Obligations and Contracts Notes PDF

OBLIGATIONS AND CONTRACTS NOTES 1 SAN BEDA COLLEGE OF LAW - MANILA OBLIGATIONS AND CONTRACTS NOTES TITLE I...

OBLIGATIONS AND CONTRACTS NOTES 1 SAN BEDA COLLEGE OF LAW - MANILA OBLIGATIONS AND CONTRACTS NOTES TITLE I o Wrong – act or omission of one party in violation of the OBLIGATION legal right or rights of another, causing injury to the latter. CHAPTER 1 GENERAL PROVISION EXISTENCE OF CAUSE OF ACTION (1) Essential Elements ARTICLE 1156 (a) A legal right in favor of a person by whatever means and under whatever law it arises or is created; MEANING OF OBLIGATION (b) A correlative legal obligation on the part of another to o It is a tie of law or a juridical bond by virtue of which one is respect or not to violate said right; and bound in favor another to render something – and this may (c) An act or omission in breach or violation of said right consist in giving a thing, doing a certain act, or not doing a by the defendant with consequential injury or damage certain act. to the plaintiff for which he may maintain an action for o A legal relation established between one party and another, the recovery of damages or other appropriate relief. whereby the latter is bound to the fulfillment of a prestation (2) Allegation of all elements in complaint – If any of these which the former may demand of him. elements is absent, the complaint becomes vulnerable to a o Article 1156 merely stresses the duty under the law of the motion to dismiss on the ground of failure to state the cause debtor or obligator when it speaks of obligation as a juridical of action. The presence of the cause of action rests on the necessity. sufficiency, and not on the veracity, of the allegations in the complaint, which will have to be examined during the trial MEANING OF JURIDICAL NECESSITY on the merits. o In case of non-compliance, the court of justice may be called (3) Accrual of cause of action – a cause of action only arises upon to enforce its fulfillment or, in default thereof, the when the last element occurs. economic value that it represents. (a) Right of action – governed by the procedural law; o The debtor may also be held liable for damages arising from springs from the cause of action, but does not accrue the injury or harm suffered by the creditor or oblige for the until all the facts have occurred violation of his rights. Right to commence or maintain an action – depends o If obligations were not made enforceable, then people can on substantive law disregard them with impunity. o If the obligation cannot be legally enforced, it may be only ILLUSTRATIVE CASE a natural obligation. S rejected or cancelled a contract to sell his property even before the JAMES BRYAN SUAREZ DEANG © 2017 (09265563619/[email protected]) arrival of the period in the exercise of the option to buy by the NATURE OF OBLIGATIONS UNDER THE CIVIL CODE purchaser who has already made a downpayment. o Civil Obligations – obligations which give to the creditor o B has a cause of action against S for prematurity. All the or obligee a right of action in courts of justice to enforce elements of cause of action are present. their performance. 1. There is a legal right in favor of B (the right to complete the o Natural Obligations – based on equity and natural law, payment of the purchase price should he choose to do so) which do not grant a right of action to enforce their 2. There is an obligation on the part of S to sell performance although in case of voluntary fulfillment by 3. There was a breach of S’s obligation to sell the property the debtor, the latter may not recover what has been o The fact that the rejection or cancellation of the contract by delivered or rendered by reason thereof. S was not made judicially or by notarial act (Article 1592) is of no moment. It is enough for purpose of determining ESSENTIAL REQUISITES OF AN OBLIGATION the existence of a cause of action that S has declared in no Four Essential Elements uncertain terms his refusal to be bound by the contract to 1. A passive subject (debtor or obligor) sell. 2. An active subject (creditor or oblige) 3. Object or prestation (subject matter of the obligation) CAUSE OF ACTION BASED UPON A WRITTEN CONTRACT In bilateral obligations, the parties are reciprocally debtors o Should be brought within 10 years from the time the right and creditors of action accrues (Article 1144) 4. A juridical or legal tie (efficient cause) – can easily be o An action based on a contract accrues only when an actual determined by knowing the source of obligation breach or violation thereof occurs. o The prescription period commences from the occurrence of FORMS OF OBLIGATIONS the breach. General Rule: The law does not require any form in obligations Examples: arising from contracts for their validity or binding force. 1. Action to rescind a contract of sale on installment basis – o Obligations arising from other sources (Article 1157) do at the time the last installment is not paid not have any form at all 2. Obligation is payable on demand – when demand is made 3. Contract of loan with real estate mortgage whereby OBLIGATION, RIGHT, AND WRONG (Cause of Action) creditor could unilaterally increase the interest rate, where o Obligation – act or performance which the law will enforce. the creditor foreclosed the mortgage when the debtor failed o Right – power which a person has under the law, to demand to pay – from the date the debtor discovered the increased from another any prestation. interest rate  OBLIGATIONS AND CONTRACTS NOTES 2 4. Agreement to buy and sell was conditioned upon the 3. Quasi-contracts – arise from lawful, voluntary and conduct of preliminary survey of the land to verify – when unilateral acts and which are enforceable to the end that no the plaintiff discovered the completion of the survey one shall be unjustly enriched or benefited at the expense 5. Money claims arising from a contract of employment which of another (Article 2142) would prescribe in 3 years from the time the cause of action 4. Crimes or acts or omissions punished by law – arise from accrued – date employer made a definite denial of the civil liability which is the consequence of a criminal employee’s claim offense (Article 1161) 6. Reformation of a contract where it is alleged that the 5. Quasi-delicts or torts – arise from damage caused to contract is one sided in favor of the defendant, and certain another through an act or omission, there being fault or events had made the arrangement inequitable – when the negligence, but no contractual relation exists between the contract appeared disadvantageous. parties (Article 2176) 7. Nature of the product sold is a major factor in determining the accrual – cause of action will arise only from the SOURCES CLASSIFIED discovery of the same with certainty Two classifications: 1. Those emanating from laws; and INJURY, DAMAGE, AND DAMAGES 2. Those emanating from private acts o Injury is the illegal invasion of a legal right; it is a wrongful a. Licit acts: contracts and quasi-contracts act or omission which causes loss or harm to another. It is b. Illicit acts: delicts and quasi-delicts the legal wrong to be redressed. o Damage is the loss, hurt or harm which results from the Two general sources: injury. 