Notes_on_Law_on_Obligation.pdf
- 1. Page 1 of 28 LFA RFBT: Law on Obligation OBLIGATION juridical necessity to give REAL OBLIGATION ↓ to do POSITIVE PERSONAL OBLIGATION CIVIL legally enforceable not to do NEGATIVE PERSONAL OBLIGATION ↓ remedy court vs. NATURAL & MORAL not enforceable (conscience) court Prescription: Oral – 6 years Writing – 10 years *In natural obligation, the third person can recover if he is not aware. ”You are excuse for not knowing the facts.” ACTS RESULTS Quasi-contract vs. Quasi-delict vs. Delict Lawful Lawful Unlawful Benefit Damages Damages Real Obligation transferable right DAMAGE – injury DAMAGES – compensation Bilateral ee & or Contract of Lease CIVIL OBLIGATION ELEMENTS (S.P.E.) SOURCES Subject Prestation Efficient Cause Law Contract Quasi-contract Quasi-delict Delict Active creditor obligee (COA) BENEFIT Passive debtor obligor (OPD) BURDEN Object (to give, to do, not to do) Subject Matter Vinculum Legal/Juridical Tie Not presumed There should be a law Meeting of minds Offer express Acceptance implied No meeting of minds Negotiorum Gestio Gestor Officious Manager Solutio Indebiti Other Quasi-contract Culpa acquiliana/Torts Crimes, acts, omissions punishable by law lawful/unilateral
- 2. Page 2 of 28 LFA DELICT crime PP vs. Accused A if Convicted Acquitted Criminal Liability = imprisonment Civil Liability = damages Criminal Liability = guilt without reasonable doubt = Civil Liability guilt with reasonable doubt = POSITIVE To give REAL delivery object ↓ certain 1. Determinate = Specific (particularly designated/physically segregated) 2. Indeterminate = Generic (cannot be pointed out with particularity) B only cow = DETERMINATE A to give C a horse = INDETERMINATE D four legged animals = INDETERMINABLE 2 RIGHTS REAL – enforceable against the whole world PERSONAL – enforceable against another person B demands delivery “All owners can possess, but possessors are not all owners.” Deliver = obligation extinguished A Court A to deliver specific performance Fails B or & To require another to deliver = pay damages = delay C demands delivery Deliver obligation extinguish Superior A neither Inferior = obligation extinguish Fails C court to require A to deliver specific performance or & to require another to deliver pay damages = delay Positive To do Personal Law Source Contract LAW A Reg. of Deeds ↓ record title Obli. to transfer land S sells land to B Title – Name – S B demands transfer of title Transfer Title Name B Obligation = Extinguished A Fails B Court To require A to transfer Title Specific performance (mandamus)
- 3. Page 3 of 28 LFA A to paint B portrait. B demands fulfillment. Paints Obligation = Extinguish A Done properly = obligation extinguish poorly = should be undone at the expense of A Fails B Court to require A to paint = specific performance or damages breach of contract To require another to paint 1. As required by law DILIGENCE 2. As stipulated by parties 3. Absence of #1 and #2, diligence of a good father of a family = ordinary diligence Agency ↓ (extension of the principal) Agent Law A good father of a family ↓ Stipulation Extraordinary Diligence – Valid Performance Duty Carriage Carrier Law – utmost care = extraordinary diligence Stipulation = a good father of a family = void Transport passenger Innately Improvements Better use = convenience attached (BEC) Embellishment = beautification Completion To give determinate accessions & accessories even if not mention VALID – according to law VOID – in existence of null – against the law *“No one is above the law” Unconscionable = shocking to the conscience Right ≠ Ownership Natural – spontaneous product To give determinate fruits KIND (NIC) Industrial – cultivation/labor Civil – juridical relation RIGHT Creditor time obligation to deliver arises (unilateral) Debtor when? suspensive condition condition fulfilled A to give B determinable only cow dies on May 10, 2017 – due lightning F.E. no one is liable with exceptions June 1, 2017 no delay B right to demand If B demand A = legal delay Obligation Extinguish Ordinary liable Delay did not = “no demand, no delay” With suspensive period period arrives Obligation Condition Pure/Simple PERFECTION Period
- 4. Page 4 of 28 LFA SPECIFIC CIRCUMSTANCES AFFECTING OBLIGATIONS IN GENERAL 1. FORTUITOUS EVENT cannot be foreseen foreseeable are inevitable ESSENTIAL CHARACTERISTICS Cause is dependent of the will of the debtor Unforeseeable or unavoidable Impossible for the debtor to fulfill the obligation in normal manner The debtor must be free from any participation in aggravation to the creditor GENERAL RULE: No person shall be liable for fortuitous events. (Obligation Extinguished) EXCEPTIONS: When Expressly declared by the law Expressly declared by stipulation The nature of the obligation requires the assumption of risk The debtor has incurred delay/guilty of fraud/negligence/breach of contract The debtor promised to deliver the same thing to two or more persons who do not have the same interest The thing to deliver is indeterminate/generic The obligation to deliver a specific thing arises from crime The bailee in commodatum allows third person to use the thing borrowed 2. FRAUD (or Dolo) deliberate or intentional evasion must be present during the performance of the obligation not fraud at the time of the birth of the obligation Liable: direct & foreseeable KINDS OF FRAUD Dolo Causante Dolo Incidente Causal Fraud Vitiating consent / obtaining consent Consent would not have been given The contract is voidable Committed at the time of performance or after the contract is already perfected Incidental Fraud Giving rise to the right to demand damages Consent would have still been given The contract is valid Committed at the time of performance or after the contract is already perfected
