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CIVIL LAW

REVIEW II -

OBLIGATIONS

&

CONTRACTS Atty. Crisostomo Uribe - Course Outline (Dec. 2009)

Donnell R. Agaton | Recoletos de Manila - College of Law

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A filed an action to compel B to fulfill thelatter’s obligation to the former, will the actionprosper?

Not necessarily because in natural actions no court

action can compel performance because it is anaction based on equity, conscience and natural justice.

Natural obligations are midway between civilobligations and the purely moral obligations.

In order that there may be a natural obligation,there must exist a juridical tie (vinculum juris) whichis not prohibited by law and which in itself couldgive a cause of action, but because of somespecial circumstances is actually without such legalsanction or means of enforcing compliance byinvoking the intervention of the court.

Basis: Art. 1423 Obligations are civil or natural. Civil

obligations give a right of action to compel their

performance. Natural obligations, not being based on

positive law but on equity performance, but after

voluntary fulfillment by the obligor, they authorize the

retention of what has been delivered or rendered by

reason thereof. Some natural obligations are set forth in

the following articles.

What are the conditions necessary for theexistence of natural obligation?

1. That there be a juridical tie between twopersons.

2. This tie is not given effect by law.

What is the distinction between a moralobligation and a natural obligation?

X died, his heirs are ABC, ABC paid to Y 10million 2 days after X’s death, after 6 monthsthereafter the heirs are trying to recover the

excess because the estate is only 3 million. Canthe heirs recover the excess of 7 million fromY?

The heirs can recover the excess from Y. This isbecause the payment is not voluntary.

In natural obligation, if the payer voluntarily paid,the creditor has the right to retain what he has paid.The test on whether an act is voluntary is whetherthe person knew that they cannot be compelled to

pay but nonetheless they pay.

In this case, it could not be said that the payment isvoluntary because when the heirs paid the amountof 10 million, it was only 2 days after the death of X,and by that time normally, the heirs still don’t knowthe estate of the decedent and that they wouldreceive less.

When is an act voluntary with respect toperformance of a natural obligation?

It is voluntary when the payer paid without fraud,threat, or any vitiation being employed.

Most importantly, the payer knew that he is notcompelled to pay but the payer nonetheless paid.

The reason why a person who is not legallyobligated to pay, voluntary pays because ofCONSCIENCE.

A executed a promissory note date Feb. 1, 1994stating that “I promise to pay X the amount of 1million, and signed by him”. To this day

December 6, 2009, more than 10 years hadlapsed, may X still recover from A?

It may be inferred that the obligation is a pureobligation demandable at once, and as such it isdue and demandable on Feb. 1 1994. Thereforethe action had already prescribed because morethan 10 years had lapsed from Feb. 2, 1994. Thisscenario may be applicable in a contract of sale.

When if ever A paid to X the amount of 1 million toY despite its prescription, A cannot recover from X

because such is his natural obligation, provided ithas been made voluntarily which means he knewthat he is not compelled to pay but nonethelesspaid it.

However, when the contract is one of loan as anexample. The period of prescription cannot set inbecause a contract of loan is intended to be paid atsome future time, and not demandable at once. Inthis instance, resort to what is intended by theparties to be the due date is controlling todetermine whether or not the action hadprescribed, and any payment thereafter converts itfrom civil obligation to a natural obligation.

Moral Obligation Natural Obligation

There is no juridical tie. There is a juridical tie.

It is an act of pure liberality

which springs from blood,

affection, or benevolence.

It is a legal fulfillment of an

obligation.

It is within the domain of

morals.

It is within the domain of

law.

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For a natural obligation to arise does it requirethat that there is an agreement?

Not necessarily. It may either be a with or withoutan agreement. Why? go figure.

When shall natural obligation be converted into

civil obligation?

The signing of a document has generally the effectof converting a natural obligation to a civilobligation. The signer renounces the defense whichprevents enforcement of the obligation, which canthereafter be the basis of a judicial action.

The promise to perform a natural obligation is aseffective as performance itself, and converts theobligation into a civil obligation.

A prescribed debt of the deceased mother of thedebtor was held to be a sufficient consideration tomake a valid and effective the promise of the sonto pay the same ( Villaroel vs. Estrada 71 Phil 140)

Note however, that promise to perform must bevoluntary. Therefore, payment by mistake is notvoluntary and may be recovered.

One who pays a natural obligation believing it to becivil, does not thereby recognize the naturalobligation; and there being no civil obligation either,he can recover what he has paid.

Note: Partial payment of an obligation does notgenerally convert such into a civil obligation, thepart paid cannot be recovered but, the part not paidcannot be enforced, except when such naturalobligation is one that is subject to ratification orconfirmation, the partial payment converts it into acivil obligation (novation or natural obligation byprescription), except when the same is contrary tolaw, morals or public order.

Guaranty of natural obligation; when considered a

civil obligation:

Generally, in principle, a natural obligation cannotbe guaranteed because the liability of the guarantorpresupposes that there must be a prior exhaustionof the property of the principal debtor, and that thedebtor after paying can recover from the principaldebtor- and both of this cannot legally be donewhen the obligation is natural.

However, because of Art. 2052 A natural obligationmay be guaranteed. What really happens is thatthe guaranty of the natural obligation changes itscharacter. When the debtor offers a guarantor forhis natural obligation, he impliedly accepts thecoercive remedies to enforce the guaranty, and

therefore, the transformation of the naturalobligation into a civil obligation.

Illicit obligations:

Obligations which are contrary to morals and goodcustoms do not constitute natural obligations, as

such any payment can be recovered except whenboth are in pari delicto, or when one was at fault(see arts. 1411 and 1412).

Art. 1424 When a right to sue upon a civil obligationhas lapsed by extinctive prescription, the obligorwho voluntarily performs the contract cannotrecover what he has delivered or the value of theservice he has rendered.

Art. 1425 When without the knowledge or againstthe will of the debtor, a third person pays a debtwhich the obligor is not legally bound to paybecause the action thereon has prescribed, but thedebtor later voluntarily reimburses the third person,the obligor cannot recover what he has paid.

Art. 1426 When a minor between (18 and 21) yearsof age who has entered into a contract without theconsent of the parent or guardian, after theannulment of the contract voluntarily returns thewhole thing or price received, notwithstanding thefact that he has not been benefited thereby there isno right to demand the thing or price thus returned.

Note: When a contract is annulled the parties arebound to make mutual restitution. However, whenthe ground of annulment is the incapacity of aperson to enter into contract, such as minority, he isnot bound to make restitution except to the extentthat he was benefited. If there is no benefit helikewise not bound to make restitution. However, hehas a natural obligation to do so, and he make arestitution (voluntarily) he cannot recover what hehas delivered.

Note: The minor cannot recover what he hasvoluntarily returned whether or not the other partystill has it in his possession.

Art. 1427 When a minor (between 18 and 21 yearsof age), who has entered into a contract (annulablebut not yet annulled) without the consent of theparent or guardian, voluntarily pays a sum ofmoney or delivers a fungible thing (meansconsumable) in fulfillment of the obligation, thereshall be no right to recover the same from theobligee who has spent or consumed it in good faith.

Generally when a contract is annulled, there will bemutual restitution, except when the party whoenters into a contract is a minor, he is not bound to

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make restitution of the thing received by him exceptto the extent he was benefited. If he is not obligedto make restitution, but he nevertheless returns thesame, he can no longer recover because such is anatural obligation.

Under this article however, there is no natural

obligation contemplated but a case of a civilobligation under an annullable contract. Comparedto Art. 1426 the contract was already annulled, butArt. 1427, the contract is not yet annulled. Hence,the same is valid and is enforceable unless it is setaside by competent court in an action for thatpurpose. Any return made by the minor can berecovered, except when the creditor or obligee hasspent or consumed it in good faith.

How good faith of creditor established:

Belief of the creditor that the debtor has capacity todeliver the object of the contract.

Note: If the thing delivered is non-consumable, thedebtor cannot recover if the thing delivered is nolonger in the possession of the creditor who hasacted in good faith, either because he hasalienated it or it has been lost.

Art. 1428 When, after an action to enforce a civilobligation has failed, the defendant voluntarilyperforms the obligation, he cannot demand thereturn of what he has delivered or the payment of

the value of the service he has rendered.

Art. 1429 When a testate or intestate heirvoluntarily pays a debt of the decedent exceedingthe value of the property which he received by willor by the law of intestacy from the estate of thedeceased, the payment shall be valid and cannotbe rescinded by the payer.

Art. 1430 When a will is declared void because ithas not been executed, but one of the intestateheirs, after the settlement of the debts of the

deceased, pays a legacy in compliance with aclause in the defective will, the payment is effectiveand irrevocable.

PRESCRIPTION OF ACTIONS

Art. 1139. Actions prescribe by the mere lapseof time fixed by law. (1961)

Note: The mere delay in the enforcement of a claimdoes not result in any reduction or loss of right,unless the period required by law for prescriptionhas expired.

Prescription is only a defense and not a basis ofright of action. It must be defensively pleadedotherwise it is deemed waived if not timely raised orpleaded before or during the hearing of the case.

Art. 1140. Actions to recover movables shallprescribe eight years from the time the possession

thereof is lost, unless the possessor has acquiredthe ownership by prescription for a less period,according to Articles 1132, and without prejudice tothe provisions of Articles 559, 1505, and 1133.(1962a)

Art. 1132. The ownership of movables prescribes through

uninterrupted possession for four years in good faith.

The ownership of personal property also prescribes

through uninterrupted possession for eight years, without

need of any other condition.

With regard to the right of the owner to recover personalproperty lost or of which he has been illegally deprived,

as well as with respect to movables acquired in a public

sale, fair, or market, or from a merchant's store the

provisions of Articles 559 and 1505 of this Code shall be

observed. (1955a)

Art. 559. The possession of movable property acquired in

good faith is equivalent to a title. Nevertheless, one who

has lost any movable or has been unlawfully deprived

thereof may recover it from the person in possession of

the same.

If the possessor of a movable lost or which the owner

has been unlawfully deprived, has acquired it in good

faith at a public sale, the owner cannot obtain its return

without reimbursing the price paid therefor. (464a)

Art. 1595. Where, under a contract of sale, the ownership

of the goods has passed to the buyer and he wrongfully

neglects or refuses to pay for the goods according to the

terms of the contract of sale, the seller may maintain an

action against him for the price of the goods.

Where, under a contract of sale, the price is payable on a

certain day, irrespective of delivery or of transfer of title

and the buyer wrongfully neglects or refuses to pay such

price, the seller may maintain an action for the pricealthough the ownership in the goods has not passed. But

it shall be a defense to such an action that the seller at

any time before the judgment in such action has

manifested an inability to perform the contract of sale on

his part or an intention not to perform it.

Although the ownership in the goods has not passed, if

they cannot readily be resold for a reasonable price, and

if the provisions of article 1596, fourth paragraph, are not

applicable, the seller may offer to deliver the goods to the

buyer, and, if the buyer refuses to receive them, may

notify the buyer that the goods are thereafter held by the

seller as bailee for the buyer. Thereafter the seller may

treat the goods as the buyer's and may maintain an

action for the price. (n)

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Art. 1133. Movables possessed through a crime can

never be acquired through prescription by the offender.

(1956a)

Art. 1141. Real actions over immovables prescribeafter thirty years.

This provision is without prejudice to what isestablished for the acquisition of ownership andother real rights by prescription. (1963)

Art. 1142. A mortgage action prescribes after tenyears. (1964a)

If the action to recover the mortgage debt itself hasprescribed, the action to recover the interest mustalso prescribed.

Art. 1143. The following rights, among othersspecified elsewhere in this Code, are not

extinguished by prescription:

(1) To demand a right of way, regulated in Article649;

(2) To bring an action to abate a public or privatenuisance. (n)

No prescription shall run in favor of a co-owner orco heir against his co-owners or co-heirs so long ashe expressly or impliedly recognize the co-ownership, otherwise acquisitive prescription may

set in.

Art. 1144. The following actions must bebrought within ten years from the time the rightof action accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment. (n)

When property is registered in another’s name, animplied or constructive trust is created by law infavor of the true owner. The action forreconveyance of the title to the rightful ownerprescribes in ten years from the issuance of thetitle. But if fraud has been committed, and this isthe basis of action, not implied trust, the action willbe barred after 4 years.

Art. 1145. The following actions must becommenced within six years:

(1) Upon an oral contract;

(2) Upon a quasi-contract. (n)

Art. 1146. The following actions must be institutedwithin four years:

(1) Upon an injury to the rights of the plaintiff;(2) Upon a quasi-delict;

However, when the action arises from or out of any

act, activity, or conduct of any public officerinvolving the exercise of powers or authority arisingfrom Martial Law including the arrest, detentionand/or trial of the plaintiff, the same must bebrought within one (1) year. (As amended by PDNo. 1755, Dec. 24, 1980.)

Note: A petition for quo warranto prescribes in 1year from the date of ouster but when the plaintiffwas separated from his employment forunjustifiable cause it prescribes in 4 years due toan injury to the rights of the plaintiff.

An action base on fraud prescribe in 4 years fromdiscovery of the fraud.

Art. 1147. The following actions must be filed withinone year:

(1) For forcible entry and detainer;

(2) For defamation. (n)

Art. 1148. The limitations of action mentioned in

Articles 1140 to 1142, and 1144 to 1147 are withoutprejudice to those specified in other parts of thisCode, in the Code of Commerce, and in speciallaws. (n)

Art. 1149. All other actions whose periods are notfixed in this Code or in other laws must be broughtwithin five years from the time the right of actionaccrues. (n)

Note: Limitations upon the right of the governmentto assess and collect taxes will not be presumed in

the absence of clear legislation to the contrary, andwhere the government has not by express statutoryprovision provided a limitation upon its right toassess unpaid taxes, such right is imprescriptible.

Art. 1150. The time for prescription for all kinds ofactions, when there is no special provision whichordains otherwise, shall be counted from the daythey may be brought. (1969)

The moment the right or duty occurs, then the rightof action accrues, and the action can be legallyinstituted; from that moment, therefore, the periodof prescription of action begins to run.

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When an obligation is subject to a suspensivecondition, prescription runs only from thehappening of the condition.

Where the obligation is without date of maturity, ora note is payable on demand, prescription beginsto run from the date the note or obligation and not

from demand, except when the liability for theunpaid balance of a subscription to shares of acorporation, here the liability of the subscriber doesnot arise until call or demand for payment by theboard of directors, and therefore, prescriptionwould run only from such demand.

Art. 1151. The time for the prescription of actionswhich have for their object the enforcement ofobligations to pay principal with interest or annuityruns from the last payment of the annuity or of theinterest. (1970a)

Note: The period of prescription in obligations withinterest runs only from the last payment of interest,is applicable only to cases where the principal debtis already due.

When principal obligation is not yet due, paymentof interest at stipulated intervals does not cause therunning of period of prescription, which willcommence only after the maturity of debt.

Art. 1152. The period for prescription of actions todemand the fulfillment of obligation declared by a

judgment commences from the time the judgmentbecame final. (1971)

Art. 1153. The period for prescription of actions todemand accounting runs from the day the personswho should render the same cease in theirfunctions.

The period for the action arising from the result ofthe accounting runs from the date when said resultwas recognized by agreement of the interestedparties. (1972)

Art. 1154. The period during which the obligee wasprevented by a fortuitous event from enforcing hisright is not reckoned against him. (n)

Art. 1155. The prescription of actions is interruptedwhen they are filed before the court, when there isa written extrajudicial demand by the creditors, andwhen there is any written acknowledgment of thedebt by the debtor.

Note: The extinctive prescription is interruptedwhen the creditor made a demand before the lapseof the period fixed by law. A verbal demand uponthe debtor is not sufficient to interrupt or renew theprescriptive period.

What is an obligation?

Obligation is a juridical necessity to give, to do, ornot to do (Art. 1156).

Is it correct to say that the definition is not

accurate, in the sense that there must beanother prestation which is not to give asidefrom to give, to do or not to do?

The definition is accurate. The obligation not to giveincludes not to do.

Is the definition defective because it onlypertains to the debtor side and it lacks thejuridical relation in its entirety?

The definition is not defective. The word obligationitself pertains to the debtor side, hence it is proper.The obligation pertains to the debtor and rightpertains to the creditor. A person who has a rightcan compel the other, but he cannot be compelledto perform his right. An obligation may not bewaived; but a right may be exercised or not. Rightsand obligations are different matters.

What is the determining factor that thedefinition under Art. 1156 is a civil obligation?

Because of the phrase “juridical necessity”

What are the essential elements of obligation?

1. Active subject2. Passive subject3. Juridical tie (vinculum juris)4. Prestation

Who are the subjects of an obligation?

1. Active subject (creditor)2. Passive subject (debtor)

In a contract of lease, who is the active subject;the passive subject?

Since it is considered a reciprocal obligation(bilateral contract), both the lessee and the lessormay be considered the passive or active subjects,depending on the aspects of delivery of theproperty or payment of rent.

In the delivery of the property to the lessor is thepassive subject and the lessee is the activesubject. The former is obliged to deliver theproperty subject of the lease to the lessee.

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In the case of payment, the lessee is the passivesubject, and the lessor is the active subject. Thelessee is obliged to pay the amount of rent to thelessor.

In a contract of sale, who is the active and thepassive subject?

In a contract of sale, since it is a reciprocalobligation (bilateral contract) both the seller and thebuyer may be considered the passive and theactive subject depending on whether it is forpayment of the amount of the thing sold, and on theobligation to deliver the thing subject of the sale.

What is the reason why a debtor considered apassive subject?

He is considered a passive subject because in theabsence of demand from the creditor the debtorcould just wait, and let the prescription run in favorof the debtor. If the creditor does not demand forthe performance of the obligation, there will be nocompulsion.

There must be proof of demand in writing.

Is there an instance in case of consignation aright may be exercised?

None. Consignation is a legal obligation. Anobligation and a right are two different concepts.

Should an obligation and a right co-exist?

Yes. If someone has an obligation somebody isgoing to have a right.

Is there an instance where a right and anobligation pertain to the same person?

Yes there are is an instance where an obligationand a right pertain to the same person, such thatthe person acquired such right as in the case of

confusion.

What is the object (prestation) of an obligation?

The object of an obligation is nothing but aparticular conduct of the debtor. The thing is not theobject of the obligation; it is his conduct necessaryto produce the effects of the obligation whether it isan obligation to give, to do or not to do.

It may involve a thing in an obligation to give.

What are the requisites of prestation or object?

1. It must be possible, physically and juridically

2. It must be determinate, or at least determinableaccording to pre-established elements or criteria;and

3. it must have a possible equivalent in money.

Note: The prestation need not actually be ofpecuniary value. The criterion to determine whether

an obligation has a pecuniary value is not limited tothe object or prestation thereof, but extends to thesanction which corresponds to the juridical duty.

Therefore, the creditor’s interest need not beeconomic or patrimonial; it may be sentimental,moral or ideal. But the object of prestation musthave an economic value or in case ofnonfulfillment, be susceptible of substitution inmoney or something of patrimonial value.

What is a juridical tie or vinculum juris?

It is the efficient cause, juridical tie, or legal tiewhich binds the parties established either by (anysource of an obligation):

a. lawb. bilateral actsc. unilateral acts (crimes or quasi-delicts)

What obligation has no juridical tie?

Moral obligations has no juridical tie because it isan act of pure liberality which springs from blood,

affection or benevolence. It is within the domain ofmorals.

What are the sources of obligations whichbinds the parties?

1. Law2. Contracts3. Quasi-Contracts4. Delicts5. Quasi Delicts (Art. 1157)

Unilateral Promises; a source of obligation

Generally a unilateral promise before acceptance isnot binding, except by a unilateral declaration of thewill with intent to be bound to a particular person.

Is the enumeration exclusive?

Yes. The enumeration is exclusive as provided inthe case of Sagrada Orden vs. Nacoco where theSC rationalized that (not in the express manner)

Give an instance where 2 or more sources ofobligation exist at the same time?

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the agreement is the law between them, and mustbe enforced.

E.g. The validity of restraints upon trade oremployment is to be determined by the intrinsicreasonableness of the restriction in each case,rather than by any fixed rule, and such restriction

may be upheld when not contrary to public welfareand not greater than is necessary to afford a fairand reasonable protection to the party in whosefavor it is imposed. The contract in question is notobnoxious to the rule of reasonableness. Whilesuch restraint, if imposed as a condition of theemployment of a day laborer, would at once berejected as merely arbitrary and whollyunnecessary to the protection of the employer, itdoes not seem so with respect to an employeewhose duties are such of necessity to give him aninsight into the general scope and details of hisemployer’s business. The contract in this case,considering the circumstances, is notunreasonable. It must therefore be enforced. Therule in this jurisdiction have the force of lawbetween the contracting parties.

Pre-Contractual Obligations; when binding; givesrise to liability

If the offer by one party is clear and definite,leading the offeree in good faith to incur expensesin the expectation of entering into the contract; andthe withdrawal of the offer is without any legitimate

cause.

3. Quasi Contracts

Kinds of Quasi Contracts

1. Solution Indebiti2. Negotorium Gestio3. Other Quasi Contracts

1. Negotiorum gestio (officious management)Art 2144 Whoever voluntarily takes charge of

the agency or management of the business orproperty of another, without any power from thelatter, is obliged to continue the same untilthe termination of the affair and its incidents, orto require the person concerned to substitutehim, if the owner is in a position to do so. This juridical relation DOES NOT arise in either ofthese instances:

1) When the property or businessis not neglected or abandoned

2) If in fact the manager has beentacitly authorized by the owner

2. Solutio indebiti (payment not due)Art 2154 If something is received when there isno right to demand it, and it was unduly

delivered through mistake, the obligation toreturn it arises.

3. Other quasi-contracts (support given bystrangers and other “Good Samaritans”)

Art

2164

When, without the knowledge of the person obliged to

give support, it is given by a stranger, the latter shallhave a right to claim the same from the former,

UNLESS it appears that he gave it out of piety and

without intention of being repaid.

Art

216

5

When funeral expenses are borne by a third person,

without the knowledge of those relatives who were

obliged to give support to the deceased, said relatives

shall reimburse the third person, should the latter claim

reimbursement.

Art

216

6

When the person obliged to support an orphan, or an

insane or other indigent person unjustly refuses to give

support to the latter, any third person may furnish

support to the needy individual, with right of

reimbursement from the person obliged to give

support. The provisions of this article apply when thefather or mother of a child under eighteen years of age

unjustly refuses to support him.

Art

216

7

When through an accident or other cause a person is

injured or becomes seriously ill, and he is treated or

helped while he is not in a condition to give consent to

a contract, he shall be liable to pay for the services of

the physician or other person aiding him, UNLESS the

service has been rendered out of pure generosity.

Art

216

8

When during a fire, flood, storm, or other calamity,

property is saved from destruction by another person

without the knowledge of the owner, the latter is boundto pay the former just compensation.

Art

216

9

When the government, upon the failure of any person

to comply with health or safety regulations concerning

property, undertakes to do the necessary work, even

over his objection, he shall be liable to pay the

expenses.

Art

217

0

When by accident or other fortuitous event, movables

separately pertaining to two or more persons are

commingled or confused, the rules on co-ownership

shall be applicable.

Art

217

1

The rights and obligations of the finder of lost personal

property shall be governed by Articles 719 and 720.

Art

217

2

The right of every possessor in good faith to

reimbursement for necessary and useful expenses is

governed by Article 546.

Art

217

3

When a third person, without the knowledge of the

debtor, pays the debt, the rights of the former are

governed by Articles 1236 (recover what has been

beneficial to debtor) and 1237 (cannot compel creditor

to subrogate payor in his rights).

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Basis of Quasi Contracts:

Art. 2142 Certain lawful, voluntary and unilateralacts give rise to the juridical relation of quasicontract to the end that no one shall be unjustly

enriched at the expense of another.

The enumeration of the provisions for quasicontracts, not exclusive:

Art. 2143 The provisions for quasi contracts in thisChapter do not exclude other quasi contracts whichmay come within the purview of the precedingarticle.

Note: Even if not so provided by law it may beconsidered as falling within the purview of quasi

contract when it is lawful, unilateral and voluntary,and the underlying principle is that no one shall beunjustly enriched at the expense of another.

Will there be any liability even if no one hasbeen unjustly enriched?

In case of negotorium gestio, the owner has theobligation to reimburse the gestor even if the latterhas not been unjustly enriched.

Therefore it would appear that the principles behindquasi contracts does not really fall under the

principle of unjust enrichment. The principle behindthis obligation is implied contracts, which is theconsent given by the obligor.

The owner left his house for a short vacation,the very night they lefts, their house wasburned, the neighbors saved some of theirappliances. Is there negotorium gestio in thiscase?

The appliances are not under the management ofthe gestor and that there must be abandonment

and neglect of the property.

This case therefore falls under other quasicontracts.

4. Acts or omissions punished by law (Delicts)

Under Art. 100 of the RPC provides that everyperson criminally liable is also civilly liable.This however is not absolutely true because thereare certain felonies where no civil liability will arise

even if convicted of a crime. This is because thereis no private offended party in some crimes.

Under Art. 104 of the RPC in addition to civilliability, restitution, reparation of damage caused,indemnification of consequential damages.

Note: It is not correct to say that every time aperson is held criminally liable under this source ofobligation all these kinds of liability (restitution,reparation of damage caused, and indemnificationof consequential damages) would arise.

Note: In justifying and exempting circumstancesthough a person is not held criminally liable doesnot necessarily mean that he is not civilly liable.

In justifying circumstances, generally there wouldbe no civil liability, except in paragraph 4 where itprovides that Any person who, in order to avoid anevil or injury, does not act which causes damage toanother, provided that the following requisites arepresent: First. That the evil sought to be avoidedactually exists; Second. That the injury feared begreater than that done to avoid it;

Third. That there be no other practical and lessharmful means of preventing it.

In exempting circumstances, generally there is civilliability except paragraph 4 where it provides that:Any person who, while performing a lawful act withdue care, causes an injury by mere accidentwithout fault or intention of causing it.

Note: If there is no criminal conviction, this sourceof obligation will not arise but may arise from othersource of obligation or quasi delict.

4. Culpa Aquiliana (Quasi Delict)

Is culpa extra contractual an appropriate namefor quasi delict? No.

In the case of Gangco vs. MRR (38 Phil 768)obligations can be classified either from contractualobligations and extra contractual obligations. As toobligations where the source is not a contract, itcan called extra contractual obligations.

Therefore culpa extra contractual meansnegligence outside of a contract.

Art

217

4

When in a small community a nationality of the

inhabitants of age decide upon a measure for

protection against lawlessness, fire, flood, storm or

other calamity, any one who objects to the plan and

refuses to contribute to the expenses but is benefited

by the project as executed shall be liable to pay his

share of said expenses.

Art

217

5

Any person who is constrained to pay the taxes of

another shall be entitled to reimbursement from the

latter.

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If there is negligence outside of a contract does itmean that it would fall under quasi delict? Notnecessarily because there are 4 other sources ofobligations outside of a contract like negligencearising from law, but the source would be the law.

In quasi contracts, under negotorium gestio, the

negligence of the gestor does not necessarily meanthat it would fall under quasi delict because it wouldfall under quasi contracts.

Note: The use of the word culpa extra-contractualnowadays are no longer used by the SupremeCourt. Commonly what is used is the word torts.

Is torts an appropriate term for quasi delict?

Torts as a name is not appropriate because it ismore encompassing as it would include acts whichcould not be the basis of an action under quasidelict.

Torts would include malicious act, intentional act,wrongful, acts punished by law. In these names, itcannot be the basis of an action for quasi delict. Anaction for quasi delict can only arise based on anegligent act or omission.

But the Supreme Court is of the view that maliciousacts, intentional acts, acts punished by law can bethe basis of an action for quasi delict. It is wellsupported by the history of the law and the present

provisions of the law.

Particularly Under Art. 2176 where it provides thatwhoever by act or omission causes damage toanother, there being fault or negligence, is obligedto pay for the damage done. Such fault ornegligence, if there is no pre-existing contractualrelation between the parties, is called quasi delictand is governed by the provisions of this chapter(chapter on quasi-delicts).

Under the old civil code, in order for one to be held

liable under quasi delict, the act must not bepunished by law. This phrase no longer appearunder the new civil code, therefore even if the act isnot punished by law it cannot be the basis of anaction for quasi delict.

Is Fault the same as negligence?

No. Because fault would cover intentional andunintentional acts.

Compliance with Obligations:

How should these sources of obligations becomplied with? The manner of complying withthis sources of obligations.

Art. 19. Every person must, in the exercise of his rights

and in the performance of his duties, act with justice, give

everyone his due, and observe honesty and good faith.

