Obligations and Contracts-FINAL

CEBU CPAR CENTER

Obligations and Contracts

1. Obligation is a juridical necessity to give, to do or not to do.

2. Essential Elements/Requisites

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

b. Passive Subject – debtor/obligor, the party who is obliged to perform the obligation

c. Prestation – the object or subject matter of the obligation.d. Efficient Cause – juridical tie, vinculum juris, legal tie, the tie that binds

the parties to an obligation. The efficient cause of an obligation may be any of the following:

i. Lawii. Contractsiii. Quasi-contractsiv. Acts or omissions punished by law (delicts)v. Quasi-delicts or torts

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

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

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

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

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

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

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

8. Kinds of obligation:

a. Pure or Simpleb. With a periodc. Conditionald. With a penalty clausee. Jointf. Solidaryg. Divisibleh. Indivisiblei. Alternativej. Facultative

9. Kinds of things

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

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

10.Obligations of debtor to give a specific thing

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

b. Deliver the thingc. Deliver the fruits of the thing (natural, civil or industrial) d. Deliver its accessions (produced by a thing or incorporated or attached

thereto) and accessories (joined to or included with the principal thing for the latter’s better use, perfection or enjoyment)

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

incidente)b. Negligencec. Delayd. Contravention of the tenor of the obligation

12.Kinds of damages

a. Actual or compensatoryb. Moralc. Nominald. Temperate or moderatee. Liquidatedf. Exemplary

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

Kinds of fraud

a. Causal fraud or dolo causante – fraud in obtaining consentb. Incidental fraud or dolo incidente – fraud committed at the time of the

performance of the obligationc. Fraud in pactum

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

Kinds of negligence:

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

b. Civil negligence (culpa aquiliana or tort or quasi delict or culpa extra-contractual – example: employer of a bus driver of an injured pedestrian

c. Criminal negligence (culpa criminal) – example reckless imprudence resulting to damage to property

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

Kinds of delay:a. Ordinary delayb. Legal delay – this is what is contemplated by Art. 1170

i. Mora solvendiii. Mora accipiendiiii. Compensatio morae

16.Rule on Delay – NDND except RTOLD

No demand, No delay

Except:

Reciprocal obligation

Time is of the essence

Obligation declares

Law provides

Demand is useless

17.Fortuitous events are those that cannot be foreseen or even if foreseen are inevitable.

Elements of Fortuitous event (ICIF)

a. I – independent of the debtor’s willb. C – cannot be foreseen or even if foreseen is inevitablec. I – impossible for the debtor to perform the obligation in the normal

mannerd. F – free from participation in or aggravation of the injury/damage

sustained by the creditor

18.Rule on Fortuitous event

General Rule - obligation is extinguished

Except: SLN

a. Stipulationb. Lawc. Nature

19.Period vs. condition

Period certainly arrives while condition may or may not happen

20.Kinds of Condition a. Suspensive – the happening of which gives rise to an obligationb. Resolutory – the happening of which extinguishes an obligationc. Potestative – depends upon the will one of the contracting parties

c.1 potestative on the part of the debtor:

a. Suspensive – the obligation is voidb. Resolutory – the obligation is valid

c.2 potestative on the part of the creditory:

a. Suspensive – the obligation is validb. Resolutory – the obligation is valid

d. Casual – depends upon chance or upon the will of a third persone. Mixed – depends partly upon the will of one of the parties and partly upon

chance or the will of a third personf. Possibleg. Impossible – physical or legal impossibility. The obligation and the

condition are voidh. Positive – a condition that some even will happen at a determinate time,

the obligation is extinguished as soon as the time expires or has become indubitable that event will not happen (Art. 1184)

i. Negative – a condition that some event will not happen at a determinate time, the obligation becomes effective as soon as the time indicated has elapsed or has become evident that the event will not occur (Art. 1185)

j. Divisible and indivisible

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

a. Loss without the fault of the debtor – extinguishedb. Loss through the fault of the debtor – pay damagesc. Deterioration without the fault of the debtor – impairment shall be borne

by the creditor (no liability for damages on the part of the debtor)d. Deterioration through the fault of the debtor:

i. Rescission plus damages orii. Fulfillment plus damages

Note: if creditor chose rescission, he cannot later on demand fulfillment, but if creditor chose fulfillment, he can still demand for rescission if fulfillment becomes impossible.

