Contracts (Oblicon)

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TitleII.CONTRACTSCh ap te r I. Gene ra l Prov is ions

A. D EFIN IT IO NArt 1305 Acon t rac tisameetingofmindsbetweentwopersonswherebyonebindshimself,withrespecttotheother,togivesomethingortorendersomeservice.

- SanchezRoman:ajuridicalconventionmanifestedinlegalform,byvirtueofwhichoneormorepersonsbindthemselvesinfavorofanotherorothers,orreciprocally,tothefulfillmentofaprestationtogive,todoornottodo.

- Limitedtothatwhichproducespatrimonialliabilities- Bindingeffectofcontractbasedonthefollowingprinciples


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OBLIGATIONS&CONTRACTS|Prof.Labitag,A.Y.2008-2009 Page65of102o Obligationsarisingfromthecontracthavetheforceoflawbetweenthecontractingpartieso Theremustbemutualitybetweenthepartiesbasedontheiressentialequality,towhichis

repugnanttohaveonepartyboundbythecontractleavingtheotherfreetherefromB. E LEM ENT SOFACONTRACT

1. Essent ia le lements(ChapterII,infra)withoutwhichtherecanbenocontracta. Consent

b. Object

c. Cause2. Natura le lementsexistaspartofthecontractevenifthepartiesdonotprovideforthem,becausethe

law,assuppletorytothecontract,createsthem.E.g.warrantyagainsthiddendefectsorevictioninthecontractofpurchaseandsale

3. Acc identa le lementsagreeduponbythepartiesandwhichcannotexistwithoutbeingstipulatede.g.mortgage,guaranty,bond

C . C H AR A CT ER IS TI CSO FACONTRACT1. Obl igatoryforceconstitutesthelawasbetweentheparties

Art 1308 Thecontractsmustb indbothcontract ingpart ies;itsvalidityorcompliancecannotbelefttothewillofoneofthem.

2. Mutual i tyvalidityandperformancecannotbelefttothewillofonlyoneoftheparties Purposeistorendervoidacontractcontainingaconditionwhichmakesfulfillmentdependent

exclusivelyupontheuncontrolledwilloftheoneofthecontracting parties.Art 1308 Thecontractsmustbindbothcontractingparties;its val id ityorcomp l i ancecanno t belefttothewillofoneofthem.

Art 1309 Thedeterminationoftheperformancemaybelefttoathirdperson,whosedecisionshallnotbebindinguntilithasbeenmadeknowntobothcontract ingpart ies.

Art 1310 Thedeterminationshallnotbeobligatoryifitis evident lyinequi tab le.Insuchcase,thecourtsshalldecidewhatisequitableunderthecircumstances.

Art 1473 Thefixingofthepricecanneverbelefttothed iscret ionofoneofthecontract ingpart ies.However,ifthepricefixedbyoneofthepartiesisacceptedbytheother,thesaleisperfected.

CONTRACTOFADHESION:Acontractinwhichonepartyhasalreadypreparedaformof acontractcontainingstipulationsdesiredbyhimandhesimplyaskstheotherpartytoagreetothemifhewantstoenterintothecontract.

3. Relat iv i ty bindingonlyuponthepartiesandtheirsuccessorsa. Contractstakeeffectonlybetweentheparties,theirassignments andheirs

Art 1311 Par 1 Contractstakeeffectonlybetweentheparties,assignsandheirsEXCEPTincasewheretherightsandobligationsarisingfromthecontractarenotransmissiblebytheirnatureorbystipulationorbyprovisionoflaw.Theheirisnotliablebeyondthevalueofpropertyhereceivedfromthedecedent.INTRANSMISSIBLE CONTRACTS:

a. Purelypersonale.g.partnershipandagencyb. Verynatureofobligationthatrequiresspecialpersonalqualificationsofthe

obligor

c. Paymentofmoneydebtsnottransmittedtotheheirsbuttotheestateb. Noonemaycontractinthename of another

Art 1317 Noonemaycontractinthenameofanotherwithoutbeingauthorizedbythelatterorunlesshehasbylawarighttorepresenthim.

Unenforceableunlessratifiedexpresslyorimpliedly(UnenforceableContracts,Art 1302 Par 1)


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OBLIGATIONS&CONTRACTS|Prof.Labitag,A.Y.2008-2009 Page66of102

Two more general principles ofcontracts that were not included in your book/syllabus

4. Consensual i ty5. Freedomenteringintocontractsisaguaranteedrightofthecitizens.Theyarefreetodosoaslongasits

notcontrarytolaw,goodmorals,customs,publicorderandpublicpolicy.D. PARTIESIN ACONTRACT

1. Auto-contractso Necessaryfortheexistenceofacontractthattwodistinctpersonsenterintoito Nogeneralprohibitions,onlyspecialprohibitionssuchasArt 1491 (Personswhocannotacquireby

purchase,evenatapublicorjudicialauction)o Auto-contractsaregenerallyVALIDExistenceofacontractisnotdeterminedbythenumberofpersonswhointerveneinit,butbythenumberofpart ies.Notbythenumberofindividualwillsbut

bythenumberofdeclarationsofwill.o Aslongastherearetwodistinctpatrimonies,eveniftheyarerepresentedbythesameperson.

2. FreedomtocontractArt 1306 Thecontractingpartiesmayestablishsuchstipulations,clauses,termsandconditionsastheymaydeemconvenient,providedtheyarenotcontrarytolaw,morals,goodcustoms,publicorderandpublicpolicy.Spec ia ldisqua l i f i ca t ions:

o Art87,FCintervivosdonationbetweenspouseso Art1490husbandandwifegenerallycannotsellpropertytoeachother,subjecttoexceptionso Art1491specialprohibitionastowhocannotacquirebypurchaseo Art1782personsprohibitedfromgivingeachotheranydonationoradvantage,cannotenterinto

universalpartnership3. Wha ttheym aynotst ipu late

Art 1306 contrarytolaw,morals,goodcustoms,publicorderandpublicpolicyo Acontractistobejudgedbyitscharacter,courtswilllookintothesubstanceandnottothe mere

formofthetransactiona . Con tra rytola w

Lawsacontractmustnotintervene:1. Expresslydeclaretheirobligatorycharacter2. Prohibitive

3. Expressfundamentalprinciplesofjusticewhichcannotbeoverlookedbythecontractingparties4. Imposeessentialrequisiteswithoutwhichthecontractcannotexist

i. PactumcommissoriumautomaticforeclosureArt 2088 Thecreditorcannotappropriatethethingsgivenbywayofpledgeormortgage,ordisposeofthem.Anystipulationtothecontraryisnullandvoid.

ii. PactumleoninaonepartybearsthelionsshareoftheriskArt 1799 Astipulationincludingoneormorepartiesfromanyshareintheprofitsorlossesisvoid

iii. PactumdenonalienadonottoalienateArt 2130 Astipulationforbiddingtheownerfromalienatingtheimmovablemortgagedshallbevoid

b. Con tra rytomora ls Mansinnatesenseornotionofwhatisrightandwrong.Moreorlessuniversal.

c . Con tra rytogoodcus toms Custompertainstocertainpreceptsthatcannotbeuniversallyrecognizedasmoral,sometimesthey

onlyapplytocertaincommunitiesorlocalities E.g.LiguezvCA


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d . Con tra rytopubl i corder Considerationofthepublicgood,willorweal(welfare),peaceandsafetyofthepublicandhealthof

thecommunitye . Con tra rytopubl i cpo l i cy

Courtmustfindthatthecontractcontravenessomeestablishedinterestofthesociety E.g.FerrazzinivGsel-stipulationnottoengageincompetitiveenterpriseafterleavingthe

employment.Thosestipulationmustbelimitedto time,placeandextentE . C LA SS IF IC AT IO NO FCONTRACTS1. Accordingtosub jec t mat te r

a. Things

b. Services

2. Accordingtonamea. NOMINATEhavetheirownindividuality(names)andareregulatedbyspecialprovisionsoflaw,b. INNOMINATEwithoutparticularnames

Art 1307 Innominatecontractshallberegulatedbythestipulationsoftheparties,bytheprovisionsofTitlesIandIIofthisBook,bytherulesgoverningthe mos tana logousnomina tecontractsandbycus tomsofthep lace.i. Do utdes Igive,yougiveii. Do utfacias Igive,youdoiii. Facio utfacias Ido,youdoiv. Facio utdes Ido,yougive

3. Accordingtoper fec t iona. ByMERE CONSENT (consensual)e.g.purchaseandsale

Art 1315 Contractsareperfectedbymereconsent,andfromthatmoment,thepartiesareboundnotonlytofulfillmentofwhathasbeenexpresslystipulatedbutalsotoalltheconsequenceswhich,accordingtotheirnature,maybeinkeepingwithgoodfaith,usageandlaw.

b. ByDELIVERY OF THE OBJECT (real)commodatumArt 1316 Realcontractssuchasdeposit,pledgeand commodatum,arenotperfecteduntilthedeliveryoftheobjectofobligation.

4. Accordingtoitsre la t ion to o the r contrac ts , degree o f dependencea. Preparatorye.g.agencyb. Principale.g.leaseorsalec. Accessorye.g.pledge,mortgageorsuretyship

5. Accordingtofo rma. Commonorinformale.g.loanb. Specialorformale.g.donationsandmortgagesofimmovableproperty

6. Accordingtopu rposea. Transferofownershipe.g.saleorbarterb. Conveyanceofusee.g.commodatumc. Renditionofservicese.g.agency

7. Accordingtothenature o f the v incu lum produced , nature o f obl igat ion produceda. Unilateral-e.g.commodatumorgratuitousdepositb. Bilateralorsinalagmaticoe.g.purchaseandsalec. Reciprocal


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OBLIGATIONS&CONTRACTS|Prof.Labitag,A.Y.2008-2009 Page68of1028. Accordingtocause

a. Onerous

b. Gratuitousorlucrative9. Accordingtor isk

a. Commutative

b. Aleatory

F. STAG ESOFCONTRACTSa. Preparat ionperiodofnegotiationandbargaining,endingatthemomentofagreementofthepartiesb. Perfect ionmomentwhenthepartiescometoagreeonthetermsofthecontractc. Consummat ionordeathfulfillmentortheperformanceofthetermsagreeduponinthecontract

G . ASDISTING UISHE DFROMAPERFEC T EDPROMISEAN DA NIMPERFEC TPROMISE(po l i c i ta t ion)

H . WI THRES PECTTOTHIRDPERS ONS1. St ipu la t ionsin favoro fth irdpe r sons(stipulationpourautrui)maydemand its fulfillment providedthe

acceptanceismadepriortorevocationArt 1311 Par 2 Ifacontractshouldcontainsomestipulationinfavorofathirdperson,hemay demandit sfu l f i l lmentprovidedhecommun i ca tedh isacceptancetotheob l i go rbeforeitsrevocation.Amereincidentalinterestorbenefitofapersonisnotsufficient.Thecontractingpartiesmusthave c lear lyanddel iberate lyconferredfavoruponthirdperson. Testo fbenef i c ia ls t ipu la t ion-Amereincidentalinterestofa3rdpersonisnotwithinthedoctrine;itmust

bethepurposeandintentofthestipulatingpartiestobenefitthethirdperson Requisitesofstipulacionpourautrui

a. Stipulationinfavorofthirdpersonisapa r t ,notthewho leofthecontractb. Favorablestipulationno tcondi t ionedo rcompensa tedbyanykindofobligationwhateverc. Neitherofthecontractingpartiesbearthe l ega lrepresentat iono rauthor i za t ionofthethird

party

d. Benefittothe3rdpersonwasclearlyanddeliberatelyconferredtobypartiese. Thirdpersoncommunicatedhisacceptancetotheobligorbeforethelatterrevokesthesame

2. Possess ionoftheobjectofcontractbythirdpersons onlyforreal rightsArt 1312 Incontractscreatingrea lr ights,thirdpersonswhocomeintopossessionoftheobjectofthecontractareboundthereby,subjecttoheprovisionsoftheMortgageLawandtheLandRegistrationlaws.

