Obligations and Contracts Notes.pdf

Exclusively for the use of Political Science Students of Saint Louis University First Semester, A.Y. 2024-2025. POS 413, ObliCon Obligations and Contracts Notes Prelims A.Y. 2024-2025 I. GENERAL PROVISIONS 1. DEFINITION ART....

Exclusively for the use of Political Science Students of Saint Louis University First Semester, A.Y. 2024-2025. POS 413, ObliCon Obligations and Contracts Notes Prelims A.Y. 2024-2025 I. GENERAL PROVISIONS 1. DEFINITION ART. 1156, NCC. An obligation is a juridical necessity to give, to do, or not to do. An obligation is a juridical relation, whereby a person (creditor) may demand from another (debtor) the observance of a determinative conduct, and in case of breach, may obtain satisfaction from the assets of the latter. (Makati Stock Exchange v. Campos, GR No. 138814, 2009) Elements of Cause of Action / Legal wrong / Injury a. Legal right in favor of a person called the creditor / obligee / plaintiff; b. Correlative legal obligation on the part of another called the debtor / obligor / defendant; to respect or not to violate said legal right; and c. An act or omission by the debtor / obligor / defendant in violation of said right with resulting injury or damage to the creditor / obligee / plaintiff. In Makati Stock Exchange v. Campos, the Petition filed by Campos utterly failed to lay down the source or basis of his right and the Makati Stock Exchange's obligation. The Supreme Court held that: “an obligation imposed on a person, and the corresponding right granted to another, must be rooted in at least one of these five sources (Article 1157, New Civil Code). The mere assertion of a right and claim of an obligation in an initiatory pleading, whether a Complaint or Petition, without identifying the basis or source thereof, is merely a conclusion of fact and law. A pleading should state the ultimate facts essential to the rights of action or defense asserted, as distinguished from mere conclusions of fact or conclusions of law.” 2. ELEMENTS a. SUBJECT i. Active Subject (Obligee / Creditor) - Person who has the right to demand the prestation ii. Passive Subject (Obligor / Debtor - Person bound to perform the prestation b. PRESTATION (Object) - conduct required to be observed by the passive subject - to give, to do, or not to do Requisites:  Must be juridically and physically possible;  Must be determinate or at least determinable according to pre- established elements; and  Must have possible equivalent in money. Page 1 of 11 Exclusively for the use of Political Science Students of Saint Louis University First Semester, A.Y. 2024-2025. POS 413, ObliCon c. JURIDICAL TIE (Vinculum juris/Legal tie) - Efficient cause. - That which binds or connects the parties to the obligation. - The source of the obligation (Article 1157, NCC). 3. SOURCES OF OBLIGATIONS ART. 1157, NCC. Obligations arise from: a. Law; b. Contracts; c. Quasi-contracts; d. Acts or omissions punished by law or Delicts; e. Quasi-delicts. LAW - ART. 1158, NCC. Obligations derived from law are not presumed. Only those expressly determined in this Code or in special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book. CONTRACTS - ART. 1159, NCC. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. QUASI-CONTRACTS - ART. 2142, NCC. Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another. - KINDS: a. NEGOTIORUM GESTIO – voluntary management of the property or affairs of another without the knowledge or consent of the latter. (Art. 2144, NCC) b. SOLUTIO INDEBITI – juridical relation which is created when something is received when there is no right to demand it and it was unduly delivered through mistake. (Art. 2154, NCC.) - Elements: a. No right to receive the thing delivered; b. Thing delivered through mistake c. OTHER EXAMPLES OF QUASI-CONTRACT ACTS OR OMISSIONS PUNISHED BY LAW or DELICT - ART. 1161, NCC. Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the provisions of article 2177, and of the pertinent provisions of Chapter 2, Preliminary Title, on Human Relations, and of Title XVIII of this Book, regulating damages. Page 2 of 11 Exclusively for the use of Political Science Students of Saint Louis University First Semester, A.Y. 2024-2025. POS 413, ObliCon QUASI-DELICT - ART. 2176, NCC. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties. II. NATURE AND EFFECT OF OBLIGATIONS 1. RIGHTS AND DUTIES OF THE PARTIES A. Obligations to give - Specific and determinate thing vs. Generic and indeterminate thing BASIS SPECIFIC / GENERIC / LIMITED DETERMINATE INDETERMINATE GENERIC As to nature ART. 1460, NCC Object is When generic Particularly designated only by objects are designated or its class/ genus/ confined to a physically segregated species. particular from all others of the class. same class. Identified by individuality As to Cannot be substituted Can be substituted Can be substitution against the obligee’s / by any of the same substituted by creditor’s will. class and same any of the kind. same particular class. A-1. Obligations to give a specific thing (PDtfaaD) DUTIES OF THE RIGHTS OF THE DEBTOR/OBLIGOR CREDITOR/OBLIGEE To preserve or take care of the Not to be compelled to receive a thing due with the proper diligence different one, although of the same of a good father of a family. Art. value as, or more valuable 1163, NCC than that which is due. Art. 1244 NCC To deliver the thing itself. Art. To compel delivery. Art. 1165, NCC 1165, NCC To deliver the fruits of the thing. To the fruits from the time the Art. 1164, NCC obligation to deliver arises. Art. 1164, NCC To deliver its accessions and To the accessions and accessories. Art. 1166, NCC accessories, even if not mentioned. Art. 1166, NCC To pay damages in case of breach. To recover damages in case of Art. 1170, NCC breach, exclusive or in addition to Page 3 of 11 Exclusively for the use of Political Science Students of Saint Louis University First Semester, A.Y. 2024-2025. POS 413, ObliCon specific performance. Arts. 1165 and 1170, NCC Diligence of a good father of a family - “Ordinary Diligence”, “Bonum pater familia” - That care which an average person or a reasonably prudent person exercises over his own property. - Exceptions: (slight and extraordinary diligence) A. Law B. Stipulation by the parties - Factors to be considered Nature of obligation Circumstances of the person, time, place - Stipulation requiring no diligence at all is void. Fruits, ARTICLE 1164 Kinds: a. Natural Fruits - Spontaneous products of the soil, and the young and other products of animals. b. Industrial Fruits - Produced by lands of any kind through cultivation or labor. c. Civil Fruits - Derived by virtue of a juridical relation. Obligation to deliver fruits arises upon perfection of the contract. Accessions and Accessories, ARTICLE 1166 Accessions Everything which is produced by a thing, or which is incorporated or attached thereto, either naturally or artificially. Art. 440, NCC For improvements. Accession discreta and Accession continua. Accessories Things designed for the embellishment, use, or preservation of another thing of more importance. PRINCIPLE: Accessory follows the principal. A-2. Obligations to give a generic thing (PDCiD) DUTIES OF THE RIGHTS OF THE DEBTOR/OBLIGOR CREDITOR/OBLIGEE To preserve or take care of the Not to be compelled to receive a thing due with the proper diligence different one, although of the same of a good father of a family. Art. value as, or more valuable 1163, NCC than that which is due. Art. 1244 NCC To deliver a thing of the quality To ask that the obligation be intended by the parties taking into complied with. Art. 1165, NCC consideration the purpose of the Page 4 of 11 Exclusively for the use of Political Science Students of Saint Louis University First Semester, A.Y. 2024-2025. POS 413, ObliCon obligation and other circumstances. Art. 1246, NCC Creditor cannot demand a thing To ask that the obligation be of superior quality; neither can complied with by a third person the debtor deliver a thing of at the expense of the debtor. Art. inferior quality. 