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REVIEW NOTES ON THE LAW ON CONTRACTS, NATURAL OBLIGATIONS & DAMAGES Prepared by : City Prosecutor Janet Grace Dalisay-Fabrero Business Law, Reviewer Ateneo de Davao University CPA Business Law Review Center PART 1 LAW ON CONTRACTS
General Provisions (Arts.1305-1317) 1. Define Contracts. - It is a meeting of minds between two (2) persons whereby one binds himself, with respect to the other, to give something or render some service. (Art.1305)

2. Difference between contract and obligation Contract is considered as the cause and obligation as an effect. There are however five (5) sources of an obligations and the most important among them is contracts. Consequently, there can be an obligation without a contract, but there can be no contract without a resulting obligation. 3. What are the elements of a contract? a) Essential Consent, certain object and cause or consideration. Special elements present only in certain contracts such as delivery in real contracts or from in solemn ones b) Natural derived from the nature of the contracts and ordinarily accompany the same. The law presumes them, although the contracting parties can exclude them if they so desire. Thus, warranty against eviction is implied in a contract of sale. Warranty of Hidden Defects. c) Accidental are those that exist only when the parties expressly provide for them for the purpose of limiting or modifying the normal effects of the contract, Examples of these are conditions, terms and modes.

4. What are the different classes of contracts? a) According to their relation to other contracts: 1. Preparatory those that have for their object the establishment of a condition In law which is necessary as a preliminary step towards the celebration of another subsequent contract. Examples partnership, agency 2. Principal those which can subsist independently from other contracts and whose purpose can be fulfilled by themselves. Examples sale, lease 3. Accessory those that can exist only as a consequence of, or in relation with, another prior contract. Example pledge, mortgage. b) According to their perfection: 1. Consensual those that are perfected by the mere agreement of the parties, examples sale, lease 2. real those which require not only the consent of the parties for their perfection, but also the delivery of the object by one party to the other. c) According to their form: 1. Common or informal those that does not require some particular form. Examples loan, lease 2. Special or formal those that require some particular form. Examples donation, chattel mortgage. d.) According to their purpose: 1. Transfer of ownership. Example- sale 2. Conveyance of use. Example commodatum 3. Rendition of services. Example agency e) As to the nature of the obligation 1. Unilateral where only one contracting party has an obligation to perform, as in Commodatum or gratuitous deposit. 2. Bilateral- Where both parties have their respective reciprocal obligations to perform. Example is a contract of sale wherein the seller must deliver and the buyer to pay for the object agreed upon. f) According to cause: 1. Onerous those in which each of the parties aspires to procure for himself a benefit through the giving of an equivalent or compensation. Example - sale 2. Gratuitous those in which one of the parties proposes to give to the other a benefit without any equivalent or compensation. Example-commodatum 3. Remuneratory or remunerative or one that cause of which is the service or benefit which is remunerative. g) According to risk involved: 1. Commutative those where each of the parties acquires an equivalent of his

prestation and such equivalent is pecuniary appreciable and already determined from moment of the celebration of the contract. Example- lease 2. Aleatory those where each of the parties has to account the acquisition of an equivalent of his prestation but such equivalent, although pecuniarily appreciable is not yet determined, at the moment of the celebration of the contract, since it depends upon the happening of un uncertain event, thus charging the parties with the risk of loss or gain. Example insurance. h) According to their designation or names: 1. Nominate those that have their own individuality and are regulated by special provisions of law. Examples sale and lease 2. Innominate those which lack individuality and are not regulated by special provision of law 5. Different Phases or stages in the Lie or Biology of a Contract: a) Preparatory or Preliminary first stage of the contract where negotiation transpires b) Perfection birth of the contract c) Consummation fulfillment of the purpose for which the contract was constituted. 6. Five (5) Most Essential characteristics of A Contract: 1. Obligatory Force or character of contract the principal that once a contract is perfected, it shall be obligatory upon both of the contracting parties. (Art.1159,1315,1356) 2. Autonomy of Contracts principle that the contracting parties are free to enter into a contract and to establish such stipulations, clauses, terms and conditions as they may deem convenient save those that are contrary to law, public policy, morals, good customs and public order. (Art.1306) Note: Also known as Freedom to Contract or Freedom to Stipulate. Exercise of police power of the State may limit also said right. Said right is a constitutional right as laid down under Section 10, Article III of the 1987 Philippine Constitution. 3.

Mutuality of Contracts an essential quality of the contacting parties whereby the contract must bind both of them validity or compliance of the contracts should not be left to the will of one of them. (Art.1308) Note: The determination of performance may be left to a third person whose decision shall be binding when communicated to the contracting parties. (Art. 1309) Such obligation shall not be obligatory if it is evidently inequitable. In such case the court shall decide what is equitable under the circumstances. (Art. 1310)

4.Relativity of Contracts contracts take effect only between the parties, their assigns and heirs. (Art.1311)* Notes: * To be read together with the principle of transmissibility of rights under Article 1178 which provides that subject to the laws, all rights in virtue of an obligation are transmissible, if there has been no stipulation to the contrary. Exceptions: a. Stipulation pour Autrui - where contract may either favor or prejudice a third person. ( Art. 1311 par.2) Requisites for Stipulation Pour Autrui: The contracting parties by their stipulation must have clearly and deliberately conferred favor upon a third person; The third person must have communicated his acceptance to the obligor before its revocation by the by the obligee or the original parties. The stipulation in favor of the third person should be a part, not the whole, of the contract; The favorable stipulation should not be conditioned or compensated by any kind of obligation whatever; and Neither of the contracting parties bears the legal representation or authorization of the third party for otherwise, the rule on agency will apply. In contracts creating real rights (Art. 1312) A real right is binding against the whole world and attaches to the property over which it is exercised wherever it goes. Registration to the Registry of Property (Registry of Deeds) constitutes real right. In contracts entered into to defraud creditors (Art. 1313)* Note: Remedy of the creditor is asked for rescission of the contract if contract is valid but it is entered to defraud the creditor. (See Article 1381 paragraph 3 of the Civil Code. But if contract is absolute simulated contracts made to defraud the creditor, the contract is void. Remedy of the creditor is to ask for the declaration of the nullity of contract considering it is null and void and has no effect at all. In contracts which have been violated at the inducement of a third person (Art. 1314)

b.

c.

d.