3. Cred i torsofthecontract ingpart iesArt 1313 Creditorsareprotectedincasesofcontractsin tendedto defraudthem. Art1387-inrescissiblecontracts,presumptionoffraudulentalienationwhendebtordoesleavesufficient

propertytocoverhisobligations CreditormayaskforrescissionArt 1177 (accionsubrogatoria)andArt 1381 (accionpauliana)

4. Inter ferencebyth i rdpersonsArt 1314 Anythirdpersonwhoinducesanothertovio latehiscontractshallbel iablefo rdamagestotheothercontractingparty. Liabilityfordamages:thirdpersonsliabilitycannotbemorethanthepartyheinduced(DaywaltvRecoletos) Requ is i tesofIn ter ferenceWi thContractua lRe la t ionbyTh i rdPerson

CONTRACT PERFEC TEDPRO M ISE IM PER FEC TPROMI S EEstablishesanddeterminestheobligationarisingtherefrom

Tendsonlytoassureandpavethewayforthecelebrationofacontractinthefuture;untilthecontractisactuallymade,therightsandobligationsarenotyetdetermined

Mereunacceptedoffer


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OBLIGATIONS&CONTRACTS|Prof.Labitag,A.Y.2008-2009 Page69of102a. Existenceofavalidcontractb. Knowledgebyathirdpersonoftheexistenceofacontractc. Interferencebythethirdpersoninthecontractualrelation wi thou tl ega ljus t i f i ca t ion

Ch ap ter II. Essent ia l Re qu isite s of ContractsCONS ENT

Art 1319 ConsentismanifestedbytheMEET I NGoftheof ferandthea c cep t an ceuponthethingandthecausewhicharetoconstitutethecontract.Theoffermustbe certain andtheacceptanceabsolute.Aqual i f i eda c cep t an ceconstitutesacounter-offer.

Acceptancemadebyletterortelegram doesno tbindtheof fererexceptfromthet imeit cametoh isknow ledge.Thecontract,insuchacase,isP R E S U M E Dtohavebeenenteredintointheplacewheretheof ferwasmade.REQUIS ITESOFCONS ENT

1. Pluralityofsubjects2. Capacity

3. Intelligentandfreewill4. Expressortacitmanifestationofwill5. Conformityoftheinternalwillanditsmanifestation

1. Must be MANIFESTED by the con cu r r en ce o f th e o f f e r an d accep tance withrespecttoob jec tandcau seOFFERunilateralpropositionwhichonepartymakestotheotherforthecelebrationofthecontract.Itmustbe:

a. Mustbecer ta in (Art1319) DEFINITEsothatuponacceptanceanagreementcanbereachedonthewholecontract;notdefiniteif

objectisnotdeterminate COMPLETEindicatingwithsufficientclearnessthekindofcontractintendedanddefinitelystatingthe

essentialconditionsoftheproposedcontract,aswellasthenon-essentialonesdesiredbytheofferor INTENTIONALshouldbeseriousandnotmadeforfunorinjest

b. Whatmaybef i xed by the of feror time,placeandmannerofacceptanceArt 1321 Thepersonmakingtheoffermayfixthe t ime ,p laceandmanne rofacceptance,allofwhichmustbecompliedwith. Acceptancenotmadeinthemannerprovidedbytheofferorisineffective.

c. Whenmadethroughtheagen t acceptedfromthetimeacceptancecommunicatedtotheagentArt 1322 Anoffermadethroughanagentisacceptedfromthetimeacceptanceiscommunicatedtohim.

d. Circumstanceswhenof fer be comes defect ive death,civilinterdiction,insanityorinsolvencyArt 1323 Anofferbecomesineffectiveuponthedeath ,civi lin terd ict ion,insan i tyorinso lvency ofeitherpartybeforeaccep tanceisconveyed.

e. Bus iness adv ert isem entsofthingsforsalenotdefiniteoffersArt 1325 Unlessitappearsotherwise,businessadvertisementsofthingsforsaleare notdef in i teoffers,butmereinv i tat iontomakeanoffer.

f. Advertisementforb idde r sArt 1326 Advertisementsforbiddersares implyinv i tat ionstomakeproposa ls,andtheadvertiserisno tboundtoacceptthehighestoflowestbidder, UNLESSthecontraryappears.

o NotapplicabletojudicialsalewhereinthehighestbidmustnecessarilybeacceptedACCEPTANCEanunacceptedofferdoesnotgiverisetoconsent

Contractisperfectwhentheofferororcounter-offerorlearnsabouttheacceptance!


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OBLIGATIONS&CONTRACTS|Prof.Labitag,A.Y.2008-2009 Page70of102a. Mustbeabso lu te (Art1319)b. K indsofacceptance

EXPRESS(Art1320)IMPLIED(Art1320)arisefromactsorfactswhichrevealtheintenttoacceptsuchastheconsumptionofthingssenttotheofferee,orthefactofimmediatelycarryingoutthecontractofferedQUALIFIED(Art1319)notanacceptancebutconstitutesacounter-offer

c. Ifmadebyl e t te r o r te legramArt 1319 Par 2 Acceptancemadebyletterortelegram doesno tbindtheoffererexceptf romthet imei tc ametoh isknowledge.Fou rtheor iesonwhenthecontrac tis per fec ted

1. Manifestationtheorycounteroffereemanifesthisacceptance2. ExpeditionTheorysendingoftheletter,mailingifbyletter3. ReceptionTheoryreceiptofthemessageofacceptance4. CognitionTheoryknowledgeofofferoroftheacceptance

Art 1319 Par 2 exceptfromthetimeofhisknowledged. Pe rio d of acceptance

Art 1324 Whentheoffererhasallowedtheoffereea cer ta inper iodtoaccept Offereemayacceptanytimeuntilsuchperiodexpires. Acceptancebeyondthetimefixedisnotlegallyanacceptancebutconstitutesanewoffer. Acceptancenotmadeinthemannerprovidedbytheofferorisineffective. Ifofferorhasnotfixedtheperiod,theoffereemustacceptimmediatelywithina reasonabletacitperiod. Offerimpliesanobligationonthepartoftheofferortomaintainitforsuchalength oftimeastopermit

theoffereetodecidewhethertoacceptitornot. Ext ingu ishmentorannu lmen to fof fer

o Withdrawalbytheofferoro Lapseofthetimeforoptionperiodo Legallyincapacitatedtoacto Offereemakescounter-offero Contractbecomesillegal

e. Co ntra ct of opt ionArt 1324 theofferm aybewi thd rawnatanyt imebeforeaccep tance bycommunicatingsuchwithdrawal,EXCEPTwhentheoptionisfoundeduponacons iderat ion,assomethingpaidorpromised. Preparatorycontractinwhichonepartygrantstotheother,forafixedperiodandunderspecified

conditions,thepowertodecidewhetherornottoenterintoaprincipalcontract Mustbesupportedbyanindependentconsiderationandthegrantmustbeexclusive Iftheoptionisnotsupportedbyanindependentconsideration,offerorcanwithdrawtheprivilegeatany

timebycommunicatingthewithdrawaltotheotherparty,eveniftheoptionhadalreadybeenaccepted.2. Necessary LEGAL CAPACITIESofthe partiesW hocanno tgiveconsent

Art 1327 Thefollowingcannotgiveconsenttoacontract:1. Unemancipatedminors2. Insaneordementedpersons3. Deaf-muteswhodonotknowhowtowrite

Whenof ferand/o racceptanceis made DuringalucidintervalVALID InastateofdrunkennessVOIDABLEutterwantofunderstanding DuringahypnoticspellVOIDABLEutterwantofunderstanding

3. The consent must be INTELLIGENT, FREE , S PONTANEOU S and REAL


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Art 1330 A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud isVOIDABLE.

MistakeandviolencespontaneousandintelligenceEffec to fDefec t so fWi l l :Contractis VOIDABLE(Art1330)VICESOFCONS ENTa. Mistake or Error awrongorfalsenotionaboutsuchmatter,abeliefintheexistenceofsomecircumstance,

factoreventwhichinrealitydoesnotexist.Art 1331 Inorderthat MISTAKE mayinvalidate consent,it shouldrefertothe subs tanceoftheth ing whichistheob jec t of the contract, or to those cond i t i ons which have pr inc ipa l l ymoved one or both parties to enter into thecontract.

Mi s take as to th e i dent i ty or qual i f i cat ions of one of the parties will vitiate consent only when such identity orqualificationshavebeenthepr inc ipa lcauseofthecontract.

As implemis takeo faccountshallgiverisetoitscorrection.KI NDSOFMISTAKE

1. Mistakeoffact-generallynotagroundforannulmentofcontracts Groundofmistakebasedonerrorisl imi tedtocasesinwhichitmayreasonablybesaidthatwithout

sucherrortheconsentwouldnothavebeengiven Effectofmistakeisdeterminedbywhetherthepartieswouldstillhaveenteredintothecontractdespite

knowledgeoftruefactinfluenceuponparty

Mistakesthatdonotaffectthevalidityofthecontracta. Errorwithrespecttoaccidentalqualitiesoftheobjectofthecontractb. Error

in

the

value

of

thingc. Errorwhichrefersnottoconditionsofthething,buttoaccessorymattersinthecontract,foreignto

thedeterminationoftheobjects2. Erroroflawmistakeastotheexistenceofalegalprovisionorastoitsinterpretationorapplication

GENERALRULE:Ignorant ial eg isneminemexcusa tArt 3 Ignoranceofthelawexcusesnoonefromcompliancetherewith.EXCEPT I ON:Mutua ler roro fla w

Art 1334 Mutualerrorastothelegaleffectofanagreementwhenthe realpurposeofthepartiesisfrustrated,m ayvi t ia teconsent.

a. Astosubs tanceo fob jec t Inva l id a te sconsentifreferstothesubstanceofthething Butifmistakeinlotnumberforinstance,remedyis

onlyreformationofthecontractb. Astopr inc ipa lcondi t ions

(essentialorsubstantialincharacter) Inva l ida tesconsentc. Astoi dent i tyorqua l i f i ca t ionsof

oneofthepartiesForidentity/errorastoperson-genera l l yno t,exceptwhenthequalificationistheprincipalcauseofthecontractespeciallyingratuitouscontractsForqualificationsInva l ida tesconsentSolvencyofthepartynotacauseofnullity

d. Astoquant i ty,asdistinguishedfromsimplemistakeofaccount Errorofaccountisamistakeincomputation makepropercorrection

Errorastoquantitymayvitiateacontractiftheprimaryconsiderationisthequantitye.g.parceloflandwasactuallyonly10haandnot30ha


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OBLIGATIONS&CONTRACTS|Prof.Labitag,A.Y.2008-2009 Page72of102 Requisitesformutualerroroflaw

a. Error must be as to the legal effect of an agreement includes rights and obligations of theparties,notasstipulatedinthecontractbutasprovidedbyalw

b. Mustbemutualc. Realpurposeofthepartiesisfrustrated

W h e no neo fth epar t i e sis unab l etoreadandfraudisallegedburdenofproofonpartyenforcingthecontractArt 1332 When one of the parties is unable to read, or if the contract is in a language not understood by him, anmistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fu l lyexp la inedtothefo rmer.Inexcusablemis takeknewthedoubt,contingencyorrisk

Art 1333 There is no mistake if the party alleging it knew the doubt, cont ingency or risk affecting the object othecontract.