- 5. Page 5 of 28 LFA Future Fraud Past Fraud Cannot be renounced Waiver cannot be made void the debtor is liable for damages Can be renounced Waiver may be made valid act of liberality of creditor 3. NEGLIGENCE (or Culpa) Omission of that diligence Master-Servant Rule: The negligence of the servant is the negligence of the master. Test: Diligence of a good father of a family Liable: Direct consequence CULPA CONTRACTUAL (Contractual Negligence) Source: Contract Example: Breach of Contract of Carriage (Even with the supervision, the employer may mitigate the liability) Performance of contract The master-servant rule applies KINDS OF NEGLIGENCE (or Culpa) CULPA AQUILIANA (Civil Negligence) Source: Quasi-delict Example: Reckless driving of the driver (With the supervision, the employer may escape the liability) Independence of contract & without criminal intent The master-servant rule does not apply Culpa extra-contractual CULPA CRIMINAL (Criminal Negligence) Source: Delict Example: Physical injuries through reckless imprudence (The employee‟s guilt is automatically the employer‟s guilt if the former is insolvent) Commission of a crime EXAMPLE: A – Driver B – Passenger C – Pedestrian Y - Operator Contractual Criminal A Y A Y Aquiliana A Y Responsibility F N Demandable? *COMMON CARRIER presumed to be negligence
- 6. Page 6 of 28 LFA 4. DELAY (or Mora) Nonfulfillment of obligation with respect to time Effect of Delay: Liable for payment of damages Note: There is no delay in „obligation not do‟ as one cannot be delay for not doing something General Rule: “No demand, no delay” EXCEPTIONS (to the General Rule) (1) The law expressly so declares (e.g. Such in the case of taxes) (2) The obligation itself so stipulates (Expressly declares: “without need of demand”) (3) Time is of the essence (Time was the controlling motive) (4) Demand is useless (Demandable: Breach of Contract / Dolo / Culpa) (5) When there is performance by a party in reciprocal obligation (Compensatio Morae) (6) DEMAND KINDS OF DELAY MORA SOLVENDI MORA ACCIPIENDE COMPENSATIO MORAE Delay on the part of the debtor Ex re real obligation to give Ex persona personal obligation to do Delay on the part of the creditor refuses to accept Delay on both parties (reciprocal obligation) DAMAGES harm done and sum of money that may be recovered INJURY legal wrong/unlawful/tortuous act KINDS OF DAMAGES Court Receipt Parties MORAL EXEMPLARY NOMINAL TEMPERATE ACTUAL LIQUIDATED Moral and physical anguish Corrective or to set an example To vindicate right Moderate or exact amount cannot determine Compensatory or actual losses & unrealized profit Predetermined beforehand by agreement Proof is required Proof is not required/ Adjudicated RIGHT OF THE CREDITOR AGAINST THE DEBTOR (1) To demand payment or performance (EXACT PAYMENT) (2) To exhaust the property in the possession of the debtor, except those by law (ATTACHMENT) (3) To impugn the acts which the debtor may have done to defraud the creditors (ACCION PAULIANA) (4) To exercise all the rights of the debtor except those personal to him (ACCION SUBROGATORIA)
- 7. Page 7 of 28 LFA ACCION PAULIANA the right to rescind or impugn fraudulent act the rights to set aside, revoke, or cancel the acts, which the debtor may have done to defraud him. ACCION SUBROGATORIA the right to be subrogated the creditor may exercise in the place of his debtor in order to preserve or recover the property lost or transferred so that he can satisfy his own credit TRANSMISSIBILITY OF RIGHTS GENERAL RULE: All rights acquired by virtue of an obligation are transmissible. EXCEPTIONS (to the General Rule) (1) When the law prohibits the transfer of rights (2) When the stipulation of the parties prohibits the transfer of rights (3) When the nature of the obligation does not permit transmission of rights Note: It is the right of a person that is transmissible not the obligation. The creditor may assign a third person or such right is transmitted to the heirs upon death. KINDS OF OBLIGATION 1. DEMANDABLE AT ONCE PURE/SIMPLE Not subject to any condition No specific date With Resolutory Condition Resolutory Period You may demand the delivery of the thing now but you must return it when the condition happened. Will it happen? Yes = Period Maybe = Condition CHARACTERISTICS/REQUISITES OF CONDITION (1) Future and uncertain (2) Past but unknown (3) Must not be impossible 2. CONDITION Suspensive Resolutory FULFILLMENT CONDITION – not Contrary Impossible Law Moral Good Custom Public Order Public Practice Before ― Upon Ext.
