Revised By: Atty. Virginio L.Valle Course Outline PART I – INTRODUCTION TO LAW AND BUSINESS 1) 2) 3) LAW Definition of Law and Business Law Sources of Business Law Characteristics of Bu siness Law PART II – OBLIGATIONS 1) In General a) b) a) Definition Sources of Obligations Law; Contracts; Quasi-Contracts; Delicts or Cr imes; Quasi-Delicts Essential requisites of obligation Parties; object; Juridica l tie or vinculum juris PART II – OBLIGATIONS 2) Nature and Effect of Obligation a) According to the Object or Prestation Obligations to give; Obligations to do; Obligations not to do a) Liability of Damages Fraud – Dolo incidente; Dolo causante Neglignce – Delay – Mora solvendi, accipiendi, c ompensatio morae Contravention of tenor of obligation PART III – GENERAL PROVISIONS ON CONTRACT Contracts Defined Elements of Contract: Stages of A Contract Characteristics of Contracts: Classification of A Contract: (FROM) Contract Binds by Both Parties C ases Where Third person May Be Affected By a Contract Forms of Contracts Reforma tion of Instruments Interpretation Of Contracts Cause of Contracts PART IV – DEFECTIVE CONTRACTS Rescissible Contracts Voidable Contracts Unenforceable Contracts Void or inexist ent contracts PART 1 INTRODUCTION TO LAW AND BUSINESS LAW 1. 2. 3. Definition of Law and Business Law Sources of Business Law Characteristics of Bu siness Law he can define it. result to that consc iousness of following the law. with its characteristics. The instructions that a person will learn. As he learns the law. the sight of a human being in his everyday undertaking has to follow some.Introduction to Law Preliminaries In the preliminaries. . The person was created by God and destined for God. the human mind consists principally of two faculties: 1. the Will – the object of whi ch is the GOOD. . The laws that contained the instructions of Go d given to us are the COMMANDMENTS. the Intellect – the object of which is the TRUTH.In Philosophy. the people can attain the fi nal destiny by following the law. The infinite truth and infinite good is infinite beauty of God. 2. JUST AND OBLIGATORY PROMULGATED BY LEGITIMATE AUTHORITY FOR THE C OMMON OBSERVANCE AND BENEFIT. a Spanish Civilist and he defined Law as: “A RUL E OF CONDUCT .” . simple and concise definition of law was defined by Sanchez Roman.” Edgardo Paras defined Law as “an ordinance of reason promulgated for the common good by Him who is in charge.Law The most basic. things. dictate of reason if regulated or gathered together could become a conglomeration of rules. harmonious relations among the people c oncerned so that in the end justice will prevail. peaceful. . regulatio ns that can create an orderly. A RULE OF CONDUCT Meaning any action.Characteristics of Law 1. In a Republican State like the Philippines. PROMULGATED BY LEGITIMATE AUTHORITY That is. the executive body is the implementing body and the judiciary as the enforcing body. .Characteristics of Law 2. we have three branches of government – legislative body (like Congress. made known to those who are expected to follow it. Sanggunian) is the law-making body. Obligatory mean s any duty binding parties to perform their agreement. Treatment of Law should be equal. 1074). age and status in life and to follow the law there should be equivalent p unishment or penalties to enforce them. JUST and OBLIGATORY creed.Characteristics of Law 3. P. . The dictum “Justice delayed is Justice den ied” is commonly abused term on the relation of a criminally inclined poor person and a moneyed person on the treatment of the application of law. regardless of sex. (Black’s dict. Characteristics of Law 4. . FOR THE COMMON OBSERVANCE and BENEFIT The application of law should not be titled or favoring an individual but by the observance of all and the benefits that may be derived from it. . the Sangguniang Pambayan or the local Municipal council. the Sangguniang Pambarangay. For a town. the Legislative is the law-m aking body. For provinces. the Sangguniang Panlalawigan for every prov ince. Congress comprising the House of Representa tives and the Senate. LEGISLATIVE It consists of legal rights by a competent authority. For a Barangay level. being a democratic form of government. For national government. In the Philippines.Sources of Law 1. otherwise it becomes unconstitutional. . All laws must conform and comply with the provisio ns of the Constitution.Sources of Law 2. CONSTITUTION The fundamental law that governs a nation in its relation to its citizens. . REGULATIONS AND RULINGS The fundamental law that governs a nation in its relation to its citizens.Sources of Law 3. otherwise it becomes unconstitutional. All laws must conform and comply with the provisio ns of the Constitution. ADMINISTRATIVE OR EXECUTIVE ORDERS. JUDICIAL DECISIONS OR JURISPRUDENCE decisions or interpreting the laws or the Constitution shall form a part of the legal system of the Philippines. the Courts exists for stating what the law is. it constitute in a way. th ough. though not law. Judicial decisions.Sources of Law 4. part of the law since the Courts interpretation merely establishes the legislative inte nt. 8. This is why they are part of the legal system in the Philippines. are evidence of what the law means. f an interpret ation is placed by the Supreme Court upon a law. Judicial . but not for giving it. New Civil Code) Judicial decisions. are part of the legal system in the Philippines still are not laws for if this were so. (Art. So. Sources of Law 4. the doctrine which in reality is “adherance to precedents” stated th at once a case has been decided. then another case involving the same point at i ssue. the law becomes binding and has its full force and effect. should be decided in the same manner. our country adhere to the Doctrine of Stare Decisis (Let it Stand). . Therefore. if the Supreme Court bein g a Court of last resort. JUDICIAL DECISIONS OR JURISPRUDENCE Thus. has decided that a certain law passed by Congress is c onstitutional. . Once a person u ses the window for his entrance and exit. he is a thief for a marauder. Even our Lord said as a good shepherd.Sources of Law 5. It CUSTOM consists of those habits and practices which through long and uninterrupted usag e have become acknowledged and approved by society as binding rule of conduct. T hus. if a person does not pass the gate. it runs counter to the custom of use o f the door. it has been a custom for a person to enter and exit a door. decisions of foreign tribunals. opinions of text writers and even religion may a lso be sources of law. OTHER SOURCES To add. the principle of justice and equity. .Sources of Law 6. DIVINE LAW It is formally promulgated by God. .Kinds of Law 1. revealed or divulged to mankind by means of d irect revelation like the Ten Commandments. . fairness. right and equity by internal dictate of reason on our mind. NATURAL LAW Promulgated impliedly in our conscience and body. It is the divine interpretatio n in man in the sense of justice. it is better to do good than to do ev il for being a God-fearing person.Kinds of Law 2. Like for instance. HUMAN LAW Those promulgated by man to regulate human relations.Kinds of Law 3. PHYSICAL LAW Refers to the act of rules governing the action and movement of things like the law on gravity by Newton. THIS CAN BE CLASSIFIED INTO: . 4. . It includes the following: 1. Constitutional Law It simply g overns the relations between the State and its citizens. 2. International Law – consists of those rules and principles which govern the rel ations and dealing of nations with each other.Classification of Human Law A. GENERAL or PUBLIC LAW Body of rules which regulates the rights and duties arising from the relationshi p between the State and its inhabitants. Administrative Law – it fixes the organization and determines the competence of the authorities that execute the law and indicates to the individual remedies f or the violation of his rights. 4.Classification of Human Law GENERAL or PUBLIC LAW 3. Criminal Law – guaranties the coercive power of the law so that it will be obeyed. 5. Political Law – deals with the organization and operation of the governmental organs of the State and defines the relations of the state with the inhabitants of its territory. Governs the methods of tria l and punishment of crimes. . It includes the following: 1. authority and obedien ce among the members of a society for the protection of private interests. It is defined as the mass of precepts which determines and regulate the relation of assistance. Civil Law – branch of law which has for its double purpose the organization of the family and the regulation of property. .Classification of Human Law B. INDIVIDUAL or PRIVATE LAW Those law which govern the private relation person. (Black’s law dict. 338) . Commercial Law – defined as a whole body of substantial jurisprudence applicable t o the rights. trade or mercantile pursuits.Classification of Human Law INDIVIDUAL or PRIVATE LAW 2. intercourse and relation of persons engaged in commerce. Procedural law otherwise known as Remedial Law. P. Procedural Law – defined as the branch of law which prescribes the method of en forcing rights or obtaining redress for their invasion. def ines and regulate rights. (Ballantine Law Dict.Classification of Human Law INDIVIDUAL or PRIVATE LAW 3. 36) . as distinguished from Substantive law which creates. 334). scientifically arranged in to books. . chapters and subheads and promulgated by legitimate authority. A civil code is a compilation of existing Civil Laws. determining the defective rights and obligations with reference to per sons. The New Civil Code of the Philippines – the collection of laws which regulates the private relations of the members of civil society. (Black Law Dict. things and civil acts.Sources of Philippine Civil Code 1. titles. Sources of Philippine Civil Code 2. but the Court’s interpretation of a statute that constitute part of the law as of the date it was originally passed since the Court’s constru ction merely establishes contemporaneous legislative intent. Special laws or statutes. that the interprete d law could take into effect. 3. Presidential decrees and other social legislation. jurisprudence in our system of government. . cannot be considered as an inde pendent source of law. Jurisprudence – there is need to mention that. 1949. Customs and Traditions – Custom is a judicial rule which results from a constant and continuous uniform practice by the member s of a social group. Order No. 1947 and Congress approved the draft on Ju ne.1947 in view of the need of revision in keeping with progressive modern legislation. 15. Code Commission itself – A Code commission of five members wa s created by Pres. 48 dated Mar. The . 20. 5. Manuel Roxas through Exec. Th e Civil Code was finished on Dec.Sources of Philippine Civil Code 4. Family Code). (Pineda. Order No. customs and traditions vis-à-vis recent developments in the s ocial-cultural scene. . Order No. 227.Books of the Civil Code Book I – Person and Family Relations This was re-codified as Family Code of the Philippines embodied in Exec. The Family Code effectuates the long-felt r eforms and changes to the Civil Code provisions on Family relations consistent w ith Filipino values. 20 9 as amended by Exec. .Books of the Civil Code Book II – Property. This module is taken from the Civil Code of the Philippines from Articles 1 156 to 1422 inclusive. Ownership and its modifications. Book III – Different (Succession) Modes of Acquiring Ownership Book IV – Obligations and Contracts Book V – Special contracts The Civil Code begins with preliminary titles and ends up with the repealing cla use. Concept of Commercial Law The commercial laws. which determines their nature and their commercial fun ction. In order to determine whether a particular law or provision of la w is commercial. Vol. (Agbayani. excepting the Code of Commerce are designated by the legisl ator by any mark or sign. the Code of Comme rce should be principally considered. because it defines the acts and the person having a mercantile character. but they derive their mercantile character from their subject matter or t heir contents. it is necessary to first inquire if its purpose is to govern a relation pertaining to commercial matters and in this inquiry. 1 p 2) . all laws referring to merchants and t o commercial transactions are commercial in nature. Generally. BOOK ONE General BOOK TWO Special Commercial Contracts BOOK THREE Maritime Commerce FOUR Suspension of payments. Merchants and Commerce in BOOK . Bankruptcy and Prescription of Actions.Code of Commerce The Code of Commerce is only one of the remaining laws in relation to business that has been heavily modified and repealed by subs equent laws which originally divided into four books. The Negotiable Instrument Law which repealed principally the provisions of Promissory. 1. 2. The Corporation Code – which repealed principally the provision on sociedad/anonimas on Book Two and the Corporation law.Subsequent Repealing Legislation The following are among the important special laws which repealed either expressly or impliedly certain portions of the Code of Com merce. Notes and Bill of Exchange in Book Two . The Insolvency law. which repealed the provisions on Fire and Marine Insurance on books two and three. 4. which repealed the provisions on Commercial Houses in Book Two. 5.Subsequent Repealing Legislation 3. Insurance Law. which repealed the provisions on Suspension of payments and Bankruptcy in Book four. . The Securities Act. the Law on the Use of Duly Marked Bottles. Casks. Deposit and Guaranty in Book two. the Patent law. Agency. the Business Names Law. the General Bonded Warehouse Act. the General Banking Act. the Salvage law. Kegs. the Trademark law. in addition to the fo regoing special laws. The Rural Act. Loan. The New Civil Code which repealed the provisions on Partnership. there wee other laws and now form part of the Commercial l aws of the Philippines: The Warehouse Receipts law. Boxes. the Chattel Mortgage law.Subsequent Repealing Legislation 6. and the Law on Monopolies and Combination s. Carriage of Gods by Sea Act . Other legislation. Barrels. 7. the Copyright law. The Public Service Act. the Usury law. Sales. . and other Simil ar Containers. the Cent ral Bank Act. loans. transfers of non-negotiable credit s. deposit . comm ercial registries. commercial contracts on transportation overland. books and bookkeeping of commerce and general provisions rela ting to commercial contracts. transfers. Those contained in Book Two governing joint accounts. agency. b. and letters of credits but n ot those relating to partnership. Provisions of the Code of Commerce still in force.Subsequent Repealing Legislation 8. sales. except such portions thereof as have been repealed or modified by the New Civil Code and other legislation. a. Those contained in Book one governing merchants and commerce in general. (Agbayani. Those contained in Book Three governing maritime commerce but not those relat ing to marine insurance which have been repealed. pp3-4) . All the provisions in Book fou r are no longer in force as they have likewise been repealed. 1. c.Subsequent Repealing Legislation 8. Provisions of the Code of Commerce still in force. Vol. and b. he is a merchant: a. If he has legal capacity to engage in commerce.Subsequent Repealing Legislation 9. Some provision of the code of Commerce which are pertinent in our study in business in general: a. MERCHANTS – Merchants may be natural or juridical person: In the case of natural person. He habitually engage thereto . in 1. He is not subject to parent al authority. and 3. 2. It is organized in accordance w ith existing legislation and c. Its engaging in commerce is habitual. . It is a commercial and industrial company. it is a merchant: a. He has free disposition of his property. In the case of juridical person. If he has reached the age of twenty – one years.Subsequent Repealing Legislation A natural person has legal capacity to engage commerce. b. There must be continuity of repetition of c ommercial acts.Subsequent Repealing Legislation b. Habituality in engaging in commerce – Habituality in engaging in commerce is attained when there exists series of acts of commerce or commercial dealings. a single act may be deemed habituality in engaging in c ommerce in the way of the following acts: 1. However. Throwing open to the public a busin ess entity or establishment. . Where a foreign corporation appoints an agent as required by law. . newspaper. handbills. posters and similar mea ns of the opening of an establishment for commercial acts or dealings with the p ublic.Subsequent Repealing Legislation 2. 4 . Announcement through circulars. A series of acts consisting of investigating and preparations of project studi es implying an intention to engage in commerce and comes to reality. or 3. Those suffering the penalty of civil interdiction primarily because they are deprived of the right to mange and to dispose of their properties inter-vivos or during their lifetime. . Absolute Disqualifications – The following may not engage in commerce nor hold office or have any direct administrative or financia l intervention in commercial of industrial companies: 1.Subsequent Repealing Legislation c. 3. Those judicially declared insolent while they have not obtained their dischar ge. Those who in account of special laws or provisions cannot engage in comme rce like incapacitated persons or employees covered by the Civil Service law.Subsequent Repealing Legislation 2. . Subsequent Repealing Legislation d. and officials of the Prosecutor’s office in active service. Administrative. e xcept Municipal Mayors. municipal judge. . judges. e conomic or military heads of districts. provinces or post. 2. 1. Justices. municipal prosecuting attorney’s and thos e who temporarily discharge judicial or prosecuting duties. Relative Disqualifications – These are persons who cannot engage in commerce in places where they exercise their functions. 4. .Subsequent Repealing Legislation 3. Those who under special laws and provisions cannot trade in specified territory. 5. Stock and commercial brokers of whatever class. Those employed in the collection and administration of funds of the State app ointed by the Government except those who administer and collect under contract and their representative. Commercial Registry A commercial registry is a public office that takes charge of the registration o f merchants.Subsequent Repealing Legislation e. The purpose of a commercial registry is to furnish necessary information and reliable data to any interested party so as to promote and facilitate trade and commercial transaction. business associations. . vessels and documents of commercial importan ce. Books of Merchants 1. b. d. . Book or books for copies of letters or telegrams. and other books that may be required by special laws. A ledger. Merchants must keep the following books: a. Book of inventories and balances. c. A journal.Subsequent Repealing Legislation f. b. Record of all business transactions. Books of Merchants 2. Corporation are bound to keep: a. c. Minutes of all meetings of stockholders. Minutes of all meetings of directors. and Stock and transfer books.Subsequent Repealing Legislation f. . In case of partnership whose immovable property is contributed by any partner to a common fund. 2. In case of vessel of more than three (3) tons gross in use in Philippine waters. . In case of business names under the Business Names Law.Registration is compulsory: 1. 