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Consensuality of Contracts Generally, all contracts are perfected by consent. One of the essential elements of the contract is consent. Thus, even if some contracts require other requisites, all contracts however must satisfy the element of consent. (Art. 1315)

7. Different kinds of Innominate Contracts and how they are regulated: a) Do ut des I give that you give; b) Do ut facias I give that you do; c) Facio ut des I do that you give d) Facio ut facias I do that you do These contracts shall be regulated by the stipulation of the parties by the general provisions or principles of obligations and contracts, by the rules governing the most analogous nominate contracts, and by the custom of the place.(Art. 1307) Do ut des is now considered nominate contract as it is now defined as barter and governed by Article 1638. 8. How contracts are perfected: a) Consensual contract by mere consent. (This is the general rule) Art. 1315 b) Real contracts perfected by delivery like deposit, pledge and commodatum (Art.1316)* c) Formal or solemn contracts here a special form is required for perfection. Examples a simple donation intervivos of real property, to be valid it must be in public instrument: Art. 749. Notes: * Real contracts are perfected by actual delivery of the object. While there may be meeting of the minds as to the object and consideration, the contract is not deemed perfected until such time as the object is actually delivered. Consequence of Perfection: a) The parties are bound to the fulfillment of what has been expressly stipulated (Art.1315) and compliance thereof must be in good faith (Art.1159) b) The parties are also bound to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. 9. Under the principles of Agency, no person can enter into and bind another person in a contract unless a) He is duly authorized by the person in whose behalf he is acting; or b) He has the legal right to represent the person for whom he is acting. The contract entered by a person who is unauthorized by the principal or if authorized by exceeded his authority is UNENFORCEABLE. (See Article 1304 paragraph of the Civil Code unless duly ratified by the party he is representing. 10. Essential Requisites of Contracts (Art. 1318) a) Consent of the contracting parties; b) Object certain which is the subject matter of the contract; c) Cause of the obligation, which is established. Kinds of elements a) Essential elements those without which contract cannot validly exist. 1. Common ( consent, object and cause) 2. Special those not common to all contracts but is peculiar to certain contracts. i.e pledge requires delivery, donation of real property requires formalities b) Natural elements those that are presumed to exist in certain contracts unless the contrary is expressly stipulated. Warranty against hidden defects, warranty against eviction. c) Accidental elements stipulations, clauses, terms and conditions established by the parties under the principle of autonomy. (Article 1306) CONSENT (Arts. 1319 1346) 1. Meaning of Consent signifies concurrence of the will of the contracting parties with respect to the object and the cause, which shall constitutes the contract. MEETING OF THE OFFER AND THE ACCEPTANCE UPON THE THING AND THE CAUSE, WHICH ARE TO CONSTITUTE THE CONTRACT (Art.1319) a) Requisites: Concurrence of the offer and the acceptance (Art.1319-1326) Contracting parties must posses the necessary legal capacity (Art.1330 1346) Consent must be intelligent, free, spontaneous and real (Arts.1330-1346) b) Requisites for Meeting if the Minds: An offer that must be CERTAIN; And an Acceptance that must be ABSOLUTE AND UNCONDITIONAL/UNQUALIFIED. (Note: if the acceptance is qualified, let us say accompanied with a condition, this is a counter-offer. c) Acceptance thru correspondence: Rule: Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract is such a case is presumed to have been entered into in the place where the offer was made.

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Knowledge may be actual or constructive. 2. General Rule on Option: If the offer has allowed the offeree a certain period to accept, the offer may be withdrawn at anytime before acceptance (of the thing being offered) by communicating such withdrawal. Exception : When the option is founded upon a consideration as something paid or promised. (Option money) Option period: is the period given which the offeree must accept the offer. Meaning of Option: It is a contract granting a person the privilege to buy or not to buy certain objects at anytime within the agreed period at a fixed price. It is a distinct and separate contract from the contract, which the parties may enter into upon the consummation of the contract. An option must have its own cause ore consideration, a cause distinct from the selling price itself. Of course, pure liberality may be a valid cause. Note: Offeror can no longer withdraw or revoke his offer as soon as he has knowledge of the offerees absolute acceptance. Once the offeror receives the offerees acceptance, there is a perfected contract. Offeror has the right to withdraw even before the expiration of the option period or period of acceptance, provided he has not yet received the offerees acceptance. Exception is when the offeree gives a consideration called OPTION MONEY TO THE OFFEROR. 3. In the rule on AGENCY, offerees acceptance given to the authorized agent of the principal will be equivalent to acceptance given to the offeror who is the principal. (Art. 1322) 6. 7. An offer becomes ineffective upon death, civil interdiction, insanity or insolvency of either party before acceptance is conveyed. (Article 1323) After the acceptance, principle of relativity applies. Unless it appears otherwise, business advertisements of things for sale are not definite offers but merely invitations to make an offer, (Art. 1325) Example 1: For sale: 300 square meters lot at Ladislawa for P 4M-Contact Jenny, 3009495. This is not a definite offer. Example 2; For Sale 300 square meters lot at Ladislawa Subdivision, 242, Cattleya Street, Phase 1, Buhangin Davao City for P 4 M non-negotiable. Contract Velma, 3009495. This is a definite offer. Advertisements for bidders are simply invitations to make proposals and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears. (Art. 1326) CHARACTERISTICS OF CONSENT 1. 2. 3. Intelligent which means that the person giving consent must be capacitated. Thus a person who is incapacitated due to minority or insanity cannot give intelligent consent. Free and voluntary- which means person who are under threat and intimidation cannot give free and voluntary consent. Conscious and spontaneous persons under undue influence, fraud and mistake cannot give these characteristics of consent. THE LAW REQUIRES THAT CONSENT MUST BE INTELLIGENT, FREE AND VOLUNTARY, CONSCIOUS AND SPONTANEOUS. Consent is intelligent if the person giving consent is capable of doing so and is therefore capacitated. It is free and voluntary if it is devoid of force and intimidation. It is conscious and spontaneous if there is absence of fraud, mistake or error, or undue influence. Two (2) classes of voidable contracts: a) Those where one party is incapacitated to give consent. (Art.1327) Unemancipated minors exception is when contract is the sale and delivery of necessities to a minor (Article 1489 paragraph 2 of the Civil Code) Insane or demented persons unless entered during lucid interval. As such contract is valid (Art. 1328) Deaf-mutes who do not know how to write (and read). Those in the state of drunkenness (Art.1328) Those entered into during a hypnotic spell Special disqualifications (those under civil interdiction, insolvent etc.) * Guardians, agents and executor and administrators unless authorized by the court are incapacitated to enter into a contract of sale under Article 1491 paragraphs 1 to 3 because private interests are affected. Contracts entered in violation of this prohibition are only VOIDABLE. The defect can be cured by ratification. b) Those where consent of one party has been vitiated. (Arts. 1330-1334) a) b) c) d) e) Causes of Vitiated Consent Mistake (or error) False belief about something Fraud (or deceit) referring to DOLO CAUSANTE or CAUSAL FRAUD Violence physical coercion Intimidation mental coercion Undue influence

