OBLIGATIONS AND CONTRACTS

Obligation [1156] a juridical necessity to give, to do or not to do Elements 1. Passive subject (Obligor/Debtor) 2. Active subject (Obligee/Creditor) 3. Object (Prestation)
- person bound to fulfill obligation
- person who can demand fulfillment - conduct to be observed by parties Real obligations to give Personal obligations performance Positive to do Negative not to do Simple one prestation Multiple many prestations Conjunctive all are due and demandable Distributive one or some must be performed Alternative only one of the several Facultative prestation due may be substituted by another

Delict
Criminal or malicious intent or criminal negligence For punishment Public interest Criminal and civil liability

Quasi-delict
Negligence only For indemnification Private interest Civil liability only

Classifications Pure not subject to a condition or period Conditional depends on a future event With a period
some space or time suspends demandability or produces extinction of the obligation

Joint obligation prorated among the parties Solidary each party is entitled to the entire

obligation but the party shouldering the entire obligation may demand reimbursement from the others

4. Juridical tie (Vinculum Juris) Kinds

Divisible may be partially performed Indivisible cannot be partially performed With a penal clause an accessory undertaking (dependent upon

Civil obligations Natural obligations

Enforceability Court action

Conscience of debtor

Basis Positive law

Equity and natural justice

some other obligation to exist) to assume greater liability in case of breach

Determinate individualized or specified Generic referred by the class, kind or genus Unilateral one debtor and one creditor Bilateral reciprocal obligations

Sources 1. Law [1158] 2. Contracts [1159]

3. Quasi-contracts [2142]

- stipulation of the parties

1. both obligation arise from same source 2. each prestation is equivalent to the other 3. performance of one is conditioned to performance of the other

- lawful, voluntary and unilateral acts which are enforceable to the end that no one shall be unjustly enriched at the expense of another
Negotiorum gestio [2144] voluntary management of the property of another without the knowledge or consent of the latter Solutio Indebiti [2154] something is received when there is no right to demand it and it was duly delivered through mistake

Individual unipersonal Collective plurapersonal

1. Joint 2. Solidary

Accessory existence depends on another Principal can stand alone Nature and Effects of Obligations
(Prestations, Breach, Remedies, Subsidiary Remedies, Fortuitous Event, Usurious Transactions, Fulfillment, Transmissibility of Rights)

4. Acts or Omissions punished by law

- civil liability arising from criminal offense 1. Restitution 2. Reparation for damages 3. Indemnification for consequential damages

Kinds of Prestations 1. To give purpose to transfer title or real rights

Determinate thing 1. to deliver the thing itself [1244] 2. to preserve the thing diligence of a good father of a family (ordinary care) [1163] 3. to deliver the accessions and accessories 4. deliver the fruits [1166, 1164] Generic thing creditor cannot demand thing of superior quality; debtor cannot deliver thing of inferior quality [1246]

5. Quasi-delicts [2176]

- damage arising from fault or negligence

1. there is an act or omission 2. there is fault or negligence 3. there is damaged caused 4. there is a direct relation of cause and effect between the act or omission and the damage 5. there is no contractual relation

Act or forbearance cannot be substituted by another act or forbearance against the obligees will [1244]

2. To do 3. Not to do Breach of Obligation

1. 2. 3. 4. 5. Pre-existing obligation Conduct of the party in violation of the contract Accountability of the conduct Absence of justification Injury to the other party

Substantial breach can cause the annulment or rescission of the contract Casual/Slight breach breach is too small that it cannot cause the rescission of the contract

3. Delay (Mora) [1169] - failure to perform obligation in due time because of dolo or culpa - delay incurred from the time obligee makes judicial or extrajudicial demand - demand not necessary when:

Modes of Breach 1. Fraud (Dolo) [1171] - voluntary execution of wrongful act - waiver of action for future fraud is void
Dolo Incidente - committed while in the performance of the contract; consent was not based on the fraud Dolo Causante - fraud is the root of the obligation; injured party would not have entered the contract had he known about the fraud

- in reciprocal obligations, delay by the other begins from the moment one fulfills his obligation

1. obligation or law expressly so declares 2. from the nature of the circumstances of the obligation it appears that the time was a controlling motive 3. demand would be useless as the obligor has rendered it beyond his power to perform

Mora Solvendi failure of debtor to perform 1. obligation requires positive act 2. demandable, due and liquidated 3. delay due to fraud or negligence 4. creditor demands performance Mora Accipiendi failure of creditor to accept 1. obligation requires cooperation of creditor for its fulfillment 2. debtor has done ALL that is incumbent upon him 3. creditor refuses to accept Compensatio Morae delay of the obligor in a reciprocal obligation - neither party incurs delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him [1169 par3]

2. Negligence (Culpa) [1173] - omission of the diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, time and place - if diligence not specified good father of a family applies
Culpa Contractual - breach of contract as a result of negligence Culpa Aquiliana - failure to observe the care required by law with respect to other persons who were not bound by the contract

4. Contravention of the tenor [1170] - any act of defective performance which impairs strict and faithful fulfillment - liable for damages Remedies of Creditor in Case of Breach

Culpa Contractual
Damages may only be claimed by heirs and privies of the contracting party Law presumes negligence as the cause of the damage Moral damages cannot be recovered Interest is due The employee is never liable; it is always the employer No need for diligence of a good father of a family

Culpa Aquiliana
Damages may be claimed by strangers or third parties Negligence must be proved as the cause of the damage Moral damages can be recovered Interest depends on the contract The employer and the employee are both liable if diligence is absent May prove that he exercised the diligence of a good father of a family

1. Action for performance [1165]

Specific performance - SPECIFIC thing - in addition to the rights in 1170, may compel debtor to make delivery [par1] Substituted performance GENERIC thing - obligation may be complied with at the expense of the debtor [par2] Substituted performance undoing poor work - what is poorly done be undone [1167] Undoing in obligation not to do - undone at his expense [1168]

2. Action for damages [1170] - fraud, negligence, delay or contravention of tenor 3. Action for rescission [1191, 1192] - implied in reciprocal ones in case one of the obligors should not comply

- injured party may choose between fulfillment and rescission with payment of damages - court decree is necessary, unless there is just cause authorizing the fixing of a period - no prejudice to rights of third persons - liability of first infractor shall be equitably tempered by the courts if both parties committed breach - if it cannot be determined, liability is extinguished and each shall bear his own damages
Subsidiary Remedies of Creditor 1. Accion Subrogatoria (Subrogation) - after exhausting the property of the debtor, may exercise all the rights and bring all the actions of the debtor for the same purpose [1177] - except those inherent in his person (legal separation, nullity of marriage, patria potestas, etc) - the debtor of my debtor is also my debtor
1. Interest of the creditor to bring the action 2. Inaction of the debtor whether wilful or not. 3. Existence of the credit even if not liquidated. 4. Credit must be due and demandable. 5. Exhaustion of assets in the hand of the debtor.

