative comes from the old debtor(2) All the parties concerned must consent

a. In any formb. Express or implied through actsc. Before or after the new debtor

has given his consent

d. If conditional, condition has beenfulfilled

Rights of the new debtor:

1. Beneficial reimbursement in expromission2. Reimbursement and subrogation in delegacionb. Change of creditoractive- A substitution of the debtor without the consent of the

creditor is binding upon the parties to the substitution

but not on the creditor.

- Novation cannot bind respondent


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Article 1294. If the substitution is without the knowledge or

against the will of the debtor, the new debtor's insolvency or

non-fulfillment of the obligations shall not give rise to any

liability on the part of the original debtor.

Refers to expromision

Article 1295.The insolvency of the new debtor, who has been

proposed by the original debtor and accepted by the creditor,shall not revive the action of the latter against the original

obligor, except when said insolvency was already existing and

of public knowledge, or known to the debtor, when the

delegated his debt.

Refers to delegacion

Requisites to hold old debtor liable:Either of the following must be present:

(a) Insolvency was already existing and of publicknowledge at the time of delegation.

(b) Insolvency was already existing and known to thedebtor at the time of delegation.

** If the insolvency happened after the delegation, olddebtor is not liable.

When article does NOT apply:If there is NO extinctive novation! Such as:

(a) Third person was only a messenger, or employee ofthe debtor.

(b) Third person only acted as a guarantor or surety.(c) New debtor merely agreed to make himself solidarily

liable for the obligation.

(d) New debtor merely agreed to make himself jointly orpartly responsible for the obligation.

Article 1296.When the principal obligation is extinguished inconsequence of a novation, accessory obligations may subsistonly insofar as they may benefit third persons who did not give

their consent.

General rule: Automatic extinction of the accessory obligation if

the principal obligation is extinguished.

One Exception: Accessory obligations made in favor of third

persons (stipulations pour autrui) remain unless said third

persons have their consent to the novation.

Article 1297. If the new obligation is void, the original one

shall subsist, unless the parties intended that the former

relation should be extinguished in any event.

If for any reason, the new agreement does not ripen into an

enforceable obligation, the old one subsists.

If new obligation is voidable:

a. New obligation is valid until annulled.b. If new obligation is annulled, the old obligation

subsists.

Exception to the rule that there is no novation if the new

obligation is void: When the parties intended the former

relation should be extinguished in any event.

*If the new obligation becomes destroyed, but was not initially

void, then the old one will NOT subsist. Old obligation was

effectively extinguished.

Article 1298.The novation is void if the original obligation wasvoid, except when annulment may be claimed only by the

debtor or when ratification validates acts which are voidable.

This article really talks about voidable, not void. A void contract

does not have to be annulled nor can it be ratified.

If the old obligation was void: No valid novation.

If old obligation was voidable:a. If it has already been annulled, there is no more

obligation. Therefore, the novation is also void.

b. If it has not yet been annulled, valid novation if:i. Annulment may be claimed only by the debtor

ii.

When ratification validates acts which are voidable

If old obligation was extinguished by loss:a. If through fortuitous event without liability on the part

of the debtor, the novation is VOID for there is no

obligation to novate.

b. If the loss made the debtor liable there is still anexisting monetary obligation that may be subject to

novation.

A prescribed obligation may be subject to novation, unless the

defense of prescription is set up by the debtor, failure to do so

amounts to waiver.

Effect on a voidable obligation of novation by expromision:

When the new debtor, after payment, sues the old debtor forbeneficial reimbursement, the old debtor can set up whatever

defenses he could have set up against the creditor.

Article 1299. If the original obligation was subject to asuspensive or resolutory condition, the new obligation shall be

under the same condition, unless it is otherwise stipulated.

If, for example, the suspensive condition attached to the

obligation is not fulfilled, the old obligation never arose.

Therefore, there would be nothing to novate.

Article 1300.Subrogation of a third person in the rights of thecreditor is either legal or conventional. The former is not

presumed, except in cases expressly mentioned in this Code;

the latter must be clearly established in order that it may take

effect.Subrogation transfer to a third person of all the rights

appertaining to the creditor, including the right to proceed

against guarantors, or possessors of mortgages.


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Kinds of Subrogation:(a) From the viewpoint of causeor origin

1. Conventional or voluntary subrogation- Must be clearly established

2. Legal subrogationBy operation of law- Not presumed, except in the case expressly

mentioned by law

(b) From the viewpoint of extent1. Total subrogation2.

Partial subrogation

Article 1301. Conventional subrogation of a third person

requires the consent of the original parties and of the third

person.

Generally, the debtor loses the right to present against the new

creditor any defense that he the debtor, could have set up

against the old creditor.

Assignment of credit Conventional subrogation

a. Mere transfer of the SAME

right or credit

a. Extinguishes the obligation

and creates a new one

b. Does NOT require thedebtors consent

b. Requires debtors consent

c. Defect in the credit or right

is not cured simply by

assigning the same; debtor

generally still has the right to

present against new creditor

any defense available as

against old creditor

c. Defect of the old obligation

may be cured in such a way

that the new obligation

becomes entirely valid

Article 1302.It is presumed that there is legal subrogation:

(1) When a creditor pays another creditor who is preferred,

even without the debtor's knowledge;

(2) When a third person, not interested in the obligation, payswith the express or tacit approval of the debtor;

(3) When, even without the knowledge of the debtor, a person

interested in the fulfillment of the obligation pays, without

prejudice to the effects of confusion as to the latter's share.

