10. GENERAL PROVISIONS OF CONTRACTS

ART. 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 some service."

The two factors vital for contracts are:

1. There should be two contracting parties.
2. A party is bound to the fulfillment to give, to do, or not to do.

A contract is one source of obligation. Hence, if an obligation is not accepted, there could be no contract.

A contract is a binding agreement. A contract should be lawful to be valid and enforceable. Those agreements that are not enforced in courts of justice are not contracts; they are moral or social agreements. Contracts create legally enforceable obligations but agreements are a general entity.

10.1. CLASSIFICATIONS OF CONTRACTS

ACCORDING TO RISKS:

1. Commutative - the undertaking of one party is equal to that of the other (Examples: sale, lease)
2. Aleatory - a contract which depends upon an uncertain event or contingency for benefit or loss (Example: insurance, sale of hope)

ACCORDING TO LIABILITY

1. Unilateral - a contract where only one of the parties has an obligation (Examples: Commodatum, gratuitous deposit)
2. Bilateral - a contract giving rise to reciprocal obligations (Examples: lease, sale)

ACCORDING TO STATUS

1. Executory - it has not yet been completely performed by both parties
2. Executed - it has been fully and satisfactorily completed by both parties.

ACCORDING TO DEPENDENCE TO ANOTHER CONTRACT

1. Preparatory - it is entered into as a means to an end (Examples: agency, partnership)
2. Accessory - it is dependent upon another contract (Examples: mortgage, guaranty)
3. Principal - it does not depend on another contract for its existence or validity (Examples: sale, lease)

ACCORDING TO DEPENDENCE OF PART OF CONTRACT TO OTHER PARTS

1. Indivisible or entire - each part is dependent upon the other parts (Example: sale of a dining set - table and chairs)
2. Divisible - one part of the contract may be satisfactorily performed independently.

10.2. VALIDITY OF CONTRACTS

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."

A contract is considered valid when it meets all the legal requirements and limitations for the type of agreement involved. The Constitution guarantees individuals with the right to enter into contract (Freedom of Contract).

10.2.1. LIMITATIONS ON CONTRACTUAL STIPULATIONS

Limitations to the freedom of contract are as follows:

1. Law - A fundamental requirement to all contracts is they must be in accordance to an applicable statute. The law sets limits.
2. Police power - All contractual obligations are subject to the possible exercise of the police power as mere enforcement of one of the conditions deemed imposed in all contracts.

A. CONTRACTS MUST NOT BE CONTRARY TO THE LAW

A contract cannot be given effect if it is contrary to law because law is superior to a contract. Any contract executed against the law is void, except the law authorizes its validity.

B. CONTRACTS MUST NOT BE CONTRARY TO MORALS

Morals deal with norms of good and right conduct evolved in a community.

C. CONTRACTS MUST NOT BE CONTRARY TO GOOD CUSTOMS

Customs consist of habits and practices which through long usage have been followed and enforced by society. It has the force of law when recognized and enforced by law.

D. CONTRACTS MUST NOT BE CONTRARY TO PUBLIC ORDER

Public order refers principally to public safety.

E. CONTRACTS MUST NOT BE CONTRARY TO PUBLIC POLICY

Public policy is broader than public order, as the former may refer not only to public safety but also to considerations which are moved by the common good.

A contract which has a tendency to be injurious to the public or is against the public good is contrary to public policy.

10.3. CONTRACTS ACCORDING TO ITS NAME OR DESIGNATION

ART. 1307: Innominate contracts shall be regulated by the stipulations of the parties, by the provisions of Law and Obligations, by the rules governing the most analogous nominate contracts and by the customs of the place.

A. NOMINATE CONTRACT

A contract which has a specific name or designation in law (Examples: commodatum, lease, agency, sale)

B. INNOMINATE CONTRACT

One without any specific name or designation in law.

10.3.1. KINDS OF INNOMINATE CONTRACT

The different kinds are the following:

1. do ut des        ( I give that you may give)
2. do ut facias     (I give that you may do)
3. facto ut des    (I do that you may give)
4. facto ut facias (I do that you may do)

10.3.2. REASONS FOR INNOMINATE CONTRACTS

1. Impossibility of anticipating all forms of agreement
2. Progress of man's sociological and economic relationships

10.3.3. RULES GOVERNING INNOMINATE CONTRACTS

1. Agreement of the parties
2. Provisions of the Civil Code on obligations and contracts
3. Rules governing the most analogous contracts
4. Customs of a place

10.4. BINDING POWER OF CONTRACTS

ART. 1308: The contract must bind both contracting parties, its validity or compliance cannot be left to the will of one of them.