4. Laborers have an action against the owner up to the amount the owner owes the contractor. [1729] 5. Vendor may bring action to third persons who derived possession of things from the vendee. [1608] 6. Principal has action against a substitute for obligations which the latter contracted under the substitution [1893] Extinguishment of Liability in Case of Breach Due to a Fortuitous Event - no person shall be responsible for those events which could not be foreseen or which, though foreseen, were inevitable. [1174] Act of God independent of will of obligor Act of Man unavoidable accidents caused by man
1. Must be independent of the human will 2. Must be impossible to foresee or if it can be foreseen, it must be impossible to avoid 3. Must render it impossible for the debtor to fulfill the obligation in a normal manner 4. Debtor must be free of participation in the aggravation of the injury to the creditor

- there is no liability except: - in cases expressly specified by law or declared

2. Accion Pauliana (Rescission) - action to rescind where the creditor may impugn the acts which the debtor may have done to defraud them
1. 2. 3. 4. Prior existence of the credit The credit must be due and demandable Exhaustion of the assets of the debtor Fraudulent intention if the transaction is onerous 5. Bad faith of the debtors transferee 6. Prejudice to the creditor

by stipulation, or the nature of the obligation requires the assumption of risk [1174] - obligor delays or has promised to deliver the same thing to two or more persons who do not have the same interest [1165] - when possessor acted with fraudulent intent or negligence [552] - bailee is liable for the loss of the thing (different purpose from which is loaned) [1942] - depositary is liable for the loss of the thing (no permission of the owner) [1979] - act of a thief or robber without use of arms or irresistible force [2001] -officious manager is liable for the loss of the thing if there is bad faith [2147]

Usurious Transactions - governed by special laws [1175] - interest paid in excess of the interest allowed by the usury laws may be recovered by the debtor [1413] Fulfillment of Obligations - receipt of the principal by the creditor give rise to the presumption that the interest has been paid - receipt of later instalment of a debt give rise to presumption that the prior instalment have been paid [1176] Transmissibility of Rights - all rights acquired in virtue of an obligation are transmissible if there is no stipulation to the contrary [1178]

Accion Subrogatoria
Action can be brought as long as debtor is solvent No need for fraudulent intent No prescription period

Accion Pauliana
The credit must exist before the fraudulent act There must be a fraudulent intent Rescissory action shall be brought within 4 years from the discovery of the fraud

3. Sublesee liable to the lessor for any rent due from lessee, but not beyond the amount of rent due from him [1652]

Kinds of Obligations
(Pure and Conditional, Reciprocal, With a Period, Alternative, Joint and Solidary, Divisible and Indivisible, With a Penal Clause

- same rules apply to resolutory conditions with respect to the party bound to return - condition is deemed fulfilled when the obligor voluntarily prevents its fulfillment [1186]
e.g. Katz will sell her laptop to Yen upon the condition that Yen will loan money from Cuayo. Katz told Cuayo not to lend Yen money. The condition is deemed fulfilled since Katz prevented its fulfillment.

Pure and Conditional Obligations Pure Obligations [1179] - does not depend upon a future or uncertain event, or upon a part event unknown to the parties - demandable at once Conditional Obligations [1181] - acquisition of rights, as well as extinguishment or loss of those already acquired depends upon the happening of a future or uncertain event - different from an obligation with a period; latter depends on a future event but not an uncertain one - a thing is lost if it perishes, goes out of commerce or disappears [1189]
As to EFFECT Suspensive Condition - condition precedent - retroact to the day of the constitution of the obligation [1187] Resolutory Condition - condition subsequent - condition imposed after fulfillment As to CAUSE [1182] Potestative - depends solely on the will of one party VOID! Casual - depends upon chance or will of a stranger Mixed - depends partly upon the will of one party and partly on chance As to POSSIBILITY Possible - can be performed according to law Impossible - contrary to good customs or public policy and those prohibited by law - annuls the obligation [1183]

Reciprocal Obligations [1191] - obligations arising from the same cause and the performance of one is designed to be equivalent and the condition for the performance of the other - power to rescind is implied - remedies: fulfillment or rescission - alternative remedy: rescission after injured party chose fulfillment and it failed - requisites and effect of rescission
1. 2. 3. 4. 5. substantive breach must be by fault or fraud judicial decree or notarial demand obligation is extinguished the juridical tie is invalidated both parties is required to surrender what they have received 6. parties may waive rescission in reciprocal obligations

- rescission without judicial intervention UP vs de los Angeles

Obligation with a Period - a period is a certain event upon the arrival of which the obligation subject to it either arises or is extinguished - period is a certain event which must happen sooner or later while a condition is an uncertain event - period refers only to the future while condition may also refer to a past event - period merely fixes the time for the efficaciousness of the obligation while condition causes an obligation to arise or to cease - 1189 applies in case of loss, deterioration or improvement before the arrival of the day certain - court can fixed a period if it can be inferred that a period was intended or if it depends upon the will of the debtor (take note: if it would have been a condition dependent solely upon the will of the debtor, it would have been void!)
As to EFFECT Suspensive Period (ex die) - obligation demandable only when the fixed day comes Resolutory Period (in diem) - obligation takes effect at one but terminate upon arrival of the day certain

As to MODE Positive - happening of an event [1184] Negative - non-happening of an event [1185]

[1189]

Suspensive With fault of the Without fault of the debtor debtor

Obliged to pay damages Creditor may choose: Rescission with damages OR fulfillment with damages By nature or time: Benefits goes to the creditor Obligation extinguished Impairment is to be borne by the creditor At the expense of the debtor: Usufructuary rights

Loss Deterioration

Improvement

As to EXPRESSION Express - period is specified Implied - from the nature and circumstances of the obligation it can be inferred that a period was intended As to DEFINITENESS Definite - period is fixed Indefinite - duration is not fixed in an obligation to pay when ones means permit As to SOURCE Voluntary - fixed by the parties Legal - fixed by law Judicial - fixed by the court

Facultative Obligations [1206] - only one prestation has been agreed upon but the obligor may render another in substitution - before substitution, the debtor is not liable for the loss of the substitute - after the substitution, the debtor is liable for loss of the substitute Joint and Solidary Obligations Joint Obligations - existing between several persons among whom the benefit or the burden of the obligation is divided
1. plurality of subjects 2. determination of shares

- anything paid in advance, the obligor being unaware of the period, may be recovered with the fruits and interests [1195] - once the period is fixed by the court, the period cannot be changed by the parties [1197] - period is presumed to be for the benefit of both the creditor and debtor [1196] - creditor cannot compel the debtor to pay in advance of the date fixed [1198] - the debtor cannot compel the creditor to receive payment in advance - debtor shall lose every right to make use of the period [1198]: - he becomes insolvent - does not furnish the guaranties or securities - he impaired the guaranties or securities - violates any undertaking in which the creditor
based his consent to the period - he attempts to abscond

- other terms: mancomunada, mancomunadamente, prorate, proportionately, individually, separately, we promise to pay signed by two persons - if one of the debtors is insolvent, the others are not liable for his share - there exists a presumption against solidarity
Solidary Obligations - each one of the debtors is bound to render, and/or each one of the creditors has a right to demand entire compliance
1. plurality of subjects 2. intention to establish solidary liability must appear 3. express provision of solidarity

Alternative Obligations - debtor is required to perform completely only one of the several obligations provided [1199] - right of choice belongs to the debtor unless it has been expressly granted to the creditor [1200] - the choice must be communicated to the creditor [1201] - in case of loss or improvement:
- if only one is lost, debtor shall chose between the remaining ones - if only one remains, the obligation ceases from being an alternative obligation and becomes simple - if all alternatives are lost by fault of the debtor, the creditor must be indemnified for damages - if all alternatives are lost by fortuitous event, the creditor bears the loss