- 8. Page 8 of 28 LFA PRINCIPAL KINDS OF CONDITION SUSPENSIVE RESOLUTORY Condition precedent/antecedent Will give rise to an obligation No fulfillment, no obligation CONDITION OBLIGATION Condition subsequent Will extinguish an obligation OBLIGATION CONDITION DEBTOR CREDITOR POTESTATIVE Suspensive = VOID Resolutory = VALID Suspensive = VALID Resolutory = VALID A ₱8M B If B will Kill C = Sex A = Slap faces of parents = Pose nude = ; beside Rizal Monument = Draw rectangle with 4 sides = Draw circle with 4 sides = OTHER KINDS OF CONDITION POSSIBLE IMPOSSIBLE POSITIVE NEGATIVE POTESTATIVE CASUAL MIXED Capable of fulfillment, legally or physically Not capable of fulfillment, legally or physically = VOID An act is supposed to be performed = TO DO An act is supposed to be omitted = NOT TO DO Will of one of the contracting parties Chance or will of a third person Partly upon chance and will of a third person FULFILLMENT CONDITION POTESTATIVE DEBTOR CREDITOR Suspensive Resolutory Suspensive Resolutory (void) (valid) (valid) (valid) CASUAL Chance Will third persons MIXED (1) WILL (2) One person Third person Will one person Chance
- 9. Page 9 of 28 LFA June 8, 2017 A only Horse B If B will pass CPA Before fulfillment condition ― HORSE DIES Fortuitous Event Obligation = Extinguished B bear loss Fault of A liable Value Damages If B fulfills condition IMPAIRED Fortuitous Event B bears impairment Fault of A B Damages Specific Performance IMPROVED By nature B gets improvement Effort of A A ―― right to usufruct June 9 ― B sells horse ― Y pays June 10 ― A sells horse ― W pays deliver October 30 ― B passed 1st day ― October 7 October 6 ―― A ―― food ―― drugs ―― sleep 12 hours ate ―― 9pm wake up ―― 9am ―― October 7 9:01am arrived fulfilled condition 3. OBLIGATION WITH A PERIOD One whose consequences are subjected in one way or another to the expiration of said period/term. It is presumed that the period have been established for the benefit of both the debtor and creditor. CONCEPT PERIOD future and certain event DAY CERTAIN must necessarily come although it may not be known when KINDS OF PERIOD SOURCE LEGAL VOLUNTARY JUDICIAL Fixed by law Fixed by parties Fixed by court EFFECT EX DIE Period with a suspensive effect Demandable upon the lapse of period IN DIEM Period with a resolutory Extinguished upon the lapse of period DEFINITENESS DEFINITE INDEFINITE A fixed known date or time An event which will necessary happen
- 10. Page 10 of 28 LFA DISTINGUISHMENT CONDITION PERIOD 1. As to FULFILLMENT 2. As to TIME 3. As to INFLUENCE on the obligation May or may not happen May refer to the future or to a past event Causes to arise or to cease Must necessarily come Always refers to the future Merely fixes the time for the efficaciousness of an obligation A ―― ₱100,000 ―― B BENEFIT both Debtor Creditor “when my means permit” = period KINDS Suspensive ― ex die Resolutory ― in diem no means Court To require A to pay To fix period September 30 Change the period Court Parties A ―― 8M ―― B, if B will marry C THE DEBTOR DEPRIVED THE BENEFIT OF PERIOD 1. I debtor ― insolvent, except for guaranty 2. G debtor ― fails to give or furnish ― guaranty 3. I debtor ― impaired the guaranty (fault DR) 4. V debtor ― violates any undertaking 5. A debtor ― attempts to abscond 2017 COP Obli. A ―― Ext.? July September October B ― vow ― Priest B ― marries Y C dies Woman Widow remarry 300 days, unless bears a child Man Widower can remarry immediately A ―― ₱100,000 ―― B secured ― race horse due ― June 7, 2018 June 8, 2017 lightning ― frightened horse runs cliff fell ― broken A hits horse broken Debtor deprived ― period = Obli. – demandable? leg = impaired ― fortuitous event head = dies lost ― fortuitous event leg = impaired fault ― debtor head = dies lost fault ― debtor
- 11. Page 11 of 28 LFA 4. ALTERNATIVE two or more fulfillment of one obligation ― ext. Cow June 8 dies ― fortuitous event lightning Carabao June 9, AM dies ― fault of A A hits A ―――― B only June 12, 2017 Cow Carabao Horse 1 kilo shabu Horse June 9, PM dies ― fortuitous event collides ― bus Obligation ― Ext.? The lost of the last thing is due to fortuitous event 5. CONJUCTIVE two or more fulfillment of all are necessary A ―――― B only Alternative Cow or Horse 2 cows die Fortuitous Event Fault Debtor A C A C Obli – Ext? DAMAGES E ―――― F Cow only & Horse 6. FACULTATIVE One prestation with substitute Right of debtor C ―――― D only Cow or If C wants Horse Two or More Debtor Creditor 7. JOINT 8. SOLIDARY To each his own One for all All for one Number of Debtors 3 × Number of Creditors 2 = No. Obligation Credits A. Debtors – Joint, Creditors – Joint (1) W - ₱2000 A ₱4000 Y - ₱2000 A - ₱2000 W B - ₱2000 ₱6000 C - ₱2000 Joint ― 3 Joint ― 3 Solidary ― 1 Solidary ― 1 × × × × Joint ― 2 Solidary ― 1 Joint ― 2 Solidary ― 1 = 6 = 3 = 2 = 1 (2) W - ₱1200 B ₱3600 Y - ₱2400 A - ₱1600 Y B - ₱2400 ₱8000 C - ₱4000 (1) (2) Debtors, A-B-C Equal 2:3:5 ₱12,000 Creditors, W-Y Equal 1:2 or or