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NOTE: Mistake and Fraud affect the intellect thus affect cognition. Cognition must be intelligent. While fraud, violence, intimidation and undue influence affect the will thus likewise affect volition. Volition must be free. 9. Requisites for Mistake or Error to vitiate consent: The error must be substantial regarding the object of the contract, conditions which principally moved or induced one of the parties or identity or qualification; if the same is the principal cause of the contract. Error must be excusable The error must be mistake of fact and not of law. (Art. 1331) Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated may vitiate consent (Art. 1334)

10. Requisites for violence to vitiate consent: - Employment of serious or irresistible force to secure consent of the other party; - It must have been the reason why the contract was perfected. (Art. 1335) 11. Requisites for intimidation to vitiate consent: - Reasonable and well-grounded fear - Of an imminent and grave evil - Upon his person, property, or upon the person, or property of his spouse, descendants or ascendants; - It must have been the reason why the contract was entered into; - The threat must be of an unjust act, an actionable wrong. (Art. 1335) - To determine the degree of intimidation, the age, sex and condition of the person shall be borne in mind. - A threat to enforce ones claim through competent authority is just or legal does not vitiate consent. Note: 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. 12. Requisites of Undue Influence: Improper advantage Power over the will of another Deprivation of the latters will of a reasonable freedom of choice Examples of Circumstances to be considered - confidential, family, spiritual and other relations between the parties; - mental weakness - ignorance - financial distress 13. Kinds of FRAUD a) Fraud in the celebration of the contract; b) Fraud in the performance of the contract. Meaning of Causal Fraud (DOLO CAUSANTE) refers to those deceptions or misrepresentation of a serious character employed by one party without which the other party would not have entered into the contract; There is causal fraud, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract, which without them, he would not have agreed to (Art.1338) Two types of Causal Fraud 1. Fraud by misrepresentation or 2. Fraud by concealment (Art. 1339) General Requisites for Causal Fraud: a) There must be misrepresentation or concealment; b) It must be serious c) It must have been employed by only one of the contracting parties (Art. 1344) d) It must be made in bad faith or intent to deceive; e) It must have induced the consent of the other contracting party; and f) It must be alleged and proved by clear and convincing evidence. REQUISITES FOR FRAUD BY MISREPRESENTATION: Fraud or insidious words or machinations must be employed by one of the contracting parties; Fraud or insidious words or machinations must be serious The fraud or insidious words or machinations must induce the other party to enter into the contract; and The fraud should not have been employed by both of the contracting parties or by third persons.(Art. 1344) Pertinent provisions: a) Usual exaggerations in trade, when the other party had an opportunity to know the fact are not themselves fraudulent. (Art. 1340) The law allows certain degree of exaggeration to promote trade or industry. Customers are expected to know how to verify facts. (Caveat

emptor or let the buyer beware) Dealers talk or traders talk are representations that are not fraudulent unless they appear on the face of the contract. b) Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and mistake is mutual. As such contract is voidable on the ground of mistake and not fraud. c) Misrepresentation made in good faith is not fraudulent but may constitute error.(Art. 1343) d) Meaning of Incidental Fraud (DOLO INCIDENTE) refers to those incidental deceptions or misrepresentations employed by one party without which the other party would still have entered into the contract. Incidental fraud only obliges the person employing the same to pay DAMAGES (Art. 1344, 2nd paragraph) 14. Simulation of a contract it is a process of intentionally deceiving others by producing the appearance of a contract that really does not exist (absolute simulation) or which is different from the true agreement (relative simulations) (Article 1345) Effects: a) Absolute Simulation or fictitious contracts, effect is void, as the parties do not intend to be bound. b) Relative Simulation Here parties conceal their true agreement. Effect: The parties are bound to the real or true agreement except if the contract should prejudice third person or if the purpose is contrary to law, morals, good customs, public order, public policy. (art. 1346) OBJECT (Arts.1347-1349) 1. Meaning of object as the thing, right or service, which is subject matter of the obligation, which is created or established. Requisites for a valid object: a. b. c. d. It must be within the commerce of man in other words susceptible of appropriation and transmissible to one person to another. The object must real and possible, meaning it should exist at the moment of the celebration of the contract or at least, it can subsequently exist or in the future; The object should be licit, it should not be contrary to law, morals, good customs, or public order and public policy and; The object should be determinate, or at least, possible of determination as to its kind.

Kinds of object in a contract: a) Things Must be within the commerce of man-meaning that the object must be capable of being owned, possessed, acquired and transferred from one person to another. Shall include future things with potential existence (contract of sale) Must be specific or determinate as to its kind Must not be legally or physically impossible. b) Rights Only rights which are transmissible may be valid objects of contracts. c) Services - must not be contrary to law, public morals, public policy, public order and good customs. must not be physically impossible of performance must be determinate and certain as to its nature. Rules: 1. Future inheritance cannot be a valid object of a contract. Future inheritance is any property or right, not in existence or capable of determination at the time of the contract that a person may inherit in the future. Contracts involving future inheritance is void except a) in the case of donations by reasons of marriage between future spouses with respect to their future property to take effect, only in the event of death, to the extent laid down by law in testamentary succession (Art. 84 Family Code) b) In case of partition of property by act inter vivos by a person (owner or source of property) to take effect upon his death. Type of Impossibility of Object

2.

As to nature: a) Legal Impossibility if the object to be delivered or the service to be performed is contrary to law, public order, public morals, public policy and good customs. b) Physical Impossibility- if the service is incapable of physical performance As to extent: a) Absolute Impossibility- When the prestation is totally incapable of performance either because it is physically or legally impossible. Hence, the contract is void. b) Relative Impossibility when the obligor cannot perform it due to certain special circumstances, conditions or qualifications. The contract is not void but rather becomes effective only from the time the relative impossibility ceases or only to the extent of what the obligor is capable of performing.

CAUSE OR CONSIDERATION (Arts.1350-1355) 1.

Meaning of Cause or consideration the essential reason, which moves the contracting, parties to enter into the contract. The immediate, direct or most proximate reason, which explains and justifies the creation of an obligation through the will of the contracting parties. 2. Difference between cause and motives: The cause is the direct or approximate reason of a contract, whereas the motives are the indirect or remote reasons. The cause is the objective or juridical reason of a contract, whereas the motives are the psychological or personal reasons; The cause for a certain contract is always the same, whereas the motives will differ or vary depending upon who are the parties; The cause can affect the validity of a contract, whereas the motives cannot. 3. Requisites of a valid cause: cause should be in existence cause should be licit or lawful and cause should be true Presumption in cause: Under Article 1354 - the law presumes that a contract has an existing and lawful cause and consideration. Thus, though cause is not stated in the contract, it is presumed to exist and is lawful, unless the debtor proves otherwise. This is only a disputable presumption. Meaning of Lesion any damage caused by the fact that the price is unjust or inadequate. Inadequacy of cause (lesion) will not invalidate a contract as a rule. Except: a. b. If the inadequacy of the cause or price was caused by vitiated consent (fraud, mistake, undue influence, violence or intimidation), then the contract is voidable on the latter ground and not because of gross inadequacy of the price. Under Article 1381 paragraphs 1 & 2 -Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which are the object thereof; Those agreed upon in representation of absentees, if the latter suffers lesion more than one-fourth of the value of the things which are the object thereof.