Art. 1163. Every person obliged to give something is also

obliged to take care of it with the proper diligence of a

good father of a family, unless the law or the stipulation

of the parties requires another standard of care. (1094a)Art. 1164. The creditor has a right to the fruits of the thing

from the time the obligation to deliver it arises. However,

he shall acquire no real right over it until the same has

been delivered to him. (1095)

Art. 1165. When what is to be delivered is a determinate

thing, the creditor, in addition to the right granted him by

Article 1170, may compel the debtor to make the delivery.

If the thing is indeterminate or generic, he may ask that

the obligation be complied with at the expense of the

debtor.

If the obligor delays, or has promised to deliver the same

thing to two or more persons who do not have the same

interest, he shall be responsible for any fortuitous event

until he has effected the delivery. (1096)

Art. 1166. The obligation to give a determinate thing

includes that of delivering all its accessions and

accessories, even though they may not have been

mentioned. (1097a)

Art. 1244. The debtor of a thing cannot compel the

creditor to receive a different one, although the latter may

be of the same value as, or more valuable than that

which is due.

In obligations to do or not to do, an act or forbearance

cannot be substituted by another act or forbearance

against the obligee's will. (1166a)

Art. 1246. When the obligation consists in the delivery of

an indeterminate or generic thing, whose quality and

circumstances have not been stated, the creditor cannot

demand a thing of superior quality. Neither can the

debtor deliver a thing of inferior quality. The purpose ofthe obligation and other circumstances shall be taken

into consideration. (1167a)

Art. 1460. A thing is determinate when it is particularly

designated or physical segregated from all other of the

same class.

The requisite that a thing be determinate is satisfied if at

the time the contract is entered into, the thing is capable

of being made determinate without the necessity of a

new or further agreement between the parties. (n)

Art. 442. Natural fruits are the spontaneous products of

the soil, and the young and other products of animals.

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Industrial fruits are those produced by lands of any kind

through cultivation or labor.

Civil fruits are the rents of buildings, the price of leases of

lands and other property and the amount of perpetual or

life annuities or other similar income. (355a)

Art. 443. He who receives the fruits has the obligation topay the expenses made by a third person in their

production, gathering, and preservation. (356)

If the sources of the obligations is the law, then theprovisions of the law would provide how this sourceof obligation can be complied with.

If it is a contract then the stipulation provide howthe contract shall be complied with.

If it is an obligation to give, what is the manner

of compliance?

It depends on what is to be given, whether it is adeterminate thing or an indeterminate thing.

Can there be a valid obligation to deliver ageneric thing?

Yes. This may arise from law and not from acontract of sale. Sale of a car or of a horse cannotbe considered a valid sale. But a testamentaryprovision in a will which is a generic thing is validdisposition. The law expressly allows this.

A testamentary provision giving an heir a car, isthe testamentary provision allow the heir toreject the disposition?

He may validly reject or wrongfully reject thedisposition. For obligations to deliver a genericthing, the debtor cannot deliver a thing which is ofinferior kind, but neither can the creditor demand athing which is of superior quality.

However, what is superior or inferior is a very

subjective determination. What may be superior tome may be inferior to most of you.

Therefore if the purpose of the testator is to give hiscar is to allow the grandson to use the car incompetitions, then a car insufficient to perform inrace tracks is improper. Moreover, aside from thepurpose is the value of the estate which should notimpair the legitime of the estate.

In obligations to give a determinate thing, whatis the manner of compliance?

The primary obligation of a debtor is to give thevery same thing which he promised to deliver.

In an obligation to deliver a Kia Pride, thedebtor offered to deliver a BMW, can theobligation be validly extinguished?

Yes, though the creditor cannot be compelled toaccept, he may however want to accept. Thus, theobligation will be extinguished.

Is there an exception where a debtor is obligedto deliver a thing requires a different kind ofdiligence in taking care of the thing other than agood father of a family?

Yes, if the law requires a higher degree of diligencesuch as what is required of common carriers. Otherthan the law, is the stipulation of the parties wouldrequire a higher degree of diligence. In the absenceof a law or a stipulation to that effect, the diligenceof a god father of a family should be observed.

Kinds of Obligations:

When would an obligation become due?

It depends on what kind of obligation is involved.

It is wrong to say that an obligation becomes dueupon demand. Since there can be no valid demandwhen the obligation is not yet due. Therefordemand has got nothing to with an obligationbecoming due.

What kind of obligations become due anddemandable at once?

1. In pure obligations2. In conditional obligations if the condition is

resolutory but will be extinguished at thehappening of the event.

3. In obligation with a term or period if resolutory incharacter but it will be extinguished at thehappening of the term.

Is there such a thing as suspensive obligation?

None. It only exists in suspensive term or condition.

Is there such a thing as void condition?

There is no such thing as void condition. Acondition is merely an event which may or may nothappen. There is nothing valid or void aboutconditions.

Void and Valid pertain to obligations.Suspensive, potestative, etc pertains to conditions.

A pure obligation whose performance does notdepend upon a future and uncertain event or

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upon a past event unknown to the parties. Isthis statement valid?

This is not valid. To be pure it must not beconditional and not with a term. In the abovestatement both the future and uncertain must bothconcur and this would only exclude a condition. A

term can never be uncertain. It is just a space oftime. An event is certain to happen. Therefore itshould be or. If “and” is used, it would only excludea condition with a condition and not those with aterm. If or is used it would exclude obligations witha conditions and also those with a term.

If in a promissory note, on its face it does not say orit cannot be determined whether it is conditional orpure obligation. But there is a provision in the notethat upon receipt from the estate there is noassurance that the creditor will receive in theestate, which presupposes a conditional obligation.Note however, the court treated it as a pureobligation because...... (Pay vs. Palanca)

What is the consequence of a pure obligation ora conditional obligation but resolutory incharacter?

It is demandable at once, and necessarily theprescriptive period starts to run from the time thecause of action accrues. It is wrong to say that acause of action accrues from the time the demandwas made. If such be the case no action shall

prescribe.

What are the kinds of conditions?

1. Suspensive2. Resolutory3. Potestative -4. Casual5. Mixed6. Possible7. Impossible8. Negative - requires the omission of an act.

9. Positive - requires the performance of an act.

What is the effect of an impossible condition?

If the obligation is with an impossible condition, itshall annul the obligation. The phraseology isdefective, instead of annulled it should have beenvoid. Annullable presupposes a valid obligationwhich is valid until annulled. This instance is animpossible condition with a suspensive condition.

May there be a valid obligation with animpossible condition?

Yes. If the condition though impossible is in thenegative, like i will give you 1 million if you don’t kill

my wife. Negative impossible conditions aredeemed not written, as such it is considered as apure obligation unless there are other words andphrases which would not make it a pure obligation.

What are the kinds of impossible conditions?

Legal impossibility and physical impossibility.

Is it proper to say unlawful conditions?

Yes. What is improper is void conditions.

In unlawful or impossible conditions intestamentary dispositions, what is the effect?

It does not result in a void testamentary disposition.Under the law in succession, such unlawful orimpossible condition is deemed not written.

The debtor promises to pay if his son does notdie of cancer within 1 year. State the status ofthe obligation whether it is valid or not, and ifvalid state whether the obligation is due anddemandable?

The condition is suspensive negativepossible(mixed)condition. This is a valid obligation.It is due and demandable depending on whathappened to the son.

If the son dies of cancer within 1 year, theobligation does not arise. But even if the son did

not die of cancer within 1 year the debtor can becompelled to pay, because in that moment it isalready certain that the son will not die of cancerwithin 1 year such as when the son died of a caraccident.

In a condition that B should marry C within 1year but after 2 weeks he entered the seminary?Is it certain that the condition is not longerpossible?

No. B may go out of the seminary before the 1 year

period lapsed.

However, if C married D is it possible that thecondition mentioned above is no longerpossible?

No. because D may die and B can marry C withinthe time mentioned in the condition.

What is a potestative conditon?

Under 1182, it is a condition that is dependent uponthe sole will of the debtor.

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When the condition depends upon the sole willof the debtor and it is a suspensive condition?Will such be valid?

It is void. This is because a debtor who can imposea condition upon his sole will, he will make surethat the suspensive condition will not happen so

that the obligation will not arise.

A promise to give B his car if A will go toBaguio within 5 days? Is it potestative?Yes, such is potestative that is dependent upon thesole will of the debtor. It is because whether or notA will go to Baguio solely depend upon his will.

Is passing the Bar exam a potestativecondition? Casual or dependent upon chance?

It is neither a potestative nor a casual condition.

The grandfather promises to give his grandsona car upon the latter’s passing the bar exam.The grandson passed the bar and demandedthe delivery of the car. But the grandfatherrefused to deliver the car and argued that hecannot be compelled to deliver the samebecause it is a potestative condition.

It is not a potestative condition but rather asuspensive condition. Therefore the grandfathercan be compelled to deliver.

Assuming for the sake of argument that suchcondition is a potestative condition, can thegrandfather be compelled to deliver becausethe condition is void?

The grandfather still cannot be compelled becauseunder 1182, it provides that a condition is made bythe sole will of the debtor. In this case it is not thegrandson who is the debtor but rather thegrandfather. It is not dependent upon the sole willof the grandfather. Hence not a potesativecondition. Therefore the obligation is a valid one.

A obliged herself in 2001 to sell to B a houseand lot upon his passing the bar exam. Bpassed the bar exam in 2005. However in 2003A sold the house and lot to C and this housefrom 2001 was being rented by D. B uponpassing the bar exam demanded upon A todeliver to him the house and lot pursuant to the2001 obligation made by A. Who has a betterright over this house and lot? B or C?

As a rule, it is B who has a better right becauseunder Art. 1187 the effect of the happening of thecondition retroacts to the time of the constitution ofthe obligation as if the condition already happenedas early as 2001.

However, as an exception, C may have a betterright if C can prove that he is a buyer in good faithand for value, he would have a better right. But itmust be noted that in order to be a purchaser ingood faith and for value, such should be registered.As such, C would not be bound by the agreement

made by A and B.

Assuming that B has a better right, Bdemanded all the proceeds of the rentals from2001 until 2005, is he entitled to the rentals?

Since, under Art. 1187 the effect of the happeningof the condition retroacts to the constitution of theobligation, would presuppose that B may beentitled to the proceeds of the rents as if he wasthe owner of the property from 2001.

However, it is submitted that B is not entitled to therentals because fruits received in reciprocalobligation (since this is a contract of sale) it isdeemed mutually compensated. B is obliged to paythe price and Ahas the obligation to transferownership. Under the law it is deemed mutuallycompensated because, A is entitled to interests onthe price while B is entitled to the rentals, under thelaw fruits received are deemed mutuallycompensated.

Is the view that the retroactive effect of Art.1187 does not cover fruits?

No. That is why there is a provision that inreciprocal obligations, the fruits received aredeemed mutually compensated. There is thereforea retroactive effect. In the above case, B is entitledto the fruits but due to the provision on mutualcompensation, he shall no longer receive the fruits.

In conditional obligations, if the condition issuspensive in character, the happening of thecondition shall give rise to the obligation.Ordinarily if the condition did not happen, the

obligation will not arise. When shall theobligation even if the condition did not happen,it shall give rise to the obligation?

When it was the debtor who voluntarily preventedthe happening of the condition.

However, is there an instance where the debtorwho voluntarily prevented the happening of thecondition in order to give rise to the obligation,still not be compelled to perform?

Yes, when though he prevented the happening ofthe condition, such prevention was made when hewas exercising his right.

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In obligation is an obligation with a suspensiveterm , the obligation arise because the term iscertain to arrive, it will only give rise to thedemandability of the obligation.

-

In suspensive condition, the creditor filed anaction, will the action prosper?

It may prosper for as long as it is not an action forspecific performance because the condition beingsuspensive, there is yet no obligation that arise.But, the creditor may file an action for thepreservation of his rights, like if the action is tocompel the other party to have the agreementregistered with the appropriate registry of property.

In suspensive conditions imposed on anobligation, what is the effect of anyimprovement or deterioration on the thing to bedelivered?

In improvements, if the cause of the improvementis through nature, such improvements shall pertainto the creditor.

If in improving the property the debtor spent a sumof money, the creditor is entitled to theimprovements. Under the law the creditor in this

case only has the rights of a usufructuary. Thedebtors rights is limited to the removal of theimprovement as long as it will not cause damage tothe thing to be delivered.

In obligations with a term or period, may bedefinite if there is a day certain. Indefiniteperiods will arrive, but dependent on certainevents which is certain to happen but thespecific date is not certain.

Another classifications of periods is the source

of the period on whether it is by conventional orvoluntary period (by agreement of the parties),fixed by law, or fixed by the court.

Is a 1 year period of redemption, a period inrelation to obligations?

No. It is a period in the exercise of a right, becausewho has a right is not compelled to redeem.

Give examples of period fixed by law?

1. Non payment of taxes2. In a lease contract, even when the parties did

not fix a period but it provides that the payment

of rents be paid annually, it is presumed that theperiod of rent is for 1 year.

Under Art. 1197 it was provided that if theobligation does not fix a period, but from itsnature and the circumstances it can be inferredthat a period was intended, the courts may fix

the duration thereof. What is the guidelineswherein the court in this instance may fix theperiod?

The court having power to fix the periodpresupposes that there is a perfected contract. Ifthere is no perfected contract, the court has nopower to fix the period.

What is the procedure for the court to fix aperiod?

To determine whether there is a period or no periodstated in the contract. If there is, the fixing of theperiod is not proper under Art. 1197.

Secondly, to determine whether the partiesintended that there be a period, if none, such aswhen the parties intended that it be a pureobligation, then the fixing of a period is not properunder Art. 1197.

Thirdly, even if there is a period intended by theparties, the court must also determine whethersuch period had already prescribed or not. Suchthat an action for specific performance on an

obligation which does not yet arise, the actioncannot prosper because the action is premature. Orif a period had already lapsed and the obligationinvolves an obligation to do, an action for specificperformance can no longer prosper, but the actionfor damages shall prosper.

In a contract between the parties it wasprovided, that debtor must remit the proceedsupon the sale of the tobacco. Is a periodcontemplated by the parties?

The argument by the debtor that the estafa case ispremature because the remedy of the creditor if togo to court for the latter to fix the period is notproper because the agreement by the parties isone with a period.

The argument by the debtor that there was noperiod fixed by the parties, which would render theprovisions of Art. 1197 not to apply, will not prosper.The provisions of the agreement clearly providesfor a period which is upon the sale of the tobacco.Therefore, upon the sale the debtor can becompelled to remit. There is no need for the courtto fix the period (Lim vs. People).

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Under Art. 1180 which provides that when thedebtor binds himself to pay when his meanspermit him to do so, the obligation shall bedeemed to be one with a period subject to theprovisions of Art. 1197, and as such the courtshall fix the period. In this case, when will theobligation become due, so that an action for the

court to fix the period may prosper?

The creditor should only go to the court if he knewthat the debtor already has the means to pay. If thedebtor already has the means to pay, go to court tofix the period and upon the lapse of the period, theobligation become due and demandable.

When the period is solely dependent upon thewill of the debtor, such is also a judicial period.

Under Art. 1191 The power to rescind obligations is

implied 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

the 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.

The court shall decree the rescission claimed, unless

there be just cause authorizing the fixing the period.

This is understood to be without prejudice to the rights of

third persons who have acquired the thing, in

accordance, with Articles 1385 and 1388 and theMortgage Law.

Can the debtor be compelled to perform theobligation before the arrival of the period, orcan the creditor be compelled to accept theobligation even before the arrival of the period?

In the second scenario the creditor cannot becompelled to accept the obligation even before thearrival of the period because the creditor may notwant to accept because he had not place to storethe goods which is the subject of the obligation.

Is a period for the benefit of both the creditorand the debtor?

No. It is merely a disputable presumption that theperiod is both for the benefit of the creditor and thedebtor.

If the phrase provided for in the obligation ispayable on or before December 31, and noother factor has been provided for, is it both forthe benefit of the creditor and the debtor?

No such phrase is clearly for the benefit of thedebtor. This is because the debtor cannot be

compelled to perform the obligation before thearrival of the period.

On the other hand, however, the debtor can compelthe creditor to accept the performance of theobligation even before the expiration of the period.Is there contracts solely for the benefit solely of

the creditor?

Yes, when there are stipulations that the debtorcannot pay within 3 months or 2 years. This couldbe said to be for the benefit of the creditor becauseof a scenario where the creditor has the right to thefruits of the thing subject of the obligation. This isprobably because the creditor would want toharvest first before the returns the thing.

However, the creditor may return it at any timebecause the provision is solely for the benefit of thecreditor.

A borrowed money from B in January payableat the end of the year. To secure the fulfillmentof the obligation A delivered his car to B and itwas stipulated that B can use the car. After afew months, come August of the same year, thedebtor offered to pay the entire amount to thecreditor and also demanded for the return ofhis car. Can the creditor be compelled to acceptthe payment? Can he be compelled to returnthe car?

While the debtor cannot be compelled to paybefore the arrival of the period, the creditor cannotalso be compelled to accept the performance of theobligation because of the principle that a period isboth for the benefit of both the debtor and thecreditor.

Base on the facts the above principle findsapplication in the present case because the debtorcannot be compelled pay before the arrival of theperiod which is the end of the year. However, thecreditor has an interest in the period because it was

stipulated that he can use the car before the arrivalof the period. Therefore under the facts, the periodis both for the benefit of the debtor and the creditor.

Even assuming that the period is solely for thebenefit of the debtor, before the arrival of theterm, is it possible that the creditor validlydemand for the performance of the obligation?

Yes. That can happen if the debtor lost his right tomake use of the period. Under Art. 1198, a debtormay lose his right to make use of the period.

Art. 1198. The debtor shall lose every right to make use

of the period:

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(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 or securities which he has promised;

(3) When by his own acts he has impaired said

guaranties or securities after 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.

A borrowed a sum of money from B. To securethe fulfillment of his obligation he mortgagedhis house and lot. Before the arrival of theperiod (before the obligation became due), thehouse was burned due to a fortuitous event.The day after the creditor demanded thepayment of the debt.

Was there a valid demand?

Yes.

Can the debtor be compelled to pay?

He lost his right to make use of the period even ifthe lost was due to a fortuitous event, unless of

course he gives another security for the debt.

Why would the debtor lost his right to make useof the period when the lost was due to afortuitous event and the same is not imputableto the fault of the debtor?

This is because the creditor would not have left himmoney if not for the security.

In number of Art. 1198, how can the debtor giveanother security if the debtor is already

insolvent?

If the debtor still has other properties even if he isstill insolvent. Or he may not have any properties,but he can provide for a guarantor or a secure amortgage to secure the fulfillment of the obligation.

Kinds of obligations as to multiple prestations:

In multiple prestations where one of theprestation is impossible to perform even if theother prestation still are possible to perform,may the obligation be considered to have beenextinguished?

It depends on the kind of obligation involved. It maybe a conjunctive obligation, alternative obligation,facultative obligation.

In conjunctive obligations, the impossibility ofperformance of one will not result in theextinguishment of the obligation because there is

another or two or more other obligations to beperformed.

In facultative obligations, it depends on whetherthere is already substitution at the time of theimpossibility of the performance of one of theprestation. If before substitution the impossibility ofone of the obligation becomes impossible toperform due to a fortuitous event, the obligation isextinguished. But if one of the obligation becomeimpossible to perform due to the fault of the debtor,the obligation is not extinguished (debatable on thesecond scenario).

If in facultative obligation what was lost or becameimpossible to perform was the substitute prestationand there was no substitution yet at the time of theloss, the obligation is not extinguished because thedue prestation was the principal prestation.

Conjunctive- and; alternative-or; facultative-debtorhas the right to make a substitution or to performinstead a substitute prestation.

In alternative obligations, if there was already a

communication of a choice. By then the obligationis converted into a simple obligation and the onechosen was the one impossible to performespecially if it is due to a fortuitous event. As such,the obligation is extinguished. If there was alreadya communication of a choice but what becomeimpossible was the other prestation which was notchosen, the obligation is not extinguished.

B’s car was lost due to the fault of the debtor,what are the remedies of the creditor?

It depends on who has the right to choose. If itshows that the choice is not expressly granted tothe creditor, the right of choice pertains to thedebtor. Under the law it was provided that thechoice is with the debtor, unless otherwiseexpressly granted to the creditor.

If the choice is with the debtor, even if it was due tohis fault, he has other prestations to choose fromwithout being held liable for damages. Anyway,there is yet no due prestation because the debtorhas not yet able to make a choice.

If however in alternative obligations, the firsttwo prestations become impossible to performdue to the fault of the debtor, and the remaining

17



prestation becomes impossible to perform dueto a fortuitous event. Can the debtor be heldliable for damages?

The debtor can be held liable if this is the choice ofthe creditor. However, if the choice is with thedebtor, he cannot be held liable for damages even

if the loss of the last remaining prestation was dueto a fortuitous event. This is because the debtordiminished the possibility of the performance of theobligation and secondly he was at fault therefore hecan be held liable for damages under Art. 1170.However, the provisions in Art. 1170 presupposes asimple obligation, and thus not applicable in thepresent case to make the debtor liable. Secondly,even if the obligation has diminished theperformance of the obligation imputable to thedebtor, he cannot be held liable because it can beconsidered as his choosing to make the first twoprestations impossible to perform, and the lastprestation be considered as his choice. The lastthough lost due to fortuitous event, cannot makethe debtor liable.

Art. 1170. Those who in the performance of theirobligations are guilty of fraud, negligence, or delay,and those who in any manner contravene the tenorthereof, are liable for damages. (1101)

The horse died due to the fault of the debtor,this time the creditor has the right to choose.What are the rights of the creditor?

He can choose from one of the remainingprestations or choose the prestatation which waslost due to the fault of the debtor.

If the creditor choose to demand for the value ofthe obligation which was lost due to the fault of thedebtor, the debtor can be held liable for damages.

If the creditor chose to compel performancethrough the remaining prestations, the debtorcannot be held liable for damages.

The horse was lost due to the fault of thedebtor, then after the second prestation wasalso lost due to the fault of the debtor, andthirdly a book was lost due to the fault of thedebtor. What is the extent of the liability of thedebtor under the foregoing circumstances?Can the creditor choose for the value for any ofthe three prestations?

It depends on who has the right to choose. If thecreditor has the right of choice, he can choose on

the value of any of the three prestations.

But if the choice is with the debtor, the liability willbe based on the value of the prestation which waslost last due to his fault.

Qualification in Alternative Obligation: If one ofthe prestations become impossible to performdue to the fault of the debtor, and the choice is

with the creditor:

The creditor can either demand for the value ofthe prestation with damages or he can demandfor the performance of one of the remainingprestations without damages.

Second view: If the creditor can demand for theperformance of one of the remainingprestations, the creditor may opt to demand forthe value of the thing which was lost due to thefault of the debtor. In this instance underalternative obligations, it is possible that thedebtor is not the owner of the horse. Inalternative obligations the debtor is not surewhether he can deliver the horse or not. if thehorse was owned by the creditor, as such hecan seek damages. If the thing lost was ownedby the debtor as a valid premise, the debtorcannot be held liable for damages. In alternativeobligations it must be remembered that theprestation may either be owned by the debtoror not.

Facultative obligations

In facultative obligations it is improper to say thatthere is only one prestation. For how could it beconsidered to fall in obligations with multipleprestations if there is only one prestation involved.Rather it is better to say that there is only oneprestation due in a facultative obligation. At anygiven point in time there can only be one prestationdue unlike the other prestations.

When will the obligation in facultativeobligation become due?

If there is already a communication of thesubstitution.

If the principal prestation before substitutionbecame impossible to perform due to the faultof the debtor , can the creditor demand toperform the substitute prestation?

No. This is because in facultative obligation, thechoice is always with the debtor.

The remedy of the creditor is to demand fordamages.

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If before substitution became impossible toperform due to the fault of the debtor, can thedebtor be held liable for damages by thecreditor?

The debtor cannot be held liable for damagesbecause that was not the due prestation. The

debtor will bear the lost, but he cannot be heldliable for damages.

--

When can the debtor make the substitution?

The debtor can make the substitution at any time.

Can the debtor make the substitution if thedebtor is already in delay?

No. Why should the law allow the debtor to makesubstitution is he is already in delay. If he is alreadyin delay he can already be liable for damages.There is no sense to give him a right if he is alreadyliable for damages.

If the obligation is already impossible, can thedebtor make a substitution?

No. For how can the debtor make a substitution ifthe obligation is already impossible, unless it was

really the agreement or the intention of the parties.Otherwise, it is considered simply as an obligationwith a penal clause. Upon non compliance with theobligation, the debtor can be compelled to performthe other prestation or the accessory undertaking.

Is the substitute prestation had already beenagreed upon by the parties?

Yes. There can never be a valid facultativeobligation when the substitute prestation has notbeen agreed upon. Otherwise if the debtor has the

right to make a substitution without the substituteprestation having been agreed upon, it may beprejudicial to the creditor because such will give theright to the debtor to deliver an inferior prestation.

JOINT AND SOLIDARY OBLIGATIONS

A filed an action against B for the recovery of asum of money. Would it matter if it is a joint orsolidary obligation?

Yes. There will be an issue because A may file anaction against A as a joint debtor or a solidarydebtor. There is a difference on an action filedagainst one defendant or an action filed against adebtor. A defendant may either be a joint debtor or

a solidary debtor. The creditor need not sueeveryone.

Assuming there is an issue whether theobligation is a joint or a solidary obligation,who would claim that it is a joint obligation?

It would be B who would claim that the obligation is joint. The plaintiff A on the other hand whodemanded payment from only one of the debtorswould definitely claim that the obligation is asolidary obligation.

What would be an indication in a case whichwill warn the examinee on whether theobligation is joint or solidary?

The extent of the liability is the determining factorthat the obligation is joint or solidary. The questionis whether one of the debtors can be compelled theentire amount.A and B sold 1000 sacks of rice to X and Y. Xdemanded delivery of 1000 sacks of rice from Aand B. A and B delivered the 1000 sacks of riceto X. Y did not receive anything out of the 1000sacks of rice. Can Y still compel A and B todeliver a portion of the 1000 sacks of rice. If hecan, how many can Y demand?

It is a joint obligation unless from the stipulation ofthe parties or in the nature, or the law it showssolidarity. Under the facts, when A and B delivered

the 1000 sacks to X it did not actually extinguishedthe obligation to Y because he did not receiveanything from the 1000 sacks of rice, therefore itdid not extinguish the obligation.

What obligations are considered solidary?

Art. 927. If two or more heirs take possession of theestate, they shall be solidarily liable for the loss ordestruction of a thing devised or bequeathed, eventhough only one of them should have beennegligent. (n)

Art. 1824. All partners are liable solidarily with thepartnership for everything chargeable to thepartnership under Articles 1822 and 1823. (n)

Art. 1822. Where, by any wrongful act or omission of any

partner acting in the ordinary course of the business of

the partnership or with the authority of co-partners, loss

or injury is caused to any person, not being a partner in

the partnership, or any penalty is incurred, the

partnership is liable therefor to the same extent as the

partner so acting or omitting to act. (n)

Art. 1823. The partnership is bound to make good theloss:

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1) Where one partner acting within the scope of his

apparent authority receives money or property of a third

person and misapplies it; and

(2) Where the partnership in the course of its business

receives money or property of a third person and the

money or property so received is misapplied by any

partner while it is in the custody of the partnership. (n)

Art. 1911. Even when the agent has exceeded hisauthority, the principal is solidarily liable with theagent if the former allowed the latter to act asthough he had full powers. (n)

Art. 1915. If two or more persons have appointedan agent for a common transaction or undertaking,they shall be solidarily liable to the agent for all theconsequences of the agency. (1731)

Art. 1945. When there are two or more bailees to

whom a thing is loaned in the same contract, theyare liable solidarily. (1748a)

Art. 2157. The responsibility of two or more payees,when there has been payment of what is not due, issolidary. (n)

Art. 2194. The responsibility of two or morepersons who are liable for quasi-delict is solidary.(n)

Art. 2146. If the officious manager delegates toanother person all or some of his duties, he shallbe liable for the acts of the delegate, withoutprejudice to the direct obligation of the latter towardthe owner of the business.