Partycannotallegederrorwhichreferstoafactknowntohimorwhichheshouldhaveknownbyordinarydiligentexaminationofthefacts

Courtsconsidernotonlytheobjectiveaspectofthecasebutalsothesubjectivee.g.intellectualcapacityofthepersonwhomadethemistake

E.g.Causedbymanifestnegligenceb. V io lenceandIn t im idat ion

Art 1335 ThereisVIOLENCEwheninordertowrestconsent,ser iousori rresist ib leforceisemployed.ThereisINT IMIDATIONwhenoneofthecontractingpartiesiscompe l l edbyar easonab l eandwe l l -g roundedfearo fanimminentandgraveev i luponhispersonorproperty,oruponthepersonorpropertyofhisspouse,descendantsorascendants,togivehisconsent.Todeterminethedegreeofintimidation,the age ,sexandcondi t ionofthepersonshallbeborneinmind.Athreattoenforceone'sclaimthroughcompetentauthority, iftheclaimisjustorlegal,doesN OTvitiateconsent.

D U R E S S:degreeofconstraintordangereitheractuallyinflicted(v i o l ence)orthreatenedandimpending(i n t im idat ion)sufficienttoovercomethemindandwillofapersonofordinaryfirmness

Seriousnessoftheevilorwrongmeasuredbothobject ive ly(degreeofharmthattheevilinitselfislikelytoproduce)andsubject ive ly(determiningtheeffectofthethreatuponthemindofthevictiminview ofhispersonalcircumstancesandhisrelationtotheauthoroftheintimidation)

VIOLENCE Physicalforceorcompulsion Externalandgenerallyservetopreventanactfrombeingdone RequisitesofViolence

1. Physicalforceemployedmustbeirresistibleorofsuchadegreethatthevictimhasnoothercourse,underthecircumstances,buttosubmit

2. ThatsuchforceisthedeterminingcauseingivingtheconsenttothecontractINTIMIDATION

Moralforceorcompulsion

Internaloperating

upon

the

will

and

induces

the

performance

of

an

act

Influencesthemindtochoosebetweentwoevils,betweenthecontractandtheimminentinjury RequisitesofIntimidation

1. Intimidationmustbethedeterminingcauseofthecontract,ormusthavecausedtheconsenttobegiven2. Thatthethreatenedactbeunjustorunlawful3. Thatthethreatberealandserious,therebeinganevidentdisproportionbetweentheevilandthe

resistancewhichallmencanoffer,leadingtothechoiceofthecontractasthelesserevil4. Thatitproducesareasonableandwell-groundedfearfromthefactthatthepersonfromwhomitcome

hasthenecessarymeansorabilitytoinflictthethreatenedinjuryPe rsonnotlimitedtolifeandphysicalintegritybutalsoincludeslibertyadhonor,coversallinjurieswhicharenotpatrimonialinnature


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Reasonab l ef ea r fearoccasionedbythethreatmustbereasonableandwell-grounded;itmustbecommensuratewiththethreatEffec to fVio lenceandIn t im idat ion

Art 1336 ViolenceorintimidationshallA N N U Ltheobligation,althoughitmayhavebeenemp loyedbyath i rdpersonwhodidnottakepartinthecontract.c . U ndueIn f l uenceanymeansemployeduponapartywhich,underthecircumstances,hecouldnotwellresist,

andwhichcontrolledhisvolitionandinduced himtogivehisconsenttothecontractwhichotherwisehewouldnothaveenteredinto.

Art 1337 ThereisU N D U EIN FL UEN C Ewhenapersont akesimprope radvan tageo fh ispowe r overthewillofanother,deprivingthelatterofareasonablefreedomofchoice.Thefollowingcircumstancesshallbeconsidered:theconf ident ia l ,fami ly,sp i r i tua lando the rre la t ions betweentheparties,orthefactthatthepersonallegedtohavebeenundulyinfluencedwassu f f e r i ngf rommen t a lweak nes s,orwasi gno ran torinf i nanc i a ld i s t ress.

Insomemeasuredestroythefreeagencyofapartyandinterferewiththeexerciseofthatindependentdiscretionwhichisnecessaryfordeterminingtheadvantagesanddisadvantagesofacontract.

Dis t ingu ishedf romi n t im idat ion

Byanalogy,undueinfluencebyathirdpersonmayalsovitiateconsent(Art1336)d . F raudo rDo loeverykindofdeceptionwhetherintheformofinsidiousmachination,manipulations

concealments,misrepresentation,forthepurposeofleadingapartyintoerrorandthusexecuteaparticularact. Musthaveadetermininginfluenceontheconsent ofthevictim Comparedwitherror

RequisitesofFraud1. Musthavebeenemployedbyonecontractingpartyupontheother(Art1342andArt1344)

Ifbothparty,theycannothaveactionagainsteachother,fraudiscompensated2. Inducedtheotherpartytoenterintoacontract(Art1338)3. Musthavebeenserious(Art1344)4. Musthaveresultedindamageorinjurytothepartyseekingannulment

Art 1338 ThereisFRAU Dwhen,throughins id iouswordsormach ina t i onsofoneofth econtract ingpart ies,theotherisinducedtoenterintoacontractwhich,withoutthem,hewou ldnothaveagreedto.Ins id iouswordsandmach ina t i ons constitutingdeceitincludesfalsepromises,exaggerationofhopesorbenefits,abuseofconfidence,fictitiousnames,qualificationsorauthority,allthethousandandoneformsofdeceptionwhichmayinfluencetheconsentofacontractingparty,withoutnecessarilyconstitutingestafaorsomeoffenseunderthepenallaws.KINDSOFFRAUD

1. Dolocausantedeterminesoristheessentialcauseoftheconsent;groundforannulmentofcontractArt 1338 withoutthem,hewou ldnothaveagreedto.

ERR O R FRAU DVitiatetheconsentonlywhenitreferstothemattersmentionedinArt1331 Mistakeinducedbyfraudwillalwaysvitiateconsentwhenfraudhasadecisiveinfluence

onsuchconsent

U NDU EIN FLUEN CE IN T IM IDAT IONThereneednotbeanunjustorunlawfulact Unlawfulorunjustactwhichisthreatened

andwhichcausesconsenttobegivenMoralcoercion


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2. Doloincidentedoesnothavesuchadecisiveinfluenceandbyitselfcannotcausethegivingofconsent,butonlyreferstosomeparticularoraccidentoftheobligation;onlygivesrisetoactionfordamages

Art 1344 Par 2 Incidentalfraudonlyobligesthepersonemployingitto paydamages.Fa i luretodisc losefac ts ;du tytorevea lthemFRAUD

Art 1339 Failuretodisclosefacts,whenthereisa dutytorevea lthem,aswhenthepartiesareboundbyconfidentialrelations,constitutesFRAU D.

GENERALRULE:Silenceorconcealmentdoesnotconstituteafraud EXCEPTIONS:

1. Thereisaspecialdutytodisclosecertainfacts2. Accordingtogoodfaithandusagesofcommercethecommunicationshould havebeenmade

Usua lexaggerat ionin t rade;oppor tun i tytoknowthefac tsNOTFRAUDArt 1340 The usual exaggerations in trade, when the other party had an oppor tun i ty toknow th efac ts, are N OTinthemselvesfraudulent

Akatoleratedfraudorlawfulmisrepresentation(dolusbonus)aslongastheydonotgototheextentofmaliceorbadfaithsuchaschangingtheappearanceofthethingbyfalsedevicesandofpreventingallverificationordiscoveryoftruthbytheotherparty

Caveatemptor!Donotgiveriseactionfordamagesbecauseoftheirinsignificance ORbecausethestupidityofthevictimistherealcauseofhisloss. importofopportunitytoknowfacts

Mereexpress ionofanopin ionNOTFRAUD,unlessmadebyanexpertandrelieduponbytheplaintiffArt 1341 AmereexpressionofanopinionD O E SN OTsignifyfraud,unlessmadebyanexpertandtheotherpartyhasreliedontheformer'sspecialknowledge.Effec tsofFraud

1. Nullityofthecontract2. Indemnificationfordamages

Art 1344 Inorderthat fraud maymakea contractvoidable,itshouldbe ser ious andshouldnot have beenemployedbyBOTHcontractingparties.Inc identa lf raudonlyobligesthepersonemployingitto paydamages.e . M is re p re se nt at io n

1. ByathirdpersonArt 1342 Misrepresentat ionbyath i rdpe r sondoesNOTvitiateconsent,unlesssuchmisrepresentationhascreatedsubstantial mistake andthesameismutual.GENERALRULE:FraudbythirdpersondoesnotvitiatethecontractEXCEPTIONS:

a. If 3rdpersonisincollusionwithoneoftheparties,heisconsideredanaccomplicetothefraudandcontractbecomesVOIDABLE

b. If 3rdpersonnotinconnivancewithanyofthepartiesbutleadsthembothintoerror(mutualerror),theconsentisvitiated,contractisVOIDABLE.

VIOLENCEANDINTIMIDATIONBY3RDPERSON:annulsthecontractFRAUDBY3RDPERSON:doesnotannulunlessitproducessubstantialmistakeonthepartofbothpartiesJUSTIFICATIONFORTHEDIFFERENCE:

Partyhasnothingtodowithfraudbyathirdpersonandcannotbeblamedforit Intimidationcanbemoreeasilyresistedthanfraud

2. Madein goodfa i thnotfraudulentbutmayconstituteerrorArt 1343 Misrepresentationmadeingoodfaithisnotfraudulentbutmayconstituteerror.

3. Active/passive

o Applicabletolegalcapacityespeciallyage


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OBLIGATIONS&CONTRACTS|Prof.Labitag,A.Y.2008-2009 Page75of102f. S imu l a t i ono fCont rac t sdeclarationofafictitiouswill,deliberatelymadebyagreementofthepartiesinorder

toproduce,forthepurposesofdeceptiontheappearanceofajuridicalactwhichdoesnotexistorisdifferentfromthatwhichwasreallyexecuted.