- 12. Page 12 of 28 LFA B. Debtors – Joint; Creditors – Solidary C. Debtors – Solidary; Creditors – Solidary (1) W - ₱4000 C ₱4000 Y - ₱4000 (2) W - ₱2400 A or ₱2400 Y - ₱2400 A - ₱4000 W B - ₱4000 ₱12000 C - ₱4000 A - ₱2400 Y B - ₱3600 ₱12000 C - ₱6000 (1) W - ₱6000 B ₱12000 Y - ₱6000 (2) W - ₱4000 C ₱12000 Y - ₱8000 A - ₱6000 or W B - ₱6000 ₱6000 or C - ₱6000 A - ₱8000 or Y B - ₱8000 ₱8000 or C - ₱8000 D. Debtors – Solidary; Creditors – Solidary (2:3:5) Debtors – Solidary; (1:2) Creditors – Solidary (1) & (2) W - ₱12000 A ₱12000 Y - ₱12000 A - ₱12000 or W B - ₱12000 ₱12000 or C - ₱12000 Y demands payment from A (1) A pays Y – ₱12000 B - ₱3600 R C - ₱6000 (2) Minor C A pays Y – ₱6000 R B – ₱3600 (3) B – Insolvent (4) B – Insolvent; C – Minor A pays Y – ₱12000 B - ₱3600 R C - ₱6000 A 2/7 Insolvent C 5/7 A pays Y – ₱6000 R B - ₱3600 A Insolvent A Y condones the obligation of A: Y condones the obligation of B: Y condones the obligation of C: Y condones the obligation of A, B, C: A pays Y ₱9600 B - ₱3600 R C - ₱6000 A pays Y ₱8400 R = C ₱6000 A pays Y ₱6000 R = B ₱3600 A pays Y ₱-0- B - ₱-0- R C - ₱-0- If insolvent A 2/5 B 3/5 If insolvent A 2/7 C 5/7 With prescription: A pays Y ₱9600 B - ₱3600 R C - ₱6000
- 13. Page 13 of 28 LFA June 15, 2017 Y demand payment A ― ₱2400 or B ― ₱3600 or C ― ₱6000 due A pays Y ₱6000 R B - ₱-0- C - ₱6000 B pays Y ₱6000 R A - ₱-0- C - ₱6000 C pays Y ₱6000 R A - ₱-0- B - ₱-0- SITUATIONS 1. A ₱8M B, if B kills C 2. D ₱8M E, if F dies of TB 3. G ₱8M H or G sex H 4. J sex K or J 8M K P S 5. L ₱8M M or if L wants sex M P S 6. N sex O or if N wants sex O P PC 7. P ₱8M Q and if P fails sex Q P PC 8. R sex S and if R fails ₱8M S ()VALID/VOID() A and B obliged to give Y Bn Ms 1.5M 750000 7000 demands Failed to deliver delay A Ready damages B Both Solidary 9. INDIVISIBLE Joint A and B solidary, obliged to give Y 100 sacks of wagwag rice demands delivers 50 sacks delay delivers 50 socks A damages B 1 sack Both failed to deliver 10. DIVISIBLE Joint Solidary 11. OBLIGATION WITH A PENAL CLAUSE A ₱100,000 B demands Interest due June 15, 2017 delay in lieu & Except if Stipulated refuses to give penalty if A fails to pay Damages Debtor fully of fraud fulfillment obligation A will give Cow With penal clause Penalty A fails to pay Obligation of A To deliver Cow Interest To pay Damages ₱100,000
- 14. Page 14 of 28 LFA Estate B Maturity EXTINGUISHMENT OF OBLIGATION PAYMENT or PERFORMANCE To whom By whom When Where How Special Form Creditor Ratification Representative/Agent Subrogation TO WHOM Executor burden to prove Debtor Except Estoppel Administrator Third Person If redownded benefit Creditor ― Ext. presumed benefit Creditor If debtor cannot pay, is third person liable? YES NO Interested in the fulfillment of obligation Not interested in the fulfillment of obligation A B ― ₱100,000 accepts G ― guarantor pays C ― ₱100,000 accepts S ― Suitor of A pays LEGAL SUBROGATION With consent of A Without consent of A With consent of A Without consent of A (1) Previous ― partial payment ₱60,000 (2) Due and demandable ₱100,000 If A fails to reimburse, can S declare? Beneficial Reimbursement at WHEN after before? Only cow A ₱100,000 On June 15, 2018 June 15, 2017 A deliver Cow B ₱100,000 Accepts Obligation Extinguished Legal Tender stipulation CHECKS refuse except if exercise right Can creditor Cr. ― encashed accepts = Obligation ― Extinguished Yes IF Impaired June 15, 2017 June 16, 2017 Bank pays = Obligation ― Ext. PRESENTMENT Fault Cr. Injury Dr. FOR (stale) PAYMENT February 14, 2017 Bank Dishonored = Obligation ― Extinguish Closed = Obligation ― Extinguished ― PDIC Up to ₱500,000
- 15. Page 15 of 28 LFA Aware ― Not due Can A recover? If A Not aware ― Not due If A seeks to recover Before June 15, 2018 May 10, 2018 On or after June 15, 2018 July 4, 2018 Cow Fruits June 15, 2017 – May 10, 2018 ₱100,000 Interest June 15, 2017 – May 10, 2018 Cow Fruits June 15, 2017 – June 14, 2018 ₱100,000 Interest June 15, 2017 – June 14, 2018 WHERE If with stipulation place as stipulated If without stipulation Determinate = Location of Object Time the obligation is constituted Indeterminate / Generic Money Domicile / Residence Debtor HOW Money If with stipulation = Currency as stipulated If without stipulation = Currency Legal Tender Philippine Peso Note/Bill < ₱1 = ₱100 Coins ₱1 or > = ₱1000 Denomination Except DEMONETIZED LOAN 2017 10M DUE 2032 ― VALUE 4M 40M INFLATION ORDINARY DEFLATION 10M 10M EXTRA-ORDINARY INFLATION/DEFLATION = VALUE 25M 2.5M Time Obligation Constituted SPECIAL FORMS OF PAYMENT Application of payment (not a special form) Dation in payment Payment by cession Tender of payment and Consignation APPLICATION OF PAYMENT One Creditor One Debtor Two or more obligation = due Payment not enough Right to choose where to apply payment
