OBLIGATIONS

AND
CONTRACTS
Atty. Amado R. Villegas, Jr.
 Obligations and Contracts ARV

Law – is rule of conduct, just, and

obligatory promulgated by
legitimate authority and of
common observance and benefit.
 Obligations and Contracts

Obligation – is a juridical necessity to give

(REAL), to do or not to do (PERSONAL).
Contract – meeting of minds between two
persons whereby one binds himself
with respect to another, to give
something or render some service.
 Obligations and Contracts

Essential elements/requisites of Obligation

(1) Passive subject / debtor / obligor
(2) Active subject / creditor / obligee
(3) Object / prestation / subject matter
(4) Juridical tie / legal tie
Essential elements / requisites of Contract
C – CONSENT – meeting of the minds
O – OBJECT – subject matter
C – CAUSE / causa / consideration / price
 Obligations and Contracts

Sources of Obligations
(1) Law
(2) Contracts (Art. 1305)
(3) Quasi-contracts (Art. 2142)
(4) Delicts / Crime / Felony (Art. 3 RPC)
(5) Quasi-delicts / Tort / Culpa Aquiliana
 Obligations and Contracts

2 Kinds of Quasi Contracts

(1) Negotiorum Gestio – voluntary
management
(2) Solutio Indebiti – improper payment
 Obligations and Contracts

(a) Legal Obligations / Ex Lege (Art. 1158)

Are obligations presumed?
(b) Contractual Obligations (Art. 1159)
Voluntary / Contractual / Conventional
(c) Quasi - Contractual Obligations (Art. 1160)
(d) Penal Obligations / Ex delicto
(e) Quasi-Delicts
 Obligations and Contracts

If a crime / delict is committed, there are two

liabilities –
(a) Criminal liability - imprisonment
(b) Civil Liability – payment of damages
Scope of civil liability
(1) Restitution
(2) Reparation
(3) Indemnification for consequential
damages
Obligations and Contracts ARV

Law v. Contract
Contract v. Quasi-Contract
Delict v. Quasi-delict
Contract v. Quasi-delict
Obligations and Contracts ARV

Nature and Effects

of Obligations
 Obligations and Contracts

Art. 1163
(a) Specific/ Determinate v. Generic Indeterminate
(b) Genus nunquam peruit – genus never perishes
(c) Diligence of Good Father of a Family
(Bonum paterfamilia)
 Obligations and Contracts

Art. 1163
What are the obligations in the delivery of a
determinate thing?
(1) Take good care of the thing with the DGFF
(2) Deliver the thing including all its fruits
(3) Deliver all its accessions and accessories
 Obligations and Contracts

Art. 1164
Personal right v. Real Right
Kinds of fruits
(a) Natural (b) Industrial (c) Civil
The creditor has the right to the fruits of the thing
from the time the obligation to deliver it arises
In contracts, from the time of the perfection of the
contract
 Obligations and Contracts

What transfers ownership?

DELIVERY or TRADITION

What creates the real right over the thing?

REGISTRATION
 Obligations and Contracts
Remedies of the Creditor in a REAL obligation

In case the obligation is generic

- three (3) remedies
Can the creditor compel the delivery of the thing? NO
Can the creditor ask a third person? YES

In case the obligation is specific

Can the creditor compel the delivery of the thing? YES
Can the creditor ask a third person? NO
 Obligations and Contracts
Art. 1166 –
Accessions - fruits of a thing or additions to or
improvements upon a thing
Accessories – things joined to or included with the
principal thing for the latter’s embellishment, better
use or completion.

