RFBT Reviewer PDF

RFBT REVIEWER Except: CONTENTS a. By nature b. By stipulation...

RFBT REVIEWER Except: CONTENTS a. By nature b. By stipulation c. By provision of law LAW ON OBLIGATION & CONTRACTS LAW ON INSURANCE SOURCES OF OBLIGATIONS GOVERNMENT PROCUREMENT LAW 1. LAW LAW ON CREDIT TRANSACTIONS Art. 1158. Obligations derived from law are not LAW ON SALES presumed. Only those expressly determined in this REVISED CORPORATION Code or in special laws are demandable, and shall be ELECTRONIC COMMERCE ACT OF 2000 regulated by the precepts of the law which establishes ANTI- MONEY LAUNDERING ACT them; and as to what has not been foreseen, by the BANK SECRECY LAW provisions of [Civil Code]. BOUNCING CHECKS LAW 2. CONTRACTS DATA PRIVACY ACT A contract is a meeting of minds between two persons EASE OF DOING BUSINESS AND EFFICIENT whereby one binds himself, with respect to the other, GOVERNMENT SERVICE DELIVERY ACT to give something or to render some service. (Art. FOREIGN INVESTMENT ACT 1305) FRIA Obligations arising from contracts have the force of law between the contracting parties and should be GENREAL BANKING LAW complied with in good faith. (Art. 1159) INTELLECTUAL PROPERTY LAW 3. QUASI-CONTRACTS NEW CENTRAL BANK ACT The juridical relation resulting from lawful, voluntary PDIC LAW and unilateral acts by virtue of which the parties SECURITY REGULATION CODE become bound to each other to the end that no one UNCLAIMED BALANCES LAW will be unjustly enriched or benefited at the expense of another. A. NEGOTIORUM GESTIO– abandoned business or LAW ON OBLIGATION property whose gestor take over with no tacit An obligation is a juridical necessity to give, to do or authority not to do. (Art. 1156) B. SOLUTIO INDEBITI – payment by mistake with no right to retain KINDS OF OBLIGATIONS AS TO BASIS AND 4. DELICT ENFORCEABILITY Delict is an act or omission punishable by law which Civil obligations give a right of action to compel their may be governed by the Revised Penal Code, other performance penal laws, or the Title on Human Relations under the Natural obligations, not being based on positive law Civil Code. but on equity and natural law PROOF NECESSARY ESSENTIAL ELEMENTS OF OBLIGATION A. Criminal- beyond reasonable doubt a. Active subject (creditor/obligee) B. Civil- substantial evidence b. Passive subject (debtor/obligor) Acquittal c. Prestation (or Object) a. Did not do the act- no civil liability d. Vinculum Juris/Efficient Cause/Juridical Tie b. Reasonable doubt- civil liability 5. QUASI- DELICT Transmissibility of Obligation: Art. 2176. Whoever by act or omission causes damage General Rule: all rights acquired in virtue of an to another, there being fault or negligence, is obliged obligation are transmissible to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by Impossible - can't be fulfilled physically or legally when the provisions of this Chapter. contrary to law, condition is, void - positive, always a. an act or omission fulfilled/disregard - negative) b. fault or negligence GENERAL RULE: Once condition is fulfilled, it shall retroact c. damage caused to the day of the constitution of the obligation. d. direct relation of cause and effect EXCEPTION: 1. Fruits or interests a. Bilateral obligations - mutually compensated Vicarious Liability (who is responsible) b. Unilateral obligations - debtor is entitled to the 1. Minor children – father, if dead or fruit, unless contrary intention appears incapacity, the mother 2. Prescription period - from the time the condition 2. Minor & incapacitated persons- guardians is fulfilled 3. Employees in service of the branches – Rules as to obligation to give specific thing with suspensive owners & managers condition or obligations with a period. 4. Employees & household helpers- LOSS: employers Fortuitous event- 0bligation is extinguished 5. Special agents- the state Fault of debtor – debtor is liable of damages 6. Pupils/Students/Apprentices- teachers or DETORIATION: head of establishment Fortuitous event - impairment born by creditor Defense: all the diligence of a good father of a family Fault of debtor - creditor can either ask for exact to prevent damage. For the employer, to prove due fulfilment and damages, or for rescission and damages diligence in the selection and supervision of the IMPROVEMENT: employee. Bu nature or time – inure to the benefit of creditor Expense of debtor - no right of reimbursement, only Kinds of Civil Obligations usufructuary, he may remove improvement if it will not cause damage. 1. Perfection & Extinguishment Obligations with a period/term - a certain length of time a. Pure obligations – no conditions, that is certain to arrive even if not known when. demandable at once b. Conditional Obligations – depend upon KINDS OF TERM happening of the event 1. Definite – specific date, Dec. 31, end of the year this year, Kinds of Conditions within 6 months 2. Indefinite – period may arrive upon the fulfilment of a WHEN: certain event which is certain to happen. Ex. death. Suspensive - Give rise 3. Legal – imposed or provided by law, Ex. filing of taxes Resolutory - extinguish obligation to give support – within the first 5 days of the WHOM: month. Potestative - depends on will 4. Voluntary – agreed upon by the parties. of one of the party), void if dependent on debtor and is 5. Judicial – those fixed by courts. suspensive. Casual - depends on chance As to effect, a term/period may be: Mixed - partly on will or chance 1. Ex die – a period with a suspensive effect. CAPACITY: 2. In diem – a period with a resolutory effect. Divisible - can be performed in parts, impossible conditions are invalid GENERAL RULE: If period is designated, it is presumed to Indivisible - can’t be performed in parts have been established for the benefit of both the creditor or NUMBER: the debtor Conjunctive - all must be performed EXCEPTION: From the tenor of the obligation or other Alternative - only I must be performed circumstances, the period shall appear to be established in NATURE: favor of one or the other. Positive – act Consequences: Debtor/Creditor can’t be made to Negative - omission pay/accept payment before the period KNOWN: Express – stated Debtor's loss of right to make use of the period when: Implied - merely inferred A. He becomes insolvent, unless there is guarantee of FULFILLMENT: the debt Possible - can be fulfilled B. He does not furnish the guarantee  C. He voluntarily impaired said guarantee, r if creditors is entitled only to a proportionate part of through fortuitous event is disappear unless he the credit. Each debt/credit is considered give satisfactory replacement. independent of each other. D. He violates any under taking C. Disjunctive - Not covered by New Civil Code. There E. He attempts to abscond or run away (intent is are 2 or more creditors and 2or more debtors but material) they are named disjunctively as debtors and creditors in the alternative. Rule on solidary 2. PLURALITY OF PRESTATION obligation applies. a. Conjunctive - usually use the word "and' ,all 4. PERFORMANCE OF PRESTATION prestation must be complied b. Alternative - usually use the word Indivisibly does not necessarily connote solidarity. If there is “or", one prestation must be complied multiple parties, rules on solidarity and joint are still 1. Several objects are due - one is sufficient observed. 2. Right of choice – GENERAL RULE: debtor. Divisible obligation EXCEPTION: expressly granted to creditor, or 1. Number of days of work given to third party 2. Measured by metrical units 3. Prestation must not be impossible or unlawful 3. Instalment payments 4. The choice, to toke effect, must be 4. Susceptible to partial performance communicated. Indivisible obligation 5. Choice can't be part of one or of another 1. Definte things 6. If only one chance is practicable, debtor loss 2. Not susceptible to partial performance. the right of choice 3. Capable of partial performance, but law or the 7. Effect of loss of thing intention treats as indivisible. DEBTOR a. Joint Indivisible - division is impossible, insolvency All things Fortuitous Event- extinguished of I debtor will not make the other liable for his were lost Fault of debtor - value of the share lost and damages b. Solidary Indivisible - innocent debtor or any who is Some were Fortuitous Event/Fault of debtor- deliver ready to comply with his part can be made liable lost remaining for damages but is given right for reimbursement Fault of creditor - rescission and damages from debtor at fault or perform and damages 5. OBLIGATION WITH PENAL CLAUSE CREDITOR GENERAL RULE: The penalty shall substitute the indemnity All things Fortuitous Event- extinguished for damages and payment of interests in case of non- were lost Fault of debtor - value of the compliance. lost and damages EXCEPTION: If the contrary is stipulated, if debtor