CE LAWS, ETHICS, AND CONTRACTS

Discuss the following concepts or enumerate with discussion. Provide examples if

necessary.
1. Contract
A contract is an agreement legally binding between parties that establishes mutual
obligations enforced by the law. Ordinarily, it involves offer, acceptance, consideration,
capacity, and legality.
Contract: An example of building a house for a client in return for a given amount from a
construction company.
2. Contract vs. Obligation
Contract: It is one source of obligation that finds its origin through mutual agreement
between parties.
Obligation: Duty to do or not to do something with a source being law, quasi-contracts,
delicts, or contracts
Example
Contract: Engage a contractor to build a bridge
An obligation: Legal requirement to pay taxes 3. Contract vs Agreement
Contract: Legally binding and all the constitutive elements are satisfied by it
Agreement: It might or might not be legal in nature. It covers all the scope and deals with
contracts
Example
Agreement: Friends agree to meet for coffee.
Contract: A lease agreement to rent an apartment.
4. Types of Contracts
1. Formal and Informal Contracts
Formal: Needs specific forms, such as notarized deeds.
Informal: No specific form is needed.
2. Unilateral and Bilateral Contracts
Unilateral: Only one party performs an obligation, such as reward offers.
Bilateral: Both parties have obligations, such as sales contracts.
3. Executory and Executed Contracts
Executory: Obligations are not yet performed.
Executed: Obligations have already been performed.
4. Valid, Void, Voidable, and Unenforceable Contracts
Valid: Enforceable by law.
Void: It lacks essential elements; thus, it cannot be enforced.
Voidable: Can be annulled due to defects.
Unenforceable: It cannot be enforced due to technicalities.
5. Valid Contract
A contract that satisfies all the legal requirements, such as:
1. Consent of the parties.
2. Object certain.
3. Cause or consideration.
4. Legal capacity of the parties.
5. Lawful purpose.
Illustration: A supplier agreed to deliver materials for a fee under a signed purchase order.
6. Limitations to Contractual Stipulations
Contract stipulations must not:
1. Violate public policy.
2. Contradict laws.
3. Be impossible to perform.
4. Exploit minors or incapacitated individuals.
Example: A clause requiring illegal labor is invalid.
7. Compliances of Contract
1. Good Faith Performance: Parties must perform duties honestly.
2. Timely Performance: Obligations must be fulfilled within agreed deadlines.
3. Fulfillment of Stipulated Terms: Compliance with all terms.
Example: A builder completes construction on time and according to specifications.
8. Types of Innominate Contracts
Innominate contracts are those unnamed contracts in the law which have been classified
under Article 1307 of the Civil Code:
1. Do ut des: I give so that you give.
2. Do ut facias: I give so that you do.
3. Facio ut des: I do so that you give.
4. Facio ut facias: I do so that you do.
Illustration: An exchange contract.
9. Stipulation pour atrui
This can be defined as a contractual provision that favors a third party who is not a part
of the agreement. Third Party can demand its fulfillment the moment it accepts.
Explanation: A father includes in a clause in his life-insurance policy for the benefits to
his child.
10. Necessaries of Stipulation pour atrui
1. Intention to Benefit : Such a contract must clearly bring out the intention to provide
benefits to the third Party
2. Third Party Acceptance: Third party must agree to the benefit.
3. Legal Relationship: Parties to the contract must have a valid agreement.
4. Enforceable Benefit: The third party's benefit must be legally enforceable.
Example: A donation agreement stipulating the donation's use for a charitable
organization.
11. Tortious Interference
Tortious interference is a third party's intentional interference with a contract or business
relationship that causes economic harm.
Types:
1. Interference with Contract: A third party induces a breach of an existing contract.
2. Interference with Prospective Advantage: Interference with potential business
opportunities.
Illustration: A competitor convinces a supplier to breach its contract with another
company.
12. Stages of a Contract
1. Preparation/Negotiation Stage: Parties discuss terms and conditions.
2. Contract Stage: Parties agree to essential terms, and the contract becomes binding.
3. Execution/Performance Stage: Fulfillment of obligation.
Illustration: Hiring of a contractor: initial consultation, contract signing, and eventually,
execution of the work.
13. Basic Conditions of an Agreement
1. Capacity: Mutual assent by parties.
2. Subject Certain: The subject must be specific and lawful.
3. Cause or Consideration: Legal ground of the obligation.
Example: A loan agreement where one party lends money, and the other agrees to repay
with interest.
14. Classes of Elements of a Contract
1. Essential Elements: Necessary for validity (e.g., consent, object, cause).
2. Natural Elements: Implied by law unless excluded (e.g., warranty in a sale).
3. Accidental Elements: Specific clauses or terms added by the parties (e.g., penalty
clauses).
Example: The price is a basic element of a sales contract, whereas a delivery schedule
forms an incident.
15. Consent
Mutual agreement of parties to enter into a contract. It must be:
1. Free of fraud, coercion, or mistake.
2. Informed, that is, parties understand the terms.
Example: Renting of a house after agreeing upon the terms.
16. Offer
Definition of Offer
An offer is an invitation by one party to another to accept an offer indicating willingness
to enter into a contract upon given terms.
Example: A proposal of selling a car for $10,000 by the seller.
17. Essential of an Offer
1. Well-defined Terms: Clearly mentioned and specific.
2. Intention to Contract: Serious intention to form a contract.
3. To Offeree: Communicated to the other party
Example: Job offer describing the position, salary and date of joining.
18. Acceptance
Acceptance refers to the acceptance of the offeree on the terms of the offer. It forms a
contract that is binding.
Illustration: A buyer accepts the price offered and agrees to buy a house at that price.