1. Law o Damages denote the sum of money recoverable as amends 2. Contracts for the wrongful act or omission; recompense or compensation awarded or recoverable for the damage or ILLUSTRATIVE CASE loss suffered. Liability of sheriff lawfully enforcing a judgment in an ejectment suit o No proof has been submitted that a contract had been EXISTENCE OF ONE WITHOUT THE OTHER entered into between plaintiff Y and defendants X and Z or o There may be injury without damage and damage without that the latter had committed illegal acts or omissions or injury. incurred in any kind of fault or negligence, from any of 1. Proof of loss for injury – as a rule, there must be, in which an obligation might have arisen on the part of X and addition, loss or damage caused to him by the violation of Z to indemnify Y. for this reason, the claim for indemnity, his right. But except for actual or compensatory damages on account of acts performed by the sheriff, while enforcing (Article 2199), no pecuniary proof is necessary in order that a judgment, cannot under any consideration be sustained. JAMES BRYAN SUAREZ DEANG © 2017 (09265563619/[email protected]) moral, nominal, temperate, liquidated, or exemplary damages may be awarded (Article 2216) 2. Liability for damages of a person exercising his legal ARTICLE 1158 rights – One who makes use of his legal right does no injury. Qui jure suo utitur mallum damnum facit. If LEGAL OBLIGATIONS damage results from a person’s exercising his legal rights, o They are not presumed because they are considered a it is damnum absque injuria. burden upon the obligor. o The law affords no remedy for damages resulting from an o To be demandable, they must be clearly set forth in the law act which does not amount to a legal wrong or injury. o Under Article 1158, special laws refer to all other laws not contained in the Civil Code. ILLUSTRATIVE CASE Acts of importer contesting forfeiture, delay in the delivery of goods ILLUSTRATIVE CASE to highest bidder. Title to property purchased by a person for his own benefit but paid o Such delay is an incident to the exercise by X of his right to by another contest the forfeiture and the sale of his goods. o If any such obligation was ever created on the part of X (son of legal age), said obligation must arise from law. But KINDS OF OBLIGATIONS ACCORDING TO SUBJECT obligations derived from law are not presumed. Only those MATTER expressly determined in the Civil Code or special laws are 1. Real Obligation (obligation to give) – subject matter is a demandable. Whatever right C (father) may have against X thing which the obligor must deliver to the oblige either for the recovery of the money paid or for damages, it 2. Personal Obligation (obligation to do or not to do) – is clear that such payment gave him no title, either legal or subject matter is an act to be done or not to be done equitable, to these vessels. a. Positive personal obligation – obligation to render service/to do b. Negative personal obligation – obligation not to do ARTICLE 1157 SOURCES OF OBLIGATIONS 1. Law – imposed by the law 2. Contracts – arise from the stipulation of the parties  OBLIGATIONS AND CONTRACTS NOTES 3 ARTICLE 1159 7. Preservation of interest of promise – the remedy serves to preserve the interest of the promise of having the benefit of CONTRACTUAL OBLIGATIONS his bargain, or in being reimbursed for loss caused by o A contract is a meeting of minds between two persons reliance on the contract, or in having restored to him any whereby one binds himself, with respect to the other, to benefit that he has conferred on the other party. give something or to render some service. 1. Binding force – once perfected, valid contracts have the ARTICLE 1160 force of law between the parties who are bound to comply fully and not selectively with its terms in good faith, and QUASI-CONTRACTUAL OBLIGATIONS neither one may without the consent of the other, renege o A quasi-contract is that juridical relation resulting from therefrom. certain lawful, voluntary and unilateral acts by virtue of The law stresses the obligatory nature of a binding and a which the parties become bound to each other to the end valid agreement, absent any allegation that it is contrary to that no one will be unjustly enriched or benefited at the law, morals, good customs, public order, or public policy. expense of another. a. The law will not permit a party to be set free from liability for any kind of misperformance of the 1. There is no consent but the same is supplied by fiction of contractual undertaking or a contravention of the tenor law. The law considers the parties as having entered into a thereof. The mere proof of the existence of the contract contract, irrespective of their intention, to prevent injustice. and the failure of its compliance justify, prima facie, a 2. Cause of action may be relieved against the party benefited. corresponding right of relief. b. Whatever fairly puts a person on inquiry is sufficient KINDS OF QUASI-CONTRACTS notice, where the means of knowledge are at hand, 1. Negotiorum gestio is the voluntary management of the which if pursued by proper inquiry, the full truth might property or affairs of another without the knowledge or have been ascertained. consent of the latter. c. If it occurs to one of the contracting parties to allege Not applicable to the following: some defect in a contract as a reason for invalidating a. When the property or business is not neglected or it, such alleged defect must be proved by him by abandoned, in which case the provisions of the Civil convincing evidence since its validity or compliance Code regarding unauthorized contracts shall govern; cannot be left to will one of them. or d. Courts have no alternative but to enforce valid and b. The manager has been tacitly authorized by the owner, binding contracts as they were agreed upon and in which case the rules on agency shall govern. JAMES BRYAN SUAREZ DEANG © 2017 (09265563619/[email protected]) written when the terms thereof are clear and readily understandable, leaving no room for interpretation. 2. Solutio indebiti is the juridical relation which is created e. A compromise agreement is immediately executory when something is received when there is no right to and not appealable, except for vices of consent or demand it and it was unduly delivered through mistake. forgery. Upon the parties, it has the effect and the o Under the principle, the government has to restore (credit authority of res judicata, once entered into. or refund) to the taxpayer the amounts representing erroneous payments of taxes. 2. Requirements of a valid contract – as a source of a. Payment is made when there exists no binding relation obligation, a contract must be valid and enforceable. between the payor, who has no duty to pay, and the person who received the payment; and 3. Where contract requires approval by the government – b. The payment is made through mistake and not through such contract becomes a law between the contracting liberality or some other cause. parties only when approved, and where there is nothing in General Presumption: money paid by one to another was it which is contrary to law, etc., its validity must be due to the latter sustained. 3. Other Cases 4. Compliance in good faith – evasion by a party of legitimate Quantum meruit obligations after receiving the benefits under the contract o Allows recovery of the reasonable value regardless of any would constitute unjust enrichment on his part. agreement as to value.it entitles the party to “as much as he reasonably deserves” 5. Liability for breach of contract – our law on contracts o Jurisprudence recognizes the principle of quantum meruit recognizes the principle that actionable injury inheres in in the interest of substantial justice. every contractual breach. Interest may, in the discretion of o Prevents undue enrichment based on the equitable postulate the court, on equitable grounds, be allowed upon damages that it is unjust for a person to retain benefit without paying awarded for breach of contract. for it. Quantum valebant 6. Unreasonable delay in demanding performance – contract o “as much as what is reasonably worth” is ineffective where the contract does not provide for the period within which the parties may demand the performance of their respective undertakings but the parties did not contemplate that the same could be made indefinitely.  