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Other forms of defective cause 1. Absence or want of cause means that there is total lack of any valid consideration for the contract. It is void. 2. Failure of cause Cause agreed upon did not materialize. This will not the render the contract void. 3. Illegality of the cause - There is a cause but the same is unlawful. Also null and void. 4. Falsity of the cause- It is meant that the contract states a valid consideration but such statement is not true. A false cause may be erroneous which will render the contract void and it may be simulated. If simulated it will not always render the contract void as it may happen that the true cause is just hidden. Hence, it can be enforceable as to its true cause provided said cause is not contrary to law, morals, good customs, public policy and public order. FORMS OF CONTRACTS: 1. Rule: Whatever may be the form in which a contract may have been entered into according to Art.1356 of the Civil Code, is that it shall be obligatory provided all of the essential requisites for validity are present. Hence, under our legal system, the form in which a contract is executed has no effect, as a general rule, upon its obligatory force, provided all of these essential requisites for its validity are present.

Exception: It does not include contract for which the law prescribed a certain form either for validity or for enforceability or convenience. It is evident that there are two exceptions to the rule: a) When the law requires that the contract be in a certain form to be valid; b) When the law requires that contract must be in writing to be enforceable; c) When the law requires that contract must be in writing for convenience. 2. What are the different kinds of formalities prescribed by law for a certain contracts: Those that are for convenience or for the purpose of binding third persons (Arts.1356 to 1358) Those which are necessary for the validity of the contracts; (scattered provisions in the Civil Code and other special law) Those necessary for the enforcement of the contract (Statute of Fraud). Contract that must appear in public instrument: (Convenience) Acts and contracts which have for their object the creation, transmission, modification or extinguishments of real rights over immovable property, sales of real property or of an interest therein governed by Arts. 1403, NO. 2 and 1405; The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains;

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The power to administer property or any other power which has for its object an act appearing or which should prejudice a third person; All other contracts were the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of chattel or things in action are governed by Arts. 1403, No. 2 and 1405.

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Contracts that must appear in writing to be valid: Donation of personal property whose value exceeds P 5,000. According to Art. 748 of the Civil Code, the donation and the acceptance shall be made in writing; otherwise it shall be void; Sale of a piece of land or any interest therein by an agent. According to 1874 of the Civil Code, if the authority of the agent is not in writing, the sale is void; Antichresis. According to Art. 2134 of Civil Code, in contract of antichresis, the amount of the principal and of the interest shall be specified in writing, otherwise the contract shall be void; Agreement regarding payment of interest in contract of loans. According to Art. 1956 of the Civil Code, no interest shall be charged in the same is not expressly stipulated in writing; Contracts that must appear in public instrument to be valid Donation of Real Property (Art. 749) Partnership were immovable property or real right are contributed to the common fund Contracts that must be registered for validity: Chattel mortgage to the Chattel Mortgage Registry of the Registry of Deeds (Art. 2140); Sale and transfer of Large Chattel Contracts that must be in writing to be enforceable. (Under the Statute of Fraud, Art. 1403 paragraph 2: 1. Agreement not to be performed within one year from the making thereof. 2. Promise to answer for the debt, default or miscarriage of another. 3. Agreement in consideration of marriage other than a mutual promise to marry. 4. Agreement for sale of goods, chattels or things in action, at a price not less than five hundred pesos 5. Agreement for leasing for a longer period than one year. 6. Agreement for the sale of real property or of an interest therein 7. Representation as to the credit of a third person.

6. 7.

REFORMATION OF INSTRUMENTS (ARTS. 1359-1369) 1. What is the doctrine of reformation of instruments under the Civil Code? When the true intention of the parties to a perfected and valid contract are not expressed in the instrument purporting to embody their agreement, by reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the instrument so that such true intention may be expressed. In order that there can be a reformation of the instrument, the following requisites must, therefore, occur: a.) There must be a meeting of the minds of the parties; b.) Their true intention is not expressed in the instrument; and c.) Such failure to express their true intention is due to mistake, fraud, inequitable conduct or accident. Note: If the first requisite is missing, the remedy is not reformation but annulment of the contract. 2. Examples of instruments which maybe reformed: When a mutual mistake of the parties causes failure of the instrument to disclose their real agreement (Art. 1361). Either of the parties may bring the action. If one of the party was mistaken and the another acted fraudulently or inequitably in such a way their instrument does not show their true intention; (Art. 1362) The injured party can bring the action. If one party was mistaken and the other knew or believed that the instrument did not state their real agreement but concealed the fact from the former; (Art. 1363). The injured party can bring into action. When through ignorance, lack of skill, negligence, or bad faith on the part of the person drafting the instrument or the clerk or typist, the instrument does not express the true intention of the parties; (Art. 1364) The injured party can bring into action. If two parties agreed upon the mortgage or pledge of real or personal property, but the instrument states that the property is sold absolutely, or with a right to purchase. (Art. 1365) the injured party can bring into action.

3. There will be no reformation in the following cases (Article 1366) a) Simple donations intervivos wherein nio condition is imposed; b) Wills ( inter vivos or mortis causa) c) When the real agreement is void. d) When one party has brought an action to enforce the instrument, he cannot ask for reformation. (Art. 1367). This is based on estoppel or ratification. INTERPRETATION OF CONTRACTS (Arts. 1370-1379) In interpretation of contracts, as well as in Reformation of contracts, the most important consideration is whether or not the contract expresses the true intention of the parties. The following rules that may apply:

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a. b. c. d. Notes: 1. 2. 3. 4. 5. 6. In order to determine the intention of the parties, their contemporaneous and subsequent acts shall be principally considered. (Art. 1371) In case the contract may have several meanings, the rule says that the meaning which will give substance and effect to the contract shall prevail; (Art. 1373) In case of any ambiguities in the contract, the custom or usage of the place where the contract is executed may be availed of to make a reasonable interpretation of the contract. (Art. 1376); In gratuitous contracts, the interpretation which will give the least transmission of rights and interest will prevail. (Art. 1378) Example between commodatum and donation, the former is favored. In onerous contracts, the interpretation of the contract which will give the greatest reciprocity of interests will govern. Example between a loan payable in 6 months and one year, the latter is favored. If the object of the contract is not clearly described and cannot be ascertained from the intention or will of the parties, the contract shall be considered null and void. If the literal meaning of the word or term used in the contract is sufficiently clear as to express the true intent of the parties, then such literal meaning will control. If a word or term is capable of several meanings, the nearest meaning, which will express the true intent of the parties and give substance to the contract, will be used to interpret the contract. If the word or term used is entirely at variance with the intent of the parties, then the latter will prevail in the interpretation of the contract. Even if the contract may be couched in general terms, it shall not include things, which are different and not intended to be covered by the parties.