Accessio cedit principali – accessory follows the principal

Can the principal exist without the accessory?
Can the accessory exist without the principal?
 Obligations and Contracts
Art. 1167 –
Remedies of the Creditor in Personal Obligations
(a) Ask the debtor, in case of refusal, ask a third person
Exception – personal consideration is involved
(b) Damages

Can he compel? NO, bec. of involuntary servitude. But you can ASK
Art. 1168
Remedies of the Creditor in Personal Obligations
(a) Undoing of the forbidden thing plus damages
(b) If not possible to undo, damages
 Obligations and Contracts
Art. 1169 – DELAY
G.R. - NO DEMAND, NO DELAY
Exceptions –
(1) Law (2) stipulation (3) time is of the essence (4) useless
Kinds of Delay
(1) Mora solvendi ( debtor’s delay)
(2) Mora accipiendi ( creditor’s delay)
(3) Compensatio Morae (both)
 Obligations and Contracts

Art. 1170 – Instances when debtor is liable for

damages
(1) FRAUD / DECEIT / DOLO
(2) NEGLIGENCE / FAULT / CULPA
(3) DELAY / MORA /DEFAULT
(4) VIOLATION OF THE TERMS OF THE OBLIGATION
/ CONTRAVENTION / BREACH
 Obligations and Contracts

Fraud – is the deliberate or intentional evasion of

the normal fulfillment of an obligation.
Kinds of Fraud
(1) DOLO INCIDENTE / Incidental Fraud
(2) DOLO CAUSANTE/ Causal Fraud
Causal Fraud v. Incidental Fraud
- before creation - after creation
- annulment - pay damages
 Obligations and Contracts

How is causal fraud committed?

(1) Insidious words or machinations
(2) Concealment

Waiver of future fraud – not valid

Waiver of past fraud – valid
Waiver of past or future negligence –valid
 Obligations and Contracts

Negligence - is any voluntary act or omission,

there being no malice, which prevents the
normal fulfillment of an obligation.

Kinds of Negligence
(1) Contractual (Culpa contractual)
(2) Civil (Culpa Aquiliana)
(3) Criminal (Culpa Criminal)
 Obligations and Contracts

Art.1174
Fortuitous event – any event which cannot be foreseen, or
which though foreseen, is inevitable

“debtor must be free from any participation”

(1) Acts of man -

(2) Acts of God (force majeure) -
 Obligations and Contracts

Art.1174 (Fortuitous event)

G.R. – Debtor not liable
Exceptions – debtor is liable
(1) Law (1170, 1165 [3], 1268, 1263)
(2) Stipulation
(3) Nature of the obligation requires the
assumption of risk
 Obligations and Contracts

Art.1175 – Usury law is legally inexistent (CB 905)

Requisites to recover interest

(1) agreement (2) writing (3) lawful

Mutuum - money
Commodatum – other than money
 Obligations and Contracts

Art.1176 – Disputable presumptions

Rule – Interest is paid ahead of the principal

Presumption – interest is already paid

Rule – Prior installments are first liquidated

Presumption – prior installments are already paid
 Obligations and Contracts

Art.1177 – Remedies available to the creditors for

the satisfaction of their claims
Primary remedy – SPECIFIC PERFORMANCE
Secondary remedies
(1) Exhaust the properties - find
(2) Accion Subrogatoria - subrogation
(3) Accion Pauliana - rescind
 Obligations and Contracts

Art.1178 –
Obligations are NOT transmissible

Rights are transmissible (G.R.)

Exceptions –
(1) prohibited by law
(2) stipulation
Obligations and Contracts ARV

Kinds of obligations

Unilateral v. Bilateral
Real v. Personal
Determinate v. Generic
Civil v. Natural
Legal v. Conventional v. Penal
Obligations and Contracts

Kinds of obligations
Pure v. Conditional
Obligations with a Period
Alternative v. Facultative
Joint v. Solidary
Divisible v. Indivisible
Obligations with a Penal Clause
 Obligations and Contracts

1179
Pure obligation – no condition, no period
Condition – future and uncertain
Period – future and certain

Instances when obligation is immediately

demandable (3)
 Obligations and Contracts

1179
Suspensive cond. v. Resolutory cond.
- Condition precedent - condition subsequent
- Suspended - demandable at once
- Arises - extinguished
- Acquisition of rts - termination of rts
1180
Debtor promises to pay when his means permit
him to do so - PERIOD
 Obligations and Contracts

If period depends on debtor – VALID

If condition depends on debtor – VOID
If condition depends on creditor, will of third
person or chance – VALID
If condition potestative – “one”
If condition casual – “or”
If condition mixed – “and”
 Obligations and Contracts

