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[ C 2011 ] [ UP COLLEGE OF LAW ] OBLIGATIONS & CONTRACTS (Disini) TITLE I. OBLIGATIONS CHAPTER I. GENERAL PROVISIONS I. Concept A. Definition- Article 1156 (CC) Art. 1156. An obligation is a juridical necessity to give, to do or not to do. Sanchez-Roman Definiton: An obligation is the creation of a juridical relation, created by virtue of certain facts, between two or more persons, whereby one of them, known as the creditor or obligee, may demand of the other, known as the debtor or obligor, a definite prestation. Criticism of Definition According to J.B.L. Reyes, this definition is incomplete. It is one-sided because it views obligations only from the side of the debts. It is imperfect because it only applies to all kinds of legal duty. There is no debt without a credit, and the credit is an asset in the patrimony of the creditor just as the debt is a liability of the obligor. “Also, the new code separates responsibility from other elements of the obligation and only establishes its existence way near the end, in article 2236.” (Tolentino) Finally, this definition only applies to civil obligations, not natural obligations. (See C. Distinction Between Natural and Civil Obligations) A More Complete Definition: A juridical relation whereby a person (called the creditor) may demand from another (called the debtor) the observance of a determinate conduct (or behaviour) and in case of non- observance, may obtain satisfaction from the assets of the latter. B. Elements of an Obligation 1. Active Subject a. Also known as the obligee, or creditor. He possesses a right or credit. b. He has the right to demand an object. c. Reyes-Puno: A person endowed with the optional power to demand the observance of a certain behaviour (activity) by another, and if necessary, coerce such behaviour, directly or indirectly 2. Passive Subject a. Also known as the obligor, or debtor b. He has the duty of giving, doing or not doing. c. The debt is the duty to give, to do or not do d. Reyes-Puno: A person Simoun Antonio Montelibano Salinas - 2002-24124 1

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[ C 2011 ] [ UP COLLEGE OF LAW ]OBLIGATIONS &

CONTRACTS (Disini)

TITLE I. OBLIGATIONS

CHAPTER I. GENERAL PROVISIONS

I. Concept

A. Definition- Article 1156 (CC)

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

Sanchez-Roman Definiton:An obligation is the creation of a juridical relation, created by virtue of certain facts, between two or more persons, whereby one of them, known as the creditor or obligee, may demand of the other, known as the debtor or obligor, a definite prestation.

Criticism of Definition According to J.B.L. Reyes, this definition is incomplete. It is one-sided because it views obligations only from the side of the debts. It is imperfect because it only applies to all kinds of legal duty.

There is no debt without a credit, and the credit is an asset in the patrimony of the creditor just as the debt is a liability of the obligor.

“Also, the new code separates responsibility from other elements of the obligation and only establishes its existence way near the end, in article 2236.” (Tolentino)

Finally, this definition only applies to civil obligations, not natural obligations. (See C. Distinction Between Natural and Civil Obligations)

A More Complete Definition:

A juridical relation whereby a person (called the creditor) may demand from another (called the debtor) the observance of a determinate conduct (or behaviour) and in case of non-observance, may obtain satisfaction from the assets of the latter.

B. Elements of an Obligation

1. Active Subjecta. Also known as the obligee,

or creditor. He possesses a right or credit.

b. He has the right to demand an object.

c. Reyes-Puno: A person endowed with the optional power to demand the observance of a certain behaviour (activity) by another, and if necessary, coerce such behaviour, directly or indirectly

2. Passive Subject a. Also known as the

obligor, or debtorb. He has the duty of

giving, doing or not doing.c. The debt is the duty to

give, to do or not do d. Reyes-Puno: A person

who must behave (act or not act) in a determined way for the satisfaction of the creditor’s private interest.

3. Prestation or Object The object of an obligation is the prestation (the conduct, to give, to do or not to do) that the debtor should observe. The obligation represents a restraint on the liberty of another, but a restraint limited in its extent. The object of an obligation is always a prestation. It must be possible, determinate and have a pecuniary value.

4. Efficient Cause/Vinculum/Juridical Tie

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[ C 2011 ] [ UP COLLEGE OF LAW ]a. The efficient cause or

vinculum is the reason why the obligation exists.

b. The juridical/legal tie or sanction allows the party who is prejudiced by the debtor’s refusal to observe the requisite conduct, to resort to the State authorities for a remedy.

c. It is a relation established by law, by bilateral acts

(contracts giving rise to obligations, stipulations) or unilateral acts (crimes and quasi-delicts) (See II. Sources of Obligations)

C. Distinction Between Natural and Civil Obligations

1) As to enforceability:

Civil Obligations: Those which give a rise to a right of action. They can be enforced by court action.

Natural Obligations: Those which cannot be enforced by legal action, but which are binding on the party who makes them in conscience and according to equity and natural justice. They are enumerated in Articles 1423-1430 of the Civil Code. They depend exclusively on the good conscience of the debtor.

2) As to basis:

Civil Obligations: Civil obligations derive their binding force from positive law.

Natural Obligations: Natural obligations derive their binding effect from equity and natural justice.

II. Sources of Obligations

Article 1157 (CC)

Obligations arise from:

(1) Law; (2) Contracts; (3) Quasi-contracts; (4) Acts or omissions punished by law; and (5) Quasi-delicts.

A. Law (Art. 1158)

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.

-Reyes-Puno: It does not require concurrence of any act of the creditor or debtor, nor is the obligation necessarily in accord with their intention. It is an involuntary source of obligations. (obligation to support or pay taxes)

B. Contracts (Art. 1159, 1305)

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

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

-Reyes-Puno: Contracts are characterized by a previous accord of wills or intention. This determines the nature and extent of the resulting obligation, within legal limits.

C. Quasi-Contracts (Art. 1160, 2142)

Art. 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII, of this Book. (n)

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.

-In quasi-contracts, no previous agreement exists between the parties. It is created by the voluntary and lawful act of one

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[ C 2011 ] [ UP COLLEGE OF LAW ]party, who usually becomes the creditor. -Obligations arising from quasi-contracts are designed to avoid unjust enrichment, and have the character of reimbursements.

Kinds

a. Negostiorum gestio 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.

In the first case, the provisions of Articles 1317, 1403, No. 1, and 1404 regarding unauthorized contracts shall govern.

In the second case, the rules on agency in Title X of this Book shall be applicable.

b. Solutio Indebiti 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.

c. Other kinds of Quasi-Contracts

Enumerated in Articles 2164-2175 of the CC

D. Acts or Omissions Punishable by Law (Delicts)

Art. 1161. Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the provisions of Article 2177, and of the pertinent provisions of Chapter 2, Preliminary Title, on Human Relations, and of Title XVIII of this Book, regulating damages.

-These consist in voluntary but punishable acts, including criminal negligence, under criminal law. The creditor is the offended party.

E. Acts or Omissions Punishable by Law (Delicts)

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. (1093a)

-These are voluntary but negligent acts that are not punishable under criminal law. The same negligent act may give rise to an action based on delict or on quasi-delict, but the party is free to choose his remedy. (Art. 2177, 32, 33, 34.)

BARREDO vs. GARCIA & ALMARIO

FACTS: Petitioner is the sole proprietor of the Malate Taxi Cab driven by Pedro Fonatilla, who figured in a head on collision with a carratela driven by Pedro Dimapiling. This resulted in the death of one of the carratela’s passengers, 16 year old Faustino Garcia. Garcia’s parents filed a case before the CFI of Manila against Barredo, who employed Fontanila. Fontanilla had already been caught several times in violation of the Automobile Law. Petitioner maintains that, since it was Fontanilla’s negligence that led to the the death of Garcia, petitioner’s liability was governed by the RPC, and was therefore subsidiary to Fontanilla’s. However, Garcia’s parents, as maintained by the CA, held that Barredo was liable under Art. 1903 of the old Civil Code, which states that employees, owners or directors are equally liable for damages caused by their employees. No civil case was filed against Fontanilla.

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[ C 2011 ] [ UP COLLEGE OF LAW ]ISSUE: WON Barredo may be charged as the person liable for the negligence of his employee. YES.

RATIO: Culpa aquiliana or quasi-delicts anchor the responsibility of employers, under Article 1903 of the old Civil Code. There is a distinction between civil liability arising from criminal negligence (governed by Article 100 and 103 of the RPC) and responsibility under Art. 1902-1910 of the old Civil Code. The employers are primarily and directly responsible under Article 1903. Quasi-delicts are a more expedient way of seeking redress than seeking damages only by virtue of the civil responsibility arising from a criminal action.

MENDOZA vs ARRIETA (Judge of CFI

Mla), TIMBOL & SALAZAR

FACTS: Petitioner assails the decision of the CFI of Manila, dismissing his complaints against jeepney driver Salazar, and truck owner Timbol, seeking indemnification for damages sustained by his Mercedes Benz. Petitioner, prior to filing the case, actively participated in the criminal prosecution against Salazar, which was dismissed by the CFI of Bulacan. Truck driver Montoya was found guilty of damages to Salazar. No damages were granted to Mendoza, since he was not a complainant against Montoya, but against Salazar. Petitioner’s cause of action was based on quasi-delict, which was a negligent act causing damages creating a civil liability arising from a crime. ISSUES:

1) WON petitioner had a cause of action against Timbol. YES.

2) WON petitioner had a cause of action against Salazar. NO.

RATIO: 1) Article 31 of the Civil Code states that when the civil action is based on an obligation not arising from the act or omission complained of as a felony, such a civil action may proceed independently of the criminal proceedings and regardless of the result of the latter.

A civil action under quasi-delict may proceed independently of criminal proceedings for criminal negligence, and may prosper regardless of the result.

2) The trial court ruled that the collision between Salazar and Mendoza’s vehicles

was a result of the truck hitting Salazar’s jeep in the rear. It is believed that Salazar cannot be held liable for damages sustained by Mendoza’s car. Petitioner Mendoza based his cause of action against Salazar on culpa criminal (under Article 100 of the RPC) and not under culpa aquiliana (Article 2177 of the CC).

PSBA vs. CA, BAUTISTA & BAUTISTA

FACTS: PSBA student Carlitos Bautista was stabbed by assailants who were not students of the said school) on August 30, 1985. His parents filed a case for damages in the RTC of Manila. Then-respondent (now petitioner) PSBA and its officials asked that the case be dismissed on the grounds that since they were presumably sued under Article 2180 of the Civil Code, no cause of action exists since jurisprudence showed that academic institutions such as PSBA, are beyond the ambit of the rule. The RTC denied them twice, as did respondent CA. The CA ruled that Article 2180 should apply to all institutions of learning. Also, the school must prove they observed diligence in order to prevent damages.

ISSUE:

1) WON petition of PSBA was rightfully dismissed by the CA. YES2) WON CA’s ruling was founded on appropriate legal premises. NO.

RATIO:

1) Article 2180 establishes the rule of in loco parentiis, which states that damage caused or inflicted by pupils or students of an education institution were liabilities of said institution while in its custody. Remember, Carlito’s assailants were not from PSBA.

2) Upon enrolment of Carlitos to PSBA, a contract existed between them, resulting in bilateral obligations. This includes an implicit obligation by the school to provide their student with an atmosphere of learning and safety.The rule on quasi-delicts does not apply. The trial court proceedings must continue in order to determine that there was a breach of contract between the school and Bautista.

AMADORA vs CA, COLEGIO DE SAN JOSE RECOLETOS

FACTS: Student Alfredo Amadora was shot by his classmate Pablito Daffon, resulting in his death. Both were students of respondent school Amadora came to school to submit a

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[ C 2011 ] [ UP COLLEGE OF LAW ]requirement for his physics class. Amadora’s parents, the petitioners in this case, were able to win in its case with the CFI of Cebu. The school’s rector, principal, dean of boys, and physics teacher were ordered to indemnify the parents, granting them damages. The CA reversed the decision, on the basis that Article 2180 of the CC was not applicable since the school was not a school of arts and trade, but an academic institution of learning. Also, the school claimed the said students were not in the custody of the school since the semester had already ended. They also claimed that they exercised necessary diligence in preventing the injury. Petitioners contend that Amadora was in school to submit a physics experiment, and thus was under their care.

ISSUE: WON CA was correct in dismissing the petition of Amadora. YES.

RATIO: The rector, principal and dean of boys were not liable because none of them was the teacher-in-charge, who was the one considered liable under Article 2180. The school itself cannot be held liable; only the “teacher-in-charge” or head of the school would be liable. The dean of boys would have been liable, but the evidence regarding the gun does not link him to the shooting.

AIR FRANCE vs CARRACOSO

FACTS: Petitioner issued a ticket for a “first class” seat to private respondent. From Manila to Bangkok, plaintiff travelled in first class, but in Bangkok, the manager of plaintiff airline forced private respondent to abandon his seat because a “white man” had a “better right” to the seat. In the course of a fracas or commotion, respondent reluctantly gave up his seat. Petitioner asserts that the first class ticket given to respondent did not represent their complete and full intent/agreement, since the respondent knew that he did not have continued reservation s for first class on any specific flight. To them, it was no guarantee that he would be accommodated in the first class compartment. Said ticket was supposedly subject to confirmation in Hong Kong. This was held by petitioner, despite the ‘written evidence’ and the exhibits presented by private respondent, confirming the payment and receipt of said ticket. Respondent court affirmed the CFI’s award of damages to private respondent, on the basis of private respondent, suffering

inconvenience, humiliation, and embarrassment, mental anguish and other conditions which resulted in moral damages. Petitioner claims that since respondent claimed action on the basis of breach of contract, authorizing such an award would need to show averment of fraud or bad faith. Petitioner claims respondent Court of Appeals’ ruling did not show a finding of bad faith.

ISSUE: WON CA failed to show bad faith in breach of contract between respondent and petitioner. NO.

RATIO: Petitioner entered into a contract with respondent, wherein respondent was entitled to a first class seat on their air carriage. Granted, there is no mention of bad faith in the ruling of the CA. But the inference of bad faith is to be drawn from the facts and circumstances presented. Said bad faith was to be drawn based on evidence, which petitioner did not object to.

Liability from tort may exist even if there is a contract, for that act breaks the contract and may also be a tort.

III. Classification of Obligations

A. Primary Classification Under the Civil Code

Peculiarities of Prestation

Pure and Conditional (Arts. 1179-1192)

Pure Obligations

Art. 1179. Every obligation whose performance does not depend upon a future or uncertain event, or upon a

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[ C 2011 ] [ UP COLLEGE OF LAW ]past event unknown to the parties, is demandable at once.

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

– Not subject to a condition or period; demandable at creditor’s will

-When said obligation contains no term or condition upon which depends the fulfilment of the obligation contracted by the debtor

-It is immediately demandable

-No exemptions as to its compliance

-Cancellation by both parties, by mutual agreement of period originally given or non-fulfillment of a condition resolves the period stipulated; the obligation is now considered pure

-A demand note, for instance, in absence of other restrictions, is a pure obligation

Conditional Obligations

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

-Its demandability or extinction depends upon a future and uncertain event

-The time of the event may be uncertain, but it must happen

-The condition imposed by the will of the parties must not be a necessary legal requisite of the act

Types of Conditions

-Suspensive – gives rise to an obligation

-Resolutory – extinguishes already existing rights

With a period or term (Arts. 1193-1198)

Art. 1193. Obligations for 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. (1125a)

-When some space of time suspends the demandability or produces the extinction of the obligation

Prestations to be Rendered

Alternative and Facultative (Arts. 1199-1206)

Alternative Obligations – Where only one of several prestations due has to be fulfilled

Facultative Obligations – Where one prestation is due but may be substituted with another by the debtor at the latter’s discretion

According to Number of Sureties/Parties

Joint and Solidary (Arts. 1207-1222)

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[ C 2011 ] [ UP COLLEGE OF LAW ]Joint (“mancommunada”) – One in which each of the debtors is liable only for a proportionate part of the credit

Solidary (“joint and several”) – When each party is liable for the entire obligation, and each creditor is entitled to demand the whole obligation. Each creditor enforces the whole obligation

Qualities of the Object

Divisible and Indivisible (Arts. 1223-1225)

Divisible – when it may be partially performed, or susceptible of partial performance; debtor can legally perform the obligation by parts and the creditor cannot demand a single performance of the entire obligation

Indivisible – when it cannot be validly performed in parts, or is not susceptible of partial performance. Divisibility of the obligation is not the same as divisibility of the thing.

With a penal clause (Arts. 1226-1230)

Penal Clause – an accessory undertaking (dependent upon some other obligation to exist) to assume greater liability in case of breach

-Generally, it is a sum of money, but can be any other thing stipulated by parties, including an action or abstention

B. Secondary Classification

1. Legal (Art. 1158 ) Conventional (Art, 1159)Penal (Art. 1161)

2. Real - to givePersonal - to do or not to do

3. Determinate - certain,

distinguishable and specific in terms of character and quantity. It is individualized or distinguished from others of its kind. Ex: a white pony to be delivered to my house at 8 AMGeneric - indeterminate in terms of specific quantity, characteristics or quality; may be substituted for an object that has similar qualities or

quantity. It is indicated only by its kind. Ex: money, a horse

4. Positive (to give, to do)

a. Action for Substituted Performance

b. Damages (Equivalent Performance)

c. If improperly executed, may be decreed that what was poorly done be undone

Negative (not to give, not to do)a. No specific or substituted

Performance b. If obligor does what is forbidden

him, it shall be undone at his expense

5. Unilateral - Where the obligation involves one creditor and one debtorBilateral - Where each party is the creditor of a prestation and promises another in return; also known as reciprocal obligations. Both obligations arise from the same source.

6. Single – Unipersonal or individualCollective – Joint or solidary

7. Principal – The obligation can stand alone

Accessory – Depends on some other obligation in order to exist.

8. As to object or prestation:Simple - one prestationMultiple – several prestationsConjunctive – all prestations are due and demandableAlternative – when only one of several prestations due has to be performedFacultative – one prestation is due, but may be substituted by the debtor at the latter’s discretion

9. Possible – by law or natureImpossible – cannot be performed,

CHAPTER 2: NATURE & EFFECTS OF OBLIGATIONS

I. Kinds of Prestations

A. Obligation to give

1. A specific or determinate object or thing

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A. Duties of the obligor

i. To deliver thing itself

Art. 1244. The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value as, or more valuable than that which is due.

In obligations to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the obligee's will.

-Upon agreement or consent of the creditor, the debtor may deliver a different thing or perform a different prestation in lieu of that stipulated.

ii. To preserve the 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.

-The diligence required is that of a good father of a family. This is the legal standard or model of diligence. The diligence must be determined based on considering all concurrent circumstances.

iii. To deliver the accessions and accessories

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

-Accessories - things which are made or ‘destined’ for the use, preservation of embellishment of another thing of greater importance. They have for their object the completion of the latter for which they are indispensable or convenient. (Examples include machinery in a

factory, or keys with respect to a house)

-Accessions – include everything produced by a thing or which is incorporated or attached theret, either naturally or artificially.

-Even when accessories and accessions have been separated temporarily, they must still be delivered.

iv. To deliver the fruits

Art.1164. The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him.

-The creditor is entitled to the fruits from the time the obligation to deliver it comes.

-Delivery constitutes a necessary and indispensable requisite for purposes of acquiring the ownership of the same by virtue of a contract.

2. 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 the obligation and other circumstances shall be taken into consideration.

-Delivery of an indeterminate or generic thing, whose quality and circumstances have notbeen stated, the creditor cannot demand a thing of superior quality, nor can the debtor deliver a thing of inferior quality.

-The purpose of the obligation and attendant circumstances must have been taken into consideration in delivering and deciding on the generic thing.

-In times of disagreement, the court decides whether the

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[ C 2011 ] [ UP COLLEGE OF LAW ]quality of the thing complies with the obligation itself.

B. Obligation to do C. Obligation 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.

II. Breach of Obligation

A. Concept

-A non-justifiable non-performance of a pre-existing obligation, or the failure to perform it in the manner that is required by the obligation, which causes injury to the other party

SONG FO vs HAWAIIAN PHILIPPINE CO.

FACTS: Appellant and defendant Hawaiian Philippine Co appealed a decision by the CFI of Iloilo, which obliged them to pay P35, 317.93 to plaintiff Song Fo. According to the defendant, plaintiff company defaulted in the payment of molasses that was delivered to them. The appellant defendant Hawaiian Phil. Co was compelled to cancel and rescind their contracts. Both plaintiff and defendant agreed upon the time of payment and the date, and the defendant said that Song Fo’s failure to pay the said amount upon presentation of bills for each delivery constituted sufficient grounds to rescind the contract agreed upon.ISSUE: WON Hawaiian Philippine Co had a right to rescind the contract, based on the breach of contract committed by Song Fo. NO.RATIO: The general rule is that rescission or termination of a contract will not be permitted for a slight or causal breach of contract. Only breaches which 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 some 20 days is not a violation of an essential condition of the contract as to warrant rescission for non-performance. Not only this, but the defendant Hawaiian Phil Co. waived the condition when it arose by accepting the payment of the overdue account and continuing with the contract.

VELARDE vs. CA, RAYMUNDO & RAYMUNDO

FACTS: Private petitioner Avelina Velarde and private respondent David A. Raymundo entered into a deed of sale with assumption of mortgage for a parcel of land and a house in Makati. Petitioner delivered P800,000 to respondent and vendee was also tasked an contractually obliged to pay the mortgage obligations on the property amounting to P1.8 M. The plaintiff-petitioners then applied for the assumption of the mortgage obligations on the property. Their application was denied by BPI, and they then stopped paying the loan. Respondents informed plaintiffs that their failure to pay the interest of the loan constituted non-performance of their obligation. The plaintiff-petitioners then told respondents that that they would resume payment of the interest of the loan provided that the property was delivered to Avelina Velarde not later than January 15, 1987, and the release of the title and mortgage from BPI to make the title free from all liens and encumbrances, as well as the execution of a deed of absolute sale in favour of Avelina. The defendants then sent plaintiffs a notarial notice cancelling or rescinding the intended sale of the property. Petitioners filed a complaint with the RTC of Makati, where the case was initially dismissed. A motion for reconsideration was filed, which ruled in favour of the petitioners. The CA then overturned the decision, resulting in its dismissal and this case before the court.ISSUE: WON CA erred in dismissing the complaint of the petitioners, on the basis of the non-payment of the mortgage obligation of the petitioners, upholding the rescission of the contract. NO.RATIO: The failure of the petitioners to fulfil the P1.8 M obligation constituted a substantial breach of contract that would justify rescission on the part of the defendant. They stoopped paying both the mortgage obligations and the remaining balance of the purchase price. The conditions imposed by petitioner were not mutually approved and cannot be enforced. There was a justifiable rescission the said contract by Raymundo, since they violated the need for reciprocity in the contract of sales.