OBLIGATIONS AND CONTRACTS NOTES 4 Liability of person responsible It is direct and primary ARTICLE 1161 for the author of the negligent act or omission is subsidiary CIVIL LIABILITY ARISING FROM CRIMES OR DELICTS 1. Civil liability in addition to criminal liability – there is civil liability when there is criminal liability RECOVERY OF DAMAGES TWICE FOR THE SAME ACT OR 2. Criminal liability without civil liability – In crimes which OMISSION PROHIBITED cause no material damage, there is no civil liability to be 1. Two causes of action – same may produce civil liability enforced. A person not criminally responsible may still be arising from a crime or create an action for quasi-delict liable civilly when the obligation arises from quasi-delict or 2. Option given to offended party – Inasmuch as civil liability tort not alleged and proved as constituting a criminal co-exists with criminal responsibility in negligence cases, offense. the offended party has the option between an action for enforcement of civil liability based on culpa criminal and RIGHT TO RECOVER CIVIL LIABILITY culpa aquiliana. 1. Reservation and waiver – only the civil liability, arising 3. Two distinct civil liabilities – these two causes of action (ex from the offense charged is deemed instituted with the delicto or ex quasi delicto) may be availed of subject to the criminal action unless the offended party waives the civil caveat that the offended party cannot recover damages action, reserves his right to institute it separately, or twice for the same act or omission or under both causes. institutes the civil action prior to the criminal action. No Since these 2 civil liabilities are distinct and independent of need under Articles 32, 33, 34 and 2176 of the NCC. each other, the failure to recover in one will necessarily 2. Independent civil action – reservation and waiver does not preclude recovery in the other. include recovery of civil liability under Articles 32, 33, 34 and 2176 of the NCC arising from the same act or omission which may be prosecuted separately even without a 1156 – definition of obligation reservation. 1157 – sources of obligations 1158 – obligations derived from law SCOPE OF CIVIL LIABILITY 1159 – contractual obligations 1. The extent of this arising from crimes is governed by RPC 1160 – quasi-contractual obligations and NCC. It includes: 1161 – civil obligations arising from crimes or delicts a. Restitution 1162 – obligations arising from quasi-delicts b. Reparation c. Indemnification 2. On appeal, SC may modify the decision by ordering JAMES BRYAN SUAREZ DEANG © 2017 (09265563619/[email protected]) indemnification of the offended party pursuant to Articles 100, 104(3), and 107 of the RPC. ARTICLE 1162 OBLIGATIONS ARISING FROM QUASI-DELICTS o A quasi-delict is an act or omission by a person (tortfeasor) which causes damage to another in his person, property, or rights giving rise to an obligation to pay for the damage done, there being fault or negligence but there is no pre- existing contractual relation between the parties. REQUISITES OF QUASI-DELICT 1. There must be an act or omission by the defendant; 2. There must be fault or negligence of the defendant; 3. There must be damage caused to the plaintiff; 4. There must be a direct relation or connection of cause and effect between the act or omission and the damage; and 5. There is no pre-existing contractual relation between the parties. CRIME QUASI-DELICT Criminal or malicious intent Negligence only or criminal negligence Affects public interest Private interest Criminal and Civil liability Only civil liability Purpose is punishment Indemnification Proof beyond reasonable Preponderance of evidence doubt No settlement of criminal Liability can be compromised liability  OBLIGATIONS AND CONTRACTS NOTES 5 CHAPTER 2 o In case rescission, the parties are under “obligation to NATURE AND EFFECT OF OBLIGATIONS return the things which were the object of the contract, together with their fruits and the price with interest.” ARTICLE 1163 WHEN OBLIGATION TO DELIVER ARISES 1. Generally, it arises from the time of the perfection of the MEANING OF SPECIFIC OR DETERMINATE THING contract. Perfection in this case refers to birth of the o A thing is said to be specific or determinate when it is contract or to the meeting of the minds between the parties. particularly designated or physically segregated from all 2. On suspensive condition or period: it arises from upon others of the same class. fulfillment of the condition or arrival of the period. However, the parties may make a stipulation to the contrary MEANING OF GENERIC OR INDETERMINATE THING as regards to the right of the creditor to the fruits of the o A thing is generic or indeterminate when it refers only to a things. class or genus to which it pertains and cannot be pointed 3. In contract of sale: arises from the perfection of the out with particularity. contract even if the obligation is subject to a suspensive condition or period where the price has been paid. DUTIES OF DEBTOR IN OBLIGATION TO GIVE A 4. Arising from law, quasi-contracts, delicts, and quasi- DETERMINATE THING delicts: as determined by law applicable. 1. To preserve or take care of the thing due; 2. To deliver the fruits of the thing; MEANING OF PERSONAL RIGHT AND REAL RIGHT 3. To deliver its accession and accessories; 1. Personal right is the right or power of a person to demand 4. To deliver the thing itself; and from another. 5. To answer for damages in case of nonfulfillment or breach 2. Real right is the right or interest of a person over a specific thing without a definite passive subject against whom the OBLIGATION TO TAKE CARE OF THE THING DUE right may be personally enforced. 1. Diligence of a good father of a family – the phrase has been equated with ordinary care or that diligence which an OWNERSHIP ACQUIRED BY DELIVERY average person exercises over his own property. o Ownership and other real rights over property are acquired 2. Another standard of care – if there is a provision of another and transmitted by law, by donation, by testate and intestate standard of care, the said law or stipulation shall prevail succession, and in consequence of certain contracts by 3. Factors to be considered – the diligence required depends tradition or delivery. upon the nature of the obligation and corresponds with the o Delivery in sale may be actual or real, constructive or legal, circumstances of the person, of the time, and of the place. or in any other manner signifying an agreement that the JAMES BRYAN SUAREZ DEANG © 2017 (09265563619/[email protected]) General Rule: the debtor is not liable if his failure to possession of the thing sold is transferred from the vendor preserve the thing is not due to his fault or negligence but to the vendee. to fortuitous events or force majeure. o “he shall acquire no real right over it until the same has 4. Reason for debtor’s obligation – the debtor must exercise been delivered to him” – the creditor does not become the diligence to insure that the thing to be delivered would owner until the specific thing has been delivered to him. subsist in the same condition as it was when the obligation was contracted. ARTICLE 1165 DUTIES OF DEBTOR IN OBLIGATION TO DELIVER A GENERIC THING REMEDIES OF CREDITOR IN REAL OBLIGATION 1. To deliver a thing which is of the quality intended by the 1. In a specific real obligation, the creditor may exercise the parties taking into consideration the purpose of the following remedies or rights: obligation and other circumstances; and a. Demand specific performance or fulfillment of the 2. To be liable for damages in case of fraud, negligence, or obligation with a right to indemnity for damages; or delay, in the performance of his obligation, or b. Demand rescission or cancellation of the obligation, contravention of the tenor thereof. also with a right to recover damages. 2. A generic real obligation can be performed by a third person since the object is expressed only according to its ARTICLE 1164 family or genus. It is thus not necessary for the creditor to compel the debtor to make the delivery although he may DIFFERENT KINDS OF FRUITS ask for performance of the obligation. 1. Natural fruits are the spontaneous products of the soil, and the young and other products of animals. o The constitutional prohibition of non-payment of debt 2. Industrial fruits are those produced by lands of any kind applies only to purely civil debt arising from contractual through cultivation or labor. obligations. 