e. Improvement by nature or time – improvement shall inure to the benefit of the creditor

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

22.Obligation with a perioda. When a period is fixed, it is fixed for the benefit of both the debtor and the

creditor except if it can be established that it was fixed for the benefit of one of the parties only.

b. The debtor has the right to use the period except:

i. When after the obligation has been constituted, the debtor becomes insolvent, unless he give a guaranty or security for the debt

ii. When the debtor fails to furnish the guaranties or securities that he has promised

iii. When the debtor impairs the said guaranties or securities by his own acts, or when through a fortuitous event the said guaranties or securities disappear, unless the debtor gives new guaranties or securities equally satisfactory

iv. When the debtor violates the undertaking in consideration of which the creditor agreed to the period

v. When the debtor attempts to abscond.

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

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

Limitations on debtor’s right of choice:

a. Complete performance. NO PARTIAL PERFORMANCE.b. Debtor cannot choose those which are impossible, illegal, or which could

not have been the object of the obligation

Rule in case of loss:

If right of choice belongs to the debtor

a. If one or some but not all are lost without the fault or even through the fault of the debtor – debtor may deliver any of the remainder

b. If all are lost without the fault of the debtor – extinguishc. If all are lost through the fault of the debtor – indemnity for damages

based on the value of the last thing that was lost

If right of choice belongs to the creditor

a. If one or some but not all are lost without the fault of the debtor – debtor may deliver any of the remainder depending on the choice of the creditor

b. If all are lost without the fault of the debtor – extinguishc. If one or some but not all are lost through the fault of the debtor –

creditor may claim any of the subsisting object or the price of any of those which were lost plus damages

d. If all are lost through the debtor’s fault – creditor may claim the price of any of the objects plus damages

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

Rules:

a. If the principal object is lost, before substitution, without the fault of the debtor – extinguish

b. If the principal object is lost, before substitution, through the fault of the debtor – damages

c. If the substitute is lost, before substitution, with or without the fault of the debtor – extinguish

d. If the principal object is lost, after substitution, with or without the fault of the debtor – extinguish

e. If the substitute is lost, after substitution, without the fault of the debtor – extinguish

f. If the substitute is lost, after substitution, through the fault of the debtor – damages

25.Distinctions:

Alternative Facultative Several objects are due but performance of one is sufficient to extinguish the obligation

Only one object is due (the principal)

If one or some but not all objects are void, the obligation remains to be valid,

If the principal object is void, there is no need to substitute because the obligation is void. (accessory follow the principal)

Right of choice belongs to the debtor unless it is expressly given to the creditor

Right of choice to substitute belongs to the debtor only.

If one or some but not all objects are impossible, the possible object must be delivered

If the principal object is impossible, no need to deliver the substitute

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

26.Joint and Solidary obligation

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

27.Other terms to remember

Joint:

a. Proportionatelyb. Pro ratac. Mancomunadad. Mancomunada simple

Solidary:

a. Jointly and severallyb. Individually and collectivelyc. In solidumd. Mancomunada solidariae. Juntos o separadamente

28.Kinds of Solidarity

a. Passive – solidarity on the part of the debtorsb. Active – solidarity on the part of the creditorsc. Mixed – solidarity on the part of both debtors and creditors

29.Divisible – object is capable of partial performance

Indivisible – object is not capable of partial performance

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

However, damages and interest may also be charged:

a. if there is a stipulation for that purposeb. when the debtor refuses to pay the penaltyc. when the debtor is guilty of dolo incidente or causal fraud

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

31.Modes of extinguishment of obligations

a. Payment or performanceb. Loss of the thing due (only if the object is specific or determinate)c. Condonation or remissiond. Confusion or mergere. Compensationf. Novationg. Annulment h. Rescissioni. Fulfillment of resolutory conditionj. Prescriptionk. Others:

i. Compromiseii. Withdrawaliii. Death of one of the partiesiv. Arrival of resolutory periodv. Art. 1184 (positive suspensive condition)

32.Application of payment

a. Debtor’s choiceb. Creditor’s choicec. Most onerousd. Proportionately

33.Place of payment

a. Stipulationb. If no stipulation and the object is specific, the place of payment is the

place where the specific object is located at the time of the constitution of the obligation

c. If no stipulation and the object is generic, the place of payment is the domicile of the debtor

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

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

36.Distinctions

Dacion Cession

No plurality of creditors (may be one or some but not all)