- other terms: joint and several, in solidum, I promise to pay with two or more persons, individually and collectively
As to SOURCE Legal - derived by law Conventional - stipulation of the parties Real - nature of the obligation As to PARTIES BOUND Active - creditors Passive - debtors Mixed - creditors and debtors As to UNIFORMITY Uniform - same terms and conditions to all Varied - different periods and/or conditions for each

Solidary creditors

Common debtor
Each creditor can collect the entire debt Debtor may pay any one of the solidary co-debtors (but payment shall be made to the one making demand) Novation, compensation, confusion or remission made by any of the creditors shall extinguish the obligation

Solidary co-creditors
Creditor which collects the entire debt id liable to the others for their share Each of the solidary creditors may do whatever may be useful to the others One solidary creditor cannot assign his rights without the consent of the others

Divisible and Indivisible Obligations Divisible Obligations - can be performed by parts - presumed to be divisible when obligation involves certain number of days of word, work by metrical units or analogous things Indivisible Obligations - by reason of their purpose are not susceptible of being executed by parts or fractions - presumed to be indivisible when obligation is to give a definite thing and in obligations not to do

Solidary debtors

Common creditor
Each debtor is bound to perform the whole obligation as the creditor may proceed against any one of them Each debtor may utilize against the creditor his own defenses If two or more solidary debtors offer to pay, the creditor may choose which offer to accept Mora of one is mora of all and all shall bore the loss in case of a fortuitous event Payment by one extinguishes the obligation to the extent of the payment If the thing was lost or became impossible without the fault of the debtors, the obligation is extinguished If there was fault on the part of any one of the debtors, all are liable to the creditor

Solidary co-debtors
Solidary debtor who made the payment may claim from his codebtors only the share which corresponds to each No contribution may be demanded if payment is made after obligation has prescribed Remission made by the creditor to the share which affects one of the debtors does not release the latter from his responsibility towards his co-debtors when the obligation was paid before the remission was effected If one of the debtors is insolvent, his share shall be borne by all his co-debtors Share of debtors are presumed equal

Indivisible
Only one creditor and one debtor Arises from the nature of the thing

Solidary
Many creditors and/or many debtors Arises from the tie that binds the parties

KINDS Natural - prestation is physically indivisible Legal - indivisible by law Conventional - intended by the parties

Obligations with a Penal Clause - accessory stipulation added to an obligation whereby the debtor promises to perform a prestation in case the principal obligation is not performed
As to EFFECT Subsidiary - when only the penalty may be enforced Complementary - when both the principal and penalty may be enforced As to SOURCE Conventional - stipulation of the parties Legal - provided by law As to PURPOSE Punitive - damages may be collected Reparatory - penalty substitutes for damages

Damages paid due to negligence or fault of one are subject to proportional contribution

debtor:

- defenses available to solidary

- from the nature of the obligation that destroy the legal tie (prescription, illegality, nullity ab initio, suspensive condition) - personal defenses (incapacity, consent) - pertaining to his own share - personally belonging to other co-debtors but he may avail himself thereof only as regards that part of the debt for which the co-debtors are responsible

Joint Indivisible Obligations - several debtors and creditors but prestation is indivisible - necessity of collective fulfillment and the action must be against all debtors - indivisibility does not give rise to solidarity nor does solidarity give rise to indivisibility [1210]

Effects of Penal Clause 1. Substitute for indemnity for damages and payment for interest 2. Does not exempt debtor from performance of the principal obligation 3. Creditor cannot demand both performance and penalty at the same time

4. Creditor cannot collect other damages in addition to penalty - judge shall equitably reduce the penalty when there is partial performance or if it is iniquitous or unconscionable [1229] - nullity of penal clause does not carry with it that of the principal obligation but the nullity of the principal carried with it that of the penal clause [1230] Extinguishment of Obligations
[1231] (Payment or Performance, Loss or Impossibility, Condonation or Remission, Confusion or Merger, Compensation, Novation)

- creditor at the time of payment - his successor in interest - any person authorized to receive payment by law or stipulation - person not authorized provided the creditor is benefited must prove said benefit except: 1. after the payment, the payee acquires the rights of the creditor 2. creditor ratifies the payment 3. creditor by his conduct leads the debtor to believe that the payee had authority to receive payment 4. payment made in good faith to any person in possession of the credit

3. Object (solutio) What is to be paid?

Payment or Performance - carrying out of an obligation - delivery of the money due - requires acceptance of the creditor - debtor has burden of proving payment
1. payor (solvens) 2. payee (accipiens) 3. object (solution) 4. 5. 6. 7. manner (integrity) time place expenses of making payment

- the thing or service or abstention due - debtor cannot compel the creditor to receive a different one - in generic obligations, the thing paid must be of the quantity and quality specified - the legal tender in the Philippines includes all notes and coins issued by he Central Bank - payment by check or other negotiable instruments shall only produce the effect of payment when they have been cashed

4. Manner (integrity) How is payment made?

1. Payor (solvens) Who can pay?

is

- debtor or his duly authorized agent - debtors heir or successor in interest (privy) - any person interested in the fulfillment whether the debtor consents to it or not, and even without the debtors knowledge [1302] - a third person not interested but the creditor not bound to accept payment by him [1236]

- payment must be complete - no partial payment is allowed except: 1. in case of express stipulation 2. the debt it in part liquidated and in part unliquidated 3. in case of compensation 4. several guarantors invoke the benefit of division 5. debtor dies, each heir answers only for his share 6. when work is to be done by parts

Without debtors consent

Cannot compel the creditor to subrogate him in his rights Can recover only in so far as the payment has been beneficial to the debtor

With debtors Consent

May demand subrogation in the creditors rights May demand from the debtor what he has paid

5. Time When is payment made?

-

upon demand judicial or extrajudicial when debt has become due and demandable when time is the essence of the agreement when debtor loses the benefit of the period obligation is reciprocal

6. Place Where is payment made?

- payment made by a third person who does not intend to be reimbursed is deemed a donation which requires the debtors acceptance

Reimbursement
Personal action to recover the amount paid

Subrogation
Not only reimbursement but the exercise of other rights attached to the original obligation

debtor

- place designated by the obligation [1251] - if no place is designated: - specific thing: place wherever the thing might be habitually - generic thing: domicile of the

7. Expenses of making payments - paid according to stipulation

- in obligations to give, payment by one who does not have the free disposal of the thing due shall not be valid except that voluntary payment by a minor without the consent of his parent or guardian of a fungible thing does not entitle him to recover the payment made if the creditor spent it in good faith [1427]

- in the absence of stipulation: - extrajudicial expenses debtor - judicial costs Rules of Court

Application of Payments - designation of the debt to which should be applied the payment made by a debtor who has various debts of the same in favor of one and the same creditor
1. 2. 3. 4. 5.