Impossible obligs. v. Impossibility in the

Performance of the oblig
- Beginning - after the creation
- Annulled/void - debtor is released
Kinds of impossibility
(1) Physically
(2) Legal
Effect – (G.R.) Both obligation and condition
are void
 Obligations and Contracts

1184 – Positive condition

1185 – Negative Condition
1186 – Constructive fulfillment of condition
1187 – Retroactive effects of fulfillment of
Suspensive condition
1188 – Rights pending the fulfillment of
suspensive condition
 Obligations and Contracts

1189 Kinds of Loss (PLC)

(a) without debtor’s fault
(b) through debtor’s fault
(c) deterioration through debtor’s fault
(d) deterioration without debtor’s fault
(e) Improvement at expense of debtor
(f) Improvement of thing by nature or
by time
 Obligations and Contracts

1190 – Effects of fulfillment of resolutory

condition
1191 – Remedies in reciprocal obligation
(1) Specific Performance OR
(2) Rescission (with damages in both
cases)
1192 – Where both parties are guilty of
breach
 Obligations and Contracts ARV

Obligations with a Period

Suspensive period (Ex Die)
Resolutory period (In Diem)
Day Certain (defined)

Is death a period or condition?

 Obligations and Contracts

1195 – Debtor presumed aware of the period

1196 – G.R. - Both parties are benefited by the
period (Exceptions)
1197 – Judicial Period
1198 – (G.R.) Respect the period
Exceptions – debtor loses the benefit of the
period
 Obligations and Contracts ARV

Simple obligation - one

Compound obligation – 2 or more
a. Conjunctive – all are due
b. Distributive – one, 2 or more are due
1. Alternative – what’s due
2. Facultative – can substitute
 Obligations and Contracts ARV

Alternative Obligation
G.R. – Debtor’s choice
1201 – Communication of choice
1204 – Effect of loss of obligation (Debtor)
1205 – Effect of loss of obligation (Creditor)
1206 – Facultative obligation
What was lost principal or substitute?
 Obligations and Contracts ARV

Joint and Solidary

Joint – proportionate compliance
- to each his own
Solidary – entire/whole compliance
- one for all, all for one

What’s the presumption? JOINT

 Obligations and Contracts

Kinds of solidarity
(1) Active solidarity – creditors
(2) Passive solidarity – debtors
(3) Mixed solidarity – both

1209 – Joint Indivisible obligation

1210 – Solidarity v. Indivisibility
 Obligations and Contracts

1211 – Solidarity with different periods, condition or

manner
1212 – Act of solidary creditor prejudicial to others
1213 – Assignment by solidary creditor of his rights
1214 – Payment to any of solidary creditors
1216 – Right of creditor to proceed against any solidary
debtor
1217 – Payment by a solidary debtor
1218 – Payment after obligation has prescribed
 Obligations and Contracts

1219 – Effect of Remission of share

after payment
1220 – No right of reimbursement in case of
remission
1221 – Effect of loss of thing
1222 – Defenses available to solidary creditor
 Obligations and Contracts ARV

Divisible obligations v. Indivisible obligations

Kinds of division

1225 – when obligation indivisible

when obligation divisible (2nd par.)
 Obligations and Contracts ARV

Obligations with a penal clause (purposes)

1226 v. 1170
Stipulation required not required
Proof of damages proof required
not required
 Obligations and Contracts

Can debtor opt to pay pc instead of principal?

Can creditor demand both the principal and the
pc?
Can creditor recover pc and damages?
Can the penalty be reduced?
What is the effect if the principal or the pc is void?
 Obligations and Contracts ARV

EXTINGUISHMENT OF OBLIGATIONS
PAyment ANnulment
LOss REScission
REmission RESolutory Period/Cond
Merger PREScription (Extinctive)
COndonation Oral – 6 years
NOvation Writing – 10 yrs
Quasi-delict – 4 yrs
 Obligations and Contracts

EXTINGUISHMENT OF OBLIGATIONS
- Death of a party in case the obligation is personal
- Mutual Desistance or withdrawal
- Compromise
- Impossibility of the Fulfillment
- Happening of a fortuitous event
 Obligations and Contracts ARV

