OBLIGATIONS AND CONTRACTS

Jojo I. Mendoza

BSEE 5

NWSSU

Chapter 1: General ProvisionsArt. 1156. An obligation is a juridical necessity to give, to do or not to do.The definition of obligations establishes

the unilateral act of the debtor either to give, to do or not to do as a patrimonial obligation. It means that the debtor has the obligation while the creditor has its rights.

The obligations referred to is a patrimonial obligations that is, those obligations with pecuniary value or assessable in terms of money.

 

1. Characteristics of patrimonial obligations:• They represent an exclusively private interest.• They create ties that are by nature transitory.• They exist a power to make effective in case of non-fulfillment,

the economic equivalent obtained at the patrimony of a debtor.

2. Juridical Necessity – it means the rights and duties arising from obligation are legally demandable and the courts of justice may be called upon through proper action to order the performance.

Action means an ordinary suit in court of justice by which one party prosecutes another for the enforceable or protection for a right or a prevention or redress of a wrong ( Sec. 1. Rules of court ).

Example –

Gaya bought a refrigerator from Tito but Gaya did not pay the refrigerator. If after demand, Gaya still did not pay, Tito can sue Gaya in Court either to demand payment or for recovery of the refrigerator.

3. Essential requisites of an obligation –

a) An active subject, who has the power to demand the prestation, known as the creditor or oblige;

b) A passive subject, who is bound to perform the prestation, known as debtor or obligor.

c) An object or the prestation which may consist in the act of giving, doing or not doing something.

d) The vinculum juris or the juridical tie between the two subjects by reason of which the debtor is bound in favor of the creditor to perform the prestation. It is the legal tie which constitutes the source of obligation—the coercive force which makes the obligation demandable. It is the legal tie which constitutes the devise of obligation… the coercive force which makes the obligation demandable.

Juridical TieDebtor To give, to do Creditor Or Obligor or not to do or Obligee

  Example:Gaya enters into a contract of sale with Tito who paid the purchase of a GE refrigerator. Gaya did not deliver the refrigerator. Gaya is the passive subject or debtor and Tito is the active subject or creditor. The object or prestation is the GE refrigerator and the obligation to deliver is the legal tie or the vinculum juris which binds Gaya and Tito.

This is also known as a unilateral obligation, that is, the obligation of the debtor to fulfill or comply his commitment, in this case, the delivery of the refrigerator.

On the other hand, if Gaya, delivered the refrigerator and Tito did not pay, then Tito becomes the debtor who is bound to pay while Gaya is the creditor who has the right to demand the prestation.

4. Distinctions between Obligations and Contracts:Contract is the only one of the sources of obligation, while

obligations have other sources like law, quasi-contracts, delicts or quasi-delicts;

Contract is a bilateral obligation while obligation is a unilateral obligation;

All contracts are obligations while not all obligations are contracts.

5. Civil obligations as distinguished from Natural obligations –

Civil obligations derive their binding force from positive law; Natural Obligation derives their binding effect from equity and natural justice.

Civil can enforced by court action of the coercive power of public authority;

Natural – the fulfillment cannot be compelled by court action but depends on the good conscience of debtor.

ART. 1157. Obligations arise from:Law;Contracts;Quasi-contracts;Acts or omissions punished by law; andQuasi-delicts. (1089a)

On the sources of obligation, the main sources are really Law and Contracts. The other sources are also established by law.

Source of Obligations1. LAW as a source of obligations –

The provisions of Art. 1158 refers to the legal obligations or obligations imposed by specific provisions of law, which means that obligations arising form law are not presumed and that to be demandable must be clearly provided for, expressly or impliedly in the law.

Examples:It is the duty of the Spouses to support each other.

(Art. 291, New Civil Code)And under the National Internal Revenue Code, it is

the duty of every person having an income to pay taxes.

2. CONTRACT as a source of obligations –

Contract as defined in Art. 1305, NCC is the meeting of minds between two person whereby one binds himself with respect to the other,

 

Obligations arising from contracts have the force of law between the contracting parties because that which is agreed upon in the contract by the parties is the law between them, thus, the agreement should be complied with in good faith. (Art. 1159).