First instance:(a) If creditor A, pays preferred creditor B, A will now

have the rights of B.

(b) If A, pays B less than the agreed amount betweendebtor D and B for the whole debt, then A will now

have the rights of B. (A bought the debt)

(c) If A, pays B less than the agreed amount between Dand B for the whole debt, but D has already paid B

partially, A can only claim up to the amount where Dhas benefitted.

**If D has available defenses against B, he may also set it up

against A because only in conventional subrogation, defects are

cured, while in legal subrogation, defects are not cured.

Second instance:As long as disinterested third party pays with the approval of D,

then third party is subrogated the creditors rights.

If made without the express or tacit approval, no legal

subrogation. Can only claim the amount that the debtor

benefitted.

Third Instance:Examples of persons interested:

1. Guarantor2. Owner of the property mortgaged

Article 1303.Subrogation transfers to the persons subrogatedthe credit with all the rights thereto appertaining, either against

the debtor or against third person, be they guarantors or

possessors of mortgages, subject to stipulation in aconventional subrogation.

In a sense, the obligation subsists, that is, it has not yet beenextinguished or paid.

If the transferred credit is subject to a suspensive condition, the

new creditor cannot collect until after said condition is fulfilled.

Article 1304. A creditor, to whom partial payment has been

made, may exercise his right for the remainder, and he shall be

preferred to the person who has been subrogated in his place in

virtue of the partial payment of the same credit.

Partial subrogation:There are two creditors:

a. Old creditor who remains a creditor as to balance.b. New creditor who is a creditor to the extent of what he

had paid the creditor.

Preference to the old creditor is only in the assets remaining

with the debtor, not those already transferred to others.


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TITLE IICONTRACTSCHAPTER 1General Provisions

Article 1305. A contract is a meeting of minds between twopersons whereby one binds himself, with respect to the other,

to give something or to render some service.

Contract juridical convention manifested in legal form, byvirtue of which, one or more persons bind themselves in favor

of another or others to give, to do, or not to do.

Elements of a Contract:a. Essential Elements without them, a contract cannot existb. Natural Elements those found in certain contracts, and

presumed to exist

c. Accidental Elements various particular stipulations thatmay be agreed upon by the contracting parties in a

contract; made by the parties themselves

Classification of contracts:According to

(a) Perfection or formationa. Consensual perfected by mere consentb. Real perfected by deliveryc.

Formal or solemn special formalities areessential

(b) Cause or equivalence of the value of the prestationsa. Onerous Interchange of equivalent valuable

consideration

b. Gratuitous or lucrative FREE, one partyreceives no equivalent prestation except a

feeling that one has been generous or liberal

c. Remunerative one where one prestation isgiven for a benefit or service that has been

rendered PREVIOUSLY

(c) Importance or dependence of one upon anothera. Principal contract may stand aloneb. Accessory depends on the existence upon

another contract

c. Preparatory parties do not consider thecontract as the end itself, but as means through

which future transactions or contracts be made

(d) Parties obligateda. Unilateral only one of the parties has an

obligation

b. Bilateral/ synalagmatic both parties arerequired to render reciprocal prestations

(e) Name or designationa. Nominate contract is given a particular or

special name

b. Innominate/ contratos innominados those notgiven a special name

(f) Risk of fulfillmenta.

Commutative parties contemplate a realfulfillment; equivalent values are given

b. Aleatory fulfillment is dependent upon chance(g) Time of performance or fulfillment

a. Executed one completed at the time thecontract is entered into

b. Executory one where the prestations to becomplied with at some future time

(h) Subject mattera. Thingsb. Rights or Credits (provided transmissible)c. Services

(i) Obligations imposed and regarded by the lawa. Ordinaryb. Institutional

(j) Evidence required for its proofa. Oral or parol evidenceb. Requiring written proof

(k) Number of persons actually and physically enteringinto the contracts

a. Ordinary two parties are represented bydifferent personsb. Auto-contracts Only one person represents twoopposing parties, but in different capacities

(l) Number of persons who participated in the drafting ofthe contract

a. Ordinaryb. Contract of adhesion provisions are drafted by

only one party, and the only participation of the

other party is to sign his name; construed and

interpreted against the party who drafted it

(m)Nature of the contracta. Personalb. Impersonal

Stages of a contract:

1. Preparation/ Conception parties are progressingwith their negotiations; they have not yet arrived at

any definite agreement

2. Perfection/ birth parties have come to a definiteagreement, the elements of definite subject matter,

and valid cause have been accepted by mutual consent

3. Consummation terms of the contract are performed,and the contract may be said to have been fully

executed

Basic principles or characteristics of a contracta. Freedom to stipulateb. Obligatory force and compliance in good faithc. Perfection by mere consentd.

Both parties are mutually bounde. Relativity binding only between parties, theirassigns, and heirs

Article 1306. The contracting parties may establish suchstipulations, clauses, terms and conditions as they may deem

convenient, provided they are not contrary to law, morals, good

customs, public order, or public policy.

