karichi amended b2017

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!!!!!!!1! OBLIGATIONS!AND!CONTRACTS!|!Prof.!E.!A.!Labitag!|!A.Y.!2013?2014!!!Karichi!Amended!|!B2017!

TITLE%I.%OBLIGATIONS%

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CHAPTER(1:(((GENERAL(PROVISIONS((

I. Concept*of*Obligations**

A. Definition((!

Art.!1156.! !An!obligation!is!a!juridical!necessity!to!give!to!do!or!not!to!do.!

!OBLIGATION!

• From! the! Latin! word! obligare,! which! means! tying,! or!binding.!!

• Tie! or! bond! recognized! by! law! by! virtue! of! which! one! is!bound!in!favor!of!another!to!render!something!

• This!may!consist!in!giving!a!thing,!doing!a!certain!act!or!not!doing!a!certain!act.!!

!JURIDICAL!NECESSITY!

• In! case! of! noncompliance,! the! courts! of! justice! may! be!called! upon! by! the! aggrieved! party! to! enforce! its!fulfillment,!or! in!default! thereof,! the!economic!value!that!it!represents.!

• The! debtor! may! be! made! liable! for! damages! which!represents!the!sum!of!money!given!as!a!compensation!for!the!injury!or!harm!suffered!by!the!creditor!or!oblige!

• The! debtor! must! comply! with! his! obligation! whether! he!likes!it!or!not;!failure!will!have!harmful!consequences!!

!NATURE!OF!OBLIGATIONS!UNDER!THE!CIVIL!CODE!

• Civil!obligations!are!obligations!which!give!the!creditor!or!oblige!a!right!under!the!law!to!enforce!their!performance!in!courts!of!justice!

• Natural! obligations! are! not! based! on! positive! law! but! on!equity! and! natural! law,! do! not! grant! a! right! of! action! to!enforce! their! performance! although! in! case! of! voluntary!fulfillment!by!the!debtor,!the!latter!may!not!recover!what!has!been!delivered!or!rendered!by!reason!thereof!(article!1423)!

!OBLIGATORY! RELATION! IN! ITS! TOTALITY:! The! juridical! relation,!created! by! virtue! of! certain! facts,! between! two! or! more! persons,!whereby! the! creditor! or! obligee,! may! demand! of! the! debtor! or!obligor,!a!definite!prestation.!!PASSIVE!SIDE:!Where!there!is!a!right!or!power!to!demand,!there!is!a!correlative!obligation!or! an! imposition!upon! a! person!of! a! definite!conduct.!!!

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CRITICISM!OF!DEFINITION!

• It! is! one! sided,! reflects! only! the! debtor’s! side! of! the!agreement!–!Sanchez!Roman!

• Article!1156!gives!the!Civil!Code!definition!of!obligation!in!it’s!passive!aspect.!!

• Our! law!merely!stresses!the!duty!of!the!debtor!or!obligor!when!it!speaks!of!an!obligation!as!a!juridical!necessity.!(De!Leon)!

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B. Elements((!

1. ACTIVE!SUBJECT!!• Has!the!power!to!demand!the!prestation!!• Also!known!as!the!obligee!or!creditor!! fulfilment!of!the!obligation!

2. PASSIVE!SUBJECT!!• Has!the!duty!to!perform!the!prestation!!• Also!known!as!the!obligor,or!debtor,!

!3. PRESTATION!OR!OBJECT!!

• May!consist!in!giving,!doing,!or!not!doing.!!• Must!be!(a)!possible,! (b)!determinable,!and!(c)!capable!of!

pecuniary!estimation!!

KINDS%OF%PRESTATION%• TO!GIVE!–!consists!in!the!delivery!of!a!movable!or!an!

immovable!thing,!in!order!to!create!a!real!right!or!for!the!use!of! the! recipient!or! for! its! simple!possession!or!in!order!to!return!to!its!owner!

• TO! DO! –! all! kinds! of! work! or! services,! whether!mental!or!physical!

• NOT!TO!DO! –! consists! in!abstaining! from!some!act,!includes! “not! to! give,”! both! being! negative!obligations!!

!REQUISITES%OF%PRESTATION%

• Is!physically!and!juridically!possible!• Is!determinate!or!at!least!determinable!according!to!

pre?established!elements!or!criteria!• Has!a!possible!equivalent!in!money!!

o Pecuniary! interest! need!not! be! for! one!of! the!parties,!it!maybe!for!the!benefit!of!3rd!person/s!distinct!from!the!parties!to!the!contract!

o Prestation!need!not!be!of! economic! character!to! have! pecuniary! value,! if! it! does! not! have!value! the! law! attributes! to! it! economic! value!e.g.!moral!and!nominal!damages!

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4. JURIDICAL!OR!LEGAL!TIE!!• That!which!binds!or!connects!the!parties!to!the!obligation!• Established!by!(a)!law,!(b)!bilateral!acts!(contracts),!and!(c)!

unilateral!acts!(crimes!and!quasi?delicts)!• Also!called!efficient,cause,or!vinculum!• Form! in! which! the! obligation! is! manifested! –! cannot! be!

considered!essential!!!NOTE:! The! form! in! which! an! obligation! is! manifested! cannot! be!considered!essential.!!!

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C. Distinction(between(Natural(and(Civil(Obligation(!

AS!TO! NATURAL! CIVIL!

Enforceability!and!How!Enforced!

Cannot!be!enforced!by!court!orders;!depends!

on!the!good!conscience!of!the!

debtor!

Can!be!compelled!by!the!person!holding!the!

right!to!compel,!through!the!courts!or!public!authorities!

Source!and!Basis! Equity,!Natural!Justice!and!Conscience!

Positive!Law!

II. Sources*of*Obligations**

A. LAW([ExJLege](!

Art.! 1158.! Obligations! derived! from! law! are!NOT,PRESUMED.! Only!those! expressly! determined, in, this, Code! or! in! special, laws! are!demandable,! and! shall! be! regulated! by! the! precepts, of, the, law!which! establishes! them;! and! as! to!what,has, not, been, foreseen,! by!the!provisions!of!this!book.!!

!• Is!an!independent!sources!of!obligations!• Governed!by!the!law!itself!• Agreement! of! the! parties! is! not! necessary! (e.g.! tax!

collection,!Art!448!and!Art!488)!• Is! not! presumed;! only! those! expressly! provided! are!

enforceable!• To! be! demandable,! they!must! clearly! be! set! forth! in! the!

law!(i.e.,!Civil!Code!or!special!laws.)!• “Special! laws”!refer!to!all!other! laws!not!contained!in!the!

Civil!Code.!!!

B. CONTRACTS([ExJContractu,(Culpa(Contractual](!

Art.!1159.!Obligations!arising!from!contracts!have!the!force!of! law!between! the! contracting! parties! and! should! be! complied! with! in!

good!faith.!

!• Expresses!principle!of!autonomy!of!will,!presupposes!that!

contract!is!valid!and!enforceable!!• PRE?CONTRACTUAL! OBLIGATION:! Damages! can! be!

recovered!when!contract!is!not!perfected!if:!o Offer!is!clear!and!definite,!leaving!offeree!in!good!

faith!to!incur!expenses!in!expectation!of!entering!into!a!contract!!

o Withdrawal!of!the!offer!must!be!without!any!illegitimate!cause.!If!offeror!is…!!! Guilty,of,fault,or,negligence,!liability!would!be!

based!on!Art!2176!! Not,guilt,fault,nor,negligence,!withdrawal!was!in!

abuse!of!right,!liability!would!be!based!on!Art!19!e.g.!breach!of!promise!to!marry,

!Art.! 1305.! A! contract! is! a!meeting! of!minds! between! two! persons!whereby! one! binds! himself,! with! respect! to! the! other,! to! give!something!or!to!render!some!service.!!

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• Binding! force?obligations! arising! from! contracts! have! the!force!of!law!between!the!contracting!parties!!o Contracts!are!not!superior!to!law.!!o Must!be!valid!and!cannot!be!valid!if!it!is!against!the!

law.!!o Compliance!in!good!faith?in!accordance!with!the!

stipulations!or!terms!of!the!contract!or!agreement.!!o There!is!sincerity!and!honesty!

C. QUASIJCONTRACTS( or( DELICTS( [Quasi( ExJContractu](!Art.! 1160.! Obligations! derived! from! quasi?contracts! shall! be!subject!to!the!provisions!of!Chapter!1,!Title!XVII.!

!Art.!2142.!Certain!lawful,!voluntary!and!unilateral!acts!give!rise!to!the!juridical!relation!of!quasi?contract!to!the!end!that!no!one!shall! be! unjustly! enriched! or! benefited! at! the! expense! of!another.!!

!• Juridical!relation!which!arises!from!certain!acts!that!are:!!

o LAWFUL!–!against!crime!o VOLUNTARY!–!against!quasi?delict;!based!on!

negligence!or!mere!lack!of!foresight!!o UNILATERAL!–!against!contract!in!which!there!are!

two!parties!o E.g.!!Art!2144,!Art!2150,!Art!2154,!Art!2164,!Art!2167,!

Art!2168,!Art!2174,!and!Art!2175!!

1. KINDS!OF!QUASI[CONTRACTS!!

a. NEGOTIORUM%GESTIO%(OFFICIOUS%MANAGEMENT)%%

!Art.!2144.!Whoever!voluntarily!takes!charge!of!the!agency!or!management!of! the!business!or!property!of!another,!without!any! power! from! the! latter,! is! obliged! to! continue! the! same!until! the! termination! of! the! affair! and! its! incidents,! or! to!require!the!person!concerned!to!substitute!him,! if! the!owner!is!in!a!position!to!do!so.!This!juridical!relation!does!not,arise!in!either!of!these!instances:!

!1)! When! the! property! or! business! is! not! neglected! or!abandoned!

!2)! If! in! fact! the!manager! has! been! tacitly! authorized! by! the!owner!

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b. SOLUTIO%INDEBITI%(PAYMENT%NOT%DUE)%!

Art.! 2154.! If! something! is! received!when! there! is! no! right! to!demand! it,! and! it!was!unduly!delivered! through!mistake,! the!obligation!to!return!it!arises.!

!• The! juridical! relation!which! is! created!when! something! is!

received!when! there! is! no! right! to! demand! it! and! it!was!unduly!delivered!by!mistake!(Article!2154)!

• Requisites:!!o No!right!to!receive!the!thing!delivered!o The!thing!was!delivered!through!mistake.!!

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c. OTHER%QUASI=CONTRACTS%(SUPPORT%GIVEN%BY%STRANGERS%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!shall!have!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.! 2165.! 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.! 2166.!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!the!father!or!mother! of! a! child! under! eighteen! years! of! age! unjustly! refuses! to!support!him.!!Art.! 2167.! 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.! 2168.! 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!bound!to!pay!the!former!just!

compensation.!!Art.!2169.!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.!2171.! The! rights!and!obligations!of! the! finder!of! lost!personal!property!shall!be!governed!by!Articles!719!and!720.!!Art.! 2172.! The! right! of! every! possessor, in, good, faith! to!reimbursement! for! necessary! and! useful! expenses! is! governed! by!Article!546.!!Art.! 2173.! 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).!!Art.! 2174.! 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.!

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Art.! 2175.! Any! person! who! is! constrained! to! pay! the! taxes! of!another!shall!be!entitled!to!reimbursement!from!the!latter.!!!

D. ACTS( or( OMISSIONS( PUNISHED( BY( LAW( [ExJDelictu,(ExJMaleficio,(Culpa(Criminal](!Art.!1611.!Civil!obligations!arising!from!criminal!offense!shall!be!governed! by! the! penal! laws,! subject! to! the! provisions! of! Art!2177,!and!of!the!pertinent!provisions!of!Chapter!2,!Preliminary!Title! on! Human! Relations! and! of! Title! XVIII! of! this! Book,!regulating!damages.!!

!Art.!100,!RPC.!Every!person!criminally!liable!for!a!felony!is!also!civilly!liable.!!

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• GENERAL!RULE!"Civil!liability!is!a!necessary!consequence!of!criminal!liability!o Reason!"!Commission!of!crime!causes!not!only!

moral!evil!but!also!material!damage.!!o Art!12,!RPC!Exempting!circumstances;!do!not!incur!

liability!but!are!NOT!EXEMPT!from!civil!liability!! Imbecile,or,insane,person,,unless,acting,in,a,lucid,

interval,

! Person,under,9,years,of,age,

! Person,over,9,years,of,age,and,under,15,,unless,

acting,with,discernment,

! Acting,under,compulsion,of,an,irresistible,force,

! Acting,under,impulse,of,an,uncontrollable,fear,of,

an,equal,or,greater,injury,

• EXCEPTION!"!Certain!crimes!without!civil!liability!o Criminal!contempt!o Gambling!o Traffic!violations!

!SUBSIDIARY%LIABILITY%FOR%CRIME%

• Innkeepers,! tavern! keepers! and! any! other! persons! or!corporations!shall!be!civilly! liable!for!crimes!committed!in!their! establishment,! in! all! cases! where! a! violation! of!municipal! ordinances! or! some! general! or! special! police!regulation! shall! have! been! committed! by! them! or! their!employees.!!

• Also! applicable! to! employers,! teachers,! persons! and!corporations! engaged! in! any! kind! of! industry! for! felonies!committed! by! their! servants,! pupils,! apprentices! or!employees!in!discharge!of!their!duties.!o To!hold!employers!subsidiarily!liable!for!CRIME!of!an!

employee:!committed!in!the!performance!of!the!functions!or!duties!of!the!employee.!!

o But!if!action!is!based!on!CONTRACT,!and!not!upon!previous!conviction!of!employee!for!a!crime:!employer’s!liability!is!PRIMARY!and!INDEPENDENT,!not!merely!subsidiary.!!

%CIVIL%LIABILITY%ARISING%FROM%CRIME%

%Rules!on!Criminal!Procedure!Rule!111.!When!a!criminal!action!is! instituted,! the! civil! action! for! the! recovery! of! civil! liability!arising! from! the! offense! charged! shall! be! deemed, instituted,

with,the,criminal,action!UNLESS!the!offended!party!waives!the,civil, action,! reserves, the, right, to, institute, it, separately! or!institutes!the!civil!action!prior!to!the!criminal!action.!!

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EXTENT%OF%CIVIL%LIABILITY%!Art.! 104,! RPC!What, is, included, in, civil, liability, –! The! civil! liability!establish!in!Articles!100,!101,!102!and!103!include:!

!1)!Restitution!2)!Reparation!of!the!damage!caused!3)!Indemnification!for!consequential!damages!

!• RESTITUTION!"!thing!itself!is!restored!(Art!105,!RPC)!• REPARATION! OF! DAMAGE! CAUSED! "! court! determines!

amount!of!damage!(Art!106,!RPC)!• INDEMNIFICATION!FOR!CONSEQUENTIAL!DAMAGES!"! not!

only! caused! the! 3rd! party! but! also! those! suffered! by! his!family! or! by! a! 3rd! person! by! reason! of! the! crime! (Art! 107,!RPC)!

• Civil!liability!for!crimes!is!extinguished!the!same!causes!provided!in!the!CC!for!the!extinguishment!of!other!obligations.!

• GENERAL!RULE:!Criminal!action!bars!civil!action!for!the!same!offense!!o Civil!action!for!recovery!of!civil!liability!arising!from!the!

offense!is!impliedly!instituted!with!the!criminal!action!• EXCEPTIONS:!!

o Offended!party!reserves!the!right!to!institute!it!separately!!

o The!law!provides!for!an!independent!civil!action!(i.e.!civil!action!may!proceed!to!final!judgment!irrespective!of!result!of!the!criminal!action!and!filing!of!the!criminal!action!does!not!suspend!the!civil!action)!!! Obligations!arising!from!the!act!or!omission!claimed!

to!be!criminal!(Art!31)!! Violations!of!constitutional!rights!and!liberties!of!

individuals!(Art!32)!! Defamation,!fraud!or!physical!injuries!(Art!33)!! Refusal!or!failure!of!members!of!police!force!to!

render!protection!to!life!or!property!!(Art!34)!

E. QUASIJDELICTS( [Quasi( ExJDelicto,( Quasi( ExJMaleficio,( Culpa( Aquilana,( Tort( (common(law)](

!Art.! 1162.! Obligations! derived! from! quasi?delicts! shall! be!governed!by!the!provisions!of!Chapter!2,!Title!XVII!of!this!Book!and!by!special!laws.!

!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! when! there! is! no!pre?existing! contractual! relation!between! the!parties,! is! called!quasiMdelict!and!is!governed!by!the!provisions!of!this!Chapter.!

!• BASIS! "! Undisputable! principle! of! equity;! fault! or!

negligence!cannot!prejudice!anyone!else!besides!its!author!and! in!no! case! should! its! consequences!be!borne!by!him!who! suffers! the! harm! produced! by! such! fault! or!negligence.!o Man!is!responsible!not!only!for!his!voluntary!willful!

acts,!executed!consciously!and!intentionally!but!also!for!those!acts!performed!with!lack!of!foresight,!care!and!diligence,!which!cause!material!harm!to!society!or!to!other!individuals.!

!

• NEW! SOURCES! OF! OBLIGATION!"! generally! recognized!by!law!although!not!included!in!the!code!1. Unjust!enrichment!(CC!categorized!under!quasi?

contract)!2. Unilateral!declaration!of!will!3. Abuse!of!rights!(CC!categorized!under!quasi?delict)!

!• TEST! OF! NEGLIGENCE!"! Would! a! prudent! man,! in! the!

position! of! the! person! to!whom!negligence! is! attributed,!foresee! harm! to! the! person! injured! as! a! reasonable!consequence!of!the!course!about!to!be!pursued?!

!ELEMENTS%OF%NEGLIGENCE%

• Duty!on!the!part!of! the!defendant!to!protect! the!plaintiff!from!injury!of!which!the!latter!complains!

• Failure!to!perform!such!duty!• An!injury!to!the!plaintiff!through!such!failure!

!KINDS%OF%NEGLIGENCE%

a. CULPA% AQUILANA% –! or! culpa! extra?contractual;!negligence!as!a!source!of!obligation,!a!quasi?delict!

b. CULPA% CONTRACTUAL% –! negligence! in! the!performance!of!a!contract%

c. CULPA%CRIMINAL!–!criminal!negligence!%

DISTINCTION% BETWEEN% CULPA% AQUILANA% AND% CULPA%CONTRACTUAL%!

CULPA!AQUILANA!

(culpa!extra[contractual!or!

quasi!delict)!

CULPA!CONTRACTUAL!

Governed!by!Art!2176!to!2194! Governed!by!Art!1179!et,sequel,!Negligence! as! a! source! of!obligation!

Negligence!in!the!performance!of!a!contract!

?Parties! have! no! pre?existing!contractual!relations!?Fault! or! negligence! which!constitutes! an! independent!source! of! obligation! between!parties!not!previously!bound!!

?Parties! have! pre?existing!contractual!relations!?Fault!or!negligence!of!the!debtor!as!an!incident!in!the!fulfillment!of!an!existing!obligation!

Negligence!of!defendant!should!be! the! proximate! cause! of!damage!if!liability!is!to!attach!

?Negligence! serves! to! increase!the! liability! arising! from! the!contractual!obligation.!!

?Quasi! delict! may! arise! even! if!there!is!pre?existing!contractual!relation.!!

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1. DISTINCTION!BETWEEN!QUASI[DELICTS!AND!CRIMES!!AS!TO…! QUASI[DELICT! CRIMES!

Nature!of!right!violated!

Private!rights;!wrong!against!the!individual!

Public!right;!wrong!against!the!state!

Condition!of!mind!

Criminal!intent!is!not!necessary.!Possible!that!there!is!not!

criminal!charge!but!only!civil!liability!for!damages!arising!from!

quasi?delict!

Criminal!intent!is!necessary!for!the!

existence!of!liability,!without!it,!there!can!

be!no!crime!

Legal!basis!of!liability!

Actionable!in!any!act!or!omission!wherein!fault!or!negligence!

intervenes!

Not!as!broad!as!quasi?delict,!can!be!punished!only!when!there!is!a!penal!law!clearly!penalizing!it!

Liability!for!damages!

Liability! for! damages!to!the!injured!party!

Certain!crimes!do!not!have!civil!liability!e.g.!contempt,! gambling,!violations! of!ordinances! and!traffic! regulations!when! nobody! is!injured!

Forms!of!redress! Reparation! of! the!injury! suffered! by! the!injured! party! "!compensation,!indemnification!

Fine! (accruing! to! the!public! treasury),!imprisonment! or!both!"!punishment!

Amount! of!evidence!

Preponderance! of!evidence!

Beyond! reasonable!doubt!

Compromise! Can! be! compromised!as! any! other! civil!liability!!

Can! never! be!compromised!

!REQUISITES%OF%LIABILITY%UNDER%QUASI=DELICTS%• There! exists! a! wrongful! act! or! omission! imputable! to! the!

defendant!by!reason!of!his!fault!or!negligence!• There!exists!a!damage!or!injury!• Direct!causal!connection!or!relation!of!cause!and!effect!between!

the! fault! or! negligence! and! the! damage! or! injury! OR! that! the!fault!or!negligence!be!the!cause!of!damage!or!injury!!o DOCTRINE! OF! PROXIMATE! CAUSE:! such! adequate! and!

efficient!cause!as,!in!the!natural!order!of!events,!and!under!the! particular! circumstance! surrounding! the! cause,! would!necessarily!produce!the!event!!

o NATURAL! AND! PROBABLE! CAUSE:! either! when! it! acts!directly!producing!the!injury,!or!sets!in!motion!other!causes!so! producing! it! and! forming! a! continuous! chain! in! natural!sequence!down!to!the!injury!

o CONCURRENT! CAUSE:! if! two! causes! operate! at! the! same!time!to!produce!a!result!which!might!be!produced!by!either!independently! of! the! other,! each! of! them! is! a! proximate!cause!

o When!the!plaintiff’s!own!negligence!was!the!immediate!and!proximate!cause!of!his!injury,!he!cannot!recover!damages.!!

o BUT! if! negligence! is! only! contributory,! the! immediate! and!proximate! cause! of! the! injury! is! defendant’s! lack! of! due!care,! the! plaintiff! may! recover! damages,! the! courts! shall!mitigate!the!damages!to!be!awarded!(Art!2179)!

!

!

2. LIABILITY!FOR!FAULT!OF!OTHERS!!• Obligation!arising!from!quasi?delict!is!demandable!not!only!

for! one’s! own! acts! or! omissions,! but! also! for! those! of!persons!for!whom!one!is!responsible.!!

!Art.! 2180.! The! obligation! imposed! by! Article! 2176! is!demandable!not!only!for!one's!own!acts!or!omissions,!but!also!for!those!of!persons!for!whom!one!is!responsible.!!

!The!father!and,! in!case!of!his!death!or! incapacity,! the!mother,!are!responsible! for! the!damages!caused!by!the!minor!children!who!live!in!their!company.!!

!Guardians! are! liable! for! damages! caused! by! the! minors! or!incapacitated!persons!who!are!under!their!authority!and!live!in!their!company.!!

!The! owners! and! managers! of! an! establishment! or! enterprise!are! likewise! responsible! for! damages! caused! by! their!employees!in!the!service!of!the!branches!in!which!the!latter!are!employed!or!on!the!occasion!of!their!functions.!!!Employers! shall! be! liable! for! the! damages! caused! by! their!employees! and! household! helpers! acting! within! the! scope! of!their!assigned! tasks,!even! though! the! former!are!not!engaged!in!any!business!or!industry.!!

!The!State! is! responsible! in! like!manner!when! it!acts! through!a!special! agent;! but! not!when! the! damage! has! been! caused! by!the!official! to!whom!the!task!done!properly!pertains,! in!which!case!what!is!provided!in!Article!2176!shall!be!applicable.!!

!Lastly,! teachers! or! heads! of! establishments! of! arts! and! trades!shall!be!liable!for!damages!caused!by!their!pupils!and!students!or!apprentices,!so!long!as!they!remain!in!their!custody.!!!The!responsibility!treated!of!in!this!article!shall!cease!when!the!persons! herein! mentioned! prove! that! they! observed! all! the!diligence!of!a!good!father!of!a!family!to!prevent!damage.!!

!Art.!218,!FC.!The!school,!its!administrators!and!teachers,!or!the!individual,! entity!or! institution!engaged! in! child! are! shall! have!special! parental! authority! and! responsibility! over! the! minor!child!while!under!their!supervision,!instruction!or!custody.!!

!Authority! and! responsibility! shall! apply! to! all! authorized!activities!whether!inside!or!outside!the!premises!of!the!school,!entity!or!institution.!!

!Art.!219,!FC.!Those!given!the!authority!and!responsibility!under!the!preceding!Article!shall!be!principally!and!solidarily!liable!for!damages!caused!by!the!acts!or!omissions!of!the!unemancipated!minor.!The!parents,!judicial!guardians!or!the!persons!exercising!substitute! parental! authority! over! said! minor! shall! be!subsidiarily!liable.!!

!The! respective! liabilities! of! those! referred! to! in! the! preceding!paragraph!shall!not!apply!if!it!is!proved!that!they!exercised!the!proper!diligence!required!under!the!particular!circumstances.!!

!All! other! cases! not! covered! by! this! and! the! preceding! articles!shall!be!governed!by!the!provisions!of!the!Civil!Code!on!quasi?delicts.!

!!!!


!DILIGENCE%OF%EMPLOYERS%

• !An!employer!may!be!held!civilly!liable!for!the!quasi?delict!or!crime!of!his!employee.!!

!LIABILITY!OF!EMPLOYERS!FOR!

EMPLOYEES’!QUASI[DELICT!(Art!2180,!CC)!

LIABILITY!OF!EMPLOYERS!FOR!EMPLOYEES’!

CRIME!(Art!103,!RPC)!

Primary,!can!be!sued!directly!by!the!injured!party!and!after!he!has!paid!the!damages!to!such!injured!party,!he!can!recover,from,his,

employee!amount!paid!by!him!

Subsidiary,!employee!must!have!first!been!convicted!and!

sentenced!to!pay!civil!indemnity!and!it!must!be!

shown!that!he!is!insolvent!in!order!that!employee!may!be!

liable!Employer!can!avoid!liability!by!proving!that!he!exercised!the!diligence,of,a,good,father,of!a!family!to!prevent!damage!

Liability!is!absolute!and!cannot,avail,of,the,defense!by!proof!of!

such!diligence!

All!employers,!whether!they!are!engaged!in!some!enterprise!or!

not,!are!liable!for!the!acts!of!their!employees!including!house!

helpers!

Employer!is!liable!only!when!he!is!engaged!in!some!kind!of!business!or!industry!(during!

performance!of!duty)!

III. Classification*of*Obligations**

A. Primary(Classification(under(the(Civil(Code((!

1. PURE!AND!CONDITIONAL!

!

PURE!"!not!subject!to!any!condition;!no!specific!date!is!mentioned;!demandable!at!once! !! !CONDITIONAL!"!fulfillment!or!extinguishment!depends!upon!a!future!and!uncertain!event!!

!• Pure! and! Conditional! obligations! deal! with! when! the!

obligation!is!enforceable.!!

CONDITION! "! future! AND! uncertain! event,! upon! the!happening!of!which,! the!effectivity!or!extinguishment!of!an!obligation!(or!right)!subject!to!it!depends!

!• Characteristics!of!a!condition!

o Future!and!uncertain!–!the!word!“or”!should!be!“and”.!!

o Past!but!unknown!–!Both!future!and!past!events!must!be!UNCERTAIN.!!!

• Two!principal!kinds!of!condition!o Suspensive!(Condition!precedent!or!condition!

antecedent)?!gives!rise!to!an!obligation!or!right!o Resolutory!(Condition!subsequent)!?!fulfillment!will!

extinguish!an!obligation!!

• Effects!of!Happening!of!Condition!o Acquisition!of!Rights!!o Loss!of!rights!already!acquired!

!

2. WITH!A!PERIOD!OR!TERM!

!• Obligations! with! a! Period! or! Term! deal! with! when! an!

obligation!is!demandable!!

PERIOD!"!a!future!and!certain!event;!an!event!that!must!necessarily!come!

!AS!TO! PERIOD! CONDITION!

Fulfillment! Certain!event! Uncertain!event!

Time! Future!event! Past!event!unknown!to!parties!

Influence!on!the!obligation!

Fixes!the!time!for!the!efficaciousness!of!

the!obligation!

Causes!an!obligation!either!to!arise!or!to!cease!

Effect!when!left!to!the!debtor’s!will!

Empowers!the!court!to!fix!the!

duration!

Invalidates!the!obligation!

Retroactivity!of!effects!

Does!not!have!any!retroactive!effect!unless!there!is!an!agreement!to!the!

contrary!?Must!be!possible!

Has!retroactive!effect!

!3. ALTERNATIVE!AND!FACULTATIVE!

• Alternative! and! Facultative! focus! on! classifiying!obligations!with!multiple!objects.!!

ALTERNATIVE%# An!obligation!with!multiple!prestations!but!debtor!will!

perform!one,or,some,but,not,all,!depending!on!whose!choice!it!is!

# Performance! of! one! of! them! is! sufficient! as!determined!by!the!choice!of!the!DEBTOR,!but!may!be!exercised!by! the! creditor!when!EXPRESSLY!granted! to!him! (article! 1205),! or! by! a! third! person! when! a!COMMON!AGREEMENT!gives!the!right!to!him.!!!

FACULTATIVE%# An!obligation!with!multiple!prestations!with!a!principal!

obligation!and!substitute!prestation.!# The!choice!is!generally!given!to!the!DEBTOR!!# Only! one! prestation! is! agreed! upon! but! the! obligor!

may!render!another!in!substitution.!# Examples:!!

• “I!will!give!you!my!piano!but!I!may!give!my!television!set!as!a!substitute.”!!

• “I!will!mortgage!my!land!to!secure!my!debt!which!shall!be!payable!within!90!days!upon!my!failure!to!pay!my!debt!within!30!days.”!!

!!!!!!!!!!

!!!!


AS!TO! ALTERNATIVE! FACULTATIVE!

Number!of!Prestations!

?Several! are! due,! but!compliance! of! one! is!sufficient!

!

?Only! one! althought!the! DEBTOR! is!allowed! to! substitute!it.!

Right!of!choice! ?may! be! given! to! the!creditor! or! third!person!

?Right! to! make! the!substitution! is! given!only!to!the!debtor!

Loss!through!a!fortuitous!event!

?loss! of! one! or! more!of! the! alternatives!through! a! fortuitous!event! does! not!extinguish! the!obligation!

?loss!of!the!thing!due!extinguishes! the!obligation!

Loss!through!fault!of!the!debtor!

a.! does! not! render!debtor!liable!b.! Where! the! choice!belongs! to! the!creditor,! the! loss! of!one! alternative!through! the! fault! of!the! debtor! gives! rise!to!liability!

a.! loss! of! the! thing!due! through!his! fault!makes!him!liable.!b.! the! loss! of! the!substitute! before! the!substitution! through!the! fault! of! the!debtor! does! not!render!him!liable.!

!4. JOINT!AND!SOLIDARY!

• Classifies! obligation! according! to! the! subjects! of! the!obligation,!their!number!and!the!ties!that!bind!them!!

JOINT%%# each! can! be! made! to! pay! only! his! share! in! the!

obligation!# the! whole! obligation! is! to! be! paid! or! fulfilled!

proportionately! by! the! different! debtors! and/or! is! to!be! demanded! proportionately! by! the! different!creditors.!!

SOLIDARY%%# one! can! be! made! to! pay! for! the! whole! obligation!

subject!to!reimbursement!# one!where!each!one!of!the!debtors!is!bound!to!render,!

and! /! or! each! one! of! the! creditors! has! a! right! to!demand! from! any! of! the! debtors,! entire! compliance!with!the!prestation!!

# Solidary!liability!only!when!(Article!1207):!!• The!obligation!expressly!so!states!!• Law!requires!solidarity!• The!nature!of!the!obligation!requires!solidarity!!

!5. DIVISIBLE!AND!INDIVISIBLE!

• Focuses! on!whether! the! performance! of! the! obligation!must!be!done!as!whole!or!capable!of!being!done!in!parts!

%DIVISIBLE%"! one! the!object!of!which,! in! its!delivery!or!performance,!is!capable!of!PARTIAL!FULFILLMENT.!!INDIVISIBLE!"!one!the!object!of!which,!in!its!delivery!or!performance,!is!NOT!capable!of!partial!fulfillment.!!!

!!!!!!

6. WITH!A!PENAL!CLAUSE!• Deals!with!obligations!containing!an!accessory!obligation!

to! assume! a! greater! liability! in! case! of! a! breach! of! the!principal!obligation!

• Purpose!of!a!Penal!Clause!o To!insure!their!performance!by!creating!an!effective!

deterrent! against! breach,!making! the! consequences!of! such! breach! as! onerous! as! it! may! possibly! be!(general!purpose)!

o To! substitute! a! penalty! for! the! indemnity! for!damages! and! the! payment! of! interests! in! case! of!non?compliance! (Article! 1226);! or! to! punish! the!debtor! for! the! non?fulfillment! or! violation! of! his!obligation.!!!! !

PENAL!CLAUSE! CONDITION!

Constitutes!an!obligation!although!accessory!

Does!not!constitute!an!obligation!

May!become!demandable!in!default!of!the!unperformed!

obligation!and!sometimes!jointly!with!it!

Never!demandable!

!

B. Secondary(Classification(!

1. LEGAL,!CONVENTIONAL!AND!PENAL!!!

Legal!"!derived!from!law!and!is!not!presumed;!expressly!determined!in!the!Civil!Code.!!%Conventional! "! from! contracts/stipulation! of! parties;!should!be!complied!with!in!good!faith!!%Penal!"!from!commission!of!a!crime!

!2. REAL!AND!PERSONAL!

!

Real"!an!obligation!to!give!%Personal!"!an!obligation!to!do!or!not!to!do!!

3. DETERMINATE!AND!GENERIC!!

Determinate%"!an!obligation!to!give!a!unique,!specific!thing;!capable!of!perishing!%Generic%"! an! obligation! to! give! a! generic! thing;! generally!does!not!perish!

!4. POSITIVE!AND!NEGATIVE!

!

Positive%"!an!obligation!requiring!a!positive!act!(to!give!or!to!do)!%Negative!"! an! obligation! requiring! an! omission! (not! to!give!or!not!to!do)!

!

!!!!


5. UNILATERAL!AND!BILATERAL!

!

Unilateral%"!an!obligation!with!a!prestation!incumbent!only!on!one!of!the!parties!%Bilateral!"!an!obligation!with!reciprocal!prestations!

!6. INDIVIDUAL!AND!COLLECTIVE!

!

Individual%"!Only!has!one!creditor!and!one!debtor!%Collective!"!May!have!multiple!creditors!and/or!debtors!!

7. PRINCIPAL!AND!ACCESSORY!!

Principal%"!independent!and!capable!of!standing!on!its!own!%Accessory! "! depends! on! another! obligation! for! its!existence!

!8. AS!TO!OBJECT!OR!PRESTATION!!

!

Simple%"!an!obligation!with!only!one!prestation!%

Multiple!"!an!obligation!with!two!or!more!prestations!!

• Conjunctive!–!all!must!be!performed!• Distributive!–!one!or!some!must!be!performed!

o Alternative! –! more! than! one! prestation! but! one!party! may! choose! which! one;! several! are! due! but!only! one! must! be! fulfilled! at! the! election! of! the!debtor!

o Facultative! –! main! prestation! and! a! substitute!prestation!and!it!is!the!debtor!who!chooses;!only!one!thing!is!due!but!the!debtor!has!reserved!the!right!to!substitute!it!with!another!!

9. POSSIBLE!AND!IMPOSSIBLE!

!

Possible%"!an!obligation!capable!of!being!performed/complied!with!%Impossible! "! an! obligation! incapable! of! being!performed,!either!physically!or!legally!

!!!!!!!!!!!

CHAPTER(2:(NATURE(AND(EFFECTS(OF(OBLIGATIONS(

I. Kinds*of*Prestation*

A. Obligation(to(Give((Real(Obligation)((

1. A!SPECIFIC!THING!!

REAL!OBLIGATION!–!the!subject!matter!is!a!thing!which!the!obligor!must!deliver!to!the!obligee!

!SPECIFIC! THING!

(determinate)!

GENERIC! THING!

(indeterminate)!

One! that! is! individualized!and! can! be! identified! or!distinguished!from!others!of!its!kind!

!Debtor!cannot!substitute!it!

with! another! although! the!latter! is! of! the! same! kind! and!quality!without! the! consent! of!the!creditor!(Art.!1244)!

Indicated!only!by! its! kind!or!specie,! without! being!designated! and! distinguished!from!others!of!the!same!kind!

!Object! due! becomes!

determinable! from! moment! of!delivery!!

!Debtor! can! give! anything! of!

the!same!class!as!long!as!it! is!of!the!same!kind!

!SPECIFIC%THING%(DETERMINATE)%%

!a. DUTIES%OF%THE%OBLIGOR/DEBTOR%(Letters%B=D%

are%the%accessory/incidental%obligations)%%!

i. To%deliver%thing%itself%!Art.!1244,!Par.!1.!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!which!is!due.!

!• “He!shall!acquire!no!real!right!over!it!until!the!same!has!been!

delivered!to!him”!–!the!creditor!does!not!become!the!owner!until!the!specific!thing!has!been!delivered!to!him!

• Though! upon, agreement, or, consent, of, the, creditor,! the!debtor!may! deliver! a! different! thing! or! perform! a! different!prestation! in! lieu! of! that! stipulated!"! DATION! in! payment!(Art!1245)!or!OBJECTIVE!NOVATION!(Art!1291)!

• Generally,! arises! from! the! perfection! of! the! contract! (Art.!1305,!1315,!1319)!

• If!it!is!subject!to!a!suspensive!condition!or!period!(Art.!1179,!1189,! 1193),! it! arises! upon! fulfillment! of! the! condition! or!arrival!of!the!period;!OR!parties!make!stipulate!otherwise!

• In!a!sale,!obligation!arises!from!the!perfection!of!the!contract!even!if!the!obligation!is!subject!to!a!suspensive!condition!or!a!suspensive!period!where!the!price!has!been!paid!

• In! obligations! arising! from! law,! quasi?contracts,! delicts,! and!quasi?delicts,! time!of! the!performance! is!determined!by! the!provisions!of!law!applicable!!

!!!!


• Defects!of!the!thing!may!be!waived!by!the!creditor!IF!!o Expressly!declares!!o With!knowledge!thereof,!he!accepts!the!thing!without!

protest! or! disposes! or! consumes! it! "! “waiver! of!defect”!

!ii. To%preserve%thing%

!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.!

!• Why:! the! obligation! to! deliver! would! be! illusory,! so! the!

debtor! has! the! incidental! duty! to! take! care! of! the! thing!due!!

• What! kind! of! diligence:! DILIGENCE!OF! GOOD! FATHER!OF!FAMILY;!elaborated!in!Art!1173!

• It!is!the!ordinary,care!or!that!diligence!which!an!average!(a!reasonably! prudent)! person! exercises! over! his! own!property!

o Failure! to! preserve! the! thing! "! Liability! for!damages!!

o BUT! if! due! to! FORTUITOUS! EVENTS! or! FORCE!MAJEURE!"!Exempted!from!responsibility!!(Art.!1174)!

• Factors! to! consider:! Nature! of! the! obligation,! the!circumstances!of!the!person,!of!the!time,!and!of!the!place!(Art.!1173)!

• Exception:! When! the! law! or! the! stipulation! provides! for!another! standard! of! care! (slight! or! extraordinary!diligence),! said! law! or! stipulation!must! prevail! (Art.! 1163!UNLESS!clause)!

o Art.!1755!–!a!common!carrier!should!use!utmost!(extraordinary)! diligence! of! very! cautious!persons,! with! a! due! regard! for! all! the!circumstances!

o Reyes, v, CA! –! banks! are! duty! bound! to! treat!deposit!accounts!with!the!highest!degree!of!care!where! the! fiduciary! nature! of! relationship! is!concerned!

o Exception:! It! is! contrary! to! public! policy! to!stipulate! for! absolute! exemption! from! liability!for!any!fault!or!negligence!(Art.!1173,!1174)!

!iii. To%deliver%the%accessions%and%accessories%

!Art.! 1166.! Obligation! to! give! a! determinate! thing! includes! that! of!delivering%all%its%accessions%and%accessories,!even!though!they!may!not!have!been!mentioned.!

!• General! rule:! all! accessions! and! accessories! are!considered! included! in! the! obligation;! principal! of! law!that!the!accessory!follows!the!principal!

• May!be! qualified! by! contrary! intentions! of! the! parties,!e.g.! exclude! delivery! of! accession! or! accessory! of! the!thing.!!

!!!!!

ACCESSIONS%AND%ACCESSORIES%DISTINGUISHED:%!

ACCESSIONS! ACCESSORIES!

Can! exist! only! in! relation! to!the!principal!

!Fruits! of,! or! additions! to,! or!

improvements!upon,!a! thing! (the!principal);! not! necessary! to! the!principal!thing!

!Includes! everything! which! is!

produced! by! a! thing,! or!which! is!incorporated!or!attached!thereto,!either! naturally! or! artificially.!Does! not! include! fruits! because!Art!1164!mentioned!it!already!

Accesion! continua! which!includes:!

1. Accesion,natural!e.g.!alluvion!2. Accesion,industrial!e.g.! building,! planting,!

sowing!

Can! exist! only! in! relation!to!the!principal!

!Those! things! which,!

destined! for! embellishment,!use! or! preservation! of!another! thing! or! more!important,! have! for! their!object! the! completion! of! the!latter! for! which! they! are!indispensable!or!convenient.!!

!The! things! joined! to,! or!

included! with,! the! principal!thing! for! the! latter’s!embellishment,! use,! or!completion;! accessory! and!principal! thing! must! go!together!

!

!

!

iv. To%deliver%the%fruits%!

Art.!1164,!Par.!1.!The!creditor!has!a!right!to!the!fruits!of!the!thing!from!the! time%the%obligation%to%deliver! it!arises.!However,! there! is!no%real%right!until!the!same!has!been!delivered!to!him.!

!• Non, nudis, pactis,, sed, traditione, domina, rerum,

trasferentur,"!the!ownership!of!things!is!transferred!not!only!by!mere!agreements!but!by!delivery%

• By! law,! the! creditor! is! entitled! to! the! fruits! of! the!thing!to!be!delivered!from!the!time!the!obligation!to!make! delivery! of! the! thing! arises! –! the! intention! of!the!law!is!to!protect!the!interest!of!the!oblige!should!the!obligor!commit!delay,!purposely!or!otherwise,! in!the!fulfillment!of!his!obligation%

,

REAL%RIGHT!–!power!or!right!or!interest!belonging!to!a!person!over!a! specific! thing,! without! a! definite! passive! subject! individually!determined,!against!whom!such!right!may!be!personally!exercised!

• Gives!to!a!person!a!direct!and!immediate!power!over!a! thing,! which! is! susceptible! of! being! exercised,! not!only! against! a! determinate! person! but! against! the!whole!world!

• E.g.!rights!of!ownership!and!possession!,

PERSONAL% RIGHT, –! power! belonging! to! one! person! (creditor)! to!demand! of! another! (debtor),! as! a! definite! passive! subject,! the!fulfillment!of!a!prestation!to!give,!to!do!or!not!to!do!

!,

,

,

,

,

,

,

,

Faye Gonzalez

!!!!


PERSONAL%RIGHT%AND%REAL%RIGHT%DISTINGUISHED:!!

PERSONAL!RIGHT!(JUS!IN!

PERSONAM!OR!JUS!AD!REM)!

REAL!RIGHT!(JUS!IN!RE)!

There! is! a! definite! active!subject! and! a! definite! passive!subject!

!Binding! or! enforceable! only!against!a!particular!person!

There! is! only! a! definite! active!subject! without! any! definite!passive!subject!

!Directed! against! the! whole!world!

!TYPES%OF%FRUITS%(Art.!442):!

1. Natural!Fruits!–!spontaneous!products!of!the!soil,!and!the!young! and! other! products! of! animals;! without! the!intervention!of!human!labor!

2. Industrial! Fruits! –! those! produced! by! lands! of! any! kind!through!cultivation!or!labor;!by!reason!of!human!labor!

3. Civil!Fruits!–!those!derived!by!virtue!of!juridical!relation!!

CORRELATIVE% RIGHTS% OF% THE% OBLIGEE/CREDITOR% (Sir! Labitag’s!diagrammatical!outline)!!1. Right!to!compel!delivery!!

a. Fruits!(both!industrial!and!natural!from!the!time!obligation!to!deliver!arises),!accessions!and!accessories!

b. No! real! right! until! delivery! "! personal! action! against!debtor,!no!right!against!the!world!

2. Right!to!rescission!or!resolution!!3. Right!to!damages!

a. Failure!to!deliver!• Legal!excuse! for!breach!of!obligation!or!delay—

FORTUITOUS!EVENT!unless!there!is!o Law!e.g.!possession!in!bad!faith!(Art!552)!o Stipulation!to!the!contrary!o Nature!of!obligation!requires!assumption!of!

risk!• FE!APPLICABLE!TO:!!

o Nonperformance!!o Delay!o Loss/deterioration!of!specific!thing!!

! Art! 1189! Before! happening! of!suspensive!condition!

! Art! 1190! Before! happening! of!resolutory!condition!

• Debtor!still!liable!despite!FE:!o Expressly!specified!by!law!!

! Art! 1942! Bailee! liable! for! loss!(commodatum)!

! Art!2001!Act!of!a!thief!! Art!2147!Negotiorum!gestio!!! Art!1993!Loss!of!deposit!!

o Stipulation!e.g.!debtor!becomes!“insurer”!of!the!obligation!

o Assumption!of!risk!o Fraud!or!malice!(bad!faith)!!

! Art!1165!Par!3!Delivers!to!two!or!more!persons!having!different!interest!

o Debtor!in!delay!already!when!FE!happened!!! (Art!1165!Par!3)!

o Debtor!guilty!of!concurrent!negligence!"!in!this!case,!no!long!FE!

o Liability! arises! from! criminal! act! except! if!debtor! tenders! thing! and! creditor!unjustifiably!refuses!to!receive!(Art!1268)!

b. Fraud!c. Negligence!in!performance!d. Delay!or!default!e. Any!manner!in!contravention!of!the!tenor!of!obligation!!

!2. A!GENERIC!THING!,

GENERIC%THING%(INDETERMINATE)%!

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!of!the!obligation!and!other!circumstances!shall!be!taken!into!consideration.!!• Creditor! may! ask! for! compliance! by, 3rd, person, at, debtor’s,

expense;!action!for!substituted!performance!(Art!1165)!!

LIMITED%GENERIC%THING! –!generic!objects! confined! to!a!particular!class,!the!class!is!considered!in!itself!a!determinate!object!

!DUTIES%OF%THE%OBLIGOR/DEBTOR!

• To!deliver!a! thing!which! is!of! the!quality! intended!by! the!parties! taking! into! consideration! the! purpose! of! the!obligation!and!other!circumstances!(see!Art.!1246)!

• To! be! liable! for! damages! in! case! of! fraud,! negligence,! or!delay,! in! the! performance! of! his! obligation,! or!contravention!of!the!tenor!thereof!(see!Art.!1170)!

,

CORRELATIVE% RIGHTS% OF% THE% OBLIGEE/CREDITOR, (from! Sir!Labitag’s!diagrammatical!outline)!!1. Right!to!ask!for!rescission!or!damages!2. Right!to!damages!

a. Failure!to!deliver!b. Fraud!(malice!or!bad!faith)!c. Negligence!d. Delay!e. Any!manner!contravene!the!tenor!of!obligation!

!RIGHTS%OF%A%CREDITOR,(from!BarOps!Reviewer!2008)!

!SPECIFIC! GENERIC!

To! compel! specific!performance!

To! ask! for! the! performance!of!the!obligation!

To!recover!damages,! in!case!of! breach! of! the! obligation,!exclusive! or! in! addition! to!specific!performance!

To!ask!that!the!obligation!be!complied!with!at!the!expense!of!the!debtor!!

Entitlement! to! fruits,!interests! from! the! time!obligation!to!deliver!arises!

To! recover! damages! in! case!of!breach!of!obligation!!

!!!!!!!!

Faye Gonzalez

Faye Gonzalez

Faye Gonzalez

!!!!


B. Obligation( to( Do( (Positive( Personal(Obligation)(

!

POSITIVE!PERSONAL!OBLIGATION!–!the!subject!matter! is!an!act! to!do!or!to!render!service!

!Art.! 1244,! Par.! 2.! 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.!!

• If! the! prestation! is! a! personal! one,! and! specific! to! the!debtor,!only!he!can!do!it;!no!substitution!of!the!debtor!can!be!done!

• Exception:! FACULTATIVE!OBLIGATION!wherein! the!debtor,reserves,the,right,to,substitute!another!prestation!!

!Art.!1167.! If! a!person! is!obliged! to!do! something! fails! to!do! it,! the!same!shall!be!executed,at,his,cost.!!! The!same!rule!may!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.!!DUTIES%OF%OBLIGOR,(from!BarOps!Reviewer!2008)!

1. To!do!it!(Art!1167)!!!2. To!shoulder!the!cost!if!someone!else!does!it!(Art!1167)!3. To!undo!what!has!been!poorly!done!(Art!1167)!4. To!pay!damages!(Art!1170?1172,!2201?2202)!!• No! action! for! compliance! because! that! would! be!

involuntary! servitude! which! is! prohibited! by! the!constitution.!!

C. Obligation( Not( to( Do( (Negative( Personal(Obligation)(!

NEGATIVE%PERSONAL%OBLIGATION!–!the!subject!matter!is!an!act!not!to!do!(which!naturally!includes!obligations!“not!to!give”!

!Art.! 1244,! Par.! 2.! 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.!!

• Performance!cannot!be!by!a!delegate!or!an!agent!• No! legal! accessory! obligations! arise! (as! compared! to!

obligation!to!give)!!• This!is!the!MOST!STRICT!type!of!obligation,!no!substitution!

of!the!prestation!!

Art!1268!When!the!obligation!consists!in!not!doing,!and!the!obligor!does! what! has! been! forbidden! him,! it! shall! also! be! undone, at, his,expense.!!

!DUTIES%OF%OBLIGOR%(from!BarOps!Reviewer!2008)!

1. Not!to!do!what!should!not!be!done!!2. To! should! the! cost! to! undo! what! should! not! have! been!

done!(Art!1168)!3. To!pay!damages!(Art!1170,!2201?2202)!

II. Breach*of*Obligation*

A. Concept(!

VOLUNTARY!breach!of!obligation!arises!from!the!modes!provided!in!Art.!1170!!INVOLUNTARY! breach! of! obligation! arises! because! of! fortuitous%events%provided!in!Art.!1174%

!!

SUBSTANTIAL%AND%CASUAL/SLIGHT%BREACH%DISTINGUISHED:%!

SUBSTANTIAL! CASUAL!

Total!! Partial!Amounts! to! non?

performance!A!part!is!performed!

Basis! for! rescission!and!payment!of!damages!

Gives! rise! to! liability! for!damages!

!GENERAL! RULE:! Rescission! will! not! be! permitted! for! a! slight! or!casual!breach!of! the!contract,!but!only! for!such!breaches!as!are!so%substantial%and%fundamental!as!to!defeat!the!object!of! the!parties!in!making!the!agreement.!!

!Cases:!!

SONG!FO!v.!HAWAIIAN!PHIL!CO!

Facts:!Hawaiian!Phil!agreed!to!deliver!300k!gallons!of!molasses!but!!Song!Fo!requested!for!another!100k!gallons!to!which!Hawaiian!said!that,!“we!believe!that!this!is!possible!and!we!will!do!our!best!to!let!you! have! these! extra! 100k! gallons…”.! Song! Fo! defaulted! in! the!payment!for!the!molasses!the!defendant!delivered!to!it!so!the!latter!was!compelled!to!cancel!and!rescind!the!said!contract.!!Held:! The! court! ruled! that! the! agreement!was! for! 300k! gallons! of!molasses! only,! and! that! there! is! only! slight! breach! and! therefore!Hawaiian! had! no! right! to! rescind! the! sale.! General! rule! is! that!rescission!will!not!be!permitted! for!a!slight!or!casual!breach!of! the!contract! and! will! only! be! allowed! when! such! breaches! are! so!substantial!and!fundamental!as!to!defeat!the!object!of!the!parties!in!making!the!agreement.! !A!delay! in!payment! for!a!small!quantity!of!molasses! for! about! 20! days! isn’t! such! a! grave! violation! of! an!essential!condition!of!the!contract!that!would!warrant!rescission!for!non?performance.!!VELARDE!v.!CA!

Facts:!Raymundo!sold!a!parcel!of!land!to!Velarde!with!the!condition!of! assuming! the! mortgage! amounting! to! P1.8M.! Assumption! of!mortgage!was!not!approved!and!Valerde!stopped!paying!to!BPI.!!Held:!Court!held! that!Raymundo’s!act!of! rescinding! the!contract,! is!justified,!but!ordered!the!restitution!to!Velarde!of!P874,150,!which!the! latter! paid! as! a! consequence! of! the! contract! until! it! was!rescinded.!In!a!contract!of!sale,!the!seller!obligates!itself!to!transfer!the!ownership!of!and!deliver!a!determinate!thing,!and!the!buyer!to!pay! therefor! a!price! certain! in!money!or! its! equivalent.! Petitioners!did! not! perform! their! correlative! obligation! of! paying! the! contract!price!in!the!manner!agreed!upon.!!!!!!

Faye Gonzalez

Faye Gonzalez

!!!!


B. Modes(of(Breach(1. FRAUD!(Dolo)!

!

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.!!!

%a. Concept%of%Fraud%!• Fraud! is! the!voluntary% execution% of% a%wrongful% act,! or! a!

willful!omission,!knowing!and! intending! the!effects!which!naturally!and!necessarily!arise!from!such!act!or!omission.!

• Deliberate! and! intentional! evasion! of! the! normal!fulfillment!of!obligations!!

• Any! voluntary! and!willful! act! or! omission!which! prevents!the! normal! realization! of! the! prestation,! knowing! and!intending!the!effects!which!naturally!and!necessarily!arise!from!such!act!

• Fraud!contemplated!in!this!article!is!in!the!performance!of!!a!pre=existing%obligation!!

• Here,! the! breach! of! the! obligation! is! voluntary;! in! Article!1174,!it!is!involuntary.!

• Cannot! cover! mistake! and! errors! of! judgment! made! in!good! faith,! ergo! synonymous! to! bad! faith! (dishonest!purpose! or! some!moral! obliquity! and! conscious! doing! of!wrong)!!

• The!element!of!INTENT!and!NOT!the!harm!done!is!the!test!(there!must!be!malice/bad!faith)!

• Moral! damages! may! be! recovered! in! addition! to! other!damages.!

• The! fraud! is! employed! for! the! purpose! of! evading! the!normal!fulfillment!of!an!obligation!and!its!existence!merely!results! in! breach! thereof! giving! rise! to! a! right! by! the!innocent!party!to!recover!damages.!

!KINDS%OF%FRAUD%

1. Fraud!in!the!performance!(Art!1171)!2. Fraud!in!the!execution/creation/birth!of!the!contract!

a. Dolo,causante!(Art!1344)!b. Dolo,incidente,(Art!1338)!

!FRAUD,%DOLO%CAUSANTE,%AND%DOLO%INCIDENTE%DISTINGUISHED:%%

!FRAUD!!

(Art!1171)!

DOLO!

CAUSANTE!

(Art!1338)!

DOLO!

INCIDENTE!

(Art!1344)!

WHEN!PRESENT!

During! the!performance! of!a! pre?existing!obligation!

During! the!perfection! of! a!contract!

During! the!perfection! of! a!contract!

PURPOSE! Evade! the!normal!fulfillment! of!obligation!

Secure! the!consent! of!another! to!enter! into!contract!

Secure! the!consent! of!another! to!enter! into!contract! BUT!fraud! was! not!the! principal!inducement! in!making! the!contract!

!!

RESULTS!IN!

Breach! of!the!obligation!

Vitiation! of!consent;!!

Voidable!contract!

Does! not!result! in! the!vitiation! of!consent!

GIVES!RISE!TO!

Right! in!favor! of! creditor!to! recover!damages!

Right!of!the!innocent! party!to! annul! the!contract!

Gives!rise!to!a! right! of! the!innocent! party!to! claim! for!damages!!

!Case:!!

WOODHOUSE!v.!HALILI!

Facts:! Woodhouse! and! Halili! had! an! agreement! to! organize! a!partnership! for! the! bottling! and! distribution! of!Mission! soft! drinks!(Woodhouse! to! act! as! industrial! partner/manager! and! Halili! as!capitalist).!Woodhouse!secured!an!option!for!exclusive!franchise!but!it!expired!without!him!availing!of!such!franchise.!Upon!signing!of!the!contract,!Woodhouse!got!a!30%!cut!on!the!profits.!Halili!only!knew!that! Woodhouse! all! along! was! not! able! to! secure! the! exclusive!franchise!when!they!went!to!US!for!signing!of!contract!with!Mision.!!Held:!There!is!false!misrepresentation!by!Woodhouse!but!it!does!not!annul!the!agreement!to!form!a!partnership.!In!order!that!fraud!may!vitiate!consent,!and!thus!annul!a!contract,!it!must!be!the!causal!and!not!merely!the!incidental!inducement!to!the!making!of!the!contract.!In! Woodhouse’s! acts! of! pretending! that! he! had! the! exclusive!franchise! and! promising! to! transfer! it! to! Halili,! he! obtained! the!consent! of! the! latter! to! give!him! (Woodhouse)! a! 30%! share! in! the!net! profits.! This! is! the! dolo! incidente! defined! in! Art! 1270! of! the!Spanish! Civil! Code,! because! it! was! used! to! get! the! other! party's!consent!to!a!big!share!in!the!profits,!a!matter!that!is!only!incidental!to!the!main!agreement!to!form!a!partnership.!

!

b. %Non=waiver%of%Future%Fraud%%!

Art.! 1171.! Responsibility! arising! from! fraud! is! demandable! in! ALL!OBLIGATIONS.!Any!waiver!of!action!for!future!fraud!is!VOID.!

!• To! permit! such! advance! renunciations! would! practically!

leave!the!obligation!without!effect.!!• The! law! does! not! prohibit! the! renunciation! of! the! action!

for!damages!on!the!ground!of!fraud!already!committed.!!!

c. Effects%of%Fraud%• Liability! for! damages,! a! crime! or! a! quasi?delict! (Art!

1170)!!

2. NEGLIGENCE!(CULPA!CONTRACTUAL)!!!

a. Concept%of%Negligence%!

Art.!1172.!Responsibility!arising!from!negligence!in!the!performance!of!EVERY!KIND!OF!OBLIGATION!is!also!demandable,!but!such!liability!may!be!REGULATED,BY,COURTS,!according!to!the!circumstances.!

!• Negligence!or!Culpa!is!any!voluntary!act!or!omission,!there!

being!no!malice,!which!prevents!the!normal!fulfillment!of!an!obligation.!

• It!is!the!!absence!of!due!diligence!required!!

!!!!


Art.!1173,!Par.!1.! The! fault!or!negligence!of! the!obligor! consists! in!the! omission% of% that% diligence! which! is! required! by! the! nature! of!obligation! and! corresponds!with! the! circumstances! of! the!persons,!of!the!time!and!the!place.!When!negligence!shows!BAD%FAITH,! the!provisions!of!Art!1171!!and!Art!2201!Par!2!shall!apply.!

!• Art!2201!Par!2!In!case!of!fraud,!bad!faith,!malice!or!wanton!

attitude,! the!obligor! shall!be! responsible% for%all%damages!which! may! be! REASONABLY! ATTRIBUTED! to! the! non?performance!of!obligation.!!

%%CULPA%AND%DOLO%DISTINGUISHED:!

!CULPA!(Negligence)! DOLO!(Fraud)!

Mere! want! of! care! or! diligence,!not! the! voluntariness! of! act! or!omission!!

Willfulness! or! deliberate! intent!to! cause! damage! or! injury! to!another!

Liability! may! be! mitigated! by!courts!

Liability! cannot! be! mitigated! by!courts!

Waiver!for!future!negligence!!valid!if!simple!!void!if!gross!

Waiver!for!future!fraud!is!void!

%%CULPA%AQUILANA%AND%CULPA%CONTRACTUAL%DISTINGUISHED:%

∗ Different!provisions!that!apply!to!the!two!concepts,!hence!different!legal!effects!

!CULPA!AQUILANA!

(Culpa!Extra[contractual)!CULPA!CONTRACTUAL!

Governed! by! Art! 2176! to!2194!

Governed! by! Art! 1179! et,

sequel,!Negligence! as! a! source! of!

obligation!Negligence! in! the!

performance!of!a!contract!Fault! or! negligence! which!

constitutes! an! independent!source! of! obligation! between!parties!not!previously!bound!!

Fault! or! negligence! of! the!debtor! as! an! incident! in! the!fulfillment! of! an! existing!obligation!

An!employer!of!master!may!exculpate! or! exempt! himself!from! liability! by! proving! due!diligence! to! prevent! damage!(Art!2180)!

Due!diligence!defense!of! the!employer! or! master! is! not!available!

Negligence!of!defendant!should!be!the!proximate!cause!of!damage!if!liability!is!to!attach.!

!

Cases:!!

GUTIERREZ!v.!!GUTIERREZ!

Facts:! Private! car! (driven! by! a! minor),! a! truck,! and! a! bus! collided!which! resulted! to! a! fractured! leg! of! the! bus’! passenger,! Narciso!Gutierrez.!Narciso! seeks! to! recover!damages! from!both! the!drivers!and!owners!of!the!private!car!and!the!truck.!!Held:! Father! is! liable! for! the! act! of! his!minor! son,! whose! civil! law!liability! for! obligations! which! arise! from! fault! or! negligence.! The!truck!driver!and!owner!are!also!liable,!but!on!the!basis!of!contract.!!!

!

VASQUEZ!v!BORJA!

Facts:!Vasquez!and!Busuego!obligated!themselves!to!sell!to!De!Borja!4,000! cavans! of! palay! at! P2.10! per! cavan,! but! upon! receiving! P8,!400,!they!delivered!only!2,488!cavans!of!palay!and!refused!to!deliver!the!balance!of!1,512!cavans.!!Held:! The! party! liable! on! the! contract! is! Natividad?Vazquez! Sabani!Development! Co.,! Inc.,! and! not! Vazquez! himselfbecause! a!corporation!is!an!artificial!being!invested!by!law!with!a!personality!of!its!own,!separate!and!distinct!from!that!of!its!stockholders!and!from!that!of! its!officers!who!manage!and!run! its!affairs.!Since! it!was!the!corporation’s!contract,!its!nonfulfillment,!whether!due!to!negligence!or! fault! or! to! any! other! cause,! made! the! corporation! and! not! its!agent! liable.!Since!the!corporation!was!not!a!party! in! the!case,! the!complaint!should!be!dismissed.!

!

!

b. %Standard%of%care%required%%.!!

Art.!1173.!Par!2.!If!law!or!contract!does!not!state!diligence!which!is!to! be! observed! in! the! performance,! that! which! is! expected! of! a!GOOD!FATHER!OF!FAMILY!is!required!!

DILIGENCE, ?! the!attention!and!care!required!of!a!person! in!a!given!situation!and!is!the!opposite!of!negligence!!

DILIGENCE%REQUIRED:%1. that!agreed!upon!by!the!parties,!orally!or!in!writing!2. in! the! absence!of! stipulation,! that! required!by! law! in! the!

particular!case!3. if!both!the!contract!and! law!are!silent,! then!the!diligence!

expected!of!a!good!father!of!a!family!or!ordinary!diligence.!!

EXTRA=ORDINARY%DILIGENCE%REQUIRED%IN:%• Art!1733!Common!carriers!!• Art!1744!Lesser!than!extraordinary!!• Art!1998?2002!Inn!keepers,!hotel!keepers!

,

TEST%FOR%DETERMINING%WHETHER%A%PERSON%IS%NEGLIGENT%• Would, a, prudent, man,, in, the, position, of, the, person, to,

whom,negligence,is,attributed,,foresee,harm,to,the,person,

injured, as, a, reasonable, consequence, of, the, course, about,

to,the,pursued?,

• Negligence! is! a! question! of! fact,! its! existence! being!dependent! upon! the! particular! circumstances! of! each!case.!,

• It!is!never!presumed!but!must!be!proven!by!the!party!who!alleges!it.,

!FACTORS%TO%CONSIDER%IN%DETERMINING%NEGLIGENCE:%

1. Nature!of!obligation!2. Circumstance!of!the!person!3. Circumstance!of!time!4. Circumstance!of!the!place!,

,

,

,

,

,

,

,

,

!!!!


EXEMPTION%FROM%LIABILITY%FOR%NEGLIGENCE:%1. INSURANCE:! A! party! to! a! contract! is! relieved! from! the!

effects!of!his!fault!or!negligence!by!a!3rd!person!2. Party! to! a! contract! renounces! in! advance! the! right! to!

enforce!liability!arising!from!the!fault!or!negligence!of!the!other!a. VOID! if! gross! negligence!"! Stipulations! exempting!

from!liability!for!that!amount!to!a!fraud!b. VALID!if!simple!negligence!only!

!

Cases:!!

DE!GUIA!v.!MANILA!ELECTRIC!CO!

Facts:!Train!where!De!Guia!boarded!was!derailed.!De!Guia!received!bruises! and! possibly! certain! internal! injuries.! Trial! court! found! the!motorman! of! the! derailed! car! negligent! for! having!maintained! too!rapid! speed,! but! defendant! company! claimed! the! derailment! was!due!to!a!goose?egg?sized!stone,!thus!the!derailment!of!the!car!was!due!to!a!fortuitous!event.!!Held:! If!the!law!or!contract!does!not!state!the!diligence!which!is!to!be! observed! in! the! performance! of! an! obligation,! that! which! is!expected! of! a! good! father! of! a! family! shall! be! required.!When!De!Guia! boarded! the! train,! the! company! undertook! to! convey! him! to!Manila.! The! relation! between! plaintiff! and! defendant! was! a! of! a!contractual! nature!with! the! defendant! bound! to! carry! the! plaintiff!safely!to!destination!with!a!degree!of!care.!Failure!to!carry!out!this!obligation!incurs!liability.!

!SARMIENTO!v.!SPS!CABRIDO!

FACTS:! Sarmiento! had!her! pair! of! diamond!earrings! reset! into! two!gold!rings!through!Dingding’s!Jewelry!Shop,!owned!by!Cabrido.!The!goldsmith! used! pliers! to! remove! the! diamond! by! twisting! the!setting,!breaking!the!gem!in!the!process.!!HELD:! Goldsmith! acted! negligently! in! dismounting! the! diamond.!Being! a! goldsmith! of! 40! years,! he! should! have! been! aware! of! the!practice!to!use!a!miniature!wire!saw!in!dismounting!gems!from!their!settings.!

!CRISOSTOMO!v.!CA!!

Facts:! Crisostomo!bought! “Jewels! of! Europe”! tour! package!offered!by! Caravan! Travel! and! Tours.! Crisostomo! claimed! that! when! the!documents!were!delivered,! she!when!he! flight!will! be.! She!did!not!check!her! travel!documents!and!on!the!day!of! the!supposed! flight,!she! found! out! that! the! flight! had! already! left! the! day! before.! She!was!advised!by!the!travel!agency!to!avail!of!a!different!tour!which!is!cheaper! than! the! Jewels! of! Europe.! Upon! arrival,! she! asked! for!reimbursement!of!the!difference!between!the!sum!she!paid.!!Held:! The! petitioner! is! not! entitled! to! a! refund! because! she! was!negligent.! Common! carriers! are! required! to! observe! extraordinary!diligence.!However,!in!accordance!to!Art.!1732,!respondent!is!not!a!common! carrier! since! it! is! only! engaged! in! making! the! travel!arrangements! for! customers,! acting! merely! as! an! agent! for! the!airlines.!!

c. %Effects%of%Negligence%1. Damages! are! demandable,! which! the! courts! may!

regulate!according!to!circumstances!2. Invalidates!defense!of!fortuitous!event!

!!

3. DELAY!(MORA)!

a. %Concept%of%Delay%

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!obligations!!

DELAY/MORA/DEFAULT%–!non?fulfillment!of!obligation!with!respect!to!time!!ORDINARY%DELAY%AND%MORA%DISTINGUISHED:%

Ordinary!delay! Mora!merely! the! failure! to!

perform!an!obligation!on!time!failure! to! perform! an!

obligation!on!time!which!failure,!constitutes! a! breach! of! the!obligation.!

!WHEN%DEMAND%NOT%NECESSARY%TO%INCUR%DELAY%

1. When!there!is!EXPRESS!STIPULATION!2. When!the!LAW!so!provides!3. When! from! the! nature, and! the! circumstances! of! the!

obligation! it!appears!that!the!DESIGNATION!OF!THE!TIME!when! the! thing! to! be! delivered! or! the! service! is! to! be!rendered!was!a!controlling,motive!for!the!establishment!of!the!contract!

4. When!demand!would!be!USELESS,!as!when!the!obligor!has!rendered,it,beyond,his,power,to,perform,

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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.! From! the!moment!ONE% of% the%parties%fulfills%his%obligation,!delay!by!the!other!begins.!!

!• There!can!only!be!delay!in!positive%obligations!(to!give!and!

to!do)!and!not!in!negative!obligations!(not!to!give!and!not!to!do).!!

• There!is!no!mora!in!natural!obligations!!!!b.%%%%Kinds%of%Mora%%

!i. %Mora%solvendi,–!default!on!the!part!of!the!debtor!

!# EX!RE!referring!to!obligations!to!give!# EX!PERSONA!referring!to!obligations!to!do!!!

REQUISITES%OF%MORA%SOLVENDI:%1. PRESTATION!is!demandable!and!already!liquidated!

• There! can! be! no! delay! if! the! obligation! is! not! yet!due.! There! is! no! mora! in! natural! obligations!because!performance!is!optional!and!voluntary!

2. That!the!debtor!delays!performance!• Effects!of!mora!only!arise!when!the!delay!is!due!to!

the!causes,imputable,to,the,debtor;!hence!there!is!legally! no! delay! if! this! is! caused! by! factors! not!imputable!to!the!debtor!(e.g.!fortuitous!events)!

3. That! the! creditor! requires! or! demands! the! performance!extrajudicially!or!judicially!!• Mere! reminder! is! not! a! demand! because! it! must!

appear! that! the!benevolence!and! tolerance!of! the!creditor!has!ended.!

!

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GENERAL!RULE:!Creditor!should!make!demand!before!debtor!incurs!delay!!

• Default! begins! from! the! moment! creditor! demands!the!performance!of!obligation.!o If!extrajudicial:!date!of!demand!o If! uncertain:! date! of! filing! of! complaint! (for!

purposes! of! computing! payment! of! interests! or!damages)!!

• Demand! may! be! in! any! form,! provided! it! can! be!proved.!It!is!also!generally!necessary!even!if!a!period!has! been! fixed! in! the! obligation.! Burden! of! proof! of!demand!on!the!creditor.!!

• Demand!must!refer!to!the!prestation!that!is!due!and!not!another.!!

• But!even!if!without!demand,!debtor!incurs!in!delay!if!he!acknowledges,his,delay.! Request! for!extension!of!time! for! payment! is! not! sufficient! though,! the!acknowledgement!must!be!express.!!

Cases:!!CETUS!DEVELOPMENT!CORP!v.!CA!!

Facts:! Respondents! were! lessees! of! land! owned! by! Susana! Realty,!which!the!latter!sold!to!the!plaintiff.!Lessees!pay!to!the!collector!but!when!none!arrived,!they!weren’t!able!to!pay.!Thus,!Cetus!wanted!to!evict! them.! However,! immediately! upon! the! receipt! of! the! said!demand,!the!private!respondents!paid!their!respective!arrearages!in!rent! which! were! accepted! by! Cetus! subject! to! the! unilateral!condition!that!the!acceptance!was!without!prejudice!to!the!filing!of!an!ejectment!suit.!!!!Held:!Default!only!accrues!after!demand.!Paying!to!the!collector!was!the! common! practice! and! upon! demand! the! lessees! complied!immediately.!!SANTOS!VENTURA!HOCORMA!FOUNDATION!v.!SANTOS!

Facts:! A! Compromise! Agreement! stipulated! that! SVHFI! should! pay!Santos:!P1.5mill!upon!execution!of!the!agreement;!and!P13mill,!in!1!lump! sum!or! in! installments,!within! 2! years! from!execution.! SVHFI!did! not! pay.! Sheriff! levied! SVHFI's! real! properties.! Santos! further!asked!for!legal!interest!on!the!obligation!because!of!the!delay.!SVHFI!claimed!that!there!is!no!cause!of!action!because!it!had!already!fully!paid!its!obligation.!!Held:!SVHFI!is!liable!for!legal!interest!for!damages!in!the!delay!of!the!performance!of! its!obligation,!pursuant! to!Art!1170.!3! requisites!of!default! are! present.! The! obligation! was! already! demandable!because! the! 2?year! period! had! already.! The! obligation! is! already!liquidated!because!the!debtor!knows!precisely!how!much!he!should!pay!and!when!he!should!pay!it.!SVHFI!also!delayed!the!performance!of! the! obligation! because! it! only! settled! its! obligation! on! Feb.! 8,!1995.! Santos! required! the! extrajudicial! performance! of! the!obligation!by!sending!the!letter!on!Oct.!28,!1992.!!VASQUEZ!v.!AYALA!CORP!!

Facts:! Ayala! bought! Vasquez’! share! in! Conduit! in! exchange! for! an!option!to!buy!a!property!in!the!subdivision!they!are!developing.!The!construction!was!extended!and!the!value!of!the!property!fluctuated.!Vasquez! sent! letter! of! reminder! that! the! due! date! is! approaching.!The!whole!project!was!completed! in!1990,!when!Ayala!offered! the!lots! to! the! spouses! but! the! latter! wanted! the! lots! to! be! priced! at!1984!market!prices.!!Held:!Not!all!requisites!of!Mora!Solvendi!are!not!present!in!the!case.!There!was!no!day!certain!fixed!in!the!agreement!in!the!development!

of! the! subject! lots.! Therefore,! the! petitioners! cannot! demand! the!performance!of!the!same!without!having!asked!the!courts!to!fix!the!period! in! accordance! with! Art.! 1197.! The! letters! that! the! spouses!and! their!heirs! sent! to!Ayala!did!not!constitute!a!demand!as! these!did! not! categorically! demand! the! specific! performance! but! only!articulated!their!desire!to!exercise!their!option.!!EXCEPTION:%When%demand%is%not%required%

1. Express! stipulation! –! Insertion! of! the! clause! “without,further,notice/demand”!

2. Law! so! provides! ?! Not! enough! to! merely! fix! date! for!performance,! but! also! that! default! will! commence! after!the!period!lapses!

3. Period! is! the! controlling! motive! or! the! principal!inducement! for! the! creation! of! the! obligation! –! in! cases!where!it!appears!that!the!obligation!would!not!have!been!created! for! a! date! other! than! that! fixed! (Abella, v.,Francisco)!

4. Demand! would! be! useless! –! performance! has! become!impossible!

a. Caused! by! some! act! or! fault! of! the! debtor,! e.g.!hiding!or!disposed!of!the!thing!to!be!delivered!

b. Impossibility! caused! by! fortuitous! event! but!debtor! bound! himself! liable! in! cases! of! such!events!!!

,

PRESUMPTION%OF% TIME% BEING%OF% THE% ESSENCE% (EVEN%WITHOUT%EXPRESS%STIPULATION):%

1. In!agreements!which!are!executed!in!the!form!of!options,!time! is! always! held! to! be!of! the! essence!of! the! contract,!and!it!is!well!recognized!that!in!such!contracts,!acceptance!of! the! option! and! payment! of! the! purchase! price!constitute!conditions!precedent!to!specific!performance.!!

2. The!same!is!true!generally!of!all!unilateral,contracts.!,3. In! mercantile! contracts! for! the!manufacture, and, sale, of,

goods,! time! is! also! held! to! be! of! the! essence! of! the!agreement.!

4. Where!the!subject!matter!of!a!contract!is!of!speculative,or,fluctuating,value,

5. Most! conspicuous!among!all! the! situations!where! time! is!presumed!to!be!of!the!essence!of!a!contract!from!the!very!nature! of! the! subject?matter! is! that! where! the! contract!relates!to!mining,property.,

,

Case:!!ABELLA!v.!FRANCISCO!

Facts:!Francisco!purchased!lots!from!the!government!on!installment!but! was! in! arrears! on! payments! (due! on! Dec! 1928).! So! he! sold! a!parcel! of! land! to!Abella,! payment! of!which! is! due!on!Dec! 15! 1928!extendible! by! 15!days.!Abella!was!only! able! to! Pay!P915.34!out! of!the!P21,600!total!amount!due.!It!was!only!on!Jan.!9!1929!did!Abella!offered!to!pay!the!balance.!!Held:!There!is!no!need!for!demand!because!time!is!of!the!essence.!It!should! be! noted! that! Francisco! had! obligations! due! on! December!1928!for!which!he!expected!to!use!the!payment!on!the!said!lots.!!!!!!!

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ii. %Mora%accipiendi! –! default! on! the! part! of!the!creditor!!• Delay! in! the! performance! based! on! the!

omission! by! the! creditor! of! the! necessary!cooperation,! especially! acceptance! on! his!part.!!

• Generally,! debtor! can! perform!at, any, time!after!the!obligation!has!been!created,!even!before!the!date!of!maturity.!!

• It!is!necessary!however!that!it!be!lawful!for!the! debtor! to! perform,! and! that! he! can!perform! (e.g.! when! the! period! is!established!for!the!benefit!of!the!creditor!or!both!of!the!parties).!!

!REQUISITES%OF%MORA%ACCIPIENDI:%1. Offer! of! performance! by! the! debtor! who! has! the! required!

capacity!2. Offer! must! be! to! comply! with! the! prestation! as! it! should! be!

performed!3. Creditor!refuses!the!performance!without,just,cause!

∗ See, also! Art! 1268!When! the! debt! of! a! thing! certain! and!determinate!proceeds!from!a!criminal!offense,!the!debtor!shall! not! be! exempted! from! the! payment! of! its! price,!whatever!may!be!the!cause!for!the!loss,!UNLESS!the!thing!having! been! offered! by! him! to! the! person! who! should!receive! it,! the! latter! refused! without! justification! to!accept!it.!!

!Cases:!

!VDA.!DE!VILLARUEL!v.!MANILA!MOTOR!CO.,!INC.!!

Facts:!Manila!Motor!Co.!leased!a!building!from!Villaruel!(contract!is!if!for!5!years!and!the!amount!of!P350!is!to!e!paid!monthly)!in!1940.!Manila!Motor! enjoyed! the! premises! until! the! Japanese! invasion! in!1941.! The! quarters!were! occupied! by! the! enemy! forces! from! June!1942!until!March!1945;!no!rentals!were!paid!during!this!period.!The!American! subsequently! occupied! the! same! building.! When! the!American!Forces!gave!up!their!occupancy,!Manila!Motor!decided!to!renew!the!contract.!Villaruel!wanted!the!contract!rescinded!and!for!Manila! Motor! to! pay! rentals! for! the! duration! of! the! Japanese!occupation!of!the!said!building.!!Held:!Manila!Motor! is!not! in!default! for! refusal! to!comply!with! the!demand!to!pay!rents!for!the!duration!of!the!Japanese!occupation!of!building! in!question.!The! lessors!accepted!payment!of! rentals! from!October! 1945! to! June! 1946.! It! was! only! in! July! 1946! that! they!insisted!upon!collecting!the!1942?1945!rents,!and!refused!to!accept!further!payments!tendered!by!the!lessee!unless!their!right!to!collect!the!occupation!rental!was!recognized!or!reserved.!The!dispossession!during! the! Japanese! occupation! exempted! Manila! Motor! from! its!obligation!to!pay!rent!for!that!period.!Also,!even!if!Manila!Motor!is!liable,!the!collection!of!rents!in!1946!was!barred!by!the!moratorium!order! (EO! 32).! The! lessors’! refusal! to! accept! the! current! rentals!without!qualification!placed! them! in!default! (mora,accipiendi)!with!the! result! that! thereafter,! they!had! to!bear!all! supervening! risks!of!accidental!injury!or!destruction!of!the!leased!premises.!!

TENGCO!v.!CA!!

Facts:! Lutgarda! Cifra! leased! a! property! to! Emilia! Tengco;! contract!was!not! in!writing.!While!the!contract!was!still! subsisting,!Lutgarda!transferred!the!ownership!of!the!property!to!Benjamin!Cifra.!Despite!

Tengco’s! knowledge! of! said! transfer,! she! attempted! to! pay! her!rentals! to! the!person!whom!she!used!to!pay!her!dues.!Said!person!refused!to!accept!payment!as!she!no!longer!had!the!authority!to!do!so.!!Held:! The! lessor! is! not! guilty! of! mora, accipiendi.! The! refusal! to!accept!payment!was!not!without!justification.!The!ownership!of!the!property!was!already!transferred!to!Benjamin,!and!the!payment!was!offered!to!a!person!who!no! longer!had!authority! to!accept!such.! It!should!be!noted!that!the!contract!was!not!recorded.!The!Court!held!that! in! the! absence! of! contrary! agreement,! a! contract! of! lease!executed! by! the! vendor,! unless! recorded,! ceases! to! have! effect!when!the!property!is!sold.!

!iii. Compensatio% morae, –! parties! in! a! bilateral!

contract! can! regulate! the! order! in! which! they! shall!comply! with! their! reciprocal! prestations.! Otherwise,!the! fulfillment! must! be! SIMULTANEOUS! and!RECIPROCAL.! If! there! is! mutual! default,! the! parties!cannot!ask!for!damages!

!GENERAL!RULE:!Fulfillment!of!parties!should!be!simultaneous!!EXCEPTION:!Contrary!stipulation!(e.g.!installment!plans)!!Cases:!!CENTRAL!BANK!v.!CA!Facts:!Sulpicio!Tolentino!obtained!an!P80K!loan!from!Island!Savings!Bank! (ISB),! and! a! mere! P17K! partial! release! was! made,! with!Tolentino! signing! a! promissory! note! therefor.! An! advance! interest!was! deducted! from! this! partial! release! but! was! refunded! to! him!after!being!informed!there!was!no!money!yet!for!the!P63K!balance.!The!Monetary! Board! of! the! Central! Bank! found! out! that! ISB! going!bankrupt!and!after! failing! to! restore! its! solvency,! it!was!prohibited!from!doing!business! in! the!Philippines.! For! the!nonpayment!of! the!P17K,! ISB! filed! an! application! for! the! foreclosure! of! a! real! estate!mortgage,!which!Tolentino!opposed.!!Held:!The!loan!implied!reciprocal!obligations,!and!when!one!party!is!willing! and! ready! to! perform,! the! other! does! not! occur! in! delay;!insolvency,! however,! is! not! an! excuse! but! is! a! breach! of! contract.!When! Tolentino! executed! the! real! estate! mortgage,! he! signified!willingness!to!pay,!but!ISB!was!insolvent!and!Central!Bank!prohibited!it! from!doing!further!business.!Since! ISB!was! in!default,!Tolentino’s!only! choice! was! to! rescind! the! obligation! (specific! performance! is!impossible! due! to! the! prohibition! by! Central! Bank),! but! the!rescission!should!only!be!for!the!P63K!balance.!

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c. Effects%of%Mora%%!

MORA!SOLVENDI:!1. When!it!has!for!its!object!a!determinate!thing,!the!delay!places!

the!risk!of!the!thing!on!the!debtor!2. Debtor!becomes!liable!for!damages!of!the!delay!3. Debtor!is!liable!even!for!a!fortuitous!event!when!the!obligation!

is!to!deliver!a!determinate,thing.!!

MORA!ACCIPIENDI:!1. Responsibility!of!the!debtor!for!the!thing!is!reduced!and!limited!

to!fraud!and!gross!negligence!2. Debtor! is! exempted! from! the! risks! of! loss! of! thing,! which!

automatically!pass!to!the!creditor!3. All!expenses!incurred!by!the!debtor!for!the!preservation!of!the!

thing!after!the!mora!shall!be!chargeable!to!the!creditor!4. If!the!obligation!bears!interest,!the!debtor!does!not!have!to!pay!

it!from!the!moment!of!the!mora!5. The!creditor!becomes!liable!for!damages!6. The! debtor! may! relieve! himself! of! the! obligation! by! the!

consignation!of!the!thing!!

COMPENSATION!MORAE:!• Exceptio,non,adempleti,contractus,–,one!is!not!compelled!

to!perform!his!prestation!when!the!other!contracting!party!is! not! yet! prepared! to! perform! his! prestation;! default! of!one!compensates!the!default!of!the!other!

!CESSATION%OF%EFFECTS%OF%MORA:%%1. Renunciation!by!the!creditor!

a. Express!!b. Implied:! when! after! delay! has! been! incurred,! the!

creditor! grants, an, extension, of, time! to! the! debtor! or!agrees!to!a!novation!of!the!obligation!!

2. Prescription!!!

4.!!!!CONTRAVENTION!OF!TENOR!!!

Contravention!of! the! terms!of! the!obligation, M!any! illicit!act!which!impairs! the! strict! and! faithful! fulfillment! of! the!obligation!or! every!kind!of!defective!performance!

• Malicious! or! negligent! violation, of, the, terms, and,

conditions,stipulated!in!the!obligation!!• Must! not! be! due! to! fortuitous! even! or! force! majeure,!

otherwise!there!would!be!no!liability!• Immaterial! whether! or! not! the! actor! is! in! bad, faith, or,

negligent,!what! is! required! is! that! it! is!his! fault!or! the!act!done!contravenes!their!agreement!

• Sir!Labitag:!It!is!a!catch!all!phrase!for!any!kind!of!breach!!Cases:!

!CHAVEZ!v.!GONZALES!Facts:! Chavez! brought! his! typewriter! to! Gonzales! for! cleaning! and!service!and,!despite!repeated!reminders!from!Chavez,!Gonzales!was!unable! to! finish! the! job.! Gonzales! asked! for! P6.00! for! spare! parts,!which! Chavez! gave,! but! after! still! failing! to! finish! the! job,! he!demanded! the! typewriter! be! returned! to! him.! He! realized! the!typewriter! was! returned! dismantled! and! parts! were! missing,! such!parts! returned! to! him! by! Gonzales! along! with! the! P6.00! (after! he!demanded).!Another!person!fixed!the!typewriter,!which!cost!Chavez!P89.95! (materials!and! labor)!and!he! is!praying! for!damages!against!Gonzales.!

!Held:!Chavez!and!Gonzales!had!a!perfected!contract!for!service!and!cleaning,!which!Gonzales!was!unable! to!do.!He! is! liable! for! P31.10!under!Art.!1165!(for!the!proper!execution!of!the!obligation!and!the!missing!parts)!because!of!the!non?performance!of!his!obligation.!He!contravened!the!tenor!of!the!obligation!because!not!only!did!he!not!fulfill! the! obligation! (repair! the! typewriter),! but! he! returned! “in!shambles”!and!missing!some!parts.!Contravention!of!the!tenor!is!an!illicit! act! which! impairs! the! strict! and! faithful! fulfillment! of! the!obligation.!!TELEFAST!v.!CASTRO!Facts:! Consolacion! Bravo?Castro,!wife! and!mother! of! the! plaintiffs,!passed! away! in! Lingayen,! Pangasinan.! Her! daughter,! Sofia! Crouch,!addressed! a! telegram! to! the! relatives! abroad! announcing!Consolacion’s!death,!which!telegram!was!accepted!by!Telefast!in!its!Dagupan! office! for! transmission,! after! payment! of! the! fees.!Consolacion!was! interred!with! just! Sofia,! and!Sofia! later! found!out!that!the!telegram!never!reached!the!relatives!abroad.!The!family! is!claiming!for!damages.!!Held:!Telefast!and!Sofia!Crouch!entered!into!a!contract!where!Sofia!pays! a! fee,! and! Telefast! sends! the!message! overseas! by! telegram.!Telefast! failed! to! comply! despite! Sofia! complying! with! her!obligation,!making!Telefast!guilty!of!contravening! its!obligation!and!liable! for! damages.! Telefast’s! act! or! omission! amounted! to! gross!negligence,!which!was!the!cause!of!the!suffering!of!the!family!–!they!can’t!just!be!liable!for!the!fees,!but!must!be!liable!for!damages.!!ARRIETA!v.!NARIC!Facts:! Arrieta! won! a! bid! called! by! NARIC! for! the! supply! of! 20,000!metric! tons! of! Burmese! rice! because! was! the! lowest! cost.! They!entered!into!a!contract,!making!NARIC!liable!for!a!letter!of!credit!in!favor! of! Arrieta,! and! Arietta! being! obligated! to! deliver! the! rice! at!$203!per!metric!ton.!Arrieta!told!NARIC!of!the!urgency!to!open!the!letter!of!credit!because! it!would!be!necessary! to!keep!an!allocated!space!on!the!ship! for! the!rice! (after!her!paying!5%!downpayment).!Despite!Arrieta!informing!NARIC!that!the!supplier!in!Rangoon!would!keep!the!space!open!until!Aug.!4,!1952,!NARIC!still! failed!to!supply!the! letter! of! credit,! and! the! space! was! forfeited! (costing! Arrieta!approx..! P200,000).! Arrieta! offered! to! substitute! it! with! Thailand!rice,!but!it!declined,!and!now!Arrieta!is!asking!for!compensation.!!Held:! Arrieta! is! entitled! to! compensation! because! it! was! NARIC’s!fault! that! the! space! was! closed! and! the! 5%! cost! of! it! forfeited! in!favor! of! the! supplier.! Its! liability! stems! not! only! from! its! failure! to!satisfy! the! requirements! of! the! bank! (which! was! why! they! didn’t!issue!the!letter!of!credit)!but!its!culpability!arises!from!its!deliberate!assumption! of! contractual! obligations! despite! knowledge! of! its!financial!incapacity!(through!its!letter).!It!is!liable!because!of!“in!any!manner!contravene!the!tenor”!which! impairs! the!strict!and! faithful!fulfillment!of!the!obligation.!

!!!!!!!!!!!!

!!!!


5. ABSOLUTE!NON[PERFORMANCE!• Not!liable!if!non?performance!was!due!to!fortuitous!event,!

unless! there! is! an! express! stipulation! to! the! contrary,! or!the!law!otherwise!provides!in!particular!cases!

• Not! liable! for! non?performance! if! the! impossibility! arises!from! a! cause! which! neither! party! could! reasonably! have!foreseen.!

• Mere!pecuniary!inability!to!fulfill!an!engagement!does!not!discharge! an! obligation! nor! constitute! a! defnse! to! an!action!for!specific!performance!

!

III. Remedies* Of* Creditor* in* Case* Of*Breach*

!REMEDIES%IN%GENERAL:%

1. Action! for! performance! (specific! performance! or! obtain!compliance)!

2. Action!for!rescission!!3. Action!for!damages!(exclusively!OR!in!addition!to!either!of!

the!first!actions)!!!

REMEDIES%OF%CREDITOR%IN%REAL%OBLIGATION:!1. In! a! specific, real, obligation! (obligation! to! deliver! a!

determinate!thing):!a. Demand! specific! performance! or! fulfillment! of! the!

obligation!with!a!right!to!indemnity!for!damages;!or!b. Demand! rescission! or! cancellation! (in! certain! cases)!

of!the!obligation!also!with!a!right!to!recover!damages!(Art.!1170);!or!

c. Demand! the! payment! of! damages! only! (Art.! 1170)!when!it!is!the!only!feasible!remedy!

2. In!a!generic,real,obligation!(obligation!to!deliver!a!generic!thing)!a. Can!be!performed!by!a!third!person!or!the!debtor!but!

the! creditor! may! ask! for! performance! of! the!obligation!

b. Whether! by! a! third! person! or! by! a! debtor,! the!creditor!can!recover!damages!

!REMEDIES%OF%CREDITOR%IN%POSITIVE%PERSONAL%OBLIGATION:!

1. If!the!debtor!fails!to!comply!with!his!obligation!to!do,!the!creditor!has!the!right:!a. To! have! the! obligation!performed! by! himself,! or! by!

another!unless!personal! considerations!are! involved,!at!the!debtor’s!expense;!and!

b. To!recover!damages!(Art.!1170)!2. In! case! the! obligation! is! done! in! contravention! of! the!

terms!of!the!same!or!is!poorly!done,!it!may!be!ordered!(by!the! court)! that! it! be!undone! if! it! is! still! possible! to! undo!what!was!done.!

!REMEDIES%OF%CREDITOR%IN%NEGATIVE%PERSONAL%OBLIGATION:!

∗ Since! the! duty! is! to! obtain! from! an! act,! there! is! no!specific!performance!

∗ In!this!kind!of!obligation,!the!debtor!cannot!be!guilty!of!delay!

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

2. If!it!is!not!possible!to!undo!what!was!done,!the!remedy!is!an!action!for!damages.!

!

!