 

For examples:

A contract of lease was executed between Gaya as the lessee and Tito as the lessor for the rent of an apartment.

Although contracts have the force of law, it does not mean that contract are over and above the law. Contracts are with the limitations imposed by law in Art. 1306, NCC, it states that the contracting parties may establish such stipulations, clauses terms and conditions as, they may deem convenient, provided that are not contrary to law, morals, good custom, public order or public policy.

3. QUASI-CONTRACTS as a source of obligations

The ‘quasi’ literally means ‘as if’.

Quasi-contract is the juridical relation resulting from a lawful, voluntary and unilateral act which has for its purpose the payment of indemnity to the end that no one shall unjustly enrich or benefited at the expense of another. (Art. 2142, NCC)

Contracts and quasi-contracts distinguished: in a contract, consent is essential requirement for its validity while

in quasi-contract, there is no consent as the same is implied by law; contract is a civil obligation while quasi-contract is a natural

obligation.

2 Kinds of Quasi-contracts1. Solutio Indebiti (Payment by mistake)

It is the juridical relation which arises when a person is obliged to return something received by him through error or mistake.

Example-

Arvin owed Ian the sum of P1, 000.00. By mistake, Arvin paid P2, 000.00. Ian has the obligation to return the P1, 000.00 excess because there was payment by mistake.

2. Negotiorum gestio (management of another’s property)

It is the voluntary management or administration by a person of the abandoned business or property of another without any authority or power from the latter. (Art. 2144, NCC)

Example-

Victor, a wealthy landowner suddenly left for abroad leaving his livestock farm unattended. Ramon, a neighbor of Victor managed the farm thereby incurring expenses. When Victor returns, he has the obligation to reimburse Ramon for the expenses incurred by him and to pay him for his services. It is bases on the principle that no one shall enrich himself at the expense of another.

4. DELICTS or acts or omissions punished by law as a source of obligations

  Acts or omission punished by law is known as Delict or Felony or Crime. While an act or omission is felonious because it is punished by law, the criminal act

gives rise to civil liability as it caused damage to another.

Civil liability arising from delicts: Restitution – which is the restoration of or returning the object of the crime to

the injured party. Reparation – which is the payment by the offender of the value of the object

of the crime, when such object cannot be returned to the injured party. Indemnification – the consequential damages which includes the payment of

other damages that may have been caused to the injures party.

Illustration: Mario was convicted and sentenced to imprisonment by the Court for the crime of

theft, the gold wrist watch, of Rito. In addition to whatever penalty that the Court may impose, Mario may also be ordered to return (restitution) the gold wrist watch to Rito. If restitution is no longer possible, for Mario to pay the value (reparation) of the gold wrist watch. In addition to either restitution or reparation, Mario shall also pay for damages (indemnification) suffered by Rito.

5. QUASI-DELICTS as a source of obligations

Concepts of Quasi-Delict –

Quasi-delict is one where whoever by act or omission causes damage to another, there being fault of negligence, is obliged to pay for the damage done. Such fault of negligence, if there is no pre-existing contractual relation between the parties. (Art. 2176)

Example-

If Pedro drives his car negligently and because of his negligence hits Jose, who is walking on the sidewalk of the street, inflicting upon him physical injuries. Then Pedro becomes liable for damages based on quasi-delict.

Requisites of a quasi-delictsThere must be fault of negligence attributable to the

offended;There must be damage or injury caused to another;There is no pre-existing contract.

 ART. 1158. 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.(1090)

 ART. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. (1091a)

 

ART. 1160. Obligations derived from quasi-contracts shall be subject to provisions.

 ART. 1161. 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 regulating damages. (1092a)

 ART. 1162. Obligations derived from quasi-

delicts shall be governed by the provisions of Chapter 2, Title XVIII of this Book, and by special law. (1093a)

 

Chapter 2: NATURE AND EFFECT OF OBLIGATIONS

ART. 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care. (1904a)

ART. 1664. The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him. (1905)

ART. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by article 1170, may compel the debtor to make the delivery.

If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor.