2. Payee (accipiens) Who can accept payment? [1240]

one debtor and one creditor two or more debts debts must be of the same kind debts applied must be due payment made must not be sufficient to cover all debts

creditor to accept immediate performance - unjust refusal leads to consignment

Rules in Application of Payments 1. debtor has first choice; he must indicate choice at the time of making payment 2. if the debtor does not apply payment, creditor may make the designation by specifying in the receipt which debt is paid 3. if the creditor has not also made the application, the most onerous (burdensome) to the debtor is deemed satisfied 4. if debts due are of the same burden, payment shall be applied proportionately to all Payment by Cession [1255] - Payment by Assignment - debtor abandons all his property to his creditors, so that the latter may apply the proceeds to their credits
1. 2. 3. 4. plurality of debts plurality of creditors partial or relative insolvency of the debtor abandonment of the totality of the debtors properties for the benefit of the creditors 5. acceptance by the creditors

Consignation - deposit of the thing due made by the debtor in lawful form, whenever the creditor refuses or cannot accept payment - purpose is to avoid delay - not required when the payment is voluntary and not coercible - if creditor accepts consignation, the obligation is extinguished - if the court declares that the consignation was properly made, the obligation is extinguished - if before approval of the court the debtor withdraws the deposit, the obligation subsists
- if without creditors approval, guarantors and co-debtors remain liable - if with creditors approval, guarantors and co-debtors are liberated

- if consignation is disapproved, it is deemed ineffective

- liberates the debtor up to the amount of the net proceeds of the sale of his assets - assignment does not vest title to the property in the creditors, who are only authorized to sell it
Dation in Payment [1245] - Datio in Solutum - property of the debtor is alienated to the creditor in satisfaction of a debt in money

Procedure in Consignation 1. Tender of payment and unjustified rejection 2. First notice to the interested parties to give creditors a chance to reconsider and accept payment thereby avoiding litigation 3. Filing the complaint against the creditor 4. Judicial deposit of the thing due with proof of tender and notice 5. Second notice to interested parties 6. Trial and judgment 7. Incidents of consignation Loss or Impossibility

Cession
Only entitles creditors to sell the thing and apply the price to the credit Extinguishes only to the extent of the price obtained Two or more creditors Presupposes insolvency of debtor Does not novate the contract

Dacion
Transfers ownership of the substituted thing to the creditor Extinguishes totally the credit

Can only be one creditor Debtor does not have to be insolvent Novatory

Loss of the thing due [1189] - perishes - goes out of commerce - disappears in such as way that its existence is unknown - cannot be recovered - hence, a generic thing never perishes
1. obligation is to deliver a specific thing 2. loss of the thing occurs without the fault of the debtor 3. debtor is not guilty of delay

Tender of Payment - declaration of intention by the debtor manifesting his firm decision to pay - coupled with a demand upon a

- presumption of fault whenever the thing to be delivered is lost in the possession of the debtor [1265] - presumption of fault does not apply in case of natural calamities - effects of loss:

- to give specific thing, it extinguishes obligation [1262] - to give generic thing, it does not extinguish the obligation [1263] - in case of partial loss, the court shall determine if the loss is important as to the extinguishment of the obligation [2164] - creditor has all the rights of action which the debtor may have against third persons [1269]

3. renunciation of the principal debt extinguishes accessory obligation, but waiver of the latter shall leave the former in force Confusion or Merger - meeting in one person of the qualities of creditor and debtor with respect to the same obligation
1. must take place between the principal debtor and creditor 2. must be complete and definite

Impossibility of performance [1266, 1267] - not only legal or physical impossibility but also impracticability because of extreme difficulty, manifestly beyond the contemplation of the parties - impossibility releases the obligor
1. without fault of the debtor 2. before the debtor incurs delay 3. after the obligation is constituted

- obligation is extinguished from the moment the characters of debtor and creditor are totally merged in the same person [1275] - does not extinguish a joint obligation except as regards the share corresponding the merged creditor and debtor [1277] - merger benefits the guarantors [1276]
Compensation - extinguishment to the concurrent amount of the debts of two persons who, in their own right, are debtors and creditors of each other

Physical impossibility

obligor dies or becomes physically incapacitated to perform the obligation

Legal impossibility

obligation cannot be performed because it is rendered impossible by provision of law

Compensation
Two persons involved Two obligations There is indirect payment

Confusion
Only one person is involved Only one obligation There is impossibility of payment

Condonation or Remission -gratuitous abandonment by a creditor of his right

1. 2. 3. 4. 5. it must be gratuitous accepted by the obligor parties must have capacity must not be inofficious made expressly and comply with the forms of donation

- whenever private document in which debt appears is found in the possession of the debtor, it is presumed that the creditor delivered it voluntarily [1272] - voluntary delivery of a private document evidencing a credit implies renunciation of the creditors action against the debtor [1271] - accessory obligation of pledge has been remitted when the thing pledged after delivery is found in the possession of the debtor or a third person who owns the thing [1274] - creditors omission of a debt or of the name of a debtor from an inventory does not imply remission
Inter vivos during the lifetime of the donor Mortis causa upon the death of the donor

As to EXTENT Total - both obligations are of the same amount and are entirely extinguished [1281] Partial - when two obligations are of different amounts and a balance remains

As to ORIGIN Legal - by operation of law even without the knowledge of the parties Conventional - by agreement of the parties Judicial - effected by decision of the Court Facultative - one of the parties have the option to claim compensation or to object to it

Legal Compensation
1. each one of the obligors be bound principally 2. both debts consist in a sum of money, or of consumable things of the same kinds and quality 3. two debts are due and demandable 4. two debts are liquidated 5. no retention or controversy commenced by a third person 6. compensation not prohibited

- oral donation requires the simultaneous delivery of the thing or of the document

Rules in Condonation 1. subject to the rules that govern inofficious donations 2. remission in advance of future obligation is void

Prohibitions:

or

- compensation takes place by operation of law though the debts may be in different places but there is indemnity for expenses of exchange transportation [1286] - when one or both debts are rescissible or voidable, they may be compensated against each other before they are judicially rescinded or avoided [1284] - compensation shall take place before the assignment of rights of the creditor [1285]

deposit or obligations of a depositary commodatum or obligation of the bailee future support due by gratuitous title civil liability arising from a penal offense damage to the partnership by a partner

- there are three possible cases of compensation after an assignment of rights: 1. with consent of the debtor 2. with the knowledge but without the consent of the debtor 3. without the knowledge of the debtor - only in the first case is compensation not allowed to be set up as defense Novation - extinction of an obligation through the creation of a new one which substitutes it
As to FORM Express - declared in unequivocal terms Implied - old and new obligations are essentially incompatible with each other As to ORIGIN Legal - operation of law Conventional - by agreement of the parties As to OBJECT Subjective or Personal - person of the debtor is substituted and/or when a third person is subrogated in the rights of the creditor Objective or Real - object or principal conditions are changed

e.g. Katz owes Yen 20 pesos due yesterday. Yen also owes Katz 10 pesos due yesterday. Hence, Katz now only owes Yen 10 pesos. If Yen assigns her rights to Cuayo, Cuayo can collect the 10 pesos from Katz. However, if Katz allowed the assignment of creditor before the compensation, she cannot assert such defense. She can only collect the 10 pesos that Yen owes her but she shall pay the 20 pesos to the new creditor, Cuayo.