REMEDIES%FOR%THE%SATISFACTION%OF%CLAIMS:!1. Exact! fulfillment! (specific! performance)! with! the! right! to!

damages;!2. Pursue! the! leviable! (not! exempt! from! attachment! under!

the!law)!property!of!the!debtor;!a. The!debtor!is!liable!with!all!his!property,!present!and!

future,!for!the!fulfillment!of!his!obligations,!subject!to!the!exemptions!provided!by!law!(see!Art.!2236)!

b. Art.! 1708! CC! –! laborer’s! wages! not! subject! to!execution! or! attachment,! except! for! debts! incurred!for!food,!shelter,!clothing!and!medical!attendance!

c. Art.! 155! FC! –! family! home! shall! be! exempt! from!execution,!forced!sale!or!attachment,!except!for!non?payment!of!taxes,!debts!incurred!prior!to!constitution!of! family! home,! debts! secured! by!mortgages! before!or! after! constitution,! debts! due! to! those! who!rendered! service! or! furnished! material! for! the!building.!

d. Sec.!13,!Rule!39,!Rules!of!Court!3. After! having! pursued! the! property! in! possession! of! the!

debtor,! exercise! all! the! rights! (like! the! right! to! redeem)!and! bring! all! the! actions! of! the! debtor! (like! the! right! to!collect! from! the! debtor! of! his! debtor)! except! those!inherent!in!or!personal!to!the!person!of!the!latter!(such!as!the!right!to!vote,!to!hold!office,!to!receive!legal!support,!to!revoke!a!donation!on!the!ground!of!ingratitude,!etc.);!and!

4. Ask!the!court!to!rescind!or!impugn!acts!or!contracts!which!the!debtor!may!have!done!to!defraud!him!when!he!cannot!in!any!other!manner!recover!his!claim.!

!SITUATIONS%WHICH%MAY%GIVE%RISE%TO%THE%NEED%FOR%REMEDIES:!

1. The!debtor!fails!to!perform!an!obligation!to!do;!or!2. The! debtor! performs! an! obligation! to! do! but! contrary! to!

the!terms!thereof;!or!3. The! debtor! performs! an! obligation! to! but! in! a! poor!

manner.!

,A. Action(for(Performance(1. ACTION! FOR! SPECIFIC! PERFORMANCE! OR! FULFILLMENT! OF!

THE!OBLIGATION!(IN!OBLIGATION!TO!GIVE!SPECIFIC!THING)!!!

Art.! 1165,! Par.! 1.! When! what! is! to! be! delivered! is! a! determinate!thing,!the!creditor,!in!addition!to!the!right!granted!him!by!Art!1170!(indemnification!for!damages),!may!compel!the!debtor!to!make%the%delivery.!!

ROC!39,!Sec!10!Execution,!satisfaction!and!effect!of!judgment.!!!

• Implies! that! the! basis! is! a! contractual! relation! between!plaintiff!and!defendants.!!!!

2. ACTION! FOR! SUBSTITUTED! PERFORMANCE! (IN! OBLIGATION!

TO!GIVE!GENERIC!THING)!!

Art.!1165,!Par.!2.!If!the!thing!is!indeterminate!or!generic,!he!may!ask!that!the!obligation!be!complied%with!at!the!expense!of!the!debtor!!

• Delivery! of! anything! belonging! to! the! species! stipulated!will!be!sufficient.!!

• Debtor! cannot! avoid! obligation! by! paying! damages! if! the!creditor!insists!on!the!performance.!!

!!!!


!3. ACTION! FOR! SUBSTITUTED! PERFORMANCE!OR!UNDOING!OF!

POOR!WORK!(IN!OBLIGATION!TO!DO)!!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%done%poorly%be%undone!!

• The! court! has!no!discretion! to!merely! award!damages! to!the! creditor! when! the! act! can! be! done! in! spite! of! the!refusal!or!failure!of!debtor!to!do!so.!!

• EXCEPTION:!Imposition!of!personal!force!or!coercion!upon!the!debtor!to!comply!with!his!obligation!"!tantamount!to!involuntary!servitude!and!imprisonment!for!debt!

!Cases:!!

CHAVEZ!v.!GONZALES!(see!Contravention!of!the!Tenor!digest)!FACTS:!Chavez!asked!Gonzales! to! repair!a! typewriter,!but!Gonzales!failed! to! repair! it.! In! fact,! when! Chavez! finally! asked! for! the!typewriter!back!(after!failing!to!fix! it!despite!repeated!demands),! it!was!returned!to!him!“in!shambles”!and!with!missing!parts.!!HELD:! Chavez! and! Gonzales! had! a! perfected! contract! where!Gonzales!would! repair! the! typewriter! for! a! cost.! Instead,!Gonzales!returned! it! in! a! condition!worse! than!when! it!was! brought! in,! and!now! he!must! be! liable! for! the! cost! of! the! service! and! the!missing!parts.! Since! he! failed! in! his! obligation,! he! must! be! liable! for! he!correction! of!what! he! did! poorly! and! for! the! contravention! of! the!tenor!of!his!obligation.!!TANGUILIG!v.!CA!FACTS:! Jacinto! Tanguilig! (under! JMT! Engineering)! proposed! to!Vicente! Herce! Jr.! to! construct! a! windmill! system! for! him! for! P60K!(w/1?year! guarantee! after! completion).! Herce! paid! P30K!downpayment! and! an! installment! of! P15K.! Tanguilig! filed! a!complaint! to! collect! the! balance! because! of! Herce’s! refusal! and!failure!to!pay! it.!Herce!said!that!he!paid!P15K!to!SPGMI!for!a!deep!well,! and! it! should! be! credited! to! his! account.! Also,! the! windmill!system!created!collapsed!after!a! strong!wind!hit! their!place,!and! it!should!offset!the!P15K!debt!to!JMT.!Tanguilig!said!the!deep!well!was!not!part!of!the!agreement!for!the!windmill!system.!!HELD:!The!terms!of!the!instruments!were!clear!–!although!the!words!“deep!well”! were! used,! they!were! only!meant! to! convey! the! idea!that!the!windmill!would!be!appropriate!for!a!deep!well!pump!with!a!certain! size.! Herce! is! not! in! default! yet! for! not! paying! the! P15K!because! JMT! hasn’t! complied! with! its! obligation! to! repair! the!windmill!(guarantee).!When!the!windmill!failed!to!function!properly,!it! became! incumbent! upon! JMT! to! institute! the! repairs! in!accordance!with!the!guaranty!(Art.!1167!–!if!a!person!obliged!to!do!something!fails!to!do!it,!the!same!shall!be!executed!at!his!cost).!

!4. ACTION!FOR!UNDOING!(IN!OBLIGATION!NOT!TO!DO)!!

!• Art! 1168!When! the! obligation! consists! in! not! doing,! and!

the!obligor!does!what!has!been!forbidden!him,!it!shall!also!be!undone%at%his%expense.!!

• EXCEPTION:! When! the! only! feasible! remedy! is!indemnification,for,the,damages!caused:!!

o If!has!become!impossible!to!undo!the!thing!physically!or!legally!

o If!the!act!is!definite!and!will!not!cease!even!if!undone!!

B. Action(for(Damages(• Art!1170!"!Recoverable!damages!include!any,and,all,

damages!that!a!human!being!may!suffer.!Responsibility!for!damages!is!indivisible.!

(C. Action(for(Rescission(

*Art.! 1191.! The!power! to! rescind!obligation! 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! 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!a!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.!

!Art.! 1192.! In! case! both! parties! have! committed! breach! of!

obligation,! the! liability! of! the! first! infractor! shall! be! equitably,tempered! by! the! courts.! If! it! cannot! be! determined! which! of! the!parties! first! violated! the! contract,! the! same! shall! be! extinguished!and!each,shall,bear,his,own,damages%

!• The! remedy! is! alternative.! Party! seeking! rescission! can! only!

elect!one!between! fulfillment!and! rescission.! There! can!be!no!partial!performance!and!partial!rescission.!!

• Only! applies! to! reciprocal! obligations,! where! there! is!“reciprocity”!between!the!parties! i.e.! creditor!debtor! relations!arise!from!the!same!cause!or!“identity!of!cause”!

• Reciprocal!obligations!have!a!“TACIT,RESOLUTORY,CONDITION.”!!• Power%to%rescind:!!

o Pertains! to! the! injured! party,! party!who! did! not! perform!not!entitled!to!insist!upon!the!performance!of!the!contract!by!the!defendant!or!recover!damages!by!reason!of!his!own!breach!! Rights!of!injured!party!subordinated!to!the!rights!of!a!

3rd!person!to!whom!bad!faith!is!not!imputable!!o Not! absolute,! not! permitted! in! casual/slight! breach,!may!

only! be! claimed! in! substantial! breach! , (Song, Fo, v.,Hawaiian,Philippines)!

o Rescission!requires!judicial,approval,to,produce,legal,effect!! EXCEPTION:! object! is! not! yet! delivered! AND!

obligation!has!not!yet!been!performed!!! If! the! obligation! has! not! yet! been! performed:!

extrajudicial! declaration! of! party! willing! to! perform!would!suffice;!can!refuse!to!perform!if!the!other!party!is!not!yet!ready!to!comply!

! If! the! injured! party! has! already! performed:! cannot!extrajudicially!rescind! IF!the!other!party!opposes!the!rescission! (otherwise,! rescission! produces! legal!effect).! In! the! case! the! other! party! impugns!rescission,!the!court!comes!in!either!to:!!a.!Declare!the!rescission!as!properly!made!b.!Give!a!period!to!the!debtor!in!which!to!perform!

!

!!!!


EFFECTS%OF%RESCISSION:%1. Extinguishes! obligatory! relation! as! if! it! had! never! been!

created,! extinction! has! a! retroactive! effect.! Equivalent! to!invalidate! the! juridical! tie,! leaving! things! in! their! status!before!the!celebration!of!the!contract!!

2. Mutual!restitution!• EXPRESS% RESOLUTORY% CONDITION:! automatic!

resolution!if!one!of!the!parties!does!not!comply!with!his!obligation.!Often!found!in!insurance!contracts.!Its!nature!is!a!“facultative!resolutory!condition”!(Taylor,v,Uy,Tieng)!

!IV. Subsidiary*Remedies*of*Creditor**

!

A. Accion*Subrogatoria*(action(for(collection)**

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

!1. CONCEPT:! ! action! which! the! creditor! may! exercise! in! the!

place!of!his!negligent!debtor!in!order!to!preserve!or!recover!for!the! patrimony! of! the! debtor! the! product! of! such! action,! and!then!obtain!therefrom!the!satisfaction!of!his!own!credit!

!• Double!function:!!

1. conserve!patrimony!of!debtor!and!!2. make! execution! on! such! property! effective!

thereafter!• Rights!of!creditors:!

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

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

3. To! ask! for! the! rescission! of! the! contracts!made!by!the!debtor!in!defraud!of!their!rights!

• Property! of! the! debtor! is! subject! to! liability! for! his!obligations! (Art!2236);! the! liability!of! the!property! is!the! legal! guaranty! in! favor! of! creditors! and,! hence,!debtors! cannot! maliciously! reduce! such! guaranty!(NOTE:!there!are!properties!exempt!from!execution)!

• Previous! approval! of! court! is! not! necessary! in!exercising!the!accion,subrogatoria!

• Defenses:!debtor!sued!may!set!up!against!the!plaintiff!the! same! defenses! he! could! set! up! against! his! own!creditor!

• Extent:! plaintiff! is! entitled! only! to! so! much! as! is!needed!to!satisfy!his!credit;!any!balance!shall!pertain!to!the!debtor!

• Remedies!available! to! the!debtor! for! the!satisfaction!of!their!claims!(de!Leon):!1. Specific!performance!with!the!right!to!damages!2. Pursue!the!leviable!property!of!the!debtor!3. Accion,subrogatoria,

4. Accion,pauliana,

!

!

2. REQUISITES!1. The!creditor!has!an!interest!in!the!right!or!action!not!

only! because! of! his! credit! but! because! of! the!insolvency!of!the!debtor!

2. Malicious! or! negligent! inaction! of! the! debtor! in! the!exercise!of! his! right!or! action!of! such! seriousness! as!to!endanger!the!claim!of!the!creditor!

3. The! credit! of! the! debtor! against! a! third! person! is!certain,!demandable!and!liquidated!

4. The! debtor’s! right! against! the! third! person!must! be!patrimonial,! or! susceptible! of! being! transformed! to!patrimonial!value!for!the!benefit!of!the!creditor!

!• Not!essential!that!the!creditor’s!claim!be!prior!to!

the!acquisition!of!the!right!by!the!debtor!!

3. EXCEPTIONS!–!INHERENT!RIGHTS!OF!A!DEBTOR!• Rights!of! the!debtor!which! cannot!be!exercised!by! the!

creditor:!1. Right! to! existence! (exempts! from! the! reach! of!

creditors!whatever!he!may!be!receiving!as!support)!2. Right!or!relation!of!a!public!character!3. Rights!of!an!honorary!character!4. Rights! consisting! of! powers! which! have! not! been!

used!a. Power!to!administer!b. Power!to!carry!out!an!agency!or!deposit!c. Power!to!accept!an!order!for!a!contract!

5. Non?patrimonial! rights! (e.g.,! rights! arising! from!family!relations)!

6. Patrimonial! rights! not! subject! to! execution! (e.g.,!right!to!a!government!gratuity!or!pension)!

7. Patrimonial! rights! inherent! in! the! person! of! the!debtor! (e.g.,! right! to! revoke!a!donation!by! reason!of! ingratitude,! and! the! right! to! demand! the!exclusion!of!an!unworthy!heir)!!

!Art.!772.!Only! those!who!at! the! time!of! the!donor's!death!have!a!right!to!the!legitime!and!their!heirs!and!successors!in!interest!may!ask!for!the!reduction!or!inofficious!donations.!

Those!referred!to!in!the!preceding!paragraph!cannot!renounce!their! right! during! the! lifetime! of! the! donor,! either! by! express!declaration,!or!by!consenting!to!the!donation.!

The!donees,!devisees!and!legatees,!who!are!not!entitled!to!the!legitime!and!the!creditors!of! the!deceased!can!neither!ask! for! the!reduction!nor!avail!themselves!thereof.!!

!

Sec!13,!Rule!39,!Rules!of!Court!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! ordinary! personal! use,!excluding!jewelry;!

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e) Household!furniture!and!utensils!necessary!for!house?keeping,!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;!

h) 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;!One!fishing!boat!and!accessories! not! exceeding! the! total! value! of! one! hundred!thousand!pesos!owned!by!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! for! 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!exempted!by!law.!!But!no!article!or!species!of!property!mentioned!in!this!section!shall!be! exempt! from!execution! issued!upon! a! judgment! recovered! for!its!price!or!upon!a!judgment!of!foreclosure!of!a!mortgage!thereon.!(12a)!

!

B. Accion*Pauliana*%

Art.!1177.![…]!they!may!also!impugn!the!acts!which!the!debtor!may!have!done!to!defraud!them.!

!Art.!1381,!Par.!3.!The!following!contracts!are!rescissible:!

(3)! Those! undertaken! in! fraud! of! creditors! when! the! latter!cannot!in!any!other!manner!collect!the!claims!due!them!

!1. CONCEPT:!action!to!revoke!or!rescind!acts!which!the!debtor!

may!have!done!to!defraud!the!creditor!• Regulated!by!Arts!1380!to!1389!• Can! revoke! all! acts! of! the! debtor! which! reduces! his!

patrimony!in!fraud!of!his!creditors,!whether!by!gratuitous!or!onerous! title! (e.g.,!alienations!of!property,!payment!of!debts! which! are! not! due,! renunciation! of! rights;!assignments!of!credit,!remission!of!debts)!

• Payments!of!pre?existing!obligations!already!due,!whether!natural!or!civil,!cannot!be!impugned!by!an!accion,pauliana!

!a. Distinction% between% accion% pauliana% and%

accion%subrogatoria%!

ACCION%SUBROGATORIA% ACCION%PAULIANA%Not!essential!that!credit! is!prior!to! the! acquisition! of! debtor’s!right!

Credit!must! exist! before! fraudulent!act!

Intent! to! defraud! creditors! is!not!required!

If! contracts! rescinded! is! onerous,!there!must!be!fraudulent!intent!

No!period!of!prescription!! Action! prescribes! within! 4! years! of!the!discovery!of!the!fraud!

2. REQUISITES!1. Plaintiff! asking! for! rescission! has! a! credit! prior! to! the!

alienation,!although!demandable!later!2. Debtor! has! made! a! subsequent! contract! conveying! a!

patrimonial!benefit!to!a!third!person!3. Creditor!has!no!clear!legal!remedy!to!satisfy!his!claim,!but!

would!benefit!by! the! rescission!of! the! conveyance! to! the!third!person!

4. Act!being!impugned!is!fraudulent!• Presumption! of! fraud! may! be! found! in! Art! 1387!

(gratuitous! transfer! without! leaving! sufficient! funds!for!obligations!OR!gratuitous!transfers!by!a!judgment!debtor)!

5. Third!person!who! received! the!property! conveyed,! if! it! is!by!onerous!title,!has!been!an!accomplice!in!the!fraud!

!ACCION%PAULIANA%AND%SIMULATION%DISTINGUISHED:%%

! Accion,Pauliana, Simulation!Real!alienation! Present,! but!

fraudulent!None;!mere! pretense!that! one! has! been!made!

When!can!it!be!alleged!by!creditors?!

Only! prior! to! the!act!

Before! or! after! the!simulation!

Impossibility!of!satisfying!plaintiff’s!

claim!

Required! Not!required!

Sets!aside!a!valid!contract?!

Yes! No;! merely! declares!its!inexistence!

!Cases:!!

KHE!HONG!CHENG!v.!CA!!

Facts:!M/V!Prince!Eric!(owned!by!Khe!Hong!Cheng)!sank,!resulting!in!the! total! loss! of! copra! shipment! (owned! by! the! Philippine!Agricultural! Trading!Center).! The! said! copra! shipment!was! covered!by! a! marine! insurance! policy! issued! by! American! Home! Insurance!Company.! American!Home! instituted! a! civil! case! against! Khe!Hong!Cheng.! While! the! case! was! pending,! Khe! Hong! Cheng! executed!Deeds! of! Donation! of! parcels! of! land! in! favor! of! his! children.! TC!rendered!judgment!against!Khe!Hong!Cheng!4!years!after!donations!were!made;!sheriff!found!no!property!to!levy!for!the!satisfaction!of!TC’s!decision.!!Held:!Action!for!rescission!still!hasn’t!prescribed.!Art!1389!is!silent!as!to!when!the!prescriptive!period!will!commence.!General!rule!is!that!prescriptive! period!will! commence! from! the!moment! the! cause! of!action! accrues.!Accion, pauliana! must! be! of! last! resort! and! all! the!requisites!must! concur! (see!above).! It!presupposes:!1)!a! judgment,!2)!the!issuance!by!TC!of!a!writ!of!execution!for!the!satisfaction!of!the!judgment,!and!3)!the!failure!of!the!sheriff!to!enforce!and!satisfy!the!judgment!of!the!court.!It!doesn’t!matter!that!the!Deeds!of!Donation!were!executed!in!1989.!It!was!only!in!1997!that!all!legal!means!were!exhausted!by!creditor!and!the!action! for! rescission!was! filed! in! the!same!year.!!

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SIGUAN!v.!LIM!

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Facts:! In! 1990,! Lim! issued! 2! Metrobank! checks! (P300,000! and!P241,668),! payable! to! “cash”.! The! checks!were! dishonored! for! the!reason! that! the! account! was! already! “closed”.! Demands! to! make!good!the!checks!were!futile!and!a!criminal!case!for!violation!of!BP!22!was!filed!against!Lim!in!1992.!Lim!was!acquitted!but!was!held!civilly!liable!for!P169,000.!However,!in!1991,!a!Deed!of!Donation!conveying!parcels! of! land! (purportedly! executed! in! 1989! in! favor! of! her!children)! was! registered!with! the! Register! of! Deeds.! An! action! for!rescission!was!filed.!!Held:!Deed!of!Donation!executed!by!Lim!in!favor!of!her!children!was!made!in!fraud!and,!therefore,!not!rescissible.!Contracts!entered!into!in! fraud!may! be! rescinded! only! when! the! creditors! cannot! in! any!manner! collect! the! claims! due! them!→! not! proven! by! petitioner.!Also,!fourth!requisite!for!accion,pauliana!is!not!present.!Donation!is!always!presumed!to!be!in!fraud!of!creditors!when!the!donor!did!not!reserve! sufficient! property! to! pay! his! debts! prior! to! the! donation!(Art!759,!CC).!First,!petitioner’s!alleged!credited!existed!only!a!year!after! the! deed! of! donation!was! executed.! Second,!when! the!Deed!was! executed,! Lim! had! other! properties! sufficient! to! cover! the!debts.!

!C. Other(Specific(Remedies(–(accion*directa(

(Art.! 1652.! The! sublessee! is! subsidiarily! liable! to! the! lessor! for! any!rent! due! from! the! lessee.! However,! the! sublessee! shall! not! be!responsible!beyond!the!amount!of!rent!due!from!him,!in!accordance!with! the! terms! of! the! sublease,! at! the! time! of! the! extra?judicial!demand!by!the!lessor.!!

Payments!of!rent!in!advance!by!the!sublessee!shall!be!deemed!not! to! have! been!made,! so! far! as! the! lessor's! claim! is! concerned,!unless! said! payments!were! effected! in! virtue!of! the! custom!of! the!place.!

!Art.!1729.!Those!who!put!their!labor!upon!or!furnish!materials!for!a!piece!of!work!undertaken!by! the!contractor!have!an!action!against!the!owner!up!to!the!amount!owing!from!the!latter!to!the!contractor!at! the! time! the! claim! is! made.! However,! the! following! shall! not!prejudice!the!laborers,!employees!and!furnishers!of!materials:!!

1) Payments! made! by! the! owner! to! the! contractor! before!they!are!due;!

2) Renunciation! by! the! contractor! of! any! amount! due! him!from!the!owner.!!

This!article!is!subject!to!the!provisions!of!special!laws.!!Art.!1608.!The!vendor!may!bring!his!action!against!every!possessor!whose! right! is! derived! from! the! vendee,! even! if! in! the! second!contract!no!mention!should!have!been!made!of! the!Mortgage!Law!and!the!Land!Registration!Law!with!respect!to!third!persons.!

!Art.!1893.! In!the!cases!mentioned!in!Nos.!1!and!2!of!the!preceding!article,! the! principal! may! furthermore! bring! an! action! against! the!substitute! with! respect! to! the! obligations! which! the! latter! has!contracted!under!the!substitution.!

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V.*******Extinguishment*of*Liability*In*Case*Of*Breach*Due*To*Fortuitous*Event*

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

!A. Exceptions:( law,( stipulation,( or( when( nature(

of(obligation(requires(the(assumption(of(risk((

1. CASES!SPECIFIED!BY!LAW!• Art!552!Par!2!Possessor!in!bad!faith!• Art!1165!Debtor’s!delay!• Art!1942!Obligation!of!bailee!in!commodatum!• Art!1268!Proceeds!in!a!criminal!offense!• Art!1979!and!Art!1993!Depositary!• Art!2001!Act!of!a!thief!• Art!2147!Officious!management!• Art!2148!Negotiorum!gestio!!• Art!2159!Accepts!undue!payment!in!bad!faith!• Art!1198!Loss!of!benefit!to!make!use!period!

!2. EXPRESS!STIPULATION!BY!THE!PARTIES!

• Parties!may!expressly! stipulate! in! their! contract! that!the! debtor! shall! be! liable! to! the! creditor! even! if!performance! is! rendered! impossible! by! fortuitous!event;! provision! in! a! contract! imposing! liability! even!in! case! of! fortuitous! event! should! be! clearly!expressed!

!3. ASSUMPTION!OF!RISK!

• The! principle! is! based! on! social! justice,! an! ethico?economic! sensibility! of! modern! society! which! has!noted! the! injustices! which! industrial! civilization! has!created!

• Applies! to! all! kinds! of! public! services! but! limited! to!risks! and! events! that! are! typical! of! the! business!concerned!

!B. Law(requires(liability(even(if( fortuitous(event(

occurs:((

1. ART!552!(2)!–!POSSESSOR!IN!BAD!FAITH!

!Art.! 552,! Par.! 2.! A! possessor! in! bad! faith! shall! be! liable! for!deterioration! or! loss! in! every! case,! even! if! caused! by! a! fortuitous!event.!

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C. Concept( of( Fortuitous( Event( (force*majeure/fuerza*mayor/caso*fortuito)!

!FOIRTUITIOUS% EVENT% –! an! unexpected! event! or! act! of! God!which!could!neither!be!foreseen!nor!resisted!(Escriche).!

• Essential! element:! some! extraordinary! circumstance!independent!of!the!will!of!the!obligor,!or!of!his!employees!

!

1. ACT!OF!GOD!–!by!nature,! e.g.! earthquakes,! storms,! floods,!epidemics,!fires!

2. ACT!OF!MAN!–!by!acts!of!man,!e.g.!armed! invasion,!attack!by!bandits,!governmental!prohibitions,!robbery!

• In! order! that! acts! of! man!may! constitute! fortuitous!event,! it! is! necessary! that! they! have! the! force! of! an!imposition!which!the!debtor!could!not!have!resisted!

%FORTUITOUS%EVENT:%

• Includes!unavoidable!accidents,!even!if!there!has!been!an!intervention! of! human! element,! provided! fault! or!negligence!cannot!be!imputed!to!the!debtor.!

• Force,majeure!and!fortuitous!event!are!not!identical.!Force,majeure! refers! to! “acts! of! god”! while! fortuitous! event!refers! to! “acts! of! man”.! However,! for! purposes! of!exempting!an!obligor!from!liability,!they!are!similar!in!our!jurisdiction.!(de!Leon)!

• Two! kinds! of! fortuitous! event! in! contract! of! lease! as!distinguished!in!CC!(de!Leon):!1. Ordinary! fortuitous! events! –! those! which! are!

common! and! which! the! contracting! parties! can!reasonably!foresee!(e.g.,!rain)!

2. Extraordinary! fortuitous! events! –! those! which! are!uncommon! and! which! the! parties! could! not! have!reasonably!foreseen!(e.g.,!earthquake,!fire,!war)!

!

D. Requisites(!

Characteristics!of!fortuitous!events:!

1. The! cause! of! the! unforeseen! and! unexpected! occurrence,! or!the!failure!of!the!debtor!to!comply!with!his!obligations,!must!be!independent!of!the!human!ill!

2. It!must!be!impossible!to!foresee!the!event!which!constitute!the!caso, fortuito! (ordinary),! or! if! it! can! be! foreseen,! it! must! be!impossible!to!avoid!(extraordinary)!

3. The!occurrence!must!be!such!as!to!render!it!impossible!for!the!debtor!to!fulfill!his!obligation!in!a!normal!manner!

4. The! obligor! must! be! free! from! any! participation! in! the!aggravation! of! the! injury! resulting! to! the! creditor! (no!concurrent!negligence)!

!1. EFFECT!OF!CONCURRENT!FAULT!

• When! the! negligence! of! a! person! concurs!with! an! act! of!God! in!producing!a! loss,! such!person! is! not! exempt! from!liability! by! showing! that! the! immediate! cause! of! the!damage!was!the!act!of!god.!

• If!he!creates!a!dangerous!condition!or!negligence!although!the!act!of!god!was!the!immediate!cause,!he!cannot!escape!liability!for!the!natural!and!probable!consequence!thereof.!

• There! must! be! no! fraud,! negligence,! delay! or!violation/contravention!in!any!manner!of!the!tenor!of!the!obligation.!!

• When! the! effect! is! found! to! be! partly! resulting! from! the!participation! of! man,! whether! due! to! his! active!

intervention! or! neglect! or! failure! to! act,! the! whole!occurrence!is!then!humanized!and!removed!from!the!rules!applicable! to! the! acts! of! God! (NPC! v.! CA! –! the! case! of!Welming!and!the!exploding!dam)!

!Cases:!!JUAN!NAKPIL!&!SONS!v.!CA!!Facts:! Philippine! Bar! Association! decided! to! construct! an! office!building! in! Manila.! The! constructor! was! United! Construction,! Inc.!and!the!architect!was!Juan!Nakpil!&!Sons.!A!little!more!than!2!years!after! the! building!was! completed,! a! 7.3!magnitude! earthquake! hit!Manila!and!the!building!sustained!major!damage.!Commissioner!(to!whom!the!technical!issues!were!referred)!reported!that!the!damage!sustained! by! the! PBA! building! was! directly! caused! by! the!earthquake.! However,! there! were! defects! in! the! plans! and!specifications! prepared! by! the! architects,! and! deviations! from! said!plans!by!the!constructor.!

!Held:!Art!1723!of!NCC!(which!holds!the!architects!liable!for!damages!on! the! building! due! to! defects! in! the! design,! and! contractors! for!damages! due! to! defects! in! construction)! must! concur)! applies.! To!exempt!the!obligor! from! liability!under!Art!1174!of!NCC!for!breach!of! obligation! due! to! fortuitous! events,! all! four! requisites! must!concur! (see! Subheading! D.! Requisites).! If! upon! happening! of! a!fortuitous! event,! there! concurs! a! corresponding! fraud,! negligence,!delay!or!violation!or!contravention!in!any!manner!of!the!tenor!of!the!obligation!which!results!in!loss!or!damage,!the!obligor!cannot!escape!liability.!!REPUBLIC!v.!LUZON!STEVEDORING!CO.!!

Facts:!A!barged!owned!by! Luzon!Stevedoring!Co.!was!being! towed!down!the!Pasig!river!by!tugboats!of!the!same!company.!At!that!time,!the!river!was!swollen!and!the!current!was!swift.!The!barge!rammed!against!one!of! the!wooden!piles!of!Nagtahan!Bridge,! smashing! the!posts!and!causing!the!bridge!to!list.!RP!sued!for!damages.!!Held:!Luzon!Stevedoring!is!liable!for!damages.!The!mere!difficulty!to!foresee!the!happening!is!not!tantamount!to!impossibility!to!foresee!the! same.! Luzon! Stevedoring,! knowing! and! appreciating! the! perils!posed! by! the! swollen! stream! and! its! swift! current,! voluntarily!entered!into!a!situation!involving!obvious!danger.!Also,!since!Luzon!Stevedoring! Company! has! barges! and! tugboats! travelling! up! and!down!the!river!everyday,!it!could!not!safely!ignore!the!danger!posed!by!allegedly!improper!construction!that!had!been!in!place!for!years.!

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E. Extinguishment(of(Liability;(Exceptions(• Art!1174!• General!rule:!debtor!cannot!be!held!liable!for!damages!for!

non?performance! if! he! is! unable! to! fulfill! his! obligation!because!of!fortuitous!event!

• Specific!application:!o Non!performance!o Delay!o Loss!and!deterioration!of!a!specific,thing!o Art! 1189! Loss! without! the! fault! of! debtor! in!

suspensive!condition!!o Art!1190!Loss!without!the!fault!of!debtor!in!resolutory!

condition!!o Art! 1194! Loss! without! the! fault! of! the! debtor! in!

suspensive!period!!o Art!1204!Loss!of!all!alternative!prestations!!o Art!1205! In!alternative!obligations,! in! case!of! loss!of!

one!alternative,!creditor!chooses!from!remainder!

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EXCEPTIONS:%%Art.!1165,!Par.!3.!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.!!Art! 552.! A! possessor! in! good! faith! shall! not! be! liable! for! the!deterioration!or!loss!of!the!thing!possessed,!except!in!cases!in!which!it! is!proved!that!he!has!acted!with! fraudulent! intent!or!negligence,!after!the!judicial!summons.!!

A!possessor!in!bad!faith!shall!be!liable!for!deterioration!or!loss!in!every!case,!even!if!caused!by!a!fortuitous!event.!

!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! exempting! the! 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.!

!Art.!1979.!The!depositary!is!liable!for!the!loss!of!the!thing!through!a!fortuitous!event:!!

1) If!it!is!so!stipulated;!2) If!he!uses!the!thing!without!the!depositor's!permission;!3) If!he!delays!its!return;!4) If!he!allows!others! to!use! it,!even!though!he!himself!may!

have!been!authorized!to!use!the!same.!!Art!2001.!The!act!of!a!thief!or!robber,!who!has!entered!the!hotel!is!not!deemed!force!majeure,!unless!it!is!done!with!the!use!of!arms!or!through!an!irresistible!force.!! !Art! 2147.! The! officious! manager! shall! be! liable! for! any! fortuitous!event:!

1) If!he!undertakes!risky!operations!which!the!owner!was!not!accustomed!to!embark!upon;!

2) If!he!has!preferred!his!own!interest!to!that!of!the!owner;!3) If!he!fails!to!return!the!property!or!business!after!demand!

by!the!owner;!4) If!he!assumed!the!management!in!bad!faith.!

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VI. Usurious*Transactions*(

Art.!1175.!Usurious!transactions!shall!be!governed!by!special!laws.!!• Interest! –! income! produced! by! money! in! relation! to! its!

amount! and! to! the! time! that! it! cannot! be! utilized! by! its!owner;!may!either!be!moratory!or!compensatory!o Moratory! –! those! paid! in! contractual! obligations! to!

pay!a!sum!of!money,!either!as!the!price!for!the!use!of!the! money,! or! as! the! stipulated! advanced!

determination! of! the! damages! due! to! the! delay! in!fulfillment!of!the!obligation.!

o Compensatory! –! those! which! have! an! extra?contractual!or!delictual!origin!

• Kinds!of!interest!(de!Leon):!1. Simple! interest! –!when! the! rate! is! stipulated! by! the!

parties!(Art!2209)!2. Compound! interest! –! when! the! earned! is! upon!

interest!due!(Arts!2212,!1959)!3. Legal!interest!–!when!the!rate!of!interest!intended!by!

the! parties! is! presumed! by! law,! as! when! the! loan!mentions! interest! but! does! not! specify! the! rate!thereof!(Art!2209)!

4. Lawful! interest! –!when! the! rate! of! interest! is!within!the!maximum!allowed!by!Usury!Law!

5. Unlawful! interest! –! when! the! rate! of! interest! is!beyond!the!maximum!fixed!by!law!

• Usury!–!contracting!or!receiving!something!in!excess!of!the!amount! allowed! by! law! for! the! loan! or! forbearance! of!money,!goods!or!chattels.!

!Art.! 1413.! Interest! paid! in! excess! of! the! interest! allowed! by! the!usury! laws!may!be! recovered!by! the!debtor,!with! interest! thereon!from!the!date!of!the!payment.!

!Art.! 1961.! Usurious! contracts! shall! be! governed! by! the! Usury! Law!and!other!special! laws,!so!far!as!they!are!not! inconsistent!with!this!Code.!

!A. PD(858;(PD(1685(

(PD! 858! (1975)! –! Amending! Further! Act! Numbered! 2655,! As!

Amended,!Otherwise!Known!as!the!“Usury!Law”!

Sec!1!(amending!Sec!1[a!of!Act!2655)!–!The!Monetary!Board!is!hereby! authorized! to! prescribe! the! maximum! rate! or! rates! of!interest! for! the! loan!or! renewal! thereof! or! the! forbearance!of! any!money,!goods!or!credits,!and!to!change!such!rate!of!rates!whenever!warranted!by!prevailing!economic!and!social!conditions.!

In! the! exercise! of! the! authority! herein! granted,! the!Monetary!Board!may!prescribe!higher!maximum!rates!for!loans!of!low!priority,!such! as! consumer! loans! or! renewals! thereof! as!well! as! such! loans!made! by! pawnshops,! finance! companies! and! other! similar! credit!institutions!although!the!rates!prescribed!for!these!institutions!need!not!necessarily!be!uniform.!The!Monetary!Board! is! also!authorized!to!prescribe!different!maximum!rate!or! rates! for!different! types!of!borrowings,! including! deposits! and! deposit! substitutes,! or! loans! of!financial!intermediaries.!

Sec! !2! (amending!Sec!4[a!of!Act!2655)!–!The!Monetary!Board!may!eliminate,!exempt! from,!or! suspend! the!effectivity!of,! interest!rate! ceilings! on! certain! types! of! loans! or! renewals! thereof! or!forbearances! of! money,! goods,! or! credit,! whenever! warranted! by!prevailing!economic!and!social!conditions.!

!PD!1685!(1980)!–!Amending!PD!1309!Authorizing!the!Central!Bank!

of! the! Philippines! to! Engage! in! Special! Borrowing! and! Lending!

Operations!

Sec! 4! –! The! Monetary! Board! shall!establish! safeguards! as! it! may!deem! proper! to!prevent! undue! inflationary! effect! of! the!lending!operations!of!the!Central!Bank!and!shall!issue!such!rules!and!regulations! as!may! be! necessary! to! implement! this! Decree! and! to!insure! a! rational! and! coordinated!! approach! to! the! international!capital!markets.!

!!!!


!B. Central(Bank(Circular(416(

• Amends! the! provisions! of! the!Manual! of! Regulation! for!Banks!

!1. Subsection!X116.2!is!amended!to!reflect!(1)!the!reduction!in!the!

risk!weight!of!multilateral!development!banks!from!20%!to!0%;!and!(2)!to!remove!loans!to!exporters!to!the!extent!guaranteed!by! the! Guarantee! Fund! for! Small! and! Medium! Enterprises!(GFSME)!from!the!list!of!0%!risk!weighted!assets,!as!follows:!

!“,x!x!x!!0%,risk,weight,–!!1) Cash!on!hand;!2) Claims! on! or! portions! of! claims! guaranteed! by! or!

collateralized!by!securities!issued!by!–!i. Philippine!national!government!and!BSP;!and!ii. Central! governments! and! central! banks! of! foreign!

countries!with!the!highest!credit!quality!as!defined!in!Subsec.!X116.3;!!

3) Claims! on! or! portions! of! claims! guaranteed! by! or!collateralized! by! securities! issued! by! multilateral!development!banks;!

4) Loans!to!the!extent!covered!by!hold?out!on,!or!assignment!of! deposits/deposit! substitutes! maintained! with! the!lending!bank;!

5) Loans!or!acceptances!under!letters!of!credit!to!the!extent!covered!by!margin!deposits;!

6) Portions!of!special!time!deposit!loans!covered!by!Industrial!Guarantee!and!Loan!Fund!(IGLF)!guarantee;!

7) Real! estate! mortgage! loans! to! the! extent! guaranteed! by!the!Home!Guaranty!Corporation!(HGC);!

8) Loans! to! the! extent! guaranteed! by! the! Trade! and!Investment! Development! Corporation! of! the! Philippines!(TIDCORP);!

9) Foreign! currency! notes! and! coins! on! hand! acceptable! as!international!reserves;!and!

10) Gold! bullion! held! either! in! own! vaults,! or! in! another’s!vaults! on! an! allocated! basis,! to! the! extent! it! is! offset! by!gold!bullion!liabilities;!!

!20%,risk,weight,–!1) Checks!and!other!cash!items;!2) Claims! on! or! portions! of! claims! guaranteed! by! or!

collateralized! by! securities! issued! by! non?central!government!public!sector!entities!of!foreign!countries!with!the!highest!credit!quality!as!defined!in!Subsec.!X116.3;!

3) Claims! on! or! portions! of! claims! guaranteed! by! Philippine!incorporated! banks/quasi?banks! with! the! highest! credit!quality!as!defined!in!Subsec.!X116.3;!

4) Claims! on! or! portions! of! claims! guaranteed! by! foreign!incorporated! banks! with! the! highest! credit! quality! as!defined!in!Subsec.!X116.3;!

5) Loans! to! exporters! to! the! extent! guaranteed! by! Small!Business! Guarantee! and! Finance! Corporation! (SBGFC):!Provided,! That! loans! to! exporters! to! the! extent!

guaranteed! by! the! Guarantee! Fund! for! Small! and!

Medium!Enterprises! (GFSME)!outstanding!as!of! the!date!

of! the! effectivity! of! the! merger! of! the! SBGFC! and! the!

GFSME!shall!continue!to!have!a!zero!percent!risk!weight:!

Provided,%further,!That!the!zero!percent!risk!weight!shall!not! apply! to! loans! renewed! after! the! merger! of! the!

SBGFC!and!the!GFSME.!

6) Foreign! currency! checks! and! other! cash! items!denominated! in! currencies! acceptable! as! international!reserves;!and!

7) Claims! on! Philippine! incorporated! banks,! which! claims!obtain!and!maintain!credit!ratings!of!at!least!equal!to!that!of! the! Philippine! national! government! from! a! BSP!recognized!international!credit!rating!agency;!

x,,x,,x.”!!!

2.!!!Subsection!X116.3! is!amended!to!expand!the! list!of!multilateral!development! banks! assigned! a! zero! percent! risk! weight,! as!follows:!!

“x,,x,,x!!u.,, Multilateral,development,banks.!These!refer!to!the!World!

Bank! Group! comprised! of! the! International! Bank! for!Reconstruction! and! Development! (IBRD)! and! the!

International! Finance! Corporation! (IFC),! the! Asian!Development! Bank! (ADB),! the!African!Development! Bank!(AfDB),! the! European! Bank! for! Reconstruction! and!Development! (EBRD),! the! Inter?American! Development!Bank! (IADB),! the! European! Investment! Bank! (EIB);! the!Nordic! Investment! Bank! (NIB);! the! Caribbean!

Development! Bank! (CDB),! the! Council! of! Europe!

Development! Bank! (CEDB)! and! such! others! as! may! be!recognized!by!the!BSP.!x!x!x”!!

!

C. Monetary( Board( Circular( #905( lifting( the(interest(rate(ceiling((

MB!905! Interest! can!now!be! charged!as! lender! and!borrower!may!agree!upon.!It!shall!not!be!subject!to!any!ceiling!prescribed!under!or!pursuant!to!the!Usury!Law!as!amended.!!!Art! 2209! If! the! obligation! consists! in! the! payment! of! a! sum! of!money,!and!the!debtor! incurs! in!delay,!the! indemnity!for!damages,!there!being!no!stipulation! to! the!contrary,! shall!be! the!payment!of!the!interest!agreed!upon,!and!in!the!absence!of!stipulation,!the!legal!interest,!which!is!six!per!cent!per!annum.!!!

1. TWO! CONCEPTS! ON! PAYMENT! OF! INTEREST% (from!Sir!Labitag’s!handout)!

!a. Interest% for% the% use% or% loan% or% forbearance% of%

money,%goods%or!credit!!!

If! no! stipulation! re:! payment!of!interest:!!

No! interest! for! use! or!forbearance!!• No!interest!shall!be!due!

unless! it! has! been!expressly! stipulated! in!writing!(Art!1956)!

If! there! is! express! stipulation!(which! must! be! in! writing! to!be! valid)! for! payment! of!interests,! but! no, rate,

mentioned!

Interest! shall! be! 12%! per!annum! (Sec.! 2,! Monetary!Board! Circular! 905,! 10! Dec!1982)!

If!there!is!stipulation!in!writing!and! rate, of, interest, is, agreed,upon! (including! commissions,!premiums,! fees! and! other!charges)!

Such! interest! shall! not! be!subject! to! ceiling! prescribed!under! the!Usury! Law! (Sec.! 1,!Monetary!Board!Circular!905,!10!Dec!1982))!

!!

!!!!


b. Interest% as% damages% for% breach% or% default% in%payment% of% loan% or% forbearance% of% money,%goods,%credit!

!

No! stipulation! as! to!interest!for!use!of!money!

In! case! of! default,! loan! or!forbearance! shall! earn! legal!interest,! at! rate! of! 12%! per!annum!from!date!of!judicial!or!extrajudicial! demand,! subject!to!Art!1169!(delay/mora)!

If! rate! of! interest!stipulated,! e.g.! 24%! per!annum!

Loan! +! stipulated! interest,!shall! earn! 12%! per! annum!from!date!of!judicial!demand!

*! Interest! due! shall! earn!legal! interest! from! the! time! it!is! judicially! demanded,!although!the!obligation!may!be!silent! upon! this! point! (Art!2212)!

!c. If% obligation% not% consisting% of% a% loan% or%

forbearance% of% money,% goods% or% credit% is%breached,%e.g.%obligation%to%give,%to%do,%not%to%do%• Interest!may!be!imposed!at!the!discretion!of!court!at!

the!rate!of!6%!per!annum.!• No! interest! adjudged! on! unliquidated! claims! or!

damages,! until! demand! can! be! established! with!reasonable!certainty.!!

• After! thus! established! with! reasonable! certainty,!interest!of!6%!per!annum!shall!begin!to!run!from!the!date!of!judicial!or!extrajudicial!demand.!

• But! if! obligation! cannot! be! established! with!reasonable! certainty! at! time! of! demand,! 6%! per!annum! interest! shall! begin! to! run! only! from!date! of!judgment!–!on!amount!finally!adjudged!by!court.!!

!d. When% judgment% of% court% awarding% money%

becomes% final% and% executory,% money% judgment% is%A,%B%and%C%(above)%shall%earn%12%%per%annum%from%finality% of% judgment% until% full% payment% –% money%judgment% shall% be% considered% as% forbearance% of%credit%(Eastern%Shipping%Lines%vs.%CA,%1994)%

,Cases:!!

EASTERN!SHIPPING!LINES!v.!CA!!

Facts:! Two! fiber! drums! of! riboflavin! were! shipped! from! Japan! via!Eastern!Shipping!Lines.!Upon!arrival!of!shipment,! it!was!discharged!to! Metro! Port! Service,! Inc! which,! in! turn,! delivered! it! to! Allied!Brokerage!Corporation.!Allied!Brokerage!delivered! the! shipment! to!the!consignee.!Said!shipment!had!spillages!and!was!adulterated.!!

Held:!The!payment!of!legal!interest!shall!be!computed!from!the!date!of! the! decision! of! the! court! a, quo,! as! explicitly! stated! in! the!Disposition:!“The!legal!interest!to!be!paid!is!6%!on!the!amount!due!computed!from!the!decision,!dated!03!February!1988,!of!the!court!a,quo.!A!12%!interest,!in!lieu!of!6%,!shall!be!imposed!on!such!amount!upon!finality!of!this!decision!until!the!payment!thereof.”!!

With! regard! to! ward! of! interest! for! actual! and! compensatory!damages,!the!rate!of!interest!imposed!is!as!follows:!

i. Obligation!is!breached!and!it!consists!in!the!payment!of!a!sum! of! money! →! interest! should! be! that! stipulated! in!writing;! legal! interest! from! the! time! it! is! judicially!demanded.! In! the! absence! of! stipulation,! rate! of! interest!shall!be!12%!per!annum,!computed!from!default.!

ii. Obligation,! not! constituting! a! loan! or! forbearance! of!money,! is!breached!→!6%!per!annum.!Demand!must!first!be! established! with! reasonable! certainty.! When!established!with!reasonable!certainty,! interest!shall!begin!to! run! from! the! time! that! the! claim! is!made! judicially! or!extrajudicially.!When!demand!cannot!be!established!with!certainty,!the!interest!shall!begin!to!run!from!the!date!that!a!judgment!in!court!is!made.!

iii. Judgment!of!court!awarding!sum!of!money!becomes!final!and!executor!→!12%!per!annum!from!such!finality!until!its!satisfaction.!

!

Case:!!

ALMEDA!V.!CA!

Facts:! PNB! granted! to! spouses! Almeda! several! loan/credit!accommodations!(P18M!payable!in!6!years!at!21%!per!annum).!The!credit! agreement! between! PNB! and! the! Almedas! contained! an!escalation! clause,! providing! PNB! reserves! the! right! to! increase! the!interest!rate!within!limits!allowed!by!law!at!any!time!depending!on!whatever!policy! it!may!adopt! in! the! future.! Interest! rate!reached!a!high!of!68%.!!

Held:! Art! 1956,! CC! expressly! says! that! “no! interest! shall! be! due!unless! it!has!been!expressly! stipulated! in!writing.”!PNB!unilaterally!altered! the! terms! of! its! conditions.! What! has! been! stipulated! in!writing!is!that!the!Almedas!were!bound!merely!to!pay!21%,!subject!to! possible! escalation! or! de?escalation! when! the! circumstances!warrant!it!is!within!the!law,!and!upon!agreement.!

!VII. Fulfillment*of*Obligations***

∗ See*Chapter*4:*Payment*!

PRESUMPTIONS%IN%PAYMENT%OF%INTERESTS%AND%INSTALLMENTS%%!

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

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

!• GENERAL!RULE:!If!the!debt!produces!interests,!payment!of!

the!principal!shall!not!be!deemed!to!have!been!made!unless!the!interests!have!been!covered.!

!2%KINDS%OF%PRESUMPTION:!

1. Conclusive!Presumption!–!one!which!cannot!be!contradicted,!like!the!presumption!that!everyone!is!presumed!to!know!the!law!

2. Disputable!(or!rebuttable)!Presumption!–!one!which!can!be!contradicted!or!rebutted!by!presenting!proof!to!the!contrary!like!the!presumption!in!Art.!1176!(see!Sec.!69[i],!Rule!123,!Rules!of!Court)!

!!

!!!!


WHEN%PRESUMPTIONS%DO%NOT%APPLY:!1. With!reservation!as!to!interest!

• Does!not!arise!where!there!is!a!reservation!as!to!interest!or!prior!installments!

• Reservation!can!be!made!in!writing!or!verbally!2. Receipt!for!a!part!of!principal!

• A!receipt!for!a!part!of!the!principal,!without!mentioning!the!interest,!merely!implies!that!the!creditor!waives!his!right!to!apply!the!payment!first!to!the!interest!and!then!to!the!principal,!as!permitted!by!Art.!1253!

3. Receipt!without!indication!of!particular!installment!paid!• The!presumption!in!par.!2!is!not!applicable!if!the!

receipt!does!not!recite!that!it!was!issued!for!a!particular!installment!due!as!when!the!receipt!is!only!dated!

4. Payment!of!taxes!• Taxes!payable!by!the!year!are!not!installments!of!the!

same!obligation!–!separate!obligations!every!year!5. Non[payment!proven!

• Not!applicable!where!the!non?payment!of!the!prior!obligations!has!been!proven!

• Between!a!proven!fact!and!a!presumption!pro,tanto,!the!former!stands!and!the!latter!falls!

*VIII. Transmissibility*of*Rights*!Art.! 1178.! Subject! to! the! laws,! all! rights! acquired! in! virtue! of! an!obligation!are!transmissible,! if! there!has!been!no!stipulation!to!the!contrary.!!EXCEPTIONS:%%

1. Not!transmissible!by!their!very!nature!e.g.!purely!personal!rights!

2. There! is! a! stipulation! of! the! parties! that! they! are! not!transmissible!!• The! stipulation! against! transmission! must! not! be!

contrary!to!public!policy.!(Art!1306)!• Not!be!easily!implied!but!clearly!established!or!at!the!

very!least,!clearly!inferable!3. Not!transmissible!by!law!

a. By! the!contract,of,partnership,, two!or!more!persons!bind! themselves! to! contribute! money,! property! or!industry! to! a! common! fund,! with! the! intention! of!dividing!the!profi!ts!among!themselves.!!(Art.!1767.)!

b. By! the!contract,of,agency,,a!person!binds!himself! to!render! some! service! or! to! do! something! in!representation! or! on! behalf! of! another,! with! the!consent!or!authority!of!the!latter.!(Art.!1868.)!

c. By! the! contract, of, commodatum,,one! of! the! parties!delivers! to! another! something! not! consumable! so!that! the! latter!may! use! the! same! for! a! certain! time!and! return! it.!Commodatum, is!essentially!gratuitous.!(Art.!1933.)!

!

(!

CHAPTER(3:((DIFFERENT(KINDS(OF(OBLIGATIONS(

I. Pure*and*Conditional*Obligations*

A. Pure(Obligations(!

.!PURE! OBLIGATIONS! contain! no! term! or! condition! whatever! upon!which! depends! the! fulfillment! of! the! obligation! contracted! by! the!debtor.! Immediately! demandable! and! nothing! would! exempt! that!debtor!from!compliance!therewith.!

B. Conditional(Obligations!!

One! whose! consequences! are! subject! in! one! or! another! to! the!fulfillment!of!a!condition!!1. CONDITION!!

a. Concept%• every!future!and!uncertain!event!upon!which!an!obligation!

or!provision!is!made!to!depend!• characteristics!of!a!condition:!

o Future! and! uncertain! [! The! first! paragraph! of! Art.!1179! uses! the! disjunctive! or, between! “future”! and!“uncertain”! to! distinguish! pure! obligation! from!both!the!conditional!obligation!and!one!with!a!period.!!

o Past!but!unknown!–!a!condition!may!refer! to!a!past!event!unknown!to! the!parties.! If! it! refers! to!a! future!event,! both! its! occurrence! and! the! time! of! such!occurrence!must!be!uncertain.!A! condition!must!not!be!impossible.!

• must! be! imposed! by! the! will! of! a! party! and! NOT! a!necessary! legal! requisite! of! the! act! e.g.! promise! to! give!donation! propter, nuptias! if! a! person! gets! married! is! not!conditional!(DPN!presupposes!marriage)!

• “past! event”! cannot! be! a! condition! because! it! is! not! a!future! and! uncertain! event,! more! properly! called! as!“basis”;!although!proof!of!a!past!event!may!be!a!condition!!

• TERM! –! a! future! AND! certain! event! upon! the! arrival! of!which! the! obligation! subject! to! it! either! arises! or! is!extinguished.!!!

%%

%%

b. Condition%v.%Period/Term%

Art.! 1179,! Par.! 1.! Every! obligation! whose! performance! DOES!NOT%depend!upon! a! future, or, uncertain, event,OR!upon! a!past,event,unknown!to!the!parties!is!demandable%at%once!

Art.!1181.!In!conditional!obligations,!the!acquisition,of!rights,!as!well! as! extinguishment, or, loss! of! those! already! acquired,! shall!depend%upon%the%happening,of!the!event!which!constitutes!the!condition.!!

!!!!


%CONDITION! PERIOD/TERM!

Determines!existence!of!an!obligation!

Determines!demandability!of!an!obligation!

!Case:!!

GAITE!V.!FONACIER!

Facts:!Fonacier!agreed!to!pay!P65,000!to!Gaite! from!the!first! letter!of!credit!covering!the!first!shipment!of! iron!ores!and!from!the!first!amount! derived! from! the! local! sale! of! iron! ore.! Fonacier! sought! a!bond,! which! Gaite! put! up! provided! that! the! liability! of! the! surety!company!would!have!effect!if!there!had!been!actual!sale!of!iron!ore!for!an!amount!not!less!than!P65,000,!and!that!his!liability!will!expire!after!one!year.!The!bond!expired!and!was!not!renewed,!and!none!of!the!24,000!tons!of!iron!ore!had!been!sold,!thus!Fonacier!was!unable!to!pay!Gaite!P65,000!upon!demand.!Fonacier!said!that!payment!was!conditioned! on! sale! of! iron! ore! by! the! company,! which! had! not!happened,! rendering! their! obligation! to! pay! not! yet! demandable.!Lower!court!ruled!for!the!plaintiff.!!

!Held:!The!obligation!to!pay!Gaite!P65,000!is!one!with!a!period,!and!not!one!with!a!suspensive!condition.!The!term!expired.!The!words!of!the! contract! express! no! uncertainty! in! the! existence! of! the!obligation!to!pay.!Only!the!maturity!and!demandability!are!deferred,!not!the!existence.!That!defendant!put!up!bonds!is!admittance!of!the!existence!of!the!obligation!to!pay.!!!2. KINDS!OF!CONDITIONS!

a. As%to%effect%on%obligation%%!• Art!1181!Conditional!obligations,!the!acquisition!of!rights,!

as!well! as! the! extinguishment! of! or! loss! of! those! already!acquired,! shall! depend! upon! the! happening! of! the! event!which!constitutes!the!condition.!!

!! SUSPENSIVE! RESOLUTORY!

When!condition!fulfilled!

Obligation!arises! Obligation! is!extinguished!

When!condition!not!fulfilled!

The!juridical!or!legal!tie!does!not!appear!

Tie! of! law! is!consolidated,! becomes!absolute!

Until!it!takes!place!

Obligation!is!a!mere!hope!

The! effect! flow,! but!over! it! hovers!possibility! of!termination! like! Sword!of!Damocles!

Effect! Acquisition!of!rights! Extinguishment! or! loss!of! those! already!acquired!

Also!known!as!

Condition!precedent!or!condition!antecedent!

Condition!subsequent!

!Case:!!GONZALES!V.!HEIRS!OF!THOMAS!

Facts:! Par.! 9! of! Contract! of! Lease/Purchase! entered! into! by! the!respondents! and! petitioner! states! that! the! lessors! shall! obtain! a!separate! Certificate! of! Title! over! the! leased! portion! of! the! lessee!within! a! reasonable! period! of! time! which! shall! not! exceed! four!years,! after!which! a! new! contract! shall! be! executed!by! the!parties!

which! shall! be! the! same! with! this! contract! of! lease/purchase.!Gonzales! did! not! exercise! the! purchase! option,! remained! in!possession! of! the! property! without! paying! purchase! price! and!without!paying!rentals.!Respondents!filed!complaint!for!recovery!of!property!alleging!breach!of!paragraph!9.!RTC!ruled!for!Gonzales.!CA!ruled!for!the!Heirs,!saying!that!paragraph!9!is!a!condition!precedent!to!the!payment!of!purchase!price.!!

!Held:!Paragraph!9! is!a!condition!precedent.!The!clear! intent!of! it! is!that!Heirs!must!obtain!a!separate!certificate!of!title!in!their!names!to!show!ownership!of!the!portion!of! land!and!their!right!to!dispose!it.!The! obligation! of! Gonzales! to! buy! the! land! cannot! be! enforced!unless!respondents!comply!with!the!suspensive!condition!that!they!acquire!first!a!separate!title.!RTC!decision!is!reinstated.!

!i. SUSPENSIVE%(condition%precedent/antecedent)%%

!• The!obligation!arises,!but!if!the!condition!does!not!happen,!

obligation!does!not!come!into!existence!• The!demandability!of!the!obligation!is!suspended!until!the!

happening!of!a!future!and!uncertain!event.!!• It! must! appear! that! the! performance! of! an! act! or! the!

happening! of! an! event! was! intended! by! the! parties! as! a!suspensive! condition,! otherwise,! its! non?fulfillment! will!not!prevent!the!perfection!of!a!contract.!!

!Retroactive! effect! when! “suspensive”! condition! is! fulfilled! [! The!binding! tie! of! conditional! obligation! is! produced! from! the! time! of!perfection,!not!happening!of!condition.!!

• Can! also! be! seen! as! “Rights! of! creditor! and! debtor! after!fulfillment!of!the!condition”!

!

!OBLIGATION!TO!GIVE! OBLIGATION!TO!DO!or!NOT!TO!

DO!

Bilateral!(reciprocal!obligation)!1. Deemed! to! have! been!mutually!compensated!

!Unilateral,

2. There! is! usually! no!retroactive! effect! because! they!are! deemed! gratuitous.! But!debtor! shall! appropriate! fruits!and! interests! received,! UNLESS!there!was!a!different!intention!

Courts! shall! determine! the!retroactive! effect! of! the!condition!

!

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

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

!!!!


• Until! the! fulfillment! of! suspensive! condition,! creditor! cannot!enforce! the! obligation! as! his! right! then! was! merely, an,

expectancy.! However,! upon! happening,! the! debtor! can! be!compelled!to!perform.!!

• REASON!FOR!RETROACTIVITY:!Condition!is!only!accidental!and!not! an! essential! element! of! the! obligation.! The! obligation! is!constituted!when! the!essential!elements!which!give! rise! there!to!concur.!!• Rule! on! retroactivity! has! no! application! in! real! contracts!

because!they!are!perfected!only!by!delivery!of! the!object!of!the!obligation.!!

• Contracts! entered! into! PENDENTE, CONDITIONE! (before!happening!of!suspensive!condition)!!a. CREDITOR! transfers! his! rights! prior! to! happening! of!

condition!e.g.!mortgage!over!the!property!to!be!delivered!to! him!"! Effect:! consolidate! or! makes! effective! the! act!performed.!

b. DEBTOR:! cannot! alienate!or! dispose! the! thing,! if! he!does!so,!all!such!contracts!are!abrogated!and!cease!to!have!any!effect! upon! happening! of! the! suspensive! condition.! But!because!delivery!transfers!real!right!over!the!thing:!1. 3rd!person!in!good!faith!"!retains!ownership;!debtor!

becomes!liable!to!creditor!for!damages.!2. 3rd!person!is!in!bad!faith!"!he!may!be!compelled!to!

deliver!the!thing!to!the!creditor.!!• LIMITATIONS! ON! RETROACTIVITY! (as! dictated! by! justice! and!

required!by!practicability!or!convenience):!!a. Loss! of! the! thing! by! fortuitous! event,! debtor! suffers! the!

loss!because!he!is!still!the!owner!b. Acts, of, administration! before! fulfillment! not! affected! by!

retroactivity;! however! abuse! of! rights! in! guise! of!administration!are!not!allowed!to!defeat!rights!of!creditor!

c. Usufructuary,rights!not!within!the!principle!of!retroactivity!of!conditional!obligations!!

• In!obligations!to!do!or!not!to!do,!there!is!no!fixed!rule!as!to!the! retroactive! effect! of! the! fulfillment! of! a! suspensive!condition.!This!does!not!mean!that!retroactivity!principle!is!not! applicable.! Courts! have! the! discretion! to! determine!the!retroactive!effect!of!the!suspensive!condition!that!has!been!complied!with.!!

!RIGHTS% OF% CREDITOR% AND% DEBTOR% BEFORE% FULFILLMENT% OF%CONDITION:%%

!!

• No!preference!of!credit! is!granted! to! the!creditor!but!only!allows!him!to!bring!proper!action!for!the!preservation!of!his!rights.!!

!PAYMENT% BEFORE% HAPPENING% OF% CONDITION:! Debtor! may! only!recover! what! he! paid! by! mistake! before, happening! of! suspensive!condition,! hence! if! condition! has! been! fulfilled,! he! can! no! longer!claim!because!of!retroactivity!of!the!condition.!!• If! the! payment! was! for! a! determinate! thing:! accion,

reivindicatoria!(for!inexistent!contracts)!

• Otherwise!(not!a!determinate!thing):!solutio,indebiti!• If! the! payment! was! with! knowledge! of! condition:! implied!

waiver!of!condition!and!cannot!recover!• If!the!payment!was!with!knowledge!but!the!condition!did!not!

happen:!debtor!can!recover!lest!the!creditor!will!be!unjustly!enriched.!!

• The!law!is!silent!as!to!whether!fruits!may!be!recovered!like!in!Art!1195,!but!Tolentino!says!we!can!apply!principle!of!solutio!indebiti,! especially! if! creditor! is! in! bad! faith! (knew! that! the!debtor! is! paying! before! the! suspensive! condition! has!happened).!!Sir,Labitag,says,yes,,though.!It,follows,the,same,

rules.,!!

Case:!!!CORONEL!V.!CA!

Facts:!In!the!“Receipt!of!Down!Payment”!(P50,000)!executed!by!the!Coronels!and!Alcaraz,! it!was!stipulated!that!the!Coronels!will!effect!the!transfer!in!their!names!of!the!TCT!from!the!name!of!their!father.!Upon! presentation! of! the! new! TCT,! they! will! execute! a! deed! of!absolute! sale! with! Alcaraz.! The! title! was! transferred! to! names! of!petitioners,! but! they! sold! the! property! to!Mabanag! and! cancelled!the!contract!with!Alcaraz!by!depositing!the!P50,000!down!payment.!Alcaraz!filed!complaint!for!specific!performance.!TC!and!CA!ruled!in!favor!of!Alcaraz.!!

!!Held:!“Receipt!of!Down!Payment”!was!a!conditional!contract!of!sale,!with!the!transfer!of!title!as!the!suspensive!condition.!As!soon!as!the!transfer!of! title!was!effected,! the!obligations!of! theparties!became!mutually! demandable,! and! petitioners!were! committed! to! execute!the!sale.!TC!and!CA!decisions!were!affirmed.!!

!ii. RESOLUTORY%(condition%subsequent)%

• Extinguishes!rights!and!obligations!already!existing!!!

Cases:!!PARKS!V.!PROVINCE!OF!TARLAC!

Facts:!Hill!donated!a!parcel!of!land!perpetually!to!the!municipality!of!Tarlac!with!a!condition!that!a!public!school!and!public!park!shall!be!erected! on! it! within! 6! months.! The! donation! was! accepted.! The!donors! sold! the! land! to! George! Parks,! while! the! Municipality!transferred! the! land! to! the! province! of! Tarlac.! Parks! brought! the!present!action.!!

!Held:!The!condition!could!not!be!complied!with!except!after!giving!effect! to! the! donation.! Thus! there! is! a! resolutory! condition,! non?compliance!of!which!will!revoke!the!donation.!However,!even!if!non?compliance! is! sufficient! cause! for! revocation! of! the! donation,! the!period!for!bringing!action!for!revocation!has!already!prescribed.!!!!

CENTRAL!PHILIPPINE!UNIVERSITY!V.!CA!

Facts:! In! 1939,! Don! Ramon! Lopez! donated! a! land! in! favor! of! CPU!with!the!condition,!among!others,!that!the!land!shall!be!utilized!for!the!establishment!of!a!medical!college.!In!1989,!heirs!of!Lopez!filed!action! for! annulment! of! donation! saying! that! the! conditions! were!not!complied!with.!!

!Held:!Donation!had! to!be!valid! first!before!construction!of!medical!college.! Thus! the! condition! is! resolutory,! non?compliance! of!which!will! result! to! revocation! of! donation.! The! period! of! time! for!establishment! of! medical! college! could! not! be! quantified.! Court!declared!donation!already!ineffective!and!revoked.!!

Art.! 1188.! The! creditor,! may! before, the, fulfillment, of, the,

obligation,!bring! the!appropriate!action! for! the!preservation!of!his!right.!!The!debtor!may!recover!what!during!the!same!time!he!has!paid!by!mistake!in!case!of!a!suspensive!condition.!!The!debtor!may!recover!what!during!the!same!time!he!has!paid!by!mistake!in!case!of!a!suspensive!condition.!!

!!!!


b. As%to%cause%or%origin%%!

!i. %POTESTATIVE%–!One!which!depends!upon!the!will!of!

one!of!the!contracting!parties;!in!the!power!of!one!of!the!parties!to!realize!or!prevent;!suspensive!in!nature.!!!

KINDS%OF%POTESTATIVE%CONDITION:%1. Simple! potestative! –! presupposes! not! only! a!

manifestation! of! will! but! also! the! realization! of! an!external!act!!

• On! the! part! of! the! debtor:! Does! not! prevent!formation! of! valid! obligation! because! in! part!depends! on! contingencies! over!which! he! has!no!control!

2. Purely! potestative! –! depends! solely! and! exclusively!upon!the!will!!

• Destroys!the!efficacy!of!the!legal!tie!• Effect! if! fulfillment! of! condition! depends!

solely! on! the! will! of! the! debtor! "! VOID!because! it! is! a! direct! contravention! of! Art!1308!on!mutuality!of!contracts!and!to!do!so!is!to!sanction!illusory!conditions!!!

• If! depends! exclusively! on! the! will! of! creditor!"!VALID!!

• Applicable! only! to! SUSPENSIVE! and! NOT! to!RESOLUTORY!!

• Hence,! resolutory! potestative! (facultative)!conditions!are!perfectly!valid,!even!if!made!to!depend! upon! the! obligor/debtor,! since! the!obligation!is!already!in!force!

!Debtor’s! promise! to! pay! when! he! can! is! not! a! conditional!

obligation.!" !Obligation!with!a!period.!!

!# Creditor!will!have!to!ask!the!court!to!fix!a!period!because!

an! immediate! action! to! enforce! the! obligation! would! be!premature.!!

# What! depends! upon! the! debtor’s! will! is! not! whether! he!should! pay! or! not,! for! indeed! he! binds! himself! to! pay.!What!is!left!only!to!his!will!is!the!duration!of!the!period.!!

!Case:!!!

LIM!V.!CA!

Facts:! Lim! and!Dy! entered! into! a! compromise! agreement!whereby!the!term!of!lease!shall!be!renewed!every!3!years!“for!as!long!as!the!Dy! needed! the! premises! and! can!meet! and! pay! the! increases.”! In!1985,! Lim!advised!Dy! that!he!would!no! longer! renew!the!contract.!Dy! informed! Lim! of! his! intention! to! renew! the! contract! but! Lim!disagreed.!Lim!filed!action!for!ejectment.!!

!Held:! There! is! a! purely! potestative! condition! because! it! leaves! the!effectivity! and! enjoyment! of! the! leasehold! rights! to! the! sole! and!exclusive! will! of! the! lessee.! Renewal! of! lease! depends! on! such!condition.! However,! continuance! of! a! contract! of! lease! cannot! be!made!to!depend!upon!the!choice!of!the!lessee.! !Dy!was!ordered!to!vacate!and!return!the!possession!of!the!leased!premises!and!to!pay!the!monthly!rentals!due.!!

!ii. CASUAL!–!depends!exclusively!upon!chance,!will!of!a!

third!person!or!other!factors,!and!not!upon!the!will!of!the!contracting!parties!

!Case:!!!

NATELCO!v.!CA!

Facts:!NATELCO!entered! into! a! contract!with!CASURECO.!NATELCO!will! use! CASURECO’s! light! posts! and! shall! install! 10! telephone!connections!for!the!use!of!CASURECO.!Period!of!contract!shall!be!as!long! as! NATELCO! has! need! of! the! light! posts,! it! being! understood!that!the!contract!shall!terminate!when!for!any!reason!CASURECO!is!forced!to!stop!and! it!becomes!necessary!to!remove!the! light!posts.!In! 1989,! Casureco! filed! for! reformation! of! contract! with! damages!because! the! contract! is! one?sided! for! NATELCO.! Also,! the! cables!strung! by! them! on! electrical! posts! have! become! heavier! as!subscribers!increased.!RTC!and!CA!ruled!in!favor!of!CASURECO.!!

!Held:! Rebus, sic, stantibus! (doctrine! of! unforeseen! events)! applies.!Parties! stipulate! in! the! light! of! certain! prevailing! conditions,! and!once! these! conditions! cease! to! exist,! the! contract! also! ceases! to!exist.! Art.! 1267! (When! service! has! become! so! difficult! as! to! be!manifestly!beyond!the!contemplation!of!the!parties,!the!obligor!may!also!be!released!therefrom,!in!whole!or!in!part.)!also!applies.!!!!

iii. MIXED% –! depends! upon! the! will! of! one! of! the!contracting! parties! and! other! circumstances,! including!the!will!of!third!persons!!

!Cases:!!

OSMENA!V.!RAMA!

Facts:! Rama! acknowledged! her! indebtedness! to! Osmena! by! an!indorsement!which!said! that! if!her!house! in!Pagina! is! sold,! she!will!pay!her!indebtedness!to!Osmena.!

!Held:!The!condition!imposed!by!debtor!depends!upon!her!exclusive!will!and!thus!void.!!

!HERMOSA!V.!LONGORA!

Facts:! Longora! had! claims! against! the! estate! of! Hermosa.! He! said!that! the!estate!asked! for!credit!advances! to!Longora!“on!condition!that! their!payment! should!be!made!as! soon!as! funds!derived! from!the! sale! of! a! property! in! Spain! are! received.”! CA! said! that! the!payment! did! not! become!due!until! the! administratrix! received! the!payment! from!the!buyer!of! the!property.!The!property!was!sold! in!November!1947!and!the!claim!was!filed!on!Oct.!1948.!!Held:! The! condition! is! not! potestative! since! it! also! depends! upon!circumstances! beyond! the! debtor’s! control.! It! is! a!mixed! one.! The!will!to!sell!was!present,!but!there!are!other!factors! like!buyers!that!are!able!and!willing!to!purchase!the!property.!

!!

Art.!1182.!When!the!fulfillment!of!the!condition!depends!upon!the! sole, will, of, the, debtor! the! conditional! obligation! shall! be!VOID.!If!it!depends!upon!chance!or!upon!the!will,of,a,3rd,person,!the! obligation! shall! TAKE! EFFECT! in! conformity! with! the!provisions!of!this!Code.!

Art.! 1180.! When! the! debtor! binds! himself! to! pay! WHEN! his!means!permit!him!to!do!so,!the!obligation!shall!be!deemed!to!be!one!with!a!period!subject!to!the!conditions!of!Art!1197!(period!was!intended).!!

!!!!


TAYLOR!V.!UY!TIENG!PIAO!

Facts:!A!contract!was!entered! into!whereby! it!was!understood!that!should!the!machinery!to!be!installed!fail! for!any!reason!to!arrive! in!Manila!within!6!months,! the!contract!may!be!cancelled.!Machinery!did! not! arrive! within! 6! months.! Evidence! showed! also! that! the!defendants!either!cancelled!the!order!or!were!unable!to!supply!the!capital!needed.!Taylor!instituted!action!to!recover!damages.!!

!Held:!There!is!no!breach!of!contract.!The!language!in!the!stipulation!is!broad!enough!to!cover!the!circumstances!of!the!case.!SC!held!that!the!word!“any”!should!be!construed!in!the!ordinary!sense.!There!is!nothing!in!Art.!1256!which!warrants!a!warping!of!“for!any!reason”!to!mean! “for! any! reason! not! having! its! origin! in! the! will! or! acts! of!defendants.”!Also,! a! condition!once! facultative!and! resolutory!may!be!valid!even!though!the!condition!is!made!to!dependent!on!the!will!of! the! obligor.! Plaintiff’s! claim! for! damages! for! the! period!subsequent! to! the! expiration! of! the! first! six!months!was! rejected,!but!he!is!entitled!to!P360!house!rent!yet!unpaid.!!

!SMITH!BELL!V.!SOTELO!MATTI!

Facts:! Petitioners! obliged! itself! to! sell! to! respondents! steel! tanks,!expellers! and! electric! motors! from! abroad.! Deliveries! were! to! be!made! within! specified! periods.! The! orders! did! not! arrive! within!these!periods.!Petitioners!notified!respondents!of!the!arrival!of!the!orders!but!respondents!refused!to!accept.!!

!Held:! There! was! no! delay! or! liability.! The! contract! was! executed!during!World!War! II!when! there!were! rigid! restrictions! on! exports!from!US.!When!delivery! is! subject! to! the! fulfillment! of! a! condition!dependent! upon! the! will! of! 3rd! persons! who! could! in! no! way! be!compelled! to! fulfill! the! condition,! the! obligor! is! deemed! to! have!sufficiently!performed!his!part.!!

!!ROMERO!V.!CA!

Facts:!Romero!executed!Deed!of!Conditional!Sale!with! respondent.!Among!the!conditions!was!that!the!balance!will!be!paid!45!days!after!the!removal!of!squatters!from!the!property.!If!respondent!is!unable!to! remove! squatters! 60! days! after! the! signing! of! contract,! down!payment! will! be! returned.! Respondent! was! not! able! to! evict!squatters,! and! sought! to! return! the! down!payment,! but! petitioner!refused,!offering! to! take! it!upon!himself! to!have!squatters!evicted.!RTC!dismissed!petition!for!rescission.!CA!reversed.!!

!Held:! Respondent! could! not! validly! rescind! the! contract.! It! was! a!contact!of!sale!which,!once!perfected,!would!have!the!seller!transfer!the! ownership! to! the! buyer! for! an! agreed! price.! Both! parties! are!bound! to! fulfill! what! was! stipulated! in! the! contract.! Since!respondent! failed! to!evict! squatters,! the! right! to! refuse! to!proceed!with! the! agreement! or! waive! that! condition! belonged! to! the!petitioner.!

!c. As%to%possibility%

i. Possible%Condition%ii. Impossible%Condition%

!

TWO%KINDS%OF%IMPOSSIBILITY:,• Physical!impossibility!–!cannot!exist!or!cannot!be!done!in!

the!nature!of!things.!• Legal! impossibility! [! contrary! to! law,! morals,! good!

customs,! and! public! policy! AND! restricts! certain! rights!which! are! necessary! for! the! free! development! of! human!activity!i.e.!!political!rights,!family!rights!and!constitutional!rights!and! liberties!e.g.!condition!not!to!change!domicile,!religion!or!contract!marriage.!

!

ILLICIT%CHARACTER!–!determined!not!by!the!facts!but!by!the!effect!upon!one!of!the!parties.!Thus,!the!criterion!is!subjective.!Not!the!act!but!the!intention!and!its!effect!that!determine!the!illicit!character!of!the!condition.!!

• Why?! Impossibility! of! fulfillment! implies! he! does, not,intend,to,be,bound,!thus!the!nullity!of!the!promise!

!EFFECT%OF%IMPOSSIBLE%CONDITIONS:%

• Impossible!conditions!annul!the!obligation!which!depends!upon! them.! Both! obligation! and! condition! are! void.! The!reason! is! that! the!obligor! knows!his!obligation! cannot!be!fulfilled.!He!has!no!intention!to!comply!with!his!obligation.!!

• If!the!condition!is!negative,!that!is,!not!to!do!an!impossible!thing,!it!is!disregarded!and!the!obligation!is!rendered!pure!and!valid.!The!condition!is!always!fulfilled!when!it!is!not!to!do! an! impossible! thing! so! that! it! is! the! same! as! if! there!were!not!condition.!The!negative!condition!may!be!not!to!give!an!impossible!thing.!!

• Applies! only! to! contracts! and! not! to! simple! and!testamentary!donations!and!to!testamentary!dispositions!

• Impossibility! of! condition! must! exist! at! the! time! of! the!creation! of! the! obligation! (not! existence! of! a! valid!obligation! subsequently! rendered! impossible! under! Art!1266!on!“subsequent!impossibility”)!

• DIVISIBLE!OBLIGATION:!part!not!affected!by!the!impossible!condition!shall!remain!valid!

!GENERAL! RULE:! Impossible! condition! annuls! the! obligation!dependent!upon!them!EXCEPTIONS:!pre?existing!obligation!

• Divisible!obligation!• Simple!or!remuneratory!obligation!!• Testamentary!disposition!• Negative!impossible!things!

!Case:!!!

ROMAN!CATHOLIC!ARCHDIOCESE!OF!MANILA!V.!CA!

Facts:!In!1930,!!a!land!was!donated!to!RCAM!with!a!condition!that!a!done!shall!not!dispose/sell!such!property!within!100!years!from!the!execution!of!the!Deed!of!Donation,!otherwise!such!donation!shall!be!void.!In!1980,!the!Bishop!of!Imus!sold!the!property.!The!heirs!of!the!donors! filed! complaint! for! nullification! of! deed! of! donation,!which!was!denied!by!the!lower!court.!CA!reversed.!!

!Held:! The! condition! imposes!undue! restriction!on! the! rights!of! the!owners! and! is! contrary! to! public! policy.! Donors! may! impose!conditions! but! such! must! not! be! contrary! to! law,! morals,! good!customs,!etc.!The!condition!here! is!unreasonable.!The!judgemen!of!CA!was!set!aside.!!

!!!

Art.! 1183.! IMPOSSIBLE! CONDITIONS,! those! contrary! to! good!customs!or!public!policy!and!those!prohibited!by!law!shall!annul%the% obligation! which! depends! upon! them.! If! the! obligation! is!DIVISIBLE,! that! part! thereof! which! is! not, affected, by, the,impossible,or,unlawful,condition%shall!be%valid.!!

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

!!!!


d. As%to%mode%!

i. POSITIVE%(suspensive)%

!• If! there! is! no! period! fixed,! the! rule! in! Par! 2! of! Art! 1185! is!applicable.! Intention!of! the!parties! is!controlling,!and!the!time!shall! be! that! which! the! parties! may! have! probably!contemplated,!taking!into!account!the!nature!of!the!obligation.!

%ii. NEGATIVE%(suspensive)%

!

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

1. Loss!without!fault!of!debtor:!obligation!extinguished!!2. Loss!through!the!fault!of!debtor:!obliged!to!pay!damages.!

A!thing!is!lost!when!it:!!a. Perishes!b. Goes!out!the!commerce!of!man!c. Disappears! in! such! a! way! that! its! existence! is!

unknown!or!it!cannot!be!recovered!3. Deteriorates!without! fault! of! the! debtor:! impairment! to!

be!borne!by!the!creditor!4. Deteriorates! through! the! fault! of! debtor:! creditor! may!

choose! between! the! rescission! of! the! obligation! and! its!fulfillment!with!indemnity!for!damages!in!either!case!

5. Improved!by!its!nature,!time:!inure!to!the!creditor!6. Improved! at! the! expense! of! the! debtor:! no! other! right!

than!that!granted!to!the!usufructuary!!

!

Art.! 1185.! The! conditions! that! some! event! will! not! happen! at! a!determinate! time! shall! render! the! obligation! EFFECTIVE! from! the!moment!the!time,indicated,has,elapsed!OR!if!it!has!become!evident,that,the,event,cannot,occur.!

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

!

%!!!!!!!!!!

!!3. LOSS,! DETERIORATION! OR! IMPROVEMENT! PENDING!

HAPPENING!OF!THE!CONDITION!

!

a. Meaning% of% “loss”,% deterioration% or%improvement% pending% the% happening% of% the%condition%

!ART.%1189%APPLIES%ONLY%IF:!

1. The!obligation!is!a!real!obligation;!2. The!object!is!a!specific!or!determinate!thing;!3. The!obligation!is!subject!to!a!suspensive!condition;!4. The!condition!is!fulfilled;!and!5. There! is! loss,! deterioration,! or! improvement! of! the! thing!

during!the!pendency!of!the!happening!on!one!condition.!!!

KINDS%OF%LOSS:,6. PHYSICAL!LOSS!–!when!a!thing!perishes.!7. LEGAL! LOSS! –!when! the! thing! goes! out! of! commerce,! or!

when!a!thing!heretofore!legal!becomes!illegal!8. CIVIL!LOSS!–!when!a!thing!disappears!in!such!a!way!that!its!

existence! is! unknown,! or! even! if! known,! it! cannot! be!recovered,!whether!as!a!matter!of!fact!or!of!law.!!

!!

!LOSS,%DETERIORATION,%AND%IMPROVEMENT%DISTINGUISHED:%

Art.! 1184.! The! condition! that! some! event! happen! at! a!determinate! time! shall! EXTINGUISH! the! obligation! as! soon! as!the! time,expires!OR! if! it!has!become, indubitable, that, the,event,

will,not,take,place.!!

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

1. Loss!without!fault!of!debtor:!obligation!extinguished!!2. Loss! through! the! fault! of! debtor:! obliged! to! pay!

damages.!A!thing!is!lost!when!it:!!1. Perishes!2. Goes!out!the!commerce!of!man!3. Disappears!in!such!a!way!that!its!existence!is!

unknown!or!it!cannot!be!recovered!3. Deteriorates!without! fault! of! the! debtor:! impairment!

to!be!borne!by!the!creditor!4. Deteriorates!through!the!fault!of!debtor:!creditor!may!

choose!between!the!rescission!of!the!obligation!and!its!fulfillment!with!indemnity!for!damages!in!either!case!

5. Improved!by!its!nature,!time:!inure!to!the!creditor!6. Improved!at!the!expense!of!the!debtor:!no!other!right!

than!that!granted!to!the!usufructuary!

Art.! 1190.! When! the! conditions! have! for! their! purpose! the!EXTINGUISHMENT! of! an! obligation! to! give,! the! parties,! upon!the!fulfillment!of!the!said!conditions,!shall!return!to!each!other!what!they!have!received.!!

!In! case! of! the! loss,! deterioration,! or! improvement! of! the!

thing,! the!provisions!which!with! respect! to! the!debtor,!are! laid!down!in!the!preceding!article!shall!be!applied!to!the!party!who!is!bound!to!return.!!

!As! for!obligations! to!do!or!not! to!do,! the!provisions!of!2nd!

par! of! Art! 1187! (courts, shall, determine)! shall! be! observed! as!regards!the!effect!of!the!extinguishment!of!obligation.!!

!!!!


LOSS! 1. Perishes!2. Goes!out!of!the!commerce!of!man!3. Disappears!in!such!a!way!that!its!existence!

is!unknown!or!it!cannot!be!recovered!DETERIORATION! Any! reduction! or! impairment! in! the!

substance!or!value!of!a!thing!which!does!not!amount!to!a! loss.!The!thing!still!exists!at! the!time! the! condition! is! fulfilled,! but! it! is! no!longer! intact,! OR! is! less! than! what! it! was!when!the!obligation!was!constituted.!!

IMPROVEMENT! Anything! added! to,! incorporated! in,! or!attached!to!the!thing!that!is!due.!

!b. Effect%of%loss%or%deterioration%%

! LOSS! DETERIORATION!

Without!debtor’s!fault!

Extinguished,!unless!there!is!a!stipulation!to!the!contrary.!Mode!of!extinguishment!Art!1262!Par!1!

Not!liable!for!damage,!creditor!must!accept!the!thing!in!impaired!condition!!

With!debtor’s!fault!

Liable!to!damages!upon!fulfillment!of!condition!!

May!demand!the!thing!OR!ask!for!rescission,!in!either!case,!creditor!may!recover!damages!

%c. Effect%of%improvement%

i. By%nature%ii. At%the%debtor’s%expense%

%4. EFFECT! OF! PREVENTION! OF! THE! FULFILLMENT! OF! THE!

CONDITION!BY!THE!OBLIGOR!!!

,

CONSTRUCTIVE% FULFILLMENT! –! a! condition! which! although! not!exclusively! within! the! will! of! the! debtor,! may! in! some! way! be!prevented!by!the!debtor!from!happening.!!!REQUISITES:%

a. Intent! of! the! obligor! to! prevent! the! fulfillment! of! the!condition!"!ESSENTIAL!!

b. Actual!prevention!of!the!compliance!!• The! law! does! not! require! that! the! obligor! acts! with!

malice! or! fraud! as! long! as! his! purpose! is! to! prevent!the!fulfillment!of!the!condition.!!

• Why?! Party! to! a! contract!may! not! be! excused! from!performing!his!promise!by!the!non?occurrence!of!the!event!which!he!himself!prevented.!!

• Also! applicable! to! provocation, of, resolutory,

conditions!!

!

!

!

!

!

!

CASE:!!

!

TAYLOR!V.!UY!TIENG!PIAO!

Facts:!A!contract!was!entered! into!whereby! it!was!understood!that!should!the!machinery!to!be!installed!fail! for!any!reason!to!arrive! in!Manila!within!6!months,! the!contract!may!be!cancelled.!Machinery!did! not! arrive! within! 6! months.! Evidence! showed! also! that! the!defendants!either!cancelled!the!order!or!were!unable!to!supply!the!capital!needed.!Taylor!instituted!action!to!recover!damages.!!

!Held:!There!is!no!breach!of!contract.!The!language!in!the!stipulation!is!broad!enough!to!cover!the!circumstances!of!the!case.!SC!held!that!the!word!“any”!should!be!construed!in!the!ordinary!sense.!There!is!nothing!in!Art.!1256!which!warrants!a!warping!of!“for!any!reason”!to!mean! “for! any! reason! not! having! its! origin! in! the! will! or! acts! of!defendants.”!Art!1119!of!the!Civil!Code!supposes!a!case!where!the!obligor! intentionally! impedes! the! fulfilment! of! a! condition! which!would!entitle!the!obligee!to!exact!performance!from!the!obligor.!An!assumption!underlying!the!provision!is!that!the!obligor!prevents!the!oblige! from! performing! some! act! which! the! oblige! is! entitled! to!perform!as!a!condition!precedent!to!the!exaction!of!what!Is!due!him.%This! article! can! have! no! application! to! an! external! contingency!which,! like! in! this! case! is! lawfully! within! the! control! of! the!obligor.Plaintiff’s! claim! for! damages! for! the! period! subsequent! to!the!expiration!of!the!first!six!months!was!rejected,!but!he!is!entitled!to!P360!house!rent!yet!unpaid.!!

c. Reciprocal(Obligations(!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.!

!1. CONCEPT!!%RECIPROCITY! arises! from! identity! of! cause! and! necessarily,! two!obligations!are!created!at!the!same!time.!Each!party!is!a!creditor!and!debtor!of!the!other!and!they!are!to!perform!simultaneously.!!

• Recognized! “implied! or! tacit! resolutory! condition”!imposed! exclusively! by! law,! even! if! there! is! no!corresponding! agreement! between! parties! "! it’s! also!called!RESOLUTION!

• Power!to!rescind!is!given!to!the!injured!party!!

2. ALTERNATIVE! REMEDIES! OF! INJURED! PARTY! IN! CASE! OF!

BREACH!!

Alternative! remedies!of! injured!party! in!case!of!breach!"! injured!party! should!choose!only!one,!cannot!ask! for!partial! rescission!and!partial!fulfillment!!

a. Action%for%Fulfillment!i. When%fulfillment%no%longer%possible;%effect!

!• When! fulfillment! no! longer! possible,! rescission!

takes!place!!!!!

b. %Action%for%Rescission%

Art.! 1186.! The! condition! shall! be! deemed% fulfilled! when! the!obligor!voluntarily!prevents!fulfillment.!!

!!!!


i. Requisites%for%rescission%%1. One!of!the!creditors!failed!to!comply!with!what!

is!incumbent!upon!him!2. Obligor! who! performed! chose! rescission! over!

fulfillment!or!performance!is!impossible!3. The! breach! is! substantial! so! as! to! defeat! the!

object!of!the!parties!in!making!the!agreement!–!it!will!not!be!granted!in!slight!or!casual!breach!!

ii. How%made! –! Rescission! requires! judicial! approval!to!produce!legal!effect!• EXCEPTION:! object! is! not! yet! delivered! AND!

obligation!has!not!yet!been!performed!!• If! the! obligation! has! not! yet! been! performed:!

extrajudicial! declaration! of! party! willing! to!perform!would!suffice;!can!refuse!to!perform!if!the!other!party!is!not!yet!ready!to!comply!

• If! the! injured! party! has! already! performed:!cannot!extrajudicially!rescind!IF!the!other!party!opposes! the! rescission! (otherwise,! rescission!produces! legal! effect).! In! the! case! the! other!party! impugns! rescission,! the! court! comes! in!either!to:!!o Declare!the!rescission!as!properly!made!o Give! a! period! to! the! debtor! in! which! to!

perform!!

EFFECTS%OF%RESCISSION:%1. Extinguishes! obligatory! relation! as! if! it! had! never! been!

created!"!Equivalent!to! invalidate!the! juridical!tie,! leaving!things!in!their!status!before!the!celebration!of!the!contract!!

2. Mutual!restitution!!

RESCISSION% ART% 1380% DISTINGUISHED% FROM% RESOLUTION% ART%1191:%

!! Art!1191!Resolution! Art!1380!Rescission!

Similarities! Presuppose! contracts! validly! entered! into! and!existing!!

• Rescission!v.!Annulment:!the! latter!there! is!a! defect! which! vitiates/invalidates! the!contract!!

Mutual!restitution!when!declared!proper!Who!may!demand!

Only! by! a! party! to!the!contract!

Party! to! the! contract!suffering!lesion!Third! parties! prejudiced! by!the!contract!

Grounds! Non?performance!(implied! tacit!condition! in!reciprocal!obligation)!!

Various! reasons! of! equity!provided! by! the! grounds,!mainly! economic! injury! or!lesions!

Scope!of!judicial!control!

Court! determines!sufficiency! of! reason!to! justify! extension!of! time! to! perform!obligation! (whether!slight! or! casual!breach)!!

Sufficiency! of! reason! does!not! affect! right! to! ask! for!rescission!(cannot!be!refused!if! all! the! requisites! are!satisfied)!

Kind!of!obligation!

applicable!to!

Only!to!reciprocal! Unilateral,!reciprocal!!Even! when! contract! is! fully!fulfilled!

Character! Principal!Remedy! Secondary/Subsidiary!Cases:!

!SONG!FO!V.!HAWAIIAN!PHILIPPINES!

Facts:! Song! Fo! filed! causes! of! action! against! Hawaiian! for! alleged!breach!of!contract.!Hawaiian!set!up!a!defense!that!since!plaintiff!had!defaulted! in! the! payment! for! the! molasses! delivered! to! it! by! the!defendant,! the! latter! was! compelled! to! cancel! and! rescind! said!contract.!

!Held:!Hawaiian!cannot!rescind!the!contract!of!sale.!The!general!rule!is!that!rescission!will!not!be!permitted!for!a!slight!or!casual!breach!of!the! contract,! but! only! for! such! breaches! as! are! so! substantial! and!fundamental! as! to! defeat! the! object! of! the! parties! in! making! the!agreement.!!!

!UP!V.!DE!LOS!ANGELES!

Facts:! UP! rescinded! the! contract! regarding! its! logging! agreement!with!ALUMCO!because!of!the!latter’s!failure!to!pay!its!debts.!!

!Held:! The! party! who! deems! the! contract! violated! may! consider! it!resolved! or! rescinded,! and! act! accordingly! without! previous! court!action,!but!it!proceeds!at!its!own!risk.!It!is!only!the!final!judgment!of!court! that! will! finally! settle! whether! action! taken! was! or! was! not!correct!in!law.!

II. Obligation*with*a*Period**!

Art.! 1193.! Obligations! whose! fulfillment! a! day% certain! has! been!fixed,!shall!be!demandable!only!when!that!day!comes.!!!Obligations! with! a! resolutory! period, take! effect! at! once! but!terminate!upon!arrival!of!the!day!certain.!