1165, NCC To pay damages in case of breach. To recover damages in case of Art. 1170, NCC breach. Art. 1165 B. Obligations to do (DSUD) DUTIES OF THE RIGHTS OF THE DEBTOR/OBLIGOR CREDITOR/OBLIGEE To do it. To shoulder the cost of To have the obligation executed execution should he fail to do it. To at the cost of the debtor. Art. 1167, undo what has been poorly done. NCC Art. 1167, NCC To pay damages in case of breach. To recover damages in case of Art. 1170, NCC breach. Art. 1170, NCC A debtor cannot be compelled to perform an obligation to do because it would amount to involuntary servitude. C. Obligations not to do DUTIES OF THE RIGHTS OF THE DEBTOR/OBLIGOR CREDITOR/OBLIGEE Not to do what should not be To ask to undo what should not done. To shoulder cost of be done, at the debtor’s expense. undoing what should not have Art. 1168, NCC been done Art. 1168, NCC To pay damages in case of breach. To recover damages, where it Art. 1170, NCC would be physically or legally impossible to undo what should not have been done, because of: 1. the nature of the act itself; 2. rights acquired by third persons who acted in good faith; 3. when the effects of the acts prohibited are definite in character and will not cease even if the thing prohibited be undone. 2. PERFORMANCE OF OBLIGATIONS Payment (Art. 1232, NCC): It means either Delivery of money of the Performance of an obligation. Page 5 of 11 Exclusively for the use of Political Science Students of Saint Louis University First Semester, A.Y. 2024-2025. POS 413, ObliCon General Rule: - Thing or service in which the obligation consists must be completely delivered or rendered, as the case may be (Art. 1233, NCC) Exceptions: a. Substantial performance - Obligation has been substantially performed in good faith. Without any willful or intentional departure therefrom. Deviation must be slight. EFFECT: - Obligor/Debtor may recover as though there had been a strict and complete fulfillment, less damages suffered by the Obligee/Creditor. (Art. 1234, NCC) b. Incomplete/irregular performance - Obligee/Creditor accepts performance despite knowledge of its incompleteness or irregularity. EFFECT: - The obligation is deemed fully complied with (Art. 1235, NCC) c. Partial prestation General Rules a. Creditor cannot be compelled to receive partial payments. b. Debtor cannot be required to make partial payments. EXCEPTIONS: a. Express stipulation by the parties. (Art. 1248, NCC) b. Different prestations are subject to different conditions or different terms. d. Partial liquidation - Debt is partly liquidated and partly unliquidated. EFFECT: Creditor may demand and the debtor may effect payment of the liquidated debt without waiting for the liquidation of the unliquidated debt. Art. 1248, NCC 3. BREACHES OF OBLIGATIONS Those who in the performance of their obligation are guilty of the following are liable for damages: (Art. 1170, NCC) FRAUD (dolo) NEGLIGENCE (culpa) DELAY (mora) CONTRAVENE THE TENOR OF THE OBLIGATION Additional: FAILURE TO PERFORM Page 6 of 11 Exclusively for the use of Political Science Students of Saint Louis University First Semester, A.Y. 2024-2025. POS 413, ObliCon a. Failure to Perform Effect of failure to perform depends on the degree of breach SUBSTANTIAL BREACH SLIGHT OR CASUAL BREACH Total breach. Partial breach Amounts to non-performance, basis There is partial/substantial performance for rescission under Article 1191, NCC in good faith. and payment of damages. Gives rise to liability for damages only under Article 1234, NCC. General Rule: Rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in executing the agreement. The question of whether a breach of contract is substantial depends upon the attendant circumstances. (Vermen Realty Corp. v. CA, G.R. No. 101762, 1993) Substantial performance contemplates: an attempt in good faith to perform, without any willful or intentional departure therefrom. the deviation from the obligation must be slight, and the omission or defect must be technical and unimportant, and must not pervade the whole or be so material that the object which the parties intended to accomplish in a particular manner is not attained. [International Hotel Corp v. Joaquin, G.R. No. 158361 (2013)] b. Default, Delay, or Mora Failure to perform an obligation on time which constitutes a breach of the obligation. (de Leon) Rules on Default, Delay, or Mora UNILATERAL OBLIGATIONS RECIPROCAL OBLIGATIONS General Rule: “No demand, No Neither party incurs in delay if the other delay.” does not comply or is not ready to comply in a proper manner with what is The mere expiration of the period fixed by incumbent upon him. the parties is not enough in order that the debtor may incur in delay. From the moment one of the parties fulfills his obligation, delay by the other Those obliged to deliver or to do begins. Art. 1169 par. 3, NCC something