- novation is VOID if original is void [1298] - voidable obligations may be novated before they are annulled, or after they are ratified - obligations under the Statutes of Fraud and Natural Obligations are not void; hence, they can be novated - if the new obligation is void, the original one shall SUBSIST unless the parties intended that the former relation be extinguished in any event [1297] - if the original obligation was subject to a suspensive or resolutory condition, the new obligation shall be under the same condition [1299] - a prescribed obligation may be novated - accessory obligations are also extinguished but may subsist insofar as they may benefit third persons who did not give their consent [1296]
e.g. Katz owes Yen 10 pesos at 2% interest. Yen owes Cuayo 2 pesos. They agreed that the 2 peso interest will be paid by Katz directly to Cuayo. If Katz and Yen novate the obligation in such a way that Katz is only to make a digest for Yen, the 2 peso interest subsists.

Objective Novation 1. change on the nature or quality of the subject matter 2. change of causa or consideration 3. change of the principal conditions or terms Subjective Novation 1. substitution or by change of debtor Expromision
1. consent of two parties: creditor and new debtor 2. knowledge or consent of old debtor not required 3. old debtor is released 4. insolvency of the new debtor does not revive the old obligation

Delegacion
1. consent of the old debtor, new debtor and the creditor 2. insolvency of the new debtor revives the obligation of the old debtor

2. subrogation or by change of creditor

Conventional Subrogation
1. must be clearly established 2. consent of all is required

Legal Subrogation- creditor pays another

1. 2. 3. 4. 5. previous valid obligation new valid obligation substantial difference between the old and new capacity of the parties intention to extinguish or modify the old one

1. not presumed except:

creditor who is preferred - not interested third person pays with approval of debtor - person interested pays without approval of debtor

Contract [1305] a meeting of minds between two persons whereby one binds himself with respect to the other to give something or render some service

2. contrary to morals

3. contrary to good customs

- norms of good and right conduct evolved in a community - habits and practices which through long usage have been followed and enforced by society - public safety or public weal - for the common good

4. contrary to public order

Elements 1. Essential
without which there is no contract

5. contrary to public policy

Classification 1. Subject matter Things Services

1. Consent 2. Object 3. Cause

2. Natural

presumed to exists unless the contrary is stipulated

3. Accidental

exists only when stipulated

Characteristics 1. Obligatory force [1308]

2. Name Nominate law gives the contract a special name Innominate [1307] no special name

2. Mutuality [1308-1310] 3. Relativity

- obligations arising from contract have the force of law between the contracting parties - compliance in good faith is the observance of the standards of loyalty, fairness and diligence required by society - must bind both contracting parties and the performance shall not be left to the will of one - contracts take effect only between the parties, their assigns and heirs [1311] - no one may contract in the name of another [1317]

Do ut des I give so that you may give Do ut facias I give so that you may do Facio ut facias I do so that you may do Facio ut des I do so that you may give
3. Perfection Consensual [1315] consent is sufficient Real [1316] delivery is required 4. Degree of Dependence Preparatory contract based on future transaction Principal contract may exist alone Accessory depends upon some other contract 5. Form Common/Informal - loan Special/Formal law requires formalities 6. Purpose Transfer of Ownership Conveyance of Use Rendition of Services 7. Parties obligated Unilateral only one party is bound Bilateral both parties are bound to reciprocal ones 8. Cause Onerous exchange of correlative values Gratuitous no correlative prestation 9. Risk Commutative fulfillment is predetermined Aleatory fulfillment is dependent upon chances Stages 1. Preparation 2. Perfection
- negotiations are in progress
- parties come to an agreement

Parties 1. Auto-contracts
- one contracts with himself - valid because the existence of a contract is not determined by the number of persons who intervene but by the number of parties

2. Freedom to contract

- the right to enter into contracts

Special disqualifications:

- spouses are disqualified to donate or sell to each other [1490] - guardian; property of his ward - agents; property entrusted to them unless there is consent of the principal - executors and administrators; property under administration - public officers and employees; property of the state - justices, judges, prosecuting attorneys, clerks or superior and inferior courts and other officers and employees connected with the administration of justice; property in litigation

Limitations: 1. contrary to law

Pactum commissorium [2088] - appropriate things given by way of pledge or mortgage VOID! Pactum leonina [1799] - stipulation which excludes one or more partners from any share in the profits or losses VOID! Pactum de non alienado [2130] - forbidding owner from selling immovable mortgaged VOID!

3. Consummation or Death Promise Perfect Promise

- contract is fully executed

Offer

Imperfect Promise (policitacion)

- a mere unaccepted offer

- tends only to assure and pave the way for the celebration of a contract in the future - rights and obligation not yet determined

Third Persons 1. Stipulations pour autrui [1311]

2. Contracts creating real rights [1312]

- stipulation in a contract clearly and deliberately conferring a favor upon a third person who has a right to demand its fulfillment provided he communicates his acceptance to the obligor before its revocation e.g. Katz owes Yen 10 pesos at 2% interest. Yen owes Cuayo 2 pesos. They agreed that the 2 peso interest will be paid by Katz directly to Cuayo. Cuayo shall communicate his acceptance before Yen revokes the stipulation por autri. - third persons who came into possession of the object of a contract over which there is a real right are bound thereby even if they were not parties to the contract - real right is binding against the whole world and attaches to the property over which it is exercised wherever it goes e.g. Katz owes Yen 1M pesos and she mortgaged a parcel of land as a security. Katz then sold the same land to Cuayo. Cuayo is then bound by the contract between Katz and Yen since the mortgage followed the parcel of land. - creditor has the rights to impugn contracts of his debtor intended to defraud them e.g. Katz owes Yen 1M. Katz only remaining property is a house. She then sold the house to Cuayo in order that Yen may not attach the house to the payment of her debt. Yen, who is a stranger to the contract between Katz and Yen, may ask the rescission of the sale.

- proposal made by one party to another to enter into a contract - a promise to act or to refrain from acting on condition that the terms thereof are accepted - must be certain [1319] - may fix time, place and manner of acceptance [1321] - offer made through an agent is accepted from the time acceptance is communicated [1322] - offer becomes ineffective upon death, civil interdiction, insanity, insolvency before acceptance is conveyed [1323] - business advertisement of things for sale are not definite offers but mere invitations to make an offer [1325] - advertisement for bidders are mere invitations to make proposals [1326]

Acceptance - must be absolute [1319]

Express - oral or written acceptance Implied - inferred by the conduct of the offeree Qualified - constitutes a counter-offer

3. Entered into to defraud creditors [1313]

4. Violated at the inducement of a third person [1314]

- stranger can be sued for damages for his unwarranted interference with the contract e.g. Katz agreed to sell her laptop to Yen. If Katz sells her laptop to Cuayo instead because of his inducement, Yen can sue for damages.