!A! “day! certain”! is! understood! to! be! that! which!must% necessarily%come,!although!it!may!not%be%known%when.!!If!the!uncertainty!consists!in!whether!the!day!will!come!or!not,!the!obligation!is!CONDITIONAL,!and!it!shall!be!regulated!by!the!rules!of!the!preceding!Section.!

!

Art.!1180.!When!the!debtor!binds!himself!to!pay!WHEN!his!means!

permit!him!to!do!so,!the!obligation!shall!be!deemed%to%be%one%with%a%period,!subject!to!the!provisions!of!Art!1197.!!

A. Period(or(Term(1. CONCEPT!!!A! space! of! time! which,! exerting! an! influence! on! obligations! as! a!consequence! of! a! juridical! act,! suspends, their, demandability! or!determines,their,extinguishment.!!%REQUISITES%OF%PERIOD:%

• Future!• Certain!• Possible!

!!!

2. PERIOD/TERM!VS.!CONDITION!!

!!!!


!• A!period!is!a!future!AND!certain!event!upon!the!arrival!of!

which!the!obligation!(or!right)!subject!to!it!either!arises!or!is! terminated.! It! is! a! day! certain! which! must! necessarily!come,!although!it!may!not!be!known!when,!like!the!death!of!a!person.!!!

AS!TO! TERM/PERIOD! CONDITION!

Fulfillment! Event! must! necessarily!come,! whether! known!before! hand! OR! at! a!time! which! cannot! be!predetermined!

Event!is!uncertain!!

Influence!on!the!obligation!

No! effect! on! the!existence,! but! only! on!their! demandability! or!performance,! HENCE,!does, not! carry! with! it!any!retroactive!effect!

Gives! rise! to! an!obligation! or!extinguishes! one!already!existing!!

Time! Always!to!the!future! May! refer! to! past!event!not!know!to!the!parties!!!

Will!of!the!debtor!

If! dependent! on! will! of!debtor,! merely!empowers! court! to! fix!such!period!

If!dependent!on!will!of!debtor,!ANNUL!

Retroactivity!of!effects!

Unless! there! is! an!agreement! to! the!contrary,! the! arrival!does! not! have! any!retroactive!effect.!

Happening! of!condition! has!retroactive!effect.!!

!

B. Kinds(of(Period/Term(!

1. AS!TO!EFFECT!%

a. SUSPENSIVE%(Ex%die)!

!!

• Must! lapse!before! the!performance!of! the!obligation! can!be!demanded!

• Think:!incubating!period!• The!obligor!has!the!burden!of!proving!any!extension!of!the!

period!by!satisfactory!evidence!• SUSPENSION!OF!PERIOD:!If!a!fortuitous!event!supervenes,!

the!obligor! is!merely!relieved!of!the!obligation!to!fulfill!at!that! time,! and! does! not! stop! the! running! of! the! period!because! in!effect! that!would!be!an!extension!of! the!term!of! the! contract.! Force!majeure! cannot! be! deducted! from!the!period!stipulated.!

• MORATORIUM!LAWS:!postponement!of! the! fulfillment!of!an! obligation,! an! extension! of! the! period! for! the!performance! of! the! obligation,! decreed! by! the! statute.!However,! to! meet! constitutional! requirements:! The!suspension!should!be!definite!and!reasonable.!!!

b. RESOLUTORY%(In%diem)!!!

• Period!after!which!the!performance!must!terminate!• Think:!expiry!date!

!2. AS!TO!EXPRESSION!

,

a. EXPRESS%–!when!specifically!stated!,

b. IMPLIED%–!when!parties!“intended!a!period”!!!E.g.! Art! 1197! Par! 3! (period! has! been! contemplated! by! the!parties),! Art! 1180! (promise! to! pay! when! able),! or! when! a!person! undertakes! to! do! some!work!which! can! be! done! only!during!a!particular!season!!

!!

3. AS!TO!DEFINITENESS!,

a. DEFINITE%–!refers!to!a!fixed!known!date!or!time!,

b. INDEFINITE% –! event! which! will! necessarily! happen! but!the!date!of!its!happening!is!unknown!• The! uncertainty! of! the! date! of! occurrence! in!

indeterminate! period! DOES! NOT! convert! it! into! a!condition,! so! long! as! there! is! no, uncertainty, as,whether,it,will,happen,or,not.!

• E.g.! death! of! a! person,! movable! religious! holidays!(Holy! Week),! events! in! civil! or! political! life! (age! of!majority!or!becoming!a!qualified!voter)!

• Debtor! promises! to! “pay! when! able”! or! “little! by!little”!or!“as!soon!as!possible”!

• Two!steps!in!dealing!with!an!indefinite!period!(from!

Sir!Labitag’s!lecture)!1. Make!the!indefinite!period!definite!by!asking!for!

payment!or!making!an!extrajudicial!demand!2. Make!judicial!demand,!then!ask!the!courts!to!fix!!

the!period!• No!need!to!file!to!actions,!just!ask!for!two!prayers!to!

avoid! multiplicity! of! suits:! (1)! fix! period! and! (2)!require! the! debtor! to! comply! on! the! fixed! period!(action!for!specific!performance)!

• The! 2?in?1! action! discussed! by! Sir! Labitag! is! actually!contradictory!with!Tolentino’s!commentary.!!!!

4. AS!TO!SOURCE!,

a. CONVENTIONAL/VOLUNTARY! –! stipulated! by! the!parties!,

b. LEGAL! –! period! fixed! by! law;! spread! in! the! CC! e.g.! Art!1682!lease!of!rural!land!and!Art!1687!lease!of!urban!land;!Franchise!agreement!in!the!Constitution!(for!25!years)!,

c. JUDICIAL% –! set! by! the! courts! in! case! of! implied! and!indefinite!periods!(See:,When,courts,may,fix,period)!

!

Art.!1193,!Par.!1.!Obligations!whose!fulfillment,a,day,certain,has,

been,fixed,!shall!be!demandable%only!when!that!day!comes.!!

Art! .1193,! Par.! 2.! Obligations! with! a! resolutory! period, take!effect!at!once!but%terminate!upon!arrival!of!the!day!certain.!

!!!!


C. Rules( in( case( of( loss,( deterioration( or(improvement(before(arrival(of(period((!

∗ Same,as,Art,1189,

%EFFECT%OF%LOSS%OR%DETERIORATION:%

!

! LOSS! DETERIORATION!

Without!debtor’s!fault!

Extinguished,! unless!there! is!a!stipulation!to!the! contrary.! Mode! of!extinguishment! Art!1262!Par!1!

Not! liable! for! damage,!creditor!must!accept!the!thing! in! impaired!condition!!!!!

With!debtor’s!fault!

Liable!to!damages!upon!fulfillment!of!condition!!

May! demand! the! thing!OR! ask! for! rescission,! in!either!case,!creditor!may!recover!damages!

!!EFFECT%OF%IMPROVEMENT:%

!

MODE! !

By!nature!or!time!

Inures!to!the!benefit!of!the!creditor!by!virtue!of!principle! of! retroactivity! of! conditional!obligations!

At!debtor’s!expense!

Only! usufructuary! rights;! Governed! by! Art! 579!(useful! improvements! or! for! mere! pleasure,!remove!if!possible!to!remove!without!damage!to!property)!and!Art!580!(set!off!the!improvements!he!may!have!made!against!any!damage)!

!

D. Effect(of(payment(in(advance(!

• Only!applies!to!obligations!to!give.!• The!action!only!lies!before!the!arrival!of!the!day!certain,!when!

the!day!certain!comes!cannot!recover!• The! debtor! is! presumed! to! be! aware! of! the! period.! It! is!

presumed!that!he!knew!that!the!debt!was!not!yet!due,!Thus,!he!has!the!burden!of!proving!that!he!was!unaware!of!the!period.!

• If!the!creditor!refuses,!debtor!will!have!to!go!to!the!court,!but!when! judgment! comes,! the! day! certain! has! already! arrived.!Poor!him.!(Sir!Labitag)!

• Manresa:!good! faith/bad! faith!of! the!creditor! in!accepting! the!premature!payment!is!immaterial!

• Tolentino:! In! accordance! with! solutio, indebiti,! good! faith! of!creditor! makes! him! liable! to! restore! the! fruits! and! interests!insofar!as!it!benefited!him.,

• The! same! principle! as! regards! fruits! and! interest! is! true! for!payment!before!happening!of!suspensive!condition!in!Art!1188!Par!2!!

• Fruits!and!interests!not!recoverable!in!these!cases:,

o Reciprocal! obligation! and! there! has! been! a! premature!performance!on!both!sides,

o When! the! obligation! is! a! loan! on! which! the! debtor! is!bound!to!pay!interest,

o When! the! period! is! exclusively! for! the! benefit! of! the!creditor,! because! the! debtor! who! pays! in! advance! loses!nothing!,

o If!payment!was!with!knowledge!of! the!term,! it!cannot!be!recovered! because! it! is! considered! as! tacit!waiver! of! the!benefit!of! the! term! (not!only! fruits! and! interest,!but!also!principal),

,

∗ Note! Art! 1197! Par! 3! In! every! case,! the! court! shall!determine% such% period! as! may! under! the! circumstances!have! been! probably! contemplated! by! the! parties.!Once,fixed,by,the,courts,!the!period,cannot,be,changed,by,them.!!

E. Benefit(of(Period(!

1. FOR!WHOSE!BENEFIT!AND!ITS!EFFECTS!!

Creditor! May! demand! performance! anytime,! but! not!compelled!to!accept!before!period!expires!E.g.!payment!of! interest,!wants! to!keep!his!money!safely! invested! instead! of! having! it! in! his! hands,!protects!himself!from!sudden!decline!in!purchasing!power!of!the!currency!loaned!!

Debtor! May!oppose!a!premature!demand,!but!may!validly!pay!any!time!before!period!expires!E.g.!time!to!raise!money!!

Both! Presumption! in!absence!of!stipulation!or! in!case!of!doubt!Creditor!must!give!consent!first!before!debtor!may!pay! in! advance! especially! when! creditor! receives!other!benefits!by!reason!of!the!term!!

!2. EFFECTS!

!3. PRESUMPTION!"! for! the! benefit! of! BOTH! the! creditor! and!

debtor!!

!• Thus,! before! the! expiration! of! the! period,! the! debtor! may! not!fulfill! the! obligation! and! neither! may! the! creditor! demand! its!fulfillment!without!the!consent!off!the!other!especially!if!the!later!would!be!prejudiced!or!inconvenienced!thereby.!!

• Acceleration! by! debtor! of! time! of! payment.! The! payment! of!interest! may! not! be! the! only! reason! why! creditor! may! not! be!bound!to!accept!payment!before!maturity.!Other!reasons!include:!“that!the!creditor!wants!to!keep!his!money!invested!safely!instead!of!having!it!in!his!hands,”!and!“that!the!creditor!by!fixing!a!period,!protects!himself!against! sudden!decline! in! the!purchasing!power!of!the!currency!loaned!especially!at!a!time!when!there!are!many!factors!that!may!influence!the!fluctuation!of!the!currency.!!!

!!!!

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

Art.!1195.!Anything!paid!or!delivered!before! the!arrival!period,!the! obligor! being! unaware! of! the! period!OR,believing! that! the!obligation! has! become! due! and! demandable,! may! be!RECOVERED,!with,the,fruits,and,interests.,!

Art.!1196.!Whenever!in!an!obligation!a!period!is!designated,!it!is!presumed! to! have! been! established! for! the! benefit! of! BOTH!creditor!and!debtor,!UNLESS!from!the!tenor!of!the!same!or!other,circumstances! it! should! appear! that! the! period! has! been!established!in!favor!of!one!or!the!other.!!

!!!!


Case:!!

PONCE!DE!LEON!V.!SYJUCO!

Facts:!It!was!stated!in!the!promissory!note!that!Ponce!de!Leon!could!not!pay,!and!Syjuco!cannot!demand!the!payment!of!Ponce!de!Leon’s!loan!EXCEPT!within!one!year!from!May!1948.!!On!several!occasions!in!October!1948,!Ponce!de!Leon!tendered!to!Syjuco!the!full!payment!of! his! previous! loans,! including! the! interest! for! his! loan! payable!within! one! year! from! May! 1948.! Syjuco! refused! to! accept! these!tenders.! Lower! court! absolved! Syjuco! from! Ponce! de! Leon’s!complaint!and!condemned!Ponce!de!Leon!to!pay!Syjuco!the!amount!of!P23,!130.!

!Held:! The! consignation!made!by! the!plaintiff! is! invalid! and!did! not!relieve! him! from! his! obligation.! The! plaintiff,! before! making! the!consignation,! did! not! give! previous! notice! to! Syjuco! regarding! the!performance!of!the!obligation,!and!the!obligation!is!also!not!yet!due!and!demandable.!!!4. WHEN!DEBTOR!LOSES!RIGHT!TO!MAKE!USE!OF!PERIOD!

!• Par!1:!“insolvency”!need!not!be!declared! in!an! insolvency!

proceeding,! enough! that! he! is! in! a! state! of! financial!difficulty!that!he!is!unable!to!pay!his!debts!!

• Par! 3:! “impaired”! need! not! be! total;! “disappear! through!fortuitous!event”!total,!used!in!the!sense!of!“loss”!!

• Obligation! becomes! immediately! due! and! demandable!even! if! period! has! not! yet! expired;! converted! to! a! pure!obligation!

• Does!not!apply!to!extension!of!period!fixed!by!moratorium!statutes!!

!

F. When(court(may(fix(period(!

• Refers!to!a!judicial!period!as!distinguished!from!the!period!fixed! by! the! parties! in! their! contract! which! is! known! as!contractual!period.!!

• If! the!obligation!does!not! state!a!period!and!no!period! is!intended,! the! court! is! not! authorized! to! fi! a! period.! The!courts!have!no!right!to!make!contracts!for!the!parties.!!!

• Period! is! implied! "! a! period! was! intended;! also!INDEFINITE,PERIOD!

• Period!depends!solely!on!will!of!debtor!!o If!it!were!condition:!void!

• When!the!court!fixes!the!term!of!an!obligation,!it!does!not!amend!or!modify! the! same.! It!merely! enforces! or! carries!out!the!intention!of!the!parties.!

!CASE:!

!

ARANETA!V.!PHILIPPINE!SUGAR!ESTATE!DEVELOPMENT!CO.!!

Facts:!JM!Tuason!and!Co.!(owned!by!Araneta)!sold!a!track!of!land!to!the! respondent! on! a! condition! that! the! latter! will! build! the! Sto.!Domingo! Church! and! Convent,! and! that! JM! Tuason! will! construct!streets!on!the!NE,!NW!and!SW!sides!“within!a!reasonable!time”.!The!church! and! convent! were! constructed! but! the! streets! were! not!because! there! were! squatters.! Respondent! sued! JMT! for! specific!performance! and! damages.! JM! Tuason’s! defense:! action! is!premature! since! obligation! to! construct! the! street! was! without! a!definite!period.!!!!

Held:!“Reasonable!time”!refers!to!when!all!the!squatters!are!evicted,!which! can! be! deduced! from! the! fact! that! the! parties! were! fully!aware! the! there! were! squatters! when! they! entered! the! contract.!Trial!court!and!CA!need!not! fix! the!period!because!the!real! issue! is!whether!the!reasonable!time!stipulated!has!already!elapsed.!!

III. Alternative*Obligations*

A. Concept(

!

• One! wherein! various! prestations! are! due! but! the!performance!of!one!of!them!is!sufficiently!

!KINDS%OF%COMPUND%OBLIGATIONS:%

1. CONJUNCTIVE! "! all! prestations! must! be! performed! to!extinguish!obligation!

!

2. DISJUNCTIVE! "! one! or! some! prestations! must! be!performed!to!extinguish!obligation!

!

a. ALTERNATIVE%"!Debtor!must!perform!one!of!several!alternatives;! choice! belongs! to! debtor! UNLESS!expressly!given!to!creditor!%

b. FACULTATIVE%"!One!principal!prestation!but!one!or!more!substitutes,!choice!belongs!to!DEBTOR!ONLY!!

• A!disjunctive!obligation! is!presumed!to!be!ALTERNATIVE,!unless!it!is!expressly!indicated!that!it!is!FACULTATIVE.%

• The! reason! for! such!a!presumption! is! that! the!creditor! is!more! disadvantaged! if! it! is! a! FACULTATIVE! rather! than!ALTERNATIVE.%

B. Right(of(Choice(

!• General!rule:!The!choice!belongs!to!the!debtor!

o Exception:! If! expressly! granted,! it! may! be! the! creditor’s!choice!OR!entrusted! to!a! third!person! (with! the!agreement!of!the!parties)!

• An!implied,grant!of!choice!to!the!creditor!will!not!be!recognized.!• The!right!of!choice!is!limited!by!the!following!rules:!

o The!right!to!choose!is! indivisible;!the!one!making!the!choice!cannot!choose!part!of!one!and!then!part!of!another.!

o Prestations!that!are!impossible,,unlawful,,or!those,that,could,not,have,been,the,object,of,the,obligation!cannot!be!chosen.!

Art.!1199.!A!person!alternatively!bound!by!different!prestations!shall!completely!perform!one!of!them.!!The! creditor! cannot! be! compelled! to! receive! part! of! one! and!part!of!the!other!undertaking.!

Art.!1200.!The!right!of!choice!belongs!to!the!debtor,!unless!it!has!been!expressly!granted!to!the!creditor.!

The!debtor!shall!have!no!right!to!choose!those!prestations!which!are!impossible,!unlawful!or!which!could!not!have!been!

the!object!of!the!obligation.!

!!!!


C. Effect(of(Notice(of(Choice(!• When! notice! of! choice! has! been! expressed,! it! shall! limit! the!

obligation!to!the!object!or!prestation!selected.!• The!obligation,!from!an!alternative!one,!shall!be!converted!into!

a!simple!obligation.!• Once! a! prestation! has! been! chosen! and! the! other! party!

notified,!the!choice!is!irrevocable!• The! other! party’s! consent! is! not! required.! A! contrary! rule!

would!destroy!the!essence!of!the!right!to!choose.!o Exception:! If! the! debtor! has! chosen! a! prestation! which!

could! not! have! been! the! object! of! the! obligation,! the!creditor’s!consent!to!such!would!be!a!novation!

• When! a! debtor! performs! one! of! the! alternative! prestations,!believing!he!has!a! simple!obligation! (when!he!actually!had!an!alternative! obligation! with! different! prestations),! it! is!considered!that…!o There! is! no! exercise! of! the! right! to! choose! and! the!

performance!shall!not!be!binding.!

o It!shall!only!be!considered!as!a!payment!of!what!is!not!due!

and!therefore,!may!be!recovered.!• On!Plurality!of!Subjects!(JOINT!and!SOLIDARY!Obligations)!

a. Joint!"! the! choice! made! must! have! the! consent! of! all!debtors!(or!all!creditors)!to!be!valid!

b. Solidary!"! the! choice! made! by! one! will! be! personally!binding!to!him!but!not!to!the!others.!o Ex.!A!and!B,!solidary!debtors!of!C,!may!choose!to!(a)!

pay! to!C! the!amount!P10,000!or! (b)!give!10! sacks!of!rice.! If! A! has! properly! given! a! notice! to! C! that! he!chose! to!perform!prestation! (b),!A!must!perform! (b)!to! extinguish! the! obligation.!However,! B! can! choose!to! perform! either! (a)! or! (b)! to! extinguish! the!obligation;!A’s!choice!is!not!binding!to!him.!!

D. When(Notice(Produces(Effect(!• The!notice!of!choice!may!come!in!any!form!provided!that!it! is!

sufficient! to! let! the!other!party!know! that! a! choice!has!been!made.!

• They!may!be!conveyed:!o Orally!o Written!o Tacitly!

o Debtor!having!the!right!to!choose!(and!with!knowledge!of!such!right),!performs!one!of!the!prestations;!

o Creditor,! having! the! right! to! choose,! accepts! the!performance!of!one!of!the!prestations;!

o Creditor,!having!the!right!to!choose,!files!an!action!for!specific! performance! of! one! of! the! alternative!prestations!

• Duly!authorized! representatives! can!give!and!accept! a!notice!of!choice.!!!!!!!!

E. Effect( of( Loss( or( Impossibility( of( One( or( All(Prestations(

!Art.! 1202.! The!debtor! shall! lose! the! right! of! choice,! when! among!the! prestations! whereby! he! is! alternatively! bound,! only! one! is!practicable.!

!• The! situation! (impossibility! of! all! the! other! prestations! except!

for! only! one)! contemplated! in! Article! 1202! should! NOT! have!been!due!to!the!creditor’s!act(s).!

• Article!1203!applies!if!said!situation!is!due!to!the!creditor’s!acts!• The! article! is! applicable! only! to! obligations!where! debtor! has!

the!right!to!choose.!o Article!1205!is!the!one!applicable!when!the!creditor!has!the!

right.!• The!creditor!cannot!claim!damages!for!the!loss!of!some!of!the!

other! prestations/choices,! for! the! right! to! choose! is! the!debtor’s.!!

Art.! 1203.! If! through! the! creditor’s! act,! the!debtor! cannot!make!a!choice! according! to! the! terms! of! the! obligation,! the! latter! may!

rescind!the!contract!with!damages.!

!• The! right! to! rescind! provided! by! Article! 1203! is! only!

optional;! the!debtor!may!still!choose!to!perform!the!only!practicable! prestation! (if! only! one! remains)! OR! choose!among!the!other!remaining!options!(if!there!are!more!than!one!left).!!

Art.!1204.!The!creditor!shall!have!a!right!to! indemnity!for!damages!when,! through! the! fault! of! the! debtor,! all! the! things! which! are!alternatively! the! object! of! the! obligation! have! been! lost,! or! the!compliance!of!the!obligation!has!become!impossible.!!!The! indemnity!shall!be! fixed!taking!as!a!basis! the!value!of! the! last!thing!which!disappeared,!or! that!of! the! service!which! last!became!impossible.!!Damages!other! than!the!value!of! the! last! thing!or!service!may!also!be!awarded.!!

!!!!!!!!!!!!!!!!!!!!!

!!!!


Art.!1205.!When!the!choice!has!been!expressly!given!to!the!creditor,!the!obligation! shall! cease! to!be!alternative! from! the!day!when! the!selection!has!been!communicated!to!the!debtor.!!Until!then!the!responsibility!of!the!debtor!shall!be!governed!by!the!following!rules:!!(1)! If! one!of! the! things! is! lost! through!a! fortuitous!event,! he! shall!perform!the!obligation!by!delivering!that!which!the!creditor!should!choose! from!among! the! remainder,! or! that!which! remains! if! only!one!subsists;!!(2)! If! the! loss!of!one!of! the! things! occurs! through! the! fault!of! the!debtor,!the!creditor!may!claim!any!of!those!subsisting,!or!the!price!

of! that! which,! through! the! fault! of! the! former,! has! disappeared,!with!a!right!to!damages;!!(3)! If! all! the! things! are! lost! through! the! fault! of! the! debtor,! the!choice!by!the!creditor!shall! fall!upon!the!price!of!any!one!of! them,!also!with!indemnity!for!damages.!!The!same!rules!shall!be!applied!to!obligations!to!do!or!not!to!do!in!case!one,!some!or!all!of!the!prestations!should!become!impossible.!

!• Article! 1204! is! applicable! when! the! debtor! has! the! right! to!

choose.!• The!debtor!will!only!become!liable!if!ALL!the!choices/prestation!

become! lost! (in! obligations! to! give)! or! the! compliance! of! the!obligation! becomes! impossible! (in! obligations! to! do).! There! is!no! liability! for! the!debtor!when!only!some!of! the!prestations!are!lost.!

• The! article! above! sets! the! value! of! last! prestation! that!disappeared!as!the!basis!for!indemnity!for!damages.!

• Other! damages! (i.e.,! moral,! exemplary,! etc.)! may! also! be!awarded.!

• Article!1205!is!applicable!to!obligations!where!the!creditor!has!the!right!to!choose!

• If!the!creditor!is!delayed!in!making!a!choice!or!has!not!made!a!choice!at!all,! the!debtor!CANNOT! incur! in!delay;! there!can!be!no!mora,solvendi.!This! is!true!even!if!there!is!a!definite!period!fixed!for!the!performance!of!the!obligation.!

F. Facultative(Obligations(!

Art.!1206.!When!only!one!prestation!has!been!agreed!upon,!but!the!obligor!may!render!another!in!substitution,!the!obligation!is!called!facultative.!!The!loss!or!deterioration!of!the!thing!intended!as!a!substitute,!through!the!negligence!of!the!obligor,!does!not!render!him!liable.!But!once!the!substitution!has!been!made,!the!obligor!is!liable!for!

the!loss!of!the!substitute!on!account!of!his!delay,!negligence!or!fraud!

!1. CONCEPT!

!It!is!an!obligation!where!only!ONE!prestation!has!been!agreed!upon!but!the!debtor!may!render!another!in!substitute.!

!

• There! is! only! one! prestation;! the! thing! intended! as! a!substitute!is!not!the!one!due!but,!if!the!debtor!so!chooses,!it!may!be!delivered!as!a!substitute.!

• If! the! debtor! chooses! the! substitute,! the! obligation! is!converted!to!a!simple!one,!from!a!facultative!one.!

!

EFFECTS%OF%LOSS:%• If!the!principal!obligation!is!lost!before!the!substitution!due!to!

a! fortuitous! event,! the! obligation! is! extinguished;! otherwise,!the!debtor!becomes!liable!for!damages!o Loss! of! the! substitution! during! this! period!will! not! affect!

obligation! nor! give! rise! to! any! liability,! even! if! the!substitution! was! made! impossible! through! debtor’s! bad!faith.!

• If!principal!obligation! is! lost! after! the! substitution,! it!will! not!extinguish! the! obligation! nor! give! rise! to! liability;! it! is! not! the!thing!due!anymore.!o Upon! substitution,! the! substitute! will! now! become! the!

only! prestation! that! the! debtor! can! perform;! the!obligation!is!now!a!simple!one.!

!2. FACULTATIVE! AND! ALTERNATIVE! OBLIGATIONS!

DISTINGHUISHED!

%AS!TO! FACULTATIVE! ALTERNATIVE!

Prestations! Only! one! but! debtor!may! opt! to! perform! a!substitute!

Two!or!more!

Right!to!choose!

Debtor!only!! Generally,! it! belongs! to!the! debtor! but! may!also! be! given! to! the!creditor!or!a!third!party!

Loss!and!Nullity!

Loss! of! the! principal!prestation! will!invalidate! the!obligation! AND! make!debtor!liable,!while!loss!of! the! substitute! will!not! invalidate! the!obligation!nor! give! rise!to!liability.!!If! the! principal!prestation! is! lost,! the!debtor! cannot! choose!to! perform! the!substitute! even! if! it! is!possible!to!perform.!

Loss! of! one! will! not!nullify! the! obligation;!all!the!prestations!must!be! lost! or! become!impossible!to!invalidate!the!obligation!!The! creditor! may!choose! the! remaining!prestation(s)! if! one! of!them!is!lost.!

%%%%%%%%%%%%

!!!!


3. EFFECT!OF!SUBSTITUTION!!

TIME! PRINCIPAL!

OBLIGATION!

SUBSTITUTE!

OBLIGATION!

Before!Substitution!

Due!and!can!be!demanded!

Not!due!and!cannot!be!demanded!but!debtor!may!choose!to!submit!

this!After!

substitution!Considered!discarded;!will!not!affect!the!obligation!anymore!!

Will!become!the!only!prestation!that!debtor!

can!perform!!

• The! rules! on! when! the! right! to! choose! takes! effect! (in!alternative!obligations)!are!applied!here,!by!analogy.!o Ex.! Substitution! takes!effect! after!notice!by! the!debtor!

to!the!creditor.!

IV. Joint*and*Solidary*Obligations*A. Joint(Obligations(!

1. CONCEPT!!Each! of! the! debtors! is! liable! only! for! a! proportionate! part! of! the!debt,! and! each! creditor! is! entitled! only! to! a! proportionate! part! of!the!credit.!Each!creditor!can!recover!only!his!share!of!the!obligation!and!each!debtor!can!be!made!to!pay!only!his!part.!!!a. Requisites%of%Joint%Obligations%%

1. Plurality!of!subjects!2. Determination! of! the! shares! in! the! demandability! of! the!

fulfillment!of!the!obligation!!!

b. Words%used%to%indicate%joint%obligations%%1. Mancomunada!2. Mancomunada!Simple!3. Pro!rata!4. “We!promise!to!pay…”!used!by!two!or!more!signers!

!

Sir!Labitag’s!magic!shortcut!formula!(applicable!only!to!joint!liability!on!both!sides)!!• #! of! debtors! x! #! of! creditors! =! divisor! of! the! total! amount! of!

obligation!!

2. PRESUMPTIONS!!

Art.! 1207.! The! concurrence! of! two! or!more! creditors! or! of! two! or!more! debtors! in! one! and! the! same! obligation! does! not! imply! that!each!one!of!the!former!has!a!right!to!demand,!OR!that!each!one!of!the!latter!is!bound!to!render!entire!compliance!with!the!prestations.!There!is!a!SOLIDARY!LIABILITY!only!when!the!obligation!expressly!so!states! OR! when! the! law! OR! the! nature! of! the! obligation! requires!solidarity.!!Art.! 1208.! If! from! the! law,! or! the! nature! or! the! wording! of! the!obligations! to!which! the! preceding! article! refers! the! contrary! does!not!appear,! the! credit!or!debit! shall! be!presumed! to!be!divided!as!many!equal! shares!as! there!are!creditors!or!debtors,! the!credits!or!debts! being! considered! distinct! from! one! another,! subject! to! the!Rules!of!Court!governing!the!multiplicity!of!suits.!• Joint!character!of!liability!and!equal!shares!is!presumed!

3. EFFECTS!

!

a. Extent%of%liability%of%debtor%• Only!with!respect!to!his!particular!share!in!the!debt!• Vices! of! each! obligation! arising! from! the! personal!

defect! of! a! particular! debtor! or! creditor! does! not!affect!the!obligation!or!rights!of!the!others!

• The! insolvency! of! a! debtor! does! not! increase! the!responsibility! of! his! co?debtors! nor! does! it!authorize!a!creditor!demand!anything!from!his!co?creditors!

• JOINT! DIVISIBLE! OBLIGATION:! defense! of! res!judicata! is! not! extended! from! one! debtor! to!another!

!b. Extent%of%right%of%creditor%

a. Demand! by! one! creditor! upon! one! debtor!produces!the!effects!of!default!only!with!respect!to! the! creditor! who! demanded! and! the! debtor!on!whom! the! demand!was!made,! but! not!with!respect!to!others!!

b. Interruption! of! prescription! by! the! judicial!demand!of!one!creditor!upon!a!debtor!does!not!benefit! the! other! creditors! nor! interrupt! the!prescription!as!to!other!debtors!!

!c. In%case%of%Novation,%Compensation,%Confusion,%

Remission%• Novation:! Affects! only! the! share! of! the! joint! co?

debtor!in!whom!the!novation!is!created!• Compensation:!Affects!only!the!share!of!the!joint!co?

debtor!in!whom!the!compensation!takes!place!• Confusion:!Art!1277!Confusion!does!not!extinguish!a!

joint! obligation! except! as! regards! the! share!corresponding!to!the!creditor!or!debtor!in!whom!the!two!characters!concur.!!!

• Remission:! Benefits! only! the! joint! co?debtor! in!whom! the! remission! is! granted,! obligation!extinguished!

B. Solidary(Obligations(

1. CONCEPT!Each! of! the! debtors! is! liable! for! the! entire! obligation,! and! each!creditor! is! entitled! to! demand! the! whole! obligation.! Each! creditor!may!enforce! the!entire!obligation!and!each!debtor!may!be!obliged!to!pay!it!in!full.!!Solidary!obligations!exist!only!by:!!

1. Stipulation!of!the!parties!2. Law!3. Nature!of!obligation!4. Charge!of!condition!is!imposed!upon!legatees!or!heirs!5. Imputed!by!final!judgment!upon!several!defendants!

!

a. Requisites%of%Joint%Obligations%1.!!Plurality!of!subjects!2.!!Determination!of!the!shares!in!the!demandability!of!the!fulfillment! of! the! obligation! ! ??! this! is! in! relation! to! the!debtor!with!regard!to!his!co?debtors!and!the!creditor!with!regard! to! his! co?creditors! (presupposes! a! situation! after!payment)!

!!!!


!

b. Words%used%to%indicate%joint%obligations%%1.!!Mancomunada!solidaria!2.!!Joint!and!several!3.!!In!solidum!4.!!“I!promise!to!pay…”!followed!by!the!signature!of!two!or!more!persons!5.!!“Individual!and!collectively”!!

2. KINDS!

!a. As%to%source%

,

i. Legal%%Art.!1915.!Two!or!more!principals!appointed!an!agent! for!common!transaction,!solidarily!liable!to!agent!!

Art.! 1945.! Two! or!more! bailees! to! whom! a! thing! is! loaned! in! the!same!contracts!(commodatum)!!Art.!2194.!Joint!tort!feasors!!

Art.!2146.!Joint!officious!management,!two!or!more!managers!!

Art.!2157.!Joint!payees!in!solutio!indebiti!(payment!when!obligation!not!yet!due)!!!

Art.!2047(2).!A!surety!is!solidarily!liable!with!the!principal!!

Art.!109!of!RPC.! If!there!are!two!or!more!persons!civilly!liable!for!a!felony,!the!courts!shall!determine!the!amount!for!which!each!must!respond.!,

ii. Conventional:,by!stipulation!of!parties!!iii. Real:!the!nature!of!the!obligation!so!requires!!

b. As%to%parties%bound%,

i. Active%–%solidarity!of!creditors;!each!has!right!to!collect!the!whole!of!the!prestation!from!the!common!debtor!!

%ii. Passive%–%solidarity!of!debtors;!each!is!liable!to!pay!the!

whole!to!the!common!creditor!,,

iii. Mixed%–%simultaneously!active!and!passive!!!

From!Sir!Labitag’s!Reviewer:!

!

Active!Solidarity! Passive!Solidarity!

Mutual!Agency! Mutual!Guaranty!Each! creditor! represents! the!others! in! the! act! of! receiving!payment,! and! all! other! acts!which!tend!to!secure!the!credit!!

Each! debtor! can! be! required! to!pay! the! entire! obligation;! but!after! the! payment,! he! can!recover! from! the! co?debtors!their!respective!shares!

The! death! of! a! solidary! creditor!does! not! transmit! the! solidarity!to!each!of!his!heirs!but! to!all!of!them!taken!together!

The! debtor! who! is! required! to!pay! may! set! up! by! way! of!compensation! his! own! claim!against!the!creditor!

One!creditor!does!not!represent!the!others!in!acts!prejudicial.!But!a! solidary!creditor!who!makes!a!novation,! compensation! and!remission! extinguishes! the!obligation!but!he! is! liable!to!the!others! for! the! share! in! the!obligation! corresponding! to!them!

The! total! remission! of! the! debt!in! favor! of! a! debtor! releases! all!the! debtors;! but! when! this!remission! affects! only! the! share!of!one!debtor,!the!other!debtors!are!still!liable!for!the!balance!

The! credit! and! its! benefits! are!divided! equally! among! the!creditors! unless! there! is! an!agreement! among! them! to!divide!differently!

All!the!debtors!are!liable!for!the!loss! of! the! thing! due,! even! if!such! loss! is! caused! by! the! fault!of!only!one!of!them!

Each! creditor!may! renounce! his!right! and! the! latter! need! not!thereafter! pay! the! obligation! to!the!former!

The! interruption! of! prescription!as! to! one! debtor! affects! all! the!others,! but! the! renunciation! by!one! debtor! of! prescription!already! had! does! not! prejudice!the!others!

! The! interests! due! by! reason! of!delay! of! one! of! the! debtors! are!borne!by!all!of!them!

,

c. As%to%uniformity%,

i. Uniform%–%same!terms!and!condition!for!all%,

ii. Varied/non=uniform%%

Art.! 1211.! Solidarity! may! exist! although! the! creditors! and! the!debtors!may! not! be! bound! in! the! same!manner! and! by! the! same!periods!and!conditions.!!

%• Effects!of!non[uniform!solidary! liability!only!the!portion!due!

at! the! time! of! the! demand! is! collectible! from! any! of! the!debtors!or!by!anyone!of!the!creditors!

!

Case:!!INCHAUSTI!v.!YULO!

Facts:!Gregorio!Yulo!and!his!8!siblings!are!indebted!to!Inchausti!and!Co.,! of! which! Gregorio,! representing! the! other! siblings!acknowledged! debt! (solidarily! liable)! with! a! stipulation! that! the!whole!debt!will!be!due!and!demandable!if!any!of!the!installments!is!not! paid.! The! first! installment!was! not! paid! and! Inchausti! brought!action! against! Gregorio.! Afterwards! 3! of! the! siblings! executed! a!notarial!document!which!says!that!the!debt!is!reduced.!!Held:!New!instruments!signed!by!the!parties!of!the!old!contract!do!not! destroy! solidary! nature! of! the! old! contract,! and! solidarity!may!still!exist!if!the!debtors!are!not!bound!in!the!same!manner.!!

LAFARGE!CEMENT!PHIL.!v.!CONTINENTAL!CEMENT!

Facts:! Lafarge! entered! into! a! contract! to! buy! cement! from!Continental! Cement,! the! latter! having! a! pending! case! against! APT.!The!contract!had!a!stipulation!that!if!Continental!Cement!loses,!part!of! the!payment! to!be!given!to!Continental!Cement!will!be!given!to!APT.! Continental! Cement! filed! a! case! of! preliminary! attachment!against! Lafarge,! the! latter! filing! a! compulsory! counterclaim! ad!cautelam!against!Continental!Cement,!Gregory!Lim!(president),!and!Anthony!Mariano!(secretary)!!

!!!!


Held:!The!obligation!of!Continental!Cement,!Mariano!and!Lim!arose!from!a!tort!and!joint!tort!feasors!are!solidarily!liable.!

3. EFFECTS!!a. SOLIDARY%CREDITOR%in%relation%to:%

!i. Common%debtor%

,

RIGHT%TO%DEMAND%• Debtor! may! pay! to! any! solidary! creditor,! but! if! a! judicial!

demand!is!made!against!him,!he!must!pay!only!to!the!plaintiff.!(Art!1214)!o Judicial!demand!revokes!the!tacit!mutual! representation!

of! co?creditors,! though! not! perpetually:! only! until! such!time!the!action!exists.!!

o Payment!to!creditor!who!did!not!sue!is!a!payment!to!3rd!person.!

o Same!effect!granted!to!extrajudicial!demand.!o DEMAND! BY! SEVERAL! CREDITORS:! Pay! the! one! who!

notified! him! first.! If! simultaneous,! debtor! reserves! the!right!to!choose.!!

o Does!not!apply!to!MIXED!SOLIDARITY:!solidary!co?debtor!may!pay!in!behalf!of!the!one!to!whom!demand!has!been!made!AND!to!any!of!the!solidary!creditors!

• The! demand! made, against, one! of! them! shall! not, be, an,obstacle! to! those! which! may! be! subsequently, be, directed,against, others,! so! long! as! the! debt! has! not! been! fully!collected.!(Art!1216)!

• Payment!made!by!one!of!the!solidary!debtors!extinguishes!the!obligation.! If! two!or!more!solidary!debtors!offer! to!pay,! the!

creditor!may!choose!which!to!accept.!(Art!1217(1))!• Each!creditor!may!renounce!his! right!even!against! the!will!of!

the! debtor,! and! the! latter! need! not! thereafter! pay! the!obligation!to!the!former.!!

!

%IN%CASE%OF%NOVATION,%COMPENSATION,%CONFUSION,%REMISSION%BY%A%CREDITOR%%

• Novation,! compensation,! confusion! or! remission! of! the!debt,!made!by!any!of!the!solidary!creditors!OR!with!any!of!the! solidary! debtors,! shall! extinguish! the! obligation,!without! prejudice! to! the! provisions! of! Art! 1219! i.e.!responsibility! of! a! solidary! co?debtor! with! respect! to!reimbursement!prior!to!his!remission!(Art!1215(1))!%

ii. Solidary%co=creditor/s!!

IN%CASE%OF%NOVATION,%COMPENSATION,%CONFUSION,%REMISSION%• The!creditor!who!may!have!executed!any!of! these!acts,!as!

well!as!he!who!collects!the!debt,!shall!be!liable%to%others%for%the%share!in!the!obligation!corresponding!to!them!(Art!1215!Par!2)!o Remission!done!by!several!but!not!all!of!the!creditors:!

those! who! made! it! do! not! have! action! against! each!other,!but!all!of! them! liable! for! the!share!of!one!who!does!not!remit!

!PREJUDICIAL%ACTS%PROHIBITED%

• Each!one!of!the!solidary!creditors!may!do!whatever!is!useful!to!the!others,!but!not!anything!which!may!be!prejudicial!to!the!latter.!(Art!1212)!

o E.g.! remission,! novation,! compensation! and!merger/confusion!!

o Take!note!that!the!same!act! is!permitted!by!Art!1215,!wherefore! Tolentino! concludes! that! the! provision! is!“unhappily!inaccurate”.!

o To! harmonize! with! Art! 1215:! The! prejudicial! acts! are!valid!as!to!the!debtor,!but!not!with!respect!to!the!co?creditors! whose! rights! subsists! and! can! be! enforced!against!the!creditor!who!performed!prejudicial!acts!

!ASSIGNMENT%OF%RIGHTS%NOT%ALLOWED%

• Solidary! creditor! cannot! assign! his! rights! without! the!consent!of!others!(Art!1213)!o Why?!As!a! solidary! creditor,!he! is! an!agent!of!others,!

cannot! assign! that! agency!without! the! consent! of! his!principals.! Implies! mutual! confidence! may! take! into!account!the!personal!qualification!of!each!creditor.!!

o Assignment!of!rights!allowed!as!to!co?creditor!!

!b. SOLIDARY%DEBTOR%in%relation%to:%%

!i. Common%creditor%

!OBLIGATION%TO%PERFORM%

• Each!one!of!the!solidary!co?debtor!is!bound!to!render!entire!compliance!with!the!prestations!(Art!1207)!

!,

IN%CASE%OF%NOVATION,%COMPENSATION,%CONFUSION,%REMISSION%BY%A%CREDITOR%

• Extinguishes! the! obligation! without! prejudice! to! the!responsibility! of! a! solidary! co?debtor! with! respect! to!reimbursement!prior!to!his!remission!(Art!1215(1))!

!ii. Solidary%co=debtor%

!

IN%CASE%OF%PAYMENT%BY%A%CO=DEBTOR%• Payment!by!one!of!the!solidary!co?debtors!extinguishes!the!

obligation.!(Art!1217(1))!• Solidary! co?debtor! who! paid! may! reimburse! from! his! co?

debtors!only!the!share!which!corresponds!to!each,!with!the!interest!for!the!payment!already!made,!but! if!the!payment!is!made!before!debt! is!due,!no! interest! for! the! intervening!period!may!be!demanded.!(Art!1217(3))!o Converted!into!a!Joint!Obligation!as!to!co?debtors,!but!

no! real! case! of! subrogation! because! the! old! one! is!extinguished!and!the!new!one!is!created!

o Partial! payment:! may! recover! only! insofar! as! the!payment!exceeded!his!share!of!the!obligation!!

• When! one! of! the! solidary! debtors! is! insolvent! and! cannot!reimburse,! his! share!will! be! borne! by! all! his! co?debtors! in!proportion!to!the!debt!of!each.!(Art!1217(3))!

• Payment! by! co?debtor! does! not! entitle! him! to! reimburse!from! co?debtors! if! such! payment! is! made! after! the!obligation!has!prescribed!or!become!illegal.!(Art!1218)!o Also! applies! to! prior! total! remission! in! favor! of! one!

debtor!!• The! remission! made! by! the! creditor! of! the! share! which!

affects! one! of! the! solidary! debtors! does! not! release! the!latter!from!his!responsibility!towards!the!co?debtors,!in!case!debt! had! been! totally! paid! by! anyone! of! them! before!remission!was!effected.!(Art!1219)!

!!!!


o Applies!when!one!of!the!debtors!has!already!paid!the!obligation! in! full! (in! such!a!case,! the!obligation!as! to!the!creditor!is!already!extinguished!and!nothing!more!to!remit!even!partially)!

o Relationship!of! the! creditor!with! the! solidary!debtor!does! not! extend! to! the! relationship! among! solidary!co?debtors!

• The! remission!of! the!whole!obligation,!obtained!by!one!of!the!solidary!debtors,!does!not!entitle!him!to!reimbursement!from!his!co?debtors.!(Art!1220)!

!

IN%CASE%OF%FORTUITOUS%EVENT%• If! the! thing! has! been! lost! of! if! the! prestation! has! become!

impossible!without% the% fault! of! the! solidary! debtors,! the!obligation!shall!be!extinguished!(Art!1221(1))!

• If!there!was!fault!on!the!part!of!any!one!of!them,!all!shall!be!responsible! to! the! creditor,! for! the! price! and! payment! of!damages! and! interests,! without! prejudice! to! their! action!against!the!guilty!or!negligent!debtor.!(Art!1221(2))!o Guilty! creditor! who! pays! indemnity! cannot! recover!

from!his!co?debtors.!!o Other!co?debtors!who!pay!the!indemnity!can!recover!

the!full,amount!from!the!guilty!co?debtor.!• If! through! a! fortuitous% event,! the! thing! is! lost! or! the!

performance!of!the!prestation!has!become!impossible!after!one! of! the! solidary! debtors! has! incurred% in% delay! through!the!judicial!or!extra?judicial!demand!!upon!him!by!creditor,!the!provisions!of! the!preceding!paragraph! shall! apply.! (Art!1221(3))!

!LIABILITY%IN%CASE%OF%LOSS%

!LOST! or! IMPOSSIBLE! without!

fault!/!fortuitous!event! Obligation!is!extinguished!

LOST!or!IMPOSSIBLE!with!fault!of!any!one!

All! liable! for! damages! and!interest,! but! co?debtors! have!right!against!guilty!debtor!!

LOST! or! IMPOSSIBLE! without!fault! /! fortuitous! event! but! after!any!one!incurred%in%delay!

All! liable! for! damages! and!interest,! but! co?debtors! have!right!against!guilty!debtor!

!∗ Note:! An! extension! of! time! granted! by! the! creditor! to! a!

solidary! debtor! does! not! amount! to! a! novation! that! will!discharge! the! other! solidary! debtors.! The! latter! shall! be!liable! for! the! whole! debt! less! the! share! of! the! debtor!granted! the! extension.! Upon! the! expiration! of! the! term,!the! creditor! can! demand! payment! of! the! unpaid! share!from!any!of!the!solidary!debtors.!(De!Leon)!

!Cases:!!JAUCIAN!v.!QUEROL!

Facts:!Hermenegilda!Rogero!signed!for!herself!and!as!surety!for!Lino!Dayandante! a! document! acknowledging! themselves! as! jointly! and!severally! indebted! to! Roman! Jaucian.! Jaucian! prayed! for! order!ordering! Rogero’s! estate! to! pay! for! the! debt! and! TC! dismissed!petition! on! the! ground! that! Dayandante’s! properties! should! be!exhausted!first!as!he!is!the!principal.!!Held:! Jointly! and! severally! liable! means! solidarily! liable.! “Jointly”!really!means!solidarily!in!Art.!1831!which!says!that!exhaustion!to!the!properties!of!principal!need!not!be!resorted!to!first! if!principal!and!surety!are!jointly!liable.!

RFC!v.!CA!

Facts:! Jesus! Anduiza! and! Quintana! Cano! borrowed! money! with!mortgage! on! the! house! and! lot! from! RFC! but! failed! to! pay!amortizations.!Estelito!Madrid,!who!was!staying!at!Anduiza’s!house!offered!to!pay!the!balance.!Madrid!then!filed!an!action!to!consider!the!balance!paid,!for!RFC!to!cancel!the!mortgage!and!for!Anduiza!to!repay!him.!!!Held:! Anduiza! had! impliedly! accepted! the! payments! by!Madrid! by!joining!him!in!appealing!the!decision!of!the!TC.!RFC! issued!receipts!acknowledging!the!payment!without!qualification.!!QUIOMBING!v.!CA!

Facts:! Nicencio! Quiombing! and! Dante! Biscocho! solidarily! bound!themselves! to! build! a! house! for! the! Saligo! spouses.! The! spouses!failed!to!pay!the!fee!agreed!upon,!hence!Quiombing!filed!to!collect!the! balance.! The! spouses! filed! a! motion! to! dismiss! saying! that!Biscocho! is! an! indispensible! party! and! hence! should! have! been!impleaded.!!Held:!The!concept!of!solidarity!in!terms!of!the!debtors!is!the!same!as!in!the!terms!of!the!creditors;!hence!one!may!sue!by!himself!for!the!whole!amount!due.!!!INCIONG!v.!CA!

Facts:! Rene! Naybe,! Gregorio! Pantanosas! and! Baldomero! Inciong!became! solidarily! liable! to! a! debt! to! Philippine! Bank! of!Communications.!They!failed!to!pay!so!Phil.!Bank!filed!for!collection!against! the! 3! of! them.! The! case!was! dismissed! against! Pantanosas!and!Naybe!was!in!Saudi!so!the!summons!was!only!served!to!Inciong.!!Held:! Dismissal! of! case! against! Pantanosas! and! Naybe! not! being!impleaded!would!not!release!Inciong!from!the!obligation!so!he!could!be! ordered! to! pay! the! whole! amount.! The! recourse! of! Inciong! is!against!his!creditors.!

4. DEFENSES!AVAILABLE!TO!A!SOLIDARY!DEBTOR!

!Art.1222.!A!solidary!debtor!may,!in!actions!filed!by!the!creditor,!avail!himself!of!all!defense!which!are!of!four!types!!

a. Types% %!

i. Those% derived% from% the% nature% of% the%obligation%%

• Connected!with!the!obligation!and!derived!from!its!nature!• Constitutes!a!total!defense!• E.g.! non?existence! of! the! obligation! because! of! illicit! cause,!

object!or!absolute!simulation,!nullity!due!to!defect!in!capacity!or! consent! of! all! the! debtors! (minority,! fraud! or! violence),!unenforceability! because! of! lack! of! proper! proof! under! the!Statute!of!Fraud,!non?performance!of!suspensive!condition!or!non?arrival! of! period! affecting! the! entire! obligation,!extinguishment! of! the! obligation! such! as! by! payment! and!remission,! all! other! means! of! defense! which! may! invalidate!the!original!contract!

!!!!!

!!!!


• Sir! Labitag:! Look! for! these! things! because! it! will! give! you! a!total!defense:!! !

1. Vices!of!consent!2. Cause!of!action!has!prescribed!3. Entire!obligation!is!void!4. Voidable!at! the! instance!of! “all!of! them”,!BUT! if! just!one,!you!can!use!the!defense!as!well!

!ii. Personal%defenses%

%• Total! defense! e.g.! minority,! insanity,! fraud,! violence,!

intimidation!(sufficient!causes!to!annul!consent)!!• Partial! defense! e.g.! special! terms! or! conditions! affecting! his!

part!of!the!obligation!!!

iii. Defenses%pertaining%to%his%share%%

• Partial!defense!!

• E.g.!may! share! is! not! yet! due,! so! you! can! only! compel!me! to!give!the!share!of!the!co?debtors!

!iv. Those% personally% belonging% to% the% other%

co=debtors! "! avail! himself! thereof! only! as!regards!that!part!of!the!debt!for!which!the!latter!are!responsible!!!

• Partial!defense!only!for!the!debtor?defendant!• E.g.! the! co?debtor’s! share! is! not! yet! due,! so! you! can! only!

compel!me!to!give!my!share!5.!!!!!In!suretyship,!the!effect!of!extension!given!to!the!principal!debtor! without! the! consent! of! the! surety! is! to! extinguish! the!contract!of!suretyship!(De!Leon)!!

b. Effects%of%the%defenses%1. If! derived! from! the! nature:! all! the! solidary! co?

debtors!are!benefited!!2. If!personal!one:!only!him!benefited!(exclusively)!3. If!personally!to!the!co?debtor:!partial!defense!

!Case:!!

INCHAUSTI!v.!YULO!

Facts:!supra!!Held:!Remission!of!any!part!of!the!debt!made!by!creditors!in!favor!of!one! or! more! solidary! debtors! inures! to! the! benefit! of! the! other!solidary!debtors.!!Gregorio!cannot!set!up!defense!of!prematurity!as!it!was!personal!to!the!3!siblings!who!signed!the!new!document,!but!since!the!shares!of!the!3!are!not!yet!mature,!only!the!mature!part!of!the!obligation!(1st!installment)!should!be!paid!by!Gregorio.!!ALIPIO!v.!CA!

Facts:!Romero!Jaring,!a!lessee,!subleased!a!part!of!a!fishpond!to!the!spouses! Alipio! and! spouses! Manuel! wherein! all! 4! signed! the!contract.! There!was! a! failure! to! pay! the! second! installment! hence!Jaring!filed!for!collection!against!the!4!sublessees!which!was!granted!!Held:!There!was!an!error!in!the!judgment!of!the!TC!as!it!did!not!even!say! if! the!Alipio’s!and! the!Manuel’s!were! jointly!or! solidarily! liable.!Since! it! is! silent,! joint! liability! will! be! presumed.! There! were! no!allegations!that!the!sublessees!refused!to!vacate!the!fishpond!after!expiration!of!sublease!so!they!could!not!be!held!as!joint!tort!feasors.!

C. Joint(Indivisible(Obligations(

1. CONCEPT!

!Art.!1209.!Their!tie!is!joint,!but!the!performance!is!indivisible.!One!in!which! the! object! of! the! object! or! prestation! is! indivisible,! not!susceptible!of!division;!while!the!tie!between!the!parties!is!joint,!that!is!liable!only!to!a!proportionate!share.!

!# Several! creditors! or! debtors! but! the! prestation! is! indivisible,!

obligation!is!joint!unless!solidary!has!been!stipulated!# Midway!between! joint! (no!creditor!can!do!prejudicial!acts! to!

others,!no!debtor!can!be!made!to!answer!for!the!others)!and!solidarity! (fulfillment! requires! the! concurrence! of! all! the!debtors,! collective! action! is! expressly! required! for!prejudicial!acts)!

# Sir! Labitag’s! example:! obligation! to! assemble! a! jeepney!between! three! different! specialist:! mechanic,! welder,!upholsterer!or!car!painter.!!

2. INDIVISIBILITY!DISTINGUISHED!FROM!SOLIDARITY!

!Art.!1210.!The!indivisibility!of!an!obligation!does!not!necessarily!give!rise!to!solidarity.!Nor!does!solidarity!of!itself!imply!indivisibility.!

!

INDIVISIBILITY! SOLIDARITY!

Each! creditor! cannot! demand!more! than! his! share! and! each!debtor! is! not! liable! for! more!than!his!share!

Each! creditor! may! demand! the!full! prestation! and! each! debtor!has!the!duty!to!comply!with!the!entire!prestation!!

Indivisibility! refers! to! the!prestation! that! is! not! capable!of!partial,performance!

Solidarity! refers! to! the! legal, tie,or, vinculum! defining! the! extent!of!liability!!

Only! the! debtor! guilty! of!breach!of!obligation!is!liable!for!damages,! thereby! terminating!the!agency!!

All! of! the! debtors! is! liable! for!the! breach! of! obligation!committed! by! any! one! of! the!debtors!

Can! exist! even! if! there! is! only!one!debtor!or!only!one!creditor!

Can! only! exist!when! there! is! at!least! creditor! or! debtors!!(requires!plurality!of!subjects)!!

The!other!debtors!are!not!liable!in! case! of! insolvency! of! one!debtor!!

The! other! debtors! are!proportionately! liable! in!case!of!insolvency!of!one!debtor!

3. EFFECTS!

!Art.!1209.!If!the!division!is!impossible,!the!right!of!the!creditors!may!be!prejudiced!only!by!their!collective!acts!

!1. Creditors!prejudiced!only!by!their!collective!acts!2. Co?debtors!not!liable!for!the!share!of!the!insolvent!debtor!3. Creditor!must! proceed! against! all! the! joint! debtors,! because!

the!compliance!of!the!obligation!is!possible!only!if!all!the!joint!debtors!would!act!together.!

4. If! one! of! the! debtors! cannot! comply,! the! obligation! is!converted!into!monetary!consideration!(liability!for!losses!and!damages).!One!who!is!ready!and!willing!to!comply!will!pay!his!proportionate! share! plus! damages! when! his! financial!condition!improves.!!

5. Debtor!must!deliver!to!all! the!creditors.! If!he!delivers!to!only!one,! liable! for! non?performance! as! to! other! creditors.!Damages! are! divisible! and! each! creditor! can! recover!separately!his!proportionate!share.!

!!!!


4. LIABILITIES!IN!CASE!OF!BREACH!

!Art.1224.! A! joint! indivisible! obligation! gives! rise! to! indemnity! for!damages!from!the!time!anyone!of!the!debtors!does!not!comply!with!his! undertaking.! The! debtors! who! may! have! been! ready! to! fulfill!their! promises! shall! not! contribute! to! the! indemnity! beyond! the!corresponding!portion!of!the!price!of!the!thing!or!of!the!value!of!the!service!which!the!obligation!consists.!

!1. Gives!rise!to!indemnity!for!damages,!non?compliance!with!

undertaking!2. Debtors!ready!to!fulfill!shall!not!be!liable!

V. Divisible( and( Indivisible(Obligations(

A. Divisible(Obligations(

1. CONCEPT!!One!which!is!susceptible!of!partial!performance;!debtor!can!legally!perform! the!obligation!by!parts! and! the! creditor! cannot!demand!a!single!performance!of!the!entire!obligation.!!

# DIVISIBILITY! OF! THINGS! different! from! DIVISIBILITY! OF!OBLIGATIONS!

o Divisible,Thing:!When!each!one!of!the!parts!into!which! it! is! divided! forms! a! homogenous! and!analogous!object!to!the!other!parts!as!well!as!to!the!thing!itself!

o Indivisible, Thing:!When! if! divided! into! parts,! its!value!is!diminished!disproportionately!!

# Test,of,Divisibility%1. Will!or!intention!of!the!parties!!2. Objective!or!purpose!of!the!stipulated!prestation!!3. Nature!of!the!thing!4. Provisions!of!law!affecting!the!prestation

2. EFFECTS!

!Art.! 1223.! The!divisibility! or! indivisibility! of! the! things! that! are! the!object!of!obligations!in!which!there!is!only!one!debtor!and!only!one!creditor!does!not!alter!or!modify!the!provisions!of!Chapter!2!of!this!Title!(Nature!and!Effect!of!Obligations).!!!Art.!1233.!A!debt!shall!not!be!understood!to!have!been!paid!unless!the! thing! or! service! in! which! the! obligation! consists! has! been!completely!delivered!or!rendered!as!the!case!may!be.!

3. KINDS!(DE!LEON)!a. Qualitative! Division! –! based! on! quality! and! not! the!

number!of!objects!• Eg.! A! and! B! are! heirs! and! agreed! to! divide! the!inheritance!with!A!receiving!the!house!and!lot!and!B!receiving!the!car!and!rice!fields!

b. Quantitative!Division!–!based!on!number!of!things!• Eg.!Divide!equally!between!two!creditors!300!cavans!of!rice!

c. Ideal!of!Intellectual!Division!–!exists!only!in!the!minds!of!the!parties!• Eg.! The! shares! of! two! co?owners! of! a! car! are! not!materially!separable!but!only!mentally!

B. Indivisible(Obligations(

1. CONCEPT!Whatever!may! be! the! nature! of! the! thing!which! is! the! object!thereof,!when!it!cannot!be!validly!performed!in!parts.!!

2. KINDS!%

a. Natural%!

Art.!1225(1).!For!the!purposes!of!the!preceding!articles,!obligations!to! give! definite! things! and! those! which! are! not! susceptible! of!partial!performance!shall!be!deemed!to!be!indivisible.!!!

1. Obligation!to!give!definite!things!2. Not!susceptible!of!partial!performance!

%b. Legal%%

!

Art.! 1225(3).! However,! even! though! the! object! or! service!may! be!physically!divisible,!an!obligation! is! indivisible! if!so%provided%by%law!or!intended!by!parties.!!

,

c. Conventional% %!

Art.! 1225(3).! However,! even! though! the! object! or! service!may! be!physically!divisible,!an!obligation! is! indivisible! if! so!provided!by! law!or!intended%by%parties.!!

4. PRESUMPTIONS!

!a. Of%indivisibility%

!

Art.!1225(1).!For!the!purposes!of!the!preceding!articles,!obligations!to!give!definite!things!and!those!which!are!not!susceptible!of!partial!performance,shall!be!deemed!to!be!indivisible.!!

# Presumption! of! indivisibility! also! applies! in! obligations! to!do!!

!b. Of%divisibility%%

!

Art.!1225(2.)!When!the!obligation!has!for!its!object!the!execution!of!certain! number! of! days! of! work,! the! accomplishment! of! work! by!metrical! units! or! analogous! things! which! by! their! nature! are!susceptible!of!partial!performance,!shall!be!divisible.!!!!5. DIVISIBILITY!AND!INDIVISIBILITY!IN!OBLIGATIONS!NOT!TO!DO!!

Art.!1225(4).!In!obligations!not!to!do,!divisibility!or!indivisibility!shall!be!determined!by!the!character!of!the!prestation!in!each!particular!case.!!

6. EFFECTS!!

1. Art.!1223.!The!divisibility!or!indivisibility!of!the!things!that!are! the! object! of! obligations! in! which! there! is! only, one,debtor,and,only,one,creditor!does!not%alter%or%modify!the!provisions!of!Chapter!2!of! this!Title! (Nature!and!Effect!of!Obligations).!!

2. Art.! 1233.! A! debt! shall! not! be! understood! to! have! been!paid! unless! the! thing! or! service! in! which! the! obligation!consists!has!been!completely%delivered%or%rendered!as!the!case!may!be.!

!!!!


i. EXCEPTIONS:!!a. Obligation! has! been! substantially! performed!

in!good!faith!(Art.!1234.)!b. When! the! creditor! accepts! performance,!

knowing! its! completeness,! and! without!protest,! the! obligation! is! deemed! fully!performed!(Art.!1235.)!

3. Art.! 1224.! A! joint! indivisible! obligation! gives! rise! to!indemnity, for, damages! from! the! time! anyone! of! the!debtors! does! not! comply! with! his! undertaking.! The!debtors!who!may!have!been!ready!to!fulfill!their!promises!shall! not% contribute% to% the% indemnity! beyond! the!corresponding! portion! of! the! price! of! the! thing! or! of! the!value!of!the!service!which!the!obligation!consists.!

4. See,Joint,Indivisible,Obligations!

7. CESSATION!OF!INDIVISIBILITY!a) Natural, Indivisibility:! conversion! of! the! obligation! to! pay!

damages!b) Conventional/Legal, Indivisibility:! novation,! death! of!

creditor!(division!among!heirs)!!

Entire,and,Severable,Contracts!–!depends!upon!the!consideration!to!be!paid,!not!upon!its!object!

• Not! in! the! syllabus! but! Sir! mentioned! in! passing! during!lecture!

• ENTIRE!–!consideration!is!entire!and!single;!e.g.!Sir!Labitag:!yearly!subscription!to!Herald!Tribune!

• SEVERABLE! –! consideration! is! expressly! or! by! implication!apportioned;! e.g.! part! to! be! performed! by! one! party!consists! in! several! distinct! and! separate! items,! and! the!price!is!apportioned!to!each!of!them!!!

VI. Obligations*with*a*Penal*Clause*A. Concept(

!• It!is!an!obligation!that!contains!an!accessory!undertaking!to!

pay! a! previously! stipulated! indemnity! in! case! of! breach! of!the! principal! obligation,! intended! primarily! to! induce! its!

fulfillment.!• The!object!of! the!penal!clause! is!generally!a!sum!of!money!

but!it!can!be!any!other!thing!stipulated!by!the!parties,!such!as!an!act!or!abstention.!

• The!penal!clause!may!have!reparation%OR!punishment!as!its!purpose.!The!purpose!is!material!in!determining!the!question!of!damages.!o Reparation! –! the! penal! clause! replaces! the! claim! for!

damages;!the!object!of!the!penal!clause!now!represents!the! estimate! of! the! damages! that! a! party!might! suffer!from! non?performance! of! the! obligation.! The! penal!clause!may!be!enforced!without! the!proof!of!damages!

from! the!prejudiced!party!and!even! if! the!value!of! the!object! of! the! penal! clause! be! greater! than! that! of! the!value!of!the!actual!damages.!

o Punishment! –! the! injured! party’s! right! to! claim! for!

damages! remains! and! is! demandable! along! with! the!penal!clause.!

• The!penal!clause!is!to!be!construed!strictly.!!

1. PRINCIPAL! OBLIGATIONS! AND! ACCESSORY! OBLIGATIONS!

DISTINGUISHED!

%PRINCIPAL%OBLIGATION%"! an! obligation! that! can! stand! by!itself! and! does! NOT! depend! on! another! obligation! for! its!validity!and!existence.!!!ACCESSORY%OBLIGATION%"!an!obligation!which!is!attached!to!a!principal!obligation!and!cannot!stand!alone.!

!2. DISTINGUISHED!FROM!CONDITIONAL!OBLIGATIONS!

!AS!TO! OBLIGATIONS!WITH!A!

PENAL!CLAUSE!

CONDITIONAL!

OBLIGATION!

Existence!of!Obligation!

Certain;!one!already!exists!(principal!obligation)!

Uncertain;!no!obligation!exists!prior!

to!fulfillment!of!suspensive!condition!

Dependence! The!penal!clause!is!dependent!(accessory!obligation)!on!the!non?performance!of!the!principal!obligation!

The!principal!obligation!itself!is!dependent!

upon!the!happening!of!an!uncertain!event!

!

3. DISTINGUISHED!FROM!ALTERNATIVE!OBLIGATIONS!


PENAL!CLAUSE!

ALTERNATIVE!

OBLIGATION!

Prestations! Only!one!exists!and!must!be!performed!

(principal);!otherwise,!the!penalty!clause!

becomes!enforceable!

There!are!two!or!more!prestations!but!

performing!one!of!them!is!sufficient!

Impossibility! The!impossibility!of!the!principal!obligation!will!also!extinguish!the!

penal!clause!

Impossibility!of!one!of!the!prestations!will!not!

invalidate!the!obligation!for!the!others!subsist!

Choice! The!debtor!may!not!choose!to!perform!the!obligation!imposed!by!the!penal!clause!to!relieve!himself!of!the!principal!(unless!such!right!is!expressly!

granted)!

The!debtor!may!choose!which!prestation!to!

comply!with!!

!

!

!

!

!

!

!

!

!

Art.!1226,!Par.!1.!In!obligations!with!a!penal!clause,!the!penalty!shall!substitute!the!indemnity!for!damages!and!the!payment!of!interests!in!case!of!noncompliance,!if!there!is!no!stipulation!to!the!contrary.!Nevertheless,!damages!shall!be!paid!if!the!obligor!

refuses!to!pay!the!penalty!or!is!guilty!of!fraud!in!the!fulfillment!of!the!obligation.!

!!!!


4. DISTINGUISHED!FROM!FACULTATIVE!OBLIGATIONS!


PENAL!CLAUSE!

FACULTATIVE!

OBLIGATION!

Availability!of!Right!to!Choose!

The!debtor!will!only!acquire!the!right!when!it!is!expressly!granted!

The!right!of!the!debtor!to!choose!is!absolute!

Demandability!of!Both!

Prestations!

If!the!penalty!is!complementary!in!nature,!it!can!be!

demanded!WITH!the!principal!obligation!

Creditor!cannot!demand!both!nor!the!substitute;!only!the!principal!prestation!may!be!demanded.!

!

5. DISTINGUISHED!FROM!GUARANTY!

!AS!TO! OBLIGATIONS!WITH!

A!PENAL!CLAUSE!

GUARANTY!

Object/Prestation! The!object/prestation!of!the!principal!

differs!from!that!of!the!penal!clause!

The!obligation!of!principal!debtor!and!the!obligation!of!a!third!person!as!

guarantor!deal!with!the!same!

object/prestation!Assumption!of!Obligation(s)!

The!principal!obligation!and!the!penal!clause!can!be!assumed!by!the!SAME!person!

Cannot!be!assumed!by!the!same!person;!a!debtor!cannot!be!his!own!guarantor!

Defects! The!nullity!of!the!principal!obligation!extinguishes!the!penal!clause!

!Exception:!if!the!

penal!clause!is!to!be!assumed!by!a!third!person,!it!will!not!be!

extinguished!

The!obligation!as!a!guarantor!will!subsist!even!if!the!obligation!

is!voidable,!unenforceable!or!is!a!natural!obligation.!

!

B. Kinds(of(Penal(Clauses(!

1. AS!TO!EFFECT!!

a. SUBSIDIARY%"!only!the!penalty!clause!can!be!enforced.!!

b. COMPLEMENTARY/CUMULATIVE% "! both! the!principal!obligation!and!the!penal!clause!can!be!enforced!%

2. AS!TO!SOURCE!!

a. CONVENTIONAL%"! it! is!provided!for!by!the!stipulation!of!the!parties!

!b. LEGAL%"!it!is!provided!for!by!law!

%%%

3. AS!TO!PURPOSE!%

a. PUNITIVE% "! the! penal! clause! is! imposed! as! a!punishment!for!breach!of!the!principal!obligation!

!b. REPARATORY% "! the! penal! clause! is! imposed! as! a!

replacement!for!damages!%

C. Demandability(of(Penalty(!

Art.!1226,!Par.!2.!The!penalty!may!be!enforced!only!when!it!is!

demandable!in!accordance!with!the!provisions!of!this!Code.!!• The!penal!clause!becomes!demandable!only!when!the!non?

performance!of!the!principal!obligation!is!due!to!the!fault!or!fraud!of!the!debtor!

• In!the!non?performance!of!the!principal!obligation,!the!fault!of! the! debtor! is! presumed.! The!debtor! has! the! burden! of!proof! to! show! that! he! was! not! the! cause! of! the! non?performance! (i.e.,! fortuitous! event! or! fault! of! the! creditor!himself)!

• In!an!obligation!with!two!or!more!debtors,!the!divisibility!of!the!principal!obligation!will!not!equate!to!the!divisibility!of!

the! penalty;! the! principal! obligation! may! be! joint! but! the!penalty! can!be! joint! (each! co?debtor!must!pay!his! share! in!the!penalty)!or!solidary!(the!whole!penalty!can!be!enforced!against!any!of!the!solidary!debtors).!o However,! if! the!debtors!are! solidary!co?debtors!of!each!

other,!the!penalty!must!be!enforced!in!its!entirety.!!

Art.!1228.!Proof!of!actual!damages!suffered!by!the!creditor!is!not!necessary!in!order!that!the!penalty!may!be!demanded!

!• The!article!only!applies!when!the!penal!clause!is!reparatory,

(the! penalty! replaces! the! indemnity! for! damages).! Should!the!penal!clause!be!punitive,(indemnity!for!damages!can!still!be!claimed!along!with!the!penalty),!the!creditor!must!prove!the!amount!of!damages!he!is!asking!for.!

D. Effects(of(Penal(Clause(!

1. BECOMES!A!SUBSTITUTE!FOR!INDEMNITY!FOR!DAMAGES!AND!

PAYMENT!OF!INTEREST!IN!CASE!OF!NON[COMPLIANCE!!

a. EXCEPTION! (Art! 1226! Par.! 1):! “…unless! there! is! a!stipulation!to!the!contrary.”!

!Cases:!MAKATI!DEV’T!CORP!v.!EMPIRE!INSURANCE!CO.!

Facts:! Makati! Dev’t! Corp! (MDC)! sold! a! piece! of! land! to! a! certain!Andal!and!part!of!the!provisions!of!the!deed!of!sale!was!that!Andal!should!build!a!house!within! two!years! from! the! stipulated!date.! In!compliance,! Andal! gave! a! surety! bond! worth! P12,000! to! MDC!wherein! he! (as! the! principal)! was! jointly! and! severally! liable! with!Empire!Insurance!(as!a!surety).!Andal!however!sold!the!land!and!no!house! was! built! within! the! two?year! period,! though! construction!was! began! after! the! lapse! of! the! period.! The! trial! court! found! for!MDC! but! lessened! the! penalty! from! P12,000! to! P1,500.! MDC!appealed!the!amount.!

!

!!!!


Held:! The! provision! providing! for! the! P12,000! penalty! is! a! penal!obligation! which! takes! place! of! payment! of! damages! and! interest!when! there! is! non?compliance.! MDC! is! entitled! to! such! penalty!without! proving! the! damages! incurred.! However,! the! court! was!correct!in!reducing!the!amount!of!the!damages!in!view!of!the!partial!performance! (that! the! construction!was! started! after! the! lapse);! it!correctly!applied!Article!1229.!Decision!affirmed.!

!TAN!v.!CA!

Facts:! Tan! obtained! two! loans! (evidenced! by! their! respective!promissory!notes)! from!the!CCP,! to!the!total!amount!of!P4!million.!Tan! defaulted! but! the! debt! was! later! on! restructured! (new!promissory!note!with!a!balance!of!P3.4!million!which!is!payable!in!5!installments!with!14%!interest;!an!added!provision!was!that!2%!per!month!rate!of!surcharge!will!apply!upon!default!of!Tan!in!paying!and!that! such! surcharge!will! be! compounded! to! the! stipulated! interest!rate).!Tan!again!defaulted!and!twice!tried!to!propose!the!restructure!of!the!debt!again!but!were!unanswered!and,!later!on,!rejected.!CCP!filed! suit.! The! trial! court! and! the!CA!both! found! for!CCP;! as! to! the!computation,!the!court!applied!the!penalty!(2%!monthly!surcharge)!on! the! principal! amount! (P3.4!million)! and! the! interest! therefrom!(14%).! Tan!appealed,! inter! alia,! such! computation,! arguing! there! is!no!legal!basis.!

!Held:! Decision! affirmed! with!modification.! Firstly,! the! court! noted!that! the! promissory! note’s! clear! provisions! allowed! the!compounding! of! such! interests.! The! 14%! stipulated! interest! is! the!monetary! interest! and! is! allowed! by! Article! 1956,! while! the! 2%!monthly! surcharge!has! the!nature!of! a!penalty! and! is! governed!by!the! articles! on! obligations! with! a! penal! clause.! Such! penalty! is!distinct! from! the!monetary! interest.!And!an!obligation!with! such!a!penalty,!apart!from!that!of!a!stipulated!monetary!interest!is!allowed!under! Article! 2209.! However,! given! that! the! 2%! interest! which! is!monthly!compounded! is!unconscionable,! it! is! reduced!by! the!court!to! the! legal! rate!of! interest:! 12%!per! annum.! Such! legal! interest! is!still! applicable! to! the! 14%!monetary! interest,! as! such! was! agreed!upon!by!the!parties.!

!COUNTRY!BANKERS!INSURANCE!v.!CA!

Facts:! Sy! and! OVEC! (a! corporation)! entered! into! a! lease! contract!involving! OVEC! leasing! 3! of! its! theaters! to! Sy;! Sy! deposited! the!amount! of! P290,000! in! compliance! with! ! forfeiture! clause! in! the!lease! agreement.! However,! Sy! eventually! fell! into! arrears! with!respect!to!his!rent,!payment!of!amusement!taxes!and!the!payment!of! the! increase! in! rent.! OVEC! ended! up! padlocking! the! leased!premises! but! Sy! was! able! to! secure! (by! posting! a! bond)! a! writ! of!preliminary!injunction.!In!the!case!in!the!trial!court,!it!was!decided!in!favor!of!OVEC,!ordering!Sy!to!pay!damages!along!with!his!arrears!in!rent! and! amusement! taxes.! The! deposit!was! forfeited! in! exchange!for!the!total!value!of!the!increase!in!rent!that!Sy!was!unable!to!pay.!!Sy!appealed,!inter!alia,!the!validity!of!the!forfeiture!clause!given!that!damages!were!already!awarded!while!OVEC!appealed!the!ruling!that!the! forfeited! deposit! would! serve! as! the! payment! for! the! unpaid!increase! in! rent! (whose! value! was! greater! than! the! forfeited!deposit).!!

!Held:! The! forfeiture! clause! (a! penal! clause! by! nature)! was!considered!valid.!Generally,!the!penalty!substitutes!for!the!payment!of! damages! and! interest! in! case! of! non?compliance.! There! are!exceptions!however:! (a)! contrary! is!expressly! stipulated,! (b)!debtor!refuses!to!pay/comply!with!the!penalty!and!(c)!the!debtor!is!guilty!of!fraud.!The! forfeiture!clause! falls!under! the!said!exception!as! it!was!expressly! stipulated! therein! that! it! may! be! forfeited! without!prejudice!to!any!other!obligation!still!owing.!Decision!affirmed.!

2. WILL! NOT! EXEMPT! DEBTOR! FROM! PERFORMANCE! OF! THE!

PRINCIPAL!OBLIGATION!

!Art!.1227.!The!debtor!cannot!exempt!himself!from!the!performance!of!the!obligation!by!paying!the!penalty,!save!in!the!case!where!this!right!has!been!expressly!reserved!for!him…!

!• Performing! the!penalty!will! not!absolve! the!debtor!of!his!

duty!to!perform!the!principal!obligation!because!the!penal!clause!is!not!the!one!due.!

• EXCEPTION:! “…save! in! the!case!where! the! right!has!been!expressly!reserved!for!him.”!

!3. CREDITOR!CANNOT!DEMAND!BOTH!THE!PERFORMANCE!AND!

PENALTY!AT!THE!SAME!TIME!

!Art.!1227.!…!Neither!can!the!creditor!demand!the!fulfillment!of!the!obligation!and!the!satisfaction!of!the!penalty!at!the!same!time,!unless!this!right!has!been!clearly!granted!him. However,!if!after!the!creditor!has!decided!to!require!the!fulfillment!of!the!obligation,!the!performance!thereof!should!become!impossible!without!his!fault,!the!penalty!may!be!enforced.!

!• Where!the!creditor!has!been!given!the!choice!of!enforcing!

the! principal! obligation! or! the! penalty,! he! cannot! have!both!at!the!same!time.!a. Where!there!is!performance!"!if!the!obligation!has!

been!fulfilled,!there!will!be!no!need!for!the!penalty!to! be! enforced! or! even! demanded.! The! exception!arises! when! the! right! is! “clearly! granted”! him.! In!effect,! the! article! connotes! that! as! a! general! rule,!the! penal! clause! is! subsidiary! and! not! joint! in!nature.!• Note:! the! phrase! “clearly! granted”! does! not!

require! an! express! grant;! inferences! and!

presumptions! may! be! made,! provided! that!they!have!their!basis!in!evidence.!

b. Where! there! is! no!performance!"! In! case!of! non?compliance,! the! creditor! may! require! specific!performance!OR!ask!for!the!penalty.!These!remedies!are!neither!cumulative!nor!successive.!• EXCEPTION:! If! the! creditor! has! chosen! the!

performance! of! the! principal! obligation! and!such!performance!becomes!impossible!without!his!fault,!he!may!enforce!the!penalty.!

!

4. CREDITOR! CANNOT! COLLECT! OTHER! DAMAGES! IN!

ADDITION!TO!THE!PENALTY!

!

!

!

!

Art.!1226,!Par.!1.!In!obligations!with!a!penal!clause,!the!penalty!shall!substitute!the!indemnity!for!damages!and!the!payment!of!interests!in!case!of!noncompliance,!if!there!is!no!stipulation!to!the!contrary.!Nevertheless,!damages!shall!be!paid!if!the!obligor!

refuses!to!pay!the!penalty!or!is!guilty!of!fraud!in!the!fulfillment!of!the!obligation.!

!!!!


a. EXCEPTIONS%(Art%1226):%1. There!is!an!express!provision!to!that!effect!2. The! debtor! refuses! to! pay/comply! with! the!

penalty!3. Debtor! is! guilty! of! fraud! in! the! performance! of!

the!obligation.!

E. When(Penalty(Will(Be(Equitably(Reduced(!

Art.!1229.!The!judge!shall!equitably!reduce!the!penalty!when!the!principal!obligation!has!been!partly!or!irregularly!complied!with!by!the!debtor.!Even!if!there!has!been!no!performance,!the!penalty!may!

also!be!reduced!by!the!courts!if!it!is!iniquitous!or!unconscionable.!

!• Partiality,of! the! performance! refers! to! the! extent! of! the!

fulfillment!of!the!obligation!while!irregularity,refers!to!the!manner!in!which!the!obligation!is!fulfilled.!

• The!courts!also!have!the!discretion!to!reduce!the!penalty!when!it!is!iniquitous,or,unconscionable.!

a. It! has! been! held! that! while! stipulated! rates! of! interest! in!obligations! to! pay! a! sum! of! money! are! not! penal! clauses! by!nature,! they! may! also! be! reduced! if! they! are! iniquitous! or!unconscionable!

b. EXCEPTION:! The! article! will! not! apply! to! surcharges! on! taxes!that! are! due! for! they! are! of!mandatory! character! against! the!taxpayer.!

F. Nullity(of(Principal(Obligation(or(Penal(Clause(!

Art.!1230.!The!nullity!of!the!penal!clause!does!not!carry!with!it!that!of!the!principal!obligation.!!The!nullity!of!the!principal!obligation!carries!with!it!that!of!the!penal!clause.!

!• An!obligation!and!its!penal!clause!shares!the!relationship!of!

a!principal!obligation!and!an!accessory!obligation!o The!existence!of!the!accessory!obligation!depends!upon!

the!principal!while!the!principal!obligation!can!stand!on!its!own.!

o Nullity!of!the!principal!obligation,!as!a!general!rule,!also!nullifies! the! penal! clause.! There! are! however,!exceptions:!! The! penalty! is! undertaken! by! a! third! person!

precisely! for! an! obligation! that! is! unenforceable,!voidable,!or!natural;!this!is!a!form!of!guaranty!

! If!the!nullity!of!the!principal!obligation!gives!rise!to!a! liability! of! the! debtor! for! damages,! the! penalty!may!be!enforced!as!a!substitute!for!damages.!

o A!penal!clause!may!be!void!because!it!is!contrary!to!law,!morals,! public! order! or! public! policy.! In! such! a! case,!nullity! of! the! penal! clause! will! not! invalidate! the!principal! obligation.! Should! there! be! non?performance,!damages!will! be!determined!as! if! no!penal! clause!had!

existed.!

!!

CHAPTER(4:((EXTINGUISHMENT(OF(

OBLIGATIONS(

I. Modes*of*Extinguishment*(

Art.!1231.!Obligations!are!extinguished:!1. By! payment! or! performance! –! most! natural! way! of!

extinguishing!obligation!!2. By!loss!of!the!thing!due!or!Impossibility!of!performance!!3. By!condonation!or!Remission!of!the!debt!4. By! confusion! or! Merger! of! the! rights! of! the! creditor! and!

debtor!!5. By!compensation!6. Novation!!Other! causes!of! extinguishment!of! obligations,! such! as! annulment,!rescission!,! fulfillment!of! resolutory! condition,! and!prescription,! are!governed!elsewhere!in!this!Code.!

!• Additional! miscellaneous! causes! from! Sir! Labitag,! Tolentino,!

and!De!Leon!o Arrival!of!resolutory!period!o Compromise!o Mutual,dissent!(opposite!of!mutual!agreement)!o Death! –! extinguishes! obligations! which! are! of! a! purely!

personal!character,!apart!from!its!extinctive!effect!in!some!contracts!such!as!partnership!and!agency!!

o Renunciation!by!the!creditor!o Abandonment!e.g.!Art!662! (abandonment!of! interest! in!a!

party!wall)!and!abandonment!of!a!vessel!under!the!code!of!commerce!!

o Insolvency! –! does! not! extinguish! obligation! unless!judicially!declared!and!a!discharge!was!given!him.!!

o Impossibility!of!fulfillment!o Happening!of!a!fortuitous!event!

II. Payment*or*Performance*

A. Concept!!Fulfillment!of!the!prestation!due,!a!fulfillment!that!extinguishes!the!obligation! by! the! realization! of! the! purposes! for! which! it! was!constituted.!In!law,!payment!and!performance!are!synonymous!

• Juridical!act!which! is!VOLUNTARY,!LICIT,!and!MADE!WITH!THE!INTENT!TO!EXTINGUISH!THE!OBLIGATION!!

B. Requisites(of(a(Valid(Payment((1. WHO!CAN!PAY!

2. TO!WHOM!PAYMENT!MAY!BE!MADE!

3. WHAT!IS!TO!BE!PAID!(“IDENTITY”)!

4. HOW!IS!PAYMENT!TO!BE!MADE!(“INTEGRITY”)!!

!

!

!!!!


KINDS!OF!PAYMENT:!

• Normal! –! debtor! voluntarily! performs! the! prestation!stipulated!!

• Abnormal! –! debtor! is! forced! by! means! of! judicial!proceeding,! either! to! comply! with! the! prestation! or! pay!indemnity!

!

Why!do!you!pay?!Biggerconsequences!if!you!don’t!pay,!the!creditor!will! file! action! for! collection! then! the! sheriff! will! levy! upon! your!other!properties!!!

What!are!the!elements/characteristics!of!a!valid!payment?!1) Identity!–!what!is!to!be!paid,!payment!should!be!the!

very! same! obligation/prestation! promised! to! be!performed/not! performed.! The! burden! of! proving!extinguishment! by! payment! devolves! upon! the!debtor!who!claims!payment!

2) Integrity! –! how! payment! should! be!made,! it! should!be! complete! (not! only! specific! thing! but! all! of! its!accessions! and! accessories)! Partial! or! irregular!performance! will! not! extinguish! an! obligation! as! a!general!rule!

!

Can! anybody! pay?! YES,! as! long! as! his! payment! has! integrity! and!identity!and!the!creditor!accepts!it!as!a!valid!tender!of!payment!

%1. WHO!CAN!PAY!

!a. In% general% (creditor! cannot! refuse! valid! tender! of!

payment)%a) Debtor!b) Anyone!acting!on!his!behalf!

1. Duly!authorized!agent!or!representatives!2. Heirs! (means! that! debtor! is! dead,! if! alive,!

they! would! be! third! persons! interested! in!obligation)!!

3. Successors!in!interest!and!assignees!!

b. Third% person% who% is% an% INTERESTED% PARTY%(creditor!cannot!refuse!valid!tender!of!payment)%i. %Meaning%of%INTERESTED%PARTY%–!interested!

in!the!extinguishment!of!the!obligations!such!as%a) Co?debtors!b) Sureties!c) Guarantors!d) Owners!of!mortgaged!property!or!pledge!

%ii. Effects% of% Payment% by% 3rd% Person% –%

Interested%!Art.! 1302! (3).!When! even!without, the, knowledge, of, the, debtor,! a!person! interested% in% the% fulfillment!of! the!obligation!pays,!without!prejudice!to!the!effects!of!confusion!as!to!the!latter’s!share.!

%Effects!of!payment!by!3

rd!person:!

1. Valid!payment;!obligation!extinguished!2. Debtor!to!reimburse!fully!3rd!person!interested!3. 3rd!person!subrogated!to!the!rights!of!the!creditor!!!%

c. Third% person% who% is% NOT% AN% INTERESTED%PARTY%but%WITH%CONSENT%of%debtor%

,

Art.! 1302,! Par.! 2.! When! a! third! person,! not! interested! in! the!obligations,!pays!with!the!express!or!tacit!approval!of!the!creditor.!!

,

Art.! 1236.! Par.! 1.! The! creditor% is% not% bound% to%accept! payment!or!performance!by!a!third!person!who!has!no!interest!in!the!fulfillment!of!the!obligation,!unless!there!is!a!stipulation!to!the!contrary.!!%

i. Effects% of% Payment% by% 3rd% Person% –% Not%Interested%–%With%Debtor’s%Consent%1. 3rd!person!is!entitled!to!full!reimbursement!!

! Demand!from!the!debtor!what!he!has!paid!!2. Legal! subrogation! (novation)! –! 3rd! person! is!

subrogated/steps!into!the!shoes!of!creditor!! Payor! can! exercise! all! the! rights! of! the!

creditor! arising! from! the! very! obligation!itself,! whether! against! the! debtor! or! third!person!

3. Creditor!may!refuse!to!accept!payment!!

d. Third% person% who% is% NOT% AN% INTERESTED%PARTY% and% WITHOUT% THE% KNOWLEDGE% OR%AGAINST%THE%WILL%OF%THEDEBTOR%%

Art.! 1236,! Par.! 1.! The! creditor% is% not% bound% to%accept! payment!or!performance!by!a!third!person!who!has!no!interest!in!the!fulfillment!of!the!obligation,!unless!there!is!a!stipulation!to!the!contrary.!!

!Art.!1236,!Par.!2.!Whoever!pays!for!another!may!demand!from!the!debtor! what! he! has! paid,! except! that! if! he! paid! without! the!knowledge! or! against! the! will! of! the! debtor,! he! can! recover% only%insofar%as%the%payment%has%been%beneficial%to%the%debtor.!!!

Art.! 1237.! Whoever! pays! on! behalf! of! the! debtor! without, the,knowledge, or, against, the, will, of, the, latter,! cannot! compel% the%creditor%to%subrogate%him%in%his%rights,!such!as!those!arising!from!a!mortgage,!guaranty!or!penalty.!! !

,

i. Effects% of% Payment% by% 3rd% Person% –% Not%Interested%–%Without%Knowledge%or%Against%the%Will%1. 3rd! person! can! only! be! reimbursed! insofar! as!

payment!has!been!beneficial!to!debtor!!! Burden! of! proof! of! payment! on! the! 3rd!

person!!! Benefit! to! the! creditor% need% not% be%

proved!in!the!following!cases:!o If! after! the! payment,! the! third!

person!acquires!the!creditor’s!right!o If! the! creditor! ratifies! the! payment!

to!the!third!person!o If! by! the! creditor’s! conduct,! the!

debtor!has!been! led! to!believe! that!the! third! person! had! authority! to!receive!the!payment!!

o Assignment!of! credit!without!notice!to!debtor!(Art!1626)!

!!!!


2. 3rd! person! cannot! compel! creditor! to!subrogate!him!in!the!latter’s!rights!

3. But! the! obligation! between! the! debtor! and!creditor!is!extinguished!

%e. Third% person% who% does% NOT% INTEND% TO% BE%

REIMBURSED%! %DEBTOR%MUST%GIVE%CONSENT%!

Art.! 1238.! Payment! by! third! person! who! does! not! intend! to! be!reimbursed! by! the! debtor! is! deemed% to% be% a% donation,! which!requires, the,debtor’s, consent.!But! the!payment! is! in!any!case!valid%as%to%the%creditor!who!has!accepted!it.!!Effects% of% Payment% by% 3rd% person% –% Interested% or% not% –% Does% not%intend%to%be%reimbursed:%

• Payment!is!deemed!as!a!donation/offer!of!donation!• Donation!must!be!in!proper!form!(i.e.!if!above!P5K!it!must!

be!in!writing)!!!

f. In%obligation%to%give%,

Art.!1239.!In!obligation!to!give,!payment!made!by!one!who!does!not!have!free!disposal!of!the!thing!due!and!capacity!to!alienate!it!shall!not%be%valid,!without!prejudice!to!the!provisions!of!Art!1427!under!Title!on!Natural!Obligations.,

,

Art.!1427.!When!a!minor!18?21!entered!into!a!contract!without!the!consent!of!the!parent!or!guardian,!voluntarily!pays,a,sum,of,money,

or,delivers,a,fungible,thing!in!fulfillment!of!an!obligation,!there!shall!be!no% right% to% recover! the! same! from! the!oblige!who!has!spent,or,consumed,it,in,good,faith.,

,

i. Effects%of%Incapacity%of%the%payor%• No!free!disposal!and!no!capacity!to!alienate! !• Payment! is! invalid,! but! without! prejudice! to!

natural!obligations!• Minor!who!entered!contract!without!consent!of!

parent/guardian!!• No! right! to! recover! fungible! thing! delivered! to!

the! creditor!who! spent! or! consumed! it! in! good!faith!

!g. In%case%of%active%solidarity%,

Art.!1214.!The!debtor!may!pay!any!one!of!the!solidary!creditors,!but!if! any! demand,! judicial! or! extrajudicial! has! been! made! by! one! of!them,!payment!should!be!made!to!him.!!!

,

2. TO!WHOM!PAYMENT!CAN!BE!MADE!!

a. In%general%,

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.!!!1. Creditor/person!in!whose!favor!obligation!was!constituted!!2. His!successor!in!interest!3. Any!person!authorized!to!receive!it!!

o Legal!–!conferred!by! law! (i.e.!administrator!of!a!deceased!creditor)!

o Conventional! –! authority!has!been!given!by! the!creditor!himself!

!PAYMENT%TO%A%WRONG%THIRD%PARTY:%%

o GENERAL! RULE:! Not! valid,! obligation! is! not!extinguished,!even!if!in!good!faith!of!the!debtor!

o EXCEPTION:!!