19. Conditions of an Acceptance
1. Unilateral: It must accept the precise terms of the offer.
2. Communicated: Acceptance must be communicated to the offeror.
3. Made by the Offeree: Only the person to whom the offer is made can accept.
Example: Signing a written agreement after negotiating its terms.
20. Modes of Acceptance
1. Express: Clearly expressed, either orally or in writing.
2. Implied: Implied by actions or conduct.
3. Conditional: Acceptance subject to further terms or variations.
4. Silence: Not normally acceptance unless agreed to beforehand.
Example:
Express: "I accept your offer."
Implied: A customer pays for goods without expressing acceptance.
21. Cannot Give Consent (Art. 1327)
The following persons cannot give consent to a contract under Article 1327 of the Civil
Code:
1. Unemancipated Minors – Persons below the age of majority unless exceptions apply
(e.g., necessities).
2. Insane or Demented Persons – Those who lack the capacity to understand the terms of
the contract.
3. Persons Under Guardianship – Such as those declared incapacitated by law.
Example: A minor entering into a car lease contract without parental consent makes the
contract voidable.
22. Lucid Interval
A short period of time during which a person, who is afflicted with a mental disorder,
becomes sufficiently well to understand and to have capacity to make decisions.
Contracts entered into during such an interval are valid
Example: A person afflicted with schizophrenia signing a will during lucid interval
23. Attributes of Consent
1. Free: Not compelled, unduly influenced, or defrauded.
2. Mutual: Both parties should agree to the same thing.
3. Informed: Based on a clear understanding of the terms of the contract.
Example: Two parties willingly signing a sales agreement after negotiation.
24. Vices of Consent
Factors that invalidate consent, making the contract voidable:
1. Mistake/Error
2. Violence/Force
3. Intimidation/Threat
4. Undue Influence
5. Fraud
Example: A person signing a contract under duress due to threats.
25. Nature of Mistake/Error
Mistake refers to a mistaken belief about a fact material to the contract. It vitiates
consent when:
1. It relates to the object of the contract.
2. It relates to the identity or qualification of a party when this was the principal cause of
the contract.
Example: A buyer agreeing to purchase a "genuine painting" only to discover it is a replica.
26. Nature of Intimidation or Threat
Intimidation or threat is forcing a person to give consent by using fear of harm. The harm
must be serious, unjust, and imminent.
Example: Threatening to harm a person's family if he or she does not agree to sign a loan
agreement.
27. Undue Influence
Undue influence occurs when a party uses excessive pressure over another party, taking
undue advantage of a position of power or trust to acquire an unfair advantage.
Example: A caregiver forcing an elderly person to transfer rights over property.
28. What is Undue Influence
1. It is a kind of moral or psychological coercion.
2. It results from a relationship of trust or authority.
3. It nullifies consent since it deprives the will of its liberty to decide.
Illustration: A solicitor inducing a client to transfer property at a reduced price to favor
himself.
29. Who to Consider for Undue Influence
1. Confiding Relationship: Parentchild, attorney-client, etc.
2. Mental Weakness: Old age, disease, or mental incapacity.
3. Undue Influence: Such a party derives considerable advantage.
Example: A financial advisor encouraging a client to invest in a company they secretly
own.
30. Causal Fraud
Fraud that causes a party to enter into a contract, making it voidable. It must be
intentional and material to the contract.
Example: Selling a car while hiding known defects.
31. Elements of Causal Fraud
1. Intent Misrepresentation: Intentional lies or omissions.
2. Inducement: Misrepresentation caused the assent.
3. Materiality: Deals with a matter of great substance to the contract.
Example: Hiding the business profit from sale.
32. Simulation of Contract
Where parties agree to become apparent bound by a contract and the parties hide their
true intentions
Example: Sale of property under which no actual intention is conveyed to creditors to
retain one's assets.
33. Forms of Simulation
1. Absolute Simulation: The party has no intention whatsoever of being bound (is void).
2. Relative Simulation: There exists another real contract (can be valid).
Example: Executing a deed of sale but with the purpose of executing a loan contract.
34. Object of a Contract
The thing, service, or act which is the subject matter of the contract. It must be:
1. Within the commerce of man.
2. Lawful.
3. Determinate or determinable.
Example: Selling a car, giving legal services, or leasing a house.
35. Kinds of Object of a Contract
1. Things: Tangible or intangible things (for example, property, intellectual rights).
2. Rights: Legal rights (e.g., royalties, patents).
3. Services: Acts or work (e.g., construction work).
Illustration:
Things: Selling a plot of land.
Services: Engaging a tutor for tuition.
36. Requirements of Things as Subject Matter of a Contract
1. Must Be Within Commerce of Man: Capable of being owned, sold, or transferred.
2. Determinate or Determinable: Identifiable or capable of being made definite.
3. Lawful: Must not be against the law or public policy.
Example: Sale of a plot of land (specific) or a basket of apples (specific by
quality/quantity).
37. Requirements of Services as Thing of a Contract
1. Specific: Clearly defined and capable of being performed.
2. Lawful: Should not contain illegal acts.
3. Capable of Performance: The service must be capable of being performed by the liable
party.
Example: A contract to hire a construction contractor to renovate your house.
38. Rights as Thing of a Contract
Rights, including intellectual property or leasehold rights, may be the subject of a
contract if they:
1. Are transmissible.
2. Are lawful.
3. Are certain or capable of being ascertained.
Example: License software to another company.
39. Future Inheritance
Generally, contracts dealing with future inheritance are void unless specifically
sanctioned by statute as they tend to contravene the principle of testator's free
disposition of property.
Example: Sell a future share in a parent's estate before death.
40. Types of Impossibility
1. Physical Impossibility: The thing or service cannot be done (for example, delivering
nonexistent goods).
2. Legal Impossibility: Forbidden by law (for example, leasing land set apart for public
use).