If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the deliver. (1906)

ART. 1166. The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned. (1097a)

Obligations of the Debtor To Give a determinate thing-

1. To preserve or take care of the thing with the proper diligence of a good father of a family. It means the ordinary diligence that a prudent man would exercise in taking care of his own property taking into consideration the nature of the obligation, of the time and of the place, like a person who is obliged to deliver a determinate horse to another should, pending its delivery, preserve it by taking care of the same as if the horse is his own.

2. Accessions and accessories.Accession – is the right pertaining to the owner of

a thing over its products and whatever is attached thereto either naturally or artificially. Example-

Accretion which refers to the gradual and addition of sediment to the shore by action of water.

Accessories – are those things which are joined attached to the principal object as ornament or to render it perfect.

Example-Radio attached to a car; or key to a car.

3. To be liable for damages in case of breach of obligation (Art. 1170, NCC)

When creditor acquire a right to the thing to be delivered and its fruits-

The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same have been delivered to him. (Art. 1164, NCC)

Example – a binds himself to sell his horse to B for fro P10, 000. No date nor condition is stipulated for delivery of the horse. Later, the horse gave birth to a colt. A has right to the colt, if B has not paid the horse. Before delivery, B does not acquire ownership over it.

Definition of terms:1. Determinate thing – a thing is determinate

when it is particularly designated or physically segregated from all others from the same class. (Art. 1460, NCC)

2. Indeterminate or generic thing – A thing is generic when it refers to a class or thing or genus and cannot be designated with particularity. (Art. 1460, NCC)

3. Fortuitous Events – those events which could not be foreseen or which though foreseen were inevitable. (Art. 1174, NCC)

Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone. ( 1098 )

Obligation of the debtor To DoBeing a personal positive obligation, The

creditor has the right to secure the services of third person to perform the obligation at the expense of the debtor under the following instances:

When the debtor fails to do the obligation;When the debtor performs the obligation but

contrary to the tenor; orWhen the obligor poorly performs the obligation.

ART. 1168. When the obligation consists in not doing, and the obligor does has been forbidden him, it shall also be undone at his expense, (1099a)

Obligation of the Debtor NOT To Do –This is negative personal obligation which is consisting of

an obligation, of not doing something. If the debtor does what has been forbidden him to do, the obligee can ask the debtor to have it undone. If it is impossible to undo what was done, the remedy of the injured party is for an action of damages.

Example-A bought a land from B. It was stipulated that A would not construct a fence in a certain portion of his land adjoining that land sold by B. Should A construct a fence in violation of the agreement, B. can bring an action to have the fence remove at the expense of A.

ART. 1169. Those oblige to deliver or to do something incur in delay from the time the obligee judicially or extra - judicially

demands from theme the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

( 1 ) When the obligation or the law expressly declares; or

( 2 ) When from the nature and the circumstances of the obligation it appears that the destination of the time when the thing is to be delivered or the service is to rendered was controlling motive for the establishment of the contract; or

( 3 ) When demand would be useless, as when the obligor has rendered it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. ( 1100a )

Delay ( Mora ) means a legal delay or default and it consists of failure discharge a duty resulting to one’s own disadvantaged.

The debtor incurred delay if:The debtor fails to perform his obligation when it falls due;

andA demand has been made by the creditor judicially or extra

judicially.

Example – Gaya obliged herself to deliver a determinate horse to Tito on June 20. this year. Gaya failed to delivered on the agreed date, Is Gaya already on delay on June 20, only when Tito makes a judicial or extra-judicial demand and from such date of demand when Gaya is on default or delay.

However, there are instances when the demand by the Creditor is not necessary to place the debtor on delay:

1. When the obligation expressly so provides

The mere fixing of the period is not sufficient to constitute a delay. An agreement to the effect that fulfillment or performance is not made when the obligation becomes due, default or delay by the debtor will automatically arise.

2. When the law so providesThe express provision of law that a debtor is

in default. For instance, taxes must be paid on the date prescribed by law, and demand is not necessary in order that the taxpayer is liable for penalties.

3. When time is of the essenceBecause time is the essential factor in the

fulfillment of the obligation. Example, Gaya binds herself to sew the wedding gown of Maya to be used by the latter on her wedding date. Gaya did not deliver the wedding gown on the date agreed

upon. Even without demand, Gaya will be in delay because time of the essence.