PAYMENT
1233 – Complete performance (Exceptions)
1236 - Beneficial reimbursement
1237 – Reimbursement plus subrogation
1239 / 1241 – Payment by and to the incapacitated
person / Payment to person not authorized
 Obligations and Contracts

PAYMENT
1244 – Rule of IDENTITY (Specific thing)
1246 – Rule of MEDIUM QUALITY (Generic)
1247 – Extrajudicial expenses v. judicial
1248 – Instance when partial payment is valid
1249 – Legal Tender
1250 – Extraordinary inflation/deflation
 Obligations and Contracts

Special Forms of Payment

(1) Dacion en pago / Dation in Payment
(2) Application of payment
- Legal Application of Payments
(3) Payment by cession
(4) Tender of Payment and Consignation
 Obligations and Contracts ARV

LOSS OF THE THING DUE

G.R. – oblig is extinguished
Exceptions –
(1) law (2) stipulation
(3) nature of the obligation
(4) obligation to deliver a
specific thing arises from a crime
(4) GENERIC
 Obligations and Contracts ARV

CONDONATION / REMISSION
1271 – Delivery of a private document
1273 – Renunciation of the principal or accessory
1274 – Presumption in case thing pledged found in
possession of debtor
 Obligations and Contracts ARV

CONFUSION or MERGER
1276 – Merger in in the person of debtor or
creditor
1277 – Merger in joint obligation
Merger in solidary obligation
 Obligations and Contracts ARV

COMPENSATION
1279 – Legal Compensation (5 Requisites)
1280 – Benefits guarantors
1282 – Voluntary Compensation
1283 – Judicial Compensation
1287/1288 – Instances when legal compensation
not allowed
1290 – Consent not required in legal comp.
 Obligations and Contracts ARV

NOVATION
Express v. Implied
Real Novation / Personal / Mixed
Personal (1) substitution (2) Subrogation
Substitution (1) Expromision (2) Delegacion
Subrogation (1) legal (2) conventional
 Obligations and Contracts

NOVATION
1294 – Effect of new debtor’s insolvency in
expromision
1295 - Effect of new debtor’s insolvency in
delegacion
1296 – Effect of novation on accessory obligations
1297 / 1298 – Effect where old and new obligations
are void
Obligations and Contracts ARV

CONTRACTS
Obligations and Contracts

Contract v. Law
Contract v. Obligation
Contract v. Agreement
Contract v. Pact
Contract v. Stipulation
 Obligations and Contracts ARV

Basic Principles / Characteristics of contracts

Mutuality (1308)
Autonomy / Liberty / Freedom (1306)
Relativity (1311)
Consensual (1315)
Obligatory force of contract (1159)
 Obligations and Contracts

Innominate Contracts (1307)

Do ut des – I give that you give
Do ut facias – I give that you may give
Facio ut des – I do that you may give
Facio ut facias – I do that you may give
 Obligations and Contracts

1311 – RELATIVITY OF CONTRACTS

G.R. – TPs are not bound by the agreement
(1) 1311 [2] – Stipulation Pour Autrui
(2) 1312 – Registration
(3) 1313 – Accion Paulina
(4) 1314 – Interference in contractual relations
 Obligations and Contracts

1315 – CONSENSUAL CONTRACT

G.R. – mere consent creates contract
Exceptions
(1) REAL (deposit, pledge, commodatum)
(2) FORMAL / SOLEMN
 Obligations and Contracts

1317 – Unauthorized / Unenforceable Contract

Requisites
(1) authorized
(2) act within the scope of his authority

Remedy - RATIFICATION
 Obligations and Contracts ARV

1318 – Essential Elements / Requisites

Consent
Object / subject matter
Cause / causa / consideration

Effect if one is missing – VOID

 Obligations and Contracts

1319 – CONSENT (offer plus acceptance)

COGNITION THEORY (Art. 1319, 2nd par.)
POLICITACION
1323 – INEFFECTIVE OFFER
- death, civil interdiction, insanity, insolvency
1324 – Option money v. Earnest Money
 Obligations and Contracts