- if acceptance is made by letter or telegram, it does not bind the offerer except from the time it came to his knowledge - when the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal [1324] Contract of option [1324] - one giving a person a certain period within

Essential Requisites of Contracts

[1319] (Consent, Object, Cause)

which to accept the offer of the offerer - separate and distinct from the contract which will be perfected upon the acceptance

Consent - conformity of wills (offer and acceptance)

1. plurality of parties 2. parties be capable of formulating a desire or intent Incapacity VOIDABLE Prohibition VOIDABLE Against public policy - VOID 3. no vice or defect in their wills; consent not vitiated 4. intent be expressed in due time and in proper form 5. no conflict between intent and expression or declaration

or

Legal Capacity - unemancipated minors and insane demented persons as well as deafmutes who do not know how to read and write cannot give consent [1327] Vices of Consent

- consent given through mistake, violence, intimidation, undue influence or fraud is VOIDABLE [1330]
1. Mistake or Error
1. not intentional or reckless 2. excusable without failure to take advantage of the opportunity to ascertain the truth 3. mistake of fact, not of law 4. past or present mistake; non-realization of the partys expectation is not an error 5. material mistake; must refer to factors inducing consent - substance of the thing - principal qualities of the object - quantity - identity of the party

fraud committed before or at the

time of the celebration of the contract; used to induce the other to enter into a contract without which the latter would not have agreed to 1. misrepresentation or concealment 2. serious 3. employed by only one of the parties - failure4. indisclose or withwhen to deceive to bad faith facts intent there 5. induced the consent of the other a duty to reveal them constitutes

is

fraud (concealment) [1339]

- the general rule for error of law is ignorance of the law excuses no one - except: mutual error of law [1334]

- usual exaggerations in trade when the other party had an opportunity to know the facts are not fraudulent [1340] - mere expression of an opinion does not signify fraud unless made by an expert and the other party has relied on the formers special knowledge [1341]
5. Misrepresentation - misrepresentation by a third person does not vitiate consent unless such misrepresentation has created substantial mistake and the same is mutual [1342]

- if it would have been unintentional, is mistake not fraud

- if one of the parties is unable to read, the party enforcing the contract shall prove that the said contract was read and explained to the other party [1332] - there is no mistake when the party alleging it knew the doubt, contingency or risk affecting the object of the contract [1333]
2. Violence and Intimidation [1335] violence - serious or irresistible force intimidation - reasonable and well-

- doubtful question, construction or application of law, analogous to a mistake of fact e.g. Katz loaned 10 pesos from Yen. As a security, she mortgaged her phone. They then signed a deed of sale thinking that it has the same effect as a mortgage.

ascendants

grounded fear of an imminent and grave evil upon his person or property, or person or property of his spouse, descendants,

- misrepresentation made in good faith is not fraudulent but may constitute error [1343]

e.g. Katz plans to sell her land to Yen. The market value of the land is 50 pesos. However, Cuayo told Katz that the value is only 25 pesos. Hence, Katz sold the land to Yen for 25 pesos. The contract is valid unless it is proven that Yen also deceived Katz. e.g. Katz had a bought a laptop for her own use in class. Cuayo said that laptops are not allowed in law school. Hence, Katz sold her laptop to Yen. Katz and Cuayo later found out that laptops are actually allowed. The sale to Yen is annullable since there was mutual mistake.

3. Undue Influence [1337] - improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice
1. confidential, family, spiritual and other relations between parties 2. mental weakness 3. ignorance 4. financial distress

6. Simulation of Contracts [1345] - declaration of a non-existent will made deliberately and by agreement of the parties for the purpose of producing the appearance of a transaction that does not exist or which is different from the one that actually arose
1. declaration deliberately different from true will of the parties 2. agreement to create the appearance of a valid act 3. purpose of deceiving third persons

4. Fraud or Dolo [1338] - insidious words or machinations Dolo causante

Absolute contract does not really exist and

the parties do not intend to be bound at all VOID! [1346]

2. statement of a false cause, unless there is another true and valid cause [1353]

Relative contract entered into by the

parties is different from their true agreement - apparent contract is VOID but hidden contract is VALID

3. lesion or inadequacy of cause [1355]

- parties bound by the true and valid cause if there is any

- any damage cause by the fact that the price is unjust or inadequate - lesion does not invalidate a contract

Object [1347] - subject matter or the obligation created - all things which are not outside the commerce of men, including future things may be the object of a contract - all rights not intransmissible - all services not contrary to law, morals, good customs, public order or public policy
1. 2. 3. 4. can legally be the subject of commercial transaction must not be impossible, legally or physically must be in existence or capable of coming to existence must be determinate or determinable without the need of a new contract between the parties

Form of Contracts
General Rule and Exception [1356]

General Rule: Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity is present. Exception: When the law requires that a contract be in some form in order that it may be valid or enforceable or that a contract be proved in a certain way, that requirement is absolute and indispensable. Kinds of Formalities 1. For the validity of contracts - oral donation of a movable requires the

- future inheritance may not be the object of a contract unless it is authorized by law - impossible things or services cannot be objects of contracts [1348]
e.g. opium, illicit acts, etc.

Cause [1350] - essential or more proximate purpose which the contracting parties have in view at the time of entering into the contract - consideration
In ONEROUS contracts - cause for each contracting party is the prestation or promise of a thing or service by the other - reciprocal obligation In REMUNERATORY contracts - cause is the service or benefit which is remunerated - purpose is to reward the service that had been previously rendered In GRATUITOUS contracts - cause of which is the mere liberality of the benefactor

Motive purely personal reason why a party enters into

a contract

2. For the effectivity against third persons

simultaneous delivery of the thing or of the document representing the right donated; if the value of the personal property donated exceeds five thousand pesos, donation and acceptance shall be made in writing; otherwise, donation is VOID! [748] - donation of an immovable must be in a public document; acceptance may be in the same or separate public document but must be done during the lifetime of the donor [749] - the authority of the agent shall be in writing when the sale is of a piece of land or any interest therein; otherwise, sale shall be VOID! [1874] - amount of principal and interest must be specified in writing; otherwise, contract of antichresis shall be VOID! [2134] - partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument is necessary [1771] - when there is an immovable property which an inventory is not made, contract of partnership is VOID! [1773]
- public document is required for the convenience of the parties in order that the contract may be registered in the property registry to make effective as against third persons [1357] - must be in public instrument: [1358] 1. creation of real rights over immovable property 2. renunciation of hereditary rights or of those conjugal partnership of gains 3. power to administer property 4. transfer of actions or rights

Cause
Immediate or direct reason Always known to the other contracting party Essential element of a contract Illegality of cause affects the validity of the contract

Motive
Remote or indirect reason May be unknown Not an essential element Illegality of motive does not render the contract void 3.

For the proving the existence of a contract

- Statute of Frauds [1403]

Defective causes 1. Absence of cause and unlawful case [1352]

Formal

Real

Unenforceabl

Others

Contracts
Not binding unless formality is observed Not enforceable by action if formality is not observed

Contracts
Not binding until thing is delivered Not enforceable if there is no delivery

Statute of Frauds
Binding even if made orally Binding even if made orally Enforceable by action as between parties

1. contains stipulations that admit several meanings 2. contains various stipulations that are doubtful
- understood as bearing that import which is most adequate to render it effectual [1373]

Not enforceable without memorandum in writing

3. contains words with different significations

- interpreted together with others, and given in the sense that may result from making all of them jointly [1374] - understood in that most in keeping with the nature and object of the contract [1375]

Reformation of Instruments - remedy in equity by means of which a written instrument is made or construed so as to express or conform to the real intention of the parties when some error or mistake has been committed
1. meeting of the minds upon the contract 2. true intention of the parties is not expressed 3. failure of the instrument to express the true intent is due to mistake, fraud, inequitable conduct, accident or relative simulation

4. contains ambiguities and omissions of stipulations

5. with respect to the party who cause the obscurity

- interpretation must not favor the party causing the obscurity [1377]