4. When demand would be useless When the debtor cannot comply his obligation as when

it is beyond his power to perform. Like when the object of the obligation is lost or destroyed through the fault of the debtor, demand is not necessary.

5. In a reciprocal obligation, from the moment one of the parties fulfills his obligation, delay to the other begins

For instance, in a contract of sale, if the seller delivers the object to the buyer and the buyer does not pay, then delay by the buyer begins and vice versa, if the buyer pays and the seller did not deliver the object, then the seller is on delay.

Kinds of delay –

Mora solvendi – delay on the part of the debtor.

Mora accipiendi – delay on the part of the creditor, like when the creditor unjustifiably refused to accept payment at the time it was due, is in delay.

Compensatio morae – delay both parties in a reciprocal obligation.

ART. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those whoin any manner contravene the tenor thereof, are liable for damages. (1101)

ART. 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void. (1120a)

ART. 1172. Responsibility arising from negligence in the performance of every king of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances. (1130)

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. When negligence shows bad faith, the provisions of articles 1171 and 2201, paragraph 2, shall apply.

If the law or contract does not state the diligence of which is to be observed in the performance, that which is expected of a good father of a family shall be required. (1104a)

Sources of liability for damages:1. Fraud (dolo) – is the intentional deception

made by one person resulting in the injury of another.

The fraud referred to is incidental fraud, that is, fraud incident to the performance of a pre-existing obligation.

 2. Negligence (culpa) – consists in the omission

by the obligor of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the person, of the time and of the place. (Art. 1173, NCC)

3. Delay (Mora) – like when there has been judicial or extra-judicial demand and the debtor does not comply his obligation, delay will occur.

4. In contravention of the tenor of the obligation – refers to the violation of the terms and conditions or defects in the performance of the obligation, like when a landlord fails to maintain a legal and peaceful possession of a tenant being leased by the latter because the landlord was not the owner and the real owner wants to occupy the land, there is contravention of the tenor of the obligation.

Other sources of liability for damages

Loss of the thing with the fault of debtor.

Deterioration with the fault of debtor. (Art. 1189)

Kinds of Damages1. Moral damages – include physical sufferings,

mental anguish, fright, serious anxiety, besmirched reputation, wounded feeling, moral shock, social humiliation and similar injury.

2. Exemplary damages – imposed by way of example or correction for the public good.

Like in quasi-delicts, if the defendant acted with gross negligence. (Art. 2231, NCC)

3. Nominal damages – are adjudicated in order that a right of the plaintiff, which has been violated by the defendant, may be vindicated or recognized and not for the purpose of indemnifying the plaintiff for any loss suffered by him. (Art. 2221, NCC)

 4. Temperate or moderate damages – are more than

nominal but less than compensatory damages may be recovered when the courts finds that its amount cannot, from the nature of the case, be proved with certainty. Pecuniary loss means loss of money, or of something by which money or something of money value may be acquired. (Black Law Dict. P. 1131)

5. Actual or compensatory damages – except as provided by law, or a stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. (Art. 2199, NCC)

Damages may be recovered: For loss or impairment of earning capacity in cases of

temporary or permanent personal injury; For injury, to the plaintiff’s business standing or

commercial credit.

Liquidated damages – are those agreed upon by parties to a contract to be paid in case of breach thereof. (Art. 2226, NCC)

ART. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable (1105a)

Fortuitous even – is an event which cannot be foreseen which though foreseen is inevitable.

Fortuitous event proper are acts of God such as volcanic eruption, earthquake, lightning, etc. is now similar with force majuere or acts of man such as conflagration, war, robbery, etc.

1. Requisite necessary to constitute fortuitous eventThe failure of the debtor to comply with the obligation must

be independent from the human will;The occurrence makes it impossible for the debtor to fulfill

the obligation on a normal manner, and the obligor did not take part as to aggravate the injury of the creditor. (Vasquez v.C.A. G.R. 42926)

2. As a general rule, no person shall be held responsible for fortuitous events

Example – Gaya obliged herself to deliver a determine car to Tito on Dec. 30, 1998. Before the arrival of the period, the car was struck by lightning and was totally destroyed. Gaya cannot be held responsible for the destruction of the car, hence her obligation to deliver is extinguished.