3. Civil fruits are those derived by virtue of a juridical relation. WHEN DEBTOR DELAYS OR HAS PROMISED DELIVERY TO SEPARATE CREDITORS RIGHT OF CREDITOR TO FRUITS o Paragraph 3 refers to determinate thing. An indeterminate o The intention of the law is to protect the interest of the thing cannot be the object of destruction by a fortuitous oblige should the obligor commit delay, purposely or event because genus nunquam perit (genus never otherwise, in the fulfillment of hi obligation. perishes).  OBLIGATIONS AND CONTRACTS NOTES 6 ARTICLE 1166 ARTICLE 1168 MEANING OF ACCESSION AND ACCESSORIES REMEDIES OF CREDITOR IN NEGATIVE PERSONAL 1. Accessions are the fruits of, or addition to, or improvement OBLIGATION upon, a thing (the principal) Rule: The remedy of the oligee is the undoing of the forbidden thing o The concept includes accession in its three forms of plus damages. building, planting, and sowing, and accession natural such If not possible to be undone: action for damages caused by the as alluvion, avulsion, change of course of rivers, and debtor’s violation of his obligation formation of islands. 2. Accessories are things joined to, or included with, the ARTICLE 1169 principal thing for the latter’s embellishment, better use or completion. MEANING OF DELAY 1. Ordinary delay is merely the failure to perform an RIGHT OF CREDITOR TO ACCESSION AND ACCESSORIES obligation on time. General Rule: All accessions and accessories are considered 2. Legal delay or default or mora is the failure to perform an included in the obligation to deliver a determinate thing although they obligation on time which failure, constitutes a breach of the may not have been mentioned. obligation. Principle: Accessory follows the principal To be excluded: There must be a stipulation KINDS OF DELAY (MORA) 1. Mora solvendi or the delay on the part of the debtor to ACESSION AS A RIGHT fulfill his obligations by reason of a cause imputable to him; o Accession can be defined as a right pertaining to the owner 2. Mora accipiendi or the delay on the part of the creditor of a thing over its products and whatever is incorporated or without justifiable reason to accept the performance of the attached thereto, either naturally or artificially. obligation; and o It is one of the rights which go to make up dominion or 3. Compensatio morae or the delay of obligors in reciprocal ownership but under the aw, it is not a mode of acquiring obligation, i.e., the delay of the obligor cancels the delay of ownership. the oblige, and vice-versa o No delay in negative personal obligations ARTICLE 1167 REQUISITES OF DELAY OR DEFAULT BY THE DEBTOR JAMES BRYAN SUAREZ DEANG © 2017 (09265563619/[email protected]) SITUATIONS CONTEMPLATED IN A. 1167 Three conditions for mora solvendi 1. The debtor fails to perform an obligation to do; or 1. Failure of the debtor to perform his obligation on the date 2. The debtor performs an obligation to do, but contrary to the agreed upon; terms thereof; or 2. Demand made by the creditor upon the debtor to fulfill, 3. The debtor performs an obligation to do but in a poor perform, or comply with his legal obligation which manner. demand, may be either judicially or extra-judicially; and 3. Failure of the debtor to comply with such demand. REMEDIES OF CREDITOR IN POSITIVE PERSONAL OBLIGATION o The creditor has the burden of proving that a previous 1. The creditor has the right: demand has been made. It is incumbent upon the debtor, to a. To have the obligation performed by himself, or by relieve himself from liability, to prove that the delay was another unless personal considerations are involved, at not caused by his fault. the debtor’s expense; and b. To recover damages. ILLUSTRATIVE CASE(S) 2. On the 2nd and 3rd situations, it may be ordered (by the court 1. Non-payment of taxes by mortgagor or mortgaged realty upon complaint) that it be undone if it is still possible to rendered entire loan due and payable but no demand was undo what was done. made either of the taxes or of loan itself.  In view of the absence of previous demand for him to PERFORMANCE BY A THIRD PERSON make such payment notwithstanding that the failure to o A specific performance cannot be ordered in a personal pay the taxes rendered the entire loan due and obligation to do because this may amount to involuntary demandable. None of the circumstances in Article servitude prohibited by the Constitution. 1169 which would dispense E (creditor) from making o Where the personal qualifications of the debtor are the demand was present. In light of the principal determining motive for the obligation contracted, the only stipulation of the contract when mortgage debt was to feasible remedy is indemnification for damages. be paid, the non-payment of taxes was not a material breach of the contract. 2. Filing of foreclosure suit as equivalent to demand for payment  The filing of the foreclosure suit by S (creditor) is sufficient notice to S of the completion of the roads and S’s desire to be paid the purchase price.  OBLIGATIONS AND CONTRACTS NOTES 7  It is not necessary for the contract to categorically state 3. Buyer bound herself to pay the balance of the purchase that time is of essence; intent is sufficient. price within a period of 10 years at a fixed monthly amortization. 4. When demand would be useless  CL (debtor) cannot ignore the provision on the  Demand is also unnecessary where it is apparent that payment of monthly installments by claiming that the it would be unavailing, as where there has been a prior 10-year period within which to pay has not elapsed. absolute refusal by S (obligor) or S has manifested an When CL did not pay the monthly amortizations in intention or to comply with his obligation. accordance with the terms of contract, she was in delay and liable for damages. 5. When there is performance by a party in reciprocal obligations EFFECTS OF DELAY a. Where a contract of sale imposes on the seller the 1. Mora solvendi obligation to deliver to the buyer a reasonable a. The debtor is guilty of breach of obligation; habitable dwelling in return for his undertaking to pay b. He is liable for interest in case of obligations to pay the stipulated price in monthly amortizations as cause money, or for damages in other obligations. In the to cancel the contract where the seller did not fulfill its absence of extrajudicial demand, the interest shall obligation and is not willing to put the house in a commence from the filing of the complaint; and habitable state. c. He is liable for any fortuitous event when the b. Where the parties fix a period for the performance of obligation is to deliver the determinate thing. their reciprocal obligations, neither party can demand performance nor incur in delay before the expiration 2. Mora accipiendi of the period. a. The creditor is guilty of breach of obligation; c. Obligations under an option to buy are reciprocal b. He is liable for damages suffered, if any, by the debtor; obligations. c. He bears the risk of loss of the thing due; d. Where the obligation is to pay money. The debtor is WHEN TIME IS OF THE ESSENCE EVEN WITHOUT not liable for interest from the time of the creditor’s EXPRESS STIPULATION delay; and 1. In agreements which are executed in the form of options, e. The debtor may release himself from the obligation by time is always held to be of the essence of the contract, and the consignation of the thing or sum due. it is well recognized that in such contracts, acceptance of the option and payment of the purchase price constitute 3. Compensatio morae conditions precedent to specific performance. a. The delay of the obligor cancels out the effects of the 2. The same is true generally of all unilateral contracts. JAMES BRYAN SUAREZ DEANG © 2017 (09265563619/[email protected]) delay of the oblige and vice versa. The net result is that 3. In mercantile contracts for the manufacture and sale of there is no actionable default on the part of both goods, time is also held to be of the essence of the parties, such that as if neither one is guilty of delay. agreement. b. If the delay of one party is followed