K indso fS imu la tedContractsArt 1345 SimulationofacontractmaybeA BSOL UT EorRELATIVE.Theformertakesplacewhenthepartiesdonotintendtobeboundatall;thelatter,whenthepartiesconcealtheirtrueagreement.Effec tsofs imu la t iono fcontrac tsArt 1346 Anabsolutelysimulatedorfictitious contract isvoid.A relative simulation,whenit doesnot prejudice a thirdpersonandis not intended for any purpose contrarytolaw,morals, goodcustoms,public orderor public policy bindsthepartiestotheirrealagreement.

Recoveryundersimulatedcontractinabsolutesimulation1. If doesnothaveillicitpurposeprovesimulationtorecoverwhatmayhavebeengiven2. If simulatedhasillegalobjectINPARIDELICTOrulesapply

OB JEC T OF CO NT RA CT S Thing,rightorservicewhichisthesubject-matteroftheobligationarisingfromthecontract Objectofthecontractandobjectoftheobligationcreatedtherebyareidentical

Wha tm aybetheObjec to fContractsArt 1347 All things which are not outs ide th e commerce o f m en, including future things, may be the object ofcontract.Allrightswhicharenotin transmiss ib lemayalsobetheobjectofcontracts.Nocontractmaybeenteredintouponfutureinher i tanceexceptincasesexpresslyauthorizedbylaw.Allserviceswhichareno tcontrarytolaw,morals,goodcustoms,publicorderorpublicpolicymaylikewisebetheobjectofacontract.1. Allthingsnotoutsidethecommerceofman

Includingf u tu reth ingsdonotbelongtotheobligoratthetimethecontractismade;theymaybemade,raisedoracquiredbytheobligoraftertheperfectionofthecontracto Conditionalsubjecttothecomingintoexistenceofthethingo

Aleatory

one

of

the

parties

bears

the

risk

of

the

thing

never

coming

into

existence

Ou ts i dethecommerceo fman allkindsofthingsandinterestswhosealienationorfreeexchangeisrestrictedbylaworstipulation,whichpartiescannotmodifyatwillo Serviceswhichimplyanabsolutesubmissionbythosewhorenderthem,sacrificingtheirliberty,

independenceorownbeliefsordisregardinginanymannertheequalityanddignityofpersonse.g.perpetualservitudeorslavery

o Personalrightse.g.patriapostestas,maritalauthority,status,capacityofpersons,honorarytitleso Publicoffices,inherentattributesofthepublicauthority,politicalrightsofindividualse.g.rightofsuffrageo Propertywhiletheypertaintothepublicdominiono Sacredthingse.g.airandsea

2. Allrightsnotintransmissible3. Allservicesnotcontrarytolaw,morals,goodcustoms,publicorderorpublicpolicy

ABSOLUTE(s imu lados) RELATIVE(d is imulados)Colorofcontract,withoutanysubstancethereof,thepartiesnothavingintentiontobebound Partieshaveanagreementwhichtheyconcealundertheguiseofanothercontract

VOID-Doesnotlegallyexist.Illusory,mererd

phantom,injuring3 persons,generallyfraudulentrd

VALIDexceptwhenitprejudices3 personsorhasanillicitpurpose1. Ostens ib leactsapparentorfictitious;contractthatthepartiespretendtohave

executed

2. H iddenac treal;trueagreementbetweentheparties


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Requ is i teofObjec tofContracts1. Withinthecommerceofman(Art1347)2. Licit,notcontrarytolaw,morals,goodcustoms,publicpolicyorpublicorder(Art1347)3. Possible(Art1348)4. Determinateastoitskind

Art 1349 Theobjectofeverycontractmustbe dete rmina teastoit skind.Thefactthatthequantityisnotdeterminateshallnotbeanobstacletotheexistenceofthecontract,provided itispossibletodeterminethesame,withouttheneedofanewcontractbetweentheparties.

Wha tm ayNOTbetheObjec t so fContracts1. Contrarytolaw,morals,goodcustoms,publicpolicyorpublicorder2. Indeterminableastotheirkind3. Outsidethecommerceofman4. Intransmissiblerights5. Futureinheritance,exceptwhenauthorizedbylaw

Art 1347 Par 2 No contract may be entered into upon future inheritance except in cases expressly authorized bylaw.

Thesuccessionmustnothavebeenopenedatthetimeof thecontract Exceptiontofuturethings

6. ImpossiblethingsorservicesArt 1348 Impossiblethingsorservicescannotbetheobjectofcontracts. E.g.ofimpossiblethings:

o Notsusceptibleofexistingo Outsidethecommerceofmano Beyondtheordinarystrengthofpowerofman

Liabilityfordamageso Debtorknewofimpossibilityliablefordamageso Debtorisignorantofimpossibilityandignoranceisjustifiablenoliabilityfordamageso Bothpartieshaveknowledgeofimpossibilitynoliabilityfordamages

Impossibilitymustbeactualandcontemporaneouswiththemakingofthecontractandnotsubsequento ABSOLUTEorobjective:nobodycanperformito RELATIVEorsubjective:duetothespecialconditionsorqualificationofthedebtoritcannotbe

performed TEMPORARYdoesnotnullifythecontract PERMANENTnullifiesthecontract

CA US E OF CO NT RA CT SMean ingo fCAUSE

Whyofacontract;theimmediateandmostproximatepurposeofthecontract,theessentialreasonwhichimpelsthecontractingpartiestoenterintoitandwhichexplainsandjustifiesthecreationoftheobligationthroughsuchcontract

Essentialreasonthatmovesthepartiestoenterintoacontract Requ is i tesofCause

1. Exist

2. True

3. Licit

Asdis t ingu ishedf romob jec to Objectisthestartingpointofagreement,withoutwhichthenegotiationsorbargainingbetweenthe

partieswouldneverhavebeguno Objectmaybethesameforbothofthepartieso Causeisdifferentwithrespecttoeachparty

Asdis t ingu ishedf romcons idera t ionCONSIDERATION


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Art 1350 Inone rou scon t rac t sthecauseisunderstoodtobe,foreachcontractingparty,the prestationorpromiseofathingorservicebytheother;inr emune ra to ryones,theserviceorbenefitwhichisremunerated;andincontractsofpurebene f i cence,themereliberalityofthebenefactor.

a . O ne rousContracts Prestationorpromiseofathingorservicebytheother Neednotbeadequateoranexactequivalentinpointofactualvalueespeciallyindealingwithobjects

whichhaverapidlyfluctuatingpriceb . R em un era to ryContracts

Onewhereapartygivessomethingtoanotherbecauseofsomeserviceorbenefitgivenorrenderedbythelattertotheformerwheresuchserviceorbenefitwasnotdueasalegalobligation

E.g.bonusesc . Con tractso fpu rebene f i cence(Gratu i tous)

EssentiallyagreementstogivedonationsAsdis t ingu ishedfrommot i ve

Art 1351 Theparticularmotivesofthepartiesinenteringintoacontractaredifferentfromthecausethereof.

GENERALRULE:Motivedoesnotaffectthevalidityofthecontract.EXCEPTIONS:

1. Whenthemotiveofadebtorinalienatingpropertyistodefraudhiscreditors,alienationisrescissible2. Whenthemotiveofapersoningivinghisconsentistoavoidathreatenedinjury,incaseofintimidationthe

contractisvoidable.3. Whenthemotiveofapersoninducedhimtoactonthebasisoffraudormisrepresentationbytheotherparty,

thecontractislikewisevoidable.Defect ivecausesandthe i ref fec ts

a. Absenceofcauseandun lawfu lcauseproducesnoeffectwhateverArt 1352 Contractswithoutcause,orwithunlawfulcause,producenoeffectwhatever.Thecauseisunlawfu lifitiscontrarytolaw,morals,goodcustoms,publicorderorpublicpolicy. E.g.simulatedcontracts

b. S ta temen to fafa l secauseinthecontrac tVOIDifthereisnoothertrueandlawfulcauseArt 1353 ThestatementofafalsecauseincontractsshallrenderthemVOID,ifitshouldnotbeprovedthattheywerefoundeduponanothercausewhichistrueandlawful.

c. Les iono ri n adequacyofcauseVALIDunlessfraud,mistakeorundueinfluenceispresentArt 1355 Exceptincasesspecifiedbylaw,lesionorinadequacyofcauseshallno tinva l idateacontract,UNLESStherehasbeenfraud,mistakeorundueinfluence.

CA U SE M OTIVEObjective,intrinsicandjuridicalreasonfortheexistenceofthecontractitself Psychological,individualorpersonalpurposeofapartytothecontractEssentialreasonforthecontract Particularreasonforacontractingparty,whichdoes

notaffecttheotherandwhichdoesnotimpedetheexistenceofatruedistinctcause

Objectiveofapartyinenteringintothecontract PersonsreasonforwantingtogetsuchobjectiveAlwaysthesameforbothparties Differswitheachperson

ismovedintobindhimselfbyagreement contractingpartiestocelebratethecontractRequiresalegaldetrimenttothepromiseemorethanamoralduety Neverrejectsanycauseasinsufficient;neednotbematerialatallandmayconsistinmoral

satisfactionforthepromissory


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OBLIGATIONS&CONTRACTS|Prof.Labitag,A.Y.2008-2009 Page78of102 Grossinadequacysuggestfraudandisevidencethereof

Presumpt i ono ftheex is tenceandl awfu lnesso facause ,thoughit is no ts ta tedin thecontrac tArt 1354 Althoughthecauseisnotstatedin thecontract,itispresumedthati texistsandis l awfu l,unlessthedebtorprovesthecontrary.

Ch ap ter III. Fo rm of Co nt rac tsA. GENERALRULE:Contractsshallbeob l i ga to ry,inwhateverformtheymayhavebeenenteredinto,provided a l lessent ia lrequ is i tesfortheirvalidityarepresent.

(SpiritualsystemoftheSpanishCode)Art 1356 Contractsshallbeobligatory,inwhateverformtheymayhavebeenenteredinto,providedalltheessentialrequisitesfortheirvalidityarepresent.

B. EXCEPTION:Whenthela wrequ i resthatacontractbeinsomeforminorderthatitmaybeVALIDo rENFORCEAB LE(Anglo-AmericanprincipleinStatutesofFraud)indispensableandabsolute;parties

Art 1356 However,whenthelawrequiresthatacontractbeinsomeforminorderthatitmaybevalidorenforceable,orthatacontractbeprovedinacertainway,thatrequirementisabsoluteandindispensable.Insuchcases,therightofthepartiesstatedinthefollowingarticlecannotbeexercised.

C. KINDSOFFORMALITIESREQUIREDBYLAW1. Adesentia,adsolemnitatemThoserequiredfortheval idi tyofcontrac ts,suchasthosereferredtoin

(Sirreferstotheseasformalcontracts)Art 748 DonationofmovableArt 749 DonationofimmovableArt1874 SaleofpieceoflandthroughanagentArt2134 Contractofantichresis;amountofprincipalandoftheinterstArt1771 Partnership;immovablepropertyorrealrightsarecontributedArt1773 Partnership;inventoryofimmovablepropertycontributedArt1956 InterestforusingsomeoneelsesmoneyArt2140 Chattelmortgage

2. Thoserequired,notforthevalidity,buttom a k eth econ t rac tef fect i vea saga i ns tth i rdpe r son s,suchasthosecoveredbyArt 1357 (iflawrequiresaspecialform,partiesmaycompeleachothertoobservethatformuponperfectionofthecontract)andArt 1358 (documentswhichmustappearinapublicdocument;italsoconstitutesconstructivedellivery)

(1) Acts and contracts which have for their ob jec t the creat ion , t ransmiss ion , modi f i ca t ion orext ingu ishmentof rea lr ightsoverimmovableproperty;salesofrealpropertyorofaninterestthereinagovernedbyArticles1403,No.2,and1405;(2) The cess ion , repudia t ion or renunc ia t ion of hereditary rights or of those of the conjugalpartnership ofgains ;

(3)Thepowe rtoadm in i s te rproper ty,oranyotherpowerwhichhasforitsobjectanactappearingorwhichshouldappearinapublicdocument,orshouldprejudiceathirdperson;(4)Thecess iono fact ionso rr ightsproceedingfromanactappearinginapublicdocument.