• Extinguished! if! the! mistake! is! imputable! to! the! fault! or!negligence!of!the!creditor!(PAL,v,CA),

• Payment! in! good! faith! to! person! in! possession! of! credit!(Art!1242),

,

Incapacitated%person%%%

Art.! 1241,! Par.! 1.! Payment! to! a! third! person! incapacitated! to!administer! his! property! shall! be! valid! if! he! has! kept! the! thing!delivered!or!insofar!as!the!payment!has!been!beneficial!to!him.!!

!• GENERAL!RULE:!Payment!not!valid!!• EXCEPTION:!When!payment!to!an!incapacitated!person!is!

valid:!• If!creditor!has!kept!the!thing!delivered!• Insofar!as!payment!benefited!creditor!• Benefit%to%the%creditor%need%not%be%proved!in!the!following!

cases:!a. If! after! the! payment,! the! third! person! acquires! the!

creditor’s!right!b. If! the! creditor! ratifies! the! payment! to! the! third!

person!c. If!by!the!creditor’s!conduct,!the!debtor!has!been!led!

to! believe! that! the! third! person! had! authority! to!receive!the!payment!!

d. Assignment! of! credit! without! notice! to! debtor! (Art!1626)!!

b. Third%person%,

Art.! 1241,! Par.! 2.! Payment! to! a! third! person! shall! also! be! valid!insofar!as!it!has!redounded!to!the!benefit!of!the!creditor.!!

,

• GENERAL! RULE:! VALID! if! third! person! proves! that! it!redounded!to!creditor’s!benefit;!otherwise!VOID!

• EXCEPTION:!When% proof% of% benefit% not% required"also!applicable!to!INCAPACITATED!PERSONS!

!Art.!1241,!Par.!3.!Such!benefit!to!the!creditor!need!not!be!proved!in!the!following!cases:!

1. If! after! the! payment,! the! third! person! acquires! the!creditor’s!right!

2. If!the!creditor!ratifies!the!payment!to!the!third!person!3. If! by! the! creditor’s! conduct,! the! debtor! has! been! led! to!

believe!that!the!third!person!had!authority!to!receive!the!payment!!

4. Assignment!of!credit!without!notice!to!debtor!(Art!1626)!5. Payment! in!good!faith!to!any!person! in!possession%of% the%

credit! shall! release! the! debtor! (Art! 1242)! "! EFFECT:!Debtor!is!released!

!• Possession!of!the!credit!should!be!distinguished!from!

possession! of! the! title! or! evidence! of! the! credit.!

!!!!


When! the! document! is! payable! to! the! bearer,!payment!to!holder!is!valid.!But!if!document!is!payable!to! assignment,! mere! possession! of! the! document! is!not! possession! of! credit! itself! but! only! of! title,! and!payment!to!him!is!not!valid.!

!Art.! 1243.! Debtor! pays! creditor! after! being! judicially! ordered! to!retain!debt!!

• EFFECT:!Payment!not!valid!if!the!property!is!attached!or!garnished!!

!c. In%case%of%active%solidarity%

,

Art.!1214.!The!debtor!may!pay!any!one!of!the!solidary!creditors,!but!if! any! demand,! judicial! or! extrajudicial! has! been! made! by! one! of!them,!payment!should!be!made!to!him.!!!

,

• If!no!demand!is!made,!debtor!may!pay!to!any!of!the!solidary!creditors!

• If!any!judicial/extrajudicial!demand!is!made!by!any!of!the!creditors!who!made!the!demand!!

3. WHAT!IS!TO!BE!PAID!(“IDENTITY”)!!

a. In%general%• The!very!prestation!(thing!or!service)!due!

!b. In%obligations%to:%

i. GIVE%a%specific%thing%,

Art.!1244,!Par.!1.!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!which!is!due.!!

,

• Give!specific!things!itself!• Accessions!and!accessories!• If! with! loss,! improvements,! deterioration! "! Apply! Art!

1189!!

ii. GIVE%a%generic%thing%,

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!of!obligation!and!other!circumstances!shall!be!taken!into!consideration.!!

,

• GENERAL! RULE:! Creditor! cannot! demand! a! superior!quality;!Debtor!cannot!deliver!a!thing!of!inferior!quality!!

• EXCEPTION:! Unless! quality! and! circumstances! have! been!stated,! purpose! and! other! circumstances! of! obligation!considered.!!

!!!!

!

iii. Pay%money%,

Art.! 1249.! The! payment! of! debts! in! money! shall! be! made! in! the!currency!stipulated,!and!if!it!is!not!possible!to!deliver!such!currency,!then!in!the!currency!which!is!the!legal!tender!in!the!Philippines.!!

The! delivery! of! promissory! notes! payable! to! order,! or! bills! of!exchange! or! other! mercantile! documents! shall! produce! effect! of!payment! only!when! they! have!been! cashed,! or!when! through% the%fault%of%the%creditor%they%have%been%impaired.!!

In!the!meantime,!the!action!derived!from!the!original!obligation!shall!be!held!in!abeyance.!!

!!• Legal,Tender,is!that!currency!which!a!debtor!can!legally!compel!

a! creditor! to! accept! in! payment! of! a! debt! in! money! when!tendered! by! the! debtor! in! the! right! amount.! (Black’s! Law!dictionary)!

• EXCEPTION;!RA!4100,!RA!8183:!Foreign!currency!if!agreed!to!by!parties!!

!

Art.!1250.! In!case!of!an!extraordinary! inflation!or!deflation!of! the!currency!stipulated!should!supervene,! the!value!of! the!currency!at%the%time%of%the%establishment%of%the%obligation!shall!be!the!basis!of!the!payment,!unless!there!is!an!agreement!to!the!contrary.!!RA!529!Under! this! Act,! payments! of! all! monetary! obligations! should! be!made! in! currency! which! is! legal! tender! in! the! Philippines.! A!stipulation!providing!payment!in!a!foreign!currency!is!null!and!void,!but!it!does!not!invalidate!the!entire!contract.!!RA!4100!Payment!by!means!of!instruments!of!credits!

• Promissory! notes,! checks,! bills! of! exchange! and! other!commercial! documents! are! not! legal! tender! and,!therefore,! the! creditor! cannot! be! compelled! to! accept!them.!

o The!creditor,!however,!if!he!chooses,!may!accept!them,! without! the! acceptance! producing! the!effect! of! payment.! In! the! meantime,! the!demandability! of! the! original! obligation! is!suspended.!

o The!creditor!must!cash!the!instruments,!and!it!is!only!when! it! is!dishonored!that!he!can!bring!an!action!for!non?payment!of!the!debt!

• Payment! by! means! of! mercantile! documents! does! not!extinguish! the!obligation!until! they!have!been!cashed,!or!unless! they! have! been! impaired! through! the! fault! of! the!creditor.!

!!Cases:!

! !

ARRIETA!v.!NARIC,!supra,(Breach)!Facts:!RTC!awarded!to!plaintiffs!the!amount!of!$286,000!as!damages!for! breach! of! contract.! However,! in! view! of! RA! 529,! dispositive!portion!of!the!decision!appeal!insofar!as!it!expresses!the!amount!of!damages! in!U.S.!currency!and!not! in!Philippine!Peso.!Only!question!left!is!what!rate!of!exchange!should!apply!in!the!conversion.!Should!it! be! at! the! time! of! the! breach,! at! the! time! the! obligation! was!incurred!or!at! the! rate!of!exchange!prevailing!on! the!promulgation!of!this!decision?!

!

!!!!


Held:! Citing! Eastboard, Navigation,, Ltd., V., Juan, Ysmael, &, Co.,, Inc.,,

any! agreement! to! pay! an! obligation! in! a! currency! other! than!Philippine! legal! tender! I! null! and! void! as! contrary! to! public! policy,!and! the!most! that! could! be! demanded! is! to! pay! said! obligation! in!Philippine! currency! “to! be! measured! in! the! prevailing! rate! of!exchange!at!the!time!the!obligation!was!incurred.”!!

KALALO!v.!LUZ!Facts:! Respondent! contracted! plaintiff! to! render! engineer! design!services.!Contract!stipulated! that! respondent’s! fees!would!be!a!cut!from! the! fees! which! would! be! paid! to! plaintiff.! Pursuant! to! such!stipulation,! respondent! argues! that! he! should! be! paid! $28,000,!which!is!20%!of!the!$140,000!contract!which!plaintiff!secured.!!

!Held:! Payment! in! currency! other! than! Philippine! currency! is!prohibited! by! RA! 529.! Said! law! states! that! obligations! incurred!before! its! enactment! should! be! exchanged! at! the! rate! at! the! time!the! obligation!was! incurred.! However,! it! is! silent! as! to! obligations!incurred! after! its! enactment,! which! is! the! situation! in! the! case! at!bar.!Logical!conclusion!is!that!rate!of!exchange!should!be!at!the!time!of! payment! of! this! judgment,! rather! than! that! at! the! time! of! the!breach.!

!

ST.!PAUL!FIRE!AND!MARINE!INSURANCE!v.!MACONDRAY!

Facts:!Consignee!Winthrop!Steams,! Inc.!filed!claims!against! insurer?plaintiff!after!a!drum!containing!drugs!and!medicine!reached!manila!in! bad! condition,! to! which! the! latter! paid! a! total! of! $1,134.46.! In!turn,! plaintiff! filed! claims! against! the! carrier! and! the! Manila! Port!Service! for! the! recovery! of! said! amount,! which! included! other!expenses!such!as!duties!and!cost!of!survey!of!shipment.!In!addition,!they!argued!that!exchange!rate!that!should!be!used!should!be!that!prevailing! on! the! date! of! judgment! and! not! on! date! of! loss! or!damage.!

!Held:!The!bill!of!lading,!which!stipulates!the!liability!of!carrier,!clearly!shows!that!it!is!limited!to!the!C.I.F.!value!of!the!goods!which!appear!in!the!contract.!As!such,!it!is!limited!only!to!$550.70.!The!contention!of!plaintiff!that!rate!of!exchange!at!the!time!of!judgment!should!be!used! due! to! extraordinary! inflation! is! untenable! because! the!obligation!of!the!carrier!to!pay!arose!on!the!date!it!failed!to!deliver!the! shipment! in! good! condition! and! should! be! converted! at! the!exchange!rate!existing!at!that!time.!

!

PAPA!v.!A.V.!VALENCIA!

Facts:! Respondents! filed! an! action! for! specific! performance! to!compel! plaintiff! to! deliver! land! title! to! them! after! tendering!payment! in!check.!Plaintiff!argued!that!he!could!not!recall! in!detail!such! transaction! between! them,! and! while! he! admits! to! issuing!receipts!for!the!checks,!he!claims!that!they!were!never!cashed,!and!pursuant! to! Art! 1249,! payment! never! produced! the! effect! of!perfecting!a!sale.!

!Held:! Since! there! was! no! denial! from! petitioner! that! there! was! a!payment! by! check,! it! is! presumed! that! it!was! encashed,! especially!considering! that! 10! years! have! elapsed.! Acceptance! of! a! check!implies!an!undertaking!of!due!diligence!in!presenting!it!for!payment.!Granting! that! it!was!never!encashed,! it! is! through! the!own! fault!of!the!petitioner.!!

PAL!v.!CA!Facts:!CFI!Manila! rendered! judgment!against!PAL!and!ordered! it! to!indemnify!Amelia!Tan.!It!ordered!a!Writ!of!Execution!in!favor!of!Tan!and!duly! referred! it! to!Deputy! Sheriff!Reyes.! PAL! filed!a!motion! to!quash!said!Writ!on!the!bases!that!it!had!already!paid!the!obligation!

through! a! check! payable! to! Reyes,! as! evidenced! by! the! voucher!signed!by!him.!Said!sheriff!absconded!with!the!check!and!could!not!be!found.!

!Held:!Acceptance!by! the! sheriff! of!petitioner’s! check!does!not,! per!se,!operate!as!a!discharge!of!a!judgment!debt.!Checks!are!not!legal!tender!and! is!not!a!valid!payment!until!encashed.! In! this! case,!PAL!made!the!checks!payable!to!the!Sheriff!instead!of!Tan!and!provided!the! opportunity! for! Reyes! to! misappropriate! it! for! himself.! The!current! and! prudent! thing! to! do! for! PAL! was! to! have! issued! the!checks!in!the!intended!payee’s!name.!

!DO!or!NOT!TO!DO!

!

Art.! 1244,! Par.! 2.! 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.!

!

• Substitution!cannot!be!done!against!the!will!of!creditor!!c. Payment%of%interest%

!• Art.! 1956.! No! interest! shall! be! due! unless! it!

has!been!expressly!stipulated!in!writing.!!• Art!1253!Interest!must!be!satisfied!first!before!

capital!!

4. HOW!IS!PAYMENT!TO!BE!MADE!(“INTEGRITY”)!

a. In%general%,

Art.!1233.!A!debt!shall!not!be!understood!to!have!been!paid!unless!the! thing! or! service! in! which! the! obligation! consists! has! been!completely%delivered%or%rendered!as!the!case!may!be.!!

!• GENERAL! RULE:! Partial! payment! is! not! allowed! "!

Creditor! cannot! be! compelled! to! receive! partial!prestations;! Debtor! cannot! be! compelled! to! give! partial!payments!!

• EXCEPTIONS:!!

!CONTRARY%STIPULATION%

!Art.! 1248,! Par.! 1.! Unless! there! is! an! express% stipulation% to% that%effect,! the! creditor! cannot! be! compelled! partially! to! receive! the!prestations,!in!which!the!obligation!consists.!Neither!may!the!debtor!be!required!to!make!partial!payments.!!

!

DEBT%IS%PARTLY%LIQUIDATED%AND%PARTLY%UNLIQUIDATED%!

Art.!1248,!Par.!2.!However,!when!the!debt!is!in%part%liquidated%and%in%part%unliquidated,!the!creditor!may!demand!and!the!debtor!may!effect!the!payment!of!the!former!without!waiting!for!the!liquidation!of!the!latter.!!!

!• When! the! different! prestations! in! which! the! obligation!

consists! are! subject! to! different! terms! or! conditions! which!affect!some!of!them!

• When! by! the! nature! of! the! obligation,! it! can! reasonably! be!expected!to!be!made!in!various!deliveries.!

• When! there! are! several! subjects/parties! are! bound! under!different!terms!and!conditions!

• Compensation!!

!!!!


b. Substantial%performance%in%good%faith%,

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!oblige.!!

,REQUISITES%OF%SUBSTANTIAL%PERFORMANCE:%%

1. Attempt! in! good! faith! to! perform,! without! any! willful! or!intentional!departure!

2. Deviation!from!the!obligation!must!be!slight!3. Omission!or!defect!is!unimportant!and!technical!4. Must!not!be!so!material!that!intention!of!the!parties!is!not!

attained!!!c. Estoppel%

,

Art.! 1235.! When! oblige! accepts, the, performance,! knowing! its!incompleteness! or! irregularity,! and!without, expressing, any, protest,or,objection,!the!obligation!is!deemed!fully%complied%with.!!

,

• Constitutes!a!“waiver!of!defect! in!performance”!"! there!must! however! be! an! intentional! relinquishment! of! a!known! right.!Waiver! will! not! result! from!mere! failure! to!assert!a!claim!for!defective!performance!when!the!thing!or!work!is!received!

• Applies! only! when! he! knows! the! incompleteness! or!irregularity! of! the! payment,! and! he! accepts! the!performance!without!expressing!any!protest!or!objection,!obligation! is! deemed! extinguished.! Estopped! from!complaining!

!d. Presumptions% in% payment% of% interests% and%

installments%%

INTEREST%%

Art! 1176.! The! receipt! of! the! principal! by! the! creditor,! without!reservation! with! respect! to! the! interest,! shall! give! rise! to! the!presumption!that!said!interest!has!been!paid.!!Art.! 1253.! If! the!debt!produces! interest,! payment!of! the!principal!shall! not! be! deemed! to! have! been!made! until! the! interests! have!been!covered.%

%• This! provision! has! an! obligatory! character,! not! merely!

suppletory,!and!cannot!be!dispensed!with!except!by!mutual!agreement.%o If!principal!amount!is!received!without!reservation!as!to!

interest!%"!interest!is!presumed!to!have!been!paid%

!INSTALLMENTS%

%Art.!1176,!Par.!2.!The!receipt!of!a!later!installment!of!debt,!without!reservation! as! to! prior! installments! shall! likewise! raise! the!presumption!that!such!installments!have!been!paid.!!

%• If!a!latter!installment!is!received!without!reservation!to!prior!

installments%"!prior!installments!are!presumed!to!have!been!paid!%

!5. WHEN!IS!PAYMENT!TO!BE!MADE!!!When!obligation!is!due!and!demandable!but!debtor!may!pay!before!due!date! if!period! is! for! the!benefit!of!debtor.! If! for! the!benefit!of!both!the!debtor!and!creditor,!debtor!may!only!prior!to!the!due!date!if!creditor!consents!thereto.!!

!a. In%general%

,

Art.!1169.Debtor!incurs!in!delay!from!the!time!creditor!judicially%or%extrajudicially%demands!fulfillment!of!the!obligation!!

,

b. See%Chapter%2:%Delay%!

6. WHERE!PAYMENT!IS!TO!BE!MADE!!!

Art.!1251,!Par.!1.!Payment!shall!be!made!in!the!place!designated!in!the!obligation.!!!

a. If%no%place%is%expressly%designated%,

Art.! 1251,! Par.! 2.! There! being! no! express! stipulation! and! if! the!undertaking!is!to!deliver!a!determinate!thing!the!payment!shall!be!made!wherever! the! thing!might! be! at! the!moment! the!obligation!was!constituted.%%Art.! 1251,! Par.! 3.! In! any!other! case! (not! to!deliver! a! determinate!thing),!the!place!of!payment!shall!be!at!the!domicile!of!the!debtor.%%Art.!1251,!Par.!4.!If!the!debtor!changes!his!domicile!in!bad!faith,!or!after! he! has! incurred! in! delay,! the! additional! expenses! shall! be!borne!by!him.! (Absent!such!circumstances,! it!will!be!borne!by! the!creditor),

,

7. EXPENSES!OF!MAKING!PAYMENT!!

!Art.! 1247.! Unless! it! is! otherwise! stipulated,! the! extraMjudicial,expenses, required, by, the, payment! shall! be! for! the! account! of! the!debtor! with! regard! to! the! judicial! costs,! the! Rules! of! Court! shall!govern.!!

!• This!does!not!apply!to!expenses!incurred!by!creditor!in!going!to!

the!debtor’s!domicile!to!collect.!

C. Application(of(Payments((

Art.!1252.!He!who!has!various!debts!of!thesame!kind!in!favor!of!one!and! the! same! creditor,! may! declare! at! the! time! of! making! the!payment,! to!which!of! them!the!same!must!be!applied.!UNLESS!the!parties!so!stipulate,!or!when!the!application!of!payment!is!made!by!the! party! for! whose! benefit! the! term! has! been! constituted,!application!shall!not!be!made!as!to!debts!that!are!not!yet!due.!!!If! the! debtor! accepts! from! the! creditor! a! receipt! in! which! an!application!of!the!payment!is!made,!the!former!cannot!complain!of!the!same,!UNLESS!there!is!a!cause!for!invalidating!the!consent.!!

!

!

!!!!


1. CONCEPT!Designation! of! the! debt!which! is! being! paid! by! a! debtor!who!has! SEVERAL, OBLIGATIONS, OF, THE, SAME, KIND,! in! favor! of!onecreditor!to!whom!payment!is!being!made!!

Cases:!

!REPARATIONS!COMMISSION!v.!UNIVERSAL!DEEP!SEA!FISHING!

Facts:! Respondent! obtained! 6! trawl! boats! from! petitioner! under! 3!contracts! of! conditional! purchase! and! sale! of! reparations! goods.!Manila!Surety!&!Fidelity!Co.!Inc.!acted!as!a!security!for!respondent,!which!guaranteed!all!1st!installment!payments.!Defendant!defaulted!in!payments,!and!petitioner!filed!action!to!recover.!Surety!company!argues!that! the!P10,!000!downpayment!paid!by!respondent!should!be!applied!to!the!1st!installment.!

!Held:!Liability!of!Surety!Company!could!not!be!reduced.!Its!reliance!on! Art! 1254! is! misplaced! since! it! applies! only! to! persons! owing!several! debts! to! one! creditor,! not! to! sureties! whose! obligation! is!both! “contingent! and! singular.”! The!debt!of! respondent! is! not! just!the! 1st! installment! but! 10! equal! yearly! installments.! Thus,! said!downpayment!could!not!be!applied!to!only!one!of!them.!

!

PACULDO!v.!REGALADO!

Facts:!Plaintiff!and!defendant!entered!into!a!contract!of!lease!over!a!parcel! of! land! with! a! Wet! Market! building,! and! 11! other! leased!properties,!and!8!units!of!heavy!equipment.!When!Paculdo!failed!to!pay!monthly!rental!fees,!Regalado!sent!a!demand!letter!demanding!payment! of! back! rentals,! including! a! notice! that! failure! to! comply!would!cause!cancellation!of!lease!contract.!Plaintiff!contends!that!he!was! not! in! arrears! for! the!monthly! rentals! of! the! subject! property!since!he!has!in!fact!paid!more!than!what!is!due!him,!but!respondent!applied!portions!of!such!payment!to!his!other!obligations.!!Held:!As!of!July!1992,!Paculdo!had!already!paid!P10,949,447,!which!if!applied!solely!to!rentals!for!the!Wet!Market!property!would!be!in!excess! of! P1M! already.! Respondent! erringly! applied! portions! of!rental!fees!to!his!other!obligations!even!if!the!vouchers!and!receipts!show! that! payments! made! were! for! the! rentals.! Such! were! proof!that! petitioner! had! declared! as! to! which! obligations! must! the!payment!be!applied.!In!any!case,!application!to!the!other!debts!was!contrary!to!law!since!respondent!applied!it!to!a!debt!not!yet!due!and!demandable,! and! should!have!automatically! applied! it! to! the! lease!of!subject!property,!it!being!the!most!onerous!obligation.!!2. REQUISITES!FOR!APPLICATION!OF!PAYMENT!

a. Same!debtor!b. Same!creditor!!c. Various! debts! are! of! same! kind,! generally! monetary!

character!• Must!be!liquidated!• Cannot!apply!to!prestation!to!give!specific!thing!• Can!apply!to!prestation!to!give!generic!thing!

d. All!obligations!must!be!due!• EXCEPTIONS:!!

o Mutual!agreement!of!parties!!o Upon! consent! of! the! party! in! whose! favor! the!

term!was!established!e. Payment!is!not!enough!to!extinguish!all!debts!f. Debtor!has!preferential!right!to!choose!the!debt!to!which!

his!payment!is!to!be!applied!!• Not!absolute;!LIMITATIONS:!

!

o Cannot!make!partial!payments!o Cannot!apply!to!unliquidated!debts!o Cannot! choose! a! debt! whose! period! is! for! the!

benefit! of! the! creditor,! and! period! has! not! yet!arrived!

o Right! to! apply! debts! must! be! exercised! at! the!time!when!debt!is!paid!

!3. RULES!IN!APPLICATION!OF!PAYMENT!

a) Right! to! apply! must! be! exercised! at! the! time! of! the!payment!(Art!1252)!

b) Creditor! may! undertake! application,! subject! to! the!debtor’s! approval.! Once! the! latter! accepts! receipt! of!application,! he! cannot! complain! UNLESS! there! is! a! cause!for!invalidating!the!contract.!(Art!1252)!

c) Apply!to!interest!first.!BOTH!(1)!interest!stipulated!and!(2)!interest!due!because!of!debtor’s!delay!

!Art.!1253.! If!debt!produces! interest,!payment!of! the!principal! shall!not!be!deemed!to!have!been!made!until,the,interest,are,covered.!!

!a. If%rules%are%inapplicable%and%application%cannot%

be%inferred%,

Art.! 1254.! When! payment! cannot! be! applied! in! accordance! with!preceding! rules,! or! if! application! can! not! be! inferred! from! other!circumstances,! the!debt!which! is!MOST!ONEROUS!TO!THE!DEBTOR!among!those!due,!shall!be!deemed!to!have!been!satisfied.!!

If! the! debts! are! of! the! same! nature! and! burden,! the! payment!shall!be!applied!to!all!of!them!proportionately.!!

!i. Meaning%of%“MOST%ONEROUS%TO%DEBTOR”%%

• Fundamentally! a! question! of! act,! which! courts!must!determine!on!the!basis!of!circumstances!of!each!case!e.g.!!o Co?debtor! (especially! if! solidary)! vs.! sole!

debtor!o Same!amount,!younger!vs.!older!o Secured!vs.!unsecured!

• It! is! for! the! court! to! determine! which! is! most!onerous!

D. Payment(by(Cession((

Art.! 1255.! The! debtor! may! cede! or! assign! his! property! to! his!creditors! in! payment! of! his! debts.! This! cession,! UNLESS! there! is!stipulation! to! the! contrary,! shall! only! release! the! debtor! from!responsibility! for! the! net% proceeds% of% the% thing! assigned.! The!agreements!which!on! the!effect!of! the!cession,!are!made!between!the!debtor!and!his!creditors!shall!be!governed!by!law.!!

!1. CONCEPT:!!

• Assignment!or!abandonment!of! the!universality!of!all! the!properties!of!the!debtor!for!the!benefit!of!his!creditors!in!order! that! the! latter! may! sell! the! same! and! apply! the!proceeds!thereof!to!the!satisfaction!of!their!credits.!!

• Debtor!transfers!all!the!properties!not!subject!to!execution!in!favor!of!creditors!that!the!latter!may!sell!them!and!thus!apply!the!proceeds!to!their!credits!

• Initiative!comes!from!the!debtor!but!must!be!accepted!by!the!creditors!in!order!to!become!effective!

• Usually!done!by!debtors!in!state!of!insolvency!!

!!!!


2. REQUISITES!FOR!PAYMENT!BY!CESSION!!e. Plurality!of!debts!f. Plurality!of!creditors!g. Complete!or!partial!insolvency!of!the!debtor!h. Abandonment! of! ALL! of! debtor’s! property! not!

subject!to!execution!!i. Acceptance! or! consent! on! the! part! of! the!

creditors!!

3. EFFECTS!OF!PAYMENT!BY!CESSION!!1) Creditors! do! not! become! the! owner;! they! are! merely!

assignees!with!authority!to!sell!2) Debtor! is! released!up! to! the!amount!of! the!net!proceeds!

of!the!sale,!unless!there!is!a!stipulation!to!the!contrary!"!not!total!extinguishment!!

3) Creditor! will! collect! credits! in! the! order! of! preference!agreed! upon,! or! in! default! of! agreement,! in! order!ordinarily!established!by!law.!!

E. Dation(in(Payment((Dacion(en(Pago)(!

Art.!1245.!Dation!in!payment,!whereby!property! is!alienated!to!the!creditor!in!satisfaction!of!a!debt!in!money,!shall!be!governed!by!law!of!sales.!!

!

1. CONCEPT:!Delivery!and!transmission!of!ownership!of!a!thing!by!the!debtor!and!to!the!creditor!as!an!accepted%equivalent%of%the%performance%of%the%obligation.!!

• Considered!to!be!a!novation!by!change!of!the!object!• An! onerous! contract! of! alienation! because! object! is!

given!in!exchange!of!credit!• Original!obligation!is!extinguished!ipso,jure!• Special! form! of! payment! because! one! element! of!

payment!is!missing:!“identity”!!

a. Distinguished%from%payment%by%cession%%!

DATION!IN!PAYMENT! PAYMENT!BY!CESSION!

Transfers! the! ownership! over!the! thing! alienated! to! the!creditor!

Only! the! possession! and!administration! (not! the!ownership)! are! transferred! to!the! creditors,! with! an!authorization! to! convert% the%property% into% cash! with! which!the!debts!shall!be!paid!

May! totally! extinguish! the!obligation! and! release! the!debtor!!

Only! extinguishes! the! credits! to!the! extent! of! the! amount!realized! from! the! properties!assigned,! unless! otherwise!agreed!upon!

Cession! of! only! some! specific!thing!

Involves!ALL! the!property!of! the!debtor!!

Transfer! is! only! in! favor! of! one!creditor!to!satisfy!a!debt!

There! are! various,! plurality! of!creditors!

Usually!only!one!creditor! Several!creditors!Does!not!presuppose!insolvency!of!the!debtor!

Debtor!is!insolvent!at!the!time!of!the!assignment!

An!act!of!novation! Not!an!act!of!novation!Both! are! substituted!performances!of!obligations!!

!

!

Case:!!

DBP!v.!CA!

Facts:! Respondent! CUBA! loaned! P300,! 000! from! DBP! thru!promissory! notes,! in! which! she! assigned! her! leasehold! rights! to! a!fishpond! as! security.! She! defaulted! in! her! payments,! DPB!appropriated! said! rights! without! any! foreclosure! proceedings,! and!sold!it!to!a!third!party.!CUBA!filed!an!action!and!RTC!found!that!such!agreement! violated! Art! 2088,! NCC! because! it! was! essentially! a!mortgage,! and! for! being! a! pactum, commissorium.! DPB! appealed,!saying!it!was!a!novation,!since!promissory!notes!were!substituted!by!subsequent!assignment!of!rights.!CA!reversed!RTC!

!Held:!The!stipulations!of!the!deed!of!assignments!clearly!show!that!the!assignment!was!by!way!of!security!for!the!payment!of!the!loans.!It! did! not! constitute! NOVATION,! since! obligation! to! pay! the!promissory! notes! still! subsists,! it! being! not! incompatible! with! the!assignment!of! rights.! It!was!not!CESSION! since! there!was!only!one!creditor!while!Art!1255!needs!2!or!more!creditors!and!assignment!of!all!of!debtor’s!property.!It!was!also!not!DATION!since!assignment!of!rights!was!a!mere!security,!and!could!not!satisfy!indebtedness.!CUBA!was!still!obligated!to!pay!aside!from!the!forfeiture!of!her!rights!

!2. REQUISITES!FOR!DATION!IN!PAYMENT!

1. Consent! of! creditor!"! sale! presupposes! the! consent! of!both!parties!

2. Dacion!will!not!prejudice!of!other!creditors!3. Debtor!is!not!declared!judicially!insolvent!!4. Not! a! pactum, commissorium! (a! stipulation! entitling! the!

creditor! to! appropriate! automatically! the! thing! given! as!security!in!case!debtor!fails!to!pay)!

!3. EFFECTS!OF!DATION!IN!PAYMENT!

• Extinguishes! payment! to! the! extent! of! the! value! at! the!thing!to!be!delivered,!either!as!agreed!upon!by!the!parties,!or! as! may! be! proved,! unless! the! parties! by! agreement!expressly! or! impliedly! or! by! their! silence,! consider! the!thing! as! equivalent! to! the! obligation! in! which! case! the!obligation!is!totally!extinguished.!!

• If!property!delivered!to!the!creditor!assumption!that!it!is!a!PLEDGE,!as!it!involves!less!transmission!of!rights!unless!it!is!clearly!the!intention!of!parties!

!Case:!!

!FILINVEST!CREDIT!CORPORATIONS!v.!PHILIPPINE!ACETYLEENE!CO.!Facts:! Respondent! PAC! purchased! from! Alexander! Lim! a! motor!vehicle! thru! promissory! notes! and! executed! a! chattel!mortgage! as!security.!Subsequently,!Lim!assigned!all!his!rights! in!the!promissory!notes! and! mortgage! in! favor! of! plaintiff! FCC.! PAC! defaulted! in!payments!so!FCC!demanded!said!amount.!PAC!expressed!its!decision!to!return!the!mortgaged!vehicle!as! full!satisfaction!of!debt!but!FCC!refused.!

!Held:!Dation!en!pago!is!the!transmission!of!ownership!of!a!thing!by!a!debtor!to!the!creditor!as!an!accepted!equivalent!of!its!performance!of!an!obligation.!Since!it!partakes!in!the!nature!of!being!a!contract!of!sale,!the!essential!elements!of!consent,!object!certain,!and!cause!or!consideration! must! be! present.! Evidence! fails! to! show! that! FCC!consented! that! mere! delivery! of! mortgaged! vehicle! could! be!construed! as! actual! payment.! Mere! return! does! not! constitute!dation! in! payment! in! the! absence! of! the! true! intention! of! the!parties.!

!!!!


F. Tender( of( Payment( and(Consignation((!

1. TENDER!OF!PAYMENT!

a. Concept:%%1) The! act! of! offering! the! creditor! what! is! due! him!

together!with!a!demand!that!the!creditor!accept!the!same!!• When! creditor! refuses! without! just! cause! to!

accept! payment,! he! is! in! mora, accipiendi! and!debtor! is! released! from! responsibility! if! he!consigns!the!thing!due!

• Manifestation! made! by! debtor! to! creditor! of!desire!to!comply!with!obligation!

• Preparatory!act! to!consignation;!does!not!cause!extinguishment! of! obligation! unless! completed!by!consignation!

• Required! ONLY! when! the! creditor% refuses%without%just%cause%to%accept%payment!

• What! are! the! examples! of! unjust! cause! for!refusal!o There! was! ! a! previous! tender! of! payment,!

without! which! the! consignation! is!ineffective!

o Tender! of! payment! was! of! the! very! thing!due,! or! in! case! of! money! obligations,! that!the!legal!tender!currency!was!offered!

o !Tender!of!payment!was!unconditional!o Creditor!refused!to!accept!payment!without!

just!cause!• What!are!the!examples!of!just!cause!for!refusal!!

o Debt!is!not!yet!due!and!the!period!is!for!the!benefit!of!the!creditor!

o Payment!by!third!persons!not! interested! in!the!fulfillment!of!the!obligation!"!because!to!begin!with,! tender!presupposes!capacity!of!the!payor!

2) Accrual!of!interest!will!be!suspended!from!the!date!of!such!tenderif!immediately!deposited!with!the!court!

,

b. Requisites%of%a%Valid%Tender%of%Payment%%• Made!in!lawful!currency!• Should!include!interest!due!• Must! be! unconditional;! but! the! creditor! cannot! vary!

the!terms!of!a!tender!accepted!by!him!• Unaccepted! offer! in! writing! to! pay! is! equivalent! to!

actual!production!and!tender!of!money!or!property!!

2. CONSIGNATION!

,

a. Concept%• The!act!of!depositing!the!thing!due!with!the!court!or!

judicial! authorities! whenever! the! creditor! cannot!accept!or!refuses!to!accept!payment.!!

• Generally!requires!prior!tender!of!payment!• Made!by!depositing!the!things!due!at!the!disposal!of!

judicial!authority!(includes!sheriff)!!

!

!

i. Purpose%%• Avoid! performance! of! an! obligation! becoming!

more! onerous! to! the! debtor! by! reasons! not!imputable!to!him!!

• Duty!of!attending!indefinitely!to!its!preservation,!without!remedy!to!be!relieved!from!the!debt!

!b. Requisites%of%Consignation%%

1. There!is!a!debt!due!2. The!consignation!of!the!obligation!was!made!because!

of!some!legal!cause!• Previous!valid!tender!was!unjustly!refused!• Other! circumstances! making! previous! tender!

exempt!!!3. Prior! notice! of! consignation! had! been! given! to! the!

person!interested!in!the!obligation!(1st!notice)!4. Actual! deposit/consignation! with! proper! judicial!

authority!5. Subsequent!notice!of!consignation!(2nd!notice)!

• May! be! complied! with! by! the! service! of!summons!upon!the!defendant!creditor! together!with!a!copy!of!the!complaint!!

• Should! be! given! to! all! interested! in! the!performance!of!obligations:!passive! (co?debtors,!guarantors,! sureties)! or! active! (solidary! co?creditors,!possible!litigants)!

!i. When%tender%and%refusal%not%required%

,

Art!.1256!Par!2!Consignation!alone!shall!produce!the!same!effect!in!the!following!cases:!

1. Creditor!is!absent!or!unknown!or!does!not!appear!at!place!of!payment!

2. Incapacitated!to!receive!payment!at!the!time!it! is!due!"!need!not!be!legally!declared!

3. Without!just!case,!he!refuses!to!give!a!receipt!4. Two!or!more!persons!claim!the!same!right!to!collect!5. Title!of!the!obligation!has!been!lost!

%ii. Two%notice%requirement%%

!

FIRST%NOTICE:%!

Art.! 1257,! Par.! 1.! In! order! that! the! consignation! of! the! thing! due!may!release!the!obligor,!it!must!FIRST%be!announced%to%the%persons%interested!in!the!fulfillment!of!the!obligation.!!

,

• Purpose!of!this!notice!is!to!give!the!creditor!the!chance!to!reflect! on! his! previous! refusal! to! accept! payment!considering! that! the! expenses! of! consignation! shall! be!charged!against!him,!and! that! in!case!of! loss!of! the! thing!consigned,!he!shall!bear!the!risk!thereof.,

• Lack!of!notice!does!not!invalidate!consignation,!but!simply!makes! the! debtor! liable! for! the! expenses! occasioned!thereby.,

!!!!!!!

!!!!


SECOND%NOTICE:%!

Art.! 1258,! Par.! 2.! The! consignation% having% been% made,! the!interested!parties!shall!also!be!notified!thereof.!!

!• Purpose! of! this! notice! is! to! enable! the! creditor! to!

withdraw! the! thing! or! sum! deposited! in! case! he! accepts!the!consignation!

!Effects!of!non[compliance:!

!

Art.! 1257,! Par.! 2.! The! consignation! shall! be! ineffectual! if! it! is! not%made% strictly% in% consonance! with! the! provisions! which! regulate!payment.!(Soco,v,Militante),

!c. Effects%of%Consignation%%

• When!properly!made,!charge!against!the!creditor%

Art.! 1260,! Par.! 1.! Once! the! consignation! has! been! duly!made,! the!debtor!may!ask!the!judge!to!order!the!cancellation!of!the!obligation.!!

!• The!debtor! is! released! in! the! same!manner! as! if! he! had!

performed! the! obligation! at! the! time! of! consignation,!because!this!produces!the!effect!of!a!valid!payment.!!

• The! accrual! of! interest! on! the! obligation! is! suspended!from!the!moment!of!the!consignation.!!

• The!deteriorations!or!loss!of!a!thing!or!amount!consigned!occurring!without!fault!of!the!debtor!must!be!borne!by!the!creditor,!because! the! risks!of! the! thing!are! transferred! to!the!creditor!from!the!moment!of!deposit.!!

• Any! increment!or! increase! in! value!of! the! thing! after! the!consignation!inures!to!the!benefit!of!the!creditor.!!

!d. Withdrawal% by% debtor% BEFORE% acceptance% by%

creditor%OR%approval%by%the%Court%• Before!the!consignation!is!effected,!the!debtor!is!still!

the!owner!and!he!may!withdraw!it.!(TLG,v,Flores)!!

Art.!1260,!Par.!2.!Before!the!creditor!has!accepted!the!consignation,!or! before! a! judicial! declaration! that! the! consignation! has! been!properly! made,! the! debtor% may% withdraw% the% thing% or% sum%deposited!allowing!the!obligation!to!remain!in!force.!!

!

EFFECTS%OF%WITHDRAWAL%BEFORE%CONSIGNATION%IS%FINAL:%,1) Obligation!remains!in!force!2) Debtor! bears! all! the! expenses! incurred! because! of! the!

consignation!!!

e. Withdrawal% by% debtor% AFTER% proper%consignation%

,

Art.! 1261.! If! the! consignation! having! been! made,! the! creditor!should! authorize! the! debtor! to! withdraw! the! same,! he! shall! lose%every% preference% which% he% may% have% over% the% thing.! The! co?debtors,!guarantors,!and!sureties!shall!be!released.!!,

%%%%

i. With%creditor’s%approval%%!

EFFECTS:!1. Revival!of!the!obligation!and!relationship!between!creditor!and!

debtor! is! restored! to! the!condition! in!which! it!was!before! the!consignation!!

2. Guarantors! and! sureties! are! completely! releases! from! the!obligation!upon! the! consignation,! and! their! liability! cannot!be!revived!without!their!consent.!

3. Solidary!debtors!are!released!from!their!solidary!liability!to!the!creditor! but! his! liability! to! co?debtor! for! his! corresponding!share!subsists!

,

ii. Without%creditor’s%approval%%%

EFFECTS:!!Cannot!be!done.!Once!the!consignation! is!accepted!by!the!creditor!or! approved! by! the! Court,! obligation! is! extinguished.! Thus! debtor!can!no!longer!withdraw.!

!f. Expenses%of%consignation%%

,

Art!.1259.!The!expenses!of!consignation,!when!properly!made,!shall!be!charged!against%the%creditor,

!

The!consignation!is!deemed!properly!made:!

!

• When!the!creditor!accepts! the!thing!or!sum!deposited,!without!objection,!as!payment!of!the!obligation!

• When! the! creditor! questions! the! validity! of! the!consignation,!and!the!court,!after!hearing,!declares!that!it!has!been!properly!made!

• When! the! creditors! neither! accepts! nor! questions! the!validity!of!the!consignation,!and!the!court!after!hearing,!orders!the!cancellation!of!the!obligation!

!Cases:!!

DE!GUZMAN!v.!CA!

Facts:!De!Guzman!sold!2!parcels!of!land!to!Singh,!the!full!amount!of!which!is!to!be!paid!on!Feb.!17,!1975.!2!days!before!such!date.!Singh!requested!De!Guzman!to!furnish!her!copies!of!necessary!documents,!which! the! latter! refused.! To! avoid! litigation,! they! executed! a!Compromise!Agreement!which! stipulated! that! delivery!of! payment!was! to! be! made! before! the! judge.! Petitioner! filed! for! issuance! of!Writ! of! Execution! for! respondent’s! failure! to! comply! with! said!stipulation!

!Held:!Failure!to!deliver!the!payment!to!petitioners!was!not!the!fault!of! respondents.!Records! show!that! respondent!went! to! the! sala!of!the! judge! on! the! appointed! day! of! payment! but! petitioner! wasn’t!there! to! receive! it.! It!was!only! later! that!his! counsel!appeared!and!invited! them! to! petitioner’s! house! but! he! was! also! not! there.!Counsel! then!promised! to!call! them!as!soon!as!De!Guzman!arrived!home!but!there!was!no!call.!So!on!the!next!working!day,!respondent!deposited! the! remaining! balance! with! the! Clerk! of! Court.! Since!deposit! was! made! in! good! faith! and! delay! is! the! fault! of! the!petitioner,! there! has! been! substantial! compliance! with! the!Compromise!Agreement!

!!!

!!!!


TLG!INTERNATIONAL!CONTINENTAL!ENTERPRISING,!INC.!v.!FLORES!Facts:! Petitioner! here! intervened! in! a! case! as! a! sub?lessee! in! an!action! of! declaratory! relief.! To! protect! his! rights,! it! voluntarily!deposited!the!sum!of!P3,!750!by!way!of!consignation.!Its!motion!to!withdraw! the! same,! however,! was! denied! on! that! CFI! hadno!authority! to! authorize! withdrawal! since! it! has! not! ordered! the!intervenor!to!make!any!deposit!!Held:!Pursuant!to!Art!1260!NCC,!the!debtor! is!entitled!to!withdraw!the! deposit! either! before! the! consignation! is! accepted! by! the!creditor!or!prior!to!the!judicial!approval!of!such!consignation.!In!the!case! at! bar,! case! was! dismissed! before! either! of! them! was! done.!Thus,!withdrawal!should!have!been!allowed.!Also,!as!the!contention!of! the! CFI,! per! Art! 1258,! deposited! money! is! at! the! disposal! of!judicial!authority!and!thus!could!have!authorized!its!withdrawal.!!

McLAUGLIN!v.!CA!

Facts:!Petitioner!and!private! respondent!entered! into!a!contract!of!conditional! sale! but! respondent! failed! to! pay! the! balance.! In! a!Compromise! Agreement,! respondent! acknowledged! his!indebtedness!and!agreed!to!pay!P1000!per!month!until!obligation!is!fully!paid!with! the! stipulation! that! failure! to! comply!would! rescind!the! deed! of! conditional! sale.! On! Nov! 1980,! respondent! tendered!payment! but! petitioner! refused! to! accept! it.! RTC! granted! Writ! of!Execution! for! rescission! of! deed.! Respondent! filed! a! Motion! for!Reconsideration,! tendering! at! the! same! time! a! certified!manager’s!check!of!P76,!059.71!payable! to!petitioner!and!covering! the!entire!obligation.!CA!reversed!!Held:!While! the! Compromise! Agreement! states! that! failure! to! pay!would!entitle!petitioner!to!rescind!deed,!RA!6552!provides!a!30!day!grace! period! for! debtors! to! pay! balance.! Flores’! tender! of! a! check!deposited!in!court!was!a!valid!payment!well!within!the!grace!period.!However,! records!show!that! the!check!was!subsequently!withdraw!and! replaced! by! cash,! but! the! cash! was! not! deposited! with! the!Court.!As! such,!while!he!had!preserved!his! rights!as!a!vendee!by!a!timely!valid! tender,!he!remains! liable! for!payment!of!his!obligation!because!of!his!failure!to!deposit!the!amount!due!in!Court.!!

MEAT!PACKING!CORP.!v.!SANDIGANBAYAN!

Facts:!MPCP!entered!into!a!lease?purchase!agreement!with!PIMECO,!which!stipulates!that!the!contract!is!automatically!deemed!cancelled!and!forfeited!upon!default!in!payments!of!rentals!equivalent!to!the!cumulative! sum! total! of! 3! annual! payments.! In! 1986,! PCGG!sequestered! all! assets! of! PIMECO! including! the! leased! property.!MPCP! sent! PIMECO! a! notice! of! rescission! for! non?payment! of!rentals.!PCGG! tendered! to!MPCP!checks!amounting! to!P5,!000,000!which!the!former!refused,!arguing!that!agreement!already!rescinded!since!outstanding!debt!of!more! than!P12,! 000,000! is! already!more!than!3!years’!worth!of!installments.!!Held:! MPCP’s! ground! for! refusal! of! tender! of! payment! is! the!rescission!clause.!However,!since!PCGG’s!tender!and!consignation!of!P5M! was! approved! by! Sandiganbayan,! and! is! therefore! a! valid!tender,!the!accumulated!back!rental!were!reduced!to!around!P7M,!which!is!less!than!3!years’!worth!of!installments.!As!such,!rescission!cannot!lie!!

PABUGAIS!v.!SAHIJWANI!

Facts:!Petitioner!sold!a!parcel!of!land!to!respondent!for!P15M,!P600,!000! of! which! the! latter! aid! as! option/reservation! fee! and! the!remaining! balance! to! be! paid! within! 60! days,! simultaneous! with!petitioner’s! delivery! of! necessary! documents.! Agreement! also!included! a! penal! clause!which! states! that! failure! of! respondent! to!

pay!balance!would! forfeit! the! reservation! fee! in! favor!of!petitioner!and!non?delivery!of!documents!would!obligate!petitioner! to! return!P600,! 000! +! 18%! annual! interest.! Petitioner! failed! to! deliver! so! he!twice! tried! to! tender!his!payment! to! respondent!but! latter! refused!to! accept,! arguing! that! it! did! not! include! the!monthly! interest! and!attorney’s! fees! that! they! orally! agreed! upon.! Because! of! refusals,!petitioner!sent!notice!that!he!is!consigning!amount!with!Makati!RTC!

Held:! All! essential! requisites! of! a! valid! consignation! were!present.!Amount!tendered!is!sufficient!since!it!is!only!the!option!fee!plus!interest!which!are!stated!in!the!default!clause.!Also,!manager’s!check!was!deemed!to!be!valid!since!respondent!did!not!object!to!the!form.!

III. Loss*or*Impossibility*

A. Loss(of(the(Thing(Due(1. CONCEPT!

• It!is!not!limited!to!obligations!to!give,!but!extends!to!those!which! are! personal,! embracing! therefore! all! causes! which!may!render!impossible!performance!of!the!prestation.!

• Generally!applies!to!determinate!things!• Must! be! subsequent! to! the! execution! of! the! contract! in!

order!to!extinguish!the!obligation!!• If! impossibility! already! existed! when! the! contract! was!

made,!the!result!is!not!extinguishment!but!inefficacy!of!the!obligation! under! Art! 1348! (impossible! things! or! services!cannot! be! object! of! contracts)! and! Art! 1493! (Sales;! loss!object!of!contract,!contract!without!any!effect).!

!Art.!1189,!Par.!2.! If! the! If! the! thing! is! lost! through! the! fault!of! the!debtor,!he!shall!be!obliged!to!pay!damages;!it!is!understood!that!the!thing! is! loss! when! it! perishes,! or! goes! out! of! commerce,! or!disappears! in!such!a!way!that! its!existence! is!unknown!or! it!cannot!be!recovered.!!2. KINDS!

a. As%to%extent%i. Total%ii. Partial%

!3. REQUISITES!

1. It!must!be!lost!or!destroyed:!• without!the!fault!of!the!debtor!• before!the!debtor!incurs!in!delay!• after!the!obligation!has!been!constituted!

!4. PRESUMPTION!!Art.!1265!Whenever!the!thing!is!lost!in!the!possession!of!the!debtor,!it!shall!be!presumed!that!the!loss!was!due!to!his!fault,!unless!there!is!proof! to! the! contrary,! and! without! prejudice! to! the! provisions! of!article!1165.!This!presumption!does!not!apply!in!case!of!earthquake,!flood,!storm,!or!other!natural!calamity.!

!• The!burden!of!explaining!the!loss!of!a!thing!in!the!possession!of!

the!debtor!belongs!to!him.!The!debtor!must!show!that!he!is!free!from!negligence,!for!negligence!is!presumed!from!the!mere!fact!of!loss.!(Tolentino)!o Except! in! case! of! natural! calamity! (eg! earthquake,! flood,!

storm),!where! lack!of! fault!of! the!debtor! is! likely!and! it! is!unjust!to!presume!negligence!on!his!part.!(Tolentino)!

!!!!


2. EFFECTS! a. In%obligation%to%give%a%specific%thing%%

!Art.! 1262! An! obligation! which! consists! in! the! delivery! of! a!determinate! thing! shall! be! extinguished! if! it! should! be! lost! or!destroyed! without! the! fault! of! the! debtor,! and! before! he! has!incurred!in!delay.!When!by! law!or!stipulation,!the!obligor! is! liable!even!for! fortuitous!events,!the!loss!of!the!thing!does!not!extinguish!the!obligation,!and!he!shall!be!responsible!for!damages.!The!same!rule!applies!when!the!nature!of!the!obligation!requires!the!assumption!of!risk.!!

• In! the! absence! of! law! or! stipulation! to! the! contrary,!impossibility!of!performance,!without!the!negligence!of!the!parties,!prevents!enforcement!of!an!obligation.!(Tolentino)!

• The! extinguishment! of! the! obligation! due! to! loss! of! the!thing! or! impossibility! or! performance! affects! both! debtor!and! creditor;! the! entire! juridical! relationship! is!extinguished,! so! that! if! the! creditor! has! himself! an!obligation,!this!is!likewise!extinguished.!(Tolentino)!

• The!debtor!is!released!from!liability;!but!he!cannot!demand!the! prestation! which! has! been! stipulated! for! his! benefit.!(Tolentino)!

• Exceptions!to!the!law:!o The! law! expressly! provides! that! the! debtor! shall! be!

liable!even!if!the!loss! is!due!to!fortuitous!events.!(Art.!1174)!

o Express!stipulation!of!the!parties.!o The! nature! of! the! obligation! requires! the! assumption!

of!risk.!o Concurrent!fault!or!negligence!of!the!debtor.!o Loss!occurs!after!the!debtor!has!incurred!in!delay.!o Promise! to! deliver! the! same! thing! to! two! or! more!

different!parties.!o Art.!1268!below.!

!

Art.! 1268.! When! the! debt! of! a! thing! certain! and! determinate!proceeds!from!a!criminal!offense,!the!debtor!shall!not!be!exempted!from!the!payment!of! its!price,!whatever!may!be!the!cause!for!the!loss,!unless!the!thing!having!been!offered!by!him!to!the!person!who!should! receive! it,! the! latter! refused!without! justification! to!accept!it.!

!• Two! alternatives! open! to! the! debtor! in! case! of! unjust!

refusal!to!receive:!o to! consign! the! thing!and! thereby! relieve!himself! from!

any!responsibility!for!such!thing,!or!o to! just! keep! the! thing! in! his! possession,! with! the!

obligation!to!use!due!diligence,!subject!to!the!general!rules! of! obligations,! but! no! longer! the! special! liability!imposed!by!this!article.!(Tolentino)!

!b. In%obligation%to%give%a%generic%thing%%

!

Art.! 1263.! In! an! obligation! to! deliver! a! generic! thing,! the! loss! or!destruction! of! anything! of! the! same! kind! does! not! extinguish! the!obligation.!

!!

!• As! long!as! there!are!things!of! the!kind!stipulated,!whether!

or! not! they! are! possessed! by! the! obligor,! the! obligation!subsists,! because! generic! things! are! not! considered! lost.!(Tolentino)!

• Food!for!thought:!The!maxim!�genus!never!perishes� is!not!actually! true.! (Labitag,! 2014)! [When]! all! the! things! of! the!kind!disappear!or!perish,!the!obligation!to!deliver!a!generic!object!is!extinguished.!(Tolentino)!

• Delimited!generic!obligations!?!When!there!is!a!limitation!of!the!generic!object!to!a!particular!existing!mass!or!group!of!things,! the! obligation! is! extinguished! by! the! loss! of! the!particular!mass!or!group!or!limited!quantity!from!which!the!prestation!has!to!be!taken,!or!by!the!impossibility!of!getting!from!it!the!things!for!the!prestation.!(Tolentino)!

!c. In%case%of%partial%loss%%

!

Art.! 1264.! The! courts! shall! determine,! whether! under! the!circumstances,! the!partial! loss!of! the!object!of! the!obligation! is!so!important!as!to!extinguish!the!obligation.!

!• This! article! is!based!on! the!presumption! that! the!partial! loss! is!

not! imputable! to! the! fault! or! negligence! of! the! debtor.!(Tolentino)!

• General!rule:!the!obligation!subsists!and!the!debtor!must!deliver!the! impaired!object! to! the!creditor;! the!debtor! is!not! liable! for!damages.!(Tolentino)!

• Except,! when! the! portion! that! is! lost! is! of! such! an! extent! or!nature! that! the! obligation! would! not! have! been! constituted!without!it,!then!the!obligation!is!extinguished.!(Tolentino)!

• In!any!case,!the!intention!of!the!parties!is!the!controlling!factor!in!the!solution!of!each!case!of!partial!loss.!(Tolentino)!

!!

d. Action%against%third%person%%!

Art.! 1269.! The!obligation!having! been! extinguished!by! the! loss! of!the!thing,! the!creditor!shall!have!all! the!rights!of!action!which!the!debtor!may!have!against!third!persons!by!reason!of!the!loss.!

!• This! refers!not!only! to! the! rights! and!actions!which! the!debtor!

may!have!against!third!persons,!but!also!to!any!indemnity!which!the!debtor!may!have!already!received.!(Tolentino)!

• This! article! is! applicable! to! the! money! obtained! from! the!insurance!of!the!thing!lost!or!destroyed.!(Tolentino)!

B. Impossibility(of(Performance( 1. CONCEPT!!

!

Art.! 1266.! The! debtor! in! obligations! to! do! shall! also! be! released!when! the! prestation! becomes! legally! or! physically! impossible!without!the!fault!of!the!obligor.!

!• This! article! refers! to! an! impossibility! which! arises! after! the!

obligation!has!been!constituted.!

!!!!


• In! reciprocal! obligations,! the! release! of! the! debtor! due! to!impossibility!of!performance!also!releases!the!creditor!from!the!counter?prestation.!

!

Art.! 1267! When! the! service! has! become! so! difficult! as! to! be!manifestly! beyond! the! contemplation! of! the! parties,! the! obligor!may!also!be!released!therefrom,!in!whole!or!in!part.!

!• This! articles! states! in! our! law! the! doctrine! of! unforeseen!

events,! rebus! sic! stantibus! (theory! in! public! international!law).! The!parties! stipulate! in! the! light!of! certain!prevailing!conditions,! and! once! these! conditions! cease! to! exist! the!contract!also!ceases!to!exist.!

• Requisites!for!application!of!Art!1267!a. Event!or!change!in!circumstances!could!not!have!been!

foreseen!at!the!time!of!the!execution!of!the!contract!b. Makes! the! performance! of! the! contract! extremely!

difficult!but!not!impossible!c. Event!must!not!be!due!to!the!act!of!any!of!the!parties!d. Contract!is!for!a!future!prestation!!

• It!is!only!in!absolutely!exceptional!changes!of!circumstances!that!equity!demands!assistance!for!the!debtor.!!

!2. KINDS!

a. As%to%extent%i. Total%ii. Partial%

• The!rule!in!Art.!1264!may!be!applied.!• Temporary!obstacles!to!the!performance!do!not!

extinguish! the! obligation,! but! merely! delays! its!fulfillment,!unless!by!its!nature!or!the!will!of!the!parties! it!has! to!be!performed!at!a!determinate!time.! Unless,! the! obstacles! are! of! an! unknown!and!unforeseen!duration.!!

b. As%to%source%i. Legal%

• Direct! ?!when! the! act,! by! reason!of! subsequent!law!is!prohibited!

• Indirect!?!when!the!debtor!is!prevented!by!some!supervening!legal!duty!(eg.!military!service)!

ii. Physical:%• the! act! by! reason! of! its! nature! cannot! be!

accomplished!!3. REQUISITES!?!Art!1266!

• obligation!was!possible!at!the!time!it!was!constituted!!• subsequent!impossibility!• without!the!fault!of!the!debtor!

!4. EFFECTS!

a. In%obligations%to%do%

• Art! 1266! releases! debtor! from! obligation! if!prestations! has! become! legally! or! physically!impossible!!

• Art!1267!releases!debtor! if!performance!has!become!so! difficult! to! be! so! manifestly! beyond! the!contemplation!of!the!parties!

• Art! 1262! Par! 2! (by! analogy)! Impossibility! due! to!fortuitous!events!does!not!extinguish!obligation!if:!

o By!law!!o By!stipulation!!o Nature! of! the! obligation! requires!

assumption!of!risk!• If! at! the! time! performance! becomes! impossible! the!

debtor!has!already!fulfilled!part!of!the!obligation,!the!creditor!must!pay!the!part!done!so!long!as!he!benefits!from! such! partial! compliance.! On! the! other! hand,! if!the!debtor!has!already! received! something! from! the!creditor,! he!must! return! anything! in! excess! of! what!corresponds!to!the!part!already!performed!when!the!impossibility!supervened.!

!i. � impossibility� distinguished from �difficulty�

DIFFICULTY! IMPOSSIBILITY!

Manifest! disequilibrium! in! the!prestations,! such! that!one!party!would! be! placed! at! a!disadvantage!by! the!unforeseen!event.!

See! discussion! on! physical! and!legal!impossibility.!

• the! event! or! change! in!circumstance!could!not!have!been!foreseen!at!the!time!of!execution!of!the!contract!

• it! makes! the! performance!extremely! difficult! but! not!impossible!

• the! event! is! not! imputable!to!wither!party!

• the! contract! is! for! a! future!prestation!

1. obligation! was! possible! at!the!time!it!was!constituted!!

2. subsequent!impossibility!3. without! the! fault! of! the!

debtor!

!Cases:!!

OCCENA!v.!CA!

Facts:! Petitioners! who! are! landowners! had! a! subdivision! contract!with!Tropical!Homes!Inc,for!the!development!of!their!land.!Tropical!filed! a! complaint! for! modification! of! the! terms! and! conditions! of!their!contract,!alleging!that!due!to!the!increase!in!the!price!of!oil!and!its!derivatives!and!the!concomitant!worldwide!spiralling!of!prices!of!all! commodities! including!basic! raw!materials! for! the!development!work,! the! cost! of! development! has! risen! to! levels! which! are!unanticipated,! unimagined,! and! not! within! the! remotest!contemplation!of!the!parties!at!the!time!the!agreement!was!made,!such!that!the!conditions!and!factors!which!formed!the!original!basis!of! the! contract! have! been! totally! changed.! THI! wanted! to! modify!their �guarantee! to!petitioners!of!a! fixed!and!sole! share!equivalent!to!40%!of!all!cash!receipts!from!the!sale!of!the!subdivision!lots�.!They!wanted!to!change!it!to:!�fixing!the!proper!shares!that!should!pertain!to! the! herein! parties! out! of! the! gross! proceeds! from! the! sales! of!subdivided!lots�.!!Held:! If!THI�s!complaint!were!to!be!released!from!having!to!comply!with! the! subdivision! contract,! assuming! it! could! show! at! the! trial!that! the! service! undertaken! contractually! by! it! had! become! so!difficult!as!to!be!manifestly!beyond!the!contemplation!of!the!parties,!then!CA!will!be!correct!in!upholding!THI�s!complaint.!Without!Article!1267,!THI!would!remain!bound!by!its!contract!under!the!theretofore!prevailing! doctrine! that! performance! therewith! is! not! excused! by!

!!!!


the! fact! that! the! contract! turns! out! to! be! hard! and! improvident,!unprofitable! or! impracticable,! ill! advised! or! even! foolish,! or! less!profitable,!or!unexpectedly!burdensome,!since!in!case!a!part!desires!to!be!excused!from!performance!in!the!event!of!such!contingencies!arising,! it! is! his! duty! to! provide! therefore! in! the! contract.! THI�s!complaint! seeks! not! release! from! the! contract! but! modification,!which! is! not! granted! to! the! courts! by! the! cited! article.! Tropical�s!complaint!for!modification!of!contract!manifestly!has!no!basis!in!law!and!therefore!states!no!cause!of!action.!!NAGA!TELEPHONE!CO.!v.!CA!

Facts:!The!parties!entered!into!a!contract!for!the!use!by!Natelco!of!Casureco's! electric! light! posts! in! Naga! City.! In! consideration,!petitioners! agreed! to! install,! free! of! charge,! 10! telephone!connections!for!the!use!by!Casureco.!"That!the!term!or!period!of!this!contract! shall! be! as! long!as! the!party!of! the!1st! part! (Natelco)!has!need! for! the! electric! light! posts! of! the! party! of! the! 2nd! part!(Casureco)!it!being!understood!that!this!contract!shall!terminate!when!for!any!reason!whatsoever,!the!party!of! the! second!part! is! forced! to! stop,! abandoned! its! operation! as! a!public! service! and! it! becomes! necessary! to! remove! the! electric!lightpost.� Casureco! filed! on! Jan.! 1989! against! petitioners! for!reformation! of! contract! with! damages,! on! the! ground! that! said!contract!unduly!favours!Natelco.!!Held:!A!bare!reading!of!Art.!1267!reveals!that!it!is!not!a!requirement!thereunder!that!the!contract!be!for!future!service!w/!future!unusual!change.! It! states! the! doctrine! of! unforeseen! events,! based! on! the!principle!of! rebus! sic! stantibus.!Under! this! theory,!parties! stipulate!in! light! of! certain! prevailing! conditions,! and! once! these! conditions!cease! to! exist,! the! contract! also! ceases! to! exist.! Disappearance! of!the! basis! of! a! contract! gives! rise! to! relief! in! favor! of! the! party!prejudiced.!However,!the!possible!consequences!of!merely!releasing!the!parties!from!the!contract!could!lead!to:!1)!disruption!in!Natelco�s!essential! service! to! the! public;! and! 2)! causing! prejudice! to!Casureco's!business!if!it!returns!the!telephone!units.!!PNCC!v.!CA!

Facts:! Private! respondents! leased! a! parcel! of! land! to! PNCC,! to! be!used!as!premises!for!a!rock!crushing!plant!and!field!office.!The!lease!was!to!run!for!five!years,!with!rent!at!a!monthly!rate!of!P20k,!paid!yearly!in!advance.!To!begin!the!rock!crushing!project,!PNCC!required!industrial! clearance! from! the!Ministry!of!Human!Settlement,!but! it!was!only!able!to!obtain!a!Temporary!Use!Permit,!valid!for!two!years!unless!revoked!sooner!by!the!Ministry.!Respondents!then!requested!the!first!annual!rental!of!P240k.!PNCC!refused!to!pay,!reasoning!that!the!payment!of!rental!would!begin!from!the!date!of!issuance!of!the!industrial! clearance,! and! not! from! the! date! of! the! signing! of! the!contract.! It! also!expressed! the! intention! to! terminate! the! contract,!because! financial! and! technical! difficulties! had! forced! it! to!discontinue!the!rock!crushing!project.!Held:!Art.!1266!expressly!states!that!it!is!applicable!to!obligations!to!do.!The!obligation!in!the!lease!to!pay!rentals!is!an!obligation!to!give.!PNCC! only! stated! the! alleged! uncertainties! in! government! policies!on! infrastructure! projects,! and! failed! to! identify! specifically! the!circumstances!brought!about!by!the!change!in!political!climate.!The!unforeseen! event! and! causes! mentioned! by! PNCC! are! not! the!legal/physical! impossibilities! contemplated! by! Art.! 1266.! The!principle!of!rebus!sic!stantibus! is!said!to!be!the!basis! for!Art.!1267,!which!enunciates! the!doctrine!of!unforeseen!events.!However,! this!is! not! an! absolute! application.! The! parties! to! the! contract! are!presumed!to!have!assumed!the!risks!of!unfavorable!developments;!therefore,!only!absolutely!exceptional! changes!of! circumstance!are!

considered! under! this! article.!Mere! pecuniary! inability! to! fulfill! an!engagement!does!not!discharge!a!contractual!obligation;!neither!is!it!a!defense!to!an!action!for!specific!performance.!Regarding!the!fact!that!PNCC�s!purpose!for!the!lease!contract�the!use!of!the!premises!as!a!site!for!a!rock!crushing!plant�not!materializing,!this!also!does!not!invalidate!the!contract.!The!cause!or!essential!purpose!in!a!lease!contract! is! the! use! or! enjoyment! of! the! thing.! Thus,! the! party�s!purpose!for!contracting!does!not!affect!the!validity!of!the!contract,!or! its! existence.! The! fact! that! its! purpose! did! not! arise! does! not!mean!PNCC!is!entitled!to!a!release!from!its!obligation.!!

b. In%case%of%partial%impossibility%=%Art.%1264%• The!courts!shall!determine!whether!it!is!so!important!

as!to!extinguish!the!entire!obligation!

IV. Condonation*or*Remission*

A. Concept(

• Condonation! is! an! act! of! liberality,! by! virtue! of! which,!without! receiving! any! equivalent,! the! creditor! renounces!the!enforcement!of!the!obligation!which!is!extinguished!in!its!entirety!or! in!that!part!or!aspect!of!the!same!to!which!the!condonation!refers.!

• It! is! an! essential! characteristic! of! remission! that! it! be!gratuitous! ,! that! there! is! no! equivalent! received! for! the!benefit! given;! once! such! equivalent! exists,! the! nature! of!the!act!changes!!1. Dation! in! payment! –! receive! a! thing! different! from!

that!stipulated!2. Novation! –! object! or! principal! conditions! of! the!

obligation!should!be!changed!3. Compromise! –! when! the! matter! renounced! is! in!

litigation! or! dispute! and! in! exchange! of! some!concession!which!the!creditor!receives!

• An! offer! of! a! donation! which! must! be! accepted! in! the!proper!form!depending!on!the!law.!

• Failure! to! demand! payment! is! not! a! condonation,! there!must! be! intention! to! donate,! unless! you! can! prove!intentional! failure! to!demand!and!prescriptive!period!has!ended!

B. Kinds((

1. AS!TO!EXTENT!

a. Total%b. Partial%?!!refers!to!the!amount!of!indebtedness,!or!to!an!

accessory! obligation! (such! as! pledge! or! interest)! or! to!some!other!aspect!of!the!obligation!(such!as!solidarity)!%

!2. AS!TO!FORM!! Art.!1270,!Par.!1.!Condonation!or!remission!is!essentially!gratuitous,!and! requires! the! acceptance! by! the! obligor.! It! may! be! made!expressly!or!impliedly.!

a. Express% - Made! formally! and! in! accordance! with! the!forms!of!ordinary!donations%

!!!!


b. Implied% - Inferred! from! the! acts! of! the! parties;! by! the!acts!of! the! creditor!he!had!every! intention! to! forgive! the!creditor!(Labitag)%

C. Requisites((1. The!debt!must!be!existing!and!demandable!at!the!time!the!

remission!is!made;!2. The!renunciation!of! the!debt!must!be!gratuitous,!without!

any!equivalent!or!consideration;!3. The!debtor!must!accept!the!remission.!

!

a. When%formalities%required% Art.!1270!par.!2!One!and!the!other!kind!shall!be!subject!to!the!rules!which! govern! in! officious! donations.! Express! condonation! shall,!furthermore,!comply!with!the!forms!of!donation.!

!• It!is!a!bilateral!act!which!requires!acceptance!by!the!debtor!!• Subject!to!the!rules!on!donations!with!respect!to!acceptance,!

amount!and!revocation!• Formalities! of! a! donation! are! required! in! the! case! of! an!

express!remission!• Revocable!?!subject!to!the!rule!on!inofficious!donations!(The!

heirs!will!have!to!prove!that!the!condonation!was!excessive!such! that! their! legitime! is! impaired);! The! rules! and! laws!governing! acts! of! ingratitude! and! conditional! donations! do!not!apply.!!

Case:!!

YAM!v.!CA!

Facts:! Petitioners! entered! into! a! Loan!Agreement!with!Assumption!of! Solidary! Liability! whereby! they! were! given! P500,000! by! private!respondent.! Denominated! the! first! Industrial! Guarantee! and! Loan!Fund! (IGLF),! the! loan! was! secured! by! a! chattel! mortgage! on! the!printing! machinery! in! petitioners’! establishment.! Petitioners!subsequently!obtained!a!second!IGLF!loan!of!P300,000.They!made!a!partial! payment! of! P50,000! on! their! second! loan.! They! wrote! to!private! respondent! on! their! proposal! to! settle! their! obligation,! to!which! it! replied!with!a! counter?offer,!namely,! that! it!would! reduce!the!penalty!charges!up! to!P1.4M!provided! that!petitioners!can!pay!their! obligation! on! or! before! July! 30,! 1986.! On! July! 31,! 1986,!petitioners!paid!P410,854.47,!receipt!of!which!was!acknowledged!by!Destajo.! There! was! still! a! balance! of! P266,146.88! left,! respondent!filed! a! case! for! the! collection.! Petitioners! contended! that! after!receiving! respondent’s! letter! of! conditional! offer! to! reduce! their!penalty!charges,!they!met!with!Sobrepenas,!president!of!respondent!corporation.! The! latter! agreed! to! waive! the! penalties! and! service!charges,! provided! that! petitioners! paid! the! principal! and! interest,!less! the! earlier! payment! of! P50,000.! This! is! why! they! only! paid!P410,854.47,!with!the!voucher!having!the!notation!“full!payment!of!IGLF!loan”.!!Held:!Express!condonation!must!comply!with!the!forms!of!donation.!Art.! 748,! par.! 3! provides! that! the! donation! and! acceptance! of! a!movable,! the! value! of! which! exceeds! P5,000,! must! be! made! in!writing,! otherwise! the! same! shall! be! void.! Additionally,! under! Art.!417,!par.!1,!obligations,!actually!referring!to!credits,!are!considered!movable! property.! In! this! case,! it’s! undisputed! that! the! alleged!agreement! to! condone! P266,146.88! of! the! second! IGLF! loan! was!never!made!in!writing.!

The! notation! “full! payment! of! IGLF! loan”! also! doesn’t! bind! private!respondent.! It! merely! states! petitioners’! intention! in! making! the!payment.! If! private! respondent! really! condoned! the! amount! in!question,! petitioners! should’ve! asked! for! a! certificate! of! full!payment!from!respondent!corporation,!just!like!what!they!did!when!they!paid!off! their! first! loan.! The! countersigning!of! the!voucher!by!Destajo! did! no!more! than! acknowledge! the! receipt! of! payment! as!she! had! no! authority! to! condone! any! indebtedness! as! her! duties!were! limited! to! “issuing! official! receipts,! preparing! check! vouchers!and!documentation.”!

D. Presumptions( Art.! 1271! The! delivery! of! a! private! document! evidencing! a! credit,!made! voluntarily! by! the! creditor! to! the! debtor,! implies! the!renunciation!of!the!action!which!the!former!had!against!the!latter.!If! in! order! to! nullify! this! waiver! it! should! be! claimed! to! be! in!officious,!the!debtors!and!his!heirs!may!uphold!it!by!proving!that!the!delivery!of!the!document!was!made!in!payment!of!the!debt.!

!• Not!applicable!to!public!documents!because!there!is!always!a!

copy!in!the!archives!which!can!be!used!to!prove!the!credit.!!• Surrender!of!weapon!of!enforcement!of!his!rights!

!!Art.! 1272! Whenever! the! private! document! in! which! the! debt!appears!is!found!in!the!possession!of!the!debtor!it!shall!be!presumed!that! the! creditor! delivered! it! voluntarily,! unless! the! contrary! is!proved.!

!• Only!prima!facie!and!may!be!overcome!by!contrary!evidence!

to! show! that! notwithstanding! the!possession!by! the!debtor!of!the!private!document!of!credit,!it!has!not!been!paid.!

!Art.!1274!It!is!presumed!that!the!accessory!obligation!of!pledge!has!been! remitted! when! the! thing! pledged,! after! its! delivery! to! the!creditor,! is! found! in! the! possession! of! the! debtor,! or! of! a! third!person!who!owns!the!thing.!

E. Effects((

1. IN!GENERAL!–!it!extinguishes!the!obligation!!2. IN!CASE!OF!JOINT!OR!SOLIDARY!OBLIGATIONS!

!

Joint!Co[Debtors! Only!applies!to!the!share!of!the!joint!co?debtor!to!whom!the!benefit!of!remission!was!given!

Joint!Creditors! Only!applies!to!the!amount!due!to!the!creditor!condoning!the!obligation!

Solidary!Creditors! Applies! to! the! entire!obligation!Solidary!Debtors!

!!!!

!!!!


F. Governing(Rules(!

• One!and!the!other!kind!shall!be!subject!to!the!rules!which!govern! inofficious! donations.! Express! condonation! shall,!furthermore,! comply! with! the! forms! of! donation.!Condonation! is! an! offer! of! a! donation! which! must! be!accepted!in!the!proper!form!depending!on!the!law!

(

Art.! 1270.!Condonation! or! remission! is! essentially! gratuitous,! and!requires!the!acceptance!by!the!obligor.!It!may!be!made!expressly!or!impliedly.!One!and!the!other!kind!shall!be!subject!to!the!rules!which!govern!inofficious!donations.!Express!condonation!shall,!furthermore.(

(

G. Renunciation( of( Principal( or(Accessory(Obligations((

1. EFFECTS!

Art.!1273!The!renunciation!of!the!principal!debt!shall!extinguish!the!principal! obligations;! but! the! waiver! of! the! latter! shall! leave! the!former!in!force.! 2. RATIONALE:!The!accessory!follows!the!principal,!not!the!other!

way!around.!

V. Confusion*or*Merger*of*Rights*

A. Concept(!

MERGER! OR! CONFUSION! is! the! meeting! in! one! person! of! the!qualities! of! the! creditor! and! the! debtor! with! respect! to! the! same!obligation.!!• Erases!the!plurality!of!subjects!of!the!obligation!!• Reason! or! basis! for! confusion:! a! mode! of! extinguishing!

obligations!because!it!is!absurd!that!a!person!should!enforce!an!obligation!against!himself;!where! there! is! a! confusion!of!rights,!the!purposes!for!which!the!obligation!may!have!been!created!are!deemed!realized!

• May! be! revoked,! as! a! result! of! which! the! obligation! is!recreated! in! the! same! condition! that! it! had! when! merger!took!place!

• CAUSE!OF!MERGER:!Anything!that!brings!about!succession!to!the! credit! e.g.! debtor! inherits! credit! from! the! creditor.!However,! cannot! be! the! other! way! around! because! under!the! present! law,! heirs! do! not! inherit! the! debts! of! their!predecessors.!

B. Requisites(for(Confusion(1. Must!take!place!between!the!creditor!and!the!principal!

debtor!(Art!1276)!2. The! very! same! obligation! must! be! involved,! for! if! the!

debtor! acquires! rights! from! the! creditor,! but! not! the!particular!obligation!in!question,!there!will!be!no!merger!

3. Confusion! must! be! total! or! as! regards! the! entire!obligation;!must!be!complete!and!definite!!

!

C. Effects(1. IN!GENERAL!

!Art.! 1275.! The! obligation! is! extinguished! from! the! time! the!characters!of!creditor!and!debtor!are!merged!in!the!same!person.!!Obligation!is!extinguished.!!Extinction!of!Real!Rights!by!Confusion!

• Real! rights! like! usufruct,! mortgage,! pledge,! right! of!repurchase,! lease! record,! etc.,! may! be! extinguished! by!merger! when! any! such! rights! is! merged! with! ownership!which!is!the!most!comprehensive!real!right!

!2. IN!CASE!OF!JOINT!OR!SOLIDARY!OBLIGATIONS!

!

Art.!1277.!Confusion!does!not!extinguish!a!joint!obligation!except!as!regards!the!share!corresponding!to!the!creditor!or!debtor! in!whom!the!two!characters!concur.!!

!1. JOINT!OBLIGATIONS!!

• Each!debtor!has!his!own!creditor!to!whom!he!is!liable!and!confusion! taking! place! in! the! person! of! any! debtor! or!creditor!does!not!affect!the!others!

• Confusion!will!extinguish!only! the!share!corresponding! to!the!creditor!or!debtor!in!whom!the!two!characters!concur!

2. SOLIDARY!OBLIGATIONS!• Merger! in! the!person!of!one!of! the!solidary!debtors! shall!

extinguish!the!entire!obligation!because!it!is!also!a!merger!in!the!other!solidary!debtors.!(Art!1215)!

• Person!in!whom!two!characters!concur! in!effect,!paid!the!entire! debt,! and! may! claim! reimbursement! from! his! co?debtors!for!the!shares!which!correspond!to!them!

• This,!however,!is!without!prejudice!to!the!provisions!of!Art!1219!"!Solidary!co?debtor!who!has!been!remitted!is!still!liable!to!co?debtors!if!one!of!the!had!paid!the!obligation!in!full!prior!the!remission!

D. Confusion( in(Principal(or(Accessory(Obligation(

!Art.! 1276.!Merger!which! takes!place! in! the!person!of! the!principal!debtor! or! creditor! benefits! the! guarantors.! Confusion! which! takes!place! in! the! person! of! any! of! the! latter! does! not! extinguish! the!obligation.!

!• Merger! releases! the! guarantor! because! their! obligation! is!

merely!accessory!!• When! guarantor! acquires! the! credit,! his! obligation! as!

guarantor! is! extinguished,! but! the! principal! obligation!subsists!which!he! can!enforce!against! the!debtor!and!other!co?guarantors.!!

• When! mortgaged! property! belongs! to! a! third! person,! and!mortgagee! acquires! a! part! of! the! property,! the! same! is!released! from! the! encumbrance.! Credit! is! not! extinguished,!even!in!part.!

• When!mortgage!acquires!ownership!of!the!entire!mortgaged!property,! mortgage! is! extinguished;! but! obligation! secured!thereby! is! not! necessarily! extinguished;! may! become! an!unsecured!obligation.!

!!!!


VI. Compensation*

A. Concept(!

Art.!1278.!Compensation!shall!take!place!when!two!persons,!in!their!own!right,!are!creditors!and!debtors!of!each!other.!!Compensation! is! a! mode! of! extinguishing! the! obligation! to! the!concurrent! amount!of! the!debts!of! two!persons!who,! in! their!own!right,!are!reciprocally!debtors!and!creditors!of!each!other.!!• Abbreviated!payment!!• Offsetting! of! two! obligations! which! are! reciprocally!

extinguished!if!they!are!of!equal,value!or!extinguished!to!the!concurrent!amount!if!of!different,values.!!

• Balancing! between! two! obligations,! involves! a! figurative!operation! of! weighing! two! obligations! simultaneously! in!order!to!extinguish!them!to!the!extent!in!which!the!amount!of!one!is!covered!by!the!other.!!

• Payment!is!simplified!and!assured!between!persons!who!are!indebted!to!each!other.!!

• Although! it! takes! place! by! operation! of! law,! it! must! be!alleged! and! proved! by! the! debtor! who! claims! its! benefits.!Once! proved,! its! effect! retroacts! to! the!moment! when! the!requisites!provided!by!law!concur.!!

!

DISTINGUISHED%FROM%COUNTERCLAIM:%%!

COUNTERCLAIM! COMPENSATION!

Must!be!pleaded!to!be!effectual! Takes!place!by!operation!of!law,!and!extinguishes!reciprocally!the!two! debts! as! soon! as! they! exist!simultaneously!

No!such!requirement! Requires!that!both!debts!consist!in! money,! or! if! the! things! due!are! consumable,! they! be! of! the!same!kind!and!quality!

!

DISTINGUISHED%FROM%PAYMENTS:%!

PAYMENT! COMPENSATION!

Takes! effect! by! act! of!the!parties!

Takes!effect!by!operation!of!law!

Capacity! to! dispose! of!the! thing! paid! and! capacity!to! receive! are! required! for!debtor!and!creditor!

Such! capacity! is! not! necessary,!because! it! takes! place! by! operation!of!law!and!not!by!the!acts!of!parties!

Performance! must! be!complete!and!indivisible!

There! may! be! partial!extinguishment!of!an!obligation!!

!

!

Advantage!of!Compensation!over!Payment!

• Simple,! taking! effect! without! action! by! either! party! to!extinguish!their!respective!obligations!

• More!guaranty! in!making!the!credit!effective,!because!there! is!less!risk!of!loss!by!the!creditor!due!to!insolvency!or!fraud!of!the!creditor!

!!!!!

1. DISTINGUISHED!FROM!CONFUSION!

!CONFUSION! COMPENSATION!

Involves!only!one!obligation! There! must! always! be! two!obligations!

There! is! only! one! person! in!whom! the! characters! of!creditor!and!debtor!meet!

Two! persons! who! are! mutually!debtors! and! creditors! of! each!other!in!two!separate!obligations,!each! arising! from! a! different!cause!

Impossibility!of!payment! Indirect!payment!

B. Kinds(1. AS!TO!EXTENT!

a. Total%=%when!two!obligations!are!of!the!same!amount%b. Partial%=%when!the!amounts!are!not!equal;!compensation!

as!to!the!concurrent!amount,!balance!to!be!paid%%

2. AS!TO!ORIGIN!

a. Legal% =% takes! place! by! operation! of! law! when! all!requisites!are!present!even!without!the!knowledge!of!the!parties!

b. Conventional/Voluntary%=%when!the!parties!agree!to!compensate! their! mutual! obligations! even! if! some!requisite! provided! in! Art.! 1279! is! lacking,! such! as! those!provided!in!Art.!1282,!which!is!an!exception!to!the!general!rule!that!only!debts!which!are!due!and!demandable!can!be!compensated%

%Art.! 1282.! The!parties!may!agree!upon! the! compensation!of!debts!which!are!not!yet!due.%!Requisites!of!Voluntary!Compensation!

• Each! of! the! parties! can! dispose! of! the! credit! he! seeks! to!compensate!

• They!agree!to!the!mutual!extinguishment!of!their!credits!!

c. Judicial%–%takes!place!by!order!from!a!court!in!a!litigation!i.e.,!when!the!defendant,!who!is!creditor!of!the!plaintiff!for!an! unliquidated! amount,! sets! up! his! credit! as! a!counterclaim! against! the! plaintiff,! and! his! credit! is!liquidated!by!the!judgment,!thereby!compensating!it!with!the!credit!of!the!plaintiff.!

!Art.! 1283.! If! one! of! the! parties! to! a! suit! over! an! obligation! has! a!claim! for! damages! against! the! other,! the! former!may! set! it! off! by!proving!his!right!to!said!damages!and!the!amount!thereof.!

%%%%%%%%%%

!!!!


d. Facultative%=%when! it!can!be!set!up!only!by!one!of! the!parties! !who,!however,!has! the!right! to!object! to! it,! such!as!when!one!of!the!obligations!has!a!period!for!the!benefit!of!one!party!alone!and!who!renounces!that!period!so!as!to!make!the!obligation!due!• When!legal!compensation!cannot!take!place!for!want!

of!some!legal!requisites!• As! compared! with! conventional:! facultative! is!

unilateral,! while! conventional! depends! upon!agreement!of!both!parties!

• Example:!!o A!is!obliged!to!deliver!to!B!an!Arabian!horse;!B!is!

obliged!to!deliver!to!A!any!horse!–!B!can!set!up!compensation! by! waiving! his! right! and! simply!accept!any!horse!

o Compensation! between! depositor! and!depository,! upon! waiver! by! the! former! of! the!benefit! given! by! law! (no! compensation! in!depositum);! depositor! can! assert! compensation!if!depository!sues!him!for!his!debt!under!another!obligation!

C. Legal(Compensation(!

1. REQUISITES!!Art.! 1279.! In! order! that! compensation! may! be! proper,! it! is!necessary:!!!1. That!each!one!of!the!obligors!be!bound!principally,!and!that!he!

be!at!the!same!time!a!principal!creditor!of!the!other;!!2. That!both!debts!consist!in!a!sum!of!money,!or!if!the!things!due!

are!consumable,!they!be!of!the!same!kind,!and!also!of!the!same!quality!if!the!latter!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! retention! or!

controversy,! commenced! by! third! persons! and! communicated!in!due!time!to!the!debtor.!

!!REQUISITES%FOR%LEGAL%COMPENSATION:%• Mutual! debtors! and! creditors! in! their! own! right,! and! as!

principals!

• There!can!be!no!compensation!when!one!party! is!occupying!a!representative! capacity! i.e.! guardian,! administrator;! no!compensation! if!one!owes!a!debt!personally! to!the!other,!and!has!a!claim!in!a!representative!capacity!against!the!latter!

• A!guarantor!or!surety!is!not!a!principal;!principal!debtor!cannot!set! up! by!way! of! compensation!what! his! creditor! owes! to! his!surety!

• Exception:! A! guarantor! may! set! up! compensation! as! regards!what!the!creditor!may!owe!the!principal!debtor!(Art.!1280)!o If! the! principal! debtor! has! a! credit! against! the! creditor,!

which! can! be! compensated,! it! would! mean! the!extinguishment! of! the! guaranteed! debt;! either! totally! or!partially!

• Solidary!debtor!cannot!set!up! the!obligation!of! the!creditor! in!favor!of!a!co?debtor,!except!as!regards!the!share!of!the!latter!!!!!

• That!both!debts! consists! in! a! sum!of!money,! or! if! the! things!

due!are!consumable,!they!be!of!the!same!kind!and!also!of!the!

same!quality!if!the!latter!has!been!stated!

o Thing! must! be! fungible,! that! is,! things! of! the! same! kind!which!in!payment!can!be!substituted!for!each!other!! Whether! prestations! refer! to! fungibles! will! depend!

largely! on! the! will! of! the! parties! "! there! can! be!compensation! between! two! obligations! to! deliver! a!cow!and!a!carabao,!if!willed!by!parties!

! When! obligations! refer! to! determinate! or! specific!things,!there!can!be!no!compensation!

!• That!the!two!debts!are!due!

o Debt!has!already!matured!!

• That!they!be!liquidated!and!demandable!

• “Liquidated! debts”! –! when! its! existence! and! amount! are!determined!or!determinable!o Compensation! cannot! extend! to! unliquidated,! disputed!

claim!existing!from!breach!of!contract!• “Demandable”!–!enforceable!in!court!• What!are!not!subject!to!compensation!

o Period!which!has!not!yet!arrived,!including!the!case!when!one!party!is!in!a!state!of!suspension!of!payments!! Facultative!compensation:!There!can!be!a!case!where!

in!the!party,!to!whom!the!benefit!of!a!period!is!given,!waives! such!period,! thereby!converting!obligation! to!a! pure! one,! making! it! due! and! demandable!"! can!now!set!up!compensation!

o Suspensive!condition!has!not!yet!happened!o Obligation!cannot!be!sued!upon!i.e.!natural!obligation!o One!of!the!debts!has!already!prescribed!"!Moment!when!

two!debts!co?existed,!and!not!when!compensation!was!set!up,! is! material;! if! at! the! time! the! two! debts! co?exist,!neither!has!prescribed,!prescription!of!one!afterwards!will!not!prevent!compensation!

o Natural!obligations!are!not!legally!demandable!!

• No!retention!or!controversy!has!been!commenced!by!a! third!

party!

o Retention! –! credit! of! one! of! the! parties! is! subject! to! the!satisfaction!of!the!claim!of!a!third!person!

o Controversy!–!third!person!claims!he!is!the!creditor!of!one!of!the!parties!

o Retention!or! controversy!must!be! communicated! “in!due!time”!"!before!legal!compensation!takes!place!

o When! one! obligation! is! simple,! and! the! other! is!alternative,! or! facultative,! there! can! be! no! legal!compensation!

o When!one!obligation!has!a!penal!clause,!and!the!other!has!none,!legal!compensation!is!not!prevented!

!

a. “Due”%distinguished%from%“Demandable”%• An!obligation!that!is!due!is!demandable!• However,!not!all!debts!that!are!demandable,!are!due!

o When! obligation! is! payable! on! demand,! the!obligation! is!not! yet!due!where!no!demand!has!been!made!

!!!!!

!!!!


Cases:!!GAN!TION!v.!CA!

Facts:! Lessee! owes! Lessor! P4,000! as! rents! in! arrears.! Lessor! filed!ejectment!case;!obtained!favorable!judgment!in!municipal!court,!but!was! later! reversed! by! CFI,! entitling! the! Lessee! to! an! award! of! the!sum!of!P500!as!attorney’s!fees.!Lessee!demands!for!payment!of!said!attorney’s! fees;! lessor! claims! there! has! been! legal! compensation.!Lessee! claims! that! no! compensation! can! be! had,! as! he! is! not! the!creditor! in! that! obligation;! P500! was! a! trust! fund! for! his! lawyer!which!he!would!turn!over!to!the!latter.!!!Held:! There! is! compensation.! Award! of! attorney’s! fees! is! made! in!favor!of!the!litigant,!not!of!his!counsel.!The!litigant!is!the!judgment!creditor!and!who!may!enforce!the!judgment!by!execution.!It!would!be!unjust!to!compel!lessor!to!pay!his!debt!for!P500!when!admittedly!his!creditor!owes!him!P4,000.!!SILAHIS!MARKETING!CORP.!v.!IAC!

Facts:! De! Leon! sold! various! items! of! merchandise! to! Silahis! for! P!22,913.75;!latter!failed!to!pay.!De!Leon!filed!complaint!for!collection.!Silahis!filed!counter?claim,!presenting!a!Debit!Memo!for!P22,200!as!unrealized! profit! for! supposed! commission! that! he! should! have!received! from! De! Leon! for! the! sale! of! sprockets! made! directly! to!Dole!Philippines.!!!Held:! No! compensation.! Compensation! takes! place! when! two!persons,!in!their!own!right,!are!creditors!and!debtors!to!each!other.!Compensation!is!likewise!not!proper!where!the!claim!of!the!person!asserting!the!set?off!against!the!other!is!neither!clear!nor!liquidated;!compensation! cannot! extend! to! unliquidated,! disputed! claim!existing! from!breach!of! contract.!Whether!De! Leon! is! liable! to!pay!Silahis!a!commission!on!the!subject!sale!to!Dole!is!strongly!disputed.!Debit! Memo! was! not! signed! by! De! Leon;! also! no! mention! of!commitment!to!pay!commission.!!BPI!v.!REYES!

Facts:! Reyes! opened! two! joint! accounts! at! BPI;! one! with! his! wife,!and!one!with!his!grandmother.!Grandmother!died,!but!was!still!sent!US! pension! which! Reyes! deposited! in! his! joint! account! with! the!former.!He!later!closed!said!account!and!transferred!its!funds!to!his!joint!account!with!his!wife.!US!Dept.!of!Treasury! learned!about!the!prior!death,!and!requested!BPI!for!a!refund;!BPI!refunded.!BPI!claims!Reyes!verbally!authorized! it! to!debit!his! joint!account!with!his!wife!for!said!amount.!Reyes!disclaims.!!Held:! There! is! legal! compensation.! All! requisites! of! compensation!present;! debts! are! extinguished! to! the! concurrent! amount,! even!though!creditors!and!debtors!are!not!aware!of!or!did!not!consent!to!the!compensation.!BPI!is!a!debtor!of!Reyes,!a!depositor.!BPI!is!also!a!creditor! of! Reyes! with! respect! to! the! dishonored! US! Treasury!Warrant! illegally! transferred! to! his! joint! account.! As! to! the! wife’s!interest!on!the!joint!account,!element!of!mutuality!is!not!negated,!as!she!never!asserted!her!right.!Rule!as!to!mutuality! is!strictly!applied!at! law,! but! not! in! equity,! where! to! allow! the! same!would! lead! to!unjust!enrichment.!!PNB!v.!SAPPHIRE!SHIPPING!

Facts:!PNB!intercepted!funds!coursed!through!it,!to!be!delivered!to!Citibank,!in!favor!of!Sapphire!Shipping,!and!applied!the!same!against!sums! erroneously! credited! by! it! to! the! latter’s! account.! Sapphire!Shipping! demanded! for! the! remittances,! but! PNB! claims!compensation,!as!they!are!mutually!indebted!to!each!other.!!