refuses to Some were Fortuitous Event/Fault of debtor- pay penalty, or is guilty of fraud lost demand from remaining Reduction of penalty: Court can reduce penalty if principal Fault of creditor – price of which was lost obligation is partly/regularly complied, or if penalty is and damages of demand from remaining confiscatory. and damages c. Facultative - only one prestation, but debtor may NATURE AND EFFECT OF OBLIGATIONS render substitution. Concurrent Obligations in Obligations to Give a What is lost through fortuitous event, obligation is: determinate thing: To deliver the thing, which may be BEFORE SUBSITUTION: either actual or constructive. Principal - extinguished 1. To take care of it with the proper diligence of a Substitute - not extinguished good father of a family (bonus pater familia), AFTER SUBSITUTION: unless there is stipulation or the law requires Principal - not extinguished another standard of care. Substitute -extinguished 2. To deliver the fruits of the thing from the time the 3. RIGHTS AND OBLIGATION OF MULTPLE PARTIES obligation to deliver it arises Kinds of Fruits: a. Natural - spontaneous product of the soil, young and A. Solidary obligation - each debtor /creditor is other products of animals liable/entitled to demand for the entire obligation b. Industrial - those derived from human intervention, Arises when, stipulated, law requires, or by nature cultivation or labor of obligation c. Civil - those derived from the juridical relation of parties. B. Joint obligation - each of the debtors is liable only for a proportionate part of the debt or each  3. To deliver al accessions and accessories, even Negligence: consists in the omission of that though they may not have been mentioned diligence which is required by the nature of the Accessories - those joined to or included with the principal obligation and corresponds with the circumstances for the latter's better use, perfection, or enjoyment. of the persons, of the time and of the place Accessions - additions or improvements upon a thing which Degree of care required: may include an alluvium and whoever is built, planted or 1. As a rule sown on parcel of land a. That required by law b. That agreed upon by the parties. REMEDIES FOR BREACH OF OBLIGATIONS 2. In the absence of the two above, diligence of a Obligations to give: good father of a family’ 1. Determinate thing - specific performance only if it Kinds of Negligence as to source: is legally and physically possible. Substitute 1. Culpa Contractual – contractual negligence – or that performance is not possible. which results in a breach of contract. 2. Generic thing - specific or substitute performance. 2. Culpa Aquiliana – civil negligence or quasi-delict The creditor can have another person to have such 3. Culpa Criminal – criminal negligence – or that which kind of thing be delivered of the cost of the debtor results in the commission of a crime or a delict. plus damages. Negligence on the part of the supposed creditor: Obligations to do: substitute performance only, since 1. If his negligence was the immediate and proximate cause forcing the obligor to comply would violate the constitution of the injury, there is no recovery for damages. prohibition against involuntary servitude. 2. If his negligence was only contributory – he may still Obligations not to do: and the obligor does it, the creditor recover damages, BUT the courts can mitigate or reduce the may have it undone at the expense of the debtor. same. c. DELAY KINDS OF RESCISSION AS A REMEDY: 1. Mora Solvendi – delay on the part of the debtor, which 1. Rescission in reciprocal obligations, which may either be: should've been properly termed as "resolution", is a. Mora solvendi ex re: in real obligations a primary remedy where the cause of action is b. Mora solvendi ex persona: in personal obligations substantial or fundamental breach or non- 2. Mora Accipiendi – delay on the part of the creditor; compliance. 3. Compensatio Morae – delay on the part of both parties. 2. Rescission under Art. 1301/1303 in rescissible General Rule: upon demand, which may be judicial or extra- contracts is a remedy of last resort where the judicial. cause would normally be lesion or economic injury EXCEPTION: to a party. 1. When stipulated 2. When the law so declares KINDS OF DAMAGES (MENTAL) 3. When from the nature and the circumstances of the Moral - for mental and physical anguish obligation it appears that the designation of the time when Exemplary - corrective or to set an example the thing is to be delivered or the service is to be rendered Nominal - to vindicate a right when no other kind of was a controlling motive for the establishment of the damages may be recovered contract Temperate - when the exact amount of damages cannot be 4. When demand would be useless determined 5. In reciprocal obligations, where the respective obligations Actual - actual losses incurred. This is the only type of must be performed simultaneously, and one party was not damage that would require proof. ready Liquidated - predetermined beforehand d. ANY OTHER MANNER OF CONTRAVENTION (VIOLATIO) SPECIFIC CIRCUMSTANCES AFFECTING In general, every debtor who fails in performance of his OBLIGATIONS IN GENERAL obligations is bound to indemnify for the losses and damages caused thereby. The phrase "any manner a. FRAUD contravene the tenor" of the obligation includes any illicit 1. Dolo Causante- or fraud in obtaining consent, act which impairs the strict and faithful fulfillment of the is applicable only to contracts where consent obligation or every kind or defective performance. is necessary and thus affects the validity of the FORTUITOUS EVENT: is an excuse for non-performance. contract, making it voidable. Fortuitous events by definition are extraordinary events not 2. Dolo Incidente- or fraud in the performance of foreseeable or avoidable. It is therefore, not enough that the obligation and applicable to obligations the event should not have been foreseen or anticipated, as arising from any source is commonly believed but it must be one impossible to foresee or to avoid. b. NEGLIGENCE MODES OF EXTINGUISHMENT OF OBLIGATIONS Art. 1231. Obligations are extinguished: 1. At the time the check or other mercantile documents (1) By payment or performance: have been encashed; (2) By the loss of the thing due: 2. Its value becomes impaired. (3) By the condonation or remission of the debt; Extraordinary inflation or deflation: of the currency (4) By the confusion or merger of the rights of creditor and stipulated should supervene, the value of the currency at debtor; the time of the establishment of the obligation shall be the (5) By compensation; basis of payment, unless there is an agreement to the (6) By novation. contrary. 1. PAYMENT OR PERFORMANCE d. PLACEMENT of PAYMENT a. Provisions as to the PAYOR 1. Payment shall be made in the place designated in the With interest Without obligation. interest 2. If there was no stipulation and the obligation consists in Compel the creditor to Yes No the delivery of a determinate thing, the payment shall be accept payment made wherever the thing might be at the moment the Subrogation to the rights Yes No obligation was constituted. of the creditor 3. In any other case the place of payment shall be the Amount of reimbursement Full Beneficial domicile of the debtor. If third party payor does not intend to be reimbursed: the 4. If the debtor changes his domicile in bad faith or after he payment may be treated as a donation. As such it is has incurred in delay, the additional expenses shall be borne necessary that the debtor accept the same for validity. by him. If the debtor did not consent, there would be no valid donation, and the third party-payor can seek SPECIAL FORMS OF PAYMENT reimbursement from the debtor. Dation in payment is the delivery or transmission of b. Provisions as to the PAYEE ownership of a thing by the debtor to the creditor as an Payment may be made to: accepted equivalent of the performance of the obligation. 1. Person in whose favor the obligation has been constituted GENERAL RULE: to the extent of the value of the thing 2. His successor in delivered as agreed upon or as may be proved. 