3. 5.Registration is compulsory: 4. In case of ship agent. with the Land 6. . In case of Transportation vehicles Office. In all other cases required by law. 4. Bureau of Domestic Trade – for registration of business names and merchants to avoid duplication of trade names. as well as shattel mortgage. . Local municipalities. 2. Office of Register of deeds – for registra tion all transaction affecting lands.Commercial Registries in the Philippines 1. cities or prov ince – for local permits and licenses. 3. Securities and Exchange Commission – for regi stration of partnership and Corporation. 6. trademarks and service marks. L and Transportation Office for registration of patents and designs as well as tra de names. trademarks and service marks. Intellectual property Office for registration of patents and design as well as trade names.Commercial Registries in the Philippines 5. 7. The MARINA (Marine Industry Authority) – for registration of vessels and other transaction affecting vessels. . Board of investmen t for registration of pioneer and registered enterprises and with corporations h aving foreign entity participation. 10. .Commercial Registries in the Philippines 8. Office of Air Transportation Administration for registration of aircrafts. 9. Bureau of Public Library – for registration of copyrights. Public Remedial Law – affords a remedy in favor of the State against the individual. Private Remedial Law – affords a remedy in favor of an individual against another individual. . like the civil procedure. like Habeas Corpus. like criminal procedure or in favor o f the individual against the State.Kinds of Procedural Law 1. 2. (Alver o V. The Rules of Court have the force and effect of law. dela Rosa. adequate and effective comp liance with the law. . which is a combination of rules pro mulgated by the Supreme Court for the easy. 76 Phil 428).Philippine Remedial Law Principally contained in the Rules of Court. orderly. Battung 63 Phil 1054) JUDICIAL POWER Includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable. (Lontok V. par.2) . body or tribunal vested with a portion of the jud icial power. (Const. Art. and to determine whether or not there has be en a grave abuse of discretion amounting to lack or excess of jurisdiction on th e part of any branch or instrumentality of the Government. Se c. VIII. 1.COURTS DEFINED – It is the entity. 4. 5. and Metropolitan / Municipal Trial Courts .Different Courts of Justice 1. 2. 3. Supreme Court Sandigan-bayan Court of Appeals Regional Trial Cour t. The other sources are also established by law. . the main sources are really Law and Contracts. It means that the debtor has the obligation while the creditor has its rights. On the sources of obligation. to do or not to do as a patrimonial obligation.Lesson 1: General Provisions on Obligation The definition of obligations establishes the unilateral act of the debtor either to give. OBLIGATIONS as defined by ARIAS RAMOS is a juridical relation whereby a person (called the creditor) may demand from anothe r (called the debtor) the observance of a determinate conduct. L. may obtain satisfaction from the assets of the latter.ART. J ustice J. in case of b reach. 1156. (Approved by Mr. and. Reyes) . B. to do or not to do. An obligation is a juridical necessity to give. the economic equivalent obtained at the patrimony of a debtor.Characteristics of patrimonial obligations: • • • They represent an exclusively private interest.The obligations referred to in our manual is a patrimonial obligations that is. 1. those obligations with pecuniary value or assessable in terms of money. 1.Meaning of Juridical Necessity – it means the rights and duties arising from obligation are legally demandable and the courts of justice may be called upon through proper action to order the performance. . They create ties that are by nat ure transitory. They exist a power to make effective in case of non-fulfillment. 1. Example – Gaya bought refrigerator from Tito but Gaya did not pay the refrigerator . Gaya still did not pay. Tito can sue Gaya in Court either to demand payment or for recovery of the refrigerator. . Rules of court ).Action means an ordinary suit in court of justice by which one party prosecutes another for the enforceable or protection for a right or a prevention or redress of a wrong ( Sec. If after demand. who is bound to perform the prestation. c) An object or the prest ation which may consist in the act of giving.3. who has the power to demand the prestation. It is the legal tie which constitutes the devi se of obligation… the coercive force which makes the obligation demandable. d) T he vinculum juris or the juridical tie between the two subjects by reason of whi ch the debtor is bound in favor of the creditor to perform the prestation. doing or not doing something. . b) A passive subject. It is the legal tie which constitutes the source of obligation—the coercive force which makes the obligation demandable. Essential requisites of an obligation – a) An active subject. known as the creditor or oblige. known as debtor or obligor. Gaya is the passive subject or d ebtor and Tito is the active subject or creditor. to do Creditor Or Obligor or not to do or Obligee Illustration: G aya enters into a contract of sale with Tito who paid the purchase of a GE refri gerator. Gaya did not deliver the refrigerator. .Juridical Tie Debtor To give. The object or prestation is th e GE refrigerator and the obligation to deliver is the legal tie or the vinculum juris which binds Gaya and Tito. the delivery of the refrigerator. the obligation of the debtor to fulfill or comply his commitment. delicts or quasi-delic ts. then Tito becomes the debtor who is bound to pay whil e Gaya is the creditor who has the right to demand the prestation. if Gaya.This is also known as a unilateral obligation. 4. . delivered the refriger ator and Tito did not pay. On the other hand. while obligations have other sources like law.Distinctions between Obligations and Contracts: Contract is the only one of the sources of obligation. All contracts are obligations while not all obligations are contracts. quasi-contracts. Contract is a bilateral obligation while obligation is a unilateral obligati on. that is. in this case. Civil can enforced by court action of the coercive power of public authority.5. . Natural – the fulfillment cannot be compelled by court action but depends on the g ood conscience of debtor. Natural Obligation derives their binding effect from equity and na tural justice. Civil obligations as distinguished from Natural obligations – Civil obligations derive their binding force from positive law. 1158. and shall be regulated by the pre cepts of the law which establishes them. (1090) ART. and as to what has not been foreseen. 1157. (1089a) ART. Obligations arising from contrac ts have the force of law between the contracting parties and should be complied with in good faith. Quasi-contracts. 1159. Acts or omis Obligations derived from law are not presumed. Contracts. b y the provisions of this Book. Only those expressly determined i n this Code or in special laws are demandable. and Quasi-delicts. sions punished by law. (1091a) .ART. Obligations arise from: Law. Title XVIII of this Book. Preliminary Title. (1093a) . ART. Civil obligations arising from crim inal offenses shall be governed by the penal laws. and of the pertinent provisions of Chapter 2. and by special law. o n Human Relations. (1092a) A RT. Obligations derived from quasi-delicts shall be governed by the provis ions of Chapter 2. and of Title XVIII of this Book. Title XVII. 1162.ART. of this Book. 1161. Obligations derived from quasicontracts shall be subject to the provisions of Ch apter 1. subject to the provisions of article 2177. 1160. regulating damages. . 291. which means that obligations arising form law are not presumed and that to be demandable must be clearly provided for. it is the duty of every person having an income to pay taxes.Source of Obligations 1. New Civil Code) And under the National Internal Revenue Code. LAW as a source of obligations – The provisions of Art. Examples: It is the duty of the Spouses to support each other. express ly or impliedly in the law. 1158 refers to the legal obligations or obligations impos ed by specific provisions of law. (Art. 2. 1305. morals. thus. NCC. Although contracts have the force of law. . Obligations arising from contracts have the force of law between the c ontracting parties because that which is agreed upon in the contract by the part ies is the law between them. provided that are n ot contrary to law. they may deem convenient. For examples: A contract of lease was executed between Gaya as the lessee and Tito as the lessor for the rent of an apartment. Contracts are with the limitations imposed by law in Art. 1159). public order or public policy. (Art. it does not mean that contract are ove r and above the law. good custom. Source of Obligations CONTRACT as a source of obligations – Contract as defined in Art. 1 306. the agreement should be complied with in good faith. NCC is the meeting of minds between two person whereby one binds himself with respect to t he other. it states that the contracting parties may establish such stipulations . clauses terms and conditions as. Quasi-contract is the juridical relation resulting from a lawful. .QUASI-CONTRACTS as a source of obligations The ‘quasi’ literally means ‘as if’. (Art. there is no consent as th e same is implied by law. NCC) Contracts and quasi-contracts distinguished: in a contract.Sources of Obligations 3. contract is a civil obligation while quasi-contract is a natural obligation. consent is essential requirement for its validity while in quasi-contract. voluntary and unilateral act which has for its purpose the payment of indemnity to the end that no one shall unjustly enrich or benefited at the expense of anot her. 2142. 000.00 excess because there was payment by mistake.00. 2. Negotiorum gestio (management of another’s property) It is the voluntary management or administration by a person of the abandoned business or property of another without any authority or power from the latter. (Art. Arvin paid P2. NCC) ExampleVictor. 2144.2 Kinds of Quasicontracts 1. Solutio Indebiti (Payment by mistake) It is the juridical relation which arises when a person is obliged to return something received by him through error or mi stake.00. Ian has the obligation to return the P1. Ramon. 000. When Victor returns. a wealthy landowner suddenly left for abroad leaving his li vestock farm unattended. . By mistake. 0 00. a neighbor of Victor managed the farm thereby in curring expenses. ExampleArvin owed Ian the sum of P1. It is bases on the principle that no one shall enrich himself at the expense of another. he has the obligation to reimburse Ramon for the expenses incurred by him and to pay him for his services. Mario shall also pay for damages (indemnification) suffer ed by Rito. Reparation – which is the payment by the offender of the value of the object of the crime. Illustration: Mario was convicted and sentenced to imprisonment by the Court for the crime of theft. In addition to either rest itution or reparation. of Rito. If restitution is no longer possible. Indemnification – the consequential da mages which includes the payment of other damages that may have been caused to t he injures party. In addition to whatever pena lty that the Court may impose.Sources of Obligations 4. for Mario t o pay the value (reparation) of the gold wrist watch. DELICTS or acts or omissions punished by law as a source of obligations Acts or omission punished by law is known as Delict or Felony or Crime. the gold wrist watch. Mario may also be ordered to return (restitution) the gold wrist watch to Rito. when such obje ct cannot be returned to the injured party. . the crimina l act gives rise to civil liability as it caused damage to another. While an act or omission is felonious because it is punished by law. Civil liability arising from delicts: Restitution – which is the restoration of or returning the object of the crime to the injured party. t here being fault of negligence. 2176) ExampleIf Pedro drives his car negligently and because of his negligence hits Jose. inflicting upon him physical injuries. who is walking on the sidewalk of the street. Such faul t of negligence. is obliged to pay for the damage done. Then Pedro becomes liable for damages based on quasi delict. (Art. . QUASI-DELICTS as a source of obligations Concepts of Quasi-Delict – Quasi-delict is one where whoever by act or omission causes damage to another.Sources of Obligations 5. if there is no pre-existing contractual relation between the pa rties. Reparation – which is the payment by the offender of the value of the objec t of the crime. Civil liability arising from delicts: Restitution – which is the restoration of or returning the object of the crime to the injured party. DELICTS or acts or omissions punished by law as a source of obligations Felony or Crime. . Acts or omission punished by law is known as Delict or While an act or omission is felonious because it is punished by law. the crimina l act gives rise to civil liability as it caused damage to another. when such object cannot be returned to the injured party.Sources of Obligations 6. There must be damage or injury caused to another.Requisites of a quasidelicts There must be fault of negligence attributable There is no pre to the offended. . -existing contract. a failure to perform that duty. whereby such other person suffers injury. (Judge Cooley) Test of Negligence – For the existence of negligence. the following are necessary: a duty on a party of the defendant to protect the plaintiff from the injury of which the letter complains.Negligence Defined – is the failure to observe for the protection of the interests of another person. a nd an injury to the plaintiff through such failure. that degree of care. precaution and vigilance which the circumstances justly de mand. . Culpa contractual or negligence in the performance of a contract. . also known as quasi-delict or negligence as a source of obligation.Kinds of Negligence Culpa Aquiliana. a passenger truck and private automobile collided. although he was not in the car but which was being driven by his 18 year old son and in which members of his family were then riding. 56 Phil 177While trying to pass each other on a narrow bridge. The court found both drivers negligent. there was Culpa contractual. a passenger in the truck. The owner of the passenger truck was made a defendant. while as again st the owner of the car there was culpa Aquiliana. although a driver was driving the truck and the owner of the car was also made a defendant. basing basing the liability of the owner of the truck to the plaintiff on the contract of carriage. Gutierrez. and the plaintiff. As against the owner of the truck. while t he liability of the owner of the car was based on Quasi-delict of the Civil Code .An illustration showing this difference is founding Gutierrez vs. . was injured. in addition to the right granted him by article 1170. may compel the de btor to make the delivery. (1904a) The creditor has a right to the fruits of the thing from the time the obligation to deliver it ari ses. However.LESSON 2: NATURE AND EFFECT OF OBLIGATIONS ART. unless the law or the stipulat ion of the parties requires another standard of care. ART. 1165. Every person obliged to give something is also obliged to take care of it with t he proper diligence of a good father of a family. he shall acquire no real right over it until the same has been del ivered to him. 1664. . the c reditor. 1163. (1905) When what is to be delivered is a determinate thing. ART. (1097a) . he shall be responsible for any fortuitous event until he has effected the deliver. If the obligor delays. (1906) ART. even though they may not have been mentioned. 1166.If the thing is indeterminate or generic. The obligation to give a determinate thing includes that of delivering all its a ccessions and accessories. he may ask that the obligation be complied with at the expense of the debtor. or has promised to deliver the same thing to two or more persons who do not have the same interest. . It means the ordinary diligence that a p rudent man would exercise in taking care of his own property taking into conside ration the nature of the obligation.Obligations of the Debtor To Give a determinate thing1. To preserve or take care of the thing with the proper diligence of a good father of a family. like a person who is obliged to deliver a determinate horse to another should. pending its de livery. preserve it by taking care of the same as if the horse is his own. of the time and of the place. plants on lands without he intervention of man. prices of leases of lands and other similar incom e. rice.Obligations of the Debtor To Give a determinate thing To deliver the object or thi ng when the obligation to deliver arises.derived by virtue of juridical relati ons. tress. E. vegetables. sugar cane. E.spontaneous product of the soil. . Natural . Fruits of the thing if any. rents of a building. E. Kinds of fruits: Natural . Civil . Industrial . the young and other products of animal.g. industrial or civil. including: 1.g.produced by lands of any king through cultivation and labor.g. Example Accret ion which refers to the gradual and addition of sediment to the shore by action of water.Obligations of the Debtor To Give a determinate thing2. . Accessions and accessori es. or key to a car. Example Radio attached to a car. Accession – is the right pertaining to the owner of a thing over its products and whatever is attached thereto either naturally or artificially. Accessories – are those things which are joined attached to the principa l object as ornament or to render it perfect. A has right to the colt. NCC) When c reditor acquire a right to the thing to be delivered and its fruitsThe creditor has a right to the fruits of the thing from the time the obligation to deliver i t arises. . No date nor condition is stipulated for delivery of the h orse. B does not acquire ownership over it. 1164. (Art. Before delivery. 1170. he shall acquire no real right over it until the same have be en delivered to him. if B has n ot paid the horse. To be liable for damages in case of breach of obligation (Art. However.Obligations of the Debtor To Give a determinate thing3. NCC) Example – a binds himself to sell his horse to B for fro P10. Later. the horse gave birth to a colt. 000. Definition of terms: 1. Determinate thing – a thing is determinate when it is particularly designated or physically segregated from all others from lass. NCC) 2. 1460. 1460. 