DEFECTIVE CONTRACTS 1. Rescissible Contracts: (Arts. 1380-1389) Meaning of Rescission: Rescission is a remedy granted by law to the contracting parties and even to third persons, to secure the reparation of damages caused to them by a contract, even if the same should be valid, by means of restoration of their condition prior to the celebration of the contract. (8 Manresa 748-749) 2. Who may file action for rescission? a. The contracting party who may have suffered injury or damage by virtue by the execution of the contract, or b. By a third person who may have suffered injury or damage by virtue of the contract 3. Requisites of Rescission: a. There must be a case established by law: 1. 2. 3. 4. 5. There must be injury or damage to the one of the contracting parties of to a third person. There is no other legal remedy available to the injured party. It is a subsidiary remedy The party who has the right of rescission must be able to return what he has received under the contract. The object of the contract must not be legally in the possession of a third person who acquired it in good faith. Action for rescission must be filed within the legal prescriptive period.

Grounds: Arts. 1381-1382 a) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one fourth of the value of the things which are the object thereof; b) Those agreed upon in representation of absentees, if the latter suffer the lesion more than one fourth of the value of the things which are object of the contract; c) Those undertaken in fraud of the creditors when the latter cannot in any other manner collect the claims due them; d) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of a competent judicial authority; e) All other contracts especially declared by law to be subject to rescission. A partition, judicial or extra-judicial, may also be rescinded on account of lesion, when any one of the co-heirs received things whose value is less than at least one fourth than the share to which he is entitled considering the value of the thing at the time they were adjudicated. (Art. 1098) If the lessor or the lessee should not comply with the obligation in a contract of lease, the aggrieved party may ask for the rescission of the contract and indemnification for damages, or only the latter the contract to remain in force. (Art. 1659) The vendee may exercise the remedy of rescission when the lack of area of the real estate sold be not less than one tenth of that stated, or when the inferior value of the thing sold exceeds one tenth of the price agreed upon. (See Articles 1526, 1534,1542,1556,1560,1567, 1599)

f)

Payment made in a state of insolvency for obligation to whose fulfillment the debtor could not be compelled at the time they were effected, are also Rescissible. (Art. 1382)

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SOME APPLICABLE RULES: The defect consists of economic injury or damage (Lesion) either to one of the contracting parties or third persons; Before rescission, the contract is valid and therefore legally effective; It can be susceptible of convalidation only by prescription and not by ratification; It can attack directly not collaterally; and It can be attacked directly by a contracting party who suffers injury or third person who is defrauded. Rescission shall only be to the extent necessary to cover the damaged caused. If mutual restitution cannot be undertaken as the object is already in a person who acquires the same in good faith, rescission is cannot be made possible. The action to claim rescission must be commenced within four years from the celebration of the contract. For persons under guardianship and for absentees, the period of four(4) years shall not begin until the termination of the formers incapacity, or until the domicile of the latter is known.

Circumstances denominated as badges of fraud: In the consideration of whether or not certain transfers are fraudulent, courts have laid down certain rules by which the fraudulent character of the transaction may be determined. The following are some of the circumstances attending sales, which have been denominated by the courts as badges of fraud: a) The fact that the consideration of the conveyance is fictitious or inadequate; b) A transfer made by a debtor after suit has been begun and while it is pending against him; c) A sale upon credit by an insolvent debtor; d) The transfer of all his property by a debtor, especially when he is insolvent or greatly embarrassed financially; e) The fact that the transfer is made between father and son, when there are present some or any of the above circumstances; f) The failure of the vendee to take exclusive possession of all the property; g) It was known to the vendee that the vendor had no properties other than that sold to him Note: A contract entered by the debtor with a third person to defraud the formers creditor must be a valid contract. In this case, the proper remedy is rescission if no other remedy can be availed of. If the contract is fictitious or absolutely simulated, it is void. 2. Voidable Contracts: (Articles 1390-1402) Voidable or annullable contracts are those which possess all the essential requisites of a valid contract but one of the parties is incapable of giving consent or consent is vitiated by mistake, violence, intimidation, undue influence or fraud. Grounds: a) Those where one party is incapacitated to give consent. (Art.1327) - Unemancipated minors exception is when contract is the sale and delivery of necessities to a minor (Article 1489 paragraph 2 of the Civil Code) - Insane or demented persons unless entered during lucid interval. As such contract is valid (Art. 1328) - Deaf-mutes who do not know how to write (and read). - Those in the state of drunkenness (Art.1328) - Those entered into during a hypnotic spell - Special disqualifications (those under civil interdiction, insolvent etc.) * Guardians, agents and executor and administrators unless authorized by the court are incapacitated to enter into a contract of sale under Article 1491 paragraphs 1 to 3 because private interests are affected. Contracts entered in violation of this prohibition are only VOIDABLE. The defect can be cured by ratification. b) Those where consent of one party has been vitiated. (Arts. 1330-1334) Causes of Vitiated Consent a) Mistake (or error) False belief about something b) Fraud (or deceit) referring to DOLO CAUSANTE or CAUSAL FRAUD c) Violence physical coercion d) Intimidation mental coercion e) Undue influence Notes: Defect is based on vitiation of consent or in legal capacity of one of the contracting parties; It is susceptible of convalidation either by ratification or prescription; Ratification cleanses the contract from all its defects from the moment it was constituted. Binding until annulled;

- Annulment brings about the duty of mutual restitution. - It cannot be attacked or assailed by third persons. -The action for annulment shall be brought within 4 years. In case of intimidation, violence or undue influence, four years is counted from the time the defect of the consent ceases. In case of mistake or fraud, four years from the time of discovery of the same. When the action refers to contracts entered by minor or other incapacitated persons, four years from the time the guardianship ceases. 4. Unenforceable Contracts: (Articles 1403-1408) Meaning of Unenforceable contract are those that cannot be enforced in court or sued upon by reason of defects provided by law until and unless they are ratified according to law.