3. Economic Impossibility: Performance is economically impossible.
Example: Contracting to build on land permanently under water.
41. Cause
Cause is the fundamental reason or purpose for which a party enters into a contract.
1. In Onus Contracts: The exchange of valuable consideration (for example, money for
goods).
2. In Gratuitous Contracts: The liberality or generosity of one party (e.g., donation).
3. In Remuneratory Contracts: A reward for services.
Paying rent to use an apartment is an example.
42. Cause vs. Object
Cause: The why or the rationale behind a contract.
Object: The what, or what is being dealt with or involved in the contract.
Example: In a sale, the cause for the buyer is to acquire the goods, and the object is the
goods themselves.
43. Classifications of Contracts According to Cause
1. Onerous: Mutual advantages or reciprocities (ex: sale).
2. Gratuitous: One of the parties advantages without corresponding obligation of the
other (donation).
3. Remuneratory: Payment for past act or service (ex: A reward for bravery).
44. Motive
The private reason or personal intent of a party entering into contract. It has no place in
determining the validity thereof unless it constitutes a basic condition.
Example: Giving to charity for tax purposes (motivation).
45. Cause vs. Motive
Cause: The legal, objective motive for entering a contract.
Motive: The subjective, personal reason for entering a contract.
Example: A man purchases land (cause) for the reason of building a weekend home
(motive).
46. Requisites of Cause
1. Lawful: Shall not be contrary to law or morals.
2. Real: Must be actual and not pretended.
3. True: Shall not be fictitious or fraudulent.
Example: A sale contract where the true and lawful cause is the payment.
47. Lesion
Lesion is a damage or injury caused by inequality or inadequacy in the terms of a
contract, especially where the value of the consideration is grossly disproportionate.
Example: Selling a property worth $500,000 for only $50,000 due to deceit.
48. Forms of Contract
1. Oral Contracts: Verbal agreements.
2. Written Contracts: Written agreements signed by the parties.
3. Public Instruments: Notarized contracts for certain types of agreements (e.g., sale of
real estate). Example: A lease may be oral but is more secure in writing.
49. Reformation
Reformation is the process of correcting a written contract to reflect the true intention of
the parties when there is a mistake or fraud.
Example: Correction of a sales deed that mistakenly leaves out agreed property
boundaries.
50. Essentials of Reformation
1. Valid Contract: The prior contract must be legal and capable of being enforced
2. Mistake or Fraud: There should be evidence of mistake or deceit.
3. Mutual Intent: The reformed contract should be in consonance with the parties' original
intent.
4. No Injury to Third Parties: Reformation should not cause harm to others.
Example: Redrafting a loan agreement to include omitted repayment terms agreed on
initially.
51. Reformation vs. Annulment
Reformation: The correction or alteration of a written instrument to reflect the true
intentions of the parties when there was an error or fraud in its preparation.
Annulment: A legal declaration that a contract is void, usually because of defects in
consent, capacity, or unlawful purpose.
Example: Reformation corrects a clerical error, while annulment nullifies a contract due to
a party being coerced.
52. Construction of Contract
Construction of a contract is the ascertainment of the real meaning and intention of its
terms. Ordinarily, courts interpret contracts in accordance with these principles:
1. The ordinary meaning: Words are construed in their ordinary sense unless otherwise
indicated.
2. Contextual construction: The entire contract is viewed in light of the surrounding facts.
3. Ambiguity: In cases of ambiguity, the construction is against the party who drafted the
instrument.
Example: If a contract's term "delivery" is ambiguous, the court might consider how the
parties have commonly used it.
53. Types of Defective Contracts
1. Void Contracts: Invalid contracts from the beginning.
2. Voidable Contracts: Valid contracts but susceptible to being set aside because of
defects in consent, such as mistake or coercion.
3. Unenforceable Contracts: Contracts that lack the capacity to be made effective
because of failure to meet the necessary formalities.
4. Rescissible Contracts: Valid contracts, which due to certain damages suffered by
either party are rescindable.
54. Rescissible Contracts
A rescissible contract is one that is originally valid but may be undone or rescinded
because of certain damages suffered by one of the parties.
Example: A sales contract of property can be rescinded in case it unjustly affects the
seller or causes a financial loss to him.
55. Conditions of Rescission
For rescission to be effective, the following must be there:
1. Contract must be valid: At the time of the contract, it is enforceable.
2. Prejudice to one party: One party must have suffered unjust harm.
3. No third-party rights: Rescission cannot affect the rights of a third party.
4. Action within proper time: The request for rescission must be filed within the required
period.
Example: A contract can be rescinded if it causes an unfair prejudice to the financial
condition of a party.
56. Time for Filing Action for Rescission
The action for rescission should be filed within four years from the date the contract was
made or when the injury became apparent.
Example: A sales contract can be rescinded by a party four years after discovering fraud.
57. Persons Whose Rights Have Been Rescinded
1. The person aggrieved: The one suffering monetary or legal loss.
2. Those acting for a minor or person of unsound mind: Guardians or their attorneys.
Illustration: A defrauded buyer may bring rescission.
58. Voidable Contracts
Voidable contracts are those that are initially valid but may be rescinded in case a party
suffers from defects like incapacity or lack of consent.
Example: A contract signed under duress or by a minor is voidable.
59. Kinds of Voidable Contracts
1. Contracts made with minors: Usually voidable at the option of the minor.
2. Contracts signed under duress: When one party is compelled or coerced to agree.
3. Contracts made by persons without mental capacity: These can be rescinded if the
person was incapable of understanding the terms of the contract.
Example: A contract signed by a person under threat of violence is voidable.
60. Annulment
Annulment is the legal process whereby a contract is declared void due to specific legal
defects such as lack of consent, incapacity or unlawful purpose.