1174. Indeterminate or generic thing – A thing is it refers to a class or thing or genus and cannot be designated with ity. Fortuitous Events – those events which could een or which though foreseen were inevitable. NCC) 3. (Art. NCC) the same c generic when particular not be fores . (Art. (Art. ( 1098 ) . Furthermore. it may be decreed that what has been poorly done be undone. If a person obliged to do something fails to do it. 1167.Art. the same shall be executed at his cost. This same rule shall be observed if he does it in contravention of the tenor of the obligation. The creditor has the right to secure the s ervices of third person to perform the obligation at the expense of the debtor u nder the following instances: When the debtor fails to do the obligation.Obligation of the debtor To Do Being a personal positive obligation. . When the debtor performs the obligatio n but contrary to the tenor. or When the obligor poorly performs the obligation. it shall also be undone at his expense. If it is impossible to undo what was done. Should A construct a fenc e in violation of the agreement. When the obligation consists in not doing. the remedy of the injured party is for an action of damages.ART. can bring an action to have the fence remove at the expense of A. It was stipulated that A would not construct a fence in a cert ain portion of his land adjoining that land sold by B. the obl igee can ask the debtor to have it undone. and the obligor does has been forbidden him. ExampleA boug ht a land from B. . 1168. (1099a) Obligation of the Debtor NOT To Do – This is negative personal obligation which is consisting of an obligation. of no t doing something. B. If the debtor does what has been forbidden him to do. However. From the moment one of the parties fulfills his ob ligation. or ( 3 ) When demand would be useless.judicially demands from th eme the fulfillment of their obligation. 1169. or ( 2 ) When from the nature and the circumstances of the obligation it appears that the destination of the time when the thing is to be delivered or the service is to rendered was controlling motive for the est ablishment of the contract. Those oblige to deliver or to do something incur in delay from the time the obligee judicially or extra . n either party incurs in delay if the other does not comply in a proper manner wit h what is incumbent upon him. the demand by the creditor sha ll not be necessary in order that delay may exist: ( 1 ) When the obligation or the law expressly declares. ( 1100a ) . delay by the other begins. as when the o bligor has rendered it beyond his power to perform. In reciprocal obligations.ART. The debtor incurred delay if: The debtor fails to perform his obligation when it falls due. Is Gaya already on delay on June 20. Gaya failed to delivered on the agreed date. only when Tito makes a judicial or extra-judicial demand and from s uch date of demand when Gaya is on default or delay. Example – Gaya obliged herself to deliver a determinate horse to Tito on June 20. this year. and A demand has been made by the creditor judicially or extra judici ally.Delay ( Mora ) means a legal delay or default and it consists of failure discharge a duty resul ting to one’s own disadvantaged. . there are instances when the demand by the Creditor is not necessary to place the debtor on delay: 1. An agreem ent to the effect that fulfillment or performance is not made when the obligatio n becomes due.However. default or delay by the debtor will automatically arise. . When the obligation expressly so provides The mere fixing of the period is not sufficient to constitute a delay. and demand is not necessary in order t hat the taxpayer is liable for penalties. . Even without demand. Gaya factor in the fulfillment of the obligation. When the law so provides The express provision of law that a debtor is in default. Gaya binds herself to sew on her wedding date. When time is of the essence Because time is the essential le. taxes mu st be paid on the date prescribed by law. Gaya did on. 3. For instance.2. Examp the wedding gown of Maya to be used by the latter not deliver the wedding gown on the date agreed up will be in delay because time of the essence. then the seller is o n delay.In a reciprocal obligation. in a contract of sale.4. from the moment one of the parties fulfills his obligation.When demand would be useless When the debtor cannot comply his obligation as when it is beyond his power to p erform. then delay by the buyer begins and vice versa. delay to the other begins For instance. 5. . demand is not necessary. Like when the object of the obligation is lost or destroyed through the fault of the debtor. if the seller delivers the object to the bu yer and the buyer does not pay. i f the buyer pays and the seller did not deliver the object. Compensatio morae – delay both parties in a reciprocal obligation.Kinds of delay – Mora solvendi – delay on the part of the debtor. . like when the creditor unjustifiably refused to accept payment at the time it wa s due. Mora accipiendi – delay on the part o f the creditor. is in delay. according to the circumstances. (1130) . and those whoin any manner contravene the tenor thereof. Those who in the performance of their obligations are guilty of fraud . but such liability may be regulate d by the courts. (1120a) ART. or delay. Responsibility arising from negligence in the performance of every king of obligation is also demandable. 1172. (1101) ART. Any waiver of an action for future fraud is void. are liable for damages. Responsibility arising from fraud is demandable in all obligations. negligence.ART. 1171. 1170. that which is expected of a good father of a family shall be required. paragraph 2. the provisions of articles 1171 and 2201. shal l apply. When neglige nce shows bad faith. (1104a) . 1173. If the law or contract does not state the diligence of which is to be o bserved in the performance.ART. of the time and of the place. The fault or negligence of the obligor consists in the omission of th at diligence which is required by the nature of the obligation and corresponds w ith the circumstances of the persons. of the time and of the place. that is. 1173. (Art. 2. NCC) . The fraud referred to is incidental fraud. fraud incident to the performance of a pre-existing obligation. Fraud (dolo) – is the intentional deception made by one person resulting in the injury of another.Sources of liability for damages: 1. Negligence (culpa) – consists in the omission by the obligor of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the person. there is contravention of the tenor of the obligation. like when a landlord fails to maintain a legal and peaceful possessio n of a tenant being leased by the latter because the landlord was not the owner and the real owner wants to occupy the land. In contravention of the tenor of the obligation – refers to the violation of the terms and conditions or defects in the performance of the o bligation.Sources of liability for damages: 3. delay will occur. 4. . Delay (Mora) – like when there has been judicial or extrajudicial demand and the debtor does not comply his obligation. Delay (Mora) – like when there has been judicial or extrajudicial demand and the debtor does not comply his obligation. delay will occur. . In contravention of the tenor of the obligation – refers to the violation of the terms and conditions or defects in the performance of the o bligation. there is contravention of the tenor of the obligation. like when a landlord fails to maintain a legal and peaceful possessio n of a tenant being leased by the latter because the landlord was not the owner and the real owner wants to occupy the land. 4.Sources of liability for damages: 3. (Art. 1189) Deterioration with the fault of debtor .Other sources of liability for damages – Loss of the thing with the fault of debtor. . if the defendant acted with gross negligence. Like in quasi-delicts. social humiliation and similar injury. moral shock. Exemplary damages – imposed by way of example or correction for the public good. 2. NCC) . wounded feeling. besmirched reputation. Moral damages – include physical sufferings. (Art. serious anxiety. mental anguish. 2231.Kinds of Damages 1. fright. 2221. (Art. NCC) 4. which has been violated by the defendant. be proved with certainty. (Black Law Dict.Kinds of Damages 3. Pecuniary loss means loss of money. Nominal damages – are adjudicated in order that a right of the plaintiff. may be vindica ted or recognized and not for the purpose of indemnifying the plaintiff for any loss suffered by him. from the nature of the case. P. Temperate or moderate damages – are more than nominal but less than compensatory damages may be recovered when the courts find s that its amount cannot. 1131) . or of something by which money or something of money value may be acquired. Kinds of Damages 5. For injury. or a stipulation. one is entitled to an adequate compensation o nly for such pecuniary loss suffered by him as he has duly proved. (Art. 2199. Actual or compensatory damages – except as provided by law. to the plaintiff’s business standing or commercial cred it. N CC) Damages may be recovered: For loss or impairment of earning capacity in cases of temporary or permanent pe rsonal injury. . Kinds of Damages 6. NCC) . (Art. 2226. Liquidated damages – are those agreed upon by parties to a contract to be paid in case of breach thereof. Dolo – there is deliberate intent to cause damage or injury. 4. Dolo – fraud must be clearly proved.Distinguish Fraud (Dolo) from Negligence (culpa) 1. Dolo – liability cannot mitigated by the courts. . 2. Culpa – presumed from breach of contractual obligation. Culpa – may be reduced according to circumstances. Culpa – waiver may in some cases be allowed. Culpa – ther is no deliberate intent to cause damage. 3. Dolo – waiver of liability of future fraud is void. or which. were inevitable (1105a) . no person shall be responsible for those events which could no t be foreseen. Except in cases expressly specified by the law.ART. or when the nature of the obligation requires the as sumption of risk. though foreseen. 1174. or when it is otherwi se declared by stipulation. etc.R. and the obligor did not take pa rt as to aggravate the injury of the creditor. Fortuitous event proper are acts of God such as volcanic eruption. G. robbery. is now similar with force majuere or acts of man such as conflagr ation.Requisite necessary to constitute fortuitous event The failure of the debtor to comply with the obligation must be independent from the human will. 42926) . etc. earthquake. 1.A. war.Fortuitous even – is an event which cannot be foreseen which though foreseen is inevitable.C. The occurrence makes it impossible for the debt or to fulfill the obligation on a normal manner. (Vasquez v. l ightning. the ca r was struck by lightning and was totally destroyed. Before the arrival of the period.2. . 1998. Gaya cannot be held respons ible for the destruction of the car. hence her obligation to deliver is extingui shed. 30. As a general rule. no person shall be held responsible for fortuitous events Example – Gaya obliged herself to deliver a determine car to Tito on Dec. NCC) The debtor has proved to deliver the s ame thing to two or more persons who do not have the same interest. ( Art. 1169.Exceptions (when the person is responsible despite the fortuitous even). . The debtor is guilty of default or dela y.When the law expressly so provides. NCC ) The thing to delivered is generic. An example of this is a contract of insurance. such as: The debtor is guilty of fraud. negligence or in contravention of the tenor of the obligation. b. (Art.When declared by stipulation. 1170. a. 1165. c.NCC ) The debtor is guilty of concurrent negligence. ( Art. When the nature of obligation requires the as sumption of risk. Kinds of interest 1.ART. 905 suspends the ceilings in the usury law. 4. Lawful Interest *The rate which is agr eed upon by the parties but which rate is within the rate authorized by law. Usurious Interest *The rate which is in excess of the maximum rate of interest a llowed by law. Usurious transaction shall be governed by special laws. Legal Interest *The rate which is prescribed by law. Note: C.B. Conventional *The rate which is agreed upon by the parties. 2. Hence. 1175. 3. parties can agree as to the rate of interest. . Circular No. shall likewise raise the presumption that such install ments have been paid.ART. The receipt of a later installment of a debt without reservation as to prior installments.” . 1176. (1110a) Presumption means “the inference as to the existence of a certain fact which if not contradicted is considered as true. The receipt of the principal by the creditor without reservation with respect to the interest. shall give rise to the presumption that said interest has been paid. it is considered as a fa ct. without reservation as to the interest. . whereby one wh ich can be contradicted by presenting proof to the contrary while a conclusive p resumption does not admit any evidence or proof.The presumption in the above article is a disputable presumption. Receipt of the principal. hence. Presumption under this article: 1. 2. When the creditor issues a receipt of a later installment of a d ebt without reservation as to prior installment is presumed to have been paid. shall give rise to the presumption that the said interest ha s been paid. ART. The creditors. may exercise all the rights and bring all the actions of the latter for the same purpose. after having pursued the property in possession of the debtor to satisfy their claims. such as 3. are inherently personal to him. 2. 1177. to exercise all the rights and actions of the debtor. except. and of their rights. they may also impugn the acts which the debtor may h ave done to defraud them. except such as are exempt by law from execution. creditors have the followin g successive rights: 1. to levy by attachment and execution upon all the property of the debtor. (1111) Rights of Creditors – In order to satisfy their claims against the debtor. save those which are inherent in his person. to a sk for the rescission of the contracts made by the debtor in fraud . (1112) As a rule.When the obligation is purely personal in nature. if there has been no stipulation to the contrary.When the law so provides. . all rights acquired in virtue of an obligation are transmis sible. all rights acquired in virtue of an obligation are transmissible. except in the following cases: 1. 1178. Subject to the laws. 3.ART. When the parties stipulate otherwise – by agreement of parties that the rights acq uired by them will not be transmitted to any other person. 2. LESSON 3: Kinds of Obligations Classification of Obligations: The Civil Code classifies obligations primarily in to: (PU CO PE ALFA JOS DIP) 1.Pure; 2.Conditional; 3.With a period; 4.Alternativ e; 5.Facultative; 6.Joint; 7.Solidary or several or in solidum; 8.Divisible; 9.I ndivisible; 10.With a penal clause. Other provisions of the Civil Code, however, impliedly admit other classes of obligations, to wit: a.) b.) c.) d.) Unilateral and bilateral; determinate and generic; legal, conventional and penal; real and personal Section I. – Pure and Conditional Obligations ART. 1179. Every obligation whose performance does not depend upon a future or u ncertain event, or upon a past event unknown to the parties, is demandable at on ce. Every obligation which contains a resolutory condition shall also be demanda ble, without prejudice to the effects of the happening of the event. (1113) 1. Pure Obligation – when the obligation contain no term or condition whatever upon which depends the fulfillment of the obligation contr acted by the debtor. It is immediately demandable and there is nothing to exempt the debtor from compliance therewith. Example – Gaya obliged herself to pay her loan of P1,000 to Tito on demand. Instances when obligations immediately demandable: 1.It is a pure obligation; 2.I t is subject to a resolutory condition; 3.It is subject to resolutory period. 2. Conditional Obligations – one which is subject to a condition of one whose performance depends upon a future or uncertain events or upon past event u nknown to the parties. ART. 1180. When the debtor binds himself to pay when his means permits him to do so, the obligation shall be deemed to be one with the pe riod, subject to the provisions of article 1197.(n) Example – A promissory note st ates that “This is to acknowledge receipt of sum of One thousand Six Hundred pesos (P1, 600.00) and I am to pay my debt to Arvin as soon as possible or as soon as I have the money.” It was held that the conditional obligation is void, because t he collection would be impossible, the remedy of the creditor is to ask the Cour t to fix the period of payment, thus, it becomes an obligation with a period. ART. 1181. In conditional obligations, the acquisition of rights as well as the extinguishment or loss of those already acquired, shall depend upon the happenin g of the event which constitutes the condition. (1114) ART. 1182. When the fulfi llment of the condition depends upon the sole will of the debtor, the conditiona l obligation shall be void. If it depends upon chance or upon the will of a thir d person, the obligation shall take effect in conformity with the provisions of this code. (1115) ART. 1183. Impossible conditions, those contrary to good custo ms or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is n ot affected by the impossible or unlawful condition shall be valid, The conditio n not to do an impossible thing shall be considered as not having been agreed up on. (1116a) ART. If not time has been fixed. The condition that some event happen at a determinate time shall exti nguish the obligation as soon as the time expires or if it has become indubitabl e that the event will not take place. 1185. The condition that some event will not happen at a determinate time shall render the obligation effectiv e from the moment the time indicated has elapsed. (1117) ART. 1186. The condition shall be deeme d fulfilled when the obligor voluntarily prevents its fulfillment. bearing in m ind the nature of the obligation. the condition shall be de emed fulfilled at such time as may have probably been contemplated. 1184. (1118) ART. or if it has become evident th at the event cannot occur. (1119) . if Tito marries Gaya. Ian is now obliged to r eturn the car. The obligation is suspended and not yet demandable. Ian’s right over the car is extinguished upon his passing the CPA board. Suspensive and Resolutory Suspensive – the happening of the condition gives rise to an obligation. The obligation to lend is immediately demandable. The obligation is only demandable upon the happening of the condition that is. Resolutory – the happening of the condition extinguishes the obligation already existing. Example: Arvin binds himself to lend his only car to Ian until the latter passes the CPA Board.Kinds or classifications of condition: 1. . Example: Maya binds herself to deliver a determinate car to Tito if he marries G aya. This kind of condition is void. . Mixed – is one which depends partly upon the will of third person and partly upon chance Example: Vincent promise to give Victor a new Toyota Car if Victor will be able to play with and beat Karpov in a game of chess. Example: Arvin Promise to give his only parcel of land to Maya if he decides to leave for the United States. This is mixed condition. Casual – is one the fulfillment of which depends upon chance. Casual and Mixed Potestative – is one the fulfillment of which depends upon the sole will of the debtor.Kinds or classifications of condition: 2. that i s Karpov willingness to play chess with Victor and the latter’s winning over Karpo v. Potestative. Example: Mario agrees to give Maria a determinate car if Maria’s only racing horse will win the sweepstake race. Example: Contrary to law – Pedro agrees to give Ernesto P100. good custom or public policy. 3. 1.000 if Ernesto will kill Mario . .Kinds or classifications of condition: 3. 