by that of the 4. Where the subject matter of a contract is of speculative or other, the liability of the first infractor shall be fluctuating value, it is held that the parties must have equitably tempered or balanced by the courts. If it intended time to be of essence. cannot be determined which of the parties is guilty of 5. Where the contract relates to mining property. delay, the contract shall be deemed extinguished and each shall bear his own damages. ARTICLE 1170 WHEN DEMAND NOT NECESSARY TO PUT DEBTOR IN DELAY GROUNDS FOR LIABILITY General Rule: Delay begins only from the moment the creditor o Here, the breach is voluntary demands, judicially or extra-judicially, the fulfillment of the 1. Fraud (deceit or dolo) – deliberate or intentional evasion obligation. of the normal fulfillment of an obligation. Exceptions: a. Includes any act, omission, or concealment involving 1. When the obligation so provides some kind of malice or dishonesty  The obligation must expressly so declare that demand b. A. 1170 refers to incidental fraud (dolo incidente) is not necessary or must use words to that effect, as for committed in the performance of an obligation already instance, “the debtor will be in default” or “I will be existing because of contract. It is to be differentiated liable for damages.” from causal fraud (dolo causante) of fraud employed in the execution of a contract under A. 1338. 2. When the law so provides c. The NCC refers to civil fraud. Criminal fraud gives  Taxes should be paid on or before a specific date rise to criminal liability.  A partner is liable for the fruits of the things he may have promised to contribute to the partnership from 2. Negligence (fault or culpa) – it is the failure to exercise the time they should have been delivered. that degree of care required by circumstances. 3. When time is of the essence 3. Delay (mora) – SEE discussion on ARTICLE 1169  Delivery of obligation on a particular date or at a particular time 4. Contravention of the terms of the obligation – violation of the terms and conditions stipulated on the obligation. The  OBLIGATIONS AND CONTRACTS NOTES 8 contravention must not be due to fortuitous event or force and intentionally, with complete disregard for the harmful majeure. consequences of his conduct to others. RECOVERY OF DAMAGES FOR BREACH OF CONTRACT OR OBLIGATION ARTICLE 1171 1. Measure of recoverable damages – Title XVIII on “Damages” of the NCC governs; there should be a fair and RESPONSIBILITY ARISING FROM FRAUD just compensation commensurate to the loss sustained as a o This article refers to incidental fraud which is employed in consequence of the defendant’s act. the fulfillment of an obligation. o This is deemed serious and evil so the court is not given the 2. Contractual interests of oblige or promise, remedy serves power to mitigate or reduce damages to be awarded. to preserve – the remedy serves to preserve the interests of the promise which may include: WAIVER OF ACTION a. Expectation interest – interest in having the benefit of o For future fraud, void his bargain o For past fraud, valid b. Reliance interest – interest in being reimbursed for Reason: the waiver can be considered generosity and loss caused by reliance on the contract magnanimity on the part of the victim of fraud. c. Restitution interest – interest in having restored to him  The waiver must be couched in clear and unequivocal an benefit that he conferred on the other party. terms which leave no doubt as to the intention of the oblige to give up his right of action against the obligor. 3. Excuse from ensuing liability – the effect of every infraction is to create a new duty, that is, to make recompense to the one who has been injured by the failure ARTICLE 1172 of another to observe his contractual obligation. LIABILITY ARISING FROM NEGLIGENCE DEMANDABLE 4. Duty of oblige to minimize his damages – he cannot 1. Discretion of the court to fix measures of damages – the recover damages for any loss which he might have avoided courts are given a wide discretion in fixing the measure of with ordinary care. It may not be taken advantage of to damages. allow unjust enrichment. 2. Damages where both are mutually negligent – the fault of one cancels or neutralizes the negligence of the other. No one shall enrich himself at the expense at the expense of DAMAGES RECOVERABLE WHERE OBLIGATION IS TO PAY another. MONEY JAMES BRYAN SUAREZ DEANG © 2017 (09265563619/[email protected]) 1. Penalty interest for delay or non-performance – the rule VALIDITY OF WAIVER OF ACTION FOR FUTURE of damages when the obligation failed to perform only NEGLIGENCE consists of payment of money is that laid down in Article 1. May be renounced except where the nature of obligation 2209. requires the exercise of extraordinary diligence as in the o The damages dues do not include and are not included in case of common carriers. the computation of interests. 2. When negligence is gross or shows bad faith, it is equivalent to fraud. 2. Rate of the penalty interest – in the absence of stipulation, the additional interest shall be at a rate equal to the regular KINDS OF NEGLIGENCE ACCORDING TO SOURCE OF monetary interest; and if no legal interest has been agreed OBLIGATION upon, then the legal interest (6%) shall be paid. 1. Culpa negligence (culpa contractual) – it merely makes the debtor liable for damages in view of his negligence in FRAUD AND NEGLIGENCE the fulfillment of a pre-existing obligation resulting in its breach or non-fulfillment. It does not amount to a crime. FRAUD NEGLIGENCE Deliberate intention None 2. Civil negligence (culpa aquiliana) – also called tort or Waiver of liability for future May be allowed quasi-delict; a pre-existing contractual relation between the fraud is void parties does not preclude the existence of culpa aquiliana. Must be clearly proved Presumed from the breach of A quasi-delict can be the cause of breaching a contract that contractual obligation might thereby permit the application of governing Liability cannot be May be reduced principles of tort even when there is a pre-existing contract mitigated between the parties. This rule, however, governs only where the act or omission itself complained of would WHEN NEGLIGENCE EQUIVALENT TO FRAUD constitute an actionable tort independently of the contract. o Where the negligence shows bad faith or is so gross that it amounts to malice or wanton attitude on the part of the 3. Criminal negligence (culpa criminal) – negligence defendant, the rules on fraud shall apply. resulting in the commission of a crime. o Gross negligence refers to negligence characterized by the failure to exercise even slight care of diligence, or the entire o In culpa contractual, the mere proof of the existence of the absence of care, acting or omitting to act on a situation contract and the failure of its compliance justify¸ prime where there is a duty to act, not inadvertently, but willfully facie, a corresponding right of relief. In contract of carriage, the driver who is not a party to the contract, may  OBLIGATIONS AND CONTRACTS NOTES 9 not be held liable under the agreement. The action against 2. Proof, presumption of negligence – negligence is never him can only be based on culpa aquiliana, which unlike presumed but must be proven by the party who alleges it. culpa contractual¸ would require the claimant for damages Exception: culpa contractual to prove negligence or fault on part of the defendant. MEASURE OF LIABILITY FOR DAMAGES EFFECT OF NEGLIGENCE ON THE PART OF THE 1. Civil Code Provisions – Title on Damages INJURED PARTY a. Article 2201 o If his negligence was only contributory, the immediate and b. Article 2220 proximate cause of the injury being the defendant’s lack of c. Article 2232 due care, the plaintiff may recover damages, but the courts d. Article 21 shall mitigate the damages to be awarded. o The defense of contributory negligence of the injured party 2. Contractual breach committed in good faith/bad faith – does not apply in criminal cases where the offense was liability for damages to the natural and probable committed by the accused through reckless imprudence. consequences of the breach of the obligation and which the parties had foreseen or could have reasonable foreseen PRESUMPTION OF CONTRACTUAL NEGLIGENCE (good faith). 