- 16. Page 16 of 28 LFA Court if approved C O U R T EXAMPLE: A B 2017 10k June 4 15k June 8 Due 20k June 14 30k June 30 ₱8,000 = Application of payment June 15 A pays ₱10,000 ₱20,000 = Application of payment ₱15,000 ₱20,000 If the debtor waives, application of payment right Creditor Issue Receipt Onerous If silent Mortgage Equal burden = Proportionately A ₱1,000,000 B Due on June 15, 2017 offers to pay Assets Cash – ₱400,000 Cars – 8 – BMW Planes – 8 Vessels – 8 Possession Last yr. 3M Ownership B Extinguished = DATION IN PAYMENT (*debtor is solvent) B ― ₱2M A C ― ₱3M proportionately D ― ₱4M to sell = proceeds (INSOLVENT) Creditor possession Assets = ₱5M deliver Ownership = Debtor Extinguished up to the proceeds PAYMENT BY CESSION A Tender of Payment B ― refused Deposit ₱ Notice to Creditor Object Obligation ― Ext. Consignation notice Creditor Can the debtor withdraw? Before approval = Yes After approval = Yes, IF creditor consents Revived If debtor withdraws Obligation of A Co-debtors IF they Guarantor will consent Surety ADDITIONAL REMINDERS: On mere suspicion, you cannot sacrifice the Bill of Rights *Search Warrant *Warrant of Arrest If the act is illegal, anything you get out of an illegal act is illegal No need of search warrant / warrant of arrest: 1. About to commit the crime 2. Committing the crime 3. Have just committed the crime 4. Prisoner who escaped from detention TENDER OF PAYMENT is necessary before consignation, except in five (5) cases. Consignation is allowed even without prior tender of payment = TIRAT (1) Two or more persons claiming the right Interpleader TRO Injunction to restrain PRO Certiorari abuse of right Quo-warantu what is your right Mandamus to compel performance Creditor (2) Incapacitated to receive payment Kept Obligation Extinguish Benefited Court
- 17. Page 17 of 28 LFA EXAMPLE: 2017 Debtor Creditor BF dies due 2020 2019 crying Creditor refuse to eat crying Insane Creditor refuses to issue (3) RECEIPT without just cause. Creditor (4) ABSENT Loss of the (5) Title Obligation lost thing due Determinate/Specific not applicable Generic/Indeterminate LOSS OF THE THING DUE (1) Perishes (2) Goes out of commerce Existence unknown (3) Disappears Cannot be recovered EXAMPLE: A only Carabao B June 30, 2017 Carabao dies fortuitous event Extinguished perishes A buys 2 pigs B pays deliver ― July 4 June 15 A did not choose 2 pigs generic – limited Obligation ― B Ext.? 10 July 1-4 6 9 partial A only car B car napped lost existence unknown ₱100,000 No engine (₱100,000) June 15 A sells ½ B A only necklace B USA demands Europe Rose TITANIC Disappears = cannot be recovered sunk in Atlantic Ocean Extinguished Obligation B to pay ₱100,000 ― June 16 A upon receipt to buy engine payment Obligation ― Ext.? CONDONATION (Remission) Essentially gratuitous Nature: Donation Essential Formal REQUISITES 10
- 18. Page 18 of 28 LFA (2) EXAMPLE: Husband & Wife: FBF Letter FGF Letter H Letter H ― cellphone ― calls Birthday Greeting Condones Condones Condones Condones ₱8M W ― accepts ₱7M H ― accepts ₱7M W ― accepts ₱5k F ― accepts ₱8k G ― accepts Obligation ― Extinguished? REQUISITES OF CONDONATION ESSENTIAL FORMAL 1. There must be an agreement 2. The parties must be capacitated 3. There must be a subject matter 4. The cause or consideration is generosity 5. Obligation is demandable at the time of remission 6. Remission must be inofficious 7. Must be accepted by the obligor 8. If made expressly, it must be comply with formal donation KINDS OF CONDONATION AMOUNT/ EXTENT TOTAL PARTIAL When the total obligation is remitted When only a part/accessory obligation is remitted FORM EXPRESS IMPLIED (1) Immovable property must be in public instrument Personal/movable ― ↑₱5,000 = Writing ― Public/Private Personal/movable ― ↓₱5,000 = Oral/Writing ― Public/Private One inferred from the conduct of the parties COMPENSATION Two person Debtor and creditor of each other AMOUNT/ EXTENT CAUSE/ ORIGIN TOTAL PARTIAL LEGAL CONVENTIONAL FACULTATIVE JUDICIAL When the debts are of the same amount When the debts are of different / not equal amount Takes place by operation of law Takes place by agreement of the parties (voluntary) One party can claim compensation the other cannot Ordered/decreed by the court, in case where there is counterclaim
- 19. Page 19 of 28 LFA INSTANCES OF FACULTATIVE COMPENSATION Arises from the obligations of a bailee in commodatum Arises from a deposit Arises because of a claim for support by gratuitous title Consists in civil liability arising from a penal offense REQUISITES OF LEGAL COMPENSATION (1) Both the debtor and creditors are principally bound (EXCEPTION: A guarantor may set up compensation as regards what the creditor may owe the principal debtor) consist in a sum of money (2) Both debts the things due are consumable same quality & same kind (3) The two debts be due Maturity date of both debts must have arrived (4) Both debts be liquidated and demandable (5) No retention or controversy commenced by third persons and communicated in due time to the debtor CONFUSION/MERGER One person Debtor and creditor of himself REQUISITES FOR VALID MERGER (1) It must take place between the principal debtor and creditor (2) The merger must be clear and definite (3) Obligations are the same or identical EXAMPLE: Debtor A A ― B ― C ― D ― A Extinguished A Principal G Guarantor A ― B ― C ― D CREDITOR A G A G G A OBLIGATION – EXTINGUISHED NOVATION modification or extinguishment of an obligation by another.