The responsibility of two or more officiousmanagers shal l be sol idary, unless themanagement was assumed to save the thing orbusiness from imminent danger. (1890a)

Art. 94. (FC) The absolute community of propertyshall be liable for:

(1) The support of the spouses, their commonchildren, and legitimate children of eitherspouse; however, the support of illegitimatechildren shall be governed by the provisions ofthis Code on Support;

(2) All debts and obligations contracted during themarriage by the designated administrator- spouse for the benefit of the community, or byboth spouses, or by one spouse with theconsent of the other;

(3)

(3) Debts and obligations contracted by eitherspouse without the consent of the other to theextent that the family may have been benefited;

(4) All taxes, liens, charges and expenses,including major or minor repairs, upon thecommunity property;

(5) All taxes and expenses for mere preservationmade during marriage upon the separateproperty of either spouse used by the family;

(6) Expenses to enable either spouse tocommence or complete a professional orvocational course, or other activity for self- improvement;

(7) Ante-nuptial debts of either spouse insofar asthey have redounded to the benefit of thefamily;

(8) The value of what is donated or promised byboth spouses in favor of their commonlegitimate children for the exclusive purpose ofcommencing or completing a professional orvocational course or other activity for self- improvement;

(9) Ante-nuptial debts of either spouse other thanthose falling under paragraph (7) of this Article,the support of illegitimate children of eitherspouse, and liabilities incurred by eitherspouse by reason of a crime or a quasi-delict,in case of absence or insufficiency of theexclusive property of the debtor-spouse, thepayment of which shall be considered asadvances to be deducted from the share of the

debtor-spouse upon liquidation of thecommunity; and

(10)Expenses of litigation between the spousesunless the suit is found to be groundless.

If the community property is insufficient to cover theforegoing liabilities, except those falling underparagraph (9), the spouses shall be solidarily liablefor the unpaid balance with their separateproperties.

Art. 121. (FC) The conjugal partnership shall beliable for:

(1) The support of the spouse, their commonchildren, and the legitimate children of eitherspouse; however, the support of illegitimatechildren shall be governed by the provisions ofthis Code on Support;

(2) All debts and obligations contracted during themarriage by the designated administrator- spouse for the benefit of the conjugalpartnership of gains, or by both spouses or byone of them with the consent of the other;

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(3) Debts and obligations contracted by eitherspouse without the consent of the other to theextent that the family may have benefited;

(4) All taxes, liens, charges, and expenses,including major or minor repairs upon theconjugal partnership property;

(5) All taxes and expenses for mere preservationmade during the marriage upon the separateproperty of either spouse;

(6) Expenses to enable either spouse tocommence or complete a professional,vocational, or other act ivi ty for self- improvement;

(7) Ante-nuptial debts of either spouse insofar asthey have redounded to the benefit of thefamily;

(8) The value of what is donated or promised byboth spouses in favor of their commonlegitimate children for the exclusive purpose ofcommencing or completing a professional orvocational course or other activity for self- improvement; and

(9) Expenses of litigation between the spousesunless the suit is found to groundless.

If the conjugal partnership is insufficient to cover

the foregoing liabilities, the spouses shall besolidarily liable for the unpaid balance with theirseparate properties.

Give an example of an obligation which issolidary by nature?

The liability of those who figured in vehicularmishaps where a person is a passenger of one atthe time of the mishap, such passenger hold theowner of the vehicle under breach of contracttogether with the driver under the contract. The

owner of the vehicle as well as the driver may beheld liable under quasi delict. There is no basisunder the law which would make them solidarilyliable the case being based on different causes ofaction. There is no law which provides for solidarity,but by the nature of the obligation they are heldsolidarily liable.

For contractual obligations, may the partnersbe held solidarily liable?

No. because as a rule joint without prejudice thatthe partners binding themselves solidarily.

May an insurance company of a vehicle be heldsolidarily liable with the owner of the vehicle ,the driver, and the employer of the driver?

No. It is only the owner of the vehicle (Sio Choy)and the the employer of the driver (San Leon RiceMill) should be held solidarily liable and not the

insurance company.

The basis of the liability of the owner of the vehicleis Art. 2184 which provides that in motor vehiclemishaps, the owner is solidarily liable with hisdriver, if the former, who was in the vehicle, couldhave, by the use of due diligence, prevented themisfortune it is disputably presumed that a driverwas negligent, if he had been found guilty ofreckless driving or violating traffic regulations atleast twice within the next preceding two months.Since the owner was not in the vehicle Art. 2184 isnot applicable. If the owner was not in the motorvehicle, the provisions of article 2180 may beapplicable.

Secondly the basis of the liability of the employer isin Art. 2180 which provides: The obligationimposed by article 2176 is demandable not only forone's own acts or omissions, but also for those ofpersons for whom one is responsible.

xxx xxx xxx

Employers shall be liable for the damages causedby their employees and household helpers actingwithin the scope of their assigned tasks, eventhough the former are not engaged ill any businessor industry. But the owner of the vehicle is not theemployer so Art. 2180 is likewise not applicable.

xxx xxx xxx

The responsibility treated in this article shall ceasewhen the persons herein mentioned proved thatthey observed all the diligence of a good father of a

family to prevent damage.

Under the foregoing, the employer and the ownerof the vehicle are solidarily liable as jointtortfeasors. Under the law: The responsibility of twoor more persons who are liable for a quasi-delict issolidarily.

The basis of the liability of the insurer is theinsurance contract while the employer and theowner is torts which could not make the insurer besolidarily liable (Malayan Insurance vs. CA)

For contractual obligations may the partners ina partnership be hold solidarily liable?

21



No. As a rule joint unless of course if the partnersbind themselves solidarily and under certainspecific scenarios or exceptional circumstancesunder the civil code which make them solidarilyliable. (See provisions above)

Note: In these scenarios the examinee must be

able to determine under what spec ificcircumstances that the debtor may be heldsolidarily liable.

Other word or phrase for solidary?

Joint and collective, joint and several, jointly andindividually.

Ronquillo vs. CA

Clearly then, by the express term of the

compromise agreement and the decision basedupon it, the defendants obligated themselves to paytheir obligation "individually and jointly".

The term "individually" has the same meaning as"collectively", "separately", "distinctively",respectively or "severally". An agreement to be"individually liable" undoubtedly creates a severalobligation, 14 and a "several obligation is one bywhich one individual binds himself to perform thewhole obligation. 15

In the case of Parot vs. Gemora 16 We thereinruled that "the phrase juntos or separadamente orin the promissory note is an express statementmaking each of the persons who signed itindividually liable for the payment of the fun amountof the obligation contained therein." Likewise in UnPak Leung vs. Negorra 17 We held that "in theabsence of a finding of facts that the defendantsmade themselves individually liable for the debtincurred they are each liable only for one-half ofsaid amount

The obligation in the case at bar being describedas "individually and jointly", the same is thereforeenforceable against one of the numerous obligors.

A and B, debtors X and Y creditors. X filed anaction against A, the action was dismissed,thereafter X filed an action against B, may theaction be dismissed?

It would depend on what kind of obligation isinvolved, whether it is joint or solidary.

If the obligation is solidary, there is more reasonthat the action against B should likewise bedismissed since it joint obligation is solidary.

However, even if A and B are solidarily liable andthe action against A is dismissed, a subsequentaction against B may prosper if the defenses ispurely personal to A, like when A is a minor.Therefore it would depend on the defense raisedwhich is the basis of the dismissal.

If the obligation is joint, the dismissal of the firstcase shall not affect the action against the otherdebtor, because their obligations are separate anddistinct from each other.

What kind of defense is minority? Is it adefense? If it is a defense, Is it partial or totaldefense?

It depends, if it is a joint or solidary obligation.

If the obligation is joint, it is a defense as to the

minor but not as to B. Their obligation is separateand distinct from each other.

The same is likewise a defense in solidaryobligation. It is a total if it is the minor is raising thedefense. If the one claiming the defense is a co-debtor, it is only partial as to the share of the minor.

Is there a total defense in any kind of obligationwhether joint or solidary and can be invoked byany of the debtors?

If the obligation is void it it a total defense.

A and B are solidary debtors, A paid thecreditors 1 million last year, today A demandedmoney from B, how much can A recover fromB? Can A recover interest?

A may recover 50% of the debt paid. A may recoverinterest from the date the obligation became dueand not on the date when he paid the obligationbefore it was due.

A obliged himself to pay X or Y, X demandedpayment from A, thereafter Y demandedpayment from A, A paid Y. May X able to hold Aliable?

It depends on the intention of the parties who hasthe right to choose.

X may still able to hold A liable despite the fact thatX has already paid Y if it is under an agreementbetween X and Y that X had the right to choose.Then the payment by A to Y is a payment to awrong party.

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Besides the legal interest is 6%, the interest is onlycharged at 4% which means it is lower. How can alower interest be a penal clause. Penalty shouldcharge a bigger amount, which is the purpose of apenalty.

Assuming that a penal clause is contained in a

contract, in case of violation may the debtor bestill liable for damages in addition to the penalclause?

As a general rule, the penal clause is consideredas a substitute to the damages that may besuffered, however, when the debtor failed to complywith the provisions of the penal clause he may stillbe liable aside from the penalty.

Another ground is if there was fraud and if there isstipulation.

If the penal clause agreed upon is 100,000 butthe damages sustained is 200.000, evenassuming there was fraud, how much shall thecreditor be entitled?

The creditor shall be entitled to 100,000 plus actualdamage of 200,000 as decided by the SupremeCourt.

May the court reduce the amount of the penaltyagreed upon in the penal clause?

The court may reduce the penalty if there wasalready a compliance of the obligation.

In an obligation with a penal clause, can thedebtor compel the creditor to accept thepenalty instead the debtor performing theobligation?

As a rule the debtor cannot compel the creditor toaccept the penalty instead of performing theobligation, the creditor can compel the debtor to

perform the obligation.

As an exception, the debtor can compel thecreditor where this right has been expresslyreserved for him as provided in art. 1227 of the civilcode.

Can the creditor both demand for theperformance of the obligation and the paymentof the penalty agreed upon?

Generally the creditor cannot demand both theperformance and at the same time compel todemand for the penalty, except: if such right isclearly granted to him. This may not be expressly

granted or stipulated because it may be inferred bythe acts of the parties.

If the obligation is void and there is a penalclause, may a party be held liable under thepenal clause?

Ordinarily no, because a penal clause is anaccessory undertaking. If the obligation is void anyaccessory undertaking is likewise void. As anexception if the nullity of the obligation would giverise to the enforcement of the penal clause, thenparty thereto can be held liable under the penalclause.

For instance, if one of the parties is a filipino, if thatcontract will be governed by Philippine law, thealien has every right to rely on the Philippine lawas to the validity of the contract. Therefore if this

contract is declared null and void, the Filipino shallbe liable for indemnity. Such will be a valid penalclause.

Breach of Obligations: Specific circumstancesaffecting obligations

If there is an obligation, one of the parties may beheld liable or even a third person may be held liablefor damages incurred by one of the parties or athird person.

Under 1170 those who in the performance of theobligation are guilty of fraud, negligence or delaycan be held liable for damages.

Note that even if there is no negligence, fraud ordelay those who in any manner contravene thetenor of the obligation shall also be liable fordamages.

Generally, non performance or contravention of thetenor can be the basis of liability.

If both parties have faithfully complied with theirrespective obligations, no one may be held liable.

The law says “those who in the performance”because it is not only the debtor who may be heldliable for damages. Creditors likewise may be heldliable like if they commit fraud or in delay may beheld liable for damages.

Fraud

Fraud here means fraud in the performance of theobligation. Under Art. 1170 and Art. 1171, there isan existing obligation.

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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. (1101)

Art. 1171. Responsibility arising from fraud is

demandable in all obligations. Any waiver of an

action for future fraud is void. (1102a)

Unlike the other kind of fraud which are in the lawon contracts, there is fraud in obtaining consent. Aperson may enter into a contract because of thefraud employed upon him Without such fraud hewould not have entered into such contract. This iscalled causal fraud or dolo causante.

However there is another kind of fraud in obtainingconsent which are not causal in character. It ismerely incidental, and this would be under Art.1344. However, this will not affect the validity of a

contract, unlike causal fraud which will make thecontract voidable. In incidental fraud will only makea person liable for damages in employing suchfraud.

Art. 1344. In order that fraud may make a

contract voidable, it should be serious and should not

have been employed by both contracting parties.

Incidental fraud only obliges the person

employing it to pay damages.

However, in Art. 1170, the performance of anobligation can be the basis of liability for damages.

Art. 1170 should be called malice or bad faith. Theterm “Dolo” cannot be used under Art. 1170because dolo really is deceit as used in Art. 1388known as dolo causante, and while fraud in Art1344 above is known as dolo incidente.

Art. 1388. Whoever acquires in bad faith the

things alienated in fraud of creditors, shall indemnify

the latter for damages suffered by them on account of

the alienation, whenever, due to any cause, it should be

impossible for him to return them.

If there are two or more alienations, the first

acqu i re r sha l l be l i ab le fi r s t , and so on

successively.

If fraud was committed which can be the basis ofliability, the other party can actually waive his rightto go after the party committing the fraud. This canbe done through a waiver. However if the waiver isexecuted before the fraudulent act was committed(waiver of future fraud) the waiver is void. As such,the other party can hold the person employing

fraud liable for damages. Therefore, one thing thatshould be considered in problems involving waivers

is, when was the waiver executed in relation to thefraudulent act.

Negligence

Negligence, otherwise known as quasi delict is faultunder Art. 2176 which provides:

Art. 2176. Whoever by act or omission causes damage to

another, there being fault or negligence, is obliged to pay

for the damage done. Such fault or negligence, if there is

no pre-existing contractual relation between the parties,

is called a quasi-delict and is governed by the provisions

of this Chapter.

Is negligence synonymous to fault?

No. Negligence is just an omission of the diligencerequired whereas fault may actually be intentionalin character.

One word which would cover both fault andnegligence is Culpa.

How do u know that an act is negligent or not?

Under Art. 1173, this is the best definition ofnegligence which could be the basis ondetermining whether an act is a negligent act ornot.

Art. 1173. The fault or negligence of the obligor

consists in the omission of that diligence whichis required by the nature of the obligation and

corresponds with the circumstances of the

persons, of the time and of the place. When negligence

shows bad faith, the provisions of Articles 1171 and

2201, paragraph 2, shall apply.

If the law or contract does not state the

di l igence which is to be observed in the

performance, that which is expected of a good

father of a family shall be required.

Here the the law defines negligence which is the

omission of the diligence required by the nature ofthe obligation. Say if a person slept only for twoseconds, it would depend on his job on whether tomake him negligent or not. If he was a driver, if heslept for two seconds, then is negligence, hisomission would cause the death of so manypeople.

The most important thing to determine whether aperson is negligent or not is to consider the natureof the obligation. After considering the nature of theobligation, other things which must be considered

is the time, the person and the place.

In the case of Gangco vs. MRR, the Supreme courtruled that the act of alighting from the train was not

25



a negligent act because of the circumstancessurrounding the event. Primarily it was because ofthe circumstances surrounding the person ofCangco because the Supreme Court discussed thecircumstance that he was at his prime. he wouldride the train everyday, and the train was about tostop when he was about to alight from the train. It is

an important factor in determining negligence,because if is about to alight when the train was stillrunning at 180 km/hr and he alighted from suchtrain, obviously that would be considered anegligent act.

However, in the case of Telefast vs. Castro, therespondent Sophia Castro asked telefast to send afax message in the United States to tell herrelatives that her mother already died, telefast wasnot able to send the message, allegedly because ofatmospheric pressure. When the relatives knew of

what happened, the deceased was already buriedso they filed an action against Telefast. Telefastwas willing to return the money that was paid bySophia but moral damages was awarded by thecourt. Telefast questioned the validity of the awardfor moral damages because they said that incontracts, the award for moral damages can onlybe awarded if there was bad faith or there waswanton disregard of the obligation of a party in thecontract. But when they failed to send the messagedue to atmospheric pressure, apparently there wasno bad faith. However, the Supreme Courtnonetheless held Telefast liable for damages

because they failed to inform Sophia if the fact thatthey failed to send the message.

As such, the Supreme Court considered the act ofTelefast as a grossly negligent act, and jurisprudence will tell you that Gross negligenceamounts to fraud. Therefore it appears to be badfaith, which can be the basis of liability for moraldamages.

Therefore, there is a need to determine whether theact is simple negligence or a gross negligence.

Note: Negligence under this topic is a negligence inthe performance of an obligation and not thenegligence as a separate source of obligation. Ifthe negligent act is an act punished by law, such asthose under the Revised Penal Code, that would becriminal negligence which can be the basis ofliability under delict. However, the same negligentact under delict can be the basis of liability underquasi delict.

Delay

Delay is almost synonymous this time to default, ormora. Mora Accipiendi which is default on the part

of the creditor. Mora Solvendi or default on the partof the debtor.

If a party to an obligation was able to complywith his obligation, nonetheless may he beconsidered in delay?

Yes. This is default or delay with respect to time.

Can there be a delay in obligations not to do?

No, because as long as one is not doing what he isnot supposed to do, he is actually fulfilling hisobligation.

For delay to set in the law requires demand, and fordemand to be a valid one the obligation mustalready be due. Demand here is not necessary forthe obligation to be due, rather demand here is

necessary in order to hold the other part liablebecause he is already in delay.

The demand here need not be in writing, it neednot be in any particular form. A demand letter neednot be notarized, a private document would suffice.

Note however, that in order for delay to set in thelaw requires demand, such is only a general rule. Aperson may still be held liable even if there is nodemand, like:

a. By Stipulation

b. By law such as in the law on partnership, whereit provide that when a partner fails to make hiscontribution on the date agreed upon, evenwithout need of demand from the non defaultingpartners, he is deemed by law to be in delay. Hewill be held liable for interests but also fordamages.

Under the below quoted provision particularlythe last paragraph of 1169 is one goodprovision on an obligation with reciprocalobligation such as that of sale. If a party to thatcontract had already complied with hisobligation and the other has not, under the lawhe shall already be considered in delay, even ifno demand was made. However, Art. 1169 asinterpreted by the Supreme Court should beread or interpreted to mean that there was noagreement as to the when the other party is toperform his obligation. In other words, thisprovision is subject to the stipulation of theparties. When there is a stipulation to the effect

that the other party must comply with theobligation, 30 days from delivery, then the otherparty cannot be considered in delay even if oneof the parties has performed his obligation.

26



Art. 1169. Those obliged to deliver or to do something

incur 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 so declare;

or

(2) When from the nature and the circumstances of the

obligation it appears that the designation of the time

when the thing is to be delivered or the service is to

be rendered was a controlling motive for the

establishment of the contract; or

(3) When demand would be useless, as when the

obligor has rendered it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if

the other does not comply or is not ready to comply in a

proper manner with what is incumbent upon him. Fromthe moment one of the parties fulfills his obligation, delay

by the other begins. (1100a)

Art. 1786. Every partner is a debtor of the partnership for

whatever he may have promised to contribute thereto.

He shall also be bound for warranty in case of eviction

with regard to specific and determinate things which he

may have contributed to the partnership, in the same

cases and in the same manner as the vendor is bound

with respect to the vendee. He shall also be liable for the

fruits thereof from the time they should have been

delivered, without the need of any demand. (1681a)

Art. 1788. A partner who has undertaken to contribute a

sum of money and fails to do so becomes a debtor for

the interest and damages from the time he should have

complied with his obligation.

The same rule applies to any amount he may have taken

from the partnership coffers, and his liability shall begin

from the time he converted the amount to his own use.

Art. 1896. The agent owes interest on the sums he has

applied to his own use from the day on which he did so,

and on those which he still owes after the extinguishmentof the agency. (1724a)

Art. 1942. The bailee is liable for the loss of the thing,

even if it should be through a fortuitous event:

(1) If he devotes the thing to any purpose different from

that for which it has been loaned;

(2) If he keeps it longer than the period stipulated, or

after the accomplishment of the use for which the

commodatum has been constituted;

(3) If the thing loaned has been delivered with appraisal

of its value, unless there is a stipulation exemptionthe bailee from responsibility in case of a fortuitous

event;

(4) If he lends or leases the thing to a third person, who

is not a member of his household;

(5) If, being able to save either the thing borrowed or his

own thing, he chose to save the latter. (1744a and

1745)

c. When period is the controlling motive. Here thetime is of the essence in this contract.

d. When demand becomes useless. Thispresupposed that demand becomes uselessbecause of the fault of the debtor. If the demandbecomes useless due to the fault of the creditor,then of course the creditor cannot hold thedebtor liable for damages.

When the demand becomes useless due to

fortuitous event, obviously the obligation shall be

extinguished.

Agcaoili vs. GSIS

If both parties are in delay, what will be its effect?

Under the law, when both are in delay, no one isconsidered to be in delay, hence, no one can beheld liable for damages, or no one can have acause of action by and between the parties.

In this case, Agcaoili suspended the payment ofthe monthly amortizations. GSIS cancelled thecontract. Was GSIS correct in cancelling thecontract?

No.Because both are in delay. Agcaolili failed topay his month amortization while GSIS is also indelay in not delivering a habitable house. The GSISonly delivered a structure with a roof.

Kristine went to a jewelry shop to have her

jewelry cleaned and it should be returned to herafter a week, when she returned after a weekthe jewelry shop told her that the jewelry hadnot yet been cleaned, so she has to returnagain after another week. When she returnedback after another week. She was informed thatthe ring was lost because of an alleged robberythat took place. Claiming that robbery isfortuitous event, then the jewelry shop cannotbe held liable. Is such contention tenable?

No. Under the facts Art. 1165 would apply. In anobligation to deliver a determinate thing, and thething was lost even if due to a fortuitous event, theobligor would be held liable for damages if he wasalready in delay.

27



Clearly, the jewelry shop was already in delay.Even for the fact, that the jewelry was lost due to afortuitous event, the shop shall be liable becausethere was already a delay when the creditor failedto deliver the same after as week time as promised.

A leased a machine of B because he opened his

own car repair shop. They agreed that the leasewould only be for 1 month, and the lease wasentered only in February 15 of 1985, in March 15the next month, the lessor demanded for thereturn of the machine. However, the lessee wasnot able to return the machine because A’struck had a mechanical problem. On MArch 16which was still in the lessee A was destroyed ina fire that started in a neighboring house, whichapparently is a fortuitous event. Can the lesseebe held liable for the lost of the machine?

A cannot be held liable because even if there was ademand made and the loss happened after thedemand was made, the lessee was not yet in delaybecause at the time of the demand, the obligationwas not yet due. This is because February wasonly 28 days. From February 15 to March 15, thatwas only 28 days. The delivery must be made onlyafter a month, and a month under the law is 30days. Then B should have made the demand onlyon March 17, because 1985 is not a leap year. If aleap year, of course March 16 should be thedemand date, because if a leap year a month is 29days.

If a party to an obligation was not able tocomply or it was not completely fulfilled orirregularly complied, does it mean that he willbe liable for damages?

Not necessarily. There are excuses to nonperformance, incomplete performance or irregularperformance. E.g. Fault of the creditor or fortuitousevent.

Note: Not every time that there was a fortuitousevent or force majeure can be an excused to nonperformance. Under Art. 1174 a party thereto canbe held liable even if there was a fortuitous event ifthere was an express stipulation, if the law soprovides, or because the nature of the obligationrequires the assumption of risk.

....by stipulation

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 eventswhich could not be foreseen, or which, though foreseen,

were inevitable. (1105a)

.....law so provides

If the debtor promises to deliver the same thing totwo persons who do not have the same interest,thereafter the thing was lost due to a fortuitousevent, he will still be responsible for the loss of the

thing.

Note however, there should be no concurringnegligence on the part of the person invoking thedefense “that liability attaches even if noncompliance was due to a fortuitous event if the lawso provides”.

Art. 1165. When what is to be delivered is a determinate

thing, the creditor, in addition to the right granted him by

Article 1170, may compel the debtor to make the delivery.


the obligation be complied with at the expense of thedebtor.








mentioned.

NPC vs. CA

NAPOCOR was liable because it released the water

when the dam was full. It should have released the water

when the dam was not yet full so that the pressure would

that be not much as would result to so much damage.

Hence, to invoke fortuitous event which transpired in the

case due to heavy rainfall, there should be no concurring

negligence on the part of the defendant NAPOCOR.

In another case, in the event that NAPOCOR would

release the water of a dam, in order not to be held liable

a proper notification to the proper authorities is required.

Notice to persons not authorized such as a P01 officer isnot a proper notification which would relieve NAPOCOR

of liability.

Remedies for Breach of Obligations

Note: The first thing to consider in a problem with respect

to the remedies for breach of obligations is the plaintiff,

because if the plaintiff is not the aggrieved party, he will

not have any remedy under the law. Actions by such

persons who is not the aggrieved party will not prosper.

Remedies are available only by the aggrieved parties.

Classification of Remedies:

1. Judicial

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2. Extra-judicial

3. Remedies provided by law

4. Remedies which a party can invoke when there are no

other available remedies (subsidiary remedy)

An action for rescission was filed, the defense raised

was the action had already prescribed because the

action had already prescribed 1 year from the date of

the contract, was this a valid defense?

It depends on the nature of the action. This isbecause there are 2 kinds of rescission. Therescission under Art. 1191 and Art. 1380 and 1381under rescissible contracts.

Rescission under Art. 1191 should have beencalled resolution. This is not the right rescission,because rescission in the proper sense is underrescissible contracts. Thus if this action forrescission was filed under Art. 1380 and 1381 thedefense may have been correct because it shouldhave been filed within 4 years from the date of thecontract. The defense should have been correct,however, the rescission was filed because ofbreach of the contract, and if there is breach orfailure to comply, the action would fall under Art.1191.

Of course under Art. 1191, it is not any kind ofbreach that may be the subject of rescission butsubstantial breach or fundamental breach. Slightbreach or casual breach cannot be the basis of anaction for rescission under Art. 1191.

Furthermore, under Art. 1191 it is a substantialremedy. Whereas in Art. 1381, it is merely asubsidiary remedy which means that it may beinvoked when the adverse party had no other legalremedy. Hence, Art. 1381 is merely a last resort.

Under Art. 1381, is there a need for a breach forrescission to be invoked?

No. The reason why rescission is a remedy underArt. 1381 is because of omission or economicprejudice (UFC vs. CA). Therefore, under Art. 1381the action of rescission may prosper even if there isno breach in the obligation because of omission oreconomic prejudice for example the act was infraud of creditors.

Universal Food Corp. vs. CA

In this case, one of the defenses raised was thatMagdalo Francisco has not exhausted his available

remedies, therefore the action should bedismissed. Is this a valid defense?

In the concurring opinion of JBL Reyes in this caseprovided in substance that this defense of nonexhaustion is a result of the confusion to rescissionunder Art. 1191 and Art. 1381. That defense can

validly be invoked only if the action for rescission isbased on Art. 1381. But if the action was based onArt. 1191, that is not a valid defense because underthis provision, the remedy is a principal remedy. Aparty is not required to exhaust his other remedybefore he can invoke rescission under Art. 1191.

Another issue raised or defense raised was thatMagdalo Franciso has not complied with hisobligation in the contract, therefore he should haveno right to rescind. For rescission to be a remedy,or any remedy to be invoked, the party claiming the

remedy must himself have complied with hisobligation. Otherwise, he could not claim to be theaggrieved party. How could he be the injured partyif he did not comply with his obligation. Since bothhave not complied, both are already in delay, andtherefore, no one would be in delay, and rescissionand cancellation would not be a valid defense orremedy.

Therefore, the Supreme Court has to determinewhether or not Magdalo Francisco has alreadycomplied with his obligation. In this case, Magdalo

Francisco had the obligation to deliver the formulain the Catsup to UFC. However, MF claimed thathis obligation to deliver is only to allow UFC the useof the formula and not of ownership. In order for MFto retain control over the formula he is both thechemist and at the same time he was the only oneinside the laboratory for the purpose of making thecatsup. This was the core issue on whether or notMF had the obligation to deliver or transferownership over the formula. Upon closer scrutiny ofthe deed of assignment it was provided that “MFwas supposed to transfer all his rights” but the SCruled that what is transferred is only the use of the

catsup, hence there was no obligation to deliverownership. However, my professor is of the viewthat considering the words used in the deed, is thatMF is supposed to transfer all his rights, therefore itincludes transfer of ownership. What could be abetter right than the right to ownership. Then itshould be ruled that MF has the obligation totransfer ownership.

However, aside from that issue, the Supreme Courtis impeccable on the issue that when MF has noobligation to transfer ownership, the non delivery of

the formula to UFC does not make MF not beingable to comply with his obligation, in fact he has noobligation to deliver ownership. Hence, he is able tocomply with what is incumbent upon him which is to

29



allow UFC to use the formula. In this case, he mayrightfully rescind the contract as he is not in delay,and it is only UFC is in delay.