Allothercontractswheretheamountinvolved exceedsf i vehundredpesosmustappearinwriting,evenapr iva teone.Butsalesofgoods,chattelsorthingsinactionaregovernedbyArticles,1403,No.2and1405.

3. AdprobationemThoserequiredforthepurposeofprovingtheexistenceofthecontract,suchasthoseundertheStatuteofFraudsinArt 1403

Ch ap te r IV. Refo rma tion of In s t rumen ts


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Art 1359 When,therehavingbeenameet ingoftheminds ofthepartiestoacontract,their t ruein tent ionis no texpressed in the instrument purporting to embody the agreement, by reason o f mis take , f raud , i nequ i t ab l econduc t o r acc i den t, one of the parties may ask for the reformation of the instrument to the end that such truintentionmaybeexpressed.If mis take , f raud, i nequ i tab le conduct , o r acc ident has prevented a meeting of the minds of the parties, theproperremedyisnotreformat ionofthei n s t rumentbutannu lmentofthecontract.Reasonfo rReformat iono fI n s t rumen ts Equitydictatesthereformationofinstrumentinorderthatthetrueintentionofthecontracting partiesmaybe

expressed.Unjustandunequitabletoallowtheenforcementofawritteninstrumentwhichdoes notreflectordisclosetherealmeetingofthemindsoftheparties

Courtdonotattempttomakeanewcontractfortheparties,butonlytomaketheinstrumentexpresstheirrealagreement

StatuteofFraudsisnoimpedimenttothereformationofaninstrument Dis t ingu ishedf romAnnu lmen t

Requ is i tesfo rRe fo rma t i ono fI n s t rumen ts1. Meetingofthemindsuponthecontract2. Thetrueintentionofthepartiesisnotexpressedintheinstrument3. Thefailureoftheinstrumenttoexpressthetrueagreementisduetomistake,fraud,inequitable conductor

accident

Causesfo rRe fo rma t i on1. Mutualinstrumentincludessomethingwhichshouldnotbethereoromitwhatshouldbethere

a. Mutual

b. Mistakeoffactc. Clearandconvincingproofd. Causesfailureofinstrumenttoexpresstrueintention

2. Unilateral

a. Onepartywasmistakenb. Othereitheractedfraudulentlyorinequitablyorknewbutconcealedc. Partyingoodfaithmayaskforreformation

3. Mistakeby3rdpersonsduetoignorance,lackofskill,negligence,badfaithofdrafter,clerkortypist4. Othersspecifiedbylawtoavoidfrustrationoftrueintent

Examp leo fcaseswherere format ionis a l l owed1. Art 1361 When a mutua l mistake of the parties causes the failure of the instrument to disclose their rea

agreement,said

instrument

may

be

reformed.2. Art 1363 Whenonepar tywasmis taken andtheo the rknewo rbe l ievedthatthei n s t rumen td id nots ta tetheirrealagreement,butconcealedthatfactfromtheformer,theinstrumentmaybereformed.

3. Art 1364 Whenthroughtheignorance,lackofskill,negligenceorbadfaithonthepartoftheperson draf t ingthei n s t rumen toroftheclerko rtyp i s t,theinstrumentdoesnotexpressthetrueintentionoftheparties,thecourtsmayorderthattheinstrumentbereformed.

Caseswherenore format ionis a l l owed1. Oralcontractstheresnothingtoreformatall!2. Art 1366 Thereshallbenoreformationinthefollowingcases:

(1)Simpledonationsintervivoswhereinnoconditionisimposed;(2)Wills;

REFO R M ATIO N AN N ULM ENTActionpresupposesavalidexistingcontractbetweenthepartiesandonlythedocumentorinstrumentwhichwasdrawnupandsignedbythemdoesnotcorrectlyexpressthetermsofagreement

Nomeetingofthemindsortheconsentofeitheronewasvitiatedbymistakeorfraud

Giveslifetothecontractuponcertaincorrections Involvesacompletenullificationofcontracts


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OBLIGATIONS&CONTRACTS|Prof.Labitag,A.Y.2008-2009 Page80of102(3)Whentherealagreementisvoid.

Impl iedra t i f i ca t ionArt 1367 Whenoneofthepartieshasbroughtanact iontoen fo r cethei n s t rumen t,hecannotsubsequent l yaskforitsreformation.

Therehasbeenelectionbetweentwoinconsistentremedies,oneinaffirmance,theotherindisaffirmanceW hom ayaskfo rre format ion

MUTUALMISTAKE:eitherpartyorsuccessorininterest MISTAKEBYONE:injuredparty,heirsorassigns

1. Art 1368 Reformationmaybeorderedattheinstanceofeither par t yorhissuccesso rsin i n t e res t,ifthemistakewasmutua l;otherw i se,uponpetitionofthei n ju redpar ty,orh ishe i rsandass i gns.

2. Art 1362 Ifo nepar t yw asmis takenandtheotheractedfraudulentlyorinequitablyinsuchawaythattheinstrumentdoesnotshowtheirtrueintention,the f o rmermayaskforthereformationoftheinstrument.

Procedu reofre format ionArt 1369 TheprocedureforthereformationofinstrumentshallbegovernedbyROCtobepromulgatedbytheSupremeCourt.

Ch ap te r V. In terp reta tion of Co ntra cts(ComparewithRulesonStatutoryConstruction)

Pr imacyo fi n tent ion Verbaintentionenonecontradebentinservare -wordsoughttobesubservienttotheintent,nottheintent

totheword Lookforthecontractualintent

Art 1370 If the terms of a contract are c l ea ran dl eavenodoub t upon the intention of the contracting parties, thel i teralmean ingofitsstipulationsshallcontrol.Art 1372 However gene ra l the terms of a contract may be, they shall not be understood to comprehend things thaared ist inctandcasesthatared i f ferentfromthoseuponwhichthepartiesin tendedtoagree.

GeneraliaverbasuntgeneraliterintelligenciageneralthingsaretounderstoodinageneralsenseHowtode te rm inei n tent ion

Art 1371 Inordertojudgetheintentionofthecontractingparties,their contemporaneousand subsequentactsshallbeprincipallyconsidered.

AlsotakenoteoftheusageandcustomsoftheplaceHowtoi n terpretacontrac t

1. WhenitcontainsstipulationsthatadmitofseveralmeaningsArt 1373 Ifsomestipulationofanycontractshouldadmitofseveralmeanings,itshallbeunderstoodasbearingthatimportwhichismostadequate torenderi teffectua l.

2. Whenitcontainsvariousstipulations,someofwhicharedoubtfulArt 1374 Thevariousstipulationsofacontractshallbeinterpretedtogether,attributingtothedoubtfulonesthatsensewhichmayresu l tfroma llofthemtakenjo int ly.

3. WhenitcontainswordsthathavedifferentsignificationsArt 1375 Wordswhichmayhavedifferentsignificationsshallbeunderstoodinthatwhichis mostinkeep ingwi ththenatureandob jec tofthecontract.

4. WhenitcontainsambiguitiesandomissionofstipulationsArt 1376 Theusageorcustomofthep laceshallbeborneinmindintheinterpretationoftheambiguitiesofacontract,andshallfilltheomissionofstipulationswhichareordinarilyestablished.

5. Withrespecttothepartywhocausedtheobscurity


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OBLIGATIONS&CONTRACTS|Prof.Labitag,A.Y.2008-2009 Page81of102Art 1377 Theinterpretationofobscurewordsorstipulationsinacontract sha l lnotfavorthepartyw hocausedtheobscur i ty.

o Contractsofadhesionresolvedagainstthepartywhopreparedthecontractandinfavoroftheonewhomerelyadheredtoit

6. WhenitisabsolutelyimpossibletosettledoubtsbytherulesaboveArt 1378 Par 1 Whenitisabsolutelyimpossibletosettledoubtsbytherulesestablishedintheprecedingarticles,andthedoubtsrefertoi nc identa lc i rcumstancesofagratu i touscontrac t,thel easttransmiss ionofr ightsandin terestsshallprevail.Ifthecontractis one rous,thedoubtshallbesettledinfavorofthegreatestrec iproc i tyofin terests.

a. Ingratuitouscontracts,incidentalcircumstancesleasttransmissionofrightsandinterestsb. Inonerouscontractsgreatestreciprocityofinterests

7. WhenthedoubtsarecastupontheprincipalobjectssothattheintentioncannotbeknownArt 1378 Par 2 Ifthedoubtsarecastupontheprincipalobjectofthecontractinsuchawaythatitcannotbeknownwhatmayhavebeentheintentionorwilloftheparties,thecontractshallbe nul landvoid.

Appl i cab i l i tyofRule12 ,RulesofCou r t(nowSecs.10-19,Rule130)Art 1379 TheprinciplesofinterpretationstatedinRule123oftheRulesofCourtshalllikewisebeobservedintheconstructionofcontracts.

Lawinevidence;interpretationofdocuments)

InbetweenVALIDandDEFECTIVEcontractsisRELATIVELYINEFFECTIVEineffectivelyonlywithrespecttocertainparties,butareeffectiveastootherpersons.

Againstvoidablecontract:ineffectivenessisproducedipsojure Voidorinexistentcontract:canbemadecompletelyeffectivebytheconsentofthepersonastowhomit

iseffectiveorbythecessationoftheimpedimentwhichpreventsitscompleteineffectiveness(1)assignmentoftheleasebythelesseewithouttheconsentofthelessorisineffectiveonlyasregardsthelessor,(2)transferofadebtbythedebtortoanother,withouttheconsentofthecreditorisineffectiveastothecreditor,(3)thepaymentbyadebtortohiscreditorafterthecredithasbeengarnishedorattachedbyathirdpersonisineffectivetothelatter

DEFECTIVECONTRACTS1. RESC ISS IBL Econtractthathascausedaparticulardamagetooneofthepartiesortoathirdpersonand

whichforEQUITABLEREASONSmaybesetasideevenifvalid2. VOIDABLEO RANNU LLAB LE(contratonu lo)contractinwhichCONSENTofoneofthepartiesis

defective,eitherbecauseofWANTOFCAPACITYorbecauseitisVITIATED,butwhichcontractisVALIDuntilJUDICIALLYsetaside

3. U NENFORCEAB LEcontractthatforsomereasonCANNOTBEENFORCED, UNLESSRATIFIEDinthemannerPROVIDEDBYLAW

4. VOIDANDNON-EX I S TENT(contratoinex istente)contractwhichisanABSOLUTENULLITYandproducesNOEFFECT,asifithadneverbeenexecutedorenteredinto

Ch ap ter VI . Resc iss ible Con tractsK indso fResc i ss ib leContracts

Art 1381 Thefollowingarerescissiblecontracts:1. Enteredintobyguard ianswheneverthewardssufferlesionbymorethanofvalueofthingsobject

Guardian:authorizedonlytomanagewardsproperty,nopowertodisposewithoutpriorapprovalofcourt.Onlyincludesthosewhichareordinarycourseofmanagementofestateoftheward,becauseifsale,mortgageandotherencumbranceANDnotapprovedbycourt,itbecomesunenforceable.