Held:! Parties! are! not! both! principally! bound! with! respect! to! the!remittances;!neither!are!they!at!the!same!time!principal!creditor!of!the!other.!Only!Sapphire!Shipping!is!principally!bound!as!a!debtor!of!PNB! to! the! extent! of! the! double! credits.! PNB,! on! the! other! hand,!was!an! implied! trustee,!who!was!obliged! to!deliver! to!Citibank! the!remittances!for!the!benefit!of!Sapphire!Shipping.!

MIRASOL!v.!CA!

Facts:! PNB! financed! Mirasols! sugar! production! under! a! crop! loan!financing! scheme.!Mirasols! executed!mortgages,! empowering! PNB!to! sell! their! crops! and! to! apply! proceeds! as! payment! of! their!obligation.!PD!579!was! issued!by!Marcos,!which!authorized!PNB!to!finance!Philex’s!purchases,!and!directed!that!whatever!profit!Philex!made! from! foreign! sales! was! to! be! remitted! to! a! special! fund! of!national! government.! PNB! demanded! Mirasols! to! settle! their! due!obligations.!Mirasols!failed!to!pay;!mortgaged!properties!foreclosed!but! leaving! a! deficiency! of! P12M.! Mirasols! claim! that! loans! have!been! fully! paid! by! virtue! of! legal! compensation—outstanding! debt!offset!by!unliquidated!amounts!owed!to!them!by!PNB.!!Held:! There! is! no! legal! compensation.! They! are! not! mutually!creditors!and!debtors!of!each!other.!PNB!retained!nothing!from!the!proceeds!of!the!sale!of!crops,!as!it!was!remitted!to!the!Government.!Furthermore,!compensation!cannot! take!place!where!one!claim,!as!in! the! instant! case,! is! still! the! subject! of! litigation,! as! the! same!cannot!be!deemed!liquidated.!!

2. EFFECTS!!!

Art.! 1290.!When! all! the! requisites! mentioned! in! article! 1279! are!present,! compensation! takes! effect! by! operation! of! law,! and!extinguishes!both!debts!to!the!concurrent!amount,!even!though!the!creditors!and!debtors!are!not!aware!of!the!compensation.!!!Art.!1289.! If!a!person!should!have!against!him!several!debts!which!are! susceptible! of! compensation,! the! rules! on! the! application! of!payments!shall!apply!to!the!order!of!the!compensation!

!EFFECTS%OF%LEGAL%COMPENSATION:%1. Both! debts! are! extinguished! to! the! concurrent! amount! (Art!

1290)!2. Interests! stop! accruing! on! the! extinguished! obligations! or! the!

part!extinguished!3. Period! of! prescription! stops! with! respect! to! the! obligation! or!

part!extinguished!4. All! accessory! obligations! of! the! principal! which! has! been!

extinguished!are!also!extinguished!5. If! a! person! should! have! against! him! several, debts, which, are,

susceptible, of, compensation,! the! rules! on! application! of!payments! shall! apply! to! the! order, of, the, compensation.! (Art!1289)!!• If! debtor! has! various! debts! which! are! susceptible! of!

compensation,!he!must!inform!the!creditor!which!of!them!shall!be!the!object!of!compensation.!In!case!he!fails!to!do!so,! compensation! shall! be! applied! to! the! most! onerous!obligation!

• Must!be!alleged!and!proved!by!the!debtor!who!claims! its!benefits;!once!proved,! its!effects! retroact! to! the!moment!when!the!requisites!concurred!

!!!

!!!!


• May! be! renounced,! upon! a! unilateral! declaration! of! the!debtor!o Expressly!or!impliedly!o Implied! renunciation!–! (1)!by!not! setting! it!up! in! the!

litigation,! (2)!consenting! to! the!assignment!of!credit,!(3)! by! paying! the! debt! voluntarily,! with! knowledge!that! it! has! been! extinguished! by! compensation! "!renunciation!cannot!be!made!to!the!prejudice!of!third!persons!

D. When(Compensation(is(Not(Allowed(1. When!there!is!renunciation!of!the!effects!of!compensation!

by!a!party!2. When!the!law!prohibits!its!compensation!

a. Depositum!(Art!1287)!b. Commodatum!(Art!1287)!c. Support!due!by!gratuitous!title!(Art!1287)!d. Civil!liability!arising!from!a!penal!offense!(Art!1288)!

!Art.!1287.!Compensation!shall!not!be!proper!when!one!of!the!debts!arises!from!a!depositum!or!from!the!obligations!of!a! !depositary!or!of!a!bailee!in!commodatum.!!

Neither!can!compensation!be!set!up!against!a!creditor!who!has!a!claim! for! support! due! by! gratuitous! title,!without! prejudice! to! the!provisions!of!paragraph!2!of!article!301.!!!• A!deposit! is!made!or!a!commodatum! is!given!on!the!basis!of!

confidence! of! the! owner.! It! is! therefore,! just! that! the!depositary!or!borrower!should! in! fact!perform!his!obligation;!otherwise! the! trust! of! the! depositor! or! lender! would! be!violated.!!

• With!respect!to!future!support,!to!allow!its!extinguishment!by!compensation! would! defeat! its! exemption! from! attachment!and! execution.! Support! in! arrears,! however,! can! be!compensated!

• Depositor! can! set! up! his! deposit! against! a! claim! of! the!depositary,!and!the!lender!can!set!up!his!loan!against!a!credit!of!the!borrower!"!facultative!compensation!

• Support:! includes! legal! support,! and! all! other! rights! which!have!for!their!purpose!the!subsistence!of!the!debtor,!such!as!pensions! and! gratuities,! like! annuities! and! salaries! sufficient!only!for!the!needs!of!the!debtor!

• Debts! in! favor!of! the!Government! in! the! form!of! taxes,! fees,!duties,! and! similar! forced! contributions,! cannot! be!extinguished! by! compensation;! except! when! debt! is! purely!contractual!

!Art.!1288.!Neither! shall! there!be!compensation! if!one!of! the!debts!consists!in!civil!liability!arising!from!a!penal!offense.!

!• Satisfaction!of!such!obligation!is!imperative!• Offended!party!entitled!to!the!indemnity!can!set!up!his!claim!

in!compensation!of!is!debt!!

NO%COMPENSATION%MAY%OCCUR%EVEN%WHEN%ALL%THE%REQUISITES%CONCUR:,,

• When!there!is!renunciation!of!the!effects!of!compensation!by!a!party!"!rests!upon!a!potestative!right!and!unilateral!declaration!of!renunciation!is!sufficient!!

• When!the!law!prohibits!compensation!!o Art.!1287!o Art.!1288!

E. Compensation( of( Debts( Payable( in(Different(Places(

!Art.! 1286.! Compensation! takes! place! by! operation! of! law,! even!though!the!debts!may!be!payable!at!different!places,!but!there!shall!be!an! indemnity! for!expenses!of!exchange!or! transportation!to! the!place!of!payment.!!

!• Applies! to! legal! compensation! but! not! to! voluntary!

compensation!• The! indemnity! contemplated! does! not! refer! to! the!

difference! in! the! value! of! the! things! in! their! respective!places!but!to!the!expenses!of!monetary!exchange!(in!case!of!money!debts)!and!expenses!of!transportation!(in!case!of!things!to!be!delivered).!

• Indemnity! shall! be! paid! by! the! person! who! raises! the!defense!of!compensation!

F. Effect( of( Nullity( of( Debts( to( be(Compensated(

!Art.!1284.!When!one!or!both!debts!are!rescissible!or!voidable,!they!may! be! compensated! against! each! other! before! they! are! judicially!rescinded!or!avoided.!

!• When!rescissible!or!voidable!debt!is!rescinded!or!annulled,!

effect! is! retroactive,! and! compensation! must! be!considered!cancelled!

• Party! whose! obligation! is! annulled! or! rescinded! can!recover! to! the! extent! that! his! credit!was! extinguished!by!the!compensation,!because!to!that!extent!he!is!deemed!to!have!made!payment!

G. Effects(of(Assignment(of(Credit(!MADE%AFTER%COMPENSATION%TOOK%PLACE:,,

• No! effect;! compensation! already! perfected,! obligations!extinguished;!nothing!to!assign!at!all!

• Assignee!is! left!with!an!action!for!eviction!or!for!damages!for!fraud!against!assignor!!

!MADE%BEFORE%COMPENSATION%TOOK%PLACE:%!1. WITH!CONSENT!OF!DEBTOR!

!

Art.!1285,!par.!1!.!The!debtor!who!has!consented!to!the!assignment!of!rights!made!by!a!creditor!in!favor!of!a!third!person,!cannot!set!up!against!the!assignee!the!compensation!which!would!pertain!to!him!against!the!assignor,!unless!the!assignor!was!notified!by!the!debtor!at! the! time! he! gave! his! consent,! that! he! reserved! his! right! to! the!compensation.!!

!• Cannot! set! up! against! assignee! UNLESS! debtor! reserved! his!

right!to!compensation!when!he!gave!his!consent!!• Assignment!does!not!take!effect!except!from!the!time!debtor!is!

notified!thereof!• If!notice!of!assignment! is!simultaneous!to! the!transfer,!debtor!

can!set!up!compensation!of!debts!prior!to!the!assignment!

!!!!


2. WITH!KNOWLEDGE!BUT!WITHOUT!CONSENT!OF!DEBTOR!

!

Art.!1285,!par.!2! .! If! the!creditor!communicated!the!cession!to!him!but! the! debtor! did! not! consent! thereto,! the! latter!may! set! up! the!compensation! of! debts! previous! to! the! cession,! but! not! of!subsequent!ones.!!!• Only!with!respect!to!debts!prior,to,assignment,!not!subsequent!!• Debtor!may!set!up!compensation!when!the!assignee!attempts!

to!enforce! the!assigned!credit,!provided! that! the!credit!of! the!debtor! became! due! before! the! assignment;! if! assigned! credit!matures! earlier! than! that! of! the! debtor,! assignee! may!immediately! enforce! it,! and! debtor! cannot! set! up!compensation,!because!his!credit!is!not!yet!due!

!

3. WITHOUT!KNOWLEDGE!OF!DEBTOR!

!Art.!1285,!par.!3.!If!the!assignment!is!made!without!the!knowledge!of!the!debtor,!he!may!set!up!the!compensation!of!all!credits!prior!to!the! same! and! also! later! ones! until! he! had! knowledge! of! the!assignment.!!• All!debts!maturing!prior,to,his,knowledge,,• Rationale:! As! far! as! the! debtor! is! concerned,! the! assignment!

does!not!take!effect!except!from!the!time!he!is!notified!thereof,

VII. Novation*

A. Concept(!

Novation! is!the!extinguishment!of!an!obligation!by!the!substitution!or!change!of!the!obligation!by!a!subsequent!one!which!extinguishes!or!modifies!the!first!either!by:!1. Changing!the!object!or!principal!conditions!2. Substituting!the!person!of!the!debtor!3. Subrogating!a!third!person!in!the!rights!of!the!creditor!

!• Unlike! other! acts! of! extinguishing! obligation,! novation! is! a!

juridical! act! of! dual! function! in! that! at! the! time! it!extinguishes,an,obligation,!it!creates,a,new,one,in,lieu,of,the,old.!!

• Does! not! operate! as! absolute! but! only! as! a! relative!extinction.!!!

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!the!creditor!

B. Kinds(1. AS!TO!FORM!

a.% Express% =% parties! declare! that! the! old! obligation! is!extinguished!and!substituted!by!the!new!obligation!b.% % Implied% =% incompatibility! between! the! old! and! the! new!obligations!that!they!cannot!stand!together%!

!

!

2. AS!TO!ORIGIN!

a. Conventional%=%by!express!stipulation!of!the!parties b. Legal%=%by!operation!of!law

3. AS!TO!OBJECT!

a. Objective% or% Real% =% change! in! the! cause,! object,! or!principal!

b. Subjective%or%Personal%=%modification!of!obligation!by!the!change!of!the!subject!%• Passive!?!substitution!of!debtor!%• Active!?!!subrogation!of!a!third!person!in!the!rights!of!

the!creditor%c. Mixed%=%both!objective!and!subjective!novation%

%4.!!!!AS!TO!EFFECT!

a. Partial% or% modificatory% = only! a! modification! or!change!in!some!principal!conditions!of!the!obligation!,

b. Total% or% extinctive% =% obligation! is! completely!extinguished,

C. Requisites(!Art.! 1292.! In! order! that! an! obligation! may! be! extinguished! by!another!which!substitutes! the!same,! it! is! imperative!that! it!may!be!so! declared! in! unequivocal! terms,! or! that! the! old! and! the! new!obligations!be!on!every!point!incompatible!with!each!other.!!1. Previous!valid!obligation"! not!only! valid,!but!has!not!been!

extinguished!by!any!cause!2. The!agreement!of!all!parties!to!the!new!contract"consent!of!

all!parties!to!the!substitution!3. Extinguishment! of! the! old! contract"either! express! or!

implied!4. Validity!of!the!new!one!!5. Animus, novandi, or, intent, to, novate! (especially! for! implied,

novation!and!substitution,of,debtors)!!

• Novation! is! never! presumed.! There! is! no! novation! in! the!absence!of!a!new!contract!executed!by!the!parties.!!

• It! must! be! established! that! the! old! and! new! contracts! are!incompatible! in!all!points,!or!that!the!will!to!novate!appear!by!express!agreement!of!the!parties!or!in!acts!of!equivalent!import!

• Novation!is!not!a!mode!of!extinguishing!criminal!liability.!It!may!prevent!the!rise!of!criminal!liability!as!long!as!it!occurs!prior!to!the!filing!of!the!criminal!information!in!court!

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Cases:!!MAGDALENA!ESTATE!v.!RODRIGUEZ!

Facts:! Appellants! Antonio! and! Hermina! Rodriguez! bought! from!appellee! Magdalena! Estates,! Inc.! a! 2,191! sq.! m! parcel! of! land! in!Quezon! City.! In! view! of! an! unpaid! balance! of! P5,000,! appellants!executed!a!promisory!note,!whereby!they!promised!to!pay!appellee!the! amount! with! a! 9%! interest.! On! the! same! day,! appellants! and!Luzon!Surety!Co.!Inc!executed!a!bond!in!favor!of!appellees!whereby!they! bound! themselves! to! comply! with! the! obligation! to! pay! the!P5,000! within! a! period! of! 60! days.! When! it! became! due! and!demandable,! Luzon! Surety! Co.! Inc! paid! the! P5,000.! Appellees!demanded! from!Appellants! the!payment!of!P655.89!corresponding!to! alleged! accumulated! interests! on! the! said! amount,! which! they!refuse! to! pay.! They! claim! that! the! unqualified! acceptance! of!payment! made! by! Luzon! without! exercising! its! right! to! apply! a!portion!of!P655.89!to!the!payment!despite!its!presumed!knowledge!constitutes!a!waiver!or!condonation!of!the!interest!due.!!Held:!No! condonation.! Appellee! did! not! protest! when! it! accepted!the! payment! of! said! amount! because! he! knew! that! that! was! the!complete!amount!undertaken!by!the!surety!in!the!contract.!Liability!of! the! surety! is! not! extended,!by! implication,! beyond! the! terms!of!his!contract.!No!novation.!Novation!by!presumption!has!never!been!favored.!The!obligation!to!pay!isn’t!novated!in!a!new!instrument!wherein!the!old!is!ratified!by!changing!only!the!terms!of!payment!and!adding!other!obligations! not! incompatible!with! the! old! one.! The!mere! fact! that!the! creditor! receives! a! guaranty!when! there! is! no! agreement! that!the! first! debtor! shall! be! released! from! responsibility! does! not!constitute!novation.!The!surety!bond!is!only!an!accessory!obligation!of!the!promissory!note!and!is!not!a!new!and!separate!contract.!!!

REYES!v.!SECRETARY!OF!JUSTICE!

Facts:! Eurotrust! and! BERMIC! entered! into! a! loan! agreement.!Eurotrust! extended! to! BERMIC! P216! Million! to! finance! its! Ritz!Condominium!and!Gold!Business!Park.!BERMIC!issues!21!postdated!checks! which! were! subsequently! dishonored! due! to! stop! order!payment!made!by!Gracia!Eleazar! (President!of!BERMIC).!Elsa!Reyes!(President!of!Eurotrust)!filed!complaint!for!violation!of!BP!22!and!Art!315!of!the!RPC.!AFP!MBAI!conducted!investigation!and!Found!that:!(a)!AFP!MBAI!invested!in!Eurotrust!by!buying!from!them!government!securities;!(b)!Eurotrust!in!turn,!borrowed!from!AFP!MBAI!the!same!government! securities! but! failed! to! return! it! to! the! latter;! (c)! The!money! paid! by! AFP! MBAI! to! Eurotrust! was! the! money! lent! by!Eurotrust!to!BERMIC!!and!others.!Eleazar!requested!a!meeting!with!Eurotrust! –! reached! an! agreement! that:! (a)! BERMIC! will! directly!settle!its!obligations!with!the!real!owners,!AFP!MBAI!and!DECS?IMC;!(b)!BERMIC!started!making!negotiations!and!made!payments!to!the!latter! (P31,711.11!and!P1M!check!paid! to!AFP!MBAI).!Office!of! the!Provincial!Prosecutor!of!Rizal!dismissed!the!complaints!of!Reyes!on!the! ground! that! the! assumption! of! Eleazar! of! Reyes’! obligation! to!AFP! MBAI! was! a! novation,! which! extinguished! Eleazar’s! criminal!liability.!

!Held:!No! novation.! The! last! three! requisites! of! novation!were! not!complied!with.! No! new! agreement! for! the! substitution! of! creditor!was!made!to!take!the!place!of!the!previous!contract.!The! two! letters! made! to! formalize! the! agreement! does! not! show!that!AFP!MBAI!agreed!to!the!substitution!of!creditor.!It!is!merely!an!

agreement! between! Eleazar! and! Reyes.! No! hard! evidence! was!presented! demonstrating! the! intention! of! AFP! MBAI! to! release!Reyes! from! her! obligation! to! pay! under! the! contract! of! sale! of!securities.!Novation!by! substitution!of!debtor!must! always!be!with!the! consent! of! the! creditor! (Art! 1293).! AFP! MBAI’s! receipt! of!payments!from!Eleazar!does!not!constitute!novation.!At!most,!it!only!creates!the!juridical!relation!of!co?debtorship!or!suretyship.!!!

CONCHINGYAN!v.!RB!SURETY!AND!INSURANCE!

Facts:! Pacific! Agricultural! Suppliers! (PAGRICO)! was! granted! a!P400,000! increase! in! its! line! of! credit!with! PNB.! It! has! to! secure! a!bond! worth! that! amount! which! was! issue! by! R&B! Surety! and!Insurance! Co.! Inc,! who! bound! themselves! jointly! and! severally! to!comply!with!the!terms!and!conditions!of!the!advance!line.!PNB!gad!the! righ! under! the! surety! to! proceed! directly! against! Respondent!without! exhausting! the! assets! of! PAGRICO.! Subsequently,! two!identical! indemnity! agreements! were! entered! into! by! Respondent!with! (1)Catholic! Church! Mart! (Cochingyan)! and! (2)PAGRICO!(Villanueva)! and! PACOCO! (Liv).! The! Indemnitors! bound! themselves!to! pay! Respondent! an! annual! premium!of! P5,000.!When! PAGRICO!failed! to! comply,! PNB! demanded! from! Respondent! the! P400,000.!Respondent!paid!a!total!of!P70,000.!Respondent!sent!a!formal!letter!to!indemnitors!(Petitioners)!for!reimbursement!and!for!discharge!of!its!liability!to!PNB.!!Issue:!WON!the!trust!agreement!has!extinguished,!by!novation,!the!obligation! of! Respondent! to! PNB! under! the! surety! bond! which! in!turn!extinguished!the!obligations!of!Petitioners!under!the!indemnity!agreements!!Held:!No.!Trustor!(petitioners!Cochingyan,!Villanueva,!and!Liv),!since!PAGRICO!and!PACOCO!have!defaulted,! is!bound!to!comply!with!his!obligation! under! the! indemnity! agreements.! Such! shall! not! in! any!manner!release!respondent!from!its! liabilities.!The!surety!bond!has!not! been! discharged! by! payment! of! the! principal! obligation.! The!trust! agreement! does! not! expressly! terminate! the! obligation! of!Respondent,!it!merely!brought!another!person!to!assume!the!same!obligation! that! respondent! was! bound! to! perform.! For! subjective!novation! to! take! place,! the! old! debtor!must! be! released! from! the!obligation.!If!not,!the!third!person!merely!becomes!a!co?debtor.!!!

BROADWAY!CENTRUM!CONDOMINIUM!CORP!v.!TROPICAL!HUT!

Facts:! Broadway! Centrum! and! Tropical! Hut! executed! a! contract! of!lease!where!Petitioner!agreed!to!lease!3,042.19!sq!m!portion!of!the!Broadway! Centrum! Commercial! Complex! for! 10! years! with! a!monthly! rental! of! P120,000! (first! 3! years),! P140,000! (2! years),!P165,000!(4!years).!In!1982,!P!agreed!to!reduce!the!rent!by!P20,000!for! a! limited!period!due! to! low! sales! of! R,! on! the! condition! that!R!would! implement!P’s!suggestions!of!strategies!to! increase! its!sales.!Stipulation:! any! reduction! in! rentals! is! merely! a! temporary!

suspension!of!the!original!rate!stipulated.!!Held:! No! novation.! The! agreement! clearly! stated! that! it! is!provisional! and! temporary.! P! retained! the! discretionary! right! to!return! to! the! original! contractual! rates! whenever! it! deemed!appropriate.! In! novation,! it! is! essential! that! the! new! obligation!expressly!declare!that!the!old!one!is!to!be!extinguished,!or!that!it!be!incompatible!on!every!point.!!!!!!!!!

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CALIFORNIA!BUS!LINE!v.!STATE!INVESTMENT!

Facts:!Delta!applied!for!financial!assistance!from!SIHI!for!P25M.!CBLI!purchased!35!buses!and!2!conversion!engines!from!Delta.!To!secure!payment,! CBLIE! and! Mr.! Llama! executed! 16! promissory! notes! in!favor! of! Delta! (P2.3M!each).! CBLI! also! executed! chattel!mortgages!over!the!35!buses! in!Delta’s!favor.!When!CBLI!defaulted,! it!entered!into! a! restructuring! agreement! with! Delta:! provided! for! a! new!schedule!of!payments!and!a!security!clause! that! in!case!of!default,!Delta! would! have! the! authority! to! take! over! the! management! of!CBLI.! Delta! executed! a! Deed! of! Continuing! Assignment! of!Receivables!in!favor!of!SIHI!as!security.!CBLI!had!trouble!meeting!its!obligations! to! Delta,! so! the! latter! filed! action! to! enforce! takeover!clause.!Delta!executed!a!Deed!of!Sale,!assigning!to!SIHI!5!of!the!16!promissory! notes! from! CBLI.! Delta! and! CBLI! entered! into! a!compromise!agreement"CBLI!agreed! that!Delta!would!exercise! its!right! to!extrajudicial! foreclosure!on!the!chattel!mortgages!over! the!35!bus!units.!Issue:! WON! the! restructuring! agreement! novated! the! promissory!notes!!Held:! No.! The! restructuring! agreement! between! Delta! and! CBLI!didn’t! expressly! stipulate! that! such! would! novate! the! promissory!notes,! hence,! only! a! showing! of! incompatibility! would! sustain!novation.! Such! incompatibility! isn’t! present! in! the! case.! The!agreement!merely! provided! for! a! new! schedule! of! payment! and! a!security! clause.!Where! the!parties! to! the!new!obligation! recognize!the!continuing!existence!and!validity!of!the!old!one,!there!could!be!no!novation.!!

D. Effects(!

1. IN!GENERAL!

!Art.! 1296.! When! the! principal! obligation! is! extinguished! in!consequence!of! a! novation,! accessory! obligations!may! subsist! only!insofar! as! they! may! benefit! third! persons! who! did! not! give! their!consent!

!• The! general! effect! of! novation! is! the! extinguishment! of! the!

original!obligation!and!creation!of!a!new!one!!

2. WHEN!ACCESSORY!OBLIGATION!MAY!SUBSIST!

!

Art.! 1296.! When! the! principal! obligation! is! extinguished! in!consequence!of! a! novation,! accessory! obligations!may! subsist! only!insofar! as! they! may! benefit! third! persons! who! did! not! give! their!consent!

!• As! a! general! rule,! the! extinguishment! of! the! principal! also!

extinguishes!the!accessory!obligations.!• Art! 1296! provides! an! exception! that! accessory! obligations!

may! subsist! only! insofar! as! they! may! benefit! third! person!who!did!not!give!the!consent!to!the!novation!!a. Why?! The!mortgage,! pledge,! guaranty! was! given! to!

answer! for! a! particular! obligation! or! for! the!insolvency!of!a!particular!debtor;!any!change!in!either!of! this! destroys! the! basis! of! the! consent! of! the!mortgagor,!pledgor,!surety!or!guaranty!

b. A! person! should! not! be! prejudiced! by! the! act! of!another!without!his!consent!

!

E. Effect(of(the(Status(of(the(Original(or(New(Obligation(!

1. NULLITY!OR!VOIDABILITY!OF!ORIGINAL!OBLIGATION!

!Art.! 1298.! The! novation! is! void! if! the! original! obligation!was! void,!except! when! annulment! may! be! claimed! only! by! the! debtor,! or!when!ratification!validates!acts!which!are!voidable.!

!• NULLITY! of! original! obligation! makes! the! new! obligation!

void!o One! of! the! requisites! of! novation! is! a!previous, valid,

obligation!!o Also! applies! to! voidable! obligations! that! are! already!

annulled/extinguished!o One! of! the! requisites! of! novation! is! a!previous, valid,

obligation!!o Also! applies! to! voidable! that! are! already!

annulled/extinguished!!

• VOIDABILITY!original!obligation!makes!the!new!obligation!valid!if:!

1. It!is!ratified!before!novation!2. even! if!not,ratified,!but!voidable!at,the, instance,

of,the,debtor!

o Consent! of! debtor! constitutes! implied!waiver! of! the!action!for!nullity!!

o Defect! is! not! completely! cured! in! expromision!wherein!debtor!has!not!intervened!or!consented!

!2. NULLITY!OR!VOIDABILITY!OF!NEW!OBLIGATION!

!Art.!1297.!If!the!new!obligation!is!void,!the!original!one!shall!subsist,!unless! the! parties! intended! that! the! former! relation! should! be!extinguished!in!any!event.!!

• If! the! new! obligation! is! NULL,! the! original! obligation!subsists! unless! the! parties! intend! the! extinguishment! of!the!former!relation!in!any!event!

• VOIDABILITY!of!the!new!obligation!makes!it!binding,!but!if!it!is!annulled!and!set!aside,!the!original!obligation!subsists!!

!3. SUSPENSIVE! OR! RESOLUTORY! CONDITION! OF! ORIGINAL!

OBLIGATION!

!Art.!1299.!If!the!original!obligation!was!subjective!to!a!suspensive!or!resolutory! condition,! the! new! obligations! shall! be! under! the! same!condition,!unless!it!is!otherwise!stipulated.!

!• Old!Obligation!Conditional!and!New!Obligation!Pure!

o If! intention! is! merely! to! suppress! the! condition,! no%novation!

o If! intention! is! to! extinguish! the! original! obligation!itself! by! the! creation! of! a! new! obligation,! the!novation%does%not%arise,except!from!fulfillment!of!the!condition!from!original!obligation!

• If!the!suspensive!condition!of!the!original!obligation!is!not!performed,! that!obligation!does!not! come! into!existence,!and!the!cause!for!the!new!obligation!would!be!wanting!

!!!!


• If!the!condition!is!resolutory,! its!happening!would!resolve!the!old!obligation!as!void!or!extinguished!

• Where! the!original!obligation! is! conditional,! the!novation!itself! must! be! held! to! be! conditional,! and! its! efficacy!depends! upon! whether! the! condition! which! affects! the!former!is!complied!with!or!not!

• Both!Obligations!are!Conditional!o If! the! conditions! in! the! two! obligations! are! not!

incompatible! with! each! other,! and! they! can! stand!together,! they! must! all! be! fulfilled! in! order! that!novation! may! become! effective.! If! either! of! the!conditions! are! not! fulfilled,! no! novation! can! take!place!

o If! the! two! conditions! are! incompatible! with! each!other,!there! is!an!obvious! intention!to!substitute!the!new!conditional!obligation! for! the!old!one"! results!in! the! extinguishment! of! the! old! obligation,! leaving!the!new!one!subject!to!its!conditions!

F. Objective(Novation(!• Change!in!the!object!of!prestations!• “Principal! Conditions”?! principal! terms! (e.g.! making! the!

debt!absolute!instead!of!conditional!and!vice?versa)!• Sir!Labitag!lecture!notes!

o Dacion,en,pago!is!an!objective!novation!o If! there! is! an! increase! in! amount! and! you! can!prove!

that!the!intention!to!novate,!then!it!will!be!an!implied!novation,!but!usually,!it’s!not!a!novation!if!you!change!the!amount.!!

o Extension!of!time!does!not!imply!novation.!But!if!the!time!situation! is! reversed! (shortening!of! the!period),!that!is!a!novation.!E.g.!Ynchausti,v,Yulo!!

o Convertion!of!an!obligation!to!some!other!obligation!e.g.!obligation!for!contract!of!deposit!for!one!of!loan,!or!a!contract!of!deposit!to!one!of!commodatum.!!,

G. Subjective(Novation(!• Change!of!debtor!or!creditor!• In! all! kinds! of! subjective! novation,! the! consent! of! the!

creditor!is!required.!!

1. BY!CHANGE!OF!DEBTOR!• CONSENT!OF!THE!THIRD!PARTY!ALWAYS!REQUIRED.!Why?!

Because!he!assumes!the!obligation!!• CONSENT!OF! THE!CREDITOR! IS! LIKEWISE! INDISPENSABLE.!

Why?!Substitution!of!one!debtor!for!another!may!delay!or!prevent! the! fulfillment!of! the!obligation!by! reason!of! the!inability!or!insolvency!of!the!new!debtor!o Consent! may! be! implied! or! express! as! long! as! it! is!

given.!!o However,!it!cannot!be!presumed!from!his!acceptance!

of! payments! by! a! 3rd! party! for! the! benefit! of! the!debtor!without! further!acts;!no!novation!because!no!consent!to!the!transfer!of!the!debt!itself!

• It! is! not! enough! to! extend! the! juridical! relation! to! a! 3rd!person,! it! is! necessary! that! the! old! debtor! be! released!from! the! obligation! and! the! 3rd! person! or! new! debtor!takes!his!place.!!

• Without!the!release,!there!is!no!novation,!the!person!who!assumed! the! obligation! of! the! debtor!merely! becomes! a!co?debtor!or!a!surety!

• No!agreement! to! solidarity,! the! first! and! the!new!debtor!are!considered!obligated!jointly.!

!

a. Expromision%• May! be! done! at! the! instance! of! the! creditor! or! the!

third!party!himself!• Consent! of! the! old! debtor! is! not! necessary,!

substitution!may!be!made!without!his!knowledge!!i. Requisites%

%Art.! 1293.!Novation!which! consists! in! substituting! a! new!debtor! in!the! place! of! the! original! one,! may! be! made! even! without! the!knowledge! or! against! the! will! of! the! latter,! but! not! without! the!consent!of!the!creditor.!Payment!made!by!the!new!debtor!gives!him!the!rights!mentioned!in!Articles!1236!and!1237.!

!Art.!1236!par!2.!Whoever!pays! for!another!may!demand! from!the!

debtor! what! he! has! paid,! except! that! if! he! paid! without! the!knowledge! or! against! the! will! of! the! debtor,! he! can! recover! only!insofar!as!the!payment!has!been!beneficial!to!the!debtor.!!

!Art.! 1237.! Whoever! pays! on! behalf! of! the! debtor! without! the!knowledge! or! against! the! will! of! the! latter,! cannot! compel! the!

creditor!to!subrogate!him!in!his!rights,!such!as!those!arising!from!a!mortgage,!guaranty,!or!penalty.!!

!• Consent!of!two!parties!(new!debtor!and!creditor)!• Knowledge!or!consent!of!the!old!debtor!is!not!required!!

ii. %Effects%%

Art.!1294.!If!the!substitution!is!without!the!knowledge!or!against!the!will!of!the!debtor,!the!new!debtor’s!insolvency!or!non?fulfillment!of!the! obligation! shall! not! give! rise! to! any! liability! on! the! part! of! the!original!debtor.!

!• The! debtor! is! released! from! obligation"without! such!

release,! there! is! no! novation.! The! third! person! who!assumed! the! obligation! merely! becomes! a! co?debtor! or!surety.!

• Creditor!generally! cannot! recourse! from!the!old!debtor! if!the!new!debtor!is!insolvent!!

• If!substitution!is!without!his!knowledge!or!consent!o Old!debtor!is!not!liable!for!the!insolvency!or!non?

fulfillment!of!the!new!debtor!(Art!1294)!o The! new! debtor! can! only! compel! old! debtor! to!

reimburse! inasmuch! as! the! payment! has! been!beneficial!to!him!"!No!subrogation!takes!place!(Art!1237)!

• If!substitution!is!with!knowledge!and!consent!!o New!debtor! is!entitled! to! full! reimbursement!of!

the!amount!paid!and!subrogation!!%%%%

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b. Delegacion%• Debtor!offers!and!the!creditor!accepts!a!third!person!

who!consents!to!the!substitution!so!that!the!consent%of%the%three,is!necessary!!

• Delegante! (old! debtor),! delegatario! (creditor)! and!delegado!(third!person!new!debtor)!

• Consent!need!not!be!given!simultaneously!!

!

i. Requisites%(vs.%Art.%1293)%!

1. Initiative!for!substitution!must!emanate!from!the!old!debtor!

2. Consent!of!the!new!debtor!3. Acceptance!by!the!creditor!!

!ii. Effects%

%Art.! 1295.! The! insolvency! of! the! new! debtor,! who! has! been!proposed!by!the!original!debtor!and!accepted!by!the!creditor,!shall!not!revive!the!action!of!the!latter!against!the!original!obligor,!except!when!said! insolvency!was!already!existing!and!of!public!knowledge!or!known!to!the!debtor,!when!he!delegated!his!debt.!

%• Original!debtor!is!released!from!the!obligation!• The!new!debtor! is!subrogated! in! the!rights!of! the!creditor.!He!

may!demand!from!the!old!debtor!the!entire!amount!of!what!he!has!paid!for!the!obligation.!(Art!1302!Par!2)!

• GENERAL! RULE:! Old! debtor! is! not! liable! for! the! insolvency! or!non?fulfillment!of!the!new!debtor!(Art!1295)!

• EXCEPTION:!!o He!is!aware!of!the!insolvency!at!the!time!he!delegated!his!

debt!(Art!1295)!o At!the!time!of!the!delegation,!the!new!debtor’s!insolvency!

is!already!existing!and!of!public!knowledge!(Art!1295)!!Cases:!!GARCIA!v.!LLAMAS!

Facts:!Romeo!Garcia!and!Eduardo!de!Jesus!borrowed!P400,000!from!Dionisio!Llamas.!They!executed!a!promissory!note!where!they!bound!themselves!jointly!and!severally!to!pay!the!loan!on!or!before!Jan!23,!’97! with! a! 5%! interest! per! month.! The! two! failed! to! pay! despite!demands! from! Respondent.! Garcia! claims! that:! he! assumed! no!liability!under!the!promissory!note!because!he!signed!it!merely!as!an!accommodation!party!and!that!he!is!relieved!from!any!liability!since!the! load!has!been!paid!by!de!Jesus!by!means!of!a!check.!He!claims!that! the! acceptance! of! the! check! novated! the! loan.! However,! said!check!bounced.!!Held:! No! novation.! The! check! couldn’t! have! extinguished! the!obligation! since! it! bounced.! There! was! no! express! declaration! of!novation,!nor!incompatibility!between!the!promissory!note!and!the!check.!Subjective!novation!must! release! the!old!debtor!and!a! third!person!must! assume! it"! Garcia! didn’t! show! that! he!was! released!and!there!was!no!express!consent!from!the!creditor.!Also,!de!Jesus!wasn’t! a! third! party! to! the! obligation! since! they! were! solidary!debtors! who! could! only! be! released! upon! extinguishment! of!obligation.!!!!

QUINTO!v.!PEOPLE!

Facts:!Leonida!Quinto!was!indicted!for!estafa.!She!received!pieces!of!jewelry! from! Aurelia! Cariaga! worth! P36,000! for! the! purpose! of!selling! them! for! commission,! but! she! failed! to! return! the! unsold!jewelry.! As! a! defense,! she! claims! that! she! regularly! transacted!business! with! Cariaga"she! sold! the! latter’s! jewelry! to! Mrs.!Camacho!and!Mrs.!Ramos.!Quinto!has!a! transaction!with!Camacho!where! the! latter! wasn’t! able! to! pay! in! full! and! left! a! balance! of!P13,000.! Quinto! bought! Camacho! to! Cariaga! who! agreed! to! allow!Camacho!to!pay!in!installments.!Quinto!also!sold!Cariaga’s!jewelry!to!Ramos! who! was! unable! to! pay! the! whole! amount,! but! Cariaga!accepted!a!right!worth!P3k!and!P5k!in!cash!Issue:WON! agreement! between! Quinto! and! Cariaga! was! novated!when!the!latter!consented!to!receive!payment!on!installments!from!Camacho!and!Ramos!!Held:!No.!Changes!alluded!by!Quinto!only!consists!in!the!manner!of!payment.!No!substitution!of!debtors!occurred!since!Cariaga!merely!agreed! to! the!payment!but!didn’t! give!her! consent! to! enter! into! a!new! contract.! Acceptance! of! payment! cannot! be! construed! as!expromision! or! delegacion.! If! first! debtor! isn’t! released! from! the!obligation,! there! is! no! novation.! If! a! third! persona! ssumed!responsibility,!it!only!added!a!number!of!debtors.!!

2. BY! CHANGE! OF! CREDITOR:! SUBROGATION! OF! A! THIRD!

PERSON!IN!THE!RIGHTS!OF!THE!CREDITOR!!

Art.!1300.!Subrogation!of!a!third!person!in!the!rights!of!the!creditor!is!either! legal!or!conventional.!The! former! is!not!presumed,!except!in!cases!expressly!mentioned!in!this!Code;!the!latter!must!be!clearly!established!in!order!that!it!may!take!effect.!!

• The!transfer!of!all!the!rights!of!the!creditor!to!a!third!person!who!substitutes!him!in!all!his!rights.!

!

a. Conventional%Subrogation%• Takes!place!by!agreement!of!the!parties!

%i. Requisites%

%Art.!1301.! Conventional! subrogation!of! a! third!person! requires! the!consent!of!the!original!parties!and!of!the!third!person.!• Consent!of!the!old!creditor!"!because!his!right!is!extinguished!!• Consent!of! the!debtor!"! old! is! extinguished!and!he!becomes!

liable!to!a!new!obligation!!• Consent!of!the!third!person!new!creditor!"!becomes!a!party!to!

the!new!relation! %%

ii. Distinguished%from%Assignment%of%Credit%

CONVENTIONAL!SUBROGATION! ASSIGNMENT!OF!CREDITS!

Debtor’s!consent!is!necessary! Debtor’s!consent!not!required!Extinguishes! the! old! obligation!and!gives!rise!to!a!new!one!!

Refers! to! the! same! right!which!passes! from! one! person! to!another!

The! nullity! of! an! old! obligation!may! be! cured! by! subrogation!such! that! the!new!obligation!will!be!perfectly!valid!

Nullity! of! an! obligation! is! not!remedied!by! the!assignment!of!the!creditor’s!right!to!another!

%%

!!!!


iii. %Effects%%

Art.!1303.!Subrogation!transfers!to!the!person!subrogated!the!credit!with!all!the!rights!thereto!appertaining,!either!against!the!debtor!or!against! third! persons,! be! they! guarantors! or! possessors! of!mortgages,!subject!to!stipulation!in!a!conventional!subrogation.!

• If! suspensive! condition! is! attached,! that! condition! must! be!

fulfilled!first!in!order!the!new!creditor!may!exercise!his!rights.

Art.!1304.!A!creditor,!to!whom!partial!payment!has!been!made,!may!exercise!his!right!for!the!remainder,!and!he!shall!be!preferred!to!the!person!who!has!been!subrogated!in!his!place!in!virtue!of!the!partial!payment!of!the!same!credit.!!Case:!!

LICAROS!v.!GATMAITAN!

Facts:!Abelardo!Licaros! invested! in!the!Anglo?Asean!Bank!and!Trust!Limited! which! was! organized! to! do! business! in! the! Republic! of!Vanuatu! but! not! in! the! Philippines.! Petitioner! encountered!difficulties!in!retrieving!his!profits!and!even!the!very!investments,!so!he!consulted!Antonio!Gatmaitan!who!was!a!banker!and!investment!manager.! Respondent! voluntarily! offered! to! assume! payment! of!Anglo?Asean! subject! to! terms! and! conditions.! They! executed! a!notarized!Memorandum!of!Agreement!whereby!R!would!pay!$150k!to!P!(execute!a!promissory!note!in!favor!of!P);!while!P!undertook!to!assign!his!credit! to!R! in! the!Anglo?Asean.!R!executed!the!PN!worth!P3M,!but!wasn’t!able!to!collect!from!Asean,!so!he!did!not!bother!to!pay! P.! P! felt! he! had! the! right! to! colled! from! R! based! on! their!agreement.!!Held:! The! agreement! between! them! is! a! conventional! subrogation!and! not! a! transfer! of! credit.! ! Subrogation! is! the! transfer! of! all! the!rights!of! the! creditor! to!a!3rd!person!who! substitutes!him! in!all! his!rights.! The! debtor’s! consent! is! necessary! and! it! extinguished! the!obligation!and!gives!rise!to!a!new!one.!Nullity!of!an!obligation!may!be!cured,!such!that!the!new!obligation!will!be!perfectly!valid.!In!this!case,! the!crucial!distinction!deals!with! the!necessity!of! the!consent!of! the! debtor! in! the! original! transaction.! In! the!whereas! clause! of!their!agreement,!they!stipulated!that!their!agreement!is!conditioned!on!the!express!conformity!of!the!3rd!parties!concerned!(Asean).!Also,!they! reserved! a! spot! for! Asean’s! signature.! Absent! the! consent! of!Asean,!the!Memorandum!did!not!become!valid!and!effective.!

!b. Legal%Subrogation%

• Takes! place! without! agreement! but! by! operation! of!law!because!of!certain!acts!

• GENERAL!RULE:!Not!presumed,!EXCEPTION:!Art!1302!• The!third!person!is!called!“legal,subrogee”!

!i. Requisites%(nothing,in,Tolentino)%ii. When%Presumed%

%Art.!1302.!!It!is!presumed!that!there!is!legal!subrogation:!1.When! a! creditor! pays! another! creditor! who! is! preferred,! even!without!the!debtor’s!knowledge;!2.!When!a! third!person,!not! interested! in! the!obligation,!pays!with!the!express!or!tacit!approval!of!the!debtor;!

3.! When,! even! without! the! knowledge! of! the! debtor,! a! person!interested!in!the!fulfillment!of!the!obligation!pays,!without!prejudice!to!the!effects!of!confusion!as!to!the!latter’s!share!• When!a!creditor!pays!another!creditor!who is!preferred,!even!

without!the!debtor’s!knowledge!o Refers! to! hierarchy! of! credits! which! will! be! taught! next!

sem!hehe!o Debtor!can!still!use!any!defenses!he!may!have!against!the!

original!creditor!such!as!compensation!• When!a!3rd!person,!not, interested, in, the,obligation,! pays!with!

the!express/tacit!approval!of!the!debtor!• When,! even! without! the! knowledge! of! the! debtor,! a! person!

interested! in! the! fulfillment! of! the! obligation! pays,! without!prejudice!to!the!effects!of!confusion!as!to!the!latter’s!share!o Solidary! co?debtor! may! reimburse! to! the! extent! of! the!

debtor’s!share!o Guarantors,!mortgagors!and!sureties!!

%iii. %Effects%

%Art.!1303.!Subrogation!transfers!to!the!person!subrogated!the!credit!with!all!the!rights!thereto!appertaining,!either!against!the!debtor!or!against! third! persons,! be! they! guarantors! or! possessors! of!mortgages,!subject!to!stipulation!in!a!conventional!subrogation.!

!• If! suspensive! condition! is! attached,! that! condition! must! be!

fulfilled!first!in!order!the!new!creditor!may!exercise!his!rights.!!!

Art.!1304.!A!creditor,!to!whom!partial!payment!has!been!made,!may!exercise!his!right!for!the!remainder,!and!he!shall!be!preferred!to!the!person!who!has!been!subrogated!in!his!place!in!virtue!of!the!partial!payment!of!the!same!credit.!!Cases:!ASTRO! ELECTRONICS! CORPORATION! v.! PHILIPPINE! EXPORT! AND!

FOREIGN!LOAN!GUARANTEE!CORPORATION!

Facts:!Astro!was!granted!several!loans!by!Philtrust!in!the!amount!of!P3M!with!interest,!secured!by!3!promissory!notes.!Petitioner!Roxas!signed! the! PNs! twice:! as! President! of! Astro! and! in! his! personal!capacity.!He! also! signed! a! continuing! surety! agreement! in! favor! of!Philtrust,!as!President!and!surety.!Phil!Guarantee!(respondent(,!with!consent! of! Astro,! guaranteed! in! favor! of! Philtrust! the! payment! of!70%!of!Astro’s!loan,!subject!to!the!condition!that!upon!payment!by!R,! it! shall! be! proportionally! subrogated! to! the! rights! of! Philtrust!against! Astro.! Since!Astro! failed! to! pay,! R! paid! 70%.!Afterwards,! R!filed!a!complaint!against!Astro!and!Roxas! for!sum!of!money.!Roxas!disclaims!any!liability!on!the!instrument!because!he!signed!them!in!blank,! and! the! words! “in! his! personal! capacity”! were! fraudulently!added.!Issue:!WON!Roxas!should!be!solidarily!liable!with!Astro!!Held:! Yes.! The! PNs! signed! by! Roax! twice! are! valid! and! binding.!Signatures!covered!portions!of!the!typewritten!words!show!that!the!typewritten!words!were!already!existing!when!Roxas!signed!it.!R!has!all!the!rights!to!proceed!against!Roxas!and!Astro.!It!is!subrogated!to!the!rights!of!Philtrust.!Roxas’!consent!isn’t!necessary!for!subrogation!to! take! place! because! the! case! is! one! of! legal! subrogation! which!occurs! by! operation! of! law! and! without! the! need! of! debtor’s!knowledge.! R! as! guarantor,! became! the! transferee! of! all! right! of!Philtrust! against! P!because! “the! guarantor!who!pays! is! subrogated!by!virtue!thereof!to!all!the!rights!which!the!creditor!had!against!the!debtor”.!!!

!!!!


TITLE%II:%%CONTRACTS%(

CHAPTER(1:(((GENERAL(PROVISIONS(

A. Definition(

Art.! 1305! A! contract! is! a! meeting! of! minds! between! two! persons!whereby! one! binds! himself,! with! respect! to! the! other,! to! give!something!or!to!render!some!service.!

!• Sanchez! Roman:! “a! juridical! convention!manifested! in! legal!

form,! by! virtue! of! which! one! or! more! persons! bind!themselves! in! favor!of!another!or!others,!or! reciprocally,! to!the!fulfillment!of!a!prestation!to!give,!to!do!or!not!to!do.”!

• Limited!to!that!which!produces!patrimonial!liabilities!• Binding!effect!of!contract!based!on!the!following!principles!• Obligations! arising! from! the! contract! have! the! force! of! law!

between! the! contracting! parties,! laws! then! are! merely!suppletory!to!the!stipulation!of!the!parties!

• There!must!be!mutuality!between!the!parties!based!on!their!essential! equality,! to!which! is! repugnant! to! have! one! party!bound!by!the!contract!leaving!the!other!free!therefrom!!

• There! is!usually!an!offer!then!a!counter?offer,! followed!by!a!counter?counter?offer,! ad! nauseam.! What! happens! is!haggling/bargaining/negotiating.!(Labitag)!

• Contracts! are! agreements! enforceable! through! legal!proceedings.! An! agreement! is! broader! than! a! contract!because! the! former! may! not! have! all! the! elements! of! a!contract.!!

B. Elements(1. ESSENTIAL!ELEMENTS!(SEE!CHAPTER!II,!INFRA)!

a. Consent%b. Object%c. Cause%

2. NATURAL!ELEMENTS!!?!Exist!as!part!of!the!contract!even!if!the!parties!do!not!provide!for!them,!because!the!law,!as!suppletory!to! the! contract,! creates! them.! (e.g.! warranty! against! hidden!defects!or!eviction!in!the!contract!of!purchase!and!sale)!

3. ACCIDENTAL! ELEMENTS! ?! Agreed! upon! by! the! parties! and!which! cannot! exist! without! being! stipulated! (e.g.! mortgage,!guaranty,!bond)!!

!

!

!

!

!

!

C. Characteristics(1. OBLIGATORY!FORCE!!

Art.! 1308.! The! contract! must! bind! both! contracting! parties;! its!validity!or!compliance!cannot!be!left!to!the!will!of!one!of!them.!

!• Just!as!nobody!can!be!forced!to!enter!into!a!contract,!in!the!

same!manner!once! a! contract! is! entered! into,! no!party! can!renounce! it! unilaterally! without! the! consent! of! the! other,!otherwise!he!is!liable!for!damages.!

• A!contract!is!an!agreement!which!gives!rise!to!an!obligation.!It! must! bind! both! parties! in! order! that! it! can! be! enforced!against! either.! Without! this! equality! between! parties,! it!cannot! be! said! that! the! contract! has! the! force! of! law!between!them.!!

2. MUTUALITY!!

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

!• Both!contracting!parties!must!be!bound!by!the!stipulations!of!

the!contract,!even!if!in!disparate!proportions.!(Labitag)!• The! decision! of! the! third! party! may! only! bind! the! parties!

once!it!has!become!known!to!them.!!

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

!• This!article!is!a!disqualification!to!Art.!1309.!!

!

Art.! 1473.! The! fixing! of! the! price! can! never! be! left! to! the!discretion!of!one!of!the!contracting!parties.!However,!if!the!price!fixed!by! one!of! the! parties! is! accepted!by! the!other,! the! sale! is!perfected.!

!• CONTRACT!OF! ADHESION:! A! contract! in!which! one! party!

has! already! prepared! a! form! of! a! contract! containing!stipulations! desired! by! him! and! he! simply! asks! the! other!party! to! agree! to! them! if! he! wants! to! enter! into! the!contract.!

!!!!!!!!

!!!!

!!!!


Case:!!

GSIS!v.!CA!

Facts:!GSIS! conducted! a! lottery! draw! for! the! allocation! of! lots! and!housing!units.!Esperanza!Leuterio!won!and!was! issued!a!Certificate!of! Acknowledgment! to! purchase! the! subject! house! and! lot.! The!parties! entered! into! a! Deed! of! Conditional! Sale! evidencing! the!conveyance! of! the! subject! property! and! all! improvements! thereon!to!the!Leuterio!spouses!for!the!purchase!price!of!Php!19,740!payable!over! a! fifteen?year! period.! GSIS’s! Board! of! Trustees! increased! the!purchase! price! indicated! in! the!Deeds! of! Conditional! Sale! covering!houses! and! lots! therein.! On! the! face! of! the! Leuterio’s! Conditional!Deed! of! Sale! is! the! marginal! notation! “subject! to! adjustment!pending! approval! of! the! Board! of! Trustees.”! The! Leuterio! spouses!alleged! that! this!wasn’t! in! the!Deed!when! they! signed! it.! The! trial!court! found! that! the! appended! words! were! inserted! without! the!knowledge!of!the!spouses.!!!Held:!Article!1473!of! the!Civil!Code!provides! that!“the! fixing!of! the!price! can! never! be! left! to! the! discretion! of! one! of! the! contracting!parties.”! The! purchase! price! mutually! agreed! upon! is! Php! 19,740.!The! spouses! Leuterio! didn’t! give! their! consent! for! GSIS! to!make! a!unilateral! upward! adjustment! of! the! price! depending! on! the! final!cost!of!construction!of!the!subject!house!and!lot.!This!conclusion!is!also! confirmed! by! the! petitioner! GSIS! in! the! instant! Petition! for!Review! on! Certiorari! where! it’s! alleged! that! “the! respondent?spouses! Leuterio! were! not! required! to! sign! a! new! contract! as!provided!in!Resolution!No.!996.”!

!3. RELATIVITY!

a. Contracts% take% effect% only% between% parties,%their%assigns,%and%heirs%

!

Art.! 1311.! Contracts! take! effect! only! between! the! parties,! their!assigns!and!heirs,!except!in!case!where!the!rights!and!obligations!arising!from!the!contract!are!not!transmissible!by!their!nature,!or!by!stipulation!or!by!provision!of!law.!The!heir!is!not!liable!beyond!the!value!of!the!property!he!received!from!the!decedent.!If! a! contract! should! contain! some! stipulation! in! favor! of! a! third!person,! he! may! demand! its! fulfillment! provided! he!communicated! his! acceptance! to! the! obligor! before! its!revocation.! A!mere! incidental! benefit! or! interest! of! a! person! is!not! sufficient.! The! contracting! parties! must! have! clearly! and!deliberately!conferred!a!favor!upon!a!third!person.!

!• INTRANSMISSIBLE!CONTRACTS:!!

o Purely!personal!e.g.!partnership!and!agency!!o The! very! nature! of! obligation! that! requires! special!

personal!qualifications!of!the!obligor!!o The!payment!of!money!debts! is!not! transmitted! to! the!

heirs!but!to!the!estate!!

Cases:!!

MANILA!RAILROAD!CO.!v.!LA!COMPAÑIA!TRANSATLANTICA!

Facts:! SS/Alicante,! belonging! to! LCT!de!Barcelona!was! transporting!two! locomotive! boilers! for! the! Manila! Railroad! Company.!! The!equipment! of! the! ship! for! discharging! the! heavy! cargo! was! not!strong!enough! to!handle! the!boilers.LCT! contracted! the! services!of!Atlantic!gulf!and!Pacific!Co.,!which!had!the!best!equipment!to!lift!the!boilers! out! of! the! ship’s! hold.! When! the! first! boiler! was! being!hoisted!out!of! the! ship’s!hold,! the!boiler! could!not!be!brought!out!

because!the!sling!was!not!properly!placed!and!the!head!of!the!boiler!was! caught! under! the! edge! of! the! hatch.!! The! cable! of! the! sling!broke!and!the!boiler!fell!to!the!bottom!of!the!ship’s!hold.!!The!sling!was! again! adjusted! and! the! boiler! was! again! lifted! but! as! it! was!being!brought!up! the!bolt! at! the!end!of! the!derrick!broke!and! the!boiler!fell!again.!!The!boiler!was!so!badly!damaged!that!it!had!to!be!shipped! back! to! England! to! be! rebuilt.!! MRC! then! filed! an! action!against! the! Streamship! Company! to! recover! said! damages.!! The!Steamship!Company!caused!Atlantic!Company!to!be!brought!as!co?defendant! arguing! that! Atlantic! Company! as! an! independent!contractor,! who! had! undertaken! to! discharge! the! boilers! had!become!responsible!for!the!damage.!!Held:!There!was!no!question!that!the!Steamship!Company!was!liable!to!Manila!Railroad!as!it!had!the!obligation!to!transport!the!boiler!in!a!proper!manner!safe!and!securely!under!the!circumstances!required!by!law!and!customs.!!The!Steamship!Company!cannot!escape!liability!simply!because!it!employed!a!competent!independent!contractor!to!discharge! the! boiler.! Since! there! was! no! contract! between! the!Railroad!Company!and!Atlantic!Company,!Railroad!Company!can!had!no!right!of!action!to!recover!damages!from!Atlantic!Company!for!the!wrongful! act! which! constituted! the! violation! of! the! contract.!! The!rights! of! Manila! Railroad! can! only! be! made! effective! through! the!Steamship!Company!with!whom! the! contract!of! affreightment!was!made.!

!DKC!HOLDINGS!CORP.!v.!CA!

Facts:!DKC!entered!into!a!Contract!of!Lease!with!Option!to!Buy!with!Encarnacion!Bartolome,!whereby!DKC!was!given!the!option!to!lease!or! lease! with! purchase! a! land! belonging! to! Encarnacion,! which!option! must! be! exercised! within! 2! years! from! the! signing! of! the!Contract.! DKC! undertook! to! pay! Php! 3,000! a! month! for! the!reservation!of! its!option.!DKC!regularly!paid!the!monthly!Php!3,000!until! Encarnacion’s! death.! Thereafter,! DKC! coursed! its! payment! to!Victor,! the! son! and! sole! heir! of! Encarnacion.! However,! Victor!refused! to! accept! these! payments.!Meanwhile,! Victor! executed! an!Affidavit!of!Self?Adjudication!over!all!the!properties!of!Encarnacion,!including!the!subject!lot.!Thus,!a!new!TCT!was!issued!in!the!name!of!Victor.! Later,! DKC! gave! notice! to! Victor! that! it! was! exercising! its!option!to!lease!the!property!tendering!the!amount!of!Php!15,000!as!rent.!Again,!Victor!refused!to!accept!the!payment!and!to!surrender!passion!of! the!property.!DKC! thus!opened!a! savings!account! in! the!name!of!Victor!and!deposited!therein!the!rental!fee.!!Held:!The!SC!held!that!Victor!is!bound!by!the!Contract!of!Lease!with!Option! to!Buy.! In! this! case,! there! is! neither! contractual! stipulation!nor! legal! provision! making! the! rights! and! obligation! under! the!contract!intransmissible.!More!importantly,!the!nature!of!the!rights!and! obligations! therein! are,! by! their! nature,! transmissible.! Where!the!service!or!act!is!of!such!a!character!that!it!may!be!performed!by!another,!or!where!the!contract,!by!its!terms,!shows!the!performance!by!others!was!contemplated,!death!does!not!terminate!the!contract!or! excuse! nonperformance.! In! this! case,! there! is! no! personal! act!required! from! the! late! Encarnacion.! Rather,! the! obligation! of!Encarnacion!to!deliver!possession!of!the!property!may!very!well!be!performed!by!Victor.!!!!!!!!!

!!!!


b. No%one%may%contract%in%the%name%of%another%!

Art.!1317.!No!one!may!contract! in!the!name!of!another!without!being!authorized!by!the!latter,!or!unless!he!has!by!law!a!right!to!represent!him.!!A!contract!entered! into! in!the!name!of!another!by!one!who!has!no!authority!or!legal!representation,!or!who!has!acted!beyond!his!powers,! shall!be!unenforceable,!unless! it! is! ratified,!expressly!or!impliedly,! by! the!person!on!whose!behalf! it! has!been!executed,!before!it!is!revoked!by!the!other!contracting!party.!

!• Where!a!contract!is!entered!into!in!behalf!of!another!who!

has!not!authorized!it,!such!contract!is!not!valid!and!binding!against! him,! unless! he! ratifies! the! transaction! and! is!estopped!to!question!its!legality.!

• The! mere! lapse! of! time! cannot! give! efficacy! to! such! a!contract.!

• The!ratification!retroacts!to!the!moment!of!its!celebration.!!

Case:!!

GUTIERREZ!HMNOS.!v.!ORENSE!

Facts:! Orense! was! the! owner! of! a! land! and! its! improvements! in!Guinobatan,!Albay.!!His!nephew,!Jose!Duran,!with!his!knowledge!and!consent! executed! before! a! notary! a! public! instrument! selling! the!land!to!petitioner!the!vendor!Duran!reserving!to!himself!the!right!to!repurchase! it! for!the!same!price!within!a!period!of! four!years!from!the! date! of! the! said! instrument.! The! plaintiff! company! had! not!entered! into!possession!of! the!property,!because!of! the!occupancy!by!O!and!JD!by!virtue!of!a!contract!of!lease!executed!by!the!plaintiff!to!JD.!They!refused!to!pay!rentals!thereon!despite!demands.!Plaintiff!filed! for! judgment!ordering!defendant! to!execute!an! instrument! to!transfer! and! convey! the!property.!O!denied!having! knowledge!and!giving!consent!to!the!deed!of!sale!executed!by!JD.!He!prayed!to!be!absolved! from! the! complaint.! JD! was! charged! with! estafa! but! O!testified!that!he!had!given!consent!to!the!sale.!!Held:!The!sale!of!the!said!property!made!by!JD!to!plaintiff!was!null!and!void!in!the!beginning,!but!it!became!valid.!The!sworn!statement!made!by!the!defendant,!O,!while!testifying!as!a!witness!at!the!trial!of!JD!for!estafa,!virtually!confirms!and!ratifies!the!sale!of!his!property!effected!by!his!nephew.!Consent!was!proven!in!a!criminal!action!by!the!sworn!testimony!of!the!principal!and!presented!in!this!civil!suit!by! other! sworn! testimony! of! the! same! principal! and! by! other!evidence!to!which!the!defendant!made!no!objection.!The!repeated!and!successive!statements!made!by!the!defendant!O!in!two!actions,!affirming! that!he!had!given!his!consent! to! the!sale!of!his!property,!meet! the! requirements! of! the! law! and! legally! excuse! the! lack! of!written!authority.!They!are!a!full!ratification!of!the!acts!executed!by!JD!they!produce!the!effects!of!an!express!power!of!agency.!

!

D. Parties(1. AUTO[CONTRACTS!

• It! is! necessary! for! the! existence! of! a! contract! that! two!distinct!persons!enter!into!it.!

!!!!

Special%disqualifications:%!

Art.! 87! (FC).! Every! donation! or! grant! of! gratuitous! advantage,!direct!or!indirect,!between!the!spouses!during!the!marriage!shall!be!void,!except!moderate!gifts!which!the!spouses!may!give!each!other! on! the! occasion! of! any! family! rejoicing.! The! prohibition!shall! also! apply! to! persons! living! together! as! husband! and!wife!without!a!valid!marriage.!

!

Art.!1490.!The!husband!and!the!wife!cannot!sell!property!to!each!other,! except:! (1)! When! a! separation! of! property! was! agreed!upon!in!the!marriage!settlements;!or!(2)!When!there!has!been!a!judicial!separation!of!property!under!article!191.!

!

Art.! 1491.! The! following! persons! cannot! acquire! by! purchase,!even! at! a! public! or! judicial! auction,! either! in! person!or! through!the!mediation!of!another:!

(1)!The!guardian,!the!property!of!the!person!or!persons!who!may!be!under!his!guardianship;!

(2)! Agents,! the! property! whose! administration! or! sale! may!have!been!intrusted!to!them,!unless!the!consent!of!the!principal!has!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!

or!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.!1782.!Persons!who!are!prohibited!from!giving!each!other!any!donation!or!advantage!cannot!enter!into!universal!partnership.!

!• The!existence!of!a!contract!is!not!determined!by!the!number!

of!persons!who!intervene!in!it,!but!by!the!number!of!parties.!Not!by! the!number!of! individual!wills!but!by! the!number!of!declarations!of!will.!!

• As!long!as!there!are!two!distinct!patrimonies,!even!if!they!are!represented!by!the!same!person!the!contract!will!be!valid.!

!!!!!!!

!!!!


2. FREEDOM!TO!CONTRACT!!

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

!• The! freedom! to! contract! is! a! constitutionally! guaranteed!

right.!Save! in! limited!and!exceptional!situations!provided!by!law! itself,! courts! have! no! authority! to! prescribe! the! terms!and!conditions!of!a!contract!for!the!parties.!

• The!contract!is!the!law!between!contracting!parties.!!

Cases:!!

GABRIEL!v.!MONTE!DE!PIEDAD!

Facts:! Petitioner! was! employed! as! appraiser! of! jewels! in! the!pawnshop!of!the!Monte!de!Piedad!from!1913!up!to!May,!1933.!!On!December!13,!1932,!he!executed!a! chattel!mortgage! to! secure! the!payment! of! the! deficiencies! which! resulted! from! his! erroneous!appraisal! of! the! jewels! pawned! to! the! appellee,! amounting! to!P14,679.07,! with! six! percent! (6%)! interest! from! said! date.! In! this!chattel!mortgage,!the!appellant!promised!to!pay!to!the!appellee!the!sum!of!P300!a!month!until! the! sum!of!P14,679.07,!with! interest! is!fully! paid.! According! to! Petitioner,! the! provisions! of! the! chattel!mortgage!are!contrary!to! law,!morals!and!public!policy,!and!hence,!the!chattel!mortgage!!!Held:! In! order! to! declare! a! contract! void! as! against! public! policy,!must! find! that! the! contract! as! to! the! consideration! or! thing! to! be!done,!has!a!tendency!to!injure!the!public,!is!against!the!public!good,!or! contravenes! some! established! interests! of! society,! or! is!inconsistent!with!sound!policy!and!good!morals,!or!tends!clearly!to!undermine! the! security! of! individual! rights,! whether! of! personal!liability!or!of!private!property.!Examining!the!contract!at!bar,!we!are!of!the!opinion!that!it!does!not!in!any!way!militate!against!the!public!good.! Neither! does! it! contravene! the! policy! of! the! law! nor! the!established!interests!of!society.!There!is!substantial!compliance!with!the!requirements!of!the!Chattel!Mortgage!Law.!The!wording!of!the!affidavit!under!discussion,!as!it!appears!from!the!record,!is!almost!in!the!same!language!of!the!statute.!!

!PAKISTAN!INTERNATIONAL!AIRLINES!v.!OPLE!

Facts:! On! 2! December! 1978,! petitioner! PIA,! a! foreign! corporation!licensed!to!do!business!in!the!Philippines,!executed!in!Manila!two!(2)!separate! contracts! of! employment,! with! private! respondents!Ethelynne!B.!Farrales!and!Ma.!M.C.!Mamasig.!The!employment!was!to! last! 3! years! subject! to! pre?mature! termination! by! PIA.! A!stipulation!to!the!effect!that!the!applicable!law!would!be!the!laws!of!Pakistan! and! the! competent! court! would! be! the! Court! of! Karachi,!Pakistan! was! also! made.! After! one! year! and! eight! months! of!employment,! the! premature! termination! clause! was! used! against!respondents.! They! sought! help! from! the! Ministry! of! Labor! and!Employment! which! ordered! their! reinstatement! as! well! as! the!payment!of!backwages!and!benefits.!!Held:! Art.! 278! of! the! Labor! Code,! as! it! then! existed,! forbade! the!termination!of! the!services!of!employees!with!at! least!one!(1)!year!of!service!without!prior!clearance!from!the!Department!of!Labor!and!Employment.!The!principle!of!party!autonomy!in!contracts!is!not!an!absolute!principle.!The!rule!in!Article!1306,!of!our!Civil!Code!is!that!the!contracting!parties!may!establish!such!stipulations!as! they!may!

deem! convenient,! "provided! they! are! not! contrary! to! law,!morals,!good! customs,! public! order! or! public! policy."! Thus,! counter?!balancing! the! principle! of! autonomy! of! contracting! parties! is! the!equally! general! rule! that! provisions! of! applicable! law,! especially!provisions! relating! to! matters! affected! with! public! policy,! are!deemed! written! into! the! contract.! The! governing! principle! is! that!parties!may!not!contract!away!applicable!provisions!of!law!especially!peremptory!provisions!dealing!with!matters!heavily! impressed!with!public!interest.!

!3. WHAT!THEY!MAY!NOT!STIPULATE!

!

a. Contrary%to%law,%e.g.:%• The! law! which! the! terms! of! a! contract! must! not!

contravene! are! those! which! expressly! declare! their!obligatory! character,! or! which! are! prohibitive,! or!which!express!fundamental!principles!of!justice!which!cannot!be!overlooked!by! the! contracting!parties.,! or!which! impose! essential! requisites!without!which! the!contract!cannot!exist.!

• Statutes!generally!have!no!retroactive!effect!and!only!the! laws!existing!at! the! time!of! the!execution!of! the!contract!are!applicable!to!the!transaction.!

!i. pactum%commisorium%?!automatic!foreclosure%

!

Art.! 2088.! The! creditor! cannot! appropriate! the! things! given! by!way!of!pledge!or!mortgage,!or!dispose!of!them.!Any!stipulation!to!the!contrary!is!null!and!void.!

!• In! order! for! the! appropriation! or! disposition! to! be! validly!

exercised,!the!power!to!do!so!must!be!expressly!given!to!the!mortgagee?creditor.!

!ii. pactum%leonina%?!one!party!bears!the!lion’s!share!

of!the!risk%!

Art.! 1799.! A! stipulation! which! excludes! one! or! more! partners!from!any!share!in!the!profits!or!losses!is!void.!

!iii. pactum%de%non%alienando%?!a!stipulation!not!to!

alienate%!

Art.!2130.!A!stipulation!forbidding!the!owner!from!alienating!the!immovable!mortgaged!shall!be!void.!

!• But!even!if!the!vendee!may!actually!sell!it,!he!cannot!sell!it!as!

unencumbered.!!!!!!!!

!!!!


iv. In%contracts%of%antichresis%(Labitag)%!

Art.! 2137.! The! creditor! does! not! acquire! the! ownership! of! the!real!estate!for!non?payment!of!the!debt!within!the!period!agreed!upon.!

!• In!a!contract!of!antichresis,!the!creditor!has!a!right!to!receive!

the!fruits!from!an!immovable!of!his!debtor,!in!order!to!apply!them!to!the!payment!of!interest!(if!owing)!and!thereafter!to!the!principal!of!his!credit.!((Art.!2132)!

!b. Contrary%to%morals%

• Morals!may!be!considered!as!meaning!good!customs;!or! those! generally! accepted! principles! of! morality!which!have!received!some!kind!of!practical!and!social!confirmation.!

!c. Contrary%to%public%order%

• Public!order!signifies!the!public!weal.!!• Public! order! here! does! not! signify! the! material!

keeping!of!order,! it!represents!the!public,!social,!and!legal! interst! in! private! law,! that!which! is! permanent!and!essential! in! institutions,!which,!even! if! favouring!some! individuals! to!whom!the! right!pertains,! cannot!be!left!to!his!own!will.!

!d. Contrary%to%public%policy%

• A!contract!is!void!for!being!contrary!to!public!order!if!the! courts! find! that! the! contract! as! to! the!consideration! or! the! thing! to! be! done,! contravenes!some!established!interest!of!society,!or!is!inconsistent!with!sound!policy!and!good!morals,!or!tends!clearly!to!undermine!the!security!of!individual!rights.!

!Cases:!!

CUI!v.!ARELLANO!

Facts:! Plaintiff! was! a! law! student! at! Arellano! University! (AU).! His!uncle!was! law!dean! and!Cui! received!many! scholarship! grants.! For!these!grants,!Cui!executed!a!document!stating!that!he!would!refund!in!full!the!amount!received!by!him!in!scholarships!should!he!transfer!to!another! school.!Due! to! the! transfer!of!his!uncle! to!Abad!Santos!University,! plaintiff! opted! to! complete!his! law!degree! there.!When!he!was!applying!to!take!the!Bar!exams,!AU!refused!to!hand!over!his!transcripts! because! he! had! not! yet! refunded! the! amount! of!P1033.87.!Plaintiff!paid!in!order!to!be!able!to!take!the!bar!exam.!!Held:! AU! must! return! the! amount! to! Cui.! In! order! to! declare! a!contract! void! as! against! public! policy,! a! court! must! find! that! the!contract! as! to! consideration! or! the! thing! to! be! done,! contravenes!some! established! interest! of! society,! or! is! inconsistent!with! sound!policy!and!good!morals!or!tends!clearly!to!undermine!the!security!of!individual! rights.! The! stipulation! in! question! is! contrary! to! public!policy! and,! hence,! null! and! void.! Scholarships! are! awarded! in!recognition!of!merit! not! to! keep!outstanding! students! in! school! to!bolster!its!prestige.!!!ARROYO!v.!BERWIN!

Facts:! Berwin! was! the! attorney! of! a! person! charged! with! theft.!According!to!Arroyo,!his!client!had!cut!cane!on!his!land!for!her!own!personal!gain.!They!entered!into!an!agreement!that!the!case!would!

be! dropped! so! long! as! Juaneza! (client)! would! recognize! Arroyo! as!the!owner!of!the!land!and!the!cane,!and!allow!Arroyo!to!apply!for!a!Torrens!title!over!the!land!with!Juaneza’s!consent.!!Held:! An! agreement! which! stifles! prosecution! of! a! crime! for! a!pecuniary!or! valuable! consideration! is! contrary! to!public! policy.! To!permit!an!offender!to!purchase!immunity!is!a!perversion!of!justice.!!

!

FILIPINAS!COMPAÑÍA!DE!SEGUROS!v.!MANDANAS!

Facts:! The! Philippine! Rating! Bureau! is! a! formation! of! non?life!insurance!companies!in!the!country.!It!was!created!as!a!mechanism!for!members!to!jointly!fix!rates,!determine!risks,!gather!information,!etc.! In! Art.! 22! of! their! constitution! states! that:! “Members! of! the!Bureau!agree!not!to!represent!nor!to!effect!reinsurance!with,!nor!to!accept! reinsurance! from! any! company,! body,! or! underwriter,!licensed! to! do! business! in! the! Philippines! not! a! member! in! good!standing! of! the! Bureau.”! Defendant! Mandanas! seeks! to! have! this!stricken!down!as!an!illegal!restraint!on!trade.!!Held:! The! test! as! to! whether! a! given! agreement! constitute! an!unlawful! machination! or! a! combination! in! restraint! of! trade! is!whether,! under! the! particular! circumstances! of! the! case! and! the!nature!of!the!particular!contract! involved!in! it,!the!contract! is,!or! is!not,! unreasonable.! There! is! nothing! unlawful! or! contrary! to! public!policy! either! in! the! objectives! thus! sought! to! be! attained! by! the!Bureau,!or!the!means!to!their!ends.!It!is!very!clear!that!the!purpose!of!the!assailed!article!is!to!promote!ethical!practices,!not!to!prevent!or!eliminate!competition.!

!!BUSTAMANTE!v.!ROSEL!

Facts:!Bustamante!entered!into!a!loan!agreement!with!Rosal.!He!put!up!piece!of! land!as!collateral!and!agreed!that!should!he! fail! to!pay!upon! maturity,! Rosel! would! have! the! option! to! purchase! the!collateral.! Before! the! loan! matured,! respondent! attempted! to!purchase!the! lot!at!the!agreed!upon!price!but!Bustamante!refused,!offered!another!lot!and!asked!for!an!extension.!Respondent!refused!to! grant! an! extension.! Petitioner! tendered! payment! but! Rosel!refused!to!accept!and!so!the!former!filed!for!consignation!while!the!latter!filed!for!specific!performance.!!Held:! The! agreed! upon! stipulation! is! contrary! to! law! for! being! a!pactum!commisorium.!The!elements!are:!!1.! A! property! is!mortgaged! by!way! of! security! for! payment! of! the!principal!obligation.!!2.! There! exists! a! stipulation! for! automatic! appropriation! by! the!creditor! of! the! thing! mortgaged! in! case! of! non?payment! of! the!principal!obligation!within!the!stipulated!period.!!

!

E. Classification(1. ACCORDING!TO!SUBJECT[MATTER!

a. Things%b. Services%!

2. ACCORDING!TO!NAME!

a. Nominate%?!have!their!own!individuality!(names)!and!are!regulated! by! special! provisions! of! law! (e.g! deposit,!mutuum,!commodatum,!pignus)%

b. Innominate%?!that!which!has!no!name!or!designation!in!law%

!

!!!!


Art.! 1307.! Innominate! contracts! shall! be! regulated! by! the!stipulations! of! the! parties,! by! the! provisions! of! Titles! I! and! II! of!this! Book,! by! the! rules! governing! the!most! analogous! nominate!contracts,!and!by!the!customs!of!the!place.!

!

1)%do%ut%des% I!give,!you!give!

2)%do%ut%facias% I!give,!you!do!

3)%facio%ut%facias% I!do,!you!do!

4)%facio%ut%des% I!do,!you!give!

!3. ACCORDING!TO!PERFECTION!

a. By%mere%consent%(consensual)%!

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

!• The! perfection! of! a! contract! is! the! moment! from! which! it!

exists;! the! juridical! tie!between! the!parties!arises! from! that!time.!

• The! binding! force! of! a! contract! is! not! limited! to! what! is!expressly! stipulated,!but!extends! to!all! consequences!which!are! the! natural! effect! of! the! contract,! considering! its! true!purpose,!the!stipulation!it!contains,!and!the!object!involved.!

• Contracts!are!not!what! the!parties!choose! to!call! them,!but!what!they!really!are!as!determined!by!the!principle!of!laws.!

!b. By%delivery%of%the%object%(real)%

!

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

!• The!requirement!of!the!delivery!of!the!object,!in!addition!to!

the! consent! is! neither! arbitrary! nor! formalistic,! but! is!demanded! by! the! very! nature! of! real! contracts! and! their!purpose.!

!4. ACCORDING!TO!ITS!RELATION!TO!OTHER!CONTRACTS!

a. Preparatory%b. Principal%c. Accessory%!!!!!!!

5. ACCORDING!TO!FORM!

a. Common%or%informal%b. Special%or%formal%

• There!is!a!required!formality!for!the!validity.!o donations% inter% vivos! ?! once! accepted,! it!

normally! cannot!be! revoked;! can!be! in!writing!not! necessarily! in! a! public! document! for!donations! above! 5000! otherwise! they!may! be!done! orally! but! it! needs! to! be! coupled! with!simultaneous!delivery;!and!!

o mortis% causa! ?! most! formal;! subsumed! under!testamentary! succession! i.e! you! need! the!formalities! of! last! will! and! testament! [three!attestation! witnesses! who! will! attest! to! being!present!when!the!donor!signs!the!donation];! if!the! donor! reserves! the! right! to! sell! the!property,!it!is!not!inter!vivos!but!mortis!causa.!

!6. ACCORDING!TO!PURPOSE!

a. Transfer%of%ownership,%e.g.%sale%b. Conveyance%of%use,%e.g.%commodatum%c. Rendition%of%services,%e.g.%agency%!

7. ACCORDING!TO!THE!NATURE!OF!THE!VINCULUM!PRODUCED!

a. Unilateral%b. Bilateral/Reciprocal%!

8. ACCORDING!TO!THE!CAUSE!

a. Onerous%b. Gratuitous%or%lucrative%c. Remunerative%!

9. ACCORDING!TO!THE!RISK!

a. Commutative%?!fair!exchange!of!values%b. Aleatory%?!involves!risk!(example:!insurance!contracts)%!

F. Stages(1. PREPARATION! ?! period! of! negotiation! and! bargaining,! ending!

at!the!moment!of!agreement!of!the!parties!2. PERFECTION!?!moment!when!the!parties!come!to!agree!on!the!

terms!of!the!contract!3. CONSUMMATION!OR!DEATH! ?! fulfillment!or! the!performance!

of!the!terms!agreed!upon!in!the!contract!!!!!!!!!!

!!!!


G. As( distinguished( from( a( perfected(

promise( and( an( imperfect( promise(

(policitacion)(!CONTRACT! PERFECTED!PROMISE! IMPERFECT!

PROMISE!

Establishes! and!determines! the!obligation!arising!therefrom!!

Tends!only! to!assure!and!pave! the! way! for! the!celebration! of! a! contract!in! the! future;! until! the!contract!is!actually!made,!the!rights!and!obligations!are!not!yet!determined!

Mere! unaccepted!offer!

!H. With(respect(to(third(persons(

!1. STIPULATIONS!IN!FAVOUR!OF!THIRD!PERSONS!(STIPULATIONS!

POUR!ATRUI)!!

!

Art.!1311,!2nd!par:! If!a!contract!should!contain!some!stipulation!in!favor!of!a!third!person,!he!may!demand!its!fulfillment!provided!he! communicated! his! acceptance! to! the! obligor! before! its!revocation.! A!mere! incidental! benefit! or! interest! of! a! person! is!not! sufficient.! The! contracting! parties! must! have! clearly! and!deliberately!conferred!a!favor!upon!a!third!person.!

!• When! there! is! a! stipulation! in! favor! of! a! third! person! and!

only!if!he!communicated!his!acceptance!and!the!contracting!parties! clearly! and!deliberately! conferred! a! favor! upon! that!third!person!(the!provision!does!not!contemplate!tangential!benefit!to!another)!!

• There!must!be!no!agency!relationship!and!one!of!the!parties!and!the!third!person!because!then!the!third!person!ceases!to!become!a!third!person.!(Labitag)!

• Accion! pauliana,! suborgatoria,! directa! (no! relativity! of!contract!in!these!three)!

• Test!of!beneficial!stipulation!?!A!mere!incidental!interest!of!a!third! person! is! not! within! the! doctrine;! it! must! be! the!purpose! and! intent! of! the! stipulating! parties! to! benefit! the!third!person!!

!Requisites!of!stipulacion!pour!autrui!

1. Stipulation! in! favor!of! third!person! is!a!part,!not! the!whole!of!the!contract!

2. Favorable! stipulation! not! conditioned! or! compensated! by! any!kind!of!obligation!whatever!

3. Neither!of!the!contracting!parties!bear!the!legal!representation!or!authorization!of!the!third!party!

4. Benefit! to! the! 3rd! person! was! clearly! and! deliberately!conferred!to!by!parties!

5. Third! person! communicated! his! acceptance! to! the! obligor!before!the!latter!revokes!the!same!!!

Cases:!!

FLORENTINO!v.!ENCARNACION!

Facts:!The!petitioners?appellants!and!the!petitioners?appelleed!filed!with!CFI!an!application!for!the!registration!under!Act!496!of!a!parcel!of! agricultural! land! located! at! Cabugao,! Ilocos! Sur.! The! application!alleged!among!other!things!that!the!applicants!are!the!common!and!pro?indiviso! owners! in! fee! simple! of! the! said! land! with! the!improvements! existing! thereon;! that! to! the!best! of! the! knowledge!and! belief,! there! is! no!mortgage,! lien! or! encumbrance! of! any! kind!whatsoever! affecting! said! land,! nor! any! other! person! having! any!estate!or!interest!thereon,!legal!or!equitable,!remainder,!reservation!at! in! expectancy;! that! said! applicants! had! acquired! the! aforesaid!land! thru! and! by! inheritance! from! their! predecessors! in! interest,!their! aunt,! Doña! Encarnacion! Florentino,! and! Angel! Encarnacion!acquired!their!respective!shares!of!the!land!thru!purchase!from!the!original! heirs,! Jesus,! Caridad,! Lourdes! and! Dolores,! all! surnamed!Singson,! on! one! hand! and! from!Asuncion! Florentino! on! the! other.!!Exhibit!O?1!embodied! in! the!deed!of!extrajudicial!partition! (Exhibit!O),! which! states! that! with! respect! to! the! land! situated! in! Barrio!Lubong,!Dacquel,!Cabugao,! Ilocos!Sur,! the! fruits! thereof!shall! serve!to!defray!the!religious!expenses,!was!the!source!of!contention!in!this!case.! Florentino!wanted! to! include! Exhibit!O?1!on! the! title! but! the!Encarnacions!opposed!and!subsequently!withdrew!their!application!on!their!shares,!which!was!opposed!by!the!former.!After!hearing!the!motion! for!withdrawal! and! the! opposition! issued! an! order! and! for!the! purpose! of! ascertaining! that! the! products! of! the! land! made!subject! matter! of! this! land! registration! case! had! been! used! in!answering! for! the! payment! of! expenses! for! the! religious! functions!specified! in! the! Deed! of! Extrajudicial! Partition! which! was! no!registered! in! the! office! of! the! Register! of! Deeds! from! time!immemorial;!and!that!the!applicants!knew!of!this!arrangement!and!the! Deed! of! Extrajudicial! Partition! of! August! 24,! 1947,! was! not!signed!by!Angel!Encarnacion!or!Salvador!Encarnacion,!Jr.!!Held:! The! said! stipulation! is! a! stipulation!pour! autrui.!A! stipulation!pour! autrui! is! a! stipulation! in! favor! of! a! third! person! conferring! a!clear!and!deliberate!favor!upon!him,!and!which!stipulation!is!merely!a! part! of! a! contract! entered! into! by! the! parties,! neither! of! whom!acted! as! agent! of! the! third! person,! and! such! third! person! may!demand! its! fulfillment! provided! that! he! communicates! his!acceptance! to! the! obligor! before! it! is! revoked.! The! evidence! on!record!shows!that!the!true!intent!of!the!parties!is!to!confer!a!direct!and!material!benefit!upon!the!Church.!While!a!stipulation!in!favor!of!a!third!person!has!no!binding!effect!in!itself!before!its!acceptance!by!the!party! favored,! the! law!does!not!provide!when!the!third!person!must! make! his! acceptance.! As! a! rule,! there! is! no! time! limit;! such!third!person!has!all! the! time!until! the! stipulation! is! revoked.!Here,!We! find! that! the! Church! accepted! (implicitly)! the! stipulation! in! its!favor!before!it!is!sought!to!be!revoked!by!some!of!the!coowners.!!!!!!!!!!!!!!!

!!!!


COQUIA!v.!FIELDMAN’S!INSURANCE!CO.!

Facts:!Fieldmen’s!Insurance!co.!Issued!in!favor!of!the!Manila!Yellow!Taxicab! a! common! carrier! insurance! policy! with! a! stipulation! that!the! company! shall! indemnify! the! insured! of! the! sums! which! the!latter!could!be!held!liable!for!with!respect!to!“death!or!bodily!injury!to! any! faire?paying! passenger! including! the! driver! and! conductor.”!The!policy!also!stated!that! in!“the!event!of!the!death!of!the!driver,!the!Company!shall!indemnify!his!personal!representatives!and!at!the!Company’s! option! may! make! indemnity! payable! directly! to! the!claimants! or! heirs! of! the! claimants.”!During! the! policy’s! lifetime,! a!taxicab!of!the!insured!driven!by!Coquia!met!an!accident!and!Coquia!died.!When!the!company!refused!to!pay!the!only!heirs!of!Coquia,!his!parents,! they! institued!this!complaint.!!The!company!contends!that!plaintiffs! have! no! cause! of! action! since! the! Coquias! have! no!contractual!relationship!with!the!company.!!Held:! Athough,! in! general,! only! parties! to! a! contract!may! bring! an!action!based!thereon,!this!rule!is!subject!to!exceptions,!one!of!which!is!found!in!the!second!paragraph!of!Article!1311.!In!the!case!at!bar,!the!policy!under!consideration!is!typical!of!contracts!pour!autrui!this!character!being!made!more!manifest!by!the!fact!that!the!deceased!driver! paid! fifty! percent! (50%)! of! the! corresponding! premiums,!which! were! deducted! from! his! weekly! commissions.! Under! these!conditions,! it! is!clear!that!the!Coquias!have!a!direct!cause!of!action!against! the! Company,! and,! since! they! could! have! maintained! this!action!by! themselves,!without! the!assistance!of! the! insured! it!goes!without! saying! that! they! could! and! did! properly! join! the! latter! in!filing!the!complaint!herein.!

!CONSTANTINO!v.!ESPIRITU!

Facts:! Pastor! Constantino! sold! two! parcels! of! land! to! Herminia!Espiritu,!on!the!condition!that!the!land!will!be!held!in!trust!for!their!already! conceived! but! as! yet! unborn! illegitimate! son.! Espiritu! took!two! mortgages! on! the! land! and! then! offered! them! for! sale.!Constantino!asked! the! court! to:!one,! issue!a! temporary! restraining!order! to! stop! the! sale! of! the! lands;! and! two:! compel! Espiritu! to!execute!a!deed!of!absolute!sale!to!Pastor!Constantino!Jr.,!then!two!years! old.!Espiritu!moved! to!dismiss! the! case!on! two! grounds:! Pastor! Jr.!was!not! a! party! to! the! suit;! and! the! Statute! on! Frauds! (which! basically!says! that! some!contracts,! including! those! involving! land,! should!be!in! writing;! and! signed! by! all! parties! bound! by! the! contracts).!Constantino! argued! that! what! was! involved! was! an! implied! trust!under!Art.!1453.!!Held:! The! court! ruled! that! the! contract! appears! to! be! a! contract!pour! autrui,! although! couched! in! the! form! of! a! deed! of! absolute!sale,! and! appellant’s! action! was,! in! effect,! one! for! specific!performance.!The!court!held!that!that!the!Statute!of!Frauds!was!not!a! strong! defense! as! it! was! “clear! upon! the! facts! alleged! in! the!amended! complaint! that! the! contract! between! the! parties! had!already! been! partially! performed! by! the! execution! of! the! deed! of!sale,! the! action! brought! below! being! only! for! the! enforcement! of!another!phase!thereof,!namely,!the!execution!by!appellee!of!a!deed!of!conveyance!in!favor!of!beneficiary!thereunder.”!!INTEGRATED!PACKAGING!CORP.!v.!CA!

Facts:! Petitioner! and! private! respondent! executed! an! order!agreement! whereby! private! respondent! bound! itself! to! deliver! to!petitioner!3,450!reams!of!printing!paper!worth!P1,040,060.00!under!a! specific! schedule.! In! accordance! with! the! standard! operating!practice! of! the! parties,! the! materials! were! to! be! paid! within! a!minimum!of!thirty!days!and!maximum!of!ninety!days!from!delivery.!Petitioner! entered! into! a! contract! with! Philippine! Appliance!

Corporation! (Philacor)! to! print! three! volumes! of! "Philacor! Cultural!Books"! for! delivery! on! the! specific! dates.! Private! respondent! had!delivered!to!petitioner!1,097!reams!of!printing!paper!out!of!the!total!3,450! reams! stated! in! the! agreement.! Petitioner! alleged! it! wrote!private! respondent! to! immediately! deliver! the! balance! because!further!delay!would!greatly!prejudice!petitioner.!Private!respondent!delivered! again! to! petitioner! various! quantities! of! printing! paper!amounting! to.! However,! petitioner! encountered! difficulties! paying!private! respondent! said! amount.! Accordingly,! private! respondent!made! a! formal! demand! upon! petitioner! to! settle! the! outstanding!account.! Petitioner! made! partial! payments.! Meanwhile,! petitioner!entered! into! an! additional! printing! contract! with! Philacor.!Unfortunately,!petitioner!failed!to!fully!comply!with!its!contract!with!Philacor! for! the! printing! of! books! VIII,! IX,! X! and! XI.! Thus,! Philacor!demanded!compensation!from!petitioner!for!the!delay!and!damage!it! suffered! on! account! of! petitioner’s! failure.! On! August! 14,! 1981,!private! respondent! filed! a! collection! suit! against! petitioner.!Petitioner! cites! the! failure! of! private! respondent! to! deliver! all! the!reams!of!paper.!!Held:! Petitioner! contends! that! private! respondent! should! be! held!liable! for! petitioner’s! breach! of! contract! with! Philacor.! Private!respondent! cannot!be!held! liable!under! the! contracts! entered! into!by!petitioner!with!Philacor.!Private!respondent!is!not!a!party!to!said!agreements.!It!is!also!not!a!contract!pour!autrui.!Aforesaid!contracts!could!not!affect!third!persons!like!private!respondent!because!of!the!basic!civil!law!principle!of!relativity!of!contracts!which!provides!that!contracts!can!only!bind!the!parties!who!entered!into!it,!and!it!cannot!favor! or! prejudice! a! third! person,! even! if! he! is! aware! of! such!contract! and! has! acted! with! knowledge! thereof.! The! order!agreement! entered! into! by! petitioner! and! private! respondent! has!not! been! shown! as! having! a! direct! bearing! on! the! contracts! of!petitioner!with!Philacor.!To!recapitulate,!private!respondent!did!not!violate!the!order!agreement!it!had!with!petitioner.!Likewise,!private!respondent! could! not! be! held! liable! for! petitioner’s! breach! of!contract! with! Philacor.! It! follows! that! there! is! no! basis! to! hold!private! respondent! liable! for! damages.! Accordingly,! the! appellate!court!did!not!err!in!deleting!the!damages!awarded!by!the!trial!court!to!petitioner.!

!6. POSSESSION! OF! THE! OBJECT! OF! THE! CONTRACT! BY! THIRD!

PERSONS!!

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

!7. CREDITORS!OF!THE!CONTRACTING!PARTIES!!

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

!• In!rescissible!contracts,!there!is!a!presumption!of!fraudulent!

alienation! when! the! debtor! does! not! leave! sufficient!property!to!cover!his!obligations!(Art.!1387)!

• The! creditor! may! ask! for! rescission! –! Art! 1177! (accion!subrogatoria)!and!Art!1381!(accion!pauliana)!!

!!

!!!!


8. INTERFERENCE!BY!THIRD!PERSONS!!

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

!Requisites! of! Interference! With! Contractual! Relation! by! Third!

Person:!

1. Existence!of!a!valid!contract!2. Knowledge!by!a!third!person!of!the!existence!of!a!contract!3. Interference! by! the! third! person! in! the! contractual! relation!

without!legal!justification!!Cases:!!

