Pre-Week Lecture on Obligations and Contracts

By Dean Navarro

Legal interest rate (whatever nature/transaction), effective Jan. 2013- 6%

Negligence:

- If an ordinary prudent man would have done same thing- no negligence.

- Extra-ordinary care- ex. Doctors
- Doctrine of res ipsa loquitur- caso fortuito is not a valid defense. Should proper care has been
observed, the accident should not have occurred.
- Collision between a moving object and non-moving object, the former is liable for damages.
Caso fortuito not a valid defense in this case (Luzon stevedoring case). The fact of taking
precautions implies awareness of the impending danger (doctrine of res ipsa loquitur also
applies).
- Doctrine of caso fortuito- not only the proximate but the sole and only cause of the damage or
injury. If defendant contributed to the cause, caso fortuito not applicable. Ex. Ship continues
with the voyage despite warning re: typhoon, caso fortuito cannot be invoked.
- Law student who was shot inside the school- school has the obligation to provide a safe learning
environment to its students. Caso fortuito does not apply.
- Expiration of contract is not caso fortuito. Expiry date is clearly foreseeable. Caso fortuito
doesn’t apply.
- Expiration of a treaty may consists of a caso fortuito. Ex. Expiry of US base treaty, private
enterprises cannot do anything about the expiration of treaty being an agreement between 2
states, private parties has nothing to do with the expiration. Hence, this constitutes a valid
defense of caso fortuito
- Tire blowout :
 If caused by defect of spare part- cannot invoke caso fortuito (even if spare part is produced
by a reputable manufacturer). Otherwise, tire blowout may call for the application of caso
fortuito
- Carnapping, per se, is not caso fortuito. In case of delay in the obligation, one still liable. In case
of loss, obligation to generic thing, caso fortuito does not excuse the obligor to perform his
obligation.
- Fraud, delay, contravention of tenor and negligence- debtor liable for damages
- Damages for future fraud is void.

Receipt of the principal, interest presumed paid if there’s no reservation as to interest.

Receipt of interest without reservation as to the principal, cannot be presumed to have paid also the
principal.

Obligation payable when it permits the debtor to do so is an obligation with a period.

Void obligation- condition is suspensive and potestative (dependent) on the debtor.

Potestative on the part of the creditor- valid

Simple potestative conditions- valid, does not purely depends on the debtor but depends on another
party
- Valid condition

Mixed condition in an obligation- valid- combination of potestative and casual conditions

Casual condition- depends upon chance or a will of third party

Pre-existing obligation- only condition is void but obligation remains valid.

Security bank case (on mutuality of contract) – upon mutual agreement of parties, in case of additional
expenses, the parties will agree on it. The court considered it as potestative because the contract is
always expected to give consent being the one who has control on the incurrence of additional
expenses.

Impossible obligation-

Rule on Retroactivity of effect once condition is fulfilled- reason: condition is not an essential but mere
accidental element of a contract. Ex. A private property taken by the government- owner is entitled to
the interest of the amount of just compensation deposited by the government with the bank.

Fruits- both parties are presumed to have been mutually compensated.

Article 1189-
1. If thing is lost without fault of debtor- obligation extinguished.
2. If lost with the fault of debtor- debtor liable for damages
Thing is lost if:
a. Goes out of commerce.
3. If it detoriation is with the fault
4. Improvement thru efforts of debtor- debtor is entitled to the rights of usufructuary
5. Improvement by reason of nature and time- inures to the benefit of the creditor

Know the rights of usufructuary

Article 1189 applies only if the condition is actually fulfilled. If not, does not find application of Art. 1189

Article 1191- power to rescind obligation is implied in reciprocal obligations. Rescission is available as a
remedy in a reciprocal obligation even not expressly stipulated in the contract. Non-performance of the
obligation by anyone of the parties will give the other party who performed his obligation the power to
rescind the contract.

If there is no provision in the contract for rescission, this can be done only thru court action.

If there is a provision in the contract authorizing the parties to rescind, the injured party may rescind
extra-judicially but the other party may resort to court action. However the decision of the court will not
be the operative resolution, it will merely affirm the extra-judicial rescission.

Rescission can be done only in case of substantial breach.

What constitutes substantial breach?

- Delay in the compliance of obligation for few number of days- court ruled not a substantial
breach
- Payment of 4 out of 120 instalments- substantial breach
- Slight breach does not warrant rescission of contract.

Barredo vs Leano- agreement: A sales contract where the buyer will assume obligation of the seller with
SSS and financing company. At the time of sale, buyer failed to comply with the agreed obligation. SC
ruled that there is no substantial breach. Merely slight or casual breach which does not justify rescission
of the contract.

Art. 1191- presupposes an existing obligation. Not applicable to contract to sell. If obligation is subject to
a positive suspensive condition… ex. Full payment of the price in a contract to sell. This is not an issue of
breach but something which prevents the obligation of the seller from conveying the title if price not
paid.

If the contract includes an arbitration clause, this must be resorted to before invoking rescission.

Maceda law- sale of land in instalment. Rescission can only be made 30 days after notice of rescission is
made by notarial act.

In case of rescission, there must always be a notice to the other party even the contract provides for
such remedy. Only the injured party can rescind. The other party cannot rescind.

If both parties commited a breach of obligation, the liability of the 1 st infractor will be equitably
tempered by the court. If cannot identify who committed the 1 st infraction, both parties will bear their
own damages.

If parties intended the contract to be with a period but failed to indicate the specific period, go to court
to fix the period. This can be done once only, otherwise, res judicata can be interposed.

Lost of the thing before the arrival of the period.

If before happening of suspensive condition:

Delivery by mistake- recover what has been delivered, together with the fruits.
Fruits and interest mistakenly delivered shall be returned.

Court should fix the period first before one can cause an action for collection. Exception: If fixing period
will just further delay the performance of the obligation (ex. Obligation long overdue).

Art. 1198- debtor loses right to use the period

1. Debtor is insolvent
2. Does not submit security as agreed upon or submit one but already expired and not renewed
3. Violates undertaking re: use of term of period
4. Attempts to abscond
5. Failure to submit substitute security
Expropriation- purpose not fulfilled, hence, more than enough time, donation may be rescinded.

Alternative and facultative obligation- alternative- several objects are due and fulfilment of 1 will
extinguish obligation; facultative- only one of the obligations is due.

Alternative- all objects are due and lost of all extinguish the obligation. If all lost thru the fault of the
debtor, latter liable based on value of last object lost. If partly lost, right of choice belongs to the debtor.
Once the choice is communicated to the creditor, the obligation now becomes a simple obligation. After
communication and it was lost, obligation is extinguished.

In case of inability of the debtor to exercise his right of choice is beyond the control of the debtor and
not due to his fault, and left with only 1 choice, debtor loses his right of choice.

Joint and solidary obligation:

Any of the solidary debtor can be compelled to pay the entire obligation.

Indivisible obligation does not necessary make the obligation solidary.

In case of joint indivisible obligation

Presumption: joint obligation, unless the law provides or nature of obligation requires solidarity.

In case of novation, solidary creditors will be entitled to the increase in the amount of obligation, but
not to loss or reduction in the new obligation.