3. Any person authorized to receive it EXCEPTION: if the parties consider the thing as equivalent 4. Third party to the obligation through an express or implied agreement Payment to an incapacitated person: is valid only if the or by silence. incapacitated person kept the thing delivered or insofar as it was beneficial to him. Application of Payment: is the designation of the debt c. THING to be paid or delivered which is being paid by a debtor who has several obligations Delivery of a specific thing: The debtor of a thing cannot of the same kind in favor of the creditor to whom payment compel the creditor to receive a different one, although the is made. latter may be of the same value as, or more valuable than 1. There is only one debtor; that which is due. 2. There are several debts; Delivery of a generic thing: whose quality and 3. The debts are of the same kind; circumstances have not been stated, the creditor cannot 4. There is only one and the same creditor. demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality. The purpose of the Cession - when the debtor delivers to all his creditors all his obligation and other circumstances shall be taken into properties for the purpose of selling and applying the consideration. proceeds to settle his obligations to them. Obligations to do or not to do: an act or forbearance KINDS: cannot be substituted by another act or forbearance 1. Voluntary – Under Art. 1255, the debtor may cede or against the obligee's will. assign his property to his creditors in payment of his debts; LEGAL TENDER: refers to payment which the creditor can be extent of extinguishment is only upto the amount of the compelled to accept. However, for coins, the following are proceeds. the limits: 2. Judicial – under the Financial Rehabilitation and 1. P1 coins and above - shall be legal tender in amounts not Insolvency Act. exceeding P1,000 Tender of Payment - the manifestation made by the debtor 2. Coins below P1 – legal tender not exceeding P100. to the creditor of his desire to comply with his obligation, Negotiable Instruments and Checks: are not considered with the offer of immediate performance. It is a legal tender and their acceptance is dependent on the PREPARATORY ACT to consignation and in itself DOES NOT creditor. However, should the creditor accept the same, extinguish the obligation. they do not produce the effect of payment, or extinguish Consignation - the deposit of the object of the obligation in the obligation, until: a competent court in accordance with rules prescribed by law, AFTER the tender of payment has been refused or because of circumstances which render direct payment to 2. As to whom impossibility refers: the creditor impossible. It extinguishes the obligation. a. Objective – impossibility of the act or service itself Applies only to extinguish of obligation not to exercise a without considering the person of the debtor right. b. Subjective - impossibility refers to the fact that the act or Requisites: service can no longer be done by the debtor but may still be 1. There exists a valid debt that is due; performed by another person 2. There is legal cause to consign, that is there has been a 3. As to extent: Partial or Total valid tender of payment and the creditor unjustly refuses, or 4. As to period of impossibility: Permanent or Temporary. even without tender of payment in the following cases: a. When the creditor is absent or unknown, or does not CONDONATION OR REMISSION OF THE DEBT appear at the place of payment; Condonation/Remission - an act of liberality, by virtue of b. When he is incapacitated to receive the payment at the which, without receiving any equivalent, the creditor time it is due; renounces the enforcement of an obligation, which is c. When, without just cause, he refuses to give a receipt; extinguished in its entirety or in that part or aspect of the d. When two or more persons claim the same right to same to which the remission refers. collect; Gratuitous: If not gratuitous, it will be considered: e. When the title of the obligation has been lost. 1. Dation in payment – when the creditor receives a thing 3. There is previous notice to consign to the persons having different from that stipulated; interest in the fulfilment of the obligation; 2. Novation – when the subject or principal conditions of the 4. The amount or thing due is deposited in court. obligation should be changed; 3. Compromise – when the matter renounced is in litigation Withdrawal as a matter of right: debtor withdraws before or dispute and in exchange of some concession which the acceptance by the creditor or before judicial declaration of creditor receives. propriety of consignation. In this case, no extinguishment Kinds of Condonation: yet of the obligation. As such, no revival since the obligation 1. Form: Express or Implied has not been extinguished to begin with. 2. Extent: Total or Partial Withdrawal after acceptance or declaration: only with the 3. Manner of remission: inter vivos or consent of the creditor. In this case, the obligation is Mortis causa revived. CONFUSION OR MERGER OF RIGHTS LOSS OF THE THING DUE OR IMPOSSIBILITY OF PERFORMANCE Merger/Confusion: the meeting in one person of the qualities of the creditor and debtor with respect to the same Loss: means when the thing goes out of commerce, perishes obligation. or disappears in such a way that its existence is unknown or Requisites: that it cannot be recovered. a. Must take place between the credit and the principal GENERAL RULE: If the loss is due to fortuitous event: debtor; generally, the debtor is not liable for damages if the thing is b. Must involve the very same obligation; lost due to fortuitous event. c. Must be total. EXCEPTION: 1. When the law so provides; COMPENSATION 2. When stipulation so provides; 3. When the nature of the obligation requires the the obligations of those persons who in their own right, assumption of risk. are reciprocally creditors and debtors of each other. 4. Obligations arising from a criminal offense, unless the Kinds of Compensation: creditor is in mora accipiendi. 1. As to effects/extent: 5. Obligations to give a generic thing, except in cases of a. Total – when the two obligations are of the same limited generic. amount; Partial Loss: Partial loss may be determined by the court as b. Partial – when the amounts are not equal. This is total as so important to extinguish the obligation. In doing so, intent to the debt with lower amount. of the parties must necessarily be considered. 2. As to origin/cause: Presumptions of fault: Whenever the thing is lost in the a. Legal – takes effect by operation of law because all the possession of the debtor, it shall be presumed that the loss requisites are present; was due to his fault, unless there is proof to the contrary. b. Facultative – can be claimed by one of the parties who, however, has the right to object to it Loss of the thing may likewise cover impossibility of c. Conventional – when the parties agree to compensate performance their mutual obligations even if some of the requisite are Types of Impossibility: lacking. 1. As to nature: Physical (by reason of its nature); and Legal d. Judicial – decreed by the court in a case where there is a (through some subsequent law) counterclaim.  NOVATION a. NEGOTIATION (PREPARATION OR CONCEPTION OR GENERACION) Requisites: b. PERFECTION (OR BIRTH) 1. Previous valid obligation – if the original obligation is c. CONSUMMATION (OR DEATH OR TERMINATION void, the novation is likewise void. But if it is voidable, novation is valid except when annulment has been claimed. ESSENTIAL ELEMENTS OF CONTRACTS 2. Agreement of all parties to a new contract 3. Extinguishment of old obligation CONSENT OF CONTRACTING PARTIES 4. Validity of the new obligation - If the new obligation is Consent: the meeting of the offer and the acceptance upon void, the original one shall subsist, unless the parties the thing and the cause which are to constitute the intended that the former relation should be extinguished in contract. any event. Offer and Acceptance: Kinds of Novation: a. The offer must be certain NATURE: b. The acceptance must be absolute. a. Subjective/ Personal c. A qualified acceptance constitutes a counter-offer. b. Objective/ Real d. An acceptance may be express or implied. c. Mixed e. The person making the offer may fix the time, place, and FORM: manner of acceptance, all of which must be complied with. a. Express b. Implied Cognition Theory – follows that the acceptance takes effect EXTENT: from the time the offeror knew (or has knowledge) of the a. Total acceptance of the offeree. b. Partial Manifestation Theory – on the other hand, follows that the Subjective Novation: changing the subject: acceptance will take effect once it is manifested by the 1. Active (SUBROGATION) offeree. 2. Passive (SUBSTITUTION) Intervening events: An offer becomes ineffective upon the a. Expromision - without knowledge or consent death, civil interdiction, insanity, or insolvency of either of the original debtor party before acceptance is conveyed. b. Delegacion – with consent of the original debtor. SITUATIONS CONCERNING CONSENT OF THE PARTIES Objective or Real Novation a. Both parties gave consent their consent as to the 1. Change in the object essential elements of the contract – the contract is valid. 