DAYWALT! v.! LA! CORPORACION! DE! LOS! PADRES! AGUSTINOS!

RECOLETOS!!

Facts:!Teodorica!Endencia!obligated!herself!to!sell!a!parcel!of!land!to!the! plaintiff.! It! was! agreed! that! the! final! deed! of! sale! will! be!executed!when! the! land!was! registered! in!Endencia’s!name.! In! the!course!of!the!proceedings!for!registration!it!was!found!that!the!land!involved! in! the! sale! contained! a! greater! area! than! what! Endencia!originally!thought!and!she!became!reluctant!to!consummate!the!sale!of!the!land!to!the!plaintiff.!This!reluctance!was!due!to!the!advice!of!the! defendant! who! exercised! a! great! moral! influence! over! her.!However,! in! advising! Endencia! that! she! was! not! bound! by! her!contract! with! the! plaintiff,! the! defendant! was! not! actuated! with!improper!motives!but!did!so!in!good!faith!believing!that,!under!the!circumstances,!Endencia!was!not!really!bound!by!her!contract!with!the!plaintiff.!!Held:! The! stranger! who! interferes! in! a! contract! between! other!parties! cannot! become!more! extensively! liable! in! damages! for! the!non?performance!of!the!contract!than!the!party!in!whose!behalf!he!intermediates.! Hence,! in! order! to! determine! the! liability! of! the!Recoletos,!there!is!first!a!need!to!consider!the!liability!of!Endencia!to!Daywalt.!The!damages!claimed!by!Daywalt!from!Endencia!cannot!be!recovered!from!her,!first,!because!these!are!special!damages!which!were!not!within!the!contemplation!of!the!parties!when!the!contract!was!made,!and!secondly,! these!damages!are! too! remote! to!be! the!subject! of! recovery.! Since! Endencia! is! not! liable! for! damages! to!Daywalt,! neither! can! the! Recoletos! be! held! liable.! As! already!suggested,! by! advising! Endencia! not! to! perform! the! contract,! the!Recoletos! could! in! no! event! render! itself! more! extensively! liable!than!the!principal!in!the!contract.!!SO!PING!BUN!v.!CA!

Facts:!Tek!Hua!Trading!(Trading)!entered!into!agreements!with!Dee!C.!Chua!&!Sons!Inc.!(DCCSI)!for!the!lease!of!several!premises!which!Trading!used!to!store!its!textiles.!The!successor!of!Trading,!Tek!Hua!Enterprising!(Enterprising),!allowed!So!Ping!Bun,!the!grandson!of!the!managing!partner!of!Trading,! to!use! the!premises! to!store!his!own!textiles.!Later,!one!of!of!the!members!of!Enterprising,!asked!So!Ping!Bun! via! a! letter! to! vacate! the! premises! since! he! needed! it! for! his!textile!business.!So!Ping!Bun!refused!to!vacate.!Instead,!So!Ping!Bun!entered! into! lease! contracts! with! DCCSI! over! the! same! premises.!Enterprising!and!Manuel!Tiong!filed!an!action!to!nullify!the!contracts!between!So!Ping!Bun!and!DCCSI!and!also!claimed!damages!against!So!Ping!Bun!for!unlawful!interference!in!the!lease!contracts!between!DCCSI!and!Enterprising.!!

Held:! The!elements!of! tort! interference!are:! a)! existence!of! a! valid!contract;! b)! knowledge! on! the! part! of! the! third! person! of! the!existence!of!the!contract;!and!c)! interference!of!the!third!person! is!without! legal! justification! or! excuse.! The! three! elements! of! tort!interference!are!present!since!So!Ping!Bun!prevailed!upon!DCCSI!to!lease!the!warehouse!to!his!enterprise!at!the!expense!of!Enterprising.!However,! So! Ping! Bun! still! cannot! be! held! liable! for! damages.!Though! he! took! interest! in! the! property! of! Enterprising! and!benefited! from! it,! nothing! on! record! imputes! deliberate! wrongful!motives!or!malice!on!him.!The!business!desire!is!there!to!make!some!gain! to! the! detriment! of! the! contracting! parties.! Lack! of! malice,!however,!precludes!damages.!But!it!does!not!relieve!So!Ping!Bun!of!the! legal! liability! for! entering! into! contracts! and! causing! breach! of!existing! ones.! Thus,! the! appellate! court! correctly! confirmed! the!permanent! injunction! and! nullification! of! the! contracts! between!DCCSI!and!Trendsetter,!without!awarding!damages.!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

!!!!


CHAPTER(2:((ESSENTIAL(REQUISITES(

OF(CONTRACTS(A. Consent(

(1. REQUISITES!

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

!

• Consent!presupposes! the! following! requisites:!1)!plurality!of! subjects,! 2)! capacity,! 3)! intelligent! and! free! will,! 4)!express! or! tacit! manifestation! of! the! will,! and! 5)!conformity!of!the!internal!will!and!its!manifestation.!

a. Must%be%manifested%by%the%concurrence%of%the%offer%and%acceptance%" ! with! respect! to! object! and!cause%

Cases:!!

ROSENSTOCK!v.!BURKE!

Facts:!Elser!began!negotiations!for!the!purchase!of!Burke’s!yacht! in!1922.!!Elser’s!plan!was!to!organize!a!yacht!club!and!sell!the!yacht!for!P120K,!with!P100K!to!be!given!to!Burke!and!P20K!to!be!kept!by!him!as!commission.!To!be!able!to!sell!the!yacht,!Elser!wanted!to!make!a!voyage!on!board! the!yacht!with!businessmen.!The!yacht,!however,!needed!repairs;!paid!by!Elser.! It!had!been!stipulated!that!Elser!was!not! to!pay! for! the!use!of! the!yacht.!Burke! subsequently!gave!Elser!the! option! of! sale;! Elser! agreed! by! letter.! Burke! demanded!performance.!!Held:! It! was! not! a! valid! contract! of! sale.! Words! uttered! by! Elser!could!not!be! interpreted! as! a! definite!offer! to!purchase! the! yacht,!but! simply! a! position! to! deliberate! whether! or! not! he! would!purchase! it.! It! was! a!mere! invitation! to! a! proposal! being!made! to!Elser!which!he!has!the!option!to!either!accept!or!not.!!

MALBAROSA!v.!CA!

Facts:! Salvador!Malbarosa!was! the! president! and! general!manager!of! Philtectic! Corporation! and! an! officer! of! other! corporations!belonging!to!the!SEADC!group!of!companies.!SEADC!assigned!to!him!a! Mitsubishi! Gallant! Super! Saloon! car! along! with! membership!certificates! in! the! Architectural! Center,! Inc.! In! 1990,! Malbarosa!tendered!his! resignation!and! reiterated!his! request! for!payment!of!his!incentive!compensation!(P395K).!SEADC!accepted!his!resignation!and! entitled! him! to! an! incentive! amounting! to! P251,057.67! (to! be!

satisfied!by!transferring!to!him!the!car!and!the!membership!share!of!an! SEADC! subsidiary! in! the! Architectural! Center,! Inc).! On! March!1996,! a! letter?offer! was! prepared! by! the! SEADC! for! Malbarosa! to!sign.!He!didn’t! sign! it! and,! instead,! said! that! he!will! review! it! first.!After! 2!weeks!without! feedback! from!Malbarosa,! SEADC!withdrew!its!offer!on!April! 1996.!Malbarosa! transmitted! signed! letter?offer!4!days!after!such!withdrawal.!!Held:! There! is! no! contract! since! Malbarosa! failed! to! meet! the!requirements!of!a!valid!acceptance!which:! !1)!may!be!expressed!or!implied,!2)!must!be!absolute,!unconditional!and!without!variance!of!any!sort!from!the!offer,!3)!must!be!made!known!to!the!offeror,!and!4)! must! be! made! in! the! manner! prescribed! by! the! offeror.!Malbarosa!communicated!his!acceptance!only!after! the!knowledge!of! the! withdrawal! of! the! offer.! He! should! have! transmitted! his!acceptance!while!the!offer!was!subsisting.!!

i. Offer!–!unilateral!proposition!which!one!party!makes!to!the!other!for!the!celebration!of!the!contract.%a. Must%be%certain!–!Art!1319!

• An!offer!exists!only!if!the!contract!can!come!into! existence! by! the! mere! acceptance! of!the!offeree,!without!any! further!act!on!the!part!of!the!offeror.!It!must!therefore!be:!o Definite! –! offer!must! be! distinguished!

from! mere! communication! indicating!that!a!party!is!disposed!to!enter!into!a!certain! contract,! or! inviting! the! other!to!make!an!offer.!

o Complete, –! offer! must! indicate! with!sufficient! clearness! the! kind! of!contract! intended! and! definitely! state!the! essential! conditions! of! the!proposed!contract,!as!well!as!the!non?essential!ones!desired!by!the!offeror.!

o Intentional, –! offer! should! be! serious!and!not!made!for!fun!or!in!jest!

!b. What%may%be%fixed%by%the%offeror!"!time,!place!

and!manner!of!acceptance!,

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

!• The! offer!with! a! period! lapses! upon! the! termination! of! the!

period;!acceptance!must!thus!be!known!to!the!offeror!before!the!period!lapses.!If!the!acceptance!is!made!beyond!the!time!fixed!in!the!offer,!such!acceptance!already!constitutes!a!new!offer!and!may!be!accepted!or!rejected!by!original!offeror.!

• Acceptance!not!made!in!the!manner!provided!by!the!offeror!is! not! effective,! but! constitutes! a! counter?offer! which! the!offeror!may!accept.!

!c. When%made%through%an%agent!"!accepted!from!

the!time!acceptance!communicated!to!the!agent!,

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

!

!!!!


d. Circumstances%when%offer%becomes%defective!"!death,!civil!interdiction,!insanity!or!insolvency!!,

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

!e. Business%advertisements%of%things%for%sale!

,

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

!• A!business!advertisement!of! things! for!sale!may!or!may!not!

constitute!a!definite!offer.!It!is!not!a!definite!offer!when!the!object!is!not!determinate.!

• An!offer!must!be!made!to!the!person!with!whom!a!contract!is!desired!but!it!is!not!necessary!that!the!offeror!should!know!the!person!who!receives!his!offer.!A!valid!offer!to!the!public!can!be!made.!

!f. Advertisement%for%bidders%!

,

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

!• Not!applicable! to! judicial! sale!wherein! the!highest!bid!must!

necessarily!be!accepted!!

Cases:!!

JARDINE!DAVIES!v.!CA!

Facts:! Pure! Foods! Corp.! decided! to! install! 2! 1500! KW! generators;!bidding! was! held.! Pure! Foods! confirmed! award! of! contract! to!FEMSCO.! FEMSCO! submitted! the! required! performance! bond! and!contractor’s! all?risk! insurance! policy.! Pure! Foods! unilaterally!cancelled!the!award!to!FEMSCO!and!awarded!the!project!to!Jardine.!

!Held:! Contracts! are! perfected! by!mere! consent! (acceptance! of! the!offeree! of! the! offer! made! by! the! offeror).! Pure! Foods’! letter! to!FEMSCO! constituted! acceptance.! The! “basic! terms! and! conditions”!enumerated! in!the! letter!were! imposed!on!the!performance!of! the!contract!and!not!on!the!perfection!of!such.!Also,!granting!that!Pure!Foods’! letter! is! just! a! conditional! counter?offer,! FEMSCO’s!submission! of! bond! and! insurance! was! implied! acceptance.! Pure!Foods’! acknowledgement! of! the! bond! and! insurance! shows!knowledge!of!FEMSCO’!consent!to!the!offer.!

!!

ii. Acceptance%• An!offer! that! is!not! accepted!does!not! give! rise!

to!consent,!and!the!contract!does!not!come!into!existence.!

• Contract!is!perfect!when!the!offeror!or!counter?offeror!learns!about!the!acceptance!!!

! !a. Must%be%absolute!–!Art!1319!

• Necessary! that! acceptance! be! unequivocal!and!unconditional.!

!b. Kinds!

,

Art.!1320.!An!acceptance!may!be!expressed!or!implied.!

!i. Express!–!Art!1320!ii. Implied!–!Art!1320;!may!arise! from!acts!or!

facts!which!reveal!the!intent!to!accept,!such!as! the! consumption! of! the! things! sent! to!the! offeree,! or! the! fact! of! immediately!carrying!out!the!contract!offered.!

iii. Qualified!–!Art!1319;!not!an!acceptance!but!constitutes!a!counter?offer!

!c. If%made%by%letter%or%telegram!–!Art!1319,!Par!2!

!Four!theories!on!when!the!contract!is!perfected!(Sir! Labitag:! “Back! in! the! days! when!communication!was!slow…”):!1. Manifestation, Theory, –, counter?

offeree!manifests!his!acceptance!2. Expedition%Theory,–,sending!or!mailing!

of!the!letter!3. Reception% Theory, –, receipt! of! the!

message!of!acceptance!4. Cognition% Theory, –! Art! 1319,! Par! 2;!

knowledge!of!the!offeror!of!the!acceptance!!d. Period%of%acceptance!

,

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

,,

• When! there! is! a! fixed! period! of! acceptance,! offeree! may!accept! at! any! time! until! such! period! expires.! When! the!offeror! has! not! fixed! a! period,! and! the! offer! is! made! to! a!person!present,!the!acceptance!must!be!made!immediately.!When!the!offer! is!made!to!a!person!absent,! the!acceptance!may! be! made! within! such! time! that,! under! normal!circumstances,!an!answer!can!be!received!from!him.!

• Acceptance!not!made!in!the!manner!provided!by!the!offeror!is!ineffective.!!

• Offer! implies! an! obligation! on! the! part! of! the! offeror! to!maintain!it!for!such!a!length!of!time!as!to!permit!the!offeree!to!decide!whether!to!accept!it!or!not.!!!

• Extinguishment!or!annulment!of!offer!!o Withdrawal!by!the!offeror!o Lapse!of!the!time!for!option!period!o Legally!incapacitated!to!act!!o Offeree!makes!counter?offer!o Contract!becomes!illegal!

!!

!!!!


Case:!!

SANCHEZ!v.!RIGOS!!

Facts:!Sanchez!and!Rigos!executed!an!“Option!to!Purchase”!a!parcel!of! land.! If! within! 2! years! from! date! of! execution! of! the! said!instrument!Sanchez!shall!not!exercise!his!right!to!buy!the!property,!the! option! shall! be! terminated.! Within! the! said! period,! Sanchez!made!several!attempts!to!pay!to!Rigos!but!the!latter!rejected!these!payments.!Sanchez!deposited!the!amount!in!CFI?Nueva!Ecija.!

!Held:!An!accepted!unilateral!promise!can!only!have!binding!effect!if!supported!by!a!consideration,!which!means!that!the!option!can!still!be!withdrawn!absent!a!consideration.!(See!Art!1324)!The!document!drawn! between! Sanchez! and! Rigos! does! not! require! Sanchez! to!purchase! the! property;! not! a! contract! to! buy! and! sell.! The!aforementioned! document! does! not! state! that! the! promise! is!supported!by!consideration!distinct!from!the!price!stipulated.!

!e. Contract% of% option! –! Art! 1324;! a! preparatory!

contract! in!which!one!party!grants!to!the!other,!for!a!fixed!period!and!under!specified!conditions,!the!power!to!decide!whether!or!not!to!enter!into!a!principal!contract.!• Must! be! supported! by! an! independent!

consideration! and! the! grant! must! be!exclusive!

• If! the! “option”! is! not! supported! by! an!independent! consideration,! offeror! can!withdraw! the! privilege! at! any! time! by!communicating!the!withdrawal!to!the!other!party,!even!if!the!“option”!had!already!been!accepted.!!!

Case:!!

ADELFA!PROPERTIES!v.!CA!

Facts:! Rosario! Jimenez?Castañeda! and! Salud! Jimenez! and! their!brothers!were! the! registered! co?owners!of! a!parcel!of! land.!Adelfa!Properties! expressed! interest! in! buying! Rosario! and! Salud’s! share.!An!“Exclusive!Option!to!Purchase”!was!executed!(P50K!to!be!paid!by!Adelfa! as! “option!money”! to! be! credited! as! partial! payment! upon!consummation! of! sale;! balance! to! be! paid! on! or! before! Nov! 30,!1989).! Before! Adelfa! could! start! payment,! it! received! a! copy! of!complaint!filed!by!the!niece!and!nephews!of!the!Jimenezes!(for!the!annulment! of! the! deed! of! sale! and! recovery! of! ownership! of!property).!Adelfa! informed!the! Jimenezes! that! it!will!hold!payment!of! the! full! purchase! price! until! settlement! of! the! complaint.! Salud!attributed!the!suspension!of!payment!to!“lack!of!word!of!honor”.!

!Held:! The! Agreement! between! the! parties! is! a! contract! to! sell!(ownership!is!reserved!in!the!vendor!and!is!not!to!pass!until!the!full!payment! of! the! price)! and! not! an! option! contract! or! a! contract! of!sale! (title!passes! to! vendee!upon!delivery!of! the! thing! sold).! ! First,!there!was!an!implied!agreement!that!ownership!shall!not!pass!to!the!purchaser! until! full! payment.! Second,! there! was! no! showing! that!there!was!delivery!of!the!property!(actual!or!constructive)!made!to!petitioner.! The! alleged! P50K! “option! money”! (money! given! as! a!distinct! consideration! for!an!option!contract)!was!actually! “earnest!money”!which!was!intended!to!form!part!of!the!purchase!price.!

!!!!!

b. Necessary%legal%capacities%of%the%parties%i. Who%cannot%give%consent%

Art.!1327.!The!following!cannot!give!consent!to!a!contract:!1. Unemancipated!minors;!2. Insane!or!demented!persons,!and!deaf?mutes!who!do!not!

know!how!to!write.!

!• Logical! consequence:! a! contract! entered! into!by!one!of! the!

persons! enumerated! above! would! be! wanting! in! consent,!and!hence!inexistent!or!void.!

• Legal! consequence:! if! both! parties! are! incapable! of! giving!consent,!the!contract!is!unenforceable.!If!only!one!is!capable,!it!is!annullable!or!voidable.!

!ii. When%offer%and/or%acceptance%is%made%

a. During%a%lucid%interval!"!valid!b. In% a% state% of% drunkenness! "! voidable;! utter!

want!of!understanding!c. During%a%hypnotic% spell!"! voidable;!utter!want!

of!understanding!!

c. The% consent% must% be% intelligent,% free,%spontaneous%and%real%i. Effect%

%

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

,

• Requisites!of! consent:!1)! it! should!be! intelligent,!or!with!an!exact!notion!of!the!matter!to!which!it!refers,!2)!it!should!be!free,!and!3)!it!should!be!spontaneous.!

,

ii. Vices% of% consent! →! vitiated! consent! does! not!make!a!contract!unenforceable!but!merely!voidable.!Intelligence!in!consent!is!vitiated!by:!!

a. Mistake%or%error!–!a!wrong!or!false!notion!about!such! matter,! a! belief! in! the! existence! of! some!circumstance,! fact,! or! event,! which! in! reality!does!not!exist.!,

Art.! 1331.! In! order! that!mistake!may! invalidate! consent,! it! should!refer! to! the! substance! of! the! thing! which! is! the! object! of! the!contract,!or!to!those!conditions!which!have!principally!moved!one!or!both!parties!to!enter!into!the!contract.!

!Mistake!as!to!the!identity!or!qualifications!of!one!of!the!parties!will!vitiate!consent!only!when!such! identity!or!qualifications!have!been!the!principal!cause!of!the!contract.!

!A!simple!mistake!of!account!shall!give!rise!to!its!correction.!

!!!!

!!!!


i. Kinds,

1. Mistake, of, fact! –! generally! not! a!ground!for!annulment!of!contracts!

• Ground! of! mistake! based! on! error! is!limited! to! cases! in! which! it! may!reasonably! be! said! that! without! such!error!the!consent!would!not!have!been!given!

• Effect! of! mistake! is! determined! by!whether! the! parties! would! still! have!entered! into! the! contract! despite!knowledge! of! true! fact!"! “influence!upon!party”!!

!o As!to!

substance!of!object!

• Error! invalidates! consent! if! it! refers! to! the!substance!of!the!thing!o Substance! of! the! thing! –! those!

qualities!which!determine! it!particular!kind,! distinguishing! it! from! other!things!

o As!to!principal!conditions!(essential!or!substantial!in!character)!

• Invalidates!consent!

o As!to!identity!or!qualifications!of!one!of!the!parties!

• Error! in! the! name,! without! error! as! to!person,!will!not!invalidate!the!consent!

• Error! as! to! the! person! will! invalidate!consent! when! the! consideration! of! the!person!has!been!the!principal!cause!of! the!same;! generally! the! case! in! obligations! to!do! which! rest! on! confidence! or! demand!special!qualifications!

• Mistake! as! to! qualifications,! even! when!there! is! no! error! as! to! person,! is! a! cause!vitiating!consent! if!such!qualifications!have!been!the!principal!cause!of!the!contract!!

• Error!as! to! the!solvency!of! the!other!party!is!not!a!cause!of!nullity.!

o As!to!quantity,!as!distinguished!from!simple!mistake!of!account!

• Error! of! account! "! purely! a! mistake! in!computation;! does! not! vitiate! consent;!make!proper!correction!

• Error!as! to!quantity!→!may!vitiate!consent!if!the!primary!!consideration!is!the!quantity!

!• Mistakes!that!do!not!affect!the!validity!of!the!contract!

1. Error! with! respect! to! accidental! qualities! off! the!object! of! the! contract! (quality! of! paper! of! a! book,!adjoining!owners!of!a!piece!of!land),

2. Error! in! the! value! of! thing! (when! a! person,! having!forgotten!the!cost!price!of!merchandise,!erroneously!sells!it!for!less),

3. Error!which!refers!not!to!conditions!of!the!thing,!but!to! accessory! matters! in! the! contract! foreign! to! the!determination!of!the!object,!!!! !

Cases:!!

ASIAIN!v.!JALANDONI!

Facts:! Asiain! told! Jalandoni! that! he! was! willing! to! sell! part! of! his!hacienda!(claimed!to!be!~25?30!ha!and!can!produce!not!less!than!2K!piculs! of! sugar);! Jalandoni! doesn’t! believe!him.!Asiain!Asiain!wrote!Jalandoni! a! letter!making! the! same! manifestations! plus! a! claim!that!if! the! sugar!doesn’t! amount! to! 2k! piculs,! he’ll! pay! in! sugar! all!such!amount!necessary!to!complete!2k.!In!the!event!that!there!is!an!excess,! such!will! be!Asiain’s.! after! acquiring! possession! of! the! said!land,! Jalandoni! found! that! 1)! it! only! produced! 800! piculs! and! 23!cates! of! sugar,! and! 2)! the! land! was! only! 18! ha,! 54! ares! and! 22!centiares.!He!had!already!paid!P30K!then.!Asiain!instituted!action!to!recover!the!P25K!balance!from!Jalandoni.!Jalandoni!wanted!to!annul!the!contract.!

!Held:! Contract! is! rescindable! at! the!option! of! the! buyer! for!agreement! would! not! have! been! made! without! such! mistake.!Stipulating! that! the! land! is! “more! or! less! (size)”! will! not!prevent!granting!of!relief! if! there!was!mutual!mistake!and! the!deficiency! is!material.! Also,! specific! performance! cannot! be! allowed! at! the!instance!of! the! vendor.! The!best! course!of! action!would!be! to!put!the! parties! back! in! their! respective! positions! before! they! became!involved! in! the! negotiations! and! before! they! entered! into! the!agreement.!

!THEIS!v.!CA!

Facts:!Calsons!Development!Corporation!is!the!owner!of!3!adjacent!parcels! of! land.! Adjacent! to! parcel! 3! is! a! vacant! lot! (parcel! 4).! In!1985,! Calsons! constructed! a! 2?storey! house! on! parcel! 3.! In! 1987,!Calsons! sold!parcels!1!and!2! to!Theis.!However,!due! to!an!error! in!the! survey! conducted! in! 1985! (unknown! to! Calsons),! what! was!actually! sold! to!Theis!was!parcel!4! (does!not!belong! to!Calsons).! In!1990,!Theis!discovered!that!parcel!4!was!not!owned!by!Calsons,!and!that!what!was!actually! sold! to! them!was!parcels!2!and!3.!Parcel!3,!however,! could!not!have!been! sold!by!Calsons! to!Theis!as!a!house!(construction!cost!exceeds!the!price!paid!by!Theis)!had!already!been!built! thereon! prior! to! the! execution! of! the! contract! between! the!parties.!

!

Held:! The! contract! may! be! annulled! on! the! ground! of! mistake.!Consent!of!the!parties!is!one!of!the!essential!elements!to!the!validity!of!contracts,!and!where!consent!is!given!through!mistake!the!validity!of!the!contractual!relations!between!the!parties! is! legally! impaired.!The!mistake!or!error!on!the!subject!of!the!sale! in!question!appears!to!be! substantial! as! the!object!of! the! same! transaction! is!different!from!that!intended!by!the!parties.!

!!!!!!!!!!!!!!!!!

!!!!


HEIRS!OF!WILLIAM!SEVILL,!ET!AL.!v.!LEOPOLDO!SEVILLA!

Facts:!Filomena,! Felisa,! and!Honorata!were! sisters!and!co?owned!a!parcel!of! land.!When!Honorata!died,!her!share!in!the!said!parcel!of!land!was! divided! between! Filomena! and! Felisa.!Before! Felisa! died,!she!executed!a!Deed!of!Donation!inter,vivos!of!her!share!in!favor!of!Leopoldo!and!his!wife;!Leopoldo!accepted! the!donation.! Felisa!and!Peter! Sevilla! then!executed! a!Deed!of! Extrajudicial! Partition!of! the!share! of! the! deceased!Honorata! between! the! heirs! of! Filomena! (8!children)! and! Felisa.! Leopoldo! and! Peter,! with! two! others,! then!sought! to! register! the! said! partition.! The! requested! titles! were,!however,! left! unsigned! by! the! Register! of! Deeds! pending! the!submission!of!proof!by!Peter!that!he!has!the!authority!to!represent!the!heirs!of!Filomena.!Meanwhile,!the!other!heirs!of!Filomena!assail!the! validity! of! the!Deed! of! Donation! and! the!Deed! of! Extrajudicial!Partition,!alleging!that!the!donation!was!obtained!through!fraud!as!Felisa! was! already! 81! years! old! and! of! unsound! mind! during! its!execution,!and!the!partition!was!executed!without!their!knowledge!and!consent.!

!Held:! The! donation! inter, vivos! is! valid! as! the! non?existence! of!

fraud! is! a! factual! finding.! The! circumstances! presented! by! the!petitioner!are!not!enough!to!establish.!(Remember:!He!who!asserts!has! the! burden! to! prove.)! Absent! convincing! proof! that! Felisa!was!incapable!of!exercising! judgment!when!she!executed!the!donation,!consent!must!be!presumed.!As! to! the!partition,! it! is! void!ab, initio.!Felisa!did!not!possess!the!capacity!to!give!consent!to!or!execute!the!deed! of! the! partition.! When! the! extra?judicial! partition! was!executed,! Felisa! has! already! donated! her! portion! of! the! land! in!question!to!Leopoldo.!

!2. Error,of,law!–!mistake!as!to!the!

existence!of!a!legal!provision!or!as!to!its!interpretation!or!application!!

o General!rule:!Ignorantia,legis,neminem,excusat!

, , ,

Art.! 3.! Ignorance! of! the! law! excuses! no! one! from! compliance!therewith.!

!o Exception:!Mutual!error!of!law!

! ! !

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

!• Requisites:!

1. Error!must!be!as!to!the!legal!effect!of!an!agreement!

2. Must!be!mutual!3. Real!purpose!of!the!parties!is!

frustrated!!

ii. When,one,of,the,parties,is,unable,to,read!→!burden!of!proof!is!on!the!party!enforcing!the!contract!

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

Cases:!!

DUMASUG!v.!MODELO!Facts:! Dumasug! assails! the! validity! of! the! contract! of! sale! (of! the!lands! and! carabaos)! which! she! executed! in! favor! of! Modelo.!Dumasug!claims!that!Modelo!persuaded!her!to!sign!a!document!by!falsely! and! maliciously! making! her! believe! that! it! contained! an!engagement! on! Dumasug’s! part! to! pay! Modelo! a! certain! sum! of!money! as! expenses! incurred! by! Modelo! for! the! lawsuit! in! which!Dumasug!was!a!party.! It! appeared! that! the! sale!was!authorized!by!Dumasug!by!placing!a!cross!between!her!name!and!surname!in!the!document!(she!didn’t!know!how!to!write).!

!Held:!The!consent!given!by!Dumasug!is!invalid,!thus!invalidating!the!contract.!The!document!(by!which!Modelo!made!himself!the!owner!of!the!properties)!is!not!the!instrument!which!Dumasug!signed.!Also,!even! if! it! was,! the! contents! thereof! were! not! duly! and! faithfully!explained! to! Dumasug.! Had! she! truly! understood,! she! would! not!have! accepted.! Articles! 1265! and! 1266! of! the!Old! Civil! Code! state!that!a!consent!given!by!mistake!is!null!and!void.

!HEMEDES!v.!CA!

Facts:! Jose! Hemedes! executed! a! deed! of! donation! inter, vivos!conveying!a!parcel!of!land!in!favor!of!his!third!wife,!Justa!Kausapin,!subject! to! the! resolutory! condition! that! in! case! of! death! or!remarriage,!the!land!would!have!to!revert!back!to!the!legal!heirs!of!Jose!(Maxima!and!Enrique).!Justa,!however,!may!choose!who!would!receive! the! land.! The! first! deed! of! reconveyance!was! executed! by!Justa! in! favor! of!Maxima.!Maxima! then! executed! a!mortgage! over!the!property!in!favor!of!R&B!Insurance.!When!Maxima!failed!to!pay,!R&B! Insurance! executed! an! extrajudicial! deed! of! foreclosure.!Meanwhile,!the!second!document!was!executed!by!Justa!in!favor!of!Enrique.! Enrique! claimed! that! he! paid! the! taxes! of! the! real! estate!property.! He! also! claimed! that! Justa! didn’t! consent! to! the! deed!executed! in! favor! of! Maxima.! The! RTC,! relying! on! Art.! 1322! and!saying! that! 1)! no! one! explained! the! deed! executed! in! favor! of!Maxima! and! 2)! the! deed! was! in! English! and! Justa! claimed! to! not!understand!English,!ruled!in!favor!of!Enrique.!

!Held:! The! deed! executed! in! favor! of!Maxima! is! valid! as! the!mere!denial!of!Justa!cannot!invalidate!the!deed.!Otherwise,!it!would!leave!the!validity!of!the!contract!to!the!will!of!one!of!the!parties.!Art.!1332!is! not! applicable! in! this! case! as! the! said! article! applies! only!where!the!consent!is!vitiated!through!fraud!or!mistake.!Consent!has!to!be!given! for! this! article! to! apply! but! it! has! to! be! alleged! that! it! was!vitiated! through! fraud!or!mistake.! In! the!present!case,! Justa!claims!that!there! is!no!consent!and!not!that! it! is!vitiated!through!fraud!or!mistake.!

!KATIPUNAN!v.!KATIPUNAN!

Facts:!Braulio!Katipunan,!Jr.! is!the!owner!of!a!203?square!meter! lot!and! a! 5?door! apartment.! Assisted! by! his! brother,! Braulio! entered!into! a! Deed! of! Absolute! Sale!with! brothers! Edgardo! and! Leopoldo!Balguma.!Two!years!later,!Braulio!filed!a!complaint!for!annulment!of!the! Deed! of! Absolute! Sale,! averring! that! his! brother!Miguel,! Atty.!Balguma! and! Inocencio! Valdez! convinced! him! to! work! abroad.!Braulio!alleged!that!through!insidious!words!and!machinations,!they!made!him! sign! a! document! purportedly! a! contract! of! employment!(turned!out!to!be!the!Deed!of!Absolute!Sale).!He!further!alleged!that!he!did!not!receive!the!consideration!stated!in!the!contract.!He!also!alleged!that!Miguel!at!al.,!with!evident!bad!faith,!conspired!with!one!another! in! taking! advantage! of! his! ignorance! as! he! only! finished!third!grade.!

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Held:!The!Deed!of!Absolute!Sale! is!voidable!for!vitiated!consent!on!the! part! of! Braulio.! Undue! influence! was! exerted! upon! him! by!Miguel!et!al.!while!it!was!Miguel!who!negotiated!with!Atty.!Balguma,!they! did! not! explain! to! him! the! nature! and! contents! of! the!document.!His!lack!of!education,!coupled!with!his!mental!affliction,!placed! him! not! only! at! a! hopelessly! disadvantageous! position! but!also!virtually!rendered!him!incapable!of!giving!rational!consent.!

!iii. Inexcusable,mistake,

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

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• An!error!so!patent!and!obvious!that!nobody!could!have!made!it,!or!one!which!could!have!been!avoided!by!ordinary!prudence,!cannot!be!invoked!by!the!one!who!made!it!in!order!to!annul!his!contract.!

• Mistake!caused!by!manifest!negligence!cannot!invalidate!a!juridical!act.!

!b. Violence%and%Intimidation!

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Art.!1335.!There!is!violence!when!in!order!to!wrest!consent,!serious!or!irresistible!force!is!employed.!

!There! is! intimidation! when! one! of! the! contracting! parties! is!compelled!by!a! reasonable!and!well?grounded! fear!of!an! imminent!and!grave!evil!upon!his!person!or!property,!or!upon! the!person!or!property! of! his! spouse,! descendants! or! ascendants,! to! give! his!consent.!!To! determine! the! degree! of! the! intimidation,! the! age,! sex! and!condition!of!the!person!shall!be!borne!in!mind.!!

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

!• Duress!–!degree!of!constraint!or!danger!either!actually!

inflicted!(violence)!or!threatened!and!impending!(intimidation),!sufficient!to!overcome!the!mind!and!will!of!a!person!of!ordinary!firmness.!Violence!is!physical!force!or!compulsion.!Intimidation!is!moral!force!or!compulsion.!

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!

VIOLENCE! INTIMIDATION!

Physical!force!or!compulsion! Moral!force!or!compulsion!External! Internal!Serves! to! prevent! an! act! from!being!done!

Induces! the! performance! of! an!act!

Requisites:!1. Physical! force! must! be!irresistible,! or! of! such!degree! that! the! victim! has!no! other! course,! under! the!circumstances,! but! to!submit!

2. Such! force! is! the!determining! cause! in! giving!the!consent!to!the!contract!

Requisites:!1. Intimidation! must! be! the!determining! cause! of! the!contract,! or! must! have!caused! the! consent! to! be!given!

2. Threatened! act! is! unjust! or!unlawful!

3. Threat!is!real!and!serious!4. Produces! a! reasonable! and!well?grounded! fear! from!the! fact! that! the! person!from! whom! it! comes! has!the! necessary! means! or!ability! to! inflict! the!threatened!injury.!

!• Seriousness!of! the!evil! or!wrong!measured!both!objectively!

(degree!of!harm!that!the!evil!in!itself!is!likely!to!produce)!and!subjectively! (determining! the! effect! of! the! threat! upon! the!mind!of!the!victim!in!view!of!his!personal!circumstances!and!his!relation!to!the!author!of!the!intimidation)!

• “Person”!→!not!limited!to!life!and!physical!integrity!but!also!includes! liberty! and!honor;! covers! all! injuries!which!are!not!patrimonial!in!nature!

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i. Effect,

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Art.! 1336.! Violence! or! intimidation! shall! annul! the! obligation,!although!it!may!have!been!employed!by!a!third!person!who!did!not!take!part!in!the!contract.!

• Agreement! is! still! null! and! void! even! if! the! intimidation! or!threat!had!been!employed!by!a!third!person!who!was!not!a!party!to!the!contract.!

!Case:!

!MARTINEZ!v.!HONGKONG!AND!SHANGHAI!BANK!

Facts:! Martinez! executed! a! contract! under! which! she! agreed! to! a!conveyance! of! several! properties! to! Adelcoa! &Co.! and! HSBC! as!settlement!of! their!claims!against!her!and!her!husband.!During! the!trial,! it! was! established! that! during! the! period! of! negotiation,!representations!were!made!to!her!by!the!defendants!and!concurred!in! by! her! lawyers! that! if! she! assented! to! the! requirements! of! the!defendants,! the!civil! suit!against! them!would!be!dismissed!and!the!criminal! charges! against! her! husband! would! be! withdrawn.!However,!if!she!refused,!her!husband!must!either!spend!the!rest!of!his!life!in!Macao!or!be!criminally!prosecuted.!

!Held:!In!order!for!the!contract!to!be!annulled,!it!must!be!shown!that!the! plaintiff! never! gave! her! consent! to! the! execution! thereof.!However,!it!is!necessary!to!distinguish!between!real!duress!and!the!motive!which! is! present!when! one! gives! his! consent! reluctantly.! A!contract!whereby!reparation!is!made!by!one!party!for!injuries!which!he!has!willfully!inflicted!upon!another!is!one!which,!from!its!nature,!is! entered! into! reluctantly! by! the! party! making! the! reparation.!Nevertheless,!it!is!binding!and!enforceable.!

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!c. Undue% influence!–!any!means!employed!upon!a!

party!which,! under! the! circumstances,! he! could!not!well!resist,!and!which!controlled!his!volition!and! induced! him! to! give! his! consent! to! the!contract,! which! otherwise! he! would! not! have!entered!into.!,

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

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! UNDUE!INFLUENCE! INTIMIDATION!

Unlawful! or! unjust!act!

Not!necessary! Necessary!!

Moral!coercion! Present! Present!!

• Due!influence!does!not!vitiate!consent.!o The!line!between!due!and!undue!influence!must!be!in!full!

recognition!of! the! liberty!due!every! true!owner! to!obey!the! voice! of! justice,! the! dictates! of! friendship,! of!gratitude! and! benevolence,! as! well! as! the! claims! of!kindred,! and,!when!not! hindered!by!personal! incapacity!or!particular! regulations,! to!dispose!of!his!own!property!according!to!his!own!free!choice.!

• Sir! Labitag:! sales! talk! is! allowed,! especially! if! there! is!opportunity!to!investigate!the!facts.!(See!Art!1340)!

• Circumstances!mentioned!→!not!exclusive!• Undue! influence! employed! by! a! third! person!may! annul! the!

contract.!(See!Art!1336)!!

d. Fraud% or% dolo, –! every! kind! of! deception,!whether! in! the! form! of! insidious! machinations,!manipulations,! concealments! or!misrepresentations,! for! the! purpose! of! leading!another! party! into! error! and! thus! execute! a!particular!act.!,

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

• Must! have! a! determining! influence! on! the! consent! of! the!victim!

• Insidious! words! and! machinations! –! forms! of! deception!which! may! influence! the! consent! of! a! contracting! party,!without! necessarily! constituting! estafa! or! some! offense!under!the!penal!laws.!

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• Requisites:!1. It! must! have! been! employed! by! one! contacting! party!

upon!the!other!(Arts!1342!and!1344)!o If! both! party! employs! fraud,! they! cannot! have! an!

action!against!each!other;!fraud!is!compensated!2. It!must!have! induced! the!other!party! to!enter! into! the!

contract!(Art!1338)!3. It!must!have!been!serious!(Art!1344)!4. It!must! have! resulted! in! damage!or! injury! to! the!party!

seeking!annulment!• Contract! obtained! through! fraud! is! not! void! ab, initio! but!

merely!voidable!!

! FRAUD!IN!ART.!1171! FRAUD!IN!ART.!1338!

When! it!occurs!

In! connection! with! the!fulfillment! of! the!obligation!

Prior! or! simultaneous!to! the! consent! or!creation! of! the!obligation!

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! ERROR! FRAUD!

When! it!vitiates!consent!

Only! when! it! refers! to!the!matters!mentioned!in!Art!1331!

Always,!when!the!fraud!had!a!decisive!influence!on!such!consent!

!Cases:!

!

HILL!v.!VELOSO!

Facts:! Veloso! executed! a! promissory! note! with! Franco! as! solidary!debtor!(later!died)!in!favor!of!one!Michael!&!Co.!S!en!C,!allegedly!for!goods! received! in! La, Cooperativa, Filipina.! A! suit! was! filed! against!Veloso! because! payment! was! not! received! by! the! creditor! after! 4!monthly! installments.! Veloso! tried! to! escape! payment! by! alleging!the! following:! a)! that! Domingo! obtained! her! signature! in! the!promissory! note! by! estafa,! b)! that! what! she! signed! was! a! blank!document,! on! the! pretext! that! she! was! paying! 8K! in! favor! of! the!guardian!of!the!minor!children!of!her!sister?in?law,!to!whom!she!was!indebted!the!same!amount.!CFI,!RTC!and!CA!were!able!to!prove!the!falsity!of!her!defenses.!

!Held:!The!defense!of!error!and!deceit!is!not!admissible!in!this!case.!Veloso’s! statement! is! not! much! proof! that! can! outweigh! the!contents!of! the!promissory!note! that! is! the!basis!of! the!complaint.!On! the! contrary,! it! is! conclusive! proof! of! the! falsity! of! the! other!cause!of!debt!alleged! in! the!special!defense.!Also,!Art.!1269!of! the!Old! CC! states! that! “There! is! deceit! when! by! words! or! insidious!machinations! on! the! part! of!one,of! the! contracting! parties,!the!other!is! induced! to! execute! a! contract! which!without! them! he!would!not!have!made.”!Franco! is!not!one,of!the!contracting!parties!who! may! have! deceitfully! induced! the!other!contracting! party! to!execute!the!contract.!Therefore,!Veloso!is!still!liable!to!pay.!

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WOODHOUSE!v.!HALILI,!supra!

Facts:!Plaintiff!and!defendant!entered!into!a!written!agreement!that!they!shall!organize!a!partnership!for!the!bottling!and!distribution!of!Mission! softdrinks.! When! bottling! plant! was! already! in! operation,!plaintiff! demanded! that! the! partnership! papers! be! executed.! Halili!promised!to!do!so!after!the!sales!of!the!products!had!been!increased!to! 50K.! Defendant! refused! to! give! allowance! to! Woodhouse! and!settlement! could! not! be! arrived! at! so! the! present! action! was!instituted.!Defendant!counter?argued!that!his!consent!was!obtained!through! false! representation! of! the! plaintiff! claiming! he! was! the!owner! or! was! about! to! be! the! owner! of! an! exclusive! bottling!franchise!when! in! fact! he!was! not.! The! franchise!was! given! to! the!defendant!himself!during!their!transaction!with!Mission!Dry!Corp!in!the!US.!Thus! the!plaintiff! failed! in! carrying!out!his!undertakings!by!failing!to!contribute!the!franchise!into!the!partnership.!!

!Held:! There! are! two! kinds! of! fraud:! 1)! causal! fraud! (principal!inducement,!without!which!the!other!party!would!not!have!entered!the!contract),!which!may!be!ground!for!the!annulment!of!a!contract,!and!2)!incidental!deceit,!which!only!renders!the!party!who!employs!it! liable! for! damages.! What! was! committed! in! this! case! is! an!incidental! deceit! and! the! principal! obligation! that! Woodhouse!assumed! was! to! secure! the! said! franchise.! However,! the! alleged!possession!of! the! rights! to! the! franchise! induced! the!defendant! to!give! 30%! of! the! net! profit! to! plaintiff! when! plaintiff! has! minimal!knowledge! pertaining! to! bottling! (thus! incidental! fraud).! By!pretending!that!he!had!exclusive!franchise!that!would!be!transfer!to!the!partnership,!Woodhouse!obtained!30!%!shares!in!profit.!

!GERALDEZ!v.!CA,!supra!

Facts:!The!petitioner!and!her!sister!bought!a!tour!package!(VOLARE!3)! covering!a!22?day!European! tour! for!$2,990.!Certain! “elements”!of!the!tour!stated!in!the!brochure!were!missing.!

!Held:!Kenstar!committed! fraudulent!misrepresentations!amounting!to!bad! faith,! to! the!prejudice!of!Geraldez!and! the!members!of! the!tour! group.! Kenstar! committed! grave! misrepresentation! when! it!assured! in! its! package! that! the! hotels! would! provide! the! tourists!complete! amenities! and! were! conveniently! located! along! the! way!for! the! daily! itineraries.! The! fact! that! the! tourists! were! to! pay! a!lower! amount! does! not! justify! a! substandard! form! of! service! in!return.!Meanwhile,!the!issue!of!whether!the!private!respondent!has!committed! dolo, causante! or! dolo, incidente! by! making!misrepresentations! in! its! contracts! with! petitioner! and! other!members!of!the!tour!group!is!irrelevant.!Either!way,!it!is!indubitably!liable! for! damages! to! petitioner.! (See! discussion! of! dolo, causante!and!dolo,incidente!below.)!

!i. Kinds,

1. Dolo,causante!–!that!which!determines!or!is!the!essential!cause!of!the!consent!(Art!1338)!• Only, dolo, causante, can! be! a!

ground! for! annulment! of! the!contract!

• Effects:! 1)! nullity! of! the! contract!and! 2)! indemnification! of!damages!

• Fraud!must!be!established!by!full,!clear,! and! convincing! evidence,!and! not!merely! a! preponderance!thereof!

!

2. Dolo, incidente! –! that! which! does! not!have! such! a! decisive! influence! and! by!itself! cannot! cause! the! giving! of!consent,! but! refers! only! to! some!particular!or!accident!of!the!obligation!

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Art.!1344,!Par!2:!Incidental!fraud!only!obliges!the!person!employing!it!to!pay!damages.!

!• The! deceit! must! be! serious;! fraud! is! serious! when! it! is!

sufficient! to! impress,!or! to! lead!an!ordinarily!prudent!person!into!error!

• Seriousness! of! the! acts! is! not! the! same! as! the! determining!cause!of!the!contract!

!ii. Failure,to,disclose,facts;,duty,to,reveal,them!

→!FRAUD!,

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

!• GENERAL!RULE:!Silence!or!concealment!does!not!constitute!a!

fraud!!• EXCEPTIONS:!!

o There!is!a!special!duty!to!disclose!certain!facts!o According!to!good!faith!and!usages!of!commerce!the!

communication!should!have!been!made!!• Innocent!non?disclosure!of!a!fact!does!not!affect!the!

formation!of!the!contract!or!operate!to!discharge!the!parties!from!their!agreement;!caveat,emptor!

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Cases:!!

TUASON!v.!MARQUEZ!!

Facts:!Marquez! sold! an! electric! light! plant! to! Tuason! for! P14,400! (!P2400!to!be!paid!w/in!60!days!and!the!remainder!w/in!a!year).!The!first! installment! was! paid! subsequent! to! the! 60?day! period;! the!second! installment! has! not! yet! been! paid.! However,!Marquez! has!already! given! up! his! franchise! of! the! plant! prior! to! selling! it! to!Tuason.!Tuason!thus!had!to!operate!under!a!special!license!until!he!obtains! a! new! franchise.! The! franchise! was! granted,! but! with!conditions!stipulating! renovation!of! the!plant.!Tuason!then!wanted!to!rescind!the!contract,!saying!that!Marquez!did!not!disclose!that!he!had!already!given!up!the!franchise.!

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Held:!The!contract!may!not!be! rescinded!despite! the!allegations!of!fraud! since! the! franchise! was! not! the! determining! cause! of! the!purchase.! The! innocent! non?disclosure! of! the! said! fact! does! not!affect! the! formation! of! the! contract! or! operate! to! discharge! the!parties! from!their!agreement.!Also,! it!must!be!noted! that!1)!either!party!could!have!ascertained!the!status!of! the! franchise,!2)!Tuason!operated!the!plant!for!16!months!without!question,!3)!Tuason!made!the! first! payment!without! protest,! and! 4)! Tuason! only! filed! a! case!when!the!business!proved!disastrous.!

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RURAL!BANK!OF!STA.!MARIA!v.!CA!

Facts:! ! A! Deed! of! Absolute! Sale! w/! Assumption! of! Mortgage!was!executed! between! Behis! (vendor/assignor)! and! Rayandayan! and!Arceño!(vendees/assignees)!for!the!sum!of!P250K.!Rayandayan!and!Arceño,! along! with! Behis,! then! executed! another! Agreement!embodying!the!real!consideration!of!the!sale!of!the!land!in!the!sum!of!P2.4M.!They!then!negotiated!with!the!principal!stockholder!of!the!bank! for! the! assumption! of! the! indebtedness! of! Behis! and! the!subsequent! release! of! the!mortgage! on! the! property! by! the! bank,!without! showing! the! Agreement! with! Behis! providing! for! the! real!consideration!of!P2.4M! for! the! sale!of! the!property! to! the! former;!bank!consented!to!the!substitution!of!plaintiffs!as!mortgage!debtors!in! place! of! Behis.! After! payment,! the! bank! agreed! to! release! the!mortgage!of!Behis,!to!give! its!consent!to!the!transfer!of!title!to!the!private! respondents;! and! to! the! payment! of! the! balance! of!P200kunder!new!terms!with!a!new!mortgage!to!be!executed!by!the!private!respondents!over!the!same!land.!Bank!could!not!comply!with!MOA;!Rayandayan!and!Arceño!instituted!a!Civil!Case.!

!Held:! The! MOA! is! not! voidable! on! the! ground! that! the! bank’s!consent! to! enter! said! agreement! was! vitiated! by! fraud! because!private! respondents! withheld! from! the! petitioner! bank! the!information! pertaining! to! the! real! consideration! for! the! sale! with!assumption!of!mortgage.!The!fraud!must!be!the!determining!cause!of! the!contract,!or!must!have!caused!the!consent!to!be!given.!!The!non?disclosure! to! the!bank!of! the!purchase!price!of! the!sale!of! the!land! between! respondents! and! Behis! cannot! be! fraud! under! Art.!1338.! For! all! intents! and! purposes,! the! bank! entered! into! the! said!agreement!in!order!to!effect!payment!on!the!indebtedness!of!Behis.!!Also,! pursuant! to! Art.! 1339,! silence! or! concealment! does! not!constitute! fraud! unless! there! is! a! special! duty! to! disclose! certain!facts,!or!unless!according!to!good!faith!and!the!usages!of!commerce!the!communication!should!be!made.!!Respondents!had!no!such!duty!and! therefore!did!not!act! in!bad! faith! in! failing! to!disclose! the! real!consideration.!! Also,! it! must! be! noted! that! the! bank! had! other!means!and!opportunity!of!verifying!the!financial!capacity!of!private!respondents.!!

!iii. Usual,exaggerations,in,trade;,opportunity,

to,know,the,facts!→!TOLERATED!FRAUD!!

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

!• Minimizing!the!defects!of!the!thing,!exaggeration!of!its!good!

qualities,! and! giving! it! qualities! that! it! does! not! have! →!lawful!misrepresentation!(dolus,bonus)!

• Caveat,emptor;!do!not!give!rise!action!for!damages!because!of!their!insignificance!OR,because!the!stupidity!of!the!victim!is! the! real! cause! of! his! loss!"! import! of! “opportunity! to!know!facts”!

!Cases:!

!AZARRAGA!v.!GAY!

Facts:!Azarraga!bound!himself!to!sell!to!Gay!two!parcels!of!land!for!a!lump!sum!of!P47,!000!payable!in!installments.!Gay!already!paid!P25,!000!but! failed! to!pay! last! two! installments! so!Azarraga! filed!action!for! collection! for! balance.! Gay! contends! that! plaintiff! knowingly!misrepresented!to!her!that!the!second!parcel!of!land!had!an!area!of!

98!hectares,!but!in!reality!only!had!60!hectares,!and!that!she!would!have!not!bought!the!land!if!she!had!known!it!was!only!60!hectares.!

!Held:! There! is! no! mistake! or! misrepresentation.! Citing! Songco, v.,Sellner,! since!Gay!made!her!own!calculations!of! the! land!area,! she!cannot! later! allege! that! the! vendor!made! false! representations! to!her.! Furthermore,! even! if! there! were! misrepresentations! in! the!outset,! documents! which! contained! the! real! size! of! the! land! was!received! and! read! by! Gay! before! they! signed! the! contract.! If! ever!there!were!misrepresentations,! she!accepted! them! in!her!own! risk!and!had!only!her!credulousness!to!blame!

!LAURETA!TRINIDAD!v.!IAC!

Facts:! Plaintiff! offered! to! buy! a! house! and! lot! from! private!respondent.!However,! she! heard! from!her! new!neighbors! that! the!previous! buyers! of! the! house! vacated! it! because! it! was! subject! to!flooding.!When!she!talked!to!respondent!about!it,!the!latter!assured!her! that! everything!had!been! fixed! and! the!house!would!never! be!flooded!again,!and!they!entered!into!a!Contract!of!Conditional!Sale.!However,!plaintiff!did!not!continue!paying!the!amortization!because!the!house!was!flooded!again!up!to!5ft.!and!charged!respondent!with!misrepresentation.!

!Held:! Circumstances! surrounding! the! case! belie! the! contention! of!fraud! and! misrepresentation.! It! was! petitioner! who! admittedly!approached!the!respondent!about!buying!the!property,!as!the!latter!never!registered!it.!She!had!full!opportunity!to!inspect!the!premises!before!entering! into!a!contract!and!being!a! real!estate!broker,! it! is!assumed! that! he! made! her! appraisal! of! the! property! not! with! an!untrained!eye!but!with!experience!and!expertise.!Also,!seeing!the!lot!was!depressed!and!there!was!a!drainage!lot!abutting!it,!she!cannot!say! she!was!not! forewarned!of! the!possibility! that! the!place!might!be! flooded.! There! is! also! no! evidence! presented! to! show! that! the!two! previous! owners! vacated! the! property! because! of! flooding!except!her!own!testimony.!

!iv. Mere,expression,of,an,opinion!→!NOT!

FRAUD,!unless!made!by!an!expert!and!relied!upon!by!the!plaintiff!

,

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

!• An!opinion!of!an!expert!is!like!a!statement!of!fact,!and!if!

false,!may!be!considered!a!fraud!giving!rise!to!annulment.!• However,!when!the!expert!was!employed!by!the!party!who!

was!misled,!he!cannot!ask!for!annulment!because!he!is!chargeable!with!the!acts!and!declarations!of!his!employee.!

!1. Effects,–,Art,1344,

!

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.!

!!

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• Effects!of!fraud:!o Nullification!of!the!contract!o Indemnification!for!damages!

!Case:!

!SONGCO!v.!SELLNER!

Facts:!Plaintiff!wanted!to!buy!respondent’s!sugarcane!for!the!sum!of!P12,!000,!executed!in!three!equal!promissory!notes.!After!processing!of! sugarcane,! Plaintiff! charged! respondent! with! misrepresentation!for! saying! that!his! sugarcane!would!produce!3,! 000!piculs! of! sugar!but!it!only!produced!2,!017!piculs.!

!Held:!The!amount!of!3,!000!piculs!of!sugar!was!a!mere!expression.!The! law! allows! considerable! latitude! to! seller’s! statements,! or!dealer’s!talk.!Since!Songco!allowed!Sellner!to!examine!the!field!and!the!sugarcane,!Songco!did!not! falsely! represent! the!product! to! the!extent!that!it!is!actionable.!!

e. Misrepresentation!i. By,a,third,person,

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

!• GENERAL!RULE:!Fraud!by!third!person!

does!not!vitiate!consent!and!cause!the!nullity!of!a!contract;!merely!gives!rise!to!an!action!for!damages!by!the!party!injured!against!such!third!person!

• EXCEPTIONS:!o If!one!of!the!parties!is!in!collusion!

with!the!third!person,!or!knows!of!the!fraud!by!the!third!person,!and!he!is!benefited!thereby,!he!may!be!considered!as!an!accomplice!to!the!fraud!→!contract!becomes!VOIDABLE!

o If!the!third!person!is!not!in!connivance!with!any!of!the!parties!but!leads!them!both!into!error!(mutual!error),!the!consent!is!vitiated!→!contract!is!VOIDABLE!

!! VIOLENCE!OR!

INTIMIDATION!(ART!

1336)!

MISREPRESENTATION!

Effect! of!act! of! a!third!person!

Annuls! contract! even! if!such! violence! or!intimidation! is! exercised!by!a!third!person!

Does! not! annul! contract!unless! it! produces!substantial! mutual!mistake! on! the! part! of!both!contracting!parties!!

• Why!the!difference?!1)!The!party!has!nothing!to!o!with!fraud!by!a!third!person!and!cannot!be!blamed!for!it!and!2)!intimidation!can!be!more!easily!resisted!than!fraud.!

!!!!!!!

ii. Made,in,good,faith,

,

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

!iii. Active/passive,

• Applicable!to!legal!capacity,!especially!age!

!Cases:!

!

MERCADO!v.!ESPIRITU!

Facts:!Petitioners,!who!were!minors!at!the!time!of!the!execution!of!the! contract,! allege! that! respondent! induced! and! fraudulently!succeeded! in! getting! petitioners! to! sign! a! deed!of! sale! of! the! land!left! by! their!mother! for! the! sum!of! P400! notwithstanding! the! fact!that! the! land! was! valued! at! P3795.! As! a! defense,! respondents!argued! that! petitioners! represented! themselves! of! legal! age! and!executed!a!notarial!document!ratifying!the!said!sale.!

!Held:!It!is!a!rule!that!the!sale!of!a!real!estate!effected!by!minors!who!have!already!passed!the!age!of!puberty!and!are!near!the!adult!age,!when!they!pretend!to!have!already!reached!their!majority,! is!valid.!Such!minors!cannot!be!permitted!afterwards! to!excuse! themselves!from!compliance!with!the!obligation.!

!BRAGANZA!v.!VILLA!ABRILLE!

Facts:! Petitioners,! who! were! minors! at! the! time,! received! from!respondent!a!loan!of!70,!000!Japanese!war!notes,!with!a!promise!to!pay!respondent!after!cessation!of!hostilities.!Payment!was!not!made!and!respondent!and!action!for!collection.!

!Held:! There! was! no! misrepresentation! of! both! minors! regarding!their! minority.! Quoting! Corpuz, Juris, Secundum,, in! order! to! hold! a!minor! liable,! the! fraud!must! be! actual! and! not! constructive.!Mere!silence! when! making! a! contract! regarding! his! ages! does! not!constitute!a! fraud.!However,!pursuant!to!Art!1340,! it! is! fair! to!hold!them! liable! for! restitution! of! the! amount! to! the! extent! that!benefited!them.!

!f. Simulation%of%Contracts!–!declaration!of!a!

fictitious!will,!deliberately!made!by!agreement!of!the!parties,!in!order!to!produce,!for!the!purposes!of!deception,!the!appearance!of!a!juridical!act!which!does!not!exist!or!is!different!from!that!which!was!really!executed;!involves!a!defect!in!declaration!

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Cases:!!

RODRIGUEZ!v.!RODRIGUEZ!

Facts:! Concepcion! Felix,! who! owned! 2! fishponds,! contracted! a! 2nd!marriage! with! a! Domingo! Rodriguez.! She! executed! a! deed! of! sale!conveying!said!properties!to!her!daughter!for!P2,!500,!who!in!turn,!appeared!to!have!transferred!the!same!property!to!her!mother!and!stepfather.! When! Domingo! died! intestate,! Felix! filed! action! to!declare!deeds!fictitious!and!simulated.!

!Held:! Petitioner! is! estopped! from!claiming! that! the! contracts!were!simulated!because!she!herself!claimed!that!the!transfer!of!titles!was!for! the! purpose! of! converting! the! property! from! paraphernal! to!conjugal! property.! As! to! the! claim! that! there! was! lack! of!consideration,! Court! found! that! there!was! consideration:! the! price!of!P2,!500!for!first!transfer,!and!P3,!000!for!the!second,!as!stated!in!the!deed!itself.!In!any!case,!action!is!barred!by!latches!since!28!years!have!already!passed.!

!SUNTAY!v.!CA!

Facts:! Frederico! Suntay! tried! to! apply! with! the! NRC! as! a! miller?contractor!of!rice!but!was!denied!due!to!outstanding!debts.!He!then!executed! a! deed! of! sale! in! favor! of! nephew! Rafael,! which! was!subsequently!followed!by!another!deed!of!sale!from!Rafael!but!was!not!notarized.!The! idea!was!to!transfer!the!ownership!of!the! lot!to!Rafael!for!him!to!apply!to!be!a!miller?contractor,!and!return!the!lot!back! to! Frederico.! However,! Rafael! refused! to! return! the! title! to!Frederico.!

!Held:! Deed! was! obviously! simulated.! The! fact! that! Rafael! never!asserted!his!ownership,!as!well!as!his!non?disclosure!of!said!property!in!his! SALN! shows! that! it! never!was!his! property! since! the!deed! is!simulated.!

!BLANCO!v.!QUASHA!

Facts:!Mary!Elizalde!entered! into!a!Deed!of!Sale!over!a!house?and?lot!with!Parex!Realty!Corporation!for!P625,!000!payable!in!25!equal!annual!installments.!Simultaneously!with!the!execution!of!the!Deed!of! Sale,! Parex! executed! a! Contract! of! Lease! with! Elizalde! for! the!same!parcel!of!land!for!25!years,!the!rental!payments!of!which!shall!be!applied!in!reduction!of!the!agreed!yearly!installments.!Petitioner,!as!administrator!of!the!estate!of!Elizalde,!sought!to!nullify!the!sale!as!simulated!and!fictitious.!

!Held:!Sale!is!valid.!Although!no!actual!exchange!of!money!was!made,!yet!payment!was!effected!between! the! vendee!and! the! vendor!by!mutual! agreement.! As! further! proof,! records! show! that! Elizalde!never!contested!the!sale!of!the!property!nor!the!cancellation!of!the!Certificate!of!Title!during!her!lifetime.!Court!is!not!ready!to!delve!on!the!motive!of!Elizalde!in!entering!the!contract!since!that!is!a!factual!issue!which!is!not!within!the!province!of!the!Court.!

!i. Kinds,

,

Art.!1345.!Simulation!of!a!contract!may!be!absolute!or!relative.!The!former! takes!place!when! the!parties!do!not! intend! to!be!bound!at!all;!the!latter,!when!the!parties!conceal!their!true!agreement.!

!1. Absolute,(simulados)!–!there!is!a!color!

of!contract,!without!any!substance!thereof,!the!parties!not!having!any!intention!to!be!bound.!

!! ABSOLUTE!

SIMULATION!

FRAUDULENT!

ALIENATION!

Existence! of!contract!

No!existing!contract! There! is! a! true! and!existing!contract!

Who!can!attack! Any!creditor,!including!one! subsequent! to!the!contract!

Only! by! creditors!before!the!alienation!

Prescription! Does! not! prescribe!(Arts!1409!and!1410)!

Accion! pauliana! to!rescind!prescribes!in!4!years!(Art!1389)!

!2. Relative,(disimulados)!–!parties!have!

an!agreement!which!they!conceal!under!the!guise!of!another!contract.!• Two!juridical!acts!involved!in!

relative!stimulation:!o Ostensible!act!(apparent!or!

fictitious)!–!the!contract!that!the!parties!pretend!to!have!executed!

o Hidden!act!(real)!–!the!true!agreement!between!parties!

• If!the!concealed!act!is!lawful,!it!is!enforceable!if!the!essential!requisites!are!present!

!ii. Effects,

,

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

,

! ABSOLUTE! RELATIVE!

Validity! VOID! –! does! not! legally!exist;! illusory,! mere!phantom;! generally!fraudulent! and! for! the!purpose! of! injuring! third!persons!

VALID! except! when! it!prejudices! third! persons!or!has!an!illicit!purpose!!!

Recovery!under!contract!

• If!it!does!not!have!an!illicit!purpose,!the!parties!to!the!contract!may!prove!the!simulation!in!order!to!recover!whatever!may!have!been!given!under!such!simulated!act!

• If!the!simulated!contract!has!an!illegal!object,!Arts!1411!and!1412!apply!

• If!the!contract!is!lawful,!it!is!absolutely!enforceable;!all!the!essential!requisites!(consent,!object,!cause)!must!be!present!

• When!the!purpose!of!the!simulation!is!illicit,!or!to!prejudice!a!third!person,!the!true!contract!of!the!parties!cannot!be!enforced!(Art!1409);!neither!party!can!have!an!action!against!the!other!(Arts!1411!and!1412)!

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B. Object(of(Contracts(!

Meaning!of!“OBJECT”!# Thing,! right! or! service!which! is! the! subject?matter! of! the!

obligation!arising!from!the!contract!# Object!of!the!contract!and!object!of!the!obligation!created!

thereby!are!identical!# In! reality,! the! object! of! every! contract! is! the! obligation!

created.!The!object!may!be!things,! rights,!or!services.! (de!Leon)!!

1. WHAT!MAY!BE!THE!OBJECTS!OF!CONTRACTS!!

Art.! 1347.! All! things!which! are!not%outside% the% commerce%of%men,!including! future! things,!may! be! the! object! of! a! contract.! All! rights!which!are!not%intransmissible!may!also!be!the!object!of!contracts.!!!No!contract!may!be!entered!into!upon!future%inheritance!except!in!cases!expressly!authorized!by!law.!!!All! services! which! are! not% contrary! to! law,!morals,! good! customs,!public! order! or! public! policy! may! likewise! be! the! object! of! a!contract.!

!a. All%things%not%outside%the%commerce%of%man%

• Including!“future!things”!do!not!belong!to!the!obligor!at!the!time!the!contract!is!made;!they!may!be!made,!raised!or!acquired!by!the!obligor!after!the!perfection!of!the!contract!o Conditional! –! subject! to! the! coming! into!

existence!of!the!thing!o Aleatory!–!one!of!the!parties!bears!the!risk!of!the!

thing!never!coming!into!existence!• “Outside!the!commerce!of!man”!–!all!kinds!of!things!

and! interests! whose! alienation! or! free! exchange! is!restricted!by! law!or!stipulation,!which!parties!cannot!modify!at!will!o Services!which! imply!an!absolute! submission!by!

those!who!render! them,!sacrificing! their! liberty,!independence! or! own! beliefs! or! disregarding! in!any!manner! the!equality! and!dignity!of!persons!e.g.!perpetual!servitude!or!slavery!

o Personal! rights! e.g.! patria! postestas,! marital!authority,! status,! capacity! of! persons,! honorary!titles!

o Public! offices,! inherent! attributes! of! the! public!authority,!political! rights!of! individuals!e.g.! right!of!suffrage!

o Property! while! they! pertain! to! the! public!dominion!

o Sacred!things!e.g.!air!and!sea!!b. All%rights%not%Intransmissible%c. All% services% not% contrary% to% law,%morals,% good%

customs,%public,%or%public%policy%!

2. REQUISITE!

a. Within%the%commerce%of%man%(Art%1347)%b. Licit,% not% contrary% to% law,% morals,% good%

customs,% public% policy% or% public% order% (Art%1347)%

c. Possible%(Art%1348)%d. Determinate%as%to%its%kind%(Art%1349)%=%The!object!

of!every!contract!must!be!determinate%as%to%its%kind.!The!fact! that! the! quantity! is! not! determinate! shall! not! be! an!obstacle! to! the! existence! of! the! contract,! provided! it! is!possible,to,determine,the,same,!without,the,need,of,a,new,contract!between!the!parties.%

e. It% must% be% in% existence% or% capable% of% coming%into% existence% (Art% 1461,% 1493,% 1495)% =% It! is!essential! that!the!object!must!be! in!existence!at!the!time!of! the! perfection! of! the! contract,! or! that! it! has! the!possibility!or!potentiality!of!coming!into!existence!at!some!future!time.!Thus,!even!future!things!can!be!the!object!of!contracts.!

!3. WHAT!MAY!NOT!BE!THE!OBJECTS!OF!CONTRACTS!

a. Contrary% to% law,%morals,%good%customs,%public%policy%or%public%order%%• When! entered! into,! object! is! contrary! to! law! or!

morals.!Law!need!not!be!penal!in!nature!as!long!as!it!be!mandatory!or!prohibitive!

• TEST:! WON! an! act! is! repugnant! to! our! sense! of!decency!

• Promise!to!change!citizenship,!profession,!religion,!or!domicile!

b. Indeterminable%as%to%their%kind%• “something”!• “an!animal”!

c. Determinable%Things%• All!the!eggs!in!basket!• My!land!with!the!smallest!area!

d. Outside%the%commerce%of%man%%• Prohibited!drugs!• Clings! of! public! ownership! such! as! sidewalks,! public!

places,!bridges,!streets!• Things! common! to! everybody! such! as! air,! sunlight,!

rain,!etc.!e. Intransmissible%rights%

• Political!rights!(right!to!vote,!right!to!public!office)!• Parental,!family,!and!marital!rights!

f. Future%inheritance%

Art.! 1347,! Par! 2:! No! contract! may! be! entered! into! upon! future!inheritance!except!in!cases!expressly!authorized!by!law.!!

!Inheritance% is! any!property!or! right,! not! in! existence!or! capable!of!determination!at!the!time!of!the!contract,!that!a!person!may!inherit!in! the! future,! such! person! having! only! an! expectancy! of! a! purely!hereditary!right!(Blas!v.!Santos,!1!SCRA!899)!!

,

General, Rule:! Contract! concerning! future! inheritance! is! void.! Art!1409!Par!7!

,

Exceptions:!Cases!expressly!authorized!by!law!Art!1347!Par!2!,

,

,

,

,

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Art.!84!FC.!Donations!by!reason!of!marriage!between!future!spouses!with!respect!to!their!future!property!to!take!effect,!only!in!the!event!of!death,!to!the!extent!laid!down!by!law!in!testamentary!succession.!

!Art!1080.!Partition!of!property!by!act!inter,vivos,by!a!person!to!take!effect!upon!his!death.!

!Requisites!of!a!Valid!Contract!for!Future!Inheritance!

a. The!succession!must!not!have!been!opened!at!the!time!of!the!contract!

b. Object!of!the!contract!forms!part!of!the!inheritance!c. The!promisor!has,!with!respect!to!the!object,!an!expectancy!of!

a!right!which!is!purely!hereditary!in!nature!!

Cases:!

!BLAS!v.!SANTOS!

Facts:!Petitioner!Blas!married!twice,!first!with!Marta!Cruz!and,!when!she! died,!with!Maxima! Santos.! Before! the! 2nd!marriage,! there!was!no! liquidation! of! the! conjugal! property! of! the! 1st! couple.! Blas!executed!a!will!which!stated!that!half!of!the!conjugal!property!with!Santos! is! the!share!of!his! first!wife.!This!was!supported!by!another!document! (Exhibit!A)! executed!by! Santos! herself!which! states! that!one?half!of!her!shares!of!the!properties!left!by!her!services!would!be!given!to!the!heirs!named!in!the!will!of!the!husband.!

!Held:! Exhibit! A! is! a! valid! contract,! and! not! a! contract! on! future!inheritance! since! the!document! refers! to! existing!properties!which!Santos!will!receive!by!operation!of!law!on!the!death!of!her!husband!because!it!is!her!share!in!the!conjugal!assets.!

!TANEDO!v.!CA!

Facts:!Lazardo!Tanedo!executed!a!notarized!deed!of!absolute!sale,!in!favor! of! his! eldest! brother! and! his! wife,! covering! “one! hectare! of!whatever!share!I!shall!have!over!Lot.!No.!191,”!the!subject!property!being!his! future! inheritance! from!his!parents.!After!his! father!died,!Lazaro! executed! an! “Affidavit! of! Conformity”! to! acknowledge! and!validate!the!aforementioned!sale!

!Held:! Sale! is! not! valid! since! object! is! future! inheritance.! Said! deed!cannot!be!source!of!any!right!nor!create!any!obligation!between!the!parties.! Also,! the! “Affidavit! of! Conformity”! does! not! validate! nor!ratify!previous!sale!and!is!useless.!

!g. Impossible%things%or%services%

!

Art.! 1348.! Impossible! things! or! services! cannot! be! the! object! of!contracts.!!Things!are! impossible!when!they!are!not!susceptible!of!existing,!or!they!are!outside!the!commerce!of!man.!Personal!services!or!acts!are!impossible!when!they!are!beyond!the!ordinary!strength!or!power!of!man.! Impossibility! must! be! actual! and! contemporaneous! with! the!making!of!the!contract,!and!not!subsequent!thereto.!

!!!!!!!

Kinds!of!Impossibility:!

1. Physical,–!when!the!thing!or!service!in!the!very!nature!of!things!cannot!exist!(a!monkey!that!talks)!or!be!performed.!With!particular!reference!to!services,!impossibility!may!be:!a. Absolute!–!when!the!act!cannot!be!done!in!any!case!

so! that! nobody! can! perform! it,! such! as! flying! like! a!bird.!In!such!a!case,!the!contract!is!null!and!void.!

b. Relative! –! when! it! arises! from! the! special!circumstances!of!the!case!(to!drive!a!car!on!a!flooded!highway)!or!the!special!conditions!or!qualifications!of!the!obligor.! (To!paint!a!portrait!by!a!blind!person)! If!PERMANENT,! it! nullifies! the! contract,! but! does! not!nullify!if!TEMPORARY.!

c. Legal!–!when!the!thing!or!service!is!service!is!contrary!to! law,!morals,! good! customs,! ! ! ! ! ! ! ! public! order,! or!public!policy!!

!

Liability!for!damages!

• Since!contract!is!void!and!inexistence!due!to!impossibility,!amount! of! damages! is! limited! only! to! the! losses! the!creditor! may! have! suffered! by! having! relied! on! the!contract,!and!cannot!recover!from!non?performance!of!the!contract!o Debtor!knew!of!impossibility!–!liable!for!damages!!o Debtor! is! ignorant! of! impossibility,! and! ignorance! is!

justifiable!–!no!liability!for!damages!o Both! parties! have! knowledge! of! impossibility! –! no!

liability!for!damages!!!

C. Cause(of(Contracts((1. MEANING!OF!CAUSE!

• Why! of! a! contract;! the! immediate! and! most! proximate!purpose!of!the!contract,!the!essential!reason!which!impels!the!contracting!parties!to!enter!into!it!and!which!explains!and! justifies! the! creation! of! the! obligation! through! such!contract!!

• Essential! reason! that! moves! the! parties! to! enter! into! a!contract!

• Requisites!of!Cause!1. Existing!at!the!time!the!contract!is!entered!into!2. True!3. Licit!or!Lawful!

• As!distinguished!from!object!o Object! is! the! starting! point! of! agreement,! without!

which! the! negotiations! or! bargaining! between! the!parties!would!never!have!begun!!

o Object!may!be!the!same!for!both!of!the!parties!o Cause!is!different!with!respect!to!each!party!o In!a!contract!of!sale!of! land,!object! is! the! land! itself,!

while!the!cause!of!the!vendor!is!the!price,to,be,paid,,while!cause!of!the!vendee!is!the!delivery,of,the,land.!

• As! distinguished! from! consideration! CONSIDERATION! <!CAUSE!

!!!!


CONSIDERATION! CAUSE!

Reason! or! motive! or! inducement!by! which! a! man! is! moved! into!bind!himself!by!agreement!

Why! of! contracts;! essential!reason! that! compels!contracting! parties! to!celebrate!the!contract!

Requires! a! legal! detriment! to! the!promisee!more!than!a!moral!duty!!

Never! rejects! any! cause! as!insufficient;! need! not! be!material!at!all!and!may!consist!in! moral! satisfaction! for! the!promissory!

!

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! beneficence,! the!mere,liberality!of!the!benefactor.!

!a. In%onerous%contracts%

• Prestation!or!promise!of!a!thing!or!service!by!the!other!

• Parties!are!reciprocally!obligated!to!each!other!• Need!not!be!adequate!or!an!exact!equivalent! in!

point! of! actual! value! especially! in! dealing! with!objects!which!have!rapidly!fluctuating!price!!

• E.g.!Sale,!lease!!

b. In%remuneratory%contracts%• One!where! a! party! gives! something! to! another!

because! of! some! service! or! benefit! given! or!rendered!by!the!latter!to!the!former!where!such!service! or! benefit! was! not! due! as! a! legal!obligation!!

• Purpose! is! to! reward! the! service! that! had!been!previously!rendered!

• E.g.!bonuses!

c. In%contracts%of%pure%beneficence%• Essentially!agreements!to!give!donations!• Contracts! where! the! cause! of! which! is! the!

liberality!of!the!benefactor!or!giver!!

2. AS!DISTINGUISHED!FROM!MOTIVE!!

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

Motive!is!the!purely!personal!or!private!reason!which!a!party!has!in!entering!into!a!contract.!

!!!!!!!!!!!

CAUSE! MOTIVE!

Objective,! intrinsic! and! juridical!reason! for! the! existence! of! the!contract!itself!

Psychological,! individual! or!personal! purpose! of! a! party! to!the!contract!

Essential!reason!for!the!contract! Particular! reason! for! a!contracting! party,! which! does!not! affect! the! other! and! which!does! not! impede! the! existence!of!a!true!distinct!cause!

Objective! of! a! party! in! entering!into!the!contract!

Person’s! reason! for! wanting! to!get!such!objective!

Always! the! same! for! both!parties!

Differs!with!each!person!!

Must! always! be! known! to! the!other!contracting!party!

May!be!unknown!

If!illegal,!then!contract!is!void! Illegality! does! not! render! the!contract!void!

!GENERAL!RULE:!Motive!does!not!affect!the!validity!of!the!contract.!

!EXCEPTIONS:!1. When! the! motive! of! a! debtor! in! alienating! property! is! to!

defraud!his!creditors,!alienation!is!rescissible!!2. When!the!motive!of!a!person!in!giving!his!consent!is!to!avoid!a!

threatened! injury,! in! case! of! intimidation! the! contract! is!voidable.!

3. When!the!motive!of!a!person!induced!him!to!act!on!the!basis!of!fraud!or!misrepresentation!by! the!other!party,! the! contract! is!likewise!voidable.!!

!3. DEFECTIVE!CAUSES!AND!THEIR!EFFECTS!

a. Absence% of% cause% and% unlawful% cause% "!produces!no!effect!whatever%

!

Art.!1352.!Contracts!without!cause,!or!with!unlawful!cause,!produce%no% effect% whatever.! The! cause! is!unlawful! if! it! is! contrary! to! law,!morals,!good!customs,!public!order!or!public!policy.!

!Case:!

!LIGUEZ!v.!CA!

Facts:! Salvador! Lopez! instituted! a! deed! of! donation! in! favor! of!Liguez,!who!was!only!16!at! that! time.!CA! found! that!donation!was!made!in!view!of!the!desire!of!Lopez,!a!man!of!mature!years,!to!have!sexual!relations!with!Liguez.!Parents!of!Liguez!would!not!allow!Lopez!to!live!with!her!unless!he!first!donated!the!land!in!question.!CA!held!that!donation!was!tainted!with!illegal!cause!or!consideration!and!as!such,!was!inoperative,!null,!and!void.!

!Held:! There! was! no! finding! that! Liguez,! who! was! only! 16! at! that!time,!was!fully!aware!of!the!terms!of!the!bargain!entered!into!by!her!parents!and!Lopez.!As!the!donation!was!regular!on!its!face,!illegality!is!not!presumed!but!must!be!duly!and!adequately!proved.!However,!Lopez! could! not! donate! the! entire! subject! property! because! it! is!conjugal! in!nature.!He! can!only!donate!part!of! it! insofar! as! it! does!not!prejudice!the!wife.!Case!remanded!

!!!!

!!!!


b. Statement%of%false%cause%in%the%contract%"!VOID!if!there!is!no!other!true!and!lawful!cause%

!

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

!c. Lesion% or% inadequacy% of% cause% "! VALID! unless!

fraud,!mistake!or!undue!influence!is!present%!

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

!• LESION! is! the! injury! suffered! in! consequence! of! inequality! of!

situation,!by!one!party!who!does!not!receive!the!full!equivalent!for!what!he!gives!in!a!commutative!contract.!

• Gross!inadequacy!suggest!fraud!and!is!evidence!thereof!!!

Cases:!

!CARANTES!v.!CA!

Facts:!Petitioner!and!private!respondents!inherited!a!land!from!their!father,!a!part!of!which!the!government!needed!to!build!an!airport.!Herein! respondents! executed! a! Deed! of! Right! to! Assignment! of!Inheritance! in! favor! of! petitioner,! with! monetary! consideration! of!P1.!Petitioner!instituted!a!Deed!of!Sale!in!favor!of!government,!and!subsequently,! a! certificate! of! title! was! issued! in! favor! of! the!government!for!a!part!of!the!subject! land,!and!the!rest!was!named!in!favor!of!petitioner.!Respondents!argued!that!deed!seek!to!declare!the!deed!null! and! void,! and! reasoned! that! said! assignment!merely!authorized! the! petitioner! to! convey! portions! in! their! behalf! to!minimize!expenses!and!facilitate!the!transaction!

!Held:!Deed!is!a!valid!contract.!The!sum!of!P1,!a!valid!consideration,!appears! in! the! document! as! one! of! the! consideration.! In! addition,!the! agreement! states! that! their! father! expressed! to! the! private!respondents! that! the! property! exclusively! belonged! to! the!petitioner.! This! expression! constitutes! valuable! consideration! –!satisfying!their!father’s!will.!

!SPS.!BUENAVENTURA!et.!al.!v.!CA!

Facts:! Defendant?parents! executed! deeds! of! sale! in! favor! of! their!children.!Petitioners,!who!are!also!heirs,!claim!that!the!deeds!of!sale!are! null! and! void! for! being! simulated! since! the! properties! are! 3x!more! valuable! that! the! sums! they! were! sold! for.! In! addition,! said!children! did! not! actually! pay! the! prices! stipulated! in! the! Deeds! of!Sale.! They! argued! that! the! sales! were! result! of! a! deliberate!conspiracy!to!deprive!them!of!their!legitimes.!

!Held:! Failure! to! pay! the! consideration! is! different! from! lack! of!consideration.! The! former! results! in! a! right! to! demand! the!fulfillment! or! cancellation! of! the! obligation! under! an! existing! valid!contract!while! the! latter!prevents! the!existence!of!a!valid!contract.!Petitioners! failed! to! show! that! the!prices! in! the!Deed!of! Sale!were!absolutely! simulated,!magnified!by! their! lack!of!knowledge!of! their!respondent! sibling’s! capacity! to! pay.! On! the! other! hand,! the! real!price!was!stated!in!the!Deeds!of!Sale.!There!is!no!requirement!that!the!price!be!equal!to!the!exact!value!of!the!subject!matter!of!sale!as!long!as!all!parties!believe!that!they!received!the!commutative!value!of!what!they!gave.!

!

4. PRESUMPTION! OF! THE! EXISTENCE! AND!

LAWFULNESS!OF! A! CAUSE,! THOUGH! IT! IS! NOT!

STATED!IN!THE!CONTRACT!!

Art.!1354.!Although!the!cause!is!not%stated%in%the%contract,!it!is!presumed%that%it%exists%and%is%lawful,!unless!the!debtor!proves!the!contrary.!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

!!!!


CHAPTER(3:(FORM(OF(CONTRACTS(

Art.!1356.!Contracts!shall!be!obligatory,!in!whatever!form!they!may!have!been!entered!into,!provided!all!the!essential!requisites!for!their!validity!are!present.!However,!when!the!law!requires!that!a!contract!be!in!some!form!in!order!that!it!may!be!valid!or!enforceable,!or!that!a!contract!be!proved!in!a!certain!way,!that!requirement!is!absolute!and! indispensable.! In! such! cases,! the! right! of! the! parties! stated! in!the!following!article!cannot!be!exercised.!

A. General(Rule(!

Contracts!shall!be!obligatory,!in!whatever,form!they!may!have!been!entered! into,! provided!all! essential! requisites! for! their! validity! are!present.!(“Spiritual!system”!of!the!Spanish!Code)!

B. Exception(!• When!the!law!requires!that!a!contract!be!in!some!form!in!

order!that!it!may!be!VALID!or!ENFORCEABLE!!• (Anglo?American! principle! in! Statutes! of! Fraud)! "!

indispensable!and!absolute;!parties!!• Reason!for!exceptions:!To!avoid!litigation!as!oral!contracts!

frequently! lead! to! fraud! in! fulfilment! of! obligation! or! to!false!testimonies!!

2!Cases!When!and!Where!Form!is!Absolute!and!Indispensable:!

1. Form!is!essential!to!the!VALIDITY!of!the!contract!2. Contracts!is!UNENFORCCEABLE!unless!in!a!certain!form!

C. Kinds(of(Formalities(Required(by(Law(!

1. AD! ESENTIA,! AD! SOLEMNITATEM!" ! THOSE! REQUIRED! FOR!

THE!VALIDITY!OF!CONTRACTS,!SUCH!AS!THOSE!REFERRED!TO!

IN!(SIR!REFERS!TO!THESE!AS!FORMAL!CONTRACTS)!!

Art!748! Donation!of!movable:!!• Value! greater! than! P5000, ",

donation,AND,acceptance,must,be,

written!• Value! equal! to! or! less! than! P5000,

", can, be, made, orally, with,

SIMULATEOUS, delivery! or!document! representing! the! right!donated!!

Testation, ClausesM, signed, by, four,

signatories, (i.e., donor,, donee,, at, two,

witnesses)., Also, includes, how, many,

pages, is, the, will, and, testament,,

including,the,testation,clause.,

Art!749! Donation!of!immovable:!!Regardless, of, value, must, be, in, public,

document., Include:, specification, of,

property,AND,value,of,charges!

Art!1874! Sale!of!piece!of!land!through!an!agent:!!Authority, of, agent,must, be, in,writing.,

In,practice:, by,way,of, SPA,which,need,

not,be,notarized,

Art!2134! Contract! of! antichresis;! amount! of!principal!and!of!the!interest!!,

Antichresis, , –, , contract, by, which, a,

creditor, acquires, the, right, of, reaping,

the, fruit, or, other, revenues, of, the,

immovable, given, to, him, in, pledge,, on,

condition, of, deducting, their, proceeds,

from, the, interest, and, principal, of, his,

debt,

Art!1771! Partnership;!when!immovable!property!or!real!rights!are!contributed!",public,

document,necessary!Art!1773! Partnership;! inventory! of! immovable!

property!contributed!!,

Inventory,must,be,signed,and,attached,

to,the,public,document,,

Art!1956! Charging!of!interest!for!using!someone!else’s!money!(loan)!,

No, interest, shall, be, due, unless, it, has,

been,expressly,stipulated,in,writing,

Art!2140! Chattel!mortgage:!!Accessory,contracts,must,be,written,to,

secure, a, principal, obligation., Personal,

property, must, be, recorded, in, the,

Registry,of,Property,

Negotiable! Instruments!

Law!

Parties! cannot! by! their! agreement!impart! negotiability! to! an! instrument!which! is! not! by! its! form! a! negotiable!instrument,

Cattle!Regulation!Law! No! sale! or! transfer! of! large! cattle! is!valid! unless! it! is! registered! and! a!certificate!of!transfer!is!secured!

! !!!!!!!!!!!!!!!!!!!!!!

!!!!


Cases:!!

HERNAEZ!v.!DE!LOS!ANGELES!

Facts:!Petitioner!and!movie!actress,!Marlene!Dauden!Hernaez,!filed!a! complaint! against! Hollywood! Far! East! Productions,! Inc.! and! its!President! and! General! Manager,! Ramon! Valenzuela,! to! recover!P14,700!representing!a!balance!allegedly!due!her!for!her!services!as!leading! actress! in! two!motion!pictures! produced!by! said! company.!Claim!was!not!evidenced!by!any!written!document,!either!public!or!private!

!Held:!Contract!valid!and!enforceable.!In!general,!contracts!are!valid!and!binding! from!their!perfection! regardless!of! form!(Articles!1315!and!1356!CC).!There!are!only!two!exceptions!set!forth!in!the!second!portion! of! Article! 1356.! The! contract! sued! upon! by! petitioner!(compensation!for!services)!does!not!come!under!either!exception.!Though! Art.! 1358! provides! that! contracts! where! amount! involved!exceeds!P500!must!appear!in!writing,!same!article!does!NOT!provide!that!absence!of!written! form! in! this! case!will!make! the!agreement!invalid!or!unenforceable.!In,contractual,system,it,is,not,enough,that,

the,law,should,require,that,the,contract,be,in,writing.,The,law,must,

further,prescribe,that,without,the,writing,the,contract,is,void,or,not,

enforceable,by,action.!!

2. THOSE!REQUIRED,!NOT!FOR!THE!VALIDITY,!BUT!TO!MAKE!THE!

CONTRACT!EFFECTIVE!AS!AGAINST!THIRD!PERSONS,!SUCH!AS!

THOSE!COVERED!BY:!!

Art.!1357.!If!the!law!requires!a!document!or!other!special!form,!as!in!the! acts! and! contracts! enumerated! in! the! following! article,! the!contracting! parties! may! compel! each! other! to! observe! that! form,!once! the! contract! has! been!perfected.! This! right!may!be! exercised!simultaneously!with!the!action!upon!the!contract.!

!• This! article!merely! recognizes! a! contract’s! enforceability! by!

the!mere!fact!of!granting!the!contracting!parties!an!adequate!remedy!whereby!to!compel!the!execution!of!a!public!writing!or! any! other! special! form! when! such! is! required! so! that!contract!may!produce!the!effect!which!is!desired!

• Equivalent!to!an!implied!condition!• Since! defect! would! be! merely! formal:! party! who! executed!

the!document!may!be!compelled!to:!o reform!it!o execute! another! document! sufficient! to! carry! out! the!

intent!of!the!agreement!• Article! does! NOT! impose! an! obligation! but! a! privilege! on!

both!parties!• Though! this! article! does! not! operate! against! validity! of!

contracts! nor! acts! performed! voluntarily! by! the! parties! for!the! fulfilment! thereof,! ONCE! INVOKED:! it! is! evident! that!under! them! the! question! involving! the! execution! of! public!instrument! must! precede! the! determination! of! other!obligations!derived!from!the!contract.!!

!

Art.!1358.!The!following!must!appear!in!a!public!document:!!(1) Acts! and! contracts! which! have! for! their! object! the!

creation,! transmission,!modification!or! extinguishment!of!real!rights!over!immovable!property;!sales!of!real!property!or!of!an!interest!therein!a!governed!by!Articles!1403,!No.!2,!and!1405;!!

(2) The! cession,! repudiation! or! renunciation! of! hereditary!

rights!or!of!those!of!the!conjugal!partnership!of!gains;!!(3) The! power! to! administer! property,! or! any! other! power!

which!has!for! its!object!an!act!appearing!or!which!should!appear! in! a!public! document,! or! should!prejudice! a! third!person;!!

(4) The! cession! of! actions! or! rights! proceeding! from! an! act!appearing!in!a!public!document.!

All!other!contracts!where!the!amount!involved!exceeds!five!hundred!pesos!must!appear!in!writing,!even!a!private!one.!But!sales!of!goods,!chattels!or!things!in!action!are!governed!by!Articles,!1403,!No.!2!and!1405.!

!• Does!not!require!form!to!VALIDATE!the!act!but!to! insure! its!

EFFICACY!• Reduction! to! writing! NOT! an! essential! requisite! for!

EXISTENCE! of! the! contract! but! simply! a! COERCIVE! POWER!granted! to! the! contracting! parties! by! which! they! can!reciprocally! compel! the! observance! of! these! formal!requisites!

• Enumerated! contracts! are! therefore! VALID! even! when! not!reduced!into!writing!o There! are! contracts! which! requires! it! to! be! in! public!

instrument!or!registered!for!validity!o There!are!those!which!needs!to!be!in!public!writing!and!

entered!in!the!registry!NOT!for!validity!but!for!making!it!EFFECTIVE! against! third! persons! (e.g.! transfer! of!ownership! of! immovable! property! to! third! person!requires! contract! to! be! a! public! document.! Written!memorandum! is!not!enough!as! that!only! indicates!sale!of!property)!!

Contracts!that!must!appear!in!a!public!document:!

(1) Acts! and! contracts! which! have! for! their! object! the! creation,!transmission,! modification! or! extinguishment! of! real! rights!

over! immovable! property;! sales! of! real! property! or! of! an!interest! therein!a!governed!by!Art.!1403,!No.!2! (those!that!do!not! comply! with! the! Statute! of! Frauds),! and! Art.! 1405! (when!Art.!1403!No.!2!is!ratified);!!• Requirement! on! form! is! NOT! for! validity! of! the! contract!

but!for!transfer!(2) The!cession,!repudiation!or!renunciation!of!hereditary!rights!or!

of!those!of!the!conjugal!partnership!of!gains;!!a. Cession! –! an! assignment! (e.g.! of! hereditary! rights)! or!

selling!b. Repudiation!–!rejection!or!refusal!c. Renunciation!–!act!of!giving!up!a!right!

(3) The!power! to!administer!property,!or!any!other!power!which!has!for!its!object!an!act!appearing!or!which!should!appear!in!a!public!document,!or!should!prejudice!a!third!person;!!

(4) The! cession! of! actions! or! rights! proceeding! from! an! act!appearing!in!a!public!document.!• All! other! contracts! where! the! amount! involved! exceeds!

five!hundred!pesos!must!appear!in!writing,!even!a!private!one.! But! sales! of! goods,! chattels! or! things! in! action! are!governed!by!Articles,!1403,!No.!2!and!1405.!