Principle of freedom autonomy of the willRefers only to contracts which are legal, not to void or

inexistent ones

Limitations on the nature of stipulationsa. Law must not be contrary to mandatory andprohibitive laws. Directory and suppletory laws need

not be complied with.

b. Morals deal with right and wrong and humanconscience

c. Good custom those that have received for a period oftime practical and social confirmation

d. Public order public weal, includes public safetye. Public policy public, social, and legal interest in

private law; manifest will of the State


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- Contrary to public policy if it has a tendencyto injure the public, is against the public

good, or contravenes some established

interest in society

Designation of the name of a contract: Name that the parties

give should not be controlling, it is what the parties intended it

to be.

Article 1307. Innominate contracts shall be regulated by the

stipulations of the parties, by the provisions of Titles I and II of

this Book, by the rules governing the most analogous nominate

contracts, and by the customs of the place.

Governing rules for innominate contractsa. Stipulationsb. Titles I and II of Book IV Obligations and Contractsc. Rules on the most analogous nominate contractsd. Customs of the place

Kinds of innominate contracts:

1. do ut des I give that you may give 2.

do ut facias

I give that you may do3. facio ut desI do that you may give4. facio ut faciasI do that you may do

Innominate contracts can apply to implied contracts.

Article 1308.The contract must bind both contracting parties;

its validity or compliance cannot be left to the will of one of

them.

Mutuality

both parties are bound based on the essential equality ofparties

Consequences of mutuality:

a. A party cannot revoke or renounce a contract withoutthe consent of the other, nor can it have it set aside on

the ground that he made a bad bargain.

-What is left to an individual is termination. The effectivity itself

is binding on both.

-Unilaterally changing the stipulations of a contract and

changing its kind of effectivity.

-A contract containing a condition which makes its fulfillment

dependent exclusively upon the uncontrolled will of one of the

contracting parties is void.

Article 1309. The determination of the performance may be

left to a third person, whose decision shall not be binding until

it has been made known to both contracting parties.

Decision binds the parties only AFTER it is made known to both

Article 1310.The determination shall not be obligatory if it is

evidently inequitable. In such case, the courts shall decide what

is equitable under the circumstances.

Evidently inequitable determination is not bindinga. What is equitable is a question of fact to be

ascertained from the attendant of circumstances.

b. The court is called upon to decide what is equitable.Article 1311. Contracts take effect only between the parties,

their assigns and heirs, except in case where the rights and

obligations arising from the contract are not transmissible by

their nature, or by stipulation or by provision of law. The heir is

not liable beyond the value of the property he received from thedecedent.

If a contract should contain some stipulation in favor of a third

person, he may demand its fulfillment provided he

communicated his acceptance to the obligor before its

revocation. A mere incidental benefit or interest of a person is

not sufficient. The contracting parties must have clearly and

deliberately conferred a favor upon a third person.

Relativitycontracts are generally effective only between the

parties, their assigns, and their heirs.

*If third party benefit is merely incidental, the third party

cannot insist upon the performance or enforcement of the

contract.

Exceptions to the Principle of Relativity: (5)1. Obligations arising from the contract are not

transmissible by their nature, by stipulation, or by

provision of law.

- Money debts are not directly chargeable againstthe heirs. They should be claimed in the estate or

intestate proceedings.

2. Stipulation pour autrui.- Pour autrui stipulation in favor of a third

person conferring a clear and deliberate favor

upon him

- REQUISITES:1. Stipulation in favor of a third person.2. Contracting parties must have clearly and

deliberately conferred a favor upon a

third person.

3. Stipulation must be a part, not the whole,of the contract.

4. Third person must have communicatedhis acceptance to the obligor before its

revocation.

5. Neither of the contracting parties bearsthe legal representation or authorization

of the third party.

(Note: Such a stipulation is binding on said

third person, although he may not be a

signatory to the contract.)

-

If principal contract of which the stipulationforms part is void, the stipulation is generally

void.

3. Third person induces another to violate his contract.- Can ask for damages.

4. Where third person may be adversely affected by acontract where they did not participate.

- Collective contracts5. Where the law authorizes the creditor to sue on a

contract entered into by his debtor.


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Article 1312. In contracts creating real rights, third persons

who come into possession of the object of the contract are

bound thereby, subject to the provisions of the Mortgage Law

and the Land Registration Laws.

Article constitutes one of the exceptions to the general rule that a

contract binds only the parties.

Article 1313. Creditors are protected in cases of contracts

intended to defraud them.

Article 1314.Any third person who induces another to violate

his contract shall be liable for damages to the other contracting

party.

Stranger to a contract may be sued in view of his unwarranted

interference.

Article 1315. Contracts are perfected by mere consent, and

from that moment the parties are bound not only to thefulfillment of what has been expressly stipulated but also to all

the consequences which, according to their nature, may be in

keeping with good faith, usage and law.

Consensuality

- A contract is perfected only from the time anacceptance of an offer is made known to the offeror.

- An acceptance which is not made in the mannerprescribed by the offeror is not effective but

constitutes a counter-offer which the offeror may

accept or reject.

- Contract is not perfected if the offeror revokes orwithdraws the offer and the revocation or withdrawalis the first to reach the offeree.