Example: Annulment of a marriage contract due to lack of consent.
61. Ratification
Ratification refers to the approval or confirmation of a previously invalid or voidable act,
thus making it legally binding.
Example: A minor who signed a contract may later ratify it upon attaining majority, so
making it valid.
62. Kinds of Ratification
1. Express Ratification: Direct and unmistakable approval, such as signing of a written
agreement.
2. Implied Ratification: Derived from a party's acts or conduct which imply approval.
Example: Continued performance under a contract even after discovery of its flaw may
amount to implied ratification.
63. Requirements of Ratification
1. Act of ratification must be free. 2. Knowledge of facts: The person ratifying must know
of the defect or invalidity. 3. Capacity: The person ratifying must have legal capacity.
Example: A person ratifying a contract after coming to know that it was executed based
on false pretences. 64. Unenforceable Contracts
Unenforceable contracts refer to contracts that cannot be upheld in court due to a lack of
form or procedure. However, they are not necessarily void.
Example: A land sale contract that is oral, not in writing as the law requires.
65. Types of Unenforceable Contracts
1. Those that have to be under a public instrument but are not executed as one:
Contracts such as those for selling real estate require notarization.
2. Inessential formalities in contracts: Some contracts need certain formal requirements,
usually to exist in written form.
Illustration: An agreement of selling a property without having it notarized.
66. Void Contracts
Void contracts are contracts which are declared never to have had legal existence
because the contracts themselves contain defects like an unlawful object, a lack of
consent or impossibility.
Illustration: A contract to sell restricted drugs is void.
67. Inexistent Contracts
Inexistent contracts are those contracts which bear no legal effect because they have
missed one or more essential ingredients such as consent, object, or cause. These are
considered to have not existed.
Example: A contract which is signed under compulsion by a party without his awareness
of the terms is inexistent
68. Features of Void/Inexistent Contract
A void or inexistent contract bears following features:
1. No Legal Effect: It is considered to be as if it never came into existence, and so it
cannot be enforced by either party.
2. Lack of Essential Elements: It lacks consent, object, or cause, which are required for a
valid contract.
3. Cannot Be Ratified: Since it has no legal existence, a void contract cannot be corrected
or ratified.
4. Cannot Be Used as a Basis for Claim: No one can seek enforcement or damages based
on a void contract.
Example: A contract for illegal activities like selling drugs is void and inexistent.
69. Natural Obligations
Natural obligations are those duties or promises not enforced by law but which, being
morally binding, come under this head. They are derived from justice, or right and wrong,
or morality, though breach of them entails no legal liability.
Illustration: A moral obligation to pay a debt legally incurred but too stale to enforce in an
action at law.
70. Restitution
Restitution is returning or giving back an item, goods, or otherwise something taken to
put right for something not in good conditions. Returning something of just value.
A contract void for fraud; rescinded on those grounds restitution: restore the money paid.
71. Estoppel
Estoppel is a legal doctrine that stops a party from arguing something which is contrary
to a previous statement or action when it would be unfair to allow him to do so. Estoppel
is based on consistency and fairness in judicial proceedings.
Example: A party who previously claimed ownership of a property cannot later deny it if
another party relied on that claim to their detriment.
72. Kinds of Estoppel
1. Estoppel by Conduct or Conducting Es-topel In Pais: It prevents one of the parties from
contradicting their previous conduct or utterance.
2. Estoppel by Deed: It stops the one from denying the truth about a certain act (i.e., in
any form of writing) in specific conditions.
3. Estoppel by Record: One is stopped from challenging a certain fact established in court
decree.
4. Estoppel by Judgment: Issues which have been resolved earlier are not allowed to
litigate again.
Example: A party who accepts a payment cannot later claim it was not due.
73. Ingredients of Estoppel
The following ingredients must be found for estoppel to be available:
1. Representation or Assumption: A party must have made a representation or
assumption of fact.
2. Reliance on the Representation: Another party must rely on that representation or
assumption.
3. Detriment of Reliance: The party relying on the representation must have been
damaged or prejudiced by it.
Illustration: A person who causes others to believe they are owner of a property, and who
others rely on that belief to their detriment, cannot later assert that he is not owner.
74. Laches
Laches is a doctrine in law which disallows a claim because it has been pursued for too
long, or it has caused prejudice to the other party. It is based on fairness and equity.
Example: A plaintiff who delays too long in asserting a right or claim for breach of
contract may be prohibited from bringing an action, where there has been undue delay
prejudicing the defendant's ability to respond.
75. Elements of Laches
The elements of laches are:
1. Unreasonable Delay: There must be an unreasonable delay in asserting a legal right or
claim.
2. Knowledge of the Claim: The party asserting the claim must have known about the
claim or the facts underlying it.
3. Prejudice or Harm: The delay must have caused harm or prejudice to the party against
whom the claim is asserted.
Example: A property owner waiting many years to assert a claim for trespass, during
which time the trespasser made significant improvements to the property, may be barred
by laches.
CE LAWS, ETHICS, AND CONTRACTS
Discuss the following concepts or enumerate with discussion. Provide examples if
necessary.
1. Juridical Necessity
Juridical necessity refers to the legal binding force of an obligation, meaning that it
imposes a duty on the debtor to perform or refrain from a certain act under penalty of
law. If the obligation is not fulfilled, the creditor may seek judicial remedies such as
enforcement or damages.
Example: A person who borrows money is legally bound to repay it, and failure to do so
can be followed by a legal action to collect the debt.
2. Debtor/Obligor or Creditor/Obligee
Debtor/Obligor: The person or entity bound by the obligation to perform a duty or fulfill a
promise, such as paying a debt or delivering goods.
Creditor/Obligee: The person or entity who is owed the performance of the obligation or
benefit from the acts of the debtor.