Characteristics of consent
(1) Intelligent
(2) Free and voluntary
(3) Conscious and spontaneous
NOT definite offers
(1) Business advertisements
(2) Advertisement for bidders
 Obligations and Contracts

Incapacitated to enter into contract

(1) minors
(2) Insane
(3) Deaf mutes
(4) etc…
 Obligations and Contracts

Under lucid interval – valid

Hypnotic spell – voidable
State of drunkenness – voidable
MIVUF – voidable
Minor, insane, deaf-mute – voidable
REMEDY - ANNULMENT
 Obligations and Contracts

VICES OF CONSENT
Mistake - mistake of fact
Intimidation - internal
Violence - external / physical
Undue Influence- improper advantage
Fraud - causal fraud
 Obligations and Contracts

If the party knew the risk – no mistake

Usual exaggerations in trade – not fraudulent
Mere expression of an opinion – not fraud
Misrepresentation made in good faith – not fraud
Misrepresentation by a third person – not fraud,
unless
 Obligations and Contracts

Simulation of contract – pretending by

agreement
2 kinds
(1) Absolutely simulation / Fictitious
Effect - VOID
(2) Relative simulation
Effect – parties are bound by their
true agreement
 Obligations and Contracts ARV

OBJECT – subject matter of the contract

- within the commerce of man
- future inheritance not allowed
- only rights which are transmissible
- determinate or capable of being made
determinate
 Obligations and Contracts ARV

CAUSE / CAUSA
Cause v. Motive
Lesion (G.R. – valid)
Kinds
(1) onerous (2) gratuitous
(3) remuneratory
 Obligations and Contracts

Absence of cause - void

Illegal cause - void
False cause - void
Failure of cause - valid
Insufficient cause - valid
 Obligations and Contracts ARV

FORM OF CONTRACT
G.R. – NO FORM required, provided COC
Exceptions -
Form Effect
(1) Validity varies VOID
(2) Enforceability writing Unenforceable
(3) Convenience PI + Reg. Valid only bet.
to bind TPs the parties
 Obligations and Contracts

Remedy under Art. 1357 – compel Pub. Doc.

(1) Validity - not available
(2) Enforceability - not available
(3) Convenience - available
to bind TPs
 Obligations and Contracts ARV

REFORMATION OF v. INTERPRETATION
of INSTRUMENT of CONTRACT
(1) When available (1) Rule of clear, rule if
if there is a doubt
(2) When not allowed (2) Art. 1378
4 instances onerous – greatest xxx
gratuitous – least xxx
failure - void
 Obligations and Contracts ARV

4 DEFECTIVE CONTRACTS
(1) Rescissible (GACLOS) - Rescission
(2) Voidable (2 grounds) - Annulment
(3) Unenforceable (3 major grounds)
(4) Void or Inexistent contract – Declaration of
absolute Nullity
See Handout No. 18
 Obligations and Contracts

Grounds for Rescission

G uardian
A bsentee
C reditor
L itigation
O ther instances
S tate of insolvency
 Obligations and Contracts

Action for Rescission

- Subsidiary
- Only to the extent necessary to cover the damage
caused
- Creates mutual restitution
- Badges of fraud
- Must be filed within 4 years
 Obligations and Contracts ARV

VOIDABLE Contracts
1. MIVUF
2. One party is incapacitated
Period – 4 years
Duty of mutual restitution
Party capacitated cannot allege the incapacity
 Obligations and Contracts ARV

UNENFORCEABLE
(1) Art. 1317
(2) Violation of the Statute of Frauds – must be in
writing
(3) Both parties are incapacitated

Art. 1407 – both are incapacitated – effect of

ratification
 Obligations and Contracts ARV

VOID CONTRACT
- no effect whatsoever
- cannot be ratified
- imprescriptible
- cannot be waived
- can be assailed by TPs with interest
- IN PARI DELICTO DOCTRINE
 Obligations and Contracts ARV

Civil Obligation v. Natural Obligation

- Positive law - equity and natural law
- Can be filed - cannot be filed

Instances of natural obligation

(Arts. 1423 – 1430)