- Acceptance by the offeree of the offer after theknowledge of the revocation or withdrawal of the

other is inefficacious.

How contracts are perfected:a. Consensual contracts mere consent (general rule);

perfected from the moment there is agreement

(consent) on the subject matter, and the cause or

consideration

b. Real contracts perfected by deliveryc. Formal or solemn contracts special form is required

for perfection

Consequences of perfectiona. Parties are bound to the fulfillment of what has been

EXPRESSLY STIPULATED

b. ALSO bound to all the CONSEQUENCES

Article 1316. Real contracts, such as deposit, pledge andcommodatum, are not perfected until the delivery of the object

of the obligation.

Real contracts require consent, subject matter, cause or

consideration, and DELIVERY.

- A contract to make a deposit, to make a pledge, or tomake a comodatum is a consensual contract. After

delivery, the contract becomes a real contract.

Contract of carriage:a. Contract to carry (at some future time) is consensual

and is perfected by mere consentb. Contract of carriage is a real contract til the momentof actual use

- Real contract of carriage is perfected even ifthe passenger has not yet paid

- The all important fact is that he has, with theexpress or implied consent of the carrier,

placed a part of his body, or a portion of the

goods on any part of the jeepney, taxi, or bus,

such as the stepping platform or running

board.

Article 1317. No one may contract in the name of another

without being authorized by the latter, or unless he has by law a

right to represent him.

A contract entered into in the name of another by one who has

no authority or legal representation, or who has acted beyond

his powers, shall be unenforceable, unless it is ratified,

expressly or impliedly, by the person on whose behalf it has

been executed, before it is revoked by the other contracting

party.

Requisite for a person to contract in the name of another:a. Duly authorized (expressly or impliedly)b. OR a right to represent him by lawc. OR contract is subsequently ratified- Mere lapse of time cannot cure the defect; this is not

the ratification required by the law

- Death of the principal does NOT render the act of theagent unenforceable, where the agent had no

knowledge of such extinguishment of the agency

Effect of ratification cleanses the contract from all itsdefects from the moment the contract was entered into.

Retroactive effect

There can be no more ratification if the other contracting party

has previously revoked the contract.

Ratification means that one under no disability voluntarily

adopts and gives sanction to some unauthorized act or defective

proceeding, which without his sanction would not be binding

on him. you have to be aware to be able to ratify.

CHAPTER 2Essential Requisites of ContractsGeneral Provisions

Article 1318. There is no contract unless the followingrequisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.


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Absence of one makes the contract defective, not necessarily

void

Essential requisites of Consensual Contracts1. Consent2. Object3. Cause

Requisites of Real Contracts:

1-3. COC4. DeliverySolemn or formal contracts:

1-3. COC

4. Compliance with the formalities required by law

Consent presupposes legal capacity and the fulfillment ofconditions

Effect of non-consent:(a) If there is absolutely no consent, there is no contract.(b) If there is a vice of consent (vitiated consent) such as

error, fraud, or undue influence, the contract is merely

voidable.

Lack of consent is separate and distinct from lack of

consideration when there is no clear offer, there can be noacceptance

SECTION 1ConsentArticle 1319.Consent is manifested by the meeting of the offer

and the acceptance upon the thing and the cause which are to

constitute the contract. The offer must be certain and the

acceptance absolute. A qualified acceptance constitutes a

counter-offer.

Acceptance made by letter or telegram does not bind the offerer

except from the time it came to his knowledge. The contract, in

such a case, is presumed to have been entered into in the placewhere the offer was made.

Consent meeting of the minds between the parties in thesubject matter and the cause of the contract, even if neither one

has been delivered

manifestation of the meeting of the meeting of the

offer and the acceptance upon the thing and the cause which

are to constitute the contract

Offerer can withdraw the offer before the offeree could consent

because there was no meeting of the minds yet, hence no

contract had been perfected.

Requisites of an offer:

1. Definite2. Complete3. Intentional (serious and deliberate)

Requisites of consent:(a) there must be two or more parties.(b) Parties must be capable or capacitated (legal capacity)(c) No vitiation of consent must be freely given.(d) There must be no conflict between what was

expressly declared and what was really intended.

Vagueness can be a ground for questioning the

validity of a contract

Could lead to reformation or else the contract is

void

(e) Intent must be properly declared.-If one contract is merely amendatory, adherence to the original

one is enough and the amendatory contract need not mention

everything again.

Requisites for meeting of the minds:

(a)

Offer must be certain(b) Unqualified and absolute acceptanceAn offer that is certain

- Must not be vague, misleading, or made as a joke.- Intention is not an offer.- A certain offer leaves no doubt as to the position of the

person to take part in the contract

- Dependent contracts ALL must be agreed to. Youcant accept one and assume acceptance of the other.

Also, you cannot accept one and reject the others.

- For as long ass there is no certainty to the potentialobjects, any agreement regarding them cannot be

considered a contract.

An acceptance that is unqualified and absolute- Rejection terminates an offer. A counter-offer has the

same effect.

- Counter-offer is an offer of a new agreement. An offerof a counter-offer does not signify acceptance of the

first offer.

- Even if the offer was for the same cause andconsideration, it is considered a new offer, if a

previous one had been rejected.