Example: In a loan, the borrower is the debtor and the lender is the creditor.
3. Basic Requirements of an Obligation
An obligation must have three basic requirements.
1. Subject: The person or party bound by the obligation (the debtor or obligor).
2. Object: The act or forbearance that must be done (e.g., pay money, deliver goods).
3. Juridical Tie (or Cause): The legal ground or reason that binds the debtor to the
creditor (e.g. contract, law, quasi-delict).
Example: In a sale contract, the seller is a debtor, the object sold is the object and the
contract is the juridical tie.
4. Forms of Obligations
Obligations can be classified into various forms, including:
1. Positive Obligations: The debtor is required to perform an act (e.g., delivering goods).
2. Negative Obligations: The debtor must refrain from doing something (e.g., not to
disclose a secret).
3. Alternative Obligations: The debtor can choose between two or more acts, any one of
which satisfies the obligation.
4. Divisible Obligations: The performance of the obligation can be divided into parts (e.g.,
paying in installments).
5. Indivisible Obligations: The obligation must be performed as a whole (e.g., transferring
a specific item of property).
Example: A debtor may be obligated to either deliver a car or pay an equivalent amount
of money under an alternative obligation.
5. Elements of a Legal Wrong/Injury
The elements of a legal wrong or injury are:
1. Violation of a Legal Right: A person's right must have been violated.
2. Wrongful Act: An act that breaches a legal duty or obligation.
3. Damage or Injury: Harm must be caused to the person or property of another.
4. Causation: A direct link between the wrongful act and the injury caused.
Example: If the defendant intentionally causes damage to your property, the violation of
your rights of property and the wrongful act of its damage with the harm inflicted is a
legal injury.
6. Kinds of Obligations (According to Subject Matter)
Obligations can be classified according to subject matter:
1. Obligations to Give: the debtor must provide the creditor with a thing (e.g., sales
contract).
2. Obligations to Do: The debtor must perform a specific act (e.g., a contract for services).
3. Obligations Not to Do: The debtor must refrain from performing a specific act (e.g.,
non-compete agreements).
Example: A person who agrees to paint a house is under an obligation to do (perform an
act), whereas a person who agrees to sell land is under an obligation to give (deliver
property).
7. Sources of Obligations
The sources of obligations are:
1. Contracts: Voluntary agreements between parties that create enforceable obligations.
2. Torts (Quasi-Delicts): Civil wrongs that cause harm and result in obligations to pay
damages.
3. Law: Obligations arising from statutes or regulations (e.g., tax laws).
4. Quasi-Contracts: Legal relationships based on actions to avoid unjust enrichment, such
as in negotiorum gestio or solutio indebiti.
5. Delicts: Criminal actions that result in civil liabilities.
Example: A person injured by a negligent driver may have a tort-based obligation to pay
damages.
8. Negotiorum Gestio and Solutio Indebiti
Negotiorum Gestio: Refers to an act of voluntarily managing the affairs of another
without their consent, usually to avoid harm or loss, and creates an obligation to
reimburse the person who acted.
Solutio Indebiti: It has arisen when one party mistakenly pays a debt that they do not owe,
and the law provides for the obligation to be refunded.
Example: If someone mistakenly pays another person's bill, they can claim the amount
back through solutio indebiti.
9. Scope of Civil Liability
Civil liability is that liability where one person is held liable for actions or omissions that
cause harm or injury to another party. Such liability results in a legal obligation to
compensate for the damage. It includes:
1. Contractual Liability: Arises from breaches of contractual obligations.
2. Tortious Liability: Arises from civil wrongs that cause harm.
3. Quasi-Delict Liability: Results from acts that cause harm but are not criminal in nature.
Example: Where a contractor fails to construct a project within stipulated time, he is
liable for the damages that may be occasioned by the delay (contractual liability).
10. Elements of Quasi-Delict
A quasi-delict arises from acts or omissions that cause harm or injury to another with no
intention to cause the said harm. The elements of the quasi-delict are:
1. Negligence or Inadvertence: The conduct must have been careless or non-attentive.
2. Damages: The plaintiff must have suffered actual harm or injury.
3. Cause and Effect: There needs to be a direct association between the act of
negligence and the injury sustained.
4. No Pre-existing Contract: The duty springs from apart from any contract that subsists.
Example: A motorist who runs a red light and causes an accident is liable for damages
inflicted, even without intent.
11. Particular or Certain Thing
A particular or certain thing is an object identified or distinguished as an individual. It is a
particular and distinct thing, usually described clearly in a contract.
Example: A particular car with a special VIN is a determinate thing.
12. Generic or Indeterminate Thing
A generic or indeterminate thing is that which describes an article in general terms and
not as a particular one but as a class or kind of merchandise. These are usually variable
goods that fall under a general category.
Example: "100 sacks of rice" is a common noun, in the sense that the phrase refers to a
sort of commodity with no specific sack referred to
13. Sorts of Fruits
Fruits fall under two categories;
1. Natural Fruits: Goods from the land, vegetation, or beastly forms including crops, milk
and wool
2. Industrial Fruits: products of human or industrial inputs for instance, products formed
by human, natural resources end.
3. Civil Fruits: Income derived from property or a right, like rent or interest on money.
Illustration: Wheat crop of a farmer is a natural fruit, whereas rental income from a
building is a civil fruit.
14. Personal and Real Rights
Personal Rights: Rights that can be enforced against a particular person or group of
persons (for example, the right to a contract).
Real Rights: Rights pertaining to things or property and are enforceable against everyone
who interferes with those rights (e.g. rights of ownership or possession).
Example: Right to be paid for service is a personal right, while right to possession of land
is a real right.
15. Accessions and Accessories
Accessions: Items that are added to or incorporated into a principal thing, becoming part
of it and increasing its value (e.g., fruits of a tree or a building built on land).