The obligation resulting from a contract binds both parties in order to be enforced.

It is a fundamental rule that no party can renounce or violate the law of the contract without the consent of the other.

10.5. DETERMINATION OF PERFORMANCE BY A THIRD PERSON

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 cotnracting parties.

Although the compliance of a contract cannot be left to the will on one of the contracting parties, the determination of its performance may be left to a third person. The decision shall bind the parties only after it has been made known to both parties.

10.5.1 EFFECT WHEN DETERMINATION IS UNJUST

ART. 1311: Contracts take effect only between the parties, their assigns and hers, 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 received from the decedent.

If a contract should contain some stipulation in favor of a 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. 

As a general rule, only the parties, their assigns, and heirs can have rights and obligations under the contract. The act, decaration, or ommission of a person cannot affect another without the latter's authorization or ratification.

There are also cases where the obligations arising from the contract are not transmissible:

1. By their nature (like a contract involving personal skills: painting, singing)
2. By stipulation (in accordance with the principle of freedom to contract)
3. By provision of law (as in agency, partnership, and commodatum)

10.5.2. THIRD PERSONS AFFECTED BY A CONTRACT

A stranger or third person has no standing in law to demand the enforcement of a contract or question its validity except in the following cases:

1. In contracts containing a stipulation in favor of a third person (stipulation pour autrui)
2. In contracts creating real rights
3. In contracts entered into to defraud creditors
4. In contracts which have been violated at the inducement of a third person

10.5.3. STIPULATION POUR AUTRUI

A stipulation in a contract clearly and deliberately conferring a favor upon a third person who has a right to demand its fulfillment provided he communicates his acceptance to the obligor before its revocation by the obligee or the original parties.

10.5.4. CLASSES OF STIPULATIONS POUR AUTRUI

Stipulations in favor of a third person may be divided into two classes:

1. The stipulation confers a gift.
2. Those where an obligation is due from the promise to the third person. (Example: a transfer of property is coupled wit the purchaser's promise to pay a debt owing from the seller to a third person.)

10.5.5. REQUISITES OF STIPULATION POUR AUTRUI

1. The contracting parties must have clearly and deliberately conferred a favor upon a third person.
2. The third person must have communicated his acceptance to the obligor before its revocation by the obligee or the original parties
3. The stipulation in favor of the third person should be a part, not the whole, of the contract
4. The favorable stipulation should not be conditioned or compensated by any kind of obligation
5. Neither of the contracting parties bears the legal representation or authorization of the third party for the rules on agency they will apply.

10.5.6. REAL RIGHTS OF THIRD PERSONS

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.

Third persons who come into possession of the object of a contract over which there is a real right are bound. A real right is binding against the whole world and attaches to the property over which it is exercised.

However, if the real right is not registered, third persons who acted in good faith are protected under the provisions of the Property Registration Decree.

10.5.7. CONTRACTS DEFRAUDING CREDITORS

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

The creditor has the right to impugn contracts intended to defraud them.

10.5.8. CONTRACTS VIOLATED INDUCED BY A THIRD PERSON

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

 This is a rule of American Law. An instance when a stranger to a contract can be sued for damages for his unwarranted interference with the contract. It presupposes that the contract interferred with is valid and the third person has knowledge of the existence of the contract.

10.6. CLASSIFICATION OF CONTRACTS ACCORDING TO PERFECTION

ART. 1315: Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may ne keeping with good faith, usage and law.

ART. 1316: Real contracts, such as deposit, pledge, and commodatum, are not perfected until the delivery of the object of the obligation. 

According to perfection, contracts are divided as follows:

1. Consensual contract - perfected by mere consent
2. Real contract - perfected by the delivery of the thing subject matter of the contract
3. Solemn contract - requires compliance with certain formalities prescribed by law (Example: donation of real property which must be in a public instrument). 

10.7. STAGES IN THE LIFE OF A CONTRACT

1. Preparation or negotiation. Preliminary steps taken by the parties leading to the perfection of a contract. The parties have yet to arrive at a definite agreement.
2. Perfection or birth. The parties have come to a definite agreement or meeting of the minds.
3. Consummation or termination. When the parties have performed their respective obligations.