• Origin,of,the,P500,amount,according,to,Prof.,Labitag:,The,

original, version, this, Statute, of, Fraud, with, a, long,

subparagraph, (which, you, are, bound, to,memorize), in, the,

English, law, states, £500, which, when, converted, to,

Philippine,peso,amounts,to,P500.!!!

!!!!


3. AD!PROBATIONEM!" ! THOSE!REQUIRED! FOR! THE! PURPOSE!

OF! PROVING! THE! EXISTENCE! OF! THE! CONTRACT,! SUCH! AS!

THOSE!UNDER!THE!STATUTE!OF!FRAUDS!IN!ART!1403!

!• Q:!What!is!the!relation!of!the!statute!of!frauds!(Art.!1403)!

to!the!forms!of!contracts?!• A:!Sale!of!real!property!or!interest!in!real!property!requires!

it!to!be!in!writing!(via!the!statute!of!frauds;!Art.!1403,!Par.!2![e]).!

• Also,! to!make!the!contract,! it!must!comply!with!a!certain!of!form!or!else!it!will!be!unenforceable.!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

CHAPTER(4:((REFORMATION(OF(INSTRUMENTS(

%MEANING%It! is! that! remedy! by! means! of! which! a! written! instrument! is!amended! or! rectified! so! as! to! express! or! conform! to! the! real!agreement! or! intention! of! the! parties!when! by! reason! of!mistake,!fraud,! inequitable! conduct! or! accident,! the! instrument! fails! to!express!such!agreement!or!intention.!

!What! is! reformed! is! not! the! contract! itself,! but! the! instrument!embodying!the!contract.,,!!REASON%FOR%REFORMATION%OF%INSTRUMENTS%• Equity!dictates!the!reformation!of!instrument!in!order!that!the!

true!intention!of!the!contracting!parties!may!be!expressed.!!• It!is!unjust!and!unequitable!to!allow!the!enforcement!of!a!

written!instrument!which!does!not!re!• flect!or!disclose!the!real!meeting!of!the!minds!of!the!parties!• Court!do!not!attempt!to!make!a!new!contract!for!the!parties,!

but!only!to!make!the!instrument!express!their!real!agreement!• Statute!of!Frauds!is!no!impediment!to!the!reformation!of!an!

instrument!!!

DISTINGUISHED%FROM%ANNULMENT%!

REFORMATION! ANNULMENT!

Action! presupposes! a! valid!existing! contract! between! the!parties!and!only!the!document!or!instrument! which!was! drawn! up!and! signed! by! them! does! not!correctly! express! the! terms! of!agreement!!

No!meeting!of!the!minds!or!the!consent! of! either! one! was!vitiated!by!mistake!or!fraud!!

Gives! life! to! the! contract! upon!certain!corrections!

Involves!a!complete!nullification!of!contracts!

(!!!

Art.!1359.!When,! there!having!been!a!meeting!of! the!minds!of!the!parties!to!a!contract,!their!true!intention!is!not!expressed!in!the!instrument!purporting!to!embody!the!agreement,!by!reason!of! mistake,! fraud,! inequitable! conduct! or! accident,! one! of! the!parties!may!ask!for!the!reformation!of!the!instrument!to!the!end!that!such!true!intention!may!be!expressed.!!!If!mistake,!fraud,!inequitable!conduct,!or!accident!has!prevented!a!meeting!of!the!minds!of!the!parties,!the!proper!remedy!is!not!reformation!of!the!instrument!but!annulment!of!the!contract.!!

!!!!


A. Requisites(!1. Meeting!of!the!minds!upon!the!contract!2. The!true!intention!of!the!parties!is!not!expressed!in!the!

instrument!3. The!failure!of!the!instrument!to!express!the!true!agreement!is!

due!to!mistake,!fraud,!inequitable!conduct!or!accident!4. The!facts!upon!which!relief!by!way!of!reformation!of!the!

instrument!is!sought!are!put!in!issue!by!the!pleadings;!and!5. There!is!clear!and!convincing!evidence!(which!is!more!than!

mere!preponderance!of!evidence)!of!the!mistake,!fraud,!inequitable!conduct!or!accident.!!

!Note:!Tolentino’s!book!only!mentions!the!first!three!requisites.!Paras’!annotations!state!all!five.!!!ADMISSIBILITY%OF%PAROL%EVIDENCE%TO%SHOW%TRUE%INTENT%GENERAL!RULE:!The!Court!may!NOT!allow!the!introduction!of!parol!evidence!to!show!the!real!agreement!of!the!parties.!Whatever!is!not!found! in! the! text! of! the! agreement! should! thus! be! construed! as!excluded,!waived!or!abandoned.%,

!BUT,!a!party!may!present!evidence!to!modify,!explain!or!add!to!the!terms!of!the!written!agreement!if!he!puts!in!issue!in!his!pleading:!

1. An! intrinsic! ambiguity,! mistake! or! imperfection! in! the!written!agreement;!

2. The! failure! of! the! written! agreement! to! express! the! true!intent!and!agreement!of!the!parties!thereto;!

3. The!validity!of!the!written!agreement;!or!4. The! existence! of! other! terms! agreed! to! by! the! parties! or!

their! successors! in! interest! after! the! execution! of! the!written!agreement!(“agreement”!includes!wills)!

*The!mistake! contemplated! as! an! exception! to! the! parol! evidence!rule!is!one!which!is!a!mistake!mutual!to!the!parties.!!!INEQUITABLE%CONDUCT%Inequitable! conduct,! to! warrant! relief! by! way! of! reformation,! has!been!held!to!consist!in!doing!acts,!or!omitting!to!do!acts,!which!the!court!finds!to!be!unconscionable.!Examples:!

1. Taking!advantage!by!one!party!of!the!other’s!illiteracy.!2. Abusing!confidence.!3. Concealing!what!of!right!should!have!been!disclosed.!!

CAUSES%FOR%REFORMATION%%!

a. Mutual%–!instrument!includes!something!which!should!not!be!there!or!omit!what!should!be!there%a. Mutual!!b. Mistake!of!fact!c. Clear!and!convincing!proof!d. Causes!failure!of!instrument!to!express!true!intention!

b. Unilateral%%a. One!party!was!mistaken!b. Other!either!acted!fraudulently!or!inequitably!or!knew!but!

concealed!c. Party!in!good!faith!may!ask!for!reformation!

c. Mistake%by%3rd%persons%–!due!to!ignorance,!lack!of!skill,!negligence,!bad!faith!of!drafter,!clerk!or!typist%

d. Others%specified%by%law%–!to!avoid!frustration!of!true!intent!%

!!!

EXAMPLE%OF%CASES%WHERE%REFORMATION%IS%ALLOWED%1. Art! 1361! When! a!mutual! mistake! of! the! parties! causes! the!

failure!of!the! instrument!to!disclose!their!real!agreement,!said!instrument!may!be!reformed.!!

2. Art!1363!When!one!party!was!mistaken!and!the!other!knew!or!believed! that! the! instrument! did! not! state! their! real!agreement,! but! concealed! that! fact! from! the! former,! the!instrument!may!be!reformed.!!!

3. Art!1364!When!through!the! ignorance,! lack!of!skill,!negligence!or!bad!faith!on!the!part!of!the!person!drafting!the!instrument!

or!of! the! clerk!or! typist,! the! instrument!does!not!express! the!true! intention! of! the! parties,! the! courts! may! order! that! the!instrument!be!reformed.!

!Mutual!mistake!as!basis!for!reformation:!requisites!

1. The!mistake!must!be!of!fact,!for!if!it!is!one!of!law,!the!remedy!is!annulment.!

2. Such!mistake!must!be!proved!by!clear!and!convincing!evidence;!3. The!mistake!must!be!mutual,!that!is,!common!to!both!parties!to!

the!instrument;!and!4. The!mistake!must!cause!the!failure!of!the!instrument!to!express!

their!true!intention.!!!

Cases:!!!

GARCIA!v.!BISAYA!

Facts:! Bisaya! executed! a! deed! of! sale! covering! a! parcel! of! land! in!favor! of! Garcia.! The! land! was! erroneously! designated! as! an!“unregistered!land”!when!in!fact!it!is!a!portion!of!a!big!mass!of!land!registered! under! Sandoval! (third! person! not! interested! in! the!agreement).!Both!parties!regard!the!present!action!as!an!action!for!reformation,! the!object! sought!being! the!correction!of! the!mistake!in!the!Deed!covering!the!land.!!!Held:!The!complaint!has!no!cause!of!action!because!it!fails!to!allege!that! the! instrument! to! be! reformed! does! not! express! the! real!agreement! or! intention! of! the! parties.! The! proper! remedy! is!annulment!of!contract!since! it!appears!that!Garcia!has!been! led!to!enter!into!a!Deed!through!fraud!or!misrepresentation.!!!BENTIR!v.!LEANDE!

Respondent!entered!into!a!contract!of!lease!of!a!parcel!of!land!with!Bentir! for! a! period! of! 20! years! starting!May,! 1968.! The! lease! was!extended! for! another! 4! years! (until!May! 1992).! But! on!May! 1989,!Bentir! sold! the! leased! premises! to! the! Spouses! Pormada.!Respondent! questioned! the! sale! alleging! that! it! had! a! right! of! first!refusal! since! its! lawyer! omitted! to! incorporate! in! the! contract! the!verbal! agreement!between! the!parties! that! in! the!event!petitioner!leases!or! sells! the! lot! after! the!expiration!of! the! lease,! respondent!corporation!has!the!right!to!equal!the!highest!offer.!!!Held:!Reformation!is!barred!by!prescription.!Prescription!is!intended!to!suppress!stale!and!fraudulent!claims!arising!from!transactions!like!this!case!which!facts!had!become!so!obscure!from!the!lapse!of!time!or!defective!memory.!!!!!!!!!!

!!!!


B. Cases(where(no(reformation(is(allowed(!1. Oral!contracts!–!there’s!nothing!to!reform!at!all!!2. Art!1366!

!

Art.!1366.!There!shall!be!no!reformation!in!the!following!cases:!!(1)!Simple!donations!inter,vivos!wherein!no!condition!is!imposed;!!(2)!Wills;!!(3)!When!the!real!agreement!is!void.!

!SIMPLE%DONATIONS%INTER%VIVOS%WHEREIN%NO%CONDITION%IS!IMPOSED%• Donation! is! an! act! of! liberality! whereby! a! person! disposes!

gratuitously!of!a!thing!or!right!in!favor!of!another!who!accepts!it.!

• If! in! the! deed! of! donation,! a! mistake! or! defect! has! been!committed,!it!is!a!mere!failure!in!a!bounty!which,!as!the!donor!was!not!bound!to!make,!he!is!not!bound!to!correct.!The!donor!may!ask!for!the!reformation!of!a!deed!of!donation.!!

• If! donation! is! conditional! or! is! onerous,! the! deed! may! be!reformed!so!that!the!true!conditions! imposed!by!the!donor!or!the!real!intention!of!the!parties!might!be!expressed.!!

!WILLS%• An! act! whereby! a! person! is! permitted! with! the! formalities!

prescribed!by!law!to!control!to!a!certain!degree!the!disposition!of!his!estate,!to!take!effect!after!his!death.!!

• Strictly! personal;! a! free! act! which! cannot! be! left! to! the!discretion!of!a!third!person.!!

• May!be!revoked!by!the!testator!any!time!before!his!death!and!this!right!is!not!subject!to!waiver!or!restriction.!!

WHEN%THE%REAL%AGREEMENT%IS%VOID%• IF! the! real! agreement! is! void,! there! is! nothing! to! reform.!

Reformation! would! be! useless! because! the! real! agreement!being!void!is!unenforceable.!!!

C. Implied(ratification(!

Art!1367.!When!one!of!the!parties!has!brought!an!action!to!enforce!the!instrument,!he!cannot!subsequently!ask!for!its!reformation.!

!• Based!on!estoppel!(Art.!1431)!or!ratification!(Arts.!1392,!

1396)!• When!a!party!brings!an!action!to!enforce!the!contract,!he!

admits!its!validity!and!that!it!expresses!the!true!intention!of!the!parties.!

• There!has!been!election!between!two!inconsistent!remedies,!one!in!affirmance,!the!other!in!disaffirmance!

!

D. Who(may(ask(for(reformation((!

• MUTUAL!MISTAKE:!either!party!or!successor!in!interest!• MISTAKE!BY!ONE:!injured!party,!heirs!or!assigns!

!!

!

Art.! 1368.! Reformation!may! be! ordered! at! the! instance! of! either!party! or! his! successors! in! interest,! if! the! mistake! was! mutual;!otherwise,! upon! petition! of! the! injured! party,! or! his! heirs! and!assigns.!

!

Art.! 1362.! If! one! party! was! mistaken! and! the! other! acted!fraudulently!or! inequitably! in! such!a!way! that! the! instrument!does!not! show! their! true! intention,! the! former! may! ask! for! the!reformation!of!the!instrument.!

E. Procedure(of(reformation((!

Art.!1369.!The!procedure!for!the!reformation!of!instrument!shall!be!governed!by!ROC!to!be!promulgated!by!the!Supreme!Court.!

!GENERAL! RULE:! All! persons! interested! in! the! subject! matter! of!litigation,! whether! it! is! a! legal! or! an! equitable! interest! should! be!made! parties! in! suits! to! reform! written! instruments,! so! that! the!court! may! settle! all! their! rights! at! once,! and! thus! prevent! the!necessity!of!multiplicity!of!suits.!!!Cases:!!

ATILANO!v.!ATILANO!

Facts:! Eulogio! Atilano! I! subdivided! his! land! into! five! parcels! (Lots!535?A! to! 535?E).! He! sold! one! parcel! (No.! 535?E),! to! his! brother!Eulogio!Atilano!II.!Other!lots!were!sold!to!other!people,!while!Atilano!I! kept! the! remaning! portion! of! land,! presumably! No.! 535?A! for!himself.! He! passed! this! to! Ladislao! Atilano! after! Eulogio! I! passed!away.! Later,! Atilano! II! wanted! to! partition! the! land.! The! land!was!resurveyed! and! they! found! out! that! Atilano! II’s! land! was! actually!535?E!and!not!535?A.!(The!titles!on!the!Deeds!were!mixed!up).!The!issue!is!whether!Atilano!II!is!entitled!to!the!REAL!Lot!535?E!(as!stated!in! the!Deed),! or! to! 535?A,! the! land! he! has! been! in! possession! the!whole!time.!!Held:!Atilano!II!is!entitled!to!Lot!535?A!since!the!land!has!been!in!his!possession! the!whole! time.! The! Court! used! the! ‘real! intent! of! the!parties!at!the!time!of!the!sale’!as!basis.!When!one!sells!or!buys!real!property,! one! sells! or! buys! the!property! as! he! sees! it,! in! its! actual!setting!and!by! its!physical!metes!and!bounds,!and!not!by!the!mere!lot!number!assigned!to!it!in!the!certificate!of!title.!!!CARANTES!v.!CA!

Facts:!Lot!No.!44!was!owned!by!the!deceased!Mateo!Carantes.!The!Government! instituted! proceedings! for! expropriations! since! a!portion! of! it! was! needed! as! landing! field! of! the! Loakan! Airport.!Petitioner!Maximino!Carantes!(son!of!Mateo)!was!appointed!judicial!administrator.! He! filed! a! project! of! partition! and! the! government!purchased! two! lots.! A! deed! entitled! Assignment! of! Right! to!Inheritance! was! executed! by! four! of! Mateo’s! chidren.! It! assigned!their! rights! to! their! inheritance! to! Maximino! for! P1.00! and! also!contained!a!recital!that!private!respondents!have!ceded!their!rights!to!inherit!the!remaining!lots!to!Maximino,!saying!that!is!with!respect!to!Mateo!having!verbally!conveyed!the!lots!to!Maximino!alone.!!!

!!!!


Held:!There!was!proper! consideration,!and! the!agreement!was!not!void! ab! initio.! Only! the! total! absence! of! cause! or! consideration!renders! a! contract! void.! They! discovered! the! fraud! in! 1940,! but! it!was!only!after!18!years! that! they! filed!a! complaint! thus! the!action!has!already!prescribed.!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

CHAPTER(5:((INTERPRETATION(OF(

CONTRACTS(A. Primacy(of(Intention(

!• “Verba,intentione,non,e,contradebent,inservare”!?!words!ought!

to!be!subservient!to!the!intent,!not!the!intent!to!the!word!• Look!for!the!contractual!intent!• A!contract! is!what! the! law!defines! it! to!be,! and!not!what! it! is!

called!by!the!contracting!parties.!!• Title!does!not!necessarily!determine!a!contract’s!nature.!!GENERAL!V.!PARTICULAR!PROVISIONS!

!

Art.! 1372.!However! general! the! terms!of! a! contract!may!be,! they!shall!not!be!understood!to!comprehend!things!that!are!distinct!and!cases! that! are! different! from! those! upon! which! the! parties!intended!to!agree.!!

!• “Generalia,verba,suntgeneraliter,intelligencia”!"!general!

things!are!to!understood!in!a!general!sense!• A!particular!intent!will!control!a!general!one!that!is!

inconsistent!with!it.!!

Cases:!!!

BORROMEO!v.!CA!!

Facts:! Defendant! Jose! A.! Villamor! was! a! distributor! of! lumber!belonging!to!Mr.!Miller,! the!agent!of! the! Insular!Lumber!Company.!Villlamor!owed!large!amount!of!money!to!Mr.!Miller!so!he!borrowed!from!his!former!classmate,!and!petitioner,!Canuto!O.!Borromeo.!To!pay!his!debt,!Villamor!signed!a!promissory!note!in!favor!of!Borromeo!on!Nov.!29,!1933!w/!interest!at!the!rate!of!12%!per!annum,!agreeing!to! pay! “as! soon! as! I! have! money”.! The! note! stipulates! that!defendant!waives!his!rights!to!the!prescriptions!as!stipulated!in!the!Code!of!Civil!Procedure!for!the!collection!or!recovery!of!the!money!at! any! time,! even! after! the! lapse! of! ten! years! from! the! date! of!execution!of!the!note.!!Held:! Stipulation! renouncing! future! prescription! is! valid.! In!interpretation!of!contracts,!while!ordinarily,! the! literal!sense!of!the!words!employed!should!be!followed,!this!is!not!the!case!when!they!appear! to! be! contrary! to! the! evident! intention! of! the! contracting!parties.!The!intention!shall!prevail.Nothing!implausible!in!the!debtor!renouncing! his! rights! to! the! prescription! because! in! this! case! the!creditor!trusted!the!debtor!to!pay!even!after!the!termination!of!the!ten!year!prescriptive!period.!!

Art.! 1370.! If! the! terms! of! a! contract! and! leave! no! doubt! upon!the!intention!of!the!contracting!parties,!the!literal!meaning!of!its!stipulations!shall!control.!!!!!!If!the!words!appear!to!be!contrary!to!the!evident!intention!of!the!parties,!the!latter!shall!prevail!over!the!former.!

!!!!


KASILAG!v.!RODRIGUEZ!

Facts:!Ambrosio!mortgaged!the!improvements!on!her!land!to!Kasilag!for!P1000.!A!year!later,!Ambrosio!was!unable!to!pay!the!interest!and!the! tax! on! the! land! and! its! improvements! that’s! why! she! entered!into!a!verbal!contract!with!Kasilag!where!she!conveyed!to!the!latter!the! possession! of! the! land! on! condition! that! he! will! not! collect!interest!on! the! loan!and!would!attend!to! the!payment!of! the! land,!among! others.! Ambrosio’s! heirs! filed! a! case! for! recovery! of!possession! of! the! land! and! its! improvements.! CA! held! that! the!contract!was!that!of!absolute!purchase!and!sale!of!the! land!and!its!improvements,!and! that! the!heirs!of!Ambrosio!were! the!owners!of!the!land!and!its!improvements.!!Held:! It! was! not! a! contract! of! absolute! purchase! and! sale.! The!cardinal! rule! in! the! interpretation!of! contracts! is! to! the!effect! that!the! intention! of! the! contracting! parties! should! always! prevail!because! their! will! has! the! force! of! law! between! them.! The! words!used! by! the! contracting! parties! in! the! contract! clearly! show! that!they! intended! to! enter! into! the! principal! contract! of! loan! in! the!amount!of!P1,000,!with!interest!at!12!per!cent!per!annum,!and!into!the! accessory! contract! of! mortgage! of! the! improvements! on! the!

land!acquired!as!homestead.!

B. How(to(Determine(Intention(

!• Also!take!note!of!the!usage!and!customs!of!the!place!• In!ascertaining!the!intention:!look!at!the!words!parties!used!• If!there!is!ambiguity!in!the!meaning,!take!into!consideration:!

o Relationship!existing!between!parties!o Respective!situations!o Surrounding!circumstances!o Purpose!and!tenor!of!whole!contract!

C. How(to(Interpret(a(Contract(!

1. WHEN!IT!CONTAINS!STIPULATIONS!THAT!ADMIT!OF!

SEVERAL!MEANINGS!!• Validity!favored!

!!

2. WHEN!IT!CONTAINS!VARIOUS!STIPULATIONS,!SOME!OF!

WHICH!ARE!DOUBTFUL!• Contract!to!be!taken!as!a!whole!!

!

Art.!1374.!The!various!stipulations!of!a!contract!shall!be!interpreted!together,!attributing!to!the!doubtful!ones!that!sense!which!may!result,from,all,of,them,taken,jointly.!

!• Titles! in! contracts! are! mere! divisions.! Contract! is! to! be!

interpreted!as!a!whole!(holistic!interpretation)!"!harmonize.!!

3. WHEN!IT!CONTAINS!WORDS!THAT!HAVE!DIFFERENT!

SIGNIFICATIONS!

!

Art.! 1375.!Words!which!may! have! different! significations! shall! be!understood! in! that!which! is!most% in%keeping%with% the%nature%and%object%of%the%contract.!

!• Consider!purpose!of!the!contract!

!

4. WHEN!IT!CONTAINS!AMBIGUITIES!AND!OMISSION!OF!

STIPULATIONS!!

!• Contemporaneous! interpretation!–! social!milieu!at! the! time!

the!contract!was!executed!• Contemporaneous!construction!–!two!parties!interpret!based!

on!their!understanding!!

5. WITH!RESPECT!TO!THE!PARTY!WHO!CAUSED!THE!

OBSCURITY!!

!• Contracts,of,adhesion!

o Already!printed! form!containing! the! stipulations!of! the!agreement! and!one!party!merely! “takes! it! or! leave! it”.!Imposition!of! the! former! curtails! the!bargaining!power!of!the!latter.,

o Resolved! against! the! party! who! prepared! the! contract!and!in!favor!of!the!one!who!merely!adhered!to!it.!,

!6. WHEN!IT!IS!ABSOLUTELY!IMPOSSIBLE!TO!SETTLE!DOUBTS!

BY!THE!RULES!ABOVE!!

!

Art.!1378,!Par!1:!When! it! is!absolutely! impossible!to!settle!doubts!by! the! rules! established! in! the! preceding! articles,! and! the! doubts!refer!to! incidental!circumstancesof!a!gratuitous!contract,! the! least!transmission!of! rights! and! interests! shall! prevail.! If! the! contract! is!onerous,! the! doubt! shall! be! settled! in! favor! of! the! greatest!reciprocity!of!interests.!

!• In! gratuitous! contracts,! incidental! circumstances! "! least!

transmission!of!rights!and!interests!• In!onerous!contracts!"!greatest!reciprocity!of!interests!

!7. WHEN!THE!DOUBTS!ARE!CAST!UPON!THE!PRINCIPAL!

OBJECTS!SO!THAT!THE!INTENTION!CANNOT!BE!KNOWN!!• Null!and!void!

!!

Art.! 1373.! If! some! stipulation! of! any! contract! should! admit! of!several!meanings,! it!shall!be!understood!as!bearing!that! import!which!is!most!adequate!to!render%it%effectual.!

Art.! 1371.! In! order! to! judge! the! intention! of! the! contracting!parties,! their! contemporaneous! and! subsequent! acts! shall! be!principally!considered.!

Art.! 1376.! The!usage%or% custom%of% the%place! shall! be! borne! in!mind!in!the! interpretation!of!the!ambiguities!of!a!contract,!and!shall! fill! the! omission! of! stipulations! which! are! ordinarily!established.!

Art.!1377.!The!interpretation!of!obscure!words!or!stipulations!in!a!contract!shall%not%favor%the%party%who%caused%the%obscurity.!

!!!!


• Exception! to! the! in, pari, delicto, rule! (see! Art.! 1411! –! Art.!1412)!

!Two!kinds!of!interpretation:!

1. Strict!–!doubts!refer!to!essential!requisites.!Contract!will!be!inexistent!if!one!or!some!essential!requisite!is!absent!either!in!fact!and!in!law!

2. Liberal!–!Art.!1378!(doubts!refer!to!incidental!circumstances)!a. In!gratuitous!contracts–!since!other!!party!did!not!part!

with!something!"!least!transmission!of!right!favored!b. In!onerous!contacts!–!greatest!reciprocity!of!interest!

favored!∗ NOTE:! All! ways! of! interpretation! stated! above! also! applies! to!

interpreting!LEGISLATIVE!INTENT!∗ Exception:!Numbers!5!and!6!!

Art.!1379.!The!principles!of!interpretation!stated!in!Rule!123!of!the!Rules! of! Court! shall! likewise! be! observed! in! the! construction! of!contracts.!

D. Applicability(of(Rule(123,(Rules(of(Court((!

• Law!in!evidence;!interpretation!of!documents!• Partly! written! contract! –! In! case! of! inconsistencies,! the!

partly! written! form! will! prevails! over! the! partly! printed!form!

• Natural!right!–!Interpretation!favoring!a!natural!right!(e.g.!right!to!redeem)!prevails!over!one!against!it.!

!In! between! VALID! and! DEFECTIVE! contracts! is! RELATIVELY!

INEFFECTIVE!–!ineffectively!only!with!respect!to!certain!parties,!but!are!effective!as!to!other!persons.!!!

• Against!voidable!contract:!ineffectiveness!is!produced!ipso!jure!

• Void! or! inexistent! contract:! can! be! made! completely!effective! by! the! consent! of! the! person! as! to! whom! it! is!effective! or! by! the! cessation! of! the! impediment! which!prevents!its!complete!ineffectiveness!

!(1) Assignment! of! the! lease! by! the! lessee! without! the!

consent! of! the! lessor! is! ineffective! only! as! regards! the!lessor!!

(2) Transfer!of!a!debt!by!the!debtor!to!another,!without!the!consent!of!the!creditor!is!ineffective!as!to!the!creditor,!!

(3) The!payment!by!a!debtor!to!his!creditor!after!the!credit!has! been! garnished! or! attached! by! a! third! person! is!ineffective!to!the!latter!

!!!!!!!!!

DEFECTIVE(CONTRACTS(1. RESCISSIBLE! –! contract! that! has! caused! a! particular!

damage! to! one! of! the! parties! or! to! a! third! person! and!which! for! EQUITABLE! REASONS!may! be! set! aside! even! if!valid!

2. VOIDABLE!OR!ANNULLABLE! (contrato%nulo)! –! contract! in!which! CONSENT! of! one! of! the! parties! is! defective,! either!because!of!WANT!OF!CAPACITY!or!because!it!is!VITIATED!,!but!which!contract!is!VALID!until!JUDICIALLY!set!aside!!

3. UNENFORCEABLE! –! contract! that! for! some! reason!CANNOT! BE! ENFORCED,!UNLESS! RATIFIED! in! the!manner!PROVIDED!BY!LAW!

4. VOID! AND! NON[EXISTENT! (contrato% inexistente)! –!contract!which!is!an!ABSOLUTE!NULLITY!and!produces!NO!EFFECT,!as!if!it!had!never!been!executed!or!entered!into!

!

CHAPTER(6:((RESCISSIBLE(CONTRACTS(

Rescissible! Contracts! are! those! validly! agreed! upon! because! all!essential!elements!exist,!and,! therefore,! legally!effective!but! in! the!cases!established!by!law,!the!remedy!of!rescission!is!granted!in!the!interest!of!equity!

A. Kinds(!

Art.!!1381.!The!following!contracts!are!rescissible:!!(1) Those! which! are! entered! into! by! guardians! whenever! the!

wards!whom!they!represent!suffer!lesion!by!more!than!one?fourth! of! the! value! of! the! things! which! are! the! object!thereof;!!

(2) Those! agreed! upon! in! 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!other!manner!collect!the!claims!due!them;!!

(4) Those! which! refer! to! things! under! litigation! if! they! have!been!entered!into!by!the!defendant!without!the!knowledge!and! approval! of! the! litigants! or! of! competent! judicial!authority;!!

(5) All!other!contracts!specially!declared!by!law!to!be!subject!to!rescission.!

!

KINDS!OF!RESCISSIBLE!CONTRACTS:!

1. Entered! into! by!guardians!whenever! the!wards! suffer! lesion!by!more!than!¼!of!value!of!things!object!

• Before!guardian!may!dispose!of!property!of!ward,!he!must!first! secure! approval! of! guardianship! court! (in! cases! of!sale,!mortgage,!or!other!encumbrance)!

• If! there! is! no! approval,! contract! is! unenforceable,!irrespective!of!whether!there!is!lesion!or!not.!They!are!not!rescissible!

• What! is! contemplated! in! this! article! are! contracts! which!constitute! mere! acts! of! administration,! and! not! of!ownership!

Art.!1378,!Par.!2.!If!the!doubts!are!cast!upon!the!principal!object!of!the!contract!in!such!a!way!that!it!cannot!be!known!what!may!have!been!the!intention!or!will!of!the!parties,!the!contract!shall!be!null%and%void.!

!!!!


• If! there! is!approval,!contract!cannot!be!rescinded,!even! if!there!is!lesion!

• Sir!Labitag:!“thin!band!of!contracts”!• Contracts!with!Lesion!(Pars.!1!&2)!

o Lesion! –! injury! which! one! of! the! parties! suffers! by!virtue!of!a!contract!which!is!disadvantageous!for!him!

o To! give! rise! to! rescission,! lesion! must! be! known! or!could! have! been! known! at! the! time! of! making! the!contract,! and! not! due! to! circumstances! subsequent!thereto!or!unknown!to!the!parties!

o The! idea! is! to! establish! parity! between! the! value! of!the!thing!and!its!price,!so!that!if!the!price!is!less!than!the!true!value!of!the!thing!at!the!time!of!perfection!of!the!contract,!there!is!lesion!

o Rescission! cannot! take! place! if! the! contracts! have!been!approved!by!the!court!

o GENERAL!RULE:! lesion!does!not! invalidate!a!contract!except! only! in! special! cases! provided! by! law! (Art.!1355)!!

2. Agreed! upon! in! representation! of! absentee,! suffer! lesion! by!more!than!¼!of!the!value!of!things!object!!

• Same!principle!in!relation!to!contracts!by!guardians!!!

3. In!fraud%of%creditors!who!cannot!collect!claims!due!them!

• Those! executed! with! intention! to! prejudice! rights! of!creditors;!should!not!be!confused!with!those!entered!into!without! such! intention,! even! if! some! particular! damage!may!be!caused!to!a!creditor!!

• Existence! of! intention! determined! either! by! presumption!established!by!Art.!1387!or!by!proofs!presented!in!trial!

• Fraud! that! justifies! AP! is! not! only! characterized! by! the!intention!to!injure!the!creditor,!but!by!the!knowledge!that!damage!would!be!inflicted;!knowledge!exists!when!debtor!knows! that! his! property! cannot! be! alienated! without!producing!evident!injury!to!his!creditors!o Gratuitous! alienations! –! simple! knowledge! by! the!

debtor!that!his!act!would!cause!injury!to!his!creditors!is!enough!

o Onerous!alienations!–!necessary!that!he!be!motivated!by!an!intention!to!prejudice!them!

• Remedy!of!rescission!may!be!availed!of!by!a!third!person!• Accion!Pauliana!distinguished!from!Simulation:!

!

Accion!Pauliana! Simulation!

There! is! a! real! alienation,! but! is!fraudulent!

No! alienation! ,! but! a! mere!pretense!

Can!be!alleged!only!by!creditors!prior!to!the!act!

Can! be! alleged! by! all! creditors,!before!or!after!simulation!

Impossibility! of! satisfying!plaintiff’s!claim!is!required!

Not!required!

Action! to! set! aside! a! valid!contract!

Does! not! seek! to! set! aside! the!simulated! contract,! but! merely!to!declare!its!inexistence!

!!!!!!!!!

REQUISITES!FOR!ACCION!PAULIANA:%1. Plaintiff!asking!for!rescission!has!a!credit!prior!to!the!alienation,!

although!demandable!later.%2. Debtor! has! made! a! subsequent! contract! conveying! a!

patrimonial!benefit!to!a!third!person%3. Creditor! has! no! other! legal! remedy! to! satisfy! his! claim,! but!

would!benefit!by!the!rescission!of!the!conveyance!to!the!third!person%

4. Act!being!impugned!is!fraudulent%5. Third! person! who! received! the! property! conveyed,! if! by!

onerous!title,!has!been!an!accomplice!in!the!fraud%%• Credit! must! be! existing! at! the! time, of, the, fraudulent,

alienation,!although!not!yet!due.!But!at!the!time!of!accion,pauliana,! the! credit! must! already! be! due! because! it!presupposes%a%judgment!and!unsatisfied%execution!which!cannot!exist!when!the!debt! is!not!yet!demandable!at! the!time!the!rescissory!action!is!brought.!!

• GENERAL!RULE:!Credit!is!prior!to!the!alienation!!• EXCEPTION:!Credit!is!after!alienation!but!entitled!to!accion,

pauliana!–!o When! debtor! purposely! and! in! bad! faith! deprives!

himself! of! the! ability! to! meet! the! consequences! of!obligations! he! intends! to! incur! in! the! future;!alienation! made! precisely! in! view! of! such! future!obligation!

o When! a! party! appears! to! have! become! a! creditor!after! the! alienation,! but! who!may! be! considered! as!having!a!prior!right!! Claims! were! acknowledged! by! the! debtor! after!

alienation,! but! origin! of! which! antedated! the!alienation!!

! Those! who! become! subrogated,! after! the!alienation,! in! the! rights! of! a! creditor! whose!credits!were!prior!to!the!alienation!!

• Even!secured!creditors!are!entitled!to!AP,!so!long!as!their!credit! existed! prior! to! alienation! and! they! are! prejudiced!thereby!

• TEST!OF!FRAUD:!Whether!the!conveyance!was!a!bona!fide!transaction! or! a! trick! and! contrivance! to! defeat! creditors!or! whether! it! conserves! to! the! debtor! a! special! right;!founded!on!good!consideration!or!is!made!with!bona!fide!intent.!"!Does!it!prejudice!the!right!of!creditors??!

• It!is!not!sufficient!that!it!is!founded!on!good!consideration,!or! is! made! with! bona! fide! intent;! it! must! have! both!elements!

• No!fraudulent!alienation!in!a!sale!made!by!a!debtor!to!one!of! his! creditors,! for! the! purpose! of! cancelling! his!indebtedness,! even! if! it! may! be! prejudicial! to! other!creditors!

• Badges!of!fraud!applicable!!• Date,of, judgment,and,unsatisfied,execution,is, immaterial;,

even, if, it, be, subsequent, to, alienation,, it, is, merely,

declaratory,,with,retroactive,effect,to,the,date,when,credit,

was,constituted.%• QuasiMdelict, –, act, or, omission, giving, rise, to, liability, to,

indemnify,must,be,prior,to,the,alienation,,even,if,judgment,

declaring,it,be,rendered,afterwards%!

4. Things! under% litigation,! without! knowledge! and! approval! of!plaintiff!or!of!competent!judicial!authority!

• To!secure!payment!of!an!existing!credit!of!a! third!person!against!a!party!to!a!contract!sought!to!be!rescinded!

!!!!


• To!make! effective! the! claim! a! party! litigant! over! a! thing!under! litigation!which! is! the!object!of! a! contract! entered!into!by!the!other!party!with!another!person!

• In!the!rescission!of!a!contract!on!things!in!litigation,!a!real!right! is! rendered! effective! with! respect! to! particular!property!

• Plaintiff! may! protect! his! right! by! filing! a! notice! of! lis,pendens,(real!property),!or!by!petitioning!to!the!court!for!the! issuance! of! an! order! of! attachment! (personal!property),! or! the! appointment! of! a! receiver! to! place! the!property!in!custodia,legis,

• Transferee! of! property! in! good! faith! who! acquires!property!for!valuable!consideration,!without!knowledge!of!the! litigation!or!claim!of! the!plaintiff,! cannot!be!deprived!of!property.!!

• Sale!of! thing!under! litigation! is! rescissible!at! the! instance!of!plaintiff!in!case!he!wins!in!his!suit,!unless!the!transferee!is!in!legal!possession!in!good!faith!

!5. Specially%declared%by%law!to!be!subject!of!rescission!!

Examples:!Art.! 1098.! A! partition,! judicial! or! extra?judicial,! may! also! be!rescinded! on! account! of! lesion,! when! any! one! of! the! co?heirs!received!things!whose!value!is!less,!by!at!least!one?fourth,!than!the!share!to!which!he!is!entitled,!considering!the!value!of!the!things!!

Art.! 1470.!Gross! inadequacy! of! price! does! not! affect! a! contract! of!sale,! except! as! it!may! indicate! a!defect! in! the! consent,! or! that! the!parties!really! intended!a!donation!or!some!other!act!or!contract!at!the!time!they!were!adjudicated.!

!Art.! 1659.! If! the! lessor! or! the! lessee! should! not! comply! with! the!obligations!set! forth! in!articles!1654!and!1657,! the!aggrieved!party!may! ask! for! the! rescission! of! the! contract! and! indemnification! for!damages,!or!only!the!latter,!allowing!the!contract!to!remain!in!force.!!

B. Characteristics(!1. THEIR!DEFECT!CONSIST!IN!INJURY!OR!DAMAGE!EITHER!TO!

ONE!OF!THE!CONTRACTING!PARTIES!OR!TO!THIRD!PERSONS!• LESION:!injury!which!one!of!the!parties!suffers!by!virtue!of!

contract!that!is!disadvantageous!to!him;!must!be!known!or!could! have! been! known! at! the! birth! of! contract! and! not!due!to!subsequent!thereto!or!unknown!to!the!parties!o The! idea! is! to! establish! parity! between! the! value! of!

the!thing!and!its!price,!so!that!if!the!price!is!less!than!the!true!value!of!the!thing!at!the!time!of!perfection!of!the!contract,!there!is!lesion!

• Examples:!o Art.!1098.!Partition,!judicial!and!extra?judicial!may!be!

rescinded!on!account!of!lesion!!o Art.!1539.!Sale!of!real!estate!of!inferior!thing!o Art.!1542.!Sale!of!real!estate!made!for!a!lump!sum!!

!

2. THEY!ARE!VALID!BEFORE!RESCISSION!!

3. THEY!CAN!BE!ATTACKED!DIRECTLY!ONLY,!NOT!COLLATERALLY!

4. THEY!CAN!BE!ATTACKED!ONLY!EITHER!BY!A!CONTRACTING!

PARTY,!OR!BY!A!THIRD!PERSON!WHO!IS!INJURED!OR!

DEFRAUDED!

5. THEY!CAN!BE!CONVALIDATED!ONLY!BY!PRESCRIPTION!AND!

NOT!BY!RATIFICATION!!

C. Rescission(!

Art.! 1380.! Contracts! validly! agreed! upon!may! be! rescinded! in! the!cases!established!by!law.!

!

1. DEFINITION!!Rescission!is!a!remedy!granted!by!law!to!the!contracting!parties!and!even!to! third!persons,! to!secure!the!reparation!of!damages!caused!to! them! by! a! contract,! even! if! this! should! be! valid,! by! means! of!restoration!of! things! to! their! condition!at! the!moment!prior! to! the!celebration!of!said!contract.!• It! implies! a! contract! which,! even! if! initially! valid,! produces!

lesion!or!pecuniary!damage!to!someone.!• NATURE!OF!CONTRACT!–! is!not! limited!to!valid!contracts!as!

such! validity! is! not! an! essential! condition! of! rescission;!hence,!voidable!contract!may!also!be!rescinded!

• Set!asides!the!act!or!contract!for!justifiable!reasons!of!equity!• Grounds!for!rescission!can!only!be!for!legal!cause!!• Sir!Labitag:!Rescissible!contracts!are!in!between!valid!and!

void!!!

2. AS!DISTINGUISHED!FROM!RESCISSION!UNDER!ART.!1191!

!

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.!!

Rescission!(Art.!1380)!distinguished!from!Resolution!(Art.!1191):!

!

! Art.!1191!Resolution!

!

Art.!1380!Rescission!

Similarities! 1. Presuppose!contracts!validly!entered!into!and!existing!!• Rescission!v.!Annulment:!the!latter!there!is!

a!defect!which!vitiates/invalidates!the!contract!!

2. Require!mutual!restitution!when!declared!proper!

Who!may!demand!

Only!by!a!party!to!the!contract!

Party! to! the! contract!suffering!lesion!Third! parties! prejudiced! by!the!contract!

Grounds! Non?performance! or!breach! of! contract!(implied! tacit!condition! in!reciprocal!obligation)!!

Various! reasons! of! equity!provided!as!grounds,!mainly!economic!injury!or!lesions!

Scope!of! May!be!denied!by!the! Sufficiency! of! reason! does!

!!!!


judicial!control!

Court! when! there! is!sufficient! reason! to!justify! extension! of!time! to! the!defendant! in! which!to! perform! (whether!slight! or! casual!breach)!!

not! affect! right! to! ask! for!rescission! (cannot! be!refused! if! all! the! requisites!are!satisfied)!

!!!

Kind!of!obligations!

it!is!applicable!

to!

Only! to! reciprocal!obligations! where!one! party! does! not!perform!

Unilateral!or!reciprocal!!Even! when! contract! is! fully!fulfilled!

Character! Principal!Remedy! Secondary/Subsidiary!!• MUTUAL!DISSENT!is!not!the!same!with!rescission,!because!

mutual! dissent! is! simply! an! agreement! of! the! parties! to!cancel! their! contract! and!mutually! return! the! object! and!the!cause!thereof.!It!is!tantamount!to!a!simple!creation!of!new! contract! for! the! dissolution! of! the! previous! one.! In!order!for!rescission!to!take!place,!the!requisites!must!first!be!satisfied.!

• Contract! of! sale! of! personal! property! expressly! providing!that! owner! may! rescind! it! if! purchaser! fails! to! make!payments!are!governed!by!Art.!1191!

!Cases:!!UNIVERSAL!FOOD!CORP.!v.!CA!

Facts:!Magdalo!Francisco!invented!a!food!seasoning!sauce!known!as!Mafran! sauce.! By! virtue! of! a! Bill! of! Assignment,! the! use! of! the!formula!was!given!to!UFC.!Under!said!agreement,!Francisco!was!to!be!appointed!as!Chief!Chemist!in!UFC,!to!preserve!the!secrecy!of!the!sauce! formula.! Events! transpired,! and! UFC! dismissed! Francisco! as!Chief! Chemist.! Francisco! sought! for! the! rescission! of! the! Bill! of!Assignment! for! Breach! of! Contract.! UFC! contends! that! rescission!should! be! denied,! as! under! Art.! 1383,! Rescission! is! a! subsidiary!remedy! which! cannot! be! constituted! except! when! party! suffering!the!damage!has!no!other!legal!means!to!obtain!reparation.!!Held:! Rescission! sought! is! that! under! Art.! 1191! which! gives! the!injured!party! the! right! to! rescind! contract! for! causal!breach.! It! is! a!principal!remedy!and!can!be!immediately!availed!of!at!the!instance!of!non?performance.!!!3. REQUISITES!

a. The%contract%is%rescissible%!

• Art.!1380!Contract!must!be!validly!agreed!upon!• Art.!1381!Kinds!of!rescissible!contracts!• Art.!1382!Payments!made!in!a!state!of!insolvency:!

!Art.!1382.!Payments!made!in!a!state!of!insolvency!for!obligations!to!whose! fulfillment! the! debtor! could! not! be! compelled! at! the! time!(has!not!yet!matured)!they!were!effected,!are!also!rescissible.!• Insolvency!referred!to!in!this!article!is!insolvency!in!fact,!not!

requiring!any!judicial!proceeding!on!insolvency!• Can!be!established!by!proving! that! the!debtor!did!not!have!

properties! with! which! to! satisfy! his! creditor! except! that!which!was!given!in!payment!prematurely!

• Also! includes!obligations!which!cannot!be! legally!demanded!such!as!natural!obligations!and!those!that!have!prescribed!

b. The% party% asking% for% rescission% has% no% other%legal%means%to%obtain%reparation%

!Art.! 1383.! The! action! for! rescission! is! subsidiary;! it! cannot! be!instituted! except! when! the! party! suffering! damage! has! no! other!legal!means!to!obtain!reparation!for!the!same.!

%• Plaintiff! must! prove! that! he! has! no! other! legal! means! to!

obtain!reparation%• If!damage!is!repaired,!as!in!the!case!of!lesion!suffered!by!the!

ward!or!absentee,!rescission!cannot!take!place!• Rescissible! contracts! may! be! assailed! directly! only! by! a!

proper! action! in! court,! and! not! indirectly! or! collaterally! by!way!of!defense!%

c. He% is% able% to% return% whatever% he% may% be%obliged%to%restore%if%rescission%is%granted%%

Art.! 1385,! par.! 1.! Rescission! creates! the! obligation! to! return! the!things! which! were! the! object! of! the! contract,! together! with! their!fruits,!and!the!price!with!its!interest;!consequently,!it!can!be!carried!out!only!when!he!who!demands!rescission!can!return!whatever!he!may!be!obliged!to!restore.!!!• Mutual!restitution!–!party!seeking!for!rescission!must!offer!to!

restore!that!which!he!received!from!the!other!• There!is!no!obligation!to!restore!if!nothing!has!been!received!• When! court! declares! a! contract! rescinded,! parties! must!

return!to!each!other!(a) The! object! of! the! contract! with! its! fruits! (include! not!

only! natural,! civil,! and! industrial! fruits! but! also! the!accessions!and!accessories)!

(b) The!price!thereof!with!legal!interest!• When! it! is! no! longer! possible! to! return! the! object! of! the!

contract,!an!indemnity!for!damages!operates!as!restitution!• Obligation!to!restore!likewise!applies!to!third!persons!

!d. The% object% of% the% contract% has% not% passed%

legally% to% the% possession% of% a% third% person%acting%in%good%faith%

!• “Third!person”!–!includes!not!only!one!who!is!not!a!party!

to! the! rescissible! contract,! but! also! one! who! is! a! party!thereto!

• Acquisition! by! a! third! person! is! an! obstacle! to! the!efficaciousness! of! action! for! rescission,! where! the!following!circumstances!are!present:!o Third! person! is! in! lawful! possession! of! the! realty—

registration!of!the!transfer!to!him!in!the!registry!o He!did!not!act!in!bad!faith!

• Third!person!in!bad!faith!–!if!he!could!not!return!the!thing!upon!the!rescission!of!the!contract,!he!will!be!liable!for!the!value!of!the!property!!!!!!!

!

!!!!


e. The%action% for% rescission% is%brought%within% the%prescriptive%period%of%four%(4)%years%

%Art.!1389.!The!action!to!claim!rescission!must!be!commenced!within!four!years.!!For! persons! under! guardianship! and! for! absentees,! the! period! of!four! years! shall! not! begin! until! the! termination! of! the! former's!incapacity,!or!until!the!domicile!of!the!latter!is!known!

!• As! a! general! rule,! action! to! rescind! contracts! must! be!

commenced!within!four!(4)!years!from!the!date!contract!was!entered!into!o Law! is! silent! as! to! when! period! is! to! be! counted:!

whether! from! the! celebration! of! the! contract,! or! from!the! time! the! creditor! acquires! knowledge! of! the!existence!of!contract!

o SC:!since!the!law!is!silent,!general!rule!applies,!i.e.,!from!the!moment!the!cause!of!action!accrues!

o Where!the!action!for!rescission!is!based!on!fraud,!period!must!be!counted!from!the!time!of!the!celebration!of!the!contract!

o In!a!case!decided!under!Art.!1191,!action!for!rescission!by!the!buyer!must!be!commenced!within!four!(4)!years!from! the! date! the! judgment! becomes! final! and!executory!

o When!action!to!rescind!or!accion,pauliana,accrues!! After!all!other!legal!remedies!have!been!exhausted!

and! have! been! proven! futile! and! all! requisites! for!accion,pauliana,are!present!

• Exceptions:!o For!persons!under!guardianship,!period!shall!begin!from!

the!termination!of!incapacity!o For!absentees,!from!the!time!the!domicile!is!known!o Period! commences! on! the! termination! of! the! ward’s!

incapacity!or!absentee’s!domicile!is!known!!%4. EFFECT!OF!RESCISSION!

%Art.! 1385.! Rescission! creates! the! obligation! to! return! the! things!which!were!the!object!of!the!contract,!together!with!their!fruits,!and!the!price!with! its! interest;! consequently,! it! can!be! carried!out!only!when! he!who! demands! rescission! can! return!whatever! he!may! be!obliged!to!restore.!!!Neither! shall! rescission! take! place! when! the! things! which! are! the!object!of!the!contract!are! legally! in!the!possession!of!third!persons!who!did!not!act!in!bad!faith.!!!In! this! case,! indemnity! for! damages! may! be! demanded! from! the!person!causing!the!loss.!

!When!rescission!not!allowed:!

• When!party!who! demands! rescission! cannot! return!what!he!is!obliged!to!restore!under!the!contract!

• If! property! is! legally! in! the! possession! of! a! third! person!who!acted!in!good!faith!

o Registered!property!in!the!Registry!of!Property!o Unaware! of! the! flaw! in! his! title! or! mode! of!

acquisition!!

!

!

a. With%respect%to%third%persons%who%acquired%the%thing%in%good%faith%%

• Transferee! of! property! in! good! faith! who! acquires!property!for!valuable!consideration,!without!knowledge!of!the! litigation!or!claim!of! the!plaintiff,! cannot!be!deprived!of!property.!!

• Right!of!transferee!to!retain!alienation:!o Nature!of!transfer!

• ONEROUS!! Good!faith!–!no!rescission!!! Bad! faith! –! rescissible! because! of! his!

complicity! in! the! fraud!"! not! entitled! for!reimbursement! because! in, pari, delicto;! if!not! possible! to! return,! indemnify! the!plaintiff!!

• GRATUITOUS!! Good!faith!–!does!not!protect!him!because!

he!gave!nothing!and!so!he!is!not!prejudiced!by! the! rescission;! rescissible,! though! not!required!to!restore!the!fruits;!he!is!entitled!to! reimbursement! for!necessary!and!useful!expenses!incurred!on!the!thing!

! Bad! faith! –! rescissible! because! of! his!complicity! in! the! fraud;! if! not! possible! to!return,!indemnify!the!plaintiff!

• Right! to! damages:! When! contract! cannot! be! rescinded,!because! the! thing! has! been! acquired! in! good! faith! by! a! third!person,!party!who!caused!the! loss!shall!be! liable!for!damages,!i.e.! guardians! of! minors,! representative! of! absentees,!transferee!in!bad!faith,!or!defendant!who!transferred!the!thing!in!litigation!

!Who!may!bring!action!for!rescission!

1. Person! injured! by! rescissible! contract,! such! as! the! ward! or!absentee! in! the! case! of! lesion,! creditors! prejudiced! by! a!fraudulent!alienation,!and!the!plaintiff! in!a!case!where!a!thing!in!litigation!is!alienated!by!the!defendant!

2. Heirs!of!these!persons!3. Their!creditors!by!virtue!of!accion!subrogatoria!%5. EXTENT!OF!RESCISSION!!Art.!1384.!Rescission!shall!be!only!to!the!extent!necessary!to!cover!the!damages!caused.!!!

• Entire! contract! need! not! be! set! aside! by! rescission! if! the!damage!can!be!repaired!or!covered!by!partial!rescission!

• Only!the!creditor!who!brought!the!action!can!benefit!from!the! rescission,! and! only! to! the! extent! of! his! unsatisfied!credit!

• As! to! the! excess,! alienation! is! maintained! even! if!transferee!is!in!bad!faith!!

• Tolentino:! But! there! may! be! other! creditors! who! could!also!bring!the!AP;!they!should!be!given!the!benefit!of!the!rescission,! instead! of! requiring! them! to! bring! another!action,!if!a!balance!is!left!

• BUT!if!transferee!is!willing!to!pay,!no!rescission!!!!

!!!!


!6. PRESUMPTIONS!OF!FRAUD!

a. Badges%of%fraud%!Art.! 1387.! All! contracts! by! virtue! of! which! the! debtor! alienates!property!by!gratuitous!title!are!presumed!to!have!been!entered!into!in! fraud! of! creditors,! when! the! donor! did! not! reserve! sufficient!property!to!pay!all!debts!contracted!before!the!donation.!!

Alienations!by!onerous!title!are!also!presumed!fraudulent!when!made!by!persons!against!whom!some!judgment!has!been!rendered!in! any! instance! or! some! writ! of! attachment! has! been! issued.! The!decision! or! attachment! need! not! refer! to! the! property! alienated,!and! need! not! have! been! obtained! by! the! party! seeking! the!rescission.!!

In! addition! to! these! presumptions,! the! design! to! defraud!creditors!may!be!proved!in!any!other!manner!recognized!by!the!law!of!evidence.!!

!• Not!exclusive;!fraud!may!be!proved!in!any!other!manner!

recognized!by!the!law!of!evidence!• Rebuttal!by!evidence!that!conveyance!was!made:!

o In!good!faith!o For!a!good!and!valuable!consideration!or!sufficient!

cause!• Presumption!not!applicable!in!the!absence!of!transfer!• Effect!of!presumption!is!to!shift!the!burden!to!the!one!

who!alienated!to!prove!that!the!transfer!was!not!fraudulently!made!

• Only!actual!creditors!can!ask!for!rescission!in!case!of!fraud!• Effect!of!Fraud:!Does!not!necessarily!make!the!alienation!

rescissible.!It!is!only!one!of!the!requisites!for!accion,pauliana.!Can!be!overruled!by!a!transferee!in!good!faith!and!for!valuable!consideration!!

!

Badges! of! Fraud! (indicia! of! fraud)! –! rules! by! which! fraudulent!character!of!transaction!may!be!determined!

1. Fictitious!or!insufficient!consideration!2. Conveyance! made! ! after! suit! has! begun! and! while! it! is!

pending!3. Sale!upon!credit!by!insolvent!debtor!4. Evidence!of!insolvency!or!large!indebtedness!5. Transfer!of!all!or!nearly!all!of!debtor’s!property!6. Transfer!is!between!father!and!son!when!some!of!above!is!

present!7. Failure! of! vendee! to! take! exclusive! possession! of! the!

property,!unless!such!failure!is!with!legal!basis!or!practical!reason!

!Additional!instances!(De!Leon)!8. At!the!time!of!the!conveyance,!vendee!was!living!with!the!

vendor! and! the! former! knew! that! there!was! a! judgment!against!the!latter!

9. It! was! known! to! the! vendee! that! the! vendor! had! no!properties!other!than!that!sold!to!him!

10. Certificate!of!title!covering!the!lands!sold!remained!in!the!name! of! the! vendor! who! declared! them! for! taxation!purposes!and!paid!the!taxes,!a!duty!assumed!by!his!heirs!after!his!death!

11. Gross!disparity!between!consideration!and!real!value!Above,enumeration,not,exclusive.,,

,

,

,

,

• Alienation!by!gratuitous!title!o Under!the!first!paragraph,!donation!is!presumed!

fraudulent!unless!proved!otherwise!• Alienation!by!onerous!title!

o Under! the! second! paragraph,! in! the! absence! of!some! judgment! rendered,! no! presumption! of!fraud! can! arise;! creditors! must! show! that! the!conveyance!will!prejudice!their!rights!

!Cases:!!

ORIA!v.!MCMICKING!

Facts:!Gutierrez!brought!actions!against!Oria!Hermanos!&!Co.!for!the!recovery! of! sums! of! money.! Subsequent! to! the! beginning! of! said!actions,! members! of! Oria! Hermano! &! Co.,! on! account! of! the!expiration! of! their! co?partnership,! dissolved! relations! and! entered!into! liquidation.! Balbas,! liquidator,! entered! into! a! contract! with!Gonzales,! selling! all! properties! owned! by! the! company.! Among!properties!sold!was!Steamship!Serantes,!which!was!under!litigation.!Meanwhile,! judgment! rendered! in! favor!of!Gutierrez! in! the!actions!for! recovery.! Balbas! claimed! that! there! were! no! funds! to! pay! the!same.!Sheriff! levied!upon!Steamship!Serantes,!auctioned,!then!sold!to! highest! bidder,! Gutierrez.! Gonzales! began! present! action! to!restore!Steamship!Serantes,!claiming!to!be!the!owner!of! the!same.!Gutierrez!averred!that!sale!was!fraudulent.!!Held:!Sale!was!fraudulent!and!prejudiced!Gutierrez.!Every!one!of!the!badges!of!fraud!(all!7)! is!present! in!this!case.!Gonzales!was!the!son!and!nephew!of!the!members!of!the!company.!Nothing!of!value!was!delivered!by!him!in!consideration!of!the!sale.!He!was!a!young!man,!25! years! of! age,! who! was! merely! a! student! without! assets! and!gainful! occupation.! He! was! also! fully! aware! of! the! suits! filed! by!Gutierrez!against! the!company.!The!sale!was!so!unusual,! so!devoid!of!care!and!caution,!and!so!wholly!outside!of!the!well?defined!lines!of! ordinary! business! transactions.! Conveyance! was! a! trick! and!contrivance!to!defeat!creditors.!!Side! note:! Sale!was! not! attacked! in! a! direct! action.! Creditor! has! a!right! to!make!the! levy!and!test! the!validity!of! the!sale! in! that!way,!without!first!resorting!to!a!direct!action!to!annul!the!sale.!!SIGUAN!v.!LIM!

Facts:! Lim! issued! two! checks! as! payment! for! her! debts! to! Siguan.!Checks!were!dishonored.!Complaint!for!violation!of!BP!22!was!filed.!Lim! convicted! Dec.! 1992.! On! July! 1991,! a! Deed! of! Donation! was!purportedly! executed! by! Lim,! conveying! parcels! of! land! to! her!children.! Siguan! filed! an!accion, pauliana,and! claims! that! the!Deed!was!antedated,!executed!in!fraud!of!creditors.!!Held:! Court! not! convinced! that! Deed! of! Donation,! a! public!document,!was!antedated.!Donation!was!made!prior! the!existence!of!Siguan’s!credit.!In!addition,!when!the!Deed!was!executed,!Lim!had!properties! such! as! farming! lands,! a! house! and! lot,! residential! lots!which! were! sufficient! to! cover! the! debts.! Moreover,! Contracts!entered!in!fraud!may!be!rescinded!only!when!the!creditors!cannot!in!any!manner! collect! the! claims! due! them.! Action! for! rescission! is! a!subsidiary! remedy! only.! The! petitioner!was! not! able! to! prove! that!she! had! exhausted! other! legal!means! to! obtain! reparation! for! the!same.!!

!

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7. LIABILITY! FOR! ACQUIRING! IN! BAD! FAITH! THE! THINGS!

ALIENATED!IN!FRAUD!OF!CREDITORS!

!

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! acquirer! shall! be!liable!first,!and!so!on!successively.!!

• Purchaser! in!bad!faith!must!return!the!same! if! the!sale! is!rescinded;!if!return!is!impossible!due,to,any,cause,,with,or,without,his,fault,!he!must!indemnify!the!former!

• Bad!faith!–!not!mere!bad!judgment!or!negligence;!imports!a! dishonest! purpose! or! some! moral! obliquity! and!conscious!doing!of!wrong!

• Mere! refusal! of! a! party! that! a! defect! exists! or! his!willful!closing!of!his! eyes! to! the!possibility!of! the!existence!of! a!defect!in!his!title,!will!not!make!him!an!innocent!purchaser!for!value!

• Subsequent!transfers!o Creditor! can! have! an! action! against! subsequent!

transferees!only!when!an!action! lies!against! the! first!transferee!! The!subsequent!transferee,!even!if!he!knows!the!

first! transfer! was! fraudulent,! can! no! longer! be!held!liable!UNLESS!it!be!shown!that!he!connived!with!the!debtor!to!make!the!first!transferee!as!a!mere!innocent!intermediary,!or!that!he!knows!of!the! intention! of! the! transferor! to! defraud!creditors!

o If! first! transferee! acted! in! bad! faith,! rescissible!character! of! second! alienation! depends! upon! how!subsequent!transferee!acquired!the!thing!! Good! faith! –! transfer! cannot!be! rescinded;! first!

transferee!liable!for!damages!! Bad!faith!–!required!to!return!the!property;!first!

transferee!not!liable!for!damages!when!return!is!possible;! if! property! cannot! be! returned,!transferees! shall! be! successively! liable! for!damages!- Same! rule! applies! where! subsequent!

transferee,! although! acted! in! good! faith,!received!property!gratuitously!

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CHAPTER(7:(((VOIDABLE(OR(

ANNULLABLE(CONTRACTS(Voidable% or! annullable% contracts, are! those! which! possess! all! the!essential! requisites! of! a! valid! contract! but! one! of! the! parties! is!legally!incapable!of!giving!consent,!or!consent!is!vitiated!by!mistake,!violence,!intimidation,!undue!influence,!or!fraud!

A. Kinds((!

Art.!1390.!The! following!contracts!are!voidable!or!annullable,!even!though!there!may!have!been!no!damage!to!the!contracting!parties:!!(1)!Those!where!one!of!the!parties!is!incapable!of!giving!consent!to!

a!contract!(2)! Those! where! the! consent! is! vitiated! by! mistake,! violence,!

intimidation,!undue!influence!or!fraud!These! contracts! are! binding,! unless! they! are! annulled! by! a!

proper!action!in!court.!They!are!susceptible!of!ratification.!

!Kinds!of!Voidable/Annullable!Contracts!

Art!.1390!Although!no!damage!to!contracting!parties:!1. Want!of!capacity!2. Vitiated!consent!

B. Characteristics(!

1. THEIR!DEFECT!CONSISTS!IN!THE!VITIATION!OF!CONSENT!OF!

ONE!OF!THE!CONTRACTING!PARTIES!

2. THEY!ARE!BINDING!UNTIL!THEY!ARE!ANNULLED!BY!A!

COMPETENT!COURT!• They!are!existent,!valid!and!obligatory!unless!annulled!or!

set!aside!by!a!proper,action,in!court!3. THEY!ARE!SUSCEPTIBLE!OF!CONVALIDATION!BY!RATIFICATION!

OR!BY!PRESCRIPTION!!• Once!ratified,!they!become!absolutely!valid!and!can!no!

longer!be!annulled.!

C. Annulment(!

ANNULMENT[!is!a!remedy!as!well!as!a!sanction!provided!by!law,!for!reason! of! public! interest,! for! the! declaration! of! the! inefficacy! of! a!contract! based! on! a! defect! or! vice! in! the! consent! of! one! of! the!contracting!parties!in!order!to!restore!them!to!their!original!position!in!which!they!were!before!the!contract!was!executed.!

!!!!!!!!!!

!!!!


1. ANNULMENT!DISTINGUISHED!FROM!RESCISSION!!!

NULLITY!(Voidable)! RESCISSION!(Rescissible)!

Declares! inefficiency! which!contract!already!carries! in! itself!(intrinsic!defect)!

Merely! produces! inefficiency,!which!did!not!exist!essentially! in!the! contract! (external! defect! i.e.!pecuniary! damages! or! prejudice!to!one!of! the!contracting!parties!or!3rd!persons)!

Principal!action! Subsidiary!action!Requires!act!of!ratification!to!be!cured!

Needs! no! ratification! to! be!effective!

Based!on!a!vice!of! the!contract!which!invalidates!it!

Compatible! with! the! perfect!validity!of!the!contract;!Based!on!lesion!to!one!of!the!parties!or!to!a!third!person!

Annulment! is! a! sanction! based!on!law!

Rescission! is! a! remedy! based! on!equity!!

Demanded! only! by! the! parties!to!the!contract!

Demanded! even! by! third! parties!affected!by!it!

Public!interest!predominates!! Private!interest!predominates!Allowed! even! if! already!indemnified!

Indemnification!bars!the!action!

!

2. GROUNDS!FOR!ANNULMENT!ART!1390!

1. Incapacity%to%consent%• Not!a!requisite!sine,qua,non!of!the!contract;!want!is!

only!a!ground!for!annulment!!2. Vices%of%consent:%%

• Violence,!intimidation,!undue!influence,!mistake!or!fraud!

!Sir!Labitag’s!comparison!of!circumstances:!

CONSENT! of! ONE! party! is!vitiated!

VOIDABLE!

BOTH!parties!are! incapable!of!giving!constent!

UNENFORCEABLE!

One!party!is!guilty!of!FRAUD! VOIDABLE!BOTH! parties! are! guilty! of!fraud!(in!pari!delicto)!

VOID!

!!

3. WHO!MAY!AND!MAY!NOT!INSTITUTE!AN!ACTION!FOR%ANNULMENT!ART!1397!

!Art.! 1397.! The! action! for! the! annulment! of! contracts! may! be!instituted!by!all!who!are! thereby!obliged!principally!or! subsidiarily.!However,! persons!who!are! capable! cannot! allege! the! incapacity!of!those! with! whom! they! contracted;! nor! can! those! who! exerted!intimidation,! violence,! or! undue! influence,! or! employed! fraud,! or!caused!mistake!base!their!action!upon!these!flaws!of!the!contract!

!A. MAY:!All!who!are!obliged!principally!or!subsidiarily!

!

Art.! 1395:! Action! does! not! require! conformity! of! the! other!party!who!has!no!right!to!bring!action!for!annulment!!! !!!!!

Requisites:!!a. Interest!in!the!contract!–!there!must!be!legal!capacity!by!being!

bound!to!the!contract!either!principally!or!subsidiarily!b. Victim!and!not!the!party!responsible!for!the!defect!–!he!who!

comes!to!the!court!must!come!with!clean!hands!(so!not!applicable!to!the!successor!in!interest!of!one!who!has!contracted!with!a!minor)!

!B. MAY%NOT:!!

1. Capable!parties!cannot!allege!the!incapacity!of!those!with!whom!they!contracted!

2. Parties!who!exerted!intimidation,!violence!or!undue!influence!or!employed!fraud!or!caused!mistake!

3. Third!person!who!is!a!stranger!to!the!contract.!UNLESS,he!can!prove!that!the!contract!prejudiced!his!rights!with!respect!to!one!of!the!contracting!parties,!he!may!ask!for!annulment!e.g.!guarantors!and!sureties!

,

Cases:!!SINGSONG!v.!ISABELA!SAWMILL!

Facts:! Garibay, ! Saldejeno,! and!Tubungbanua! entered! into! a!Contract!of!Partnership!under!the!firm!name!"Isabela!Sawmill".!Later!on,! Saldejan!wanted! to! dissolve! the! partnership,! but! instead,! they!assigned!their!rights!with!Chattel!Mortgage!in!favor!of!Saldejano.The!chattel! mortgage! was! later! foreclosed! and! ! their! properties! were!auctioned.! Saldejano! transferred! the! proceeds! to! Pan! Oriental!Lumber!Company.!The!plaintiffs!in!this!case!are!the!creditors!of!the!partnership.!!Held:! !This!Court!has!held!that!a!person,!who! is!not!a!party!obliged!principally! or! subsidiarily! under! a! contract,!may! exercise! an! action!for!nullity!of!the!contract!if!he!is!prejudiced!in!his!rights!with!respect!to! one! of! the! contracting! parties,! and! can! show! detriment! which!would!positively!result! to!him!from!the!contract! in!which!hehas!no!intervention.!The!creditors!were!prejudiced!by!the!execution!of!the!chattel!mortgage!over! the!properties!of! the!partnership! in! favor!of!Saldajeno.! Hence,! they! have! a! right! to! file! an! action! to! nullify! the!chattel!mortgage.!!PHILIPPINE!NATIONAL!BANK!v.!PHILIPPINE!VEGETABLE!OIL!CO.!Facts:!PVOC!was!in!debt!up!to!P30M,!with!PNB!as!its!largest!creditor!(for! P17M);! the! loans! to! PNB! were! secured! by! real! and! chattel!mortgage.!Bankruptcy!was! imminent,!and!a!creditors’!meeting!was!held,!where!a!receiver!was!appointed!by!the!CFI.!While!the!receiver!was! in! control! of! PVOC,! an! agreement! was!made!where! creditors!transferred! to!GM!Whitaker! their! claims! against! PVOC,!which! PNB!had!knowledge!of.!PNB!at! this! time!had!two!representatives! in! the!Board! of! PVOC! to! have! a! closer! relationship!with! PVOC.! PNB! then!obtained! a! new! mortgage! from! PVOC.! The! receivership! was! then!terminated! and! the!PVOC!plant!was! closed.! PNB! filed! an! action! to!foreclose! its! mortgage! (during! receivership)! on! PVOC’s! property,!which!PVOC!countered.!!Held:!PNB! could!not! secure!a!new!mortgage!while! the!property!of!PVOC!was! in! custodia, legis,! as! it! was! in! the!middle! of! bankruptcy!proceedings.! PVOC! at! this! time,! was! prohibited! from! giving! new!mortgages! on! its! property.! The! receiver,! who! had! control! of! the!company,!was!not!party!to!the!mortgage,!nor!was!it!given!authority!by! the! Court! to! consent! to! the! execution! of! a! new!mortgage.! The!Court!would!want!to!protect!the!rights!of!all!creditors,!not!just!one!creditor! (PNB).! The! mortgage! was! also! accomplished! when! PVOC!was!being!influenced!by!PNB!(by!proxy)!while!it!was!negotiating!with!PNB!itself.!

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4. PRESCRIPTION!OF!ACTION!FOR!ANNULMENT!!!

Art.! 1391.! The! action! for! annulment! shall! be! brought! within! four!years.!This!period!shall!begin:!!In!cases!of!intimidation,!violence!or!undue!influence,!from!the!time!the!defect!of!the!consent!ceases.!!!In! case! of!mistake! or! fraud,! from! the! time! of! the! discovery! of! the!same!!And!when! the!action! refers! to! contracts!entered! into!by!minors!or!other!incapacitated!persons,!from!the!time!the!guardianship!ceases.!!!

Prescription! ?! after! lapse! of! period,! contract! can! no! longer! be! set!aside!

• Extinctive! prescription! applies! not! only! to! action, for,annulment,!but!also!to!the!defense,of,nullity,

• Applies!to!the!parties!of!to!the!contract,!but!NOT!to!third!persons!

!Art.!1391!?!Within!4!years!Period!shall!begin:!!

1. Intimidation,!violence!or!undue!influence:!from!the!time!consensual!defect!ceases!!

2. Mistake!or!fraud:!from!the!time!of!discovery!of!the!same!3. Incapacity:!from!the!time!guardianship,ceases!!

5. EFFECTS!OF!ANNULMENT!

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Art.!1396.!Ratification!cleanses!the!contract!from!all!its!defects!from!the!moment!it!was!constituted.!

• Cleanses!the!contract!from!all!its!defect!from!the!moment!it!was!constituted!(retroactive!effect),!but!does!not!prejudice!rights!of!3rd!persons!acquire!before!the!ratification!Art!1396!!

a. Mutual%Restitution%%!

Art.! 1398.! An! obligation! having! been! annulled,! the! contracting!parties! shall! restore! to!each!other! the! things!which!have!been! the!subject!matter!of! the!contract,!with! their! fruits,!and! the!price!with!its!interest,!except!in!cases!provided!by!law.!

In! obligations! to! render! service,! the! value! thereof! shall! be! the!basis!for!damages.!!

• Restore!to!each!other!things!which!have!been!the!subject!matter!of! the!contract,! together!with! fruits!and! the!price!with!interest,!!

• EXCEPT,in!cases!provided!by!law!(principle!of!unjust!enrichment):!compensation,!services!rendered!in!contracts!of!service!

• ELIMINATES,AWARD,FOR,DAMAGES.,But!when!there!is!loss!or!suffered!damages,!injured!party!may!be!entitled!to!recover!indemnity!for!damages.!!

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Cases:!!CADWALTADER!&!CO!v.!SMITH,!BELL!&!CO!

Facts:! Cadwaller! &! Co.! as! assignees! of! the! Pacific! Export! Lumber!Company! (PELC)! asks! for! the! amount! of! $3,486! which! is! the! sum!differential! of! the! money! that! was! turned! over! to! them! and! the!money!actually!received.!PELC!exported!cedar!piles!to!be!bought!by!Peabody!&!Company! for! the!amount!of! $12!a!piece!however! later!on! it! was! found! out! that! P&C! was! able! to! negotiate! with! the!government!to!sell!the!piles!at!$20!a!piece,!and!that!213!out!of!581!piles! were! already! sold! to! the! Government! for! $19! each.! Others!were!sold!at!varying!price.!!Held:!There! is!a!breach!of!duty.!The!contract!of! sale! is! founded!on!fraud! and! is! subject! to! the! annulment! of! the! aggrieved! party! (CC!Arts.1265!and!1269).!The!defendants!are!not!entitled!to!retain!their!commission! realized! upon! the! piles! included! under! the! annulled!contract.!However!this!is!only!for!those!that!are!subsequently!sold!at!the! time!of! the!negotiation!with! the!Government!and! its! selling!at!the!amount!of!$19!apiece.!!VELARDE!v.!CA!

Facts:!Raymundo!sold!a!parcel!of!land!to!Velarde!with!the!condition!of!assuming!the!mortgage!amounting!to!P1.8M.!Velarde!enacted!an!Undertaking,!stating!that!they!paid!R!Raymundo!800k,!and!that!they!agree!to!pay!the!mortgage!obligations.!Assumption!of!mortgage!was!not!approved!and!Valerde!stopped!paying!to!BPI.!!Held:!!Court!held!that!Raymundo’s!act!of!rescinding!the!contract,!is!justified,!but!ordered!the!restitution!to!Velarde!of!P874,150,!which!the! latter! paid! as! a! consequence! of! the! contract! until! it! was!rescinded.! Pursuant! to! Art.! 1191,! rescission! now! creates! the!obligation!on!both!parties! to! return! to!each!other! the!objects! they!originally!had!prior!to!the!enactment!of!the!contract.!To!rescind!is!to!declare!a!contract!void,!as!if!it!never!happened.!!

Art.!1402.!As!long!as!one!of!the!contracting!parties!does!not!restore!what!in!virtue!of!the!decree!of!annulment!he!is!bound!to!return,!the!other!cannot!be!compelled!to!comply!with!what!is!incumbent!upon!him.!!!

• LOSS!THROUGH!PLAINTIFF’S!(party!entitled!to!bring!action)!FAULT!or!FRAUD:!Action!is!extinguished,!even!if!at!the!time!of!the!loss!the!plaintiff!is!still!a!minor!or!insane!(Art!1401)!

!

Art.! 1401.! The! action! for! annulment! of! contracts! shall! be!extinguished! when! the! thing! which! is! the! object! thereof! is! lost!through!the!fraud!or!fault!of!the!person!who!has!a!right!to!institute!the!proceedings.!!If!the!right!of!action!is!based!upon!the!incapacity!of!any!one!of!the!contracting!parties,!the!loss!of!the!thing!shall!not!be!an!obstacle!to!the! success! of! the! action,! unless! said! loss! took! place! through! the!fraud!or!fault!of!the!plaintiff.!

!• LOSS! THROUGH! FORTUITOUS! EVENT,! BUT! PLAINTIFF!

WILLING!TO!PAY:!Apply!Art!1400,!defendant!should!return!but!not! including!the! interest!because! loss!not!due!to!his!fault.!!!

• LOSS! OF! FRUITS! AND! ACCESSIONS:! Apply! Art! 1400,! pay!value!if!cannot!return!(both!plaintiff!and!defendant)!

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1. When%one%of%the%parties%is%incapacitated%Art!1399!not!obliged!to!make!any!restitution!EXCEPT!insofar! as! he! has! been! benefited! by! the! price/thing!received!

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Art.!1399.!When!the!defect!of!the!contract!consists!in!the!incapacity!of! one! of! the! parties,! the! incapacitated! person! is! not! obliged! to!make!any!restitution!except!insofar!as!he!has!been!benefited!by!the!thing!or!price!received!by!him.!!

!• Benefit!not!necessarily!a!material!and!permanent!increase!

in!fortune!• Proof!of!benefit!incumbent!upon!the!defendant,!in!the!

absence!of!such!proof,!the!presumption!is!there!is!no!benefit/profit!to!the!incapacitated!person!

• If!still!in!the!patrimony!at!the!time!incapacity!ceases,!deemed!to!have!been!benefited.!If!he!asks!for!annulment,!he!must!return!it!to!the!other!party.!If!he!squanders,!it!is!ratification.!!!2. When%the%thing%is%lost%through%the%fault%of%

the%party%obliged%to%return%the%same%(i.e.%defendant)%

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Art.!1400.!Whenever!the!person!obliged!by!the!decree!of!annulment!to! return! the! thing!can!not!do!so!because! it!has!been! lost! through!his!fault,!he!shall!return!the!fruits!received!and!the!value!of!the!thing!at!the!time!of!the!loss,!with!interest!from!the!same!date.!!!

• Return! the! fruits! received! AND! the! value! of! thing! at! the!time!of!loss,!with!interest!from!same!date!

• LOSS!THROUGH!FORTUITOUS!EVENT:!pay!the!value!of!the!thing!lost!but!not!fruits!and!interests!

!6. EXTINGUISHMENT!OF!THE!ACTION!!

a. By%ratification%%• Confirmation/ratification:!cures!a!defect!of!nullity!• Acknowledgment:!remedies!deficiency!of!proof!!

b. When%the%thing%is%lost%through%the%fault%of%the%person%who%has%the%right%to%file%the%action%%• LOSS!NOT!THROUGH!THE!FAULT,!e.g.!fortuitous!

event:!not!extinguished!because!extinguishment!limited!only!to!the!loss!by!fault!of!plaintiff.!Unjust!enrichment!if!the!loss!is!returned!for!the!defendant!to!bear.!Hence,!the!defendant!cannot!be!obliged!to!make!restitution!to!the!plaintiff!because!of!Art!1402!(cannot!compelled!to!return!if!the!other!party!does!not!return)!

• Cannot!extinguish!action!for!annulment!by!any!event!not!imputable!to!the!fault!or!fraud!of!the!plaintiff!!

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D. Ratification(1. REQUISITES!OF!RATIFICATION!

a. Contract%is%voidable/annullable%(i.e.%consent%of%one%party%is%defective)%

b. Ratification%is%made%with%the%knowledge%of%the%cause%for%nullity%%

c. At%the%time%of%the%ratification,%the%cause%of%nullity%has%already%ceased%to%exist!

! ! !2. FORMS!OF!RATIFICATION!

a. Express%or%tacit:%execute!an!act!which!necessarily!implies!an!intention!to!waive!his!rights%

!Art.! 1393.! Ratification! may! be! effected! expressly! or! tacitly.! It! is!understood!that!there!is!a!tacit!ratification!if,!with!knowledge!of!the!reason!which!renders!the!contract!voidable!and!such!reason!having!ceased,! the!person!who!has! a! right! to! invoke! it! should! execute! an!act!which!necessarily!implies!an!intention!to!waive!his!right.!!

!• EXPRESS:! any!oral!or!written!manifestation!of! the!person!

entitled!to!ask!for!annulment!that!he!agrees!to!be!bound!by!the!contract!or!that!he!will!not!seek!its!annulment!!

• IMPLIED:!!o Silence!or!acquiescence!o Acts!showing!approval!or!adoption!of!the!contract!!o Acceptance! and! retention! of! benefits! flowing!

therefrom!!

b. By%the%parties%themselves%or%by%the%guardian%in!behalf%of%an%incapacitated%party%%

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Art.! 1394.! Ratification! may! be! effected! by! the! guardian! of! the!incapacitated!person.!!

• During!the!existence!of!incapacity!• Right!to!ratify!is!transmitted!to!the!heirs!of!the!party!

entitled!to!such!right.!!

3. EFFECTS!OF!RATIFICATION!

a. Action%to%annul%is%extinguished%!

Art.! 1392.! Ratification! extinguishes! the! action! to! annul! a! voidable!contract.!

!Case:!

!UY!SOO!LIM!v.!TAN!UNCHUAN!

Facts:!legitimate!children,!and!first!and!second!wife!are!questioning!the!fairness!and!legality!of!the!lion’s!share!received!Uy!Soo!Lim,!the!illegitimate!child!of!the!deceased.!After!all!the!drama,!an!agreement!was! reached! stipulating! that! Lim! will! accept! P82,500! in! full!satisfaction!and!relinquishment!of!all!his! right,! title,!and! interest! in!and! to! the! estate! of! the! deceased.! Lim,!three! (3)! years!after!attaining!the!age!of!majority,!commenced!this!action!to!annul!the!contract.!!Held:! Only! choose! one:! ratify! or! annul.! Plaintiff! tacitly! ratified! the!contract! he! wished! to! annul! on! the! grounds! of! his! minority! upon!entering! into! said! contract.! Such! ratification! was! evidenced! by! his!disposing! of! the! greater! part! of! the! consideration! he! received! on!

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account!of!that!contract!after!he!came!of!age.!His!action!to!rescind!and!annul!the!contract!cannot!prosper.!

!b. The%contract%is%cleansed%retroactively%from%all%

its!defects%from%the%time%it%was%constituted%%• EXCEPTION:!Right!of!3rd!persons!prior!to!ratification!

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CHAPTER(8:((UNENFORCEABLE(CONTRACTS(

Unenforceable! contracts!are! those!which! cannot!be!enforced!by!a!proper!action!in!court,!unless!they!are!ratified,!because,!either!they!are! entered! into! without! or! in! excess! of! authority! or! they! do! not!comply!with!the!statute!of!frauds!or!both!of!the!contracting!parties!do!not!possess!the!required!legal!capacity.1!As!regards!the!degree!of!defectiveness,! they! occupy! an! intermediate! ground! between!voidable!and!void!contracts.!(Jurado)!

A. Characteristics(1. THEY!CANNOT!BE!ENFORCED!BY!A!PROPER!ACTION!IN!COURT!

2. THEY!ARE!SUSCEPTIBLE!OF!RATIFICATION!

3. THEY!CANNOT!BE!ASSAILED!BY!THIRD!PERSONS!(ART.!1408)!!

Unenforceable!distinguished!from!Rescissible!and!Annullable!

UNENFORCEABLE! RESCISSIBLE!AND!ANNULLABLE!

Produces! NO! legal! effect! unless!ratified!by!competent!court!

Produces!legal!effects!unless!set,aside!by!competent!court!

B. Kinds(!

Art.! 1403.! The! following! contracts! are! unenforceable,! unless! they!are!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!a!mutual!promise!to!marry;!!(d)! An! agreement! for! the! sale! of! goods,! chattels! or! things! in!action,! at! a! price! not! less! than! five! hundred! pesos,! unless! the!buyer!accept!and!receive!part!of!such!goods!and!chattels,!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!person!on!whose!account!the!sale!is!made,!it!is!a!sufficient!memorandum;!!(e)! An! agreement! of! the! leasing! for! a! longer! period! than! one!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.!

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!Kinds!of!Unenforceable!Contracts!

1. Entered!into!in!the!name!of!another!person!by!one!who!has!no!authority! or! no! legal! representation! OR! acted! beyond! his!powers!

2. Do! not! comply!with! Statute! of! Frauds,! which! are! agreements!unenforceable!unless! in!written!memorandum!and! subscribed!by!the!party!charged!a. Agreement! not! to! be! performed! within! 1! year! from! the!

making!b. Special! promise! to! answer! for! the! debt,! default! or!

miscarriage!of!another!c. Agreement!made! in!consideration!of!marriage!other! than!

“mutual”!promise!to!marry!d. Sale!of!goods,!chattels!or! things! in!action,!priced!not! less!

than!P500!e. Leasing! for! period! longer! than! one! year! OR! sale! of! real!

property!or!of!an!interest!therein!f. Representation!to!the!credit!of!a!3rd!person!!

3. Both!parties!are!incapable!of!giving!consent!to!contract!Note:!For!letter!a!and!e,!the!date!of!entering!into!the!contract!is!the!reckoning!period!!1. UNAUTHORIZED!CONTRACTS!

!

Art.!1403,!par.!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;!!

GOVERNING%RULES%!Art.!1404.!Unauthorized!contracts!are!governed!by!Article!1317!and!the!principles!of!agency!in!Title!X!of!this!Book.!!

• Governed!by!Art.!1317!(no!one!may!contract! in!the!name!of!the!other!without!being!authorized,!or!unless!he!has!by!law! a! right! to! represent! him;! representation! without!authority! or! legal! representation! makes! the! contract!unenforceable);!and!

• Principles! of! Agency! in! Title! X! of! this! Book! (see! also! Art.!1868,!1869,!1881,!1882,!1883,!1900!and!1901)!

• Does! not! have! a! binding! effect! on! the! principal,! UNLESS!principal!ratifies,it,!which!cures!the!unauthorized!contract!

• Agent!who!binds!his!principal!without!authority!to!do!so!is!liable!to!3rd!persons!

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2. CONTRACTS!COVERED!BY!THE!STATUTE!OF!FRAUDS!

!Statute! of! Frauds:! Descriptive! of! statutes! which! requires!certain! classes! of! contracts! to! be! in!writing.!Merely! regulates!the! formalities! of! the! contract! necessary! to! render! it!enforceable!• Does! not! deprive! parties! of! the! right! to! contract,! but!

merely! regulates! the! formalities! to!make! it!enforceable!–!effect:!no!action!can!be!proved!unless!the!requirement! is!complied!with!

• NOT!APPLICABLE! TO:! (1)! Action! for! specific! performance,!(2)!Violation!of!the!contract!

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• APPLICABLE! TO:! Executory! and! not! to! complete! or!executed! contracts! because! the! intention! of! the! parties!become! apparent! by! their! execution.! However,! partial!performance!must!also!be!proven.!

• Exclusive!list!of!agreements/contracts!enumerated;!Rule!of!exclusion!!

• A! personal! defense! (hence! cannot! be! raised! by! 3rd!persons)!and!the!same!may!be!waived!

• Does!not!determine!credibility!or!weight!of! the!evidence,!merely!concerned!with!the!admissibility!thereof!

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Art.! 1403,! par.! 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!

%THE%STATUTE%OF%FRAUDS%a. An! agreement! that! by! its! terms! is! not! to! be! performed!

within!a!year!from!the!making!thereof;!

• In! order! for! the! provision! to! be! applicable,! it! must!appear! that! the!parties! intended! the!contract!not! to!be!performed!within!a!year;!that!a!contract!cannot!be!performed! within! a! year! means! an! impossibility! by!the!terms!of! the!contract! itself!or! the!understanding!and!intention!of!the!parties!

• If!no!time!is!fixed!and!nothing!to!show!that!it!cannot!be! performed! within! a! year,! then! not! within! SoF;!Partial!performance!also!takes!it!out!of!SOF!

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b. A! special! promise! to! answer! for! the! debt,! default! or!

miscarriage!of!another;!

• Default!or!Miscarriage!include!liability!for!tort!and!are!not! to! be! restricted! to! defaults! and! miscarriages!arising! out! of! contracts;!Must! be! collateral! only! and!not!primarily!liable!for!the!debt!!

• In! a! guaranty,! the! promise! is! merely! subsidiary! or!collateral! to! the! promise! of! the! original! or! principal!debtor;!if!it!is!an!original!or!independent!one!and!the!promisor!becomes!primarily!liable,!the!promise!is!not!within! the! Statute! and! may! be! proved! by! oral!evidence!

• Miscarriage!(as!used!in!the!Statute!of!Frauds):!has!a!different! or! broader! meaning! than! either! “debt”! or!“default,”!and!includes!the!failure!by!a!third!party!to!succeed!in!a!proposed!business,!regardless!of!the!fact!whether!its!failure!to!do!so!would!entitle!the!plaintiff!to!an!action!at!law!or!not!o Compared! to! “debt”!or! “default,”! an! actionable!

duty! is! not! a! requirement! because! the! reason!does!not!exist!in!a!miscarriage!–!the!act!of!a!third!party!!

c. An! agreement!made! in! consideration! of!marriage! other!

than!a!mutual!promise!to!marry;!

• When! the!marriage! is! a! mere! incident,! and! not! the!end! to! be! attained,! it! is! not! deemed! to! be! the!consideration!

• Where!there!is!some!other!consideration!sufficient!to!support! the!oral!agreement,! in!addition! to!marriage,!

!!!!


the! agreement! is! not! covered! by! the! SoF! and! may!adduce!oral!evidence!as!proof!

• Law!states!no!period!of!performance;!an!oral!mutual!promise! to!marry!may! be! proved! by! parol! evidence!although! the!marriage! is! to! be! celebrated! beyond! 1!year!

• Not! limited! to!marrying!parties!but! also! to!promises!by!a!third!person!to!one!of!the!parties!contemplating!the!marriage!

• Examples! covered:! Marriage! settlements! (ante?nuptial!contracts)!or!agreements!entered!into!by!the!future!spouses!before!the!celebration!for!the!purpose!of! fixing! the! property! relations! (Art.! 74?76! FC);!donations! propter! nuptias! (donations! by! reason! of!marriage)!are!donations!made!before!the!celebration,!in! consideration! of! the! same! and! in! favor! of! one! or!both!spouses!(Art.!82!FC)!

!

d. An!agreement!for!the!sale!of!goods,!chattels!or!things!in!

action,!at!a!price!not!less!than!five!hundred!pesos;!

• Unless!buyer!accepts!and!receives!part!of!such!goods!and!chattels!or!the!evidences!or!some!of!them!or!pay!at!the!time!some!part!of!the!purchase!money.!!

• EXCEPTION:! sale! is! by! auction! and! entry! is!made! by!auctioneer! in! his! sales! book! (because! it! constitutes!sufficient!memorandum)!

• Things! in! action:! commonly! termed! a! “chose! in!action”! and! is! a! personal! right! to!demand!money!or!property!by!action!o Right! to! recover! money! or! other! personal!

property!by!a!judicial!proceeding!o A!term!in!contradistinction!to!a!chose!or!thing!in!

possession,!and!is!applicable!to!cases!where!the!title! to! the!money!or! property! is! in! one!person!and! the! possession! is! in! another,! which! by!contract! he! is! bound! to! deliver! to! the! owner!(Ayres,v,Western,R.,Corp)!

o Distinguished! from! a! thing! of! which! owner! has!actual! or! constructive! possession! but! for! which!action!may!be!brought!to!reduce!it!to!possession!(Heavy,Lumber,Co.,v,Mutchison)!!

e. An!agreement!of!the!leasing!for!a!longer!period!than!one!

year,! or! for! the! sale! of! real! property! or! of! an! interest!

therein;!

• Must!be!in!writing!to!be!enforceable!• Alleged! verbal! assurance! of! a! renewal! of! lease! is!

inadmissible! to! qualify! the! terms! of! a! written! lease!agreement!→!unenforceable!under!SoF!

!

f. Representation!to!the!credit!of!a!3rd!person.!

!

a. Purpose%of%Statute%• To!prevent!(and!not!to!encourage)!fraud!and!perjury!

in!the!enforcement!of!obligations!depending!for!their!evidence! on! the! unassisted! memory! of! witness! but!also!to!guard!against! the!mistakes!of!honest!men!by!requiring! that! certain! agreements! specified!must! be!in! writing! signed! by! the! party! to! be! charged;!otherwise,!they!are!unenforceable!by!action!in!court!

• Provides! for! the! manner! which! contracts! under! it!shall!be!proved!

• Does! not! attempt! to! make! contracts! invalid! if! not!executed!in!writing,!only!makes!ineffective!the!action!for!specific!performance!

• Principal! aims:! (1)! prevent! commission! of! injustice!due! to! faulty! memory,! (2)! discouraging! intentional!misrepresentations!

• History:! (1677)! English! Parliament! enacted! a! statute!to! counter! the!evil! practice!of! giving! false! testimony!in!actions!founded!on!certain!kinds!of!contracts!→!to!deal! with! the! prevalence! of! successful! perjury! by!making! specified! contracts! unenforceable! unless!written! in! a! prescribed! manner! (in! general,! by! a!written! memorandum! signed! by! the! third! party!against!whom!liability!under!the!contract!was!sought!to!be!enforced)!and!since!then,!it!was!called!“Statute!of!Frauds”!

• In! the!Philippines:!Originally! taken! from! the!Code!of!Civil! Procedure! of! the! State! of! California! and! was!introduced!by!Sec.!335!of!Act!No.!190! (Code!of!Civil!Procedure)!and!subsequently!embodied!in!toto!in!the!old! Rules! of! Court! under! Evidence! as! Sec.! 21,! Rule!123.!Now,! it! is!embodied!with!slight!modifications! in!Art.! 1403(2)! of! the! NCC! under! “Unenforceable!Contracts”!