- 20. Page 20 of 28 LFA KINDS OF NOVATION AS TO OBJECT/ PURPOSE AS TO FORM AS TO EXTENT REAL (objective) PERSONAL (subjective) EXPRESS IMPLIED TOTAL/EXTINCTIVE PARTIAL/MODIFICATORY Novation by changing the object or principal condition Novation by change of the parties (debtor/creditor) Novation declared in unequivocal terms Old and new obligation are incompatible with each other The old obligation is totally extinguished The old obligation still remains in force except as it has been modified PERSONAL NOVATION (1) Substituting the person of the debtor (always with the creditor’s consent) (2) Subrogating a third person in the rights of the creditor EXPROMISION initiated by new debtor DELEGACION initiated by original debtor CONVENTIONAL by the agreement of the parties LEGAL by operation of law MIXED change of object and parties of obligation PRESUMPTION OF LEGAL SUBROGATION: (1) When a creditor pays another creditor who is preferred, even without the debtor‟s knowledge. (2) When a third person, not interested in the obligation pays with the express/tacit approval of debtor. (3) When, even without the knowledge of the debtor, a person interested in the fulfillment of the obligation pays, without prejudice to the effects of confusion as to the latter‟s share.
- 21. Page 21 of 28 LFA RFBT: Law on Contract CONTRACT Meeting of minds Two person One bind himself To give something / to render some services ESSENTIAL ELEMENTS Without which there will be no contract One is missing = void perfection COC: (1) Consent (2) Object (3) Cause NATURAL ELEMENT Found in certain contracts Already included Examples: (1) Warranty against eviction (2) Warranty against hidden defects STAGES OF A CONTRACT (1) Preparation negotiations are in progress (2) Perfection/Birth meeting of minds meeting of offer and acceptance (3) Performance/Death execution consummation termination ACCIDENTAL ELEMENTS Particular stipulations of the parties Incident Examples: terms of payment, interest rate, place of payment CLASSIFICATION OF CONTRACTS (1) According to PERFECTION/FORMATION (a) CONSENSUAL COC Perfected by mere consent Examples: Sale, Lease (b) REAL COC + Delivery Perfected by delivery of the object of the contract Examples: Depositum, Pledge, Commodatum (c) FORMAL/SOLEMN COC + Public Instrument Must be in the form proved by law Example: Donation of an immovable (2) According to DEGREE OF DEPENDENCE (a) PREPARATORY Means by which other contracts may be entered into Examples: Agency, Partnership (b) PRINCIPAL Can stand by itself Examples: Sale, Loan (c) ACCESSORY Depends upon another contract Examples: Pledge, Mortgage
- 22. Page 22 of 28 LFA (3) According to the PARTIES OBLIGATED (a) UNILATERAL One of the parties obligated Examples: Commodatum, Gratuitous Deposit (b) BILATERAL (or reciprocal) Both parties are obligated Examples: Sale, Barter (4) According to CAUSE (a) ONEROUS There is an exchange of valuable consideration Examples: Sale, Barter, Lease (b) GRATUITOUS No equivalent consideration Examples: Donation, Commodatum, Remission (c) REMUNERATORY Service or benefit remunerated (5) According to NAME/DESIGNATION (a) NOMINATE Name under the law Examples: Sale, Loan, Barter (b) INNOMINATE Without any name under the law Different kinds: Do ut des = “I give that you may give” Do ut facias = “I give that you may do” Facio ut des = “I do that you may give” Facio ut facias = “I do that you may do” CHARACTERISTICS OF CONTRACT Mutuality bind both contracting parties Autonomy liberty/freedom to stipulate Consensuality perfected by mere consent Relativity take effect only between the parties, their assigns and heirs, except where the rights and obligations are not transmissible by law, stipulations, or nature Obligatoriness obligatory force of contract and compliance in good faith CONSENT Manifestation of the meeting of the offer and acceptance upon the thing and the cause. RULES ON OFFER (1) The offer must be certain. (2) An offer becomes ineffective upon death, insolvency, civil interdiction, and insanity. (DICI) (3) When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration as something paid or promised. OPTION MONEY Option Contract EARNEST MONEY Down payment Part of the Purchase Price
- 23. Page 23 of 28 LFA VOIDABLE VOIDABLE VOIDABLE RULES ON ACCEPTANCE (1) The acceptance must be absolute. (a) If the acceptance is qualified, it constitutes a counteroffer. (b) If the offer fixes the time, place, and manner of acceptance, all must be complied with. (2) Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. (3) Acceptance may be express or implied. EXPRESS oral or writing IMPLIED actions or inferred from the conduct of the parties (4) An offer made through an agent is accepted from the time it is communicated to him. RULES ON CONSENT (1) Incapacitated to give consent: (a) Unemancipated Minors (18 yrs. old below) (b) Insane or Demented Persons (c) Deaf-mutes who do not know how to write (2) State of drunkenness Hypnotic Spell (3) VICES CONSENT (a) Mistake/Error (b) Violence/Force (c) Intimidation/Threat (d) Undue Influence (e) Fraud/Deceit VICES OF CONSENT (VIMFU) (1) VIOLENCE Serious or FORCE Irresistible Physical pain (2) INTIMIDATION Well-grounded fear Imminent pain Mental pain Threatening is unlawful (3) MISTAKE Should be serious If not serious ― Remedy: REFORMATION (4) FRAUD Insidious word and Machination Failure to disclose facts, if there is duty to reveal concealment NO FRAUD (a) Failure to disclose facts if no duty to disclose Example: A marries B big fat > 6 mos. pregnant not disclosed July 6 Annulment miscarriage Sept. 14 gives birth A > 2 mos. Fraud (2017) July 17 C marries D thin & slim > 1 mo. pregnant not disclosed Annulment Premature Feb. 14, 2018 gives birth C > 7 mos. Fraud res ipsa loquitur