10.8. HOW CONTRACTS ARE PERFECTED

1. For consensual contracts, by mere consent of the parties regarding the subject matter. In the absence of delivery, perfection does not transfer title or create real right but it gives rise to obligations.
2. For real contracts, perfection is by delivery, actual or constructive, of the object of the obligation.
3. For solemn contracts, a necessity for perfection is the law required that a contract be in some form to be valid.

10.9. EFFECT OF PERFECTION OF CONTRACT

From the moment of agreement of both parties, they are bound to:

1. the fulfillment of what has been expressly stipulated
2. all consequences which may be in keeping with good faith, usage, and law.

9.4. OBLIGATIONS WITH A PERIOD

"ART 1193: Obligations for whose fulfillment a day certail has been fixed, shall be demandable only when that day comes.

 Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain.

A day certain is undestood to be that which must necessarily come, although it may not be known when.

If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be regulated by the rules of the preceeding section. 

An obligation with a period is one whose effects or consequences are subjected in one way or another to the expiration or arrival of said period or term. 

A period is a future and certain event upon the arrival of which the obligation (or right) subject to it either arises or is terminated. It is a day certain which must necessarily come.

9.4.1. KINDS OF PERIOD OF TERM

ACCORDING TO EFFECT

1. Suspensive period (ex die) - the obligation begins only from a day upon the arrival of period.
2. Resolutory period (in diem) - the obligation is valid uo to a day certain and terminates upon arrival of the period.

ACCORDING TO SOURCE

1. Legal period - period provided by laws
2. Conventional or voluntary period - when it is agreed to by the parties
3. Judicial period - when it is fixed by the court

ACCORDING TO DEFINITENESS

1. Definite period - when it is fixed or it is known when it will come
2. Indefinite period - when it is not fixed or it is not known when it will come

9.4.2. LOSS OR DETERIORATION

"ART. 1194: In case of loss, deterioration or improvement of the thing before the arrival of teh day certain, the rules in Art. 1189 shall be observed.

9.4.3. PAYMENT BEFORE ARRIVAL OF PERIOD

 "ART. 1195: Anything paid or delivered before the arrival of the period, the obligor being unaware of the period or believing that the obligation has become due and demandable, may be recovered, with the fruits, and interests."

 The recovery of what has been paid by mistake before the fulfillment of a suspensive condition is allowed.

The creditor cannot unjustly retain the thing or money received before the arrival of the period.

9.4.4. DEBTOR PRESUMED AWARE OF PERIOD

The debtor is presumed to know that debt is not yet due.

The obligor many no longer recover the thing or money once the period has arrived but he can recover the fruits or interests from the date of premature performance to the date of maturity of the obligation.

"ART. 1197: If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duartion thereof.

The courts shall also fix the duration of the period when it depends upon the will of the debtor.

In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them. 

If the obligation does not state a period and no period is intended, the court is not authorized to fix a period. 

9.4.5. OBLIGATION DEMANDED BEFORE LAPSE OF PERIOD

"ART. 1198: The debtor shall lose every right to make use of the period:

(1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt.

(2) When he does not furnish to the creditor the guaranties and securities which he has promised.

(3) When by his own acts he has impaired said guaranties or securities ater their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory.

(4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the period.

(5) When the debtor attempts to abscond. 

9.3. PURE AND CONDITIONAL OBLIGATIONS

"ART. 1179: Every obligation whose performance does not depend upon a future or unertain event, or upon a future or uncertain event, or upon a past event unknown to the parties, is demanadable at once.

 Every obligation which contain a resolutory condition shall also be demandable, without prejudice to the effects of the happening of the event."

Pure obligation is one free from any condition and there is no period of fulfillment, thus it is immediately demandable.

Conditional obligation is one where its fulfillment is upon the condition stipulated.

Condition is a future and uncertain event which can draw the effectivity or extinguishment of an obligation.

9.3.1. KINDS OF CONDITION

1. Suspensive condition - the fulfillment of the condition will give rise to an obligation.
2. Resolutory condition - the fulfillment of the condition will extinguish an obligation.

9.3.2. DURATION OF PERIOD DEPENDING ON THE WILL OF DEBTOR

"ART. 1180: When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with a period."

Period is a future and certain event upon the subject matter of an obligation may either arise or extinguished.