2. Change in the principal conditions of the obligation, b. Simulation: when one or both the parties did not intend which may either be: to be bound by the contract (absolute simulation), the same a. Express – when so expressed in unequivocal terms; is void. Otherwise, if the parties merely conceal their true b. Implied - the old and the new obligations be on every agreement (relative simulation), they shall be bound by point incompatible with each other. their real agreement. c. Incapacity of one of the parties: GENERAL RULE: extinguished as a consequence of novation. Kinds of Capacity: EXCEPTION: insofar as pour atrui is concerned and the third i. Juridical capacity - is the fitness to be the subject of legal person for whose benefit the obligation was constituted did relations, is inherent in every natural person and is lost only not give his consent. through death. If incapacity pertains to juridical capacity the contract is void. ii. Capacity to act (or legal capacity) - is the power to do LAW ON CONTRACTS acts with legal effect, is acquired and may be lost. If incapacity pertains to capacity to act or legal capacity, it ELEMENTS can be: Absolute Incapacity – the party cannot give consent in any a. ESSENTIAL - those without which the contract cannot contract, with anyone, in whatever capacity, over exist, i.e., Consent, object, consideration. In some contracts, anything. form and delivery is essential too. The following cannot give consent to a contract: b. NATURAL - those which exist as part of the contract even a. Unemancipated minors if the parties do not stipulate it because the law is deemed b. Insane or demented persons (except if consent is given written therein. during lucid interval) c. ACCIDENTAL - those which are agreed upon by the c. Deaf-mutes who do not know how to write parties and which cannot exist without being stipulated. d. Drunks or hypnotized. Those who are “incompetent” under the Rules of Court who STAGES OF A CONTRACT may be placed under guardianship Relative Incapacity – a person may be prohibited from Requisites: entering specific contracts or that in a contract, he may be a. The thing, right or service must be within the commerce prohibited in a certain capacity. of man; d. Both are incapacitated: the contract is unenforceable. b. It must be transmissible; e. Both parties gave their consent, but such consent was c. It must not be contrary to law, morals, good customs, vitiated: public order or public policy; Vices of consent: would render the contract voidable. d. It must not be impossible; a. Mistake e. It must be determinate as to its kind or determinable The following mistakes will make the contract voidable: without the need of a new contract or agreement. i. If the mistake pertains to the object of the contract; ii. If the mistake pertains to the conditions which have CAUSE principally moved one or both parties to enter into the Cause- the essential or impelling reason why a party contract. assumes an obligation. iii. Mistake as to the identity or qualifications of one of the a. Onerous – for each contracting party, the prestation r parties when such identity or qualifications have been the promise of a thing or service by the other; principal cause of the contract. b. Gratuitous – mere liberality of the benefactor iv. Mutual error as to the legal effect of an agreement when c. Remuneratory – service or benefit already rendered. the real purpose of the parties is frustrated, may vitiate consent. Rules on Cause: a. Contracts without cause, or with unlawful cause, produce Mistake does NOT vitiate consent: no effect whatever i. Mistake or error as to motive b. The statement of a false cause in contracts shall render ii. A simple mistake of account – which shall give rise to its them void, if it should not be proved that they were founded correction only upon another cause which is true and lawful. iii. If the party alleging it knew the doubt, contingency or c. Although the cause is not stated in the contract, it is risk affecting the object of the contract. presumed that it exists and is lawful, unless the debtor proves the contrary. b. Violence - when in order to wrest consent, serious or d. As a rule, inadequacy of the price will not affect the irresistible force is employed. contract. Except: (1) When expressly provided by law, e.g., rescissible c. Intimidation - when one of the contracting parties is contracts; compelled by a reasonable and well-grounded fear of an (2) When there has been fraud, mistake or undue influence. imminent and grave evil upon his person or property, or e. The particular motives of the parties in entering into a upon the person or property of his spouse, descendants or contract are different from the cause thereof. ascendants, to give his consent. Exception: if it predominates the purpose of the party to enter into a contract. To determine the degree of intimidation, the age, sex and condition of the person shall be borne in mind. OTHER ESSENTIAL ELEMENTS A threat to enforce one's claim through competent authority, if the claim is just or legal, does not vitiate Real Contracts: are those which are perfected by delivery, consent. thus, delivery is an essential element to its perfection. Real contracts include: d. Undue Influence - when a person takes improper 1. Deposit advantage of his power over the will of another, depriving 2. Pledge the latter of a reasonable freedom of choice. 3. Commodatum 4. Simple Loan or Mutuum e. Fraud - when, through insidious words or machinations Formal Contracts: where the execution of the required of one of the contracting parties, the other is induced to formality is also an essential element for perfection. enter into a contract which, without them, he would not have agreed to. In order that fraud may make a contract FORMS OF CONTRACT voidable, it should be serious and should not have been GENERAL RULE: no form is required for the validity or employed by both contracting parties. Incidental fraud only perfection of a contract. obliges the person employing it to pay damages. EXCEPTIONS: Formalities required for VALIDITY: 1. Donations of real property which requires a public OBJECT CERTAIN WHICH IS THE SUBJECT MATTER instrument. Object (Subject Matter) of the Contract: is really to create 2. Donations of personal property which exceeds P5,000 or to end obligations, which, in turn, may involve things, which requires that the donation be written. rights 3. Stipulation to pay interests on loans or for the use of or services. money, which must be in writing. 4. Sale or transfer of large cattle which requires that it be in If mistake is mutual, either party or his successor can ask for a public instrument, registered and that there should be a reformation Otherwise, the injured party, his heirs and certificate of transfer. assigns. 5. Contribution of real property in a partnership, which requires that there be an inventory attached to a public FUNDAMENTAL CHARACTERISTICS/ PRINCIPLES OF instrument. CONTRACTS Formalities required for ENFORCEABILITY (STATUTE OF 1. CONSENSUALITY OF CONTRACTS FRAUDS) Perfection of a contract: is generally by the meeting of the 1. An agreement that by its terms is not to be performed minds or consensual, save for some cases where delivery or within a year form is required for its perfection. 2. A special promise to answer for the debt, default, or Contract entered into by an unauthorized person: is miscarriage of another unenforceable since the rule is that no one may contract in 3. An agreement made in consideration of marriage, other the name of another without being authorized by the latter, than a mutual promise to marry such as an agent, or unless he has by law a right to 4. An agreement for the sale of goods, chattels or things in represent him, such as a guardian. action, at a price not less than five hundred pesos CONTRACT OF ADHESION - one where there is already a 5. An agreement of the leasing for a longer period than one prepared form containing the stipulations desired by one year, or for the sale of real property or of an interest therein party whereby the latter only asks the other party to agree 6. A representation as to the credit of a third person. to them if he wants to enter into a contract. Formalities required for CONVENIENCE: to bind third Consent is necessary for there to be a contract persons, the following are required to appear in a public instrument: AUTONOMY OF CONTRACTS (FREEDOM OR LIBERTY 1. Acts and contracts which have for their object the TO CONTRACT) creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property The contracting parties may establish such stipulations, or of an interest therein a governed by the Statute of clauses, terms and conditions as they may deem Frauds. convenient, provided they are not contrary to law, morals, 2. The cession, repudiation or renunciation of hereditary good customs, public order, or public policy. rights or of those of the conjugal partnership of gains; a. Waiver for future fraud. 