SirLabitag:thinbandofcontracts2. Agreeduponinrepresentationofabsentee,sufferlesionbymorethanofthevalueofthingsobject


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OBLIGATIONS&CONTRACTS|Prof.Labitag,A.Y.2008-2009 Page82of102 Sameprincipleinrelationtocontractsbyguardians

3. Inf raudofcred i torswhocannotcollectclaimsduethem RequisitesofAccionPauliana

1. Plaintiffaskingforrescission(subsidiaryaction)hasa credit prior tothealienation2. Debtorhasmadesubsequent contract,givingadvantagetoa3rdperson3. Creditorhasno other remedy buttorescindthedebtorscontracttothe3rdperson(lastresort)4. Actbeingimpugnedisfraudulent5. 3rdpersonwhoreceivedthepropertyisanaccompliceinthe fraud

Creditmustbeexistingatthetimeofthefraudulentalienation,althoughnotyetdue.Butatthetimeofaccionpauliana,thecreditmustalreadybeduebecauseit presupposesaj udgmentandunsat is f iedexecut ionwhichcannotexistwhenthedebtisnotyetdemandableatthetimetherescissoryactionisbrought.

GENERALRULE:Creditispriortothealienation EXCEPTION:Creditisafteralienationbutentitledto accionpaulianabecauseofsomepriorright

1. Claimswereacknowledgedbythedebtorafteralienation,butoriginofwhichantedatedthealienation

2. Thosewhobecomesubrogated,afterthealienation,intherightsofacreditorwhosecreditswerepriortothealienation

EvensecuredcreditorsareentitledtoAP ConveyancewasintentionallyfraudulentwhichmaybeestablishedbythepresumptioninArt1387 TESTOFFRAUD:Whethertheconveyancewasabonafidetransactionoratrickandcontrivanceto

defeatcreditorsorwhetheritconservestothedebtoraspecialright;foundedongoodconsiderationorismadewithbonafideintent.Doe sit pre jud icether ightofcred i tors??

Goodconsideration:creditorisnotprejudicedbecomesthepropertywasmerelyreplaced orsubstituted Badgesoffraudapplicable

4. Thingsunderl i t igation,withoutknowledgeandapprovaloflitigantorofcompetentjudicialauthority Tosecurethepossibleeffectivityofaclaim Transfereeofpropertyingoodfaithwhoacquirespropertyforvaluableconsideration,withoutknowledge

ofthelitigationorclaimoftheplaintiff,cannotbedeprivedofproperty.5. Spec ia l lydec laredbyla wtobesubjectofrescission

Character i s t i cso fResc i ss ib leContracts1. Theirdefectconsistinin juryordamageeithertooneofthecontractingpartiesortothirdpersons

LESION:injurywhichoneofthepartiessuffersbyvirtueofcontractthatisdisadvantageoustohim;mustbeknownorcouldhavebeenknownatthebirthofcontractandnotduetosubsequenttheretoorunknowntothepartiesE.g.

Art 1098 Partition,judicialandextra-judicialmayberescindedonaccountoflesionArt 1539 SaleofrealestateofinferiorthingArt 1542 Saleofrealestatemadeforalumpsum

2. Theyarevalidbeforerescission3. Theycanbeattackeddirectlyonly,notcollaterally4. Theycanbeattackedonlyeitherbyacontractingparty,orbyathirdpersonwhoisinjuredordefrauded5. Theycanbeconvalidatedonlybyprescriptionandnotbyratification

RESCISS IONArt 1380 ContractsvalidlyagreeduponmayberescindedinthecasesestablishedbylawDef in i t i onRemedygrantedbylawtothecontractingpartiesandeventothirdpersons,tosecurethereparationofdamagescausedtothembyacontract,evenifthisshouldbevalid,bymeansoftherestorationofthingstotheirconditionatthemomentpriortothecelebrationofsaidcontract.


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OBLIGATIONS&CONTRACTS|Prof.Labitag,A.Y.2008-2009 Page83of102 RelieffortheprotectionofoneofthecontractingpartiesANDthirdpersonsfromallinjuryanddamagesthe

contractmaycauseORprotectsomeincompatibleandpreferentrightcreatedbythecontract Impliesacontract which,evenifinitiallyvalid,producesalesion or pecuniary damage tosomeone Setasidestheactorcontractforjustifiable reasons of equity Groundsforrescissioncanonlybeforlegalcause Voidablecontractsmayalsoberescinded SirLabitag:Rescissiblecontractsareinbetweenvalidandvoid

Resc i ss ionArt 1380 Dis t ingu ishedf romReso lu t ionArt 1191

MUTUALDISSENTnotthesamewithrescission,becausemutualdissentistantamounttoasimplecreationofnewcontractforthedissolutionofthepreviousone.Inorderforrescissiontotakeplace,therequisitesmustfirstbesatisfied:

Requ is i tesfo rResc i ss ion1. Thecontractisrescissible

Art 1381 KindsofrescissiblecontractsArt 1382 Paymentsmadein astateofinso lvencyforobligationstowhosefulfillmentthedebtorcouldnotbecompelledatthetime(hasnotyet matured)theywereeffected,arealsorescissible.

2. Thepartyaskingforrescissionhas nootherlegalmeanstoobtainreparationArt 1383 Theactionforrescissionissubs id iary;itcannotbeinstitutedexceptwhenthepartysufferingdamagehasnootherlegalmeanstoobtainreparationforthesame.

3. HeisabletoreturnwhateverhemaybeobligedtorestoreifrescissionisgrantedArt 1385 Rescissioncreatestheob l igat iontoreturntheth ingswhichweretheobjectofthecontract,togetherwiththeirfruits,andthepricewithitsinterest

4. TheobjectofthecontracthasnotpassedlegallytothepossessionofathirdpersonactingingoodfaithArt 1385 consequently,itcanbecarriedoutonlywhenhewhodemandsrescission canreturnwhateverhemaybeobligedtorestore.Art 1385 Par 3 Neither shall rescission take place when the things which are the object of the contract arl ega l lyin thepossess ionofthirdpersonsw hod idnotactin badfai th.

5. TheactionforrescissionisbroughtwithintheprescriptiveperiodoffouryearsArt 1389 Theactiontoclaimrescissionmustbecommenced with infou ryears.Forpersonsunderguardianshipandforabsentees,theperiodoffouryearsshallnotbeginuntiltheterminationoftheformersincapacity oruntilthedomicileofthelatterisknown.

o PeriodcommencesontheterminationofthewardsincapacityorabsenteesdomicileisknownEffec to fResc i ss ion

Art1191Reso lu t ion Art1380Resc iss ionSimilarities 1. Presupposecontractsvalidlyenteredintoandexisting

Rescissionv.Annulment:thelatterthereisadefectwhichvitiates/invalidatesthecontract2. Mutualrestitutionwhendeclaredproper

Whomaydemand

Onlybyapartytothecontract PartytothecontractsufferinglesionThirdpartiesprejudicedbythecontract

Grounds Non-performance(impliedtacitconditioninreciprocalobligation) Variousreasonsofequityprovidedbythegrounds,mainlyeconomicinjuryorlesions

Scopeofjudicialcontrol Courtdeterminessufficiencyofreasontojustifyextensionoftimetoperformobligation(whether

slightorcasualbreach)Sufficiencyofreasondoesnotaffectrighttoaskforrescission(cannotberefusedifalltherequisitesaresatisfied)

Kindofobliapplicableto Onlytoreciprocal Unilateral,reciprocalEvenwhencontractisfullyfulfilledCharacter PrincipalRemedy Secondary/Subsidiary


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OBLIGATIONS&CONTRACTS|Prof.Labitag,A.Y.2008-2009 Page84of102 If in fraud of the creditors: Property alienated reverts to the patrimony of the debtor and becomes liable t

creditorwhosoughtrescission,underitsoriginalliabilityasaguarantyofthedebtorsobligation Art 1385 Rescission creates the obligation to return the th ings which were the object o f the contract,

togetherwiththeirfruits,and thepricewithitsinterest;consequently,itcanbecarriedoutonlywhenhewhodemandsrescissioncanreturnwhateverhemaybeobligedtorestore.

Wi thr e spec ttoth i rdpe r sonsw hoacqu i redtheth ingin goodfa i th Transfereeofpropertyingoodfaithwhoacquirespropertyforvaluableconsideration,withoutknowledgeofthe

litigationorclaimoftheplaintiff,cannotbedeprivedofproperty. Art1385Par2Neithershallrescissiontakeplacewhenthethingswhicharetheobjectofthecontractare l ega l l yin thepossess ionofth i rdpersonsw hod idnotactin badfai th. Art1385Par3Inthiscase,indemnityfordamagesmaybedemandedfromthepersoncausingtheloss. Righ toft ransfereetore ta ina l ienat ion:

Natureoftransfero ONEROUS

Goodfaithnorescission Badfaithrescissiblebecauseofhiscomplicityinthefraud notentitledforreimbursement

becauseinparidelicto;ifnotpossibletoreturn,indemnifytheplaintiff;o GRATUITOUS

Goodfaithdoesnotprotecthimbecausehegavenothing;rescissible,thoughnotrequiredtorestorethefruits

Badfaithrescissiblebecauseofhiscomplicityinthefraud;ifnotpossibletoreturn,indemnifytheplaintiff

W hom aybr ingact ionfo rresc i ss ion1. Creditorinjured2. Heirsofcreditorinjured3. Creditorsofcreditorinjured(byvirtueofaccionsubrogatoria)

Ex ten to fResc i ss ionArt 1384 Rescissionshallbeonlytotheexten tnecessa rytocoverthedamagescaused.

Astotheexcess,alienationismaintained eveniftransfereeisinbadfaith Benefitsonlytheplaintiffcreditor,noteveryone BUTiftransfereeiswillingtopay,norescission

Presumpt i onsofFraudArt 1387 All contracts by virtue of which the debtor alienates property by g ra tu i t ous t i t le are presumed to havebeen entered i n to in f raud o f cred i tors, when the donor d id n ot rese rve suf f i c i ent p roper t y to pay all debtscontractedbeforethedonation.

Alienations by onerous t i t le are also presumed f raudulent when made by persons against whom somej u dgmen t h as been i s sued. The decision or attachment need not refer to the property alienated, and need nothavebeenobtainedbythepartyseekingtherescission.Inadditiontothesepresumptions,thedesigntodefraudcreditorsmaybeprovedin anyo the rmanne rrecogn izedbythela wofev idence.

