SALIENT POINTS IN OBLIGATIONS AND CONTRACTS: MIDTERM COVERAGE

OBLIGATIONS
Obligation a juridical necessity to give, to do or not to do. Obligation arises from: o Contracts Page | o Laws 1 o Quasi-contracts o Quasi-delicts o Acts / Omissions punished by law Obligations derived from law are not presumed. Obligations must be expressly/impliedly set forth in the Civil Code or Special Laws. Article 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied in good faith. Article 1160. A quasi-contract is that juridical relation resulting from a lawful, voluntary and unilateral acts, and which has for its purpose the payment of indemnity to the end that no one shall be unjustly enriched or benefited at the expense of another. o 2 Principal Kinds Negotiorum Gestio (Unauthorized Management) this takes place when a person voluntarily takes over the control of an abandoned business or property without the owners authority. Reimbursement must be made to the gestor for any useful expenses incurred Solutio Indebiti (Undue Payment) This occurs when something is received without any right to demand it, and it was unduly delivered thru mistake. Duty to return what was unduly delivered. o Is a quasi-contract an implied contract? No. Unlike an implied contract, a quasi-contract does not involve meeting of the minds. Article 1163. Every person obliged to give something is also obliged to take care of it with proper diligence of a good father of a family (bonum pater familia), unless the law or stipulation of the parties requires another standard of care. o Duty to exercise proper diligence as the property is in danger of being lost or destroyed, thus rendering the obligation as illusory. o As far as human care and foresight can provide, using the utmost diligence of very cautious persons , with due regard for all the circumstances Article 1164. The creditor has the rights over the fruits of the thing from the time delivery of the said thing arises. However, he shall acquire no real right over it until the same has been delivered. Personal Right Jus in personam/ jus ad rem Power demandable by one person of another (to give, to do or not to do) Property Right Jus in re A power over a specific thing (right of ownership or possession) and is binding on the whole world

PAUL M. FLORENDO University of Nueva Caceres College of Law S/Y 2012 2013 2nd Semester

St. Joseph of Cupertino, who while on earth did obtain from God the grace to be asked at your examination only the questions you knew, obtain for me the like favor in this examination by which I am now preparing. In return, I promise to make you known in the name of Jesus Christ our Lord. Amen.

SALIENT POINTS IN OBLIGATIONS AND CONTRACTS: MIDTERM COVERAGE o Non nudis pactis, sed traditionis dominia rerym transfer antur. It is not agreement, but tradition or delivery that transfers ownership. o Kinds of delivery Actual Delivery physically, the property changes hands. Constructive Delivery physical transfer is implied. Can be done by: Traditio simbolica - symbolical tradition o Keys of a bodega are transferred Traditio longa manu - delivery by mere consent or the pointing out of the object Traditio brevi manu delivery by the short hand; a possessor of a thing not as an owner becomes the possessor or owner o Tenant6 who is possession buys the house he is renting Traditio constitutum possessorium delivery whereby the possessor or owner retains the possession no longer as an owner, but in some other capacity o House owner selling his property but staying as s tenant Tradition by the execution of legal forms and solemnities o Execution of a public instrument selling instrument o When does the obligation to deliver arise? It depends. If there is no term or condition, then from the perfection of the contract. If otherwise, then from the moment the term arrives or the condition happens. Article 1165. Specific/Determinate Thing Generic/Indeterminate Thing thing capable of particular designation thing capable of particular designation Extinguished by a fortuitous event Never extinguished by a fortuitous event except: 1. If the obligor delays 2. If the obligor is guilty of BAD FAITH (for having promised to deliver the same thing to two or more persons who do not have the same interest as when one is not the agent merely of the other) o Remedies of the creditor when the debtor fails to comply with his obligations: Demand specific performance Demand rescission or cancellation Demand damages with or without either of the first two o Ordinary delay mere nonperformance of obligation at the stipulated time. o Default delay which amounts to virtual nonperformance of an obligation There must be a demand for fulfillment, the demand either be judicial or extrajudicial Article 1166. The obligation to give a determinate thing includes that of delivering all its accessions(additions or improvements upon a thing) and accessories, even though they may not have been mentioned. Article 1167. If a person obliged to do something fails to it, the same shall be executed at his cost. (typewriter)
St. Joseph of Cupertino, who while on earth did obtain from God the grace to be asked at your examination only the questions you knew, obtain for me the like favor in this examination by which I am now preparing. In return, I promise to make you known in the name of Jesus Christ our Lord. Amen.