- No meeting of the minds when there is a discrepancyin what was offered and what was performed, unless

it was definitely accepted.

- In a stage of negotiation, no contract yet since offersare not definite.

- Conjunctive offer single offer with more than onecontract- Complex offerone price for two items- Amplified acceptance accepted, and also further

offer to get more of the same thing

Acceptance through correspondence(a) Acceptance made by letter or telegram does not bind

the offerer except from the time it came to his

knowledge.

(b) Knowledge may be actual or constructive.- If withdrawal was made prior to the receipt of the

letter of acceptance, the offer had already been

withdrawn. What is important is that the letter of

withdrawal was MADE prior to the knowledge of

acceptance.

Rule if letter of acceptance is withdrawn or revoked:

Reyes, Puno, Tolentinos view:

- Knowledge is the reckoning point- If knowledge of acceptance reached offeror before

knowledge of revocation, there was already meeting

of the minds.

Manresas view:

- Actual time is important- No meeting of the minds if there was revocation prior

to the knowledge of acceptance.


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Article 1320.An acceptance may be express or implied.

Forms of Acceptance:1. Express2. Implied3. Presumed (by law)

Article 1321. The person making the offer may fix the time,

place, and manner of acceptance, all of which must be complied

with.

Things that may be fixed by the offerer:(a) time(b) place(c) manner of acceptance

Any act contrary to the prescribed terms really constitutes a

counter-offer or counter-proposal.

- 1321 also applies to auction sales, both public andprivate.

- A contract to purchase which does not give specificdescription of the objects to be purchased nor the

price nor the rate of exchange to be used is a mere

preliminary agreement.

Article 1322.An offer made through an agent is accepted from

the time acceptance is communicated to him.

Applies when BOTH the offer and acceptance are made through

an agent.

Any other intermediary (who is not an agent) is merely a sort of

messenger, who must communicate to the person who sends

him; otherwise, there is as yet no meeting of the minds.

Generally, if the principal makes the offer to an agent, there

would be no meeting of the minds. HOWEVER, if the agent wasexpressly authorized to receive the acceptance, then there can

be meeting of the minds and a perfection of the contract.

Article 1323.An offer becomes ineffective upon the death, civil

interdiction, insanity, or insolvency of either party before

acceptance is conveyed.

Applies only when there is a gap between making an offer or

acceptance and knowledge of such.

*If one of the parties at the time of making the offer or

acceptance was already insane, it may be said that there is a

meeting of the minds, in a sense, because the contract is notvoid, but merely VOIDABLE.

Other instances when offer becomes ineffective:a. Offer expressly or impliedly rejects the offer.b. When counter-offer is made.c. When before acceptance is communicated, the subject

matter has become illegal or impossible.

d. When the period of time given to the offeree withinwhich he must signify his acceptance has already

lapsed.

e. When the offer is revoked in due time.

Article 1324. When the offerer has allowed the offeree a

certain period to accept, the offer may be withdrawn at any

time before acceptance by communicating such withdrawal,

except when the option is founded upon a consideration, as

something paid or promised.

Option

General rule: If the offerer has allowed the offeree a certain

period to accept, the offer may be withdrawn at any time beforeacceptance by communicating such withdrawal.

Exception: When the option is founded upon a consideration as

something paid or promised.

Consideration may not necessarily be money.

Contract of option is separate and distinct contract from the

contract which the parties may enter into upon the

consummation of a contract, however, option money can

become earnest money if the stipulation is exercised.

If option is without consideration:

- May be withdrawn, provided there is communication-

Withdrawal must not be whimsical or arbitrary- Withdrawal to sell to another is usually legitimateRight of refusal

- He has to offer the thing from you first no periodnecessary

- Different from an option period is usuallynecessary

Article 1325. Unless it appears otherwise, business

advertisements of things for sale are not definite offers, but

mere invitations to make an offer.

Definite offerif containing all the specific particulars needed ina contract.

Mere invitationif important details are left out.

Article 1326. Advertisements for bidders are simply

invitations to make proposals, and the advertiser is not bound

to accept the highest or lowest bidder, unless the contrary

appears.

Acceptance of a bid must be communicated to the bidder.

Any participating in the bidding at a public auction is

understood to have submitted himself to all conditions set forth

at such sale.

Terms:

(1) Lowest bidder offers the lowest price(2) Lowest responsible bidder not only financial ability,

but also the skill and capacity necessary to complete

the job

(3) Lowest and best bidder financial ability, skill,capacity, and reputation of the bidders for dealing

fairly and honestly with the government


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Article 1327.The following cannot give consent to a contract:

(1) Unemancipated minors;

(2) Insane or demented persons, and deaf-mutes who do not

know how to write.

Two classes of voidable contracts:(a) Where one party is incapacitated to give consent(b) Where the consent of one party has been vitiated (by

error, fraud, violence, intimidation, and undue

influence)

Persons incapacitated to give consent:(1) Unemancipated minors(2) Insane or demented persons, drunks, and those

hypnotized

- Unless they acted during a lucid interval(3) Deaf-mutes who do not know how to write (and read)

- If they know how to read, but do notknow how to write, it is submitted the

contract is valid, for they are capable of

understanding

Unemancipated minors:

In general, the contracts they enter into are voidable, unless:a) Upon reaching the age of majority, they ratify thesame

b) Entered into through a guardian, and the courthaving jurisdiction, approved the same

c) In the form of savings account in the Postal savingsbank, provided the minor is at least 7years old.

d) Contracts for necessities such as food, but the peoplewho are legally bound to give them support should

pay.

e) Contracts where the minor misrepresented his age,and pretended to be one of major age (estoppel).

f) If both parties to a contract are minors, the contractis unenforceable.