Rebuttalbyevidencethatconveyancewasmade:o Ingoodfaitho Forasufficientcause

EffectofFraud:Doesnotnecessarilymakethealienationrescissible.Itisonlyoneofthe requisitesforaccionpauliana.Canbeoverruledbyatransfereeingoodfaithandforvaluableconsideration

Badgeso fFraud( ind ic iao ff raud)rulesbywhichfraudlentcharacteroftransactionmaybedetermined1. Fictitious/insufficientconsideration2. Conveyanceisaftersuitisfiledandwhileitispending3. Saleoncreditbyinsolventdebtor4. Evidenceofinsolvencyorlargeindebtedness5. TransferofAllornearlyallofdebtorsproperty6. Transferisbetweenfatherandsonwhensomeofaboveispresent7. Failureofvendeetotakeexclusivepossessionoftheproperty


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Liabi l i tyfo racqu i r ingin badfa i ththeth ingsa l ienatedin f raudo fcred i torsArt 1388 Whoever acquires in bad faith the things alienated in fraud of creditors, shall i ndemn i fy th e l a t te r fo rdamagessufferedbythemonaccountoftheal ienat ion,whenever,duetoanycause,itshouldbe imposs ib lefo rh im toreturnthem.Iftherearetwoormorealienations,the f i rs tacqui rersha l lbel iablef i rst,andsoonsuccess ive ly.

Ch ap ter VII . Void ab le or An nu llab le Co ntra ctsK indso fVo idable/Annu l lab leContracts

Art 1390 Althoughnodamagetocontractingparties:1. Wantofcapacity2. Vitiatedconsent

Character i s t i cso fVo idable/Annu l lab leContracts1. Theirdefectconsistsinthe vitiationofconsentofoneofthecontractingparties2. Theyarebindinguntiltheyareannulledbyacompetentcourt3. Theyaresusceptibleofconvalidationbyratification orbyprescription

ANNU LMENTAnnu lmen tdis t ingu ishedfromResc i ss ion

Groundsfo rAnnu lmen tArt 13901. Incapacitytoconsent

Notarequisitesinequanonofthecontract;wantisonlyagroundforannulment2. Vicesofconsent:violence,intimidation,undueinfluence,mistakeorfraud

W hom ayandm aynoti ns t i tu teanAct ionfo rAnnu lmen tArt 1397A. MAY:Allwhoareobligedprincipallyorsubsidiarily

Art1395:actiondoesnotrequireconformityoftheotherpartywhohas norighttobringactionforannulmentRequisites:

a. Interestinthecontracttheremustbelegalcapacitybybeingboundtothecontracteitherprincipallyorsubsidiarily

b. Victimandnotthepartyresponsibleforthedefecthewhocomestothecourtmustcomewithcleanhands(sonotapplicabletothesuccessorininterestofonewhohascontractedwithaminor)B. MAYNOT:

1. Capablepartiescannotallegetheincapacityofthosewithwhomtheycontracted2. Partieswhoexertedintimidation,violenceorundue influenceoremployedfraudorcausedmistake3. Thirdpersonwhoisastrangertothecontract. UNLESShecanprovethatthecontractprejudicedhisrights

withrespecttooneofthecontractingparties,hemayaskforannulmente.g.guarantorsandsureties(Singsongv.IsabelaSawmill)

Prescr ipt iono fAct ionfo rAnnu lmen tafterprescription,contractcannolongerbesetasideArt 1391 -Within4yearsPeriodshallbegin:

NULLITY(Vo idab le ) RE SC ISS IO N(Resc i ss ib le)Declaresinefficiencywhichcontractalreadycarriesinitself(intrinsicdefect) Merelyproducesinefficiency,whichdidnotexistessentiallyinthecontract(externaldefecti.e.

pecuniarydamagesorprejudicetooneoftherd

Requiresactofratificationtobecured NeedsnoratificationtobeeffectiveBasedonaviceofthecontractwhichinvalidatesit Compatiblewiththeperfectvalidityofthecontract

Annulmentisasanctionbasedonlaw RescissionisaremedybasedonequityDemandedonlybythepartiestothecontract DemandedevenbythirdpartiesaffectedbyitPublicinterestpredominates Privateinterestpredominates


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OBLIGATIONS&CONTRACTS|Prof.Labitag,A.Y.2008-2009 Page86of1021. Intimidation,violenceorundueinfluence:fromthetimeconsensual defectceases2. Mistakeorfraud:fromthetimeofdiscoveryofthesame3. Incapacity:fromthetimeguardianshipceases

*Extinctiveprescriptionappliesnotonlyto actionforannulment,butalsotothedefenseofnullity*Appliestothepartiesoftothecontract,but NOTtothirdpersonsEffec tsofAnnu lmen tcleansesthecontractfromallitsdefectfromthemomentitwasconstituted(retroactiveeffect),butdoesnotprejudicerightsof3rdpersonsacquirebeforetheratificationArt 1396a. MU TU ALRES T I TU T I ONArt 1398 Restoretoeachotherthingswhichhavebeenthe subject matter ofthe

contract,togetherwithfruits andtheprice with interest, EXCEPTincasesprovidedbylaw(principleofunjustenrichment):compensation,servicesrenderedin

contractsofservice ELIMINATESAWARDFORDAMAGES.Butwhenthereislossorsuffereddamages,injuredpartymaybe

entitledtorecoverindemnityfordamages.b. Art 1402 aslongasonedoesnotrestorewhatheisboundtoreturn,theother cannotbecompelledtoreturn

LOSSTHROUGHPLAINTIFFS(partyentitledtobringaction)FAULTorFRAUD:Actionisextinguished,evenifatthetimeofthelosstheplaintiffisstillaminororinsane (Art1401)

LOSSTHROUGHFORTUITOUSEVENT,BUTPLAINTIFFWILLINGTOPAY:ApplyArt1400,defendantshouldreturnbutnotincludingtheinterestbecauselossnotduetohisfault.

LOSSOFFRUITSANDACCESSIONS:ApplyArt1400,payvalueifcannotreturn (bothplaintiffanddefendant)

1. WhenoneofthepartiesisincapacitatedArt 1399 notobligedtomakeanyrestitutionEXCEPTinsofarashehasbeenbenefitedbytheprice/thingreceived

Benefitnotnecessarilyamaterialandpermanentincreaseinfortune Proofofbenefitincumbentuponthedefendant,intheabsenceofsuchproof,thepresumptionisthereis

nobenefit/profittotheincapacitatedperson Ifstillinthepatrimonyatthetimeincapacityceases,deemedtohavebeenbenefited. Ifheasksfor

annulment,hemustreturnittotheotherparty.Ifhesquanders,itisratification.2. Whenthethingislostthroughthefaultofthepartyobligedtoreturnthesame(i.e.defendant)

Art 1400 returnthefruitsreceivedANDthevalueofthingatthetime ofloss,withinterestfromsamedateLOSSTHROUGHFORTUITOUSEVENT:paythevalueofthethinglostbutnotfruitsandinterests

Ext ingu ishmentoftheAct iona. Art 1392 Byratification

Confirmation/ratification:curesadefectofnullityAcknowledgment:remediesdeficiencyofproof

b. Art 1401 Whenthethingislostthroughthefaultofthepersonwhohastherighttofiletheaction LOSSNOTTHROUGHTHEFAULT,e.g.fortuitousevent:notextinguishedbecauseextinguishmentlimitedonly

tothelossbyfaultofplaintiff.Unjustenrichmentifthelossisreturnedforthedefendanttobear.Hence, thedefendantcannotbeobligedtomakerestitutiontotheplaintiffbecause ofArt1402(cannotcompelledtoreturniftheotherpartydoesnotreturn)

CannotextinguishactionforannulmentbyanyeventnotimputabletothefaultorfraudoftheplaintiffRATIFICATIONRequ is i tesofRat i f i ca t ion

a. Contractisvoidable/annullable(i.e.consentofonepartyisdefective)b. Ratificationismadewiththeknowledgeofthecausefornullityc. Atthetimeoftheratification,thecauseofnullityhas alreadyceasedtoexist

Fo rmso fRat i f i ca t iona. Art 1393 Expressortacit:executeanactwhichnecessarilyimpliesanintentiontowaivehisrights


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OBLIGATIONS&CONTRACTS|Prof.Labitag,A.Y.2008-2009 Page87of102E.g.ofEXPRESS:anyoralorwrittenmanifestationofthepersonentitledtoaskforannulmentthatheagreestobeboundbythecontractorthathewillnotseekitsannulmentE.g.ofIMPLIED:

silenceoracquiescence actsshowingapprovaloradoptionofthecontract acceptanceandretentionofbenefitsflowingtherefrom

b. Art 1394 Bythepartiesthemselvesorbytheguardianinbehalfofanincapacitatedparty- Duringtheexistenceofincapacity- Righttoratifyistransmittedtotheheirsofthepartyentitledtosuchright.

Effec tsofRat i f i ca t iona. Art 1392 Actiontoannulisextinguishedb. Art 1396 Thecontractiscleansedretroactivelyfromallitsdefects fromthetimeitwasconstituted

EXCEPTION:Rightof3rdpersonspriortoratificationCh ap te r VII I. Une nforce able Con tracts

Character i s t i cso fUnen fo r ceab l eContracts1. Theycannotbeenforcedbyaproperactionincourt2. Theyaresusceptibleofratification3. TheycannotbeassailedbythirdpersonsArt 1408

Unen fo r ceab l edis t ingu ishedf romResc i ss ib leandAnnu l lab le

K indso fUnen fo r ceab l eContracts1. Enteredintointhenameofanotherpersonbyonewhohas no authority or no legal representationORacted

beyond his powers

2. DonotcomplywithStatute of Frauds,whichareagreementsunenforceableunlessinwrittenmemorandumandsubscribedbythepartycharged

a. Nottobeperformedwith in1yea rfromthemakingIfnotimeisfixedandnothingtoshowthatitcannotbeperformedwithinayear,thennotwithinSoF;PartialperformancealsotakesitoutofSOF

b. Specialpromisetoanswerfo rthedebt ,defau l tormiscar r iageofanotherDefaultorMiscarriageincludeliabilityfortortandarenottoberestrictedtodefaultsandmiscarriagesarisingoutofcontracts;Mustbecollateralonlyandnotprimarilyliableforthedebt

c. Agreementmadein cons idera t iono fmar r i ageotherthanmutualpromisetomarrynotlimitedtomarryingpartiesbutalsotopromisesbyathirdpersontooneofthepartiescontemplatingthemarriage

d. Sa leo fgoods ,chatte l so rth ingsin act ion,priced>P500unlessbuyeracceptandreceivepartofsuchgoodsandchattelsortheevidencesorsomeofthemorpayatthetimesomepartofthepurchasemoney.EXCEPTION:saleisbyauctionandentryismadebyauctioneerinhissalesbook(becauseitconstitutessufficientmemorandum)

e. Leas ingforperiodlongerthanoneyearOR sa leo frea lproper tyorofaninterestthereinf. Representat iontothecred i tofa3rdperson3. Both parties areincapableofgivingconsenttocontract

Art 1403 Pa r 1: UnauthorizedcontractsGovern i ngru l esin Unauthor i zedCont rac t s :Art 1404 GovernedbyArt 1317 (noonemaycontractinthenameoftheotherwithoutbeingauthorizedorunlesshehasbylawarighttorepresent him;representationwithoutauthorityorlegalrepresentationmakesthecontract unenforceable)andprinciplesofAgencyinTitleXofthisBook- Doesnothavingbindingeffectontheprincipal,UNLESSprincipalratifiesitwhichcurestheunauthorizedcontract.- Agentwhobindshisprincipalwithoutauthoritytodosoisliableto3rdpersons.Art 1403 Pa r 2: Contractscoveredby the Statute of Frauds

UN ENFOR CEAB LE RESC ISS IBLEA NDANNU LLAB LEProducesNOlegaleffectunlessratifiedbycompetentcourt

Producelegaleffectsunlesssetasidebycompetentcourt


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OBLIGATIONS&CONTRACTS|Prof.Labitag,A.Y.2008-2009 Page88of102Statuteo fFrauds :descriptiveofstatuteswhichrequirescertainclassesofcontractstobeinwriting. Merelyregulatestheformalitiesofthecontractnecessarytorenderitenforceable.