3. The power to administer property, or any other power b. Partnership: Pactum Leonina – a stipulation which which has for its object an act appearing or which should excludes one or more partners from any share in the profits appear in a public document, or should prejudice a third or losses person; c. Mortgage/Pledge: Pactum Commissorium – a stipulation 4. The cession of actions or rights proceeding from an act where the creditor appropriates the things given by way of appearing in a public document. pledge or mortgage, or dispose of them. Remedy to require a specific form: if the law requires a d. Mortgage/Pledge: Pactum de non aliendo – a stipulation document or other special form if the contract is VALID and forbidding the owner from alienating the immovable ENFORCEABLE, as in the acts and contracts required to mortgaged. appear in a public instrument for convenience (where the Contrary to Public Policy: requirement that they must be in writing for validity, if a. Refund of tuition fees during the time a student is applicable, is met), the contracting parties may compel covered by a scholarship if such student transfers schools. each other to observe that form, once the contract has been Scholarships are granted not to attract and to keep brilliant perfected. students in school for their propaganda mine but to reward merit or help gifted students in whom society has an REFORMATION OF INSTRUMENTS established interest or a first lien. (Cui vs. Arellano) b. Prohibiting a losing candidate in a convention to run as Reformation: is the remedy by means of which a written an independent candidate is contrary to constitutionality instrument is made or construed so as to express or protected right to be elected in public office and the right of conform to the the electorate to choose. (Saura vs. Sindico) true intention of the parties when some error or mistake Contrary to Morals: in a contract of loan, where the has been committed. interest rate is 50%, is void (and reduced) for being contrary Requisites: to morals, the same being unconscionable, confiscatory, 1. There is a meeting of the minds; exorbitant, excessive or inequitable, not because of it is 2. There is a written instrument; and usurious. 3. The written instrument does not reflect the true intention of the parties. Done if there is disparity of either mutual, one MUTUALITY party, third party, or equitable mortgage. a. The contract must bind both contracting parties; b. its validity or compliance cannot be left to the will of one Accion Directa: is the action of a creditor to sue on a of them. contract entered into by his debtor, whenever authorized by Consequences of Mutuality: law. a. One party cannot revoke or renounce a contract without c. Third persons may be liable under a contract the consent of the other, nor have it said aside on the Malicious interference by third persons: A third person who ground that he had made a bad bargain. induces another to violate his contract shall be liable for b. Potestative suspensive conditions dependent upon the damages to the other contracting party. sole will of the debtor voids the obligation. If the potestative d. Third persons may be benefited by a contract- condition is resolutory, it would not affect the validity of the Stipulation pour atrui: is a stipulation in favor of a third contract, as such, extinguishment can be left to the will of person conferring a clear and deliberate favor upon him, one of the parties. and which stipulation is merely part of a contract entered c. The determination of the performance may be left to a into by the parties, neither of whom acted as agent of the third person: third person. (1) Whose decision shall not be binding until it has been Communication of acceptance to the obligor is required. No made known both contracting parties form is required. It can even be implied from the acts of the (2) The determination shall not be obligatory if it is third person. evidently inequitable. In such case, the courts shall decide Revocation: cannot be done by one party alone. The what is equitable under the circumstances. Supreme Court has held that if this revocation is a unilateral act of one of the parties, it is void for violation of the ESCALATION CLAUSE: where one increases/decreases principle of mutuality of contracts. For a revocation to take compensation of one of the parties. effect, it must be with consent of both parties (obligor and When Void: when the increase is dependent solely upon the oblige) and should be done before the communication of will of one of the parties. acceptance to the obligor. When Valid: when the increase/decrease is dependent on valid and reasonable standards, independent of the parties’ CLASSIFICATION OF CONTRACTS will. 1. ACCORDING TO DEGREE OF DEPENDENCE Contract for a piece of work: where the compensation of a. PRINCIPAL – a contract which can stand on its own, such the contractor may be increased on the basis of minimum as a contract of sale, barter, lease, loan. wage or as to materials, based on the consumer price index. b. ACCESSORY – those which cannot stand on its own and Contract of Lease: where the rental would be increased or are dependent upon other contracts for its validity. E.g., decreased based on the movement (increase or guaranty, suretyship, mortgage and antichresis. devaluation) of foreign exchange – valid. c. PREPARATORY – a contract is a means to achieving an end, such as an option contract, a contract of partnership OBLIGATORY FORCE OF CONTRACTS and that of agency. Art. 1159. Obligations arising from contracts have the force 2. ACCORDING TO PERFECTION of law between the contracting parties and should be a. CONSENSUAL – are those perfected by mere consent. complied with in good faith. b. REAL – those which are perfected only upon delivery of the thing subject of the contract. E.g., deposit, pledge, RELATIVITY OF CONTRACTS commodatum and mutuum. RELATIVITY (OR PRIVITY) OF CONTRACTS: means that the c. FORMAL – those which require a certain form for its contract takes effect only between the parties, their assigns validity. E.g., antichresis and heirs which are referred to as privies. 3. ACCORDING TO PURPOSE Third Parties: as a general rule do not have a cause of a. TRANSFER OF OWNERSHIP – Donation, Sale and Barter action to enforce or annul a contract nor are they bound by b. CONVEYANCE OF USE – Usufruct, Lease and Loan the terms thereof. c. RENDITION OF SERVICE – Lease and Agency 4. ACCORDING TO NATURE OF OBLIGATION PRODUCED EXCEPTIONS: a. BILATERAL – where both parties are reciprocally a. Third person may be bound by the contract: In contracts obligated, e.g., lease (where the lessor is obliged to allow creating real rights, third persons who come into possession the use of the thing and the lessee is obliged to pay rent) of the object of the contract are bound thereby, subject to and sale (where the buyer is obliged to pay the price and the provisions of the Mortgage Law and the Land the seller obliged to deliver the thing) (ARTS. 1642, 1458) Registration Laws b. UNILATERAL – only one party is obliged. E.g., guaranty b. A creditor may initiate an action against the contracting and pledge. (ARTS. 2047, 2093) parties. Creditors are protected in cases of contracts 5. ACCORDING TO CAUSE intended to defraud them. a. ONEROUS – such as a contract of sale, barter, lease and Accion Pauliana: is the action of the creditor to rescind the simple loans or mutuum with stipulation for interest. contract entered into by the debtor to defraud him. b. GRATUITOUS OR LUCRATIVE – such as a donation and commodatum. c. REMUNERATORY – where one prestation is given for a When it is absolutely impossible to settle doubts by the benefit or service that had been rendered previously. rules established in the preceding articles, and the doubts 6. ACCORDING TO RISK refer to incidental circumstances of: a. COMMUTATIVE – where the parties contemplate real 1. a gratuitous contract - the least transmission of rights fulfillment, therefore, equivalent values (presumably) are and interests shall prevail. given, such as sales (where the price is presumably the 2. If the contract is onerous, the doubt shall be settled in equivalent of the thing to be delivered) or lease (where the favor of the greatest reciprocity of interests. rental payments is presumably the value of the use of the thing) DEFECTIVE CONTRACTS b. ALEATORY – where the fulfillment of the cause as to one 1. RESCISSIBLE CONTRACTS party is dependent upon chance, such as an insurance Rescission: is a process designated to render inefficacious a contract (where the payment will depend on the happening contract validly entered into and normally binding, by of the event insured against) reason of external conditions, causing an economic 7. ACCORDING TO NAME