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Kinds of Unenforceable Contracts: 1. Those entered into in the name of another by one without or acting in excess of authority (Unauthorized Contracts); 2. Those that do not comply with the Statute of Fraud; 3. Those where both parties are incapable of giving consent - It cannot be enforced by a proper action in court; - It is susceptible of convalidation by ratification; - It cannot be attacked or assailed by third persons. 5. Void or Inexistent Contracts: (Art. 1409-1422) Meaning of Void Contracts are those, which, because of certain defects, generally produce no effect at all. They are considered as inexistent from the very beginning. Meaning of Inexistent Contracts refer to agreements, which lack one or some or all of the elements (i.e., consent, object and cause) or do not comply with the formalities, which are essential for the existence of a contract. Characteristics of a void or inexistent contract. 1. 2. 3. 4. 5. 6. Generally, it produces no effect whatsoever; It cannot be ratified (Art. 1409 par. 2) The right to set up the defense of illegality cannot be waived; The action or defense for declaration of its inexistent does not prescribe (Art.1410); The defense of illegality is not available to third persons whose interests are not directly affected. It cannot give rise to a valid contract.

Instances of void or inexistent contracts 1. 2. 3. 4. 5. 6. 7. Notes: Contracts whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy; Those which are absolutely simulated or fictitious; Those whose cause or object did not exist at the time of the transaction; Those whose object is outside the commerce of men; Those which contemplate impossible service; Those where the intention of the parties relative to the principal object of the contract cannot be ascertained Those expressly prohibited or declared void by law.

Rules where contract is illegal and the act constitutes a criminal offense: Where both are in pari delicto (at fault) a. The parties shall have no action against each other b. Both shall be prosecuted. c. The things or the price of the contract, as the effects or instruments of the crime, shall be confiscated in favor of the government. Where only one party is guilty. If only one party is guilty or both parties are not equally guilty, the innocent one or less guilty may claim what he has given and shall not be bound to comply with his promise. (Art. 1411) Rules where the contract is illegal but the act does not constitute a criminal offense. Where both parties are in pari-delicto. - If the cause of the contract is unlawful or forbidden but there is no criminal offense, the rules are as follows: a) Neither party may recover what he has given by virtue of the contract; and b) Neither party may demand performance of the others undertaking. Where only one is guilty: a) The guilty party loses what he has given by reason of the contract.

b) The guilty party cannot ask for the fulfillment of the others undertaking. c) The innocent party may demand the return of what he has given; and d) The innocent party cannot be compelled to comply with his promise.

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Recovery where contract entered into for illegal purpose When money is paid or property delivered for an illegal purpose, the contract may be repudiated by one of the parties before the purpose has been accomplished, or before the damage has been caused to a third person. In such case, the courts, may, if the public interest will thus subserved, allow the party repudiating the contract to recover the money or property. (Art. 1414) Recovery where contracts are merely prohibited by not illegal When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered. (Art. 1416) Effect of illegality where contract is divisible a. When the consideration is entire and single, the contract is indivisible so that if part of such consideration is illegal, the whole contract is void and unenforceable. b. When the contract is divisible or severable, that is, the consideration made up of several parts, and the illegal ones can be taken from the legal portions, the latter may be enforced. This rule however is subject to the evident intention of the parties. PART II. REVIEW NOTES ON NATURAL OBLIGATIONS Article 1423 provides: Obligations are civil or natural. Civil obligations give aright of action to compel their performance. Natural obligations, not being based on positive law, do not grant a right of action to enforce their performance, but after voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or rendered by reason thereof. Natural obligation is based on equity or natural law while civil obligation is based in positive law. The latter gives right of action to compel their performance (juridical necessity) while natural obligation do not grant such right of action to enforce their performance. Article 1424: When the right to sue upon a civil obligation has lapsed by extinctive prescription, the obligor who voluntarily performs the contract cannot recover what he has delivered or the value of the service he has rendered. The following actions must be brought within 10 years from the time the right of action accrues: (1) Upon a written contract; (2) Upon an obligation created by law; (3) Upon a judgment (Art. 1144) The following actions must be commenced within 6 years: (1) Upon oral contract (2) Upon a quasi-contract (Art. 1145) The following actions must be instituted within 4 years: (1) Upon an injury to the rights of the plaintiff; (2) Upon a quasi delict (Art. 1146) Article 1425: If the third person pays the prescribed debt of the debtor without his knowledge or against his will, the latter is not legally bound to pay hi, But the debtor cannot recover what he has paid in case he voluntarily reimburses the third person. Article 1428: Where a debtor who has failed to pay his obligation, is sued by the creditor and instead of losing the case, he has won it. If, notwithstanding this fact, the debtor voluntarily performs his obligation, he cannot demand the return what he has delivered or the payment of the value of the service he has rendered. He must be deemed to have considered it his moral duty to fulfill his obligation. Article 1429: When a testate or intestate heir voluntarily pays a debt of the decedent exceeding the value of his property which he received by will or by the law of intestacy from the estate of the deceased, the payment is valid and cannot be rescinded by the payer. Article 1430: When a will is declared void because it has not be executed in accordance with the formalities required by law, but one of the intestate heirs, after the settlement of the debts of the deceased, pays a legacy in compliance with a clause in the defective will, the payment is effective and irrevocable. PART III- SUMMARY ON THE LAW ON DAMAGES (Articles 2195-2235) General Provisions on Damages

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Latin Term is DAMNUM or DEMO which means to take away. Meaning of Damages: It is the sum of money which the law awards or imposes as pecuniary compensation or satisfaction for an injury done or wrong sustained as a consequence of the breach of some duty or the violation of some right. ( 15 Am. Jur. 387) It is compensation in money imposed by a court for loss or injury caused by the fault o another. (Hemphills Dictionary of Practical Law). BASIS OR RATIONALE: The fundamental principal of the law on damages is that one injured by a breach of contract or by a wrongful or negligent act or omission shall have a fair and just compensation commensurate with the loss sustained as a consequence of the defendants act. Hence actual pecuniary compensation is the general rule, whether the action is based on contract or in tort, except where the circumstances warrant the allowance of other kinds of damages. In general the damages awarded should be equal to, and precisely commensurate with the injury sustained. However, rules of law respecting the recovery of damages are framed and reference to just rights of BOTH PARTIES, not merely what may be right for an injured person to receive, but also what is just to compel the other party, to accord just compensation for the injury. Distinction between DAMAGES and INJURY 1) Injury denotes the illegal act, while damages mean the total amount recoverable for the injury committed. 2) Damages are measure of recovery while Injury is the legal wrong to be redressed. 3) There may be damages without an injury, and an injury without damages. Note: There can be damage without injury (Damnum absque injuria) Article 2195 This provision provides that the Chapter on Damages shall be applicable to all obligations mentioned in Article 1157. Obligations arise from the following sources in accordance with said provision: a. b. c. d. e. Law Contracts Quasi-contracts Acts or omission punishable by law; and Quasi-delicts