2. Possible and Impossible Impossible condition is divided into 2: a) Physical Impossibility – the condition imposed is not capable of being performed p hysically. Reyes without benefit of marriage. Contrary to publ ic policy – Maria agrees to employ Grace in her company if Grace will not join a l abor union. Contrary to good custom – Santos binds himself to give Maria a gold wrist watch if she will cohabit with Mr. Example: Grace will give Christine a gold necklace if she swims across the Pacific Ocean. b) Illegal Impossibility – when the condition imposed is contrary to law. 2001.Kinds or classifications of condition: 4.) the time indicated has elapsed. the obligation becomes demandable. 19. 1185. or b. Positive and Negative: A Negative condition is one where some event will not hap pen at a determinate time. 19.) it has become evident that the event cannot occur (Art. if Jason h as not married Helen until Dec. If Jason married Helen within the prescribed time. NCC) Example: Victor will give Jason a car if he will not marry Helen until Dec. either a. . the obligation of Victor is exti nguished. 2001 or if Helen has died within the prescri bed time without having married to Jason. 1183. Divisible and Indivisible Divisible – that part of obligation which is not affe cted by impossible or unlawful condition shall be valid (Art.00 if Y furnishes X with information as to the whe reabouts of Z and another sum of P2. Express and Implied . NCC) ExampleX promis e to pay Y the sum of P1. 000.00) is v oid because only the latter is affected by the condition.00) is valid while the second part (P2. 000.Kinds or classifications of condition: 5.00 if Y kills Z. 000. 000. in the obligation. the first part (to pay P1. 6. (1120) . the courts shall determine. the retroactive effect of the condi tion that has been complied with. shall retroact to the day of the constitution of the obligatio n. Nevertheless.ART. when the obligation imposes reciprocal prestations upon the par ties. in each case. the fruits and interests during the pendency of the condition shall be dee med to have been mutually compensated. the debt or shall appropriate the fruits and interests received. unless from the nature a nd circumstances of the obligation it should be inferred that the intention of t he person constituting the same was different. If the obligation is unilateral. In obligations to do and not to d o.The effects of a conditional obligation to give. once the condition ha s been fulfilled. 1187. 1999 because B’s right over the land retroacts to the date when the obligation was constituted. 1999. he is entitled to the land eff ective Jan. 1. 1999 A agreed to give B a parcel of land if he passes the May. 1999 C PA exams.Once the condition is fulfilled. . Example – On Jan. 1. If B passes the CPA exams in May. the effects of the Effects of conditional obligation to give: conditional obligations shall retroact to the day of the constitution of the obl igation and not on the date when the condition was fulfilled. Example: A agrees to sell and B agrees to buy A’s parcel of land if B passes the M ay. The following rules shall govern: 1.As to the fruits and interest – The effect of conditional obligation to give. the obligation becomes demandable. do not retroact to the date of the constitution o f the obligation.the fruits and interest during the pendency of the condition shall be deemed to have been m utually compensated. If B passes the May. 1999 CPA exams. In reciprocal obligation (like a contract of sale) . B is entitled to all the interests that his money (with which to pay A) may earn while A is entitled to the fruits which the parcel of land may have produced during the pendency of the condition. 1999 CPA Board. . as a rule. A is entitled to the fruits wh ich the land may produce. Example – X agreed to give Y a parcel of land if Y passes the CPA Board in May. unless a contrary intention appears. Pending the happening of the condition. In unilateral obligation – the debtor shall appropriate the fruits and interests received during the pendency of the condition unless a contrary intention appears. A will deliver only the parcel of land if the conditio n is fulfilled.2. . 19 99 exams. . 1188. The creditor may. The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition (1121a) Preservation of Creditor’s Right – The action for the preservation of the creditor’s right may have for their objecti ves: 1.ART. bring the appropriate actions for the preservation of his right. before the fulfillment of the condition. To prevent the loss or deterioration of the things which are the objects of the obligation by enjoining or restraining acts of alienation or destruction by the debtor himself or by third person. To prevent concealment of the debtor’s properties which constitute the guaranty in case of non-performance of the obligation. 4.Preservation of Creditor’s Right – 2. To compel the acknowledgement of the debtor’s signature on a private document or the execution of proper public document for registratio n so as to affect third person. . 3. To demand security if the debtor becomes insolvent. 7.Preservation of Creditor’s Right – 5. To interrupt the period of prescription by actions a gainst adverse possessors of the things which are objects of the obligation. To register the deeds of sale or mortgages. p. (Lawyer’s jo urnal. 6. 47) . To set aside fraudulent aliena tion made by the debtor. 1951. to preserve his right over the parcel of land. From the time the obligation was constitut ed and pending the happening of the condition (passing the CPA Exams) Dennis may cause the annotation of the condition in the certificate of title in the Regist er of Deeds where the land is located. Raul obliged himself to sell a parcel of land to Dennis if he p asses the CPA exams in October. . 1999. 1999. 1. Paragraph I of the above article authorizes the creditor to take any appropriate actions for the preservation of creditor’s right during the penden cy of the condition: Example: On Jan. The debtor paid the creditor before the fulfillment of the condition. the following requisites may be p resent: 1.Paragraph II in order that debtor may recover what he has paid by mistake. 1998. . 000 to Santos. 2. 30. Example – Pedro obliged himself to pay Santos P20. It turned out however that it was a Cebu airline that crushed. The action to recover what was paid by mistake should be made before the fulfillment of the condition. during the pendency of the condition. 000 if a PAL plane crashes at Cebu before De c. Pedro may recover the amount paid to Santos by mistake for the reason that the condition has not yet been fulfilled. a pl ane crushed in Cebu. Pedro honestly and believing that the condition was fulfill ed paid the P20. After the obligation was constituted and before Dec. Thus. Payment ma de by debtor was through mistake and error. 30. 1. 1998. 1189. the creditor may choose between the rescission of the obligation and its fulfillment. If it deteriorates thr ough the fault of the debtor. it is understood that the thing is lost when it perishes. he shall be ob liged to pay damages.ART. or goes out of commerce. the improvement shall inure t o the benefit of the creditor. If it is improved at the expense of the debtor. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give. or by time. the following rul es shall be observed in case of the improvement. with indemnity for damages in either case. or disappears in such a way that its existence is unkno wn or it cannot be recovered. h e shall have no other right than that granted to the usufructuary. the impairment is to be borne by the creditor. When the thing deteriorates without the fault of t he debtor. loss or deterioration of the th ing during the pendency of the condition: 1) 2) 3) 4) 5) 6) If the thing is lost without the fault of the debtor. the obligation shall be ex tinguished. If the thing is lost through the fault of the debtor. . I f the thing is improved by its nature. If during the pendency of the co ndition the car was lost through fortuitous event without the fault of Reyes. deteriorati on or improvement of the thing. he shall be liable for damages upon the fulfillment of the co ndition.These rules apply only to obligation to give a determinate or specific thing subject to a suspensive condition in case of loss. th e obligation to deliver the car is extinguished even if the condition is fulfill ed later. the current year. In case of loss of the thing a) If the thing is lost without the fault of the debtor. If in the example above. If the thing is lost through the fault of the debtor. 1. he shall be obli ged to pay damages. the obligation shall be ex tinguished. the specific car was lost through t he fault of Reyes. Example – Reyes obliged himself to give Santos a determinate car if he passes the CPA Exams in Oct. b) . It is understood that the thing is lost: a) When it perishes (as when a house is burnt to ashes) a) When it goes out of commerce (as when the object before is unprohibited becomes prohibited) b) When disappears in such a way that its existence is unknown (as when a particular car has been missing for some time) c) When it disappears in such a way that it cannot be recovered (as when a particular diamond ring is dropped in the middle of the Atl antic Ocean). . . after the fulfillment of the conditio between the rescission of the obligation or its fulfillment. without the fault of the debtor. If the condition is fulfilled. Ian will bear the impairment. with indemnity f damages in either case.2. or the thing deteriorates. the car was partially damaged by flood. without the fault on the part of Arvin . During the pendency of the condition . through the fau of the debtor. the impairment is to be bor ne by the creditor. during the pendency of the condition. b) If lt n. Example – Arvin obliged himself to give Ian a determinate Toyo ta car if Ian passes the October CPA Exams. When the thing deteriorates a) When the thing deteriorates during the pendenc y of the condition. the creditor may choose. By us usufruct is meant the right to enjoy the propert y of another which includes the right to enjoy and use the fruits of the propert y. When the thing improved – a) b) If the thing improved during the pendency of the condition. If the thin g is improved at the expense of the debtor. by its nature. he have no other right than that gra nted to the usufructuary. or by time. instead of improv ement. The reason fo r this is to compensate the creditor who would suffer in case. there would be deterioration without the fault of the debtor. the improvement shall inure to the benefit of the creditor.3. . (1123) . When the conditions have for their purpose the extinguishment of an o bligation to give. In case of the loss. the provisions of the second paragraph of article 1187 shall be observed as regards the effect of the exting uishment of the obligation. are laid down to the preceding article shall be applied to the party who is boun d to return. 1190. with respect to the debtor . As for obligations to do or not to do.ART. shall r eturn to each other what they have received. deterioration or improvement of the thing. the provisions which. the parties. upon the fulfillment of said conditions. it is as if there was never an obligation at all. if any. . 4. The fruits and interests thereon should also be returned after deducting of course the expenses made for the production. The rules given in Art. B did not pass the CPA Exams.Effects When Resolutory Condition is fulfilled 1. The courts are given power to determine the retroactivity of the fulfil lment of a resolutory conditions. The obligation is extinguished and theref ore. Example : A gave B a parcel of land on condition that B will pass the CPA Exams on May. 1181. (Art. deterioration or improvement of th e thing. B will therefore have to return both the land and the fruits he had received there from the moment A has given him the land. 2. 3. th is year. gatheri ng and preservation. N CC will apply to wh oever has the duty to return in case of loss. NCC) Because the obligation is extin guished and considered to have had no effect. the parties should restore to each other what they have received. 1189. The obligation is extinguished. 5. with the payment of damages in either case. He may also seek rescission. The co urt shall decree the rescission claimed.ART. This is understood to be without prejudice to the rights of third persons who have acquired the thing. The power to rescind obligatios is implied in reciprocal ones. in accordance with articles 1385 and 1388 and the Mortgage Law. unless there be just cause authorizing the fixing of a period. eve n after he has chosen fulfillment. The inj ured party may choose between the fulfillment and the rescission of the obligati on. 1191. . in cas e one of the obligors should not comply with what is incumbent upon him. if the later should become impossible. Right to Rescind The right to rescind means the right to cancel or to resolve in case of reciproc al obligation in case of non-fulfillment on the part of one. Demand fulfillment of the obligation plus damages. or 2. The power to rescind is given to the injured party and the injured party has the following alternative remedies: 1. Demand rescission of the obligation plus damages. the buyer can rescind if the seller does not deliver or t e seller can rescind if the buyer does not pay. Example: In a contract of sale. . The second rule is likewise just. because it is presumed that both part ies at about the same time tried to reap some benefits. the same shall be deemed extinguished. Rules if Both Parties Have Committed a Breach The above rules are deemed just. (Report of the Code Comm ission) . In case both parties have committed a breach of the obligation. the liability of the first infractor shall be equitabl y tempered by the courts. If it cannot be determined which of the parties first violated the contract. 1192.ART. though they would derive some advantage by his own act or neglect. The first one is fair to both parties because t he second infract or. and each shall bea r his own damages. shall be demandable only when that day comes. If the uncertainty consists in whether the day will come or not. and it shall be regulated by the rules of the preceding Section. Obligations for whose fulfillment a day certain has been fixed. but terminate upon arrival of the day certain. although it may not be kno wn when. the ob ligation is conditional.Section 2 . 1193. . Obligations with a resolutory period ta ke effect at once. A day certain is understood to be that which must necessarily come.Obligations with a period ART. Period Defined – A period is a future and certain length of time which determines the effectivity or the extinguished of obligation. . Obligation with a period is one whose consequences are subject in one way or another to the expiration of said period or term. (8Manres al58) A day certain is understood to be that which must necessarily come. although it may not be known when. b) c) . As to influence or effect on the obligation – the period fixes the time of the effectivity of the ob ligation while a condition may cause the demandability of the obligation to aris e or to terminate.A period is a certain event which must happen sooner or late r while a condition is an uncertain event.Period and Condition Distinguished: a) As to fulfillment . As to time – a period refers only to th e future while a condition may refer to a past unknown event. 1999 by the car was destroyed by fortuitous event in July 1. or improvement before the arrival of period. 1194. Note the cross reference to Art. deterioration or improvement of the thing before the arrival of the day certain. In case of loss. (n) Effect of loss. the obligation is extinguished. . the rules in article 1189 shall be observed. 19. NCC. Example: If A is suppose to deliver to B a particular car on Dec. 1999. 1189. deterioration.ART. Example E owes G P20. Assuming that today is only June 30. ART. But E can not recover. E paid his obligation on December 25 last year. 000. except he interest.00. 1195. E can recover the amount plus interest therein. may be recovered. al lows the recovery of what has been paid by mistake before the fulfillment of a s uspensive condition. Anything paid or delivered before the arrival of the period. . the obli gor being unaware of the period or believing that the obligation has become de a nd demandable. if the debt had already matured or if E had kno wledge of the period. By mistake. (1126a) Effect Of Payment Before Arrival of Period This article which is similar to Article 1188. with the fruits and interests. NCC. which was supposed to be paid on December 25 this year. in an obligation to give. unless from the t enor of the same or other circumstances it should appear that the period has bee n established in favor of one or of the other. 1196. the period is p resumed to be for the benefit of both creditor and debtor. Which means that before the expiration of the period. (1127) Presumption As to Benefit Of A Period The general rule is that when a period is fixed by the parties .ART. Whenever in an obligation a period is designated. the debtor may not fulfill the obligation and neither the creditor demand its fulfil lment. it is presumed to have been es tablished for the benefit of both the creditor and the debtor. . 000 on demand. if the tenor of the obligation or other circumstances may indicate that a period is have been established for the benefit of either the creditor or debtor: 1. 2001. 000 at 12% interest per annum from Tito for one year. For the benefit of debtor Example – Gaya executes a promissory note which reads: “I promise to pay Tito r orde r the amount of P 10. For the benefit of both creditor and debtor Example – Gaya obtained a loan of P10. 2.By way of exceptions. however.000 or before December 31. For the benefit of the creditor Example Gaya executes a promissory note in favor of Tito which reads: “I promise t o pay Tito or order the amount of P10. Gaya has a period of one year within which to use the money. 31. Thus. 3. . Gaya can pay her obligatio n on or before Dec. while Ti to will benefit from the interest which the money will earn. Tito can demand paym ent from Gaya anytime. 2001. the court is not authorized to fix a period. the period cannot be changed by them. (1128 a) Court Generally is Without Power to Fix a Period If an obligation does not state a judicial period and no period is intended. the courts shall determine such period as may u nder the circumstance have been probably contemplated by the parties. In every case. The courts shall also fix the duration of the period when it depends upon the wi ll of the debtor. the courts may fix the duration th ereof. . but from its nature and circumstances i t can be inferred that a period was intended. If the obligation does not fix a period. Once by th e courts. 1197.ART. The courts have no right to make contracts for the parties. Then. 2. so the court may fix the same because if this is not so the obligation may never be complied with by the debtor. the period is not fixed. Example: S sold a parcel of land to B with a right of repurchase. If the duration of the period depends upon the sole will of the debtor Example: I will pay you as soon as possible.Exceptions to the general rule 1. If the obligation does not fix a period but it can be inferred from its natur e and circumstances that a period is intended. Here . . the court is authori zed to fix the period to repurchase. No term is spe cified in the contract for the exercise of the right. When t he debtor attempts to abscond. he 2) 3) 4) 5) becomes insolvent.ART. unless he gives a guaranty or security for the debt. When by his own acts he has impaired said guaranties or securities after t heir establishment. in consideration of which the creditor agreed to the period. When he does not furnish to the creditor the guaranties or securities which he has promi sed . (1129a) . When the debtor violates any undertaking. and when through a fortuitous event they disappear. 