Insane or Demented Persons (unless they acted during a lucidinterval)

(a) Reason: People who contract must know what theyare entering into

(b) No proper declaration of insanity by the court isrequired, as long as it is shown that at the time of

contracting, the person was really insane.

(c) Even if a person had already been declared insane,this does not necessarily mean that at the time of

contracting, said person was still insane.

(d) If the contract was made before the declaration ofinsanity, the presumption is that he was still sane at

the time of contracting.

(e) Insanity must be proved if prior declaration ofinsanity, else sanity must be proved if already proveninsane.

Deaf-Mutes who do not know how to write (and read)(a) Formerly, a deaf-mute was presumed to be an idiot.(b) If a deaf-mute does not know how to write, but he

knows how to read, he should e considered

capacitated.

Persons specially disqualified:Transaction is VOID, because the right is WITHHELD.

(a) Husband and wife cannot sell to each other.

(b) Insolvents before they are discharged cannot makepayments.

(c) Persons disqualified because of fiduciary relationship.(d) Contracts entered into with non-Christians unless

approved by the governor or his representative. (huh)

Article 1328.Contracts entered into during a lucid interval arevalid. Contracts agreed to in a state of drunkenness or during a

hypnotic spell are voidable.

Article 1329.The incapacity declared in article 1327 is subject

to the modifications determined by law, and is understood to bewithout prejudice to special disqualifications established in the

laws.

Article 1330. A contract where consent is given through

mistake, violence, intimidation, undue influence, or fraud is

voidable.

Vices of consent

MISTAKE and FRAUD affect intellect cognition

VIOLENCE, INTIMIDATION, and UNDUE INFLUENCE affect the

willvolition

Nature of a voidable contractA voidable contract is binding and valid unless annulled by a

proper action in court.

Susceptible of ratification before annulment.

Annulment may be had even if there be no damage to

contracting parties.

There must be clear and convincing evidenceof the presence

of vitiated consent.

Article 1331. In order that mistake may invalidate consent, itshould refer to the substance of the thing which is the object of

the contract, or to those conditions which have principally

moved one or both parties to enter into the contract.

Mistake as to the identity or qualifications of one of the parties

will vitiate consent only when such identity or qualifications

have been the principal cause of the contract.

A simple mistake of account shall give rise to its correction.

Requisites for mistake to vitiate consent:(a) Error must be substantial regarding:

a. Object of the contractb. Conditions which principally moved or induced

one of the parties (error in quality or quantity)

c. Identity or qualifications (error in personae),but only if such was the principal cause of the

contract

(b) Error must be excusable (not caused by negligence)(c) Error must be a mistake of fact, not of law

Substantial errorif because of it, the party gave his consent.

If still have entered into the contract even if he had

known of the error, the error is not substantial.


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Examples of errors regarding:

(a) Object signed contract of sale instead of loan(b) Conditions that principally induced the party to enter

a contract true boundaries of a parcel of land

- If error was the fault of a person inrelation to a matter totally foreign to the

contract, it does not vitiate consent

(c) Quality thinking it was an original CD, but actuallypirated(d) Quantity desiring to buy property of 10 hectares, butit was only 6 hectares

(e) Identity or qualifications pre-bar reviewer, since thisrequires trust and confidence

Excusable error error does not vitiate consent if the partyin error was negligent, or if having had an opportunity to

ascertain the truth, he did not do so,

If it was your own carelessness, no error. Also if you knew the

risk. Plus wrong speculation cannot give rise to error.

Error of fact, not of law ignorance of the law does notexcuse anyone from compliance therewith

Correctionsare for typos and mathematical mistakes only.

Article 1332. When one of the parties is unable to read, or if

the contract is in a language not understood by him, and

mistake or fraud is alleged, the person enforcing the contract

must show that the terms thereof have been fully explained to

the former.

Natural presumption: one always acts with due care and signs

with full knowledge of all the content of a document.

Presumption cannot apply if:

(1) One of the parties cannot read (illiterate and blind)(2) If the contract is in a language not understood by one

of the parties

Article 1333.There is no mistake if the party alleging it knew

the doubt, contingency or risk affecting the object of the

contract.

Aleatory in nature

random; depending on chance

If mistake caused by inexcusable negligence, the contract

cannot be annulled.

Article 1334. Mutual error as to the legal effect of anagreement when the real purpose of the parties is frustrated,

may vitiate consent.

Requisites for mutual error to vitiate consent:1. There must be mutual error2. Error must refer to a legal effect of the arrangement3. Real purpose of the parties is frustrated

When there is mistake on a doubtful question of law, or on the

construction or application of law, this is analogous to mistake

of fact.

If there was meeting of the minds, but the instrument does not

show the real intention, the remedy is reformation.