- interpreted according to the usage or custom of the place, that shall fill the omission of stipulations ordinarily established [1375]

6. absolutely impossible to settle doubts by the rules

When is reformation not allowed? 1. simple donations inter vivos wherein no condition is imposed 2. wills 3. real agreement is void Implied Ratification
- when one of the parties has brought an action to enforce the instrument, he subsequently ask for its reformation [1367]

- when doubts refer to incidental circumstances of gratuitous contracts, doubts are resolved in favor of the least transmission of interests - when doubts refer to incidental circumstances of onerous contracts, doubts are resolved in the favor of greatest reciprocity - when doubts refer to the principal consideration and the intent cannot be ascertained, the contract is VOID! [1378]

Defective Contracts
Rescissible, Voidable or Annullable, Unenforceable, Void or Inexistent

Who may ask for reformation? 1. injured party

Rescissible Contracts - those contracts validly agreed upon because the essential elements exist but due to injury or damage, the remedy of rescission is granted in interest of equity Rescission remedy granted by law to the contracting parties
and sometimes even to third persons in order to secure reparation of damages caused them by a contract even if the contract be valid, by means of the restoration of the things to their condition prior to the celebration of said contract

2. heirs and assigns Interpretation of Contracts

- person mistaken - person defrauded - victim of the inequity - victim of the accident - persons whose rights are prejudiced by the relative simulation

Kinds [1381]
1. entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the thing 2. agreed upon in representation of absentees, if the absentee suffers lesion by more than one-fourth of the value of the thing 3. undertaken in fraud of creditors 4. things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority 5. all other contracts specially declared by law

Intention - deduced from the language employed by the parties and the terms of the contract, where unambiguous, are conclusive in the absence of averment and proof of mistake - the question being not what the intention was but what is express in the language used - if the words appear to be contrary to the evident intention of the parties, the intention shall prevail [1370] - contemporaneous and subsequent acts of the parties shall be principally considered [1371] Interpreting

Characteristics
1. their defect consists in injury or damage either to one of the contracting parties or to third persons 2. they are valid before rescission 3. they can be attacked directly only and not collaterally 4. they can be attacked only either by a contracting party or by a third person who is injured or defrauded 5. they can be convalidated only by prescription and not by ratification

Rescission in 1191 Breach - principal action Rescission in 1381 Lesion - subsidiary action
1. contract is rescissible 2. party asking for rescission has no other legal means 3. able to restore whatever he may be obliged to restore 4. object of the contract is not in the possession of a third person acting in good faith 5. action is brought be to the extent to rescission shall only within the prescriptive period of four years

Characteristics
1. their defect consists in the vitiation of consent of one of the contracting parties 2. they are binding until they are annulled by a competent court 3. they are susceptible of convalidation by ratification or by prescription

Who may ask for annulment?

- the party whose consent was vitiated but not the other

cover the damages caused [1384]

Presumptions of fraud [1387] 1. Alienation by gratuitous title with the remaining property not sufficient to cover existing debts 2. Alienation by onerous title when a judgement has already been rendered or writ of attachment has been issued Badges of Fraud
1. consideration of the conveyance is inadequate 2. transfer made by debtor after suit has begun and is still pending 3. sale upon credit by an insolvent debtor 4. evidence of large indebtedness or complete insolvency 5. transfer of all or nearly all of his property 6. transfer is made between father and son 7. failure of vendee to take exclusive possession of all the property

- purchaser in bad faith who acquired the object alienated in fraud of creditor must return the same if the sale is rescinded [1388] - the action to claim rescission must commence within four years from the fate the contract was entered into, except:
1. for persons under guardianship, period shall begin from the termination of incapacity 2. for absentees, from the time the domicile is known

- action for annulment shall be brought within four years [1391]: - from the time the intimidation, violence or undue influence ceases - from the discovery of the fraud or false cause - from majority of minors or removal of disability of incapacitated persons - contracting parties shall restore to each other the things which have been the subject matter of the contract with the fruits and the price with its interest [1398] - when the defect consists in the incapacity of one of the parties, he is not obliged to make any restitution except insofar as he has been benefited by the thing or price [1399] - when the thing was lost through the fault of the party obliged to return the same, he shall return the fruits received and the value of the thing at the time of the loss [1400] - action to annul is extinguished upon ratification [1392] - action to annul is extinguished when the thing is lost by the person who has the right to file the action due to his fault [1401] Ratification of a voidable contract - cures the contracts entered into
1. contract is voidable 2. ratification is made with the knowledge of the cause for nullity 3. at the time of the ratification, the cause of the nullity already ceased to exist
Express - waiver of the right of annulment by the party or his guardian Implied - an act which necessarily implies the intention to waive nullity, which is incompatible with the intention to annul - done with knowledge of the ground or cause of nullity

Voidable Contracts - those contracts 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 - these are valid and binding unless annulled by proper action in court - once ratified, they become absolutely valid [1390] Annulment remedy granted by law for reason of public
interest for the declaration of the inefficacy of a contract based on a defect or vice in the consent of one of the contracting parties in order to restore them to their original position before the contract was executed

- ratification retroacts to the time that the contract was entered into [1396]
Unenforceable Contracts - 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 1. those entered into in the name of another by one without or acting in excess of authority

Kinds [1390]
1. one of the parties is incapable of giving consent 2. consent is vitiated by mistake, violence, intimidation, undue influence or fraud

2. those that do not comply with the Statute of Frauds 3. those where both parties are incapable of giving consent

Statute of Frauds 1. agreement not to be performed within one year from the making
e.g. Katz and Yen are freshies. Katz promised Yen that she will make all her digests for her come third year. If it is not done in writing, it is unenforceable.

- in a contract where both parties are incapable of giving consent, the contract is unenforceable [1407] - if the parent or guardian of one party ratifies the contract, the contract becomes voidable - if the parents or guardians of both parties ratify the contract, the contract becomes valid from inception Void Contracts - those which, because of certain defects produce no effect at all - considered inexistent from the very beginning Characteristics
1. it cannot be ratified 2. right to set up the defense of illegality cannot be waived 3. action or defense for declaration of nullity does not prescribe 4. defense of illegality is available to third persons whose interests are directly affected 5. cannot give rise to a valid contract

2. promise to answer for the debt, default or miscarriage of another

e.g. Katz owes Yen 10 pesos. Cuayo promised to pay Yen in case Katz fails to pay for the same. The promise is unenforceable if not made in writing. However, Katz obligation to pay Yen is in enforceable even if it is not in writing.

3. agreement in consideration of marriage other than mutual promise to marry

4. agreement for sale of goods at a price not less than 500 pesos

e.g. Mico purchased a house in consideration of Katz promise to marry him after doing so. For the promise to be enforceable, it must be made in writing.

e.g. Katz and Yen mutually promised to buy and sell the formers laptop for 1,000 pesos. This contract must be in writing to be enforceable unless there is delivery and partial or full payment.

Void Contracts [1409] 1. those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy
- act constitutes a criminal offense - act is unlawful but does not constitute a criminal offense - purpose is illegal and money is paid or property is delivered - contract is illegal and one of the parties is incapable of giving consent - agreement is not illegal per se but is prohibited - amount paid exceeds the maximum fixed by law - by virtue of a contract a laborer undertakes to work longer than the maximum number of hours of work fixed by law - laborer agrees to accept a lower wage than that set by law - illegal parts of a divisible contracts - when contract is the direct result of a illegal contract

5. agreement for leasing for a longer period than one year

e.g. Katz leased her house to Yen for 2 years. It must be in writing to be enforceable.