ANGELES vs. CALASANZ

FACTS: Plaintiffs-appellees and defendants-appellants entered into a contract to sell a piece of land located in Rizal for the amount of P3, 920 plus 7% interest per annum. The plaintiffs-appellees paid in monthly instalments and defendants-appellants told plaintiffs-appellants to remit past due

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[ C 2011 ] [ UP COLLEGE OF LAW ]accounts. On January 28, 1967, defendants-appellants Calasanz cancelled the contract on the basis of failure of Angeles to secure payment. Plaintiff-appellant Angeles filed a case with the CFI of Rizal on the basis that they had discovered they already paid P4, 533.38, including all surcharges and expenses. The lower court ruled in favour of plaintiffs. The CA then brought the case for decision before the SC.ISSUE: WON the contract was validly cancelled by the defendant-appellants Calasanz. NO.RATIO: Defendant appellant received the delayed payment of plaintiffs-appellees on several occasions. They have then waived and are now estopped from exercising their alleged right to rescind the contract. Article 1234 of the Civil Code also says that if an obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete compliance and fulfilment.

DELTA MOTOR CORP vs. GENUINO & CA

FACTS: Petitioner entered into a contract of sale with private respondents. Genuino agreed to enter into the contract, and made the first two payments, for initial fulfilment of the two contracts. Delta did not deliver the iron pipes. Genuino did not make subsequent payments, and did not execute the promissory notes, due to trouble in forming the ice plant which was the reason they entered into the contract with Delta. The condition was that delivery for the stipulation of payment were ‘ex-stock subject to prior sales’. For Delta, the price offer indicated was within 30 days from the date thereof. 3 years after approving the contract, Genuino asked for the delivery of the iron pipes, but Delta said they would not be able to sell the pipes at the same prices from 3 years ago. The Genuinos then filed a case against the company with the CFI of Rizal, which ruled in favour of Delta. The CA reversed the decision, citing Delta’s failure to include a deadline in the contract, and the unjust enrichment of the company. Delta claims that the Genuinos’ failure to make the payments constituted a substantial breach of contract, which allowed them, under article 1191 of the CC, to rescind the contract.ISSUE: WON Genuino’s actions constituted a substantial breach of contract. NO.RATIO: The power to rescind is not absolute. The act of a party in treating a contract as cancelled or resolved must be made known to the other, and is always provisional, being subject to scrutiny and review. In the contract, Genuinos approved

the price within the 30 day period. They were subject to ‘prior sales’, hence the company cannot change the price. Delta should have indicated a deadline, knowing the condition of the ice plant of the Genuinos.

VELMEN REALTY DEV’T CO. vs CA & SENECA

FACTS: Petitioner entered into a contract denominated as an offsetting agreement with respondent Seneca Corp. The respondent corporation desired to buy two condominium units from petitioner, while petitioner bought construction materials from the said corporation. The respondent made a payment and delivered construction materials, and petitioner paid as well. In 1982, petitioner repossessed one of the condominium units, claiming respondent had failed to complete the balance. Consequently, the loan application fro constructing Phase II of the condominium units was denied, resulting in the stoppage of its construction. The said condominium units were supposed to be part of the deal that petitioner would give to respondent on the basis of their offsetting agreement. Part of the agreement was Seneca’s option to move to Phase II.ISSUE: WON a breach of the agreement was committed by petitioner. YES.RATIO: Petitioner would never be able to fulfil their obligation in allowing private respondent to exercise the option to transfer to Phase II, since its construction has ceased. The impossibility of the obligation on the part of the petitioner constitutes a substantial breach of the offsetting agreement. A reciprocal obligation took place in this case.

B. MODES OF BREACH

1. Frauda. Concept: the voluntary execution of a wrongful act or a wilful omission, knowing and intending the effects which naturally and necessarily arise from such act or omission

i. Dolo vs. dolo incidente

-fraud committed in the course of the performance of an obligation, which the party who was injured by the fraud would still have wilfully entered into even with the existence or awareness of such fraud

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[ C 2011 ] [ UP COLLEGE OF LAW ]EFFECT: renders the party guilty of fraud for damages, pursuant to Article 1344 of the Civil Code

ii. Dolo vs. dolo causante

-fraud that is rooted in the realization or formation of the obligation, an obligation which, if the party who suffered injury had been aware of, he would not have entered into the obligation in the first place. It is causal fraud that is a ground for annulment of the contract. It is fraud that affects the consent of the parties.

WOODHOUSE vs HALILI

FACTS: Plaintiff Woodhouse led defendant Halili to believe he was the exclusive distributor for Mission Soft Drinks. This led to defendant investing 30% into the net profits of their partnership. Plaintiff claims his principal obligation was to secure the franchise for their partnership, which he was able to do, but only for one month. Defendant realized that plaintiff Woodhouse was not the exclusive distributor. Plaintiff now seeks damages.ISSUE: WON defendant may recover damages. YES.RATIO: Since defendant did not actually have the exclusive rights to the franchise, which led plaintiff to invest in the partnership. However, the plaintiff was able to secure the franchise, and he is thus entitled to 30% of the net profits, which defendant claims plaintiff Woodhouse cannot recover. Defendant actually committed fraud by reducing the amount to be given to plaintiff.

GERALDEZ vs CA & KENSTAR TRAVEL

FACTS: Petitioner sued respondent travel agency on the basis of fraud they committed in the course of her experience under their tour package to Europe. This included giving them an inexperienced tour guide, misrepresenting the people who would assist them, and failing to bring their group to the Italian leather factory. She sought to recover damages, which the CA denied her, ruling in favour of Kenstar. ISSUE: WON petitioner is entitled to damages. YES. RATIO: Kenstar fraudulently made claims that led Geraldez to avail of their tour package. Whether the fraud was dolo incidente or dol causante, petitioner is entitled to damages.

SIR JJ: In this case, the court was unable to determine what type of fraud was committed by Kenstar. They just ruled that Geraldez was entitled to damages.

b. Nonwaiver

Art. 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void. (1102a)

c. Effects

1. Damages may be recovered2. The contract or obligation may be annulled.

2. Negligence

a. Concept- Absence of due care required by the obligation. In each case, it is a question of facts taking into consideration what a reasonable man would have done under the circumstances

Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2, shall apply.

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

i. Culpa vs Dolo

-Negligence replaces intentWhen one commits dolo, he is liable for all damages. When one commit culpa, he is only entitled to answer for damages that were foreseeable in the course of his actions that led to the injury.

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[ C 2011 ] [ UP COLLEGE OF LAW ]ii. Culpa Aquiliana vs. Culpa Contractual

Culpa aquiliana: negligence to fulfil an obligation that is independent of any contract

Culpa contractual: failure, or negligence to perform an obligation that arises from a contract

GUTIERREZ vs. GUTIERREZ

FACTS: An automobile accident took place, where an automobile driven by Bonifacio Gutierrez collided with a truck driven by Velasco, where Narciso Gutierrez was injured. ISSUE: WON both Velasco and Gutierrez are liable for damages to Narciso Gutierrez. YES.RATIO: Gutierrez is guilty of culpa aquiliana to Narciso, because he is liable for the damage done to Narciso, and it was independent of any contract. Velasco, as the driver of the truck where Narciso was a passenger, was liable based on culpa contractual, since Velasco and Narciso entered into a contract of carriage as driver and passenger, respectively. Velasco is guilty of negligence, by failing to exercise the due care needed to drive the truck.

VASQUEZ vs BORJA

FACTS: Defendants Vasquez and Busuego obligated themselves to sell 4000 cavans of palay to Borja. Borja delivered the money to pay for the rice to them, but only 2,488 cavans of rice were delivered by Vasquez. When Borja sought to recover in court, Vasquez claimed that the agreement made was with Natividad Vasquez Sabani Dev’t Co. (NVSDC), which he was acting manager at the time, hence he is not liable for damages.ISSUE: WON Vasquez is guilty of negligence. NO.RATIO: The action is a contract, and based on the facts, it is NVSDC which is liable, and not Vasquez. The said company is not a party in the suit. The corporation is an artificial being imbued with its own personality, separate and distinct from its stockholders and managers. They are not personally liable for contracts duly entered into. However, Vasquez’s counterclaim is

also invalid, since he failed in his moral duty to fulfil the contract.

b. Standard of Care Required

Art. 1173, par 2. If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required.

-A good father of a family means a person of ordinary or average diligence. We must use as basis the abstract average standard corresponding to a normal orderly person. Anyone who uses diligence below the standard is guilty of negligence.

DE GUIA vs MERALCOFACTS: Plaintiff boarded a street car as a passenger for the city of Manila. An accident took place, and plaintiff suffered bruises and possible internal injuries. Meralco tried to prove that they had exercised due care in selecting and instructing the motorman.ISSUE: WON Meralco is guilty of negligence.YES.RATIO: The relationship between De Guia and Meralco was one of a contractual nature, and the duty of the carrier is to be determined with reference to the principles of contract law. The company was bound to convery and deliver plaintiff safely and securely. Meralco cannot avail of the defense that culpa aquiliana took place, since a contractual relation existed.

US v BARIAS

FACTS: Defendant is a motorman of a street car which ran over and killed Fermina Jose, a two year old girl. He started his car from a standstill, without looking to see if the track was clear. ISSUE: WON evidence shows carelessness of defendant, thus showing that he did not execute the ordinary care or diligence required by law. YES.RATIO: There is definitely care or diligence required of the company both in preventing injury to its passengers and the general public. As a motorman, Barias should have

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[ C 2011 ] [ UP COLLEGE OF LAW ]checked the front of the car, in order to see that nobody was in front of it.SIR JJ: Just because there was injury or in this case, death, does not mean that Barias did not exercise due diligence. What if the car was designed in such a way that it would have been difficult for him to see beyond a certain field of vision from inside the vehicle?

SARMIENTO vs SPS CABRIDO

FACTS: Petitioner Sarmiento brought a pair of diamond earrings to the jewelry shop owned by respondent spouses. She came to rest a pair of diamond rings into a pair of gold rings. The job offer was accepted for P400. The diamond was broken by Zenon Santos in the process of the job. Petitioner asked respondents to replace the diamond.ISSUE: WON respondents performed due care or diligence. NO.RATIO: Respondents’ defense that Zenon Santos was not their employee does not hold water, because petitioner was charged P400 for a job order they readily accepted, and the conduct of Santos constituted negligence. The fault or negligence of the obligor consisted in the omission of the due diligence needed in the circumstances present in the case.

CRISOSTOMO vs CA & CARAVAN TRAVEL

FACTS: Petitioner availed of services of respondent Caravan Travel Agency. She received the travel documents and was told to be at NAIA on Saturday, when actually, her flight was scheduled for a Friday. She was then offered a new package, but she still sued to recover damages from respondent, because she claimed that the agency refused to perform the extraordinary diligence which led her to miss her flight. ISSUE: WON respondent failed to observe due diligence and care required by law. NO.RATIO: First, the contract was one for services and not for transport. The object of the contract did not require the extraordinary diligence purported by petitioner, since their contractual relation consisted in arranging and facilitating petitioner’s travel arrangements. Hence, respondents were not obliged to the same standard of extraordinary diligence expected in a contract of transport or carriage. Also, the test as to whether the defendant used reasonable care and caution is reasonably applicable in this case, since they fulfilled their responsibility to secure the petitioner’s travel arrangements. The

petitioner should have also checked her travel documents.

c. Effects

-damages, either in culpa aquiliana or culpa contractual

For Culpa Contractual: rescission/nullity of contract and indemnificationFor Culpa Aquiliana:

damages

3. Delay (Mora)

a. Concept It is the non-fulfillment of an obligation with respect to time of fulfilment of said obligation-It involves the beginning of a special condition, which exists only in positive obligations, and not in negative obligations

Art. 1169 (par 1). Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

b. Kinds

1. Mora solvendi (delay of the obligor)

Requisites:

1) A prestation that is due and enforceable2) A civil obligation3) Arises only when the delay is due to causes imputable to the debtor

Reyes-Puno: Delay of the obligor may only come about as a result of a positive act or prestation.

-The obligation must be:due, demandable and liquidated

-The performance may be delayed by fraud

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[ C 2011 ] [ UP COLLEGE OF LAW ](malice) or negligence (culpa).

-The creditor should demand performance of the debtor, with the exception of those circumstances present in Article 1169.

Article 1169 (par. 2) However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.

CETUS DEVT CORP VS .CA Petitioner Cetus Dev’t demanded payment of the rentals when the obligation matured. Coupled with the fact that no collector was sent, the private respondents cannot be guilty of mora solvendi o delay in the payment of rentals. Petitioner failed to show that id not have to demand from private respondents, under any of the conditions presented in Article 1169 of the Civil Code. Petition denied.

AEROSPACE CHEMICAL INDUSTRIES vs CA & PHIL PHOSPHATE

Respondent required petitioner to ship out the sulphuric acid as agreed, otherwise petitioner would be charged for consequential damages. Respondent made a categorical demand. Respondent, on August 6, informed petitioner of charges of 2,000/day. Petitioner is guilty of delay after private respondent made the necessary extrajudicial demand by requiring petitioner to lift the cargo at its designated ports. Its failure to comply led to its liabilities. Since petitioners made an advance payment for

the unlifted acid, it is lawful to offset the amount against the rental expenses incurred by respondent. Petition denied. CA decision affirmed.

SANTOS VENTURA HOCORMA vs SANTOS

Respondent’s right to damage is based on delay. The payment as stated in the Compromise Agreement, must be made within 2 years. The compromise was made by the parties to avoid litigation. When demand was made on October 28, 1992, the obligation was already due and demandable. It was an extrajudicial demand done in compliance with the law. Petition denied.

VASQUEZ v AYALA CORP

Ayala Corp was not guilty of delay, because the letters sent prior to April 23, 1984 were not categorical demands. The Vasquez spouses also waived their right claim Ayala’s delay, since the letter to their agent was a concession that the lots would be finished 3 years after the termination of the case by Lancer. Petition denied.

Exceptions:

ABELLA vs FRANCISCO.

The period was an essential element of the obligation. The local court rightly considered that period was essential in an option to purchase the lots. Decision of CFI Rizal affirmed.

DE LA CRUZ vs LEGASPI & SAMPEROY

At most, defendants have a right to demand interest. Also, there was no indication that payment on time was essential. Even if the contract of sale explicitly provided for the automatic rescission, the trial court could allow plaintiff to enforce. Plaintiff may pay before demand is made upon him.

2. Mora accipendi

Requisites:

1) That the obligation should require an act of cooperation of the creditor for its fulfilment

2) That the debtor has done all that is incumbent upon him and has made tender of performance or payment

3) That the creditor refuses to accept payment or fails to

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[ C 2011 ] [ UP COLLEGE OF LAW ]carry out an act incumbent upon him

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. (1185)

VDA DE VILLARUEL vs MANILA MOTOR CORP

By their improper refusal to accept the current rents tendered by their lessess, the lessors incurred in fault (mora) and they must shoulder the subsequent accidental loss of the premises leased. The exemption of the less to pay is derived from the deprivation of enjoyment and possession of said land. SIR JJ: This is not exactly a good case to illustrate this law, because one is depriving the lessor of his right to collect the rent that he has a right to collect.

3. Compensation Morae

Requisites:1) It must be a bilateral

obligation2) With reciprocal prestations

ARTICLE 1169 (3): In reciprocal obligations, neither party incurs in delay if the other is not ready or does not comply in a proper with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.

One party cannot demand performance by the other without offering to comply with his own prestation. In reciprocal obligations, the general rule is that the fulfillment of the parties should be simultaneous. Where both are in default, their respective liability for damages shall be offset equitably.

CENTRAL BANK vs CA

A reciprocal obligation took place. The obligation or promise of each party o each

other is in consideration for that of the other. When one party has performed, the non-performing party incurs in delay. Pecuniary inability to pay does not rescind or discharge the obligation of the contract. Tolentino is entitled to specific performance or rescission with damages. Due to the prohibition of the land, rescission is the only option. But the promissory note signed by Tolentino obligates him to pay P17,000. His failure to pay makes him a party in default. Hence, he is not entitled to rescission. There was a default in both of their reciprocal obligations, hence they are both liable for damages.

c. Effects of Delay

1) Cessation/Renunciation of creditor

2) Prescription

4. Contravention of the Tenor

-Non-performance-Any illicit act or omission which impairs the strict and faithful fulfilment of the obligation and every kind of defective performance.

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.

CHAVEZ v GONZALES

It is clear that defendant-appellant Gonzales contravened the tenor of his obligation because he not only failed to repair the typewriter, but it was returned in shambles. He is liable for the cost of executing the cost in a proper manner and for the cost of the missing part.

TELFAST COMMUNICATION vs CASTRO

When defendant’s daughter sent a telegram to their relatives in the States informing them of his wife’s death, they did not receive it and they were shocked to discover his wife’s death when his daughter went to the US and told them. He then sued Telfast Communication. Petitioner and defendant entered into a contract to deliver the said telegram. Petitioner did not fulfil his part, despite performance by private respondent in fulfilling his part in the contract. Contravention of the tenor took place, and

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[ C 2011 ] [ UP COLLEGE OF LAW ]Castro is entitled to recover damages by virtue of Article 2217 of the Civil Code.

ARRIETA vs NARIC

It was NARIC’s actions or inaction which singularly delayed the opening of the letter of credit, which resulted in the delay and plaintiff Arrieta’s losses of $286,000 in unrealized profit. Therefore, they are bound to indemnify her for losses and damages caused by the delay.

MAGAT vs MEDIALDEA & GUERRERO

Magat is entitled to damages, since Guerrero committed a breach of contract, which resulted in Magat suffering the loss of his expected profits. The loss comes into being at the very moment of breach. Such a loss is real, fixed and vested, and therefore, recoverable under the law.

III. Remedies of Creditor in Case of Breach

A. Action for performance1. Action for specific performancein obligation to give a 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 Article 1170, may compel the debtor to make the delivery.

Revised Rules of Court, Rule 39:

Sec. 10. Execution of judgments for specific act.  

(a) Conveyance, delivery of deeds, or other specific acts; vesting title. - If a judgment directs a party who execute a conveyance of land or personal property, or to deliver deeds or other documents, or to perform any other specific act in connection therewith, and the party fails to comply within the time specified, the court may direct the act to be done at the cost of the disobedient party by some other person appointed by the court and the act when so done shall have like effect as if done by the party. If real or personla property is situated within the Philippines, the court in lieu of directing a conveyance thereof may be an order divest the

title of any party and vest it in others, which shall have the force and effect of a conveyance executed in due form of law.

(b) Sale of real or personal property.— If the judgment be for the sale of real or personal property, to sell such property, describing it, and apply the proceeds in conformity with the judgment.

(c) Delivery or restitution of real property.- The officer shall demand of the person against whom the judgment for the delivery or restitution of real property is rendered and all person claiming rights under him to peaceably vacate the property within three (3) working days, and restore possession thereof to the judgment obligee; otherwise, the officer shall oust and such persons therefrom with the assistance, if necessary of appropriate peace officers, and employing such means as may be reasonably necessary to retake possession, and place the judgment obligee in possession of such property. Any costs, damages, rents or profits awarded by the judgment shall be satisfied in the same manner as a judgment for money.

(d) Removal of improvements on property subject of execution.- When the property subject of the execution contains improvements constructed or planted by the judgment obligor or his agent, the officer shall not destroy, demolish or remove said improvements except upon special order of the court issued upon motion of the judgment obligee after due hearing and after the former has failed to remove the same within a reasonable time fixed by the court.

(e) Delivery of personal property.- In judgments for the delivery of personal property, the officer shall take possession of the same and forthwith deliver it to the party entitled thereto and satisfy any judgment for money as therein provided.

-When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him in article 1178, may compel the debtor to make the delivery.

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[ C 2011 ] [ UP COLLEGE OF LAW ]-To obtain compliance of the prestation

-Creditor has the right to ask that the same be performed

-Its implied basis is a contractual relation between plaintiff and defendant

2. Action for substituted performancein obligation to give a 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.

-The creditor may ask that the obligation be complied with by others at the expense of the debtor

-The substituted performance satisfies the needs of the creditor

-Delivery of anything belonging to the same species is sufficient

3. Action for substituted performance or undoing of poor work in obligation to do - Art. 1167

Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone.

-The creditor is entitled to have the thing done in a proper manner, by himself or a third person

-The court cannot award damages when the act can be done in spite of the refusal or failure of the debtor to do so.

Exception:-breach may be excused by fortuitous event

-This does not exclude the right to indemnify for damages causes by the debtor who has done what has been forbidden him. Aside from doing what is in violation of the prohibition, he is liable for damages.

The sole remedy is indemnification for damages caused when the effects of the act prohibited are definite in character and will not cease even if the thing prohibited is undone, if it is physically or legally impossible to do the thing,

B. Action for damages

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.

-In damages, the plaintiff is entitled to the value of the use of his property from the time it was taken to the time of restoration.

C. Action for rescission

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.

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[ C 2011 ] [ UP COLLEGE OF LAW ]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.

-The action for rescission is given to the injured party

-Where the other party is the one who did not perform, he is not entitled to insist upon performance of the contract by the defendant or to recover damages

-The other party has the right to demand performance or ask the resolution or termination of the contract

Rescission – the power that does not require previous declaration by the courts

-If the obligation is not yet performed, extra-judicial rescission would suffice. But if one has already committed his part in the reciprocal obligation, he cannot by extrajudicial declaration rescind the contract. Court action must be taken.

-the extrajudicial declaration of the creditor, electing rescission produces legal effect

-However, the injured party cannot resolve the obligation himself

-The mere failure of one party to perform does not ipso jure produce the resolution of the contract

IV. Subsidiary Remedies of Creditors

These are actions that take place as a result of the right of creditors to reach all present and future property of the creditor.

1. Accion subrogatoria (Action in subrogation) - a) After exhausting all the property of the debtor, the creditor may exercise all the rights and bring all the actions of the debtor for the same purpose.

b) “The debtor of my debtor is also my debtor” – Creditors have the right to bring into the patrimony of his debtor everything that should properly enter and form part of it.

c) subject of the action-all rights and actions of debtor

Requisites:

1) interest of creditor who brings the action

2) inaction of the debtor, wilful or not

3) existence of credit (not anterior to debtor’s credit)

4) credit must be due and demandable

5) exhaustion of assets

Exceptions: Art. 772: inherent rights are only those with a right to legitime and heirs and successors of interest.

2. Accio Pauliana (Rescissory Action)

Creditors may impugn acts which the debtor may have done to defraud them

Requisites:

1) prior existence of credit (must be anterior to fraudulent act)

2) credit must be due and demandable

3) fraudulent intent of debtor if transaction rescinded is onerous

4) complicity/bad faith5) exhaustion or insufficiency

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[ C 2011 ] [ UP COLLEGE OF LAW ]6) prejudice to the creditor

Accio Pauliana Accio SubrogatoriaThe credit must exist before the fraudulent act

-The rescinded contract is onerous

-The intent must be fraudulent

-No fraudulent intent is required

It must take place within 4 years of the discovery of the fraud

No period of prescription is needed.

It must be the last means, and all other means must have been exhausted.

KHE HONG CHENG vs CA

Respondent Philam only learned about unlawful conveyances in January 1997. It was only then that respondents’ action for rescission accrued because respondent had exhausted all legal means. Accion pauliana is a last resort. The date of the decision of the trial court is immaterial.

SIGUAN vs LIM

Petitioner still had other legal remedies to make claims. The requisite for filing accion pauliana was not met, and no fraud was committed. The respondent still had the property in her name in 1989, therefore, the credit was not fraudulent. Victoria Suarez is not a party to the accion pauliana. Therefore, the petitioner cannot invoke the credit of Suarez to justify rescission of the subject deed of donation.