1. The debtor promises to pay when his means permit him to do so. There is no definite time frame given.
2. The debtor binds himself to pay.
• Little by little
• As soon as possible
• From time to time
• At any time I have the money
• In partial payments
• When I am in a position to pay

9.3.3. EFFECTS OF HAPPENING OF CONDITION

"ART. 1181: In conditional obligations, the acquisition of rights, as well as teh extinguishment of loss of those already acquired, shall depend upon the happening of the event which constitutes the condition."

1. Acquisition of rights
2. Loss of rights already acquired

9.3.4. CLASSIFICATION OF CONDITIONS

"ART. 1182: When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code."

AS TO EFFECT:

1. Suspensive - the happening gives rise to the obligation
2. Resolutory - The happening extinguishes the obligation

AS TO FORM:

1. Express - the condition is clearly stated
2. Implied - the condition is merely inferred

AS TO POSSIBILITY:

1. Possible - the condition is capable of fulfillment, legally and physically
2. Impossible - the condition is not capable of fulfillment, legally or physically

AS TO CAUSE OR ORIGIN:

1. Potestative - the condition depends upon the will of one of the contracting parties
2. Casual - the condition depends upon chance or upon the will of a third person
3. Mixed - the condition depends partly upon chance and partly upon teh will of a third person.

AS TO MODE:

1. Positive - the condition consists of the performance of an act.
2. Negative - the condition consists of the omission of an act.

AS TO NUMBERS:

1. Conjunctive - there are several conditions and all must be fulfilled
2. Disjunctive - there are several conditions and only one or some of them must be fulfilled

AS TO DIVISIBILITY:

1. Divisible - the condition is susceptible of partial performance
2. Indivisible - the condition is not susceptible of partial performance

9.3.5. POTESTATIVE CONDITION

A condition suspensive in nature and which depends upon the sole will of one of the contracting parties.

9.3.6. SUSPENSIVE CONDITION

WHEN SUSPENSIVE CONDITION DEPENDS UPON THE WILL OF DEBTOR

1. Conditional obligation void. The condition depends solely upon the will of the debtor. There is no burden on the debtor and no juridical tie is created.
• I will pay you if I want.
• I will pay you after I receive a loan from a bank.
• I will continue to lease your property for as long as I need the premises and pay the rent.
2. Only the condition void. The obligation is pre-existing and does not depend for its existence upon the fulfillment by the debtor of the postestative condition, only the condition is void leaving unaffected the obligation itself.
• Jane borrowed money from John, payable in a month. Subsequently, she promised to pay after selling her car where John agreed.  >> The condition is void but the obligation still exists.

WHEN SUSPENSIVE CONDITION DEPENDS UPON THE WILL OF CREDITOR

If the condition depends exclusively upon the will of the creditor, the obligation is valid. (Example: I will pay you my indebtedness upon your demand.)

WHEN RESOLUTORY CONDITION DEPENDS UPON THE WILL OF DEBTOR

If the condition is resolutory in nature, the obligation is valid although its fulfillment depends upon the sole will of the debtor. The fulfillment of the condition merely causes the extinguishment or loss of rights already acquired.

9.3.7. CASUAL CONDITION

If the suspensive condition depends upon chance or upon the will of a third person, the obligation subject to it is valid.

(Example: A building contractor obliges himself to repair at his expense any damage that may be caused to his building by any earthquake occurring within 10 years from the date of the completion of its construction.)

9.3.8. MIXED CONDITION

The obligation is valid if the suspensive condition depends partly upon chance and partly upon the will of a third person.

(Example: A building contractor obliges himself to repair at his expense any damage that may be caused to his building by an earthquake if found by a panel of arbitrators that construction defects contributed in any way to the damage.)

9.3.9. SUSPENSIVE CONDITIONS

"ART. 1183: Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid.

The condition not to do an impossible thing shall be considered as not having been agreed upon."

The Article refers to suspensive conditions. It only applies when the impossibility already existed at the time of constitution of the obligation.

9.3.9.1. KINDS OF IMPOSSIBLE CONDITIONS

1. Physically impossible conditions - ones which cannot exist or cannot be done.
2. Legally impossible conditions - those which are contrary to law, morals, good customs, public order, or public policy.