In the case of (Zhong ________) rescission wasinvoked here because the buyer of molassesfailed to pay the price agreed upon. However

the buyer offered to pay the seller 20 daysthereafter. However, the seller did not acceptthe payment and told the buyer that thecontract had already been rescinded. Was therescission valid?

No. Under the circumstances the delay of 30 dayswas not a fundamental breach or a substantialbreach and therefore cannot be the basis of anaction for rescission.

However, it must be noted that depending on the

circumstances, 20 days may already be considereda substantial breach if the goods is a perishablegoods. And as decided in one case, the delivery ofpadlocks to the COMELEC to be used in theelection, but delivered after the election, it isconsidered a substantial breach.

xx

2 remedies under Art. 1191:

Under Art. 1191 it provides for two remedies,

namely: 1) rescission and 2)fulfillment.

Rescission

Rescission here is a principal remedy and isexpressly granted by law. In the case of UP vs. deLos Angeles, this remedy can be invoked extrajudicially.

In judicial rescission, when the party invokes thesame, and it has been the subject of appeal to theSupreme Court 3 years after, the effect of

rescission is reckoned from the time of invocationof the rescission and not on a later date.

In what instance where judicial rescission isrequired?

It is required when a person invoking rescissionwanted the defendant to do something, or tocompel him to do something. This is so because aperson cannot take the law into his own hands.

If however, the person invoking rescission in orderfor him to grant the contract to another person, thenextrajudicial rescission would suffice.

Is rescission available in unilateral obligations?

No, it is only available in reciprocal obligations. InRescission the party invoking the same is for thepurpose of making the person not to comply withhis own obligation. It is not available to anotherparty who refuses to comply with his obligation.

The effect of rescission therefore is for the personwho invokes the same not to comply with his ownobligation.

Fulfillment or Specific Performance

The issue here is that if the aggrieved party to acontract involving reciprocal obligations, forexample has already invoked fulfillment, mayhe thereafter be able to rescind the obligation?Or if a person invokes rescission, can hethereafter demand fulfillment?

A person invoking fulfillment may later on rescind ifthe fulfillment of the obligation has becomeimpossible. This if expressly granted under the law.Note however, the impossibility of performance wasto be due to the fault of the debtor. If theimpossibility of performance was due to the fault ofthe creditor, of course he will not have the right torescind, or if was due to a fortuitous event, then hewould not be an aggrieved party, therefore hewould not have the right to rescind.

In the second scenario where the law was silent aswhen an aggrieved party who exercised his right torescind, there is no more obligation to be fulfilledsince the effect of rescission is to extinguish theobligation. Hence, there is nothing more to befulfilled. This is the ruling of the Supreme Court inthe case of Magdalena Estate vs. Myrick.

The effect of rescission with respect to reciprocalobligation is mutual restitution which means thatthe relationship will be reverted back to their statusprior to the time where the parties agreed to their

obligations.

May the court after an action for rescission wasfiled allow the other party to perform theobligation?

Yes. The court may grant the debtor to perform hisobligation. This is known as the judicial period.

xx

A obliged himself to deliver to B a refrigerator

with motor number wxy123, and a brand newsony bravia 40” LCD TV. A obliged himself torepair the piano of B. None of these wereperformed by A. Can the court compel A to

30



perform these obligations? If not, what are theremedies of B?

The remedies here would depend on the nature ofthe obligation. The first two are obligations to give,the first is a determinate thing, while the other is anindeterminate or generic thing. The last one is an

obligation to do.

With respect to the refrigerator, a determinate thingwhich is particularly designated from all other of itskind, the creditor can compel him through an actionfor specific performance. However, this action is nolonger available when the very object is alreadyowned by another person who bought it in goodfaith and for value, or when the object was alreadydestroyed.

With respect to the LCD TV the creditor may

compel the debtor to deliver the TV even if lost ordestroyed or such object has been owned byanother person because it is a generic thing. Thedebtor may be compelled to deliver a 40” LCD TVof the same kind and quality, at the expense of thedebtor.

With respect to the repair of the piano, the courtcannot compel A to perform the obligation becauseit would violate his right against involuntaryservitude. The remedy of B therefore, under the lawwith respect to obligations to do is that the creditor

may have that task performed by another person atthe expense of the debtor. This is called an actionfor substitute performance. But note that not allobligations to do, substitute performance isavailable, because there are obligations to do thatonly the debtor can perform, because of thepersonal qualifications of the debtor has beenconsidered, and will only entitle the creditor fordamages.

In all these remedies, damages can be claimed.

Under Art. 1177 there are two remedies whichare both subsidiary, what are those?

a. To impugn the acts which the debtor would havedone to defraud them is actually rescission underArt. 1381. These are contracts in fraud ofcreditors.

b. Accion Subrogatoria which is to exercise all therights and bring all the actions of the debtor asagainst third persons. Therefore the personsinvolved here are the debtors who would be

subrogated in the rights of the creditor as againstthird person. The third person is the debtor of thedebtor.

However, not all the rights of a debtor as againstthird person shall be the subject of subrogatoryaction Because there are other rights which arepurely personal in nature.

Generally, property rights may be the subject ofsubrogation, except government pensions because

it goes into the existence of a person, hence cannotbe a subrogatory action.

Can the creditors have all the properties of thedebtor levied upon and sold in an executionsale?

Not all the present properties may be levied upon.Because there are certain properties areconsidered by law and the rules of court to beexempt from execution.

May future properties of the debtor be leviedupon by the creditor in an execution sale?

As a rule, yes. Insolvency of a debtor as a factdoes not extinguish a debtors obligation. However,if there is a judicial declaration of such insolvencyand the court absolved him from this obligationthen his obligations are extinguished. Under thelatter scenario, the creditors can no longer reachthe debtors future properties.

Thus, the enumeration provided in Art. 1231 is not

exclusive, because a judicial declaration ofinsolvency and the court absolved the debtor of hisobligation, the obligation is also extinguished.

Aside from those mentioned in Art. 1231, whichprovides for 10 modes of extinguishment ofobligation, judicial declaration which are not amongthose mentioned may also be a mode ofextinguishing the obligation, the arrival of aresolutory period, and mutuum dicencio or mutualdesistance.

Art. 1165. When what is to be delivered is adeterminate thing, the creditor, in addition to the

right granted him by Article 1170, may compel the

debtor to make the delivery.


the obligation be complied with at the expense of the

debtor.







31




mentioned. (1097a)

Art. 1167. If a person obliged to do something fails to do

it, the same shall be executed at his cost.

This same rule shall be observed if he does it in

contravention of the tenor of the obligation. Furthermore,

it may be decreed that what has been poorly done be

undone. (1098)

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. (1099a)

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. (1101)

Art. 1177. The creditors, after having pursued the

property in possession of the debtor to satisfy theirclaims, may exercise all the rights and bring all the

actions of the latter for the same purpose, save those

which are inherent in his person; they may also impugn

the acts which the debtor may have done to defraud

them. (1111)

Art. 1178. Subject to the laws, all rights acquired in virtue

of an obligation are transmissible, if there has been no

stipulation to the contrary. (1112)

Art. 1191. The power to rescind obligations is implied 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

the 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.

The court shall decree the rescission claimed, unless

there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of

third persons who have acquired the thing, in accordance

with Articles 1385 and 1388 and the Mortgage Law.

(1124)

Art. 1192. In case both parties have committed a breach

of the 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,

the same shall be deemed extinguished, and each shall

bear his own damages. (n)

Art. 2236. The debtor is liable with all his property,

present and future, for the fulfillment of his obligations,

subject to the exemptions provided by law. (1911a)

Art. 302. Neither the right to receive legal support nor any

money or property obtained as such support or any

pension or gratuity from the government is subject to

attachment or execution. (n)

Art. 1708. The laborer's wages shall not be subject to

execution or attachment, except for debts incurred for

food, shelter, clothing and medical attendance.

Art. 153 (FC). The family home is deemed constituted on

a house and lot from the time it is occupied as a familyresidence. From the time of its constitution and so long

as any of its beneficiaries actually resides therein, the

family home continues to be such and is exempt from

execution, forced sale or attachment except as

hereinafter provided and to the extent of the value

allowed by law. (223a)

Art. 155 (FC). The family home shall be exempt from

execution, forced sale or attachment except:

(1) For nonpayment of taxes;(2) For debts incurred prior

to the constitution of the family home;

(3) For debts secured by mortgages on the premises

before or after such constitution; and

(4) For debts due to laborers, mechanics, architects,

builders, materialmen and others who have

rendered service or furnished material for the

construction of the building. (243a)

Rule 39 Sec 13, Civil Procedure - Property exempt from

execution.

Except as otherwise expressly provided by law, the

following property, and no other, shall be exempt from

execution:

(a) The judgment obligor's family home as provided by

law, or the homestead in which he resides, and land

necessarily used in connection therewith;

(b) Ordinary tools and implements personally used by

him in his trade, employment, or livelihood;

(c) Three horses, or three cows, or three carabaos, or

other beasts of burden such as the judgment obligor

may select necessarily used by him in his ordinary

occupation;

(d) His necessary clothing and articles for ordinarypersonal use, excluding jewelry;

(e) Household furniture and utensils necessary for

housekeeping, and used for that purpose by the

judgment obligor and his family, such as the judgment

obligor may select, of a value not exceeding one

hundred thousand pesos;

(f) Provisions for individual or family use sufficient for four

months;

(g) The professional libraries and equipment of judges,

lawyers, physicians, pharmacists, dentists, engineers,

surveyors, clergymen, teachers, and other

professionals, not exceeding three hundred thousand

pesos in value;

(h) One fishing boat and accessories not exceeding the

total value of one hundred thousand pesos owned by

32



a fisherman and by the lawful use of which he earns

his livelihood;

(i) So much of the salaries, wages, or earnings of the

judgment obligor of his personal services within the

four months preceding the levy as are necessary for

the support of his family;

(j) Lettered gravestones;

(k) Monies benefits, privileges, or annuities accruing or in

any manner growing out of any life insurance;

(l) The right to receive legal support, or money or

property obtained as such support, or any pension or

gratuity from the Government;

(m) Properties specially exempt by law.

But no article or species of property mentioned in his

section shall be exempt from execution issued upon a

judgment recovered for its price or upon a judgment of

foreclosure of a mortgage thereon.

Modes of Extinguishment of Obligations

Art. 1231. Obligations are extinguished:

(1) By payment or performance:

(2) By the loss of the thing due:

(3) By the condonation or remission of the debt;

(4) By the confusion or merger of the rights of creditor

and debtor;

(5) By compensation;

(6) By novation.

Aside from those mentioned in Art. 1031, death ofone of the party may also extinguished anobligation as viewed by some authors. ButProfessor Tolentino is of the view that obligation isnot extinguished by the death of one of the parties.But CU believed that the statement of Prof.Tolentino apply only to contracts, because as anexample for obligations arising from law, it is thelaw which would determine if the death of one ofthe parties will extinguish the obligation.

As to contracts, as a rule death of a party does not

extinguish the obligation arising from contractsbecause under Art. 1311 obligations arising fromcontracts, rights and obligation are transmissible tothe heirs or to the estate, and therefore they are notextinguished. On the other hand, it was said that renunciation bya creditor is a mode of extinguishment. This isconsidered as other causes. If it is considered asother causes it is implied that it is not covered bythose mention in Art. 1231. The civil code honorsrenunciation as a gratuitous or an onerous act. If

renunciation is a gratuitous act, clearly it would fallunder condonation. If renunciation is for aconsideration, then this would rightfully fall undernovation. By then, he would waive his right, but he

will be demanding for another for the performanceof another obligation. Hence, there is novationwhen there is a change in the object of theobligation. Hence from the foregoing, this would notbe considered a separate and distinct mode.

One other which is allegedly may be considered to

be a mode of extinguishment of obligation would becompromise. This would appear to be anothermode of extinguishment separate and distinct thanthat mentioned in Art. 1031. It is another mode ofextinguishment because the effect of a compromiseagreement. Ordinarily it would only decrease theliability of the debtor. As in the case of Ronquillo vs.CA, the liability was decreased from 170 to 110.Thus, a compromise agreement is only a partialextinguishment. Is this not a separate and distinctmode? No because it would fall under condonationor remission. However, can there be a compromisewhere the object of the obligation can be changed?Yes, such as when the obligation to deliver a horsewas changed to a laptop. Would it be considered aseparate and distinct obligation other than thosementioned? No, because it would fall undernovation.

May the unilateral act of one of the partiesextinguish the obligation?

Yes it may, however in contracts, as a rule itcannot. The unilateral act of one of the parties willnot extinguish the obligation arising from contracts,

because it would violate the fundamental principlein contracts known as the mutuality of contracts,except on those contracts which are based on trustand confidence such as when the law grant a partyto a contract the right to terminate the obligationarising therefrom. For example, a contract ofagency. Under the law the principal can terminatethe authority of the agent and thus extinguish thecontract, and thereby the obligations arising from itby revocation which is the act of the principal. Andthe agent may also terminate the obligation bywithdrawal.

Is a happening of a fortuitous event a mode ofextinguishment?

No. The Supreme Court has consistently ruled thata happening of a fortuitous event is not a mode ofextinguishment. Rather it is the effect of thehappening of the fortuitous event which is theimpossibility of performance, if it would have sucheffect, or the loss of the thing due which is a modeof extinguishment.

Likewise, if there is an obligation to deliver ageneric thing or pay a sum of money, the samewould not likewise extinguish the obligation even if

33



the thing is lost because the genus does not perish.This is of course as a rule. If there is an obligation to deliver a determinatething would not necessarily result to theextinguishment of the obligation if the same is lostthrough a fortuitous event. If the fortuitous event

does not affect the thing which is to be delivered.

However if the fortuitous even caused theimpossibility of the performance, then it willextinguished the obligation. It is the impossibility ofperformance which is the mode of extinguishmentand not the fortuitous event. This impossibility ofperformance is considered by Prof. Tolentino asnullity of contracts. But CU is of the view that itcannot be considered as a mode of extinguishmentbecause when a contract is null and void there isnothing to extinguish.

If there is a change in civil status there may be anobligation which may be extinguished which is theobligation to give support. If the marriage isdeclared null and void or if there is legal separation,a spouse may no longer have the obligation to givesupport. Note however, the court may order theguilty spouse to continue with the support.

Payment or Performance

Payment is synonymous to performance that evenan obligation to do may be extinguished by

payment. Although there is a view that when thecode was being drafted payment is only limited onlyto monetary obligations but those who advocatedthis view did not succeed. This mode ofextinguishing an obligation is applicable to any kindof obligation, even obligations not to do, as long heis not doing what he is supposed to do he isactually fulfilling his obligation. Payment does notnecessarily pertain to a monetary obligation.

To determine whether an obligation is extinguishedby payment, or to determine whether payment is a

valid payment or not, it would be good to classifythe rules of payment into 4,

1. There are rules which pertain to the person whopays.

2. There are rules which pertain to the person towhom payment is made.

3. There are rules which pertain to the prestation tobe performed, or to the thing to be delivered.

4. There are rules which pertain to the date, time,place and manner of payment.

All these rules will have to be complied in order thatpayment may extinguish the obligation.

To the person who pays need not be the debtor,such as third party payment. Also the person towhom the payment is made need not be thecreditor. He is called the payee.

As to the person who pays, the requirements of thelaw to extinguish the obligation

Payment by a minor may extinguish the obligationespecially in obligation arising from quasi delict.

However payment by a minor may likewise notextinguish the obligation because there arepayments which may only be made by the personwho has the capacity to alienate his properties.Payment may be made by the minors guardian, orif there is none to court may appoint a guardian adlitem.

If the minor wanted to pay or extinguish hisobligation, who may question his capacity to makepayment? The other creditors.

Secondly, a person who who pays must also havethe free disposal of his property. Hence, a personsuffering from civil interdiction cannot validly fulfillor pay his debts because he has no free disposal ofhis property.

If A is indebted to B and X offered to pay B. Maythis extinguish the obligation?

The obligation may be extinguished if B accepts.Though he may not be compelled, he may want toaccept. A creditor as a rule may not acceptperformance from a third person, except:

a. by stipulationb. if the third person has an interest in the

fulfillment of the obligation.

Why can’t a creditor be compelled to acceptpayment or performance?

In an obligation to do, a creditor may not want toaccept performance from a person with whom thecreditor does not want to make the performance,probably by taking into consideration the personalcircumstances of the debtor.

In an obligations to give, the creditor may notlikewise be compelled to accept payment from aperson other than the original debtor, probablybecause the money coming from another personmay probably come from drugs or the money iscounterfeit.

Who are these persons who have an interest inthe fulfillment of the obligation other than thedebtor?

34



If X paid B, without the intention of beingreimbursed by A, after two weeks he demandedwhat he paid to B claiming that A did not giveconsent to this payment. Since it is a form of anindirect donation, A did not give consent, whichis a requirement in donations where the doneemust accept. Here, there is no acceptance,

hence the payment is void. Is the contentioncorrect?

No. Even if the payment was without theknowledge of A and did not intend to bereimbursed, as far as the creditor is concerned, hewould no have the right to reclaim what was paid.To whom payment should be made in order forthe obligation is to be extinguished?

Payment should me made to:

a. To the person in whose favor the obligation isconstituted.

Note: The person in whose favor the obligation isconstituted need not necessarily be the personwho entered into a contract, it may be anotherperson.

For example if A and B entered into a contractand A paid B, does it necessarily extinguishedthe obligation? No. Maybe it is not B who is theperson in whose favor the obligation is

constituted.

b. Succesors in interests, or assigns.

c. To the person who has the authority to receivepayment.

Note: To the person who has the authority fromthe creditor to receive payment is not accuratebecause a person may have the authority to

receive payment when the same is authorized orgranted by law (sheriff, guardian, liquidators,

receivers, conservators, etc. ).

When the debtor paid the sheriff, does itextinguish the obligation when the sheriffpocketed the money? Yes. because he has theauthority of the law to receive payment.

If payment was made to a person who is not oneof those persons mentioned in Art. 1240, whatwill be the effect of such payment? It will not

extinguish the obligation. As a rule, payment to awrong party is not a proper payment andtherefore does not extinguish an obligation.

Art. 1240. Payment shall be made to the person

in whose favor the obligation has been

constituted, or his successor in interest, or any

person authorized to receive it. (1162a).

What is the remedy of a person to whom hewrongfully paid? To recover from the personwith whom he pays under solution indebitibecause that person will not have the right todemand for payment. By way of exception,payment to a wrong party may also extinguish

the obligation, when: When the paymentredounded to the benefit of the creditor, but onlyup to the extent that the creditor was benefited.

Payment to the child of the creditor, would thatextinguish the obligation? As a rule no, because

the child is not the creditor. It is a payment to awrong party. Who will have the burden in provingthat the payment redounded to the benefit of thecreditor? Obviously, the payer or debtor will havethis burden. As an exception where the payer ordebtor would not have the burden of proving thatthe payment redounded to the benefit of thecreditor when: 1. When there is ratification of thecreditor, as such it is deemed redounded to thecreditors benefit. Why would he ratify if it did notredound to his benefit; 2. through the acts of thecreditor, the debtor was lead to believe that theperson or payee has authority to receive payment,this is under the principle of the estoppel; 3. whenthe payee acquired the rights of the creditor afterthe payment. Note: The payee should acquire theright of the creditor after the payment and notbefore the payment, this is because when thepayee acquired the rights of the creditor before the

payment, this would not be a payment to a wrongparty, as this would be a payment to a successor ininterest or an assignee, and such would be a validpayment.

A executed a promissory note and delivered thesame to B the creditor. But few weeksthereafter, the promissory note was already inthe possession of C. In the hands of C thepromissory note matured and C demandedpayment from A. A paid C. Would payment to Cby A extinguished the obligation to B?

Yes.

Not just because C was in possession of thepromissory note does not make him a proper partyto receive payment. There are two requirementswhich are required in order for it to be considereda valid payment: 1. This person (C) must be inpossession of the credit. Note that possession of apromissory note does not necessarily mean that hewas in possession of the credit. The latter is merelyan evidence of credit. To be in possession of acredit is that such person must appear to have

possession of the credit. For example, thepromissory note provides that “payment to JoseReyes” It could not be considered as a person

36



appearing to have possession of the credit, thesame not being a negotiable instrument. It wouldbe different if the promissory note is a negotiableand a bearer promissory note and in possession ofC. Therefore under this circumstance it can beinferred that C negotatiated the note by meredelivery. He therefore is in possession of the credit.

But note that payment to him does not necessarilyextinguish the obligation because the otherrequirement is, 2: payment must be in good faith.meaning that when A paid C he must have noknowledge of the defect of title C.

These two requirement must concur in order thatthe payment to a wrong party to extinguish theobligation of A to B.

Since under the foregoing circumstance, theobligation of A is extinguished, B therefore has theremedy against C.

A is the debtor of B, thereafter B assigned hiscredit to C. It was after the assignment that Apaid B. That is a payment to a wrong partybecause C is not supposed to be the newcreditor through assignment. May the paymentof A to B, extinguish his obligation to C?

Yes, when A paid B without knowledge of theassignment.

May a creditor be compelled to partial

performance?

As a rule, no, unless there is a stipulation to thecontrary or if the obligation is partly liquidated orpartly unliquidated to the extent of the portion whichis liquidated, the creditor may compel the debtor toperform, likewise the debtor may compel thecreditor to accept.

If the obligation is to deliver a determinatething, the creditor may not be compelled toaccept the delivery of another thing even if

such other thing is more valuable than the thingsupposed to be delivered.

In Art. 1234 what is the effect of substantialperformance?

Art. 1234. If the obligation has been substantially

performed in good faith, the obligor may recover as

though there had been a strict and complete fulfillment,

less damages suffered by the obligee. (n)

The premise of substantial performance is that thecreditor accepted. Whether or not he can be

compelled to accept does not matter, what mattersis he accepted the partial performance.

For example when the debtor is indebted to a sumof money payable in 10 years in monthlyinstallments. When the debtor has already paid for8 years, the creditor can no longer rescind thecontract because there is payment which isconsidered partial performance.

If there is substantial performance in relation to Art.1181 there is no more substantial breach.

What would constitute substantialperformance?

8 out of 10 installments is substantial performance.

95 installments out of 120 is also substantialperformance.

65% of the obligation is not substantialperformance.

74% is not a substantial performance.

What are the rights of the parties when there isan obligation to pay or deliver 100 sacks of rice.85 sacks has been delivered, the other 15 canno longer be delivered despite good faith. Howmuch can the seller recover from the buyer?

Under the law the seller may recover only the valueof the 85 sacks less damage that may be sufferedby the creditor. The buyer not having been able to

receive 100 sacks of rice, he may have sufferedbecause if the 100 sacks of rice has been alldelivered, he may have sold it for a higher prize.This is called unrealized profit where the the valueof the 85 sacks of rice shall be lessened becauseof the unrealized profits which the buyer may havereceived were it not for the incomplete delivery

When there is an irregular or incompletefulfillment, there is an instance under the lawthat the obligation is fully complied with.However the following requisites must be

complied with, namely:

1. There must be acceptance by the creditor

2. The acceptance must be with full knowledge ofthe incompleteness or irregularity.

3. He must not have made an objection.

Art. 1235. When the obligee accepts the performance,

knowing its incompleteness or irregularity, and without

expressing any protest or objection, the obligation is

deemed fully complied with.

In the case of Azcona vs. Amandre where theSupreme Court ruled that the paymentextinguished the obligation where the actual

37



amount due was 7,200 but only paid 7,000 whenthe seller issued a receipt 7000 as per contract, it isas if there was faithful compliance.

In monetary obligations, can there be a validobligation in money which is not in Philippinecurrency?

Yes. with or without RA 529, as amended it will be avalid obligation.

REPUBLIC ACT NO. 8183

.

.

AN ACT REPEALING REPUBLIC ACT NUMBERED

FIVE HUNDRED TWENTY-NINE AS AMENDED,

ENTITLED "AN ACT TO ASSURE THE UNIFORM

VALUE OF PHILIPPINE COIN AND CURRENCY."

Section 1. All monetary obligations shall be settled in the

Philippine currency which is legal tender in thePhilippines. However, the parties may agree that the

obligation or transaction shall be settled in any other

currency at the time of payment.

Sec. 2. Republic Act Numbered Five Hundred Twenty-

Nine (R.A. No. 529), as amended entitled "An Act to

Assume the Uniform Value of Philippine Coin and

Currency," is hereby repealed.

Sec. 3. This Act shall take effect fifteen (15) days after

its publication in the Official Gazette or in two (2) national

newspapers of general circulation. The Bangko Sentral

ng Pilipinas and the Department of Finance shall conduct

an intensive information campaign on the effect of thisAct.

If the currency agreed upon is not in Philippine

pesos, can the creditor demand fulfillment in the

currency agreed upon and not in Philippine

currency?

Under R.A. 529 it is not allowed. Even if the parties agree

to a currency expressly stipulated, under RA 529, such is

a void stipulation.

The obligation is not void, it is the stipulation of payment

in the currency offered which is void.

However in RA 8183 amending RA 529 a creditor can

demand fulfillment other than Philippine currency if such

was the stipulation is valid.

Can the creditor be compelled to acceptpayment by checks?

No. whatever kind of check is not allowed, they arenot legal tenders.

When creditor accepted the check and the

same became stale, is the obligationextinguished?

No. It is only that it cannot be be encashed.

When creditor accepted the check and thesame became stale, can the creditor demandfor the issuance of another check?

No.

When the creditor was in possession of a check,there is a disputable presumption that the debt hasnot yet been paid. It may be rebutted when thedebtor had already paid, and the creditor was still inpossession of the check.What are those which are considered legaltenders?

a. notes (cash)b. coins

Note: Even when the money is considered legaltenders the same has been withdrawn fromcirculation or has been demonitized.

An action was filed under quasi delict andthereafter a judgment was rendered in favor ofthe plaintiff on a contract entered into 10 yearsago, today A filed a motion to have hisjudgment adjusted claiming that there is anextraordinary inflation. May the judge award A’smotion?

Under Art. 1250 In case an extraordinary inflationor deflation of the currency stipulated should

supervene, the value of the currency at the time ofthe establishment of the obligation shall be thebasis of payment, unless there is an agreement tothe contrary.

Under the facts, for Art 1250 to apply, the samemust be based on a contract and not quasi delictbecause the law as worded “currency stipulated”.Hence, Art 1250 will not apply and thereforeadjustment cannot be allowed.

If the action was filed based on contract, the judge

should not grant the motion for adjustment if thesame is not an extraordinary inflation. Because theadjustment should be granted if there is only anextraordinary inflation that occur, otherwise notgranted.

Note: Art. 1250 means that there must be anadjustment at the time of the constitution of theobligation if there is an extraordinary inflation ordeflation based on a contract.

If the due date for the performance of theobligation is a sunday and demand was madeon that day however the debtor only performedit the next day, may he be considered in delay?

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Yes. Even if sunday or holiday, if the debtorpromised to perform the obligation on such day andhe did not perform, he is considered in delay. As anexception, even if the date agreed upon is asunday the debtor may not be considered in delaywhen there is an impossibility of performance of theobligation, or when the debtor gave the creditor a

check and the check’s due date is a holiday or anon banking day, in the latter case it is allowed foras long as it is the next banking day.

In an obligation to give or deliver a determinatething and the thing was delivered at the place ofbusiness of the creditor, and the creditorrefused to accept. Is the creditor already indelay?

Not necessarily, because there may be a stipulationthat delivery be made in another place.

If there is no stipulation as to the place wherethe thing is to be delivered, where should suchthing be delivered?

It depends on whether the thing is determinate orgeneric.

If it is a determinate thing, then payment shall bemade at the placer wherever the thing might be atthe moment the obligation was constituted.

In any other case (such as when the thing is

indeterminate) then the debtors domicile shall bethe place of payment.

What are the special forms of payment?

1. Dation in payment2. Application of payment3. payment by cession or assignment4. tender of payment and consignation

Is payment by a third party a special form ofpayment?

No. It is a payment by a person not a party to acontract.

In these special forms of payment, do theyrequire the consent of the parties in order thatthe obligation be extinguished?

As to debtors, their consent is required because heis the one offering to pay.

As to the creditor, as a rule the creditor’s consent isnot required because the debtor under the law hasthe right to designate to which the payment is to beapplied.

Is the consent of the creditor required in orderthat obligation be extinguished by way ofconsignation?

No. Consignation does no require the creditorsconsent if the creditor refuses to accept, then thecourt shall determine whether the consignation is

valid or not. The creditor cannot do anything if theconsignation is a valid consignation. Hence, theobligation is to be extinguished. It may either byacceptance or by declaration of the court.In these special forms of payment, when thedebtor delivers a thing to the creditor, there istransfer of ownership?