All creditors

Debtor’s insolvency is not an issue but only liquidity

Debtor’s insolvency is an issue

Creditor becomes the owner of the property

Creditor becomes the assignee of the property

Debtor is released from his obligation Debtor is not released from his obligation

Does not affect all the property of the debtor

Affects all the property of the debtor

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

a. The loss is through the fault of the debtorb. Debtor has incurred legal delayc. Debtor has promised to deliver the same thing to two or more persons

who do not have the same interestd. Stipulatione. Lawf. Nature

Generic thing never perishes – genus nunquam perit

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

Presumptions as to condonation:

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

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

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

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

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

How Novation is made:

a. Changing the principal object or conditionb. Substitution the person of the debtorc. Subrogating the rights of the creditor

42.Substitution of the person of the debtor

a. Expromission – substitution without the knowledge or against the will of the debtor

b. Delegacion – substitution initiated by the original debtor

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

44.Essential elements or requisites of contract

a. Consent b. Objectc. Cause or consideration

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

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

47.Characteristics:

a. Consensual – perfected by mere consentb. Real – perfected by deliveryc. Solemn – perfected by the execution of public instrumentd. Onerous – valuable consideration is given in exchangee. Gratuitous – only one party gives valuable consideration (the giver is

prompted by his pure beneficence, compassion, liberality, kindness)f. Remuneratory – the cause is the service or benefit remuneratedg. Principal – can stand by itselfh. Accessory – its existence depends upon another contracti. Preparatory – a means by which another contract maybe executedj. Nominate – with name specially given by lawk. Innominate – without a name:

i. Do ut des – I give that you may give (this is actually barter, therefore, nominate)

ii. Do ut facias – I give that you may do

iii. Facio ut des – I do that you may giveiv. Facio ut facias – I do that you may do

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

Essential elements of a valid consent:

a. Intelligently b. Freely, andc. Voluntarily given

49.Vices of consent

a. Mistakeb. Violence or physical coercionc. Intimidation or moral/mental coerciond. Undue influencee. Fraud (dolo causante)

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

Requisites:

a. Within the commerce of menb. Transmissiblec. Not contrary to Law, Morals, Public Order, Public Policy, and Good Customsd. Not impossible e. Must be determinate AS TO ITS KIND

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

52.Cause of Contracts

a. Onerous contract – the prestations or object or service by the each otherb. Remuneratory contract – the service being remuneratedc. Gratuitous contract – liberality of the benefactor, kindness, pure

beneficence of the giver

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

Kinds:

a. Those entered into by guardians whenever the ward whom they represent suffer lesion by MORE than ¼ of the value of the things which are the object of the contract

b. Those agreed to in representation of absentees, if the latter suffer lesion by MORE than ¼ of the value of the things which are the object of the contract

c. Those entered into in fraud of creditorsd. Those which refer to things under litigation if entered into without the

knowledge and approval of litigants or competent courte. All others specifically declared by law to be rescissible

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

Kinds:

a. Those where ONE of the parties is incapable of giving consentb. Those where consent is vitiatedc. Those entered into in state of drunkennessd. Those entered into under hypnotic spell

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

Kinds:a. Those entered into in the name of another without the authority of the

latterb. Those that do not comply with the Statute of Fraudsc. Those where BOTH parties are incapable of giving consent

The following MUST be in writing, otherwise, unenforceable (Statute of Frauds)

a. Agreement that by its terms is not to be performed within a year from the making thereof

b. Special promise to answer for the debt, default or miscarriage of another (guaranty)

c. Agreement in consideration of marriage, other that mutual promise to marry

d. Sale of goods, chattels or things in action at a price NOT LESS THAN P500.00

e. Agreement for the leasing of a real property or of an interest therein for MORE than one year

f. Sale of real property or an interest thereing. Representation as to the credit of a third person

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

Kinds:

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

b. Simulated or fictitious contractsc. Those whose object or cause DID NOT EXIST at the time of the transactiond. Those whose object is outside of the commerce of mene. Those which contemplate impossible servicef. Those where the intention of the parties pertaining to the principal object

CANNOT BE ASCERTAINEDg. Those expressly prohibited or declared VOID by law:

1. Donation between spouses during the existence of marriage except moderate ones on occasion of family rejoicing

2. Sale between spouses except if there is separation of property3. Household service WITHOUT compensation4. Contract upon future inheritance except in marriage settlements

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