9.3.9.2. EFFECT OF IMPOSSIBLE CONDITIONS

1. Conditional obligation is void. The obligor knows his obligation cannot be fulfilled. He has no intention to comply with his obligation.
2. Conditional obligation valid. If the condition is negative, that is, not to do an impossible thing, it is disregarded and the obligation is rendered pure and valid.
3. Only the affected obligation void. If the obligation is divisible, the part thereof not affected by the impossible condition shall be valid. (
4. Only the condition void. If the obligation is preexisting and does not depend upon the fulfillment of the condition which is impossible, for its existence, only the condition is void. (

9.3.10. POSITIVE CONDITION

"ART. 1184: The condition that some extent happen at a determinate time shall extinguish teh obligation as soon as teh time expires or if it has become indubitable that the event will not take place."

 Positive condition is the happening of an event at a determinate time. The obligation is extinguished when:

1. As soon as the time expires without the event taking place
2. As soon as it has become indubitable that the event will not take place although the time specified has not expired.

9.3.11. NEGATIVE CONDITION

"ART 1185: The condition that some event will not happen at a determinate time shall render the obligation effective from the moment the time indicated has elapsed, or if has become evident that the event cannot occur.

If no time has been fixed, the condition shall be deemed fulfilled at such time as may have probably been contemplated, bearing in mind the nature of the obligation." 

A condition when an event will not happen at a determinate time. The obligation shall become effective and binding: 

1. From the moment the time indicated has elapsed without the event taking place.
2. From the moment it has become evident that the event cannot occur, although the time indicated has not yet elapsed.

(Example: Richie binds himself to give 10,000Php to Eddie if he is not yet married to Lisa on the end of the year.
a. Richie is not obliged to pay 10,000 if Eddie marries Lisa on December 31.b. Richie is liable to pay if Eddie if he does not marry Lisa on December 31 but marries her on January 01.c. Suppose Lisa meets an accident and dies on December 20 without being married to Eddie, the obligation is rendered effective and Richie should pay 10,000Php to Eddie.

9.3.12. CONSTRUCTIVE FULFILLMENT 

"ART. 1186: The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment."

 

1. The condition is suspensive.
2. The obligor actually prevents the fulfillment of the condition.
3. He acts voluntarily.

9.3.13. RETROACTIVE EFFECTS OF FULFILLMENT OF SUSPENSIVE CONDITION

"ART. 1187: The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor shall appropriate teh fruits and interests received, unless fromt he nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different.

 In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with."

• An obligation to give subject to a suspensive condition becomes demandable only upon the fulfillment of the condition. However, once the condition is fulfilled, its effects shall retroact to the day when the obligation was constituted.
• With respect to the retroactive effect of the fulfillment of a suspensive condition, in obligations to do or not to do, no fixed rule is provided.

RETROACTIVE EFFECTS AS TO FRUITS AND INTERESTS IN OBLIGATIONS TO GIVE

• In reciprocal obligations
• In unilateral obligations

9.3.14. RIGHTS PENDING FULFILLMENT OF SUSPENSIVE CONDITION

"ART. 1188: The creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his right.

The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition." 

1. Rights of creditor. He may take or bring appropriate actions for the preservation of his right, as the debtor may render nugatory the obligation upon the happening of the condition.
2. Rights of debtor. He is entitled to recover what he  has paid by mistake prior to the happening of the suspensive condition. This right is granted to the debtor because the creditor may or may not be able to fulfill the condition imposed and hence, it is not certain that the obligation will arise.

9.3.15. LOSS AND DETERIORATION

"ART. 1189: When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during teh pendency of the condition:

(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished.

 (2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered;

(3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor.

 (4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case.

(5) If the thing is improved by its nature, or by the time, the improvement shall inure to the benefit of the creditor.

(6) If it is improved at the expense of the debtor, he shall have no other right than that granted t the usufractuary. 

9.3.15.1. KINDS OF LOSS

Loss in civil law may be:

1. Physical loss - when a thing perishes (Example: A house is burned and reduced to ashes).
2. Legal loss - when a thing goes out of commerce (Example: when it is taken away from its owner) or when a thing, legal before, becomes illegal (US dollars had become impossible to use during the Japanese occupation)
3. Civil loss - a loss when a thing
1. disappears as if its existence is unknown (a missing dog).
2. cannot be recovered although the thing is known (a ring dropped in the sea)
3. cannot be recovered through law (property lost through prescription)

9.3.15.2. RULES IN CASE OF LOSS, DETERIORATION, OR IMPROVEMENT OF THING DURING PENDENCY OF SUSPENSIVE CONDITION

1. Loss of thing without debtor's fault
2. Loss of thing through debtor's fault
3. Deteriorating of thing without debtor's fault
4. Deterioration of thing through debtor's fault
5. Improvement of thing by nature or by time
6. Improvement of thing at expense of debtor

*Usufruct is the right to enjoy the use and fruits of a thing belonging to another.