Not necessarily. In case of cession. This isbecause when the thing is delivered to the creditorin order for him to sell. The creditor does notacquire ownership because this thing is to be soldto third persons who will be the one to acquireownership.

When can consignation to the court passownership to the creditor?

In case of valid consignation, ownership istransferred to the creditor at the time of delivery.

In case of invalid consignation, and the creditor didnot accept, ownership is not transferred to thecreditor.

If there is dation in payment, the obligation ofthe debtor is totally extinguished?

Not necessarily. This is because when the thingalienated is less than the value the indebtedness,the obligation is not extinguished totally. It is merelya partial performance.

Note: Different view under 1235

In dation in payment if the thing is alienated bythe debtor in satisfaction of his debt and the

value of such thing is less than theindebtedness, is the obligation extinguished tothe extent of the value unless otherwisestipulated? Or in dation in payment, it totallyextinguishes the obligation, unless there is astipulation to the contrary?

It only extinguishes to the extent of the value of thething unless agreed upon by the parties. It is aproper position because no creditor would acceptless than than what is the value of the thing. Thisposition would appear to be just.

However, there is a view to the effect that it maytotally extinguish the obligation under 1235, aswhen the obligee accepts the performance,

39



knowing its incompleteness or irregularity, andwithout expressing any protest or objection, theobligation is deemed fully complied with.

Dation in payment shall be governed in the lawon sales?

Not necessarily. It will be governed in the law onsales when property is alienated to the creditor insatisfaction of a debt in money, otherwise it will begoverned by the law of novation because there is achange in the object.

Is it correct to say that when a property isalienated to the creditor in satisfaction of a debtin money, it can be governed by the law onnovation, since there is a change in the object?

It may be said that since there is a change in theobject, the law on novation is proper. However,there is a law on the matter which is Art. 1245which provides that when property is alienated tothe creditor in satisfaction of a debt in money, shallbe governed in the law on sales.

There is wisdom in the latter view (Art. 1245)because If a person is indebted to another person,and in this pre-existing debt the debtor paid thecreditor a watch, in a way it will have to begoverned by the law on sales because it may besaid that the debtor paid in cash and the creditorused this cash to buy the watch of the debtor.

For the rules of application of payment to beinvoked, there should only be one creditor?

Not necessarily. There may be 2 or more creditorssince the law does not specify that the debtorshould only have 1 creditor.

In application of payments therefore, is there ascenario where there will be totalextinguishment of obligation?

No. For application of payments to be applied, thedebtor paid partially. If the debtor paid in a sumwhich is sufficient to cover all the debts, there willno longer a question to which debt is payment is tobe applied. This happens when the debtor paid lessthan the amount of the debt.

A has an obligation of 30,000, 50,000, and500000 to X. A paid the 30,000 to satisfy the500,000 debt? Is that allowed? Why would Aapply the payment to the 500,000?

It is allowed to apply the payment to 500,0000. Awould apply the payment to the 500,000 because itwould be more burdensome to the 500,000because the latter is interest bearing.

To which the debt the payment is to be applied?

It is a debtor as a rule, has the choice to which thepayment is to be applied. Under the abovescenario, if 2 of the debts is not yet due and thefirst one is due the debtor may apply the payment

to the first debt if the debtor is the person to whomthe period is fixed, otherwise, even if one is due butthe period was fixed in the creditors favor, then thedebtor may not apply the payment in the first debt.

If all the debts is already due, the debtor cannotcompel the creditor to apply the payment to the firstdebt by choice, under the principle that the creditorcannot be compelled to accept partial performanceor by stipulation of the parties the first debt is thelast to be paid or 2nd.

What are the limitations to the right of thedebtor for which the payment is to be applied?

1. Partial payment2. due and demandability3. If there is an agreement that the debtor cannot

make the choice of application without theconsent of the creditor.

4. When the debt produces interests

All the debts are due and demandable, and oneof the debt produces interests, may the debtorapply the payment to the debt which does not

incur interests?

If one of the demandable debt produces interest,payment of the principal shall not be deemed tohave been made until the interests have beencovered.

What if the debtor failed to designate to whichthe payment is to be applied, to which thepayment is to be applied?

The debt designated by the creditor and such

designation is to be accepted by the debtor.

If the debtor and the creditor failed to designateto which the payment is to be applied, to whichthe payment is to be applied?

It depends if the debts are of the same nature andburden, payment shall be applied to all of themproportionately under Art. 1254.

However, if the debts are not of the same nature orburden, meaning one of them is more onerous,apply the payment to the most onerous obligation.

If the amount of the debt is bigger does it meanthat it is the most onerous?

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Not necessarily. The smaller amount may incurbigger interests. There is no hard and fast rule todetermine which of the debt is more onerous. A 6%interest in fact may be more onerous than a 12%interest when the amounts involved are different.

If in one of the debt, A is a principal debtor, andin another debt, he is merely a guarantor, whichis more onerous?

The more onerous is the debt in which the debtor isprincipally bound because the guarantor candemand from reimbursement from the creditor.

Payment by Cession

If the client is the debtor, and he is willing toabandon his properties to his creditor, what ifthe creditors refused to adhere to this offer,what advice would you give to your client?

Under Art. 1255. The debtor may cede or assignhis property to his creditors in payment of his debts.This cession, unless there is stipulation to thecontrary, shall only release the debtor fromresponsibility for the net proceeds of the thingassigned. The agreements which, on the effect ofthe cession, are made between the debtor and hiscreditors shall be governed by special laws.(1175a)

So it means that when the value of the thing to beceded to the creditor is less than the debt, such willbe a partial payment and shall release the debtoronly to the extent of the net proceeds of the thingassigned or ceded.

Is insolvency a requirement that the debtor isinsolvent in order for him to assign or cede hisproperty?

Not payment by cession is by agreement of theparties and therefore as long as the debtor cedes

and the creditor accepts for the latter to sell,insolvency is not required.

Tender of payment and consignation

Is tender of payment a mode ofextinguishment?

Tender of payment is not a mode ofextinguishment. No obligation is extinguished bymere tender of payment.

Tender of payment, as a rule, required in orderto extinguish an obligation by way ofconsignation?

As a rule, it is not required that tender of paymentbe made to extinguish an obligation by way ofconsignation, except when the creditor to whomtender of payment has been made refuses without just cause to accept it, the debtor shall be releasedfrom responsibility by the consignation of the thin orsum due (Art. 1256).

Under the law, tender of payment is not required asprovided by law, which are:

a. When the creditor is absent or unknown, or doesnot appear at the place of payment;

b. When he is incapacitated to receive the paymentat the time at the time it is due;

c. When, without just cause, he refuses to give areceipt;

d. When two or more persons claim the same rightto collect;

e. When the title of the obligation has been lost(Art. 1256).

Tender of payment may be extrajudicial?

No, it is always extrajudicial and can never be judicial. It is not required to involve the court tomake a tender of payment. By its nature it isextrajudicial.

However, in a case where the SC held that tenderof payment may be judicial when the tender ofpayment was made during the pendency of theaction. But note by its nature tender of payment is

extrajudicial.

A has a right to redeem within the period withinwhich A has a right to redeem, he offered themoney to the other party for the redemption ofa property. However, the other party refused toaccept without just cause, after the lapse of theperiod to redeem, the redemptioner filed anaction to sell the property and deliver the sameto him. One of the defenses raised by the otherparty was the tender was not in good faithbecause the redemptioner did not deliver the

money to the court by way of consignation,when he refused to accept the money? IS it avalid defense?

In the case of Immaculata vs. Navarro, the defenseis not tenable. It is not required that when the otherparty refused to accept by way of consignation, theredemptioner should deliver the money to the courtby way of consignation before the lapse of theredemption period. The reason is that consignationis only required when there is an obligation to beextinguished. Here there was no obligation to beextinguished but only a right to be exercised.

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One of the requisite in order to have a validconsignation is that there must be a debt which isdue.

If the creditor refuses to issue a receipt, is it aground to make a delivery to the court by wayof consignation?

Yes because a receipt is an evidence of payment,non issuance of a receipt the creditor may againdemand for the payment.

A law which provides that a payment is onlyconsidered as such upon issuance of thereceipt, is it advantageous?

Yes. It is advantageous because it would involveless litigations, secondly the debtor can compel thecreditor to issue a receipt.

But of course, payment is the one whichextinguishes the obligation and not a receipt.

In an obligation to deliver a horse, 3 personsare claiming to have a right over this horse,therefore the creditor has the right to deliverthe horse to the court by way of consignation?

Not necessarily because one person may have abetter right than the others such as when one has acertificate of title over the horse

Is the two notice requirement underconsignation mandatory? Would these twonotices both come from the creditor?

Yes it is required as held in the case Soco vs.Militante. In order that consignation may beeffective, the debtor must first comply with certainrequirements prescribed by law. The debtor mustshow (1) that there was a debt due; (2) that theconsignation of the obligation had been madebecause the creditor to whom tender payment wasmade refused to accept it, or because he was

absent or incapacitated, or because severalpersons claimed to be entitled to receive theamount due (Art. 1176, Civil Code); (3) thatprevious notice of the consignation had been givento the person interested in the performance of theobligation (Art. 1177, Civil Code); (4) that theamount due was placed at the disposal of the court(Art. 1178, Civil Code); and (5) that after theconsignation had been made the person interestedwas notified thereof (Art. 1178, Civil Code). Failurein any of these requirements is enough ground torender a consignation ineffective.

Do these notice both come from the debtor?

No. The first notice (prior consignation) must comefrom the debtor but the second one (afterconsignation) may come from the creditor.

A sum of money was delivered to the court byway of consignation, however he was able towithdraw the sum of money, thereafter he paid

the debt. If the obligation of the debtor issecured by a mortgage because of failure of thedebtor to pay the debt, may the creditorforeclose the mortgage even if the debtorwithdraw the payment by way of consignation?

It depends whether the withdrawal was a matter ofright, the creditor may foreclose the mortgage. Itwould be a matter of right where the consent of thecreditor is irrelevant when it is done beforeacceptance and there or no declaration by the courtthat there is a valid consignation (Art 1260).

The authority of the creditor is required when thewithdrawal is a matter of right, since the consent ofthe creditor is required, there can no longer be aforeclosure because the creditor gave his/herconsent and the obligation is already extinguished.

The due date was 1-1-01, tender of paymentwas made 1-1-02 and consignation was made1-1-05, on 1-22-10 the court rendered judgmentin relation to this consignation, would thedebtor be held liable for interest from the tenderof payment on 1-1-01?

If there was demand made, he is liable for interestbecause with such he is considered in delay,without demand no liability to pay interest.

The debtor may be held liable to pay interest(assuming debtor is in delay) from 1-1-01 to1-22-01 if the court considered to consignation tobe void.

Assuming the court declared the consignation to bevalid (there is also delay), the interest shall be

counted only upto the time the debtor delivered thepayment in court. But justice and equity serves thatpayment of interest should only be counted up tothe time tender of payment is made or the principlewhere both the debtor and creditor is in delay, suchwhen the debtor refuses to accept, as such thedebtor can no longer be held liable for interest.

when property is alienated to the creditor insatisfaction of a debt in money, it will be governedon the law on sales pursuant to Art. 1245, unlessthere is a stipulation to the contrary, further

Loss of the Thing Due or impossibility ofperformance

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Can loss of the thing be invoked in all kinds ofobligations?

No. because there are obligations to do or not to dowhich does not include a thing.In the former casesit would be proper to call it impossibility ofperformance.

In an obligation to deliver a generic thing, isloss of the thing extinguish an obligation?

Impossibility pertains to physical and legal.A law which prohibits the performance of anobligation to give even if it pertains to a genericthing, in which the law became effective during thependency of the obligation, by law it is consideredlegally impossible to perform. If prior theconstitution of the obligation it is considered as voidbeing contrary to law, hence there is nothing to beextinguished.

Loss of the thing may be extinguished even if thething is a generic thing, by mutual agreement of theparties, it is not because of the loss of thing.

Another scenario is when the generic thing is thelast of its kind, as when it goes out of commerce.

In an obligation to deliver a determinate thing,when would this obligation be extinguishedunder the Code?

If the loss of the thing is due to the fault of thedebtor, it is not extinguished, but if the debtor wasnot at fault the obligation is extinguished.

If the obligation was not extinguished and thething was lost (a determinate thing), what is theeffect?

The thing itself can no longer be deliveredextinguishes his obligation to deliver the thing, butwould entitle the creditor to damages.

Any person who in the performance of theirobligations are guilty of fraud, negligence or delayand those who in any manner contravene the tenorthereof shall be liable for damages (Art 1170).

If there was a lost of the thing due to the fault ofthe debtor, which makes him liable, who has theburden of proving that the loss was due to thefault of the debtor?

The creditor absolutely has the burden of provingthat it was lost if the same was lost due to the faultof the debtor.

However, there when the thing lost was in thepossession of the debtor, a presumption will arise

that is was due to his fault, unless there is proof tothe contrary. This presumption take place onlywhen there is no allegation that the thing was lostwas not due to the fault of the debtor. However, thispresumption will not apply in case of earthquake,flood, storm, or other natural calamity.

When the lost of the thing was due to afortuitous event, may the debtor shall be heldliable due to the loss of the thing?

Not necessarily. He may be liable when he was indelay. If he was not in delay, he will likewise beliable if there is a stipulation to the contrary. Asidefrom stipulation, if the law so provides.

Note: When the nature of the obligation requiresthe assumption of risks as a defense cannot applyto determinate things.

If the performance of the obligations becomesso difficult, the obligation is extinguished?

Not necessarily. It may be extinguished when itbecame so difficult, so difficult that it is beyond thecontemplation of the parties. The court may releasethe debtor partially or wholly from this obligation.

An action was filed for the court to adjust theagreement of the parties as to their share in theprofits in relation to the sale of a house and lot.Defendant was the owner of the land and the

plaintiff was the owner of the materials used inthe construction, the proceeds to be dividedbetween them 60/40. The plaintiff went to courtto adjust the shares due to difficulty ofperformance as the prices of the materialsincreased. The court did adjust the terms andconditions of the agreement. A motion todismiss was filed on the adjustment. Is themotion granted? adjustment proper?

The. The court has no power to change the termsand conditions of the agreement. The only power

given by law to the court is to release the debtor inwhole or in part . Even if the reason for the difficultyis because of an unforeseen event still the courthas not power to change the terms and conditionsof the contract. The court may however, release thedebtor in whole or in part. That is the only powergranted to the court under this provision provided inArt. 1267 which provides that when the service hasbecome so difficult as to be manifestly beyond thecontemplation of the parties, the obligor may alsobe released therefrom, in whole or in part.

A has a cellphone, and it had a casing, and ifsomeone would forcibly take his cellphone hewould request that the cellphone alone shouldbe taken. If there is an obligation to deliver a

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cellphone with its case, and the cellphone waslost or destroyed due to a fortuitous event, theobligation therefore is extinguished?

It depends on the intention of the parties as to theimportance of the thing which was lost in relation tothe entire obligation. In other words, when the

creditor would not have entered into the contractwithout the other thing which was lost, theobligation would therefore be extinguished. Thecasing would be considered be more importantwhen the casing was jewel encrusted.

Condonation or Remission of the debt

Condonation is also know as?

Donation of credit or remission of the debt.

Is renunciation also a good name forcondonation?

No because renunciation may not be a gratuitousact. The civil code would recognize an onerousrenunciation. If the renunciation is a gratuitous act itwill amount to condonation.

Son A is indebted to his father B in the amountof 500,000. Through a check A paid his father B300,000. B, his father died. The executor of thefather of the decedent demanded payment fromA 200,000. However the son raised that his

obligation was totally extinguished because asshown in the annotation at the back of thecheck, it provides that “it was in full payment ofthe obligation”. Is it condoned?

It will depend on who wrote the annotation. If thefather who made the annotation, it depends onwhether it is express or implied. If the obligation isexpress there must be an acceptance by the sonbecause it is a form of donation, which requiresacceptance. Hence the son is still compelled topay.

A borrowed money from B, 100,000. A executeda promissory note which he delivers to B wasalready in the possession of A. Was theobligation of A was extinguished bycondonation?

Not necessarily. There is a presumption that theobligation is extinguished when the promissorynote is a private instrument. If the promissory noteis contained in a public instrument the presumptionwill not arise.

When the promissory note was a privateinstrument and it was already in the possessionof the debtor, does it raise the presumption that

the obligation was extinguished bycondonation?

What the law provides under Art 1272, when theprivate document was in the possession of thedebtor, there is a presumption that the creditordelivered it voluntarily, then it presupposes that

there is payment when there is a receipt (evidenceof payment) given. If there is none, a disputablepresumption is given that there is condonation.

A borrowed 100,000 from B. To securefulfillment of his obligation a watch wasdelivered to B. Thereafter, the watch wasalready in the possession of X. Therefore, theobligation of A to B was extinguished?

The thing that was delivered to secure wasobviously a form of pledge. When the thing wasfound no longer in the possession of the creditor,pledgee. There is no presumption that theobligation is extinguished. What is presumed is thatthe pledge is extinguished.

Under the facts, there would be a presumption thatthe obligation is extinguished if X was the owner. IfX was the pledgor, then there is no presumptionthat such will arise.

Confusion or merger of rights

Confusion is also known as?

Merger of rights.

Can there be confusion by operation of law?

Yes. If a person inherits the credit, then there willbe confusion as when the son who has a debt tohis father, the son may inherit from his father thecredit thereby extinguishing the obligation bymerger of rights, assuming he is the only heir.

If it was the debtor child who died in the above

scenario, will there be confusion?

Not necessarily. Ordinarily there will be noconfusion because the father will not accept. Fortransmission of successional rights the heir mustaccept. If he accepts then there will confusion.Normally, as to obligations or debts, no one wouldaccept.

By agreement of the parties the most commonagreement which would result in confusion isknown as?

Merger agreement or contracts.

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Can there be a partial extinguishment of anobligation by confusion?

Yes. If there are two debtors.

Can there be partial confusion?

No. There is no partial confusion.A debt of A to B became due in 1995, a mergeragreement was entered into in 2002, just likeany agreement there can be a rescission, as inthis case were rescission was made in 2008,today 2010 an action was filed by B against Aon the debt, may the action still prosper?

Observation: In the exam when CU uses the wordSTILL prosper, it talks of prescription. When CUuses May the action prosper, it doesn’t talk aboutprescription but on some other grounds.

The action may still prosper. The obligation isextinguished in 2002 by merger. The merger up tothe time of rescission should not be included in thecomputation of the prescriptive period of 10 years.During the merger period, B cannot sue A, theirpersonality being one and the same. The effect ofrescission revives the status of the parties prior tothe merger, it is if A again has an obligation to Bagain. Therefore from 1995 to 2002 and from 2008to 2010 the time lapsed is only 9 years, hence wellwithin the prescriptive period.

Compensation

Art. 1278. Compensation shall take place when twopersons, in their own right, are creditors anddebtors of each other. (1195)

Art. 1279. In order that compensation may beproper, it is necessary:

(1) That each one of the obligors be boundprincipally, and that he be at the same time aprincipal creditor of the other;

(2) That both debts consist in a sum of money, or ifthe things due are consumable, they be of thesame kind, and also of the same quality if thelatter has been stated;

(3) That the two debts be due;(4) That they be liquidated and demandable;(5) That over neither of them there be any retentionor controversy, commenced by third persons andcommunicated in due time to the debtor. (1196)

Art. 1280. Notwithstanding the provisions of thepreceding article, the guarantor may set up

compensation as regards what the creditor mayowe the principal debtor. (1197)

Art. 1281. Compensation may be total or partial.When the two debts are of the same amount, thereis a total compensation. (n)

Art. 1282. The parties may agree upon thecompensation of debts which are not yet due. (n)

Art. 1283. If one of the parties to a suit over anobligation has a claim for damages against theother, the former may set it off by proving his rightto said damages and the amount thereof. (n)

Art. 1284. When one or both debts are rescissibleor voidable, they may be compensated againsteach other before they are judicially rescinded oravoided. (n)

Art. 1285. The debtor who has consented to the

assignment of rights made by a creditor in favor ofa third person, cannot set up against the assigneethe compensation which would pertain to himagainst the assignor, unless the assignor wasnotified by the debtor at the time he gave hisconsent, that he reserved his right to thecompensation.

If the creditor communicated the cession to him butthe debtor did not consent thereto, the latter mayset up the compensation of debts previous to thecession, but not of subsequent ones.

If the assignment is made without the knowledge ofthe debtor, he may set up the compensation of allcredits prior to the same and also later ones untilhe had knowledge of the assignment. (1198a)

Art. 1286. Compensation takes place by operationof law, even though the debts may be payable atdifferent places, but there shall be an indemnity forexpenses of exchange or transportation to theplace of payment. (1199a)

Art. 1287. Compensation shall not be proper whenone of the debts arises from a depositum or fromthe obligations of a depositary or of a bailee incommodatum.

Neither can compensation be set up against acreditor who has a claim for support due bygratuitous title, without prejudice to the provisionsof paragraph 2 of Article 301. (1200a)

Art. 1288. Neither shall there be compensation if

one of the debts consists in civil liability arising froma penal offense. (n)

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Art. 1289. If a person should have against himseveral debts which are susceptible ofcompensation, the rules on the application ofpayments shall apply to the order of thecompensation. (1201)

Art. 1290. When all the requisites mentioned in

Article 1279 are present, compensation takes effectby operation of law, and extinguishes both debts tothe concurrent amount, even though the creditorsand debtors are not aware of the compensation.(1202a)

Art. 1243. Payment made to the creditor by thedebtor after the latter has been judicially ordered toretain the debt shall not be valid. (1165)

Art. 1215. Novation, compensation, confusion orremission of the debt, made by any of the solidary

creditors or with any of the solidary debtors, shallextinguish the obligation, without prejudice to theprovisions of Article 1219.

The creditor who may have executed any of theseacts, as well as he who collects the debt, shall beliable to the others for the share in the obligationcorresponding to them. (1143)

What is compensation?

It is a mode of extinguishing to the concurrentamount, the obligations of those person who intheir own right are reciprocally debtors andcreditors of each other.

What are the kinds of compensation?

1. Facultative - Deposit, Commodatum, Gratuitoussupport and civil liability from crime

Requires consent of one of the parties

2. Legal - By operation of law

3. Conventional/Voluntary - by agreement of theparties.

In compensation is required that the partieshave capacity to receive and capacity todispose of their properties?

Not necessary. Compensation operates byoperation of law.

Can there be partial compensation?

Yes. There may be partial extinguishment of anobligation. As long as the debts of one are notequal to the debts of the other, the compensationwill only be to the concurrent amount and there willbe no total extinguishment.

When can total extinguishment take place?

When the debts of one are totally equal with theother.

A owes B 100,000, but B has several debts to A 1k,2k, 5k and 20k, 80k in total, with compensation, allthe debts will be totally extinguished, because theextinguishment is for the concurrent amount, but Awill still owe B 20k.

A has an obligation to B, and B has an

obligation to A. A’s obligation is interestbearing, after compensation can B still collectinterest from A?

It depends on whether the debt of B is larger thanthe debt of A. If the debt of B is larger than A, thenA will not be liable for interest as there will be totalextinguishment of the debt of A.

What if the debt of A is secured by a mortgage,and compensation took place, may B foreclosethe mortgage?

Yes. because there will still be a balance of 50k. Amortgage is an indivisible contract, until theobligation is extinguished the mortgage will remainin force. If A failed to pay the 50k then B canforeclose on the mortgage.

A opened a savings account with Y Bank in theamount of 1 M, thereafter A borrowed moneyfrom the same bank 800k, thereafter A wantedto withdraw the 1M, the bank refused to allow Ato withdraw the 1M as A can only withdraw upto the extent of 200k and invokingcompensation. Can the bank deposits be asubject of compensation with the debt?

No. Under Art. 1287 it was provided that there canbe no compensation when one of the debts arisesfrom a deposit. But a bank deposit is not a contractof deposit which is prohibited. The opening of asavings account is a contract of loan. Since bothare simple loan there can be compensation.

What if A delivered a thing to the bank as adepositary for safekeeping, can this be asubject of compensation?

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Yes it can be a subject of compensation, but onlythe depositor can invoke compensation.

What is A promised to give B a specific kind ofbike, in the meantime A already had a bike. Bborrowed the bike. Can the borrowed bike be asubject of compensation?

Yes. But only the bailor A can invoke compensationand not the bailee B. This is commodatum.

Can support be a subject of compensation?

It depends, if it is legal support it cannot because itis needed for a person’s survival. It should begratuitous support and not contractual support. Ifgratuitous compensation can take place.

A is indebted to B 100k, when B tried to collectthe debt from A, A refused to pay, so B stabbedA and hold B criminally liable. Can there becompensation?

Yes, but only the aggrieved party A (offendedparty)can invoke compensation and not B (convict)

If A and B are indebted to each other and thedebts are not yet due, can compensation takeplace?

Yes, by voluntary compensation.

If A is indebted to B of a carabao while B isindebted to A of a car, can compensation takeplace?

Yes, by voluntary compensation.

A owes B a sum of money due in 1992, B owesA a sum of money due 1999, both debts valuedat 1 million. A filed an action against B andinvoke compensation, A however said that Bcannot invoke compensation because B’s credithad already prescribed. Is A correct?

No. In 1999 even without the parties knowledge,when the debts become due and demandable,compensation took place by operation of law.

What are the requirements of legalcompensation?

1. They must be mutual creditors and debtors

2. Both debts must be in sums of money or if theypertain to goods, they must be of the same kindand quality.

3. Both parties must be principally bound.

4. They must be creditors and debtors of eachother in their own right.

Is it correct to say reciprocal creditors?

No, this is because this would pertain to reciprocalobligations, which would necessarily require thatthe same arose from the same transaction.Therefore in reciprocal obligations, there can no nolegal compensation even if they are said to bemutual creditors and debtors of each other.

Francia's property was expropriated by theRepublic of the Philippines. Since 1963 up to1977 inclusive, Francia failed to pay his realestate taxes. Thus, on December 5, 1977, hisproperty was sold at public auction by the CityTreasurer of Pasay City pursuant to Section 73of Presidential Decree No. 464 known as theReal Property Tax Code in order to satisfy a taxdelinquency of P2,400.00. May compensationtake place?

No. There can be no off-setting of taxes against the

claims that the taxpayer may have against thegovernment. A person cannot refuse to pay a taxon the ground that the government owes him anamount equal to or greater than the tax beingcollected. The collection of a tax cannot await theresults of a lawsuit against the government.

A claim for taxes is not such a debt, demand,contract or judgment as is allowed to be set-offunder the statutes of set-off, which are construeduniformly, in the light of public policy, to exclude theremedy in an action or any indebtedness of thestate or municipality to one who is liable to the stateor municipality for taxes.

Government and taxpayer are not mutuallycreditors and debtors of each other under Article1278 of the Civil Code and a claim for taxes is notsuch a debt, demand, contract or judgment as isallowed to be set-off.

By legal compensation, obligations of persons, whoin their own right are reciprocally debtors andcreditors of each other, are extinguished (Art. 1278,Civil Code). The circumstances of the case do not

satisfy the requirements provided by Article 1279,to wit: “(1) that each one of the obligors be boundprincipally and that he be at the same time a

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principal creditor of the other; xxx (3) that the twodebts be due.

PNB's main thesis is that when it opened asavings account for ISABELA on March 9, 1979in the amount of P 2M, it (PNB) becameindebted to ISABELA in that amount. 11 So that

when ISABELA itself subsequently came to beindebted to it on account of ISABELA's breachof the terms of the Credit Agreement of October13, 1977, and therefore ISABELA and PNBbecame at the same time creditors and debtorsof each other, compensation automatically tookplace between them, in accordance with Article1278 of the Civil Code. The amounts due fromeach other were, in its view, applied byoperation of law to satisfy and extinguish theirrespective credits. More specifically, the P2Mowed by PNB to ISABELA was automatically

applied in payment and extinguishment ofPNB's own credit against ISABELA. This havingtaken place, that amount of P2M could nolonger be levied on by any other creditor ofISABELA, as the ACEROS attempted to do inthe case at bar, in order to satisfy theirjudgment against ISABELA. Is therecompensation by operation of law between PNBand ISABELA?

No. The court ruled in PNB vs. Acero, that eventhough that PNB was a debtor of ISABELA underthe latter’s savings deposit in the bank, which isconsidered a simple loan, there was no proofshown by PNB in the case that ISABELA was alsoindebted to PNB, the only evidence present byPNB towards this end consists of two (2)documents marked in its behalf as Exhibits 1 and 2,But as the IAC has cogently observed, thesedocuments do not prove any indebtedness ofISABELA to PNB. All they do prove is that a letterof credit might have been opened for ISABELA byPNB, but not that the credit was ever availed of.