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PAUL M. FLORENDO University of Nueva Caceres College of Law S/Y 2012 2013 2nd Semester

SALIENT POINTS IN OBLIGATIONS AND CONTRACTS: MIDTERM COVERAGE Also, in contravention with the tenor of the obligation and when it is decreed that what has been poorly done be undone. What if you do something which has been forbidden to be done? (Article 1168) Article 1169. Those obliged to deliver or to do something incur in delay from the time the oblige judicially or extra judicially demands from them the fulfillment of their obligation Page | o Note: what we have here is default (MORA) 3 o Exceptions (when demand is no longer necessary) When the law so provides (taxes) When the obligation expressly so declares ( not mere term but the a provision that default arises if payment is not made when due) When from the nature and circumstances of the obligation, it appears that the time when the thing has to be delivered or the service has to be rendered, is a controlling motive in the establishment of the contract. When time is of the essence of the contract When demand would be useless, as when obligor has rendered it beyond his power to perform (when the seller disposes the thing in favor of another before maturity, when subject matter has been destroyed or when seller is hiding) When the obligor has expressly acknowledged that he is really in default (mere asking for an extension of time is not an EXPRESS acknowledgement of the existence of default) o When does each of the parties in a reciprocal obligation incur in delay? From the moment one of the parties fulfills his obligation. o Different Kinds of Mora Mora solvendi (default on the part of the debtor0 Mora solvendi ex re (debtors default in real obligations) Mora solvendi ex persona )debtors default in personal obligations) Mora accipiendi (default on the part of the creditor) Creditor unjustifiably refuses acceptance of payment Creditor refuses indemnity from someone who has committed a crime without justification Improper refusal of the lessor to accept rents Compensatio morae (when in reciprocal obligation, both parties are in default. It if neither is in default) o When does a creditor entitled for damages or interest because of MORA lose the same? Article 1170. Grounds for Liability in the Performance of Obligation: o Fraud o Negligence o Delay o Contravention of the tenor of the obligation Article 1172. Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances. o What are the valid and invalid stipulations in a bill of lading regarding freight?

PAUL M. FLORENDO University of Nueva Caceres College of Law S/Y 2012 2013 2nd Semester

St. Joseph of Cupertino, who while on earth did obtain from God the grace to be asked at your examination only the questions you knew, obtain for me the like favor in this examination by which I am now preparing. In return, I promise to make you known in the name of Jesus Christ our Lord. Amen.