9.3.16. RESOLUTORY CONDITION

"ART. 1190: When the conditions have their purpose the extinguishment of an obligation to give the parties, upon the fulfillment of said conditions, shall return to each other what they have received.

In case of loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return.

In obligations to give, if the resolutory condition in an obligation is fulfilled, the obligation is extinguished.

In obligations to do or not to do, the courts shall determine the retroactive effect of the completion of the resolutory condition.

9.3.17. OBLIGATIONS ACCORDING TO THE PERSON OBLIGED

"ART. 1191: The power to rescind obligations is impled in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and teh rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

This is understood to be without prejudice to the rights of third persons who have acquired the thing.

1. Unilateral obligation - when only one party is obliged to comply with a prestation.
2. Bilteral obligation - when both parties are mutually bound to each other. Both parties are debtors and creditors of each other. These can be reciprocal or non-reciprocal.
1. Reciprocal obligations - each party is the debtor and the creditor of the other 
2. Non-reciprocal obligations - they do no impose simultaneous and correlative performance on both parties

9.3.17.1. REMEDIES IN RECIPROCAL OBLIGATIONS

1. Choice of remedies
• Action for specific fulfillment of the obligation with damages
• Action for rescission of the obligation also with damages
2. Remedy of rescission fo non-compliance - the revocation, cancellation, or repeal of a law, order, or agreement.

9.3.17.2. LIMITATIONS ON RIGHT TO DEMAND RESCISSION

The right to rescind by the injured party is not absolute.

1. Resort to the courts. The injured party has to resort t the courts to assert his rights judicially.
2. Power of court to fix period. The court has the power to allow a period within which a person may be permitted to perform his obligation.
3. Right of third person. If the thing subjet matter of the obligation is in th hands of a third person who acted in good faith, rescission is not available as a remedy.
4. Substantial violation. The rescission will no be granted for slight breaches of contract; the violation should be substantial.
5. Waiver of right. The right to rescind may be waived expressly, or impliedly.

9.3.18. BREACH

"ART. 1192: In case both parties have committed a breach of obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, teh same shall be deemed extinguished, and each shall bear his own damages."

WHEN BOTH PARTIES ARE GUILTY OF BREACH

1.  First infractor known - one party violated his obligation and then other violated his part. The liability of the first infractor should be equitably reduced.
2. First infractor cannot be determined - One party violated his obligation followed by the other, but it cannot be determined which of them was the first infractor. 

9.2. OBLIGATIONS: NATURE AND EFFECTS

9.2.1. SPECIFIC AND GENERIC THING

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

A specific or determinate thing is segregated from others of the same class or style.

A generic of indeterminate thing refers to a class or genus an item is considered to belong and it cannot be pointed out specifically.

9.2.2. DUTIES OF DEBTOR TO GIVE A DETERMINATE THING

1. Preserve the thing - the obligor has the duty to take care of the thing in the contract.
2. Deliver the fruits of the thing
3. Deliver the accessions and accessories
4. Deliver the thing itself
5. Answer for damages in case of non-fulfillment or breach

9.2.3. DUTIES OF DEBTOR TO DELIVER A GENERIC THING

1. Deliver a thing of equal quality as agreed upon.
2. To be liable of damages in case of fraud, negligence, or delay in the performace of the obligation

9.2.4. DIFFERENT KINDS OF FRUITS

"ART. 1164: The creditor has a right tot he 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."

1. Natural fruits - the spontaneous products of the soil, and the young and other products of animals.
2. Industrial fruits -those produced by lands of any kind through cultivation or labor.
3. Civil fruits - those derived by virtue of a juridical relation. (Example: rents of buildings, leases of land)

9.2.5. RIGHT OF CREDITOR TO THE FRUITS

The creditor has the right to the fruits of the thing in contract from the time the obligation arises.

9.2.6. PERSONAL AND REAL RIGHT

Personal right. The right of the creditor to demand from the debtor as a fulfillment to the latter’s obligation.

 

Real right. Right of a person over a determinate thing without any passive subject against whom the right may be personally enforced.

9.2.7. OWNERSHIP ACQUIRED BY DELIVERY

The creditor does not become the owner until the specific thing has been delivered to him.