Article 1296: It is to be observed that in case of conflict between the Civil Code and the Special Laws, it is the Civil Code that prevails insofar as damages are concerned. Exception in the case of compensation for workmen and other employees. Article 2197: Damages are the following: a. b. c. d. e. f. Actual or compensatory; Moral Nominal Temperate or moderate Liquidated; or Exemplary or corrective

Article 1298 The principle of the general law on damages are hereby adopted insofar as they are not inconsistent with the Civil Code. ACTUAL OR COMPENSATORY DAMAGES (Articles 2199-2215) They are those recoverable because of pecuniary loss (in business, trade, property, profession, job or occupation. They include: a. b. The value of the loss suffered (Dao Emergente) Profits which were not obtained or realized (Lucro Cesante)

The above are also identified as the kinds of actual or compensatory damages. (Article 2200) Examples of Dao Emergente a. Destruction of things b. Fines or penalties that had to be paid c. Medical and hospitalization expenses Examples of Lucro Cesante a. Profits that could have been earned had there been interruption in the plaintiffs business evidenced by the reduced receipts of the enterprise.

b.

Interest on rentals that were not paid.

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Article 2201 provides fir the liability of debtor in contracts and quasi-contracts: Liability of debtor if there is good faith but damages are sustained by the injured party: It is essential that the damages be the NATURAL and PROBABLE CONSEQUENCES of the act or omission complained of. The party suffering loss or injury must exercise the diligence of a good father of a family to minimize the damages resulting from the act or omission in question. (Art.2202).

Article 2206 - The amount of damages for death caused by a crime or quasi-delict shall be at least three thousand pesos (now P 50,000*), even though there may have been mitigating circumstances. In addition : a. The defendant shall be liable for the loss of the earning capacity of the deceased, and the indemnity shall be paid to the heirs of the latter such indemnity shall in every case be assessed and awarded by court, unless the deceases on account of permanent physical disability not caused by the defendant, had no earning capacity at the time of his death; If the deceases was obliged to give support in according to the provisions of Article 291, the recipient who is not an heir called to the decedents inheritance by the law of testate or intestate succession, may demand support from the person causing the death, for ap reiod not exceeding five years, the exact duration to be fixed by the court. The spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand moral damages for mental anguish by reason of the death of the deceased.

b.

c.

* PP vs. Ortis, 361 SCRA 274, July 17, 2001, PP vs. Maxion, 361 SCRA 414, July 19, 2001. These are jurisprudences of the Supreme Court stating that in case of death, the indemnity for actual damages is P 50,000. OTHER DAMAGES No proof of pecuniary loss is necessary in order that MORAL, NOMINAL, TEMPERATE, LIQUIDATED OR EXEMPLARY DAMAGES may be adjudicated. The assessment of such damages, except liquidated ones, is left to the discretion of the court, according to the circumstances of each case. (Art. 2216) Note: Proof of pecuniary loss is only necessary in actual or compensatory damages but not so in other damages above mentioned. Such damages then can be recovered based on the sound discretion of the court after evaluating the circumstances of such cases. A. MORAL DAMAGES.- (Articles 2217-2220) Article 2216 : Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injury. Though incapable of pecuniary computation, moral damages may be recovered if they are the proximate result of the defendants wrongful act or omission. Moral damages may be awarded to compensate one for manifold injuries such as physical suffering, mental anguish, serious anxiety, besmirched reputation, wounded feelings and social humiliation. These damages must be understood to be in the concept of grants, not punitive or corrective in nature, calculated to compensate the claimants for the injury suffered. Although incapable of exactness and no proof of pecuniary loss is necessary in order that moral damages may be awarded, the amount of indemnity being left to the discretion of the court, it is imperative nevertheless, that (1) injury must have been suffered by the claimant and (2) such injury must have been sprung from any cases expressed in Articles 2219 and 2220 of the Civil Code. A causal relation must exist between the actor omission referred in the Code which underlines or gives rise to, the case or proceeding, on the one hand, and the resulting injury, on the other; i.e. the first must be the proximate cause and latter the direct consequence thereof. (Del Mundo v. Court of Appeals, G.R. No. 104576, January 20, 1995). In the adjudication of moral damages, the sentimental value of the property, real or personal, may be considered. (Art. 2218) Moral damages may be recovered on the following and analogous cases: 1. A criminal offense resulting to physical injuries; 2. Quasi-delicts causing physical injuries; 3. Seduction, abduction, rape and other lascivious acts; 4. Adultery or concubinage; 5. Illegal or arbitrary detention or arrest; 6. Illegal search; 7. libel, slander, or any other form of defamation; 8. Malicious prosecution; 9. Acts mentioned in Article 309; 10. Acts and action referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35. The spouse, descendants, ascendants, and brothers and sisters may bring the action mentioned in no. 9 of this article, in the order named. (Art. 2218)

Willful injury to the property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith.

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References: The below stated articles indicate instances where moral damages may be claimed in addition to the indemnity which the court may grant: Article 309 : Any person who shows disrespect to the dead, or wrongfully interferes with a funeral shall be liable to the family of the deceased for damages, material and moral. Article 21: Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter the damage. Article 26: Every person shall respect the dignity, personality, privacy and peace of mind of his neighbors and other persons. The following and similar acts, though they may not constitute criminal offense, shall produce a cause of action for damages, prevention and other relief: 1. 2. 3. 4. Prying into the privacy of anothers residence; Meddling with or disturbing the private life or family relations of another; Intriguing to cause another to be alienated from his friends; Vexing or humiliating another on account of his religious beliefs, lowly station in life, place of birth, physical defect or other personal condition..