Exceptions (when the person is responsible despite the fortuitous even).

a. When the law expressly so provides, such as:The debtor is guilty of fraud, negligence or in contravention of the

tenor of the obligation. (Art, 1170, NCC)The debtor has proved to deliver the same thing to two or more

persons who do not have the same interest. ( Art. 1165,NCC )The thing to delivered is generic.The debtor is guilty of default or delay. ( Art. 1169,NCC )The debtor is guilty of concurrent negligence.

b. When declared by stipulation;

c. When the nature of obligation requires the assumption of risk. An example of this is a contract of insurance.

ART. 1175. Usurious transaction shall be governed by special laws.

Note: C.B. Circular No. 905 suspends the ceilings in the usury law. Hence, parties can agree as to the rate of interest.

Kinds of interest1. Conventional *The rate which is agreed upon by the parties.2. Legal Interest *The rate which is prescribed by law.3. Lawful Interest *The rate which is agreed upon by the

parties but which rate is within the rate authorized by law.

4. Usurious Interest *The rate which is in excess of the maximum rate of interest allowed by law.

ART. 1176. The receipt of the principal by the creditor without reservation with respect to the interest, shall give rise to the presumption that said interest has been paid.

The receipt of a later installment of a debt without reservation as to prior installments, shall likewise raise the presumption that such installments have been paid. (1110a)

Presumption means “the inference as to the existence of a certain fact which if not contradicted is considered as true.”

The presumption in the above article is a disputable presumption, whereby one which can be contradicted by presenting proof to the contrary while a conclusive presumption does not admit any evidence or proof, hence, it is considered as a fact.

Presumption under this article:1. Receipt of the principal, without reservation as

to the interest, shall give rise to the presumption that the said interest has been paid.

2. When the creditor issues a receipt of a later installment of a debt without reservation as to prior installment is presumed to have been paid.

ART. 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them. (1111)

Rights of Creditors – In order to satisfy their claims against the debtor, creditors have the following successive rights:

1. to levy by attachment and execution upon all the property of the debtor, except such as are exempt by law from execution;

2. to exercise all the rights and actions of the debtor, except, such as are inherently personal to him; and

3. to ask for the rescission of the contracts made by the debtor in fraud of their rights.

ART. 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary. (1112)

As a rule, all rights acquired in virtue of an obligation are transmissible, except in the following cases:

1. When the law so provides.2. When the parties stipulate otherwise – by

agreement of parties that the rights acquired by them will not be transmitted to any other person.

3. When the obligation is purely personal in nature.

General Provisions on ContractsART. 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render service. (1254a)

The above article defines the term Contract. In a contract, one or more persons bind themselves with respect to another or reciprocally, to the fulfillment of a presentation to give, to do or not to do.

Elements of Contract1. Essential elements – those elements without which

there can be no valid contract. This element are consent, object or subject matter and cause or consideration

2. Natural elements – those elements which are found in a contract by its nature and presumed by law to exist, such as Warranty of hidden defects or eviction in contract of sale.

3. Accidental elements - those which exist by virtue of an agreement for the purpose of expanding, limiting, or modifying a contract. Such accidental elements are condition, clauses, terms, modes of payment, or penalties.

Stages of A Contract1. Preparatory or conception – process of

formation such as bargaining, negotiation to arrive at a define contract.

2. Perfection or birth – there is now a meeting of minds to arrive at a definite agreement as to the subject matter, cause or consideration, terms and conditions of contract.

3. Consumption or death – which is the fulfillment or performance of the terms and conditions agreed upon in the contract may be said to have been fully accomplished or executed.

Characteristics of Contracts1. Freedom to contract – they may establish

terms and conditions as they may deem convenient.

2. Relativity – it is binding only upon the parties and their successors.

3. Obligatory force – it constitutes the law as between the parties.

4. Mutuality – its validity and performance cannot be left to the will of only one of the parties.

Classification of A Contract: (FORM)1. As to perfection a. Consensual – one which is perfected by mere

consent (Art. 1315 b. Real Contract – perfected by mere consent and by the

delivery of the object or subject matter. Ex. Deposit, pledge, or commodatum.