9.2.8.  REMEDIES OF CREDITOR IN REAL OBLIGATION

"ART 1165: When what is to be dellivered is a determinate thing, the creditor, in addition to the right granted him by Art 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 fortuitous event until he has effected the delivery." 

9.2.9. ACCESSIONS AND ACCESSORIES

"ART. 1166: The obligation to give a determinate thing includes that of delivering all its accessions and accesories, even though they may not have been mentioned."

 Accessions are the fruits of a thing or additions to or improvements upon the thing (principal).

Accessories are things joined to or included with the principal thing for the latter's embellishment, better use, or completion.

All accessions an accessories are considerd included in the obligation to deliver a determinate thing although they may not have been mentioned.

9.2.10. POSITIVE PERSONAL OBLIGATION (Obligation to do)

"ART. 1167: If a person obliged to do someting 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 teh obligation. Furthermore, it may be decreed that what has been poorly done be undone."

The article contemplates three situations:.

1. The debtor fails to perform an obligation to do
2. The debtor performs an obligation to do but contrary to the terms thereof
3. The debtor performs an obligation to do but in a poor manner

9.2.10.1. REMEDIES OF CREDITOR IN POSITIVE PERSONAL OBLIGATION

1. The debtor fails to comply with his obligation, the creditor has the right:
1. To have the obligation done at the debtor's expense
2. To recover damages
2. In case the obligation is poorly done, it may be ordered to be undone if it is still possible to undo what was done.

9.2.10.2. PERFORMANCE BY A THIRD PERSON

A personal obligation to do, like a real obligation to deliver a generic thing, can be performed by a third person.

9.2.11. NEGATIVE PERSONAL OBLIGATION (Obligation not to do)

"ART. 1168: When the obligation consists in not doing, and the obligor does what has been forbidden him, it shall also be undone at his expense."

The remedy is the undoing of the forbidden thing plus damages.

9.2.12. DELAY

"ART. 1169: Those obliged to deliver or to do something incure in delay from the time the obligee judicially or extrajudicially demands from them 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 do declares; or

(2) When from the nature and the circumstances of the obligation, it appears that the designation of the time whent he thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the conract; 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 or is not ready to compy in a proper manner with what is incumbent upon him. From the moment

1. Ordinary delay
2. Legal delay  

9.2.12.1. KINDS OF DELAY OR DEFAULT

1. Mora solvendi
2. Mora accipiendi
3. Compensatio morae

*There is no delay in obligation not to do, non-fulfillment may take place but delay is impossible. 

9.2.12.2. EFFECTS OF DELAY

MORA SOLVENDI

1. The debtor is guilty of breach or violation of obligation
2. He is liable to the creditor for interest or damages.
3. He is liable even for a fortuitous event when the obligation is to deliver a determinate thing. 

MORA ACCIPIENDI

1. The creditor is guilty of breach of obligation
2. He is liable for damages suffered by the debtor
3. He bears the risk of loss of the thing due
4. Where the obligation is to pay money, the debtor is not liable for interest from the time of creditor's delay
5. The debtor may release himself from the obligation by the consignation or deposit in cour of the thing due

COMPENSATIO MORAE

There is no default of delay on the part of both parties.

9.2.13. LIABILITY

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

The four grounds of liability are as follows:

1. Fraud (deceit or dolo) - the deliberate or intentional evasion of the normal fulfillment of an obligation.
2. Negligence (fault or culpa) - any voluntary act or omission, there being no bad faith or malice, which prevents the normal fulfillment of an obligation.
3. Delay (mora) 
4. Contravention of the terms of the obligation - violation of the terms and conditions stipulated in the obligation. 

9.2.14. FRAUD

" ART 1171: Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void."

 Responsibility arising from fraud can be demanded with respect to all kinds of obligation and unlike in the case of responsibility arising from negligence.

WAIVER FOR ACTION FOR FUTURE FRAUD:

A waiver of an action for future fraud is void ( no effect as if there is no waiver).

WAIVER OF ACTION FOR PAST FRAUD VALID:

A past fraud can be the subject of a valid waiver because the waiver can be considered as an act of generosity and magnanimity of the victim of the fraud.

9.2.15. NEGLIGENCE

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

The debtor is also liable for damages resulting from negligence in the performance of every kind of obligation. The court has the discretion in fixing the measure of damages. 

* An action for future negligence may be renounced.

*Where negligence shows bad faith, it is considered equivalent to fraud.