Accessories: Items that are supplementary to a principal thing but do not become part of
it (e.g., a watch strap for a wristwatch).
Example: An engine put in a car is an accession, and the key of the car is an accessory.
16. Delay
Delay is defined as failure to perform an obligation at the stipulated time. Delay can
either be caused by the fault of the debtor (default) or may be beyond control due to
force majeure.
Example: A contractor who fails to deliver a house on a given date is in delay.
17. Types of Delay/Default
1. Mora Debitoris (Delay of the Debtor): The debtor delays in performing without just
cause.
2. Mora Creditoris (Delay of the Creditor): The creditor delays without just cause, usually
by refusing to accept performance.
3. Mora Accipiendi (Delay in Acceptance): The creditor unreasonably refuses to accept an
offer or performance. Example: The seller who refuses to deliver goods already paid for is
in mora creditoris.
18. Effects of Delay/Default
Consequences of delay/default
1. Liability to pay damages: Debtor may have to pay the creditor for all the consequences
of default.
2. Forfeiture of Benefit: Sometimes debtor loses the right of performing the obligation
and he incurs additional penalties.
3. Extention of time: The delay can confer on the creditor a right to fix a fresh date or to
demand performance on notice.
Example: The tenant who doesn't pay his rental on time may be liable for extra costs of
delay.
19. Causes of Liability (Art. 1170)
Article 1170 of the Civil Code states that a person is responsible for damages when they
are at fault or negligent in meeting their obligation or have violated a contractual or
juridical duty.
The grounds are:
1. Fault or Negligence: Failure to perform obligations because of carelessness or lack of
skill.
2. Delictual Acts: Acts that cause harm and lack justification in law.
Illustration: A driver causing an accident because of reckless driving is liable for damages
under Art. 1170.
20. Kinds of Negligence
1. Simple Negligence: Lack of ordinary care, which would be expected of a reasonable
person under similar circumstances.
2. Gross Negligence: A grave lack of care, evidencing reckless disregard for the safety or
rights of others.
3. Contributory Negligence: When the victim's own negligence contributes to his or her
injury or damage.
Example: A person texting while driving is grossly negligent.
21. Fortuitous Events and Force Majeure
Unforeseeable events or force majeure are those events which cannot be prevented by
human effort. They are unpredictable and cannot be controlled by the parties performing
the obligation to fulfill the obligation.
Example: An earthquake causes destruction of property or interruption of a business
operation.
22. Types of Fortuitous Events
1. Natural Events: Natural causes, such as storms, earthquakes, or floods.
2. Acts of men: Events caused by human actions, such as war, strikes, or riots.
3. Acts of God: Events caused by forces beyond human control, such as lightning or
volcanic eruptions.
Example: A factory that cannot operate due to a flood is affected by a natural fortuitous
event.
23. Requisites of Fortuitous Events
For a fortuitous event to be considered as a valid excuse for non-performance, the
following requisites must be present:
1. Unpredictability: The event was unforeseeable.
2. Irresistibility: The event could not have been avoided even with due diligence.
3. Externality: The event is not caused by the party's own actions.
Example: A fire that completely destroys a warehouse is a fortuitous event if it was
unforeseeable and unavoidable.
24. Usury
Usury refers to excessive interest on a loan charge. Most states and other countries
regulate interest charges with caps set in the jurisdiction so that individuals cannot
overcharge clients.
A loan contract exceeding legal requirements for an interest charge would be classified
as usurious.
25. Mutuum
Mutuum is a kind of loan whereby one party gives a certain quantity of consumable
goods such as money and grains to another with the obligation to pay back an equivalent
quantity of the same kind. The borrower is not bound to return the item but rather goods
of the same kind and quality.
Example: A loan of 100,000 pesos to a friend with the understanding that the borrower
will return the same amount at a later date is a mutuum.
26. Requisites for Recovery of Interest
For a party to recover interest on a loan or debt, the following requisites must be met:
1. Contract or Legal Authorization: There must be a pre-agreement between the parties
to charge interest, or there should be a legal provision for charging it, like in the Civil
Code or the usury laws.
2. Accrual of Interest: The interest must have accrued either based on agreed-upon
terms or statutory provisions.
3. Default or Delay: The debtor must have defaulted, or there is a delay in payment
wherein the interest will apply.
4. Quantity and Rate: The rate of interest should either be prescribed in the contract or
be prescribed by statute
Illustration : On missing a pay-out, his contract may provide for a rate of interest
chargeable for the amount due
27. Presumption
A presumption is a legal inference or assumption made by a court based on the existence
of certain facts. It may shift the burden of proof or establish some facts without evidence.
Example: In civil cases, the presumption of ownership may arise if a person has been in
continuous and exclusive possession of property for an extended period.
28. Kinds of Presumptions
Presumptions may be classified into:
1. Rebuttable presumption: A presumption that can be controverted by evidence to the
contrary.
2. Irrebuttable presumption: A presumption that cannot be disproved or contested.
3. Judicial presumption: That presumption which arises in an application of law and logic.
4. Factual presumption: A presumption based on the common knowledge or proven facts
of the case.
Example: The presumption that a person who has been missing for seven years is
presumed dead is a rebuttable presumption, as it can be disproven with evidence.
29. Classifications of Obligations
Primary Obligations: These are the basic or original duties or tasks that the debtor is
bound to perform, such as paying a debt or delivering a thing.
Secondary Obligations: These are the supplementary obligations that arise out of the
breach of primary obligations, such as paying damages or fulfilling an alternative
performance due to default.
Example: In a sale contract, delivery of goods is the primary obligation of the seller, while
payment of damages on account of delay in delivery is the secondary obligation.