Article 27: Any person suffering material or moral loss because a public servant or employee refuses or neglects without just cause, to perform his official duty may file an action for damages and other relief against the latter, without prejudice to any disciplinary administrative action that may be taken. Article 28: Unfair competition on agricultural and commercial or industrial enterprises or in labor through the use of force, intimidation, deceit, machinations or any other unjust, oppressive or highhanded method shall give rise to a right of action by the person who thereby suffers damage. Article 29: When the accused in a criminal prosecution is acquitted on the ground that his guilt has not been proved beyond reasonable doubt, a civil action for damages for the same act or omission may be instituted. Such action requires only preponderance of evidence. Upon motion of the defendant, the court may require the plaintiff to file a bond to answer for damages in case the complaint should be found malicious. If in the criminal case the judgment of acquitted is based on reasonable doubt, the court shall declare so. In the absence of any declaration to that effect, it may be inferred from the text of the decision whether or not the acquittal is due to that ground. Article 30: When a separate civil action is brought to demand civil liability arising from the criminal offense, and no criminal proceedings are instituted during the pendency of the civil case, a preponderance of evidence shall likewise be sufficient to prove the act complained of. Article 32: Any public officer or employee, or any private individual, who directly or indirectly obstructs, defeats, violates or in any manner impedes or impairs any of the following rights and liberties of another person shall be liable to the latter for damages: 1. Freedom of religion; 2. Freedom of speech; 3. Freedom to write for the press or to maintain a periodical publication; 4. Freedom from arbitrary or illegal detention; 5. Freedom to suffrage; 6. The right against deprivation of property without due process of law; 7. The right to a just compensation when the private property is taken for public use; 8. The right to equal protection of the laws; 9. The right to secure in ones person, house, papers and effects against unreasonable searches and seizures; 10. The liberty of abode and changing the same; 11. The privacy of communication and correspondence; 12. The right to become a member of associations or societies for purpose not contrary to law; 13. The right to take part in a peaceful assembly to petition the government for redress of grievances; 14. The right to be free from involuntary servitude to any form; 15. The right of the accused against excessive bail; 16. The right of the accused to be heard by himself and counsel, to be informed of the nature and cause of the accusation against him; to have a speedy and public trial; to meet the witnesses face to face and to have compulsory process to secure the attendance of witness in his behalf; 17. Freedom from being compelled to be a witness against ones self, or from being forced to confess guilt, or from being induced by a promise of immunity or reward to make such confession, except when the person confessing becomes a state witness; 18. Freedom from excessive fines or cruel and unusual punishment, unless the same is imposed or inflicted in accordance with a statute which has not been judicially declared unconstitutional; and freedom of access to the courts. In any of the cases referred to in this article, whether or not the defendants act or omission constitutes a criminal offense, the aggrieved party has the right to commence an entirely separate and distinct civil action for damages and other relief. Such civil action shall proceed independently of any criminal prosecution (if the latter be instituted), and may be proved by a preponderance of evidence.

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The indemnity shall include moral damages. Exemplary damages may also be adjudicated. The responsibility herein set forth is not demandable from a judge unless his act or omission constitutes a violation of the Penal Code or other penal statute. Article 34: When a member of a city or municipal police force refuses or fails to render aid or protection to any person in case of danger to life or property, such peace officer shall be primarily liable for damages and the city or municipality shall be subsidiarily responsible therefore. The civil action herein recognized shall be independent of the criminal proceedings and a preponderance of evidence shall suffice to support such action. Article 35: When the person claiming to be injured by a criminal offense, charges another with the same, for which no independent civil action is granted in this Code or any special law, but the justice of peace finds no reasonable grounds to believe that a crime has been committed, or the prosecuting attorney refuses or fails to institute criminal proceedings, the complainant may bring a civil action for damages against the offender. Such civil action may be supported by a preponderance of evident. Upon he defendants motion, the court may require the plaintiff to file a bond to indemnify the defendant in case the complaint should be found to be malicious. If during the pendency of the civil action, an information should be presented by the prosecuting attorney, the civil action shall be suspended until the termination of the criminal proceedings. B. NOMINAL DAMAGES (Articles 2221-2223) Article 2221 - Nominal damages are adjudicate in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him. Article 2222 - The court may award nominal damages in every obligation arising from any source enumerated in Article 1157, or in every case where any property right has been invaded. Article 2223 - The adjudication of nominal damages shall preclude further contest upon the right involved and all accessory questions as between the parties to the suit or their respective heirs and assigns. Nominal damages are granted as there are instances when the vindication or recognition of the plaintiffs right is of utmost importance to him as in the case of trespass upon real property. If compensatory and exemplary damages have been awarded, this award is by itself a judicial declaration that the plaintiffs right has been violated. Therefore a further ward of nominal damages, is unnecessary and improper. It should be remembered that nominal damages are merely for the VINDICATION of a right that has been violated, not for the indemnification of the loss suffered. The assessment of nominal damages is left to the discretion of the court, according to the circumstances of the case. An award of nominal damages precludes the recovery of actual, moral, temperate or moderates damages, In fact, nominal damages may be awarded although plaintiff is not entitled to actual, oral, temperate or exemplary damages. C. TEMPERATE OR MODERATE DAMAGES (Articles 2224-2225) Article 2224 - Temperate or moderate damages, which are more than nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty. Explanation: There are cases where from the nature of the case, definite proof of pecuniary loss cannot be offered, although the court is convinced that there has been such loss. For instance, injury to ones commercial credit or goodwill of a business firm is often hard to show with certainty in terms of money. Now the query is should damages be denied on this reason? In this instance, the court should be empowered to calculate moderate damages in such cases, rather than that the plaintiff should suffer, without redress, from the defendants wrongful act. Article 225: Temperate damages must be reasonable under circumstances. What is reasonable is a question of fact, depending to the relevant circumstances. D. LIQUIDATED DAMAGES (Articles 2226-2228) Article 2226 - Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach thereof. In effect, liquidated damages and penalty are the same. damages. After all, they had been previously agreed upon. Neither requires proof of actual

Article 2227 - Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable. Article 2228 - When the breach of the contract committed by the defendant is not the one contemplated by the parties in the agreeing upon the liquidated damages, the law shall determine the measure of damages, and not the stipulation. E. EXEMPLARY OR CORRECTIVE DAMAGES (Articles 2229-2235)

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Article 2229- Exemplary or corrective damages are imposed, by way of example or correction, for the public good, in addition to moral, temperate, liquidated or compensatory damages. Exemplary damages are also called as punitive damages. They are required by public policy for wanton acts must be suppressed. In the absence of moral, temperate, liquidated or compensatory damages, no exemplary damages can be granted, for exemplary damages are allowed only in addition to any of the four kinds of damages mentioned. Exemplary damages are designed to provide example or correction for the public good. Examples: 1. A corporation which persisted in oppressively invading anothers rights despite cease and desist orders from the Public Service Commission. The imposition of exemplary damages would be a reminder that economic power will never justify a reckless disregard of the rights of others. 2. . Exemplary damages may be awarded if the dismissal is effected in a wanton, oppressive or malevolent manner. (Lopez vs. NLRC, 297 SCRA 508) Exemplary damages may be imposed as part of the civil liability in criminal offenses, when the crime committed is accompanied with one or more aggravating circumstances. It is separate and distinct from the other damages or fine the offender has to pay (Art. 2230). It can also be granted in quasi-delicts in case defendant acted with gross negligence (Art. 2231) and in contracts and quasi contracts, if the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner (Art. 2232). Exemplary damages cannot be recovered as a matter of right; the court will decide whether or not they should be adjudicate. (Art. 2233) Jgbdf/5/05 Jgbdf revised /2009