SALIENT POINTS IN OBLIGATIONS AND CONTRACTS: MIDTERM COVERAGE o Three Kinds of Culpa Culpa Contractual negligence is merely incidental, incident to the performance of an obligation already existing because of a contract Culpa Aquiliana no previous existing contractual relations between a pedestrian and a taxi driver Page | Culpa Criminal needs proof of guilt beyond reasonable doubt needed 4 Article 1174. General Rule: No liability for fortuitous events (those which cannot be foreseen, or although foreseen, are inevitable) o Exceptions: When expressly declared by law (when the possessor is in BAD FAITH) When expressly declared by stipulations or contracts When nature of the obligation requires the assumption of risk o Equivalent Terms for fortuitous event Caso fortuito Act of God Force majeure Unavoidable accident Article 1175. No more usury law o Usury contracting for or receiving something in excess of the amount allowed by law for the loan or use of money, goods, chattels, or credits. Article 1176. The receipt of the principal by the creditor, without reservation with respect to the interest, shall give rise to the presumption that said interest has been paid. o The receipt of latter installment, without reservation to the prior installments, shall likewise raise the presumption that such installments have been paid. o Article 1253: payment of the interest precedes payment of the principal o Note: this article only raises a rebuttable, never a conclusive presumption. Article 1177. Rights of Creditors: o exact payment o exhaust debtors properties, generally by attachment (see Art 2236) o accion subrogaria exercise all rights and actions except those inherent in the person o accion pauliana impugn or rescind acts or contracts done by debtor to defraud the creditors PURE AND CONDITIONAL OBLIGATIONS Pure obligation one without a condition or term. Hence, demandable at once, provided there will be no absurdity o When is a condition demandable at one? When it is pure When it has a resolutory condition The happening of the condition extinguishes the obligation vs suspensive condition the happening of the condition gives rise to the obligation Conditional Obligation when there is a condition o Condition an uncertain event which yields an influence on a legal relationship
St. Joseph of Cupertino, who while on earth did obtain from God the grace to be asked at your examination only the questions you knew, obtain for me the like favor in this examination by which I am now preparing. In return, I promise to make you known in the name of Jesus Christ our Lord. Amen.

PAUL M. FLORENDO University of Nueva Caceres College of Law S/Y 2012 2013 2nd Semester

SALIENT POINTS IN OBLIGATIONS AND CONTRACTS: MIDTERM COVERAGE o Term or period that which certainly must come and the arrival of which may give rise the extinguishment of an obligation should it be delivered or served Article 1182. When the fulfillment of the condition depends upon the sole will of the debtor (potestative), the conditional obligation shall be void. If it depends upon chance or the will of a third person (casual), the obligation shall take effect in conformity with the provisions of this Code. Page | o Potestative and suspensive condition and obligation are void 5 o Potestative and resolutory valid o Potestative on the part of the creditor valid Ill give you my fountain pen if you desire to have it. Article 1183. Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid. Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. Article 1189 o Rules Imposed in Case of the Improvement, Loss or Deterioration of the Thing During the Pendency of the Condition If the thing is lost, without the fault of the debtor, the obligation shall be extinguished. If the thing is lost through the fault of the debtor, he shall be obliged to pay damages o When is it lost? When it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered. When the thing deteriorates without the fault of the debtor, the impairment shall be borne by the creditor. When the thing deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages for either case. If it is improved at the expense of the debtor, he shall have no right than that granted to the usufructuary. o Usufruct the right to the enjoyment of the use and the fruits of a thing o No right for indemnity. However, he may remove such improvements provided it is possible to do and it will be done without causing damage to the property Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. o The damaged party may choose between rescission or fulfillment of the obligation, with damages in either case. Rescission the right to cancel (or resolve) the contract or reciprocal obligations in case of non-fulfillment on the part of one. o To rescind is to declare a contract void at its inception and to put an end to it as though it never was. It is not merely termination but abrogation from the very beginning and restoration of the parties to their relative positions as if no contract has been made.

PAUL M. FLORENDO University of Nueva Caceres College of Law S/Y 2012 2013 2nd Semester

St. Joseph of Cupertino, who while on earth did obtain from God the grace to be asked at your examination only the questions you knew, obtain for me the like favor in this examination by which I am now preparing. In return, I promise to make you known in the name of Jesus Christ our Lord. Amen.