- 24. Page 24 of 28 LFA (b) Mere exaggeration if given opportunity to know in trade dealer‟s talk (c) Mere expression of opinion EXCEPT: Expert (5) UNDUE INFLUENCE When a person takes improper advantage of his power over the will of another Depriving the latter of reasonable freedom of choice Doctor Patient Professional Lawyer Client Relation Teacher Student INFLUENCE Consanguinity/ Auntie Nephew Affinity Uncle Niece *NOTE: 1. REFORMATION correction of the contract 2. RATIFICATION cleanses the defect 3. A threat to enforce one‟s claim through competent authority, if the claim is just and legal does not vitiate consent. 4. In determining the degree of intimidation, the sex, age and condition of the person intimidating and intimidated should be taken into consideration. 5. Violence or intimidation shall annul the obligation although it may have been employed by a third person who did not take part in the contract. 6. When fraud exists = DOLO CAUSANTE SIMULATION (Simulated Contract) The parties do not really want the contract they have executed to produce the legal effects expressed by its wordings. Vices of declaration. KINDS OF SIMULATION (1) ABSOLUTE The parties do not intend to be bound, void from the beginning. (2) RELATIVE Parties conceal their true agreement, yet they are bound. OBJECTS OF CONTRACTS (1) Within the commerce of men (2) Transmissible (3) LICIT not contrary to law, good customs, public order or public policy (4) Not be impossible = Possible (5) Determinate as to its kind or without the need of new contract Should be existing present THINGS Should come into existence Future Retroact perfection contract Emptio rei speratae HOPE With emptio spei Without vain hope = void INHERITANCE Present = Hereditary right Future Transmissible RIGHT Not transmissible The right of creditor is transmissible
- 25. Page 25 of 28 LFA CAUSE OF CONTRACTS CAUSE Always presumed to exist in a contract. The essential reason, which impels the contracting parties to enter into the contract. The “why of the contract”. REQUISITES OF CAUSE (1) It must exist. (2) It must be lawful. (3) It must be real or true. CAUSE Inadequacy of cause = LESION Mistake, Fraud, Undue Influence Fictitious/Simulated (a) Absolute void (b) Relative give effort true agreement False stated but not true Want of cause total lack or absence of consideration Illegal cause contrary to law, moral, good custom, public order, and public policy Oral Forms Any Writing Public Instruments EXCEPT, if forms required: Donation ― ₱5,000 ↑ (1) VALIDITY ― Failure = Void Example Agent ― authority Valid (2) ENFORCEABILITY ― Failure = Unenforceable Without effect, unless written Valid (3) CONVENIENCE ― Failure Enforceable = inconvenience INTERPRETATION OF CONTRACTS The determination of the meaning of the terms or words used by the parties in their contract To give effect to the true intention RULES: (1) WORDS (a) Provision Printed Writing later intention (b) Two or more “I” solidary “We” joint (c) Conflict Amount ― Words ― Figures (if ambiguous) ― Other documents available, if absent Intention (d) Clear and unambiguous literal meaning (e) Conflict Words Intention shall prevail (2) ACTS Contemporaneous shall be taken Subsequent into consideration (3) CUSTOMS and USAGE shall be borne in mind. Example: July 6, 2017 5 yrs. Acts July 5, 2022 Possession Use Fruits RPT Title A V I M F U Annulment or Specific Performance
- 26. Page 26 of 28 LFA F – fraud A – accident M – mistake I – inequitable conduct Heir of A Annulment Option Reformation or Specific Performance, if chosen Estoppel REFORMATION IS NOT ALLOWED (1) Will except by testator (2) Simple donation inter vivos, if no condition imposed (3) Real agreement void DEFECTIVE CONTRACTS (1) RESCISSIBLE Valid until rescinded Least defect among the others Defect = Lesion/Damage Parties creditor return what they received The following are rescissible contracts: (GACTS) (a) G made by guardians property ward lesion > ¼ value EXAMPLE: G – guardian M – ward incapacitated minor 16 years old FMV SP Lesion ₱ 1M (700k) ₱300k OWNER G M G M SELLER G M M G = RESCISSIBLE? > ¼ To rescind within 4 yrs. at the time the incapacity ceases 18 y/o (b) A made by representative property Absentee lesion > ¼ value 7 years 2 years missing = Absentee without any news Agent 5 years Presumed Death PRESUMPTIVE DEATH (Old–4years; New–3 years = Missing): 1. He boarded an airplane then the latter is missing. 2. He boarded a vessel then the latter is missing. 3. He was sent to war then he was missing in action. 4. He was lost and he was endanger of death Go to court File a declaration of presumptive death EXAMPLE: A missing = Absentee W wife representative of A FMV SP Lesion ₱ 1M (700k) ₱300k > ¼ Seller W Owner A To rescind w/in 4 yrs. at time the whereabouts known (c) C undertaken to defraud the creditors deprive the right to enforce claim accion pauliana NOTE: Rescission will not take place if the object of the contract is in the possession of a third person who acted in good faith. (d) T things in litigation Litigant if made without consent or = RESCISSIBLE Court (e) S specially declared by law to be subject to rescission