• Application:!!o Presupposes! the! existence! of! a! perfected!

contract! and! requires! only! a! note! or!memorandum!to!be!executed!in!order!to!compel!judicial!enforcement!

o Refers! to! specific! kinds! of! transactions! and!cannot!apply!to!any!other!transaction!that!is!not!enumerated! therein;! not! applicable! in! actions!which! are! neither! for! damages! because! of! a!violation! of! a! contract! nor! for! the! specific!performance!thereof!

o Applicable!only!to!executor!contracts!(where!no!performance! has! as! yet! been! made! by! both!parties)! and! not! to! contracts! which! are! totally!(consummated)!or!partially!performed!! Partial! performance! (like!writing)! furnishes!

reliable! evidence! of! the! intention! of! the!parties!or!the!existence!of!the!contract!

o Not! applicable! where! the! contract! is! admitted,!by! failure! to!deny! specifically! its! existence! –! no!further!evidence!required!

o Not! applicable! where! the! writing! does! not!express! the! true! agreement! of! the! parties!because! the! Statute! cannot! be! used! as! a! shield!for!fraud!or!means!for!perpetrating!it!

o Does!not!declare! that! contracts! infringing! it! are!void!and!of!no!effect,!but!merely!unenforceable!(Art.!1403!no.!2);! form!is!required!for!evidential!purposes!only!(Art.!1405)!

o Does! not! determine! the! credibility! or!weight! of!evidence! but! merely! regulates! the! admissibility!thereof!

o Defense! of! the! Statute! of! Frauds! is! subject! to!waiver!(Art.!1405)!

o Defense! of! the! Statute! of! Frauds! is! personal! to!the! parties! and! cannot! be! interposed! by!strangers!to!the!contract!(Art.!1408)!

!!!

!!!!


Modes!of!satisfaction!of!the!Statute:!

1. The!giving!of!a!note!or!memorandum;!2. Acceptance!and!receipt!of!part!of!the!goods!(or!things!in!action)!

sold;!and!3. Payment!at!the!time!of!some!part!of!the!purchase!price!!Written!Memorandum!or!Note:! Evidence!of! the! agreement! and! is!used!to!show!the!intention!of!the!parties!!Minimum!requirement!for!written!memorandum:!

1. Names!of!the!parties!2. Terms!and!conditions!of!the!agreement!3. Description!of!the!subject!matter!sufficient!to!render!it!capable!

of!identification!4. Date!and!place!of!the!making!of!the!agreement!(Par.!2,!a!and!e)!5. Signature!of!the!party!assuming!the!obligation!Note:!In!short,!just!the!essential!requisites!of!a!contract!+!signature!!Sufficiency!of!a!Note!or!Memorandum:!1. No! particular! form! of! language! or! instrument! is! necessary! to!

constitute!a!note!or!memorandum!–!any!document!or!writing,!formal! or! informal,!which! states! all! the!essential!elements! of!the!contract!with!reasonable!certainty,!and!which! is!signed!by!the!party!to!be!charged!or!his!lawfully!authorized!agent!

2. It! need!not! state! the! consideration! for! the! contract! since! the!existence!of!this!element!is!presumed!unless!the!debtor!proves!the!contrary!(Art.!1354)!

3. When! a! sale! is! made! by! auction,! the! entry! made! by! the!auctioneer!is!a!sufficient!memorandum!even!if!not!signed!

4. The! note! or!memorandum! required! need! not! be! contained! a!single!document,!nor,!when!contained! in!two!or!more!papers,!need!each!paper!to!be!sufficient!as!to!contents!and!signature!to!satisfy! the!Statute!–! two!or!more!writings!properly! connected!may! be! considered! together! and! their! sufficiency!will! depend!on!whether!taken!together,!they!meet!the!requirements!of!the!Statute!

!Enforceability! of! electronic! transactions! (RA! 8792,! “Electronic!Commerce!Act!of!2000”)!o Legal,recognition,of,electronic,data,message!–!information!shall!

not! be! denied! validity! or! enforceability! solely! on! the! ground!that!it!is!in!the!form!of!an!electronic!data!message!(Sec.!6)!

o Legal, recognition, of, electronic, documents! –! electronic!documents!shall!have!the!legal!effect,!validity!or!enforceability!as! any! other! document! or! legal! writing! (Sec.! 7,! see! also! Art.!1358)!

o Legal,recognition,of,electronic,signatures!–!electronic!signature!shall! be! equivalent! to! the! signature! of! a! person! on! a! written!document!if!the!signature!is!electronic!and!proved!by!showing!that! a! prescribed! procedure,! not! alterable! by! the! parties!interested,!existed!under!which:!a. A!method!is!used!to!identify!the!party!sought!to!be!bound!

and! to! indicate! said! party’s! access! to! the! electronic!document!necessary!for!his!consent!

b. Said! method! is! reliable! and! appropriate! for! the! purpose!for! which! the! electronic! document! was! generated! or!communicated!

c. It! is! necessary! for! the! party! sought! to! be! bound! to! have!executed!or!provided!the!electronic!signature!

d. The! other! party! is! authorized! and! enabled! to! verify! the!electronic!signature!and!proceed!with!the!transaction!(Sec.!8)!

4. Admissibility,and,evidential,weight,of,electronic,data,messages,

or,electronic,documents!–!nothing!in!the!rules!of!evidence!shall!deny!the!admissibility!of!an!electronic!data!message:!a. On!the!sole!ground!that!it!is!electronic!in!form!b. On!the!ground!that!it!is!not!in!the!standard!written!form!

5. Recognition,by,parties,of,electronic,data,message,or,electronic,

document!–!a!declaration!of!will!or!other!statement!shall!not!be!denied! legal! effect,! validity! or! enforceability! solely! on! the!ground!that!it!is!in!the!form!of!an!electronic!data!message!

!Cases:!!PHILIPPINE!NATIONAL!BANK!v.!PHILIPPINE!VEGETABLE!OIL!CO.!Facts:!PVOC!was!in!debt!up!to!P30M,!with!PNB!as!its!largest!creditor!(for! P17M);! the! loans! to! PNB! were! secured! by! real! and! chattel!mortgage.!Bankruptcy!was! imminent,! and!Whitaker! is! alleging! that!the!PNB!made!a!contract!binding!it!(during!period!of!receivership)!to!provide! the! necessary! operating! capital! to! PVOC! in! order! for! it! to!continue! operating! its! factory,! and! that! PNB! failed! to! comply!with!such! a! contract.! He! wants! to! enter! oral! evidence! to! support! the!existence! of! such! a! contract,! PNB’s! refusal! to! perform,! being! the!ground! for! his! right! to! damages.! (Note:! see! Chapter! VII:! Voidable!Contracts!for!other!facts)!!Held:! The! broad! view! is! that! the! Statute! of! Frauds! applies! only! to!agreements!not! to!be!performed!on!either!side!within!a!year! from!the!making;! if! they!are!to!be!performed!on!one!side!within!a!year,!the!SoF!does!not!apply.!The!Statute!of!Frauds!was!enacted! for! the!purpose! of! preventing! frauds;! it! should! not! be! an! instrument! to!further! them.! Whitaker’s! theory! is! that! he! entirely! performed! his!part!of!the!agreement!(contract!with!PNB),!and!equity!would!argue!that!evidence!be!admitted!to!prove!the!agreement.!However,!based!on! the! minutes! of! the! Board! of! Directors! (PNB),! the! GM! is!authorized! to! finance! the! operation! of! the! PVOC! under! the!receivership!to!the!extent!of!P500K,!secured!by!Whitaker,!which!said!GM! is! to! report! to! the!Board! to!secure! their!approval.!No!contract!entered! into! by! the! GM! would! be! valid! without! the! advice! and!consent! of! the! Board.!What! the! Board! approved!was! to! finance! it!under!receivership!to!the!extent!of!P500K.!There!is!no!evidence!that!the!Board! consented! to! an! unlimited! backing! of! the! PVOC.! Even! if!the! Court! gave! the! oral! testimonies! (Gibbs! and! Whitaker)! the!broadest! effect,! there! is! still! no! definite! agreement! binding! the!bank.!There!being!no!valid!contract,!Whitaker!cannot!recover! from!the!Bank,!no!matter!how!selfless!his!efforts!were!to!save!PVOC;!he!cannot! use! the! SoF! as! an! instrument! to! further! the! fraud! (alleging!the!existence!of!said!contract).!!LIMKETKAI!SONS!MILLING!INC.!v.!CA!Facts:!BPI!was!entrusted!by!PRCI!as!to!manage,!administer,!and!sell!its!real!estate!property!(Barrio!Bagong!Ilog,!Pasig).!Revilla!Jr.,!a!real!estate!broker!was!authorized!to!sell!the!lot!for!P1K/sq.m,!concurred!in!by!PRCI.!Revilla!contacted!Alfonso!Lim!(of!Limketkai),!who!agreed!to!buy!the! land!after!viewing!said!property.!Revilla!told!BPI!that!he!had!found!a!buyer.!Negotiations!between!Lim!and!BPI!officials!were!made,! agreed! lot! would! be! sold! at! P1K/sq.m.! Lim! asked! if! it! was!possible! to! pay! on! terms! (initial! of! 10%! then! 90%!within! 90! days),!and!if!it!is!disapproved,!price!will!be!paid!in!cash.!Later,!Lim!learned!that!offer! to!pay!on! terms!was! frozen,! so!he!went! to!BPI!and!paid!the! full!amount!of!P33M.!Payment!was!refused!and!Limketkai! filed!an! action! for! specific! performance! and! damages,! and! BPI! issued! a!deed!of!sale!to!NBS.!!!Held:!The!contract!between!Limketkai!and!BPI!was!perfected!upon!the! concurrence!of! the!essential! elements! (agreement!of! the!price!

!!!!


to! be! P1K/sq.m).! Cross?examination! on! the! contract!made! initially!inadmissible! parol! evidence! competent! and! admissible;! and! cross?examination! is! deemed! a!waiver! of! the! defense! of! the! SoF.!Under!Art!1403!of!the!CC,!an!exception!to!the!unenforceability!of!contracts!pursuant!to!the!Statute!of!Frauds!is!the!existence!of!a!written!note!or!memorandum!evidencing!a!contract.!The!memo!may!be!found!in!several!writings,!not!necessarily!in!one!document.!The!memo!is/are!written!evidence!that!such!a!contract!was!entered!into.!While!there!is! no! contract! of! sale,! there! are! abundant! notes! and! memoranda!evidencing!elements!of!a!perfected!contract.!!SWEDISH!MATCH!v.!CA!Facts:!Swedish!Match,!AB!(SMAB)!owns!3!subsidiary!corporations!in!the! Philippines:! Phimco,! PTFI! and! OTT/Louie,! Inc.! STORA,! parent!company! of! SMAB! decided! to! sell! the! latter,! and! Enriquez! (VP! of!management!company!of!SM!group)!was!commissioned!and!granted!full! powers! to! negotiate! the! sale! of! Phimco! shares.! One! of! the!interested!parties!was!ALS!Management!(president!and!GM!Antonio!Litonjua).! Litonjua! offered! to! buy! all! SMAB! shares! in! the! 3!companies! for! P750M.! SMAB! said! price! too! low! and! told! them! to!undertake! a! comprehensive! review! and! analysis! of! the! value! and!profit!potentials!of! the! shares,!with! the!assurance! that! they!would!enjoy!priority,!then!an!exchange!of!correspondence!ensued.!Litonjua!offered! to! buy! again! ($36M)! subject! availability! of! additional!information!and!audit!verification.!Rossi!sent!a!letter*!and!said!that!ALS!should!submit!its!final!offer!not!latter!than!June!30.!Litonjua!said!it!can’t!give!a!final!offer!before!June!30,!but!can!by!July!17.!Enriquez!said!they!would!have!to!entertain!other!bidders!for!Litonjua’s!failure!to!make!a!firm!commitment;!later,!agreed!with!a!local!group,!but!if!local! group! fails! to! comply,! open! again! to! negotiate! with! ALS.!Agreement!with!local!group!failed,!Litonjua!invited!to!bid!again,!with!new! conditions,! but! Litonjua! said! no,! he! wants! the! old! setup!because!they!already!had!a!perfected!contract.!!Held:!The!SoF!does!not!deprive!parties!of!the!right!to!contract,!but!merely!regulates!the!formalities!of!the!contract.!Non?compliance!means!the!contract!is!unenforceable!until!the!requirement!is!complied!with.!The!purpose!of!the!statute!is!to!prevent!fraud,!so!it!requires!certain!transactions!to!be!evidenced!by!a!written!note!or!memorandum.!Said!note!or!memorandum!must!be!complete!in!itself,!and!cannot!be!partly!in!writing!and!partly!in!parol!evidence.!It!must!contain!the!essential!requisites!of!a!contract.!The!exchange!of!correspondence!between!the!two!parties!(negotiation)!hardly!constitutes!the!note!contemplated.!Rossi’s!letter*!was!incomplete!because!there!was!no!price!of!shares,!and!the!paragraph!stating!that!ALS!should!submit!their!final!offer!at!a!certain!time!"!shows!an!incomplete!transaction,!meaning!no!definite!agreement.!There!was!no!contract!of!sale!because!one!of!the!essential!requisites!(price!certain)!is!absent.!Litonjua!said!the!$36M!was!a!final!bid!(as!defense),!but!his!letters!kept!saying!they!couldn’t!release!the!final!bid!by!June!30!(he!is!inconsistent).!The!$36M!was!an!offer!subject!to!conducting!an!audit;!not!an!offer,!but!if!it!was,!there!was!no!acceptance,!therefore!no!perfected!contract.!Audit!was!not!partial!performance,!but!only!showed!the!sale!was!far!from!complete.!!!!!!!!!!!

b. How%ratified%%Art.!1405.!Contracts! infringing! the!Statute!of!Frauds,! referred! to! in!No.! 2! of! Article! 1403,! are! ratified! by! the! failure! to! object! to! the!presentation! of! oral! evidence! to! prove! the! same,! or! by! the!acceptance!of!benefit!under!them.!!How!to!ratify!contracts!under!the!Statute!of!Frauds:!

1. Failure!to!object!to!the!presentation!of!oral/parole!evidence!to!prove! the! same!–! failure! amounts! to! a!waiver! and!makes! the!contract!binding!as!if!it!had!been!reduced!to!writing!

2. Acceptance!of! benefits! under! them!→!SoF! cannot! be! invoked!when!the!contract!has!been!partly!executed!

!

Case:!!CARBONNEL!V!PONCIO!Facts:!Carbonnel!alleges!that!she!purchased!from!Poncio!a!parcel!of!land! at! P9.50/sq.m! (San! Juan! del! Monte,! Rizal),! excluding! the!improvements.! She! paid! P247.26! and! assumed! Poncio’s! obligation!with! RSB,! understanding! that! the! balance! would! be! payable! upon!execution! of! deed! of! conveyance,! and! that! one! of! the! conditions!was! Poncio! would! remain! in! occupancy! for! one! year.! Poncio!allegedly! refused! to!execute! the!deed!of! sale,!and!he!has!allegedly!conveyed! the! property! to! the! Infantes.! Carbonnel! wants! to! be!declared! the!owner,! but!defendants! countered,! saying!her! claim! is!unenforceable!under!the!SoF!because!there!was!no!evidence!of!sale.!!Held:! The! SoF! is! applicable! only! to! executory! contracts,! not! to!contracts!that!are!totally!or!partially!performed.!Partial!performance!takes! such! contract! from! the! operation! of! the! SoF.! However,! if! a!contract! has! been! totally! or! partially! performed,! the! exclusion, of,parol,evidence,would,promote,fraud,or,bad,faith,!for!it!would!enable!the!defendants!to!keep!the!benefits!already!derived!by!him!from!the!transaction!in!litigation,!and!at!the!same!time,!evade!the!obligations,!responsibilities! or! liabilities.! It! is! not! enough! for! a! party! to! allege!partial! performance! to! declare! SoF! inapplicable,! but! neither! is! he!required!to!establish!it!by!documentary!proof!before!oral!testimony.!The! rejection! of! any! and! all! testimonial! evidence! on! partial!performance! would! nullify! the! rule! that! the! SoF! is! inapplicable! to!contracts!which!have!been!partly!executed!and!lead!to!the!very!evils!that! the! statute! seeks! to! prevent.! Based! on! evidence! and! other!facts,!Carbonnel!is!entitled!legally,!and!from!viewpoint!of!equity,!an!opportunity!to!introduce!parol!evidence!in!support!of!her!view.!!

c. Right% of% the% parties% when% a% contract% is%enforceable%but%a%public%document%is%necessary%for%its%registration%

!Art.! 1406.! When! a! contract! is! enforceable! under! the! Statute! of!Frauds,!and!a!public!document!is!necessary!for!its!registration!in!the!Registry! of! Deeds,! the! parties! may! avail! themselves! of! the! right!under!Article!1357.!

!

• Art! 1406! →! may! avail! of! their! rights! under! Art! 1357!(parties!may!compel!each!other!to!observe!the!necessary!form!once!the!contract!has!been!perfected)!

• For! the! application! of! Art.! 1406,! there! must! be! a! valid!agreement! and! the! agreement! must! not! infringe! the!Statue!of!Frauds!

!

!!!!


3. CONTRACTS! EXECUTED! BY! PARTIES! WHO! ARE! BOTH!

INCAPABLE!OF!GIVING!CONSENT!TO!A!CONTRACT!

!

Art.!1403,!par.!3.!Those!where!both!parties!are! incapable!of!giving!consent!to!a!contract.!

!

a. Effect%of%ratification%by%the%parents%or%guardian%of%one%of%the%parties%

%Art.!1407,!par.!1.! In!a!contract!where!both!parties!are! incapable!of!giving! consent,! express! or! implied! ratification! by! the! parent,! or!guardian,!as!the!case!may!be,!of!one!of!the!contracting!parties!shall!give! the! contract! the! same! effect! as! if! only! one! of! them! were!incapacitated.!

!• When!the!unenforceable!becomes!VOIDABLE:!Ratification!

by!the!parent!or!guardian!of!one!of!the!parties!OR!by!one!of!the!parties!after!attaining!or!regaining!capacity!(express!or!implied)!

• It! converts! the! contract! into! a! voidable! contract! at! the!option!of!the!party!who!has!NOT!ratified!

• The! non?ratifying! party!may:! enforce! the! conract! OR! ask!for!the!annulment!

!b. Effect%of%ratification%by%the%parents%or%guardian%

of%both%parties%!

Art.!1407,!par.!2.!If!ratification!is!made!by!the!parents!or!guardians,!as!the!case!may!be,!of!both!contracting!parties,!the!contract!shall!be!validated!from!the!inception.!

• When!the!unenforceable!becomes!VALID:!Ratification!by!the! parents! or! guardians! of! both! parties! OR! by! both!contracting!parties!after!attaining!or!regaining!capacity!

• It! is! validated!and! its! validity! retroacts! to! the! time! it!was!entered!into!(Art.!1396)!

C. Assailing(Unenforceable(Contracts(!Art.! 1408.! Unenforceable! contracts! cannot! be! assailed! by! third!persons.!!

• Strangers!to!a!voidable!contract!cannot!bring!an!action!to!annul!the!same,!neither!can!they!assail!a!contract!because!of!its!unenforceability!(Art.!1397)!

• The!benefit!of! the!Statute!can!only!be!claimed!or!waived!by!one!who!is!a!party!or!privy!to!the!oral!contract,!not!by!a!stranger!

• Question:!Is!a!beneficiary!of!a!stipulation!pour,autri!a!third!person!under!the!operation!of!this!provision?!o I! think! yes,! he! can,!because!he! is! removed! from! the!

ambit!of! third!persons!because!of!his! interest! in! the!contract! (by! being! a! beneficiary).! However,! why!would!he!assail!said!contract!if!the!same!is!beneficial!to!him?!

!

!

!

CHAPTER(9:(((VOID(OR(INEXISTENT(

CONTRACTS(A. Characteristics(1. VOID!FROM!THE!BEGINNING!

2. PRODUCES!NO!EFFECT!WHATSOEVER!" !NULLITY!EXIST! IPSO!

JURE,!JUDGMENT!OF!NULLITY!IS!MERELY!DECLARATORY!

3. CANNOT! BE! CONFIRMED! OR! VALIDATED! (BY! PRESCRIPTION!

OR!RATIFICATION),!NEITHER!CAN!THE!RIGHT!TO!SET!UP!THE!

DEFENSE!OF!ILLEGALITY!BE!WAIVED!ART!1409!

4. NO!ACTION!FOR!ANNULMENT!IS!NECESSARY!

5. IF! IT! HAS! BEEN! PERFORMED,! THE! RESTORATION! OF! WHAT!

HAS!BEEN!GIVEN!IS!IN!ORDER!

6. THE! ACTION! OR! DEFENSE! FOR! THE! DECLARATION! OF! ITS!

ILLEGALITY!OR!ABSOLUTE!NULLITY!CANNOT!BE!WAIVED!


ILLEGALITY!OR!ABSOLUTE!NULLITY!DOES!NOT!PRESCRIBE!


ILLEGALITY! OR! ABSOLUTE! NULLITY! IS! NOT! AVAILABLE! TO!

THIRD! PERSONS! WHOSE! INTEREST! ARE! NOT! DIRECTLY!

AFFECTED!

9. ITS! INVALIDITY! CAN! BE! QUESTIONED! BY! ANYONE! AFFECTED!

BY!IT! ACCION%REIVINDICATORIA,–!any!person!may!invoke!the!inexistence!of! the! contract! whenever! juridical! effects! founded! thereon! are!asserted!against!him!

!Action!to!Declare!Nullity!in!case!the!contract!has!been!fulfilled!

• Necessary!because!nobody!can! take! the! law! into!his!own!hands!

• If! the! void! contract! is! still! executory,! no! party! need! to!bring!an!action;!but!if!one!party!brings!action!to!enforce!it,!nullity!can!be!set!up!as!defense!

• The! judgment! will! retroact! to! the! very! day! when! the!contract!was!entered!into!

Void/inexistent! contracts! distinguished! from! other! defective!

contracts!

VOID! RESCISSIBLE!

Defect!is!inherent!in!the!contract!itself!

Defect!is!in!their!effects,!either!to!one!of!the!parties!or!to!a!3rd!party!

Matter!of!law!and!public!interest!

Based!on!equity!and!more!a!matter!of!private!interest!

No!legal!effects!even!if!no!action!is!taken!to!set!it!aside!

No!action,!remains!valid!and!produces!all!its!effects!

Action!to!declare!nullity!of!void!contracts!never!prescribes!

Action!to!rescind!prescribes!in!4!years!

VOID! UNENFORCEABLE!

Cannot!be!the!basis!of!actions!to!enforce!compliance!Can!never!be!ratified!and! Can!be!ratified!and!thereafter!

!!!!


become!enforceable! enforced!There!is!no!contract!at!all! There!is!a!contract!which,!

however,!cannot!be!enforced!unless!properly!ratified!

VOID! VOIDABLE!

One!of!those!essential!requisites!is!wanting,!either!in!fact!or!in!law!or!is!declared!void!by!statute!

Essential!requisites!for!validity!is!present,!BUT!consent!is!vitiated!

No!contract,!but!only!appearance!of!one,!produces!no!effect!even!if!not!set!aside!by!direct!action!(collateral!attack!allowed)!

Valid!until!set!aside,!validity!may!only!be!assailed!directly,!never!by!a!3rd!person!

Not!susceptible!of!ratification!! May!be!rendered!perfectly!valid!by!ratification!!

Action!to!declare!nullity!does!not!prescribe,!permanent,!even!if!the!cause!of!nullity!ceased!to!exist!!

Action!for!annulment!prescribes!in!4!years!

B. Kinds(1. CONTRACTS!THAT!ARE!VOID!

a. Those% whose% cause,% object,% or% purpose% is%contrary% to% law,%morals,% good% customs,% public%order%or%public%policy%

%Art.!1409!par!1.!Those!whose!cause,!object!or!purpose!is!contrary!to!law,!morals,!good!customs,!public!order!or!public!policy!

• The!contract!of!the!parties!must!conform!with!the!law!in!force!at!the!time!it!is!executed.!But!the!right!of!a!party!under!such!a!contract!cannot!be!affected!by!a!subsequent!law!removing!or!eliminating!such!right.!!i. When% the% act% constitutes% a% criminal%

offense%%

Art.!1411.!When!the!nullity!proceeds!from!the!illegality!of!the!cause!or!object!of!the!contract,!and!the!act!constitutes!a!criminal!offense,!both!parties!being! in,pari,delicto,! they!shall!have!no!action!against!each!other,!and!both!shall!be!prosecuted.!Moreover,!the!provisions!of! the!Penal!Code!relative!to!the!disposal!of!effects!or! instruments!of! a! crime! shall! be! applicable! to! the! things! or! the! price! of! the!contract.!! This!rule!shall!be!applicable!when!only!one!of!the!parties!is!guilty;!but!the!innocent!one!may!claim!what!he!has!given,!and!shall!not!be!bound!to!comply!with!his!promise.!!

1. BOTH!are!in,pari,delicto!!• No!action!against!each!other!!• BOTH!will!be!prosecuted!• RPC!provision!relative!to!the!disposal!of!

effects/instruments!of!a!crime!shall!apply!!2. ONLY!ONE!is!guilty!

• INNOCENT!PARTY!may!claim!what!he!has!given!!• INNOCENT!PARTY!not!bound!to!comply!with!his!

promise!!!!!

Case:!!URADA!v.!MAPALAD!

Facts:!Atty.!Manuel!Ubarra,!on!behalf!of!his!client!Juanito!Claderon,!filed!against! Judge!Luzviminda!Mapalad!for!knowingly!rendering!an!unjust! judgment,!violating! the!Canons!of! Judicial!Ethics,!and! failure!to! decide! within! the! 90! day! period.! It! was! found! out! that! in! a!criminal! case! for! grave! threats,! the! accused! (Roberto! Cruda),! was!her! brother?in?law.! Instead! of! inhibiting,! she! dismissed! the! case,!acquitting! Cruda.! She! denies! having! knowingly! rendered! an! unjust!judgment! in!favor!of!Cruda!because!she!“was!persuaded!to!dismiss!the! same! not! on! account! that! the! guilt! of! Cruda! was! not! proven!beyond!reasonable!doubt!but!by!the!reason!that!both!complainant!and! accused! therein! were! in! pari! delicto.! When! complainant! saw!accused! picking! up! the! star! apple! fruits! which! were! theirs,! he!harangued!the!accused!and!hurled!invectives!against!him.!If!accused!pelted!complainant!with!stones!and!threatened!to!kill!him,!said!acts!were!in!retaliation!to!the!unlawful!provocations!of!complainant.!!Held:!The!in!pari!delicto!doctrine!cannt!be!applied!to!criminal!cases.!Under! such! doctrine,! where! parties! to! a! controversy! are! equally!guilty,!they!shall!have!no!action!against!each!other,!and!it!shall!leave!the!parties!where! it! finds! them.!Such!rule! is!a! rule! in!civil! law!(Art.!1411! and!Art! 1412.! In! criminal! suits,! the! State! is! the! prosecutor—thus,! in! pari! delicto! rule! cannot! be! invoked! against! the! State.! The!private! party! is! but! a! complaining! witness,! and! any! criminal! act!perpetrated!by!such!cannot!be! imputed!to!the!State.!Although!R! is!not! necessarily! guilty! for! rendering! an! unjust! judgment! since! no!convincing!evidence!was!show!to!prove!that!she!rendered!it!with!a!deliberate! intent! to! commit! injustice,! she! is! found! guilty! of! gross!ignorance!of!the!law.!%

ii. When% the% act% is% unlawful% but% does% not%constitute%a%criminal%offense%

%Art.! 1412.! If! the! act! in! which! the! unlawful! or! forbidden! cause!consists! does! not! constitute! a! criminal! offense,! the! following! rules!shall!be!observed:!1.!When!the!fault!is!on!the!part!of!both!contracting!parties,!neither!may!recover!what!he!has!given!by!virtue!of!the!contract,!or!demand!the!performance!of!the!other’s!undertaking;!2.!When! only! one! of! the! contracting! parties! is! at! fault,! he! cannot!recover!what!he!has!given!by!reason!of!the!contract,!or!ask!for!the!fulfillment!of!what!has!been!promised!to!him.!The!other,!who!is!not!at! fault,!may!demand!the!return!of!what!he!has!given!without!any!obligation!to!comply!with!his!promise.!%IN%PARI%DELICTO!RULE!!

1. BOTH!parties!at!fault!• Neither!party!may!recover!what!he!has!given!by!

virtue!of!the!contract!!• Neither!party!may!demand!the!performance!of!the!

other’s!undertaking!2. ONLY!ONE!is!guilty!

• INNOCENT!PARTY!may!demand!the!return!of!what!he!has!given!without!obligation!to!comply!with!his!promise!

• PARTY!AT!FAULT!cannot!recover!what!he!has!given!by!reason!of!the!contract!!

• PARTY!AT!FAULT!cannot!ask!for!the!fulfillment!of!what!has!been!promised!to!him!

!

!!!!


# Not!applicable!to!fictitious!contracts!because!they!refer!to!contracts!with!an! illegal!cause!or!subject?matter! (criminal!offense!OR!only! illegal),!OR!to!contracts! that!are!null!and!void!ab!initio.!Fictitious!or!simulated!contracts!don’t!have!cause.!!

EXCEPTIONS,TO,THE,IN,PARI,DELICTO,RULE,

,

General!Statement!of!the!Exception!!

Art.! 1416.!When! the! agreement! is! not! illegal! per! se! but! is!merely!prohibited,! and! the! prohibition! by! the! law! is! designed! for! the!protection! of! the! plaintiff,! he! may,! if! public! policy! is! thereby!enhanced,!recover!what!he!has!paid!or!delivered.! Note:!Agreement!is!not!illegal!per,se,!but!merely!prohibited!!• Prohibition!is!designed!for!the!protection!of!the!plaintiff!!• Plaintiff!may!recover!what!he!paid!or!delivered!if!public!policy!is!

enhanced!• ILLEGAL,PER,SE!–!one!that!by!universally!recognized!standards!

is!inherently!or!by!its!very!nature!bad,!improper,!immoral!or!contrary!to!good!conscience.!!

Case:!MODINA!v.!CA!

Facts:!Ramon!Chiang!stated! that!his!wife,!Merlinda,! sold!him!three!parcels! of! land! as! evidenced! by! the! deed! of! absolute! sale.! These!lands! were! subsequently! sold! to! the! petitioner! Serafin!Modina! by!Ramon.!Merlina!executed!lease!contracts!with!private!Respondents!Hontarciego,!Figueroa,!and!Hipalla.!Modina!brought!a!Complaint!for!Recovery! of! Possession! with! Damages! against! private! Rs.! Upon!learning!the!institution!of!the!case,!Merlinda!presented!a!Complaint?in?intervention,!seeking!the!declaration!of!nullity!of!the!Deed!of!Sale!between!her!husband!and!Modina!on! the!ground! that! the! titles!of!the!parcels!of! land! in!dispute!were!never! legally! transferred!to!her!husband.!!Fraudulent!acts!were!allegedly!employed!by!him!to!obtain!a!Torrens!Title! in!his! favor.!!However,!she!confirmed!the!validity!of!the!lease!contracts!with!the!other!private!respondents.!!!Held:!The!sale!of!the!subject!lots!should!be!nullified.!!Art.! 1490.!! The!husband!and! the!wife! cannot! sell!property! to!each!other,!except:!(1)!!when!a!separation!of!property!was!agreed!upon!in!the!marriage!settlements;!or!(2)!!when!there!has!been!a!judicial!separation!of!property!under!Art.!191.!The! exception! to! the! rule! laid! down! in! Art.! 1490! of! the! New! Civil!Code! not! having! existed! with! respect! to! the! property! relations! of!Ramon!Chiang!and!Merlinda!Plana!Chiang,! the!sale!by! the! latter! in!favor!of!the!former!of!the!properties!in!question!is!invalid!for!being!prohibited!by! law.!!Not!being! the!owner!of! subject!properties,! sale!by! Ramon! Chiang! in! favor! of! SerafinModina! is,! likewise,! void! and!inexistent.! There! is! no! sufficient! evidence! establishing! fault! on! the!part! of! Merlinda,! and! therefore,! the! principle! of! in, pari, delicto! is!inapplicable! and! the! sale! was! void! for! want! of! consideration.!! In!effect,! Merlinda! can! recover! the! lots! sold! by! her! husband! to!petitioner!Modina.!!!!!!!!!!

OTHER,SPECIFIC,EXCEPTIONS,

,

i. When%the%purpose% is% illegal%and%money% is%paid%or%property%delivered%therefor%

%Art.!1414.!When!money! is!paid!or!property!delivered! for!an! illegal!purpose,! the! contract! may! be! repudiated! by! one! of! the! parties!before! the!purpose!has!been!accomplished,!or!before!any!damage!has!been!caused! to!a! third!person.! In!such!case,! the!courts!may,! if!public! interest! will! thus! be! subserved,! allow! the! party! repudiating!the!contract!to!recover!the!money!or!property.!!

• When! the! PURPOSE! is! illegal, and! money! is! paid! or!property! delivered! therefore!"! may! be! repudiated! by!one! of! the! parties! before! the! purpose! has! been!

accomplished!OR!before!any!damage!has!been!caused!to!

a!3rd!person.!%

• Courts! may! allow! the! party! repudiating! the! contract! to!recover! the!money!or! property,! if! the!public! interest!will!thus!be!subserved.%

%ii. When%the%contract%is%illegal%and%one%of%the%

parties%is%incapable%of%giving%consent%%

Art.! 1415.! Where! one! of! the! parties! to! an! illegal! contract! is!incapable!of!giving!consent,!the!courts!may,!if!the!interest!of!justice!so!demands,!allow!recovery!of!money!or!property!delivered!by!the!incapacitated!person.!%

• When!the!CONTRACT!is!illegal!and!one!of!the!parties!is!INCAPABLE!of!giving!consent!"!courts!may!allow!recovery!of!money/property!delivered!by!the!incapacitated!person,!if!interest!of!justice!so!demands.!

%Cases:!!LIGUEZ!v.!CA!(supra)!Facts:!Conchita!Liguez!filed!a!complaint!against!the!widow!and!heirs!of! the! late! Salvador! Lopez! to! recover! a! parcel! of! land! that! was!donated!to!her!by!the!latter.!As!a!defense,!the!heirs!of!Lopez!claim!that! the!donation! is!null!a!void! for!having!an! illicit!causa→that!she!would!have!sexual! relations!with!him.!At! the!time!of! the!donation,!Liguez! was! only! 16! years! old.! Said! land! originally! belonged! to! the!conjugal!partnership!of!Lopez!and!his!wife,!Maria!Ngo.!!Held:!The!CA!erred!in!applying!the!pari!delicto!rule.!It!cannot!be!said!that!both!parties!had!equal!guilt,!considering!that!she!was!only!16!at!the!time!of!the!donation.!Her!acceptance!doesn’t!necessarily! imply!knowledge!of! its! terms!and!conditions,!which!was!more!suggestive!of! seduction! that! of! immoral! bargaining.! Also,! Lopez! could! not!donate! the! entirety! of! the! property! to! the! prejudice! of! his! wife!because!it!is!conjugal!in!character!(void!only!insofar!as!it!prejudices!the!wife).!Liguez!is!only!entitled!to!so!much!of!the!donated!property!as!may!be! found!not! to! prejudice! the! share!of!Maria!Ngo! and! the!forced!heirs!of!Lopez.!!RELLOSA!v.!GAW!CHEEN!HUM!

Facts:! Dionisio! Rellosa! sold! to! Gaw! Chee! Hun! a! parcel! of! land,!together!with!the!house!erected!thereon,!situated!in!Manila!for!the!sum!of!P25,000.!A!contract!of! lease!was!entered! into!on! the! same!day! between! Rellosa! and! Chee! Hun.! Thus,! Rellosa! (the! vendor)!remained! in! possession! of! the! property.! The! vendor! instituted! the!

!!!!


present! action! in! CFI!Manila! seeking! the! annulment! of! the! sale! as!well!as!the! lease!covering!the! land!and!the!house!alleging!that:!the!sale!was!executed!subject!to!the!condition!that!the!vendee,!being!a!Chinese!citizen,!would!obtain!the!approval!of!the!Japanese!Military!Administration! in! accordance!with! (seirei)! No.! 6! issued! on! April! 2,!1943,! by! the! Japanese! authorities,! and,! that! the! approval! has! not!been! obtained! and! even! if! said! requirement! were! met,! the! sale!would! at! all! events! be! void! under! article! XIII,! section! 5,! of! our!Constitution.! Defendant! answered! the! complaint! setting! up! as!special! defense! that! the! sale! referred! to! in! the! complaint! was!absolute! and! unconditional! and! was! in! every! respect! valid! and!binding!between!the!parties.!Defendant!claims!that!plaintiff!is!guilty!of! estoppel! in! that,! by! having! executed! a! deed! of! lease! over! the!property,! he! thereby! recognized! the! title! of! defendant! to! that!property.!!Held:! The! sale! and! lease! contracts! are! not! valid.! The! Constitution!adopted! in! September! 1943! (transaction! was! entered! into! on!February! 2,! 1944),! in! its! article! VIII,! section! 5,! provides! that! "no!private! agricultural! land! shall! be! transferred! or! assigned! except! to!individuals,!corporations,!or!associations!qualified!to!acquire!or!hold!lands!of!the!public!domain!in!the!Philippines",!which!provisions!are!similar!to!those!contained!in!our!present!Constitution.!As!to!whether!the!phrase!"private!agricultural!land"!employed!in!said!Constitution!includes! residential! lands:! In! Krivenko! vs.! Register! of! Deeds,! the!court! held! that! "under! the! Constitution! aliens! may! not! acquire!private! or! public! agricultural! lands,! including! residential! lands.!Plaintiffs! cannot! recover! said! land! even! if! they! can! still! invoke! the!Constitution,!or! the!doctrine! in! the!Krivenko!Case,! to! set!aside! the!sale! in! question,! they! are! now! prevented! from! doing! so! if! their!purpose! is! to! recover! the! lands! that! they! have! voluntarily! parted!with,!because!of! their!guilty!knowledge! that!what! they!were!doing!was!in!violation!of!the!Constitution.!!

iii. When% the%agreement% is%not% illegal%per% se%but%is%prohibited%

%Art.! 1416.!When! the! agreement! is! not! illegal! per! se! but! is!merely!prohibited,! and! the! prohibition! by! the! law! is! designed! for! the!protection! of! the! plaintiff,! he! may,! if! public! policy! is! thereby!enhanced,!recover!what!he!has!paid!or!delivered.!%Cases:!PHILIPPINE!BAKING!CORP!v.!LUI!SHE!

Facts:!Justina!and!her!sister!Lorenza!were!the!owners!in!common!of!a! piece! of! land! in! Manila.! They! lived! in! one! of! the! houses,! while!Wong!Heng,!a!Chinese,!lived!with!his!family!in!the!restaurant.!Wong!had!been!a! long?time! lessee!of!a!portion!of! the!property,!having!a!monthly! rental!of!P2,620.! Justina! Santos!became! the!owner!of! the!entire!property! as!her! sister!died!with!no!other!heir.! Then!already!well! advanced! in! years,! being! at! the! time! 90! years! old,! blind,!crippled! and! an! invalid,! she!was! left!with! no! other! relative! to! live!with,! but! she! was! taken! cared! of! by! Wong.! "In! grateful!acknowledgment! of! the! personal! services! of! the! Lessee! to! her,"!Justina!executed!a! contract!of! lease! in! favor!of!Wong!covering! the!entire! property.! On! December! 21! she! executed! contract! giving!Wong!the!option!to!buy!the!leased!premises!for!P120,000.!!On! November! 18,! 1958! she! executed! two! other! contracts,! one!extending!the!term!of!the! lease!to!99!years,!and!another!fixing!the!term!of!the!option!at!50!years.!In!a!codicil!of!a!later!date!(November!4,! 1959)! she! appears! to! have! a! change!of! heart.! Claiming! that! the!various! contracts! were!made! by! her! because! of!machinations! and!inducements! practised! by! him,! she! now! directed! her! executor! to!

secure!the!annulment!of!the!contracts.!Both!parties!however,!died.!Paragraph!5!of!the!lease!contract!states!that!"The!lessee!may!at!any!time! withdraw! from! this! agreement."! It! is! claimed! that! this!stipulation!offends!article!1308!of!the!Civil!Code!which!provides!that!"the! contract! must! bind! both! contracting! parties;! its! validity! or!compliance!cannot!be!left!to!the!will!of!one!of!them."!!!Held:!Contract!of!lease!cannot!be!sustained.!If!an!alien!was!given!not!only!a!lease!of,!but!also!an!option!to!buy,!a!piece!of!land,!by!virtue!of!which! the!Filipino!owner!cannot! sell!or!otherwise!dispose!of!his!property,! this! to! last! for! 50! years,! then! it! became! clear! that! the!arrangement!was!a!virtual!transfer!of!ownership!whereby!the!owner!divested!himself!in!stages!not!only!of!the!right!to!enjoy!the!but!also!of! the! right! to!dispose!of—! rights! the! sum! total!of!which!make!up!ownership.! It! was! just! as! if! today! the! possession! is! transferred,!tomorrow,! the! use,! the! next! day,! the! disposition,! and! so! on,! until!ultimately! all! the! rights! of! which! ownership! is! made! up! are!consolidated! in! an! alien.! And! yet! this! was! just! exactly! what! the!parties! in!this!case!did!within!this!pace!of!one!year,!with!the!result!that! Justina! Santos'! ownership! of! her! property! was! reduced! to! a!hollow! concept.! If! this! can! be! done,! then! the! Constitutional! ban!against!alien!landholding!in!the!Philippines,!is!indeed!in!grave!peril!!FRENZEL!v.!CATITO!

Facts:! Petitioner! Alfred! Fritz! Frenzel! is! an! Australian! citizen! of!German!descent.!He!arrived! in!the!Philippines! in!1974!and!married!Teresita! Santos,! a! Filipino! citizen.! In! 1981,! Alfred! and! Teresita!separated! from!bed! and! board!without! obtaining! a! divorce.! Alfred!arrived! in! Sydney,! Australia! for! a! vacation.! He!met! Ederlina! Catito!there,! who!was! a! native! of! Davao! City! ! and!was!married! to! Klaus!Muller.!Alfred!proposed!marriage!to!Ederlina,!but!she!said!to!wait!a!little!longer!pending!his!divorce.!Ederlina!!put!up!a!beauty!parlor!on!the!property!under! the!business!name!Edorial!Beauty!Salon.!Alfred!paid! Atty.! Hidalgo! ! P20,000.00! for! his! right! over! the! property! and!gave! P300,000.00! to! Ederlina! for! the! purchase! of! equipment! and!furniture! for! the! parlor.! ! As! Ederlina! executed! a! special! power! of!attorney]!appointing!her!brother,!Aser!Catito,!as!her!attorney?in?fact!in!managing!the!beauty!parlor!business.!!She!stated!in!the!said!deed!that! she!was!married! to! Klaus!Muller.! ! Alfred!went! back! to! Papua!New!Guinea! to! resume!his!work!as!a!pilot.!When!he!came!back! to!the! Phil,! he! bought! her! a! new! house! for! $20k.! It! was! under! her!name,!since!foreigners!aren’t!allowed!to!own!land!in!the!Phil.!!While!Alfred! was! in! Papua! New! Guinea,! he! received! aletter! from! Klaus!Muller,! telling! him! that! Klaus! and! Ederlina! were! still! marriedHe!begged! Alfred! to! leave! Ederlina! alone! and! return! her! to! him.!Eventually,!their!relationship!turned!sour,!when!Ederlina’s!attempts!to! divorce! Klaus! failed.! Alfred! wanted! his! money! back,! saying! she!and!her!family!“stole”!all!of!it.!He!filed!with!the!RTC!for!recovery!of!his!real!and!personal!properties!in!Quezon!and!Manila.!He!also!filed!a! complaint! against! her! in! the! RTC! of! Davao,! for! specific!performance,! declaration! of! ownership! of! real! and! personal!properties,! sum!of!money,! and!damages! all! amounting! to!more!or!less!P724k.!

Held:!The!transactions!are!void!ab!initio.!Lands!of!the!public!domain,!which!include!private!lands,!may!be!transferred!or!conveyed!only!to!individuals! or! entities! qualified! to! acquire! or! hold! private! lands! or!lands! of! the! public! domain.! Aliens,! whether! individuals! or!corporations,! have! ! been! disqualified! from! acquiring! lands! of! the!

!!!!


public! domain.! Hence,! they! have! also! been! disqualified! from!acquiring! private! lands.! Said! transactions! are! in! violation! of! the!Constitution;!hence,!are!null!and!void!ab!initio—vests!no!rights!and!creates! no! obligations.! It! produces! no! legal! effect! at! all.! The!petitioner,! being! a!party! to! an! illegal! contract,! cannot! come! into! a!court! of! law!and!ask! to!have!his! illegal! objective! carried!out.! !One!who! loses! his! money! or! property! by! knowingly! engaging! in! a!contract!or!transaction!which!involves!his!own!moral!turpitude!!may!not! maintain! an! action! for! his! losses.! Art.! 1416.! When! the!agreement! is! not! illegal! per! se! but! is! merely! prohibited,! and! the!prohibition!by!the!law!is!designed!for!the!protection!of!the!plaintiff,!he!may,! if! public! policy! is! thereby! enhanced,! recover!what! he! has!paid!or!delivered.!$Plaintiff!cannot!use!this!provision.!The!provision!applies!only!to!those!contracts!which!are!merely!prohibited,!in!order!to! benefit! private! interests.! It! does! not! apply! to! contracts! void! ab!initio.!

iv. When% the% amount% paid% exceeds% the%maximum%fixed%by%law%

%Art.!1417.!When!the!price!of!any!article!or!commodity!is!determined!by!statue,!or!by!authority!of! law,!any!person!paying!any!amount! in!excess!of!the!maximum!price!allowed!may!recover!such!excess.!

• When!the!amount!paid!exceeds,the,maximum,fixed,by,law!"!any!person!paying!in!excess!of!the!maximum!price!may!recover!such!excess%%v. When% by% virtue% of% a% contract,% a% laborer%

undertakes% to% work% longer% that% the%maximum%number%of%hours%of%work% fixed%by%law%

%Art.! 1418.! When! the! law! fixes,! or! authorizes! the! fixing! of! the!maximum!number!of!hours!of! labor,!and!a!contract! is!entered! into!whereby! a! laborer! undertakes! to! work! longer! than! the! maximum!this! fixed,! he! may! demand! additional! compensation! for! service!rendered!beyond!the!time!limit.!

• When!by!virtue!of!contract!a!laborer!undertakes!to!work!longer,than,the,maximum,number,of,hours!of!work!fixed!by!law!"!worker!may!demand!additional!compensation!for!service!rendered!beyond!the!limit!

%vi. When%a% laborer%agrees% to%accept%a% lower%

wage%than%that%set%by%law%%

Art.! 1419.! When! the! law! sets,! or! authorizes! the! setting! of! a!minimum!wage!for!laborers,!and!a!contract!is!agreed!upon!by!which!a! laborer!accepts!a! lower!wage,!he!shall!be!entitled! to! recover! the!deficiency.!

• When!a!laborer!agrees!to!accept!a!lower,wage!than!that!set!by!law!"!entitled!to!recover!deficiency!

%vii. When%the%contract%is%divisible%

%

Art.!1420.! In!case!of!a!divisible!contract,! if! the! illegal! terms!can!be!separated!from!the!legal!ones,!the!latter!may!be!enforced.!

• When!the!contract!is!divisible!"!if!illegal!terms!can!be!separated!from!legal!ones,!enforce!latter!

o In!case!of!doubt,!contract!is!considered!as!divisible!or!separable.!

• EXCEPTIONS:!!!4. Nature!of!contract!requires!indivisibility!e.g.!contract!

of!compromise!!5. Intention!of!the!parties!is!that!the!contract!be!entire!

e.g.!if!what!is!void!be!the!essential!part,!void!the!entire!contract.!Divisibility!will!only!be!followed!when!the!nullity!affects!only!the!secondary!or!accessory!obligations.!!

%viii. When%the%contract%is%the%direct%result%of%a%

previous%illegal%contract%%

Art.!1422.!A!contract!which! is! the!direct! result!of!a!previous! illegal!contract,!is!also!void!and!inexistent.!

• When! the! contract! is! the! DIRECT! RESULT! of! a! previous,illegal!contract!"!also!void!and!inexistent%

!

b. Those%whose%object%is%outside%the%commerce%of%man%

%Art.! 1409! par! 4.! Those! whose! object! is! outside! the! commerce! of!man!

• e.g!Things!of!public!ownership!such!as!sidewalks,!public!places,!bridges,!streets,!etc.;!things!that!are!common!to!everybody!such!as!air,!sunlight,!rain,!etc!!

c. Those%which%contemplate%an%impossible%service%%

Art.!1409!par!5.!Those!which!contemplate!an!impossible!service!!

• The!absolute!impossibility!nullifies!the!contract.!• The!relative!impossibility,!if!temporary,!does!not!nullify!

the!contract,!such!as!when!a!partner!agrees!to!contribute!to!the!partnership!an!amount!more!than!is!permissible!by!his!means!!

d. Those% where% the% intention% of% the% parties%relative% to% the%principal% object% of% the% contract%cannot%be%ascertained%

%Art.!1409!par!6.!Those!where!the!intention!of!the!parties!relative!to!the!principal!object!of!the!contract!cannot!be!ascertained!

• The!object!of!a!contract!must!be!determinate!as!to!its!kind!or!at!least!determinable!without!the!necessity!of!a!new!or!further!agreement!between!the!parties.!It!need!not!be!specified!with!absolute!certainty.!

!!!!!!!

!!!!


e. Those%expressly%prohibited%or%declared%void%by%law%

%Art.!1409!par!7.Those!expressly!prohibited!or!declared!void!by!law!

• Where!the!illegality!of!the!contract!proceeds!from!an!express!prohibition!or!declaration!by!law,!and!not!from!any!intrinsic!illegality,!the!contract!is!not!illegal!per,se!

• Examples:!1. Contracts!upon!future!inheritance!except!in!cases!

expressly!authorized!by!law.!(Art.!1347.)!2. Sale!of!property!between!husband!and!wife!except!

when!there!is!a!separation!of!property.!(Art.!1490.)!3. Purchase!of!property!by!persons!who!are!specially!

disqualified!by!law!(like!guardians,!agents,!executors,!administrators,!public!officers!and!employees,!judges,!lawyers,!etc.)!because!of!their!position!or!relation!with!the!person!or!property!under!their!care.!(Art.!1491.)!

!2. CONTRACTS!THAT!ARE!INEXISTENT!

a. Those% which% are% absolutely% simulated% or%fictitious%

%Art.!1409!par!2.!Those!which!are!absolutely!simulated!or!fictitious!

• e.g.!A!contract!of!sale!is!void!where!the!price,!which!appears!thereon!as!paid,!has!in!fact!never!been!paid.!!

Art.!1345.!Simulation!of!a!contract!may!be!absolute!or!relative.!The!former! takes!place!when! the!parties!do!not! intend! to!be!bound!at!all;!the!latter!when!the!parties!conceal!their!true!agreement.!!Art.! 1346.!An! absolutely! simulated! or! fictitious! contract! is! void.! A!relative!simulation,!when!it!does!not!prejudice!a!third!person!and!is!not!intended!for!any!purpose!contrary!to!law,!morals,!good!customs,!public! order! or! public! policy! binds! the! parties! to! their! real!agreement.!%

b. Those% whose% cause% or% object% did% not% exist% at%the%time%of%the%transaction%

%Art.! 1409! par! 3.! Those!whose! cause! or! object! did! not! exist! at! the!time!of!the!transaction!

• The!phrase!“did!not!exist!at!the!time!of!the!transaction”!does!not!apply!to!a!future!thing!which!may!legally!be!the!object!of!a!contract.!

C. Right(to(set(up(defense(of( illegality(cannot(be(waived(

!Art.!1409!last!paragraph.!These!contracts!cannot!be!ratified.!Neither!can!the!right!to!set!up!the!defense!of!illegality!be!waived.!

(!!!

D. The( action( or( defense( for( the( declaration( of(the(inexistence(of(a(contract(

!1.!DOES!NOT!PRESCRIBE!

!Art.! 1410.! The! action! or! defense! for! the! declaration! of! the!inexistence!of!a!contract!does!not!prescribe.!

!• Does!not!prescribe,!defect!is!permanent!and!incurable!• Validity!cannot!be!given!to!it!by!estoppel!if!it!is!prohibited!

by!law!or!is!against!public!policy!• There!is!no!need!of!an!action!to!set!aside!a!void!contract.!

However,!an!action!to!declare!its!non?existence!can!be!maintained;!and!in!the!same!action,!the!plaintiff!may!recover!what!he!has!given!by!virtue!of!the!contract!

• The!power!to!ask!for!such!declaration!cannot!be!assigned!!

2.!IS!NOT!AVAILABLE!TO!THIRD!PERSONS!WHOSE!INTEREST!IS!NOT!

DIRECTLY!AFFECTED!

!

Art.! 1421.! The! defense! of! illegality! of! contracts! is! not! available! to!third!persons!whose!interests!are!not!directly!affected.!

!• Ratification!may!take!the!form!of!a!new!contract,!in!which!

case! its! validity! shall! be! determined! only! by! the!circumstances! at! the! time! of! the! execution! of! the! new!contract.! However,! the! same! does! not! retroact! to! the!constitution!of!the!first!contract.!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

!!!!


!

TITLE%III:%%%NATURAL%OBLIGATIONS%

A. Definition(!

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!and!natural! law,!do!not!grant!a!right!of!action!to!enforce!their!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.!

!

• Natural! obligations! are! not! cognizable! by! the! courts! unless!there!has!been!voluntary!fulfillment!in!which!case,!the!court!may! order! the! retention! of! what! has! been! paid! (Ansay! v.!Board!of!Directors!of!the!National!Dev.!Co.)!

• Midway! between! civil! and! the! purely! moral! obligation.!“Obligation! without! a! sanction,”! susceptible! of! voluntary!performance,!but!not!through!compulsion!by!legal!means.!!

• Real! obligation! which! law! denies! action,! but! which! the!debtor!may!perform!voluntarily.!!

• Patrimonial!and!presupposes!a!prestation.!!!

B. Four(Types(of(Obligations(in(Juridical(Science(!1. Moral! obligations! –! duties! of! conscience! completely!

outside!the!field!of!law!2. Natural!obligations!–!duties!not!sanctioned!by!any!action!

but!have!a!relative!judicial!effect!3. Civil! obligations! –! juridical! obligations! that! are! in!

conformity!with! positive! law! but! are! contrary! to! juridical!principles! and! susceptible! of! being! annulled;! enforceable!by!action!

4. Mixed! obligations! –! full! juridical! effect;! falls! under! civil!obligations!

C. Requisites(!1. Juridical!tie!between!two!persons.!!2. Tie!is!not!given!effect!by!law!but!instead!by!the!conscience,

of,man!

D. As(Distinguished(from(Civil(Obligations(!

! NATURAL! CIVIL!

As!to!enforceability!! Not!by!court!actions,!but! by! good!conscience!of!debtor!

Court! action! or! the!coercive! power! of!public!authority!

As!to!basis! Equity! and! natural!justice!

Positive! law! (law,!contracts,! quasi?contracts,!delicts,!and!quasi?delicts)!

(

E. As(Distinguished(by(Moral(Obligations(!

NATURAL! PURELY!MORAL!

There!is!a!juridical!tie! There!is!no!juridical!tie!Performance! by! the! debtor! is! a!legal!fulfillment!of!the!obligation!

Act!is!purely!liberality!

A! true! obligation!with! a! legal! tie!between!debtor!and!creditor!

Matter! is! entirely! within! the!domain!of!morals!

!VILLAROEL!v.!ESTRADA!

Facts:! Alejandra! Callao! obtained! loan! payable! after! 7! years,! from!Estrada!spouses!in!1912.!Jose!Villaroel!(son!of!Callao,!the!latter!now!deceased)! executed! a! document! in! 1930! recognizing! the! previous!debt.!Estrada!filed!for!collection!against!Villaroel!

!Held:! The! present! action! is! not! based! on! the! original! obligation!which!has!prescribed!but!on!the!new!one!wherein!Villaroel!assumed!the!obligation.!The!rule!that!a!new!promise!to!pay!a!prescribed!debt!may!only!be!done!by!the!same!person!or!another!legally!authorized!by! her! only! applicable! when! the! new! would! be! debtor! did! not!assume!the!debt!voluntarily.!

!FISHER!v.!ROBB!

Facts:! AO! Fisher! filled! a! stock! subscription! to! the! Philippine!Greyhound!Club!and!paid!2!installments.!Phil.!Greyhound!Club!failed!and! John! Robb! established! the! Phil.! Racing! Club! and! acquired! the!assets!of!the!Greyhound!Club!to!save!investments.!Robb!sent!letters!to! Fisher! saying! that! he! felt! morally! responsible! for! the! loss! and!would! see! to! it! that! the!2nd! installment!will! be! repaid!even! if! it! is!out! of! his! own!pocket.! Fisher! filed! for! collection! of! the! amount! of!the!installment!

!Held:! There! was! no! contract! formed! between! Robb! and! Fisher! as!there!was!no!proof!that!Fisher!accepted!Robb’s!offer.!There!was!no!consideration!to!be!given!by!Fisher!as!well.!The!obligation!is!purely!moral!and!thus!not!demandable.!

F. Conversion(to(Civil(Obligation(!

GENERAL! RULE:! Partial! payment! of! a! natural! obligation! does! not!make!it!civil;!the!part!paid!cannot!be!recovered!but!the!payment!of!the! balance! cannot! be! enforced.! "! applicable! only! to! natural!obligation!because!of!prescription!or! lack!of!formalities!(nullity!due!to! form! e.g.! Art! 1430)! and! NOT! to! natural! obligation! subject! to!ratification!or!confirmation.!!

• Payment! by! mistake! is! not! voluntary! and! may! be!recovered.! Payment! is! voluntary! when! the! debtor! knew!that! the! obligation! is! a! natural! one.! One! who! pays! a!natural!obligation,!believing!it!to!be!civil,!does!not!thereby!recognize! the! natural! obligation;! and! there! being! no! civil!obligation! either,! he! can! recover! what! he! has! paid.! The!debtor!however!has!the!burden!of!proving!the!mistake.!!

!1. By!novation!2. By!confirmation!or!ratification!!!!

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G. Examples(!Art.!1424.!When!a!right!to!sue!upon!a!civil!obligation!has!lapsed!by!extinctive! prescription,! the! obligor! who! voluntarily! performs! the!contract! cannot! recover!what!he!has!delivered!or! the! value!of! the!service!he!has!rendered.!!Art.! 1425.!When!without! the! knowledge! or! against! the!will! of! the!debtor,! a! third! person! pays! a! debt!which! the! obligor! is! not! legally!bound! to! pay! because! the! action! thereon! has! prescribed,! but! the!debtor! later! voluntarily! reimburses! the! third! person,! the! obligor!cannot!recover!what!he!has!paid.!!Art.!1426.!When!a!minor!between!eighteen!and!twenty?one!years!of!age! who! has! entered! into! a! contract! without! the! consent! of! the!parent!or!guardian,!after! the!annulment!of! the!contract!voluntarily!returns! the!whole! thing!or!price!received,!notwithstanding!the! fact!the!he!has!not!been!benefited!thereby,!there!is!no!right!to!demand!the!thing!or!price!thus!returned.!!Art.!1427.!When!a!minor!between!eighteen!and!twenty?one!years!of!age,! who! has! entered! into! a! contract! without! the! consent! of! the!parent! or! guardian,! voluntarily! pays! a! sum! of!money! or! delivers! a!fungible!thing!in!fulfillment!of!the!obligation,!there!shall!be!no!right!to!recover!the!same!from!the!obligee!who!has!spent!or!consumed!it!in!good!faith.!!Art.! 1428.! When,! after! an! action! to! enforce! a! civil! obligation! has!failed!the!defendant!voluntarily!performs!the!obligation,!he!cannot!demand!the!return!of!what!he!has!delivered!or!the!payment!of!the!value!of!the!service!he!has!rendered.!!Art.!1429.!When!a!testate!or!intestate!heir!voluntarily!pays!a!debt!of!the!decedent!exceeding!the!value!of!the!property!which!he!received!by!will!or!by! the! law!of! intestacy! from!the!estate!of! the!deceased,!the!payment!is!valid!and!cannot!be!rescinded!by!the!payer.!!Art.! 1430.!When! a! will! is! declared! void! because! it! has! not! been!executed! in! accordance! with! the! formalities! required! by! law,! but!one!of! the! intestate!heirs,!after! the!settlement!of! the!debts!of! the!deceased,!pays!a!legacy!in!compliance!with!a!clause!in!the!defective!will,!the!payment!is!effective!and!irrevocable.!

!Note:! In! Art.! 1427,! it! is! not! the! voluntary! payment! that! prevents!recovery,!but!the!consumption!or!spending!of!the!thing!or!money!in!good!faith.!!• This! article! creates! an! exception! to! the! rule! of! mutual!

restitution.! ! ?! ! ! Minor! would! have! been! required! to! return!whatever!he!received!upon!annulment!of!contract.!!

• Good!faith:!belief!that!debtor!has!capacity!to!deliver!the!object!of!contract!

• Fungible!thing:!consumable!!• Non?consummable:! debtor! cannot! recover! if! no! longer! in! the!

possession! of! the! creditor,! because! the! right! to! recover!presupposes!existence!of!thing.!!!!!!!!!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

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TITLE%IV:%%%ESTOPPEL%

A. Definition(!Concept!

!

Art.! 1431.! Through! estoppel,! an! admission! or! representation! is!

rendered! conclusive! upon! the! person! making! it,! and! cannot! be!denied!or!disproved!as!against!the!person!relying!thereon.!

• It!is!a!bar which!precludes!a!person!from!denying!or!asserting!

anything! to! the! contrary! of! that! which! in! has,! in!

contemplation! of! law,! been! established! as! the! truth,! either!by!the!acts!of!judicial!or!legislative!officers!or!by!his!own!deed!or!representation,!either!express!or!implied.

• Its!origin!is!in!equity!and!is!therefore!based!on!moral!right!and!natural!justice!(principle!of!equity,!not!principle!of!law).!

• It!is!only!of!suppletory!application;!it!cannot!supplant!positive!law.!

• Sir!Labitag:!It!is!not!a!cause!of!action.!It!can!never!be!used!as!a!sword!or!a!spear,!it!can!only!be!used!as!a!shield.!D’you!get!it?!

!APPLICABILITY!OF!ESTOPPEL!

• Estoppel!will!only!be!available!in!a!defense!of!a!legal!or!equitable!right!or!claim,!made!in!good!faith!AND!can!never!be!asserted!to!uphold! crime,! fraud,! injustice! or! wrong! of! any! character;! it! is!applied! against! wrongdoers! and! not! against! the! victim! of! a!

wrong.!

• Estoppel! will! not! lie! against! the! government,! acting! in! its!capacity! as! a! sovereign! or! when! it! asserts! its! rights! as! the!government;! it! is! not! estopped! by! the! mistakes,! errors,!

negligence!or!omission!on!the!part!of!its!officials!or!agents.!• It! is! based! on! equity! and! hence,! cannot! be! predicated! on! an!

illegal!act.!

o Labor! provides! a! more! common! example!"! For! example,!employees!who!received!their!separation!pay!are!not!barred!from!contesting!the!legality!of!their!dismissal!nor!would!it!be!considered! as! a! waiver! of! their! right! to! apply! for!reinstatement.!

• There!is!estoppel!when!a!party!who!has!the!right!to!pursue!one!of!the!several,!inconsistent!alternative!remedies!available!to!him!(ex.! specific! performance! and! rescission),! chooses! one,! files! a!suit! and!prosecutes! the! same!until! final! judgement;! he! cannot,!later!on,!pursue!the!alternative!remedies!he!did!not!choose.!

• Criminal!actions!for!public!offenses!cannot!be!waived!or!barred!by!estoppel.!

• One! who! claims! the! benefit! of! an! estoppel! on! the! ground! of!being!misled!by! the!other!party’s!misrepresentation!should!not!have! misled! by! his! own! want! of! reasonable! care.! Good! faith!requires!that!due!diligence!has!been!observed.!Estoppel!is!not!a!shield!against!one’s!own!negligence.!

!!!!

ESTOPPEL!DISTINGUISHED!

!EQUITABLE!ESTOPPEL!VS.!WAIVER!

!AS!TO! (EQUITABLE)!ESTOPPEL! WAIVER!

Voluntariness!of!Abandonment!

of!Rights!

May!arise!without!intention!by!the!party!

to!relinquish!any!existing!right!

!

Is!a!voluntary!and!intentional!

abandonment!of!a!known!right!

Being!misled!to!one’s!prejudice!

It!is!one!of!the!essential!elements!of!an!

equitable!estoppel.!

There!is!no!implication!that!the!party!who!is!

waiving!a!right!has!been!misled!to!his!own!

prejudice.!Number!of!parties!

Equitable!estoppel!involves!the!conduct!of!

both!parties!

Waiver!only!involves!the!conduct!of!the!party!

waiving!a!right.!Implication!of!

Fraud!Implication!is!present!

frequently!Never!

!

EQUITABLE!ESTOPPEL!VS.!RATIFICATION!

!AS!TO! (EQUITABLE)!

ESTOPPEL!

RATIFICATION!

Substance/Essence! Inducement!towards!another!to!act!to!his!

prejudice!

Confirmation!after!conduct!

Reason!for!being!bound!

Bound,!regardless!of!intention,!because!the!other!will!be!

prejudiced!unless!the!law!treats!him!as!legally!bound!

Bound!because!he!intended!to!be!

Reliance!on!Prejudice!

Is!applied!when!the!other!party!will!be!unjustly!prejudiced!

Does!not!rest!upon!the!presence!of!

prejudice!!KALALO!v.!LUZ!

Facts:! Kalalo!was! a! civil! engineer!while! Luz!was! an! architect.! Their!respective! firms! entered! into! an! agreement! where! Kalalo’s!engineering!firm!was!contracted!by!Luz’s!architectural!firm!to!render!engineering!services.!Later!on,!Kalalo!sent!a!letter!stating!that!there!was! still! a! balance! of! P59,565;! however,! in! a! separate! letter,! Luz!disputes! this! and! claims! the! amount! is! only! at! P10,861,! which! he!tried!to!pay!to!Kalalo!but!was!not!accepted.!Kalalo!then!filed!a!suit!in!which! he! added! a! claim! for! a! separate! $28,000! on! top! of! the!P59,565!due!him.!The!court!ruled! in!favor!of!Kalalo.!Luz!contended!that! the! $28,000! should! not! have! been! granted! since! the! letter!Kalalo! sent! (the! one! with! the! value! of! P59k)! estopped! him! from!making!other!claims.!!Held:!Estoppel!did!not!arise.!The!court! identified! that! the!estoppel!Luz!was! claiming!was! estoppel! in! pais.! Kalalo! did! not!meet! the! 1st!(counduct! amounting! to! false! representation)! and! 2nd! (intent! to!induce!other!party)!requisites!and!so!estoppel!did!not!arise!because,!as! the! court! notes,! the! letter! was! made! with! a! mistaken!interpretation.!

!!!!


B. Kinds(1. TECHNICAL!ESTOPPEL!

!1. Estoppel%by%Record%!

ESTOPPEL!BY!RECORD! is! the!preclusion!to!deny!the!truth!of! matters! set! forth! in! a! record,! whether! judicial! or!legislative,! and! also! a! preclusion! to! deny! the! facts!adjudicated!by!a!court!of!competent!jurisdiction.!• An! example! would! be! the! conclusiveness! of!

judgement! (in! effect,! an! estoppel! by, judgement)! to!the!parties!of!a!case.!

!2. Estoppel%by%Deed%!

ESTOPPEL!BY!DEED!is!a!bar!which!precludes!one!party!to!a!deed! and! his! privies! from! asserting! as! against! the! other!party!and!his!privies!any!right!or!title!in!derogation!of!the!deed! or! from! denying! the! truth! of! any! material! facts!asserted!in!it.!• A! void! deed,! however,! cannot! be! a! basis! of! this!

estoppel.!• This! concept! promotes! the! policy! of! making! formal!

documents!final!and!conclusive!of!their!contents.!

2. EQUITABLE!ESTOPPEL/ESTOPPEL!IN!PAIS!

!CONCEPT!

!

EQUITABLE!ESTOPPEL!or!ESTOPPEL!IN%PAIS!is!a!bar!that!arises!when!a! party,! by! his! acts,! representations,! or! admissions,! or! by! his!silence!when!he!ought!to!speak!out,!or!by!his!acceptance!of!benefits!derived!from!a!certain!transaction,!intentionally!or!through!culpable!negligence,! induces! another! party! to! believe! certain! facts! to! exist!and!such!other!party! rightfully! relies!and!acts! on! such!belief,! as!a!consequence!of!which! the! latter! party!would!be!prejudiced! if! the!former! party! is! permitted! to! deny! the! existence! of! the! facts! the!latter!party!had!relied!and!acted!on.!

!TECHNICAL!V.!EQUITABLE!ESTOPPEL!

!AS!TO! TECHNICAL!ESTOPPEL! EQUITABLE!ESTOPPEL!

Source! From!records!or!deeds! From!the!conduct!of!parties!

Existence!of!Rules!!

Regulated!by!well?settled!rules!and!admits!certain!applications!

No!universal!rules;!depends!on!the!

particular!circumstances!of!the!

case!!ELEMENTS!

1. As%to%the%party%sought%to%be%estopped!• Conduct! amounting! to! false! representation! or!

concealment! of! material! facts,! or! at! least! calculated! to!convey! the! impression! that! the! facts! are! otherwise! than!and!inconsistent!with,!those!which!the!party!subsequently!attempts!to!assert!

• Intent,! or! at! least! expectation! that! this! conduct! shall! be!acted!upon!by!or!at!least!influence,!the!other!party!

• Knowledge,!actual!or!constructive,!of!the!real!facts!!

2. As%to%the%party%claiming%the%estoppel!• Lack!of! knowledge!or!of! the!means! of! knowledge!of! the!

truth!as!to!the!facts!in!question!• Reliance,!in!good!faith,!upon!the!conduct!or!statements!of!

the!party!to!be!estopped!• Action!or! inaction!based! thereon!of! such!character!as! to!

change! the! position! or! status! of! the! party! claiming! the!estoppel,!to!his!injury,!detriment!or!prejudice!

!KINDS!

1. Positive%Estoppel%in%pais!!

a. Estoppel!by!Representation/Misrepresentation!!!

Art.! 1437.! When! in! a! contract! between! third! persons! concerning!immovable!property,!one!of!them!is!misled!by!a!person!with!respect!to! the! ownership! or! real! right! over! the! real! estate,! the! latter! is!precluded!from!asserting!his! legal!title!or!interest!therein,!provided!all!these!requisites!are!present:!!(1)! There! must! be! fraudulent! representation! or! wrongful!concealment!of!facts!known!to!the!party!estopped;!!(2)!The!party!precluded!must!intend!that!the!other!should!act!upon!the!facts!as!misrepresented;!!(3)!The!party!misled!must!have!been!unaware!of!the!true!facts;!and!!(4)! The! party! defrauded! must! have! acted! in! accordance! with! the!misrepresentation.

!o Ex.! X,! owner,! of! a! parcel! of! land,! and! Y! made! it!

appear! in!a!document!that!Y! is! the!real!owner.!Y!or!his! successors?in?interest! cannot! afterwards! assert!ownership!over!the! land,!as! it!cannot!be!said!that!Y!was!misled!by!the!false!representation!being!a!party!to!the!same.!!X!would!have!been!estopped!from!claiming!any!right!over! the! property! had! it! been! sold! by! Y! to! Z,! a!purchaser!in!good!faith.!!

b. Estoppel!by!Acceptance!of!Benefits!!Art.! 1438.! One! who! has! allowed! another! to! assume! apparent!ownership! of! personal! property! for! the! purpose! of! making! any!transfer!of!it,!cannot,!if!he!received!the!sum!for!which!a!pledge!has!been! constituted,! set! up! his! own! title! to! defeat! the! pledge! of! the!property,!made!by!the!other!to!a!pledgee!who!received!the!same!in!good!faith!and!for!value.!

!o When! no! fraud,! either! actual! or! constructive,! is!

involved,! the! effects! produced! by! estoppel, by,

acceptance, of, benefits, are! similar! to! the! effects!produced!by!ratification.!!!!!!!!

!!!!


c. Promissory!Estoppel!o A! party! is! not! allowed! to! repudiate! what! he! has!

promised!after!the!other!party!has!complied!with!the!former’s!conditions!in!relation!to!the!promise!made.!

o An! estoppel! arises! from! this! situation,! even! though!the!promise!was!made!without!consideration,! if! the!party! making! the! promise! was! intending! for! the!party!to!rely,!and,!in!fact,!was!relied!on.!

o The! party! making! the! promise! in! such! a! case! is!estopped!because! to! let! him! repudiate! the!promise!he! made! to! other! party! is! to! sanction! fraud,! and!injustice.!

o The!following!are!essential!requisites! that!gives!rise!to!promissory!estoppel:!! That! there! is! a! promise! that! is! reasonably!

expected!to!induce!action!or!forbearance!! That! such!promise!did,! in! fact,! induce! action!or!

forbearance!! That! the! party! who! executed! the! action! or!

forbearance!suffered!detriment!as!a!result!!

2. Negative%Estoppel%in%pais!a. Estoppel!by!Laches,

,

• Embodied!in!the!maxim!that!“if!one!maintains!silence!when! in! conscience! he! ought! to! speak,! equity! will!debar! him! from! speaking! when! in! conscience! he!ought!to!remain!silent.!He!who!remains!silent!when!

he! ought! to! speak! cannot! be! heard! to! speak!when!

he!should!be!silent.”!• Public! policy! requires! for! the! peace! of! society,!

discouragement! of! stale! claims! and! laches,! unlike!statute!of! limitations,! is!not!a!mere!question!of!time!but!principally!a!question!of!inequity!or!unfairness!of!permitting!a!right!or!claim!to!be!enforced!or!asserted.!

• Also!referred!to!as!“estoppel!by!standing!by.”!• Mere!silence!or! inaction! is!not!enough! for! laches,to!

attach;!there!must!be!some!element!of!turptitude!or!

negligence! connected! with! such! silence! or! inaction,!by!which!the!other!party!is!misled!to!his!injury.!

• Also,!for!laches!to!attach,!it!must!be!shown!that!there!is!a!right,!that!there!was!an!opportunity!to!speak!and!in!addition,!an!obligation!or!duty!to!do!so.!

• Laches! extends! to! one’s! heirs! since! they! stand! in!privity!with!him.!!

Elements:!1. Conduct! on! the! part! of! the! defendant,! or! of! one!

under!whom!he!claims,!giving!rise!to!the!situation!of!which!complaint!is!made!

2. Delay! in! asserting! the! complainant’s! right,! the!complainant! having! had! knowledge! or! notice! of! the!defendant’s! conduct! and! having! been! afforded! an!opportunity! to! sue;! actual! knowledge! of! the!commission! of! the! adverse! act! is! not! necessary,! it!being! enough! that! such! knowledge!may! be! imputed!to! the! complainant! because! of! circumstances! of!which!he!was!cognizant!

3. Lack! of! knowledge! or! notice! on! the! part! of! the!defendant! that! the! complainant! would! assert! the!right!on!which!he!bases!his!suit!

4. Injury! or! prejudice! to! the! defendant! in! the! event!relief! is! accorded! to! the! complainant,! or! the! suit! is!not!held!to!be!barred.!

ESTOPPEL%BY%LACHES,%DISTINGUISHED%FROM%PRESCRIPTION%AS!TO! LACHES! PRESCRIPTION!

Determining!factor! Not!merely!lapse!but!the!effect!of!

unreasonable!delay!

Lapse!of!time!only!

Focus! The!question!of!inequity!in!

permitting!the!a!stale!right!or!claim!to!be!enforced!

Deals!with!the!matter!of!time!

Source! Is!not!statutory!and!is!applied!based!on!the!principal!of!

equity!

Prescription!is!statutory!and!applies!

through!law!

Fixed!Time! Laches!does!not!require!fixed!time!to!attach;!there!is!no!

fixed!time!

Prescription!is!based!on!fixed!time!

!

C. Persons(Bound(by(Estoppel*!

Art!1439 Estoppel!is!effective!only!as!between!the!parties!thereto!or!their!successors!in!interest!!

• An!estoppel!must!bind!both!parties!or!neither!is!bound.!• If! a! private! corporation! intentionally! or! negligently! clothes!

its! officers! or! agents!with! apparent! power! to! perform! acts!for! it,! the! corporation! will! be! estopped! to! deny! that! such!apparent!authority!is!real!as!to!third!persons!

!Case:!!MANILA!LODGE!NO!761!BENEVOLENT!AND!PROTECTIVE!ORDER!OF!

ELKS!v.!CA!

Facts:!Manila!Lodge!had!acquired!from!the!City!of!Manila,!through!a!sale,!a!piece!of!land.!The!City!of!Manila!later!on!is!now!questioning!the!validity!of!the!sale,!contending!that!to!begin!with,!the!land!sold!was!of!public!domain!and!could!not!have!been!sold.!Manila!Lodge!as!a! defense! claims! that! the! City! of!Manila! should! be! estopped! from!questioning!the!validity!of!the!sale.!!Held:! Government! cannot! be! estopped! by! its! own! actions! and!estoppel!will!also!not! lie! to!validate!contracts!made!by!a!municipal!corporation!when!it!is!against!law!or!public!policy.!

D. Cases(Where(Estoppel(Applies*!

Art! 1434!When! a! person!who! is! not! the! owner! of! a! thing! sells! or!alienates!and!delivers!it,!and!later!the!seller!or!grantor!acquires!title!thereto,! such! title! passes! by! operation! of! law! to! the! buyer! or!grantee.!

!• The! seller! cannot! later! on! claim,! as! a! defense,! that! he!was!

not!the!proper!owner!during!the!time!the!sale!was!made.!He!is!bound!by!estoppel.!

!!!!!!

!!!!


Art!1435!If!a!person!in!representation!of!another!sells!or!alienates!a!thing,!the!former!cannot!subsequently!set!up!his!own!title!as!against!the!buyer!or!grantee. !

• The!phrase!“person!in!representation!of!another”!refers!to!a!party’s! agent! or! representative.! Such! agents! or!representatives! cannot!question! the! validity!of! the! transfer!and! claim! title! to! the! thing! sold! or! alienated! against! the!buyer!or!grantee.!!

Art!1436!A!lessee!or!a!bailee!is!estopped!from!asserting!title!to!the!thing!leased!or!received,!as!against!the!lessor!or!bailor.!!

• An!example!of!the!application!of!this!article!is!that!a!tenant!cannot!dispute!his!landlord’s!title.!

• Note:! Read! Estoppel, by, Representation/Misrepresentation,

(Art!1437),and!Estoppel,by,Acceptance,(Art!1438),!discussed!earlier,!for!other!cases!where!estoppel!applies.!

!Cases:!!MIGUEL!v.!CATALINO!

Facts:! Appellants! were! contending! the! validity! of! a! sale! of! their!deceased!father’s!piece!of!land,!pointing!out!that!there!was!no!deed!of!sale.!However,! this!action!was! instituted!34!years!after! the!time!of!the!sale.!!Held:!Laches!have!already!attached!since!the!court!noted!that!all!the!requisites!are!present.!Appellants!knew!that!the!sale!was! invalid! in!the!first!place!and!did!not!have!to!wait!34!years!to!institute!the!civil!action.!!Annotation,!32!SCRA!542!

The! prescription! of! action! for! reconveyance! based! on! implied! or!constructive! trust! is! now! a! settled! question! in! our! jurisdiction.!Correspondingly,! where! implied! trust! is! present,! the! action! to!recover!the!property!prescribes!after!the!lapse!of!10!years!unless!a!fiduciary!relation!exists!and!the!trustee!recognizes!the!trust.!

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Title%V:%%TRUSTS%%

A. Defintion(!Trust! is! the! legal! relationship! between! one! person! having! an!EQUITABLE! OWNERSHIP! in! property! and! another! person! OWNING!THE! LEGAL! TITLE! to! such!property,! the! equitable! ownership! of! the!former! entitling! him! to! the! performance! of! certain! duties! and! the!exercise!of!certain!powers!by!the!latter.!!

!Characteristic!of!Trust!!1. It!is!a!relationship!!2. A!relationship!of!fiduciary!character!3. A!relationship!with!respect!to!property,!not!one!involving!

merely!personal!duties!4. It!involves!the!existence!of!equitahble!duties!imposed!upon!the!

holder!of!the!title!to!the!property!to!deal!with!it!for!the!benefit!of!another!

5. It!arises!as!a!result!of!a!manifestation!of!intention!to!create!the!relationship!!

B. Governing(Rules(!

Art.!1442.!Principles!of!the!general!law!of!trusts!are!transplanted!to!the!Philippine!soil.!

!General!Rule!of!Trusts:!

The!trusts!known!to!American!and!English!equity! jurisprudence!are!derived! from! judei, commissa, of! the! Roman! law! and! are! based!entirely!upon!Civil!Law!principles.!!

C. Parties((!

Art.! 1440.! A! person! who! establishes! a! trust! is! called! the! trustor;!one! in! whom! confidence! is! reposed! as! regards! property! for! the!benefit!of!another!person!is!known!as!the!trustee;!and!the!person!for!whose!benefit! the! trust!has!been!created! is! referred! to!as! the!beneficiary.!

!1. TRUSTOR!–!Establishes!a!trust!2. TRUSTEE!–!One!in!whom!confidence!is!reposed!as!regards!

property!for!the!benefit!of!another!person!!3. BENEFICIARY! OR! CESTUI! QUE! TRUST! –! Person! for!

whose!benefit!the!trust!has!been!created!!!

• Liability!of!trustee!who!violates!trust!is!personal.!The!action!(nature!of!a!general!demand!for!damages)!can!be!maintained!by!cestui,que,trust!or!persons!claiming!under!him!or!by!creator!of!the!trust!only!against!the!trustee.!!

• Cestui!que!trust:!Not!always!necessary!that!should!be!named,!or!even!be!in!existence!at!the!time!the!trust!is!created!in!his!favor.!,

,

,

D. Kinds((!

Art! 1441.! Trusts! are! either! express! or! implied.! Express! trusts! are!created! by! the! intention! of! the! trustor! or! of! the! parties.! Implied!trusts!come!into!being!by!operation!of!law.!

!• Merger! releases! the! guarantor! because! they! are! merely!

accessory!obligations!• Guarantor!acquires! the!credit,!his!obligation!as!guarantor!

is!extinguished,!but!the!principal!obligation!subsists!which!he! can! enforce! against! the! debtor! and! other! co?guarantors.!!

• When! mortgaged! property! belongs! to! a! third! person,!mortgagee! acquires! a! part! of! the! property,! the! same! is!released! from! the! encumbrance.! The! obligation! merely!becomes!a!partly!(if!the!acquisition!is!not!total)!unsecured!obligation.!

!Case:!!SALAO!v.!SALAO!

Facts:!The!plaintiffs,!all!relatives!of!the!defendants,!instituted!action!for!a!piece!of! land! in!Bataan,!alleging! it! came! from!common! funds!and!that!there!was!an!oral!partition!made!earlier.They!alleged!that!the!defendants,!who!became!administrators!of!property!in!Malabon!inherited! from! their! grandparents,! used! common! funds! to! buy!property!elsewhere.!!

!Held:!It!was!not!proven!that!a!trust!had!been!created!because!there!was! no! documentary! evidence!was! presented! to! prove! an! express!trust,!and!Art.!1443!says!parol!evidence!cannot!be!used!to!prove!an!express!trust!concerning!realty.!The!evidence!also!did!not!prove!an!implied! trust.! While! an! implied! trust! may! be! proven! by! oral!evidence,!it!must!be!Trustworthy.!It!also!was!not!proven!that!there!was!fraud!or!mistake!that!was!grave!enough!to!create!a!constructive!trust. !1. EXPRESS! TRUSTS! [! created! by! the! direct! and! positive! acts! of!

the! parties,! by! some! writing! or! deed! or! will! or! by! words!evidencing!an!intention!to!create!a!trust.!!a. Proof%Required%%

!

Art.! 1443.! No! express! trusts! concerning! an! immovable! or! any!interest!therein!may!be!proved!by!parol!evidence.!!

!

Requisites!of!Express!Trust.(If!any!are!missing,!it!is!fatal!to!the!trust)!1. Competent!trustor!2. Trustee!!3. ascertainable!trust!res,4. sufficiently!certain!beneficiaries!!

!• When! it! concerns! an! immovable! or! an! interest! therein?

writing!is!necessary!to!prove!it.!!o Writing!not!required!for!validity!of!trust,!only!for!

purposes!of!proof.!!• When! the! property! subject! to! express! trust! is! not! real!

estate! or! an! interest! therein,! it! may! be! proved! by! any!competent!evidence,!including!parol!evidence.!!

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b. Form%%!

Art.!1444.!No!particular!words!are! required! for! the!creation!of!an!express!trust,!it!being!sufficient!that!!trust!is!clearly!intended.!!

!• No!particular! form!of!words!or!conduct! is!necessary! for! the!

manifestation!of!intention!to!create!a!trust.!!!

c. Want%of%trustee%%

Art.!1445.!No!trust!shall!fail!because!the!trustee!appointed!declines!the! designation,! unless! the! contrary! should! appear! in! the!instrument!constituting!the!trust.!!

%• The!reason!why!a!trust!does!not!fail!for!want!of!a!trustee!is!

that!to!permit! it! to!fail! for!this!reason!would!be!contrary!to!the!intention!of!the!trustor!in!creating!the!trust.!!

!d. Acceptance%by%the%beneficiary%

%

Art.! 1441.!Trusts! are! either! express! or! implied.! Express! trusts! are!created!by!the!inention!of!the!trustor!or!the!parties.!Implied!trusts!come!into!being!by!operation!of!law.!!

!2. IMPLIED!TRUSTS!!

a. How%established%(Article%1441;%see%above)%b. How%proved%

!

Art.!1457.!An!implied!trust!may!be!proved!by!oral!evidence.!!

!c. Examples%%

!

Art.!1448.!There!is!an!implied!trust!when!property!is!sold,!and!the!legal!estate!is!granted!to!one!party!but!the!price!is!paid!by!another!for! the! purpose! of! having! the! beneficial! interest! of! the! property.!The! former! is! the! trustee,! while! the! latter! is! the! beneficiary.!However,! if! the! person! to! whom! the! title! is! conveyed! is! a! child,!legitimate!or!illegitimate,!of!the!one!paying!the!price!of!the!sale,!no!trust!is!implied!by!law,!it!being!disputably!presumed!that!there!is!a!gift!in!favor!of!the!child.!!!

Art.!1449.!There!is!also!an!implied!trust!when!a!donation!is!made!to!a!person!but!it!appears!that!although!the!legal!estate!is!transmitted!to!the!done,!he!nevertheless!is!either!to!have!no!beneficial!interest!or!only!a!part!thereof.!!!

Art.!1450.!If!the!price!of!a!sale!of!property!is!loaned!or!paid!by!one!person! for! the!benefit! of! another! and! the! conveyance! is!made! to!the! lender! or! payor! to! secure! the! payment! of! the! debt,! a! trust!arises! by! operation! of! law! in! favor! of! the! person! to! whom! the!money!is!loaned!or!for!whom!it!is!paid.!The!latter!may!redeem!the!property!and!compel!a!conveyance!thereof!to!him.!!

!!

Art.! 1451.!When! land!passes! by! succession! to! any! person! and!he!causes! the! legal! title! to! be! put! in! the! name!of! another,! a! trust! is!established!by!implication!of!law!for!the!benefit!of!the!true!owner.!!!

Art.!1452.! If!two!or!more!persons!agree!to!purchase!property!and!by! common!consent! the! legal! title! is! taken! in! the!name!of!one!of!them!for!the!benefit!of!all,!a!trust!is!created!by!force!of!law!in!favor!of!the!others!in!proportion!to!the!interest!of!each.!!!Art.!1453.!When!property!is!conveyed!to!a!person!in!reliance!upon!his!declared!intention!to!hold!it!for,!or!transfer!it!to!another!or!the!grantor,! there! is! an! implied! trust! in! favor! of! the! person! whose!benefit!is!contemplated.!!

!Art.!1454.! If!an!absolute!conveyance!of!property! is!made! in!order!to!secure!the!performance!of!an!obligation!of!the!grantor!towards!the!grantee,!a!trust!by!virtue!of!law!is!established.!!

!Art.! 1455.!When! any! trustee,! guardian! or! other! person! holding! a!fiduciary!relationship!uses!trust!funds!for!the!purchase!of!property!and!causes!the!conveyance!to!be!made!to!him!or!to!a!third!person,!a!trust! is!established!by!operation!of! law!in!favor!of!the!person!to!whom!the!funds!belong.!!

!Art.! 1456.! If! property! is! acquired! through! mistake! or! fraud,! the!person!obtaining! it! is,! by! force!of! law,! considered! a! trustee!of! an!implied!trust!for!the!benefit!of!the!person!from!whom!the!property!comes.!!

!Cases:!FABIAN!v.!FABIAN!

Facts:!January!1909:!Pablo!Fabian!bought!lot!164!of!the!Friar!Lands!Estate! in!Muntinlupa! from! the! government.! He! died! on! August! 2,!1928.!He!was! survived! by! 4! children:! Esperanza,! Benita! I,! Benita! II!and!Silbina.!November!14,!1928:!Director!of!Lands!sold!lot!to!Silbina!and! Teodora! (deceased’s! niece),! who! cultivated! the! land.! 1960:!plaintifs! filed! action! of! reconveyance! against! SIlbina! and! Teodora!who! allegedly! acquired! the! land! through! fraud.! Spanish! document!was!wrongly!translated!into!saying!that!Silbina!was!he!only!daughter!of!the!deceased.!Defendants!claimed!that!Pablo!Fabian!was!not!the!owner!of!the!land.!!!Held:!Pablo!was! the!owner.!Sale!was!goverened!by! the!Friar! Lands!Act.! In! constructive! trusts,! latches! constitute! a! bar! to! actions! to!enforce! the! trust,! and! repudiation! is!not! required!unless! there! is!a!concealment! of! the! facts! giving! rise! to! the! trust.! An! Action! for!reconveyance!of!real!property!based!upon!a!constructive!or!implied!trust,! resulting! from! fraud! may! be! barred! by! the! statute! of!limitations,! and! the!action!may!be! filed!within! four! years! from! the!discovery!of!fraud.!Complaint!dismissing!the!complaint!is!affirmed.!!!!!!!!!!!!!!

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BUENO!v.!REYES!

Facts:! Francisco! Reyes! claimed! Lot!No.! 2357! to! be! his! and! his! two!brothers! Juan!and!Mateo! in! January!1936.!23!years! later,!plaintiffs!filed!an!action!of!reconveyance!saying!the!lot!did!not!belong!to!the!Reyes!brothers.!Land!originally!owned!by!Jorge!Bueno,!whose!three!children! inherited! it! when! he! died.! The! plaintiffs! in! this! case! are!Bueno’s! grandchildren! and! son! Rufino! who! claim! that! the! land! is!theirs.!!!Held:! What! was! designed! to! be! an! express! trust! was! for! the! late!Francisco!H.!Reyes!to!file!an!answer!in!the!cadastral!proceeding!and!to!obtain! title! to! the!and! for!and! in!behalf!of!all! the!heirs!of! Jorge!Bueno.! Such! express! trust! failed! to! materialize.! Upon! the! general!proposition! that! an! act! for! reconveyance! such! as! the! present! is!subject! to! prescription! in! ten! years! the! appellees! and! the! court! a!quo! are! correct.! The! question! is! from! what! time! should! the!prescriptive!period!be!counted,! in!the!light!of!the!allegations!in!the!complaint?!Order!appealed!form!is!set!aside!and!case!remanded!for!further!proceedings.!!!TAMAYO!v.!CALLEJO!

Facts:! Spouses! Vicente! Tamay! and! Cirila! Velasco! Tamayo! owned!!parcel!of!land!in!the!barrio!of!Oalsic!or!Gualsic.!Prior!to!Feb!1,!1912,!spouses!sold!the!northern!portion!to!Fernando!Domantay,!who!took!possession!of!the!land.!Vicente!died!after!the!sale!but!prior!to!Feb!1.!His! children! were! declared! sole! heirs! of! the! deceased! on! Feb! 1.!Aurelio!Callejo!took!possession!of!said!land.!Domantoy!sold!the!land!he! had! taken! possession! of! to! his! brother,!who! later! on! sold! it! to!Proceso! Estacio! for! the! purpose! of! creating! a! subdivision! plan.!Callejo! did! not! allow! the! latter! on! the! premises! and! diled! for!reconveyance!and!damages.!!

!Held:!Where!an! implied!trust!was!created! in! favor!of!Domantoy!by!the!erroneous!inclusion!in!the!Tamayo!brothers’!certificate!of!title!of!the! parcel! of! land! formerly! sold! by! their! parents! to! DOmantoy,!which! was! recognized! Tamayo! recognized! such! sale,! such! express!recognition!had!the!effect!of!imparting!the!aforementioned!trust!the!nature! of! an! express! trust! which! is! not! subject! to! the! statute! of!limitations!until!repudiated.!Case!remanded!to!the!court!of!origin.!!

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karichi amended b2017

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