9.2.15.1. KINDS OF NEGLIGENCE ACCORDING TO SOURCE OF OBLIGATION

1. Contractual negligence (culpa contractual) or negligence in contracts resulting in their breach.
2. Civil negligence (culpa aquiliana) or negligence which by itself is the source of an obligation between the parties not so related before by any preexisting contract. It is also called tort or quasi-delict.
3. Criminal negligence (culpa criminal) or negligence resulting in the commission of a crime.

* Suppose the creditor is also guilty of negligence, he cannot recover damages.

* If his negligence was only contributory, the plaintiff may recover damages, but the court shall mitigate the damages to be awarded.

9.2.15.2. MEANING OF NEGLIGENCE

"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 person, of the time and of the place. When negligence shows bad faith, the provisions of articles 1171 and 2201 shall apply.

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

 9.2.15.3. FACTORS CONSIDERED

1. Nature of obligation.
2. Circumstances of the person
3. Circumstances of time.
4. Circumstances of place (Example: Driving 100kph on a superhighway is permissible but driving the same rate at a residential road is gross recklessness.)

9.2.15.4. MEASURE OF LIABILITY FOR DAMAGES

Damages signify the money compensation awarded to a party for loss or injury resulting from breach of contract or obligation by the other.

9.2.16. FORTUITOUS EVENT

" 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."

A fortuitous event is any inevitable event, foreseen or not.

A fortuitous event may either be:

1. Acts of man - an event independent of the will of the obligor but not of other human wills.
2. Acts of God (majeure) - events which are totally independent will of every human being.

9.2.16.1. KINDS OF FORTUITOUS EVENTS

1. Ordinary fortuitous events - those which are common and which the contracting parties could reasonably foresee (Example: rain)
2. Extra-ordinary fortuitous events - those which are uncommon and which the contracting parties could not have reasonably foreseen (Examples: earthquake, fire, war)

9.2.16.2. REQUISITES OF A FORTUITOUS EVENT

1.  The event must be independent of the human will or at least  the debtor's will.
2. The event could not be foreseen, or if foreseen, is inevitable.
3. The event must be of such a character as to render it impossible for the debtor to comply with his obligation in a normal manner
4. The debtor must be free from any participation in, or the aggravation of, the injury to the creditor, that is, there is no concurrent negligence on his part.

9.2.16.3. RULES AS TO LIABILITY IN CASE OF FORTUITOUS EVENT

A person is not responsible for loss or damage caused to another resulting from the non-performance of his obligation due to a fortuitous event except the following conditions:

1. When expressly specified by law. 
2. When declared by stipulation.
3. When the nature of the obligation requires the assumption of risk.

9.2.17. USURIOUS TRANSACTIONS

"ART. 1175: Usurious transactions shall be governed by special laws."

  Simple loan or mutuum is a contract obliging one to deliver to the other consumables or money, with the condition that there is same amount or kind paid.

Usury is contracting for or receiving interest in excess of the mount allowed by law for the loan or use of money, goods, chattels or credits.

9.2.17.1. REQUISITES FOR RECOVERY OF INTEREST

1. The payment of interest must be expressly stipulated.
2. The agreement must be in writing.
3. The interest must be lawful.

9.2.18. PRESUMPTION

"ART. 1176: The receipt of the principal by the creditor, without reservation with respect tot he interest, shall give rise to the presemption 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."

 

 

9.2.18.1. KINDS OF PRESUMPTION

1. Conclusive presumption
2. Disputable (or rebuttable) presumption

9.2.18.2. SITUATIONS WHEN PRESUMPTIONS DO NOT APPLY

1. With reservation as the interest
2. Receipt without indication of particular installment paid
3. Receipt for a part of the principal
4. Payment of taxes
5. Non-payment proven

9.2.19. CLAIMS

"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 ave done to defraud them."

In case the debtor does not comply with his obligation, the creditor may avail himself of the following remedies to satisfy his claim:

1. Exact fulfillment (specific performance) with the right to damages
2. Pursue the leviable property of the debtor
3. Exercise all rights and actions to the debtor
1. Right to redeem
2. Right to collect from the debtor of his debtor
4. Through court, rescind or impugn acts or contracts which the debtor may have done to defraud him (when he cannot recover his claim)

9.2.20. TRANSMISSIBILITY OF 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."

All rights acquired with obligation are transmissible and assignable, except the following situations:

1. Prohibited by law
2. Prohibited by stipulation of the parties