prejudice to a party or his creditors. a. NOMINATE – those contracts for which a particular name Resolution: is the proper term for “rescission” which is a has been designated and rules particular to them are remedy under Art. 1911 in reciprocal obligations. Unlike the applicable such as sales, commodatum, partnership, proper rescission for rescissible contracts, resolution is a agency, deposit, etc. primary remedy which can be availed of by the parties and b. INNOMINATE – those which do not have particular does not require lesion as a ground therefor but will require designation, such as do ut des (I will give that you may non-performance or non-fulfillment of the obligation or give), do ut facias (I will give that may do), facio ut des (I when there is substantial breach. will do that you may give) and facio ut facias (I will do that Kinds Rescissible Contracts: you may do). (1) Those which are entered into by guardians whenever the 8. ACCORDING TO SUBJECT MATTER wards whom they represent suffer lesion by more than a. THING one-fourth of the value of the things which are the object b. RIGHT thereof; c. SERVICE (2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number; INTERPRETATION OF CONTRACTS (3) Those undertaken in fraud of creditors when the latter Primordial Consideration: is the intention of the parties. cannot in any other manner collect the claims due them; Such that even if the terms of the contract are clear, but (4) Those which refer to things under litigation if they have does not reflect the intention of the parties, it is the been entered into by the defendant without the knowledge intention which would prevail. and approval of the litigants or of competent judicial Contemporaneous and Subsequent Acts: may be authority; considered to determine if the parties’ intentions are (5) All other contracts specially declared by law to be different from the clear words of the agreement. subject to rescission. Specific rules in interpretation of contracts: Lesion – is the damage or injury to the party asking for 1. However general the terms of a contract may be, they rescission, which represents the difference between the shall not be understood to comprehend things that are price and the actual value of the property. Lesion, as a distinct and cases that are different from those upon which ground for rescission must be MORE THAN ONE-FOURHT of the parties intended to agree. the value. 2. If some stipulation of any contract should admit of In fraud of creditors: which is properly termed “accion several meanings, it shall be understood as bearing that pauliana,” through which the creditor can interfere and import which is most adequate to render it effectual. have the contract entered into by the debtor rescinded. 3. The various stipulations of a contract shall be interpreted Things under litigation: is rescissible whenever entered into together, attributing to the doubtful ones that sense which without the knowledge and approval of: may result from all of them taken jointly. a. The litigants; or 4. Words which may have different significations shall be b. Competent judicial authority (such as the court under understood in that which is most in keeping with the nature which the thing is subject to litigation). and object of the contract. Other contract subject to rescission under the law: 5. The usage or custom of the place shall be borne in mind a. Rights of an unpaid seller; in the interpretation of the ambiguities of a contract, and b. In obligations to deliver a specific thing, where the same shall fill the omission of stipulations which are ordinarily deteriorates with the fault of the debtor before the established. suspensive condition is fulfilled (or suspensive term arrives); 6. The interpretation of obscure words or stipulations in a c. Lesion of at least one-fourth in partition. contract shall not favor the party who caused the obscurity d. In sale of real estate for a certain price per unit of measure and the real estate delivered is deficient by more When none of the above rules will apply: than 1/10 or when the buyer would not have entered into the contract knowing the actual area of the real estate. e. Payments made in a state of insolvency for obligations b. It does not require the conformity of the contract party whose fulfillment the debtor could not be compelled at the who has no right to bring the action for annulment. time they were effected. c. It cleanses the contract from all the defects from the Rescission as a remedy: moment it was constituted. a. The action for rescission is subsidiary; it cannot be d. It may be done: instituted except when the party suffering damage has no i. Expressly – either oral or written; or other legal means to obtain reparation for the same ii. Tacitly (impliedly) – when the reason which renders the b. Rescission shall be only to the extent necessary to cover contract voidable has ceased, the person who has a right the damages caused to invoke annulment should execute an act which c. Restitution - rescission creates the obligation to return necessarily implies an intention to waive such right. the things which were the object of the contract, together Annulment: renders the contract non-existing, as if it was with their fruits, and the price with its interest. never entered into. d. It can be carried out only when he who demands a. Only the injured party (the victim, whether principal or rescission can return whatever he may be obliged to restore subsidiary party) may ask for annulment. e. Rescission shall not take place when the things which are b. Creditors of the injured party cannot ask for the the object of the contract are legally in the possession of annulment of the contract for they are not parties thereto. third persons who did not act in bad faith. In which case, c. In case of minority, and the minor misrepresents his age, indemnity for damages may be demanded from the person and the other party was led to believe the same, there can causing the loss. be no annulment, for here, the minor would be estopped. f. If the sale of the property of the guardian or the absentee d. Those who are capacitated cannot allege the incapacity is approved by courts, rescission is not an available remedy. of those with whom they contracted with nor those who Presumption of Fraud: exerted intimidation, violence or undue influence, or a. Alienations by gratuitous title: presumed to have been employed fraud, or caused mistake. entered into in fraud of creditors, when the donor did not e. Effects of loss of the thing: reserve sufficient property to pay all debts contracted i. The action for annulment of contracts shall be before the donation. extinguished when the thing which is the object thereof is b. Alienations by onerous title: presumed fraudulent when lost through the fraud or fault of the person who has a right made by persons against whom some judgment has been to institute the proceedings. issued. The decision or attachment need not refer to the ii. If the right of action is based upon incapacity, the loss of property alienated, and need not have been obtained by the the thing shall not be an obstacle to the success of the party seeking the rescission. action, unless said loss took place through the fraud or fault Prescriptive Period: the action to claim rescission must be of the incapacitated person. commenced within 4 years. For persons under guardianship f. Effects of annulment: and for absentees, such four year period shall begin upon i. Generally, the parties are obliged to restore to each other termination of the ward’s incapacity or when the absentee’s the things which have been the subject matter of the domicile is known. contract, with their fruits and the price with its interest. ii. In obligations to render service, the value thereof shall be VOIDABLE CONTRACTS the basis for damages. Voidable Contracts: are those which are valid until they iii. In case of incapacity, the person incapacitated is not have been annulled by proper action in court. However, obligated to make any restitution except insofar as he has they are likewise subject to ratification to cure the defect. been benefited by the thing or price received by him. The following are voidable contracts: iv. Whenever the person who is obliged to return the thing a. Those where one of the parties is incapable of giving cannot do so because it has been lost through his fault, he consent; shall return: b. Those where the consent is vitiated by mistake, violence, 1) the fruits received and intimidation, undue influence or fraud. 