1198. The debtor shall lose every right to make use of the period: 1) When after the obligation has been contracted. unless h e immediately gives new ones equally satisfactory. It is sufficient that the debtor has less assets than his liabilities or if debtor is unable to pay his debts as they mature. When debtor becomes insolvent: The insolvency need not be judicially declared.When Debtor Loses The Right to Make Use Of A Period The general rule is that the obligation is not demandable before the lapse of the period. . It is noted that the insolvency of the debtor must occur after the obligation has been contracted. The exceptions are based on the fact that the de btor might not be able to comply with his obligation: 1. . 000 from Tito which loan was secured by a chatte l mortgage on Gaya ‘s car. the car was damaged or she causes th e impairment of the car. When by his own acts he has impaired said guaranties or securiti es: Example: Gaya borrowed P50. After obtaining the loan. Gaya fails or does not execute a chattel mortgage.When Debtor Loses The Right to Make Use Of A Period 2. unless she gives another one equally satisfactory. Gaya loses her right to make use of the period. the loan becomes demandable or the debtor loses her right to make use of the period. Later. 3. When debtor does not furnish guaranties or securities promised: Example: Gaya bo rrowed loan from Tito which loan was secured by a chattel mortgage of Gaya’s car a s a guaranty. Gaya’s fault. 5. Example: Gaya borro wed P50. the car was lost by fortuitous event. Mere attempt on the part of debtor will entitle the creditor to demand payment of the obligation without waiting for the period to expire. 6.When Debtor Loses The Right to Make Use Of A Period 4. he did not pant the house of Arnold. Ar t loses his right to make use of the period. When debtor violates an undertaking – Example: Art secured a lo an from Arnold on condition that Art will paint the house of Arnold. When by fortuitous event. After obtaining the loan. Gaya loss her r ight to male use of the period unless she gives another guaranty or security equ ally satisfactory. . If after th e proceeds of the loan was given to Art. When the debtor attempts to abscond . the guaranty or security was lost. Abscond means a depart or escape from creditor’s knowledge to avoid payment of h is debt. 000 from Tito which loan was secured by a chattel mortgage on Gaya’s car. The creditor cannot be compelled to receive part of one and part of the other undertaking.Section 3. Thus. Alternative and Facultative obligations ART. A person alternatively bound by different prestations shall completely perform o ne of them. Example: Gaya binds herself to give Tito either a determinate refrigerator or a TV set. . Gaya cannot compel Tito to accept part of one and the part of the other p restations. 1199. (1131) Meaning of Alternative Obligation It means an obligation where two or more presta tions are due but the delivery of one is sufficient to extinguish the obligation . If Gaya chooses and delivers the TV set. the obligation is extinguished. unlawful or which could not have been the object of the obligation. 1200. unless it has been expressly gr anted to the creditor. The debtor shall have no right to choose those prestation s which are impossible.ART. . The right of choice belongs to the debtor. Gaya can choose only the delivery of parce l of land.. the horse and the carabao wer e lost by fortuitous event. a race horse worth P50.g.Rule on Who Makes the Choice – As a general rule. Gaya cannot choose Only one prestation is practicable (Art. Gaya will deliver to Tito her carabao. Gaya borrowed from Tito P50.Gaya promised to deliver to Tito 100 sacks of rice or a stone f rom Mars. 000. 000. But the right of the debtor is subject to the following: The debtor cannot choose those prestations which are: a) Impossible – E. Now. the right of choice or to select the prestation belongs to th e debtor.g.E. or her ho rse or her refrigerator. 000 and an ordinar y horse which is worth for only P5.g. Through no fault of Gaya. Could not have been the object of the obligation . Unlawful – E. 1202) – E. unless the right to choose is expressly granted to the creditor. Gaya cannot chose to deliver the stone coming from Mars as it is physi cally impossible. Gaya obliged herself to deliver to Tito a kilo o f dangerous drug or a parcel of land. Gaya has two horses. b) c) d) . Gaya can only delivery the refrigerator which is the only one practicable.g. It was agreed that Gaya would give Tito her horse or her Ge rman Piano. Once the notice to the effec t that a choice is made. such choice shall likewise produce legal effects upon being communicated to the debt or. th e communicated. 1201. Where the choice has been expressly given to the creditor. par. 1205. the obligation ceases to be alternative and becomes a s imple obligation. The choice shall produce no effect except from the time it has been c ommunicated. 1) . (Art. the obligation remains alternative. (1133) Right of Choice Must be Communicated – Until the choice is made and communicated.ART. only one is practicable. If through the fau lt of Tito. . ART. 000. Tito. 000. Gaya could deliver a TV set or a refrigerator or a piano. Gaya can rescind the contract if she wants .00 must be returned by Gaya with interest. in turn. Example: Gaya borrowed from Tito P5.ART. When debtor may rescind contract If through the creditor’s fault. The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound. If Through The credi tor’s acts the debtor cannot make a choice according to the terms of the obligatio n. must pay Gaya the value of the TV set plus damages. the amount of P 5.00. the TV set was destroyed. 0 00. the debtor cannot made a choice according to the terms of the obligation the debtor is given the right to rescind and recover dam ages. In case of rescission. 1202. 1203. it was agreed that instead of P5. the latter may rescind the contract with damages. The creditor shall have a right to indemnity for damages when.ART. through the fault of the debtor. or the compliance of the obli gation has become impossible. The indemnity shall be fixed taking as a basis the value of the last thing which disappeared. . (1135a) When right of choice is with debtor and all prestations were lost – This article entitles the creditor to indemnity for damages when all the al ternative objects are lost through the fault of the debtor before he has made hi s choice. Damages other than the value of the last thing or service may also be awarded. all the things which are alternat ively the object of the obligation have been lost. 1204. or that of the service which last became impossible. The indemnity for which the creditor is entitled shall be based on the value of the last thing which disappeared or lost or the compliance of the obli gation has become impossible. 1205. with a right to damages the cho ice by the creditor shall fall upon the price of any one of them. 2) If the loss of one of the things occurs through the fault of 3) If all the things are lost through the fault of the debtor. the debto r. he shall perform the obligation by delivering that which the creditor should choose from among the remainder. or that which remains if only one subsists. also with inde mnity for damages. . or the price of that which. the obligation shall c ease to be alternative from the day when the selection has been communicated to the debtor.ART. the creditor may claim any of those subsisting. has disappeared. Until then the responsibility of the debtor shall be governed by the following rules 1) If one of the things is lost through a fortuitous event. t hrough the fault of the former. When the choice has been expressly given to the creditor. When a thing is los through a fortuitous event Example Gaya obliged herself to deliver to Tito a TV set. (1136a) When Right of Choice is With Creditor and All Prestations Were Lost This article provides for the rules to be observed when th e right of choice is expressly granted to the creditor. . the rules are as follows : 1.The same rules shall be applied to obligations to do or not to do in case one. or a piano. If the TV set was lost through fortuitous event. or a refrigerator. Some or all of the prestations should become imposs ible. Tito can choose from a mong the remainder or that which remains if only one subsists. 4. 1174 will apply). then Tito can dema nd the payment of the price of any one of them with a right to indemnity for dam ages. . When all the thing are lost through a fortuitous event Example: The obligation of Gaya shall be extinguished if all the items which are alternatively the object of the obligation are lost through a fortuitous event (Art. When a thing is lost through debtor’s fault Example: If the loss of the TV set occurs through the fault of Gaya. 3. Tito may cl aim the refrigerator or the piano with a right of damages or the price of the TV set with a right of damages. When all the things were lost through debtor’s fault Example: If all the items are lost through the fault of Gaya.2. ART. through the negligence of the obligor. negligence or fraud. The loss or deterioration of the thing intended as a substitute. the obligation is called facultative. 1206. Meaning of Facultative Obligation – A facultative obligation is one where only one prestation has been agreed upon but the obligor may render another in substituti on. the obligor is liable for the loss of th e substitute on account of his delay. Example: I will give you my piano but I may give my television set as a substitu te. B ut once the substitution has been made. . does not render him liable. When only one prestation has been agreed upon. but the obligor may render anothe r in substitution. there is still a need to del iver any of those which remain valid or the only remaining one is valid. . there is no need of delivering the substitute in alterna tive – if one of the thing is unlawful or impossible. 3) As to validity or nullity – In facultative – if the principal thing is unlawful or impossible. there are several things due b ut the delivery of one is sufficient. in alternative.Alternative and Facultative Distinguished – 1) As to choice – In facultative – the right for substitution is given only to the debtor in Alternative – the choice may be given either to the debtor o r to the creditor. 2) As to things due – In facultative – only the principal obligation is due by may substitute another. entire complia nce with the prestation. (1138a) . There is a solidary liability only when the obligation requires solidarity. (1137a) ART. or the nature or the wo rding of the obligations to which the preceding article refers the contrary does not appear. the credits or debts being consider ed distinct from one another.Section 4 – Joint and Solidary Obligations ART. 1208. the credit or debt shall be presumed to be divided into as many equ al shares as there are creditors or debtors. 1207. subject to the Rules of Court governing the multip licity of suits. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a ri ght to demand. or that each one of the latter is bound to render. If from the law. 000. There are two debtors and two creditors. There is one debto r and three creditors. Each creditor can demand only P3. 000 from each or a total of P9. 000. B. 2) A borrowed from B. 000 from A. 500 from each debtor. 3) A and B are liable to C and D for P9. D can demand only P3. and C borrowed P9. . Each creditor can demand only P4. by virtue of which each of the debtors is liable for a proportionate part of the credit.Joint Obligation – It is an obligation where there is a concurrence of two or more debtors or two o r more creditors or of several debtors and creditors. The presump tion is that A. 000 for D. B and C are jointly liable. C and D P9. Example of different instances 1) A. 000. or 2) The law requires solidarity or 3) T he nature of the obligation requires solidarity. .SOLIDARY OBLIGATION There are solidary liability when 1) The obligation expressly so states. Active – solidarity on the part of the creditors. . 000.Kinds of Solidary Obligation 1. solidary creditors in the amount of P 10. Passive – solidarity on the part of the debtors. Example – A and B are solidary debtors of C in the amount of P 10. where anyone of them can be made liable for the fulfillment of the entire obligation. Mixed Solidarity – solidarity on the part of the debtors and creditors where each one of the debtors is liable to render and each one of the creditors has a right to demand. 000 2. 3. 000. Example – A and B are solidarity debtors to C and D. entire compliance with the obligation. B and C are solidary creditors. where anyone of them can demand the fulfillment of the entire obligation. Example – A is liable to B and C for the amount of P10. If any of the joint debtors be insolvent. the others shall no t be liable for others. If one of the latter should be insolvent. the creditor must proceed against al the joint debtor. The reason is that solidary obligation s are very burdensome for they create unusual rights and liabilities.Solidarity not presumed The presumption. . is that it is joint. ART. the right of the creditors may be prejudiced only by their collective acts. where there are two or more persons in the same obligation. Indivisible Joint Obligation – The object is indivisible and the T/E between the p arties are merely proportionately liable. If the d ivision is impossible. and the debt can be e nforced only by proceeding against all the debtors. The obligation is joint but since the object is indivisible. the others shall not be liable for his share. 1209. Example – A and B are jointly liable to give C a particular car. Solidarity between debtors increases their responsibility while solidarity between credito rs presuming that they are bound jointly and not solidarily. Sol idary indivisible obligation – A and B are solidarily liable to give C their car. (n) Indivisibility refers t o the subject matter while solidarity refers to the Tie between the parties. . 4. 000. The indivisibility of an obligation does not necessarily give rise t solidarity. 1210. Nor does solidarity of itself imply indivisibility.ART. 000. Indivisibility as Distinguished from Solidarity Joint indivisible obligation – A and B are jointly liable to give C their car. Joint divisible obligation – A and B are jointly liable to C for P10. Examples: 1. 2. 3. Sol idary divisible obligation – A and B are solidarily liable to give C P10. Example: A and B solidarily bound themselves to pay a total of P10. The solidarity is still preserved by recognizin g in the creditor the power of claiming from any or all debtors the payment of t he entire obligation. The solidary character o f the obligation is not destroyed even if the creditors and debtors are bound by different terms and conditions. Solidarity may exist although the creditors and the debtors may not be bound in the same manner and by the same periods and conditions. D will get his share only after he passes the CPA exams and E will get his sh are only after he painted the house of C. 1211. C’s share will be due at the end of the yea r. an d D and E to the following conditions. .ART. 000 to C. A solidary creditor cannot assign his rights Solidary Creditors May Do Useful Act. (1141a) without the consent of the others. Each one of the solidary creditors may do whatever may be useful to the others. (Art. However. in the case of remission or condonation. there will be liability for damages. otherwise. but not anything which may be prejudicial to the latter. 1155. . 1212. Example of Beneficial Acts – To interrupt the running of prescription.ART. the act of one solidary creditor in making a judicial demand upon any of the solidary debto rs is sufficient. and the obligation is extinguished. Not Prejudicial Acts – A solidary creditor may do any act beneficial or useful to the others but he can not act prejudicial to them. the solidary creditor is allowed to so remit. ART. NCC) Example of Prejudicial Acts – Should not be per formed. 1213. The debtor may pay any one of the solidary creditors but if any demand. Payment to Any of the Solidary Creditors The rule is that the debtor may pay any one of the creditors. judicial or extrajudicial. Example A is liable to B and C P5. But when a demand is made by any of the creditors. If A paid C. B is still entitled to his share from A in case C does not turn over to B his share. payment should be made to him. has been made by one of them. 1214. . payment should be made to him who made the dema nd. 000. A may pay either B or C But if B made a demand then payment should only be made to him.Art. judicially or extra-judicially. Novation. confusion or remission of the debt. 1212. (Art. compensation. The creditor who may have executed any of these acts.ART. made by any of the s olidary creditors or with any of the solidary debtors. shall be liable to the others for the share in the obligation corresponding to them. without prejudice to the provisions of article 1219. 1215. as well as he who collects the debt. Liability of Solidary Creditor in case of Novation. NCC) . shall extinguish the obli gation. Compensation. Confusion or Remission – When a creditor who executed any of these acts. it is logical that he is liable to the other solidary creditors for their correspondin g shares considering that such acts are prejudicial to them. 000. so long as the debt has not been fully collected. (1144a) Creditor May Proceed Against Any Solidary Debtor – In a solidary obligation. B and C solidarily owe D the amount of P9. If demand is made on A. The demand made against one of them shall not be an obst acle to those which may subsequently be directed against the others.ART. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. 1216. . the cr editor may proceed against any. Example A. some or all of the solitary creditors simultaneo usly so long as it has not been fully collected. D can collect from A or B or C alone or from any two of them or all of them simultaneously. the latter cannot require D to make a demand also on B and C or t o include them as party defendants as D has the right to proceed against any one of them. in proportion to the debt to each. with the interest for the payment already made. When one of the solidary debtors cannot. Payment made by one of the soldiery debtors extinguishes the obligation. 1217. no interest for the intervening period may be demanded. r eimburse his share to the debtor paying the obligation. (1145a) .ART. If two or more solidary debtors offer to pay the creditor may choose which offer to acc ept. such share shall be born e by all his codebtors. because of his insolvency. If the payme nt is made before the debt is due. He who made the payment may claim from his codebtors only the share which c orresponds to each. 000 each with interest from the date of payment. If A pays the entire amount of P9.Effects of Payment by a Solidary Debtor – Payment is one of the ways by which an ob ligation is extinguished and consist in the delivery of the thing or the renditi on of the service which is the object of the obligation. 