D. Other Specific Remedies

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 right to repurchase, without prejudice to the provisions of the Mortgage Law and the Land Registration Law with respect to third persons.

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 extrajudicial 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. (1597a)

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.

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. Concept of Fortuitous Event Fortuitous Event - an unforeseen or unexpected occurrence

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[ C 2011 ] [ UP COLLEGE OF LAW ]the event

-occurrence renders it impossible for debtor to fulfill his obligation in a normal manner

-obligor must be free from any participation in aggravation of injury resulting to the creditor

1. Act of God (natural)Caso Fortuito – “an event which takes place by accident and could not have been foreseen-circumstances independent of the will of the obligor-earthquakes, storms, floods, epidemics, fires

2. Act of Man

-armed invasion, attack by bandits, governmental provisions, robbery

-unavoidable accidents

B. Requisites1. Effect of Concurrent Fault

NAKPIL & SONS vs UNITED CONSTRUCTION, CA &PHIL BAR

The wanton negligence of the defendant and the third party defendants in effecting the plans, designs, specifications and construction was equivalent to bad faith in the performance of their respective tasks. Other buildings in the vicinity were not affected by the earthquake. It was not just an Act of God that was responsible for the destruction of the building.

RP vs LUZON STEVEDORING

Defendant stresses precautions it took on the day of the accident in question. However, said precautions adopted by appellant prove that the possibility of danger was not only foreseeable, but actually foreseen, and not by caso fortuito. They were indeed negligent and liable for damages.

DIOQUINO vs LAUREANO

The boy threw stones at the window, which led to the breaking of the windshield. What happened was clearly unforeseen. It was a fortuitous event resulting in a loss which must be borne by the owner of the car. Article 1174 of the Civil Code guards against

the possibility of being reproached for such a fortuitous event.

AUSTRIA vs CA

It is not necessary that persons responsible for the occurrence or the robbery of Austria should be found of punished. It would only be sufficient that the unforeseeable event did take place without concurrent fault on the debtor’s part, and this can be done by preponderant evidence. To require the conviction of the culprits, in order to establish a fact, would be to demand proof beyond reasonable doubt. The robbery constitutes a fortuitous event, despite the lack of conviction of guilty parties.

NAPOCOR vs CA

Despite the typhoon constituting an act of God, Napocor cannot escape liability because its negligence was the proximate cause of the loss and damage. Petitioner was negligent because it knew of the need to open the gates gradually and earlier, not to open them quickly at the height of the typhoon.

YUBIDO vs CA, TUMBOY, TUMBOY & TUMBOY

A common carrier, in this case Tumboy et al who operated the bus whose tire blew which led to Yubido’s death, cannot be absolved from liability in case of force majeure; it must still prove that it was not negligent in causing the death or injury resulting from the accident. The mere fact that Tumboy claimed that the tire was new did not imply that it was free from manufacturing defects.

BACOLOD MURCIA MILLING vs CA & GATUSLAO

The closure of any portion of the railroad track was foreseeable and inevitable. Petitioner took a calculated risk thinking all landowners would renew their contract. Unfortunately, the termination of the contractual relationships of sugar plantation of Angela Estate could not be foreseen as an act of God, nor could it constitute force majeure.

PHILCOMSAT vs GLOBE TELECOM

Article 1174 exempts an obligor from liability in case of fortuitous events, for those which are foreseeable but inevitable. Section 8 of the agreement entered into by Philcomsat and Globe Telecom provided for events that

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[ C 2011 ] [ UP COLLEGE OF LAW ]were either unforeseeable, foreseeable but beyond the control of the parties. No contrary definition exists between Article 1174 and Section 8 of the contract exists. The date they ceased using the Earth station was not established. On December 31 1992, the US left and rendered ineffective said communication facility. Hence, Globe is liable for payment of rentals until December 1, 1992.

C. Extinguishment of Liability – Exceptions

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….

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, par. 2 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 exemption 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;

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[ C 2011 ] [ UP COLLEGE OF LAW ](4) If he assumed the management in bad faith.

VI. Usurious Transactions

Art. 1175. Usurious transactions shall be governed by special laws.

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.

Usury – defined as contracting for or receiving something in excess of the amount allotted by law for the loan or forbearance of money, goods or chattels. It is the taking of more interest for the use of money, goods, chattels or credits than the law allows. Forbearance is the refraining from enforcement of debt, right, or obligation that is due.Interest is the income produced by money in relation to its amount and the time it cannot be utilized by its owner.

PD 858 The Monetary Board is authorized to prescribe the maximum rate or rates of interest for the loan or renewal thereof of the forbearance…

PD 1685Foreign loans obtained by the Central Bank may be guaranteed. They may exercise/prescribe higher maximum rates for loans of low priority.

Circular Bank Circular 416:There is a reduction in the risk weight of multilateral development banks to 0%-it removes loans to exporters to extent guaranteed by the guarantee fund for small and medium enterprises

Monetary Board Circular 905It empowers the Central Bank to prescribe maximum rates. It also states that the rate of interest, on a loan or forbearance of money shall not be subject to any ceiling

prescribed under or pursuant to the Usury Law. It did not repeal or amend the Usury Law, but simply suspended its effectivity.

Vs

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.

Rule: 1) When the obligation is breached

and it consists in the payment of money (loan or forbearance), interest is either that which is stipulated in writing or, in absence of stipulation, 12% per annum from time of judicial or extrajudicial demand. Interest itself, when stipulated, shall itself earn legal interest from the time it is demanded.

2) When the obligation not involving money is breached, an interest on the amount of damages may be imposed at the discretion of the court at the rate of 6% per annum. No interest shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. When demand is established reasonably, interest shall begin to run from the time the claim is made, judicially or extrajudicially, if not interest shall begin to run from the date the court makes its judgment. Actual base for computation of legal interest shall be the amount finally adjudged.

3) When judgment awarding sum of money becomes final and executory, the rate of legal interest, whether it is either one of the aforementioned conditions, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credits.

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Cases are rendered moot and academic by virtue of the repeal of CB 416.

VII. Fulfillment of Obligations (See Chapter 4

Art. 1231: Obligations are extinguished:

1) by payment or performance.…

Art 1232… not only the delivery of money, but also performance of any obligation.

B. Presumption in payment of interest and instalments.

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.

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.

-The failure of the creditor to make reservation in these cases extinguished the obligation to pay the interest or the prior instalments, but under the present article, there arises only a rebuttable presumption of such extinguishment.

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.

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.

-When there is no stipulation in the assignment of an obligation, all rights acquired by virtue of an obligation are transmissible.

-An instrument evidencing credit may be transferred or assigned and the transferee will be considered in lawful possession unless the contrary is proven

CHAPTER III. DIFFERENT KINDS OF OBLIGATIONS

I. Pure & Conditional ObligationsA. Pure – no term or condition whatever depends upon which depends the fulfilment of the obligation contracted by the debtor.

- immediately demandable at creditor’s will

-no exemptions as to its compliance (ex. Promissory note with no condition stated)

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.

B. Conditional Obligations

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[ C 2011 ] [ UP COLLEGE OF LAW ]Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition.

1. Condition

A. Concept – a future and uncertain event upon which an obligation depends

-dependent on future or uncertain event upon which an obligation or provision is dependent on (the use of “or” is actually a mistake)

-the acquisition or resolution of rights depend on a future and uncertain event, by virtue of those who execute the juridical act

B. Vs. Term

Period/Term – an event which is not uncertain, but must necessarily happen (ex. death of a person)

Condition Term/PeriodA future and uncertain event

Not uncertain but must necessarily happen

There is uncertainty as to when the day will come; uncertain when it will happen

It must necessarily come.

Ex. Death of A ahead of B; “when I pass the bar”

Ex. Until A dies; “when my means permit”

Note: A past event unknown to the parties cannot be a condition for the knowledge of the parties cannot prevent the obligation from being demandable.

GAITE vs FONACIER

The shipment or local sale of iron ore is not a condition to the payment of the balance of 65,000 pesos. It is a period or term. A conditional obligation’s obligatory force is subordinated to the happening of a future

and uncertain event. There is no “uncertainty” that the payment will have to be made, since the “the balance will be paid out from the opening of the first letter of credit…” To subordinate the obligation to pay the remaining 65,000 pesos to the sale or shipment of the ore is tantamount to leaving payment at the discretion of the debtor.

GONZALES vs HEIRS of THOMAS

The transfer of the TCT was precisely needed by petitioner to ensure that he would own the land free of legal encumbrance. Only when securing the right to dispose of the land for the petitioner to give down payment in fulfilment of the contract.

2. Kinds of Conditions

a. As to effect on obligation - Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition.

(see Gonzales vs Heirs of Tomas)

i. Suspensive (condition precedent)-If the suspensive condition happens, the obligation arises. In other words, if the condition does not happen, the obligation does not come into existence.

-retroactive effect when obligation is fulfilled –

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

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[ C 2011 ] [ UP COLLEGE OF LAW ]inferred that the intention of the person constituting the same was different.

CORONEL vs CA & ALCARAZ

The suspensive condition of the “Receipt of Down Payment” was the transfer of the title from petitioners’ deceased father to them. On February 6, 1985, the condition took place, and the petitioners were obliged to present a deed of absolute sale to respondent, as well as full payment by correspondent. The element of consent is present, which is not present in a contract to sell. The sellers made no express reservation of ownership or title to subject parcel of land.

-rights of creditor anddebtor before fulfilment of condition

BEFORE THE FULFILLMENT OF THE CONDITION:-preservation of right (prevent loss or deterioration of things, prevent concealment of debtor’s property). Creditor is allowed to take appropriate steps which preserve his right and prevent events which might render his right void or inexistent. -If non-fulfillment is due to the fault of creditor, debtor may not ask that the fruits received by creditor be returned to debtor. Art. 1188. The creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his right.

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

ii. Resolutory (condition subsequent)

- Where the obligation is immediately effective, but its subsistence and extinguishment depend upon the fulfilment of the condition

PARKS vs TARLAC CIRER & HILL

Appellant claims that the condition that one of the parcels be used exclusively and absolutely for erection of a school was not complied with, constitutes a precedent condition. Since it was not followed, appellant claims that the contract is invalidated. However, this is not a precedent condition but an imposed one. Its compliance cannot be effected until the right is deemed acquired. Beginning work on the school could not be complied with, except after giving effect to the donation. Also, provided that subsequent condition’s non-resolution renders the contract ineffective, the action for revocation of donation has prescribed. The period to bring revocation for action is ten years.

CENTRAL PHILIPPINE UNIVERSITY v CA

When petitioner accepted the donation, it bound itself to comply with the condition thereof. Since the time within which the condition should be fulfilled depended upon the exclusive will of CPU, it has been held that its absolute acceptance and acknowledgment of obligation were sufficient to prevent the statute of limitations from barring the action of private respondents regarding prescription. Also, more than a reasonable period of 50 years has passed, wherein petitioner should have complied with the condition to make the donation in its favour forever valid. Under Article 1191, of CC, the oblige may seek rescission and the court shall decree the same, and fix the period. In this case, fixing the number of years cannot be applied since more than a reasonable period of time has lapsed.

DAVIDE (dissent): 1) There is confusion as to the nature

of the contract, based on the writing of the ponente. First, it was onerous, or it placed a burden on the donee. Then it became gratuitous, given by virtue of liberality.

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[ C 2011 ] [ UP COLLEGE OF LAW ]2) It is improper to say that it is a

resolutory condition since upon fulfilment of the obligation or condition, the right to the thing is now extinguished pursuant to Article 1181 of the Civil Code.

3) The period was actually contemplated by Lopez; he did not expect the land to remain idle for ever.

4) Onerous donations are covered under the rule on contracts, pursuant to Art. 733 of the Civil Code. The Court must determine which donee must comply with conditions or obligations.

QUEJADA vs CA & MONDEJARETAL

A resolutory condition exists only until the time it is capable of fulfilment. At that time, the donation is still valid and effective. Such period became irrelevant when donee-municipality manifested its inability to comply with the condition. When the non-fulfillment of the resolutory condition was brought to the donor’s knowledge, then ownership reverted to the donor. Ownership was then reverted to petitioners; consequently, ownership is transferred to respondents pursuant to Article 1434 of the CC: “Title passes by operation of law to the buyer.” Sale, as a contract, is perfected at the moment there is a meeting of the minds upon the thing which is the object of the sale and upon the price. The sale is still valid.

b. As to cause or origin

Art. 1182. When the fulfilment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this code.

i. Potestative Condition

-one which depends upon the will of the debtor. The conditional obligation is void. To allow conditions whose fulfilment depends exclusively on debtor’s will is to sanction illusory obligations. For purely potestative conditions, the whole obligation is void, not just the condition.

Debtor’s promise to pay is not a conditional obligation (period)

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.

-Creditor should file an action to fix the a period for the payment

of the obligation

-Only if it is suspensive

LAO LIM vs CA & DY

The condition is not resolutory but potestative. It leaves effectivity and enjoyment of rights to the sole and exclusive will of the lessee. It is suspensive because renewal depends upon said condition. If this defense were allowed, so long as defendants could pay the lease, owners would never be able to discontinue their occupancy. Conversely, lessees would terminate the contract simply through non-payment. A lease that gives the lessee the right to perpetual renewal is not favored by the courts. Any option can be revoked as long as it is potestative.

ii. Causal Condition-One which depends exclusively upon chance or other factors as well as the will of a third person/stranger

NAGA TELEPHONE CO. vs CA

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[ C 2011 ] [ UP COLLEGE OF LAW ]The term or period of this contract shall be as long as the party of the first part has need for electric light posts is potestative. The stipulation that “it being understood that this contract shall terminate…are when for any reason whatsoever, the party of the second part is forced to stop, abandon its operation…” is causal. It depends on chance, hazard or the will of a third person. It is a mixed condition, and the provision is therefore not invalidated.

iii. Mixed- Depends upon the will of one of the contracting parties and other circumstances, such as chance or will of a stranger.

-“I will buy you a house if you marry my daughter.”

OSMENA vs RAMA

The acknowledgement by defendant-appellant of indebtedness led her to impose the condition that she would pay the obligation if she sold her house. The acknowledgement was an absolute acknowledgement of obligation, and was sufficient to prevent the statute of limitations from barring the action upon the original contract. At this point, the old Civil Code rendered the defense null and void as it was dependent solely upon her will.

HERMOSA v LONGARA

The condition given by Hermosa was a mixed one, depending partly upon the will of Hermosa and partly upon chance, such as the presence of a buyer and under conditions desired by intestate. The obligation is a suspensive one, as well, and upon happening of the condition, became due and demandable.

TAYLOR vs UY TIENG PIAO

The cancellation of Taylor’s contract was valid, because Article 1256 of the old CC includes no impediment to the insertion in a contract for personal service of a resolutory condition permitting the cancellation of the contract by one of the parties. Uy Tieng Piao et al had no positive obligation to cause the machinery needed to arrive in Manila. Since the machinery did not arrive, this led to the valid cancellation of the said contract.

SMITH BELL vs MATTI

When the fulfilment of the condition does not depend upon the will of the obligor, but that of a third person or any other cause, and the obligor has done all he can to ensure compliance with the obligation, ordering the other party to comply with his part is also not contrary to law.

RUSTAN PULP vs IAC

A purely potestative condition such as that wherein resumption of delivery of respondents to the petitioner being purely dependent on the latter’s will must be obliterated. Such a clause is inoperative.

ROMERO vs CA

The condition of the private respondents’ undertaking is a mixed condition dependent on the will of the third persons, like the squatters, government agencies and the vendor. The ejectment is a condition, the operative act of which sets the motion of compliance by petitioner, of his obligation to pay the balance. The failure of respondents gives petitioner the right to refuse to proceed with the argument or waive that condition.

c. As to possibility

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.

i. Possible

ii. Impossible

- either judicially impossible or physically impossible.

Physical – contrary to law of nature

Juridical - contrary to law, good customs and public policy

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[ C 2011 ] [ UP COLLEGE OF LAW ]-Impossible obligations annul the obligation dependent upon them.

-ex. Condition that a person shall not contract marriage, unless she changes her religion.(Violation of Bill of Rights in freedom of religion)

-One who promises an impossible condition and knows that it cannot be fulfilled has manifested his lack of intention to be bound. Hence, the nullity of the promise follows.

ROMAN CATHOLIC ARCHBISHOP OF MANILA vs CA

The condition that 100 years from the date of execution, said land must not be sold disposed of, constitutes an essential condition necessary for the fulfilment of the deed of donation. The court finds that such a condition is impossible. It is an undue restriction.SIR JJ: It is actually still possible. A hundred years is finite, and it is still a definite period of time.

d. As to mode

i. Positive –

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.

-The condition must be fulfilled within the

period stipulated, but the obligation is extinguished as soon as the time expires or it becomes indubitable (certain) that the event will take place/

ii. Negative –

Art. 1185. The condition that some event will not

happen at a determinate time shall render the obligation effective from the moment the time indicated has elapsed, or if 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 the obligation.

-If the condition is negative,the condition becomes effective from the momentthe time (period) indicated has elapsed, or it becomes evident that the event cannot occur.

3. Rules in case of loss, deterioration or improvement pending in the happening of the condition.

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) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;

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

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

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

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

(6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. (1122)

Art. 1190. When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have received. In case of 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 the obligations to do and not to do, the provisions of the second paragraph of Article 1187 shall be observed as regards the effect of the extinguishment of the obligation.

Loss: - when the thing perishes, goes out of commerce, or disappears and cannot be recovered

Deterioration – any reduction or impairment in the substance value of a thing which does not amount to a loss. The thing still exists but it is no longer intact.

Improvement – anything added to, incorporated in, or attached to the thing that is due.

Inure – use, put into practice, to become of advantage.

HEIRS OF TIMOTEO MORENO vs MACTAN INTL AIRPORT AUTHORITY

There is no need for petitioners to pay for improvements; nor shall the value of the lot

over time be subject to restitution. Improvements done on the lot may be paid for by petitioner, in case petitioners wish to purchase them and respondent decides to sell. If petitioners do not wish to purchase, said improvements may be removed without petitioners needing to pay.

b. Effect of loss or deterioration

i. Without debtor’s fault

Loss: 1189, pars 1 and 3:(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;

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

ii. With debtor’s fault

Deterioration: 1189, par 2 and 4:(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered;

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

c. Effect of Improvementi. by nature or

time: 1189, par 5

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

ii. at the debtor’s expense: 1189, par. 6

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[ C 2011 ] [ UP COLLEGE OF LAW ](6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary.

4. Effect of prevention of the fulfilment of the condition by the obligor

Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.

Constructive fulfilment -a condition which, although not exclusively within the will of the debtor, may in some way be prevented for the debtor from happening.

2 requisites: 1) Intent of obligor to prevent fulfilment of the condition

2) actual prevention of fulfilment

HERRERA vs LEVISTE

Herrera may not redeem the property. Petitioner’s loss was due to his failure to submit collateral to GSIS, non-payment of the mortgage debt and not making an earnest effort to redeem the property. Petitioner did not validly and fully comply with the conditions in their contract.

TEEHANKEE (DISSENT): Leviste failed to complete all the necessary steps to inform GSIS and arrange conformity of Herrera’s assumption of the mortgage obligation. Herrera was informed that he could not assume payment of the mortgage until a final deed of sale was submitted. But GSIS still received payments.

While it is true that under paragraph 11 of the contract, failure to fulfil would result in a cancellation of the contract, and all payments being kept by vendor, Herrera was prevented from fulfilling the condition of assuming the GSIS mortgage because of Leviste’s own non-compliance with its obligation of securing the consent of GSIS. Leviste made no effort, despite clear stipulations in the contract. Despite payment by Herrera of remaining price to Leviste, Leviste still refused to execute the final deed of sale in favour of Herrera as required by GSIS.

II. RECIPROCAL OBLIGATIONS

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

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

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. (1124)

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

1. Concept

Reciprocal Obligations – those which arise from the same cause and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfilment.

2. Alternative Remedies Of Injured Party in case of Breach

a. Action for Fulfillment-ask for specific performance of the obligation

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[ C 2011 ] [ UP COLLEGE OF LAW ]-payment for damages

-if fulfilment is no longer possible, rescission with damages to injured party may be fulfilled.

-it does not affect third parties

-no partial rescission and partial fulfilment/ no simultaneous specific performance and rescission

b. Action for Rescission

-a power, by declaration of the injured party

i. Requisites 1) breach must be by fault or fraud of defendant, creating liability for damages and entitling other party to ask for rescission

a. one single breachexcept in contrary stipulation, or sale in instalments

b. an action must be filed or a notarial demand made

-damages must be adjudicated in the same action for rescission

-rescission may not be for slight or casual breach, but only for breaches so substantial as to defeat the object of the parties in making the agreement

ii. How made

-rescission takes place upon declaration of the injured party

-party should apply to courts for a decree of rescission or resolution

-when injured party has already performed, judicial action must be undertaken.

iii. Effects

-extinguished obligatory relation as if it never existed

-equivalent to unmaking and invalidating the juridical tie

-it is the duty of the court to require both parties to surrender what they have respectively received

-rescission abrogates the contract in all parts

-defendant’s sole duty is to return what he has received, with legal interest (no attorney’s fees); return to plaintiff as well

-no partial rescission and resolution

-no judgment rendered declaring rescission, creditor may change his mind and ask for fulfilment

-no availment of pledge

-in rescission, purchaser is only entitled to interest on amount he paid

-damages are only those compatible with the idea of rescission

-parties may choose to waive rescission in reciprocal obligations

BOYSAW vs INTERPHIL PROMOTIONS

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[ C 2011 ] [ UP COLLEGE OF LAW ]This occasion led to a reciprocal obligation. Boysaw violated the contract when he engaged in a boxing match in Las Vegas. Also, the change of management, without consent or knowledge of defendant constituted another violation. Such violations allowed defendant the right to rescind and repudiate the contract altogether.

UP vs HON. DE LOS ANGELES

In the “Acknowledgement of Debt & Proposed Manner of Payment,” upon default by debtor ALUMCO, creditor had “the right and power to consider logging agreement dated December 2,1960 may be considered rescinded without necessity of a juridical suit. The party who deems the contract violated may act as if contract were rescinded, but proceeds at its own risk. Although only the final judgment may determine the correctness of the action, judicial action is needed to ascertain the final award and resolution. The court erred in punishing UP for simply protecting its own interest.

SIR JJ: This case changes the rule regarding rescission.

DE ERQUIAGA vs CA & REYNOSO

In rescission of contracts of reciprocal obligations, there should be simultaneous restitution of the principal object of the contract to sell and the consideration paid. Despite the unfinished accounting for the fruits, the restitution must still take place. But defendant is ordered to finish the accounting.

IRINGAN vs CA

Rescission took place upon filing of JCR in RTC. Judicial notice is needed before one party can unilaterally affect a rescission. Rescission did not take place with the letter, but with Palao’s filing of the judicial notice of rescission.

ONG vs CA

Petitioner entered into contract with respondents on the basis that issuance of deed of absolute sale would be granted upon full payment of 2M pesos. This was a suspensive condition, and a contract to sell took place. No breach took place, but a situation took place that prevented the

obligation of the vendor to convey title from acquiring an obligatory force.