2) the value of the thing at the time of loss c. Those entered into by those hypnotized or under a state 3) with interest from the same date. of drunkenness v. When one party does not return what is due him by virtue Prescriptive Period: shall be four years. of the annulment, he cannot compel the other to comply what is incumbent upon him. Ground Counted from Intimidation, violence or The defect of the consent UNENFORCEABLE CONTRACTS undue influence ceases Mistake or fraud Discovery Unenforceable contracts – are those which have no effect Minority or incapacity Guardianship ceases until they are ratified. Ratification: extinguishes the action to annul a voidable Kinds of Unenforceable Contracts: contract. a. Unauthorized contracts – those entered into in the name a. Ratification may be effected by the guardian of the of a person by one who has been given no authority or incapacitated person legal representation, or who has acted beyond his powers.ill b. Those that do not comply with the Statute of Frauds – (6) Those where the intention of the parties relative to the these are agreements that are required to be in writing in principal object of the contract cannot be ascertained; order to avoid fraud. (7) Those expressly prohibited or declared void by law. These contracts cannot be ratified. Neither can the right to Statute of Frauds: in order to be enforceable, the following set up the defense of illegality be waived. must be in writing, or in some note or memorandum: Rules Applicable: i. An agreement that by its terms is not to be performed a. The action or defense for the declaration of the contract within a year from the making thereof. as inexistent does not prescribe. ii. A special promise to answer for the debt, default, or b. The contract cannot be ratified. miscarriage of another; c. The defense of illegality of contract is not available to iii. An agreement made in consideration of marriage, other third persons whose interests are not directly affected than a mutual promise to marry; iv. An agreement for the sale of goods, chattels or things in GENERAL RULE: It cannot give rise to valid subsequent action, at a price not less than five hundred pesos, unless contracts if the same are based on it. Generally, produces the buyer accept and receive part of such goods and no effect and no action to declare them void is needed. chattels, or the evidences, or some of them, of such things EXCEPTIONS: in action or pay at the time some part of the purchase a. When money is paid or property delivered for an illegal money; but when a sale is made by auction and entry is purpose, the contract may be repudiated by one of the made by the auctioneer in his sales book, at the time of the parties before the purpose has been accomplished, or sale, of the amount and kind of property sold, terms before any damage has been caused to a third person. In of sale, price, names of the purchasers and person on whose such case, the courts may, if the public interest will thus be account the sale is made, it is a sufficient subserved, allow the party repudiating the contract to memorandum; recover the money or property. v. An agreement of the leasing for a longer period than one b. Where one of the parties to an illegal contract is year, or for the sale of real property or of an interest incapable of giving consent, the courts may, if the interest therein. of justice so demands allow recovery of money or property vi. A representation as to the credit of a third person. delivered by the incapacitated person. Rules Applicable to Statute of Frauds: c. When the agreement is not illegal per se but is merely a. It applies only to executory contracts, and not those prohibited, and the prohibition by the law is designated for which have been partially or completely executed. the protection of the plaintiff, he may, if public policy is b. The list is exclusive, that is, it applies only to the thereby enhanced, recover what he has paid or delivered. agreements or contracts enumerated above. d. In case of a divisible contract, if the illegal terms can be c. The defense of Statute of Frauds may be waived. separated from the legal ones, the latter may be enforced. d. The Statute of Frauds is a personal defense, that is, an Illegal Contracts: can either be that which involves a agreement infringing it cannot be assailed by third persons. criminal offense or where there is no criminal offense. e. If oral evidence is presented to prove the agreement, and the other does not object thereto, there is deemed a waiver of the defense of Statute of Frauds. The same is true LAW ON INSURANCE if the other party has already accepted the benefits of the contract. A contract of insurance is an agreement whereby one who undertakes, for a consideration, to indemnify another c. Those where both parties are incapable of giving against loss, damage, or liability arising from an unknown consent. or contingent event. Parties to a contract of Insurance VOID OR INEXISTENT 1. Insured- the person whose loss is the occasion for the Void Contracts are those which are either inexistent (as payment of the insurance proceeds by the insurer. He must when the required formalities are not complied with for its have the capacity to enter into a contract and he must not perfection, which produces no legal effects), or illegal or be a public enemy. illicit. 2. Insurer – the person who assumes the risk of loss and Art. 1409. The following contracts are inexistent and void undertakes for a consideration to indemnify the insured from the beginning: upon the happening of the designated peril. Any person (1) Those whose cause, object or purpose is contrary to law, may be an insurer provided he obtains a certificate of morals, good customs, public order or public policy; authority to transact insurance business from the Insurance (2) Those which are absolutely simulated or fictitious; Commission. (3) Those whose cause or object did not exist at the time of 3. Assured – the insured is also the assured when the the transaction; proceeds are payable to him. (4) Those whose object is outside the commerce of men; 4. Beneficiary – the third person designated by the insured (5) Those which contemplate an impossible service; to receive the proceeds  Characteristics and nature of insurance contracts Insurable interest- It is that interest which the law requires the owner of an insurance policy to have in the person or 1. Uberrimae Fides Contract thing insured. A person is deemed to have an insurable The contract of insurance is one of perfect good faith, not interest in the subject matter insured where he has a for the insured alone, but equally so for the insurer. In fact, relation or connection with or concern in it that he will it is more so for the latter since the insurer’s dominant derive pecuniary benefit or advantage from its preservation bargaining position carries with it stricter responsibility. and will suffer pecuniary loss or damage from its 2. Contract of Indemnity destruction, termination, or injury by the happening of the The insured is entitled to recover only the amount of total event insured against. loss sustained, and the burden is upon him to prove the Perfection of the contract of insurance- As a consensual amount of such loss. contract, the contract of insurance is perfected from the 3. Risk Distributing Device moment there is a meeting of the minds with respect to the The risk of economic loss is distributed among a large group object and the cause or consideration. Under the Cognition of people bearing the same risk. Theory, an insurance contract is perfected only when the 4. Aleatory applicant-insured has knowledge of the acceptance and The obligation of the insurer to pay the proceeds of the approval by the insurer of his application. insurance arises only upon the happening of an event which Premium- It is a consideration paid to an insurer for is uncertain. It does not depend upon some contingent undertaking to indemnify the insured against a specified event. peril. As a rule, no policy or contract of insurance is valid 5. Contract of Adhesion and binding unless and until the premium thereof has been An insurance contract is a ready-made form of contract, paid. This is the “cash and carry rule” under the Insurance which the other party may accept or reject, but which the Code. The payment of the premium is imperative for latter cannot modify. the validity of the policy. 6. Personal Rescission/Cancellation of insurance contracts The law presumes that the insurer considered the personal The following are grounds for the cancellation of a non- qualification of the insured in approving the insurance life policy insurance: application. The insured cannot assign, before the 1. Non-payment of premium happening of the loss, his rights under a property policy 2. Fraud or material misrepresentation without the consent of the insurer. 