Article 1335.There is violence when in order to wrest consent,

serious or irresistible force is employed.

There is intimidation when one of the contracting parties is

compelled by a reasonable and well-grounded fear of an

imminent and grave evil upon his person or property, or upon

the person or property of his spouse, descendants or

ascendants, to give his consent.

To determine the degree of intimidation, the age, sex and

condition of the person shall be borne in mind.

A threat to enforce one's claim through competent authority, if

the claim is just or legal, does not vitiate consent.

Requisites for Violence(physical coercion) to vitiate consent

(a)

Employment of serious or irresistible force(b) Must be the reason why the contract was entered intoRequisites for intimidation (moral coercion) to vitiateconsent

(a) Reasonable and well-grounded fear- Depends upon many circumstances- Must be more than the general feeling of fear

(b) Of an imminent and grave evil- Depends on circumstances, particularly the

age, sex, or condition of the person threatened

(c) Upon his person, or property, or upon the person orproperty of his spouse, descendants, or ascendants

(d) Must be the reason why the contract was entered into(e) Threat must be an unjust act, an actionable wrong

- Threat to prosecute is not intimidation*Reverential fear, by itself, is not wrong

Article 1336. Violence or intimidation shall annul theobligation, although it may have been employed by a third

person who did not take part in the contract.

Article 1337. There is undue influence when a person takes

improper advantage of his power over the will of another,

depriving the latter of a reasonable freedom of choice. The

following circumstances shall be considered: the confidential,

family, spiritual and other relations between the parties, or thefact that the person alleged to have been unduly influenced was

suffering from mental weakness, or was ignorant or in financial

distress.

Requisites of undue influence to vitiate consent:(a) Improper advantage(b) Power over the will of another(c) Deprivation of the latters willof a reasonable freedom

of choice


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Examples of circumstances to be considered:(a) Confidential, family, spiritual, and other relations

between the parties

(b) Mental weakness(c) Ignorance(d) Financial distress

*To vitiate consent, the influence must be undue. If the

influence is due or allowable, same is not prohibited by law,

morals, or equity.

Contracts of Adhesion where one party merely signscarefully prepared contracts by big companies

strictly interpreted against the company

Article 1338.There is fraud when, through insidious words or

machinations of one of the contracting parties, the other is

induced to enter into a contract which, without them, he would

not have agreed to.

Dolo Causanteuse of insidious words & machinations by one

of the contracting parties to induce the other party to enter into

a contract, which, without them, he would not have agreed to

Kinds of Fraud:

(a) Fraud in CELEBRATION makingi. Dolo causante (causal fraud)VOIDABLE

ii. Dolo incidente (incidental fraud) VALID, butthere can be an action for damages

(b) Fraud in the PERFORMANCE presupposes theexistence of an already perfected contract

Requisites of Dolo Causante(a) Fraud must be material and serious, that it really

induced the consent

(b) Fraud must be employed by only one of thecontracting parties

(c) Deliberate intent to deceive or induce(d) Other party must have relied on the untrue statement

and must himself not be guilty of negligence in

ascertaining the truth

-If one had another person examined in his place, contract is

voidable.

Article 1339.Failure to disclose facts, when there is a duty to

reveal them, as when the parties are bound by confidential

relations, constitutes fraud.

Failure to disclose facts:(a) Failure to disclose facts (concealment) constitutes

fraud, where there is a duty to reveal them

(b) Duty to reveal in the following cases: parties arebound by confidential relations

- No duty to disclose facts to opponents in litigation.

Article 1340.The usual exaggerations in trade, when the other

party had an opportunity to know the facts, are not in

themselves fraudulent.

Caveat emptor let the buyer beware

Article 1341.A mere expression of an opinion does not signify

fraud, unless made by an expert and the other party has relied

on the former's special knowledge.

Expert here should be the other party to the contract

Article 1342. Misrepresentation by a third person does not

vitiate consent, unless such misrepresentation has created

substantial mistake and the same is mutual.

Fraud by third person does not make the contract voidable

unless:1) Representation created substantial mistake2) Mistake is mutual

Contract may be annulled on the ground of error or mistake.

A and B entered into a contract with X. As consent was

obtained by B thru fraud. A may not ask an annulment of the

contract from X because X was not a party to the fraud.

Article 1343. Misrepresentation made in good faith is not

fraudulent but may constitute error.

Article 1344.In order that fraud may make a contract voidable,

it should be serious and should not have been employed by

both contracting parties.

Incidental fraud only obliges the person employing it to pay

damages.

Requisites for fraud to vitiate consent:1. Fraud must be serious.2. Parties must not be in pari delicto, otherwise, neither

party may ask for annulment. Contract then would beconsidered valid.

Incidental fraud is not a cause for annulment, but might be a

cause for rescission.

Article 1345. Simulation of a contract may be absolute or

relative. The former takes place when the parties do not intend

to be bound at all; the latter, when the parties conceal their true

agreement.

Simulation of a contract intentionally deceiving others byproducing the appearance of a contract that really does not

exist (absolute simulation) or which is different from the trueagreement (relative simulation)

Requisites for simulation:(a) Outward declaration of will different from the will of

the parties

(b) False appearance must have been intended by mutualagreement

(c) Purpose is to deceive third persons


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Article 1346. An absolutely simulated or fictitious contract is

void. A relative simulation, when it does not prejudice a third

person and is not intended for any purpose contrary to law,

morals, good customs, public order or public policy binds the

parties to their real agreement.