2. As to dependence to other contract. a. Principal – one which can stand alone. Ex. A

contract of sale, lease. b. Accessory – those which are dependent upon another

contract. Ex. Contract of mortgage, pledge of guaranty. c. Preparatory – those which is created in order that a future transaction or contract may be entered into by te parties. Ex. Contract of partnership or agency.

3. According to name or designation a. Nominate – one which has particular name

or designation such as sale, agency, etc. b. Innominate – those without particular name.

4. According to the nature of obligation a. Unilateral – where only one ha an

obligation to perform. Ex. Contract of donation, commodation.

b. Bilateral – where both parties have reciprocal obligation to perform. Ex. Sale.

5. According to risk involved a. Commutative - where there is an

exchange of values, such as lease. b. Aleatory - one which the fulfillment of the

obligation depends upon chance. Ex. Contract of insurance.

6. According to cause a. Onerous – one which imposes

valuable consideration such as sale, mortgage. b. Gratuitous – one which one of the

parties does not receive any valuable consideration, such as commodatum.

7. According to form a. Oral – by word of mouth of the parties b. Written – the agreement which is reduced in

writing which may be public or private or private document

ART. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. (1255a)

Art. 1307 Innominate contracts shall be regulated by the stipulations of the parties, by the provisions of Contracts, by the rules governing the most analogous nominate contracts, and by the customs of the place.

Contract Binds by Both Parties

ART. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. (1256a)

Contracts entered by and between the parties mush bind both parties in order that it can be enforced against each other. This is also known as “mutuality of contract”. Hence, its validity or compliance cannot be left to the will of one of them. This principle is based on the essential equality of the parties. It is elementary rule that no party can renounce or violate the law of the contract without the consent of the other. (11 Manresa 380)

Example, Gaya and Laura entered into a contract to sell whereby Gaya binds herself to sell her only parcel of land to Laura if Gaya decides to leave for States. The contract is void because the fulfillment of the condition depends on the will of Gaya.

ART. 1309. The determination of the performance may be left to a third person, whose decision shall not be binding until it has been made known to both contracting parties.

ART. 1310. The determination shall not be obligatory if it is evidently inequitable. In such case, the courts shall decide what is equitable under the circumstances.

Determination of Performance by Third Person

As a rule, compliance with a contract cannot be left to the will of one of the contracting parties. However, the determination of its performance may be left to a third person after it has been made known to both contracting parties. Provided, further, the parties are not bound by the determination if it is evidently inequitable or unjust when the third person acted in bad faith or by mistake, the courts shall decide what is equitable under the circumstances.

Example, Gaya sold her parcel of land to Laura. It was agreed that Maya, a real estate appraiser would be the one to determine the reasonable price of the land. Maya, then, fixed the price after considering the factors affecting the value of the land, and informing both contracting party that the decision is just and suitable. If the decision made by Maya is manifestly inequitable, the court may be called upon to decide what is equitable

ART. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation, or by provision of law. The heir is not liable beyond the value of the property he perceived from the decedent.

If a contact should contain some stipulation in favor of third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. (1257a)

Art. 1312 In contracts creating real rights, third persons who come into possession of the object of the contract are bound thereby, subject to the provisions of the Mortgage Law and the Land Registration Laws.

Art. 1313 Creditors are protected in cases of contracts intended to defraud them.

Art. 1314 Any third person who induces another to violate his contract shall be liable for damages to the other contracting party.

Cases Where Third person May Be Affected By a Contract

1. In determining the performance of both parties (Art. 1309).

2. In contracts containing a stipulation in favor of a third person (Art. 1311).

3. In contracts creating real rights (Art. 1312).

4. In contracts entered into to defraud creditor (Art. 1313).

5. In contracts which have been violated at the inducement of the third person (Art. 314).

Example, Gaya mortgaged her parcel of land in favor of Laura as collateral for her debt. The mortgage is duly registered. Later on, Gaya sold the same land to Tito. In this case, Tito bought the land subject to the mortgage constituted thereon. Tito, although a stranger in the mortgage, being a real right follows the property on the right of Laura to the mortgage

Art. 1317 No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him.