30. Classification of Conditions
Conditions in obligations are classified into:
1. Suspensive Condition: A condition which suspends the operation of an obligation when
it is complied with
2. Resolutory Condition: A condition which extinguishes the obligation upon its fulfillment
3. Potestative Condition: A condition dependent on the will of one of the parties
4. Casual Condition: A condition dependent on a random or accidental event
5. Mixed Condition: A condition which depends upon the will of both parties or on a
combination of different factors.
Example : If the obligation to deliver goods depends upon the arrival of a ship, casual
condition, then it is a suspensive condition.
31. Types of Loss
Loss is the destruction, deterioration, or impossibility of performing an obligation. There
are various types of loss:
1. Total Loss: The total destruction or impossibility of an object or right that is the subject
of an obligation.
2. Partial Loss: Only a part of the object is lost or destroyed, but the remaining part can
still fulfill the obligation.
3. Casualty Loss: The loss that results from unforeseeable or involuntary events, such as
storms or accidents.
Illustration: If a debtor's house burns down, it is a total loss.
32. Legal Periods
Legal periods are time limits, prescribed by law, to perform some obligation or to
exercise some right. Legal periods may be either fixed or variable depending upon the
law or agreement.
Example: In some jurisdictions, the statutory period within which to bring an action may
be 10 years for real property and 4 years for personal property.
33. Types of Period/Term
1. Suspensive Period: The period suspends the effect of an obligation until it is fulfilled.
2. Peremptory or Extinctive Period: The period limits the time within which an obligation
must be complied with, after which the right is extinguished.
3. Voluntary Period: A period agreed upon by the parties themselves in a contract for the
performance of obligations.
4. Legal Period: A period fixed by law for performing obligations.
Example: A contract may stipulate that payment must be made within 30 days of delivery,
which would establish a voluntary period.
34. Alternative Obligations
In an alternative obligation, the debtor is required to perform one of several possible acts
or give one of several things, with the creditor's right to choose which one.
Example: A contract where the debtor is required to either deliver a car or pay a certain
amount of money is an alternative obligation. If the debtor delivers the car, there is no
need for monetary payment.
35. Joint and Solidary Obligations
Joint Obligations: In the case of joint obligations, every debtor or creditor is liable only
for his or her part of the obligation. The total performance is divided between the parties.
Solidary Obligations: In the case of solidary obligations, every debtor or creditor is liable
for the entire obligation. The creditor can claim full payment from any one of the debtors
and the debtor can perform fully for any one of the creditors.
Example: In a conjunctive obligation, three co-debtors owe the total debt of $300, and
each debtor has the liability of $100. In a solidary obligation, any one of the debtors may
be compelled to pay the total amount of $300, and that amount will be owed to the other
debtors who will share.
51. Requirements of Valid Consignation
Consignation is the act of depositing a sum of money or a thing in a competent public
authority when the creditor refuses to accept payment, or the creditor cannot be found.
The requisites for valid consignation are as follows:

1. Refusal of the Creditor to Accept Payment: The creditor must refuse to accept the
payment, either explicitly or by failing to respond to the offer of payment.
2. Deposit of the Object of the Obligation: The debtor deposits the amount due or thing
subject to the obligation before a competent third party (judge, notary public)
3. Notice to the Creditor: The debtor gives notice of consignation to the creditor allowing
the latter an opportunity to take the deposited amount or property.
4. Correct Deposit: The deposit should be made in the right way; for example, the money
should be placed in a designated account or with an accredited third party.
5. Satisfaction of All Conditions: The debtor should ensure that all legal and procedural
conditions are satisfied, including the deposit being made in the right place and under
the appropriate conditions.
52. Condonation or Remission of Debt
It refers to the voluntary cancellation of a debt by the creditor. It can be complete or
partial and means that the debtor is no longer required to pay the debt.
53. Requisites of Condonation or Remission of Debt
For condonation or remission of debt to be valid, the following requisites must be present:
1. Intention of the Creditor: For a creditor to discharge a debt, there must have been an
intention to do so, either in writing or by actions showing forgiveness.
2. Capacity of the Creditor: The creditor must have the legal capacity to remit, that is to
say, have the power to waive and cancel the debt.
3. No Legal Prohibition: The debt cannot involve public policy or legal prohibitions (for
example, a debt involving alimony or support obligations may not be remitted).
4. Formal Requirements: In some instances, remission will depend on a formal writing or
agreement, especially when the amount is substantial.
54. Kinds of Remission
There are two basic kinds of remission:
1. Total Remission: The total debt is remitted by the creditor, and the debtor is freed from
all liabilities.
2. Partial Remission: Only part of the debt is remitted, and the debtor still has to pay off
the balance.
55. Inofficious Remission and its Effect
Inofficious remission is a type of remission whereby a creditor forgives a debt that they
have no legal right to forgive, and the debts are usually those meant for the benefit of a
third party, such as alimony or child support.
Effect: Inofficious remission is considered void and cannot discharge the obligation. The
debtor remains liable for the part of the debt that was forgiven in violation of legal
provisions.
56. Confusion or Merger of Rights
Confusion (or merger of rights) happens when the debtor and the creditor become the
same person, resulting in the automatic extinguishment of the obligation. This can occur,
for example, when the creditor inherits the debtor's estate.
57. Requisites of Confusion
For confusion to occur, the following conditions must be met:
1. Creditor and Debtor Become the Same Person: The creditor and debtor must become
the same person either by inheritance, donation, or acquisition of the rights by the debtor.
2. Obligation Must Be Extinguished: The obligation is extinguished because the same
person holds both positions.
3. No Legal Prohibition: There must be no legal prohibition that prevents the obligation
from being extinguished by confusion.
58. Compensation
As discussed earlier, compensation is the extinguishment of two mutual debts in such a
situation that every party is both a creditor as well as a debtor to each other. The
amounts so owed are offset and reduced accordingly.