6. agreement for the sale of real property or of an interest therein

e.g. Katz promised to sell a parcel of land to Yen. This must be in writing to be enforceable. However, if Katz has partially or fully paid the price, it is already enforceable.

7. representation as to the credit of a third person

e.g. Katz seeks a loan from Yen. Cuayo told Yen that Katz is capable of paying her debts when in fact she is insolvent. Due to Cuayos representation, Yen agreed to extend a loan to Katz. Cuayos representation of Katz solvency must be in writing to be enforceable.

previous

Ratification of an unenforceable contract 1. by failure to object to the presentation of oral evidence to prove the contract; this amounts to a waiver 2. by acceptance of benefits under the contract - when a public document is necessary for registration, the contract must first be ratified to be enforceable [1406]

2. those whose object is outside the commerce of men 3. those which contemplate an impossible service 4. those where the intention of the parties relative to the principal object of the contract cannot be ascertained 5. those expressly prohibited or declared void by law Inexistent Contracts 1 those which are absolutely simulated or fictitious 2. those whose cause or object did not exist at the time of the transaction

e.g. Katz bought a land from Yen. The sale was made orally. Katz cannot compel Yen to transfer title to her as the contract is unenforceable.

Void

Voidable

Rescissible

Unenforceabl e

Lack of essential elements or illegality Not cured by prescription Cannot be ratified Not binding

Vitiated consent or incapacity of one party Cured by prescription Can be ratified Binding until annulled

Lesion or prejudice

Lack of formal authority or capacity of both parties Not cured by prescription Can be ratified Binding unless the defect used as a defense

Cured by prescription No need to be ratified Binding unless rescinded

which he received by will or by law of intestacy, payment is deemed valid [1429] - when even after a will is declared void, an heir pays a legacy in compliance with a clause in the defective will, payment is effective and irrevocable [1430]
Legacy reward to friends, servants, etc

Natural Obligations

Estoppel

- based on equity and natural law, not positive law, and do not grant right of action to enforce their performance [1423] Natural Obligations
Based not on positive law but on equity and natural law Do not grant right of action to enforce performance

Civil Obligations
Arise from law, contracts, quasicontracts, delicts and quasi delicts Give a right of action to compel their performance

- an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved by him as against the person relying thereon [1431]
Technical Estoppel 1. by record or judgement (res judicata) 2. by deed, mortgage or bond Equitable Estoppel 1. by express representation 2. by silence 3. by laches

- when 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 [1424]

debt

- when a third person pays the prescribed of the debtor, without the latters knowledge or against his will, he is not obliged to reimburse the former [1425] - when a minor between 18 and 21 years old entered a contract without the consent of the parent or guardian, and the contract was later on annulled, and the minor voluntarily returns the whole thing or price received, there is no right to demand the thing or price returned [1426] - when a minor between 18 and 21 years old entered a contract without the consent of the parent or guardian, voluntarily pays a sum of money or delivers a fungible thing in fulfillment of the obligation, there shall be no right to recover the same from the obligee who has spent or consumed it in good faith [1427] - if after the action to enforce a civil obligation has failed, the debtor still voluntarily paid the creditor, the former cannot demand the return of what he has delivered [1428] - when the heir voluntarily pays a debt of the decedent exceeding the value of the property

e.g. Katz owes Yen 10 pesos. After 10 years, the debt prescribed for failure of Yen to file the necessary action to recover the same. If Katz, even if she knew that the debt has already prescribed, paid Yen 10 pesos, she cannot recover it anymore.

- estoppel is effective only as between the parties thereto or their successors in interest even if one party is a minor [1439]
On the party estopped: 1. conduct amounting to false representation or concealment of material facts 2. intent or expectation that this conduct shall be acted upon by the other party 3. knowledge of the truth On the party invoking estoppel: 1. lack of knowledge and means to ascertain the truth 2. reliance upon the conduct of the party estopped 3. action or failure to act so as to change his position prejudicially 4. prejudice unless estoppel is applied

own

- when a person who is not the owner of a thing sells and delivers it, and later the seller acquires title thereto, the title by operation of law passes to the buyer [1434] - when a person in representation of another sells a thing, the former cannot set up his title against the buyer [1435] - the lessee or bailee is estopped from asserting title to the thing leased or received [1436] - when in a contract between third persons concerning immovable property, one of them is misled by a person with respect to the ownership or real right over the real estate, the person who misrepresented cannot assert his legal title or interest [1437]

- one who has allowed another to assume apparent ownership of personal property for purpose of making any transfer of it cannot, if he received a pledge, set up his own title to defeat the pledge [1438]

person
Trusts - a fiduciary relationship with respect to property, subjecting the person holding the same to the obligation of dealing with the property for the benefit of another person - separation of the legal title from the beneficial title - differs from a stipulation pour autrui in that a trust refers to a specific property - differs from a condition in that accomplishment of the latter is not enforceable, but performance of a trust is enforceable - differs from guardianship in that the trustee has legal title to the property Parties [1440] 1. Trustee 2. Trustor
- one who hold the property in trust - one who establishes or created a trust

3. Beneficiary
- person for whose benefit property is held for by the trustee Express Trust - created by assent of the parties Implied Trust - created by law 1. Resulting trust - imposed by law to carry out the actual or presumed intent of the parties, where express trust fails 2. Constructive trust - established by law regardless of intention, in order to prevent fraud, oppression or unjust enrichment

to

Express trusts - cannot be proved by parol evidence [1443] - no particular words required as long as a trust is clearly intended [1444] Implied trusts - may be proved by oral evidence [1457]

person obtaining considered a

- when property is sold, and the legal estate is granted to one party but the price is paid by another for the purpose of having the beneficial interest of the property; if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child [1448] - when a donation is made to a but it appears that although the legal estate is transmitted to the donee, he nevertheless is either to have no beneficial interest or only a part thereof [1449] - price of a sale of property is loaned or paid by one person for the benefit of another and the conveyance is made to the lender or payor to secure the payment of the debt, a trust arises by operation of law in favor of the person to whom the money is loaned or for whom its is paid [1450] - when land passes by succession to any person and he causes the legal title to be put in the name of another, a trust is established by implication of law for the benefit of the true owner [1451] - if two or more persons agree to purchase property and by common consent the legal title is taken in the name of one of them for the benefit of all, a trust is created by force of law in favor of the others in proportion to the interest of each [1452] - when property is conveyed to a person in reliance upon his declared intention to hold it for, or transfer it another or the grantor, there is an implied trust in favor of the person whose benefit is contemplated [1453] - absolute conveyance of property is made in order to secure the performance of an obligation of the grantor toward the grantee, a trust by virtue of law is established [1454] - when any trustee, guardian or other person holding a fiduciary relationship uses trust funds for the purchase of property and causes the conveyance to be made to him or to a third person, a trust is established by operation of law in favor of the to whom the funds belong [1455] - if property is acquired through mistake or fraud, the person it is, by force of law, trustee of an implied trust for

the

benefit of the person from whom the property comes [1456]