VISAYAN SAW MILL vs CA

What took place in this case was a contract to sell wherein the failure of respondent to ensure the opening of the letter of credit prior to May 15 1983 led to the inability of petitioner to fulfil its obligation. It was not a contract of sale, where implied delivery took place. No breach took place, but the failure to comply with a positive suspensive condition. Also the letter of credit did not involve respondent RJH but another company and it was set to expire on July 24, 1983. Therefore, no obligation arose on the part of petitioner; Article 1597 should apply, which allows for rescission by providing notice. Also, the implied delivery is a mere accommodation.

ROMERO (dissent):

1) Time was not explicitly provided as essential to the contract. It was an absolute contract of sale.

2) Delivery did take place.

Article 1191 In all contracts involving reciprocal obligations, Article 1191 is ALWAYS applied.

DEIPARINE vs CA & CARUNGAY & TRINIDAD

Article 1191 is predicated on breach of faith by one of them that violates reciprocity between them. Deiparine’s failure has given the Carungay spouses the right to rescind or cancel, since he did not follow their stipulated plans and specifications. Article 1191 imposes upon petitioner to build the structure and private respondents to pay for it. Therefore, the contract was valid under Art 1191.

GRACE PARK ENGG CO vs DIMAPORO

When a contract is resolved or rescinded, it is the duty of the court to require the parties to surrender that which they have severally received. It has the effect of abrogating the contract in all parts. It would contradict the very notion of rescission the very notion of rescission under Article 1385 of the CC. The

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[ C 2011 ] [ UP COLLEGE OF LAW ]contract is deemed extinguished, and no interest may be claimed by both of the contracting parties.

ROQUE vs LAPUZ & CA

The respondent’s failure to pay the succeeding monthly instalments was a failure to comply with the suspensive condition which is the full payment of the price. There was clear bad faith and malice on the part of respondent, making inapplicable and unwarranted the benefits of Article 1191, paragraph 3. To do so would be tantamount to excusing his bad faith and sanctioning infringement of a contractual obligation.

SURIA vs IAC

Petitioner and respondents entered into a contract of sale. The vendor obligates himself to transfer ownership and to deliver a determinate thing to the buyer, who in turn, is obliged to pay a price in money or its equivalent. Both parties fulfilled their obligation. It became a contract between mortgagor and mortgagee, and is a perfected contract of sale. Rescission is not a principal action retaliatory in character, but becomes subsidiary when it is available only in absence of any legal remedy. Foreclosure here is a specific provision found in the contract between the parties. Mortgage has the option of seeking fulfilment or suing for breach, If the contract is rescinded, property reverts to mortgagee.

Art. 1786. Every partner is a debtor of the partnership for whatever he may have promised to contribute thereto.

He shall also be bound for warranty in case of eviction with regard to specific and determinate things which he may have contributed to the partnership, in the same cases and in the same manner as the vendor is bound with respect to the vendee. He shall also be liable for the fruits thereof from the time they should have been delivered, without the need of any demand.

Art. 1788. A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest and damages from the time he should have complied with his obligation.

The same rule applies to any amount he may have taken from the partnership coffers, and his liability shall begin from the time he converted the amount to his own use.

Art. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies:

(1) Exact fulfillment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.

Art. 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing.

Art. 1486. In the case referred to in two preceding articles, a stipulation that the installments or rents paid shall not be returned to the vendee or lessee shall be valid insofar as the same may not be unconscionable under the circumstances. (n)

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II. OBLIGATION WITH A PERIOD

Art. 1193. Obligations for 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 Article 1197.

-Obligations for whose fulfilment a day certain has been fixed, shall be demandable only when that day comes (ex die)

Obligations with a resolutory period take effect at once, but terminate upon arrival of day certain (in diem)

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

-If uncertainty consists in whether the day will come or not, it is a conditional obligation

A. Period or term1. Concept-space of time which, exerting an influence on obligations as a

consequence of a juridical act, suspends demandability or determines extinguishment

vs

Period/Term ConditionFulfillmentMust necessarily come

uncertain

InfluenceNo effect on obligation but only on its demandability or performance

Gives rise to an obligation or extinguishes one already existing

TimeFuture May refer to a past

event unknown to both parties

Will of debtorEmpowers court to fix record

Annuls obligation (exclusively dependent on debtor’s will)

Requisites1. future2. certain3. possible

B. Kinds of Periods/Terms 1. As to effect -Suspensive -Resolutory

Suspensive (ex die) – Art. 1193, par 1. must lapse before performance of obligation can be demanded (from a day certain)

Resolutory ( in diem) Art 1193 par. 2 – period after which performance must terminate

2. As to expressiona. Express:

specifically stated, or when period is specified in the obligation or by law

b. Implied:When from the nature and circumstances of obligation, it can be inferred that a

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[ C 2011 ] [ UP COLLEGE OF LAW ]period was intended (Art. 1197)

3. As to definitenessa. Definite – when

period is fixedb. Indefinite –

when period is not fixed, as in Art. 1180. Usually, court renders a definite period.

4. As to sourcea. Voluntary:

Fixed or stipulated by will of the parties

b. Legal: Fixed by law

c. Judicial: Fixed or allowed by the court

C. Rules in case of loss, deterioration or improvement before arrival of period. (See Article 1189, 1194)

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

D. Effect of payment in advance

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

Art. 1197, par 3.

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

E. Benefit of Period

1. For whose benefit a. creditor – antichresis

b. debtor – “within: c. both – generally, when

a period is designated, it is presumed to be for the benefit of both creditor and debtor

-unless from tenor or other circumstances, it appears that the period has been established in favour of one or the other

2. Effects 1. Creditor cannot compel

debtor to pay in advance of fixed date, nor can debtor compel creditor to receive payment in advance

2. Effect of antichresis: Compulsion of debtor to retake possession and pay balance of debt (beneficial for creditor)

3. Presumption

PONCE DE LEON vs SYJUCO INC

Syjuco is allowed to refuse payment tendered by De Leon. The period is set for the benefit of both the creditor and the debtor. Syjuco has nothing to lose, but interest is not the only reason why period is fixed. Creditor may want to keep his money safely invested, or wants to avoid the sudden decline in

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[ C 2011 ] [ UP COLLEGE OF LAW ]purchasing power of currency, especially at a time of uncertainty.

PARAS (dissent): If by early payment of obligation, the creditor would not lose any part of stipulated interest, payment must be received.

PADILLA: Creditor should not be allowed to exact and impose unfair terms and conditions, such as that of barring debtor from paying principal of loan prior to agreed time.

BUCE vs CA & SPOUSES TIONGCO

In a reciprocal contract like a lease, the period must be deemed to have been agreed upon by and for the benefit of both parties. It was not specifically indicated who may exercise the option to renew, neither was it stated that the option was given for petitioner’s benefit. After termination of the lease, petitioner became subject to ejectment from the premises. But no prayer was included for possession or restoration of leased properties.

4. When debtor loses right to make use of period

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

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

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

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

ones equally satisfactory;

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

(5) When the debtor attempts to abscond.

F. When Court May Fix Period

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

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

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

1. Period is implied2. Period depends

solely on will of debtor

LACHICA vs ARANETA

A term is fixed and presumed to have been established for the benefit of both creditor and debtor, unless from its tenor, it should appear that the term was established for the sale. The contract did not prohibit payment before the fixed date. Although defendant holds that the reason for the dates is for stipulated interest.

ARANETA vs PHIL SUGAR ESTATES DEVT

The issue was not the court fixing the time of performance but determining whether or not the parties agreed that Araneta should have

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[ C 2011 ] [ UP COLLEGE OF LAW ]reasonable time to perform its part in the bargain. In no case can the court hold that under the plea mentioned, the intervention of the court to fix the period of performance was warranted. No basis is stated to support the court’s intervention, or the period of two years it granted.

Article 1197 has a 2 step process. It has to be determined that the obligation does not fix a period; then, it has to determine the period probably contemplated by the parties. The period contemplated was the performance of the eviction of the squatters.

DEUDOR vs JM TUASON CO

When the court exercises the power to fix the period, it does not modify or alter but merely enforces period. It can be inferred that a period was intended by the parties thereto. The period within which delivery was made sprang from the agreement between Deudor and JM Tuason.

III. ALTERNATIVE OBLIGATIONS

A. Concept – 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.

-several objects being due, the fulfilment of one is sufficient, determined by the choice of the debtor who generally has the right of election.

-The obligation is extinguished by performance of only one of the prestations.

B. Right of Choice

Art. 1200. The right of choice belongs to the debtor, unless it has been expressly granted to the creditor.

-Proper election does not require assent.

C. Effect of Notice of Choice

-Expressed by election or choice; once made, election is irrevocable

-Election ceases to be alternative from the time creditor’s choice is made, when he is expressly allowed to do so.

D. When Notice Produces Effect –

Art. 1201. The choice shall produce no effect except from the time it has been communicated.

E. Effect of loss or impossibility of one or all prestations- Art. 1202 to 1205

Art. 1202. The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only one is practicable. (1134)

Art. 1203. If through the creditor's acts the debtor cannot make a choice according to the terms of the obligation, the latter may rescind the contract with damages. (n)

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. (1135a)

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.

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[ C 2011 ] [ UP COLLEGE OF LAW ]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.

F. Facultative Obligation- 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 – in facultative obligations, only one thing is due. But the debtor has reserved the right to substitute it with another. In a facultative obligation, loss of that which may be given as substitute does not affect the delay.

-In facultative obligations, the choice never falls on the creditor. The creditor can never refuse or reject the substitution

2. Distinguished from Alternative Obligation

ALTERNATIVE FACULTATIVE1. Several prestations due; many constitute prestations that are part of the obligation.

1. Only one principal prestation due, but accessory only as means to facilitate payment.

2. Nullity of one prestation does not invalidate the obligation which is still in force.

2. The nullity of the principal prestation invalidates the obligation and the creditor cannot demand the substitute even when this is valid.

3. Loss of one alternative prestation due to debtor’s fault renders him liable if the choice is by the creditor.

3. Loss of the substitute due to debtor’s fault does not render him liable for damages

4. Choice may be granted to the creditor or a third person.

4. Substitution is always at the discretion and choice of the debtor.

3. Effect of Substitution Substitute: the thing or service owed to the creditor

instead of the original or main obligation

-before substitution: substitution is at debtor’soption and cannot be compelled by the creditor, nor may the creditor refuse the substitution

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IV. JOINT AND SOLIDARY OBLIGATIONS

A. Joint Obligations

1. Concept: A joint obligation is one in which each of the debtors is liable only for a proportionate part of the debt and each of the creditors is entitled only to a proportionate part of the debt. Each creditor can only recover his share of the obligation and each debtor can be made to pay only his part.

-Obligations existing between several persons, among whom the benefit or the burden of the obligation is divided.

A. Requisites 1. Plurality of

Subjects: More than one creditor or debtor or both

2. Determination of shares in the demandability or the fulfilment of the obligation: Shares may be unequal, but the presumption is that shares are equal, if from the law, the nature or the wording of the obligation, the contrary does not appear.

Shares shall be considered distinct from one another subject to rules of court governing multiplicity of suits

B. Words used to indicate

Joint Obligations-“We promise to pay” used by two or more signers

2. Presumption- Art. 1207, 1208

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 prestation. 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 debt shall be presumed to be divided into as many 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.

-When two persons are liable under a contract or under a judgment, and no words appear in the contract or judgment to make each liable for the entire obligation, the presumption is that their obligation is joint and each debtor is liable only for a proportionate part of the obligation.

-It is not necessary that the agreement should use precisely the word “solidary” for an obligation to do so. When a final judgment does not specify that it is solidary liability, it is presumed joint.

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3. Effects- Art. 1207, 1208

a. Extent of liability of debtorb. Extent of right of

creditor

1. The demand by one creditor uponone 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 the others.

2. The interruption of prescription by the judicial demand of one creditor upon a debtor, does not benefit other creditors nor interrupt the prescription as to other debtors. Partial payment or acknowledgment made by one of the debtors does not stop the running of the statute of limitations against the others.

3. The 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.

4. The insolvency of a debtor does not increase responsibility of his co-debtors nor does it authorize a creditor to demand anything from his co-creditors.

5. Res judicata is not extended from one debtor to another in a joint divisible obligation.

Divisible- each creditor may independently demand and compel performance of his share of the creditc. In case of novation, compensation, confusion (Art. 1277), remission

Art. 1215. 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 Article 1219.

Novation - extinguishment of an obligation by substitution or change of the obligation by a subsequent one which extinguishes or modifies the first.

Compensation – capacity to dispose of the thing paid and capacity to receive payment is not necessary. It results in a partial extinguishment of an obligation.

Confusion – the meeting in one person of the qualities of creditor and debtor of the same obligation.

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 – 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 remission refers. It is gratuitous.

B. Solidary Obligations

1. Concept: One in which each debtor is liable for the entire obligation

a. Requisites - solidary liability exists only when the obligation expressly sostates or when the law or the nature of the obligation requires solidarity

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[ C 2011 ] [ UP COLLEGE OF LAW ]i. use of the term “solidary” is not required

-plurality of subjects shares unity of prestation

ii. intention to establish solidary liability must clearly appear

iii. Philippine doctrine requires express provision. There exists a presumption against solidarity and a presumption of joint obligations

b. Words used to indicate solidary obligations

“joint and several” or “in solidum”

-“I promise to pay” with two or more persons

-“use of the words individually and collectively”

2. Kindsa. As to source

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 debt shall be presumed to be divided into as many 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.

i. Legal

Art. 1915. If two or more persons have appointed an agent for a common transaction or undertaking, they shall be solidarily liable to the agent for all the consequences of the agency.

-co-principals to a common agent

Art. 1945. When there are two or more bailees to whom a thing is loaned in the same contract, they are liable solidarily.

-of bailees

Art. 2194. The responsibility of two or more persons who are liable for quasi-delict is solidary.

-of tortfeasors

Art. 119, RPC: The penalty of prision correctional shall be inflicted upon any one who, on the occasion of a war, in which the government is not involved, violates any regulation issued by competent authority for the purpose of enforcing neutrality.

ii. Conventional

iv. Real – from the nature of the obligation, such as mortgage of one object by its co-owners

b. As to parties boundi. Active: solidarity of creditors, each having the right to collect from the common debtor

-its essence consists of the authority to claimand enforce the rights of all, with the resulting obligation of paying anyone what belongs to him.

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[ C 2011 ] [ UP COLLEGE OF LAW ]-the credit and its benefits are equally divided among the creditors

ii. Passive: solidarityof debtors, where each is liable to pay the

whole to the common

creditor

-its essence is that each

debtor can be made to answer for the others with the right on the part of the debtor –payor to recover from the others their respective shares

iii. Mixed: simultaneouslyactive and passive

c. As to uniformity

i. Uniform: with thesame terms and conditions for all

-debtors are bound by same conditions or clauses

ii. Varied/Non-uniform- Art. 1211

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.

-with different periodsand conditions for each

effects

-only the portion due at the time is collectible from any one of the debtors or by any one of the creditors.

YNCHAUSTI vs YULO

The obligation being solidary, the remission of any part of the debt made by a creditor in favor of one or more of the solidary debtors necessarily benefits the others and therefore, there can be no doubt that all debtors have a right to enjoy the benefits of the partial remission granted by the creditor. Only the 225,000 in the second contract can be recovered, on the basis of the remission of the 3 debtors.

INCIONG vs CA

The promissory note expressly states three signatories as jointly and severally liable. Any one, some or all of them may be proceeded against for the entire obligation. The choice is left to the solidary creditor to determine against whom he will enforce collection.

RCBC vs CA

The ‘Comprehensive Surety Agreement’ the parties entered into expressly consider Ching as a surety. Liability may not be restricted or extended by implication. He can be sued, despite the SEC order, since the said order only affects PBM and not Ching. When an obligation states solidary liability, concurrence of 2 or more creditors or 2 or more debtors in one obligation implies that one of the former can demand or that each of the latter is bound to render entire compliance of the prestation.

LAFARGE CEMENT PHIL vs CONTINENTAL CEMENT

The fact that the liability sought against respondent Continental Cement is solely for tort does not negate the solidary nature of their liability.

3. Effectsa. Solidary creditor in relation to:

1. common debtor –right to demand

Art. 1215. 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 Article 1219.

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[ C 2011 ] [ UP COLLEGE OF LAW ]The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them. (1143)

Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected. (1144a)

Art. 1217 (par 1). 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 offer to accept.

Effects of acts of novation, compensation, confusion of the debt-These are considered from two aspects:

1) the relation between the creditors on one hand and the debtors on the other and

2) the relations among co-debtors themselves

Between Creditors & Debtors -any of these acts will extinguish the obligation

Between Creditors:

-extinguishment of obligation does not prejudice the right of the other creditors to recover their share in obligation from creditor who effected any of the above

Between Debtors: Co-debtor to whom obligation was extinguished cannot recover from his co-debtors more than their respective shares in whatever he may have given up or lost as consideration for extinguishment of other obligation

2. solidary co-creditor/s- in case of novation, compensation, confusion, remission-

Art. 1215 par. 2. The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them.

-Other creditors may recover their respective shares in the obligation from creditors who effected novation, compensation, confusion or remission.

- prejudicial acts prohibited-

Art. 1212. Each one of the solidary creditors may do whatever may be useful to the others, but not anything which may be prejudicial to the latter.

-A solidary creditor cannot do anything prejudicial to the co-creditors. The act of extinguishment will be valid so as to extinguish claim against debtors, but not with respect to co-creditors whose rights subsist and can be enforced against

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[ C 2011 ] [ UP COLLEGE OF LAW ]creditor who performed the act alone.

- assignment of rights not allowed-

Art. 1213. A solidary creditor cannot assign his rights without the consent of the others.

-the solidary creditor is an agent of the others, hence he cannot assign that agency to a third person without the consent of other creditors. Mutual agency, the essence of active solidarity, implies mutual confidence; hence, it is just to require consent of others. Take note: the power of the creditor to extinguish the obligation justifies this rule.

b. Solidary debtor in relation to:

i. common creditor

- obligation to perform-

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 prestation. There is

a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity.

- in case of novation, compensation, confusion, remission by a creditor- Art. 1215 par. 1Novation,

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 Article 1219.

ii. solidary co-debtor

- in case of payment by a co-debtor- Art. 1217-1220

Art. 1217. 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 offer to accept.

He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made

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[ C 2011 ] [ UP COLLEGE OF LAW ]before the debt is due, no interest for the intervening period may be demanded.

When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each.

-Payment by one solidary debtor extinguishes the obligation. He who made payment may claim from his co-debtors only the share which corresponds to each, with interest of payment already made.

-He cannot claim entire amount, but only that share pertaining to each with interest on the amount advanced

Art. 1218. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is made after the obligation has prescribed or become illegal.

-It is no longer due, and none of the solidary debtors may be compelled to pay. If one does pay, he does not revive the obligation.

Art. 1219. 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

the debt had been totally paid by anyone of them before the remission was effected.

-Exemption of co-debtor in such a case will give way to fraud. After one solidary debtor has paid the entire obligation, it is extinguished and there is nothing to remit, even partially.

Art 1220. The remission of the whole obligation, obtained by one of the solidary debtors, does not entitle him to reimbursement from his co-debtors.

in case of fortuitous event- Art. 1221

Art. 1221. If the thing has been lost or if the prestation has become impossible without the fault of the solidary debtors, the obligation shall be extinguished.

If there was fault on the part of any one of them, all shall be responsible to the creditor, for the price and the payment of damages and interest, without prejudice to their action against the guilty or negligent debtor.

If through a fortuitous event, the thing is lost or the performance has become impossible after one of the solidary debtors has incurred in delay through the judicial or extrajudicial demand upon him by the creditor, the

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[ C 2011 ] [ UP COLLEGE OF LAW ]provisions of the preceding paragraph shall apply.

-If anyone was at fault, all shall be responsible to the creditor. In case of fortuitous event, the things lost or impossible due to delay, provision of preceeding paragraph shall apply.

JAUCIAN vs QUEROL

Article 1144 of the old Civil Code states that a creditor may sue any of the joint and several debtors or all of them simultaneously. Rogero was liable absolutely for the full amount of the obligation. Her position so far as the creditor was concerned was exactly the same as if she had been the principal debtor.

RFC vs CA

The obligation to pay the balance had already been assumed by RFC. With no other conditions other than the title first be conveyed to Dominguez and the lien registered.

QUIOMBING vs CA

It did not matter who between the petitioners would file the complaints since the respondents were liable to either of them as a solidary creditor for the full amount of the debt.

4. Defenses available to a solidary debtor against the creditor- Art. 1222

Art. 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With

respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible.

a. Typesi. those derived from the

nature of the obligation

-defenses which may contribute to or weaken or destroy vinculum juris

-nullity due to capacity or consent of all debtors; mistake, fraud, violence

-invalidate original contract

-death of principal debtor only bars execution against debtor’s estate, not nature of obligation itself

ii. personal defenses-partial or total defense

-those which annul consent

iii. defenses pertaining to his share

-special terms or conditions affecting hispart of the obligation

iv. those personally belonging to the other co-debtors

-those which exempt him from payment or obligation pertainingto other debtors who have personal defense

b. Effects

ALIIPIO vs CA

The debt to be demanded is accountable to the couple’s conjugal partnership of gains. Hence, an ordinary proceeding for a money claim in the settlement of the estate of the decedent. Upon death of Alipidio, the CPG was dissolved, and debts chargeable to it are paid in accordance with the settlement of

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[ C 2011 ] [ UP COLLEGE OF LAW ]estate proceedings. In this case, the spouses did not jointly and severally claim the debt to respondent. The obligation assumed in this case is joint. Also, no stipulation was present to render the obligation solidary.

C. Joint Indivisible Obligations

1. Concept-Necessity of collective fulfilment and the action must be against all debtors.

-When there are several debtors or creditors, but the prestation is indivisible, the obligation is joint.

-midway between joint and solidary obligations

-its fulfilment requires concurrence of all debtors-ex: delivery of a house

Distinguished from joint obligations:

1) No creditor can do an act prejudicial to others

2) No debtor can be made to answer for others

3) Collective action is expressly required

4) Various creditors

Distinguished from solidary obligations:

1) requires plurality of subjects

2) not required in indivisibility

Art. 1209. If the division is impossible, the right of the creditors may be prejudiced only by their collective acts, and the debt can be enforced only by proceeding against all the debtors. If one of the latter should be insolvent, the others shall not be liable for his share.

2. Indivisibility vs.

Solidarity

Art. 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility.

-in solidary obligations, each creditor may demand the full prestation and each debtor has the duty to comply.

-in indivisible joint obligations, each creditor cannot demand more than his share and each debtor is not liable for more than his share

solidarity – legal tie or vinculum juris defining extent of liability

indivisibility - -prestation which is not capable of partial performance

3. Effects (Art. 1209) a. Liability for damages 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 in which the obligation consists.

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[ C 2011 ] [ UP COLLEGE OF LAW ]

V. DIVISIBLE AND INDIVISBLE OBLIGATIONS

A. Divisible Obligations 1. Concept: When each of the parts into which it is divided is divided forms a homogenous and analogous object to the other parts as well as the thing itself. 2. Effects- Art. 1223, 1233

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.

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.