May there be obligations both in sums of

money in reciprocal obligations?

It cannot happen. In reciprocal obligation there aredifferent prestations, one is delivery of a thing andthe other is monetary.

Will there be legal compensation only if thedebt in money arose from contract?

No, there are cases where compensation byoperation of law took place when there was awardof attorney’s fees and the court ruled that legalcompensation may take place.

May all monetary obligation be the subject oflegal compensation?

No. Legal compensation cannot take place incertain monetary obligations such as taxes,customs duties, tariff etc.

Where A is indebted to B and this obligation issecured by a guarantor G, on the other hand Bis also a debtor of G, if G demands payment

from B, can B claim that since G is a guarantoron A’s debt to be, compensation may take placeon A’s debt and B’s debt to G?

No because the guarantor is not principally bound,but the moment A defaults and his properties arealready exhausted, the guarantor will not beprimarily l iable to B, and from then oncompensation may take place.

The owner of a share of stock authorized L to sellthe same, L on the other hand authorized S to sellit, the latter was able to sell the share of stock,however, despite demand of A from S to remit theproceeds of the sale he refused to do so. S wascharged for estafa and was convicted, on appeal Sclaimed that L owed him also, so compensationtook place, therefore he cannot be liable for estafa.Is S’s contention correct?

No, even assuming that L is indebted to S, thelatter is really not indebted to L in his own right. Thereal creditor of L is the buyer of the shares. L and Sshould be debtors and creditors of each other.

Is it required that when both debts are due anddemandable means that they are due at thesame time?

No. What is required is that both debts are due. Soif one of the debts became due 3 years ago, andthe debt became due today, compensation will onlytake place today because it is only today that bothdebts became due.

A borrowed from B, B bought a car from A oncredit, can there be legal compensation?

There can be legal compensation because when Bbought the car from A on credit, the buyer B is alsogoing to pay the price in money, so there can belegal compensation.

Fajardo borrowed money from ICB in the sumof 50M, the bank released 20M, to secure thisobligation Fajardo mortgaged propertiesamounting 110M, thereafter she also delivered1M to the bank for money market investment,so like just other investments it matured, soFajardo demanded for the return of the 1M, the

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bank claimed that Fajardo has nothing torecover from the bank because as to her loanwhich Fajardo failed to pay, upon foreclosure ofthe mortgage Fajardo still has a deficiency of 6million, so compensation took place. Fajardoquestioned the mortgage. Can there be legalcompensation?

No. There can be no legal compensation while theclaim of Fajardo questioning the mortgage is beinglitigated. As one of the requirement of legalcompensation, the debts must be liquidated anddemandable. Here, the amounts of the debt is notyet identified or liquidated, the foreclosure beingsubjected to litigation.

May legal compensation take place indepositum or commodatum?

No. As expressed in Art. 1287. In such cases legalcompensation will not take place since indepositum the depositor or the bailor must invokelegal compensation?

May legal compensation take place in debtswhich consists of civil liability arising from acriminal offense?

No as expressed in Art. 1288. Only the theaggrieved party may invoke compensation.

Assignment of Credit as a right to invokecompensation

A was indebted to B for 50k, 30k, and 20k, B onthe other hand is indebted to A for 100k, Aassigned his credit to X, X demanded paymentfrom B, how much can X demand from B?

It depends on when did this assignment occur,before or after the debt became due.

If the 50k was made on June 15, 2002, the 30kwas made on Oct. 15, 2002, and the 20k was onDec. 15, 2002, the deed of assignment wasmade on Jan. 15, 2003, and the 100k debt of Bto A was due on Nov. 15, 2002. How much can Xrecover from B?

Since the debt became due on Nov. 15, 2002 whichis prior to the debt incurred on Dec. 15, 2002 andthe assignment was made long before the debt of100k became due, compensation took place only to

the extent of 80k. Hence, X can recover as muchas 20k only, for the latter was made after the debtof 100k became due.

Assuming the 100k debt of B to A is due onNov. 15, 2002 and A assigned his credit X onMarch 2002, how much can X recover from B?

Since the assignment was made before the debtbecame due, X can recover nothing. The obligationis not yet due until Nov. 15, 2002.

Assuming the due date of the 100k debt is onNov. 15, 2002, and the assignment is in July2002, how much can X (assignee) recover fromB?

The only debt subject to compensation is the 50kand the 30k and 20k is not covered. Hence, only50k is subject to compensation. The Oct and Dec.2002 debts may be recovered by X subject tocertain requirements required by law.

What are these requirements?

Determine if B had knowledge or withoutknowledge of the assignment. If B is withknowledge of the assignment, determine whetherthere is consent or none. If consent is given,determine whether he has made a reservation as toB’s right to the compensation at the time hisconsent is given.

What are the effects of reservation at the time

of consent?

If the debtor reserves there is compensation. Ifthere is no reservation, the debtor waived his rightto compensation.

If B did not reserve his right to compensation,what is his remedy?

Demand the debts on the 50, 30 and 20k.

If B is without knowledge of the assignment,what is the effect?

There is compensation.

Novation

Art. 1291. Obligations may be modified by:

(1) Changing their object or principal conditions;(2) Substituting the person of the debtor;

(3) Subrogating a third person in the rights of thecreditor. (1203)

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- Novation is the extinguishment of an obligation bythe substitution or change of the obligation by asubsequent one which extinguishes or modifiesthe first, either by changing the object or principalcondition, or by substituting the person of thedebtor, or by subrogating a third person in therights of the creditor.

The effect of which is to extinguish the old.

What are the classifications of novation?

Novation is the extinguishment of an obligation bythe substitution or change of the obligation by asubsequent one which terminates it, either bychanging its object or principal conditions, or bysubstituting a new debtor in place of the old one, orby subrogating a third person to the rights of thecreditor. 4 Novation through a change of the object

or principal conditions of an existing obligation isreferred to as objective (or real) novation. Novationby the change of either the person of the debtor orof the creditor is described as subjective (orpersonal) novation. Novation may also be bothobjective and subjective (mixed) at the same time.In both objective and subjective novation, a dualpurpose is achieved-an obligation is extinguishedand a new one is created in lieu thereof. 5

If objective novation is to take place, it is imperativethat the new obligation expressly declare that the

old obligation is thereby extinguished, or that thenew obligation be on every point incompatible withthe old one. 6 Novation is never presumed: it mustbe established either by the discharge of the olddebt by the express terms of the new agreement,or by the acts of the parties whose intention todissolve the old obligation as a consideration of theemergence of the new one must be clearlydiscernible. 7

Again, if subjective novation by a change in theperson of the debtor is to occur, it is not enoughthat the juridical relation between the parties to theoriginal contract is extended to a third person. It isessential that the old debtor be released from theobligation, and the third person or new debtor takehis place in the new relation. If the old debtor is notreleased, no novation occurs and the third personwho has assumed the obligation of the debtorbecomes merely a co-debtor or surety or a co-surety.

It may be express (by agreement) or implied(incompatible).

It may be partial or total.

What are the requisites of novation?

1. A previous valid obligation2. agreement f all the parties to the new contract3. extinguishment of the old contract4. validity of the new one

Art. 1292. In order that an obligation may be

extinguished by another which substitute the same,it is imperative that it be so declared in unequivocalterms, or that the old and the new obligations be onevery point incompatible with each other. (1204)

Can novation be presumed?

It is never presumed.

What is the test of incompatibility between theold and the new obligation in order to effectnovation?

The change must refer to the object, the cause, orthe principal conditions of the obligation. In otherwords there must be an essential change.

Accidental modifications in an existing obligation donot extinguish it by novation. Mere modifications ofthe debt, agreed upon between the parties do notconstitute novation. When the changes refer tosecondary agreements, and not the the object orprincipal conditions of the contract, there is nonovation; such changes will produce modificationsof incidental facts, but will not extinguish the

original obligation.

E.g. A mere extension of the term of payment doesnot result in novation, for the period affects only theperformance, and NOT THE CREATION OF THEOBLIGATION.

Ultimately, the determination of whether thechanges in any given contract or obligation aresufficient to bring about a novation, must dependupon the facts and circumstances of each case.The distinction between a principal and an

accidental condition in the contract or obligation isrelative. The legal effect of any change made bythe parties will depend upon a sound appreciationof their importance. The courts should consider, ineach particular case, not only the nature of theclause that is modified, but also the intention of theparties and the economic significance of themodification.

Art. 1293. Novation which consists in substituting anew debtor in the place of the original one, may bemade even without the knowledge or against thewill of the latter, but not without the consent of thecreditor. Payment by the new debtor gives him therights mentioned in Articles 1236 and 1237.(1205a)

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What are the two forms of substitution ofdebtor?

1. Expromission which the initiative for the changedoes not emanate from the debtor and may bemade even without his knowledge, since itconsists in a third person assuming the

obligation.

2. Delegacion is by the debtor who offers and thecreditor accepts a third person who consents tothe substitution, so that the consent of thesethree are necessary.

Is the release of the old debtor required in orderthat a new debtor may be substituted?

It is required.

Is the consent of creditor required?

Whether expromission or delegacion, the consentof the creditor is required. This is so becausesubstitution of one for another may delay or preventthe fulfillment of the obligation by reason of theinability or insolvency of the new debtor; hence thecreditor should agree to accept the substitution inorder that it may be binding on him.

It may be express or implied, simultaneous or not,nor is it required to be in any particular form.

Is the consent of the old debtor required?

In expromission the consent of the old debtor is notnecessary, while in delegacion the old debtorsconsent is required for it shall be initiated in hisinstance.

Is the consent of the new debtor necessary?

Ofcourse, because he is to assume an obligation.

To whom can the new debtor demand

reimbursement?

If the novation is by delegacion, and the new debtorpays the obligation, he could demand from the olddebtor what he has paid.

If the novation is by expromission, and the newdebtor pays the debt without the knowledge of theold debtor, the former can recover only insofar asthe payment has been beneficial to the old debtor.

Art. 1294. If the substitution is without theknowledge or against the will of the debtor, the newdebtor's insolvency or non-fulfillment of theobligations shall not give rise to any liability on thepart of the original debtor. (n)

In case the new debtor became insolvent, canthe new debtors liability be enforced againstthe old debtor who has no knowledge of thenovation?

If novation is by expromission, no liability for thenew debtor’s insolvency can be enforced against

the old debtor, because the latter did not have theinitiative in making the change, which might havebeen made without his knowledge.

In case the new debtor became insolvent, canthe new debtors liability be enforced againstthe old debtor who has knowledge of thenovation?

It depends. In case of expromission he is alsoreleased from liability notwithstanding hisknowledge because obvious intent of the code isthe release the old debtor. To make the old debtorliable in expromission simply because he hasknowledge of the assumption of his debt byanother, or that he assented to it, would make hisliability even greater that that of a debtor who tookthe initiative and offered a new debtor in his place;in the latter case, the liability of the old debtorwould be limited to the two exceptions provided inart. 1295, while in the former, his liability in allcases on non fulfillment would be without limitation.

Art. 1295. The insolvency of the new debtor, whohas been proposed by the original debtor and

accepted by the creditor, shall not revive the actionof the latter against the original obligor, exceptwhen said insolvency was already existing and ofpublic knowledge, or known to the debtor, when thedelegated his debt. (1206a) (DELEGACION)

Other modes which does not exempt the old debtorfrom liability due to the new debtor’s insolvency?

a. if the new debtor is only secondarily liable

b. if the third person is only an agent of the debtor

c. where the new debtor is bound solidarily with theold debtor.

Art. 1296. When the principal obligation isextinguished in consequence of a novation,accessory obligations may subsist only insofar asthey may benefit third persons who did not givetheir consent. (1207)

Accessory obligation such as pledges, mortgagesas well as guarantors and sureties, unless the latteragree to be bound under the new obligation.

The exception provided has reference to astipulation in favor of the third person, which is

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subordinated by the principal obligation. Althoughtechnically it is an accessory obligation, it in insreality a distinct obligation in favor of a third person,and cannot be extinguished by novation without theconsent of the latter.

Art. 1297. If the new obligation is void, the original

one shall subsist, unless the parties intended thatthe former relation should be extinguished in anyevent. (n)

What if the new obligation is voidable, or notentirely void, will the old obligation subsist?

The novation becomes effective, it is valid untilannulled.

What if there is a conditional new obligation, isthere novation?

It depends, if the condition is attached to the oldobligation or not. Because if it is attached to the oldobligation, there is no novation at all.

If the condition on the new obligation is intended tosubstitute the original pure obligation, the novationitself, and the consequent extinguishment of theoriginal obligation, is subject to the condition, thenovation itself did not take place, until thehappening of the condition. Pending the happeningof the condition, novation did not yet take place, theoriginal obligation not extinguished.

Can the creditor demand from the object of theold obligation if the novated object is loss?

The creditor cannot demand from the originalobject, the latter is already extinguished by the newobligation.

Art. 1298. The novation is void if the originalobligation was void, except when annulment maybe claimed only by the debtor or when ratificationvalidates acts which are voidable. (1208a)

May a void original obligation be validated?

No. It is void and cannot be ratified. What can beratified is a voidable obligation. A void obligationcannot be a source or rights, or waivable by theparties.

Art. 1299. If the original obligation was subject to asuspensive or resolutory condition, the newobligation shall be under the same condition,unless it is otherwise stipulated. (n)

What if both obligations are conditional, old andnew?

They must all be fulfilled in order that novation maybecome effective and the new obligation beenforceable. If only the conditions affecting the oldobligation are fulfilled, and those affecting the newobligation are not, then, there is no novation, andthe old obligation subsists, because the requisite ofa new valid obligation would be lacking.

Art. 1300. Subrogation of a third person in therights of the creditor is either legal or conventional.The former is not presumed, except in casesexpressly mentioned in this Code; the latter mustbe clearly established in order that it may takeeffect. (1209a)

Art. 1301. Conventional subrogation of a thirdperson requires the consent of the original partiesand of the third person. (n)

Art. 1302. It is presumed that there is legalsubrogation:

• (1) When a creditor pays another creditorwho is preferred, even without the debtor'sknowledge;(2) When a third person, notinterested in the obligation, pays with theexpress or tacit approval of the debtor;

• (3) When, even without the knowledge ofthe debtor, a person interested in thefulfillment of the obligation pays, withoutprejudice to the effects of confusion as tothe latter's share. (1210a)

Art. 1303. Subrogation transfers to the personssubrogated the credit with all the rights theretoappertaining, either against the debtor or againstthird person, be they guarantors or possessors ofmortgages, subject to stipulation in a conventionalsubrogation. (1212a)Art. 1304. A creditor, to whom partial payment hasbeen made, may exercise his right for theremainder, and he shall be preferred to the personwho has been subrogated in his place in virtue ofthe partial payment of the same credit. (1213)

What obligation may be novated? Is it requiredthat an obligation must arise from a contract?

No, any obligation may be the subject of novation.

Is it required that there be agreement betweenthe parties in order that novation will takeplace?

Yes. Agreement is required. There may only be anovation as a result of the agreement of the parties.

What is the effect of novation?

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There will be extinguishment of the old obligationand a new one exist, except prescription. Inprescription there is no existence of a newobligation. ??????

If there are changes in the original obligationdoes it mean that there is novation?

No. If the changes does not result in novation,there is no novation. Aside from the classification, itgoes into the nature of the extinguishment.

Contracts

Are agreements contracts?

Contracts are agreements but not all agreements are

contracts.

If A and B had an agreement, is it a contract?

A mere agreement will not necessarily constitute a

contract. The nature of a contract is one of the sources of

obligations. In an agreement where there is meeting of

the minds between two persons as defined in Art. 1305

where one binds himself to give something or to render

some service. Thus, for an agreement to become a

contract there must be a corresponding obligation arising

from that agreement.

Is dacion en pago a contract?

No. Dacion en pago is the delivery of the debtor of a

thing in satisfaction of his debt. It is not mere agreement

to deliver, but rather it is the delivery. Without the delivery

there is no dacion en pago. Dacion is a mode of

extinguishing obligation. Contracts creates an obligation.

Is a contract an obligation?

No. It is one of the sources of an obligation.

Is there such a thing as a mode of extinguishing acontract?

Yes. If a mode of extinguishment is a mode of

extinguishing obligations that would also be a mode of

extinguishing contracts because, if it extinguishes a

contract then the obligation arising from the contract will

likewise be extinguished, except those which has already

been vested.

Saludaga vs. FEU

A sophomore law student of FEU was shot by the

security guard of FEU. He survived and sued FEU.

What possible liabilities may arise?

1. Quasi Delict - The employer of the security guard may

be held liable. FEU however, will not be liable under

quasi delict because FEU was not the employer of the

security guard.

2. Contract - FEU is liable under the contract because

when the student enrolls in a University, a contract is

entered into. In that contract it includes the duty of the

school to maintain a peaceful environment andconducive to learning.

Is the right to enter into a contract a purely statutory

right?

No. This right is protected by the constitution. This is

called the non impairment clause. Not even the State can

impair the freedom of parties to enter into contracts, with

the exception if it is in the exercise of police power.

Is marriage a contract?

No it is considered as a special contract because:

1. parties - in contracts it does not require that parties be

male and a female.

2. governing law - the stipulation of the parties will

primarily govern the relation of the parties, whereas in

a contract of marriage, it is the law which will govern

the rights and obligations of the parties to such

marriage.

3. termination - there are so many modes of extinguishing

a contract, whereas in a contract of marriage it is only

death primarily which will cause the extinguishment of

the obligation of the parties and annulment.

Contracts is defined as the meeting of the minds

between two persons. May a person contract with

himself?

Contracts is a meeting of the minds between two persons

(parties) whereby one (reciprocal-two) binds himself, with

respect to the other to give something or to render some

service (includes not to do) (Art. 1305).

Yes. This contract is known as an auto contract. In one

capacity acting for one person and in another capacity for

himself or yet another person.

E.g. When a person is authorized to borrow money, he

himself may be the lender.

When a person is authorized to borrow money, can

he himself be the lender?

Yes. In that loan agreement he will be signing as

representative of the principal or the borrower and he

himself be signing for himself as a lender.

This authority is subject to the rule that the interest shall

be only for the market rate.

What auto contracts which are prohibited under

Philippine law?

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1. A guardian is prohibited from acquiring by purchase

the property of his ward (art. 1491[1]). This is because

the guardian cannot sell for himself the property of the

ward.

Is it correct to say that only one of the parties to a

contract will be obligated to perform the contract

because as defined that an obligation is the meeting

of the minds of the parties where one binds himselfto give something or to perform a service?

No. It is a defect in the definition because reciprocal

obligations may arise from contracts. It is not merely

unilateral.

Is there an obligation not to do arise from contracts

because as defined that an obligation is limited to an

obligation to give and to render some service?

Yes there is an obligation “not to do” which may arise

from a contract and would render the definition defective.

As an example, in the dealers of Honda the buyers are

obligated not to use the cars as a taxicab.

Fundamental Principles/Characteristics of Contracts:

What are the fundamental characteristics of a

contracts? (5)

1. autonomy of contracts (Art. 1306)

2. consensuality of contracts

3. mutuality of contracts

4. obligatory force of contracts

5. relativity of contracts

What is autonomy of contracts or freedom of

contract or liberty to stipulate?

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 (Art. 1306).

Stipulations contrary to law

In a contract of partnership entered into by A, B and

C, in that contract it was stipulated that of the profits

of the partnership, 50% will go to A, the other 50%will go to B. Thus, if a 100,000 profit was earned by

the business of the partnership, who will share this

profit? Will A and B share 50,000 each?

No. This is because this stipulation as to the division of

sharing is void under the law. While the parties can

establish such stipulations, clauses, terms and conditions

as they may deem convenient, the requirement of the law

is that theses stipulations should not be contrary to law,

morals, good customs, public order or public policy.

This is a stipulation pactum leonina, where there is a

stipulation between the partners which excludes on of the

partners from sharing in the partnership profits.

As to law, whether this stipulation is contrary to law or not

is to know the laws which declares certain stipulations to

be void.

May a forfeiture clause in a contract be void?

Yes. The law renders it to be void if confronted by the

maceda law. If the problem covers issues under the

maceda law, then that clause declares to be a voidclause.

Are waivers valid?

Generally, yes. However there are laws where waivers

are not valid. For example in Sales, if there is a waiver as

against the seller in case of eviction. That would be a

void waiver if the seller is in bad faith.

Waiver as to future fraud is a void waiver.

Pactum Commissorium in a contract of a pledge or

mortgage is a void stipulation where it provides that upondefault of the principal debtor, the property pledge or

mortgage will automatically be owned by the pledgee or

mortgagee.

Pactum Leonina where there is a stipulation between the

partners which excludes on of the partners from sharing

in the partnership profits.

Pactum de non aliendo is a void stipulation prohibiting

the mortgagor from alienating his property without the

consent of the mortgagee.

July 1, 1998 Brian leased and office space of a

building at the rental rate of 1,000 a month. The leasecontract stipulated that in case of inflation or

devaluation of the Philippine peso the monthly rental

may be increased depending on the amount of

devaluation of inflation of the peso to the dollar.

Starting July 2000 the lessor increased the monthly

rental to 2,000 a month on the ground that there is

inflation proven by the fact that the exchange rate of

peso to the dollar is 25 pesos to 50 pesos. Brian

refused to pay in the increased rate, and an action

for unlawful detainer was filed against him. Will the

action prosper? Why?

The action will prosper. The parties may establish suchstipulations, clauses, terms and condition as they may

deem convenient. The stipulation that in case of

devaluation of the peso, the increase in rentals may be

done. Such stipulation is not a void stipulation, as it is not

contrary to law, morals, good customs, public order or

public policy. Such is a reasonable stipulation between

the parties, because when the value of the peso

devaluates, then the rental of 1,000 pesos a month is no

longer a reasonable rent, hence proper increase in

rentals as a result of the devaluation may prosper.

This is called an escalation clause where the happening

of a certain contingency, the compensation of one of the

parties may be increased.

May an escalation clause be rendered void or

ineffective?

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Yes if this escalation clause is provided in the contract of

loan which would give the bank the right to increase the

interest. The reason why this escalation clause be

considered void is because there is no de-escalation

clause. This is because there is a monetary board

resolution as far as loans are concerned, in order for an

escalation clause to be valid, there should be a de-

escalation clause. Further, such escalation or increase ininterest should be only once a year.

It must be stressed that an escalation clause to be valid

must not be solely potestative in character. The clause

should not be based on one of the whim of one of the

parties. It should be based on a reasonable and valid

standard.

Non involvement clause in an employment contract,

is it valid?

In the case of daisy tiu vs. platinum plans it was

stipulated that “the employee during his engagement withthe employer, and in case of separation from the

company whether voluntary or for cause, he/she shall not

for the next two years, engage in or be involve with any

association, corporation or entity, whether directly or

indirectly engage in the same business or belonging to

the same pre-need industry as the employer. Any breach

of the foregoing provision shall render the employee

liable to the employer in the amount of 100,000 pesos for

and as liquidated damages.

Generally a non involvement clause is not a valid clause

because it will limit the right of a person as far as his

livelihood is concerned, and this would be an

unreasonable restraint of trade. However, in this casesuch is not a void provision because this is not an

absolute prohibition. This is not absolute prohibition in

relation to the period (2 years) and trade or area of

engagement (pre-need business only in the Philippines).

Daisy Tiu was an Executive Vice President of the

Company and her job is highly confidential and having

sufficient knowledge of the strategies of the company, it

is but proper for the company to take measures to

preserve their trade secrets. Hence, such stipulation

constitute a reasonable clause which does not impair the

rights of the employee.

Contrary to morals

What stipulation may be considered immoral by the

Supreme Court?

Interest or penalties stipulation. If the penalties should be

5 pesos a day for every day of delay may either be

immoral or moral depending on the principal amount.

In one case, where the principal amount is 400 pesos,

the Supreme Court said that the 5 peso penalty is void

for being contrary to morals, unconscionable, and

excessive. It is almost 400% per annum penalty.

The 5.5. interest per month is considered contrary tomorals it being almost 76 percent interest per annum.

The interest of 3 percent per month plus penalty (36%

per annum) on the credit card decided by the Supreme

Court is considered unconscionable, inequitous, and

contrary to morals. Such interest and penalties being

rendered void by the S.C. does not render the Bank

unable to recover interest, but reduced the interest and

penalty to 1 percent per month (Macalinao vs. BPI 2009

Case).

Contrary to public policy

How would you know if there is a certain public

policy involved in relation to a certain topic?

If a law is passed, normally there will be a public policy

behind the law that may be cited by the lawmakers.

Public policies may be seen on the fundamental law of

the land, which is the constitution.

Alma was hired as a domestic helper in Hong Kong

by the Dragon Services Limited, through its local

agent. She executed a standard employment contractdesigned by the Philippine Overseas Workers

Administration for overseas Filipino workers. It

provided for a salary for one year with a salary of

1,000 U.S. dollars a month. It was submitted to and

approved by the POEA, however when she arrived in

Hong Kong she was asked to sign another contract,

which reduced her salary to only 600 U.S. dollars per

month. Having no other choice she signed the

contract, but when she returned to the Philippines,

she demanded a salary differential of at least 400 US

dollars a month. Both dragon services limited and its

local agency claimed that the 2nd contract is valid

under the laws of Hong Kong and therefore binding

on Alma. Is their claim correct?

The claim is not correct even if the stipulation in Hong

Kong where the salary is 600 dollars is a valid stipulation

under the law of Hong Kong, it cannot be enforced in the

Philippines. Such stipulation is contrary to our public

policy under the Constitution which provides full

protection to labor.

Cui was a student and enjoyed a scholarship.

However, it was stipulated that if he would transfer to

another law school he will have to reimburse

Arellano for the amounts which he should have paid

had he not been a scholar. The Law Dean of Arrellanoat that time was the uncle of Cui. When the law dean

transferred to another law school, Cui also

transferred. When he was about to take the bar

exams, he asked for his grades from Arellano, but

the latter refused to release the grades until he would

reimburse Arellano as so provided in the scholarship

agreement. He paid under protest. He passed the bar

exam and sued Arellano. What was the ruling of the

Supreme Court?

The agreement requiring reimbursement is contrary to

public policy. The public policy involved in this case is

that scholarship grants are granted on the basis of merit

and should not be granted in order to bolster thereputation of law schools. If a student wants to transfer to

another law school, he should not be required to

reimburse (Cui vs. Arrellano School of Law).

55



An agreement of two persons vying for special

nomination as an official candidate of a

congressional seat of the Nationalista party. It was

stipulated in the agreement that they would have to

go through the process of convention, and whoever

would lose in that convention shall not run as an

independent or rebel candidate. Syndico the

defendant lost in the party convention but she stillrun and won. Saura sued Syndico for damages, will

the action prosper?

The action will not prosper because the stipulation which

prohibited Syndico from running is a void stipulation

because it is contrary to public policy. A mere agreement

of two persons cannot not limit himself as a candidate in

an electoral contest. An agreement between two persons

cannot limit the right of the electorate to choose who

among the candidates is fit for that particular position.

Consensuality of Contracts

For a contract to be valid, the parties must voluntarily

give their consent. No one can be compelled to enter into

a contract.

Republic vs. PLDT

Republic filed an action to compel PLDT to enter into

an interconnection agreement. At that time when the

action was filed, the telecommunication services

within the country was controlled by PLDT. Will the

action prosper?

PLDT cannot be compelled by the Republic to enter into

a contract. Consent must be voluntarily given in order tohave a valid contract. Consent must be freely given.

However, this action was treated as an expropriation

proceeding.

Contract of Adhesion

There is a contract which is claimed to be void allegedly

for lack of consent of one of the parties because the

contract was prepared only by one of the parties. Such

contract was presented to the other party for his

adhesion, and there is practically no negotiation or

consent as to the contracts terms and conditions. This isa contract of adhesion.

Atty. Ong Yu was on his way to Butuan City and his

luggage was lost and he filed an action against PAL

claiming damages. PAL invoke a provision in the

contract “If at all PAL shall be held liable for the

luggage, such cannot exceed 100 pesos”. Atty. Ong

Yu interpose that such stipulation was in a contract

of adhesion and he did not consent to such contract.

A contract of adhesion is a valid contract. The reason is

that a party has a choice whether to accept or to reject

the contract. If bought the ticket, he practically accepted

the terms and conditions (Ong Yu vs. CA).

A case involving a trust receipt which is a contract of

adhesion. Jimmy Go questioned the validity of the

trust receipt claiming that it is a contract of

adhesion.