1. In an action for quasi-delict or tort, it should be clearly established. 3. With respect to moral damages – must somehow be 2. When the action is based on a contract of carriage, and the proportional to and in approximation of the suffering obligor (carrier) failed to transport the passenger to his inflicted, the factual basis for which must be satisfactorily destination, the fault or negligence is presumed. established by the aggrieved party. a. In culpa contractual, the moment a passenger dies or is injured, the common carrier is presumed to have 4. Code of Commerce provisions been at fault or to have acted negligently, and the a. Article 587 – civil liability of the ship agent disputable presumption may only be overcome by b. Article 590 – civil liability of the vessel co-owners evidence that he had exercised extraordinary diligence c. Article 837 – civil liability of the shipowners or that death or injury was due to fortuitous event.  The liability of the owner or agent arising from the b. The driver is not solidarily liable with the carrier, the operation of the ship is confined to the vessel, latter being exclusively responsible to the passenger equipment, and freight, or insurance, if any. without the right of the carrier to recover from his driver for the latter’s negligence. KINDS OF DILIGENCE REQUIRED o Diligence is the attention and care required of a person in a given situation and is the opposite of negligence. ARTICLE 1173 JAMES BRYAN SUAREZ DEANG © 2017 (09265563619/[email protected]) 1. That agreed upon by the parties, orally or in writing; 2. In the absence of stipulation, that required by law in MEANING OFFAULT OR NEGLIGENCE the particular case; and o Negligence is conduct that creates undue risk or harm to 3. If both contract and law are silent, then the diligence another. It is the failure to observe for the protection of the expected of a good father. It is the same as ordinary interests of another person, that degree of care, precaution diligence or that of a reasonable prudent person. and vigilance which the circumstances justly demand, whereby such other person suffers injury. (U.S. v. Barrias) ARTICLE 1174 TEST FOR DETERMINING WHETHER A PERSON IS NEGLIGENT MEANING OF FORTUITOUS EVENT 1. Reasonable care and caution expected of an ordinary o A fortuitous event is any extraordinary event which cannot prudent person. The law imposes the duty on the actor to be foreseen, or which, though foreseen, is inevitable. refrain from that course or to take precaution against its (impossible to foresee or to avoid) mischievous results, and the failure to do so constitutes negligence. Foreseeability is the fundamental test of FORTUITOUS EVENT vs. FORCE MAJEURE negligence. Fortuitous event is classified either as: 1. Acts of man (e.g., war, fire, robbery, murder, insurrection, 2. No hard and fast rule for measuring degree of care. It is etc.) dependent upon the circumstances in which a person finds 2. Acts of God (e.g., earthquake, flood, rain, shipwreck, himself situated. lightning, volcanic eruption, etc.; also called force majeure) FACTORS TO BE CONSIDERED 1. Negligence, a factual matter – its existence depends upon KINDS OF FORTUITOUS EVENT the particular existence of each case. The following factors 1. Ordinary – common and which the contracting parties may should be considered: reasonably foresee a. Nature of the obligation 2. Extraordinary – uncommon and which the contracting b. Circumstances of the person parties could not have reasonably foreseen c. Circumstances of time d. Circumstances of the place  OBLIGATIONS AND CONTRACTS NOTES 10 REQUISITES OF A FORTUITOUS EVENT IMPOSSIBILITY OF PERFORMANCE MUST RESULT FROM 1. The event must be independent of the human will or at least OCCURRENCE OF FORTUITOUS EVENT of the obligor’s will; o The impossibility of fulfilling the obligation must be the 2. The event could be unforeseeable or unavoidable; direct consequence of the event. If notwithstanding its 3. The event must be of such a character as to render it occurrence, the obligation can be fulfilled, it will subsist impossible for the obligor to comply with his obligation in even if only in part. a normal manner; and 4. The obligor must be free from any participation in, or the EFFECT OF OBLIGOR’S NEGLIGENCE UPON HIS aggravation of the injury to the oblige. LIABILITY 1. Negligence contributed to the loss or damage – when the CONCURRENT OR PREVIOUS NEGLIGENCE OF OBLIGOR negligence of the person concurs with the fortuitous event o There must be no concurrent or previous negligence or in producing a loss, he is not exempted from liability by imprudence on the part of the obligor by which the loss or showing that the immediate cause of the damage was the injury may have been occasioned. fortuitous event. o There should have been no human participation amounting 2. Negligence not contributory to the loss or damage – the to a negligent act. consequences are derivation of the fortuitous event – it cannot be said that responsibility arises therefrom. RULES AS TO LIABILITY IN CASE OF FORTUITOUS EVENT Rule: a person is not responsible for loss or damage resulting from the non-performance of his obligation due to a fortuitous event. His ARTICLE 1175 obligation is extinguished. Exceptions: MEANING OF SIMPLE LOAN OR MUTUUM 1. When expressly specified by the law o Contract whereby one of the parties delivers to another a. The debtor is guilty of fraud, negligence, or delay, or money or other consumable thing, upon the condition that contravention of the tenor of the obligation. the same amount of the same kind and quality shall be paid. b. The debtor has promised to deliver the same (specific) It may be gratuitous or with a stipulation to pay interest. thing to two or more persons who do not have the same interest for it would be impossible for the debtor to MEANING OF USURY comply with his obligation to two or more creditors o Contracting for or receiving interest in excess of the amount even without any fortuitous event taking place. allowed by law for the loan or use of money, goods, c. The debt of a thing certain and determinate proceeds chattels, or credits. from a criminal offense. d. The thing to be delivered is generic for the debtor can KINDS OF INTEREST JAMES BRYAN SUAREZ DEANG © 2017 (09265563619/[email protected]) still comply with his obligation by deliver another 1. Simple interest – rate of interest is stipulated by the parties thing of the same kind in accordance with the principle 2. Compound interest – interest earned is upon interest due that genus never perishes. 3. Legal interest – rate of interest intended by the parties is presumed by law, as when the loan mentions interest but Other cases under no. (1): does not specify the rate thereof. i. Article 552 4. Lawful interest – rate of interest is within the maximum ii. Article 1740 allowed by (usury) law (Sections 2, 3, Usury Law, Act No. iii. Article 1942 2655, as amended) iv. Article 1979 5. Unlawful interest – beyond maximum fixed by law v. Article 2147 vi. Article 2159 INTEREST RATE RULES 1. Legal rate – 6% per annum when interest is stipulated, but 2. When declared by stipulation – the basis for this is the there is no express contract as to the rate thereof. In case of freedom of contract but there shall be clear stipulation. default, the indemnity for damages in the absence of stipulation is also 6% 3. When the nature of the obligation requires the assumption of risk – risk of loss or damage is an essential 2. Maximum rate: element of obligation. a. 12% per annum – if the loan is secured in whole or in party by a mortgage upon real estate with a Torrens EFFECT WHERE RISK NOT ONE IMPOSSIBLE TO FORESEE Title or by any agreement conveying such real estate 1. Risk quiet evident – the nature of the obligation is such that (also registered) or an interest therein. a party could rightfully be deemed to have assumed it. b. 14% per annum – if the loan is not secured as provided above 2. Mere difficulty to foresee risk – it is different from c. The rate prescribed by the Monetary Board of the impossibility to foresee or anticipate the same. Central Bank a. The 1997 financial crisis is not among the fortuitous events contemplated under Article 1174. b. Fluctuations in currency is not an instance of caso fortuito.  