-identity: very thing or service due

-integrity: fulfilled completely

B. Indivisible Obligations

1. Concept: when it cannot be validly performed in parts

a. Distinguished from solidary obligations

solidarity: vinculum juris and refers to subject of obligation

indivisibility: prestations or object of the obligation

2. Kinds a. Natural- Art. 1225 par. 1

Art. 1225 par. 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.

-when the object is, by nature, indivisible, so that it couldnever be due without being indivisible

b. Legal- Art. 1225 par. 3However, even though the object or service may be physically divisible, an obligation is indivisible if so provided by law or intended by the parties.

c. Conventional- Art. 1225 par. 3

(intended by the parties)

3. Presumptions a. Of indivisibility-

Art. 1225 par. 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.

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[ C 2011 ] [ UP COLLEGE OF LAW ] b. Of divisibility-

Art. 1225 par. 2 When the obligation has for its object the execution of a 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, it shall be divisible.

4. Divisibility and indivisibility in obligations not to do- Art. 1225 par. 3

-determined by the character of the prestation in each case

5. Effects- Art. 1223, 1233, 1224- see Joint Indivisible Obligations

6. Cessation of indivisibility A. Natural Indivisibility: by conversion of the obligation into an obligation to pay damages

B. Conventional or Legal Indivisibility

-by novation of the obligation-by death of creditor or debtor (heirs may pursue)

VI. OBLIGATIONS WITH A PENAL CLAUSE

A. Concept: an accessory undertaking to assume greater liability in case of breach. It is attached to an obligation in order to insure performance. It may be a sum of money, or anything stipulated by parties, including acts and abstentions.

1. Principal Obligations:those that can stand alone, independently of theexistence of other obligationsand have individual and independent purpose.

Accessory obligations: Those attached to a

principal obligation in order to complete the same or

take their place in case of breach.

VS Conditional Obligations:-in conditional obligations, no obligation exists before suspensive condition happens; it is the fulfilment that gives rise to the obligation

Penal Clause: an existing obligation (the principal) existsfrom the very beginning

Conditional: principal obligation dependent on Uncertain event

Penal Clause: accessory dependent on principal

VS Alternative Obligations:Alternative: 2 or more obligations are due, but fulfilment of one is sufficient

Penal: Only one prestation and only in its non-performance is penal clause enforceable

Alternative: impossibility of one makes other obligations subsist

Penal: impossibility of principal obligation extinguishes penalty

Alternative: debtor chooses obligation

Penal: debtor cannot choose payment of penalty to address principal obligation absent express right

VS Facultative Obligations: Facultative: power of debtor to make substitution is absolute

Penal: power granted only by express stipulation

Facultative: creditor can never demand both prestationsPenal: such right may be granted to him

Penal Clause vs Guaranty-guaranty: contract by virtue

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[ C 2011 ] [ UP COLLEGE OF LAW ]of which a 3rd person called the guarantor binds himself to fulfil the obligations to principal in case debtor fails to do so

SAME: Both insure performance of principal obligation

-Both accessory and subsidiary obligations

DIFF: 1) Penal: obligation to pay penalty is different from principal obligation

Guaranty: object of obligation of principal debtor and guarantor is the same

2) Penal: principal obligation of penalty can be assumed by same person

Guaranty: Guarantor can never be the principal debtor.

3) Penal: penalty is extinguished by nullity of principal obligation

Guaranty: guaranty subsists even when principal obligation is void or unenforceable or is a natural one.

B. Kinds of Penal Clause 1. As to effect

a. Subsidiary: when only the penalty may be enforced b. Complementary: when both the principal obligation and the penalty may be enforced

2. As to sourcea. Conventional: produced by agreement b. Legal: provided by law

3. As to purposea. Punitive: where damages may be collected

b. Reparatory: where the penalty substitutes indemnification 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.

D. Effects of Penal Clause1. Substitute for

indemnity for damages and payment of interest-

Art. 1226. . 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.

The penalty may be enforced only when it is demandable in accordance with the provisions of this Code.

-Unless the contrary is stipulated, the penalty shall substitute the indemnity and the payment of interests in case of non-compliance

a. Exception- Art. 1226-Damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.

-When purpose is punishment, question of indemnity for damages is not resolved, but is subsisting.

-When purpose is reparation, damages are generally resolved.

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[ C 2011 ] [ UP COLLEGE OF LAW ]

MKTI DEV’T CORP vs EMPIRE INSURANCE

The ‘special condition’ was, in fact, a penal clause. According to Article 1229 of the Civil Code, the judge shall reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Since there was a partial performance of the obligation, courts are called to apply strictly against enforcement of penalty in its entirety. Also, nothing in the deed of sale restricted Anda’s right to sell the lot within the two year period.

TAN vs CA

The promissory note clearly makesv the stipulation of payment of interest. Penalty clauses can be in the form of penalty or compensatory interest. It was through the fault of the defendant that said default had taken place. However, petitioner had made several payments and the continued monthly accrual of the 2% penalty was deemed unconscionable by the court, led to a reduction to 12% total.

COUNTRY BANKERS INSURANCE vs CA

A provision for forfeiture of the remaining deposit still in possession of the lessor in the event of the cancellation of the agreement by lessee’s violation is a valid penal clause. The undertaking assumed by Country Bankers Insurance refers to all such damages vas such party may sustain by reason of the injunction if the court should finally decide that the plaintiffs were not entitled thereto. There is a stipulation in the contrary in this case.

2. Not exempt debtor from performance-

Art. 1227The debtor cannot exempt himself from the performance of the obligation by paying the penalty…

a. Exception- Art. 1227…save in the case where this right has been expressly reserved for him.

3. Creditor cannot demand both 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…

a. Exceptions- Art. 1227… unless this right has been clearly granted him.

4. Creditor cannot collect other damages in addition to penalty- Art. 1226 a. Exceptions- Art. 1226:

1) express provision to that effect2) debtor refuses to pay the penalty3) debtor is guilty of fraud

E. When penalty shall 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.

-In any case where there has been partialor irregular compliance with provisions of a contract with a penal clause, courts apply strictly against enforcement of penalty in its entirety

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[ C 2011 ] [ UP COLLEGE OF LAW ]F. Nullity of Principal Obligation or Penal Clause

1. Effects- 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.

-exception: when penalty undertaken by 3rd person precisely for obligation that is unenforceable, void or natural, it assumes the form of a guaranty

-when nullity of a principal obligation itself gives rise to a liability of debtor for damages

2. Rationale

-if it is contrary to law, morals, good customs, public order or public policy

-if principal obligation is valid, it exists

CHAPTER 4: EXTINGUISHMENT OF OBLIGATIONS

I. Modes of Extinguishment- Art. 1231. Obligations are extinguished:

(1) By payment or performance:

(2) By the loss of the thing due:

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

(4) By the confusion or merger of the rights of creditor and debtor;

(5) By compensation;

(6) By novation.

Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and prescription, are governed elsewhere in this Code.

II. Payment or PerformanceA. Concept-

Art. 1232. Payment means not only the delivery of money but also the performance, in any other manner, of an obligation.

- it is the fulfillment of the prestation due, a fulfillment that extinguishes the obligation by realization of the purpose for which it was constituted/

-Payment, and fulfillment are identical.

B. Requisites1. the person who pays2. the person to whom payment is made3. the thing to be paid

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[ C 2011 ] [ UP COLLEGE OF LAW ]4. the manner, time and

place of payment, etc.

1. Who can paya. in general: the debtor or his duly authorized agent

-the debtor’s heir or successor in interest

-any person interested in the fulfillment of obligation

b. third person who is an interested partyi. meaning of “interested party” - the persons who have an interest in the fulfillment of the obligation are those who would be benefited by the extinguishment of the obligation (co-debtors, sureties, guarantors)

ii. effects- Art. 1302[3] It is presumed that there is legal subrogation:

(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.

-subrogation transfers to the third person or new creditor the entire credit, with all the corresponding rights

c. third person who is not an interested party but with consent of debtor

i. effects- Art. 1302[2], When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor;

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.

-This is becausewhenever a third person who has no interest in the obligation pays, there is a modification of a prestation that is due. A creditor should not be compelled to accept payment from a third person whom he may dislike or distrust.

d. third person who is not an interested party and without knowledge or against the will of the debtor

i. effects- Art. 1236, par. 1; 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.

e. third person who does not intend to be reimbursed-

Art. 1238. .Payment made by a third person who does not intend to be reimbursed by the debtor is deemed to be a donation, which

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[ C 2011 ] [ UP COLLEGE OF LAW ]requires the debtor's consent. But the payment is in any case valid as to the creditor who has accepted it.

-no one shouldbe compelled to accept the generosity of another

f. in obligation to give- Art. 1239. In obligations to give, payment made by one who does not have the free disposal of the thing due and capacity to alienate it shall not be valid, without prejudice to the provisions of Article 1427 under the Title on "Natural Obligations."

-when the person paying has no capacity to make the payment, the creditor cannot be compelled to accept it; in case he accepts it, the payment will not be valid, except in the case of Article 1427.

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.

i. effect of incapacity

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.

-equality of rights of solidary creditors by virtue of mutual representation lasts only until one of therm goes ahead of the others and sues the debtors.

2. To whom payment may be madea. 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.

-The repayment of debt must bemade to the person in whosefavor the obligation is constituted or to another authorized to receive the payment in his name.

-at the time of payment.

-also to a person not authorized to receive payment , by law or stipulation

b. incapacitated person- Art. 1241 par. 1 Payment to a person who is 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.

-when the creditor is

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[ C 2011 ] [ UP COLLEGE OF LAW ]incapacitated to receive payment, this must be made to his legal representative if there is one.

-the debtor may pay again to the incapacitated person when he attains capacity.

i. requisites

1. if the payee has kept the thing delivered, or2. insofar as the payment has been beneficial to him3. payment made to a creditor after debtor has been judicially ordered to retain the debt.

c. third person- Art. 1241 par. 2 Payment made to a third person shall also be valid insofar as it has redounded to the benefit of the creditor. 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 rights;

(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.

i. requisites (same as prior)

ii. when proof of benefit not required-

Art. 1241 par. 3. Art. 1242 Payment made in good faith to any person in

possession of the credit shall release the debtor.

-the person in possession of the credit is neither the creditor nor one authorized by him, to receive payment,but appears, under the circumstances of the case, to be the creditor.

d. 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.

3. What is to be paid (“Identity”)a. in general: the very thing or service dueb. in obligations to: i. give a specific thing-

Art. 1244 The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value as, or more valuable than that which is due.

In obligations to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the obligee's will.

-there is a novation when, upon agreement or consent of the creditor, the debtor delivers a different thing or performs a different prestation in lieu of that stipulated

ii. give a generic thing-

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[ C 2011 ] [ UP COLLEGE OF LAW ]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.

-Quality in cases of disagreement as to quality, the court should decide whether said quality complies with the obligation, with the attendant circumstances.

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 legal tender in the Philippines.

The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the 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 the abeyance.

Legal tender- currency which in a given jurisdiction can be used for payment of debts

-other currency, if there is a stipulation to that effect

Art. 1250. In case 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 payment, unless there is an agreement to the contrary.

PAL vs CA

A negotiable instrument is only a substitute for money. The payment was not in cash, but in checks.

c. payment of interest- Art. 1956. No interest shall be due unless it has been expressly stipulated in writing.

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.

-prestation must be fulfilled completely

General Rule: Partial payment is not allowed-

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.

Exceptions:-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.

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[ C 2011 ] [ UP COLLEGE OF LAW ]1. express stipulation2. partial liquidation and non-liquidation3. compensation4. several guarantors invoke benefit of division5. death of debtor, wherein each heir answers only for his share.6. when work is done by parts, and there is no contrary stipulation.

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 obligee.

-an attempt in good faith to perform without any wilful or intentional departure; deviation must be slight, and omission or defect must be technical and unimportant.

c. estoppel- Art. 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with.

-Estoppel of creditor: a creditor cannot object because of defects in performance resulting from his own acts or directions.

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.

d. 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 said interest has been paid.

The receipt of a later installment of a debt without reservation as to prior installments, shall likewise raise the presumption that such installments have been paid.

5. When payment is to be made a. in general:

Art. 1169. . Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

b. see Chapter 2: Delay

6. Where payment is to 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 to par. 4. 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.

In any other case the place of payment shall be the domicile of the debtor.

If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by him.

These provisions are without prejudice to venue under the Rules of Court.

7. Expenses of making payment- Art. 1247. . Unless it is otherwise stipulated, the extrajudicial expenses required by the payment shall be for the account of the debtor. With

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[ C 2011 ] [ UP COLLEGE OF LAW ]regard to judicial costs, the Rules of Court shall govern.

-payment is his duty, and it is his duty, and it inures to his benefitthat he is discharged from the burden of the obligation.

C. Application of Payments1. Concept- Art. 1252. . He who has various debts of the same 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 which 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 contract.

-designation of the debt

which is being paid by a debtor who has several obligations of the same kind in favour of the creditor to whom payment is made.

REPARATIONS COMMITTEE vs. UNIVERSAL DEEPSEA

Under Articles 1252-1254, application may be done by a persn owing several debts of the same kind to a single creditor. Obligation included payment. The 10,000 could not be construed in favour of the debt.

PACULDO vs REGALADO

If the debtor does not declare to which debts the payment is to be applied, no payment is to be made to a debt that is not yet due. All payments are to be made and applied to the Fairview Wet Market. Consent of the debtor must be clear and definite. That which is

most onerous to the debtor must be applied to first.

2. Requisites of Application

1. There are several debts owed.2. They are owed by the same debtor to the same creditor3. That the debts be of the same kind4. That the debts are due (or the termwas for the benefit of the party making the application5. That the payment made is not sufficient to cover all the debts. 3. Rules in application of payments- Art. 1252,

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.

a. if rules inapplicable and application cannot be inferred-

Art. 1254. When the payment cannot be applied in accordance with the 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 due are of the same nature and burden, the payment shall be applied to all of them proportionately.

i. meaning of “most onerous to debtor”

-it is assumed that if thedebtor had chosen the debtto be paid, he could haverelieved himself first of the more burdensome debt.

-it is relative and is fundamentally a question of fact.

More/Most Onerous:1. principal > accessory2. oldest > newest3. debts with interest > debts w/o interest4. unsecured debt with interest > no security,

with interest5. guaranty>without

security6. liquidated debt >

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[ C 2011 ] [ UP COLLEGE OF LAW ]7. default

D. Payment by Cession 1. Concept-

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 special laws.

2. Requisitesi. Plurality of Debtsii. Plurality of Creditorsiii. Partial/relative insolvencyiv. Abandonment of the totality of the debtor’s properties for the benefit of the creditorsv. Acceptance by the creditor

3. Effects1. Assignment liberates the debtor up to the amount of the net proceeds of the sale of his assets.

2. Assignment does not vest title to the property of the creditors, who are only authorized to sell it.

E. Dation in Payment 1. Concept-

Art. 1245. . Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales.

-the delivery and transmission of

ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation

a. distinguished from Payment by Cession

DATION CESSION1. transfer ownership of thing alienated to the creditor

1. only possession and administration are transferred with an authorization to convert property into cash

2. may totally extinguish obligation

2. only extinguishes credits to the extent of amount realized from properties assigned

3. cession of only some specific thing

3. involves all property of the debtor

4. one creditor to satisfy a debt

4. various creditors

5. novatory 5. not novatory6. no presumption of insolvency

6. there exists a presumption of insolvency

DBP vs CA

What took place was not cession because Article 1255 presupposes a plurality of debts and creditors. Nor was it dation because a mortgage is a security, and not a satisfaction of indebtedness. It was not pactum commissoriu, because the obligation to pay a sum of money remained because the assignment merely served as security for the loans covered by the promissory notes.

2. Requisites

-not a money debt-consent, object certain, cause

3. Effects-extinguishes the obligation to the extent of the value of thing deliveredeither as agreed upon or as may be proved.

-does not involve plurality of creditors

-merely involves a change of object of obligation

-in effect, it is a sale.

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The consent of appellee is not stipulated or presented. No transfer of ownership is possible without clear consent of appellee ot the preferred special mode of payment.

F. Tender of Payment and Consignation 1. Tender of Payment a. Concept: the manifestation

made by the debtor to thecreditor of his desire to comply with his obligation with the offer of immediateperformance

b. Requisites1. made in lawful currency2. include interest due3. unconditional4. unaccepted offer in writing to pay is equivalent to actual production and tender of money and property

2. Consignation a. Concept: the deposit of the

object of the obligation in acompetent court in

accordance with rules prescribed by law after the tender of payment

has been refused or because of circumstances which render

direct payment to the creditor impossible or inadvisable.

Tender of payment is a preparatory act which

precedes consignation. Consignation

Completes the extinguishment of the obligation if done after

tender of payment.

i. purpose: to avoid delay b. Requisites

i. there was a debt dueii. the consignation of the obligation was made because of some legal causeiii. that previous notice of the consignation has been given to the persons interested in the performance of the obligationiv. that the amount or thing due was placed at the disposal of the court.

v. that after the consignation had been made the persons interested were notified thereofvi. valid tender of payment (or no need)

i. when tender and refusal not required-

Art. 1256 par. 2. Consignation alone shall produce the same effect in the following cases:

(1) When the creditor is absent or unknown, or does not appear at the place of payment;

(2) When he is incapacitated to receive the payment at the time it is due;

(3) When, without just cause, he refuses to give a receipt;

(4) When two or more persons claim the same right to collect;

(5) When the title of the obligation has been lost.

ii. two notice requirement- 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.

-must be given to allinterested, passive oractive subjects

Art. 1258 par. 2. The consignation having been made, the interested parties shall also be notified thereof.

-the requirement is fulfilled by the service of the summons uponthe defendant together with a copy of the complaint

- effects of noncompliance:the lack of notice does not invalidate the consignation but simply makes the debtor liable for the expenses

That said, notice of consignationis ALWAYS required.

c. Effects-

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[ C 2011 ] [ UP COLLEGE OF LAW ]Art. 1260 par. 1. . Once the consignation has been duly made, the debtor may ask the judge to order the cancellation of the obligation.

-Debtor is released in the same manner as if he had performed the obligation at the time of the consignation because this produces the same effect as a valid payment.

-the accrual of interest on the obligation is suspended from the moment of consignation

-the deteriorations or loss of the 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 the deposit

-any increment or increase in value of the thing after the consignation inutes to the benefit of the creditor

d. Withdrawal by debtor before acceptance by creditor orapproval by court; effects-

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 the sum deposited, allowing the obligation to remain in force.

-debtor is still owner of the thing or amount deposited, and other parties have no right

to oppose withdrawal of such thing or amount

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 an sureties shall be released.

i. with creditor’s approval; effects: a revival of the obligation takes place, as well as a restoration of the debtor-creditor relationship-guarantors and co-debtors are freed

ii. without creditor’s approval; effectsobligation subsists, withoutchange in the obligation of the gurantors, co-debtors or the creditor’s right or preference

f. Expenses of consignation-

Art.1259. The expenses of consignation, when properly made, shall be charged against the creditor.

-when consignation isproperly made.

DE GUZMAN vs CA

The court ruled that respondent had substantially complied with the compromise agreement by validly consigning the amount of 3,000 pesos with the cashier.

TLG INTL vs CONTINENTAL ENGG

Before creditor accepts consignation, or before a judicial declaration that consignment has been made, the debtor may withdraw the thing or sum deposited. The case was dismissed before the amount was accepted by creditor or the court’s approval. Respondent judge should have allowed the withdrawal by peititioner.

MCLAUGHLIN vs CA

There was substantial compliance with the compromise agreement because respondent made a valid tender of payment. But

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[ C 2011 ] [ UP COLLEGE OF LAW ]respondent failed to consign the the sum due with the court. He remains liable for payment of obligation after December 31, 1980.

SOCO vs MILITANTE

In order that consignation of the thing due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation. The letter does not constitute a valid tender of payment because it does not indicate what month and intention there is to deposit the rental with the court. It is no proof of tender of payment of other or subsequent monthly rentals. Respondent failed to prove the second notice as well, based on the testimony of COMTRUST comptroller.

SOTO vs MIJARES

To deposit the amount in the court is a right given to the debtor exclusively. Consignation is a facultative remedy; he may or may not avail of it. If debtor has the right of withdrawal, he has the right to refuse to make the deposit as well.

RURAL BANK vs CASTRO

At the time of consignation, the Bank had already foreclosed the mortgage and the sale of the lot was already extrajudicially determined. It was useless of her to make a tender of payment.

LICUANAN vs DIAZ

Consignation must be made with the court and/or the bank, not the Office of Civil Relations of the AFP.

CHAN vs CA

The validity of the consignation was not raised before the Court of Appeals.

MEAT PACKING CORP vs SANDIGANBAYAN

There was prior tender of payment by PCGG. The acceptance of payment negates rescission of lease-purchased agreement.

III. LOSS OR IMPOSSIBILITY

A. Loss of thing due 1. Concept:

(1) If the thing is lost without the fault of the debtor, the

obligation shall be extinguished;

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

-non-existence inthe hands of the obligor

2. Kinds a. As to extent i. Total ii. Partial – not imputable

to the fault or negligenceof the debtor but to fortuitousevents or circumstances beyond his control

-does not extinguishobligation, but the portion lost, if the obligation would not have been constituted without it, thus extinguishingthe obligation

-intention of parties isa controlling factor

-courts determine these

3. Requisites- 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

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[ C 2011 ] [ UP COLLEGE OF LAW ]damages. The same rule applies when the nature of the obligation requires the assumption of risk.

-it must occur without the fault of the debtor, before the debtor incurs delay, and after the obligation is 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.

Art. 1165

a. when not applicableThis presumption does not apply in case of earthquake,flood, storm or other natural calamity, EXCEPT FIRE.

5. Effects a. in obligation to give a specific thing- Art. 1262 the obligation shall

be extinguished if it should be destroyed without fault of the debtor and before he has incurred in delay

, 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.

b. in obligation to give a generic thing-

Art. 1263. The loss or destruction of anything of the same kind does not extinguish the obligation

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

d. action against third persons- 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.

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. 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.

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[ C 2011 ] [ UP COLLEGE OF LAW ]-includes not only legal or physical impossibility, but also impracticability because of extreme difficulty, manifestly beyond the contemplation of the parties, must be subsequent to execution of contract to extinguish obligation.

2. Kindsa. As to extent i. Total ii. Partial: The rule in Art. 1264 may be applied if at the time performance becomes impossible, the debtor has already fulfilled part of theobligation, the creditor mustpay the part done so long as hebenefits from such partial compliance b. As to source i. legal: when the act byreason of a subsequent lawis prohibited

ii. physical: when the actby reason of its nature

cannot be accomplished

3. Requisites- Art. 1266 (same_4. Effects: releases the debtor from his obligation. Because the obligation is legitimate in origin, the

supervening impossibility of the prestation, independent of will of the obligor, cannot render the latter liable beyond restitution of what he may have received in advance from creditor, it cannot make him liable for damages

-where, however, it is not the prestation that has become impossible but the act to be performed after the fulfillment of the prestation, the obligation is not extinguished.

a. in obligations to do- 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.

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.

Art. 1262 par. 2 (by analogy). 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.

i. “impossibility” distinguished from “difficulty”

OCCENA vs CA

Respondent may not cite Article 1267 to modify the existing contract, because Article 1267 is not the difficulty contemplated that would allow them to modify their said contract.