31. 000 due on Dec. 000 on Dec. If both A and B offer to pay D on Dec. both A and B shall bear the insolvency in proportion to their shares. 31. B and C are solidarily liable to D and E in the amount of P9. if C is insolvent. the obligation is extinguished. the latter may choose which offer to accept. However. Example – A. The payment of A gives him the right of reimbursement from B and C P3. . 31. Example – A and B are solidarily indebted to C in the amount of P 10. The deb t prescribed. 2. Becomes Illegal – A and B are solidarily bound to deliver medical drugs to C. Prescription – is one where one acquires ownership and other rights through the lapse of time in the manner and under the conditions laid dow n by law. 1218. the transaction of such medical drugs were later prohibited by law. he cannot collect form B his share of the debt . B performed the obligation by deliverin g the prohibited drugs. .ART. Payment by a solidary debtor shall not entitle in to reimbursement from his co-debtors if such payment is made after the obliga tion has prescribed or become illegal. B is not anymore entitled to reimbursement from A. (n) Effect of Payment After Obligation Has Prescribed or Become Illegal – 1. Neither can A can recover from C. If A paid the debt. Notwithstanding the prohibition. 000. in case the debt had been totally paid by anyone of them before the remission was effected. ART. does not entitle him to reimbursement from his co-debtors. 1220. If remission is made prior to the payment and payment is made. 2) 3) . the remission is of no effect.ART. If one of the solidary debtors obtained remission on the wh ole obligation. 1219. (1146a) by one of the solidary debtors. The remission of the whole obligation obtained Remission by Creditor – 1) If payment if made first. then there is payment by mistake. he is not entitled to reimbursement from his co-debtors because remission is essentially gratuitous. There is no more to rem it. The remission made by the creditor of the share which affects one of the solidary debtors does not release the latter from his r esponsibility towards the co-debtors. the provisions of the preceding paragraph shall apply.ART. (1147a) . without prejudice to their action against the guilty or negligent d ebtor. If the thing has been lost or if the prestation has become impossible without th e fault of the solidary debtors. all shall be responsible to the creditor. If there was fault on the part of any one of them. the obligation shall be extinguished. the thing is lost or the performance has become impossible after one of the solidary debtors has incurred in delay through the judicial or extrajudicial demand upon him by the creditor. If through a fortuitous event. for the price and the payment of damages a nd interest. 1221. Example: A. The obligation is extinguished. the obligati on is extinguished.Rules in Case thing has Been Lost or Prestation Has Become Impossible – 1. Without any f ault on the part of any one of the debtors. . B and C are solidarily bound to deliver a determinate car to D. the car was lost through the fortuit ous event. If the thing is lost or has become impossible to perform through a fortuitous event without the fault of the debtor. 3. The debtors. If in the preceding paragraph.Rules in Case thing has Been Lost or Prestation Has Become Impossible – 2. thing is lost through fortuitous event if the loss occurs after anyone of the solidary debtors has been in delay. The solidary debtors are likewise liable even if the . anyone of them may be held liable by D for the price of the car plus damages. the car was lost through the fault of anyone of the solidary debtors. The debtors who did not any f ault on the lost of the car have the right to recover from the co-debtor who is at fault. however who were not in delay have the right to recover from their codebtors who was responsible due to his delay. or pertain to his own share. With respect to those which personally belong to the others.ART. 1222. A solidary debtor may. he may avail himself thereof only as regards that part of the deb t for which the latter are responsible. avail himself of all de fenses which are derived from the nature of the obligation and of those which ar e personal to him. . in actions filed by the creditor. the latter can raise the defense of payment by virtue of which the obligation was extinguished. pa yment or performance.Defenses available to a Solidary Debtor – The defenses available to the solidary debtors if the creditor proceeds against him alone for the payment of the entire obligation 1. . remission illegality or absence of consideration. The entire d ebt was paid by d. The defenses derived from the nature of the obligation. in an action by C against A. such as fraud prescription. 000. Example A and B are solidarily liable to C in the among to P6. insanity and vitiated consent. such as minority. . insanity and vitiated consent.Defenses available to a Solidary Debtor – 2.Defenses personal to him or pertaining to his own share.Defenses which are personal to others. such as minority. 3. (1149) .Section 5 – Divisible and Indivisible Obligations] ART. The divisibility or indivisibility of the things that are the object of obligations in which there is only one debtor and only one creditor does not alter or modify the provisions of Chapter 2 of this title. 1223. Definition of Terms – 1. The obligation of A is d ivisible because it is payable in partial payments. Example: A agreed to deliver a determinate car to B on Dec. A divisible obligation is one the object of which in its delivery or performance is capable of partial fulfillment. . Example: A agreed to pay B P10. 31. An indivisible obligation is one the object which in its delivery or performance is not capable of partial fulfillment. 000 in five monthly installment. This is an indivisible ob ligation because it is not subject to partial performance. 2. ART. 1225. obligation to give definite things and those which are not susceptible of partial performance shall be deemed to be indivisible. (1150) ART. For the purposes of the preceding articles. . 1224. The debtors who may been ready to fulfill their promises shall not contribute to the indemnity beyo nd the corresponding portion of the price of the thing or of the value of the se rvice in which the obligation consist. A joint indivisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not comply with his undertaking. (1151a) . or analogous things whic h by their nature are susceptible of partial performance. However.When the obligation has for its object the execution of a certain number of days of work. even though the object or service may be physically divisible. and o bligation is Indivisible if so provided by law or intended by the parties. it shall be indivisibl e. divisibility or indivisibility shall be determined by the c haracter of the prestation in each particular case. the accomplishment of work by metrical units. In ob ligations not to do. Obligation to give definite thin gs Example: To give a particular house. Here the obligation is indivisible by reason its pu rpose which requires the performance of all the parts. 2. Here the obligation is indivisible because of the na ture of the subject matter. . Obligations which are not susceptible of partial performance Example: A is obliged to sing a song.Obligations Deemed Indivisible – The general rule of determining the divisibility or indivisibility of an obligat ion depend on the purpose of the obligation. 1. not partially. . the amount of tax payable must be delivered in Toto. Although money is physically divi sible. 000 to B on a certain date. Obligation provided by law to be indivisible even if thing or service physically divisible. Example: The obligation of A to give P10.Obligations Deemed Indivisible 3. Example: Taxes should be paid within a definite period. 4. Obligations intended by the parties to be indivisible even if thing or service i s physically divisible. Money is physically divisible by the clear intention ere for A to deliver the amount at on time and as a whole. Obligations Deemed Divisible 1. 000 to B in ten (10) monthly installme nts. The obligat ion is divisible because it will not be finished in one time. Obligations which have for their object the execution of a certain number of day s of work. Obligations which by their nature are susceptible of partial performance Example The obligation of A to pay a debt of P10. . Obligations which have for their object the accomplishment of work by metrical u nits. 2. Example – A obliged himself to paint the house of B to be finished in 10 days. 3. Example: A obliged himself to deliver 25 cubic meter of sand. In obligations with a penal clause. 1226. (1152a) Meaning of Penal Clause – An obligation with a penal clause is one which contains an accessory undertaking to pay a previously stipulated indemnity incase of brea ch. It is attached to obligations in order to insure their performance. damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.Section 6 – Obligations with a Penal Code ART. the penalty shall substitute the i ndemnity for damages and the payment of interests in case of non-compliance. The penalty may be enforced only when it is demandable in acc ordance with the provisions of this Code. Nevertheless. if there is no stipulation to the contrary. . Purpose of a Penal Clause 1) To insure the performance of the obligation. 2) To substitute for indemnity f or damages and the payment of interest in case of noncompliance of the principal obligation. 3) To penalize the obligor in case of breach of the principal obligation. ART. 1227. The debtor cannot exempt himself from the performance of the obligation by payin g the penalty, save in the case where this right has been expressly reserved for him. Neither can the creditor demand the fulfillment of the obligation and the satisfaction of the penalty at the same time, unless this right has been clearly granted him. However, if after the creditor has decided to require the fulfillment of the obligation, the performance thereof should become impossible without his fault, the penalty may be enforced. (1153a) Debtor Cannot Substitute Penalty For the Principal Obligation – The general rule is that the debtor is not allowed to just pay the penalty inste ad of fulfilling the obligation. He can do so if the right has been expressly re served. The reason is that if he can just pay, fulfillment of the obligation wil l be considered an alternative one. The word expressly means that any implied re servation is not allowed. ART. 1228. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded. The judge shall equitably reduce the penalty when t he principal obligation has been partly or irregularly complied with by the debt or. Even if there has been no performance, the penalty may also be reduced by th e courts if it is iniquitous or unconscionable. (1154a) ART. 1229. When Penalty May be Reduced by the Court – a) When the obligation has been partly complied with by the debtor; b) When the obligation has been irregularly complied with by the debtor c) When the penalty is iniquitous or unconscionable, even if there has been no performance at all. ART. 1230. The nullity of the penal clause does not carry with it that of the principal obl igation. penal clause. (1155) The nullity of the principal obligation carries with it the Effect of Nullity of Penal Clause – The general principle that the accessory follows the principal. If only the pena l clause is void, the principal obligation remains valid and demandable. The pen al clause may be disregarded. Example: A agreed to sell merchandise to B. it is provided in their agreement that in cas e of default, A will deliver a prohibited drug as penalty. Here, the obligation to sell merchandise is valid by the penalty to deliver the prohibited drug is vo id. For failure of A to comply with the obligation, B may recover damages Meaning of Loss Of The Thing Due It means that he ting which constitutes goes out of commerce or disappears. In or it cannot be recovered. The general d is determinate and it is lost without gh fortuitous even pending delivery, th r cannot be held liable. the object of the obligation perishes or such a way that its existence is unknown rule is that if the thing to be delivere the fault of the debtor or is lost throu obligation is extinguished and the debto The exceptions to this rule are: 1. 7. 5. if the debtor is at fault. 6. whe n the debt or a thing certain and determinate proceeds from a crime. when the debtor has promised to deliver the same thing to two or more pesons who do not have the same interest. when the thing t o be delivered is generic or indeterminate. 3. . 4. when t he nature of the obligation requires the assumption of risk. by stipulation or agreement of the parties. by provision of law. 2. under the circumstances. flood. and without prejudice to the provisions of article 1165. The courts shall determine whether. unless there is proof to the contrary . In an obligation to deliver a generic thing. the partial loss of the object of the obligation is so important as to extinguish the obligation. the loss or destruction of anything of the same kind does not extinguish the obligation. Art. 1264.Art. it shall be pr esumed that the loss was due to his fault. or other natural calamity. 1263. storm. (1183 a) . Art. Whenever the thing is lost in the possession of the debtor. 1265. This presumption does not apply in case of earthquake. The presumption of fault.Thing Lost In Possession Of Debtor If the thing is lost while in the possession of the debtor. however. does not a pply when the ting is lost due to earthquake. flood or other natural calamities. the law presumes that h e ting was lost through his fault. . (n) Art. whatever may be the cause for the loss. the debtor shall not be exempted f rom the payment of its price. 1267. the latte r refused without justification to accept it. When the debt of a thing certain and determinate proceeds from a criminal offense.becomes legally or physically impossible without the fault of the obligor. When the service has become so difficult as to be manifestly beyond the contemplation of the parties. the obligor may also b e released therefrom. unless the thing having been offered by him to the person who should receive it. in whole or in part. (1185) . (1184a) Art. 1268. Effect Of Obligation Arising From Felony Obligation arising from felony or crime or if a person who was convicted of the crime like of theft . in which case the obligation is extinguished. The only exception to this rules when the person who should receive the ob ject unjustifiably refused to accept it and the object is subsequently lost due ot fortuitous event. was ordered by the court to return the object to its owner is liable for the payment of its value if such object is lost through whatever case. . The obligation having been extinguished by the loss of the thing. (1186) . the creditor shall have all the rights of action which the debtor may have against third persons by reason of the loss.Art. 1269. .When Creditor Acquires Debtor’s Right Of Action By reason of the loss of the thing. the creditor acquire all the rights of actio ns which a debtor may have against at third person. comply with the forms of donation. . One and the other k ind shall be subject to the rules which govern inofficious donations.SECTION 3. Express co ndonation shall. Condonation or remission is essentially gratuitous. It may be made expressly or impliedly. and requires the accep tance by the obligor. 1270. furthermore. (1187) .Condonation or Remission of the Debt Art. without receiving any pr ice or equivalent. (4 Sanchez Roman 422) . renounces the enforcement of the obligation.Condonation or Remission Defined Remission is an act of liberality by which the obligee. as a result his right against the debtor. it must be accepted by the debtor. it must comply with th e forms . and if made expressly. the parties must have capacity. must not be inofficious.Requisites of Condonations OR Remissions it must be gratuitous. the excess shall be reduced by the Court accordingly. roperty called legitimate cannot be disposed of because from certain heirs called the compulsory heirs.Effect of inofficious Remission While a person may make donations. Like for example. no one can give more ive by a testamentary will. otherwise. than that which he can g be inofficious and shall a part of the testator’s p the law has reserved it . ART. it shall be presumed that the creditor delivered it voluntarily. implies the renunciation of the action which the former had against the latter. made voluntar ily by the creditor to the debtor. 1271. (118 8) ART. unless the contrary is proved. If in order to nullify the waiver it should b e claimed to be inofficious. Whenever the private document in which the debt appears is found i n the possession of the debtor. The delivery of a private document evidencing a credit. 1271. (1189) . the debtor and his heirs may uphold it by proving t hat the delivery of the document was made in virtue of payment of the debt. . it must be presumed that the obligation has been remitted. which gives rise to the remission of the obligation. If the promissory note is voluntarily delivered to Gaya. Suppose it is not known how Gaya came into possession of the promissory note. Or it was voluntarily delivered to the debtor.Presumption In Case Document Found In the Possession Of Debtor If the document is found in the hands of the debtor and it is not known how he c ame into possession of the same. the presumption is that the debt must have been paid by Gaya. Example. the presumption is that it was voluntarily delivered by Tito unless Tito proves to the contrary . Gaya owes Tito P10 . it is known that Gaya has not yet pai d Tito. the presumption is that there was payment by vi rtue of the payment of the debt. The note as signed by Gaya was given to Ti to. 000 evidenced by a promissory note. T he accessory cannot exist without the principal obligation. The remission of the debt of Arvin by Tito extinguishes the guaranty of Gaya. Example. 000 wh ile the accessory obligation is the guaranty of Gaya. . The principal debt here is the P10. Arvin owes Tito P10. But if only the guaranty of Gaya is condoned. 000 with Gaya as guarantor. The renunciation of the principal debt shall extinguish the accessory obligations. 1273. Of Effect Renunciation Of the Principal Debt The above provision follows the rule that the accessory follows the principal. (1190 ). the obligation of Arvin shall remain in force.ART. but the waiver of the latter shall leave the former in forc. . Defined Pledged is a contract by virtue of which the debtor delivers to the creditor or to a third person a movable or instrument evidencing incorporeal rights for the purpose of securing the fulfillment of a principal obligation with the understan ding that when the obligation is fulfilled. (1191a) Pledged. is found in the possession of the debtor. 1274. It is presumed that the accessory obligation of pledge has been remit ted when the thing pledged. after its delivery to the creditor. the thing delivered shall be returne d with all its fruits and accessions. or of a third person who owns the thing.ART. not the obligation itsel f. Section 4. (1192a) . The obligation is extinguished from the time the characters or credit or and debtor are merged in the same person. only t he accessory obligation of pledge is presumed remitted. 