SALIENT POINTS IN OBLIGATIONS AND CONTRACTS: MIDTERM COVERAGE Article 1192. In case both parties have committed a breach of obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined, the same shall be extinguished and each shall bear his own damages. OBLIGATIONS WITH A PERIOD Page | Article 1193. Obligations for whose fulfillment a day certain has been fixed, shall be demandable only when 6 that day comes. o Obligations with a resolutory period take effect at once, but terminate upon the arrival of a day certain o A day certain Article 1194. connected with Article 1189 Article 1196. Whenever in an obligation a period is designated, it is presumed to have been established for the benefit of the creditor and the debtor, unless from the tenor of the same or other circumstances it should appear that the period has been established in favor of one or the other. Article 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof. o Also when period depends upon the will of the debtor o Once fixed by courts, it cannot be changed by them. Article 1198. The debtor shall lose every right to make use of the period: o When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt o When he does not furnish the creditor the guaranties or securities he has promised o When by his own acts, he has impaired such guaranties or securities after their establishment and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory If a mortgaged house is allowed to decay by the mortgagor, he impairs the value of the guaranty. Thus, payment is demandable at one. If a typhoon destroys a house, payment has also become demandable at one. This is true even if the cause is a fortuitous event. o When the debtor violates any undertaking, in consideration of which the creditor agreed to the period o When the debtor attempts to abscond o ALTERNATIVE OBLIGATIONS Article 1199. A person alternatively bound by different prestations shall completely perform one of them. o The creditor cannot be compelled to receive part of one and part of the other undertaking Article 1200. o Right of choice debtor (unless it has been expressly granted to the creditor0 o The debtor shall have no right to choose those prestations which are (1) impossible, (2) unlawful or (3) which could not have been the object of the obligation. Article 1201. The choices shall produce no effect except from the time it has been communicated. o Communicated expressly or impliedly, orally or in writing PAUL M. FLORENDO University of Nueva Caceres College of Law S/Y 2012 2013 2nd Semester
St. Joseph of Cupertino, who while on earth did obtain from God the grace to be asked at your examination only the questions you knew, obtain for me the like favor in this examination by which I am now preparing. In return, I promise to make you known in the name of Jesus Christ our Lord. Amen.

SALIENT POINTS IN OBLIGATIONS AND CONTRACTS: MIDTERM COVERAGE Article 1203. If through the creditors act, the debtor cannot make a choice, the latter may rescind the contract with damages. (He also just choose from what was left) Article 1204. The creditor shall have the right to indemnity for damages if, through the fault of the debtor, ALL the things which are alternatively the object of the obligation have been lost, or the compliance of the obligation has become impossible. Page | o Basis of indemnity: the value of the last thing which disappeared/ service which last became 7 impossible to render o Value + Damages allowed Article 1205. If the credit has been expressly granted the right of choice, the obligation is no longer alternative in nature from the day the creditor communicates his choice to the debtor. (It has become a pure obligation). o Until then, the debtor has the following responsibilities: If one of the things is lost due to a fortuitous event, he shall deliver that which the creditor chooses among the remaining alternatives. If the loss of thing is due to the fault of the debtor, the creditor may: o Choose from the subsisting alternatives o Claim the price of that which has been lost through the fault of the debtor If all the things are lost through the fault of the debtor, the choice of the creditor shall fall on any price of the lost alternatives, also with indemnity for damages. o Same with obligations to do or not to do Article 1206. o Facultative obligation an obligation where only one prestation has been agreed upon but the obligor may render another in substitution. REFER TO YELLOW TABLET NOTES Article 1212. Each one of the solidary creditors may do whatever may be useful to the others, but not anything which may be prejudicial to the other. o May a solidary creditor condone the entire obligation? Yes. This is because of the absolute trust and confidence among themselves. Article 1213. A solidary creditor cannot assign his rights without consent of the others. OBLIGATIONS WITH PENAL CLAUSE Article 1226. The penalty in a penal clause shall substitute for the damages and interest incurred in case of non-compliance o Penal clause / Liquidated Damages coercive means to obtain from the debtor compliance An accessory undertaking to assume a greater liability in case of breach Purpose: to insure performance of the obligation and to substitute for damages and the payment of interest in case of non-compliance. o Instances when additional damages may be recovered When it is expressly stipulated despite the presence of penal clause When the debtor refuses to pay the penalty imposed in the obligation When the debtor is guilty of fraud or dolo in the performance of the obligation o No more case of breach when penalty has been met
St. Joseph of Cupertino, who while on earth did obtain from God the grace to be asked at your examination only the questions you knew, obtain for me the like favor in this examination by which I am now preparing. In return, I promise to make you known in the name of Jesus Christ our Lord. Amen.