NOTAPPLICABLETO:(1)Actionforspecificperformance,(2)Violationofthecontract APPLICABLETO:Executoryandnottocompleteorexecutedcontracts intentionofthepartiesbecome

apparentbytheirexecution.However,partialperformancemustalsobeproven. Exclusivelistofagreements/contractsenumerated;Ruleofexclusion Apersonaldefense(hencecannotberaisedby3rdpersons)andthesamemaybewaived Doesnotdeterminecredibilityorweightoftheevidence,merelyconcernedwiththe admissibilitythereof

Pu rposeofStatute:Prevent(andnottoencourageit)fraudandperjuryintheenforcementofobligationsdependingfortheirevidenceupontheunassisted memoryofwitnesses,byrequiringcertainenumeratedcontractsandtransactionstobeevidencedbyawritingsignedbythepartytobecharged.

- Providesforthemannerwhichcontractsunderitshallbeproved- Doesnotattempttomakecontractsinvalidifnotexecutedinwriting,onlymakesineffectivetheactionfor

specificperformance- Principalaims:(1)preventcommissionofinjusticeduetofaultymemory,(2)discouragingintentional

misrepresentations

WRI TTENMEMORANDU MORNOTEevidenceoftheagreementandisusedtoshowtheintentionofthepartiesMinimumrequirementforwrittenmemorandum:

1. Namesoftheparties2. Termsandconditionsoftheagreement3. Descriptionofthesubjectmattersufficienttorenderitcapableofidentification4. Dateandplaceofthemakingoftheagreement5. Signatureofthepartyassumingtheobligation

Howtorat i fycontrac tsunde rStatuteo fFrauds?Art 14051. Failuretoobjecttothepresentationof oral/parole evidence toprovethesame2. Acceptanceofbenefits underthemSoFcannotbeinvokedwhenthecontracthasbeenpartlyexecuted

Rightofthepartieswhenacontractis EN FORC EA BL EBUTapublic document isNECESSARYforitsregistrationArt 1406 mayavailoftheirrightsunderArt1357(partiesmaycompeleachothertoobservethenecessaryformoncethecontracthasbeenperfected)Art 1403 Pa r 3: Contractsexecutedby parties who are both incapableof giving consent to a contract

Art 1407

a. Effectofratificationbytheparentorguardianofone oftheparties:(expressorimplied)o Convertsthecontractintoavoidablecontract,attheoptionofthepartywhohasnotratified.o Thenon-ratifyingpartymay:enforcethecontractORaskfortheannulment

b. Effectofratificationbytheparentsorguardiansofboth parties:validatedfromtheinceptionCh ap ter IX. Vo id or In ex ist en t Contracts

Character i s t i cso fVo id/Inex is tentContracts1. Voidfromthebeginning2. Producesnoeffectwhatsoevernullityexistipsojure,judgmentofnullityismerelydeclaratory3. Cannotbeconfirmedorvalidated(byprescriptionORratification),neithercantherighttosetupthedefense

ofillegalitybewaivedArt 1409ACCIONREIVINDICATORIAanypersonmayinvoketheinexistenceofthecontractwheneverjuridicaleffectsfoundedthereonareassertedagainsthimAct iontoDec lareNul l i ty

- necessarybecausenobodycantakethelawintohisownhands- ifthevoidcontractisstillexecutory,nopartyneedtobringanaction;butifonepartybringsactiontoenforceit,nullitycanbesetupasdefense

Vo id/ inex is tentcontrac tsdis t ingu ishedf romo the rdefect ivecontrac ts


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Par1 1. Thosewhosecause,objectorpurposeiscontrarytolaw,morals,goodcustoms,publicorder,orpublic


K indso fVo id/Inex is tentContractsArt 1409Co nt ra ct s th at ar e VO IDArt1409

policy

a. Art 1411 Whentheactconstitutesacr im ina lof fense(illegalityofcauseorobject)INPARIDELICTORULE

1. BOTHareinparidelicto Noactionagainsteachother BOTHwillbeprosecuted RPCprovisionrelativetothedisposalofeffects/instrumentsofacrimeshallapply

2. ONLYONEisguilty INNOCENTPARTYmayclaimwhathehasgiven INNOCENTPARTYnotboundtocomplywithhispromise

b. Art1412Whentheactisun lawfu lbutdoesno tcr im ina lof fenseINPARIDELICTORULE

1. BOTHpartiesatfault Neitherpartymayrecoverwhathehasgivenbyvirtueofthecontract Neitherpartymaydemandtheperformanceoftheothersundertaking

2. ONLYONEisguilty INNOCENTPARTYmaydemandthereturnofwhathehasgivenwithoutobligationtocomply

withhispromise PARTYATFAULTcannotrecoverwhathehasgivenbyreasonofthecontract PARTYATFAULTcannotaskforthefulfillmentofwhathasbeenpromisedtohim

Notapplicabletof i c t i t i ouscon t rac t sbecausetheyrefertocontractswithanillegalcauseorsubject-matter(criminaloffenseORonlyillegal),ORtocontractsthatarenullandvoidabinitio.Fictitiousorsimulatedcontractsdonthavecause.

EXCEPTIONS TO THE IN PARI DELICTO RULE

VO ID RESC ISS IBLEDefectisinherentin the contract itself Defectisintheireffects,eithertooneofthepartiesorto

rdMatteroflawandpublicinterest BasedonequityandmoreamatterofprivateinterestNolegaleffectsevenifnoactionistakentosetitaside Noaction,remainsvalidandproducesallitseffects

Actiontodeclarenullityofvoidcontractsneverprescribes Actiontorescindprescribesin4yearsVO ID UN EN FO RCEABLE

CannotbethebasisofactionstoenforcecomplianceCanneverberatifiedandbecomeenforceable CanberatifiedandthereafterenforcedThereisnocontractatall Thereisacontractwhich,however,cannotbeenforced

unlessproperlyratifiedVO ID VO IDABLE

Oneofthoseessentialrequisitesiswanting,eitherinfactorinlaworisdeclaredvoidbystatute Essentialrequisitesforvalidityispresent,BUTconsentisvitiatedNocontract,butonlyappearanceofone,producesnoeffectevenifnotsetasidebydirectaction(collateralattackallowed)

Validuntilsetaside,validitymayonlybeassaileddirectly,rd

neverbya3 personNotsusceptibleofratification Mayberenderedperfectlyvalidbyratification

Actiontodeclarenullitydoesnotprescribe,permanent,evenifthecauseofnullityceasedtoexist

Actionforannulmentprescribesin4years


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Par4 2. ThosewhoseobjectisoutsidethecommerceofmanPar5 3. ThosewhichcontemplateanimpossibleservicePar6 4. ThosewheretheintentionofthepartiesrelativetotheprincipalobjectofthecontractcannotbePar7 5. Thoseexpresslyprohibitedaredeclaredvoid bylaw

Par2 1. Thosewhichareabsolutelysimulatedorfictitious

Par3 2. Thosewhosecauseorobjectdidnotexistatthetimeofthetransaction


GeneralStatementoftheException(Art1416):Agreementisnotillegalperse,butmerelyprohibited Prohibitionisdesignedfortheprotectionoftheplaintiff Plaintiffmayrecoverwhathepaidordeliveredifpublicpolicyisenhanced ILLEGALPERSEonethatbyuniversallyrecognizedstandardsisinherentlyorbyitsverynature

bad,improper,immoralorcontrarytogoodconscience.OTHER SPECIFIC EXCEPTIONS

c. Art1414WhenthePURPOSEisillegalandmoneyispaidorpropertydeliveredthereforemayberepudiatedbyoneofthepartiesbeforethepu rposehasbeenaccomp l i shedORbeforeanydamagehasbeencausedtoa3 rdpe r son.Courtsmayallowthepartyrepudiatingthecontracttorecoverthemoneyorproperty,ifthepublicinterestwillthusbesubserved.

d. Art1415WhentheCONTRACTisillegalandoneofthepartiesisINCAPABLEofgivingconsentcourtsmayallowrecoveryofmoney/propertydeliveredbytheincapacitatedperson,ifinterestofjusticesodemands

e. Art1417Whentheamountpaidexceedsthemaximumfixedbylawanypersonpayinginexcessofthemaximumpricemayrecoversuchexcess

f. Art1418Whenbyvirtueofcontractalaborerundertakestowork longerthanthemaximumnumberofhoursofworkfixedbylawworkedmaydemandadditionalcompensationforservicerenderedbeyondthelimitg. Art1419Whenalaboreragreestoacceptalowerwagethanthatsetbylawentitledtorecover

deficiency

h. Art1420Whenthecontractisdivisibleifillegaltermscanbeseparatedfromlegalones,enforcelatter Incaseofdoubt,contractisconsideredasdivisibleorseparable. EXCEPTIONS:

1. Natureofcontractrequiresindivisibilitye.g.contractofcompromise2. Intentionofthepartiesisthatthecontractbeentiree.g. ifwhatisvoidbetheessentialpart,void

theentirecontract.Divisibilitywillonlybefollowedwhenthenullityaffectsonlythesecondaryoraccessoryobligations.

i. Art1422WhenthecontractistheDIRECTRESULTofapreviousillegalcontractalsovoidandinexistent

Art1409Art1409Art1409

ascertained

Art1409

Co nt rac ts th at ar e IN EX IS TE NTArt1409

Art 1345 SimulationofcontractsmaybeABSOLUTE(partiesdonotintendtobeboundatall)orRELATIVE(partiesconcealtheirtrueagreement)

Art 1346 Abso lu teo rFic t i t ious:voidArt1409

Righttose tupde fenseofi l legal i tycanno tbewa ivedArt 1409


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Theact iono rde fensefo rthedec la ra t iono fthei nex i s tenceofacontrac t1. Art 1410 Doesnotprescribe,defectispermanentandincurable2. Art 1421 IsNOTavailableto3rdpersonswhoseinterestisnotdirectlyaffected

*Ratificationmaytaketheformofanew contract,inwhichcaseitsvalidityshallbedeterminedonlybythecircumstancesatthetimeoftheexecutionofthenewcontract.However,thesamedoes not retroacttotheconstitutionofthefirstcontract.

SeeTableofDefectiveContractsinthenextpage.

Contracts (Oblicon)

Documents