Kinds of simulated contracts:(a) Absolutely simulated fictitious contracts

1. Parties do not intend to be bound2. VOID contract

(b) Relatively simulated disguised contracts1. Parties conceal their true agreement2. Parties are bound to the real or true agreement

except

a. If the contract should prejudice a thirdperson

b. If the purpose is contrary to law, morals,good customs, public order, or public

policy

SECTION 2Object of ContractsArticle 1347.All things which are not outside the commerce of

men, including future things, may be the object of a contract. Allrights which are not intransmissible may also be the object of

contracts.

No contract may be entered into upon future inheritance except

in cases expressly authorized by law.

All services which are not contrary to law, morals, good

customs, public order or public policy may likewise be the

object of a contract.

Requisites:

(a) Within the commerce of man- E.g. not w/in commerce of man: sidewalks, public

market stalls, human blood(b) Transmissible- e.g. not transmissible: political & personal rights

(c) Not contrary to law, morals, good customs, publicorder, or public policy;

- Future things may be the object of the contract,but by express provision of law, said future

property may not be donated

- Future inheritance cannot be the subject ofcontract except:

oCase of marriage settlementoPartitions of property inter vivosby the deceased

(d) Not be impossible(e) Determinate as to its kind or determinable without the

need of a new contract or agreement

Article 1348. Impossible things or services cannot be the

object of contracts.

Impossibility may be:

(a) Because of the nature of the transaction or because ofthe law

(b) Absolute (objectively impossible) no one can do it(c) Relative (subjectively impossible) particular debtor

cannot comply

Generally, the impossibility referred to by law is absolute

impossibility, but if relative impossibility were permanent (e.g.

blind), then contract is void.

Article 1349.The object of every contract must be determinate

as to its kind. The fact that the quantity is not determinate shall

not be an obstacle to the existence of the contract, provided it is

possible to determine the same, without the need of a new

contract between the parties.

Object of the contract:(a) Must be determinate or determinable(b) If the object is not determinate or determinable, the

contract is void for want of an essential requisite

object of the contract

SECTION 3Cause of ContractsArticle 1350. In onerous contracts the cause is understood tobe, for each contracting party, the prestation or promise of a

thing or service by the other; in remuneratory ones, the service

or benefit which is remunerated; and in contracts of pure

beneficence, the mere liberality of the benefactor.

Cause essential and impelling reason why a party assumesan obligation; strictly speaking, there is no cause of a contract,

but there is cause of an obligation

Why there was a need to contract an obligation

Classification of contracts as to cause:a. Onerous cause is the prestation or promise of a thing

or service by the other; two parties have yet to

perform, but will perform in exchange of the other

e.g. contract of sale

b. Remuneratory past service or benefit which by itselfis a recoverable debt

c.

Gratuitous contract of pure beneficencee.g. pure donation

Cause in Accessory Contracts like Mortgage and Pledge- Cause is the same as the cause for the principal

contract of the loan

- Cause of contracts need not actually benefit the personinvolved, for as long as there was sufficient reason to

logically explain his inclusion

Cause in Accessory contracts of personal guaranty- Pure liberality

Moral obligation is a valid cause of a civil obligation

If the cause is illegal, then void ab initio

Article 1351.The particular motives of the parties in entering

into a contract are different from the cause thereof.

Motive Cause

Motive may vary although he

enters into the same contract

Cause is always the same

Motive may be unknown to

the other

Cause is always known

Presence of motive cannot cure absence of cause.


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Article 1352.Contracts without cause, or with unlawful cause,

produce no effect whatever. The cause is unlawful if it is

contrary to law, morals, good customs, public order or public

policy.

Requisites for cause:(a) Exists at the time the contract was entered into, need

not exist later

(b) True(c) Lawful

Existing cause(a) IF there is no cause whatsoever, the contract is VOID(b) Just because the seller was not the owner of the thing

sold, it does not mean that there was lack of cause

True Cause if the cause is false, the contract is not valid,unless some other cause which is lawful really exists

Effect if the Cause if Illegal(a) If one party is innocent, he cannot be compelled to

perform his obligation, and he may recover what he

has already given

(b)

If both parties are guilty, in generalneither can sue theother, the law leaving them as they are.

Article 1353. The statement of a false cause in contracts shall

render them void, if it should not be proved that they were

founded upon another cause which is true and lawful.

Statement of False Cause:(a) Just because the cause stated is false does not

necessarily mean that the contract is void. Reason:

Parties are given the chance to show that a cause

really exists, and that said cause is true and lawful.

(b) Under this article, contract with statement of falsecause is not void but merely revocable or voidable.

Article 1354.Although the cause is not stated in the contract, it

is presumed that it exists and is lawful, unless the debtor proves

the contrary.

Presumption that cause exists Necessary that the causemust exist. BUT it is not necessary to STATE the cause of the

contract.

Article 1355. Except in cases specified by law, lesion or

inadequacy of cause shall not invalidate a contract, unless there

has been fraud, mistake or undue influence.

Lesion inadequacy of a cause e.g. i

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