PAUL M. FLORENDO University of Nueva Caceres College of Law S/Y 2012 2013 2nd Semester

SALIENT POINTS IN OBLIGATIONS AND CONTRACTS: MIDTERM COVERAGE o Penalty clause example: forfeiture of installments Article 1227. Debtor is not allowed to just pay the penalty instead of the principal obligation. He can only do so if the right has been expressly reserved. Article 1228. Proof of actual damages suffered by the creditor is not necessary in order that penalty be demanded. Article 1229. When Penalty May Be Reduced by the Court o When the obligation has been partly complied with by the debtor o When the obligation has been irregularly complied with by the debtor o When the penalty is iniquitous or unconscionable, even if there has been no performance at all Article 1230. The nullity of the penal clause does not carry with it the nullity of the principal obligation. The nullity of the principal obligation carries with it that of the penal clause. Article 1245. o Dation in Payment mode of extinguishing an obligation whereby a debtor alienates in favor of the creditor, a property for the satisfaction of a monetary debt. Synonyms: o Datio in solutum o Adjudicacion en pago To pay my debt of P1,000,000 in favor of Bella, I gave her with her consent a diamond ring instead worth P1,000,000. SALE VS. DATION IN PAYMENT SALE (a) (a) There is no pre-existing credit (b) this gives rise to obligations DATION IN PAYMENT (a) (a) There is a pre-existing credit (b) this extinguishes obligations (c) cause or consideration is the extinguishment of the obligation (d) there is less freedom in the determination of the price (e) may extinguish completely or partially the credit

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(c) cause or consideration (PRICE for the seller and OBJECT for the buyer) (d) there is greater freedom in the determination of the price (e) the giving of the price may generally end the obligation of the buyer

Article 1245. When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and circumstances have not been stated, the creditor cannot demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be taken into consideration. Article 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the payment shall be for the account of the debtor. With regard to judicial costs, the Rules of Court shall govern. Article 1249. The payment of debts in money shall be made in the currency stipulated, and if not possible to deliver such currency, then in the currency which is legal tender in the Philippines. . o The delivery of promissory notes shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor, they have been impaired.

PAUL M. FLORENDO University of Nueva Caceres College of Law S/Y 2012 2013 2nd Semester

St. Joseph of Cupertino, who while on earth did obtain from God the grace to be asked at your examination only the questions you knew, obtain for me the like favor in this examination by which I am now preparing. In return, I promise to make you known in the name of Jesus Christ our Lord. Amen.

SALIENT POINTS IN OBLIGATIONS AND CONTRACTS: MIDTERM COVERAGE Article 1251. Where Payment Must Be Made o Place designated (if there is a stipulation) o If it is a determinate thing in the place where the thing might be at the time the obligation was constituted. If temporary, at the domicile of the debtor. o If generic, domicile of the debtor

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APPLICATION OF PAYMENTS Article 1252. 4 Special Forms of Payment o Application (or imputation) of paymebnt o Dation in Payment o Assignment/Cession o Tender of Payment and Consignation Article 1254. When payment cannot be applied in accordance with the preceding rules, or if application cannot be inferred from other circumstances, the debt which is most onerous to the debtor, among those due, shall be deemed to have been satisfied. o If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately.

COMPENSATION Article 1278. Compensation balancing between two obligations

PAUL M. FLORENDO University of Nueva Caceres College of Law S/Y 2012 2013 2nd Semester

St. Joseph of Cupertino, who while on earth did obtain from God the grace to be asked at your examination only the questions you knew, obtain for me the like favor in this examination by which I am now preparing. In return, I promise to make you known in the name of Jesus Christ our Lord. Amen.