incur in delay from the time the oblige judicially or extrajudicially No delay if neither performs. Page 7 of 11 Exclusively for the use of Political Science Students of Saint Louis University First Semester, A.Y. 2024-2025. POS 413, ObliCon demands from them the fulfillment of their obligation. Art. 1169 par. 1, NCC When demand is not necessary in order that delay may exist [par. 2, Art. 1169, CC] 1. When demand would be useless, as when the obligor has rendered it beyond his power to perform; such as: a. When the impossibility is caused by some act or fault of the debtor (e.g. debtor absconded or has destroyed the thing to be delivered); b. When the impossibility is caused by a fortuitous event, but the debtor has bound himself to be liable in case of such event. [Tolentino] 2. When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract (time is of the essence); 3. When the law so provides; or 4. When the obligation expressly so declares. Note: It is insufficient that the law or obligation fixes a date for performance. It must further state expressly that after the period lapses, default will commence. KINDS OF DELAY 1. Mora Solvendi – Delay on the part of the debtor to fulfill his obligation either to give or to do. Requisites: a. Obligation must be liquidated, due and demandable b. Non-performance by the debtor within the period agreed upon c. Demand, judicial or extra-judicial, by the creditor, unless demand is not necessary under the circumstances enumerated in Art 1169 par (2). Effects: a. The debtor is liable for damages. [Art. 1170, CC] b. For determinate objects, the debtor shall bear the risk of loss, even if the loss is due to fortuitous events. [Art. 1165 par. 3, CC] 2. Mora Accipiendi – Delay on the part of the creditor to accept the performance of the obligation. Requisites: a. Debtor offers performance. b. Offer must be in compliance with the prestation as it should be performed. c. Creditor refuses performance without just cause. Effects: a. The responsibility of the debtor is reduced to fraud and gross negligence. Page 8 of 11 Exclusively for the use of Political Science Students of Saint Louis University First Semester, A.Y. 2024-2025. POS 413, ObliCon b. The debtor is exempted from risk of loss of the thing, which is borne by the creditor. c. The expenses incurred by the debtor for the preservation of the thing after the mora shall be chargeable to the creditor. d. If the obligation bears interest, the debtor does not have to pay from the time of delay. e. The creditor is liable for damages. f. The debtor may relieve himself of the obligation by consigning the thing. [Tolentino] 3. Compensatio Morae – Delay of both parties in reciprocal obligations. Effects: a. Delay of the obligor cancels delay of obligee (and vice versa) hence it is as if there is no default. b. The liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. [Art. 1192, CC] Equitable Tempering under Art. 1192 vs. Under Art. 2215 [Ong v. Bognalbal, G.R. No. 149140 (2006)] ARTICLE 1192 ARTICLE 2215 In case both parties have committed a In contracts, quasi-contracts, and quasi- breach of the obligation, the liability of the delicts, the court may equitably mitigate first infractor shall be equitably tempered the damages under circumstances other by the courts. than the case referred to in the preceding article, as in the ff. instances: 1. That the plaintiff himself has contravened the terms of the contract xxx” Second infractor not liable for damages at Does not appear to consider which all; only the first infractor is liable, but infractor first committed the breach. with his liability mitigated. c. Fraud (Dolo) ART. 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void. Definition: Fraud (dolo) is the deliberate or intentional evasion of the normal fulfilment of an obligation. Types of Fraud: 1. Dolo Causante (Art. 1338, par. 1, Art. 1344, NCC.) 2. Dolo Incidente (Par. 2, Art. 1344, NCC.) Basis Dolo Causante Dolo Incidente Definition Those deceptions or Those which are not serious in misrepresentations of a character and without which serious character employed by the other party would still one party and without which have entered into the the other party would not contract. [Tankeh v. DBP, have entered into the G.R. No. 171428 contract. [Tankeh v. (2013)] Page 