NAGATEL CO vs CA

Respondents may be released from said contract, because article 1267 allows one to be released from the difficulty of the “service” or “performance” of the obligation. Also, the courts are authorized to release the oblgor in whole or in part.

PNCC vs CA

1266 is only applicable in obligations “to do” not “to give”. Also, prior to November 18, 1985, when contract was entered into, Ninoy Aquino had been assassinated and the political climate was such. Despite these, petitioner still entered into the contract. These unforeseen events did not render the performance of lease contract impractical and inimical to corporate survival.

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[ C 2011 ] [ UP COLLEGE OF LAW ]b. in case of partial impossibility- Art. 1264

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.

-partial loss determineswhether or not the obligation is sustained or is extinguished based on the extent of the loss. The intention of the parties is the controlling factor in the solution of each case of partial loss.

IV. Condonation or RemissionA. Concept:

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, comply with the forms of donation.

-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 remission refers.

B. Kinds 1. As to extent a. Total b. Partial: refers to amount of

indebtedness, or to an accessory obligation only, or to some other aspect of the obligation only (such aspledge or interest or to some other aspect of the obligation (such as solidarity)

2. As to form- Art. 1270 par. 1

a. Express: made formally b. Implied: it can be inferred

through the acts of the parties

C. Requisitesi. debt must be existingand demandable at the time of the remission

ii. the renunciation mustbe gratuitous without any equivalent or consideration

iii. 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 inofficious donations. Express condonation shall, furthermore, comply with the forms of donation.

YAM vs CA

Remission did not take place because Article 1270 paragraph 2 requires that express condonation must comply with forms of donation. It must be made in writing, pursuant to Article 748. Reduction or condonation of P266, 146. 88 was not reduced in writing. Also, the voucher was not a receipt.

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 inofficious, the debtor and his heirs may uphold it by proving that the delivery of the document was made in virtue of payment of the debt.

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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.

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. Effects1. in general: extinguishes obligation in its entirety

2. in case of joint or solidary obligations: when obligation is joint, the presumption of remission can refer only to the portion of the debt in possession of the instrument evidencing possession of debt.

F. Governing Rules- Art. 1270.-express condonation must comply with forms of donation, which requires express acceptance.

G. Renunciation of Principal or Accessory Obligation 1. effects-

Art. 1273. The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter shall leave the former in force.

2. rationale: This applies the rulethat accessory obligation

simply follows the principal

V. Confusion or Merger of Rights

A. Concept-Merger or confusion is the meetingin

one person of the qualities of the creditor and debtor with respect to the same obligation.

B. Requisites

i. must take place between creditorand principal debtor

ii. the very same obligation must be involved (if debtor acquires rightsfrom creditor, but not obligation in question, no merger takes place)

iii. the confusion must be total or as regards the entire obligation.

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.

2. in case of joint (Art. 1277) 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.

Solidary obligations: total extinction in a merger of the creditor with one solidary debtor or of one solidary creditor and debtor

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.

-extinguishment of the principal obligation through confusion

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[ C 2011 ] [ UP COLLEGE OF LAW ]releases the guarantor because the obligation of the latter is merely accessory

VI. CompensationA. Concept-

Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.

Distinguished from Confusion: In Confusion/Merger, only one obligation is involved.

In compensation, there must always be two obligations.

Confusion: one person inwhom the character of

creditor and debtor meet.

Compensation: two personsmutually debtors and

creditors of each other, each arising from a different cause.

B. Kinds 1. As to extent a. Total: if debts are of the same

amount b. Partial: if one debt is larger

than the other

2. As to origin a. Legal: takes place by operation

of law, because all requisites are present.

b. Conventional: when parties agree to compensate their mutual obligations, even if some requisites are lacking, such as those in Article 1282.

Art. 1279 inapplicable, 1282 c. Judicial-

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: it can be claimedby one of the parties

who, however, has the right to object to it, such as when one

of the obligations has a periodfor the benefit of one party alone, who renounces that period so as to make the obligation due.

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.

Art. 1280. Notwithstanding the provisions of the preceding article, the guarantor may set up compensation as regards what the creditor may owe the principal debtor.

a. “due” distinguished from “demandable”

GAN TION vs. CA

Legal compensation did not prevent Gan Tion from having to pay attorney’s fees. In this case, it is the litigant who is owed the attorney’s fees, not Ong Wan Sieng. They are not principally bound either.

BPI vs. REYES

Respondent Reyes is not entitled to restitution because legal compensation already took place. Both are creditors and debtors of each other. There is a sum of money involved. It was due, liquidated and

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[ C 2011 ] [ UP COLLEGE OF LAW ]demandable, and was not claimed by a third person.

PNB vs. SAPPHIRE SHIPPING

PNB had no right to intercept the sum of money from private respondent, because PNB had to transmit the money transfer to Citibank. PNB, as NCB’s correspondent bank, was tasked with this obligation. Legal compensation had not taken place.

CKH vs CA

Article 1279 requires that the parties be principal contracting parties. CKH and Century were not principal contracting parties. Corporations have personalities separate from stockholders. Choi and Kev are only stockholders, and not parties in the sale.

MIRASOL vs. CA

In this case, the parties are not mutual creditors and debtors. The claim is still subject to litigation and cannot be liquidated. Therefore, compensation did not take place.

ASSOCIATED BANK vs TANThe relationship between banks and depositor is creditor-debtor. The bank’s premature withdrawal of amount led Tan’s account debit. Also, there was a grave error in the lack of notice. Hence, petitioner had no right to debit Tan’s account for a dishonored check.

VILLANUEVA vs TANTUICO

Without an express admission of indebtedness, no compensation takes place.

PEREZ vs CA

For amounts rolled over on September 9, 1974 or October 3, 1974, legal compensation took place, because this was due and demandable. But bills and principals were rolled over to other dates, not September 9, 1974 or October 3, 1974, namely those on October 4 and October 11 were not subject to legal compensation since they were not yet due and demandable.

SILAHIS vs IAC

Compensation is not proper because the 22,000 did not offset the indebtedness, and the amount was still subject to a claim by a third party.

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.

--it takes effect the moment that articles 1278 and 1279 co-exist

i. both debts are extinguished to concurrent amount

ii. interests stop accruing on extinguished obligation or part extinguished

iii. period of prescription stops with respect to obligation or part extinguished

iv. all accessory obligations of extinguished principal obligation are also extinguished

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.

D. When Compensation is Not Allowed-

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.

Art 1288. Neither shall there be compensation if one of the debts consists in civil liability arising from a penal offense.

Depositum: contract by virtue of which a person receives personal property belonging to

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[ C 2011 ] [ UP COLLEGE OF LAW ]another with the obligation of safely keeping it and returning the same

Commodatum: gratuitous contract by virtue of which one of the parties delivers to other a non-consumable personal property

-civil liability due to a penal offense must be served and honoured imperatively.

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.

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.

G. Effects of Assignment of Credit

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.

-compensation takes place before assignment, there hadalready been an

extinguishment of oneof the obligations. A subsequent assignment of an extinguished obligationcannot produce any effect against debtor.

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.

-if debtor was notified he did not give his consent, the creditassigned to a 3rd person matures after that which pertains to the debtor

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.

a. rationale: to preventone party from beingfraudulently deprived of the benefits of compensation

VII. NovationA. Concept-

Art. 1291. Obligations may be modified by:

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(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.

- extinguishment of an obligation by substitution or change of the obligation by a subsequent one which extinguishes or modifies the first.

- a juridical act of dual function in that at the time it extinguishes one obligation, it creates a new one in lieu of the old one.

B. Kinds 1. As to form a. Express: when parties declare

that the old obligation is extinguished by the new obligation

b. Implied: when there is such an incompatibility between the old and new obligation that they cannot stand together

2. As to origin a. Conventional b. Legal

3. As to object a. Objective or Real

-change of obligation by substitution or changing the object with another or changing the principal conditions

b. Subjective or Personal-modification of obligation bychange of subject; passive when a debtor is substituted,active when a third person issubrogated in the rights of thecreditor.

C. Requisites- Art. 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every

point incompatible with each other.

i. a previous valid obligationii. agreement of all parties to the new contractiii. extinguishment of the old

contractiv. validity of the new contract

Requisites imply that parties had the capacity for new contract and intend to bring about the novation (animus novandi)

MILLAR vs CA

The mere reduction of the amount due in no sense constitute a sufficient indicion of incompatibility. There was no express nor implied novation. The deed of chattel mortgage simply specified how much Gabriel still owed Millar.

DORMITORIO vs. FERNANDEZ

The presence of animus novandi is undeniable. When after judgment has become final, facts and circumstances transpire which render its execution impossible or unjust, the interested party may ask the court to modify or alter the judgment to harmonize the same with justice and facts.

MAGDALENA ESTATES vs. RODRIGUEZ

The fact that Magdalena accepted the subsequent surety agreement without providing for accruing interest does not imply novation. The mere fact that a person receives a guaranty does not constitute a novation.

REYES vs CA

No new agreement for substitution of creditor was forged among the parties concerned which would take the place of the preceding contract. In the second case, no evidence was presented to show that AFP intended to release Reyes from her obligation to pay. In novation by substitution of debtor, the creditor must always consent.

BROADWAY CENTRUM vs TROPICAL HUT

The agreement did not extinguish or alter the obligations of Tropical, as it was expressly stated that it should not be interpreted as an amendment to the lease contract.

MOLINO vs SECURITY DINERS

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[ C 2011 ] [ UP COLLEGE OF LAW ]The upgrading was a novation of the original agreement of the first credit card. But, the novation did not release Molino because she expressly waived discharge in case of change or novation in the Surety Undertaking.

GARCIA vs LLAMAS

There is no incompatibility between the note and the check. In fact, the note evidences the loan obligation, which the check answers for. Hence, no novation took place.

CALIFORNIA BUS LINE INC vs STATE INVESTMENT HOUSE

The restructuring agreement did not novate the promissory notes. The agreement shows hat the parties did not expressly stipulate that the restructuring agreement novated the promissory notes. Also, no incompatibility was present, because the two can stand together.

BABST vs. CA

BPI did not object to the substitution of debtors, only to the payment formula of DBP. BPI’s conduct evinced a clear and unmistakable consent of DBP for Eliscon as debtor. There was a valid extinctive novation, releasing Eliscon from its obligation to BPI.

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.

-extinguishment of principal obligation releases pledges, mortgages, guarantors and sureties

2. when accessory obligation may subsist- Art. 1296

-except in reference to a stipulation in favor of a third person, which is subordinated to the principal obligation. It is in reality a distinct obligation in favor of a third person and cannot be extinguished by

novation without consent of the latter.

E. Effect of the Status of the Original or New Obligation1. 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.

-no obligation, no novation

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 new obligation is voidable, the novation becomes effective

3. suspensive or resolutory condition of original obligation-

Art. 1299. . If the original obligation was subject to a suspensive or resolutory condition, the new obligation shall be under the same condition, unless it is otherwise stipulated.

-novation is also conditional, and its efficacy depends upon whether the condition which affects the former is complied with or not.

F. Objective Novation 1. meaning of “principal conditions”: making the debt absolute instead of conditional or vice versa)

G. Subjective Novation 1. By change of debtor a. Expromision 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 by the

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[ C 2011 ] [ UP COLLEGE OF LAW ]new debtor gives him the rights mentioned in Articles 1236 and 1237.

i. consent of two parties – creditor and new debtor.ii. knowledge or consent of 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 obligations shall not give rise to any liability on the part of the original debtor.

i. the old debtor is rreleased from the obligation

ii. insolvency of thenew debtor does not revive the old obligation

b. Delegacion i. requisites- (vs. Art. 1293)

i. consent of: -the old debtor -the new debtor -necessarily, of the old creditor, which

may be given at any time, orimplied in any form

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 the delegated his debt.

-insolvency of new debtor revives the oldobligation if it was anterior and publicor anterior and knownto the two debtors

QUINTO vs PEOPLE

The changes consist only in the manner of payment. There really was no substitution of debtors since Aurelia merely acquiesced to the payment but did not give her consent to the contract.

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.

-subrogation is transferof all the rights of the creditor to a 3rd person who substitutes him in all his rights

a. Conventional subrogation-requires agreement by the parties, consent and intervention of the original creditor, the new creditor and the debtor

i. requisites- Art. 1301. Conventional subrogation of a third person requires the consent of the original parties and of the third person.

-original creditor’s right is extinguished,new creditor becomes a part of the new relation and consent of the debtor is necessary because the old obligation is extinguished and he becomes liable under the new obligation

ii. distinguished from Assignment of Credit

-consent is necessary-extinguishes an obligationand gives rise to anew one

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[ C 2011 ] [ UP COLLEGE OF LAW ]

Assignment of credit requires consent, and it refers to the same right whichpasses from one person toanother

iii. effects- Art. 1303. Subrogation transfers to the persons subrogated the credit with all the rights thereto appertaining, either against the debtor or against third person, be they guarantors or possessors of mortgages, subject to stipulation in a conventional subrogation.

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.

LICAROS vs GATMAITAN

The Memorandum of Agreement provided for the need to get the bank’s consent. Therefore, conventional subrogation, which required the consent of the third party, took place. The failure to get the agreement of the bank prevented the agreement from becoming effective, much less a source of cause of action for both parties.

b. Legal subrogation i. requisites:

not presumed except:

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.

iii. effects- Art. 1303, 1304

ASTRO PHIL vs PHIL EXPORT

Philguarantee has the right to proceed against the petitioner, since it already paid 70% of the loan, subject to the condition that upon payment, Philguarantee shall be proportionally subrogated. Legal subrogation took place, and consent or knowledge of debtor Astro was not needed. Now, Philguarantee received Philtrust’s right to proceed against Roxas and Astro.

TITLE II: CONTRACTS

CHAPTER I: 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 conventionmanifested in legal form, by virtue of which one or more persons bind themselves in favor of another or others, or reciprocally, to vthe fulfillment of a

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[ C 2011 ] [ UP COLLEGE OF LAW ]prestation to give, to do, or not to do.”

-an agreement on the declaration of a common will

-a bilateral legal transaction to create, modify, or terminate a legal tie between the parties

-A contract is the accord of two or more persons (with previously diverging interests) for the purpose of creating a juridical relation between them

B. Elements

1. Essential elements (see Chapter II, infra) a. Consent b. Object/Subject Matter c. Cause

2. Natural elements: those which exist as part of the contract even if the parties do not provide for them becausethe law creates them (warranty in sales)

3. Accidental elements (see D., 3., infra): exist only when stipulated, or agreed upon by parties and cannot exist without being stipulated or predetermined stipulation

C. Characteristics/Basis of Binding Effect 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.

-validity and performance cannotbe left to the will of one of the parties

2. Mutuality – Arts. 1308-1310 (see also Art. 1473)

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.

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.

-mutuality between parties based on essential equality

-no unilateral cancellation

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.

GSIS vs CA

The purchase price mutually agreed upon by the parties was P19, 740. The respondent spouses did not give their consent for petitioner to make a unilateral upward adjustment of this purchase price. Also, it was established that the said notation was not in the original deed agreed upon by the parties. Also, petitioner is bound for the admission the omission of said notation was an honest mistake, thus solidifying the contention that the said notation was not present in the signed Deed of Conditional Sale.

PAPI vs CRISOSTOMO

Punzalan’s letter did not cancel the first MOA. It only signified the suspension of the acceptance of new applications. No unilateral cancellation or rescission of the first MOA took place. Once a contract is entered into, no party can renounce it unilaterally or without

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[ C 2011 ] [ UP COLLEGE OF LAW ]the consent of the other, based on the principle of mutuality it contains embodied in Article 1308.

3. Relativity: Contracts take effect only between the 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.

-contracts produce effect only as between the parties who execute them

MLA RAILROAD vs LA COMPANIA

There was an express contractual relation between Atlantic Co and Steamship Co. Atlantic Co was bound by its undertaking to use due care. That said, Atlantic Co cannot assume the double responsibility to both Steamship Co and Mla Railroad since it is a general rule that an implied contract never arises where an express contract has been made. If Atlantic refused to carry out its agreement to discharge, plaintiff could not have enforced the action. Hence, Mla Railroad has no right to recover damages from Atlantic Co for the wrongful act, which constituted the violation of said contract. The Mla Railroad can only be made effective through the Steamship Co with whom the contract was made. Hence, the Steamship Co must pay Mla Railroad, and Steamship Co must recover the same amount from Atlantic.

DKC HOLDINGS vs CA, BARTOLOME

Heirs are bound by contracts entered into by their predecessors in interest, except in stipulations, nature or provisions that make said rights or obligations intransmissible. The character of the contract is such that its obligation may be performed by promissor’s personal representatives.

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.

HERMANOS vs. ORENSE

Duran sold Orense’s land to Hermanos despite the lack of legal authority to do so. Normally, the contract entered into by Duran with plaintiff Hermanos is void. But the sale became valid by the verbal confirmation given by Orense in the trial where plaintiff filed a case against Duran for estafa. The defendant conferred agency or implied said power to Duran. His consent to Duran’s selling the property must hold.

D. Parties 1. Auto-contracts:

Where one contracts withhimself; it is valid because the existence of a contract is not determined by the number of persons whointervene in it, but by the number of parties thereto.

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,

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[ C 2011 ] [ UP COLLEGE OF LAW ]good customs, public order, or public policy

GABRIEL vs MONTE DE PIEDAD

The contract which calls for petitioner to pay P14, 679.07 does not in any way militate against the public good. Despite petitioner’s claim of deceit, said contract does not contravene the policy of the law nor the established interests of society.

PAKISTAN INTL AIRLINES vs OPLE

The contracts of employment violated the freedom of contracts. Pakistan Intl may not contract away applicable provisions of law, especially provisions impressed with public interest. The law relating to labor and employment is such a concern. Parties are not at liberty to insulate themselves and their relationship from the impact of labor laws and regulations.SIR JJ: The reasoning of the Supreme Court is wrong. They should have based their reasoning on the fact that there are substantial contacts between contracts and the Philippines, not on the violation of freedom to contract. Also, what is wrong with the stipulation that the contracts be tried in Pakistani territory?

a. Special disqualifications 1) Art. 87, Family Code

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.

2) Arts. 1490 and 1491, CCArt. 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 or property under Article 191. (1458a)

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 entrusted 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.

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[ C 2011 ] [ UP COLLEGE OF LAW ]3) Art. 1782, CC

Art. 1782. Persons who are prohibited from giving each other any donation or advantage cannot enter into universal partnership.

3. What they may not stipulate – Art. 1306 a. Contrary to law, e.g.: 1) pactum commissorium

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.

2) pactum leonina Art. 1799. A stipulation which excludes one or more partners from any share in the profits or losses is void.

3) pactum de non alienado Art. 2130. A stipulation forbidding the owner from alienating the immovable mortgaged shall be void.

b. Contrary to morals:morals may be considered as those generally accepted principles of morality which have received some kind of social and practical confirmation

-morals have particular reference to standards of justice (right and wrong) and decency acknowledged by society

c. Contrary to good customs-contracts which limit in an excessivemanner the personal or economic freedom of a person (promise not to engage in work, a promise to vote,to do something at risk of life)

d. Contrary to public order-public order: public, social andlegal interest in private law, that which is permanent and essential in institutions, which, even if favoringsome individual to whom the right pertains, cannot be left to his own will.

-the public weal, peace, safety and health of the community

e. Contrary to public policy-public policy: the idea of variable content, depending on the stage of social culture in the community

-has a tendency to injure the public is against the public good, or contravenes some established interest of society or is inconsistentwith sound policy and good morals, or tends to clearly to undermine the security of individual rights

CUI vs ARELLANO UNIVERSITY

The stipulation that Cui can only recover his transcript after he reimburses the funds he received during his scholarship is one that is contrary to public policy. Scholarships are awarded in recognition of merit, not to keep outstanding students in order to bolster the school’s prestige.

SIR JJ: There must be some lawful motivation for granting scholarships. Going against these lawful motivations is violative of public policy.

ARROYO vs BEARWIN

An agreement by the owner of stolen goods to stifle prosecution of the accused for a pecuniary or some other valuable consideration is contrary to public policy and due administration of justice. It is in the interest of the public that criminals be prosecuted.

FILIPINAS COMPANIA vs MANDANAS

Article 22 of the Constitution of the Philippine Rating Bureau is lawful. Its purpose is not to eliminate competition but to promote ethical practices in duly registering with the Bureau. It eliminates unfair competition. It is not violative of public policy.

SIR JJ: Territorial jurisdiction determines public policy.

BUSTAMANTE vs ROSAL

The stipulation in the loan contract was not valid and enforceable, Because the sale of the collateral is an obligation with a suspensive condition. The event did not occur. Petitioner did not fail in tendering payment. Therefore, respondents have no right to demand the purchase of the collateral. The stipulation is pactum commissorium, which involves the

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[ C 2011 ] [ UP COLLEGE OF LAW ]automatic appropriation of property that was mortgaged by way of security of payment of principal obligation.

SIR JJ: This was not pactum commissorium. No automatic appropriation took place. Technically, it was a forced sale.

E. Classification 1. According to subject-matter a. Things b. Services 2. According to name

a. Nominate: where the lawgives the contract a special designation or particular

name.-those with particular names

(purchase and sale, lease, agency)

b. Innominate – Where the contract has no special name

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.

DIZON vs GABORRO

The true intention of the parties, presented in the Deed of Sale with Assumption of Mortgage and Option to Purchase Real Estate was that Gaborro would assume and pay indebtedness of Dizon to DBP and PNB, and Gaborro was given the possession until petitioner can fully reimburse the respondent. Thus, the agreement was an innominate contract under Article 1307 of the Civil Code.

CORPUS vs CA

There was an implied agreement for payment of Attorney’s fees. Petitioner’s act of giving the 2,000 check indicates petitioner’s commitment to pay the fees. The innominate contract of facio ut des applies.

1) do ut des – I give and you give

-A will give one thing to B, so that B will give another thing to A.

2) do ut facias – I give and you do-A will give something to B, in order that B may do something for A.

3) facio ut facias (I do and you give)-A binds himself to do something forB so that B will give something to A.

4) facio ut des (I do and you do)-A is to do something for B, so that B

will render some service for A.

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.

-perfection is the moment from which it exists, the juridical tie between the parties arise from that time.

-from the moment theparties are bound

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.

- a real contract is not perfected by mere consent; delivery of the thing is also required

-not arbitrary nor formulistic, but is demanded by the very nature of real contracts and their purpose

Solemn – formal, specialformalities

4. According to its relation to other contracts (dependence)

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[ C 2011 ] [ UP COLLEGE OF LAW ]a. Preparatory – where the contract looks forward to other future transactions

b. Principal - where the contract may exist alone c. Accessory – where the contract depends upon some other

contract for its existence

5. According to form a. Common or informal

- a loan b. Special or formal

-where the law requires certain formality (usually some writing) to perfect the contract and make it binding in addition to consent

6. According to purpose a. Transfer of ownership,

e.g., sale b. Conveyance of use, e.g.,

commodatum c. Rendition of services,

e.g., agency7. According to the nature of the vinculum produceda. Unilateral – where only one of the parties is bound by a prestationb. Bilateral – where both parties

are bound to reciprocal prestations

c. Reciprocal

8. According to cause a. Onerous – where there is an exchange of equivalent values b. Gratuitous or lucrative –

where no equivalent prestation is received by one party

9. According to risk a. Commutative – fulfillment is

predetermined in advance-lease

b. Aleatory – fulfillment is dependent upon chance -insurance

F. Stages 1. Preparation: when

negotiations are in process; bargaining; ends at the moment of agreement of the parties

2. Perfection: the moment whenparties come to agreement

3. Consummation or death:the fulfillment or performance of the terms agreed upon inthe contract; when said contract is fully executed

G. As distinguished from a perfected promise and an imperfect promise (policitacion)

-perfect promise: tends onlyto assure and pave the way for the celebration of a contract in the future; untilsaid contract is actuallymade, rights and obligations are not yet determined.