The trust receipt is valid however, if there is ambiguity in

the contract, such ambiguity shall be construed against

the party who prepared the contract. Since it was

Metrobank who prepared the contract, such ambiguitywas ruled in favor of Jimmy Go. The ambiguity is to when

Jimmy Go would deliver the goods, the Supreme Court

said this stipulation should be construed against

Metrobank. The obligation became due when the

demand was made by Metrobank (Metropolitan Bank vs.

Jimmy Go).

Stipulation pour atrui (Stipulation in a contract for the

benefit of a third person)/ Mutuality of Contracts.

In order for this stipulation be binding on the beneficiary,

he must communicate his acceptance before the

revocation of such benefit to the obligor.

What if one of the parties to the contract (not the

beneficiary) revoked the benefit, in fact he may have

sent a letter to the beneficiary informing the latter

that the benefit in your favor in the contract which i

entered into with B has already been revoked. This

revocatory letter has been sent by A before the

beneficiary communicated his acceptance. Does it

mean that the beneficiary would no longer be entitled

to this benefit?

Not necessarily. He may still be entitled because in order

for the revocation to be effective it has to be consented to

by both parties. Otherwise if only one of the partiesrevoked the benefit in favor of the beneficiary, that would

be contrary to the fundamental principle of contracts

which is the mutuality of contracts.

Under this mutuality of contracts principle, a contract

must bind both contracting parties and its validity and

compliance cannot be left to the will of one of them. So,

as far as the benefit is concerned as it was agreed upon

by both parties, it can only be revoked by both parties. A

revocation by only one is a violation of this fundamental

principle of mutuality of contracts.

If an escalation clause would be invoked by one of theparties without a reasonable and valid standard, the

Supreme Court would rule that it is contrary to the

mutuality of contracts principle. To be a valid clause, it

must be based on a valid and reasonable standard. It

should not solely be potestative in character.

May the termination of the contract by one of the

parties be violative of this fundamental principle of

mutuality of contracts?

No. In the case of Philbanking vs. Louie Sy involving a

contract of lease where the lessee was given the right to

terminate the contract by merely giving notice to the

lessor, and the termination shall take effect after 15 daysfrom receipt of the notice of the termination. The S.C.

ruled that such stipulation does not violation the mutuality

of contracts principle. It is not covered by the mutuality of

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contract, what is covered is the validity or compliance, it

does not pertain to the termination of the contract.

Obligatory Force of Contracts

Under this principle, obligations arising from contracts

have the force of law between the contracting parties,

and should therefore be complied with in good faith.

When would a contract have the force of law between

the contracting parties? The fact that there is already

a meeting of the minds between the object and

subject matter of the cause, does it mean that the

contract already has the force of law?

Not necessarily. In order for a contract to have the force

of law, the contract must have been perfected. It is at the

time of the perfection of the contract that either parties to

the contract can compel the other party to perform the

obligations under that contract.

Just because the contract has been perfected does itmean that such is already enforceable?

Not necessarily. Because such perfection of the contract

is subject to the statute of frauds. A contract of sale may

have been perfected because there is already a meeting

of the minds as to the object and the price, however if it

is not in the form prescribed by law or it is not covered by

Article 1403, that would be an unenforceable contracts.

Autonomy of contracts

The parties to the contract in the loan for money

agreed that the yearly interest rate is 12% will be

increased if there is a law authorize the increase ofthe interest rates. Suppose OB would increase the

interest rate by 5% to be paid by TY the borrower

without a law authorizing such increase, would that

increase would be just and valid? Would TY has a

remedy against the imposition of such interest rate

increase. Would OB’s action be just and valid?

Ofcourse no. Under the autonomy of contracts principle

the parties can establish such stipulations terms and

clauses as they may deem convenient. They agreed that

there can only be an increase if there is a law. Since

there was no law, there can be no valid increase.

In one case, similar to this scenario that there should

be law authorizing such increase. Thereafter at that

time, the usury law has not yet been suspended. The

Central Bank at that time issued a monetary board

resolution authorizing an increase rate. With that

monetary board resolution authorizing the increase

in the rate, would that now give the lender the

increase in the rate considering their stipulation?

The SC said no because a law is not the same as a

monetary board resolution. Although such monetary

board resolution may have the force of law, but it is not a

law. Since the parties agreed only if there is a law. Since

there is no law, but only a monetary board resolution,there can be no valid increase in the interest rate.

Don, an American businessman secured parental

consent for the employment of 5 minors to certain

roleses in two movies he was producing at home in

Makati. They work 5 hours a day and night but

always accompanied by their parents or other adults.

The producer paid the children talent fees better than

adult wages, but a social worker reported to SWF

that these children often missed going to school.

They sometimes drank wine and in some cases theywere exposed to drugs and sometimes they were

filmed naked or in revealing costumes. Don, in his

defense, all these are part of artistic freedom and

cultural creativity. None of the parents complained

said Don, and he said that the contract containing a

waiver of the right to file any complaint in any office

or tribunal concerning the working conditions of the

children acting in the movies. Is the waiver valid and

binding?

The waiver here is a void waiver because this would be

contrary to the law which provides for the protection of

minors. Any waiver as to the rights of minors in relation tothe law protecting them would be a void waiver because

it is contrary to law.

Relativity of contracts

A sold an item to B, thereafter B sold the same item

to C. Ordinarily would A have the cause of action

against C?

None because there is no privity of contracts

between A and C. It is only A and B and B and C who

has privity of contract. So who would be bound to a

contract?

Ordinarily the parties, their assigns and heirs and those

who would be affected, benefited and who can be liable

under the contract.

The assigns and heirs are privy to the contract. Under

Art. 1311, contracts take effect between the parties, their

assigns, and heirs.

Is it possible that a contract will not affect the heirs,

or not to benefit the heirs?

Yes, under this provision. A contract may take effect only

upon the parties when the rights and obligations arising

from this contract are intransmissible. Three scenarioswhere rights and obligations are intransmissible: 1) When

the law so provides; 2) If there is a stipulation; 3) If the

nature of the rights and obligations would not allow the

transmissibility of these rights and obligations.

(Stipulation)

In a lease contract decided by the Supreme Court,

there was a stipulation in the contract that the rights

and obligations of the parties are intransmissible.

The lessee died, would his heir would still have the

right to the possession of the leased premises until

the expiration of the period?

The S.C. said no because with the death of the lessee,the contract was extinguished because the rights and

obligations arising from the contract are intransmissible

by stipulation.

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But ordinarily, the heirs will still have the right to possess

because a lease contract is not a purely personal

contract. Therefore the rights and obligations of the

parties in relation to the contract may be transmitted to

heirs and assigns. Even in lease contracts, also a lessee

ordinarily sublease the premises in whole and in part,

unless he is prohibited from subleasing the property.

(Law)

Under the law on usufruct, ordinarily, when the

usufructuary dies, will his rights be transmitted to

his heirs?

No because the law so provides, except when there is a

contrary stipulation in their agreement.

(By Contract or agreement)

A property right of a partner known as the right in a

specific partnership property. A partner cannot assign his

rights in a specific partnership property without all

partners making the same assignment over the sameproperty. A partner alone without the consent or

knowledge of the other partners cannot transmit his

rights to an assignee by law.

(By nature)

When the rights and obligations are purely personal or

the qualifications of the parties have been considered in

the establishment of the contract. This is common in

contracts which will involve skills because with the nature

of such rights it cannot be assigned to another person,

for such is a purely personal right.

In the principle of privity of contracts, in what

circumstances may a third person may be bound to acontract?

A third person may be held liable in a contract in which

he is not a party or in which he is not privy, or a third

person may have a cause of action in relation to a

contract, when he may be benefited or prejudiced by

such contract.

In contracts involving or creating real rights, third persons

who would take possession of the object or subject

matter of the contract, subject to the requirements of

mortgage laws and registration laws, etc.

(In contracts involving real rights)

In a contract involving a real estate mortgage on a

parcel of land entered into between A and B, A being

the mortgagee and B being the mortgagor. A sells his

land to C and thereafter if A the mortgagor is also the

principal debtor, he defaulted. Can the mortgagagee

foreclose the mortgage of this parcel of land? With

the sale and the land may have been delivered to C,

C may already be the owner of the land. May there be

still a valid foreclosure over the land, if the land is no

longer owned by the mortgagor?

Yes it is possible because in such contracts which

creates real rights, the rights of the mortgagee attachesto the property whoever may be the owner over the

property who may be bound to this mortgage. Even if C

is the owner, his rights will be subject to the rights of the

mortgagee, subject to the qualification of the law on

mortgage and registration law. In this case, for C to be

bound to this contract, though C is not a party or privy to

this contract, nonetheless he would be bound if this

contract is registered or even if not registered, C has

actual knowledge of this contract. Actual knowledge has

the same effect as registration.

(In contracts in fraud of creditors)A sold a parcel of land to B, but the sale is in fraud of

creditor X. Ordinarily B being a third person will not be

bound to the contract or will have a cause of action to

this contract. But because this contract is in fraud of

creditors, the law grants him the right to rescind the

contract. This is one contract which is rescissible under

Art. 1381.

When may a third person be held liable under a

contract which he is not a party or privy to such

contract?

Under Art. 1314 when a third person interferes in acontract subject to the requirement that there must be

malice in the interference.

Francis Albert, a citizen and resident of New Jersey

USA, under whose law, he is still a minor being only

20 years of age which was hired by ABC corporation

Manila to serve for 2 years as its chief computer

programmer. After serving for only 4 months he

resigned to join XYZ corporation which entice him by

offering more advantages terms. His first employer

sued him for damages arising from the breach of

contract arising from his employment, he sets up his

minority defense as for annulment of the contract on

that ground. The plaintiff disputes this by allegingthat the contract was executed in the Philippines

under whose law the age of majority is 18, he was

only a minor. Suppose XYZ corporation was

impleaded as a co-defendant, what would be the

basis of its liability?

XYZ Corp. is a third person in a contract entered into

between ABC and Francis Albert. XYZ Corp. may be held

liable under Art. 1314 when he maliciously induced a

party to a contract to violate the contract. Since XYZ

Corp. enticed Francis Albert offering the latter more

advantages terms mean that the former may be held

liable for malicious interference because of suchenticement. For liability to arise under Art. 1314, the first

requirement of the law is that there must be knowledge of

such third person of the existence of a contract. If he has

no knowledge and merely asks the person to join the

company, apparently there can be no malice.

By the use of the term enticement and giving more

advantageous terms, to that extent it can mean that there

is such malicious interference on the part of XYZ.

The basis of liability of XYZ would be solidary liability with

Francis Albert because such is a tortious act and under

Art. 2194 where it provide that when 2 or more persons

are held liable for quasi delict, shall be solidarily liable.

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May the liability of a third person who maliciously

interfered to the contract be more than the liability of

a party to a contract who violated the contract?

No. In one case the S.C. held that the liability of such

third person cannot be more than the liability of a party to

the contract who himself violated the contract.

Roland, a basketball star was under a contract for 1year to play for and exclusively for lady love. Even

before the basketball season could open, he was

offered a more attractive pay plus fringe benefits.

Roland accepted the offer for sweet taste. Lady love

sued Roland and Sweet taste. Defendants claimed

that the restriction to play for lady love alone i



A chattel mortgage being an accessory contract, and

although such accessory contract is extinguished, that

will not extinguish the principal because the accessory

follows the principal.

So, even if the crops were destroyed due to a fortuitous

even, at best it would only extinguish the chattel

mortgage. Being an accessory contract it does not at all

affect the obligations under the principal contract.

The effect of such extinguishment on the loan contract is

that it will not be unsecured.

If the scenario would pertain to the extinguishment of the

principal contract, then the accessory contract would

necessarily include the extinguishment of the accessory

contract by operation of law. The accessory will follow the

principal (Republic vs. Grihaldo).

What are the accessory contracts?

1. Guarantee2. Suretyship

3.Pledge

4. Chattel Mortgage

5. Real Estate Mortgage

6. Antichresis

Are preparatory contracts accessory contracts?

No. Preparatory contracts are principal contracts.

principal contracts will not necessarily be the end by

themselves. They are entered into for other contracts to

be made like agency or partnership.

If the agent did not enter into a contract as he boundhimself to do so in an agency to sell such that he did

not sell anything of the goods of the principal. Will it

affect the validity of the contract of agency?

No. preparatory contracts can stand on their own.

Though they cannot be the end by themselves, they can

stand on their own, they are not accessory contracts.

If he failed to comply with his obligation under the

contract, as a rule, he can be held liable for not

performing his obligation.

Real Contracts: Perfected by delivery of the object or thesub ject matter of the obligation.

A borrowed money from B. To secure the fulfillment

of his obligation, A agreed to deliver his watch to B

as a security in a verbal agreement. Without this

watch being delivered to B and before the delivery of

the sum of money borrowed. Was there a perfected

contract involve in the problem?

The contracts involve in the problems are 1) contract of

loan and 2) pledge.

No contracts has been perfected to both. These

contracts are real contracts. For the perfection of thiscontract, delivery of the object or the subject matter of

the contract is required. Art. 1316 enumerates real

contracts, though there are only 3 enumerated real

contracts which is pledge deposit or commodatum,

clearly mutuum or simple loan is also a real contract as

expressly provided under the provisions of simple loan.

This contract can only be perfected upon the delivery of

the thing or money borrowed to the borrower or the

lender, as the case may be.

Consensual Contracts: These are contracts which is

perfected by mere consent.

This should be considered as the meeting of the minds

as to the object and the consideration

Note: If there is a meeting of the minds as to the object

and not to a consideration, there is a meeting of the

minds but there is no perfected contract.

Formal Contracts: Contracts require certain form.

What contract is not perfected by mere consent even

if it is not a real contract?

If such contracts is required to be in a certain form to be

valid.

If a contract is not valid, may it be perfected?

Ofcourse not. In fact, no obligation would even arise, if it

is a void contract.

As an example in antichresis, the law requires that the

agreement as to the principal and interest shall be in

writing, otherwise the antichresis is void.

Other example would pertain to a donation, where the

object of the donation is a real property, the donationshould be in a public instrument, otherwise, the donation

is void.

Merly offered to sell an automobile to Violy for 60k,

after inspecting the automobile Violy offered to buy it

for 50k. The offer was accepted by Merly. The next

day Merly offered to deliver the automobile but Violy

being short of funds secured postponement of the

delivery. Promising to pay the price upon arrival of

the steamer Helena. The steamer however, never

arrived because it was wrecked by a typhoon and

sunk somewhere over the coast of Samar. Is there a

perfected contract in this case? Why?

Since this is a contract of sale, and it being a consensual

contract, there was a perfected contract of sale because

when Violy’s counter offer was accepted, then there was

already a perfected contract of sale. Although, Violy’s

delivery of the car is conditioned that steamship Helena

would arrive, does not affect the perfection of the

contract. The condition here is not a condition for the

obligation to arise, because the contract had already

been perfected. The condition here is only to the

fulfillment of the obligation. This is not an obligation to

arise.

In a problem involving a contract where a thing wasdelivered, what contract was entered into. What

rights and obligations of the parties under the

contract?

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It depends on the intention of the parties as to the effect

of the delivery. Would the delivery result in the transfer of

ownership? Was the purpose of the delivery was only for

the use and enjoyment of the thing by the other party?

Was the delivery only for the purpose of safekeeping?

If it involves transfer of ownership it may be a contract or

transaction. If it is a contract it could be a sale, barter. Butit cannot be a lease or commodatum because there is

transfer of ownership. If it is merely a transaction this

could be dacion en pago since there is transfer of

ownership.

If the purpose is only for the use and enjoyment of the

thing by the other party to whom the thing was delivered,

the contract could be a lease or commodatum. The

difference this time goes into the nature of the contract

as to the cause. Because if there is a price to be paid for

the use and enjoyment of the thing, that is a lease. But if

the use or enjoyment is gratuitous, this could be

commodatum.

Kinds of Contracts as to cause:

1. Onerous

2. Contracts of pure beneficience

3. Remuneratory

Onerous Contract - Lease of Service

Art. 1350 In onerous contracts the cause is understood to

be, for each contracting party, the prestation or promise

of a thing or service by the other; in remuneratory ones,

the service or benefit which is remunerated; and in

contracts of pure beneficience the mere liberality of thebenefactor.

Commutative - Equivalent in the value of the prestation

(in a contract of sale the value of the thing to be delivered

is equal to the value of the price).

Are all contracts of sale commutative?

No Sale of Hope is not commutative, like lotto or

sweepstakes.

Nominate - Special Rules governing this contract.

Inominate - Without a name

If the stipulation of the parties are not sufficient to

resolve the controversy, what rules should apply?

Rules on obligations and contracts. If not, rules

analogous to obligations and contracts.

In accessory contracts, what is the cause?

It depends on the contract.

The pledgor or mortgagor may be a 3rd person. If the

pledgor or mortgagor is the same person, the cause is

the same.

When must the cause exist?

It mist exist at the time the contract is entered into.

In a deed of sale, what is the cause?

As to the seller, it is the price, as to the buyer it is the

thing sold.

If the price does not appear in the contract, is the

contract void?

No. the cause is presumed to exist, so even if not stated

in the contract it is presumed to be lawful.

If the buyer bought a gun for the purpose of killing a

person, was the sale void?

No, because cause is different from motive. Cause is the

essential reason, motive is the personal reason. A

personal reason even if unlawful or illegal does not affectthe validity of the contract.

If the person entered into a contract to avoid a

threatened injury, would that be affected by the

motive?

Yes. As a rule, the il legality of motive will not affect the

validity of the contract. It might affect the validity if the

purpose of the person or motive predominates the

purpose of the contract.

May a contract be void because the motive is illegal or

unlawful?

Yes in cases where the sale to a person whose motive is

only to circumvent the prohibition under Art. 1490 where

the husband and wife cannot sell property to each other

subject to certain exceptions as provided therein.

If the cause or reason why the seller sold the thing is

to defraud his creditors, is the contract valid?

It is valid but the contract may be considered defective, it

is a rescissible contract.

Deed of Sale over a certain car for P1, is the sale

valid?

Yes the sale is valid. Lesion does not affect the validity of

a contract except in cases provided by law such as lesion

suffered by a ward under rescissible contracts. However,

when there is fraud, mistake or undue influence, then it is

not valid, it is voidable (Art. 1355)

If the cause stated in the contract is a false cause, is

the contract valid?

The cause is false if it is fictitious or simulated. If the

cause is false, it does not follow that the contract is void;

it is considered only as a voidable contract because if it

can be proven that there is another cause which is trueand lawful, the contract is valid.

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What is absolute incapacity?

Persons who are prohibited by law to enter into any

contracts. It is void from the beginning.

What is relative incapacity?

Persons who are capacitated to enter into contracts but

for other contracts they are not allowed by reason of theirrelationship to the person with whom they represent.

(e.g. Art. 1491).

May an agent buy the property of the principal?

Yes, provided it is consented to by the principal.

May an alien may acquire property by purchase in

the Philippines?

Yes, an alien may acquire property by purchase in the

Philippines, provided he is a former natural born citizen

as provided in the Constitution.

May there be a contract of sale over a private land

even if the alien is not a natural born citizen?

Yes, if the alien is disposing of the property. What is

prohibited is acquiring property.

How can the alien sell if he did not acquire?

He may have acquired it by succession.

A contract was entered into by a person who has

capacity to give consent, is the contract valid?

Not necessarily because even if consent was given by a

person who has capacity to act, the contract may be

voidable when there is vitiated consent.

A gave consent with a contract with C. He gave

consent in representation of B. If B did not authorize

A to enter into the contract, what is the status of the

contract?

It may be unenforceable. It may be valid if A is given

authority of the law to enter into such contract such as

guardians, executors or administrators.

What are the vices of consent?

1. Mistake or error

2. Intimidation or threat

3. Violence or force

4. Undue influence

5. Fraud or Deceit (Art. 1330)

Mistake

An action was filed by the buyer of a car for the

annulment of a contract on the ground that he was

mistaken as to the brand of stereo of the car which is

alleged to be Pioneer but it was Sanyo. Would thecourt grant the prayer of the plaintiff for the

annulment of the contract?

No. Not every time there is mistake would give a person

a right to annul the contract. The error or mistake in order

for annulment to prosper must be substantial regarding:

a.object of the contract

b.conditions which principally moved one or both parties

to enter into the contract

c. identity or qualifications of persons

d.error must be excusable, and not caused bynegligence

e.the error must be a mistake of fact and not of law.

Simple error or mistake as to account will give rise to

correction, not annulment of the contract.

The mistake in the brand of the stereo may not be the

condition which impels the buyer to purchase the car.

The possible mistake which would give rise to a condition

which would principally move the buyer to purchase the

car is the engine, because it goes into the essence of the

thing, probably because he is a race car driver, and he

would want a car with a powerful engine.

A entered into a contract of sale payable on

installment, may annulment be a remedy?

For the buyer, it may be a condition which impels him to

enter into a contract, when there is an error that the

payment will not be in installment. Annulment is a remedy

because he could not have entered into such contract

when he knew that the sale was on a cash basis.

May the mistake in the identity or qualification of

persons required in order to be a ground for

annulment?

Not necessarily. It is necessary however, as in the case

of contract of guaranty when the principal cause which

moves the creditor to accept him as a guarantor.

Violence/Intimidation

Violence - There is violence when in order to wrest

consent, serious or irresistible force is employed (Art.

1335).

Intimidation - When one of the contracting parties is

compelled by a reasonable and well grounded fear of an

imminent and grave evil upon his person or property, orupon the person or property of his spouse, descendants

or ascendants to give his consent (Art. 1335).

Violence was employed upon the spouse of the party

claiming vitiation of consent? Would that be a valid

ground for annulment?

View 1: No. He cannot invoke annulment because it was

not employed upon his person.

View 2: But, if in intimidation, the person may already

invoke the remedy of annulment with more reason that

such remedy should be available there being physical

compulsion.

If the plaintiff claims that he sold his fish pond at a

time where there were lawless elements roving in

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that area where his fish pond was located. His

neighbors also did the same. May he invoke that they

were compelled to sell because of lawless violence?

No. In order for violence or intimidation to be a valid

ground for annulment, it should not be a general duress.

It has to be actually employed upon the party or those

persons so provided by law. This duress is called

collective duress which is not a ground for annulment ofthe contract.

Note:

1. A threat to enforce one’s claim through competent

authority, if the claim is just and legal does not vitiate

consent.

2. In determining the degree of intimidation, the sex, age

and condition of the person intimidating and

intimidated should be taken into consideration.

3. Violence or intimidation shall annul the obligationalthough it may have been employed by a third person

who did not take part into the contract (Art. 1336).

If it was undue influence that was exerted by a 3rd

person upon one of the contracting parties, would

that party have a right to annul if he can prove

collusion upon a 3rd person?

Though the law does not provide, the answer is yes

because undue influence would also affect volition or

voluntariness just like violence and intimidation.

If violence, intimidation or undue influence is

employed by a 3rd person upon one of thecontracting parties, would that party have a right to

annul the obligation if he cannot prove collusion by

the 3rd person and the other contracting party?

With or without collusion, there is a right to annul the

contract.

Fraud

There is fraud, when, through insidious words or

machinations of one of the contracting parties, the other

is induced to enter into a contract, without which, he

would not have agreed (Art. 1338).

Dolo Incidente - Committed after the perfection of the

contract; the party would have entered into that contract

under different terms and conditions. The remedy of the

party is to ask for damages.

Dolo Causante - Committed before or at the time of

perfection. Causal fraud that would make the contract

voidable, and a ground for annulment of the contract.

How is Consent manifested?

Consent is manifested by the meeting of the offer and the

acceptance of the object and the cause.

What are the requisites of consent?

1. Must be given by two or more parties

2. Parties must be capacitated to give consent, as a rule

3. Consent must be intelligently or freely given, as a rule

4. Express manifestation of the will of the contracting

parties.

A offered to sell his parcel of land to B. B could notdecide whether he would but the land or not. A

granted B 2 years to decide. This agreement was put

into writing (option agreement). Assuming 3 months

from the time the offer was made the offeror

withdrew the offer and informed B. One year

thereafter B said I am buying the land. A said he does

not want to sell the land. May A be compelled to sell

the land?

No. A cannot be compelled to sell. When B finally

decided to accept the offer, A had already withdrawn the

offer. There is no more offer to be accepted.

In an instance where B accepted the offer was

withdrawn, B cannot compel A to accept the price

because that would amount to involuntary servitude. The

remedy of B is an action for damages due to breach of

contract.

In the above scenario where there is an option

money given after the withdrawal by A, may B

compel A to accept the price?

No. There can never be a meeting of the offer and

acceptance because there is no contract to talk about.

In a scenario where A can withdraw but has notwithdrawn, an option money is given, may B compel

A to accept the price?

Since the giving of an option money amounts to

reservation of acceptance, and gives A no right to

withdraw, B is nonetheless precluded from compelling A

to accept the price because that would amount to

involuntary servitude. The remedy of B is to ask for

damages for breach of contract.

If there is an option agreement, should it always be

money which is the consideration to the option

agreement?

Not necessarily, It is a consideration which is something

paid or promised which is separate and distinct from the

price.

When the offerer has allowed the offeree a certain period

to accept, the offer may be withdrawn at any time before

acceptance by communicating such withdrawal, except

when the option is founded upon a consideration as

something paid or promised (art. 1324).

Note:

1. Acceptance made by letter or telegram does not bindthe offeror except from the time it comes to his

knowledge. An offer becomes ineffective upon the death,

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civil interdiction, insanity or insolvency of either party

before acceptance is conveyed.

2. The acceptance by the offeree may be revoked before

reaching the knowledge of the offeror. If it is revoked,

the contract is not perfected if the notice of revocation

reaches the offeror before the letter of acceptance is

received.

3. If an obligor promises a reward for the realization of an

act or achievement of a particular result, said obligor is

obliged to pay the reward to anyone who performs the

act or attains the result. No specific acceptance is

required because the offer is made to the public. This

is an exception to the rule of law that if the offer is not

accepted the same is not binding.

4. Unless it appears that the offer is definite or certain,

business advertisements of things for sale are not

definite offers, but mere invitations to make an offer

(Art. 1325).

5. Advertisements for bidders are simply invitations to

make proposals, and the advertiser is not bound to

accept the highest or lowest bidder, unless the contrary

appears.

An offer was made on January 2, 2008 when A sent a

letter offering to sell his land to B. This letter was

received 2 weeks after (1-14-08), two days thereafter

(1-16-08) he sent his letter accepting the offer. The

letter was received (1-25-08). If A died on 1-23-08

would there a perfected contract?

None. The acceptance must be from the time it was

made known to the offeror and not from the time theofferee manifested his desire to enter into a contract.

If A was insane on 1-23-08, would there be a

perfected contract?

None. Even if A was merely insane at the time he

receives the letter, there will be no perfected contract.

There is no meeting of the minds because he was

already insane at the time he has knowledge of the

acceptance.

Requirements for object of contracts?

1. The thing must be within the commerce of men

2. Transmissible

3.Licit

4. Possible

5. Determinate

If the object of a contract a thing?

Not necessarily. It may pertain to performance of

obligations to do (things, rights, services).

Is it correct that in special contracts 3 subject matters

(thing, right and service) may be a valid subject matter of

the contract?

Yes. In a contract of lease.

In all other contracts?

No, as in sale only things and rights may be to subject of

sale.

Rights

Does the law require it to be licit?

No. Because by their very nature , it should be licit.

Does the law require rights to be transmissible to be

the subject matter of contracts?

No. It may or may not be transmissible. It may not be

transmissible if the law or stipulation of the parties

provide otherwise.

May future rights be sold?

Yes. Rights over a book which is still to be written may be

sold.

Requirements in order that service may be the

subject matter of contracts?

It must not be contrary to law, morals, good customs or

public policy. It must not be impossible.

Requirements in order that a thing may be the

subject matter of contracts?

It must be within the commerce of men, otherwise it is

void.

Form of Contracts

Does the law require a particular form for the validity

and enforceability of contracts?

As a rule, the law does not require a particular form,

except when the law requires that a contract must be in a

certain form to be valid and enforceable then this

requirement is absolute and indispensable.

When the law requires a particular form and the

parties failed to comply, the contract is void?

Not necessarily. If the law requires a particular form, thecontract need not be void if the law did not provide for

nullity of contract.

What contracts would be void if the parties failed to

comply?

Donation of real property must be in a public instrument

in order to be valid, even between the donor and the

donee (Art. 749), otherwise if is void.

If the value of the personal property donated exceeds 5

thousand pesos , the donation and the acceptance shall

be made in writing, otherwise the donation shall be void

(Art. 748).