9 of 11 Exclusively for the use of Political Science Students of Saint Louis University First Semester, A.Y. 2024-2025. POS 413, ObliCon DBP, G.R. No. 171428 (2013)] When Present Deception used by one Deception used party prior to or by one party at the simultaneous with the time of birth or contract, in order to perfection, or secure the consent of performance of the other [Tankeh v. the obligation DBP, G.R. No. 171428 (2013)] Object Essential cause of the Some particular or accident obligation without which of the the other party would obligation not have entered into the contract. Effect Voidable and damages Damages Requisites for Fraud to Vitiate a Contract (Dolo Causante) a. It must have been employed by one b. contracting party upon the other; 3. It must have induced the other party to enter into the contract; 4. It must have been serious; and 4. It must have resulted in damage or injury to the party seeking annulment. [Tolentino] d. Negligence (Culpa) ART. 1172. Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances. ART. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. xxxx If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required. General Rule: Standard of care required is diligence of a good father of family. (refer to page 4) Exceptions (Other standards of care) 1. Common Carriers - They are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them [Art. 1733, CC] 2. Hotel and inn-keepers - The keepers of hotels or inns shall be responsible for the deposit of effects, made by travellers, as depositaries, provided that notice was given to them, or their employees of such effects and that they take precautions relative to the care and vigilance of their effects [Art. 1998, CC] - This responsibility shall include the loss of, or injury to the personal property of the guests caused by the servants or employees of the keepers of hotels or inns as well as strangers; but not that which may proceed from any force majeure. [Art. 2000, CC] Page 10 of 11 Exclusively for the use of Political Science Students of Saint Louis University First Semester, A.Y. 2024-2025. POS 413, ObliCon 3. Banks - Banks have the obligation to treat the accounts of its clients ‘meticulously and with the highest degree of care. [Poole-Blunden v. UnionBank, G.R. No. 205838 (2017)] 4. Pharmacists - As active players in the field of dispensing medicines to the public, the highest degree of care and diligence is expected [Mercury Drug Corporation v. de Leon, G.R. No. 165622 (2008)] Test of Negligence - “Whether or not the defendant, in doing the alleged negligent act, observed the reasonable care and caution, which an ordinary and prudent person would have used in the same situation.” If not, then he is guilty of negligence. [Mandarin Villa Inc. v. CA, G.R. No. 119850 (1996)] Kinds of Civil Negligence 1. Culpa contractual – negligence in the performance of contractual obligations 2. Culpa aquiliana – negligence amounting to quasi-delict Culpa Contractual Culpa Aquiliana Negligence is merely incidental in the Negligence is direct, substantive and performance of an obligation. independent. There is always a preexisting contractual There may or may not be a preexisting relation. contractual obligation. The source of the obligation of the The source of obligation is the defendant’s defendant to pay damages is the breach or negligence itself. non-fulfillment of the contract. Proof of the existence of the contract and The negligence of the defendant must be of its breach or nonfulfillment is sufficient proven. prima facie to warrant recovery. Extent of damages to be awarded (Art. 2201, NCC) Good Faith Bad Faith Obligor is liable for those that are the Obligor shall be responsible for all natural and probable consequences of the damages which may be reasonably breach of the obligation, and which the attributed to the nonperformance of the parties have foreseen or could have obligation. reasonably foreseen at the time the obligation was constituted. Any waiver or renunciation made in the anticipation of such liability is null and void. e. Contravention of the tenor of the obligation “In any manner contravenes the tenor” means any illicit act, which impairs the strict and faithful fulfillment of the obligation, or every kind of defective performance. [Tolentino] Page 11 of 11