-imperfect promise: a mere unaccepted offer

H. With respect to third persons1. Stipulations in favor of third

persons (stipulations pour autrui) –

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.

FLORENTINO vs ENCARNACION

The stipulation for the fruits of the land paying for the expenses of the Church festivities is a stipulation pour autrui. It is in favor of a third person, the Church. The Church did accept the stipulation pour autrui. The enjoyment of the benefits flowing from the land for 17 years without question can be construed as an implied acceptance by the Church of the stipulation pour autrui.

COQUIA vs FIELDMEN’S INSURANCE

The stipulation pour autrui is explicit in its mention that Fieldmen’s Insurance will insure and indemnify the personal relatives of the deceased, in this case Coquia’s relatives. The

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[ C 2011 ] [ UP COLLEGE OF LAW ]3rd party in this case are the heirs of the insured.

CONSTANTINO vs ESPIRITU

The inclusion of the beneficiary under the contract and as co-plaintiff would allow the court to adjudicate. This is a stipulation pour autrui and the third person whose benefit the contract was entered into may demand its fulfillment.

SIR JJ: In this case, the entire contract is for the benefit of Constantino’s son, not just a stipulation. This is a trust, not a stipulation pour autrui.

YOUNG vs CA

Young was not a party in the case. She cannot enforce a compromise agreement which she clearly was not a part of. Also, she did not communicate her acceptance whether expressly or impliedly. However, her contention that said stipulation has not yet been revoked, the sale of said property effectively revoked Young’s right of first refusal.

MARMONT RESORT vs GUIANG

It was clear that Marmont was to benefit from the second MOA, an a stipulation pour autrui was present. The purpose and intent of stipulating parties Maris Trading and the Guiang spouses was to benefit petitioner Marmont. Albeit Marmont was not a party, the sole purpose of Maris entering into the land was to supply the water requirements of Marmont.

MANDARIN VILLA vs CA

An existing agreement between petitioner and Bankard existed where petitioner shall honor credit cards by Bankard, provided the expiration date had not elapsed. Private respondent may not be a party to the contract between Mandarin and Bankard, but the stipulation confers upon him a favor, constituting a stipulation pour autrio. De Jesus may then demand its fulfillment under Article 1311.

2. Possession of the object of 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.

-a real right directly affects the propertysubject to it; hence, whoever comes intopossession of such property must respect that real right

3. Creditors of the contracting parties –

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

-when a debtor entersinto a contract in fraud of his creditors,

the creditor, althoughnot parties to such

contract of alienation, may ask for its rescission

4. 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

-inducement by a 3rd person of a party to the contract to violate the terms thereof may hold himliable for damages

DAYWALT vs. CORPThe cause of action here is based on a liability derived from a the wrongful interference of defendant in the performance of a contract between plaintiff and Endencia. However, the extent of the liability for breach must be determined in light of the situation in existence.

SO PING BUN vs CATort interference consists of the existence of a valid contract, knowledge of the third person and the interference of the third person without legal justification. For that, petitioner is guilty for damages.

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The petitioner conducted his own investigation and exercised all due diligence. The record also shows that he did not induce his heirs to sell. Thus, he is not liable for tortuous interference.

CHAPTER II: ESSENTIAL REQUISITES FOR 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.

- counter offer is a rejection of the first offer

-conformity of the parties on the terms of the contract

requisites:

i. plurality of subjectsii. capacityiii. intelligence and free williv. express or tacitmanifestation of the willv. conformity of the will and its manifestation

a. Must be manifested by the concurrence of the offer and acceptance

ROSENSTOCK vs. BURKE

The letter is not a definite offer to purchase because the use of the word “entertain”. This is not tantamount to a resolution to perform said act. Said letter was written in defendant’s presence. Plaintiff was not in a position to make a definite offer.

DISSENT: There was a completed contract by Elser, since the sailboat was already in his possession and nothing remained to be done except the payment of the purchase price.

MALBAROSA vs CA

An offer that is not accepted does not give rise to consent. Respondent required petitioner to accept by making his signature on the space indicated, which foreclosed any implied acceptance or any other mode of acceptance for that matter.

SAN LORENZO DEVT CORP vs CA

The acts of the spouses Lu indicated that they never intended to transfer ownership to Babasanta. That said, SLDC is a purchaser in good faith because at the time of the sale of property to SLDC, the vendors were still the registered owners.

MMDA vs JANCOM

The contract between MMDA and JANCOM is binding because there was a clear signing and execution of the contract by an authorized representative, in this case, the DENR Secretary who is authorized by law to enter into publicly bidded contracts.

1) Offer a) Must be certain –

Art. 1319.- an offer is a unilateralproposition which one party makes to another for the celebration of a contract

b) What may be fixed by the offeror –

Art. 1321. . The person making the offer may fix the time, place, and manner of acceptance, all of which must be complied with.

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[ C 2011 ] [ UP COLLEGE OF LAW ] c) When made through an

agent Art. 1322. An offer made through an agent is accepted from the time acceptance is communicated to him.

d) Circumstances when offer becomes ineffective

Art. 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed.

-the contract is not perfected except by

the concurrence of two

wills which exist and

continueuntil the moment thatthey occur, hence, thedisappearance of

either party or the loss of hiscapacity before the perfection prevents the contractual tie from being performed.

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 invitations to make an offer.

f) Advertisements for bidders – Art. 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears.

2) Acceptance a) Must be absolute –

Art. 1319 b) Kinds i. Express – Art. 1320 ii. Implied – Art. 1320 iii. Qualified – Art. 1319

-a counter offer

c) If made by letter or telegram – Art. 1319, 2nd par.

i. Four theories on when the contract is perfected:

1. Manifestation theory2. Expedition thory3. Reception theory4. Cognition theory – Art. 1319, 2nd par.

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, as something paid or promised.

-the law permits the offerror to withdrawthe offer at any timebefore acceptance. This does not mean that he can exercise this right absolutelywithout the regard of others.

SANCHEZ vs RIGOS

Both parties entered into a perfected contract of sale. Since Rigos’ offer to sell was accepted by Sanchez before she could withdraw her offer, a bilateral reciprocal contract to sell and buy was generated.

e) Contract of option – Art. 1324

b. Necessary legal capacity of the parties 1) 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.

2) When offer and/or acceptance is made

a) during a lucid interval b) in a state of drunkenness c) during a hypnotic spell

Art. 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a

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[ C 2011 ] [ UP COLLEGE OF LAW ]state of drunkenness or during a hypnotic spell are voidable.

c. The consent must be intelligent, free, spontaneous, and real – Arts. 1330-1346

1) Effect – Art. 1330. A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable.

2) Vices of consent a) Mistake or error

i. kinds 1. Mistake of fact

- a ground for annullingthe contract-mistake as to the identity or

qualifications of one of the parties will vitiate consent

a. as to substance of the object -nature of the transaction

b. as to principal conditions-those key conditions or considerations which produced consent; conditions that are of essential or substantial character

c. as to identity or qualifications ofone of the parties-where confidence, individualskill or qualities are considered (error in persona)

d. as to quantity, as distinguishedfrom a simple mistake of account: in the first case, there is a real mistake with respect to one of the principal conditions, of the thing, thus the contract is vitiated. In the second, that is not the case

ASIAIN vs JALANDONI

Asiain is not allowed to recover the amount from Jalandoni because the phrase “more or less” can only be considered as covering small or excusable differences. There was a mutual mistake as to the quantity. There was a gross mistake of fact that may make the contract rescindable.

HEIRS of WILLIAM SEVILLA vs SEVILLA

At the time of the execution of the deed of extrajudicial partition, Felisa was no longer the owner of the contested land, since she donated said land to respondent Leopold Sevilla who accepted the donation in the same deed. She did not possess the capacity to give consent or execute the said deed, hence, there is no consent.

ANDRES vs MANUFACTURERS HANOVER

Although FACETS has outstanding debt to petitioner, the contract of petitioner was with FACETS and FACETS alone. The contract for transmittal of dollars from the US to petitioner was with FNSB. Petitioner was not privy to the contract. There was a mistake in the name written on the check. This is a case of solutio indebiti, where if something is received when there is no right and it was unduly delivered by mistake, the obligation to return it arises. Hence, private respondent may recover the $10,000 from petitioner, who has no right to apply it to the account of FACETS.

THEIS vs CA, TAGAYTAY, CALSONS

The mistake or error on the subject of the sale in question is substantial, as to the object land of the same transaction is different from that intended by the parties. There was an honest mistake by the surveyor, which respondent tried to remedy. Hence, the contract of sale is voidable on the ground of mistake.

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a. General rule: Ignorantia legisneminem excusat –

Art. 3 Ignorance of the law excuses no one from compliance therewith.

b. 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.

When one of the parties is unable to read – 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.

DUMASUG vs MODELOIt is evident that said document was not the instrument of debt which Dumasug signed. Dumasug signed without understanding the contents. The consent given by Dumasug was given by mistake and is null andd void.

HEMEDES vs CA

Strong, clear and unconvincing evidence to overcome the value of the Deed is present. The deed was written in English, which petitioner did not understand.

LUSTAN vs CA

Petitioner had no knowledge that the contract she signed was indeed a deed of sale. The contents were not read nor explained to her, hence, her consent was given by mistake.

KATIPUNAN vs KATIPUNAN

Petitioners made use of undue influence in making Katipunan sign a contract he thought was a labor contract, when it was actually a Deed of Absolute Sale.

LEONARDO vs CA

The presumption of mistake was not addressed by private respondent. Petitioner did not understand English, but the document was not interpreted to her.

iii. Inexcusable mistake – Art. 1333. . There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract.

-to invalidateconsent, error

b) Violence and intimidation – 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 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.

-violence: external, generally done to prevent an act from being done; intimidation is done

internally on the person, in order to change the will and induce action

i. Effect – Art. 1336. Violence or intimidation shall annul the obligation, although it may have been employed by a

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[ C 2011 ] [ UP COLLEGE OF LAW ]third person who did not take part in the contract.

MARTINEZ vs HSBC

Attendant circumstances show that no violence was done upon Martinez and her person. The contract she entered into is valid, even though it may have been entered into against her will and desire. She sought the compromise and she had attendant counsel. She also had time to solicit advice from her friends and family. Hence, no violence or duress may be claimed. Also, she benefited from the contract.SIR JJ: Just because she had access to legal counsel and family and friends’ advice, no violence was done unto her? That is weak reasoning.

LEE vs CA

There is a need to make a distinction where a person gives his consent reluctantly and one where he acts against his will under pressure. She was able to move freely about in the office, and she was not barred from leaving. She refused to sign the note, which showed a lack of immediate and continuous threat.

c) Undue influence – 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.

Undue influence:no unlawful act done; any means employed upon a party which, under the circumstances, he could not well resist

which controlled his volition and induced him to give his consent

d) Fraud or dolo –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.

i. Kinds 1. dolo causante –

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.

-fraud in the conception or realization of the obligation/contract, which vitiates consent: if defrauded party had been aware of, he would not have entered into the contract or given his consent

2. dolo incidente – Art. 1344, 2nd par.Incidental fraud only obliges the person employing it to pay damages.

-fraud in the performance of the obligation, which does not vitiate consent: which, even if defrauded party were still aware of, he would have still entered into the contract or given his consent

HILL vs VELOSODeceit takes place when by words or machinations, one of the contracting parties induces another to execute a contract. Franco, is not one of the contracting parties. It would have been deceit by a third party, which does not annul the consent of the parties.

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SIERRA vs. CA

The mere assertion that said note was not notarized in their presence does not constitute fraud, for a promissory note does not need to be notarized to be binding.

ii. Failure to disclose facts; duty to reveal them –

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.

TUASON vs MARQUEZThe innocent non-disclosure of a fact does not affect the formation of the contract or operate to discharge the parties from their agreement.

RURAL BANK vs CA

Respondents had no duty to disclose the real consideration of the sale between them and Behir. The bank had other means to determine the financial capacity of the respondents. Also, said land was security for the debt, and it remained unimpaired regardless of the consideration of the sale.

iii. Usual exaggerations in trade; opportunity toknow the facts –

Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent.

-tolerated fraud or dolus bonus: considerable latitude is given to seller’s statement or dealer’s talk

AZARRAGA vs GAYThe law allows dealer’s talk, which is risky by nature. Defendant had ample opportunity to appraise the condition of the land, and plaintiff did nothing to prevent her from making the investigation.

TRINIDAD vs IAC

Petitioner, herself a real estate broker, was given ample opportunity to examine the land, and was given considerable warning of the flooding prior to her purchase.

iv. Mere expression of an opinion –

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.

1. Effects –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.

SONGCO vs SELLNER

A misrepresentation upon a mere matter of opinion is not an actionable deceit. Said representation was merely an opinion regarding the cane in the field, and the potential quantity of sugar to produce.

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.

ii. Made in good faith –Art. 1343. Misrepresentation made in good faith is not fraudulent but may constitute error.

iii. Active/passive

MERCADO & MERCADO vs ESPIRITU

The sale of real estate made by minors pretending to be of legal age is valid. This is an active misrepresentation.

BRAGANZA vs VILLA ABRILLEPlaintiffs did not specifically state that they were of legal age, when they were minors at the time of the celebration of the contract. This is passive misrepresentation.

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f) Simulation of Contracts

RODRIGUEZ vs RODRIGUEZ

The two contracts of sale were not simulated, but were real and intended to be fully operative, since they were the means to achieve the result desired, which was the ownership of the fishponds.

SUNTAY vs CA

Suntay refused to assert his rights of ownership over the land and rice mill. He did not even intend to take exclusive possession. The claim that it was a valid sale was incongruous to since he never considered the land one of his assets.

PANGADIL vs CFI

The simulation here is only relative. Petitioners admit that they were bound; their sole contention was that it was based on an oral contract of mortgage, when in fact it was an oral contract of sale.

UMALI vs CA

Since Santiago received the tractor subject matter of the sales agreement, it shows that petitioners intended to fulfill their obligations.

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: when parties do not intend to be bound at all; want of true consent. The contract does not legally exist; it is illusory, a mere phantom. 2. Relative: when parties conceal their true agreement

MACAPAGAL vs REMORIN

The fact that the deed of sale between respondents did not accurately reflect the true consideration is not cause for

declaration of nullity. When parties intend to be bound, but the contract does not reflect the actual purchase price, it is only a relative simulation subject to reformation.

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.

B. Object of Contracts1. 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 b. All rights not

intransmissiblec. All services not contrary to law, morals, good customs, public, or public policy

2. Requisite - must be 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

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[ C 2011 ] [ UP COLLEGE OF LAW ]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.

3. What may not be the objects of contracts

a. Future inheritance, except when authorized by law –

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.

-outside the commerce of men:all kinds of things and interests whose alienation or free exchange is restricted by law or stipulation, which parties cannot modify at will

-all intransmissible rights, including strictly personal rights such parental or marital authority

-in order to be a future inheritance: 1) succession must not have been opened2) the object of the contract forms part of the inheritance3) that the promissory has an expectancy of a

right which is purely hereditary of nature.

BLAS vs SANTOS

Exhibit A is not a contract on future inheritance. It refers to existing property that she will receive by operation upon her husband’s death. It existed at the time of its celebration on December 26, 1936.

JLT AGRO vs. BALANSAG

Article 1080 of the Civil Code authorizes a testator to execute an instrument of special character which is revocable at any time during his lifetime. Because of this, Lot 63 is not a future inheritance, since it was conveyed.

b. Impossible things or services – Art. 1348. Impossible things or services cannot be the object of contracts.

-impossible: not susceptible or existing, outside of the commerceof man

C. Cause of Contracts 1. Meaning of cause –

-cause: the ‘why’ ofits contract, the immediate and proximate purpose ofthe contract, the essential reason which impels the contracting parties to enter into it and which explains or justifies the creation of the obligation

-the obligation established by the contract, whence it follows that if obligations are created for both parties, there must be more than one “causa”

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

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[ C 2011 ] [ UP COLLEGE OF LAW ]of pure beneficence, the mere liberality of the benefactor.a. In onerous contractsthe understanding or the promise of a thing or service by the other party

b. In remuneratory contractswhere a party gives something to another because of some service or benefit, where such service or benefit was no due as a legal obligation

c. In contracts of pure beneficencegratuitous contracts are essentially agreements to give donations

2. As distinguished from motive – Art. 1351. . The particular motives of the parties in entering into a contract are different from the cause thereof.

Cause: objective, intrinsic and juridical reason for the existence of the contract itself; objective of the party

Motive: the psychological, individual or personal purpose of a party to a contract; what drives one to enter into said contract

You can have two differing motives for entering into a contract, but one causa.

their effects:a. Absence of cause and unlawful cause – 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.

LIGUEZ vs CA

Lopez conveyed said parcel of land for the purpose of cohabitation with Liguez. Said condition was unlawful. Courts will not aid either party to enforce an illegal contract. However, Lopez, had he been living, would

be barred from setting up his own defense, since he cannot donate the entirety of the property in litigation; he can only donate insofar as it does not prejudice his wife. The children may set aside the donation in so far as it is in excess of the portion of free disposal.

b. Statement of a false cause in the contract – 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 – 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.

CARANTES vs CA

The contract cannot be considered as one to declare the inexistence of a contract for lack of consideration. In this case, the sum of 1.00 appears in the document as one of the considerations. It is only total absence of cause or consideration that renders a contract void and inexistent.

SPS BUENAVENTURA vs CA

Failure to pay the consideration is different from lack of consideration. Also, apparent gross inadequacy shall not invalidate a contract.

Requisite of Cause:1. it must exist2. it must be true3. it must be licit.

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.

-unless the contrary is proved, a contract is presumed to have a

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[ C 2011 ] [ UP COLLEGE OF LAW ]good and sufficient consideration.

Chapter III. Form of Contracts

A. General rule: Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present. (“Spiritual system” of the Spanish Code) – 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.

-validity of the contract in whateverform it may have

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) – 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.

HERNAEZ vs DE LOS ANGELESThe oral contract in this case is still valid and enforceable. Hernaez is entitled to the money she was promised as star of the films she is claiming.

C. Kinds of formalities required by law: 1. Those required for the

validity of contracts, such as those referred to in Arts. 748, 749, 1874, 2134, 1771, 1773;

2. Those required, not for validity, but to make the contract effective as against thirdpersons, such as those covered by Arts. 1357 and 1358; and

3. Those required for the purpose of proving the existence of the contract, such as those under the Statute of Frauds in Art. 1403.

RESUENA vs CAAssuming the verbal agreement, said Article grants a coercive power to the parties by which they can reciprocally compel the documentation of the agreement.

Chapter IV. Reformation of Instruments

A. Requisites (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.

1. Meeting of the minds upon the contract;

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[ C 2011 ] [ UP COLLEGE OF LAW ]parties is not expressed in the instrument; and

3. The failure of the instrument to express the true agreement is due to mistake, fraud, inequitable conduct, or

accident.

-it is unjust to allow theenforcement of a written instrument, which does not reflect the real meeting of the minds

-valid contract exists;whether written or not. Sometimes, in reducing theagreement in writing, the trueintention of the contractingparties are not correctlyexpressed.

GARCIA vs BISAYA

An allegation is essential because the object sought is to make an instrument conform to a real agreement or intention of the parties. The function of reformation is to establish and perpetuate an existing agreement, not to make a new agreement. Appellant’s complaint does not ask for annulment.

BENIR vs LEANDAThe complaint for reformation has not prescribed. The prescriptive period of a written contract is within 10 years. SIR JJ: Before you can claim prescription, you should determine whether or not reformation is possible.

QUIROS vs ARJONA

The inability of the municipal court to identify the exact location did not negate the principal object of the contract. This error is correctible by reformation, and does not indicate the absence of the principal object. The requisites for reformation must concur: a meeting of the minds, and an instrument that does not express the true intention.

B. Cases where no reformation is allowed –

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.

-wills and donations aregratuitous dispositions of property. An action for reformation is tantamount to an action for specific performance , which is an element lacking as between donor and donee and between testator and beneficiary.

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.

-there has been an election as between inconsistent remedies,one in affirmance of the contract, and another in disaffirmance.

D. Who may ask for reformation –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.

E. Procedure of reformation – Art. 1369. The procedure for the reformation of instrument shall be governed by rules of court to be promulgated by the Supreme Court.

ATILANO vs ATILANO

The mistake did not vitiate the consent. In this case, the deed of sale executed need not be reformed. The parties retain possession of their property and all they should do is execute mutual deeds of sale.

SARMING vs DY

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[ C 2011 ] [ UP COLLEGE OF LAW ]Silveria was a party to the contract. Remember, she sold the coconut trees, and was also one of the heirs entitled to the estate. The mistake in the preparation of the contract may be privy to reformation.

Chapter V. Interpretation of Contracts (Compare with Rules on Statutory Construction)

A. Primacy of intention – Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control.

-the language of a writing is to be interpreted according

to the legal meaning it bears in the place of

its execution, unlessparties have referenceto a different place

-when the terms ofthe agreement areso clear and explicit that they do not justify an attemptto read into itonly alleged intentionof the parties, the terms are to be understood literally.

-when the true intentand agreement of

the parties is established, it must be given effect and prevail

as the bare words of the contract

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

- a particular intentwill prevail over a general one. The contract cannot be construed to includematters distinct fromthose with respectto what parties intended to contract

BORROMEO vs CA

It is a fundamental principle in the interpretation of contracts that while ordinarily the literal sense of the words employed is followed, such is not the case where they appear to be contrary to the evident intention of the contracting parties.The payment is due.

KASILAG vs RODRIGUEZ

The verbal contract they entered into sought to alter the mortgage contract into a contract of antichresis, which is illegal and void. The clauses regarding said contract of antichresis, being independent of the mortgage, can be eliminated because said contract of mortgage is legal and valid.

SANTI vs CA

The phrase “automatically extended” did not appear in the contract of lease between Jose and Reyes. The difference in the two contracts is present. SIR JJ: The problem with the clause is that it is written in the passive voice. It does not state who has the capacity to extend the contract. Always write in the active voice.

B. How to determine intention – Art. 1371. In order to judge the intention of the contracting parties, their contemporaneous

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[ C 2011 ] [ UP COLLEGE OF LAW ]and subsequent acts shall be principally considered.

-The circumstancesunder which the contract was made,and the circumstances including the situation of the subjects

RAPANUT vs CAPetitioner has complied with his obligation. The correct view is that the 500 peso monthly installments with a 10% interest per annum, not placing an additional 10% interest on the 500 pesos monthly. Respondent is also in estoppel, since she accepted petitioner’s payments.