OBLIGATIONS AND CONTRACTS NOTES 11 MEANING OF MONETARY/COMPENSATORY INTEREST b. For other than loan or forbearance of money – the o Monetary interest is the interest fixed by parties to a interest shall also be 6% as indemnity at the discretion contract for the use or forbearance of money. of the court. o It is called compensatory interest if it is imposed by law or c. When a judgment awarding a sum of money under by courts as penalty or indemnity for damages and it is (a) or (b) has become final and executory – the rate payable only if the obligor is proved to have defaulted in of legal interest shall be 6% from such finality the performance of his obligation. REQUISITES FOR RECOVERY OF MONEY INTEREST ARTICLE 1176 1. The payment of interest must be expressly stipulated; 2. The agreement must be in writing; and MEANING OF PRESUMPTION 3. The interest must be lawful o Interfere of a fact not actually known arising from its usual connection with another which is known or proved. USURY LAW CEILING OR INTEREST RATES LIFTED 1. Interest rates now subject to agreement – interest can be TWO KINDS OF PRESUMPTION charged as lender and borrower may agree upon. 1. Conclusive presumption – cannot be contradicted, e.g., A.3 2. Rule where interest stipulated excessive – the stipulated 2. Disputable (or rebuttable) presumption – can be interest may be declared illegal if the same is excessive, contradicted upon showing of contrary proof exorbitant or unconscionable. 3. Rule where escalation clause stipulated – a clause which WHEN PRESUMPTIONS IN ARTICLE 1176 DO NOT APPLY grants the creditor unbridled right to unilaterally increase 1. With reservation as to interest – the reservation may be the rate of interest without the express conformity of the made in writing or verbally debtor is void as it violates the principle of mutuality of 2. Receipt for a part of principal – a receipt for a part of the contracts. principal, without mentioning the interest, merely implies that the creditor waives his right to apply the payment first LIABILITY FOR LEGAL INTEREST to the interest and then to the principal, as permitted by 1. Loan or forbearance of money – the interest due should be Article 1253. that which may have been stipulated in writing. Legal 3. Receipt without indication of particular installment paid interest (6%) in the nature of (actual and compensatory) – if the receipt does not recite that it was issued for a damages for non-compliance with an obligation to pay a particular installment due as when the receipt is only dated. sum of money is recoverable even if such rate is not 4. Payment of taxes – taxes payable by the year are not expressly stipulated in writing. installments of the same obligation a. The debtor in delay is liable to pay interest which is 5. Non-payment proven – between a proven fact and a JAMES BRYAN SUAREZ DEANG © 2017 (09265563619/[email protected]) 6% per annum. presumption pro tanto, the former stands, and the latter b. Interest due shall earn legal interest from the time it is falls. judicially demanded although the obligation may be silent upon this point. c. A debtor cannot be considered delinquent and liable to ARTICLE 1177 pay interest where he offered checks backed by sufficient deposit or is ready to pay cash if the creditor REMEDIES AVAILABLE TO CREDITORS FOR THE chose that means of payment. SATISFACTION OF THEIR CLAIMS 1. Exact fulfillment with the right to damages; 2. Other than loan of forbearance of money – The rate of 2. Pursue the leviable (not exempt from attachment under the 12% (now 6%) interest referred to in C.B. Circular No. 416 law) property of the debtor; applies only to loan of forbearance of money, goods, or 3. “after having pursued the property in possession of the credit, or to cases where money is transferred from one debtor,” exercise all the rights and bring all the actions of person to another and the obligation to return the same or a the debtor except those inherent in or personal to the person portion thereof is adjudged. of the latter; and 4. Ask the court to rescind or impugn acts or contracts which 3. Final and executory judgment awarding a sum of money the debtor may have done to defraud him when he cannot – where the case falls under Nos. (1) and (2) above, the rate in any other manner recover his claim. of legal interest, shall be 6% per annum from such finality until its satisfaction, the judgment or award shall be ARTICLE 1178 considered a loan or forbearance of money or credit. 4. Summary – previous rulings on the ward of interest in the TRANSMISSIBILITY OF RIGHTS concept of actual or compensatory damages based on C.B. Rule: all rights acquired in virtue of an obligation are generally Circular No. 416, are accordingly modified to embody BSP transmissible. Circular No. 799: Exceptions: a. For loan or forbearance of money – the rate of 1. Prohibited by law interest due is that stipulated in writing, otherwise, 6% a. By the contract of partnership – 2 or more per annum computed from judicial or extrajudicial persons bind themselves to contribute money, demand until fully paid. In addition, interest due shall property or industry to a common fund, with the earn legal interest (compound) from the time it is intention of dividing the profits among judicially demanded. themselves.  OBLIGATIONS AND CONTRACTS NOTES 12 b. By the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. c. By the contract of commodatum, one of the parties delivers to another something not consumable so that the latter may use the same for a certain time and return it. 2. Prohibited by stipulations of parties – the stipulation must not be contrary to public policy 1163 – obligation to give something 1164 – right to the fruits 1165 – delivery of real obligations 1166 – accessions and accessories 1167 – failure to do obligations 1168 – negative personal obligations 1169 – delay 1170 – liability for damages 1171 – liability arising from fraud 1172 – liability arising from negligence 1173 – fault or negligence 1174 – fortuitous event 1175 – usurious transaction 1176 – presumption 1177 – remedies available to creditors to satisfy claims 1178 – transmissibility of rights JAMES BRYAN SUAREZ DEANG © 2017 (09265563619/[email protected])  OBLIGATIONS AND CONTRACTS NOTES 13 CHAPTER 3 1. Future and uncertain – condition must be both future and DIFFERENT KINDS OF OBLIGATIONS uncertain despite the use of disjunctive or. 2. Past but unknown – even if it is in the future, same must CLASSIFICATIONS OF OBLIGATIONS be unknown to the parties 1. Primary classification under the Civil Code: o A condition must not be impossible a. Pure and conditional b. Obligations with a period TWO PRINCIPAL KINDS OF CONDITION c. Alternative and facultative 1. Suspensive condition (condition precedent or condition d. Joint and solidary antecedent) or one the fulfillment of which will give rise to e. Divisible and indivisible an obligation (or right). f. Obligations with penal clause a. The birth, perfection or effectivity of the contract subject to a condition can take place only if and when 2. Secondary classification under the Civil Code the condition happens or is fulfilled. a. Unilateral and bilateral b. It must appear that the performance of an act or the b. Real and personal happening of an event was intended by the parties as a c. Determinate and generic suspensive condition, otherwise, its non-fulfillment d. Civil and natural will not prevent the perfection of a contract. e. Legal, conventional, and penal c. There can be no rescission of an obligation that is still non-existent, the suspensive condition not having been 3. Classification according to Sanchez Roman fulfilled. a. By their juridical quality and efficaciousness 2. Resolutory condition (condition subsequent) or one the 1. Natural fulfillment of which will extinguish an obligation (or right) 2. Civil already existing. 