59. Compensation Vs. Confusion
Both compensation and confusion involve obligation extinguishment but these share
some differences:
Compensation arises when two persons are owing debts to one another and agree to off
set the amounts so owing.
Confusion arises when the creditor and the debtor are the same. The obligation is
automatically satisfied without any agreement or offset required.
60. Modes of Compensation
There are three modes of compensation:
1. Legal Compensation: It automatically arises by operation of law when the parties owe
to each other debts, the debts satisfy all the requisites of law for satisfaction.
2. Voluntary Compensation: This arises when the parties agree between themselves to
apply their debts to each other's offsetting.
3. Judicial Compensation: This arises when the court orders the compensation as part of
a legal process aimed at settling the disputes between the parties.
61. Requisites of Legal Compensation
For legal compensation to take place, the following requisites must be satisfied:
1. Existence of Mutual Debts: Both parties must be creditors and debtors to each other.
2. Debts are Liquidated and Due: The debts must be certain and due (not suspended or
deferred).
3. Debts of the Same Kind: The debts must be in the same form, e.g. both monetary.
4. No Legal Prohibition: There must be no legal prohibition against the compensation of
debts (e.g., certain debts like alimony).
62. Novation
Novation is the replacement of an existing obligation by another new one either with
change of subject matter, the debtor or the creditor. The novation must involve consent
on all sides and totally discharges the original obligation.
63. Types of Novation
1. Novation of Substance: Novation in substance or involving the object or cause of the
contract which amounts to a totally new obligation.
2. Partial Novation: It is a substitution of the terms of the original obligation, without
replacing it.
3. Novation of Parties: It involves a substitution of the debtor or the creditor, where the
new person assumes the obligations of the original party.
64. Requisites of Novation
The following requisites are necessary for novation:
1. Agreement of All Parties: All parties must agree on the new contract or agreement.
2. Novel Novation: The novel novation should supersede the old one, under novel terms
or variations.
3. Abolition of Old Obligation: There must be an intention to fully abolish the old
obligation
4. No Prohibition at Law: There is no prohibition in law over the novation (example some
debts are not allowed novation).
65. Substitution
Substitution is replacing one of the parties in an obligation, for example, the substitution
of a debtor or creditor. This may be voluntary or legal.
Voluntary Substitution: The parties agree to replace one of the original participants with
a new party.
Legal Substitution: It is by law, such as when a person assumes the debts of another
through inheritance.
Example: The original debtor can be replaced with a new debtor, who is discharged of
the obligation, or the old creditor can be replaced by a new creditor.
66. Types of Substitution
Substitution is the substitution of a party to the contract, either the creditor or the debtor.
Types of substitution are:
1. Substitution of debtor: The first debtor is substituted by another debtor. The new
debtor takes over all the liabilities of the first debtor.
For instance, a debtor shifts his liability to another person who then becomes liable to
repay the debt.
2. Substitution of creditor: The first creditor is substituted by another creditor. The new
creditor takes over all the rights of the first creditor to collect the debt from the debtor.
Example: A creditor assigns their right to receive payment to another person, and the
new creditor can claim the debt.
67. Subrogation
Subrogation is the procedure whereby one party, usually a third party, steps into the
legal shoes of another party and acquires both rights and obligations. This usually occurs
in a situation where the third party pays the debt of the debtor, thereby acquiring the
right to claim the debt from the debtor.
Subrogation can be legal or voluntary and is highly common when talking about the
terms insurance or debt settlements.
68. Types of Subrogation
There are basically two types of subrogation:
1. Voluntary Subrogation: This occurs when a third party, by agreement, pays off a debt
and then steps into the shoes of the creditor to claim the debt from the debtor.
Example: A person pays off another's mortgage and gets the right to collect the
mortgage payments from the debtor.
2. Legal Subrogation: This arises by operation of law without the need for the debtor's or
creditor's consent. Some payments, for instance, made by an insurance company on
behalf of a policyholder, result in legal subrogation.
Example: In case an insurance company pays a claim on behalf of its insured, it acquires
the right to sue the party responsible for the loss, though the insured did not consent to
such an action.
69. Judicial Subrogation Cases
Judicial Subrogation arises under the following cases:
1. Payment by a Surety or Guarantor: If a third party, like a surety or guarantor, pays the
debt in place of the principal debtor, then, on payment, the surety will be considered as
substituted with the rights of the creditor. This gives the right to recover the amount paid
from the principal debtor.
2. Insurance Payments: An insurer, upon making good the loss suffered by an insured,
receives all rights which such a person owns for the purpose of recovering any amount
paid from the party concerned.
3. Payment of Debt for the Benefit of a Credit or Interest Holder: Someone who pays a
debt on somebody else's behalf, that person has a legal interest, for example, a creditor,
or a party, that will benefit from said payment is entitled to claim subrogation.
All these persons assume the original creditor's rights and entitlements to collect from
the debtor.
70. Expromision and Delegacion
Expromision and delegacion are the debt substitution ways, which assume one party
replaces another while performing an obligation.
1. Expromision:
In expromision, there is voluntary assumption by a third party called the expromissor,
who assumes another person's obligation without even the request of that another
person who is obligated originally.
Example: A owes a debt to B. C voluntarily pays the debt on behalf of A. In this case, C
has entered into an expromision and is now liable for the debt, whereas A remains liable.
2. Delegacion:
Delegacion is where the debtor asks a third party to perform the obligation. The third
party delegatee assumes the obligation of the debtor with the creditor's consent.
Example: A owes B $500. A requests C to pay on their behalf. Consent must come from B
to this substitution. Subsequent to consent, the debt becomes the responsibility of C,
relieving A of responsibility.