3. Physical changes in the property insured which result in 7. Voluntary the property becoming uninsurable A contract of insurance is not compulsory, and the parties 4. Conviction of a crime arising out of acts increasing the may incorporate such terms and conditions as they may hazard insured against deem convenient. This is allowed provided that they do not 5. Willful or reckless acts or omissions increasing the risk contravene any provision of law and are not against public insured against. policy. 6. Determination by the Insurance Commissioner that the 8. Synallagmatic policy would violate the Insurance Code. Both the insured and insurer have reciprocal obligations of The following are the requisites for a valid cancellation of equal value to each other. an insurance policy: 1. Prior notice of cancellation, in writing, is given to the Classes/Types of Insurance insured. 1. Life insurance contracts 2. Notice must be based on any of the grounds mentioned a. Individual life in Sec. 64 of the Insurance Code b. Group life 3. Upon request of the insured, the insurer must furnish c. Industrial life facts on which cancellation is based. 2. Non-life insurance contracts Claims settlement and subrogation- In life insurance, the a. Marine proceeds shall be paid immediately upon the maturity of b. Fire the policy if there is such a maturity date. If the policy c. Casualty matures by the death of the insured, the proceeds shall be 3. Contracts of suretyship paid within 60 days from filing of the claim and upon the proof of the death of the insured. Variable contracts- any policy or contract on either a group or on an individual basis issued by an insurance company In property insurance, the proceeds must be paid within 30 providing for benefits or other contractual payments or days after proof of loss is received by the insurer and values thereunder to vary so as to reflect investment results ascertainment of the loss or damage is made. If no such of any segregated portfolio of investments or of a ascertainment is made within 60 days after receipt by the designated separate account in which amounts received in insurer of the proof of loss, the proceeds shall be paid connection with such contracts shall have been placed and within 90 days from such receipt. accounted for separately and apart from other investments and accounts. Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in these contracts are performed strictly according to relation to a debt or claim, including itsremedies or specifications. securities. This right attaches upon payment by the insurer of the insurance claims of the assured.As subrogee, the SCOPE AND APPLICATION: insurer steps into the shoes of the assured and may exercise only those rights that assured may have against the 1. Procurement of Infrastructure Projects wrongdoer who caused the damage. Payment by the 2. Goods and Consulting Services insurer to the assured operates as an equitable assignment of all remedies the assured my have against the third party PREPARATION OF BIDDING DOCUMENTS who caused the damage. FORM AND CONTENTS OF BIDDING Prescriptive period- Actions arising from insurance DOCUMENTS: The Bidding Documents shall be contracts prescribe in 10 years. However, the parties may prepared by the Procuring Entity following the validly stipulate on a shorter period provided it is not less standard forms and manuals prescribed by the GPPB. than one year from the time the cause of action accrues. The prescriptive period commences from the final rejection The Bidding Documents shall include the following: of the claim. a) Approved Budget for the Contract; b) Instructions to Bidders, including criteria for eligibility, bid evaluation and post-qualification, as GOVERNMENT PROCUREMENT LAW well as the date, time and place of the pre-bid Conference (where applicable), submission of bids and DECLARATION OF POLICY: It is the declared policy opening of bids; of the State to promote the ideals of good governance c) Terms of Reference; in all its branches, departments, agencies, d) Eligibility Requirements; subdivisions, and instrumentalities, including e) Plans and Technical Specifications; government-owned and/or -controlled corporations f) Form of Bid, Price Form, and List of Goods or Bill of and local government units. Quantities; GOVERNING PRINCIPLES: All procurement of the g) Delivery Time or Completion Schedule; national government, its departments, bureaus, h) Form and Amount of Bid Security; offices and agencies, including state universities and i) Form and Amount of Performance Security and colleges, government -owned and/or-controlled Warranty; and, corporations, government financial institutions and j) Form of Contract, and General and special local government units, shall, in all cases, be governed Conditions of Contract. by these principles: a) Transparency in the procurement process and Specifications for the Procurement of Goods shall be in the implementation of procurement contracts. based on relevant characteristics and/or performance b) Competitiveness by extending equal requirements. Reference to brand names shall not be opportunity to enable private contracting parties who allowed. are eligible and qualified to participate in public bidding. Procuring entity shall ensure equal access to c) Streamlined procurement process that will information. Prior to their official release, no aspect of uniformly apply to all government procurement. The the Bidding Documents shall be divulged or released procurement process shall simple and made adaptable on any prospective bidder or having direct or indirect to advances in modern technology in order to ensure interest in the project to be procured. an effective and efficient method. d) System of accountability where both the public INVITATION TO BID officials directly or indirectly involved in the procurement process as well as in the implementation PRE-PROCUREMENT CONFERENCE: Prior to the of procurement contracts and the private parties that issuance of the Invitation to Bid, the BAC is mandated deal with government are, when warranted by to hold a pre-procurement conference on each and circumstances, investigated and held liable for their every procurement, except those contracts below a actions relative thereto. certain level or amount specified in the IRR, in which e) Public monitoring of the procurement process case, the holding of the same is optional. and the implementation of awarded contracts with The pre-procurement conference shall assess the the end in view of guaranteeing that these contracts readiness of the procurement in terms of confirming are awarded pursuant to the provisions of this Act and the certification of availability of funds, as well as its implementing rules and regulations, and that all reviewing all relevant documents and the draft Invitation to Bid, as well as consultants hired by the agency concerned and the representative of the end - provide for fair and equal access to all prospective user. bidders. The prospective bidder shall certify under oath as to the correctness of the statements made, ADVERTISING AND CONTENTS OF THE INVITATION and the completeness and authenticity of the TO BID documents submitted. ALL invitation to bid contracts under competitive SUBMISSION AND RECEIPT OF BIDS bidding shall be advertised by the Procuring Entity. such as posting in Procuring entity's premises: COMPONENTS 1) In newspapers of general circulation 1. The technical components; and 2)PHILGEPS 2. The financial components 3)website of the Procuring Entity Subject to the following rules: 1. The bids’ components should be in separate Contents: The Invitation to Bid shall contain, among others: sealed envelopes, and which shall be submitted a) A brief description of the subject matter of the simultaneously. Procurement; 2. The bids shall be received by the BAC on such b) A general statement on the criteria to be used by the date, time and place specified in the invitation to bid. Procuring entity for the eligibility check, the short listing 3. The deadline for the receipt of bids shall be of prospective bidders, in the case of the Procurement of Consulting Services the examination and evaluation fixed by the BAC, giving the prospective bidders of Bids, and post-qualification; sufficient time to study and prepare their bids. c) The date, time and place of the deadlines for the submission and receipt of the eligibility requirements, the MODIFICATION OF BIDS: A bidder may modify his bid, pre-bid conference if any, the submission and receipt of provided that this is done before the deadline for the bids, and the opening of bids; receipt of bids. The modification shall be submitted in d) The Approved Budget for the Contract to be bid; a sealed envelope duly identified as a modification of e) The source of funds; the original bid and stamped received by the BAC. f) The period of availability of the Bidding Documents, and the place where these may be secured and; WITHDRAWAL OF BIDS: A bidder may, through a g) The contract durat