In antichresis, the agreement as to the principal and

interest must be in writing, otherwise it is void.

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In case of conflict between intention and the words

or phrases which shall prevail?

The real intention of the parties prevail even if the words

and phrases are clear as to their meaning.

Rules in Interpretation of Contracts:

If the terms of the contract is clear, the literal

meaning shall control?

Not necessarily. If the stipulation is contrary to the

intention of the parties, the intention shall prevail and the

literal meaning will not bind the parties.

How to determine the real intention of the parties?

The contemporaneous and subsequent acts of the

parties, such as the subsequent payments and the

subsequent execution of real estate mortgage shows that

there is no dation in payment.

A stipulation in a contract of sale that payment isdeemed made upon the signing of the contract.

Despite such stipulation, seller filed an action for

recovery of purchase price. Will the action prosper?

Yes. because there is no presumption that payment is

made. By the contemporaneous and subsequent acts of

the parties, it was shown that indeed payment was not

made.

Rules in the interpretation of words and phrases

shall not favor who?

The party who caused the ambiguity. In the case of ESL

vs, Margarine, the shipper who prepared the bill oflading, it was stipulated as to the extent of the liability of

the common carrier in case damage is sustained. The

SC held that it will be interpreted against the shipper who

prepared the document.

In a sale of one of the cars, the seller, despite the

application of the rules on interpretation of contracts

and the circumstances surrounding it, there is

ambiguity as to which car is the object of the sale.

What is the effect?

The contract is void when it is absolutely impossible to

settle the doubt.

A obliged himself to deliver and transfer ownership

over a specific car. During the negotiation B already

saw the car with stereo. When the car was delivered,

there was no stereo. B demanded delivery of stereo.

If the claim of B a valid claim?

It depends on what contract was entered into.

If gratuitous, the doubt refers only to the incidental

circumstance pertaining to the contract, and because the

principle of least transmission of rights shall prevail.

If it is an onerous contract, the he will be entitled to thestereo because in onerous contracts the greatest

reciprocity of interest shall govern.

Defective Contracts

Is defective contracts a good classification under

this title?

No. Because the term defective contract mean that thereis an existing contract. In Void Contracts there is no

contract to speak of.

May a contract be rescissible, voidable and

unenforceable all at the same time?

Yes because the defects differ depending on the status of

the contract.

What are the four kinds of defective contracts?

1. Rescissible Contracts; Valid until rescinded; the defect

is extrinsic defect consisting of an economic damageor lesion.

2. Voidable Contracts; Valid until annulled. Annullable

unless ratified. If ratified, the contract is cleansed of its

defect. This contract is effective now, but may be

invalidated.

3. Void Contracts is one that has no effect at all; it cannot

be ratified or validated. This is called inexistent

contracts.

Distinguish Rescission under Art. 1191 and

Rescission under Rescissible Contracts?

1. In 1191 there must be a breach while in Rescissible

Contracts there may or may not be a breach.

2. The prescriptive period under 1191 is 1 years while

rescission under 1380 and 1381 should be filed within

4 years from the date of the contract.

3. The breach under Art. 1191 should be a substantial

breach or fundamental breach. Slight breach or casual

breach cannot be the basis on an action for rescission

under 1191.

4. Under 1191 it is a principal remedy, while in 1380 and

1381, it is a subsidiary remedy.

May the defect of the contract be void and voidable

at the same time?

No, because void contracts are inexistent while voidable

contracts exist.

May rescissible, unenforceable and voidable

contracts be ratified?

Unenforceable contracts and voidable contracts may be

ratified.

Rescissible contracts cannot be ratified because it has

no inherent defect as to the requisite.

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May a void contract be ratified?

Yes, under Art. 1898 the principal can ratify the contract

as when the agent acted in excess of authority and the

3rd person was aware that the agent acted in excess of

authority.

However, the enumeration under Art. 1409 cannot beratified for they are void and inexistent from the

beginning.

Rescissible Contracts

How may contracts be considered rescissible?

Contracts may only be considered rescissible because

the law so provides.

If there is no law declaring the contract to be rescissible,

it is not.

What contracts are considered rescissible?

1. Those which are entered into by guardians whenever

the wards whom they represent suffer lesion by more

than 1/4 of the value of the things which are the object

thereof;

2. Those agreed upon in the representation of absentees,

if the latter suffer the lesion stated in the preceding

number.

3. Those undertaken in fraud of creditors when the latter

cannot in any manner collect the claims due them;

4. Those which refer to things under litigation if they have

been entered into by the defendants without

knowledge and approval of the litigants or competent

judicial authority.

5. All other contracts specially declared by law to be

subject to rescission (Art. 1381).

What other contracts declared by law to be

rescissible?

1. The right to rescind as provided under Art. 1189 in

case of deterioration of the thing delivered.

2. The right to rescind given an unpaid seller as provided

for in Art. 1526.

3. The right to rescind given to a vendee in sale of real

property per unit of measure or lump sum price.

4. Violation of warranty against hidden defects under Art.

1567.

How to determine whether a contract is entered into

in fraud of creditors?

1. There must be an intention to defraud creditors.

2. There must be a pre-existing obligation at the time it

was entered into.

Note: Even if the contract was entered into

before the obligation arose, it is still in fraud of creditors

when the purpose is really to defraud creditors.

3. The existence of fraud or bad faith on the part of the

debtor which can either be presumed or proven; and

4. The creditors cannot recover their credits in any othermanner.

In what instance may a contract be said to be in

fraud of creditor even before the obligation arose?

In a contract of loan where a person is supposed to

mortgage his property as security for the loan. Here the

debtor owns the property at the time of the loan but

before the money to be loaned was released by the

Bank, the person disposed of the property. There was no

perfected loan but there was already fraud of creditors,

even before the money was released, the titles will

already be delivered to the bank.

How to prove fraud in (contracts in fraud of

creditors)?

Creditor may prove fraud by invoking the presumptions

provided for by law. It may be proved by proving badges

of fraud.

What are some instances considered by the Court as

badges of fraud?

1. The fact that the consideration of the conveyance is

fictitious or inadequate;

2. A transfer made by a debtor after suit has begun and

while it is pending against him;

3. A sale on credit by an insolvent debtor;

4. Evidence of large indebtedness or complete

insolvency;

5. Transfer of all or nearly all if his property by a debtor

especially when he is insolvent or greatly embarassed

financially;

6. The fact that the transfer is made between father andson, when the above circumstances are present;

7. The failure of the vendee to take exclusive possession

of all the property.

May a contract be considered rescissible even

without badges of fraud?

Yes, in:

1. Gratuitous contracts - Contracts entered into by the

debtor when he did not reserve sufficient property to

pay his debts before donation are considered

fraudulent.

2. Onerous contracts -

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a.Made by a person against whom some judgment has

been rendered even if not yet final.

b. Made by person against whom some writ of

attachment has been issued. The decision or

attachment has been issued. The decision or

attachment need not refer to the property alienated.

Note: Even if the order of attachment is not yetfinal and the executor 2 days after the issuance

disposed of it, the presumption would still arise.

It is not necessary that the order becomes final.

A donated a property worth 5M to X, and the debt is

500k, is there a presumption that the donation is in

fraud of creditors?

Not necessarily because A may have reserved sufficient

property to pay his debts.

Does it matter whether the debtor was aware of the

order?

It does not mater.

Are the presumptions conclusive or disputable?

The presumptions are merely disputable and the debtor

can prove good faith. But with respect to donations, the

fraud of creditors should be conclusive because debts

should be satisfied first before any gratuitous

transactions should be made by the debtor.

Because there was lesion of 25%, is it rescissible?

Not necessarily. It is void if the guardian is the buyer. It isvalid if it is made with judicial authority.

Because there was lesion of 25%, is rescission a

remedy?

No because there are requirements for rescission to

prosper. Rescission is merely subsidiary and there must

be prior exhaustion of all legal remedies.

If there is rescission, should there be a return of

what has been received?

Not necessarily because if the thing which is the object ofthe contract is legally in the possession of another who

did not act in bad faith, rescission will not prosper.

May a 3rd person pay for the damage or

indebtedness of the debtor who is the seller in fraud

of creditors?

No. The creditor can no longer rescind.

What is the prescriptive period for rescission?

A.General Rule

Within 4 years from the date it was entered into:

1. If the person is under guardianship, within 4 years from

the time the guardianship ceases;

2. In case of absentees, within 4 years from the time the

domicile is known.

B.In certain contracts of sale which are specially

declared by law to be rescissible, the period is 6 mos.

or even 4 days counted from the day of delivery (Arts.

1543, 1571, 1577).

Who are the persons who can bring the action for

rescission?

1. the injured party

2. the heirs of the injured party

3. the creditors if the transaction is fraudulent

Two parcels of land are alienated in fraud of creditors

in one contract, may the contract be rescinded?

The contract may be rescinded by the restitution of both

properties is not required because the restitution may

only be to the extent to recover damages caused.

Voidable Contracts

What are voidable contracts?

Those which possess all the essential requisites of a

valid contract but one of the parties is INCAPABLE OF

GIVING CONSENT, or CONSENT IS VITIATED by

mistake, violence, intimidation, undue influence or fraud.

Who may avail of the remedy of annulment of a

voidable contract?

Only those principally and subsidiarily obliged can be aparty.

The capacitated person cannot invoke the incapacity of

the other party. Only the incompetent party may avail of

this remedy.

May a 3rd party who is subsidiarily obliged have the

contract annulled?

An action for annulment by 3rd person may be allowed if

that person can show to the court damages that he may

incur if the contract is not allowed. Guardians, guarantors

or pledgors are subsidiarily liable, they will be benefited ifannulled and prejudiced if not annulled.

Do void contracts produces no legal effect?

Void contracts produces no legal effect whatsoever.

An action to recover from a void contract, can it

prosper? If so, there is an effect of a void contract?

It can prosper, there is a right to recover in case the

parties are in par delicto (Art. 1411, 1412, 1414, 1416).

There is right to recover because the law so provides. It

is not an effect of contracts.

Unenforceable Contracts

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These contracts cannot be enforced through court action

unless ratified. If there is a proper objection there is

obviously no ratification. One kind of ratification is when

there is failure to properly object, when oral evidence is

presented to prove the existence of a contract.

What contracts are considered as unenforceable

contracts?

1. Contracts where both parties are incapacitated;

2. Contract entered into in representation of another but

he does not have the authority of that person.

3. Contracts enumerated under Art. 1878 entered into by

an agent without a Special Power of Attorney.

4. Contracts entered into under 1403 more properly

known as the Statute of Frauds.

What are the unenforceable contracts under Art. 1403?

The following contracts are unenforceable, unless theyare ratified:

1. Those entered into in the name of another person by

one who has been given no authority or legal

representation, or who has acted beyond his powers.

2. Those that do not comply with the Statute of Frauds

as set forth in this number. In the following cases an

agreement hereafter made shall be unenforceable by

action, unless the same, or some note or

memorandum thereof, be in writing, and subscribed by

the party charged, or by his agent; evidence, therefore,

of the agreement cannot be received without the

writing, or a secondary evidence of its contents:

a.An agreement that by its terms is not to be performed

within a year from the making thereof;

b. A special promise to answer for the debt, default, or

miscarriage of another;

c.An agreement made in consideration of marriage, other

than mutual promise to marry;

d. An agreement for the sale of goods, chattels or things

in action, at a price not less than P500, unless the

buyer accept and receive part of such goods andchattels, or the evidences or some of them, of such

things in action, or pay at the time some part of the

purchase money; but when a sale is made by auction

and entry is made by the auctioneer in his sales book.

at the time of the sale, of the amount and kind of

property sold, terms of sale, price, names of the

purchasers and persons on whose account the sale is

made, it is a sufficient memorandum;

e.an agreement for the leasing for a longer period than 1

year, or for the sale of real property or of an interest

therein;

f. A representation as to the credit of a third person.

3. Those where both parties are incapable of giving

consent to a contract.

If both parties are incapacitated and one of the

parties ratified, what is the status of the contract?

Voidable because by then only one party is

incapacitated.

If a person entered into a contract in representation

of another but does not have the authority of thatperson, is the contract unenforceable?

Not necessarily because such person may have entered

into a contract through legal representation (authorized

by law or by the court), even if he is not authorized by the

person represented.

Statute of Frauds

Is the Statute of Frauds applicable only in Contracts

of Sale and/or Lease?

No. Under Art 1403 it was provided that any agreementunder its terms is not to be performed within 1 year and it

is not in writing would be unenforceable. Thus a contract

for piece of work or contract of agency, or any contract

for that matter may be covered by the Statute of Frauds if

under the terms of such contract, is not to be performed

within 1 year. It will be unenforceable if not in writing.

What is the purpose of the law in requiring a contract

to be in writing if it is to be performed within 1 year,

is it to prevent fraud from being committed?

It is not necessarily to prevent fraud from being

committed but rather because that even honest men may

commit mistakes.

An oral partnership is valid?

True, even if one of the parties contributed an immovable

property. What the law requires is that the partnership

itself should be in writing, which require to have an

inventory of such immovable property, to be signed by all

the contracting parties.

There is no debate to the fact that the provision under

ARt. 1771 where it provides that where immovable

property or real rights are contributed thereto, a public

instrument shall be necessary. In relation to Art. 1773where it provides that whenever an immovable property

or real rights is contributed, if an inventory is not made,

the contract of partnership is void. Nowhere in these two

provisions that would tell that whenever the contract of

partnership is entered and a contribution of real property

is made, if not in a public instrument, it is void. What is

void is when there is no inventory of the real property,

that would make the contract of partnership void. It is

valid, the purpose of inventory is to notify third persons

who would enter into contracts with the partnership.

Oral promise of guarantee is valid?

An oral guarantee is alway entered into by a 3rd person.The guarantor here is not the principal debtor. This would

fall under the statute of frauds, a special promise to

answer for the debt of another. Since it is not in writing, it

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is merely an oral promise of guaranty, it cannot be a valid

and binding contract, it will be unenforceable under Art.

1403.

Cabagui vs. Roxillo

The father and his son had a verbal agreement with

another father with his daughter, that the son and the

daughter will get married, but the father and the sonwill cause the repair of the house of the father and

the daughter. Pursuant to this agreement the father

and the son had the house of the father and the

daughter repaired. They spent 700 pesos. However,

after the house of the father and the daughter

repaired, the daughter refused to marry the son. The

father and the son filed an action for damages

against the father and the daughter. Will the action

prosper?

As to the cause of action the father as against the father

and the daughter, this would be an action based on an

agreement, in consideration of marriage. Therefore,under the statute of frauds it should be in writing, since

this is merely a verbal agreement, that agreement is

unenforceable. The action should be dismissed. (Art.

1403)

However, as to the son, the cause of action pertains to

an action under a mutual promise to marry which is not

covered by the statute of frauds. Under the law, An

agreement made in consideration of marriage other than

a mutual promise to marry. (Art. 1403).

Note: A mere breach of a mutual promise to marry is not

actionable, but the manner by which the breach of

promise to marry may be the basis of an action fordamages.

Does the law require that for the statute of fraud to

apply it had to be in a public instrument?

No. It merely require that it be in writing to be a valid and

binding contract.

If the contract of sale involves an immovable

property, and it is not in writing, it will be

unenforceable?

In sale of an immovable property as long as it is inwriting, it would be a valid and binding contract between

the parties. But it will not bind 3rd persons, because a

private instrument cannot be registered except if such

3rd person have actual knowledge of this contract.

Does it matter if the purchase price of the immovable

property is only 300 pesos?

No. The price in sale of immovable is irrelevant.

If A sold a bag to B, which bag he purchased 3 days

ago for 3500 but he sold it to a friend today and it is

not in writing, is it covered by the statute of frauds?

Not necessarily. Even if the value of the bag is 3500, and

he sold it merely for P350, it will not be covered by the

statute of frauds. The law on sales follow the principle

that lesion does not affect the validity of contracts.

A contract of sale involving a movable property, wort

P300, may that contract still be covered by the

statute of frauds?

Yes it may still be covered when under the terms of the

contract, it is not to be performed within one year.

In a contract of lease which is for a period of 3 years,

it is merely a verbal contract, would that be covered

by the statute of frauds?

Not necessarily. Under the law an agreement for leasing

for a longer period than one year, must be in writing to be

enforceable pertains to a real property or an interest

therein. If the subject of the lease is a personal property,

then it cannot be subject to the provision of the statute of

fraud pertaining to lease contracts.

In a contract of lease entered into by an agent, andthe contract will involve a real property and the

period is more than 1 year. What is required for this

to be enforceable?

It has to be in writing and the agent should have a

special power of attorney.

X came across an advertisement in the Manila Daily

Bulletin about the rush sale of three slightly used

Toyota Corollas model 1989 for 200k pesos each.

Finding the price to be very cheap and in order to be

sure he gets 1 of the unit ahead of the others, X

immediately phoned the advertiser and placed an

order for 1 car. Y accepted the order and promised todeliver the ordered unit on July 15, 1989. On the said

date, however, Y did not deliver the unit. X brings an

action to compel Y to deliver the unit. Will such

action prosper?

This action will not prosper is there is a proper objection

on the part of Y. But if oral evidence is presented to prove

the existence of the contract, and there is no proper

objection on the part of Y, then the action may prosper to

prove the existence of the contract. As stated under the

facts, the contract is a sale of a movable property valued

more than 500 pesos, hence covered by the Statute of

Frauds which require that the contract be in writing. Inthis case there is only a verbal contract.

A and B entered into a verbal contract whereby A

agreed to B to sell his only parcel of land for 20k

pesos. B agreed to buy the land on the

aforementioned price. B went to the bank to

withdraw the money to be paid to A and immediately

returned A for the consummation of the contract. A

however, changed his mind and refused to go

through with the sale. Is the agreement valid? Will

the action by B against A for specific performance

prosper?

The agreement is valid but this cannot be enforcedthrough court action because the facts involve a parcel of

land which is required to be in writing to be enforceable.

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The action for specific performance may prosper if there

is no proper objection on the part of A when B offered his

evidence to prove the existence of the contract,

otherwise such action will not prosper.

This action may also prosper notwithstanding the failure

on the part of A to object to the evidence when B raises

the defense of partial fulfillment. However, under the

facts there is no partial fulfillment. B just went to the Bankand withdraw the money and returned to A. Such fact

does not prove partial performance, but merely an act

preliminary to the fulfillment of the obligation to pay. He

only planned to pay.

In an oral contract which by its terms is not to be

performed within 1 year from the execution thereof,

One of the contracting parties already complied

within the year with the obligation imposed upon him

by said contract. Can the other party avoid fulfillment

of those incumbent upon him by invoking the Statute

of Frauds?

No. He can no longer invoke the Statute of Frauds had

there been performance of the obligation by one of the

parties. The reason why a person can invoke the Statute

of Frauds is because the contract is still wholly executory

thus there is no proof of the existence of the contract. If

there had been performance already of the contract,

even if partial, it presupposes there has been a contract

in the first place.

One half of a parcel of land belonging to A and B was

sold by X to Y for the amount of 1500. The sale was

executed verbally. One year later A and B sold the

entire land to X. Is the sale executed verbally by X to

Y, valid and binding?

The sale between X and Y being a verbal sale which

involves a parcel of land. On its face it appears to be

covered by the Statute of Frauds.

Alt. 1 But the answer would be, as suggested by the UP

Law Center, the sale is valid and binding because of the

payment, and that took the contract outside the operation

of the Statute of Frauds.

Accdg. to Professor Uribe, under the facts there was no

payment. There was no mention that Y paid X 1500.

Alt.2 Even if X was not the owner at the time of the sale,

when he thereafter acquired ownership because A and B

sold the entire land to X, by operation of law, ownership

passes to his own buyer (Y). The basis of which is Art.

1434.

Accdg. to Professor Uribe however, the above basis

cannot also apply because for Art. 1434 to apply the law

further requires there must have been delivery of the

thing by the seller to the buyer, even if the seller was not

the owner and no right to sell, he must deliver the thing to

the buyer in order that ownership to automatically pass to

the buyer, the moment the seller acquires ownership

over the thing. Under the facts, there was no mention ofdelivery.

Alt. 3 Since this a sale of an immovable property and this

is a verbal sale, there being no partial fulfillment of any

obligations arising from this contract, this is

unenforceable under the Statute of Frauds. (proper

answer)

An agreement or contract which involves a Real

Property is covered by the Statute of Frauds?

Not necessarily.

An agreement as to the partition of a parcel of land, but

that agreement is not covered by the Statute of Frauds.

The Statute of Frauds would be applicable if the action

filed is to enforce a contract which is covered to claim

damages because of breach of that contract.

Where an ejectment suit was filed and the plaintiff

was about to testify as to the existence of a contract

in relation to the land to prove his right to evict the

occupant. The lawyer of the defendant invoked the

Statute of Frauds. Should the judge sustain theobjection of the defendant?

No. The action was not an action to enforce an

unenforceable contract, nor an action covered by the

Statute of Frauds, nor an action to claim damages based

on an unenforceable contract. This involves a third

person. A third person under the law cannot assail an

unenforceable contract.

If there is no partial payment or no partial delivery,

the doctrine of part performance shall not apply,

which will bring the contract outside the coverage of

the Statute of Frauds?

No True. Partial fulfillment may pertain to any obligation

arising from a verbal contract.

For example in a case decided by the Supreme Court

involving a sale of a parcel of land, as verbally agreed

upon buyer paid the real property taxes. The buyer also

had the property surveyed. The buyer also constructed a

building, more or less permanent in character. These

obligations does not have anything to do with payment or

delivery, but nonetheless the S.C. ruled that because of

partial fulfillment of the obligations arising from that

contract, the contract was taken out of the Statute of

Frauds. Fulfillment does not necessarily be related topayment or delivery.

If a contract is covered by the Statute of Frauds, and

the plaintiff would want to present a witness who

would testify without any document at hand. In other

words, oral testimony is being presented, and there

is an objection under the Statute of Frauds, does it

necessarily mean that the judge should sustain the

objection, because the contract is covered by the

Statute of Frauds?

It depends on the purpose of the testimony. If the

purpose of the testimony is to prove partial fulfillment,

then the Statute of Frauds is not applicable. Partialfulfillment may be proven wholly by oral testimony. No

documentary evidence is required in relation to partial

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fulfillment. Hence, the judge should not sustain the

objection.

Moreover, even if three (3) witnesses would testify in

court as to partial fulfillment. The court should not

automatically conclude that there was in fact partial

fulfillment. The court should satisfy itself base on the

testimony that indeed there was partial fulfillment.

On the other hand the Statute of Frauds does not pertain

to the weight of evidence. The Statute of Frauds affects

the admissibility of the evidence. In other words if the

contract is covered by the Statute of Frauds, the

testimony may not even be allowed under this objection.

It goes into the admissibility of the evidence.

How shall unenforceable contracts be ratified?

1. By acceptance of the benefits under such contract.

2. For failure to object to the presentation of oral

evidence at the proper time.

Void Contracts or Inexistent Contracts

What contracts are void or inexistent from the

beginning?

1. Those whose cause, object or purpose is contrary to

law, morals, good customs, public order or public

policy;

2. Those which are absolutely simulated or fictitious;

3. Those whose cause or object did not exist at the time

of the transaction;

4. Those whose object is outside the commerce of men;

5. Those which contemplate an impossible service;

6. Those where the intention of the parties relative to the

principal object of the contract cannot be ascertained;

7. Those expressly prohibited or declared void by law

(Art. 1409).

Are relatively simulated contracts void?

The relatively simulated contract is void but they will bebound to the contract or transaction which the parties

actually entered into.

The cause or object of the contract need not exist as

long as such cause has the potentiality of existence?

False. The object is not a thing, the object is the subject

matter of the contract. Such view may be right in a

contract of sale, where the contract of sale may be valid

even if the thing is not yet in existence as long as it has

the potentiality of existence. But in contracts, there has to

be a cause or object at the time of the transaction. If

there will be no subject matter, it lacks one of the

essential requisite of a contract.

What other contracts expressly prohibited or

declared void by law?

The following persons cannot acquire by purchase, even

at public or judicial auction, either in person or through

the mediation of another:

1. The guardian, the property of the person or person

who may be under his guardianship;

2. Agents, the property whose administration or sale mayhave been intrusted to them, unless the consent of the

principal have been given;

3. Executors and administrators, the property of the

estate under administration;

4. Public officers and employees, the property of the

State or of any subdivision thereof, or of any

government owned and controlled corporation, or

institution, the administration of which has been

intrusted to them; this provision shall apply to judges

and government experts who, in any manner

whatsoever take part in the sale;

5. Justices, judges, prosecuting attorneys, clerks of

superior and inferior courts, and other officers and

employees connected with the administration of

justice, the property and rights in litigation or levied

upon an execution before the court within whose

jurisdiction or territory they exercise their respective

functions; this prohibition includes the act of acquiring

by assignment and shall apply to lawyers, with respect

to the property and rights which may be the object of

any litigation in which they may take part by virtue of

their profession;

6. Any others specially disqualified by law (Art. 1491 - lawon sales).

A void contract produces no legal effect whatsoever?

True, a void contract produces no legal effect

whatsoever. Under Art. 1352, Contracts without cause,

or with unlawful cause, produce no effect whatsoever.

Secondly, a void contract is being categorized as

inexistent. If a contract is inexistent, how can it produce

any legal effect.

If an action is filed to enforce a void contract, will the

action prosper?

No. Any action to enforce a void contract will never

proper because there is nothing to be enforced.

If the contract is void, and pursuant to that contract,

one of the parties delivered a sum of money or a

thing to the other party, may he be able to recover

what he delivered to the other party?

Ordinarily if a contract is an illegal contract, meaning the

object or the cause is contrary to law, morals, good

customs, public order or public policy, he can no longer

deliver under the principle of in pari delicto. The court

should leave the parties as they are, and no aid shouldbe given to either party to this contract.

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However, under Art. 1411, 1412 , 1414, 1415 and 1416.

The exceptions:

1. If one of the parties to this illegal contract was

incapacitated at the time the contract was entered into,

he may be allowed to recover what he delivered to the

other party. Therefore, even if the contract is illegal and

therefore void, still he should be allowed to recover if

public interest warrants what he delivered pursuant tothe void contract.

2. Despite the fact that the contract is an illegal contract,

a party to such contract may be allowed to recover

what he delivered if he repudiated the contract before

the consummation of the contract or before damage is

caused to a third person.

What is the distinction between an inexistent

contract and annullable contract?

Inexistent are void contract while annulable contracts are

valid contracts until annulled.

Inexistent contracts cannot be ratified; while annulable

contracts can be ratified.

Inexistent contracts are void because one of the

essential elements is lacking or maybe because the

contract is contrary to law, morals, good customs, public

order or public policy. Annulable contracts is a defective

contract because of defect in the consent either

incapacitated or there is vitiation as to his consent.

In 1950, the Bureau of Lands issued a homestead

patent to A. Three (3) years later A sold the

homestead to B. A died in 1990 and his heirs filed an

action to recover the homestead from B on theground that the sale of A (their father) to B is void

under sec. 118 of the Public Land Law. B contends

however, that the heirs of A cannot recover the

homestead from him because their action has

prescribed, and furthermore, A was in pari delicto.

Decide.

As to prescription, it is not a good defense because the

sale made within 3 years from the grant under the Public

Land Law is a void sale. Any alienation of the land under

this law within the 5 year prohibitory period is a void

alienation. A contract which is null and void and an action

to recover from such void contract does not prescribe.

However, into the second defense that the heirs cannot

recover under the in pari delicto rule, as provided in Art.

1416, that when a law declares a contract null and void

but there is no inherent illegality (not illegal per se) in the

What defense could have been proper by B under the

facts?

The proper defense should have been laches. In this

case almost 40 years had elapsed. The grantee, the

seller slept on his rights, and therefore he and his heirs

may not recover, under the principle of laches.

M an unwed mother gave her child for adoption to achildless couple, BC for which the latter paid 20k. In

the civil register of birth, the father was listed as

father unknown. Two years later after BC learned to

love the child as their own, the adoption proceedings

commenced with required publication. F the father of

the child appeared to oppose the adoption and to

seek custody of the child. M sided with BC claiming

that F had abandoned her when he was pregnant

declararing that she wanted BC to keep the child.

Could BC recover the twenty thousand (20,000) they

had paid for either F or M? Reasons.

No they cannot recover. Effectively, M sold the child tothe spouses BC and obviously the sale is a void sale

because the object is contrary to law, morals, good

customs, public order or public policy. The contract being

an illegal contract , the in pari delicto rule would be

applicable and whatever was delivered by the party to

the other may no longer be recovered, as the court

cannot give aid to either party to such contract.

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