A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers , shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party. (1259a)

Chapter 2: Essential Requisites of ContractsGeneral Provisions

Art. 1318 There is no contract unless the following requisites occur:1. Consent of the contracting parties;2. Object certain which is the subject matter of

the contract;3. Cause of the obligation which is established.

(1261)

Section 1. ConsentArt. 1319 Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer.Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract in such a case, is presumed to have been entered into the place where the offer was made. (1262a)

Art. 1320 An acceptance may be express or implied.

Art. 1321 The person making the offer may fix the time, place, and manner of acceptance, all of which must be complied with.

Art. 1322 An offer made through an agent is accepted from the time acceptance is communicated to him.

Art. 1323 An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed.

Art. 1324 When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is rounded upon a consideration, as something paid or promised.

Art.1325. Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an offer.

Art. 1326. Advertisement for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears.

Art. 1327 The following cannot give consent to a contract:1.) Unemancipated minors;2.) Insane or demented persons, and deaf-mutes who do not know how to write. (1263a)

Art. 1328 Contracts entered into during a lucid interval are valid, contracts agreed to in a state of drunkenness or during a hypnotic spell are voidable.

Art. 1329 The incapacity declared in article 1327 is subject to the modifications determined by law, and is understood to be without prejudice to special disqualifications established in the laws.

Art. 1330 A contract where consent is given through mistake, violence, intimidation, undue influence or fraud is voidable.

Art. 1331 In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract.Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such identity or qualifications have been the principal cause of contract.A simple mistake of account shall give rise to its correction. (1226a)

Art. 1332 When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former.

Art. 1333 There is no mistake if the party alleging it know the doubt, contingency, or risk affecting the object of the contract.

Art. 1334. Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated may vitiate consent.

Art. 1335. There is violence when in order to wrest consent, serious or irresistible force is employed. There is intimidation when one of the contracting

parties is compelled by a reasonable and well-grounded fear of an imminent and grave peril upon his person or property, or upon the person or property of his spouse, descendants or ascendants, to give his consent.

To determine the degree of the intimidation, the age, sex and condition of the person shall be borne in mind.

A threat to enforce one’s claim through competent authority, if the claim is just or legal, does not vitiate consent. (1267a)

Art. 1336. Violence or intimidation shall annul the obligation, although it may have been employed by thirdPerson who did not take part in the contract. (1268)

Art. 1337. There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice. The following circumstances shall be considered: the confidential, family, spiritual, and other relations between the parties, or the fact that the person alleged to have been unduly influenced was suffering from mental weakness, or was ignorant or in financial distress.

Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into contract which, without them, he would not have agreed to. (1269)

Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud.

Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent.

Art. 1341. A mere expression of an opinion does not signify fraud, unless made by an expert and the other party has relied on the former’s special knowledge.

Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and the same is mutual

Art. 1343. Misrepresentation made in good faith is not fraudulent but may constitute error.

Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties. Incidental fraud only obliges the person

employing it to pay damages.

Art. 1335. Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound at all; the latter, when the parties conceal their true agreement.

Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement.

Section 2. Object of Contracts1347. All things which are not outside the commerce of men, including future things, may be the object of a contract. All rights which are not intransmissible may also be the object of contracts. No contract may be entered into upon future

inheritance except in cases expressly authorized by law.

All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object of a contract. (1271a)

Art. 1348. Impossible things or services cannot be the object of contracts. (1272)

Art. 1349. The object of every contract must be determinate so as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the existence of a contract, provided it is possible to determine the same, without the need of a new contract between the parties. (1273)

Section 3. Cause of ContractsArt. 1350. In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other; in remuneratory ones, the service or benefit which is remunerated; and in contrast of pure beneficence, the mere liberality of the benefactor. (1274)

Art. 1351. The particular motives of the parties in entering into a contract are different from the cause thereof.

Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if is contrary to law, morals, good customs, public order or public policy. (1275a)

Art. 1353. The statement of a false cause in contracts shall render them void, if it should not be proved that they were rounded upon another cause which is true and lawful.

Art. 1354. Although the cause is not stated in the contract, it is presumed that it exist and is lawful, unless the debtor proves the contrary. (1277)

Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence.

“Innocence of the law excuses no one”

reported by:

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