C. How to interpret a contract1. When it contains

stipulations that admit several meanings –

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.

OIL & NATURAL GAS CO vs CA

Petitioner’s displacement of the comma in its complaint cannot circumvent that clause 16 deals with the fact that ‘except when otherwise provided in the supply/order contract’, thus indicating that jurisdiction of the arbitrator is not all encompassing. SIR JJ: Do not take structuring of arguments for granted. If you’re going to construct an argument, go through each step. Do it step by step. Explain why the ruling applies. Analyze how the SC reaches its conclusion.

2. When it contains various stipulations, some of which are doubtful –

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.

-a contract cannot be construed in parts, but its clauses must beinterpreted in relation to one another

RIGOR vs CONSOLIDATED ORIX

Both promissory note and the chattel mortgage must be treated as a singular contract, with one complementing the other, pursuant to Article 1374. The deed of chattel mortgage modified this condition where the promissory note confined the proper court to Makati. Since respondent moved to Dagupan, this is the proper venue.SIR JJ: Let the acts determine the intention, absent any other possible means of interpretation.

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

-determined by a consideration of the general scope and purpose of the instrument in which it occurs

4. When it contains ambiguities and omission of stipulations –

Art. 1376. . The usage or custom of the place shall be borne in mind in the interpretation of the

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[ C 2011 ] [ UP COLLEGE OF LAW ]ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established.

-An instrument may be construed according to usage, in orderto determine the true character

CHUA vs CA

Article 1376 states that the custom of the place shall be used in interpreting ambiguities of the contract. In this case, “putting one’s papers in order” does not involve payment of the capital gains tax is not a pre-requisite of transferring ownership to the buyer.

5. With respect to the party who caused the obscurity –

Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity.

-the party who drawsup a contract in whichobscure terms or clauses appear, is the one responsiblefor the obscurity orambiguity; they must therefore be construedagainst him.

RCBC vs CA & ILUSTRE

There is no evidence that Ilustre acted with malice or negligence, that RCBC claimed he did when he failed to sing a check which they claim violated Paragraph 11 of the Chattel Mortgage.

6. When it is absolutely impossible to settle doubts by the rules above –

Art. 1378. When it is absolutely impossible to settle doubts by the rules established in the preceding articles, and the doubts refer to incidental circumstances of 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.

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. -construction which would amount to impairment or loss of right is not favored; conservation and preservation, not waiver, abandonmentor forfeiture of a right is the rule.

a. in gratuitous contracts-doubts are resolved in favorof least resolved in favor ofthe least transmission of right

GACOS vs. CA

Art. 1378 states that there will be an inclination against the least possible transmission of rights and interests. Hence, the interpretation will be that Gacos did not sell her entire share.

b. in onerous contracts-doubts are resolved in favorof greater reciprocity/equivalence

7. When the doubts are cast upon the principal object so that the intention cannot be known –

Art. 1378. When it is absolutely impossible to settle doubts by the rules established in the preceding articles, and

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[ C 2011 ] [ UP COLLEGE OF LAW ]the doubts refer to incidental circumstances of 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.

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 the will or intentof the parties cannot be ascertained, the contract is null and void.

D. Applicability of Rule 123, Rules of Court (now Secs. 10-19, Rule 130)

DEFECTIVE CONTRACTS

Chapter VI. Rescissible ContractsA. 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.

-a valid contract canonly be rescinded for legal cause.

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[ C 2011 ] [ UP COLLEGE OF LAW ]rescission, lesion musthave been known or could have been known at the time of making the contract

Lesion: the injury which oneof the parties suffers by virtueof a contract which is disadvantageous to him.

-the idea is to establish paritybetween 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 the perfection of a contract, there is lesion.

Contracts & guardians: a guardian is only to manage the estate of his word, hence, he has no power to dispose of any portion thereof without approval of the court when a guardian enters into a contract, he must secure the approval of the guardianship court

Contracts for absentees – principles for wards and guardians also apply, since the powers and duties of a legal representative of an absentee and the same as those of guardians

B. Characteristics1. Their defect consists in injury or damage either to one of the contracting parties or to third persons.

2. They are valid before rescission.

3. They can be attacked directly only, and 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

1. Definition2. As distinguished from rescission under Art. 1191

1191: rescission – RESOLUTION – principal

1381: rescission – LESION - subsidiary

UNIVERSAL FOOD CORP vs. FRANCISCO

In this case, the dismissal of respondent from his work as head scientist was a fundamental and substantial breach of the Bill of Assignment. Hence, respondents-appellees had no alternative but to file the present action for rescission and damages. Hence, what is applicable is rescission or resolution under Article 1191.

PRYCE CORP vs PAGCOR

When parties pray for payment of rental, the aggrieved party sought the partial enforcement of a lease contract. The remedy is not rescission but termination. Termination entails enforcement of its terms prior to the declaration of its cancellation.

CANNU vs. GALANG

The Deed of Sale is rescissible. However, this is the rescission of Article 1191, which means that they must return the partial payment made by petitioner.

IRINGAN vs CA

The applicable period of rescission here is not under Article 1389 (4 years) but under Article 1144 (10 years) since it is a principal action, not a subsidiary one limited to case of rescission under Article 1381.

RIVERA vs DEL ROSARIOArticle 1383 only applies to those found under Article 1381. The ‘Kasunduan’ does not fall under any one of them.

EQUATORIAL REALTY vs MAYFAIR

Rescission creates the obligation to return the things object of the contract, and all fruits and price with interest. Petitioner is only entitled to the return of the purchase price, no more, no less.

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[ C 2011 ] [ UP COLLEGE OF LAW ]VITUG (DISSENT): Rescissible contracts are not void ab initio. They are valid, until set aside in an appropriate action.

3. Requisites:a. The contract is rescissible;

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.;

UNION INSURANCE vs CAPhilippine Tugger’s acquisition, albeit rescissible is valid until legally rescinded. Hence, petitioner may ask for value of ships. The vessels are no longer owned by private respondent. Petitioner should have impleaded Peninsula Tourist Shipping who owned the vessels.

c. He is able to return whatever he may be obliged to restore ifrescission is granted –

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. ;

d. The object of the contract has not passed legally to the possession of a third person acting in good faith – Art. 1385;

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.

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.

a. with respect to third persons who acquired the thing in good faith – Art. 1385, 2nd and 3rd par.

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5. Extent of rescission –Art. 1384. Rescission shall be only to the extent necessary to cover the damages caused.

-it is only in favor of plaintiff creditor, not all of the creditors. Theextent of the

revocation is only to the amount of the prejudice suffered by creditor.

6. Presumptions 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 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.

-this article presumesthe existence of fraud

by a debtor. To raise the presumption of fraud

incase of attachment, it is enough that it be issued.

-proof of fraud mustbe met.

a. Badges of fraud

ORIA vs MCMICKING

Courts have laid down certain rules by which the fraudulent character of the transaction is determined. These are the badges of fraud, which are all present in this present case.

CHINA BANKING CORP vs CA

There are two badges of fraud present in this case: Chua sold the only property which was his right to redeem to his son. Also, said land was sought by China Banking Corp.

MR HOLDINGS vs BAJAR

It is inconceivable that ADB will connive with Marcopper to defraud Solidbank. Solidbank was not prejudiced.

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.

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Chapter VII. Voidable or Annullable Contracts

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.

-they are existent andbinding and valid although they can be annulled because ofwant of capacity orvitiated consent of oneof the parties but before annulment,

they are valid until it is setaside.

B. Characteristics1. 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.

3. They are susceptible of convalidation by ratification or by prescription.

FELIPE vs HEIRS of ALDON

The deed of sale is a voidable contract, because Gimena had no capacity to give consent to the contract, which she sold without her husband’s consent. After Maximo, Gimena’s late husband, died, it was only the heirs of Aldon who could acquire the right to question the defective contract, since it deprives them of their hereditary rights. Gimena cannot assail the deed of sale.

SIR JJ: This is more of an unenforceable contract than it is a voidable contract.

C. Annulment1. As distinguished from rescission: Both rescission and nullity

when declared, render the contract inofficious.

DIFFERENCES:1. nullity declares the inefficacywhich the contract already carries in itself, while rescissionmerely produces that inefficacywhich did not exist essentiallyin the contract.

2. nullity, to be cured, requires an act of ratification. Rescission needs no ratification.

3. In nullity, the direct influence of the public interest is noted, while in rescission, private interest governs.

4. nullity is based on a vice of the contract which invalidates it, while rescission is compatible with the perfect validity of the contract.

5. nullity is a sanction while rescission is a remedy. The law predominates the former, equity dominates the latter.

6. while nullity can be demanded only by parties to the contracts, rescission may be demanded even by third party affected by it.

2. Grounds – Art. 13903. Who may and may not institute action for annulment –

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.

-plaintiff must have an interest in the contract

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-the victim and not the party responsiblefor the defect is the one who must assertthe same

SINGSONG vs ISABELLA SAWMILL

Plaintiffs may institute an action for annulment, even if they are not parties to the contract, since 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 he has no intervention. However, Saldajeno has a right to be reimubursed, since the parties explicitly agreed to release her from the partnership.

SAMAHAN NG MAGSASAKA vs SAN JOSEP

The redemption made by the minors is only voidable. It is not void ab initio. The action to annul the minors’ redemption was one that could only have been initiated by the minors themselves, which they never initiated.

MALABANAN vs GAW CHING

Contracts take effect only between the parties, their assigns and heirs. Gaw Ching had no legal right of preemption in respect of the house. It is outside the Urban Land Refor Zone. He could not pursue the nullity of the contract, where the land was sold, because the land at the time belonged to the lessee and not Gaw Ching, who was renting the land.

ARMENTIA vs PATRIARCA

If no rights, action or obligation is transmitted to the heir, the heir cannot bring an action to annul the contract. Armentia adjudicated to herself a parcel of land; she was 13 years old at the time of the sale. SIR JJ: This is an absolutely simulated contract. It is not voidable. Erlinda Armentia and Patriarca clearly did not intend to be legally bound by their actions.

4. Prescription – 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.

-This does not applyto third persons butonly to the parties to the contract

5. Effecta. Mutual restitution – Arts. 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.

And Arts. 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.

-the effect of annulment is to wipethe contract out of existence and to restore the parties totheir original situationbefore the contract was entered into.

-principle of unjust enrichment is the basis of the second paragraph

CADWALLER vs SMITH, BELL

The defendants were not entitled to retain their commission under the annulled contract, which was ½ of whatever sum was obtained.

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[ C 2011 ] [ UP COLLEGE OF LAW ]INES vs CA

Interest may be allowed in discretion of damages. The award of legal interest is a necessary consequence the finding that the Contract of Sale is void that Ines existed. SIR JJ: It is voidable, because it was valid until the lower court declared it. However, this is dangerous because the other party would only want to delay the case as to incur greater interest.

VELARDES vs CARescission in this case is for mutual restitution as well.

ARRA REALTY vs GUARANTEED DEVT

ARC failed to transfer property to respondent’s name because of mortgage to CBC, and sale of GDCIA, respondent Penaloza is entitled to refund the amount she paid to petitioner ARC. SIR JJ: This is a valid contract! Breach took place.

1) When one of the parties is incapacitated – 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.

-a person mustsee to it that

the other party has sufficient capacity to bindhimself . If nullity is on account of incapacity of one of the contracting parties, the party suffering from such incapacity is only bound to return what he has profited.

2) When the thing is lost through the fault of the party obliged to return the same – 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.

Loss after the decree of Annulment:

-by the fault or negligence of oneparty: he must restorethe fruits and value ofthe thing lost plus interest at the timeof the loss

-by fortuitous event:only the fruits receivedand restored

6. Extinguishment of the actiona. By ratification –Art. 1392. Ratification extinguishes the action to annul a voidable contract.b. When the thing is lost through the fault of the person who has the right to file the action – 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.

-Until the annulment ofthe contract, it is validand produces legal effect; hence, the plaintiff who was in

possession of the object at the time of the loss if he were to be given back the consideration that he had paid to the defendant

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[ C 2011 ] [ UP COLLEGE OF LAW ]D. Ratification 1. Requisites: a. The contract is voidable; b. The ratification is made with knowledge of the cause for nullity;c. At the time of the ratification,

the cause of nullity has already ceased to exist.

-efficacy is given to a contract which suffersfrom a vice of curablenullity

-when a contract entered into through error is approved by a party after discovering his error, there is confirmation or ratification; acknowledgement – remedy of proof

confirmation – remedy of a defect of nullity

2. Forms a. Express or tacit –

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 ratification: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 the annulment

Implied ratification:Based on the conduct of acts or the party who is entitled to ask for annulment. This may include silence,

acquiescence or acceptance

b. By the parties themselves or by the guardian in behalf of anincapacitated party –

Art. 1394. Ratification may be effected by the guardian of the incapacitated person.

-the right to ratify pertains to the incapacitated persons; hence, during the existence of incapacity,it may be exercise by the guardian for him

-ratification does notrequire consent of theparty who could notask for annulment ofthe contract

3. Effects:a. Action to annul is extinguished

– Art. 1392. Ratification extinguishes the action to annul a voidable contract.

UY SOO LIM vs TAN UNCHUAN

By virtue of ratification, Uy Soo had not sustained the burden of proof of fraud. Through his actions, Uy Soo cannot seek to have the contract annulled when he himself benefited from it. He disposed of the whole 85,000 pesos he now seeks to be paid to him.

b. The contract is cleansed retroactively from all its defects – Art. 1396. Ratification cleanses the contract from all its defects from the moment it was constituted.

-the action to annulthe same can be maintained based upon defects relating to its original validity

-ratification is merelydeclaratory of the waiver of the rightto ask for annulment

Chapter VIII. Unenforceable Contracts

A. Characteristics-an unenforceable contract is one which cannot be enforced unless itis first ratified in the manner provided by law. It is distinguished from therescissible contracts and annullablecontracts in that the latter two

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[ C 2011 ] [ UP COLLEGE OF LAW ]contracts produce legal effects unless they are set aside by a competent court 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.

- contracts that by reason of statutory defects do not confer any action to enforce

the same until and unless they

are ratified in the manner prescribed by law are calledunenforceable contracts.

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 1. Unauthorized contracts

- when a person enters into a contact for and in the name ofanother, without authority to do so, the contract does not bind the latter

a. Governing rules – Art. 1404. Unauthorized contracts are governed by Article 1317 and the principles of agency in Title X of this Book.

2. Contracts covered by the Statute of Frauds

-the term ‘Statute of Frauds’is descriptive of statutes which require certain classesof contracts to be in writing.It regulates the formalities of the contract necessary to Render it enforceable

a. Purpose of Statute-prevent fraud and perjury in the enforcement of contractsdepending for their evidenceupon the unassisted memoryof witnesses by requiring certain enumerated contracts & transactions to be evidenced by a writing signed by the partyto be charged.

-since the Statute of Fraudswas enacted for the purposeof preventing frauds, it shouldnot be made the instrument

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[ C 2011 ] [ UP COLLEGE OF LAW ]to further them. Thus, where one pary has entirely performed his obligation

under an oral contract, equity would agree that all evidence be admitted to prove the allegedagreement.

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.

-If the parties make noobjection to the admissibility of oralevidence to support a contract covered by the Statute of Frauds and therein permitsuch contract to be proved orally. It will be just and binding upon the parties asif it had been reducedto writing. The Statuteof Frauds cannot be invoked when the contract had beenpartly executed; it onlyapplies to executorycontracts

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.

3. Contracts executed by parties who are both incapable of giving consent to a contract a. Effect of ratification by the parents or guardian of one of the parties– Art. 1407. 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.

b. Effect of ratification by the parents or guardian of both parties – Art. 1407. 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.

-Defense is personalto the party of the agreement. It is likeminority, fraud, mistake or of the similar defects whichmay be asserted orwaived by the partiesto the contract or theirrepresentatives, and cannot be set up by strangers to theagreement.

Chapter IX. Void or Inexistent Contracts

A. Characteristics 1. Void from the beginning 2. Produces no effect whatsoever 3. Cannot be ratified –

Art. 1409. The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;

(2) Those which are absolutely simulated or fictitious;

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[ C 2011 ] [ UP COLLEGE OF LAW ](3) Those whose cause or object did not exist at the time of the transaction;

(4) Those whose object is outside the commerce of men;

(5) Those which contemplate an impossible service;

(6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained;

(7) Those expressly prohibited or declared void by law.

These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.

-No force and effect from the very

beginning

-Consent was notproduced by the concurrence of the offer and acceptanceand did not pass the stage of generation tothe point of perfection

-those which violatesome mandatoryprovisions of law

B. Kinds –Art. 1409

1. Contracts that are void a. Those whose cause, object, or purpose is contrary to law, morals, good customs, public order or public policy

1) 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.

a) in pari delicto rule-parties who voluntarily enterinto a compromise agreementwhich is “expressly prohibitedor declared void by law” cannot withdraw, recall or render ineffective acts alreadydone in the performance oftheir part in the illegal bargain

2) When the act is unlawful but does not constitute a criminaloffense –

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 him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply his promise.

a) in pari delicto rule

3) When the purpose is illegal, and money is paid or property delivered therefor –

Art. 1414. When money is paid or property delivered for

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[ C 2011 ] [ UP COLLEGE OF LAW ]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 the public interest will thus be subserved, allow the party repudiating the contract to recover the money or property.

-when parties to an illegal contract are notequally guilty, and

when public policy isconsidered as

advanced by allowing the more excusable of the two to sue for relief, the

transactory relief is given to him

4) When the contract is illegal and one of the parties is incapableof 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.

5) 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 designated for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered.

-illegal per se: an actor contract that is illegal per se is one that is universally recognized standardor inherently or by its very nature bad, improper, immoral, orcontrary to goodconscience

6) When the amount paid exceeds the maximum fixed by law –

Art. 1417. When the price of any article or commodity is determined by statute, or by authority of law, any person paying any amount in excess of the maximum price allowed may recover such excess.

7) When by virtue of a contract a laborer undertakes to work longer than 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 thus fixed, he may demand additional compensation for service rendered beyond the time limit.

8) 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.

9) 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.

-void stipulations have no effect-exceptions: when thenature of the contractrequires divisibility

2) when the intention of the parties is that the contract be entire

10)When the contract is the direct result of a previous illegalcontract –

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[ C 2011 ] [ UP COLLEGE OF LAW ]Art. 1422. . A contract

which is the direct result of a previous illegal contract, is also void and inexistent.

b. Those whose object is outside the commerce of man

c. Those which contemplate an impossible service

d. Those where the intention of the parties relative to the principal object of the contract cannot be ascertained

e. Those expressly prohibited or declared void by law

2. Contracts that are inexistenta. Those which are absolutely simulated or fictitious (see Arts. 1345 and 1346)

b. Those whose cause or object did not exist at the time of thetransaction

C. Right to set up defense of illegality cannot be waived – Art. 1409

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.

2. is not available to third persons whose interest is not directly affected –

Art.1421. The defense of illegality of contract is not available to third persons whose interests are not directly affected.

TITLE III. NATURAL OBLIGATIONSA. 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.

-midway between civiland moral obligation

-an obligation withouta sanction, susceptible of voluntary performance, but notthrough compulsionby legal means. It is a real obligation to which the law deniesan action, but which

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[ C 2011 ] [ UP COLLEGE OF LAW ]the debtor may perform voluntarily.

B. As distinguished from civil obligations – Art. 1423

Civil obligations: juridicalobligation which are apparently in conformitywith positive law, but arecontrary to juridical principlesand susceptible of being annulled; given effect by law

Natural obligations: there is a juridical tie

C. As distinguished from moral obligations: duties of conscience

completely outside of the fieldof law

D. Conversion to civil obligation 1. By novation 2. By ratification

E. Examples – Arts. 1424-1430Art. 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. (1160A)

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.

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TITLE IV. ESTOPPELA. Definition – 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.

-origin in equity-a bar which precludes a person from denying, or asserting anythingto the contrary of thatwhich has in contemplation of law been establishedas the truth, either by the acts of judicial or legislative officer, orby his own deed or representation eitherexpressed or implied

-whenever a party has, by hisown declaration, act or omission, intentionally and deliberately led another to believe a particular thing to be true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act or omission, be permitted to falsify it.

B. Kinds 1. Technical estoppel a. By record

-the preclusion to deny the truth of matters set for him arecord, whether judicial or

legislative and also to denythe facts adjudicated by a court of competent jurisdiction

example: the conclusivenessof a judgment on the parties

to a case b. By deed –

-a bar which precludes one party to a deed and his priviesfrom asserting as against the other party and the otherparty or from denying the truth of any material facts asserted in it.

Art. 1433. Estoppel may be in pais or by deed.

3. Equitable estoppel or estoppel in pais – Art. 1433

-applied to a situation where because of something he hasdone or omitted to do, a party is denied the right to plead or prove an otherwise

important fact

C. Persons bound – Art. 1439. Estoppel is effective only as between the parties thereto or their successors in interest.

D. Cases where estoppel applies – Arts. 1434-1438

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.

-a person who sellsproperty when he did not have title to it, cannot deny validity to the sale afterhe has acquired title

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.

Art. 1436. A lessee or a bailee is estopped from asserting title to the thing leased or received, as against the lessor or bailor.

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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.

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.

TITLE V. TRUSTSChapter I. General Provisions

A. DefinitionTrust is the legal relationshipbetween one person having anequitable ownership in propertyand another person owning thelegal title to such property, the equitable ownership of theformer entitling him to the performance of certain dutiesand the exercise of certain powers by the latter

-a fiduciary relationship withrespect to property subjectingthe person holding the sameto the obligation of dealing with the property benefitof another person

B. Governing rules – Art. 1442. The principles of the general law of trusts, insofar as they are not in conflict with this Code, the Code of Commerce, the Rules of Court and special laws are hereby adopted.

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, who establishes orcreates trust

2. Trustee, who holds the propertyin trust

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[ C 2011 ] [ UP COLLEGE OF LAW ] 3. Beneficiary or cestui que ,

the person for whose benefitthe property is held by the trustee

4. Trust property, which is heldby the trustee for the beneficiary

D. Kinds – Art. 1441. Trusts are either are created by the intention of the trustor or of the parties. Implied trusts come into being by operation of law.

1. Express Trusts a. Proof required –

Art. 1443. No express trusts concerning an immovable or any interest therein may be proved by parol evidence.

b. Form – Art. 1444. No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended.

- it is possible to create a trust without using the word ‘trust’ or ‘trustee’. The mere fact that these words are useddoes not necessarily indicatean 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.

-equity will not allow a trustto fail for want of a trustee isclearly established

d. Acceptance by the beneficiary

– 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.

2. Implied Trusts a. How established – Art. 1441 b. How proved –

Art. 1457. An implied trust may be proved by oral evidence.

c. Examples – Arts. 1448-1456Art. 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 donee, 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 its 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

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[ C 2011 ] [ UP COLLEGE OF LAW ]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 toward the grantee, a trust by virtue of law is established. If the fulfillment of the obligation is offered by the grantor when it becomes due, he may demand the reconveyance of the property to him.

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.

-mutual mistake

Why you must know the difference among trusts?

-If the person to whom the title is conveyed is a child, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child.

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