3. Mixed b. By parties or subject SUSPENSIVE RESOLUTORY 1. Unilateral or bilateral If fulfilled, obligation arises If fulfilled, obligation 2. Individual or collective extinguishes 3. Joint or solidary If the first does not take place, The legal tie is consolidated c. By the object of the obligation or prestation no legal tie 1. Specific or generic Until the first takes place, the Its effect flow, but over it, 2. Positive or negative existence of the obligation is a hovers the possibility of 3. Real or personal mere hope. termination 4. Possible or impossible JAMES BRYAN SUAREZ DEANG © 2017 (09265563619/[email protected]) 5. Divisible or indivisible WHEN CONDITION IMPOSED ON PERFECTION OF 6. Principal or accessory CONTRACT 7. Simple or compound; if compound: o Failure to comply with the condition imposed on the i. Conjunctive perfection of contract results in the failure of a contract. ii. Distributive o Failure to comply with the condition imposed on the d. By their juridical perfection and extinguishment performance of an obligation only gives the other party the 1. Pure or conditional option either to refuse to proceed with the contract or to 2. With a period waive performance of the condition. WHEN OBLIGATION DEMANDABLE AT ONCE SECTION 1 1. When it is pure; PURE AND CONDITIONAL OBLIGATIONS 2. When it is subject to a resolutory condition; or 3. When it is subject to a resolutory period ARTICLE 1179 PAST EVENTS UNKNOWN TO THE PARTIES o What is really contemplated by the law is the knowledge to MEANING OF PURE OBLIGATION be acquired in the future of a past event which at the o Not subject to any condition and no specific date is moment is unknown to the parties interested, for it is only mentioned for its fulfillment and is, therefore, immediately in that sense that the event can be deemed uncertain. demandable MEANING OF CONDITIONAL OBLIGATION ARTICLE 1180 o One whose consequences are subject in one way or another to the fulfillment of a condition WHERE DURATION OF PERIOD DEPENDS UPON THE WILL OF DEBTOR MEANING OF CONDITION 1. The debtor promises to pay when his means permit him to o Future and uncertain event, upon the happening of which, do – what is left only to his will is the duration of the period. the effectivity or extinguishment of an obligation (or rights) If the debtor and the creditor cannot agree as to the specific subject to it depends time for payment, the court shall fix the same on the application of either party. CHARACTERISTICS OF A CONDITION  OBLIGATIONS AND CONTRACTS NOTES 14 2. Other cases a. Little by little WHERE SUSPENSIVE CONDITION DEPENDS UPON THE b. As soon as possible WILL OF THE DEBTOR c. From time to time 1. Conditional obligation void – void because its validity and d. As soon as I have the money compliance is left to the will of the debtor and it cannot, e. At any time I have the money therefore, be legally demandable; no burden on the debtor f. In partial payments and no juridical tie. g. When I am in the position to pay 2. Only the condition void – if the obligation is a pre-existing one and does not depend upon the fulfilment of the ARTICLE 1181 condition, only the condition is void leaving the obligation unaffected. EFFECT OF HAPPENING OF CONDITION 1. Acquisition of rights – in suspensive condition¸ the WHERE SUSPENSIVE CONDITION DEPENDS UPON THE acquisition of rights by the creditor depends upon the WILL OF CREDITOR happening of the event which constitutes the condition. o The obligation is valid. a. The surrender of the sweepstakes ticket is a condition o It is up to him whether to enforce his right or not. precedent to the payment of the prize b. Where the loans of X from Y were supposed to WHERE RESOLUTORY CONDITION DEPENDS UPON THE become due only at the time Y receives from Z the WILL OF THE DEBTOR proceeds of the approved financing scheme o The fulfillment of the condition merely causes the loss or c. In sales with assumption of mortgage, the assumption extinguishment of rights already acquired. The debtor is of mortgage by the buyer is a condition precedent to naturally interested in its fulfillment. the seller-mortgagor’s consent to the sale o The debtor’s position is the same as that of the creditor in suspensive condition 2. Loss of rights already acquired – in resolutory conditions, the happening of the event which constitutes the condition CASUAL CONDITION produces extinguishment or loss of rights already acquired. 1. If the suspensive condition depends upon chance or upon the will of a third person, the obligation subject to it is valid. EFFECT OF NON-COMPLIANCE WITH RESOLUTORY CONDITION 2. When the fulfillment of the condition does not depend on o When a contract is subject to a resolutory condition, non- will of the obligor, but that on a third person who can in no compliance with or non-fulfillment of the condition way be compelled to carry it out, and it is found by the court JAMES BRYAN SUAREZ DEANG © 2017 (09265563619/[email protected]) resolves the contract by force of law without need of that the obligor has done all in his power to comply with his judicial intervention. obligation, his part of the contract is deemed complied with and he has a right to demand performance of the contract by the other party. ARTICLE 1182 MIXED CONDITION CLASSIFICATIONS OF CONDITION o The obligation is valid 1. As to effect o Both conditions (chance and will of a third person) must a. Suspensive take place in order that obligation will arise. b. Resolutory 2. As to form WHERE SUSPENSIVE CONDITION DEPENDS PARTLY a. Express UPON THE WILL OF DEBTOR b. Implied o Conditional obligations whose fulfillment depends partly 3. As to possibility upon the will of the debtor and partly upon the will of a a. Possible third person, or upon chance are perfectly valid. b. Impossible o If the compliance still depends upon the will of the debtor, 4. As to cause or origin the obligation is void. a. Potestative – depends upon the will of the one of the contracting parties b. Casual – depends upon chance or upon the will of a ARTICLE 1183 third person c. Mixed – partly chance and partly upon the will of a WHEN ARTICLE 1183 APPLIES third person o Refers to suspensive condition 5. As to mode o Applies to cases where the impossibility already existed at a. Positive the time the obligation was constituted. If after, A. 1266 b. Negative governs. 6. As to number a. Conjunctive TWO KINDS OF IMPOSSIBLE CONDITIONS b. Disjunctive 1. Physically impossible conditions – cannot exist or cannot 7. As to divisibility be done a. Divisible 2. Legally impossible conditions – contrary to law, moral, b. Indivisible good customs, public order, or public policy  OBLIGATIONS AND CONTRACTS NOTES 15 EFFECT OF IMPOSSIBLE CONDITIONS 1. Conditional obligation void – annul the obligation ARTICLE 1187  In conditional testamentary dispositions and in simple and remuneratory donations¸ the rule is different. RETROACTIVE EFFECTS OF FULFILLMENT OF SUSPENSIVE CONDITION 2. Conditional obligation valid – if the condition is negative, 1. In obligations to give – once the condition is fulfilled, its that is, not to do an impossible thing, it is disregarded and effects shall retroact to the day when the obligation was the obligation is rendered pure and valid. constituted. Reason: the condition is only an accidental element of a 3. Only the affected obligation void – if the obligation is contract. An obligation can exist without being subject to a divisible condition. Had the parties known beforehand that the condition would be fulfilled, they would have bound 4. Only the condition void – if the obligation is a pre-existing themselves under a pure obligation. obligation, and, therefore, does not depend upon the  has no application to real contracts fulfillment of the condition which is impossible, for its existence, only the condition is void. 2. In obliga