1275. – Confusion or Merger of Rights ART.Presumption In case Thing in Possession of Debtor If the thing pledged is found in the hands of debtor or the third person. (4Sanchez Roman 421) .Meaning of Confusion or Merger Confusion is the meeting in one person of the qualities of creditor and debtor w ith respect to the same obligation. The obligation of Gaya to Tito is extinguished because there is here a merger of th e qualities of the debtor and creditor in one and the same person with respect t o one and the same obligation cannot demand and collect payment from himself. and 4. it must be complete. Before the maturity of the note. Mary indorsed it to Gaya. .Requisites of A Valid Confusion 1. 2. it must take place in the person of either the principal debtor and princip al creditor. Tit o indorsed it to Arvin. clear and definite. and 3. Arvin indorsed it to Mary. Example. Gaya issued a promissory note for P10. the merger of the qualities of creditor and debtor must be in the same person . the very obl igation must be the same. 000 in favor of Tito payable 30 days after sight. Gaya has now the ob ligation to pay Arvin. (1193) Effect of Merger This article reiterates the principles established in Articles 1176. If. The principal debt is extinguished and Arvin is released from his obligation as guarantor. Merger which takes place in the person of the principal debtor or cre ditor benefits the guarantors.ART. Tito assigned the cred it to Mary. that accessory follows the principal. but the extinguishment of the access ory does not extinguish the principal obligation Example. Gaya obtains P10. in this same example . the credit was assigned by Tito to Mary and Mary to Arvin. . The contract of gua ranty is extinguished but the principal obligations remains. 1276. 1274. NCC. who in turn assigned it to Gaya. The extinguishment of the principal obliga tion extinguishes the accessory obligation. 000 loan from Tito which loan was guaranteed by Arvin. Confusion which takes place in the person of any of the latter does not extinguish the obligation. Later. ART. 1277. Mary and Arvin are jointly indebted to Tito in the amount of P15. 000. . 000 each. the debts are distinct and separate from each other. Tito as signs his credit to Ian who in turn assigned it to Gaya. (1194) Effect of Merger in Joint Obligation In a joint obligation. Confusion does not extinguish a joint obligation except as regards th e share corresponding to the creditor or debtor in whom the two characters concu r. Gaya . Example. There is here a merger between Gaya and Tito but Mary and Arvin would now owe Gaya P5. The co-debtor wi ll not owe his corresponding share to this former joint co-debtor. In c ase there is merger in a joint obligation. it affects only the share correspondi ng to the creditor or debtor in whom the two characters concur. Compensation shall take place when two persons. in their own right ar e creditors and debtors of each other. Compensation ART. 1278.Section 5. (1195) . there is only one person in whom the quality of creditor and debtor is merged.Defined Compensation shall take place when two persons. Compensation Distinguished From Confusion as to number of persons – in compensation there must be two persons. in con fusion there is only . as to number of obligation – in compensation thEre must be two obligations.Compensation. in their own rights are creditor s and debtors of each other. in confusion. c. Partial – the debts are not the same amount hence after compensation. as to effect a. b. Legal – takes effect by operation of law provided all the requis ites prescribed by law are present. a balance remains outstanding. as to cause a. Voluntarily – takes place by virtue of the agreement of the parties. 2.Kinds of Compensation 1. Judicial – takes place only through court orders. Total – extinguished because amount when both debts are completely the debt are the same b. . . . 1999 compensation takes place because both Arvin and Tito ar e principal creditor and principal debtor of each other. both debts consists in a sum of money or of consumable things of the same kind and quality. 2. 3. 000 also due and payable on Dec. Arvin obliged himself to deliver to Tito 100 sacks of rice on October 30. Exampl e. 20. Maya owes Gaya P10. . 1999. 1999. 1999. on the other hand. the two debts are due and demandable. 1999. These two obligation bec ome due on Dec. 1999. 1999. the parties are principal creditor and principal debtor of each other.Requisites of a Proper Compensation or Legal Compensation 1. 000 payable on October 30. has an obligation to deliver 100 sacks of rice to Arvi n on October 20. 1999. 000 payable on Dec. 000 payable also on Oc tober 30. Gaya owes Maya P10. Example. 30. Example. 30. There is compensation when the obligation becomes due on October 30. Tito. There is compensation because they are consisting of cons umable things. Tito on the other hand owe s Arvin P10. Arvin owes Tito P10. 000 and Ian owes Arvin P10. Any possible compensation is i n the meantime suspended. Ian has been duly notified of the controversy. the controversy is resolved. 000 has been garnished by Gaya who claims to be an unpaid creditor of Arvi n.4. while the word demandable means it is due. If she loses. there can be no compensation. and The liquidated means that the amount of debt has a lready fixed and determined. been when 5. there be no retention or controversy means a third person is claiming to be a creditor. Example. 000 but Arvin credit of P10. Arvin woes Ian P10. who the two debts liquidated. If Gaya wins her claim. and then compensation can take place. . Ex ample. 000 cred it of Arvin as the basis of partial compensation. Notwithstanding the provision of the preceding article. the guarantor may set up compensation as regards what the creditor may owe the principal debt or Guarantor May Set Up Compensation This is an exception to Article 1279. 000. Maya is the guarantor of Arvin. part. 1 because the article allows setting up compensation as regard what the creditor may owe to the principal debtor. Arvin owes Tito P10. Maya will be liable for only P6. . Tito owes Arvin P10.ART. 000. 1280. When Tito sues Arvin and Arvin cann ot pay. 000 because he can set the P4. 000. When Tito sues Arvin for P4. 1999. hence both obligations are extinguished. When the two debts are of the s ame amount. hence b oth debts will be extinguished. 19. Kinds of Compensation Total compensation is when the amount due are equal or of the same amount. There is here a total compensation.ART. Gaya is indebted to Maya the amount of P10. . 000 due on Dec. Maya is likewise indebted to Gaya in the amou nt of P10. Example. 19. there is a total compensation. 1999. 1281. 000 due on Dec. Compensation may be total or partial. Partial compensation is when the amount are not the same after compensation took place. Gaya owes Maya P10. Maya o wes the due date arrives because a balance of P4. On the other hand. 1282. Example. ART. 2009. (n) . The parties may agree upon the compensation of debts which are not ye t due. there is a balance remains. 19. 000 will remain after compensa tion takes place. 000 due on Dec. Compensation By Agreement Of the Parties This is a voluntary compensation as an execution to the general rule that only d ebts which are due and demandable can be compensated. 19. 2001 because Maya’s debt is not yet due. 30. Gaya o wes Maya P10.1279) Example. by voluntary agreement between . 00 0 due on Dec. 30. 2001. On the other hand Maya owes Gaya P10. How ever. 2001. Generally compensation the parties there may be compensa tion cannot take place comes Nov. 000 due on Nov. (Art. 000. Example. the former may set it off by providing his right to sai d damages and the amount thereof. X failed to pay. (N) Judicial Compensation A judicial compensation is one whereby a money debt of a person may be allowed b y the court to be compensated with a claim of damages by another.ART. X owe s Y P1. 000. Y damaged the p roperty of X to the extend of P800. If one of the parties to a suit over an obligation has acclaim for da mages against the other. X can set off the obligation of Y to pay him damages in the amount of P800 against his debt of P1. . In anger. 1283. When Y demanded payment. through fraud was able to make B si gn a promissory note that B is indebted to A for the same amount. but that of B is voidable. When one or both debts are rescissible or voidable. E xample. If suppose the debt of B is later annulled by the court.ART. 000. it is as if there was no compensation. A. . Subsequently. the debts may be compensated. Compensation Of Rescissible or Voidable Debts Rescissible and voidable obligations are valid until they are judicially rescind ed or avoided and prior rescission or annulment. 1284. Before the debt of B is nullified. they may be compe nsated against each other before they are judicially rescinded or avoided. both deb ts may be compensated against each other if all the requisites for legal compens ation are present. A owes B P 10. The debt of A is valid. A is still liable considering compensation had already taken place because the effec t of annulment is retroactive. he may set up compensation of all credits prior to the same also later ones until he had knowledge of assignment. The debtor who has consented to the assignment of rights made by a cr editor in favor of a third person. If the creditor communicated the cession to him but the d ebtor did not consent thereto. unless the assignor was notified by the debtor at the time he gave his consent. that he reserve his righ t to the compensation. If the assignment is made w ithout knowledge of the debtor. the latter may set up the compensation of debts p revious to the cession . cannot set up against the assignee the compen sation which would pertain to him against the assignor. but not of subsequent ones. the the and th e . 1285.ART. latter can collect only P2. Hence. Both debts are extinguished up to amount of P3. 000 from A. The remedy of the assignee is against the assignor. B owes A P3. 000. 000 but he can s till collect the P2. However. If B assigns his right t o C. if A gave his consent to t he assignment before it was made on will be liable to C for P5. 000 today. . A still owes B P2. 000 owed by B. 000 due ye sterday.When Compensation Has Taken Place BEFORE Assignment If an extinguished obligation has been assigned by the creditor to third person. the debtor can raise the defense of compensation with respect to the debt. Example. A owes B P5. It is as if no compensation took place. 000 due also yesterday. 000 to C. B assigned his right to C. 19. 19. A owes B P5. 000 due Dec. B owes A P3. They are: Assignment with consent of debtor Example. However. reserved his rig ht to the compensation. A is still liable to C for P5. 000 but he can still collect the P2. he would be liable only P2. the assignee. 000 debt from B.Where Compensation Has Taken Place AFTER Assignment There are three cases of compensation which take place after an assignment of ri ghts made by the creditor. . if A while consenting to the assignment. the compensation which would pertain to him against B. the a ssignor. 000 due Dec. A assigned his right to C on Dec. he cannot. 16. he can raise the defense of compensation. B is lia ble to C for P1. There being partial compensation. 15. 15 which has not yet matured. on Dec. 12. Assignment without the knowledge of the debtor . A owes B P1.Assignment with the knowledge but without the consent of debtor Example. 15. 000 to B. otherwise. A notified B but the latter did not give his consent to the assignment. If B learned of the assignment after the debts had already matured. 1. Come Dec. A will liable for his debt of P1. the assignment is valid only up to the a mount of P1. how much can C collect from B? B can set up the compensation of debts on Dec. 000 due Dec. B owes A P2. 000 due Dec. 10. The crucial time is when B acquired knowledge of the assignment and not the dat e of the assignment. 12. 000 but B cannot raise the defense of compensation with respect to the debt of A due on Dec. Example. 10 which was before the cession on Dec . B can set up the compensation of credits before and after the assignment. 000 Dec. 12. So. let us suppose that the assignment was made w ithout the knowledge of B who learned of the assignment only on Nov. in the preceding example. In this case. A owes B P1. 000. If A claim compensation. The indemnity shall be p aid by the person who raises the defense of compensation. the debts also become compensated. Example. even thought eh debts m ay be payable at different places. Once these expe nses are liquidated. 000 payable in New York. Gaya owes May a $1. (1199a) Compensation Where Debts Payable At Different Places This legal compensation does not refer to the difference in the value of the things in their respective places but to the expenses of monetary exchange a nd expenses of monetary exchange and expenses in transportation. . Compensation takes place by operation of law. 1286. he must pay for the expenses of exchange. Maya owes Gaya P38.ART. 000(equivalent amount) payabl e in Manila. bu there shall be an indemnity for expenses o f exchange or transportation to the place of payment. 1288. ART. .ART. 1287. Neither shall there be compensation if one of the debts consists in civil liability arising from a penal clause. Compensation shall not be proper when one of the debts arises from a depositum or from the obligations of a depository or of a bailee in commodatum. Neither can compensation be set up against a creditor who has a claim for suppor t due by gratuitous title. without prejudice to the provision of paragraph 2 of article 301. (1254a) . public order or public policy. you should: 1. 3. The classifications of contracts summarizes those types of co ntracts that may be freely agreed upon as long as they are not contrary to law. know the definit ion of contract 2. with respect to the other. A contract is a meeting of minds between two persons whereby one binds himself. good customs. and 4. morals.PART III General Provisions on Contracts Learning Objectives: After studying this lesson. learn the different classifications of contracts. know the elements of contracts. that contracts take effect only between parties a nd its exceptions. ART. to give something or to render service. 1305. one or more persons bind themselves with respect to another or re ciprocally. to the fulfillment of a presentation to give. to do or not to do. Defined The above article defines the term Contract.Contracts. . In a contract. 2.those which exist by virtue of an agreement fo r the purpose of expanding. Accidental elements . or modifying a contract. object or subject matter and cause or consideration Na tural elements – those elements which are found in a contract by its nature and pr esumed by law to exist. 3. or penalties. modes of payment.Elements of Contract: 1. This element are consent. clauses. limiting. terms. Such accidental e lements are condition. . such as Warranty of hidden defects or eviction in contra ct of sale. Essential elements – those elements without which there can be no valid contract. 2. Preparatory or conception – process of formation such as bargaining.Stages of A Contract: 1. Perfection or birth – there is now a meeting of min ds to arrive at a definite agreement as to the subject matter. negotiation t o arrive at a define contract. Consumption or death – which is the fulfi llment or performance of the terms and conditions agreed upon in the contract ma y be said to have been fully accomplished or executed. 3. terms and conditions of contract. cause or consider ation. . Characteristics of Contracts: 1. Freedom to contract – they may establish terms and conditions as they may deem con venient. Relativity – it is binding only upon the parties and their successors. Ob ligatory force – it constitutes the law as between the parties. Mutuality – its vali dity and performance cannot be left to the wil of only one of the parties. 2. 3. 4. Classification of A Contract: (FROM) 1. As to perfection 1315 a. Consensual – one which is perfected by mere consent (Art. b. Real Contract – perfected by mere consent and by the delivery of the object or subject matter. Ex. Deposit, pledge, or commodatum. 2. As to dependence to other contract. a. Principal – one which can stand alone. Ex. A contract of sale, lease. b. Access ory – those which are dependent upon another contract. Ex. Contract of mortgage, p ledge of guaranty. c. Preparatory – those which is created in order that a future transaction or contract may be entered into by te parties. Ex. Contract of partn ership or agency. 3. According to name or designation a. Nominate – one which has particular name or designation such as sale, agency, e tc. b. Innominate – those without particular name. 4. According to the nature of obligation a. Unilateral – where only one ha an obligation to perform. Ex. Contract of donati on, commodation. b. Bilateral – where both parties have reciprocal obligation to p erform. Ex. Sale. 5. According to risk involved a. Commutative - where there is an exchange of values, such as lease. b. Aleator y - one which the fulfillment of the obligation depends upon chance. Ex. Contrac t of insurance. 6. According to cause a. Onerous – one which imposes valuable consideration such as sale, mortgage. b. G ratuitous – one which one of the parties does not receive any valuable considerati on, such as commodatum. 7. According to form writing document a. Oral – by word of mouth of the parties b. Written – the agreement which is reduce d in which may be public or private or private ART. 1306. The contracting parties may establish such stipulations, clauses, ter ms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. (1255a) Contract Binds by Both Parties ART. 1308. The contract must bind both contracting parties; its validity or comp liance cannot be left to the will of one of them. (1256a) Contracts entered by and between the parties mush bind both parties in order that it can be enforced against each other. This is also known as “mutuality of contract”. Hence, its validity or compliance cannot be left to the will of one of them. This principle is based on the essential equ ality of the parties. It is elementary rule that no party can renounce or violat e the law of the contract without the consent of the other. (11 Manresa 380) Exa mple, Gaya and Laura entered into a contract to sell whereby Gaya binds herself to sell her only parcel of land to Laura if Gaya decides to leave for States. Th e contract is void because the fulfillment of the condition depends on the will of Gaya. In such case. The determination shall not be obligatory if it is evide ntly inequitable. w hose decision shall not be binding until it has been made known to both contract ing parties. The determination of the performance may be left to a third person. 1310. the courts shall decide what is equitable under the circumstances. 