- 27. Page 27 of 28 LFA RESCISSION The right to rescind in case of deterioration of the thing to be delivered. (ARTICLE 1189) The right to rescind given to an unpaid seller. (ARTICLE 1526) The right to rescind given to a vendee in sale of real property per unit measure or lump sum price. (2) VOIDABLE Valid until annulled. Defects Incapacity of one to Vitiated consent the parties Annullable unless ratified The following are voidable or annullable contracts: (a) One of the contracting parties is incapable of giving consent. To annul within four (4) years from the time the incapacity ceases. (b) The consent is vitiated by: VIMFU to annul within 4 years VIMFU ceases F&M to annul within 4 years F&M discovered except, marriage 5 years (3) UNENFORCEABLE Cannot be enforced unless ratified Defect = without effect “Validable” contract The following are unenforceable contracts: (a) Both parties are incapable of giving consent. (b) Contracts made without authority or in excess of such authority. (Unauthorized Contract) (c) Do not comply with the Statute of Fraud. STATUTE OF FRAUD ― A law which required that certain contracts must be in writing otherwise unenforceable ― Not applicable executed = has been performed ― Applicable executory = has not yet been performed Contracts covered by Statute of Fraud (SALSAR): (a) S ― A special promise to answer for the debt, default, or miscarriage of another. *NOTE: If there is guaranty or surety, put them in writing. (b) A ― An agreement by its terms is not be performed within a year from the making thereof. *NOTE: From the time of commencement. (c) L ― Leasing for a longer period than one year of sale of real property or an interest therein. INTANCES COVERED: Lease 1 yr. or less real/personal oral – enforceable Lease > 1 year immovable writing – enforceable Sale immovable irrespective of price writing – enforceable (d) S ― Sale of good, chattel, or things in action at a price of ₱500 or more. (e) A ― an agreement made in consideration of marriage other than mutual promise to marry. This must be in writing otherwise unenforceable. EXCEPTION: A mutual promise to marry between the parties is an enforceable even if orally entered into. One of the parties do not comply, the injured party cannot comply the other party. His only right is to ask for damages because of the breach promise. (f) R ― A representation as to the credit of a third person.
- 28. Page 28 of 28 LFA (4) VOID (or Inexistent) Most defective No force and without effect Inexistent from the beginning MAXIM: “No contract at all” Cannot be validated either by time or ratification To question period imprescriptible third person if right affected The following are some characteristics of a void contract: (a) A void contract cannot be ratify. (b) The defense of illegality cannot be waived. (c) The action or defense for the declaration of the inexistence of a contract does not prescribe. (d) The defense of illegality of contacts is not available to third persons whose interests are not directly affected. (e) A contract is void / inexistent if it is the direct result of a previous illegal contract. The following contracts are void from the very beginning (O3ICAD): (a) Object, cause or purpose is illicit. (Illicit contrary to law, morals, good customs, public order or public policy) (b) Object is outside the commerce of men. (c) Object or cause did not exist at the time of the transaction. (d) Intention of the parties relative to the principal object of the contract cannot be ascertained. (e) Contemplate an impossible service. (f) Absolutely simulated or fictitious. (g) Declared void by law. In marriage, Bigamous or Polygamous = VOID Direct ascendants/descendants = VOID Collateral within fourth degree of consanguinity = VOID Parent and surviving spouse of his child = VOID Civil Code: Step brothers/sisters = VOID Amendment – Family Code: Step brothers/sisters = VALID Donation H & W = VOID except, family Rejoicing Celebration Guilty of adultery/concubinage = VOID Sale H & W = VOID except Separation of property Juridical separation Separation of Property Example: Pre-nuptial Agreement Juridical Separation Example: Legally separated by court separation in bed & board *ADDITIONAL NOTE: Rescission remedy allowed by law to repair damages cause by a contract. Annulment action brought to set aside a voidable contract. Atty. Dante O. Dela Cruz, CPA Reviewer CPA Review School of the Philippines