1309. ART.ART. . fixed the price after considering t he factors affecting the value of the land.Determination of Performance by Third Person of one of the contracting parties. Provided. Example. Gaya sold her parcel of land to Laura. a real estate appraiser would be the one to determine t he reasonable price of the land. . then. the court may be called upon to decide what is equitable. and informing both contracting party that the decision is just and suitable. As a rule. the parties are not bound by the determination if it is evidently inequitable or unjust when the third person acted in bad faith or by mistake. the determination of its performance may be left to a third person after it has been made known to both contracting parties. If the decision made by Maya is manifes tly inequitable. further. compliance with a con tract cannot be left to the will It was agreed that Maya. Maya. the courts shall decide what is equitable under the circumstances. However. or by stipula tion. The heir is not liable beyond the value of the pro perty he perceived from the decedent. or by provision of law. The contracting parties must have clearl y and deliberately conferred a favor upon a third person.parties. their assigns and heirs. except in case where the rights and obligation s arising from the contract are not transmissible by their nature. 1311. (1257a) . A mere incidental benefit or interest of a person is not sufficient. he may demand its fulfillment provided he communicated hi s acceptance to the obligor before its revocation. If a contact should contain some stipulation in ART. Contracts take effect only between the favor of third person. (Art. In contract s creating real rights (Art.Cases Where Third person May Be Affected By a Contract 1. . In contracts entered into to defraud credi tor (Art. Tito. In this case. 314). being a real right follows the property on the right of Laura to the mortgage. 1312). the third person (Art. 2. 5. The mortgage is duly registered. In determining the performance of both parties (Art. In contracts containing a stipulation in favor of a third person 3. In contracts which have been violated at the inducement of ged her parcel of land in favor of Laura Example. 1311). Gaya sold the same land to Tito. Gaya mortga as collateral for her debt. Later on. 4. 1309). 1313). although a stranger in the mortgage. Tito bought the land subject to the mortga ge constituted thereon. the right of the parties stated in the following article cannot be exercised. How ever. or that a contract be proved in a certain way. when the law requires that a contract be in some form in order that it may be valid or enforceable. In such cases. . that re quirement is absolute and indispensable. Contracts shall be obligatory. in whatever form they may have been entered into. (1278a) Art. provided all the essential requisites for their validity are present.Forms of Contracts 1356. Meaning of Form of Contracts Forms of a contract refer to the manner in which a contract is executed or manif ested . enforceable reciprocally by the contracting parties. whatever may be the form in which the contact has been entered into to provided all the three es sential requisites (consent. cause) for their validity are present.Rules Regarding Form of Contracts General Rule – Contracts are binding and therefore. object. . 1359. their true intention is not e xpressed in the instrument purporting to embody the agreement. there having been a meeting of the minds of the parties to a contract. the proper remedy is not reformation of the instrument but annulment of the contract.Reformation of Instruments Art. . When. or accident has prevented a meeting of the minds of the parties. one of the parties may ask for the reformation of the instrument to the end that such true intention may be express ed. fraud. inequitable conduct. by reason of mist ake. fraud. inequitable conduct or accident. If mistake. Meaning of Reformation is that remedy by means of which a written instrument is amended or rectified so as to express or conform to the real agreement or intention of the parties when by reason of mistake. Reformation . fraud. inequitable conduct. or accident the instrument fa ils to express such an agreement or intention. fraud.Requisites of Reformation 1. 3. There is a meeting of the minds of the parties to the contract. The failure to express the true intention is due to mistake. 2. The written instrument does not express the true agreement or intention of the parties. inequitable conduct or accident. . the remedy is reformation. the contract was signed by the parties. However.4. because there has been a meeting of minds. 5. states that the land is being sold excl uding the improvements thereon. inequitable conduct or accident. It was greed that the sale will include all the improvements. The facts upon which relief by way of reformation of the instrument is sought ar e put in issue by the pleadings. fraud. . In this case. Arvin sold his land to Ryan. and There is clear and convincing evidence of t he mistake. Example. Simple donation inter vivos where no condition is imposed – Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor o f another. to take effect after his death. it is a donation inter vivos. Wills – A will is a n act whereby a person is permitted with a formalities prescribed by law to cont rol to a certain degree the disposition of his estate. who accepts it. while the opposite of inter vivos is d onation mortis causa which takes effect after the donor’s death. Donation is strictly personal andfree act so that if the intend of the donor that the donation will take effect during hi s lifetime. 2. (Art. .Cases When Reformation Not Allowed 1. 725). 1367) When a party brings an action to enforce the contract. When one party ahs brought an action to enforce the instrument – (Art. thre is nothing to reform. When the real agreement is void – If the real agreement is void. 4. The bringing of the action is thus inconsistent with reformation .3. he admits its validity and that it expresses the true intention of the parties. Interpretation Of Contracts Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal me aning of its stipulations shall control. If the words appear to be contrary to t he evident intention of the parties, the latter shall prevail over the former. ( 1281) Meaning of Interpretation of a contract of a contract is the determination of the meaning of the terms of word used by t he parties in their contact. If the terms of a contract are clear and unequivoca l, the parties are bound thereby according to the literal sense of their stipula tions. Example, a contract was executed by A and B, the contract recites that is a sale of land belongs to A for P500. The terms of the contract are clear and i t does not appear that the intention of the parties is contrary to the literal m eaning of said terms Interpretation Cause of Contracts Art. 1350. In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other; in remuneratory ones, the service or benefi t which is remunerated; and in contracts of pure beneficence, the mere liberalit y of the benefactor. (1274) Meaning of Cause Cause is the essential or more proximate purpose which the contracting parties have in view at the time of entering into a contract. (8Manresa697) It is the Civil Code term for consideration in Anglo A merican or Common Law. Classification of Contracts According to Cause 1. ONEROUS – the cause of which for each contracting parties is the pre-station or promise of a thing or service of the o ther. Ex. Sale, lease of things. 2. REMUNERATORY - the cause is the service or be nefit which is remunerated. Ex. A rendered service as the lawyer-counsel of B wh o agreed to pay P10, 000 for said services. 3. GRATUTIOUS – the cause which is the mere liberality of the benefactor or giver. Ex. X donated a parcel of land to Y The cause is the . liberality of X, the done or benefactor. Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good customs, public order or public policy. (1275a) Art. 1353. The statement of a false cause in contracts shall render them void, if it should not be proved that they were founded upon another cause which is true and lawful. (1276) it must be lawful. (Art. it must be true or real.Requisites of Cause 1. (Art 1353) . 1352) 2. it must exist at the time the contract is entered into. (Ibid) and 3. . for example. according to this article.Effect of Absence of Cause A contract without cause or with an unlawful cause. Like. an absolutely simulated contract produces no effect because there is no cause at all. p roduces no effect whatever. Effect of Inadequacy of Cause Inadequacy of cause does not invalidate a contact. 1355). Illegality of cause implies that there is a c ause but the same is unlawful or illegal. By falsity of Cause is meant that the contract states a valid consideration but such statement is not true . (Art. 3. 2. Voidable contracts (Chapter 7). Unenforceable Contracts (Chapter 8). V oid or inexistent contracts (Chapter 9) . and 4. Rescissible contracts (Chapter 6) .PART IV DEFECTIVE CONTRACTS There are four kinds of defective contracts: 1. such as creditors.Rescissible contracts Contracts are valid because all the essential requisites of a contract exist but by reason of injury or damage to on e of the parties or to third persons. Contracts validly agreed upon may be rescinded in the cases e stablished by law. Art. (1290) . 1380. the contract may be res cinded. (8Manresa 748) . by means of the restorat ion of things to their condition in which they were prior to the celebration of said contract.Meaning of Rescission Rescission is a remedy granted by law to the contracting parties and sometimes even to third person in order to secure reparation of damages caused them by a valid contract. There must be no other legal remedy to obtain reparation for the damage. The contract must be validly agreed upon. 2. There must be lesion on pecuniary prejudice to one of the parties or to a third person. The rescission must be based upon a case especially provided by law. 4.Requisites of Rescission 1. 3. . 5. . The object of the contract must not legally be i n the possession of third person who did not act in bad faith. 7. The party asking for rescission must be able to return what he is obliged to res tore by reason of the contract. The period for fi ling the action for rescission must not have prescribed 6. (3) Tho se undertaken in fraud of creditors when the latter cannot in any other manner c ollect the claims due them. (5) All other contracts spe cially declared by law to be subject to rescission. (2) Those agreed upon in representation of ab sentees. (1291a) . if the latter suffer the lesion stated in the preceding number. The following contracts are rescissible: (1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the th ings which are the object thereof.Art. (4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority. 1381. undue influence or fraud. These contracts are binding. 1390. intimidation . (2) Those where the consent is vitiated by mistake. even though there may have been no damage to the contracting part ies: (1) Those where one of the parties is incapable of giving consent to a cont ract. unless they are annulle d by a proper action in court. violence. . The following contracts are voidable or annullable. They are susceptible of ratification.Voidable Contracts Art. viol ence. undue influence of fraud. or consent is vitiate by mistake. intimidation. .Meaning of Voidable Contracts Voidable or annullable contracts are those which possess all the essential requisites of valid contract but one of th e parties is incapable of giving consent. for the dec laration of the inefficacy of a contract based on defect or vice in the consent of one of the contracting parties in order to restore them to their original pos ition in which there were before contract was executed.Meaning of Annulment Annulment is a remedy granted by law. . for reason of public interest. The defect in the contract consists in the vitiation of consent of one of the co ntracting parties. The contract is binding until annulled by a competent court. The contract is sus ceptible of convalidation by ratification or prescription. 2. 3. 4.Characteristics of Voidable Contracts 1. The defect or voidabl e character of the contract cannot be invoked by third persons. . The action for annulment shall be brought within four years. And when the action refers to contracts entered into by minors o r other incapacitated persons. from the time the defect of the consent ceases.Art. from the time the guardianship ceases. (1301a) . from the time of the discove ry of the same. 1391. In case of mistake or fraud. This per iod shall begin: In cases of intimidation. violence or undue influence. and 3. in cases of contracts entered into by incapacipated persons. The time of the discovery of mistake or fraud. The time guardianship ceases. violence or undue influence ceases. The time the intimidation.Period for Filing Action for Annulment The period within which the action for annulment shall be brought within four(4) years from: 1. 2. . unless they are ratified: Art. or who ha s acted beyond his powers. thereof. The following unenforceable. of the agreement cannot be received without the writing .Unenforceable Contracts 1403. contracts are person by one who has been given no authority or legal representation. evidence. or by his age nt. and subscribed by the party charged. therefore. be in writing. unless the same. or a secondary evidence of its contents: (2) Those that do not comply with the Statute of . or some note or memora ndum. In the following cases an agreement hereafte r made shall be unenforceable by action. (1) Those entered into in the name of another Frauds as set forth in this number. default. (b) A special promise to answer for the debt. other than a mutual promise to marry.(a) An agreement that by its terms is not to be performed within a year from the making thereof. . or miscarriage of another. (c) An agreement made in consideration of marriage. or the evidences.or things in action. or for the sale of real property or of an inter est therein. chattels . (f) A representation as to the credit of a third person. of the amount and kind of property sol d. names of the purchasers and person on whose account the sale is made. price. (e) An agreement of the leasing fo r a longer period than one year. it is a sufficient memorandum. or some of them. at the time of the sale. (3) Those where both parties are incapable of giving consent to a contract. but when a sale is made by auction and entry is made by the auctioneer in his sales book. terms of sale. (d) An agreement for the sale of goods. at a price not less than five hundred pesos. of such things in action or pay at the time some part of the purchase money. unless the buy er accept and receive part of such goods and chattels. Meaning of Unenforceable Contracts Unenforceable contracts are those that cannot be enforced in court or sued upon by reason of defects provide by law unt il unless they are ratified according to law. They are contracts either entered into without or in excess of authority or do not comply with the statue of frauds or both of the contracting parties do not possess the required legal capacity. . and 3. Those where both parties are 2. Those which do not comply with the Statue of Frauds. incapable of giving consent . 1.Classes of Unenforceable Contracts Those entered into the same of another person by one without authority or in exc ess of his authority. Unauthorized contracts are governed by Article 1317 and the principle s of agency in Title X of this Book.Art. are ratified by the failure to object to the presentation of oral e vidence to prove the same. 1405. or by the acceptance of benefit under them. Art. referred to in No. Contracts infringing the Statute of Frauds. . 2 of A rticle 1403. 1404. fictitious.Void or Inexistent Contracts Art. 5) Those which contemplate an impossible . public order or public policy. morals. good customs. 1409. The following contracts are inexistent and void from the beginning: 1 ) Those whose cause. service. object or purpose is contrary to law. 4) Those whose object is outside the commerce of men. 2) Those which are absolutely simulated or 3) Those whose cause or object did not exist at the time of the transaction. 6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained. Art. These contracts cannot be ratified. 1410. . Neither can the right to set up the defense of illegality be waived. 7) Those expressly prohibited or declared void by law. The action or defense for the declaration of the inexistence of a contract does not prescribe. and 5. 1422) . (Art. 3. it c annot give rise to a valid contract. the defense of illegality is not available to third persons whose interests are not directly affected. the action or defense for the declaration of its inexistence does not prescribed. the right to set up the defense of illegality cannot be waived.Meaning of Void or Inexistent Contracts 1. it cannot be ratified. (art. 1410) 4. (Art 1409) 2. Mere lapse of time cannot give effect to contract s which are null and void. .Instances of Void or Inexistence Contract There is no need for a detail discussion of these different kinds of void inexistent contracts considering tha t they have been discussed in previous chapters of this book. Void of inexistent contracts does not prescribe. and the act constitutes a criminal offense. the provisions of the Penal Code relative to the disposal of effects or instruments of a crime shall be applicable to the things or the p rice of the contract. both parties being in pari delicto. and both shall be prosecuted. This rule shall be applicable when only one of the parties is guilty. When the nullity proceeds from the illegality of the cause or object of the contract. but the innocent one may claim what he has given. Moreover. and shall not be bound to comply with his promise.Art. they shall have no action against each other. 1411. (1305) . means tha t when the defect of avoid contracts consists in the illegality of the cause or object f the contract and both parties are at fault or in a pari delicto.Meaning of Pari Delicto Pari Delicto means both parties are equally at fault or are equally guilty. or the parties have no action against each other. the la w refuse them every remedy. The principle of pari delicto. . 2. Where only one party is guilty.Illegal contract with Criminal Offense 1. both shall be prosecuted. the things of the price of the contract. the parties shall have no action against each other. and c. When both parties are in pari delicto – Rules a. The innocent one or less guilty may claim what he has given and shall not be bound to comply with his promise . shall be confiscated in favor of the government. b. the following rules shall be observed: (1) When the fault is on the part of both contracting parties. he cannot recover what he has given by reason of the contract.Art. may demand the return of what he has given without any obligation to comply h is promise. neither may recover what he has given by virtue of the cont ract. who is not at faul t. (1306) . or ask for the fulfillment of what has been promised him. The other. (2) When only one of the contracting parties is at fault. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense. or demand the performance of the other’s undertaking. 1412. the latter may be enforced. In case of a divisible contract. In case a contract containing an illegal orlegal terms. . 1420.Effect of Illegal Terms in a Contract Art. if the illegal terms can be separate d from the legal ones. the law allows the legal terms to be enforced if it can be enforc ed if it can be separated from the illegal ones. Persons Entitled to Raise Defense of Illegality or Nullity As general rule. Corollary to this rule. their heirs or assigns. th e illegality of a contract maybe set up as a defense only by contracting parties or by parties whose interest are affect by the contracts as a defense . contracts bind only the contracting parties. Thank you!!!!! .